A STUDY ON THE BUSINESS GROWTH OF NATIONAL STOCK EXCHANGE FROM 2001-02 TO 2014-15 DR.G.AMUDHA* & DR.V.KANNAN* *ASSISTANT PROFESSORS OF ST.JOSEPH S INSTITUTE OF MANAGEMENT, TRICHIRAPPALLI-02. ABSTRACT: with the improved innovations in financial engineering, derivative market has also grown marvelously and has intertwined with underling stocks. The relationship between the physical market and derivative market shows the behavior of investors in investing money in stock market. This study clearly shows the partition of speculator s market and real investor s market. The study considers the time frame of 2001-02 to 2014-15. KEY WORDS: Physical Market, automated screen based trading system, option market, future market. Objective of the study: The objective of the study is to make an empirical analysis of the relationship between derivative market and physical market growth from 2001-02 to 2014-15 in NSE stock market. In Uttar Pradesh and Nagpur Stock Exchange Ltd. were incorporated in the year 1940. In Hydrabad, Stock Exchange Ltd. was incorporated in 1944. In Delhi, Stock and Share Brokers Association Ltd and Delhi stocks and Shares Exchange Limited were amalgamated and incorporated in the year 1947.Lahore Exchange was closed during partition of the country and later migrated and merged with Delhi Stock Exchange. Bangalore stock exchanges were recognised in 1963, other stock exchanges were also applied to the central government for recognition under securities Contract Regulation Act 1956. Only Bombay, Calcutta, Madras, Ahmedabad, Delhi, Hydrabad and Indore, the well established exchanges were recognized. During sixties to eighties, eight stock exchanges were remaining constant. From the year 1980, Cochin Stock Exchange, Uttar Pradesh Stock Exchange Association Ltd, Pune Stock Exchnge Ltd., Magadh Stock Exchange Association, Jaipur Stock Exchange, Bhuvaneswar Stock Exchange Association Ltd, Saurashtra Kutch Stock Exchange Ltd., at Rajkot, Vadodara Stock Exchange Ltd at Barode, Coimbatore and Meerut Stock exchange round the counting twenty one. Except OTC and NSE the number of stock exchanges in India is 21. NSE was incorporated in November 1992 as a tax paying company unlike other stock exchanges in the country. It is the only one exchange to provide a modern, fully automated screen based trading system with national reach. The exchange has brought about unparalleled transparency, speed and efficiency, safety and market integrity. The trading members in NSE Capital segment are connected through a satellite link-up, using very Small Aperture Terminals. By this mode it reaches nationwide investors to trade. It also makes stock market more efficient by fine tuned risk management system emergency of clearing corporations to assume counterparty risks, market of debt and derivative instruments and intensive use of information technology. The National Stock Exchange classifies stocks broadly under six categories namely A, B, T, S, TS and Z. The classification stocks are being done on the basis of their size, liquidity and exchange compliance and, in some cases, also the speculative interest in them. 17
Investors and speculators in Indian stock market playing a vital role in passive and active trade. It is tough for the regulator to identify the speculator and gambler in the stock market that facilitate the few players to extract more profit from among large innocent players. This will not encourage the balanced economic growth in Indian market. Hence authors felt that it is essential to encourage the real time investors by paving a risk free environment in stock market. In this juncture, this article focuses on the issues of business growth in Indian stock market with special reference to NSE. Authors are interested to analyse the business growth in terms of number of contracts in derivative market, turnover, number of companies listed, companies available for trading, market capitalisation in stock market, number of trades, volume of trade, value of trade in stock market. This article compared the option with future and within option index and stock have been compared. Within future, index and stock have been taken for the comparative study of derivative product in NSE. Review of literature: (Anand Sharma, 2011)The paper entitled a study of relationship between cash and derivative segment in Indian stock market. This article focused mainly on the comparative study of cash segment and derivative segment only in term of turnover. This research work concluded that the derivative segment prices can reflect additional information to the spot market. Thus it serves as leading indicator for the spot prices. This article concluded that after the introduction of derivative segment 60% of cash market switched over to derivative market and both the market are running parallels. (Koustubhkanti Ray, 2011)The study entitled the impact of derivative on spot market volatility: evidence for Indian derivative market focused the whole attention to analyse the effect of derivative market on the volatility of the Indian Stock Exchange. The study was carried out with two objectives 1.to analyse the impact of derivative market before and after the introduction of derivative 2. to find out the immediate effect or delayed effect in Indian stock market. To fulfill these two objectives log return has been taken to study the normal distribution of data and normality of data has been studies with the help of kurtosis. It also studied the impact of derivatives in long run equilibrium relationship with market bench mark index. Research analysis concluded that some stocks experienced changes in the structure volatility after implementation of derivatives and experiencing a stronger persistence of volatility in comparison to pre derivative period. Most of the stocks become disintegrated with market benchmark index after introduction of derivatives. Growth of business in NSE is slowly picking up. The demand for long term capital comes predominantly from private sector manufacturing industries and government Agencies. While the supply of funds for the capital market comes from individual and corporate savings insurance pension fund, banking companies, specialized financial agencies and the surplus of government. (Angolos Siopis, 2007) This report applied various volatility forecasting approaches such as GARCH and FGARCH models and the GJR Model using the data for a sample period of ten years. Sample period was before and after the introduction of derivative market to Athens. In conclusion it concluded that negative effect of the introduction of future trading on the underlying volatility of the FTSE/ASE to index but the result was not consistent from different. GARCH- family model applications. This is not sufficient proof to the formation of optimal asset allocation decisions and for the determination of dynamic hedging strategies for derivative products like future and options. 18
(Kyriacos Kyriacou, 1999)This article examines empirically the dynamic relationship between derivatives trading activity and spot market volatility using daily data for the U.K. The results of the study provided strong evidence that spot market volatility is time varying. Future trading option trading and volatility of the underlying asset are determined in a system of equations that allows for both simultaneity and feedback from speculators, hedgers and cross market arbitrager when market operate efficiently. (Sung C. Bae, 2004) Specifically, this article scrutinizes whether the index futures trading in Korea has caused a major change in spot price volatility of the underlying KOSPI 200 stocks relative to the carefully matched non-kospi 200 stocks, and how the index futures trading has affected market/trading efficiency in the Korean futures and stock markets. The market regulations and restrictions appear to have contributed to the stabilization of the underlying KOSPI stock market by reducing spot price volatility of the underlying KOSPI 200 stocks, relative to the non-kospi 200 stocks, as they were designed. The results suggested that there is a trade-off between gains and costs associated with the introduction of derivatives trading at least on a short-term perspective. In the long run, due to government interference the information in derivative market did not reflect in the spot market. For this study only equities and equity derivatives have been taken from the year 2001-02 to 2014-2015.Secondary data has been extracted from the websites of NSE. In a derivative segments option and future have been considered both in index and stock. The major variables like number of contracts and turnover have been taken to study the growth rate of the derivative market. Whereas in the physical market number of companies listed, total number of companies available to trade and market capitalization were also taken into consideration in addition to the total trade in terms of value and volume. With these parameter authors made an effort to prove the growth of NSE market and also differentiate the growth trend of speculator and investors behavior in investment. 1. Growth of Contracts in Derivative Market in NSE Year Option Future Index Stock Index Stock 2014-15 7838 88 126 121 438 2013-14 5279 77 103 87 306 2012-13 4667 64 94 75 270 2011-12 4912 35 143 81 287 2010-11 3699 31 161 95 246 2009-10 1941 14 174 74 162 2008-09 1206 13 205 113 157 2007-08 315 9 153 104 101 2006-07 143 5 79 54 52 2005-06 74 5 57 41 38 2004-05 19 5 21 24 18 2003-04 10 5 17 17 14 2002-03 3 3 2 5 4 2001-02 1 1 1 1 1 Total 19
2014-15 2013-14 2012-13 2011-12 2010-11 2009-10 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 International Journal Of Marketing, Financial Services & Management Research ISSN 2277-3622 450 400 350 300 250 200 150 100 50 0 StockFuture Stock Option Stock Option Index Future StockFuture Total From the above table it is inferred that index option growth in contract was enormous compared to all other derivative products in NSE market. Index market was picked up its growth rate to many folds starting from 2005-2006 it increases its growth trajectory to hundreds and thousands. This trend clearly shows that index option plays very good role in risk mitigation process and also investors are well satisfied with index future. When index option is compared with stock option its growth rate was not even crossed 90 times over the base period 2001-02.Only in the year 2012-13 index option was declined over its previous period that change was not constant but again it increases its growth rate from the year 2013-14. This clearly shows that index option is well recognized by the investors as risk mitigation product among all other product. In future market also investors recognized that index is satisfying their need of mitigating the risk. In stock derivative, option took gaining momentum over the future from the year 2009-10. From the inception to 2009-10 stock future took gaining momentum over the stock option. Anyhow in derivative segment index products are well marketed hence more number of contracts is growing year after year particularly index option. 20
2. Growth of Turnover in Derivative Market in NSE Option Future year Index Stock Index Stock Total 2014-15 10604 130 191 161 546 2013-14 7375 96 144 96 375 2012-13 6051 79 118 82 309 2011-12 6035 39 167 79 308 2010-11 4878 41 203 107 287 2009-10 2132 20 183 101 173 2008-09 991 9 166 68 108 2007-08 362 14 178 147 128 2006-07 210 8 118 74 72 2005-06 90 7 70 54 47 2004-05 32 7 36 29 25 2003-04 14 9 26 25 21 2002-03 2 4 2 6 4 2001-02 1 1 1 1 1 600 500 400 300 200 100 0 Stock option Stock option Indexfuture Stockfuture Total With regard to turnover also index option growth rate was in hundreds up to the year 2007-08 and thousands from the year 2008-09. This clearly shows that index option turnover was gaining momentum over other derivative product like stock option, index future and stock future. Index derived products are widely acceptable by investors over the individual stocks. This clearly shows that most of the investors recognize the index as standard benchmark rather than 21
individual stock or group of stocks. This is the reason why standard accepted benchmarks are more attractive than individual stocks and group of stocks in derivative market. Index option growth rate is tremendous which cannot be compared with other products like stock option, index future and stock future hence index option is not found in the chart. With regard to stock, future market turnover is growing better than option market turnover this indicates that prediction over future market is better than option market in stock. 3. Corporate Participants in Stock Market Growth in Equity Segment No of Companies Companies available for Market Year listed* Growth trading* Growth Capitalisation(cr) Growth 2014-15 1704.917 2.149 1576 1.771 9215935 14.470 2013-14 1673.333 2.110 1585 1.780 6517421 10.233 2012-13 1666 2.100 1582 1.777 6239035 9.7965 2011-12 1646 2.075 1563 1.756 6096518 9.5727 2010-11 1574 1.984 1484 1.667 6702616 10.524 2009-10 1470 1.853 1359 1.526 6009173 9.435 2008-09 1432 1.805 1291 1.450 2896194 4.547 2007-08 1381 1.741 1236 1.388 4858122 7.628 2006-07 1228 1.548 1084 1.217 3367350 5.287 2005-06 1069 1.348 929 1.043 2813201 4.417 2004-05 970 1.223 839 0.942 1585585 2.489 2003-04 909 1.146 787 0.884 1120976 1.760 2002-03 818 1.031 788 0.885 537133 0.843 2001-02 793 1 890 1 636861 1 15 10 5 0 No of co.s listed* No of co.s listed* No. of co.s available for trading* Market Capitalisation(cr) 22
From the above analysis it is proved that from 2001-02 to 2006-07 number of companies listed in NSE stock exchange have increased from 1time to 1.5 times. There after it grown at the rate of 1.74 to 2.14times of base year this clearly shows that companies listed in stock exchange is gradually increasing to facilitate the marketability of their shares in national stock exchange. With regard to companies available for trading, the growth rate was ranging from.88 to 1.77 times of base year. This clearly shows that investors are having very good opportunity to invest in diversified companies. In other terms, wide range of opportunity is available for the investors with regard to companies. The same meaning is proved in terms of market capitalization also. Its growth rate has grown from 1 time to 15.46 times from the year 2001-02 to 2014-15. Market capitalisation rate has been increased exorbitantly when compared to number of companies listed and number of companies available for trade. This may be because of inflationary measure and high number of floatation shares in the market. In nutshell one can conclude that opportunities have been increased from the initial period of study to final period of study to the investors in taking part of the corporate ownership. 4. Growth Rate of Stock Trades in NSE Market No. of Traded Quantity YEAR trades (lakh) Growth (lakhs) Growth Turnover(Cr) Growth 2014-15 1527.333 0.871268 196814.8 0.706929 360804.6 0.703094 2013-14 1202.583 0.686014 127809.7 0.459073 234040.7 0.456071 2012-13 13605 7.760981 1659160 5.959455 2708279 5.277578 2011-12 14377 8.201369 1616978 5.807944 2810893 5.47754 2010-11 15507 8.845978 1824515 6.553386 3577412 6.971243 2009-10 16816 9.592698 2215530 7.957853 4138024 8.063699 2008-09 13651 7.787222 1426354 5.123251 2752023 5.362821 2007-08 11727 6.689675 1498469 5.382277 3551038 6.919849 2006-07 7846 4.475756 855456 3.07267 1945285 3.790745 2005-06 6088 3.472904 844486 3.033268 1569556 3.058568 2004-05 4510 2.572732 797684 2.865162 1140071 2.221637 2003-04 3780 2.156303 713301 2.562071 1099535 2.142646 2002-03 2398 1.367941 364065 1.307667 617989 1.204265 2001-02 1753 1 278408 1 513167 1 23
30 Growth of stock market 25 20 15 10 0.703093892 Traded Quantity (lakh) No. of trades (lakh) 5 0 Number of trades, volume of trades and value of trade has seen a gradual increase over the study period form 2001-02 to 2012-13, whereas from the period 2013 to 2015 it was declined below one time this shows that chunk of money has been taken out from the stock market to some other financial market like derivative market, commodity market, etc. That value of stock trade is getting reduced from the year 2013 to till date in total, indicating the effect that speculative trade has been restricted in stock market and this has been shifted to derivative market or somewhere. This kind of stock market is good for balanced economic growth of our country. From the above analysis it could be concluded that stock market growth rate was one to two times but in derivative market the growth rate was high, crossing hundreds to thousands. Particularly index option was crossed its growth rate by thousands fold and stock option, future market crossed its growth by hundreds. This indicates the truth that speculative investors moving their investment strategy from stock market to derivative market zone. This necessitate the Indian government to encourage the derivative market to segregate the speculators from the real time investors of the company thereby it supports its country entrepreneurial skill in each and every corporate. This also curbs the frustration of issuer and issue management team at the time of extension and modernization program of real time needy project. 24
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