“The market has become more efficient and competitive — that’s meant lower returns for standard vol-selling strategies,” said Nitesh Gupta, partner and derivatives trader at Karna Stock Broking LLP. “In this environment, trading desks will have to increase risk to make better returns.”
A turning point came last year, when the Securities and Exchange Board of India launched a sweeping crackdown aimed at curbing speculative retail activity and addressing losses among individual traders. The regulator scrapped several popular weekly options, cutting out the very products that had amplified intraday swings and drying out volume.
The impact is clear: While activity has bounced off from a low in February, notional turnover has averaged almost 240 trillion rupees ($2.7 trillion) a day this year, down 35% from 2024. It’s the first annual decline since data going back to 2017.
That drop in derivatives activity has fed back into the underlying market: The Nifty 50 has moved less than 1.5% for 151 consecutive sessions, a run that’s nearing a record set in 2023, and its three-month realized volatility has slipped toward 8 points — lower than in any major global market.
Meanwhile, the market’s players have changed. Foreign funds have pulled some $17 billion this year — more than ever before — amid trade tensions with the US and a lack of shares tied to the artificial intelligence boom. At the same time, local institutions have become the market’s biggest owners, pouring a record surpassing $80 billion into the shares since January. They overtook foreigners in the first quarter, according to figures from data provider primeinfobase.com going back to 2009.
