Foreign index-based derivatives languish even as indices hit new highs

Average daily volumes of the three foreign index- based indices on NSE cumulatively account for less than Rs 60 cr in turnover so far in March

When it comes to index derivatives, Indians seem to like to stick to their home turf.

Average daily volumes of the three foreign-index- based indices on the National Stock Exchange cumulatively account for less than Rs 60 crore in turnover so far in March.

This translates into 0.07% of Nifty derivatives, which has a daily average turnover of Rs 81,716.50 crore.

This, even as foreign indices hit all-time highs.

The Dow Jones Industrial Average, an index of 30 American blue-chips, hit an all-time high on 14,397.1 on Friday.

The Standard & Poor's 500 (S&P 500) index, which tracks over 500 US companies, also hit an all-time high on Friday, closing at 1551.18.

The FTSE 100 index, which is a benchmark for large-cap companies based out of the United Kingdom and listed on the London Stock Exchange, closed at 6,483.58. This is its highest level since December 2007.

The National Stock Exchange’s Nifty is currently trading at 5,945.7, or 192.9 points off its all-time high of 6,138.6 of December  2007.

Siddharth Bhamre, Head Derivatives at Angel Broking noted that volumes have been miniscule despite recent outperformance against domestic indices.

“There is little open interest in these instruments although they are really good platforms to diversify country-risk. On a year-to-date basis they have given much better returns than the Nifty,” he said.

Interestingly, even the trickle of turnover in March, has pushed their volumes into multi-month highs.

The volumes for the FTSE100 contract are at Rs.8.91 crore, a five-month high,

The volumes for the Dow clocked Rs.38.52 crore so far in March, a twelve month high.

Volumes on the S&P 500 was marginally down at Rs.11.88 crore so far in March, after hitting an eleven-month high of Rs.12.09 crore in February.

Contracts based on foreign indices began trading on the National Stock Exchange in August 2011. The FTSE 100 began trading in May 2012.

Jitendra Panda, head of broking at Capital First stated that there is a lack of investor awareness about the product, but is still hopeful of a pick-up.   

“It lacks liquidity…but these instruments should be looked at.  Brokers should educate investors. Earlier there was a time when people hardly traded on Nifty index derivatives, this has now grown tremendously,” he said.