AProject Report

On

EQUITY AND DERIVATIVE

MARKET

UndertakenAt

NIRMAL BANG SECURITIES (P) LTD.AHMEDABAD

Duration: From: 1ST JUNE 2012 to 31ST JULY 2012

Submitted to

Ahmedabad Institute of Technology (AIT)Ahmedabad

Submitted ByYOGESH B. GAJERA

ROLL NO: 31BATCH 2012-2013

CERTIFICATE

PrefaceEducation is when you read the fine print; experience is what you get when you don’t.

-Pete Seeger 1919.

One can never deny for the importance of the practical exposure of the

problem for its better understanding and greater grip of coming out with an

industrially acceptable solution. Being the MANAGEMENT students and

performing small practical even is in itself an experience of responsibility on our

head. The summer project is certainly the best chance to work in the Industry and

have practical understanding of market condition.

In view of above, this report has been completed as a part of summer

training prescribed for the MASTER OF BUSINESS ADMINISTRATION. This

had been made in order to know the perception among the investors towards equity

scheme at NIRMAL BANG SECURITY (P) LTD. at Ahmadabad region. This will

help us to know the factors which affect the Investors perception towards equity

scheme are Market condition, service condition, return on investment and

investor’s personal belief. For this purpose we have made a questionnaire. This has

helped us to take data from the target sample, by making the survey we have

collected data as per the guideline provided. Thus results oriented by this project

help us to find the factors which affect Investor’s perception towards different

equity scheme at NBSPL.

ACKNOWLEDGEMENT

“There is no such thing as a self made man, we all are made up thousands of others” – George Adams.

It is great pleasure for me to acknowledge the kind of help and guidance received tome during my project work. I was fortunate enough to get support from a large number of people to whom I shall always remain grateful.

I would like to express my sincere gratitude to Mr. Diptesh Shirshikar and Mr. Ravi Tandon for giving me this opportunity to undergo this lucrative project with Nirmal Bang Security Pvt. Ltd. and also for their great guidance and advice on this project, without which I will not be able to complete this project.

I am very thankful to our Director Sir Dr. Sharad Joshi for giving me valuable suggestion and encouragement to bring out good project.

I am very thankful to my mentor Prof. Mr. Nisarg Joshi for him inspiration and for initiating diligent efforts and expert guidance in course of my study and completion of the project and I am very thankful to my project guide for giving me timely and concrete guidance for making this project successful.

I would like to thankful to customers and staff members of Nirmal Bang Security Pvt. Ltd. For helped me during the project report and providing me more and more valuable information for my project report.

I would thank to God for their blessing and my Parents also for their valuable suggestion and support in my project report.

I would also like to thank our friends and those who have helped us during this project directly or indirectly.

YOGESH GAJERA

CONTENT

INTRODUCTION

As an MBA student we have given a good opportunity to use our theoretical knowledge into the practical in the company where we are taking training.

The study is focuses on the research regarding the investor’s preference and behavior for the product of India Infoline. I have chosen this topic mainly for the following purpose.

I want to apply my theoretical knowledge into practical which I have gain through my first year of MBA.

We have not more knowledge about stock market in the real market

sense, so to receive the current market knowledge we have select a

broking company – Nirmal Bang, Ahmedabad.

In real market, it is necessary to have a current knowledge of the

securities market.

I come to know that which product is the most preferred by the investors.

Industry profile

The Indian broking industry has come a long way in the last decade and has also undergone a significant paradigm shift. The industry has shed most of its negative trappings of the past and is now being considered a preferred sector for building long term careers by professionals from all disciplines.

Unprecedented growth of market volumes and growing participation by investors spread beyond the traditional geographical pockets, coupled with professionalization of work cultures and demand for value-added services like investment advisory and portfolio management, has created a huge demand for talent at all levels.

This growth story is expected to be sustained for at least a decade or even more because of the steady increase in the investor penetration and wider acceptance of stock investments as a reliable option for long term wealth creation.

Robust all round economic growth and favorable demographics are other important factors which are transforming India from a nation of savers to investors. Improved quality of the Indian regulatory framework and high compliance standards, have led to greater transparency in all transactions and minimized the systemic risks.

Historically, the Indian financial services industry has been dominated by the banking sector. However, globalization & liberalization of Indian Equity Markets has led to rapid modernization and the professionalization of the financial sector.

This has led to the emergence of the broking industry, as an important part of the financial services sector, competing for talent with banks, insurance companies etc. The Indian Broking industry has indeed come of age and it is attracting huge investments from large domestic corporate houses as well as from international players.

The Indian Broking industry is now in a most exciting phase and is likely to grow at a much faster rate compared with many other sectors. High quality Research & Advice, State-of-the-art Technology & Business Analytics, Progressive HR Practices and CRM/Quality Management systems, have emerged as the new drivers of competitive advantage in this business.

The scope of services provided by domestic brokerages has also moved up the value chain from mere Execution & Settlement to cover the full range of financial products to meet the diverse needs of customers, who are better educated and aware about Personal Financial Planning.

In actuality the brokerage industry continues to develop rapidly. Many of the traditional restrictions against banking activities within the brokerage industry are being eliminated and the barriers are disappearing. Due to this, some commercial banks have as subsidiaries, brokerage houses that offer discounts and some of them have available accounts that offer all of the services that are offered by a checking account.

The basic function of a brokerage firm is to execute buy and sell orders for clients. Traditionally these firms have offered the investigation of the quality and the possibilities of investing in a variety of investment products. It is still accustomed for brokerage firms to offer information about possible investments free of charge.

This activity of bringing free of charge stock investment reports is one of the main tools that are utilized by brokerage houses to compete against other firms and to investors it continues to be an important service.

Some investors prefer other types of services since many investors don’t believe that these investment reports are useful. In order to capture this vast diverse clientele, the brokerage industry has segmented itself. After the restrictions in commissions were eliminated, several brokerages began to open up their doors as discount brokerage firms. In actuality, brokerage firms may be classified into full service brokers and discount brokers.

Full service brokerage firms continue to offer informative stock reports and a level of service much higher than other brokerage houses. Discount brokerage houses only dedicate themselves to execute orders for clients.

Full service brokers are sellers looking for purchasing and selling for clients and offering more customer service than is available from discount brokers. It is many times possible that a client will not even know who is taking care of the buy or sell order that they place.

There is a new sense of confidence among the domestic brokers as the broking industry is passing through the most exciting times. Those who have survived the earlier bear phase have made their fortunes as the overall revenues have gone up multifold.

In coming days, shortage of skilled talent and proper infrastructure will be one of the major challenges. Going forward, technology will play a key role and the domestic broking houses have to upgrade it. Depth of multiple products is also a challenge for the domestic houses.

Also on the regulatory front, domestic institutional investors cannot give more than five per cent business to any single broker. However, FIIs have no such restrictions resulting in restriction of revenues. As the dynamics of the mutual fund (MF) industry has changed in India, the current restriction also needs to be reconsidered.

Brokers were painful for the last three months due to falling volumes, so their business will be affected. But for the last two years, most of them have made good money. Hence, there is headroom for survival. There is also a possibility of consolidation among the retail brokerages.

Company profile

Nirmal Bang Securities Pvt Ltd (Nirmal Bang) is amongst the top full-service Broking firm established in the year 1989. It started as a small localized player and ultimately transformed into a diverse group in a span of 20 years.

Nirmal Bang Securities Private Limited, a retail broking house, provides an online share trading platform to customers to trade on equities, derivatives, commodities, currency derivatives, insurance, depository services, and subscription to initial public offerings and mutual funds in India.

The company offers comprehensive range of products and services to meet the financial needs of its investors. It is solidly capitalized to meet the demands of retail clients and sufficiently caring to ensure that service is not compromised.

The company offers daily and company reports, stock ideas, and sector updates. It also provides franchising opportunities to individual to use its infrastructure by being its channel partners.

History: The Nirmal Bang group of companies was founded by Nirmal Bang, Dilip Bang

and Kishore Bang. The group always believed in developing retail client network and had wide network of clients all over India.

It started up the DP services and also added broking into commodities and insurance advisory services to diversify into allied activities. Thus Nirmal Bang became a corporate member of BSE with three membership rights.

The company, besides broking is a depository participant with NSDL and CDSL. Bang Equity Broking Private Limited was formed in the year 1997. This company also became the corporate member of the BSE with three membership rights in the year 1999. The Group was thus the first in the history of the Bombay Stock Exchange to acquire six membership rights of the Exchange.

Nirmal Bang is a professionally driven organization having people with diverse

Major Strengths:- Professionally driven- professional backgrounds. The blend of experience,

skill and dedication is shared with all clients. The group has more than 300 well-experienced and efficient staff to cater to the large clientele base.

Approach-

The company focuses on adequate and thorough research on local and world-wide developments, balancing these with the astute discovery of intrinsic values, synergies and growth. Aim-

It aims at maximizing returns of its investors depending upon the investment motive. Simply to help customers maximize their returns. Their interests no matter how big or small - come first. Commitment-

The Company is committed in providing service at par excellence and become customers’ spirit of change.

Major Offerings:-Nirmal Bang currently offers the full stock brokerage services in line with the overall strategy of the group. Some of the major offerings include the following: Trading in Equities & Derivatives-

Equity trading is offered to retail clients through multiple channels including online trading in the BSE and the NSE, for cash & derivatives segments. Live quotes, market commentary and major news are also offered through its website. This segment contributes a major portion of its revenue. Trading in Commodities-

The group company is a member of India’s premier commodity exchanges, namely, the Multi Commodity Exchange of India Ltd (MCX), the National Commodity & Derivatives Exchange Ltd (NCDEX). Online Trading-

The company offers an online trading portal which is developed and maintained by Financial Technologies (India) Ltd. Depository-

Nirmal Bang is a depository participant of NSDL and CDSL. It offers depository services through an online platform provided by Apex Soft cell. IPO-

Nirmal Bang is also involved in the marketing of IPO’s. It even offers information about forthcoming IPO’s, open issues, new listing etc.

Reach & Access:- Nirmal Bang has pan India presence with offices and branches spread across all

major cities and states. Its wide spread network is further supported by franchisees and more than 200 sub brokers. As on Oct 2007, the company had 180 offices, 242 sub brokers and more than 300 employees.

The company has tie ups with some of the leading IT solution providers for constant support and development of its technology set up. It has about50 VSATs that enhance connectivity across several branches and terminals.

Some of its technology partners include Financial Technologies, Apex Softcell and Reliable Software.

Performance:- During the first 10 months of CY07, Nirmal Bang reported growth across all its

major businesses namely; equity and derivative reporting a growth of 200%and 75% and commodity reported a growth of 50% respectively. Number of terminals went up to 800 in 2007. Similarly number of offices and sub-brokers also underwent a substantial rise.

The company added 15,000 domestic customer accounts in 2007 as compared to 3,000 in the previous year. The E-broking business also showed100% growth and it added about 300 e-broking accounts.

Future Plans:-Nirmal Bang plans to enhance its FII and institutional client base. The company is further planning to enhance its existing service portfolio by introducing investor advisory, portfolio management services and merchant banking services in the near future.

Introduction of Stock market

India is one of the oldest stock markets in the world with a strong presence of domestic and local intermediation. Stock markets in India surged over a decade on back of a wide range of economic reforms, liberalization of financial markets buoyed by greater freedom and flexibility. A stock market or equity market is a public entity (a loose network of economic transactions, not a physical facility or discrete entity) for the trading of company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.

The size of the world stock market was estimated at about $36.6 trillion at the beginning of October 2008.The total world derivatives market has been estimated at about $791 trillion face or nominal value, 11 times the size of the entire world economy. The value of the derivatives market, because it is stated in terms of notional values, cannot be directly compared to a stock or a fixed income security, which traditionally refers to an actual value. Moreover, the vast majority of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is offset by a comparable derivative 'bet' on the event not occurring). Many such relatively illiquid securities are valued as marked to model, rather than an actual market price.

The Bombay Stock Exchange (BSE) and the National Stock Exchange of India Limited (NSE) are the two primary exchanges in India. In addition, there are 22 Regional Stock Exchanges. However, the BSE and NSE have established themselves as the two leading exchanges and account for about 80% of the equity volume traded in India. The NSE and BSE are equal in size in terms of daily traded volume. The average daily turnover at the exchanges has increased from Rs851crore in 1997-98 to Rs1284crore in 1998-99 and further to Rs2273crore in 1999-2000. NSE has around 1500 shares listed with the total market capitalization of around Rs9, 21,500crore.

The markets are closed on Saturdays and Sundays. Both the exchanges have switched over from the open outcry trading system to a fully automated computerized mode of trading known as BOLT (BSE On Line Trading) and NEAT (National Exchange Automated Trading) system. It facilitates more efficient processing, automatic order matching, faster execution of trades and transparency. The scrip traded on the BSE has been classified into „A‟, „B1‟, „B2‟, „C‟, „F‟, and „Z‟ groups. The „A‟ group shares represent those, which are in the carry forward system (Badla). The „F‟ group represents the dept market (fixed income securities) segment. The „Z‟ group scrip is the blacklisted companies. The „C‟ group covers the odd lot securities in „A‟, „B1‟, & „B2‟ groups and Rights renunciations. The key regulator governing Stock Exchanges, Brokers, Depositories, Depository participants, Mutual Funds, FIIs and other participants in Indian secondary and primary market is the Securities and Exchange Board of India (SEBI) Limited.

The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. The largest stock market in the United States, by market capitalization, is the New York Stock Exchange (NYSE). In Canada, the largest stock market is the Toronto Stock Exchange. Major European examples of stock exchanges include the Amsterdam Stock Exchange, London Stock Exchange, Paris Bourse, and the Deutsche Bores (Frankfurt Stock Exchange). In Africa, examples include Nigerian Stock Exchange, JSE Limited, etc. Asian examples include the Singapore Exchange, the Tokyo Stock Exchange, the Hong Kong Stock Exchange, the Shanghai Stock Exchange, and the Bombay Stock Exchange. In Latin America, there are such exchanges as the BM&F Bovespa and the BMV.Market participants include individual retail investors, institutional investors such as mutual funds, banks, insurance companies and hedge funds, and also publicly traded corporations trading in their own shares. Some studies have suggested that institutional investors and corporations trading in their own shares generally receive higher risk-adjusted returns than retail investors.

Industry profile

Meaning of the stock market

When people talk about the Stock Market, it's not always clear what they

are referring to. Is the Stock Market a place? Or is it something different? To

many people it is an abstract idea. They buy stocks in "the stock market" without

ever leaving the comfort of their computer terminal. But the stock market is

indeed a physical place with buildings and addresses, a place you can go for visit.

The stock market is one of the most important sources for companies to raise

money.

Essentially a market is a place which introduces a buyer to a seller. In the

case of stocks the buyer and seller are dealing in small ownership portions of

companies or shares. A stock exchange, share market or bourse is a corporation

or mutual organization which provides facilities for stock brokers and traders, to

trade company stocks and other securities. The initial offering of stocks and bonds

to investors is by definition done in the primary market and subsequent trading is

done in the secondary market. A stock exchange is often the most important

component of a stock market. Supply and demand in stock markets is driven by

various factors which, as in all free markets, affect the price of stock.

There is usually no compulsion to issue stock via the stock exchange itself,

nor must stock be subsequently traded on the exchange. Such trading is said to be

off exchange or over-the-counter.

Primary market:

“A market is primary if the proceeds of sales go to the issuer of the securities

sold”.

This is part of the financial market where enterprises issue their new shares

and bonds. It is characterized by being the only moment when the enterprise

receives money in exchange for selling its financial assets.

The primary market provides the channel for sale of new securities. Primary

market provides opportunity to issuers of securities; Government as well as

corporate, to raise resources to meet their requirements of investment and/or

discharge some obligation. They may issue the securities at face value, or at a

discount/premium and these securities may take a variety of forms such as

equity, debt etc. They may issue the securities in domestic market and/or

international market.

Different kind of issues:

Primarily, issues can be classified as a Public, Rights or Preferential issues

(also known as private placements). While public and rights issues involve a

detailed procedure, private placements or preferential issues are relatively

simpler. The classification of issues is illustrated below:

1) Public issues:

Initial Public Offering (IPO) is when an unlisted company makes either a

fresh issue of securities or an offer for sale of its existing securities or both for

the first time to the public.

A follow on public offering (Further Issue) is when an already listed

company makes either a fresh issue of securities to the public or an offer for

sale to the public, through an offer document.

2) Rights Issue is when a listed company which proposes to issue fresh

securities to its existing shareholders as on a record date. The rights are

normally offered in a particular ratio to the number of securities held prior to

the issue. This route is best suited for companies who would like to raise capital

without diluting stake of its existing shareholders.

3) A Preferential issue is an issue of shares or of convertible securities by

listed companies to a select group of persons under Section 81 of the

Companies Act, 1956 which is neither a rights issue nor a public issue. This is a

faster way for a company to raise equity capital. The issuer company has to

comply with the Companies Act.

secondary market:

Secondary market refers to a market where securities are traded after

being initially offered to the public in the primary market and/or listed on the

Stock Exchange. Majority of the trading is done in the secondary market.

Secondary market comprises of equity markets and the debt markets.

To explain further, it is trading in previously issued financial instruments. An

organized market for used securities. Examples are the New York Stock

Exchange (NYSE), Bombay Stock Exchange (BSE), National Stock Exchange NSE,

bond markets, over-the-counter markets, residential mortgage loans,

governmental guaranteed loans etc.

Role of the secondary market:

For the general investor, the secondary market provides an efficient

platform for trading of his securities. For the management of the company,

Secondary equity markets serve as a monitoring and control conduit—by

facilitating value-enhancing control activities, enabling implementation of

incentive-based management contracts, and aggregating information (via price

discovery) that guides management decisions.

Function of secondary market:

Secondary market provides to an issuer of securities, whether the issuer is a

corporation or a governmental unit, regular information about the value of

the security. The periodic trading of the asset reveals to the issuer the

consensus price that, the asset commands in an open market. Thus, firm can

discover what value investors attach to their stocks, and firm & non corporate

issuers can observe the prices of their bonds and the implied interest rates

investors expect & demand for them. Such information helps issuers assess

how well they are using the funds acquired from earlier primary market

activities, and it also indicates how receptive investors would be to new

offering.

Secondary market offers issuer is that it provides the opportunity for the

original buyers of asset to reverse their investment by selling it for cash.

Unless investors feel confident that they can shift from one financial asset to

another as they may deem necessary, they would naturally be reluctant to

buy any financial asset. Such reluctance would harm potential issuers in one

of two ways: either issuer would be unable to sell new securities at all or

there would have to pay a high rate of return, because investors would

demand greater compensation for the expected illiquidity of the securities.

Investors in financial assets receive several benefits from a secondary market.

Such a market obviously offers them liquidity for their assets as well as

information about the assets fair or consensus values.

Secondary market brings together many interested parties and so can reduce

the cost of searching for likely buyers and sellers of assets.

Moreover, by accommodating many traders. Secondary markets keep the

cost of transactions low. By keeping the costs of both searching and

transacting low, secondary market encourage investors to purchase financial

assets.

Many Secondary markets are continuous markets, which mean that prices

are determined continuously throughout the trading day as buyers and sellers

submit orders. For examples, Given the order flow at 10 A.M., the market

clearing price of a stock on some organized stock exchange may be Rs.70; at 11

a.m. of the same trading day, the market clearing price of the same stock, but

with different order flows, may be Rs.70.75.Thus, in a continuous market, prices

may vary with the patterns of orders reaching the market and not because of

any change in the basic situation of supply and demand.

A contrasting market structure is the call market, in which orders are

batched or grouped together for simultaneous execution at the same price. That

is, at certain times in the trading day (or possibly more than once in a day), a

market maker holds an auction for a stock. The auction may be oral or written.

Difference between the primary market and the Secondary market :

In the primary market, securities are offered to public for subscription for the

purpose of raising capital or fund.

Secondary market is an equity trading venue in which already existing/pre-

issued securities are traded among investors. Secondary market could be

either auction or dealer market. While stock exchange is the part of an

auction market, Over-the-Counter (OTC) is a part of the dealer market.

Factors affecting stock market :

Actions of investors

Business conditions

Government actions

Economic Indicators

Foreign market

Performance of the industry:

STOCK MARKET

The Indian stock exchanges hold a place of prominence not only in Asia but also at the global stage. The Bombay Stock Exchange (BSE) is one of the oldest exchanges across the world, while the National Stock Exchange (NSE) is among the best in terms of sophistication and advancement of technology. The Indian stock market scene really picked up after the opening up of the economy in the early nineties. The whole of nineties were used to experiment and fine tune an efficient and effective system. The ‘badla’ system was stopped tocontrol unnecessary volatility while the derivatives segment started as late as 2000. The corporate governance rules were gradually put in place which initiated the process of bringing the listed companies at a uniform level. On the global scale, the economic environment started taking paradigm shift with the ‘dot com bubble burst’, 9/11, and soaring oil prices. The slowdown in the US economy and interest rate tightening made the equation more complex. However after 2000 riding on a robust growth and a maturing economy and relaxed regulations,outside investors- institutional and others got more scope to operate. This opening up of the system led to increased integration with heightened cross-border flow of capital, with India emerging as an investment ‘hot spot’ resulting in our stock exchanges being impacted by global cues like never before.

The study pertains to comparative analysis of the Indian Stock Market with respect to various international counterparts. Exchanges are now crossing

national boundaries to extend their service areas and this has led to cross-border integration. Also, exchanges have begun to offer cross-border trading to facilitate overseas investment options for investors. This not only increased the appeal of the exchange for investors but also attracts more volume. Exchanges regularly solicit companies outside their home territory and encourage them to list on theirexchange and global competition has put pressure on corporations to seek capital outside their home country. The Indian stock market is the world third largest stock market on the basis of investor base and has a collective pool of about 20 million investors. There are over 9,000 companies listed on the stock exchanges of the country. The Bombay Stock Exchange, established in 1875, is the oldest in Asia. National Stock Exchange, a more recent establishment which came into existence in 1992, is the largest and most advanced stock market in India is also the third biggest stock exchange in Asia in terms of transactions. It is among the 5 biggest stock exchanges in the world in terms of transactions volume.

Listed Securities Listing in a stock exchange refers to the admission of the securities of the company for trade dealings in a recognized stock exchange. The securities may be of any public limited company, Central or State Government, quasi-governmental and other financial institutions/corporations, municipalities, etc. Securities of any company are listed in a stock exchange to provide liquidity to the securities, to mobilize savings and to protect the interests of the investors.

India has the highest number of companies listed in the stock market. Out of this, about 75 % of the companies are listed with the Bombay Stock Exchange. After India, United States has the highest number of companies listed.

Parameters BSE NSE NYSE Tokyo stock exchange

Hong Kong Stock exchange

Kerea Stock exchange

Name SENSEX NIFTY Doe Jones Industrial Average

NIKKEI-225

Hang Seng KOSPI

NO. Of Company

30 50 30 225 33

Method of Calculation

Free float Market Capitalization Method

Weighted Average

Weighted Average Method

Price Average Method

Weighted Capitalization Stock Market Method

Market Capitalization Bassed Method

Research Methodology

Research objectives:

To know the preference and behavior of the investor for the equity of

different broking firm.

To know future prospects of their investment in the financial security like

Equity.

To know percentage of people invest in equity.

Scope of study:

Area covered: In the Ahmedabad, C.G Road, Navrangpura, Vastrapur, and

Naherunagar.

Time taken: 2 weeks

Data collection:

In my project I have collected the information though the primary and

secondary sources.

Primary data: The primary information includes the fresh research work done by me

regarding the product of the different broking companies. The sources of

the primary information are as under:

Residential

Shop-keepers

People in the industry

Secondary data:

The secondary information proved very helpful for me to prepare my

questionnaire and project. It also gives the information regarding the company

profile, present market scenario, competitors and company share. The sources

of secondary data are as under:

Internet

Broacher

Sample design:

Type of research:

It was the quantitative research done through questionnaire and the telephonic interview.

Type of sampling:

It was the convenience sampling.

Sample size:

100 people in which 12 from industries, 54 from offices of NBSPL, 10 Residential and 24 others.

Sample unit:

We have covered the population including service people, businessmen, retired person and also students.

Field work:

The researcher covers 100 respondents and all of them filled up the

questionnaire. Some of the respondents had no patience but on the other

hand there were some of them who were truly interested into the survey.

Such respondents really encouraged the researcher a lot to carry out the

survey. Average time taken by the respondent to fill up the questionnaire was

10 minutes. Some of them thought they were making commitments on their

part even though the researcher told them that it was not so.

However an honest attempt is made to report and analyze the

respondents as objectively as possible without allowing the investigators bias

to dominate them.

Data analysis tools:

In this study, the different data analysis tools are used, like SWOT Analysis, Hypothesis Analysis through Chi-square and Graphical Analysis through chart.

Limitation of the project study:

The main limitations of the study are as under:

Personal bias of the people

The sample size of 100 is also limited for the research

The time permitted for the project is also limited for any research

Data Analysis

Data Analysis Tools:

SWOT Analysis:

Strengths:

• Original research

• Integrated technology platform

• “One Stop” shop

• Pan - India distribution network

• “India Infoline.com” and “5paisa.com” have developed into brands

Weaknesses:

• Lack of a banking arm to complete the bank-broker-depository chain

• Insignificant presence in institutional Segment

Opportunities

• Changing demographics with higher disposable income and increasingly complex financial instruments will drive demand for investment advisory services

• Rapid penetration of Internet and computers means that technology enabled financial services will gain market share

It has recently launched Investment banking and institutional broking business.

Threats

• Economic slowdown

• Volatile movement in indices events like May 17, 2004

• Stock markets falls will have a cascading effect on our mutual fund mobilization

• Increase/decrease in interest rate can affect our debt/ income fund mobilizations

• Future changes in personal taxation rules can impact insurance sales

• Increasing competition from large and particularly foreign players

Detail calculation through hypothesis :

Chi – square test has been used for the testing of hypothesis.Level of significance = αDegrees of freedom= DOFHypothesis 1:H0: The percentage of investment is independent to the income of the person.H1: The percentage of investment is dependent on the income of the person.At 5% level of significance, the value of tabulated Ψ2 is given by: α =0.05 and DOF = (5-1) (4-1) =12 Ψ2 (tabulated) = 21.03

5%-10% 10%-20% 20%-30% >30% Total5000-10000 10 2 0 0 1211000-15000 15 8 4 2 2916000-20000 12 7 1 1 2121000-25000 5 9 6 1 21>25000 0 5 9 3 17Total 42 31 20 7 100

OBSERVED EXPECTED

VALUE (O) VALUE (E)

10 6 16 2.6715 9 36 412 20 64 3.25 11 36 3.270 5 25 52 10 64 6.48 14 36 2.577 4 9 2.259 4 25 6.255 2 9 4.50 4 16 44 9 25 2.771 5 16 3.2

2)( EO E

EO 2)(

6 2 16 89 3 36 120 5 25 52 8 36 4.51 5 16 3.21 6 25 4.163 8 25 3.12

Total: 90.06 Ψ2 (calculated) = 90.05Interpretation: here Ψ2 (calculated) > Ψ2 (tabulated)

Here, I reject the null hypothesis.It means that the investment is dependent on the income of the person.

Graphs showing the no. of investors according to age of the person and the preferences of securities.

18-25 26-35 36-55 >56 Total

Equity 22 27 35 3 87

Mutual Fund 3 4 12 0 19

Insurance 7 12 24 5 48

Fixed Deposit 0 2 6 1 9

Commodity 0 2 0 0 2

Total 32 47 77 9 165

Equity Mutual Fund Insurance Fixed Diposit Commodity0

10

20

30

40

22

3

7

0 0

27

4

12

24

35

12

24

6

0

3

0

5

1

018-25 26-35 36-55 >56

Graph showing the no. of respondent according to the income of the person and the preference of the securities.

5000-10000 11000-15000 16000-20000 21000-25000 >26000 Total

Equity 13 30 17 20 8 88

Mutual Fund 3 5 3 5 2 18

Insurance 10 10 6 13 11 150

Fixed Deposit 1 1 1 3 3 9

Commodity 0 1 1 0 0 2

Total 27 47 28 41 24 167

Equity

Mutu

al Fu

nd

Insuran

ce

Fixed Deposit

Commodity0

5

10

15

20

25

30 5000-1000011000-1500016000-2000021000-25000>26000

Interpretation through the graph:

1) Occupation of the person:

business profession service retired other0.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%

38%

10%

40%

5% 8%

no.of respondent

From the above data, I can conclude that 37.50% businessmen, 10% professional people, 40% servicemen, 5% retired, & 7.50% other people are interested in investment of securities. They invest more in securities and also want more return from the investment.

2) How many people invest in the non financial securities?

20%

9%

18%

53%

no.of respondentReal Estate Commodity Business Other

This chart shows that people invest less in non-financial securities compare to financial securities. Here, the graph shows that most of the people are not interested in the non- financial securities.

3) No. of respondent according to broking firm

India info-line

Angel broking

Motilal oswal

HDFC Share khan iICICI Nirmal bang

Other0%

5%

10%

15%

20%

25%

30%

35%

16% 15%7% 5%

10%3%

12%

32%

no. of respondent

From the above chart it can be said that India Infoline is in the top three positions. No of respondents in other firm are 32% which includes Monarch, Shah Brothers, Patel capital investment & Arcadia brothers.

4) Kind of transaction has been done by investors.

Intraday delivery0%

10%20%30%40%50%60%

56%44%

no. of respondent

From the above graph, I can say that 44% of the people are investing in delivery basis and 56% of the people are investing in intraday basis. It means that most of the people are interested in investment rather than trading.

5) How much return you expect from your investment?

34%

31%

27%

8%

no. of respondent

10%-20%20%-30%30%-40%>40%

Here, this graph shows the % of return expected by the respondents. The investors invest in equity expect more return than the other investors, Because they have more risk taking capacity.

Table showing details of different broking firm about the securities like Equity

Company Account

Opening

Margin Brokerage Exposure

BranchesMoney Intra- (for intra)

Delivery (%)

India Infoline 750 2555 0.05-0.50 10 times 607

Kotak

750/- 5000 0.06- 0.55 4 times 890Securities

ICICI direct 500 1000 0.05-0.05 5 times 2124

Motilal oswal 415Not

restricted0.03-0.30 4 times 430

Religare 299 5000 0.02-0.20 20 times 1837

Angel broking 731 5000 0.03-0.30 20 times 120

Reliance

750Not

restricted0.05-0.25 5 times 10000money

Share khan 750 5000 0.03-0.30 4 times 250

HDFC 799 5000 0.05-0.50 5 times Nil

Nirmal bang - 5000 0.03-0.30 10 times Nil

Research Finding

Brokerage of India Nirmal Bang is lower than others broking firms like HDFC, India

Infoline, Kotak securities, ICICI Direct, Reliance Money they are charging 0 .05% for

Intraday and 0 .50% for Delivery Where Nirmal bang is taking 0 .03% for Intraday and

0 .30% for Delivery.

Exposure is less than other firms. Nirmal bang offers ten times exposure on margin

where as India Infoline, Religare and India bulls offer twenty times exposure on margin

money.

India Infoline takes Rs.750 for lifetime services, where as Nirmal bang take no charges.

Relationship manager changes many times, it creates problem for the offline customers.

India Infoline has hidden charges, Customer are not much aware about that.

Customer satisfaction of India Infoline not so good.

Most of the customers are trading online.

Most of the customers approach towards the broking firm is through the relationship

manager.

Some of the people are not much aware of share market and its benefit.

Recommendation

To increase awareness about Share Market and the name Nirmal Bang itself, the Company

should organize campaign. The campaign can be weekly, monthly, yearly, it will give a

good result to the company to capture market in the competitive position.

The company should reduce the margin money. It can help to acquire more Customers, if

the firms bring plans for no boundation of margin money.

The Company should increase their focus on the less margin money customers also .It can

help to make more customers of low margin money which can increase the revenue of the

firm. The Relationship managers focus only to the high margin money customer because

from them they will get high brokerage that should not be happened from the less margin

money customer.

Transaction error should be avoided. Transaction should be done properly, taking in consideration that it is one of the most required quality of a firm. Wrong transaction or default transaction may lead the prestige of the company to be down.

DERIVATIVES

INTRODUCTION TO 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 locking–in asset prices. As instruments of risk management, these generally do not influence the fluctuations in the underlying asset prices. However, by locking-in asset prices, derivative products minimize the impact of fluctuations in asset prices on the profitability and cash flow situation of risk-averse investors.

Derivative products initially emerged as hedging devices against fluctuations in commodity prices, and commodity-linked derivatives remained the sole form of such products for almost three hundred years. Financial derivatives came into spotlight in the post-1970 period due to growing instability in the financial markets. However, since their emergence, these products have become very popular and by 1990s, they accounted for about two-thirds of total transactions in derivative products. In recent years, the market for financial derivatives has grown tremendously in terms of variety of instruments available, their complexity and also turnover. In the class of equity derivatives the world over, futures and options on stock indices have gained more popularity than on individual stocks, especially among institutional investors, who are major users of index-linked derivatives. Even small investors find these useful due to high correlation of the popular indexes with various portfolios and ease of use. The lower costs associated with index derivatives vis–a–vis derivative products based on individual securities is another reason for their growing use.

1 Derivatives defined2

Derivative is a product, whose value is derived from the value of one or more

basic variables, Called bases (underlying asset, index, or reference rate), in a

contractual manner. The underlying asset can be equity, forex, commodity or any

other asset. For example, wheat farmers may wish to sell their harvest at a future

date to eliminate the risk of a change in prices by that date. Such a transaction is an

example of a derivative. The price of this derivative is driven by the spot price of

wheat which is the “underlying”. In the Indian context the 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. Derivatives are

securities under the SC(R)A and hence the trading of derivatives is governed

by the regulatory framework under the SC(R)A.

Exchange-Traded and Over-the-Counter Derivative Instruments

OTC (over-the-counter) contracts, such as forwards and swaps, are bilaterally negotiated between two parties. The terms of an OTC contract are flexible, and are often customized to fit the specific requirements of the user. OTC contracts have substantial credit risk, which is the risk that the counterparty that owes money defaults on the payment. In India, OTC derivatives are generally prohibited with some exceptions: those that are specifically allowed by the Reserve Bank of India (RBI) or, in the case of commodities (which are regulated by the Forward Markets Commission), those that trade informally in “havala” or forwards markets. An exchange-traded contract, such as a futures contract, has a

standardized format that specifies the underlying asset to be delivered, the size of

the contract, and the logistics of delivery. They trade on organized exchanges with

prices determined by the interaction of many buyers and sellers. In India, two

exchanges offer derivatives trading: the Bombay Stock Exchange (BSE) and the

National Stock Exchange (NSE). However, NSE now accounts for virtually all

exchange-traded derivatives in India, accounting for more than 99% of volume in

2003-2004. Contract performance is guaranteed by a clearinghouse, which is a

wholly owned subsidiary of the NSE.4 Margin requirements and daily marking-to-

market of futures positions substantially reduce the credit risk of exchange-traded

contracts, relative to OTC contracts.

Types of derivatives

The most commonly used derivatives contracts are forwards, futures

and options which we shall discuss in detail later. Here we take a brief look at various derivatives contracts that have come to be used.

Forwards: A forward contract is a customized contract between two entities,

where settlement takes place on a specific date in the future at today’s pre-agreed

price.

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

asset at a certain time in the future at a certain price. Futures contracts are special

types of forward contracts in the sense that the former are standardized exchange-

traded contracts.

Options: Options are of two types - calls and puts. Calls give the buyer the right

but not the obligation to buy a given quantity of the underlying asset, at a given

price on or before a given future date. Puts give the buyer the right, but not the

obligation to sell a given quantity of the underlying asset at a given price on or

before a given date.

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

traded on options exchanges having a maximum maturity of nine months. Longer-

dated options are called warrants and are generally traded over-the-counter.

LEAPS: The acronym LEAPS means Long-Term Equity Anticipation Securities.

These are options having a maturity of upto 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 swaption is an option on a forward swap.

Rather than have calls and puts, the swaptions market has receiver swaptions and

payer swaptions. A receiver swaption is an option to receive fixed and pay floating.

A payer swaption is an option to pay fixed and receive floating.

Development of Derivative Markets in India

Derivatives markets have been in existence in India in some form or other for a long time. In the area of commodities, the Bombay Cotton Trade Association started futures trading in 1875 and, by the early 1900s India had one of the world’s largest futures industry. In 1952 the government banned cash settlement and options trading and derivatives trading shifted to informal forwards markets. In recent years, government policy has changed, allowing for an increased role for market-based pricing and less suspicion of derivatives trading. The ban on futures trading of many commodities was lifted starting in the early 2000s, and national electronic commodity exchanges were created.

In the equity markets, a system of trading called “badla” involving some elements of forwards trading had been in existence for decades.6 However, the system led to a number of undesirable practices and it was prohibited off and on till the Securities and Exchange Board of India (SEBI) banned it for good in 2001. A series of reforms of the stock market between 1993 and 1996 paved the way for the development of exchange-traded equity derivatives markets in India. In 1993, the government created the NSE in collaboration with state-owned financial institutions. NSE improved the efficiency and transparency of the stock markets by offering a fully automated screen-based trading system and real-time price dissemination. In 1995, a prohibition on trading options was lifted. In 1996, the NSE sent a proposal to SEBI for listing exchange-traded derivatives. The report of the L. C. Gupta Committee, set up by SEBI, recommended a phased introduction of derivative products, and bi-level regulation (i.e., self-regulation by exchanges with SEBI providing a supervisory and advisory role). Another report, by the J. R. Varma Committee in 1998, worked out various operational details such as the margining systems. In 1999, the Securities Contracts (Regulation) Act of 1956, or SC(R)A, was amended so that derivatives could be declared “securities.” This allowed the regulatory framework for trading securities to be extended to derivatives. The Act considers derivatives to be legal and valid, but only if they are traded on exchanges. Finally, a 30-year ban on forward trading was also lifted in 1999. The economic liberalization of the early nineties facilitated the introduction of derivatives based on interest rates and foreign exchange. A system of market-determined exchange rates was adopted by India in March 1993. In August 1994, the rupee was made fully convertible on current account. These reforms allowed increased integration between domestic and international markets, and created a need to manage currency risk. Figure 1 shows how the volatility of the exchange rate between the Indian Rupee and the U.S. dollar has increased since 1991.7 The

easing of various restrictions on the free movement of interest rates resulted in the need to manage interest rate risk.

Derivatives Instruments Traded in India

In the exchange-traded market, the biggest success story has been derivatives on equity products. Index futures were introduced in June 2000, followed by index options in June 2001, and options and futures on individual securities in July 2001 and November 2001, respectively. As of 2005, the NSE trades futures and options on 118 individual stocks and 3 stock indices. All these derivative contracts are settled by cash payment and do not involve physical delivery of the underlying product (which may be costly). Derivatives on stock indexes and individual stocks have grown rapidly since inception. In particular, single stock futures have become hugely popular, accounting for about half of NSE’s traded value in October 2005. In fact, NSE has the highest volume (i.e. number of contracts traded) in the single stock futures globally, enabling it to rank 16 among world exchanges in the first half of 2005. Single stock options are less popular than futures. Index futures are increasingly popular, and accounted for close to 40% of traded value in October 2005. Figure 2 illustrates the growth in volume of futures and options on the Nifty index, and shows that index futures have grown more strongly than index options. NSE launched interest rate futures in June 2003 but, in contrast to equity derivatives, there has been little trading in them. One problem with these instruments was faulty contract specifications, resulting in the underlying interest rate deviating erratically from the reference rate used by market participants. Institutional investors have preferred to trade in the OTC markets, where instruments such as interest rate swaps and forward rate agreements are thriving. As interest rates in India have fallen, companies have swapped their fixed rate borrowings into floating rates to reduce funding costs.10 Activity in OTC markets dwarfs that of the entire exchange-traded markets, with daily value of trading estimated to be Rs. 30 billion in 2004 (FitchRatings, 2004).

Foreign exchange derivatives are less active than interest rate derivatives in India, even though they have been around for longer. OTC instruments in currency forwards and swaps are the most popular. Importers, exporters and banks use the rupee forward market to hedge their foreign currency exposure. Turnover and liquidity in this market has been increasing, although trading is mainly in shorter maturity contracts of one year or less (Gambhir and Goel, 2003). In a currency swap, banks and corporations may swap its rupee denominated debt into another currency (typically the US dollar or Japanese yen), or vice versa. Trading in OTC currency options is still muted. There are no exchange-traded currency derivatives in India.

Exchange-traded commodity derivatives have been trading only since 2000, and the growth in this market has been uneven. The number of commodities eligible for futures trading has increased from 8 in 2000 to 80 in 2004, while the value of trading has increased almost four times in the same period (Nair, 2004). However, many contracts barely trade and, of those that are active, trading is fragmented over multiple market venues, including central and regional exchanges, brokerages, and unregulated forwards markets. Total volume of commodity derivatives is still small, less than half the size of equity derivatives (Gorham et al, 2005).

Derivatives Users in India

The use of derivatives varies by type of institution. Financial institutions, such as banks, have assets and liabilities of different maturities and in different currencies, and are exposed to different risks of default from their borrowers. Thus, they are likely to use derivatives on interest rates and currencies, and derivatives to manage credit risk. Non-financial institutions are regulated differently from financial institutions, and this affects their incentives to use derivatives. Indian insurance regulators, for example, are yet to issue guidelines relating to the use of derivatives by insurance companies. In India, financial institutions have not been heavy users of exchange-traded derivatives so far, with their contribution to total value of NSE trades being less than 8% in October 2005. However, market insiders feel that this may be changing, as indicated by the growing share of index derivatives (which are used more by institutions than by retail investors). In contrast to the exchange-traded markets, domestic financial institutions and mutual funds have shown great interest in OTC fixed income instruments. Transactions between banks dominate the market for interest rate derivatives, while state-owned banks remain a small presence (Chitale, 2003). Corporations are active in the currency forwards and swaps markets, buying these instruments from banks.

Why do institutions not participate to a greater extent in derivatives markets? Some institutions such as banks and mutual funds are only allowed to use derivatives to hedge their existing positions in the spot market, or to rebalance their existing portfolios. Since banks have little exposure to equity markets due to banking regulations, they have little incentive to trade equity derivatives.11 Foreign investors must register as foreign institutional investors (FII) to trade exchange-traded derivatives, and be subject to position limits as specified by SEBI. Alternatively, they can incorporate locally as a broker-dealer.12 FIIs have a small but increasing presence in the equity derivatives markets. They have no incentive to trade interest rate derivatives since they have little investments in the domestic bond markets (Chitale, 2003). It is possible that unregistered foreign investors and hedge funds trade indirectly, using a local proprietary trader as a front (Lee, 2004). Retail investors (including small brokerages trading for themselves) are the major participants in equity derivatives, accounting for about 60% of turnover in October 2005, according to NSE. The success of single stock futures in India is unique, as this instrument has generally failed in most other countries. One reason for this success may be retail investors’ prior familiarity with “badla” trades which

shared some features of derivatives trading. Another reason may be the small size of the futures contracts, compared to similar contracts in other countries. Retail investors also dominate the markets for commodity derivatives, due in part to their long-standing expertise in trading in the “havala” or forwards markets.