f39

ANALYSIS AND INTERPRETATION I

IMPACT OF DERIVATIVE MARKET IN THE INDIAN FINANCIAL MARKET

In this chapter the data collected from the secondary sources of Security Exchange Board

of India, National Stock Exchange, Reserve Bank of India, World Federation of Exchanges,

Bank of International Settlements, International Monetary Fund etc., are analysed with the help

of the use of charts and graphs. The analytical design is carefully framed to interpret the

information that is useful to predict the prospects of the fiscal feasibility of the country as well as

the financial market with special reference to exchange traded financial derivatives.
 f40

TABLE IV.1

GLOBAL DOMESTIC PRODUCT – COUNTRYWISE

GDP £013 - Courntrywixe

f6
f4
f2
f0
USD Tn.

8
6
4
2
0
United United
China Japan Germany France Brazil Italy Russia India Canada Spain Australia Mexico
States Kingdom

GDP 20f3 (Trillion US

$) f5 8 6.f28 3.5f4 2.679 2.3f2 2.283 f.972 f.799 f.635 f.742 f.464 2 f.f5

Source: International Monetary Fund

It is observed from the data, USA is the leader in GDP with USD. 15 Tn. in 2013 with

Mexico having 1.15 Tn. USD. India is having the GDP of 1.635 Tn. in 2013.

The GDP level of developed countries has influence on international financial markets. In

these countries the financial markets are also matured to include many of the derivative products.
 f4f

TABLE IV.2
GROSS DOMESTIC PRODUCT-NET DOMESTIC PRODUCT – INDIA

Groxx Domextic Product -Net Domextic Product - India

f00000
80000
Rx.(Bn)

60000
40000
20000
0
f993− f994− f995− f996− f997− f998− f999− 2000− 200f− 2002− 2003− 2004− 2005− 2006− 2007− 2008− 2009− 20f0− 20ff− 20f2−
94 95 96 97 98 99 00 0f 02 03 04 05 06 07 08 09 f0 ff f2 f3
GDP 8f80 9554 fff86 f30f8 f4476 f6687 f8582 20007 2f753 23439 26258 297f5 33905 39533 4582f 53036 6f089 72670 83535 946f0
NDP 735f 8586 f0060 ff7f9 f3003 f5050 f67f7 f7939 f9464 20977 23537 265f6 30268 35345 40974 47384 5449f 65042 74768 84676

Source: CSO

The Gross Domestic Product and Net Domestic Product of India has increased from 8180 Bn.

and 7351 Bn in 1993-94 to 20007 Bn. and 17939 Bn. in 2001. Indian GDP is at 94610 Bn. and

84676 Bn in 2013.

It is observed from the data that there is a tremendous growth of GDP in India after 2001.

During this period new financial products including derivative products are introduced in financial

market of India.
 f42

TABLE IV.3
MESTIC CAPITAL FORMATION-NET DOMESTIC CAPITAL FORMATION - INDIA

Groxx Domextic Capital formation - Net Domextic Capital formation - India

40000
30000
Rx. Bn.

20000
f993− 94 f994− 95f995− 96f996− 97f997− 98f998− 99f999− 00 2000− 200f− 2002− 2003− 2004− 2005− 2006− 2007− 2008− 2009− 20f0− 20ff− f2
f0000 0f 02 03 04 05 06 07 08 09 f0 ff
GDCF f978 2586 3f00 336f 402f 4365 5388 5283 57ff 6277 7624 f0640 f2798 f53f4 f9008 f93f4 2363f 287f6 3f4f5
0

NDCF ff49 f6f8 f975 2063 2548 2728 3524 32f4 3423 38f6 4903 7442 9f60 fff27 f4f6f f3662 f7033 2f088 22647

Source: CSO

The Gross Domestic Capital Formation and Net Domestic Capital Formation has increased

from 1978 Bn. and 1149 Bn.in 1993-94 to 5283 Bn. and 3214 Bn. in

2001. It further increased to 31415 Bn. and 22647 Bn.in 2012.

It is observed from the data that capital formation of India has grown manifold after 2004.
 f43

TABLE IV.4
PER CAPITA GNP-PER CAPITA NNP

Per Capita GNP-Per Capita NNP

70000

60000

50000

40000

30000
Rx.Bn

20000

f0000

0
f993− f994− f995− f996− f997− f998− f999− 2000− 200f− 2002− 2003− 2004− 2005− 2006− 2007− 2008− 2009− 20f0−
94 95 96 97 98 99 00 0f 02 03 04 05 06 07 08 09 f0 ff

PCGNP 9035 f0355 ff908 f3623 f4880 f6824 f8409 f94ff 20723 22038 2430f 2708f 304f9 34938 40084 45673 5f888 60583
PCNNP 8f06 9292 f0695 f2250 f3352 f5f58 f6546 f738f f8523 f9706 2f763 24f43 27f3f 3f206 35825 40775 46249 54f5f

Source: CSO

The Per Capita Gross National Product and Per Capita Net National Product has increased

from 9035 Bn. and 8106 Bn.in 1993-94 to 19411 Bn. and 17381 Bn. in

2001. It further increased to 78009 Bn. and 68757 Bn. in 2013.

It is observed from the data the per capita income has increased in 2011 nearly six fold since

1994 and it is instrumental for overall growth in the financial sector.

 f44

TABLE IV.5
GROSS DOMESTIC SAVINGS

Groxx Domextic Savingx - % oG GDP

40
35
30
25
20
Percentage

f5
f0
5
0
f999−
2000−0f 200f−02 2002−03 2003−04 2004−05 2005−06 2006−07 2007−08 2008−09 2009−f0 20f0−ff 20ff−f2 20f2−f3
2000
Gross Domestic Savings 24.2 23.2 22.6 25.4 28.7 32.4f 33.44 34.6 36.82 32.02 33.69 33.68 3f.35 30.09

Source: RBI

It is observed from the data that percentage of Gross Domestic Savings to GDP has increased

after 2004 to more than 30% compared to earlier values of 20- 25%.

There is a significant change in the Gross Domestic Savings to GDP after 2004 and

maintained above 30%

 f45

TABLE IV.6
INFLATION – WHOLE SALE PRICE INDEX

InGlation - WPI(Average)
f2

f0

6
Axix Title

0
f999−
2000−0f 200f−02 2002−03 2003−04 2004−05 2005−06 2006−07 2007−08 2008−09 2009−f0 20f0−ff 20ff−f2 20f2−f3
2000
Seriesf 3.3 7.f 3.6 3.4 5.5 6.5 3.7 6.5 4.8 8 3.6 9.6 8.8 7.5

Source: RBI

It is observed from the data the Inflation remained in the range of 3.3 to 9.6 during 2000 to

2013 with the maximum of 9.6 in 2011 and the minimum of 3.3 in 2000.

The inflation is high in the range of 7.6 to 9.6 during the past three years from

2011.
 f46

TABLE IV.7
EXCHANGE RATE – (USD-INR)

Exchange Rate - USD

60

50

40
USD - INR

30

20

f0

0
f999−
2000−0f 200f−02 2002−03 2003−04 2004−05 2005−06 2006−07 2007−08 2008−09 2009−f0 20f0−ff 20ff−f2 20f2−f3
2000
Seriesf 45.9 45.7 47.7 48.4 45.9 45 44.3 45.2 40.2 46 47.4 45.6 48.f 54

Source: RBI

It is observed from the data the exchange rate for USD – INR remained in the range of 40.2 to

48.4 during 2000 to 2013 with the maximum rate of 48.4 in 2003 and the minimum rate of 40.2 in

2008.

Exchange rate is influenced by the inflow of FII, FDI and NRI and it is able to maintain the

rate below 50. But during 2013 it has crossed the value of 54. Participation of FII in the financial

markets influences the currency rate.

 f47

TABLE IV.8
EXPORT – IMPORT DATA

Export - Import Data

5000000

4500000

4000000

3500000

3000000

2500000
Rx.Crorex

2000000
f500000

f000000

500000

0
f950−5f f960−6f f970−7f f980−8f f990−9f 2000−0f 2008−09 2009−f0 20f0−ff 20ff−f2 20f2−f3

Series2 608 f,f22 f,634 f2,549 43,f98 230,873 f,374,436 f,363,736 f,683,467 2,345,463 2669f6f
Seriesf 606 642 f,535 6,7ff 32,553 203,57f 840,755 845,534 f,f42,922 f,465,959 f6343f8

Source: RBI

It is observed from the data the exports (series 1) is deficit by nearly 50% compared to the

imports (series 2). After 2001, both imports and exports have increased significantly at imports at

Rs.2669161 crores and exports are at Rs. 1634318 crores in 2013.

 f48

TABLE IV.9
FOREIGN EXCHANGE RESERVES

foreign Exchange
f800000
Rexervex
f600000
f400000
Rx. Crorex

f200000
f000000
800000
600000
400000
200000
0
f990− f99f− f992− f993− f994− f995− f996− f997− f998− f999− 2000− 200f− 2002− 2003− 2004− 2005− 2006− 2007− 2008− 2009− 20f0− 20ff− 20f2−
9f 92 93 94 95 96 97 98 99 00 0f 02 03 04 05 06 07 08 09 f0 ff f2 f3

Foreign Exchange
Reserves (in Rs. Crore) ff4f6 23850 30744 60420 79780 74384 94932 ff5905 f38005 f659f3 f97204 264036 36f470 490f29 6f9ff6 676387 868222 f23796 f28386 f25966 f36f0f f506f3 f5884f

Source: RBI

It is observed from the data that the foreign exchange reserve is steadily increasing due

various factors of FII and FDI as well as remittances from NRI. With the participation of FII in all

the segments of the financial market the foreign exchange reserve is increasing day by day. It was at

its peak of 1588418 crores in 2013.

It is possible to increase the foreign exchange reserve due to inflow of funds by the FII and

NRI in the financial markets. Exchange reserve is at Rs. 158841 crores in 2013
 f49

TABLE IV.10
AMOUNT MOBILISED BY MUTUAL FUNDS

Amount mobilixed by Mutual fundx

2000

f500

f000
Billionx

500

−500

−f000
f995 f996 f997 f998 f999 2000 200f 2002 2003 2004 2005 2006 2007 2008 2009 20f0 20ff 20f2 20f3
Net amount ff3 −58 −20 4f 27 22f fff f0f 46 479 28 525 94f f587 −242 783 −486 −454 825

Source: National Stock Exchange

During 1995 to 2000, Mutual funds in India mobilised a maximum of 221 Bn. in 2000 and

minimum of -58 Bn. (withdrawal) in 1996. During 2001 to 2004 the funds mobilised a maximum of

479 Bn. in 2003 and minimum of 46 Bn. in 2003. During 2005 to 2013 they mobilised the funds with

a maximum of 1587 Bn. 2008 and a minimum of -486 Bn. (withdrawal) in 2011.

It is observed the data that after 2004, there is a huge change in the amount mobilised by the

mutual funds depending upon the market conditions. Mutual funds play a vital role in financial

markets as important participant.

 f50

TABLE IV.11
PUBLIC ISSUES

PUBLIC ISSUES - Nox.

f800
f600
f400
f200
f000
800
No.

600
400
200
0
f993− f994− f995− f996− f997− f998− f999− 2000− 200f− 2002− 2003− 2004− 2005− 2006− 2007− 2008− 2009− 20f0− 20ff− 20f2−
94 95 96 97 98 99 00 0f 02 03 04 05 06 07 08 09 f0 ff f2 f3

At Premium No. 383 65f 480 f48 33 20 52 54 8 ff 37 49 f28 ff9 ff3 40 7f 78 47 45

At Par No. 608 942 ff8f 697 64 20 30 84 7 6 f4 6 f0 2 7 5 f 2 4

Source: SEBI

It is observed from the data public issues are coming down over the years. In 1996 there was

1661 issues out of which the issues at premium was 480 and at par was 1181. During 2013 is only 45

issues at premium with not even one with at par.

After 2000, the public issues have come down drastically compared to previous years.

Though it picked up in the year 2006 with 138 issues, it further came down to 45 in 2013.
 f5f

TABLE IV.12
NET INVESTMENTS BY FIIs IN THE INDIAN CAPITAL MARKET

NET INVESTMENTS BY fIIx IN THE INDIAN CAPITAL MARKET

f500
f300
ff00
900
Billionx

700
500
300
f00
−f00
−300
−500
f994 f995 f996 f997 f998 f999 2000 200f 2002 2003 2004 2005 2006 2007 2008 2009 20f0 20ff 20f2 20f3

Amount 54 48 67 74 59 −7 98 97 83 27 440 4f4 487 238 626 −433 ff49 ff08 499 f406

Source: National Stock Exchange

During 1994 to 2000, FIIs in India invested in the capital market a maximum of 98 Bn. in

2000 and minimum of -7 Bn. (withdrawal) in 1999. During 2001 to 2004 the FIIs invested a

maximum of 440 Bn. in 2004 and minimum of 27 Bn. in 2003. During 2005 to 2013 they invested

the funds with a maximum of 1406 Bn. 2013 and a minimum of -433 Bn. (withdrawal) in 2009.

FIIs play a dominant role in the Indian capital market with net addition during all the years

except in the year 2009 with the withdrawal of Rs. 433 bn. The participation by the FIIs has

increased significantly as they participate in financial derivative market also.

 f52

TABLE IV.13
Bonds issued by Public sector undertakings

2000.00 BONDS ISSUED BY PUB SECTOR UNDERTAKINGS

f800.00
f600.00
f400.00
f200.00
f000.00
Rx. Bnx

800.00
600.00
400.00
200.00
0.00
f993− f994− f995− f996− f997− f998− f999− 2000− 200f− 2002− 2003− 2004− 2005− 2006− 2007− 2008− 2009− 20f0− 20ff− 20f2−
94 95 96 97 98 99 00 0f 02 03 04 05 06 07 08 09 f0 ff f2 f3

Total Bonds 55.86 30.70 22.9f 33.94 29.83 43.63 86.97 f66.3 f44.3 75.29 54.43 75.9f 48.46 f03.2 f34.0 205.4 484.0 604.3 880.6 527.f
Taxable Bonds 4f.72 f8.72 f7.44 33.27 24.f2 39.57 82.97 f59.6 f4f.6 72.43 54.43 75.9f 48.46 f03.2 f34.0 205.4 464.8 587.9 599.8 378.5

Tax−free Bonds f4.f4 ff.98 5.47 0.67 5.70 4.06 4.00 6.62 2.74 2.86 0.00 0.00 0.00 0.00 0.00 0.00 f9.26 f6.42 280.8 f48.6

Source: RBI

It is observed from the data that the bonds issued by the public sector undertakings have

increased from 2007 onwards. They issue Taxable as well as Tax free bonds to mobilise the

resources.

Speedy growth in the issue of bonds by public sector undertakings shows the mobilisation

domestic savings for the development of economy for the industrial activities and infrastructure

development. Total Bonds issued during 2013 stands at Rs. 527.1 Bn.
 f53

TABLE IV.14
RESOURCES MOBILISED THROUGH CERTIFICATE OF DEPOSIT

CertiGicate oG Depoxit
5,000.0
4,500.0
4,000.0
3,500.0
3,000.0
2,500.0
2,000.0
f,500.0
f,000.0
500.0
0.0

Jan 7, 2000

Jan 7, 2002

Jan 7, 2003
Jan 7, 2004

Jan 7, 2005

Jan 7, 2006
Jan 7, 2007

Jan 7, 2008

Jan 7, 2009
Jan 7, f994

Jan 7, f995

Jan 7, f996
Jan 7, f997

Jan 7, f998

Jan 7, f999

Jan 7, 20f0

Jan 7, 20f2

Jan 7, 20f3
Jan 7, 200f

Jan 7, 20ff
Axix Title

Source: RBI

During 1994 to 2000, deposits mobilised through Certificate of Deposit is less than 200 Bn.

and it remained the same during 2001 to 2004. Whereas during 2005 to 2013 it has increased with

manifold to nearly 4500 Bn. and remaining in the range of 3000 to 4500 Bn.

Tremendous growth in resource mobilisation through commercial paper which is around Rs.

3500 Bn. is good for the industrial sector for their investments.
 f54

TABLE IV.15
RESOURCES MOBILISED THROUGH COMMERCIAL PAPER

Commercial Paper
2,500.0
2,000.0
f,500.0
f,000.0
500.0 Seriesf
0.0

Jan f5, 2000

Jan f5, 2002

Jan f5, 2003
Jan f5, 2004
Jan f5, 2005
Jan f5, 2006
Jan f5, 2007
Jan f5, 2008
Jan f5, 2009

Jan f5, 20ff

Jan f5, 20f0

Jan f5, 20f2

Jan f5, 20f3
Jan f5, 20f4
Jan f5, f994

Jan f5, f995

Jan f5, f996
Jan f5, f997
Jan f5, f998
Jan f5, f999

Jan f5, 200f

Source: RBI

During 1994 to 2000, deposits mobilised through Certificate of Deposit is less than 100 Bn.

and it remained the same during 2001 to 2004. Whereas during 2005 to 2013 it has increased

manifold to nearly 2000 Bn. and remaining in the range of 1000 to 2000 Bn.

Commercial Paper is also another source of resource mobilisation for the companies which is

at around Rs. 2000 Bn. In 2014.

 f55

TABLE IV.16
INVESTMENT BY LIFE INSURANCE CORPORATION OF INDIA

INVESTMENT BY LIC
f2000.00
f0000.00
8000.00
Rx.Bn.

6000.00
4000.00
2000.00
0.00
f994 f995 f996 f997 f998 f999 2000 200f 2002 2003 2004 2005 2006 2007 2008 2009 20f0 20ff 20f2 20f3

YEAR

Public Private Joint Co−operative

Source: RBI

It is observed from the data that Life Insurance Corporation of India is a forerunner in

mobilisation of domestic savings through life insurance and they mostly invest their assets in the

Public and Private Industries.

Investment in the corporate bodies by the LIC is huge and it is at more than Rs.1200 Bn in

2013.They participate in the financial market also to a greater extent.

 f56

TABLE IV.17
RATIO OF INVESTMENT LIC (ASSET WISE)

f00%
90%
80%
70%
60%
50% Loans
40% Stock Exchange Securities

30%
20%
f0%
0%
f994 f995 f996 f997 f998 f999 2000 200f 2002 2003 2004 2005 2006 2007 2008 2009 20f0 20ff 20f2 20f3

Source: RBI

It is observed from the chart that % of investment in stock exchange securities

is increasing year by year and it is around 95% compared to only 5% by way of loans.

Participation by LIC over the period in the Securities market has increased to

make the financial market vibrant and dynamic.

 f57

TABLE IV.18
FOREIGN DIRECT INFLOW

foreign Direct inGlow

40
35
30
25
Percentage

20
f5
f0
5
0
United Netherland
Mauritius Singapore Japan U.S.A Cyprus Germany France UAE
Kingdom s

Seriesf 36.5f f0.92 9.7 7.46 5.56 5.22 3.44 3.03 f.8f f.24

Source: RBI

It is observed from the data Maurititus is having the highest percentage of inflow of 36.51%.

Singapore, United Kingdom, Japan, U.S.A., Netherland, Cyprus, Germany, France and UAE are

other countries where the percentage of foreign direct flow is significant levels.

FIIs route their funds mostly through countries like Mauritius, Singapore to get the tax

benefit. Global participation is a boon to the developing countries like India especially for the

financial markets.
 f58

TABLE IV.19
EX MOVEMENT AFTER INTRODUCTION OF FINANCIAL DERIVATIVES

NiGty 50 - Index
7000
6000
5000
4000
Index

3000
2000
f000
0
2000−0f 200f−02 2002−03 2003−04 2004−05 2005−06 2006−07 2007−08 2008−09 2009−f0 20f0−ff 20ff−f2 20f2−f3

Nifty 50 ff48.2 ff29.55 978.2 f77f.9 2035.7 3402.6 382f.6 4734.5 302f 5249.f 5833.8 5295.6 5682.6

Source: SEBI

It is observed from the data that the nifty index movement is larger from 2005 which is

incidentally after the introduction of financial derivative products.

Index movement is largely due to the participation by FIIs, HNI and Domestic financial

institutions. Derivative products act as a catalyst for the market movement.

 f59

TABLE IV.20
NIFTY INDEX MOVEMENT FROM 1994

NIfTY INDEX MOVEMENT

6000
5000
Index-NSE

4000
3000
2000
f000
0
f994 f995 f996 f997 f998 f999 2000 200f 2002 2003 2004 2005 2006 2007 2008 2009 20f0 20ff 20f2 20f3
Annual 886 f203 963 f007 f088 955 f369 f335 f077 f037 f428 f805 25f5 3572 4897 373f 4658 5584 5243 5520

Source: National Stock Exchange

During 1994 to 2000, Nifty Index in India was maximum of 1369 in 2000 and minimum of

886 in 1994. During 2001 to 2004 the Nifty Index was at a maximum of 1428 in 2004 and minimum

of 1037 in 2003. During 2005 to 2013 the index moved with a maximum of 5584 in 2011 and a

minimum of 1805 in 2005.

It is observed from the data that the nifty movement is significant after the introduction of

derivative products in India. Nifty was around 1000 points from 1994 to 2004 and it drastically

jumped after the derivatives market introduction. Nifty is at the level of 5520 in 2013.
 f60

TABLE IV.21
SENSEX – INDEX MOVEMENT

Senxex - Index
25,000.00

20,000.00
f5,000.00
Index

f0,000.00

5,000.00
0.00
2000−0f 200f−02 2002−03 2003−04 2004−05 2005−06 2006−07 2007−08 2008−09 2009−f0 20f0−ff 20ff−f2 20f2−f3
Sensex 3,604.40 3,469.40 3,048.70 5,590.60 6,492.80 ff,280.0 f3,072.f f5,644.4 9,708.50 f7,527.8 f9,445.2 f7,404.2 f8,835.8

Source: SEBI

Similarly Sensex movement is also in line with Nifty and it started increasing from 2004 and

it at 18835 in 2013.
 f6f

TABLE IV.22
NO OF BROKERS REGISTERED WITH SEBI

No. oG brokerx regd. with SEBI

f0,400
f0,200
f0,000
9,800
9,600
9,400
No.

9,200
9,000
8,800
8,600
8,400
2000−0f 200f−02 2002−03 2003−04 2004−05 2005−06 2006−07 2007−08 2008−09 2009−f0 20f0−ff 20ff−f2 20f2−f3

No. of brokers 9,782 9,687 9,5f9 9,368 9,f28 9,335 9,443 9,487 9,628 9,772 f0,203 f0,268 f0,f28

Source: SEBI

It is observed from the data that the no of brokers have marginally decreased from 2001s and

it again increased periodically from 2005 to the level of 10128 in 2013.

 f62

TABLE IV.23
NO OF DEPOSITORY PARTICIPANTS

Depoxitory Participantx
f000
800
600
No.

400
200
0
f994 f995 f996 f997 f998 f999 2000 200f 2002 2003 2004 2005 2006 2007 2008 2009 20f0 20ff 20f2 20f3

Depository Participants 0 0 0 28 52 96 f9f 335 380 438 43f 477 526 593 654 7f4 758 805 854 865

Source: SEBI

It is observed from the data that there is a steady increase in the depository participants in

India which is the intermediary to service the investors to keep the stock in the demat form.

The number of depository participants has increased from 191 in 2000 to 865 in 2013.
 f63

TABLE IV.24
PORTFOLIO MANAGERS

PortGolio Managerx

300
250
200
No.

f50
f00
50
0
f994 f995 f996 f997 f998 f999 2000 200f 2002 2003 2004 2005 2006 2007 2008 2009 20f0 20ff 20f2 20f3

Portfolio Managers 40 6f f3 f6 f6 f8 23 39 47 54 60 84 f32 f58 205 232 243 267 250 24f

Source: SEBI

It is observed from the data that there is a steady increase in the portfolio managers in India

who are offering service the investors for the fund management.

The number of portfolio managers has increased from 23 in 2000 to 241 in 2013. This help

the investors to take the informed decisions.

 f64

TABLE IV.25
FOREIGN INSTITUTIONAL INVESTORS

foreign Inxtitutional Invextorx

2000

f500
Nox.

f000

500

0
f994 f995 f996 f99 f998 f999 2000 200f 2002 2003 2004 2005 2006 2007 2008 2009 20f0 20ff 20f2 20f3
7
Foreign Institutional Investors f58 308 367 439 496 450 506 527 490 502 540 685 882 997 f,3f9 f,635 f,7f3 f,722 f,765 f,757

Source: SEBI

It is observed from the data the number of FIIs has increased significantly after the

introduction of the financial derivative products. FIIs use take derivative products to hedge their

investment as well as to take advantage of arbitrage in the market. From a number of 506 in 2000, it

has increased to 1757 in 2013.

 f65

TABLE IV.26
ANNUAL TURNOVER CASH MARKET – NSE

Annual Turnover Caxh Market - NSE

50000

40000

30000
Billionx

20000

f0000

0
f995 f996 f997 f998 f999 2000 200f 2002 2003 2004 2005 2006 2007 2008 2009 20f0 20ff 20f2 20f3

Annual f8 673 2945 3702 4f45 839f f3395 5f32 6f80 f0995 ff40f f5635 f9453 355f0 27520 4f380 35774 28f09 27083

Source: National Stock Exchange

During 1995 to 2000, annual turnover of cash market in National Stock Exchange was

maximum of 8391 Bn. in 2000 and minimum of 18 Bn. in 1996. During 2001 to 2004 the annual

turnover was a maximum of 6180 Bn. in 2003 and minimum of 1099 Bn. in 2004. During 2005 to

2013 the annual turnover moved with a maximum of 4138 Bn. 2010 and a minimum of 1140 Bn. in

2005.

Annual turnover in the cash segment of NSE has increased from Rs.11401 Bn. to Rs. 27083

Bn. in 2013. As the market participants use derivative market as the hedging mechanism, it is

evident in the increase in the turnover of the cash market also.

 f66

TABLE IV.27
NSE MARKETCAP TO GDP

f20 NSE Marketcap to GDP

f00
80
60
40
Seriesf
20
0

2002−03
2003−04
2004−05
2005−06
2006−07
2007−08
2008−09
2000−0f

20f0−ff
f995−96
f996−97
f997−98
f998−99
f999−00

2009−f0

20ff−f2
20f2−f3
200f−02

Source: NSE

It is observed from the data that NSE market cap to GDP ratio is increasing significantly after

the introduction of financial reforms and new products. The ratio has increased from around 20 to

nearly 100. This makes the financial market in India is in line with the economic development in the

country.
 f67

TABLE IV.28
TURNOVER GOVERNMENT SECURITIES

Turnover- G.Sec.
60,000,000
Turnover (Rx. Mn.)

50,000,000

40,000,000

30,000,000

20,000,000

f0,000,000

0
2000−0f 200f−02 2002−03 2003−04 2004−05 2005−06 2006−07 2007−08 2008−09 2009−f0 20f0−ff 20ff−f2 20f2−f3

Turnover(mn) 28,809,9 8,958,f8 9,689,09 f6,209,3 f6,668,9 23,90f,0 29,0f4,7 5f,308,f 38,520,9 55,f68,3 46,850,3 34,843,8 32,570,8

Source: SEBI

There is a tremendous growth in the volume of the trading of the Government Securities. In

this segment mostly financial institutions take part and it is line with the economic development. This

market is also in the developing stage with turnover of Rs. 32,570,860 Mn at the end of 2013
 f68

TABLE IV.29
BOOK VALUE OF INDIAN COMPANIES

Book value
600
500
400
BV

300
200
f00
0
Mar '00 Mar '0f Mar '02 Mar '03 Mar '04 Mar '05 Mar '06 Mar '07 Mar '08 Mar '09 Mar 'f0 Mar 'ff Mar 'f2 Mar 'f3

Book Value ff9.87 f29.ff 93.7 f27.56 f27.56 f27.56 f76.26 240.3f 298.78 33f.68 4f8.94 487.55 54f.8f 568.46

Source: NSE

During 2000 to 2004 the book value of the companies listed in NSE was about 100 and it has

increased during 2005 to 2013 from 127.56 to 565.

 f69

TABLE IV.30
EARNINGS PER SHARE OF INDIAN COMPANIES

Earningx Per Share

80
70
60
50
EPS

40
30
20
f0
0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'00 '0f '02 '03 '04 '05 '06 '07 '08 '09 'f0 'ff 'f2 'f3
Earnings Per Share ff.49 f5.05 5.09 27.53 47.48 62.77 63.35 72.74 63.85 69.7 56.37 7f.58 68.95 52.f3

Source: National Stock Exchange

During 2000 to 2004 the Earnings per share of the companies listed in NSE was in the range

of 5.09 to 47.48. During 2005 to 2013 it has moved to the range of

52.13 to 72.74 keeping the value above 50 always during this period.
 f70

TABLE IV.31
DERIVATIVE CONTRACT STATISTICS (Global) – STOCK FUTURES

STOCK fUTURES CONTRACTS TRADED Nox. - £013

300.00
250.00
200.00
Mn.

f50.00
f00.00
50.00
0.00 National NYSE
Moscow Stock Euronext Korea
Eurex Exchange (Europe)
Exchange Exchange
India

Seriesf 24f.00 f96.00 f53.00 247.00 f00.00

Source: World Federation of Exchanges.

It is observed from the data that New York Stock Exchange Euronext (Europe) is the leader in

the Stock future contracts traded in 2013 with a volume of 247 Mn. National Stock Exchange is in

the fourth position with 153 Mn. Contracts traded in 2013.

 f7f

TABLE IV.32
DERIVATIVE CONTRACT STATISTICS (Global) – STOCK OPTIONS

STOCK OPTIONS CONTRACTS TRADED Nox. - £013

f000.00
800.00
600.00
Mnx.

400.00
200.00
0.00
Chicago
International NYSE
BM&FBOVES NASDAQ Board
Securities Euronext
PA OMX Options
Exchange (US)
Exchange
Seriesf 909.00 689.00 638.00 584.00 434.00

Source: World Federation of Exchanges.

It is observed from the data that Brazil Stock Exchange is the leader in the Stock options

contracts traded in 2013 with a volume of 909 Mn. Nasdaq OMX, International Securities exchange,

NYSE Euronext (US), Chicago Board of Options Exchange all from USA find the place next to

Brazil.
 f72

TABLE IV.33
DERIVATIVE CONTRACT STATISTICS (Global) – INDEX FUTURES

INDEX fUTURES CONTRACTS TRADED Nox. - £013

700.00
600.00
500.00
Mnx.

400.00
300.00
200.00
f00.00
0.00
Japan China
Moscow Exchange Financial
CME Group Eurex
Exchange Group − Futures
Osaka Exchange
Seriesf 573.00 327.00 268.00 265.00 f93.00

Source: World Federation of Exchanges.

It is observed from the data that Chicago Mercantile Exchange Group is the leader in the

Index Futures contracts traded in 2013 with a volume of 573 Mn. Eurex, Mosco, Japan and China

are placed next to CME group with 327, 268, 265, 193 Mn. respectively.
 f73

TABLE IV.34
DERIVATIVE CONTRACT STATISTICS (Global) – INDEX OPTIONS

INDEX OPTIONS TRADED Nox. - £013

f000.00
800.00
600.00
Mnx.

400.00
200.00
0.00
National Chicago
Stock Korea Board
Eurex BSE India
Exchange Exchange Options
India Exchange
Seriesf 930.00 580.00 373.00 3f7.00 250.00

Source: World Federation of Exchanges.

It is observed from the data that National Stock Exchange in India is the leader in the Index

Options contracts traded in 2013 with a volume of 930 Mn. Korea, Chicago Board of Options

Exchange, Eurex and Bombay Stock Exchange are having the trading volume of 580, 373, 317, 250

Mn. contracts respectively.

 f74

TABLE IV.35
TURNOVER IN THE EQUITY DERIVATIVES MARKET - NSE

TURNOVER IN THE EQUITY DERIVATIVES MARKET-NSE

350000
300000
250000
Rx.Billionx

200000
f50000
f00000
50000
0
2000−0f 200f−02 2002−03 2003−04 2004−05 2005−06 2006−07 2007−08 2008−09 2009−f0 20f0−ff 20ff−f2 20f2−f3

Stock Options 0 252 f00f 2f72 f688 f803 f938 359f 2292 506f f0303 9770 20004
Stock Futures 0 5f5 2865 f3059 f484f 279f7 383f0 75486 34796 5f952 54958 40747 42239
Index Options 0 38 92 528 f2f9 3385 79f9 f362f 373f5 80280 f83654 227200 2278f6
Index Futures 24 2f5 440 5544 772f f5f38 25396 38207 3570f 39344 43568 35780 2527f

Source: National Stock Exchange

During 2001 to 2004 the annual turnover of derivative market in National Stock Exchange

was a maximum of 2172 Bn. in 2004, 13059 Bn. in 2004, 528 Bn. in 2004, 5544 Bn. in 2004 and

minimum of 252 Bn. in 2002, 515 Bn. in 2002, 38 Bn. in 2002 and 24 Bn. in 2001 for stock options,

stock futures, index options, index futures respectively. During 2005 to 2013 it was a maximum of

20004 Bn. in 2013, 75486 Bn. in 2008, 227816 Bn. in 2013, 43568 Bn. in 2011 and minimum of

1688

Bn. in 2005, 14841 Bn. in 2005, 1219 Bn. in 2005 and 7721 Bn. in 2005 for stock options, stock

futures, index options, index futures respectively.

It is observed from the data that Index options is gaining importance in the Indian financial

derivative market with a value of Rs. 227816 Bns. are traded in 2013. Other products like Stock

futures and options and Index futures are also growing significantly.
 f75

TABLE IV.36
DERIVATIVE PRODUCTS IN NSE - % WISE

Derivative Productx in NSE - % wixe

f00%
90%
80%
70%
Axix Title

60%
Stock Options
50%
40% Stock Futures
30% Index Options
20%
Index Futures
f0%
0%
2000−0f 200f−02 2002−03 2003−04 2004−05 2005−06 2006−07 2007−08 2008−09 2009−f0 20f0−ff 20ff−f2 20f2−f3

Axix Title

Source: National Stock Exchange

It is observed from the graph the proportion of index options in the derivative market is

increasing past and the proportion index and stock futures is decreasing steadily.
 f76

TABLE IV.37
DERIVATIVE MARKET – FII INVESTMENT

DERIVATIVE MARKET-fII - INVESTMENT

45,000,000
40,000,000
35,000,000
30,000,000
Rx.Mn

25,000,000
20,000,000
f5,000,000
f0,000,000
5,000,000
0
Dec − Dec − Dec − Dec − Dec − Dec − Dec − Dec − Dec − Dec − Dec − Dec − Dec − Dec − Dec − Dec − Dec − Dec − Dec − Dec −
f994 f995 f996 f997 f998 f999 2000 200f 2002 2003 2004 2005 2006 2007 2008 2009 20f0 20ff 20f2 20f3
CUMM. INV (Rs m) 95,507 f42,37 244,24 294,67 294,89 359,29 426,08 550,82 587,36 938,20 f,335, f,827, 2,2f0, 2,9f4, 2,380, 3,223, 4,539, 4,539, 5,829, 6,903,

CUMM. VALUE (Rs m) 703,84 f,070, f,843, 2,f76, 2,f97, 2,628, 2,969, 3,8f3, 4,0f0, 6,f02, 7,845, 9,493, 9,795, f4,480 f3,527 f3,989 35,767 36,462 39,6f0 40,950

Source: National Stock Exchange

It is observed from the data that cumulative value of investment in the

derivative market by FII in India has steeply increased from 2004. They are the

drivers in the Indian derivative market and use the hedging and arbitrage mechanism

for their investments. It is a huge position of Rs. 40,950,008 mn.

 f77

TABLE IV.38

GLOBAL DERIVATIVE MARKET – EQUITY INDEX - CONTRACTS

Equity index
OUTSTANDINGS
60
50

40
Mnx.

30

20

f0

0
Dec.94 Dec.95 Dec.96 Dec.97 Dec.98 Dec.99 Dec.00 Dec.0f Dec.02 Dec.03 Dec.04 Dec.05 Dec.06 Dec.07 Dec.08 Dec.09 Dec.f0 Dec.ff Dec.f2 Dec.f3

Equity index f.3894 f.7498 f.594f 2.0027 2.6203 3.ff82 4.0476 4.8f75 ff.970 20.f24 f7.34f 48.727 55.472 32.62f 22.979 22.586 f5.265 f4.976 f8.050 39.7f9

Source: BIS Quarterly Review

It is observed from the data that the equity index contracts outstanding in the global

exchanges is to the tune of 39.719 mn. There is a decline during 2007 to 2010 and it has started

increasing from 2011.

 f78

TABLE IV.39

GLOBAL DERIVATIVE MARKET – CURRENCY - CONTRACTS

Currency
OUTSTANDINGS
f5

f0
Mnx.

0
Dec.94 Dec.95 Dec.96 Dec.97 Dec.98 Dec.99 Dec.00 Dec.0f Dec.02 Dec.03 Dec.04 Dec.0 Dec.06 Dec.07 Dec.08 Dec.09 Dec.f0 Dec.ff Dec.f2 Dec.f3
5
Currency f.02f f.227 f.532 2.045 0.787 0.673 f.5f3 f.3f5 0.806 2.637 2.004 4.405 4.4f2 9.384 f0.f9 7.624 7.6f2 ff.36 ff.69 f3.09

Source: BIS Quarterly Review

It is observed from the data that currency derivatives outstanding in the global exchanges are

increasing steadily and it at 13.09 mn in 2013.

 f79

TABLE IV.40
Interext rate
GLOBAL DERIVATIVE MARKET – INTEREST RATE - CONTRACTS
f20

f00
OUTSTANDINGS
80

Mnx.
60

40

20

0
Dec.94 Dec.95 Dec.96 Dec.97 Dec.98 Dec.99 Dec.00 Dec.0f Dec.02 Dec.03 Dec.04 Dec.05 Dec.06 Dec.07 Dec.08 Dec.09 Dec.f0 Dec.ff Dec.f2 Dec.f3

Interest rate 9.0785 8.7705 f3.364 f9.38f f7.294 f7.498 f9.8f6 f5.286 f5.477 40.094 48.782 54.225 83.74f 98.ff4 77.073 63.93f 63.275 64.953 55.f69 55.293

Source: BIS Quarterly Review

It is observed from the data that the number of contracts outstanding in interest rate derivatives

in global exchanges is around 98.114 during financial crisis and it has declined to 55.293 in 2013.
 f80

TABLE IV.41

CORRELATION BETWEEN THE INDICES

Cf000f C2000f C5000f AUTO BANK ENERGY FINANCE FMCG IT MEDIA METAL MIDCAP JUNIOR NIFTY CNX PHAR PSU REALTY SMALLCAP MIDCAP
Cf000f f 0.997 0.997 0.886 0.972 0.939 0.977 0.822 −0.296 0.493 0.806 0.987 0.989 f 0.863 0.867 −0.073 0.884 0.83f
C2000f 0.997 f f 0.855 0.952 0.93 0.964 0.76 0.044 0.565 0.836 0.985 0.982 0.996 0.795 0.865 0.055 0.9f4 0.869
C5000f 0.997 f f 0.854 0.973 0.968 0.962 0.8f7 −0.5f3 0.57 0.84 0.994 0.99 0.997 0.872 0.869 0.06 0.9f9 0.877
AUTO 0.886 0.855 0.854 f 0.933 0.658 0.926 0.94 0.f76 0.f2 0.5f6 0.862 0.905 0.879 0.96f 0.782 −0.54 0.623 0.562
BANK 0.972 0.952 0.973 0.933 f 0.9f6 0.997 0.88 −0.498 0.302 0.729 0.978 0.982 0.979 0.925 0.9f3 −0.3f2 0.787 0.735
ENERGY 0.939 0.93 0.968 0.658 0.9f6 f 0.858 0.686 −0.6f 0.46 0.933 0.96f 0.94 0.959 0.769 0.84 0.3f6 0.894 0.878
FINANCE 0.977 0.964 0.962 0.926 0.997 0.858 f 0.855 0.f0f 0.34 0.738 0.966 0.98 0.973 0.88f 0.896 −0.266 0.804 0.744
FMCG 0.822 0.76 0.8f7 0.94 0.88 0.686 0.855 f −0.f84 0.028 0.326 0.799 0.873 0.87f 0.977 0.609 −0.583 0.483 0.38
IT −0.296 0.044 −0.5f3 0.f76 −0.498 −0.6f 0.f0f −0.f84 f 0.309 −0.028 −0.56f −0.243 −0.302 −0.407 0.f07 −0.356 −0.085 −0.076
MEDIA 0.493 0.565 0.57 0.f2 0.302 0.46 0.34 0.028 0.309 f 0.495 0.485 0.499 0.49 0.088 0.2 0.747 0.809 0.753
METAL 0.806 0.836 0.84 0.5f6 0.729 0.933 0.738 0.326 −0.028 0.495 f 0.854 0.79f 0.807 0.404 0.828 0.43 0.888 0.9f
MIDCAP 0.987 0.985 0.994 0.862 0.978 0.96f 0.966 0.799 −0.56f 0.485 0.854 f 0.993 0.988 0.869 0.923 −0.029 0.908 0.877
JUNIOR 0.989 0.982 0.99 0.905 0.982 0.94 0.98 0.873 −0.243 0.499 0.79f 0.993 f 0.99 0.90f 0.89 −0.092 0.864 0.83f
NIFTY f 0.996 0.997 0.879 0.979 0.959 0.973 0.87f −0.302 0.49 0.807 0.988 0.99 f 0.896 0.859 −0.067 0.885 0.829
CNX 0.863 0.795 0.872 0.96f 0.925 0.769 0.88f 0.977 −0.407 0.088 0.404 0.869 0.90f 0.896 f 0.665 −0.57f 0.528 0.436
PSU 0.867 0.865 0.869 0.782 0.9f3 0.84 0.896 0.609 0.f07 0.2 0.828 0.923 0.89 0.859 0.665 f −0.2f4 0.777 0.77
REALTY −0.073 0.055 0.06 −0.54 −0.3f2 0.3f6 −0.266 −0.583 −0.356 0.747 0.43 −0.029 −0.092 −0.067 −0.57f −0.2f4 f 0.59 0.565
SMALLCAP 0.884 0.9f4 0.9f9 0.623 0.787 0.894 0.804 0.483 −0.085 0.809 0.888 0.908 0.864 0.885 0.528 0.777 0.59 f 0.969
MIDCAP 0.83f 0.869 0.877 0.562 0.735 0.878 0.744 0.38 −0.076 0.753 0.9f 0.877 0.83f 0.829 0.436 0.77 0.565 0.969 f

Source: National Stock Exchange

Various indices available in the National Stock Exchange is correlated and the pearson

coefficient is arrived using the statistical tool. It is observed from the data, IT index and Realty index

is having the negative correlation with most of the indices. Nifty 100 index is having negative

correlation of - 0.296 with IT index and -0.073 with realty index. With the media index it is having

the correlation of 0.493. With the remaining indices the correlation varies from 0.806 to 0.997.

Nifty 100 index is having negative correlation of - 0.296 with IT index and -

0.073 with realty index. With the media index it is having the correlation of 0.493.

With the remaining indices the correlation varies from 0.806 to 0.997. Nifty 100 index is having

negative correlation of - 0.296 with IT index and -0.073 with Realty index. With the Media index it is

having the correlation of 0.493. With the remaining indices the correlation varies from 0.806 to 0.997

which is highest with Nifty 100 index.

 f8f

Nifty 200 index is having low correlation of 0.044 with IT index and 0.055 with realty index.

With the media index it is having the correlation of 0.0.565. With the remaining indices the

correlation varies from 0.760 to 0.997 which is highest with Nifty 200 and Nifty 100 indices.

Nifty 500 index is having negative correlation of - 0.513 with IT index and low correlation of

0.060 with Realty index. With the Media index it is having the correlation of 0.570. With the

remaining indices the correlation varies from 0.854 to 0.997.

Auto index is having negative correlation of - 0.540 with Realty index and low correlation of

0.176 with IT index. With the Media index it is having the correlation of 0.120. With the remaining

indices the correlation varies from 0.562 to 0.961.

Bank index is having negative correlation of - 0.498 with IT index and -0.312 with realty

index. With the media index it is having the correlation of 0.302. With the remaining indices the

correlation varies from 0.729 to 0.997.

Energy index is having negative correlation of - 0.610 with IT index. It is having the

correlation of 0.460 with the Media index and 0.316 with Realty index. With the remaining indices

the correlation varies from 0.686 to 0.968.

Finance index is having negative correlation of - 0.266 with Realty index. With the media

index it is having the correlation of 0.340. With the remaining indices the correlation varies from

0.744 to 0.997.

FMCG index is having negative correlation of - 0.184 with IT index and -

0.583 with Realty index. With the Media index it is having the correlation of 0.028.

With the remaining indices the correlation varies from 0.380 to 0.977.

IT index is having negative correlation with many of the indices. With the media index it is

having the correlation of 0.309.

 f82

Media index is having high correlation with Realty index and 0.747. With the Media index it

is having the correlation of 0.493. With the remaining indices the correlation varies from 0.806 to

0.997 which is highest with Nifty 100 index.

Metal, Midcap, Junior, Nifty, PSUa Small cap are all having the negative correlation with IT.

All of them have high correlation with other indices except realty index.

It is observed from the data except IT, Realty and Media other indices are in tandem with

each other. Though the correlation varies they move in synchronised manner.