A STUDY ON DEVELOPMENT OF

EQUITY DERIVATIVES IN INDIAN

CAPITAL MARKET WITH SPECIAL
REGARDS TO HSBC INVESTDIRECT

PRESENTED BY:
PRITISH KUMAR DAGARA
 CONTENTS
• INTRODUCTION
• ORGANISATION PROFILE
• FINANCIAL DERIVATIVE
• DATA ANALYSIS
• FINDINGS
• SUGGESTIONS
• CONCLUSION
 INTRODUCTION

• MEANING
• OBJECTIVE
 OBJECTIVES
• Growth and prospects of derivative market in
India

• To have comparative study of cash and

derivative market of NSE

• Experience of investors, dealers and brokers

regarding derivatives market in
HSBC InvestDirect in Bhubaneswar circle.
 RESEARCH METHODOLOGY

• Scope

• Time Frame

• Sources of data

• Tools and techniques

 LIMITATION OF THE STUDY

• Time constraint

• Not sufficient information by the investors

• A very wide and complex topic

• Small sample size

ORGANISATION PROFILE
 HSBC InvestDirect (India) lTD

• Listed in both BSE and NSE

• Provide varied services to individual and
corporate customers.
• Offer equity broking, wealth management,
IPO distribution and portfolio
management.
• 240 outlets in more than 80 cities
FINANCIAL
DERIVATIVES ARE FINANCIAL
WEAPONS OF MASS
DESTRUCTION.

Warren Buffett
 FINANCIAL DERIVATIVE
• A ‘derivative’ is a financial contract whose
value is derived from the value of an
underlying asset.

• Common examples of underlying assets

are stocks, bonds, currencies,
commodities and even another derivative
security etc.
 As per Section 2(ac) of Securities contract
(Regulation) Act, (SCRA) 1956 it is defined
as

• a) “a security derived from a debt instrument,

share, loan whether secured or unsecured, risk
instrument or a contract for difference or any
form of securities;

• b) “a contract which derives its value from the

prices, or index of prices, of underlying
securities”.
 BASIC PURPOSE OF DERIVATIVES
• In derivatives transactions, one party’s loss is
always another party’s gain
• It transfer risk from one person or firm to another,
that is, to provide insurance
• If a farmer before planting can guarantee a certain
price he will receive, he is more likely to plant
• Derivatives improve overall performance of the
economy
 Participants in derivative market

• HEDGERS- They try to transfer, reduce or

eliminate risk associated with the price of an
asset.
• Speculator- They intentionally take the risk from
hedgers in pursuit of profit
• Arbitrageurs- They take advantage of a
discrepancy between prices of more or less the
same asset or competing asset in different
market.
 DERIVATIVE instruments

• Forward contracts

• Futures

• Options
 FORWARDS
• A forward contract is a customized contract
between two entities, where settlements takes
place on a specific date in the future at today’s
pre-agreed price
• Long position- buyer
• Short position- seller
• Delivery price- specified price in the contract
• Maturity- specified time
 FEATURES OF FORWARD MARKET
• OTC in nature
• Customized contract terms
• Illiquid
• No margin payment
• Settlement happens at end of period

LIMITATIONS
• Lack of centralization of trading
• Illiquidity
• Country party risk
 futures
• A future contract is an agreement between two
parties to buy or sell an asset at an certain time
in the future at a certain price.
• These are standardized forward contract.
• Exchange sets the standardized terms
• Standardized terms- Quantity and Quality of the
underlying, date and the month of delivery, units of price
quotation and minimum price change, Location of
settlement
 Features of futures

• Trade on an organized exchange

• Standardized contract terms
• Liquid
• Required margin payments
• Follows daily settlement
 options
• As the name suggests it is some sense of
optional contract. An option is the right but not
the obligation, to buy or sell something at a
stated date and at a stated price.

• European
• American
 TYPES OF OPTIONS
• CALL OPTION- It gives the buyer the right but
not the obligation to buy the given quantity of
the underlying asset, at a given price and on or
before a given date.

• PUT OPTION- It gives the buyer the right, and

the obligation to sell a given quantity of
underlying asset at a given price on or before a
given date.
• INDEX FUTURE- These are the financial contracts for which
the underlying is the cash market index like SENSEX and
NIFTY and these are generally settled in cash rather stock
certificate.
Rs in crores

4500000
4000000
3500000
3000000
2500000
2000000
1500000
1000000
500000
0
2005-06 2006-07 2007-08 2008-09 2009-10
STOCK FUTURE- These are financial contracts where the
underlying asset is an individual stock.

Rs in crores
8000000
7000000
6000000
5000000
4000000
3000000
2000000
1000000
0
2005-06 2006-07 2007-08 2008-09 2009-10
INDEX OPTION- These are the financial contracts where by
the right is given by the option seller in consideration of a
premium to the option buyer to buy or sell the underlying index
at a specific price (strike price) on or before a specific date
(expiry date)
Rs in crores
9000000
8000000
7000000
6000000
5000000
4000000
3000000
2000000
1000000
0
2005-06 2006-07 2007-08 2008-09 2009-10
STOCK OPTION- These are the financial contracts where by
the right is given by the option seller in consideration of a
premium to the option buyer to buy or sell the underlying stock
at a specific price (strike price) on or before a specific date
(expiry date) Rs in crores

600000

500000

400000

300000

200000

100000

0
2005-06 2006-07 2007-08 2009-09 2009-10
Analysis and Interpretation
 CASH MARKET AT NSE

4500000

4000000

3500000

3000000

2500000

2000000

1500000

1000000

500000

0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
 FUTUTE AND OPTIONS TRADING AT
NSE

18000000

16000000

14000000

12000000

10000000

8000000

6000000

4000000

2000000

0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
EQUITY TRADING AT HSBC INESTDIRECT,
BHUBANESWAR
Rs in crores
1800

1600

1400

1200

1000

800

600

400

200

0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
 DERIVATIVE TRADING AT HSBC
INVESTDIRECT, BHUBANESWAR
Rs in crores

2500

2000

1500

1000

500

0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
 BROKER’S AND INVESTOR’S
PERCEPTION ABOUT DERIVATIVES
TRADING PERIOD IN DERIVATIVE
more than 3 years less than 1 year
10 13
13% 17%

3 years
12
16%

1 year
15
20%

2 years
25
34%
 REASONS BEHIND ITS ADOPTION

Liquidity
7 Hedging
9% 20
27%
Risk Management
15
20%

Speculation
33
44%
EXPERIENCE WITH DERIVATIVE

Profitable
Funds and Patience 27
11 36%
15%

Equities
21
28%

Not profitable
16
21%
INVESTED AMOUNT IN DERIVATIVES

Any other
12 2 lacs
16% 32
43%
5 lacs- 10 lacs
15
20%

2 lacs- 5 lacs
16
21%
 TRADED PERIOD IN DERIVATIVES

More than 2
months
9 Weekly
12% 15
20%

More than 1 month

21
28%

Monthly
30
40%
IMPACT ON CUSTOMER BASE

Remain same
20
27%

Decrease
5
6%

Increase
50
67%
RELATIONSHIP WITH CASH MARKET

Can't say
30
40%
Positive
35
47%

Negative
10
13%
 FINDINGS
• The derivative market of India is still to develop and
there are many scope of development in this market.
• People in Bhubaneswar, are not aware of derivatives
even people who have invested in it, hasn’t adequate
knowledge about it.
• Speculation has caused many investor to lose their hard
earn money.
• Due to its peculiarity and uncertain nature, small
investors keep themselves away from derivatives.
 suggestions
• Lot size should be reduced so that the major segment of
an India society i.e. small saving class can come under
F & O trading.
• More scripts of reputed companies should be introduced
• There should be proper classes on derivatives for
investors, traders, brokers.
• Lack of proper knowledge about derivatives is the most
important and major hurdle in the development of
derivatives
conclusion