Sip Report

A SUMMER INTERNSHIP PROJECT ON
“COMPARITIVE STUDY ON EQUITY DERRIVATIVES OF FOUR SELECTED

COMPANIES”
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE

TWO YEAR FULL TIME POST GRADUATE DIPLOMA IN MANAGEMENT
Prepared by:
Name GARIMA JAIN

Roll no: 161212,
Batch: 24th (2016-2018)
Under the guidance of:
SIP Mentor- Dr. Ch.Jyothi

Professor, VJIM.
And
SIP Guide- Mr.GVL Narayana Rao,

Territory Manager, Sharekhan Ltd.
VIGNANA JYOTHI INSTITUTE OF MANAGEMENT

VJIM, Vignana Jyothi Nagar, Bachupally, (Via), Kukatpally, Hyderabad, Telangana 500090
Phone: 040 2304 4951, Website: www.vjim.edu.in
Description of Internship
Title of SIP project : Comparitive study on Equity Derrivatives (selected companies)

Name of the student: Garima Jain
Name of the company: Sharekhan Ltd.
Department (where internship carried out): Finance Department
Company mentor details:

Name: GVL Narayana Rao
Designation: Territory Manager
Contact details:
Email Id: gvlnarayana@branch.sharekhan.com
Company address: Skill Spectrum, Flat No.202,
2nd floor, B/S TTD Temple,
Himayat Nagar, Hyderabad – 500 029
Contact number: 9701360910 / 9849930855
Website: www.sharekhan.com
INTERNSHIP CERTIFICATE
CERTIFICATE
I hereby declare that this Project Report titled “COMPARITIVE STUDY ON EQUITY
DERRIVATIVES OF FOUR SELECTED COMPANIES” submitted by me, is a bonafide
work undertaken by me and it is not submitted to any other Institution or university for the
award of any degree/diploma certificate or published any time before.
Signature of the Guide
Date:
TABLE OF CONTENTS
S.no Particulars Pg.no

1) Executive Summary 1
2) Introduction 2
3) PMCI Analysis 3-6
4) Introduction of Project 7
5) Future derivative 8-10
6) Types of futures 11-14

7) Equity derivative 15-17
8) Emperical Study 18-39
9) Conclusion 40
10) Bibliography 41
EXECUTIVE SUMMARY
An equity derivative is a derivative instrument with underlying assets based on equity
securities. An equity derivative's value will fluctuate with changes in its underlying asset's
equity, which is usually measured by share price. Investors can use equity derivatives to hedge
the risk associated with taking a position in stock by setting limits to the losses incurred by
either a short or long position in a company's shares.
The study conducted on the future prices and the actual equity stock performance using past
24 months data to understand weather future contract prices are effective indicators of actual
equity stocks.
This study clearly explain the different future contract prices that are one month contracts
with respective equity stocks, two month contracts with respective equity stocks and three
month contracts with respective equity stocks.
This study is carried on 4 different companies of different sectors, they are following
1. ITC
2. TCS
3. HDFC
4. DR REDDY’S
The following report has been prepared to Find whether future prices are effective predictors
of actual equity stocks and the main tool applied for this study is co-relation coefficient and to
study the various derivative instruments such as futures, forwards, options, etc. and after a
detailed analysis and study we can say that one month contact prices are more effective
predictors then the two months and three month contracts.
PMCI Analyses of ShareKhan ltd.

PRODUCT
The following are the products and services of Sharekhan limited are as follows:
 Depository services
 Equity and derivatives trading
 Online services
 Commodity trading
 Dial and trade
 Portfolio management
 Share shops
 Fundamental research
 Technical research
Sharekhan also provides four in one account:

 Demat account
 Trading account for cash calculation
 Bank account for fund transfer
 Dial and trade for query related trading
Primary Value Components
Investment services offered to individual investors come in many types of packaging and
delivery. Discount brokerage houses, full-service brokerage houses, load mutual fund firms, no-
load mutual fund firms, banks, insurance companies, private money management firms and
fee-based advisors all attempt to convince investors that they can provide the best available
alternatives when it comes to managing your money. Yet, despite their differences, each of
these delivery channels is "fishing from the same pond". Each is largely using the same broad
asset components - cash, bonds and stocks. The packaging may differ, but the components
within the package are largely the same. More importantly, they are each providing all or part
of three primary value components:
 ADVICE - The process of defining and implementing an appropriate investment

strategy given an investor's objectives and particular constraints.
 PORTFOLIO MANAGEMENT - The process of building and maintaining an
investment portfolio that properly addresses the strategy that the advisory component
has defined.
 ADMINISTRATION - All the trading, clearing and reporting functions required to
effectively execute the portfolio management processes.
MARKET
The stock broking market falls under monopolistic competition. There are many producers and
many consumers in the market, and no business has total control over the market price.
Consumers perceive that there are non-price differences among the competitor’s products and
there are few barriers to entry and exit. In stock broking market, there are various big
companies alongside Sharekhan they are- Karvy, HDFC direct, HDFC securities, Kotak
securities etc.
The competition in this market is very stiff. At present Sharekhan major clients are trading
through online. Sharekhan has its branches all over the country and company is growing fast.
The stock broking companies not only do trading on behalf of its clients, but also provide them
important advice, which makes their work interesting.
COMPANY
Sharekhan is India’s leading online retail broking house, founded by “Shripal Morakhia” which
was launched on February 8, 2000 as an online trading portal, Sharekhan has today a pan-India
presence with over 1,529 outlets serving 950,000 customers across 575 cities in India.
Sharekhan is ranked 2nd largest stock broker portal. It also has international presence through
its branches in the UAE and Oman. . Sharekhan has also set its global footprint through the
“India First” initiative, a series of seminars conducted by Sharekhan to help the non-resident
Indians participate and benefit from the huge investment opportunities in IndiaSharekhan is one
of the top retail brokerage house in India with strong online trading platform. The company
provides equity based products (research, equities, derivatives, depository, margin funding
etc.). It is one of the largest networks in the country with 704 share shops in 280 cities and
India’s premier online trading portal. With their research expertise, customer commitment and
superior technology, they provide investors with end to end solutions in investments. They
provide trade execution services through multiple channels- an internet platform, telephone and
retail outlets.
Sharekhan has one of the best states of art web portal providing fundamental and statistical
information across mutual funds and IPOs. One can surf across 5500 companies in depth
information, details about more than 1500 mutual fund schemes and IPO data.
INDUSTRY:
The Financial Services (Diversified) Industry consists of a collection of companies that offer a
wide variety of products and services. Asset managers and credit card companies are the two
largest groups within the industry, but after that, little commonality exists. Banking,
commercial lending, insurance, student loan origination, pawn brokerage, tax preparation, and
aircraft leasing are just a few of the other businesses. Thus, given such a span of operating
models and market segments, it is important not to paint the industry with too narrow an
investment brush. The main competitors of sharekhan ltd. are Reliance capital, India bulls,
Angel broking.
India has approximately 1 crore Demat accounts. In a country of 125+ crore people, this
translates to less than 1% market penetration by broking firms. Of these 1 crore demat
accounts, many are owned by the same individual or are owned by members of the same
family, and many more are practically dormant. This effectively means that only around 40-60
lakh Indian investors are directly holding Indian shares.
Following are the key challenges faced by Indian broking Industry:
 Lower Margins in Broking. There is tremendous competition to Indian Full service

Brokers from Discount Brokers and Foreign Banks. Discount brokers like ‘Zerodha’ are
giving maximum 20 rupee trade for execution, which puts a significant price pressure
on full service brokers. In fact, the broking margins are so thin; companies struggle to
meet their fixed costs with any variable volume revenue models in the industry. This
puts a lot of pressure on brokers to encourage “churning” or over trading, which makes
retail investors lose money in the long run. The easiest way for a retail investor to make
money is to stay invested in a well-diversified basket of good quality stocks over a long
period; however, brokers hate this! Foreign banks (FIIs) spoil the party further by
bringing a large volume of overseas clients, who trade a large number of Indian shares
and move the price up or down at their own whims and fancies.
 Lower Retail Investor Participation. The traditional investment preference of Indians

in real assets like gold or real estate has not helped the industry as a whole. After a
number of investor awareness sessions are held by brokers/NSE, people are gradually
warming up to the idea of equity investing. However, the pace of people adopting
financial assets is still low. The past scams, lack of understanding of volatility, and the
cultural obsession with gold & land has not helped fellow Indians in taking a
meaningful pie of shares. Due to lack of Indian retail participants, foreign investors are
eating the cake of India’s growth story (and rising stock market).
Increasing Costs and Additional Investments. Stock markets are always evolving. They add
newer products, technologies, and provide newer opportunities to trade. Brokerages need to
invest in newer technologies trading platforms and algorithms continuously or risk-losing
trading clients. For example, addition of commodity or currency segments involves additional
expenses for brokers to enable the trading and settlement infrastructure for the new products.
Likewise adoption of mobile technologies involves investment in applications and portfolio
management systems which further increase costs. Besides, brokers need to pay their staff
exchange memberships and other infrastructure in order to make a profit, finally.
INTRODUCTION Of THE PROJECT
Financial derivatives
The past decade has witnessed the multiple growths in the volume of international trade
and business due to the wave of globalization and liberalization all over the world. As a
result, the demand for the international money and financial instruments increased
significantly at the global level.
In this respect, changes in the interest rates, exchange rates and stock market prices at the
different financial markets have increased the financial risks to the corporate world.
Adverse changes have even threatened the very survival of the business world. It is,
therefore, to manage such risks; the new financial instruments have been developed in the
financial markets, which are also popularly known as financial derivatives.
The basic purpose of these instruments is to provide commitments to prices for future
dates for giving protection against adverse movements in future prices, in order to reduce
the extent of financial risks. Not only this, they also provide opportunities to earn profit
for those persons who are ready to go for higher risks. In other words, these instruments,
indeed, facilitate to transfer the risk from those who wish to avoid it to those who are
willing to accept the same.
Today, the financial derivatives have become increasingly popular and most
commonly used in the world of finance. This has grown with so phenomenal speed all
over the world that now it is called a s the derivatives revolution. In an estimate, the
present annual trading volume of derivative markets has crossed US $ 30,000 billion,
representing more than 100 times gross domestic product of India.
Financial derivatives like futures, forwards options and swaps are important tools to
manage assets, portfolios and financial risks. Thus, it is essential to know the
terminology and conceptual framework of all these financial derivatives in order to
analyze and manage the financial risks. The prices of these financial derivatives
contracts depend upon the spot prices of the underlying assets, costs of carrying
8
Assets into the future and relationship with spot prices. For example, forward and
futures cntracts are similar in nature, but their prices in future may differ. Therefore,
before using any financial derivative instruments for hedging, speculating, or arbitraging
purpose, the trader or investor must carefully examine all the important aspects relating
to them.
Futures
A futures contract, or simply called futures, is a contract to buy or sell a stated quantity
of a commodity or a financial claim at a specified price at a future specified date.
The parties to the futures have to buy or sell the asset regardless of what happens to its
value during the intervening period or what happens to be the price on the date
When the contract is implemented. Both the parties to the futures have a right to transfer
the contract by entering into an offsetting futures contract. If not transferred until the
settlement/specified date, then they have obligations to fulfill the terms and conditions of
the contract.
Futures are traded on the exchanges and the terms of the futures contracts are
standardized by the exchange with reference to quantity, date, units of price
quotation, minimum change in price (tick), etc. Futures can be in respect of
commodities such as agricultural products, oil, gas, gold, silver, etc., or of financial
claims such as shares, debentures, treasury bonds, share index, foreign exchanges, etc.
In a futures contract, the parties fix the terms of the transaction and lock in the price at
which the transaction will take place between them at future date. The futures contract,
207 as they appear to be, providing for the physical delivery of the asset, however, in
practice most of the futures are settled by and offsetting futures contract. If a particular
futures is not settled by the party himself then it will be settled by the exchange at a
specified price and the difference is payable by or to the party.
The basic motive for a future is not the actual delivery but the hedging for future risk or
speculation. Further, in certain cases, the physical asset does not exist at all. For example,
in case of Stock Index Futures, the Index is the weighted average price and cannot be
delivered. So, such futures must be cash settled only.
Types of Future Contract
There are different types of contracts in financial futures which are traded in the
various futures financial markets of the world. These contracts can be classified
into
Following categories
Interest Rate Futures
It is one of the important financial futures instruments in the world. Futures trading on
interest bearing securities started only in 1975, but the growth in this market have been
tremendous. Important interest- bearing securities are like treasury bills, notes, bonds,
debentures, euro-dollar deposits and municipal bonds. In this market, almost entire range
of maturities bearing securities is traded.
Foreign Currencies Futures
These financial futures, as the name indicates, trade in the foreign currencies, thus, also
known as exchange rate futures. Active futures trading in certain foreign currencies
started in the early 1970s. Important currencies in which these futures contracts are made
such as US-dollar, Pound Sterling, Yen, French Francs, Marks, Canadian dollar, etc.
Stock Index Futures
These are another major group of futures contracts all over the world. These contracts are
based on stock market indices. For example, in the US markets, there exist various such
futures contracts based on different indices like Dow Jones
Industrial Average, Standard and Poor’s 500, New York Stock Exchange Index, Value
Line Index, etc. Other important futures contracts in different countries are like in
London market, based on the Financial Times—Stock Exchange 100 share Index,
Japanese Nikkei Index on the Tokyo Futures Exchange and on the Singapore
International Monetary Exchange (SIMEX) as well.
Bond Index Futures
Like stock index futures, these futures contracts are also based on particular bond
indices, i.e., indices of bond prices. As we know that prices of debt instruments are
inversely related to interest rates, so the bond index is also related inversely to them. The
important example of such futures contracts based on bond index is the Municipal Bond
Index futures based on US Municipal Bonds which is traded on Chicago Board of Trade
(CBOT).
Cost of Living Index Futures
This is also known as inflation futures. These futures contracts are based on a specified
cost of living index, for example, consumer price index, wholesale price index, etc. At
International Monetary Market (1MM) in Chicago, such futures contracts based on
American Consumer Price Index are traded. Since in USA, the inflation rates in 1980s
and 1990s were very low, hence, such contracts could not be popular in the futures
market. Cost of living index futures can be used to hedge against unanticipated inflation
which cannot be avoided. Hence, such futures contracts can be very useful to certain
investors like provident funds, pension funds, mutual funds, large companies and
governments.
Equity Derivatives
An equity derivative is a derivative instrument with underlying assets based on equity

securities. An equity derivative's value will fluctuate with changes in its underlying
asset's equity, which is usually measured by share price.
Futures contracts are one of the most common types of derivatives. A futures
contract (or simply futures, colloquially) is an agreement between two parties for the
sale of an asset at an agreed upon price. One would generally use a futures contract to
hedge against risk during a particular period of time. The futures contract may in part be
considered to be something like a bet between the two parties.
Options are another common form of derivative. An option is similar to a futures
contract in that it is an agreement between two parties granting one the opportunity to buy
or sell a security from or to the other party at a predetermined future date. Yet, the key
difference between options and futures is that with an option the buyer or seller is not
obligated to make the transaction if he or she decides not to, hence the name “option.”
(source:nseindia.com)
Derivative is a broad category of security, so using derivatives in making financial

decisions varies by the type of derivative in question. Generally speaking, the key to
making a sound investment is to fully understand the risks associated with the derivative,
such as the counterparty, underlying asset, price and expiration. The use of a derivative
only makes sense if the investor is fully aware of the risks and
Understands the impact of the investment within a portfolio strategy.
16
Objectives of study
The main objective of the study is to
1. To understand dynamics of derivative instruments such as futures, forwards,

options, etc in India
2. To understand the efficiency of future contracts in predicting
the equity sport prices
3. T o a n a l y s e t h e i m p a c t o f f u t u r e s c o n t r a c t d u r a t i o n o n i t s
efficiency in discovering the spot price.
Methodology:
The study used coefficient of correlation to understand the relation between future contract
price and sport market prices.
The correlation coefficient is a measure that determines the degree to which two variables'
movements are associated. The range of values for the correlation coefficient is -1.0 to 1.0. If a
calculated correlation is greater than 1.0 or less than -1.0, a mistake has been made. A
correlation of -1.0 indicates a perfect negative correlation, while a correlation of 1.0 indicates a
perfect positive correlation
Positive correlation is a relationship between two variables in which both variables move in
tandem. A positive correlation exists when one variable decreases as the other variable
decreases, or one variable increases while the other increases.
Negative correlation is a relationship between two variables in which one variable increases as
the other decreases, and vice versa.
This study used four stocks for the analysis.
The study conducted on the future prices and the actual equity stock performance using past
24 months data for the following companies.
1. ITC
2. TCS
3. HDFC
4. DR.REDDY’S
Following companies has been chosen because
 To get clear understanding of different sectors including FMCG, IT, Banking and
Pharma.
 These companies are leading companies in their sectors
 These companies have huge investors and more new investors are looking to invest in
such companies.
 These companies are showing consistent growth in market and are financially stable.
ABOUT ITC
ITC is one of India's foremost multi-business enterprise with a market capitalization of

US $ 40 billion and a turnover of US $ 8 billion. ITC is rated among the World's Best Big
Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes
magazine and as 'India's Most Admired Company' in a survey conducted by Fortune India
magazine and Hay Group.
ITC also features as one of world's largest sustainable value creator in the consumer
goods industry in a study by the Boston Consulting Group. ITC has been listed among
India's Most Valuable Companies by Business Today magazine. The Company is among
India's '10 Most Valuable (Company) Brands', according to a study conducted by Brand
Finance and published by the Economic Times.
ITC also ranks among Asia's 50 best performing companies compiled by Business Week.
Today, ITC is India's leading Fast Moving Consumer Goods company, the clear market
leader in the Indian Paperboard and Packaging industry, a globally acknowledged
pioneer in farmer empowerment through its wide-reaching Agri
Business and runs the greenest luxury hotel chain in the world.
ITC Infotech, a wholly-owned subsidiary, is one of India's fast-growing IT companies in
the mid-tier segment. This portfolio of rapidly growing businesses considerably enhances
ITC's capacity to generate growing value for the Indian economy.
Over the last twenty years, ITC has created multiple drivers of growth by developing a
portfolio of world-class businesses and brands. ITC’s Net Revenue and Net Profit
recorded an impressive compound growth of 14.3% and 19.9% per annum respectively.
During this period, Return on Capital Employed improved substantially from 28.4% to
43.1% while Total Shareholder Returns, measured in terms of increase in market
capitalization and dividends, grew at a compound annual growth rate of 23.3%, placing
your Company amongst the foremost in the country in terms of efficiency of servicing
financial capital. ITC stock price is RS 248.
(source- money control)
19
About
TCS
Tata Consultancy Services Ltd is an information technology (IT) company. The company
offers a range of IT services, outsourcing and business solutions. They also offer IT
infrastructure services, business process outsourcing services, engineering and industrial
services, global consulting and asset leveraged solutions.
Their segments include banking, financial services and insurance;

manufacturing; retail and distribution, and telecom.
The company is a part of Tata Group, one of India's most respected business
conglomerates and most respected brands. They are headquartered in Mumbai. They are
having 142 offices in 42 countries as well as 105 delivery centers in 20 countries. The
company shares are listed on the National Stock Exchange and Bombay Stock Exchange
of India.
Tata Consultancy Services Ltd was incorporated in the year 1968. Tata Sons Ltd
established the company as division to service their electronic data processing (EDP)
requirements and provide management consulting services. In the year 1971, they started
their first international assignment. The company pioneered the global delivery model for
IT services with their first offshore client in 1974.
Revenue: -
INR Revenue of 1.086 TN, growth of 14.8% YoY
20
USD Revenue of $ 16,545 MN, growth of 7.1% YoY
Constant currency revenue growth of 11.9%
Profit: -
Operating Income at 287,901 MN, Operating Margin of 26.5% Net
Income at 242,149 MN, Net Margin of 22.3%
Demand: -
Clients in $100M+ revenue band increased by 8 in $20M+ revenue band by

11 and in $10M+ revenue band by 37
Steady growth across all key industry segments
People: -
Gross addition of 90,182 associates, Net addition of 34,187
21
Closing headcount: 353,84
About HDFC BANK
HDFC Bank is India's largest private sector bank with total assets of 473158.10 crore at
March 31, 2017 and profit after tax Rs. 8628,76 crore for the year ended March 31, 2017.
HDFC Bank currently has a network of 4,450 Branches and 13,999 ATM's across India.
HDFC has 16% year-on-year growth in domestic advances; retail portfolio crossed
2,00,000 crore (US$ 30.2 billion) during the quarter ended March 31, 2016 (Q4-
2016) and grew by 23% year-on-year.
HDFC has 17% year-on-year growth in current and savings account (CASA)
deposits; CASA ratio at 45.8% at March 31, 2016.
22
The Bank has made a collective contingency and related reserve of ` 3,600 crore (US$
543 million) during Q4-2016, over and above provisions made for non- performing and
restructured loans as per Reserve Bank of India guidelines.
PROFITS
Standalone profit before collective contingency and related reserve and tax was `
15,796 crore (US$ 2.4 billion) for the year ended March 31, 2016 (FY2016) compared to
` 15,820 crore (US$ 2.4 billion) for the year ended March 31, 2015 (FY2015)
Standalone profit before collective contingency and related reserve and tax was `
3,782 crore (US$ 571 million) for Q4- 2016
Standalone profit after collective contingency and related reserve and tax was ` 702 crore
(US$ 106 million) in Q4-2016 and ` 9,726 crore (US$ 1.5 billion) in FY2016
Total capital adequacy of 16.64% and Tier-1 capital adequacy of 13.09% on standalone
basis at March 31, 2016, significantly higher than regulatory requirements
Dividend of ` 5 per share proposed

Dr Reddy’s Laboratories
Dr Reddy's Laboratories is a 25–year old company catering to the needs of the
pharmaceutical sector. Dr Reddy's started its operation in 1984 in the Actove
Pharmaceutical Ingredients (API) segment, with a single drug in 60 tons facility near
Hyderabad. In 1986 it’s shipped its first consignment of Methyldopa drug to West
Germany.
It is among the top three API players in world. Dr Reddy's, a global pharmaceutical
company, has its headquarters located in India. It has a global presence in more than
100 countries, with subsidiaries in the US, UK, Russia, Germany and Brazil; joint
ventures in China, South Africa and Australia; representative offices in 16 countries
and third–party distribution set ups in 21 countries.
24
It is first pharmaceutical company in Asia, outside Japan, to be listed on the NYSE. It is
largest player in the custom pharmaceutical services (CPS) business in India. The
pharma major has launched brands like Ciprolet, Nise, Enam, Stamlo, Omez, and Ketorol
among others.
Dr Reddy’s Laboratories launched Imitrex (sumatriptan succinate) tablets in dosages of
25mg, 50mg, and 100mg in the US. It is the authorized generic version of
GlaxoSmithKline’s Imitrex. It is first company to launch Imitrex (generic version)
in the US market.
These tablets are for treatment of acute treatment of migraine in adults.
REVENUES
Revenue from Emerging Markets was Rs. 23.59 billion, decline of 25% on a year– on–
year basis. Revenue from India stood at Rs. 21.29 billion, registering a year–on– year
growth of 19%.
Revenues from PSAI stood at Rs. 22.38 billion, decline of 12% on a year–on–year basis.
During the year, 50 Drug Master
It recommend a dividend of Rs. 20/– per equity share of Rs. 5/– (400%) for FY2016.
The paid–up share capital of the Company increased by Rs. 1.13 million to
Rs. 853.04 million in FY2016, due to the allotment of 226,479 equity shares
25
(source: money control)
FUTURE CONTRACTS MONTH WISE
The study is carried out on three types of future contracts that are one month contracts 2
month contracts and 3 month contracts. And every contract will ends on the last Thursday
of the respective month.
26
ITC LAST 2 YEAR FUTURE CONTRACTS
One month contract data
This study carried on data of ITC LTD for 24 months and the below graph represents all short
contracts that are one month contracts and for that
Correlation coefficienr = cov (x,y) / (sdx *sdy) = 18.00034/ 18.83456 = 0.955708
This correlation is calculated between future settled prices and underlying value of ITC that
is nothing but Share price
Chart Title
325
320
315
310
305
300
295
290
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Settle Price Underlying Value
This indicates share price of ITC LTD are very much correlated with the
past future prices (one month contracts)
Two month contract data

This study carried on data of ITC LTD for 24 months and the below graph represents all
medium contracts that are two month contracts and for that
This correlation is calculated between future settled prices and underlying value of ITC that is
nothing but Share price
Chart Title
295
290
285
280
275
270
265
260
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
This indicates share price of ITC LTD are very much correlated with the past future prices
(two month contracts)
ITC THREE MONTH CONTRACT DATA

This study carried on data of ITC LTD for 24 months and the below graph represents all long
contracts that are three month contracts and for that
This correlation is calculated between future settled prices and underlying value of ITC that
This indicates share price of ITC LTD are very much correlated with the past future prices
(three month contracts)
Chart Title
295
290
285
280
275
270
265
260
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
If we observe these three cases the correlation is more for one month contracts
compared to the other two contracts.
TCS LAST 24 MONTHS FUTURE CONTRACTS
This study carried on data of TCS for 24 months and the below graph represents all short
contracts that are one month contracts and for that
Correlation coefficienr = cov (x,y) / (sdx *sdy) = 8463.012 / 8494.468 = 0.996297
Chart Title
2800
2700
2600
2500
2400
2300
2200
2100
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

This correlation is calculated between future settled prices and underlying value of TCS that
This indicates share price of TCS are very much correlated with the past future prices (one
month contracts)
This study carried on data of TCS for 24 months and the below graph represents all
Chart Title
2700
2600
2500
2400
2300
2200
2100
2000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

This indicates share
price of TCS are very much correlated with the past future prices (two month contracts)
Three month contract data
This study carried on data of TCS for 24 months and the below graph represents all long
contracts that are three month contracts and for that
Chart Title
2500
2450
2400
2350
2300
2250
2200
2150
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

This indicates
share price of TCS are very much correlated with the past
future prices (three month contracts)
32
DR REDDYS LAST 2 YEAR FUTURE CONTRACTS
This study carried on data of DR REDDYS for 24 months and the below graph represents
all short contracts that are one month contracts and for that
This correlation is calculated between future settled prices and underlying value of DR
REDDYS that is nothing but Share price
This indicates share price DR REDDYS are very much correlated with the past future prices
(one month contracts)
Chart Title
2750
2700
2650
2600
2550
2500
2450
2400
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

all medium contracts that are two month contracts and for that
(two month contracts)
Chart Title
2800
2700
2600
2500
2400
2300
2200
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
all long contracts that are three month contracts and for that
(three month contracts)
Chart Title
2850
2800
2750
2700
2650
2600
2550
2500
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
HDFC LAST 2 YEAR FUTURE CONTRACTS
This study carried on data of HDFC for 24 months and the below graph represents all
short contracts that are one month contracts and for that
Chart Title
1680
1660
1640
1620
1600
1580
1560
1540
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
This correlation is calculated between future settled prices and underlying

value of HDFC that is nothing but Share price
This indicates share price of HDFC are very much correlated with the past
future prices (one month contracts)
This correlation is calculated between future settled prices and underlying value
of HDFC that is nothing but Share price
future prices (two month contracts)
Chart Title
1620
1600
1580
1560
1540
1520
1500
1480
1460
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
long contracts that are three month contracts and for that
This correlation is calculated between future settled prices and underlying value
of HDFC that is nothing but Share price
future prices (three month contracts)
1650
1600
Chart Title
1550
1500
1450
1400
1350
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

FINDINGS
ITC 2 month and 1 month future contracts are highly correlated with SPOT prices as compared
to 3 month future contracts
TCS all type of future contracts ( 1 month 2 month and 3 month) are highly correlated with
SPOT prices though 1 month and two month contract prices show little higher correlation than
3 month future contract prices
Dr. Reddy’s all type of future contracts ( 1 month 2 month and 3 month) are highly correlated
with SPOT prices though 1 month and two month contract prices show little higher correlation
than 3 month future contract prices
HDFC all type of future contracts ( 1 month 2 month and 3 month) are highly correlated with
SPOT prices though 1 month and two month contract prices show little higher correlation than
3 month future contract prices
Suggestions
 Before investing in equity investor should watch volume of future stock and price
trading in market
 Investor should look at market trend
 Investor should invest in companies which are financial stable and have a future
growth.
Conclusion
The study conclude that the future prices are effective predictors of actual equity stock
prices based on the past 24 months.
By finding the co-relation between the future prices and equity stock prices we observe
future contracts are very much close to actual equity stock performance.
In this study we segregate the future contract in to three types based on the time period of
contacts and from that study we can say that one month contact prices are more effective
predictors then the two months and three month contracts.
BIBLIOGRAPHY
www.nseindia.com
www.sharekhan.com
www.profit.ndtv.com
www.moneycontrol.com
40

Sip Report

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Sip Report

Uploaded by

Copyright:

Available Formats

A SUMMER INTERNSHIP PROJECT ON

“COMPARITIVE STUDY ON EQUITY DERRIVATIVES OF FOUR SELECTED

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE

Name GARIMA JAIN

Under the guidance of:

SIP Mentor- Dr. Ch.Jyothi

SIP Guide- Mr.GVL Narayana Rao,

VIGNANA JYOTHI INSTITUTE OF MANAGEMENT

Title of SIP project : Comparitive study on Equity Derrivatives (selected companies)

Company mentor details:

Signature of the Guide

S.no Particulars Pg.no

3) PMCI Analysis 3-6

5) Future derivative 8-10

6) Types of futures 11-14

PMCI Analyses of ShareKhan ltd.

Sharekhan also provides four in one account:

 ADVICE - The process of defining and implementing an appropriate investment

Following are the key challenges faced by Indian broking Industry:

 Lower Margins in Broking. There is tremendous competition to Indian Full service

 Lower Retail Investor Participation. The traditional investment preference of Indians

Interest Rate Futures

Foreign Currencies Futures

Stock Index Futures

Bond Index Futures

Cost of Living Index Futures

An equity derivative is a derivative instrument with underlying assets based on equity

Derivative is a broad category of security, so using derivatives in making financial

The main objective of the study is to

1. To understand dynamics of derivative instruments such as futures, forwards,

Following companies has been chosen because

ITC is one of India's foremost multi-business enterprise with a market capitalization of

(source- money control)

Their segments include banking, financial services and insurance;

INR Revenue of 1.086 TN, growth of 14.8% YoY

Constant currency revenue growth of 11.9%

Operating Income at 287,901 MN, Operating Margin of 26.5% Net

Income at 242,149 MN, Net Margin of 22.3%

Clients in $100M+ revenue band increased by 8 in $20M+ revenue band by

Steady growth across all key industry segments

Gross addition of 90,182 associates, Net addition of 34,187

(source- money control)

About HDFC BANK

Dividend of ` 5 per share proposed

FUTURE CONTRACTS MONTH WISE

One month contract data

Settle Price Underlying Value

Two month contract data

Settle Price Underlying Value

ITC THREE MONTH CONTRACT DATA

Settle Price Underlying Value

One month contract data

Settle Price Underlying Value

Two month contract data

Correlation coefficienr = cov (x,y) / (sdx *sdy) = 10763.82 / 10803.14 = 0.996361

Settle Price Underlying Value

Correlation coefficienr = cov (x,y) / (sdx *sdy) = 3770.736 / 3850.168 = 0.979369

Settle Price Underlying Value

future prices (three month contracts)

One month contract data

Correlation coefficienr = cov (x,y) / (sdx *sdy) = 2729.969 / 2735.292 = 0.998054

Two month contract data

Three month contract data