India’s stock exchange rally has come to a screeching halt as the Securities and Exchange Board of India (Sebi) tightened its regulatory grip on the derivatives market. The sweeping measures, aimed at curbing speculative options trading and protecting retail investors, have erased nearly Rs 1.75 lakh crore in combined market value from leading exchanges and brokers.
The selloff has been most severe for India’s premier bourses. BSE shares have tumbled 29% from their peak, erasing around Rs 35,000 crore in market capitalization. The decline marks a sharp reversal for the stock, which had skyrocketed over 3,500% in the last five years.
Meanwhile, NSE’s unlisted shares, a prized asset in the grey market, have fallen about 22% from their highs, wiping out nearly Rs 1.4 lakh crore in value. This comes after the exchange emerged as one of the biggest multibaggers in India’s unlisted securities market.
The carnage has spread beyond exchanges. Angel One, a discount brokerage heavily reliant on futures and options (F&O) revenue, has corrected by 37% from its peak.
On Thursday alone, the stock fell 5%, underscoring investor anxiety about potential earnings hits from Sebi’s reforms.
Market watchers attribute the sharp corrections to fears that weekly options contracts, currently the backbone of retail trading activity, could be replaced by fortnightly or even monthly expiries, slashing trading volumes and brokerage income.
Sebi’s campaign, which launched in October 2024, is supported by alarming data: in FY25, 91% of individual traders in equity derivatives have lost money, with total losses of Rs 1.06 lakh crore. On average, a retail trader lost Rs 1.1 lakh, enough for the regulator to tighten the norms.
Recent steps include:
Phased reduction in contracts with weekly expiry.
Larger lot sizes to discourage small-ticket speculation.
Higher margin requirements on short options contracts.
Upfront collection of option premiums.
Removal of calendar spread benefits on expiry days.
The regulator has also swapped expiry days between NSE and BSE, while Sebi Chairman’s remarks favoring longer-tenure contracts have fueled speculation of fortnightly or monthly expiries becoming the norm.
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Global brokerage Jefferies cautioned that a transition to fortnightly expiries could cut FY27 earnings by 20-50% on BSE and by 15-25% for Nuvama. Morgan Stanley raised concerns about near-term earnings uncertainty; however, veteran market experts reiterate that long-term fundamentals remain unchanged as household savings are financially included.
Sudip Bandyopadhyay, a market veteran, pointed out that the government is intent on protecting small investors, just like it has done with cracking down on online gaming.
On the other hand, Neeraj Dewan and others see the current levels as an opportunity, suggesting that BSE could be appealing for long-term investors.