A SUMMER TRAINING REPORT

IN

RELIGARE SECURITIES

ON

EQUITIES–Cash & Derivatives

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT

OF BACHELOR OF BUSINESS ADMINISTRATION (B.B.A)
GURU JAMBESHWAR UNIVERSITY OF SCIENCE &
TECHNOLOGY, HISSAR

TRAINING SUPERVISOR SUBMITTED BY:

MR. ASHISH MISHRA MOUMITA SAMANTA

ENROLLEMNT NO:
08511243085

SESSION: 2008-2011

Directorate of Distance Education

Guru Jambeshwar University of Science & Technology,

Hisar-125001
1
CERTIFICATE

2
CERTIFICATE

3
 DECLARATION

I hereby declare that this training program entitled “A study on Equity market in
RELIGARE “EQUITIES–Cash & Derivatives” is my work, carried out under the
guidance of my guide Mr.Ashish Mishra. This report neither full nor in part has ever been
submitted for award of any other degree of either this university or any other university.

MOUMITA SAMANTA

(2008-2011)

4
 ACKNOWLEDGEMENT

I gratefully acknowledge the expert support and guidance extended to me by

RELIGARE and the guidance of Mr. Ashish Mishra as regards this project and the
subsequent report. There impartial and enlightened guidance and the sophisticated
communication and the commodities knowledge has been on immense help and has been
paramount in this project and report maintaining and further meeting the requisite
standards and the dead lines.

I would like to thanks MS.NISHI AGGARWAL (faculty) our project supervisor

JAGANNATH INSTITUTE OF MANAGEMENT SCIENCES whose able guidance
and whole heart cooperation was a source of immense inspiration without which my
present work could never materialized.

MOUMITA SAMANTA

(2008-2011)

5
 EXECUTIVE SUMMARY

In few years Share Market has emerged as a tool for ensuring one’s
financial well being. Share Markets have not only contributed to the India growth story
but have also helped families tap into the success of Indian Industry. As information and
awareness is rising more and more people are enjoying the benefits of investing in Share
Markets. once people are aware of Share Market investment opportunities, the number
who decide to invest in Share Markets increases to as many as one in every five people.

This Project gave me a great learning experience and at the

same time it gave me enough scope to implement my analytical ability.

The first part gives an insight about Share Market and its various aspects, the Company
Profile, Objective of the study, Research Methodology. One can have a brief knowledge
about Share market and its basics through the project.

The second part of the Project consists of

Friday market analysis collected from past records This Project covers
the topic of “ FRIDAY MARKET INVESTING PLAN ” The data collected
has been well organized and presented. I hope the research findings
and conclusion will be of use.

6
 TABLE OF CONTENT
TOPICS PAGE No.
1. Introduction to industry 9-14
2. Introduction to company 15-56
• Company profile

• Competitors

• Product of the company

• Trading of derivatives
• SWOT analysis
3. Conceptual description 57-62
4. Research methodology 63-67

• Title justification

• Objectives

• Significance of study

• Research Design

• Sampling Methodology
o Sampling unit

o Sampling technique

7
 o Sampling area

o Sampling size

o Limitations

5. Data analysis and interpretation 67-78

6. Facts and findings 79-82
7. Conclusion 83-85
8. Recommendation 86-87
9. Annexure 88-91
10. Bibliography 92-93

INTRODUCTION TO INDUSTRY

In this first instalment, we are going to look at why the stock market exists and explain
how a business goes from being a small, family-owned company to a corporation with
publicly traded stock.

Earnings per Share: The amount of profit to which each share is entitled.
Going Public: Slang for when a company is planning an IPO.
IPO: Short for Initial Public Offering. An IPO is when a company sells stock in itself for
the first time.
Market Cap: The amount of money you would have to pay if you bought ever share of
stock in a company. (To calculate market cap, multiply the number of shares by the price
per share.) Short for Market Capitalization.
Share: A share represents an investor's ownership in a "share" of the profits, losses, and
assets of a company. It is created when a business carves itself into pieces and sells them

8
to investors in exchange for cash.
Ticker Symbol: A short group of letters that represents a particular stock (e.g., "Coca
Cola" is referred to as "KO".) Underwriter: The financial institution or investment bank
that is doing all of the paperwork and orchestrating a company's IPO.

BSE-(BOMBAY STOCK EXCHANGE)

Bombay Stock Exchange Limited (the Exchange) is the oldest stock exchange in Asia
with a rich heritage. Popularly known as "BSE", it was established as "The Native Share
& Stock Brokers Association" in 1875. It is the first stock exchange in the country to
obtain permanent recognition in 1956 from the Government of India under the Securities
Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the
development of the Indian capital market is widely recognized and its index, SENSEX, is
tracked worldwide.

• India's oldest and first stock exchange: Mumbai (Bombay) Stock Exchange.
Established in 1875. More than 6,000 stocks listed.
• Total number of stock exchanges in India: 22.
• They are in: Ahmedabad, Bangalore, Calcutta, Chennai, Delhi etc.
• There is also a National Stock Exchange (NSE) which is located in Mumbai.
• There is also an Over the Counter Exchange of India (OTCEI) which allows
listing of small and medium sized companies.
• The regulatory agency which oversees the functioning of stock markets is the
Securities and Exchange Board of India (SEBI), which is also located in Bombay.
Vision
• "Emerge as the premier Indian stock exchange by establishing global
benchmarks"

NSE-(NATIONAL STOCK EXCHANGE OF INDIA)

The National Stock Exchange (NSE) is India's leading stock exchange covering
various cities and towns across the country. NSE was set up by leading

9
 institutions to provide a modern, fully automated screen-based trading system
with national reach. The Exchange has brought about unparalleled transparency,
speed and efficiency, safety and market integrity.

NSE has played a catalytic role in reforming the Indian securities market in terms
of microstructure, market practices and trading volumes. The market today uses
state-of-art information technology to provide an efficient and transparent trading,
clearing and settlement mechanism, and has witnessed several innovations in
products & services viz. demutualisation of stock exchange governance, screen
based trading, compression of settlement cycles, dematerialisation and electronic
transfer of securities, securities lending and borrowing, professionalization of
trading members, fine-tuned risk management systems.

Securities and Exchange Board of India (SEBI):

The Securities and Exchange Board of India (SEBI) is an autonomous body

established by an act of parliament in 1992. SEBI is controlled by a statutory board
consisting of one chairman and six members. SEBI’s main objective is to protect the
interest of investors, and to regulate all securities market particularly the share
market. SEBI is a market regulator whose major functions include regulation,
superintendence and control of all securities markets in India, overseeing the
functioning of stock exchanges, framing rules for trading practices, attending to and
removing investor grievances, framing rules for and regulating public issues, training
and education of investors, and all matters pertaining to market intermediaries.

Introduction

The stock market can be a great source of confusion for many people. The average person
generally falls into one of two categories. The first believe investing is a form of
gambling; they are certain that if you invest, you will more than likely end up losing your

10
money. Often these fears are driven by the personal experiences of family members and
friends who suffered similar fates or lived through the Great Depression. These feelings
are not ground in facts and are the result of personal experience. Someone who believes
along this line of thinking simply does not understand what the stock market is or why it
exists.

The second category consists of those who know they should invest for the long-run, but
don’t know where to begin. Many feel like investing is some sort of black-magic that
only a few people hold the key to. More often than not, they leave their financial
decisions up to professionals, and cannot tell you why they own a particular stock or
mutual fund. Their investment style is blind faith or limited to “this stock is going up. We
should buy it.” This group is in far more danger than the first. They invest like the masses
and then wonder why their results are mediocre (or in some cases, devastating).

In this series of lessons, I set out to prove that the average investor can evaluate the
balance sheet of a company, and following a few relatively simple calculations, arrive at
what they believe is the “real”, or intrinsic value of the company. This will allow a person
to look at a stock and know that it is worth, for instance, Rs.40 per share. This gives each
investor the freedom to know when a security is undervalued, increasing their long-term
returns substantially. Before we examine how to value a company, it is important to
understand the nature of businesses and the stock market. This is the cornerstone of
learning to invest well.

Business is the cornerstone of every economy. Almost every large corporation started out
as a small, mom-and-pop operation and through growth, became financial giants. Wal-
Mart, Dell Computer, and McDonald’s had combined profits of Rs.10.34 billion this
year. Wal-Mart was originally a single-store business in Arkansas. Dell computer began
with Michael Dell selling computers out of his college dorm room. McDonald’s was once
a small restaurant no one had heard of. How did these small companies grow from tiny,
hometown enterprises to three of the largest businesses in the American economy? They
raised capital by selling stock in themselves.

11
When a company is growing, the biggest hurdle is often raising enough money to expand.
Owners generally have two options to overcome this. They can either borrow the money
from a bank or venture capitalist, or sell part of the business to investors and use the
money to fund growth. Taking out a loan is common, and very useful – to a point. Banks
will not always lend money to companies, and over-eager managers may try to borrow
too much initially, wrecking the balance sheet. Factors such as these often provoke
owners of small businesses to issue stock. In exchange for giving up a tiny fraction of
control, they are given cash to expand the business. In addition to money that doesn’t
have to be paid back, “going public” [as its called when a company sells stock in itself for
the first time], gives the business managers and owners a new tool: instead of paying cash
for an acquisition, they can use their own stock.

To better understand how issuing stock works; let’s look at a fictional company “ABC
Furniture, Inc.”

After getting married, a young couple decided to start a business. It would allow them to
work for themselves, as well as arrange their hours around their family. Both husband
and wife have always had a strong interest in furniture, so they decide to open a store in
their hometown. After borrowing money from the bank, they name their company “ABC
Furniture” and go into business. The first few years, the company makes little profit
because the earnings are plowed back into the store, buying additional inventory and
adding onto the building to accommodate the increasing level of merchandise.

Ten years later, the business has grown rapidly. The couple has managed to pay off the
company’s debt, and profits are over Rs.500,000 per year. Convinced that ABC Furniture
could do as well in several larger, neighboring cities, the couple decides they want to
open two new branches. They research their options and find out it is going to cost over
Rs.4 million dollars to expand. Not wanting to borrow money and be strapped with
interest payments again, they decide to sell stock in the company.

The company approaches an “underwriter”, such as Goldman Sachs or JP Morgan, who

determines the value of the business. As mentioned before, ABC Furniture earns

12
Rs.500,000 after-tax profits each year. It also has a book value of Rs.3 million [the value
of the land, building, inventory, etc. subtracted by the company’s debt] the underwriter
researches and discovers the average furniture stock is trading at 20 times earnings [a
concept we will discuss more in-depth later].

What does this mean? Simply, you would multiply the earnings of Rs.500,000 by 20. In
ABC’s case, the answer is Rs.10 million. Add book value, and you arrive at Rs.13
million. This means, in the underwriter’s opinion, ABC Furniture, is worth thirteen
million dollars.

Our young couple, now in their 30’s, must decide how much of the company they are
willing to sell. Right now, they own 100% of the business. The more they sell, the more
cash they’ll raise, but they will also be giving up a larger part of their ownership. As the
company grows, that ownership will be worth more, so a wise entrepreneur would not
sell more than he or she had to.

After discussing it, the couple decides to keep 60% of the company and sell the other
40% to the public as stock. [This means that they will keep Rs.7.8 million worth of the
business. Because they own a majority of the stock, they will still be in control of the
store.] The other 40% they sold to the public is worth Rs.5.2 million. The underwriters
find investors who are willing to buy the stock, and give a check for Rs.5.2 million to the
couple.

Although they own less of the company, their stake will hopefully grow faster now that
they have the means to expand rapidly. Using the money from their public offering, ABC
Furniture successfully opens the two new stores and have Rs.1.2 million in cash left over
[remember it was going to cost Rs.4 million for the new stores]. Business is even better in
the new branches, which are in more populated cities. The two new stores both make
around Rs.800,000 a year in profit each, with the old store still making the same
Rs.500,000. Between the three stores, ABC now makes an annual profit of Rs.2.1 million
dollars.

13
This is great news because, although they don’t have the freedom to simply close shop
anymore, the business is now valued at Rs.51 million dollars [multiply the new earnings
of Rs.2.1 million per year by 20 and add the book value of Rs.9 million; there are three
stores now, instead of one]. The couple’s 60% stake is worth Rs.30.6 million dollars.

With this example, it’s easy to see how small businesses seem to explode in value when
they go public. The original owners of the company are, in a sense, wealthier overnight.
Before, the amount they could take out of the business was limited to the profit. Now,
they are free to sell their shares in the company at any time, raising cash quickly.

This process is the basis of Wall Street. The stock market is, at its core, a large auction
where ownership in companies just like ABC Furniture is sold to the highest bidder each
day. Because of human nature – the emotions of fear and greed – a company can sell for
far more or less than its intrinsic value. The good investor’s job is to identify those
companies that are selling below their true worth and buy as much as they can.

INTRODUCTION TO COMPANY

RELIGARE SECURITIES: A BRIEF PROFILE

RELIGARE Securities Ltd. (RSL) is a wholly owned subsidiary of RELIGARE
Financial Services Ltd. (RFSL), a Company promoted by the late Dr.Parvinder Singh,
Ex-CMD of Ranbaxy Laboratories Ltd.

The primary focus of Religare Securities Ltd. is to cater to services in Capital Market
Operations to Institutional Investors. The Company is a member of the National Stock
Exchange (NSE) and OTCEI. The growing list of financial institutions with whom RSL
is empanelled as approved Broker is a reflection of the high levels of services maintained
by the Company.

REL operates from seven domestic regional offices, 43 sub-regional offices, and has a
presence in 498* cities and towns controlling 1,837* business locations all over India.

14
To make a mark in the global arena, REL acquired UK-based Hichens, Harrison & Co. in
2008 which was subsequently re-named as Religare Hichens Harrison PLC ("RHH").
Hichens, Harrison & Co. was incorporated in London in the year 1803 and is believed to
be one of the oldest firms of stockbrokers in the City of London. Pursuant to expansion of
REL's business, the company has grown from largely an equity trading company into a
diversified financial services company. With the addition of RHH the REL group now
operates out of multiple global locations, other than India, (the UK, the USA, Brazil,
South Africa, Dubai and Singapore).

RELIGARE was founded with the vision of providing integrated financial care driven by
the relationship of trust. The bouquet of services offered by RELIGARE includes
Broking (Stocks and Commodities), Depository Participant Service, Advisory on Mutual
Fund Investments and Portfolio Management Services.

RELIGARE is a pioneer in the concept of partnership to reach multiple locations in order

to effectively service its large base of individual clients. Besides the reach of
RELIGARE, the clients of the company greatly benefit by its strong research capability,
which encompasses fundamentals as well as technical knowledge.

RELIGARE GROUP:

RELIGARE in recent years has expanded its reach in health care and financial
services wherein it has multiple specialty hospital and labs which provide health care
services and multiple financial services such as secondary market equity services,
portfolio management services, depository services etc.

RELIGARE financial services group comprises of Religare Securities Limited,

RELIGARE Comdex Limited and RELIGARE Finvest Limited which provide services in
Equity, Commodity and Financial Services business & Religare Insurance Advisory Ltd.

RELIGARE SECURITIES LIMITED

15
 1. Member of National Stock Exchange of India and Bombay Stock Exchange of
India.
2. Depository Participant with National Securities Depository Limited (NSDL) and
Central Depository Services Limited (CDSL). A SEBI approved Portfolio
Manager.

RSL provides platform to all segments of the investor to leverage the immense
opportunity offered by equity investing in India either on their own or through managed
funds in Portfolio Management.

The ARN No. of the Religare Securities Ltd. is 33764. The ARN No. is
required by to be available with the broker who deals on behalf of investors or sell the
mutual funds of the different companies present in the market.

About Religare Securities Limited (RSL)

 One of the leading integrated financial services groups of India

 Diverse range of offerings
 Client base of more than 5000,000 and growing across the retail, wealth and
Institutional Spectrum.
 Pan India and global footprint.
 Width and depth of management leading a formidable employee base.
 Best-in-class Research.
 “Sweetly placed” to spot new opportunities and power ahead.

The Religare Edge

 Diverse offerings

16
  Dynamic Management Team
 State-of-the art technology
 Vast Distribution and Reach
 Robust Brand Recognition
 Synergistic partnerships

COMPETITORS

 ICICI Securities Ltd

 KOTAK Securities Ltd

 INDIA Bulls Financial Services Ltd

 HDFC Securities

PRODUCTS

Religare Securities Limited

• Equity Broking

• Online Investment Portal

• Portfolio Management Services

• Depository Services

Religare Commodities Limited

• Commodity Broking

Religare Capital Markets Limited

17
 • Investment Banking

• Proposed Institutional Broking

Religare Realty Limited

• In house Real Estate Management Company

TRADING

Trading on the BOLT System is conducted from Monday to Friday between 9:00 a.m.
and 3:30 p.m. The scrip’s traded on the Exchange have been classified into 'A', 'B1',
'B2','T', ‘S', ‘TS' 'F' ,'G' and 'Z' groups.

The Exchange has for the guidance and benefit of the investors have classified the scrip’s
in the Equity Segment into 'A', 'B1', 'B2','T', ‘S', ‘TS' and 'Z' groups on certain qualitative
and quantitative parameters which include number of trades, value traded, etc.

The “F” Group represents the Fixed Income Securities.

The “T” Group represents scrip's which are settled on a trade to trade basis as a
surveillance measure.

The “S” Group represent scrip’s forming part of the “ BSE-Indonext” segment . The
“TS” Group consists of scrip’s in the “ BSE-Indonext” segment which is settled on a
trade to trade basis as a surveillance measure.

Trading in Govt. Securities for retail investors is done under "G" group.

The 'Z' group was introduced by the Exchange in July 1999 and includes the companies
which have failed to comply with the listing requirements of the Exchange and/or have
failed to resolve investor complaints or have not made the required arrangements with
both the Depositories, viz., Central Depository Services (I) Ltd. (CDSL) and National
Securities Depository Ltd. (NSDL) for dematerialization of their securities.

18
The Exchange also provides a facility to the market participants for on-line trading of
odd-lot securities in physical form in 'A', 'B1', 'B2' ‘T','S', ‘TS' and 'Z' groups and Rights
renunciations in all the groups of scrip’s in the Equity Segment.

With effect from December 31, 2001, trading in all securities listed in equity segment of
the Exchange takes place in one market segment, viz., Compulsory Rolling Settlement
Segment (CRS).

The scrip’s of the companies which are in demat can be traded in market lot of one but
the securities of companies which are still in the physical form are traded on the
Exchange in the market lot of generally either 50 or 100. However, the investors having
quantities of securities less than the market lot are required to sell them as "Odd Lots".
The facility of trading in odd lots of securities not only offers an exit route to investors to
dispose of their odd lots of securities but also provides them an opportunity to consolidate
their securities into market lots.

This facility of selling physical shares in compulsory demat scripts is called an Exit
Route Scheme. This facility can also be used by small investors for selling upto 500
shares in physical form in respect of scripts of companies where trades are required to be
compulsorily settled by all investors in demat mode.

There are many 80 companies listed under Religare securities. All these
securities are divided into different categories of securities different
categories of securities are given below:-

Listed Securities:

The securities of companies which have signed Listing Agreement with the Exchange are
traded at the Exchange as "Listed Securities". Baring a few scrip’s, all scrip’s traded in
the Equity Segment at the Exchange fall in this category.

Permitted Securities:

19
To facilitate the market participants to trade in securities of the companies which are
actively traded at other Regional Stock Exchanges but are not listed on the Exchange, the
Exchange has in April 2002 decided to permit trading in such securities as “Permitted
Securities" provided they meet the relevant norms specified by the Exchange.

Tick Size:

Tick size provided by Religare securities is re 1.

Tick size is the minimum differences in rates between two orders on the same side i.e.,
buy or sell, entered on the system for particular scrip. Trading in scrip’s listed on the
Exchange is done with the tick size of 5 paise.

However, in order to increase the liquidity and enable the market participants to put
orders at finer rates, the Exchange has reduced the tick size from 5 paise to 1 paise in
case of units of mutual funds, securities traded in "F" group and equity shares having
closing price upto Rs. 15/- on the last trading day of the calendar month. Accordingly, the
tick size in various scrip’s quoting upto Rs.15/- is revised to 1 paise on the first trading
day of month. The tick size so revised on the first trading day of month remains
unchanged during the month even if the prices of scrip’s undergo change.

Computation of closing price of scrip’s in the Cash Segment:

The closing price of scrip's is computed by the Exchange on the basis of weighted
average price of all trades executed during the last 30 minutes of the continuous trading
session. However, if there is no trade recorded during the last 30 minutes, then the last
traded price of scrip in the continuous trading session is taken as the official closing
price.

Compulsory Rolling Settlement (CRS) Segment:

As per the directive by SEBI, all transactions in all groups of securities in the Equity
Segment and Fixed Income securities listed on the Exchange are required to be settled on

20
T+2 basis w.e.f. from April 1, 2003. The settlement calendar, which indicates the dates of
the various settlement related activities, is drawn by the Exchange in advance and is
circulated among the market participants.

Under rolling settlements, the trades done on a particular day are settled after a given
number of business days. A T+2 settlement cycle means that the final settlement of
transactions done on T, i.e., trade day by exchange of monies and securities between the
buyers and sellers respectively takes place on second business day (excluding Saturdays,
Sundays, bank and Exchange trading holidays) after the trade day.

The transactions in securities of companies which have made arrangements for

dematerialization of their securities are settled only in demat mode on T+2 on net basis,
i.e., buy and sell positions of a member-broker in the same scrip are netted and the net
quantity and value is required to be settled. However, transactions in securities of
companies, which are in "Z" group or have been placed under "trade to trade" by the
Exchange as a surveillance measure (“T” and “TS” group) , are settled only on a gross
basis and the facility of netting of buy and sell transactions in such scrip’s is not
available.

The Exchange has introduced a new segment named “BSE Indonext” w.e.f. January 7,
2005. “S” group consists of scrips from “B1” & “B2” group on BSE and companies
exclusively listed on regional stock exchanges having capital of 3 crores to 30 crores. All
trades in this segment are done through BOLT system under S group.

The transactions in 'F' group securities representing "Fixed Income Securities" and " G"
group representing Govt. Securities for retail investors are also settled at the Exchange on
T+2 basis.

In case of Rolling Settlements, pay-in and pay-out of both funds and securities is
completed on the same day.

The members are required to make payment for securities sold and/ or deliver securities
purchased to their clients within one working day (excluding Saturday, Sunday, bank &

21
Exchange trading holidays) after the pay-out of the funds and securities for the concerned
settlement is completed by the Exchange. This is the timeframe permitted to the members
of the Exchange to settle their funds/ securities obligations with their clients as per the
Byelaws of the Exchange.

The following table summarizes the steps in the trading and settlement cycle for scrip’s
under CRS

 DAY ACTIVITY

T Trading on BOLT and daily downloading of

statements

Downloading of provisional securities and

funds obligation statements by
s
h
o
w
i
n
g

d
e
t
a
i
l
s

22
f
t
r
a
n
s
a
c
t
i
o
n
s

a
n
d

m
a
r
g
i
n
s

a
t
t
h
e

23
e
n
d

o
f
e
a
c
h

t
r
a
d
i
n
g

d
a
y
.

6A/7A

M
e
m

24
 b
e
r
-
b
r
o
k
e
r
s
.

T+1 
C

n statements by members.

T+2 Pay-in of funds and securities by 11:00 a.m.

and pay-out of funds and securities by 1:30
p.m. The member-bro

vary by 10: 30 a.m.

T+3 
A

LT at 11.00 a.m.

25
 T+4 Auction pay-in and pay-out of funds and
securities by 12:00 noon and 1:30

Thus, the pay-in and pay-out of funds and securities takes places on the second
business day (i.e., excluding Saturday, Sundays and bank & Exchange trading holidays)
of the day of the execution of the trade.
* 6A/7A : A mechanism whereby the obligation of settling the transactions done by a
member-broker on behalf of a client is passed on to a custodian based on confirmation of
latter. The custodian can confirm the trades done by the members on-line and upto 11
a.m. on the next trading day. The late confirmation of transactions by the custodian after
11:00 a.m. upto 12:15 p.m., on the next trading day is, however, permitted subject to
payment of charges for late confirmation @ 0.01% of the value of trades confirmed or
Rs. 10,000/-, whichever is less.

The settlement of the trades (money and securities) done by a member-broker on his own
account or on behalf of his individual, corporate or institutional clients may be either
through the member-broker himself or through a SEBI registered custodian appointed by
him/client. In case the delivery/payment in respect of a transaction executed by a
member-broker is to be given or taken by a registered custodian, then the latter has to
confirm the trade done by a member-broker on the BOLT System through 6A-7A entry.
For this purpose, the custodians have been given connectivity to BOLT System and have
also been admitted as clearing member of the Clearing House. In case a transaction done
by a member-broker is not confirmed by a registered custodian within the time permitted,
the liability for pay-in of funds or securities in respect of the same devolves on the
concerned member-broker.

The following statements can be downloaded by the members in their back offices on a
daily basis.

a. Statements giving details of the daily transactions entered into by the members.

26
 b. Statements giving details of margins payable by the member-brokers in respect of
the trades executed by them.

c. Statements of securities and fund obligation.

d. Delivery/Receive orders for delivery /receipt of securities.

The Exchange generates Delivery and Receive Orders for transactions done by the
members in A, B1, B2, S and F and G group scrip’s after netting purchase and sale
transactions in each scrip whereas Delivery and Receive Orders for “T”, “TS”,"C" & "Z"
group scrip’s and scrip’s which are traded on the Exchange on "trade to trade" basis are
generated on gross basis, i.e., without netting of purchase and sell transactions in a scrip.
However, the funds obligations for the members are netted for transactions across all
groups of securities.

The Delivery Order/Receive Order provides information like the scrip and quantity of
securities to be delivered/received by the members through the Clearing House. The
Money Statement provides scrip wise/item wise details of payments/receipts of monies
by the members in the settlement. The Delivery/Receive Orders and Money Statement, as
stated earlier, can be downloaded by the members in their back office.

Settlement
Pay-in and Pay-out for 'A', 'B1', 'B2', ‘T’, ‘S’, ‘TS’, 'C', "F", "G" & 'Z' group
of securities.

The trades done on BOLT/Exchange by the members in all the securities in CRS are now
settled on the Exchange by payment of monies and delivery of securities on T+2 basis.
All deliveries of securities are required to be routed through the Clearing House,

The Pay-in /Pay-out of funds based on the money statement and that of securities based
on Delivery Order/ Receive Order issued by the Exchange are settled on T+2 day.

Demat pay-in :
27
The members can effect pay-in of demat securities to the Clearing House through either
of the Depositories i.e. the National Securities Depository Ltd. (NSDL) or Central
Depository Services (I) Ltd. (CDSL). The members are required to give instructions to
their respective Depository Participants (DPs) specifying details such as settlement no.,
effective pay-in date, quantity, etc.

Members may also effect pay-in directly from the clients' beneficiary accounts through
CDSL. For this, the clients are required to mention the settlement details and clearing
member ID through whom they have sold the securities. Thus, in such cases the Clearing
Members are not required to give any delivery instructions from their accounts.

In case, if a member-broker fails to deliver the securities, then the value of shares
delivered short is recovered from him at the standard/closing rate of the scrip’s on the
trading day.

Auto delivery facility :

Instead of issuing Delivery instructions for their securities delivery obligations in demat
mode in various scrip’s in a settlement /auction, a facility has been made available to the
members of automatically generating Delivery instructions on their behalf from their CM
Pool accounts maintained with NSDL and CM Principal Accounts maintained with
CDSL. This auto delivery facility is available for CRS (Normal & Auction) and for trade
to trade settlements. This facility is, however, not available for delivery of non-pair passu
shares and shares having multiple ISINs. The members wishing to avail of this facility
have to submit an authority letter to the Clearing House. This auto delivery facility is
currently available for Clearing Member (CM) Pool accounts and Principal accounts
maintained by the members with the respective depositories .

Pay-in of securities in physical form

In case of delivery of securities in physical form, the members have to deliver the
securities to the Clearing House in special closed pouches along with the relevant details

28
like distinctive numbers, scrip code, quantity, etc., on a floppy. The data submitted by the
members on floppies is matched against the master file data on the Clearing House
computer systems. If there is no discrepancy, then the securities are accepted.

Funds Pay-in:

The bank accounts of members maintained with the clearing banks, viz., Bank of India,
HDFC Bank Ltd., Oriental Bank of Commerce., Standard Chartered Bank, Centurion
Bank Ltd., UTI Bank Ltd., ICICI Bank, Indusind Bank Ltd., Union Bank of India and
Hongkong Shanghai Banking Corporation Ltd. are directly debited through computerized
posting for their funds settlement obligations.

In case of those members, whose funds pay-in obligations are not cleared at the
scheduled time, action such as levy of penalty and/or deactivation of BOLT TWSs, is
initiated as per penalty norms prescribed .

Securities Pay-out:

In case of demat securities, the same are credited by the Clearing House in the
Pool/Principal Accounts of the member-brokers. The Exchange has also provided a
facility to the member-brokers for transfer of pay-out securities directly to the clients'
beneficiary owner accounts without routing the same through their Pool/Principal
accounts in NSDL/ CDSL. For this, the concerned member-brokers are required to give a
client wise break up file which is uploaded by the member-brokers from their offices to
the Clearing House. Based on the break up given by the member-brokers, the Clearing
House instructs depositories, viz., CDSL & NSDL to credit the securities to the
Beneficiary Owners (BO) Accounts of the clients. In case delivery of securities received
from one depository is to be credited to an account in the other depository, the Clearing
House does an inter depository transfer to give effect to such transfers.
In case of physical securities, the Receiving Members are required to collect the same
from the Clearing House on the pay-out day.

29
Funds Payout:

The bank accounts of the members having pay-out of funds are credited by the Clearing
House with the Clearing Banks on the pay-in day itself
In case, if a member-broker fails to deliver the securities, then the value of shares
delivered short is recovered from him at the standard/closing rate of the scrips on the
trading day.

Dematerialization of shares:

In Religare dematerialize only those certificates that are already registered in your name
and are in the list of securities admitted for dematerialization at NSDL. All the scripts
included in S&P, CNX, NIFTY and BSE SENSEX have already joined NSDL. This list
has more than 7,000 companies and is steadily growing. You can get an updated list of
these companies from your DP or from NSDL website at www.nsdl.co.in

Dematerialization as the name suggests, is a term used for conversion of shares from their
physical form to electronic form. This conversion is done by NSDL and CDSL. The
CDSL acts as a depository for BSE, whereas the NSDL acts as a depository for NSE.
After dematerialization, shares cease to exist in their physical form.

Merits of dematerialization:

 No risk of being fake or stolen shares.

 No stamp duty while transfer of shares.
 Free from tedious paperwork as it was in the physical form.

Rematerialization: Rematerialization is the reverse of dematerialization. It means

to convert the electronically held shares back into physical form. You have the complete
freedom of conversion from electronic form to physical form whenever you want to do
so.

OPEN INTEREST IN DERIVATIVE MARKET

30
Open interest means the total number of open contracts on a security, that is, the number
of future contracts or options contracts that have not been exercised, expired or full filled
by delivery. Hence we can say that the open interest position at the end of each day
represents the net increase or decrease in the number of contracts for that day. However,
it is to be noted that open interest is not the same as trading volume. Trading volume
represents the total number of contracts that are traded during a day, inclusive of both
squared –off (closed) positions and new positions. Thus, for any day, the trading volume
will always be higher than the open interest.

What is open interest?

Every trade in the exchange would have an impact on the open interest for that day. Say,
for example, “A” buys one contract of Nifty on Monday while “B” buys two on the same
day. Open interest at the end of the day will be three. On Tuesday, while “A” sells his
one contract to “C”, “B” buys another Nifty contract. The open interest at the end of the
day is now four. In other words, if both parties to the trade initiate a new position, it
increases the open interest by one contract.

But if the traders square off their existing positions, Open interest will decrease by the
same number of contracts.

However, if one of the parties to the transaction squares off his position while the other
creates one open interest will remain unchanged. Open interest, thus, mirrors the flow of
money into the derivatives market, which makes it a vital indicator of market direction.

RISING MARKET AND INCREASING OPEN INTEREST

If the markets are on an uptrend and open interest is also increasing, it it’s a bullish
signal. It implies the entry of new players into the market, who are creating fresh long
positions and suggests the flow of extra money into the market.

RISING MARKET AND DECREASING OPEN INTEREST

31
If despite a rise in market, the open interest decreases, it can be interpreted as a precursor
to a trend reversal. The lack of additions to open interest shows that the markets are rising
on the back of short-sellers covering their existing positions. This also implies that money
is flowing out of the market, given that open interest is decreasing.

FALLING MARKET AND INCREASING OPEN INTEREST

When open interest records an increase in value amidst falling market, it could be a
bearish signal. Though a rise in open interest means that new money is probably being
used for creating fresh short positions, which will lead to a further downtrend.

FALLING MARKET AND DECREASING OPEN INTEREST

If open interest decreases in a falling market, it can be attributed to the forced squaring-
off of long – positions by traders. It, thus, represents a trend reversal, since the downtrend
in the market is likely to reverse after the long positions have been squared off. Thus, in a
falling market, a declining open interest can be considered a signal indicating the
strengthening of the market.

SIDEWAYS MARKET AND INCRESING OPEN INTEREST

If the open interest decreases in a sideways market, we can say that flat market trends
will continue for some more time. A decrease in open interest only represents the
squaring-off of old positions and lack of any new positions might result in a sideways or
weak trends in the market.

Though open interest is a good barometer of where the markets are heading; it is only an
indicator that helps us trade intelligently it cannot be considered foolproof.

THE INDEX NUMBER

An index is a number which measures the change in a set of values over a period of time.
A stock index represents the change in value of a set of stocks which constitute the index.
More specifically, a stock index number is the current relative value of a weighted

32
average of the prices of a pre-defined group of equities. It is a relative value to the
weighted average of prices at some arbitrarily chosen starting date or base period. The
starting value or base of the index is usually set to a number such as 100 or 1000. for
example the base value of the Nifty was set to 1000 on the start date of November 3,
1994.

A good stock market index is on which captures the behaviour of the overall equity
market. It should represent the market, it should be well diversified and yet highly liquid.
Movements of the index should represent the returns obtained by “typical” portfolios in
the country.

A market index is very important for its use

 As a barometer for market behaviour,

 As a benchmark portfolio performance,
 As an underlying in derivative instruments like index futures,
 In passive fund management by index funds
 Also acts a barometer for lot of elements such as liquidity in the market, the
growth of the economy, the investor’s confidence, government policies etc.

DESIRABLE ATTRIBUTE OF AN INDEX

A good market index should have the following attributes:

 It should capture the behaviour of a large variety of different portfolios in the

market.
 The stocks included in the index should be highly liquid.
 It should be professionally maintained.

Capturing Behaviour Of Portfolios

A good market index should accurately reflect the behaviour of the overall market as well
as of different portfolios. This is achieved by diversification in such a manner that a
portfolio is not vulnerable to any individual stock or industry risk. A well diversified
index is more representative of the market. However there is diminishing returns form

33
diversification, there is very little gain by diversifying beyond a point; the more serious
problem lies in the stocks that are included in the index when it is diversified. We end up
including illiquid stocks, which actually worsen the index. Since an illiquid stock does
not reflect the current price behaviour of the market, its inclusion in index results in an
index, which reflects, delayed or stale price behaviour rather than current price behaviour
of the market.

Including Liquid Stocks

Liquidity is much more than trading frequency, it is about ability to transact at a price,
which is very close to the current market price. For example, a stock is considered liquid
if one can buy some shares at around Rs.120.05 and sell at around Rs.119.95, when the
market price is ruling at Rs.120. a liquid stock has very tight bid ask spread.

Maintaining Professionally

It is now clear that an index should contain as many stocks with as little impact cost as
possible. This necessarily means that the same set of stocks would not satisfy these
criteria at all times, a good index methodology must therefore incorporate a steady pace
of change in the index set. It is crucial that such changes are made at a steady pace. It is
very healthy to make a few changes every year, each of which is small and does not
dramatically alter the character of the index, on a regular basis, the index set should be
reviewed, and brought inline with the current state of market, to meet the application
needs of users, a time series of the index sold be available.

Impact cost

Market impact cost is a measure of the liquidity of the market. It reflects the costs faced
when actually trading an index. For a stock to qualify for possible inclusion into the
index, it has to have market impact cost of below 0.75% when doing Nifty trades of half

34
a crores rupees. The market impact cost on a trade of Rs.3 million of the full Nifty works
out to be about 0.05%. This means that if Nifty is at 4000, a buy order goes through at
4002, i.e. 4000+ (4000*0.0005) and a sell order gets 3998 i.e. 4000-(4000*0.0005)

FUTURES AND OPTIONS

An option is different form futures in several ways. At practical level, the option buyer
faces an interesting situation. He pays for the options in full at the time it is purchased.
After this, he only has an upside. There is no possibility of the options position
generating any further losses to him. This is different form futures, which is free to enter
into, but can generate very large losses. This characteristic makes options attractive to
many occasional market participants, who cannot put in the time to closely monitor their
futures positions.

Buying put options is buying insurance. To buy a put option on Nifty is to buy insurance
which reimburses the full extent to which Nifty drops below the strike price of the put
option. This is attractive to many people, and to mutual funds creating “guaranteed return
products”.

TRADING UNDERLYING VERSUS TRADING SINGLE

STOCK FUTURES
35
The single stock futures market in India has been a great success story across the world.
NSE ranks first in the world in terms of number of contracts traded in single stock
futures. One of the reasons for the success could be the ease of trading and settling these
contracts.

To trade securities, a customer must open a security trading account with a securities
broker and a demat account with a securities depository. Buying security involves putting
up all the money upfront. With the purchase of shares of a company, the holder becomes
a part owner of the company. The shareholder typically receives the rights and privileges
associated with the security, which may include the receipt of dividends, invitation to the
annual shareholders meeting and the power to vote.

Selling securities involves buying the security before selling it. Even in cases where short
selling is permitted, it is assumed that the securities broker owns the security and then
“lends” it to the trader so that he can sell it, besides, even if permitted, short sales on
security can only be executed on an uptick.

To trade futures, a customer must open a futures trading account with a derivatives
broker. Buying futures simply involves putting in the margin money. They enable the
futures traders to take a position in the underlying security without having to open an
account with a securities broker. With the purchase of futures on a security, the holder
essentially makes a legally binding promise or obligation to buy the underlying security
at some point in the future. Security futures do not represent ownership in a corporation
and the holder is therefore not regarded as a shareholder.

DERIVATIVE MARKET AT NSE

The derivatives trading on the NSE commenced with S&P CNX Nifty Index futures on
June 12, 2000. The trading in index options commenced on June 4, 2001 and trading in
options on individual securities commenced on July 2, 2001. Single stock futures were
launched on November9, 2001. Today, both in terms of volume and turnover, The mini
derivative Futures & Options contract on S&P CNX Nifty was introduced for trading on

36
January 1, 2008 while the long term option contracts on S&P CNX Nifty were introduced
for trading on March 3 2008

NSE is the largest derivatives exchange in India.

Currently, the derivatives contracts have a maximum of 3-month expiration cycles.

Three contracts are available for trading, with 1 month, 2 months and 3 months expiry.

A new contract is introduced on the next trading day following the expiry of the near
month contract.

INDEX DERIVATIVES

Index derivatives are derivative contracts which have the index as the underlying. The
most popular index derivatives contract the world over is index futures and index options.
NSE’s market index, the S&P CNX Nifty was scientifically designed to enable the launch
of index- based products like index derivatives and index funds. The first derivative
contract to be traded on NSE’s market was the index futures contract with the Nifty as the
underlying. This was followed by Nifty options and thereafter by sectoral indexes, CNX
IT and BANK Nifty contracts.

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 months expiry cycles which
expire on the last Thursday of the month. Thus a January expiration contract expires on
the last Thursday of January.

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.

37
CONTRACT SIZE: The amount of asset that has to be delivered under one contract.
For instance, the contract size on NSE’s 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.

INITIAL MARGIN: the amount that must be deposited in the margin account at the
time a futures contract is first entered into is known as initial margin.

MARKET TO MARKET: in the futures market, at the end of each trading day, the
margin account is adjusted to reflect the investor’s gain or loss depending upon the
futures closing price. This is called Marking-to-market.

MAINTENANCE MARGIN: This is somewhat lower than the initial margin. This is
set to ensure that the balance in the margin account never becomes negative. If the
balance in the margin account falls below the maintenance margin, the investor receives a
margin call and is expected to top up the margin account to the initial margin level before
trading commences on the next day.

A futures contract is different from the underlying stock in the following ways:

 When we buy a stock, we pay the full value of the transaction (i.e. the number of
shares multiplied by market price of each share) whereas in futures we pay only
the margin which is a fraction of the total transaction value.
 There is no time limit of settlement in cash market but in case of futures contracts,
they are dated. An Indian futures settlement currently takes place on the last
Thursday of every month. So the current month’s futures expire on the month’s
last Thursday. If a trader has to carry his position to the next month, he has to
shift his position to the next month’s future.

38
  One can only go long in the spot market. We cannot short sell unless we borrow
the stock, something which is neither cheaper nor convenient whereas one can go
long or short on the futures depending on his short term view of the markets.
 The cash market has a lot of none, i.e. a person can buy any stock in the multiple
of one unit where as a futures contract is the smallest unit which one can trade in
the futures market.
 There is no way of taking a position on the index through the cash market
whereas futures facilitate trading of index futures.
A futures contract price is the sum of cash price and the monthly cost of carry. The
cost of carry should always be positive because a futures trade is really a carried forward
product similar to the erstwhile badla. But just as badla rates sometimes become negative
when the market sentiment is bearish, the cost of carry can also similarly be negative
when the sentiment is poor.

Business growth of futures and options market: Turnover (in crores)

Month Index futures Index options Stock options Stock futures

Jun-00 35 0 0 0

Jun-01 590 195 0 0

Jun-02 2,123 389 4,642 16,178

Jun-03 9,348 1,942 15,042 46,505

Jun-04 64,017 8,473 7,424 78,392

Jun-05 77,218 16,133 14,799 1,63,096

Jun-06 2,43,572 57,969 11,306 2,43,950

Jun-07 2,40,797 92,503 21,928 4,51,314

Jun-08 3,77,939 3,08,709 21,430 3,75,987

39
Source: NCFM Derivative Module Work Book

ELIGIBILITY FOR ANY STOCK TO ENTER IN DERIVATIVE

MARKET

 Non promoter holding (free float capitalization) should not be less than Rs.750
crores for the last 6 months.
 Daily Average Trading value should not be less than 5 crores in last 6 months
 It must be traded least 90% of Trading days in last 6 months.
 Non Promoter Holding must at least be 30%
 BETA should not be more than 4 (for previous 6 months)

TRADING MECHANISM

The futures and 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 nation wide basis and an online monitoring and surveillance
mechanism. It supports an anonymous order driven market which provides complete
transparency of trading operations and operates on strict price-time priority. It is similar
to that of trading of equities in the cash market segment. The NEAT-F&O trading system
is accessed by two types of users. The trading members have access to functions such as
order entry, order matching, order and trade management. It provides tremendous
flexibility to users in terms of kinds of orders that can be placed on the system. various
conditions like Immediate or Cancel, Limit/Market price, Stop loss, etc. can be built into
an order. The clearing members use the trader workstation for the purpose of monitoring
the trading members for whom they clear the trades. Additionally, they can enter and set
limits to positions, which a trading member can take.

VOLUMES

The trading volumes on NSE’s derivatives market have seen a steady increase since the
launch of the first derivatives contract, i.e. index futures in June 2000. The average daily

40
turnover at NSE now exceeds Rs.35000 crores. A total of 216,883,573 contracts with a
total turnover of Rs. 7,356,271 crores were traded during 2006-2007.

INDEX DERIVATIVES FOR HEDGING

To understand the use and functioning of the index derivatives markets, it is necessary to
understand the underlying index. By looking at an index, we know how the market is
faring. Index derivatives allow people to cheaply alter their risk exposure to an index
(hedging) and to implement forecasts about index movements (speculation). Hedging
using index derivatives has become a central part of risk management in the modern
economy.

Pricing the Futures

A futures price can be simply derived by applying the cost of carry logic, by which the
fair value of a futures contract can be determined. Every time the observed price deviates
from the fair value, arbitragers would enter into trades to capture the arbitrage profit. This
in turn would push the futures price back to its fair value. The cost of carry model used
for pricing futures is as follows:

F=SerT

Where:

r= cost of financing continuously compounded interest rate

T= Time till expiration in years

e= 2.71828

Example:

Security XYZ ltd trades in the spot market at Rs. 1150. Money can be invested at 11%
p.a. The fair value of a one month futures contract on XYZ is calculated as follows:

F = SerT

41
=1150*e0.11*1/12

=1160

INITIAL MARGIN

 At the inception of a contract every client is required to pay initial margin. This
margin is must to every trading member.
 Initial margins are charged on Trade by Trade basis
 Initial margins are charged by NSCCL
 Initial margins are charged for the purpose of recovery and safe guard against the
fluctuation in the market.
 A future value is calculated on cost of carry model.

INITIAL MARGINS CHARGED ON F&O MARKET

Index futures: 5%

Index options: 3%

Stock options: 7.5%

CONVERGENCE OF FUTURES PRICE TO SPOT PRICE

As the delivery month of a futures contract is approached, the futures price converges to
the spot price of the underlying asset. When the delivery period is reached, the futures
price equals or is very close to the spot price.

To see why this so, we first suppose that the futures price is above the spot price during
the delivery period. Traders then have a clear arbitrage opportunity:

 Short a futures contract

 Buy the asset
 Make the delivery
These steps are certain to lead to a profit equal to the amount by which the futures price
exceeds the spot price. As traders exploit this arbitrage opportunity, the futures price will

42
fall. Suppose next that the futures price is below the spot price during the delivery period.
Companies interested in acquiring the asset will find it attractive to enter into a long
futures contract and then wait for delivery to be made. As they do so, the futures price
will tend to rise. The result is that the futures price is very close to the spot price during
the delivery period.

The convergence of the futures price to the spot price when future price is
above the spot price can be pictorially represented

The convergence of the futures price to the spot price when future price is below the
spot price can be pictorially represented as follows:

43
MARK TO MARKET (MTM) MARGINS

 MTM margin is charged on continuous Basis t the end of each day on Daily basis
of cumulative net outstanding open position.
 CM (clearing member) is responsible to collect and settle the daily MTM Margins
(Profits/loss) from their trading members according to their open positions.
 TM (Trading Member) are responsible to collect and settle the daily MTM
margins for pay in/ pay out of their clients according to the clients open position.
 For calculating MTM margin future last ½ hour average price is takes, if it is not
traded on that day or last half hour MTM is calculated on theoretical price model.
 MTM margin balance at the yearend shown in current asset account.

OPEN INTEREST CALCULATION

Open interest means out standing orders of (long position + short position)

Contracts in a particular point of time.

44
OPEN INTEREST CALCULATION (EXAMPLE)

200(Total buy)-400(total sell) = 200 short (net position)

Client Open Position

Client A 400(Total buy) - 200(total sell) = 200 long net position

Client B 200(total buy) - 400(total sell) = 200 short net position

Client C 500(total buy) - 400(total sell) = 100 long net position

= 500 long + short

Trading Member Total Open Position = 700 long+ short

Clearing member open position: All trading member open position and custodial
participants

OPTIONS

An option is a contract, or a provision of a contract, that gives one party (the option
holder) the right, but not the obligation, to perform a specified transaction with another
party (the option issuer or option writer) according at specified terms. The owner of a
property might sell another party an option to purchase the property any time during the
next three months at a specified price. For every buyer of an option there must be a seller.
The seller is often referred to a s the writer. As with futures, options are brought into
existence by being traded, if none is traded, none exists; conversely, there is no limit to
the number of option contracts that can be in existence at any time. As with futures, the
process of closing out options positions will cause contracts to cease to exist, diminishing
the total number.

Thus an option is the right to buy or sell a specified amount of a financial instrument at a
pre- arranged price on, or before, a particular date.

45
There are two options which can be exercised:

 Call option, a right to buy is referred to as a call option.

 Put option, the right to sell is referred as a put option.

OPTION TERMINOLOGY

INDEX OPTIONS: these options have the index as the underlying. Some options are
European while others are American. European style options can be exercised only on the
maturity date of the option, which is known as the expiry date. An American style option
can be exercised at any time up to, and including, the expiry date. It is to be noted that the
distinction has nothing to do with geography. Both type of the option are traded
throughout the world

STOCK OPTIONS: Stock options are options on individual stocks. A contract gives the
holder the right to buy or sell shares at the specified price.

BUYER OF AN OPTION: the buyer of an option is the one who by paying the option

premium buys the right but not the obligation to exercise his options on the seller/writer.

WRITER OF AN OPTION: The writer of a call/put option is the one who receives the
option premium and is thereby obliged to sell/buy the asset if the buyer exercised on him.

STRIKE PRICE: the price specified in the options contract is known as the strike price
or the exercise price.

IN THE MONEY OPTION: An in the money option is an option that would lead to a
positive cash flow to the holder if it were exercised immediately. A call option on the
index is said to be in-the-money (ITM) when the current index stands at a level higher
than the strike price (i.e. spot price> strike price). If the index is much higher than the
strike price, the call is said to be deep ITM.. In the case of a put, the put is ITM if the
index is below the strike price.

46
AT THE MONEY OPTION: An at the money option is an option that would lead to
zero cash flow if it were exercised immediately. An option on the index is at the money
when the current index equals the strike price (i.e. spot price = strike price).

OUT OF THE MONEY OPTION: An out of the money (OTM) option is an option
that would lead to a negative cash flow if it were exercised immediately. A call option on
the index is out of the money when the current index stands at a level which is less than
the strike price(i.e. spot price < strike price). If the index is much lower than the strike
price, the call is said to be deep OTM. In the case of a put, the put is OTM if the index is
above the strike price.

INTRINSIC VALUE OF AN OPTION: The option premium can be broken down into
two components- intrinsic value and time value. The intrinsic value of a call is the
amount the option is ITM, if it is ITM. If the call is OTM, its intrinsic value is zero.

TIME VALUE OF AN OPTION: The time value of an option is the difference between
its premium and its intrinsic value. Usually, the maximum time value exists when the
option is ATM. The longer the time to expiration, the greater is an option’s time value, or
else equal. At expiration, an option should have no time value.

STRATEGIES IN FUTURES AND OPTIONS

The following are the four basic strategies in options market which can be further
designed in combination of one or more of the basic strategies, but all the complex
strategies are based on the following 4 basic kind of strategies, so the understanding of
these 4 strategies is very essential before we go any further:

BUYING A CALL OPTION

A buyer of the option paying a premium (price) for the option to buy a specified quantity
at a specified price any time prior to the maturity of the option.

We can consider the live example of taking a call option of GMR Infrastructure at a strike
price of Rs.500 , a call can be taken upto a duration of 3 months from now. Here we have
taken a call at the strike price of Rs.500, at a premium of Rs. 25 on 01-06-2009.

47
The following is the tabulation of the payoffs at expiration.

STOCK PRICE GROSS PAYOFF NET PAYOFF ON

ON EXPIRY ON OPTION OPTION
Table: A
400 0 -25

450 0 -25

500 0 -25

550 50 25
The following is the
600 100 75 graphical
650 150 125 representation of
700 200 175 the above strategy:

750 250 225

CALL OPTION PAYOFF

300
250
200
PAYOFF

150 GROSS PAYOFF

100 NET PAYOFF

50
0
-50
400 450 500 550 600 650 700 750
PRICE

In the above example when GMR falls to a price of Rs.400, the buyer of the option can
purchase the share from the market at Rs.400 without exercising the right to buy the stock
at Rs.500. However, on that he incurs a loss of Rs.25 as the premium being paid for the
option remaining unexercised. But suppose that the share prices rise to Rs.750 then the
holder of the option has the right to purchase that share at a price of Rs.500 form the
seller of the option. In this case any price level above Rs.525 (500+25), which is the

48
breakeven point, results in a profit for the buyer of the option. Investment in the above
option is Rs.25*1000=Rs.25000.

In the above diagram we can notice that the payoffs are one to one after the price of the
underlying security rises above the exercise price. When the security price is less than the
exercise price, the option is referred to as out of the money.

Form the above figure it can be seen that the investor who is already long i.e. holds a
stock bears a loss only to the extent of Rs.25 because no matter if the share price fall
below Rs.500 the investor is not holding any stock. Once the investor is either long or
short the stock he can adopt any of these strategies to hedge his risk.

The above strategy was applied in the month of June

The following are the updates:-

TABLE:-B

DATE STRIKE OPEN HIGH LOW

PRICE

01-06-2010 500 27 27 23

15-06-2010 500 54 64.75 52.45

21-06-2010 500 99 104.50 99

27-06-2010 500 200.90 249 200.90

49
As it can be seen from the above table that the call option price of the stock has given a
fantastic return of over 900% on investment of Rs.25000 only. Here the risk of the above
investment was limited only to Rs.25000

BUYING A PUT

The second strategy is the put strategy where the buyer of the put option has to pay a
premium(price) for the option to sell a specified quantity at a specified price any time prior to
the maturity of the option. Here we take the example of buying a put option on the stock of
AIR DECCAN. The exercise price was Rs.140. The premium paid on the above option was
Rs.4.10 on 04-06-2009. investment in the above strategy is Rs.4.10*2500=Rs.10,250.

The pay off form a put can be illustrated. Notice that the payoffs are one to one when the
price of the security is less than the exercise price.

PRICE GROSS PAYOFF NET PAYOFF

110 30 24.9

120 20 14.9

130 10 4.9

140 0 -4.1

150 0 -4.1

160 0 -4.1

170 0 -4.1

Table: C

Following are the update of the above option

DATE STRIKE PRICE OPEN HIGH LOW

04-06-2010 140 4.40 4.40 4.40

07-06-2010 140 4.00 4.00 4.00

08-06-2010 140 4.90 8.75 4.90

27-06-2010 140 6.75 6.75 6.75

Table: D

The following is the graphical representation of the above strategy:

50
 PUT OPTION PAYOFF

35
30
25
20

PAYOFF
15 GROSS PAYOFF
10 NET PAYOFF
5
0
-5
-10
110 120 130 140 150 160 170
PRICE

A put option is a contact giving its owner the right to sell a fixed amount of a specified
underlying asset at a price at any time on or before a fixed date. On the expiration date, the
value of the put on a per share basis will be the larger of the exercise price minus the stock
price or zero.

In the above diagram we can notice how the down side risk is minimized if the stock is
volatile and the share prices may fall.

Here an investor will get profits only if the stock falls below Rs.134.9

In this option the investor has gained 64.6% within a month.

WRITING THE CALL OPTIONS

A call option gives the buyer the right to buy the underlying asset at the strike price specified
in the option. For selling the option, the writer of the option charges a premium. The
profit/loss that the buyer makes on the option depends on the spot price of the underlying.
Whatever is the buyer’s profit is the seller’s loss. If upon expiration, the spot price exceeds
the strike price, the buyer will exercise the option on the writer. Hence as the spot price
increases the writer of the option starts making losses. Higher the spot price more is the loss
he makes, if upon expiration the spot price of the underlying is less than the strike price, the
buyer lets his option expire unexercised and the writer gets to keep the premium.

As the options are always costly at the beginning of the month we have written a call option
on CAIRN INDIA LIMITED ON 1st of June at a strike price of Rs.140 with a premium of
Rs.8.5,

Following is the payoff chart for the above option:

51
 PRICE GROSS PAYOFF NET PAYOFF

110 0 8.5

120 0 8.5

130 0 8.5

140 0 8.5

150 -10 -1.5

160 -20 -11.5

170 -30 -21.5

Table: E

Following are the updates of the option rates in the market:

DATE STRIKE PRICE OPEN HIGH LOW

01-Jun-2010 140.00 8.5 8.5 8.5

12-Jun-2010 140.00 2.4 4.2 2.1

20-Jun-2010 140 4.35 4.85 2.35

28-Jun-2010 140 4.30 4.90 4.2

Table: F

The following is the graphical representation of the above strategy:

CALL WRITTING PAYOFF CHART

15
10
5
0
PAYOFF

-5
GROSS PAYOFF
-10
-15 NET PAYOFF
-20
-25
-30
-35
110 120 130 140 150 160 170
PRICE

52
 From the above we can notice that the liability is potentially unlimited when a investor are
writing options.

15 Here we can see that the investment in this option is nil, as the call writer will get the
premium at which he is writing. The net return on this option at the expiry period was
Rs.10,624.

WRITING OF PUT OPTIONS

A put option gives the buyer the right to sell the underlying asset at the strike price specified
in the option. For selling the option, the writer of the option charges a premium, the
profit/loss that the buyer makes on the option depends on the spot price of the underlying.
Whatever is the buyer’s profit is the seller’s loss. If upon expiration, the spot price of the
underlying happens to be below the strike price, the buyer will exercise the option on the
writer. If upon the expiration the spot price of the underlying is more than the strike price, the
buyer lets his option expire un-exercised and the writer gets to keep the premium.

The put writer will first get a premium of amount Rs.9375

Following is the payoff chart of writing the put option

PRICE GROSS PAYOFF NET PAYOFF

650 -150 -125

700 -100 -75

750 -50 -25

800 0 25

850 0 25

900 0 25

Table: G

53
The following is the graphical representation of the above strategy:

WRITINGPUT OPTION PAYOFF

50

0
PAYOFF

-50 GROSS PAYOFF

-100 NETPAYOFF

-150

-200
650 700 750 800 850 900
PRICE

As with the written call, the upside is limited to the premium of the option (the initial price).
The downside is limited to the minimum asset price-which is zero. We can clearly see from
these diagrams that the investor, depending upon his risk appetite and the outlook about the
market conditions, can minimize his losses. The net return on this option at the expiry period
was Rs.8, 212.5

FRIDAY MARKET ANALYSIS

Date 1 2 3 4 5 difference
81 80 83
06-march 8198 04 8348 47 26 128
84 84 87
13-march 8344 81 8793 81 57 413
89 88 89
20-march 9002 51 9000 67 67 -35
10 10
03 99 04
27-match 10003 7 10128 13 08 45
11 10 11
06 94 02
17-april 10947 8 11340 6 3 76
11 11 11
15 07 32
24-april 11135 0 111363 0 9 194
12 11 11
09 76 87
8-may 12117 2 12181 5 6 -124
11 11 12
94 94 17
15-may 11872 9 12219 9 2 300
13 13 13
66 61 88
22-may 13736 3 13937 1 7 151

54
 14 14 14
29-may 14296 0 14727 0 5 329

PRE’s

1. CLOSED

2. OPEN

3. HIGH

4. LOW

5. CLOSING

55
56
57
 SWOT ANALYSIS

STRENGTH WEAKNESS

• Ranbaxy promoter group company • It has changed it’s name from

FORTIS to RELIGARE where the
• Good research company
maximum customers don’t know
• No annual maintenance charges about this

• for their online broking service • Non performing website as reported

by customer

58
 OPPORTUNITIES
• Financial services sector in India is
growing by leaps and bounds
• In the upcoming days Religare is
coming up with their own mutual
fund and banking
CONCEPTUAL
THREATS
• Cut-throat competition from
corporate big houses like Reliance
and ICICI
• As they have changed the name of
their company the consumers still did
not know about Religare.
59
 DESCRIPTION

CONCEPTUAL DESCRIPTION

STOCK MARKET:- A stock market or equity market is a public market (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 USD 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

60
such relatively illiquid securities are valued as marked to model, rather than an actual market
price.

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 cap, 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 London Stock Exchange, Paris Bourse, and the Deutsche Börse. Asian
examples include 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.

SHARE: - In finance a share is a unit of account for various financial instruments including
stocks, mutual funds, limited partnerships, and REIT's. In British English, the usage of the
word share alone to refer solely to stocks is so common that it almost replaces the word stock
itself.

In simple Words, a share or stock is a document issued by a company, which entitles its
holder to be one of the owners of the company. A share is issued by a company or can be
purchased from the stock market.

By owning a share you can earn a portion and selling shares you get capital gain. So, your
return is the dividend plus the capital gain. However, you also run a risk of making a capital
loss if you have sold the share at a price below your buying price.

A company's stock price reflects what investors think about the stock, not necessarily what
the company is "worth." For example, companies that are growing quickly often trade at a
higher price than the company might currently be "worth." Stock prices are also affected by
all forms of company and market news. Publicly traded companies are required to report
quarterly on their financial status and earnings. Market forces and general investor opinions
can also affect share price.

Quick Facts on Stocks and Shares

61
 • Owning a stock or a share means you are a partial owner of the company, and you get
voting rights in certain company issues
• Over the long run, stocks have historically averaged about 10% annual returns
However, stocks offer no guarantee of any returns and can lose value, even in the long
run.

ACTIVE SHARES: - Shares in which there are frequent and day-to-day dealings, as
distinguished from partly active shares in which dealings are not so frequent. Most shares of
leading companies would be active, particularly those which are sensitive to economic and
political events and are, therefore, subject to sudden price movements. Some market analysts
would define active shares as those which are bought and sold at least three times a week.
Easy to buy or sell.

STOCK MARKET INDEX: - stock market index is a method of measuring a section of

the stock market. Many indices are cited by news or financial services firms and are used as
benchmarks, to measure the performance of portfolios such as mutual funds.

TYPE OF INDEX:-

1. Weighting
2. Ethical stock market indices
3. Environmental stock market indices

DEMAT ACCOUNT: - Demat refers to a dematerialised account.

Though the company is under obligation to offer the securities in both physical and demat
mode, you have the choice to receive the securities in either mode.

If you wish to have securities in demat mode, you need to indicate the name of the depository
and also of the depository participant with whom you have depository account in your
application.

It is, however desirable that you hold securities in demat form as physical securities carry the
risk of being fake, forged or stolen.

Just as you have to open an account with a bank if you want to save your money, make
62
cheque payments etc, Nowadays, you need to open a demat account if you want to buy or sell
stocks.

HOW TO OPEN A DEMAT ACCOUNT?

Opening an individual Demat account is a two-step process: You approach a DP and fill up
the Demat account-opening booklet. The Web sites of the NSDL and the CDSL list the
approved DPs. You will then receive an account number and a DP ID number for the
account. Quote both the numbers in all future correspondence with your DPs.

So it is just like a bank account where actual money is replaced by shares. You have to
approach the DPs (remember, they are like bank branches), to open your demat account. Let's
say your portfolio of shares looks like this: 150 of Infosys, 50 of Wipro, 200 of HLL and 100
of ACC. All these will show in your demat account. So you don't have to possess any
physical certificates showing that you own these shares. They are all held electronically in
your account. As you buy and sell the shares, they are adjusted in your account. Just like a
bank passbook or statement, the DP will provide you with periodic statements of holdings
and transactions.

DERIVATIVES: - as the name indicates the financial instruments which derive their value
from some other asset of monetary value called as “underlying asset”. This underlying asset
can be gold, currency, stock or any commodity. In short, derivative is not an asset in itself but
an agreement or a contract to transfer the real asset in future whenever exercised!! The date
and price of execution is mentioned in the contract as per agreement between the parties.
There are varieties of derivatives available at present like futures, options and swaps; futures
and options being the most common ones. Before looking into details here are few
components of a derivative agreement which need to be introduced first.

Holder: Holder is the buyer of derivative agreement. By buying an agreement, the buyer may
agree to buy or sell the underlying asset.

Seller: One who sells the contract to holder.

Expiry date: The date at which agreement will get matured / exercised.

63
Strike price: The price at which derivative will get exercised and is decided at the time of
entering into agreement (between buyer and seller).

Premium: It is the price which buyer pays for buying an option contract. The premium is not
to be paid for futures contract.

EQUITY: - 1.A stock or any other security is representing an ownership interest.

2. On a company's balance sheet, the amount of the funds contributed by the owners (the
stockholders) plus the retained earnings (or losses). Also referred to as "shareholders' equity".

3. In the context of margin trading, the value of securities in a margin account minus what
has been borrowed from the brokerage.

4. In the context of real estate, the difference between the current market value of the
property and the amount the owner still owes on the mortgage. It is the amount that the owner
would receive after selling a property and paying off the mortgage.

5. In terms of investment strategies, equity (stocks) is one of the principal asset classes. The
other two are fixed-income (bonds) and cash/cash-equivalents. These are used in asset
allocation planning to structure a desired risk and return profile for an investor's portfolio.

BULL MARKET: - A bull market refers to a market where prices are rising. In a bull
market investors believe that prices will continue to increase. This up-ward trend means a
strong economy and high employment levels. In a bull market the share or stock prices are
usually high. The prices of these shares are high because there is a lot of demand for them.
Other investors want these shares because they see that the company is doing well and
assume that it will continue to appreciate in value. The current share owners are more
reluctant to sell their shares, making the shares that are available very valuable and thus more
expensive. As with bear markets, bull markets are driven by investor expectations, emotions
and reason. In a bull market, the investor sees that his shares are appreciating in value. He
hopes to make more and more money and looks to buy more shares as a way of doing this.
This investor has seen the pay-off of taking a risk and is more likely to keep putting money

64
into the stock market. As a result, more money is put into the market and the condition of the
stock market increases. Although the current condition of the stock market is up for debate
and depends on the period of time you choose to examine, the long term results of the market
have yielded positive returns.

BEARS MARKET: - A bear market refers to a market where the prices are falling. In a
bear market investors believe that prices will continue to decrease. This down-ward trend
means a weak economy and low employment rates (which include worker lay-offs). In a bear
market the share prices are usually low. Share prices are low because investors are looking to
sell. Investors see this down-ward trend and anticipate that in the future the stock that now
has some value will decrease in value. Because so many shares are available, demand is low.
When demand for shares is low, the shares are not as expensive. As with bull markets, bear
markets are driven by investor expectations, emotions and reason. In a bear market, the
investor sees that his shares are depreciating in value. He is afraid that he is going to lose all
of his money and thus is anxious to sell. This type of investor is then more likely to take his
money out of the stock market and into a place where he is guaranteed an increase. This only
perpetuates the bear market. As more and more investors pull their money out of stocks the
condition of the market decreases.

65
 RESEARCH
METHODOLOGY

TITLE JUSTIFICATION

The sector chosen for study is ”EQUITIES-CASH AND DERIVATIVES” for the sample
reason that it offers exciting opportunities to have an insight into extensive working of
stock market and Friday market analysis. Most of the organization and individuals face
financial risk. Changes in the stock market prices, interest rates and exchange rates can have
great significance. Adverse changes may even threaten the survival of otherwise successful

66
businesses. It is therefore not surprising that financial instruments for the management of
such risk have developed. These instruments are known as financial derivatives. By providing
commitments to prices or rates for the future dates or by giving protection against adverse
movements, financial derivatives can be used to reduce the extent of financial risk.
Conversely they also provide profit opportunities for those prepared to accept risk. Indeed, at
least to extent, they involve the transfer of risk from those who wish to who willing to except
it.
The emergence of the market for derivative products, most notably forwards, futures and
options, can be traced back to the willingness of risk-adverse economic agents to guard
themselves against uncertainties arising out of fluctuation 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 fluctuation in the underlying assets prices. However, by locking in assets prices;
derivative products minimize the impact of fluctuations in asset prices on the profitability and
cash flow situation of risk-adverse investors. Derivatives have widely been used as they
facilitate hedging, that enable fund managers of an underlying assets portfolio to transfer
some parts of the risk of price changes to others who are willing to bear such risk. Option are
the specific derivative instruments that give their owner the right to buy (call option holder)
or to sell (put option holder) a specific number of shares (assets) at a specified prices
(exercise prices) of a given underlying asset at or before a specified date (expiration date).

OBJECTIVE

OBJECTIVE1

The objective of the research done for the company was to know about the
working of stock market.

67
 OBJECTIVE2

The second objective was to know the various strategies of investing money in
the market.

SCOPE OF THE STUDY

The area of study is preferably CENTRAL DELHI but as per the requirements
and the availability of the respondents (stock brokers) some use to stay at very
corners of the state.

SIGNIFICANCE OF THE STUDY

1. Practical knowledge.

2. Working environment of the market

3. We learn how to bring about theoretical knowledge into practice.

RESEARCH DESIGN

Achieving accuracy in any research requires in depth study regarding the subject. As the
prime objective of the project is to know about equity market cash and derivatives research
methodology adopted was basically based on primary data from brokers operating in the
market. Secondary data was used to support primary data wherever needed.

Primary data was collected using the following techniques:

68
  Direct interview method
The tool used for collection of information from stock brokers working in the market was
direct interview.

Procedure of Research Methodology:

 To conduct this research the target population were retail and institutional investors
operating in the market.
 Target geographic area was DELHI & NCR.
 As Brokers are operating in the market so direct interview was used.
 Finally the collected data and information was analyzed and compiled to arrive at the
conclusion and recommendation given.

SOURCES OF SECONDARY DATA: - These source were use to obtain

information on Religare securities and industry’s history, policies, procedures etc, wherever
required.

SAMPLING UNIT: - The population taken for the research consists of investors or
prospective clients of only Delhi & NCR region (both retail & institutional)

SAMPLING TECHNIQUE

1. A convenient sampling technique is used to gather information about working of stock

market

2. Random sampling to know how many people go as per the standard strategies to invest
in the market.

SAMPLING AREA:-DELHI and NCR

69
SAMPLE SIZE:-Sample size to obtain information is 100 institutional and retail
investors.

LIMITATIONS OF THE STUDY

As we all know that for every good work there should be some leakages also. Here leakages
mean some drawbacks. What I had found in my quest SUMMER TRAINING which are
expected to be as follows:-

1. The biggest disadvantage of the derivative trading is that you have a time frame to
complete the selling of the stock. If the stock price does not rise up to the expected level,
even then you have to sell off the stocks to honour the contract.
2. Another negative aspect is that the if the stock price fall then the investor loose huge
money in derivative trading as the amount of stock involved in this trading is huge.
3. Another limitation of derivative trading is that not all the listed stocks are available for
derivative trading. There are selected stocks in a stock exchange i.e. NSE and BSE in which
you can do derivative trading.
4. The respondents selected to be interviewed were not always available and willing to
cooperate.
5. The sample size of our survey is only 50, which cannot determine the investment
behaviours of the total population.
6. Respondents were apprehensive in giving their correct income level and some gave them
incorrectly.
7. Many respondents were unwilling to give their contact details specially their Telephone
number.

70
DATA ANALYSIS
AND
INTERPRETATION

71
Q1. For how many years you are working with Religare?

OPTIONS RESPONSES

A 0-5 years 45%

B 5-10 years 25%

C 10-15 years 20%

D More than 15 years 10%

share
mutual fund
bonds
derivatives

72
45% of employees are new to the organisation.55% of employees are working for more than
5 years in the organisation.

Q2. Are you aware of all the facilities which are provided by the Religare securities?

OPTIONS RESPONSE
A YES 85%
B NO
15%

yes
no

73
There are many employees who doesn’t know about all the facilities provided by the
organisation, so they need to be trained and made aware of all facilities.

Q3. Are you satisfied with growth of Religare securities in the capital market?
OPTIONS RESPONSE
A YES 50
B NO 50

yes
no

We can see that there is 50- 50% opinion of the employees about the growth of Religare
securities in the capital market.

74
Q4. Being a stock broker yourself do you invest in the capital market?

OPTIONS RESPONSE

A YES 25

B NO 27

yes
no

75
We can see that employees who themselves work in the capital market are not willing to
invest in the stock market.

Q5.What percentage of income do you invest in share trading?

OPTIONS RESPONSES

A UPTO 10% 35

B UPTO 25% 30

C UPTO 50% 20

D ABOVE 50 % 15

upto 10%
upto 25%
upto 50%
above 50%

76
IN Market survey we known that how much invest by investor in share market. For above pie
chart its shows that how much the investor invests their earning in share market.

Q6. Are you satisfied with the working of capital market in the country?

OPTIONS RESPONSE
A YES 40
B NO 45

C SOME WHAT 15

YES
NO
SOMEWHAT

From above pie chart we can see that almost 40% of the brokers are satisfied with the
working of capital market in the country.

77
Q7.Do you survey the market risk before advising your client?

OPTION RESPONSE

A YES 85

B NO 15

yes
no

We can see that maximum brokers study the risk associated with investment before advising
their client.

78
Q8. What kind of risk do your clients mostly prefer?

OPTIONS RESPONSES

A MORE RISK MORE RETURN 15

B MODERATE RISK 50
MODERATE RETURN
C LESS RISK LESS RETURN 35

more risk more return

moderate risk moderate

return
lessrisk lessreturn

79
We can see that very few investors are ready to take risk, maximum investors go for the
option of moderate and less risk.

Q9. Are your clients aware about the settlement of the stocks?

OPTIONS RESPONSE

A YES 95

B NO 5

yes
no

Maximum investors are aware about the settlement of stocks.5% who doesn’t know about the
settlement they are mostly the very new in the stock market.

80
Q10. Are your clients aware of the client and broker agreement?

OPTIONS RESPONSE

A YES 90

B NO 10

yes
no

Maximum investors are aware about client and broker agreement, but there are lot many
information which investors need to know. So there is need to educate investors for future
growth and prospect.

81
 FACTS
AND FINDINGS

82
1. 45% of employees are new to the organisation.55% of employees are working
for more than 5 years in the organisation.
2. There are many employees who are not fully aware about the working of the
organisation so they need to be made aware of the of the facilities provided by
the Religare.
3. Some employees are happy with the growth of the organisation in the capital
market.
4. Employees are not that much willing to invest in the capital market.
5. Employees who invest in the capital market mainly invest their earning from
their investment.
6. Only 40% of the brokers are satisfied with the working of capital market in the
country.
7. Brokers advise their client on how they invest and where they should invest.
8. Maximum people go for moderate risk and moderate returns.
9. Brokers make sure that their clients are aware about the all the formalities to
be done.

83
RECOMMENDATION

84
1. There is a need to educate the investor in futures and options market, due to its
complex nature an investor fails to understand the risk reward of a particular strategy,
which may result into losses for the investor.
2. An investor must also be thought as to which strategy must be applied at what
situation, as application of appropriate strategy at appropriate situation will results
into profitable transactions
3. An investor must also be suggested to write certain derivative exams conducted by
leading financial organization in the country for proper understanding of the
derivative market.
4. The research reports must be made more explanatory which must show the risk
covered in a particular strategy and the return which the investor can expect, it must
be accompanied by payoff chart along with the line graph of the strategy suggested.
5. RELIGARE Securities can conduct certain investor education camps in collaboration
with leading media channels, which will serve both the purpose which are brand
advertisement and investor awareness.
6. There is a need to start derivative trading at all stock exchanges in all over India. As
of now it’s limited to BSE and NSE.
7. Administrative machinery of existing stock exchanges should be strengthened
wherever necessary. Tight supervision is essential for successful derivative trading.
8. A formal mechanism should be established for co-ordination between SEBI and RBI
in respect of all financial derivatives.
9. SEBI has to implement more powerful rules and regulations and implement certain
measures for taking strict action against all illegal transactions.

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 CONCLUSION

• Derivatives in equity specially are more suited to provide for hedging and more cost
effective. It has less risky and more profitable.

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• As the stock Index Futures and Options are available, the FII’s buying /selling
operations can be performed at greater speed and less cost and without adding too
much to market volatility.

• Most of investors are trading not only in derivatives for hedging, but also for other
purposes.

• Derivatives do not create any new risk. They simply manipulate risks and transfer
them to those who are willing to bear these risks.

• Hedging through derivatives reduces the risk of owning a specified asset, which may
be share currency etc.

• All derivative instruments are very simple to operate. Treasury managers and
portfolio managers can hedge all risks without going through the tedious process of
hedging each day and amount/share separately.

• Derivatives also offer high liquidity. Just as derivatives can be contracted easily, it is
also possible for companies to get out of positions in case that market reacts
otherwise. This also does not involve much cost.

• Derivatives are not only desirable but also necessary to hedge the complex exposure
and volatility that the financial companies generally face in the capital markets today.

• All derivative products are low cost products. Companies can hedge a substantial
portion of their balance sheet exposure, with a low margin requirement.
There is no assured route for success. This is a fact
which is universally applicable and so in case of investment. There is no short cut formula
which could be applied instantly and make money out of it instantly in the stock market.

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 Therefore, a good investment takes time, patience, hard work and perseverance to achieve
success. Over the next ten – twenty years, Indian capital market and stock market may
offer some of the best and lucrative opportunities to make big money as compared to
other investment avenues.

Investors of FD and depositors with Banks and Post Office’s are not very much satisfied with
their returns and the kind of services they get from them. So we (stock broking company)
should must try to capture this market investors. For that we have to create awareness,
advertise more, and approachability to customers.
The biggest advantage of derivative trading is that you can buy stocks in future trading by
paying only 20% or 30% of the price. That means if you are buying a stock of Rs.10 each and
the lot contains 1000 stocks you can pay only Rs.2000 to Rs.3000 to buy the lot. Whereas,
the stock price in that cases would have been Rs.10000. So, you are gaining more profit at a
time without investing more money. In case of derivative trading you can short sell the
stocks. That means you can first sell the lot of stock and then buy them back within the
stipulated time to honour the contract. In case of an overvalued stock that are sure to fall in
near future, you can gain from short selling. This is an option that you cannot get in equity
Trading unless you are doing intraday trading.
In future trading the brokerage is usually lower than the equity trading. As you are buying the
stocks in a lot the brokerage is calculated not on the unit of the stocks but on the unit of the
lot.

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ANNEXURE

QUESTIONNAIRE

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Q1. For how many years you are working with Religare?

0-5 years

5-10 years

10-15 years

15-20 years

Q2 Are you aware of all the facilities which are provided by the Religare securities?

YES

NO

Q3. Are you satisfied with growth of Religare securities in the capital market?

YES

NO
Q4. Being a stock broker yourself do you invest in the capital market?

YES
NO
Q5. What percentage of return do you invest in share trading?

Upto 10%
Upto 25%
Upto 50%
Above 50%

Q6. Are you satisfied with the working of capital market in the country?

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 YES
NO
SOME WHAT

Q7. Do you survey the market risk before advising your client?

YES
NO

Q8. What kind of risk do your clients mostly prefer?

MORE RISK MORE RETURN

MODERATE RISK MODERATE RETURN
LESS RISK LESS RETURN

Q9 Are your clients aware about the settlement of the stocks?

YES
NO

Q10. Are your clients aware of the client and broker agreement?
YES
NO

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 BIBLIOGRAPHY

• WWW.GOOGLE.COM
• WWW.WIKIPEDIA.COM
• WWW.BSEINDIA.COM
• WWW.NSEINDIA.COM
• WWW.RELIGARE.COM

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• WWW.MONEYCONTROL.COM

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