Index Of Badla
Badla system was an indigenous carry-forward mechanism used in Indian stock exchanges (primarily the Bombay Stock Exchange (BSE)
. These crises highlighted the lack of transparency and the danger of "circular trading" fueled by Badla financing. Regulators realized that while Badla provided liquidity, it also invited extreme volatility and hindered the professionalization of the Indian capital markets. The Shift to Derivatives index of badla
- Total Badla Turnover (Rs '000)
- Badla Rate (%) – Usually linked to the Prime Lending Rate (PLR) plus a spread.
- Top 5 Stocks by Badla Volume (e.g., MCB Group, SBM Holdings, CIM Finance).
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Sample Index Calculation (March 1998): | Security | Spot (₹) | Badla Rate (%) | Outstanding (₹ Cr) | |----------|----------|----------------|--------------------| | TISCO | 128.40 | 12.5 | 22.3 | | RIL | 342.00 | 11.0 | 45.1 | | ITC | 720.50 | 13.2 | 18.7 | Total Badla Turnover (Rs '000) Badla Rate (%)
5. Interpretation of the Index Values
| Badla Index Value (Annualized) | Market Condition | Interpretation | |-------------------------------|------------------|----------------| | < 6% | Very low carry cost | Excess liquidity, bearish sentiment (no demand for leverage) | | 6% – 12% | Normal range | Balanced, functioning badla market | | 12% – 24% | High demand for carry | Bullish sentiment, long positions expensive to hold | | > 24% | Extreme stress | Shortage of financiers, possible market top or margin call cascade | | Negative (rare) | Reverse Badla | More short positions than long – bears pay bulls to carry short forward (ultra-bearish) |
: The "index" or rate was essentially the interest paid by a buyer (bull) to a financier to defer payment, or by a seller (bear) to a stock lender to defer delivery. Hawala Rate : The badla rate was calculated based on the hawala rate
