The hike in margins on derivatives trades, set to take effect from Monday, is expected to hang heavy on the market this week.
Brokers said investors and traders were cutting their exposure to the futures segment to contain the margins payable.
Simultaneously, investors are refraining from taking fresh positions at this juncture.
The exposure margins-the second line of defence for stock exchanges-have been hiked from 15 per cent to 18 per cent in key scrips like ACC, Andhra Bank, Digital Equipment, Mastek, Polaris, Satyam Computer, State Bank of India, Syndicate Bank, Tata Steel and Canara Bank.
The market's biggest concern remains the Rs 8,900 crore (Rs 89 billion) outstanding position on the National Stock Exchange's futures and options segment. "We could see further correction in the market in the next two days," said Ashok Mittal, head of derivatives trading at brokerage house SSKI.
Jitendra Panda, vice-president, Motilal Oswal Securities, said: "We may see volatility in the first half of the week as stiff margins take their toll. Players may exit certain stocks and concentrate on fewer scrips." He added that this, in the long run, was good for the market because quality would improve and fresh retail money would come in.
Much of the tail-end correction in the market last week is attributed to the anticipation of increased margins and reductions in existing exposure by brokers from tomorrow.
This also saw the Bombay Stock Exchange (BSE) Sensex slipping below the psychological 5,000-mark on Friday following increased selling in blue-chips. The Sensex shed 76 points on Friday to settle at 4,971.57.
The National Stock Exchange has also tightened exposure norms and imposed intra-day trading limits. Gross turnover will not be permitted to exceed 25 times the base capital, including cash deposit and other deposits in the form of securities or bank guarantees with the Clearing Corporation of India and the NSE, even in intra-day trades.
This is applicable to almost the entire basket of securities available in the futures and options segment with effect from tomorrow. Earlier, the limit was 33.33 times the base capital of the trading member.
"The increased cost of trading may act as a deterrent to players looking to make a fresh entry in the market now," said IDBI Capital Market's futures and options report for the week ended November 8.
In fact, the cost of carry across several stocks, including Reliance Industries, Satyam Computers, Infosys Technologies, Tata Motors and Tata Steel, has increased significantly in the last two or three trading sessions.
Market analysts believe that the trend of high cost of carry rates is likely to stay as exchanges demand higher margins in the derivatives segment. The cost of carry indicates the demand-supply forces in the futures market.
It means that the annualised interest cost players decide to pay, or receive, for buying, or selling, a respective contract. A higher carry cost is indicative of buying pressure and vice versa.
Expecting a correction
- Investors and traders are cutting their exposure to the futures segment to contain the margins payable.
- Investors are refraining from taking fresh positions.
- The market's biggest concern remains the Rs 8,900 crore outstanding position on the NSE's futures and options segment.
