The decision by market regulator Securities and Exchange Board of India (Sebi) to lower position limits that can be taken in the futures and options (F&O) market will result in several stocks moving into the ban period from Monday, said analysts.
These include stocks such as Adani Enterprises, Indiabulls Housing Finance, Vodafone Idea, Jindal Steel & Power, Just Dial, NCC, Yes Bank, PVR and Punjab National Bank, among others. Sebi has increased margin requirements and capped derivatives exposure in a bid to curb volatility and short-selling in the equity markets.
India’s main stock indices are down nearly 30 per cent from their lifetime high levels hit in January this year due to the worldwide panic triggered by the Covid-19 pandemic.
Sebi has brought down the market wide position limit in F&O contracts of a particular underlying stock to 50 per cent from 95 per cent earlier, subject to conditions, and also increased F&O margins where positions are higher above the revised cap.
Market wide position limits (MWPL) may be revised to 50 per cent of existing levels if average daily price high-low variation percentage during the last five trading days is more than or equal to 15 per cent. An additional condition is that average MWPL utilisation percentage during this period should be more than or equal to 40 per cent.
Research by Edelweiss showed that SAIL, Canara Bank, IDFC First Bank, Escorts, GMR Infrastructure, Tata Motors and DLF are among the stocks with the highest open interest as a percentage of revised MWPL. A lower position limit would automatically push stocks with high open interest into the banned zone.
Chandan Taparia, derivatives analyst at Motilal Oswal said that Sebi’s move could somehow help the market to get stability. Howver, a major relief will come only if there is a positive trigger offered by reducing numbers of Covid-19 cases along with stability in the global markets.
Source- Economic Times.