A STUDY ON FINANCIAL DERIVATIVES (FUTURES AND OPTIONS) IN INFRASTRUCTURE SECTOR

Abstract

“The emergence of the market for derivatives products, most notably forwards, futures and options, can be traced back to the willingness of risk-averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices.” Derivatives are risk management instruments, which derive their value from an underlying asset. Prices in an organized derivatives market reflect the perception of market participants about the future and lead the price of underlying to the perceived future level. “In recent times the derivative markets have gained importance in terms of their vital role in the economy. The increasing investments in stocks (domestic as well as overseas) have attracted my interest in this area. Numerous studies on the effects of futures and options listing on the underlying cash market volatility have been done in the developed markets.” Derivatives are mostly used for hedging purpose. In this segment, the investor enjoys huge profits with limited downside. Also, since infrastructure growth is directly correlated with improvement in the economy and with the Government’s initiative of 100 smart cities being planned, we will need solid infrastructure development including housing, roads, highways and IT infra across the country. So as we see India’s economic activities picking up, the infrastructure sector will be the early beneficiary apart from capital goods, power, IT. Thus, from an investment point of view, this sector seems to gain the most and investors might be watching out for these stocks.