Equity

Market
Insurance Sector

Rahul khetawat
 Table of Content

 Introduction to Equity market 3

 Function of Equity market 6

 Participants of Equity market 9

 Strategies for Equity Market 12

 Products In Equity Market 15

 Variables of Equity Market 19

 What Drives the Equity Market 22

 Debt Market – Brief overview 24

 Foreign Exchange Market 32

 Derivatives Market – Brief overview 38

 Commodity market 43

 Insurance Sector 51

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 Introduction to Equity Market

Equity market in which shares are issued and traded, either through exchanges or over-the-
counter markets. Also known as the stock market, it is one of the most vital areas of a market
economy because it gives companies access to capital and investors a slice of ownership in a
company with the potential to realize gains based on its future performance.
This market can be split into two main sectors: the primary and secondary market. The
primary market is where new issues are first offered. Any subsequent trading takes place in the
secondary market.
The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual
organization specialized in the business of bringing buyers and sellers of the organizations to a
listing of stocks and securities together.

Few major stock exchanges

 NYSE of United states of America

 Toronto Stock Exchange of Canada
 Hong Kong Stock exchange of Hong Kong.
 National stock exchange of India
 London Stock exchange of United Kingdom

About National Stock Exchange

Since its inception in 1992, National Stock Exchange of India has been at the vanguard of
change in the Indian securities market. This period has seen remarkable changes in markets, from
how capital is raised and traded, to how transactions are cleared and settled.
The market has grown in scope and scale in a way that could not have been imagined at the time.
Average daily trading volumes have jumped from Rs. 17 crore in 1994-95 when NSE started its
Cash Market segment to Rs.11,325 crore in 2008-09. Similarly, market capitalization of listed
Indian firms went up from Rs.363,350 crore at the end of March 1995 to Rs.2,896,194 crore at
end March 2009. Indian equity markets are today among the most deep and vibrant markets in
the world.

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This transformation was the result of a number of initiatives led by the Government, market
regulators and infrastructure providers like exchanges and depositories. NSE’s efforts in this area
have included the creation of the first clearing corporation in the country in the form of the
National Securities Clearing Corporation Limited (NSCCL). NSCCL today provides central
counterparty services and manages settlement risk for multiple products, and is a major factor in
the confidence market participants have in
the ability of Indian markets to handle extreme shocks without causing any defaults.
NSCCL is also the first clearing corporation in the country to receive. NSE has many other firsts
to its name, including the first systematic process of member inspections, a sophisticated market
surveillance system, and a country wide high capacity data network supporting close to 200,000
dealer terminals. The year 2008-09 was an eventful year for NSE, as it saw the launch of new
and important products for the securities market. Introduction of Mini Nifty Futures and Options
contracts on S&P CNX Nifty during the year has given retail investors an increased ability to
participate in index futures and options trading. NSE also started publishing the first volatility
index in the country India VIX*. Market participants
now have an important tool to assess volatility and create trading strategies to exploit volatility
movements. In May 2008, NSE developed a new trading application, NOW, or ‘NEAT on Web’.
The NOW platform allows trading members to connect to the exchange through the internet, and
has resulted in a significant reduction in both the access cost and turnaround time for providing
access. This year also saw a watershed in the Indian currency market in the form of a currency
futures contract. NSE was the first stock exchange in the country to launch the contract on
August 29, 2008 in USDINR pair. The contract was an instant success, and currently has daily
trading volumes in excess of Rs. 2,000 crore and open interest in excess of Rs. 1,000 crore. Other
significant developments include Long term Options Contracts on S&P CNX Nifty, Short selling

Trading Value
All values in Crore

Segment/Year 2006-07 2007-08 2008-09 2009-10

CM 1945285 3551038 2752023 4138024

F&O 7356242 13090477.75 11010482.20 17663664.57

WDM 219106.47 282317.02 335951.52 563815.95

Total 9520633 27691998 14098457 22365505

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 Market Segement Indicator

Market Capitalization
All values in crores

Segment/year 2006-07 2007-08 2008-09 2009-10

CM 33,67,350 48,58,122 28,96,194 6,009,173

WDM 1784801 2123346 2848315 3165929

Source: www nse-india.com

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 Function of Equity market
The stock market is one of the most important sources for companies to raise money. This
allows businesses to be publicly traded, or raise additional capital for expansion by selling shares
of ownership of the company in a public market. The liquidity that an exchange provides affords
investors the ability to quickly and easily sell securities. This is an attractive feature of investing
in stocks, compared to other less liquid investments such as real estate.

The price of shares and other assets is an important part of the dynamics of economic activity,
and can influence or be an indicator of social mood. An economy where the stock market is on
the rise is considered to be an up-and-coming economy. In fact, the stock market is often
considered the primary indicator of a country's economic strength and development. Rising share
prices, for instance, tend to be associated with increased business investment and vice versa.
Share prices also affect the wealth of households and their consumption.

Exchanges also act as the clearinghouse for each transaction, meaning that they collect and
deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an
individual buyer or seller that the counterparty could default on the transaction.

The smooth functioning of all these activities facilitates economic growth in that lower costs and
enterprise risks promote the production of goods and services as well as employment. In this way
the financial system contributes to increased prosperity. An important aspect of modern financial
markets, however, including the stock markets, is absolute discretion.
Established for the purpose of assisting, regulating and controlling business of buying, selling
and dealing in securities.

Establishes rules for fair trading practices and regulates the trading activities of its members
according to those rules.

The exchange assures that no investor will have an undue advantage over other market
participants.

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Mobilizing savings for investment

When people draw their savings and invest in shares, it leads to a more rational allocation of
resources because funds, which could have been consumed, or kept in idle deposits with banks,
are mobilized and redirected to promote business activity with benefits for several economic
sectors such as agriculture, commerce and industry, resulting in stronger economic growth and
higher productivity levels of firms.

Maintaing transparency

Investor make informed and intelligent decision about the particular stock based on information
Listed companies must disclose information in timely, complete and accurate manner to the
Exchange and the public on a regular basis Required information include stock price, corporate
conditions and developments dividend, mergers and joint ventures, and management changes etc

Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines, increase distribution

channels, hedge against volatility, increase its market share, or acquire other necessary business
assets. A takeover bid or a merger agreement through the stock market is one of the simplest and
most common ways for a company to grow by acquisition or fusion.

Profit sharing

Both casual and professional stock investors, through dividends and stock price increases that
may result in capital gains, will share in the wealth of profitable businesses.

Corporate governance

By having a wide and varied scope of owners, companies generally tend to improve on their
management standards and efficiency in order to satisfy the demands of these shareholders and
the more stringent rules for public corporations imposed by public stock exchanges and the
government. Consequently, it is alleged that public companies (companies that are owned by
shareholders who are members of the general public and trade shares on public exchanges) tend
to have better management records than privately-held companies (those companies where
shares are not publicly traded, often owned by the company founders and/or their families and
heirs, or otherwise by a small group of investors).

However, when poor financial, ethical or managerial records are known by the stock investors,
the stock and the company tend to lose value. In the stock exchanges, shareholders of
underperforming firms are often penalized by significant share price decline, and they tend as
well to dismiss incompetent management teams.

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Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in shares is open to
both the large and small stock investors because a person buys the number of shares they can
afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares
of the same companies as large investors.

Government capital-raising for development projects

Governments at various levels may decide to borrow money in order to finance infrastructure
projects such as sewage and water treatment works or housing estates by selling another category
of securities known as bonds. These bonds can be raised through the Stock Exchange whereby
members of the public buy them, thus loaning money to the government. The issuance of such
bonds can obviate the need to directly tax the citizens in order to finance development, although
by securing such bonds with the full faith and credit of the government instead of with collateral,
the result is that the government must tax the citizens or otherwise raise additional funds to make
any regular coupon payments and refund the principal when the bonds mature.

Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on market forces. Share
prices tend to rise or remain stable when companies and the economy in general show signs of
stability and growth. An economic recession, depression, or financial crisis could eventually lead
to a stock market crash. Therefore the movement of share prices and in general of the stock
indexes can be an indicator of the general trend in the economy.

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 Participants of Equity Market

Participants in the stock market range from small individual stock investors to large hedge fund
traders, who can be based anywhere. Worldwide, buyers and sellers were individual investors,
such as wealthy businessmen, with long family histories and emotional ties to particular
corporations. Over time, markets have become more "institutionalized"; buyers and sellers are
largely institutions. The rise of the institutional investor has brought with it some improvements
in market operations. Few institutional investors are

1. Pension fund

Is a pool of assets forming an independent legal entity that is bought with the contributions to a
pension plan for the exclusive purpose of financing pension plan benefits. Pension funds are
important shareholders of listed and private companies. The largest 300 pension funds
collectively hold about $6 trillion in assets. Pension funds worldwide hold over US$20 trillion in
assets, the largest for any category of investor ahead of mutual funds, insurance companies,
currency reserves, sovereign wealth funds, hedge funds, or private equity.

2. Insurance companies

Insurance involves pooling funds from many insured entities known as exposures in order to pay
for relatively uncommon but severely devastating losses which can occur to these entities. The
insured entities are therefore protected from risk for a fee, with the fee being dependent upon the
frequency and severity of the event occurring. In order to be insurable, the risk insured against
must meet certain characteristics in order to be an insurable risk. Insurance is a commercial
enterprise and a major part of the financial services industry, but individual entities can also self-
insure through saving money for possible future losses.
Profit = earned premium + investment income - incurred loss - underwriting expenses
Insurance companies earn investment profits on “float”. “Float” or
available reserve is the amount of money, at hand at any given moment, that an insurer has
collected in insurance premiums but has not paid out in claims. Insurers start investing insurance
premiums as soon as they are collected and continue to earn interest or other income on them
until claims are paid out.

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3. Mutual Fund

A mutual fund is a professionally managed type of collective investment scheme that pools
money from many investors and invests typically in investment securities (stocks, bonds, short-
term money market instruments, other mutual funds, other securities, and/or commodities such
as precious metals). Mutual funds may invest in many kinds of securities (subject to its
investment objective as set forth in the fund's prospectus, which is the legal document under SEC
laws which offers the funds for sale and contains a wealth of information about the fund). The
most common securities purchased are "cash" or money market instruments, stocks, bonds, other
mutual fund shares, and more exotic instruments such as senior loans and derivatives like
forwards, futures, options and swaps.

4. Hedge Fund

Is an investment fund open to a limited range of investors that undertakes a wider range of
investment and trading activities in addition to traditional long-only investment funds, and that,
in general, pays a performance fee to its investment manager Every hedge fund has its own
investment strategy that determines the type of investments and the methods of investment it
undertakes. Hedge funds, as a class, invest in a broad range of investments including shares, debt
and commodities. hedge funds often seek to hedge some of the risks inherent in their investments
using a variety of methods, most notably short selling and derivatives. However, the term "hedge
fund" has also come to be applied to certain funds that do not hedge their investments, and in
particular to funds using short selling and other "hedging" methods to increase rather than reduce
risk, with the expectation of increasing the return on their investment.
Hedge funds are open only to a limited range
of professional or wealthy investors who meet certain criteria set by regulators but, in exchange,
hedge funds are exempt from many regulations that govern ordinary investment funds. The
regulations thus exempted typically include restrictions on short selling, the use of derivatives
and leverage, fee structures, and on the liquidity of interests in the fund. Light regulation and the
presence of performance fees are the distinguishing characteristics of hedge funds.

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5. Retail Investors

Individual investors buy and sell securities for their personal account, and not for another
company or organization. Retail investors buy in much smaller quantities.

6. Foreign Institutional Investor (FII)

Is used to denote an investor - mostly of the form of an institution or entity, which invests money
in the financial markets of a country different from the one where in the institution or entity was
originally incorporated.FII investment is frequently referred to as hotit is not a hot money for the
reason that it can leave the country at the same speed at which it comes in.

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 Strategies for Equity Market

Short selling

In short selling, the trader borrows stock (usually from his brokerage which holds its clients'
shares or its own shares on account to lend to short sellers) then sells it on the market, hoping for
the price to fall. The trader eventually buys back the stock, making money if the price fell in the
meantime or losing money if it rose. Exiting a short position by buying back the stock is called
"covering a short position." This strategy may also be used by unscrupulous traders in illiquid or
thinly traded markets to artificially lower the price of a stock. Hence most markets either prevent
short selling or place restrictions on when and how a short sale can occur.

Margin buying

In margin buying, the trader borrows money (at interest) to buy a stock and hopes for it to rise.
Most industrialized countries have regulations that require that if the borrowing is based on
collateral from other stocks the trader owns outright, it can be a maximum of a certain
percentage of those other stocks' value. A margin call is made if the total value of the investor's
account cannot support the loss of the trade. (Upon a decline in the value of the margined
securities additional funds may be required to maintain the account's equity, and with or without
notice the margined security or any others within the account may be sold by the brokerage to
protect its loan position. The investor is responsible for any shortfall following such forced
sales.).

Global macro

Investors attempt to anticipate global macroeconomic events, generally using all markets and
instruments to generate a return.

Trend following

Is an investment strategy that tries to take advantage of long-term moves that seem to play out in
various markets. The system aims to work on the market trend mechanism and take benefit from
both sides of the market enjoying the profits from the ups and downs of the stock or futures
markets. Traders who use this approach can use current market price calculation, moving
averages and channel breakouts to determine the general direction of the market and to generate
trade signals. Traders who subscribe to a trend following strategy do not aim to forecast or
predict specific price levels; they simply jump on the trend and ride it.

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Directional

Investors hedge investments with exposure to the equity market.

Long/short equity/ Equity hedge - It involves buying long equities that are expected to increase
in value and selling short equities that are expected to decrease in value. This is different than the
risk reversal strategies where investors will simultaneously buy a call option and sell a put option
to simulate being long in a stock.

Fundamental growth - invest in companies with more earnings growth than the broad equity
market.

Fundamental value - Invest in undervalued companies.

Quantitative Directional – Equity trading using quantitative techniques.

Short bias - take advantage of declining equity markets using short positions. s the practice of
selling assets, usually securities, that have been borrowed from a third party (usually a broker)
with the intention of buying identical assets back at a later date to return to the lender. The short
seller hopes to profit from a decline in the price of the assets between the sale and the
repurchase, as the seller will pay less to buy the assets than the seller received on selling them.
Conversely, the short seller will incur a loss if the price of the assets rises. Other costs of shorting
may include a fee for borrowing the assets and payment of any dividends paid on the borrowed
assets. Shorting and going short also refer to entering into any derivative or other contract under
which the investor profits from a fall in the value of an asset.

Multi-strategy - diversification through different styles to reduce risk.

Event-driven

(Special situations) Exploit pricing inefficiencies caused by anticipated specific corporate events.

 Distressed securities (Distressed debt) - specialized in companies trading at discounts to

their value because of (potential) bankruptcy.
 Merger arbitrage (Risk arbitrage) - exploit pricing inefficiencies between merging
companies.
 Special situations - specialized in restructuring companies or companies engaged in a
corporate transaction.
 Multi-strategy - diversification through different styles to reduce risk.
 Credit arbitrage - specialized in corporate fixed income securities
 Activist - take large positions in companies and use the ownership to be active in the
management

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Relative value

Exploit pricing inefficiencies between related assets that are mispriced.

 Fixed income arbitrage - exploit pricing inefficiencies between related fixed income
securities.
 Equity market neutral (Equity arbitrage) - being market neutral by maintaining a close
balance between long and short positions.
 Convertible arbitrage - exploit pricing inefficiencies between convertible securities and
the corresponding stocks.
 Fixed income corporate - fixed income arbitrage strategy using corporate fixed income
instruments.
 Asset-backed securities (Fixed-Income asset-backed) - fixed income arbitrage strategy
using asset-backed securities.
 Credit long / short - as long / short equity but in credit markets instead of equity
markets.
 Statistical arbitrage - equity market neutral strategy using statistical models.
 Volatility arbitrage - exploit the change in implied volatility instead of the change in
price.
 Yield alternatives - non-fixed income arbitrage strategies based on the yield instead of
the price.
 Multi-strategy - diversification through different styles to reduce risk.
 Regulatory arbitrage - the practice of taking advantage of regulatory differences
between two or more markets.

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 Products in Equity Market

1. Equity Shares

The stock or capital stock of a business entity represents the original capital paid or invested into the
business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn
to the detriment of the creditors. Stock is distinct from the property and the assets of a business which
may fluctuate in quantity and value.
Stock typically takes the form of shares of either
common stock or preferred stock. As a unit of ownership, common stock typically carries voting rights
that can be exercised in corporate decisions. Preferred stock differs from common stock in that it typically
does not carry voting rights but is legally entitled to receive a certain level of dividend payments before
any dividends can be issued to other shareholders.

2. Preference Share

Capital Stock which provides a specific dividend that is paid before any dividends are paid to
common stock holders, and which takes precedence over common stock in the event of a
liquidation. Like common stock, preference shares represent partial ownership in a company,
although preferred stock shareholders do not enjoy any of the voting rights of common
stockholders. Also unlike common stock, preference shares pay a fixed dividend that does not
fluctuate, although the company does not have to pay this dividend if it lacks the financial ability
to do so. The main benefit to owning preference shares are that the investor has a greater claim
on the company's assets than common stockholders. Preferred shareholders always receive their
dividends first and, in the event the company goes bankrupt, preferred shareholders are paid off
before common stockholders. In general, there are four different types of preferred stock:
cumulative preferred, non-cumulative, participating, and convertible. also called preferred stock.

3. Exchange traded fund

Is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as
stocks or bonds and trades at approximately the same price as the net asset value of its
underlying assets over the course of the trading day. Most ETFs track an index, such as the S&P
500 or MSCI EAFE. ETFs may be attractive as investments because of their low costs, tax
efficiency, and stock-like features. Only so-called authorized participants (typically, large
institutional investors) actually buy or sell shares of an ETF directly from/to the fund manager,
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and then only in creation units, large blocks of tens of thousands of ETF shares, which are
usually exchanged in-kind with baskets of the underlying securities. Authorized participants may
wish to invest in the ETF shares long-term, but usually act as market makers on the open market,
using their ability to exchange creation units with their underlying securities to provide liquidity
of the ETF shares and help ensure that their intraday market price approximates to the net asset
value of the underlying assets. Other investors, such as individuals using a retail broker, trade
ETF shares on this secondary market.

An ETF combines the valuation feature of a mutual fund or unit investment trust, which can be
bought or sold at the end of each trading day for its net asset value, with the tradability feature of
a closed-end fund, which trades throughout the trading day at prices that may be more or less
than its net asset value. Closed-end funds are not considered to be "ETFs", even though they are
funds and are traded on an exchange. ETFs have been available in the US since 1993 and in
Europe since 1999. ETFs traditionally have been index funds, but in 2008 the U.S. Securities and
Exchange Commission began to authorize the creation of actively managed ETFs.

Type of ETF

 Index
 Commodity
 Bond
 Currency
 Leveraged

Structure of Exchange traded fund

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4. Debt Instrument

A paper or electronic obligation that enables the issuing party to raise funds by promising to
repay a lender in accordance with terms of a contract. Types of debt instruments include notes,
bonds, certificates, mortgages, leases or other agreements between a lender and a borrower.
Debt instruments are a way for markets and participants to easily transfer the ownership
of debt obligations from one party to another. Debt obligation transferability increases liquidity
and gives creditors a means of trading debt obligations on the market. Without debt instruments
acting as a means to facilitate trading, debt is an obligation from one party to another. When a
debt instrument is used as a medium to facilitate debt trading, debt obligations can be moved
from one party to another quickly and efficiently.

5. Warrants

Is a security that entitles the holder to buy stock of the issuing company at a specified price,
which can be higher or lower than the stock price at time of issue.

Warrants and Options are similar in that the two contractual financial instruments allow the
holder special rights to buy securities. Both are discretionary and have expiration dates. The
word Warrant simply means to "endow with the right", which is only slightly different to the
meaning of an Option.

Warrants are frequently attached to bonds or preferred stock as a sweetener, allowing the issuer
to pay lower interest rates or dividends. They can be used to enhance the yield of the bond, and
make them more attractive to potential buyers. Warrants can also be used in private equity deals.
Frequently, these warrants are detachable, and can be sold independently of the bond or stock.

In the case of warrants issued with preferred stocks, stockholders may need to detach and sell the
warrant before they can receive dividend payments. Thus, it is sometimes beneficial to detach
and sell a warrant as soon as possible so the investor can earn dividends.

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6. Close ended mutual fund scheme

Is a collective investment scheme with a limited number of shares. New shares are rarely issued
after the fund is launched; shares are not normally redeemable for cash or securities until the
fund liquidates. Typically an investor can acquire shares in a closed-end fund by buying shares
on a secondary market from a broker, market maker, or other investor as opposed to an open-end
fund where all transactions eventually involve the fund company creating new shares on the fly
(in exchange for either cash or securities) or redeeming shares (for cash or securities).

The price of a share in a closed-end fund is determined partially by the value of the investments
in the fund, and partially by the premium (or discount) placed on it by the market. The total value
of all the securities in the fund divided by the number of shares in the fund is called the net asset
value (NAV) per share. The market price of a fund share is often higher or lower than the per
share NAV: when the fund's share price is higher than per share NAV it is said to be selling at a
premium; when it is lower, at a discount to the per share NAV.

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 Variables of Equity market

Demand and Supply

This is the first factor that affects share prices. When you get to see that more people are buying
stocks, then there is an increase in the price of that particular stock. On the other hand price of
stock falls when more people are selling their stocks. So it is very difficult to predict the Indian
stock market. This is the main reason why you need to get in touch with a good stock market
consultant. There is consultancy for you which can help you a lot on choosing the right stocks for
you.

Impact of news

News is another factor that affects the share price. When there is positive news about a particular
stock or company, people try to invest all their money in that particular stock or market. This
leads to increase in the interest of buying the stock. But there are many circumstances where
news could also bring a negative effect where it could ruin the prospect of the particular stock.
So it is very important to know the overall news of a stock or company where you can invest
your money so that it grows within a very short period of time.

Inflation
Effect of inflation on stock market is also evident from the fact that it increases the rates if
interest. If the inflation rate is high, the interest rate is also high. In the wake of both (inflation
and interest rates) being high, the creditor will have a tendency to compensate for the rise in
interest rates. Therefore, the debtor has to avail of a loan at a higher rate. This plays a significant
role in prohibiting funds from being invested in stock markets.
When the government has enough funds to circulate in the market, the
cost of goods, services usually go up. This leads to the decrease in the purchasing power of
individuals. The value of money also decreases. In a nut shell, for the economy to flourish,
inflation and stock market ought to be more conforming and predictable.

Interest rate
Interest is nothing more than the cost someone pays for the use of someone else's money. It has
significant impact on equity market when interest rate changes were announced without warning,
you could see some of the most dramatic share prices movements of the year immediately
following them as the markets responded to the new interest rate environment. There are several
reasons why the inverse relationship between interest rates and stock prices holds;
lower rates typically mean higher stock prices and vice versa. The three main reasons are
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Associated with the impact rates have on; macroeconomic conditions, the attractiveness of equity
as an asset class and the cost of transacting.

Macroeconomic conditions

Low interest rates are good for business, it makes it cheaper to borrow funds, invest in new
projects and expand supply. Low interest rates also increases consumption as debt finance
becomes more palatable for the consumer. It can also increase people’s disposable income as
existing interest payments, particularly on floating rate loans are reduced. Because of the positive
impact that low interest rates have on business investment and private consumption a reduction
in interest rates typically increases revenue expectations for most businesses. Assuming a
relatively benign inflationary environment, this increases expected earnings, pushing up
company valuations and stock prices. Naturally an increase in rates has the opposite effect by
making investment and consumption less attractive, therefore reducing corporate earnings
expectations and pushing stock prices downwards.

Asset attractiveness

An increase in interest rates also makes equity relatively less attractive as an asset class because
the risk-free return available elsewhere increase. As interest rates go up, bank deposit rates rise
and new issues of government securities are made at a higher premium rate. This means that
investors can get a higher rate of return without taking any risks by putting money into
government debt or bank deposits an increase in the risk-free rate of return means that the risk
premium associated with investing in the stock market, the reward for taking the extra risk of
buying equity, declines. As the relative reward for investing in stocks falls, investors move
money out of the stock market and into bank deposits and government bonds, pushing down the
price of shares. Similarly as interest rates fall, the risk premium for stocks goes up and new
money moves into the market from lower risk (fixed income) investments, pushing up prices.

Cost of transacting

Much of the volume in the markets these days, whether retail or institutional, is made ‘on
margin’. This means that initially the investor only has to put up a fraction of the funds needed to
buy shares and the remaining funds are loaned by the broker on a short term basis. An increase in
interest rates increases the cost of margin trading. As the cost of trading increases, marginal
profit opportunities begin to look less attractive and as a result demand volume is reduced and
the price of shares falls. Conversely a reduction in benchmark interest rates makes margin
trading more affordable, increases the number of buyers in the market and pushes up stock
prices.

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Political development
Inside or outside the country - may have bearing on share price. Usually this factor cut across all
the shares on the market, in other words it is factor that impacts on all the shares irrespective of
the sector classification. The political factor is visible through regulatory processes and its
influence (not specific) in share price becomes the eventuality. Perception factors have their own
fair share of contribution to share price fluctuation.

Market sentiments
The price of the stock of a company is affected most of the time by the general market direction
during a session. In a bull market, the stock price of most companies will rise and in a bear
market the stock price of most companies will fall. One can gauge the market sentiment by
looking at stock indexes or its future price movement.

Agriculture production data

The share of agriculture to the gross domestic product (GDP) has dropped from 25% in 2002 to 17%
currently. Yet, agriculture contributes a huge chunk to the GDP, making it a very important sector for
India's growth. The performance of this sector is very crucial to the Indian economy not only with regard
to GDP but also as a huge chunk of the Indian population is dependant on agriculture. If agricultural
production goes down in India then the direct impact would be a decline in the income of people. The
economy as a whole and the GDP will get affected and people can withdraw their investment from equity
market.

Monsoon
The significance of the monsoon for the economic system cannot be under-estimated. The monsoon
directly affects government savings, public investment and foreign exchange reserves. This factor can
lead to a lower production of food and raise the prices of commodities which may affect profitability of
companies at the same it affects the stock market.

Monetary and fiscal policies

Monetary policies significantly influence the stock market like stock market appears to respond
to inflation which in turns depends upon monetary policy because monetary policy are critical in
determining the rate of economic growth, the level of private investment and magnitude of credit
to the private sector. Such changes lead to increase in interest rates which force investor to
revalue their equity holdings.
Fiscal policy action change in expenditures or taxes resulting in budget
deficits or surpluses play significant role in determination of stock prices e.g, increase in taxes
with government spending unchanged would discourage investor for further investing in stock
market and increase in government borrowing raise the interest rate which, in turn, lower the
discounted cash flow from an investment and thus signals a reduction market activity.

21
 What drives the equity market

There’s truth to the old Wall Street adage that says a stock is worth what somebody is willing to
pay for it. In essence, that’s because the price of a stock is determined by buyers and sell-
ers. As they weigh information about the company, the econ-omy and their own investment
goals, investors decide whether they are willing to pay more or less for a stock.
Simply put, the price of an individual stock is determined by supply and demand. The supply of
stock is based on the num-ber of shares a company has issued. The demand is created by
people who want to buy those shares from investors who already own them. The more that
people desire to own a stock, the more they are willing to pay for it. But the supply of shares of
any stock is limited. Investors only can buy shares of stock that are already owned by someone
else. So if one person wants to buy, somebody else has to sell, and vice versa. If a lot of people
want to buy at the current price and not a lot of people want to sell, the price goes up until more
people are willing to sell. When the price gets so high that buy-ers no longer want the stock, the
price starts to drop.

stock prices. That’s because the purchaser has to buy a majority of the stock to gain control of
the company. To do so, the suitor must persuade stockholders to sell their stock by offering an
attractive price for their shares.

Industry Information
Another important factor in gauging the prospects of a company is the health of its entire
industry. A company’s stock price may go up or down depending on whether investors think its
industry is growing or contracting. For example, a company may be doing well financially, but if
its industry is declining, investors might question the company’s ability to keep growing. In that
case, the company’s stock price might fall. Some industries are considered cyclical, meaning
they expand and contract in cycles. For example, home building declines
when interest rates rise. Consumer electronics typically do best at the end of the year, when
many people buy these products as holiday gifts.

Economic Trends
In addition to events surrounding a specific industry or company, investors may carefully watch
various economic indicators — general trends that signal changes in the economy. Signs that the
economy is healthy—and perhaps that most companies are making money—include a rising
Gross Domestic Product (GDP), low inflation, low interest rates, low
unemployment rates, and a U.S. budget surplus (or a decreasing deficit), which means that the
federal government is taking in more money than it is spending. When interest rates rise, for
example, individuals, businesses and the government must pay more to borrow money. That
means a business may put off plans to take a loan for a new project, thus needing fewer workers

22
and buying less materials and services from other`businesses. For individual consumers, their car
or house payment could go up and interest rates on their credit cards rise,
making it more expensive to buy on credit.

Consumer Price Index

Index (CPI) — a measure of “the cost of living:” how much it costs to purchase the goods and
services that an average household buys, such as food, clothing and fuel. When the cost of
living rises, people spend more of their income on necessities and have less to spend on luxury
items or investments, which is more bad news for the economy. When economic indicators
point to a healthy and growing economy, companies are making money, the future looks good,
and people have more money to invest. When this happens, stock prices on the whole
generally rise, which is called a bull market. In contrast, when the economy is shrinking,
businesses are not making as much money, people are losing jobs and therefore
have less money left over after buying necessities, stock prices on the whole generally fall. This
is known as a bear market.

World and National Events

National or world events can affect stock prices. When investors think a news event will be good
for the economy, such as a federal tax cut, stock prices will likely go up. If news, such as
massive layoffs, will mean an economic slowdown or uncertainty, stock prices generally drop.
This effect can last for an hour, a day, several weeks or longer.

23
 Debt Market

Debt market refers to the financial market where investors buy and sell debt securities, mostly in
the form of bonds. These markets are important source of funds, especially in a developing
economy like India. India debt market is one of the largest in Asia. Like all other countries, debt
market in India is also considered a useful substitute to banking channels for finance.
The debt market in India comprises mainly of two segments viz.,
the Government securities market consisting of Central and State Governments securities, Zero
Coupon Bonds (ZCBs), Floating Rate Bonds (FRBs), T-Bills and the corporate securities market
consisting of FI bonds, PSU bonds, and Debentures/Corporate bonds. Government securities
form the major part of the market in terms of outstanding issues, market capitalization and
trading value. It sets a benchmark for the rest of the market. The market for debt derivatives have
not yet developed appreciably though a market for OTC derivatives in interest rate products
exists.

Classification of debt Market

Debt market can be classified into two categories

Government Securities Market (G-Sec Market)

It consists of central and state government securities. It means that, loans are being taken by the
central and state government. It is also the most dominant category in the India debt market.
These securities have a maturity period of 1 to 30 years. G-Secs offer fixed interest rate, where interests
are payable semi-annually. For shorter term, there are Treasury Bills or T-Bills, which are issued by the
RBI for 91 days, 182 days and 364 days.

Certificate of Deposit

These are negotiable money market instruments. Certificate of Deposits (CDs), which usually
offer higher returns than Bank term deposits, are issued in demat form and also as a Usance
Promissory Notes. There are several institutions that can issue CDs. Banks can offer CDs which
have maturity between 7 days and 1 year. CDs from financial institutions have maturity between
1 and 3 years. There are some agencies like ICRA, FITCH, CARE, CRISIL etc. that offer ratings
of CDs. CDs are available in the denominations of Rs. 1 Lac and in multiple of that.

24
Commercial Papers

There are short term securities with maturity of 7 to 365 days. CPs are issued by corporate
entities at a discount to face value.

Corporate debt market

The corporate debt market basically contains PSU bonds and private sector bonds. The Indian
primary Corporate Debt market is basically a private placement market with most of the
corporate bonds being privately placed among the wholesale investors, which include banks,
financial Institutions, mutual funds, large corporates & other large investors.

The following debt instruments are available in the corporate debt market:

 Non-Convertible Debentures
 Partly-Convertible Debentures/Fully-Convertible Debentures (convertible into Equity
Shares)
 Secured Premium Notes
 Debentures with Warrants
 Deep Discount Bonds
 PSU Bonds/Tax-Free Bonds

Market Size of Debt market

All value in crore

Year Valued Traded Market Capitalisatinon

2006-07 219106.47 1784801
2007-08 282317.02 2123346
2008-09 335951.52 2848315
2009-10 3165929 563815.95

Source: www.nse-india.com

25
Source:www.nse-india.com/ismrreport

26
Source:www.nse-india.com/ismrreport

27
 Participants and Product in Bond Market

Issuer Instrument Maturity Investors

Central Government Dated Securities 2 - 30 years RBI, Banks, Insurance

Companies, Provident
Funds,
Mutual Funds, PDs
Central Government T-Bills 91/182/364 days RBI, Banks, Insurance
companies, Provident
Funds,
Mutual Funds,
Individuals, PDs
State Government Dated Securities 5-13 years RBI, Banks, Insurance
Companies, Provident
Funds,
Mutual Funds,
Individuals and PD’s.
PSUs Bonds, Structured 5-10 years Banks, Insurance
Obligations Companies, Provident
Funds,
Mutual Funds,
Individuals, Corporates
Corporates Debentures 1 - 12 years Banks, Mutual Funds,
Corporates, Individuals
Corporates, PDs Commercial Papers 7 days to 1 year Banks, Mutual Funds,
Financial Institutions,
Corporates, Individuals,
FIIs
Scheduled Certificates of 7 days to 1 year, Banks, Companies,
Commercial Banks, Deposits whereas for FIs it is Individuals, FIIs,
Select Financial 1 year to 3 years Corporations,
Institutions (under Trusts, Funds,
umbrella limit fi xed Associations, FIs, NRIs
by RBI)
Scheduled Bank Bonds 1-10 years Corporations,
Commercial Banks Individuals,
Companies, Trusts,
Funds, Associations,
28
 FIs, Non-Resident
Indians
Municipal Municipal Bonds 0-7 years Banks, Corporations,
Corporation Individuals,
Companies,
Trusts, Funds,
Associations, FIs, Non-
Resident
Indians

Market structure of bond market

Bond markets in most countries remain decentralized and lack common exchanges like stock,
future and commodity markets. This has occurred, in part, because no two bond issues are
exactly alike, and the variety of bond securities outstanding greatly exceeds that of stocks.

However, the New York Stock Exchange (NYSE) is the largest centralized
bond market, representing mostly corporate bonds. The NYSE migrated from the Automated
Bond System (ABS) to the NYSE Bonds trading system in April 2007 and expects the number of
traded issues to increase from 1000 to 6000. Besides other causes, the decentralized market
structure of the corporate and municipal bond markets, as distinguished from the stock market
structure, results in higher transaction costs and less liquidity.

29
 Advantages and disadvantages of investing in bond market

Advantages

The biggest advantage of investing in debt market is its assured returns. The returns that the
market offer is almost risk-free (though there is always certain amount of risks, however the
trend says that return is almost assured). Safer are the government securities. On the other hand,
there are certain amounts of risks in the corporate, FI and PSU debt instruments. However,
investors can take help from the credit rating agencies which rate those debt instruments. The
interest in the instruments may vary depending upon the ratings.

Another advantage of investing in debt market is its high liquidity. Banks offer easy loans to the
investors against government securities.

Disadvantages

As there are several advantages of investing in debt market, there are certain disadvantages as
well. As the returns here are risk free, those are not as high as the equities market at the same
time. So, at one hand you are getting assured returns, but on the other hand, you are getting less
return at the same time.

Retail participation is also very less here, though increased recently. There are also some issues
of liquidity and price discovery as the retail debt market is not yet quite well developed.

Factor affecting the bond prices

Market Interest Rates

Although a bond pays a stated, generally unchanging interest rate, the movement of interest
rates in the bond marketplace as a whole affect the price of individual bonds. Usually, bond
prices fall when market interest rates rise, and bond prices rise when market interest rates fall.
The reason for this is simple. If you own a bond paying a 6 percent interest rate and market rates
rise so that newly-issued bonds pay 8 percent, your bond will not be as attractive to new
investors. The price of your bond will be discounted, or go down, to the point where the net
return of your bond now equals the market interest rate. Similarly, if rates in the marketplace fall
to 4 percent, your 6 percent bond will become more attractive, and the price will rise.

30
Inflation
All bonds are subject to inflation risk, which is also known as purchasing power risk. In periods
of inflation, money in the future is not worth as much as money currently held. For example, if
the inflation rate is 10 percent, goods will cost 10 percent more in one year. As a bond is a
promise to return money to you in the future, the money you invest now will not purchase as
much in the future when you receive it. Thus, periods of high inflation can greatly move the
price of your bond and, consequently, its yield.

Credit Rating
Bond ratings reflect an outside agency's opinion of the credit worthiness of a bond issuer. A
bond with a lower credit rating carries a higher risk of default and a correspondingly higher risk
to the investor. As a result, investors require lower-rated bonds to pay a higher rate of interest to
compensate them for the additional risk. Occasionally, the credit rating of a bond issuer can be
raised or lowered, usually due to a change in the financial fortunes of the underlying issuer. As a
result, the bond's yield generally changes accordingly, as reflected in the rise or decline of the
bond's price.

31
 Foreign Exchange Market

The foreign exchange market or forex market as it is often called is the market in which
currencies are traded. Currency Trading is the world's largest market consisting of almost $2
trillion in daily volume. is a worldwide decentralized over-the-counter financial market for the
trading of currencies. Financial centers around the world function as anchors of trading between
a wide range of different types of buyers and sellers around the clock, with the exception of
weekends. The foreign exchange market determines the relative values of different currencies.
The primary purpose of the foreign exchange market is to assist
international trade and investment, by allowing businesses to convert one currency to another
currency. For example, it permits a US business to import European goods and pay Euros, even
though the business's income is in US dollars. It also supports speculation, and facilitates the
carry trade, in which investors borrow low-yielding currencies and lend (invest in) high-yielding
currencies, and which (it has been claimed) may lead to loss of competitiveness in some
countries. n a typical foreign exchange transaction a party purchases a quantity of one currency
by paying a quantity of another currency. The modern foreign exchange market started forming
during the 1970s when countries gradually switched to floating exchange rates from the previous
exchange rate regime.

Foreign exchange market is unique because of its

 huge trading volume, leading to high liquidity

 geographical dispersion
 continuous operation: 24 hours a day except weekends, i.e. trading from 20:15 GMT on
Sunday until 22:00 GMT Friday
 the variety of factors that affect exchange rates
 the low margins of relative profit compared with other markets of fixed income
 the use of leverage to enhance profit margins with respect to account size

Market Size

The foreign exchange market is the largest and most liquid financial market in the world. The
average daily volume in the global foreign exchange and related markets is continuously
growing. Daily turnover was reported to be over $3.98 trillion. trading in London accounted for
around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign
exchange. In second and third places respectively, trading in New York accounted for 16.6%,
and Tokyo accounted for 6.0%.

The $3.98 trillion break-down is as follows:

32
  $1.0055 trillion in spot transactions
 $382 billion in outright forwards
 $1.734 trillion in foreign exchange swaps
 $129 billion estimated gaps in reporting

Market Participants

Banks

The interbank market caters for both the majority of commercial turnover and large amounts of
speculative trading every day. A large bank may trade billions of dollars daily. Some of this
trading is undertaken on behalf of customers, but much is conducted by proprietary desks,
trading for the bank's own account. Until recently, foreign exchange brokers did large amounts
of business, facilitating interbank trading and matching anonymous counterparts for small fees.
Today, however, much of this business has moved on to more efficient electronic systems. The
broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading
rooms, but turnover is noticeably smaller than just a few years ago.

Commercial companies

An important part of this market comes from the financial activities of companies seeking
foreign exchange to pay for goods or services. Commercial companies often trade fairly small
amounts compared to those of banks or speculators, and their trades often have little short term
impact on market rates. Nevertheless, trade flows are an important factor in the long-term
direction of a currency's exchange rate. Some multinational companies can have an unpredictable
impact when very large positions are covered due to exposures that are not widely known by
other market participants.

Central banks

National central banks play an important role in the foreign exchange markets. They try to
control the money supply, inflation, and/or interest rates and often have official or unofficial
target rates for their currencies. They can use their often substantial foreign exchange reserves to
stabilize the market. Milton Friedman argued that the best stabilization strategy would be for
central banks to buy when the exchange rate is too low, and to sell when the rate is too high—
that is, to trade for a profit based on their more precise information. Nevertheless, the
effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not
go bankrupt if they make large losses, like other traders would, and there is no convincing
evidence that they do make a profit trading.

The mere expectation or rumor of central bank intervention might be enough to stabilize a
currency, but aggressive intervention might be used several times each year in countries with a
dirty float currency regime. Central banks do not always achieve their objectives. The combined

33
resources of the market can easily overwhelm any central bank.[8] Several scenarios of this nature
were seen in the 1992–93 ERM collapse, and in more recent times in Southeast Asia.

Hedge funds as speculators

About 70% to 90% of the foreign exchange transactions are speculative. In other words, the
person or institution that bought or sold the currency has no plan to actually take delivery of the
currency in the end; rather, they were solely speculating on the movement of that particular
currency. Hedge funds have gained a reputation for aggressive currency speculation since 1996.
They control billions of dollars of equity and may borrow billions more, and thus may
overwhelm intervention by central banks to support almost any currency, if the economic
fundamentals are in the hedge funds' favor.

Investment management firms

Investment management firms (who typically manage large accounts on behalf of customers
such as pension funds and endowments) use the foreign exchange market to facilitate
transactions in foreign securities. For example, an investment manager bearing an international
equity portfolio needs to purchase and sell several pairs of foreign currencies to pay for foreign
securities purchases.

Some investment management firms also have more speculative specialist currency overlay
operations, which manage clients' currency exposures with the aim of generating profits as well
as limiting risk. Whilst the number of this type of specialist firms is quite small, many have a
large value of assets under management (AUM), and hence can generate large trades.

Retail foreign exchange brokers

Retail traders (individuals) constitute a growing segment of this market, both in size and
importance. Currently, they participate indirectly through brokers or banks. Retail brokers, while
largely controlled and regulated in the USA by the CFTC and NFA have in the past been
subjected to periodic foreign exchange scams.[9][10] To deal with the issue, the NFA and CFTC
began (as of 2009) imposing stricter requirements, particularly in relation to the amount of Net
Capitalization required of its members. As a result many of the smaller, and perhaps questionable
brokers are now gone.

There are two main types of retail FX brokers offering the opportunity for speculative currency
trading: brokers and dealers or market makers. Brokers serve as an agent of the customer in the
broader FX market, by seeking the best price in the market for a retail order and dealing on
behalf of the retail customer. They charge a commission or mark-up in addition to the price
obtained in the market. Dealers or market makers, by contrast, typically act as principal in the
transaction versus the retail customer, and quote a price they are willing to deal at—the customer
has the choice whether or not to trade at that price.

34
In assessing the suitability of a FX trading services, the customer should consider the
ramifications of whether the service provider is acting as principal or agent. When the service
provider acts as agent, the customer is generally assured of a known cost above the best inter-
dealer FX rate. When the service provider acts as principal, no commission is paid, but the price
offered may not be the best available in the market—since the service provider is taking the other
side of the transaction, a conflict of interest may occur.

Non-bank foreign exchange companies

Non-bank foreign exchange companies offer currency exchange and international payments to
private individuals and companies. These are also known as foreign exchange brokers but are
distinct in that they do not offer speculative trading but currency exchange with payments. I.e.,
there is usually a physical delivery of currency to a bank account. Send Money Home offers an
in-depth comparison into the services offered by all the major non-bank foreign exchange
companies.

It is estimated that in the UK, 14% of currency transfers/payments are made via Foreign
Exchange Companies.[12] These companies' selling point is usually that they will offer better
exchange rates or cheaper payments than the customer's bank. These companies differ from
Money Transfer/Remittance Companies in that they generally offer higher-value services.

Money transfer/remittance companies

Money transfer companies/remittance companies perform high-volume low-value transfers

generally by economic migrants back to their home country. In 2007, the Aite Group estimated
that there were $369 billion of remittances (an increase of 8% on the previous year). The four
largest markets (India, China, Mexico and the Philippines) receive $95 billion. The largest and
best known provider is Western Union with 345,000 agents globally followed by UAE Exchange
& Financial Services Ltd.

Financial Instrument
Spot

A spot transaction is a two-day delivery transaction (except in the case of trades between the US
Dollar, Canadian Dollar, Turkish Lira and Russian Ruble, which settle the next business day), as
opposed to the futures contracts, which are usually three months. This trade represents a “direct
exchange” between two currencies, has the shortest time frame, involves cash rather than a
contract; and interest is not included in the agreed-upon transaction. The data for this study come
from the spot market. Spot transactions have the second largest turnover by volume after Swap
transactions among all FX transactions in the Global FX market. NNM.

35
Forward

One way to deal with the foreign exchange risk is to engage in a forward transaction. In this
transaction, money does not actually change hands until some agreed upon future date. A buyer
and seller agree on an exchange rate for any date in the future, and the transaction occurs on that
date, regardless of what the market rates are then. The duration of the trade can be a one day, a
few days, months or years. Usually the date is decided by both parties.

Future

Foreign currency futures are exchange traded forward transactions with standard contract sizes
and maturity dates — for example, $1000 for next November at an agreed rate. Futures are
standardized and are usually traded on an exchange created for this purpose. The average
contract length is roughly 3 months. Futures contracts are usually inclusive of any interest
amounts.

Swap

The most common type of forward transaction is the currency swap. In a swap, two parties
exchange currencies for a certain length of time and agree to reverse the transaction at a later
date. These are not standardized contracts and are not traded through an exchange.

Option

A foreign exchange option (commonly shortened to just FX option) is a derivative where the
owner has the right but not the obligation to exchange money denominated in one currency into
another currency at a pre-agreed exchange rate on a specified date. The FX options market is the
deepest, largest and most liquid market for options of any kind in the world..

Determinants of Forex rates

(a) International parity conditions

Relative Purchasing Power Parity, interest rate parity, Domestic Fisher effect, International
Fisher effect. Though to some extent the above theories provide logical explanation for the
fluctuations in exchange rates, yet these theories falter as they are based on challengeable
assumptions [e.g., free flow of goods, services and capital] which seldom hold true in the real
world.

(b) Balance of payments model

This model, however, focuses largely on tradable goods and services, ignoring the increasing
role of global capital flows. It failed to provide any explanation for continuous appreciation of
dollar during 1980s and most part of 1990s in face of soaring US current account deficit.
36
(c) Asset market model

Currencies as an important asset class for constructing investment portfolios. Assets prices are
influenced mostly by people’s willingness to hold the existing quantities of assets, which in turn
depends on their expectations on the future worth of these assets. The asset market model of
exchange rate determination states that “the exchange rate between two currencies represents the
price that just balances the relative supplies of, and demand for, assets denominated in those
currencies.

37
 Derivatives market

The derivatives market is the financial market for derivatives, financial instruments like futures
contracts or options, which are derived from other forms of assets. Derivative is an agreement
between two people or two parties - that has a value determined by the price of something else
called the underlying. It is a financial contract with a value linked to the expected future price
movements of the asset it is linked to - such as a share or a currency. There are many kinds of
derivatives, with the most notable being swaps, futures, and options. However, since a derivative
can be placed on any sort of security, the scope of all derivatives possible is near endless. Thus,
the real definition of a derivative is an agreement between two parties that is contingent on a
future outcome of the underlying.

Benefit of derivative market

1. Provide leverage or gearing, such that a small movement in the underlying value can cause a
large difference in the value of the derivative.

2. Speculate and to make a profit if the value of the underlying asset moves the way they expect
(e.g., moves in a given direction, stays in or out of a specified range, reaches a certain level).

3. Hedge or mitigate risk in the underlying, by entering into a derivative contract whose value
moves in the opposite direction to their underlying position and cancels part or all of it out .

4. Obtain exposure to underlying where it is not possible to trade in the underlying (e.g.,
weather derivatives).

5. Create optionability where the value of the derivative is linked to a specific condition or event

38
 Trading Volumes of Derivative market

All Value In crore

year Index futures Stock futures Index options Stock options Total

2006-07 2539574 3830967 791906 193795 7356242

2007-08 3820667.27 7548563.23 1362110.88 359136.55 13090477.75

2008-09 3570111.40 3479642.12 3731501.84 229226.81 11010482.20

2009-10 3934388.67 5195246.64 8027964.20 506065.18 17663664.57

www.nse-india.com

Source: www.nse-india.com

39
 Types of contract in derivative market

1. Futures/Forwards

Contracts to buy or sell an asset on or before a future date at a price specified today. A futures
contract differs from a forward contract in that the futures contract is a standardized contract
written by a clearing house that operates an exchange where the contract can be bought and sold,
whereas a forward contract is a non-standardized contract written by the parties themselves.

2. Options

Contract that give the owner the right, but not the obligation, to buy (in the case of a call option)
or sell (in the case of a put option) an asset. The price at which the sale takes place is known as
the strike price, and is specified at the time the parties enter into the option. The option contract
also specifies a maturity date. In the case of a European option, the owner has the right to require
the sale to take place on (but not before) the maturity date; in the case of an American option, the
owner can require the sale to take place at any time up to the maturity date. If the owner of the
contract exercises this right, the counter-party has the obligation to carry out the transaction.

3. Swaps

Contracts to exchange cash (flows) on or before a specified future date based on the underlying
value of currencies/exchange rates, bonds/interest rates, commodities, stocks or other assets.

Major classes of underlying assets in derivatives market

Interest rate derivatives (the largest)

Foreign exchange derivatives

Credit derivatives

Equity derivatives

Commodity derivatives

40
Examples of Derivatives

Underlying Contract type

Exchange traded future Exchange traded options OTC Swap OTC forward OTC
Options
back to Back
DJIA Index future Option on DJIA Index Equity repurchase Stock option
Equity Single-stock future future Single share option Swap agreement warrant
Interest rate
cap and
floor,
Option on Eurodollar Swaption,
Eurodollar future future Option on euribore Interest rate forward rate Basis swap,
Intersest rate Eurobore future future swap agreement Bond option
Credit Credit
default Repurchase default
Credit Bond Future Option on bond future swap, agreement option
Foreign Currency Currency Currency
exchange Currency future Option on currency future Swap forward option
Iron ore
Commodity forward
Commodity WTI Weather future Swap contract Gold option

Types of Derivatives

Over-the-counter (OTC) derivatives

are contracts that are traded (and privately negotiated) directly between two parties, without
going through an exchange or other intermediary. Products such as swaps, forward rate
agreements, and exotic options are almost always traded in this way. The OTC derivative market
is the largest market for derivatives, and is largely unregulated with respect to disclosure of
information between the parties, since the OTC market is made up of banks and other highly
sophisticated parties, such as hedge funds. Reporting of OTC amounts are difficult because
trades can occur in private, without activity being visible on any exchange. According to the
Bank for International Settlements, the total outstanding notional amount is $684 trillion (as of
June 2008).[6] Of this total notional amount, 67% are interest rate contracts, 8% are credit default
swaps (CDS), 9% are foreign exchange contracts, 2% are commodity contracts, 1% are equity
contracts, and 12% are other. Because OTC derivatives are not traded on an exchange, there is
41
no central counter-party. Therefore, they are subject to counter-party risk, like an ordinary
contract, since each counter-party relies on the other to perform.

Exchange-traded derivative contracts (ETD)

Are those derivatives instruments that are traded via specialized derivatives exchanges or
other exchanges. A derivatives exchange is a market where individual’s trade standardized
contracts that have been defined by the exchange.[7] A derivatives exchange acts as an
intermediary to all related transactions, and takes Initial margin from both sides of the trade to
act as a guarantee. The world's largest[8] derivatives exchanges (by number of transactions) are
the Korea Exchange (which lists KOSPI Index Futures & Options), Eurex (which lists a wide
range of European products such as interest rate & index products), and CME Group (made up of
the 2007 merger of the Chicago Mercantile Exchange and the Chicago Board of Trade and the
2008 acquisition of the New York Mercantile Exchange). According to BIS, the combined
turnover in the world's derivatives exchanges totaled USD 344 trillion during Q4 2005. Some
types of derivative instruments also may trade on traditional exchanges. For instance, hybrid
instruments such as convertible bonds and/or convertible preferred may be listed on stock or
bond exchanges. Also, warrants (or "rights") may be listed on equity exchanges. Performance
Rights, Cash xPRTs and various other instruments that essentially consist of a complex set of
options bundled into a simple package are routinely listed on equity exchanges. Like other
derivatives, these publicly traded derivatives provide investors access to risk/reward and
volatility characteristics that, while related to an underlying commodity, nonetheless are
distinctive.

42
 Commodity market

Introduction

The vast geographical extent of India and her huge population is aptly complemented by the size
of her market. The broadest classification of the Indian Market can be made in terms of the
commodity market and the bond market.
The commodity market in India comprises of all palpable markets that we come across in our
daily lives. Such markets are social institutions that facilitate exchange of goods for money. The
cost of goods is estimated in terms of domestic currency. India Commodity Market can us be sub
divided into
The following two categories:

• Wholesale Market

• Retail Market

The traditional wholesale market in India dealt with whole sellers who bought goods from the
farmers and manufacturers and then sold them to the retailers after making a profit in the
process. It was the retailers who finally sold the goods to the consumers. With the passage of
time the importance of whole sellers began to fade out for the following reasons:
The whole sellers in most situations, acted as mere parasites who did not add any value to the
product but raised its price which was eventually faced by the consumers. . The improvement in
transport facilities made the retailers directly interact with the producers and hence the need for
whole sellers was not felt.

COMMODITY

A commodity may be defined as an article, a product or material that is bought and sold. It can
be classified as every kind of movable property, except Actionable Claims, Money & Securities.
Commodities actually offer immense potential to become a separate asset class for market-savvy
investors, arbitrageurs and speculators. Retail investors, who claim to understand the equity
markets, may find commodities an unfathomable market. But commodities are easy to
understand as far as fundamentals of demand and supply are concerned. Retail investors should
understand the risks and advantages of trading in commodities futures before taking a leap.
Historically, pricing in commodities futures has been less volatile compared with equity and
bonds, thus providing an efficient portfolio diversification option.In fact, the size of the
commodities markets in India is also quite significant. Of the country's GDP of Rs 13, 20,730
crore (Rs 13,207.3 billion), commodities related (and dependent) industries constitute about
58 per cent.

43
Currently, the various commodities across the country clock an annual turnover of Rs 1, 40,000
crore (Rs 1,400 billion). With the introduction of futures trading, the size of the commodities
market grows many folds here on.

COMMODITY MARKET

Commodity market is an important constituent of the financial markets of any country. It is the
market where a wide range of products, viz., precious metals, base metals, crude oil, energy and
soft commodities like palm oil, coffee etc. are traded. It is important to develop a vibrant, active
and liquid commodity market. This would help investors hedge their commodity risk, take
speculative positions in commodities and exploit arbitrage opportunities in the market.

WHY COMMODITY FUTURES?

One answer that is heard in the financial sector is "we need commodity futures markets so that
we will have volumes, brokerage fees, and something to trade''. We have to look at futures
market in a bigger perspective -- what is the role for commodity futures in India's economy? In
India agriculture has traditionally been an area with heavy government intervention. Government
intervenes by trying to maintain buffer stocks, they try to fix prices, and they have import-export
restrictions and a host of other interventions. Many economists think that we could have major
benefits from liberalization of the agricultural sector. In this case, the question arises about who
will maintain the buffer stock, how will we smoothen the price fluctuations, how will farmers not
be vulnerable that tomorrow the price will crash when the crop comes out, how will farmers get
signals that in the future there will be a great need for wheat or rice. In all these aspects the
futures market has a very big role to play. If we think there will be a shortage of wheat
tomorrow, the futures prices will go up today, and it will carry signals back to the farmer making
sowing decisions today. In this fashion, a system of futures markets will improve cropping
patterns. Next, if I am growing wheat and am worried that by the time the harvest comes out
prices will go down, then I can sell my wheat on the futures market. I can sell my wheat at a
price, which is fixed today, which eliminates my risk from price fluctuations. These days,
agriculture requires investments -- farmers spend money on fertilizers, high yielding varieties,
etc. They are worried when making these investments that by the time the crop comes out prices
might have dropped, resulting in losses. Thus a farmer would like to lock in his future price and
not be exposed to fluctuations in prices. The third is the role about storage. Today we have the
Food Corporation of India, which is doing a huge job of storage, and it is a system, which -- in
my opinion -- does not work. Futures market will produce their own kind of smoothing between
the present and the future. If the future price is high and the present price is low, an arbitrager
will buy today and sell in the future. The converse is also true, thus if the future price is low the
arbitrageur will buy in the futures market. These activities produce their own "optimal" buffer
stocks, smooth prices. They also work very effectively when there is trade in agricultural
commodities; arbitrageurs on the futures market will use imports and exports to smooth Indian
44
prices using foreign spot markets. In totality, commodity futures markets are a part and parcel of
a program for agricultural liberalization. Many agriculture economists understand the need of
liberalization in the sector. Futures markets are an instrument for achieving that liberalization.

Commodity Futures Trading in India

Derivatives as a tool for managing risk first originated in the Commodities markets. They were
then found useful as a hedging tool in financial markets as well. The basic concept of a
derivative contract remains the same whether the underlying happens to be a commodity or a
financial asset. However there are some features, which are very peculiar to commodity
derivative markets. In the case of financial derivatives, most of these contracts are cash settled.
Even in the case of physical settlement, financial assets are not bulky and do not need special
facility for storage. Due to the bulky nature of the underlying assets, physical settlement in
commodity derivatives creates the need for warehousing. Similarly, the concept of varying
quality of asset does not really
exist as far as financial underlyings are concerned. However in the case
of commodities, the quality of the asset underlying a contract can vary largely.
This becomes an important issue to be managed.

45
 Turnover of Indian commodity market

Turnover at Indian commodity bourses rose 47.93 per cent to Rs 77.65 trillion ($1.75 trillion) in
the 2009/10 fiscal year ending March.

Sr.no. Commodity Exchange 2007-08 (Nov 08)2008-09

Volume value Volume Value

1 Multi Commodity Exchange 2697.25 3125959.12 2251.59 2828994.23

2 NCDEX 2453.66 775590.65 1392.50 374418.81

3 NMCEX 47.96 25414.75 59.59 21274.77

Chamber of Commerce,
5 Hapur 72.11 17391.69 23.62 7104.74
National Board of Trade,
6 Indore 178.99 95306.65 39.86 12326.46
Source: www.fmc.gov.in

46
 Structure of Commodity Market

Ministry of Consumer
affairs

Forward Market Commission

Commodity Exchanges

National Exchange Regional Exchanges

NCDEX NMCEX NBOT Other 20

MCX
Exchanges

47
 Ecosystem of Commodity Exchanges in India

Quality
Certification
Agencies

Farmers and Warehouses

Producers

Eco System
of
Commodity
Manufacturers Exchanges Clearing
Houses

Traders Transporters

48
Different segements in commodity market
The commodities market exits in two distinct forms namely the Over the Counter (OTC) market
and the Exchange based market. Also, as in equities, there exists the spot and the derivatives
segment. The spot markets are essentially over the counter markets and the participation is
restricted to people who are involved with that commodity say the farmer, processor, wholesaler
etc. Derivative trading takes place through exchange-based markets with standardized contracts,
settlements etc.

What Makes Commodity Trading Attractive?

1. A good low-risk portfolio diversifier.

2. A highly liquid asset class, acting as a counter weight to stocks, bonds and real estate.

3. Less volatile as compared with, equities and bonds.

4. Investors can leverage their investments and multiply potential earnings.

5. Better risk-adjusted returns.

6. A good hedge against any downturn in equities or bonds as there is

7. Little correlation with equity and bond markets.

8. High co-relation with changes in inflation.

9. No securities transaction tax levied.

49
Benefit to Industry on Future trading

1. Hedging the price risk associated with futures contractual commitments.

2. Spaced out purchases possible rather than large cash purchases and its storage.

3. Efficient price discovery prevents seasonal price volatility.

4. Greater flexibility, certainty and transparency in procuring commodities would aid bank
lending.

5. Facilitate informed lending.

6. Hedged positions of producers and processors would reduce the risk of default faced by banks.
Lending for agricultural sector would go up with greater transparency in pricing and storage.

7. Commodity Exchanges to act as distribution network to retail agri-finance from Banks to

rural households.

8. Provide trading limit finance to Traders in commodities Exchanges.

50
51
 INTRODUCTION

The US$ 41-billion Indian life insurance industry is considered the fifth largest life insurance
market, and growing at a rapid pace of 32-34 per cent annually, according to the Life Insurance
Council. Since the opening up of the insurance sector in India, the industry has received FDI to
the tune of US$ 525.6 million.

The total number of life insurers registered with the Insurance Regulatory Development
Authority (IRDA) has gone up to 23, with registration of the India First Life Insurance Company
Limited, a joint venture life insurance company promoted by Bank of Baroda and Andhra Bank,
India and Legal & General Middle East Limited, UK. The Life Insurance Corporation (LIC)
posted a 50 per cent growth in new premium collection in the first nine months of the 2010
fiscal, increasing its market share to 65 per cent from 56 per cent a year ago.

LIC’s new premium collection touched US$ 9.58 billion in the April-December 2009 period
while the combined business of the 22 private insurers grew to US$ 5.07 billion from the
previous year, as per data collated by the Insurance Regulatory and Development Authority
(IRDA). Overall the industry grew at 29 per cent in the April-December period of the fiscal year
2010.

The life insurance industry had earlier been expected to grow by 15 per cent in the 2010 fiscal
year and cross the US$ 54.1 billion mark in total premium income by the end of March 2010,
according to industry body, Life Insurance Council.

However, industry experts now believe that India's life insurance industry is likely to grow by
around 10 per cent in 2010 over the previous year, mainly due to increased efficiency but also
due to expansion in small towns and villages.

In order to support the aggressive growth in premium income in the current financial year, Future
Generali India Life Insurance (a joint venture between the Future Group and the Italy-based
Generali Group) has proposed to infuse an additional equity of US$ 32.55 million before the end
of March 2010.

Saturation of insurance markets in many developed economies has made the Indian market more
attractive for international insurance players, according to 'Booming Insurance Market in India.
Total life insurance premium in India is projected to grow US$ 266 billion by 2010-11

Total non-life insurance premium is expected to increase at a compound annual growth rate
(CAGR) of 25 per cent for the period spanning from 2008-09 to 2010-11The home insurance
segment is set to achieve a 100 per cent growth as financial institutions have made home
insurance obligatory for housing loan approvals

In the next three years, health insurance is poised to become the second largest business for non-
life insurers after motor insurance.
52
STRUCTURE OF THE INSURANCE INDUSTRY

The structure of the insurance industry comprises of the Operating department, Administrative
department and the finance department. The Operating Department generally performs the basic
functions pertaining to the designing of products, marketing thereof, servicing the insured, the
the

the insured, management of portfolio, etc. The Administrative Department looks after the day-to-
day affairs of the company. The Finance Department backs the operations and administration of
the company by accounting for the transactions, streamlining the flow of funds, materializing the
management decisions, etc.

The Administration Department as well as the Finance Department, usually, functions through
in-house setup. The Finance Department functions in the areas of accounting, financial and
management reporting, budgeting and controlling, etc. and thus renders enormous scope for
finance professionals. The new entrants in the insurance sector are likely to call for the services
of the Chartered Accountants for their financial setup requirements. The Chartered Accountants
have engaged themselves in the audit of Insurance Companies since long. With the transition in
the insurance sector, the horizons for their contribution have broadened. There has, emerged a
king-size pool of opportunities that the Chartered Accountants can explore and apply their
professional wisdom and experience to.

BASIC FUNCTIONS OF THE INSURANCE INDUSTRY

1. Risk Perception and Evaluation:

The fundamental function of an insurer is to provide a cover against the detriment caused to the
insured due to the happening of certain specified and agreed events. Thus, prior to providing
such umbrella through a product, the insurer has to assess the risk involved in the transaction.
The insurer has to identify the element of risk prevalent in the concerned industry or a particular
unit. The perception of risk requires the study of variables through various methods including the
application of scientific and statistical techniques and correlation thereof with the industry or unit
under study in light of their basic environmental and infra-structural characteristics. After the
identification and categorisation of the risks perceived, the probability of happening of the loss-
causing events and the severity of the loss has to be assessed.

53
 2. Designing the Insurance Product:

On the basis of the risks perceived, the insurer develops a product to cover the stipulated risks.
While designing an insurance product, an insurer decides its cost to be charged from the insured
in the form of premium, reduction thereof in certain cases like not lodging any claim during the
previous covered period(s), suggesting the implementation of risk-mitigating measures, etc. The
features of a product should be flexible enough to provide for the determination of premiums,
rebates, additional premiums, etc. depending upon the risk benchmarks as determined.

3. Marketing of the Product:

The core function of the marketing force of an insurance company is to generate

awareness about the insurance products among the target market. But in the Indian
scenario, where the insurance penetration is too low as compared to the other nations, the
marketing force needs to perform the pro-active role in developing an insurance culture.
It is through the efficiency of the sales force of an insurance company that the
desirability and the success of a product are determined.

In Indian insurance market, the function is, basically performed by the agents. The person
desiring to function as insurance agent have to obtain license to act as such from the IRDA or an
officer authorised by the authority in this behalf. The agents approach the prospective buyers and
apprise them of the basic features of the products. In order to dispense with the functions, the
agents need to possess adequate knowledge of the insurance industry, products and the
modalities attached therewith. Further, the marketing personnels should be adequately backed by
the back-office setup.

4. Selling of the Products:

The term selling in the context of insurance industry connotes the issuance of policies to the
applicant proposer. The non-life insurance policy basically embodies the covenant between the
insurer and the insured wherein the former agrees to indemnify the latter for the loss caused to
him on the happening of the certain agreed events up to a specified limit. The life insurance
policy generally contains the agreement whereby the insurer agrees to pay to the insured or the
beneficiary of the policy an agreed amount on the expiry of the term of the policy or in the event
of the death of the insured respectively. The additional benefits in the shape of Riders viz.
Accidental Death Benefit, Double Sum Assured, Critical Illness benefits, Waiver of Premiums,
etc. can also be appended with the policy on the payment of an additional premium.

54
In Indian industry, the function is, generally performed by the insurer. In addition, the insurance
companies depute their Direct Selling Representatives to look after the function. They receive
the proposal documents, vet them and issue policies to the proposers.

5. Management of Portfolio:

The management of the portfolio includes the assessment of requirement of funds, identification
of various sources of finance, the evaluation of the sources in the light of their cost, availability,
timing, etc., reconciling the features of various sources with the needs of the company and the
selection of appropriate conjunction of sources. The insurer possesses huge amount of funds,
which need proper management. The management of the portfolio of an insurance company
requires the identification of investment avenues, evaluation thereof and the selection of the most
appropriate mix of alternatives where the funds of the company can be invested. The selection
requires the knowledge of finance related functions and techniques apart from the in-depth know
of the patterns of requirement of funds in the company as well as in the industry as a whole.

55
 Insurance Sector: Classification

Insurance

Life Insurance General Insurance

Term Endowment Mix of term insurance Fire Marine Mediclaim

Insurance and endowment insurance Insurance

56
 Insurance Sector: It’s user

User of Insurance

INDIVIDUAL INSTITTUTIONAL

The formulation of creative marketing decisions is not possible unless the different categories of
users using the services of insurance industry are known. The general users assign due weightage
to their own interest whereas the industrial users assign an overriding priority to the interests of
their organizations. The emerging changes in the socio-economic conditions and governmental
regulations influence the interests of both the category of users. It is against this background that
an in-depth study of users is found significant to the insurance industry.

An individual or an institution, a person or a group of people availing the services is termed to be

the actual users of the insurance industry. On the other hand both the categories of prospects
having the potentials, bearing the willingness but not using the service right now are termed as
“potential users/prospects”. The services are made available by the Life Insurance Corporation of
India and the General Insurance Corporation and other private insurance companies are used by
both categories of users.

The need and requirement can’t remain static. The business environmental conditions influence
the process of change. The professionals engaged in servicing the insurance organizations bear
the responsibility of understanding the changing level of expectations of the different categories.

57
 Insurance Policy: the total product Concept

LEVEL 1:

Core Product:

In the Insurance Industry the core product is the policy that provides protection to the consumers
against the risks. This is the main reason for which the Insurance Company is in existence. It
provides protection by way of various riders viz. Accidental Death Benefit, Double Sum
Assured, Critical Illness benefits, Waiver of Premiums, etc.

On the basis of the risks perceived, the insurer develops a product to cover the stipulated risks.
While designing an insurance product, an insurer decides its cost to be charged from the insured
in the form of premium, reduction thereof in certain cases like not lodging any claim during the
previous covered period(s), suggesting the implementation of risk-mitigating measures, etc. The
features of a product should be flexible enough to provide for the determination of premiums,
rebates, additional premiums, etc. depending upon the risk benchmarks as determined.

LEVEL 2:

Formal Product:

When the customers’ expectations grow synchronized with increased competition the marketer
offers some tangibility to the existing core product to differentiate itself from the competitors.

1. Brand:
In order to distinguish itself from the competitors, the Insurance Company gives a brand name to
its policy. This brand name gives an identity to the product (policy) offered by the insurance
company. Thus ICICI Prudential Life Insurance has brands viz ICICI Pru Smart Kid, ICICI Pru
Save ‘n’ Protect, ICICI Pru Lifeline, etc.

58
 2. Attributes:
Just giving a brand name to the policy may not be enough for the insurance company to
distinguish its offerings. The product offering must also have attributes that will attract the
consumers to take the policy. The attributes must suit and satisfy the needs wants and desires of
the various types of consumers that the company is targeting at.

Thus ICICI’s investment plans suit the consumers who want to secure their family through
insurance or invest money for growth. And its retirement plans suit the ones who want to enjoy
their fruits of labor after retirement or want to go for a dream vacation.

3. Instruction Manual:
To make the service consumption easier for the consumers, the instruction manual with the
policy becomes very important. The instruction manual gives an overview to the consumers as to
how to go on with the filling of the application form. It also gives information about the various
formalities that have to be adhered to at the time of submission of the application form.

LEVEL 3:

Augmented product:

With further expectation of the consumer – again synchronized with intense competition –
marketers offer more and more intangible features.

1. Post-sales service:
The insurance company must not consider it as the end of the service providing the consumer
has taken once the policy. The functions of an insurance company include the provision of
the Post-sales services to the consumer. Among the services rendered by the insurance
company is the service of processing and release of claims. The insurance company needs to
verify the accuracy of the facts presented in relation to the insurance claim and the
documents produced in support thereof.

2. Delivery points:
The delivery points can be the branches that the insurance company has at the discretion of
the of the consumers’ location. The delivery points can also be mobilized with the presence
of the insurance agents. The agents can cover a wide area and get in contact with the
consumers to provide the service to him.

59
 3. Customer education and training:
The customer education and training is very important for the insurance company. The
agents play a vital role in this context. The customer can be educated on various benefits that
can be accrued in his future life by taking a policy. This is where the agents’ communication
skills come into the picture. The insurance company has to play an active role in enabling the

4. Customer complaint management:

Customer complaints management with regards to delay in discharge of claims must be
effectively handled by the insurance company to have competitive edge over its competitors.
The complaint management will help the company to get the consumers closer to the
organization as the consumers feel that their grievances are taken care of.
Thus LIC has an online feedback system where the consumers of the policy can register their
grievances.

5. Payment options:
The insurance company can offer payment options to the consumers with regards to payment
of premium – the mode of payment and the period within which the premium amount has to
be paid.

60
 Few Major PLAYERS IN THE INDUSTRY

Life Insurance General Insurance

Life Insurance Corporation of India. General Insurance Corporation of India.

1. Oriental Insurance Company Ltd.

2. New India Assurance Company Ltd.
3. National Insurance Company Ltd.
4. United India Insurance Company Ltd.

Private players
ICICI Prudential Life Insurance Ltd. Bajaj Alliaz General Insurance Company Ltd.

Tata AIG Life Insurance Corporation Ltd. Reliance General Insurance Company Ltd.

Bajaj Allianz Tata AIG General Insurance Company Ltd.

ING VYSYA Royal Sundaram Alliance Insurance Company Ltd.

Reliance Life Insurance

61
 Premium Received by major Life Insurance companies In last quarter of f.y.
2008-09

SI.No. Insurer Premium No. of Policies No. of Life covered under

(Rs in Crore) group scheme
April, April, April, '09 April, '08 April, '09 April, '08
'09 '08
1. Bajaj Allianz
Individual Single Premium 4.83 10.68 2820 4078
Individual Non single premium 87.42 176.17 76108 119263
Group Single Premium 1.08 0.16 1 0 183 303
Group Non single premium 69.87 0.76 34 59 141645 48020
2. ING Vysya
Individual Single Premium 0.40 2.31 72 280
Individual Non single premium 36.77 27.14 21880 12149
Group Single Premium 0.56 0.48 0 0 228 98
Group Non single premium 0.03 0.26 0 6 221 1844

3. Reliance Life Insurance

Individual Single Premium 0.25 43.60 555
Individual Non single premium 88.25 95.12 92281
Group Single Premium 18.82 17.08 0 3
Group Non single premium 3.46 2.12 59 34

4. Tata AIG
Individual Single Premium 1.84 5.17 624 1201
Individual Non single premium 43.46 71.51 48964 53014
Group Single Premium 1.36 3.81 0 1 1992 16365
Group Non single premium 2.31 17.84 8 10 11022 24075

5. ICICI Prudential
Individual Single Premium 8.59 18.72 1022 3225
Individual Non single premium 91.87 244.46 114899 206442
Group Single Premium 18.21 47.03 67 55 52628 23966
Group Non single premium 17.15 34.58 128 144 152788 107877

62
 Premium Received by general Insurance Companies

All Value In Crore

Insurer Fire Marine Engineering Motor Aviation Health Accident Others total

Private Sector

Tata AIG 160.90 222.94 35.04 1049.51 0.00 114.46 28.09 24.79 806.22

Previous year

133.96 197.34 29.49 819.12 108.85 31.65 16.35 696.33

Reliance 126.42 123.3 119.23 2329.74 11.01 310.83 53.44 67.42 1914.87

Previous Year 127.81 84.3 103.54 2534.74 7.42 275.62 52.68 69.57 1946.42

ICICI 289.50 447.69 185.37 2642.6 52.20 140.99 112.52 123.18 3419.84
Lombard

Previous Year
438.25 449.1 179.51 2559.54 41.32 114.02 108.18 109.72 3344

HDFC ERGO 50.75 15.56 11.01 312.5 1.83 45.50 6.03 60.12 503.3

Previous Year

13.28 18.89 8.05 313.48 0.00 28.10 5.42 24.67 411.89

IFFCO Tokio 209.01 232.26 81.54 1595.06 16.15 34.18 24.87 129.3 2322.37

Previous Year

234.80 138.9 89.12 1278.51 6.38 32.19 20.43 205.12 1987.45

63
Public

New 774.67 892.68 251.42 8267.37 2266.33 106.31 448.89 922.49 13930.16
India/Previous
743.42 874.56 222.64 7068.21 1832.74 68.93 387.14 792.31 11989.95
year

National 397.08 402.32 164.03 4134.87 57.06 2266.33 97.82 535.70 8055.21

Previous Year 381.31 349.96 144.98 4180.66 78.44 1832.74 83.08 468.71 7389.88

United India 572.79 673.86 249.86 3700.58 32.22 854.02 71.86 393.76 6548.95

Previous Year 524.30 601.67 216.68 3581.21 26.13 690.36 68.18 349.45 6057.98

64
65