A REPORT

ON
STUDY OF EQUITY AND DERIVATIVE MARKET
AND
MARKETING OF FINANCIAL PRODUCTS

BY
N.G SAI KIRAN
09BSHYD1100
Indiabulls Securities Limited

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 A REPORT
ON
STUDY OF EQUITY AND DERIVATIVE MARKET

AND

MARKETING OF FINANCIAL PRODUCTS

Submitted in Partial Fulfillment of the Requirements of MBA program of

IBS HYD.

BY

N.G SAI KIRAN

09BSHYD1100

IBS, Hyderabad

Organization ±Indiabulls Securities ltd

Submitted to

««««««««««. ««««««..................

Dr. T. Koti Reddy Mr. Aatish Gupta

(Faculty Guide, IBS, HYD.) (Company Guide, V.P. Indiabulls)
(Somajiguda branch)

Date of submission-14.05.10

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AUTHORISATION

I hereby declare that this project titled ʊUsing Customerµs

understanding about financial riskü and applying it in, marketing the

financial product of Indiabulls securities ltd., is a record of work

conducted as partial fulfillment of the requirement of MBA program in

ICFAI BUSINESS SCHOOL Hyderabad. No part of the research study

has been presented for any other degree or diploma

Place: HYDERABAD
Date: May 15th, 2010

-------------------------------
(N.G SAI KIRAN)

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 ACKNOWLEDGEMENTS

I express my deep sense of gratitude to my Company Guide Mr. Atish Gupta, Vice
President, who has constantly guided me during the tenure of the project. I have
greatly benefitted from his erudition, constructive suggestion and inspiring
guidance.

I must express my sincere thanks to all the employees at Indiabulls for their
support and cooperation during the project.

I am obliged to Indiabulls for giving me an opportunity to do this project at this

esteemed institution.

I would like to express my gratitude to my Faculty Guide Mrs. Koti Reddy who is
responsible for the choice of the subject and also for the completion of the project.
But for her constant encouragement and helpful suggestions, this project would not
have been completed.

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ABSTRACT

The goal of the project is to understand the equity and derivatives market and to
market the financial products. The marketing aspect of the project consists of the
various tasks undertaken in order to increase the consumer base for the company
by acquiring new customers and bringing in new business for the company. This
report also includes the procedure for opening a new account for a client. For the
classification of clients a questionnaire has been designed which would help in
categorizing the clients.

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 TABLE OF CONTENTS

Authorisation

Acknowledgments

Abstract

1. INTRODUCTION 8-10

2. MARKETING OF FINANCIAL PRODUCTS «««««««« 11-27

2.1 Clint Acquisition «««««««« 14
2.2 Means of Acquiring New Clients «««««««... 15-16
2.3 Steps Of Account Opening process «««««««... 17-20
2.4 Product Differentiation «««««««« 21
2.5 Customer Service «««««««... 22-25
2.6 Several Benefits by Retaining its Customers «««««««.. 25-27

3. ANALYSIS OF THE EQUITY MARKET «««««««« 28-41

3.1 Benefits from Equity Investment «««««««« 29-30
3.2 Risk in Equity Market «««««««« 30-31
3.3 Overcoming of Risk «««««««... 31
3.4 Process of Diversification «««««««« 31-34
3.5 Characteristics of Equity Related Service «««««««« 34-35
3.6 India Stock Market «««««««« 35-41

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 4. ANALYSIS OF THE DERIVATIVE MARKET «««««««. 42-54

4.1 Introduction to Derivative market «««««««. 42-45

4.2 Derivative Market Perform Number
of Economic Functions «««««««. 46
4.3 Factors Driving the Growth of Derivatives «««««««. 46
4.4 Participants of Derivative Market «««««««. 47-48
4.5 Development of Derivative Market in India ««««««« 48-49
4.6 Causes of Growth in the Derivative Market ««««««« 50-54

5 .DESCRIPTIVE STATISTICS ««««««« 55-66

6. ANNEXURE «««««««. 67-70

7. CONCLUSSION «««««««. 71

8. REFERENCE ««««««« 72

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INTRODUCTION:

Indiabulls Financial Services is one of India¶s leading and fastest growing financial
services firms. It is a major player in the capital markets dealing with securities
broking, margin lending, depository services, equity research services, and
commodities trading. It also provides credit services like loan against shares,
mortgage and consumer finance. It is constantly tapping new business areas to
drive growth.

Indiabulls Financial Services Ltd. (IBFSL) established one of the first in-house
developed trading platforms in India. It expanded its service offerings to include
Equity, F&O, wholesale Debt, Mutual fund, IPO distribution and Equity Research.
It ventured into Insurance distribution and commodities trading. It has always
focused on brand building and the franchise model for expanding its business. It
came out with its Initial Public Offer (IPO) in September 2004 and it gradually
emerged as a market leader in securities brokerage industry with 43% of online
share trading. In the financial year 2006-07 it was included in the prestigious
Morgan Stanley Capital International Index (MSCI).

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Indiabulls Financial Services Ltd has given us an opportunity to do an internship
project for the company. The goals of this project have been clearly defined. The
various goals are as follows:

> Client acquisition

> Revenue generation
> Mapping the Risk Profile of Clients
> Coordination with the back office
> Client servicing and Retention
> Understanding the Media Sector
> Studying the patterns of the derivatives market

Change is occurring at an accelerating rate; today is not like yesterday, and

tomorrow will be different from today. For Businesses, change is the only constant.
Firms that do not change and adjust themselves to the market trends will go out of
business in no time. Continuing today¶s strategy is risky; so is turning to a new
strategy. Therefore, tomorrow¶s successful companies will have to heed three
certainties:

> Global forces will continue to affect everyone¶s business and personal life.
> Technology will continue to advance and amaze us.
> There will be a continuing push toward deregulation of the economic sector.

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These three developments²globalization, technological advances, and
deregulation ²spell endless opportunities. Globalization is characterized by the
increases in the flow of goods and services, capital, technology and information, as
well as the mobility of individuals across borders. In simple terms it is the
integration of one country with the rest of the world in all economic spheres. The
process of globalization can be seen in terms of trade in goods and services, trade
in finance and Foreign Direct Investment. Since 1990, India¶s financial system has
become more exposed to the global bonding of the financial, IT and
telecommunications industries whose linkages keep widening, deepening and
growing. India¶s fitful, ambivalent attempts at privatization and opening to private
participation in the provision of infrastructure services have also contributed to
reciprocal intrusions with the global financial system impinging on India¶s capital
markets and vice-versa. The dotcom and telecom bubbles have burst, but the
financial connections they created have remained intact. One outcome has been the
creeping but relentless internationalization of India¶s financial system, regardless
of domestic popular or political preferences. The choice of a sheltered domestically
protected alternative to a globally connected financial system no longer exists.

India emerges from autarchic isolation into unwitting global prominence, its key
µsystems¶ political, economic, social, financial, institutional and µmarkets¶
consumer, producer, commodity, factor and financial are being exposed to the hot
influences of globalization ± some subtle, others quite rampantly µin-your-face¶.
Being perhaps the most tactile, open and nonphysical, India¶s financial system and
market have felt the earliest and greatest pressure to accommodate and adapt to
globalization more quickly than other systems and markets.

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MARKETING ASPECT

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Marketing in general basically deals with identifying and meeting human and
social needs. One of the shortest definitions of marketing is ³meeting needs
profitably.´ Marketing of equity products can be defined as ³the aggregate of
functions, directed at providing services to satisfy customer¶s financial needs and
wants, more effectively and efficiently than the competitors, keeping in view the
organizational objectives. This implies that marketing helps company achieve not
only its commercial objective, but also its social objective of spreading awareness
about the stock markets and providing alternative investment opportunities for
customers.

Marketing helps firms in developing strong bonds with its customers.

In a fiercely competitive environment it is hard to please the customers as they are
smarter, choosier and more price conscious. They have better alternatives and are
attracted equally by many competitors. The brokers continually search for new
customers in order to make profits and increase their sales volume. This process
consumes time and scarce resources. Skills in lead generation, lead qualification
and account conversion are the tools in acquiring customers. After generating a
lead the company contacts its prospective customer through personal interaction,
and also checks out his financial condition among other things and identifies the
customers as hot, warm or cold prospects. The sales personnel contact the hot and
warm prospects usually and try to convert them into accounts.

Attracting customers is of no
use if the company is unable to retain them. Customers can be retained only if the
services offered by the broker meet the expectations. If the customers are satisfied
with the performance of the products and services, they may talk about it to others
and provide references for potential customers to the broker. On the other hand if
they are dissatisfied they might stop using the services offered and talk negatively

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to others about them which is not good for the business. As word of mouth is the
strongest medium of communicating with the potential customers, it might cost a
company heavily if there is negative talk about the company and its products and
services. As a result the company can suffer from customer attrition. Therefore it
must pay attention to the defection rate, i.e. rate at which they lose customers.

In order to reduce the defection rate the broker must define and
measure the retention rate and identify the possible causes of attrition. The broker
must also estimate the amount of profits lost by losing the customer. In case of an
individual client, it is the life time value of a customer i.e. the present value of the
profit stream the client would have generated had he not defected prematurely. The
next step is to figure out the cost of retaining a client. If the future profit is more
than the cost of retention, the broker must make effort to retain the customer. The
broker must also make it a point to listen and address the problems of the clients
which would help in retaining them and also in overcoming attrition problems.

Client Acquisition and Revenue generation: The first and foremost step is to
identify the right clients who are capable of generating a sustainable source of
revenue for the company. Such individuals can be anyone with a capability of high
investment. They can be

Traders or Businessmen.
Manufacturers and Industrialists.
Professionals with capability of high investments (Doctors/ Engineers/
CAs/Architects/ Chemists/ College professors etc).
High Net worth Individuals ( HNI investors)
Government officials at High Posts, IAS officers.
Bankers.

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Client Acquisition is one of the most important tasks for expanding consumer base
of the company. Therefore it is essential to cover as many sources of potential
clients as possible from all walks of life.

2.1 The Client Acquisition usually follows the following steps

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2.2 Means of Acquiring New Clients:

The various means of acquiring the clients are through conducting presentations
for corporate clients, and also by educating the retail investors through Investor
seminars. We have visited several offices of potential corporate clients and given
presentations on the products of Indiabulls. There are several retail clients who
visit the corporate office of Indiabulls. We have also interacted with such clients
and educated them about the stock market.

For acquiring new clients we have also used our personal friend¶s network,
relatives and old colleagues. Another means that can be used in the future is
conducting road shows in crowded areas like commercial complexes where there is
maximum footfall and also through residential societies. This helps the company in
increasing the awareness among people regarding Indiabulls and it also helps in
building a good brand image for the company. Another method that is most
frequently used is through cold calling or Tele calling from corporate databases,
telephone directories, yellow pages, and also from the leads generated through
presentations, networking and road shows.

In order to successfully acquire and retain clients it is important to first understand

the various products and services of Indiabulls very well. We are also trying to
conduct market surveys to identify and acquire high net worth investors and
affluent clients by obtaining information like net annual salary or net worth of an
individual. This is followed by making cold calls in the areas of high potential for
client acquisition. Some clients because of their busy schedule are not able to
provide an appointment immediately, for such clients it is important to follow up

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on a later date. After receiving an appointment it is important to meet the client at
the designated time and place. All the required documents have to be taken to the
client. In case if the deal goes through all the necessary signatures and other
documents have to be collected and verified before leaving the client.

As inters we are suppose to get at least one or two appointments per week which
can be successfully converted into a new client for the company. Till date I have
been able to get three new clients successfully for the company and another two
appointments are due next week which hopefully will get converted in due course
of time.

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The procedure for opening of an Account is given below which is to be followed
every time a new account is opened×

2.3 Steps of Account Opening Process

•
 The name in which the client is

opening the account (trading &
DP) should match with the
name on the IT website

   

     
If no, Please get all If yes, proceed

   
the required kits.  
 
 
    

If Yes, explain the

If No, ask your details to client &
Branch Manager  

 !   start the process of
about the complete 
 
  getting the kits filled
details before  
  by the client.
meeting the client.  

   "   If yes, proceed to

If no, the account 
 
# the next step
cannot be opened. 


If Yes, verify the
$
 ""   documents & have
If no, the account % !   the client and
cannot be opened.     & yourself sign the

 %!
 documents.
Get the clients to fill If no discrepancies, Check the IT website
the forms in take a printout of the IT for any discrepancies
CAPITALS, with the website showing the in the name on the
details matching the name of the client & KIT, PAN card and
proofs given. attach with the kit the website.

If no, please get $
  "   If yes, proceed to

  

""
the required
     the next step.
signatures'
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 If no, please $
 
    If Yes, check that
collect the cheque
 %  ( all the signatures
and then process 
 
  are identical.
the account   

Get the client to Leave a copy of Fill the email Leave your office
sign Page 36 of the Client Do¶s & addresses & mobile number,
the Kit. Don¶ts with the correctly on the with the client
client (only pages form.
1 ± 4).

)!
 !"" 
""  

 %   
* 
      
  
  "
%" "
! "" '

Some of the important points to be kept in mind while opening of a new account
are as follows:

Meet the client in person & explain our Products & Services
PAN Card is mandatory for opening Accounts
Collect all required documents/ information from the client himself &
verify the same with originals
a.) A copy of Do¶s and Don¶ts must be given to Client (Green Pages 1-4
perforated and separated from the new Kit)
b.) Pages 33 - 36 should not be torn from kit

c.) Page 36 should be signed by client

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 Check client¶s name on IT website and only then fill account opening kits
It is mandatory for the Client to sign on the Specimen Signature Card at
the start of the Registration Kit. This card is NOT to be retained by the
Client
To check the clients name on the IT website, use this link
http://incometaxindiaefiling.gov.in/challan/enterpanforchallan.jsp

In case of discrepancy in clients name on website, bank account and his

Id proofs get the relevant undertakings signed by the customer
Send a print out of IT website showing the name of the client along with
account opening kits to H.O
Signatures of the client should not be different in Specimen Signature
Card, Cheque, Trading, Normal DP and Mantra Kits
Every proof from the customer should be self-attested.
Email ID on the Account Opening kit should be of the customer and it
should be a valid. Correct Email ID should be obtained from the client as
trade execution confirmation and other important information is also sent
to the client on Email
For Address and Identity proofs in any other language than English,
please translate and mention the name of the client, address of client and
type of proof (Voter ID/Driving License) in English

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 Don¶ts of Account opening:

Never register a client without actually meeting with him

Never indulge in fraudulent activities like bouncing of account opening
cheques, signature forging, tampering with client documents
Do not forge witness signatures nor act as a witness
Never keep complete signed registration kits/ physical shares/ cheques
from clients in your custody for more than one day, these should be
handed over to the branch back office team the same day they are
collected from the clients
Never collect a third party cheque from the client
Never leave client¶s place without completely filling the kits in front of
him.
Never accept supporting documents given by client without verifying
them with the original
Do not open any Joint Trading Accounts
Do not leave the clients place without rechecking the documents with
respect to expiry date, validity, clarity and sufficiency(Atish Gupta)


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2.4 Product Differentiation:

× In order to acquire a secure market share, companies can either offer their
products at a low cost or try to gain cost leadership, or differentiate their
products in order to gain a competitive edge. Product differentiation is the
process by which companies design products in a way that makes customers
perceive them as different from those offered by other companies.
Companies differentiate themselves from their competitors on the basis of
the certain attributes of the product, service, and positioning. Differences in
quality, features, utility, price, or image are usually the basis for
differentiating products. Marketers try to highlight these aspects so that their
products are perceived as distinctly different from their competitors¶
products. (Marketing Management (12th edition ) by Philip Kottler and Kevin Lane Keller

Product and service differentiation forms an integral part of a firm¶s marketing

strategy. Apart from price, differentiation gives marketers the opportunity to
compete on aspects like services form, features, quality, etc. Firms that compete on
the basis of product differentiation can attain a position whereby they can claim a
premium in the market.

In order to differentiate itself from its competitors on the basis of the service
related with its product, a company must segment its customers on the basis of how
they prefer to make the purchase. In such cases, both the tangible and the
intangible attributes of the product form a source of differentiation for the
company.

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2.5 Customer Service

Customer service can include anything from ease of ordering, delivery, installation,
ease of payment, financial arrangements, customer training. These aspects of

customer service are discussed in detail below:

Ordering ease: Ordering ease refers to the ease with which the customer can place
the order for the product

Delivery: This refers to how well the product has been delivered to the customer. It
includes speed and care in delivering the products

Installation: Differentiation on the basis of installation plays a vital role in

industrial markets in which software is purchased. Customers prefer the company
to send its personnel to install the software. Ease of installation can help a
company capture a significant share of the market, especially when the target
market is new to the technology. For example, today all software applications
come along with step-by-step instructions on how to install the software in the
system. In this way, software companies are meeting the needs of the technology
novice target market by making the installation of the software easier for them and
helping them to handle it on their own.

Indiabulls differentiates its service offered by providing specialized software which

helps the client in trading. Power (PIB) is a desktop based application that provides
an unparallel edge to those genres of investors which are actively involved in the
stock market. Power helps the Day-Trader who regularly buy/sell stocks during the
day and also a Stock Research Analyst who believes in taking a call on the
particular stock after doing extensive fundamental and technical analysis, PIB is
meant to fulfill every need of the client from the comfort of a Personal Computer.

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Power comes with a whole host of trading features for its users ranging from real-
time stock Prices, to extensive Reports, Charting, and Calculators etc. For Market
Experts & Stock Research Analysts, Power provides EOD Technical Analysis
feature to help them analyze the behavior of a particular stock using popular chart
scrip indicators like Simple Moving Average, Stochastic, Relative Strength Index,
Williams¶s %R, & many more. Besides, one can also use Profile feature to view
detailed information about the underlying company including its financial
performance, peer comparison etc.

For day traders, Power offers Intraday Charting feature, Hourly Tick List feature
and Alerts feature to help them track the movement of underlying scrip / index
during the day. Besides, they can also create different Market Watch windows to
view the latest market price of those stocks in which they are keenly interested or
possess any stake.

Power provides various kinds of reports, each developed to cater user's distinct
needs. For ex., the client can access Net Portfolio Report to view a list of stocks
that are available in your portfolio. To view the open positions in F&O segment,
the client can access F&O Complete Position Report. Power also provides details
about the current day's obligations in Current Obligations Report.

Power also helps clients spot minimal profit opportunities that may arise in F&O
market. The clients can use Cost of Carry calculator to spot the arbitrage
opportunities that may arise on the account of any irregular deviation between
scrip's spot price and future price. Similarly, one can use Options Calculator to
calculate the ideal options premium of a particular Options Contract with whole
host of features and advanced tools, Power aims to fulfill needs of every genre of
investors and help them gain profits in every possible way. Power (PIB) provides

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clients with wide range of features through its 13 Main Menus. You can view these
menus at the top of PIB application.

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There are some interesting facts on the basis of past researches about acquiring a
customer and retaining him. Acquiring new customer costs five times more than
satisfying an existing customer. On average companies loose 10% of customers
every year. It is also a fact that the customer profit rate increases over the lifetime
of retained customers and a 5% reduction in customer attrition may increase the
profit rate by 25-85%

2.6 Several Benefits by Retaining its Customers like

> Increased Revenue: if the customer stays with the company for a longer time
the chances of his trading more significantly increase because his income
might also increase during that period. This will result in an increase in the
revenue in terms of more brokerage and is particularly true in cases where
the customers family size increases, leading to an automatic increase in the
demand for various services offered by the broker.

> Decrease in the Cost of Selling: As mentioned earlier, it costs five times
more to get a new customer than to retain an existing one. A loyal set of
customers keeps the selling costs down and is likely to be more profitable in
the future. A retained customer is also less sensitive to cost changes and is
not easily driven away by ads or competitors products and services.

> Advertising: Customers usually influence other members of their reference

group who rely on them for references and opinions. Old customers talk
favorably about the company¶s services. So, a retained customer acts as a
billboard for the firm by virtue of word of mouth advertising for the firm.

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 > Cross selling possibilities: A regular customer can be potential customer for
firms other products in the near future. For example a client with a trading
and Demat account with Indiabulls Financial Services is a potential future
client for Indiabulls Fast loans Service offered by the same company or even
a real estate customer for Indiabulls Real estate.

Therefore the broker needs to develop the habit of understanding the

customer needs and wants and measure their satisfaction levels regularly through
various means such as calling up regular traders and high net worth clients and
inquiring about the performance of service delivery. They should not ignore
customer grievances because loyal customers account for a substantial share of the
company¶s profits. Similarly, customer suggestions should not be ignored because
they use the services and are in a better position to comment on the performance of
the service. Customer satisfaction also helps the company overcome the switching
attitudes of customers and makes it harder for the competitors to wean away
customers.

In order to attract new customers and retain old ones, the broker must
indulge in providing special training for its clients which would help in increasing
awareness about the markets as well about the company¶s products as well.

In today¶s fast evolving markets the brokerage firms have realized that they need to
focus on the long term profitability of customers which is possible only when they
develop a long term relationship with the customers. This has given rise to the
concept of relationship marketing which consists of understanding and responding
to customer needs and preferences to build more meaningful and long term
relations with the clients. The marketers need to find ways and means to build
good relations with their clients. This requires integration of all the areas of

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business that touches the customers like marketing sales and customer service i.e.
through the interaction of people, process and technology.

The Relationship manager has to undertake proactive marketing

wherein he contacts the clients from time to time with suggestions and tips for
trading and also discusses the services offered by the firm. He also takes notes on
suggestions provided by the client in order to improve the service.

Relationship marketing has become crucial for the existence of firms

because of the heightened attention to cost cutting, revenue generation and
customer retention. The goal of relationship marketing is to satisfy the customers
in such a manner that he becomes loyal to the firm and is unlikely to switch to
competitors. The brokerage firms try to convert their plain customers into clients
by providing them with special treatments like giving good tips for trading in the
stock market. Later they try to convert these clients into members and advocates by
decreasing their brokerage rates even further and also by providing special
benefits. Then these advocates would recommend the firm¶s products and services
to other potential customers. Finally the firms must aim at converting the advocates
into partners who would work actively with the company in producing quality
services. This creates a mutually beneficial relationship between the brokerage
firms and the customers.

It is important to identify and reactivate the customers

accounts who have dropped off or stopped trading due to various reasons like
moving to other locations, dissatisfaction etc. In a fiercely competitive market, the
ability to compete on the basis of customer relationships has gained significance.
The success of service providers like brokerage firms depends on maintaining a
customer group which utilizes its services on a regular and an ongoing basis.

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 FINANCE ASPECT

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EQUITY MARKET

Total equity capital of a company is divided into equal units of small

denominations, each called a share.
ΠIt is a stock or any other security representing an ownership interest.
ΠIt proves the ownership interest of stock holders in a company.

For example:-

In a company the total equity capital of Rs 2, 00, 00,000 is divided into 20, 00,000
units of Rs 10 each. Each such unit of Rs 10 is called a Share. Thus, the company
then is said to have 20, 00,000 equity shares of Rs 10 each. The holders of such
shares are members of the company and have voting rights.

3.1 Benefits From Equity

The benefits distributed by the company to its shareholders can be:

1) Monetary Benefits and 2) Non Monetary Benefits.

1. Monetary Benefits:

A. Dividend: An equity shareholder has a right on the profits generated by the

company. Profits are distributed in part or in full in the form of dividends.
Dividend is an earning on the investment made in shares, just like interest in case
of bonds or debentures. A company can issue dividend in two forms: a) Interim
Dividend and
b) Final Dividend. While final dividend is distributed only after closing of
financial year; companies at times declare an interim dividend during a financial
year. Hence if X Ltd. earns a profit of Rs 40 crore and decides to distribute Rs 2 to
each shareholder, a holding of 200 shares of X Ltd. Would entitle you to Rs 400 as
dividend. This is a return that you shall earn as a result of the investment made by
you by subscribing to the shares of X Ltd.

B. Capital Appreciation:

A shareholder also benefits from capital appreciation. Simply put, this means an
increase in the value of the company usually reflected in its share price. Companies
generally do not distribute all their profits as dividend. As the companies grow,
profits are re-invested in the business. This means an increase in net worth, which

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results in appreciation in the value of shares. Hence, if you purchase 200 shares of
X Ltd at Rs 20 per share and hold the same for two years, after which the value of
each share is Rs 35. This means that your capital has appreciated by Rs 3000.

2. Non-Monetary Benefits: Apart from dividends and capital appreciation,

investments in Shares also fetch some type of non-monetary benefits to a
shareholder. Bonuses and rights issues are two such noticeable benefits.

A. Bonus: An issue of bonus shares is the distribution free of cost to the

shareholders usually made when a company capitalizes on profits made over
a period of time. Rather than paying dividends, companies give additional
shares in a pre-defined ratio. Prima facie, it does not affect the wealth of
shareholders. However, in practice, bonuses carry certain latent advantages
such as tax benefits, better future growth potential, and an increase in the
floating stock of the company, etc.
Hence if X Ltd decides to issue bonus shares in a ration of 1:1, every
existing shareholder of X Ltd would receive one additional share free for
each share held by him. Of course, taking the bonus into account, the share
price would also ideally fall by 50 percent post bonus. However, depending
upon market expectations, the share price may rise or fall on the bonus
announcement.

B. Rights Issue: A rights issue involves selling of ordinary shares to the

existing shareholders of the company. A company wishing to increase its
subscribed capital by allotment of further shares should first offer them to its
existing shareholders. The benefit of a rights issue is that existing shareholders
maintain control of the company. Also, this results in an expanded capital base,
after which the company is able to perform better. This gets reflected in the
appreciation of share value.

3.2 Risks in Equity Investment:

Although an equity investment is the most rewarding in terms of returns generated,

certain risks are essential to understand before venturing into the world of equity.
ΠMarket/ Economy Risk.
ΠIndustry Risk.
ΠManagement Risk.
ΠBusiness Risk.

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 ΠFinancial Risk
ΠExchange Rate Risk.
ΠInflation Risk.
ΠInterest Rate Risk.

3.3 How to Overcome Risks:

Most risks associated with investments in shares can be reduced by using the tool
of diversification. Purchasing shares of different companies and creating a
diversified portfolio has proven to be one of the most reliable tools of risk
reduction.

3.4 The Process of Diversification:

When you hold shares in a single company, you run the risk of a large magnitude.
As your Portfolio expands to include shares of more companies, the company
specific risk reduces. The benefits of creating a well diversified portfolio can be
gauged from the fact that as you add more shares to your portfolio, the weight age
of each company¶s share gets reduced. Hence any adverse event related to any one
company would not expose you to immense risk. The same logic can be extended
to a sector or an industry. In fact, diversifying across sectors and industries reaps
the real benefits of diversification. Sector specific risks get minimized when shares
of other sectors are added to the portfolio. This is because a recession or a
downtrend is not seen in all sectors together at the same time.

However all risks cannot be reduced:

Though it is possible to reduce risk, the process of equity investing itself comes
with certain inherent risks, which cannot be reduced by strategies such as
diversification. These risks are called systematic risk as they arise from the system,
such as interest rate risk and inflation risk. As these risks cannot be diversified,
theoretically, investors are rewarded for taking systematic risks for equity
investment.

Selection of Shares:
Proper selections of shares are of two types:-
1 . Fundamental analysis:
It involves in ±depth study and analysis of the prospective company whose shares

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we want to buy, the industry it operates in and the overall market scenario. It can
be done by reading and assessing the company¶s annual reports, research reports
published by equity research houses, research analysis published by the media and
discussions with the company¶s management or the other experienced investors.

2. Technical analysis:
It involves studying the prices movement of the stock over an extended period of
time in the past to judge the trend of the future price movement. It can be done by
software programs, which generate stock prices charts indicating upward.
Downward and sideways movements of the stock price over the stipulated time
period

When to buy & sell shares:

With high volatility prevailing in the market, major price fluctuations in equities
are not uncommon. Therefore, apart from ascertaining µwhich¶ stock to buy or sell,
it becomes equally important to consider µwhen¶ to buy or sell. Any investor
should be aware of the fact where all the investor is following i.e., À
 

 . That means we should buy stocks at a low price and sell them at a high price.

When to buy
Three ways by which we can figure that out what it is about this stock that makes it
hot.

1. Earnings per Share (EPS): How well the company is doing

EPS is the total earning or profits made by company (during a given period of
time) calculated on per share basis. It aims to give an exact evaluation of the
returns that the company can deliver.

Example:
Company XYZ Ltd. Capital: Rs 100 crore (Rs 1 billion). Capital is the amount the
owner has in the business. As the business grows and makes profits, it adds to its
capital. This capital is subdivided into shares (or stocks). The capital is divided into
100 million shares of Rs 10 each.
Net Profit in 2009-10: Rs 20 crore (Rs 200 million).
EPS is the net profit divided by the total number of shares.
EPS = net profit/ number of shares
EPS = Rs 20 crore (Rs 200 million)/ 10 crore (100 million) shares = Rs 2 per share

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©esson to be learnt

1. If a company's EPS has grown over the years, it means the company is doing
well, and the price of the share will go up. If the EPS declines, that's a bad sign,
and the stock price falls.

2. Companies are required to publish their quarterly results. Keep an eye out for
these results check for the trend in their EPS.

3. Price earnings ratio (PE ratio): How other investors view this share
An indicator of how highly a share is valued in the market. It arrived at by dividing
the closing price of a share on a particular day by EPS. The ratio tends to be high
in the case of highly rated shares. The average PE ratio for companies in an
industry group is often given in investment journal. Two stocks may have the same
EPS. But they may have different market prices. That's because, for some reason,
the market places a greater value on that stock. PE ratio is the market price of the
stock divided by its EPS.
PE = market price/ EPS
let¶s take an example of two companies.
Company XYZ Ltd
Market price = Rs 100
EPS = Rs 2
PE ratio = 100/ 2 = 50
Company ABC Ltd
Market price = Rs 200
EPS = Rs 2
PE ratio = 200/ 2 = 100
In the above cases, both companies have the same EPS. But because their market
price is different, the PE ratio is different.

©esson to be learnt
In the case of EPS, it is not so much a high or low EPS that matters as the growth
in the EPS. The company's PE reflects investors' expectations of future growth in
the EPS. A high PE company is one where investors have hopes that earnings will
rise, which is why they buy the share.

3. Forward PE: ©ooking ahead

The stock market is not nostalgic. It is forward looking. For instance, it sometimes
happens that a sick company, that has made losses for several years, gets a
rehabilitation package from its bank and a new CEO. As a consequence, the
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company's stock shoots up. Because investors think the company will do better in
the future because of the package and new leadership, and its earnings will go up.
And we think it is a good time to buy the shares of the company now. Suddenly,
the demand for the shares has gone up. Because stock prices are based on
expectations of future earnings, analysts usually estimate the future earnings per
share of a company. This is known as the forward PE. Forward PE is the current
market price divided by the estimated EPS, usually for the next financial year.


3.5 Characteristics of the Equity Related Services:

> The Equity related services market in India is highly competitive. The
competition is intense to acquire and retain high net worth individuals
who are more profitable for the companies in comparison to retail
investors.
> The growth of this services market is closely related to the growth of the
economy which is reflected in the stock markets.
> The service provided is intangible therefore it is important to take special
care while formulating the marketing strategies.
> The demand is price elastic, i.e. as the price of the service goes down the
demand goes up, and it is income elastic i.e. when the income of the
general population goes up more people tend to invest their excess
savings in alternative investment opportunities, the stock market being
the most attractive of the lot.
> The profitability of the stock brokers increase when more and more
individuals start trading in the markets on a daily basis with high volumes
and higher turnovers.


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 > One of the important factors that an individual looks at when
approaching a broker for trading is the amount of brokerage that the
company charges for the transactions, it is important to provide a very
low brokerage to the clients in order to acquire and retain a client.
> The promotional activities play an important role in this market. Stock
Brokers today offer attractive schemes to woo customers. The quality of
service can be a useful tool for brokers to gain a competitive advantage,
because clients expect brokers to be efficient, friendly and helpful. Most
of all they would also like to have good tips for trading in the market.
Thus a proactive customer orientation is needed from the company¶s side

3.6 THE INDIAN STOCK MARKET

India¶s capital markets have experienced sweeping changes since the

beginning of the last decade. Its market infrastructure has advanced while
corporate governance has progressed faster than in many other emerging market
economies (John, 2001). But in contrast to several developed countries and Asian
economies, India¶s capital markets are still shallow, implying that further reforms
are needed to make India a world-class financial centre. India boasts a dynamic
equity market. The sharp rise in India¶s stock markets since 2003 reflects its
improving macroeconomic fundamentals. Improving macroeconomic
fundamentals, a sizeable skilled labor force and greater integration with the world
economy have increased India¶s global competitiveness, placing the country on the
radar screens of investors the world over these positive dynamics have led to a
sustained surge in India¶s equity markets, attracting sizeable capital from foreign

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investors. Net cumulative portfolio flows from (bonds and equities) amounted to
USD 35 bn. Moreover, India¶s stock market has outperformed world indices in
recent years. And, despite its increasing correlation with world markets in recent
years), India still offers diversification in global portfolios.

Of India¶s 23 stock exchanges, equity trading is most active in the National

Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Since the NSE¶s
inception in 1994, it has caught up with the BSE in terms of capitalization but
exceeded it in turnover. The BSE boasts of over 4,000 listed companies, surpassing
stock exchanges in the US. This explains its slightly higher market capitalization
over the NSE, although its lower turnover implies that inefficiencies remain due to
the high proportion of untraded companies. Its share of total equity turnover is just
33% compared to 66% of its rival, the NSE. The increase in the limit for foreign
direct investment in the stock exchanges to 49% announced early this year is
expected to lend more dynamism to the equity capital markets. The investment
limit for a single investor was set at 5%. It did not take long after the new limit was
announced that the New York Stock Exchange (NYSE), Goldman Sachs, General
Atlantic and Softbank Asian Infrastructure Fund all acquired a 5% stake in the
National Stock Exchange (NSE).

Over the past fifteen years, financial markets have become

increasingly global. In the globalised financial markets, the main challenge for
both investors and policy makers is to take advantage of and promote efficiency
enhancing aspects of market interaction, while containing and controlling the
undesirable destabilizing effects. Emerging equity markets have continued to grow
and have seen the relaxation of foreign investment restrictions, especially during

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the last 15 years, primarily through country deregulation. India, one of the major
emerging markets in Asia initiated the financial sector reforms by way of adopting
international practices in its financial market. Indian companies have raised funds
from abroad through issuance of American Depository Receipts (ADR¶s) or
General Depository Receipts (GDR¶s) that allow trade of foreign securities on the
NYSE, NASDAQ or on non-American exchanges.

× Increased foreign presence is expected to help the NSE to inch forward to

the global markets, generate a wider customer and investor base and offer
more innovative products. The Bombay Stock Exchange is also courting
strategic investors. If it succeeds, this should help speed up the process of
consolidating the thousands of inactive listed companies on the board.
Moreover, the move will enhance its competitive strength against the NSE,
which has diminished over the past decade.( Financial Management (8th edition) by
I.M. Pandey)

Higher volatility, improving performance

Benchmarking the risk/return characteristics of India¶s equity markets against the

world average shows that India¶s stock market has historically been more volatile,
while its returns have, until recently, underperformed. This should not come as a
surprise as the past decade witnessed several political and economic uncertainties,
undermining business and investor confidence. Only from 2006 has India¶s stock
market begun to outperform the world¶s index as momentum to liberalize the
economy gathered pace and investors began to take notice. Reflecting the recent
sharp run-up in equity prices, India¶s stock markets today rank among the most
expensive in the world, raising concerns over a correction, especially if earnings
disappoint. However, sustained economic growth combined with continued
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market-friendly capital market reforms should prove to be supportive factors for
superior returns in the medium run.

In terms of sectoral composition in benchmark indices, India¶s stock market is

broad-based, putting it roughly in line with the world index. The higher weight of
the IT sector today reflects the country¶s increasing turn toward a knowledge-based
economy. But this may change, with consumer discretionary and consumer staples
projected to get a larger share of the pie in tandem with rising incomes and as
household preferences become more discerning. The shares of financials and
healthcare sectors are also expected to increase markedly as industry consolidation
picks up and the door to foreign direct investment is widened.

www.moneycontrol.com

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Further room for improvement

Impressive though the developments may be, India¶s stock markets still have some
room for improvement. For one, the shareholder pattern needs to be broadened, as
ownership is concentrated in the promoters and company insiders show an
increasing presence. This implies that minority shareholders¶ interest is minimal,
which needs to be increased for the sake of improved corporate governance.

The presence of institutional investors in the equity market is also low, resulting
from the restrictive investment guidelines set by the government for the insurance
industry, banks and pension funds. Of note, while only 18% of the listed
companies in the NSE are owned by retail investors, they account for an estimated
85% of the trading volume, according to a recent paper by (McKinsey23). This
suggests that retail investors tend to speculate in the stock market rather than
follow a strategy of pursuing long-term benefits.

Resumption in privatization is also key to further developing India¶s equity

markets. Since FY, privatization activities have dwindled, driven in part by the
lack of political consensus to keep it on track. The sluggish process prevents
publicly owned companies from accessing more efficient sources of funding. It

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also interferes with their movement toward market-disciplined processes and better
corporate governance.

Right mix of investors, but participation is still low

A vibrant secondary market is characterized by the active participation of retail and

institutional investors, underpinned by their long- term investment goals, with
adjustments made in accordance with their short-term liquidity needs and in
response to the business cycle. With a population of over 1 billion, India offers a
large pool of potential investors. Indian households are by far the largest saver in
the economy, constituting nearly 80% of the economy¶s aggregate saving

Insurance companies, pension funds, mutual funds and foreign institutional

investors (FIIs) form India¶s institutional investor base. Combined, their assets
account for about 25% of GDP. This represents a significant increase compared to
the mid-1990s, prior to the opening up of many of the sectors, such as the
insurance industry, to competition. But, to put it in perspective, the combined size
of the Indian institutional investors sector amounts to less than half of US mutual
fund assets alone.

By and large, Indian investors tend to be conservative in their investment

decisions, with a general preference for safe returns and capital preservation. As
for large domestic institutional investors such as pension funds and insurance
companies, their investment style has largely been the result of regulation.

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Indian household investments: low risk, low return

The lion¶s share of households¶ total financial savings, roughly 50%, is placed in
bank deposit accounts. The rest of the pie is spread over small savings accounts, at
just over 10%, and a combined 25% in insurance and pension funds. Because of
these institutions¶ conservative approach to investing, they appeal very strongly to
households.

Over the past 5 years, households had a mere 5% of their savings invested in the
stock market on average. Granted, the general aversion to riskier instruments such
as equities is not only a product of the public¶s preference for safe returns. India¶s
equity markets have experienced several scandals in the past, resulting
occasionally in substantial capital losses to many investors. This has essentially
discouraged a considerable number of them to return to the stock markets, although
in the past two years confidence has gradually regained some ground.

A key ingredient to reduce households¶ risk aversion is improving their

understanding of long-term investment, particularly in the equity market.
Regarding bonds, there is a concerted effort among the RBI and SEBI, as well as
the BSE and NSE, to raise retail investors¶ knowledge about the mechanics and
risk/return tradeoffs of debt securities. However, the thin volumes can be expected
to persist so long as the government continues to provide savings schemes, which
reduce incentives to invest in fixed-income instruments.


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DERIVATIVES MARKET IN INDIA

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4.1 Introduction to Derivatives:

The emergence of the market for derivatives products, most notably forwards,
futures, and options can be traced back to the willingness of risk-averse economic
agents to guard themselves against the uncertainties arising out of fluctuations in
the asset prices. By their very nature, the financial markets are marked by a very
high degree of volatility. Through the use of derivative products, it is possible to
partially or fully transfer price risks by locking in asset prices. As instruments of
risk management, these generally do not influence the fluctuations in the
underlying asset prices. However, by locking-in the asset prices, derivatives
products minimize the impact of fluctuations in the asset prices on the profitability
and cash flow situation of risk-averse investors.

Definition of Derivatives: Derivative is a product whose value is derived from

the value of one or more basic variables, called bases (underlying asset, index, or
reference rate), in a contractual manner. The underlying asset can be equity, forex,
commodity or any other asset. For example, wheat farmers may wish to sell their
harvest at a future date to eliminate the risk of a change in prices by that date. The
transaction in this case would be the derivative, while the spot price of wheat
would be the underlying asset. The derivative itself is merely a contract between
two or more parties. Its value is determined by fluctuations in the underlying asset.
Futures contracts, forward contracts, options and swaps are the most common
types of derivatives. Since derivatives are mere contracts, just about anything
can be used as an underlying asset

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Types of Derivatives

Forwards: A forward contract is a customized contract between two

entities, where settlement takes place on a specific date in the future at
today¶s pre-agreed price.

Futures: A futures contract is an agreement between two parties to buy or

sell an asset at a certain time in the future at a certain price. Futures contracts
are special types of forward contracts in the sense that the former are
standardized exchange-traded contracts

Options: Options are of two types - calls and puts. Calls give the buyer the
right but not the obligation to buy a given quantity of the underlying asset, at
a given price on or before a given future date. Puts give the buyer the right,
but not the obligation to sell a given quantity of the underlying asset at a
given price on or before a given date.

Warrants: Options generally have lives of up to one year, the majority of

options traded on options exchanges having a maximum maturity of nine
months. Longer-dated options are called warrants and are generally traded
over-the-counter.

©EAPS: The acronym LEAPS means Long-Term Equity Anticipation

Securities. These are options having a maturity of up to three years.

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 Baskets: Basket options are options on portfolios of underlying assets. The
underlying asset is usually a moving average or a basket of assets. Equity
index options are a form of basket options.

Swaps: Swaps are private agreements between two parties to exchange cash
flows in the future according to a prearranged formula. They can be regarded
as portfolios of forward contracts. The two commonly used swaps are:



 
 : These entail swapping only the interest related
cash flows between the parties in the same currency.

  : These entail swapping both principal and interest
between the parties, with the cash flows in one direction being in a
different currency than those in the opposite direction.

Swaptions: Swaptions are options to buy or sell a swap that will become
operative at the expiry of the options. Thus a swaption is an option on a
forward swap. Rather than have calls and puts, the swaption market has
receiver Swaptions and payer Swaptions. A receiver swaption is an option to
receive fixed and pay floating. A payer swaption is an option to pay fixed
and receive floating.

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4.2 The Derivatives Market Performs a Number of Economic
Functions:

They help in transferring risks from risk averse people to risk oriented
people
They help in the discovery of future as well as current prices
They catalyze entrepreneurial activity
They increase the volume traded in markets because of participation of risk
averse
People in greater numbers
They increase savings and investment in the long run
Derivatives are generally used to hedge risk, but can also be used
for speculative purposes.

4.3 Factors Driving the Growth of Derivatives

Over the last three decades, the derivatives market has seen a phenomenal growth.
A large variety of derivative contracts have been launched at exchanges across the
world. Some of the factors driving t growth of financial derivatives are:
1. Increased volatility in asset prices in financial markets,
2. Increased integration of national financial markets with the international
markets,
3. Marked improvement in communication facilities and sharp decline in their
costs,
4. Development of more sophisticated risk management tools, providing economic
agents a wider choice of risk management strategies, and
5. Innovations in the derivatives markets, which optimally combine the risks and
returns over a large number of financial assets leading to higher returns, reduced
risk as well as transactions costs as compared to individual financial assets.

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4.4 The Participants in a Derivatives Market

Hedgers use futures or options markets to reduce or eliminate the risk

associated with price of an asset.

Speculators use futures and options contracts to get extra leverage in betting
on future movements in the price of an asset. They can increase both the
potential gains and potential losses by usage of derivatives in a speculative
venture.

Arbitrageurs are in business to take advantage of a discrepancy between

prices in two different markets. If, for example, they see the futures price of
an asset getting out of line with the cash price, they will take offsetting
positions in the two markets to lock in a profit.

Factors driving the growth of financial derivatives

Increased volatility in asset prices in financial markets.

Increased integration of national financial markets with the international
markets,
Marked improvement in communication facilities and sharp decline in their
costs,
Development of more sophisticated risk management tools, providing
economic agents a wider choice of risk management strategies, and
Innovations in the derivatives markets, which optimally combine the risks
and returns over a large number of financial assets leading to higher returns,

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 reduced risk as well as transactions costs as compared to individual financial
assets.(NCFM)

4.5 Development of Derivatives Market in India

The first step towards introduction of derivatives trading in India was the
promulgation of the Securities Laws(Amendment) Ordinance, 1995, which
withdrew the prohibition on options in securities. The market for derivatives,
however, did not take off, as there was no regulatory framework to govern trading
of derivatives. SEBI set up a 24±member committee under the Chairmanship of
Dr.L.C.Gupta on November 18, 1996 to develop appropriate regulatory framework
for derivatives trading in India. The committee submitted its report on March 17,
1998 prescribing necessary pre±conditions for introduction of derivatives trading
in India. The committee recommended that derivatives should be declared as
µsecurities¶ so that regulatory framework applicable to trading of µsecurities¶ could
also govern trading of securities. SEBI also set up a group in June 1998 under the
Chairmanship of Prof.J.R.Varma, to recommend measures for risk containment in
derivatives market in India. The report, which was submitted in October 1998,
worked out the operational details of margining system, methodology for charging
initial margins, broker net worth, deposit requirement and real±time monitoring
requirements.

The Securities Contract Regulation Act (SCRA) was amended in December 1999
to include derivatives within the ambit of µsecurities¶ and the regulatory framework
were developed for governing derivatives trading. The act also made it clear that
derivatives shall be legal and valid only if such contracts are traded on a
recognized stock exchange, thus precluding OTC derivatives. The government also
rescinded in March 2000, the three± decade old notification, which prohibited

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forward trading in securities.

Derivatives trading commenced in India in June 2000 after SEBI granted the final
approval to this effect in May 2001. SEBI permitted the derivative segments of two
stock exchanges, NSE and BSE, and their clearing house/corporation to commence
trading and settlement in approved derivatives contracts. To begin with, SEBI
approved trading in index futures contracts based on S&P CNX Nifty and BSE±30
(Sensex) index. This was followed by approval for trading in options based on
these two indexes and options on individual securities.

The trading in BSE Sensex options commenced on June 4, 2001 and the trading in
options on individual securities commenced in July 2001. Futures contracts on
individual stocks were launched in November 2001. The derivatives trading on
NSE commenced with S&P CNX Nifty Index futures on June 12, 2000. The
trading in index options commenced on June 4, 2001 and trading in options on
individual securities commenced on July 2, 2001. Single stock futures were
launched on November 9, 2001. The index futures and options contract on NSE are
based on S&P CNX.

Trading and settlement in derivative contracts is done in accordance with the rules,
byelaws, and regulations of the respective exchanges and their clearing
house/corporation duly approved by SEBI and notified in the official gazette.
Foreign Institutional Investors (FIIs) are permitted to trade in all Exchange traded
derivative products.

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4.6 Causes of Growth in the Derivatives Market:

Since 1990, India¶s financial system has become more exposed to the global
bonding of the financial, IT and telecommunications industries whose linkages
keep widening, deepening and growing. India¶s fitful, ambivalent attempts at
privatization (and opening to private participation in the provision of infrastructure
services) have also contributed to reciprocal intrusions with the global financial
system impinging on India¶s capital markets and vice-versa. The dotcom and
telecom bubbles have burst, but the financial connections they created have
remained intact. One outcome has been the creeping but relentless
internationalization of India¶s financial system, regardless of domestic popular or
political preferences. The choice of a sheltered domestically protected alternative
to a globally connected financial system no longer exists.

India emerges from autarchic isolation into unwitting global prominence, its key
µsystems¶ (political, economic, social, financial, institutional) and µmarkets¶
(consumer, producer, commodity, factor and financial) are being exposed to the
hot influences of globalization. Being perhaps the most tactile, open and
nonphysical, India¶s financial system and market have felt the earliest and greatest
pressure to accommodate and adapt to globalization more quickly than other
systems and markets. One of the inevitable consequences of those influences is the
emergence of derivatives. Global financial markets abandoned inefficient,
ineffective, obsolescent approaches to risk hedging and risk management two
decades ago. It was natural that India would eventually go the same way,
especially if its financial market was to adapt in becoming a part of what is slowly
but surely evolving as a single global financial market. Unfortunately that
happened later rather than sooner. The need for derivatives was acknowledged
(intellectually) as being necessary at the outset by academics and the handful of

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knowledgeable financial policy-makers that India had in the early 1990s. But the
creation of a market for such contracts was strongly opposed on practical and
µcultural¶ grounds by BSE broker-dealers who had dominated (and abused) capital
markets as principals for their own benefit, rather than recognizing that they were
mere intermediaries between issuers of securities and ultimate investors.

In the exchange-traded market, the biggest success story has been derivatives on
equity products. Index futures were introduced in June 2000, followed by index
options in June 2001, and options and futures on individual securities in July 2001
and November 2001, respectively. All these derivative contracts are settled by cash
payment and do not involve physical delivery of the underlying product
Derivatives on stock indexes and individual stocks have grown rapidly since
inception.

One reason for this success may be retail investors¶ prior familiarity with ³badla´
trades which shared some features of derivatives trading. Another reason may be
the small size of the futures contracts, compared to similar contracts in other
countries. Retail investors also dominate the markets for commodity derivatives,
due in part to their long-standing expertise in trading in the ³havala´ or forwards
markets. In terms of the growth of derivatives markets, and the variety of
derivatives users, the

× There remain major areas of concern for Indian derivatives users. Large gaps
exist in the range of derivatives products that are traded actively. In equity
derivatives, NSE figures show that almost 90% of activity is due to stock
futures or index futures, whereas trading in options is limited to a few
stocks, partly because they are settled in cash and not the underlying stocks.

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 Exchange-traded derivatives based on interest rates and currencies are
virtually absent. (Financial Management (6th edition) by Prasanna Chandra)

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Instruments available in India

Financial derivative instruments:

The National stock Exchange (NSE) has the following derivative products:

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DESCRIPTIVE STATISTICS

  


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I have done market survey near software companies, city center and Hyderabad
central. I feel almost all the age groups are interested in share market and having
well awareness in share market.

As of my research I found out most of the people

from software employees are also having well awareness of share market. So we
can promote d-mat a/c by giving good service in providing guidelines and charging
less brokerage comparing to other broker firms.



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 A

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As of my research most of the people are belonging to Hyderabad area. So I think

we can promote the product in Hyderabad as people are of well of awareness and
we can promote our product in secunderabad too as it is untapped market.

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&*2

.

/)! !/)!

As of my research comparing with males and females most of the males are having
knowledge and ready to take risk in investing share market.

A



  

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! 

Most of the people are not having awareness on commodity comparing to equity
market, people who are having awareness they are very scare to invest in
commodity market as they feel that commodity market are very risky. People

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whose income slab is between 4-6 lakh are willing to invest in commodity market
comparing to whose slab is between 2-4 lakh. And most of the people are not have
awareness regarding commodity.

 
02

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'$$ '$$& .$$&  1$$&
.$$ 1$$

Almost we can say 75% of the people are having awareness and they are investing
in share market only the investment defers. And people whose income is between 4
lakh and above are very high risk takers comparing to other income slab groups as
they are ready to invest for long run if the market is down and coming to the
income slab of 2-4 lakh they prefer to invest for short term and less of long term.

Even we can promote the de-mat a/c whose income is less than
2lakh by providing service like when to buy and sell the share. By assuring the
service like when to buy and sell, we can increase the new clients.

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Most of the people who are employed are doing trading by off line mode and less
of online mode, comparing to self employed (business) the reason being they are
not much interested in share market as market may go up or down. They feel that it
is much better to invest in their business. Some of the students also have invested
in share market.

So here we have the opportunity to promote the product to self

employed people by providing service in the way of giving guidelines when to
buy and sell.

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&2

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/  !

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As we see the graph most of the employees are interested in investing in equity
market and self employed people have invested in insurance and mutual funds and
those whose income is more than 4lakh are investing in derivatives and some of
the old age people have invested in fixed deposit, reason being that they don¶t want
to take risk and they are not having awareness on share market.

Here the people of old age, self employed and students are not having much
awareness on share market so it is easy to promote them by bringing the awareness
and assurance of service.

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20

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As of my research most of the people whose income is of 2lakhs and above 4lakhs
are spending their leisure time in fast foods with friends and colleges and people
whose income slab is more than 6lakh and some people whose income lab is above
4lakh also spend their time in restaurants and malls .

So as of research says that most of the

people spend their time in fast food and other. So here we can install umbrellas and
other modes to promote our product.

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&&

32

 

Most of the employees and students are interested in reading poster while they are
travelling.

So as of research says most of the people are reading posters so I think it is

also one of the best and cheapest way of promoting the product. I prefer to stick
posters near bus stops and public areas.

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&&
32

 

People of employees and students who are travelling in public transportation are
observing offers on automobiles and the people who are travelling on their own
vehicles are observing when they are stuck in traffic and during traffic light
junctions.

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A

&*

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Most of the employees are not viewing the pop-ups in internet, they feel that they
are less of important and some are of busy and not having much time to look of
them and some of the students are very much interested in looking of pop-ups.

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Most of the employees are willing to spend their free time on watching TV,
reading news papers and surfing net and most of the students are spending their
free time in surfing net, watching TV and listing to radio. So I feel that we can
promote by advertising in net, magazines are some of the best modes of advertising
media.

A
 
  



&.1

*.

 

Most of the people are not interested in viewing bottom scroll in local channels. So
advertising in scroll in local channels will not help much in promotion of a
product.

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QUESTIONNAIRE

NAME: E-mail-

DESIGNATION- Phone No.-

AGE-

1. What is your age?

20 to 30
31 to 40
41 to 50
More than 51

2. Where do you live?

(Name of the areas)

3. Gender
Male
Female

4. Are you aware of Indiabulls?

Yes
No

5. Are you aware of share trading and commodity trading?

Yes
No

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 6. Do you invest in shares or commodities?
Yes
No

7. Annual income group?

Less than rs 2, 00,000
2, 00,001 to 4, 00,000
4, 00,001 to 6, 00,000
More than 6, 00,001

8. Occupation
Student
Employed
Self employed

9. Where do you invest

Mutual funds
Equity
Derivative
Insurance
Fixed deposits

10. Where do you spend most of your leisure time?

Malls
Parks
Restaurants
Fast food joints

11. Do you read posters while travelling

Yes
No

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 12. Do you observe the promotional offers on automobiles especially buses on
the roads
Yes
No

13. Do you click on the pop-ups that come up when you open certain websites
Yes
No

14. Do you change channels when commercials come?

Always
Sometimes
Never

15. What do you do the most in your free time?

Watch TV
Listen to radio
Read newspapers and magazines
Travel
Surf internet

16. Do you read the bottom scroll that moves in local channels?
Yes
No

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†


The Above Questionnaire helps in analyzing the investment behavior of
an individual investor. On the basis of the above questionnaire it
becomes easy to classify.

The questions above are quite simple to

comprehend and are mostly self explanatory which gives the individual
investor the risk that he could take in his daily life which in turn would
reflect in his investment portfolio.

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CONCLUSION
Business Growth in the Derivatives Segment Vs Equity Market Segment

The Derivatives Segment has shown a tremendous growth over the years
both in terms of number of contracts traded as well as the overall turnover. During
the time of the inception of the derivatives market in India back in 2000-01 the
total number of contracts traded were 90,580 in the index futures with a turnover of
2365 cr. As of April 2007 the total number of contracts traded in index futures in
April alone are 10, 383,282 which account for a turnover of 205,458 cr. Today the
index futures account for nearly 1/3 of the total turnover of the equity derivatives
market in India.

× The stock futures have shown a similar impressive growth. The total no of
contracts traded in 2001-02 were 1,957,856 amounting to 51,515 cr. This
number has increased significantly. As of Apr 2007 the total number of
contracts traded in April alone is 10,647,866 amounting to 296,629 cr. in
2008-2009 it has grown up to 52.49 lakh crore. 
(http://www.fmc.gov.in/docs/press-update/press-note-kochi-03-7-09.pdf)
So for that we have to study & analyze the performance of Equity & Derivative in

the market. We know that there is a high risk, high return in equity but in a long

time only. While in derivative there is a high risk, high return in the short term,

because derivative contract is for short time for 1/2/3 months only. So this project

included different types of returns, margin & risk involved in equity, and types,

need, use & margin involved in the derivatives market and also participants &

terms use in derivative market.

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 REFERENCES
BOOKS
ii. Marketing Management (12th edition ) by Philip Kotler and Kevin Lane
Keller
iii. Services Marketing (6th edition) by Christopher Lovelock and Jochen Wirtz
iv. NCFM
v. Financial Management (8th edition) by I.M. Pandey
vi. Financial Management (6th edition) by Prasanna Chandra

INTERNET

www.moneycontrol.com
www.nse.com
www..com
www.indiastockmarket.com
www.livemint.com
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