New F&O rules may propel Jio Financial and Zomato to Nifty 50

28 Jun 2024 , 03:54 PM

New futures and options (F&O) rules in India might allow Jio Financial and Zomato to enter derivatives trading and potentially join the NSE Nifty 50 Index, according to Nuvama.

Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research Analysis, stated that if Jio Financial and Zomato enter the derivatives segment before mid-August, they are likely to join the Nifty 50 in the September review, along with Trent.

Inclusion in the Nifty 50 could result in passive fund buying of $466 million for Jio Financial, $491 million for Zomato, and $463 million for Trent.

The Securities and Exchange Board of India (SEBI) has made significant changes to equity derivatives regulations, affecting stock selection for F&O.

Key changes include increasing the average daily delivery value requirement in the cash market from Rs 10 crore to Rs 35 crore over the past six months for F&O eligibility, and raising the market-wide position limit from Rs 500 crore to Rs 1500 crore.

SEBI introduced a product success framework to prevent market manipulation through illiquid securities. If trading volumes remain low over six months, the derivatives will be discontinued.

These changes aim to strengthen the link between cash and F&O markets and enhance investor protection.

SEBI’s revision of F&O stock selection criteria addresses concerns about the inclusion of illiquid stocks, following a discussion paper highlighting risks of market manipulation and volatility without sufficient cash market depth and appropriate position limits.

The last review of these criteria was in 2018, during which market capitalization and turnover have significantly increased.

Currently, NSE and BSE lead globally in F&O volume, accounting for over 80% of global turnover in April. NSE traded 8,484 million contracts, the highest globally, while BSE saw 2,224 million contracts. NSE’s year-on-year growth was 92%, and BSE’s F&O trading surged since May last year.