Macro factors have limited growth in India’s equity markets over the last year, but have boosted trading volumes in derivatives products on the country’s national exchange, a report from consultancy Celent has found.
The combined effects of faltering economic growth, rising inflation and a drop in currency trading have lead to stagnant trading volumes on India’s National Stock Exchange (NSE). But the report suggests the exchange has weathered the prolonged dip in global equity trading volumes experienced since 2008, and anticipates future growth.
A rise in automated trading, including high-frequency activity, has lowered the average trade size on the NSE, making the market less concentrated, and as a result more liquid, the report states.
As such, Celent predicts the number of equity trades will rise in 2014 alongside growth in total turnover, but stated a drop in market capitalisation had created uncertainty in the economy, which may further prolong slow growth in cash equities.
This uncertainty and attendant volatility, however, has increased trading volumes on the NSE’s derivatives market and in 2012 the exchange became the third largest derivatives exchange globally.
The report, authored by Anshuman Jaswal, senior analyst with Celent's securities and investments group, predicts average daily turnover and the number of trades for index and stock options will all rise in 2014.
"The index options at NSE have become its leading derivatives product and are the second largest derivatives product by volume across global exchanges," Jaswal said.
"Their performance is one of the main reasons NSE has been able to weather a difficult national and global economic environment and is well placed fundamentally to continue the progress made over the last few years," he said.