Tale of the Tape 

Howdy folks!

Markets resumed their rally after a one-day breather, with the Nifty and Sensex up +0.7% each. Gains in Asian markets rubbed off on India -- Japan’s Nikkei breached the 45k mark to hit a record high -- while the start of US trade talks in Delhi also kept investors happy. Broader markets were up too as Midcaps (+0.5%) and Smallcaps (+1%) saw solid buying.  The advance-decline ratio was in favour of the bulls (3:2).

Except FMCG (-0.3%), every other sector ended in the green. Auto stocks (+1.4%) led the rally, followed by Real Estate (+1.1%) and Energy (+0.9%).

In today’s issue of the Daily Rip, we unpack the debate over SEBI’s quest to crack down on weekly F&O contracts, analyse Euro Pratik Sales IPO, look at the biggest newsmakers and more.

Honourable Mentions:

Tata Motors was in focus after JLR said a cyber attack would force it to extend its production pause till September 24. Apollo Tyres (+2%) gained after reports said it would be Team India’s new sponsor after Dream11’s exit.

Check out the NSE 500 heatmap:

Market
Weekly F&O Expiry: Yay or Nay?

SEBI’s operation to bust up the F&O party isn’t finished yet! ICYMI - the regulator has confirmed it will float a consultation paper on “longer-term derivative contracts”. We don’t know what SEBI will end up doing, but it's almost certain that weekly expiries may die. Now, there’s been an insane debate over the last week and we’re not here to pass any judgement calls, so here’s a look at both sides of the argument.

Let’s start with the good stuff that derivatives trading does. It allows for hedging of equities. Anyone taking big bets (FIIs etc) on stocks almost always hedges a bit using F&O. Weekly expiries do the trick pretty well because they come with cheaper premiums vs monthly contracts that are more expensive. This feeds into the larger point of market liquidity. India’s cash market is EXTREMELY shallow; never forget it took Jane Street just ~ Rs 5,000-cr to move our indices up and down 1% like they were playing carrom. Weekly expiries boosts trading activity, narrows bid-ask spreads and helps add depth.

Now, a good counterpoint is that monthly expiries could also boost liquidity; in fact even consolidate it. The only problem? Monthly contracts don’t generate enough interest. As Zerodha’s Nithin Kamath points out, when SEBI made us go from 6 weekly expiries to just 2, trading volumes dropped by -40%. Kamath says we could go back to 2019-level volumes if we eliminate the last two as well.

That said, there’s the other side of the argument. Market intermediaries including brokers and BSE/NSE have made a killing off what is for millions of young Indians basically gambling. The GOI and SEBI clearly don't want people throwing away their life savings on F&O. It’s true that removing one gambling product isn’t a real solution; people will just find something else. But until investor literacy levels improve the question is: do we have another choice?

Specials
Auto Stocks To Buy After GST Cut!

The Nifty Auto Index is trading near its all-time high after GST 2.0 reforms spark hopes of a blockbuster festive season. Here are 3 stocks that market experts and SEBI RAs are currently tracking on Stocktwits.