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Srividhya Sivakumar

If you thought making money in these choppy markets is difficult, banish that thought. Investors who bought into stocks set to be introduced in the derivatives segment (on the day of NSE’s announcement) and held on till they made their derivatives debut, have made stock price gains of up to 44 per cent in recent times.

Over the past year, stocks that the NSE has earmarked for inclusion in derivatives have averaged a 9 per cent return, on the dates between the publication of NSE’s circular and their actual inclusion for derivatives trading.

NSE has, over the past year, introduced 71 stocks for trading in the Futures and Options (F&O) segment of the exchange. Usually, the exchange announces the stocks to be introduced to derivatives trading through a circular. This is timed at least two trading days before they are set to be included in the F&O segment. Investors who regularly monitored these circulars and entered all these stocks (in the cash market) on the day of the announcement could have pocketed a neat average gain of 9 per cent, if they sold them on the day of their derivatives debut.

In fact, 34 out of the 71 stocks managed returns of well over 9 per cent in this time window. Stocks inevitably climbed in the run-up to their inclusion, with only six of the 71 stocks failing to deliver a positive return to investors.

To elaborate, had investors bought into the 14 stocks that were introduced to the F&O segment, on August 30 (the date of NSE’s latest circular), they would have earned an average return of 16 per cent in just the four trading days to September 6.

Notably, all the 14 stocks have gained in this period – Bhushan Steel topping the gainer’s list with a 44 per cent return. Among other stocks that posted high returns in this set were NIIT Technologies, Sasken Communication, CMC, Tulip IT Services and Aptech. Interestingly, even the worst performer in the list – Welspun Gujarat – made a 3 per cent return, almost matching the broad market during this period. The earlier tranche of 31 stocks introduced to the derivatives segment in May 2007 also delivered attractive returns, averaging 7 per cent. Educomp Solutions was the biggest gainer in this period (rising about 26 per cent). Notwithstanding the handsome returns that such a strategy has fetched so far, investors should probably be wary of stocks from out-of-favour sectors that are introduced to derivatives.

For instance, sugar stocks that made the F&O list in December 2006 registered declines in the run-up to their inclusion in derivatives. Nevertheless, the above numbers suggest that odds are in favour of an investor seeking to make a quick buck on the stock markets, if he is willing to track F&O inclusions.

More Stories on : Derivatives Markets | Investments

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