Well, a lot of these comments coming in from the consultation paper and of course, the intent is to reduce the speculative trading, but do you think by the measures that have been announced it would be able to achieve that? What is your first take?
CA Rudramurthy BV: See, first of all, yesterday’s SEBI consultation paper in detail I have gone through. The major concerns are there is a lot of speculation happening in the derivative market. They might throw systematic risks into the market where you might have steep falls because of the speculation activity and definitely SEBI is worried on the hyperactivity which is happening in F&O. And after going through the entire consultation paper first of all, as a trader with two decades of experience I am now talking, not as a broker or not someone coming from a broker community, the number one thing what SEBI should consider doing is one, you have to encourage people to do long-term investing and not speculation.
For that you should have actually reduced the long-term capital gain in the budget or made it even zero so that you make it more lucrative, rather than doing that we have seen increase in long-term capital gain from 10% to 12.5%, so there is no initiative for anyone to move into investment, rather you are making people to do more speculation.
And most important after this point leverage has to be reduced in the system. If you want to reduce speculation activity, reduce the leverage. Right now you are having expiry every day. Monday you will have midcap expiry, Tuesday IT expiry, Wednesday Bank Nifty expiry, Thursday Nifty expiry, Friday Sensex expiry, Saturday and Sunday traders expiry.
You have to cut down on this expiry what you have on a daily basis and the whole objective here is to reduce leverage by making expiry every day you are giving that intraday leverage and making people trade more.If you can consider all the points possible to reduce leverage especially in option trading, 90% of today’s F&O volume is happening in options and not in futures, so the main concern is in the leverage what is inbuilt in options and these expiries which are all there and even the lot size what they want to consider to keep it closer to market price and to remove all the extreme lot size and also ensure by increasing the margin you are reducing the leverage. Finally my comment is crystal clear number one, encourage people to move towards long-term investing and reduce speculation by giving them incentives, tax benefits and second most important point do everything possible to cut down the inbuilt leverage in options and we never had this problem sometime back because we had only monthly expiries before. Now, you have monthly, then weekly, then in that you have every day expiry and this is somewhere where you have to curb this speculation which is happening and also ensure liquidity in the market is not affected and the whole Laissez-faire and the free trade which is happening for price discovery that should always continue. So, these are certain points as two-decade experienced trader I can put these points to you.
I take that point. So, A) are you saying that the overall number of expiries should be cut down, especially the weekly expiry should completely go away and we should only stick to the monthly expiry and secondly, I was just going through the view coming in from Nithin Kamath as well as Zerodha, he says that perhaps the measures which have been announced will move people away from futures into options which might just increase the overall speculative trading. Would you concur with the view that they are a bit more negative for futures versus option which should have been the intent in the first case?
CA Rudramurthy BV: He is 100% correct and as a trader again I am repeating he is 101% correct because when you do this what happens is when you increase the margins for future trading, small retail traders with limited capital they will in fact move away from futures and start trading in options.
If you also see very clearly when this peak margin penalties and the new regulations from SEBI came in, most of the people moved in fact from doing futures trading to options trading and the 90% of your problem is only coming through options and not through futures and I do concur with Nithin Kamath of Zerodha that yes, if you bring in these things which are there in part of consultation paper, you are only making futures people move to option trading because by increasing the lot size or by increasing the margin to 20 lakh initially, then 25 lakh, then 30 lakh all that, you are making more people even from futures to move from option and that will not serve the purpose or the objective.
And along with this very critical I will also say there are so many places where you see advertisements with 100x to 500x leverage, 1000x leverage and there are so many portals coming with advertisements and telling that you take 500x leverage, 1000x leverage and all and first of all SEBI has to curb these type of advertisements and these type of institutions which are luring retail traders and very-very important you have to not only reduce the number of expiries from weekly to monthly, also the number of underlying asset.
It is enough if you have Nifty and Bank Nifty, you are trying to bring every underlying asset into the derivative product and as an indices which is not required and most important you have to educate retail traders.
Now, what do I mean by that that is what ET Now is currently doing, futures will give you a leverage of 5x or even 6x because you have to pay 15% to 20% upfront margin when you trade in futures. But when you buy options especially if it is deeply out of the money, you are taking 100x leverage which is inbuilt in the out of the money options what you are trading by paying very less premium.
So, the point here is along with all the measures whatever I told which SEBI has to consider and see whether these are things which will help it to solve the objective or the purpose for which it has released this paper and to reduce this speculative activity you have to ensure you remove that leverage which is the number one knife which is there on the neck of this whole part and most important educate this newbies, educate this retail traders, educate this millennials and zillennials who are new to market not to do option trading out of the money and cut the leverage.
A word on the market mood as well. We continue to tread towards 25,000. You expect that to happen really soon and if yes, which stocks or segments look strong to you?
CA Rudramurthy BV: A quick word seeing what is happening in terms of international market. Seeing the valuation and where we are, right now I will have a very-very cautious approach on market because what you have seen between Hamas and the political issues which are happening through and the geopolitical tensions, but keeping that aside even valuation is a very big concern so I will be very-very cautious in market, move to low beta, move to largecaps from mid and smallcap and I will be staying safe with sectors like either IT or look at even chemicals for that matter well where you have valuation comfort, move to FMCG, move to pharma, and move to defensive and not be aggressive in this market.
So, sectors I have told. Stock specific if you have to take some call, yes, from FMCG stocks like ITC, Hindustan Unilever looks good for me and if you want to move for IT, yes, I will stick to largecap, something like Infosys and TCS and I will definitely reduce leverage as a trader and I will be very cautious at current levels in market, sticking to the sectors and stocks what I have spoken to.