Fourteen new stocks have been added to the futures and options (F&O) segment in the last one week as investor interest in stocks of the mid and small-cap segment picks up pace.
Ceat, Oil India, Dewan Housing Finance, Bajaj Finance, Page Industries and Pidilite Industries are among the recent inclusions into the derivatives segment, as per notices on the exchanges.
Typically a stock, the value of its trades and its trading activity patterns are monitored for about six months before the stock gets added to the F&O list. Market participants said that the rising activity and demand for stocks in the mid- and small-cap segment had led to an increase in trades in such stocks.
"In the last rally stocks like CEAT, Dewan Housing Finance and Oil India, despite being good stocks, could not find their way into the F&O segment because of low activity in them. But this time around, investors are showing an interest in these stocks and others in the mid and small-cap categories which has allowed them gain entry into the segment," said Dharmesh Kant, AVP-strategies and fund manager (PMS), IndiaNivesh Securities.
Participants explained that the inclusion of a stock in the F&O category gives a boost to its liquidity participation by traders and investors in the stock increase. A futures position or an options call on the stock acts as a hedge against the stock in the cash segment for the investors and traders and helps in the price discovery of the stock, they said.
When a stock moves into the F&O segment, it can help investors create short or long positions and initiate a hedging mechanism. Through such bullish and bearish views, a realistic price of the stock can be found out as then even those who do not own the stock in the cash segment can take positional calls on it," said Alex Mathew, head of research, Geojit BNP Paribas Financial Services.
As per exchange rules, for a stock to be eligible for the F&O segment, the median-quarter sigma order size, defined as the value-size that an order needs to achieve to cause a change in the stock price, should not be less than Rs 1 million over the last six months. Further, the market-wide position limit for the stock should be at least Rs 300 crore. Also, the stock has to necessarily be a part of the top 500 stocks in terms of the average daily market capitalisation.
India is one of the few countries in the world which has an active stock futures market. As per data from the World Federation of Exchanges (WFE), stock options are the more popular financial tool used by investors and traders especially in geographies like the US and parts of Europe which are very liquid markets.
Data from WFE shows that the National Stock Exchange of India (NSE) is the largest in terms of volume with over 6.7 crore stock futures contracts traded in the first four months of the year. It is second only to the Moscow Stock Exchange which saw 7.5 crore contracts traded till April this year.
At USD 345, 689, NSE clocked the second highest notional turnover in the stock futures segment, after the ICE Futures Europe Exchange which saw a notional turnover of USD 818,251.
Industry experts said that the currency arbitrage available in the stock futures segment is what lends to its popularity in India. Hedge funds are among the largest players in this segment, they said.
"These funds are able to buy in the cash segment and sell in the futures segment and the price differential helps them create a currency arbitrage which is missing in places like US where the stock price is also in USD. This arbitrage is largely exploited by the hedge funds in India," said Kant.
No comments:
Post a Comment