INTRODUCTION

The Reserve Bank of India (RBI) is India's central bank. Though public sector banks currently dominate the banking industry, numerous private and foreign banks exist. India's government-owned banks dominate the market. Their performance has been mixed, with a few being consistently profitable. Several public sector banks are being restructured, and in some the government either already has or will reduce its ownership. Private and foreign banks The RBI has granted operating approval to a few privately owned domestic banks; of these many commenced banking business. Foreign banks operate more than 150 branches in India. The entry of foreign banks is based on reciprocity, economic and political bilateral relations. An inter-departmental committee approves applications for entry and expansion. Capital adequacy norm Foreign banks were required to achieve an 8 percent capital adequacy norm by March 1993, while Indian banks with overseas branches had until March 1995 to meet that target. All other banks had to do so by March 1996. The banking sector is to be used as a model for opening up of India's insurance sector to private domestic and foreign participants, while keeping the national insurance companies in operation. Banking India has an extensive banking network, in both urban and rural areas. All large Indian banks are nationalized, and all Indian financial institutions are in the public sector. RBI banking The Reserve Bank of India is the central banking institution. It is the sole authority for issuing bank notes and the supervisory body for banking operations in India . It supervises and administers exchange control and banking regulations, and administers the government's monetary policy. It is also responsible for granting licenses for new

bank branches. 25 foreign banks operate in India with full banking licenses. Several licenses for private banks have been approved. Despite fairly broad banking coverage nationwide, the financial system remains inaccessible to the poorest people in India. Indian banking system The banking system has three tiers. These are the scheduled commercial banks; the regional rural banks which operate in rural areas not covered by the scheduled banks; and the cooperative and special purpose rural banks. Scheduled and non scheduled banks There are approximately 80 scheduled commercial banks, Indian and foreign; almost 200 regional rural banks; more than 350 central cooperative banks, 20 land development banks; and a number of primary agricultural credit societies. In terms of business, the public sector banks, namely the State Bank of India and the nationalized banks, dominate the banking sector. LoIndia has an extensive banking network, in both urban and rural areas. All large Indian banks are nationalized, and all Indian financial institutions are in the public sector. The Reserve Bank of India is the central banking institution. It is the sole authority for issuing bank notes and the supervisory body for banking operations in India . It supervises and administers exchange control and banking regulations, and administers the government's monetary policy. It is also responsible for granting licenses for new bank branches. 25 foreign banks operate in India with full banking licenses. Several licenses for private banks have been approved. Despite fairly broad banking coverage nationwide, the financial system remains inaccessible to the poorest people in India. The banking system has three tiers. These are the scheduled commercial banks; the regional rural banks which operate in rural areas not covered by the scheduled banks; and the cooperative and special purpose rural banks. There are approximately 80 scheduled commercial banks, Indian and foreign; almost 200 regional rural banks; more than 350 central cooperative banks, 20 land development banks; and a number of primary agricultural credit societies. In terms of

business, the public sector banks, namely the State Bank of India and the nationalized banks, dominate the banking sector. Cal financing All sources of local financing are available to foreign-participation companies incorporated in India, regardless of the extent of foreign participation. Under foreign exchange regulations, foreigners and non-residents, including foreign companies, require the permission of the Reserve Bank of India to borrow from a person or company resident in India. Regulations on Foreign Banks Foreign banks in India are subject to the same regulations as scheduled banks. They are permitted to accept deposits and provide credit in accordance with the banking laws and RBI regulations. Currently about 25 foreign banks are licensed to operate in India. Foreign bank branches in India finance trade through their global networks. RBI restrictions The Reserve Bank of India lays down restrictions on bank lending and other activities with large companies. These restrictions, popularly known as "consortium guidelines" seem to have outlived their usefulness, because they hinder the availability of credit to the non-food sector and at the same time do not foster competition between banks. Indian vs. Foreign banks Most Indian banks are well behind foreign banks in the areas of customer funds transfer and clearing systems. They are hugely over-staffed and are unlikely to be able to compete with the new private banks that are now entering the market. While these new banks and foreign banks still face restrictions in their activities, they are wellcapitalized, use modern equipment and attract high-caliber employees. Government and RBI regulations All commercial banks face stiff restrictions on the use of both their assets and liabilities. Forty percent of loans must be directed to "priority sectors" and the high liquidity ratio and cash reserve requirements severely limit the availability of deposits

for lending. The RBI requires that domestic Indian banks make 40 percent of their loans at concessional rates to priority sectors' selected by the government. These sectors consist largely of agriculture, exporters, and small businesses. Since July 1993, foreign banks have been required to make 32 percent of their loans to these priority sector. Within the target of 32 percent, two sub-targets for loans to the small scale sector (minimum of 10 percent) and exports (minimum of 12 percent) have been fixed. Foreign banks, however, are not required to open branches in rural areas, or to make loans to the agricultural sector. Commercial banks lent dols 8 billion in the Indian financial year (IFY, April-March) 1997/98, up sharply from dols 4.4 billion in the previous year. Need to Ponder Debates on India's slowdown focus on the manufacturing sector which is dangerously misleading: one of the biggest areas of worry about India's economic slowdown is being ignored - the systemic flaw of India's banking sector. Stories about the real health of Indian banks get less publicized because banks are still overwhelmingly owned, controlled and directed by the government, i.e., the ministry of finance (MoF). Banks have no effective mouthpiece either. Grey future one more reason being the opacity of the The Reserve Bank of India. This does not mean a forecast of doom for the Indian banking sector the kind that has washed out south East Asia. And also not because Indian banks are healthy. We still have no clue about the real non-performing assets of financial institutions and banks. Many banks are now listed. That puts additional responsibility of sharing information. It is now clear that it was the financial sector that caused the sensational meltdown of some Asian nations. India is not Thailand, Indonesia and Korea. Borrowed investment in property in India is low and property prices have already fallen, letting out steam gently. Our micro-meltdown has already been happening. Still, there are several other worries about the banking sector, mainly confusion over ownership and control. Sometime soon India will be forced to apply the norms of

developed countries and many banks (including some of the biggest) will show very poor return ratios and dozens of banks will be bankrupt. When that happens the two popular reasons to defend bad banks will disappear. These are: one, to save face in the remote hope of those fortunes will revive' and two, some banks are too big to be allowed to fail, fearing social upheaval.

RISK:
In the investing world, the dictionary definition of risk is the chance that an investments actual return will be different than expected. losing some, or even all, of our original investment. Risk in investment exists because of the inability to make perfect or accurate forecasts. Risk in investment is defined as the variability that is likely to occur in future cash flows from an investment. The greater variability of these cash flows indicates greater risk. Variance or standard deviation measures the deviation about expected cash flows of each of the possible cash flows and is known as the absolute measure of risk; while co-efficient of variation is a relative measure of risk. For carrying out risk analysis, following methods are used

Technically, this is

measured in statistics by standard deviation. Risk means you have the possibility of

Payback [How long will it take to recover the investment] Certainty equivalent [The amount that will certainly come to you] Risk adjusted discount rate [Present value i.e. PV of future inflows with discount rate]

SYSTEMATIC RISK Interest rates, recession and wars all represent sources of systematic risk because they affect the entire market and cannot be avoided through diversification. Whereas this type of risk affects a broad range of securities, unsystematic risk affects a very specific group of securities or an individual security. Systematic risk can be mitigated only by being hedged.

Even a portfolio of well-diversified assets cannot escape all risk. NEED OF THE STUDY In finance, systemic risk is the risk of collapse of an entire financial system or entire market, as opposed to risk associated with any one individual entity, group or component of a system. It can be defined as "financial system instability, potentially catastrophic, caused or exacerbated by idiosyncratic events or conditions in financial intermediaries". It refers to the risks imposed by interlinkages and interdependencies in a system or market, where the failure of a single entity or cluster of entities can cause a cascading failure, which could potentially bankrupt or bring down the entire system or market. It is also sometimes erroneously referred to as "systematic risk". OBJECTIVES OF THE STUDY 1. 2. 3. 4. 5. To measure the comparative beta analysis of selected Indian banks. To evaluate the correlation between nifty returns and ICICI bank returns. To evaluate the correlation between Nifty returns and HDFC returns. To evaluate the correlation between Nifty and Andhra bank returns. To evaluate the correlation between Nifty and Vijaya bank returns.

SCOPE OF THE STUDY The present study has been undertaken to observe the risk and returns associated with the selected banks to know the price fluctuations of the shares in the stock market for a particular period the study and it also includes finding the importance of the risk analysis in trading and to measure price volume relationship for individual commodities. The study also aims at knowing the commodities yielding highest return from the scripts selected for the study and to know systematic risk of various scripts selected for the study. This will helpful to the investors while investing in the securities. RESEARCH METHODOLOGY

This research study has been based on descriptive and explanative and exploratory method. It describes securities market in India, and explains risk and returns involved in equity investment. Finally, it explores various alternatives regarding equity investment. SOURCES OF DATA PRIMARY SOURCE: Primary data is the data or information collected directly from the respondents and concerned officials. It mainly includes questionnaire and interviews. For this study, no primary data is used. SECONDARY SOURCE To fulfill the information need of the study, the data is collected from secondary sources. The secondary data was collected on the basis of organizational file, official records, news papers, magazines, management books, preserved information in the companys database and website of the company. Time Period The data was collected weekly average prices of HDFC, ICICI BANK AND NIFTY for the period of APR 2012-MAR 2013.

LIMITATIONS
1. The data collected is only from secondary source. 2. The data which is collected for doing this report has been collected from Internet websites where there can be some hitches.

3. The Time period taken for doing the data analysis has been from from NSE (Nifty) 2012-13. 4. This project covers only selected scripts traded at NSE.

5. The study limited only few selected companies. The market may consist of more scripts. So, it does not truly reflect as a whole. 6. This project analysis report may not be applicable in all other commodities. 7. The accuracy of the study is based on the accuracy of the data presented in the stock market listings.

INTRODUCTION TO THE INDIAN STOCK MARKET

Indian markets have recently thrown open a new avenue for retail investors and traders to participate in: commodity derivatives. For those who want to diversify their portfolios beyond shares, bonds and real estate, commodities are the best option. Till some months ago, this wouldn't have made sense. For retail investors could have done

very little to actually invest in commodities such as gold and silver or oilseeds in the futures market. This was nearly impossible in commodities except for gold and silver as there was practically no retail avenue for punting in commodities. Whatever it may be , with the setting up of three multi-commodity exchanges in the country, retail investors can now trade in commodity futures without having any physical stocks Commodities actually offer immense potential to become a separate asset class for market-savvy investors, arbitrageurs and speculators. Retail investors, who claim to understand the equity markets may find commodities an unfathomable market. But commodities are easy to understand as far as fundamentals of demand and supply are concerned. Retail investors should understand the risks and advantages of trading in commodities futures before taking a leap. Historically, pricing in commodities futures has been less volatile compared with equity and bonds, thus providing an efficient portfolio diversification option. Like any other market, the one for commodity futures plays a valuable role in information pooling and risk sharing. The market mediates between buyers and sellers of commodities, and facilitates decisions related to storage and consumption of commodities. In the process, they make the underlying market more liquid The trading of commodities consists of direct physical trading and derivatives trading. The commodities markets have seen an upturn in the volume of trading in recent years. In the five year up to 2010, the value of global physical exports of commodities increased by 17% while the notional value outstanding of commodity OTC(over the counter) derivatives increased more than 500% and commodity derivative trading on exchanges more than 200%.

The notional value outstanding of banks OTC commodities derivatives contacts increased 27% in 2010 to $9.0 trillion. OTC trading accounts for the majority of trading in gold and silver. Overall, precious metal accounted for 8% of OTC commodities derivatives trading in 2010, down from their 55% share a decade earlier as trading in energy derivatives rose.

Global physical and derivatives trading of commodities on exchanges increased more than a third in 2010 to reach 1,684 million contacts. Agricultural contracts trading grew by 32% in 2010, energy 29% and industrial metals by 30%. Precious metals trading grew by 3% with higher volume in New York being partially offset by declining volume in Tokyo. Over 40% of quarter in China. Trading on exchanges in China and India has gained in importance in recent years due to their emergence as significant commodities consumers and producers. Present scenario Todays commodity market is a global market place not only for agricultural products, but also currencies and financial instruments such as Treasury bonds and securities futures. Its a diverse marketplace of farmers, exporter, importers, manufacturers and speculators. Modern technology has transformed commodities into a global marketplace where a Kansas farmer can match a bid from a buyer in Europe. The 2008 global boom in commodity prices- for everything from coal to corn was fueled by heated demand from the likes of China and India, plus unbridled speculation in forward markets. The bubble popped in the closing months of 2008 across the board. As a result, farmers are expected to face a sharp drop in crop prices, after years of record revenue. Other commodities, such as steel, are also expected to tumble due to lower demand. This will be a rare positive for manufacturing industries, which will experience a drop in some input costs, partly offsetting the decline in downstream demand. The Indian broking industry is one of the oldest trading industries that have been around even before the establishment of BSE in 1875.

Inception- The roots of a stock market in India began in the 1860s during the American Civil War that led to a sudden surge in the demand for cotton from India resulting in setting up of a number of joint stock companies that issued securities to raise finance.

Bubble burst- The early stock market saw a boom till 1865, and then in Jul

1865, what was then used to be called the share mania ended with burst of the stock market bubble. In the aftermath of the crash, banks, on whose building steps share brokers used to gather to seek stock tips and share news, disallowed them to gather there, thus forcing them to find a place of their own, which later turned into the Dalal Street. A group of about 300 brokers formed the stock exchange in Jul 1875, which led to the formation of a trust in 1887 known as the Native Share and Stock Brokers Association Beginning of a new phase- A new phase in the Indian stock markets began in the 1970s, with the introduction of Foreign Exchange Regulation Act (FERA) that led to divestment of foreign equity by the multinational companies, which created a surge in retail investing. Growth supporting factors-The early 1980s witnessed another surge in stock markets when major companies such as Reliance accessed equity markets for resource mobilization that evinced huge interest from retail investors. A new set of economic and financial sector reforms that began in the early 1990s gave further impetus to the growth of the stock markets in India. Setting up of SEBI- the Securities and Exchange Board of India (SEBI), which was set up in 1988 as an administrative arrangement, was given statutory powers with the enactment of the SEBI Act, 1992. The broad objectives of the SEBI includeo to protect the interests of the investors in securities o to promote the development of securities markets and to regulate the securities markets

Incorporation of NSE- NSE was incorporated in Nov 1992 as a tax paying company, the first of such stock exchanges in India, since stock exchanges earlier were trusts, being run on no-profit basis. NSE was recognized as a stock exchange under the Securities Contracts (Regulations) Act 1956 in Apr 1993. It commenced operations in wholesale debt segment in Jun 1994 and capital market segment (equities) in Nov 1994. The setting up of the National Stock Exchange brought to Indian capital markets several innovations and modern practices and procedures such as nationwide trading network, electronic trading, greater transparency in price discovery and process driven operations that had significant bearing on further growth of the stock markets in India. To speed the securities settlement process, The Depositories Act 1996 was passed that allowed for dematerialization (and dematerialization) of securities in depositories and the transfer of securities through electronic book entry. The National Securities Depository Limited (NSDL) set up by leading financial institutions, commenced operations in Oct 1996.

Despite passing through a number of changes in the post liberalization period, the industry has found its way towards sustainable growth. A stock Broker is a regulated professional who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors. To work as a broker a certificate of registration from SEBI is mandatory after satisfying all the terms and conditions.

FINANCIAL MARKETS The financial markets have been classified as Cash market (spot market) largest traded, the spot market or cash market is a commodities or securities market in which goods are sold for cash and delivered immediately.

Derivatives market after cash market, the derivatives markets are the financial markets for derivatives. The market can be divided into two that for exchange traded derivatives and that for over-the-counter derivatives.

Debt market - The bond market (also known as the debt, credit, or fixed income market) is a financial market where participants buy and sell debt securities.

Commodities market after commodities market, Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts.

PARTICIPANTS IN FINANCIAL MARKET There are two basic financial market participant categories, Investor vs. Speculator and Institutional vs. Retail. Action in financial markets by central banks is usually regarded as intervention rather than participation. Supply side vs. demand side A market participant may either be coming from the Supply Side, hence supplying excess money (in the form of investments) in favor of the demand side; or coming from the Demand Side, hence demanding excess money (in the form of borrowed equity) in favor of the Supply Side. This equation originated from Keynesian Advocates. The theory explains that a given market may have excess cash; hence the supplier of funds may lend it; and those in need of cash may borrow the funds supplied. Hence, the equation: aggregate savings equals aggregate investments. The demand side consists of: those in need of cash flows (daily operational needs); those in need of interim financing (bridge financing); those in need of long-term funds for special projects (capital funds for venture financing). The supply side consists of: those who have aggregate savings (retirement funds, pension funds, insurance funds) that can be used in favor of demand side. The origin of the savings (funds) can be local savings or foreign savings. So much pensions or

savings can be invested for school buildings; orphanages; (but not earning) or for road network (toll ways) or port development (capable of earnings). The earnings go to owner (Savers or Lenders) and the margin goes to the banks. When the principal and interest are added up, it will reflect the amount paid for the user (borrower) of the funds. Thus, an interest percentage for the cost of using the funds. Investor vs. Speculator Investor An investor is any party that makes an Investment. However, the term has taken on a specific meaning in finance to describe the particular types of people and companies that regularly purchase equity or debt securities for financial gain in exchange for funding an expanding company. Less frequently the term is applied to parties who purchase real estate, currency, commodity derivatives, personal property, or other assets. Speculation Speculation, in the narrow sense of financial speculation, involves the buying, holding, selling, and short-selling of stocks, bonds, commodities, currencies, collectibles, real estate, derivatives or any valuable financial instrument to profit from fluctuations in its price as opposed to buying it for use or for income via methods such as dividends or interest. Speculation or agiotage represents one of three market roles in western financial markets, distinct from hedging, long term investing and arbitrage. Speculators in an asset may have no intention to have long term exposure to that asset. Institutional vs. Retail Institutional investor An institutional investor is an investor, such as a bank, insurance company, retirement fund, hedge fund, or mutual fund, that is financially sophisticated and makes large investments, often held in very large portfolios of investments. Because of their

sophistication, institutional investors may often participate in private placements of securities, in which certain aspects of the securities laws may be inapplicable.

Retail investor A retail investor is an individual investor possessing shares of a given security. Retail investors can be further divided into two categories of share ownership. 1. A Beneficial Shareholder is a retail investor who holds shares of their securities in the account of a bank or broker, also known as in Street Name. The broker is in possession of the securities on behalf of the underlying shareholder. 2. A Registered Shareholder is a retail investor who holds shares of their securities directly through the issuer or its transfer agent. Many registered shareholders have physical copies of their stock certificates. Meaning of broker/dealer A broker-dealer is a term used in United States financial services regulations. It is a natural person, a company or other organization that trades securities for its own account or on behalf of its customers. Although many broker-dealers are "independent" firms solely involved in brokerdealer services, many others are business units or subsidiaries of commercial banks, investment banks orinvestment companies. When executing trade orders on behalf of a customer, the institution is said to be acting as a broker. When executing trades for its own account, the institution is said to be acting as a dealer. Securities bought from clients or other firms in the capacity of dealer may be sold to clients or other firms acting again in the capacity of dealer, or they may become a part of the firm's holdings. Need of a broker

A broker is a person or firm that facilitates trades between customers. It is advisable to conduct transactions through an intermediary. For example one needs to transact through a trading member of a stock exchange if they intend to buy or sell any security on stock exchanges. One needs to maintain an account with a depository if they intend to hold securities in demat form. You need to deposit money with a banker to an issue if you are subscribing to public issues. One gets guidance if you are transacting through an intermediary. A broker acts as a go between and, in doing so, does not assume any risk for the trade. The broker does, however, charge a commission. A broking firm acts as an intermediary between NSE and Client. Stock Brokers come under the category of Market Players. The membership in the stock exchange can be granted as individual membership and corporate membership.

NSE

BROKE R

CLIEN T

The market intermediaries play an important role in the development of Securities Market by providing different types of services. There are two major stock-exchanges NSE (composition of 50 stocks) and BSE (Composition of 30 stocks).

COMPANY PROFILE KELLTON FINANCIAL SERVICES

Kellton is a professionally managed organization and is fast emerging as one of the most respected Stock Broking and Wealth Management Companies in India. The Kellton Group is a member of the National Stock Exchange (NSE),Bombay Stock Exchange (BSE) and the two leading Commodities Exchanges in the country MCX and NCDEX. Kellton is also registered as a Depository Participant with CDSL. At Kellton, we offer you Broking and Wealth Management Services of world class standards with a personal touch. We thoroughly understand the value of relationships with our customers as opposed to just transactions at a business level. We are dedicated to provide services with a personal touch so that our customer gets customized solutions and attention. It is our earnest endeavor to enhance the trading experience of our customers through continuous improvement in our services. MISSION & VISION Our Mission is the foundation on which the organization is built. Our vision is our aspiration to continually improve and grow; to become the best. Our values guide us through our actions. MISSION To take financial services to the next level of personalization and customization with emphasis on value of interactions at a more personal level than just transactions at a business level. VISION To be a respected enterprise that provides best-of-breed financial solutions, with a personal touch. VALUES Commitment, dedication, integrity, team work, passion and attitude are the core values that guide us through our actions.

MANAGEMENT TEAM 1. Niranjan Chintam 2. Rajendrana Niwadekar 3. Krishna Chintam 4. John Linton 5. Mihir Shah 6. Srinivas Potluri SERVICES EQUITY Kellton offers you a strategic, meticulous and personalized approach to maximize your returns and reach your investment goals by trading effectively in equities. However, it can also be a very risky proposition due to high risk-return trade off prevalent in the stock market. Hence, it is more appropriate to take the help of an experienced and trustworthy expert who will guide you as to when, where and how to invest. At Kellton, we identify good opportunities to invest in and provide guidance in the dynamic world of stock markets with suitable trading solutions and value added tools to enhance your trading experience. Moreover our core theme of personalized services implies that you can reach our professionals to get complete understanding of the transactions at any phase of the process. Kellton is a trading member in the NSE Derivatives segment which offers a gateway to the exciting world of derivatives trading on Equities and Indices. The derivative market is a highly lucrative market that gives investors, arbitrageurs and speculators immense potential to earn returns. Over the years the Futures & Options segment has emerged as a popular medium for trading in the financial markets. COMMODITIES

Commodities Derivatives market has emerged as a new avenue for investors to create wealth. Commodity derivatives that were initially developed for risk management purposes are now growing in popularity as an investment tool. Based on the fundamentals for demand and supply, Commodities form a separate asset class offering investors, arbitrageurs and speculators immense potential to earn returns. At, Kellton we understand the shifts and swings of Commodities markets and will provide you with information about the volatility of the investible assets and when and how to diversify them during high volatility to stabilize your returns. We closely monitor and assess the performance of all classes of investments and will provide you with a customized solution into the proper use of commodities within the mix of other asset classes to maximize your returns and minimize risks. INVESTMENT BANKING MERGERS & ACQUISITIONS Kelltons extensive expertise extends to a wide range of M&A transactions customized to cater to the specific requirements of each of our client. Our relationships with many leading financial groups enables our clients to get access to the emerging pool of private equity financings. Assess, analyze and suggest financial & strategic alternatives. Identify target and assess potential acquirers and offer valuation analysis. Negotiating and closing transaction deals. Advise on asset purchases and dispositions, restructurings and reorganizations Advising on transaction structuring, timing, pricing and potential financing Our concern goes beyond immediate value and emphasizes enduring partnership based on symbiotic relationship. Sell-side Advisory As an advisor to selling stakeholders we analyze the options objectively and dispassionately keeping in view the long term benefit to both parties. Our expertise,

experience and our network make us uniquely positioned to find an ideal partner for your company and assess the mutual benefits from this transaction. We perform the due diligence so as to avoid any surprises during value disclosure. Our active involvement in deal structuring and contract negotiations would help you understand the implications of the transaction from total perspective and be fully aware of all legalese involved. Buy-side Advisory Our extensive network comes handy in searching & selecting a wide-range of suitable candidates. We help buyers identify the attributes of the target company including various parameters. Upon confirmation of interest of the target company, we examine various factors like financial data, brand image among stakeholders etc and perform a due diligence process to showcase the potential value of the transaction, value recommendation and comparative analysis. CORPORATE FINANCE We work with several companies in various stages of growth and help them to raise private capital through Venture Capital firms, private equity companies and other strategic business partners. We assess optimal capitalization and recognize the means to increase funds. After enlisting a group of potential target investors we position the company effectively to the investors. We take care of the necessary communication to investors and manage due diligence process. CAPITAL RESTRUCTURING Capital restructuring may involve refinancing at every at every level of capital structure which include securing asset-based loans & debt financing and achieving strategic partnership by identifying suitable prospects. Counseling on business agreements like Joint Ventures and sales of certain business units. Determining the right debt-equity ratio and gearing ratio for client

Exploring refinancing alternatives of the clients Counsel on rehabilitation and turnaround management. Risk management Devising suitable strategies for fund raising

DEBT SYNDICATION We arrange finance from multiple banks/financial institutions to provide the borrower a credit facility using common debt documents. We help companies to leverage on debt as an instrument to raise capital through structured financial products for various needs. Workflow: We understand client needs thoroughly. We decide on the most effective debt funding strategy We approaching the prospective lenders and discuss & negotiate. We then narrow upon lenders based on certain parameters. Finalize on the optimum deal structure.

WEALTH MANAGEMENT Wealth Management helps you maximize your returns in asset management, investment management and portfolio management. Developing strategies and innovative models to build wealth from middle market business assets requires expertise and experience. Even a seasoned investor knows that effective timing of markets is not possible and therefore professional and expert advice is essential to generate superior returns from the market. At Kellton we offer your client advisory

services with the objectives of superior returns, risk minimization and portfolio diversification. DEPOSITORY SERVICES We provide the dual benefits of trading and depository services at Kellton where you can experience efficient, risk free depository services. Kellton is a registered Depository participant with CDSL. ADVANTAGES OF DEMAT ACCOUNT AT KELLTON Automated pay-in facility without executing any physical instructions Demat Statements on demand Competitive transaction charges. Online access to Demat Statements Reduced paper work Efficient pledge mechanism Faster settlement process resulting in increased liquidity for your securities No extra charges for Transactions and Holding Statements Speedy disbursements of non-cash benefits (Bonus & Rights)

THEORETICAL FRAMEWORK RISK:

We cannot talk about investment return without talking about risk because investment decisions invariably involve a trade-off between the two.risk refers to the possibility that actual outcome of an investment will differ from its expected outcome.More specifically, most investors are concerned about the actual outcome being less than the expected outcome.The wider the range of possible outcomes ,the greater the risk. Risk emanates from from several sources.The three major ones are business risk , interest rate risk ,and market risk. They are in detail: BUSINESS RISK: As a holder of corporate securities, you are exposed to the risk of poor business performance. This may be caused by a variety of factors like heightened competition ,emergence of new technologies development of substitute products, shifts in consumer preferences , inadequate supply of essential inputs , changes in governmental policies. INTEREST RATE RISK: The changes in interest rate have a bearing on the welfare of investors. As the interest rate goes up , the market prices of existing fixed income securities fall , and vice versa. This happens because the buyer of a fixed income securities fall , and vice versa.This happens because the buyer of a fixed income security would not buy it at its par value or face value if its fixed income security would not buy it at its par value or face value if its fixed interest rate is lower than the prevailing interest rate on a similar security. MARKET RISK: Even if the earning power of the corporate sector and the interest rate structure remain more or less unchanged, prices of securities, equity shares in particular, tend to fluctuate. While there can be several reasons for this fluctuation , a major cause appears to be the changing sentiment of the investors. There are periods when

investors become bullish and their investment horizons lengthen.

TYPES OF RISK:
Modern portfolio theory looks at risk from a different perspective. It divides total risk as follows. Total risk=unique risk+ market risk. The unique risk represents that portion of its total risk which stems from firm-specific factors like the development of a new product, a labour strike, or the emergence of a new competitor. In a diversified portfolio, unique risks of different stocks tend to cancel each other-a favourable development in one firm may offset an adverse happening in another and viceversa. Hence, unique risk is also referred to as diversifiable risk or unsystematic risk. The market risk of a security represents that portion of its risk which is attributable to economy-wide factors like the growth rate of GDP, the level of government spending money ,interest rate structure, and inflation rate, since these factors affect all firms to a greater or lesser degree, investors cannot avoid the risk arising from them, however diversified their portfolios may be. SYSTEMATIC RISK Systematic risk is due to the influence of external factors on an organization. Such factors are normally uncontrollable from an organization's point of view. Systematic risk is a macro in nature as it affects a large number of organizations operating under a similar stream or same domain. It cannot be planned by the organization. Types of risk under the group of systematic risk are listed as follows: 1. 2. 3. Interest rate risk. Market risk. Purchasing power or Inflationary risk.

The types of risk grouped under systematic risk are depicted below. 1. Interest rate risk Interest-rate risk arises due to variability in the interest rates from time to time. It particularly affects debt securities as they carry the fixed rate of interest. The interest-rate risk is further classified into following types. 1. 2. Price risk. Reinvestment rate risk.

The types of interest-rate risk are depicted below. The meaning of various types of interest-rate risk is discussed below. Price risk arises due to the possibility that the price of the shares, commodity, investment, etc. may decline or fall in the future. Reinvestment rate risk results from fact that the interest or dividend earned from an investment can't be reinvested with the same rate of return as it was acquiring earlier. 2. Market risk Market risk is associated with consistent fluctuations seen in the trading price of any particular shares or securities. That is, it is a risk that arises due to rise or fall in the trading price of listed shares or securities in the stock market. The market risk is further classified into following types. 1. 2. 3. 4. 5. Absolute risk. Relative risk. Directional risk. Non-directional risk. Basis risk.

6.

Volatility risk.

The types of market risk are depicted in the following diagram. The meaning of different types of market risk is briefly discussed below. Absolute Risk is the risk without any content. For e.g., if a coin is tossed, there is fifty percentage chance of getting a head and vice-versa. Relative risk is the assessment or evaluation of risk at different levels of business functions. For e.g. a relative risk from a foreign exchange fluctuation may be higher if the maximum sales accounted by an organization are of export sales. Directional risks are those risks where the loss arises from an exposure to the particular assets of a market. For e.g. an investor holding some shares experience a loss when the market price of those shares falls down. Non-Directional risk arises where the method of trading is not consistently followed by the trader. For e.g. the dealer will buy and sell the share simultaneously to mitigate the risk. Basis risk is due to the possibility of loss arising from imperfectly matched risks. For e.g. the risks which are in offsetting positions in two related but non-identical markets. Volatility risk is the risk of a change in the price of securities as a result of changes in the volatility of a risk factor. For e.g. volatility risk applies to the portfolios of derivative instruments, where the volatility of its underlying is a major influence of prices. 3. Purchasing power or inflationary risk Purchasing power risk is also known as inflation risk. It is so, since it emanates (originates) from the fact that it affects a purchasing power adversely. It is not desirable to invest in securities during an inflationary period.

The purchasing power or inflationary risk is classified into following types. 1. 2. Demand inflation risk. Cost inflation risk.

The types of purchasing power or inflationary risk are depicted below. Demand inflation risk arises due to increase in price, which result from an excess of demand over supply. It occurs when supply fails to cope with the demand and hence cannot expand anymore. In other words, demand inflation occurs when production factors are under maximum utilization. Cost inflation risk arises due to sustained increase in the prices of goods and services. It is actually caused by higher production cost. A high cost of production inflates the final price of finished goods consumed by people Systematic risk refers to the risk intrinsic to the complete market or the complete market segment. Systematic risk is also sometimes referred as market risk or undiversifiable risk. As explained by Investopedia, recession, wars, and interest rate represent the sources for systematic risk for they affect the complete market and are unavoidable through diversification. While this risk type affects a wide range of securities, unsystematic risk affects quite a particular group of securities or even an individual security. Moreover, systematic risk can be reduced by just being hedged. Example of systematic risk To illustrate systematic risk, let us take the example of an individual investor who purchases stock worth $10,000 I 10 biotechnology companies. If unexpected events lead to a appalling setback and one or more companies face a drop in the stock price, the investor experiences a loss. On the contrary, an investor purchasing stock worth $100,000 in a single biotechnology company would experience ten times the loss from such an event. The second investors portfolio involves more unsystematic risk as compared to the diversified portfolio. As a final point, if the setback was aimed at affecting the

complete industry instead, the investors would experience similar losses, resulting from systematic risk. Sources of systematic risk Systematic risk results from political factors, economic crashes, and recessions, changes in taxation, natural disasters, and foreign-investment policy. These risks are widespread as they can affect any investment or any organization. Mitigating risk Systematic risks are a little difficult to be mitigated. This is due to the reason that they are brought forth by the existing economic conditions or similar factors which are not in the control of the business management. Identifying risk Systematic risks are recognized by estimating and analyzing the statistical relationships between the different asset portfolios of an organization through the use of techniques like principal components analysis. Risk handling There is, however, no well defined method for handling systematic risks as they show impact on the entire market. Investment decision The decision of the investor on whether to reject or accept different investment options depends upon the risk type carried by the investment. In case of systematic risk like inflation, investors would like to invest in stable and less risky portfolio like a real estate. Systemic risk has been compared to a bank run which has a cascading effect on other banks which are owed money by the first bank in trouble, causing a cascading failure. As depositors sense the ripple effects of default, and liquidity concerns cascade through money markets, a panic can spread through a market, with a sudden flight to quality, creating many sellers but few buyers for illiquid assets. These interlinkages

and the potential "clustering" of bank runs are the issues which policy makers consider when addressing the issue of protecting a system against systemic risk. [1]
[5]

Governments and market monitoring institutions (such as the U.S. Securities and

Exchange Commission (SEC), and central banks) often try to put policies and rules in place with the ostensible justification of safeguarding the interests of the market as a whole, claiming that the trading participants in financial markets are entangled in a web of dependencies arising from their interlinkage. In simple English, this means that some companies are viewed as too big and too interconnected to fail. Policy makers frequently claim that they are concerned about protecting the resiliency of the system, rather than any one individual in that system.[5] Systemic risk should not be confused with market or price risk as the latter is specific to the item being bought or sold and the effects of market risk are isolated to the entities dealing in that specific item. This kind of risk can be mitigated by hedging an investment by entering into a mirror trade. Insurance is often easy to obtain against "systemic risks" because a party issuing that insurance can pocket the premiums, issue dividends to shareholders, enter insolvency proceedings if a catastrophic event ever takes place, and hide behind limited liability. Such insurance, however, is not effective for the insured entity. One argument that was used by financial institutions to obtain special advantages in bankruptcy for derivative contracts was a claim that the market is both critical and fragile.[1][5][6][7] However, evidence overwhelmingly suggests that such special treatment, justified by arguments about systemic risk, actually exacerbated systemic risk during the financial crisis and forced the government to bail out derivatives traders. Systemic risk can also be defined as the likelihood and degree of negative consequences to the larger body. With respect to federal financial regulation, the systemic risk of a financial institution is the likelihood and the degree that the institution's activities will negatively affect the larger economy such that unusual and extreme federal intervention would be required to ameliorate the effects.[8]

Measurement of systemic risk According to the Property Casualty Insurers Association of America, there are two key assessments for measuring systemic risk, the "too big to fail" (TBTF) and the "too interconnected to fail" (TICTF) tests. First, the TBTF test is the traditional analysis for assessing the risk of required government intervention. TBTF can be measured in terms of an institution's size relative to the national and international marketplace, market share concentration, and competitive barriers to entry or how easily a product can be substituted. Second, the TICTF test is a measure of the likelihood and amount of medium-term net negative impact to the larger economy of an institution's failure to be able to conduct its ongoing business. The impact is measure beyond the institution's products and activities to include the economic multiplier of all other commercial activities dependent specifically on that institution. The impact is also dependent on how correlated an institution's business is with other systemic risks.[9] Too Big To Fail: The traditional analysis for assessing the risk of required government intervention is the "Too Big to Fail" Test (TBTF). TBTF can be measured in terms of an institution's size relative to the national and international marketplace, market share concentration (using the Herfindahl-Hirschman Index for example), and competitive barriers to entry or how easily a product can be substituted. While there are large companies in most financial marketplace segments, the national insurance marketplace is spread among thousands of companies, and the barriers to entry in a business where capital is the primary input are relatively minor. The policies of one homeowners insurer can be relatively easily substituted for another or picked up by a state residual market provider, with limits on the underwriting fluidity primarily stemming from state-by-state regulatory impediments, such as limits on pricing and capital mobility. There are arguably either no or extremely few insurers that are TBTF in the U.S. marketplace. Too Interconnected to Fail: A more useful systemic risk measure than a traditional TBTF test is a "Too Interconnected to Fail" (TICTF) assessment. An intuitive TICTF analysis has been at the heart of most recent federal financial emergency relief decisions. TICTF is a measure of the likelihood and amount of medium-term net negative impact to the larger economy of an institution's failure to be able to conduct its ongoing business. The impact is measured not just on the institution's products and

activities, but also the economic multiplier of all other commercial activities dependent specifically on that institution. It is also dependent on how correlated an institution's business is with other systemic risk.[10] Factors Factors that are found to support systemic risks are: 1. Economic implications of models are not well understood. Though each individual model may be made accurate, the facts that (1) all models across the board use the same theoretical basis, and (2) the relationship between financial markets and the economy is not known lead to aggravation of systemic risks. 2. Liquidity risks are not accounted for in pricing models used in trading on the financial markets. Since all models are not geared towards this scenario, all participants in an illiquid market using such models will face systemic risks. Diversification Risks can be reduced in four main ways: Avoidance, Diversification, Hedging and Insurance by transferring risk. Systemic risk, also called market risk or undiversifiable risk, is a risk of securitythat cannot be reduced through diversification. Participants in the market, like hedge funds, can be the source of an increase in systemic risk[12] and transfer of risk to them may, paradoxically, increase the exposure to systemic risk. Until recently, many theoretical models of finance pointed towards the stabilizing effects of diversified (i.e., dense) financial system. Nevertheless, some recent work has started to challenge this view, investigating conditions under which diversification may have ambiguous eects on systemic risk.[13][14] Within a certain range, financial interconnections serve as shock-absorber (i.e., connectivity engenders robustness and risk-sharing prevails). But beyond the tipping point, interconnections might serve as shock-amplifier (i.e., connectivity engenders fragility and risk-spreading prevails).

Regulation One of the main reasons for regulation in the marketplace is to reduce systemic risk.
[5]

However, regulation arbitrage - the transfer of commerce from a regulated sector to

a less regulated or unregulated sector - brings markets a full circle and restores systemic risk. For example, the banking sector was brought under regulations in order to reduce systemic risks. Since the banks themselves could not give credit where the risk (and therefore returns) were high, it was primarily the insurance sector which took over such deals. Thus the systemic risk migrated from one sector to another and proves that regulation of only one industry cannot be the sole protection against systemic risks. Project risks In the fields of project management and cost engineering, systemic risks include those risks that are not unique to a particular project and are not readily manageable by a project team at a given point in time. These risks may be driven by the nature of a company's project system (e.g., funding projects before the scope is defined), capabilities, or culture. They may also be driven by the level of technology in a project or the complexity of a project's scope or execution strategy.[16] Systemic risk and insurance In February 2010, international insurance economics think tank, The Geneva Association, published a 110-page analysis of the role of insurers in systemic risk.[17] In the report, the differing roles of insurers and banks in the global financial system and their impact on the crisis are examined (See also CEA report, "Why Insurers Differ from Banks").[18] A key conclusion of the analysis is that the core activities of insurers and reinsurers do not pose systemic risks due to the specific features of the industry: Insurance is funded by up-front premia, giving insurers strong operating cashflow without the requirement for wholesale funding; Insurance policies are generally long-term, with controlled outflows, enabling insurers to act as stabilisers to the financial system;

During the hard test of the financial crisis, insurers maintained relatively steady capacity, business volumes and prices.

Applying the most commonly cited definition of systemic risk, that of the Financial Stability Board (FSB), to the core activities of insurers and reinsurers, the report concludes that none are systemically relevant for at least one of the following reasons:

Their limited size means that there would not be disruptive effects on financial markets;

An insurance insolvency develops slowly and can often be absorbed by, for example, capital raising, or, in a worst case, an orderly wind down;

The features of the interrelationships of insurance activities mean that contagion risk would be limited.

The report underlines that supervisors and policymakers should focus on activities rather than financial institutions when introducing new regulation and that upcoming insurance regulatory regimes, such as Solvency II in the European Union, already adequately address insurance activities. However, during the financial crisis, a small number of quasi-banking activities conducted by insurers either caused failure or triggered significant difficulties. The report therefore identifies two activities which, when conducted on a widespread scale without proper risk control frameworks, have the potential for systemic relevance. Derivatives trading on non-insurance balance sheets; Mis-management of short-term funding from commercial paper or securities lending. The industry has put forward five recommendations to address these particular activities and strengthen financial stability: The implementation of a comprehensive, integrated and principle-based supervision framework for insurance groups, in order to capture, among other things, any non-insurance activities such as excessive derivative activities.

Strengthening liquidity risk management, particularly to address potential mismanagement issues related to short-term funding.

Enhancement of the regulation of financial guarantee insurance, which has a very different business model than traditional insurance.

The establishment of macro-prudential monitoring with appropriate insurance representation.

The strengthening of industry risk management practices to build on the lessons learned by the industry and the sharing experiences with supervisors on a global scale.

Since the publication of The Geneva Association statement, in June 2010, the International Association of Insurance Supervisors (IAIS) issued its position statement on key financial stability issues. A key conclusion of the statement was that, The insurance sector is susceptible to systemic risks generated in other parts of the financial sector. For most classes of insurance, however, there is little evidence of insurance either generating or amplifying systemic risk, within the financial system itself or in the real economy. Other organisations such as the CEA and the Property Casualty Insurers Association of America (PCI)[20] have issued reports on the same subject.