Declaration

I here declare that this project Report titled: An analytical study of Derivatives in Futures at
INDIA INFOLINE ltd. Submitted by me to the department of Institute of Public Enterprise, is a
Bonafide work undertaken by me and it is not submitted to any other University or Institution for
the award of any degree diploma/certificate or published any time before.

Name: Pawan Kumar .Ch

Date:
Signature of Student

ACKNOWLEDGEMENT
I take this opportunity to acknowledge, all the people who rendered their valuable advice in
completing my project. I take privilege to thank MR. M.J.RAMA KRISHNA, Professor for
guiding and supporting me to carry out the project work very smoothly. I extend my sincere thanks
and gratitude to the person, who has been kind in giving me an Opportunity to do a project work
in INDIA INFOLINE LTD. Mr. P. KRISTAPPA, Relationship Manager-Advisory). Last but not
least, I am thankful to my parents and to all my friends for their wholehearted support and
suggestions, which helped me in completing this project

PAWAN KUMAR.CH

ABSTRACT
The emergence of the market for derivatives products, most notably forwards, futures , can
be traced back to the willingness of risk-averse economic agents to guard themselves against
uncertainties arising out of fluctuations in asset prices. Derivatives are risk management
instruments, which derive their value from an underlying asset.
The following are three broad categories of participants in the derivatives market Hedgers,
Speculators and Arbitragers. Prices in an organized derivatives market reflect the perception
of market participants about the future and lead the price of underlying to the perceived
future level. In recent times the Derivative markets have gained importance in terms of their
vital role in the economy. The increasing investments in stocks ( domestic as well as
overseas ) have attracted my interest in this area. Numerous studies on the effects of future
and options listing on the underlying cash market volatility have been done in the developed
markets. The derivative market is newly started in India and it is not known by
every investor, so SEBI has to take steps to create awareness among the investors
about the derivative segment. In cash market the profit/loss of the investor depends on the
market price of the underlying asset. The investor may incur huge profit or he may incur
huge loss. But in derivatives segment the investor enjoys huge profits with limited downside.

Derivatives are mostly used for hedging purpose. In order to increase the derivatives market
in India, SEBI should revise some of their regulations like contract size, participation
of FII in the derivatives market. In a nutshell the study throws a light on the derivatives
market.

TABLE OF CONTENTS
CHAPTER

PAGE NUMBER

1. INTRODUCTION
Introduction
Objectives of the Study
Need for the Study
Methodology
Limitations of the Study

6
7
8
9
9

2. REVIEW OF LITERATURE
Futures
Trading

11

3. INDUSTRY PROFILE

39

4. COMPANY PROFILE

45

5. DATA ANALYSIS & PRESENTATION

Presentation and Analysis
Findings of Market

81

6. CONCLUSIONS & SUGGESTIONS

Summary & conclusions

92

GLOSSARY

93

REFERENCES

96

Chapter - 1
Introduction

Introduction
A Derivative is a financial instrument that derives its value from an underlying asset. Derivative
is an financial contract whose price/value is dependent upon price of one or more basic underlying
asset, these contracts are legally binding agreements made on trading screens of stock exchanges
to buy or sell an asset in the future. The most commonly used derivatives contracts are forwards,
futures and options, which we shall discuss in detail later.

The main objective of the study is to analyze the derivatives market in India and to analyze the
operations of futures and options. Analysis is to evaluate the profit/loss position futures and
options. Derivates market is an innovation to cash market. Approximately its daily turnover
reaches to the equal stage of cash market

In cash market the profit/loss of the investor depend the market price of the underlying asset.
Derivatives are mostly used for hedging purpose. In bullish market the call option writer incurs
more losses so the investor is suggested to go for a call option to hold, where as the put option
holder suffers in a bullish market, so he is suggested to write a put option. In bearish market the
call option holder will incur more losses so the investor is suggested to go for a call option to write,
where as the put option writer will get more losses, so he is suggested to hold a put option.

OBJECTIVES OF THE STUDY

To study the various trends in derivatives market.

To study the role of derivatives in India financial market
To study in detail the role of futures with specific reference to TECH MAHINDRA, ICICI
BANK, NMDC, HINDPETRO LTD.

NEEDS FOR THE STUDY

The present study on futures and options is very much appreciable on the grounds that it gives
deep insights about the F&O market. It would be essential for the perfect way of trading in F&O.
An investor can choose the fight underlying or portfolio for investment 3which is risk free. The
study would explain the various ways to minimize the losses and maximize the profits. The study
would help the investors how their profit/loss is reckoned. The study would assist in understanding
the F&O segments. The study assists in knowing the different factors that cause for the fluctuations
in the F&O market. The study provides information related to the byelaws of F&O trading. The
studies elucidate the role of F&O in India Financial Markets.

METHODOLOGY
The data had been collected through primary and secondary source.

Secondary data:
The data had been collected through INDIA INFOLINE staff, Project guide and Stock brokers.
On the FUTURES data of companies HINDUSTAN PETROLEUM LTD, NMDC LTD, ICICI
BANK, TECH MAHINDRA.

LIMITATIONS OF THE STUDY

The study is confined to only one week trading of July month contract
The sample size chosen is limited to futures of HINDPETRO, ICICI BANK, NMDC,
TECH MAHINDRA Underlying Scrips.
The study does not take any Nifty Index Futures and Options and International Markets
into the consideration.
This is a study conducted within a period of 45 days.
During this limited period of study, the study may not be a detailed, Full fledged and
utilitarian one in all aspects.
The study contains some assumptions based on the demands of the analysis.
The study does not provide any predictions or forecast of the selected scripts.

Chapter - 2
REVIEW OF LITERATURE

10

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

Derivatives are risk management instruments, which derive their value from an underlying asset.
The underlying asset can be bullion, index, share, bonds, currency, interest etc. Banks, securities
firms, companies and investors to hedge risks, to gain access to cheaper money and to make profit,
use derivatives. Derivatives are likely to grow even at a faster rate in future.

DEFINITION:
Derivative is a product whose value is derived from the value of an underlying asset in a
contractual manner. The underlying asset can be equity, forex, commodity or any other asset.
Securities Contracts (Regulation) Act, 1956 (SC(R) A) defines derivative to include

1. A security derived from a debt instrument, share, loan whether secured or unsecured, risk
instrument or contract for differences or any other form of security.
2. A contract which derives its value from the prices, or index of prices, of underlying securities.

11

PARTICIPANTS
The following three broad categories of participants in the derivatives market.

HEDGERS:

Hedgers face risk associated with the price of an asset. They use futures or options markets to
reduce or eliminate this risk.

SPECULATORS:

Speculators wish to bet on future movements in the price of an asset. Futures and options contracts
can give them an extra leverage; that is, they can increase both the potential gains and potential
losses in a speculative venture.

ARBITRAGEURS:

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

12

FUNCTIONS OF DERIVATIVES MARKET:

The following are the various functions that are performed by the derivatives markets. They are:
Prices in an organized derivatives market reflect the perception of market participants about
the future and lead the prices of underlying to the perceived future level.
Derivatives market helps to transfer risks from those who have them but may not like them to
those who have an appetite for them.
Derivative trading acts as a catalyst for new entrepreneurial activity.
Derivatives markets help increase savings and investment in the long run.

TYPES OF DERIVATIVES:
The following are the various types of derivatives. They are:

FORWARDS:
A forward contract is a customized contract between two entities, where settlement takes place
on a specific date in the future at todays pre-agreed price

FUTURES:
A futures contract is an agreement between two parties to buy or sell an asset at a certain time in
the future at a certain price.

OPTIONS:

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

13

WARRANTS:
Options generally have lives of up to one year; the majority of options traded on options
exchanges having a maximum maturity of nine months. Longer-dated options are called warrants
and are generally traded over-the-counter.

LEAPS:
The acronym LEAPS means Long-Term Equity Anticipation Securities. These are options having
a maturity of up to three years
BASKETS:
Basket options are options on portfolios of underlying assets. The underlying asset is usually a
moving average of a basket of assets. Equity index options are a form of basket options.

SWAPS:
Swaps are private agreements between two parties to exchange cash flows in the future according
to a prearranged formula. They can be regarded as portfolios of forward contracts. The two
commonly used swaps are
Interest rate swaps:
These entail swapping only the interest related cash flows between the
Parties in the same currency.

Currency swaps:
These entail swapping both principal and interest between the parties, with the cash flows in one
direction being in a different currency than those in the opposite Direction.
Swaptions:
Swaptions are options to buy or sell a swap that will become operative at the expiry of the options.
Thus a Swaptions is an option on a forward swap.

14

RATIONALE BEHIND THE DEVELOPMENT OF DERIVATIVES:

Holding portfolio of securities is associated with the risk of the possibility that the investor may
realize his returns, which would be much lesser than what he expected to get. There are various
factors, which affect the returns:
1. Price or dividend (interest).
2. Some are internal to the firm like

Industrial policy

Management capabilities

Consumers preference

Labor strike, etc.

These forces are to a large extent controllable and are termed as non Systematic risks. An investor
can easily manage such non-systematic by having a well diversified portfolio spread across the
companies, industries and groups so that a loss in one may easily be compensated with a gain in
other.
There are yet other types of influences which are external to the firm, cannot be controlled and
affect large number of securities. They are termed as systematic risk. They are:

1. Economic
2. Political
3. Sociological changes are sources of systematic risk.

For instance, inflation, interest rate, etc. their effect is to cause prices of nearly all individual stocks
to move together in the same manner. We therefore quite often find stock prices falling from time
to time in spite of companys earnings rising and vice versa.

Rationale behind the development of derivatives market is to manage this systematic risk, liquidity
and liquidity in the sense of being able to buy and sell relatively large amounts quickly without
substantial price concessions.

15

In debt market, a large position of the total risk of securities is systematic. Debt instruments are
also finite life securities with limited marketability due to their small size relative to many common
stocks. Those factors favor for the Purpose of both portfolio hedging and speculation, the
introduction of a derivative security that is on some broader market rather than an individual
security.

India has vibrant securities market with strong retail participation that has rolled over the years. It
was until recently basically cash market with a facility to carry forward positions in actively traded
A group scrips from one settlement to another by paying the required margins and borrowing
some money and securities in a separate carry forward session held for this purpose. However, a
need was felt to introduce financial products like in other financial markets world over which are
characterized with high degree of derivative products in India.

Derivative products allow the user to transfer this price risk by looking in the asset price there by
minimizing the impact of fluctuations in the asset price on his balance sheet and have assured cash
flows.

Derivatives are risk management instruments, which derive their value from an underlying asset.
The underlying asset can be bullion, index, shares, bonds, currency etc.

ANY EXCHANGE FULFILLING THE DERIVATIVE SEGMENT AT NATIONAL

STOCK EXCHANGE:

The derivatives segment on the exchange commenced with S&P CNX Nifty Index futures on June
12, 2000. The F&O segment of NSE provides trading facilities for the following derivative
segment:
1. Index Based Futures
2. Index Based Options
3. Individual Stock Options
4. Individual Stock Futures

16

REGULATORY FRAMEWORK:

The trading of derivatives is governed by the provisions contained in the SC (R) A, the SEBI Act
and the regulations framed there under the rules and byelaws of stock exchanges.

Regulation for Derivative Trading:

SEBI set up a 24 member committed under Chairmanship of Dr.L.C.Gupta develop the appropriate
regulatory framework for derivative trading in India. The committee submitted its report in March
1998. On May 11, 1998 SEBI accepted the recommendations of the committee and approved the
phased introduction of Derivatives trading in India beginning with Stock Index Futures. SEBI
also approved he Suggestive bye-laws recommended by the committee for regulation and
control of trading and settlement of Derivatives contracts.

The provisions in the SC (R) A govern the trading in the securities. The amendment of the SC (R)
A to include DERIVATIVES within the ambit of Securities in the SC (R ) A made trading in
Derivatives possible within the framework of the Act.

1. Eligibility criteria as prescribed in the L.C. Gupta committee report may apply to SEBI for
grant of recognition under Section 4 of the SC ( R ) A, 1956 to start Derivatives Trading.
The derivatives exchange/segment should have a separate governing council and
representation of trading / clearing members shall be limited to maximum of 40% of the
total members of the governing council. The exchange shall regulate the sales practices of
its members and will obtain approval of SEBI before start of Trading in any derivative
contract.

2. The exchange shall have minimum 50 members.

3. The members of an existing segment of the exchange will not automatically become the
members of the derivative segment. The members of the derivative segment need to fulfill
the eligibility conditions as lay down by the L.C.Gupta Committee.

17

4. The clearing and settlement of derivates trades shall be through a SEBI

Approved Clearing Corporation / Clearing house. Clearing Corporation /
Clearing House complying with the eligibility conditions as lay down
By the committee have to apply to SEBI for grant of approval.

5. Derivatives broker/dealers and Clearing members are required to seek registration from
SEBI.

6. The Minimum contract value shall not be less than Rs.2 Lakh. Exchanges should also
submit details of the futures contract they purpose to introduce.

7. The trading members are required to have qualified approved user and sales person who
have passed a certification programmed approved by SEBI.

18

Futures

19

DEFINITION
A Futures contract is an agreement between two parties to buy or sell an asset at a certain time in
the future at a certain price. To facilitate liquidity in the futures contract, the exchange specifies
certain standard features of the contract. The standardized items on a futures contract are:
Quantity of the underlying
Quality of the underlying
The date and the month of delivery
The units of price quotations and minimum price change
Locations of settlement

Types of futures:
On the basis of the underlying asset they derive, the futures are divided into two types:
Stock futures:
The stock futures are the futures that have the underlying asset as the individual securities. The
settlement of the stock futures is of cash settlement and the settlement price of the future is the
closing price of the underlying security.
Index futures:
Index futures are the futures, which have the underlying asset as an Index. The Index futures are
also cash settled. The settlement price of the Index futures shall be the closing value of the
underlying index on the expiry date of the contract.

PARTIES IN THE FUTURES CONTRACT:

There are two parties in a future contract, the Buyer and the Seller. The buyer of the futures
contract is one who is LONG on the futures contract and the seller of the futures contract is one
who is SHORT on the futures contract.The pay off for the buyer and the seller of the futures
contract are as follows

20

PAYOFF FOR A BUYER OF FUTURES:

PROFIT

E2
LOSS

E1

CASE 1:
The buyer bought the future contract at (F); if the futures price goes to E1 then the buyer gets the
profit of (FP).

CASE 2:
The buyer gets loss when the future price goes less than (F), if the futures price goes to E2 then
the buyer gets the loss of (FL).

21

PAYOFF FOR A SELLER OF FUTURES:

P
PROFIT

E2
E1

LOSS
L

F FUTURES PRICE
E1, E2 SETTLEMENT PRICE.

CASE 1:
The Seller sold the future contract at (f); if the futures price goes to E1 then the Seller gets the
profit of (FP).

CASE 2:
The Seller gets loss when the future price goes greater than (F), if the futures price goes to E2 then
the Seller gets the loss of (FL).

22

MARGINS:
Margins are the deposits, which reduce counter party risk, arise in a futures contract. These
margins are collected in order to eliminate the counter party risk. There are three types of margins:

INITIAL MARGIN:
Whenever a futures contract is signed, both buyer and seller are required to post initial margin.
Both buyer and seller are required to make security deposits that are intended to guarantee that
they will infact be able to fulfill their obligation. These deposits are Initial margins and they are
often referred as performance margins. The amount of margin is roughly 5% to 15% of total
purchase price of futures contract.

MARKING TO MARKET MARGIN:

The process of adjusting the equity in an investors account in order to reflect the change in the
settlement price of futures contract is known as MTM Margin.

MAINTENANCE MARGIN:

The investor must keep the futures account equity equal to or greater than certain percentage of
the amount deposited as Initial Margin. If the equity goes less than that percentage of Initial
margin, then the investor receives a call for an additional deposit of cash known as Maintenance
Margin to bring the equity up to the Initial margin.

23

ROLE OF MARGINS:
The role of margins in the futures contract is explained in the following example.
S sold a Satyam June futures contract to B at Rs.300; the following table shows the effect of
margins on the contract. The contract size of Satyam is 1200. The initial margin amount is say
Rs.20000, the maintenance margin is 65% of Initial margin.
DAY

PRICE OF SATYAM

300.00

311(price increased)

287

305

EFFECT

ON EFFECT

BUYER (B)

SELLER (S)

MTM

MTM

P/L

P/L

Bal. in Margin

Bal. in Margin

ON REMARKS

Contract is
entered and
initial margin is
deposited.

+13,200

-28,800
+15,400

+21,600

24

-13,200
+13,200

+28,800

-21,600

B got profit and

S got loss, S
deposited
maintenance
margin.
B got loss and
deposited
maintenance
margin.
B got profit, S
got loss.
Contract settled
at 305, totally B
got profit and S
got loss.

Pricing the Futures:

The fair value of the futures contract is derived from a model known as the Cost of Carry model.
This model gives the fair value of the futures contract.

Cost of Carry Model:

F=S (1+r-q) t
Where
F Futures Price
S Spot price of the Underlying
r Cost of Financing
q Expected Dividend Yield
T Holding Period.
Futures terminology:

Spot price:
The price at which an asset trades in the spot market.
Futures price:
The price at which the futures contract trades in the futures market.
Contract cycle:
The period over which a contract trades. The index futures contracts on the NSE have one-month,
two-months and three-month expiry cycles which expire on the last Thursday of the month. Thus
a January expiration contract expires on the last Thursday of January and a February expiration
contract ceases trading on the last Thursday of February. On the Friday following the last
Thursday, a new contract having a three-month expiry is introduced for trading.

Expiry date:
It is the date specified in the futures contract. This is the last day on which the contract will be
traded, at the end of which it will cease to exist.

25

Contract size:
The amount of asset that has to be delivered under one contract. For instance, the contract size on
NSEs futures market is 200 Nifties.

Basis:
In the context of financial futures, basis can be defined as the futures price minus the spot price.
There will be a different basis for each delivery month for each contract. In a normal market, basis
will be positive. This reflects that futures prices normally exceed spot prices.

Cost of carry:
The relationship between futures prices and spot prices can be summarized in terms of what is
known as the cost of carry. This measures the storage cost plus the interest that is paid to finance
the asset less the income earned on the asset.
Open Interest:
Total outstanding long or short positions in the market at any specific time. As total long positions
for market would be equal to short positions, for calculation of open interest, only one side of the
contract is counted.

26

Trading

27

TRADING INTRODUCTION

The futures & Options trading system of NSE, called NEAT-F&O trading system, provides a fully
automated screen-based trading for Nifty futures & options and stock futures & Options on a
nationwide basis as well as an online monitoring and surveillance mechanism. It supports an
order driven market and provides complete transparency of trading operations. It is similar to that
of trading of equities in the cash market segment.
The software for the F&O market has been developed to facilitate efficient and transparent trading
in futures and options instruments. Keeping in view the familiarity of trading members with the
current capital market trading system, modifications have been performed in the existing capital
market trading system so as to make it suitable for trading futures and options.
On starting NEAT (National Exchange for Automatic Trading) Application, the log on (Pass
Word) Screen Appears with the Following Details.
1) User ID
2) Trading Member ID
3) Password NEAT CM (default Pass word)
4) New Pass Word
Note: 1) User ID is a Unique
2) Trading Member ID is Unique & Function; it is Common for all user of the Trading Member
3) New password Minimum 6 Characteristic, Maximum 8 characteristics only 3 attempts are
accepted by the user to enter the password to open the Screen
4) If password is forgotten the User required informing the Exchange in writing to reset the
password
TRADING SYSTEM
Nation wide-online-fully Automated Screen Based Trading System (SBTS)

Price priority

Time Priority

Note: - 1) NEAT system provides open electronic consolidated limit orders book (OECLOB)
2) Limit order means: Stated Quantity and stated price

28

Before Opening the market

User allowed to set Up 1) Market Watch Screen
2) Inquiry Screens Only
Open phase (Open Period)
User allowed to 1) Enquiry
2) Order Entry
3) Order Modification
4) Order Cancellation
5) Order Matching
Market closing period
User Allowed only for inquiries

Surcon period
(Surveillance & Control period)
The System process the Date, for making the system, for the Next Trading day.
Log of the Screen (Before Surcon Period)
The screen shows :-

1) Permanent sign off

Not allowed inquiry

2) Temporary sign off

and

3) Exit

Order Placing

Permanent sign off: - market not updates.

Temporary sign off: - market up date (temporary sign off, after 5 minutes Automatically Activate)
Exit: - the user comes out sign off Screen.
Local Database
Local Database is used for all inquiries made by the user for Own Order/Trades Information. It is
used for corporate manger/ Branch Manager Makes inquiries for orders/ trades of any branch
manager /dealer of the trading firm, and then the inquiry is Serviced By the host. The local
database also includes message of security information.

29

Ticker Window
The ticker window displays information of All Trades in the system.
The user has the option of Selecting the Security, which should be appearing in the ticker window.

Market watch Window

Title Bar: Title Bar Shows: NEAT, Date & Time.
Market watch window felicitate to set only 500 Scrips, But the User set up a Maximum of 30
Securities in one Page.
MBP (Market by Price)
MBP (F6) Screen shows Total Out standing Orders of a particular security, in the Market,
Aggregate at each price in order of Best 5 prices.
It Shows: -

RL Order (Regular Lot Order)

SL Order (Stop Loss Order)
ST Order (Special Term Orders)
Buy Back Order with * Symbol
P = indicate Pre Open Position
S = Indicate Security Suspend

Report Selection Window

It facilitates to print each copy of report at any time. These Reports are
1) Open order report :- For details of out standing orders
2) Order log report:-For details of orders placed, modified & cancelled
3) Trade Done-today report :- For details of orders traded
4) Market Statistics report: - For details of all securities traded
Information in a Day
Internet Broking
1) NSE introduced internet trading system from February 2000
2) Client place the order through brokers on order routing system

30

WAP (Wireless Application Protocol)

1) NSE.IT Launches the from November 2000
2) 1st Step-getting the permission from exchange for WAP
3) 2nd step-Approved by the SEBI(SEBI Approved only for SEBI registered Members)
X.25 Address check
X.25 Address check, is performed in the NEAT system, when the user log on into the NEAT,
system & during report down load request.
FTP (File Transfer protocol)
1) NSE Provide for each member a separate directory (File) to know their trading DATA, clear
DATA, bill trade Report.
2) NSE Provide in Addition a Common directory also, to know circulars, NCFM & Bhava
Copy information.
3) FTP is connected to each member through VSAT, leased line and internet.
4) VSAT (FROM 4:15PM to 9:30AM), Internet (24 Hours).
Snap Shot Data Base
Snap shot data base provides Snap shot of the limit order book at many time points in a day.
Index Data Base
Index Data Base provides information about stock market indexes.
Trade Data Base
Trade Data Base provides a data base of every single traded order, take place in exchange.

BASKET TRADING SYSTEM

1) Taking advantage for easy arbitration between future market and & cash market difference,
NSE introduce basket trading system by off setting positions through off line-order-entry facility.

2) Orders are created for a selected portfolio to the ratio of their market
Capitalization from 1 lake to 30 corers.

31

3) Offline-order-entry facility: - generate order file in as specified format out side the system &
up load the order file in to the system by invoking this facility in Basket trading system.

32

TRADING NETWORK

SATELLITE

HUB ANTENNA

NSE MAIN FRAME

BROKERS PREMISES

33

Holding of Shares (Voting Right) disclosing obligation

1) Any person or Director or officer or the company

2) More than 5% share or voting Right
3) With in 4th day inform to company is necessary
4) Company inform with in 5th day to stock exchange is compulsory

First Started
Future trading: Chicago Board of Trading 1848
Financial Future Trading: CME (Chicago Mercantile Exchange 1919)
Stock Index Futures: kansas City Board of trade
Option First Trade: Holland - Tulip Balabmania

BROKER (Trading Member)

(Broker means a member in recognized stock exchange)
Eligibility: 21 tears, graduation, 2 years experience in stock market relative Affairs and

30 Lakhs paid up capital

100 lakhs net worth

125 lakhs interest free security deposit

25 lakhs collatery security deposit

1 lakh annual business subscription

BROKER & CLIENT RELATION SHIP

1) Fill the client Registration Application form (for all details of clients).
2) Agreement on non-judicial form (Specified by SEBI that form)
3) PAN, Pass Port, Driving License or voter Identity card (SEBI Registration Number in case
of FIIs) - Pan Cards is must to future and option trading.
34

4) And than Allot-Unique client code

5) Take copy of instruction in writing before placing order, cancellation & modification.
6) If order values exceed 1 lakh maintain the client record for 7 years.
7) On conformation any order, issue contract note within 24 hours.
8) Collect margin of 50,000 & multiple with 10,000.
NOTE: - PAN is compulsory if the transaction cost exceed Rs.1 lakh.
9) Issuing the know your client form is must.

For Continuing Membership-Trading Member

Fulfill the following documents.

1) Audited two important Financial Statements (profit & Loss account, balance Sheet)
2) Net worth certificate (Certificate by CA)
3) Details of Directors, share holders (certificate by CA)
4) Renewal insurance covering proof.

SUB BROKER
1) Eligibility: - 21 years, 10+2 qualification and paid up capital 5 lakhs.
2) Not convicted involving fraud and dishonesty.
3) Not debarred by SEBI previously.
4) 51% of shares as dominant promoters his/her and his/her spouse.
5) First application to stock exchange-Stock exchange send his application to SEBI-SEBI
satisfied issued Certificate Registration.
6) A registered sub-broker, holding registration, granted by SEBI on the Recommendations of a
trading member, can transact through the member (broker) who had recommend his
application for registration.
7) Maximum Brokerage Commission 2%.f
8) Purchase note and sales note issued by the sub broker with 24 hours.

35

Investor protection Fund

1) Investor protection fund setup under Bombay public trust Act 1950.
2) IPF maintained by NSE Exact name of this fund is NSE Investors Protection Fund Trust.
3) Any Member defaulted the IPF paid maximum 10 lakhs only to each investor.
4) Client against default member, customer have right to apply within 3 months from the date
of Publishing notice by a widely circulated minimum one daily News paper.

DEMAT of the Shares

1) Agreement with depository by security holder (at the time opening the demat account)
2) Surrender the security certificates to issuer (Company)for cancellation
3) Issuer (company) informs the depository about the transfer of the shares.
4) Participant (Company) informs the depository about the transfer of the shares.
5) Depository records the transferee name as beneficial owner in book entry form in
his records.
6) Each custodian/clearing member is requiring maintaining a Clear pool account with
depositaries.
7) The investor has no restriction and has full right to open many (number of) depository
accounts
8) Shares or securities are transferred from one account to another account only on the
instruction of the beneficial owner.
ISIN (International Securities Identification Number)

Any company going to foe dematerialized with shares that company get this ISIN for
demat shares.

ISIN is assigned by SEBI.

ISIN is allotted by NSDL.

Main Objectives of DEMAT Trading

1) Freely transferability
2) Dematerialized in depository mode
3) Maintenance of ownership records in book entry form
36

37

Chapter - 3
INDUSTRY PROFILE

38

HISTORY OF STOCK EXCHANGE

The only stock exchanges operating in the 19th century were those of Bombay set up in 1875 and
Ahmedabad set up in 1894. These were organized as voluntary non profit-making association of
brokers to regulate and protect their interests. Before the control on securities trading became
central subject under the constitution in 1950, it was a state subject and the Bombay securities
contracts (control) Act of 1925 used to regulate trading in securities. Under this act, the Bombay
stock exchange was recognized in 1927 and Ahmedabad in 1937.

During the war boom, a number of stock exchanges were organized in Bombay, Ahmedabad and
other centers, but they were not recognized. Soon after it became a central subject, central
legislation was proposed and a committee headed by A.D. Gorwala went into the bill for securities
regulation. On the basis of the committees recommendations and public discussion, the securities
contracts (regulation) Act became law in 1956.

DEFINITION OF STOCK EXCHANGE

Stock exchange means any body or individuals whether incorporated or not, constituted for the
purpose of assisting, regulating or controlling the business of buying, selling or dealing in
securities.

It is an association of member brokers for the purpose of self-regulation and protecting the interests
of its members.

It can operate only if it is recognized by the Government under the securities contracts (regulation)
Act, 1956. The recognition is granted under section 3 of the Act by the central government,
Ministry of Finance.

39

BY LAWS
Besides the above act, the securities contracts (regulation) rules were also made in 1975 to
regulative certain matters of trading on the stock exchanges. There are also bylaws of the
exchanges, which are concerned with the following subjects.

Opening / closing of the stock exchanges, timing of trading, regulation of blank transfers,
regulation of Badla or carryover business, control of the settlement and other activities of the stock
exchange, fixating of margin, fixation of market prices or making up prices, regulation of taravani
business (jobbing), etc., regulation of brokers trading, brokerage chargers, trading rules on the
exchange, arbitrage and settlement of disputes, settlement and clearing of the trading etc.

REGULATION OF STOCK EXCHANGES

The securities contracts (regulation) act is the basis for operations of the stock exchanges in India.
No exchange can operate legally without the government permission or recognition. Stock
exchanges are given monopoly in certain areas under section 19 of the above Act to ensure that
the control and regulation are facilitated. Recognition can be granted to a stock exchange provided
certain conditions are satisfied and the necessary information is supplied to the government.
Recognition can also be withdrawn, if necessary. Where there are no stock exchanges, the
government licenses some of the brokers to perform the functions of a stock exchange in its
absence.

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI).

SEBI was set up as an autonomous regulatory authority by the government of India in 1988 to
protect the interests of investors in securities and to promote the development of, and to regulate
the securities market and for matter connected therewith or incidental thereto. It is empowered
by two acts namely the SEBI Act, 1992 and the securities contract (regulation) Act, 1956 to
perform the function of protecting investors rights and regulating the capital markets.
40

BOMBAY STOCK EXCHANGE

This stock exchange, Mumbai, popularly known as BSE was established in 1875 as The Native
share and stock brokers association, as a voluntary non-profit making association. It has an
evolved over the years into its present status as the premiere stock exchange in the country. It may
be noted that the stock exchanges the oldest one in Asia, even older than the Tokyo stock exchange,
which was founded in 1878.

The exchange, while providing an efficient and transparent market for trading in securities,
upholds the interests of the investors and ensures redressed of their grievances, whether against
the companies or its own member brokers. It also strives to educate and enlighten the investors by
making available necessary informative inputs and conducting investor education programs.

A governing board comprising of 9 elected directors, 2 SEBI nominees, 7 public representatives

and an executive director is the apex body, which decides is the apex body, which decides the
policies and regulates the affairs of the exchange.

The Exchange director as the chief executive offices is responsible for the daily today
administration of the exchange.

BSE INDICES:

In order to enable the market participants, analysts etc., to track the various ups and downs in the
Indian stock market, the Exchange has introduced in 1986 an equity stock index called BSESENSEX that subsequently became the barometer of the moments of the share prices in the Indian
stock market. It is a Market capitalization weighted index of 30 component stocks representing
a sample of large, well-established and leading companies. The base year of sensex 1978-79. The
Sensex is widely reported in both domestic and international markets through print as well as
electronic media.

41

Sensex is calculated using a market capitalization weighted method. As per this methodology the
level of the index reflects the total market value of all 30-component stocks from different
industries related to particular base period. The total market value of a company is determined by
multiplying the price of its stock by the nu7mber of shared outstanding. Statisticians call index of
a set of combined variables (such as price and number of shares) a composite Index. An indexed
number is used to represent the results of this calcution in order to make the value easier to go
work with and track over a time. It is much easier to graph a chart based on Indexed values than
on based on actual valued world over majority of the well-known Indices are constructed using
Market capitalization weighted method.

In practice, the daily calculation of SENSEX is done by dividing the aggregate market value of
the 30 companies in the index by a number called the Index Divisor. The divisor is the only link
to the original base period value of the SENSEX. The Devisor keeps the Index comparable over a
period value of time and if the references point for the entire Index maintenance adjustments.
SENSEX
Is widely used to describe the mood in the Indian stock markets. Base year average is changed as
per the formula new base year average = old base year average*(new market value / old market
value).

NATIONAL STOCK EXCHANGE

The NSE was incorporated in Nov, 1992 with an equity capital of Rs.25 crs. The international
securities consultancy (ISC) of Hong Kong has helped in setting up NSE. ISC has prepared the
detailed business plans and initialization of hardware and software systems. The promotions for
NSE were financial institutions, insurances, companies, banks and SEBI capital market ltd,
Infrastructure leasing and financial services ltd and stock holding corporations ltd.

It has been set up to strengthen the move towards professionalisation of the capital market as well
as provide nation wide securities trading facilities to investors.

42

NSE is not an exchange in the traditional sense where brokers own and manage the exchange. A
two tier administrative set up involving a company board and a governing aboard of the exchange
is envisaged.

NSE is a national market for shares PSU bonds, debentures and government securities since
infrastructure and trading facilities are provided.

NSE-NIFTY:

The NSE on Apr22, 1996 launched a new equity Index. The NSE-50. The new Index which
replaces the existing NSE-100 Index is expected to serve as an appropriate Index for the new
segment of future and option.
NIFTY mean National Index for fifty stocks. The NSE-50 comprises fifty companies that
represent 20 board industry groups with an aggregate market capitalization of around Rs 1, 70,000
crs. All companies included in the Index have a market capitalization in excess of Rs. 500 crs each
and should have trade for 85% of trading days at an impact cost of less than 1.5%.

The base period for the index is the close of price on Nov 3 1995, which makes one year of
completion of operation of NSEs capital market segment. The base value of the index has been
set at 1000.

NSE-MIDCAP INDEX:

The NSE madcap index or the junior nifty comprises 50 stocks that represent 21 board industry
groups and will provide proper representation of the midcap segment of the Indian capital market.
All stocks in the Index should have market capitalization of more than Rs.200 crs and should have
traded 85% of the trading days at an impact cost of less than 2.5%.

43

The base period for the index is Nov 4 1996, which signifies 2 years for completion of operations
of the capital market segment of the operations. The base value of the Index has been set at 1000.
Average daily turn over of the present scenario 258212 (Laces) and number of average daily trades
2160(Laces). At present there are 24 stock exchanges recognized under the securities contract
(regulation Act, 1956).

44

Chapter 4
Company profile

45

COMPANY PROFILE

INDIA INFOLINE LIMITED:

IIFL Holdings Limited is the apex holding company of the entire IIFL Group, which is a leading
financial services company in India, promoted by first generation entrepreneurs. We have a
diversified business model that includes credit and finance, wealth management, financial product
distribution,

asset

management,

capital

market

advisory

and

investment

banking.

We have a largely retail focused model, servicing over 2 million customers, including several lakh
first-time customers for mutual funds, insurance and consumer credit. This has been achieved due
to our extensive distribution reach of close to 4,000 business locations and also innovative methods
like

seminar

sales

and

use

of

mobile

vans

for

marketing

in

smaller

areas.

Our evolution from an entrepreneurial start-up to a market leadership position is a story of steady
growth by adapting to the changing environment, without losing the focus on our core domain of
financial services. Our NBFC and lending business accounts for 68% of our consolidated income
in FY13 and has a diversified product portfolio rather than remaining a mono-line NBFC. We are
a leader in distribution of life insurance and mutual funds among non-bank entities. Although the
share of equity broking in total income was only 13% in FY13, IIFL continues to remain a leading
player in both, retail and institutional space.

3.1. HISTORY:
The Shree Yantra is regarded in India as the most powerful and mystically beautiful of all yantras
(Sanskrit word for a symbol used to focus the mind). It predates the Vedas and is supposed to be
the favourite Yantra of Lakshmi, the Goddess of Wealth and Prosperity. This powerful symbol,
said to promote harmony and tranquility as well, has endured for many centuries. IIFL is engaged
46

in the business of creating wealth and the adoption of the Shree Yantra as its logo was but natural.

BOARD OF DIRECTORS:
Mr. Nirmal Jain
Chairman, IIFL Holdings Ltd.
Mr. Nirmal Jain is the founder and Chairman of IIFL Holdings Ltd. He is a PGDM (Post
Graduate Diploma in Management) from IIM (Indian Institute of Management) Ahmedabad, a
Chartered Accountant and a rank-holder Cost Accountant. His professional track record is
equally outstanding.

He founded Probity Research and Services Pvt. Ltd. (later re-christened India Infoline) in 1995;
perhaps the first independent equity research Company in India. His work set new standards for
equity research in India. Mr. Jain was one of the first entrepreneurs in India to seize the internet
opportunity, with the launch of www.indiainfoline.com in 1999. Under his leadership, India
Infoline not only steered through the dotcom bust and one of the worst stock market downtrends
but also grew from strength to strength.
Mr. R. Venkataraman
Managing Director , IIFL Holdings Ltd.
Mr. R Venkataraman, Co-Promoter and Managing Director of IIFL Holdings Ltd, is a B.Tech
(electronics and electrical communications engineering, IIT Kharagpur) and an MBA (IIM
Bangalore). He joined the IIFL Holdings Ltd Board in July 1999. He was also the Assistant Vice
President with G E Capital Services India Limited in their private equity division, possessing a
varied experience of more than 19 years in the financial services sector

47

Mr. Arun Kumar Purwar

Independent Director of IIFL Holdings Ltd since March 2008
Mr. Purwar was the Chairman of State Bank of India, the largest bank in the country from
November 2002 to May 2006 and held several important and critical positions like Managing
Director of State Bank of Patiala, Chief Executive Officer of the Tokyo branch.He is currently the
Chairman of IndiaVenture Advisors Private Limited, the equity fund sponsored by the Piramal
Group and independent director in many listed companies in India including Engineers India
Limited, Reliance Communications Limited, among others.
Mr. Chandran Ratnaswami
Non Executive Director of IIFL Holdings Ltd since May 2012
Mr. Chandran Ratnaswami is a Managing Director of Hamblin Watsa Investment Counsel
Limited, a wholly-owned investment management company of Fairfax Financial Holdings
Limited, Canada. Mr. Ratnaswami serves on the Boards of ICICI Lombard General Insurance
Company Limited.
Mr. Kranti Sinha
Independent Director of IIFL Holdings Ltd since January 2005
Mr. Kranti Sinha served as the Director and Chief Executive of LIC Housing Finance Limited
from August 1998 to December 2002 and concurrently as the Managing Director of LICHFL Care
Homes. He is an independent director on the Board of Cinemax India Limited and Hindustan
Motors Limited.
Mr. Mahesh Narayan Singh
Independent Director of India Infoline Finance Limited since September 2009
Mr. Singh, IPS (Retd.), joined the Indian Police Service in 1967. He has, in his public service
career spanning over a period of 35 years, worked as the chiefs of the crime branch of Mumbai
Police, State CID and Anti-Corruption Bureau. He was the Commissioner of Police, Mumbai
during period 2000-2002. He is also on the Board of Invent Asset Securitisation and
Reconstruction Private Limited and LIC Pension Fund Limited.
Mr. Nilesh Vikamsey
Independent Director of IIFL Holdings Ltd & India Infoline Finance Limited since February
2005

48

Mr. Nilesh Vikamsey is a Senior Partner at M/s Khimji Kunverji & Co., Chartered Accountants,
a member firm of HLB International, a worldwide organisation of professional accounting firms
and business advisers, ranked amongst the top 12 accounting groups globally. Mr. Vikamsey is an
elected member of the Central Council of Institute of Chartered Accountant of India (ICAI). Mr.
Vikamsey is also on the Board of a number of companies like Federal Bank Limited, and SBI Life
Insurance Company Limited, among others.
Mr. Sunil Kaul
Non Executive Director of IIFL Holdings Ltd & India Infoline Finance Limited since November
2011
Mr. Sunil Kaul a Managing Director for Carlyles Asia Buyout fund focused on investments in the
financial services sector across Asia. Prior to joining Carlyle, Mr. Kaul served as the President of
Citibank Japan and Chairman of Citi's credit card and consumer finance companies in Japan.
Dr. Subbaraman Narayan
Independent Director of IIFL Holdings Ltd since July 2012
Dr. Narayan, IAS (Retd.), served the Government of India as Finance and Economic Affairs
Secretary. He was also Secretary in the Departments of Revenue, Petroleum and Industrial
Development. Retired as Economic Advisor to the Prime Minister of India, he has rich experience
in implementation of economic policies and monitoring of the special economic agenda of the
Cabinet on behalf of the Prime Minister`s Office. He is also on the Board of other public limited
companies like Apollo Tyres Limited, Dabur India Limited and Godrej Properties Limited, among
others.
Mr. Vijay Kumar Chopra
Independent Director of India Infoline Finance Limited since June 2012
Mr. Chopra has over 30 years of experience in the banking sector. He started his career as an
Officer in Central Bank of India in 1969 where he served in various capacities. He was also
Chairman and Managing Director of SIDBI and Corporation Bank. He is a fellow member of the
Institute of Chartered Accountants of India (ICAI) by profession and is a Certified Associate of
Indian Institute of Bankers (CAIIB)

49

3.2. BACKGROUND AND INCEPTION OF THE COMPANY:

A small group of professionals formed an Information Services Company
The company was formed in October 1995 with a vision to produce high quality, unbiased,
independent research on the Indian economy, business, industries and corporates.
The company was originally incorporated as Probity Research and Services Pvt.Ltd. The
name of the company was later changed to India Infoline Ltd.
The launch of www.indiainfoline.com
Up popped a crazy idea if all this research were to be available free on the internet, the
number of users could well leap straight from hundreds to millions. We took the plunge
and thus www.indiainfoline.com was born! CDC(now Actis) was the first private equity
firm to invest US$1mn.

3.3. NATURE OF THE BUSINESS CARRIED

IIFL Group offers credit & finance facilities through its subsidiaries:

India Infoline Finance Ltd (98.87% subsidiary), and

India Infoline Housing Finance Ltd (Wholly owned subsidiary).

The NBFC has a high quality loan book of close to Rs10,000 crores, with a diversified portfolio
including:

Home loans

50

SME & Trader loans

Healthcare & Equipment financing

Loans secured against Gold

Commercial Vehicle financing

Loans secured against Property

Loans secured against Shares

IIFL have chosen to be a diversified portfolio company rather than a mono-line NBFC.
We exercise utmost prudence in credit selection, monitoring and avoid concentration. Our credit
evaluation process not only takes into account the value and quality of the collateral, but also the
cash-flows of the potential borrower. Backed by a diversified portfolio, robust credit
assessment, effective risk management techniques and an efficient collection mechanism, the net
NPAs are kept well under control at less than 0.2%.

The NBFC and lending business accounted for 68% of our consolidated income in FY13.

IIFL Group offers wealth advisory services through its subsidiary IIFL Wealth Management Ltd
(82.44% subsidiary).

51

There is an increasing need for a comprehensive wealth management solution as opposed to

disparate services to address complexity related to treasury, personal portfolio, cashflows and
long-term investments. We are amongst the leading wealth management companies with Assets
under Advice (AuA) of more than Rs40,000 crores with a HNI client base of over 4,000
families.
Our fixed income practice coupled with a large bond desk facilitates direct access to sovereign,
corporate and collateralised debt.
The business grew revenues from Rs180 million in 2008-09 to Rs2 billion in 2012-13.
We have managed the five significant constituents that go into successful wealth
management and advisory services:

IIFL pioneered internet broking in India and rationalised brokerage rates from 150 basis points in
the late nineties to 5 basis points. Although the share of equity broking in total income was only
13% in FY13, we continue to remain a leading player in both, retail and institutional space.

Our extension into commodities and currency advisory reconciles with its vision to emerge as a
one-stop-shop financial intermediary. We are in the process of building a culture of advisory and
financial planning to move away from pure execution and de-risk our business further.

IIFL Capital, the institutional equities division of the IIFL Group, is the first port of call for most
leading foreign institutional investors and mutual funds that invest in India. Our unmatched
block placement capability is renowned and is underpinned by our reputation for integrity and
client confidentiality.

Revenues increased 2.3% to Rs552.53 cr in 2012-13.

52

IIFL launched our Mutual Fund business to offer niche products. The IIFL Nifty ETF, our
maiden scheme, carries the lowest expenses of any equity ETF in India.
Our passively managed Dividend Opportunities ETF has been ranked the second best performer
by Value Research.
A total of six schemes have been launched, including four close-ended debt schemes and two
open-ended equity schemes. Total assets under management (AUM) stood at Rs3,271 million as
on March 31, 2013.

Our strength lies in gauging the market pulse and launching niche products with low churn and
operational efficiency, thereby keeping costs low.

Nature of business of IIFL:

Online Back office:
You

can

view

your

demat

account

over

the

Internet

and

avail

host

services. This facility empowers clients to view, download, and print updated holdings

of
with

respective valuations
De-materialization:
Clients can submit physical shares at the Tata securities branch for dematerialization into
electronic form.
Re-materialization:
Clients can also request for Re-materialization which enables than to convert the dematerialized
shares into physical form.
Transfer:
Inter and intra depository services are available through which clients can transfer shares.
Offline trading:
This is the most traditional way of carrying out trading in financial markets. Clients can place their
orders with our nearest branch by visiting them personally or on the phone.
53

Online trading:
Online trading offers the convenience to trade from the comfort of your home / office. They
provide trading software which can be downloaded by the client on any system. Through their user
ID & password, clients can start trading online.
Alternatively, they also provide the facility to trade through our browser based application
Corporate Actions:
While holding stock in demat account, in case clients are eligible for any bonus and rights issues
the allotment would be transferred to that demat account.

3.4. VISION AND MISSION STATEMENT:

Vision:
To become the most respected company in the financial services space in India
Mission:
Providing complete financial care driven by the core values of diligence and transparency.
To exemplify those core values in the financial sector and become the leading financial
solutions partner in India, with a global footprint.
To become a pioneering and forward-looking organization that is collaborative, nimble,
innovative and responsive to the changing financial needs of our clients.
To be a reliable and a result-oriented custodian of our clients finances.
To create an amicable atmosphere of collaboration, understanding and unity.
To ensure happy, motivated and engaged employees.
To be trusted, admired and respected amongst all our stakeholder: clients, employees,
regulators, shareholders and the community at large.
To achieve our vision by only doing whats right.

3.5. THE SERVICE PROFILE OF IIFL:

Retail Broking:
Looking at the opportunities in market and the growth of our country, they believe it is high time
investors are educated about the nuances of investments. The knowledge and awareness gained
will empower investors and help them create wealth. They firmly believe brokers, media and
54

regulators have a pivotal role in assisting the individuals to become wealthy. They offer a 3-in-1
account which brings to you a seamless platform for trading in Equities and investing in Mutual
Funds and IPOs at very attractive brokerage rates.,
Advisory Services:
It provides advisory services to a cross-section of customers. The service is backed by team of
dedicated and expert professionals with varied experience and background in handling investment
portfolios. They are continually engaged in designing the right investment portfolio for each
customer according to individual needs and budget considerations with a comprehensive support
system that focuses on trading customers portfolios and providing valuable inputs, monitoring
and managing the portfolio through varied technological initiatives. IIFL cover the latest of market
news, trends, investment schemes and research-based opinions from experts in various financial
fields.
Distribution of Financial Products:
The paradigm shift from pure selling to knowledge based selling drives the business today. With
wide portfolio offerings, company occupies all segments in the real financial services industry.
Teams of highly qualified and dedicated professional drawn from the best of academic and
professional backgrounds are committed to maintain high levels of client services delivery. This
has propelled company to a position among the top distributors for equity and debt issues with an
estimated market share in terms of application mobilized, besides being established as the leading
procurer in all public issues.
Mutual fund services:
IIFL have attained a position of immense strength as a provider of across the board transfer agency
services, distributors and investors. Besides providing the entire back office processing, IIFL
provides the link between various mutual funds and the investor, including services to the
distributor, the prime channel in this operation. Carrying the limitless ideology forward, IIFL has
explored new dimensions in every aspect of Mutual fund servicing right from volume
management, cost effective pricing, delivery in the least turnaround time, efficient back office and
front office operations to customized service. IIFL has been with clients every step of the way,
helping them serve their investors better by offering them a diverse and customized range of
services. IIFL service enhancements such as full-fledged call Centre, a top-line website,

55

(www.indiainfoline.com), the m-investor and many more, creating a galaxy of customer

advantage.

Institutional Broking:
Institutions and Corporate have surplus funds to manage on daily basis as well as investible surplus
for a defined period. The risk differs for Institution and Corporate subject to their preferences. The
reward by way of return is always in proportion to the risk taken. IIFL advise and manage the same
by blending caution with aggression in the desired proportion to teach client. The range of services
include Equity Broking with customized research, advisory and distribution services for
investment in Mutual Funds, Debt/Bonds, Equity IPOs to placement if Equities etc.

56

3.6. AREAS OF OPERATION:

Capital Market Related Employees 14,000+ Business locations Around 4,000 locations in
900 cities and towns Global reach Singapore, Dubai, New York, Mauritius, UK, Hong
Kong, Switzerland Listings NSE, BSE Listing

Corporate Office:
IIFL Centre
B Wing,Trade Centre
Kamala Mills Compound,
Off Senapati Bapat Marg,
Lower Parel,
Mumbai - 400013

3.7. COMPETITORS INFORMATION OF IIFL:

IIFL encounters intense competition in all aspects of its business and competes directly with many
other brokerage companies for clients. Many of IIFL competitors have significantly greater
financial, technical, marketing and other resources than those available to IIFL.

57

The national retail firms such as Merill Lynch, Religare, BMA Wealth Creators and Citigroup
Global markets Inc. are highly prominent in the industry. Tata Securities Limited also face
competition from small traditional brokers and from Pan-India brokers such as:

Kotak Securities Limited:

A subsidiary of Kotak Mahindra Bank, Kotak Securities Limited is one of the oldest and largest
stock brokers in the Industry. Their offerings include stock broking services for stock trading
through the branch and Internet, Investments in IPO, Mutual funds and Portfolio management
services. The other attractive services they offer are: research, SMS alerts trinity accounts,
competitive brokerages, call and trade, Keat Pro X, mobile stock trader, kotak securities news,
twin advantage.

Angel Broking:
While opening a demat account the services which they provide are:Online trading platform for
online investment in equity, derivatives, mutual funds and commodities, competitive intraday
brokerage and delivery brokerage rates, free intraday trading tips and fundamental stock ideas
covering BSE and NSE cash market and derivatives (both futures and options), free SMS alerts
for share market intraday tips, trade confirmations. latest share price quotes, share market news on
mobile.

BMA Wealth Creators:

They are into online trading platform for equity, derivatives, mutual funds, commodities. They are
promoting their service by charging only 0.1 paisa per trade for unlimited trading, giving an edge
to the rest of the competitors in the market.

58

India Bulls Securities:

India Bulls Securities is a pioneer of on-line securities trading in India. India Bulls Securities in
house trading platform is one of the fastest and most efficient trading platforms in the country.
India Bulls Securities has been assigned the highest rating BQ-1 by CRISIL.
There are other small firms as well like Motilal &Sons, who are also coming up with new and
attractive services and S.S. Kantilal Ishwarlal Securities Private Limited.
Today most of the banks are giving such services for their customers and most of the customers
are also using their services as they feel that they are trustworthy and would not let their money
get wasted. The other reason why people go to banks only to avail these services is because they
feel that they can do away with all their transactions from one place, they do not have to approach
different people or different organizations for their transactions.
The only time when traders change their broking firms is when they are not satisfied with their
services, like when they want their brokers to provide correct information and advice to them at
correct point of time and they are not fulfilling their expectations. With just Rs.500 or even less
than that they can avail the facility of having an account with any of the broking firms and can
trade with that account.
In addition, a number of firms offer discount brokerage services to retail customers and generally
effect transactions at substantially lower commission rates on an execution only basis, without
offering other services such as investment recommendations and research.

3.8. INFRASTRUCTURAL FACILITIES:

IIFL has good infrastructure facilities towards the technical and fundamental activities to customer
and employees. The infrastructural facilities of the company comprises of well-equipped rooms
for each for different departments, around 20 computers are connected to NEAT terminal which
facilitates trading.
A Unique Customer Centric Business Model:
IIFL aims to build itself into a customer centric organization and thus supports a front end
which is truly based on customer convenience.
Integration of online trading + Bank + Demat account.
Instant cash transfer facility against purchase and sale of shares.
Instant order and trade conformation by e-mail.
59

 All products and services of IIFL are offered to the Retail, Corporate and Institutional
customers via a unique common sales and service structure for the customer, servicing his
entire financial requirements through a single window.
Live portfolio valuation on clients holdings.
Graphical representation of portfolio.
Price alert via SMS & e-mail.
In - House Training Center - Improved Staff Efficiency: Each branch is having a training
department, where the work of this department is to provide training to employees, by
upgrading their knowledge by all recent developments and changes happening in market.
And also providing the training to use the software applications.

3.9. ACHIEVEMENT AND AWARDS:

Best Customer Service in Financial Services, 2013 - Retailer Customer Service
Awards
Best Commodities Investment, 2012 Euro Money
Top Performer, Equity (FI Category), 2012 BSE
Best Broking House with Global Presence, 2011 & 2012 D&B
No. 1 in Fixed Income Portfolio Management in India, 2012 Euro Money

60

3.10. WORK FLOW MODEL (END TO END):

3.11. FUTURE GROWTH AND PROSPECTS:

The company is exploring all steps to improve business through extensive efforts. Since growth of
capital market in general has opened up increased opportunities.
Focus on insurance advisory service and currency trading.
Focusing more on retail and institutional investor by providing more services.
Focusing on building a strong research team in technical and fundamental analysis.
61

 New initiatives Portfolio Management Services & Commodities trading.

IIFL is planning to expand its distribution network across south India.

MCKINSYS 7S FRAME WORK WITH SPECIAL REFERENCE TO IIFL

Strategy: The plan devised to maintain and build competitive advantage over the
competition.
Structure: The way the organization is structured and who reports to whom.
Systems: The daily activities and procedures that staff members engage in to get the job
done.
Style: The style of leadership adopted.
Staff: The employees and their general capabilities.
Skills: The actual skills and competencies of the employees working for the company.
Shared Values: The core values of the company that are evidenced in the corporate culture
and the general work ethic.
Strategy:
There are different types of strategy followed by IIFL and some of them are explained below:
Steady growth by adapting to the changing environment, without losing the focus on our core
domain of financial services.
De-risked business through multiple products and diversified revenue stream.
62

Knowledge is the key to power superior financial decisions.

Keep costs low and continuously strive for innovation.

63

3.12. Structure of IIFL

The organization structure of IIFL at the head office level as well as branch office level is show in
respectively. IIFL organizational structure is a combining functional and hierarchical structure.
The company has adopted a free form organization devoid of hierarchies. Everyone is known as
associates irrespective of his position in the company. The company operates from various
branches situated across the nation. The headquarters is located in MUMBAI city, India. The
information and orders are disseminated from the head office to all the support and service
branches prevailing.

3.12.1. At Head Office Level:

64

3.12.2. At Branch Office Level

System:
The organization follows strict rules and regulations for the employees. It follows specific entry
and exit timing for its employees. All junior members will have to report to the designed senior
staff member daily attendance register to the concerned department the company has its regional
office, which is headed by regional manager.
Accounting System: Organized set of manual and computerized accounting methods, procedures,
and controls established to gather, record, classify, analyze, summarize, interpret, and present
accurate and timely financial data for management decisions.
System Control: Provides various security-related, parameter-driven functions which allow IIFL
to customize the system to suit operation and management needs.
Style:
The style of an organization becomes evident through the patterns of action of the top management
team over a period of time, the emphasis laid on aspects of business, reporting relationships and
aspects of organizational culture.
IIFL is basically a participating type of leadership style. Before taking any decision a meeting is
conducted and the final decision is taken with the consent of all. Every employee gets chance to

65

file his/her opinion. Every employee can participate in decision making of the organization. The
final decision is taken with consent of all. It does not take any decision unilaterally.
Leadership style of managers in IIFL is to treat customers with dignity, respect and care and
consistent efforts to improve our skill and services to serve the customers better.
Staff:
Each incumbent should have a specific academic qualification to match the position he is going to
hold and also necessary skills to execute the assignment. Marketing/Sales people should possess
at least degree and a management degree is preferred and should possess necessary communication
skill for sales. For fresher due training will be given and then will be put on jobs. Their potential
will be monitored on a regular basis and suitable guidance will be provided on time to time basis.
Annual increments are also given based on the performance predominant.
IIFL has skilled employees with good knowledge and talent. It helps interchange ability of staff
among various units/zones. It enables the organization to have centralized selection procedure,
promotional and transfer procedure, etc. It ensures the most effective and suitable placement of
candidates.

Skills:
The Companys Stock Broker is trained and provided with skills to deal with customers personally
to know their needs and wants. Employees of IIFL are evaluated based on passion, ambition,
innovation, diligence, team work.
Recruitment is not based solely on academic achievements. Company is seeking to appoint
candidates who satisfy a broad range of criteria in terms of their ability to make a positive
contribution to the organization.
The sales department needs personnel with technical skill. The marketing department needs sale
skill, communication skill, convincing capacity. The Manager should have the managerial skill.
They should have the ability to take right decisions. They should manage the personnel and make
them to carry out their responsibility

Shared Values:
Shared values in the Mc Kinseys model refer to the set of values and aspirations that go beyond
the formal statement of corporate objectives. In other words, these are fundamental idea around
66

which a business is built and which constitute its main values. Shared values are also known as
super ordinate goals.
Integrity: We must conduct our business fairly, with honesty and transparency. Everything we do
must stand the test of public scrutiny.
Understanding: We must be caring, show respect, compassion and humanity for our colleagues
and customers around the world, and always work for the benefit of the communities we serve.
Excellence: We must constantly strive to achieve the highest possible standards in our day-to-day
work and in the quality of the goods and services we provide.
Unity: We must work cohesively with our colleagues across the group and with our customers
and partners around the world, building strong relationships based on tolerance, understanding and
mutual cooperation.
Responsibility: We must continue to be responsible, sensitive to the countries, communities and
environments in which we work, always ensuring that what comes from the people goes back to
the people many times over.

3.13. THE SWOT ANALYSIS OF IIFL:

MEANING:
SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses,
Opportunities and Threats involved in a project or in a business venture. It involves specifying the
objective of the business venture or project and identifying the internal and external factors that
are favorable and unfavorable to achieve that objective. The technique is credited to Albert S
Humphrey who led a convention at Stanford University in the 1960s and 1970s using data from
Fortune 500 companies.

67

STRENGTHS:
Strong Brand Image:
The IIFL brand is in market for more than 17 years and is making them to venture into new
businesses and build relationship with new and prospective clients.
Wide range of services under one roof:
They have plethora of services like retail broking, institutional broking, infrastructure
finance, and wealth management.
Efficient Equity Research Team:
The companys equity research team is one of the best in the market; they have expertise
in understanding the requirements of the channel as well as the end customers. They
provide very good research advice to their clients on trading.

68

 Tie ups with major Banks:

The company has tie ups with major banks like ICICI for real time online transfer
fund and exposure updating facility.

WEAKNESSES:
Lack of Focus on Client Relationship:
There should be a separate set of staff working in fields and trading on behalf of their
clients and they should be able to answer the questions of their clients relating to the current
market position.
High Attrition Rate:
Due to continuous need to meet the targets, some of the relationship managers crack under
pressure and thus leave the organization.
Lack of Aggressive Marketing:
The company is focusing less on marketing. As they are new to the market, the only way
for them to get into the market is by promotion .They should start promotional campaigns
and other promotional activities for their diverse range of products.
Less Spread in Rural Areas:
The company does not have branches in rural areas, as there are a lot of people having
surplus funds to invest.

OPPORTUNITIES:
Growing Interest of retail investors:
The capital market in the last few years has turned out to be one of the favorable avenues
for the retail investors and they are finding it to be an easy way to invest and create wealth.
Tax concession for long term investors:
The people who are already trading in the market from a long time can get tax concession.
For example, long term bonds offers a tax benefit in the form of a deduction and the amount
of tax saved would depend on the tax bracket one would fall under.

69

 Government decision to invest provident fund in stock market:

The government has allowed non- government provident funds to invest 5 per cent of their
assets in blue chip shares. The move is aimed to provide wider avenues for investments.
India considered to be a safe haven by the institutional investors:
The fear of recession in the western countries and a slow economic growth is making the
institutional investors to look the Indian stock market for a long period of time.

THREATS:
Cut throat competition:
The company is facing high competition from corporate big houses like Religare, India
Bulls Securities, Motilal & Sons and ICICI securities.
Cyber crime:
Cyber crime is a threat as hackers can do unauthorized login to the companys account,
retrieve information and block information access.
Market Sentiments:
There is lot volatility in the stock market, due to factors like threat of double dip recession,
US downgrading, hike in oil prices and other political factors.
Insider Trading:
Illegal insider trading is believed to raise the cost of capital for securities issuers and it also
decreases the overall economic growth. Many investors follow the summaries of these
insider trades in the hope that mimicking these trades will be profitable.

70

3.14. CORPORATE SOCIAL RESPONSIBILITY:

IIFL Foundation
In line with IIFLs vision to be the most respected company in the financial services space, the
company recognises the importance of contributing to and sustaining social transformation. The
IIFL Foundation has been set up to work in areas of skill development for various industries and
to ensure financial inclusion through the support and upliftment of the underprivileged sections of
society.
The IIFL Foundation focuses on specific areas of need, including healthcare and education. The
foundation will screen and select institutions and developmental agencies which are working in
these domains and will provide necessary aid to improve the lives of the underprivileged and help
them in achieving their potential.
The IIFL Foundation has initiated career guidance to the students of High School and Junior
colleges in remote areas of Maharashtra to enable them to pursue the career which provides right
employment opportunities.
SERVICES:
The different services provided by India Infoline ltd are as follows:
1) Online services
2) Share shops
3) Mutual funds
4) Commodity
5) Portfolio management service
6) Advise line
7) Demat
8) NFO
9) IPO

71

They also offer personalized wealth management services for High Net worth individuals.

1) ONLINE SERVICES:
The online services of India Infoline include online trading of both equity and derivative products.
They provide different online trading account from which individual can chose between according
to their trading habits and preferences. Types of trading account available are as follows:
First step
Classic account
Trade tiger
FIRST STEP: The India Infoline First Step is a brand new program designed especially
for those who are new to investing in shares. All one have to do is to open a India
Infoline First Step account and they will guide through the investing process.
CLASSIC ACCOUNT: This account enables clients to buy and sell shares through
company website. Client will get features like:
I.

Streaming quotes (using the applet based system)

II.

Integrated Banking, demat and digital contracts

III.

Instant credit and transfer

IV.

Real-time portfolio tracking with price alerts

V.

Multiple watch lists

TRADER TERMINAL: It is a single platform for multiple exchange BSE & NSE (Cash
& F&O), MCX, NCDEX, Mutual funds, IPOs.
I.
II.

Multiple Market Watch available on Single Screen

Multiple Charts with Tick by Tick Intraday and End of Day Charting powered with
various Studies

III.

Graph Studies include Average, Band-Bollinger, Know Sure Thing, MACD, RSI,
etc.

IV.

Tools available to gauge market such as Tick Query, Ticker, Market Summary,
Action Watch, Option Premium Calculator, Span Calculator.
72

V.

Online fund transfer activated with 12 Banks

2) SHARE SHOPS:
Share shops are service outlets of India Infoline ltd. The company has 1200 share shops around
400 cities in India. A India Infoline outlet offers the following services:
Online BSE and NSE executions (through BOLT & NEAT terminals)
Free access to investment advice from India Infoline's Research team
India Infoline Value Line (a monthly publication with reviews of recommendations, stocks
to watch out for etc.)
Daily research reports and market review (High Noon & Eagle Eye)
Pre-market Report (Morning Cup news)
Personalized Advice
Depository Services: Demat Transactions
Derivatives Trading (Futures and Options)
Live Market Information
IPOs & Mutual Funds Distribution
Commodities Trading
Daily trading calls based on Technical Analysis

3) MUTUAL FUNDS:
India Infoline ltd allows investors to invest in mutual fund through its both offline and online
account. Applying for a mutual fund through us is open to everybody, regardless of whether
the person is a India Infoline customer. To invest in mutual funds one has to download its
application form, fill it and send it over to the company.

4) COMMODITIES:
India Infoline has launched its own commodity derivatives micro-site. The site is available through
the India Infoline home page www.India Infoline.com. Along with the site India Infoline has
launched several commodity derivatives products (both research and trading) too. The products
have been listed below:
Commodities Buzz: daily view on precious metals and agro commodities.
73

 Commodities Beat: summary of the days trading activity.

Traders Corner: Commodity trading calls; there are two types of calls, Rapid-Fire:
(short-term calls. For 1 day to 5 days. updated daily), Medium-term Plays: (mediumterm calls. for 1 month to 3 months. updated weekly or in between if needed)
India Infoline Xclusive: commodity research reports and analysis.
Market Scan: daily commodity market data and statistics (end of day).

Key Benefits of Commodities at India Infoline:

I.
II.
III.

Complete online support.

Cutting edge analysis of the most relevant news in commodities.
An excellent information facility through SMS messages provides you with
appropriate market information as well as buy/sell calls.

IV.

A team of dedicated Relationship Managers/Dealers provide you non-stop support

through messenger. You will be assisted on market information, buy/sell
recommendation and other information to guide you through.

5) PORTFOLIO MANAGEMENT
Portfolio management service (PMS) is a type of professional service offered by portfolio
managers to their client to help them in managing their money in less time. Portfolio managers
manage the stocks, bonds, and mutual funds of clients considering their personal investment goals
and risk preferences. In addition to money, the portfolio managers manage the portfolio of stocks,
bonds, and mutual funds. India Infoline Ltd offers two types of Portfolio management services as
follows:
PMS Pro prime
PMS Protech
PMS Pro prime: The product details of pro prime are as follows:

i.

Minimum Investment: Rs. 5 lakhs

ii.

Lock in period: 6 Months

iii.

Reporting: Online access to portfolio holdings, quarterly reporting of portfolio

74

holdings/transactions
iv.

Profit withdrawal in multiples of 25000 after lock in period

PMS Protech: Protech uses the knowledge of technical analysis and the power

of

derivatives market to identify trading opportunities in the market. The Protech lines of
products are designed around various risk/reward/volatility profiles for different kinds of
investment needs. The product details of Protech are as follows,
i.

Minimum Investment: Rs 5 lakhs.

ii.

Lock in period: 6 Months.

iii.

AMC fees: 0%

iv.

Profit withdrawal in multiples of 25000 after lock in period.

6) ADVISE LINE:
With Advise line one does not have to tune into the news or search through endless pages of reports
to know about the market movements or to decide on which are the best stock investments to make.
They continually keep you updated on the global and local market conditions. Clients are also,
specially advised on the portfolio you build through India Infoline.

7) DEMAT SERVICES:
Dematerialization and trading in the Demat mode is the safer and faster alternative to the physical
existence of securities. Demat as a parallel solution offers freedom from delays, thefts, forgeries,
settlement risks and paper work. This system works through depository participants (DPs) who
offer Demat services and the securities are held in the electronic form for the investor directly by
the Depository. India Infoline Depository Services offers dematerialization services to individual
and corporate investors. They have a team of professionals and the latest technological expertise
dedicated exclusively to their Demat department, apart from a national network of franchisee,
making their services quick, convenient and efficient. At India Infoline, their commitment is to
provide a complete Demat solution which is simple, safe and secure.
TYPES OF CLIENTS:
India Infoline deals with different types of clients. The different types of clients of India Infoline
75

Ltd are as follows:

1) Retail investor
2) High net worth investors
3) Speculators

1) RETAIL INVESTORS:
They are clients who invest small amount in stocks and bonds. Most of the retail investors are
salaried people and middle income people. They usually invest around Rs.5000-25000. They
usually prefer delivery ideas provided by the company to invest in. Most of the retail investors
involve in cash segment, since the risk in cash segment is relatively lesser than derivatives
segment.

2) HIGH NET WORTH INVESTORS:

They are clients who buy in bulk amount of stocks and bonds. Most of the high nets worth investors
are business people and high income people. They usually invest above Rs.5 lakhs. This type of
clients usually prefer between different products provided by the company. Most of the high net
worth investors involve in all segments like cash, derivatives, commodities.

3) SPECULATORS:
They are clients who also buy bulk amount of stocks and bonds and they take control over their
investments. Speculators involve in all market segments like cash, derivatives, commodities and
money market. Their investment ranges between Rs.25000-3 lakhs.

MARKETING STRATEGIES
The marketing strategy was mainly focused on reaching to every segment of people.

1) SEGMENTATION: India Infoline segmented the whole market in to three types of clients
which are as:

Retail investors

High net worth investors

76

Day traders (or) speculators

2) TARGETING: As most of clients are middle income people, India Infoline targets mainly
on retail investors such as salaried people and middle income people.
3) POSITIONING: Positioning strategy adopted by India Infoline is they associated
themselves with technology. Standardized procedures are the first thing that comes to mind
of a client when he thinks of India Infoline.

PROMOTIONAL STRATEGIES:

1) Telemarketing:
In the organization, database of contact numbers of various category of people are maintained who
may or may not know about the services. Sales executives and assistant managers make phone
calls to these people and if they are interested, give various details about the services and products.
This will make people to opt for India Infoline in future even if they are not interested to enter
stock market currently.
2) Seminars:
The sales personnel of India Infoline prepare seminars depending upon the type of people they are
going to meet i.e. students or corporate people. They go to respective institutions and take seminars
giving various details suiting that category people and the contact numbers of India Infoline sales
personnel to contact further if interested.
3) Door steps:
The sales personnel also go to domestic homes of people and various institutions (meet every
person in person, not like seminars).They explain to them in detail, various schemes, products and
services. They also explain about the documents required to open an account with India Infoline.
If the person is interested the sales personnel will acquire the documents and will proceed further.
4) Kiosks
The sales team puts up stalls in various locations and provide pamphlets containing details about
various products and services of India Infoline. They also explain orally to people who are
interested.
77

5) Online advertising
India Infoline has links to various websites through which they market their products and services
i.e. through pop-up windows and flash texts which when clicked directly leads to
India Infolines website.

6) Media
India Infoline also uses advertisements in TV channels like CNBC.

REASONS TO CHOOSE INDIA INFOLINE LIMITED

1) TECHNOLOGY
With its online trading account one can buy and sell shares in an instant from any PC with
an internet connection. One can get access to its powerful online trading tools that will help
him take complete control over his investment in shares.

2) ACCESSIBILITY
India Infoline provides ADVICE, EDUCATION, TOOLS AND EXECUTION services
for investors. These services are accessible through its centers across the country over the
internet (through the website www.India Infoline.com) as well as over the Voice Tool.

3) KNOWLEDGE
In a business where the right information at the right time can translate into direct profits,
one can get access to a wide range of information on India Infoline Limiteds content-rich
portal. One can also get a useful set of knowledge-based tools that will empower him to
take informed decisions.

4) CONVENIENCE
One can call its Dial-N-Trade number to get investment advice and execute his
transactions. India Infoline ltd. have a dedicated call-center to provide this service via a
Toll Free Number 1800-22-7500 & 1800-22-7050 from anywhere.
78

5) CUSTOMER SERVICE
India Infoline Limiteds customer service team will assist one for any help that one may
require relating to transactions, billing, demat and other queries. Its customer service can
be contacted via a toll-free number, email or live chat on www.India Infoline.com.

Learned to manage time properly.

Learned the importance of the Excel sheet. I maintained all my daily records in the Excel
sheet.

Got the practical knowledge of the market.

Had a practical experience of working in a reputed organization.

79

Chapter 5
ANALYSIS

80

LOT SIZE OF SELETTED COMPANIES FOR ANALYSIS

CODE
HINDPETRO

LOT SIZES
500

COMPANY NAME
Hindustan Petroleum
Corporation Ltd.

ICICI BANK

1000

Industrial Credit and

Investment Corporation of
India Bank Ltd.

TECH M

500

Tech Mahindra Ltd

NMDC

2000

National Mineral
Development Corporation
Ltd.

The following tables explain about the trades that took place in futures between 20/07/2015 to
24/07/2015. The table has various columns, which explain various factors involved in Derivating
trading.

Date the day on which trading took place

Closing Premium Premium for that day

Open interest No. Options that did not get exercised

Traded quantity No of F&O traded on bourses on that day.

N.O.C No of Contracts traded on that day

Closing Price The price of the Futures at the end of the trading day.

81

82

FUTURES OF HINDPETRO

Date
20-Jul-15
21-Jul-15
22-Jul-15
23-Jul-15
24-Jul-15

open
High
Low
Close
No of Contracts
869.15
874.7
861.05
871.9
874.8
875.95
862.7
866.4
865.95
903.85
865.95
896.85
899.3
911.1
893
897.55
901.85
920.45
899.05
912.55

Close Price Rs.

920
900
880
860
840
20-Jul-15

21-Jul-15

22-Jul-15

23-Jul-15

24-Jul-15

23-Jul-15

24-Jul-15

Close Price Rs.

No of Contracts
3000
2000
1000
0
20-Jul-15

21-Jul-15

22-Jul-15
No of Contracts

83

495
434
956
1665
2799

3000
2500
2000
1500
1000
500
0
20-Jul-15

21-Jul-15

22-Jul-15

Close Price Rs.

23-Jul-15

24-Jul-15

No of Contracts

FINDINGS:
The price down to Rs.871 on 21 July. As the traders in the market with an intention to short
or correct the market, the players showed a bearish attitude for the next day where the
price fell to 866.4 and immediately risen to 896.85. Later being the last trading day of the
week gain the traders became bull as to keep a positive for the next week, which plunges
the price to 912.55 for the last day of the trading week.

.
In the trading week most of the traders made up their contracts to make profit. As the
price was high, the open interest was high and the no. of contracts traded inclined to
2799.

There always exist an impact of price movements on open interest and contracts traded.
The futures market is also influenced by cash market, NIFTY index future, and news
related to the underlying asset or sector (industry), FIIS involvement, national and
international affairs etc.

84

FUTURES OF NATIONAL MINERAL DEVELOPMENT CORPORATION LTD

DATE
20-Jul-15
21-Jul-15
22-Jul-15
23-Jul-15
24-Jul-15

Open
High
Low
Close
No of Contracts
113.05
113.5
111.85
112.05
112.2
112.8
110.9
111.55
111.65
113.8
111.1
113.1
112.5
113.7
112.05
113.05
113.3
113.3
111.8
112.4

Close Price Rs.

113.5
113
112.5
112
111.5
111
110.5
20-Jul-15

21-Jul-15

22-Jul-15

23-Jul-15

24-Jul-15

Close Price Rs.

Chart Title
1000
800
600
400
200
0
20-Jul-15

21-Jul-15

22-Jul-15

Close Price Rs.

85

No of Contracts

23-Jul-15

24-Jul-15

109
440
286
469
779

No of Contracts
1000
800
600
400
200
0
20-Jul-15

21-Jul-15

22-Jul-15

23-Jul-15

24-Jul-15

No of Contracts

FINDINGS
After the market is quite relieved by the fall in the discount on the NIFTY in the futures
segment, which was used by traders to short the market. The market showed a positive
upward movement in F&O segment and cash market during the first day of the week.
The future of NMDC had shown a bears way till 21st day of the month whose impact
shown on the open interest and contracts traded.
The market for NMDC on the day of the trading week showed a decline in the closing
price when compare with the weeks high price. The open interest closed at 112.05 with
lowest 109 contracts on the last trading day of the week.

86

FUTURES OF TECH MAHINDRA

DATE
Open
High
Low
Close
No of Contracts
20-Jul-15
499.7
499.7
487
496.1
430
21-Jul-15
503
516.1
495.25
505.6
1082
22-Jul-15
504.55
509.9
495
506.5
683
23-Jul-15
501.85
513.85
501.2
502.75
811
24-Jul-15
498.9
516.5
498.2
512.35
3144

Close Price Rs.

515
510
505
500
495
490
485
20-Jul-15

21-Jul-15

22-Jul-15

23-Jul-15

24-Jul-15

Close Price Rs.

No of Contracts
4000
3000
2000
1000
0
20-Jul-15

21-Jul-15

22-Jul-15
No of Contracts

87

23-Jul-15

24-Jul-15

Chart Title
3500
3000
2500
2000
1500
1000
500
0
20-Jul-15

21-Jul-15

22-Jul-15

Close Price Rs.

23-Jul-15

24-Jul-15

No of Contracts

FINDINGS
The trading week showed a high and low strike prices or exercising prices for the TECH
MAHINDRA futures.
The number of contracts traded high at 3144 and low at 430.
On 24th July it closed with week high price of 512.35 with no of contracts increasing 4
times from 811 to 3144.

88

FUTURES OF ICICI BANK

DATE
Open
High
Low
Close
No of Contracts
20-Jul-15
321
321.4
314.55
318.05
826
21-Jul-15
318
319
312.35
313.25
679
22-Jul-15
312.85
320
311.85
319
2308
23-Jul-15
318.75
320
314.7
315.4
4789
24-Jul-15
313.25
313.25
302
303.1
14628

Close Price Rs.

325
320
315
310
305
300
295
20-Jul-15

21-Jul-15

22-Jul-15

23-Jul-15

24-Jul-15

Close Price Rs.

No of Contracts
20000
15000
10000
5000
0
20-Jul-15

21-Jul-15

22-Jul-15
No of Contracts

89

23-Jul-15

24-Jul-15

Chart Title
16000
14000
12000
10000
8000
6000
4000
2000
0
20-Jul-15

21-Jul-15

22-Jul-15

Close Price Rs.

23-Jul-15

24-Jul-15

No of Contracts

FINDINGS
The price gradually fallen from 318.05 on the day to 24th july, where it stood at 303.1 as
low. As the traders in the market with an intention to short or correct the market, the
traders showed a bearish attitude for the next day the price fallen to 303.1.
The market was not recovered from the bear market to bull market for the next week.
The total price has fallen to 303.1 in the week.

90

Chapter - 6
SUMMARY
AND
CONCLUSIONS

91

CONCLUSIONS AND RECOMMENDATIONS

The above analysis of Futures of HINDPETRO, NMDC, ICICI BANK, and TECH
MAHINDRA had shown a Flat market in the week.
The major factors that influence the F&O market are the cash market, Full involvement,
News related to the underlying asset, National and International markets, Researchers view
etc.
In cash market the profit/loss is limited but where in F& O an investor can enjoy unlimited
profits/loss.
It is recommended that SEBI should take measures in improving awareness about the F&O
market as it is launched very recently.
It is suggested to an investor to keep in mind the time or expiry duration of F&O contract
before trading. The lengthy the time, higher the premium the risk is low and profit making.
The fewer time may be high risk and chances of loss making.
At present scenario the Derivatives market is increased to a great position. Its daily turnover
teaches to the equal stage of cash market.
The derivatives are mainly used for hedging purpose.
In cash market the investor has to pay the total money, but in derivatives the investor has
to pay premiums or margins, which are some percentage of total money.

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GLOSSARY
Derivatives - Derivatives are instruments that derive their value and payoff from
another asset, called underlying asset.
Call Option the option to buy an asset is known as a call option
Put option the option to an asset is called a put option.
Exercise Prices The price at which option can be exercised is called an exercise price or a
strike price.
European option Where an option is allowed to be exercised only on the maturity date, it is
called a European option
American option When the option can be exercised any time before its maturity, it is called an
American Option.
In-the-money option A put or a call option is said to in-the-option when it is advantageous for
the investor to exercise it. In the case of in-the-money call option, the exercise price is less than
the current value of the underlying asset, while in the case of the in-the-money put options; the
exercise price is higher than the current value of stage underlying asset.
Out-of-the money option A put or call option is out-of-the-money if it is not advantageous for
the investor to exercise it. In the case of the out-of-the-money call option, the exercise price is
less than the current value of the underlying asset,
While in the case of the out of-the-money put option, the exer4cise price is lower than the
current value of the underlying asset.
At-the-option When the holder of a put or a call option does not lose of gain whether of not he
exercises his option, the option is said to be at-the-money. In the case of the out-of-the-money
option the exercise price is equal to the current value of the underlying asset.

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Straddle The investor can also create a portfolio of a call and a put with the same exercise
price. This is called a straddle.
Spread If call and put with different exercise price are combined, it is called a spread.
Strip A strips is a combination of two puts and one call with the same exercise price and the
expiration date.
Strap A strap, on the other hand, entails combing two calls and one put.
SWAPS Swaps are similar to futures and forwards contracts in providing hedge against
financial risk. A swap is an agreement between two parties, called counterparties, to trade cash
flows over a period of time.
Currency Swaps Currency swaps involves an exchange of payments in one currency for cash
payments in another currency.
Butterfly Spread A long butterfly spread involves buying a call with a low exercise4 price,
buying a call with a high exercise price and selling tow calls with an exercise price in between
the two. A short butterfly spread involves the opposite position; that is selling call with low
exercise price, selling a call with a high exercise price and buying two calls with an exercise
price in between the two.
Collars A collars involves a strategy of limiting a portfolios value between to bounds.
Bullish spread An investor may be expecting the price of an underlying share to rise. But he
may not like to take higher risk.
Bearish Spread An investor, who is expecting a share of index to0 fall, may sell the higher*priced option and buy the lower-price option.

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Index options Index options are call or put options on the stock markets indices. In India, there
are options on the Bombay Stock Exchange, Sensex and the national Stock Exchange, Nifty.
Premium The price of an option contract, determined on the exchange which the buyer of the
option pays to the options writer for the fights to the option contract.
Futures Futures is a financial contract which derives its value for the underlying asset.
Financial Futures Futures are traded in a wide variety of commodities: wheat, sugar, gold,
silver, copper, oranges, coco, oil soybean etc.
Forward In a forward contract, two parties agree to buy or sell some underlying asset on
some future date at a stated price and quantity.
Index futures Index futures is one of the most successful financial innovation of the financial
market. In 1982, the stock index future was introduced.
Margin Depending upon the nature of the buyer and seller the margin requirement to deposit
with the stock exchange is fixed.
Market to Market A process of valuing an open position on a futures market against the
ruling price of the contract at that time, in order to determine the size of the margin call.
Badla Badla is a part of the cash market. It provided the facility of borrowing and lending of
shares and funds.
Hedging Hedging is the term used for reducing risk by using derivatives.
Nifty Nifty has been selected as the base for the stock index futures. Nifty contains a welldiversified portfolio of 50 stocks.

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REFERENCES

.
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Books: Derivatives Dealers Module Work Book - NCFM

Financial Febket and Services - GORDAN & NATRAJAN
Financial Management - PRASANNA CHANDRA

News Papers:The financial express

Business world
Economic times

WEB SITES:-

WWW.Indiainfoline.com
WWW.moneycontrol.com
WWW.nseindia.com
WWW.bseindia.Com
WWW.derivatives.com

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