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Journal of Exclusive Management Science October 2016 - Vol 5 Issue 10 ISSN 2277-5684

Emerging Trends in Derivative Market Trading in India- A Study on BSE


*Md Asif ur Rahman
** Dr. Khyser Mohd
*Research Scholar, Telengana University, Nizamabad, T.S
**Associate Professor and Chair person of BOS, Dept of Business Management, (Telengana University,
Nizamabad, T.S)
Abstract,
Derivatives Market is usually an essential part of Capital Markets in developed as well as in emerging
market economies (especially in India). These instruments help business growth by disseminating
effective price signals relating to exchange rates, indices and reference rates or other assets and thereby
render both Cash as well as Derivatives Markets are more efficient. Derivative Instruments also offer
protection of possible adverse market movements and can be used to manage or offset exposures by
hedging or shifting risks mainly during periods of volatility thus reducing costs. By allowing for the
transfer of unwanted risk, derivatives can promote more efficient allocation of capital across the
economy. Though the commodity features trading has been in existence since 1953 and certain OTC
derivatives such as Forward Rate Agreements (FRAs) and Interest Rate Swaps (IRSs) were permitted by
RBI through its guidelines, the trading in "Securities" based derivatives on stock exchanges was
permitted only in June 2000. The discussion that follows is mainly focused on Trends in BSE Derivative
Market.
Key Words: Derivatives Market, Capital Markets, hedging, OTC, FRA, IRS, Securities, BSE.
1. Introduction: The term Derivative is an instrument whose value drives from the value of
underlying assets, which may be commodity, foreign exchange, bonds, stock indices etc. The most
commonly found the derivatives are forwards, futures, and options. The price of derivatives moves along
with the price of the underlying assets. The most important use of derivative is transferring the risk i.e.
hedging which is the protecting of business against expected losses resulting from unforeseen changes
in price. Thus, derivatives are very important tool for management. Derivatives have assumed a
significant in the field of finance.
2. Objective of the study: Financial sector reform measures, which were initiated in 1991, have
provided some degree of maturity and integration of different segments of India's financial markets. This
paper is prepared by taking one of the objectives of Research on Performance of Derivative Market in
India An Analytical study.
The purpose of this paper is to study the Trends if Derivatives Segment and its growth in Financial
Markets in India w.r.t BSE.
3. Research Methodology: This study is totally based on secondary data collected from books and BSE
website.
4. Derivative exchanges in India:
There are two sorts of derivative markets in India. These are:
(i) Over The Counter (OTC) markets.
(ii) Exchange Traded Markets.
SEBI and RBI are the regulatory authority to permit the following stock exchanges of equity, Debt and
Forex related derivatives.
i)
ii)
iii)
iv)

National Stock Exchange


Bombay Stock Exchange
United Stock Exchange
MCX-SX

5. Factors Driving The Growth Of Financial Derivatives: Factors contributing to the growth of
derivatives are:

Price volatility,
Global-local openness and regulatory support,
Technological advancement,

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Journal of Exclusive Management Science October 2016 - Vol 5 Issue 10 ISSN 2277-5684

Development of more sophisticated risk management tools and


Innovations in the derivative market.

Derivative
products

Technical
Assets

Derivative

Market

Forwards
Futures
Options
Swaps

Hardware,

i.e., Computer
Software
Brain ware
Know-how

Risk

Manage

Price
Volatility

Derivatives and Technology


6.

Evolution of Derivatives:
Exotic
Exotic
Derivatives
-------Swaps
Options
Futures
Forward

7. GROWTH OF EXCHANGE TRADED DERIVATIVE MARKETS IN INDIA: India is one of the


most successful developing countries in terms of a vibrant market for exchange-traded derivatives. The
exchange-traded derivatives market in India has witnessed tremendous growth in terms of trading value
and number of trading contracts since 2000,

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Journal of Exclusive Management Science October 2016 - Vol 5 Issue 10 ISSN 2277-5684
The growth trend is outlined below: Due to the limitation on length of Research paper, beginning and
current data tables are represented and middle period data is ignored but considered in conclusion,
i.

Year: 2003-2004:-

Month

Total
Contracts

Total
Turnover
(T/o)

Premium
Turnover

Avg. Daily
Turnover

Avg. Daily
Premium
Turnover

Trading
Days

4-Mar

17,439

504.96

417.63

22.95

18.98

22

4-Feb

22,212

729.9

633.71

38.42

33.35

19

4-Jan

1,03,573

3,786.95

3,711.63

180.33

176.74

21

4000
3000

Total Turnover

2000

Premium Turnover

1000

Avg. Daily Turnover

Avg. Daily Premium Turnover


17,439

22,212

1,03,573

4-Mar

4-Feb

4-Jan

Trading Days

Interpretation: In the initial time the total contracts were 17,439, reached to over the one lackh
contract size. The total T/o was also reached 3,787 from beginning of its 505 turn over. It shows the
development and growth was started in initial period only.
ii.

Year : 2004-2005:Month

Total
Contracts

Total
Turnover

Premium
Turnover

Avg. Daily
Turnover

Avg. Daily
Premium
Turnover

Trading
Days

5-Mar

7,070

242.57

58.8

11.03

2.67

22

5-Feb

9,213

304.42

155.45

15.22

7.77

20

5-Jan

43,942

1,414.58

1,114.18

74.45

58.64

19

4-Dec

1,54,902

4,947.40

4,504.80

215.1

195.86

23

4-Nov

1,57,458

4,694.82

4,213.01

234.74

210.65

20

4-Oct

1,15,298

3,290.36

2,776.22

164.52

138.81

20

4-Sep

39,788

1,094.29

866.17

49.74

39.37

22

4-Aug

22

4-Jul

10

0.32

0.32

0.01

0.01

22

4-Jun

22

4-May

1,146

38.77

38.77

1.85

1.85

21

4-Apr

2,892

84.79

84.79

4.24

4.24

20

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Journal of Exclusive Management Science October 2016 - Vol 5 Issue 10 ISSN 2277-5684

45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0

Total Contracts
Total Turnover
Premium Turnover
Avg. Daily Turnover

01-Dec

01-Nov

01-Oct

01-Sep

01-Aug

01-Jul

01-Jun

01-May

01-Apr

01-Mar

01-Feb

01-Jan

Avg. Daily Premium Turnover


Trading Days

Interpretation: from the above table it can be observed that, there were huge fluctuations in
Derivatives Market. From the April-04 till the end of August-04, Market was in bearish trend, than after
wards the market showed bullish throughout the 2004 year. The beginning of 2005 year also followed
by bearish trend.
iii.

Year 2015-16:Month

Total
Contracts

Total
Turnover

Premium
Turnover

Avg.
Daily
Turnover

Avg. Daily
Premium
Turnover

Trading
Days

16-Mar

15,11,583

75,437.51

891.53

3,771.88

44.58

20

16-Feb

24,84,837

1,19,908.89

830.11

5,709.95

39.53

21

16-Jan

26,28,859

1,32,590.30

520.4

6,629.51

26.02

20

15-Dec

23,08,640

1,20,287.52

643.79

5,467.61

29.26

22

15-Nov

20,05,197

1,05,526.29

650.06

5,554.02

34.21

19

15-Oct

81,09,124

3,22,276.53

1,204.65

16,113.83

60.23

20

15-Sep

59,66,403

2,27,665.08

1,121.28

11,383.25

56.06

20

15-Aug

1,49,70,460

6,26,775.30

961.9

29,846.44

45.8

21

15-Jul

3,17,40,117

13,27,201.53

1,296.12

57,704.41

56.35

23

15-Jun

1,54,23,676

6,30,200.02

2,299.12

28,645.46

104.51

22

15-May

97,29,507

3,98,923.64

2,487.72

19,946.18

124.39

20

15-Apr

93,30,991

3,88,215.71

2,925.47

20,432.41

153.97

19

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Journal of Exclusive Management Science October 2016 - Vol 5 Issue 10 ISSN 2277-5684

60000

Premium Turnover

50000

Avg. Daily Turnover

40000

Avg. Daily Premium


Turnover

30000
20000
10000

3,88,215.71

3,98,923.64

6,30,200.02

13,27,201.53

6,26,775.30

2,27,665.08

3,22,276.53

1,05,526.29

1,20,287.52

1,32,590.30

1,19,908.89

75,437.51

Interpretation: The above table and graph it can be observed that the Derivatives Market is following
the same bearish and bullish trend like previous years, i.e. beginning of year following bearish and
ending year with bullish trend. It may be found that, there are some external factors affecting the
Market volatility.
iv.
Year wise Derivatives Turnover in BSE:Total
Contracts

Total Turnover

Premium
Turnover

Avg. Daily
Turnover

Trading
Days

2016-2017

1,16,728

6,450.42

2,014.73

56.09

115

2015-2016

10,62,09,394

44,75,008.32

5,861.82

18,117.44

247

2014-2015

50,54,78,869

2,03,62,741.42

83,797.29

243

2013-2014

30,19,42,441

92,19,434.32

36,730.81

251

2012-2013

26,24,40,691

71,63,576.66

28,654.31

250

2011-2012

3,22,22,825

8,08,475.99

3,246.89

249

2010-2011

5,623

154.33

0.61

255

2009-2010

9,028

234.06

0.96

244

2008-2009

4,96,502

11,774.83

48.46

243

2007-2008

74,53,371

2,42,308.41

965.37

251

2006-2007

17,81,220

59,006.62

236.97

249

2005-2006

203

8.78

0.03

251

2004-2005

5,31,719

16,112.32

63.69

253

2003-2004

1,43,224

5,021.81

19.77

254

Year

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Journal of Exclusive Management Science October 2016 - Vol 5 Issue 10 ISSN 2277-5684

90000
80000

Avg. Daily Turnover

70000
Trading Days

60000
50000
40000
30000
20000
10000

5,861.82

2,014.73

6,450.42
44,75,008.32
2,03,62,741.42
92,19,434.32
71,63,576.66
8,08,475.99
154.33 234.0611,774.83
2,42,308.41
59,006.62 8.78 16,112.32
5,021.81
1,16,728
10,62,09,394
50,54,78,869
30,19,42,441
26,24,40,691
3,22,22,8255,623 9,028 4,96,502
74,53,371
17,81,220 203 5,31,7191,43,224
2016- 2015- 2014- 2013- 2012- 2011- 2010- 2009- 2008- 2007- 2006- 2005- 2004- 200317
16
15
14
13
12
11
10
09
08
07
06
05
04

Interpretation: From the above table and graph, it is clear that, the Derivative Market has vast bullish
and bearish trends in the one and half decade. Every year it is starting journey with bearish and ending
with bullish trend. In the year 2008 to 2010-11, the market was not in good condition, it might be due
to financial crisis in international market. But the market has changed its trend from the year 2011
and has performed well for the next half decade. The turnover during this period was reached from 8.9
lack (approx) to 2crore and 3 lack (approx) in the year 2014-15. Whereas it started falling down and
reached to 44.75 lach in the next year (i.e. 2016). Till the month of September 2016 the total turnover
was 6,450 (approx).

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Journal of Exclusive Management Science October 2016 - Vol 5 Issue 10 ISSN 2277-5684
Findings & Conclusion: This paper consists, the study related to the trends in Derivative Market (w.r.t
BSE India) for the past one and half decade. Where it is observed that, the Derivative Market has many
ups and downs in every year, still it is performing very well which result in attraction of customers
(market player) to invest into this segment to hedge the risk associate with Cash Market. Derivative
products as used as a tool to avoid the risk of investment and is used to forecast the future prices of
particular asset or investment. This is the reason for the growth of Derivative Market compare to any
other option for investment.
References:
Financial Derivatives (Theory, concepts and problems), S.L Gupta, PHI Learinng private Limited. 9 th
edition- 2010.
Fundamentals of Financial Derivatives, Prafullah Kumar Swain, Himalaya Publishing House, first
edtion-2012.
Derivative Market in India, Practice problems and Prospect, Th. No 401, B.Rajkumar, BM-2012
Osmania University, Hyderabad.
www.bseindia.com
www.moneycontrol.com
www.businessdictionary.com

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