Market Crash

Upcoming Market Insights: 5 Reasons Due To Which The Risk Of Market Crash Increases Today. Geopolitical Tensions, SEBI Restrictions, and Global Market Impact

FinanceNews

5 reasons due to which the risk of market crash increases today

On 2nd October, the markets were closed due to a holiday. However, the overall trend shows the market is performing well despite some declines in the past few days, which were triggered by global factors like developments in Japan and China.

Table of Contents

Global Market Factors:

Japan: The recent change in Japan’s Prime Minister has led to talks of interest rate hikes, which has caused significant market declines in Japan.

China: Although China is very attractively valued, the market has lagged. But it recorded one of its biggest single-day rallies since 2008 after recent stimulus measures.

Impact on Indian Market:

Foreign Institutional Investors (FIIs) are pulling out investments from India to China. The change in FIIs selling increased volume in Indian market is seen.

SEBI Regulations:

The capital market regulator, SEBI recently imposed restrictions in certain market operations. It is anticipated that this will have an impact on market price volatility though the full extent of its impact remains to be observed.
Market

1 Weekly Expiry Limit:

At this time expiries are available on all five weekdays; that will be reduced to just two days per week as of November 20, 2024.

2. Increase in Contract Size:

Under the earlier regulations, the size of contracts were exceeding upto ₹5-10 lakh per contract while this time it will raise to ₹15-20 lakh per month. This would imply that traders will have to handle bigger contracts when it comes to F&O trading.

3. What is F&O?:

FNO: Short for Futures and options, which are financial derivatives used in the stock market. On these, investors guess on whether or not future costs of a inventory will go up or down so they can trade accordingly.

4. Premium Calculations (Example-Based):

Example 1: For Bank Nifty, with a current market price (CMP) of around ₹53,000 and a lot size of 15, the contract size becomes ₹7.95 lakh (53,000 × 15). Under the new rules, this will increase to ₹15-20 lakh, leading to a rise in the lot size.

Example 2: For Reliance, with a CMP of ₹2,900 and a lot size of 250, the contract size is ₹7.25 lakh (2,900 × 250), which will also increase to ₹15-20 lakh.

5. Changes in Premiums:

For Future Buyers/Sellers: The current premium of ₹1-3 lakh will increase to ₹2-6 lakh.

For Option Sellers: The current premium of ₹80,000-2 lakh will rise to ₹1.5-3 lakh.

For Option Buyers: The current premium of ₹20,000-60,000 will increase to ₹40,000-1 lakh.

6. Important Considerations:

An upfront margin will now be required from clients, which means buyers and sellers of futures and options will need to pay more premiums. Previously, brokers covered this margin.

Option sellers will also need to hold more margin as a safety measure.

Lot sizes will be larger than before.

The “Calendar Spread Expiry” will be removed, meaning spread hedging (a strategy to reduce margin requirements) will no longer apply.

The upfront collection of option premiums will start from February 2025, along with the removal of the calendar spread treatment.

7 Impact of These Changes:

For Investors: These changes will require investors to invest more capital, potentially pushing out smaller investors.

For the Market: These changes are expected to bring more stability and reduce risk.

8 Things to Keep in Mind:

These changes will take effect from November 20, 2024.

From February 2025, the upfront collection of option premiums from clients will begin.

Investors should understand these changes carefully and consult with their brokers to adjust their trading strategies accordingly.

Geopolitical Concerns:

Oil prices surged on the rising tensions between Iran and Israel . If any further increase happens in the price of oil, it will be a doom for the Indian economy as India happens to be one of the biggest importers of oil and inflation along with an increase in the cost of imports will skyrocket.
Market

Market Outlook:

However, the perfuming fact is that panic news even of a slight nature can lead to a major sell-off as Indian market is now at all time high level. Investors are well advised is perhaps not looking for big entrant: Currently, would be the levels of the market to corrections more likely.

Conclusion:

Though bulls have been in charge recently, that could be changing and bears might find favorable conditions to bring the market lower.

Though bulls have been in charge recently, that could be changing and bears might find favorable conditions to bring the market lower.

However, Domestic Institutional Investors (DIIs) may step in to support the market and prevent a large decline. However, Domestic Institutional Investors (DIIs) may step in to support the market and prevent a large decline.

Disclaimer: This information is for general knowledge and should not be considered financial advice. Always consult a financial advisor before making any investment decisions.
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