CERTIFICATE

This is certify that MR. BADANI HARSHIL M. of S.K.Patel

Initute of Management and Computer Studies, Gandhinagar have
submitted his project report titled PROJECT REPORT ON
DERIVATIVE AND ITS STRATEGIES in the year 2010 in partial
fulfillment of Kadi Sarva Vishwavidyalaya requirements for the award of
the title Master of Business Administration.

PROF. SONU V. GUPTA

PROF.

PRAKASH

CHAWLA

(DIRECTOR & PROJECT GUIDE)

DATE:-

(CO-ORDINATOR)

M.

DECLARATION
I , here by, declare that the project report titled PROJECT
REPORT ON DERIVATIVE AND ITS STRATEGIES is original to
the best of my knowledge and has not been published elsewhere. This is
for the purpose of partial fulfillment of Kadi Sarva Vishwavidyalaya
requirements for the award of the title of MBA.

Students name

Signature:

Badani Harshil M.

PREFACE
2

Today as we all know that share market is well-known field and

full of stiff competition. Now days it is one of the field of investment to
earn money . For this investment of money in market there are different
stock-broking companies are available in the market. They provide one or
another type of service to account holder or investor.

Share market is my interest of field from the beginning. At this

moment I got an opportunity to work with stock broking company and I
have prepare this report on the SHARE-KHAN STOCK BROKING
PVT. LTD. Stock broking company charges have been of much
important account holders point of view. It is difficult to cover up the
entire field so I have taken the field which I found of interest.

For every company charges of stock broking are very important.

All the companies keep those charges as per the boundaries given by
SEBI.

ACKNOWLEDGEMENT
3

Training is major part of study in respect of MBA or any other

course. Through these report I want to express my whole gratitude
towards all those persons who have guided me in preparation of this
report and also provided me organizational training.

For this report I received full support from all quarters. Firstly I
would be thankful to Prof. Sonu V. Gupta ( Director & Project Guide)
who has advised me the right way for training and I am also thankful to
all the Management Faculties and the librarians.

I am also thankful to Mr. Hiren Mehta, the manager of

sharekhan who has given me the permission for my summer training and
provided me the useful knowledge & training of stock market. I am also
thankful to Mr. Mihir Mehta, the assistant manager of sharekhan who has
given me good guidance from his practical knowledge.

I am also thankful to Mr. Piyush , the sales manager of

sharekhan under whom I have taken sales training. Last but not least I am
thankful to all other departmental head & staff of the company who have
shared their incredible knowledge and experience with me and given me
full support in preparation of this report.

INDEX
Sr. No.

Particulars

Page No.

1)
2)
3)
4)
5)
6)
7)
8)

PART-A Industry Analysis

History of Indian Share Market
Development
BSE
NSE
NCDEX
MCX
Basis of Share Market
Industry Analysis with Porters 5 Force

8
9
12
14
15
17
17
19
20

1)
2)
3)
4)
5)
6)
7)

Model
PART-B Introduction to Share Khan
Vision
Core Value
SSKI Group
Organizational Structure
Products of Sharekhan
Market Coverage
Research & Advised Tools

27
34
38
38
39
41
51
52

SWOT Analysis
PART-C Derivative & its Strategies
The Indian Equity & Derivative Mkt.
Introduction
Types of Derivative
PART-C Research
Title of Study
Statement of Problem
Objective of Study
Universe of Study
Hypothesis
Sampling Decision

59
62
63
64
76
81
82
83
84
85
86
88

8)
1)
2)
3)
1)
2)
3)
4)
5)
6)

7)
8)
9)
10)
11)
12)
13)
14)
15)

Data Collection Method

Research Results
Period of Study
Tools & Techniques
Limitations of the Study
Suggestions
Conclusion
Bibliography
Appendix

PART-A
INDUSTRY
ANALYSIS

89
91
110
110
111
112
113
114
115

1. HISTORY OF INDIAN
SHAREMARKET
The working of stock exchanges in India started in 1875. BSE is
the oldest stock market in India. The history of Indian stock trading starts
with 318 persons taking membership in Native Share and Stock Brokers
Association which we now know by the name Bombay Stock Exchange
or BSE. In 1965, BSE got permanent recognition from the Government of
India. National Stock Exchange comes second to BSE in terms of
popularity. BSE and NSE represent themselves as synonyms of Indian
Stock Market. The history of Indian stock market is almost the same as
the history of BSE.

The Sensex is complied based on the performance of the stock

of 30 financially sound benchmarked companies. In 1990 the BSE
crossed the 1000 mark for first time. It crossed 4000 figure in 1992. The
reason for such huge surge in the stock market was the liberal financial
policies announced by the financial minister Dr. Manmohan Singh.

This bullish mode of stock market was suddenly lost with the
scam of Harshad Mehta. It came to the public knowledge that Mr. Mehta,
also known as the big bull of Indian stock market. He has diverted huge
funds from banks through fraudulent means. He played with 270 million
shares of 90 companies. Millions of small scale investors became victims
to the fraud as the Sensex fell down upto 570 points.

This phenomenon is result of opening up of online trading

system and diminished interest rates from banks. The stockbrokers based
in India are opening offices at different cities in country to prevent from
such fraud. The government formed Security Exchange Board of India,
through an act in 1992. SEBI is the statutory body that controls and
regulates the functioning of stock exchanges, brokers, sub-brokers,
portfolio managers investment advisors etc SEBI oblige several rigid
measures to protect the interest of investors.

Sensex crossed 5000 in 1999 and 6000 in year 2000. The 7000
mark was crossed in June and 8000 in September 2005. After that many
foreign institutional investors started to invest in Indian stock market.
Due to

10

that the market has taken the bullish way and in 2008 it touched the limit
of 21000.

India hosts the largest number of listed companies after United

States. Global investors now ardently seek to invest in Indian stock
market. Once appeal with skepticism, stock market now appeals to
middle class Indians also. Many Indians working in foreign countries
now divert their savings to stocks. They can invest their money in this
stock from their own places.

Now days most of persons want to invest their money according

to the tips of expert. They do not invest only in giant companies. Good
monsoon is also taken as good sign for bullish market. If monsoon is not
good then it is taken as sign of bearish market. Thus one of the affected
factor to the market is agriculture sector.

11

2. DEVEPMENT
An important early event in the development of the stock
market in india was formation of the native share and stock brokers
association in Bombay in 1875, The precursor of present day is BSE. This
was followed by the formation of association in Ahmadabad (1894),
Calcutta (1908) and Madras (1937). In addition, a large number of
ephemeral exchanges emerged mainly in buoyant periods to recede into
oblivion during depression time 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 Act, 1956. Under

this

legislation it is mandatory on the part of a stock exchange to seek

government recognition. As of January 2002 there were 23 stock
exchanges recognized by the central government. They are located at
Ahmadabad, Bangalore, Baroda, Bhuvaneshvar, Calcutta, Chennai,
Cochin, Coimbatore, Delhi, Guwahati, Hyderabad, Indore, Jaipur,
Kanpur, Ludhiana, Mangalore,

12

Mumbai (NSE, BSE, OTC exchange of India, Inter-connected stock

Exchange of India), Patna, Pune and Rajkot. Of course, the main stock
exchanges are NSE and BSE.

These rules can be amended, varied or rescinded only with the

prior approval of the government. The Securities Contract Act vests the
government with the power to make enquiries into the affairs of a
recognized stock exchange and its business, withdraw the task of
regulating the stock exchange to the Securities Exchange Board of India.

Now days Indias largest ticker on the wall of BSE is

broadcasted on Indias and South Asias largest video screen Indias
leading business news channel: NDTV Profit.

13

3. BSE (BOMBAY STOCK

EXCHANGE)
As the first stock exchange in India, the Bombay Stock
Exchange is considered to have played a very important role in the
development of the countrys capital markets. The BSE is the largest of
22 stock exchanges in India, with about 18000 listed companies. It is also
the fifth largest exchange in the world.
This index gives a measure of overall performance of the BSE
and is closely followed around the world. Based on sensex, BSE equity
market is growing up significantly since 1990. In addition to individual
stock, the BSE has also a market in derivatives, which was the first to be
developed in India. Listed derivatives on the exchange include stock
future and option, index future and option and weekly options.
The BSE is also actively involved in the development of retail
debt market. The debt market is also one of the growing market and
country continues to develop on this type of market. Recently in India
debt market was limited to wholesale market i.e. banks, financial
institutions etc But BSE believes that retail market will bring great
opportunities for individual investors.

14

4. NSE (NATIONAL STOCK

EXCHANGE)
In the fast growing Indian financial market, there are 23 stock
exchanges trading securities. The NSE situated in Mumbai is the largest
and most advanced exchange with 1016 companies listed and 726 trading
members.

The NSE is owned by the group of leading financial institutions

such as Indian Bank or Life Insurance Corporation of India etc
However, in the totally de-mutualised exchange, the ownership as well as
the management does not have a right to trade on exchange. Only
qualified traders can be involved in security trading.

The NSE is one of the few exchanges in world trading in which

all types of trading is possible on single platform. This exchange is
divided into three segments: Wholesale Debt Market, Capital Market and
Future and Option Market. Each segment has experienced a significant
growth throughout a few years of their launch. All the three markets
increased and has good growth since its opening in 1994.

15

The NSE provides its clients with a single, fully electronic

trading platform that is operated through a VSAT network. Unlike most
world exchanges, the NSE uses the satellite communication system that
connects traders from 345 Indian cities. The advanced technologies
enable upto 6 million trades to be operated daily on the NSE platform.

16

5. NCDEX
(NATIONAL COMMODITIES AND
DERIVATIVES EXCHANGE)
NCDEX started 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 arbitragers.

Promoters of NCDEX are:

National Stock Exchange (NSE)

ICICI Bank
Life Insurance Corporation (LIC)
National Bank of Agriculture and Rural Development (NABARD)
IFFCO
Punjab National Bank (PNB)
CRISIL

Why NCDEX?
NCDEX is nationalized screen based system which is providing
transparent, private and easy service.

17

 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 collaboration of institutes like NABARD, LIC
etc

Facilities Provided by NCDEX:

NCDEX has developed facilities for checking of commodity and also
provides a warehouse facility.
By collaborating with industrial partners, companies, news agencies,
banks and developers of kiosk network NCDEX is able to provide
current rates and contract rates.
To prepare guidelines related to special products of securitization
NCDEX works with bank.
To avail farmers from risk of fluctuation in prices NCDEX provides
special services for agricultural.
NCDEX is working with tax officer to make clear different types of
sales and service taxes.

18

6. MCX
(MULTI COMMODITYEXCHANGE)
MULTI COMMODITY EXCHANGE of India limited is a new
order exchange with a mandate for setting up a nationwide, online multicommodity market place, offering unlimited growth opportunities to
commodity market participants. As a true neutral market, MCX has taken
several initiatives for users. In a new generation commodity future market
in the process, become the countrys premier exchange.
MCX, an independent and de-mutualized exchange since inception, is all
set up to introduce a state of the art, online digital exchange for
commodities future trading in the country and has accordingly initiated
several steps to translate this vision into reality.

7. BASIS OF STOCK MARKET

19

Corporations issue official looking sheets of paper that

represent ownership of the company. These are called stock certificates
and each certificates represents set number of shares. The total number of
shares will vary from one company to another, as each makes its own
choice about how many pieces of ownership to divide the corporation
may have only 2500 shares, while another such as IBM or the Ford Motor
Company, may issue over a billion shares.

Companies sell stock (pieces of ownership) to raise money and

provide funding for the expansion and growth of the business. The
business founders give up part of their ownership in exchange for this
needed cash. The expectation is that even though the owners have
surrendered a portion of a company to the public, their remaining share of
stock will become increasingly valuable as the business grows.

Corporations are not allowed to sell shares of stock on open

stock market without the approval of the Securities and Exchange

Commission(SEC). This transition from a privately held corporation to a

publicly traded one is called going publicand this first sale of stock to the
public is called an initial public offering or IPO.

20

Why do people invest in the stock market:

When you buy stock in a corporation, you own part of that
company. This gives you a vote at annual shareholder meetings, and a
right to a share of future profits.

When a company pays out profit to the shareholder, the money

received is called a dividend. The corporations board of directors
choose when to declare a dividend and how much to pay. Most older and
larger companies pay a regular dividend, most newer and smaller
companies do not.

The average investor buys stock hoping that the stocks price
will rise, so the shares can be sold at the profit. This will happen if more
investors want to buy stock in a company than wish to sell. The potential
of a small dividend check is of little concern.

What is usually responsible for increased interest in companys

stock is the prospect of the companys sales and profits going up. A
company who is a leader in a hot industry will usually see its share price
rise dramatically. Investors take the risk of the price falling because they

21

hope to make more money in the market than they can with safe
investment such as bank CDs or government bonds.

How does one buy stocks:

Buying stocks is not as walking into a stockbrokers office and
buying shares like you would a pair of shoes from a store. You are
required to open an account with the brokerage, like opening an account
at a bank.

Some brokers will allow you to open an account with very little
money. The firm will then hold this money in an interest earning cash
account, awaiting your orders to buy or sell stock or other securities such
as bonds or mutual funds. When you buy or sell, you pay a commission,
which is deducted, from your account. When a stock is purchased, the
ownership of the shares may be listed in one of two ways. listed means
how the corporation tracks the ownership of their stock.

If you choose to have the stock listed in your name, you will
receive the actual stock certificates. Most investors choose to have the
ownership listed in the brokers name, called held in street name, with
the broker keeping track of whose trading account the stock actually

22

belongs to. The benefits are reduced paperwork, consolidated portfolio

statement, no concerns about storing and processing the paper certificates
and the ability to instantly sell and transfer the shares. Either way any
dividends are credited to your account. Stocks held in street name are
insured up to $5,00,000 by the federal government against fraud or
financial failure of the brokerage company.

Why do people sell their stock?

The reasons people sell their stock are more complex. A person
may just need the money. He or she may have watched the price go up
and have a hunch this is a good time to lock in their profit and sell some
or all their shares. Bad news concerning a company or its industry or a
disappointing earning report is sure to prompt heavy selling.

An investor may see better opportunities in another company

and so sell his stock that arent moving up. But usually, investors sell
because

They have watched the price fall and just want to get out before they lose
even more.

Secondary Market Intermediaries:

23

Stock brokers, Sub brokers, Portfolio Managers, custodians,

share transfer agents constitute the important intermediaries in secondary
market. A stock broker plays an important role in the secondary market
helping both the seller and the buyer of the securities to enter into a
transaction.

The transaction entered cannot be annulled except in the case of

Fraud, willful misrepresentation or upon prima-facie evidence of a
material
Mistake in the transaction, in the judgment of the existing authorities. If a
Member of the stock exchange (broker) has orders to buy and to sell the
same kind of securities, he may complete the transaction between his
clients
concerned.

When executing an order the stock may on behalf of his client

buy
or sell securities from his own account i.e. as principal or act as an agent.

For each transaction he has to issue necessary contract note indicating

24

whether he as principal or as an agent for another has entered into the

transaction. While buying pr selling securities as a principal, the stock
broker has to obtain the consent of his client and the prices charged
should be fair and justified by the conditions of the market.

Ten Golden Rules for Investing:

Warren Buffet has suggested ten golden rules for investing which proves
to be immense use the investor who wants a better investment in stock
markets, Sharekhan follows these rules which are as described below:

Never invest in a business you cannot understand

Risk can be reduced by concentrating on a few holdings.
Stop trying to predict the direction of the stock market, the economy,
interest rates or elections.
Buy companies with strong histories of profitability and with a
dominant business franchisees.
Be fearful when others are greedy and be greedy when others are
fearful.
Unless you can watch your stock holding decline by 50% without
becoming panic-stricken, you should not be in the stock market.
Do not take yearly results too seriously. Instead of focusing on 4 or 5
year averages.
Focus on return on equity, not earning per share (EPS)
Calculate owner earnings to get a true reflection of value. Look for
companies with high profit margins.

25

 Always invest for the long term. Do the business have favorable longterm prospects?

8. INDUSTRY ANALYSIS WITH

PORTERS 5 FORCE
MODEL

26

POTENTIAL
POTENTIAL ENTERANT
ENTERANT
Investmart
Investmart
Various
Various Banks
Banks
Geojit
Geojit
Cipher
Cipher
UTI
UTI Securities
Securities Ltd.
Ltd.
SUPPLIERS
SUPPLIERS

Refco
Refco Group
Group Ltd.
Ltd.

BUYERS
BUYERS
Small
Small Investors
Investors

Web
Web maintainers
maintainers

IDBI
IDBI Capital
Capital Mkt.
Mkt. Services
Services
COMPETITORS
COMPETITORS
Ltd.
Ltd.

NSCL
NSCL

ICICI
ICICI Web
Web Trade
Trade Ltd
Ltd

Franchise/Business
Franchise/Business
Partners
Partners

CSDL
CSDL

5paisa.com
5paisa.com

HNIs
HNIs

NSE
NSE

Kotak
Kotak Securities
Securities Ltd
Ltd

MF
MF Companies
Companies

BSE
BSE

India
India Bulls
Bulls

HUF
HUF

MCX
MCX

Motilal
Motilal Oswal
Oswal Securities
Securities Ltd
Ltd

NCDEX
NCDEX

HDFC
HDFC Securities
Securities Ltd
Ltd
Marwadi
Marwadi Finance
Finance Ltd
Ltd
SUBSTITUTES
SUBSTITUTES
Mutual
Mutual Funds
Funds
Insurance
Insurance
Bank
Bank FD
FD

27

Institutional
Institutional
Investors
Investors

1. 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.

28

Web maintainers are companies who make and maintain

softwares for stock broking houses. If say for example stock broking
houses switches over to other web maintainers then that company
cannot understand the mechanisms of softwares. So it is quite high
switching cost.

2. 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 its moderate in HNI/MNIs and business partners.

While its less in case of mutual fund companies and institutional

investors.

There is competitive buzz in stock broking industry, competitors

are offering low brokerage and best services with added feature. So
switching

29

cost is pretty much less. So the buyer can easily switch over to
competitors product.

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.

Technology:- Technology for stock broking houses is life saving

device. Stock broking requires huge capital to make their products user
friendly, which in turn requires capital to employ skilled manpower.
Thus, technology could be one of the entry barrier.

Regulatory Constraints:- Obtaining a license is a tedious job for a

stock broking house. It should comply with the regulation of the
governing bodies like SEBI, NSDL, etc. For a stock broking houses to
plunge into the stock broking industry, it needs to have some kind of
financial background and expertise. Thus, regulators constraints could
be an entry barrier.

Experience curve:- The core competency in this industry is the

services which are provided to the end-users and the research based

30

activities which includes TIPS, fundamental as well as technical

script analysis. Also the
most important thing which helps already established firms is-TRUST
which people would be having on firms like SSKI , Motilal Oswal, etc.
this is very difficult for new companies to imitate.

Network:- the Reach to the customer is the key factor in the

industry. The network of the companies like Motilal Oswal, Sharekhan,
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.

Expected Retaliation:-

whenever a new player comes in the

industry, the old companies have an option to reduce the prices of their
product. This kind of practice is called expected Retaliation which is
also possible in this industry in terms of less brokerage rates and
reduced account opening charges. E.g. 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 ie speed trade plus with the account charges of
Rs.1000.

31

3. 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.

4. POTENTIAL ENTRANT

Tew entrant which may take away the share of current players.

The potential entrant in Rajkot city like Investmart, Jeojit and

Cipher which are coming in near future.

Nationalized banks are also thinking to enter in this field byb tieing
up with broking houses. Eg Bank Of Baroda.

32

5. SUBSTITUTES

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 this instruments can
plunge into this industry.Banks are planning to jump while others may
come

33

PART-B
INTRODUCTION
TO
SHAREKHAN

34

Sharekhan is an equities focused organization tracing its lineage

to SSKI (Shripal Sevantilal Kantilal Ishvarlal) a veteran equities solutions
company with over 8 decades of experience in the Indian stock market.
Sharekhan is 80 years old company which is started online in
the year 2000 & it is the first company who started online in 1984. They
ventured into institutional broking & corporate finance. They having
more than 350 branches, 750 franchises and also having 900 shops in 213
cities. In Rajkot branch , daily dealing rs. 16 crore & 400 crore all over
India. Almost 8000 employees and 120000 trading customers.
If you experience our language, presentation style, content or
for that matter the online trading facility. You will find a common thread
one that helps you make informed decisions and simplifies investing in
stocks. The common thread of empowerment is what Sharekhans all
about! Sharekhan does not claim expertise in too many things. Share
khans expertise lies in stocks and thats what he talks about with
authority. So when he says that investing in stocks should not be confused
with trading in stock or a portfolio based strategy is better than betting on
a single horse. It is something that is spoken with years of focused
learning and experience in

35

the stock markets and these beliefs are reflected in everything sharekhan
does for you!
To sum up, Share khan brings to you a user-friendly online
trading facility, coupled with a wealth of content that will help you stalk
the right shares. Those of you feel comfortable dealing with a human
being and would rather visit a brick-and-mortar outlet than talk to a PC,
youd be glad to know that Share khan offers you the facility to visit (or
talk to) any of our share shops across the country.
In fact share khan runs indias largest chain of share shops with
Over six hundred outlets in more than 100 cities! Whats a share shop?
How do you locate a share shop in your city? To find the answers of these
questions, you must visit share khan. Hi other words share khan is a
company that provides you an outstanding trading facility with a wide
variety of products and acts as an investment consultant to manage your
portfolio and secure a high rate of return on your investment in the
security market.
SSKI has been voted the best domestic brokerage in India by
Asia money Polls 2004. Also SSKI is being rated as No. 1 Financial
Researcher

36

of Business Today, in survey conducted on Lead Managers of all Mutual

Funds.
Basically company is at second position at India level in the
case of Brokerage services and has top turnover in trading takes it at good
position in the market. The services they provide to investor are discussed
in more detail in marketing activities of the Sharekhan. The clients are
managed with friendly corporate culture and to motivate them different
services are provided by the managers also. Managers also give tips to the
investors to invest and manage few scripts which are best so they can
handle their profit or loss.
Sharekhan is in good position in the market with the highest
number of transactions in the market and offers you depository services
and trade execution facilities for

equities, derivatives and commodities

with its decades of experience. Research and analysis team is constantly

working to track performance and trends. As a result of that it has good
trading products with it. If we see its progress than in future i.e. in next
year it is going to issue its own share capital in the market. It has now a
days capital of 3000crore which is not a small amount.

37

1. VISION
To empower the investor with quality advise and superior
service to help him in taking better decisions. We believe that our growth
depends on client satisfaction.

2. CORE VALUE
Customer satisfaction through providing quality services effectively
and efficiently.
Smile, it enhances your face value is a service quality stressed on
periodic customer service audit.
Maximization of stakeholders value.
Success through teamwork, integrity and people.

38

3. SSKI GROUP CORPORATE

STRUCTURE

SSKI Securities
and Pvt. Ltd.

39

4. ORGANISATIONAL
STRUCTURE
Head Office

Branch Head

Marketing
Head

Operating
Head

Account
Head

Marketing
Executives

Operating
Staff

Back- Office
Staff

40

5. PRODUCTS OF THE
SHAREKHAN
Sharekhan
Products

Offline Trading
Account

Online Trading
Account

Classic Account or
Fast Trade Account

Speed Trade
Account

41

Other
Services

PMS
Mutual Funds
Online IPOs

1. Sharekhan Depository Services:

Dematerialization and Trading in the demat mode is the safer
and faster alternative to the physical existence of securities. Demat as a
parallel solution offers freedom from delays, theft, forgeries, settlement
risks and paperwork. This system works through depository participants
(DPs) who offer demat services and hold the securities in the electronic
form

for

the

investor

Sharekhan

Depository

Services

offer

dematerialization services to individual and corporate investors.

We have a team of professionals and the latest technological
expertise dedicated exclusively to our demat department, apart from a
national network of franchisee, making our services quick, convenient
and efficient. At sharekhan, our commitment is to provide a complete
demat solution which is simple, safe and secure.

42

Issuer/ R&T
Agent

Depository

Clearing
Corporation

Clearing
Member

Depository
Participant

Stock
Exchange

Trading
Member

Investors

Sharekhan is registered Depository Participant (DP) with

National Securities Depository Ltd. (NSDL). The participants are
required to enter into an agreement with beneficial owners. It is required
that separated accounts shall be opened by every participants in the name
of each the beneficial owner and the securities of each other beneficial
owner shall be segregated and shall not be mixed up with the securities of
other beneficial owner or with the participants own securities.
The participants are obliged to reconcile the records for a period of five
years. Records of all the transactions entered into with a depository and
with a beneficial owner.

43

2. Portfolio Management System:

With the sharekhan team managing your Portfolio, you can be
assured that your investment are in safe hands.

We

follow

multi-disciplined

approach

incorporating

quantitative analysis, fundamental analysis and technical analysis. This

multi-pronged approach enables us to provide risk controlled returns for
you.

Right from choosing the combination of stocks most suitable for

you based on your risk appetite to monitoring their movements and
discussing them with you at special events. Click here to see how we
manage your portfolio in a few easy steps. This is how we make investing
completely hassle-free for you. There are mainly three types of PMS that
sharekhan provides.
Pro-Tech (High risk & Return)
Pro-Prime (Moderate risk & Return)
Pro-Arbitrage (Low Risk & Fixed Return)

44

3. Mutual Funds:
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 to get answer in just five minutes.
A mutual funds is a poor 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.
Mutual fund industry was started in India with establishment of
UTI (1963), which is only player in the market of mutual fund up to
1987. During that time mutual fund market refers the unit link schemes
like Master Share and Master Gain. Mutual fund provides varieties of
schemes for different kind of customers to suit their goals. Mutual fund
have open-ended
and close-ended schemes, childrens plan , diversified equity fund,
balanced fund, liquid fund, income fund, short term fund, sector fund,
ELSS (equity linked savings schemes) and pension plan.

45

 Online IPO:
Online IPO is a new service started by Sharekhan for providing
the application form of any companys issue 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.

Online Commodity Trading:

Online Commodity Trading offers a way for an open, many to
many system where every user has equal access to price quotes and
trading functionality. It provides a level playing field for all , without
favoritism or control by a chosen few, where any user can view all quotes
posted by other user in real time,act or trade on quotes posted by others,
post their own prices and quantities for other to trade.
Liquidity, or trade activity, is perhaps the best measure of
success of an online trading commodity trading system. With most online
commodity trading system, traders can be sure of finding an interesting
market development or trading opportunity almost every time they log
on.
All quotes posted by users on any online online commodity
trading system are live and firm. They can be acted on with full assurance
of a completed transaction. The greatest advantage of an online system
for trading is that just a click can be used to hit a bid or lift an offer.

46

The Online trading system operates almost continuously around

the clock, 24 hours a day, seven days a week. This allows any user to
extend the trading day, and easily pass the trading objectives to others in
companies in different times zones. The online commodity trading
system in India is only emerging segment yet. This is because the internet
boom in Indian is on the rise only now. The internet charges are
becoming minimal and the internet is soon becoming a way of life in life
in India. It is in this scenario that online trading is becoming more the
way of trading in India.
There are mainly two exchanges deals with commodity.
MCX (Multi Commodity Exchange)
NCDEX (National Commodity and Derivative Exchange)

Commodity trading is also known as Vayda Market. In short Share

khan also provides broking in commodities and the brokerage charges are
0.10% on total trade value and if carry forwarded an additional 0.02%
charges on total trade. Items which are traded through commodity
exchanges are:

Spices : Peeper , Red Chilli, Jeera , Turmeric

Metal : Steel Long, Steel Flat, CopperNickel, Tin
Fibre : Kapas, Long Staple Cotton , Medium Staple Cotton
Pulses : Chana , Udad , Yello Peas
Cereals : Rice Basmati Rice, Wheat , Maize , Sarbati Rice
Energy : Crude Oil

Offline Trading Account:

47

The off Line account is trading account through which one

can buy and sell through his/her telephone or by personal visit at
sharekhan shop. This account is for those who are not comfortable with
computer and want to trade..
Offline a/c is the A/C for the investors who are not familiar with
the use of computers.
The A/c opening is free for first year, then for second year charge is
Rs. 400 and for the subsequent years, the charge is Rs. 360.

Online Trading Account:

There are no charges for account opening.
For first year Demat account is free, for second year charge is Rs.
400, for the subsequent years the charge is Rs. 360.
Tie up with 12 banks through which one can transfer or withdraw
his fund online. Which are as follows:
1. HDFC Bank
2. IDBI Bank
3. UTI Bank

4. OBC bank

5. CITY Bank

6. Indian Bank

7. Union Bank Of India

8. Yes Bank

9. Bank of Punjab

10.ICICI Bank

11. Bank of India

12. Centurion Bank

Any one who have A/C in either of above banks they can use
this Facility. Otherwise one has to make fund transfer facility or withdraw
by cheque.

48

This account enables you to buy and sell shares through our
websites. You get features like

a)
b)
c)
d)

Streaming Quotes (using the applet based system)

Multiple watch list
Integrated Banking, Demat and digital contracts
Instant Credit and transfer and instant order execution and

confirmation
e) Real time portfolio tracking with price alert and of course, the
assurance of secure transaction
f) Price alerts
Online trading account includes two types of account:
I. Classic Account or Fast Trade Account
II. Speed Trade Account

6. MARKET COVERAGE

49

Ground Network Largest in India

122 Franchisees and 28
branches
Covers 213 cities in 23 states
across India
Also they cover 588-share
shop in 213 cities.
Trade execution facility on
BSE and NSE for Cash as well as
Derivatives
Depository/Demat account
services
Personalized Sharekhan
research advice
Uniform service standards

50

7. RESEARCH AND ADVISED

TOOLS
Short-term Trading

Long-term Trading

Eagle Eye
High
Noon

Investors eye
sharkhan valueline

INVESTMENT ADVICE
ON EQUITY,
DERIVATIVE,
COMMODITY

Hedging
Sharekhan
Special

Derivative Products

Commodities Trading

Derivative info Kit

Derivative Digest
Derivative Calculator
Market Neutral
Srategies

Commodities Buzz
Commodities Traders
Corner Sharekhan
Exclusive
Bullion
Calculator

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 the right investment decisions regardless of their
investing preferences! The Research and Development at Sharekhan is
done at its Head office Mumbai.

51

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 position and other relevant matter of the branch heads of
each branch is being solved through teleconference.

The various publication of Sharekhan viz. Derivatives Digest

Sharekhans

Valueline,Engle

eye,

High

Noon,

Investors

Eye,

Commodities Buzz, Commodities Beat, Commodity Traders corner,

Sharekhan Exclusive, etc. are being prepared be the research team of
Sharkhan made up of highly experienced people from diverse field. These
all Publication provides:
In depth analysis of the before, during ( live market updates) and after
market timings & Speacial sector tracking reports sent regularly.

52

1. Sharekhan Publication:
Stock ideas :
Stock ideas are aimed at Sharekhans trading client. It presents
our best stock picks in todays market. We categorize these companies
into six clusters to help you identify the stock that fit your time horizons
and return objectives the best. Each cluster represents a certain profile in
terms of business fundamentals as well as the kind of returns you can
expect of it over a certain time horizon.

Stock Clusters:
Sharekhan categories all the scripts that are under coverage into
6 clusters, Each cluster represents a certain profile in terms of business
fundamentals as well as the kind of returns you can expert over a certain
time horizon. This help in identifying the stocks that fit your time
horizons and return objectives best. The six clusters are: Evergreen,
Apple Green, Emerging Star, Ugly Duckling, Vultures pick and
Cannonball.

Evergreen:
These stocks are steady compounders, churning out steady
growth rates year on year. They are typically significant players in their
markets, with sound strategies that will help them achieve and sustain
market

53

dominance in the long run. They have strong brands, management

credentials and a consistent track record of achieving super normal
shareholder returns. We expect stocks in this category to compound at
between 18- 20% per annum for the next five to ten years. Also called
ownership stocks, Evergreen stock are the brightest jewels in any
portfolio.

Apple Green :
These are stocks that have the potential to be steady
compounders and are attempting to move upwards, to turn Evergreen.
They rank a shade below the Evergreen companies, only because their
potential in the five to ten years time is still not very clear, although they
might grow at rates faster than of the Evergreen stocks in the next year or
two. They could grow at 25-30% per annum over the next two to three
years.

Emerging Star:
These are typically young companies, often in niche businesses,
that have the potential to grow and dominate their niches. Even better ,
they might turn out to be real giants , if their niches explode into fullblown markets in their own rights. These stocks are potential ten-baggers
but you need to be patient.

54

 Ugly Duckling:
These are companies that are trading below their fair value or at
values which are at a significant discount to that of their peer group, due
to a combination of circumstances. But things are now starting to happen
in these companies or in their markets that are likely to cause a reevaluation of their prospects. These stocks could double in two to three
yearstime.

Vultures Pick:
These are companies with valuable assets or brands that have
been trashed to ridiculously low prices. Buy a Vultures pick and wait for
a predator who finds its assets undervalued to come along. This could be
a long wait but the return could be startlingly high.

Cannonball:
Seasons favorites Typically they are fast gainers in a rising
market, which could give returns of 20-40% within three months. These
are based on combination of sound information, technical charts and
available fundamentals for investors which are having an appetite for
high risk and high reward.

2. Ensures Convenience in Trading Experience:

55

Sharekhans trading services are designed to offer an easy,

hassle free trading experience, whether trading is done daily or
occasionally. The customer will be entitled to a host of value added
services, in the investment process depending on his investing style and
frequency. It offers a suite of products and services, providing the
customers with a multi-channel access to the stock markets. It gives
advice based on extensive research to its customers and provides them
with relevant and updated information to help him make informed about
his investment decisions

Sharekhan offers its customers the convenience of a brokerDP

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.
Sharekhan Depository Services offers demat sevices to individual
and corporate investors. It has a team of professionals and the latest
technological expertise dedicated exclusively to their demat department.
A

56

customer can aware of Demat, Repurchase , pledge , Transmission

facilities at any of the share khan branches and business partners outlets.

8. SWOT ANALYSIS
During this training at Sharekhan, we had come to know the
Strengths -Weaknesses -Opportunities -- Threats for the company and it is
very useful for a company to analyze them. Therefore, the SWOT analysis

57

is presented here and the suggestions for maintaining strengths and

removing weaknesses are explained.

Strengths:

80 years of research and broking experience

Fastest Browser based Trading
11,00,000 + customer
Largest ground network in broking with 588+ retail outlets spanning 213

cities\
Dedicated, Intelligent and Loyal staff.
On-line Trading products.
Lowest brokerage and other charges than. Competitors.
The best investment advice correct up to 70-90 % through dedicated
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:

58

 Large primary market to sit as a book runner for the other companies just
like Kotak securities ltd. that runs the books of share holdings for many

companies
Slope of stock market towards delivery based transactions.
Large potential market for delivery and intra-day transactions.
Open interest of the people to enter in stock market for investing.
Attract the customers who are dissatisfied with other brokers & DPs. a
An indirect opportunity generated by the market from its bullishness.

Threats:
Decreasing rates of brokerage in the market.

Increasing competition

against other brokers & DPs.

Poor marketing activities for making the company known among the
customers. A threat of loosing clients for any kind of weakness of the
company. Indirect threat from instable stock market, i.e., low/no profit of
Sharekhan's clients would lead them to go for other broker/DP.

59

PART-C
DERIVATIVE
AND
ITS STRATEGIES

60

1. THE INDIAN EQUITY AND

DERIVATIVE MARKET
The emergence of the market for derivative products, most
notably forwards, futures and options can be traced back to 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 derivatives products, it is
possible to partially or fully transfer price risks by locking-in asset prices.
As instruments of risk management , these generally do not
influence the fluctuations in the underlying asset prices. However, by
locking-in asset prices, derivative products minimize the impact of
fluctuations in asset prices on the profitability and the cash flows
situation of risk- adverse investors.
In recent years, derivatives have become increasingly important
in the field of finance. While futures and options are now actively traded
on many exchanges, forward contracts are also popular.

61

The phenomenal growth of financial derivatives across the

world is attributed the fulfillment of needs of hedgers, speculators and
arbitrageurs by these products.

62

2. INTRODUCTION
Derivatives as the name suggests, are financial instruments whose
value is dependent on another underlying asset.
The underlying security in the case of equity derivatives is an equity
share or the widely followed Nifty and Sensex indices.
A share of equity can only ptovide an unhedged position whether long
or short and the entire risk of the transaction lies with the trader or
investor.

FACTORS DRIVING THE GROWTH OF DERIVATIVES:

Increased volatility in asset prices in financial markets.
Increased integration of national financial markets with the
international market.
Marked improvement in communication facilities and sharp decline in
their costs.
Development of more sophisticated risk management tools,providing
economic agents a wider choice of risk management strategies.
Innovations in derivative markets, which optimally combine the risks
and returns over a large number of financial assets leading to higher
returns, reduced risks as well as transaction costs as compared to
financial assets.

To hedge against price fluctuations in the underlying commodities.

63

DERIVATIVE PRODUCTS
A.
B.
C.
D.

Forwards
Futures
Options
Swaps

64

DERIVATIVES
DERIVATIVES

Options
Options

Put
Put

Futures
Futures

Call
Call

Swaps
Swaps

Interest
Interest
Rate
Rate

Commodit
Commodit
yy

Forwards
Forwards

Currency
Currency

Security
Security

1. 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.
65

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.

2. 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.

3. 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

66

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.

67

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
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

68

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.

Call Options-Long & Short Positions

When you expect prices to rise, then you take a long position by
buying calls. You are bullish.
When you expect prices to fall, then you take a short position by
selling calls. You are bearish.

69

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 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.

70

 Put Options-Long & Short Positions :

When you expect prices to fall, then you take a long position by
buying Puts. You are bearish.
When you expect prices to rise, then you take a short position by
selling Puts. You are bullish.

CALL
OPTIONS
If you expect a fall in
price(Bearish)
If you expect a rise in price
(Bullish)

PUT OPTIONS

Short

Long

Long

Short

4. Swaps:
Swaps are private agreement between two parties to exchange cash
flow in the future according to a prearranged formula.
They can be reguarded as portfolio of forward contracts.
A forward contract involves one exchange at a specific future value
date, while a swap contract entails multiple exchanges over a period
of time.
Interest rate swaps and currency swaps are the most popular.

71

 CURRENCY SWAPS:
These entails 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.

5. NSEs Derivative Market:

The derivative trading on the NSE commenced with S & P CNX Nifty
Index Futures on June 12, 2000.
The trading in index options commenced on june 4th, 2001 and trading
in options on individual security commenced on july 2nd, 2001.
Single stock futures were launched on November 9th, 2001.
Today, both in terms of volume and turnover, NSE is the largest
Derivative exchange in India.
Currently, the derivative contract have maximum of 3 month
expiration cycles.
Three contract share are available for trading with 1month, 2month
and 3month expiry.
A new contract is introduced on the next trading day following the
expiry of near month contract.

6. The S & P CNX Nifty:

The s & P CNX Nifty is a market capitalization index based upon
solid economic research.

72

 It was designed not only as a barometer of market movement but also

to be a foundation of a new world of financial products based on the
index like index futures, index options and index funds.
A trillion calculations were expended to evolve the rules inside the S
& P CNX Nifty index.
(a) The correct size to use is 50.
(b) Stocks considered the S & P CNX Nifty must be liquid by the
impact cost criterion.
(c) The largest 50 stocks that meet the criterion go into the index.
S & P CNX Nifty is a contrast to the adhoc methods that have gone
into index construction in the preceding years, where indexes were
made out of intuition and lacked a scientific basis.
The research that led up to S & P CNX Nifty is well respected
internationally as a pioneering effort in better understanding how to
make a stock market index.
The nifty is uniquely equipped as an index for the index derivatives
market owing to its (a) low market impact cost and (b) high hedging
effectiveness.
Finally, Nifty is calculated using NSE prices, the most liquid exchange
in India, thus making it easier to do arbitrage for index derivatives.

3. TYPES OF DERIVATIVES
There are two types of derivatives. 1) Future Product and
2)Option Product. Trading strategies can be created using them
individually or in combination. Derivatives add a lot of flexibility to a
73

traders tools. They can be used for two purposes, namely Speculation
and Hedging.

SPECULATION: Speculation is the skill of analyzing data and taking position on the
various market situations to profit from favorable price movements,
this activity is called trading.
Trading includes going both long and short on the market. We cant
say that trading is about predicting the direction of the stock market
and about predicting prices.
The most important aspect of trading is Money Management.
Money Management involves risking a particular amount of money
to make several times the amount risked.
No one can predict the stock market, the key to making money in
trading on a sustained basis is to make big profits when you are right
and limit your losses when you are wrong.
Also important is the size of your trading positions in proportion to
the overall size of your trading capital, correct position sizes enable
you to stay in the game for the longest possible time and hence
increase the chances of making money.
Trading in fact, is a skill that can be learnt and, once learnt you can
make huge amounts of money. To do so traders should get used to
the notion of losses at the very outset.
Trading is both about profits and losses. The key is to keep losses
small and profits big
.

HEDGING:74

 The idea of hedging is more important in the commodities and

currency markets.
In the equity market hedging can be an expensive exercise.
Often people think that they will be fully protected if they take a
position which profits if the market starts moving in the reverse
direction.
True they will protect themselves but not totally because hedging
comes at a cost, for while hedging can reduce losses but it also
lowers your profits.
If my experience , it is not worthwhile for traders to hedge their
positions.
Instead , when a trade starts moving contrary to the expected
direction, you need to quickly get out.
Often in the media we hear recommendations about buying stock
futures and hedging it by buying a put.
This strategy sounds great but the put comes at a cost which is
deductible from the profits that you earn on your futures, assuming
that the profit on your futures position is higher than the cost of the
put.
In equity derivatives we can hedge as below.
If the market view is bullish:
Buy futures
Sell call
Buy put
We take an example of RPL that,
If we buy RPL@175 and market is bullish, if we want to hedge then
sell call @180 and buy put@170.

75

 If the market view is bearish:

Sell futures
Buy call
Sell put
If we take an example of RPL,
If we sell future of RPL@175 and we want to go for hedge then we
will buy call with strike price @180 and sell put with strike price @
170.
In-the-money:
A call option whose strike price is below the current price of the
underlying : or
A put with a strike above the current price.
For example: If the ACC stock is trading at Rs. 200, the ACC call
options with strike 190, 180, 170 and below are all in the money.

76

 Out-of the-money:
A call option whose strike price is above the current price of the
underlying stock or
A put with a strike below the current price.
For example: When ACC is trading at Rs. 200, the ACC call options
with strikes 210, 220, 230 and upwards are out-of the-money.

At the money(ATM):
This is an option that has a strike price equal to the current price of
the underlying stock.
For example: The ACC option with a strike price of Rs-200 is at-themoney when the stock trading at or near the strike price.
Expiration date:
The date when the term of an options contract terminates is called its
expiration date.
The expiry of Indian options mandated by the stock exchange is the
last Thursday of every month.
Technically speaking, options contracts are available for the near
month ( current ), mid month (next), and far month (the month after
next).
Currently, how ever, only the near month options usually have
tradable liquidity and only towards the last week of the near month
do options of the mid-month gather enough liquidity to be traded
comfortably.

77

PART-D
RESEARCH

78

1. TITLE OF THE STUDY

In this fast growing world people dont have enough time to
reach each and every place. In present days, service sectors are growing
very fast and the competition is also very healthy. People want very fast
services from company and they also want data services.
This research is totally dependent on Derivative and Its
Strategies in stock market to the country as a whole. As this service can
be said as latest so it will take some time to develop in the mind of the
people.

2. STATEMENT OF THE
PROBLEM
79

In India many people are investing in stock market but they are
not aware by all the services provided by the broker. In this when the
broker is not effective, the customer is not satisfied with his services, at
this time the problem arises and the people feel that they are denied of
their rights.
In this study the problem is also about the awareness of the
Derivative & Its Strategies provided by broker. There are many brokers
who are very efficient & effective in research on this point and providing
tips and knowledge to the investors and customers. I have taken sample
of investors to get knowledge about Derivatives and Its Strategies in
stock market.

3. OBJECTIVE OF THE STUDY

80

The main objective of the study is to know about the awareness

of Derivatives and Its Strategies in the stock market. If we say then
other secondary objectives are:
To get knowledge about the derivatives in the stock market.
To know the potentiality of investing in the stock market through
online trading.
To know about the current brokerage rate in the market and customers
view and affordability of brokerage in the stock market.
To know about best research in the stock market by brokers and
expectations of customer for returns from that tips.
To know the average existence time of customer with the same broker.
To find out the best medium by which we can do trading in a better
way

4. UNIVERSE OF THE STUDY

This research study contains the awareness of the investors in
the stock market through on line trading. There are many investors in the
stock market but out of whole universe of the investors I have selected a
small population from the Junagadh city only. There are mainly two types
of universe such as finite universe & infinite universe. Finite study can be
calculated and infinite study can not be calculated. For my research study

81

I have selected finite study to know about the awareness in the minds of
investors in the stock market through Derivatives.

5. HYPOTHESIS
Testing of Hypothesis using Z test (Two
tailed):
1.) The Null Hypothesis (H0): There is no significant difference in level
of literacy about Derivatives &

Commodities among the people of

Junagadh City.
Therefore,

H0 : u =

H1: u

50%

50%

2.) Level of Significance :

The Level of significance should be set at = 0.05
3.) The Statistical Test :
Z

X u / x

82

Where, Z

= No. of standard deviations for the desired level of

confidence.
X = Mean of the sample
U = Mean of the population or hypothetical mean
x = Estimate for the standard error or the mean
4.) The Decision Rule
1.000 (1-0.025) = 0.975
1.9+ 0.6 = 1.96 & - 1.96 (the result will be between two)

x =5 / root of 100 - 1
=

5/9

0.5556

Z=
=

55 50 / 0.5556
8.999

5.) Draw a statistical conclusion

The absolute value of the computerized Z statistic (8.999) is larger than
1.96, therefore null hypothesis is rejected.
So, Alternate Hypothesis is accepted.
H1:There is significant difference in level of literacy about Derivatives
& Commodities among the people of Junagadh City.

83

6. SAMPLING DESIGN
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 my research is concerned, we have taken sample size
of 100 respondents. I have selected Income Earners with saving to invest
in Junagadh city. All the respondents are stratified on the basis of their
profession and savings. We have selected the selected the samples as per
random.
Sample Universe
Sampling Technique
Sample Size
Sampling Unit

Junagadh City
Stratified and Random
100 Respondents
Professional = Random
Business man = Random
Government Employee = Random
Employee in pvt. Firms = Random

84

7. DATA COLLECTION METHOD

There are mainly two sources of data i.e.
(1) Primary Data
(2) Secondary Data

Primary Data:
The data, which is collected directly from the respondents to the
base of knowledge and belief of the research, are called primary data.
The normal procedure is to interview some people individually to get a
sense of how people feel about the Derivatives in stock market. So far as
my research is concerned, primary data is the main source of information.
We have collected data through Questionnaire and information from
respondent.

85

Primary method includes many types such as:

(1) Observation Method
(2) Interview Method
(3) Questionnaire Method
(4) Scheduling Method
(5) Use of mechanical device

Secondary Data:
When data are collected and compelled from the
published nature or any others primary data is called secondary data.
There are mainly three points which he should consider while using that
data :
(a) Reliability of the data
(b) Suitability of the data
(c) Adequacy of the data

8. RESEARCH RESULTS
Q.-2 Gender
OPTION
Male
Female
TOTAL

NO.
OF
RESPONDENT
80
20
100

86

PERCENTAGE
80%
20%
100%

Gender
20%

Male
Female

80%

From above diagram we can say that most of male members do

trading in the stock market through derivatives.

Q.-3 AGE (YEARS)

OPTION

NO. OF RESPONDENT

21-35
36-50
51-65
ABOVE 66
TOTAL

40
35
17
8
100

87

PERCENTA
GE
40%
35%
17%
8%
100%

Age
8%

17%
40%

21-35
36-50
51-65
ABOVE
66

35%

From above diagram we can see that respondents are from the
age group 21 to 35 years are about 40% of total who deals with stock
market. While 35 % are between 36 to 50 years.

Q.-4 EDUCATION
OPTION
Under graduate
Graduate
Post graduate
TOTAL

NO. OF
RESPONDENT
15
60
25
100

88

PERCENTAGE
15%
60%
25%
100%

EDUCATION
15%
25%

Undergraduate
Graduate
Post graduate

60%

This result shows that most of graduate persons are doing trade
with stock-market i.e. 60% of the persons are graduate who are trading.
This result shows that educated persons are trading in stock market.

89

Q.- 5 OCCUPATION
OPTION
Professional
Business man
Govt. Employee
Pvt. Employee
Student
Total

NO. OF RESPONDENT
15
35
25
17
8
100

PERCENTAGE
15%
35%
25%
17%
8%
100%

Here this result says that businessman and government

employee who can earn more are trading with stock-market to invest their
saving in the stock market to earn more.

90

Q.- 6 DO YOU TRADE IN DERIVATIVES?

OPTION
Yes
No
Total

NO. OF RESPONDENT
35
65
100

PERCENTAGE
35%
65%
100%

Response

35%

Yes
No
65%

From above response it is very clear that minority of people

want to invest in derivatives because it is risky to invest in derivative is
preferred by investor.

91

Q.- 7 CURRENTLY, THROUGH WHICH BROKING HOUSE ARE

YOU DEALING?
OPTION

NO. OF RESPONDENT

ICICI Direct.com
Kotak Security
Sharekhan
Motilal Oswal
Angle Broking
Marwadi
Indiabulls
HDFC
India Infoline
Anagram
Karvy
Total

18
5
23
5
11
28
3
2
4
3
6
100

PERCENTAG
E
18%
5%
23%
5%
11%
28%
3%
2%
4%
3%
6%
100%

Broking house
3% 6%
4%
2%
3%

18%
5%

28%

23%
11%

5%

ICICI Direct.com
Kotak security
Sharekhan
motilal Oswal
Angle Broking
Marwadi
India Bulls
HDFC
India Infoline
Anagram
Karvy

Here in above chart if we see than the highest market is covered by

Marwadi group while second highest is share khan which is very good
strength for sharekhan.

92

Q.- 8 WHICH TYPES OF FACILITIES ARE GIVEN BY YOUR

BROKING HOUSE FOR ON LINE TRADING?
OPTION
Single Screen trading
Terminal
Online orders on the
Phone
Online IPO
Live tic-by-tic intra
day charting
Instant order/Trade
confirmation in same
windows
Real time streaming
Quotes
Research Report
Online Mutual Fund

NO. OF
RESPONDENT
13

PERCENTAG
E
13%

15

15%

21
7

21%
7%

8%

8%

19
8

19%
8%

100

100%

Total

93

Facilities by Broking House

8%

13%

Single screen tradind terminal

Above research says that most of brokers

real
time
Onlineprovides
orders on the
phone
19%

online IPO
online IPO, research report and online 15%
orders on phone.

Live tic-by-tic intra day

charting
Instant order/Trade
confirmation in same windows
Real time streaming quotes

8%

Research Report
21%

8%
7%

94

Online mutual Fund

Q.- 9 DOES YOUR FIRM PROVIDE THE SPECIAL SOFTWARE FOR

ON LINE TRADING?

OPTION
YES
NO
TOTAL

NO. OF RESPONDENT
11
89
100

PERCENTAGE
11%
89%
100%

Response
11%

YES
NO

89%

Here response says that most of brokers are not providing

online software for broking.

95

Q.- 10 IF YOU TRADE IN DERIVATIVES, IN WHICH

INSTRUMENT DO YOU INVEST?
INSTRUMENT

NO. OF RESPONDENT

Futures
Calls
Puts
Arbitrage
TOTAL

56
25
15
4
100

PERCENTAG
E
56%
25%
15%
4%
100%

Instrument for Invest

4%
15%

Futures
calls
56%

Puts
arbitrage

25%

Here most of the persons are investing in the future because

they think that it is safer than call & put & they have not so more tips
from brokers for call & put.

96

Q.- 11 IN WHICH INSTRUMENT OF DERIVATIVES SEGMENT DO

YOU TRADE?
DERIVATIVE
SEGMENT
Indices futures
Indices options
Stock Futures
Stock options
TOTAL

NO. OF
RESPONDENT
37
5
43
15
100

PERCENTAGE
37%
5%
43%
15%
100%

Instrument for Trade

15%

37%
Indices futures
Indices options
Stock futures
Stock options
43%

5%

Here, from above diagram we can see that investors if invest in

derivative than they will invest in stock future first and then in indices
future because stock future follow American style of derivatives.

97

Q.- 12 WHICH TYPE OF TRADER YOU ARE?

TYPE

NO. OF RESPONDENT

Bullish trader
Bearish trader
Total

75
25
100

PERCENTAG
E
75%
25%
100%

Type of Trader
25%

Bullish trader
Bearish trader

75%

If we see the picture of stock market two years ago or above

picture than it says same thing that most of the traders in the market are
bullish trader who trades when the market is up.

Q.- 13 DO YOU HEDGE IN DERIVATIVES?

98

OPTION
YES
NO
TOTAL

NO. OF RESPONDENT
20
80
100

PERCENTAGE
20%
80%
100%

Response
20%

yes
no

80%

Above chart says everything to us that in the market investors

have not or few knowledge about the derivatives.

99

Q.- 14 IF YOU ARE BULLISH THEN WHAT STRATEGY DO YOU

SUGGEST IN HEDGING?
OPTION
Buy future, buy
put, sell call
Buy future, buy put
only
Buy call, buy put of
distance strike price
Total

NO. OF
RESPONDENT
25

PERCENTAGE

65

65%

10

10%

100

100%

25%

Strategy
10%
25%

Buy future, buy put, sell

call
Buy future, buy put only
Buy call, buy put of
distance strike price

65%

As in market everyone is dealing with the tips of broker and

from above research it can be known that they most of advice for buy
future, buy put only. Then says to sell call if necessary after 1st strategy.

100

Q.-

15

DO YOU

BELIEVE

THAT ONE

CAN

EARN

IN

DERIVATIVES?
OPTION
YES
NO
TOTAL

NO. OF RESPONDENT
35
65
100

PERCENTAGE
35%
65%
100%

Response

YES
NO

As more of the investors are unaware from derivatives they

have said that it is not possible to earn from derivatives.

101

Q.- 16 DO YOU BELIEVE THAT ONE CAN EARN IN CALLS &

PUTS, THAN TO TRADE IN FUTURE?
OPTION

NO. OF RESPONDENT

YES
NO
TOTAL

60
40
100

PERCENTA
GE
60%
40%
100%

Response

Yes
No

Here In this question if we see most of people has heard about it

so the response for positive and negative is nearer. But they believe that
in call and put risk is lesser than future.

102

Q-17 A) Are you satisfied with the facilities given by your company?
OPTION
YES
NO
TOTAL

NO. OF RESPONDENT
29
71
100

PERCENTAGE
29%
71%
100%

Response

29%

Yes
No
71%

In this question if we see than most of the customers want more

services from their broker whether it is brokerage, tips or any one. If it is
not given than they are not satisfied. Above research shows that investors
are unsatisfied by broker in one or another way.

103

Q-17 B) If no then which segments they should try to improve?

OPTION
BROKERAGE
RATE
RATE/TIPS
TOTAL

NO. OF RESPONDENT
57

PERCENTAGE
57%

43
100

43%
100%

Sales

43%
Brokerage Rate
57%

Rate/Tips

As this graph shows that 2 big problems shown by customers

which are created by brokers. But they want mainly low brokerage
services.

104

Q-18 According to you trading is,

OPTION
ADVISABLE
NOT
ADVISABLE
TOTAL

NO. OF RESPONDENT
34
66

PERCENTAGE
34%
66%

100

100%

Response

34%

Advisable
Not Advisable

66%

If we see the response of the people in this research then 66% of

the people are saying that trading is not advisable. Which is due to some
of loss in the market by trading.

9. PERIOD OF STUDY
105

This research study is to be prepared in certain time limit and

after certain time limit have to submit it to the company, university and
my college too. The time period is allowed for this research study is
TWO MONTH which is not enough to receive accurate accuracy in the
study.

10. TOOLS & TECHNIQUES

To make this research study successful many tool & techniques
are to be utilized which includes:
(1) Gathering the relevant data from different sites and literature provided
by the company.
(2) Use of computer plays most important role in the preparation of this
research study.

11. LIMITATIONS OF THE

STUDY
106

 Personal Bias:
People may have personal bias towards particular investment
option so they may not give correct information and due to which
conclusion may be derived.

Time Limit:
The time duration of the research is short thats why the
information is not covered fully.

Area:
The area was limited to Rajkot city only, so we can not know
the degree of the literacy outside the city.

Sample Size:
The last limitation is Sample size, taken by us is of 300 only;
due to which we may not get the proper results.

12. SUGGETIONS

Sharekhan needs to make its marketing team strong and also it should
increase marketing activities such as promotional campaigns.

Sharekhan should educate the investors about Derivatives &

Commodities by organizing classes, corporate presentations, taking part
in consumer fairs, organizing events.

107

Company should show the benefits of trading on 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
stock market.

Company may appoint special team for giving education & attracting
people towards trading in stock market.

13. CONCLUSION
Whenever it comes to the share market, Broker is the main
person who performs all the activities on behalf of the client and therefore
most of the people prefer it. Now a days Internet is the newer medium for
trading but still people do not know how to do transaction online but as
Sharekhan is providing this facility also, therefore it is a dual benefit for
the company. Therefore the company has also marketed its various
services to the people and the benefits of it if they use.

108

 There

are sufficient no. of people aware about how to trade in

derivative in stock market so this is a good for the stock market

industry that at least people are aware about it.
Out of survey of 100 respondents, 65% of the investors are doing their
invest in the stock market and 35% in derivatives.
But here respondents believe that Sharekhan is providing better
facility of Online trading than other brokers.
71% of respondents are not satisfied with the services of their brokers.

57% of the respondents are not satisfied with the facility of brokerage
charges of their broker. They say that firm have to take 0.05 or 0.04
paisa in intraday brokerage while 0.20 to 0.25 paisa in delivery base.
Most of people believe that derivative is not advisable for the
investors.

14. BIBLIOGRAPHY
Kothari C.R., Research Methodology, New Delhi, Vikas Publishing
House pvt.Ltd. 1978
Websites:
1.

www.Google.com

2.

www.bseindia.com

3.

www.nseindia.com

4.

www.sharekhan.com

5.

www.ncdex.com.

109

6.

www.mcx.com

7.

www.icicidirect.com

8.

www.moneycontrol.com

9.

www.NDTVindia.com
NEWSPAPERS:

1.

ECONOMIC TIMES

2.

TIMES OF INDIA

15. APPENDIX
QUESTIONAIRE
1.
2.

Name:
Gender:

Male

Female

3. Age:

21-35

36-50

4. Education:

Undergraduate

110

51-65
Graduate

Above 66
Post Graduate

5. Occupation: Professional

Businessmen

Employees working

Govt. Employee

Pvt. Firms

Others

6. Do you Trade in Derivatives? Yes

No

7. Currently, through which trading firm are you dealing?

ICICI Direct.com

Kotak Security

Sharekhan

Motilal Oswal

Angle Broking

Marwadi

Indiabulls

HDFC

India Infoline

Anagram

Karvy

8.Which types of facilities are given by your broking house for

derivatives?
ICICI Direct.com

Kotak Security

Sharekhan

Motilal Oswal

Angle Broking

Marwadi

Indiabulls

9. Does your firm provide special software for online trading?

Yes

No

10.If you trade in derivative then in which instrument do you invest?

Future

Call

Put

Arbitrage
11.In which instrument of derivative segment do you trade?
Indices future

Indices Option

111

Stock future

Stock option
12.Which type of trader you are?
Bullish Trader

Bearish Trader

13.Do you hedge in Derivatives?

Yes

No

14.If you are Bullish trader then which strategy do you suggest for
hedging?
Buy Future, Buy Put, Sell Call
Buy Future, Buy Put Only
Buy Call, Buy Put at Distance Strike Price

112

15.Do you believe that one can earn from Derivatives?

Yes

No

16.Do you believe that one can earn from calls and puts than from
future?
Yes

No

17A).Are you satisfied with the facilities given by your company?

Yes

No

17B).If no then in which segment they should try to improve?

Brokerage Rates

Research/Tips

18.According to you trading is,

Advisable

Not Advisable

113