Professional Documents
Culture Documents
INTRODUCTION
Stock exchanges to some extent play an important role as indicators, reflecting the
performance of the countrys economic state of health. Stock market is a place
where securities are bought and sold. It is exposed to a high degree of volatility,
prices fluctuate within minutes and are determined by the demand and supply of
stocks at a given time. Stock brokers are the ones who buys and sells securities on
behalf of individuals and institutions for some commission.
The Securities and Exchange Board of India (SEBI) is the authorized body, which
regulates the operations of stock exchanges, banks and other financial institutions.
The past performances in the capital markets especially the securities scam by
Hasrshad Mehta has led to tightening of the operations by SEBI. In addition the
international trading and investment exposure has made it imperative to better
operational efficiency. With the view to improve, discipline and bring greater
transparency in this sector, constant efforts are being made and to a certain extent
improvements have been made.
HISTORY
HISTORY OF THE STOCK BROKING INDUSTRY
Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly
200 years ago. The earliest records of security dealings in India are meager and
obscure.
By 1830's business on corporate stocks and shares in Bank and Cotton presses took
place in Bombay. Though the trading list was broader in 1839, there were only half a
dozen brokers recognized by banks and merchants during 1840 and 1850. The
1850's witnessed a rapid development of commercial enterprise and brokerage
business attracted many men into the field and by 1860 the number of brokers
increased into 60.
In 1860-61 the American Civil War broke out and cotton supply from United States of
Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers
increased to about 200 to 250. However, at the end of the American Civil War, in
1865, a disastrous slump began (for example, Bank of Bombay Share which had
touched Rs 2850 could only be sold at Rs. 87). At the end of the American Civil War,
the brokers who thrived out of Civil War in 1874, found a place in a street (now
appropriately called as Dalal Street) where they would conveniently assemble and
transact business.
In 1887, they formally established in Bombay, the "Native Share and Stock Brokers'
Association" (which is alternatively known as "The Stock Exchange"). In 1895, the
Stock Exchange acquired a premise in the same street and it was inaugurated in
1899. Thus, the Stock Exchange at Bombay was consolidated.
Thus in the same way, gradually with the passage of time number of exchanges
were increased and at currently it reached to the figure of 24 stock exchanges.
DEVELOPMENT
An important early event in the development of the stock market in India was the
formation of the Native Share and Stock Brokers Association at Bombay in 1875, the
precursor of the present-day Bombay Stock Exchange. This was followed by the
formation of associations /exchanges in Ahmedabad (1894), Calcutta (1908), and
Madras (1937). IN addition, a large number of ephemeral exchanges emerged
mainly in buoyant periods to recede into oblivion during depressing times
subsequently.
In order to check such aberrations and promote a more orderly development of the
stock market, the central government introduced a legislation called the Securities
Contracts (Regulation) Act, 1956. Under this legislation, it is mandatory on the part of
a stock exchanges to seek government recognition. As of January 2002 there were
23 stock exchanges recognized by the central Government. They are located at
Ahemdabad, Bangalore, Baroda, Bhubaneshwar, Calcutta, Chenni,(the Madras
stock Exchanges ), Cochin, Coimbatore, Delhi, Guwahati, Hyderbad, Indore, Jaipur,
Kanpur, Ludhiana, Mangalore, Mumbai(the National Stock Exchange or NSE),
Mumbai (The Stock Exchange), papularly called the Bombay Stock Exchange,
Mumbai (OTC Exchange of India), Mumbai (The Inter-connected Stock Exchange of
India), Patna, Pune, and Rajkot. Of course, the principle bourses are the National
Stock Exchange and The Bombay Stock Exchange , accounting for the bulk of the
business done on the Indian stock market.
While the recognized stock exchanges have been accorded a privileged position,
they are subject to governmental supervision and control. The rules of a recognized
stock exchanges relating to the managerial powers of the governing body,
admission, suspension, expulsion, and re-admission of its members, appointment of
authorized representatives and clerks, so on and so forth have to be approved by the
government. These rules can be amended, varied or rescinded only with the prior
approval of the government.
NCDEX started working on 15th December, 2003. This exchange provides facilities to
their trading and clearing member at different 130 centers for contract.
In commodity market the main participants are speculators, hedgers and
arbitrageurs.
Promoters of NCDEX are
National Stock Exchange(NSE)
ICICI bank
Life Insurance Corporation(LIC)
National Bank for Agricultural and Rural Development (NABARD)
IFFICO
Punjab National Bank (PNB)
CRISIL
WHY NCDEX?
NCDEX is nationalized screen based system which is providing transparent,
private and easy services.
NCDEX is one of the traditional media which gives online information
NCDEX is one of the Indian commodity exchange, constructed on the basis of
the current national institutes the exchange has been established with the
coloration of leading institutes like NABARD, LIC, NSI etc.
In India NCDEX has maximum settlement guarantee fund.
NCDEX has appointed two exports for checking quality at the time of delivery
FACILITIES PROVIDED BY NCDEX
NCDEX has developed facility for checking of commodity and also provides a
wear house facility
By collaborating with industrial partners, industrial companies, news agencies,
banks and developers of kiosk network NCDEX is able to provide current
rates and contracts rate.
The market watch window is used to view the market details for a particular or group
of contracts and for a particular instrument type. This window displays the following
details: Symbol, Expiry, price quotation unit, buy qty, buy price, sell price, sell qty, last
traded price, D.P.R, volume (in 000s), value (in lac),% change, average trade price,
high, low, open, close & open interest.
TRANSACTION CYCLE
Decision
to trade
Placing
Order
Transacti
on Cycle
Funds or
Securities
Settleme
nt of
trades
Trade
Execution
Clearing
of Trades
MAJOR PLAYERS
1. S S KANTILAL ISHWARLAL SECURITIES PVT LTD. (www.sharekhan.com)
2. ICICI WEB TRADE LTD. (www.icicidirect.com)
3. 5 PAISA.COM (www.5paisa.com)
4.
KOTAK SECURITIES LTD. (www.kotakstreet.com)
5. INDIABULLS (www.indiabulls.com)
6. MOTILAL OSWAL SECURITIES LTD.
7. HDFC SECURITIES LTD. (www.hdfcsec.com)
8. UTI SECURITIES LTD.
9. IDBI CAPITAL MARKET SERIVICES LTD.
10. REFCO SIFY SECURITIES PVT LTD.
Parameters
Demat
Brokerage
Interface
Delivery
Square
Banks Associated
with
HDFC, UTI, OBC,
Sharekhan
A/c
750
NIL
0.50
Off
0.10
ICICI Direct
750
NIL
0.75
0.18
Indiabulls
750
250
0.40
0.10
N.A.
5 paisa
800
NIL
0.20
0.05
Citibank, HDFC,
OBC, UTI & ICICI
Kotak Street
HDFC Securities
500
700
N.A.
NIL
0.59
0.50
0.06
Bank
Kotak Bank &
0.15
Citibank
HDFC & Other 4
Banks
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S.
S.
KANTILAL
ISHWARLAL
SECURITIES
PVT.
LTD.
(sharekhan.com):
Sharekhan, Indias leading stock broker is the retail arm of SSKI, and offers you
depository services and trade execution facilities for equities, derivatives and
commodities backed with investment advice tempered by decades of broking
experience. A research and analysis team is constantly working to track performance
and trends. Thats why Sharekhan has the trading products, which are having one of
the highest success rates in the industry. Sharekhan is having 240 share shops in
110 cities; the largest chain of retail share shops in India is of Sharekhan.
In future, Sharekhan is planning to enter in Mutual funds, Insurance sector and
banking sector to expand beyond the market currently covered by it. And it has
started MF (Mutual Funds) on priority basis but wants to grow in it.
5PAISA.COM
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5paisa is the trade name of India Infoline Securities Private Limited (5paisa),
member of National Stock Exchange and The Stock Exchange, Mumbai. 5paisa is a
wholly owned subsidiary of India Infoline Ltd, Indias leading and most popular
finance and investment portal. 5paisa has emerged as one of leading players in ebroking space in India.
The companys brokerage is one of the lowest in the industry. It also provides the
research on commodities. Investors can benefit from its analysis and advice
available at the click of the mouse. For those who prefer to trade the traditional way,
India Infoline investor points are available across the country.
India Infoline was founded by a group of professionals in 1995. Its institutional
investors include Intel Capital, one of the leading technology companies in the world
promoted by the UK government, ICICI, TDA and Reeshanar. The company offers a
slew of products such as stock and derivatives broking, commodities broking and
mutual funds.
12
INDIA BULLS
Indiabulls is India's leading retail financial services company with 77 locations spread
across 64 cities. Its size and strong balance sheet allows providing varied products
and services at very attractive prices, our over 750 Client Relationship Managers are
dedicated to serving your unique needs.
Indiabulls is lead by a highly regarded management team that has invested crores of
rupees into a world class Infrastructure that provides real-time service & 24/7 access
to all information and products. The Indiabulls Professional Network offers realtime prices, detailed data and news, intelligent analytics, and electronic trading
capabilities, right at your finger-tips. This powerful technology is complemented by
our knowledgeable and customer focused Relationship Managers.
Indiabulls offers a full range of financial services and products ranging from Equities,
Derivatives, Demat services and Insurance to enhance wealth and to achieve the
financial goals.
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Fund
UTI Securities Ltd was incorporated on June 24, 1994 by Unit Trust of India as a
100% subsidiary and on the repealing of the UTI Act, the capital is now held by the
Administrator of the Specified Undertaking of Unit Trust of India (ASUUTI). UTI
Securities has been working as an independent professional entity for providing
financial intermediary and advisory services to its corporate and retail clientele.
14
The Company has presence in major cities with 20 branches and 50 franchisees to
service a wide range of clients. The company has also invested in the joint-venture
company with Standard Chartered Bank viz. Standard Chartered UTI Securities
(P) Ltd. that is engaged in primary dealership and Government securities. The
company is very soon going to start Commodity Trading through its subsidiary, USEc
Commodities Ltd, which provides facility of commodity trading on NCDEX and MCX.
IDBI Capital is a leading Indian securities firm offering a complete suite of products
and services to individual, institutional and corporate clients.
IDBI Capital Market Services Ltd. (IDBI Capital), a wholly owned subsidiary of
Industrial Development Bank of India (IDBI), is a leading Indian securities firm,
offering a complete suite of products and services to individual, institutional and
corporate clients. The services include fixed income trading, equities brokerage, debt
and equity derivatives, research, private placements, depository services, portfolio
management and distribution of financial products. Over the last five years, we have
emerged as a leading player in each of these businesses.
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16
INDUSTRY ANALYSIS
INDUSTRY ANALYSIS USING PORTERS 5 FORCES MODEL
POTENTIAL ENTERANT
Investmart
Various Banks
Geojit
Cipher
UTI Securities Ltd.
Refco Group Ltd.
IDBI Capital Mkt. Services
Ltd.
SUPPLIERS
SUPPLIERS
Web
Web maintainers
maintainers
NSCL
NSCL
CSDL
CSDL
NSE
NSE
BSE
BSE
MCX
MCX
NCDEX
NCDEX
COMPETITORS
COMPETITORS
BUYERS
BUYERS
ICICI
ICICI Web
Web Trade
Trade Ltd
Ltd
5paisa.com
5paisa.com
Kotak
Kotak Securities
Securities Ltd
Ltd
India
India Bulls
Bulls
Motilal
Motilal Oswal
Oswal Securities
Securities Ltd
Ltd
HDFC
HDFC Securities
Securities Ltd
Ltd
Marwadi
Marwadi Finance
Finance Ltd
Ltd
Small
Small Investors
Investors
Franchise/Business
Franchise/Business
Partners
Partners
HNIs
HNIs
MF
Companies
MF Companies
HUF
HUF
Institutional
Institutional
Investors
Investors
SUBSTITUTES
SUBSTITUTES
Mutual
Mutual Funds
Funds
Insurance
Insurance
Bank
Bank FD
FD
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SUPPLIERS
NSDL & CSDL are the regulatory bodies for Depository Participants like SSKI,
SHCIL, ICICIdirect.com, etc. Also these regulatory bodies have got an upper
hand as the bargaining power stock broking houses like SSKI, etc. would be
less.
NSE & BSE are playgrounds where common an investor trade through stock
broking houses, for which they have to take permission from NSE/BSE.
NSE & BSE are under the purview of SEBI, thats why stock broking houses
like SSKI, have low bargaining power. But here there is one advantage that
NSE/BSE have i.e. they cannot go for forward integration.
MCX & NCDEX are stock exchanges which trade in commodities and
derivatives. Here again stock broking houses have to follow rules and
regulation of the same.
Web maintainers are companies which maintain web sites & technical aspects
of the same. Here stock broking houses like SSKI can have more bargaining
power due to stiff competition among web maintaining companies.
Web maintainers are companies who make and maintain softwares for stock
broking houses. If say for example stock broking houses switches over to
other
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BUYERS
There are various types of investors who trade through stock broking houses
like SSKI, which includes investors like small investors, medium net worth
investors, business partners, institutional investors and mutual fund
companies.
Here the bargaining power of stock broking houses depends on how big the
investor is.
So here we can say that bargaining power of stock broking houses is high in
case of small investors & HUF.
While the bargaining power is moderate in case of HNI (High New Worth
Investors)/ MNIs (Medium Net Worth Investors) and business partners.
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COMPETITORS
The company is facing the competition from local as well as national level
players. The local players provide facility for off-line trading while the national
players like ICICIdirect.com and Kotakstreet.com, HDFC Security provide
online trading services.
There are also other big names like Indiabulls, Motilal Oswal, 5paisa and
Marwadi encircles the company form both the sides by providing online and
off-line trading with competitive services.
POTENTIAL ENTRANTS
The potential entrants in like Investmart, Jeojit and Cipher which are coming
in near future to Rajkot City.
Nationalized banks are also thinking to enter in this field by tying up with
broking houses. E.g. Bank Of Baroda.
SUBSTITUES
Here substitutes are such instruments which can be used instead of investing
in shares.
The instruments like Bank FD, insurance, mutual funds are the substitutes.
If the use of this instruments increase this may be disadvantage for the stock
broking houses.
The companies and banks which are having these instruments can plunge
into this industry.
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ENTRY BARRIERS
Huge capital:- Capital is necessary not only for fixed facilities but also for
customers credit and absorbing start up losses. To start a stock broking
house, one needs huge capital for technology up gradation and skilled
manpower.
Network:- The Reach to the customer is the key factor in the industry.
The network of the companies like Motilal Oswal, Sharekhan, and ICICI is
very efficient and spreaded all over India. It will take time for a new entrant to
establish such a huge network (e.g. Marwadi), which say that,Network can
come up as most difficult entry barrier to overcome.
21
before the entry of so many mew companies, Sharekhan was having two
types of accounts viz. speed trade speed trade plus, which were costing 1000
& 1500 account opening charges respectively. But due to competition, they
have come up with only one account i.e. speed trade plus with the account
charges of Rs.1000.
COMPETITIVE ANALYSIS
Follower:
The followers are those who just blindly follow the other player which are
leader and challenges.
The players like 5 paisa, Motilal Oswal, HDFC Securities, Kotakstreet are
the followers.
LEADER:
NICHER:
CHALLENGER:
Indiabulls is also challenging with low brokerage rates and class one
services.
22
Traditional Broking
Traditionally In stock Market, the investors invest their money in shares under the
guidance of the Brokers of any stock broking company. This is convenient to those
investors who are not familiar with the computer and the use of internet. But it
requires more dealers to the share broking companies to give guidance related to
investment. There was a chance of inaccuracy of price because it is a time
consuming process. The cost of the company also increases due to more
paperwork. The investor point of view, there was a problem of privacy. The
information of investor may leak by the broker. So, to remove these limitations of
traditional broking, there was an emergence of new concept e-Broking.
E- Broking
Today is world of technology. So, the person who adopt it, get the success. So, EBroking means broking through electronic means. E-Broking is the broking in which
the investors who are familiar with the use of computer and Internet they directly
trade in stock market. They trade any time at any place when the stock market is
open. The cost of transaction is also reducing with time. The investors have a large
range of option for the trading. It is a paperless transaction so it reduces the cost of
company. There was a facility of live streaming quotes, which give exact price of
share which prevailing in the market at that time. There are two types of online
trading service: DISCOUNT BROKER and FULL SERVICE ONLINE BROKER.
Discount online brokers allow you to trade via Internet at reduced rates. Some
provide quality research, other dont. Full service online brokerage is linked to
existing brokerage. These brokers allow their client to place online orders with the
option of talking/chatting to brokers if advice is needed. Brokerage rates here are
higher. online trading is still in its infancy stage in India. with trading turnover at
around Rs.10 crores per day from online trading compared to a combined gross
turnover of around Rs.9000-10000 crores handled by the BSE and NSE together,
online trading has a long way to go.
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24
Sharekhan is stock broking company. Share Khan comes under retail arm of SSKI
(Shripal Sevantilal Kantilal Ishwarlal ) investors Services Pvt. Ltd. offers World-class
facilities
for
buying
and
selling
Shares
on
BSE
and
NSE,
Demate
25
CURRENT POSITION
VISION
To empower the investor with quality advice and superior service to help him take
better investment decisions. We believe that our growth depends on client
satisfaction.
MISSION
To provide the best customer service and product innovation tuned to diverse
needs of clientele
Continuous up-gradation with changing technology, while maintaining human
values.
Respond to progressive globalization and achieving international standard.
26
GENERAL INFORMATION
NAME
: S. S. KANTILAL ISHWARLAL
SECURITEIS PVT. LTD.
HEAD OFFICE
: SHAREKHAN LTD.
A 206, PHOENIH HOUSE,
PHOENIH MILL COPUND,
SENAPATI, BAPTA MARG,
LOWER PAREL,
MUMBAI - 400013
PH NO
: shrinivasb@branch.sharekhan.com
WEB SITE
: www.sharekhan.com
: 100 BRANCHES
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CHANGING TREND
Remember the time when you left orders with your broker in the morning and received
a confirmation fax late in the evening?
You wondered whether you had acquired the shares at the best possible price for the
day. Today, the picture is different. Imagine a scenario where you log on to your
account, get the live quotes of scripts you are interested in, get advise from
experts and research reports on your investment choice and then just click the mouse
to place your order, pay the amount due (which automatically gets debited into your
account with the on line brokerage firm), get your account statement, and the delivery
of your shares into your Demat account. All this through just one click of a mouse.
Seems like a dream? But with online trading this has become a reality. A few seconds
later, you get the confirmation on your screen. And after the trade settlement, your bank
and DP accounts will reflect the changes accordingly.
The speed of transaction, confidentiality about the prices and ease of settlement in
the paperless mode should be good reasons for retail investors to jump on to the Net.
All they need is a PC, a modem, a subscription to an ISP, an account with a bank (which
has a web presence) and a depository account. And they can choose from a plethora
of e-trading web sites.
So, finally the changing trend is known as E-trading which really means Buying and
selling securities via the Internet or other electronic means such as wireless access,
touch-tone telephones, and other new technologies with online trading. In most cases
customers access a brokerage firm's Web Site through their regular Internet Service
Provider. Once there, customers may consult information provided on the Web Site and
log into their accounts to place orders and monitor account activity"
28
Owns 50.5% of
SSKI Securities Pvt. Ltd.
Morakhia Family & Associates
Depository Services
Derivatives
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About Sharekhan
SSKI named its online division as SHARE KHAN and it is into retail Broking
It has specialized research product for the small investors and day traders
Largest chain of share shops, 103 Franchisees & 17 Branches across India.
It offers its customers with the trade execution facilities on the NSE, for cash
as well as derivatives, depository services
30
It helps the customer meet his pay-in obligations on time thereby reducing the
possibility of auctions. The company believes in flexibility and therefore allows
accepting late instructions without any extra charge. And execute the
instruction immediately on receiving it and thereafter the customer can view
his updated account statement on Internet.
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MARKET COVERAGE
Ground Network
Largest in India
122 Franchisees and 28 branches
Covers 82 cities in 17 states across
India
Trade execution facility on BSE and
NSE for Cash as well as
Derivatives
Depository/Demat account services
Personalized Sharekhan research
advice
Uniform service standards
32
Award-Winner
Winner of
Chip
magazines
Best
Financial
Website
Award
33
SEVEN PS OF SHAREKHAN
PRODUCT
Product Variety
Share khan offers 3 types of online trading accounts for its customers specially
designed according to their volume in share trading. Those 3 varieties are:
Speed Trade: for high net worth investors with large and active
equity
Speed trade Plus- for high net worth investors dealing in derivative market.
Quality
User Friendly, attractive & colorful Website.
Design
The website of Share khan namely www.sharekhan.com has been specially
designed to facilitate its users to buy and sell shares in an instant at anytime and
from anywhere they like. The site is user friendly allowing even a layman to easily
operate without any hassles.
Features:
Share khans product comes with the following features:
Trade execution in a fraction of a second!
Single Screen Trading Terminal
Real time streaming quotes. Price watch on any number of scripts.
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Brand Name
The company as a whole in its offline business has named itself as SSKI Securities
Pvt. Ltd -Sevaklal Sevantilal Kantilal and Ishwarlal Securities Pvt. Ltd. The company
has preferred to name themselves under a Blanket Family Name.
But in its online division started since 1997, the company preferred to name itself as
SHARE KHAN. The Brand Name SHARE KHAN itself suggests the business in
which
the company is dealing so that the consumer could easily identify the product or
service category.
Services
Share khan offers its customers, depository services and trade execution facilities for
equities, derivatives and commodities backed with investment advice tempered by
decades of broking experience. The teams of its dedicated analysts are constantly at
work to track performance and trends.
Dial-n-trade is also an exclusive service available to all Sharekhan customers for
trading in shares via the telephone. On dialing the toll free number 1600-22-7050
and on entering the customers TPIN number, the customer will be directed to a
telebroker who will buy or sell shares for him.
PRICE
List Price
CLASSIC SPEED
TRADE
SPEED
TRADE
PLUS
36
One time
750
registration fee
Minimum
Nil
brokerage
Charges
Quarterly
1000
1500
1000
1500
Brokerage
Share khan in its online business charges brokerage as follows:
- In equity Market:
On Trading: 0.1% On Delivery: 0.5%
- In Derivative Market
On Trading: 0.12% (Total brokerage) On Delivery: 0.1%
Service Tax
-8% on Brokerage.
Turnover tax + Stamp duty
-0.015% (Rs. 15 on every turnover of Rs. 100000)
Custody Charge
Re. 1 per script held per month.
Discounts
For investors with High Net worth, there are slabs in brokerage rates.
Payment Period
The transaction settlement date in the securities market is T+ 2 days i.e. the
payment of the transaction taken place has to be made within two days of its
occurrence.
Credit terms
Share khan allows its customers to trade up to 4 times i.e. by keeping 1/4th
margin with them.
PROMOTION
Online share trading is totally a new concept in Indian Market. Generally investor
doesnt like to come out from conventional way of share trading. Share khan has
introduced this product in. The concept and Product are still new in the market.
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queries related to the product. This is the most effective way to communicate
the three-in-one concept which company offers.
Telemarketing
This is another promotional tool company is using to boost up its sales. For
this, the company collects the database of the people belonging to different
professional segments.
PLACE
Channels
Share khan uses various channel alternatives to reach to its customers
through
Internet
Tele Marketing
Retail Share Shops
Franchisee Owners
Power Brokers
Sales Force
Coverage
Access to the website from any part of the globe.
Locations
Share khan has the largest chain of retail share shops in India. It has 180
share shops located in 90 cities all over India like Pune, Thane, Chennai,
Kolkata, Banglore, Luckhnow, Darjleeng, Kanpur, Baroda, Midnapore, Surat,
Delhi, Gaziabad, Hydrabad, Allahbad, etc.
PEOPLE
Employees
Selection: Employees are selected on the basis of their
experience and qualification as applicable to the job.
Training: Intensive training is provided to the employees till a
week once they join and even at times required after that.
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Customers,
The heart of sharekhan are really treated loyally like the kings. The customer
care, which comprises of highly trained executives operating from 9:30 to 8:00
p.m.
PHYSICAL EVIDENCE
Locality of the office:
In Ahmedabad, two franchise outlets are located in posh areas like
Navrangpura and Maninagar. A new franchise is going to open up in
Vastrapur.
Office Environment:
The ambience within the office is what can make the customer feel
comfortable in trading. The cordial and friendly atmosphere at office is like a
full time motivation for the employees.
Interiors and Infrastructure:
The office is well furnished and has 24 computer terminals on which tick-bytick price movements of the securities are displayed.
PROCESS
In this service organization, the ways in which the customers receive delivery
of the service constitutes the process. Here, the process involves adding
value or utility so that the customers get full satisfaction for the money spent
by them.
Here the process begins from the step when customer wants to open e-invest
account and ends when his account is actually activated.
All Indian residents and NRI are eligible to avail this service.
41
2. Agreement between sharekhan and client in respect of the ONLINEINVESTMENT SUPPORT service offered.
3. Agreement between the Depository Participant and the client for providing the
transaction statement through Internet.
4. Irrevocable power of attorney
5. Agreement between the DP and the person seeking to open an account with
the DP.
6. Maintenance of clients account on a running account bases by SSKI.
7. Agreement giving the right of lien on the credit balance of client in NSE
trading.
8. Agreement giving the right of lien on the credit balance of client in BSE
trading.
9. Risk disclosure document (cash segment)
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SEVEN S MODEL
Structu
re
Strateg
y
Skill
s
Syste
Super
ordinat
e
Goals
goals
ms
Styl
e
Sta
f
STRUCTURE:
43
STRATEGY:
Share khan believes not only in developing the strategies but also in its
successful execution.
SYSTEMS:
This constitutes of all the training and development systems, estimating
budgets and the accounting system of Share khan.
STYLE:
Style refers to all the symbolic actions undertaken by top managers of
Share khan and its influence on the subordinates.
STAFF:
Share khan values its employees as its assets and therefore carefully
trains and motivates them by giving them incentives at regular intervals.
Talented employees are assigned as mentors and given real responsibility
and moved into higher positions.
SKILLS:
The term skills refer to those activities organizations do best and for which
they
are
known.
Share
khan
is
known
for
its
timely
advice
SUPERORDINATE GOALS:
This refers to guiding concepts, values and aspirations that unite an
organization in some common purpose. It provides the customers the best
service as it believes in customer satisfaction and retention.
44
Applegreen
Potentially steady compounders, but five to ten years graph bit unclear.
Could gallop at 25-30 per year over the next two to three years.
Emerging Star
Young companies likely to rule chosen niches. Even better, the niches
could balloon into full-blow markets. Potentially ten-baggers if youre
patient.
Ugly Duckling
Trading below fair value or at huge discount to peer group. But
somtehings cooking.Could double in two to three years time.
Vultures Pick
Companies with valueable assets at throwaway prices.Buy & await
predators.Stratlingly high returns possible.
Cannonball
Seasons favourites. Typically fast gainers in rising markets, could
return 30-50% within six months. Get in, cash in, get out.
45
Publications of sharekhan
Sharekhans Valueline
Derivatives Digest
Eagle Eye
High Noon
Investors Eye
Commodities Buzz
Commodities Beat
Commodity Traders Corner
Sharekhan Xclusive
46
ShareKhans product
Offline
Other Services
Online
Classic A/C
Other Services:
1. Dial-n-Trade
2. Depository Services
3. Commodity Trading
4. Derivative Trading
5. Mutual fund
6. Portfolio Management Services
7. Online IPO
8. Research Based Information Provided
OFFLINE
Offline A/c is the A/c for the investors who are not familiar with the use of
computer.
The A/C opening charges Rs.500(One time)
For 1st Year Demat A/C is Free,On 2nd Year AMC charge is applicable.
47
ONLINE
48
Any one who have A/C either of above banks they can use this facility.Otherwise one
has to make fund transfer or withdraw by cheque.
This account enables you to buy and sell shares through our website. You get
features like
a) Streaming quotes (using the applet based system)
b) Mutltiple watchlists
c) Integrated Banking, demat and digital contracts
d) Instant credit and transfer
e) Real-time portfolio tracking with price alert and, of course, the
assurance of
secure transactions.
account
for
investing
in
Equities
and
Derivatives
ticker!
49
via
SPEEDTRADE
HDFC Bank
IDBI Bank
UTI Bank
OBC Bank
CITY Bank
Indusind Bank
Union Bank of India
Any one who have A/C either of above banks they can use this facility. Otherwise
one has to make fund transfer or withdraw by cheque.
50
Features of SpeedTrade
that enable you to trade effortlessly
Instant order Execution & Confirmation
Single screen trading terminal
Real-time streaming quotes, tic-by-tic charts
Market summary (most traded scrip, highest value and lots of other relevant
statistics)
Hot keys similar to a brokers terminal
Alerts and reminders
Back-up facility to place trades on Direct Phone lines
Single screen interface for cash and derivatives
System Requirements
You'll need access to a computer which has at least the following configuration:
Pentium 3 PC
Minimum 128 MB RAM
Windows 2000/XP
Dial-up Modem / Cable modem
Internet Connection Account
Internet Explorer 6.0
Java enabled in IE
51
Opening Fee
Brokerage
Interface
Trading Demate Delivery Square Bank
A/C
A/c
Off
Associated
Sharekhan
750
NIL
0.50
0.10
ICICI Direct
750
NIL
0.75
0.18
IndiaBulls
750
250
0.40
0.10
NIL
0.20
0.05
0.59
0.06
0.50
0.15
5 Paisa
Kotak Street
500
HDFC
Securities
700
NIL
HDFC,UTI,OBC
, IDBI, City
Bank
ICICI Bank
ICICI Bank
,UTI,OBC,HDF
C, City Bank
Kotak Bank,
City Bank
HDFC & Other
Bank
Dial-n-Trade
52
account) and on authentication you'll be directed to a telebroker who will buy and
sell shares for you.
Features of Dial-n-Trade
that enable you to trade effortlessly
TWO dedicated numbers for placing your orders with your cellphone or landline. Toll
free number: 1-800-22-7050. For people with difficulty in accessing the toll-free
number, we also have a Reliance number 30307600 which is charged at Rs. 1.50
per minute for STD calls.
Automtic funds tranfer with phone banking (for Citibank and HDFC bank customers)
Simple and Secure Interactive Voice Response based system for authentication
No waiting time. Enter your TPIN to be transferred to our telebrokers
You also get the trusted, professional advice of our telebrokers
After hours order placement facility between 8.00 am and 9.30 am (timings to be
extended soon)
Reliable service, wherever you are
Requirements
All you need is access to a phone - either a landline or a cellphone: (the type of
phone doesn't matter)
If calling from a cellphone, please dial 022-1-800-22-7050
Currently for Citibank and HDFC customers. More banks to be added soon
After hour order timings: 8.00 am to 9.30 am
It takes approximately 10 minutes of your time to place an order
53
analysis,
54
MUTUAL FUND
Introduction
Everybody talks about mutual funds, but what exactly are they? Are they like shares
in a company, or are they like bonds and fixed deposits? Will I lose all my money in
funds or will I become an overnight millionaire? Big questions that get answered in
just five minutes.
Meaning
A mutual fund is a pool of money that is invested according to a common investment
objective by an asset management company (AMC). The AMC offers to invest the
money of hundreds of investors according to a certain objective - to keep money
liquid or give a regular income or grow the money long term. Investors buy a scheme
if it fits in with their investment goals, like getting a regular income now or letting the
money accumulate over the long term. Investors pay a small fraction of their total
funds to the AMC each year as investment management fees.
55
A) On the main page of this micro-site and scheme snapshot page we have provided
with a link to PDF version of application form which you just need to download, print
and fill up relevant details. Submit the duly filled copy with payment either to Nearest
Sharekhan Branch Or Mutual Fund Company.
B) Alternatively you can call up our customer service 1600-22-7500 and give your
contact detail wherey we will arrange to mail you a hard copy of application of
desired schemes from the list offered by Sharekhan.
56
form
for
the
investor
Sharekhan
Depository
services
offers
your
physical
holding
into
electronic
holding
(which
is
called
"dematerialization" of securities)
Keep custody of your holdings in electronic form.
Transfer the shares in the electronic form from one account to another.
Facilitate pledge of your electronic securities.
Give electronic credit of new share allotments such as public issues, bonus, rights
etc.
Convert
your
electronic
holding
into
physical
holding
(which
is
called
"dematerialization of securities")
57
Every investors needs and goals are different. To meet these needs, Sharekhan
provides a comprehensive set of research reports, so that one can take the right
investment decisions regardless of their investing preferences! The Research and
Development at Sharekhan is done at its Head office Mumbai.
The R&D department Head Mr. Hemang Jani forwards all the details regarding all
stocks and scripts to all the branches through Internet. At the end of each trading day
there is a Teleconference, through which the R&D department Head MR. Hemang
Jani talks with each Branch heads and discusses about each days closing position
and shows their predictions about next days opening position. The quarries
regarding stock positions and other relevant matter of the branch heads of each
branch is being solved through teleconference.
58
ONLINE IPO
Online IPO (Initial Public Offering) is a new service started by Sharekhan for
providing the application form of any companys issues of shares just like the TCS
issue can be subscribed by filling an online form to reduce the paper work and the
fund transfer facility is also provided to the clients for transferring the funds online. It
is given on its web-site for helping the clients who are not able to collect the forms
manually and the speed of filling and reducing the risk of misplacing of forms, not
reaching in time, etc.
59
SWOT ANALYSIS
During this training at sharekhan, we had come to know the Strengths-WeaknessesOpportunities-Threats for the company and it is very useful for a company to analyze
them. Therefore, the SWOT analysis is presented here and the suggestions for
maintaining strengths and removing weaknesses are explained.
Strengths:
Well-maintained infrastructure.
Dedicated, Intelligent and Loyal staff.
On-line Trading products.
Lowest brokerage and other charges w.r.t. Competitors.
The best investment advice correct up to 70-90 % through dedicated
research and reports.
Wide product range to enable the clients to choose the best alternative.
One of the best DPs in India.
A positive image in the existing clients.
Weaknesses:
Less awareness in the market.
Time consuming process for account opening, resolving the problems of the
customers, etc.
Service quality is not maintained accordingly how they are promoted.
Opportunities:
Slope of stock market towards delivery based transaction.
60
61
INTRODUCTION
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 emergence of
the market for derivative products, most notably forwards, futures and options, can be traced
back to the willingness of risk-averse economic agents to guard themselves against
uncertainties arising out of fluctuations in asset prices. By their very nature, the financial
markets are marked by a very high degree of volatility. Through the use of derivative
products, it is possible to partially or fully transfer price risks by lockingin asset prices. As
instruments of risk management, these generally do not influence the fluctuations in the
underlying asset prices. However, by locking-in asset prices, derivative products minimize
62
the impact of fluctuations in asset prices on the profitability and cash flow situation of riskaverse investors.
MEANING
A derivative is a financial instrument, which derives its value from some other
financial price. This other financial price is called the underlying. The underlying
asset can be equity, FOREX, commodity or any other asset.
A wheat farmer may wish to contract to sell his harvest at a future date to eliminate
the risk of a change in prices by that date. The price for such a contract would
obviously depend upon the current spot price of wheat. Such a transaction could
take place on a wheat forward market. Here, the wheat forward is the derivative
and wheat on the spot market is the underlying. The terms derivative contract,
derivative product, or derivative are used interchangeably. The most important
derivatives are futures and options.
Example: A very simple example of derivatives is curd, which is derivative of milk. The price of
curd depends upon the price of milk, which in turn depends upon the demand, and
supply of milk.
See it this way. American depository receipts/ global depository receipts of ICICI,
Satyam and Infosys traded on stock exchanges in the USA and England have their
own values? No. They draw their price from the underlying shares traded in India.
Consider how the value of mutual fund units changes on a day-to-day basis. Dont
mutual fund units draw their value from the value of the portfolio of securities under
the schemes? Arent these examples of derivatives? Yes, these are. And you know
what, these examples prove that derivatives are not so new to us. Nifty options and
futures, Reliance futures and options, Satyam futures and options etc are all
examples of derivatives. Futures and options are the most common and popular
form of derivatives.
63
HISTORY
The derivatives markets has existed for centuries as a result of the need for both
users and producers of natural resources to hedge against price fluctuations in
the underlying commodities. India has been trading derivatives contracts in
silver, gold, spices, coffee, cotton and oil etc for decades in the gray market.
Trading derivatives contracts in organized market was legal before Morarji
Desais government banned forward contracts. Derivatives on stocks were
traded in the form of Teji and Mandi in unorganized markets. Recently futures
contract in various commodities was allowed to trade on exchanges. In June
2000, NSE and BSE started trading in futures on Sensex and Nifty. Options
trading on Sensex and Nifty commenced in June 2001. Very soon thereafter
trading began on options and futures in 31 prominent stocks in the month of July
and November respectively. The market lots keeps on changing from time to
time. The minimum quantity you can trade in is one market lot.
Risk Trading/Market Making: Running derivatives trading book for profits and
arbitrage; and/or
64
TYPES OF DERIVATIVES
Options
Swaps
DERIVATIVES
Options
Put
Futures
Call
Commodi
Swaps
Interest
Forwards
Currenc
Security
65
FORWARDS:
A forward contract is the simplest mode of a derivative transaction. It is an
agreement to buy or sell an asset (of a specified quantity) at a certain future
time for a certain price. No cash is exchanged when the contract is entered
into.
Illustration: - Shyam wants to buy a TV, which costs Rs 10,000 but he has no cash
to buy it outright. He can only buy it 3 months hence. He, however, fears that prices
of televisions will rise 3 months from now. So in order to protect himself from the rise
in prices Shyam enters into a contract with the TV dealer that 3 months from now he
will buy the TV for Rs 10,000. What Shyam is doing is that he is locking the current
price of a TV for a forward contract. The forward contract is settled at maturity. The
dealer will deliver the asset to Shyam at the end of three months and Shyam in turn
will pay cash equivalent to the TV price on delivery.
FUTURES:
It is an agreement between two parties to buy or sell an asset at a certain time in the
future at a certain price through exchange traded contracts.
A Future represents the right to buy or sell a standard quantity and quality of an
asset or security at a specified date and price. Futures are similar to Forward
Contracts, but are standardized and traded on an exchange, and are valued, or
"Marked to Market daily. The Marking to Market provides both parties with a daily
accounting of their financial obligations under the terms of the Future. Unlike
Forward Contracts, the counterparty to a Futures contract is the clearing corporation
on the appropriate exchange. Futures often are settled in cash or cash equivalents,
rather than requiring physical delivery of the underlying asset. Parties to a Futures
contract may buy or write Options on Futures.
66
OPTIONS:
An option is a contract, which gives the buyer the right, but not the obligation
to buy or sell shares of the underlying security at a specific price on or before
a specific date.
Option, as the word suggests, is a choice given to the investor to either honor the
contract; or if he chooses not to walk away from the contract. There are two kinds of
options: Call Options and Put Options.
A Call Option is an option to buy a stock at a specific price on or before a certain
date. When you buy a Call option, the price you pay for it, called the option premium,
secures your right to buy that certain stock at a specified price called the strike price.
If you decide not to use the option to buy the stock, and you are not obligated to,
your only cost is the option premium.
Put Options are options to sell a stock at a specific price on or before a certain date.
In this way, Put options are like insurance policies. With a Put Option, you can
"insure" a stock by fixing a selling price. If something happens which causes the
stock price to fall, and thus, "damages" your asset, you can exercise your option and
sell it at its "insured" price level. If the price of your stock goes up, and there is no
"damage," then you do not need to use the insurance, and, once again, your only
cost is the premium.
Technically, an option is a contract between two parties. The buyer receives a
privilege for which he pays a premium. The seller accepts an obligation for which he
receives a fee.
CALL OPTIONS
Call options give the taker the right, but not the obligation, to buy the underlying
shares at a predetermined price, on or before a predetermined date.
Illustration: - Raj purchases 1 Satyam Computer (SATCOM) AUG 150 Call
--Premium 8
67
This contract allows Raj to buy 100 shares of SATCOM at Rs 150 per share at any
time between the current date and the end of next August. For this privilege, Raj
pays a fee of Rs 800 (Rs eight a share for 100 shares).
The buyer of a call has purchased the right to buy and for that he pays a premium.
Now let us see how one can profit from buying an option; Sam purchases a
December call option at Rs 40 for a premium of Rs 15. That is he has purchased the
right to buy that share for Rs 40 in December. If the stock rises above Rs 55 (40+15)
he will break even and he will start making a profit. Suppose the stock does not rise
and instead falls he will choose not to exercise the option and forego the premium of
Rs 15 and thus limiting his loss to Rs 15.
PUT OPTIONS
A Put Option gives the holder of the right to sell a specific number of shares of an
agreed security at a fixed price for a period of time.
Illustration:- Raj is of the view that the a stock is overpriced and will fall in future,
but he does not want to take the risk in the event of price rising so purchases a put
68
option at Rs 70 on X. By purchasing the put option Raj has the right to sell the stock
at Rs 70 but he has to pay a fee of Rs 15 (premium).
So he will breakeven only after the stock falls below Rs 55 (70-15) and will start
making profit if the stock falls below Rs 55.
CALL OPTIONS
Short
PUT OPTIONS
Long
Long
Short
HEDGING
We have seen how one can take a view on the market with the help of index futures.
The other benefit of trading in index futures is to hedge your portfolio against the risk
of trading. In order to understand how one can protect his portfolio from value
erosion let us take an example.
69
Illustration: Ram enters into a contract with Shyam that six months from now he will
sell to Shyam 10 dresses for Rs 4000. The cost of manufacturing for Ram is only Rs
1000 and he will make a profit of Rs 3000 if the sale is completed.
Cost (Rs)
Selling price
Profit
1000
4000
3000
However, Ram fears that Shyam may not honor his contract 6 months from now. So
he inserts a new clause in the contract that if Shyam fails to honor the contract he
will have to pay a penalty of Rs 1000. And if Shyam honors the contract Ram will
offer a discount of Rs 1000 as incentive.
Shyam defaults
Shyam honors
- (No gain/loss)
As we see above if Shyam defaults Ram will get a penalty of Rs 1000 but he will
recover his initial investment. If Shyam honors the contract, Ram will still make a
profit of Rs 2000. Thus, Ram has hedged his risk against default and protected his
initial investment.
The above example explains the concept of hedging.
SPECULATION
Speculators are those who do not have any position on which they enter in futures
and options market. They only have a particular view on the market, stock,
commodity etc. In short, speculators put their money at risk in the hope of profiting
from an anticipated price change. They consider various factors such as demand
supply, market positions, open interests, economic fundamentals and other data to
take their positions.
70
Illustration: Ram is a trader but has no time to track and analyze stocks. However,
he fancies his chances in predicting the market trend. So instead of buying different
stocks he buys Sensex Futures.
On May 1, 2001, he buys 100 Sensex futures @ 3600 on expectations that the index
will rise in future. On June 1, 2001, the Sensex rises to 4000 and at that time he sells
an equal number of contracts to close out his position.
Selling Price : 4000*100
Rs 4,00,000
Rs 3,60,000
Net gain
Rs 40,000
Ram has made a profit of Rs 40,000 by taking a call on the future value of the
Sensex. However, if the Sensex had fallen he would have made a loss. Similarly, if
would have been bearish he could have sold Sensex futures and made a profit from
a falling profit. In index futures players can have a long-term view of the market up to
atleast 3 months.
ARBITRAGE
An arbitrageur is basically risk averse. He enters into those contracts were he can
earn riskless profits. When markets are imperfect, buying in one market and
simultaneously selling in other market gives risk less profit. Arbitrageurs are always
in the look out for such imperfections.
In the futures market one can take advantages of arbitrage opportunities by buying
from lower priced market and selling at the higher priced market. In index futures
arbitrage is possible between the spot market and the futures market.
The futures price of Nifty futures can be worked out by taking the interest
cost of 3 months into account.
71
Let us take the example of single stock to understand the concept better. If Wipro is
quoted at Rs 1000 per share and the 3 months futures of Wipro is Rs 1070 then one
can purchase ITC at Rs 1000 in spot by borrowing @ 12% annum for 3 months and
sell Wipro futures for 3 months at Rs 1070.
Sale
1070
Cost= 1000+30
1030
Arbitrage profit
40
These kinds of imperfections continue to exist in the markets but one has to be alert
to the opportunities as they tend to get exhausted very fast.
MARGINS
The margining system is based on the JR Verma Committee recommendations. The
actual margining happens on a daily basis while online position monitoring is done
on an intra-day basis.
Daily margining is of two types:
1. Initial margins
2. Mark-to-market profit/loss
The computation of initial margin on the futures market is done using the concept of
Value-at-Risk (VaR). The initial margin amount is large enough to cover a one-day
loss that can be encountered on 99% of the days. VaR methodology seeks to
measure the amount of value that a portfolio may stand to lose within a certain
horizon time period (one day for the clearing corporation) due to potential changes in
the underlying asset market price. Initial margin amount computed using VaR is
collected up-front.
The daily settlement process called "mark-to-market" provides for collection of
losses that have already occurred (historic losses) whereas initial margin seeks to
72
Rs 45,000
Assuming that the contract will close on Day + 3 the mark-to-market position will look
as follows:
POSITION ON DAY 1
Close Price
1400 x 200 =
Loss
20,000 (3,00,000 -
Margin released
3,000 (45,000 -
2,80,000
Payment to be
2,80,000)
42,000)
3000)
(17,000)
made
NEW POSITION ON DAY 2
Value of new position = 1,400*200= 2,80,000
Margin = 42,000
Close Price
1510 x 200 =
Gain
22,000
3,02,000
(3,02,000 - 2,80,000)
Payment to be recd
Addn Margin
3,300
(45,300 - 42,000)
(22,000 - 3300)
18,700
73
POSITION ON DAY 3
Value of new position = 1510*200 = Rs 3, 02,000
Margin = Rs 3,300
Close Price
1600*200
=3,20,000
Payment to be recd
Gain
18,000 (3,20,000-3,02,000)
Margin account*
Initial margin
Position on Day 2
Addn margin
Rs 45,000
(-)
Rs 3,000
Rs 42,000
(+)Rs 3,300
Rs 45,300*
Net gain/loss
Day 1 (loss)
(Rs 17,000)
Day 2 Gain
Rs 18,700
Day 3 Gain
Rs 18,000
Total Gain
Rs 19,700
The client has made a profit of Rs 19,700 at the end of Day 3 and the total cash
inflow at the close of trade is Rs 63,300.
ABOUT COMMODITIES
74
INTRODUCTION
Commodities Market In India
Organized futures market evolved in India by the setting up of "Bombay Cotton Trade
Association Ltd." in 1875. In 1893, following widespread discontent amongst
leading cotton mill owners and merchants over the functioning of the Bombay
Cotton Trade Association, a separate association by the name "Bombay Cotton
Exchange Ltd." was constituted. Futures trading in oilseeds was organized in India
for the first time with the setting up of Gujarati Vyapari Mandali in 1900, which
carried on futures trading in groundnut , castor seed and cotton. Before the Second
World War broke out in 1939 several futures markets in oilseeds were functioning in
Gujarat and Punjab.
There were booming activities in this market and at one time as many as 110
exchanges were conducting forward trade in various commodities in the country. The
securities market was a poor cousin of this market as there were not many papers to
be traded at that time.
The era of widespread shortages in many essential commodities resulting in
inflationary pressures and the tilt towards socialist policy, in which the role of market
forces for resource allocation got diminished, saw the decline of this market since the
mid-1960s. This coupled with the regulatory constraints in 1960s, resulted in virtual
dismantling of the commodities future markets. It is only in the last decade that
commodity future exchanges have been actively encouraged. However, the markets
have been thin with poor liquidity and have not grown to any significant level.
A three-pronged approach has been adopted to revive and revitalize the market.
Firstly, on policy front many legal and administrative hurdles in the functioning of the
market have been removed. Forward trading was permitted in cotton and jute goods
in 1998, followed by some oilseeds and their derivatives, such as groundnut,
mustard seed, sesame, cottonseed etc. in 1999. A statement in the first ever National
Agriculture Policy, issued in July, 2000 by the government that futures trading will be
encouraged in increasing number of agricultural commodities was indicative of
welcome change in the government policy towards forward trading.
75
76
Today the business is not limited to our area only. Where the production is less but,
demand is comparatively high prices of the product will go up. On the contrary where
the production is high but demand is comparatively low the prices will go down.
If sellers and buyers come together at a place then it will create a market.
Here against one seller there will be more then one buyer. In this market
buyers will come across the country for transactions.
In this market not only producer and seller are included but arbitrageur,
speculator, and hedger can tread. In this way the total area of market will
become broad.
In our country agricultural products form 25% of GDP. Total turnover of
commodity of market is nearly Rs.1, 10,000 corer. In which 60,000 corer
comes from agriculture and left is coming from coal, crude, etc
Today in our country most of the trade is done in unorganized market. In the
market current and future contracts are done. Promissory contracts have
been started science 1875. But due to some restriction it was not properly
worked. Presently nearly in 122 commodities tread is being done
77
COMMODITIES
78
79
Futures contracts perform two important functions of price discovery and price risk
management with reference to the given commodity. It is useful to all segments of
economy. It is useful to producer because he can get an idea of the price likely to
prevail at a future point of time and therefore can decide between various competing
commodities, the best that suits him. It enables the consumer get an idea of the
price at which the commodity would be available at a future point of time. He can do
proper costing and also cover his purchases by making forward contracts.
The futures trading is very useful to the exporters as it provides an advance
indication of the price likely to prevail and thereby help the exporter in quoting a
realistic price and thereby secure export contract in a competitive market. Having
entered into an export contract, it enables him to hedge his risk by operating in
futures market. Other benefits of futures trading are:
The commodity should be competitive, i.e., there should be large demand for
and supply of the commodity - no individual or group of persons acting in
concert should be in a position to influence the demand or supply, and
consequently the price substantially.
80
The market for the commodity should be free from substantial government
control.
The commodity should have long shelf life and be capable of standardization
and gradation.
Castor Seeds, Soy Seeds, Castor Oil, Refined Soy Oil, Soymeal, RBD Palmolein,
Crude Palm Oil, Groundnut Oil, Mustard Seed, Mustard Seed Oil, Cottonseed Oilcake, Cottonseed
Bandhani
81
HEDGING
Hedging is a sophisticated mechanism, which provides the necessary immunity to
the above interests in the marketing of commodities from the risk of adverse price
fluctuations.
82
83
breadth and liquidity to the futures markets which in their absence would remain
narrow and unstable.
A speculator operating in a futures market is the one who buys or sells futures
contracts without any countervailing commitments or transactions in the actual
commodity with a view to making profit from the fluctuations in the prices.
The basic distinction between a hedge and speculative transaction on a futures
market is that while in the case of a hedge transaction there is a corresponding
opposite transaction in the ready market, in the case of a speculative transaction,
there is no corresponding transaction in the ready market.
While the motives of the speculator in entering into futures trans actions are different
from a hedger, the form or nature of transactions entered into by both in the futures
market is similar. When a transaction takes place in a futures market, the transaction
may well be between two hedgers or two speculators or between a hedger and a
speculator.
While it is possible for the individual parties to enter into futures contracts, such
contracts are generally entered under the auspices of commercial bodies known as
commodity exchanges or associations.
The need for organizing futures trading under the auspices of such commodity
exchanges or associations arises mainly in order to ensure that payment of
differences arising from settlement of purchase and sale contracts entered into by
the members of such exchanges or aassociations take place in a smooth and orderly
manner and thus defaults on account of non-payment of such differences are
avoided. Futures trading in these commodity exchanges/associations are confined to
or conducted through its members in accordance with the procedure laid down in its
rules members in accordance with the procedure laid down in its rules and bye-laws.
Further, these exchanges/associations also help in evolving standard terms of
contracts in which the quantity and quality of the goods traded, period of delivery and
all other terms are pre-determined, the only variable being the price at which the
contracts helps the members of associations in entering into uniform types of
contracts in which the quantity and quality of goods, period of delivery etc. are predetermined so that they can be entered into primarily for the purpose of exchange of
money differences.
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REGULATORY BODY
The Forward Markets Commission (FMC) is the regulatory body for commodity
futures/forward trade in India. The commission was set up under the Forward
Contracts (Regulation) Act of 1952. It is responsible for regulating and promoting
futures/forward trade in commodities. The FMC is headquartered in Mumbai while its
regional office is located in Kolkata. Curbing the illegal activities of the diehard
traders who continued to trade illegally is the major role of the Forward Markets
Commission.
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transactions carried out in the local markets. Also multiple restrictions exist on interstate movement and warehousing of commodities.
Initial Margins
Exposure margins
Surveillance
86
The following are some of the key factors for the success of the commodities
markets:
87
To get in place the right regulatory structure to even out the differences that
may exist in various fields.
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FUTUREPROSPECTS
With the gradual withdrawal of the government from various sectors in the postliberalization era, the need has been felt that various operators in the commodities
market be provided with a mechanism to hedge and transfer their risks. India's
obligation under WTO to open agriculture sector to world trade would require futures
trade in a wide variety of primary commodities and their products to enable diverse
market functionaries to cope with the price volatility prevailing in the world markets.
Government subsidy may go down as a result of WTO. The MSP programme will not
be sustainable in such a scenario. The farmer will have to look at ways of being in a
position to trade on commodity exchanges in future. Also, corporate will feel the
pressure to hedge their price risk once the frontiers open up for free trade.
Indian markets have recently thrown open a new avenue for retail investors and
traders to participate: commodity derivatives. For those who want to diversify their
portfolios beyond shares, bonds and real estate, commodities are the best option.
Following are some of the applications, which can utilize the power of the commodity
markets and create a win-win situation for all the involved parties: -
FII's are currently not allowed nor disallowed under any law. As, they have added
depth to the equity markets; they will add depth to the commodities markets, since
they globally know the commodities.
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instruments, equity markets. AMFI & SEBI need to collectively work towards the
same. Launch of the "Commodity Funds", by the Mutual Funds in India, can serve as
a newer investment avenue for investors.
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are becoming minimal and the Internet is soon becoming a way of life in India. It is in
this scenario that online trading is becoming more the way of trading in India.
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SHAREKHAN
COMMODITY
ADVANTAGE
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RESEARCH
Research Objective
The main objective of the study is to analysis the awareness of derivatives and
commodities segment and their potential market among the people of Rajkot City.
To find out the best medium to educate the masses about Derivatives and
Commodity.
HYPOTHESIS:
H0: There is no significant difference in level of awareness of
Derivatives and
Commodity.
H: There is significant difference in level of awareness of
Derivatives and
Commodity.
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SOURCES OF DATA
There are two main sources of data
1. Primary Data
2. Secondary Data
Primary Data
The data, which is collected directly from the respondent to the base of knowledge
and belief of the research, is called primary data.
The most preferred way is to interview the individuals to get a sense of how they feel
Secondary Data
When the data is collected and compiled from the published nature or any others
primary data is called secondary data.
So far as our research is concerned, we have not collected any information from any
sources. So, we have not used secondary data for our research.
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SAMPLING PROCESS
It is very true that to do the research with the whole universe. As we know that it is
feasible to go to population survey because of the n number of customers and their
scattered location. So for this purpose sample size has to be determined well in
advance and selection of sample also must be scientific so that it represents the
whole universe.
So far as our research is concerned, we have taken sample size of 300 respondents.
We have selected Income Earners with saving to invest in Rajkot city.
All the respondents are stratified on the basis of their profession and savings. We
have selected the selected the samples as per per convenience.
Sample Universe
Sampling Technique
Sample Size
Sampling Unit:
Rajkot City
Stratified and Random
300 Respondents
Professional
Random
Business Man
Random
Government Employees
Random
Employees working in private firms
Random
=
=
=
=
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SCOPE OF STUDY
The research would be useful in the following respect.
This will help the company to know the taste of masses and turn it towards
Derivatives and Commodities.
This will help the company, how to make people aware about Derivatives and
Commodities by imparting best education.
This will help the company to frame effective Marketing Strategy as well as
select the right media for advertising to create brand awareness as well as to
give knowledge of the product.
Mind share of Sharekhan can be known.
This will also help to select right medium for trading in Derivatives and
Commodities segment.
Time Limit:
The time duration given for the research is less.
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Area:
The area was limited to Rajkot City only, so we cannot know the degree of the
literacy outside the city.
Sample Size:
The last limitation is Sample Size, which is of 100 only; due to which we may not get
the proper results.
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Female
104
2.Age:
Below 30
212
30-50
35
More than 50
53
3.Education Qualification:
98
Post
Graduate
112
Graduate
Under Graduate
172
16
4.Occupation:
Govt.
Non-Govt. Business Professional
Employees Employees Man
120
62
70
48
5.Investment Pattern:
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Securities
Bank F.D.
Post office
Insurance
Mutual Fund
Gold
Equity
Derivatives
Commodities
No.
114
63
28
30
22
19
10
14
Percentage(%)
38
21
9
10
7
6
3
5
It can be seen from the graph that the respondents have given first preference for
investment to Bank F.D. and Gold, Equity, Derivatives and Commodity having almost
equal share.
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Instruments
Bullion
Spices
Fiber
Oil
Metal
F&O
No.
79
33
19
50
43
76
Percentage(%)
26
3
11
17
14
25
When asked to the respondents that out of the given options which one would they
prefer? So they prefer Bullion first. So the preference for commodity (Bullion) is more
than the Derivatives.
No.
Rank
101
Risk Reduction
Leverage Benefit
Arbitrage Benefit
Speculative Motive
Liquidity preference
129
112
12
15
32
1
2
5
4
3
So, Each and every investor are not risk taker though they want more return from the
investment.
No.
117
55
Rank
1
3
102
Internet
Other
102
26
2
4
155
145
Commodity
MCX
189
NCDEX 111
103
Lack of knowledge
Lack of Guidance
Lack of Fund Availability
Lack of Risk taking
Ability
No.
64
58
70
108
Percentage (%)
21
19
23
36
No.
97
73
19
20
68
23
Rank
1
2
6
5
3
4
104
168
43
89
3
2
5
8
7
1
6
4
105
9
8
7
6
5
4
3
2
1
0
5
3
Series1
TESTING OF HYPOTHESIS
Testing of Hypothesis using Z test (Two tailed):
1.) The Null Hypothesis (H0):
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H0 : u =
50%
H1: u
50%
5 / root of 300 - 1
15/17.29
107
0.8676
55 50 / 0.8676
5.763
108
CONCLUSION
Most of the people in Rajkot City are investing in fixed return Instruments.
Those people who want to invest in Derivatives & Commodities are investing
mainly for reducing risk and they consider them as investment tool.
Literature and Self Experience can be taken as the best method to impart
education about derivatives & commodities
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RECOMMENDATION
Sharekhan needs to make its marketing team strong and also it should increase
marketing activities such as promotional campaigns.
Sharekhan should turn existing customers (who are trading in Equity only)
towards Derivatives & Commodities.
Sharekhan can also use Newspapers and Local New Channels as a medium of
advertising.
Sharekhan may also use its helpline number for giving education on Derivatives
& Commodities.
Company may appoint special team for giving education & attracting people
towards trading on Derivatives & Commodities.
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QUESTIONNAIRE
1. Name:____________________________________________
2. Gender:
Male
Female
3. Age:
21-35
36-50
Above 50
4. Education:
___________________________________
5. Occupation:
Professional
Businessman
Govt. Employee
Employess working
No:
Gold:
Post schemes:
Equity:
Insurance:
Derivatives:
Mutual Fund:
Commodities:
Q.3 If You invest in Derivatives OR Commodity, Which would be your first preference
from the list given below?
Bullion:
Spices:
Metal:
Fiber:
F&O:
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Q.4 Which factor plays crucial role when you make a decision to invest in Derivatives
& Commodity?
Risk Reduction:
Arbitrage Benefit:
Leverage Benefit:
Speculative Motive:
Liquidity preference:
Q.5 which mediums do you use to invest in Derivatives & Commodity?
Broker:
Internet:
Magazine:
News channels
Q.6 which stock exchange would you prefer to carry out your transaction?
BSE:
NSE:
MCX:
NCDEX:
Q.7 Do You consider investment in Derivatives & Commodities are safer then Other
investment avenues?
YES:
No:
Q.8 If No, than What are constraints that are holding you back?
Lack of Knowledge:
Lack of Guidance from Broker:
Lack of Funds Availability:
Lack of Risk taking ability:
Q.9 How do You take decisions If You want to trade in Derivatives & Commodity?
Independently:
Broker/Agent:
News Channels:
Internet:
News Papers:
Tax Consultant:
Q.10 How much time will you be able to devote for learning Derivatives OR
Commodity?
Hour:
1 Hour :
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2 Hour :
Q.11 According to You, Which medium is the most reliable for trading in Derivatives
& Commodity ?
Stock Broking Company:
Franchises:
Online:
Q.12 Name any 2 Stock Broking companies that deal in Derivatives & Commodity
1.____________
2.____________
MY LEARNING
During the two months training I explore my knowledge of stock
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market. I also know that how to implement theory in practice. I also got
the chance for trading Share khans product like Sales Executives so
that it improve my convincing power and also give chance to meet
different people .It also increase my confidence. It is a memorable
experience to be a part of share khan family. I am always thankful to
them.
BIBLIOGRAPHY
Books:
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Websites:
1. www.Google.com
2. www.bseindia.com
3. www.nseindia.com
4. www.sharekhan.com
5. www.ncdex.com.
6. www.mcx.com
7. www.moneycontrol.com
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