2009

A REPORT ON INVESTORS RISK PROFILING AND ASSET ALLOCATION

RUPES DEY
A REPORT ON

INVESTORS RISK PROFILING AND ASSET ALLOCATION

SUBMITTED BY: RUPES DEY

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EDELWEISS BROKING LTD.

DATE OF SUBMISSION: 06.06.2009

TABLE OF CONTENTS

Content Authorization Acknowledgment Abstract Introduction to Edelweiss Products and Services Introduction to Stock Market Household savings Basics of Stock Market Asset Allocation Methodology adopted and Learning Collection of Primary Data

Page no. 4 5 6 7 9 13 14 18 20 25 25
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Collection of Secondary Data Client visits and Presentations Customer Relationship Recommendations Conclusions

34 36 38 39 41

AUTHORISATION

This report is submitted as partial fulfillment of the requirements of MBA Program of NIAS. Thus it has been authorized by the Company guide to share the information regarding Edelweiss Broking Limited and snapshots of website of the company. The analysis of the data done for the purpose of this project, has been shared with due permission of the company guide. All the above mentioned data has been used for the purpose of preparation of this report and thus it will not be used for any other purpose. This report should not be used by any person not authorized to do so.
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ACKNOWLEDGEMENT

It gives me great satisfaction on completion of Summer Internship Project entitled Investors Risk Profiling and Asset Allocation.

On completion of this project, I would like to thank my company guide, Mr. Ritesh Agarwal, Area Sales Manager, Edelweiss Broking Ltd, Kolkata, for his constant support and cooperation during the course of this project.

I have received encouragement from him end which gives me immense pleasure when i am on the verge of completing my 6 weeks of internship in Edelweiss Broking Ltd.

I would also like to thank Mr. Akshay Puri, Regional Head, Edelweiss Broking Ltd, for giving me an opportunity to work in the organization and help in fulfilling the objectives of the project and all the valuable lessons that i have learnt on the way.

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Last but not the least I would like to thank my colleagues in Edelweiss Broking Ltd, who have also contributed in the project by giving me valuable feedback from time to time.

Data Research has been both primary and secondary. I would like to thank all the respondents who have taken time to answer questions during the surveys undertaken at various fields.

ABSTRACT
When I was young I thought money was the most important thing in life: now that I am old I know that it is - Oscar Wilde
Edelweiss Capital Limited is a Mumbai based company which started its operation in the year 1995. The mission statement of the company is Ideas create, values protect. It provides services like investment banking, institutional equities, private client broking, asset management, wealth management, investment advisory services, treasury, insurance broking, wholesale financing, and mutual funds. The major clients are corporations, institutional investors, and high net-worth individuals. This Project is a comprehensive study of Investors Risk Profiling and Asset Allocation. It talks about studying the method of identifying customers investment needs and suggesting them suitable financial products, thus the sales of various financial products of the company and analyze the various distribution strategies exploited by the firm. The project also deals with customer relationship; it gives a picture about how to build a good relationship with the clients who bring business for the company. A comparative analysis of Edelweiss with other broking firms has also been done.

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As an intern, I have carried out research to track investment behavior of Kolkata based investors. I went for the field work, talked to customers and tracked their investment pattern to help them suggest the kind of financial product they should use according to their risk appetite. Adding to this, I have communicated with different types of customers through various media, including client visits, who fall under the sample space for this project. My job was to advice them to take the suitable products offered by the company, depending on certain criteria, in order to make investing easier for them. I have also worked as a part of sales force of the company and sold Demat account.

INTRODUCTION TO EDELWEISS BROKING LTD.

EDELWEISS GROUP started its journey in Mumbai in the year 1995, by two IIM graduates, Mr. Rashesh Shah and Mr. Venkat Ramaswami.

Ideas create, values protect is the slogan and depict the mission statement of Edelweiss group.

Our Reputation and Image is more important than any financial reward. Reputation is hard to build and even harder to rebuild. Reputation will be impacted by our ability to think for our clients, maintain confidentiality and by our adherence to our value system. Mr. Rashesh Shah
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Mr. Venkat Ramaswami

The Logo: Edelweiss, a rare flower found in Switzerland. A graphic flower that represents ideas! Around it, the protective arms of the letter E:

Edelweiss believes ideas create wealth, but values protect it.

It is the practice of this core thought that has led to Edelweiss becoming one of the leading financial services company in India. Its current businesses include:

  

Investment Banking, Securities Broking, and Investment Management.

Edelweiss also provides a wide range of services to:    Corporations, Institutional Investors and High Net-Worth Individuals.

Headquarter based in Mumbai, India.

KEY PEOPLE: Chairman & Founder: Mr. Rashesh Shah (IIM Graduate 1995 batch) and Venkat Ramaswami. Designated director: Naresh Kothari.
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Directors: Rashesh Shah, Venkat Ramaswami and Hiralal Chopra.

Type of industry: investment banking, brokerage and asset management firm. Total market capitalization: About Rs. 13,000 cr. Total number of employees: 645 Edelweiss was previously into niche marketing only, dealing with the High Net Worth Individuals (HNWI) clients only. Looking at the current market scenario, company is targeting the Retail Segment with its new Online Trading Portal. The company sights the need for entering into the retail segment by seeing the saturation of the niche market and the exploration of the areas which was left untouched by the organization. The idea behind this is to Reposition the company from niche marketer to mass marketer. The brand repositioning of the company is done in order to withstand the current market scenario (Global Economic Crisis). The product or the service that the company has come up with is the Prepaid Broking Plan for both the retail as well as HNI customers. Basically every broking firm offers dematerialization and the trading account with some charges associated to it and the main source of income is the brokerage that is collected on every transaction made by the customer, which is a continues source of income. The prepaid account is like mobile cash card which has to be recharge first and then can be used for a year. The client has to pay the brokerage in advance which will be deducted on every transaction. The client can recharge the account as the balance gets over before the validity expires.

PRODUCTS AND SERVICES

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 Investment Banking
 Institutional investment  Asset management  Wealth management  Private client brokerage  Insurance brokerage  Wholesale financing

Investment Banking:

An Investment Bank is a financial institution that deals with raising capital, trading in securities and managing corporate mergers and acquisitions. Investment banks profit from companies and governments by raising money through issuing and selling securities in the capital markets (both equity, bond) and insuring bonds (selling credit default swaps), as well as providing advice on transactions such as mergers and acquisitions. At Edelweiss Securities Ltd, Investment Banking business is dedicated to providing corporations, entrepreneurs and investors, the highest quality independent financial advice and transaction execution.

Institutional Investment:
Institutional investors are organizations which pool large sums of money and invest those sums in companies. They include banks, insurance companies, retirement or pension funds, hedge funds and mutual funds. Their role in the economy is to act as highly specialized investors on behalf of others.

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Asset Management or Investment management:

Investment management is the professional management of various securities (shares, bonds etc.) and assets (e.g., real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly
via collective investment schemes e.g. mutual funds or Exchange Traded Funds)

Private client brokerage:

The Private Client Services Group (PCG) at Edelweiss is focused on providing products, strategies and services to High Net worth Individuals and Corporate Clients. It has geographic reach through Branches, Channel Partners & Investment Consultants in over 19 locations in India. The PCG team has highly trained equity professionals, who act as clients Equity Advisor. Its ESL Equity Advisor proactively helps you take informed investment decisions and build a healthy portfolio.

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INVESTORS OF EDELWEISS LIMITED

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INTRODUCTION TO THE INDIAN STOCK MARKET

An Insight:

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The Indian broking industry is one of the oldest trading industries that have been around even before the establishment of the BSE in 1875. Despite passing through a number of changes in the post Liberalization period, the industry has found its way towards sustainable growth.

History of broking house in India:

Stock markets refer to a market place where investors can buy and sell stocks. The price at which each buying and selling transaction takes is determined by the market forces (i.e. demand and supply for a particular stock).

In earlier times, buyers and sellers used to assemble at Stock Exchanges to make a transaction but now with the dawn of IT, most of the operations are done electronically and the stock markets have become almost paperless. Now, investors do not have to gather at the Exchanges, and can trade freely from their home or office over the phone or through Internet.

A broker is a person or firm that facilitates trades between customers. A broker acts as a go between and, in doing so, does not assume any risk for the trade. The broker does, however, charge a commission. A broking firm acts as an intermediary between NSE and Client.

In India, the two major broking indexes are:

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y BSE
 The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic stature, and is tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The SENSEX is constructed on a 'free-float' methodology, and is sensitive to market sentiments and market realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral indices.

y NSE
 On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000.

HOUSEHOLD SAVINGS
The Office for National Statistics compiles the household saving ratio which is household saving expressed as a percentage of total resources which is the sum of gross household disposable income and the adjustment for the change in net equity of households in pension funds.
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The Former Patterns of Indian Household Savings:

Gross Domestic Savings in India has shown a steady and substantial rise from the 1950s along with the rise in income. As per Indian National Accounts, Gross Domestic Savings includes current transfers from Indian emigrants and net factor income from abroad. The overall savings period in India is roughly divided into five phases based on the careful identification of the distinctive phases starting from the year 1950.The household sector which is comprised of the pure households, non corporate enterprises in agriculture, trade and industry and private non-profit making trusts, has retained a high savings rate in comparison to public sector savings and private corporate sector savings in all the phases. The savings rate overall and the household savings rate took a sharp upturn in the 1970s, marginally increased thereafter, and then again took an upturn from the 1980s. The first upturn is attributed to the decline in the share of agriculture in GDP and the apparent high propensity to consume of the agricultural sector, a theory yet to be corroborated by evidence. Another school of thought suggests that the rapid expansion of banks, after their nationalization in 1969, contributed to increased savings of people by lowering the transaction costs of saving. Another contributing factor was the remittances from the Indian expatriates from the Gulf countries. Moreover, the Green Revolution in the late 1960s substantially contributed to increase in rural incomes. Though it is difficult to quantify, a certain spillover of the increased income into domestic savings cannot be denied. The second expansion from the mid 1980s to present can be attributed to the Economic Reforms initiated in 1985 and thereafter accentuated from 1991. 1984-85 to 1995-96 was a remarkable phase of growth of the Indian economy. The jump in savings rate only substantiated the hypotheses that, economic liberalization did promote savings through economic growth.

Factors Affecting the Indian Household Savings:

The Keynesian theory explains that the prime determinant of saving is income that has withstood
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the test of time, while empirical evidence does not corroborate the ability of other variables like interest rates, inflation and tax rates to influence savings.

A. Income:
Gross Domestic Savings in India has shown a steady and substantial rise from the 1950s along with the rise in income (GDP). There is a correlation between the rise in income and the rise in national savings. This proves that the Keynesian theory of income being the primary determinant of saving holds true in India also. Moreover, it was permanent income, which was the critical determining factor rather than transitory income. In the initial stages of development, the level of income is an important determinant of the capacity to save.

B. Economic Liberalization GDP Growth and Savings Rate:

Economic liberalization measures initiated in mid 1980s (accentuated from 1991) had contributed to GDP growth rate (average growth rate 5.6%) and the savings rate (17%). This was the period 1984-85 to 1995-96. From 1996-97 to 2003-04, we observe that the GDP has continued to rise, albeit at a fluctuating rate, but the savings rate has continued to rise regularly, without any fluctuations. This only enforces the fact that income is the prime determinant of savings and Economic liberalization helps to raise savings by raising income. In fact from independence to mid 1980s the Indian economy was characterized by a slow growth rate of 3.5% p.a. which changed from the mid 1980s.

C. Interest rates:
Financial liberalization initiated in the 1980s gathered momentum after 1991. Presently, all interest rates, except those on all small savings schemes of Post Office, Provident funds, Government of India Bonds and schemes for Senior Citizens (the instruments with sovereign guarantee), are market determined. In post 1991 period there has been a steady decline in the interest rates in the economy. But overall household savings increased from 17% of GDP in the

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1980s to 25.5% of GDP in 2002-03 and 26.6% of GDP in 2003-04. The transformation from an inefficient and sheltered economy to an efficient and a market determined economy have made people more insecure and prompted them to accumulate savings to guard against future job losses, giving limited importance to interest rates. The insecurity prompted to increase the savings rate. Another fact considered by retired people who were pensioners was that since interest rates had gone down to maintain the same income flow they had increased the volume of savings, to the extent possible So it can be concluded that interest rates do not influence savings much.

C. Tax incentives: The Government of India, till March 2005, offered a slew of tax incentives. All these tax rebates were available from instruments backed up by State Guarantee, barring ICICI Bank. People invested heavily in these instruments because of the double benefits of tax avoidance (not evasion) and State Cover. The funds raised from these instruments continued to feed the ever-yawning Fiscal Deficit of the Government of India. The underlying logic behind all these changes is to make it compulsory for people to arrange for their own retirement needs (which the bankrupt exchequer cannot provide) in line with the global trends and gently nudge people towards the Stock Market.

BASICS OF STOCK MARKET

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Investing in equity involves purchasing shares of a company listed on a stock exchange. You can acquire these shares in two ways - either through the Primary Market, i.e., when a company makes an offer to issue its equity for the first time (this is called Initial Public Offering (IPO)) or through the secondary market, i.e. via a stock exchange. When you trade in equity through a stock exchange, you have to make use of the services of a brokerage firm, which acts as your agent whenever you buy or sell. Equity is considered a high risk-high return investment avenue. This is because there is scope for considerable appreciation or loss of the capital that you invest, depending on various factors such as the performance of the company that you have invested in, general market conditions, the state of the economy, etc. However, it forms an integral part of any well-balanced portfolio, since it is at one end of the risk-return spectrum.

How should I decide whether equity investing is right for me?

Equity is a must for any well-balanced portfolio. So, irrespective of whether you are a high net worth investor or a small retail investor and irrespective of whether you have a large or timid appetite for risk, you must hold some portion of your assets in equity. This is because it is the only instrument that has the ability to truly deliver a high return, when held over a long period of time. However, the amount of equity that you hold in your portfolio is a very subjective decision and will depend upon various factors. These include your investment objectives, time horizon and risk appetite. But as a general guideline, theres a rule of thumb that states that to decide upon the proportion of your assets that should go into equities, reduce your age from 100 and thats the proportion of your money which should be put in equities. The remaining can be invested in fixed income securities.

How should I study stocks before I make my selection?

Every investor must do some homework before investing money in equities While recommendations and tips received from your broker, a friend, etc. may be the starting point of your selection, let it not be the only reason that makes you purchase a particular stock, even if these tips have come from market experts. Short list the shares that you want to buy on the basis of your investment objective, risk profile and the stocks fundamentals.

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If you feel that the price of a stock is high, dont purchase it. Buy stocks that you believe still have scope for appreciation. Dont try to time your purchases. That could turn you into a speculator instead of an investor. Lastly, once you have purchased shares, if the business prospects of the company change to its detriment, get rid of the stock. Dont hesitate to liquidate your portfolio before your target time horizon if circumstances lead you to believe that its necessary.

How do I know whether I am paying the right price for the stock?
There are various factors that determine the value of a stock. Understanding these will help you to pay a price that reflects the true value of a stock.

Demand and Supply: In the short term, the basic economic theory of demand and supply
determines a stocks worth. So, when the demand for a stock exceeds its supply (that is, there are more buyers than sellers), its price tends to rise. And, when supply overtakes demand (that is, sellers exceed buyers), the stock loses value. However, these are short-term market trends, which tend to get evened out over a period of time. In the medium to long-term, a stock is driven by the companys fundamental strength i.e. business potential, past performance, competence and credibility of its promoters and management, etc.

Growth potential: Investors are willing to pay a premium for stocks of companies that have
the potential to increase their revenues and net profits. The greater this growth potential, the higher the premium given to the stock. If a company proves that it is capable of sustaining growth, the market will continue to give it high valuations. And, thats likely to be the major driver for stock valuations. Fundamentals: A companys growth outlook is linked to its business prospects and how well its management is capitalizing on the existing opportunities. The quality of a companys management is crucial. So, pay attention to the management practices of a company and its level of corporate governance.

When should I buy to minimize my costs and sell to maximize the profits?
Buy low and sell high is the ultimate guide to successful stock investing. It is also the reverse of what many investors do, although they don t intend to. They tend to buy high and sell low because they use price, and in particular, the price movement, as their only signal to buy or sell. Page | 20

Investors are tempted to buy stocks that have shot up and are basking in the media spotlight just to get a part of the action. They jump at a stock that is already trading at a premium thats how they buy high. Ironically, if a stock has had a good run up it may be time to sell, not buy (sell high). On the flip side, when a stock price is falling, most investors may want to sell in a panic, although the company has not lost any intrinsic value and still remains a sound investmentthats how they sell low. In fact, when a stocks price has fallen, its a great time to buy (buy low), if your research on the company suggests that it is a good long term buy. Experienced traders can make money jumping in and out of a stock thats caught the publics attention, but its not a game for the inexperienced and it can definitely not be called investing, in the true sense of the word. There are risks involved and tax consequences that apply to such trading, along with other issues, which means that most investors should leave this tricky activity to short-term traders.

RISK APPETITE AND INVESTMENT PATTERN

Risk appetite is usually discussed relating to the investment decisions of investors. An investor considers his or her risk appetite when selecting from a range of investment options presenting different risk/return trade-offs.

The challenge for an individual investor is to determine which point on this risk/return tradeoffs Provide either: The lowest level of volatility to meet financial needs and goals, The highest return given the investors tolerance for risk, or Some intermediate point that maximizes utility.
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Many individual investors are aware of the need to understand their own risk appetite, yet most make decisions that affect the risk profile of their wealth and income only infrequently. Investors need to make these decisions more regularly. In the case of the financial services organization, decisions affecting the risk profile of its business are made daily.

As a result, managing and profiting from calculated risks is a core skill for many financial Services organizations. Although these organizations are in the business of risk, defining an Organization-wide risk appetite can be complicated in practice.

Much like the basic risk/return trade-off decision presented to the individual investor, the Common thread across these definitions is the need for the company to decide on the appropriate amount of risk it can accept in order to enhance the organizations value over a given timeframe.

RISK ALLOCATION:
In a sense, risk allocation also referred to as risk budgeting is another step in the evolution of investment management practices. In the mid-1900s, the dominant investment style was asset selection (also known as picking winners). Investors tried to select stocks and other assets with high expected returns and low risk (ie, low variance or returns).

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Modern portfolio theory revolutionized investing by making clear the importance of correlations of asset returns, in addition to expected returns and the variance of returns. By the 1970s, the dominant investment style had become asset allocations. Investors tried to hold efficient portfolios portfolios of assets with low correlations so that all but the market risk would be diversified away. This gave rise to the common practice of managing to some benchmark portfolio. With the rise in benchmarking, the task of an active portfolio manager was to beat the index. Clearly, one way to beat the index was to take on more risk than in the index a tactic not necessarily in line with the wishes of the investor.

Risk allocation emerged in the late 1990s, in response to concerns about the level or risk being accepted in the portfolio and as a consequence of the development of risk measurement and management tools. While the phrase risk allocation seems to mean different things to different people, it can be defined broadly as an investment style where allocations are based on the assets risk contribution to the portfolio, as well as on the assets expected return. In this regards, it is a direct application of the original Markowitz (1952) perspective on portfolio construction, where both risk and return expectations play explicit roles in the asset allocation process. Under risk allocation, the task of the active portfolio managers is to beat the index without taking more risk than the index.

What is Asset Allocation?

Asset allocation means diversifying your money among different types of investment categories, such as stocks, bonds and cash. The goal is to help reduce risk and enhance returns. This strategy can work because different categories behave differently, Stocks, for instance, offer potential for both growth and income, while bonds typically offer stability and income. The

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benefits of different asset categories can be combined into a portfolio with a level of risk you find acceptable. Establishing a well-diversified portfolio may allow you to avoid the risks associated with putting all your eggs in one basket.

Right allocation for an investor:

Asset allocation decisions involve tradeoffs among 3 important variables:
y Investors time frame y Their risk tolerance y Their personal circumstances

Depending on his age, lifestyle and family commitments, your financial goals will vary. You need to define your investment objectivesbuying a house, financing a wedding, paying for your children's education or retirement. Besides defining your objectives, you also need to consider the amount of risk you can tolerate. For example, when an investor retires and is no longer receiving a paycheck, you might want to emphasize bonds and cash for income and stability. On the other hand, if you won't need your money for 25 years and are comfortable with the ups and downs of the stock market, a financial advisor might recommend an asset allocation of 100% stocks.

Sample asset allocations followed during the project

Here are examples of 3 model portfolios that we follow while suggesting the right asset mix for any investor. These models are for suggestions only and it may differ from person to person. When reviewing the sample portfolios, we consider investors risk tolerance and other assets, income and investments.

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Aggressive portfolio: This portfolio emphasizes growth, suggesting 65% in stocks or equity
funds,

25% in bonds of fixed-income funds and 10% in short-term money market funds or cash equivalents. We recommend this portfolio for people who have a long investment time frame. The portfolio provides for short-term emergencies and a mid-term goal such as building a home, but otherwise assumes the investor has long-term goals such as retirement in mind.

Moderate portfolio: This portfolio seeks to balance

growth and stability. It recommends 50% in stocks or equity funds, 30% in bonds or fixed-income funds and 20% in short-term money market funds or cash equivalents. This portfolio would seek to provide regular income with moderate protection against inflation. The equity component provides the potential for growth, whereas the component in bonds and short-term instruments helps balance out fluctuations in the stock market.

Conservative portfolio: This portfolio suggests 25% in stocks or equity funds, 50% in
bonds or fixed-income funds, and 25% in money market funds or cash equivalents. This portfolio appeals to people who are very risks averse or who are retired. The 25% equity component is

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intended to help Investors stay ahead of inflation.

In the market survey which has been conducted during the course of this project my analysis has revealed that 70% of the investors in Kolkata are risk averse and follow the conservative portfolio. What is striking is that 45% of young people within good income bracket happen to be risk averse as compared to 20% overall in the country.

METHODOLOGY ADOPTED FOR THE PROJECT

y Collection of Primary Data:

The first step in the process is the collection of primary data with the help of questionnaire. The questionnaire helped me in working on the field and getting a first hand knowledge of the investment market of Kolkata. The process of collection of primary data is turning out to be an enriching experience as the interaction with the investors has given me an insight into the minds of the investors as regards to their demographic profile, household savings, income level, expenditure, asset allocation and risk profile.

Market Survey:
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The market survey has been conducted taking 80 as the sample size. Results of the same are as follows:

Out of the 40 respondents 35 were male and remaining 5 were Females.

FEMALE 5 13%

GENDER

MALE 35 87%

Following graph shows the age of respondents and the target respondents were only those individuals whose age is above 25 years.

AGE
> 25 years 10% < 50 years 15% 40-50 years 28%

25-30 years 20% 30-40 years 27%

Following graph shows the occupation of the Respondents

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OCCUPATION
Self Employed 8% Professionals 15% Businessman 30% Salaried 47%

Graph below shows the annual income of the respondents. Only those respondents are considered whose annual income is above 3 lakh rupees per annum. Even the target customers for the company were only those individuals whose annual income is above Rs. 300000.

ANNUAL INCOME
Rs. 600000-100000 0 35% < 1000000 Rs. 3% > 300000 Rs. 7%

Rs. 300000-600000 56%

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Graph below shows the preferred sectors for investment in equities. The most preferred sector is financial sector as it is expected that this sector will grow very fast. The second most preferred sector is Oil & Gas sector because in this sector the major players are the Government owned industries and as the economy will develop the consumption of oil and gas will increase. The third most preferred sectors are FMCG and TELECOM sectors. FMCG sector stocks are the defensive stocks and TELECOM sector is one of the fast growing sectors.

Preferred Sector to invest in Equities

DIVERSIFIED 0% IT 8% TELECOM 13% FMCG 12%

PHARMA 10% OIL & GAS 12%

FINANCIAL 25%

POWER 10%

REAL ESTATE 10%

Following graph shows the different preferred tools of investment by the individuals. The most preferred tool is the Mutual Funds. After the financial crisis and the collapse of stock market many investors had lost their money and their confidence is shacked. Moreover mutual funds are more safer investment instruments in comparison to others and also the rate of return on them is high and even the risk is lower than equities and they are preferred because investing in them exempted from taxation. Mutual funds are followed by the bonds which are risk free and also the rate of return is good.

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PREFERRED TOOL OF INVESTMENT IN CAPITAL MARKET

Derivatives 10% Equity 18% Insurance 15% Mutual Funds 37%

Bonds 20%

Share Khan is the most preferred broking house followed by the India Bulls and then MotilalOswal broking house. Edelweiss is least preferred because it has just entered into retail segment in March 2008, and it will take some time for it make its presence felt in the retail segment. Earlier it was catering only to the HIGH NET WORTH INDIVIUALS (HNIs).

Kotak Mahindra 6% India Infoline 10%

Religare 6%

Edelweiss 4%

Sare Khan 22%

ICICIDirect.com 14% Indial Bulls 20%

MotilalOswal 18%

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The following chart shows the reason for the collapse of Sensex. Most of the respondents believed that subprime crisis was the main reason for the downfall of Sensex as it forced the FIIs to withdraw their money from Indian markets back to their parent countries. The second most believed reason is the bankruptcy of the financial institutions.

Negative Market Sentiments 9% Credit Crunch 7%

REASON FOR THE DOWNFALL OF SENSEX FROM 21k TO 8k Adverse Capital

Shock 4% Constant Depreciation of Home Currency 14%

Sub Prime Crisis 44%

Bankruptcy of Big Financial Institutions 22%

EXPECTATAION OF MARKET RECOVERY

Above 24 months 5% 12-24 months 29% Within 1 month 0% 1-6 months 21%

6-12 months 45%

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The above graph shows the expectation of the respondents for the market recovery. Most of the respondents believe that the market would recover within 6-12 months. The main reason for this is that the FIIs inflow of the money in market which caused the market to go up by 400 points in a single trading day in this month. Besides this after the elections new government will be formed and it is believed that it will take measures for the growth of economy and various sectors.

When respondents were asked about their worry for the Indian stock market they reacted aggressively for the volatility in the stock market. As Indian stock market is volatile and there are two major factors in the stock market i.e. FEAR AND GREED. There is too much fluctuation in the movement of share prices in the market. The second worry is the price manipulation of the shares. Recently it was found that Akruty City share price was artificially maintained high. It was trading around Rs. 2200 per share when all the other shares of the Real Estate companies were trading at their life time value. Later its share was banned on trading at future and options as well as Intra-day segments and at present it is being traded only on the cash market. The third worry was related to corporate mismanagement as was the case with Satyam, which was the biggest fraud in the Indian market.

The following graph shows investment holding pattern of respondents. 30% of the respondents had invested in Mutual Funds as they provide healthy return at less risk. Besides this investing in them is tax exempted and same is the case with insurance policies and apart from this investing in insurance is risk free and also the biggest advantage is that insurance policies covers the risk. Investment in FDs is also risk free but the rate of interest given in FDs is dependent on economic conditions. In equities the investment was made prior to market fall and generally the people are holding their shares because they dont want to sell their shares at half of the purchase price. Apart
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from this people are also buying new shares because it is the right time to invest in shares as the blue chip companies shares are trading at low price.

INVESTMENT AT PRESENT
Govt. Securities 6% PPF 4% Mutual Funds 30% Insurance Policies 18% Bank FDs 26%

Equities 16%

Family Responsibility 13%

OBJECTIVE OF INVESTMENT
Income Generation 37%

Retirement Benefits 20% Return 14% 0%

Capital Appreciation 16%

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The main objective of investment is income generation and it is followed by retirement benefit.

y Collection of Secondary Data

The data has been collected through primary and secondary sources. The primary data collection involves formulating a questionnaire and getting it filled by the customers. Companies were visited to know about their strategies and compare it with that of Edelweiss. This has been accompanied by client calling, company visits and company meetings.

HDFC securities
Strengths:    Own banking house within the company (fast fund transfer) Flawless security system Handles customer queries quickly

Weaknesses:   Slow order processing High demat account charges

Kotak securities
Strengths:   Good customer relationship Suggestive buy or sell calls to customers on a daily basis

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Weaknesses:   High brokerage Does not allow more than 25 scripts at a time

ICICI Direct
Strengths:   Good market reputation Highest market share

Weaknesses:    Slow order execution Flaw in providing online tickers Premium brokerage

India bulls securities

Strengths:    Fast implementation of orders Real time quotes Low brokerage rates

Weaknesses:   Delayed response to customer queries Delayed client instructions

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y Paying Client visits and Presentations made to them:

The financial services are different from the consumer products offered. If we make a comparative analysis following points can be highlighted: y Interaction with the customer - In case of consumer products the company has no direct contact with its customers. It distributes its products to the distributors and after that does not come in the picture. They come in contact with the customers only in case of any complaints. In case of a financial product the company personnel interact directly to the customers and convince them to buy the product. Thus the responsibility of company increases in case of financial products. y Buying Pattern- Many consumer products are taken by the customer on an impulse while taking a financial product involves a long thought process.

Advising the clients about the products of the company which suits their need:

A retail brokerage company that provides quality service, through its research and the Unique Selling Proposition (USP) are: y y y y Simplest and fastest Online trading portal Dealer support and a toll-free no. Turtle services portfolio Doctor for each client High quality research and much more . . .

One of the strategies adopted by Edelweiss to counter the existing competitors is : The website; by the Edelweiss is in itself a Unique Selling proposition as it assist to attract and retain the client. By analyzing the website portals of other competitors like
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Share khan MotilalOswal India bulls India Infoline and etc.

It has been found that, their online trading portals are very complicated to understand and use. Any new client will have to go through many problems to understand how to use those portals. Even though being in the market for a considerable time, none of the existing players could predict or comprehend the demand of the customers. Changing business environment every firm to evolve with time, which the existing financial players failed to do so! Thus Edelweiss comes up with an Online Trading Portal called www .edelblue.com This website has been designed to provide Advice Based Broking Services to retail investors. Following things have been kept in mind while conceptualizing the website: y y y y y Clutter free pages Easy to use navigation Presenting information in intuitive way Avoid data overload on any page Easy access to Edelweiss research and recommendations y Intelligent tools to cut through tons of information

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The site has been divided in the following sections: y y y Trade My Edelweiss Research & Strategies

Trade sections offers host of Equity and derivative products to retail investors. It is explained in detail in the next section of the manual.

My Edelweiss offers investors to maintain there portfolio online. All the transactions done with Edelweiss broking limited will automatically flow in the portfolio.

Research & Strategies section has the market data, news, data tools, research reports and Edelweiss strategies or recommendations. The section has been intuitively divided in 3 sections: Markets (data about company, sectors, index, MF, commodities, etc.), Research (Edelweiss reports on companies, sectors, economy, etc.) and Strategies (actionable recommendations, derivative strategies, model portfolios, etc.). During the visit to the clients I have first collected information regarding their broker house, if any and then as per the requirements of the clients I suggest them the product which we are offering them.

y Customer relationship:
The customer relationship is aimed at creating strong long lasting, fruitful relationships by developing long-term bonds. As a result the customer starts identifying and associating him with the product, prefers and accepts the companys products and services over competitors
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offerings and recommend others to buy. Moreover it costs less to retain customers than to compete for new customers. My job profile entails me to interact with the clients of the company and that includes the existing HNI clients and the clients who are in a dormant stage. Convincing them to start business with the company and maintain their association with the company is the primary focus. This involves calling the existing clients and making client visits. This will help me get an insight into the various aspects of customer relationship.

Recommendations

Edelweiss is an established name in the market but when it comes to competition in the retail broking, the company has certain limitations which it needs to overcome in order to establish itself in this scene. There are other players in the market who have certain edge in terms of offerings which the company has to fulfill if it wants to compete in the market. The opportunities and challenges faced by the company are as follows:

Opportunities for the company:

y Untapped Retail Segment- the Company has a huge opportunity before it as it has a vast untapped retail segment. y Increasing affluent class- The rise of the affluent class will aid the growth of the company. y Competitive edge The research of the company is its Unique Selling Proposition and the retail segment looks for good and reliable research.

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Challenges before the company: y Business Volatility- The business in which the company is in is very volatile and keeps
changing with the market situation. So to keep a good pace of growth is the challenge that lies ahead y Competition- The competition is fierce among different market players and standing in this situation is a challenge y Risk management- The business is prone to a high risk and minimizing risk is the need of the time y People- the Company should maintain the good working force that it has with it at present and improve it to gain competitive advantage.

Limitations of the study:

y The information regarding the investors is being collected through market survey where there are some discrepancies on the part of the clients who do not divulge the right information. y y The Jacob Model followed in the questionnaire sometimes does not suit all the clients. There are changes happening in the industry every time and due to this some of the information collected becomes obsolete or irrelevant for the study. y Some of the secondary data collected becomes outdated with the passage of time but overall the information so collected is relevant for the study.

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CONCLUSION

The 6 weeks of internship at Edelweiss Broking Limited has been a fulfilling experience where the learning was immense. At the end of the period what I can say is that now I am ready to step into the corporate world with complete zest and enthusiasm.

Here I got to understand the integrities of the stock market and the working pattern of broking houses as well.

Financial Planning is an important part of each person and what I learnt in Edelweiss is to understand the factors which come into play while planning the financials of each investor.

At the company I also learnt how to sell in a market, because one of my major responsibility was to sell demat account.

The 6 weeks of internship has been a grueling experience at times where procuring data had become very difficult with lot of limitations becoming impediments during the period but nevertheless the teachings provided me with things which go beyond the books.

Overall I will rank this period of 6 week as golden period of my MBA course.

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