Extended trading hours needed only in commodity and currency markets, not equity market
REACTION TO NEWS One argument being forwarded for extending trading hours in INDIA is that traders will then be able to react to news from the Europe and US. The reaction will be assimilated in the stock prices, preventing large gap-up or gap-down opening the next trading day. This argument, however, appears specious. BUSINESSLINE analysis of the difference between the closing value of the Nifty50 and next day’s opening value, from January 1, 2023, to October 10, 2023, shows that the average overnight change is just 0.12 %
THAT LONGER TRADING HOURS WILL CLOSE THE GAP BETWEEN THE PREVIOUS DAY’S MARKET CLOSING AND THE NEXT DAY’S Opening does not hold water in INDIAN market as the variance here is rarely sharp COVID-19 outbreak or the Russia-Ukraine war, such events are not commonplace.
MARKET TRADING HOURS If we look at the trading hours of the largest stock markets across the US, Europe, Africa and Asia, the timing for equity trading is typically between 9 a.m. and 5 p.m. Many stock market also include a lunch break, when traders can unwind.
LONGER HOURS IN GIFT IFSC NSE has already started preparing for this by extending trading hours for interest rate derivative segment up to 5 p.m. from February 2023. SEBI would however do well to take it slow in giving permission to extend trading in equity derivatives on domestic bourses.
The RBI will however have to permit the use of LRS funds for derivative trading on GIFT IFSC to make this possible.
Liquidity situation for banks could tighten
A slowdown in bank deposit growth cannot be ruled out. Banks need to plan ahead
The tendency of drawings against marginal standing facility (MSF) is an indicator of rising liquidity stress, more importantly, after I-CRR was imposed. Liquidity position may ease after I-CRR is lifted. The tightened liquidity condition are also evident from the fact that weighted average call rates moved up from 6.48% in July to 6.58% in August and further to 6.65% in September. The recent RBI data indicates that the net financial savings of households plunged by close to 55% in FY23 scaling it down to 5.1% of GDP, and their indebtedness more than doubled to RS.15.6 lakh crore from FY21, primarily led by massive borrowings from banks.