The F&O Effect: With 45 stocks set to be included in New Additions Drive Stock Prices? A Look into Previous Inclusion Performances

F&O inclusion often enhances liquidity and attracts market participants, it does not guarantee sustained price performance. For some stocks, speculative activity following inclusion may lead to subsequent corrections

The National Stock Exchange (NSE) has announced the inclusion of 45 new stocks in the Futures and Options (F&O) segment, effective November 29, 2024. According to an NSE circular, prominent names such as Zomato, Jio Financial Services, and Avenue Supermarts (DMart) are among the additions. This marks the first revision in 2.5 years, reflecting the implementation of new eligibility norms.

Among these new additions, a majority of stocks have seen a boost in investor interest, as F&O inclusion is often regarded as a liquidity enhancer. This development typically attracts increased participation from institutional and retail investors alike.

With the market abuzz about these new inclusions, here’s a brief analysis of the share price performance of stocks added to the F&O segment during the previous revision.

In the last revision, nine individual securities were introduced to the F&O segment on December 31, 2021, followed by the inclusion of two additional stocks, ABB India and Intellect Design Arena, on January 28, 2022.

The table below highlights the performance of these stocks six months before and after their inclusion in the F&O segment:

(Source: NSE)

Key Observations

1. Pre-Addition Performance: Out of 11 stocks, six delivered positive returns six months before F&O inclusion, while four saw negative returns. One stock remained flat.
2. Post-Addition Performance: Only two stocks posted positive returns six months after inclusion, while eight experienced losses, and one remained flat.
3. Consistent Performers: Stocks like ABB India and Gujarat Narmada Valley Fertilizers delivered strong positive returns both pre- and post-addition.
4. Underperformers: Stocks such as Intellect Design Arena, NBCC (India), Honeywell Automation India, and Hindustan Copper showed negative returns in both periods.
5. Declines Post-Inclusion: Stocks like Rain Industries and Tata Communications performed well before inclusion but saw sharp declines afterward.
6. Minimal Change: Balrampur Chini Mills Limited showed negligible movement, with returns close to 0% in both periods.
7. Significant Losses: Stocks such as NBCC (India), Aditya Birla Capital, and IDFC Limited experienced steep declines after F&O inclusion.

While F&O inclusion often enhances liquidity and attracts market participants, it does not guarantee sustained price performance. For some stocks, speculative activity following inclusion may lead to subsequent corrections. Investors should assess broader market trends, company fundamentals, and sectoral dynamics instead of relying solely on F&O inclusion as a trigger for investment decisions.

Disclaimer: This article is for informational purposes only and should not be construed as investment advice.