Professional Documents
Culture Documents
PROJECT REPORT
ON
“Perception of investors towards Derivatives Market & their
performance”
SUBMITTED BY:
RUCHIKA SINGH MBA/10046/18
MANAS MAHESHWARI MBA/ 10094/18
DEPARTMENT OF MANAGEMENT
BIRLA INSTITUTE OF TECHNOLOGY, MESRA, RANCHI
2020
1
DECLARATION
I certify that the work contained in the project is original and has been done by our self under
the general supervision of our supervisor(s). The work has not been submitted to any other
Institute for any degree or diploma. We have followed the guidelines provided by the
Institute in writing the project. We have conformed to the norms and guidelines given in the
Ethical Code of Conduct of the Institute. Whenever we have used materials (data, theoretical
analysis, and text) from other sources, we have given due credit to them by citing them in the
text of the project and giving their details in the references. Whenever we have quoted written
materials from other sources, we have put them under quotation marks and given due credit
to the sources by citing them and giving required details in the references.
Place: Mesra, Ranchi Signature of the Student
Date:
Ruchika Singh
(MBA/10046/18)
Manas Maheshwari
(MBA/10094/18)
2
APPROVAL OF THE GUIDE
Date:
Signature
Dr. Sraboni Dutta
3
ACKNOWLEDGEMENT
The success and final outcome of this project required a lot of guidance and assistance from
many people and we are extremely privileged to have got this all along the completion of our
project. All that we have done is only due to such supervision and assistance and we would
not forget to thank them.
We owe our deep gratitude to our Project Mentor Dr.Sraboni Dutta, who took keen interest
on my project work and guided me all along, till the completion of my project work by
providing all the necessary information for developing it. I am thankful to and fortunate
enough to get constant encouragement, support and guidance from all teaching staff of
Department of Management, BIT Mesra, Ranchi.
This project has been an extremely knowledgeable experience which not only made me
aware about Perception of investors in Ranchi towards Derivative Market & their
performance, but also gave me the best ever opportunity to shape my skills in a right
direction.
4
INDEX
Si. No. Content Page no.
1. Declaration 2
2. Approval of the Guide 3
3. Acknowledgement 4
4. Chapter 1- Introduction 6-14
1.1 Introduction to futures 7
1.2 Introduction to options 7-8
1.3 Historical development of derivative market in India 8
1.4 Derivatives market in India 8-10
1.5 Literature review 11-14
5
CHAPTER 1-INTRODUCTION
Derivatives are an important breed of financial instrument which are central to today’s
financial markets. In India, the derivative market segment is very popular and quite active. It
is very clear that in currency markets, commodity markets and stock markets involving all the
market participants face considerable risk on account of price fluctuations regarding assets
traded in these markets. In a financial market system, derivatives can improve a market’s
efficiency by price discovery, liquidity and transfer of risk. Moreover, investors and business
houses use derivatives to hedge or manage their risks. The unfamiliarity and complexity of
trading in derivatives has created an air of doubt among the investors inducing them to take
differing perspectives on derivatives. A derivative instrument helps to hedge the risk involved
in the trading of an underlying asset. In short derivatives are those financial instruments
which derive value from an underlying asset or index.
The underlying assets are of two types, namely commodities like gold, cotton, pepper etc. and
financial assets like shares, currencies, bonds etc. Based on the underlying assets, the
derivatives are classified into commodity and financial derivatives. The basic purpose of
these instruments is to provide commitments to prices for future dates for giving protection
against adverse movements in future prices, in order to reduce the extent of financial risks.
Not only this, they also provide opportunities to earn profit for those persons who are ready
to go for higher risks.
In other words, these instruments, indeed, facilitate to transfer the risk from those who wish
to avoid it to those who are willing to accept the same. Therefore, by lock-in asset prices
investors can minimize the impact of price fluctuations with profitability. The derivative
instruments are traded for a variety of reasons. But in India, derivatives are used as
investment option, to hedge pre-existing asset risk by setting up a favorable position in the
financial market and to use them to profit from the price movements through speculation.
6
1.1 INTRODUCTION TO FUTURES
Futures is a standardized forward contact to buy (long) or sell (short) the underlying asset at a
specified price at a specified future date through a specified exchange. Futures contracts are
traded on exchanges that work as a buyer or seller for the counterparty. Exchange sets the
standardized terms in term of Quality, quantity, Price quotation, Date and Delivery place (in
case of commodity).
Futures contracts being traded on organized exchanges impart liquidity to the transaction.
The
Clearinghouse, being the counter party to both sides of a transaction, provides a mechanism
that guarantees the honouring of the contract and ensuring very low level of default (Hirani,
2007).
An option is a contract which gives the buyer the right, but not the obligation, to buy or sell
an instrument at a specified strike price on a specified date. The strike price may be set by
reference to the spot price of the underlying commodity on the day an option is traded or it
may be fixed at a discount or premium.
Options contracts are of two types: call options and put options. Apart from this, options can
also be classified as OTC (Over the Counter) options and exchange traded options. In case of
7
exchange traded options contract, contracts are standardized and traded on recognized
exchanges, whereas OTC options are customized contracts traded privately between the
parties. A call options gives the holder (buyer/one who is long call), the right to buy specified
quantity of the underlying asset at the strike price on or before expiration date. The seller
(one who is short call) however, has the obligation to sell the underlying asset if the buyer of
the call option decides to exercise his option to buy.
The origin of derivatives can be traced back to the need of farmers to protect themselves
against fluctuations in the price of their crop. From the time it was sown to the time it was
ready for harvest, farmers would face price uncertainty. Through the use of simple derivative
products, it was possible for the farmer to partially or fully transfer price risks by locking-in
asset prices. These were simple contracts developed to meet the needs of farmers and were
basically a means of reducing risk.
Derivative markets in India have been in existence in one form or the other for a long time. In
the area of commodities, the Bombay Cotton Trade Association started future trading way
back in 1875. This was the first organized futures market. Then Bombay Cotton Exchange
Ltd. in 1893, Gujarat Vyapari Mandall in 1900, Calcutta Hesstan Exchange Ltd. in 1919 had
started future market. After the country attained independence, derivative market came
through a full circle from prohibition of all sorts of derivative trades to their recent
reintroduction. In 1952, the government of India banned cash settlement and options trading,
derivatives trading shifted to informal forwards markets. In recent years government policy
has shifted in favor of an increased role at market based pricing and less suspicious
derivatives trading. The first step towards introduction of financial derivatives trading in
India was the promulgation at the securities laws (Amendment) ordinance 1995. It provided
for withdrawal at prohibition on options in securities. The last decade, beginning the year
2000, saw lifting of ban of futures trading in many commodities. Around the same period,
national electronic commodity exchanges were also set up.
In India, there are two major markets namely National Stock Exchange (NSE) and Bombay
Stock Exchange (BSE) along with other Exchanges of India are the market for derivatives.
Here we may discuss the performance of derivatives products in Indian market
The trading in BSE Sensex options commenced on June 4, 2001 and the trading in options on
individual securities commenced in July 2001. Futures contracts on individual stocks were
launched in November 2001. The derivatives trading on NSE commenced with S&P CNX
Nifty Index futures on June 12, 2000. The trading in index options commenced on June 4,
2001 and trading in options on individual securities commenced on July 2, 2001. Single stock
futures were launched on November 9, 2001. The index futures and options contract on NSE
are based on S&P CNX. In June 2003, NSE introduced Interest Rate Futures which were
subsequently banned due to pricing issue.
8
Table 1 gives chronology of introduction of derivatives in India
Date Progress
The derivatives market has marked various changes even after the year 2008, which are
shown in the tables below: -
9
2015-16 2098610395 64825834.30 267875.34
2014-15 1837041131 55606453.39 233640.56
2013-14 1284424321 38211408.05 155557.68
2012-13 1131467418 31533003.96 126638.57
2011-12 1205045464 31349731.74 125902.54
2010-11 1034212062 29248221.09 115150.48
2009-10 679293922 17663664.57 72392.07
Source: Compiled from NSE website.
So the table clearly shows the increase in Number of contracts from the year 2009-10 to
2017-18.
10
1.5 LITERATURE REVIEW
Shlomo Shlafman Boris Bachelis in his article’ Analysis of financial derivatives’ has
said that a method for trading in a financial derivative of an underlying commodity
includes determining a trend predictive of a future value of the asset. Responsive to the
change and the variance, a density function is calculated, which is indicative of a
probability distribution of the value at a first time in the future.
Dr. Premalata Shenbagaraman, Research Paper (NSE) in his article ‘Do Futures
and Options trading increase stock market volatility?’ has said that different studies
on the effects of futures and options listing on the underlying cash market volatility have
been done in the developed markets. This study is of much importance to investors,
officials of stock exchange board and regulators in designing trading mechanisms and
contract specifications.
Abhyankar (1995) compared the FTSE 100 stock index with the stock index futures
market. He found support for the hypothesis that lower transaction costs is the primary
reason for traders with market wide information to use the futures market.
11
Pericli and Koutmos (1997)3 analysed the impact of the US S&P 500 index futures on
spot market volatility. Their results showed that index futures did not have an escalating
effect on spot market volatility. Pierluigi and Laura (2002) reported a decrease in the
volatility of the underlying market on Italian Stock Market after the introduction of
derivatives.
Cho (1998)4 points out the reasons for which reforms were made in Indian capital market
stating the after reform developments.
Anna A. Merikas et.al. (1999)5 studied the factors that influence individual investor
behavior in the Greek Stock Exchange. The results revealed that there is a certain degree
of correlation between the factors that behavioral finance theory and previous empirical
evidence identify as the influencing factors for the average equity investors, and the
individual behavior of active investors in the Athens Stock Exchange.
Oliveira and Armada (2001)6 did not find any significant change on the spot market
volatility of the Malaysia and Portuguese stock markets respectively.
Chuang (2003)7 examined the price discovery Stock Exchange Capitalisation Weighted
Index Futures) and MSCI (Morgan Stanley Capital International Taiwan Index Futures)
during 1998-99 and found strong statistical evidence of market efficiency in its weak
form.
Bandivadekar and Ghosh, Sah and Omkarnath (2003)8 also investigated the
behaviour of volatility in cash market in futures trading era. They also found that futures
trading have led to reduction in volatility in the underlying asset market but they
attributed the degree of decline in volatility in the underlying market to the trading
volume in futures market. They inferred that as the trade volume in the Futures and
Options segment of BSE is very low, the volatility in BSE has not significantly declined;
whereas in the case of NSE (where the trade volume is at the peak), the volatility in
NIFTY has reduced significantly.
Raju and Karande (2003)9 found a reduction in spot market volatility after the
introduction of index futures in National Stock Exchange, India.
Snehal Bandivadekar and Saurabh Ghosh (2003)10 have studied on the impact of
introduction of index futures on spot market volatility on both S&P CNX Nifty and BSE
Sensex using ARCH/GARCH technique.
Shenbagraman (2004)11 reviewed the role of some non-price variables such as open
interests, trading volume and other factors, in the stock option market for determining the
price of underlying shares in cash market. The study covered stock option contracts for
four months from Nov. 2002 to Feb. 2003 consisting 77 trading days. The study
concluded that net open interest of stock option is one of the significant variables in
determining future spot price of underlying share. The results clearly indicated that open
interest based predictors are statistically more significant than volume based predictors in
Indian context.
12
Pok and Poshakwale (2004)12in their studies on the KOSPI200 index of the Korean
market and KLSE on the Malaysian one, found that while the derivatives increased the
volatility of the underlying market, they simultaneously improved its effectiveness as well
by increasing the speed at which information was impounded into the spot market prices.
Reddy and Sebastin (2008)20 studied the temporal relationship between the equities
market and the derivatives market segments of the stock market using various methods
and by identifying lead-lag relationship between the value of a representative index of the
equities market and the price of a corresponding index futures contract in the derivatives
market. The study observed that price innovations appeared first in the derivatives market
and were then transmitted to the equities market. The dynamics of such information
transport between stock market and derivatives market were studied using the information
theoretic concept of entropy, which captures non-linear dynamic relationship also.
A new study of Kasman (2008)21 examined the impact of futures on volatility of the
underlying asset (via GARCH model) including the question of whether a co integrating
relation exists between spot prices and futures prices (via ECM model). They used the
Istanbul Stock Price Index 30 (ISE 30) futures and spot prices and concluded that there is
a long run relation (nearly one-to-one) between spot and futures prices and causality runs
from spot prices to future prices, but not vice versa.
Bodla and Kiran (2008)22 investigated the impact of index derivatives on the return,
efficiency and volatility of the S&P CNX Nifty. The results of the study indicate
increased market efficiency and reduced volatility with no price change in the underlying
market due to introduction of derivatives. However, a significant increase in volatility on
the expiration day of derivative contracts has been observed.
ChiraOldani (2011)29 in his journal focused on the assumption that the prices of the
commodities are influenced by their derivatives. The inclusion of derivatives in the
financial market has increased the volume of transactions and general price strength.
An Chen and Michael Suchanecki (2011)28 in their article, extended to the existing
literature on options to Parisian exchange options, i.e. the option to exchange one asset
for the other contingent on the occurrence of the Parisian time. Thus, these options are a
special kind of barrier option which is knocked out or knocked in only if the value of the
first asset is worth more than the other for a certain period of time, i.e. the ratio of the
assets must be above or below one (or, in general, a given barrier) for a certain period of
time. They derived closed- form solutions in terms of Laplace transforms for these
options, introduce new options which are automatically exercised at the Parisian time,
conduct some illustrative numerical analyses and give a number of examples from
structured equity products, corporate finance, M&A, risk arbitrage and life insurance
where the application of Parisian exchange options can be very useful.
Sanjay Kanti Das (2012)31 studied the investment habits and preferred investment
avenues of the household. He examined investment attitude, preference & knowledge of
capital market Institutions and instruments among the household. It was opined that
households assign highest weightage to safety of investment and in most cases investors
across all categories found insurance products to be the preferred avenue of investment.
13
Erik F. Gerding (, 2012)33 has focused on the understanding and concerns about credit
derivatives this Article argues for viewing many of the policy responses to credit
derivatives, such as requirements that these derivatives be exchange traded, centrally
cleared, or otherwise subject to collateral or 'margin' requirements, in a second,
macroeconomic dimension. These rules have the potential to change – or at least better
measure – the amount of liquidity and the supply of credit in financial markets and in the
'real' economy. By examining credit derivatives, this Article illustrates the need to see a
wide array of financial regulations in a macroeconomic context.
DR. (MRS.) Kamlesh Gakhar and MS. Meetu (2013)36 in their research journal has
studied on the evolution of the Indian derivative market over and its growth .They have
also focused on the main issues faced by the derivative markets in spite its growth to
address the confidence of the investors in the market.
Raghavendra (2013)38 has focused on the price movement of Nifty and Junior Nifty
indices for a period of sixteen years divided into two phases: Phase One, from 1996 to
2002 when derivatives were not introduced in India, and Phase Two, from 2002 to 2012,
that is, after the introduction of derivatives. A risk return analysis was undertaken to study
on the impact of derivatives in spot market.
Rose Mary Joy (2015)41 in her study on derivatives revealed that the main purpose of
investment in derivatives is to hedge risk. Investors considered derivative market as a
hedging tool than a speculative tool. The study had put insight into the level of acceptance
among investors towards the different types of derivatives. The study concluded that the
respondents are satisfied with the derivative market and is satisfied with the level of
services offered by the broker/agent at the exchanges on derivative instruments. The level
of awareness programs carried out by regulators on derivative are found satisfactory.
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CHAPTER 2-NEED FOR THE STUDY
The study will analyze the level of satisfaction among the investors, the factors influencing
their decision to invest and their risk and returns from Derivative Market trading. Besides
this, the study also focuses on the problems faced by the investors in Derivative Market
trading. The study gives a clear picture of the present scenario in the derivative market of
NSE with the help of accurate measures and supported facts.
The Study gives the suggestions related to investment in derivative market by analyzing the
performance of Technology sector in derivative market.
This study includes literature review for the narrowing down of research topic.
A detailed analysis of economy, industry and companies have been done based on which a
particular sector (IT Sector) has been selected and 3 companies (HCL Tech, Tech Mahindra
and Wipro) have been included in the portfolio.
15
CHAPTER 3-RESEARCH METHODOLGY
EXPLORATORY RESEARCH:-
Exploratory research will be undertaken with the help of unstructured interviews and
focus group discussions with the experts which will help to develop hypothesis for the
study. The immediate purpose of exploration will also help us in designing questions
for further research.
The study is conducted by carrying out an exploratory research which is followed by a
conclusive research and is envisioned to find out the reasons for investors preference
towards Derivative Market in India. The study will analyze the level of satisfaction
among the investors, the factors influencing their decision to invest and their risk and
returns from Derivative Market trading.
CONCLUSIVE RESEARCH:-
Conclusive research, as the name suggests, will help us in generating findings that are
practically useful in reaching conclusions or making decisions.
RESEARCH PROCEDURE:-
The procedure used was survey method.
RESEARCH INSTRUMENT:-
The instrument used was unstructured questionnaire.
3.2 SAMPLING
SAMPLING TECHNIQUE:-Convenience sampling method is used; participants are
selected based on availability and willingness to take part.
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POPULATION :– investors in Ranchi
PRIMARY DATA: The sources of obtaining primary data are the following:-
Questionnaire and surveys: This will include range of unstructured, open-ended
questions and close ended questions.
The questionnaire is divided into 3 sections, the first section has questionnaire for
both investors and non-investors, and the second section is targeted for the non-
investors while the third section is targeted for the investors.
STATISTICAL TOOLS
Graphical representations are used in order to show the analysis and findings of the
research. And the use of Chi-square tests for hypothesis testing.
.
17
CHAPTER 4- DATA ANALYSIS AND INTERPRETATION
Economic Growth (GDP, annual variation in %) 7.4 8.0 8.3 7.0 6.1
18
Industrial Production (annual variation in %) 4.1 3.3 4.6 4.4 3.8
Inflation Rate (CPI, annual variation in %, eop) 5.3 4.8 3.9 4.3 2.9
Inflation Rate (CPI, annual variation in %) 6.0 4.9 4.5 3.6 3.4
Exchange Rate (vs USD, aop) 61.14 65.42 67.04 64.46 69.91
Current Account Balance (USD bn) -27.6 -22.1 -15.2 -48.7 -57.0
19
4.1.2 INDUSTRY ANALYSIS
Sector selection
According to a survey done by economic times, that studied the performance of 18 sectors in
the Indian market, 13 ended with losses, 1 remained flat, while only 5 sectors reported gains.
20
Name LTP Daily (%) 1 Week (%) 1 Month (%)
Source: - NIFTY IT
Hence, we would be including IT sector in the portfolio.
Also, below mentioned are some advantages of investing in IT sector:-
Growing demand-expanding economy to propel growth in local demand. Strong
growth in demand for exports from new verticals.
AI and machine learning will contribute US$ 1trillion to Indian Economy by 2035.
Global footprint-Indian IT firms have delivery centers across the world and we are
well diversified across verticals such as BFSI, telecom and retail.
Competitive advantage-The Ministry of Electronics and Information Technology
(MeitY) launched the MeitY startup hub (MSH) portal in May 2019.
IT and ITeS sector in India has a low-cost advantage of being 5-6 times less
expensive than the US.
Policy support-tax exemption of three years in a block of seven years to start-ups
under “Startup India”.
The government of India released the National Policy on Software Products 2019 to
develop India as a software product nation.
21
4.1.3 COMPANY ANALYSIS
Our portfolio would consist of three companies namely:-
HCL Technologies
Tech Mahindra
Wipro
1. HCL Technologies
HCL Technologies Limited is an Indian multinational information technology (IT) service
and consulting company headquartered in Noida, Uttar Pradesh. It is a subsidiary of HCL
Enterprise. Originally a research and development division of HCL, it emerged as an
independent company in 1991 when HCL entered into the software services business.
The company has offices in 44 countries including the United Kingdom, the United States,
France, and Germany with a worldwide network of R&D, "innovation labs" and "delivery
centers", and 147,123 employees and its customers include 250 of the Fortune 500 and 650 of
the Global 2000 companies. It operates across sectors including aerospace and defense,
automotive, banking, capital markets, chemical and process industries, energy and utilities,
healthcare, hi-tech, industrial manufacturing, consumer goods, insurance, life sciences,
manufacturing, media and entertainment, mining and natural resources, oil and gas, retail,
telecom, and travel, transportation, logistics & hospitality.
HCL Technologies is on the Forbes Global 2000 list. It is among the top 20 largest publicly
traded companies in India with a market Capitalisation of $21.5 billion as of May 2019.As of
September 2019, the company, along with its subsidiaries, had a consolidated revenue of $9.3
Billion. For the year ending March 2019 HCL Technologies has declared an equity dividend
of 400.00% amounting to Rs 8 per share. At the current share price of Rs 417.15 this results
in a dividend yield of 1.92%.
2. Tech Mahindra
Tech Mahindra Limited is an Indian multinational subsidiary of the Mahindra Group,
providing information technology (IT) services and business process outsourcing (BPO) to
companies in various vertical and horizontal markets. Anand Mahindra is the Chairman of
Tech Mahindra, which is headquartered at Pune and has its registered office in Mumbai.
As of November 2019, Tech Mahindra is a US$4.9 billion company with over 131,522+
employees across 90 countries. The company was ranked #5 in India's IT firms and overall
#111 in Fortune India 500 list for 2012. On 25 June 2013, Tech Mahindra announced the
completion of a merger with Mahindra Satyam.Tech Mahindra has 946 active clients as of
November 2019.
For the year ending March 2019 Tech Mahindra has declared an equity dividend of 280.00%
amounting to Rs 14 per share. At the current share price of Rs 487.20 this results in a
dividend yield of 2.87%.
22
3. Wipro
Wipro (formerly, Western India Palm Refined Oil Limited) is an Indian multinational
corporation that provides information technology, consulting and business process services. It
is headquartered in Bangalore, Karnataka, India. In 2013, Wipro separated its non-IT
businesses and formed the privately owned Wipro Enterprises.
Wipro Limited is a provider of IT services, including Systems Integration, Consulting,
Information Systems outsourcing, IT-enabled services, and R&D services.
Wipro entered into the technology business in 1981 and has over 160,000 employees and
clients across 110 countries. IT revenues were at $7.1 billion for the year ended 31 March
2015, with a repeat business ratio of over 95%.
For the year ending March 2019 Wipro has declared an equity dividend of 50.00% amounting
to Rs 1 per share. At the current share price of Rs 170.15 this results in a dividend yield of
0.59%.
23
4.2 DATA ANALYSIS
Secondary data
HCL
The performance of futures and options for HCL technologies was studied for a period from
1st January 2020 to 30th March 2020.
Standard deviation 2.79
beta 0.07%
As we can see from the table above, the calculated standard deviation and beta were 2.79 and
0.07% for HCL for the mentioned time period.
As we know that standard deviation shows the risk involved in a financial instrument and
beta shows the volatility, we can say this is a tradable asset in futures and options.
The returns shown by this stock for the time period was -0.46%.
Also, the following chart shows the returns of HCL in the above mentioned time period.
Even after the COVID-19 pandemic the stock has given somewhat good returns, as is shown
in the graph.
24
Above mentioned graph shows the trend line of returns of HCL tech which is a positive,
linear trend, which justifies the selection of this instrument in the portfolio.
Tech Mahindra
The performance of futures and options for Tech Mahindra was studied for a period from 1 st
January 2020 to 30th March 2020.
Standard deviation 3.41
beta 0.09%
As we can see from the table above, the calculated standard deviation and beta were 3.41 and
0.09% for Tech Mahindra for the mentioned time period.
As we know that standard deviation shows the risk involved in a financial instrument and
beta shows the volatility, we can say this is a tradable asset in futures and options.
The returns shown by this stock for the time period was -0.53%.
Also, the following chart shows the returns of Tech Mahindra in the above mentioned time
period.
25
Even after the COVID-19 pandemic the stock has given somewhat good returns, as is shown
in the graph.
The above graph shows that trend line in the beginning was at a declining phase, however
after that the decline the trend line got horizontal.so, the selected stock (tech Mahindra) is a
good selection in the portfolio.
26
Wipro
The performance of futures and options for Wipro was studied for a period from 1 st January
2020 to 30th March 2020.
Standard deviation 2.62
beta 0.06%
As we can see from the table above, the calculated standard deviation and beta were 2.62 and
0.06% for Wipro for the mentioned time period.
As we know that standard deviation shows the risk involved in a financial instrument and
beta shows the volatility, we can say this is a tradable asset in futures and options.
The returns shown by this stock for the time period was -0.44%.
Also, the following chart shows the returns of Wipro in the above mentioned time period.
Even after the COVID-19 pandemic the stock has given somewhat good returns, as is shown
in the graph.
27
Above mentioned graph shows the trend line of returns of Wipro which is a positive, linear
trend, which justifies the selection of this instrument in the portfolio.
The return of these stocks Vis-à-vis the returns of Nifty IT are shown in the graph below
As we can see from the graph above, the market returns (Nifty It) are similar to that of the
three stocks undertaken for study.
28
Primary data
A questionnaire was floated for understanding investors’ perception towards futures and
options and to identify the factors involved in this market. The questionnaire was divided into
3 sections. The first section was common for both traders and non-traders, second section was
for traders (investors) and the third section was for non-traders.
The interpretation are as follows:-
(Section 1of 3)Question no.3
Interpretation:-40% of the respondents belonged to the age of 20-25, 20% of the respondents
were of the age 31-35, 17.8% were of the age 26-30, 15.65 respondents were above 35.
Question no.5
29
20%- 3, 00,000-5, 00,000
11.1%-1, 50,000-3, 00,000
Question no.6
60% of the respondents trade in derivatives market whereas 40% don’t. Now for these 40%
we tried to understand the reasons behind it.
Interpretation:-38.9% of the non-traders said that they had a lack of knowledge of the
derivatives market, 22.2 % said that they don’t invest in derivatives as it involves huge
amount of investment, the other 22.25 though it to be very risky while the rest of 16.7%
respondents gave lack of awareness as the reason.
30
Question no. 2
Interpretation:-As far as the risk involved in derivatives market was considered, 33.3%
respondents were neutral about it whereas 33.3% of them thought it to be risky.
Question no. 3
Interpretation:-only 22.2% of the respondents said that lack of awareness was one of the
reasons for investors not investing in derivatives.
31
Question no.4
Interpretation:-50% of the respondents said that they will start investing in derivatives if
proper knowledge and awareness will be given to them.
For traders
(Section 3 of 3) question no.1
Interpretation:-
37% of respondents were associated with capital market for 3-5 years
29.6% were associated for less than a year
22.2% were associated for a duration of 1-2 years
11.1% for more than 5 years.
32
Question no.2
Interpretation:-
51.9% of respondents were associated with derivatives market for less than a year which
shows that it is an emerging trend.
22.2% were associated for 2-3 years
22.2% were associated for a duration of 1-2 years
Rest were associated for more than 3 years.
Question no.3
33
Question no.4
Interpretation:-As it is clear from the graph above, majority of the investors invested in stock
futures (60%) and stock options (56%), with stock index futures (24%) and stock index
options (20%) being the next trend.
Question no.5
34
Question no.6
Interpretation:-33.3% of the investors used derivatives market for high returns, 22.2 % for
high liquidity as well as speculation and 18.5% for low risk.
Question no.7
35
Question no.8
Question no.9
36
Question no.10
Question no.11
Interpretation:-As we can see from the graph above, a majority of investors are likely to
recommend other investors to participate in the derivatives market.
37
Further analysis
1. Relationship between income and whether they trade in derivative market:-
Interpretation:-people having higher income level tend to invest more in derivatives market.
Interpretation:-In this question people were asked whether or not they agree that they are
satisfied with the derivatives market.
People who were investing for a period of less than a year up to 3 years seem to be satisfied
with the derivatives market.
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3. Education qualification vs investment
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Chi Square test
Ho 1: There is no association between Age of Respondent and Percentage of Income used for
Investment.
H1 1: There is association between Age of Respondent and Percentage of Income used for
Investment.
Age * Percentage of Income Used for Investment Cross tabulation
P Value 0.742989
value 0.05
Interpretation:
It can be observed from the Chi-Square test that there is no association between age and
percentage of income used for investment purpose as the P-value is greater than 0.05 which
suggest the researcher to accept the Null Hypothesis and reject Alternative.
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Ho 2: There is no association between Income of Respondent and Percentage of Income used
for Investment.
H1 2: There is association between Income of Respondent and Percentage of Income used for
Investment.
P Value 0.007098
value 0.05
Interpretation:
It can be observed from the Chi-Square test that there is an association between Income and
percentage of income used for investment purpose as the P-value is less than 0.05 which
suggest the researcher to accept the Alternative Hypothesis and reject Null Hypothesis.
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H0 3: There is no association between Educational Qualification and Percentage of Income
used for Investment.
H1 3: There is association between Educational Qualification and Percentage of Income used
for Investment.
P Value 0.634083
value 0.05
Interpretation:
It can be observed from the Chi-Square test that there is no association between qualification
and percentage of income used for investment purpose as the P-value is greater than 0.05
which suggest the researcher to accept the Null Hypothesis and reject Alternative.
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H0 4: There is no association between Preferred Period of Investment and Percentage of
income used for Investment.
H1 4: There is association between Preferred Period of Investment and Percentage of Income
used for Investment.
Preferred Period of Investment * Percentage of Income Used for Investment Cross tabulation
Contract maturity period Percentage of Income Used for Investment Grand Total
Less than 5% 5%-10% 11%-15% 16%-20%
1 month 3 3 0 0 6
2 month 1 0 1 0 2
3 month 2 4 5 1 12
6 month 2 1 1 0 4
Grand Total 8 8 7 1 24
P Value 0.90825
value 0.05
Interpretation:
It can be observed from the Chi-Square test that there is no association between Period of
contract maturity and percentage of income used for investment purpose as the P-value is
greater than 0.05 which suggest the researcher to accept the Null hypothesis and reject
Alternative hypothesis.
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H0 5: There is no association between purpose of Investment and Percentage of income used
for Investment.
H1 5: There is association between purpose of Investment and Percentage of Income used for
Investment
P Value 0.584981
value 0.05
Interpretation:
It can be observed from the Chi-Square test that there is no association between purpose of
investment and percentage of income used for investment purpose as the P-value is greater
than 0.05 which suggest the researcher to accept the Null Hypothesis and reject Alternative.
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CHAPTER5. FINDINGS AND RECOMMENDATION
5.1 FINDINGS
Secondary Data
1. The calculated standard deviation and beta were 2.79 and 0.07% for HCL, 3.41 and 0.09%
for Tech Mahindra and 2.62 and 0.06% for Wipro for the mentioned time period. So we can
say that Tech Mahindra is more risky, as it has the highest standard deviation than Wipro and
HCL Tech.
2. Also, stocks of tech Mahindra is more volatile than Wipro and HCL Tech as it has a higher
beta of 0.09%.
3. The trend line shows that Wipro and HCL are better performing stocks than Tech
Mahindra.
4. The trend line of returns of Wipro is a positive, linear trend, hence this stock is worth
including in the portfolio.
Primary Data
5. 38.9% of the non-traders said that they had a lack of knowledge of the derivatives market,
22.2 % said that they don’t invest in derivatives as it involves huge amount of investment.
So we can say lack of knowledge and huge amount of investment are one of the reasons for
investors not trading in derivatives market.
6. 51.9% of respondents were associated with derivatives market for less than a year which
shows that it is an emerging trend.
7. Majority of the investors invested in derivatives as it is “direct investment without buying
and holding assets”.
8. Majority of the respondents were satisfied with the current performance of derivatives
market.
9. People having higher income level tend to invest more in derivatives market.
10. People with increasing age are more inclined towards investment in derivatives as the
“No” for “whether you invest in derivatives” is decreasing with increase in age.
11. Most of the respondents suggest others to invest their fund in alternatives while investing.
From Chi Square
12. After performing all the tests, researcher can conclude that Safety, Income, Risk, Returns,
Growth of funds is affected by demographic factors of respondents
13. Researcher also found the fact that there is an association between Income and percentage
of income used for investment purpose.
14. On the other hand researcher also found that there is no association between Age,
Educational Qualification, and Preferred Period of Investment, purpose of investment and
percentage of income used for investment purpose.
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5.2 RECOMMENDATION
1. A proper knowledge of derivatives should be given to attract more and more customers to
invest in this market.
2. The IT sector has been performing well so derivatives of IT companies can be included in
the portfolio.
3. Investment in derivatives must be done after considering the purpose of investment and
duration of contract maturity.
4. Just like stocks market selection, the agents must also give suggestion related to derivative
markets to their clients.
5. Apart from hedging, other purposes of investment in derivatives market must be
communicated properly.
6. To make a portfolio optimal, one can include more than one IT company in it.
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6. LIMITATIONS
This research study has the following limitations:-
1. As this research has been conducted in Ranchi city only, it may be not generalized to
whole population.
2. The respondent may be unwilling to spare some time to fill up the questionnaire.
3. Cost and time constraints.
4. Smaller sample size of respondents.
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7. REFERENCES
This project has been done by referring the following sources:-
A. Vashishtha, S. Kumar, "Development of financial derivatives market in India-a case
study", www.eurojounals.com
https://www1.nseindia.com/live_market/dynaContent/live_watch/derivative_stock_watc
h.htm
‘Indian Securities Market, A Review’ (ISMR)-2008 available at:
http://www.nseindia.com.
www.Economictimes.com/derivative market/futures-and-options
John C. Hull, "Futures and options markets", 2nd ed., PHI Learning Private Ltd., New
Delhi, 2009.
Misra Dheeraj and Misra Sangeeta D (2005), ‘Growth of Derivatives in the Indian Stock
Market: Hedging v/s Speculation’, The Indian Journal of Economics, Vol. LXXXV, No.
340.
http://indianresearchjournals.com/pdf/IJMFSMR/2014/January
www.moneycontrol.com/derivative market in India/article
www.journals.elsevier.com
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1. ANNEXURE
QUESTIONNAIRE
Section 1
Q2. Gender?
Male Female
Q3. Age?
Below 20 years
20 – 25 years
26 – 30 years
31-35 years
Above 35 years
Under Graduate
Graduate
Post Graduate
Professional Degree holder
Others
Below 1, 50,000
1, 50,000 - 3, 00,000
3, 00,000 – 5, 00,000
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Above 5, 00,000
Yes No
Q3. Lack of Awareness and knowledge are the major reasons why people do not invest
in derivative market.
Highly Agree
1
2
3
4
5
Highly disagree
Q4. Will you start investing if proper knowledge and awareness is given?
Yes
No
Maybe
50
Q7. How long you have been associated with Capital Market?
<1 years
1-2 years
3-5 years
>5 years
<1 years
1-2 years
2-3 years
>3 years
Q9. What is the purpose of investing in derivative market?
To hedge their fund
Risk control
More stable
Direct investment without buying and holding assets
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Q13. How much percentage of your income you trade in Derivative market
Don’t trade
Less than 5%
5%-10%
11%-15%
16%-20%
More than 20%
Q14. What contract maturity period would interest you for trading in?
1 month
2 month
3 month
6 month
9 month
12 month
Q15. What is the rate of return expected by you from derivative market?
Don’t trade
Less than 5%
5%-10%
14%-17%
18%-23%
More than 23%
Q16. Are you satisfied with the current performance of the derivative market
Strongly disagree
Disagree
Neutral
Agree
Strongly agree
Q17. On Scale of 5 how likely would you recommend other investors to participate in
Derivative Market?
Least 1 2 3 4 5 Most
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