Comparing the volatility of Indian and US markets

08 Jul 2022

There was a time when if US markets caught a cold, we’d catch a fever. But since 2010, volatility wise, we’ve been much better compared to the US. While the credit is usually given to more local participation, it has got more to do with SEBI regulations that reduced leverage.

Btw the above chart isn’t even a fair comparison, Nifty is an index of the 50 largest Indian companies & S&P 500 consists of the 500 largest US companies in the US. Nifty should be a lot more volatile.

The post-2008 crash regulatory changes I think led to this 👇

Aug 2011: Penalty for non-collection of end-of-day margins (SPAN) in F&O. Until then, brokers could allow customers to trade with whatever margins, even overnight

Aug 2014: Min 50% haircut for loan against security. Until then, promoters & HNIs could borrow as much as 100%

Unwinding of LAS positions when markets fell in 2008 created snowball effect. 50% is now high margin of safety for NBFCs, enough to avoid liquidation on bad days

May 2018: Penalty for non-collection of exposure & other margins in addition to SPAN for end-of-day F&O positions.

Nov 2019: Penalty for non-collection of end-of-day VAR+ELM margins for stocks. Until then, brokers could potentially fund the margins to buy stocks.

July 2020: Peak margin penalty for allowing customers any additional intraday leverage above SPAN+Exposure or VAR+ELM.

Most of these developments have hurt the revenues of brokers in the short term but led to lesser volatility. This has significantly improved the odds of retail participants doing well. One of those Nazdiki fayda dekhne se pehle, door ka nuksaan sochna chahiye things.

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