SEBI Study Reveals 93% of Individual F&O Traders Faced Losses Between FY22 and FY24

A recent study conducted by the Securities and Exchange Board of India (SEBI) has revealed that nearly 93% of individual traders participating in the futures and options (F&O) market faced significant financial losses over the past three fiscal years, spanning from FY22 to FY24. The analysis covered over 1 crore investors, with most experiencing average losses of approximately Rs 2 lakh each.

Key Highlights of the Study:

• Aggregate Losses: Individual traders in the F&O market collectively suffered Rs 1.8 lakh crore in total losses during the period.
• Loss Concentration: Among the worst-hit traders, the top 3.5% (approximately 4 lakh traders) faced an average loss of Rs 28 lakh each, including transaction costs.
• Minority Gained: Only 1% of individual traders managed to secure profits exceeding Rs 1 lakh, even after factoring in transaction costs.

This report follows a similar SEBI study published in January 2023, which indicated that 89% of individual equity F&O traders had incurred losses in FY22. The updated analysis expands on this by examining three fiscal years and providing a more comprehensive view of individual traders' profit and loss patterns.

Insights from the SEBI Report

The study shows a clear disparity between individual and institutional traders. While individual traders struggled to turn profits, proprietary traders and foreign portfolio investors (FPIs) saw notable gains. Specifically, proprietary traders earned Rs 33,000 crore in gross trading profits, and FPIs made Rs 28,000 crore in FY24, before transaction costs.

Interestingly, 97% of FPI profits and 96% of proprietary trading gains were attributed to algorithmic trading, highlighting the dominance of technology-driven strategies in profit generation. This contrasts sharply with the results of individual traders, who spent an average of Rs 26,000 per person on transaction costs in FY24. Over the three years, individuals collectively spent around Rs 50,000 crore on transaction fees, with brokerage charges accounting for 51% of these costs and exchange fees representing 20%.

Trading Patterns and Demographics

The SEBI study also sheds light on the changing demographic patterns in the F&O market:

• Increased Youth Participation: The proportion of young traders (below 30 years) surged from 31% in FY23 to 43% in FY24.
• Geographical Shifts: Traders from Beyond Top 30 (B30) cities made up 72.2% of the total F&O trader base, surpassing the percentage of mutual fund investors (61.7%) from these regions.

Despite the high rate of losses, more than 75% of individual traders continued to trade in F&O markets across consecutive years. This persistence in trading, despite repeated financial setbacks, indicates either a strong belief in potential gains or a lack of understanding of the risks involved.

Income and Financial Profiles

The study also examined the income profiles of F&O traders. Notably:

• Over 75% of traders declared annual incomes of less than Rs 5 lakh in FY24, yet they actively participated in high-risk, high-cost F&O trading.
• The distribution of losses and costs disproportionately affected lower-income traders, raising concerns about the financial literacy and risk management practices of these individuals.

Broader Implications

The findings of this study are significant, particularly as the F&O market has seen an influx of individual participants in recent years. The results highlight the substantial financial risks associated with trading in F&O markets for individual investors, especially those with limited resources and knowledge.

While institutional traders, often equipped with sophisticated algorithms and strategies, continue to profit, the vast majority of individual traders face considerable losses, raising questions about market fairness, accessibility, and the adequacy of investor protection mechanisms.

This report serves as a reminder for individual investors to exercise caution, consider their financial capacities, and seek professional advice before engaging in F&O trading.

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Demat Accounts Surge: Over 42 Lakh Additions in June, Total Exceeds 16 Crore

In June 2024, India witnessed a significant surge in the opening of demat accounts, with over 42.4 lakh new accounts added. This represents the highest growth rate since February 2024, surpassing the previous month's addition of 36 lakh and significantly higher than the 23.6 lakh accounts opened in the same month last year. This marks the fourth time in recent months that new demat account additions have crossed the 40 lakh mark, a milestone previously achieved in December 2023, January 2024, and February 2024.

With these new additions, the total number of demat accounts now stands at over 16.2 crore, reflecting a 4.24% increase from the previous month and a 34.66% rise compared to last year. This sharp rise in account openings is attributed to a stable market, bolstered by strong foreign investor activity and a growing sense of confidence in the newly formed government.

Market analysts suggest that the current bullish sentiment in Indian equities, characterized by continued foreign investments and strong returns, has played a key role in driving the surge in demat accounts. The lack of market corrections has further fueled investor interest, as many new participants fear missing out on profitable opportunities. Additionally, ongoing IPOs, many of which have been heavily subscribed and are listing at premiums, have drawn fresh interest from retail investors.

As tax-filing season approaches, more individuals are looking to diversify their investments into equity markets, with the hope of increasing returns and reducing tax liabilities. Brokerages have also intensified their campaigns to promote financial inclusion, encouraging more people to enter the markets. According to Rajesh Palvia, an analyst at Axis Securities, the Nifty index is expected to reach 25,000 by the Budget period, with a year-end target of 28,000, further fueling optimism.

However, analysts caution that not all of the new accounts represent entirely new investors. Some are individuals shifting between brokers or opening multiple accounts to take advantage of different offers. A portion of the accounts could also be duplicates. Despite this, the momentum shows no signs of slowing down, and as long as markets perform well, the pace of demat account openings is expected to continue rising.

Deepak Jasani, an analyst at HDFC Securities, points out that the surge in demat accounts is a reflection of the broader market trend, with both retail and institutional investors showing increasing confidence in India's equity markets. As market sentiment remains positive, the influx of new accounts is likely to continue throughout the year.

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Nifty 50 Eyes Further Gains: 15 Key Points to Know Before Market Opening

On September 17, 2024, the Nifty 50 achieved a new closing high of 25,419 with a moderate gain of 35 points. Positive signals from momentum indicators like RSI and MACD supported the bullish trend. Experts suggest that if the index decisively closes above 25,500 or breaks through its upward-sloping resistance trendline, the market could rally towards 25,800. The immediate support level is pegged at 25,200.

Here are 15 crucial data points to guide your trading decisions for the next session:

1) Key Nifty 50 Levels

• Resistance: 25,438, 25,460, and 25,494 (based on pivot points).
• Support: 25,370, 25,349, and 25,315.

2) Key Bank Nifty Levels

• Resistance: 52,262, 52,309, and 52,385 (based on pivot points).
• Support: 52,110, 52,063, and 51,987.

3) Nifty Call Options Data

• 26,000 strike has the maximum open interest, with 1.07 crore contracts, indicating strong resistance.
• 25,500 strike saw 47.47 lakh contracts of open interest, offering short-term insights into resistance levels.

4) Nifty Put Options Data

• 25,000 strike holds the highest open interest of 60.69 lakh contracts, acting as key support.
• Significant Put writing was observed at 25,400 strike, with an addition of 10.32 lakh contracts.

5) Bank Nifty Call Options Data

• 53,000 strike has the highest open interest at 34.85 lakh contracts, marking resistance.
• Heavy Call writing was noted at 52,500 strike, with 13.87 lakh contracts added.

6) Bank Nifty Put Options Data

• 52,000 strike saw the highest open interest with 36.11 lakh contracts, serving as critical support.

7) Funds Flow (Rs crore)

• DIIs bought shares worth Rs 874 crore, while FIIs net bought Rs 483 crore, signaling positive institutional interest.

8) Put-Call Ratio (PCR)

• The Nifty PCR increased to 1.3, indicating bullish sentiment, as traders are more inclined towards Put selling.

9) India VIX

• India VIX, an indicator of market volatility, rose by 1.04% to 12.59, still favoring bulls despite a slight uptick.

10) Long Build-up

• 30 stocks showed a long build-up, with rising open interest and price, suggesting continued bullish positions.

11) Long Unwinding

• 47 stocks saw long unwinding, marked by declining open interest and prices, indicating profit booking.

12) Short Build-up

• A total of 66 stocks experienced a short build-up, with increasing open interest and falling prices, indicating bearish sentiment.

13) Short-Covering

• 41 stocks witnessed short-covering, signaling traders closing their short positions due to rising prices.

14) High Delivery Trades

• Delivery trades showed strong investor interest in select stocks, indicating a preference for long-term holdings.

15) Stocks Under F&O Ban

• New Entries: Biocon, Punjab National Bank.
• Existing: Aarti Industries, Balrampur Chini Mills, Bandhan Bank, and others.

These insights provide a solid foundation for navigating the market's opening on Wednesday. Ensure you adjust your strategies based on key support and resistance levels to spot potential opportunities.

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