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India kicks off stock futures, brokers upbeat

Stock futures trading began on Friday on India's two largest bourses, stoking hopes for an upturn in volume which has plunged since carry-forward trading was banned in July.

Traders expect the new stock futures in 31 stocks will revive speculative trading interest on India's liquidity-starved markets. Total volumes have fallen to a fifth of the level prevailing before the century-old and popular carryforward or "badla" system was abolished in July.

"A lot of people had moved to the sidelines after the ban on carry forward. They should return to the market with the start of stock futures," the head of dealing at a Delhi-based brokerage said.

Dealers expect trading volumes, both in the cash and the derivative markets on the Bombay and National Stock Exchanges, could pick up by 15 to 20 per cent in the next few days.

Yet brokers said initial trading was light as investors awaited clearer trends in the cash market before pouring money into the futures market.

"There is lot of interest, but we don't expect big orders today," said Vineet Bhatnagar, managing director of Refco Securities. "Investors would wait for the spot market to stabilise."

The bellwether Bombay Stock Exchange 30-issue Sensitive index has risen nearly 20 per cent from an eight-year low hit on September 21.

But it has repeatedly met resistance between 3,060 and 3,100 points, or the level before the stock market crash that followed the September 11 attacks in the United States.

At noon on Friday, the index was up 0.59 per cent at 3,078.16.

Better than others

Brokers said the similarity of stock futures to badla, which was extensively used by Indian brokerages, will help it do better than the other derivative products in the Indian market.

"After having worked with the badla system for years, there is an intuitive feel among brokers about stock futures," Bhatnagar of Refco said.

The badla system, which allowed investors to carry forward trades for 90 days without paying for the securities, accounted for 90 per cent of trading volume at one time.

The regulator banned badla from July as it was thought to have accelerated a stock market slide in March that wiped out 1.5 trillion rupees in investor wealth, or a fifth the value of the Indian market, in just two months.

Ahead of the start of individual stock futures trading, Indian markets had begun offering other derivative instruments, specifically index-based futures and options and options in 31 stocks.

But brokers said volumes failed to pick up because those derivative products did not allow brokers to carry forward trades, as they could under badla.

Stock futures, like any other deferred product, will allow traders to carry forward positions and allow an investor to take a position in the stock by paying only a set per centage, or margin.

Kavi Kumar, president of online brokerage Indiabulls, said the popularity of individual stock futures could undermine other derivative products.

"As volumes pick up in the futures market, we could see money diverted from the options and index derivatives markets."

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