NSE futures volumes take a hit on rising peak margins

Mumbai: Impacted by higher margins on intraday index and stock futures trades, speculators have begun shifting their trades to the relatively cheaper options counters amid a raging bull market, which has driven the Nifty to a record high past 15,700.

The so-called peak margin for intraday trades rose to 75% of the minimum margin on stock and index futures from June 1 and will stay that way through August end, after which it will increase to100% of the minimum margin for trading a futures lot on Nifty, Bank Nifty or stock futures.

This will bring the extra leverage — contract value divided by the margin — that intraday traders enjoy currently on a par with what a positional trader gets from her broker, raising concerns of a volume decline with passing time. Analysts estimate 80% of daily exchange volumes arise from intraday trades.

That speculators have begun the shift to index and stock options is evident from the rise in average daily turnover (ADT) and contracts traded on the NSE’s derivatives segment — options and futures — by 6.1% and 1.25% respectively in June so far from the ADT and contracts traded over the preceding three months, even as futures volumes and contracts plummeted over the comparative period.

The ADT of total derivatives rose to Rs 47.53 lakh crore over the four sessions of June from Rs 44.78 lakh crore from March to May. The number of contracts traded rose to a daily average of 4.85 crore from 4.79 crore.

However, the ADT of index futures and the average number of contracts traded posted sharp 38.5% and 41% declines respectively to Rs 23,002 crore and 2.32 lakh contracts traded in June from the preceding three months. Stock futures’ ADT similarly slipped almost 17% to Rs 68,809 crore while contracts traded dipped 12% to 8.4 lakh over the comparative period.

“The rise in total derivatives volumes (in June) amid the fall in the futures segment makes it abundantly clear that punters have shifted to index and stock options from index and stock futures,” said Rajesh Palviya, derivatives head, Axis Securities.

“The total volumes and numbers traded haven’t yet fallen as we are in a raging bull market and some shifting to options seems to have happened,” said Rajesh Baheti, managing director of Crosseas Capital.

However, others like Nikhil Kamath, co-founder of the country’s largest brokerage Zerodha, expect the derivatives volumes to be impacted from September when the peak margin on intraday trades rises to100% of the minimum margin. “We are modelling for a 20-30% decline in volumes when100% peak margin is required; it will also lead more participants to move away from futures contracts to options,” Kamath said.