INDUSTRY OVERVIEW

INTRODUCTION

Stock exchanges to some extent play an important role as indicators, reflecting the

performance of the country’s economic state of health. Stock market is a place

where securities are bought and sold. It is exposed to a high degree of volatility,

prices fluctuate within minutes and are determined by the demand and supply of

stocks at a given time. Stock brokers are the ones who buys and sells securities on

behalf of individuals and institutions for some commission.

The Securities and Exchange Board of India (SEBI) is the authorized body, which

regulates the operations of stock exchanges, banks and other financial institutions.

The past performances in the capital markets especially the securities scam by

‘Hasrshad Mehta’ has led to tightening of the operations by SEBI. In addition the

international trading and investment exposure has made it imperative to better

operational efficiency. With the view to improve, discipline and bring greater

transparency in this sector, constant efforts are being made and to a certain extent

improvements have been made.

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HISTORY

HISTORY OF THE STOCK BROKING INDUSTRY

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly

200 years ago. The earliest records of security dealings in India are meager and

obscure.

By 1830's business on corporate stocks and shares in Bank and Cotton presses took

place in Bombay. Though the trading list was broader in 1839, there were only half a

dozen brokers recognized by banks and merchants during 1840 and 1850. The

1850's witnessed a rapid development of commercial enterprise and brokerage

business attracted many men into the field and by 1860 the number of brokers

increased into 60.

In 1860-61 the American Civil War broke out and cotton supply from United States of

Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers

increased to about 200 to 250. However, at the end of the American Civil War, in

1865, a disastrous slump began (for example, Bank of Bombay Share which had

touched Rs 2850 could only be sold at Rs. 87). At the end of the American Civil

War, the brokers who thrived out of Civil War in 1874, found a place in a street (now

appropriately called as Dalal Street) where they would conveniently assemble and

transact business.

In 1887, they formally established in Bombay, the "Native Share and Stock Brokers'

Association" (which is alternatively known as "The Stock Exchange"). In 1895, the

Stock Exchange acquired a premise in the same street and it was inaugurated in

1899. Thus, the Stock Exchange at Bombay was consolidated.

Thus in the same way, gradually with the passage of time number of exchanges

were increased and at currently it reached to the figure of 24 stock exchanges.

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DEVELOPMENT

An important early event in the development of the stock market in India was the

formation of the Native Share and Stock Brokers’ Association at Bombay in 1875,

the precursor of the present-day Bombay Stock Exchange. This was followed by the

formation of associations /exchanges in Ahmedabad (1894), Calcutta (1908), and

Madras (1937). IN addition, a large number of ephemeral exchanges emerged

mainly in buoyant periods to recede into oblivion during depressing times

subsequently.

In order to check such aberrations and promote a more orderly development of the

stock market, the central government introduced a legislation called the Securities

Contracts (Regulation) Act, 1956. Under this legislation, it is mandatory on the part of

a stock exchanges to seek government recognition. As of January 2002 there were

23 stock exchanges recognized by the central Government. They are located at

Ahemdabad, Bangalore, Baroda, Bhubaneshwar, Calcutta, Chenni,(the Madras

stock Exchanges ), Cochin, Coimbatore, Delhi, Guwahati, Hyderbad, Indore, Jaipur,

Kanpur, Ludhiana, Mangalore, Mumbai(the National Stock Exchange or NSE),

Mumbai (The Stock Exchange), papularly called the Bombay Stock Exchange,

Mumbai (OTC Exchange of India), Mumbai (The Inter-connected Stock Exchange of

India), Patna, Pune, and Rajkot. Of course, the principle bourses are the National

Stock Exchange and The Bombay Stock Exchange , accounting for the bulk of the

business done on the Indian stock market.

While the recognized stock exchanges have been accorded a privileged position,

they are subject to governmental supervision and control. The rules of a recognized

stock exchanges relating to the managerial powers of the governing body,

admission, suspension, expulsion, and re-admission of its members, appointment of

authorized representatives and clerks, so on and so forth have to be approved by the

government. These rules can be amended, varied or rescinded only with the prior

approval of the government.

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BSE(BOMBAY STOCK EXCHANGE)

The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875

as "The Native Share and Stock Brokers Association". It is the oldest one in

Asia, even older than the Tokyo Stock Exchange, which was established in 1878. It

is a voluntary non-profit making Association of Persons (AOP) and is currently

engaged in the process of converting itself into demutualised and corporate entity. It

has evolved over the years into its present status as the premier Stock Exchange in

the country. It is the first Stock Exchange in the Country to have obtained permanent

recognition in 1956 from the Govt. of India under the Securities Contracts

(Regulation) Act, 1956.

The Exchange, while providing an efficient and transparent market for trading in

securities, debt and derivatives upholds the interests of the investors and ensures

redressal of their grievances whether against the companies or its own member-

brokers. It also strives to educate and enlighten the investors by conducting investor

education program and making available to them necessary informative inputs.

A Governing Board having 20 directors is the apex body, which decides the policies

and regulates the affairs of the Exchange. The Governing Board consists of 9

elected directors, who are from the broking community (one third of them retire ever

year by rotation), three SEBI nominees, six public representatives and an Executive

Director & Chief Executive Officer and a Chief Operating Officer.

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NSE(NATIONAL STOCK EXCHANGE)

NSE was incorporated in 1992 and was given recognition as a stock exchange in

April 1993. It started operations in June 1994, with trading on the Wholesale Debt

Market Segment. Subsequently it launched the Capital Market Segment in

November 1994 as a trading platform for equities and the Futures and Options

Segment in June 2000 for various derivative instruments.

NSE has been able to take the stock market to the doorsteps of the investors. The

technology has been harnessed to deliver the services to the investors across the

country at the cheapest possible cost. It provides a nation-wide, screen-based,

automated trading system, with a high degree of transparency and equal access to

investors irrespective of geographical location. The high level of information

dissemination through on-line system has helped in integrating retail investors on a

nation-wide basis. The standards set by the exchange in terms of market practices,

Products , technology and service standards have become industry benchmarks and

are being replicated by other market participants. Within a very short span of time,

NSE has been able to achieve all the objectives for which it was set up. It has been

playing a leading role as a change agent in transforming the Indian Capital Markets

to its present form. The Indian Capital Markets are a far cry from what they used to

be a decade ago in terms of market practices, infrastructure, technology, risk

management, clearing and settlement and investor service.

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NCDEX (NATIONAL COMMODITIES AND DERIVATIVES EXCHANGE)

NCDEX started working on 15th December, 2003. This exchange provides facilities to

their trading and clearing member at different 130 centers for contract.

In commodity market the main participants are speculators, hedgers and

arbitrageurs.

Promoters of NCDEX are

National Stock Exchange(NSE)

ICICI bank

Life Insurance Corporation(LIC)

National Bank for Agricultural and Rural Development (NABARD)

IFFICO

Punjab National Bank (PNB)

CRISIL

WHY NCDEX?

NCDEX is nationalized screen based system which is providing transparent,

private and easy services.

NCDEX is one of the traditional media which gives online information

NCDEX is one of the Indian commodity exchange, constructed on the basis of

the current national institutes the exchange has been established with the

coloration of leading institutes like NABARD, LIC, NSI etc….

In India NCDEX has maximum settlement guarantee fund.

NCDEX has appointed two exports for checking quality at the time of delivery

FACILITIES PROVIDED BY NCDEX

NCDEX has developed facility for checking of commodity and also provides a

wear house facility

By collaborating with industrial partners, industrial companies, news agencies,

banks and developers of kiosk network NCDEX is able to provide current

rates and contracts rate.

To prepare guidelines related to special products of securitization NCDEX

works with bank.

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To avail farmers from risk of fluctuation in prices NCDEX provides special

services for agricultural.

NCDEX is working with tax officer to make clear different types of sales and

service taxes.

NCDEX is providing attractive products like “weather derivatives”

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MCX(MULTI COMMODITY EXCHANGE)

‘MULTI COMMODITY EXCHANGE’ of India limited is a new order exchange with a

mandate for setting up a nationwide, online multi-commodity marketplace, offering

unlimited growth opportunities to commodities market participants. As a true neutral

market, MCX has taken several initiatives for users In a new generation commodities

futures market in the process, become the country’s premier exchange.

MCX, an independent and a de-mutualized exchange since inception, is all set up to

introduce a state of the art, online digital exchange for commodities futures trading in

the country and has accordingly initiated several steps to translate this vision into

reality.

Market Watch:

The market watch window is used to view the market details for a particular or group

of contracts and for a particular instrument type. This window displays the following

details: Symbol, Expiry, price quotation unit, buy qty, buy price, sell price, sell qty,

last traded price, D.P.R, volume (in 000’s), value (in lac),% change, average trade

price, high, low, open, close & open interest.

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TRANSACTION CYCLE

A person holding assets (Securities/Funds), either to meet his liquidity needs or to

reshuffle his holdings in response to changes in his perception about risk and return

of the assets, decides to buy or sell the securities. He selects a broker and instructs

him to place buy/sell order on an exchange. The order is converted to a trade as

soon as it finds a matching sell/buy order. At the end of the trade cycle, the trades

are netted to determine the obligations of the trading member’s securities/funds as

per settlement cycle. Buyer/seller delivers funds/ securities and receives

securities/funds and acquires ownership of the securities.

A securities transaction cycle is presented above. Just because of this Transaction

cycle, the whole business of Securities and Stock Broking has emerged. And as an

extension of stock broking, the business of Online Stock broking/ Online Trading/ E-

Broking has emerged.

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Placing Order

Settlement of

trades

Decision to trade

Trade Execution

Clearing of Trades

Funds or Securities

Transaction Cycle

MAJOR PLAYERS

1. S S KANTILAL ISHWARLAL SECURITIES PVT LTD. (www.sharekhan.com)2. ICICI WEB TRADE LTD. (www.icicidirect.com)3. 5 PAISA.COM (www.5paisa.com)4. KOTAK SECURITIES LTD. (www.kotakstreet.com)5. INDIABULLS (www.indiabulls.com)6. MOTILAL OSWAL SECURITIES LTD. 7. HDFC SECURITIES LTD. (www.hdfcsec.com)8. UTI SECURITIES LTD.9. IDBI CAPITAL MARKET SERIVICES LTD.10. REFCO SIFY SECURITIES PVT LTD.

Parameters A/c Opening Fee Brokerage Interface

Trading

A/c

Demat Delivery Square

Off

Banks Associated

with

Sharekhan 750 NIL 0.50 0.10 HDFC, UTI, OBC,

IDBI & Citibank

ICICI Direct 750 NIL 0.75 0.18 ICICI Bank

Indiabulls 750 250 0.40 0.10 N.A.

5 paisa 800 NIL 0.20 0.05 Citibank, HDFC,

OBC, UTI & ICICI

Bank

Kotak Street 500 N.A. 0.59 0.06 Kotak Bank &

Citibank

HDFC Securities 700 NIL 0.50 0.15 HDFC & Other 4

Banks

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S. S. KANTILAL ISHWARLAL SECURITIES PVT. LTD.

(sharekhan.com):

Sharekhan, India’s leading stock broker is the retail arm of SSKI, and offers you

depository services and trade execution facilities for equities, derivatives and

commodities backed with investment advice tempered by decades of broking

experience. A research and analysis team is constantly working to track performance

and trends. That’s why Sharekhan has the trading products, which are having one of

the highest success rates in the industry. Sharekhan is having 240 share shops in

110 cities; the largest chain of retail share shops in India is of Sharekhan.

In future, Sharekhan is planning to enter in Mutual funds, Insurance sector and

banking sector to expand beyond the market currently covered by it. And it has

started MF (Mutual Funds) on priority basis but wants to grow in it.

ICICI WEB TRADE LTD. (ICICIdirect.com):

ICICIdirect.com was the first entrant into e-broking. ICICdirect.com provides the

3-in-1 to the users which ties in their saving bank account and their Demat account

to their brokerage account electronically. This integration ensures that money is

transferred to/from their bank account and the shares are transferred from/to their

Demat account automatically without writing any cheques or transfer instructions

while carrying out their trades in shares.

ICICIdirect.com has the option of trading in shares in cash, margin or spot segments.

An investor can also invest in 14 Mutual Funds (Prudential ICICI MF, Franklin

Templeton India MF, Alliance Capital MF, JM MF, Birla Sun Life MF, Sundaram MF,

IL&FS MF, Principal MF, HDFC MF, Standard Chartered MF, Reliance Capital MF,

Kotak Mahindra MF, TATA MF and DSP MERRILL LYNCH MF) through their trading

account.

ICICIdirect.com doesn’t provide the facility of trading in a traditional way.

5PAISA.COM

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5paisa is the trade name of India Infoline Securities Private Limited (5paisa),

member of National Stock Exchange and The Stock Exchange, Mumbai. 5paisa is a

wholly owned subsidiary of India Infoline Ltd, India’s leading and most popular

finance and investment portal. 5paisa has emerged as one of leading players in e-

broking space in India.

The company’s brokerage is one of the lowest in the industry. It also provides the

research on commodities. Investors can benefit from its analysis and advice

available at the click of the mouse. For those who prefer to trade the traditional way,

India Infoline investor points are available across the country.

India Infoline was founded by a group of professionals in 1995. Its institutional

investors include Intel Capital, one of the leading technology companies in the world

promoted by the UK government, ICICI, TDA and Reeshanar. The company offers a

slew of products such as stock and derivatives broking, commodities broking and

mutual funds.

KOTAK SECURITIES LIMITED (kotakstreet.com):

Kotak Securities Ltd., a strategic joint venture between Kotak Mahindra Bank and

Goldman Sachs (holding 25% - one of the world’s leading investment banks and

brokerage firms) is India’s leading stock broking house with a market share of 5 - 6

%. Kotak Securities Ltd. has been the largest in IPO distribution - It was ranked

number One in 2003-04 as Book Running Lead Managers in public equity offerings

by PRIME Database. It has also won the Best Equity House Award from Finance

Asia - April 2004.

Kotak Securities Ltd is also a depository participant with National Securities

Depository Limited (NSDL) and Central Depository Services Limited (CDSL)

providing dual benefit services wherein the investors can use the brokerage services

of the company for executing the transactions and the depository services for settling

them. The company has 42 branches servicing around 1, 00,000 customers.

Kotakstreet.com the online division of Kotak Securities Limited offers Internet

Broking services and also online IPO and Mutual Fund Investments.

Kotak Securities Limited manages assets over 1700 crores under Portfolio

Management Services (PMS) which is mainly to the high end of the market. Kotak

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Securities Limited has newly launched “Kotak Infinity” as a distinct discretionary

Portfolio Management Service which looks into the middle end of the market.

INDIA BULLS

Indiabulls is India's leading retail financial services company with 77 locations spread

across 64 cities. Its size and strong balance sheet allows providing varied products

and services at very attractive prices, our over 750 Client Relationship Managers are

dedicated to serving your unique needs.

Indiabulls is lead by a highly regarded management team that has invested crores of

rupees into a world class Infrastructure that provides real-time service & 24/7 access

to all information and products. The Indiabulls Professional Network offers real-

time prices, detailed data and news, intelligent analytics, and electronic trading

capabilities, right at your finger-tips. This powerful technology is complemented by

our knowledgeable and customer focused Relationship Managers.

Indiabulls offers a full range of financial services and products ranging from Equities,

Derivatives, Demat services and Insurance to enhance wealth and to achieve the

financial goals.

MOTILAL OSWAL SECURITIES LTD. (MOSt):

One of the top-3 stock-broking houses in India, with a dominant position in both

institutional and retail broking, MOSt is amongst the best-capitalized firms in the

broking industry in terms of net worth. MOSt was founded in 1987 as a small sub-

broking unit, with just two people running the show. Focus on customer-first-

attitude, ethical and transparent business practices, respect for professionalism,

research-based value investing and implementation of cutting-edge technology have

enabled it to blossom into a thousand-member team.

The institutional business unit has relationships with several leading foreign

institutional investors (FIIs) in the US, UK, Hong Kong and Singapore. In a recent

media report MOSt was rated as one of the top-10 brokers in terms of business

transacted for FIIs.

The retail business unit provides equity investment solutions to more than 50,000

investors through 270 outlets spanning 150 cities and 22 states. MOSt provides

Advice-Based Broking, Portfolio Management Services (PMS), E-Broking

Services, Depository Services, Commodities Trading, and IPO and Mutual

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Fund Investment Advisory Services. Its Value PMS Scheme gave a 160% post-tax

return for the year ended March 2004

In AsiaMoney Brokers Poll 2003 MOSt has been rated as the Best Domestic

Research House- Mega Funds ,while in 2000 and 2002 it has been rated as the

Best Domestic Equity Research House and Second best amongst Indian

Brokerage firms respectively.

HDFC SECURITIES LTD (HDFCsec):

HDFC securities is a brand brought to you by HDFC Securities Ltd, which has been

promoted by the HDFC Bank & HDFC with the objective of providing the diverse

customer base of the HDFC Group and other investors a capability to transact in the

Stock Exchanges & other financial market transactions. The services comprise

online buying and selling of equity shares on the National Stock Exchange (NSE).

Buying and selling of select corporate debt and government securities on the NSE

would be introduced in a subsequent phase. In a few months, they will also start

offering the following online trading services on the BSE and NSE:

1. Buying and selling of shares on the BSE

2. Arbitrage between NSE & BSE

3. Trading in Derivatives on the NSE

4. Margin trading products.

They are also planning to include buying and selling of Mutual Funds, IPO

subscriptions, Right issues, purchase of Insurance policies and asset financing.

UTI SECURITIES LTD.: (UTISEL)

UTI Securities Ltd was incorporated on June 24, 1994 by Unit Trust of India as a

100% subsidiary and on the repealing of the UTI Act, the capital is now held by the

Administrator of the Specified Undertaking of Unit Trust of India (ASUUTI). UTI

Securities has been working as an independent professional entity for providing

financial intermediary and advisory services to its corporate and retail clientele.

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The Company has presence in major cities with 20 branches and 50 franchisees to

service a wide range of clients. The company has also invested in the joint-venture

company with Standard Chartered Bank viz. Standard Chartered UTI Securities

(P) Ltd. that is engaged in primary dealership and Government securities. The

company is very soon going to start Commodity Trading through its subsidiary, USEc

Commodities Ltd, which provides facility of commodity trading on NCDEX and MCX.

IDBI Capital Market Services Ltd.

IDBI Capital is a leading Indian securities firm offering a complete suite of products

and services to individual, institutional and corporate clients.

IDBI Capital Market Services Ltd. (IDBI Capital), a wholly owned subsidiary of

Industrial Development Bank of India (IDBI), is a leading Indian securities firm,

offering a complete suite of products and services to individual, institutional and

corporate clients. The services include fixed income trading, equities brokerage, debt

and equity derivatives, research, private placements, depository services, portfolio

management and distribution of financial products. Over the last five years, we have

emerged as a leading player in each of these businesses.

March 1995 - Commenced Equity Broking on NSE CM segment

July 1995 - Built agent Distribution Network across the country

October 1996 - Commenced Debt Broking on NSE WDM segment

December 1996 - Started operations as a Depository Participant

1996 - Started to act as Arranger to Privately Placed Bond issues

April 1998 - Commenced operations as a Portfolio Manager

February 1999 - Acquired membership of BSE, Mumbai

November 1999 - Started operations as a Primary Dealer

June 2000 - Acquired Derivatives memberships of BSE and NSE

March 2002 - Achieved an outright secondary market turnover exceeding

Rs100,000

October 2002- Commenced trading in Interest Rate Swaps

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REFCO - SIFY SECURITIES INDIA PVT. LTD

Refco-Sify Securities India Pvt. Ltd., headquartered in Mumbai, is a joint venture

between the Refco Group Holding Ltd., USA; and Satyam Infoway Limited

(NASDAQ: SIFY) to offer online and offline equity and derivatives trading for

retail customers as well as execution and clearing services for financial institutions.

Refco also provides clients with prime brokerage services, fixed income, equities,

foreign exchange, OTC derivatives and asset management. Refco is a leader in

providing clients with the latest technological advances in products and services. Its

proprietary systems and global infrastructure provide the flexibility to meet all client

requirements.

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INDUSTRY ANALYSIS

INDUSTRY ANALYSIS USING PORTER’S 5 FORCES MODEL

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SUPPLIERS

Web maintainersNSCLCSDLNSEBSEMCX

NCDEX

SUPPLIERS

Web maintainersNSCLCSDLNSEBSEMCX

NCDEX

SUBSTITUTESMutual Funds

InsuranceBank FD

SUBSTITUTESMutual Funds

InsuranceBank FD

BUYERS

Small InvestorsFranchise/Business

PartnersHNI’s

MF CompaniesHUF

Institutional Investors

BUYERS

Small InvestorsFranchise/Business

PartnersHNI’s

MF CompaniesHUF

Institutional Investors

COMPETITORS

ICICI Web Trade Ltd5paisa.com

Kotak Securities LtdIndia Bulls

Motilal Oswal Securities LtdHDFC Securities LtdMarwadi Finance Ltd

COMPETITORS

ICICI Web Trade Ltd5paisa.com

Kotak Securities LtdIndia Bulls

Motilal Oswal Securities LtdHDFC Securities LtdMarwadi Finance Ltd

POTENTIAL ENTERANT

InvestmartVarious Banks

GeojitCipher

UTI Securities Ltd.Refco Group Ltd.

IDBI Capital Mkt. Services Ltd.

SUPPLIERS

NSDL & CSDL are the regulatory bodies for Depository Participants like SSKI,

SHCIL, ICICIdirect.com, etc. Also these regulatory bodies have got an upper

hand as the bargaining power stock broking houses like SSKI, etc. would be

less.

NSE & BSE are playgrounds where common an investor trade through stock

broking houses, for which they have to take permission from NSE/BSE.

NSE & BSE are under the purview of SEBI, that’s why stock broking houses

like SSKI, have low bargaining power. But here there is one advantage that

NSE/BSE have i.e. they cannot go for forward integration.

MCX & NCDEX are stock exchanges which trade in commodities and

derivatives. Here again stock broking houses have to follow rules and

regulation of the same.

Web maintainers are companies which maintain web sites & technical aspects

of the same. Here stock broking houses like SSKI can have more bargaining

power due to stiff competition among web maintaining companies.

Web maintainers are companies who make and maintain software’s for stock

broking houses. If say for example stock broking houses switches over to

other web maintainers then that company cannot understand the

mechanisms of software’s. So it is quite high switching cost.

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BUYERS

There are various types of investors who trade through stock broking houses

like SSKI, which includes investors like small investors, medium net worth

investors, business partners, institutional investors and mutual fund

companies.

Here the bargaining power of stock broking houses depends on how big the

investor is.

So here we can say that bargaining power of stock broking houses is high in

case of small investors & HUF.

While the bargaining power is moderate in case of HNI (High New Worth

Investors)/ MNI’s (Medium Net Worth Investors) and business partners.

But the in case of mutual fund companies and institutional investors

bargaining power is less.

There is competitive buzz in stock broking industry; competitors are offering

low brokerage and best services with added feature. So switching cost is

pretty much less. So the buyer can easily switch over to competitors product.

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COMPETITORS

The company is facing the competition from local as well as national level

players. The local players provide facility for off-line trading while the national

players like ICICIdirect.com and Kotakstreet.com, HDFC Security provide

online trading services.

There are also other big names like Indiabulls, Motilal Oswal, 5paisa and

Marwadi encircles the company form both the sides by providing online and

off-line trading with competitive services.

POTENTIAL ENTRANTS

The potential entrants in like Investmart, Jeojit and Cipher which are coming

in near future to Rajkot City.

Nationalized banks are also thinking to enter in this field by tying up with

broking houses. E.g. Bank Of Baroda.

SUBSTITUES

Here substitutes are such instruments which can be used instead of investing

in shares.

The instruments like Bank FD, insurance, mutual funds are the substitutes.

If the use of this instruments increase this may be disadvantage for the stock

broking houses.

The companies and banks which are having these instruments can plunge

into this industry.

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ENTRY BARRIERS

Huge capital :- Capital is necessary not only for fixed facilities but also for

customer’s credit and absorbing start up losses. To start a stock broking

house, one needs huge capital for technology up gradation and skilled

manpower.

Technology :- Technology for stock broking houses is life saving device.

Stock broking requires huge capital to make their products user friendly,

which in turn requires capital to employ skilled manpower. Thus, technology

could be one of the entry barriers.

Regulatory Constraints :- Obtaining a license is a tedious job for a stock

broking house. It should comply with the regulation of the governing bodies

like SEBI, NSDL, etc. For a stock broking houses to plunge into the stock

broking industry, it needs to have some kind of financial background and

expertise. Thus, regulators constraints could be an entry barrier.

Experience curve :- The core competency in this industry is the services

which are provided to the end-users and the research based activities which

includes “TIPS”, fundamental as well as technical script analysis. Also the

most important thing which helps already established firms is-“TRUST” which

people would be having on firms like SSKI , Motilal Oswal, etc. this is very

difficult for new companies to imitate.

Network :- The “Reach” to the customer is the key factor in the industry.

The network of the companies like Motilal Oswal, Sharekhan, and ICICI is

very efficient and spreaded all over India. It will take time for a new entrant to

establish such a huge network (e.g. Marwadi), which say that,”Network can

come up as most difficult entry barrier to overcome.”

Expected Retaliation :- Whenever a new player comes in the industry, the

old companies have an option to reduce the prices of their product. This kind

of practice is called expected Retaliation which is also possible in this industry

in terms of less brokerage rates and reduced account opening charges. E.g.

before the entry of so many mew companies, Sharekhan was having two

types of accounts viz. speed trade speed trade plus, which were costing 1000

& 1500 account opening charges respectively. But due to competition, they

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have come up with only one account i.e. speed trade plus with the account

charges of Rs.1000.

COMPETITIVE ANALYSIS

Follower:

The followers are those who just blindly follow the other player which are

leader and challenges.

The players like 5 paisa, Motilal Oswal, HDFC Securities, Kotakstreet are

the followers.

LEADER:

ICICIdirect.com is a leader in the online account which is having 1, 24,000

accounts in the country.

While in offline account Sharekhan is leading with 64,000 offline accounts.

NICHER:

ICICIdirect.com and Kotakstreet.com are the two stock broking houses

which are focusing only on online investors.

CHALLENGER:

Sharekhan, Kotakstreet and Indiabulls come under this head.

Sharekhan challenges competitors by providing quality services and

research based advice.

Indiabulls is also challenging with low brokerage rates and class one

services.

Traditional Broking

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Traditionally In stock Market, the investors invest their money in shares under the

guidance of the Brokers of any stock broking company. This is convenient to those

investors who are not familiar with the computer and the use of internet. But it

requires more dealers to the share broking companies to give guidance related to

investment. There was a chance of inaccuracy of price because it is a time

consuming process. The cost of the company also increases due to more

paperwork. The investor point of view, there was a problem of privacy. The

information of investor may leak by the broker. So, to remove these limitations of

traditional broking, there was an emergence of new concept e-Broking.

E- Broking Today is world of technology. So, the person who adopt it, get the success. So, E-

Broking means broking through electronic means. E-Broking is the broking in which

the investors who are familiar with the use of computer and Internet they directly

trade in stock market. They trade any time at any place when the stock market is

open. The cost of transaction is also reducing with time. The investors have a large

range of option for the trading. It is a paperless transaction so it reduces the cost of

company. There was a facility of live streaming quotes, which give exact price of

share which prevailing in the market at that time. There are two types of online

trading service: DISCOUNT BROKER and FULL SERVICE ONLINE BROKER.

Discount online brokers allow you to trade via Internet at reduced rates. Some

provide quality research, other don’t. Full service online brokerage is linked to

existing brokerage. These brokers allow their client to place online orders with the

option of talking/chatting to brokers if advice is needed. Brokerage rates here are

higher. online trading is still in its infancy stage in India. with trading turnover at

around Rs.10 crores per day from online trading compared to a combined gross

turnover of around Rs.9000-10000 crores handled by the BSE and NSE together,

online trading has a long way to go.

INTERNET TRADING IN INDIA:

23

In the past, investors had no option but to contact their broker to get real time access

to market data. The Net brings data to the investor on line and net broking enables

him to trade on a click. Now information has become easily accessible to both retail

as well as big investors.

The development of broking in India can be categorized in 3 phases:

1. Stock brokers offering on their sites features such as live portfolio manager,

live quotes, market research and news to attract more investors.

2. Brokers offering on line broking and relationship management by providing

and offering analysis and information to investors during broking and non-

broking hours based on their profile and needs, that is, customized services.

3. Brokers (now e-brokers) will offer value management or services such as

initial public offerings on line, asset allocation, portfolio management, financial

planning, tax planning, insurance services and enable the investors to take

better and well-considered decisions.

In the US, 82 per cent of the deals are done on line. The European on line broking

market is expected to be of $8 billions and is likely to raise five fold by 2002. In India,

presently Internet trading can take place through the order routing system, which will

route client orders to exchanges trading systems for execution of trades on stock

exchanges (NSE and BSE). This will also require interface with banks to facilitate

instant cash debit or credit and the depository system for debit or credit of securities.

ABOUT SHAREKHAN COMPANYINTRODUCTION

24

Sharekhan is stock broking company. Share Khan comes under retail arm of SSKI

(Shripal Sevantilal Kantilal Ishwarlal ) investors Services Pvt. Ltd. offers World-class

facilities for buying and selling Shares on BSE and NSE, Demate

Services(DP)Derivatives(F&O). SSKI group also comprises of Institutional broking

and Corporate Finance. Sharekhan does not claim expertise in too many things.

Sharekhan's expertise lies in stocks and that's what he talks about with authority. So

when he says that investing in stocks should not be confused with trading in stocks

or a portfolio-based strategy is better than betting on a single horse, it is something

that is spoken with years of focused learning and experience in the stock markets.

And these beliefs are reflected in everything Sharekhan does for you!

Those of you who feel comfortable dealing with a human being and would rather visit

a brick-and-mortar outlet than talk to a PC, you'd be glad to know that Sharekhan

offers you the facility to visit (or talk to) any of our share shops across the country. In

fact Sharekhan runs India's largest chain of share shops with over hundred outlets in

more than 80 cities! What's a share shop? How do you locate a share shop in your

city?

Sharekhan is 80 years old company which is started online in the year 2000 & it is

the first company who started online in 1984 they ventured into institutional broking&

corporate finance. They having 14 branches, 400 franchises also having 466 shops

in 210 cities. In Rajkot branch daily dealing Rs.16 crore & 400 crore daily dealing all

over India. Almost 4000 employees and 100000 trading customers.

CURRENT POSITION

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VISION

To empower the investor with quality advice and superior service to help him take

better investment decisions. We believe that our growth depends on client

satisfaction.

MISSION

To provide the best customer service and product innovation tuned to diverse

needs of clientele

Continuous up-gradation with changing technology, while maintaining human

values.

Respond to progressive globalization and achieving international standard.

Efficiency and effectiveness built on ethical practices.

CORE VALUE

Customer satisfaction through

Providing quality service effectively and efficiently

“Smile, it enhances your face value ” is a service quality stressed on

periodic customer service Audits

Maximization of stakeholder value

Success through Teamwork, integrity and People

GENERAL INFORMATION

26

NAME : S. S. KANTILAL ISHWARLAL

SECURITEIS PVT. LTD.

HEAD OFFICE : SHAREKHAN LTD.

A – 206, PHOENIH HOUSE,

PHOENIH MILL COPUND,

SENAPATI, BAPTA MARG,

LOWER PAREL,

MUMBAI - 400013

PH NO : 1800 - 22 7500 , 3970 75 00

E-MAIL : shrinivasb@branch.sharekhan.com

WEB SITE : www.sharekhan.com

CHIEF EXECUTIVE OFFICER: TARUN SHAH

BRANCH OFFICES : 100 BRANCHES

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CHANGING TREND

Remember the time when you left orders with your broker in the morning and received

a confirmation fax late in the evening?

You wondered whether you had acquired the shares at the best possible price for the

day. Today, the picture is different. Imagine a scenario where you log on to your

account, get the live quotes of scripts you are interested in, get advise from

experts and research reports on your investment choice and then just click the mouse

to place your order, pay the amount due (which automatically gets debited into your

account with the on line brokerage firm), get your account statement, and the delivery

of your shares into your Demat account. All this through just one click of a mouse.

Seems like a dream? But with online trading this has become a reality. A few seconds

later, you get the confirmation on your screen. And after the trade settlement, your bank

and DP accounts will reflect the changes accordingly.

The speed of transaction, confidentiality about the prices and ease of settlement in

the paperless mode should be good reasons for retail investors to jump on to the Net.

All they need is a PC, a modem, a subscription to an ISP, an account with a bank (which

has a web presence) and a depository account. And they can choose from a plethora

of e-trading web sites.

So, finally the changing trend is known as E-trading which really means Buying and

selling securities via the Internet or other electronic means such as wireless access,

touch-tone telephones, and other new technologies with online trading. In most cases

customers access a brokerage firm's Web Site through their regular Internet Service

Provider. Once there, customers may consult information provided on the Web Site and

log into their accounts to place orders and monitor account activity"

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SSKI Group - Corporate Structure

Integrated Equity Solutions Provider

• Among the top 3 branded retail service providers

(Rs. 200+crs average daily Vol- FY 03-04)

• Multi-channel access to clients

• Tailor made research and products

• Depository Services

• Derivatives

• Innovative products for enhanced performance

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Owns 50.5% of

SSKI Corporate Finance Pvt. Ltd.

Investment Banking arm of the groupShareholding pattern

50.5% SSKI Securities Pvt. Ltd.49.5 % Morakhia family

SSKI Investor Services Pvt. Ltd.

Retail broking arm of the groupShareholding pattern

56% Morakhia family (promoters) 18.5% HSBC Private Equity

Management, Mauritius18.5% First Carlyle Ventures, Mauritius7% Intel Pacific Inc.

SSKI Securities Pvt. Ltd.

Morakhia Family & Associates

Owns 56% of

About Sharekhan

SSKI named its online division as SHARE KHAN and it is into retail Broking

The business of the company overhauled 4 years ago on February 8, 2000.

It acts as a discount brokerage house to a full service investment solutions

provider

It has a 150 member strong team.

It has specialized research product for the small investors and day traders

Largest chain of share shops, 103 Franchisees & 17 Branches across India.

It has $25m/trades every day.

Leading player today with 20% market share

Over 8000 online clients

The site was also launched on February 8, 2000 and named it as

www.sharekhan.com

The SpeedTrade account of share khan is the next generation technology

product launched on April 17, 2002

SpeedTradePlus was launched on October 28, 2002 for trading in Derivatives

It offers its customers with the trade execution facilities on the NSE, for cash

as well as derivatives, depository services

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Ensures convenience in trading experience:

Share Khan’s trading services are designed to offer an easy, hassle free

trading experience, whether trading is done daily or occasionally. The

customer will be entitled to a host of value added services, in the investment

process depending on his investing style and frequency. and offers a suite of

products and services, providing the customer with a multi-channel access to

the stock markets.

It gives advice based on extensive research to its customers and provides

them with relevant and updated information to help him make informed about

his investment decisions.

Share khan offers its customers the convenience of a broker-DP.

It helps the customer meet his pay-in obligations on time thereby reducing the

possibility of auctions. The company believes in flexibility and therefore allows

accepting late instructions without any extra charge. And execute the

instruction immediately on receiving it and thereafter the customer can view

his updated account statement on Internet.

Sharekhan Depository Services offers demat services to individual and

corporate investors. It has a team of professionals and the latest

technological expertise dedicated exclusively to their demat department. A

customer can avail of Demat \ Remat, Repurchase, Pledge, Transmission

facilities at any of the Share khan branches and business partners outlets.

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MARKET COVERAGE

32

Ground Network –

Largest in India

122 Franchisees and 28 branches

Covers 82 cities in 17 states across India

Trade execution facility on BSE and NSE for Cash as well as Derivatives

Depository/Demat account services

Personalized Sharekhan research advice

Uniform service standards

Award-Winner

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Winner of Chip magazine’s ‘Best Financial Website Award’

SEVEN P’S OF SHAREKHAN

PRODUCT

Product Variety

Share khan offers 3 types of online trading accounts for its customers specially

designed according to their volume in share trading. Those 3 varieties are:

Classic- for retail investors

Speed Trade: for high net worth investors with large and active equity

portfolio who need to monitor and action swiftly

Speed trade Plus- for high net worth investors dealing in derivative market.

Quality

User Friendly, attractive & colorful Website.

Design

The website of Share khan namely www.sharekhan.com has been specially

designed to facilitate its users to buy and sell shares in an instant at anytime and

from anywhere they like. The site is user friendly allowing even a layman to easily

operate without any hassles.

Features:

Share khan’s product comes with the following features:

Trade execution in a fraction of a second!

Single Screen Trading Terminal

Real time streaming quotes. Price watch on any number of scripts.

Hot keys similar to Brokers Terminal.

Customized Alerts based on Multiple Parameters.

Back up Facility to place trades on Direct Phone Lines.

Intra day charts, updated live, tick-by-tick.

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Instant Order\ Trade Confirmation in the same window

Live margin, position, marked to market profit & loss report.

Competitive Brokerage.

Flexibility to customize screen layout and setting.

Facility to customize any number of portfolios & watch lists.

Facility to cancel all pending orders at one click.

Facility to square off all transactions at one click.

Top Gainers, Top Losers, and Most Active, updated live.

Index information; index chart, index stock information live.

Market depth, i.e. Best 5 bids and offers, updated live for all scripts

Online access to both accounts and DP.

Live updated Order and Trade Book.

Details of pending, executed and rejected orders.

Online access to Customer Service.

128 - bit super safe encryption.

Facility to place after market orders

Online fund transfer facility from leading Banks

Online intra-day technical calls.

Exhaustive database of over 2000 companies

Historical charts and technical analysis tools.

Last but not the least, ideas that help you to make money!!!

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Brand Name

The company as a whole in its offline business has named itself as SSKI Securities

Pvt. Ltd -Sevaklal Sevantilal Kantilal and Ishwarlal Securities Pvt. Ltd. The company

has preferred to name themselves under a Blanket Family Name.

But in its online division started since 1997, the company preferred to name itself as

“SHARE KHAN”. The Brand Name “SHARE KHAN” itself suggests the business in

which

the company is dealing so that the consumer could easily identify the product or

service category.

Services

Share khan offers its customers, depository services and trade execution facilities for

equities, derivatives and commodities backed with investment advice tempered by

decades of broking experience. The teams of its dedicated analysts are constantly at

work to track performance and trends.

Dial-n-trade is also an exclusive service available to all Sharekhan customers for

trading in shares via the telephone. On dialing the toll free number 1600-22-7050

and on entering the customers TPIN number, the customer will be directed to a

telebroker who will buy or sell shares for him.

PRICE

List Price

CLASSIC SPEED TRADE

SPEED TRADE PLUS

One time registration fee

750 1000 1500

Minimum brokerage Charges –Quarterly

Nil 1000 1500

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Brokerage

Share khan in its online business charges brokerage as follows:

- In equity Market:

On Trading: 0.1% On Delivery: 0.5%

- In Derivative Market

On Trading: 0.12% (Total brokerage) On Delivery: 0.1%

Service Tax

-8% on Brokerage.

Turnover tax + Stamp duty

-0.015% (Rs. 15 on every turnover of Rs. 100000)

Custody Charge

Re. 1 per script held per month.

Discounts

For investors with High Net worth, there are slabs in brokerage rates.

Payment Period

The transaction settlement date in the securities market is T+ 2 days i.e. the

payment of the transaction taken place has to be made within two days of its

occurrence.

Credit terms

Share khan allows its customers to trade up to 4 times i.e. by keeping 1/4th

margin with them.

PROMOTION

Online share trading is totally a new concept in Indian Market. Generally investor

doesn’t like to come out from conventional way of share trading. Share khan has

introduced this product in. The concept and Product are still new in the market.

Therefore the company has undertaken extensive promotion campaign to create

awareness about the product. Share khan adopts the following tools for promoting

the product

Advertising

Company advertises its product through TV media on channels like CNBC,

Print Media-in leading dailies and outdoors media. It advertises itself as an

innovative Brand with a cartoon of tiger-called SHERU. Besides attractive and

37

colorful brochures as well as posters are used giving full details about the

product.

Mails are sent to people logging on to sites like moneycontrol.com and

rediff.com.

Also, stalls are opened up now and then at places where prospective

customers can be approached.

Sales Promotion

The Company offers Rs.500 instead of Rs.750 for corporate accounts (more

than 20 accounts).

Also, it provides online trading accounts for just Rs.300 for IIM students.

Sales Force

The Company has an aggressive sales force, which is given incentives, based

on their sales. The sales force is given intensive training continuously.

Seminar

The Company also arranges seminar in corporate world for creating

awareness about the product. Recently, it had organized for a seminar in

ONGC, IIM.

Direct Marketing

Company emphasizes more on direct marketing, as many people are still not

aware of this new way of smart trading. For this, the company recruits and

trains sales representatives so as to explain the product and solve customer

queries related to the product. This is the most effective way to communicate

the three-in-one concept which company offers.

Telemarketing

This is another promotional tool company is using to boost up its sales. For

this, the company collects the database of the people belonging to different

professional segments.

PLACE

38

Channels

Share khan uses various channel alternatives to reach to its customers

through

Internet

Tele Marketing

Retail Share Shops

Franchisee Owners

Power Brokers

Sales Force

Coverage

Access to the website from any part of the globe.

Locations

Share khan has the largest chain of retail share shops in India. It has 180

share shops located in 90 cities all over India like Pune, Thane, Chennai,

Kolkata, Banglore, Luckhnow, Darjleeng, Kanpur, Baroda, Midnapore, Surat,

Delhi, Gaziabad, Hydrabad, Allahbad, etc.

PEOPLE

Employees

Selection: Employees are selected on the basis of their

experience and qualification as applicable to the job.

Training: Intensive training is provided to the employees till a

week once they join and even at times required after that.

Motivation: The employees are motivated through incentives they

are provided.

Research Team

Share khan has a team of dedicated analysts who have years of working

experience in the industries that they track, and a proven track record in using

their knowledge of the investment science to deliver results.

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Customers,

The heart of sharekhan are really treated loyally like the kings. The customer

care, which comprises of highly trained executives operating from 9:30 to 8:00

p.m.

PHYSICAL EVIDENCE

Locality of the office:

In Ahmedabad, two franchise outlets are located in posh areas like

Navrangpura and Maninagar. A new franchise is going to open up in

Vastrapur.

Office Environment:

The ambience within the office is what can make the customer feel

comfortable in trading. The cordial and friendly atmosphere at office is like a

full time motivation for the employees.

Interiors and Infrastructure:

The office is well furnished and has 24 computer terminals on which tick-by-

tick price movements of the securities are displayed.

PROCESS

In this service organization, the ways in which the customers receive delivery

of the service constitutes the process. Here, the process involves adding

‘value’ or ‘utility’ so that the customers get full satisfaction for the money spent

by them.

Here the process begins from the step when customer wants to open e-invest

account and ends when his account is actually activated.

All Indian residents and NRI are eligible to avail this service.

Customers can open a sharekhan e-invest account by filling a single

application form.

This form includes 9 agreements like

1. Main form with customer details

2. Agreement between sharekhan and client in respect of the ONLINE-

INVESTMENT SUPPORT service offered.

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3. Agreement between the Depository Participant and the client for providing the

transaction statement through Internet.

4. Irrevocable power of attorney

5. Agreement between the DP and the person seeking to open an account with

the DP.

6. Maintenance of client’s account on a running account bases by SSKI.

7. Agreement giving the right of lien on the credit balance of client in NSE

trading.

8. Agreement giving the right of lien on the credit balance of client in BSE

trading.

9. Risk disclosure document (cash segment)

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SEVEN ‘S’ MODEL

STRUCTURE:

42

Super ordinate Goals goals

Style

Syste

ms

Structure

Strategy

Skills

Staff

Share khan is flexible in terms of making temporary structural changes to

cope up with specific strategic tasks without any hassles. If need arises,

the top management can assign the role to any of its employees which it

considers capable and skillful.

STRATEGY:

Share khan believes not only in developing the strategies but also in its

successful execution.

SYSTEMS:

This constitutes of all the training and development systems, estimating

budgets and the accounting system of Share khan.

STYLE:

Style refers to all the symbolic actions undertaken by top managers of

Share khan and its influence on the subordinates.

STAFF:

Share khan values its employees as its assets and therefore carefully

trains and motivates them by giving them incentives at regular intervals.

Talented employees are assigned as mentors and given real responsibility

and moved into higher positions.

SKILLS:

The term skills refer to those activities organizations do best and for which

they are known. Share khan is known for its timely advice

(suggestions/tips), which it caters to its customers and it boasts of 70-90%

strike rates in booking recommendations.

SUPERORDINATE GOALS:

This refers to guiding concepts, values and aspirations that unite an

organization in some common purpose. It provides the customers the best

service as it believes in customer satisfaction and retention.

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SHAREKHAN’S STOCK CLUSTER

We categorize all the scrip’s that are under coverage into six clusters. Each cluster

represents a certain profile in terms of business fundamentals as well as the kind of

returns you can expect over a certain time horizons and return objectives best.

Evergreen

Dominant players with strong brands, robust management

credentials, supernormal shareholder returns. Will steadily compound

18-20% per year for next five to ten years.

Applegreen

Potentially steady compounders, but five to ten years graph bit unclear.

Could gallop at 25-30 per year over the next two to three years.

Emerging Star

Young companies likely to rule chosen niches. Even better, the niches

could balloon into full-blow markets. Potentially ten-baggers if you’re

patient.

Ugly Duckling

Trading below fair value or at huge discount to peer group. But

somtehing’s cooking.Could double in two to three years time.

Vulture’s Pick

Companies with valueable assets at throwaway prices.Buy & await

predators.Stratlingly high returns possible.

Cannonball

Season’s favourites. Typically fast gainers in rising markets, could

return 30-50% within six months. Get in, cash in, get out.

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Publications of sharekhan

Sharekhan’s Valueline

Derivatives Digest

Eagle Eye

High Noon

Investor’s Eye

Commodities Buzz

Commodities Beat

Commodity Trader’s Corner

Sharekhan Xclusive

45

PRODUCTS OF THE SHAREKHAN COMPANY

Other Services:

1. Dial-n-Trade

2. Depository Services

3. Commodity Trading

4. Derivative Trading

5. Mutual fund

6. Portfolio Management Services

7. Online IPO

8. Research Based Information Provided

OFFLINE

Offline A/c is the A/c for the investors who are not familiar with the use of

computer.

The A/C opening charges Rs.500(One time)

For 1st Year Demat A/C is Free,On 2nd Year AMC charge is applicable.

46

Offline

ShareKhan’s product

Online

Classic A/C Speed Trade A/C

Other Services

ONLINE

A/C Opening Charges Rs.750(onetime Charge).

For 1st Year Demat A/C is Free,On 2nd Year AMC charge is applicable.

Type with 7 banks through which one can transfer or withdraw his fund

online.Which are as follows

1. HDFC Bank

2. IDBI Bank

3. UTI Bank

4. OBC Bank

5. CITY Bank

6. Indusind Bank

7. Union Bank of India

Any one who have A/C either of above banks they can use this facility.Otherwise one

has to make fund transfer or withdraw by cheque.

This account enables you to buy and sell shares through our website. You get

features like

47

a) Streaming quotes (using the applet based system)

b) Mutltiple watchlists

c) Integrated Banking, demat and digital contracts

d) Instant credit and transfer

e) Real-time portfolio tracking with price alert and, of course, the assurance of

secure transactions.

Features of Classic Account

that enables you to invest effortlessly

Online trading account for investing in Equities and Derivatives via sharekhan.com

Integration of: Online trading + Bank + Demat account

Instant cash transfer facility against purchase & sale of shares

Make IPO booking

You get Instant order and trade confirmations by e-mail

Streaming Quotes

Personalised Market Scan with your own customized stock ticker!

Single screen interface for cash and derivatives

Your very own Portfolio Tracker!

System Requirements

you’ll need access to a computer which has at least the following configuration:

Pentium 3 PC, Minimum 128 MB RAM

Windows 2000/XP

Internet Connection

Internet Explorer 6.0

Java enabled in IE

48

SPEEDTRADE

A/C Opening Charges Rs.1000/-(onetime Charge).

Monthly charges Rs.500/-(But if Client give Brokerage of Rs.1500/-in a Quarter, then

Rs.1500/-that was charged of a Quarter will be Reimbursed).

For 1st Year Demat A/C is Free, On 2nd Year AMC charge is applicable.

Type with 7 banks through which one can transfer or withdraw his fund online.Which

are as follows

HDFC Bank

IDBI Bank

UTI Bank

OBC Bank

CITY Bank

Indusind Bank

Union Bank of India

Any one who have A/C either of above banks they can use this facility. Otherwise

one has to make fund transfer or withdraw by cheque.

Features of SpeedTradethat enable you to trade effortlessly

Instant order Execution & Confirmation

49

Single screen trading terminal

Real-time streaming quotes, tic-by-tic charts

Market summary (most traded scrip, highest value and lots of other relevant statistics)

Hot keys similar to a brokers terminal

Alerts and reminders

Back-up facility to place trades on Direct Phone lines

Single screen interface for cash and derivatives

System Requirements

You'll need access to a computer which has at least the following configuration:

Pentium 3 PC

Minimum 128 MB RAM

Windows 2000/XP

Dial-up Modem / Cable modem

Internet Connection Account

Internet Explorer 6.0

Java enabled in IE

Charges of Different companies for online A/C

Parameters Opening Fee Brokerage Interface

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Trading A/C

Demate A/c

Delivery Square Off

Bank Associated

Sharekhan 750 NIL 0.50 0.10 HDFC,UTI,OBC, IDBI, City Bank

ICICI Direct 750 NIL 0.75 0.18 ICICI Bank

IndiaBulls 750 250 0.40 0.10

5 Paisa NIL 0.20 0.05 ICICI Bank ,UTI,OBC,HDFC, City Bank

Kotak Street 500 0.59 0.06 Kotak Bank, City Bank

HDFC Securities

700 NIL 0.50 0.15 HDFC & Other Bank

Dial-n-Trade

Trade in Equity by using your phone!

Free with your Sharekhan Classic Account, the Dial-n-Trade service enables you to

place orders for buying and selling shares through your telephone.

All you have to do is dial any one of our two dedicated numbers (1-800-22-7050 or

30307600), enter your TPIN number (which is provided at the time of opening your

account) and on authentication you'll be directed to a telebroker who will buy and

sell shares for you.

Features of Dial-n-Tradethat enable you to trade effortlessly

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TWO dedicated numbers for placing your orders with your cellphone or landline. Toll

free number: 1-800-22-7050. For people with difficulty in accessing the toll-free

number, we also have a Reliance number 30307600 which is charged at Rs. 1.50

per minute for STD calls.

Automtic funds tranfer with phone banking (for Citibank and HDFC bank customers)

Simple and Secure Interactive Voice Response based system for authentication

No waiting time. Enter your TPIN to be transferred to our telebrokers

You also get the trusted, professional advice of our telebrokers

After hours order placement facility between 8.00 am and 9.30 am (timings to be

extended soon)

Reliable service, wherever you are

Requirements

All you need is access to a phone - either a landline or a cellphone: (the type of phone doesn't matter)

If calling from a cellphone, please dial 022-1-800-22-7050

Currently for Citibank and HDFC customers. More banks to be added soon

After hour order timings: 8.00 am to 9.30 am

It takes approximately 10 minutes of your time to place an order

PORTFOLIO MANAGEMENT SYSTEM

52

With the Sharekhan Team Managing Your Portfolio, you can be assured that

your investments are in safe hands!

We follow a multi-disciplined approach incorporating quantitative analysis,

fundamental analysis and technical analysis. This multi-pronged approach enables

us to provide risk-controlled returns for you.

Right from choosing the combination of stocks most suitable for you based on your

risk appetite to monitoring their movements and discussing them with you at special

events.

MUTUAL FUND

53

Introduction

Everybody talks about mutual funds, but what exactly are they? Are they like shares

in a company, or are they like bonds and fixed deposits? Will I lose all my money in

funds or will I become an overnight millionaire? Big questions that get answered in

just five minutes.

Meaning

A mutual fund is a pool of money that is invested according to a common investment

objective by an asset management company (AMC). The AMC offers to invest the

money of hundreds of investors according to a certain objective - to keep money

liquid or give a regular income or grow the money long term. Investors buy a scheme

if it fits in with their investment goals, like getting a regular income now or letting the

money accumulate over the long term. Investors pay a small fraction of their total

funds to the AMC each year as investment management fees.

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Categories of Mutual Fund

There are three broad categories of funds in the Indian market - money market, debt

and equity. A money market fund invests in short-term government debt paper and is

good for parking money for the short term since the principal is safe, returns better

than a bank deposit and liquidity high. Debt funds invest mainly in debt instruments

like government securities, corporate and institutional debt paper. They are also

called income funds since people buy them for their income needs. Equity funds

invest in the stock market and suit long term investors who want capital appreciation.

Commodity, property and gold funds are yet to come into India.

Investing in Mutual Funds through Sharekhan

We're glad to announce that you will now be able to invest in Mutual Funds through

us! We've started this service for a few mutual funds, and in the near future will be

expanding our scope to include a whole lot more. Applying for a mutual fund through

us is open to everybody, regardless of whether you are a Sharekhan customer.

You have two choice through which you can invest in Mutual Fund.

A) On the main page of this micro-site and scheme snapshot page we have provided

with a link to PDF version of application form which you just need to download, print

and fill up relevant details. Submit the duly filled copy with payment either to Nearest

Sharekhan Branch Or Mutual Fund Company.

B) Alternatively you can call up our customer service 1600-22-7500 and give your

contact detail wherey we will arrange to mail you a hard copy of application of

desired schemes from the list offered by Sharekhan.

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Sharekhan Depository Services

Dematerialization and trading in the demat mode is the safer and faster alternative to

the physical existence of securities. Demat as a parallel solution offers freedom from

delays, thefts, forgeries, settlement risks and paper work. This system works through

depository participants (DPs) who offer demat services and hold the securities in the

electronic form for the investor Sharekhan Depository services offers

dematerialisation services to individual and corporate investors.We have a team of

professionals and the latest technological expertise dedicated exclusively to our

demat department, apart from a national network of franchisee, making our services

quick, convenient and efficient. At Sharekhan, our commitment is to provide a

complete demat solution which is simple, safe and secure.

The services offered by Depository Participant

Convert your physical holding into electronic holding (which is called

"dematerialization" of securities)

Keep custody of your holdings in electronic form.

Transfer the shares in the electronic form from one account to another.

Facilitate pledge of your electronic securities.

Give electronic credit of new share allotments such as public issues, bonus, rights

etc.

Convert your electronic holding into physical holding (which is called

"dematerialization of securities")

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RESEARCH BASED ADVICE

Every investor’s needs and goals are different. To meet these needs, Sharekhan

provides a comprehensive set of research reports, so that one can take the right

investment decisions regardless of their investing preferences! The Research and

Development at Sharekhan is done at its Head office Mumbai.

The R&D department Head Mr. Hemang Jani forwards all the details regarding all

stocks and scripts to all the branches through Internet. At the end of each trading

day there is a Teleconference, through which the R&D department Head MR.

Hemang Jani talks with each Branch heads and discusses about each day’s closing

position and shows their predictions about next day’s opening position. The quarries

regarding stock positions and other relevant matter of the branch heads of each

branch is being solved through teleconference.

The various publications of Sharekhan viz. Derivatives Digest, Sharekhan’s

Valueline, Eagle eye, High Noon, Investor’s Eye, Commodities Buzz, Commodities

Beat, Commodity Trader’s corner, Sharekhan Xclusive, etc. are being prepared by

the research team of Sharekhan made up of highly experienced people from diverse

field. These all publication provides:

In-depth analysis of the markets

Analysis Before, During (live market updates) and After market

timings

Special sector tracking reports sent regularly

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ONLINE IPO

Online IPO (Initial Public Offering) is a new service started by Sharekhan for

providing the application form of any company’s issues of shares just like the TCS

issue can be subscribed by filling an online form to reduce the paper work and the

fund transfer facility is also provided to the clients for transferring the funds online. It

is given on its web-site for helping the clients who are not able to collect the forms

manually and the speed of filling and reducing the risk of misplacing of forms, not

reaching in time, etc.

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SWOT ANALYSISDuring this training at sharekhan, we had come to know the Strengths-Weaknesses-

Opportunities-Threats for the company and it is very useful for a company to analyze

them. Therefore, the SWOT analysis is presented here and the suggestions for

maintaining strengths and removing weaknesses are explained.

Strengths:

Well-maintained infrastructure.

Dedicated, Intelligent and Loyal staff.

On-line Trading products.

Lowest brokerage and other charges w.r.t. Competitors.

The best investment advice correct up to 70-90 % through dedicated

research and reports.

Wide product range to enable the clients to choose the best alternative.

One of the best DPs in India.

A positive image in the existing clients.

Weaknesses:

Less awareness in the market.

Time consuming process for account opening, resolving the problems of the

customers, etc.

Service quality is not maintained accordingly how they are promoted.

Opportunities:

Slope of stock market towards delivery based transaction.

Large potential market for delivery and intra-day transactions.

Open interest of the people to enter in stock market for investing.

Attract the customers who are dissatisfied with other broker & DPs.

An indirect opportunity generated by the market from its bullishness.

Large untapped market in the Saurashtra region of Gujarat.

Threats:

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Decreasing rates of brokerage in the market.

Increasing competition against other brokers & DPs

Poor marketing activities for making the company known among the

customers.

A threat of loosing clients for any kind of weakness of the company.

Loosing the untapped market with the entry of the competitors.

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ABOUT THE DERIVATIVESDERIVATIVES

INTRODUCTION

Keeping in view the experience of even strong and developed economies the world

over, it is no denying the fact that financial market is extremely volatile by nature.

Indian financial market is not an exception to this phenomenon. The attendant risk

arising out of the volatility and complexity of the financial market is an important

concern for financial analysts. As a result, the logical need is for those financial

instruments which allow fund managers to better manage or reduce these risks.

Out of various risks, Credit Risk and Interest Rate risk are the two core risks, which

are commonly acknowledged by various categories of Financial Institutions

particularly banks. Effective management of these core risks is a critical factor in

comprehensive risk management and is essential for the long-term financial health of

business organizations, especially banks.

With gradual liberalization of Indian financial system and the growing integration

among markets, the risks associated with operations of banks and All India Financial

Institutions have become increasingly complex, requiring strategic management. In

keeping with spirit of the guidelines on Asset-Liability Management (ALM) systems

and on integrated risk management systems, it is very much required to design risk

management architecture, taking into consideration the size, complexity of business,

risk philosophy, market perception and the level of capital. In addition, fine-tuning the

risk management system to deal with credit and market risk is also the need of the

hour. For enabling the banks and the financial institutions, among others, to manage

their risk effectively, the concept of derivatives comes into picture. The emergence of

the market for derivative products, most notably forwards, futures and options, can be traced

back to the willingness of risk-averse economic agents to guard themselves against

uncertainties arising out of fluctuations in asset prices. By their very nature, the financial

markets are marked by a very high degree of volatility. Through the use of derivative

products, it is possible to partially or fully transfer price risks by locking–in asset prices. As

instruments of risk management, these generally do not influence the fluctuations in the

underlying asset prices. However, by locking-in asset prices, derivative products minimize

61

the impact of fluctuations in asset prices on the profitability and cash flow situation of risk-

averse investors.

MEANING

A derivative is a financial instrument, which derives its value from some other

financial price. This “other financial price” is called the underlying. The underlying

asset can be equity, FOREX, commodity or any other asset.

A wheat farmer may wish to contract to sell his harvest at a future date to eliminate

the risk of a change in prices by that date. The price for such a contract would

obviously depend upon the current spot price of wheat. Such a transaction could

take place on a wheat forward market. Here, the wheat forward is the “derivative”

and wheat on the spot market is “the underlying”. The terms “derivative contract”,

“derivative product”, or “derivative” are used interchangeably. The most important

derivatives are futures and options.

Example: -

A very simple example of derivatives is curd, which is derivative of milk. The price of

curd depends upon the price of milk, which in turn depends upon the demand, and

supply of milk.

See it this way. American depository receipts/ global depository receipts of ICICI,

Satyam and Infosys traded on stock exchanges in the USA and England have their

own values? No. They draw their price from the underlying shares traded in India.

Consider how the value of mutual fund units changes on a day-to-day basis. Don’t

mutual fund units draw their value from the value of the portfolio of securities under

the schemes? Aren’t these examples of derivatives? Yes, these are. And you know

what, these examples prove that derivatives are not so new to us. Nifty options and

futures, Reliance futures and options, Satyam futures and options etc are all

examples of derivatives. Futures and options are the most common and popular

form of derivatives.

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HISTORY

The derivatives markets has existed for centuries as a result of the need for both

users and producers of natural resources to hedge against price fluctuations in the

underlying commodities. India has been trading derivatives contracts in silver, gold,

spices, coffee, cotton and oil etc for decades in the gray market. Trading derivatives

contracts in organized market was legal before Morarji Desai’s government banned

forward contracts. Derivatives on stocks were traded in the form of “Teji” and “Mandi”

in unorganized markets. Recently futures contract in various commodities was

allowed to trade on exchanges. In June 2000, NSE and BSE started trading in

futures on Sensex and Nifty. Options trading on Sensex and Nifty commenced in

June 2001. Very soon thereafter trading began on options and futures in 31

prominent stocks in the month of July and November respectively. The market lots

keeps on changing from time to time. The minimum quantity you can trade in is one

market lot.

DERIVATIVES: AN INDIAN CONTEXT:

In Indian context, the intensity of derivatives usage by institutional investors (viz.

Banks, Financial Institution; Mutual Funds, Foreign Institutional Investors, Life and

General Insurers) depend on their ability and willingness to use derivatives for one or

more of the following purposes:

Risk containment: using derivatives for hedging and risk containment

purposes

Risk Trading/Market Making: Running derivatives trading book for profits and

arbitrage; and/or

Covered Intermediation: On-balance-sheet derivatives intermediation for client

transaction, without retaining any net-risk on the balance sheet (except credit

risks).

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DERIVATIVES

TYPES OF DERIVATIVES

Derivative as a term conjures up visions of complex numeric calculations,

speculative dealings and comes across as an instrument which is the prerogative of

a few ‘smart finance professionals’. In reality it is not so. In fact, a derivative

transaction helps cover risk, which would arise on the trading of securities on which

the derivative is based and a small investor can benefit immensely. “A derivative

security can be defined as a security whose value depends on the values of

other underlying variables.” Very often, the variables underlying the derivative

securities are the prices of traded securities.

Derivatives and futures are basically of 3 types:

Forwards and Futures

Options

Swaps

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Options Futures Swaps Forwards

Commodi Security

Interest CurrencPut Call

FORWARDS:

A forward contract is the simplest mode of a derivative transaction. It is an

agreement to buy or sell an asset (of a specified quantity) at a certain future

time for a certain price. No cash is exchanged when the contract is entered

into.

Illustration: - Shyam wants to buy a TV, which costs Rs 10,000 but he has no cash

to buy it outright. He can only buy it 3 months hence. He, however, fears that prices

of televisions will rise 3 months from now. So in order to protect himself from the rise

in prices Shyam enters into a contract with the TV dealer that 3 months from now he

will buy the TV for Rs 10,000. What Shyam is doing is that he is locking the current

price of a TV for a forward contract. The forward contract is settled at maturity. The

dealer will deliver the asset to Shyam at the end of three months and Shyam in turn

will pay cash equivalent to the TV price on delivery.

FUTURES:

It is an agreement between two parties to buy or sell an asset at a certain time in the

future at a certain price through exchange traded contracts.

A Future represents the right to buy or sell a standard quantity and quality of an

asset or security at a specified date and price. Futures are similar to Forward

Contracts, but are standardized and traded on an exchange, and are valued, or

"Marked to Market” daily. The Marking to Market provides both parties with a daily

accounting of their financial obligations under the terms of the Future. Unlike

Forward Contracts, the counterparty to a Futures contract is the clearing corporation

on the appropriate exchange. Futures often are settled in cash or cash equivalents,

rather than requiring physical delivery of the underlying asset. Parties to a Futures

contract may buy or write Options on Futures.

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OPTIONS:

An option is a contract, which gives the buyer the right, but not the obligation

to buy or sell shares of the underlying security at a specific price on or before

a specific date.

‘Option’, as the word suggests, is a choice given to the investor to either honor the

contract; or if he chooses not to walk away from the contract. There are two kinds of

options: Call Options and Put Options.

A Call Option is an option to buy a stock at a specific price on or before a certain

date. When you buy a Call option, the price you pay for it, called the option premium,

secures your right to buy that certain stock at a specified price called the strike price.

If you decide not to use the option to buy the stock, and you are not obligated to,

your only cost is the option premium.

Put Options are options to sell a stock at a specific price on or before a certain date.

In this way, Put options are like insurance policies. With a Put Option, you can

"insure" a stock by fixing a selling price. If something happens which causes the

stock price to fall, and thus, "damages" your asset, you can exercise your option and

sell it at its "insured" price level. If the price of your stock goes up, and there is no

"damage," then you do not need to use the insurance, and, once again, your only

cost is the premium.

Technically, an option is a contract between two parties. The buyer receives a

privilege for which he pays a premium. The seller accepts an obligation for which he

receives a fee.

CALL OPTIONS

Call options give the taker the right, but not the obligation, to buy the underlying

shares at a predetermined price, on or before a predetermined date.

Illustration: - Raj purchases 1 Satyam Computer (SATCOM) AUG 150 Call --

Premium 8

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This contract allows Raj to buy 100 shares of SATCOM at Rs 150 per share at any

time between the current date and the end of next August. For this privilege, Raj

pays a fee of Rs 800 (Rs eight a share for 100 shares).

The buyer of a call has purchased the right to buy and for that he pays a premium.

Now let us see how one can profit from buying an option; Sam purchases a

December call option at Rs 40 for a premium of Rs 15. That is he has purchased the

right to buy that share for Rs 40 in December. If the stock rises above Rs 55 (40+15)

he will break even and he will start making a profit. Suppose the stock does not rise

and instead falls he will choose not to exercise the option and forego the premium of

Rs 15 and thus limiting his loss to Rs 15.

Call Options-Long & Short Positions

When you expect prices to rise, then you take a long position by buying calls. You

are bullish.

When you expect prices to fall, then you take a short position by selling calls. You

are bearish.

 

PUT OPTIONS

A Put Option gives the holder of the right to sell a specific number of shares of an

agreed security at a fixed price for a period of time.

Illustration:- Raj is of the view that the a stock is overpriced and will fall in future,

but he does not want to take the risk in the event of price rising so purchases a put

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option at Rs 70 on ‘X’. By purchasing the put option Raj has the right to sell the stock

at Rs 70 but he has to pay a fee of Rs 15 (premium).

So he will breakeven only after the stock falls below Rs 55 (70-15) and will start

making profit if the stock falls below Rs 55.

Put Options-Long & Short Positions

When you expect prices to fall, then you take a long position by buying Puts. You are

bearish.

When you expect prices to rise, then you take a short position by selling Puts. You

are bullish.

CALL OPTIONS PUT OPTIONS

If you expect a fall in price(Bearish) Short Long

If you expect a rise in price (Bullish) Long Short

IMPORTANT FACTORS IN DERIVATIVES

HEDGING

We have seen how one can take a view on the market with the help of index futures.

The other benefit of trading in index futures is to hedge your portfolio against the risk

of trading. In order to understand how one can protect his portfolio from value

erosion let us take an example.

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Illustration: Ram enters into a contract with Shyam that six months from now he will

sell to Shyam 10 dresses for Rs 4000. The cost of manufacturing for Ram is only Rs

1000 and he will make a profit of Rs 3000 if the sale is completed.

Cost (Rs) Selling price Profit

1000 4000 3000

However, Ram fears that Shyam may not honor his contract 6 months from now. So

he inserts a new clause in the contract that if Shyam fails to honor the contract he

will have to pay a penalty of Rs 1000. And if Shyam honors the contract Ram will

offer a discount of Rs 1000 as incentive.

Shyam defaults Shyam honors

1000 (Initial Investment) 3000 (Initial profit)

1000 (penalty from Shyam) (-1000) discount given to Shyam

- (No gain/loss) 2000 (Net gain)

As we see above if Shyam defaults Ram will get a penalty of Rs 1000 but he will

recover his initial investment. If Shyam honors the contract, Ram will still make a

profit of Rs 2000. Thus, Ram has hedged his risk against default and protected his

initial investment.

The above example explains the concept of hedging.

SPECULATION

Speculators are those who do not have any position on which they enter in futures

and options market. They only have a particular view on the market, stock,

commodity etc. In short, speculators put their money at risk in the hope of profiting

from an anticipated price change. They consider various factors such as demand

69

supply, market positions, open interests, economic fundamentals and other data to

take their positions.

Illustration: Ram is a trader but has no time to track and analyze stocks. However,

he fancies his chances in predicting the market trend. So instead of buying different

stocks he buys Sensex Futures.

On May 1, 2001, he buys 100 Sensex futures @ 3600 on expectations that the index

will rise in future. On June 1, 2001, the Sensex rises to 4000 and at that time he sells

an equal number of contracts to close out his position.

Selling Price : 4000*100            = Rs 4,00,000

Less: Purchase Cost: 3600*100 = Rs 3,60,000

Net gain                                              Rs 40,000

Ram has made a profit of Rs 40,000 by taking a call on the future value of the

Sensex. However, if the Sensex had fallen he would have made a loss. Similarly, if

would have been bearish he could have sold Sensex futures and made a profit from

a falling profit. In index futures players can have a long-term view of the market up to

atleast 3 months.

ARBITRAGE

An arbitrageur is basically risk averse. He enters into those contracts were he can

earn riskless profits. When markets are imperfect, buying in one market and

simultaneously selling in other market gives risk less profit. Arbitrageurs are always

in the look out for such imperfections.

In the futures market one can take advantages of arbitrage opportunities by buying

from lower priced market and selling at the higher priced market. In index futures

arbitrage is possible between the spot market and the futures market.

Assume that Nifty is at 1200 and 3 month’s Nifty futures is at 1300.

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The futures price of Nifty futures can be worked out by taking the interest

cost of 3 months into account.

If there is a difference then arbitrage opportunity exists.

Let us take the example of single stock to understand the concept better. If Wipro is

quoted at Rs 1000 per share and the 3 months futures of Wipro is Rs 1070 then one

can purchase ITC at Rs 1000 in spot by borrowing @ 12% annum for 3 months and

sell Wipro futures for 3 months at Rs 1070.

Sale                = 1070

Cost= 1000+30 = 1030

Arbitrage profit =     40

These kinds of imperfections continue to exist in the markets but one has to be alert

to the opportunities as they tend to get exhausted very fast.

MARGINS

The margining system is based on the JR Verma Committee recommendations. The

actual margining happens on a daily basis while online position monitoring is done

on an intra-day basis.

Daily margining is of two types:

1. Initial margins

2. Mark-to-market profit/loss

The computation of initial margin on the futures market is done using the concept of

Value-at-Risk (VaR). The initial margin amount is large enough to cover a one-day

loss that can be encountered on 99% of the days. VaR methodology seeks to

measure the amount of value that a portfolio may stand to lose within a certain

horizon time period (one day for the clearing corporation) due to potential changes in

the underlying asset market price. Initial margin amount computed using VaR is

collected up-front.

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The daily settlement process called "mark-to-market" provides for collection of

losses that have already occurred (historic losses) whereas initial margin seeks to

safeguard against potential losses on outstanding positions. The mark-to-market

settlement is done in cash.

Let us take a hypothetical trading activity of a client of a NSE futures division to

demonstrate the margins payments that would occur.

A client purchases 200 units of FUTIDX NIFTY 29JUN2001 at Rs 1500.

The initial margin payable as calculated by VaR is 15%.

Total long position = Rs 3,00,000 (200 x 1500)

Initial margin (15%) = Rs 45,000

Assuming that the contract will close on Day + 3 the mark-to-market position will look

as follows:

POSITION ON DAY 1

Close Price Loss Margin released Net cash outflow

1400 x 200 =

2,80,000

20,000 (3,00,000 -

2,80,000)

3,000 (45,000 -

42,000)

17,000 (20,000 -

3000)

Payment to be

made(17,000)

NEW POSITION ON DAY 2

Value of new position = 1,400*200= 2,80,000

Margin = 42,000

Close Price Gain Addn Margin Net cash inflow

1510 x 200 =

3,02,000

22,000

(3,02,000 - 2,80,000)

3,300

(45,300 - 42,000)

18,700

(22,000 - 3300)

Payment to be recd 18,700

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POSITION ON DAY 3

Value of new position = 1510*200 = Rs 3, 02,000

Margin = Rs 3,300

Close Price Gain Net cash inflow

1600*200

=3,20,00018,000 (3,20,000-3,02,000) 18,000 + 45,300* = 63,300

Payment to be recd 63,300

Margin account*

Initial margin                = Rs 45,000

Margin released (Day 1) = (-) Rs   3,000

Position on Day 2                  Rs 42,000

Addn margin                =   (+)Rs   3,300

Total margin in a/c                 Rs 45,300*

Net gain/loss

Day 1 (loss)                = (Rs 17,000)

Day 2 Gain                  = Rs 18,700

Day 3 Gain                  = Rs 18,000

Total Gain                   = Rs 19,700

The client has made a profit of Rs 19,700 at the end of Day 3 and the total cash

inflow at the close of trade is Rs 63,300.

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ABOUT COMMODITIESINTRODUCTION

Commodities Market In India

Organized futures market evolved in India by the setting up of "Bombay Cotton

Trade Association Ltd." in 1875. In 1893, following widespread discontent amongst  

leading cotton mill owners and merchants over  the  functioning of the Bombay

Cotton Trade Association, a separate association by the name "Bombay Cotton

Exchange Ltd." was constituted. Futures trading in oilseeds was organized in  India 

for the first time with the setting up of Gujarati Vyapari Mandali  in 1900, which

carried on futures trading in groundnut , castor seed  and cotton. Before the Second

World War broke out in 1939 several futures markets in oilseeds were functioning in

Gujarat and Punjab.

There were booming activities in this market and at one time as many as 110

exchanges were conducting forward trade in various commodities in the country. The

securities market was a poor cousin of this market as there were not many papers to

be traded at that time.

The era of widespread shortages in many essential commodities resulting in

inflationary pressures and the tilt towards socialist policy, in which the role of market

forces for resource allocation got diminished, saw the decline of this market since the

mid-1960s. This coupled with the regulatory constraints in 1960s, resulted in virtual

dismantling of the commodities future markets. It is only in the last decade that

commodity future exchanges have been actively encouraged. However, the markets

have been thin with poor liquidity and have not grown to any significant level.

A three-pronged approach has been adopted to revive and revitalize the market.

Firstly, on policy front many legal and administrative hurdles in the functioning of the

market have been removed. Forward trading was permitted in cotton and jute goods

in 1998, followed by some oilseeds and their derivatives, such as groundnut,

mustard seed, sesame, cottonseed etc. in 1999. A statement in the first ever

National Agriculture Policy, issued in July, 2000 by the government that futures

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trading will be encouraged in increasing number of agricultural commodities was

indicative of welcome change in the government policy towards forward trading.

Secondly, strengthening of infrastructure and institutional capabilities of the regulator

and the existing exchanges received priority. Thirdly, as the existing exchanges are

slow to adopt reforms due to legacy or lack of resources, new promoters with

resources and professional approach were being attracted with a clear mandate to

set up demutualized, technology driven exchanges with nationwide reach and

adopting best international practices.

The year 2003 marked the real turning point in the policy framework for commodity

market when the government issued notifications for withdrawing all prohibitions and

opening up forward trading in all the commodities. This period also witnessed other

reforms, such as, amendments to the Essential Commodities Act, Securities

(Contract) Rules, which have reduced bottlenecks in the development and growth of

commodity markets. Of the country's total GDP, commodities related (and

dependent) industries constitute about roughly 50-60 %, which itself cannot be

ignored.

Most of the existing Indian commodity exchanges are single commodity platforms;

are regional in nature, run mainly by entities which trade on them resulting in

substantial conflict of interests, opaque in their functioning and have not used

technology to scale up their operations and reach to bring down their costs. But with

the strong emergence of: National Multi-commodity Exchange Ltd., Ahmedabad

(NMCE), Multi Commodity Exchange Ltd., Mumbai (MCX), National Commodities

and Derivatives Exchange, Mumbai (NCDEX), and National Board of Trade, Indore

(NBOT), all these shortcomings will be addressed rapidly. These exchanges are

expected to be role model to other exchanges and are likely to compete for trade not

only among themselves but also with the existing exchanges.

The current mindset of the people in India is that the Commodity exchanges are speculative

(due to non delivery) and are not meant for actual users. One major reason being that the

awareness is lacking amongst actual users. In India, Interest rate risks, exchange rate risks are

75

WHY STRUCTURED COMMODITY MARKET?

Today the business is not limited to our area only. Where the production is less but,

demand is comparatively high prices of the product will go up. On the contrary where

the production is high but demand is comparatively low the prices will go down.

If sellers and buyers come together at a place then it will create a market.

Here against one seller there will be more then one buyer. In this market

buyers will come across the country for transactions.

In this market not only producer and seller are included but arbitrageur,

speculator, and hedger can tread. In this way the total area of market will

become broad.

In our country agricultural products form 25% of GDP. Total turnover of

commodity of market is nearly Rs.1, 10,000 corer. In which 60,000 corer

comes from agriculture and left is coming from coal, crude, etc…

Today in our country most of the trade is done in unorganized market. In the

market current and future contracts are done. Promissory contracts have

been started science 1875. But due to some restriction it was not properly

worked. Presently nearly in 122 commodities tread is being done

Transaction in the organized market:

Organized markets have structured forms of transactions. The commodity

exchanges are regulated as per rules and regulations define in The Forward

Contracts (Regulation) Act, 1952 for regulating forward\future contracts. In

December 2003, the National Commodity and Derivative Exchange Ltd (NCDEX)

launched futures trading in nine major commodities.

MCX To begin with contacts in gold, silver, cotton, soyabean, soya oil, mustered

seed, rapeseed oil, crude palm oil and RBD Palmolive are being offered. Now more

then 40 commodity items are included. Day by day number of commodity items is

incising. The various commodities that tread on the NCDEX and look at some

commodity specific issues. In this commodity market classified as agriculture

products, precious metal, other metal and energy which we discuss above.

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COMMODITIES

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CHARACTERISTICS OF FUTURES TRADING

A "Futures Contract" is a highly standardized contract with certain distinct features.

Some of the important features are as under:

a. Futures’ trading is necessarily organized under the auspices of a market

association so that such trading is confined to or conducted through members

of the association in accordance with the procedure laid down in the Rules &

Bye-laws of the association.

b. It is invariably entered into for a standard variety known as the "basis variety"

with permission to deliver other identified varieties known as "tender able

varieties".

c. The units of price quotation and trading are fixed in these contracts, parties to

the contracts not being capable of altering these units.

d. The delivery periods are specified.

e. The seller in a futures market has the choice to decide whether to deliver

goods against outstanding sale contracts. In case he decides to deliver

goods, he can do so not only at the location of the Association through which

trading is organized but also at a number of other pre-specified delivery

centers.

f. In futures market actual delivery of goods takes place only in a very few

cases. Transactions are mostly squared up before the due date of the

contract and contracts are settled by payment of differences without any

physical delivery of goods taking place.

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ECONOMIC BENEFITS OF THE FUTURES TRADING

Futures contracts perform two important functions of price discovery and price risk

management with reference to the given commodity. It is useful to all segments of

economy. It is useful to producer because he can get an idea of the price likely to

prevail at a future point of time and therefore can decide between various competing

commodities, the best that suits him. It enables the consumer  get an idea of the

price at which the commodity would be available at a future point of time. He can do

proper costing and also cover his purchases by making forward contracts.

The futures trading is very useful to the exporters as it provides an advance

indication of the price likely to prevail and thereby help the exporter in quoting a

realistic price and thereby secure export contract in a competitive market. Having

entered into an export contract, it enables him to hedge his risk by operating in

futures market. Other benefits of futures trading are:

Price stabilization-in times of violent price fluctuations - this mechanism

dampens the peaks and lifts up the valleys i.e. the amplititude of price

variation is reduced.

Leads to integrated price structure throughout the country.

Facilitates lengthy and complex, production and manufacturing activities.

Helps balance in supply and demand position throughout the year.

Encourages competition and acts as a price barometer to farmers and

other trade functionaries.

COMMODITIES ARE SUITABLE FOR FUTURE TRADING

The following are some of the key factors, which decide the suitability of the

commodities for future trading: -

The commodity should be competitive, i.e., there should be large demand for

and supply of the commodity - no individual or group of persons acting in

concert should be in a position to influence the demand or supply, and

consequently the price substantially.

79

There should be fluctuations in price.

The market for the commodity should be free from substantial government

control.

The commodity should have long shelf life and be capable of standardization

and gradation.

THE FOLLOWING ITEMS ARE TRADED IN THE MULTI COMMODITY

EXCHANGE

Bullion: Gold, Gold M, Gold HNI, Silver, Silver M, Silver HNI

Oil & Oil Seeds : Castor Seeds, Soy Seeds, Castor Oil, Refined Soy Oil, Soymeal, RBD Palmolein,

Crude Palm Oil, Groundnut Oil, Mustard Seed, Mustard Seed Oil, Cottonseed Oilcake, Cottonseed

Spices: Pepper, Red Chilli, Jeera, Turmeric

Metal: Steel Long, Steel Flat, Copper, Nickel, Tin

Fibre: Kapas, Long Staple Cotton, Medium Staple Cotton

Pulses: Chana, Urad, Yellow Peas, Tur

Cereals: Rice, Basmati Rice, Wheat, Maize, Sarbati Rice

Energy: Crude Oil

Others: Rubber, Guar Seed, Gur, Guargum Bandhani, Guargum, Cashew Kernel, Guarseed

Bandhani

80

NEED FOR FUTURES TRADING IN COMMODITIES

Commodity Futures, which forms an essential component of Commodity Exchange,

can be broadly classified into precious metals, agriculture, energy and other metals.

Current futures volumes are miniscule compared to underlying spot market volumes

and thus have a tremendous potential in the near future.

Futures trading in commodities results in transparent and fair price discovery on

account of large-scale participations of entities associated with different value

chains. It reflects views and expectations of a wider section of people related to a

particular commodity. It also provides effective platform for price risk management

for all segments of players ranging from producers, traders and processors to

exporters/importers and end-users of a commodity.

It also helps in improving the cropping pattern for the farmers, thus minimizing the

losses to the farmers. It acts as a smart investment choice by providing hedging,

trading and arbitrage opportunities to market players. Historically, pricing in

commodities futures has been less volatile compared with equity and bonds, thus

providing an efficient portfolio diversification option.

Raw materials form the most key element of most of the industries. The significance

of raw materials can further be strengthened by the fact that the "increase in raw

material cost means reduction in share prices". In other words "Share prices mimic

the commodity price movements".

Industry in India today runs the raw material price risk; hence going forward the

industry can hedge this risk by trading in the commodities market.

HEDGING

Hedging is a sophisticated mechanism, which provides the necessary immunity to

the above interests in the marketing of commodities from the risk of adverse price

fluctuations.

81

A Hedge is a countervailing contract transacted in a futures market through which

those who have bought in the ready market will sell in the futures market and those

who have sold in the ready market would buy in the futures market. In each of these

two cases, a purchase in the ready market is off-set by an opposite sale in the

futures market and a sale in the ready market is off-set by purchase in the futures

market.

When the purchase or sale commitment in the ready market is fulfilled, the sale or

purchase hedge contract is closed out by an offsetting reverse purchase or sale

contract in the futures market.

The practice of hedging is based on the assumption that the ready and futures prices

of the commodity move more or less parallel to each other. The ready and futures

prices of a commodity ordinarily do move together in sympathy with each other

because both ready and futures prices are basically determined by the demand and

supply factors of that particular commodity.

When the price of a commodity has declined in the ready market, its price in the

futures market would normally have also declined so that the loss incurred in the

ready market would be recovered by the profit made in the futures market.

Similarly, if the price rises in the ready market after the hedge sale had been entered

into the futures market, there would be a loss in the futures market, which would,

however, be made up with the profit made in the ready market. But, in certain

circumstance, the ready and futures prices may not move together or the spread

between the two may increase or decrease sharply. To the extent that they do not

move together by the same extent, hedging itself may be a source of minor gains or

losses. But a dealer, manufacturer or exporter is not, per se, interested in such

speculative losses or gains. His only interest is to ensure that he gets the necessary

insurance against unforeseen fluctuation in prices. By and large, hedging in a futures

market does afford such a protection to the various functionaries.

Hedging on futures markets cannot be practiced unless there are operators willing to

assume the risk of adverse price fluctuations which the hedgers desire to transfer.

These operators are called speculators. They, thus provide the much needed

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breadth and liquidity to the futures markets which in their absence would remain

narrow and unstable.

A speculator operating in a futures market is the one who buys or sells futures

contracts without any countervailing commitments or transactions in the actual

commodity with a view to making profit from the fluctuations in the prices.

The basic distinction between a hedge and speculative transaction on a futures

market is that while in the case of a hedge transaction there is a corresponding

opposite transaction in the ready market, in the case of a speculative transaction,

there is no corresponding transaction in the ready market.

While the motives of the speculator in entering into futures trans actions are different

from a hedger, the form or nature of transactions entered into by both in the futures

market is similar. When a transaction takes place in a futures market, the transaction

may well be between two hedgers or two speculators or between a hedger and a

speculator.

While it is possible for the individual parties to enter into futures contracts, such

contracts are generally entered under the auspices of commercial bodies known as

commodity exchanges or associations.

The need for organizing futures trading under the auspices of such commodity

exchanges or associations arises mainly in order to ensure that payment of

differences arising from settlement of purchase and sale contracts entered into by

the members of such exchanges or aassociations take place in a smooth and orderly

manner and thus defaults on account of non-payment of such differences are

avoided. Futures trading in these commodity exchanges/associations are confined to

or conducted through its members in accordance with the procedure laid down in its

rules members in accordance with the procedure laid down in its rules and bye-laws.

Further, these exchanges/associations also help in evolving standard terms of

contracts in which the quantity and quality of the goods traded, period of delivery and

all other terms are pre-determined, the only variable being the price at which the

contracts helps the members of associations in entering into uniform types of

contracts in which the quantity and quality of goods, period of delivery etc. are pre-

determined so that they can be entered into primarily for the purpose of exchange of

money differences.

83

REGULATORY BODY

The Forward Markets Commission (FMC) is the regulatory body for commodity

futures/forward trade in India. The commission was set up under the Forward

Contracts (Regulation) Act of 1952. It is responsible for regulating and promoting

futures/forward trade in commodities. The FMC is headquartered in Mumbai while its

regional office is located in Kolkata. Curbing the illegal activities of the diehard

traders who continued to trade illegally is the major role of the Forward Markets

Commission.

WHY COMMODITIES MARKET?

India has very large agriculture production in number of agri-commodities, which

needs use of futures and derivatives as price-risk management system.

Fundamentally price you pay for goods and services depend greatly on how well

business handle risk. By using effectively futures and derivatives, businesses can

minimize risks, thus lowering cost of doing business.

Commodity players use it as a hedge mechanism as well as a means of making

money. For e.g. in the bullion markets, players hedge their risks by using futures

Euro-Dollar fluctuations and the international prices affecting it.

For an agricultural country like India, with plethora of mandis, trading in over 100

crops, the issues in price dissemination, standards, certification and warehousing are

bound to occur. Commodity Market will serve as a suitable alternative to tackle all

these problems efficiently.

PROBLEMS FACED BY COMMODITIES MARKETS IN INDIA

Institutional issues have resulted in very few deliveries so far. Currently, there are a

lot of hassles such as octroi duty, logistics. If there is a broker in Mumbai and a

broker in Kolkata, transportation costs, octroi duty, logistical problems prevent

trading to take place. Exchanges are used only to hedge price risk on spot

84

transactions carried out in the local markets. Also multiple restrictions exist on inter-

state movement and warehousing of commodities.

RISKS ASSOCIATED WITH COMMODITIES MARKETS

No risk can be eliminated, but the same can be transferred to someone who can

handle it better or to someone who has the appetite for risk. Commodity enterprises

primarily face the following classes of risks, namely: the price risk, the quantity risk,

the yield/output risk and the political risk. Talking about the nationwide commodity

exchanges, the risk of the counter party (trading member, client, vendors etc) not

fulfilling his obligations on due date or at any time thereafter is the most common

risk.

This risk is mitigated by collection of the following margins: -

Initial Margins

Exposure margins

Market to market of positions on a daily basis

Position Limits and Intra day price limits

Surveillance

Commodity price risks include: -

Increase in purchase cost vis-à-vis commitment on sales price Change in value of inventory

Counter party risk translating into commodity price risk

KEY FACTORS FOR SUCCESS OF COMMODITIES

MARKET

The following are some of the key factors for the success of the commodities

markets: -

85

How one can make the business grow?

How many products are covered?

How many people participate on the platform?

86

KEY FACTORS FOR SUCCESS OF COMMODITIES EXCHANGES

The following are some of the key factors for the success of the commodities

exchanges: -

Strategy, method of execution, background of promoters, credibility of the institution,

transparency of platforms, scaleable technology, robustness of settlement structures,

wider participation of Hedgers, Speculators and Arbitrageurs, acceptable clearing

mechanism, financial soundness and capability, covering a wide range of

commodities, size of the trade guarantee fund, reach of the organization and adding

value on the ground. In addition to this, if the Indian Commodity Exchange needs to

be competitive in the Global Market, then it should be backed with proper "Capital

Account Convertibility".

The interests of Indian consumers, households and producers are most important,

as these are the people who are exposed to risk and price fluctuations.

KEY EXPECTATIONS OF COMMODITIES EXCHANGES

The following are some of the key expectations of the investor's w.r.t. any commodity

exchange: -

To get in place the right regulatory structure to even out the differences that

may exist in various fields.

Proper Product Conceptualization and Design.

Fair and Transparent Price Discovery & Dissemination.

Robust Trading & Settlement systems.

Effective Management of Counter party Credit Risk.

Self-Regulation to ensure: Overview of Trading and Surveillance, Audit and

review of Members, Enforcement of Exchange rules.

87

FUTUREPROSPECTS

With the gradual withdrawal of the government from various sectors in the post-

liberalization era, the need has been felt that various operators in the commodities

market be provided with a mechanism to hedge and transfer their risks. India's

obligation under WTO to open agriculture sector to world trade would require futures

trade in a wide variety of primary commodities and their products to enable diverse

market functionaries to cope with the price volatility prevailing in the world markets.

Government subsidy may go down as a result of WTO. The MSP programme will not

be sustainable in such a scenario. The farmer will have to look at ways of being in a

position to trade on commodity exchanges in future. Also, corporate will feel the

pressure to hedge their price risk once the frontiers open up for free trade.

Indian markets have recently thrown open a new avenue for retail investors and

traders to participate: commodity derivatives. For those who want to diversify their

portfolios beyond shares, bonds and real estate, commodities are the best option.

Following are some of the applications, which can utilize the power of the commodity

markets and create a win-win situation for all the involved parties: -

REGULATORY APPROVAL / PERMISSION TO FII'S FOR TRADING

IN THE COMMODITY MARKETS

FII's are currently not allowed nor disallowed under any law. As, they have added

depth to the equity markets; they will add depth to the commodities markets, since

they globally know the commodities.

ACTIVE INVOLVEMENT OF MUTUAL FUND INDUSTRY IN INDIA

Currently Mutual Funds are prohibited from not using derivatives apart from hedging.

Mutual Funds as investors can invest in gold and get returns as they get from debt

88

instruments, equity markets. AMFI & SEBI need to collectively work towards the

same. Launch of the "Commodity Funds", by the Mutual Funds in India, can serve as

a newer investment avenue for investors.

ONLINE COMMODITY TRADING

Online commodity trading offers a way for an open, many-to-many system, where

every user has equal access to price quotes and trading functionality. It provides a

level playing field for all, without favoritism or control by a chosen few, where any

user can view all quotes posted by other users in real time, act or trade on quotes

posted by others, post their own prices and quantities for others to trade

The Online commodity trading site usually lists a large number of unique products

covering a variety of commodities, structures, and settlement terms ranging from Oil,

Natural Gas, Electric Power, Precious Metals, Emissions and Weather. It provides

for various media ranging from Physical Delivery and Financial Cash Settlement.

There are further derivative options available ranging from Forwards, Swaps,

Options, Spreads, Differentials, Complex Derivatives.

Liquidity, or trade activity, is perhaps the best measure of success of an online

trading commodity trading system. With most online commodity trading systems,

traders can be sure of finding an interesting market development or trading

opportunity almost every time they log on.

All quotes posted by users on any online commodity trading systems are live and

firm. They can be acted on with full assurance of a completed transaction. The

greatest advantage of an online system for trading is that just a click can be used to

hit a bid or lift an offer.

The Online trading system operates almost continuously around the clock, 24 hours

a day, seven days a week. This allows any user to extend the trading day, and easily

pass the trading objectives to others in companies in different times zones.

The online commodity trading system in India is only an emerging segment yet. This

is because the Internet boom in Indian is on the rise only now. The Internet charges

89

are becoming minimal and the Internet is soon becoming a way of life in India. It is in

this scenario that online trading is becoming more the way of trading in India.

90

SHAREKHAN COMMODITY

ADVANTAGE

KEY BENEFITS OF COMMODITIES@ SHAREKHAN:

You are getting 20time exposer in MCX &10 time in NCDEX depends on commodity

to open an account

We have sms facility where u getting market information as well as buy/sell call

You are also getting yahoo chat,Where our dealer/RM are always help for market

information as well as buy/sell call

91

RESEARCH Research Objective

The main objective of the study is to analysis the awareness of derivatives and

commodities segment and their potential market among the people of Rajkot City.

Secondary objectives are:

To know the awareness of Derivatives and Commodity.

To know the scope for the Derivatives and Commodity.

To know the investment habit and purpose of investing, of the people of

Rajkot City.

To know the influencing force behind the decision making while trading in

Derivatives and Commodity.

To find out the best medium to educate the masses about Derivatives and

Commodity.

HYPOTHESIS:

H0: There is no significant difference in level of awareness of Derivatives and

Commodity.

Hα: There is significant difference in level of awareness of Derivatives and

Commodity.

92

SOURCES OF DATA

There are two main sources of data

1. Primary Data

2. Secondary Data

Primary Data

The data, which is collected directly from the respondent to the base of knowledge

and belief of the research, is called primary data.

The most preferred way is to interview the individuals to get a sense of how they feel

Secondary Data

When the data is collected and compiled from the published nature or any other’s

primary data is called secondary data.

So far as our research is concerned, we have not collected any information from any

sources. So, we have not used secondary data for our research.

93

SAMPLING PROCESS

It is very true that to do the research with the whole universe. As we know that it is

feasible to go to population survey because of the n number of customers and their

scattered location. So for this purpose sample size has to be determined well in

advance and selection of sample also must be scientific so that it represents the

whole universe.

So far as our research is concerned, we have taken sample size of 300 respondents.

We have selected Income Earners with saving to invest in Rajkot city.

All the respondents are stratified on the basis of their profession and savings. We

have selected the selected the samples as per per convenience.

Sample Universe Rajkot CitySampling Technique Stratified and RandomSample Size 300 RespondentsSampling Unit: Professional =

RandomBusiness Man = RandomGovernment Employees = RandomEmployees working in private firms = Random

94

SCOPE OF STUDY

The research would be useful in the following respect.

This will help the company to know the taste of masses and turn it towards

Derivatives and Commodities.

This will help the company, how to make people aware about Derivatives and

Commodities by imparting best education.

This will help the company to frame effective Marketing Strategy as well as

select the right media for advertising to create brand awareness as well as to

give knowledge of the product.

Mind share of Sharekhan can be known.

This will also help to select right medium for trading in Derivatives and

Commodities segment.

LIMITATION OF THE STUDY

The limitations of the study are as follow:

Personal Bias:

Individuals may have personal bias towards particular investment option so they may

not give correct information and due to which the conclusion may be derived.

Time Limit:

The time duration given for the research is less.

95

Area:

The area was limited to Rajkot City only, so we cannot know the degree of the

literacy outside the city.

Sample Size:

The last limitation is Sample Size, which is of 100 only; due to which we may not get

the proper results.

96

ANALYSIS & INTERPRETATION

1.Gender Ratio:

Male Female196 104

196

104

0

50

100

150

200

250

Male Female

Series1

2.Age:

212

3553

0

50

100

150

200

250

Below 30 30-50 More than 50

Series1

3.Education Qualification:

97

Below 30 30-50 More than 50212 35 53

112

172

16

020406080

100120140160180200

Post Graduate Graduate Under Graduate

Series1

4.Occupation:

120

6270

48

0

20

40

60

80

100

120

140

Govt.Employees

Non-Govt.Employees

BusinessMan

Professional

Series1

5.Investment Pattern:

98

Post Graduate

Graduate Under Graduate

112 172 16

Govt. Employees

Non-Govt. Employees

Business Man

Professional

120 62 70 48

Securities No. Percentage(%)Bank F.D. 114 38Post office 63 21Insurance 28 9Mutual Fund 30 10Gold 22 7Equity 19 6Derivatives 10 3Commodities 14 5

114

63

28 30 22 1910 14

3821

9 10 7 6 3 5

0

20

40

60

80

100

120

No. Percentage(%)

It can be seen from the graph that the respondents have given first preference for

investment to Bank F.D. and Gold, Equity, Derivatives and Commodity having almost

equal share.

Preference for investment Derivatives & Commodity:

Instruments No. Percentage(%)

99

Bullion 79 26Spices 33 3Fiber 19 11Oil 50 17Metal 43 14F&O 76 25

79

33

19

5043

76

26

311

17 14

25

0

1020

3040

5060

7080

90

Bullion Spices Fiber Oil Metal F&O

No. Percentage(%)

When asked to the respondents that out of the given options which one would they

prefer? So they prefer Bullion first. So the preference for commodity (Bullion) is more

than the Derivatives.

Factors that are to be consider by Individual at the time of investment

Obstacles No. RankRisk Reduction 129 1

100

Leverage Benefit 112 2Arbitrage Benefit 12 5Speculative Motive 15 4Liquidity preference 32 3

129112

12 1532

1 2 5 4 30

20

40

60

80

100

120

140

RiskReduction

LeverageBenefit

ArbitrageBenefit

SpeculativeMotive

Liquiditypreference

No. Rank

So, Each and every investor are not risk taker though they want more return from the

investment.

Medium prefer by individual at the time of investment

Factor No. RankBroker 117 1Magazine 55 3Internet 102 2Other 26 4

101

117

55

102

26

1 3 2 4

0

20

40

60

80

100

120

140

Broker Magazine Internet Other

No. Rank

Exchange preferred by individual Derivatives

155

145

140

142

144

146

148

150

152

154

156

BSE NSE

Series1

Commodity

102

BSE 155NSE 145

MCX 189NCDEX 111

189

111

020406080

100120140160180200

MCX NCDEX

Series1

Constraints that are holding back to individual for investment

No. Percentage (%)

Lack of knowledge 64 21Lack of Guidance 58 19Lack of Fund Availability 70 23Lack of Risk taking Ability

108 36

6458

70

108

21 19 2336

0

20

40

60

80

100

120

Lack ofknowledge

Lack ofGuidance

Lack of FundAvailability

Lack of Risktaking Ability

No. Percentage (%)

Individual take decision through

103

No. RankIndependently 97 1Broker/Agent 73 2News Channels 19 6News Papers 20 5Internet 68 3Tax consultant 23 4

97

73

19 20

68

231 2 6 5 3 4

020406080

100120

No. Rank

Medium reliable for individual for trading

Stock Broking Companies 168Franchisees 43Online 89

168

43

89

020406080

100120140160180

Stock BrokingCompanies

Franchisees Online

Series1

Most preferred Broking Companies of the Rajkot City

104

India Bulls 3ShareKhan 2Marwadi 5Motilal oswal 8HDFC Securities

7

ICICI Direct 1Kotek street 6Skse 4

32

5

87

1

6

4

0123456789

Series1

TESTING OF HYPOTHESIS

Testing of Hypothesis using Z test (Two tailed):

1.) The Null Hypothesis (H0):

105

“There is no significant difference in level of literacy about Derivatives &

Commodities among the people of Rajkot City.”

Therefore, H0 : u = 50%

H1: u ≠ 50%

2.) Level of Significance : σ

The Level of significance should be set at α = 0.05

3.) The Statistical Test :

Z = X – u / σx

Where, Z = No. of standard deviations for the desired level of confidence.

X = Mean of the sample

U= Mean of the population or hypothetical mean

σx = Estimate for the standard error or the mean

4.) The Decision Rule

1.000 (1-0.025) = 0.975

1.9+ 0.6 = 1.96 & - 1.96 (the result will be between two)

σx = 5 / root of 300 - 1

= 15/17.29

106

= 0.8676

Z = 55 – 50 / 0.8676

= 5.763

5.) Draw a statistical conclusion

The absolute value of the computerized Z statistic (5.763) is larger than 1.96,

therefore null hypothesis is rejected.

So, Alternate Hypothesis is accepted.

H1: There is significant difference in level of literacy about Derivatives &

Commodities among the people of Rajkot City.

107

CONCLUSION

Most of the people in Rajkot City are investing in fixed return Instruments.

But there are investors who use Equity as an investment tool.

Those people who want to invest in Derivatives & Commodities are investing

mainly for reducing risk and they consider them as investment tool.

People generally want to take trading decisions independently or under the

guidance of Friends or Well Known Stock Broking Houses.

Literature and Self Experience can be taken as the best method to impart

education about derivatives & commodities

RECOMMENDATION

108

Sharekhan needs to make its marketing team strong and also it should increase

marketing activities such as promotional campaigns.

Sharekhan should educate the investors about Derivatives & Commodities by

organizing classes, corporate presentations, taking part in consumer fairs,

organizing events.

Company should show the benefits of trading on Derivatives & Commodities

Sharekhan should turn existing customers (who are trading in Equity only)

towards Derivatives & Commodities.

Sharekhan can also use Newspapers and Local New Channels as a medium of

advertising.

Sharekhan may also use its helpline number for giving education on Derivatives

& Commodities.

Company may appoint special team for giving education & attracting people

towards trading on Derivatives & Commodities.

QUESTIONNAIRE

109

1. Name:____________________________________________

2. Gender: Male Female

3. Age: 21-35 36-50 Above 50

4. Education: ___________________________________

5. Occupation: Professional Businessman

Govt. Employee Employess working

Q.1 Do you invest Your surplus money in saving instrument?

Yes: No:

Q.2 If YES, Where do You invest Your savings?

Bank F.D.: Gold:

Post schemes: Equity:

Insurance: Derivatives:

Mutual Fund: Commodities:

Q.3 If You invest in Derivatives OR Commodity, Which would be your first preference from the list given below?

Bullion: Oil & Oil Seed:

Spices: Metal:

Fiber: F&O:

Q.4 Which factor plays crucial role when you make a decision to invest in Derivatives & Commodity?

Risk Reduction: Leverage Benefit:Arbitrage Benefit: Speculative Motive:

Liquidity preference:

110

Q.5 which mediums do you use to invest in Derivatives & Commodity?

Broker: Internet:

Magazine: News channels

Q.6 which stock exchange would you prefer to carry out your transaction?

BSE: NSE:

MCX: NCDEX:

Q.7 Do You consider investment in Derivatives & Commodities are safer then Other investment avenues?

YES: No:

Q.8 If No, than What are constraints that are holding you back?

Lack of Knowledge:

Lack of Guidance from Broker:

Lack of Funds Availability:

Lack of Risk taking ability:

Q.9 How do You take decisions If You want to trade in Derivatives & Commodity?

Independently: Broker/Agent:

News Channels: News Papers:Internet: Tax Consultant:

Q.10 How much time will you be able to devote for learning Derivatives OR Commodity?

½ Hour: 1 Hour :

2 Hour :

Q.11 According to You, Which medium is the most reliable for trading in Derivatives & Commodity ?

Stock Broking Company:

Franchises:

111

Online:

Q.12 Name any 2 Stock Broking companies that deal in Derivatives & Commodity

1.____________ 2.____________

MY LEARNING

During the two months training I explore my knowledge of stock

market. I also know that how to implement theory in practice. I also got

the chance for trading Share khan’s product like Sales Executives so

that it improve my convincing power and also give chance to meet

different people .It also increase my confidence. It is a memorable

112

experience to be a part of share khan family. I am always thankful to

them.

BIBLIOGRAPHY

Books:

Kothari C.R., Research Methodology, New Delhi, Vikas Publishing

House pvt.Ltd. 1978

Pathak Bharti v.,Indian Financial Syatem,Delhi,Person

Education(Singapore) Pvt.Ltd.

113

Websites:

1. www.Google.com

2. www.bseindia.com

3. www.nseindia.com

4. www.sharekhan.com

5. www.ncdex.com.

6. www.mcx.com

7. www.moneycontrol.com

114