INDUSTRY OVERVIEW

INTRODUCTION
Stock exchanges to some extent play an important role as indicators, reflecting the performance of the countrys economic state of health. Stock market is a place where securities are bought and sold. It is exposed to a high degree of volatility, prices fluctuate within minutes and are determined by the demand and supply of stocks at a given time. Stock brokers are the ones who buys and sells securities on behalf of individuals and institutions for some commission. The Securities and Exchange oard of India !SE I" is the authori#ed body, which

regulates the operations of stock exchanges, banks and other financial institutions. The past performances in the capital markets especially the securities scam by $%asrshad &ehta has led to tightening of the operations by SE I. In addition the international trading and investment exposure has made it imperative to better operational efficiency. 'ith the view to improve, discipline and bring greater transparency in this sector, constant efforts are being made and to a certain extent improvements have been made.

 HISTORY
HISTORY OF THE STOCK BROKING INDUSTRY
Indian Stock &arkets are one of the oldest in (sia. Its history dates back to nearly )** years ago. The earliest records of security dealings in India are meager and obscure. y +,-*.s business on corporate stocks and shares in ank and /otton presses took place in ombay. Though the trading list was broader in +,-0, there were only half a do#en brokers recogni#ed by banks and merchants during +,1* and +,2*. The +,2*.s witnessed a rapid development of commercial enterprise and brokerage business attracted many men into the field and by +,3* the number of brokers increased into 3*. In +,3*43+ the (merican /ivil 'ar broke out and cotton supply from 5nited States of Europe was stopped6 thus, the .Share &ania. in India begun. The number of brokers increased to about )** to )2*. %owever, at the end of the (merican /ivil 'ar, in +,32, a disastrous slump began !for example, ank of ombay Share which had touched 7s ),2* could only be sold at 7s. ,8". (t the end of the (merican /ivil 'ar, the brokers who thrived out of /ivil 'ar in +,81, found a place in a street !now appropriately called as 9alal Street" where they would conveniently assemble and transact business. In +,,8, they formally established in ombay, the :;ative Share and Stock rokers.

(ssociation: !which is alternatively known as :The Stock Exchange:". In +,02, the Stock Exchange ac<uired a premise in the same street and it was inaugurated in +,00. Thus, the Stock Exchange at ombay was consolidated. Thus in the same way, gradually with the passage of time number of exchanges were increased and at currently it reached to the figure of )1 stock exchanges.

 DEVELOPMENT
(n important early event in the development of the stock market in India was the formation of the ;ative Share and Stock rokers (ssociation at ombay in +,82, the precursor of the present4day ombay Stock Exchange. This was followed by the formation of associations =exchanges in (hmedabad !+,01", /alcutta !+0*,", and &adras !+0-8". I; addition, a large number of ephemeral exchanges emerged mainly in buoyant periods to recede into oblivion during depressing times subse<uently. In order to check such aberrations and promote a more orderly development of the stock market, the central government introduced a legislation called the Securities /ontracts !7egulation" (ct, +023. 5nder this legislation, it is mandatory on the part of a stock exchanges to seek government recognition. (s of >anuary )**) there were )- stock exchanges recogni#ed by the central ?overnment. They are located at (hemdabad, angalore, aroda, hubaneshwar, /alcutta, /henni,!the &adras stock Exchanges ", /ochin, /oimbatore, 9elhi, ?uwahati, %yderbad, Indore, >aipur, @anpur, Audhiana, &angalore, &umbai!the ;ational Stock Exchange or ;SE", &umbai !The Stock Exchange", papularly called the ombay Stock Exchange, &umbai !BT/ Exchange of India", &umbai !The Inter4connected Stock Exchange of India", Catna, Cune, and 7aDkot. Bf course, the principle bourses are the ;ational Stock Exchange and The ombay Stock Exchange , accounting for the bulk of the business done on the Indian stock market. 'hile the recogni#ed stock exchanges have been accorded a privileged position, they are subDect to governmental supervision and control. The rules of a recogni#ed stock exchanges relating to the managerial powers of the governing body, admission, suspension, expulsion, and re4admission of its members, appointment of authori#ed representatives and clerks, so on and so forth have to be approved by the government. These rules can be amended, varied or rescinded only with the prior approval of the government.

 BSE(BOMBAY STOCK EXCHANGE)

The Stock Exchange, &umbai, popularly known as "BSE" was established in +,82 as "The Nat !e Sha"e a#$ St%&' B"%'e"( A((%& at %#") It is the oldest one in (sia, even older than the Tokyo Stock Exchange, which was established in +,8,. It is a voluntary non4profit making (ssociation of Cersons !(BC" and is currently engaged in the process of converting itself into demutualised and corporate entity. It has evolved over the years into its present status as the premier Stock Exchange in the country. It is the first Stock Exchange in the /ountry to have obtained permanent recognition in +023 from the ?ovt. of India under the Securities /ontracts !7egulation" (ct, +023. The Exchange, while providing an efficient and transparent market for trading in securities, debt and derivatives upholds the interests of the investors and ensures redressal of their grievances whether against the companies or its own member4 brokers. It also strives to educate and enlighten the investors by conducting investor education program and making available to them necessary informative inputs. ( ?overning oard having )* directors is the apex body, which decides the policies and regulates the affairs of the Exchange. The ?overning oard consists of 0 elected directors, who are from the broking community !one third of them retire ever year by rotation", three SE I nominees, six public representatives and an Executive 9irector E /hief Executive Bfficer and a /hief Bperating Bfficer.

 NSE(NATIONAL STOCK EXCHANGE)

;SE was incorporated in +00) and was given recognition as a stock exchange in (pril +00-. It started operations in >une +001, with trading on the 'holesale 9ebt &arket Segment. Subse<uently it launched the /apital &arket Segment in ;ovember +001 as a trading platform for e<uities and the Futures and Bptions Segment in >une )*** for various derivative instruments. ;SE has been able to take the stock market to the doorsteps of the investors. The technology has been harnessed to deliver the services to the investors across the country at the cheapest possible cost. It provides a nation4wide, screen4based, automated trading system, with a high degree of transparency and e<ual access to investors irrespective of geographical location. The high level of information dissemination through on4line system has helped in integrating retail investors on a nation4wide basis. The standards set by the exchange in terms of market practices, Croducts , technology and service standards have become industry benchmarks and are being replicated by other market participants. 'ithin a very short span of time, ;SE has been able to achieve all the obDectives for which it was set up. It has been playing a leading role as a change agent in transforming the Indian /apital &arkets to its present form. The Indian /apital &arkets are a far cry from what they used to be a decade ago in terms of market practices, infrastructure, technology, risk management, clearing and settlement and investor service.

 NCDEX (NATIONAL COMMODITIES AND DERIVATIVES EXCHANGE) ;/9EG started working on +2th 9ecember, )**-. This exchange provides facilities to their trading and clearing member at different +-* centers for contract. In commodity market the main participants are speculators, hedgers and arbitrageurs. Cromoters of ;/9EG are ;ational Stock Exchange!;SE" I/I/I bank Aife Insurance /orporation!AI/" ;ational ank for (gricultural and 7ural 9evelopment !;( (79" IFFI/B CunDab ;ational ank !C; " /7ISIA

WHY NCDEX* ;/9EG is nationali#ed screen based system which is providing transparent, private and easy services. ;/9EG is one of the traditional media which gives online information ;/9EG is one of the Indian commodity exchange, constructed on the basis of the current national institutes the exchange has been established with the coloration of leading institutes like ;( (79, AI/, ;SI etcH. In India ;/9EG has maximum settlement guarantee fund. ;/9EG has appointed two exports for checking <uality at the time of delivery FACILITIES PROVIDED BY NCDEX ;/9EG has developed facility for checking of commodity and also provides a wear house facility y collaborating with industrial partners, industrial companies, news agencies, banks and developers of kiosk network ;/9EG is able to provide current rates and contracts rate.

 To prepare guidelines related to special products of securiti#ation ;/9EG works with bank. To avail farmers from risk of fluctuation in prices ;/9EG provides special services for agricultural. ;/9EG is working with tax officer to make clear different types of sales and service taxes. ;/9EG is providing attractive products like Iweather derivativesJ

MCX(MULTI COMMODITY EXCHANGE)

+MULTI COMMODITY EXCHANGE, of India limited is a new order exchange with a mandate for setting up a nationwide, online multi4commodity marketplace, offering unlimited growth opportunities to commodities market participants. (s a true neutral market, &/G has taken several initiatives for users In a new generation commodities futures market in the process, become the countrys premier exchange. &/G, an independent and a de4mutuali#ed exchange since inception, is all set up to introduce a state of the art, online digital exchange for commodities futures trading in the country and has accordingly initiated several steps to translate this vision into reality. Ma"'et Wat&h-

The market watch window is used to view the market details for a particular or group of contracts and for a particular instrument type. This window displays the following detailsK Symbol, Expiry, price <uotation unit, buy <ty, buy price, sell price, sell <ty, last traded price, 9.C.7, volume !in ***s", value !in lac",L change, average trade price, high, low, open, close E open interest.

 TRANSACTION CYCLE
Decision to trade

Placing Order

Funds or Securities

Transacti on Cycle

Trade Execution

Settleme nt of trades

Clearing of Trades

( person holding assets !Securities=Funds", either to meet his li<uidity needs or to reshuffle his holdings in response to changes in his perception about risk and return of the assets, decides to buy or sell the securities. %e selects a broker and instructs him to place buy=sell order on an exchange. The order is converted to a trade as soon as it finds a matching sell=buy order. (t the end of the trade cycle, the trades are netted to determine the obligations of the trading members securities=funds as per settlement cycle. uyer=seller delivers funds= securities and receives securities=funds and ac<uires ownership of the securities.

( securities transaction cycle is presented above. >ust because of this Transaction cycle, the whole business of Securities and Stock roking has emerged. roking has emerged. (nd as an extension of stock broking, the business of Bnline Stock broking= Bnline Trading= E4

 MA.OR PLAYERS
1. 2. 3. 4. 5.
S S @(;TIA(A IS%'(7A(A SE/57ITIES CMT AT9. !www.sharekhan.com" I/I/I 'E T7(9E AT9. !www.icicidirect.com" 2 C(IS(./B& !www.2paisa.com" @BT(@ SE/57ITIES AT9. !www.kotakstreet.com" I;9I( 5AAS !www.indiabulls.com" 3. &BTIA(A BS'(A SE/57ITIES AT9. 7. %9F/ SE/57ITIES AT9. !www.hdfcsec.com" ,. 5TI SE/57ITIES AT9. 0. I9 I /(CIT(A &(7@ET SE7IMI/ES AT9. +*. 7EF/B SIFN SE/57ITIES CMT AT9.

Pa"a/ete"(

A0& O1e# #2 Fee Trading 9emat ;IA ;IA )2* ;IA

B"%'e"a2e 9elivery *.2* *.82 *.1* *.)* S<uare Bff *.+* *.+, *.+* *.*2

I#te"3a&e anks (ssociated with %9F/, 5TI, B /, I9 I E /itibank I/I/I ank ;.(. /itibank, %9F/, B /, 5TI E I/I/I ank @otak ank E /itibank %9F/ E Bther 1 anks

Sha"e'ha# ICICI D "e&t I#$ a4566( 7 1a (a

(=c 82* 82* 82* ,**

K%ta' St"eet %9F/ Securities

2** 8**

;.(. ;IA

*.20 *.2*

*.*3 *.+2

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 S)

S)

KANTILAL

ISHWARLAL

SECURITIES

PVT)

LTD)

((ha"e'ha#)&%/)Sharekhan, Indias leading stock broker is the retail arm of SSKI, and offers you depository services and trade execution facilities for e<uities, derivatives and commodities backed with investment advice tempered by decades of broking experience. ( research and analysis team is constantly working to track performance and trends. Thats why Sharekhan has the trading products, which are having one of the highest success rates in the industry. Sharekhan is having 89: (ha"e (h%1( # ;;: & t e(6 the largest chain of retail share shops in India is of Sharekhan. In future, Sharekhan is planning to enter in &utual funds, Insurance sector and banking sector to expand beyond the market currently covered by it. (nd it has started &F !&utual Funds" on priority basis but wants to grow in it.

ICICI WEB TRADE LTD) (ICICI$ "e&t)&%/)ICICI$ "e&t)&%/ <a( the 3 "(t e#t"a#t #t% e=4"%' #2) I/I/direct.com provides the -4in4+ to the users which ties in their saving bank account and their 9emat account to their brokerage account electronically. This integration ensures that money is transferred to=from their bank account and the shares are transferred from=to their 9emat account automatically without writing any che<ues or transfer instructions while carrying out their trades in shares. I/I/Idirect.com has the option of trading in shares in cash, margin or spot segments. (n investor can also invest in +1 &utual Funds !Crudential I/I/I &F, Franklin Templeton India &F, (lliance /apital &F, >& &F, irla Sun Aife &F, Sundaram &F, IAEFS &F, Crincipal &F, %9F/ &F, Standard /hartered &F, 7eliance /apital &F, @otak &ahindra &F, T(T( &F and 9SC &E77IAA AN;/% &F" through their trading account. ICICIdirect.com doesnt provide the facility of trading in a traditional way.

7PAISA)COM

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2paisa is the trade name of India Infoline Securities Crivate Aimited !2paisa", member of ;ational Stock Exchange and The Stock Exchange, &umbai. 2paisa is a wholly owned subsidiary of India Infoline Atd, Indias leading and most popular finance and investment portal. 2paisa has emerged as one of leading players in e4 broking space in India. The companys brokerage is one of the lowest in the industry. It also provides the research on commodities. Investors can benefit from its analysis and advice available at the click of the mouse. For those who prefer to trade the traditional way, India Infoline investor points are available across the country. India Infoline was founded by a group of professionals in +002. Its institutional investors include Intel /apital, one of the leading technology companies in the world promoted by the 5@ government, I/I/I, T9( and 7eeshanar. The company offers a slew of products such as stock and derivatives broking, commodities broking and mutual funds.

KOTAK SECURITIES LIMITED ('%ta'(t"eet)&%/)@otak Securities Atd., a strategic Doint venture between @otak &ahindra ank and ?oldman Sachs !holding )2L 4 one of the worlds leading investment banks and brokerage firms" is Indias leading stock broking house with a market share of 2 4 3 L. @otak Securities Atd. has been the largest in ICB distribution 4 It was ranked number Bne in )**-4*1 as (sia 4 (pril )**1. @otak Securities Atd is also a depository participant with ;ational Securities 9epository Aimited !;S9A" and /entral 9epository Services Aimited !/9SA" providing dual benefit services wherein the investors can use the brokerage services of the company for executing the transactions and the depository services for settling them. The company has 1) branches servicing around +, **,*** customers. @otakstreet.com the online division of @otak Securities Aimited offers Internet roking services and also online ICB and &utual Fund Investments. @otak Securities Aimited manages assets over +8** crores under Cortfolio &anagement Services !C&S" which is mainly to the high end of the market. @otak ook 7unning Aead &anagers in public e<uity offerings est E<uity %ouse (ward from Finance by C7I&E 9atabase. It has also won the

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Securities Aimited has newly launched I@otak InfinityJ as a distinct discretionary Cortfolio &anagement Service which looks into the middle end of the market. INDIA BULLS Indiabulls is India.s leading retail financial services company with 88 locations spread across 31 cities. Its si#e and strong balance sheet allows providing varied products and services at very attractive prices, our over 82* /lient 7elationship &anagers are dedicated to serving your uni<ue needs. Indiabulls is lead by a highly regarded management team that has invested crores of rupees into a world class Infrastructure that provides real4time service E )1=8 access to all information and products. The I#$ a4566( P"%3e(( %#a6 Net<%"' offers real4 time prices, detailed data and news, intelligent analytics, and electronic trading capabilities, right at your finger4tips. This powerful technology is complemented by our knowledgeable and customer focused 7elationship &anagers. Indiabulls offers a full range of financial services and products ranging from E<uities, 9erivatives, 9emat services and Insurance to enhance wealth and to achieve the financial goals.

MOTILAL OSWAL SECURITIES LTD) (MOSt)Bne of the top4- stock4broking houses in India, with a dominant position in both institutional and retail broking, &BSt is amongst the best4capitali#ed firms in the broking industry in terms of net worth. &BSt was founded in +0,8 as a small sub4 broking unit, with Dust two people running the show. Focus on &5(t%/e"=3 "(t= att t5$e, ethical and transparent business practices, respect for professionalism, research4based value investing and implementation of cutting4edge technology have enabled it to blossom into a thousand4member team. The institutional business unit has relationships with several leading foreign institutional investors !FIIs" in the 5S, 5@, %ong @ong and Singapore. In a recent media report MOSt <a( "ate$ a( %#e %3 the t%1=;: 4"%'e"( # te"/( %3 45( #e(( t"a#(a&te$ 3%" FII(. The retail business unit provides e<uity investment solutions to more than 2*,*** investors through )8* outlets spanning +2* cities and )) states. &BSt provides A$! &e=Ba(e$ B"%' #2> P%"t3%6 % Ma#a2e/e#t Se"! &e( (PMS)> E=B"%' #2 Se"! &e(> De1%( t%"? Se"! &e(> C%//%$ t e( T"a$ #2> a#$ IPO a#$ M5t5a6

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F5#$

Investment Advisory Services.

Its Malue C&S Scheme gave a +3*L post4tax

return for the year ended &arch )**1 In (sia&oney rokers Coll )**- &BSt has been rated as the Be(t D%/e(t & Re(ea"&h H%5(e= Me2a F5#$( ,while in )*** and )**) it has been rated as the Be(t D%/e(t & E@5 t? Re(ea"&h H%5(e and Se&%#$ 4e(t a/%#2(t I#$ a# B"%'e"a2e 3 "/( respectively.

HDFC SECURITIES LTD (HDFC(e&)%9F/ securities is a brand brought to you by %9F/ Securities Atd, which has been promoted by the %9F/ ank E %9F/ with the obDective of providing the diverse customer base of the %9F/ ?roup and other investors a capability to transact in the Stock Exchanges E other financial market transactions. The services comprise online buying and selling of e<uity shares on the ;ational Stock Exchange !;SE". uying and selling of select corporate debt and government securities on the ;SE would be introduced in a subse<uent phase. In a few months, they will also start offering the following online trading services on the SE and ;SEK +. uying and selling of shares on the SE ). (rbitrage between ;SE E SE -. Trading in 9erivatives on the ;SE 1. &argin trading products. They are also planning to include buying and selling of &utual Funds, ICB subscriptions, 7ight issues, purchase of Insurance policies and asset financing.

UTI SECURITIES LTD)- (UTISEL) UTI Se&5" t e( Lt$ was incorporated on >une )1, +001 by 5nit Trust of India as a +**L subsidiary and on the repealing of the 5TI (ct, the capital is now held by the (dministrator of the Specified 5ndertaking of 5nit Trust of India !(S55TI". 5TI Securities has been working as an independent professional entity for providing financial intermediary and advisory services to its corporate and retail clientele.

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The /ompany has presence in maDor cities with )* branches and 2* franchisees to service a wide range of clients. The company has also invested in the Doint4venture company with Standard /hartered ank vi#. Sta#$a"$ Cha"te"e$ UTI Se&5" t e( (P) Lt$) that is engaged in primary dealership and ?overnment securities. The company is very soon going to start /ommodity Trading through its subsidiary, 5SEc /ommodities Atd, which provides facility of commodity trading on ;/9EG and &/G. IDBI Ca1 ta6 Ma"'et Se"! &e( Lt$) I9 I /apital is a leading Indian securities firm offering a complete suite of products and services to individual, institutional and corporate clients. I9 I /apital &arket Services Atd. !I9 I /apital", a wholly owned subsidiary of Industrial 9evelopment ank of India !I9 I", is a leading Indian securities firm, offering a complete suite of products and services to individual, institutional and corporate clients. The services include fixed income trading, e<uities brokerage, debt and e<uity derivatives, research, private placements, depository services, portfolio management and distribution of financial products. Bver the last five years, we have emerged as a leading player in each of these businesses.

&arch +002 4 /ommenced E<uity roking on ;SE /& segment

>uly +002 4 uilt agent 9istribution ;etwork across the country Bctober +003 4 /ommenced 9ebt roking on ;SE '9& segment 9ecember +003 4 Started operations as a 9epository Carticipant +003 4 Started to act as (rranger to Crivately Claced ond issues (pril +00, 4 /ommenced operations as a Cortfolio &anager February +000 4 (c<uired membership of SE, &umbai ;ovember +000 4 Started operations as a Crimary 9ealer >une )*** 4 (c<uired 9erivatives memberships of SE and ;SE &arch )**) 4 (chieved an outright secondary market turnover exceeding 7s+**,*** Bctober )**)4 /ommenced trading in Interest 7ate Swaps

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 REFCO = SIFY SECURITIES INDIA PVT) LTD

7efco4Sify Securities India Cvt. Atd., head<uartered in &umbai, is a Doint venture between the 7efco ?roup %olding Atd., 5S(6 and Satyam Infoway Aimited !;(S9(OK SIFN" to offer %#6 #e a#$ %336 #e e@5 t? a#$ $e" !at !e( t"a$ #2 for retail customers as well as execution and clearing services for financial institutions. 7efco also provides clients with prime brokerage services, fixed income, e<uities, foreign exchange, BT/ derivatives and asset management. 7efco is a leader in providing clients with the latest technological advances in products and services. Its proprietary systems and global infrastructure provide the flexibility to meet all client re<uirements.

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 INDUSTRY ANALYSIS
INDUSTRY ANALYSIS USING PORTER,S 7 FORCES MODEL
POTE"TI#L E"TER#"T $n'estmart 4ari( s Ban&s 5e(6it Ci.)er /0$ Se% rities Lt#. 7e8%( 5r( . Lt#. $DB$ Ca.ita! M&t. Ser'i%es Lt#.

SUPPLIERS SUPPLIERS Web Web maintainers maintainers NSCL NSCL CSDL CSDL NSE NSE BSE BSE MCX MCX NCDEX NCDEX

CO CO PETITORS PETITORS $C$C$ $C$C$ Web Web 0ra#e 0ra#e Lt# Lt# 5.aisa.%(m 5.aisa.%(m 1(ta& 1(ta& Se% Se% rities rities Lt# Lt# $n#ia B $n#ia B !!s !!s M(ti!a! M(ti!a! 2s3a! 2s3a! Se% Se% rities rities Lt# Lt# ,D"C ,D"C Se% Se% rities rities Lt# Lt# Mar3a#i Mar3a#i "inan%e "inan%e Lt# Lt#

BU!ERS BU!ERS Sma!! Sma!! $n'est(rs $n'est(rs "ran%)ise*B "ran%)ise*B siness siness +artners +artners ,N$-s ,N$-s M" C(m.anies M" C(m.anies ,/" ,/" $nstit $nstit ti(na! ti(na! $n'est(rs $n'est(rs

SUBSTITUTES SUBSTITUTES t t a! a! " " n#s n#s $ns ran%e $ns ran%e Ban& Ban& "D "D

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 SUPPLIERS

;S9A E /S9A are the regulatory bodies for 9epository Carticipants like SS@I, S%/IA, I/I/Idirect.com, etc. (lso these regulatory bodies have got an upper hand as the bargaining power stock broking houses like SS@I, etc. would be less. ;SE E SE are playgrounds where common an investor trade through stock

broking houses, for which they have to take permission from ;SE= SE. ;SE E SE are under the purview of SE I, thats why stock broking houses ut here there is one advantage that

like SS@I, have low bargaining power.

;SE= SE have i.e. they cannot go for forward integration. &/G E ;/9EG are stock exchanges which trade in commodities and derivatives. %ere again stock broking houses have to follow rules and regulation of the same. 'eb maintainers are companies which maintain web sites E technical aspects of the same. %ere stock broking houses like SS@I can have more bargaining power due to stiff competition among web maintaining companies. 'eb maintainers are companies who make and maintain softwares for stock broking houses. If say for example stock broking houses switches over to other web maintainers then that company cannot understand the mechanisms of softwares. So it is <uite high switching cost.

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 BUYERS
There are various types of investors who trade through stock broking houses like SS@I, which includes investors like small investors, medium net worth investors, business partners, institutional investors and mutual fund companies. %ere the bargaining power of stock broking houses depends on how big the investor is. So here we can say that bargaining power of stock broking houses is high in case of small investors E %5F. 'hile the bargaining power is moderate in case of %;I !%igh ;ew 'orth Investors"= &;Is !&edium ;et 'orth Investors" and business partners. ut the in case of mutual fund companies and institutional investors bargaining power is less. There is competitive bu## in stock broking industry6 competitors are offering low brokerage and best services with added feature. So switching cost is pretty much less. So the buyer can easily switch over to competitors product.

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 COMPETITORS
The company is facing the competition from local as well as national level players. The local players provide facility for off4line trading while the national players like I/I/Idirect.com and @otakstreet.com, %9F/ Security provide online trading services. There are also other big names like Indiabulls, &otilal Bswal, 2paisa and &arwadi encircles the company form both the sides by providing online and off4line trading with competitive services.

POTENTIAL ENTRANTS
The potential entrants in like Investmart, >eoDit and /ipher which are coming in near future to 7aDkot /ity. ;ationali#ed banks are also thinking to enter in this field by tying up with broking houses. E.g. ank Bf aroda.

SUBSTITUES
%ere substitutes are such instruments which can be used instead of investing in shares. The instruments like ank F9, insurance, mutual funds are the substitutes. If the use of this instruments increase this may be disadvantage for the stock broking houses. The companies and banks which are having these instruments can plunge into this industry.

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 ENTRY BARRIERS
H52e &a1 ta6-4 /apital is necessary not only for fixed facilities but also for
customers credit and absorbing start up losses. To start a stock broking house, one needs huge capital for technology up gradation and skilled manpower.

Te&h#%6%2?-4 Technology for stock broking houses is life saving device.

Stock broking re<uires huge capital to make their products user friendly, which in turn re<uires capital to employ skilled manpower. Thus, technology could be one of the entry barriers.

Re256at%"? C%#(t"a #t(-4 Bbtaining a license is a tedious Dob for a stock broking house. It should comply with the regulation of the governing bodies like SE I, ;S9A, etc. For a stock broking houses to plunge into the stock broking industry, it needs to have some kind of financial background and expertise. Thus, regulators constraints could be an entry barrier.

EA1e" e#&e &5"!e-4 The core competency in this industry is the services
which are provided to the end4users and the research based activities which includes ITICSJ, fundamental as well as technical script analysis. (lso the most important thing which helps already established firms is4IT75STJ which people would be having on firms like SS@I , &otilal Bswal, etc. this is very difficult for new companies to imitate.

Net<%"'-4 The I7eachJ to the customer is the key factor in the industry. The network of the companies like &otilal Bswal, Sharekhan, and I/I/I is very efficient and spreaded all over India. It will take time for a new entrant to establish such a huge network !e.g. &arwadi", which say that,J;etwork can come up as most difficult entry barrier to overcome.J

EA1e&te$ Reta6 at %#-4 'henever a new player comes in the industry, the old companies have an option to reduce the prices of their product. This kind of practice is called expected 7etaliation which is also possible in this industry in terms of less brokerage rates and reduced account opening charges. E.g. before the entry of so many mew companies, Sharekhan was having two

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types of accounts vi#. speed trade speed trade plus, which were costing +*** E +2** account opening charges respectively. charges of 7s.+***. ut due to competition, they have come up with only one account i.e. speed trade plus with the account

COMPETITIVE ANALYSIS
F%66%<e"-

The followers are those who Dust blindly follow the other player which are leader and challenges. The players like 2 paisa, &otilal Bswal, %9F/ Securities, @otakstreet are the followers.

LEADER-

I/I/Idirect.com is a leader in the online account which is having +, )1,*** accounts in the country. 'hile in offline account Sharekhan is leading with 31,*** offline accounts.

NICHERI/I/Idirect.com and @otakstreet.com are the two stock broking houses which are focusing only on online investors. CHALLENGERSharekhan, @otakstreet and Indiabulls come under this head. Sharekhan challenges competitors by providing <uality services and research based advice. Indiabulls is also challenging with low brokerage rates and class one services.

22

T"a$ t %#a6 B"%' #2

Traditionally In stock &arket, the investors invest their money in shares under the guidance of the rokers of any stock broking company. This is convenient to those ut it investors who are not familiar with the computer and the use of internet.

re<uires more dealers to the share broking companies to give guidance related to investment. There was a chance of inaccuracy of price because it is a time consuming process. The cost of the company also increases due to more paperwork. The investor point of view, there was a problem of privacy. The information of investor may leak by the broker. So, to remove these limitations of traditional broking, there was an emergence of new concept e4 roking.

E= B"%' #2
Today is world of technology. So, the person who adopt it, get the success. So, E4 roking means broking through electronic means. E4 roking is the broking in which the investors who are familiar with the use of computer and Internet they directly trade in stock market. They trade any time at any place when the stock market is open. The cost of transaction is also reducing with time. The investors have a large range of option for the trading. It is a paperless transaction so it reduces the cost of company. There was a facility of live streaming <uotes, which give exact price of share which prevailing in the market at that time. There are two types of online trading serviceK 9IS/B5;T 7B@E7 and F5AA SE7MI/E B;AI;E 7B@E7. 9iscount online brokers allow you to trade via Internet at reduced rates. Some provide <uality research, other dont. Full service online brokerage is linked to existing brokerage. These brokers allow their client to place online orders with the option of talking=chatting to brokers if advice is needed. rokerage rates here are higher. online trading is still in its infancy stage in India. with trading turnover at around 7s.+* crores per day from online trading compared to a combined gross turnover of around 7s.0***4+**** crores handled by the online trading has a long way to go. SE and ;SE together,

23

INTERNET TRADING IN INDIAIn the past, investors had no option but to contact their broker to get real time access to market data. The ;et brings data to the investor on line and net broking enables him to trade on a click. ;ow information has become easily accessible to both retail as well as big investors. The development of broking in India can be categori#ed in - phasesK ;) Stock brokers offering on their sites features such as live portfolio manager, live <uotes, market research and news to attract more investors. 8) rokers offering on line broking and relationship management by providing and offering analysis and information to investors during broking and non4 broking hours based on their profile and needs, that is, customi#ed services. B) rokers !now e4brokers" will offer value management or services such as initial public offerings on line, asset allocation, portfolio management, financial planning, tax planning, insurance services and enable the investors to take better and well4considered decisions. In the 5S, ,) per cent of the deals are done on line. The European on line broking market is expected to be of P, billions and is likely to raise five fold by )**). In India, presently Internet trading can take place through the order routing system, which will route client orders to exchanges trading systems for execution of trades on stock exchanges !;SE and SE". This will also re<uire interface with banks to facilitate instant cash debit or credit and the depository system for debit or credit of securities.

24

ABOUT SHAREKHAN COMPANY

INTRODUCTION

Sharekhan is stock broking company. Share @han comes under retail arm of SS@I !Shripal Sevantilal @antilal Ishwarlal " investors Services Cvt. Atd. offers 'orld4class facilities for buying and selling Shares on SE and ;SE, 9emate Services!9C"9erivatives!FEB". SS@I group also comprises of Institutional broking and /orporate Finance. Sharekhan does not claim expertise in too many things. Sharekhan.s expertise lies in stocks and that.s what he talks about with authority. So when he says that investing in stocks should not be confused with trading in stocks or a portfolio4based strategy is better than betting on a single horse, it is something that is spoken with years of focused learning and experience in the stock markets. (nd these beliefs are reflected in everything Sharekhan does for youQ Those of you who feel comfortable dealing with a human being and would rather visit a brick4and4mortar outlet than talk to a C/, you.d be glad to know that Sharekhan offers you the facility to visit !or talk to" any of our share shops across the country. In fact Sharekhan runs India.s largest chain of share shops with over hundred outlets in more than ,* citiesQ 'hat.s a share shopR %ow do you locate a share shop in your cityR Sharekhan is ,* years old company which is started online in the year )*** E it is the first company who started online in +0,1 they ventured into institutional brokingE corporate finance. They having +1 branches, 1** franchises also having 133 shops in )+* cities. In 7aDkot branch daily dealing 7s.+3 crore E 1** crore daily dealing all over India. (lmost 1*** employees and +***** trading customers.

25

CURRENT POSITION VISION

To empower the investor with <uality advice and superior service to help him take better investment decisions. 'e believe that our growth depends on client satisfaction.

MISSION
To provide the best customer service and product innovation tuned to diverse needs of clientele /ontinuous up4gradation with changing technology, while maintaining human values. 7espond to progressive globali#ation and achieving international standard.

Efficiency and effectiveness built on ethical practices. CORE VALUE

/ustomer satisfaction through Croviding <uality service effectively and efficiently ISmile, it enhances your face value J is a service <uality stressed on periodic customer service (udits &aximi#ation of stakeholder value Success through Teamwork, integrity and Ceople

26

GENERAL INFORMATION

;(&E

K S. S. @(;TIA(A IS%'(7A(A SE/57ITEIS CMT. AT9.

%E(9 BFFI/E

K S%(7E@%(; AT9. ( S )*3, C%BE;I% %B5SE, C%BE;I% &IAA /BC5;9, SE;(C(TI, (CT( &(7?, AB'E7 C(7EA, &5& (I 4 1***+-

C% ;B E4&(IA 'E SITE 7(;/% BFFI/ES

K +,** 4 )) 82** , -08* 82 ** K shrinivasbTbranch.sharekhan.com K www.sharekhan.com K +** 7(;/%ES

/%IEF EGE/5TIME BFFI/E7K T(75; S%(%

27

CHANGING TREND 7emember the time when you left orders with your broker in the morning and received a confirmation fax late in the eveningR Nou wondered whether you had ac<uired the shares at the best possible price for the day. Today, the picture is different. Imagine a scenario where you log on to your account, get the live <uotes of scripts you are interested in, get advise from experts and research reports on your investment choice and then Dust click the mouse to place your order, pay the amount due !which automatically gets debited into your account with the on line brokerage firm", get your account statement, and the delivery of your shares into your 9emat account. (ll this through Dust one click of a mouse. Seems like a dreamR ut with online trading this has become a reality. ( few seconds later, you get the confirmation on your screen. (nd after the trade settlement, your bank and 9C accounts will reflect the changes accordingly.

The speed of transaction, confidentiality about the prices and ease of settlement in the paperless mode should be good reasons for retail investors to Dump on to the ;et. (ll they need is a C/, a modem, a subscription to an ISC, an account with a bank !which has a web presence" and a depository account. (nd they can choose from a plethora of e4trading web sites. So, finally the changing trend is known as E4trading which really means uying and

selling securities via the Internet or other electronic means such as wireless access, touch4tone telephones, and other new technologies with online trading. In most cases customers access a brokerage firm.s 'eb Site through their regular Internet Service Crovider. Bnce there, customers may consult information provided on the 'eb Site and log into their accounts to place orders and monitor account activity:

28

SSKI G"%51 = C%"1%"ate St"5&t5"e

O$ns %)( of

SSKI Se&5" t e( P!t) Lt$) M%"a'h a Fa/ 6? C A((%& ate(

O$ns %&'%( of

SSKI I#!e(t%" Se"! &e( P!t) Lt$)

7etail broking arm of the group Shareholding pattern 23L &orakhia family !promoters" +,.2L %S / Crivate E<uity &anagement, &auritius +,.2L First /arlyle Mentures, &auritius 8L Intel Cacific Inc.

SSKI C%"1%"ate F #a#&e P!t) Lt$)

Investment anking arm of the group Shareholding pattern 2*.2L SS@I Securities Cvt. Atd. 10.2 L &orakhia family

Integrated E<uity Solutions Crovider

(mong the top - branded retail service providers !7s. )**Ucrs average daily Mol4 FN *-4*1" &ulti4channel access to clients Tailor made research and products 9epository Services 9erivatives Innovative products for enhanced performance

29

A4%5t Sha"e'ha#
SS@I named its online division as S%(7E @%(; and it is into retail roking The business of the company overhauled 1 years ago on February ,, )***. It acts as a discount brokerage house to a full service investment solutions provider It has a +2* member strong team. It has speciali#ed research product for the small investors and day traders Aargest chain of share shops, +*- Franchisees E +8 ranches across India. It has P)2m=trades every day. Aeading player today with )*L market share Bver ,*** online clients

The site was also launched on February ,, )*** and named it as

www.sharekhan.com The SpeedTrade account of share khan is the next generation technology product launched on (pril +8, )**) SpeedTradeClus was launched on Bctober ),, )**) for trading in 9erivatives It offers its customers with the trade execution facilities on the ;SE, for cash as well as derivatives, depository services

30

 E#(5"e( &%#!e# e#&e # t"a$ #2 eA1e" e#&eShare @hans trading services are designed to offer an easy, hassle free trading experience, whether trading is done daily or occasionally. The customer will be entitled to a host of value added services, in the investment process depending on his investing style and fre<uency. and offers a suite of products and services, providing the customer with a multi4channel access to the stock markets.

It gives advice based on extensive research to its customers and provides

them with relevant and updated information to help him make informed about his investment decisions.

Share khan offers its customers the convenience of a broker49C.

It helps the customer meet his pay4in obligations on time thereby reducing the possibility of auctions. The company believes in flexibility and therefore allows accepting late instructions without any extra charge. (nd execute the instruction immediately on receiving it and thereafter the customer can view his updated account statement on Internet.

Sharekhan 9epository Services offers demat services to individual and corporate investors. It has a team of professionals and the latest technological expertise dedicated exclusively to their demat department. ( customer can avail of 9emat V 7emat, 7epurchase, Cledge, Transmission facilities at any of the Share khan branches and business partners outlets.

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MARKET COVERAGE
*round "et$or+ , Largest in India
-.. Franc/isees and .0 1ranc/es Co2ers 0. cities in -3 states across India Trade execution facility on BSE and "SE for Cas/ as $ell as Deri2ati2es De4ository5Demat account ser2ices Personali6ed S/are+/an researc/ ad2ice Uniform ser2ice standards

32

A<a"$=W ##e"

Winner (8

C)i.
ma9a:ine-s

;Best
"inan%ia! Website <3ar#-

33

 SEVEN P,S OF SHAREKHAN

PRODUCT P"%$5&t Va" et? Share khan offers - types of online trading accounts for its customers specially designed according to their volume in share trading. Those - varieties areK D5a6 t? 5ser Friendly, attractive E colorful 'ebsite. /lassic4 for retail investors Speed TradeK for high net worth investors with large and active portfolio who need to monitor and action swiftly Speed trade Clus4 for high net worth investors dealing in derivative market. e<uity

De( 2# The website of Share khan namely www.sharekhan.com has been specially designed to facilitate its users to buy and sell shares in an instant at anytime and from anywhere they like. The site is user friendly allowing even a layman to easily operate without any hassles. Feat5"e(Share khans product comes with the following featuresK Trade execution in a fraction of a secondQ Single Screen Trading Terminal 7eal time streaming <uotes. Crice watch on any number of scripts. %ot keys similar to rokers Terminal. /ustomi#ed (lerts based on &ultiple Carameters.

34

ack up Facility to place trades on 9irect Chone Aines. Intra day charts, updated live, tick4by4tick. Instant BrderV Trade /onfirmation in the same window Aive margin, position, marked to market profit E loss report. /ompetitive rokerage. Flexibility to customi#e screen layout and setting. Facility to customi#e any number of portfolios E watch lists. Facility to cancel all pending orders at one click. Facility to s<uare off all transactions at one click. Top ?ainers, Top Aosers, and &ost (ctive, updated live. Index information6 index chart, index stock information live. &arket depth, i.e. est 2 bids and offers, updated live for all scripts Bnline access to both accounts and 9C. Aive updated Brder and Trade ook. 9etails of pending, executed and reDected orders. Bnline access to /ustomer Service. +), 4 bit super safe encryption. Facility to place after market orders Bnline fund transfer facility from leading anks Bnline intra4day technical calls. Exhaustive database of over )*** companies %istorical charts and technical analysis tools. Aast but not the least, ideas that help you to make moneyQQQ

35

B"a#$ Na/e The company as a whole in its offline business has named itself as SS@I Securities Cvt. Atd 4Sevaklal Sevantilal @antilal and Ishwarlal Securities Cvt. Atd. The company has preferred to name themselves under a lanket Family ;ame. ut in its online division started since +008, the company preferred to name itself as IS%(7E @%(;J. The which the company is dealing so that the consumer could easily identify the product or service category. rand ;ame IS%(7E @%(;J itself suggests the business in

Se"! &e( Share khan offers its customers, depository services and trade execution facilities for e<uities, derivatives and commodities backed with investment advice tempered by decades of broking experience. The teams of its dedicated analysts are constantly at work to track performance and trends. 9ial4n4trade is also an exclusive service available to all Sharekhan customers for trading in shares via the telephone. Bn dialing the toll free number +3**4))48*2* and on entering the customers TCI; number, the customer will be directed to a telebroker who will buy or sell shares for him.

PRICE
L (t P" &e

/A(SSI/ SCEE9 T7(9E Bne time registration fee &inimum brokerage 82* ;il +*** +***

SCEE9 T7(9E CA5S +2** +2** 36

/harges Ouarterly
B"%'e"a2e

Share khan in its online business charges brokerage as followsK 4 In e<uity &arketK O# T"a$ #2- :);E O# De6 !e"?- :)7E 4 In 9erivative &arket O# T"a$ #2- :);8E (T%ta6 4"%'e"a2e) O# De6 !e"?- :);E Se"! &e TaA 4,L on rokerage. T5"#%!e" taA F Sta/1 $5t? 4*.*+2L !7s. +2 on every turnover of 7s. +*****" C5(t%$? Cha"2e 7e. + per script held per month. D (&%5#t( For investors with %igh ;et worth, there are slabs in brokerage rates. Pa?/e#t Pe" %$ The transaction settlement date in the securities market is TU ) days i.e. the payment of the transaction taken place has to be made within two days of its occurrence. C"e$ t te"/( Share khan allows its customers to trade up to 1 times i.e. by keeping +=1th margin with them.

PROMOTION

Bnline share trading is totally a new concept in Indian &arket. ?enerally investor doesnt like to come out from conventional way of share trading. Share khan has introduced this product in. The concept and Croduct are still new in the market. Therefore the company has undertaken extensive promotion campaign to create awareness about the product. Share khan adopts the following tools for promoting the product

37

 A$!e"t ( #2 /ompany advertises its product through TM media on channels like /; /, Crint &edia4in leading dailies and outdoors media. It advertises itself as an innovative rand with a cartoon of tiger4called S%E75. esides attractive and colorful brochures as well as posters are used giving full details about the product. &ails are sent to people logging on to sites like moneycontrol.com and rediff.com. (lso, stalls are opened up now and then at places where prospective customers can be approached. Sa6e( P"%/%t %# The /ompany offers 7s.2** instead of 7s.82* for corporate accounts !more than )* accounts". (lso, it provides online trading accounts for Dust 7s.-** for II& students. Sa6e( F%"&e The /ompany has an aggressive sales force, which is given incentives, based on their sales. The sales force is given intensive training continuously. Se/ #a" The /ompany also arranges seminar in corporate world for creating awareness about the product. 7ecently, it had organi#ed for a seminar in B;?/, II&. D "e&t Ma"'et #2 /ompany emphasi#es more on direct marketing, as many people are still not aware of this new way of smart trading. For this, the company recruits and trains sales representatives so as to explain the product and solve customer <ueries related to the product. This is the most effective way to communicate the three4in4one concept which company offers. Te6e/a"'et #2

38

This is another promotional tool company is using to boost up its sales. For this, the company collects the database of the people belonging to different professional segments.

PLACE
Cha##e6( Share khan uses various channel alternatives to reach to its customers through

Internet
Tele &arketing 7etail Share Shops Franchisee Bwners Cower rokers Sales Force C%!e"a2e (ccess to the website from any part of the globe. L%&at %#( Share khan has the largest chain of retail share shops in India. It has +,* share shops located in 0* cities all over India like Cune, Thane, /hennai, @olkata, anglore, Auckhnow, 9arDleeng, @anpur, aroda, &idnapore, Surat, 9elhi, ?a#iabad, %ydrabad, (llahbad, etc.

PEOPLE
E/16%?ee( SelectionK Employees are selected on the basis of their experience and <ualification as applicable to the Dob. TrainingK Intensive training is provided to the employees till a week once they Doin and even at times re<uired after that. &otivationK The employees are motivated through incentives they are provided. Re(ea"&h Tea/

39

Share khan has a team of dedicated analysts who have years of working experience in the industries that they track, and a proven track record in using their knowledge of the investment science to deliver results.

40

 C5(t%/e"(>
The heart of sharekhan are really treated loyally like the kings. The customer care, which comprises of highly trained executives operating from 0K-* to ,K** p.m.

PHYSICAL EVIDENCE L%&a6 t? %3 the %33 &eIn (hmedabad, two franchise outlets are located in posh areas like ;avrangpura and &aninagar. ( new franchise is going to open up in Mastrapur.

O33 &e E#! "%#/e#tThe ambience within the office is what can make the customer feel comfortable in trading. The cordial and friendly atmosphere at office is like a full time motivation for the employees.

I#te" %"( a#$ I#3"a(t"5&t5"eThe office is well furnished and has )1 computer terminals on which tick4by4 tick price movements of the securities are displayed.

PROCESS
In this service organi#ation, the ways in which the customers receive delivery of the service constitutes the process. %ere, the process involves adding $value or $utility so that the customers get full satisfaction for the money spent by them. %ere the process begins from the step when customer wants to open e4invest account and ends when his account is actually activated. (ll Indian residents and ;7I are eligible to avail this service. /ustomers can open a sharekhan e4invest account by filling a single application form. This form includes 0 agreements like +. &ain form with customer details

41

). (greement between sharekhan and client in respect of the B;AI;E4 I;MEST&E;T S5CCB7T service offered. -. (greement between the 9epository Carticipant and the client for providing the transaction statement through Internet. 1. Irrevocable power of attorney 2. (greement between the 9C and the person seeking to open an account with the 9C. 3. &aintenance of clients account on a running account bases by SS@I. 8. (greement giving the right of lien on the credit balance of client in ;SE trading. ,. (greement giving the right of lien on the credit balance of client in trading. 0. 7isk disclosure document !cash segment" SE

42

 SEVEN +S, MODEL

Str %t re Strate9 = S=ste S .er (r#inat e 5(a!s 9(a!s ms

S&i!! s

St=! e

Sta8 8

STRUCTURE43

Share khan is flexible in terms of making temporary structural changes to cope up with specific strategic tasks without any hassles. If need arises, the top management can assign the role to any of its employees which it considers capable and skillful.

STRATEGYK
Share khan believes not only in developing the strategies but also in its successful execution.

SYSTEMSThis constitutes of all the training and development systems, estimating budgets and the accounting system of Share khan.

STYLEStyle refers to all the symbolic actions undertaken by top managers of Share khan and its influence on the subordinates.

STAFFShare khan values its employees as its assets and therefore carefully trains and motivates them by giving them incentives at regular intervals. Talented employees are assigned as mentors and given real responsibility and moved into higher positions.

SKILLSThe term skills refer to those activities organi#ations do best and for which they are known. Share khan is known for its timely advice !suggestions=tips", which it caters to its customers and it boasts of 8*40*L strike rates in booking recommendations.

SUPERORDINATE GOALSThis refers to guiding concepts, values and aspirations that unite an organi#ation in some common purpose. It provides the customers the best service as it believes in customer satisfaction and retention.

44

 SHAREKHAN,S STOCK CLUSTER

'e categori#e all the scrips that are under coverage into six clusters. Each cluster represents a certain profile in terms of business fundamentals as well as the kind of returns you can expect over a certain time hori#ons and return obDectives best. E!e"2"ee# 9ominant players with strong brands, robust management credentials, supernormal shareholder returns. 'ill steadily compound +,4)*L per year for next five to ten years.

A116e2"ee#
Cotentially steady compounders, but five to ten years graph bit unclear. /ould gallop at )24-* per year over the next two to three years. E/e"2 #2 Sta" Noung companies likely to rule chosen niches. Even better, the niches could balloon into full4blow markets. Cotentially ten4baggers if youre patient. U26? D5&'6 #2 Trading below fair value or at huge discount to peer group. somtehings cooking./ould double in two to three years time. V56t5"e,( P &' /ompanies with valueable assets at throwaway prices. uy E await predators.Stratlingly high returns possible. ut

Ca##%#4a66
Seasons favourites. Typically fast gainers in rising markets, could return -*42*L within six months. ?et in, cash in, get out.

45

P546 &at %#( %3 (ha"e'ha#

Sharekhans Malueline 9erivatives 9igest Eagle Eye %igh ;oon Investors Eye /ommodities u## /ommodities eat /ommodity Traders /orner Sharekhan Gclusive

46

PRODUCTS OF THE SHAREKHAN COMPANY

S)are1)an-s .r(# %t

Offline

Online

Other Services

Classic A/C

Speed Trade A/C

Othe" Se"! &e(+. 9ial4n4Trade ). 9epository Services -. /ommodity Trading 1. 9erivative Trading 2. &utual fund 3. Cortfolio &anagement Services 8. Bnline ICB ,. 7esearch ased Information Crovided OFFLINE
Bffline (=c is the (=c for the investors who are not familiar with the use of computer. The (=/ opening charges 7s.2**!Bne time"

For +st Near 9emat (=/ is Free,Bn )nd Near (&/ charge is applicable.

47

 ONLINE

(=/ Bpening /harges 7s.82*!onetime /harge". For +st Near 9emat (=/ is Free,Bn )nd Near (&/ charge is applicable. Type with 8 banks through which one can transfer or withdraw his fund
online.'hich are as follows

1. %9F/ ank 2. I9 I ank 3. 5TI ank 4. B / ank 5. /ITN ank 6. Indusind ank 7. 5nion ank of India 48

(ny one who have (=/ either of above banks they can use this facility.Btherwise one has to make fund transfer or withdraw by che<ue. This account enables you to buy and sell shares through our website. Nou get features like a" St"ea/ #2 <uotes !using the applet based system" b" &utltiple <at&h6 (t( c" I#te2"ate$ anking, demat and digital contracts d" I#(ta#t &"e$ t and transfer e" 7eal4time 1%"t3%6 % t"a&' #2 with price a6e"t and, of course, the secure transactions. assurance of

Feat5"e( %3 C6a(( & A&&%5#t

that e#a46e( ?%5 t% #!e(t e33%"t6e((6? O#6 #e t"a$ #2 sharekhan.com account for investing in E@5 t e( a#$ De" !at !e( via

I#te2"at %# ofK Bnline trading U ank U 9emat account Instant &a(h t"a#(3e" facility against purchase E sale of shares &ake ICB booking Nou get I#(ta#t %"$e" a#$ t"a$e &%#3 "/at %#( by e4mail St"ea/ #2 D5%te( Cersonalised &arket Scan with ?%5" %<# &5(t%/ Ge$ (t%&' S #26e (&"ee# interface for cash and derivatives Nour very own P%"t3%6 % T"a&'e"H S?(te/ Re@5 "e/e#t( youll need access to a computer which has at least the following configurationK Centium - C/, &inimum +), & 7(& 'indows )***=GC Internet /onnection t &'e"H

49

Internet Explorer 3.* >ava enabled in IE

SPEEDTRADE

(=/ Bpening /harges 7s.+***=4!onetime /harge". &onthly charges 7s.2**=4! ut if /lient give rokerage of 7s.+2**=4in a Ouarter, then 7s.+2**=4that was charged of a Ouarter will be 7eimbursed". For +st Near 9emat (=/ is Free, Bn )nd Near (&/ charge is applicable. Type with 8 banks through which one can transfer or withdraw his fund online.'hich are as follows

%9F/ ank I9 I ank 5TI ank B / ank /ITN ank Indusind ank 5nion ank of India

(ny one who have (=/ either of above banks they can use this facility. Btherwise one has to make fund transfer or withdraw by che<ue.

50

Feat5"e( %3 S1ee$T"a$e
that e#a46e ?%5 t% t"a$e e33%"t6e((6? Instant order Execution E /onfirmation Single screen trading terminal 7eal4time streaming <uotes, tic4by4tic charts &arket summary !most traded scrip, highest value and lots of other relevant statistics" %ot keys similar to a brokers terminal (lerts and reminders ack4up facility to place trades on 9irect Chone lines S #26e (&"ee# interface for cash and derivatives

S?(te/ Re@5 "e/e#t( Nou.ll need access to a computer which has at least the following configurationK Centium - C/ &inimum +), & 7(& 'indows )***=GC 9ial4up &odem = /able modem Internet /onnection (ccount Internet Explorer 3.* >ava enabled in IE

51

Cha"2e( %3 D 33e"e#t &%/1a# e( 3%" %#6 #e A0C Pa"a/ete"( O1e# #2 Fee B"%'e"a2e I#te"3a&e Trading 9emate 9elivery S<uare ank (=/ (=c Bff (ssociated 82* 82* 82* ;IA ;IA )2* ;IA 2** 8** ;IA *.2* *.82 *.1* *.)* *.20 *.2* *.+* *.+, *.+* *.*2 *.*3 *.+2 I/I/I ank ,5TI,B /,%9F /, /ity ank @otak ank, /ity ank %9F/ E Bther ank %9F/,5TI,B / , I9 I, /ity ank I/I/I ank

Sha"e'ha# ICICI D "e&t I#$ aB566( 7 Pa (a K%ta' St"eet HDFC Se&5" t e(

D a6=n=T"a$e

T"a$e # E@5 t? 4? 5( #2 ?%5" 1h%#eH

Free with your Sharekhan /lassic (ccount, the 9ial4n4Trade service enables you to place orders for buying and selling shares through your telephone. (ll you have to do is $ a6 any one of our two dedicated numbers !;=I::=88=J:7: or B:B:JK::", enter your TPIN #5/4e" !which is provided at the time of opening your

52

account" and on authentication ?%5L66 4e $ "e&te$ t% a te6e4"%'e" who will buy and sell shares for you.

Feat5"e( %3 D a6=n=T"a$e that e#a46e ?%5 t% t"a$e e33%"t6e((6?

TWO dedicated numbers for placing your orders with your cellphone or landline. Toll free numberK ;=I::=88=J:7:. For people with difficulty in accessing the toll4free number, we also have a 7eliance number B:B:JK:: which is charged at 7s. +.2* per minute for ST9 calls. (utomtic funds tranfer with phone banking !for /itibank and %9F/ bank customers" Simple and Secure Interactive Moice 7esponse based system for authentication ;o waiting time. Enter your TCI; to be transferred to our telebrokers Nou also get the trusted, professional advice of our telebrokers (fter hours order placement facility between ,.** am and 0.-* am !timings to be extended soon" 7eliable service, wherever you are Re@5 "e/e#t( (ll you need is access to a phone 4 either a landline or a cellphoneK !the type of phone doesn.t matter" If calling from a cellphone, please dial *))4+4,**4))48*2* /urrently for /itibank and %9F/ customers. &ore banks to be added soon (fter hour order timingsK ,.** am to 0.-* am It takes approximately +* minutes of your time to place an order

53

 PORTFOLIO MANAGEMENT SYSTEM

W th the Sha"e'ha# Tea/ Ma#a2 #2 Y%5" P%"t3%6 %> ?%5 &a# 4e a((5"e$ that ?%5" #!e(t/e#t( a"e # (a3e ha#$(H

'e follow a multi4disciplined approach incorporating <uantitative analysis, fundamental analysis and technical analysis. This multi4pronged approach enables us to provide risk4controlled returns for you. 7ight from choosing the combination of stocks most suitable for you based on your risk appetite to monitoring their movements and discussing them with you at special events.

54

 MUTUAL FUND

I#t"%$5&t %#
Everybody talks about mutual funds, but what exactly are theyR (re they like shares in a company, or are they like bonds and fixed depositsR 'ill I lose all my money in funds or will I become an overnight millionaireR Dust five minutes. ig <uestions that get answered in

Mea# #2
( mutual fund is a pool of money that is invested according to a common investment obDective by an asset management company !(&/". The (&/ offers to invest the money of hundreds of investors according to a certain obDective 4 to keep money li<uid or give a regular income or grow the money long term. Investors buy a scheme if it fits in with their investment goals, like getting a regular income now or letting the money accumulate over the long term. Investors pay a small fraction of their total funds to the (&/ each year as investment management fees.

55

Cate2%" e( %3 M5t5a6 F5#$

There are three broad categories of funds in the Indian market 4 money market, debt and e<uity. ( money market fund invests in short4term government debt paper and is good for parking money for the short term since the principal is safe, returns better than a bank deposit and li<uidity high. 9ebt funds invest mainly in debt instruments like government securities, corporate and institutional debt paper. They are also called income funds since people buy them for their income needs. E<uity funds invest in the stock market and suit long term investors who want capital appreciation. /ommodity, property and gold funds are yet to come into India.

I#!e(t #2 # M5t5a6 F5#$( th"%52h Sha"e'ha#

'e.re glad to announce that you will now be able to invest in &utual Funds through usQ 'e.ve started this service for a few mutual funds, and in the near future will be expanding our scope to include a whole lot more. (pplying for a mutual fund through us is open to everybody, regardless of whether you are a Sharekhan customer. Nou have two choice through which you can invest in &utual Fund.

(" Bn the main page of this micro4site and scheme snapshot page we have provided with a link to C9F version of application form which you Dust need to download, print and fill up relevant details. Submit the duly filled copy with payment either to ;earest Sharekhan ranch Br &utual Fund /ompany.

" (lternatively you can call up our customer service +3**4))482** and give your contact detail wherey we will arrange to mail you a hard copy of application of desired schemes from the list offered by Sharekhan.

56

Sha"e'ha# De1%( t%"? Se"! &e(

9emateriali#ation and trading in the demat mode is the safer and faster alternative to the physical existence of securities. 9emat as a parallel solution offers freedom from delays, thefts, forgeries, settlement risks and paper work. This system works through depository participants !9Cs" who offer demat services and hold the securities in the electronic form for the investor Sharekhan 9epository services offers dematerialisation services to individual and corporate investors.'e have a team of professionals and the latest technological expertise dedicated exclusively to our demat department, apart from a national network of franchisee, making our services @5 &', &%#!e# e#t and e33 & e#t. (t Sharekhan, our commitment is to provide a complete demat solution which is ( /16e, (a3e and (e&5"e.

The (e"! &e( %33e"e$ 4? De1%( t%"? Pa"t & 1a#t

/onvert your physical holding into electronic holding !which is called

:demateriali#ation: of securities" @eep custody of your holdings in electronic form. Transfer the shares in the electronic form from one account to another. Facilitate pledge of your electronic securities. ?ive electronic credit of new share allotments such as public issues, bonus, rights etc. /onvert your electronic holding into physical holding !which is called :demateriali#ation of securities:"

57

7ESE(7/% (SE9 (9MI/E

Every investors needs and goals are different. To meet these needs, Sharekhan provides a &%/1"ehe#( !e (et %3 "e(ea"&h "e1%"t(, so that one can take the right investment decisions regardless of their investing preferencesQ The 7esearch and 9evelopment at Sharekhan is done at its %ead office &umbai.

The 7E9 department %ead &r. %emang >ani forwards all the details regarding all stocks and scripts to all the branches through Internet. (t the end of each trading day there is a Teleconference, through which the 7E9 department %ead &7. %emang >ani talks with each ranch heads and discusses about each days closing position and shows their predictions about next days opening position. The <uarries regarding stock positions and other relevant matter of the branch heads of each branch is being solved through teleconference.

The various publications of Sharekhan vi#. 9erivatives 9igest, Sharekhans Malueline, Eagle eye, %igh ;oon, Investors Eye, /ommodities u##, /ommodities eat, /ommodity Traders corner, Sharekhan Gclusive, etc. are being prepared by the research team of Sharekhan made up of highly experienced people from diverse field. These all publication providesK In4depth analysis of the markets (nalysis timings Special sector tracking reports sent regularly efore, 9uring !live market updates" and (fter market

58

ONLINE IPO
Bnline IPO (I# t a6 P546 & O33e" #2) is a new service started by Sharekhan for providing the application form of any companys issues of shares Dust like the T/S issue can be subscribed by filling an online form to reduce the paper work and the fund transfer facility is also provided to the clients for transferring the funds online. It is given on its web4site for helping the clients who are not able to collect the forms manually and the speed of filling and reducing the risk of misplacing of forms, not reaching in time, etc.

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 SWOT ANALYSIS
9uring this training at sharekhan, we had come to know the Strengths4'eaknesses4 Bpportunities4Threats for the company and it is very useful for a company to analy#e them. Therefore, the S'BT analysis is presented here and the suggestions for maintaining strengths and removing weaknesses are explained.

St"e#2th( 'ell4maintained infrastructure. 9edicated, Intelligent and Aoyal staff. Bn4line Trading products. Aowest brokerage and other charges w.r.t. /ompetitors. The best investment advice correct up to 8*40* L through dedicated research and reports. 'ide product range to enable the clients to choose the best alternative. Bne of the best 9Cs in India. ( positive image in the existing clients.

Wea'#e((e( Aess awareness in the market. Time consuming process for account opening, resolving the problems of the customers, etc. Service <uality is not maintained accordingly how they are promoted.

O11%"t5# t e( Slope of stock market towards delivery based transaction.

60

 Aarge potential market for delivery and intra4day transactions. Bpen interest of the people to enter in stock market for investing. (ttract the customers who are dissatisfied with other broker E 9Cs. (n indirect opportunity generated by the market from its bullishness.

Aarge untapped market in the Saurashtra region of ?uDarat. Th"eat( 9ecreasing rates of brokerage in the market. Increasing competition against other brokers E 9Cs Coor marketing activities for making the company known among the customers. ( threat of loosing clients for any kind of weakness of the company. Aoosing the untapped market with the entry of the competitors.

61

ABOUT THE DERIVATIVES

DERIVATIVES

INTRODUCTION
@eeping in view the experience of even strong and developed economies the world over, it is no denying the fact that financial market is extremely volatile by nature. Indian financial market is not an exception to this phenomenon. The attendant risk arising out of the volatility and complexity of the financial market is an important concern for financial analysts. (s a result, the logical need is for those financial instruments which allow fund managers to better manage or reduce these risks.

But of various risks, /redit 7isk and Interest 7ate risk are the two core risks, which are commonly acknowledged by various categories of Financial Institutions particularly banks. Effective management of these core risks is a critical factor in comprehensive risk management and is essential for the long4term financial health of business organi#ations, especially banks. 'ith gradual liberali#ation of Indian financial system and the growing integration among markets, the risks associated with operations of banks and (ll India Financial Institutions have become increasingly complex, re<uiring strategic management. In keeping with spirit of the guidelines on (sset4Aiability &anagement !(A&" systems and on integrated risk management systems, it is very much re<uired to design risk management architecture, taking into consideration the si#e, complexity of business, risk philosophy, market perception and the level of capital. In addition, fine4tuning the risk management system to deal with credit and market risk is also the need of the hour. For enabling the banks and the financial institutions, among others, to manage their risk effectively, the concept of derivatives comes into picture. The emergence of
the market for derivative products, most notably forwards, futures and options, can be traced back to the willingness of risk4averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. y 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 lockingSin asset prices. (s

62

instruments of risk management, these generally do not influence the fluctuations in the underlying asset prices. %owever, by locking4in asset prices, derivative products minimi#e the impact of fluctuations in asset prices on the profitability and cash flow situation of risk4 averse investors.

MEANING
( derivative is a financial instrument, which derives its value from some other financial price. This Iother financial priceJ is called the underlying. The underlying asset can be e<uity, FB7EG, commodity or any other asset. ( wheat farmer may wish to contract to sell his harvest at a future date to eliminate the risk of a change in prices by that date. The price for such a contract would obviously depend upon the current spot price of wheat. Such a transaction could take place on a wheat forward market. %ere, the wheat forward is the IderivativeJ and wheat on the spot market is Ithe underlyingJ. The terms Iderivative contractJ, Iderivative productJ, or IderivativeJ are used interchangeably. The most important derivatives are 35t5"e( and %1t %#() EAa/16e- = ( very simple example of derivatives is curd, which is derivative of milk. The price of curd depends upon the price of milk, which in turn depends upon the demand, and supply of milk. See it this way. (merican depository receipts= global depository receipts of I/I/I, Satyam and Infosys traded on stock exchanges in the 5S( and England have their own valuesR ;o. They draw their price from the underlying shares traded in India. /onsider how the value of mutual fund units changes on a day4to4day basis. 9ont mutual fund units draw their value from the value of the portfolio of securities under the schemesR (rent these examples of derivativesR Nes, these are. (nd you know what, these examples prove that derivatives are not so new to us. ;ifty options and futures, 7eliance futures and options, Satyam futures and options etc are all examples of derivatives. F5t5"e( a#$ %1t %#( a"e the /%(t &%//%# a#$ 1%156a" 3%"/ %3 $e" !at !e()

63

HISTORY
The derivatives markets has existed for centuries as a result of the need for both users and producers of natural resources to hedge against price fluctuations in the underlying commodities. India has been trading derivatives contracts in silver, gold, spices, coffee, cotton and oil etc for decades in the gray market. Trading derivatives contracts in organi#ed market was legal before &orarDi 9esais government banned forward contracts. 9erivatives on stocks were traded in the form of ITeDiJ and I&andiJ in unorgani#ed markets. 7ecently futures contract in various commodities was allowed to trade on exchanges. In >une )***, ;SE and SE started trading in futures on Sensex and ;ifty. Bptions trading on Sensex and ;ifty commenced in >une )**+. Mery soon thereafter trading began on options and futures in -+ prominent stocks in the month of >uly and ;ovember respectively. The market lots keeps on changing from time to time. The minimum <uantity you can trade in is one market lot.

DERIVATIVES- AN INDIAN CONTEXTIn Indian context, the intensity of derivatives usage by institutional investors !vi#. anks, Financial Institution6 &utual Funds, Foreign Institutional Investors, Aife and ?eneral Insurers" depend on their ability and willingness to use derivatives for one or more of the following purposesK 7isk containmentK using derivatives for hedging and risk containment purposes 7isk Trading=&arket &akingK 7unning derivatives trading book for profits and arbitrage6 and=or /overed IntermediationK Bn4balance4sheet derivatives intermediation for client transaction, without retaining any net4risk on the balance sheet !except credit risks".

64

TYPES OF DERIVATIVES
9erivative as a term conDures up visions of complex numeric calculations, speculative dealings and comes across as an instrument which is the prerogative of a few $smart finance professionals. In reality it is not so. In fact, a derivative transaction helps cover risk, which would arise on the trading of securities on which the derivative is based and a small investor can benefit immensely. I A $e" !at !e (e&5" t? &a# 4e $e3 #e$ a( a (e&5" t? <h%(e !a65e $e1e#$( %# the !a65e( %3 %the" 5#$e"6? #2 !a" a46e()M Ve"? %3te#> the !a" a46e( 5#$e"6? #2 the $e" !at !e (e&5" t e( a"e the 1" &e( %3 t"a$e$ (e&5" t e()

De" !at !e( a#$ 35t5"e( a"e 4a( &a66? %3 B t?1e( Forwards and Futures Bptions Swaps

DE7$4<0$4ES

2.ti(ns

" t res

S3a.s

"(r3ar#s

+ t

Ca!! C(mm(#i

$nterest Se% rit=

C rren%

65

 FORWARDSA 3%"<a"$ &%#t"a&t ( the ( /16e(t /%$e %3 a $e" !at !e t"a#(a&t %#) It ( a# a2"ee/e#t t% 45? %" (e66 a# a((et (%3 a (1e& 3 e$ @5a#t t?) at a &e"ta # 35t5"e t /e 3%" a &e"ta # 1" &e) N% &a(h ( eA&ha#2e$ <he# the &%#t"a&t ( e#te"e$ #t%) I665(t"at %#- = Shyam wants to buy a TM, which costs 7s +*,*** but he has no cash to buy it outright. %e can only buy it - months hence. %e, however, fears that prices of televisions will rise - months from now. So in order to protect himself from the rise in prices Shyam enters into a contract with the TM dealer that - months from now he will buy the TM for 7s +*,***. 'hat Shyam is doing is that he is locking the current price of a TM for a forward contract. The forward contract is settled at maturity. The dealer will deliver the asset to Shyam at the end of three months and Shyam in turn will pay cash e<uivalent to the TM price on delivery.

FUTURESIt is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price through exchange traded contracts. ( Future represents the right to buy or sell a standard <uantity and <uality of an asset or security at a specified date and price. Futures are similar to Forward /ontracts, but are standardi#ed and traded on an exchange, and are valued, or :Ma"'e$ t% Ma"'etM daily. The Ma"' #2 t% Ma"'et provides both parties with a daily accounting of their financial obligations under the terms of the Future. 5nlike Forward /ontracts, the counterparty to a Futures contract is the clearing corporation on the appropriate exchange. Futures often are settled in cash or cash e<uivalents, rather than re<uiring physical delivery of the underlying asset. Carties to a Futures contract may buy or write Bptions on Futures.

66

 OPTIONSA# %1t %# ( a &%#t"a&t> <h &h 2 !e( the 45?e" the " 2ht> 45t #%t the %46 2at %# t% 45? %" (e66 (ha"e( %3 the 5#$e"6? #2 (e&5" t? at a (1e& 3 & 1" &e %# %" 4e3%"e a (1e& 3 & $ate) $Bption, as the word suggests, is a choice given to the investor to either honor the contract6 or if he chooses not to walk away from the contract. There are two kinds of optionsK Ca66 O1t %#( a#$ P5t O1t %#() ( Ca66 O1t %# is an option to buy a stock at a specific price on or before a certain date. 'hen you buy a /all option, the price you pay for it, called the option premium, secures your right to buy that certain stock at a specified price called the strike price. If you decide not to use the option to buy the stock, and you are not obligated to, your only cost is the %1t %# 1"e/ 5/. P5t O1t %#( are options to sell a stock at a specific price on or before a certain date. In this way, Cut options are like insurance policies. 'ith a Cut Bption, you can :insure: a stock by fixing a selling price. If something happens which causes the stock price to fall, and thus, :damages: your asset, you can exercise your option and sell it at its :insured: price level. If the price of your stock goes up, and there is no :damage,: then you do not need to use the insurance, and, once again, your only cost is the premium. Technically, an option is a contract between two parties. The buyer receives a privilege for which he pays a premium. The seller accepts an obligation for which he receives a fee.

CALL OPTIONS
/all options give the taker the right, but not the obligation, to buy the underlying shares at a predetermined price, on or before a predetermined date. I665(t"at %#- = 7aD purchases + Satyam /omputer !S(T/B&" (5? +2* /all 44Cremium ,

67

This contract allows 7aD to buy +** shares of S(T/B& at 7s +2* per share at any time between the current date and the end of next (ugust. For this privilege, 7aD pays a fee of 7s ,** !7s eight a share for +** shares". The buyer of a call has purchased the right to buy and for that he pays a premium. ;ow let us see how one can profit from buying an option6 Sam purchases a 9ecember call option at 7s 1* for a premium of 7s +2. That is he has purchased the right to buy that share for 7s 1* in 9ecember. If the stock rises above 7s 22 !1*U+2" he will break even and he will start making a profit. Suppose the stock does not rise and instead falls he will choose not to exercise the option and forego the premium of 7s +2 and thus limiting his loss to 7s +2.

Ca66 O1t %#(=L%#2 C Sh%"t P%( t %#( 'hen you expect prices to rise, then you take a long position by buying calls. Nou are bullish. 'hen you expect prices to fall, then you take a short position by selling calls. Nou are bearish.

PUT OPTIONS
( P5t O1t %# gives the holder of the right to sell a specific number of shares of an agreed security at a fixed price for a period of time. I665(t"at %#-= 7aD is of the view that the a stock is overpriced and will fall in future, but he does not want to take the risk in the event of price rising so purchases a put

68

option at 7s 8* on $G. y purchasing the put option 7aD has the right to sell the stock at 7s 8* but he has to pay a fee of 7s +2 !premium". So he will breakeven only after the stock falls below 7s 22 !8*4+2" and will start making profit if the stock falls below 7s 22.

P5t O1t %#(=L%#2 C Sh%"t P%( t %#( 'hen you expect prices to fall, then you take a long position by buying Cuts. Nou are bearish. 'hen you expect prices to rise, then you take a short position by selling Cuts. Nou are bullish) CALL OPTIONS If you expect a fall in price! earish" If you expect a rise in price ! ullish" Sh%"t L%#2 PUT OPTIONS L%#2 Sh%"t

IMPORTANT FACTORS IN DERIVATIVES

HEDGING

'e have seen how one can take a view on the market with the help of index futures. The other benefit of trading in index futures is to hedge your portfolio against the risk of trading. In order to understand how one can protect his portfolio from value erosion let us take an example.

69

I665(t"at %#- 7am enters into a contract with Shyam that six months from now he will sell to Shyam +* dresses for 7s 1***. The cost of manufacturing for 7am is only 7s +*** and he will make a profit of 7s -*** if the sale is completed. C%(t (R() +*** Se66 #2 1" &e 1*** P"%3 t -***

%owever, 7am fears that Shyam may not honor his contract 3 months from now. So he inserts a new clause in the contract that if Shyam fails to honor the contract he will have to pay a penalty of 7s +***. (nd if Shyam honors the contract 7am will offer a discount of 7s +*** as incentive. Sh?a/ $e3a56t( +*** !Initial Investment" +*** !penalty from Shyam" 4 !;o gain=loss" Sh?a/ h%#%"( -*** !Initial profit" !4+***" discount given to Shyam )*** !;et gain"

(s we see above if Shyam defaults 7am will get a penalty of 7s +*** but he will recover his initial investment. If Shyam honors the contract, 7am will still make a profit of 7s )***. Thus, 7am has hedged his risk against default and protected his initial investment. The above example explains the concept of hedging.

SPECULATION
Speculators are those who do not have any position on which they enter in futures and options market. They only have a particular view on the market, stock, commodity etc. In short, speculators put their money at risk in the hope of profiting from an anticipated price change. They consider various factors such as demand supply, market positions, open interests, economic fundamentals and other data to take their positions. I665(t"at %#- 7am is a trader but has no time to track and analy#e stocks. %owever, he fancies his chances in predicting the market trend. So instead of buying different stocks he buys Sensex Futures.

70

Bn &ay +, )**+, he buys +** Sensex futures T -3** on expectations that the index will rise in future. Bn >une +, )**+, the Sensex rises to 1*** and at that time he sells an e<ual number of contracts to close out his position. Selling Crice K 1***W+** AessK Curchase /ostK -3**W+** Net 2a # X X 7s 1,**,*** 7s -,3*,*** 7s 1*,***

7am has made a profit of 7s 1*,*** by taking a call on the future value of the Sensex. %owever, if the Sensex had fallen he would have made a loss. Similarly, if would have been bearish he could have sold Sensex futures and made a profit from a falling profit. In index futures players can have a long4term view of the market up to atleast - months.

ARBITRAGE
(n arbitrageur is basically risk averse. %e enters into those contracts were he can earn riskless profits. 'hen markets are imperfect, buying in one market and simultaneously selling in other market gives risk less profit. (rbitrageurs are always in the look out for such imperfections. In the futures market one can take advantages of arbitrage opportunities by buying from lower priced market and selling at the higher priced market. In index futures arbitrage is possible between the spot market and the futures market. (ssume that ;ifty is at +)** and - months ;ifty futures is at +-**. The futures price of ;ifty futures can be worked out by taking the interest cost of - months into account. If there is a difference then arbitrage opportunity exists.

Aet us take the example of single stock to understand the concept better. If 'ipro is <uoted at 7s +*** per share and the - months futures of 'ipro is 7s +*8* then one

71

can purchase IT/ at 7s +*** in spot by borrowing T +)L annum for - months and sell 'ipro futures for - months at 7s +*8*. Sale /ostX +***U-* (rbitrage profit X X X +*8* +*-* 1*

These kinds of imperfections continue to exist in the markets but one has to be alert to the opportunities as they tend to get exhausted very fast.

MARGINS
The margining system is based on the >7 Merma /ommittee recommendations. The actual margining happens on a daily basis while online position monitoring is done on an intra4day basis. 9aily margining is of two typesK +. Initial margins ). &ark4to4market profit=loss The computation of initial margin on the futures market is done using the concept of Malue4at47isk !Ma7". The initial margin amount is large enough to cover a one4day loss that can be encountered on 00L of the days. Ma7 methodology seeks to measure the amount of value that a portfolio may stand to lose within a certain hori#on time period !one day for the clearing corporation" due to potential changes in the underlying asset market price. Initial margin amount computed using Ma7 is collected up4front. The daily settlement process called "/a"'=t%=/a"'et" provides for collection of losses that have already occurred !historic losses" whereas initial margin seeks to safeguard against potential losses on outstanding positions. The mark4to4market settlement is done in cash.

72

Aet us take a hypothetical trading activity of a client of a ;SE futures division to demonstrate the margins payments that would occur.

( client purchases )** units of F5TI9G ;IFTN )0>5;)**+ at 7s +2**. The initial margin payable as calculated by Ma7 is +2L. X X 7s -,**,*** !)** x +2**" 7s 12,***

Total long position Initial margin !+2L"

(ssuming that the contract will close on 9ay U - the mark4to4market position will look as followsK POSITION ON DAY ; C6%(e P" &e +1** x )** X ),,*,*** Cayment to be made NEW POSITION ON DAY 8 Malue of new position X +,1**W)**X ),,*,*** &argin X 1),*** C6%(e P" &e +2+* x )** X Ga # )),*** A$$# Ma"2 # -,-** !12,-** 4 1),***" Net &a(h #36%< +,,8** !)),*** 4 --**" +,,8** L%(( )*,*** !-,**,*** 4 ),,*,***" Ma"2 # "e6ea(e$ -,*** !12,*** 4 1),***" Net &a(h %5t36%< +8,*** !)*,*** 4 -***" !+8,***"

-,*),*** !-,*),*** 4 ),,*,***" Cayment to be recd

73

POSITION ON DAY B Malue of new position X +2+*W)** X 7s -, *),*** &argin X 7s -,-** C6%(e P" &e +3**W)** X-,)*,*** Cayment to be recd Ga # +,,*** !-,)*,***4-,*),***" Net &a(h #36%< +,,*** U 97>B::W X 3-,-** 3-,-**

Ma"2 # a&&%5#tN
Initial margin &argin released !9ay +" Cosition on 9ay ) (ddn margin Total margin in a=c Net 2a #06%(( 9ay + !loss" 9ay ) ?ain 9ay - ?ain Total ?ain X X X X !7s +8,***" 7s +,,8** 7s +,,*** 7s +0,8** X X X !4" 7s 12,*** 7s -,*** 7s 1),*** !U"7s -,-** R( 97>B::N

The client has made a profit of 7s +0,8** at the end of 9ay - and the total cash inflow at the close of trade is 7s 3-,-**.

ABOUT COMMODITIES
74

 INTRODUCTION
C%//%$ t e( Ma"'et I# I#$ a
Brgani#ed futures market evolved in India by the setting up of : ombay /otton Trade (ssociation Atd.: in +,82. In +,0-, following widespread discontent amongst leading cotton mill owners and merchants over the functioning of the ombay /otton Trade (ssociation, a separate association by the name : ombay /otton Exchange Atd.: was constituted. Futures trading in oilseeds was organi#ed in India for the first time with the setting up of ?uDarati Myapari &andali in +0**, which carried on futures trading in groundnut , castor seed and cotton. efore the Second 'orld 'ar broke out in +0-0 several futures markets in oilseeds were functioning in ?uDarat and CunDab. There were booming activities in this market and at one time as many as ++* exchanges were conducting forward trade in various commodities in the country. The securities market was a poor cousin of this market as there were not many papers to be traded at that time. The era of widespread shortages in many essential commodities resulting in inflationary pressures and the tilt towards socialist policy, in which the role of market forces for resource allocation got diminished, saw the decline of this market since the mid4+03*s. This coupled with the regulatory constraints in +03*s, resulted in virtual dismantling of the commodities future markets. It is only in the last decade that commodity future exchanges have been actively encouraged. %owever, the markets have been thin with poor li<uidity and have not grown to any significant level. ( three4pronged approach has been adopted to revive and revitali#e the market. Firstly, on policy front many legal and administrative hurdles in the functioning of the market have been removed. Forward trading was permitted in cotton and Dute goods in +00,, followed by some oilseeds and their derivatives, such as groundnut, mustard seed, sesame, cottonseed etc. in +000. ( statement in the first ever ;ational (griculture Colicy, issued in >uly, )*** by the government that futures trading will be encouraged in increasing number of agricultural commodities was indicative of welcome change in the government policy towards forward trading.

75

Secondly, strengthening of infrastructure and institutional capabilities of the regulator and the existing exchanges received priority. Thirdly, as the existing exchanges are slow to adopt reforms due to legacy or lack of resources, new promoters with resources and professional approach were being attracted with a clear mandate to set up demutuali#ed, technology driven exchanges with nationwide reach and adopting best international practices. The year )**- marked the real turning point in the policy framework for commodity market when the government issued notifications for withdrawing all prohibitions and opening up forward trading in all the commodities. This period also witnessed other reforms, such as, amendments to the Essential /ommodities (ct, Securities !/ontract" 7ules, which have reduced bottlenecks in the development and growth of commodity markets. Bf the country.s total ?9C, commodities related !and dependent" industries constitute about roughly 2*43* L, which itself cannot be ignored. &ost of the existing Indian commodity exchanges are single commodity platforms6 are regional in nature, run mainly by entities which trade on them resulting in substantial conflict of interests, opa<ue in their functioning and have not used technology to scale up their operations and reach to bring down their costs. ut with the strong emergence ofK ;ational &ulti4commodity Exchange Atd., (hmedabad !;&/E", &ulti /ommodity Exchange Atd., &umbai !&/G", ;ational /ommodities and 9erivatives Exchange, &umbai !;/9EG", and ;ational oard of Trade, Indore !; BT", all these shortcomings will be addressed rapidly. These exchanges are expected to be role model to other exchanges and are likely to compete for trade not only among themselves but also with the existing exchanges. The current mindset of the people in India is that the Commodity exchanges are speculative (due to non delivery) and are not meant for actual users One ma!or reason "eing that the a#areness is lac$ing amongst actual users In India% Interest rate ris$s% exchange rate ris$s are

WHY STRUCTURED COMMODITY MARKET?

76

Today the business is not limited to our area only. 'here the production is less but, demand is comparatively high prices of the product will go up. Bn the contrary where the production is high but demand is comparatively low the prices will go down. If sellers and buyers come together at a place then it will create a market. %ere against one seller there will be more then one buyer. In this market buyers will come across the country for transactions. In this market not only producer and seller are included but arbitrageur, speculator, and hedger can tread. In this way the total area of market will become broad. In our country agricultural products form )2L of ?9C. Total turnover of commodity of market is nearly 7s.+, +*,*** corer. In which 3*,*** corer comes from agriculture and left is coming from coal, crude, etcH Today in our country most of the trade is done in unorgani#ed market. In the market current and future contracts are done. Cromissory contracts have been started science +,82. ut due to some restriction it was not properly worked. Cresently nearly in +)) commodities tread is being done

T"a#(a&t %# # the %"2a# Ge$ /a"'etK

Brgani#ed markets have structured forms of transactions. The commodity exchanges are regulated as per rules and regulations define in The Forward /ontracts !7egulation" (ct, +02) for regulating forwardVfuture contracts. In 9ecember )**-, the ;ational /ommodity and 9erivative Exchange Atd !;/9EG" launched futures trading in nine maDor commodities. &/G To begin with contacts in gold, silver, cotton, soyabean, soya oil, mustered seed, rapeseed oil, crude palm oil and 7 9 Calmolive are being offered. ;ow more then 1* commodity items are included. 9ay by day number of commodity items is incising. The various commodities that tread on the ;/9EG and look at some commodity specific issues. In this commodity market classified as agriculture products, precious metal, other metal and energy which we discuss above.

77

 COMMODITIES

78

 CHARACTERISTICS OF FUTURES TRADING

( :Futures /ontract: is a highly standardi#ed contract with certain distinct features. Some of the important features are as underK a. Futures trading is necessarily organi#ed under the auspices of a market association so that such trading is confined to or conducted through members of the association in accordance with the procedure laid down in the 7ules E ye4laws of the association. b. It is invariably entered into for a standard variety known as the :basis variety: with permission to deliver other identified varieties known as :tender able varieties:. c. The units of price <uotation and trading are fixed in these contracts, parties to the contracts not being capable of altering these units. d. The delivery periods are specified. e. The seller in a futures market has the choice to decide whether to deliver goods against outstanding sale contracts. In case he decides to deliver goods, he can do so not only at the location of the (ssociation through which trading is organi#ed but also at a number of other pre4specified delivery centers. f. In futures market actual delivery of goods takes place only in a very few cases. Transactions are mostly s<uared up before the due date of the contract and contracts are settled by payment of differences without any physical delivery of goods taking place.

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 ECONOMIC BENEFITS OF THE FUTURES TRADING

Futures contracts perform two important functions of price discovery and price risk management with reference to the given commodity. It is useful to all segments of economy. It is useful to producer because he can get an idea of the price likely to prevail at a future point of time and therefore can decide between various competing commodities, the best that suits him. It enables the consumer get an idea of the price at which the commodity would be available at a future point of time. %e can do proper costing and also cover his purchases by making forward contracts. The futures trading is very useful to the exporters as it provides an advance indication of the price likely to prevail and thereby help the exporter in <uoting a realistic price and thereby secure export contract in a competitive market. %aving entered into an export contract, it enables him to hedge his risk by operating in futures market. Bther benefits of futures trading areK Crice stabili#ation4in times of violent price fluctuations 4 this mechanism dampens the peaks and lifts up the valleys i.e. the amplititude of price variation is reduced. Aeads to integrated price structure throughout the country. Facilitates lengthy and complex, production and manufacturing activities. %elps balance in supply and demand position throughout the year. Encourages competition and acts as a price barometer to farmers and other trade functionaries. COMMODITIES ARE SUITABLE FOR FUTURE TRADING The following are some of the key factors, which decide the suitability of the commodities for future tradingK 4

The commodity should be competitive, i.e., there should be large demand for and supply of the commodity 4 no individual or group of persons acting in concert should be in a position to influence the demand or supply, and conse<uently the price substantially.

There should be fluctuations in price.

80

The market for the commodity should be free from substantial government control.

The commodity should have long shelf life and be capable of standardi#ation and gradation.

THE FOLLOWING ITEMS ARE TRADED IN THE MULTI COMMODITY

EXCHANGE B566 %#- Gold, Gold M, Gold HNI, Silver, Silver M, Silver %;I O 6 C O 6 See$( Castor Seeds, Soy Seeds, Castor Oil, Refined Soy Oil, Soymeal, RBD Palmolein, Crude Palm Oil, Groundnut Oil, Mustard Seed, Mustard Seed Oil, Cottonseed Oilcake, Cottonseed

S1 &e(- Cepper, Red C

illi, !eera, "urmeric

Meta6- Steel #on$, Steel %lat, Co&&er, Nickel, "in F 4"e- 'a&as, #on$ Sta&le Cotton, Medium Sta&le Cotton P56(e(- C
ana, (rad, )ello* Peas, "ur eat,

Ce"ea6(- Rice, Basmati Rice, + E#e"2?- /rude Bil Othe"(Band ani Ru,,er, Guar Seed,

&ai#e, Sarbati 7ice andhani, ?uargum,

?ur, ?uargum

Cas e* 'ernel, Guarseed

NEED FOR FUTURES TRADING IN COMMODITIES

/ommodity Futures, which forms an essential component of /ommodity Exchange, can be broadly classified into precious metals, agriculture, energy and other metals.

81

/urrent futures volumes are miniscule compared to underlying spot market volumes and thus have a tremendous potential in the near future. Futures trading in commodities results in transparent and fair price discovery on account of large4scale participations of entities associated with different value chains. It reflects views and expectations of a wider section of people related to a particular commodity. It also provides effective platform for price risk management for all segments of players ranging from producers, traders and processors to exporters=importers and end4users of a commodity. It also helps in improving the cropping pattern for the farmers, thus minimi#ing the losses to the farmers. It acts as a smart investment choice by providing hedging, trading and arbitrage opportunities to market players. %istorically, pricing in commodities futures has been less volatile compared with e<uity and bonds, thus providing an efficient portfolio diversification option. 7aw materials form the most key element of most of the industries. The significance of raw materials can further be strengthened by the fact that the :increase in raw material cost means reduction in share prices:. In other words :Share prices mimic the commodity price movements:. Industry in India today runs the raw material price risk6 hence going forward the industry can hedge this risk by trading in the commodities market.

HEDGING
%edging is a sophisticated mechanism, which provides the necessary immunity to the above interests in the marketing of commodities from the risk of adverse price fluctuations. ( %edge is a countervailing contract transacted in a futures market through which those who have bought in the ready market will sell in the futures market and those who have sold in the ready market would buy in the futures market. In each of these two cases, a purchase in the ready market is off4set by an opposite sale in the

82

futures market and a sale in the ready market is off4set by purchase in the futures market. 'hen the purchase or sale commitment in the ready market is fulfilled, the sale or purchase hedge contract is closed out by an offsetting reverse purchase or sale contract in the futures market. The practice of hedging is based on the assumption that the ready and futures prices of the commodity move more or less parallel to each other. The ready and futures prices of a commodity ordinarily do move together in sympathy with each other because both ready and futures prices are basically determined by the demand and supply factors of that particular commodity. 'hen the price of a commodity has declined in the ready market, its price in the futures market would normally have also declined so that the loss incurred in the ready market would be recovered by the profit made in the futures market. Similarly, if the price rises in the ready market after the hedge sale had been entered into the futures market, there would be a loss in the futures market, which would, however, be made up with the profit made in the ready market. ut, in certain circumstance, the ready and futures prices may not move together or the spread between the two may increase or decrease sharply. To the extent that they do not move together by the same extent, hedging itself may be a source of minor gains or losses. ut a dealer, manufacturer or exporter is not, per se, interested in such speculative losses or gains. %is only interest is to ensure that he gets the necessary insurance against unforeseen fluctuation in prices. y and large, hedging in a futures market does afford such a protection to the various functionaries. %edging on futures markets cannot be practiced unless there are operators willing to assume the risk of adverse price fluctuations which the hedgers desire to transfer. These operators are called speculators. They, thus provide the much needed breadth and li<uidity to the futures markets which in their absence would remain narrow and unstable.

83

( speculator operating in a futures market is the one who buys or sells futures contracts without any countervailing commitments or transactions in the actual commodity with a view to making profit from the fluctuations in the prices. The basic distinction between a hedge and speculative transaction on a futures market is that while in the case of a hedge transaction there is a corresponding opposite transaction in the ready market, in the case of a speculative transaction, there is no corresponding transaction in the ready market. 'hile the motives of the speculator in entering into futures trans actions are different from a hedger, the form or nature of transactions entered into by both in the futures market is similar. 'hen a transaction takes place in a futures market, the transaction may well be between two hedgers or two speculators or between a hedger and a speculator. 'hile it is possible for the individual parties to enter into futures contracts, such contracts are generally entered under the auspices of commercial bodies known as commodity exchanges or associations. The need for organi#ing futures trading under the auspices of such commodity exchanges or associations arises mainly in order to ensure that payment of differences arising from settlement of purchase and sale contracts entered into by the members of such exchanges or aassociations take place in a smooth and orderly manner and thus defaults on account of non4payment of such differences are avoided. Futures trading in these commodity exchanges=associations are confined to or conducted through its members in accordance with the procedure laid down in its rules members in accordance with the procedure laid down in its rules and bye4laws. Further, these exchanges=associations also help in evolving standard terms of contracts in which the <uantity and <uality of the goods traded, period of delivery and all other terms are pre4determined, the only variable being the price at which the contracts helps the members of associations in entering into uniform types of contracts in which the <uantity and <uality of goods, period of delivery etc. are pre4 determined so that they can be entered into primarily for the purpose of exchange of money differences.

REGULATORY BODY

84

The Forward &arkets /ommission !F&/" is the regulatory body for commodity futures=forward trade in India. The commission was set up under the Forward /ontracts !7egulation" (ct of +02). It is responsible for regulating and promoting futures=forward trade in commodities. The F&/ is head<uartered in &umbai while its regional office is located in @olkata. /urbing the illegal activities of the diehard traders who continued to trade illegally is the maDor role of the Forward &arkets /ommission.

WHY COMMODITIES MARKET*

India has very large agriculture production in number of agri4commodities, which needs use of futures and derivatives as price4risk management system. Fundamentally price you pay for goods and services depend greatly on how well business handle risk. y using effectively futures and derivatives, businesses can minimi#e risks, thus lowering cost of doing business. /ommodity players use it as a hedge mechanism as well as a means of making money. For e.g. in the bullion markets, players hedge their risks by using futures Euro49ollar fluctuations and the international prices affecting it. For an agricultural country like India, with plethora of mandis, trading in over +** crops, the issues in price dissemination, standards, certification and warehousing are bound to occur. /ommodity &arket will serve as a suitable alternative to tackle all these problems efficiently.

PROBLEMS FACED BY COMMODITIES MARKETS IN INDIA

Institutional issues have resulted in very few deliveries so far. /urrently, there are a lot of hassles such as octroi duty, logistics. If there is a broker in &umbai and a broker in @olkata, transportation costs, octroi duty, logistical problems prevent trading to take place. Exchanges are used only to hedge price risk on spot transactions carried out in the local markets. (lso multiple restrictions exist on inter4 state movement and warehousing of commodities.

85

 RISKS ASSOCIATED WITH COMMODITIES MARKETS

;o risk can be eliminated, but the same can be transferred to someone who can handle it better or to someone who has the appetite for risk. /ommodity enterprises primarily face the following classes of risks, namelyK the price risk, the <uantity risk, the yield=output risk and the political risk. Talking about the nationwide commodity exchanges, the risk of the counter party !trading member, client, vendors etc" not fulfilling his obligations on due date or at any time thereafter is the most common risk. This risk is mitigated by collection of the following marginsK 4

Initial &argins Exposure margins &arket to market of positions on a daily basis Cosition Aimits and Intra day price limits Surveillance

/ommodity price risks includeK 4

Increase in purchase cost vis4Y4vis commitment on sales price /hange in value of inventory /ounter party risk translating into commodity price risk

KEY FACTORS FOR SUCCESS OF COMMODITIES MARKET

The following are some of the key factors for the success of the commodities marketsK 4

%ow one can make the business growR %ow many products are coveredR %ow many people participate on the platformR

86

 KEY FACTORS FOR SUCCESS OF COMMODITIES EXCHANGES

The following are some of the key factors for the success of the commodities exchangesK 4 Strategy, method of execution, background of promoters, credibility of the institution, transparency of platforms, scaleable technology, robustness of settlement structures, wider participation of %edgers, Speculators and (rbitrageurs, acceptable clearing mechanism, financial soundness and capability, covering a wide range of commodities, si#e of the trade guarantee fund, reach of the organi#ation and adding value on the ground. In addition to this, if the Indian /ommodity Exchange needs to be competitive in the ?lobal &arket, then it should be backed with proper :/apital (ccount /onvertibility:. The interests of Indian consumers, households and producers are most important, as these are the people who are exposed to risk and price fluctuations.

KEY EXPECTATIONS OF COMMODITIES EXCHANGES

The following are some of the key expectations of the investor.s w.r.t. any commodity exchangeK 4

To get in place the right regulatory structure to even out the differences that may exist in various fields. Croper Croduct /onceptuali#ation and 9esign. Fair and Transparent Crice 9iscovery E 9issemination. 7obust Trading E Settlement systems. Effective &anagement of /ounter party /redit 7isk. Self47egulation to ensureK Bverview of Trading and Surveillance, (udit and review of &embers, Enforcement of Exchange rules.

87

FUTUREPROSPECTS

'ith the gradual withdrawal of the government from various sectors in the post4 liberali#ation era, the need has been felt that various operators in the commodities market be provided with a mechanism to hedge and transfer their risks. India.s obligation under 'TB to open agriculture sector to world trade would re<uire futures trade in a wide variety of primary commodities and their products to enable diverse market functionaries to cope with the price volatility prevailing in the world markets. ?overnment subsidy may go down as a result of 'TB. The &SC programme will not be sustainable in such a scenario. The farmer will have to look at ways of being in a position to trade on commodity exchanges in future. (lso, corporate will feel the pressure to hedge their price risk once the frontiers open up for free trade. Indian markets have recently thrown open a new avenue for retail investors and traders to participateK commodity derivatives. For those who want to diversify their portfolios beyond shares, bonds and real estate, commodities are the best option. Following are some of the applications, which can utili#e the power of the commodity markets and create a win4win situation for all the involved partiesK 4

REGULATORY APPROVAL 0 PERMISSION TO FIILS FOR TRADING IN THE COMMODITY MARKETS

FII.s are currently not allowed nor disallowed under any law. (s, they have added depth to the e<uity markets6 they will add depth to the commodities markets, since they globally know the commodities.

ACTIVE INVOLVEMENT OF MUTUAL FUND INDUSTRY IN INDIA

/urrently &utual Funds are prohibited from not using derivatives apart from hedging. &utual Funds as investors can invest in gold and get returns as they get from debt instruments, e<uity markets. (&FI E SE I need to collectively work towards the same. Aaunch of the :/ommodity Funds:, by the &utual Funds in India, can serve as a newer investment avenue for investors.

88

 ONLINE COMMODITY TRADING

Bnline commodity trading offers a way for an open, many4to4many system, where every user has e<ual access to price <uotes and trading functionality. It provides a level playing field for all, without favoritism or control by a chosen few, where any user can view all <uotes posted by other users in real time, act or trade on <uotes posted by others, post their own prices and <uantities for others to trade The Bnline commodity trading site usually lists a large number of uni<ue products covering a variety of commodities, structures, and settlement terms ranging from Bil, ;atural ?as, Electric Cower, Crecious &etals, Emissions and 'eather. It provides for various media ranging from Chysical 9elivery and Financial /ash Settlement. There are further derivative options available ranging from Forwards, Swaps, Bptions, Spreads, 9ifferentials, /omplex 9erivatives. Ai<uidity, or trade activity, is perhaps the best measure of success of an online trading commodity trading system. 'ith most online commodity trading systems, traders can be sure of finding an interesting market development or trading opportunity almost every time they log on. (ll <uotes posted by users on any online commodity trading systems are live and firm. They can be acted on with full assurance of a completed transaction. The greatest advantage of an online system for trading is that Dust a click can be used to hit a bid or lift an offer. The Bnline trading system operates almost continuously around the clock, )1 hours a day, seven days a week. This allows any user to extend the trading day, and easily pass the trading obDectives to others in companies in different times #ones. The online commodity trading system in India is only an emerging segment yet. This is because the Internet boom in Indian is on the rise only now. The Internet charges are becoming minimal and the Internet is soon becoming a way of life in India. It is in this scenario that online trading is becoming more the way of trading in India.

89

 SHAREKHAN ADVANTAGE

COMMODITY

KEY BENEFITS OF COMMODITIESO SHAREKHANNou are getting )*time exposer in &/G E+* time in ;/9EG depends on commodity to open an account 'e have sms facility where u getting market information as well as buy=sell call Nou are also getting yahoo chat,'here our dealer=7& are always help for market information as well as buy=sell call

90

 RESEARCH
Re(ea"&h O4Pe&t !e
The main obDective of the study is to analysis the awareness of derivatives and commodities segment and their potential market among the people of 7aDkot /ity.

Se&%#$a"? %4Pe&t !e( a"e To know the awareness of 9erivatives and /ommodity. To know the scope for the 9erivatives and /ommodity. To know the investment habit and purpose of investing, of the people of 7aDkot /ity. To know the influencing force behind the decision making while trading in 9erivatives and /ommodity.

To find out the best medium to educate the masses about 9erivatives and
/ommodity.

HYPOTHESIS%*K There is no significant difference in level of awareness of /ommodity. %ZK There is significant difference in level of awareness of /ommodity. 9erivatives and 9erivatives and

91

SOURCES OF DATA
There are two main sources of data Crimary 9ata

+. Secondary 9ata P" /a"? Data

The data, which is collected directly from the respondent to the base of knowledge and belief of the research, is called primary data. The most preferred way is to interview the individuals to get a sense of how they feel

Se&%#$a"? Data
'hen the data is collected and compiled from the published nature or any others primary data is called secondary data.

So far as our research is concerned, we have not collected any information from any sources. So, we have not used secondary data for our research.

92

SAMPLING PROCESS
It is very true that to do the research with the whole universe. (s we know that it is feasible to go to population survey because of the n number of customers and their scattered location. So for this purpose sample si#e has to be determined well in advance and selection of sample also must be scientific so that it represents the whole universe. So far as our research is concerned, we have taken sample si#e of -** respondents. 'e have selected Income Earners with saving to invest in 7aDkot city. (ll the respondents are stratified on the basis of their 1"%3e(( %# and (a! #2() 'e have selected the selected the samples as per per convenience.

Sample 5niverse Sampling Techni<ue Sample Si#e Sampling 5nitK

7aDkot /ity Stratified and 7andom -** 7espondents Crofessional 7andom usiness &an 7andom ?overnment Employees 7andom Employees working in private firms 7andom

X X X X

SCOPE OF STUDY 93

The "e(ea"&h <%56$ 4e 5(e356 # the 3%66%< #2 "e(1e&t)

This will help the company to know the taste of masses and turn it towards 9erivatives and /ommodities. This will help the company, how to make people aware about 9erivatives and /ommodities by imparting best education. This will help the company to frame effective &arketing Strategy as well as select the right media for advertising to create brand awareness as well as to give knowledge of the product. &ind share of Sharekhan can be known.

This will also help to select right medium for trading in 9erivatives and
/ommodities segment.

LIMITATION OF THE STUDY The limitations of the study are as followK Pe"(%#a6 B a(Individuals may have personal bias towards particular investment option so they may not give correct information and due to which the conclusion may be derived.

T /e L / tThe time duration given for the research is less.

94

A"eaThe area was limited to 7aDkot /ity only, so we cannot know the degree of the literacy outside the city.

Sa/16e S GeThe last limitation is Sample Si#e, which is of +** only6 due to which we may not get the proper results.

95

ANALYSIS C INTERPRETATION
+.Ge#$e" Rat %&ale +03
)2* )** +2* +*1 +** 2* * &ale Series+ Female +03

Female +*1

).A2eelow -* )+) -*42* -2 &ore than 2* 2-

)2* )** +2* +** 2* *

)+)

-2

2-

elow -*

-*42* Series+

&ore than 2*

96

-.E$5&at %# D5a6 3 &at %#Cost ?raduate ++)

)** +,* +3* +1* +)* +** ,* 3* 1* )* *

?raduate +8)
+8)

5nder ?raduate +3

++)

+3 Cost ?raduate ?raduate Series+ 5nder ?raduate

1.O&&51at %#?ovt. ;on4?ovt. usiness Crofessional Employees Employees &an +)* 3) 8* 1,

+1* +)* +** ,* 3* 1* )* * ?ovt. Employees ;on4?ovt. Employees usiness &an Crofessional 3) 8* 1,

+)*

Series+

97

2.I#!e(t/e#t Patte"#Securities ank F.9. Cost office Insurance &utual Fund ?old E<uity 9erivatives /ommodities ;o. ++1 3), -* )) +0 +* +1 Cercentage!L" -, )+ 0 +* 8 3 2

+)* +** ,* 3* 1* )* *

++1

3-, )+ ), 0 -* +* )) 8 +0

+*

+1

ce In su ra nc e

ut ua lF un d

? ol d

E< ui ty

es 9e riv a tiv

Co st of fi

an k

;o.

Cercentage!L"

It can be seen from the graph that the respondents have given first preference for investment to ank F.9. and ?old, E<uity, 9erivatives and /ommodity having almost e<ual share.

P"e3e"e#&e 3%" #!e(t/e#t De" !at !e( C C%//%$ t?98

/o m m

&

od itie s

F.

9.

Instruments ullion Spices Fiber Bil &etal FEB

;o. 80 -+0 2* 183

Cercentage!L" )3 ++ +8 +1 )2

0* ,* 8* 3* 2* 1* -* )* +* *

80

83

2* )3 -+0 ullion Spices ++ +8

1)2 +1

Fiber ;o.

Bil

&etal

FEB

Cercentage!L"

'hen asked to the respondents that out of the given options which one would they preferR So they prefer ullion first. So the preference for commodity ! ullion" is more than the 9erivatives.

Fa&t%"( that a"e t% 4e &%#( $e" 4? I#$ ! $5a6 at the t /e %3 #!e(t/e#t

99

O4(ta&6e( 7isk 7eduction Aeverage enefit (rbitrage enefit Speculative &otive Ai<uidity preference
+1* +)* +** ,* 3* 1* )* * 7isk 7eduction Aeverage enefit (rbitrage enefit ;o. 7ank + ) +) 2 +)0 ++)

N%) +)0 ++) +) +2 -)

Ra#' + ) 2 1 -

-) +2 1 Ai<uidity preference

Speculative &otive

So, Each and every investor are not risk taker though they want more return from the investment.

Me$ 5/ 1"e3e" 4? #$ ! $5a6 at the t /e %3 #!e(t/e#t

Fa&t%" roker &aga#ine N%) ++8 22 Ra#' + -

100

Internet Bther

+*) )3

) 1

+1* +)* +** ,* 3* 1* )* *

++8 +*)

22 )3 + roker &aga#ine ;o. ) Internet 7ank 1 Bther

EA&ha#2e 1"e3e""e$ 4? #$ ! $5a6 De" !at !e( SE ;SE

+23 +21 +2) +2* +1, +13 +11 +1) +1* SE Series+ ;SE +12 +22

+22 +12

C%//%$ t? &/G +,0 ;/9EG +++

101

)** +,* +3* +1* +)* +** ,* 3* 1* )* *

+,0

+++

&/G Series+

;/9EG

C%#(t"a #t( that a"e h%6$ #2 4a&' t% #$ ! $5a6 3%" #!e(t/e#t Aack of knowledge Aack of ?uidance Aack of Fund (vailability Aack of 7isk taking (bility
+)* +** ,* 3* 1* )* * Aack of knowledge Aack of ?uidance ;o. Aack of Fund Aack of 7isk (vailability taking (bility )+ 31 8* 2, -3 +0 )-

;o. 31 2, 8* +*,

Cercentage !L" )+ +0 )-3

+*,

Cercentage !L"

I#$ ! $5a6 ta'e $e& ( %# th"%52h Independently roker=(gent ;ews /hannels ;ews Capers Internet Tax consultant ;o. 08 8+0 )* 3, )7ank + ) 3 2 1

102

+)* +** ,* 3* 1* )* *
In de pe nd e

08 8+0 )* 3, )2
In te rn et

+
nt ly ge nt

co ns ul ta nt

ro ke r=(

;e ws

;e ws

ha nn el s

Ca pe rs

;o.

7ank

Me$ 5/ "e6 a46e 3%" #$ ! $5a6 3%" t"a$ #2 Stock roking /ompanies Franchisees Bnline
+,* +3* +1* +)* +** ,* 3* 1* )* * +3,

1-

Stock roking /ompanies

Franchisees

Series+

M%(t 1"e3e""e$ B"%' #2 C%/1a# e( %3 the RaP'%t C t? India ulls Share@han &arwadi &otilal oswal %9F/ Securities I/I/I 9irect @otek street Skse ) 2 , 8 + 3 1

Ta x

+3, 1,0

,0

Bnline

103

TESTING OF HYPOTHESIS
Te(t #2 %3 H?1%the( ( 5( #2 Q te(t (T<% ta 6e$);)) The N566 H?1%the( ( (H:)IThere is no significant difference in level of literacy about 9erivatives E /ommodities among the people of 7aDkot /ity.J Therefore, H: K u X H;- u [ 2*L 2*L

8)) Le!e6 %3 S 2# 3 &a#&e - \

The Aevel of significance should be set at Z X *.*2

B)) The Stat (t &a6 Te(t 104

Q R G S u = \x 'here, ] X ;o. of standard deviations for the desired level of confidence. G X &ean of the sample 5X &ean of the population or hypothetical mean \x X Estimate for the standard error or the mean

9)) The De& ( %# R56e

+.*** !+4*.*)2" X *.082 +.0U *.3 X +.03 E 4 +.03 !the result will be between two" \x X X X ] X X 2 = root of -** 4 + +2=+8.)0 *.,383 22 S 2* = *.,383 2.83-

7)) D"a< a (tat (t &a6 &%#&65( %#

The a4(%65te !a65e %3 the &%/15te" Ge$ Q (tat (t & (7)JKB) ( 6a"2e" tha# ;)SK> the"e3%"e #566 h?1%the( ( ( "ePe&te$) S%> A6te"#ate H?1%the( ( ( a&&e1te$)

105

H;-

There is significant difference in level of literacy about 9erivatives E /ommodities among the people of 7aDkot /ity.

106

CONCLUSION
&ost of the people in 7aDkot /ity are investing in fixed return Instruments. ut there are investors who use E<uity as an investment tool. Those people who want to invest in 9erivatives E /ommodities are investing mainly for reducing risk and they consider them as investment tool. Ceople generally want to take trading decisions independently or under the guidance of Friends or 'ell @nown Stock roking %ouses. Aiterature and Self Experience can be taken as the best method to impart education about derivatives E commodities

RECOMMENDATION 107

Sharekhan needs to make its marketing team strong and also it should increase marketing activities such as promotional campaigns. Sharekhan should educate the investors about 9erivatives E /ommodities by organi#ing classes, corporate presentations, taking part in consumer fairs, organi#ing events.

/ompany should show the benefits of trading on 9erivatives E /ommodities Sharekhan should turn existing customers !who are trading in E<uity only" towards 9erivatives E /ommodities. Sharekhan can also use ;ewspapers and Aocal ;ew /hannels as a medium of advertising. Sharekhan may also use its helpline number for giving education on 9erivatives E /ommodities. /ompany may appoint special team for giving education E attracting people towards trading on 9erivatives E /ommodities.

DUESTIONNAIRE
108

1. ;ameK^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 2. ?enderK -. (geK 1. EducationK 5. BccupationK

&ale )+4-2 Female -342* (bove 2*

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Crofessional ?ovt. Employee usinessman Employess working

O.+ 9o you invest Nour surplus money in saving instrumentR NesK ;oK

O.) If NES, 'here do Nou invest Nour savingsR ank F.9.K Cost schemesK InsuranceK &utual FundK ?oldK E<uityK 9erivativesK /ommoditiesK

O.- If Nou invest in 9erivatives B7 /ommodity, 'hich would be your first preference from the list given belowR ullionK SpicesK FiberK Bil E Bil SeedK &etalK FEBK

O.1 'hich factor plays crucial role when you make a decision to invest in 9erivatives E /ommodityR 7isk 7eductionK Aeverage enefitK

109

(rbitrage enefitK Ai<uidity preferenceK

Speculative &otiveK

O.2 which mediums do you use to invest in 9erivatives E /ommodityR rokerK &aga#ineK InternetK ;ews channels

O.3 which stock exchange would you prefer to carry out your transactionR SEK &/GK ;SEK ;/9EGK

O.8 9o Nou consider investment in 9erivatives E /ommodities are safer then Bther investment avenuesR NESK ;oK

O., If ;o, than 'hat are constraints that are holding you backR Aack of @nowledgeK Aack of ?uidance from rokerK Aack of Funds (vailabilityK Aack of 7isk taking abilityK O.0 %ow do Nou take decisions If Nou want to trade in 9erivatives E /ommodityR IndependentlyK ;ews /hannelsK InternetK roker=(gentK ;ews CapersK Tax /onsultantK

O.+* %ow much time will you be able to devote for learning 9erivatives B7 /ommodityR T %ourK ) %our K O.++ (ccording to Nou, 'hich medium is the most reliable for trading in 9erivatives E /ommodity R + %our K

110

Stock roking /ompanyK FranchisesK BnlineK O.+) ;ame any ) Stock roking companies that deal in 9erivatives E /ommodity +.^^^^^^^^^^^^ ).^^^^^^^^^^^^

MY LEARNING
9uring the two months training I explore my knowledge of stock market. I also know that how to implement theory in practice. I also got the chance for trading Share khans product like Sales Executives so 111

that it improve my convincing power and also give chance to meet different people .It also increase my confidence. It is a memorable experience to be a part of share khan family. I am always thankful to them.

BIBLIOGRAPHY
ooksK @othari /.7., 7esearch &ethodology, ;ew 9elhi, Mikas Cublishing %ouse pvt.Atd. +08, 112

 Cathak harti v.,Indian Financial Syatem,9elhi,Cerson Education!Singapore" Cvt.Atd.

We4( te(1. www.?oogle.com 2. www.bseindia.com 3. www.nseindia.com 4. www.sharekhan.com 5. www.ncdex.com. 6. www.mcx.com 7. www.moneycontrol.com

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