Mapping the share: The big and small of equity market turnover

The turnover distribution for the equity cash segment shows over 90 per cent of the investors trade for shares worth more than Rs 10 lakh during a month. But these investors account for just 8 per cent of the total turnover.

Similarly, in the index options segment almost 80 per cent of the investors clock turnover of less than Rs 10 lakh. Meanwhile, remaining investors who clock turnover of between Rs 10 lakh and Rs 10 crore are the real volume generators both for the cash as well as the derivatives segment.

The data point assumes significance amid buzz that market regulator Securities and Exchange Board of India (Sebi) is debating a proposal on whether to increase the ticket-size for the options segment.

A working group has been set up to make recommendations to address concerns on retail losses in the derivatives segment and is yet to deliberate on the suggestions and finalise its report.

“We have some global precedent for derivatives regulations in Korea (options) and China (futures). Regulatory interventions had a crushing and lasting impact on volumes in both countries. The US is going through a few similar challenges as India, leading to consultations (and enforcement actions) regarding the level of duty to be placed on self-directed apps and to minimise harm for retail traders,” noted Kotak Institutional Equities in its report.

The analysts point to the key issue about the accessibility of such a complex product with a very high probability of incurring losses.

“Option is by far the most complex product and yet has the lowest cost (both in terms of ticket size and transaction costs), with the highest leverage to the underlying spot. Hence, an increase in the lot size when combined with fewer weekly expiries could be a feasible solution,” the report added.

Another market player said that the working group may mull over increasing the transaction charges to deter retail participation. Limiting weekly expiries, increasing margin requirements, reduction of strike prices, and upfront collection of premium are other proposals on the table.