MUMBAI: Investors are set to enter a new era from Friday with implementation of T+1 settlement cycle in the Indian stock exchanges. Introduction of a shorter settlement cycle will mean faster payments and speedier delivery of shares for investors, while for brokers and stock exchange it will result in higher turnover. The stock market was following T+2 settlement cycle earlier, under which the investors used to receive shares or dividends in their accounts in two days after the transaction. Now, under the t+1 settlement, if investors buy a stock today, it will be credited to their account tomorrow.
Switching to a shorter settlement cycle means increase in liquidity in the market as investors will get their funds one day earlier. Experts believe that with more liquidity in hands, investors will undertake more transactions which means higher turnover for brokers and stock exchanges.
“With T+1 making the whole settlement procedure faster, the investor gets more purchasing power and liquidity. We expect an organic increase in turnover,” Anand James, Chief Market Strategist at Geojit Financial Services told TNIE.
With settlement cycle time reduced by half, the turnover will increase but will not double, he clarified. “After T+1 replacing T+2 settlement, essentially, shares will take half as much time as earlier to change hands, but can we expect twice as much volume as earlier? Certainly no, as that would have assumed that the majority of trades are taken with a 1-2 day horizon which is not right,” said James.
India has become the first major economy to move to a T+1 market settlement cycle as the Chinese market is currently partly T+1. Indian stock market has come a long way from its earlier days of T+3 cycle in early 2000s. The capital market regulator Sebi had shortened the settlement to T+3 cycle in 2002 and then to T+2 from April 2003.
“The implementation of T+1 is a major achievement for the country as India has become the first major market to implement T+1 settlement for cash market,” Kamlesh Shah, President, Association of National Exchanges Members of India (ANMI) told this newspaper.