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Growth of Derivatives Market in India
The derivatives market caught up very late in India. It was only in June 2000, that SEBI gave its final approval and derivatives started trading on two stock exchanges, BSE and NSE. The trading on index options commenced in June 2001 and the trading in options in individual securities commenced in July 2001. Since then this market has never looked back. It has grown leaps and bounds. Indian investors have shown their requirements for hedging their risks. The changes in the stock markets have further led the investors to believe that they need to hedge their risks against such uncertainties.
| Year |
Apr'04 to
Dec'05 |
Apr'03 to
Mar'04 |
Apr'02 to
Mar'03 |
Apr'01 to
Mar'02 |
Jun'00 to
Mar'01 |
Index
Futures |
15,898,081 |
17,191,668 |
2,126,763 |
1,025,588 |
90,580 |
Index
Options |
1,311,739 |
1,043,894 |
269,674 |
113,974 |
0 |
Stock
Futures |
33,615,028 |
32,368,842 |
10,676,843 |
1,957,856 |
0 |
Stock
Options |
2,847,032 |
4,243,661 |
2,456,501 |
768,159 |
0 |
Source: http://www.nseindia.com
As one can see that there has been a phenomenal growth in each segment of the derivatives market. Certain sectors have seen a growth of more than 100 per cent in a financial year. Despite of all this, the Indian derivative market is still in its nascent stages and it has a long way to go before we compare it to the already well-established foreign markets.
In comparison to many countries India is better placed in terms of arbitrage. This is mainly because of the experience of the " line operators" who are used in this arbitrage process. These skills are apt for the index arbitrage. At present the minimum value of a contract for stock derivatives is fixed premium as the option price. With only a marginal investment, one can take large, positions in the market. The options market could pick up further steam in Indian sub-continent despite the nuances of the complex mathematics involved in the valuation of options. Hence there is reason to be hopeful that it would grow rapidly.
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* Contributed by -
Nishant Bachkheti & Aarti Nagarajan,
Core Committee Members, Fin-Niche,
IMT, Ghaziabad.
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