Billionaire Anil Agarwal-led Vedanta Ltd is undergoing a major restructuring, splitting itself into five independent listed companies: Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Iron & Steel, and parent Vedanta Ltd, which will house the zinc and silver businesses through Hindustan Zinc and act as an incubator for new opportunities.
While this move is aimed at unlocking value, it creates short-term disruption in the derivatives (futures and options) market. Mint breaks down the process.
What happens to Vedanta’s F&O contracts?
All futures and options (F&O) contracts of Vedanta will expire on 29 April, irrespective of their original expiry date, Nimish Maheshwari, co-founder of Beat the Street, wrote in a note. This is because the National Stock Exchange of India and the BSE require all derivative contracts to be settled before a major corporate action such as a demerger, he wrote.
When a company’s structure changes, the old contracts no longer reflect the correct value of the business. To avoid pricing confusion, exchanges force an early settlement based on the stock’s closing price in the cash market on that day.
What happens to traders holding positions?
All open positions, whether futures or options, will be settled at closing price on 29 April, according to Maheshwari. The record date for the demerger is 1 May, but since that day is a market holiday, the cut-off moves to 30 April, as per Maheshwari’s note.
India follows a T+1 system, where trades are settled the next working day, and so 29 April becomes the last day to buy shares and still be eligible for the demerger. Any gains or losses from 29 April trades will be credited or debited on the next trading day.
After this, all old contracts will end. Traders who want to continue trading Vedanta will have to take fresh positions when trading resumes.
What changes when trading resumes?
Trading in the restructured Vedanta begins on 30 April, but with an important difference. The exchanges will conduct a special pre-open session to discover the new price of the stock, as per Maheshwari.
Since Vedanta is spinning off four businesses, the opening price will be lower than the previous day’s close because their value is no longer part of the parent company. New F&O contracts will be introduced after price discovery, and trading will restart from 10:00 AM.
Will the demerged companies have derivatives trading?
The four demerged entities will not havefor at least six months after listing, Maheshwari said. The Securities and Exchange Board of India, which regulates the market, requires a minimum trading history and liquidity before a stock becomes eligible for derivatives trading. The listing of the demerged companies is likely to be completed by the end of June.
This creates a temporary gap for institutional investors that typically rely on F&O to hedge their positions. In the absence of stock-specific derivatives, they may need to use broader tools like index futures or sector-based strategies.
Why does this matter for the market?
The creates a short-term disruption in trading and hedging activity. Without derivatives available for the demerged companies, price volatility in their stocks could be higher in the initial months.
At the same time, the weight of Vedanta in indices such as the Nifty Next 50 will decline after the restructuring, according to Maheshwari. Future inflows into the demerged entities will depend on how quickly they list and qualify for index inclusion.