III. Derivatives Market Segment The popularity of the derivatives market has grown by leaps and bounds in India over the past few years. Apart from registering a multi-fold increase in volumes, the market has also grown in terms of number of contracts traded, the traded value, and the number of products traded. As a matter of fact, the turnover in the derivatives market has even gone on to surpass the cash segment.
Total Trading Turnover in Cash & Derivatives Markets between FY12 and FY16 ( ` trillion) BSE NSE Cash Derivatives Total Cash Derivatives Total FY12 6.7 8.1 14.8 28.1 313.5 341.6 FY13 5.5 71.6 77.1 27.1 315.3 342.4 FY14 5.2 92.2 97.4 28.1 382.1 410.2 FY15 8.5 203.6 212.2 43.3 556.1 599.4 FY16 7.4 44.8 52.2 42.4 648.2 690.6 Source: BSE, NSE, Dun & Bradstreet Research
Between FY12 and FY14, the total turnover (cash and derivatives) on the BSE reflected a multi-fold growth, from merely ` 14.8 trillion in FY12 to ` 212.2 trillion in FY15. In FY16, however, the total turnover declined to a 4-year low of ` 52.2 trillion. On the other hand, the NSE sustained its growth momentum, increasing from ` 341.6 trillion in FY12 to a huge ` 690.6 trillion in FY16, at a CAGR of 19.2%. This growth was exclusively due to the derivatives segment. Trading turnover at NSE grows by 15.2% in FY16, BSE records steep decline In FY16, the total trading turnover (cash and derivatives) on the NSE grew by 15.2% from ` 599.4 trillion in FY15 to ` 690.6 trillion in FY16. This growth was spurred by a 16.6% growth in the trading volumes of its derivatives segment during the year. In contrast, The BSE’s trading turnover plunged by 75.4% in FY16 to ` 52.2 trillion, The BSE’s derivatives segment, in particular, recorded a steep 78% fall in its trading turnover from ` 203.6 trillion in FY15 to a much lower ` 44.8 trillion in FY16. The fall can be attributed to investors’ preference towards the NSE with respect to trading of derivatives. Index options account for a lion’s share among the derivative products traded in the Indian derivatives market. In FY16, they accounted for 98% of the total derivatives segment turnover on the BSE and 75.5% on the NSE. Besides index option, the other derivative products that are traded on the NSE are single stock futures (12.1%), index futures (7%) and single stock options (5.4%). In the index derivatives segment at NSE, derivatives are offered on various indices including the Nifty, Nifty Midcap 50, Nifty Bank, Nifty Infra, Nifty IT, Nifty PSE and also in foreign indices such as the Dow Jones, S&P 500 and UK FTSE 100. IV. Net Investments Sustained capital inflows are crucial for any economy in order to meet its financing needs. Certain policy initiatives were introduced in the Union Budget FY16 aimed at projecting India as an attractive investment destination. Under the Foreign Portfolio Investor (FPI) Regime, the erstwhile FIIs, sub accounts and QFIs were merged into a new investor class termed as Foreign Portfolio Investors (FPIs) with effect from June 2014. FPI investments plunge in FY16 In FY16, the net investment of FPIs in the equity and debt markets taken together turned negative for the first time since FY09. During the year, India witnessed net outflow of FPI investments to the tune of ` 181.8 bn, as against net inflows of ` 2,774.6 bn in FY15. The outflow of FPIs was seen in both, the equity as well as debt segments, the first time such an event had occurred since 1992. Although the announcement of an increase in FPI limits in debt securities spurred some degree of buoyancy in the market in the first half of the year, the market continued to lose some of its gains after October 2015, owing to fresh concerns about global cues, as well as some domestic concerns.
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