Derivatives Pip Cash Market In May

The combined average daily turnover in the derivatives segment on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) increased in May 2002 over levels in April 2002, while turnover in the cash market remained unchanged.

The average daily turnover in the derivative segment of the two exchanges surged 9.3 per cent in May 2002 to Rs 1,078.22 crore compared to Rs 986.37 crore in April 2002. This was against the marginal 0.85 growth in the cash market to Rs 3,767.26 crore in May 2002 from Rs 3,735.69 crore in April 2002.

Indeed, a pick up in derivatives volumes reflects a surge in speculative activity especially when the outlook in the cash market was clouded by war concerns.

Deven Choksey, managing director, K R Choksey said in "the current scenario, investors are playing safe and instead of taking direct positions ( in the cash market), they are preferring a quick entry and quick exit." There is some amount of hedging of portfolio against the uncertainty, he added.

Interestingly, the derivative turnover had climbed by 15.4 per cent from that at the start of the calendar year (January 2002), while the cash market turnover has dipped 20 per cent in the same period.

Market observers add the driving factor behind the higher turnover in the derivatives market is the overall requirement of finance. A lesser need for funds in derivatives is driving more people to take larger positions and avail the benefit of carryforward. In the cash market, operators have to put up the full 100 per cent of funds and they do not get any chance to carry forward their positions. The cash market operates on a T+3 settlement cycle.

The increase in average daily turnover had been across the board with all four products reporting an increase in turnover in May compared to April 2002.

The combined average daily turnover in index futures increased to Rs 90.63 crore from Rs 75.32 crore in April 2002. Similarly, the average daily turnover in Index options climbed from Rs 17.34 crore in April to Rs 20.57 crore in May 2002. Higher turnover in options was the obvious consequence of higher volatility in the market during the month.

The turnover in individual stock options increased 13.03 per cent to Rs 234.87 crore in May 2002. The average daily turnover in stock futures crossed the Rs 700 crore mark at Rs 731.89 crore in May 2002 from Rs 685.66 crore a month earlier.

In options, the turnover was tilted more towards the call options than put indicating for a bullish approach.