In spite of several regulatory and infrastructural constraints, the derivatives trading has come-off triumphantly, thanks to the market's growing fancy for stock futures.
It
has been a gradual march to glory for derivatives
trading in India with the current average daily
trading volume at about 77% in the cash market segment
on the National Stock Exchange (NSE). Thanks to the
market's growing fancy for stock futures (a stock
futures contract is an agreement to buy or sell shares
of individual companies some time in the future at an
agreed upon price), derivatives trading has finally
been able to underline its presence in the Indian
capital market. From a meager Rs. 35 cr worth of
turnover in June 2000, when derivatives were
introduced in phases, to Rs. 35,532 cr in December
2002, it has been a phenomenal rise in growth for the
Futures and Options (F & O) market. And, experts
expect it to overtake the cash market in due course of
time. However, that would require removing certain
regulatory and infrastructural bottlenecks.
When
derivatives trading was introduced in stages, about
two-and-a half years ago, not many market participants
had viewed it as a suitable replacement of the now
abandoned badla trading. However, the recent spurt in
derivatives trading volumes suggests that the trading
mechanism has finally begun to catch the fancy of
stock market investors. The icing on the cake is that
the upsurge in interest shown by stock market
investors has made Indian derivatives market emerge as
the leading stock futures market globally; the
National Stock Exchange (NSE) leads the global tally
of individual stock futures trade with an average
volume of 40,806 contracts traded in the month of
October 2002 (see table: Derivatives Trading
worldwide). What is driving the market for derivatives
trading in India, in general? Deven Choksey, Managing
Director, Kisan Ratilal Choksey Shares and Securities
Pvt. Ltd., Mumbai says, "In the last two months,
the volatility and market activity have improved
thereby resulting in larger participation of investors
and resultant increase in business volume."
However, this growth in volumes has been led mostly by
stock futures, to the extent of about 65% of the
overall average daily turnover. In fact, since its
inception on November 9, 2001, the trading volumes in
stock futures have grown substantially. The average
daily volume of stock futures shot up from 21,295 in
December 2001 to over 50,000 contracts a day during
December 2002. Choksey explains the market's fancy for
stock futures saying that stock futures is a
well-known product for Indian investors. "They
used to trade in badla market and stock futures is
similar to that. Indeed, stock futures offer
tremendous leverage opportunities to investors.
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