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📰Explained: NSE Changed Option Expiry Days Out of Nowhere

Three stories on Indian markets that you can't miss.

March 05, 2025

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Good evening, 

Welcome to the best way to stay up-to-date on India’s financial markets. Here’s what’s in today’s newsletter:

  • Indian swap rates fall as rate cut expectations rise,

  • Southern states fought against Modi’s plan to adjust the number of parliamentary seats to population size,

  • and NSE unexpectedly changed option expiry data from Thursdays to Mondays.

Then, we close with Gupshup, a round-up of the most important headlines.

Have a question you want us to answer? Fill out this form and you could be featured in our newsletter.

—Shreyas, [email protected]

Market Update.

Indian Swap Rates Fall as Rate Cut Expectations Rise.

Investors are increasingly betting on earlier rate cuts in India, driven by easing inflation and concerns over economic growth. Market expectations have shifted, with investors now fully pricing in a 25-basis point rate cut in April, followed by another in October. India's one-year overnight index swap rate has dropped to 6.23 percent, its lowest level since August 2022, and now trades below the RBI overnight, 6.25 percent policy rate. For context, the one-year rate had consistently traded above the policy rate, expecting rates to stay restrictive.

The RBI’s view: While the RBI initiated its easing cycle with a 25-basis point cut on February 7, it refrained from adopting an accommodative stance, keeping investors cautious about the extent of future cuts. However, a steady decline in inflation and global economic uncertainty are strengthening expectations of more aggressive monetary easing.

Inflation is tracking close to 4 percent in February, down from 4.3 percent in January, largely due to falling vegetable prices. With the RBI’s target at 4 percent, this decline reinforces the case for further rate cuts. Additionally, minutes from the RBI’s recent policy meeting highlighted concerns that maintaining restrictive monetary policy could dampen growth, further fueling expectations of additional easing. Beyond domestic factors, signs of economic weakness in the US, coupled with a drop in US Treasury yields, have weighed on Indian swap rates. Nomura strategists now see conditions as ripe for further declines in Indian interest rates, reinforcing the belief that monetary policy will continue to loosen.  

Cut upside: If the RBI follows through with back-to-back rate cuts, borrowing costs for businesses and consumers will decline, potentially stimulating credit growth and economic activity. Lower interest rates could also provide a boost to Indian equities, particularly in sectors like real estate, banking, and infrastructure, which typically benefit from easier monetary conditions. Liquidity conditions could also finally ease helping out financial institutions borrowing trillions of rupees from repo markets. 

The small downside: However, a more aggressive rate-cutting cycle could put downward pressure on the rupee, especially if global interest rates remain relatively high. While the data increasingly supports further monetary easing, external factors, like US rates and commodity prices could keep rates higher for longer.

Southern States Fight Against Modi.

Tamil Nadu is resisting Modi’s plan to reshape parliamentary constituencies based on population size, highlighting a deepening regional divide. The federal government’s proposed delimitation exercise aims to adjust the number of parliamentary seats to reflect population changes since 1971. However, India’s more prosperous southern states, which have lower fertility rates, fear that this restructuring will diminish their representation in the Lok Sabha, the lower house of parliament.  

North/South divide: Tamil Nadu’s Chief Minister M.K. Stalin has been a vocal opponent of the plan. On Wednesday, he convened a meeting of regional politicians to protest the initiative and proposed forming a committee with leaders from southern states to collectively oppose the changes. Modi’s BJP maintains strong support in the populous, Hindi-speaking northern states, where fertility rates are higher. Uttar Pradesh, a BJP stronghold with over 200 million people, already holds nearly 15 percent of Lok Sabha seats, and its influence is expected to grow further under the new constituency mapping.  

Other disagreements: Stalin has argued that the southern states should not be penalized for successfully implementing population control measures. The dispute over parliamentary representation is just one aspect of the broader friction between southern states and the BJP. Stalin has also clashed with the Modi government over language policies, opposing efforts to promote Hindi in Tamil Nadu through education reforms. On Wednesday, he called for Tamil to be made an official language on par with Hindi and demanded more federal funding for Tamil than for Sanskrit, which he described as a “dead language.”

Fun Fact: Tamil Nadu’s Chief Minister M.K. Stalin was named after Joseph Stalin (Yes, that one) by his father, a former chief minister of Tamil Nadu. M.K. Stalin’s party, DMK, has been described as a left-wing populist party, of which his father was also once a member.

M.K. Stalin

The economic strength of India’s southern states further complicates the political divide. According to the Confederation of Indian Industry, these states contribute around 30 percent to India’s GDP and serve as major employment hubs, with tech-heavy cities like Hyderabad and Bengaluru hosting global corporations. Southern leaders have long accused the Modi government of shortchanging them in federal funding allocations despite their economic significance.  

While the BJP has assured that the delimitation exercise will not reduce southern states’ electoral representation, regional leaders remain unconvinced. Karnataka CM Siddaramaiah recently signaled that an organized resistance movement is on the horizon, warning that southern states will take collective action against what they see as an unfair political restructuring.

The NSE Changed Option Expiry Days.

India’s largest stock exchange, the NSE, unexpectedly shifted the expiration day for its equity derivatives from Thursdays to Mondays, a move that could have significant implications for traders and market participants. Beginning April 4, all monthly, quarterly, and semi-annual futures and options on stocks and indexes will now expire on the last Monday of the expiry month. Weekly contracts on the benchmark Nifty 50 Index — the only NSE weeklies remaining after regulatory restrictions — will now mature on the Monday of the expiry week, according to an exchange circular issued late Tuesday.  

Why change now? The NSE’s chief business development officer explained that the decision was based on stakeholder feedback and international practices, adding that the exchange remains open to reconsidering the change based on further responses. However, some market participants have raised concerns about increased risks for traders. There is now significant weekend carry-over risk as physically settled stock derivatives could see sharp moves based on the news over the weekend.

Motivations for change: This decision marks NSE’s second major expiry change in recent months. In November, the exchange moved several index derivatives expiries to Thursdays to align with the day most Nifty index contracts are traded. This move followed BSE’s streamlining of its derivatives expiries to Tuesdays, including shifting the weekly S&P BSE Sensex Index options from Fridays. Analysts suggest that NSE’s latest shift could be an attempt to gain an edge over BSE in the derivatives market.

The announcement triggered a sharp decline in BSE’s stock price, with shares tumbling as much as 9.4 percent to a four-month low, reflecting concerns about declining volumes at Asia’s oldest exchange. NSE’s timing also coincides with the recent appointment of Tuhin Kanta Pandey as the new chief of SEBI. His predecessor, Madhabi Puri Buch, had implemented some of the regulator’s strictest measures to curb excessive derivatives trading, including reducing the number of weekly options available and increasing minimum contract sizes.  

One major consequence of SEBI’s crackdown was NSE’s forced discontinuation of its highly popular weekly contracts tracking the NSE Nifty Bank Index. Since then, BSE has gained market share, with its notional turnover rising to approximately 55 percent of NSE’s in February, compared to just 30 percent before the regulatory changes took effect in October. NSE’s latest move could be an attempt to reclaim lost ground and reassert its dominance in the derivatives market.

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Gupshup.

Macro

Equities

Alts

Policy

See you Thursday.

Written by Yash Tibrewal. Edited by Shreyas Sinha.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.