RELATIONSHIP BETWEEN GROSS DOMESTIC PRODUCT AND DERIVATIVE MARKET OF INDIA

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.