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A STUDY ON FINANCIAL DERIVATIVES WITH REFERENCE TO TATA MOTORS

LIMITED, CHITTOOR DISTRICT OF AP, INDIA

Article · June 2018

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IF : 5.156 | IC Value : 85.78 VOLUME-7, ISSUE-4, APRIL-2018 • ISSN No 2277 - 8160

Original Research Paper Management

A STUDY ON FINANCIAL DERIVATIVES WITH REFERENCE TO
TATA MOTORS LIMITED, CHITTOOR DISTRICT OF AP, INDIA

Associate Professor Department of Management Studies Sri Venkateswara College

Dr. S. Gautami of Engineering Karakambadi Road, Tirupati-517507
Assistant Professor Department of Management Studies Sri Venkateswara College
Dr. Nalla Bala Kalyan of Engineering Karakambadi Road, Tirupati-517507

ABSTRACT As part of nancial market reforms, new instruments and nancial reengineering have been introduced in India
since 1991. One area where the growth and innovation is slow is in the introduction of derivatives. In India, the
appearance and enlargement of derivatives market is moderately a recent phenomenon. Since its beginning in June 2000, derivatives
market has exhibited exponential enlargement both in terms of volume and number of traded contracts. The term derivatives, refers to a
broad class of nancial instruments which mainly include options and futures. These instruments derive their value from the price and other
related variables of the underlying asset. They do not have worth of their own and derive their value from the claim they give to their owners
to own some other nancial assets or security. The present study is deliberate to examine the nancial derivatives with reference to Tata
Motors Limited.

KEYWORDS : Derivatives, Features, Options, Tata Motors Limited

1. INTRODUCTION committed themselves to doing something. Whereas it costs
Finance is the life blood of any business organization. Just as nothing (except margin requirement) to enter into a futures
Circulation of blood is necessary in the human body to maintain life contracts, the purchase of an option requires as up-front payment.
so is nance very essential to the business organization for smooth Option is a type of contract between two persons where one grants
running of the business. Financial management involves the other the right to buy a speci c asset at a speci c price within a
Managerial activities concerned with the acquisition of fund for the speci c time period. Alternatively the contract gives the other
business purpose. The Finance Function does with procurement of person the right to sell a speci c asset at a speci c price within a
money taking into consideration of today as well as future need and speci c time period, in order to have this right. The option buyer has
nance is required to purchase need and nance is required to to pay the seller of the option premium. The assets on which option
purchase a machinery and raw materials, to pay salaries and wages can be derived are stocks, commodities, indexes etc. If the
and also for day to day expenses. In nance, a derivative is an underlying asset is the nancial asset, then the option are nancial
agreement based on an underlying asset. Instead of exchanging the option like stock options, currency options, index options etc., and if
actual asset, agreements are made to exchange cash or other assets options like commodity option.
for the underlying asset within a speci ed timeframe. As the value of
the underlying asset changes, so does the value of the derivative. 2. RESEARCH METHODOLOGY
2.1 NEED FOR THE STUDY
1.1 Futures Derivatives help to reduce the risk (or) transfer the risk. It also helps
Futures markets were designed to solve the problems that exist in to the investors to get more returns with less risk. Therefore the
forward markets. A futures contract is an agreement between two present study has been undertaken to understand the derivatives
parties to buy or sell an asset as a certain time in the future at a market with special reference to Tata Motors Ltd., for a period of 45
certain price. But unlike forward contract, the futures contracts are days.
standardized and exchange traded. To facilitate liquidity in the
futures contract, the exchange speci es certain standard 2.2 SCOPE OF THE STUDY
underlying instrument, a standard quantity and quality of the The Study is limited to “Derivatives” with special reference to Futures
underlying instrument that can be delivered, (or which can be used and Options of Tata Motors Ltd., in the Indian context and the Inter-
for reference purpose in settlement) and a standard timing of such Connected Stock Exchange has been taken as a representative
settlement. A futures contract should be offset prior to maturity by sample for the study. The study is limited to nancial derivatives
entering into an equal and opposite transaction. More than 90% of with special reference to futures options in the India Info line
futures transactions are offset this way. A future contract is an Limited has been taken as representative sample for the study.
agreement between two parties to buy or sell an asset at a certain
time in the future at a certain price. Futures contracts are special 2.3 OBJECTIVES OF THE STUDY
types of forward contracts in the sense that the former are 1. To analyze the operations of futures and options with reference
standardized exchange-traded contracts. to Tata Motors Ltd.,
2. To nd the pro t/loss position of futures buyer and also the
The standardized items in a futures contract are: option writer and option holder
Ÿ Quantity of the underlying 3. To suggest measures about futures and options
Ÿ Quality of the underlying 4. To understand the concept of the nancial derivatives such as
Ÿ The date and the month of delivery futures & options.
Ÿ The units of price quotation and minimum price change
Ÿ Location of settlement 2.4 DATABASE
The primary data is collected directly with the concerned
1.2 Options professional trade members and online transaction on the day from
Options are fundamentally different from forward and futures NSE India. The secondary data is the data which is gathered from
contracts. An option gives the holder of the option the right to do books, records, Journals, Magazines, Reports and Newspapers. This
something. The holder does not have to exercise this right. In analysis is based on sample data taken from Tata Motors Limited.
contrast, in a forward or futures contract, the two parties have
430 X GJRA - GLOBAL JOURNAL FOR RESEARCH ANALYSIS
 VOLUME-7, ISSUE-4, APRIL-2018 • ISSN No 2277 - 8160 IF : 5.156 | IC Value : 85.78
Table3 Spot and Future Prices from12 Juneto18th June 2017
th
The lot size of Tata Motors is 2000, the time period in which this
analysis done is from 02-06-2017 to 27-06-2017.
TATA MOTORS LIMITED
DATE(1) PRICE(2)
3. DATA ANALYSIS & INTERPRETATION
SPOT FUTURE
The Objective of this analysis is to evaluate the pro t/loss position of
futures and options. This analysis is based on sample data taken 12-June-17 300.70 302.50
from Tata Motors Limited. The lot size of Tata Motors is 2000, the 13-June-17 301.35 307.00
time period in which this analysis done is from 02-06-2017 to 27- 16-June-17 309.75 310.10
06-2017. 17-June-17 319.25 318.00
18-June-17 316.65 316.70
Table 1 Spot and Future Prices from02nd Juneto07th June 2017 Graph 3
TATA MOTORS LIMITED
DATE(1) PRICE(2)
SPOT FUTURE
2-June-17 276.80 280.00
3- June -17 281.25 283.20
7- June -17 278.55 280.06
Graph 1
Interpretation
Ÿ The above table shows that opening and closing prices of Tata
Motors Ltd during the week (from 12thJune to 18thJune).
Ÿ The spot market of Tata Motors Ltd opened its price with
Rs.300.70 and it increased to Rs.319.25 and nally it closed at
Rs.316.65.
Ÿ The future market of Tata Motors Ltd opened its price with
Interpretation Rs.302.50 and it increased to Rs.318.00 and nally it closed at
Ÿ The above table shows that opening and closing prices of Tata Rs.316.70.
Motors Ltd during the three days (from 02ndJune to 07thJune). Ÿ During this week Tata Motors Ltd showed positive sign in the
Ÿ The spot market of Tata Motors Ltd opened its price with market.
Rs.276.80 and it increased to Rs.281.25 and nally it closed at
Rs.278.55. Table 4 Spot and Future Prices from19th Juneto25th June 2017
Ÿ The future market of Tata Motors Ltd opened its price with TATA MOTORS LIMITED
Rs.280.00 and it increased to Rs.283.20 and nally it closed at DATE(1) PRICE(2)
Rs.280.05.
SPOT FUTURE
Ÿ During this week Tata Motors Ltdshowed positive sign in the
19-June-17 309.75 310.95
market.
20-June-17 311.85 312.35
23-June-17 313.95 313.05
Table 2 Spot and Future Prices from 05thJuneto11th June 2017
27-June-17 312.10 310.95
TATA MOTORS LIMITED 25-June-17 312.65 310.25
DATE(1) PRICE(2)
Graph 4
SPOT FUTURE
05- June -17 275.6 276.65
06- June -17 283.75 285.25
09- June -17 283.05 283.65
10- June -17 286.20 286.95
11- June -17 289.30 290.75
Graph 2

Interpretation
Ÿ The above table shows that opening and closing prices of Tata
Motors Ltd during the week (from 19th June to 25th June).
Ÿ The spot market of Tata Motors Ltd opened its price with
Rs.309.75 and it increased to Rs.313.95 and nally it closed at
Rs.312.65.
Ÿ The future market of Tata Motors Ltd opened its price with
Interpretation Rs.310.95 and it increased to Rs.313.05 and nally it closed at
Ÿ The above table shows that opening and closing prices of Tata Rs.310.25.
Motors Ltd during the week (from 05thJune to 11thJune). Ÿ During this week Tata Motors Ltd showed positive sign in the
Ÿ The spot market of Tata Motors Ltd opened its price with market.
Rs.275.60 and it increased to Rs.289.30 and nally it closed at
Rs.289.30. Table 5 Spot and Future Prices from 26th June to27th June 2017
Ÿ The future market of Tata Motors Ltd opened its price with TATA MOTORS LIMITED
Rs.276.65 and it increased to Rs.290.75 and nally it closed at DATE(1) PRICE(2)
Rs.290.75. SPOT FUTURE
Ÿ During this week Tata Motors Ltd showed positive sign in the 26-June-17 313.10 312.75
market. 27-June-17 316.55 317.15

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 VOLUME-7, ISSUE-4, APRIL-2018 • ISSN No 2277 - 8160 IF : 5.156 | IC Value : 85.78
Graph 5 Graph 6

Interpretation
Ÿ The above table shows that opening and closing prices of Tata INTERPRETATION
Motors Ltd during the two days of last week. (from 26th June to Ÿ The above table shows that call option and put option on spot
27th June) price of Tata Motors Ltd, during the three days. That is from
Ÿ The spot market of Tata Motors Ltd opened its price with 02ndJune to 07thJune. The above call option explains thata
Rs.313.10 and it increased to Rs.316.55 and nally it closed at majority of investors are interested to buy the stock where strike
Rs.316.55. price is greater than current market price. e.g: at 300 strike price
Ÿ The future market of Tata Motors Ltd opened its price with premium is decreased from Rs.8.65 to Rs.8.10 similarly at 320
Rs.312.75 and it increased to Rs.317.15 and nally it closed at and 370 strike prices premiums also decreased. The above put
Rs.317.15. option shows that a majority of investors are interested to sell
Ÿ During this week Tata Motors Ltd showed positive sign in the the stock where strike price is greater than current market price.
market. e.g: at 300 strike price premium is decreased from Rs.28.00 to
26.3 similarly at 280 and 260 strike prices premiums also
Table 6 decreased.
Ÿ The above table shows that call option and put option on spot
Tata Motors Limited (Options) Call Option and Put Option price of Tata Motors Ltd, during the week. That is from 05th June
Prices from 02nd June to 07th June 2017 to 11thJune. The above call option explains that a majority of
Call Option(2) Put Option (3) investors are interested to buy the stock where strike price is
Spot Price(1) greater than current market price. e.g: at 300 strike price
300 320 370 300 280 260
premium is increased from Rs.6.75 to Rs.12.55, similarly at 320
276.80 8.65 5.30 2.60 28.00 16.15 7.90
and 370 strike prices also increased. The above put option
281.25 9.30 6.05 2.95 25.15 17.15 6.70 shows that a majority of investors are interested to sell the stock
278.55 8.10 5.00 2.35 26.3 17.65 7.25 where strike price is greater than current market price. e.g: at
Tata Motors Limited (Options) Call Option And Put Option 300 strike price premium is decreased from Rs.27.55 to 18.50
Prices From 05th June To 11th June 2017 similarly at 280 and 260 strike prices premiums also decreased.
Call Option(2) Put Option(3) Ÿ The above table shows that call option and put option on spot
Spot Price(1) price of Tata Motors Ltd, during the week. That is from 12th June
300 320 370 300 280 260
to 18th June. The above call option explains that a majority of
275.60 6.75 2.80 1.5 27.55 15.2 8.30 investors are interested to buy the stock where strike price is less
283.75 9.70 7.25 2.60 22.95 13.70 5.55 than current market price also. e.g: at 300 strike price premium is
283.05 9.05 7.90 2.15 22.80 17.35 6.50 increased from Rs.17.50 to Rs.27.75, similarly at 320 and 370
286.20 9.85 5.30 2.30 20.60 11.10 7.05 strike prices also increased. The above put option shows that a
289.30 12.55 7.60 2.75 18.50 10.50 7.05 majority of investors are interested to sell the stock where strike
price is less than current market price. e.g: at 300 strike price
Tata Motors Limited (Options) Call Option And Put Option premium is decreased from Rs.17.90 to 7.65 similarly at 280 and
Prices From 12th June To 18th June 2017 260 strike prices premiums also decreased.
Spot Price Call Option(2) Put Option(3) Ÿ The above table shows that call option and put option on spot
(1) 300 320 370 300 280 260 price of Tata Motors Ltd, during the week i.e from 19th June to 25th
300.70 17.50 9.25 7.35 17.90 7.15 3.10 June. The above call option explains that a majority of investors
are interested to sell the stock where strike price is less than
301.35 17.10 8.70 7.00 17.15 6.60 2.55
current market price also. e.g: at 300 strike price premium is
309.75 20.65 10.60 5.15 10.70 7.85 2.00 decreased from Rs.20.00 to Rs.17.55, similarly at 320 and 370
319.25 26.00 13.80 6.70 8.05 3.50 1.35 strike prices also decreased, because settlement date happened
316.65 27.75 12.90 6.20 7.65 3.10 1.25 in this week. The above put option shows that a majority of
Tata Motors Limited (Options) Call Option And Put Option investors are interested to sell the stock where strike price is less
Prices From 19th June To 25th June 2017 than current market price. e.g: at 300 strike price premium is
decreased from Rs.9.15 to 7.50 similarly at 280 and 260 strike
Call Option(2) Put Option(3)
Spot Price(1) prices premiums also decreased.
300 320 370 300 280 260 Ÿ The above table shows that call option and put option on spot
309.75 20.00 10.35 7.65 9.15 3.85 1.50 price of Tata Motors Ltd, during the week i.e from 26th June to 27th
311.85 20.75 10.20 7.70 3.20 8.35 1.30 June. The above call option explains that a majority of investors
313.95 21.05 10.5 7.30 7.70 2.95 1.00 are interested to buy the stock where strike price is less than
312.10 18.05 8.35 3.20 7.65 2.50 1.05 current market price also. e.g: at 300 strike price premium is
increased from Rs.19.85 to Rs.22.15, similarly at 320 and 370
312.65 17.55 7.70 2.80 7.50 2.60 0.85
strike prices also increased. The above put option shows that a
Tata Motors Limited (Options) Call Option And Put Option majority of investors are interested to sell the stock where strike
Prices From 26th June To 27th June 2017 price is less than current market price. e.g: at 300 strike price
Call Option(2) Put Option(3) premium is decreased from Rs.6.90 to 5.25 similarly at 280 and
Spot Price(1) 260 strike prices premiums also decreased.
300 320 370 300 280 260
313.10 19.85 8.70 3.20 6.90 2.30 0.85
4. SUGGESTIONS
316.55 22.15 9.95 3.70 5.25 1.75 0.60

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 VOLUME-7, ISSUE-4, APRIL-2018 • ISSN No 2277 - 8160 IF : 5.156 | IC Value : 85.78
Ÿ In the stock market when compared with, equity derivatives are
more pro table with less risk.
Ÿ In the equity market for the buying of shares, the investor has to
pay full amount but in the futures and options just he will pay
margins and premiums.
Ÿ If the investors short their shares in equity market, he has to
buyback on the day itself but in the futures and options there is a
period of 1 month to 3months contract.
Ÿ If the stock is going down, the investor will go for put option and
gets pro ts on that and similarly if stock is going up, he will go
for call option and gets pro ts on that.

5. CONCLUSION
Options, like futures, are also derivatives. An option is a legal
contract, which gives the holder the right to buy or sell the
underlying asset, at a speci ed price, on a speci ed date. Although it
gives the holder the right to buy or sell the underlying asset, he is not
obligated to do so. This is the basic difference between option and
futures. Derivatives Market has a signi cant role to play in the
economic expansion of a country. The objective of the study is to
examine the impact of nancial derivatives (futures and options) on
the underlying market volatility. From the above ndings it is
concluded that the Tata Motors Ltd. stock performance in spot
market and futures market is increased. The call options are
increased and put options are decreased over a period of one month
i.e. from 02nd June to 27th June 2017.It shows a positive sign in the
market. Now days, the investors know about the derivatives market
so they are attentive. As derivatives market offers more return, with
the prevarication of interest rate risk and swap over rate risk with
maximum pro ts and minimum loss. It has been noticed that there
has been attentiveness about derivatives trading amongst the
investors in India since last a few years.

6. REFERENCES
1. Asanna Chandra, (2008), “ nancial management”, Tata Mc Grew-hill publishing
company ltd. New Delhi.
2. Derivatives dealers’ module work book-Ncfm, 2017 India ltd.
3. Gifford Gomez, (2008) “ nancial markets, institutions and nancial services”, prentice
hall India ltd. New Delhi.
4. Vohra B R Badri, (2007), “futures and options”, Tata Mc Grew-hill publishing company
ltd. New Delhi.
5. Prakash Yalavatti. (2015, October) A Study on Strategic Growth in Indian Financial
Derivatives Market. International Journal of Recent Scienti cs Research, 6(10)
6. Dr. (Mrs.) KamleshGakhar; Ms. Meetu. (2013, March). Derivatives Market In India:
Evolution, Trading. International Journal of Marketing, Financial Services &
Management Research, 2, 38-50.
7. Bodla, B. S. and Jindal, K. (2008), ‘Equity Derivatives in India: Growth Pattern and
Trading Volume Effects’, The Icfai Journal of Derivatives Markets, Vol. V, No. 1, pp.62-82.
8. Kaur, P.(2004), ‘Financial derivatives: Potential of derivative market in India and
emerging derivatives market structure in India’
9. MisraDheeraj and MisraSangeeta D (2005), ‘Growth of Derivatives in the Indian Stock
Market: Hedging v/s Speculation’, The Indian Journal of Economics, Vol. LXXXV, No.
340.
10. Reddy, Y. V. and Sebastin, A. (2008), ‘Interaction between Equity and Derivatives
Markets in India: An Entropy Approach’, The Icfai Journal of Derivatives Markets, Vol. V,
No.1, pp.18-32.

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