Navigating Derivatives: Why Patience Beats Speculation Every Time

As we step into the second half of 2025, a glance in the rear-view mirror reveals a remarkable story of resilience in India’s financial markets. Despite a barrage of headwinds—geopolitical tensions, fears around Trump-era tariff revival, and the recent disruption caused by the Jane Street episode—India’s stock market has not only held its ground but surged ahead.

From the lows of April 2025, benchmark indices like the Nifty and Sensex have bounced back nearly 17 per cent. Earlier in the year, the markets had slipped almost 9 per cent from January levels. Today, they stand with gains of about 7 per cent year-to-date—a comeback that speaks volumes about the strength and adaptability of the Indian economy.

One of the more unexpected turns recently was SEBI’s move to bar Jane Street—a globally renowned U.S.-based quantitative trading firm—from participating in India’s derivatives segment. The firm, known for providing liquidity and playing a market-making role, has been allegedly accused of manipulating expiry-day volatility for massive profits—estimated at a whopping ₹36,500 crore.

The banning of such a key player could have disrupted the derivatives ecosystem, but the markets stayed largely unaffected. That resilience can be attributed to a few critical factors: the robustness of India’s market infrastructure, and the increasing presence of other global institutions. Rather than sparking panic, SEBI’s swift action has been seen as a step towards ensuring greater transparency and integrity. However, not all is rosy—especially in the realm of derivatives trading. SEBI’s July 2025 report on the derivatives market brings to light some sobering facts. A staggering 91 per cent of individual traders suffered losses in FY25, with total retail losses touching ₹1.06 lakh crore—a 41 per cent jump from the previous year. The average loss per trader? ₹1.1 lakh. That’s enough to undo months, if not years, of careful SIPs and savings.

Recognising the urgency, SEBI has already introduced a raft of measures in November 2024 to rein in speculative retail trading in the F&O space. And the effects are now visible. The number of active F&O traders fell 20 per cent between Q1 and Q4 of FY25, declining from 6.14 million to 4.27 million. Small-ticket traders, those dealing in trade sizes under ₹1 lakh, were the first to exit. Meanwhile, index options turnover dipped by 9 per cent YoY, and overall retail volumes fell 11 per cent. Encouragingly, retail losses dropped by 26 per cent between Q3 and Q4 FY25. It’s clear that SEBI’s interventions are starting to work. But the larger takeaway remains unchanged: derivatives are not the holy grail for retail wealth creation. With 9 out of 10 traders consistently losing money, derivatives require deep knowledge, discipline, and risk management—not blind hope. For most of you, the path to wealth is paved with patience, not speculation. Focus on long-term investing, build a diversified portfolio, and stay grounded in companies with sound fundamentals. This strategy may lack the adrenaline rush of daily trades—but it’s far more likely to take you where you want to go.

In this issue, our cover story shines the spotlight on the Lindy Effect—a timeless concept that says the longer something non-perishable has survived, the longer it’s likely to endure. Think gold. Think blue-chip stocks. Our story explores how these time-tested assets, when combined, can form a portfolio that weathers volatility and compounds steadily over time.

Dalal Street Investment Journal itself is a proud example of the Lindy Effect. Since 1986, DSIJ has stood by Indian investors through every phase—bull runs, crashes, reforms, and resets. Like the enduring assets we write about, DSIJ has weathered market cycles by staying true to its values: knowledge, patience, and discipline. Thank you for your continued trust across these 39 remarkable years.

Let’s keep building, growing, and investing—together.

RAJESH V PADODE
Managing Director & Editor