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ANALYSIS OF DERIVATIVES
IN HYDERABD STOCK EXCHANGE
SIRIMALLA RAJU
06189-C-1023
UNDER THE GUIDANCE OF
RAJ KUMAR
LECTURER IN FINANCE
1
DECLARATION
SIRIMALLA RAJU
2
ACKNOWLEDGEMENT
SIRIMALLA RAJU
3
UNIT – I
INTRODUCTION
4
FOREIN DIRECT INVESTMENTS IN INDIAN MARKETS
5
Foreign Direct Investment (FDI) is permitted as under the
following forms of investments.
Forbidden Territories: -
6
telecommunication, petroleum exploration and refining, ports,
airports and roads.
7
Foreign investment is welcome the automatic in sixty
categories of industries requires approval.
8
determined rate.
METHODOLOGY :
9
Data for the study was obtained by browsing from the net,
books and from different new papers. Also the Fact Sheets provide
by the AMCs proved very helpful.
UNIT – II
PROFILE OF THE
HYDERABAD STOCK
EXCHANGE
10
11
INTRODUCTION
THE HDERABAD STOCK EXCHANGE LIMITED
ORIGIN :
Rapid growth in industries in the erstwhile Hyderabad State
saw efforts at starting the stock exchange. In November 1941,
some leading bankers and brokers formed the stock and share
broker’s association. In 1942, Mr. Gulab Mohammed, the finance
minister formed a committee for the purpose of constituting rules
and regulations of the stock exchanges. Sri Purushothamdas
Thakuurdas, president and founder member of the Hyderabad
Stock Exchange performed the opening ceremony of the exchange
on 14.11.1943 under Hyderabad companies act; Mr. Kamal Yar
Jung Bahadur was the first president of the exchange. The HSE
started functioning under Hyderabad Securities contract act of no.
21 of 1352 under H.E.H. Nizam’s government as a company
limited by guarantee. It was the 6th stock exchange recognized
under Securities contract act, after the premier stock exchanges,
Ahmedabad, Bombay, Calcutta, Madras and Bangalore stock
exchanges. All the deliveries were completed every Monday or the
next working day.
The Securities Contracts (Regulation) Act 1956 was
enacted by the parliament, passed into Law and Rules were also
framed in 1957. The act and rules were brought into force from 20th
February 1957 by the government of India.
12
The Government of India on 29th September 1958 first
recognized the FSE as securities regulation act was made
applicable to twin cities of Hyderabad and Secunderabad from the
date. In view of substantial growth in trading activities, and for the
Yeoman services rendered by the exchange, the exchange was
bestowed with permanent recognition with effect from 29th
September 1983.
OBJECTIVES :-
13
The exchange has made its beginning in 1943 and today
occupies a prominent place among the regional stock exchanges
in India. The HSE promotes the mobilization of funds to the
industry and develops the industrialization in the state to Andhra
Pradesh.
GROWTH:-
GOVERNING BOARD:-
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MEMBERS OF THE EXCHANGE:-
Sri Hari Narayan Rathi
Sri Rajendra V Naniwadekari
Sri K. Shiva Kumar
Sri R. D. Lahoti
Sri Ram Swaroop Agarwal
Sri Dattatriaya
EXECUTIVE DIRECTOR:-
Sri S. Sarveshwar Reddy.
COMPUTERISATION:-
The stock exchange business operations are equipped with
modern communication systems. Online computerization for
simultaneously carrying out the trading transactions, monitoring
functions have been introduced at this exchange since 1998 and
15
settlement and delivery system has become simple an easy to the
exchange members.
16
In the age of electronic trading, on-line information on rates
from other major markets was an essential input for efficiency.
HSE provided On-line rates from BSE and NSE which not only
enhanced the ability of HOST terminals to attract the investors but
also enabled the members to avail arbitraging opportunities
between exchanges.
CLEARING HOUSE:-
The HOST provides the network for HSE to hook itself into
the ISE. The ISE provide the members of HSE and their investors,
access to a large national network of stock exchanges.
17
The inter-connected stock exchange is a national exchange
and all HSE members could have trading terminals with access to
the national market without any free, which was a boon to the
members of an exchange to have the trading rights on a national
stock exchange(ISE), without any free or expenditure.
ON-LINE SURVEILLANCE:-
18
BASE MINIMUM GROSS EXPOSURE INTRA DAY
CAPITAL LIMIT LIMITS
Rs.4.00 Lacks Rs.40.00 Lacks Rs.132.00 Lacks
ADDITIONAL CAPITAL UPTO
Rs.6.00 Lacks Rs.48.00 Lacks Rs.90.00 Lacks
FURTHER ADDITIONAL CAPITAL UPTO
Rs.8.00 Lacks Rs.48.00 Lacks Rs.96.00 Lacks
CORPORATE DATABASE:-
19
TURNOV
NUMBER OF LISTED PAID UP
YEAR ER (RS IN
TRANSACTIONS COMPANIES CAPITAL
Cr.)
20
SETTLEMENT GURANTEE FUND:-
The short falls, if any, arising from the default of any member
will be met out of the settlement guarantee fund. Several pay-ins
worth of crores of rupees in all the settlements have been
successfully completed after the introduction of the settlement
guarantee fund, without utilizing any amount from the settlement
guarantee fund. This trade guarantee fund will be a major step in
re-building this confidence of the members and the investors in
HSE. HSE’s trade guarantee fund had a corpus of Rs.2.00 Crores
initially which would be raised to Rs.5.00 Crores.
21
CURRENT DIVERSIFICATIONS:-
A) DEPOSITORY PERTICIPANT
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procured the hardware/software, connectivity etc…And conducted
mock trading for a month’s time in order to give smoothly on NSE
segment.
Year
NSE cash (Rs. in Lacks)
NSE F&O (Rs. In Lacks)
BSE(Rs.in Lacks)
23
The technological changes are sweeping through an
affecting the Securities trading all over the world. In view of the fast
moving technological changes HSE intends to have a “BROKERS’
PLAZA” which will enable the members to offer their clients trading
on Internet Platform.
24
lead to the terms of the contracts and trade comparisons will lead
to the output of the reporting system as matched transactions this
will he the input for the clearing schedule. There is no trading of
the exchange. The trading is large volume and over telephone,
telexes etc.
SETTLEMENT PROCEDURE :-
25
To assist the management of the exchange, the settlement
committee shall hear and settle the dispute arising between
members in respect of non deliveries, no payments, good and bad
deliveries pertaining to exchange’s settlements.
DE-MATERIALIZATION OF SHARES :-
Some of the ills of the stock market that hindered its smooth
functioning have being Bad deliveries, delays and voluminous
paper work. These were also the reasons for small investors to shy
away from the market.
26
have been forced to transact only in De-mat form. De-
materialization in the process of converting the physical shares
into electronic mode. The study includes objective of the
depository system, the interacting institutions and depository
process in India. It also includes the problems with implementation
of the system and remedial measures for the successful
implementation of the depository system.
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UNIT – III
TYPES OF INVESTMENTS IN
INDIA
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The India Investment Center, a Government of India
organization, with more than three decades if rich experience in
investment promotion, is the first contact point and is the single
window agency for authentic information or any assistance that
may be required for investments, technical collaborations and joint
ventures. All its services are free of charge.
29
companies in identifying source of capital and technology abroad
facilitating foreign collaborations.
30
It provides information and assistance to foreign
entrepreneurs in locating suitable Indian parties for collaborationist
establishment of projects abroad including third country projects.
ESCORT SERVICES:-
Foreign Entrepreneurs
Investment opportunities
Secretarial assistance
Location decisions
Indian Collaborator
Indian Businessman
Global scenario
Technology sourcing
Capital sourcing
Foreign Collaborator
Foreign Entrepreneurs
Technology sourcing
Indian Collaborator
Foreign Businessmen
Opportunities Abroad
Foreign Collaborator
31
In India it is currently estimated that an 80 million unit
housing shortage exists, with 40 million in Urban areas and it is
evident that the infrastructure of our nation has to be addressed in
all areas and modernized to the levels of developed nations. The
numbers standard enormous and of a truly staggering proportion.
Frankly, the state of the nation’s infrastructure remains severely
out of date and built to the requirements of many decades ago and
is not capable of supporting the large increased population which
is expected to surpass that of China’s by 2050.
32
At present’s rates of modernization, China is expected to
surpass America as the world’s largest economy by 2025ensuring
a better quality of life for the people of the world’s most populous
nation. It is hence at this critical moments that India must
aggressively look to the examples of China and other nations
successful in attracting FDI to attract monies into sectors where
she cannot capitalize and to effect modernization.
33
infrastructure development process. Privatization and deregulation
would further accelerate the FDI into India through increased
global investor confidence created by a more investor-friendly
economic climate, not to mention bringing people out of poverty
through economic growth this in turn, empowers the consumer and
gives them the option to “select” which product or service the
would prefer to purchase these simple procedures would increase
global and national competitiveness, encourage entrepreneurship
and simultaneously increase national productivity, development
and distribution of higher quality products and services resulting in
lower consumer pricing in turn, increasing purchasing power for
the consumer and increasing state and federal tax revenues to
ensure the government fulfills its social obligation in the areas of
education and health care without having to divert funds that ‘were’
required for infrastructure improvements .
34
This can be made completely transparent and easily
accessible through a well-managed, organized electronic
database, which is integral to the expedition of investment capital
into the Real Estate Sector with appropriate laws enacted.
Sovereign Risk:-
Political Risk:-
35
foreign investors are interested in ) has been accepted as a
necessity by all parties including the Communist Party of India
(Marxist).
Commercial Risk:-
36
and advise at the potential investor accordingly in exchange of a
professional fee.
37
Regardless of how strong the threat of sanctions were, the Us
president’s Regardless above-mentioned state visit to India as a
great potential trading partner as well as, perhaps, a politically
strategic partner in Asia. India’s rapidly improving relations with
Israel has only lent further momentum to India-US bonding.
Given the fact that the united states has some how managed
for itself the role to the world’s police man (a role to which India is
explicitly opposed), other countries-notably Japan Australia-have
also toned down their opposition to India’s nuclear weapons
program. In other words, it is now business as usual of the world
vis-à-vis India.
38
managements and market practices in the business ventures they
undertake.
39
attracted major IT companies of USA like IBM, INTEL, Microsoft to
shift part of their activities to India.
Sovereign Risk:-
India is a stable parliamentary democracy with a tradition
and continuity or over fifty years now, after obtaining freedom from
British rule there is no serious revolutionary movements in India.
Political Risks:-
40
coalition of United Democratic Parties and presently by a coalition
of National Democratic Parties. In India change of Government
implies change of personalities governing the country, but not
contours of its major policies, in particular its foreign policy and
economic policy. All the three governments have shown
themselves as ardent supporters of economic reforms. Instability
even for a few years due to the failure of any party to win an
absolute majority in Parliament has not happened. Basic policies
of the country are peace, freedom, and friendliness to all. There is
no record of the country having give to war with another country
during the last thousand years. India has accepted globalization
and tiered its economically accordingly, i.e. integrating the Indian
Economy with the Global economy and following market driven
economic policies. Foreign investors do not face any threat of
political risk.
41
Commercial Risk:-
India is a major power and has friendly ties with all countries
of the world, in particular the G8 countries. The peace loving and
no-war policies of the Government is a guarantee that it will face
no economic sanctions in further. It die face such sanctions
recently after the nuclear test, but it was for a brief span of time.
The major powers of the world are convinced that India is a stable
country and poses no threat to others.
42
1. Our country is a late starter. Reform process started in India
only from 1992 and picked up momentum by 1995-96. In the
face of this countries like China, South Korea, Taiwan,
Malasia were actively pursuing foreign investments since the
early Eighties.
2. It is generally complained that the phase of Reforms in India
is rather slow. After initial start, progress became slower, at
times coming to grinding halt. Before the advent of Reforms
the Country did have a totally closed economy controlled
and directed by the state. The bureaucracy in India is
unwilling to shed its draconian powers. There are several
other vested interest. Organized trade unions are fighting
against labor reforms and disinvestments policies of the
Government.
3. While the country has an independent judiciary and enforces
rule of raw, the process is extremely slow. The laws are
more suited in extending safeguards to her offender, against
the law-enforcer. Legal reforms are extremely slow.
4. The country has inherited a vast array of inefficient and loss
making or low profits making public sector units. The
attempts of the Government to disinvest these units is beset
with obstacles from vested interests and the process is slow.
5. The ruling NDA Government is composed of 17 parties,
many of them with regional bias or sectarian bias. The
government has to reconcile the contradictions faced in this.
43
It is a common experience that the Government is forced to
function slowly on account of roadblocks within the Cabinet
composed of several parties representing the NDA. The
disinvestments of HPCL, IOCL, BSNL, IA, AI, NALCO were all
have to be deferred on account of opposition from the cabinet.
Some of these proposals like NALCO attracted.
pp 38, #0110,Rs.50/US$10,ISBN:81-87222-49-2
44
3. Foreign Direct Investment in Developing Countries: What
Economist (Don’t to know and What Policy marker should
(Not) Do!
45
effects of FDI are reaped. The monograph gives a balanced
assessment of the role of FDI and thus makes an interesting read!
Much attention has been paid so far the role of foreign direct
investment (FDI) in economic development, particular on various
dimensions of the interaction between transitional corporations
(TNCs) – the undertaker and conductor of most FDI in the world
today-and host countries, the receivers and main beneficiaries of
these private capital flows. This monograph, which highlights
various measures adopted by home countries to influence
outbound FDI and draws attention to issues and implications for
developing host countries provides some food for thought and
makes worthwhile contribution in this direction.
Pp 27,#0308,Rs. 50/??10,ISBN: 81-87222-80-8
46
7. Investment Policies in Select Large Emerging Markets-
Performance and Perceptions Perspective on India,
Brazil and South Africa
47
9. Synergizing Investment with Development
48
a part of the project. It highlights the global and regional trends and
policies in the project countries and FDI, and the effectiveness of
national policies.
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UNIT – IV
ANALYSIS
50
APRIL 2000 – MARCH 2001
Interpretation:-
The above table shows the floating of the FDI
Investments.
The table consists of the income of the year 2000-01.
51
May 2001 2736.65 1976.70 759.95 27.77
June 2001 4149.84 4149.84 0.00 0.00
July 2001 7971.45 7158.34 813.11 10.20
Aug. 2001 4185.23 4185.23 0.00 0.00
Sep. 2001 6214.50 6214.50 0.00 0.00
Oct. 2001 2160.55 2160.55 0.00 0.00
Nov. 2001 3350.92 3350.92 0.00 0.00
Dec. 2001 4100.81 4100.81 0.00 0.00
Jan.2002 3993.43 3993.43 0.00 0.00
Feb. 2002 4679.94 4679.94 0.00 0.00
Mar. 2002 3661.12 3661.12 0.00 0.00
Total 48581.63 463888.32 2193.31 4.51
Interpretation:-
52
APRIL 2002 – MARCH 2003
Interpretation:-
53
June 2003 3077.02 3002.62 75.00 2.44
July2003 4148.16 4148.16 0.00 0.00
Aug.2003 3258.14 3258.14 0.00 0.00
Sep.2003 2694.33 2964.33 0.00 0.00
Oct.2003 3273.12 1781.40 1491.72 45.57
Nov.2003 991.58 629.27 362.31 36.54
Dec.2003 2035.30 2007.99 27.31 1.34
Jan.2004 4745.94 4684.61 61.33 1.29
Feb.2004 8357.03 8357.03 0.00 0.00
Mar.2004 21089.98 19311.27 1778.71 8.43
Total 55841.10 52045.32 3796.38 6.80
Interpretation:-
54
Jan.2005 8798.26 5515.43 3282.84 37.31
Feb.2005 9252.96 7797.64 1455.32 15.73
Mar.2005 12132.64 10204.28 1928.37 15.89
Total 74220.30 59678.34 14542.19 19.59
Interpretation:-
The above table shows the floating of the FDI
investments.
The table consists of the income of the year 2004-05
Total income of domestic floating amount Rs.59678.34.
Overseas income of domestic floating amount
Rs.14542.19.
Inc/ dec in % of the year 2004-05 is 19.59.
The total % of decrease in this year less percentage of
12.67.
UNIT – V
SUGGESTIONS
&
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CONCLUSIONS
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All elements of the package were implemented in the Indian case.
However, with one notable exception, none of them marked a
directional departure from the objectives or policies of the past.
The rupee devaluation by 18 percent in July 1991 (since March
1992, the rupee has been partly freed into a managed float) was
merely continuation of a policy of down valuation dating back to
1983.
57
government (which amounts even today after some marginal
reductions to well over one-third of all deposit liabilities of
commercial banks) that any monetary restructuring can be
contemplated.
58
The response of external investors to the change in
stance, however, was not effusive. Against a target of $2 billion for
1991-92, the achievement was on the order of $300 million.
Further reforms are needed before India will be seen as an
attractive host country. FERA is still on the books, and the full
legislative reform promised is yet to be, potential investors in the
powered sector, where the need is very great, face a battery of
administered price controls that constrain profits. Finally, and most
important from the viewpoint of investors looking of flexibility global
sourcing, legislation blocking closure of industrial units is still
untouched. The liquidation of even loss-making units is a
prolonged and prohibitively costly process, and take over of such
units by government agencies in bid to protect jobs has been a
heavy drain on the public exchequer over the years. A change
over to a system where closure is permitted but with full protection
of severance compensation for workers is politically contentious
and has been attempted so far, even, as has often been
suggested, with effect from some future date without retrospective
effect. Thus the change in attitude towards foreign investment has
been dramatic by Indian standards, but it has not gone far enough.
Encouraging Reforms:-
59
begun in stabilization phase is rendered sustainable over a longer
term. Two major reforms of this type have been introduced, each
as significant a policy departure from the past as the open door
was to FDI. Introduced with a big bang in July 1991, one reform
was the removal of procedural obstacles to new industrial
ventures. The number of industries requiring a license for entry
was reduced substantially, and the asset criterion for monopoly
classification was abolished along with product limitation applying
to enterprises so classified. Reserved entry for the public sector
was reduced to a small number of industries of a strategic nature
such as minerals, railways, arms, and atomic power. The
subsequent abolition of the office of the Controller of Capital
Issues(CCI) in 1992 means that the pricing of new issues on the
capital market will not be bureaucratically dictated. Thus, at last,
there is now freedom of entry, if not freedom of exit, in Indian
industry. The removal of the licensing regime in one fell swoop
prevented the link of lobbying by vested interest that might have
rendered it less complete. The second major reform has been the
wide-ranging reduction import licensing with the 1992-97 export-
import policy introduced in April 1992, after external reserves had
risen to the point where the additional and savage import curbs
introduced starting in 1990 could be lifted. Although quantitative
restrictions remain in place on most consumer goods, they have
been lifted on capital goods and most raw materials and
components. Yet another bureaucratic juggernaut, the office of the
Chief Controller of Imports and Exports(CCIE), has been rendered
idle. The new five-year regime promises stability, transparency,
60
and a minimum of discretionary licensing. In all these respects, the
policy departs sharply from the protectionism of the previous
decades. Tariffs are another matter, however. While the maximum
tariff has now been brought down to 110 percent, further tariff
reduction has to wait fiscal restructuring; a taxation regime where
import tariffs yield a third of gross Union tax collections cannot
afford to lower rats until alternative revenue sources can be found.
61
improving the physical infrastructures. The required expenditures
for meeting future needs for power, transportation, and water can
be financed only through external capital inflows and by paying
attention to the father reforms needed to attract hose informs. The
second is the need for investment in human capital. Expenditure
on importing the health of education of the population has to be
incurred by governments at the state and federal level and, at a
time of fiscal constraint, can be achieved only through a radical
restructuring of expenditures. Primary education for all, and in
particular for girls, is necessary if there is to be any dent is the rate
of population growth, which looms over and threatens to engulf all
attempts at a sustainable improvement in the economic condition
of the average Indian. Until this goal is reached, none of the recent
reforms will have achieved that ultimate objective towards which
they were directed.
62
DIVESTMENT BY FOREIGN INVESTORS:-
Sale of shares by non-resident on a stock exchange and
remittance of the proceeds thereof through an authorized
dealer does not require FBI approval.
Conclusion:-
63
immediate and relief will be clear as we tap into the enormous
power of the international money markets. Their favor to our nation
will in effect provide an invaluable equity component when
channeled into our infrastructure projects and their financing
provision will affect massive infrastructure and housing
developments greatly benefiting the nation of India and her
children as well as all parties involved.
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BIBLIOGRAPHY
1. B.S.C. India
2. NSC
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