A Study on the Impact of Derivatives in India Capital Market

Abstract

Derivative is new segment of trade introduced in stock market in the year 2000 mainly to bring liquidity into the market. People who are doing business in derivatives are not genuine buyers and sellers and they do only speculative trading. The excess speculation and open position in the derivative market have influenced spot market prices. The objective of this study is to find out the real impact of derivatives on spot market and overall capital market. The study result indicates that volume of trade increased tremendously after the introduction of derivatives. As of 2010-2011 index option contributes 63 percent to the overall derivatives business. Though there is a fluctuation in share price, the deviation in price is less after introduction of derivatives. In fact the volatility is reduced after the introduction of derivatives. The open interest positions which arise because of futures trading are having effect on share price. Key Words: Impact of derivatives on spot price, Impact of index futures on index spot.

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