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Sebi's proposed tweaks likely to lead to big churn in F&O stocks

By Khushboo Tiwari
June 11, 2024 14:52 IST
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The market regulator’s newly proposed selection criteria for the over Rs 400-trillion-a-day futures and options (F&O) market could pave the way for the entry of popular stocks such as Life Insurance Corporation (LIC) of India, Jio Financial Services, Zomato, Paytm, DMart, and Adani Energy into the derivatives segment.


Photograph: Francis Mascarenhas/Reuters

The Indian derivatives market, which accounts for most of the trading volumes, could see big churn with over two dozen exits from the current list of 182 stocks due to an upward revision in the eligibility thresholds.


According to analysts, about 77 new names may secure positions in the highly dynamic F&O segment, which recorded an average daily turnover (ADTV) of Rs 432 trillion in May.

Bata, Granules India, CanFin Homes, Abbott India, Mahanagar Gas, City Union Bank, Torrent Pharmaceuticals, Ipca Laboratories, Sun TV, and United Breweries are among the names likely to exit, according to separate reports by Nuvama Institutional Equities and IIFL Alternative Research.

Also, new-age companies listed in the past few years like Delhivery, Paytm parent One97 Communications, PolicyBazaar parent PB Fintech, Nykaa, Zomato, along with market intermediaries like BSE, Central Depository Services, Angel One, and Computer Age Management Services, will become eligible for entry into the F&O list.

Due to speculations regarding entry into F&O, shares of Paytm, Adani Green, LIC, and Varun Beverages gained on Monday despite overall weakness.

The new entrants and exits would play a crucial role in the selection of benchmark indices National Stock Exchange Nifty and BSE Sensex, as only such eligible F&O stocks find space in the indices.

Among the probable exits, six each are part of the Nifty Midcap 100 and Nifty Smallcap 100, while nine are included in the Nifty Smallcap 250.

Some of the probable entrants are already part of the midcap and smallcap indices.

The Securities and Exchange Board of India’s (Sebi’s) proposal comes after nearly six years since the last revision in the selection conditions.

The proposed change aims to eject stocks with consistently low derivatives turnover and open interest.

Sebi has invited public comments on the proposal until June 19, indicating that it may consider the proposal at its board meeting scheduled for the end of this month.

The market watchdog has proposed higher limits for the so-called market-wide position limit (MWPL), median quarter-sigma order size (MQSOS), and average daily delivery value in the cash market.

Additionally, it plans to introduce a product success framework for stock derivatives, similar to that for index derivatives.

Once approved, stocks would need to have an ADTV for the previous six months between Rs 30 crore and Rs 40 crore, compared to the current requirement of Rs 10 crore.

The stock’s MWPL on a rolling basis would have to be in the range of Rs 1,250 crore and Rs 1,750 crore — significantly higher than the current requirement of Rs 500 crore.

Besides, the stock to be included in the F&O segment must have MQSOS over the previous six months, on a rolling basis, between Rs 75 lakh to Rs 1 crore.

Last month, India’s market capitalisation crossed $5 trillion, growing almost threefold since 2018 when the framework for F&O stock selection was last revised.

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Khushboo Tiwari
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