Cash, derivatives volumes sink as oil, yields roil sentiment

The slowdown reflects a confluence of pressures. A surge in oil prices, driven by the US-Iran war and disruptions to global supplies, has pushed up bond yields and heightened volatility, while US Treasury yields—at their highest level in more than two decades—have driven foreign investors out of Indian assets. A revival in volumes may hinge on two swing factors: a de-escalation of the war in West Asia, and whether the market regulator delays rules pertaining to weekly options settlement on expiry days.

Stocks underperform

The Nifty 500, which represents the top 500 listed large-, mid- and small-cap companies on the NSE, declined 4% to 22,072 during the September quarter—a sharp reversal from the nearly 10% gain it posted in the first quarter of the current fiscal year (FY27).

The reversal mirrors oil's own swing. Brent crude rose 34% to $98 a barrel during the September quarter, after sliding 38% to $73 a barrel in the June quarter, according to Investing.com. The sharp rise in crude prices has been a primary reason for the market’s underperformance.

Foreign portfolio investors sold ₹1.38 trillion of Indian equities in the fiscal year through 1 October, after a record ₹1.8 trillion of selling in fiscal year 2026 (FY26), adding to market volatility and weighing on overall participation.

Yields harden

Following this, the yield on the benchmark 10-year Indian government bond rose 43 basis points (one basis point is one-hundredth of a percentage point) to 7.18% during the September quarter, according to Investing.com. Hopes of a resolution to the West Asia conflict had driven the yield down by 21 basis points to 6.75% during the first quarter.

Other factors weighing on volumes include an RBI regulation requiring banks to fund proprietary traders—one of the biggest participants in the market—only against full collateral from July, and the new closing-auction session introduced by Sebi from 3 August. The latter, which replaced volume-weighted continuous trading during the last 15 minutes of the trading session, has been plagued by liquidity issues, distorting prices on weekly expiry of index options such as Nifty and Sensex .

“Sebi is likely to defer the CAS for derivatives settlement on weekly expiry days for a year, while retaining it on non-expiry days, so many persons absent from derivatives trading will return to the fold and volumes will rise,” said DK Aggarwal, chairman and managing director of SMC Capitals Ltd. “I expect cash market volumes to pick up too, especially if crude remains at or below $100 a barrel.''

Ram Sahgal

Ram Sahgal is a deputy editor at Mint. He has over 20 years of experience in journalism, with previous roles at The Intelligent Investor, Bombay Times, The Economic Times, and The New Indian Express. Between his media roles, he briefly worked at a commodities exchange before returning to his true passion, business journalism. Ram graduated in liberal arts from St Xavier’s College, Mumbai, where he studied films, which explains his move to Bombay Times, where he covered the film industry during the rise of Sunny Deol and Sanjay Dutt. He took a leap of faith to transfer to The Economic Times, and thanks to his restless mind, later moved to cover the commodities beat. Over the past three years, Ram has been tracking the stock markets at Mint. His focus areas include writing about market infrastructure institutions, brokerages, derivatives, and related regulations. His hobbies include spotting trains and understanding the locomotives that power them. In his free time, he takes his octogenarian mother out for drives and goes to the cinema with her on weekends. If he has a dream, it is to write a screenplay for a movie. For now, he enjoys viewing market data on NSE and BSE, observing the shifting mood of Mr Market, and conversing with market experts.