Trading in index derivatives and options volumes is stabilising after three consecutive months of declines due to regulatory interventions, reflecting recalibration by market participants, ratings agency ICRA said.
Although margin trading facility (MTF) exposures have retracted closer to ₹71,000 crore from their December 2024 peak, given their strong correlation with market trends, a resurgence in investor confidence could drive the trajectory back towards ₹1 lakh crore mark, it said.
The ratings agency noted that phased implementation of regulatory measures from November 2024 led to a sharp contraction of trading activity in index options.
Between December 2024 and March 2025, the average daily premium turnover had declined by 18 per cent compared to the April–November 2024 period, while the number of options contracts traded fell by 60 per cent.
Order volumes, which were critical for F&O brokerage, were moderately impacted (down 25–35 per cent).
However, the trading activity was above historical levels.
In Q4FY25, the average daily turnover in the cash segment declined by 8 per cent q-o-q to about ₹1 lakh crore, while MTF exposures fell 18 per cent q-o-q. The slowdown has weighed on broking firms, with ICRA’s sample set reporting a 19 per cent y-o-y drop in net revenue and profitability slipping to 26 per cent — a 12-quarter low.
The anticipated uptake of the MSEI-SX40 weekly index options could also help cushion the impact. However, the overall activity remains highly sensitive to future regulatory developments.
Adjustments in lot sizes and the rationalisation of weekly expiries shifted trading towards longer-tenure contracts, which reduced participation from smaller investors, according to Deep Inder Singh, Vice President and Sector Head – Financial Sector Ratings, ICRA.
The broader market sentiment also weakened, as reflected in the cash and MTF segments.
“Exchanges and depositories also experienced a decline, with operating revenues falling to a five-quarter low. Overall, the earlier hyperactivity in index options has moderated significantly, contributing to a more stable market environment. This has reduced speculative trading and associated price volatility. The move to a single weekly index derivative per exchange has also diversified market participation and is expected to foster healthier competition,” ICRA said.
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Published on May 22, 2025
