Indian options market grows at 56% CAGR over FY20-26; contributes 70% of exchanges' revenue: Jefferies

Indian equity options market is catching up with the cash equity segment, with derivatives accounting for around 70% of Indian exchanges' operating revenues in FY26, according to a latest report by Jefferies.

The foreign brokerage said the average daily options premium turnover (ADTO) stood at around ₹77,200 crore in FY26, nearly 70% of the daily cash market turnover. The equity options market grew at a compound annual growth rate (CAGR) of 56% between FY20 and FY26, compared with 19% CAGR in cash market turnover.

"The Indian equity options market has grown at a 56% CAGR over FY20-26 versus 19% CAGR in cash market turnover. Options premium ADTO was around 70% of the daily cash market turnover in FY26. Hence, derivatives accounted for approximately 70% of operating revenues for Indian exchanges," Jefferies said.

The brokerage attributed the rapid growth to "the rise in digital broking platforms like Groww, Zerodha and Angel One , the introduction of short-dated weekly index options, and cash leverage being limited to 5x."

Jefferies said the rapid expansion of the equity options market has fundamentally altered the revenue profile of exchanges, making earnings more closely linked to market volatility than stock prices.

"This has resulted in the linkage of exchange revenues with market performance cycles breaking down as option trading is closely linked to volatility and not price," it said.

Indian exchanges generated consolidated revenues of ₹24,400 crore in FY26, with the National Stock Exchange (NSE) , Bombay Stock Exchange (BSE) and Multi Commodity Exchange (MCX) accounting for 97% of the industry's revenue.

Among the three, NSE remains the most diversified exchange, offering equity cash, index options, single-stock options, equity futures, commodity derivatives, bonds and currency derivatives, the brokerage said.

According to Jefferies, NSE commands more than 90% market share across most segments except index options and commodity futures and options. Its clearing arm, NCL, holds an 88% share in the cash market and a 91% share in the futures and options segment.

Retail losses remain a regulatory concern

The surge in options trading has also attracted regulatory scrutiny. Jefferies noted that the Securities and Exchange Board of India (Sebi) has introduced several measures since November 2024, including limiting index option expiries to one per exchange, increasing contract sizes, tightening position limit monitoring, imposing additional margin requirements for short expiries and strengthening surveillance.

Following these changes, NSE shifted Bank Nifty, Midcap Nifty and Fin Nifty contracts to monthly expiries, resulting in index options ADTO growth slowing to 8% in FY26, the report said.

Despite concerns over the size of India's derivatives market, the brokerage pointed out that while India trades four to five times more option contracts than the US, its options premium turnover is only around one-fifth of the US market.

The report also highlighted that small traders account for a limited share of trading activity. While traders with less than ₹1 lakh turnover represent around 35% of options traders, they contribute less than 1% of NSE's options turnover. Their share has declined from 45% in FY25 to 35% following SEBI's regulatory changes.

Sebi, in a recent study, said nine out of ten individual traders incurred losses in the futures and options segment. Between December 2024 and May 2025, individual traders lost ₹1.05 lakh crore in the equity derivatives segment, up 41% from ₹74,812 crore in FY24, while the average loss per trader stood at ₹1.10 lakh.

Citing NSE's draft red herring prospectus (DRHP), Jefferies projects equity options to grow at a relatively modest 9-11% CAGR between FY26 and FY30, compared with 14-16% growth for cash equities and 20-25% for commodity options.