report on equity markets

8/22/2019 Report on equity markets

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EXECUTIVE SUMMARY

The US dollar has been under pressure for the past one and a half months and most commodity

prices have risen over the same period. And indeed, historically, there has been a negative

correlation between the dollar and the commodity prices. The reason for this can basically be

found in the law of one price. In principle, commodity cost the same as the underlying supply

and demand situation would the commodities. These underlying conditions do not, in principle

changes, when the value of the dollar changes, and therefore the price in the dollar will rise when

dollar weakens. One could also argue that a weaker dollar often goes hand in hand with the

easing of US (global) monetary policy, which is positive for global growth and hence global

demand for commodities, the negative correlation between the dollar and commodities is

certainly no secret in the financial markets. Therefore there is often a speculative buying ofcommodities when the dollar weakens or when there is an expectation that it will. The classic

dollar hedge is gold.

Over the past ten years, the correlation between EUR/USD and gold has been almost 50%.

However, since 2006, this correlation has actually been more than 70%. Historically speaking,

there is also a close correlation between UUR/USD and oil, albeit less pronounced than the

correlation with gold. But here too the correlation over the past one and a half years has been

stronger almost as strong as for gold.

In our view, a combination of speculative interest in oil and OPECs attempts to win

compensation for the weaker dollar via higher prices has been the main reason for the close

correlation between the oil and EUR/USD over the past two years. Metals are also closely

correlated with EUR/USD, although the link is a little weaker than for both gold and oil. Over

the past ten years, however this correlation has been at level similar to oil. There is, though, one

commodity group that is not particularly correlated with EUR/USD, and that is agricultural

commodities. This is presumably due to agricultural commodities having, until recently, been

less dependent on global business cycle, as prices here are often determined by the weather and

politics. This may, though, be about to change due to the ethanol link and increase in speculative

interests in agriculture produce.

We generally expect the dollar to weaken further in the coming three months. Given the

strengthening correlation between commodities and EUR/USD, this would suggest further prices

rises for commodities, with gold and oil leading the way followed by metals, likewise the

prospects of more rate cuts in the US is positive for global growth and the business cycle and this

could lend additional support to commodity prices, hence we expects oil will remain above USD

80 in the coming months.


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The best way to understand the short-term is to constantly study market history. If current

movement in prices, no matter how disconcerting, can be viewed with in the proper context of

past market precedents, the odds of getting swept away by our dangerous emotion of greed and

fear fade considerably. In light of these studies, we believe that current gold weakness is easily

explained and perfectly normal and healthy.

Because gold is the ultimate form of money, in the first third of the major bull market it trades

more like a currency than a commodity. The dollar gold price is the exchange rate between paper

dollars and gold, and it is affected not only by gold supply and demand but by the US dollar

demand and supply as well, if a dollar strengthening, then gold generally weakens at least in the

early years of a secular bull market.

The most direct driver of the price of gold in these early years of this bull is the exchange rate

between gold money and dollar currency.


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CHAPTER 1

INDUSTRY PROFILE

COMMODITY AND COMMODITY MARKET

INTRODUCTION

India a commodity based economy where two-third of one billion population depends on

agricultural commodities, surprisingly has an under developed commodity market. Unlike the

physical market, future market trades in commodity are largely used at risk management

(hedging) mechanism on either physical commodity itself or open position in commodity stock.

For instance, a jeweler can hedge his inventory against perceived short term down turn in gold

prices by going short in the future markets.

The article aims at know how of the commodity market and how the commodities traded on the

exchange. The idea is to understand the importance of commodities derivatives and learn about

the market from the Indian point of view. In fact it was one of the most vibrant markets till early

70s. Its development and growth was shunted due to numerous restrictions earlier. Now, themost of the restrictions being removed, there is tremendous potential for growth of this market in

the country.

COMMODITY

A commodity may be defined as an article, a product or material that is bought and sold. It can

be classified as any kind of movable property, expect actionable claims, money and securities.

Commodities actually offer immense potential to become a separate asset class for market-savvyinvestors, arbitrageurs and speculators. Retail investors, who claim to understand the equity

markets may find commodity are unfathomable market. But commodities are easy to understand

as far as fundamental of demand and supply is concerned. Retail investors should understand the

risks and advantages of trading in commodities future before taking a leap. Historically, pricingin commodities future is less volatile compared with equity and bonds, thus providing an

efficient portfolio diversification option. In fact, the size of commodities markets in India is alsoquite significant. Of the countrys GDP of Rs 13,20,720 crore, commodities related industries

constitute around 58 percent.

Currently, the various commodities across the country clock an annual turnover of Rs 140,000

crore. With the introduction of future trading, the size of future market grows may fold here on.


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COMMODITY MARKET

Commodity market is an important constituent of the financial market of any country; it is area

where a wide range of products, viz precious metals, base metals, crude oil, energy and soft

commodities like palm oil, coffee etc. are traded. It is important to develop a vibrant, active andliquid commodity market. This would help investors hedge their commodity risk, take

speculative position in commodities and exploit arbitrage opportunities in the market.

SNO.

MARKET SEGMENT 2009-10 2010-11

1 Government security market 2,518,322 2,827,872

2 FOREX market 2,318,531 3,867,936

3 Total stock market turnover

(I+II)

3,745,507 4,160,702

I National stock exchange

(A+B)

3,230,002 3,641,672

a) cash 1,099,534 1,147,027

b) derivatives 2,130,468 2,494,645

II Bombay stock exchange (A+B) 515,505 519,030

a) cash 503,053 499,503

b) derivatives 12,452 19,527

4 Commodity market 130,215 500,000

SOURCE: SEBI bulletin


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ITS EVALUATION IN INDIA

Bombay cotton trade association ltd, set up in 1875, was the first organized future market.Bombay cotton exchange ltd was established in 1893 following the widespread discontent

amongst leading cotton mills owners and merchants over functioning of Bombay cotton tradeassociation. The future trading in oil seeds started in 1900 with the establishment of Gujarati

Vyapari Mandali, which carried on future trading in groundnuts, castor seeds and cotton. Futures

trading in wheat was existent a several places in Punjab and Uttar Pradesh. But the most notable

future exchange for wheat was chamber of commerce at Hapur set up in 1913. Future trade inbullion began in Mumbai in 1920. Calcutta hessian exchange ltd was established in 1919 for

future trading in raw jute and jute goods. But organized future trading in raw jute began only in

1927 with the establishment of East Indian Jute Association ltd. These two associations

amalgamated in 1945 to form the East India jute & Hessian Ltd, to conduct organized trading in

both raw jute and jute goods. Forwards contracts (regulation) act was enacted in 1952 and theforwards market commissions (FMC) were established in 1953 under the ministry of consumer

affairs and public distribution. In due course, several other exchanges were created in the country

to trade in diverse commodities.


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COMMODITY ECOSYSTEM

Indian commodity markets- set as paradigm shift

Four licenses recently issued by govt. of India to set up national online multi commodityexchanges- to ensure a transparent price discovery and risk management mechanism.

List of commodities for future trade- increased from 11 in 1990 to over 100 in 2003. Reforms with regard to sale, storage and movement of commodity initiated.

Shift from administered pricing to free market pricing- WTO regime. Overseas hedging has been allowed in metals. Petro products marketing companies have been allowed to hedge prices. Institutionalization of agriculture.


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Indias place in world market

COMMODITY INDIA WORLD SHARE RANKRice (paddy) 240 2049 11.71 Third

Wheat 74 599 12.35 Second

Pulses 13 55 23.64 First

Ground nut 6 35 17.14 Second

Rapeseed 6 40 15.00 Third

Sugarcane 315 1278 24.65 Second

Tea 0.75 2.99 25.08 First

Coffee (green) 0.28 7.28 3.85 Eight

Jute & jute fibers 1.74 4.02 43.30 Second

Cotton 2.06 18.84 10.09 Third

BUSINESS POTENTIAL

Commodities Size of physical

market(Rs. Crore)

Conservative

multiplier(in 3 years)

Global multiplier

(in 3-5 years)

Gold &silver 43000 20 times

8,30,000

50 times

21,50,000

Edible oils 30000 10 times

3,00,000

20 times

6,00,000

Metals 11000 10 times

1,10,000

20 times

2,20,000

Total 84,000 12,40,000 29,70,000

Participants in commodity futures

Farmers/producers Merchandisers/traders


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Importers Exporters Consumers/industry Commodity financers Agriculture credit providing agencies Corporate having price risk exposure in commodities

Benefits of future trading

Price discovery for commodity players- A farmer can plan his crop by looking at prices prevailing in the future market

Hedging against price risk- A farmer can sell in future to ensure remunerative prices- A processor/ manufacturing firm can buy in future to hedge against volatile raw

material costs.

- A exporter can commit to a price to his foreign client- A stockiest can hedge his carrying risk to ensure smooth prices of the seasonal

commodities round the year

Easy availability of a financeBased on hedged position commodity market players (farmers, processors,

manufacturers, exporters) may get easy financing from the banks.

How commodity future helps

Risk managementGrowersshort hedge on upcoming produce

Tradersshort hedge on stored quantity

Manufacturerlong hedge on input cost, short hedge on finished products

Price discovery


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Futures can be used as indicative prices for negotiating the export prices and also upcountry

sales.

Profitability area in future market

Action Impact

Cover raw material price risk Certainty in input cost. Certainty in cost of

production.

Cover the export commitment Certainty about profit. Certainty I income

Cover the input requirements through futuremarket

Less financing requirements; reduced interestcost. Reduces cost of production. Increase in

profits

Buy in future markets Save on storage and storage management costs.

Increase in profitability

Future of commodity markets

Indialargest consumerproducerexporterimporter Large size intermediaries penetrate commodity market Banks to finance commoditiesfutures a secured route RBI permits banks to hedge their bullion risk through risk through future exchange

other commodity to follow

Using exchange network for various product and services BPO & trade interest will attract international players Hub for value added services & food processing New class for commodity traders & value investors

India to become hub of global trading in commodities. It is a US $ 600 billion opportunity


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Structure of commodity markets


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Different types of commodities traded

Worldover one will find that exist for almost all the commodities known to us. Thesecommodities can be broadly classified into the following:

Precious metals: gold, silver, platinum etc.

Other metals: nickel, aluminum, copper etc.

Agro based commodities: wheat, corn, cotton, oil, oil seeds etc.

Soft commodities: coffee, cocoa, sugar etc.

Energy: crude oils, natural gas, gasoline etc.

Different segments in commodities market

The commodity market exist in two distinct forms namely over the counter (OTC) market and

the Exchange based market. Also, as in equities, there exist the spot and the derivative segment.

The spot market are essentially over the counter markets and the participation is restricted to thepeople who are involved with the commodity say the farmer, processor, wholesaler etc.

derivative trading takes place through exchange-based markets with standardization contracts,

settlements etc.

Leading commodity markets of the world

Some of the leading exchanges of the world are New York Mercantile Exchange (NYMEX), the

London Metal Exchange (LME) and the Chicago Board Of Trade (CBOT).

Leading commodities markets in India

The government has now allowed national commodity exchange, similar to BSE & NSE, to

come up and let them deal in commodity derivatives in an electronic trading environment. These

exchanges are expected to offer a nation-wide anonymous, order driven; screen based trading

system for trading. The forward markets commission (FMC) will regulate these exchanges.


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Consequently four commodities exchanges have been approved to commence business in this

regard. They are:

Multi Commodity Exchange (MCX) located at Mumbai.

National Commodity and Derivative Exchange Ltd (NCDEX) located at Mumbai.

National Board of Trade (NBOT) located at Indore.

National Multi Commodity Exchange (NMCE) located at Ahmedabad.

Volumes in commodity derivative worldwide

Graph :

Commodity futures trading in India

INTRODUCTION

Derivative as a tool for managing risk first originated in the commodities markets. They were

then found useful as a hedging tool in financial markets as well. The basic concept of derivative

contract remains the same whether the underlying happens to be a commodity or a financialasset. However there are some features, which are very peculiar to commodity derivative

markets. In the case of financial derivatives, most of the contracts are cash settled. Even in the

case of physical settlement, financial assets are not bulky and do not need any special facility for

storage, due to the bulky nature of the underlying assets, physical settlement in the commodityderivatives creates the needs of warehousing. Similarly, the concept of VARTING QUALITY

OF ASSETS. Does not really exist as far as financial underlying are concerned. However in the


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case of commodities, the quality of the asset underlying a contract can vary largely. This

becomes an important issue to be managed.

Benefits to industry from future trading.

Hedging the price risk associated with futures contractual commitments. Spaced out purchases possible rather than large cash purchases and its storage. Efficient price discovery prevents seasonal price volatility. Greater flexibility, certainty and transparency in procuring commodities would aid bank

lending.

Facilitate informed lending. Hedged position of producers and processors would reduce the risk of default faced by

banks.

Lending for agricultural sector would go up with greater transparency in pricing andstorage.

Commodity exchange to act as distribution network to retail agriculture finance frombanks to rural households.

Provide trading limit finance to traders in commodities exchanges.Benefits to exchange members

Access to a huge potential market much greater than the securities and cash market incommodities.

Members can trade in multiple commodities from a single point, on real time basis. Traders would be trained to be rural advisors and commodity specialist and through them

multiple rural needs would be met, like bank credit, information dissemination, etc.

Why commodity futures?

One answer that is heard in the financial sectors is we need commodity future markets so

that we will have volumes, brokerage fees and something to trade. I think that is missing thepoint. We have to look at futures markets in the perspective- what is role for commodities

futures in Indias economy?

In Indian agriculture has traditionally been an area with heavy government intervention.Government intervenes by trying to maintain buffer stocks, they try to fix prices, and they

have import export restrictions and a host of other interventions. Many economists think

that we could have major benefits from liberalization of agricultural sectors.

In this case, the question arises about who will maintain the buffer stock, how will wesmoothen the price fluctuation, how will farmer not be vulnerable that tomorrow the price


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will crash when the crops comes out, how will farmers get signals that in the future there will

be a great need for wheat or rice. In all these aspects the futures market has a very big role to

play.

If you think there will be storage of wheat tomorrow, the future prices will go up today, and

will carry signals back to the farmers making sowing decision today. In this fashion, a system

of future market will improve cropping patterns.

Next, if I am growing wheat and am worried that by the time the harvest comes out prices

will go down , then I can sell my wheat in the future market, I can sell at a price which is

fixed today, which eliminates my risk from price fluctuations. These days, agriculturerequires investments- farmers spend money on fertilizers, high yielding varieties, etc. they

are worried when making these investments that by the time the crops come out prices might

have dropped, resulting in losses. Thus a farmer would like to lock in his future price and not

to be exposed to fluctuations in prices.

The third is the role about storage. Today we have the food corporation of India, which is

doing a huge job of storage, and it is a system which in our opinion does not work. Futuremarket will produce their own kind of smoothing between the present and the future. If the

future price is high and the present price is low, an arbitrager will buy today and sell in the

future. The converse is also true, thus if the future price is low the arbitrager will buy infuture market. These activities produce their own optimal buffer stocks, smooth prices.

They also work very effectively when there is a trade in agricultural commodities;

arbitrageurs on future market will use import and export to smooth Indian prices using

foreign spot market.

In totality, commodity future markets are a part and parcel of program for agricultureliberalization. Many agriculture economists understand the need of liberalization in the

sector. Future markets are an instrument for achieving that liberalization.

Hedging

Hedging means reducing or controlling risk. This is done by taking a position in the futures

market that is opposite to the one in the physical market with the objective of reducing orlimiting risk associated with price changes.

Hedging is a two- step process. A gain or loss in the cash position due to the changes in the

prices levels will be countered by changes in the value of the futures position. For example, a

wheat farmer can sell wheat futures to protect the value of his crops prior to harvest. If there

is a fall in price, the loss in the cash market position will be countered by a gain in future

futures position.


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Hedging is the way of reducing some of the risk involved in holding an investment. There are

many different risks against which one can hedge and many different methods of hedging.

When someone mentions hedging, think of insurance. A hedging is just a way of insuring an

investment against risk.

Consider a simple case. Much of the risk in holding any particular stock is market risk; i.e. ifthe market falls sharply, chances are that any particular stock will fall too. So if you own a

stock with good prospects but you think the stock market in general is overpriced, you may

be well advised to hedge your position.

There are many ways of hedging against market risk. The simplest, but most expensivemethod is to buy a put option for the stock you own. (Its most expensive because you are

buying insurance not only against market risk but against the risk of the specific security as

well). You can buy a put option on the market as which will cover general market declines.

You can hedge by selling financial futures.

In my opinion, the best hedge is to sell short the stock of the competitor to the company

whose stock you hold. For example; if you like Microsoft and think they will eat Borlandslunch, MSFT and short BORL, no matter which way the market as a whole goes, the

offsetting position hedge away the away the market risk. You make money as long as you are

right about the relative competitive position of the two companies, and it doesnt matter

whether the market zooms or crashes.

If youre trying to hedge an entire portfolio, futures are probably are probable the cheapest

way to do so. But keep in mind the following points.

The efficiency of the hedge is strongly dependent on your estimate of thecorrelation between your high-beta portfolio and the broad market index.

If the market goes up, you may need to advance more margin to cover your shortposition, and will not be able to use your stocks to cover the margin calls.

If the market moves up, you will not participate in the rally, because by intention,youve set up your futures position as a complete hedge.

You might also consider the purchase out-of-the-money put LEAPS on the OEX, as way of

setting up a hedge against major market drops.

Another technique would be to sell covered calls on your stocks (assuming they have options).

You wont be completely covered against major market drops, but will have some protection,and some possibility of participating in a rally (assuming you can roll up for a credit).

How hedging is done?


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In this type of transaction, the hedger tries to fix the price at a certain level with the objective

of ensuring certainty in the cost of production or revenue of sale.

The futures market also has substantial participation by speculators who take positions based

on the price movement and bet upon it. Also, there are arbitrageurs who use this market to

pocket profits whenever there are inefficiencies in the prices. However, they ensure that the

prices of spot and futures remain correlated.

Example- case of steel

An automobile manufacturer purchase huge quantities of steel as raw material for automobile

production. The automobile manufacturer enters into a contractual agreement for exports

automobile three months hence to dealers in the east European market.

This presupposes that the contractual obligation has been fixed at the time of signing the

contractual agreement for exports. The automobile manufacturer is now exposed to risk in the

form of increasing steel prices. In order to hedge against price risk, the automobilemanufacturer can buy steel future contracts, which could mature in three months hence. In case

of increasing or decreasing steel prices, the automobile manufacturer is protected. Let us

analyze the different scenarios:

Increasing steel prices

If steel prices increases, this would result in the value of the future contacts, which theautomobile manufacturer has bought hence, he makes profit in the future transaction, but the

automobile manufacturer needs to buy steel in the physical market to meet his export

obligation. This means that he faces a corresponding loss in the physical market.

But this loss is offset by his gains in the future market. Finally, at the time of purchasing steelin the physical market, the automobile manufacturer can square off his position in the future

market by selling the steel future contracts, for which he has an open position.

Decreasing the steel prices

If the steel prices decreases, this would result in a decrease in the value of the future contracts,

which the automobile manufacturer has bought, hence he makes losses in the future

transaction. But the automobile manufacturer needs to buy steel in the physical market to meet

his export obligations.

This means that he faces a corresponding gain in the physical market. The loss in the future

market is offset by his gains in the physical market. Finally, at the time of purchasing steel inthe physical market, the automobile manufacturer can square off his position in the future

market by selling the steel future contracts, for which he has an open position.

This result in a perfect hedge to lock the profits and protect from increase or decrease in raw

material prices. It also provides the added advantage of just-in-time inventory management for

the automobile manufacturer.


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Understanding the meaning of buying/long hedge

A buying hedge is also called the long hedge. Buying hedge means buying a future contracts

top hedge a cash position. Dealers, consumers, fabricators, etc. who have taken or intend totake an exposure in the physical market and want to lock- in prices, use the buying hedge

strategy.

Benefits of buying hedge strategy:

To replace inventory at a lower prevailing cost. To protect the uncovered forward sale of finished products.

The purpose of entering into the buying hedge is to protect the buyer against the price increase of

the commodity in the spot market that has already been sold at a specific price but not purchased

as yet. It is very common among importer and exporter to sell commodities at an agreed- upon

price for forward delivery is considered uncovered.

Long hedgers are traders and processors who have made formal commitments to deliver a

specified quantity of raw material and processed goods at a later date, at a price currently agreed

upon and who do not have the stocks of the raw material necessary to fulfill their forward

commitment.

Understanding the meaning of selling/short hedge

A selling is also called a short hedge. Selling hedge means selling a future contracts to hedge.

Uses of selling hedge strategy

To cover the price of finished products. To protect inventory not covered by forward sales. To cover the prices of estimated production of finished goods.

Short hedgers are merchants and processors who acquire inventories of the commodities in thespot market and who simultaneously sell an equivalent amount or less in the future market. The

hedgers in this case are said to be long in their spot transaction and short in their future

transactions.


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Understanding the basis

Usually, in the business of buying or selling a commodity, the spot price is different from the

price quoted in the future markets. The future price is the spot price adjusted for the cost like

freight, handling, storage and quality, along with the impact of supply and demand factor.

The price difference between the spot and futures keeps on changing regularly. The price

difference (spotfuture price) is known as the basis and the risk arising out of the difference is

defined as basis risk. A situation in which the difference between the spot and futures prices

reduces (either negative or positive) is defines as narrowing of the basis.

A narrowing of the basic benefits the short hedgers and a widening of the basic benefits the long

hedger in a market characterized by contango- when future price is higher than spot price. Inmarket characterized by backwardation- when future quote at a discount to spot price- a

narrowing of the basic benefits the long hedger and a widening of the basic benefits the short

hedgers.

However, if the difference between spot and future prices increases (either negative or positiveside) it is defined as widening of the basis. The impact of this movement is opposite to that as in

the case of narrowing.


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CHAPTER 2

COMPANY PROFILE

AN INTRODUCTION TO EDELWEISS

Edelweiss capital was started by two IIM graduates Mr. Rashesh Shah and Mr. Venkat

Ramaswami. The Company is operating in India as an Integrated Investment Banking

Company. Edelweiss strives to be a thinking organization, trying to be innovative and

imaginative. The policy of the company ensures transparency and greater opportunities

for all its clients.

SNAPSHOT

Approach- Client Focus, Execution orientation, Culture, Professional Integrity,

Research Driven

Aim- building long term relationships with the clients and equipping the clients about

the market knowledge so that they can address the day by day fast growing opportunities

USP- The single minded focus on thought leadership and relentless pursuit of the new anddifferent is it in products, services or people, model of employee ownership

Culture- Entrepreneurial and result driven emphasizing confidentiality and integrity

Operations- stock broking, research services, distribution of financial products,

depository services, and proprietary trading, 47 per cent of its revenue is from treasury

and wholesale financing

Research (POD) - 90 researchers, covers over 200 stocks across 19 sectors that accounts

for about70% of the total market capitalization

Offices- operates from 56 offices in 21 Indian cities, employs over 1600 employees

Major clients- ESL focuses on the wholesale equity segment, providing broking services to

Institutional and corporate clients and high net worth individuals

Market Capitalization- Rs 5,500 crore (Rs 55 billion),

Equity Base- over Rs 2,000 crore


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Website- www.edelcap.com, www.edelblue.com

HIGHLIGHTS

ESL has a strong equity research team, which covers approximately 50 - 60companies within 6 industry categories, with a focus on large and medium cap

stocks.

The companys Equities Broking division has now expanded to include 215 stocksin 19 sectors accounting for 70 percent of market capitalization

Alternate Asset Managements total asset value currently stands at $625 million Wholesale Financing division soared to Rs. 141 crore in FY08 from Rs. 7 crore in

the previous year

Edelweiss is amongst the largest institutional broking firm, enjoying a healthy 5%plus market share in the institutional broking segment

Edelweiss is also in the process of widening its product portfolio by penetrating intoproduct specific and sector specific niches, which will broaden and strengthen its

entire institutional business

Asset base of over INR 800 cr. In lending business It is empanelled with over 40 leading FIIs, FIs, Mutual Funds, Banks and Insurance

companies

Listing in various stock exchanges NSE: EDELWEISS, BSE: 532922, Bloomberg:EDEL.IN

Awarded as Best Merchant Banker by the Outlook Money NDTV Profit Awards,2008

Ranked among the top ten players in Annual Bloomberg and Annual Thomson-Reuters

Present Chairman and CEO- Mr. Rashesh Shah Well respected Brand with strong position in relevant market segments

STRENGHTS OF THE COMPANY

Has an integrated business model, which specializes in providing a wide range offinancial products and services such as investment banking, institutional equities,

wealth management, and wholesale finance.

Is well positioned to leveragethe growing financial sector in India and become asignificant market player, especially in areas like investment banking, institutional

equities etc.
http://www.edelcap.com/http://www.edelblue.com/http://www.edelblue.com/http://www.edelcap.com/


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Has a strong research platformwith research products, such as fundamental andalternative research, catering to institutions and HNWIs. The fundamental research

covers ~190 companies which represent ~69% of the market capitalization of all

the companies listed on BSE as on August, 2007. On the other hand alternative

research utilizes quantitative techniques to identify short term and medium term

investment opportunities in the capital market

The company has a strong internal controls and risk management systememployed throughout the firm to access and monitor risk across various business

line. The Risk exposure is monitored and controlled through a variety of separate

but complementary financial, credit and operational reporting system

Is an established brandwith strong track record ofhigh growth and profitability Is strongly focused on nurturing & maintaining strong business relationships

with corporate & institutional clients

Well positioned to utilize the immense opportunities in the Indian financial sector

RECENT APPROACH

Edelweiss is a premium broking firm whose targets were only HNWI clients. But seeing the

opportunity in retail sector it has forayed into it. The company is providing the same

research facility to its retail clients as it provided to its premium clients. It is offering an

online platform to the clients which will increase transparency and make business hassle

free for the clients. The company is making a shift from ESL (Edelweiss Securities limited)

to EBL (Edelweiss Broking Limited).

The benefits offered by the company to its clients are:-

Online Platform News alert through Mobile messages and e-mail Dealer support Portfolio Doctor (Turtle) Toll Free Number (Helpline Services)

Thus the company is customer focused and protects the wealth of its customers through its

innovative ideas. The company is repositioning itself from a niche marketer to a mass

marketer and is aiming at Brand Repositioning.


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THE PRODUCTS AND SERVICES OFFERED BY EDELWEISS ARE AS

FOLLOWS:-

SERVICES

Capital based

Agency based

Recent initiatives/high growth areas

Investment Banking: This includes services such as M&A advisory, transaction execution

relating to structured finance, equity markets, real estate, and infrastructure.

Institutional Equities: Edelweiss Institutional equities business comprises institutional

equity sales, sales-trading, and research.

Private Client Brokerage: These services are targeted at high net worth and other

individuals who actively invest and trade in the equity market.

Wealth Management: Wealth management involves providing investment advisory,

planning & asset deployment services to high net-worth individuals.

Wholesale financing

Treasury

Asset management

Wealth Management

Insurance Broking

Private Client Broking

Institutional Equities

Investment Banking


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Asset Management:This involves both asset management as well as investment advisory

services. Under this, the company advises three funds with an aggregate corpus of over

USD 330 mn.

Insurance Brokerage: Edelweiss has also entered the non-life insurance brokerage

business as an IRDA registered broker in 2005 and it distributes insurance products

through its subsidiary, Edelweiss Insurance Brokers Limited.

Treasury: The internal treasury operations manage the excess capital funds by investing

the same in low risk strategies to achieve risk-adjusted returns.

Wholesale financing: Wholesale business provides the high net worth individual and

corporate clients with facilities such as loans against shares, loans to finance IPO

subscriptions, and loans against mutual fund units. This is done through a subsidiary, ECL

Finance Limited.

PRODUCTS

Advisory Based Broking (ABB) an asset management service. Margin Funding- The Company provides funds to people who wish to invest large

amount in stock market but are lacking in fund. Fund is provided against securities.

The company has a policy of hair cut which means that the assets that are kept assecurities, they are valued less than their original price. Fund is provided for

investing in only those stocks that are listed in the stock brokers list of the

company. This is to save the company from loss as company has those stocks in thelist that are less volatile and whose market value is good.

Structured Product- As such, structured products were created to meet specificneeds that cannot be met from the standardized financial instruments available in

the markets. Structured products can be used as an alternative to a direct

investment, as part of the asset allocation process to reduce risk exposure of a

portfolio, or to utilize the current market trend

Mutual Fund- This is a product offered by the company that takes money from theinvestors and invests it in the stock market on their behalf as customers are not fully

aware of the stock market. They take money from many customers and collectivelyinvest in the stock market.

Insurance- Another product offered by the company in which the agent getscommission on every insurance policy done by him

Arbitrage- Arbitrage, or true arbitrage, involves buying and selling a security andtaking advantage of prices differences that may exists on different markets. While

rare, this does happen from time to time
http://en.wikipedia.org/wiki/Portfolio_(finance)http://en.wikipedia.org/wiki/Portfolio_(finance)


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De-Mat account- it refers to Dematerialized Account. It is necessary to sell and buystocks. So it is just like a bank account where actual money is replaced by shares.

One has to approach the DPs, to open his demat account. So one doesnt have topossess any physical certificates showing that you own these shares. They are all

held electronically in the account. As one buys and sells the shares, they are

adjusted in their account. Just like a bank passbook or statement, the DP provideswith periodic statements of holdings and transactions.

Portfolio Management Services- this product comes under wealth management.Customers are advised where they should invest their total investment savings.

Initial Public Offering (IPO) - This product invites public to participate in thebidding process.

Commodity market- In this market metals and agricultural products are traded.MCX for metal products and NCDEX for agricultural products.

CLIENT REVENUE MIX

78%

22%

institutional/corporate clients individual clients


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GROWTH STRATEGY

The Companys growth areas are basically across three categories- Products, asset classesand client segments. It basically focuses on HNWI clients, and now it has come into the

retail segment which is its source of growth. From the asset side it gets fixed income and is

also into real estate. The popular products are wholesale financing, financial productdistribution etc.

(1) SELLING STRATEGY OF EDELWEISS

Relationship strategy

The key to success in selling is the ability to establish working relationships with the

customers in which mutual support, trust and goals are nurtured over time. Edelweissstresses on building good relationship with its clients as in case of financial firms the

intangible nature of services makes Relationship strategy vital. The main purpose of a

salesperson is not just to make sales but to create customers.

Product centered selling and client centered selling


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Product-centered selling Client-centered selling

1. Stress on research and development

of product

1. Stress on research and development of

relationships with clients

2. Emphasis on knowledge of product 2. Emphasis on knowledge of customers

3. Influenced by past performance of

products and competition and present

situations

3. directed more to consideration of future

Growth and developments in the client

World

4. Seeks to be accepted as a reliable,

credible source of information and

service

4. seeks to raise clients expectations of

Personal excellence

The strategy of Edelweiss is a mix of product centered and client centered strategy.

(2) EDELWEISS SALES MANAGEMENT PROCESS

Formulation of strategicsales program

Implementation of thesales program

Evaluation and control ofsales force performance


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First a strategic sales program is made keeping in mind the companys objectives. Then

accordingly the sales program is implemented. Following this there is an evaluation of the

sales force performance. The company adopts majorly Direct Selling Strategy to sell its

products. The concept of telemarketing is being adopted by the company. Appointments

are fixed over the phone which is followed by the client meeting. The whole process can be

shown with the help of a flowchart:-

Sales organization always makes effort to increase sales, thereby achieving the principle of

profit maximization, thus contributing to the overall growth of the enterprise.

Sales goal should be SMART Specific, Measurable, Attainable, Realistic, and Time-bound

(3) METHODS OF APPROACH ADOPTED BY SALESPERSONS TO SELL

EDELWEISS PRODUCTS

Cashing in on Brand Name or the Companys reputation- Representativesapproach the customers with the strength of Brand name that Edelweiss has.

Though the company is new in Bangalore, it is a well-established brand in Mumbai.

Customer Benefit Approach- they convey to customers the benefits they will getafter getting associated with Edelweiss, like online platform and local dealer

support.

Interactive Approach- the approach is interactive i.e. it is a two waycommunication and client queries are always welcomed

Create direct

selling

process

Identify the

customer

Make

appointment

with customer

Give suitable

demo &pitch

Ensure

increase in

cust. value

After sales

prompt

service

Close deal

Ensure

knowledge

about product


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AIDAS THEORY OF SELLING

Seek the attention of the prospect client

Maintain the attention by creating interest

Create desire in customers mind to buy the product

Induce the client to buy the product

SELLING SKILLS - Talking about the skills that a salesperson should posses, they are as

follows:-

ATTENTION

INTEREST

DESIRE

ACTION


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Possession of these skills is very important as conversion of a prospect customer to a

company client very much depends on the selling skills and how the matter is put forth the

client.

The project part that covers D-Mat account sales, involves calling the clients, interacting

with them and convincing them to maintain a good relationship with the company so thatthe company is in a profit.

(4) THE MAJOR ATTRIBUTES OF THE SELLING STRATEGY IN THE

COMPANY

Sales target- The sales team is given a fixed target which it needs to achieve within a

month.

Motivational Rewards- The team who performs the best is given some rewards.This is to motivate others to perform well and at the same time appreciate the hard

work done by the winning team

Continuous Evaluation- the sales team has to appear in the evaluation conductedby the company to test their market and product knowledge. This is done to ensure

that the company has the best sales force

Training Program- Team leaders are given training regarding the product andmarket so that they can handle customer queries.

Problemsolving skills

Effectivecommunicatio

n skills

Listening skillsnegotiation &

bargaining

skills

Conflictmanagement& resolution

skills


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Thus the company follows an effective sales strategy (PUSH STRATEGY) which is customer

focused.

(4) DISTRIBUTION STRATEGY

Distribution channels are organized structures performing the tasks necessary to facilitate

exchange transactions. The functions of distribution channels are to create time, space and

state utilities which constitute the added value of distribution. Distributors (wholesalers,

retailers, agents, brokers) are required because manufacturers are unable to assume by

themselves, at a reasonable cost, all the tasks implied by a free and competitive exchange

process. Distribution channels can be characterized by the number of intermediary levels

that separate the supplier from the end-user. The selection of a particular channel design isdetermined by factors related to market, buyer behavior and company characteristics.

When the channel structure is indirect, some degree of co-operation and co-ordination

must be achieved among the participants in the vertical marketing system. Regarding the

number of intermediaries is necessary; three market coverage strategies are possible:

intensive, selective or exclusive distribution. Distribution is one of the elements of

marketing mix. Through distribution channel the product passes through intermediaries

before reaching the end consumer.

Distribution channel can have number of levels-

Zero level channel One level channel Two level channel

Choice of distribution channel depends on

Market consideration consumer or industrial market, number of potentialcustomers, size of order, buying habits of customers, geographical concentration

of markets

Product considerations - Technical nature, Perishability Company considerations- Financial resources, Services provided by the

channels, Experienced and competent management, desire for control of

channels


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Middlemen considerations Competition, sales potential, Availability ofdesired middlemen, attitude of middlemen, cost

The key differentiating factors of a successful distribution channel are as follows:

Quality of advice given by the company to its customers Choices of products After sales service Settlement of issues if any Managing distinct cultural and social ethos Marketing the product as an essential financial product Building trust

Role of distribution channels

To adjust the discrepancy of assortment through the process of sorting,accumulation, allocation, and assorting

To minimize the distribution costs through routinizing and standardizingtransactions to make exchange more efficient and effective

To facilitate the searching process of both buyers and sellers by structuring theinformation essential to both the parties

To provide a place for both parties to meet each other and reducing uncertainty

Distribution channel strategy

Setting distribution objectives in terms of the customer requirements Finalizing the set of activities that are required to be performed to achieve the

channel objectives

Organizing the activities so that the responsibility of performing the activities isshared among the entities who are meant to perform these activities

Developing policy guidelines for the smooth functioning of the channel on a dayto day basis

The distribution extension decision is based on distribution development index (DDI) a

Category Development Index (CCI). If we see the current situation of edelweiss is

considered then it can be seen that DDI is high as the brand is readily available in the

market as compared to its competitors. While CCI is low if we consider the retail segment,

in which the company is a new comer. Per capita consumption of its products in the market


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relative to per capita consumption of the total financial products is low. So the strategy

adopted by Edelweiss would be Concentrating on demand generation activities.

In the retail sector the strategy of Edelweiss is to go for Brand Repositioning and become a

mass marketer. The company is distributing Pamphlets among the customers for its

promotion and building an image in the minds of the customers.

H- High L- low

Edelweiss is itself an intermediary between NSE and client and is a part of the distribution

channel. But as a company it has its own distribution strategies to sell products to the

customers.

(5) DISTRIBUTION CHANNELS OF THE COMPANY

The company has named the services provided to the customers as CLIENT ADVISORY

SERVICES (CAS). The company has a multichannel distribution system. Client Advisory

Services is mainly looking into five channels for distribution-:

concentrate ondemand

generationactivities

concentrate onquality of

distribution,service level

developintegrated sales &

marketingpackage

extenddistributionimmediately

Distribution

development

Category development

H

L

HL


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A. Inbound TeamB. Sub Broker/ RemissorC. Direct Selling AgencyD. Retail shops or Kirana StoreE. Corporate Accounts

Inbound Team: - CAS currently has an inbound team of 30 members divided into four

team leaders. Each team leader can have 8 fixed cost agents reporting to him. These fixed

cost agents are sourcing accounts directly from the market. Team leaders are reporting to

ASM which in turn are reporting to the Regional Head. Each agent has a specific target

assigned to him.

Reporting Hierarchy:

Sub Broker/ Remissor- Sub brokers charge commission for the business they bring to

the company by bringing clients. Sub-brokers have their own office space and they need

not work in the office of the company they are working for as sub-broker. Whereas

Regional

Head

Area Sales

Mana er

Fixed cost

a ents

Team leaders


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Remissor is a type of Sub-Broker that uses the office space of the company it is working for.

They have a fixed participation in the company. Remissor is given a certain low % as

compared to Sub-brokers as they are using the resources of the company

Direct Selling Agents (DSA)- DSAs are working for the company but they have no profit

participation. They are given commission on the basis of account clients under Edelweiss.The DSAs looks for agents who can work under them. They have a team of around 7-8

members who source the clients for them. These agents get commission from the DSAs and

they have no connection with the company.

Retail Shops/ Kirana stores- This is a new concept that Edelweiss has come up with. The

products are given to the Retail shops or Kirana stores as they have a strong customer base

and this aids the distribution of the various products. The retail shops are given

commission on the basis of products sold by them.

Corporate Accounts- This is a way to get bulk accounts from the companies. NSE and BSElisted companies are offered free accounts. First an appointment is fixed in the target

company which is followed by a corporate presentation. This is the major contributor to

the companys sales.

(6) CHANNEL MANAGEMENT TASKS

Ex ante phase

Ex poste phase

Distribution channel strategy

Channel objectives

Activity finalization

Activity organization

Developing Policyguidelines

Design of channel structure

Establishing the channel

Motivating the channel members

Resolving conflicts among

channel members


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Managing the distribution channels is an important task. It involves two phases- managing

before the channel is actually executed. This is called the ex-ante phase. During this phase

the channel is designed and established. The next phase is ex-poste phase, i.e. the phase

after the channel has comes into work, in which the channel members are motivated and

the conflicts are resolved.

(7) INNOVATION IN DISTRIBUTION CHANNELS

Edelweiss Retail stores are an approach to shift from traditional marketing channels and

this can give the competitive edge and is the differentiating factor.

Two or more companies at one channellevel join together to increase coverage

Eg.- Edelweiss' in mobile storesHorizontal Marketing System

A single firm sets up two or moremarketing channels to increase coverage

Eg.- Brokers, retailers.Hybrid marketing system


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(8) DISTRIBUTION CHANNEL STRATEGY OF EDELWEISS BASED ON

CUSTOMER BEHAVIOUR

PUSH FORCE PULL FORCE

Financially

unaware/unsure

sales force

Financially aware/unsure Telemarketing, media

advertising

Financially astute/sure Financial media Telephone, internet

Financial nichers Recommendations,historical relationships

Face to face, telephone

(9) A SHORT COMPARISON OF CONSUMER PRODUCTS TO THE FINANCIAL

PRODUCTS WHEN IT COMES TO SALES AND DISTRIBUTION

The financial services are different from the consumer products offered. If we make a

comparative analysis following points can be highlighted:-

Interaction with the customer- In case of consumer products the company hasno direct contact with its customers. It distributes its products to the

distributors and after that does not come in the picture. They come in contact

with the customers only in case of any complaints. In case of a financial product

the company personnel interact directly to the customers and convince them to

buy the product. Thus the responsibility of company increase in case of financial

products

Buying Pattern- Many consumer products are taken by the customer on animpulse while taking a financial product involves a long thought process.

(10)VARIOUS ASPECTS OF CUSTOMER RELATIONSHIP MANAGEMENT

The customer relationship is aimed at creating strong long lasting, fruitful relationships

by developing long-term bonds. As a result the customer starts identifying and


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associating him with the product, prefers and accepts the companys products and

services over competitors offerings and recommend others to buy. Moreover it costs

less to retain customers than to compete for new customers. The project involves

interacting with the existing HNWI clients and the clients who are in a dormant stage

and convincing them to start business with the company and maintain their association

with the company. This involves calling the existing clients and client visits. This helped

in getting an insight into the various aspects of customer relationship.

FINANCIAL SERVICES

Edelweiss is financial service providing company. In case of financial company the

differentiating factor is the services provided by the firm. Financial services basically

mean all those kinds of services provided in financial or monetary terms, where the

essential commodity is money. These services include; Leasing, Hire purchase, venture

capital, Merchant banking, Insurance, housing finance, Mutual funds, factoring, stock

broking and many others. The term financial services in its broader sense refer to

mobilizing and allocation of savings. It is identified as all those activities involved in

the process of converting savings into investment.

There are number of factors which make the financial services different from physical

goods. The major characteristics of financial services are Intangibility, Lack of

ownership, Inseparability, Perishability, Heterogeneity, Fiduciary responsibility,

Long term.

SERVICES MARKETING TRIANGLE

FIRM

Internal marketing External Marketing

EMPLOYEES CUSTOMERS

Interactive Marketing

According to Grnroos the internal marketing has to be managed by the companys

leadership, the interactive marketing happens between the employees and the clients and


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the external marketing is what takes place between the companys management and the

clients.

3PS OF SERVICES MARKETING

Coming to the Marketing Mix generally there are 4Ps (PRODUCT, PRICE, PLACE,

PROMOTION) but when it comes to services marketing 3ps are added to it:-

PEOPLE

The importance of people within the marketing of services has led to great interest in

internal marketing. This recognizes the importance of attracting, motivating, training, and

retaining quality employees by developing jobs to satisfy individual needs. People form animportant part of the differentiation in a service organization which can create added value

for the customer.

PROCESS

The processes by which services are created and delivered to the customer is a major

factor within the services marketing mix as services customers will often perceive the

service delivery system as part of the service itself.

PHYSICAL EVIDENCE

The exterior design can be utilized to communicate e.g. the history and values of the

respective institution. The use of color in combination with texture and finishes is

identified to be a simple but very effective factor of differentiation, helping to convey

particular messages to the customer and creating a special atmosphere affecting employees

and customers likewise. Two types of graphics can be used to establish identity, marketing

graphics and branding graphics. While marketing graphics promote products and services,

branding graphics enhance brand image and should be used complementary with all

marketing activities (Grow, 2004).

MODERN MARKETING CONCEPT

Starting point Focus Means End


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Classical

Contemporary

Need of CRM

To keep existing customers in the face of intense competition and the highercomparative cost of acquiring new customers

Intense completion in the industry results in emphasis on service quality as meansof achieving competitive advantage

close and long term relationship with customers imply continuing exchangeopportunities with existing customers at a lower marketing cost per customer

Good relationship with customers can result in a good word-of-mouth publicity.Service quality cracks can often be prepared over where good relationships have

existed previously

To pursue a customer centric strategy rather than a product centric strategy

MODEL FOR CRM MARKETING

Target

Market

Consumer

needs

Integrated

Marketing

Customer

Satisfaction

Individual

Customer

Customer

Experience

CRM Customer

Loyalty

Customer needs

assessment and acquisition

Customer development

through personalization &

customization

Customer retention and

referring new customers

Addition of value with

products and services

Contact and involvement

Intimacy and one to one

relationship

Price offers

Special facilities/services

High customer satisfaction

Increased market share

High customer loyalty

High customer retention

index

Life time customer

Relationship marketing

Commitment

Recognition

Respect

Reward

Reciprocation


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CRM involves the above shown process. First the customer needs are identified and they

are acquired. This is followed by development of customers through customization and

then steps are taken to retain the customers.

(11) HNWIs VS RETAIL CLIENTS

HNWIs RETAIL

Individualized distribution Mass distribution Individualized Message Mass advertising Share of customer Share of market Profitable customers All customers Customer retention Customer attraction Individual customer Average customer Customized offering Standard product Focus on few but profitable

customers

Focus on large number of customers Extra services Normal services Proactive marketing Reactive marketing

The above comparison shows that the strategy adopted for retail clients is different from

that of HNWIs depending on their values and profit they bring to the organization.

(12) MARKETING STRATEGY OF EDELWEISS IN BANGALORE

SEGMENTING, TARGETING AND POSITIONING

The company is segmenting the customers on the basis of demography. The various

categories are-

Age- the company is targeting only those people who are of 28yrs. of age and above.This is to ensure that they have a sound understanding of stock market

Gender- Male clients are being targeted as it is the case with most of the familiesthat the male members trade and women dont take much interest in trading. So

they are targeting the male clients


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Educational qualification- The Company is looking for educated customers whocan understand the stock market and get the advice given by the company. As

Edelweiss is a premium broking firm so while it is catering to the retail clients but

still it is maintaining its image

Income level- the company is targeting people who have an annual income of3lakhs and above. This ensures that they are able to invest in the stock market

CLASSIFICATION OF CUSTOMERS ON BASIS OF THEIR VOLUME &

LEVEL OF INVESTMENT

According to the above diagram the HNWIs are the customers whose volume is low but

their level of investment is huge so they are of much importance. As the volume of

customers decrease their level of investment increases that means that there are few

clients that account for most of the profits of the company.

The research and development wing has taken a center stage in the innovation process

going forward. The company is thus positioning itself as a premium broking firm as it

basically caters to HNI clients. It believes in providing quality service to its clients. Even as

it enters the retail segment, it is maintaining its premium image as is clear from the choice

segmentation of customers. It maintains a good client base and provides quality services to

them. The company is POD (Point of differentiation) is its quality Research and

development.


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FACING THE COMPETITORS

Flank attackis the strategy adopted by Edelweiss to attack its competitors. In this strategy

the company attacks on the competitors weak point. Here the company is attacking the

competitors on the basis of brokerage and research.

Few strategies recommended by Edelweiss

Our recommended strategy is to be overweight domestic-focused sectors: telecom,

industrial, consumer discretionary, and BFSI

Our top large cap picks are Bharti, BHEL, Crompton, Hero Honda, HDFC Bank, SBI, Sun TV

and Suzlon.

EDELWEISS IN NEWS

SPONSOR OF ICL- Edelweiss is the sponsor of ICL and this will give it widercoverage and help it build its brand. The technique for which Edelweiss is going is

Event sponsorship and this is an effective way to cover mass media.

TIE-UP WITH UNION BANK OF INDIA- to roll out Wealth Management Services tocater its High Net worth Individuals (HNI) in Mumbai. Under the conditions of the

tie-up, Edelweiss will be contributing a whole range of wealth management

products and alternative investment options such as structures product, Real Estate

Funds, Art.

Edelweiss is looking for long term customer base and for that reason it is trying to

understand the investment pattern of the customers and accordingly suggest them the

financial products matching their risk profile. While other companies are just selling their

products Edelweiss by conducting this survey is actually trying to understand the

investment needs of the customers.

OPPORTUNITIES BEFORE THE COMPANY

Strong economic growth, increased geographic penetration, growth of SMEs and theincreasing need for capital among Indian corporations are expected to continue todrive Indias financial services industry.

The Company is already well established in domains such as investment banking.Moreover, it plans to invest a large part of its IPO in prepaying of loans, enhance

margins with stock exchanges and establish new offices.


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Huge untapped retail segment - the Company has a huge opportunity before it as ithas a vast untapped retail segment.

Increasing affluent class- The rise of the affluent class will aid the growth of thecompany

The Indian financial sector carries immense growth opportunities, be it investmentbanking, wealth management, insurance broking or any other domain

The focus on diversity has already reduced the risk of client and productconcentration. With a continuous rise in number of HNIs, and the expansion of

capital markets, domains such as investment banking, PMS are likely to experience

outstanding growth

CHALLENGES BEFORE THE COMPANY

More people have sold the shares in the Indian share market than they bought in therecent weeks. This has added to the fall of sensex to lower points.

Foreign investors have pulled out from stock markets leading to heavy losses instocks and mutual funds

Because of such uncertainty many people have started saving money in banksrather than investing

Business Volatility- The business in which the company is in is very volatile andkeeps changing with the market situation. So to keep a good pace of growth is the

challenge that lies ahead

Competition- The competition is fierce among different market players and standingin this situation is a challenge

Risk management- The business is prone to a high risk and minimizing risk is theneed of the time

People- The company should maintain the good working force that it has with it atpresent and improve it to gain competitive advantage


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DE-MAT ACCOUNT SALES

Along with classifying the customers into various categories the de-mat was also pitched to

them especially to those customers who lacked in their investment in the stock market and did

not had the right combination of investments.

SWOT ANALYSIS:

COMPARITIVE ANALYSIS

Edelweiss Sharekha

n

Religare India

Infoline

Motilal

Oswal

ICICI

Direct

Indiabulls

Brokerag

e

Competitiv

e

Competitiv

e

nomina

l

high nomina

l

High Low

Services Premium Good average average good Very good average

Online

trading

Yes with

excellent

software

Yes with

the most

preferre

d

yes yes Yes Yes but

no

streamin

g

Real-time

quotes

Research Excellent Good averag

e

averag

e

averag

e

Very

good

average

Brand

image

Not good

in

Kolkata

Very

good

averag

e

averag

e

good Excellent Satisfactor

y

AMC Free for

the 1st

year, 562

Rs.400 Rs.325 Rs.450 Rs.325 Rs.500 Rs.500

De-mat

account

charges

Free

account

opening

Rs.725 Rs.300 Rs.500 Rs.425 Around

Rs.750

Rs.500


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Exposure 3-4 times 5 times 5-

6times

3-

4times

6-

7times

3-5 times 6-7times

INTERPRETATION

From the above table following conclusions can be drawn:-

When it comes to brokerage, Edelweiss is very competitive. Though there are manyfirms that are offering very low brokerage to the clients, the company has come up

with its new prepaid plans in which the brokerage is as low as 10 paisa. There are

different plans depending on the trading volume of the clients

Services offered by Edelweiss are premium and one of the best among all. Edelweiss has online trading platform that has live streaming quotes and Express

trade facility wherein the client can punch in the trade while looking at the values of

the stocks.

Research of Edelweiss is best among all its competitors and no one can beatEdelweiss on that

The only point that is not in the favor of Edelweiss is low Brand equity in Kolkata.The Brand image is not there in the minds of the people as the company is new in

Kolkata. So the company needs to work on it and establish a good brand image as it

matters a lot in this industry

From the above table it can be seen that ICICI and Sharekhan are its biggestcompetitors. ICICI is the major competitor, the benefit that it enjoys is that the

customers can have their account I its bank so fund transfer is very easy. Besides it

has a very good brand image and people trust on that. This is the reason that despite

charging a high brokerage it is very popular among masses. Sharekhan is customer

friendly and its terminal is considered very fast. So Edelweiss needs to focus on

these two competitors.


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COMPARITIVE MARKET SHARE OF EDELWEISS

6

17.19

27.69

13.67

6.93

15.81

12.71

Edelweiss Sharekhan ICICI Motilal Oswal

HDFC Indiabulls others

ICICI is the market leader followed by Sharekhan. Edelweiss holds 6% of the market share

and shows a bright potential of growth.


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CHAPTER 3

GENERAL CHARACTERISTICS: GOLD

If its yellow, heavy and malleable and ductile (stretches or draws out into thin wire withoutbreaking) then its probably gold. Gold doesnt combine with other elements too often, so it will

usually be found in pure examples. Gold naturally occurs with pyrite (iron sulfide, fes2) and

arsenopyrite (iron arsenic sulfide, feAsS) in lode deposits, which means in veins or deposited infissures of adjoining rock. Pyrite and chalcopyrite are very often mistaken for gold but are lighter

in weight and more brittle, pulverizing to powder when hammered. Golds name is believed to

be Anglo-Saxon, but its uncertain where it originated.

The atomic symbol for gold is Au, and its atomic number is 79 with an atomic weight of

196.967. Gold will melt at a temperature of 1063* C. golds specific gravity is between 15.6 to19.3, with hardness between 2.5 and 3. Gold has traditionally been found in elastic placer

sedimentary deposits, from a source in ingenious rock in veins and hydrothermal replacementdeposits

1 grain= .0648 grams pure gold is 1.000 fine

24 grains= 1 penny weight commercial gold is .999 fine

1 DWT= 1.5552 grams 24 karat = 100% gold

20 DWT= 1 ounce 18 karat = 75% gold1 ounce= 31.1 grams 14 karat = 58% gold

12 ounce= 1 troy pound 10 karat = 42% gold


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BREIF HISTORY OF GOLD:

Gold is the oldest precious metal known to men. Therefore, it is a timely subject for several

reasons. It is the opinion of the more objective market experts that the traditional investment

vehicles of stocks and bonds are in the areas of their all-time high and may be due for a severecorrection.

To fully appreciate why 8000 years of experience say gold is forever, we should review why

the world reveres what England most famous economist, John Maynard Keynes, cynically called

the barbarous relic

Why gold is good as gold is an intriguing question. However, we think that the more pragmatic

ancient Egyptian were perhaps more accurate in observing the gold value was a functions of its

pleasing physical characteristic and its scarcity.

Gold is primarily a monetary asset and partly a commodity. More than two third of gold total accumulated holdings account as value for

investment with central bank reserves, private players and high-carat jewelry.

Less than one third of gold total accumulated holding is as a commodity for jewelry inwestern market and usage in industry.

The gold market is highly liquid and gold held by central banks, other major institutionand retail jewelry keep coming back to the market.

Due to large stocks of gold as against its demand, it is argued that the core driver of thereal price of gold is stock equilibrium rather than flow equilibrium.

Economic forces that determine the prices of gold are different from, and in many casesopposed to the forces that influence most financial assets.

South Africa is the world largest gold producer with 394 tons in 2001, followed by USand Australia. India is the world largest gold consumer with an annual demand of 800 ton.

WORLD GOLD MARKETS

London as the great clearing house

New York as the home of future trading Zurich as a physical turntable Istanbul, Dubai, Singapore and Hong Kong as doorways to important consuming regions Tokyo where TOCOM sets the mood of japan Mumbai under Indias liberalized gold regime


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India in world gold industry

(Rounded figures) India (in tons) World (in tons) % share

Total stocks 1300 145000 9

Central bank holding 400 28000 1.4

Annual production 2 2600 0.08Annual demand 800 3700 22

Annual imports 600 --- ---

Annual exports 60 --- ---

Annual recycling 100-300 1100-1200 13

Indian gold market

Gold is valued in India as saving and investment vehicle and is the second preferredinvestment after bank deposit.

India is the world largest consumer of gold in jewelry as investment.

In July 1997 the RBI authorized the commercial banks to import gold for sale or loan tojewelers and exporters. At present, 13 banks are active in the import of gold.

This reduces disparity between international and domestic prices of gold from 57%during 1986 to 1991 to 8.5% in 2001.

The gold holding tendency is well ingrained in Indian society. Domestic consumption is dictated by monsoon, harvest and marriage season. Indian

jewelry off take is sensitive to price increases and even more so to volatility.

In the cities gold is facing competition from the stock market and wide range ofconsumers goods.

Facilities for refining, assaying, making them into standard bars in India, as compared tothe rest of the world, are insignificant both qualitatively and quantitatively.

Market moving factors

Above ground supply from sales by central banks, reclaimed scrap and official goldloans

Producer / miner hedging interest World macro- economic factorUS dollar interest rate Comparative return on stock markets Domestic demand based on monsoon and agricultural output.


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Frequency dist. Of gold London fixing volatility from 1995 till date

Percentage change >5% 2-5 % < 2%

Daily

Number of times 4 54 2147

Percentage times 0.2 2.4 97.4Weekly

Number of times 3 62 376

Percentage times 0.7 14.1 85.3

Biggest price movement since 1995

Between September 24 and October 5, 1999, daily prices witnessed a rally of more than21% based on surprised announcement by 15 European central banks of five-year

suspension on all new sales of gold from their reserves.

CONTRACT SPECIFICATION

Type of contract Futures contract specification

Name of commodity Gold

Ticker symbol GLDPURMUMK

Trading system NCDEX trading system

Basis Ex-Mumbai inclusive of custom duty and Octopi,exclusive sales tax/vat

Unit of trading 1 kg

Delivery unit 1 kgQuotation/base value Rs per 10 grams of gold with 995 fineness

Tick size Re 1

Quality specification Not more than 999.9 fineness bearing a serial number andidentifying stamp of a refiner approved by the exchange.

List of approved refiners is available atwww.ncdex.com

Quantity variation None

Delivery center Mumbai

Additional delivery center Ahmedabad

Hours of trading As per direction of the forward markets commission from

time to time currently:-Mondays to Fridays:

10:00 AM to 11:55 PM

Saturdays:

10:00 AM to 2:00 PMOn the expiry date, contracts expiring on that day will not

be available for trading after 5 PM
http://www.ncdex.com/http://www.ncdex.com/http://www.ncdex.com/http://www.ncdex.com/


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The exchange may vary with due notice.

Tender period Tender period would be of 5 working days during

trading hours prior to and including the expiry date ofthe contract

Pay-in and pay-out: On a t+1 basis. If the tender date is

T then, pay-in and pay-out would happen on T+1 day. Ifsuch a T+1 day happen to be a Saturday, a Sunday or a

holiday at the exchange, clearing banks or any of the

service providers, pay-in and pay-out would be effected

on the next working day.There would be 5 pay-in & pay-outs starting T+1 the 5

th

being the final settlement.

Due date/expiry date Expiry date of the contract:20

thof the delivery month. If 20

thhappens to be a

holiday, a Saturday or a Sunday then due date shall bethe immediately preceding trading day of the exchange,

which is other than a Saturday.

The settlement of the contract would be by a staggered

system of 5 pay-ins and pay-outs which would be thefinal settlement of the contract

Delivery specification Upon the expiry of the contracts all the outstandingpositions should result in compulsory delivery.

The penalty structure for failure to meet delivery

obligation will be as per circular number.NCDEX/TRADING-091/2007/235 dated October 4,

2007.

During the tender period if any delivery is tendered byseller, the corresponding buyer having open position and

matched as per process put in place by the exchange,

shall be bound to settle by7 taking delivery on T+1 day

from the delivery center where the seller has deliveredsame.

Closing of contract Clearing and settlement of contract will commence withthe commencement of tender period by compulsorydelivery of each open position tendered by the seller on

T+1 to the corresponding buyer matched by the process

put in place by the exchange. Upon the expiry of the

contract all the outstanding open position should resultin compulsory delivery.

Opening of contracts Trading in the far month contract will open on the 10t


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day of the month in which the near month contract is

due to expire. If the 10th

happens to be non-trading day,contracts would open on the next trading day.

Number of active contracts Minimum of two contracts with a maximum of 12contracts running concurrently.

Price limits Daily price fluctuation limit is (+/-) 4%. If the trade hitsthe prescribed daily price limit there will be a cooling

off period for 15 minutes. Trade will be allowed during

this cooling off period with in the price band. There afterthe price band will be raised by another 50% of the

existing limit i.e. (+/-) 2% and trade will be resumed.

If the price hits the revised price band (6%) again duringthe day, trade will only be allowed with in the revised

price band. No trade/order shall be permitted during the

day beyond the revised limit of 6% except such further

variation as may be permitted by the regulators.

Position limit Client-wise - 2MTThe above limits will not apply to bonafide hedgers. For

bonafide hedgers the exchange will decide the limits on

a case-to- case basis.

Quality allowance (for delivery) Gold bars of 999.9 / 995 fineness. A premium will begiven for fineness above 995. The settlement price for

more than 995 fineness will be calculated at (actual

fineness) final settlement price. Premium of 0.49 %

would be given for gold delivered of 999.9 purity.

Special margin In case of additional volatility, a special margin at such

other percentage, as deemed by the regulator/exchange,may be imposed on either the buy or the sell side in

respect of all outstanding positions. Removal of such

margins will be at the discretion of theregulator/exchange.

Additional margin In addition to the above margins the regulator/exchangemay impose additional margin on both long and short

side at such other percentage, as deemed fit, removal of

such margin will be at the discretion ofregulator/exchange.


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HISTORICAL GOLD PRICE IN INDIA


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RELATIVE SHARE OF COUNTRY THAT EXPORT GOL


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CHAPTER 4

RESEARCH METHODOLOGY

Statement of Problem

The prices of commodities as well as the foreign currency were highly volatile. The foreign

currency in this regard could be attributed as dollar and the commodity could be attributed to

gold. People face hardship these days as the prices are rising in respect of gold. It was not justvolatile but the rising prices of the gold as well as cost of living could not be matched. Similarly,

the nation faced exchange problem which was rising very steeply. Therefore, there was a need to

study relation between commodity prices of gold with that of foreign currency.

Objective of the study:

To ascertain the relationship between gold as a commodity and dollar as a currency. To ascertain the movement in the prices of gold whether up or down, due to change in the

movement of dollar prices

Data collection:

The data to be collected will be the secondary data which is available on the websites. The

data to be collected is on the basis of the price movement of the gold on the NCDEX and

MCX exchanges and in case of foreign currencies the historical data available on Google will

be beneficial.


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Tools for analysis:

We will be using correlation analysis to find out the relationship between gold and

foreign currencies.

Correlation coefficient indicates the strength and the direction of linearrelationship between two variables.

Correlation is computed into what is known as the correlation coefficient, whichranges between -1 and +1. Perfect positive correlation (+1) implies that as onesecurity moves, either up or down, the other security will move in lockstep, in the

same direction. Alternatively, perfect negative correlation means that if one

security moves in either direction the security that is perfectly negative correlated

will move by an equal amount in the opposite direction.

The measured variable y which is conventionally called the dependent variable is

correlated with x called the independent variable.

Limitation of the study:

We can only rely on the data that is available on the websites. Only the prices are being considered to conduct the study. The economic variables that govern price movements are not being

considered.

The fluctuations in the currency prices are not only the factor that affects thegold prices.

Contribution to the study:

The study will help the large institutional investors in reducing their losses in the Fore and

commodity market and also will give a new direction for the players who trade in gold or the

people like us in India who are the largest consumers of it in the present era.

All in all it will help the investors to reduce their risks through counter investing i.e. hedging

their risk by taking exposure in the commodities market.

report on equity markets

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