• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest
• The New Manager

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

Derivatives turnover crosses Rs 60,000 cr; stock futures trading up

Lokeshwarri S. K.

Indian markets have been on a roll for the last one month. With the Sensex rising past the psychological barrier of 15,000, the investor optimism has been on a high as well. This factor is well reflected in the soaring turnover on the exchanges.

The National Stock Exchange recorded an all-time high turnover of Rs 85,180 crore on Wednesday.

A large part of this surge on Wednesday was caused by the turnover in the derivative segment of Rs 72,365 crore. The only time that the NSE derivatives turnover exceeded Rs 60,000 crore, prior to this month was in April 2006.

The turnover recorded on Wednesday was more than double the 12-month average traded turnover of Rs 30,200 crore.

Turnover in the cash segment on NSE is also reaching a crescendo.

But it has not yet reached the frenzied levels recorded prior to the May 2006 crash.

The turnover of Rs 12,814 recorded on Wednesday is way below the peak of Rs 16,116 recorded in April 2006.

Though it is the norm for the daily traded turnover to peak in the F&O expiry week, the burgeoning open interest (the total un-liquidated contracts at the end of the day in the derivative segment) that is currently nudging the Rs 100,000-crore mark is a cause for concern.

The fact that investors are building positions at these levels indicates that they are optimistic of the markets moving higher in the near future.

An adverse movement by the market can lead to unwinding of these positions, thus, exacerbating a fall.

Another worrying aspect of this heightened activity in the derivatives market is the greater trading taking place in stock futures.

We have pointed out previously that the low volume in stock futures leading to July 2007 was a consoling factor as it pointed towards greater participation by the large institutional players who mainly use derivatives to hedge their cash market purchases.

But with the return of the retail investors to the stock markets, the stock futures segment has been witnessing greater turnover in the second half of July.

The turnover in the stock futures segment crossed Rs 40,000 crore on Tuesday. The average traded turnover in this segment in 2007 has been only Rs 17500 crore.

Given the way in which the unrestrained speculation by retail investors in the stock futures made the Sensex plummet 30 per cent in May 2006, while the other global markets lost just 10 to 15 per cent, this increased activity in the stock futures is not a welcome development.

More Stories on : Stock Markets | Stock Exchanges

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Wet cover blanks central India

Copyright © 2007, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line