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Benchmark indices closed down 0.42 percent on the news of November’s CPI print coming in at 5.5 percent y-o-y, an improvement from October’s 6 percent. Bonds stayed flat while the rupee stayed relatively flat.

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What happened: Last month, SEBI instituted new regulations to cool options trading after it was revealed that 93 percent of retail traders were losing money on such speculative trades. Now, we have evidence the regulation is working: options trade volume is down 90 percent since all-time highs in January 2024. The era of India being home to ~90 percent of all options traded and executed globally is now in the rear-view mirror.

Trading volume is down 30 percent in the week ending December 6th alone, the first week under the most recent SEBI regulations.

The new rules: SEBI introduced two new regulations: discontinuing the volatile weekly Nifty contracts and tripling the capital requirement for maintaining an options trading account.

Who gets hurt: For the National Stock Exchange and BSE, the two largest clearing houses, this means a huge drop in premiums: the dollar-traded amount of options is down 50 percent since the January high.

November’s CPI print came in at 5.38 percent y-o-y, a much-needed drop from October’s 6.21 percent. While the RBI’s target is 4 percent with a band of +/-2 percent, the central bank will continue to take a hawkish approach to inflation.

It’s the food, stupid: Food makes up half of the consumer basket and rose 9.04 percent y-o-y, down slightly from October’s 10+ percent reading. Particularly, vegetables are up 29.13 percent. Compare this to core inflation, which stayed flat at 3.72 percent y-o-y, well within the RBI’s ideal range. As Samosa Capital, top Indian economic advisors, and Bloomberg columnists have argued, India overweights food in its basket of goods, an artifact from how Indians spent their paychecks 20-30 years ago. Additionally, the RBI can do little to control food inflation, which is largely driven by government quota and export/import controls, along with the level of rainfall during the monsoon season.

Welcome, Nomura and Morgan Stanley: Both major banks are set to launch market-making services in India, becoming the first foreign entities to enter this space. Currency market-making facilitates seamless currency trading and global oil transactions by ensuring smoother execution.

It’s about time: Although the RBI approved their entry into India two years ago, these banks are the first to internally greenlight the service and initiate the rollout of required operations. India’s inclusion into global bond indices (JP Morgan and FTSE Russell) plus increased markets trading, foreign direct investment, and export/import balances have led to more transactions happening in rupees and the need for international players to offer high-end institutional service.

But... The RBI has stringent rules that foreign entities have to follow. Some of them include daily reporting on what transactions took place plus the notional amounts exchanged, high margin requirements, and logical charts depicting the chain of management.

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.