AN INVESTOR PERCEPTION IN DERIVATIVE MARKET AT CHENNAI

A PROJECT REPORT Submitted to the SCHOOL OF MANAGEMENT

In partial fulfillment of the requirements for the award of the degree of MASTER OF BUSINESS ADMINSTRATION

By RAJESHKUMAR.S (35080455)

Under the guidance of Mrs.J.Devi Manohari Asst.professor

SRM SCHOOL OF MANAGEMENT SRM UNIVERSITY KATTANKULATHUR 603 203 MAY2010

SCHOOL OF MANAGEMENT SRM UNIVERSITY SRM Nagar, Kattankulathur-603203 Phone: 044-27452270, 27417777, Fax: 044-27453903 E-hod@mba.srmuniv.ac.in, website: www.srmuniv.ac.in ________________________________________________________________________

BONAFIDE CERTIFICATE

Certified that this project report titled An investor perception in derivative market at chennai is the bonafide work of Mr. Rajeshkumar .S who carried out the research under my supervision. Certified further, that to the best of my knowledge the work reported herein does not from part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.

Signature of the supervisor

Signature of the HOD

ACKNOWLEDGEMENT
First of all let me take this opportunity to sincerely thank DR. (Mrs.) JAYSHREE, Dean, SRM School of Management, for having providing me with this golden opportunity to have an industry interface and do my project at PSB securities Pvt. Ltd.

I express my sincere gratitude to Mrs.J.Devi Manohari , my faculty guide, whose able guidance and help played a key role towards the completion of the project.

Categorically, I deem it an opportunity to express my gratitude towards the staff of PSB securities. I would like to extend my thanks to Mr. P.B Subramaniyan (Director) and Mr.Karthik my organizational guide for providing me an opportunity and continuous guidance throughout the project.

(Rajeshkumar.S)

TABLE OF CONTENTS
CHAPTER NO CONTENT CHAPTER 1 1.1 Introduction CHAPTER 2 2.1 2.2 2.3 Objectives Scope of the study Limitations of the study CHAPTER 3 3.1 Research methodology CHAPTER 4 4.1 Company profile CHAPTER 5 5.1 Analysis and interpretation CHAPTER 6 6.1 Findings CHAPTER 7 7.1 Suggestions CHAPTER 8 8.1 Conclusion 70 69 67 32 30 28 25 26 27 10 PAGE NO

LIST OF TABLES

S.no

Name Gender of The Respondents

Pg.no 32

1 33 Respondents Awareness Towards Derivative Segment 2 34 Investors Preference Towards Derivative Segment 3 35 Investors Preference Towards Derivative Product 4 36 Participants Of Derivative Product 5 37 Investors Preference Towards Number Of Contracts 6 38 7 Investors Attractive Reasons For Investing In Derivative Segment 39 Risk Management Of Derivative User 8 40 9 Respondents Level Of Interest In Knowing About Derivative Segment 41 10 Level Of Agreeableness / Disagreeableness Of Non Derivative Users 42 Gender Of The Respondents Towards Users And Non Users 11 43 Age Level Of The Respondents 12 13 Educational Qualification Of The Respondents 44

s.no

Name

Pg no 45

Occupation Of The Respondents 14 46 Income Level Of The Respondents 15 47 Period Of Investment Of the Respondents 16 48 Income Level And Percentage Of Investment 17 49 Percentage Of Investment Of Users And Non Users 18 50 Derivative Participants Preference Towards Its Product 19 51 20 Derivative Participants Preference Towards Number Of Contracts 52 Level Of Perception Of Derivative Users Towards Gender 21 53 Level Of Perception Of Derivative Users Towards Education 22 54 Level Of Perception Of Derivative Users Towards Occupation 23 55 24 Ranking Among Sectors For Investing 56 25 Risk Factors For Investing In Derivative Market 57 26 Reasons For Not Investing In Derivative Market

ChiSquare Analysis 58
Gender And Users Towards Derivative Market

27 59 28 Awareness And Interest Towards Investing In Derivative Market 60 Age Level And Gender Of The Investors 29 61 30 Gender And Awareness Towards Derivative Market 62 31 Income Level And Users Towards Derivative Market 63 32 Age Level And Percentage Of Investment 64 33 Risk Factors For Investing In Derivative Market 65 34 Investors Preference Towards Different Sectors For Investing 66 35 Reasons For Not Investing In Derivative Market

LIST OF CHARTS/FIGURES

S.no

Name Gender of The Respondents

Pg.no 32

1 33 Respondents Awareness Towards Derivative Segment 2 34 Investors Preference Towards Derivative Segment 3 35 Investors Preference Towards Derivative Product 4 36 Participants Of Derivative Product 5 37 Investors Preference Towards Number Of Contracts 6 38 7 Investors Attractive Reasons For Investing In Derivative Segment 39 Risk Management Of Derivative User 8 40 9 Respondents Level Of Interest In Knowing About Derivative Segment 41 10 Level Of Agreeableness / Disagreeableness Of Non Derivative Users 42 Gender Of The Respondents Towards Users And Non Users 11 43 Age Level Of The Respondents 12

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Educational Qualification Of The Respondents 13 45 Occupation Of The Respondents 14 46 Income Level Of The Respondents 15 47 Period Of Investment Of the Respondents 16 48 Income Level And Percentage Of Investment 17 49 Percentage Of Investment Of Users And Non Users 18 50 Derivative Participants Preference Towards Its Product 19 51 20 Derivative Participants Preference Towards Number Of Contracts 52 Level Of Perception Of Derivative Users Towards Gender 21 53 Level Of Perception Of Derivative Users Towards Education 22 54 Level Of Perception Of Derivative Users Towards Occupation 23

CHAPTER 1

INTRODUCTION

1.1 DERIVATIVES MARKETS:

1.1.1 GLOBAL DERIVATIVES MARKETS: 'By far the most significant event in finance during the past decade has been the extraordinary development and expansion of financial derivatives. These instruments enhance the ability to differentiate risk and allocate it to those investors most able and willing to take it - a process that has undoubtedly improved national productivity growth and standards of living.' -- Alan Greenspan, Chairman, Board of Governors of the US Federal Reserve System. The past decade has witnessed an explosive growth in the use of financial derivatives by a wide range of corporate and financial institutions. The following factors which have generally been identified as the major driving force behind growth of financial derivatives are the,

Increased volatility is asset prices in financial markets; the increased integration of national financial markets with the international markets; the marked improvement in communication facilities and sharp decline in their costs; the development of more sophisticated risk management strategies; and the innovation in the number of financial assets, leading to higher return, reduced risk as well as transaction cost as compared to individual financial assets. The growth in derivatives has run in parallel with increasing direct reliance of companies on the capital markets as the major source of long term funding. In this respect, derivatives have a vital role to play in enhancing shareholder value by ensuring access to the cheapest source of funds. Furthermore, active use of

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derivative instrument allows the overall business risk profile to be modified, thereby providing the potential to improve earnings quality by offsetting undesired risk.

Financial derivatives have changed the face of finance by creating new ways to understand, measure, and manage financial risks. Critics believe that derivatives create risks that are uncontrollable and not well understood .some critics liken derivatives to gene splicing: potentially useful, but very dangerous, especially if used by a neophyte or a madman without proper safeguards.

Futures history can be traced back to middle ages where markets were meant to address the needs of the farmers and the merchants. The Chicago Board of Trade (CBOT) was established in 1848 to bring farmers and merchants together. Initially, its main task was to standardize the quantities and qualities of the grains that were traded. The first futures type contract developed was called "to-arrive contract". The CBOT now offers futures contracts on many different underlying assets in commodities and financial markets. Many other exchanges in the world now offer futures contracts. Eurex, the German-Swiss derivatives exchange, was the worlds biggest financial futures exchange at the end of 1999, overtaking the Chicago Board of Trade for the first time after a huge increase in contracts traded in 1999. Eurex traded more than 379 million contracts during 1999, 53% more than in 1998. This is expected to be well above the comparable figure for the CBOT, where officials are expecting a fall of about 10% from the 1998 total, when a record 281.2 million contracts were traded. LIFFE, the London market, is also expecting a sharp fall in volumes to some 120 million contracts, compared with 194 million in 1998. MATIF, the French derivatives market traded 183 million contracts in 1999, more than double its 1998 total. LIFFE lost its European lead when trading in the futures contracts on 10 year German government bonds (bunds) migrated to the electronic Eurex system two years ago. Like the CBOT, trading volumes are also likely to be lower at the Chicago Mercantile Exchange, the second biggest US futures market.

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1.1.2 DERIVATIVES: AN INNOVATIVE TOOL IN THE INDIAN MARKET Keeping in view the experience of even strong and developed economies the world over, it is no denying the fact that financial market is extremely volatile by nature. Indian financial market is not an exception to this phenomenon. The attendant risk arising out of the volatility and complexity of the financial market is an important concern for financial analysts. As a result, the logical need is for those financial instruments which allow fund managers to better manage or reduce these risks. Out of various risks, Credit Risk and Interest Rate risk are the two core risks which are commonly acknowledged by various categories of Financial Institutions particularly banks. Effective management of these core risks is a critical factor in comprehensive risk management and is essential for the long term financial health of business organizations, especially banks. With gradual liberalization of Indian financial system and the growing integration among markets, the risks associated with operations of banks and All India Financial Institutions have become increasingly complex, requiring strategic management. In keeping with spirit of the guidelines on Asset-Liability Management (ALM) systems and on integrated risk management systems, it is very much required to design risk management architecture, taking into consideration the size, complexity of business, risk philosophy, market perception and the level of capital. In addition, fine-tuning the risk management system to deal with credit and market risk is also the need of the hour. For enabling the banks and the financial institutions, among others, to manage their risk effectively, the concept of derivatives comes into picture. The concept of derivatives is not new to the Indian market, derivatives in commodity market has long history over 100 years. In 1875, first future exchange was set up in Mumbai under the Bombay cotton trade association. A future market for oil seeds non- established in1900. Future market in Hapur (1913) and future market in Mumbai in1920. The first step towards re-introduction of derivatives in India was the promulgation of securities, law (amed) ordinance, 1991.

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DERIVATIVES DEFINED:

Derivative is a product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index, or reference rate), in a contractual manner. The underlying asset can be equity, forex, commodity or any other asset. For example, wheat farmers may wish to sell their harvest at a future date to eliminate the risk of a change in prices by that date. Such a transaction is an example of a derivative. The price of this derivative is driven by the spot price of wheat which is the underlying. In the Indian context the Securities Contracts (Regulation) Act, 1956 (SC(R) A) defines Derivative to include

1. A security derived from a debt instrument, share, loan whether secured or unsecured, risk instrument or contract for differences or any other form of security.

2. A contract which derives its value from the prices, or index of prices, of underlying securities. Derivatives are securities under the SC(R) A and hence the trading of derivatives is governed By the regulatory framework under the SC(R) A.

TYPES OF DERIVATIVES: Some of the basic derivatives products widely used in the financial markets are as under: FORWARDS: Forward contract is different from a spot transaction, where payment of price and delivery of commodity concurrently take place immediately the transaction is settled. In a forward contract the sale/purchase transaction of an asset is settled including the price payable, not for delivery/settlement at spot, but at a specified future date. India has a strong dollar-rupee forward market with contracts being traded for one, two, Six month expiration. Daily trading volume on this forward market is around $500 million a day.

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FUTURES: A futures contract has been defined as "a standardized, exchange-traded agreement specifying a quantity and price of a particular type of commodity (soybeans, gold, oil, etc.) to be purchased or sold at a pre-determined date in the future. On contract date, delivery and physical possession take place unless the contract has been closed out. Futures are also available on various financial products and indexes today. A futures contract is thus a forward contract, which trades on an exchange. S&P CNX Nifty futures are traded on National Stock Exchange. This provides them transparency, liquidity, anonymity of trades, and also eliminates the counter party risks due to the guarantee provided by National Securities Clearing Corporation Limited. OPTIONS: Options are the standardized financial contracts that allows the buyer (holder) of the options, i.e. the right at the cost of option premium, not the obligation, to buy (call options) or sell (put options) a specified asset at a set price on or before a specified date through exchanges under stringent financial security against default. WARRANTS:

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

LEAPS:

The acronym LEAPS means Long-Term Equity Anticipation Securities. These are options having a maturity of Upto three years.

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BASKETS:

Basket options are options on portfolios of underlying assets. The underlying asset is usually a moving average of a basket of assets. Equity index options are a form of basket options.

SWAPS:

Swaps are private agreements between two parties to exchange cash fl ows in the future according to a prearranged formula. They can be regarded as portfolios of forward contracts. The two commonly used swaps are:

INTEREST RATE SWAPS:

These entail swapping only the interest related cash flows between the Parties in the same currency.

CURRENCY SWAPS:

These entail swapping both principal and interest between the parties, with the cash flows in one direction being in a different currency than those in the opposite direction.

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DERIVATIVE PARTICIPANTS: HEDGERS: Hedgers for protecting (risk-covering) against adverse movement. Hedging is a mechanism to reduce price risk inherent in open positions. Derivatives are widely used for hedging. A Hedge can help lock in existing profits. Its purpose is to reduce the volatility of a portfolio, by reducing the risk. SPECULATORS: Speculators to make quick fortune by anticipating/forecasting future market movements. Hedgers wish to eliminate or reduce the price risk to which they are already exposed. Speculators, on the other hand are those classes of investors who willingly take price risks to profit from price changes in the underlying. While the need to provide hedging avenues by means of derivative instruments is laudable, it calls for the existence of speculative traders to play the role of counter-party to the hedgers. It is for this reason that the role of speculators gains prominence in a derivatives market. ARBITRAGEURS: Arbitrageurs to earn risk-free profits by exploiting market imperfections. Arbitrageurs profit from price differential existing in two markets by simultaneously operating in the two different markets. DEVELOPMENT OF INDIAN DERIVATIVE MARKET: 1995: Promulgation of the Securities Laws (Amendment) Ordinance 1995 withdrawing prohibition on options in securities. November 1996: SEBI set up a 24 member committee under the chairmanship of Dr. L. C. Gupta with a view to develop regulatory framework for derivatives trading in India.

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March 1998: L C Gupta Committee submitted its report recommending, inter-alia, that derivatives be declared as securities so that regulatory framework applicable for trading of securities could also be applicable for derivatives. June 1998: SEBI set up a Committee under the Chairmanship of Prf. J. R. varma to recommend measures for risk containment in derivatives market in India. December 1999: Securities Contract Regulation Act was amended to include derivatives within the purview of securities. Regulatory framework was developed for governing the trading of derivatives. June 2000: Derivative trading started in India. 2001: SEBI permitted the derivative segment of National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) and their clearing house/corporation to commence trading and settlement in approved derivatives contract. Approval and commencement of trading in index futures contract based on S&P CNX Nifty and BSE-30 (Sensex) index as well as for trading in futures on individual securities. Approval and commencement of trading in index options based on S&P CNX Nifty and BSE-30 (Sensex) index as well as for trading in options on individual securities. March 2003: RBI issued a draft Guidelines for introduction of credit derivatives in India. 2002- 2003: In pursuance of the recommendations of the Working Group on Rupee Derivatives (Chairman: Shri Jaspal Bindra), banks and primary dealers were permitted to undertake transactions in exchange traded interest rate derivatives in June 2003. In the first phase, only interest rate futures have been introduced and banks were allowed to hedge interest rate risk inherent in the government securities, portfolio. Accordingly, trading in interest rate futures contracts in notional 10-year GOI Bonds, notional 91-day Treasury Bills and 10-year zero coupon bonds commenced at NSE in June 2003.

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July 2003: Authorized Dealers in Foreign Exchange were permitted to offer foreign currency-rupee options w.e.f. July 07, 2003 to residents and non-residents for hedging currency exposures.

GROWTH OF DERIVATIVE MARKET IN INDIA: The derivative market has a massive growth in the Indian stock market over the past years. The following figure represents the evolution of financial derivatives product in the Indian stock market.

FINANCIAL DERIVATIVES EVOLUTION OF PRODUCTS

Sectoral indices Stock futures Stock options Equity Index options

Interest Rate futures

Equity Index futures

June 2000

June 2001

July 2001

Nov 2001

Dec 2002

June 2003

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USAGE OF DERIVATIVES: The derivatives perform a number of economic functions and their usages, inter-alia, are

Transferring the risk from risk averse people to risk oriented people Discovery of future as well as current prices Changing the nature of asset or liability without incurring the cost of selling one portfolio and buying another or vice versa

Exploiting market discrepancies through arbitrage Speculation

INTRODUCTION TO FUTURES AND OPTIONS:

In recent years, derivatives have become increasingly important in the field of finance. While futures and options are now actively traded on many exchanges and considered as one of the important market in the stock exchanges.

INTRODUTION TO FUTURES:

Futures markets were designed to solve the problems that exist in forward markets. A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. But unlike forward contracts, the futures contracts are standardized and exchange traded. To facilitate liquidity in the futures contracts, the exchange specifies certain standard features of the contract. It is a standardized contract with standard underlying instrument, a standard quantity and quality of the underlying instrument that can be delivered, (or which can be used for reference purposes in settlement) and a standard timing of such settlement. A futures contract may be offset prior to maturity by entering into an equal and opposite transaction. More than 99% of futures transactions are offset this way. The standardized items in a futures contract are: Quantity of the underlying Quality of the underlying

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THE FIRST FINANCIAL FUTURES MARKET:

Merton Miller, the 1990 Nobel laureate had said that financial futures represent the most significant financial innovation of the last twenty years. The first exchange that traded financial derivatives was launched in Chicago in the year 1972. A division of the Chicago Mercantile Exchange, it was called the International Monetary Market (IMM) and traded currency futures. The brain behind this was a man called Leo Melamed, acknowledged as the father of financial futures who was then the Chairman of the Chicago Mercantile Exchange. Before IMM opened in 1972, the Chicago Mercantile Exchange sold contracts whose value was counted in millions. By 1990, the underlying value of all contracts traded at the Chicago Mercantile Exchange totaled 50 trillion dollars. These currency futures paved the way for the successful marketing of a dizzying array of similar products at the Chicago Mercantile Exchange, the Chicago Board of Trade, and the Chicago Board Options Exchange. By the 1990s, these exchanges were trading futures and options on everything from Asian and American stock indexes to interestrate swaps, and their success transformed Chicago almost overnight into the risktransfer capital of the world.

INTRODUCTION TO OPTIONS:

Options are fundamentally different from forward and futures contracts. An option gives the holder of the option the right to do something. The holder does not have to exercise this right. In contrast, in a forward or futures contract, the two parties have committed themselves to doing something. Whereas it costs nothing(except margin requirements) to enter into a futures contract, the purchase of an option requires an up front payment.

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HISTORY OF OPTIONS:

Although options have existed for a long time, they were traded OTC, without much knowledge of valuation. The first trading in options began in Europe and the US as early as the seventeenth century. It was only in the early 1900s that a group of firms set up what was known as the put and call Brokers and Dealers Association with the aim of providing a mechanism for bringing buyers and sellers together. If someone wanted to buy an option, he or she would contact one of the member firms. The firm would then attempt to find a seller or writer of the option either from its own clients or those of other member firms. If no seller could be found, the firm would undertake to write the option itself in return for a price. This market however suffered from two deficiencies. First, there was no secondary market and second, there was no mechanism to guarantee that the writer of the option would honor the contract. In 1973, Black, Merton and Scholes invented the famed Black-Scholes formula. In April 1973, CBOE was set up specifically for the purpose of trading options. The market for options developed so rapidly that by early 80s, the number of shares underlying the option contract sold each day exceeded the daily volume of shares traded on the NYSE. Since then, there has been no looking back.

INDEX DERIVATIVES:

Index derivatives are derivative contracts which derive their value from an underlying index. The two most popular index derivatives are index futures and index options. Index derivatives have become very popular worldwide. In his report, Dr.L.C.Gupta attributes the popularity of index derivatives to the advantages they offer. Institutional and large equity-holders need portfolio-hedging facility. Index derivatives are more suited to them and more costeffective than derivatives based on individual stocks. Pension funds in the US are known to use stock index futures for risk hedging purposes.

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Index derivatives offer ease of use for hedging any portfolio irrespective of its composition. Stock index is difficult to manipulate as compared to individual stock prices, more so in India, and the possibility of cornering is reduced. This is partly because an individual stock has a limited supply, which can be cornered.

Stock index, being an average, is much less volatile than individual stock prices. This implies much lower capital adequacy and margin requirements. Index derivatives are cash settled, and hence do not suffer from settlement delays and problems related to bad delivery, forged/fake certificates.

The L.C.Gupta committee which was setup for developing a regulatory framework for derivatives trading in India had suggested a phased introduction of derivative products in the following order: 1. Index futures 2. Index options 3. Options on individual stocks

Requirements for an index derivatives market are:

Index:

The choice of an index is an important factor in determining the extent to which the index derivative can be used for hedging, speculation and arbitrage. A well diversified liquid index ensures that hedgers and speculators will not be vulnerable to individual or industry risk.

Clearing corporation settlement guarantee: The clearing corporation eliminates counterparty risk on futures markets. The clearing corporation interposes itself into every transaction, buying from the seller and selling to the buyer. This insulates a participant from credit risk of another.

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Education and certification: The need for education and certification in the derivatives market can never be overemphasized. A critical element of financial sector reforms is the development of a pool of human resources with strong skills and expertise to provide quality intermediation to market participants.

With the entire above infrastructure in place, trading of index futures and index options commenced at NSE in June 2000 and June 2001 respectively. Index future is offered by majority of the investor the following are the salient features of index future contract.

RISK MANAGEMENT IN DERIVATIVES: The risks which are generally seen in derivatives are generally of four types:

(a) Credit risk:

This is the risk of loss due to a default of the counter party in honoring its commitment in a transaction .If the counter party is situated in another country, this also involves country risk , which is the risk of the counter party not honoring its commitment because of the restrictions imposed by the government though counter part itself is capable to do so.

(b) Market risk:

This is the risk of loss due to change in market prices. price risk can increase further due to market liquidity risk, which arises when large position in individual instruments or exposures reach more than a certain percentage of the market, instrument or issue. Such a large position could be potentially illiquid and not be capable of being replaced or hedged out at the current market value and as a result may be assumed to carry extra risk.

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(c) Legal risk:

Legal risk is the risk that the organization will suffer financial loss either because contracts or individual provisions there of are unenforceable or inadequately documented, or because the precise relationship with the counterpart is unclear.

(d) Operations risk:

The organization may be exposed to financial loss either through human error, mis judgment, negligence and malfeasance, or through uncertainty, misunderstanding and confusion as to responsibility and authority.

This should be the following measures to reduce disasters with derivatives:-

(1) At the level of exchanges, position limits and surveillance procedures should be sound. (2) At the level of clearing houses, margin requirements should be stringently enforced, even when dealing is with large institutions. (3) At the level of individual companies with positions in the market, modern risk measurement systems should be established alongside the creation of capabilities in trading in derivatives. The basic idea, which should be steadfastly used when thinking about returns, is that risk also merits measurement.

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CHAPTER 2

OBJECTIVES, SCOPE AND LIMITATIONS OF THE STUDY

2.1

OBJECTIVES

To study the investors perception level and attitude towards derivative segment To understand the profile of the investors To analyze the investing habits of the investor towards derivative market. To analyze the factors influencing the investor in choosing the types of derivative Segment To analyze investors risk preferences towards derivative market.

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2.2 SCOPE OF THE STUDY

India is now one of the fastest economically growing nations. With its vast economy, Indians have a lot of options to invest their savings.

This study undertaken for PSB securities ltd aims to study the investors perception towards derivative market. The study would also analyze the awareness level of investors in this segment.

The study has been done by preparing a questionnaire which contains prospective questions put forth to the investors .The responses help in analyzing the profile and investing habits of the investor and factors influencing the investor in investing in derivative segment.

All this would help in giving suggestions to PSB securities ltd, in strengthening their marketing efforts and in determining the market potential for investments in derivative market.

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2.3 LIMITATIONS OF THE STUDY The area of the study is limited to the investors of PSB securities. Hence the results may not be true for other geographical locations. Validity and Reliability of the data depends on the truthfulness of the responses from the public. Time at the disposal of the researcher is limited. The size of the sample compared to the population is very small and hence it may not represent the whole population. A structured questionnaire was the basis for collecting the data, so it has the usual deficiencies attached to this technique of data collection.

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CHAPTER 3

3.1 RESEARCH METHODOLOGY

Business research is a systematic inquiry that provides information to guide business decisions and aimed to solve managerial problems. Business research is of recent origin and is largely supported by business organizations that hope to achieve competitive advantages.

Research methodology is a way to systematically solve the research problems. It may be understood as a science of studying how research is done scientifically. It includes the overall research design, the sampling procedure, data collection method and analysis procedure.

3.1.1

RESEARCH DESIGN

Research design stands for advance planning of the methods to be adopted for collecting the relevant data and the techniques to be used in analysis, keeping in view the objectives of the research and availability of time.

Descriptive research includes surveys and fact-finding enquiries of different kinds. The major purpose of this research is description of state of affairs as it exits at present.

In this survey the design used is descriptive in nature. The information is collected from the individuals and analyzed with the help of different statistical tools, for describing the relationship between various types of variables, pertaining to different investment options. Moreover Cross table Analysis has been done for processing the data and information is derived to meet the objectives of the study.

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3.1.2 METHOD OF DATA COLLECTION Structured Questionnaire method is used as an instrument for collecting information from the individuals. A Pilot study was conducted based on which a few changes were made in the Questionnaire.

3.1.3 SAMPLING DESIGN Since the populations of consumers of Investments are large in number, researcher was unable to collect information from all individuals due to limitation of time. So part of the population is taken for analyzing and generating the findings, which may be applicable for total market.

3.1.4 Sampling Unit The number of items selected from the population constitutes the sample size. The respondents of the study are present and future investors.

3.1.5

Sample Size The sample size taken for the study is 150

3.1.6

Sampling Method Sampling design is to clearly define set of objects, technically called the

universe to be studied. This research has finite set of universe and the sampling design used in the study is probability sampling.

Simple Random sampling method is used for the collection of data.

3.1.7 STATISTICAL TOOLS: The data has been mainly analyzed by using the following methods and tests. Cross Tabulation and Percentage method supplemented by appropriate charts. Percentage Analysis, Ranking Method, Chi Square Test.

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CHAPTER-4

COMPANY PROFILE

4.1 ABOUT PSB SECURITIES LTD: PSB Securities Limited operating with brand name Apollo Money is one of the countrys fastest upcoming stock broking firm, promoted by Mr. P.B Subramaniyan who was the founder director and who was instrumental in successfully managing Apollo Sindhoori Capital Investments Limited since incorporation of the company till it was taken over by Aditya Birla Group , now called as Aditya Birla Money Limited. The promoter has an impressive track record in terms of business acumen, penchant for technology, customer centric approach was instrumental in making Apollo Sindhoori Capital Investments Limited a technologically strong and vibrant, that enabled the company to record phenomenal growth, established presence at over 800 locations, which included over 200 own branches and 600 franchisees and more than 175000 client base. With just Rs100 lakhs investments the company was valued at Rs350 Crores when it was ultimately taken over by Birlas. This company is managed by team of well known experienced professionals from the capital market industry, having a clear focus on providing long term value addition to clients by maintaining highest standards of excellence and ethics

Apollo Money has its member ship of NSE, BSE, in the avenues of Equities & Derivatives, NSECDS Currency segment, MCX Commodities segment & CDSL Depository participant making it as a fully fledged broking house.

The company is focused on retail market by offering advanced technology, lowest brokerage in the industry and friendliest and efficient service thus making the

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unparalleled value for our customers The Management believes in partnership model in its vision of creating financial supermarket.

The services of Apollomoney.com shall consists of Stock Broking, Commodity Broking, DP-Services, Distribution of Mutual Fund ,Insurance both life and non-life insurance. The company has tied up with multiple Institutions for Banking, in order to ensure the clients get instantaneous exposure against their bank balances

Apollo Money website facilitates various options of Equity Trading under different schemes Viz Cash and Carry, Margin Intra Day Square-up (MIS) and Normal Trading. The investors will also have the option of simultaneously availing the Branch Service and centralized call centre. The investor will also have special window for doing Arbitrage trading either with cash/with existing securities. We have specialized in the art of guiding you with opportunities to earn with no risk, low risk and high return high risk. The Apollomoney.com vision is to provide and guide the Investors for long and short term Investments.

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CHAPTER 5 DATA ANALYSIS AND INTERPRETATION 5.1 ANALYSIS OF DATA TABLE 5.1.1 GENDER OF THE RESPONDENTS

GENDER Male Female Total

NO OF RESPONDENTS 120 30 150

% 80 20 100.0

FIG.5.1.1

GENDER OF THE RESPONDENTS

female 20%
M f

Male 80%

INFERENCE: From the above table it is identified that, 80% of the respondents are male and 20% of the respondents were female.

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TABLE 5.1.2 RESPONDENTS AWARENESS TOWARDS DERIVATIVE SEGMENT

AWARENESS Aware Unaware Total

NO OF RESPONDENTS 90 60 150 FIG.5.1.2

% 60 40 150

RESPONDENTS AWARENESS TOWARDS DERIVATIVE SEGMENT

Unaware 40% Aware 60%

Aware

INFERENCE: From the above table it is identified that, 60% of the respondents are aware and 40% of the respondents were unaware about the derivatives market.

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TABLE 5.1.3

INVESTORS PREFERENCE TOWARDS DERIVATIVE SEGMENT

DERIVATIVE SEGMENT Futures Options TOTAL

NO OF RESPONDENTS 29 13 42

% 69 31 100

FIG.5.1.3

INVESTORS PREFERENCE TOWARDS DERIVATIVE SEGMENT

Options 31%
Future s

Futures 69%

INFERENCE: From the above table it is identified that, 69% of the derivative users prefer futures for investing and 31% of the derivative users prefer options.

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TABLE 5.1.4

INVESTORS PREFERENCE TOWARDS DERIVATIVE PRODUCT

PRODUCTS Stock index futures Stock index options Futures on individual stock Options on individual stock Total

NO OF RESPONDENTS 5 3 24 10 42

% 11.9 7.14 57.14 23.81 100.0

FIG.5.1.4 INVESTORS PREFERENCE TOWARDS DERIVATIVE PRODUCT

57.14

60 50 40
23.81

30 % 20 10 0 Stock index Stock indexFutures on Options on futures options individual individual stock stock
11.9 7.14

INFERENCE: From the above table it is identified that, 57.14% of the investors who invest in derivative segment preferred towards futures on individual stock and 23.81%of them invest in options on individual stock 35

TABLE 5.1.5 PARTICPANTS OF DERIVATIVE PRODUCT

PARTICIPANTS Speculator Hedger Other Total

NO OF RESPONDENTS 14 18 10 42

% 33.33 42.86 23.81 100.0

FIG.5.1.5

PARTICPANTS OF DERIVATIVE PRODUCT

42.86 45 40 35 23.81 30 25 % 20 15 10 5 0 speculator Hedger other 33.33

INFERENCE: From the above table it is identified that, 42.86% of the investor participate as hedger in the derivative market and 33.33% of them as a speculator.

36

TABLE 5.1.6

INVESTORS PREFERENCE TOWARDS NUMBER OF CONTRACTS

CONTRACTS

1-3 contracts 3 -5 contracts Above 6 contracts Total

NO OF RESPONDENT S 32 7 3 42 FIG.5.1.6

76.19 16.67 7.14 100.0

INVESTORS PREFERENCE TOWARDS NUMBER OF CONTRACTS

76.19 80 70 60 50 % 40 16.67 30 20 10 0 1-3 contracts 3 -5 contracts Above 6 contracts 7.14

INFERENCE: From the above table it is identified that, 76.19% of the derivative users prefer to enter only 1 -3 contracts at a time and 16.67% would like to enter 3 -5 contracts at a time.

37

TABLE 5.1.7 INVESTORS ATTRACTIVE REASONS FOR INVESTING IN DERIVATIVE SEGMENT

ATTRACTIVE REASONS Diversification of risk Cash generation Potential for capital gain Other Total

NO OF RESPONDENTS 13 11 11 7 42

% 30.95 26.19 26.19 16.67 100.0

FIG.5.1.7 INVESTORS ATTRACTIVE REASONS FOR INVESTING IN DERIVATIVE SEGMENT

30.95 35 26.19 30 25 20 % 15 10 5 0 Diversification of risk Cash generation Potential for capital gain other TABLE 5.1.8 16.67 26.19

INFERENCE: From the above table it is identified that, 30.95% of the derivative users attractive reasons for investing is diversification of risk and 26.19 %were for potential for capital gain and cash generation

38

TABLE 5.1.8 RISK MANAGEMENT OF DERIVATIVE USER

MANAGEMENT OF RISK Moderately well prepared Mixed Poor Total

NO OF RESPONDENT S 18 21 3 42

42.86 50 7.14 100

FIG.5.1.8

RISK MANAGEMENT OF DERIVATIVE USER

50 42.86
50 45 40 35 30 percentage 25 20 15 10 5 0

7.14

MODERATELY WELL

MIXED

POOR

TABLE.5.1.9

INFERENCE: From the above table it is identified that, 50% of the derivative users would manage risk in market with the mixed proportion.

39

TABLE5.1.9 RESPONDENTS LEVEL OF INTEREST IN KNOWING ABOUT DERIVATIVE SEGMENT

INTEREST LEVEL Very much To some extent Not at all Total

NO OF RESPONDENTS 61 38 9 108 FIG 5.1.9

% 56.48 35.19 8.33 100.0

RESPONDENTS LEVEL OF INTEREST IN KNOWING ABOUT DERIVATIVE SEGMENT

56.48
60 50

35.19
40

% 30
20 10 0

8.33

Very much

To some extent

Not at all

INFERENCE: From the above table it is identified that, 56.48% of the non derivative users are interested in knowing about derivative segment.

40

TABLE 5.1.10 LEVEL OF AGREEABLENESS / DISAGREEABLENESS OF NON DERIVATIVE USERS

PARAMETERS Strongly disagree Disagree Nether agree nor disagree Agree Strongly agree Total

NO OF RESPONDENTS 23 12 22 39 12 108 FIG.5.1.10

% 21.3 11.11 20.37 36.11 11.11 100.0

LEVEL OF AGREEABLENESS / DISAGREEABLENESS OF NON DERIVATIVE USERS

36.11 40 35 30 21.3 25 20 % 15 10 5 0 20.37

11.11

11.11

Strongly disagree Disagree Nether agree nor disagree Agree Strongly agree

INFERENCE: From the above table it is identified that, 36.11% of the non derivative users were agree that this market is suitable for FII, mutual funds and corporate.

41

TABLE.5.1.11

GENDER OF THE RESPONDENTS TOWARDS USERS AND NON -USERS

S.No. 1 2

GENDER

DERIVATIVE USER No. of % Respondents 36 6 42 FIG.5.1.11 85.7 14.3 100.0

NON DERIVATIVE USER No. of % Respondents 84 24 108 84 24 100.0

Male Female Total

GENDER OF THE RESPONDENTS TOWARDS USERS AND NON - USERS

85.7
90 80 70 60 50

84

%
40 30 20 10 0

male

24 14.3

female

derivative user

non derivative user

INFERENCE: From the above table it is identified that 85.7% of the derivative users are male and 14.3 % of them were female and in non derivative users 84% are male and 24 %are female. 42

TABLE 5.1.12 AGE LEVEL OF THE RESPONDENTS

S. No. 1 2 3 4 5

AGE LEVEL Below 25 Yrs 26-35 Yrs 36-45Yrs 46-55 Yrs Above 55Yrs Total

DERIVATIVE USER No. of % Respondents 1 2.38 7 14 13 7 42 16.67 33.33 30.95 16.67 100.0

NON DERIVATIVE USER No. of % Respondents 9 8.33 28 25 29 17 108 25.93 23.15 26.85 15.74 100.0

FIG.5.1.12 AGE LEVEL OF THE RESPONDENTS

33.33

35 30 25 20 % 15
8.33 16.67 25.93 23.15

30.95 26.85

16.67 15.74

10 5 0
Below 25 Yrs 26-35 Yrs 36-45Yrs 46-55 Yrs Above 55Yrs 2.38

derivative users

Non derivative users

INFERENCE: From the above table it is identified that,33.33% of derivative users are under the age group of 36-45 years and in non derivative users 26.85% of them were under 46 -55yrs.

43

TABLE 5.1.13 EDUCATIONAL QUALIFICATION OF THE RESPONDENTS

S. No. 1 2 3 4

EDUCATIONAL QUALIFICATION School Degree Professional Others Total

DERIVATIVE USER No. of % Respondents 4 9.52 15 12 11 42 FIG.5.1.13 35.71 28.57 26.2 100.0

NON DERIVATIVE USER No. of % Respondents 31 28.7 29 27 21 108 26.85 25 19.45 100.0

EDUCATIONAL QUALIFICATION OF THE RESPONDENTS

40 35 30 25 % 20 15 10 5 0 School
9.52 28.7

35.71

28.57 26.85 25 26.2

19.45

Degree
derivative users

Professional
Non derivative users

Others

INFERENCE: From the above table it is identified that, 35.71% of the derivative users are degree holders and 28.7% of non derivative users were school.

44

TABLE 5.1.14

OCCUPATION OF THE RESPONDENTS

S. No. 1 2 3 4

OCCUPATION Salaried Self employed Business Other Total

DERIVATIVE USER No. of Responses % 8 12 13 9 42 FIG.5.1.14

NON DERIVATIVE USER No. of % Responses 19.05 43 39.82 24 24 17 108 22.22 22.22 15.74 100.0 30.95 21.43

28.57

100.0

OCCUPATION OF THE RESPONDENTS

39.82

40 35
28.57 30.95

30 25 % 20 15 10 5 0 Salaried Self employed derivative users Business Non derivative users Other
19.05 22.22 22.22 21.43

15.74

INFERENCE: From the above table it is identified that, 30.95% of the derivative users are doing business and 39.82%of non derivative users are salaried.

45

TABLE 5.1.15 INCOME LEVEL OF THE RESPONDENTS

S. No. 1 2 3 4

ANNUAL INCOME Below Rs.1lakhs Rs.1 - 3 lakhs Rs.3 - 5 lakhs Above Rs.5 lakhs Total

DERIVATIVE USER No. of Responses % 2 14 14 12 42 4.76 33.33 33.33 28.57 100.0

NON DERIVATIVE USER No. of % Responses 31 28.7 22 33 22 108 20.37 30.56 20.37 100.0

FIG.5.1.15

INCOME LEVEL OF THE RESPONDENTS

33.33 33.33 30.56 28.7 28.57

35 30 25 20 % 15 10 5 0
Below Rs.1lakhs Rs.1 - 3 lakhs
4.76 20.37

20.37

Rs.3 - 5 lakhs

Above Rs.5 lakhs

derivative users

Non derivative users

INFERENCE: From the above table it is identified that, 33.33% of the derivative users are under the income group of Rs. 1-5 lakhs and in non derivative users 30.56%of them are under Rs.3 -5 lakhs.

46

TABLE 5.1.16 PERIOD OF INVESTMENT OFTHE RESPONDENTS S. No. 1 2 3 4 . PERIOD OF INVST Less than 1 year 1 -3 year 3 -5 years More than 5 year Total DERIVATIVE USER No. of Responses % 0 11 12 19 42 0 26.19 28.57 45.24 100.0 NON DERIVATIVE USER No. of % Responses 14 12.96 30 35 29 108 27.78 32.41 26.85 100.0

FIG.5.1.16

PERIOD OF INVESTMENT OFTHE RESPONDENTS

50 45 40 35 30 % 25 20 15 10 5 0
45.24

32.41 27.78 26.19 28.57 26.85

12.96

Less than 1 year

1 -3 year

3 -5 years

More than 5 year

Derivative users

Non derivative users

INFERENCE: From the above table it is identified that, 45.24% of derivative users were investing for a period of more than 5 years and 32.41% of non derivative users are investing for a period of 3 years 47

TABLE 5.1.17 INCOME LEVEL AND PERCENTAGE OF INVESTMENT

INCOME LEVEL Less than 1 lakhs 1 -3 lakhs 3 -5 lakhs More than 5lakhs TOTAL

PERCENTAGE OF INVESTMENT Below 10% 10 -20% 20 -30% Above 30% 18.37 27.45 17.24 23.81 20.41 27.45 20.69 28.57 30.61 29.41 37.93 28.57 30.61 15.69 24.14 19.05 100.0 100.0 100.0 100.0 FIG.5.1.17

INCOME LEVEL AND PERCENTAGE OF INVESTMENT

40 35 30 25
18.37 20.41 15.69 30.61 30.61 27.45 24.14 23.81 20.69 19.05 17.24 27.45 29.41 37.93

28.57

28.57

% 20
15 10 5 0 Below 10% 10 -20%

20 -30%

Above 30%

Less than 1 lakhs

1 -3 lakhs

3 -5 lakhs

More than 5lakhs

INFERENCE: From the above table it is identified that, investors whose income level less than Rs.1 lakhs invest 10 -20%of their saving in this share market, Rs.1 -3 lakhs invest above 30%of their savings towards share market, Rs.3 -5 lakhs invest about 20 -30%of their savings in this market and more than Rs.5 lakhs invest only below 10%.

48

TABLE.5.1.18 PERCENTAGE OF INVESTMENT OF USERS AND NON USERS

S. No. 1 2 3 4

PERCENTAGE OF INVESTMENT Below 10% 10 - 20% 20 - 30% Above 40% Total

DERIVATIVE USER No. of % Respondents 16 38.1 17 8 1 42 40.48 19.05 2.38 100.0

NON DERIVATIVE USER No. of % Respondents 33 30.56 34 21 20 108 31.48 19.44 18.52 100.0

FIG.5.1.18 PERCENTAGE OF INVESTMENT OF USERS AND NON USERS

45 40 35 30 25 % 20 15 10 5 0

40.48 38.1 30.56 31.48

19.44 19.05

18.52

2.38

Below 10%

10 - 20% Derivative users

20 - 30% Non derivative users

Above 40%

INFERENCE: From the above table it is identified that, 40.48% of derivative users and 31.48% of non derivative users invest about 10 -20%.

49

TABLE.5.1.19 DERIVATIVE PARTICIPANTS PREFERENCE TOWARDS ITS PRODUCT

DERIVATIVE PRODUCTS
DERIVATIVE INDEX PARTICIPANTS FUTURE INDEX OPTION INDIVDUAL STK FUTURE INDIVIDUAL STK OPTION

speculator Hedger others TOTAL

40 60 0 100.0

33.33 33.33 33.33 100.0 FIG.5.1.19

25 54.17 20.83 100.0

50 10 40 100.0

DERIVATIVE PARTICIPANTS PREFERENCE TOWARDS ITS PRODUCT

60 60 50 50 40 40 33.33 25 20.83 33.33 33.33 40 54.17

30

20 10 10 0 0

speculator
INDEX FUTURE INDEX OPT ION

trader
INDIVDUAL STK FUTURE

others
INDIVIDUAL STK OPTION

INFERENCE: From the above table it is identified that, 60%of the hedger invest in index futures, 33.33%of them in index option and 54.17% in individual stock futures and 50%of them as speculator in individual stock option.

50

TABLE 5.1.20 DERIVATIVE PARTICIPANTS PREFERENCE TOWARDS NUMBER OF CONTRACTS

DERIVATIVE PARTICIPANTS speculator Hedger others TOTAL

1-3 3-6 ABOVE 6 CONTRACTS CONTRACTS CONTRACTS 34.38 28.57 33.33 40.62 42.86 66.67 25 28.57 0 100.0 100.0 100.0

FIG.5.1.20 DERIVATIVE PARTICIPANTS PREFERENCE TOWARDS NUMBER OF CONTRACTS

66.67 70 60 50 34.38 40 33.33 28.57 25 28.57 42.86 40.62

%
30 20 10 0

speculator 1 -3 contracts

trader 3 -6 contracts

others above6 contracts

INFERENCE: From the above table it is identified that, 40.62% of investors enter into 1-3 contracts, 42.86% of them are opting for 3-6 contracts and 75% of them are opting for more than 6 contracts.

51

TABLE 5.1.21 LEVEL OF PERCEPTION OF DERIVATIVE USERS TOWARDS GENDER

GENDER male female total

LEVEL OF PERCEPTION LOW MEDIUM HIGH 77.78 86.36 90.9 22.22 13.64 9.1 100.0 100.0 100.0 FIG.5.1.21

LEVEL OF PERCEPTION OF DERIVATIVE USERS TOWARDS GENDER

100 90 80 70 60 % 50 40 30 20 10 0 LOW
22.22 77.73

90.9 86.36

male female

13.64 9.1

MEDIUM

HIGH

INFERENCE: From the above table it is identified that, the level of perception is high towards male generation with 90.9% and low level of perception of 77.73%.

52

TABLE 5.1.22 LEVEL OF PERCEPTION OF DERIVATIVE USERS TOWARDS EDUCATION LEVEL OF PERCEPTION LOW MEDIUM HIGH 11.11 9.1 9.1 44.45 31.82 36.36 33.33 22.72 36.36 11.11 36.36 18.18 100.0 100.0 100.0 FIG.5.1.22 LEVEL OF PERCEPTION OF DERIVATIVE USERS TOWARDS EDUCATION

EDUCATION school degree profession other TOTAL

44.45 45 40 35 30 22.72 25 31.82 36.36 33.33 36.36 36.36

%
20 11.11 15 10 5 0 9.1 9.1 11.11

18.18

school

degree LOW

profession

other

TABLE 4.1.23 MEDIUM HIGH

INFERENCE: From the above table it is identified that, 36.36% of degree holders and professionals were of under high level of perception and 36.36% of others with medium level of perception.

53

TABLE 5.1.23 LEVEL OF PERCEPTION OF DERIVATIVE USERS TOWARDS OCCUPATION

EDUCATION salary self-employed business other TOTAL

LEVEL OF PERCEPTION LOW MEDIUM HIGH 22.22 22.73 9.1 11.11 31.82 36.36 33.33 31.82 27.27 33.33 13.63 27.27 100.0 100.0 100.0 FIG.5.1.23

LEVEL OF PERCEPTION OF DERIVATIVE USERS TOWARDS OCCUPATION

40 35 30 25 % 20 15 10 5 0 LOW
salary
11.11 9.1 13.63 22.22 36.36 33.33 33.33 31.82 31.82 27.27 27.27 22.73

MEDIUM
self-employed business

HIGH
other

INFERENCE: From the above table it is identified that, 36.36% of the self employed people were with high level of perception and 31.82%of both self employed and business people were with medium level of perception.

54

RANKING ANALYSIS TABLE 5.1.24 RANKING AMONG SECTORS FOR INVESTING

S.No 1 2 3 4 5 6

SECTORS IT sector banking sector Pharmaceutical sector Auto sector Cement sector Others

WEIGHTAGE SCORE 627 677 293 205 326 149

WEIGHTED AVERAGE 4.13 4.46 1.93 1.35 2.15 .98

RANK 2 1 4 5 3 6

INFERENCE: From the above table, it is inferred that, The Respondents have ranked banking sector as First in respect to their preference in investing. The Respondents have ranked IT sector as Second in respect to their preference in investing. The Respondents have ranked cement sector as Third in respect to their preference in investing. The Respondents have ranked pharma sector as fourth in respect to their preference in investing. The Respondents have ranked Automobile sector as fifth in respect to their preference in investing. The Respondents have ranked other sector as sixth in respect to their preference in investing.

55

TABLE 5.1.25

RISK FACTORS FOR INVESTING IN DERIVATIVE MARKET

RISK FACTORS Liquidity risk Asset volatility Hard to determine the best opportunities Risk of making poor investment Risk of poor professional advice

WEIGHTAGE SCORE 136 152 76

WEIGHTED AVERAGE 3.24 3.62 1.81

RANK 3 1 5

141

3.36

124

2.96

INFERENCE:

From the above table, it is inferred that, The derivative users have ranked asset volatility as first among the major risk factors The derivative users have ranked risk of making poor investment as second among the major risk factors The derivative users have ranked liquidity risk as third among the major risk factors The derivative users have ranked risk of poor professional advice as fourth among the major risk factors

The derivative users have ranked hard to determine the best opportunity as fifth among the major risk factors

56

TABLE 5.1.26

REASONS FOR NOT INVESTING IN DERIVATIVE MARKET

FACTORS High level of risk Lot size Contract specifications uncertainty Huge amount of investment

WEIGHTAGE SCORE 493 209 228 356 321

WEIGHTED AVERAGE 4.6 1.95 2.13 3.32 2.97

RANK 1 5 4 2 3

INFERENCE:

From the above table, it is inferred that,

The non derivative users have ranked high level of risk as first among the reasons for not investing in this market. The non derivative users have ranked uncertainty as second among the reasons for not investing in this market. The non derivative users have ranked huge amount of investment as third among the reasons for not investing in this market. The non derivative users have ranked contract specifications as fourth among the reasons for not investing in this market. The non derivative users have ranked lot size as fifth among the reasons for not investing in this market.

57

CHISQUARE ANALYSIS

TABLE 5.1.27

GENDER AND USERS TOWARDS DERIVATIVE MARKET

S.NO

GENDER

DERRIVATIVE USER

NON DERIVATIVE USER

TOTAL

1. 2.

Male Female TOTAL

36 6 42

84 24 108

120 30 150

Null Hypothesis (H0)

There is no significant relationship between the users and gender

Alternative Hypothesis (H1)

There is close significant relationship between users and gender

CHI-SQUARE (2) CALCULATION: Calculated 2 value Degree of freedom Table value Level of Significance = = = = 1.19 1 3.84 5%

INFERENCE

It is found from the above analysis that calculated chi-square value less than the table value at 1 degree of freedom and null hypothesis accepted. So, we conclude that, there is no significant relationship between the users and gender.

58

TABLE5.1.28 AWARENESS AND INTEREST TOWARDS INVESTING IN DERIVATIVE MARKET

S.NO

AWARENESS

INTERESTED

NOT INTERESTED

TOTAL

1. 2.

Aware Unaware TOTAL

42 40 42

48 20 108

90 60 150

Null Hypothesis (H0)

There is no significant relationship between Awareness and interest towards derivative market

Alternative Hypothesis (H1)

There is close significant relationship between Awareness and interest towards derivative market

CHI-SQUARE (2) CALCULATION: Calculated 2 value Degree of freedom Table value Level of Significance = = = = 5.81 1 3.84 5%

INFERENCE

It is found from the above analysis that calculated chi-square value less than the table value at 1 degree of freedom and null hypothesis rejected. So, we conclude that, there is close significant relationship between awareness and interest towards derivative market

59

TABLE5.1.29 AGE LEVEL AND GENDER OF THE INVESTORS

S.NO

AGE LEVEL

MALE

FEMALE

TOTAL

1 2 3

Below 35 Yrs 35-45 Yrs Above 45 yrs TOTAL

28 32 60 120

17 7 6 30

45 39 66 150

Null Hypothesis (H0)

There is no significant relationship between gender and age level of the investors

Alternative Hypothesis (H1) -

There is close significant relationship between gender and Age level of the investors

CHI-SQUARE (2) CALCULATION: Calculated 2 value Degree of freedom Table value Level of Significance = = = = 13.90 2 5.991 5%

INFERENCE

It is found from the above analysis that calculated chi-square value greater than the table value at 2 degree of freedom and null hypothesis rejected. So, we conclude that, there is close significant relationship between gender and age level of the investors.

60

TABLE 5.1.30

GENDER AND AWARENESS TOWARDS DERIVATIVE MARKET

S.NO

GENDER

AWARE

UNAWARE

TOTAL

1 2

Male female TOTAL

77 13 90

43 17 60

120 30 150

Null Hypothesis (H0)

There is no significant relationship between gender and awareness towards derivative market

Alternative Hypothesis (H1) -

There is close significant relationship between gender and awareness towards derivative market

CHI-SQUARE (2) CALCULATION: Calculated 2 value Degree of freedom Table value Level of Significance = = = = 13.42 4 9.488 5%

INFERENCE

It is found from the above analysis that calculated chi-square value greater than the table value at 4 degree of freedom and null hypothesis rejected. So, we conclude that, there is close significant relationship between gender and awareness towards derivative market

61

TABLE 5.1.31

INCOME LEVEL AND USERS TOWARDS DERIVATIVE MARKET

S.NO

ANNUAL INCOME

DERIVATIVE USERS

NON DERIVATIVE USERS

TOTAL

1 2 3 4

Less than 1 lakhs 1 -3 lakhs 3 -5 lakhs Above 5 lakhs Total

2 14 14 12 42

31 22 33 22 108

33 36 47 34 150

Null Hypothesis (H0)

There is no significant relationship between Income level and users towards derivative market

Alternative Hypothesis (H1) -

There is close significant relationship between income level and users towards derivative market

CHI-SQUARE (2) CALCULATION: Calculated 2 value Degree of freedom Table value Level of Significance = = = = 10.97 3 7.815 5%

INFERENCE

It is found from the above analysis that calculated chi-square value greater than the table value at 3 degree of freedom and null hypothesis rejected. So, we conclude that, there is close significant relationship between income level and users towards derivative market

62

TABLE 5.1.32

AGE LEVEL AND PERCENTAGE OF INVESTMENT AGE LEVEL OF THE INVESTORS PERCENTAGE Above 45 Below 35 35-45 Yrs OF yrs Yrs
INVESTMENT

S.NO

TOTAL

1. 2. 3. 4.

Below 10% 10% -20% 20%- 30% Above 30% TOTAL

20 8 8 9 45

9 21 6 3 39

20 22 15 9 66

49 51 29 21 150

Null Hypothesis (H0)

There is no significant relationship between age level and percentage of investment

Alternative Hypothesis (H1) -

There is close significant relationship between age level and percentage of investment

CHI-SQUARE (2) CALCULATION: Calculated 2 value Degree of freedom Table value Level of Significance = = = = 14.17 6 12.592 5%

INFERENCE

It is found from the above analysis that calculated chi-square value greater than the table value at 6 degree of freedom and null hypothesis rejected. So, we conclude that, there is close significant relationship between age level and percentage of investment

63

TABLE 5.1.33

RISK FACTORS FOR INVESTING IN DERIVATIVE MARKET

RISK FACTORS

OBSERVED FREQUENCY

EXPECTED FREQUENCY 125.8 125.8 125.8

Liquidity risk Asset volatility Hard to determine the best opportunities Risk of making poor investment Risk of poor professional advice

136 152 76

141 124

125.8 125.8

Null Hypothesis (H0)

The investors have no preference among the major risk factors

Alternative Hypothesis (H1) -

The investors have particular preference among the major risk factors

CHI-SQUARE (2) CALCULATION: Calculated 2 value Degree of freedom Table value Level of Significance = = = = 27.86 4 9.488 0.05

INFERENCE

It is found from the above analysis that calculated chi-square value greater than the table value at 4 degree of freedom and null hypothesis rejected. So, we conclude that, the investors have particular preference among the major risk factors. 64

TABLE 5.1.34

INVESTORS PREFERENCE TOWARDS DIFFERENT SECTORS FOR INVESTING

SECTORS

OBSERVED FREQUENCY

EXPECTED FREQUENCY 379.5 379.5 379.5 379.5 379.5 379.5

IT sector Banking sector Pharmaceutical sector Auto sector Cement sector Others

627 677 293 205 326 149

Null Hypothesis (H0) Sectors

The investors have no preference among various

Alternative Hypothesis (H1) - The investors have preference among various Sectors CHI-SQUARE (2) CALCULATION: Calculated 2 value Degree of freedom Table value Level of Significance = = = = 642.13 5 11.070 0.05

INFERENCE It is found from the above analysis that calculated chi-square value greater than the table value at 5 degree of freedom and null hypothesis rejected. So, we conclude that, the investors have particular preference among various sectors.

65

TABLE 5.1.35

REASONS FOR NOT INVESTING IN DERIVATIVE MARKET

RISK FACTORS

OBSERVED FREQUENCY

EXPECTED FREQUENCY 321.4 321.4 321.4 321.4 321.4

High level of risk Lot size Contract specifications uncertainty Huge amount of investment

493 209 228 356 321

Null Hypothesis (H0)

The investors have particular no reasons for not investing in derivative market.

Alternative Hypothesis (H1) -

The investors have particular reasons for not investing in derivative market.

CHI-SQUARE (2) CALCULATION: Calculated 2 value Degree of freedom Table value Level of Significance = = = = 161.80 4 9.488 0.05

INFERENCE

It is found from the above analysis that calculated chi-square value greater than the table value at 4 degree of freedom and null hypothesis rejected. So, we conclude that, the investors have particular preference among the factors for not investing in derivative Market.

66

CHAPTER 6

6.1 FINDINGS

Among the total number of respondents 80%of them were male and 20%of them are female.

85.7% of derivative users and 84% of non derivative users were male.14.3 %of derivative users and 24%of non derivative users were female.

30.95% of the derivative users are doing business and 39.82%of non derivative users are salaried.

33.33% of the derivative users are under the income group of Rs.1- 5lakhs and in non derivative users 30.56%of them are under Rs.3 -5 lakhs.

Investors whose income level less than Rs.1 lakhs invest 10 -20%of their saving in this share market, Rs.1 -3 lakhs invest above 30%of their savings towards share market, Rs.3 -5 lakhs invest about 20 -30%of their savings in this market and more than Rs.5 lakhs invest only below 10%.

60%of the hedger invests in index futures, 33.33%of them in index option and 54.17% in individual stock futures and 50%of them as speculator in individual stock option.

50% of the derivative users would manage risk in market with the mixed proportion and 42% of them try to manage in well prepared manner.

56.48% of the non derivative users are very much interested in knowing about derivative segment and 35.19 are interested to some extent.

67

The level of perception of derivative users is high towards male generation with 90.9% and low level of perception of 77.73%.

36.36% of degree holders and professionals were of under high level of perception and 36.36% of others with medium level of perception.

68

CHAPTER-7 7.1 SUGGESTIONS

1. Among the respondents, the awareness of derivative segment is high but they were not interested in investing in this segment. Reasons for not investing are that they feel it is too riskier, so the company can provide protective measures for safeguarding them and they can give guidance and better support.

2. Most of the respondents agreed that if they are provide with guidance and support they would invest in this market. Companies can make use of this and make many seminars to awake the people regarding their investment.

3. There are some relationships identified in this study. They could use this information to their further studies to identify the target market. 4. Many of them feel that derivative market is suitable for FII, mutual fund and corporates, the company should make the retail investors clear that investing in derivative market is very easy 5. Though the majority of the investors were male the company can go for canvassing the females especially housewifes for investing in this market which would be a suitable one for them.

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CHAPTER-8

8.1 CONCLUSION: The study was conducted in PSB securities ltd, a stock broking company.

The study revealed that the investors have greatest preference for safety. Most of the respondents have invested in cash segment than in derivative segment.

The level of awareness of derivative market regarding the investors is high, but not interested in investing because of high level of risk. Since many investors expressed their interesting learning more about the derivative segment.

The statistical analysis of data has given insight into investor demographics and their investment preferences.

Based on the investor profile and investor preferences, suggestions have been made for the company to increase its market penetration.

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APPENDIX

QUESTIONNAIRE

Dear sir/madam, I am Rajeshkumar.S, final year MBA student in SRM University, Chennai and I am conducting a research as a part of my MBA curriculum. I assure you that the information collected will be used only for curriculum purpose.

QUESTIONNAIRE:

General Information. Name Address 1. Gender: Male 2. Age: Below 25 F 46-55 3. Marital Status: Married F Unmarried F F 26-35 above 55 F F 36-45 F F Female F : :

4. Educational qualification: School 5. Occupation: Salaried F Self employed F Business F other F F Degree F Professional F Other F

6. What is your gross household income per year? Below 1lakh F 1lakh -3 lakhs Above 5 lakhs F F 3 lakhs -5 lakhs F

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7. How long you have been investing in the stock market? Less than 1year 3-5 Years F F 1-3 Years More than 5years F F

8. Out of your earnings and savings how much amount have you invested in this market? F 10% -20% F F F

Below 10%

20%-30%

Above 30%

9. For investing which of the following sectors do you favour most? Sectors IT sector banking sector Pharmaceutical sector Auto sector Cement sector Others Rank them accordingly(1-5)

10. Are you aware of derivative segment in stock market? F F

Yes

No

(if No go to question number 19)

Derivative users:

11. Do you invest in derivatives market? F F

Yes

No

(if No go to question number 20)

12. Which of the following are the most attractive reasons for investing in Derivative market? Diversification of risk Potential for capital gains F F Cash generation F other F

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13. Which of the following do you favour most? F F

Stock index futures

Stock index options

Futures on individual stock F

Options on individual stock F

14. In case of first four products mentioned in previous question will you like to participate as? Speculator F Hedger F Other F

15. How many contracts would you normally trade at any one time? 1-3contracts F 3-6contracts F F

above 6 contracts

16. What are the factors do you consider while entering into a new contract?

Factors Contract period Contract value Lot size Level of risk to be taken Company information Settlement basis Expiry date Initial margin Strike price Professional advice

Please put tick mark

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17. In your view, which of the following are the major risk factors in derivatives market?

Risk factors Liquidity risk Asset volatility Hard to determine the best opportunities Risk of making a poor investment Risk of poor professional advice

Rank them accordingly(1-5)

18. How well do you think to manage your risk in the market? Moderately well prepared and better F Mixed F Poor F

Non derivative users:

19. Do you feel interested in learning about derivative segment? F F F

Very Much

To Some Extent

Not At All

20. List out the major reasons for not investing in it?

Reasons High level of risk Lot size Contracts specifications Uncertainty Huge amount of investment

Rank them accordingly(1-5)

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21. Would you like to invest in derivatives segment in future? F F

Yes

No

22. Do you agree or disagree with this statement? Derivatives market is more appropriate only for Corporate, High net worth investor and mutual fund industry. F F F F F

Strongly disagree Disagree Neither agrees nor disagrees Agree Strongly agree

23. Are you satisfied with the service provided by your member? F No F

Yes

Thank you

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BIBLIOGRAPHY

Websites:

www.nseindia.com www.bseindia.com www.derivativesportal.com www.derivativeindia.com www.kotaksecurities.com www.indiabulls.com www.investmentz.com

V.k. Bhalla Investment Management S.chand & company ,12 th editions New Delhi.

Kothari C.R 'Research Methodology', methods & techniques, New Age International Pvt ltd, second edition, New Delhi.

Punithavathy pandian , Security analysis and Portfolio Management, Himalaya Publishing House, sixth edition.

Richard I. Levin - David S. Rubin Statistics for Management Prentice Hall of India Pvt ltd, Seventh edition, New Delhi

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