The Indian market is showing remarkable strength, positioning itself as the third-largest market globally in terms of cash market volumes and holding the title as the largest market for equity derivatives.
According to a report by Jefferies, the surge in investor engagement and the segmentation of equity derivatives have propelled derivative volumes to 20-30 times higher than those observed in developed markets.
The active derivatives investor base in India stands at 3.9 million, with individuals contributing around 35 percent of the option premiums within the system.
However, there's a notable concentration among top investors. While the number of retail investors is growing, their share in the overall premiums mix remains relatively low, as highlighted in the report.
The rise of digital discount brokers has significantly expanded the active investor base in India's National Stock Exchange (NSE). The active investor count has quadrupled post-COVID, surpassing 11 million investors.
Particularly, active derivatives investors have increased tenfold during this period, primarily led by digital discount brokers who have achieved substantial growth compared to traditional brokers in a shorter span.
Factors like increased smartphone and internet penetration, simplified eKYC processes through public digital infrastructure, and growing awareness about equity markets have facilitated rapid customer acquisition for digital players.
These brokers are reaching out to younger customer segments and expanding their reach beyond urban areas into tier-2/3 cities.
The report also emphasizes the impact of "sachetization" in driving up derivatives volumes. As investor awareness grows and the retail participation in equity markets broadens, derivatives products with lower entry sizes are witnessing robust growth, mirroring trends seen in global exchanges.
The availability of app-based tools for options trading, coupled with social media-led information dissemination, has played a pivotal role in this growth.
In India, the most favored product is index options trading on the day of expiry (0DTE options). The trend is reflected in the US market as well, where 0DTE volumes as a percentage of total SPX volumes have significantly increased.
India, in particular, has been leading this trend, with a majority of volumes occurring on expiry days for the top three products that dominate more than 90 percent of the market share.
The financialization of savings, rising equity participation due to digitization, growth in equities, product innovations, and stable fees compared to other capital market platforms are driving Indian exchanges' growth.
The BSE (Bombay Stock Exchange) is poised to leverage these favorable market conditions, potentially witnessing a significant earnings jump in FY24E and a subsequent doubling of earnings over FY24-26E, according to the report.
(With Agency Inputs)
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