New derivatives get timing wrong

Both the stock exchanges couldn’t have found a more inopportune time to introduce new products on the derivatives side. At a time when the market is rolling downhill and most traders have fled the futures segment, the BSE and NSE are planning to introduce long-dated options.

The exchanges said on Monday that the three-monthly rolling and fixed contracts would now be a reality — in addition to five semi-annual contracts. “At any point in time there would be options contract with up to three years tenure available,” the release explained. It was more peaceful times, when a Sebi appointed committee had recommended this move to deepen the equity markets.

Most players had then welcomed the move saying that cheaper hedging tools would now be a possibility for long-term players. But after the selloff in January, most traders — retail and institutional — seem scared to try their hand at near month contracts. Still, most financial experts say that it is too premature to write an obituary about these contracts or even question the timing of exchanges.

They say that rolling over single month options is a very expensive way to hedge one’s stock exposure and these long-term dated options would prove very useful and cheaper in the course of time. However, they opine that for volumes to pick up, exchanges should consider introducing market makers in certain options.

Budget duty hike dashes hopes of ITC investors

Till a few days ago, punters were still clinging on to their positions in the ITC stocks, hopeful that the ‘restructuring story’ would regain favour with the market shortly. But the excise duty hike proposal in the Budget seems to have thrown a spanner in their works. And a flood of downgrades by leading brokerages is unlikely to help matters. UBS Securities, CLSA and Merrill Lynch have downgraded their ratings on the stock, expecting volume sales to drop. Citi appears to be the lone supporter of the stock, and is of the view that the worst is over for ITC.