RELATIONSHIP BETWEEN GROSS DOMESTIC PRODUCT AND DERIVATIVE MARKET OF INDIA

Journal of Management (JOM) Volume 5, Issue 3, May June 2018, pp. 205 215, Article ID: JOM_05_03_027 Available online at http://www.iaeme.com/jom/issues.asp?jtype=jom&vtype=5&itype=3 Journal Impact Factor (2016): 2.4352 (Calculated by GISI) www.jifactor.com ISSN Print: 2347-3940 and ISSN Online: 2347-3959 IAEME Publication RELATIONSHIP BETWEEN GROSS DOMESTIC PRODUCT AND DERIVATIVE MARKET OF INDIA Sameer Gupta Professor, The Business School, University of Jammu, India Sunil Bhardwaj Assistant Professor, The Business School, Bhaderwah Campus, University of Jammu, India ABSTRACT Last twenty years have exposed the corporate world to many financial risks due to policy of liberalization and globalization policy across the world. In today s dynamic business environment risk management has become very critical for the survival of MNCs. Therefore the emergence of derivative markets in India is attributed to the need of effective and less costly risk management tools for predicting the price of underlying assets. To reduce the extent of financial risks by providing commitment of price of an asset at future date is the basic feature of these financial instruments which had made them popular in the recent times. Trading in derivatives contracts commenced in India from June 2000 and has shown a steep growth in terms of number of contracts traded and volume of trade like market turnover is Rs. 94370301.61 Cr. in 2016-17 up from Rs.2365 Cr. in 2000-2001. Today, the contribution of derivative in the secondary market is approximately 93% of the total value of trade and it has surpassed the trade in cash market within a very short period in terms of turnover and number of contracts traded. This can be attributed to growing GDP of the country which shows a positive correlation with the derivative business of major stock exchanges of the country that is NSE and BSE. Pearson s co-efficient (R-Test) has been used to know how trading activities in derivative markets are correlated to GDP growth of the country. This piece of research tries to give in-depth analysis of Indian derivative markets encompassing historical perspective of derivative trading in India, trends and growth, policies and reforms in Indian derivative market. Key words: Derivatives, Financial Risk, Pearson s Co-efficient, Financial Instrument, Volatility, Derivative. Cite this Article: Sameer Gupta and Sunil Bhardwaj, Relationship Between Gross Domestic Product and Derivative Market of India. Journal of Management, 5(3), 2018, pp. 205 215. http://www.iaeme.com/jom/issues.asp?jtype=jom&vtype=5&itype=3 http://www.iaeme.com/jom/index.asp 205 editor@iaeme.com

Sameer Gupta and Sunil Bhardwaj 1. INTRODUCTION Derivatives are defined as contracts whose value depends upon the value of underlying assets like metal, crude oil or wheat etc. Last twenty years have exposed the corporate world to many financial risks due to the policy of globalization across the world. In today s dynamic business environment risk management has become very critical for the survival of MNCs. Interaction of demand and supply forces in agriculture and non-agriculture commodities in complex business environment brings volatility in price. Therefore the emergence of derivative markets in India is attributed to the need of effective and less costly risk management tools for predicting the price of underlying assets. Financial management always strives to minimize risk and maximize returns on investment to increase the value of firm. Many financial contracts like derivatives which enable risk sharing are used by firms to hedge against the risk of price volatility very efficiently. The emergence of derivative markets in India is attributed to the need of effective and less costly risk management techniques for predicting the price of underlying assets. 2. METHODOLOGY The study is divided into following section. Section-I Historical perspectives and Policies reforms in Indian Derivatives Market Section-II Growth and trends of Indian derivatives markets Section-III Analysis and Conclusion Section II: History and Policy Reforms in Derivatives Markets From the very beginning humans didn t liked the idea of uncertainty and risk and the need to upset this risk and uncertainty gave rise to the idea of contracts. Steve Kummer and Christian Pauletto (2012) proclaimed that the main ideas behind the formation of derivative contracts were to maintain the smooth supply of commodities, to secure farmers against crop failure and to facilitate and promote trade. But today derivatives are used as a source of funding and for making profits besides risk hedging. History of derivatives goes back to 12 th century where they were used as loans for the ships going on expedition and also as insurance for those which were not returning back. According to Ernst Juerg Weber (2008) during 16 th century due to high transportation cost and less speedy communication system derivative contracts in commodities emerged, where standardized price on commodities were fixed for their later delivery. In Indian context, derivative market is believed to have a long history; particularly trading of forward contracts in commodities goes back to the period of Kautilya s Arthashastra. Modern era of future trading in India can be traced back to 1875 when Bombay Cotton Trade Association commenced trading in future contracts. Future trading in commodities like cotton seeds, oil seeds, caster seed and ground nut etc was started by Gujarath Vyapar Mandali in 1900. Later on, future exchange for trading wheat contracts was started by chamber of commerce at Harpur in 1913 and future exchange for bullions was established in Mumbai in 1920. Similar such exchanges were setup in Calcutta, Jamnagar, Rajkot, Kanpur and Delhi. Shaik Masood and T Satyanarayana Chary (2016) noticed that the East India Jute and Hessin Ltd was established to start organised future trading in raw jute and related items in 1945 which was formed by the merger of Calcutta Hessain Exchange Ltd formed in 1919 and East Indian Jute Association Ltd formed in 1927. Government of India put a complete ban on F&O trading in 1966 which was lifted only after the recommendations of Khusro committee in 1980 thus allowing forward trading in only few commodities like Potato, cotton, jute etc. The LPG policy of Indian government has opened new vistas of opportunities in front of derivative trading and government took a leap forward to start Future trading in agriculture commodities like cotton seed, basmati rice, oilseeds etc on http://www.iaeme.com/jom/index.asp 206 editor@iaeme.com

Relationship Between Gross Domestic Product and Derivative Market of India the recommendation of Kabra committee in 1993. Subsequently, the Securities Laws (Amendment) Ordinance, 1995 was promulgated for the withdrawal of prohibitions on option contracts and for the introduction of trading in financial derivatives. According to Ashutosh and Satish (2010) the decade beginning from the year 2000 showed many good moves on the part of government to develop and promote derivative markets in India like lifting of ban on future trading in most of the commodities and setting up of national electronic commodity exchanges. On the recommendation of L. C Gupta committee derivative trading in India was launched from June 2000 and SEBI permitted derivative trading on BSE and NSE and allowed their clearing houses to undertake trading and settlement in derivatives contracts approved by Securities and Exchange Board of India. To begin with future contracts on stock market indices like S&P CNX Nifty Index futures was started on June 12, 2000, index based options started on June 4, 2000, options on individual securities started on July 2, 2001 and future contracts in single stocks commenced on November 9, 2001 as permitted by SEBI. After the rationalization of Indian derivatives markets in 2003 there is seen a steep increase in the variety of contracts, volume of contracts and total value of turnover on derivative exchanges in India. In 2003 only 53 commodities were permitted for trading in future contracts whereas today future contracts in more than 113 commodities are available. Table 1 Development of Derivatives Market of India in a Chronological Order S.No Date/ Progress of Financial Derivatives 1 1952 Forward (Regulation) Act was enacted 2 1953 Forward Market Commission was set up 3 1956 Securities Contract Regulation Act 1956 was enacted 4 1969 Prohibition on Forward Trading 5 1972 BSE started informal forward trade 6 1980 Futures were introduced based on Khuso Committee 7 1983 Carry forward trading in specific shares commenced 8 1992 SEBI Act was enacted 9 1993 carry forward transactions were prohibited by SEBI 10 1994 future trading in Nine commodities was recommended by Kabra Committee 11 1995 revised carry forward system was recommended by G.S Patel Committee 12 1996 BSE restarted Revised system 13 18 th Nov. 1996 LC Gupta Committee was set up 14 11 th May 1998 L C Gupta Committee submitted its report 15 1 st June 1999 BSE launched forward rate agreements / Interest rate swaps 16 7 st July 1999 OTC for interest rate swaps/forward rate agreements got permission from RBI 17 24 th May 2000 futures and options on an Indian index were permitted on NSE by SEBI 18 25 th May 2000 NSE & BSE got permission from SEBI to do index futures trading 19 9 th June 2000 BSE introduced Equity derivatives 20 12 th June 2000 NSE Commenced derivatives trading (index futures) 21 31 st Aug 2000 Nifty at SIMEX commenced trading of future & options 22 1 st June 2001 BSE launched Index options 23 June 2001 NSE started Trading on equity index options 24 July 2001 NSE started Trading on stock options 25 9 th July 2001 BSE launched Stock options 26 July 2001 Trading in options on individual securities commenced 27 1 st Nov. 2001 BSE launched Stock futures 28 Nov 2001 Trading in futures on individual securities started 29 9 th Nov. 2001 BSE started Trading of single stock future 30 2003 NSE started Trading of interest rate futures and MCX and NCDEX were setup 31 2004 Weekly option of BSE 32 June 2005 future and options in Bank Nifty Index were started Source: Official website of BSE, NSE & MCX http://www.iaeme.com/jom/index.asp 207 editor@iaeme.com

Sameer Gupta and Sunil Bhardwaj 33 2008 BSE trading on chotta-sensex (mini) began, F&O on sectoral indices and currency derivatives introduced 34 2008 On NSE Trading of Mini index F&O and currency derivatives were introduced, S&P CNX Defty F&O 35 August 2009 Launch of interest rate future at NSE 36 2010 BSE Launched option on BOLT, Introduction of European style option at NSE 37 2011 NSE started 91 day GOI trading bill futures, derivatives on CNX PSE & CNX infrastructure indices and futures and options on global indices 38 2012 Trading in BRICSMART indices derivatives was launched by BSE &Trading in future and option contracts on FTSE 100 index commenced on NSE 39 29 th Nov. 2013 BSE Launched of currency derivative segment (BSE CDX) 40 2014 BSE and NSE Launched interest rate future 41 2015 FMC was merged with the Securities and Exchange Board of India (SEBI). NSE launched nifty 50 index future trading on TAIFEX & Section-II: Growth and Trends of Indian Derivatives Markets Derivative market in India like many other developing economies of the world has witnessed huge growth. In the modern era derivatives trading in India begin in 2000 when two major stock exchanges of the country namely National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) started trading in derivatives. In Indian stock exchanges trading on indices derivative started first followed by trading on commodity derivatives in 2003 and currency derivatives in 2008. BSE launched its Equity Derivative (Index future SENSEX) and NSE launched Index future S&P CNX Nifty in 2000. Derivative markets in India has registered a steep growth in the recent decade as analysed from the tables below and the same trends seem to be continuing in future. NSE alone accounts for major portion of derivative trading in India. The exponential growth pattern shown by the Indian Derivative Markets is very clear from the table 2 to table 11 as follows: Table 2 Business Growth of all Segments on NSE Total Number of Total Average Daily 2016-2017 1399746129 94370301.61 380525.41 2015-2016 2098610395 64825834.30 262452.77 2014-2015 1837041131 55606453.39 228833.14 2013-2014 1284424321 38211408.05 152236.69 2012-2013 1131467418 31533003.96 126638.57 2011-2012 1205045464 31349731.74 125902.54 2010-2011 1034212062 29248221.09 115150.48 2009-2010 679293922 17663664.57 72392.07 2008-2009 657390497 11010482.20 45310.63 2007-2008 425013200 13090477.75 52153.30 2006-2007 216883573 7356242 29543 2005-2006 157619271 4824174 19220 2004-2005 77017185 2546982 10107 2003-2004 56886776 2130610 8388 2002-2003 16768909 439862 1752 2001-2002 4196873 101926 410 2000-2001 90580 2365 11 Table 2 shows the business growth of NSE in terms of number of contracts traded and their total turnover and average daily turnover in respective years. NSE started its business in the year 2000-01 with a total number of 90580 contracts with a turnover of rs 2365 cr. Starting from 2000-01 NSE has registered a continuous growth in total number of contracts traded and their respective turnovers. In the year 2016-17 total contracts traded at NSE in all segments http://www.iaeme.com/jom/index.asp 208 editor@iaeme.com

Relationship Between Gross Domestic Product and Derivative Market of India were 1399746129 having a turnover of rs 94370301.61 cr with average daily turnover of rs 380525.41 cr. Table 3 Average daily transaction in CD & FO Segment at NSE Total Number of F&O Segment Total Average Daily Total No. of CD Segment Total Average Daily 2016-17 1399746129 94370301.61 380525.41 712451439 4857075.85 20070.56 2015-16 2098610395 64825834.30 262452.77 673583164 4501885.58 18602.83 2014-15 1837041131 55606453.39 228833.14 480664694 3023907.67 12705.49 2013-14 1284424321 38211408.05 152236.69 660192530 4012513.45 16444.73 2012-13 1131467418 31533003.96 126638.57 959243448 5274464.65 21705.62 2011-12 1205045464 31349731.74 125902.54 973344132 4674989.91 19479.12 2010-11 1034212062 29248221.09 115150.48 749602075 3449787.72 13854.57 2009-10 679293922 17663664.57 72392.07 378606983 1782608.04 7427.53 2008-09 657390497 11010482.20 45310.63 32672768 162272.43 1167.43 Table 3 shows average daily turnover at NSE both in currency derivative and future and option contracts. The table shows an increase in total turnover in both F&O segment as well as in CD segment. The average daily turnover was rs 45310.63 cr and rs 1167.43 cr in 2008-09 for F&O segment and CD segment respectively. The figures have moved to rs 380525.41 cr and rs 20070.56 cr in the year 2016-17. It is found that F&O segment outperform CD segment in terms of total numbers of contract traded, total turnover as well as average daily turnover. Table 4 Number of Contract traded at NSE in CD Segment Currency Futures No. of Currency Options No. of contracts contracts Total No. of contracts 2016-2017 362615931 349835508 712451439 2015-2016 409759364 263823800 673583164 2014-2015 355588963 125075731 480664694 2013-2014 478301579 181890951 660192530 2012-2013 684159263 275084185 959243448 2011-2012 701371974 271972158 973344132 2010-2011 712181928 37420147 749602075 2009-2010 378606983-378606983 2008-2009 32672768-32672768 From table 4 it is inferred that the total number of contracts in both currency futures and currency option segment show an increase since the inception of CD segment at NSE till 2011-12. But from 2014-15 the growth again picked up which was continue in 2016-17 as well. http://www.iaeme.com/jom/index.asp 209 editor@iaeme.com

Sameer Gupta and Sunil Bhardwaj Total Number of Table 5 Business Growth in CD Segment of NSE Currency Future (Rs. Cr.) Currency Options Notional Total Average Daily 2016-2017 712451439 2489778.94 2367296.92 4857075.85 20070.56 2015-2016 673583164 2749332.96 1752552.62 4501885.58 18602.83 2014-2015 480664694 2247992.34 775915.32 3023907.67 12705.49 2013-2014 660192530 2940885.92 1071627.54 4012513.45 16444.73 2012-2013 959243448 3765105.33 1509359.32 5274464.65 21705.62 2011-2012 973344132 3378488.92 1296500.98 4674989.91 19479.12 2010-2011 749602075 3279002.13 170785.59 3449787.72 13854.57 2009-2010 378606983 1782608.04-1782608.04 7427.53 2008-2009 32672768 162272.43-162272.43 1167.43 Currency derivatives have a recent history in comparison to index and equity derivatives. Table 5 shows the business growth in currency derivative segment of NSE. The total number of contracts traded in cash derivative segment was 712451439 in the year 2016-17 whereas the turnover from currency futures and currency options (notional) were almost equal that is rs 2489778.94 cr and rs 2367296.92 cr respectively. Index Future (Cr.) Table 6 Product wise turnover at NSE Index option Stock Futures Notional Cr.) (Cr.) Stock Option Notional (Cr.) Total (Cr.) Average Daily (Cr.) 2016-17 4335940.78 11129587.14 72797287.69 6107485.87 94370301.61 380525.41 2015-16 4557113.64 7828606.00 48951930.60 3488173.75 64825834.30 262452.77 2014-15 4107215.20 8291766.27 39922663.48 3282552.18 55606453.39 228833.14 2013-14 3083103.23 4949281.72 27767341.25 2409488.61 38211408.05 152236.69 2012-13 2527130.76 4223872.02 22781574.14 2000427.29 31533003.96 126638.57 2011-12 3577998.41 4074670.73 22720031.64 977031.13 31349731.74 125902.54 2010-11 4356754.53 5495756.70 18365365.76 1030344.21 29248221.09 115150.48 2009-10 3934388.67 5195246.64 8027964.20 506065.18 17663664.57 72392.07 2008-09 3570111.40 3479642.12 3731501.84 229226.81 11010482.20 45310.63 2007-08 3820667.27 7548563.23 1362110.88 359136.55 13090477.75 52153.30 2006-07 2539574 3830967 791906 193795 7356242 29543 2005-06 1513755 2791697 338469 180253 4824174 19220 2004-05 772147 1484056 121943 168836 2546982 10107 2003-04 554446 1305939 52816 217207 2130610 8388 2002-03 43952 286533 9246 100131 439862 1752 2001-02 21483 51515 3765 25163 101926 410 2000-01 2365 - - - 2365 11 Product wise analysis from the table 6 shows that there is increase in the turnover in all derivative products traded on NSE. Average daily turnover has increased from rs 410 cr in all products in 2001-02 to rs 380525.41 cr in 2016-17 which is in concurrence with the trends of turnover in all derivative segments. http://www.iaeme.com/jom/index.asp 210 editor@iaeme.com

Relationship Between Gross Domestic Product and Derivative Market of India Table 7 Number of contracts traded at NSE in FO Segment Index Futures Stock Futures Index Options Stock Options No. Total No. of No. of contracts No. of contracts No. of contracts of contracts contracts 2016-17 66535070 173860130 1067244916 92106012 1399746129 2015-16 140538674 234243967 1623528486 100299174 2098610395 2014-15 129303044 237604741 1378642863 91479209 1837041131 2013-14 105252983 170414186 928565175 80174431 1284424321 2012-13 96100385 147711691 820877149 66778193 1131467418 2011-12 146188740 158344617 864017736 36494371 1205045464 2010-11 165023653 186041459 650638557 32508393 1034212062 2009-10 178306889 145591240 341379523 14016270 679293922 2008-09 210428103 221577980 212088444 13295970 657390497 2007-08 156598579 203587952 55366038 9460631 425013200 2006-07 81487424 104955401 25157438 5283310 216883573 2005-06 58537886 80905493 12935116 5240776 157619271 2004-05 21635449 47043066 3293558 5045112 77017185 2003-04 17191668 32368842 1732414 5583071 56886776 2002-03 2126763 10676843 442241 3523062 16768909 2001-02 1025588 1957856 175900 1037529 4196873 2000-01 90580 - - - 90580 In the year 2000-01 only 90580 contracts were traded in index future at NSE as trading in stock futures, index options and stock options has not started NSE. In the year 2016-17 the total number of contracts traded at NSE in the above mentioned derivative products were 1399746129. Table 8 Business growth at BSE in all Segments Total Total (Rs Average Daily Trading Cr) (Rs Cr) Days 2016-17 123538 6939.29 27.98 248 2015-16 106209394 4475008.32 18117.44 247 2014-15 505478869 20362741.42 83797.29 243 2013-14 301942441 9219434.32 36730.81 251 2012-13 262440691 7163576.66 28654.31 250 2011-12 32222825 808475.99 3246.89 249 2010-11 5623 154.33 0.61 255 2009-10 9028 234.06 0.96 244 2008-09 496502 11774.83 48.46 243 2007-08 7453371 242308.41 965.37 251 2006-07 1781220 59006.62 236.97 249 2005-06 203 8.78 0.03 251 2004-05 531719 16112.32 63.69 253 2003-04 143224 5021.81 19.77 254 Source: Official website of BSE Table 8 shows the business of BSE in all derivative segments which does not show much encouraging trends. In comparison to NSE the derivative trade at BSE shows less number of contract traded, total turnover and average daily turnover being traded. Moreover there are http://www.iaeme.com/jom/index.asp 211 editor@iaeme.com

Sameer Gupta and Sunil Bhardwaj fluctuations in the derivative business of BSE. The stock exchange has registered growth in total number of contracts traded till 2014-15 but was unable to keep the same trends in future. After inception of trading in 2003-04 BSE has witnessed lowest business in the year 2005-06. Table 9 Product wise No. of contracts and traded of futures at BSE Index Futures Equity Futures (Rs Cr.) (Rs Cr.) 2016-17 32288 2266.86 2901 203.08 2015-16 306712 13097.16 51815 1349.59 2014-15 1227926 48632.35 305714 9794.26 2013-14 2136269 63493.84 1901877 54599.42 2012-13 4701927 122429.78 116933 3420.07 2011-12 7073334 178448.83 326342 10215.70 2010-11 5613 154.08 - - 2009-10 3744 96.00 8 0.30 2008-09 495830 11757.22 299 8.49 2007-08 7157078 234660.16 295117 7609.24 2006-07 1638779 55490.86 142433 3515.50 2005-06 89 5.00 12 0.49 2004-05 449630 13599.66 6725 212.85 2003-04 103777 3082.63 33437 1680.34 Source: Official website of BSE As seen from the table 9 there is abrupt fall in the business of index futures and equity futures in the year 2005-06, 2009-10 and 2010-11. In the year 2010-11 there was no equity future trading BSE and from there after derivative trading at BSE increases till 2016-17. Table 10 Product wise turnover of option at BSE Index option Call (Rs Cr) Index option Put (Rs Cr) Equity option Call (Rs Cr) Index option Put (Rs Cr) 2016-17 1254.90 3214.45 - - 2015-16 2560540.69 1825708.19 31904.16 42408.53 2014-15 10112605.13 10016621.34 93854.50 81233.84 2013-14 5705316.57 3349884.04 22185.51 23945.18 2012-13 3230232.06 3797249.53 5186.57 5059.75 2011-12 200089.57 418252.79 1277.27 191.82 2010-11 - 0.25 - - 2009-10 137.76 - - - 2008-09 6.11 3.01 - - 2007-08 31.00 7.66 0.21 0.14 2006-07 0.06-0.16 0.04 2005-06 3.20-0.09-2004-05 1470.61 826.62 2.08 0.05 2003-04 - - 139.07 119.77 Source: Official website of BSE Table 10 shows not much encouraging trends in the option segment of BSE. The turnover for index option call and index option in the year 2014-15 was rs 10112605.13 cr and rs http://www.iaeme.com/jom/index.asp 212 editor@iaeme.com

Relationship Between Gross Domestic Product and Derivative Market of India 10016621.34 cr respectively which was highest in the last decade. From the year 2003-04 to 2010-11 these derivative products have not shown very good business and as such no prominent trends can be noticed. Table 11 Product wise no. of at BSE Index Options Call Index Options Put Equity Options Call Equity Options Put 2016-17 24433 63916 0 00 2015-16 58773325 44654651 1009439 1413452 2014-15 244203156 254031531 3010092 2700450 2013-14 182685008 113674567 667365 877355 2012-13 116324195 140909766 178313 209557 2011-12 7206514 17569130 39848 7657 2010-11 0 10 0 0 2009-10 5276 0 0 0 2008-09 251 122 0 0 2007-08 951 210 9 6 2006-07 2 0 5 1 2005-06 100 0 2 0 2004-05 48065 27210 72 17 2003-04 0 0 3466 2544 Source: Official website of BSE The results of table 11 are in consistence with the results of table 10. Starting from 2003-04 to till 2010-11 the derivative business in index option and equity option segment at NSE was insignificant. Even in 2016-17 trading in equity option call contracts and equity options put options contracts were nil. It can easily be inferred from above discussion that the derivative business at NSE is far ahead of derivative business of BSE. Section III: Analysis and Conclusion Now, it is clear that derivative market has witness a robust growth in the last decade which is due to increasing gross domestic product of the country which has a perfect positive correlation with the per capita income of firms and individuals. Thus increasing demand for more innovative investments and hedging techniques. When we tried to prove it statistically we found that total number of contracts traded at NSE and BSE have very high positive correlation which is 0.878996 and 0.9850328 with the total turnover of derivative trading in NSE and BSE respectively. This means that increase in the number of contracts in these exchanges have also lead to the increase in market capitalization of derivative contracts. We also tried to find out the correlation between the GDP and total turnover at NSE and BSE. We found that, Correlation between total turnover at NSE and GDP is found to be very high that is 0.973728 whereas correlation between total turnover at BSE and GDP is positive but moderate that is 0.512215. This predicts that with the increase in GDP of the country, trading of derivative contracts increases more at NSE in comparison to BSE. The analysis from the above tables also suggest the same thus making NSE as market leader in derivative trading in India. The performance of derivative trading at BSE is less encouraging in comparison to BSE on many vital parameters of derivative trading in India. http://www.iaeme.com/jom/index.asp 213 editor@iaeme.com

Sameer Gupta and Sunil Bhardwaj Table A showing Correlation Co-efficient of different variables Variables Correlation Co-efficient Total No. of contracts at NSE Total at NSE 0.878996 Total No. of contracts at BSE Total at BSE 0.9850328 Total at NSE Gross Domestic Product 0.973728 Total at BSE Gross Domestic Product 0.512215 Derivatives are very well received by the investors and have earned their deserving reputation among all the financial products in the Indian capital market due to innovation and revolutionized landscape. In commodity derivative trading main part is played by MCX and NCDEX. Today, India has six national derivatives exchanges and fifteen regional level derivative exchanges which have registered an exponential growth in terms of value and volume of commodities being trade on these exchanges. Shaik Masood and T Satyanarayana Chary (2016) noticed that in the year 2003-04 the value of derivative trade was rs 12.9364 bn which grew up to rs 1014.4795 bn in the year 2013-14. The recent trends of growth in the Indian derivatives markets can also be attribute to strong regulatory framework of Indian financial markets and the latest merger of Forward Market Commission (FMC) with Security and Exchange Board of India (SEBI) to further boost the investors confidence and sentiments in the market. The growth of derivatives in the recent times has surpassed the growth of equity segment in major stock exchanges of India. The country has one of the most matured and vibrant exchange traded derivative markets among developing countries of the world. Country shows very encouraging growth pattern in derivative market with respect to number of contracts, variety of contracts and total turnover of contracts traded which can be compared with the derivative market of many developed countries of the world. Chart A: Showing GDP Growing and Simultaneous Increase in the of Derivative Trading on NSE & BSE In India not only GDP growth but also volatility in financial asset price, innovations in financial engineering, integration of financial markets internationally, sophisticated risk management tools, safe and secure electronic trading and the choices of risk management tools have been driving the growth of financial derivative market. http://www.iaeme.com/jom/index.asp 214 editor@iaeme.com

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