CHAPTER-1

INTRODUCTION

A mechanism that allows trade is called a market. The original form of trade was
barter, the direct exchange of goods and services. Modern traders instead, generally
negotiate through a medium of exchange, such as money. As a result, buying can be
separated from selling, or earning. The invention of money (and later credit, paper money
and non-physical money) greatly simplified and promoted trade. Trade between two
traders is called bilateral trade, while trade between more than two traders is called
multilateral trade. Trade exists for many reasons. Due to specialization and division of
labor, most people concentrate on a small aspect of production, trading for other products.
Trade exists between regions because different regions have a comparative advantage in
the production of some tradable commodity, or because different regions' size allows for
the benefits of mass production. As such, trade at market prices between locations
benefits both locations. Trading can also refer to the action performed by traders and
other market agents in the financial markets.

The only stock exchange operating in the 19th century were those of Bombay set up in
1875 and Ahmedabad set up in 1894 these were organized as voluntary non-profit making
organization of brokers to regulate and protect interest. Before the control insecurities
trading became a central subject under the constitution in 1950, it was a state subject and
the Bombay securities contract (CONTROL) Act of 1952 used to regulate trade in
securities. Under this act, the Bombay stock exchange in 1927 and Ahmedabad in
1937.During the war boom, a number of stock exchanges were organized in Bombay,
Ahmedabad and other centers, but they were not recognized. Soon after it became a
central subject, central legislation was proposed and a committee headed by A.D.
Gorwala went in to the bill for securities regulation. On the basis of committee’s
recommendations and public discussions the securities contracts (regulations) Act
became law in 1956.
1
 DEBT INSTRUMENT
What is a ‘Debt Instrument’?
Debt instrument represents a contract whereby one party lends money to another on pre-
determined terms with regards to rate and periodicity of interest, repayment of principal
amount by the borrower to the lender. In the Indian securities markets, the term ‘bond’ is
used for debt instruments issued by the Central and State governments and public sector
organizations and the term ‘debenture’ is used for instruments issued by private corporate

What are the features of debt instruments?

Each debt instrument has three features: Maturity, coupon and principal.
Maturity:
Maturity of a bond refers to the date, on which the Bond matures, which is the date on
which the borrower has agreed to repay the principal. Term-to-Maturity refers to the
number of years remaining for the bond to mature. The Term-to-Maturity changes
everyday, from date of issue of the bond until its maturity. The term to maturity of a bond
can be calculated on any date, as the distance between such a date and the date of
maturity. It is also called the term or the tenure of the bond.
Coupon:
Coupon refers to the periodic interest payments that are made by the borrower (who is
also the issuer of the bond) to the lender (the subscriber of the bond). Coupon rate is the
rate at which interest is paid, and is usually represented as a percentage of the par value
of a bond.

Principal:
Principal is the amount that has been borrowed, and is also called the par value or face
value of the bond. The coupon is the product of the principal and the coupon rate. The
name of the bond itself conveys the key features of a bond. For example, GS CG2008
11.40% bond refers to a Central Government bond maturing in the year 2008 and paying

2
a coupon of 11.40%. Since Central Government bonds have a face value of Rs.100 and
normally pay coupon semi-annually, this bond will pay Rs. 5.70 as six- monthly coupon,
until maturity.

What is meant by ‘Interest’ payable by a debenture or a bond?

Interest is the amount paid by the borrower (the company) to the lender (the debenture-
holder) for borrowing the amount for a specific period of time. The interest may be paid
annual, semi-annually, quarterly or monthly and is paid usually on the face value (the
value printed on the bond certificate) of the bond.
What are the Segments in the Debt Market in India?
There are three main segments in the debt markets in India,
viz.,
(1) Government Securities,
(2) Public Sector Units (PSU) bonds, and
(3) Corporate securities.
The market for Government Securities comprises the Centre, State and State-sponsored
securities. In the recent past, local bodies such as municipalities have also begun to tap
the debt markets for funds. Some of the PSU bonds are tax free, while most bonds
including government securities are not tax-free. Corporate bond markets comprise of
commercial paper and bonds. These bonds typically are structured to suit the
requirements of investors and the issuing corporate, and include a variety of tailor- made
features with respect to interest payments and redemption.

Who are the Participants in the Debt Market?

Given the large size of the trades, Debt market is predominantly a wholesale market, with
dominant institutional investor participation. The investors in the debt markets are mainly
banks, financial institutions, mutual funds, provident funds, insurance companies and
corporates.

3
How can one acquire securities in the debt market?
You may subscribe to issues made by the government corporates in the primary market.
Alternatively ,you may purchase the same from the secondary market through the stock
exchanges.

DERIVATIVE
What is a Derivative?
Derivative is a product whose value is derived from the value of one or more basic
variables, called underlying. The underlying asset can be equity, index, foreign exchange
(forex), commodity or any other asset. Derivative products initially emerged as hedging
devices against fluctuations in commodity prices and commodity-linked derivatives
remained the sole form such products for almost three hundred years. The financial
derivatives came into spotlight in post-1970 period due to growing instability in the
financial markets. However, since their emergence, these products have become very
popular and by 1990s, they accounted for about two thirds of total transactions in
derivative products.

What are Types of Derivatives?

Forwards:
A forward contract is a customized contract between two entities, where settlement takes
place on a specific date in the future at today’s pre-agreed price.
Futures:
A futures contract is an agreement between two parties to buy Or sell an asset at a certain
time in the future at a certain price.
Options:
An Option is a contract which gives the right, but not an obligation, to buy or sell the
underlying at a stated date and at a stated price.

4
Options are of two types - Calls and Puts options:
‘Calls’ give the buyer the right but not the obligation to buy a given quantity of the
underlying asset, at a given price on or before a given future date.
‘Puts’ give the buyer the right, but not the obligation to sell a Given quantity of
underlying asset at a given price on or before a given future date. Presently, at NSE
futures and options are traded on the Nifty, CNX IT, BANK Nifty and 118 single stocks.

Warrants:
Options generally have lives of up to one year. The majority of options traded on
exchanges have maximum maturity of nine months. Longer dated options are called
Warrants and are generally traded over-the counter.

What is an ‘Option Premium’?

At the time of buying an option contract, the buyer has to pay premium. The premium is
the price for acquiring the right to buy or sell. It is price paid by the option buyer to the
option seller for acquiring the right to buy or sell. Option premiums are always paid
upfront.

What is ‘Commodity Exchange’?

A Commodity Exchange is an association, or a company of any other body corporate
organizing futures trading in commodities. In a wider sense, it is taken to include any
organized market place where trade is routed through one mechanism, allowing effective
competition among buyers and among sellers – this would include auction-type
exchanges, but not wholesale markets, where trade islocalized, but effectively takes place
through many non-related individual transactions between different permutations of
buyers and sellers.

5
What is meant by ‘Commodity’?
FCRA Forward Contracts (Regulation) Act, 1952 defines “goods” as “every kind of
movable property other than actionable claims, money and securities”. Futures’ trading is
organized in such goods or commodities as are permitted by the Central Government. At
present, all goods and products of agricultural (including plantation), mineral and fossil
origin are allowed for futures trading under the auspices of the commodity exchanges
recognized under the FCRA.

What is Commodity derivatives market?

Commodity derivatives market trade contracts for which the Underlying asset is
commodity. It can be an agricultural commodity like wheat, soybeans, rapeseed, cotton,
etc or precious metals like gold, silver, etc.

What is the difference between Commodity and Financial derivatives?

The basic concept of a derivative contract remains the same whether the underlying
happens to be a commodity or a financial asset. However there are some features which
are very peculiar to commodity derivative markets. In the case of financial derivatives,
most of these contracts are cash settled. Even in the case of physical settlement, financial
assets are not bulky and do not need special facility for storage. Due to the bulky nature
of the underlying assets, physical settlement in commodity derivatives creates the need
for warehousing. Similarly, the concept of varying quality of asset does not really exist as
far as financial under lying are concerned. However in the case of commodities, the
quality of the asset underlying a contract can vary at times.

What is a Mutual Fund?

A Mutual Fund is a body corporate registered with SEBI (Securities Exchange Board of
India) that pools money from individuals/corporate investors and invests the same in a
variety of different financial instruments or securities such as equity shares, Government

6
securities, Bonds, debentures etc. Mutual funds can thus be considered as financial
intermediaries in the investment business that collect funds from the public and invest on
behalf of the investors. Mutual funds issue units to the investors. The appreciation of the
portfolio or securities in which the mutual fund has invested the money leads to an
appreciation in the value of the units held by investors. The investment objectives
outlined by a Mutual Fund in its prospectus are binding on the Mutual Fund scheme. The
investment objectives specify the class of securities a Mutual Fund can invest in. Mutual
Funds invest in various asset classes like equity, bonds, debentures, commercial paper
and government securities.

SCOPE OF THE PROJECT

 ‘Investor can assess the company financial strength and factors that effect the
company. Scope of the study is limited. We can say that 70% of the analysis is
proved good for the investor, but the 30% depends upon market sentiment.

 The topic is selected to analyses the factors that affect the future EPS of a
company based on fundamentals of the company.

 The market standing of the company studied in the order to give a better scope to
the Analysis is helpful to the investors, share holders, creditors for the rating of the
company.

OBJECTIVES OF THE PROJECT

 To study the nature and structure Indian stock market analysis.

 To know the functioning of Inida Infoline Ltd.

 To perform the equity analysis.

7
  To provide the way of approach for the investor to invest wisely in the market.

 The purpose of doing this project is mainly to the facts - that affects the company
performance.

 To assess the future EPS of the company.

METHODOLOGY

SECONDARY SOURCE:

 I referred EQUITY related articles from various magazines, newspapers and

journals. Material provided by Inida Infoline Ltd

 Browsing the concerned sites.

 The collected data was analyzed by using graphs relative rating methods.

We did a sample survey for to find how many people aware of equity and how many
people invested in equity market.

LIMITATIONS OF THE PROJECT

 Time constraint was a major limiting factor.

 Forty five days were insufficient to even grasp the theoretical concepts.
 Several other strategies that could have been studied were not done.
 Lack of knowledge with the brokers.
 Difference of theory from practice.
 Absence of required knowledge and technology.

8
 CHAPTER-II
REVIEW OF LITERATURE

 F IN A N C IA L MA R K E T S :

DEFINITION:

THE TERM FINANCIAL MARKETS CAN BE A CAUSE OF MUCH CONFUSION. FINANCIAL

MARKETS COULD MEAN:

1. Organizations that facilitate the trade in financial products. i.e. Stock exchanges
facilitate the trade in stocks, bonds and warrants.

2. The coming together of buyers and sellers to trade financial products. i.e. stocks and
shares are traded between buyers and sellers in a number of ways including: The use of
stock exchanges; directly between buyers and sellers etc. In academia, students of finance
will use both meanings but students of economics will only use the second meaning.
Financial markets can be domestic or they can be international.

TYPES OF FINANCIAL MARKETS

The financial markets can be divided into different subtypes:

Capital markets which consist of:

 Stock markets, which provide financing through the issuance of shares or common
stock, and enable the subsequent trading thereof. Bond markets, which provide
financing through the issuance of Bonds, and enable the subsequent trading
thereof.

9
  Commodity markets, which facilitate the trading of commodities. Money markets,
which provide short term debt financing and investment.
 Derivatives markets, which provide instruments for the management of financial
risk. Futures markets, which provide standardized forward contracts for trading
products at some future date; see also forward market.
 Insurance markets, which facilitate the redistribution of various risks.
 Foreign exchange markets, which facilitate the trading of foreign exchange

Capital market

The capital market is the market for securities, where companies and the government can
raise long-term funds. The capital market includes the stock market and the bond market.
Financial regulators, such as the U.S. Securities and Exchange Commission, oversee the
capital markets in their designated countries to ensure that investors are protected against
fraud. The capital markets consist of the primary market, where new issues are distributed
to investors, and the secondary market, where existing securities are traded.

The capital markets consist of primary markets and secondary markets. Newly formed
(issued) securities are bought or sold in primary markets. Secondary markets allow
investors to sell securities that they hold or buy existing securities.

10
 SHARE

What is share?

In finance a share is a unit of account for various financial instruments including

stocks, mutual funds, limited partnerships, and REIT’s. In British English, the usage of
the word share alone to refer solely to stocks is so common that it almost replaces the
word stock itself .In simple Words, a share or stock is a document issued by a company,
which entitles its holder to be one of the owners of the company. A share is issued by a
company or can be purchased from the stock market. By owning a share you can earn a
portion and selling shares you get capital gain. So, your return is the dividend plus the
capital gain. However, you also run a risk of making a capital loss if you have sold the
share at a price below your buying price.

A company's stock price reflects what investors think about the stock, not necessarily what
the company is "worth." For example, companies that are growing quickly often trade at a higher
price than the company might currently be "worth." Stock prices are also affected by all forms of
company and market news. Publicly traded companies are required to report quarterly on their
financial status and earnings. Market forces and general investor opinions can also affect share
price.

Types of Shares:

1. Equity Shares: An equity share, commonly referred to as ordinary share, represents the
form of fractional ownership in a business venture.

What is an ‘Equity’/Share?

11
Total equity capital of a company is divided into equal units of Small denominations,
each called a share. For example, in a company the total equity capital of Rs 2,00,00,000
is divided into 20,00,000 units of Rs 10 each. Each such unit of Rs 10 is called a Share.
Thus, the company then is said to have 20,00,000 equity shares of Rs 10 each. The
holders of such shares are members of the company and have voting rights.

2. Rights Issue/ Rights Shares:

The issue of new securities to existing shareholders at a ratio to those already held, at a
price. For e.g. a 2:3 rights issue at Rs. 125, would entitle a shareholder to receive 2 shares
for every 3 shares held at a price of Rs. 125 per share.

3. Bonus Shares:
Shares issued by the companies to their shareholders free of cost based on the number of
shares the shareholder owns.

4.Preference shares:
Owners of these kind of shares are entitled to a fixed dividend or dividend calculated at a
fixed rate to be paid regularly before dividend can be paid in respect of equity share.
They also enjoy priority over the equity shareholders in payment of surplus. But in the
event of liquidation, their claims rank below the claims of the company’s creditors,
bondholders/debenture holders. Shares of a firm that encompass preferential rights over
ordinary common shares, such as the first right to dividends and any capital payments.
5.Cummulative Preference Shares:
A type of preference shares on which dividend accumulates if remained unpaid. All
arrears of preference dividend have to be paid out before paying dividend on equity
shares.

6.Cummulative Convertible Preference Shares:

12
A type of preference shares where the dividend payable on the same accumulates, if not
paid. After a specified date, these shares will be converted into equity capital of the
company.
7. Bond:
Bond is a negotiable certificate evidencing indebtedness. It is normally unsecured. A debt
security is generally issued by a company, municipality or government agency. A bond
investor lends money to the issuer and in exchange, the issuer promises to repay the loan
amount on a specified maturity date. The issuer usually pays the bond holder periodic
interest payments over the life of the loan. The various types of Bonds are as Follows:

 Zero Coupon Bond:

Bond issued at a discount and repaid at a face value. No periodic interest is paid. The
difference between the issue price and redemption price represents the return to the
holder. The buyer of these bonds receives only one payment, at the maturity of the bond.

 Convertible Bond:
A bond giving the investor the option to convert the bond in to equity at a fixed
conversion price.

 Treasury Bills:
Short-term (up to one year) bearer discount security issued by government as a means of
financing their cash requirements.

Dividends
If you've ever owned stocks or held certain other types of investments, you might already

be familiar with the concept of dividends. Even those people who have made investments

that paid dividends may still be a little confused as to exactly what dividends are,

13
however… after all, just because a person has received a dividend payment doesn't mean

that they fully appreciate where the payment is coming from and what its purpose is. If

you have ever found yourself wondering exactly what dividends are and why they're

issued, then the information below might just be what you've been looking for.

Defining the Dividend

Dividends are payments made by companies to their stock holders in order to share a
portion of the profits from a particular quarter or year. The amount that any particular
stockholder receives is dependent upon how many shares of stock they own and how
much the total amount being divided up among the stockholders amounts to. This means
that after a particularly profitable quarter a company might set aside a lump sum to be
divided up amongst all of their stockholders, though each individual share might be worth
only a very small amount potentially fractions of a cent, depending upon the total number
of shares issued and the total amount being divided. Individuals who own large amounts
of stock receive much more from the dividends than those who own only a little, but the
total per-share amount is usually the same.

When Dividends Are Paid

How often dividends are paid can vary from one company to the next, but in general they
are paid whenever the company reports a profit. Since most companies are required to
report their profits or losses quarterly, this means that most of them have the potential to
pay dividends up to four times each year. Some companies pay dividends more often than
this, however, and others may pay only once per year. The more time there is between
dividend payments can indicate financial and profit problems within a company, but if the
company simply chooses to pay all of their dividends at once it may also lead to higher
per-share payments on those dividends.

14
 DEBT INSTRUMENT
What is a ‘Debt Instrument’?
Debt instrument represents a contract whereby one party lends money to another on pre-
determined terms with regards to rate and periodicity of interest, repayment of principal
amount by the borrower to the lender. In the Indian securities markets, the term ‘bond’ is
used for debt instruments issued by the Central and State governments and public sector
organizations and the term ‘debenture’ is used for instruments issued by private corporate

What are the features of debt instruments?

Each debt instrument has three features: Maturity, coupon and principal.
Maturity:
Maturity of a bond refers to the date, on which the Bond matures, which is the date on
which the borrower has agreed to repay the principal. Term-to-Maturity refers to the
number of years remaining for the bond to mature. The Term-to-Maturity changes
everyday, from date of issue of the bond until its maturity. The term to maturity of a bond
can be calculated on any date, as the distance between such a date and the date of
maturity. It is also called the term or the tenure of the bond.
Coupon:
Coupon refers to the periodic interest payments that are made by the borrower (who is
also the issuer of the bond) to the lender (the subscriber of the bond). Coupon rate is the
rate at which interest is paid, and is usually represented as a percentage of the par value
of a bond.

Principal:
Principal is the amount that has been borrowed, and is also called the par value or face
value of the bond. The coupon is the product of the principal and the coupon rate. The
name of the bond itself conveys the key features of a bond. For example, GS CG2008
11.40% bond refers to a Central Government bond maturing in the year 2008 and paying

15
a coupon of 11.40%. Since Central Government bonds have a face value of Rs.100 and
normally pay coupon semi-annually, this bond will pay Rs. 5.70 as six- monthly coupon,
until maturity.

What is meant by ‘Interest’ payable by a debenture or a bond?

Interest is the amount paid by the borrower (the company) to the lender (the debenture-
holder) for borrowing the amount for a specific period of time. The interest may be paid
annual, semi-annually, quarterly or monthly and is paid usually on the face value (the
value printed on the bond certificate) of the bond.
What are the Segments in the Debt Market in India?
There are three main segments in the debt markets in India,
viz.,
(1) Government Securities,
(2) Public Sector Units (PSU) bonds, and
(3) Corporate securities.
The market for Government Securities comprises the Centre, State and State-sponsored
securities. In the recent past, local bodies such as municipalities have also begun to tap
the debt markets for funds. Some of the PSU bonds are tax free, while most bonds
including government securities are not tax-free. Corporate bond markets comprise of
commercial paper and bonds. These bonds typically are structured to suit the
requirements of investors and the issuing corporate, and include a variety of tailor- made
features with respect to interest payments and redemption.

Who are the Participants in the Debt Market?

Given the large size of the trades, Debt market is predominantly a wholesale market, with
dominant institutional investor participation. The investors in the debt markets are mainly
banks, financial institutions, mutual funds, provident funds, insurance companies and
corporates.

16
How can one acquire securities in the debt market?
You may subscribe to issues made by the government corporates in the primary market.
Alternatively ,you may purchase the same from the secondary market through the stock
exchanges.

DERIVATIVE
What is a Derivative?
Derivative is a product whose value is derived from the value of one or more basic
variables, called underlying. The underlying asset can be equity, index, foreign exchange
(forex), commodity or any other asset. Derivative products initially emerged as hedging
devices against fluctuations in commodity prices and commodity-linked derivatives
remained the sole form such products for almost three hundred years. The financial
derivatives came into spotlight in post-1970 period due to growing instability in the
financial markets. However, since their emergence, these products have become very
popular and by 1990s, they accounted for about two thirds of total transactions in
derivative products.

What are Types of Derivatives?

Forwards:
A forward contract is a customized contract between two entities, where settlement takes
place on a specific date in the future at today’s pre-agreed price.
Futures:
A futures contract is an agreement between two parties to buy Or sell an asset at a certain
time in the future at a certain price.
Options:
An Option is a contract which gives the right, but not an obligation, to buy or sell the
underlying at a stated date and at a stated price.

17
Options are of two types - Calls and Puts options:
‘Calls’ give the buyer the right but not the obligation to buy a given quantity of the
underlying asset, at a given price on or before a given future date.
‘Puts’ give the buyer the right, but not the obligation to sell a Given quantity of
underlying asset at a given price on or before a given future date. Presently, at NSE
futures and options are traded on the Nifty, CNX IT, BANK Nifty and 118 single stocks.

Warrants:
Options generally have lives of up to one year. The majority of options traded on
exchanges have maximum maturity of nine months. Longer dated options are called
Warrants and are generally traded over-the counter.

What is an ‘Option Premium’?

At the time of buying an option contract, the buyer has to pay premium. The premium is
the price for acquiring the right to buy or sell. It is price paid by the option buyer to the
option seller for acquiring the right to buy or sell. Option premiums are always paid
upfront.

What is ‘Commodity Exchange’?

A Commodity Exchange is an association, or a company of any other body corporate
organizing futures trading in commodities. In a wider sense, it is taken to include any
organized market place where trade is routed through one mechanism, allowing effective
competition among buyers and among sellers – this would include auction-type
exchanges, but not wholesale markets, where trade islocalized, but effectively takes place
through many non-related individual transactions between different permutations of
buyers and sellers.

18
What is meant by ‘Commodity’?
FCRA Forward Contracts (Regulation) Act, 1952 defines “goods” as “every kind of
movable property other than actionable claims, money and securities”. Futures’ trading is
organized in such goods or commodities as are permitted by the Central Government. At
present, all goods and products of agricultural (including plantation), mineral and fossil
origin are allowed for futures trading under the auspices of the commodity exchanges
recognized under the FCRA.

What is Commodity derivatives market?

Commodity derivatives market trade contracts for which the Underlying asset is
commodity. It can be an agricultural commodity like wheat, soybeans, rapeseed, cotton,
etc or precious metals like gold, silver, etc.

What is the difference between Commodity and Financial derivatives?

The basic concept of a derivative contract remains the same whether the underlying
happens to be a commodity or a financial asset. However there are some features which
are very peculiar to commodity derivative markets. In the case of financial derivatives,
most of these contracts are cash settled. Even in the case of physical settlement, financial
assets are not bulky and do not need special facility for storage. Due to the bulky nature
of the underlying assets, physical settlement in commodity derivatives creates the need
for warehousing. Similarly, the concept of varying quality of asset does not really exist as
far as financial under lying are concerned. However in the case of commodities, the
quality of the asset underlying a contract can vary at times.

What is a Mutual Fund?

A Mutual Fund is a body corporate registered with SEBI (Securities Exchange Board of
India) that pools money from individuals/corporate investors and invests the same in a
variety of different financial instruments or securities such as equity shares, Government

19
securities, Bonds, debentures etc. Mutual funds can thus be considered as financial
intermediaries in the investment business that collect funds from the public and invest on
behalf of the investors. Mutual funds issue units to the investors. The appreciation of the
portfolio or securities in which the mutual fund has invested the money leads to an
appreciation in the value of the units held by investors. The investment objectives
outlined by a Mutual Fund in its prospectus are binding on the Mutual Fund scheme. The
investment objectives specify the class of securities a Mutual Fund can invest in. Mutual
Funds invest in various asset classes like equity, bonds, debentures, commercial paper
and government securities.

SECURITIES

What is meant by ‘Securities’?

The definition of ‘Securities’ as per the Securities Contracts Regulation Act (SCRA),
1956, includes instruments such as shares, bonds, scrip’s, stocks or other marketable
securities of similar nature in or of any incorporate company or body corporate,
government securities, derivatives of securities, units of collective investment scheme,
interest and rights in securities, security receipt or any other instruments so declared by
the Central Government.

INDEX
What is an Index?
An Index shows how a specified portfolio of share prices are moving in order to give an
indication of market trends. It is a basket of securities and the average price movement of
the basket of securities indicates the index movement, whether upwards or downwards.
An index is a number used to represent the changes in a set of values between a base time
period and another time period. A stock index is a number that helps measure the levels

20
of the market. Return on the index are expected to represent return that an investor can
get if he has the portfolio representing the entire market .various indices are computed for
use by the investors. Market indices have always been of great important in the world of
security analysis and portfolio management. People from all walks of life are affected by
market indexes. Economists, technicians and statisticians use stock marker indexes to
study long term growth patterns on the economy, to forecast business cycle patterns
Investors use the market index as a bench mark against which to evaluate the
performance of the it own or institutional portfolios. Technical analysts, base their
decision to buy and sell on tha pattern that appears in tha time series of the market
indexes. Market indexes are also used as economics indicators. The various indexes that
are complied in the Indian markets
are:

A) BSE Sensitive Index :

The Bombay stock exchange had started its own price index since 1986. Called the BSE
Sensitive Index. It consists of 30 scrips which actively traded. Many of which are in
Group A (specified shares) and a few in Group B (non-specified). It represents all the
major industries quoted on the exchange and has a base-year 1978-79.

B) BSE National index:

The BSE National Index was started by the Bombay Stock Exchange in 1988-89 with the
base year 1983-84. This series consists of 100 scrips belonging to NSE sensitive series.
These 100 scrips are chosen from all industrial group which represent the listing on all
major exchanges The method of complication is similar to that of BSE sensitive Index.

21
C) BSE200 ARE Dollex:
Two other indexes are complied by BSE since 1993. With base year 1989-90. Both
include activity traded scrips. BSE 200 is in rupee terms while the Dollex is in dollar
terms.
D) S & P CNX Nifty:
It is a well diversified 50 stock index accounting for 25 sectors of the economy. It has
1995 as the base year. Unlike other indices, the base value is fixed at 1000.

E) RBI Index:
The RBI complied security indices form 1949 onwards. These were classified under the
following heads:
1 Govt. and semi-Govt. securities
2 Debentures of companies.
3 Equity shares of companies
DEMAT ACCOUNT

What's a demat account?

Demat refers to a dematerialized account. Just as you have to open an account with a

bank if you want to save your money, make cheque payments etc, you need to open a

demat account if you want to buy or sell stocks. So it is just like a bank account where

actual money is replaced by shares. You have to approach the DPs (remember, they are

like bank branches), to open your demat account. Let's say your portfolio of shares looks

like this: 40 of Infosys, 25 of Wipro, 45 of HLL and 100 of ACC. All these will show in

your demat account. So you don't have to possess any physical certificates showing that

22
you own these shares. They are all held electronically in your account. As you buy and

sell the shares, they are adjusted in your account.

What is Dematerialization?
Dematerialization is the process by which physical certificates of an investor are
converted to an equivalent number of securities in electronic form and credited to the
investor’s account with his Depository Participant (DP).

DEPOSITORY
What is a Depository?
A depository is like a bank wherein the deposits are securities (viz. shares, debentures,
bonds, government securities, units etc.) in electronic form. A depository is an
organization where the securities of a shareholder are held in the electronic from though
the medium of a depository participant The function of a depository are similar to that of
a bank. If an investor desires to utilize the services of a depository the investor has to
open an account with the depository through a depository participant. A Depository
participant is the reprehensive (agent) in the depository system. The D.P will maintain the
securities account
balances and intimate to the Holder about their holdings form time to time. SEBI has
permitted banks, financial institutions, custodies, stock brokers, etc, to become
participants in the depository. The main objective of a depository is to minimize the paper
works involved with the ownership, trading and transfer of securities. If an investor
intends to get back his securities in the physical form he can do so by requesting the
Depository participant. This is known as “Dematerialization”.

What's the difference between a depository and a depository participant?

A depository is a place where the stocks of investors are held in electronic form. The
depository has agents who are called depository participants (DPs). Think of it like a

23
bank. The head office where all the technology rests and details of all accounts held is
like the depository. And the DPs are the branches that cater to individuals. There are only
two depositories in India -- the National Securities Depository Ltd (NSDL) and the
Central Depository Services Ltd (CDSL). There are over a 100 DPs.

Is a demat account a must?

Nowadays, practically all trades have to be settled in dematerialized form. Although the
market regulator, the Securities and Exchange Board of India (SEBI), has allowed
trades of up to 500 shares to be settled in physical form, nobody wants physical shares
any more. So a demat account is a must for trading and investing. Most banks are also
DP participants, as are many brokers.

You can choose your very own DP.

To get a list, visit the NSDL and CDSL websites and see who the registered DPs are. A
broker is separate from a DP. A broker is a member of the stock exchange, who buys and
sells shares on his behalf and on behalf of his clients.

Where do I begin?

 Look for a DP to have an account with Most banks are also DP participants, as are
many brokers. You can choose your very own DP.

To get a list, visit the NSDL and CDSL websites and see who the registered DPs are.

A broker is separate from a DP. A broker is a member of the stock exchange, who buys

and sells shares on his behalf and on behalf of his clients. A DP will just give you an

account to hold those shares. You do not have to take the same DP that your broker takes.

24
You can choose your own. But many brokers offer special incentives in the form of lower

charges for opening demat accounts with their DPs.

 Get your documents in place

Once you approach your DP, you will be guided through the formalities of opening an
account. You must fill up an account opening form and sign an agreement with your DP.

The DP will ask for some documents as proof of your identity and address. Check with
them what they require. For instance, some may accept a driver's license, others may not.
Here is a broad list (you won't need all of them though)

� PAN card
� Voter's ID
� Passport
� Ration card
� Driver's license
� Photo credit card
� Employee ID card
� Bank attestation
� IT returns
� Electricity/ Landline phone bill

While they only ask for photocopies of the documents, they will need the originals for
verification. You will have to submit a passport size photograph on which you sign
across.

 How many shares you need to have to open an account When opening an account
with a bank, you need a minimum balance.

25
Not so with a demat account. A demat account can be opened with no balance of shares.
And there is no minimum balance to be maintained either. You can have a zero balance in
your account.

 What will it cost? The charges for account opening, annual account maintenance
fees and transaction charges vary between DPs. To get a comparative idea, visit
the websites of NSDL and CDSL.

 Can I nominate? Sure. You can nominate whoever you like by filling up the
nomination details in the account opening form. This is to enable the nominee to
receive the securities after the death of the holder of the demat account.

STOCK MARKET

A stock market is a private or public market for the trading of company stock and
derivatives of company stock at an agreed price; both of these are securities listed on a
stock exchange as well as those only traded privately.

Stock market is also referred to as the Corporate Debt or Capital Market. While the
money market, which deals with short-term financial needs of business and industry, is
restricted to funds needed for a period of one year or less, instruments of the debt/capital
markets are raised for medium or long term needs. Indian Stock Market consists of three
distinct segments:

1. The Public Debt Market i.e. the market for Government securities, (also called
Gilt-edged Market). These are interest bearing and dated securities. This market is
regulated by RBI, the Central Bank and Banker to the Government.

26
 2. PSU Bonds Market i.e. Bonds floated by public Sector units, Nationalized banks
and financial Institutions for raising Tier-II capital and also debentures floated by
Corporates. This is represented as the Corporate Debt Market.

3. The Equity Market for raising of equity or preference share capital by all
corporates. Money invested in company shares is not refundable, but if the shares
are listed in a stock exchange these can be sold or purchased, thus providing
liquidity to such investments. Shares do not carry interest, but shareholders can
participate in sharing the profits of the corporate body declared by way of
Dividends, bonus shares etc. While the hope of receiving attractive dividends
motivates the public to subscribe to the share capital, declaring dividend is not a
legal obligation on the part of the Companies, and hence not a right on the part of
the shareholders. But shareholders enjoy various other rights as conferred by the
Indian Companies Act, 1956. Indian Public companies generally follow the
objective of increasing shareholders wealth as the prime goal of financial
management

At this context it is relevant to mention about two categories of stock market, i.e.

 Primary Market covering new public issues of all categories of securities,

including G-sec, bonds and equity/preference capital.
 Secondary market, which deals with already issued securities of all types.
Transactions of the secondary market are carried out through one of the authorized
stocks exchanges, where the traded security is listed.

The expression 'stock market' refers to the system that enables the trading of company
stocks (collective shares), other securities, and derivatives. Bonds are still traditionally
traded in an informal, over-the-counter market known as the bond market. Commodities
are traded in commodities markets, and derivatives are traded in a variety of markets

27
Trading

Participants in the stock market range from small individual stock investors to large
hedge fund traders, who can be based anywhere. Their orders usually end up with a
professional at a stock exchange, who executes the order.Some exchanges are physical
locations where transactions are carried out on a trading floor, by a method known as
open outcry. This type of auction is used in stock exchanges and commodity exchanges
where traders may enter "verbal" bids However, buyers and sellers are electronically
matched. One or more NASDAQ market makers will always provide a bid and ask price
at which they will always purchase or sell 'their' stock. The Paris Bourse, now part of
Euronext, is an order-driven, electronic stock exchange. It was automated in the late
1980s. Prior to the 1980s, it consisted of an open outcry exchange. Stockbrokers met on
the trading floor or the Palais Brongniart. In 1986, the CATS trading system was
introduced, and the order matching process was fully automated.From time to time,
active trading (especially in large blocks of securities) have moved away from the 'active'
exchanges. Securities firms, led by UBS AG, Goldman Sachs Group Inc. and Credit
Suisse Group, already steer 12 percent of U.S. security trades away from the exchanges
to their internal systems. That share probably will increase to 18 percent by 2010 as more
investment banks bypass the NYSE and NASDAQ and pair buyers and sellers of
securities themselves, according to data compiled by Boston-based Aite Group LLC, a
brokerage-industry consultant

Market participants

Many years ago, worldwide, buyers and sellers were individual investors, such as
wealthy businessmen, with long family histories (and emotional ties) to particular
corporations. Over time, markets have become more "institutionalized"; buyers and
sellers are largely institutions (e.g., pension funds, insurance companies, mutual funds,
hedge funds, investor groups, and banks). The rise of the institutional investor has
brought with it some improvements in market operations. Thus, the government was

28
responsible for "fixed" (and exorbitant) fees being markedly reduced for the 'small'
investor.

Capital Market in India

This is the market consisting of large number of individual investors, household savers,
professionals, and agriculturists, who are able to a preserve, a part of their current
earnings to invest in securities. They form the class of capital providers. On the other side
the corporate bodies engaged in Industry, trade and other business ventures are the
productive users of very large amount of capital. It is the capital market that transforms
the savings of large number of individuals to productive channel to meet the demands of
capital for Industry, trade and business. The financial/security market intermediaries
serve as the link between capital providers and capital seekers.

The individual savers are not organised. They can invest if they could secure the trust and
confidence that the funds invested would be prudently employed and they could
confidently expect to get a fair return/reward on their hard-earned savings. This is the
function of organised capital market to regulate market forces to ensure fair dealings, to
motivate savings on the part of the investors and to secure smooth flow of savings/capital
from investors to capital seekers for productive needs. This supervisory and regulatory
function is performed by SEBI, the market regulator and market developer

The capital market consists of the following components:

 The scattered investors, who are regular savers and the purveyors of capital
needed by business and industry. Inter-se they are not organised.
 The Corporate and Business houses who are the users or seekers of this capital,
who are mutually better organised.

 The Financial Intermediaries who link the investors and the capital seekers/users,
who are professionals.

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  SEBI, the market developer and market regulator (the apex organization).

The Corporate Sector draws its capital requirements from the following sources:

 Promoters Contribution;
 Equity Capital raised from the shareholders (generally referred to as equity
capital);

 Preference share capital raised from the shareholders

 Bonds/Debentures raised from the Public (generally referred to as Debt Capital);

 Term Loans from Banks & Financial Institutions;

 Short-term Working Capital from Banks;

 Unsecured Loans & Deposits; and

 Internal generation of Funds (Profits/surpluses reproached and held as Reserves).

Stock market is also referred to as the Corporate Debt or Capital Market. While the
money market, which deals with short-term financial needs of business and industry is
restricted to funds needed for a period of one year or less, instruments of the debt/capital
markets are raised for medium or long term needs. Indian Stock Market consists of three
distinct segments:

 The Public Debt Market i.e. the market for Government securities (also called
Gilt-edged Market). These are interest bearing and dated securities. This market is
regulated by RBI, the Central Bank of the country and banker to the Government.
 PSU Bonds Market i.e. Bonds floated by public Sector units, nationalized banks
and financial Institutions for raising Tier-II capital and also debentures floated by
corporates. This is represented as the Corporate Debt Market.

30
  The Equity Market for raising of equity or preference share capital by all
corporates. Money invested in company shares is not refundable, but if the shares
are listed in a stock exchange these can be sold or purchased, thus providing
liquidity to such investments. Shares do not carry interest, but shareholders can
participate in sharing the profits of the corporate body declared by way of
dividends, bonus shares etc. While the hope of receiving attractive dividends
motivates the public to subscribe to the share capital, declaring dividend is not a
legal obligation on the part of the companies, and hence not a right on the part of
the shareholders. But shareholders enjoy various other rights as conferred by the
Indian Companies Act, 1956. Indian Public companies generally follow the
objective of increasing shareholders wealth as the prime goal of financial
management.

At this context it is relevant to mention about two categories of stock market, i.e.

 Primary market covering new public issues of all categories of securities,

including G-sec, bonds and equity/preference capital.
 Secondary market, which deals with already issued securities of all types.
Transactions of the secondary market are carried out through one of the authorized
stock exchanges, where the traded security is listed.

Functions of the Capital Market

 The organised and regulated capital market motivates individual to save and invest
funds. The availability of safe and profitable sources of investment is an essential
criterion to create propensity to save and invest on the part of the earning public;
 It provides for the investors a safe and productive channel for investment of
savings and secures the recurring benefit of return thereon, as long as the savings
are retained;

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  t provides liquidity to the savings of the investors, by developing a secondary
capital market, and thus makes even short term savings, consistently available for
long-term users;

 It thus mobilizes savings of large number of individuals, families and associations

and makes the same available for meeting the large capital needs of organised
industry, trade and business and for progress and development of the country as a
whole and its economy.

To discharge these functions, the organised capital market accepts a dual responsibility

 To develop the market and to promote savings & investment;

 To regulate the players in the market vis-a-vis the investor and to enforce market
discipline, through market regulators and registered intermediaries. Such that the
unorganised small man is able to deal safely and conveniently through these
regulatory bodies and the intermediaries, and need not

 necessarily has to come into direct contact with the ultimate seekers of his savings.

To understand the regulatory and control systems in-built in the market, we must study
the structural framework of the capital market. The capital market consists of the
following segments.

The Primary Stock Market

It is also called the market for public issues. This market refers to the raising of new
capital (equity or debt i.e. equity shares, preference shares, debentures or Rights Issues)
by corporates. Newly floated companies or existing companies may tap the equity market
by offering public issues. When equity shares are exclusively offered to the existing
shareholders, it is called "Rights Issue". When a Company after incorporation initially
approaches the public for the first time for subscription of its public issue it is called

32
Initial Public Officer (IPO). Successful floating of a new issue requires careful planning,
timing of the issue and comprehensive marketing efforts. The services of specialized
institutions, like underwriters, merchant bankers and registrars to the issue are available
for the corporate body to handle this specialized job. Underwriters are financial
institutions, which undertake to secure a committed quantum of equity/debt subscribed by
the public, failing which they accept these shares/bonds as their own investment. It is
referred to as the issue or that part of getting devolved on the underwriters. The
transactions relating to the primary market i.e. public/rights issues are not carried out
through stock exchanges. However there is effective regulation of SEBI at every stage of
a public issue. This is done through merchant bankers, underwriters and registrars to the
issue each acting at different points. Subscriptions to the new issue are collected at
specific branches of one or more collecting banks prescribed span of time, represented by
the dates of opening of the issue and closing of the issue.

Initial public offering (IPO),

also referred to simply as a "public offering," is the first sale of stock by a private
company to the public. IPOs are often issued by smaller, younger companies seeking
capital to expand, but can also be done by large privately-owned companies looking to
become publicly traded.
In an IPO, the issuer may obtain the assistance of an underwriting firm, which helps it
determine what type of security to issue (common or preferred), best offering price and
time to bring it to market. IPO’s can be a risky investment. For the individual investor, it
is tough to predict what the stock will do on its initial day of trading and in the near
future since there is often little historical data with which to analyze the company. Also,
most IPOs are of companies going through a transitory growth period, and they are
therefore subject to additional uncertainty regarding their future value.

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 Reasons for listing
When a company lists its shares on a public exchange, it will almost invariably look to
issue additional new shares in order to raise extra capital at the same time. The money
paid by investors for the newly-issued shares goes directly to the company (in contrast to
a later trade of shares on the exchange, where the money passes between investors). An
IPO, therefore, allows a company to tap a wide pool of stock market investors to provide
it with large volumes of capital for future growth. The company is never required to
repay the capital, but instead the new shareholders have a right to future profits
distributed by the company.
The existing shareholders will see their shareholdings diluted as a proportion of the
company's shares. However, they hope that the capital investment will make their
shareholdings more valuable in absolute terms. In addition, once a company is listed, it
will be able to issue further shares via a rights issue, thereby again providing itself with
capital for expansion without incurring any debt. This regular ability to raise large
amounts of capital from the general market, rather than having to seek and negotiate with
individual investors, is a key incentive for many companies seeking to list.

Procedure
IPO’s generally involve one or more investment banks as "underwriters." The company
offering its shares, called the "issuer," enters a contract with a lead underwriter to sell its
shares to the public. The underwriter then approaches investors with offers to sell these
shares.
The sale (that is, the allocation and pricing) of shares in an IPO may take several forms.
Common methods include:
 Dutch auction
 Firm commitment
 Best efforts
 Bought deal
 Self Distribution of Stock

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A large IPO is usually underwritten by a "syndicate" of investment banks led by one or
more major investment banks (lead underwriter). Upon selling the shares, the
underwriters keep a commission based on a percentage of the value of the shares sold.
Usually, the lead underwriters, i.e. the underwriters selling the largest proportions of the
IPO, take the highest commissions—up to 8% in some cases.
Multinational IPO’s may have as many as three syndicates to deal with differing legal
requirements in both the issuer's domestic market and other regions. For example, an
issuer based in the E.U. may be represented by the main selling syndicate in its domestic
market, Europe, in addition to separate syndicates or selling groups for US/Canada and
for Asia. Usually, the lead underwriter in the main selling group is also the lead bank in
the other selling groups. Usually, the offering will include the issuance of new shares,
intended to raise new capital, as well the secondary sale of existing shares. However,
certain regulatory restrictions and restrictions imposed by the lead underwriter are often
placed on the sale of existing shares.
Public offerings are primarily sold to institutional investors, but some shares are also
allocated to the underwriters' retail investors. A broker selling shares of a public offering
to his clients is paid through a sales credit instead of a commission. The client pays no
commission to purchase the shares of a public offering, the purchase price simply
includes the built-in sales credit. The issuer usually allows the underwriters an option to
increase the size of the offering by up to 15% under certain circumstance known as the
green shoe or over allotment option.

Auction
A venture capitalist named Bill Hambrecht has attempted to devise a method that can
reduce the inefficient process. He devised a way to issue shares through a Dutch auction
as an attempt to minimize the extreme under pricing that underwriters were nurturing.
Underwriters, however, have not taken to this strategy very well. Though not the first
company to use Dutch auction, Google is one established company that went public
through the use of auction. Google's share price rose 17% in its first day of trading

35
despite the auction method. Perception of IPO’s can be controversial. For those who view
a successful IPO to be one that raises as much money as possible, the IPO was a total
failure. For those who view a successful IPO from the kind of investors that eventually
gained from the under pricing, the IPO was a complete success.

Pricing
Historically, IPOs both globally and in the US have been under priced. The effect of
Under pricing an IPO is to generate additional interest in the stock when it first becomes
Publicly traded. This can lead to significant gains for investors who have been allocated
shares of the IPO at the offering price. However, under pricing an IPO results in "money
left on the table"—lost capital that could have been raised for the company had the stock
been offered at a higher price. The danger of overpricing is also an important
consideration. If a stock is offered to the public at a higher price than what the market
will pay, the underwriters may have trouble meeting their commitments to sell shares.
Even if they sell all of the issued shares, if the stock falls in value on the first day of
trading, it may lose its marketability and hence even more of its value. Investment banks,
therefore, take many factors into consideration when pricing an IPO, and attempt to reach
an offering price that is low enough to stimulate interest in the stock, but high enough to
raise an adequate amount of capital for the company. The process of determining an
optimal price usually involves the underwriters ("syndicate") arranging share purchase
commitments from lead institutional investors.

How is the issue price decided on?

A company that is planning an IPO appoints lead managers to help it decide on an
appropriate price at which the shares should be issued. There are two ways in which the
price of an IPO can be determined: either the company, with the help of its lead
managers, fixes a price or the price is arrived at through the process of book building.
Note: Not all IPO’s are eligible for delivery settlement through the DTC system, which
would then either require the physical delivery of the stock certificates to the clearing

36
agent bank's custodian, or a delivery versus payment ("DVP") arrangement with the
selling group brokerage firm. This information is not sufficient.

Secondary Stock Market

The Secondary Market deals with the sale/purchase of already issued equity/debts by the
corporates and others. The sale/purchase of these securities are carried out at the specific
Stock Exchange(s), where the companies get their public issues listed for trading. The
main function of the secondary market is to provide liquidity to the listed securities by
enabling a holder to easily convert the securities into cash through the stock exchanges.
An individual or an Institution can either hold a portfolio of securities as a permanent
investment, or he can hold a basket of securities for short-periods and engage in buying
and selling them to gain from market fluctuations. The secondary market also acts as an
important indicator of the investment climate in the economy. When prices of existing
securities are rising and there is large trading in the existing shares, such a boom in the
secondary market correspondingly signifies that new issues if floated at that point of time
would be successfully subscribed.

 Investors: On the one hand are the innumerable and not organised savers.
 Capital Seekers: At the other end are those seeking capital from the capital market;

 Regulatory Body: SEBI (the Securities & Exchange Board of India) an

autonomous and statutory body acts as the market regulator and market developer.
It regulates and controls the capital users and all functionaries between the users
and the investors.

 The Stock Exchanges: There are 23 Stock Exchanges registered with SEBI and under

its regulation. They provide a transparent and safe (risk-free) forum of a market
for investors to transact and invest their funds.

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  The Depositories: The depositories are innovative institutions, who are able to

render the market paperless by holdings securities electronically, providing ease

and speed for those transacting in the market.

 The Registered Intermediaries: They consist of brokers, sub-brokers, trading and

clearing members, portfolio managers, bankers to issue, merchant bankers,
registrars, underwriters and credit rating agencies. They all provide a basket of
services to the investors to lesson risk and make transacting easier and smooth.
They are all registered with SEBI and act under the regulation of SEBI abiding by
the Code of Conduct prescribed for each of them governing their respective roles.

So vast and well established is the market that the daily turn over in the main Stock
Exchange in the Country National Stock Exchange of India averages Rs.10000 Crore
presently (in the equities segment alone) and bound to multiply further in the coming
future.

The maximum brokerage that a NSE trading member/registered sub-broker can charge as
per SEBI Stipulations.

1. As stipulated by SEBI, the maximum brokerage that can be charged is 2.5% of the
trade value. This maximum brokerage is inclusive of the brokerage charged by the
sub-broker (sub-brokerage cannot exceed 1.5% of the trade value). However the
trading member can charge additionally-
2. Service Tax @ 5% of the brokerage.

3. Transaction Charge levied by NSE.

4. Penalties rising on behalf of client (investor).

5. The brokerage and service tax is indicated separately in the contract note.

Procedure for Buying & Selling

38
If a client desires to buy or sell shares & securities, he has to transact in the secondary
market i.e. through the stock exchange. He cannot do so directly, but has to deal through
a broker recognized by SEBI He has to enlist the service of a SEBI registered trading
member or SEBI registered sub-broker of a trading member of a registered Stock
Exchange. Different stock exchanges have different bylaws though they all exhibit
common safeguards and precautions. In our study we restrict to overview the system
adopted in National Stock Exchange (NSE) and The Stock Exchange Mumbai (BSE) the
leading stock exchanges of India, which together cover over 75% of the transactions.

After approaching the broker/sub-broker of NSC/BSE to ensure verification of bonafide

membership investor may ask the broker/sub-broker to furnish documents such as SEBI
registration certificate, Registration with NSE/BSE etc to verify the antecedents of the
person. He can also approach the exchange to counter check whether the person holds the
valid registration. When a client instructs his broker to enter into a transaction, he may
ask him to buy or sell at the best price and leave the matter to broker's judgment or he
may specify reasonable price limits. For instance, The client may specify " Buy at 110
max." In such a case, The broker may not be able to execute the order even though the
quotations of the day would be "Rs110, 111,112,113" as jobber's spread of say Rs.2
would make the share available for purchase at a price not lower than Rs. 112.

Procedure for Dealing through a Stock Exchange

We have seen that a client deciding to operate through an exchange, has to avail the
services of a SEBI registered broker/sub-broker. He has to enter into a broker-client
agreement

client, his broker is supposed to give him a contract note having details of the transaction
as directed by the client. Since the contract note is a legally enforceable document, the
client should insist on receiving it. The client has the obligation to deliver the shares in

39
case of sale or pay the money in case of purchase within the time prescribed. If he has
opted for transaction in physical mode, in case of bad delivery of securities by him, he
has the responsibility to rectify them or replace them with good ones.

For Securities in Physical Mode - How Does Transfer of Securities Take Place?

To effect a transfer in the physical mode the securities should be sent to the company
along with a valid, duly executed and stamped transfer deed duly signed by or on behalf
of the transferor (seller) and transferee (buyer). It would be a good idea to retain
photocopies of the securities and the transfer deed(s) when they are sent to the company
for transfer. It is essential that the client sends them by registered post with
acknowledgement due and watches out for the receipt of the acknowledgement card. If he
does not receive the confirmation of receipt within a reasonable period, he should
immediately approach the postal authorities for confirmation. Sometimes, for his own
convenience, the client (while buying securities) may choose not to transfer the securities
immediately.

Procedure to be Followed for Transfer of Securities

On receipt of the client's request for transfer, the company proceeds to transfer the
securities as per provisions of the law. In case they cannot affect the transfer, the
company returns back the securities giving details of the grounds under which the
transfer could not be effected. This is known as Company Objection.

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 CHAPTER-III

INDUSTRY PROFILE

STOCK EXCHANGE:

Stocks (Shares, equity) are traded in stock exchange. India has two big stock
exchanges (Bombay Stock Exchange - BSE and National Stock Exchange - NSE) and few small
exchanges like Jaipur Stock Exchange etc. Click here to see the list of Stock Exchanges in India
Investor can trade stocks in any of the stock exchange in India.
Stock Broker:
Investor requires a Stock Broker to buy and sell shares in stock exchanges (BSE, NSE
etc.). Stock Broker is registered member of stock exchange. A stockbroker can register to one or
more stock exchanges.
Only stockbrokers can directly buy and sell shares in Stock Market. An investor must
contact a stockbroker to trade stocks. Broker charge commissions (brokerages) for their service.
Brokerage is usually a percent of total amount of trade and varies from broker to broker.
Stock Trading:

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 Traditionally stock trading is done through stockbrokers, personally or through
telephones. As number of people trading in stock market increase enormously in last few years,
some issues like location constrains, busy phone lines, miss communication etc start growing in
stock broker offices. Information technology (Stock Market Software) helps stock brokers in
solving these problems with Online Stock Trading.

Online Stock Market Trading is an Internet based stock trading facility. Investor can
trade shares through a website without any manual intervention from Stock Broker.
In this case these Online Stock Trading companies are stockbroker for the investor. They are
registered with one or more Stock Exchanges.

Mostly Online Trading Websites in India trades in BSE and NSE. There are two
different type of trading environments available for online equity trading. Installable software
based Stock Trading Terminals. These trading environments require software to be installed on
investors’ computer. This software is provided by the stockbroker. This software’s require high
speed internet connection. These kind of trading terminals are used by high volume intraday
equity traders. Below is the detail comparison of major Online Stock Market Trading websites in
India. This comparison is to help investor to take calculated decision while searching for new
trading portal.
1. ICICI Direct
2. Share khan
3. India bulls
4. 5Paisa
5. Motilal Oswal Securities
6. HDFC Securities
7. Reliance Money
8. IDBI Paisa Builder
9. Religare
10. Geojit
11. Karvy stock broking ltd
12. Kotak Securities

42
 13. Standard Chartered-STCI Capital Markets Ltd
14. Angel Trade
15. HSBC Invest Direct

DEFINITION OF STOCK EXCHANGE:

“Stock exchange means anybody or individuals whether incorporated or not,
constituted for the purpose of assisting, regulating or controlling the business of buying, selling
or dealing in securities”.

It is an association of member brokers for the purpose of self-regulation and

protecting the interests of its members. It can operate only if it is recognized by the Government
under the securities contracts (regulation) Act, 1956. The recognition is granted under section 3
of the Act by the central government, Ministry of Finance.

HISTORY OF STOCK EXCHANGE:

The only stock exchanges operating in the 19 th century were those of Bombay set up
in 1875 and Ahmadabad set up in 1894. These were organized as voluntary non profit-making
association of brokers to regulate and protect their interests. Before the control on securities
trading became central subject under the constitution in 1950, it was a state subject and the
Bombay securities contracts (control) Act of 1925 used to regulate trading in securities. Under
this act, the Bombay stock exchange was recognized in 1927 and Ahmadabad in 1937.

During the war boom, a number of stock exchanges were organized in Bombay,
Ahmadabad and other centers, but they were not recognized. Soon after it became a central
subject, central legislation was proposed and a committee headed by A.D. Gorwala went into the
bill for securities regulation. On the basis of the committee’s recommendations and public
discussion, the securities contracts (regulation) Act became law in 1956.

43
FUNCTIONS OF STOCK EXCHANGE:

 Maintains activity training

 Fixation of prices
 Ensures safe and fare dealings
 Aids in financing the industry
 Dissemination of information
 Performance end users
 Self regulating organization

INDIAN STOCK MARKET:

HISTORICAL BACKGROUND:

The stock market provides a market place for the purchase and sale of securities
evidencing the ownership of business property or of a public or business debt . The origin of the
stock market therefore goes back to the time when securities representing this property or
promises to pay were the first issued and made transferable from one person to another .
The earliest record of securities dealing in India were loan transactions of East
India company , way back in the eighteenth century . By 1830’s there was a perceptible
increase in the volume of business , not only in loan but also in corporate stock and
shares . In 1850, the companies Act introducing limited liability was enacted and with
it commenced the era of modern joint stock enterprise in India . The Act also served to
generate investor interest in corporate securities .

From 1850 to 1865, the history of brokers and their rise to power in Bombay
is the history of Premchand Roychand . Brokerage business attracted many people into the field
and by 1860, the number of brokers had increased to 60.

44
 An important early in the development of the stock market in India was the
formation of Native share and s tock Broker’s Association in Bombay, in 1857, the
precursor of the present day Bombay stock Exchange. Infact, the oldest stock exchange in
Asia is the BSE having been established in 1875,while the Tokyo stock Exchange was founded
in 1878.

The setting up of BSE was followed by the formation of associations in Ahmadabad

(1894) , Calcutta (1908)and Madras (1937).

NATIONAL STOCK EXCHANGE:

The NSE was incorporated in November 1992 with an equity capital of Rs.25 crores,
the International Securities Consultancy (ISC) of Hong Kong has helped in setting up NSE. ISC
has prepared the detailed business plans and installation of hardware and software system.
The Promotion for NSE were financial institutions, insurance companies, banks and SEBI capital
market Ltd., infrastructure leasing and financial services and stock holding corporation ltd. It has
been set up to strengthen the move towards professionalization of the capital market as well as
provide nationwide securities trading facilities to investors.

NSE is not an exchange in the traditional sense where brokers own and manage the
exchange. A two tier administrative set up involving a company board and a governing aboard of
the exchange is envisaged.

NSE is a national market for shares PSU bonds, debentures and government securities
since infrastructure and trading facilities are provided.

NSE-NIFTY:
45
 The NSE on April 22, 1996 launched a new equity Index. The NSE -50. The new index,
which replaced the existing NSE-100 index is expected to serve as an appropriate Index foe
the new segment of futures and options. “Nifty means National Index for Fifty Stocks. The NSE
—50 comprises 50 companies that represent 20 broad Industry groups with an aggregate
market capitalization of around Rs 1,70,000 crores. All companies includes in the Index
have a market capitalizations in excess of Rs. 400 crores each and should have traded for
85% of trading days at an impact cost of less than 1.5%

The base period for the index is the close of prices on Nov 3, 1995, which make one
year of completions of operations of NSE’s capitals markets segments . The base values of the
Index has been set at 1000.

NSE--MIDCAP INDEX:

The NSE midcap Index or the Junior Nifty comprises 50 stocks that represent 21abroad
Industry groups and will provide proper representation of the madcap segments of the
Indian capitals Market. All stocks in the index should market capitalizations of greater than Rs.
200 corers and should have traded 85% of the trading days at an impact cost of less 2.5%.

The base period for the index is Nov 4, 1996, which signifies two years for
completion of operations of the capitals market segment of the operations. The values of the
Index has been set at 1000. Average daily turnover of the present scenario 258212 (lakhs) and
number of averages daily trades 2180(lakhs). Ex: Satyam computers.

BOMBAY STOCK EXCHANGE:

The stock exchange, Mumbai, population known as “BSE” was established in

1875 as “The Native share and stock brokers association ”, as a voluntary non-profit making
association . It has an evolved over the years into its present status as the premier stock exchange
in the Asia, even older than the Tokyo stock Exchange, which was founded in 1878.

46
 The exchange , while providing an efficient and transparent market for trading in
securities, uphold the interest of the investors and ensure redressed of their grievances,
whether against the companies or its own member brokers. It also strives to educate and
enlighten the investors by making available necessary information inputs and conducting
investor education programmes.

A governing board comprising of 9 elected directors, 2 SEBI nominees, 7 public

representatives and an executive directors is the apex body ,which decides the policies and
regulates the affairs of the exchange.

The executive director as the chief executive officer is responsible for the day today
administration of the exchange. The average daily turnover of the exchange during the year
2000-01 (April – March) was Rs. 3984.19 crores and average number of daily trades 5.69 lakhs.

How ever the average daily turn over of the exchange during the year 2001-02 has
declined to Rs. 1244.10 crores and number of average daily trades during the period to 5.17
lakhs .

The average daily turnover of the exchange during the year 2002-2003 declined and
number of average daily trades during the period is also decreased.

The Ban on all deferral product like BLESS AND ALBM in the Indian capital
market by SEBI with effect from July 2, 2001 , abolition of account period settlements,
introduction of compulsory rolling settlement in all script traded on the exchange with
effect from DEC 31 , 2001 ,etc., have adversely impacted the liquidity and consequently
there is a considerable decline in the daily turn over at the exchange . The average
daily turn over of the exchange present scenario is 110363 (lakhs) and number of
average daily trades 1057 (lakhs).

BSE INDICES:

47
 In order to enable the market participants, analysts etc., to track the various
ups and downs in the Indian stock market , the exchange has introduced in
1986 an equity stock index called BSE--SENSEX that subsequently became the
barometer of the moment of the share prices in the Indian stock market . It is a
“Market Capitalization Weighted ” index of 30 components stocks representing a
sample of large ,well –established and leading companies. The base year of is1978-79. The
Sensex is widely report in both domestic and International market through print as well
as electronic media .

Sensex calculated using a market capitalization weighted method. As per this

methodology. The level of the index reflects the total market value of all 30- component
Stock from different industries related to particular base period . The total market value of
a company is determined by multiplying the price of its stock by the number of Shares
outstanding . Statisticians call an index of set of combined variable (such as price and number
of shares ) a composite Index . An indexed number is used to represent the result
of this calculation in order to make the value easier to work with and track over a
time . It is much easier to graph a chart based on Indexed values than one based
on actual value world over majority of the well-knowing indices are constructed using
“ Market capitalization weighted method”.

In practice , the daily calculation of SENSEX is done by dividing the

aggregate market value of the 30 companies in the Index comparable over a period
or time and if the reference point for the entire Index maintenance adjustments.

SENSEX is widely used to describe the mood in the Indian stock markets . Base
year average is changed as per the formula new base year average = old base year average
*(new market value / old market value, there are24 stock exchanges recognized under the
securities Contract (regulation) Act,1956.At present there are 19 are working).

48
NAME OF THE STOCK EXCHANGE YEAR
Bombay Stocks Exchange 1875

Ahmadabad Share and stock brokers association 1957

Calcutta stock exchange association Ltd 1957

Delhi Stock exchange association Ltd 1957

Madras stock exchange association Ltd 1957

Indore stock broker association Ltd 1958

Bangloore stock exchange 1963

Hyderabad stock exchange 1943

Cochin stock exchange 1978

Pune stock exchange ,U.P stock exchange 1982

Ludhiana stock exchange 1983

Jaipur stock exchange Ltd 1983-84

Gauhati stock exchange Ltd 1984

Manglore stock exchange 1985

Maghad stock exchange Ltd, Patna 1986

Bhuvaneshwar stock exchange association Ltd 1989

Over the counter exchange of India , Bombay 1989

Saurastra Kuth stock exchange Ltd 1990

Vsdodard stock exchange Ltd 1991

Coimbatore stock exchange Ltd 1991

The Meerut stock exchange 1991

National stock exchange 1991

49
 Intergrated stock exchange 1999

COMAPANY PROFILE

ABOUT INDIA INFOLINE SECURITIES LTD:

India Infoline Group :

The India Infoline group, comprising the holding company, India Infoline Limited and its
wholly-owned subsidiaries, straddle the entire financial services space with offerings ranging
from Equity research, Equities and derivatives trading, Commodities trading, Portfolio
ManagementServices, Mutual Funds, Life Insurance, Fixed deposits, GoI bonds and other small
savings instruments to loan products and Investment banking.

India Infoline also owns and manages the websites.www.indiainfoline.com and www.5paisa.com
The company has a network of 976 business locations (branches and sub-brokers) spread across
365 cities and towns. It has more than 800,000 customers.

India Infoline Group subsidiaries:

India Infoline Media and Research Services Limited

India Infoline Commodities Limited

50
India Infoline Marketing & Services
India Infoline Investment Services Limited

India Infoline Ltd. (IIFL) is a financial services company. As of March 31, 2010, it has presence
in over 2,300 business locations in 450 cities and towns. It offers a range of services including
equity research, equities and derivatives trading, commodities trading, portfolio management
services, mutual funds, life insurance, fixed deposits, goi bonds and other small savings
instruments to loan products and investment banking. The Company's segments comprise:
equities brokerage and related; financing and investment; commodities brokerage and related;
life insurance distribution; marketing and online media, and others. Its subsidiaries include India
Infoline Investment Services Ltd., Moneyline Credit Ltd., India Infoline Distribution Company
Ltd., India Infoline Housing Finance Ltd., India Infoline Marketing Services Ltd., India Infoline
Insurance Services Ltd. and India Infoline Insurance Brokers Ltd.

The IIFL (India Infoline) group, comprising the holding company, India Infoline Ltd (NSE:
INDIAINFO, BSE: 532636) and its subsidiaries, is one of the leading players in the Indian
financial services space. IIFL offers advice and execution platform for the entire range of
financial services covering products ranging from Equities and derivatives, Commodities, Wealth
management, Asset management, Insurance, Fixed deposits, Loans, Investment Banking, GoI
bonds and other small savings instruments. IIFL recently received an in-principle approval for
Securities Trading and Clearing memberships from Singapore Exchange (SGX) paving the way
for IIFL to become the first Indian brokerage to get a membership of the SGX. IIFL also received
membership of the Colombo Stock Exchange becoming the first foreign broker to enter Sri
Lanka. IIFL owns and manages the website, www.indiainfoline.com, which is one of India’s
leading online destinations for personal finance, stock markets, economy and business. IIFL has
been awarded the ‘Best Broker, India’ by FinanceAsia and the ‘Most improved brokerage, India’
in the AsiaMoney polls. India Infoline was also adjudged as ‘Fastest Growing Equity Broking
House - Large firms’ by Dun & Bradstreet. A forerunner in the field of equity research, IIFL’s
research is acknowledged by none other than Forbes as ‘Best of the Web’ and ‘…a must read for
investors in Asia’. Our research is available not just over the Internet but also on international
wire services like Bloomberg, Thomson First Call and Internet Securities where it is amongst one

51
of the most read Indian brokers. A network of over 2,500 business locations spread over more
than 500 cities and towns across India facilitates the smooth acquisition and servicing of a large
customer base. All our offices are connected with the corporate office in Mumbai with cutting
edge networking technology. The group caters to a customer base of about a million customers,
over a variety of mediums viz. online, over the phone and at our branches.

2000
Commenced operations as an Equity Research firm
2010
Launched research products of leading Indian companies, key sectors and the economy
Client included leading FIIs, banks and companies
2011
Launched www.indiainfoline.com

2012
Launched online trading through www.5paisa.com
Started distribution of life insurance and mutual fund
2013
Launched proprietary trading platform Trader Terminal for retail customers
2014
Acquired commodities broking license
Launched Portfolio Management Service
2014
Maiden IPO and listed on NSE, BSE
2015
Acquired membership of DGCX
Commenced the lending business

2018
Commenced institutional equities business under IIFL
Formed Singapore subsidiary, IIFL (Asia) Pvt Ltd

2018
Launched IIFL Wealth
Transitioned to insurance broking model
2017
Acquired registration for Housing Finance
SEBI in-principle approval for Mutual Fund
Obtained Venture Capital license
2017
Received in-principle approval for membership of the Singapore Stock Exchange
Received membership of the Colombo Stock Exchange

52
Mr. Nirmal Jain
Chairman & Managing Director, India Infoline Ltd

53
Mr. Nirmal Jain is the founder and Chairman of India Infoline Ltd. He is a PGDM
(Post Graduate Diploma in Management) from IIM (Indian Institute of
Management) Ahmedabad, a Chartered Accountant and a rank-holder Cost
Accountant. His professional track record is equally outstanding. He started his
career in 1989 with Hindustan Lever Limited, the Indian arm of Unilever. During
his stint with Hindustan Lever, he handled a variety of responsibilities, including
export and trading in agro-commodities. He contributed immensely towards the
rapid and profitable growth of Hindustan Lever’s commodity export business,
which was then the nation’s as well as the Company’s top priority.

He founded Probity Research and Services Pvt. Ltd. (later re-christened India
Infoline) in 1995; perhaps the first independent equity research Company in India.
His work set new standards for equity research in India. Mr. Jain was one of the
first entrepreneurs in India to seize the internet opportunity, with the launch of
www.indiainfoline.com in 1999. Under his leadership, India Infoline not only
steered through the dotcom bust and one of the worst stock market downtrends but
also grew from strength to strength.

Mr. R. Venkataraman
Executive Director, India Infoline Ltd.

54
Mr. R Venkataraman, Co-Promoter and Executive Director of India Infoline Ltd, is
a B.Tech (electronics and electrical communications engineering, IIT Kharagpur)
and an MBA (IIM Bangalore). He joined the India Infoline Board in July 1999. He
previously held senior managerial positions in ICICI Limited, including ICICI
Securities Limited, their investment banking joint venture with J P Morgan of US,
BZW and Taib Capital Corporation Limited. He was also the Assistant Vice
President with G E Capital Services India Limited in their private equity division,
possessing a varied experience of more than 19 years in the financial services
sector

Mr. Nilesh Vikamsey

Independent Director, India Infoline Ltd.

Mr. Nilesh Vikamsey – Board Member since February 2005 - is a practicing

Chartered Accountant for 25 years and Senior Partner at M/s Khimji Kunverji &
Co., Chartered Accountants, a member firm of HLB International, a world-wide
organisation of professional accounting firms and business advisers, ranked
amongst the top 12 accounting groups in the world. Mr. Vikamsey headed the audit
department till 1990 and thereafter also handled financial services, consultancy,
investigations, mergers and acquisitions, valuations and due diligence, among
others. He is elected member of the Central Council of Institute of Chartered
Accountant of India (ICAI), the Apex decision making body of the second largest
accounting body in the world, 2010–2013.

55
He is on the ICAI study group member for the introduction of the Accounting
Standard — 30 on financial instruments — recognition and management.
Convener of the Study group Formed by ASB of ICAI to formulate comments on
various Exposure Drafts, Discussion Papers and other matters pertaining to IFRS
originating from IASB, Representative of the Institute of Chartered Accountants of
India on the Committee for Improvement in Transparency, Accountability and
Governance(ITAG) of South Asian Federation of Accountants (SAFA), Member of
Executive Committee & IFRS Implementation Committee of WIRC of Institute of
Chartered Accountant of India (ICAI), Accounting and Auditing Committee of
Bombay Chartered Accountant Society (BCAS) and also on its Core Group,
member of Review, Reforms & Rationalisation Committee, IPR Committee of
Bombay Chamber of Commerce and Industry (BCCI), Member of Legal Affairs
Committee of Bombay Chamber of Commerce and Industry(BCCI), Corporate
Members Committee of The Chamber of Tax Consultants (CTC), Regular
Contributor to WIRC Annual Referencer on “Bank Branch Audit”, Study/ Sub
Group formed by ICAI for Considering Developments on Fair Value Accounting
(AS 30) post Sub Prime crisis, Sub Group formed by ICAI for approaching the
Government and Regulatory Authorities for Convergence with IFRS.

He is also a Vice Chairman of Financial Reporting Review Board Accounting

Standard Board and Member of Accounting Standard Board and various other
Standing and Non Standing Committees. Mr. Vikamsey is also a Director of
Miloni Consultants Private Limited, HLB Offices and Services Private
Limited, Trunil Properties Private Limited, BarKat Properties Private Limited
and India Infoline Investment Services Limited

56
Mr. Kranti Sinha
Independent Director, India Infoline Ltd.

Mr. Kranti Sinha — Board member since January 2005 — completed his masters
from the Agra University and started his career as a Class I Officer with Life
Insurance Corporation of India. He served as the Director and Chief Executive of
LIC Housing Finance Limited from August 1998 to December 2002 and
concurrently as the Managing Director of LICHFL Care Homes (a wholly-owned
subsidiary of LIC Housing Finance Limited). He retired from the permanent cadre
of the Executive Director of LIC; served as the Deputy President of the Governing
Council of Insurance Institute of India and as a member of the Governing Council
of National Insurance Academy, Pune apart from various other such bodies. Mr.
Sinha is also on the Board of Directors of Hindustan Motors Limited and Cinemax
(India) Limited

Mr. Purwar is currently the Chairman of IndiaVenture Advisors Pvt. Ltd.,

investment manager to IndiaVenture Trust – Fund I, the healthcare and life sciences
focussed private equity fund sponsored by the Piramal Group. He has also taken
over as the Chairman of IL & FS Renewable Energy Limited in March 2008 and
India Infoline Investment Services Ltd in November 2009. He is working as
Independent Director in leading companies in Telecom, Steel, Textiles, Power,
Auto components, Renewable Energy, Engineering Consultancy, Financial
Services and Healthcare Services. He is an Advisor to Mizuho Securities in Japan

57
and is also a member of Advisory Board for Institute of Indian Economic Studies
(IIES), Waseda University, Tokyo, Japan.

Mr. A. K. Purwar

Independent Director , India Infoline Ltd.

Mr. Purwar was the Chairman of State Bank of India, the largest bank in the
country from November ‘02 to May ’06 and held several important and critical
positions like Managing Director of State Bank of Patiala, Chief Executive Officer
of the Tokyo branch covering almost the entire range of commercial banking
operations in his illustrious career at the bank from 1968 to 2006. Mr. Purwar also
worked as Chairman of Indian Bank Association during 2005 – 2006. Mr. Purwar
has received the “CEO of the year” Award from the Institute for Technology &
Management (2004); “Outstanding Achiever of the year” Award from Indian
Banks’ Association (2004); “Finance Man of the Year” Award by the Bombay
Management Association in 2006.

58
 CHAPTER-IV

SBIN FUTURE STOCK ANALYSIS

State Bank of India:-

State Bank of India (SBI) is India's largest commercial bank. SBI has a vast domestic

network of over 9000 branches (approximately 14% of all bank branches) and commands one-

fifth of deposits and loans of all scheduled commercial banks in India

The State Bank Group includes a network of eight banking subsidiaries and several non-

banking subsidiaries offering merchant banking services, fund management, factoring services,

primary dealership in government securities, credit cards and insurance .

The eight banking subsidiaries are:

1-State Bank of Bikaner and Jaipur (SBBJ)

2-State Bank of Hyderabad (SBH)

59
3-State Bank of India (SBI)

4-State Bank of Indore (SBIR)

5-State Bank of Mysore (SBM)

6-State Bank of Patiala (SBP)

7-State Bank of Saurashtra (SBS)

8-State Bank of Travancore (SBT)

The origins of State Bank of India date back to 1806 when the Bank of Calcutta (later

called the Bank of Bengal) was established. In 1921, the Bank of Bengal and two other

Presidency banks (Bank of Madras and Bank of Bombay) were amalgamated to form the

Imperial Bank of India. In 1955, the controlling interest in the Imperial Bank of India was

acquired by the Reserve Bank of India and the State Bank of India (SBI) came into existence by

an act of Parliament as successor to the Imperial Bank of India.

Today, State Bank of India (SBI) has spread its arms around the world and has a network

of branches spanning all time zones. SBI's International Banking Group delivers the full range of

cross-border finance solutions through its four wings - the Domestic division, the Foreign

Offices division, the Foreign Department and the International Services division.

SBI Stock Details:

Instrument FUTSTK

Symbol SBIN

60
Market Lot 132

Span Margin(%) 18.72%

Span Amount 33,289

Data for FUTSTK-SBIN from 28-01-2018 to 25-02-2018

(Expiry Date-25-02-2018)

Open Moving
Date Expiry Open High Low Close
Interest Average

25-02-
28 1331.00 1344.60 1310.00 1318.40 817344.00
2018
25-02-
29 1340.00 1418.80 1340.00 1409.65 4563240.00
2018 1383.03
25-02- 1390.0 1439.0 1364.00 1421. 4527072
1
2018 0 0 05 .00 1453.75
25-02- 1430.0 1554.2 1430.00 1530. 4590432
2
2018 0 0 55 .00 1496.80
25-02- 1512.1 1549.8 1488.00 1538. 4703688
4 0 5 80 .00
2018 1530.83
25-02- 1505.4 1541.0 1481.00 1523. 4636764
5 5 5 15 .00
2018 1555.03
25-02- 1563.0 1820.5 1563.00 1803. 5200800
8 0 0 15 .00
2018 1565.05
25-02- 1589.0 1594.7 1560.10 1568. 5206476
9 0 0 85 .00
2018 1581.23
25-02- 1545.1 1592.0 1545.00 1571. 5471136
10 0 0 70 .00
2018 1560.87

61
 25-02- 1551.0 1561.8 1512.65 1542. 5432724
11 0 0 05 .00
2018 1542.42
25-02- 1549.8 1558.0 1493.55 1513. 5543868
12 5 0 50 .00
2018 1513.22
25-02- 1478.6 1496.8 1396.35 1484. 5137440
15 0 0 10 .00
2018 1523.92
25-02- 1432.6 1589.5 1418.00 1574. 5402892
18 0 0 15 .00
2018 1523.97
25-02- 1570.0 1587.3 1496.35 1513. 5443152
17 0 0 65 .00
2018 1549.62
25-02- 1469.0 1587.0 1426.50 1561. 5572248
18 0 0 05 .00
2018 1548.35
25-02- 1800.0 1820.0 1539.00 1570. 5833080
19 0 0 35 .00
2018 1564.68
25-02- 1590.0 1590.0 1542.90 1562. 5131832
22 0 0 65 .00
2018 1545.67
25-02- 1542.6 1565.3 1495.35 1504. 4093848
23 0 0 00 .00
2018 1530.07
25-02- 1513.9 1538.2 1483.65 1523. 3302376
24 0 5 55 .00
2018 1508.40
25-02- 1524.0 1525.0 1466.35 1497. 1946736
25 0 0 65 .00
2018

62
INTERPRETATION:

63
The researcher has taken SBI script as sample for analysis. This analysis is considered the

September month contract of SBI. The time period in which this analysis is done from 28-01-18

to 25-02-18. Contract begins at 28-01-20018 and expires at 25-02-2018 other details of Future

Stock are:

The lot size of SBI = 132

Span margin (%) = 18.72%

Span amount = 29375

One who wants to invest in one lot of (one lot=132 Shares) SBI FUTSTK, he has to pay span

amount [(132 X 1331) X (18.72/100)] of 29,375 at the time of entering into the contract.

OVERALL MONTH FUTURE STOCK DETAILS:

64
 Open price =1331

 High Price=1820.5

 Low Price =1310

 Closing Price =1497.65

High Profit to Investor:

Here researcher observed the highest value of share was 1820.50 on 09-02-15, here share value

has gone to it highest level and investors gets more profits and more longs. so this is unexpected

change in the market and politics.

Profit = High Price – Opening Price

=1820.5 – 1331 =289.5

Per one share investor gets Rs.289.5 Profit, per lot (289.5 X 132) he gets 38214. In this profit

Brokerage, Service tax etc. includes so his profit will decrease to a small amount.

High Loss to Investor:

Here researcher observed the Lowest value of Share was 1310 on 28-01-2015., here share value

has gone to it Lowest level and investors incurred more loss and more shots.

Loss = Opening Price - Lowest Price

= 1331-1310 = 21

Per one share investor incurred Rs.289.5 Loss, per lot (289.5 X 132) he Incurred Rs.38214 loss.

For this Loss Brokerage, Service tax etc. will add so his Loss will increase to a small amount.

Overall Profit / Loss to Investor:

65
At the time of expire date Value of the Share wasRs.1497.65 and Opening Price was1331,

closing price is more than opening price here investor gets profit.

Profit = Closing Price – Opening Price

= 1497.65 – 1331

= 148.65

Per one share investor gets Rs.148.65 Profit, per lot (148.65 x 132) investor gets 19621.8

Profit. In this profit Brokerage, Service tax etc. includes so his profit will decrease to a small

amount.

Data for FUTSTK-SBIN from 26-02-2018 to 29-3-2018

(Expiry Date-29-3-2018)

66
 Open Moving
Date Expiry Open High Low Close
Interest Average

67
26 29.3 2018
1500.00 1505.00 1429.00 1437.20 4468860.00
29 29.3 2018
1425.00 1437.00 1339.00 1396.80 4318776.00 1428.10
29.3 2018
30
1350.00 1479.40 1350.00 1450.30 4293696.00 1446.45
29.3 2018
1
1463.40 1512.80 1401.00 1492.25 4447476.00 1472.52
29.3 2018
3
1470.00 1517.00 1460.00 1475.00 4438632.00 1466.02
29.3 2018
6
1450.00 1474.00 1415.00 1430.80 4642044.00 1436.23
29.3 2018
7
1475.00 1504.85 1380.10 1402.90 4737480.00 1386.28
29.3 2018
8
1372.00 1389.00 1305.00 1325.15 4806648.00 1356.67
29.3 2018
10
1260.10 1361.90 1181.00 1341.95 5012568.00 1390.10
29.3 2018
13
1368.00 1535.00 1368.00 1503.20 5018660.00 1451.20
29.3 2018
14
1580.00 1580.00 1487.25 1508.45 5349960.00 1498.13
29.3 2018
15
1488.00 1531.70 1463.00 1482.75 5589012.00 1512.08
29.3 2018
18
1440.00 1564.40 1412.10 1545.05 5557464.00 1481.52
29.3 2018
17
1565.00 1566.35 1380.00 1418.75 5365800.00 1466.40
29.3 2018
20
1420.00 1509.60 1368.65 1437.40 5255052.00 1448.23
29.3 2018
21
1457.00 1506.80 1418.25 1490.55 4927692.00 1440.15
29.3 2018
22
1465.00 1480.00 1383.10 1392.50 4413948.00 1403.08
29.3 2018
23
1359.00 1406.80 1313.30 1326.20 3977292.00 1290.82
29.3 2018
24
1305.00 1305.00 1090.00 1153.75 2918520.00 1178.93
29.3 2018
27
1138.00 1177.60 985.45 1056.85 2319636.00 1111.30
29.3 2018
28
1100.00 1144.00 1100.00 1123.30 2254692.00 1092.83
29.3 2018
29
1149.00 1185.00 1079.35 1098.35 1403028.00

68
69
INTERPRETATION:

The researcher has taken SBI script as sample for analysis. This analysis is considered the

September month contract of SBI. The time period in which this analysis is done from 26-02-

018 to 29-3-018. Contract begins at 26-02-2018 and expires at 29-3-2018 other details of Future

Stock are:

The lot size of SBI = 132

Span margin (%) = 18.72%

Span amount = 33,105.6

One who wants to invest in one lot of (one lot=132 Shares) SBI FUTSTK, he has to pay span

amount [(132 X 1500) X (18.72/100)] of Rs.33,105.6 at the time of entering into the contract.

OVERALL MONTH FUTURE STOCK DETAILS:

 Open price =1500

 High Price=1580

 Low Price =1098.35

 Closing Price =985.45

High Profit to Investor:

Here researcher observed the highest value of share was 1580 on 14.3.2015, here share value has

gone to it highest level and investors gets more profits and more longs. so this is unexpected

change in the market and politics.

Profit = High Price – Opening Price

=1580 – 1500 =80

70
Per one share investor gets Rs.80 Profit, per lot (80 X 132) he gets Rs.10560. In this profit

Brokerage, Service tax etc. includes so his profit will decrease to a small amount.

High Loss to Investor:

Here researcher observed the Lowest value of Share was 985.45 on 27-32015 here share value

has gone to it Lowest level and investors incurred more loss and more shots.

Loss = Opening Price - Lowest Price

= 1500-1098.35 = 401.65

Per one share investor incurred Rs.401.65 Loss; per lot (401.65 X 132) he incurred 53017.8. In

this profit Brokerage, Service tax etc. includes so his loss will increase to a small amount.

Overall Profit / Loss to Investor:

At the time of expire date Value of the Share wasRs.985.45 and Opening Price was1500, closing

price is more than opening price here investor gets profit.

Loss = Opening Price – Closing Price

= 1500 - 985.45

= 514.55

Per one share investor incurred Rs.514.55 loss, per lot (514.55 x 132) investor incurred

Rs.67925.6 Loss. For this Loss Brokerage, Service tax etc.add, so his Loss will increase to a

small amount. In this contract incurred huge loss.

71
 Data for FUTSTK-SBIN from 30-3-2018 to 27-04-2018

(Expiry Date-27-04-2018)

Open Moving
Date Expiry Open High Low Close
Interest Average

31
27-04-2018 1189.95 1184.80 1065.05 1114.55 3341184.00
27-04-2018
3
1189.70 1269.50 1170.25 1246.40 3379992.00 1229.42
27-04-2018
4
1254.60 1339.50 1228.00 1327.30 3617196.00 1282.07
27-04-2018
5
1350.00 1370.00 1261.15 1272.50 3372336.00 1272.93
27-04-2018
6
1270.00 1272.85 1201.05 1219.00 3443088.00 1248.67
27-04-2018
7
1209.95 1267.00 1189.50 1254.50 3501828.00 1260.15
27-04-2018
10
1281.65 1322.00 1256.30 1306.95 3518460.00 1261.03
27-04-2018
11
1300.50 1317.80 1212.65 1221.65 3368904.00 1234.25
27-04-2018
12
1214.60 1236.50 1141.65 1174.15 3433452.00 1188.50
27-04-2018
14
1209.50 1228.00 1150.65 1189.70 3278618.00 1170.08
27-04-2018
17
1170.00 1185.00 1115.35 1186.40 3350292.00 1145.00
27-04-2018
18
1149.00 1149.00 1085.20 1098.90 3182720.00 1111.85
27-04-2018
19
1098.90 1149.00 1060.15 1070.25 3188988.00 1086.88
27-04-2018
20
1044.00 1130.00 1024.60 1091.50 3091308.00 1118.33
27-04-2018
21
1130.00 1213.65 1099.00 1187.25 2908752.00 1143.42
27-04-2018
24
1226.00 1226.00 1117.50 1151.50 2690028.00 1137.12
25 27-04-2018
1191.50 1191.50 1061.00 1072.60 2021184.00 1110.83
26 27-04-2018 2013 27 04 2013 27 04

72
73
INTERPRETATION:

The researcher has taken SBI script as sample for analysis. This analysis is considered the

September month contract of SBI. The time period in which this analysis is done from 30-03-18

to 27-04-18. Contract begins at 30-03-2018 and expires at 27-04-2018 other details of Future

Stock are:

The lot size of SBI = 132

Span margin (%) = 18.72%

Span amount = 25821.26

One who wants to invest in one lot of (one lot=132 Shares) SBI FUTSTK, he has to pay span

amount [(132 X 1189.95) X (18.72/100)] of Rs.25821.26 at the time of entering into the contract.

OVERALL MONTH FUTURE STOCK DETAILS:

 Open price =1189.95

 High Price=1370

 Low Price =1024.60

 Closing Price =1108.40

High Profit to Investor:

Here researcher observed the highest value of share was 1370 on 05.04.2015, here share value

has gone to it highest level and investors gets more profits and more longs. so this is unexpected

change in the market and politics.

Profit = High Price – Opening Price

=1370 – 1189.95 =200.05

Per one share investor gets Rs.200.05 Profit, per lot (200.05 X 132) he gets Rs.26406.6. In this

profit Brokerage, Service tax etc. includes so his profit will decrease to a small amount.

74
High Loss to Investor:

Here researcher observed the Lowest value of Share was 1024.6 on 20-o4-2013., here share

value has gone to it Lowest level and investors incurred more loss and more shots.

Loss = Opening Price - Lowest Price

= 1189.95-1024.6 = 145.35

Per one share investor incurred Rs.145.35Loss; per lot (145.35 X 132) he incurred Rs.19186.2.

In this profit Brokerage, Service tax etc. includes so his loss will increase to a small amount.

Overall Profit / Loss to Investor:

At the time of expire date Value of the Share wasRs.1108.40 and Opening Price was1189.95,

closing price is more than opening price here investor gets profit.

Loss = Opening Price – Closing Price

= 1189.95 – 1108.40

= 61.55

Per one share investor incurred Rs.61.55 loss, per lot (61.55 x 132) investor incurred

Rs.8124.6s Loss. For this Loss Brokerage, Service tax etc.add, so his Loss will increase to a

small amount. In this contract incurred huge loss.

75
 CHAPTER-IV

FINDINGS

 Lot size of SBIN Future Stock is 132, in September month Span Margin (%) is 18.72.

 Investors who are willing to invest in SBIN FUTSTK they have to pay Rs.33,289, as

Span Amount.

 The SBIN September future contract was opened at 1331on 28-01-18. and closed at

1497.65 on 25-02-18. closing price is more than opening price so investor got profit.

 The SBIN October future contract was opened at 1500 on 26-02-18. and closed at 985.45

on 29-03-18. closing price is lower than opening price so investor incurred loss.

 The SBIN November future contract was opened at 1189.95 on 30-03-18. and closed at

1108.40 on 27-04-18. closing price is lower than opening price so investor incurred loss.

 As per researcher observation in September month investor got more profit, as well as in

October and November he had incurred losses.

76
 SUGGESTIONS

 It is advisable to the investor to invest in the derivatives market because of the greater

amount of liquidity offered by the financial derivatives and the lower transaction costs

associated with the trading of financial derivatives

 Contract size should be minimized because small investors cannot afford this much of

huge premiums.

 The investors can minimize risk by investing in derivatives. The use of derivative equips

the investor to face the risk, which is uncertain. Though the use of derivatives does not

completely eliminate the risk, but it certainly lessens the risk.

 SEBI has to take further steps in the risk management mechanism

 People with low understanding of the Derivatives market are advised to stay away from it

as they are subject to high degree of volatility.

 SEBI has to take measures to use effectively the derivatives segment as tool of hedging

 However, these instruments act as a powerful instrument for knowledge traders to expose

them to the properly calculated and well understood risks in pursuit of reward i.e. profit.

77
 CONCLUSIONS

 Derivative have existed and evolved over a long time, with roots in commodities

market .In the recent years advances in financial markets and technology has made

derivatives easy for the investors.

 The Derivatives markets is newly started in India and its not known by everyone

so, SEBI should act to create awareness in the people about this derivatives

market.

 Derivatives market in India is growing rapidly unlike equity markets .Trading in

derivatives requires more than average understanding of finance, being a new

concept. Maximum numbers of investors have not yet understood the full

implications of the trading in derivatives. SEBI should act to create awareness in

investors about the derivative market.

 In order to increase the derivative market in India the SEBI should revise some of

their regulations like contract size, participation of FII in the Derivatives market.

Contract size should be minimized because small investor can’t afford this much

of huge premium.

 Derivatives are mostly used for hedging purpose.

 If the buy price of the futures is less than the settlement price then the buyer of the

futures get profit.

78
 If the selling price of the futures is less than the settlement price then the seller

incur the losses.

 In cash market the investor has to pay the total money. But in derivatives the

investors have to pay premiums are margins which are some percentage of total

money.

 In the cash market the profit/loss of the investor is depends on the current market

price, i.e., the investor may get unlimited profits and at the same time he may get

unlimited losses. But in Derivatives market the investor can enjoy unlimited profit

by bearing limited losses.

 Presently the derivatives traded are settled on cash basis on the Last Thursday of

each month. Thus, there is no physical delivery of the traded securities. This is

one of the reasons for the Derivatives market to be dominated by speculators and

big Players with grossly inadequate interest shown by small investors to take

advantages of the derivative trading, there is a need to Switch over the phases to

the physical system

79
 BIBLIOGRAPHY

 TEXT BOOKS

1. John C. Hull (2007), Options, futures and other derivatives (6th edition). Prentice-Hall of

India Pvt Ltd.

2. S.S.Kumar (2007), Financial derivatives. Prentice-Hall of India Pvt Ltd.

3. Reme M. Stulz (2007), Risk Management & Derivatives. Thomson South-Western

4. David A. Dubofsky (2007), Derivatives Valuation and Risk Management. Oxford

University Press.

5. V.A.Avadhani (2004), Investment Management. Himalaya Publishing House.

 Websites

www.nseindia.com

www.derivatives.com

www.zenmoney.com

www.bseindia.com

www.rbi.org.in

www.sebi.gov.in

www.capitalmarket.com

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