CHAPTER 1:

INTRODUCTION
 CHAPTER 1:
INTRODUCTION

One of the major success stories of the Indian Capital Market has been the introduction of
Equity Derivatives. In the two decades since their introduction equity derivatives have grown
exponentially, and have massively contributed to the market. They have become an integral
and inseparable part of the Market because of their continued success. Equity derivatives
trading started in India in 2000 with the introduction of Index Futures on June 12, after a
regulatory process that stretched over more than four years. The purpose to bring in these
complex tools of trading was 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. In July 2001, the equity spot market moved to rolling settlement. Thus, in
2000 and 2001, the Indian equity market reached the logical conclusion of the reforms
program that began in 1994.

The four equity derivatives products- Index futures, Index options, Stock Futures and Stock
Options, were introduced within a span of two years on the two major Exchanges of the
country, namely NSE and BSE- with the latter opening trade on its benchmark index S&P
SENSEX as the underlying. India’s experience with launch of equity derivatives market has
been extremely positive, by world standards. NSE is now one of the prominent exchanges
amongst all emerging markets, in terms of equity derivatives turnover. There is an increasing
sense that the derivatives market is playing a major role in shaping price discovery.
Derivatives in India have not only lived up to their purpose but have also outperformed
themselves. They had managed to surpass the cash market segment within just 5 years of their
commencement, and by the end of the first decade had quadrupled it in terms of turnover.
Despite the global financial crisis, equity derivatives in India have shown strong upward trend
and continue to be climbing in terms of turnover and contract volume. At the end of the
second quarter of FY2019, the turnover received from equity derivatives segment at the NSE
stands at 174768500 crores, which is about 5 times more than the turnover received from the
NSE Equity Spot market.

The tremendous success of the Equity Derivatives market in India serves as a great example
and source of learning to both prospective and professional investors. This study attempts to
analyze the overall performance of the equity derivatives market and its business growth,
interexchange comparison and inter-segment comparison. It is meant to facilitate knowledge
to aspiring investors and those interested in equity derivatives market, so they can understand
it better and make use of the information before operating in the market.

Risk is a characteristic feature of all commodity and capital markets. The last two decades
have witnessed a many-fold increase in the volume of international trade and business due to
the evergrowing wave of globalization and liberalization sweeping across the world. As a
result, financial markets have experienced rapid variations in stock market prices thus
exposing the corporate world to a state of growing financial risk. Increased financial risk
causes losses to an otherwise profitable organization. This underlines the importance of risk
management to hedge against uncertainty. Derivatives provide an effective solution to the
problem of risk caused by uncertainty and volatility in underlying assets.

Derivatives are risk management tools that help an organization to effectively transfer risk.
Derivatives are instruments that have no independent value. Their value depends upon the
underlying asset. The underlying asset may be financial or non-financial. Their necessity and
advantageousness have to be acknowledged and well understood since they are an innovation
that exists to aid investors. Although complex by nature, once well-comprehended their
enormous potential can be tapped to investors’ advantage.
This study helps analyze the structural changes that derivatives have brought about in the
market since their introduction, the innovations, accomplishments, challenges faced through
the course of their journey having been two decades into the market, and shifts in investors’
preferences with the introduction of these derivatives products.

1.1 NEED FOR THE STUDY

The Equity Derivatives market was introduced as an innovative tool for risk management. It
has overtaken the cash (spot) market. The conventional spot market only trade is obsolete. It
is important to learn the changes in trend and keep up with innovations that are brought about
to make trading easier and more profitable, and that knowledge could be gained through this
study.

The Equity Derivatives’ introduction was a great success and it has done well with respect to
all its products. It continues to grow and contribute to the economy unhindered. It is
important to analyze and learn the reasons behind this exponential growth and take
inspiration.

It is also essential to understand the fact that this growth is finite and there are numerous
challenges and issues that need to be combated. This study attempts to identify those
challenges and find effective resolution measures in order to ensure smoothness in trading
and positive future prospects.

1.2 SIGNIFICANCE OF THE STUDY:

This study contains a decade worth of quantitative data analyzed and presented in a
comprehensive form. It makes it a reliable source for future research. This study answers
questions of many aspiring traders and gives an outlook of the equity derivatives market. It
also suggests measures of improvement in the segment for continued successful performance.

Apart from trend analysis of the derivatives instruments, the study also contains several other
important information of the Indian Capital market, which includes:
➢ The concept of derivatives and its status in India. Comparative analysis of
interexchange performance through statistical tools impact of the Equity derivatives
market on the cash market segment of India.
➢ Change in Investors
 ➢ Attitudes with their choice of derivative products.
➢ Scope for future developments of equity derivatives.

Globalization of financial markets has stressed a number of countries to change regulation

and bring in recent financial contracts that have made it easier for the participants to
undertake derivatives transactions. Financial derivatives have emerged as one of the biggest
markets of the world during the past two decades. In this context, the present study seeks to
find out the influence of derivative in consideration of NSE and BSE in Indian capital market.

1.3 OBJECTIVES OF THE STUDY:

The primary objectives of the study are:

➢ To examine the structure of equity derivatives segment within Indian stock market.
➢ Analyzing growth of Equity Derivatives products in India with respect to volume of
contracts and amount of turnover. These are the two basic variables considered for the
analysis.
➢ Studying the impact of derivatives on the cash market, comparing their growth to that
of other segments and among Exchanges; and identifying challenges faced by the
equity derivatives segment.

1.4 SCOPE OF THE STUDY:

➢ The data collected covers the period of the past decade, i.e., from FY2012-2013 to the
first half of FY2021-22.
➢ Turnover and quantity have been taken as basic variables for comparative analysis.
➢ The study covers performance of Derivatives with equities and equity indexes as
underlying Options and Futures. To be precise, Index Options, Index Futures, Stock
Options and Stock Futures have been covered in the study.
➢ The study includes performance evaluation of F&Os on the two major exchanges in
India- NSE and BSE. The study is purely focused on the perspective of investors and
is aimed at finding ways to improve performance in future.

1.5 RESEARCH METHODOLOGY:

All data is collected through secondary sources, and is purely analytical in nature.
Collection of Data:
Data of various years has been compiled from the official NSE, BSE and SEBI websites,
from the various editions of the NSE Fact Books and SEBI bulletins.
Analysis of Data:

➢ Percentage and ratio analysis methods have been carried out by the author in
measuring share of different derivatives products in the market.
 ➢ Paired samples statistics, Paired Sample T test and paired samples correlation has
been used in order to study comparison between turnover share acquired from NSE
and BSE.
➢ Time series method (method of least squares) has been used in studying the impact of
introduction of derivatives market on the cash market segment of India. Estimated
turnover of cash segment has been calculated using this method and has been
compared with the actual turnover.

Presentation of Data:

Various charts and graphs have been used to present growth trend in equity derivatives,
including pie charts, line graphs, and relative analysis tools such as stacked column charts and
clustered column charts.
All data has been tabulated, analyzed and interpreted by the author.

For analyzing shift in trend and calculating estimated cash flows, data of ten years has been
processed into SPSS and method of Least Square has been used to calculate future cash
flows, providing base for comparison of estimated CF to actual CF.

1.6 LIMITATIONS OF THE STUDY

➢ The study is mostly confined to the data of only the past 10 years (with exception of
study of impact of derivatives on cash segment) and eliminates the initial historical
data of Equity Derivatives from 2000-2010, which was a crucial phase in their
development.
➢ Only half-year data of FY2018-19 is covered in the study, due to unavailability of
published data from sources.

The study ignores “Premium” or “Notional” turnover from Options segment and only takes
into consideration the total turnover from Options.
SEBI GUIDELINES FOR DERIVATIVES MARKET:
SEBI has laid the eligibility conditions for Derivative Exchange/Segment and its Clearing

Corporation/House to ensure that Derivative Exchange/Segment and Clearing

Corporation/House provide a transparent trading environment, safety and integrity and

provide facilities for redressal of investor grievances. Some of the important eligibility
conditions are:

1) Derivative trading to take place through an on-line screen-based Trading System.

2) The Derivatives Exchange/Segment shall have on-line surveillance capability to
monitor positions, prices, and volumes on a real time basis so as to deter market
manipulation.
3) The Derivatives Exchange/ Segment should have arrangements for dissemination of
information about trades, quantities and quotes on a real time basis through at least
two information vending networks, which are easily accessible to investors across the
country.
4) The Derivatives Exchange/Segment should have arbitration and investor grievances
redressal mechanism operative from all the four areas/regions of the country.
5) The Derivatives Exchange/Segment should have satisfactory system of monitoring
investor complaints and preventing irregularities in trading.
6) The Derivative Segment of the Exchange would have a separate Investor Protection
Fund.
7) The Clearing Corporation/House shall perform full novation, i.e., the Clearing
Corporation/House shall interpose itself between both legs of every trade, becoming
the legal counterparty to both or alternatively should provide an unconditional
guarantee for settlement of all trades.
8) The level of initial margin on Index Futures Contracts shall be related to the risk of
loss on the position. The concept of value-at-risk shall be used in calculating required
level of initial margins. The initial margins should be large enough to cover the one-
day loss that can be encountered on the position on 99 per cent of the days.
9) The Clearing Corporation/House shall establish facilities for electronic funds transfer
(EFT) for swift movement of margin payments.
10) In the event of a Member defaulting in meeting its liabilities, the Clearing
Corporation/House shall transfer client positions and assets to another solvent
Member or closeout all open positions.
11) The Clearing Corporation/House should have capabilities to segregate initial margins
deposited by Clearing Members for trades on their own account and on account of his
client. The Clearing Corporation/House shall hold the clients ‘margin money in trust
for the client purposes only and should not allow its diversion for any other purpose.
12) The Clearing Corporation/House shall have a separate Trade Guarantee Fund for the
trades executed on Derivative Exchange/Segment.
SEBI has specified measures to enhance protection of the rights of investors in the Derivative
Market. These measures are as follows:

1) Investor’s money has to be kept separate at all levels and is permitted to be used only
against the liability of the Investor and is not available to the trading member or
clearing member or even any other investor.
2) The Trading Member is required to provide every investor with a risk disclosure
document which will disclose the risks associated with the derivatives trading so that
investors can take a conscious decision to trade in derivatives.
3) Investor would get the contract note duly time stamped for receipt of the order and
execution of the order. The order will be executed with the identity of the client and
without client ID order will not be accepted by the system. The investor could also
demand the trade confirmation slip with his ID in support of the contract note. This
will protect him from the risk of price favour, if any, extended by the Member.
4) In the derivative markets all money paid by the Investor towards margins on all open
positions is kept in trust with the Clearing House /Clearing Corporation and in the
event of default of the Trading or Clearing Member the amounts paid by the client
towards margins are segregated and not utilized towards the default of the member.
However, in the event of a default of a member, losses suffered by the Investor, if
any, on settled/closed.
5) Out positions are compensated from the Investor Protection Fund, as per the rules,
bylaws and regulations of the derivative segment of the exchanges.
 CHAPTER 2:

REVIEW OF LITERATURE
 CHAPTER 2:

REVIEW OF LITERATURE

Numerous studies have been conducted and attempts have been made to understand the
growth of India’s derivative markets in relation to equity and other underlying assets, viz.
currencies, interest rate and commodities. The findings of some of these studies are reviewed
below.

Dr. Nalini R (2019) “Performance of Equity Derivatives Market in India with Special
Reference to NSE”: The author examined the business growth of different equity derivative
products traded at the NSE; and analyzed the shift in trend in terms of usage of different
products. The author made attempt to analyze the business growth of derivative instruments
in Indian markets viz. stock options, index options, stock futures and index futures through
trend analysis. It was found that index options dominated the National Stock Exchange with
over
75% of the share in turnover, the reason for which was cited as “confidence of investors that
is assured through the stringent norms imposed by the SEBI to protect the investors’ interests
from stock market manipulations and company frauds”.

The share of index futures in total number of contracts showed an increasing trend in the
initial years only and reached a global place in 2006-07. Thus, during the past 17-year period,
the index futures showed an increasing trend only in five years and in the remaining 12 years,
there was a declining trend. The share of equity derivatives trading in single stock futures
were more than 50 % up to 2007-08. But it started declining in 2008-09 and since 201112
the share had declined to less than 20% and reached the lowest in 2016-17 The share of index
futures is more than the share of stock futures both in terms of contracts traded and turnover
in crores of Rupees, the share of index futures is thrice that of stock futures. The equities
trading in derivatives in the form of index options shows an increasing trend since 200708
both in terms of number of contracts traded and its share in turnover. The performance of
single stock options in equity derivatives market shows a mixed trend. Its share in total
number of contracts and total turnover is less than 10%. The share of index futures and the
stock options are showing a declining trend with less than 10% share in total turnover. Since
2011-12 the derivatives market shows a shift from single stock futures to trading in index
options.

Mohammed Rubani (2017) conducted “A study of derivative market in India”. An attempt

was made to analyze the factors contributing towards the growth of derivative market in
India, and it was found by the author that price volatility, globalization, technological
development and advances in theories are major contributories to the explosive growth of
derivative market. The price volatility risk pushed the use of derivatives like futures and
options increasingly as these instruments can be used as hedge to protect against adverse
price changes in commodity, foreign exchange, equity shares and bonds. Globalization of
industrial and financial activities necessitates use of derivatives to guard against future losses.
A significant growth of derivative instruments has been driven by technological breakthrough
which brought about ease of access to trading and invoked investors to participate.
The author was of the view that the introduction of risk management instruments in India
gained momentum in the years that followed the liberalization process and Reserve Bank of
India’s (RBI) efforts in creating currency forward market.
In their 2017 article titled “Growth of India’s Equity Derivative Market: An Analytical Study
(2000-2015)”, Gangineni Dhanaiah “explored the exponential growth of equity derivatives
market in India. Equity F&O segment on the nation's stock exchanges recorded a turnover 15
times of the cash market in 2014-15”. The continuous and unhindered growth in the equity
derivatives performance in the country was highlighted.
The derivatives market was found to have witnessed expanding list of eligible investors,
increase in volumes , best risk management framework for exchange traded derivatives &
innovation in market microstructure and design .A vibrant exchange traded derivatives
market was cited as the hall mark of India , which was achieved through nation- wide market
access, anonymous electronic order book trading and a predominantly retail market.

In a study by Ashutosh Vashishta and Satish Kumar (2010), titled “Development of

Financial

Derivatives Market in India- A Case Study”, attempts were made to discuss the genesis of
derivatives trading by tracing its historical development, types of traded derivatives products,
regulation and policy developments, trend and growth, future prospects and challenges of
derivative market in India. Factors like increased volatility in financial asset prices;
development of more sophisticated risk management tools; growing integration of national
financial markets with international markets; innovations in financial engineering; and wider
choices of risk management strategies to economic agents have been driving the growth of
financial derivatives worldwide and have also fueled its growth here in India.

The status of Indian derivatives market vis-à-vis the global securities market was also
highlighted. The turnover-wise performance of the derivatives segments over the last five
years was studied, it was noticed that the Indian segment has expanded phenomenally as
compared to the global segment. The turnover of the NSE derivatives segment in 2003-04
stood at Rs. 2130610 crores. It grew to an astonishing level of Rs.13090477 crores during the
year 200708, displaying a more than six-time increase over the five-year period. In marked
contrast, at the global level the increase was less than even two-fold: the turnover was $ 8163
million in 2003 and $ 15187 million in 2007.

They opined that Innovation of derivatives has “redefined” and “revolutionized” the
landscape of financial industry across the world and derivatives have earned a well-deserved
and extremely significant place among all the financial products. They were of the view that
an increasing sense that the equity derivatives market is playing a major role in shaping price
discovery. Factors like increased volatility in financial asset prices; growing integration of
national financial markets with international markets; development of more sophisticated risk
management tools; wider choices of risk management strategies to economic agents and
innovations in financial engineering, have been driving the growth of financial derivatives
worldwide and have also fueled the growth of derivatives here, in India.

Shweta Singh and Dr. H.K Singh (2018) “Status in Quo of Equity Derivatives Segment of
NSE & BSE: A Comparative Study”: This study reviews the business growth profile of
financial derivatives segment of NSE & BSE.
Statistical tools used for the analysis were Paired Samples Statistics, Paired Samples
Correlation, Paired Samples t-test and graphs.
The findings concluded that the growth of FO segment of BSE was negligible to the FO
segment of NSE. The turnover value of index futures of NSE was found to be better than the
turnover value of index futures of BSE, and there was a weak relationship between two
variables and statically there was a significant difference between them. The turnover value
of stock futures of NSE was better than turnover value of stock futures of BSE, and they had
a weak relationship and statistically there was a significant difference between them. The
turnover value of index options of NSE was better than the turnover value of index option of
BSE and they had a weak relationship, and statistically there was a significant difference
between them. The turnover value of equity options of NSE was better than the turnover
value of equity option of BSE and they had a weak relationship, and statistically there was a
significant difference between them.

The suggestion was made that more efforts be taken to develop BSE although both stock
exchanges had scope for further improvement.

“After Effects of Global Financial Market on Indian Derivatives Market” by Narain (2011)
aimed to present the structural changes observed in Indian stock markets with the advent of
global financial crisis and commented upon the de-coupling theory of the economists
paralleled with India growth story.

It was found that the global financial crisis of 2008 had structurally altered the composition of
equity derivatives market in India. The predominance of single stock futures as a derivative
product had been replaced by the predominance of Index option as a favorite derivative
product in India.

However, the author was of the view that such a skewed preference is not desirable situation
for an emerging economy like India. A reasonable mix of the derivative products should
provide a better alternative to the investors by supplementing the avenues for investment and
risk management with the growing maturity of India’s derivatives market.

Hardeep Singh Hundal (2012), in his report titled “A Study of Derivatives Market in India”
brought out analysis of performance of derivatives in India since 2001 with special focus on
futures and options in terms of turnover, traded quantity, and number of contracts traded. He
found that more investor education needs to be provided concerning the risk and returns of
the Indian derivatives market and felt that derivatives should account for 15-20% of
investors’ portfolio.
Susan Thomas and Ajay Shah (2015) conducted a study titled “Equity Derivatives in India:
A state of the art”. In it they tried to convey a detailed sense of the functioning of the equity
derivatives market, in order to convey the ‘state of the art’. They seeked to convey some
insights into what is going on with the equity derivative market. They also summarized broad
empirical regularities about pricing and liquidity.

The key facet where the equity derivatives market has as yet not made substantial progress is
the large-scale utilization of IT systems in trading, arbitrage, market making, etc. When a few
dozen underlying generate thousands of derivative securities, it is essential to have computer
systems primarily driving the actual implementation of trading strategies. The exchanges
need to do more in terms of transparency, in terms of release of high quality historical
databases, and release of documents required for building derivatives IT system.

“Analytical Study on Indian Derivatives Market with Reference to Investors’ Attitude” was
conducted by K. Sarathkumar and Dr. SP. Dhandhayuthapani (2016) threw light on
changes of investors’ attitude in a positive sense to the Indian derivatives market.

“An Insight into Derivative Markets: Indian Perspective” by Dr. C Shobha and Dr.
Hanumantha Raya (2012) gives insight into the historical time-wise advancements in the
market, right from inception. It mentions that there is a great scope of further development if
the resources were tapped efficiently.

Meenakshi Bindal (2018) published a journal titled “Present Scenario of Derivative Market
in India: An Analysis (2010-2018)” presented individual analysis of forwards and futures and
their increasing volume of trade which contributed to increased overall turnover of NSE and
BSE throughout the years. The article depicts continuous growth in derivative market in FO
segment.

Banikanta Mishra, Sarat Malik and Laltu Pore (2005) in their paper “Impact of Increased

Derivatives-Trading in India on the Price-Discovery Process” made attempts to analyze the

PD simultaneously in the three markets for the individual stocks: options, forwards and spots.
They also analyzed PD in the market for futures and options on these ten stocks and on Nifty
during three different regimes pertaining to STT (Security Transaction Tax).

“Equity Derivatives- Comparative and Critical Analysis from BSE to NSE” by Dr. K.
Kanaka Raju (2014) seeks to explain the relationship between variables of index futures,
stock futures, index options and stock options etc., from BSE to the NSE. The study found
that the turnover value of index futures of BSE was better than the turnover value of index
futures of NSE, and there was a weak relationship between two variables and statically there
was a significant difference between them.
The SPSS 16.0 version was useful to analyzes the data, the paired samples statistics, paired
samples correlations, paired sample test were applied to derive the inferences from the data.

The study found that the turnover value of index futures of BSE was better than the turnover
value of index futures of NSE, and there was a weak relationship between two variables and
statically there was a significant difference between them. The study also observed that
turnover value of stock futures of NSE was better than turnover value of stock futures of
BSE, and they had a moderate relationship and statistically there was a significant difference
between them.

Hence, it is suggested, the necessary authority should take necessary steps to increase the
volume of equity derivatives segment of BSE and NSE

In their “Discussion Paper on Growth and Development of Equity Derivative Market in

India”, the Securities and Exchange Board of India (2017) found that options dominate
trading in the derivative segment by accounting for 83.61% of the total trading in the
derivative segment.
In response to the findings stating investors’ preferred cash segment over derivatives, SEBI
opened entry of suggestions by readers with regards to development measures and initiatives
in the derivative segment.
Nenavath Sreenu (2011) attempted to analyze recent trends in the growth of derivatives of
different instruments in the market using technical analysis methods. Indian markets’
response to the launch to the launch of derivatives has been cited as “encouraging and
successful”. There has been mention of accomplishment of derivatives turnover surpassing
the equity market turnover on the National Stock Exchange.

Obstacles to more diversified and adequate funding sources for the derivative market, and the
vulnerabilities associated with the currently available sources were examined by the author.

Potential limits of organizational growth in derivative market were analyzed and the
implications of integration and diversification for antitrust policy were explored.

It was found that equity derivatives market in India registered an "explosive growth" and is
expected to continue the same in the years to come. Introduced in 2000, financial derivatives
market in India had shown a remarkable growth both in terms of volumes and numbers of
traded contracts. NSE alone accounted for 99 percent of the derivatives trading in Indian
markets in the initial years. The introduction of derivatives was well received by stock market
players. Trading in derivatives gained popularity soon after its introduction

Innovation of derivatives have redefined and revolutionized the landscape of financial

industry across the world and derivatives have earned a well-deserved and extremely
significant place among all the financial products.
S. Subbalakshmi (2016) is of the view that there is enormous possibility for further
development in the derivatives market in India. The author in their paper titled “An Empirical
Study on Derivative Trading in India” suggested that measures be taken by the Securities and
Exchange Board of India take measures in order to attract more investors towards this market.

It was found that the growth of derivative was enhanced due to various factors like increased
volatility in financial assets, development of risk management tools and strategies. There is
an increasing sense that financial derivative (equity) market has a vital role in shaping price
discovery in the context of Indian financial market. As Indian derivatives markets grow more
sophisticated, greater investor awareness will become essential.

In addition, institutions will require devoting more resources to develop the business
processes and technology needed for derivatives trading.

The rapidly growing market welcomes more challenges in the long run which the author
believes needs to be catered to and strategically planned. The author was of the view that
advancement in the derivative markets is at a standstill in a gradient stage and there is
enormous possibility for further development.

It was suggested that SEBI has to take crucial steps for development in Derivative Market to
attract more investors in the Indian stock market. In order to attain high-quality derivative
market operations regulators and exchanges in discussion with market participants must come
up with indispensable regulatory changes, which are delightful to all.

Shruthi B.C and Dr. N Suresh (2013) performed comparative analysis of derivatives’
performance in NSE and BSE and its performance when compared to that of the cash market.

The authors found Derivatives market segment contribution to GDP ratio was 92 percent
higher than the cash market turnover and thus “empowered the growth of economy of India”.

It was found that the performance of derivatives in NSE is lot higher than BSE and the NSE
is on par with the global exchanges compared to BSE in terms of in terms of the number of
contracts traded for Stock Index Options and Futures and also Stock Future. It was also found
that BSE Sensex and Derivatives turnover had shown a decline post 2008 could be attributing
to the factor of global financial crisis; and that the growth in the number of contracts of Stock
Index Option for Asia Pacific and European exchanges have increased considerably but still
is variant with the number of contracts traded in American exchanges. The Indian derivatives
market has shown a tremendous growth but is still not in line with the global derivatives
market.
Considering many changes currently, derivatives market in India was found to have been
poised to grow and mature further to accommodate larger participation across varied asset
classes by wide range of participants.
The prime suggestions were the implementation of robust regulations, strengthening of the
financial structure and more knowledge on derivatives market; which would gain more of
investor confidence in the market and more of trading on derivatives for hedging purpose.
Greeshma Francis (2019) performed “A study on Emerging Trends in Indian Derivative
Market” in order to understand the recent trends and future opportunities in the derivatives
trading arena in India. Some of the found escalating trends included trading in metal, crude
oil and natural gas.

Akhil Sebastien (2015) suggests that SEBI must take active role in monitoring the
Exchanges and promote investor education. The author conducted a local study to analyze
risk and returns from Futures and Options to an investor in Ernakulam district. Attempt was
made to assess the level of financial satisfaction from derivatives trading and to identify
problems faced by investors in carrying out the trading activities. The author found that most
of the investors in the district are willing to tolerate risk at a medium level while trading in
derivatives. It can be seen that majority of the investors invest 10 percent to 30 percent of
their money in futures and options, followed by 37 percent of the investors with 30 percent to
50 percent. The level of satisfaction was found to be high.

The study revealed that complexity of the instrument and its trading posed a great difficulty
for the investors to trade in Exchanges. Therefore, it was suggested that the investors must be
given adequate training to trade in the Futures and options market segment. Programs like
National Seminars, Mock trading terminals, Workshops, Advertisements and Stock Brokers
Meet must be conducted on regular basis to familiarize with concepts and trading
mechanisms. It was also found that the general trend in the turnover of financial derivatives
like Stock futures, Stock Options, Index Options, Index futures are showing an upwards trend
in India; which the author expects to continue in the future also. The concerned authorities
must see that the derivatives market can be effectively controlled by monitoring high value
transactions, proper awareness, periodic training and speculative control. The educated and
experienced investors were found to be making reasonable returns from the derivatives
market, this indicated that investors with sound theoretical and practical experience can trade
in derivatives without making losses. Finally, the study showed the majority of the
investors in the Ernakulam District engaged in Futures and Options trading hedge 21
percent to 50 percent of their investment This gives a clear -cut picture of the popularity and
emergence of a new era of trading in the possible future.

Dr. Shree Bhagwat, Ritesh Omre, Deepak Chand (2012) observed an unprecedented
dominance of index options post the Global Financial Crisis of 2008. They remarked that
reasonable mix of the derivative products should provide a better alternative to the investors
by supplementing the avenues for investment and risk management with the growing maturity
of India’s derivatives market.

They also found that volatility in financial asset price, integration of financial market
internationally, sophisticated risk management tools, innovations in financial engineering and
choices at risk management strategies have been driving the growth of financial derivatives
worldwide, also in India. The shifting trend from Stock Futures before the Global Financial
Crisis to preference of Index Options post the crisis was illustrated.
Dinakar P (2015) investigates the impact of introduction of equity derivatives in NSE, India,
on price and liquidity characteristics of the underlying. The effect of factors like expiration
date and liquidity is examined by the author in the study.

Rangarajan K. Sundaram (2012) presents a comprehensive comparison of derivative

performance affecting an Emerging Market (EM) versus an Advanced Market (AM). The
potential risks of investment are also examined and are they are cited as volatility, leverage
and liquidity. The author argues that more derivatives have to be traded on Exchange-traded
platforms to promote transparency in trading, and for EMs like India catch up with developed
markets such as the USA. The author found that the OTC derivatives market has been
growing very rapidly over the last decade and a half, slowing down only with the onset of the
financial crisis in 2007-08. The market wide notional outstanding in December 2011 was
more than 8 times the amount in December 1998, a compound annual growth rate exceeding
17%. Every segment of the market experienced substantial growth over this period, with
interest rate derivatives growing tenfold, commodity derivatives eightfold, and equity
derivatives fourfold.

The author argued that though the success was visible and real, and appreciated the market
for not going through a “large-scale derivatives disaster”, underlying problems existed were
likely to surface at some future point. Many underlying markets were found to be illiquid and
lack depth, simultaneously increasing the need for alternative risk-management tools and
hampering the development of the corresponding derivatives markets. Anecdotal evidence
suggested that Indian exchanges may be losing volumes to overseas competitors because of
regulatory burdens. The solution proposed was to find a way to sustain the growth and deepen
the market, making tools of risk-management more widely available to corporates and banks,
even while avoiding speculative excesses.

Dr. Gurcharan Singh and Salony Kansal (2010) studied the “Impact of Derivative Trading
on Stock Market Volatility during Pre and Post F&O Period” and found that the volatility in
the NSE has been decreasing after introduction of the Index Future i.e. Standard Deviation
values have gone down. Presence of new investment possibilities was cited as the reason for
the decline.

Dr. Kamlesh Gakhar and Ms. Meetu (2013) called for immediate action on certain issues
pertaining to the derivatives market which include lack of economies of scale, tax and legal
bottlenecks, increased off-balance sheet exposure of Indian banks, need for an independent
regulator etc. They are of the view that solution of these issues will definitely lead to boost
the investors’ confidence in the Indian derivative market and bring an overall development in
all the segments of this market. It was found by the authors that even though the derivatives
market has shown good progress in the last few years, the real issues facing the future of the
market have not yet been resolved. The number of products allowed for derivative trading
have increased and the volume and the value of business has zoomed, but the objectives of
setting up different derivative exchanges may not be achieved and the growth rates witnessed
may not be sustainable unless these real issues are sorted out as soon as possible. Among the
issues that need to be immediately addressed are those related to, lack of economies of scale,
tax and legal bottlenecks, increased offbalance sheet exposure of Indian banks, need for an
independent regulator etc. For example, one of these cited issues was that there are too many
(3 national level and 21 regional) commodity exchanges. Though over 80 commodities are
allowed for derivatives trading, in practice derivatives are popular for only a few
commodities, which, the authors felt needed to be consolidated.

The authors also were of the view that there is an immediate need to bring about the
necessary legal and regulatory changes to introduce commodity options trading in the
country.

Dr. Anand Sharma, Dr. Namita Rajput and Dr. Anurag Agnihotri (2011) studied the
relationship between cash and derivative segment in Indian Stock Market. Measures of
simple correlation and time-series analysis were used.

The paper traces the changes in trend at around the period of introduction of derivatives into
the Indian market and finds that turnover at the cash segment then declined by two-thirds.

In the year 2001-02 Indian Journal of Finance, pp 24-31 there was two third decline in cash
segment when derivative segment trading started. Although there were some other factors
responsible for this decline 2001-02 such as security scam in stock market but it can be
interpreted that to some extent launching of derivative segment took away this business from
cash segment.
 CHAPTER 3:

INDUSTRY AND COMPANY PROFILE

CHAPTER 3 : INDUSTRY & COMPANY PROFILE

In India, the two major markets namely Bombay Stock Exchange (BSE) and National Stock
Exchange (NSE) along with other Exchanges of India are the market for derivatives.

3.1 EQUITY DERIVATIVES AT BSE:

➢ BSE, the first ever stock exchange in Asia established in 1875 and the first in the
country to be granted permanent recognition under the Securities Contract Regulation
Act, 1956, has had an interesting rise to prominence over the past 143 years. The
Bombay Stock Exchange is the oldest stock exchange in Asia. Its history dates back to
1855, when 22 stockbrokers would gather under banyan trees in front of Mumbai's
Town Hall. The location of these meetings changed many times to accommodate an
increasing number of brokers. The group eventually moved to Dalal Street in 1874
and became an official organization known as "The Native Share & Stock Brokers
Association" in 1875.
➢ The BSE started derivatives trading on June 9, 2000 when it launched ―Equity
derivatives (Index futures-SENSEX) first time. It was followed by launching various
products. They are index options, stock options, single stock futures, weekly options,
and stocks for: Satyam, SBI, Reliance Industries, Tata Steel, Chhota (Mini) SENSEX,
Currency futures, US dollar-rupee future and BRICSMART indices derivatives.

The significant dates for derivatives development at BSE are tabulated as under:

Introduction date Derivative Products

9th June 2000 Equity derivatives (Index futures - Sensex)

1st June 2001 Index options launched (Index options –Sensex)

9th July 2001 Stock options launched (Stock option on 109

stocks)
9th Nov. 2002 Stock futures launched (Stock futures on 109
Stocks)
13th Sep. 2004 Weekly options on 4 Stocks
1st Jan. 2008 Chhota (mini) Sensex
Futures options on sectoral indices (namely BSE
TECK, BSE FMCG, BSE metal, BSE Bankex &
BSE oil & gas)
 1st Oct. 2008 Currency derivative introduced (currency futures
on US Dollar)
30th March 2012 Launched BRICSMART indices derivatives
28th Nov 2013 Launch of Currency Derivatives (BSE CDX)

28th Jan 2014 Launch of Interest Rate Futures (BSE –IRF)

28th May 2015 BSE exceeds 1 billion derivatives contracts
21st February 2018 BSE to launch cross currency derivatives and
cross INR options with effect from 27th February
2018
1st October 2018 BSE launches its commodity derivatives segment
making it India's 1st Universal Exchange
● TABLE 3.1 (Source: compiled from BSE website)

3.2 EQUITY DERIVATIVES AT NSE:

➢ The NSE started derivatives trading on June 12, 2000 when it launched Index Futures
S&P CNX Nifty first time. It was followed by launching various derivative products.
They are index options, stock options, stock future, interest rate, future CNX IT future
and options, Bank Nifty futures and options, CNX Nifty Junior futures and options,
CNX100 futures and options, Nifty Mid Cap-50 future and options, Mini index
futures and options, Long term options. Currency futures on USD-rupee, Defty future
and options, interest rate futures, SKP CNX Nifty futures on CME, European style
stock options, currency options on USD INR, 91 days GOI T.B. futures, and
derivative global indices and infrastructures indices. Subsequently, Various other
products were introduced and presently futures and options contracts on the following
products are available at NSE:
a. Indices: Nifty 50, CNX IT Index, Bank Nifty Index, CNX Nifty Junior, CNX 100,
Nifty Midcap 50, Mini Nifty and Long dated Options contracts on Nifty 50.
b. Single stocks – 183

Some important dates in derivatives development at NSE are tabulated as under:

Introduction date Derivative Products

1 12th June 2000 Index futures – S&P CNX Nifty

2 4th June 2001 Index Options – S&P CNX Nifty
3 2nd July 2001 Stock options – on 233 stocks
4 9th Nov. 2001 Stock futures on 233 stocks
5 23rd June 2003 Interest rate futures – T. Bills & 10 years Bond
6 29th Aug. 2003 CNX IT futures & options
7 13th June 2005 Bank Nifty futures & options
 8 1st June 2007 CNX Nifty Junior Futures & Options
9 1st June 2007 CNX 100 futures & options
10 5th Oct. 2007 Nifty midcap – 50 futures & options
11 1st Jan. 2008 Mini index futures & options – S&P CNX Nifty
Index
12 3rd March 2008 Long term options contracts on – S&P CNX Nifty
Index
13 29th Aug. 2008 Currency futures on US Dollar Rupee
14 10th Dec. 2008 S&P CNX Defty Futures & options
15 Aug. 2009 Launch of Interest rate futures
16 Feb. 2009 Launch of currency futures on additional currency
pair
17 July 2010 S&P CNX Nifty futures on CME
18 Oct. 2010 Introduction of European style stock options
19 Oct. 2010 Introduction of Currency options on USD INR
20 July 2011 start 91-day GOI Treasury Bill-futures
21 Aug. 2011 Launch of derivatives on global indices
22 Sep. 2011 Launch of derivatives on CNX PSE & CNX
Infrastructure indices
November 2015 Launched platform for sovereign gold bond
issuing
11 Feb. 2019 Weekly option on NIFTY 50 was launched
TABLE 3.2 (Source: compiled from NSE website)

The NSE and BSE are two major Indian market platforms that have shown a remarkable
growth in terms of both volumes and numbers of traded contracts. Introduction of derivatives
trading in 2000, in Indian markets was the starting of equity derivative market that has
registered on explosive growth and is expected to continue the same in the years to come.
NSE alone accounts 99% of the derivatives trading in Indian markets. Introduction of
derivatives has been well received by stock market players. Derivatives trading gained
popularity after its introduction in very short time.

3.3 MEMBERSHIP TYPES IN THE DERIVATIVES MARKET

The various types of membership in the derivatives market are as follows:
1. Professional Clearing Member (PCM)
PCM means a Clearing Member, who is permitted to clear and settle trades on his own
account, on account of his clients and/or on account of trading members and their clients.

2. Custodian Clearing Member (CCM)

CCM means Custodian registered as Clearing Member, who may clear and settle trades on his
own account, on account of his clients and/or on account of trading members and their
clients.

3. Trading Cum Clearing Member (TCM) A TCM means a Trading Member who is also a
Clearing Member and can clear and settle trades on his own account, on account of his clients and on
account of associated Trading Members and their clients.

4. Self-Clearing Member (SCM)

A SCM means a Trading Member who is also Clearing Member and can clear and settle
trades on his own account and on account of his clients.

5. Trading Member (TM)

A TM is a member of the Exchange who has only trading rights and whose trades are cleared
and settled by the Clearing Member with whom he is associated.

6. Limited Trading Member (LTM)

An LTM is a member, who is not the members of the Cash Segment of the Exchange, and
would like to be a Trading Member in the Derivatives Segment at BSE. An LTM has only the
trading rights and his trades are cleared and settled by the Clearing Member with whom he is
associated.

3.14 DEVELOPMENT AND REGULATIONS OF DERIVATIVE MARKET BY

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

The SEBI Board in its meeting on June 24, 2002 considered some important issues relating to
the derivative markets including:

➢ Physical settlement of stock options and stock futures contracts.

➢ Review of the eligibility criteria of stocks on which derivative products are permitted.
● Use of sub-brokers in the derivative markets.
➢ Norms for use of derivatives by mutual funds

It has been guided by the following objectives:

(A)Investor Protection:
Attention needs to be given to the following four aspects:

i. Fairness and Transparency: The trading rules should ensure that trading is
conducted in a fair and transparent manner. Experience in other countries shows that
in many cases, derivatives brokers/dealers failed to disclose potential risk to the
clients. In this context, sales practices adopted by dealers for derivatives would
require specific regulation. In some of the most widely reported mishaps in the
derivatives market elsewhere, the underlying reason was inadequate internal control
system at the user-
firm itself so that overall exposure was not controlled and the use of derivatives was
for speculation rather than for risk hedging. These experiences provide useful lessons
for us for designing regulations.
ii. Safeguard for clients’ moneys: Moneys and securities deposited by clients with the
trading members should not only be kept in a separate client ‘account but should also
not be attachable for meeting the broker ‘s own debts. It should be ensured that
trading by dealers on own account is totally segregated from that for clients.
iii. Competent and honest service: The eligibility criteria for trading members should be
designed to encourage competent and qualified personnel so that investors/clients are
served well. This makes it necessary to prescribe qualification for derivatives
brokers/dealers and the sales persons appointed by them in terms of a knowledge
base.

(B)Market integrity:

The trading system should ensure that the market ‘s integrity is safeguarded by minimizing
the possibility of defaults. This requires framing appropriate rules about capital adequacy,
margins, clearing corporation, etc.

(C)Quality of markets:

The concept of Quality of Markets goes well beyond market integrity and aims at enhancing
important market qualities, such as cost efficiency, price continuity, and price discovery. This
is a much broader objective than market integrity.

(D)Innovation:
While curbing any undesirable tendencies, the regulatory framework should not stifle
innovation which is the source of all economic progress, more so because financial
derivatives represent a new rapidly developing area, aided by advancements in information
technology.
DETAILED VIEW OF TATA GROUP COMPANIES:

1.TATA COUNSULTANCY SERVICES{TCS}:

Tata Consultancy Services (TCS) is an Indian multinational information technology (IT)
services and consulting company headquartered in Mumbai. It is a part of the Tata Group and
operates in 149 locations across 46 countries.

TCS is the second largest Indian company by market capitalisation and is among the most
valuable IT services brands worldwide.

In 2015, TCS was ranked 64th overall in the Forbes World's Most Innovative Companies
ranking, making it both the highest-ranked IT services company and the top Indian company.
As of 2018, it is ranked eleventh on the Fortune India 500 list. In April 2018, TCS became
the first Indian IT company to reach $100 billion in market capitalisation and second Indian
company ever (after Reliance Industries achieved it in 2007) after its market capitalisation
stood at ₹6.793 trillion (equivalent to ₹7.7 trillion or US$100 billion in 2020) on the Bombay
Stock Exchange.

In 2016–2017, parent company Tata Sons owned 72.05% of TCS and more than 70% of Tata
Sons' dividends were generated by TCS. In March 2018, Tata Sons sold stocks of TCS worth
$1.25 billion in a bulk deal. As of 15 September 2021, TCS has recorded a market
capitalisation of US$200 billion, making it the first Indian IT firm to do so.

2.TATA STEEL:
Tata Steel Limited is an Indian multinational steel-making company, based in Jamshedpur,
Jharkhand and headquartered in Mumbai, Maharashtra. It is a part of the Tata Group.

Formerly known as Tata Iron and Steel Company Limited (TISCO), Tata Steel is among the
top steel producing companies in the world with an annual crude steel capacity of 34 million
tonnes per annum. It is one of the world's most geographically-diversified steel producers,
with operations and commercial presence across the world. The group (excluding SEA
operations) recorded a consolidated turnover of US$19.7 billion in the financial year ending
31 March 2020. It is the second largest steel company in India (measured by domestic
production) with an annual capacity of 13 million tonnes after Steel Authority of India Ltd.
(SAIL). TATA Steel, along with SAIL and Jindal Steel and Power, are the only 3 Indian steel
companies that have captive iron-ore mines, which gives the three companies price
advantages.

The Key Managerial Personnel (KMP) at Tata Steel Limited India are Koushik Chatterjee as
CFO(KMP) and Parvatheesam Kanchinadham as COMPANY SECRETARY. Koushik
Chatterjee, Mallika Srinivasan, Chandrasekaran Natarajan and 7 other members are presently
associated as directors.
Tata Steel operates in 26 countries with key operations in India, Netherlands and The United
Kingdom, and employs around 80,500 people. Its largest plant (10 MTPA capacity) is located
in Jamshedpur, Jharkhand. In 2007, Tata Steel acquired the UK-based steel maker Corus. It
was ranked 486th in the 2014 Fortune Global 500 ranking of the world's biggest corporations.
It was the seventh most valuable Indian brand of 2013 according to Brand Finance.

In July 2019 Tata Steel Kalinganagar (TSK) was included in the list of the World Economic
Forum's (WEF's) Global Lighthouse Network.

Tata Steel has been recognised amongst India’s Best Workplaces in Manufacturing 2022 by
Great Place to Work. This recognition has been received for the fifth time, highlights
company’s sustained focus on fostering a culture of high-trust, integrity, growth, and care for
the employees. Tata Steel has also been inclusive towards its LGBTQ employees and also
provides health insurance benefits for partners of its LGBTQ employees under the new HR
policy.

In November 2021, Tata Steel became the most profitable company in the Tata Group,
overtaking Tata Consultancy Services.

3.TATA MOTORS:
Tata Motors Limited is an Indian multinational automotive manufacturing company,
headquartered in the city of Mumbai, India which is part of Tata Group. The company
produces passengers cars, trucks, vans, coaches, buses, luxury cars, sports cars, construction
equipment.

Formerly known as Tata Engineering and Locomotive Company (TELCO), the company was
founded in 1945 as a manufacturer of locomotives. The company manufactured its first
commercial vehicle in 1954 in a collaboration with Daimler-Benz AG, which ended in 1969.
Tata Motors entered the passenger vehicle market in 1988 with the launch of the Tata Mobile
followed by the Tata Sierra in 1991, becoming the first Indian manufacturer to achieve the
capability of developing a competitive indigenous automobile. In 1998, Tata launched the
first fully indigenous Indian passenger car, the Indica, and in 2008 launched the Tata Nano,
the world's most affordable car. Tata Motors acquired the South Korean truck manufacturer
Daewoo Commercial Vehicles Company in 2004. Tata Motors has been the parent company
of Jaguar Land Rover since the company established it for the acquisition of Jaguar Cars and
Land Rover from Ford in 2008.

Tata Motors' principal subsidiaries include British premium car maker Jaguar Land Rover
(the maker of Jaguar and Land Rover cars) and the South Korean commercial vehicle
manufacturer Tata Daewoo. Tata Motors has a construction-equipment manufacturing joint
venture with Hitachi (Tata Hitachi Construction Machinery), and a joint venture with
Stellantis which manufactures automotive components and Fiat Chrysler and Tata branded
vehicles. On Oct 12,
2021 private equity firm TPG invested $1 billion in Tata Motors' electric vehicle subsidiary.
Tata Motors has auto manufacturing and vehicle plants in Jamshedpur, Pantnagar, Lucknow,
Sanand, Dharwad, and Pune in India, as well as in Argentina, South Africa, the United
Kingdom, and Thailand. It has research and development centres in Pune, Jamshedpur,
Lucknow, and Dharwad, India and South Korea, the United Kingdom, and Spain. Tata
Motors is listed on the BSE (Bombay Stock Exchange), where it is a constituent of the BSE
SENSEX index, the National Stock Exchange of India, and the New York Stock Exchange.
The company is ranked 265th on the Fortune Global 500 list of the world's biggest
corporations as of 2019.

On 17 January 2017, Natarajan Chandrasekaran was appointed chairman of the company Tata
Group. Tata Motors increased its UV market share to over 8% in FY2019.
Tata Motors was founded in 1945, as a locomotive manufacturer. Tata Group entered the
commercial vehicle sector in 1954 after forming a joint venture with Daimler-Benz of
Germany. After years of dominating the commercial vehicle market in India, Tata Motors
entered the passenger vehicle market in 1991 by launching the Tata Sierra, a sport utility
vehicle based on the Tata Mobile platform. Tata subsequently launched the Tata Estate (1992;
a station wagon design based on the earlier Tata Mobile), the Tata Sumo (1994, a 5-door
SUV) and the Tata Safari (1998).

Tata Indica (first generation) Tata launched the Indica in 1998, a fully indigenous Indian
passenger car tailor-made to suit Indian consumer needs though styled by I.D.E.A, Italy.
Although initially criticised by auto analysts, its excellent fuel economy, powerful engine,
and an aggressive marketing strategy made it one of the best-selling cars in the history of the
Indian automobile industries. A newer version of the car, named Indica V2, was a major
improvement over the previous version and quickly became a mass favourite. Tata Motors
also successfully exported large numbers of the car to South Africa. The success of the Indica
played a key role in the growth of Tata Motors.

4.TATA POWER:
Tata Power Company Limited is an Indian electric utility company based in Mumbai,
Maharashtra, India and is part of the Tata Group. The core business of the company is to
generate, transmit and distribute electricity. With an installed electricity generation capacity
of 10,577 MW, it is India's largest integrated power company. Tata Power has been ranked
3rd in 2017 Responsible Business Rankings developed by IIM Udaipur. In February 2017,
Tata Power became the first Indian company to ship over 1 GW solar modules.

The firm started as the Tata Hydroelectric Power Supply Company in 1910, which
amalgamated with the Andhra Valley Power Supply Company in 1916. It commissioned
India's Second hydro-electric project in 1915 in Khopoli for 72 MW. Then second and third
power plants were installed in Bhivpuri (75 MW) in 1919 and Bhira (300 MW) in 1922.

Major power plants

• Mundra Ultra Mega Power Plant. A 4,000 MW (5×800 MW) coal-based thermal
power plant at Mundra, Kutch district, Gujarat. This plant is fully functional.
• Trombay Thermal Power Station. A 1,580 MW thermal power plant at Trombay, near
Mumbai, Maharashtra. This plant is fully functional.
• Maithon Power Plant. A 1,050 MW (2×525 MW) coal-based thermal power plant at
Maithon, Dhanbad, Dhanbad district, Jharkhand. This plant is fully functional. This power
plant is owned by Maithon Power Limited a 74:26 joint venture between Tata Power and
Damodar Valley Corporation

5.TITAN:
Titan Company Limited is an Indian luxury products company that mainly manufactures
fashion accessories such as jewellery, watches and eyewear. Part of the Tata Group and
started as a joint venture with TIDCO, the company has its corporate headquarters in
Electronic City, Bangalore, and registered office in Hosur, Tamil Nadu.

Titan company commenced operations in 1984 under the name Titan Watches Limited. In
1994, Titan diversified into jewellery with Tanishq and subsequently into eyewear with Titan
Eye plus. In 2005, it launched its youth fashion accessories brand Fastrack. The company is
the largest branded jewellery maker in India, with more than 80 percent of its total revenues
coming from the jewellery segment. As of 2019, it is also the fifth-largest watch manufacturer
in the world.

6.TATA CONSUMER PRODUCTS:

Tata Consumer Products is a fast-moving consumer goods company headquartered in
Mumbai, and a part of the Tata Group. Its registered office is located in Kolkata. It is the
world's secondlargest manufacturer and distributor of tea and a major producer of coffee.

Formerly known as Tata Global Beverages Limited (TGBL), Tata Consumer Products was
formed when the consumer products business of Tata Chemicals merged with Tata Global
Beverages in February 2020. The company now operates in the food and beverages industry,
with ~56% of their revenue coming from India while the rest is from their international
businesses. After the merger, the company controls Indian and international brands like Tata
Salt, Tata Tea, Tetley, Eight O'Clock Coffee, Good Earth Tea, Tata Sampann and Tata
Starbucks.

Tata Tea is the biggest-selling tea brand in India, Tetley is the biggest-selling tea brand in
Canada and the second-biggest-selling in United Kingdom and United States.
DETAILED VIEW OF ADANI GROUP COMPANIES
1.Adani Enterprises:
Adani Enterprises is a holding company, which is primarily engaged in mining and trading of
coal and iron ore on a standalone basis, and acts as an incubator for Adani Group's new
business ventures. It has three main subsidiaries: Adani Wilmar (food processing), Adani
Airport Holdings (airport operations) and Adani Road Transport (road development).
Through its other subsidiaries, Adani Enterprises also has business interests in solar PV
module manufacturing, water infrastructure, data centers, agri-output storage and distribution,
defence and aerospace, bunkering, rail and metro infrastructure, real estate, financial services,
oil exploration, petrochemicals, and cement.

2.Adani Green Energy:

Adani Green Energy is the renewable energy arm of the group having wind and solar power
plants in its portfolio. It is the world's largest solar power developer by capacity, with a total
capacity of 12.3 GW.

3.Adani Ports & SEZ:

Adani Ports & SEZ (APSEZ) is the largest private port company and special economic zone
in India, with ten ports and terminals including Mundra Port, its largest. The company is
headed by Karan Adani, CEO of APSEZ. The company's operations include Port
management, logistics and the special economic zone. The company operates at the following
ports: Mundra, Dahej, and Hazira, Gujarat; Dhamra, Odisha; Kattupalli, Tamil Nadu; and
Vizhinjam, Kerala.

4.Adani Power:
Adani Power was established in August 1996. The company develops and maintains power
projects and is the largest private sector power generation company in the country. It has a
combined installed capacity of 12,450 MW with four thermal power projects across India.

5.Adani Transmission:
Integrated in 2013, Adani Transmission handles the commissioning, operations and
maintenance of electric power transmission systems. As of May 2021, the company holds,
operates and maintains 17,200 circuit kilometres of transmission lines that range from 400 to
765 kilovolts, making it India's largest private sector power transmission and distribution
network.

6.Adani Total Gas:

 Adani Total Gas is a city gas distribution company serving both industrial and residential
customers in India through piped natural gas connections and compressed natural gas
stations. It is a joint venture between Adani Group and the French oil and gas company Total
Energies. Adani Total Gas has presence in 22 geographical areas (GAs) as a standalone entity
as of November 2020. In addition, Indian Oil-Adani Gas Pvt Ltd., a 50:50 joint venture
between Adani Total Gas and Indian Oil Corporation, operates city gas distribution networks
in 19 GAs. With a combined presence of 41 GAs in 74 districts, Adani Total Gas is the
largest city gas operator in India. Recently, The Adani Group announced strategic
collaboration with Snam, Europe's leading gas infrastructure company on energy mix
transition.
7.Adani Wilmar:
Adani Wilmar, a joint venture between Adani Enterprises Ltd and Wilmar International
Limited, is the owner of the Fortune brand of edible oils. It has the largest range of edible oils
43 comprising soya bean, sunflower, mustard, and rice bran. Its Fortune brand of oil has
around 20% market share in India.

Adani Wilmar Limited (AWL), one of the largest and fastest growing packaged food FMCG
companies in India, on Tuesday (03-05-2022) announced the acquisition of renowned
Kohinoor Brand – domestic (India region) from McCormick Switzerland GMBH for an
undisclosed amount.

The acquisition would give AWL, a joint venture between Adani Group and Wilmar Group of
Singapore, exclusive rights over the brand 'Kohinoor’ basmati rice along with ‘Ready to
Cook’, ‘Ready to Eat’ curries and meals portfolio under the Kohinoor Brand umbrella in
India, as per the release.
 CHAPTER 4:
DATA ANALYSIS AND INTERPRETATION
 CHAPTER 4:

DATA ANALYSIS AND INTERPRETATION

4.1.1 BUSINESS GROWTH OF EQUITY DERIVATIVE PRODUCTS

Business Growth in Index Options at NSE: 2012-13 to 2021-22

Index options

Percentage Share of Index Options

Year No. of contracts Turnover (In Rs. in terms of total
Crores) No. of contracts Turnover
2012-2013 820877149 22781574 50.26 45.44
2013-2014 928565175 27767341 62.91 62.79
2014-2015 1378642863 39922663 71.7 72.47
2015-2016 1623528486 48951931 72.55 72.24
2016-2017 1067244916 72797288 72.29 72.66
2017-2018 1515034222 134921876 75.05 71.79
2018-2019 2652457487 203302404 77.36 75.51
2019-2020 4586692584 311447325 76.25 77.14
2020-2021 7824035680 590099062 79.16 81.77
2021-2022 17623355691 1609497197 83.74 85.03
Table 4.1.source: author’s computation based on data compiled from NSE website
Table 4.2 Based on data compiled from NSE website
INTERPRETATION:

Table 4.2 shows the growth of index options traded at NSE over the past ten years, in terms
of volume and turnover. It has been revealed that the number of contracts traded have been
rising since 2012 occupy 83.4% of total volume traded at the end of FY2022. Turnover share
from Index Options has also been expanding and stands at 85.03% of the total turnover of
F&O segment. It can be observed that Highest volume of Index Options contracts has been
recorded in 2021-22 of 17623355691 contracts which is about 75% higher than the previous
year. The spread of share of turnover of Index Options at NSE throughout the past ten years.
Again, the highest turnover is seen in the year 2021-22 of Rs. 1609497197 cr. Digitization
and increasing investor awareness can be cited as reasons for the phenomenal increase in
trading volume and resulting turnover.

Business Growth in Index Futures at NSE: 2012-13 to 2021-22

Index futures

Percentage Share of Index

Year No. of contracts Turnover (In Rs. Crores) Futures in terms of total
No. of contracts Turnover
2012-2013 96100385 2527130.8 26.25 22.27
2013-2014 105252983 3083103.2 15.96 14.9
2014-2015 129303044 4107215.2 12.13 11.41
2015-2016 140538674 4557113.6 8.49 8.01
2016-2017 66535070 4335940.8 8.19 8.07
2017-2018 57674584 4810454.3 7.04 7.39
 2018-2019 69824522 5568914.4 6.7 7.03
2019-2020 94777881 6701072.4 4.75 4.59
2020-2021 127599626 9047645.6 3.01 2.92
2021-2022 93662982 8429378.2 2.20 2.42

Table 4.3 Based on data compiled from NSE website

Volume wise growth in index futures

700000000

600000000

500000000

400000000

300000000

200000000

100000000

Table 4.4

Table 4.3 shows the year-wise performance of Index futures at NSE for the period from
20122022 in terms of volume and turnover. It also reveals their percentage share with respect
to the total turnover and volume. It can be revealed that there has been a continuous decline
both in the percentage of volume and turnover of the Index Options with the lowest share
recorded in 2021-22, accounting for 2.20% for number of contracts and 2.34% for turnover.
There has, however, been a significant growth in the turnover from Index Options with the
highest received in 2021-22 of Rs. 8429378 cr. It can be observed that percentage share of
options in terms of turnover and number of contracts has been declining through the years.
Although the percentage share is declining, volume of contracts and turnover has increased
significantly. In 2022 the percentage share of turnover of Index Futures stood at 2.42%
compared to 22% ten years ago. Contract volume-wise, there has been volatility in number of
contracts which initially showed a growth pattern but fell from140538674 contracts in 2015-
15 to 66535070 contracts in the following FY. It however recovered in the following 2 FYs
but has started to decline consistently over the last 2 FYs and has been on its lowest in 2018
with just 57674584 contracts traded.

Business Growth in Stock Futures at NSE: 2012-13 to 2021-22

Stock Futures

Percentage Share of Stock

Year No. of contracts Turnover (In Rs. Futures in terms of total
Crores) No. of contracts Turnover
2012-2013 147711691 4223872.02 21.43 29.41
2013-2014 170414186 4949281.72 17.99 18.79
2014-2015 237604741 8291766.27 13.14 13
2015-2016 234243967 7828606 13.05 13.4
2016-2017 173860130 11129587.14 13.27 12.95
2017-2018 214758366 15597519.71 12.93 14.91
2018-2019 255533869 12512120.03 11.16 12.08
2019-2020 257380338 149191550.7 12.42 11.79
2020-2021 252830922 18098365.3 11.22 9.45
2021-2022 265609687 21038937.56 8.06 7.15

Table 4.5 source: based on data compiled from NSE website

Table 4.6
INTERPRETATION
Trading of Stock Futures at NSE has grown in terms of volume of contracts peaked in the
year 2021-22 with 265609687 contracts traded compared to 147711691 contracts in 2013,
which is about 63% higher than in 2013. FY 2021-22 saw most amount of turnover from
Stock Futures at 21038937.56 Rs. Cr. Which constituted about 11% of the total share of
turnover from equity derivatives that year. Although the turnover showed an upward trend in
the market, percentage share however has been falling and currently turnover share of Stock
Futures in the market stands at 7.15%, about 22% lesser than ten years ago. The cause of
declining percentage in terms of total can be attributed to changing investor attitude in favor
of Options as a much more reliable derivative product compared to Futures, which once had
dominated entire Capital market.
Business Growth in Stock Options at NSE: 2012-13 to 2021-22

Stock Options Percentage Share of Stock Options

Year No. of contracts Turnover (In Rs. in terms of total

Crores) No. of contracts Turnover
2012-2013 66778193 2000427 2.06 2.86
2013-2014 80174431 2409489 3.14 3.52
2014-2015 91479209 3282552 3.03 3.11
2015-2016 100299174 3488174 5.9 6.34
2016-2017 92106012 6107486 6.24 6.3
2017-2018 126411376 9655009 4.98 5.9
2018-2019 186986542 9397509 5.38
4.78
2019-2020 198377569 229034.28 6.58 6.47
2020-2021 330394648 579351.62 6.6 5.85
2021-2022 677512461 1038830.27 5.90 5.38
Table 4.7 source: based on data compiled from NSE website
INTERPRETATION:
Volume-wise, stock options seem to have soared their way in the F&O segment in India.
677512461 contracts traded in the first half of FY2021-22, about 13 times more than number
of contracts traded 10 years ago and 1.5 times more than the preceding FY. The turnover also
is expected to be highest in 2022, as it currently stands at 1038830.27 contributing to 25% of
the turnover over the last ten years. In terms of percentage share, both volume and turnover
have reached about 6% of the market share growing by over 4% over the past decade. Stock
options have been showing high positive growth trend thanks to NSE which allow trading in
options of over 150 listed securities and 9 market indexes.
Index Options have been dominating the second half of the Indian Derivatives market and
have pushed Stock Futures out of the race. Both in terms of volume and turnover, they have
grown by 30% and 40% respectively. A period of stability and slight downward slide was
observed in four years from 2013 to 2018 for turnover of Index Options, but in the years that
followed turnover share grew by about 6% on average each year. Stock Options, have also
climbed up and occupy 6% of quantity share and 5.3% of turnover share. There has been a
steady increase in number of stock options contracts at the NSE over the past decade.
However, Futures segment at NSE has taken a hit and has been declining un its contribution
to the total turnover generated. It has been falling drastically from 2009 when Index futures
contributed to 29.4% of the entire segment, but now in 2019 this share has been cut off to a
mere 7%. The volume of contracts
has also been declining, from
21.43% in 2013 to 8.6% in 2022. There
has been a downward trend as a result of
shift in product choice of investors
who have begun to turn to Options as a
more efficient instrument. Same has
been the case with Index Futures, which
once provided 22% of turnover in the
F&O segment in 2013 and now stands
at 2.42%. The volume of contracts
has been reduced to 2.33% from 26.2%
in 2009 from when it has been only
showing a downward trend.
 Table 4.8
Table 4.9 Percentage share of Equity Derivatives turnover at NSE

% Share of Index % share of Stock % share of Stock % share of Index

Year Options at NSE Options at NSE Futures at NSE Futures at NSE

No. of No. of No. of No. of Turnove

contracts Turnover contracts Turnover contracts Turnover contracts r

2012-
2013 50.26 45.44 2.06 2.86 21.43 29.41 26.25 22.27

2013-
2014
62.91 62.79 3.14 3.52 17.99 18.79 15.96 14.9

2014-
2015 71.7 72.47 3.03 3.11 13.14 13 12.13 11.41

2015-
2016 72.55 72.24 5.9 6.34 13.05 13.4 8.49 8.01

2016-
2017 72.29 72.66 6.24 6.3 13.27 12.95 8.19 8.07

2017-
2018 75.05 71.79 4.98 5.9 12.93 14.91 7.04 7.39

2018-
2019 77.36 75.51 4.78 5.38 11.16 12.08 6.7 7.03

2019- 76.25 77.14 6.58 6.47 12.42 11.79 4.75 4.59

2020

2020-
2021 79.16 81.77 6.6 5.85 11.22 9.45 3.01 2.92

2021-
2022
82.85 85.03 6.06 6.9 8.66 7.15 2.33 2.42

Index Options Stock options Index Futures Stock Futures

Avg. Yearly turnover

544858615 38854086 39544201.7 79298426.96

Avg. Yearly contract volume

1112080882 77497331 113925500 187040855
Table 4.10 Average yearly turnover and contract volume of Derivatives from years

2012-2022 INTERPRETATION:
Table 4.10 reveals the changing trend of Equity derivatives products of NSE through a
relative analysis. It indicates the manner in which Index and Stock futures have been
diminishing from the market because of exponential Index options trading. Index Options on
an average occupy 78% of the share (Table 5.15), while Index Futures only accounts for 6%
of the total segment share. The average turnover based on the last ten years has been highest
for Index options and least for Stock Futures (Table 5.16). There has been a crushing
dominance of the Index Options which means that it has become a crucial component of
Equity derivative market of the country and has shown exponential growth trend.

Table 4.11 Turnover of Equity Derivative Products at NSE

Index Options Index Futures Stock Options Stock Futures

Year
 No. Turnover No. of Turnover No. of Turnover No. of Turnover (in
of contracts (in Rs. Cr) contracts contracts (in Rs. Cr) contracts Rs. Cr)
(in Rs. Cr)
2012-
2013 8027964 178306889 3934388.7 14016270 506065 145591240 5195246.64
341379523

2013-
2014 18365366 1030344 186041459 5495756.7
650638557
165023653 4356754.5 32508393
2014-
977031
2015 864017736 22720032
146188740 3577998.4 36494371 158344617 4074670.73
2015-
22781574 2000427
2016 820877149 147711691 4223872.02
96100385 2527130.8 66778193
2016-
2017 27767341 2409489
928565175 170414186
105252983 3083103.2 80174431 4949281.72
2017-
3282552
2018 1378642863 39922663 129303044 237604741 8291766.27
4107215.2 91479209
2018-
3488174
2019 1623528486 140538674 234243967
48951931 10029917
4557113.6 4 7828606
2019-
2020 1067244916 66535070 6107486 173860130
72797288 11129587.14
4335940.8 92106012
2020- 9655009
2021 1515034222 126411376 214758366
134921876
57674584 4810454.3 15597519.71

2021- 9397509
2022 1930880197 134705879 201838153
148602580
54330981 4254102.2 12512120.03

Total 11120808824 1139255003 1870408550

544858615 39544201.7 79298426.96

774973308
38854086
Table 4.12 Volume, total and average turnover of Equity Derivative segment at NSE
(compiled from NSE website)

Total

Year Average Daily turnover (in

No. of contracts Turnover (in Rs. Cr) Rs. Cr)

2012-2013 679293922 17663664.57 72392.07

2013-2014 1034212062 29248221.09 115150.48

2014-2015 1205045464 31349731.74 125902.54

2015-2016 1131467418 31533003.96 126638.57

2016-2017 1284406775 38211408.05 152236.69

2017-2018 1837029857 55606453.39 228833.14

2018-2019 2098610395 64825834.3 26452.77

2019-2020 1399746128 94370301.61 380525.41

2020-2021 1913878548 164984859.1 670670.16

2021-2022 2321755210 174766250 958028.12

Total 14905445779 4487192191 2856829.95

Table 4.12 shows a consolidated database of yearly turnover and volume growth of F&Os at
NSE. Through table 5.19 it has been revealed that the average daily turnover has also been
taking leaps every year since 2012. As more and more investors are participating the daily
trading activity has significantly increased. A total of 1.59 trillion contracts have been traded
at the F&O NSE segment in the past decade and have generated Rs. 4487192191 cr. worth of
turnover in this period. The ratio of equity derivatives segment turnover to cash segment
turnover in 2012 was 4:1. This dominance of equity derivatives over the cash segment had
started not just in this time, but since the launch of these risk-control products in the market.
They had overtaken the cash market turnover in less than 6 years of their launch. This
rose to 22:1 in 2021-22FY where it peaked.
4.1.2. BUSINESS GROWTH OF EQUITY DERIVATIVE PRODUCTS AT BSE

Table 4.13 Options Turnover at BSE from 2012-2022 (in Rs.Cr) and Options volume

Index Options at BSE Stock Options at BSE

Year Index Puts Index Calls Stock Puts Stock Calls

Turnover Volume Turnover Volume Turnover Volume Turnov

er
Volume
2012- 0 0 5276 137.76 0 0 0 0
2013
2013- 10 0.25 0 0 0 0 0 0
2014
2014- 17569130 418252 7206514 200089.57 7657 191.82 39848 1277.27
2015
2015- 140909766 3797249.53 116324195 3230232.57 209557 5059.75 178313 5186.57
2016
2016- 113674567 3349884.04 182685008 5705316.57 877355 23945.18 667365 22185.5
2017
2017- 254031531 10016621.34 244203156 10112605.1 2700450 81233.84 3010092 93584.5
2018
2018- 44654651 1825708.19 58773325 2560540.69 1413452 42408.53 1009439 31904.1
2019
2019- 63916 3214.45 24433 1254.9 0 0 0 0
2020
2020- 32 2.29 82 5.92 0 0 3 0.18
2021
2021- 11298 884.63 19158 1308.5 0 0 2 0.08
2022

Table 4.14 Futures turnover and volume at BSE from 2012-2022 (Turnover in Rs. Cr)

Index Futures Stock Futures

Volume Turnover Volume Turnover

3744 96 8 0.3

5613 154.08 0 0

7073334 178448.83 326342 10215.7

4701927 122429.78 116933 3420.07

2136269 63493.84 1901877 54599.42

 1227926 48632.35 305714 9794.26

306712 13097.16 51815 1349.59

32288 2266.86 2901 203.08

44117 3217.51 467 36.76

438 39.13 271 17.77

Table 4.15 Total Volume and Turnover at BSE From 2012-2022

Source: author’s calculation based on data compiled from BSE website

Average Daily
Turnover
Year Total Contracts Total Turnover (In Rs. Cr) (in Rs. Cr)

2012-2013 9028 234.06 0.96

2013-2014 5623 154.33 0.61

2014-2015 32222825 808475.99 3246.89

2015-2016 262440691 7163576.66 28654.31

2016-2017 301942441 9219434.32 36730.81

2017-2018 505478869 20362741.42 83797.29

2018-2019 106209394 4475008.32 18117.44

2019-2020 123538 6939.29 27.98

2020-2021 44701 3262.66 13.26

2021-2022 31167 2250.11 9.07

Index Options Growth at BSE: The four years from 2015 to 2019 saw enormous dealings in
Index Options at BSE. The market peaked in FY 2016-17 at 2700450 contracts and suddenly
fell to 1413452 contracts in the following FY. Which is about reduction in trading by 78% in
FY18,19, and by further 99% in FY2020-21. FY 2021-22, however, options trading at BSE
spiked by over 95% from Rs. 2.4 cr turnover to 884 Rs. cr. for Index Calls and Rs. 1305cr. in
case of Index Calls.

Stock Options at BSE: FY2016-17 recorded peak phase for the stock options at BSE where
it received Rs. 174817 cr. worth of turnover from puts and calls on individual securities. The
performance has been similar to the performance of Index Options; however, stock options
have failed to recover from the fall from FY2018-19 onwards.

Index Futures at BSE: Index Futures dramatically surged from mere 154cr in turnover in
FY2013-14 to 115776% rise to Rs. 178449 cr. in the following FY2014-15. The following
years, however, the index futures have been showing a downtrend and no signs of recovery,
falling by 31% in FY2015-16 to 48%in Fy2016-17, up till recording a fall by 81% in 2019-
20. Reasons can be attributed to launch of currency derivatives in the early 2010s which may
have slowed down the pace of Index futures by a lot.

Stock Futures at BSE: The negative growth rate for Stock Futures has been averaging
around 84% for the last 4 years. A mere revenue of Rs. 17.7 cr. was recorded in FY2021-22
compared to the peak Rs. 54599 in FY2016-17.

From the entire Equity Derivatives segment at BSE analysis, it can be understood that the
turn is currently sloping downward and had its peak at mid-phase in FY2017-18 when a total
of 505478869 F&O contracts were traded, generating income of Rs.20362741.42 cr.
 Table 4.16 PRODUCT WISE TURNOVER AT BSE 2012-22

STOCK OPTIONS INDEX OPTIONS INDEX FUTURES STOCK FUTURES

Source: author’s calculation based on average yearly turnover of F&Os at BSE

In the years in which equity derivatives remained in active high-volume trade, Index Options
have been in the spotlight. Based on average yearly turnover computation of the ten years,
Index Options occupy 98% of the turnover generated from BSE in the Equity derivatives
segment. The other three instruments have simply been negligible contribution to the
turnover.

Turnover from Index Options has been Rs. 41223309.12 cr. aggregate of the past ten years,
which is about 134 times the turnover from Stock Options that generated Rs. 306977cr., 95
times more than Index Futures turnover that generated Rs. 431875cr., and about 535 times
greater than Stock Futures which generated a mere total turnover of Rs. 76936 in all 10 years.

Year
Derivative Segment (In Rs. Cr) Cash Segment (In Rs. Cr)

2012-2013 234.06 1378809.32

2013-2014 154.33 1105026.89

2014-2015 808475.99 667497.58

2015-2016 7163576.66 548774.44

2016-2017 9219434.32 521664.2

2017-2018 20362741.42 854844.29

 2018-2019 4475008.32 740088.59

2019-2020 6939.29 998260.58

2020-2021 3262.66 1082968.21

2021-2022 2250.11 775590.08

Table 4.17 Comparison of Derivative segment turnover at BSE with Cash segment turnover
(compiled from BSE)

In the time span covered in this study, it can be found that the cash segment turnover started
off doing better than the derivative segment before being drastically overtaken and then
eventually by the end of the decade regaining the supremacy. The ratio of derivative
turnover to cash market turnover was 2:1378 in 2012-2013. The cash segment incurred a
turnover 5890 times more than the derivatives segment.
In the following year both derivatives and cash segment showed down trend and the ratio
became 2:11050. FY2014- 15 saw a surge in derivatives and downfall in the cash segment
and the ratio turned in favor of derivatives at 1.2:1.

The following years saw huge leaps in the BSE derivatives from 2016-2017, and the turnover
peaked in FY2018-19 at Rs. 20362741 cr., about 23 times higher than cash segment.
However, in the years followed, Cash Segment gained the upper hand and over took the F&O
segment and as of FY2021-22 the ratio of cash segment to equity derivatives segment is
344:1.

4.1.3 NSE AND BSE COMPARISON OF EQUITY DERIVATIVES

PERFORMANCE

Table 4.18. Comparison of Derivatives Turnover with Equity turnover on BSE & NSE

BSE Eq Derivative Turnover NSE Eq Derivative Turnover

2012-2013 234.06 17663664.57

2013-2014 154.33 29248221.09

2014-2015 808475.99 31349731.74

2015-2016 7163576.66 31533003.96

2016-2017 9219434.32 38211408.05

 2017-2018 20362741.42 55606453.39

2018-2019 4475008.32 64825834.3

2019-2020 6939.29 94370301.61

2020-2021 3262.66 164984859.1

2021-2022 2250.11 174766250

Turnover from NSE’s F&O segment has been clearly greater than turnover generated from
BSE’s F&O segment. BSE’s performance is almost negligible when compared to NSE’s. The
least difference between the two Exchanges was in FY 2018-19 when BSE F&O peaked, the
difference being Rs. 35243711cr. Growth at NSE in terms of turnover has been positive
whereas at BSE it has been declining over the past 4 years. Several factors have affected
NSE’s successful performance and they include price volatility, investor awareness etc.

4.2.1 CASH MARKET VS EQUITY DERIVATIVE MARKET IN INDIA

Table 4.19 CASH MARKET AND F&O SEGMENT TURNOVER COMPARISON IN INDIA
NSE Cash
BSE Eq NSE Eq BSE Cash Total Cash
Total Eq Derivative
Year Derivative Derivative Segment Market
Turnover Segment
Turnover Turnover Turnover Turnover
Turnover

2012-
17663664.57 4138024 1378809.32 5516833.32
2013 234.06 17663898.63

2013-
29248221.09 3577412 1105026.89 4682438.89
2014 154.33 29248375.42
2014-
31349731.74 2810893 667497.58 3478390.58
2015 808475.99 32158207.73

2015-
31533003.96 2708279 548774.44 3257053.44
2016 7163576.66 38696580.62

2016-
38211408.05 2808488 521664.2 3330152.2
2017 9219434.32 47430842.37

2017-
55606453.39 4329655 854844.29 5184499.29
2018 20362741.42 75969194.81

2018-
64825834.3 4236983 740088.59 4977071.59
2019 4475008.32 69300842.62

2019-
94370301.61 5055913 998260.58 6054173.58
2020 6939.29 94377240.9

2020-
164984859.1 7234826 1082968.21 8317794.21
2021 3262.66 164988121.7

2021- 174766250 174768500.1

7949004 775590.08 8724594.08
2022 2250.11

Source: author’s calculation based on data compiled from BSE and NSE, SEBI bulletin.

Table 4.20 Source: Based on data from Table

4.3 ANALYSIS OF CHANGING TREND IN EQUITY DERIVATIVES

(Source: Based on data compiled from BSE and NSE)

The economic recession of 2008 has majorly impacted derivative trading trends. The first
diagram depicts turnover share of equity derivative products in India at the peak of the market
period in

2007-08, before the world’s markets were hit by the wave of recession. It depicts that stock
futures dominated the share of total turnover in the market, with about 58% of the total share,
followed by Index futures that held 29% and Options constituting for a mere 13% with Index
Options holding 10% and Stock Options being the least with 3%.

The second pie chart depicts turnover share of equity derivatives products in India since 2012
up till 2022, which shows that the entire structure has changed and the market is now solely
controlled by Index Options which constitute for about78% of the total share of turnover in
the equity derivative segment, followed by Stock Futures, which have now been reduced to
mere 11%, followed by Stock options and Stock Futures at 6% each.
Investors’ attitude has changed post the depression period, one possible explanation for this
change in preference could be the low-risk factor associated with options compared to
futures. Futures are plainly obligatory contracts which have potentially high risk compared to
nonobligatory Option contracts which enable investors to hedge downside risk. Other reasons
may be diversification by the index, redistribution effect and revision of tax treatment.

This may be attributed to the market participants’ learning of options behavior, pricing and
technology easily accessible to price options. NSE’s role in educating participant via NCFM,
investor awareness programs, MDPs, collaborative educational programs with institutes and
universities have significantly contributed to sophistication of investors. SEBI’S policy of
discouraging retail investors in F&O segment is partially responsible for this phenomenon as
it discontinued MINI-NIFTY contracts. Investors attitude change can also be attributed to the
impact of the 2008 Subprime Crisis which shook the global financial markets, after which
risk taking factor significantly dropped.

CHAPTER 5:
FINDINGS, SUGGESTIONS AND CONCLUSION
 CHAPTER 5:
FINDINGS, SUGGESTIONS AND CONCLUSION

This study attempted to identify the status of the equity derivatives’ performance in India, on
the basis of data of its generated turnover and contracts volume of the period from FY2012-
13 to FY2021-22.

The study covered five subjects, which included:

➢ study of growth trend of each of the four products individually at both the Exchanges
(using percentage analysis/comparative graphs)
➢ comparative study of each Exchange’s performance among its respective Cash Market
and Equity Derivatives market (through paired samples correlation and t tests)
➢ Comparative study of performance of Equity derivatives among the two Exchanges,
namely the BSE and NSE.
➢ An analysis of the shift in trend in usage of derivative products pre-study period and
of the period of the study;
➢ and the study of impact on Cash segment in India as a result of introduction of Equity
derivatives into the Indian markets (using method of least squares /trend analysis)

The findings have been divided as per these five subjects, and are listed as under:

5.1.1 FINDINGS BASED ON GROWTH TREND OF EQUITY

DERIVATIVE PRODUCTS

1) The equities trading in derivatives in the form of index options at NSE shows an
increasing trend since 2012 both in terms of number of contracts traded and its share
in turnover and has conquered the derivatives market holding over 83% of share of
volume and 85% of total turnover. Reasons can be attributed to the advantageous
nature of Index options as a much more helpful tool in downside hedging,
diversification by the index, redistribution effect and revision of tax treatment.

2) The equities trading in derivatives in the form of stock options at NSE also shows an
increasing trend since 2012 both in terms of number of contracts traded and its share
in turnover. It has risen gradually from 2% to 6% in this span of time.

3) The share of index futures in total number of contracts and turnover at NSE showed
an increasing trend in the initial years only. Thus, during the past 10year period, the
index futures never showed an increasing trend, there was a declining trend only. It
currently occupies 2.20% of total number of contracts share at NSE and 2.42% of
total turnover share at NSE.

4) The share of equity derivatives trading in single stock futures in terms of number of
contracts and turnover at NSE has also been showing a declining trend. It reduced in
terms of volume of contracts from 21.43% in FY2012-13 to 8.06% in FY2021-22 and
in terms of turnover from 29.41% in FY2009-10 to 7.15% in FY2021-22. Reasons can
be attributed to the risky nature of Futures compared to Options as they are obligatory
contracts and have risk of unlimited loss.

5) A total of 1.49 trillion contracts have been traded at the F&O NSE segment in the past
decade and have generated Rs. 4487192191 cr. worth of turnover in between FY2012
and FY2022.

6) Index and Stock futures have been diminishing from the market because of
exponential Index options trading. Index Options on an average occupy 78% of the
share, while Index Futures only accounts for 6% of the total segment share.

7) The average turnover based on the last ten years has been highest for Index options
and least for Stock Futures.

8) Index Options at BSE showed an increasing trend until 2015, and then a declining
trend until 2018. It has shown recovery in 2019.

9) FY2014-15 recorded peak phase for the stock options at BSE where it received Rs.
174817 cr. worth of turnover from puts and calls on individual securities. The
 performance has been similar to the performance of Index Options; however, stock
options have failed to recover from the fall from FY2016-17 onwards.

10) Index Futures at BSE dramatically surged from mere 154cr in turnover in FY2010-11
to Rs. 178449 cr. in the following FY2010-11. The following years, however, the
index futures have been showing a downtrend and no signs of recovery, falling by
31% in

11) FY2012-13 to 48%in Fy2013-14, up till recording a fall by 81% in 2017-2018

Reasons can be attributed to launch of currency derivatives in the early 2010s which
may have slowed down the pace of Index futures by a lot.

5.1.2 FINDINGS BASED ON COMPARATIVE STUDY BETWEEN BSE

AND NSE:

1) The least difference between the two Exchanges was in FY 2014-15 when BSE F&O
peaked, the difference being Rs. 35243711cr.
2) In 2009, NSE accounted for 99% of total turnover contribution in F&O sector; in
2015 the percentage share between NSE and BSE in turnover of F&O sector was
65%-35% when BSE F&Os peaked and in 2019 again the percentage share was back
to 99% by NSE and 1% by BSE.
3) BSE has generated a turnover of Rs. 702559728 crores through its equity derivatives
in the past 10 years, which is about 16 times less than the turnover generated by NSE
through its equity derivatives in this period, which is Rs. 42042077 crores.

5.1.3 FINDINGS BASED ON IMPACT OF INTRODUCTION OF

DERIVATIVES ON INDIAN EQUITIES MARKET
Study found that there was a sharp decline in the equities (cash) market of India, by about
60%, in the year when equity derivatives were introduced (2000).
Prior to the introduction of derivatives in the market, the cash segment had been consistently
showing a rising trend.
According to method of least squares, estimated turn over in cash segment for the year
200102(based on method of least square) was Rs.19, 28,490.8, while the actual turnover of
cash segment in 2001-02 = Rs. 8, 20,459.
It was observed that actual turnover was around 58 % less than the expected turnover as per
trend line in the year 2001-02 when derivative trading was launched. Growth rate from
200102 to 2004-05 was very low as compared to period before launch of derivatives.
Although cash market had positive growth in the following years after 2000-01, it can be
observed that this growth rate was very low prior to the growth rate cash market was seeing
prior to 2000.
5.2. SUGGESTIONS
With more and more participants entering into derivatives market every year, and equity
derivatives becoming the most dependable and crucial component of the Indian securities
market, the chances of errors and disruptions are higher than ever .One suggestion brought
about by the study would be for the investors to analyze the various risks associated with the
derivatives market before investing, as this market is more complex in nature and requires
expertise and experience.

1. It is suggested for the amateur investors to trade in the F&O segment only through
careful risk analysis and forecasting through expertized consultancy services in order to
design a portfolio of maximum profitability. Otherwise, amateur or new investors should
prefer to gain experience of the Capital market through trading in the Equities market instead
and indulge in less-complex trading.

2. Technical analysis tools like 5-day moving average should be done by Investors as
equity derivatives are short-term contracts.
3. It is suggested that investors have only up to 20% of their portfolio to be derivatives
due to the complex nature of these products.
4. A market prevailing in the fast-growing global economy is always unpredictable and
vulnerable to change. It can take sharp unfavorable turns at unexpected times. For instance,
the equity derivatives market was surging with SSFs skyrocketing until 2008 when the world
was hit by the Global Economic crisis. It resulted in structural changes and changed the face
of the market. Therefore, regulatory authorities such as SEBI, and trading platforms like NSE
and BSE have to take steps to ensure smooth conditions. In order to attain high-quality
derivative market operations regulators and exchanges in discussion with market participants
must come up with indispensable regulatory changes, which are delightful to all.
6.NSE has been doing well in its contribution to the Indian capital markets; however there is
scope for further improvement. BSE has been doing poorly in the equity derivatives sector. It
has been almost non-existent in the derivatives space, which is an issue that needs to be taken
care of by SEBI.

7. The problem with derivatives instruments is not with the instruments per se but the
lack of understanding of their risk/return characteristics by someone. The authorities can
rectify this by providing necessary information through their online websites.

8. Proper and effective grievance cells, Helplines and Offices either offline or online
should be open for derivative market segment throughout the country so that every person
could get information free of cost and file / register their complaints.

9. SEBI must take active role in monitoring the Exchanges and ensure guidelines to
make sure that no investor’s interests are violated.

5.3. CONCLUSION
The equity derivatives market of India has truly seen exponential growth and continues to
grow at a great rate, especially at the National Stock Exchange. It has outperformed the cash
market, and itself. All eyes are now on this market and there are many expectations from it.
When something grows to be this big, extra measures need to be taken to contain it and to
prevent a reversal or potential crises. There is a long way to go in this arena full of challenges
as the market is volatile and ever-changing, ever-growing. This study has attempted to
present an understanding of the past, present and possible future status (challenges) of the
equity derivatives market in India. It has listed, based on interpretation of a decade-worth of
data, the growth-trends, changes in trend, impacts, issues and challenges associated with the
market, and has listed suggestions that would be of use to combat these challenges, and also
to generally improve the prevailing conditions.

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