YES Bank, RVNL, Cochin Shipyard, Mazagon Dock, IREDA, NHPC shares eye F&O entry. Here's why

Markets regulator SEBI has revised criteria for stocks to be added to the futures and options (F&O) segment. This could lead way for inclusion of about 80 stocks such as YES Bank Ltd, Rail Vikas Nigam Ltd (RVNL), Cochin Shipyard Ltd and Mazagon Dock Shipbuilders Ltd; and exclusion of 23 stocks such as Gujarat Gas Ltd, City Union Bank Ltd and Bata India Ltd from the derivatives segment. In the case of F&O inclusions, two stocks Zomato and Jio Financial Services (JFS) could also see Nifty entry, Nuvama Institutional Equities said.

SEBI's revised criteria list includes raising the norm for stock’s six-month market wide position limit (MWPL) to at least Rs 1,500 crore from Rs 500 crore earlier. The average daily delivery value (ADDV) in the cash market criteria has been revised to at least Rs 35 crore from Rs 10 crore earlier. SEBI also revised criteria for the stock’s Median Quarter Sigma Order Size (MQSOS) to Rs 75 crore from Rs 25 crore earlier. Given that the average market turnover was 3.5 times the figure during the last review, MQSOS criteria would need to increase between 3-4 times, the market regulator noted.

"Regarding inclusions, our analysis shows that close to 80 names qualify for F&O inclusion. Given that it has been years since fresh inclusions were made, it seems clear that SEBI intends to include new stocks in derivatives. Out of the highlighted list, a dozen should make the cut in the next few months," Nuvama said.

Zomato Ltd, Jio Financial Services and IRFC are top three contenders to enter the F&O segment. They are followed by RVNL, NHPC, IREDA, Mazagon Dock, YES Bank, Varun Beverages, Cochin Shipyard, PB Fintech, HUDCO, LIC and Union Bank are some other potential F&O entries.

"As per our understanding from the circular, SEBI can introduce new inclusions in next few weeks/months," Nuvama said.

It noted that the exit criteria based on performance would be applicable three months after the date of issuance of the circular. So, ideally the exit review will happen in December 2024 and therefore, exclusions in the next few months.

Stocks that may face F&O exclusions may include Abbott India, Atul, Indiamart Intermesh, Citi Union Bank, Bata India, IPCA Labs, Sun TV and Gujarat Gas, among others.