Mumbai : Irrespective of investor inflow through Systematic Investment Plan (SIP) crossing 13,000 crore in February for the fifth consecutive month, the cash market turnover fell 20% during FY23. Meanwhile, the notional value of derivatives has more than doubled due to persistent volatility, reduced delivery volumes and regulatory restrictions that drive traders into derivatives instead of cash trading.
The average daily turnover in the cash market in FY23 (as on March 22) is 53,564 crore, down about a fifth from 66,799 crore in FY22. Average daily derivatives turnover more than doubled over the same period 152 trillion a day, hypothetically 68.3 trillion. Even if the premium turnover of options is considered, there has been a jump of 10% in the total turnover of derivatives 1.61 trillion in FY23, from 1.46 trillion in the last financial year.
Nitin Kamath, Founder Nitin Kamath said, “The market has corrected from a flat to lower market liquidity, while derivatives volumes have increased, as intraday traders shift from the cash market to the F&O (futures and options) segment.” where broker leverage has also been capped. and CEO of India’s largest stockbroker Zerodha.
Against a gain of 19% in FY22, the Nifty is down 2.22% so far this year at 17,076.9 as of Thursday. A SEBI rule that came into full force in the second half of 2021 mandated that clients trading in the cash market would compulsorily put up 20% upfront margin, which was earlier funded by brokers. The move was aimed at mitigating systemic risk by protecting the market against broker default, which occurs when clients fail to pay in the event of their trades going bad.
Kamlesh V. Shah, president of the Association of National Exchange Members of India (ANMI), an all-India brokers’ body, said, “There are several reasons for the sharp drop in cash market volumes.” The main reason for intra-day trading in cash is in the derivatives segment, where volumes have increased. To be sure, SEBI’s rule on upfront margin is a good step to protect the integrity of the market,” said Shah. Shah also added that trading in Nifty Weekly Options is a cheap and effective way of risk management.
The futures and options segment is used by foreign portfolio investors, domestic institutional investors and some high net worth individuals (HNIs) to hedge their cash market portfolios. Their risk is transferred to proprietary traders and other HNIs, who take contra positions based on informed decisions, said SK Joshi, executive director, Khambata Securities.
Investing in mutual funds through SIP has been above average 13,000 crore every month from October 2022. However, the share of individual investors in total NSE turnover fell 434 basis points (one basis point is one hundredth of a percentage point) to 37% in April-January FY23 from a year ago.
