Volatility in stock markets ahead of the Budget session has made stock exchanges cautious. The NSE has tightened margin requirement on several stocks and is asking for extra cash from some of the large traders holding huge long positions in the derivative segment.

Benchmark indices Sensex and Nifty have gained nearly 32 per cent since January 2016 and it is the first time in over a decade that India’s stock markets will go into a Budget session — the last one of the current government before the 2019 general elections — at historical levels.

Last time when Sensex and Nifty hit these levels in terms of price-to-earnings multiple — in 2000 and 2008 — they witnessed a sharp meltdown ahead of the Union Budget, something which seems like a daydream this time but regulators are not taking chances, a source said.

Risk containment

“All large derivative players generally have huge outstanding positions as contract expiry nears and the move of raising margins could have been delayed by a couple of more days to avoid chaos,” said Rishi Kholi, MD & CEO, ProAlpha Capital.

“Also, margin requirement has been asked to be met immediately instead of the usual practice of giving a few days to comply with it.”

Traders carrying huge long positions have got notice from stock exchanges to cough up at least 20-30 per cent additional margin immediately. It is part of risk containment and surveillance meeting with the regulator, a letter from one of the exchanges received by a trader said. The letter further states that levy of additional surveillance margins on a clients’ open positions are the result of stress-testing that considers the worst case loss.

In the NSE’s derivative segment, the risk margin has been raised in 37 stocks. Some of the punters’ favourites include Raymond, DHFL, Jet Airways, Jubilant FoodWorks, JP Associates, Reliance Capital, Reliance Infra, DLF, Century Textile and Reliance Communications, among others.

Where the market wide position limit — simply put, total trading limit on outstanding stock — is more than 90 per cent, the margins have been raised by 300 per cent. That means, a trader earlier playing such a stock with 40-60 per cent margin will now have to keep between 120-160 per cent margin money.

Similarly, margin requirements have been raised in various other slabs between 50-90 per cent. This is one of the chief reasons for the ongoing rally in some of the small- and mid-caps to have cooled off in the past couple of trading sessions, despite the raging bull run in the Sensex and the Nifty.

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