Retail investors cash out for F&O play

Despite the higher risks in derivatives and great returns from stocks, India's retail investors are doubling down on futures and options

- Ram Sahgal

As 2023 gives way to the new year, the retail participant’s love for derivatives trading keeps growing. The count of those who trade in stocks directly is falling in favour of derivatives, despite the market regulator issuing warnings about the risks in futures and options (F&O) and the markets yielding attractive double-digit returns. Analysts believe the trend could continue into the new year and beyond as more investors dabble in such risky trades as greed gets the better of discretion.

The number of active investors, who trade at least once a year, on NSE’s cash market segment has fallen 9% to 22.7 million in the fiscal year through November (FY24) from 24.9 million in FY23. This trend is being witnessed for the second straight fiscal year, according to data from NSE, which enjoys a 93% market share in the cash market, with smaller rival BSE accounting for the rest.

The fall in participation this fiscal year comes despite the Nifty generating a 15.7% return during April-November 2023—to 20,135 from 17,398—against a negative 1.75% return in the same period a year earlier, to 17,360 from 17,670. The active retail count hit a record high of 27.4 million investors in FY22, at the peak of the pandemic, which confined people to working from home. That fiscal year, the Nifty yielded a 17.5% return, rising to 17,465 from 14,867. But, since then, the retail investor count has been on a downward slide.

In contrast, the retail count in derivatives continues to rise. The number of active retail investors trading index futures and options, like Nifty and Bank Nifty, increased 7.5% to 7.2 million during April-November 2023, from 6.7 million in FY23. The figure stood at 5.1 million in FY22. The NSE figures for derivatives are a proxy for the whole market as it enjoys 99% market share, with BSE accounting for the rest.