SENSEX DROPS 1.2% OVER FRESH BOND MARKET JITTERS
In February, cash segment turnover stood at a record ~88,497 crore
The Indian markets shed over 1 per cent on Thursday, after surging close to 5 per cent in the previous three sessions, amid fresh jitters in the bond market. The Sensex fell 1.16 per cent, or 599 points, to end at 50,846. In the previous three sessions, the index had jumped close to 2,345 points, or 4.8 per cent. The Nifty fell 165 points, or 1.1 per cent, to end at 15,081. The 10-year US Treasury note was seen inching towards the 1.5 per cent mark, making a dent in risk appetite.
The overall derivatives and cash turnover on the exchanges has surged to record highs over the past few months, amid surging volatility and greater institutional participation, especially from foreign investors.
The daily average turnover in the futures & options (F&O) segment for February stood at ~45.5 trillion — a 19 per cent gain over the previous month, and 127 per cent higher than the average turnover clocked in the last calendar year, showed the exchange data. The average turnover has, in fact, seen a sustained month-on-month rise since April last year.
Turnover in the cash segment for February stood at ~88,497 crore — also a record. This is 55 per cent higher than the average turnover seen last year.
February was characterised by wild swings, with gains of 6 per cent for the indices. A growth-focused Union Budget, coupled with easy liquidity globally, led foreign portfolio investors to purchase stocks worth nearly ~22,000 crore, even as domestic institutional investors offloaded shares worth ~16,575 crore during the month, showed the data compiled by BS Research Bureau.
B Gopkumar, MD and CEO of Axis Securities, said increased institutional participation and higher volatility have contributed to the increase in market turnover, both in cash and F&O. “Retail and high net-worth participation, particularly in the mid- and small-cap segments, have seen a surge. Delivery volumes, too, have spiked in the past few weeks,” he said.
“The surge in volatility has led to a lot of options writing,” added Sandip Raichura, CEO (retail), Prabhudas Lilladher.
Last month’s Budget guided for a 28 per cent increase in government expenditure, balanced by divestment and monetisation of public sector enterprises. “We look for earnings per share to grow on average over 25 per cent over the next 3 years. It would be unprecedented for the stock market to fall in an environment of such strong growth. We change our stance on India from market-weight to overweight and see 15 per cent upside from the current levels with a Sensex price target of 58,450,” said foreign brokerage Julius Baer, in a recent note. The brokerage, however, cautioned that earnings recovery forecast by analysts needs to be sustained to justify current levels.
Credit Suisse, on its part, also has a constructive outlook for Indian equities from a medium-term perspective. “We recommend investors to focus on buying the dips with a preference for cyclical sectors over defensives. While we expect the overall earnings still have some headroom to surprise positively, risks arising from rising cost headwinds and yields should be monitored closely,” it said in a recent note.
Retail participation in the F&O segment, especially on weekly and monthly expiry days, however, has been affected owing to peak margin norms, which became effective from December 1, 2020. It remains to be seen if the turnover will get significantly impacted in Phase 2, which began on March 1.
Experts expect a 20-30 per cent decline in retail derivatives volumes in Phase 2. Peak margin rules dictate a short-margin penalty — ranging from 0.5-5 per cent of the shortfall per day — if brokers fail to secure the minimum margin for intraday positions. From March 1, penalty will be levied if margin blocked is less than 50 per cent of the minimum margin required.
February was characterised by wild swings, with gains of 6 per cent for the benchmark indices