The shift to same-day trade settlement or “T+0” cycle could be a potential game changer for India, but a clear guidance is critical that can help participants make informed decisions in an evolving market landscape, says Trivesh D, chief operating officer at online stock trading platform Tradejini.

Stock exchanges are set to launch ‘T+0’ trade settlement in a limited number of scrips in the cash market, involving a limited number of brokers, from Thursday, and this will function alongside the existing ‘T+1’ cycle.

However, Trivesh believes that unless participation is made mandatory, the impact will be miniscule.

“Given the already declining cash market volumes compared to F&O, implementing this change could potentially skew the ratio of F&O volumes to cash market trades even further,” he said in an interview with ETMarkets.

He also highlighted that the current ecosystem might require improvements for T+0 functionality, such as margin reporting standardization, risk management strategies, settlement guidelines, and price differential arbitrage protection. Edited excerpts:

Moving to T+0 trade settlement is seen as a game changer for our market. But do you foresee challenges in the process of implementation?
Trivesh D: T+0 settlement is a fantastic idea for streamlining the market. However, implementing this will be an in-development process, at least for a while. The T+0 settlement is a potential game-changer, but there are hurdles to consider. We are talking about a complete overhaul of the current infrastructure—systems and processes. All those systems must be upgraded. There is also a chance it could increase market volatility, which might make things a bit more unpredictable in the short term.

With the proposed settlement cycle, we believe that participation, unless made mandatory, will be minuscule.

Given the already declining cash market volumes compared to F&O, implementing this change could potentially skew the ratio of F&O volumes to cash market trades even further.

These advanced trading systems, like T+0, highlight the importance of clear guidance. The industry needs to step up and educate both investors and brokers to navigate these changes effectively. That way, everyone can make informed decisions in this evolving market landscape.

Is the current market infrastructure ecosystem supportive of instant trade settlement?
Trivesh D: By providing same-day access to both funds and securities, this system significantly lowers risk for individual investors, minimizing exposure to counterparty and settlement delays.

The current ecosystem might require improvements for T+0 functionality, such as margin reporting standardization, risk management strategies, settlement guidelines, and price differential arbitrage protection.

Additionally, a few of the pertinent questions, such as segmentation of securities, corporate actions, impact on mutual fund NAVs, and escalation in trading costs, continue to remain without concrete guidelines.

With very little time for actual settlement, potential failures may be difficult to identify and corrective action may not be taken.

Strong risk management systems would be crucial going forward. Also, faster settlements could potentially increase market liquidity, requiring adjustments to ensure smooth functioning.

Technology settlement systems and processes might need upgrades to handle the high volume and real-time nature of T+0 settlements.

However, good things usually take time because they are built on a strong basis, and our regulators are trying to build a strong foundation.

From a trader’s perspective, how a shift to T+0 settlement will benefit?
Trivesh D: The current regulations are applicable only for 25 select stocks and only for the cash segment, which implies delivery-based trades.

From a trader’s standpoint, especially expiry traders and intraday traders, the T+0 settlement does not have any impact.

T+0 will be beneficial for investors looking at immediate liquidity and swing traders since it offers them a significant boost to their agility and potential returns.

These traders can access funds from sales on the same day, allowing them to reinvest their funds or react to market movements quickly.

This unlocks more trading opportunities and capitalizes on short-term swings. Secondly, with faster settlement, money flows back into the market quickly, increasing overall liquidity.

This leads to tighter bid-ask spreads and potentially better entry and exit points for trades.

Additionally, T+0 mitigates counterparty default risk. In the traditional T+1 system, there’s a one-day window where the seller might default before delivering the securities. T+0 will ensure immediate transfer, minimizing this risk but not eliminating it.

Let’s talk a bit about the current market situation. Is there actually a bubble formation in the mid- and smallcap segment?
Trivesh D: I feel there might be some bubble formation in the mid and small-cap segments. These segments tend to be more volatile, and if a bubble bursts, it could cause serious losses for investors. Here’s something to consider – given the current volatility, it is advisable to have a smaller exposure to your equity portfolio to mid and small-caps. Therefore, diversification is crucial for a healthy portfolio.

The key is to invest based on your own needs and risk tolerance. Ask yourself, how comfortable am I with market fluctuations? By prioritizing your long-term goals and understanding your risk appetite, you can make informed decisions about asset allocation, including how much exposure you have to mid and smallcaps.

Post the recent regulatory interventions, do you foresee a change in investors’ approach towards small- and midcap stocks?
Trivesh D: I think the recent regulatory interventions by SEBI could influence how investors approach small- and midcap stocks. Let us look at the numbers: Mid-cap AUM is nearing large-cap territory at Rs 2.9 lakh crore, and small-cap AUM isn’t far behind either, at Rs 2.47 lakh crore. This rapid growth has raised some concerns.

These interventions, including limitations on additional investment, valuation caps, stricter classifications, increased disclosures, and leverage restrictions, all aim to curb risk associated with potentially inflated valuations in the small and mid-cap segments.

The idea is to encourage more sustainable and informed investing. We might see a shift towards more caution and selectivity. Investors may prioritize companies with strong fundamentals and reasonable valuations over those with high price tags and uncertain growth prospects.

This could lead to a more stable market environment, which is ultimately good for the long-term health of the Indian stock market.

The last time we spoke, you said that 2024 will be a breakthrough year for the Indian stock market. Do you stand by this view?
Trivesh D: Absolutely, I still hold to my view that 2024 can be a landmark year for the Indian stock market. Remember 2023’s returns were across the board. The Nifty is surging over 20%, and even the broader markets are outperforming, with the midcap and smallcap indices clocking nearly 50% gains.

A couple of factors give me confidence. Firstly, there is the historical trend. This is an election year in India, and interestingly, the median market returns during election years over the past three decades have been around 17%.

Secondly, foreign investors, or FIIs, continue to be very positive about India and its growth potential.

We have already seen a positive inflow of around $3 billion this March, indicating their continued interest in the Indian market. This trend could very well continue. The market is bullish.

However, even a bullish market can experience volatility. Keep some strategies to consider in this bullish market.

Focus on quality, do not get carried away by the hype or corrections. Stay invested in companies and businesses that you believe will positively impact the economy going forward in building the $5 trillion economy.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)