MUMBAI, JULY 29: Derivatives trading which was flagged with much fanfare earlier this year has failed to evoke much response from institutional investors, foreign investors and mutual funds. With institutional investors keeping away from derivatives, business volume in index-based futures trading has been languishing on the Bombay Stock Exchange and the National Stock Exchange. Both the exchanges clock a daily turnover of around Rs 10 crore each in index futures. ``This figure is very low. Volumes can pick up only when big institutions, FIIs and mutual funds enter futures trading in a big way,'' said a BSE official. In the derivatives segment, the Securities and Exchange Board of India has allowed the BSE members to trade in Sensex and NSE members in Nifty index. In the regular cash segment, the NSE clocks a turnover of around Rs 6,000 crore. ``When compared to this, the turnover in index futures at Rs 10 crore is peanuts. It should be at least Rs 500 crore,'' said an analyst. There was big expectation that FII inflows would increase once the government allows derivatives trading in the country. But this has not happened. On the contrary, there has been no FII investment in the derivative segment. Even in the regular cash market, FIIs were net sellers in the last two months. While problems in currency payment have prevented FIIs from entering the derivative segment, mutual funds face lack of adequate experience and back-office systems. FIIs are awaiting the green signal from the Reserve Bank of India (RBI) for making margin payments for derivatives trading in foreign currency than in rupees. SEBI chairman DR Mehta recently said that at the last meeting of the high-level committee on capital markets, the RBI had given an in-principle approval to the proposal "but we are awaiting the final word from them." FIIs have stayed away from the derivatives trading, partly because they have decided to adopt a wait-and-watch attitude to gauge how trading in the segment develops and partly because they feel that margin deposit in foreign exchange would act as a hedge against fluctuations in the rupee, which has exhibited volatility of late. The RBI was initially reluctant to permit FIIs making payments in foreign exchange, but it is expected to give the approval anyway. Meanwhile, the mutual fund industry is also gearing up for derivatives trading by obtaining the consent of their board of trustees as well as by setting up back-office arrangements. The mutual fund industry has so far not taken advantage of derivatives segment due to lack of proper infrastructure. "But some of them are making the necessary effort," said a SEBI official. Moreover, market sources said the interest in futures market is still very low key partly because of less liquidity in the futures segment and also because the cash market does not show any definite trend and continues to be highly volatile and uncertain which is not very conducive for increased levels of activity on the derivatives market. A source stated that in an uncertain market "futures market is not top priority" as investors are busy grappling with their positions in the cash market. The depressed sentiment in the cash market has also affected volumes in futures to an extent, he said, adding that volumes are slow to pick up with trading in derivatives restricted to members and their select high net worth clients. The BSE Sensex which had touched the all-time high of 6,150 in February is now stuck in the 4,200-4,300 range. Meanwhile, the July series index futures terminated on Thursday with open positions of 205 and 111 contracts on BSE and NSE respectively. The final settlement price on BSE worked out to 4266.5 and Thursday's BSE and NSE futures volumes were Rs 9.74 crore and Rs 9.21 crore respectively.
