Friday, July 1, 2011

Markets show a declining trend in F&O

(Source: NSE India)

Over the last 6 months, the markets has shown a declining trend in Futures and Options segment, which can be clearly observed by the reduction in daily average number of total contracts traded from 4.94 million to 4.12 million, a fall of 16.4%. While the turnover has reduced from daily average turnover of 1.42 lakh crore to 1.1 lakh crore, a fall of 22%.

As a result of this declining trend, there has also been a change in distribution of the total contracts traded.

(Source: NSE India)

As observed in the pie chart on the distribution of no. of contracts, there was a noticeable but mild shift from Futures to Options. While Index Options constituted 68% of the total contracts in Jan 2011, it now constitutes about 72%, the shift has occurred because of investors changing their strategy by having more exposure in Options than in Futures.

(Source: NSE India)

This observation is also substantiated by the fact that though the Index Futures average number of contracts per day has fallen by 33.5%, index options has fallen by just 12%. Even the fall in Stock Futures is more than the fall in Stock Options though by not the same magnitude as Index Futures and Options.

The observation does give a cautious outlook for the markets ahead in the F&O segment.