NSE F&O turnover drops as FIIs turn less active

The recent decline in turnover in equity futures and options (F&O) on the National Stock Exchange appears to have been led by low participation of foreign institutional investors (FIIs), an analysis by FC Research Bureau revealed. Average daily turnover in the futures and options (F&O) segment of NSE dropped to a 17-month low in January, as benchmark indices jumped over 11 per cent.

Figures available with Bloomberg showed FIIs’ gross turnover in index options, which includes both gross buy and gross sales, nearly halved to Rs 4,66,742 crore in the first month of 2012 from Rs 8,01,959 crore in December 2011.

According to NSE data, average daily turnover in the F&O segment fell to Rs 1,06,180 crore, the worst since August 2010 when month daily average turnover in the F&O segment was below Rs 1,00,000 crore (Rs 93,351 crore).

Total contracts for January stood at 8.23 crore, far less that 11.67 crore contracts seen in the preceding month.While the total turn-over in index options plunged 33.76 per cent to Rs 13,96,704 crore in January from Rs 21,08,751 crore in December 2011, total turnover in index futures plummeted 28.60 per cent to Rs 2,19,317 crore in January from Rs 3,071,98 crore in the preceding month.

Experts believe FIIs were partly responsible for the drop in turnover in index futures and index options. “Foreign funds have not churned portfolio in January as much as they did in the preceding month. In December, funds were seeing churning in every day or two, which was not the case this month. As we have seen a secular rally this month, we believe funds trading in the options segment have stayed long on their positions,” said Deven Choksey, managing director at KR Choksey Securities.

Alex Mathews of Geojit BNP Paribas said: “Most bears were expecting a correction early January. However, we saw a decent upward move over the past 14-15 sessions. And I believe, the bears among the FIIs and domestic players preferred to remain on the sidelines.”

In the index futures segment, the turnover of FIIs declined to Rs 76,000 crore in January from Rs 93,027 crore in the previous month. Prakash Diwan, head of institutional clients group at Asit C Mehta, said: “It seems the focus has shifted to the cash segment from the index F&O segment.”

The drop in F&O turnover has been accompanied by a drop in volatility as suggested by India VIX, a measure that uses index options as a base to measure risk.

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