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34 stocks exiting F&O segment erode major wealth in 2 months

34 stocks that will exit F&O segment from July series have eroded Rs 14,500 cr of wealth.

, ETMarkets.com|
Updated: Jun 26, 2019, 02.15 PM IST
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The list included companies from across sectors, be it aviation, gems & jewellery, pharma, banks, fertilisers and power, among others.
As many as 34 stocks that will exit the futures and options (F&O) segment from July series have eroded Rs 14,500 crore of investor wealth ever since NSE made the announcement on April 22.

Those who took the list seriously and acted in time must have thanked themselves for being able to avert the selloff.

The list included companies from across sectors, be it aviation, gems & jewellery, pharma, banks, fertilisers and power, among others.

Majority of the companies on the list have eroded investor wealth between April 22 and June 25, , with PC Jeweller falling 63 per cent Jet Airways 52 per cent, Jain Irrigation 52 per cent, Reliance Power 49 per cent, TV18 Broadcast 28 per cent and IRB Infrastructure 27 per cent.

Chandan Taparia, Derivatives & Technical Analyst, Motilal Oswal Financial Services, said the announcement of exit from F&O is sentimentally negative for a stock. “However, this is not a thumb rule that stock may turn weak after such exclusion,” he said.

Among others, Godfrey Phillips, IFCI, Suzlon, The Karnataka Bank, The South Indian Bank, Chennai Petroleum Corporation, IDFC, Tata Communications and CG Power have slipped between 15 per cent and 25 per cent during this period.

“There are no specific patterns as to how the companies that are being excluded from the F&O segment behave once they are out. Usually, they trade with a weak bias,” says Milan Vaishnav, Technical Analyst, Gemstone Equity Research and Advisory.

He said such weak behaviour starts not after they come out of the F&O segment, but when such a step is announced. This happens mainly due to tactical re-balancing of portfolios by large investors and FIIs.

Some others like Allahabad Bank, NHPC, DCB Bank, V-Guard, Indian Bank, Can Fin Homes, Kaveri Seed Company and The India Cements have managed to cap the downside.

Shares of CEAT, Repco Home, Allahabad Bank, MRPL, GSFC, Wockhardt, BEML, OBC, Ajanta Pharma, Infibeam Avenue, Godrej Industries and Syndicate Bank slipped between 1 per cent and 14 per cent.

Cumulative market capitalization of the 34 companies dipped to Rs 2,13,196 crore as of June 25 from Rs 2,27,705 crore on April 22.

Going against the trend, DCB Bank, Can Fin Homes, V-Guard Industries, NHPC, Indian Bank, Kaveri Seed and The India Cement – stocks that, too, are going out of the F&O basket – have gained up to 16 per cent since April 22.

Inclusion and exclusion of stocks in the F&O segment are decided by stock exchanges on the basis of predefined criteria.

“The inclusion and exclusion is usually an annual exercise undertaken by NSE with a view to ensuring investor protection. The present exclusion happened after Sebi hiked the benchmark liquidity levels for scrips to be eligible for trading in the derivatives segment. The move is aimed at checking any manipulation by doing away with illiquid stocks,” said Vaishnav.

He said the removal would help maintain liquidity in the instrument. Exclusion from the F&O segment can lead to short-term unwinding of arbitrage trades, but once that effect wears off, price behaviour should come back to normal.
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