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.

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 To prepare guidelines related to special products of securitization NCDEX
works with bank.
 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

Decision Placing
to trade Order

Transacti
Funds or
Securities on Cycle Trade
Execution

Settleme
nt of
Clearing
trades
of Trades

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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 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 Demat Delivery Square Banks Associated

A/c Off 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

13
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.

14
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

POTENTIAL ENTERANT

Investmart
Various Banks
Geojit
Cipher
UTI Securities Ltd.
Refco Group Ltd.
IDBI Capital Mkt. Services
Ltd.

COMPETITORS
COMPETITORS BUYERS
SUPPLIERS
SUPPLIERS BUYERS
ICICI
ICICI Web
Web Trade
Trade Ltd
Ltd Small
Web
Web maintainers
maintainers Small Investors
Investors
5paisa.com
5paisa.com Franchise/Business
NSCL
NSCL Franchise/Business
Kotak
Kotak Securities
Securities Ltd
Ltd Partners
CSDL
CSDL Partners
India
India Bulls
Bulls HNI’s
NSE
NSE HNI’s
Motilal
Motilal Oswal
Oswal Securities
Securities Ltd
Ltd MF Companies
BSE
BSE MF Companies
HDFC
HDFC Securities
Securities Ltd
Ltd HUF
MCX
MCX HUF
Marwadi
Marwadi Finance
Finance Ltd
Ltd Institutional
NCDEX
NCDEX Institutional
Investors
Investors

SUBSTITUTES
SUBSTITUTES
Mutual
Mutual Funds
Funds
Insurance
Insurance
Bank
Bank FD
FD

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 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
21
 types of accounts viz. speed trade speed trade plus, which were costing 1000
& 1500 account opening charges respectively. But due to competition, they
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.

22
 Traditional Broking

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.

23
INTERNET TRADING IN INDIA:

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.

24
 ABOUT SHAREKHAN COMPANY
INTRODUCTION

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.

25
CURRENT POSITION

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

26
 GENERAL INFORMATION

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

27
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"

28
 SSKI Group - Corporate Structure

Owns 56%
of Owns 50.5% of
SSKI Securities Pvt. Ltd.
Morakhia Family & Associates

SSKI Investor Services Pvt. Ltd.

SSKI Corporate Finance Pvt. Ltd.

Retail broking arm of the group
Shareholding pattern
Investment Banking arm of the group
56% Morakhia family (promoters)
Shareholding pattern
18.5% HSBC Private Equity
50.5% SSKI Securities Pvt. Ltd.
Management, Mauritius
49.5 % Morakhia family
18.5% First Carlyle Ventures, Mauritius
7% Intel Pacific Inc.

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

29
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

30
• 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.

31
 MARKET COVERAGE

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

32
Award-Winner

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

33
 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.

34
Back up Facility to place trades on Direct Phone Lines.

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

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!!!

35
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 SPEED

TRADE TRADE
PLUS
One time 750 1000 1500
registration fee
Minimum Nil 1000 1500
brokerage

36
 Charges –
Quarterly

• 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

37
• 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
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

38
 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
• 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

39
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.

40
 • 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

41
2. Agreement between sharekhan and client in respect of the ONLINE-
INVESTMENT SUPPORT service offered.
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)

42
 SEVEN ‘S’ MODEL

Structu
re
Strateg Syste
y
Super ms
ordinat
e
Goals
goals Styl
Skill
e
s
Staf
f

 STRUCTURE:

43
 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.

44
 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.

45
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

46
 PRODUCTS OF THE SHAREKHAN COMPANY

ShareKhan’s product

Offline Online Other Services

Classic A/C Speed Trade A/C

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.

47
 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

48
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
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

49
Internet Explorer 6.0

Java enabled in IE

 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.

50
Features of SpeedTrade
that enable you to trade effortlessly

Instant order Execution & Confirmation

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

51
Charges of Different companies for online A/C

Parameters Opening Fee Brokerage Interface

Trading Demate Delivery Square Bank
A/C A/c Off 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,HDF
C, City Bank
Kotak Street 500 0.59 0.06 Kotak Bank,
City Bank
HDFC 700 NIL 0.50 0.15 HDFC & Other
Securities 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

52
account) and on authentication you'll be directed to a telebroker who will buy and
sell shares for you.
Features of Dial-n-Trade
that enable you to trade effortlessly

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

53
  PORTFOLIO MANAGEMENT SYSTEM

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.

54
  MUTUAL FUND

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.

55
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.

56
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")

57
 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

58
 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.

59
 SWOT ANALYSIS
During 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.

60
 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:

 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.

61
 ABOUT THE DERIVATIVES
DERIVATIVES

 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

62
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
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.

63
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).

64
 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

DERIVATIVES

Options Futures Swaps Forwards

Put Call Interest Currenc

Commodi Security

65
 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.

66
 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

67
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

68
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.

69
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
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.

70
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.

 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

71
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.

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.

72
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 = 20,000 (3,00,000 - 3,000 (45,000 - 17,000 (20,000 -
2,80,000 2,80,000) 42,000) 3000)
Payment to be
(17,000)
made

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 = 22,000 3,300 18,700
3,02,000 (3,02,000 - 2,80,000) (45,300 - 42,000) (22,000 - 3300)
Payment to be recd 18,700

73
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
18,000 (3,20,000-3,02,000) 18,000 + 45,300* = 63,300
=3,20,000
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.

ABOUT COMMODITIES
74
 INTRODUCTION

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
trading will be encouraged in increasing number of agricultural commodities was
indicative of welcome change in the government policy towards forward trading.

75
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

WHY STRUCTURED COMMODITY MARKET?

76
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.

77
COMMODITIES

78
  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.

79
  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.
 There should be fluctuations in price.
80
 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

 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.
81
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.

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

82
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
breadth and liquidity to the futures markets which in their absence would remain
narrow and unstable.

83
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.

 REGULATORY BODY

84
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
transactions carried out in the local markets. Also multiple restrictions exist on inter-
state movement and warehousing of commodities.

85
  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: -

• 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
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.

88
  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
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.

89
  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

90
 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.

91
 SOURCES OF DATA

There are two main sources of data

Primary Data
1. 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.

92
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 City

Sampling Technique Stratified and Random
Sample Size 300 Respondents
Sampling Unit: Professional =
Random
Business Man =
Random
Government Employees =
Random
Employees working in private firms =
Random

SCOPE OF STUDY

93
 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.

94
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.

95
 ANALYSIS & INTERPRETATION
1.Gender Ratio:

Male Female
196 104

250
196
200

150
104
100

50

0
Male Female

Series1

2.Age:

Below 30 30-50 More than 50

212 35 53

250
212
200

150

100
53
50 35

0
Below 30 30-50 More than 50

Series1

96
3.Education Qualification:

Post Graduate Under Graduate

Graduate
112 172 16
200
172
180
160
140
112
120
100
80
60
40 16
20
0
Post Graduate Graduate Under Graduate

Series1

4.Occupation:

Govt. Non-Govt. Business Professional

Employees Employees Man
120 62 70 48

140
120
120
100
80 70
62
60 48
40
20
0
Govt. Non-Govt. Business Professional
Employees Employees Man

Series1

97
5.Investment Pattern:

Securities No. Percentage(%)

Bank F.D. 114 38
Post office 63 21
Insurance 28 9
Mutual Fund 30 10
Gold 22 7
Equity 19 6
Derivatives 10 3
Commodities 14 5

114
120
100
80 63
60
38
40 28 30
21 22 19
9 10 10 14
20 7 6 3 5
0
es
e
ce

d
d

ty

s
D.

un

ol
nc

itie
tiv
ui
fi
F.

G
of

ra

Eq
lF

od
a
nk

riv
su
st

ua

m
Ba

Po

De
In

m
ut

Co
M

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:

98
 Instruments No. Percentage(%)
Bullion 79 26
Spices 33 3
Fiber 19 11
Oil 50 17
Metal 43 14
F&O 76 25

90 79 76
80
70
60 50
50 43
40 33
30 26 25
19 17
20 11 14
10 3
0
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

99
 Obstacles No. Rank
Risk Reduction 129 1
Leverage Benefit 112 2
Arbitrage Benefit 12 5
Speculative Motive 15 4
Liquidity preference 32 3

140 129
120 112

100
80
60
40 32
12 15
20 1 2 5 4 3
0
Risk Leverage Arbitrage Speculative Liquidity
Reduction Benefit Benefit Motive preference

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. Rank

Broker 117 1
Magazine 55 3
100
 Internet 102 2
Other 26 4

140
117
120
102
100
80
55
60
40 26
20 3 4
1 2
0
Broker Magazine Internet Other

No. Rank

Exchange preferred by individual Derivatives

BSE 155
NSE 145

156 155
154
152
150
148
146 145
144
142
140
BSE NSE

Series1

Commodity
MCX 189
NCDEX 111

101
 200 189
180
160
140
111
120
100
80
60
40
20
0
MCX NCDEX

Series1

Constraints that are holding back to individual for investment

No. Percentage (%)

Lack of knowledge 64 21
Lack of Guidance 58 19
Lack of Fund Availability 70 23
Lack of Risk taking 108 36
Ability

120 108
100
80 70
64
58
60
36
40
21 19 23
20
0
Lack of Lack of Lack of Fund Lack of Risk
knowledge Guidance Availability taking Ability

No. Percentage (%)

Individual take decision through

No. Rank
Independently 97 1
Broker/Agent 73 2
News Channels 19 6
News Papers 20 5
Internet 68 3
Tax consultant 23 4 102
 120 97
100
73 68
80
60
40 19 20 23
20 1 2 6 5 3 4
0

et
rs
ly

nt
nt

el
nt

rn
pe

ta
ge

nn
e

te

ul
Pa
/A
nd

ha

In

ns
er
pe

ws
C

co
ok
de

ws

Ne
Br

x
In

Ta
Ne

No. Rank

Medium reliable for individual for trading

Stock Broking Companies 168

Franchisees 43
Online 89

180 168
160
140
120
100 89
80
60 43
40
20
0
Stock Broking Franchisees Online
Companies

Series1

Most preferred Broking Companies of the Rajkot City

India Bulls 3
ShareKhan 2
Marwadi 5
Motilal oswal 8
HDFC 7
Securities
ICICI Direct 1
Kotek street 6
Skse 4 103
 TESTING OF HYPOTHESIS

Testing of Hypothesis using Z test (Two tailed):

1.) The Null Hypothesis (H0):

“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 :

104
 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
= 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.

105
H1: There is significant difference in level of literacy about Derivatives &
Commodities among the people of Rajkot City.

106
 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
107
• 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
108
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:

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 Arbitrage Benefit: Speculative Motive:

Liquidity preference:

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 ?
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 Stock Broking Company:

Franchises:

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

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that it improve my convincing power and also give chance to meet
different people .It also increase my confidence. It is a memorable
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
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 • Pathak Bharti v.,Indian Financial Syatem,Delhi,Person
Education(Singapore) Pvt.Ltd.

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

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