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Stocks that are to be expelled from the future and options (F&O) segment witnessed heavy selling pressure this month. In April, the National Stock Exchange (NSE) issued a list of 34 securities, which included Jet Airways, Jain Irrigation and PC Jeweller, to be removed from derivatives as they failed to meet the criteria laid down by the Securities and Exchange Board of India (Sebi) and exchanges.
Barring two, stock prices of all the 34 securities have fallen this month by an average 11 per cent even as the benchmark Nifty has gained marginally. Worst-hit have been the companies with high debt and uncertain business outlook. Shares of Jet Airways, which has grounded operations after running out of cash, had seen its stock price tumble by over 50 per cent since April 23, when the NSE issued the expulsion list. Shares of Jain Irrigation and PC Jeweller, too, have fallen more than 50 per cent in the past two months.
Stocks that are part of the derivatives segment don’t have any trading restrictions such as circuit limits and compulsory delivery. As a result, they are a fertile hunting ground for traders. Experts say F&O expulsion led to the unwinding of speculative bets in these counters, which led to huge gyrations in the stock prices.
“Whenever any stock is removed from the F&O segment, liquidity becomes scares in the counter. Typically, any stock that is traded in derivatives sees a lot of activity due to hedging and arbitraging,” says Chandan Taparia, derivative analyst, Motilal Oswal. “The overall weakness in the broader market due to the concerns surrounding crisis at non-banking finance companies (NBFCs) could have added to selling pressure on stock removed from derivatives.”
Barring two, stock prices of all the 34 securities have fallen this month by an average 11 per cent even as the benchmark Nifty has gained marginally. Worst-hit have been the companies with high debt and uncertain business outlook. Shares of Jet Airways, which has grounded operations after running out of cash, had seen its stock price tumble by over 50 per cent since April 23, when the NSE issued the expulsion list. Shares of Jain Irrigation and PC Jeweller, too, have fallen more than 50 per cent in the past two months.
Stocks that are part of the derivatives segment don’t have any trading restrictions such as circuit limits and compulsory delivery. As a result, they are a fertile hunting ground for traders. Experts say F&O expulsion led to the unwinding of speculative bets in these counters, which led to huge gyrations in the stock prices.
“Whenever any stock is removed from the F&O segment, liquidity becomes scares in the counter. Typically, any stock that is traded in derivatives sees a lot of activity due to hedging and arbitraging,” says Chandan Taparia, derivative analyst, Motilal Oswal. “The overall weakness in the broader market due to the concerns surrounding crisis at non-banking finance companies (NBFCs) could have added to selling pressure on stock removed from derivatives.”
