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Market Watch: The mystery of F&O inclusions

business Updated: Nov 28, 2007 01:42 IST
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Why did Mundra port not debut in the derivatives segment yesterday? Thousands of investors would have asked themselves this question and not found an answer. I don't have an answer either. The NSE site says Mundra is "eligible for F&O trading, pending SEBI clearance", so I presume SEBI did not clear it. The ostensible reason, even if the regulator chooses not to speak about it openly, would be pending litigation and a corporate governance cloud over the company. Even if one buys this logic, should it then not have been prevented from doing an IPO in the first place? What sense does it make to give a green signal to the IPO and then bar it from futures trading. This not only defies any kind of logic but also prevents investors from using the futures segment effectively to safeguard their positions, thus hindering perfect price discovery. Inexplicable as it is, it is unfair and unfortunate too.



But this should not surprise investors, after all inclusions in the F&O segment have always had a shroud of mystery around them. Instead of laying down objective criteria based on trading data and adhering to them, the regulator and exchanges often seem to rely on "subjective" parameters to qualify or disqualify stocks. So companies considered mildly "shady" trade merrily in the cash segment but not on futures, even as illiquid and undeserving candidates sneak in. Is there any earthly reason for a Lakshmi Machine Works to be in the futures segment? The stock is completely illiquid. J&K bank gets into the F&O segment while Centurion bank of Punjab, far more liquid and active, is still out. IT stocks with very limited trading interest, CMC and Tulip IT are curiously in, while NIIT doesn't make the grade. The highly liquid Indiabulls finance and real estate have been kept out presumably for "governance" issues. One can go on and on.



This issue is generally significant but doubly so, as inclusion in F&O materially affects stock performance, at least in the near term, as evidence of recent inclusions suggests. Stocks have been known to shoot up 20-30 per cent immediately after they come into the futures list.