CERTIFICATE

This is certify that MR. BADANI HARSHIL M. of S.K.Patel

Initute of Management and Computer Studies, Gandhinagar have

submitted his project report titled “PROJECT REPORT ON

DERIVATIVE AND ITS STRATEGIES” in the year 2010 in partial

fulfillment of Kadi Sarva Vishwavidyalaya requirements for the award of

the title Master of Business Administration.

PROF. SONU V. GUPTA PROF. PRAKASH M.

CHAWLA

(DIRECTOR & PROJECT GUIDE) (CO-ORDINATOR)

DATE:-

1
 DECLARATION

I , here by, declare that the project report titled “PROJECT

REPORT ON DERIVATIVE AND ITS STRATEGIES” is original to

the best of my knowledge and has not been published elsewhere. This is

for the purpose of partial fulfillment of Kadi Sarva Vishwavidyalaya

requirements for the award of the title of MBA.

Students name Signature:

Badani Harshil M.

PREFACE

2
 Today as we all know that share market is well-known field and

full of stiff competition. Now days it is one of the field of investment to

earn money . For this investment of money in market there are different

stock-broking companies are available in the market. They provide one or

another type of service to account holder or investor.

Share market is my interest of field from the beginning. At this

moment I got an opportunity to work with stock broking company and I

have prepare this report on the “SHARE-KHAN STOCK BROKING

PVT. LTD.” Stock broking company charges have been of much

important account holder’s point of view. It is difficult to cover up the

entire field so I have taken the field which I found of interest.

For every company charges of stock broking are very

important. All the companies keep those charges as per the boundaries

given by SEBI.

ACKNOWLEDGEMENT
3
 Training is major part of study in respect of MBA or any other

course. Through these report I want to express my whole gratitude

towards all those persons who have guided me in preparation of this

report and also provided me organizational training.

For this report I received full support from all quarters. Firstly I

would be thankful to Prof. Sonu V. Gupta ( Director & Project Guide)

who has advised me the right way for training and I am also thankful to

all the Management Faculties and the librarians.

I am also thankful to Mr. Hiren Mehta, the manager of

sharekhan who has given me the permission for my summer training and

provided me the useful knowledge & training of stock market. I am also

thankful to Mr. Mihir Mehta, the assistant manager of sharekhan who has

given me good guidance from his practical knowledge.

4
 I am also thankful to Mr. Piyush , the sales manager of

sharekhan under whom I have taken sales training. Last but not least I am

thankful to all other departmental head & staff of the company who have

shared their incredible knowledge and experience with me and given me

full support in preparation of this report.

5
 INDEX

Sr. No. Particulars Page No.

PART-A Industry Analysis 8
1) History of Indian Share Market 9

2) Development 12

3) BSE 14

4) NSE 15

5) NCDEX 17

6) MCX 17

7) Basis of Share Market 19

8) Industry Analysis with Porter’s 5 Force 20

Model
PART-B Introduction to Share Khan 27
1) Vision 34
2) Core Value 38
3) SSKI Group 38
4) Organizational Structure 39
5) Products of Sharekhan 41
6) Market Coverage 51
7) Research & Advised Tools 52

6
8) SWOT Analysis 59
PART-C Derivative & its Strategies 62
1) The Indian Equity & Derivative Mkt. 63
2) Introduction 64
3) Types of Derivative 76
PART-C Research 81
1) Title of Study 82
2) Statement of Problem 83
3) Objective of Study 84
4) Universe of Study 85
5) Hypothesis 86
6) Sampling Decision 88
7) Data Collection Method 89
8) Research Results 91
9) Period of Study 110
10) Tools & Techniques 110
11) Limitations of the Study 111
12) Suggestions 112
13) Conclusion 113
14) Bibliography 114
15) Appendix 115

PART-A

7
INDUSTRY
ANALYSIS

8
 1. HISTORY OF INDIAN
SHAREMARKET

The working of stock exchanges in India started in 1875. BSE

is the oldest stock market in India. The history of Indian stock trading

starts with 318 persons taking membership in Native Share and Stock

Brokers Association which we now know by the name Bombay Stock

Exchange or BSE. In 1965, BSE got permanent recognition from the

Government of India. National Stock Exchange comes second to BSE in

terms of popularity. BSE and NSE represent themselves as synonyms of

Indian Stock Market. The history of Indian stock market is almost the

same as the history of BSE.

The Sensex is complied based on the performance of the stock

of 30 financially sound benchmarked companies. In 1990 the BSE

crossed the 1000 mark for first time. It crossed 4000 figure in 1992. The

reason for such huge surge in the stock market was the liberal financial

policies announced by the financial minister Dr. Manmohan Singh.

9
 This bullish mode of stock market was suddenly lost with the

scam of Harshad Mehta. It came to the public knowledge that Mr. Mehta,

also known as the big bull of Indian stock market. He has diverted huge

funds from banks through fraudulent means. He played with 270 million

shares of 90 companies. Millions of small scale investors became victims

to the fraud as the Sensex fell down upto 570 points.

This phenomenon is result of opening up of online trading

system and diminished interest rates from banks. The stockbrokers based

in India are opening offices at different cities in country to prevent from

such fraud. The government formed Security Exchange Board of India,

through an act in 1992. SEBI is the statutory body that controls and

regulates the functioning of stock exchanges, brokers, sub-brokers,

portfolio managers’ investment advisors etc… SEBI oblige several rigid

measures to protect the interest of investors.

Sensex crossed 5000 in 1999 and 6000 in year 2000. The 7000

mark was crossed in June and 8000 in September 2005. After that many

foreign institutional investors started to invest in Indian stock market.

Due to

10
that the market has taken the bullish way and in 2008 it touched the limit

of 21000.

India hosts the largest number of listed companies after United

States. Global investors now ardently seek to invest in Indian stock

market. Once appeal with skepticism, stock market now appeals to

middle class Indians also. Many Indians working in foreign countries

now divert their savings to stocks. They can invest their money in this

stock from their own places.

Now days most of persons want to invest their money according

to the tips of expert. They do not invest only in giant companies. Good

monsoon is also taken as good sign for bullish market. If monsoon is not

good then it is taken as sign of bearish market. Thus one of the affected

factor to the market is agriculture sector.

11
 2. DEVEPMENT

An important early event in the development of the stock

market in india was formation of the native share and stock broker’s

association in Bombay in 1875, The precursor of present day is BSE.

This was followed by the formation of association in Ahmadabad (1894),

Calcutta (1908) and Madras (1937). In addition, a large number of

ephemeral exchanges emerged mainly in buoyant periods to recede into

oblivion during depression time 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 Act, 1956. Under this

legislation it is mandatory on the part of a stock exchange to seek

government recognition. As of January 2002 there were 23 stock

exchanges recognized by the central government. They are located at

Ahmadabad, Bangalore, Baroda, Bhuvaneshvar, Calcutta, Chennai,

Cochin, Coimbatore, Delhi, Guwahati, Hyderabad, Indore, Jaipur,

Kanpur, Ludhiana, Mangalore,

12
Mumbai (NSE, BSE, OTC exchange of India, Inter-connected stock

Exchange of India), Patna, Pune and Rajkot. Of course, the main stock

exchanges are NSE and BSE.

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

prior approval of the government. The Securities Contract Act vests the

government with the power to make enquiries into the affairs of a

recognized stock exchange and its business, withdraw the task of

regulating the stock exchange to the Securities Exchange Board of India.

Now days India’s largest ticker on the wall of BSE is

broadcasted on India’s and South Asia’s largest video screen – India’s

leading business news channel: NDTV Profit.

13
 3. BSE (BOMBAY STOCK
EXCHANGE)

As the first stock exchange in India, the Bombay Stock

Exchange is considered to have played a very important role in the

development of the country’s capital markets. The BSE is the largest of

22 stock exchanges in India, with about 18000 listed companies. It is also

the fifth largest exchange in the world.

This index gives a measure of overall performance of the BSE

and is closely followed around the world. Based on sensex, BSE equity

market is growing up significantly since 1990. In addition to individual

stock, the BSE has also a market in derivatives, which was the first to be

developed in India. Listed derivatives on the exchange include stock

future and option, index future and option and weekly options.

The BSE is also actively involved in the development of retail

debt market. The debt market is also one of the growing market and

country continues to develop on this type of market. Recently in India

debt market was limited to wholesale market i.e. banks, financial

institutions etc… But BSE believes that retail market will bring great

opportunities for individual investors.

14
 4. NSE (NATIONAL STOCK
EXCHANGE)

In the fast growing Indian financial market, there are 23 stock

exchanges trading securities. The NSE situated in Mumbai is the largest

and most advanced exchange with 1016 companies listed and 726 trading

members.

The NSE is owned by the group of leading financial institutions

such as Indian Bank or Life Insurance Corporation of India etc…

However, in the totally de-mutualised exchange, the ownership as well as

the management does not have a right to trade on exchange. Only

qualified traders can be involved in security trading.

The NSE is one of the few exchanges in world trading in which

all types of trading is possible on single platform. This exchange is

divided into three segments: Wholesale Debt Market, Capital Market and

Future and Option Market. Each segment has experienced a significant

growth throughout a few years of their launch. All the three markets

increased and has good growth since its opening in 1994.

15
 The NSE provides its clients with a single, fully electronic

trading platform that is operated through a VSAT network. Unlike most

world exchanges, the NSE uses the satellite communication system that

connects traders from 345 Indian cities. The advanced technologies

enable upto 6 million trades to be operated daily on the NSE platform.

16
 5. NCDEX
(NATIONAL COMMODITIES AND
DERIVATIVES EXCHANGE)

NCDEX started 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 arbitragers.

Promoters of NCDEX are:

 National Stock Exchange (NSE)

 ICICI Bank

 Life Insurance Corporation (LIC)

 National Bank of Agriculture and Rural Development (NABARD)

 IFFCO

 Punjab National Bank (PNB)

 CRISIL

17
Why NCDEX?
 NCDEX is nationalized screen based system which is providing

transparent, private and easy service.

 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 collaboration of institutes like NABARD, LIC

etc…

Facilities Provided by NCDEX:

 NCDEX has developed facilities for checking of commodity

and also provides a warehouse facility.

 By collaborating with industrial partners, companies, news

agencies, banks and developers of kiosk network NCDEX is able to

provide current rates and contract rates.

 To prepare guidelines related to special products of

securitization NCDEX works with bank.

18
 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.

19
 6. MCX
(MULTI COMMODITYEXCHANGE)

‘MULTI COMMODITY EXCHANGE’ of India limited is a new

order exchange with a mandate for setting up a nationwide, online multi-

commodity market place, offering unlimited growth opportunities to

commodity market participants. As a true neutral market, MCX has taken

several initiatives for users. In a new generation commodity future market

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

MCX, an independent and de-mutualized exchange since inception, is all

set up to introduce a state of the art, online digital exchange for

commodities future trading in the country and has accordingly initiated

several steps to translate this vision into reality.

20
 7. BASIS OF STOCK
MARKET

Corporations issue official looking sheets of paper that

represent ownership of the company. These are called stock certificates

and each certificates represents set number of shares. The total number of

shares will vary from one company to another, as each makes its own

choice about how many pieces of ownership to divide the corporation

may have only 2500 shares, while another such as IBM or the Ford

Motor Company, may issue over a billion shares.

Companies sell stock (pieces of ownership) to raise money and

provide funding for the expansion and growth of the business. The

business founders give up part of their ownership in exchange for this

needed cash. The expectation is that even though the owners have

surrendered a portion of a company to the public, their remaining share of

stock will become increasingly valuable as the business grows.

Corporations are not allowed to sell shares of stock on open

stock market without the approval of the Securities and Exchange

21
Commission(SEC). This transition from a privately held corporation to a

publicly traded one is called going publicand this first sale of stock to the

public is called an initial public offering or IPO.

Why do people invest in the stock market:

When you buy stock in a corporation, you own part of that

company. This gives you a vote at annual shareholder meetings, and a

right to a share of future profits.

When a company pays out profit to the shareholder, the money

received is called a “dividend”. The corporation’s board of directors

choose when to declare a dividend and how much to pay. Most older and

larger companies pay a regular dividend, most newer and smaller

companies do not.

The average investor buys stock hoping that the stock’s price

will rise, so the shares can be sold at the profit. This will happen if more

investors want to buy stock in a company than wish to sell. The potential

of a small dividend check is of little concern.

22
 What is usually responsible for increased interest in company’s

stock is the prospect of the company’s sales and profits going up. A

company who is a leader in a hot industry will usually see its share price

rise dramatically. Investors take the risk of the price falling because they

hope to make more money in the market than they can with safe

investment such as bank CD’s or government bonds.

How does one buy stocks:

Buying stocks is not as walking into a stockbroker’s office and

buying shares like you would a pair of shoes from a store. You are

required to open an account with the brokerage, like opening an account

at a bank.

Some brokers will allow you to open an account with very little

money. The firm will then hold this money in an interest earning cash

account, awaiting your orders to buy or sell stock or other securities such

as bonds or mutual funds. When you buy or sell, you pay a commission,

which is deducted, from your account. When a stock is purchased, the

ownership of the shares may be listed in one of two ways. “listed” means

how the corporation tracks the ownership of their stock.

23
 If you choose to have the stock listed in your name, you will

receive the actual stock certificates. Most investors choose to have the

ownership listed in the broker’s name, called “held in street name”, with

the broker keeping track of whose trading account the stock actually

belongs to. The benefits are reduced paperwork, consolidated portfolio

statement, no concerns about storing and processing the paper certificates

and the ability to instantly sell and transfer the shares. Either way any

dividends are credited to your account. Stocks held in street name are

insured up to $5,00,000 by the federal government against fraud or

financial failure of the brokerage company.

Why do people sell their stock?

The reasons people sell their stock are more complex. A person

may just need the money. He or she may have watched the price go up

and have a hunch this is a good time to lock in their profit and sell some

or all their shares. Bad news concerning a company or its industry or a

disappointing earning report is sure to prompt heavy selling.

An investor may see better opportunities in another company

and so sell his stock that aren’t moving up. But usually, investors sell

because

24
They have watched the price fall and just want to get out before they lose

even more.

Secondary Market Intermediaries:

Stock brokers, Sub brokers, Portfolio Managers, custodians,

share transfer agents constitute the important intermediaries in secondary

market. A stock broker plays an important role in the secondary market

helping both the seller and the buyer of the securities to enter into a

transaction.

The transaction entered cannot be annulled except in the case of

Fraud, willful misrepresentation or upon prima-facie evidence of a

material

Mistake in the transaction, in the judgment of the existing authorities. If a

Member of the stock exchange (broker) has orders to buy and to sell the

same kind of securities, he may complete the transaction between his

clients

concerned.

When executing an order the stock may on behalf of his client

buy

25
or sell securities from his own account i.e. as principal or act as an agent.

For each transaction he has to issue necessary contract note indicating

whether he as principal or as an agent for another has entered into the

transaction. While buying pr selling securities as a principal, the stock

broker has to obtain the consent of his client and the prices charged

should be fair and justified by the conditions of the market.

Ten Golden Rules for Investing:

Warren Buffet has suggested ten golden rules for investing which proves

to be immense use the investor who wants a better investment in stock

markets, Sharekhan follows these rules which are as described below:

 Never invest in a business you cannot understand

 Risk can be reduced by concentrating on a few holdings.

 Stop trying to predict the direction of the stock market, the

economy, interest rates or elections.

 Buy companies with strong histories of profitability and with a

dominant business franchisees.

26
 Be fearful when others are greedy and be greedy when others

are fearful.

 Unless you can watch your stock holding decline by 50%

without becoming panic-stricken, you should not be in the stock

market.

 Do not take yearly results too seriously. Instead of focusing on

4 or 5 year averages.

 Focus on return on equity, not earning per share (EPS)

 Calculate “owner earnings” to get a true reflection of value.

Look for companies with high profit margins.

 Always invest for the long term. Do the business have favorable

long-term prospects?

27
 8. INDUSTRY ANALYSIS
WITH PORTER’S 5 FORCE
MODEL POTENTIAL
POTENTIAL ENTERANT
ENTERANT

Investmart
Investmart

Various
Various Banks
Banks

Geojit
Geojit

Cipher
Cipher

UTI
UTI Securities
Securities Ltd.
Ltd.
BUYERS
BUYERS
Refco
Refco Group
Group Ltd.
Ltd.
SUPPLIERS
SUPPLIERS Small
Small Investors
Investors
IDBI
IDBI Capital
Capital Mkt.
Mkt. Services
Services
Web
Web maintainers
maintainers COMPETITORS
COMPETITORS Ltd.
Ltd. Franchise/Business
Franchise/Business
NSCL
NSCL ICICI
ICICI Web
Web Trade
Trade Ltd
Ltd Partners
Partners

CSDL
CSDL 5paisa.com
5paisa.com HNI’s
HNI’s

NSE
NSE Kotak
Kotak Securities
Securities Ltd
Ltd MF
MF Companies
Companies
BSE
BSE India
India Bulls
Bulls HUF
HUF
MCX
MCX Motilal
Motilal Oswal
Oswal Securities
Securities Ltd
Ltd Institutional
Institutional
NCDEX HDFC
HDFC Securities
Securities Ltd
Ltd Investors
Investors
NCDEX
Marwadi
Marwadi Finance
Finance Ltd
Ltd

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

28
1. 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.

29
 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.

2. 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 its moderate in HNI/MNI’s and business partners.

 While its less in case of mutual fund companies and institutional

investors.

 There is competitive buzz in stock broking industry, competitors

are offering low brokerage and best services with added feature. So

switching

30
cost is pretty much less. So the buyer can easily switch over to

competitors product.

 Entry Barriers

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

also for customers 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 barrier.

 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

31
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,

ICICI is very efficient and spreaded all over India. It will take time for a

new entrant to establish such a huge network (e.g. Marwadi), which say

that, ”Network can come up as most difficult entry barrier to

overcome.”

 Expected Retaliation:- whenever a new player comes in the

industry, the old companies have an option to reduce the prices of their

product. This kind of practice is called expected Retaliation which is

also possible in this industry in terms of less brokerage rates and

reduced account opening charges. E.g. before the entry of so many mew

companies, Sharekhan was having two types of accounts viz. speed

trade speed trade plus, which were costing 1000 & 1500 account

opening charges respectively. But due to competition, they have come

up with only one account ie speed trade plus with the account charges

of Rs.1000.

32
3. 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.

4. POTENTIAL ENTRANT

 Tew entrant which may take away the share of current players.

 The potential entrant in Rajkot city like Investmart, Jeojit and

Cipher which are coming in near future.

 Nationalized banks are also thinking to enter in this field byb tieing

up with broking houses. Eg Bank Of Baroda.

33
5. SUBSTITUTES

 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 this instruments can

plunge into this industry.Banks are planning to jump while others may

come

34
 PART-B

INTRODUCTION
TO
SHAREKHAN

35
 Sharekhan is an equities focused organization tracing its lineage

to SSKI (Shripal Sevantilal Kantilal Ishvarlal) a veteran equities solutions

company with over 8 decades of experience in the Indian stock market.

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

more than 350 branches, 750 franchises and also having 900 shops in 213

cities. In Rajkot branch , daily dealing rs. 16 crore & 400 crore all over

India. Almost 8000 employees and 120000 trading customers.

If you experience our language, presentation style, content or

for that matter the online trading facility. You will find a common thread

one that helps you make informed decisions and simplifies investing in

stocks. The common thread of empowerment is what Sharekhan’s all

about! Sharekhan does not claim expertise in too many things. Share

khan’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 stock 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

36
the stock markets and these beliefs are reflected in everything sharekhan

does for you!

To sum up, Share khan brings to you a user-friendly online

trading facility, coupled with a wealth of content that will help you stalk

the right shares. Those of you 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 Share khan offers you the facility to visit (or

talk to) any of our share shops across the country.

In fact share khan runs india’s largest chain of share shops with

Over six hundred outlets in more than 100 cities! What’s a share shop?

How do you locate a share shop in your city? To find the answers of

these questions, you must visit share khan. Hi other words share khan is a

company that provides you an outstanding trading facility with a wide

variety of products and acts as an investment consultant to manage your

portfolio and secure a high rate of return on your investment in the

security market.

SSKI has been voted the best domestic brokerage in India by

Asia money Polls’ 2004. Also SSKI is being rated as No. 1 Financial

Researcher

37
of Business Today, in survey conducted on Lead Managers of all Mutual

Funds.

Basically company is at second position at India level in the

case of Brokerage services and has top turnover in trading takes it at good

position in the market. The services they provide to investor are

discussed in more detail in marketing activities of the Sharekhan. The

clients are managed with friendly corporate culture and to motivate them

different services are provided by the managers also. Managers also give

tips to the investors to invest and manage few scripts which are best so

they can handle their profit or loss.

Sharekhan is in good position in the market with the highest

number of transactions in the market and offers you depository services

and trade execution facilities for equities, derivatives and commodities

with its decades of experience. Research and analysis team is constantly

working to track performance and trends. As a result of that it has good

trading products with it. If we see its progress than in future i.e. in next

year it is going to issue its own share capital in the market. It has now a

day’s capital of 3000crore which is not a small amount.

38
 1. VISION

To empower the investor with quality advise and superior

service to help him in taking better decisions. We believe that our growth

depends on client satisfaction.

2. CORE VALUE

Customer satisfaction through providing quality services effectively

and efficiently.

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

periodic customer service audit.

Maximization of stakeholder’s value.

Success through teamwork, integrity and people.

39
3. SSKI GROUP – CORPORATE
STRUCTURE

40
SSKI investor service pvt.
Ltd.
Retail Broking arm of group
Share holding pattern
56% Morakhia Family
18.5% HSBC Pvt.
Management Mauritius
18.5% First Carlyle
Ventures.
Owns 56% of
Owns 44% of
SSKI Corporate Finance Pvt.
Ltd.
Investment Banking arm of
the group
Share holding pattern
50.5% SSKI Security Pvt.
Ltd.
49.5% Morakhia Family

SSKI Securities
and Pvt. Ltd.

41
 4. ORGANISATIONAL
STRUCTURE

Head Office

Branch Head

Marketing Operating Account

Head Head Head

Marketing Operating Back- Office

Executives Staff Staff

42
43
 5. PRODUCTS OF THE
SHAREKHAN
Sharekhan
Products

Offline Trading Online Trading Other

Account Account Services

 PMS
Classic Account or Speed Trade  Mutual Funds
Fast Trade Account Account

44
 1. 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, theft, forgeries, settlement

risks and paperwork. 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 offer

dematerialization 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.

45
Depository Issuer/ R&T
Agent

Clearing Clearing Depository

Corporation Member Participant

Stock Trading Investors

Exchange Member

Sharekhan is registered Depository Participant (DP) with

National Securities Depository Ltd. (NSDL). The participants are

required to enter into an agreement with beneficial owners. It is required

that separated accounts shall be opened by every participants in the name

of each the beneficial owner and the securities of each other beneficial

owner shall be segregated and shall not be mixed up with the securities of

other beneficial owner or with the participants own securities.

The participants are obliged to reconcile the records for a period of five

years. Records of all the transactions entered into with a depository and

with a beneficial owner.

46
 2. Portfolio Management System:

With the sharekhan team managing your Portfolio, you can be

assured that your investment 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. Click here to see how we

manage your portfolio in a few easy steps. This is how we make

investing completely hassle-free for you. There are mainly three types of

PMS that sharekhan provides.

 Pro-Tech (High risk & Return)

 Pro-Prime (Moderate risk & Return)

 Pro-Arbitrage (Low Risk & Fixed Return)

47
 3. Mutual Funds:

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 to get answer in just five minutes.

A mutual funds is a poor 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.

Mutual fund industry was started in India with establishment of

UTI (1963), which is only player in the market of mutual fund up to

1987. During that time mutual fund market refers the unit link schemes

like Master Share and Master Gain. Mutual fund provides varieties of

48
schemes for different kind of customers to suit their goals. Mutual fund

have open-ended

and close-ended schemes, children’s plan , diversified equity fund,

balanced fund, liquid fund, income fund, short term fund, sector fund,

ELSS (equity linked savings schemes) and pension plan.

 Online IPO:

Online IPO is a new service started by Sharekhan for providing

the application form of any company’s issue 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.

 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 user in real time,act or trade on quotes posted by others,

post their own prices and quantities for other to trade.

49
 Liquidity, or trade activity, is perhaps the best measure of

success of an online trading commodity trading system. With most online

commodity trading system, 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 online commodity

trading system 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 time’s zones. The online commodity trading

system in India is only 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 life

in India. It is in this scenario that online trading is becoming more the

way of trading in India.

50
 There are mainly two exchanges deals with commodity.

 MCX (Multi Commodity Exchange)

 NCDEX (National Commodity and Derivative Exchange)

Commodity trading is also known as “Vayda Market”. In short Share

khan also provides broking in commodities and the brokerage charges are

0.10% on total trade value and if carry forwarded an additional 0.02%

charges on total trade. Items which are traded through commodity

exchanges are:

• Spices : Peeper , Red Chilli, Jeera , Turmeric

• Metal : Steel Long, Steel Flat, Copper¸Nickel, Tin

• Fibre : Kapas, Long Staple Cotton , Medium Staple Cotton

• Pulses : Chana , Udad , Yello Peas

• Cereals : Rice Basmati Rice, Wheat , Maize , Sarbati Rice

• Energy : Crude Oil

 Offline Trading Account:

51
 The off – Line account is trading account through which one

can buy and sell through his/her telephone or by personal visit at

sharekhan shop. This account is for those who are not comfortable with

computer and want to trade..

 Offline a/c is the A/C for the investors who are not familiar

with the use of computers.

 The A/c opening is free for first year, then for second year

charge is Rs. 400 and for the subsequent years, the charge is Rs. 360.

 Online Trading Account:

 There are no charges for account opening.

 For first year Demat account is free, for second year charge is

Rs. 400, for the subsequent years the charge is Rs. 360.

 Tie up with 12 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. Indian Bank

7. Union Bank Of India 8. Yes Bank

52
 9. Bank of Punjab 10.ICICI Bank

11. Bank of India 12. Centurion Bank

Any one who have A/C in either of above banks they can use

this Facility. Otherwise one has to make fund transfer facility or

withdraw by cheque.

This account enables you to buy and sell shares through our

websites. You get features like

a) Streaming Quotes (using the applet based system)

b) Multiple watch list

c) Integrated Banking, Demat and digital contracts

d) Instant Credit and transfer and instant order execution and

confirmation

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

assurance of secure transaction

f) Price alerts

Online trading account includes two types of account:

I. Classic Account or Fast Trade Account

53
II. Speed Trade Account

6. MARKET COVERAGE
122 Franchisees and 28
b
branches
Ground Network Largest in India
Covers 213 cities in 23 states
across India
a

Also they cover 588-share

shop in 213 cities.
s

Trade execution facility on

BSE and NSE for Cash as well as
D
Derivatives

Depository/Demat account
s
services

Personalized Sharekhan
rresearch advice

Uniform service standards

54
 7. RESEARCH AND ADVISED
TOOLS

Short-term Trading Long-term Trading

Eagle Eye Investor’s eye
High sharkhan valueline
Noon

INVESTMENT ADVICE
Hedging ON EQUITY,
Sharekhan
DERIVATIVE,
Special
COMMODITY

Derivative Products
Commodities Trading
Derivative info Kit
Derivative Digest Commodities Buzz
Derivative Calculator Commodities Traders
Market Neutral Corner Sharekhan
Srategies Exclusive Bullion
Calculator

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 the right investment decisions regardless of their

investing preferences! The Research and Development at Sharekhan is

done at its Head office Mumbai.

55
 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 position and other relevant matter of the branch heads of

each branch is being solved through teleconference.

The various publication of Sharekhan viz. Derivatives Digest

Sharekhan’s Valueline,Engle eye, High Noon, Investor’s Eye,

Commodities Buzz, Commodities Beat, Commodity Trader’s corner,

Sharekhan Exclusive, etc. are being prepared be the research team of

Sharkhan made up of highly experienced people from diverse field.

These all Publication provides:

In – depth analysis of the before, during ( live market updates) and after

market timings & Speacial sector tracking reports sent regularly.

56
 1. Sharekhan Publication:

 Stock ideas :
Stock ideas are aimed at Sharekhan’s trading client. It presents

our best stock picks in today’s market. We categorize these companies

into six clusters to help you identify the stock that fit your time horizons

and return objectives the best. Each cluster represents a certain profile in

terms of business fundamentals as well as the kind of returns you can

expect of it over a certain time horizon.

 Stock Clusters:
Sharekhan categories all the scripts that are under coverage into

6 clusters, Each cluster represents a certain profile in terms of business

fundamentals as well as the kind of returns you can expert over a certain

time horizon. This help in identifying the stocks that fit your time

horizons and return objectives best. The six clusters are: Evergreen,

Apple Green, Emerging Star, Ugly Duckling, Vulture’s pick and

Cannonball.

 Evergreen:
These stocks are steady compounders, churning out steady

growth rates year on year. They are typically significant players in their

57
markets, with sound strategies that will help them achieve and sustain

market

dominance in the long run. They have strong brands, management

credentials and a consistent track record of achieving super normal

shareholder returns. We expect stocks in this category to compound at

between 18- 20% per annum for the next five to ten years. Also called

ownership stocks, Evergreen stock are the brightest jewels in any

portfolio.

 Apple Green :
These are stocks that have the potential to be steady

compounders and are attempting to move upwards, to turn Evergreen.

They rank a shade below the Evergreen companies, only because their

potential in the five to ten years’ time is still not very clear, although they

might grow at rates faster than of the Evergreen stocks in the next year or

two. They could grow at 25-30% per annum over the next two to three

years.

 Emerging Star:
These are typically young companies, often in niche businesses,

that have the potential to grow and dominate their niches. Even better ,

they might turn out to be real giants , if their niches explode into full-

58
blown markets in their own rights. These stocks are potential ten-baggers

but you need to be patient.

 Ugly Duckling:
These are companies that are trading below their fair value or at

values which are at a significant discount to that of their peer group, due

to a combination of circumstances. But things are now starting to happen

in these companies or in their markets that are likely to cause a re-

evaluation of their prospects. These stocks could double in two to three

years’time.

 Vulture’s Pick:
These are companies with valuable assets or brands that have

been trashed to ridiculously low prices. Buy a Vulture’s pick and wait for

a predator who finds its assets undervalued to come along. This could be

a long wait but the return could be startlingly high.

 Cannonball:

Season’s favorites Typically they are fast gainers in a rising

market, which could give returns of 20-40% within three months. These

are based on combination of sound information, technical charts and

59
available fundamentals for investors which are having an appetite for

high risk and high reward.

2. Ensures Convenience in Trading Experience:

Sharekhan’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. It offers a suite of products and services, providing the

customers 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

Sharekhan 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

60
thereafter the customer can view his updated account statement on

internet.

Sharekhan Depository Services offers demat sevices to individual

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

technological expertise dedicated exclusively to their demat department.

customer can aware of Demat, Repurchase , pledge , Transmission

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

61
 8. 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:

 80 years of research and broking experience

 Fastest Browser based Trading

 11,00,000 + customer

 Largest ground network in broking with 588+ retail outlets spanning 213

cities\

 Dedicated, Intelligent and Loyal staff.

 On-line Trading products.

 Lowest brokerage and other charges than. Competitors.

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

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

62
  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:

 Large primary market to sit as a book runner for the other

companies just like Kotak securities ltd. that runs the books of share

holdings for many companies

 Slope of stock market towards delivery based transactions.

 Large potential market for delivery and intra-day transactions.

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

63
  Attract the customers who are dissatisfied with other brokers &

DPs. a An indirect opportunity generated by the market from its

bullishness.

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. Indirect threat from instable stock market, i.e., low/no profit of

Sharekhan's clients would lead them to go for other broker/DP.

64
 PART-C

DERIVATIVE
AND
ITS STRATEGIES

65
 1. THE INDIAN EQUITY AND
DERIVATIVE MARKET

The emergence of the market for derivative products, most

notably forwards, futures and options can be traced back to 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 derivatives products, it is

possible to partially or fully transfer price risks by locking-in asset prices.

As instruments of risk management , these generally do not

influence the fluctuations in the underlying asset prices. However, by

locking-in asset prices, derivative products minimize the impact of

fluctuations in asset prices on the profitability and the cash flows

situation of risk- adverse investors.

In recent years, derivatives have become increasingly important

in the field of finance. While futures and options are now actively traded

on many exchanges, forward contracts are also popular.

66
 The phenomenal growth of financial derivatives across the

world is attributed the fulfillment of needs of hedgers, speculators and

arbitrageurs by these products.

67
 2. INTRODUCTION

 Derivatives as the name suggests, are financial instruments

whose value is dependent on another underlying asset.

 The underlying security in the case of equity derivatives is an

equity share or the widely followed Nifty and Sensex indices.

 A share of equity can only ptovide an unhedged position

whether long or short and the entire risk of the transaction lies with

the trader or investor.

FACTORS DRIVING THE GROWTH OF

DERIVATIVES:

• Increased volatility in asset prices in financial markets.

• Increased integration of national financial markets with the

international market.

• Marked improvement in communication facilities and sharp

decline in their costs.

68
 • Development of more sophisticated risk management

tools,providing economic agents a wider choice of risk management

strategies.

• Innovations in derivative markets, which optimally combine

the risks and returns over a large number of financial assets leading to

higher returns, reduced risks as well as transaction costs as compared

to financial assets.

• To hedge against price fluctuations in the underlying

commodities.

DERIVATIVE PRODUCTS

A. Forwards

B. Futures

C. Options

D. Swaps

69
 DERIVATIVES
DERIVATIVES

Options
Options Futures
Futures Swaps
Swaps Forwards
Forwards

Put
Put Call
Call Interest
Interest
Currency
Currency
Rate
Rate
Commodit
Commodit
Security
Security
yy

1. 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

70
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.

2. 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

71
of the underlying asset. Parties to a Futures contract may buy or write

Options on Futures.

3. 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

72
 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

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

73
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.

74
 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 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.

75
 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
PUT OPTIONS
OPTIONS
If you expect a fall in
Short Long
price(Bearish)
If you expect a rise in price
Long Short
(Bullish)

4. Swaps:

 Swaps are private agreement between two parties to exchange

cash flow in the future according to a prearranged formula.

 They can be reguarded as portfolio of forward contracts.

 A forward contract involves one exchange at a specific future

value date, while a swap contract entails multiple exchanges over a

period of time.

76
  Interest rate swaps and currency swaps are the most popular.

 CURRENCY SWAPS:
These entails swapping only the interest related cash flows

between the parties in the same currency.

 CURRENCY SWAPS:
These entail swapping both principal and interest between the

parties, with the cash flows in one direction being in a different currency

than those in the opposite direction.

5. NSE’s Derivative Market:

 The derivative trading on the NSE commenced with S & P CNX

Nifty Index Futures on June 12, 2000.

 The trading in index options commenced on june 4th, 2001 and

trading in options on individual security commenced on july 2nd, 2001.

 Single stock futures were launched on November 9th, 2001.

 Today, both in terms of volume and turnover, NSE is the largest

Derivative exchange in India.

77
  Currently, the derivative contract have maximum of 3 month

expiration cycles.

 Three contract share are available for trading with 1month,

2month and 3month expiry.

 A new contract is introduced on the next trading day following

the expiry of near month contract.

6. The S & P CNX Nifty:

 The s & P CNX Nifty is a market capitalization index based upon

solid economic research.

 It was designed not only as a barometer of market movement but

also to be a foundation of a new world of financial products based on

the index like index futures, index options and index funds.

 A trillion calculations were expended to evolve the rules inside

the S & P CNX Nifty index.

(a) The correct size to use is 50.

(b) Stocks considered the S & P CNX Nifty must be liquid by the

‘impact cost’ criterion.

(c) The largest 50 stocks that meet the criterion go into the index.

78
  S & P CNX Nifty is a contrast to the adhoc methods that have

gone into index construction in the preceding years, where indexes

were made out of intuition and lacked a scientific basis.

 The research that led up to S & P CNX Nifty is well respected

internationally as a pioneering effort in better understanding how to

make a stock market index.

 The nifty is uniquely equipped as an index for the index

derivatives market owing to its (a) low market impact cost and (b)

high hedging effectiveness.

 Finally, Nifty is calculated using NSE prices, the most liquid

exchange in India, thus making it easier to do arbitrage for index

derivatives.

3. TYPES OF DERIVATIVES

There are two types of derivatives. 1) Future Product and

2)Option Product. Trading strategies can be created using them

individually or in combination. Derivatives add a lot of flexibility to a

trader’s tools. They can be used for two purposes, namely Speculation

and Hedging.

79
 SPECULATION:-

 Speculation is the skill of analyzing data and taking position on

the various market situations to profit from favorable price

movements, this activity is called trading.

 Trading includes going both long and short on the market. We

can’t say that trading is about predicting the direction of the stock

market and about predicting prices.

 The most important aspect of trading is Money Management.

 Money Management involves risking a particular amount of

money to make several times the amount risked.

 No one can predict the stock market, the key to making money

in trading on a sustained basis is to make big profits when you are

right and limit your losses when you are wrong.

 Also important is the size of your trading positions in

proportion to the overall size of your trading capital, correct position

sizes enable you to stay in the game for the longest possible time and

hence increase the chances of making money.

80
 Trading in fact, is a skill that can be learnt and, once learnt you

can make huge amounts of money. To do so traders should get used

to the notion of losses at the very outset.

 Trading is both about profits and losses. The key is to keep

losses small and profits big

 HEDGING:-

 The idea of hedging is more important in the commodities and

currency markets.

 In the equity market hedging can be an expensive exercise.

 Often people think that they will be fully protected if they take

a position which profits if the market starts moving in the reverse

direction.

 True they will protect themselves but not totally because

hedging comes at a cost, for while hedging can reduce losses but it

also lowers your profits.

 If my experience , it is not worthwhile for traders to hedge their

positions.

81
 Instead , when a trade starts moving contrary to the expected

direction, you need to quickly get out.

 Often in the media we hear recommendations about buying

stock futures and hedging it by buying a put.

 This strategy sounds great but the put comes at a cost which is

deductible from the profits that you earn on your futures, assuming

that the profit on your futures position is higher than the cost of the

put.

 In equity derivatives we can hedge as below.

 If the market view is bullish:

 Buy futures

 Sell call

 Buy put

 We take an example of RPL that,

 If we buy RPL@175 and market is bullish, if we want to hedge

then sell call @180 and buy put@170.

 If the market view is bearish:

82
 Sell futures

 Buy call

 Sell put

 If we take an example of RPL,

 If we sell future of RPL@175 and we want to go for hedge then

we will buy call with strike price @180 and sell put with strike price

@ 170.

 In-the-money:

 A call option whose strike price is below the current price of the

underlying : or

 A put with a strike above the current price.

For example: If the ACC stock is trading at Rs. 200, the ACC call

options with strike 190, 180, 170 and below are all in the money.

83
 Out-of –the-money:

 A call option whose strike price is above the current price of the

underlying stock or

 A put with a strike below the current price.

For example: When ACC is trading at Rs. 200, the ACC call options

with strikes 210, 220, 230 and upwards are out-of –the-money.

 At the money(ATM):

 This is an option that has a strike price equal to the current price

of the underlying stock.

For example: The ACC option with a strike price of Rs-200 is at-

the-money when the stock trading at or near the strike price.

 Expiration date:

 The date when the term of an options contract terminates is

called its expiration date.

 The expiry of Indian options mandated by the stock exchange is

the last Thursday of every month.

84
 Technically speaking, options contracts are available for the

near month ( current ), mid month (next), and far month (the month

after next).

Currently, how ever, only the near month options usually have

tradable liquidity and only towards the last week of the near month

do options of the mid-month gather enough liquidity to be traded

comfortably.

85
PART-D

RESEARCH

86
 1. TITLE OF THE STUDY

In this fast growing world people don’t have enough time to

reach each and every place. In present days, service sectors are growing

very fast and the competition is also very healthy. People want very fast

services from company and they also want data services.

This research is totally dependent on “Derivative and Its

Strategies” in stock market to the country as a whole. As this service can

be said as latest so it will take some time to develop in the mind of the

people.

87
 2. STATEMENT OF THE
PROBLEM

In India many people are investing in stock market but they are

not aware by all the services provided by the broker. In this when the

broker is not effective, the customer is not satisfied with his services, at

this time the problem arises and the people feel that they are denied of

their rights.

In this study the problem is also about the awareness of the

“Derivative & Its Strategies” provided by broker. There are many brokers

who are very efficient & effective in research on this point and providing

tips and knowledge to the investors and customers. I have taken sample

of investors to get knowledge about “Derivatives and Its Strategies” in

stock market.

88
 3. OBJECTIVE OF THE STUDY

The main objective of the study is to know about the awareness

of “Derivatives and Its Strategies” in the stock market. If we say then

other secondary objectives are:

 To get knowledge about the derivatives in the stock market.

 To know the potentiality of investing in the stock market

through online trading.

 To know about the current brokerage rate in the market and

customer’s view and affordability of brokerage in the stock market.

 To know about best research in the stock market by brokers and

expectations of customer for returns from that tips.

 To know the average existence time of customer with the same

broker.

 To find out the best medium by which we can do trading in a

better way

89
 4. UNIVERSE OF THE STUDY

This research study contains the awareness of the investors in

the stock market through on line trading. There are many investors in the

stock market but out of whole universe of the investors I have selected a

small population from the Junagadh city only. There are mainly two

types of universe such as finite universe & infinite universe. Finite study

can be calculated and infinite study can not be calculated. For my

research study I have selected finite study to know about the awareness in

the minds of investors in the stock market through Derivatives.

90
 5. 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
Junagadh City.”

Therefore, H0 : u = 50%
H1: u ≠ 50%

2.) Level of Significance : σ

The Level of significance should be set at α = 0.05

3.) The Statistical Test :

Z = X – u / σx
Where, Z = No. of standard deviations for the desired level of
confidence.
X = Mean of the sample
U = Mean of the population or hypothetical mean
σx = Estimate for the standard error or the mean

4.) The Decision Rule

91
 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 100 - 1
= 5/9
= 0.5556

Z= 55 – 50 / 0.5556
= 8.999
5.) Draw a statistical conclusion
The absolute value of the computerized Z statistic (8.999) is larger than
1.96, therefore null hypothesis is rejected.

So, Alternate Hypothesis is accepted.

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

92
 6. SAMPLING DESIGN

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 my research is concerned, we have taken sample size

of 100 respondents. I have selected Income Earners with saving to invest

in Junagadh city. All the respondents are stratified on the basis of their

profession and savings. We have selected the selected the samples as per

random.

Sample Universe Junagadh City

Sampling Technique Stratified and Random
Sample Size 100 Respondents
Sampling Unit Professional = Random
Business man = Random
Government Employee = Random
Employee in pvt. Firms = Random

93
 7. DATA COLLECTION
METHOD

There are mainly two sources of data i.e.

(1) Primary Data

(2) Secondary Data

• Primary Data:

The data, which is collected directly from the respondents to the

base of knowledge and belief of the research, are called primary data.

The normal procedure is to interview some people individually to get a

sense of how people feel about the Derivatives in stock market. So far as

my research is concerned, primary data is the main source of information.

We have collected data through Questionnaire and information from

respondent.

94
Primary method includes many types such as:

(1) Observation Method

(2) Interview Method

(3) Questionnaire Method

(4) Scheduling Method

(5) Use of mechanical device

• Secondary Data:

When data are collected and compelled from the

published nature or any other’s primary data is called secondary data.

There are mainly three points which he should consider while using that

data :

(a) Reliability of the data

(b) Suitability of the data

(c) Adequacy of the data

95
 8. RESEARCH RESULTS

Q.-2 Gender
OPTION NO. OF PERCENTAGE
RESPONDENT
Male 80 80%
Female 20 20%
TOTAL 100 100%

Gender
20%

Male
Female

80%

From above diagram we can say that most of male members do

trading in the stock market through derivatives.

96
Q.-3 AGE (YEARS)

OPTION NO. OF RESPONDENT PERCENTA

GE
21-35 40 40%
36-50 35 35%
51-65 17 17%
ABOVE 66 8 8%
TOTAL 100 100%

Age
8%

17%
40% 21-35

36-50

51-65

ABOVE
66

35%

From above diagram we can see that respondents are from the

age group 21 to 35 years are about 40% of total who deals with stock

market. While 35 % are between 36 to 50 years.

97
Q.-4 EDUCATION

OPTION NO. OF PERCENTAGE

RESPONDENT
Under graduate 15 15%
Graduate 60 60%
Post graduate 25 25%
TOTAL 100 100%

EDUCATION
15%
25%

Undergraduate
Graduate
Post graduate

60%

This result shows that most of graduate persons are doing trade

with stock-market i.e. 60% of the persons are graduate who are trading.

This result shows that educated persons are trading in stock market.

98
Q.- 5 OCCUPATION

OPTION NO. OF RESPONDENT PERCENTAGE

Professional 15 15%
Business man 35 35%
Govt. Employee 25 25%
Pvt. Employee 17 17%
Student 8 8%
Total 100 100%

Here this result says that businessman and government

employee who can earn more are trading with stock-market to invest their

saving in the stock market to earn more.

99
Q.- 6 DO YOU TRADE IN DERIVATIVES?

OPTION NO. OF RESPONDENT PERCENTAGE

Yes 35 35%
No 65 65%
Total 100 100%

Response

35%

Y es
No

65%

From above response it is very clear that minority of people

want to invest in derivatives because it is risky to invest in derivative is

preferred by investor.

100
Q.- 7 CURRENTLY, THROUGH WHICH BROKING HOUSE ARE

YOU DEALING?

OPTION NO. OF RESPONDENT PERCENTAG

E
ICICI Direct.com 18 18%
Kotak Security 5 5%
Sharekhan 23 23%
Motilal Oswal 5 5%
Angle Broking 11 11%
Marwadi 28 28%
Indiabulls 3 3%
HDFC 2 2%
India Infoline 4 4%
Anagram 3 3%
Karvy 6 6%
Total 100 100%

Broking house
3% 6% 18% ICICI Direct.com
4%
2% Kotak security
3% Sharekhan
5% motilal Oswal
Angle Broking
Marwadi
28% India Bulls
23% HDFC
India Infoline
Anagram
11% 5% Karvy

Here in above chart if we see than the highest market is covered by

Marwadi group while second highest is share khan which is very good
strength for sharekhan.

101
Q.- 8 WHICH TYPES OF FACILITIES ARE GIVEN BY YOUR

BROKING HOUSE FOR ON LINE TRADING?

OPTION NO. OF PERCENTAG

RESPONDENT E
Single Screen trading 13 13%
Terminal
Online orders on the 15 15%
Phone
Online IPO 21 21%
Live tic-by-tic intra 7 7%
day charting
Instant order/Trade 8 8%
confirmation in same
windows
Real time streaming 8 8%
Quotes
Research Report 19 19%
Online Mutual Fund 8 8%
Total 100 100%

102
 Facilities by Broking House
8% 13% Single screen tradind terminal
Above research says that most of brokers
Onlineprovides real
orders on the time
phone
19% online IPO
online IPO, research report and online 15%
orders on phone.
Live tic-by-tic intra day
charting
Instant order/Trade
confirmation in same windows
8% Real time streaming quotes

Research Report
8% 21%
Online mutual Fund
7%

103
Q.- 9 DOES YOUR FIRM PROVIDE THE SPECIAL SOFTWARE

FOR ON LINE TRADING?

OPTION NO. OF RESPONDENT PERCENTAGE

YES 11 11%
NO 89 89%
TOTAL 100 100%

Response
11%

YES
NO

89%

Here response says that most of brokers are not providing

online software for broking.

104
Q.- 10 IF YOU TRADE IN DERIVATIVES, IN WHICH

INSTRUMENT DO YOU INVEST?

INSTRUMENT NO. OF RESPONDENT PERCENTAG

E
Futures 56 56%
Calls 25 25%
Puts 15 15%
Arbitrage 4 4%
TOTAL 100 100%

Instrument for Invest

4%

15%

F utures
calls

56% P uts
arbitrage
25%

Here most of the persons are investing in the future because

they think that it is safer than call & put & they have not so more tips

from brokers for call & put.

105
Q.- 11 IN WHICH INSTRUMENT OF DERIVATIVES SEGMENT DO

YOU TRADE?

DERIVATIVE NO. OF PERCENTAGE

SEGMENT RESPONDENT
Indices futures 37 37%
Indices options 5 5%
Stock Futures 43 43%
Stock options 15 15%
TOTAL 100 100%

Instrument for Trade

15%

37%
Indices futures
Indices options
Stock futures
Stock options

43%
5%

Here, from above diagram we can see that investors if invest in

derivative than they will invest in stock future first and then in indices

future because stock future follow American style of derivatives.

106
Q.- 12 WHICH TYPE OF TRADER YOU ARE?

TYPE NO. OF RESPONDENT PERCENTAG

E
Bullish trader 75 75%
Bearish trader 25 25%
Total 100 100%

Type of Trader

25%

Bullish trader
Bearish trader

75%

If we see the picture of stock market two years ago or above

picture than it says same thing that most of the traders in the market are

bullish trader who trades when the market is up.

Q.- 13 DO YOU HEDGE IN DERIVATIVES?

107
 OPTION NO. OF RESPONDENT PERCENTAGE
YES 20 20%
NO 80 80%
TOTAL 100 100%

Response
20%

yes
no

80%

Above chart says everything to us that in the market investors

have not or few knowledge about the derivatives.

108
Q.- 14 IF YOU ARE BULLISH THEN WHAT STRATEGY DO YOU

SUGGEST IN HEDGING?

OPTION NO. OF PERCENTAGE

RESPONDENT
Buy future, buy 25 25%
put, sell call
Buy future, buy put 65 65%
only
Buy call, buy put of 10 10%
distance strike price
Total 100 100%

Strategy
10%

25%

Buy future, buy put, sell

call
Buy future, buy put only

Buy call, buy put of

distance strike price

65%

As in market everyone is dealing with the tips of broker and

from above research it can be known that they most of advice for buy

future, buy put only. Then says to sell call if necessary after 1st strategy.

109
Q.- 15 DO YOU BELIEVE THAT ONE CAN EARN IN

DERIVATIVES?

OPTION NO. OF RESPONDENT PERCENTAGE

YES 35 35%
NO 65 65%
TOTAL 100 100%

Response

YES
NO

As more of the investors are unaware from derivatives they

have said that it is not possible to earn from derivatives.

110
Q.- 16 DO YOU BELIEVE THAT ONE CAN EARN IN CALLS &

PUTS, THAN TO TRADE IN FUTURE?

OPTION NO. OF RESPONDENT PERCENTA

GE
YES 60 60%
NO 40 40%
TOTAL 100 100%

Response

Yes
No

Here In this question if we see most of people has heard about it

so the response for positive and negative is nearer. But they believe that

in call and put risk is lesser than future.

111
Q-17 A) Are you satisfied with the facilities given by your company?

OPTION NO. OF RESPONDENT PERCENTAGE

YES 29 29%
NO 71 71%
TOTAL 100 100%

Response

29%

Yes
No

71%

In this question if we see than most of the customers want more

services from their broker whether it is brokerage, tips or any one. If it is

not given than they are not satisfied. Above research shows that investors

are unsatisfied by broker in one or another way.

112
Q-17 B) If no then which segments they should try to improve?

OPTION NO. OF RESPONDENT PERCENTAGE

BROKERAGE 57 57%
RATE
RATE/TIPS 43 43%
TOTAL 100 100%

Sales

43%
Brokerage Rate
Rate/Tips
57%

As this graph shows that 2 big problems shown by customers

which are created by brokers. But they want mainly low brokerage

services.

113
Q-18 According to you trading is,

OPTION NO. OF RESPONDENT PERCENTAGE

ADVISABLE 34 34%
NOT 66 66%
ADVISABLE
TOTAL 100 100%

Response

34%

Advisable
Not Advisable

66%

If we see the response of the people in this research then 66%

of the people are saying that trading is not advisable. Which is due to

some of loss in the market by trading.

9. PERIOD OF STUDY

114
 This research study is to be prepared in certain time limit and

after certain time limit have to submit it to the company, university and

my college too. The time period is allowed for this research study is

TWO MONTH which is not enough to receive accurate accuracy in the

study.

10. TOOLS & TECHNIQUES

To make this research study successful many tool & techniques

are to be utilized which includes:

(1) Gathering the relevant data from different sites and literature

provided by the company.

(2) Use of computer plays most important role in the preparation of

this research study.

115
 11. LIMITATIONS OF THE
STUDY

 Personal Bias:

People may have personal bias towards particular investment

option so they may not give correct information and due to which

conclusion may be derived.

 Time Limit:

The time duration of the research is short that’s why the

information is not covered fully.

 Area:

The area was limited to Rajkot city only, so we can not know

the degree of the literacy outside the city.

 Sample Size:

The last limitation is Sample size, taken by us is of 300 only;

due to which we may not get the proper results.

116
 12. SUGGETIONS

• 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 can also use Newspapers and Local New Channels as a

medium of advertising.

• Sharekhan may also use its helpline number for giving education on
stock market.

• Company may appoint special team for giving education & attracting
people towards trading in stock market.

117
 13. CONCLUSION

Whenever it comes to the share market, Broker is the main

person who performs all the activities on behalf of the client and

therefore most of the people prefer it. Now a days Internet is the newer

medium for trading but still people do not know how to do transaction

online but as Sharekhan is providing this facility also, therefore it is a

dual benefit for the company. Therefore the company has also marketed

its various services to the people and the benefits of it if they use.

 There are sufficient no. of people aware about how to trade in

derivative in stock market so this is a good for the stock market

industry that at least people are aware about it.

 Out of survey of 100 respondents, 65% of the investors are

doing their invest in the stock market and 35% in derivatives.

 But here respondents believe that Sharekhan is providing better

facility of Online trading than other brokers.

 71% of respondents are not satisfied with the services of their

brokers.

 57% of the respondents are not satisfied with the facility of

brokerage charges of their broker. They say that firm have to take

0.05 or 0.04 paisa in intraday brokerage while 0.20 to 0.25 paisa in

delivery base.

118
  Most of people believe that derivative is not advisable for the

investors.

14. BIBLIOGRAPHY

 Kothari C.R., Research Methodology, New Delhi, Vikas

Publishing House pvt.Ltd. 1978

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.icicidirect.com
8. www.moneycontrol.com
9. www.NDTVindia.com

NEWSPAPERS:

1. ECONOMIC TIMES

2. TIMES OF INDIA

119
 15. APPENDIX
QUESTIONAIRE

1. Name:

2. Gender: Male Female

3. Age: 21-35 36-50 51-65 Above 66

4. Education: Undergraduate Graduate Post Graduate

5. Occupation: Professional Businessmen

Employees working Govt. Employee

Pvt. Firms Others

6. Do you Trade in Derivatives? Yes No

7. Currently, through which trading firm are you dealing?

ICICI Direct.com Kotak Security Sharekhan

Motilal Oswal Angle Broking Marwadi
Indiabulls HDFC India Infoline
Anagram Karvy

120
8.Which types of facilities are given by your broking house for
derivatives?

ICICI Direct.com Kotak Security Sharekhan

Motilal Oswal Angle Broking Marwadi

Indiabulls

9. Does your firm provide special software for online trading?

Yes No

10.If you trade in derivative then in which instrument do you invest?

Future Call Put

Arbitrage

11.In which instrument of derivative segment do you trade?

Indices future Indices Option Stock future

Stock option

12.Which type of trader you are?

Bullish Trader Bearish Trader

13.Do you hedge in Derivatives?

Yes No

14.If you are Bullish trader then which strategy do you suggest for
hedging?

Buy Future, Buy Put, Sell Call

121
Buy Future, Buy Put Only

Buy Call, Buy Put at Distance Strike Price

122
15.Do you believe that one can earn from Derivatives?

Yes No

16.Do you believe that one can earn from calls and puts than from

future?

Yes No

17A).Are you satisfied with the facilities given by your company?

Yes No

17B).If no then in which segment they should try to improve?

Brokerage Rates Research/Tips

18.According to you trading is,

Advisable Not Advisable

123