Regulatory Curbs Sink Equity Derivative Trading Volumes in India

(Bloomberg) -- Before the trading day starts we bring you a digest of the key news and events that are likely to move markets. Today we look at:

Good morning, this is Chiranjivi Chakraborty, an equities reporter in Mumbai. The city skyline is clearer today after a few hazy days. Same appears to be the case in the market as well, with Nifty futures signaling a positive start after a big rally on Thursday. Asian stocks are also higher this morning and that may further boost sentiment. 

Bernstein and IIFL diverge on Nifty outlook

Sanford C. Berntsein’s optimistic call on Indian stocks bottoming out was met by IIFL Securities’ view Thursday that the Nifty 50 index still has more room to fall. IIFL warned that earnings downgrades continue to trickle in, while a weak rupee and high interest rates could limit the upside for the market. Meanwhile, Bernstein said it was time to shift from booking profits to becoming “selective buyers,” citing the government’s robust capital expenditure plans. With stocks stuck in a narrow range since late September, traders are closely watching third-quarter corporate earnings and the upcoming federal budget for a clearer direction. 

New rules cool equity derivatives market

December marked the first full month since the regulatory curbs on equity derivatives took effect in India, and the impact is already evident. Aimed at deterring amateur traders, the measures have led to a significant drop in activity: average daily turnover has fallen by more than a third on the NSE, and by around 20% on the BSE. With three additional rules set to kick in the coming months, volumes could face further short-term pressure. Many rookie traders are said to be shifting to the cash market, particularly in small-cap stocks. Brokers also note that new traders are not rushing into derivatives with the same gusto seen a couple of years ago. 

Costly hotel rooms are putting off vacationers 

The hospitality sector saw high occupancy and double-digit growth in the average room rate in the December quarter, a trend Elara Securities expects to sustain in the first three months of 2025. However, social media posts this week about fewer tourists in Goa on New Year’s Eve suggest high room rates may be starting to pinch consumers. Many travelers are opting for vacations in Southeast Asian countries, citing cheaper or lower costs than popular Indian destinations. Despite this, Elara is bullish on Chalet Hotels, Juniper Hotels and Indian Hotels Company. 

Analysts actions:

Three great reads from Bloomberg today:

And, finally.. 

Shares of Domino’s Pizza franchisee Jubilant Foodworks hit a three-year high on Tuesday, but this rally may not reflect a broader turnaround in sentiment for India’s quick-service restaurant sector. Shares of other players like Restaurant Brands Asia, Devyani International, Barbecue Nation Hospitality and Westlife Foodworld remain largely flat or lower year-on-year. With consumption trends still weak, investors appear to be focusing on stocks where they believe valuations are at a steep discount to their peers.

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--With assistance from Kartik Goyal.

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