Indian equities trading experienced a significant slowdown in FY26, marked by declining cash market turnover and sluggish derivatives growth, as regulatory tightening, weak market performance, and new tax hikes continue to reshape the investment landscape.
Key Points
- Domestic equities trading activity moderated in FY26, with a 6% year-on-year decline in cash segment ADTV and modest 4.6% growth in F&O, while NSE's F&O turnover fell 18%.
- Regulatory changes, including the 'one exchange, one weekly expiry' framework and stricter margin requirements, have impacted derivatives participation.
- Weak market performance, with Nifty 50 declining 5.1% and Sensex 7.1% in FY26, also contributed to dampened cash segment activity.
- Upcoming RBI norms on bank guarantees, effective July 1, are expected to tighten leverage and could reduce derivatives volumes by 8-10%.
- A recent hike in Securities Transaction Tax (STT) on derivatives is anticipated to shift trading preferences towards options, where the tax burden is comparatively lower.
Domestic equities trading activity moderated in financial year 2025-26 (FY26), with a decline in cash market turnover and subdued growth in derivatives, as regulatory tightening and weak market performance weighed on volumes.
Average daily turnover (ADTV) in the equity cash segment for both the NSE and the BSE fell 6 per cent year-on-year (Y-o-Y) to Rs 1.13 trillion, down from Rs 1.21 trillion in FY25.
In contrast, combined ADTV in the futures and options (F&O) segment across exchanges rose a modest 4.6 per cent to Rs 447 trillion.
However, activity on the NSE showed signs of strain, with F&O turnover declining 18 per cent.
Regulatory Impact on Derivatives
A series of regulatory changes over the past 18 months — including the "one exchange, one weekly expiry" framework, stricter upfront margin requirements, and higher lot sizes — have weighed on derivatives participation. Industry players don't rule out further softening in trading volumes in FY27.
Market performance also remained a drag.
The Nifty 50 declined 5.1 per cent during FY26, while the Sensex fell 7.1 per cent, dampening activity in the cash segment.
Even as overall volumes softened, average trade sizes increased across exchanges, indicating a shift towards higher-value trades.
On the NSE, average trade size rose to Rs 31,545 from Rs 29,046 a year ago, while on the BSE, it climbed to Rs 22,822 from Rs 18,720.
According to HDFC Securities, the BSE has emerged as a relative gainer amid the regulatory transition.
Its notional market share rose from 38 per cent in September 2025 to 44 per cent in March 2026, while its share in options premium increased from 24.4 per cent to 26.1 per cent, despite the shift in weekly expiry to Thursday.
Upcoming RBI Norms and STT Hike
With most Securities and Exchange Board of India (Sebi)-led reforms now absorbed, market participants are turning their attention to upcoming changes from the Reserve Bank of India (RBI), which could further impact volumes, and also the hike in securities transaction tax (STT), which came into effect from Wednesday.
The RBI's revised norms on bank guarantees — effective July 1 — are expected to tighten leverage in the system.
Nearly 35 per cent of industry margins are currently backed by fixed deposits and bank guarantees.
"Assuming half of these are pure bank guarantees, and applying a 50 per cent impact, the resulting effect on derivatives volumes is estimated at about 8-10 per cent," HDFC Securities said in a report.
Devesh Agarwal, vice president at IIFL Capital, said the impact could play out gradually.
"While profitability of proprietary traders may decline, activity levels may not fall proportionately.
"Volumes could drop 10-15 per cent in the near term as leverage reduces, with the adjustment spread over six to nine months," he said.
Impact on Trading Preferences
The tighter norms are aimed at curbing excessive leverage by requiring brokers, proprietary traders, and clearing members to post higher-quality collateral.
The RBI has, however, provided some relief by removing restrictions on lending to market makers against the same securities, and allowing funding for proprietary trading only against 100 per cent cash or cash-equivalent collateral.
Meanwhile, the STT hike on derivatives may alter trading preferences.
Analysts expect a shift towards options, where the tax burden remains relatively lower.
"In futures, around 40 per cent of trading cost is attributable to STT, compared with 8-9 per cent in options.
"With the latest hike, futures trading becomes significantly more expensive, which could drive a shift towards options," said Amit Chandra of HDFC Securities.
STT on futures has been raised from 0.02 per cent to 0.05 per cent of traded value.
For options, the tax on premiums has increased from 0.1 per cent to 0.15 per cent, while the levy on exercise has been raised from 0.125 per cent to 0.15 per cent of intrinsic value.
Market participants noted that while options volumes have historically been resilient to tax increases, futures could see a sharper impact.
"We did not see a meaningful impact on options volumes after the 60 per cent STT hike in October 2024, suggesting that volatility and opportunity drive activity more than costs.
"However, the 150 per cent increase in futures STT this time could weigh on volumes and accelerate the shift towards options," Agarwal said.
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