PART A

1. Industry Profile

Financial service is a process by which funds are mobilized from a large number of savers
and make them available to all those who are in need of it and particularly to corporate
customers. In general all types of activities which are financial in nature could be brought
under the term financial services. A well developed financial services industry is absolutely
necessary to mobilize the savings and to allocate them to various investible channels and
thereby to promote industrial development in a country.

The Indian financial services industry has undergone a metamorphosis since 1990. During the
late 70s and 80s the Indian financial service industry was dominated by commercial banks
and other financial institutions. Only the economic liberalization has brought in a complete
transformation in the Indian financial services industry. Prior to the liberalization, the Indian
financial service sector was characterized by many factors.

Classification of Financial services industry

The financial services in India can be traditionally classified into two:

1. Capital market intermediaries

2. Money market intermediaries.

The financial services cover a wide range of activities. They can be broadly classified into
two namely:

1. Traditional activities

2. Modern activities

Traditional activities: traditionally the financial intermediaries have been rendering a

wide range of services encompassing both capital and money market activities. They can
be grouped under two heads.

a. Fund based activity

b. Non fund based activity

 Fund based activity: Traditional services that come under fund based activities are:

• Underwriting of or investment in shares, debentures, bonds etc. of new issues.

• Dealing in secondary market activities.

• Participating in money market instruments like commercial papers, certificate of

deposits, treasury bills, discounting of bills etc.

• Involving in equipment leasing, hire purchase, venture capital, seed capital etc.

• Dealing in foreign exchange market activities.

Brokerage Industry

The basic function of a brokerage firm is to execute buy and sell orders for clients. The
brokerage industry continues to develop rapidly. Now a days the brokerages are well known
and long-established entities or institutions. The SEBI makes it mandatory that all the trading
in stocks must be routed through a broker only; no individual can trade in the secondary
market without the brokers. The brokerage industry is grown a lot in the recent years. These
brokerage houses differ enormously in the type of clientele they attempt to attract. The
brokerage houses with their number of products to offer to the customers have been
successful in attracting a large number of clients. Some try to develop business with investors
of modest means who are primarily interested in buying and selling odd lots; others seek
wealthier customers and still others are interested primarily in soliciting institutional
business. These differences are apparent in the public advertising of the brokerage firms.
Most brokers appear to offer same services, to an average investor; all firms appear equally
efficient in executing orders. Differences lies in what extra that a business can give to its
customers.

Most brokerage firm has research departments. The staff in these departments varies from a
large group of full-time, highly competent analysts to relatively uninformed persons who
process the analytical work of others and in effect turn out second hand analyses. The
research reports of certain houses are obviously written for general public reading, while
other houses turn out detailed and sophisticated evaluation aimed primarily at analysts for
large institutions.
Many firms combine their regular brokerage business with a volume of activity as
underwriters of new corporate securities. For an investor who is interested in purchasing new
issues, such a house is desirable.

The brokerage offices are the registered representatives for dealing in the stock exchanges.
One can evaluate the representative by enquiring into his business and educational
background and his investment philosophies and goals. An investor should also determine
whether the representative is available at all times during business hours and should make
sure that this individual is not so overburdened with other accounts that he will be unable to
give the investor sufficient attention

2. Company Profile

a) Background and inception of the company

It was always the Group’s endeavour to emerge as a financial supermarket providing diverse
financial products to suit different class of clientele. In the year 2008, the Securities market
witnessed the unique launch, of the Muthoot Securities Limited, launched with 61 branches
simultaneously on the opening day. The Company is all set to conquer the Market with its
State of the Art technology and team of dedicated professionals.

The Company has already made an impact in the Kerala Market and it is now spreading its
wings to other states as well. By this time, the investing public has already accepted MSTL as
an important and reliable player in the Securities’ Market.

MSTL brings to the highly competitive Securities Trading business, its robust financial
strength, experienced professional team, legendary trust of a vast customer base of the Group
and an enduring commitment to values. MSTL has positioned itself as a different service
provider with unremitting attention and providing the customers a world-class service.

It strongly believes that the Indian growth story will continue to gather momentum while
growth slows down in the western hemisphere, offering equity investors opportunities to take
in return far more than those in other asset classes. MSTL will build its strength offering to
the customers, market insights through a dedicated research team and will strive to build
customer loyalty on the platform of right service at the right time.
b) Nature of business carried

Muthoot Securities Ltd is a stock broking firm primarily engaged in buying and selling of
shares/stocks. The Muthoot Securities is also engaged in selling various other products like
mutual funds, Insurance policies, Bonds etc

c) Vision, Mission and Quality Policy

Vision

The Muthoot Group has had the singular honour of securing market leadership in all the
financial service space it had entered. Through Muthoot Securities Ltd, they shall achieve
leadership by positioning it as a highly professional outfit dedicated to service excellence,
unflinching compliance to regulatory norms and sustained customer education

Values and Beliefs

We understand and respect customer needs to consistently deliver total quality

solutions through constant skills upgradation.

We believe that our company culture helps to attract and retain the best talent.

We uphold uncompromising ethical standards and strive to maintain a distinctive identity in

public mindshare through innovation and quality.

We are committed to achieve profitable progress, consistently.

We freely share our investment experience across all ages and strata of society to encourage a
wise investment for a better future.

d) Products and services

A strong brand certainly boosts sale, but without customer-friendly, innovative products,
even the best brand would not last long. It has thus built a flexible portfolio of products that
can be customized to cater to varying needs of people. The company’s philosophy has been to
help customers understand their financial needs and work closely with them to customize a
product that would meet. The products and services offered by the company are:

• Equities

• Derivatives

• Internet Trading

• Portfolio Management Services

• Commodity Trading

• Depository Services

• Mutual Funds

• IPO Services

• Life Insurance

• Margin Funding

• Currency Trading

• PAN Card Services

(i) Equities & Derivatives

The company offers automated online trading services and also a strong offline
presence. Moreover Call & Trade facility enables clients to place and track their orders
through the dedicated Customer Care Desk. The clients can also benefit from professional
advice from the research desk including daily SMS alerts, market pointers, periodical
research reports and stock recommendations

(ii) Portfolio Management Services

The Muthoot Securities Ltd is a SEBI registered Portfolio Manager. The company
offers a discretionary Portfolio Management Services (PMS). The PMS is backed by strong
Equity Research, and, Fundamental & Technical Analysis. The portfolio and NAV is
reported weekly as at the close of business on Fridays through e-mail or on request.
(iii) Internet Trading

The online trading system allows customers to track the markets by setting up their own
market watch, receiving research tips, stock alerts, real-time charts and news and many more
features enable the customer to take informed decisions.

There are two types internet trading they are:

 Royal M-Trade: It is a software based trading. Here customer is provided with

ODIN software for trading.

 Classic M-Trade:It is web base trading.

The online Trading Screen gives a whole lot of information to the viewer or the client. Some
of this information is detailed below.

• There is easy access to NSE | BSE | NSEFO | Mutual Funds,

• Market Watch for real time rates, Buy | Sell | View Market Information, Follow Order
Status | Real Time Positions View, Place Market | Limit | Stop Loss Orders as well as
Place Cash and Margin orders. View Order Book, Corporate actions, Research reports
and Market Pointer, Indices, View Exchange Messages and also Intraday and End of
Day charts.

Bank available for Online Fund Transfer:

Federal Bank

(iv) Mutual funds

Mutual fund is a pool of money collected from investors and is invested according to
stated investment objectives.

Various mutual funds available at Muthoot Securities Ltd are

 Reliance Mutual Fund:

 Reliance Mutual Fund, a part of the Reliance – Anil Dhirubhai Ambani Group,
is one of the fastest growing mutual funds in the country.

 HDFC Mutual Fund:

HDFC Asset Management Company Limited (AMC) was incorporated under

the Companies Act, 1956, on December 10, 1999, and was approved to act as an
Asset Management Company for the Mutual Fund by SEBI on June 30, 2000. The
sponsor HDFC was incorporated in 1977 as first specialized housing finance
institution in India.

 Franklin Templeton Mutual Fund:

Franklin Templeton Investments is one of the largest financial services groups

in the world based at San Mateo, California USA. Franklin Templeton has 73
schemes out of which 37 are equity schemes. Franklin Templeton Prima Plus,
Franklin Flexi Cap, Franklin Tax Shield are some of best performing schemes from
the Fund House.

 SBI Mutual Fund:

SBI Mutual Fund is India’s largest bank sponsored mutual fund. SBI Mutual
Fund is a joint venture between the State Bank of India and Société Générale Asset
Management, one of the world’s leading fund management companies.

 Sundaram BNP Paribas Mutual Fund:

Sundaram Finance Ltd. was incorporated in 1954 with a nationwide network

of nearly 170 branches. Schemes like Sundaram Select Midcap is first branded
Midcap Product, SBNPP Select Focus and Capex etc are some of its famous funds
that have performed quite well since inception.

 Tata Mutual Fund:

Tata TD Waterhouse Asset Management Private Limited is a Joint Venture

between Tata group and Canadian Major TD Waterhouse.
  UTI Mutual Fund

 Religare Aegon Mutual Fund

 HSBC Mutual Fund

 Principal PNB Mutual Fund

 ICICI Mutual Fund

 Birla Sunlife Mutual Fund

 DSP Blackrock Mutual Fund

 Kotak Mahindra Mutual Fund

(v)Margin Funding

This facility is offered to all offline clients under the scheme of Margin Funding
approved by SEBI. Margin funding of up to 50% of the purchase value is permitted.

(vi) Commodity

Muthoot Securities Ltd offers futures trading in various commodities such as:

Agri commodities: oilseeds, soya, groundnut, pulses, rice, wheat, spices, Rubber, guar,
pepper, cardamom, coffee, etc.

Precious metals : gold and silver

Base metals : steel, aluminium, nickel, zinc, copper, etc

Energy products: crude oil and furnace oil

e) Area of operation
 The operations of Muthoot Securities are spread all over with a strong network of over
130 branches in India and abroad. Muthoot Securities Ltd has, in a short span of time rapidly
grown and today occupies a significant position in the stock market arena. With dedicated
branch network of 130, it is today able to reach out to customers in nearly every nook and
corner in Kerala and Tamil Nadu and is rapidly spreading across Karnataka and Maharashtra.

Muthoot Securities Ltd is today a member of the National Stock Exchange, The Stock
Exchange, Mumbai, the MCX Stock Exchange, the Central Depository Services Ltd and the
National Securities Depository Ltd. It has also been granted a licence to commence Portfolio
Management Services (PMS).

f) Ownership Pattern
Nature of relationship Name of the related party

Holding Company Muthoot Group

Fellow Subsidiaries Financial Services

Wealth Management

Money Transfer

Forex

Securities

InfoTech

Media

Healthcare

Education

Power Generation

Leisure & Hospitality

Vehicle & Asset Finance

Plantation & Estates

Travel Services

Precious Metals

Housing & infrastructure

Muthoot Global

Muthoot money

Key management M.G.George Muthoot - Chairman

personnel
George Alexander Muthoot- Managing Director

G.R. Ragesh –Designated Director

Manoj Jacob-Designated Director

P.S. Sathyan-CEO
 g) Competitors information

There innumerable competitors in the stock broking business. However there are some
prominent names that are very strong brokerage houses operating in India. All these firms are
high net worth firms with high level operational facility. All these firms are recognized as big
brands in the brokerage industry. They are appreciated for their operations, products,
customer services, transparency in the dealing, research etc. Some of the big names in the
Indian stock broking industries are:

• Karvy Securities

• Kotak Securities ltd

• India infoline

• Sharekhan
 • Anagram

• Angel broking

• Stock Holding Corporation of India (SHCIL)

• Progressive

• Anand Rathi

• JRG securities

• Raligear

• Geojit

h) Infrastructural Facilities

All branches of Muthoot Securities Ltd have state-of-the-art infrastructural facilities.

Employees are provided with facilities such as telephone, internet access, air-cooled. All the
branches are fully computerized and are provided special IT infrastructural facilities. All the
branches are well equipped with trading terminals- computers to facilitate trading.

In the Udupi branch alone there are four terminals engaged to trade in NSE (National stock
exchange), One for BSE (Bombay stock exchange) and one for commodity. Connectivity for
internal trading is provided through V-sat. Proper power backup facilities are provided in
order to maintain a continuous power supply.

i) Awards and Achievements

Achievements:

• Muthoot securities Ltd is the one which deal not only with commodity but also
physically providing gold to its customer through our own center (Muthoot Securities
got the special permission from MCX exchange).
 • Within one year after incorporating they introduced Portfolio Management Services

• Muthoot Securities recently started its own Research Department in Equity %

Commodities segment.

j) Work flow model (End to End)

Client registration

Welcome Kit

Trades

Confirmation of Trades

Contract notes

Pay-in/pay-out of funds/shares
 j) Future growth and prospectus
There is a lot of scope for growth in the market. The company has well established itself in
the south India. Many numbers of branches have also been operational in North India.
Since the Indian economy is showing the sign of development lot of prospective investors
have found the situations ideal for investment. The information regarding the investment
opportunities available in India have made things easier for an individual to invest.
Thus the company has a great opportunity to grow with the emerging market and
establish its business strongly in the northern and eastern parts of India. The company is also
well operational in gulf region which opens the company to newer international territories.
The company is planning to open 500 franchises and 100 branches all over India in
the next financial year.

Mckinsey’s 7S Framework
 • According to waterman et al., organizational change is not simply a matter of
structure, though it is a significant variable. Again it is also not a simple relationship
between strategy and structure, although strategy is also a critical aspect. In their view
effective organizational change is a complex relation between Strategy, Structure,
Systems, Style, Skill, Staff and Shared Values.

• McKinsey’s 7S framework provides a useful framework for analyzing the strategic

attributes of an organization.

• Those seven elements are distinguished in so called hard S’s and soft S’s. The hard
elements (green circles) are feasible and easy to identify. They can be found in strategy
statements, corporate plans, organizational charts and other documentations. The four soft S’s
however, are hardly feasible. They are difficult to describe since capabilities, values and
elements of corporate culture are continuously developing and changing. They are highly
determined by the people at work in the organization. Therefore it is much more difficult to
plan or to influence the characteristics of the soft elements. Although the soft factors are
below the surface, they can have a great impact of the hard Structures, Strategies and Systems
of the organization.

1. Structure

The design of an organizational structure is a critical task of the top management of

an organization. It is the skeleton of the whole organization edifice. Organizational structure
refers to the relatively more durable organizational arrangements and relationships. It
 prescribes the formal relationships among various positions and activities. Arrangements
about reporting relationships, how an organizational member communicates with other
members, and what roles he/she has to perform and what rules and procedures exist that
guide the various activities performed by members are all part of the organizational structure.

Overall organizational structure

Chairman

Managing Director

Board of Directors

Management

Chief of Chief of
Chief of Finance
Executive Distribution

Chief of H.R Chief of

Chief of Civil
Technology

• Board Of Directors
Name Designation

M.G. George Muthoot Chairman

George Alexander Muthoot Managing Director

George Jacob Muthoot Joint Managing Director

K.P. Padmakumar Executive Director

K.R. Bijimon General Manager

G.R.Ragesh Designated Director

Manoj Jacob Designated Director

P.S. Sathyan Non-executive Director

Mr.Satish Menon Chief Executive Officer

Audit Committee
The company has their own separate audit committee
Bankers
 Muthoot Finance
Sub structure of various departments in Muthoot Securities Ltd

The sub structure of Muthoot Securities Ltd is spread in each state. Business
Development Manager holds the control of all the operations in the state. He has to in turn
report to the chiefs of the department at the corporate office.

 The structure shows how the company is able to manage its staff and also
involves everyone in the decision making process.

Business
Development
Manager
 Bangalore Mangalore Udupi

Branch Incharge Branch Incharge Branch Incharge

Staff Staff Staff

There are various functional departments at Muthoot Securities Ltd. They are:

A. Operations Department

The department is headed by the chief of operations officer for stock broking,
Commodity futures, PMS, Research, Depository and Call centre. The Operations department
oils the work processes between the customer and the company to ensure consistent and
quality service to the customer. To streamline the operations, the Operations department
interfaces between the clients, the branches, and manages work processes. A detailed
procedural anatomy of the operations department is,

1. Client Registration form (KYC- Know your client form) and Agreement (MCA-
Member Client Agreement).

The company has to maintain the database of all the registered clients, for which they have to
get the client registration form completed in all respects with necessary supporting
documents.

In case of an individual client registration, following information must necessarily be

furnished by the client.

• Name, date of Birth, photograph, address, educational qualifications, occupation,

residential status (Resident Indian/NRI/Others)

• Unique identification Number (wherever applicable)

• Bank and Depository account details

• Income Tax number-PAN/GIR (which also serves as client code)

• If registered with any other broker, then name of the broker and concerned stock
exchange and Client Code number.

• Proof of Identity. Following may be provided:

 MAPIN UID card

 PAN number

 Passport

 Voter ID

 Driving license

 Photo Identity card issued by Employer registered under MAPIN

In case of a corporate client account, following information has to be provided by the

corporate body:

• Name, address of the Company/Firm

• Unique Identification Number

• Date of Incorporation and date of commencement of business.

• Registration Number (with ROC, SEBI or any Government authority)

• Details of PAN account number

• Details of Promoters/Partners/Key managerial Personnel of the Company/Firm in

specified format.

• Bank and Depository account details

• Copies of the Balance sheet for the last 2 years

• Copy of latest share holding pattern including list of all those holding more than 5%
in the share capital of the company, duly certified by the Company secretary/ whole time
director/MD(Updated shareholding pattern)

• Copies of the Memorandum and Articles of Association in case of a company/body

incorporate/partnership deed in case of a partnership firm.

• Copy of resolution of Board of directors’ approving participation in

equity/derivatives/debt trading and naming authorized persons for dealing in securities.

• Photographs of Partners/whole time directors, individual promoters holding 5% of

more, either directly of indirectly, in the shareholding of the company and of persons
authorized to deal in securities.

• If registered with any other broker, then the name of broker and concerned Stock
exchange and Client Code Number.

II. Unique Client Code

The Company in order to maintain the database of the clients, it becomes mandatory
for the company to use a unique client code, which will act as an exclusive identification for
the client. With this purpose, PAN number/passport number/driving license/voters ID
number/ration card number coupled with the frequently used bank account number and the
depository beneficiary account can be used for identification, in the given order, based on
availability.

• Trading Department

The trading department is responsible for all the trade related issues. Its main
activities are issuing of contract notes, accepting order slips, maintaining order and trade files
etc.,

Contract Notes:

The contract note is a document through which is a contractual obligation is

established between a broker and a client. It helps in settling all the disputes between broker
and client. The contract notes are issued within 24 hours of execution of the trades and
acknowledgement is obtained from the client for having received the contract note.

All the offices maintain a proper record for dispatch of contract notes to the clients
and preserve duplicate copies of the same along with the proof of delivery for the period of
two years. The contract notes are dispatched from the head quarters directly, however hand
delivery notes are issued on the request of the clients.

Order slip: Dealers collect the order slip from the client before executing the order.

Order & Trade file: All the offices maintain the Order & Trade file on a daily basis for each
segment.

Confirmation of trades

All offices shall be required to maintain a record regarding the confirmation of the trades
given to the clients on the transaction day itself. The confirmation is given to the clients by
hand delivery or over telephone.

NRI Clients

There are two types of NRI accounts Through the Portfolio Investment Scheme (PIS). These
NRI clients’ transactions are done through designated banks only.

NRO- If the client operates the Trading A/c in NRO status, his/ her bank A/c and DP A/c
must also be on the NRO status.

NRE- If the client operates the Trading A/c in NRE status, his/her bank a/c and DP a/c must
also be in the NRE status.

Client Summary
All the offices shall tally the client summary reports with H.O records on settlement wise and
keep a record for the same. The client summary Report can be taken from the back office
system,

Trading Module Reports Summary Client Summary .This

verification will help to find the missing trades/carry over transactions in the back offices.

Error trades and Bulk Trades

All the errors are transferred to the error A/c should be informed to the Inspection
Department at HO/RM on the same day itself. When there are bulk trades it must be reported
to the HO clearing Department immediately upon execution of the same.

• Depository Department

Maintenance of registers

All the offices are required to maintain the following registers with continuous updating of
the information regarding existing clients, new clients. This includes all the details of the
client like name, bank account information, number of transactions or number of shares held
by the client etc. and provides for or updates any changes if necessary. All these information
is to be maintained properly.

The following forms are available with the Depository department

• Depository account opening

• Dematerialization request form

• Account closing form

 • Pledge request form

• Rematerialization request form

A. Demat Request Register: It contains the complete details of the shares sent for
demat to HO.

B. Demat request rejection register: It contains the complete details of the rejected
shares such as quantity of shares, reason for rejection and the date of return of the
shares to the clients with their acknowledgement. All the rejections are informed to
the clients immediately and the shares are delivered within the prescribed time limit.
In case the rejected shares are not delivered to the clients, they are immediately sent to
the HO. The branch is not authorized to keep the rejected shares. Monthly status of
rejected shares is to be informed to the HO as per the rules.

C. A separate book is maintained for issuing the DIS book- Delivery Instruction slip.
Keeping the Blank signed DIS is not authorized. Date and time if the receipt is
important while accepting the DIS, so these things should be clearly mentioned.

B. Finance Department

The finance department is headed by the chief of Finance officer for finance and
Accounts, Risk and Settlement and NBFC operations.

• Risk & Clearing Department

Pay-in and Pay-out of shares

All the pay-in of funds and securities are to be collected from the clients on the
transaction day or the very next day itself. Wherein the pay-in of funds is due from the
clients, they are to be received from the respective clients account only.

All the pay-out of funds & securities are to be credited to the clients account within 24
hours from the pay-out date. If there are any dues to the clients they are to be made to
respective clients’ account only. A registrar is maintained of the pay-out cheques with full
details and clients’ signature and date. It will also be an acknowledgement for the issuing.

Movement of shares

The report regarding the share delivery/ receipt report is continually updated in the
back office system. While checking on the T+3rd day, there should not be any receipt/delivery
pending for any client.

• Accounts Department

Maintenance of Bank Accounts

There is a need to maintain or make file of all the bank receipts. The bank accounts
are weekly reconciled and if there is anything remaining pending in the reconciliation report,
it is cleared at the earliest. All the bank receipts should be filed properly. A system generated
receipt is issued to the clients with seal and signature of the authorized person and the
duplicate copies of the cheque receipts are properly maintained.

Cash collection is allowed only in Depository services. The cash collected is

deposited in the bank on the same day of receipt or the next day. A cash denomination
register is also maintained in the department. A system generated receipt is issued to the
clients with seal and signature

General cash and petty cash a/c.

The general cash book and physical cash must tally in the denomination register. Must
tally physical cash with Petty cash book and denomination register. All the expenses are
supported by bills.

NBFC
 The company is also providing non banking financial services to its clients. The
company provides facility such as loans against shares and commodities. The clients are
given loans based on the amount of share held. The client can avail the opportunity for
buying shares and trading in commodity.

C. Distribution department

The distribution department of Muthoot Securities is headed by the head of

distribution or sales of mutual funds, IPOs insurance, Bonds, Fixed deposits, PMS, and
development of Channel partners.

Department of distribution in Muthoot Securities Ltd is responsible for an array of

activities: sales, TV commercials, press and outdoor hoardings, news articles, product
brochures, direct mail or on-ground activities. . Aiding other departments, working with
different teams within the organization, understanding problems and finding solutions from a
business perspective, providing actionable insights based on statistical deduction and
analytical thinking is the way the research team operates!

• Product Development

The product development team, structures products uniquely to strike a chord with
customers. It then supports the sales of these products through continuous competitor
comparisons, market insights, benefit illustrations, sales stories and on-ground help.

• Direct Marketing

Direct marketing taps databases to generate high quality leads for profitable business,
mainly through telemarketing. The philosophy is to be innovative and be interactive, cut
through the clutter and inspire action.

As there are various products offered by the company, the department is responsible
for the sale of Mutual funds, Insurance, Bonds, IPO’s, Fixed deposits, PMS etc. There are
sales executives who carry out these operations. However the dealers in the company also
carry out the same as they have a close contact with the customers and that they closely know
the needs of the customer. Largely there is no separate division called marketing division at
branch level as every employee is also performing the job of marketing.
D. Technology department

It is headed by the Chief of technology officer. The technology department is an

important division in the company It is responsible for the Information Technology and
systems. In Muthoot Securities Ltd computer play a very significant role. All its operations
are inevitably processed with the help of computers only. As the company is continuously
engaged in buying and selling of shares on behalf of its customers it becomes necessary on
the part of the company to have an efficient technology support. The company is mainly into
brokering, has to place orders of the customers. These orders are executed on the internet
which is directly connected to the respective exchanges. Therefore in order to maintain a
continuous network it is the duty of technology department. Moreover the technology
department has to continuously update its technical viability.

E. Other Department
The various other departments include legal department, Compliance, administration,
Company secretariat, and Corporate communication.

Legal Department: Legal department is set up in order to see that there is a smooth
flow of operations without any hassles in the day to day activities. The employees being the
major assets of the organization, it is necessary that all the employees must obey the laws,
regulations, rules, policies, procedures adopted by the company. Any violation of standards
of conduct or commission of misconducts will be subjected to corrective action up to and
including termination.

The legal department also takes care of the legal requirements of the company with
the outsiders. However if there are any disputes between the clients and the company, the
legal department has to interfere into it and inspection is conducted. Valid action would be
taken based on the findings.

Compliance department: All the matters concerning to the clients are handled in the
compliance section. When the client posts any requests, complaints, suggestions etc. the
compliance department makes a note of it. Any dispute with the branch or company and the
client is also handled in the compliance department. It is the duty of compliance officer to
make good all the disputes, listen to all the general queries and suggestions.
.

2. Strategy:

Strategy defines key actions and capabilities along the major dimensions of marketing
product and services development, sales and channel distribution, business system and
processes, and management of alliances and partnerships. Strategic thinking involves the
understanding of basic economics of business, identifying ones sources of competitive
advantage, and allocating resources to ensure that ones distinctive capabilities remain strong.
Strategy’s most important contribution is searching for, and redefining, context. Strategic
thinking also creates a readiness to exploit unforeseen opportunities.

The concept strategy includes purposes, missions, objectives, goals and major action
plans and policies. According to proponents of McKinsey framework, super ordinate goals
refer to a set of values and aspirations that goes beyond the conventional formal statement of
corporate objectives. Super ordinate goals are the fundamental ideas around which a business
is built. They are its main values. They are the board of notions of future directions. That is
the way the top management as a team wants to express itself.

The major strategy the firm applies is less brokerage charges both for internet trading
and physical trading. The firm charges Rs.50 per lot for the futures trading which can attract
the customers. The company strongly believes in technology upgradation. Upgradation of
technology ensures efficient management of operations, higher level of transparency in the
deals. Technology upgradation retains the existing client base in addition to an increase in
new prospective clients.

The firm has been earning a good name since its inception. So it will be the
companies major effort to make sure that no bad remark is received due to any kind of
defaults and violation. The company also offers competitive facilities to the customer.

3. Skill:

Waterman, et al., considers Skills as one of the most crucial attributes or capabilities of
an organization. The term skills include those characteristics, which most people use to
describe a company. Organizations have strength in a number of areas but their key strengths
or dominant skills of few. These are developed over a period of time and are a result of the
interaction of a number of factors; performing certain tasks successfully over a period of
time, the kind of people in the organization, the top management style, the organization
structure, the management systems, the external environmental influences, etc. Hence, when
organizations make a strategic shift it becomes necessary to consciously build new skills.

If the staff managers are to acquire the skills, then there needs to be an appropriate
learning environment. One that:

• Is driven by desire to realize the vision.

• Has a sharing culture with mutual support.
• Provides space and time for learning. Preferably closely linked to specific tasks and
objectives (just in time learning).
• Allows risk
• Tolerates failure, provided it is part of the learning process.
• Has visible recognition for success that is built on new learning.

The Muthoot Group unit has departments, which has personnel with variety of skills. The
distribution department needs sales skill and product knowledge. The general manager
should have the managerial skill. They should have the ability to take right decisions. They
should manage the personnel and make them carry out their responsibility.

• Human Skills:

A human skill consists of the ability to work effectively with other people both as
individual and as member of a group so that they can work cooperatively with one other and
build effective teams. Spirit, which in turn helps in achieving the organization goals.

The newly appointed employees are put to training on certain aspects relating to the
company. The trainee is provided either on-the-job or off-the job training, whichever is
suitable. Different types of on –the-job training provided including coaching, and job
instruction.

1. on – the- job training: It consists of following training

Coaching: Class room coaching is provided on various aspects relating to the company and
the market conditions.
Job Instruction: Job instructions are provided to the new employees.

2. Off-the- job training: It consists of following training methods

A) Vestibule
B) Lecturing method
C) Conference/ Discussions
Muthoot Group selecting candidates for employment through campus interview also
and selected candidates undergo through Off the job training. They are given 15days class
room training.
Once the trainee is finished with his initial training, he will be posted to his concerned
job at the concerned location wherein he will continuously undergo on the job training at
branch level or regional level. Some of the on the job training includes

• New product information: The new product information is either given by the
manager of the branch or a trainer is appointed for the same. When any new products
from mutual fund companies and insurance companies are released, the trainer from
the respective company gives detailed information about the product.

• Current issues: Depending upon the current market scenarios, the training is taken up
at branch level. The employees essentially need to be aware of the current issues that
affect the market sensitivity. Issues like inflation, RBI regulations, government
policies are some of the very prominent issues that affect and thus the employees need
to be well aware of situations to help the clients regarding the investment

4. Staff:

All the branches of Muthoot Securities Ltd consist of a front office, dealers’ room or the
trading hall, and a manager.

Front office: The front office employees must have requisite knowledge on working on
computers. Maintaining all transactions in detail on the computers. When the customers ask
for immediate receipts, the front office staff should be able to generate receipt to be issued to
the client. All the bank receipts should be filed properly.
Dealers: The dealers are the individuals who receive the orders for buying and selling of
shares from the customers. A dealer holds a high degree of responsibility in any branch. He
should have all the knowledge about the various practices involved in trading. The dealers
need to have technical skills. A technical skill refers to the ability and knowledge in using the
equipment, technique and procedures involved in performing specific tasks. He should meet
the following requirements

• A dealer must necessarily hold the NCFM certificate i.e., he has to pass the requisite
number of NCFM (National Certification exams conducted by NSE.

• The dealers’ must also have a sound knowledge of all the products offered by the
company. This is because the dealers’ themselves also carryout the marketing
operations of the firm or the branch as they have a close relation with the customers.

Marketing executives: The marketing executive’s main work is to market the products of
the company. The marketing executive must have the detailed knowledge of all the products
like mutual funds, insurances, demat, PMS etc offered by the company. He is responsible for
introducing the existing customers to newer products and also attract the new prospective
customers. The executives possess the communication skill that is very much needed to
attract the new customers.

Remisers: Their work also same like marketing executives like fresh account opening & new
client activation.

Manager: A manager should posses all the managerial skills. They should have the ability to
take right decisions. They should manage the personnel and make them carry out their
responsibility.

Functions of a manager:

• The manager is responsible for all the day to day activities, so his job is to see that all
the operations inside the branch are carried out in conformity with the company
policies.
 • The manager has to also achieve the targets set by the management regarding the
revenues

• Business improvement is another major responsible of the manager. The manager ahs
to recognize the key factors that aid in the growth of the business in the region.

• Recruitment at the branch level is also handled by the manager. The manager goes by
the procedure of recruitment of the new employees required at branch level and
submits the request to the HR department at the corporate office.

• Branch level training programmes are also conducted by the branch manager. The
manager has to train the branch level employees regarding the current market
scenarios. This is generally held as class room training.

• After the training the manager needs to monitor the performance of the employees
and effective measures must be taken to motivate the employees for an effective
result.

5. Shared Values

The shared values of organization are guiding concepts, fundamental ideas around
which a business is built-must be simple, usually stated at abstract level, have great meaning
inside the organization even though outsiders may not see or understand them.

6. Style
Style refers to the employees shared and common way of thinking and behaving -
unwritten norms of behaviour and thought. The managerial approach is more projects focused
than process focused. The management is likely mixture of self-management for customer
facing activities and task management for organizational activities. For ex: if the staff is to
treat customers as individuals, then they will need to be managed as individuals, this suggests
a self-management style.

Leadership Styles in Muthoot Securities Ltd:

 The behavior of superior towards the subordinates is pleasant. They motivate fresher
who are working under them. The superior tells the subordinates what he has to do. The
objective of the work is clearly defined to them. Otherwise the superior talks to the
subordinate, ask the difficulties that the subordinate is facing, and tries to solve his problems.

It is also been observed that in the organization that while speaking to their
subordinates, superiors will be very friendly and affectionate to the subordinates. The
superior in the State bank of India gives equal importance to objectives of the company as
well as relationship with the subordinates (executive style). Superiors who act as leaders
conduct meeting, discussions, presentations etc on regular basis and take the suggestions and
ideas given by subordinates, the leaders take the final decisions only. This style of leadership
is called Participative style of leadership.

However the major decisions are taken by board of directors only.

7. System:

• Order execution system:

The order execution system is a systematic process that starts from receiving the order
till dispatch of contract notes. The detailed procedure is as follows.

Order request: The client calls the dealers engaged in dealing on the fixed telephone number
and requests his required desired order to the dealers. The client has to give his client id
number so that his order is correctly placed.

Client enquiry: Once the dealer receives the request and the client ID, dealer then verifies it
with the office. This is to ensure that the order is received from the same client who has given
the request.

Order placement: Once the verification is done, the dealer places the order with the help of
computers that is connected to the exchange.

Execution of the order: The client has to wait till his order is executed in the exchange for
his requested scrip value. The dealer receives the information immediately once the execution
takes place which in turn is informed to the client.

Confirmation of Trade: The contract notes would be dispatched within a day of the
execution.
Payment: After the execution of the trades and confirmation, the client needs to pay the
funds for his order execution.

SWOT Analysis

SWOT Analysis is an important planning tool that helps a Person or an Institution identify, in
a systematic and organized way, its internal strengths/weakness.

STRENGHTS
• The Stake holders: The major strength that the Muthoot Group itself own the 100%
stake in the company.

• Brand: The Company has earned a very good brand recognition, which makes the
company one of the major successful brokerage houses in the country.

• Overseas operations: Muthoot Securities has branches spanning the gulf countries
thus making it a global company. Overseas operations have been successful and bring
name and huge revenues to the company.

• Membership: Muthoot Securities Ltd is a member of NSE (National Stock Exchange),

BSE (Bombay Stock Exchange), MCX (Multi Commodity Exchange), NCDEX
(National Commodity And Derivatives Exchange Ltd), NMCE (National Multi-
Commodity Exchange of India Ltd).

• Manpower: Muthoot Securities has the largest pool of professionally certified

manpower.

• Products and services: Muthoot Securities offers a wide range of variety of products
to its customers including loans on commodities, loans on shares, Margin funding.

• Internet trading: Internet trading facility is the unique feature of Muthoot Securities in
this technological arena. It provides Trading platforms for the customers through the
internet who are not able to access the physical or manual trading methods.

• Customer services: The value added services provided to the customers can also be
considered as strength of the company. Besides, a very friendly customer care service
is provided by the company.

WEAKNESS

• The major weakness of the brokerage firms are the fluctuations in the market.

OPPORTUNITIES
 • Regulations liberalized: As the regulations regarding the stock market, commodity
market have eased up along with the transparency in the operations of stock
exchanges, growing Indian economy etc all these factors do provide a great pool
of opportunities to the brokerage house.

• Overseas operations: Now that Muthoot Securities has already started its overseas
operations.

• Developing Indian economy: India is a favourite hub for foreign investors as it has
shown a great signs of development in IT, ITES services and other industries.
Thus even the city of Belgaum, Karnataka, has large number of business
opportunities coming up through real estate, IT, ITES sectors. The company can
grab the opportunity for setting up more branches and expand its operations.

THREATS

• Market conditions: The bearish market conditions can be considered as threat to the
firm as common to other firms, which can eventually affect the operations.

• Competition: There is a lot of competition among the stock broking firms. Some of
the big names in the market are a real threat to the company.

• New entrants: Apart from the prominent competitors, there are lot of new firms
entering the market with the growing market conditions.
 PART B

CHAPTER - 1
INTRODUCTION
1.1 OVERVIEW OF THE INDUSTRY

Derivatives trading in India are as old as money and finance it. Exchange-
traded derivatives however, were introduced in June 2000 with the only
product on offer being index futures. A total of 1191 contracts with a
turnover of Rs.35 crore and an average daily turnover of Rs.2 crore were
recorded for the inaugural month. Derivatives volumes rose gradually,
with the growth becoming more rapid as new products were introduced.
Though there was initial skepticism regarding this market in India,
derivatives took off with the introduction of stock futures. Since the
completion of the whole basket of equity derivative products viz. futures
(stock and index), options (index and stock) and interest rate futures
contracts, the market has grown exponentially. It eclipsed the total
turnover of the cash market in 2003. Internationally, derivatives volumes
are 4-5 times the underlying cash market volume. The total turnover of
the derivatives segment for the month of March 2005 stood at
Rs.2,60,481 crore and a total of over 70 lakh contracts were traded at an
average daily turnover of Rs.11,840 crore. The growth has also been
spectacular in terms of the number of accounts in the derivatives
segment. From less than 80,000 client accounts at the beginning of 2003,
by July there were 1, 10,000 accounts, with an average of 5,000 new
accounts being opened every month. An interesting feature to note in the
derivatives market is the predominance of NSE which has an
overwhelming market share of almost 99%.

Geographical Distribution of Derivatives

Geographical distribution of derivatives turnover closely mirrors that of
the equity market. Mumbai accounted for the largest chunk of trading,
about 48%, in March 2005. Mumbai also has the largest number of active
members in the F&O segment. The other major contributors are Delhi
(26.2%), Kolkata (10.4%) followed by Ahmedabad, Hyderabad, Chandigarh
and Chennai (with about 2% each).

1.2 INTRODUCTION TO THE RESEARCH TOPIC

Derivatives are exchange traded contracts like futures, options etc. Such
a contract is built upon a tradable asset or assets like equities, stock
indices, and commodities and so on. Buyers and sellers on such assets are
agreed upon to buy or sell on the asset as per mutually agreed terms like
price, quantity and date. Since a derivative contract is based on certain
quantity of an asset, the value of the contract is derived from the value of
the asset, also known as the underlying.

In the F&O segment of NSE, derivative contracts like futures and

option contracts that are based on major indices like S&P CNX Nifty, CNX
IT etc are being traded along with similar contracts on fifty two major
scrip’s. These instruments can be used as good instruments for attractive
short term profit and as an effective mechanism to hedge market risk of
an investment portfolio.

Futures

A futures contract is an agreement between the buyer and seller for the
purchase and sale of a particular asset at a specific future date. The price
at which the asset would change hands in the future is agreed upon at the
time of entering into the contract. The actual purchase or sale of the
underlying involving payment of cash and delivery of the instrument does
not take place until the contracted date of delivery. A future contract
involves an obligation on both the parties to fulfill the terms of the
contract

Options
Options are derivative contracts which give the right either to buy or sell a
specified quantity of the underlying asset at a fixed exercise price on or
before the expiration date. Accordingly, an option contract is specific on
the quantity of the asset to be bought or sold, the price at which the
transaction has to take place i.e. it is called the strike price or exercise
price and the date up to which the contract is valid i.e. Expiry date. Unlike
futures, option buyers are no way under obligation in exercising their right
to buy or sell. Their right to buy or sell can be exercised only if its
execution is in their favor.

Option Premium

Call and put options are bought by paying a price to the seller of the
option who is known as option writer and this is called option premium.
From the buyers' side, this is the cost for acquiring options where as the
premium is the price or reward to the option seller.

Call Options

Call option gives its holder i.e. the buyer the right to buy a specified
quantity of the underlying asset at a fixed exercise price on or before the
expiration date. If the market price of the asset is higher than the exercise
price, the option holder exercises his right to buy due to the simple reason
that he can make a profit under this situation i.e., buying at a lower price
from the option market and selling at a better price in the cash market. In
the event that the situation is just the reverse, he simply allows the option
to lapse. By doing so, the maximum he has to lose is the premium paid
and brokerage charges.

Those who are bullish on the asset price i.e. index, stock etc go for buying
the call option whereas bears on the asset price would be the sellers.

Put Options

Put option gives its buyer or holder the right to sell a specified quantity of
the underlying at a fixed price called the strike price on or before the
expiration date. Such an option is executed when the price in the cash
market is lower than the strike price of the option which he can cover
through buying the asset from the cash market at a lower price. The
difference is his profit. On the other side, the option holder lets the option
lapse if the cash market price is higher than the strike price, since the
option does not have any intrinsic value in this situation. The maximum
loss he has to incur is the premium paid and brokerage charges. Put
option on an asset is bought when the buyer is bearish on its price front.
Conversely, sellers would be those who believe that the price of the asset
may remain steady or go upward.

In the Money

An option contract is in the money when the contract has an intrinsic

value and its execution will result in a profit. A call option is in the money
when the price of the asset in the cash market is higher than the strike
price of the option. In this scenario, the execution of the contract will
conclude in a profit. A put option is said to be in the money when the price
of the asset in the cash market is lower than the strike price of the option.
As per the contract terms, the option holder has the right to sell the asset
at a higher price than the cash market price and this difference intrinsic
value brings him a profit.

At the money

A call or put option is at the money when the strike price of the option is
exactly equal to the cash market price of the asset. In such cases, the
intrinsic value of the contract is zero and hence no profit can be
generated by executing the option.

Out of the Money

An option is out of the money when the execution of the contract is only
to generate a loss to the option holder. A call option is out of the money
when the cash market price of the asset is lower than the strike price of
the option. Conversely, a put option is out of the money when the cash
market price of the asset is higher than the strike price. In both the cases,
the intrinsic value of the contract is negative and therefore, the execution
of the contract will result in a loss.

Derivatives are financial securities whose value is derived from

another "Underlying" financial security. Options, futures are all examples
of derivative securities. Derivatives can be used for hedging, protecting
against financial risk, or can be used to speculate on the movement of
commodity or security prices, interest rates or the levels of financial
indices. A derivative financial product is a contrived instrument, the value
of which depends indirectly on the price of a cash instrument. The price of
the cash instrument is often referred to as the "underlying" price.
Examples of cash instruments include actual shares in a company,
physical stocks of commodities, cash foreign exchange, etc.

INTRODUCTION TO FUTURES

Futures of Derivative in India

The internet is also playing its part in bringing the market within the reach
of a larger number of investors. Liquidity is one of the most important
parameters in judging the attractiveness of a market for investors. In the
index futures market, the bid-offer spread i.e. the difference between the
price at which one can sell and the price at which one can buy, is around
0.15-0.2, or around two basis points. However, liquidity worsens as one
moves to the further month contracts, and in options. Some of the most
liquid index options have bid-offer spreads of one percent or more.
Futures on some of the individual securities trade up to ten times the
volume traded in the cash market. However, the top five traded counters
account for almost fifty percent of the traded volumes in the stock futures
segment, and about sixty percent of the volumes in the stock options
segment. Players expect the market to grow to about three times the size
of the cash market in the next one year, and about five times in the next
two years.
 An average Indian investor is more aware of speculation than
hedging in equities. With the introduction of options and futures trading
on the index and certain stocks, learned investors can speculate in equity
markets. Speculation for an ordinary investor would mean four things -
multiplier for actual available investment, open positions with low cost of
carry, short selling and no delivery of shares. A derivative product offers
all these functions with a built in 'stop-loss' function.

Practical Application of Derivatives in the Stock Market

You are an investor and have around Rs. 20,000 to invest. Say for
instance, according to your analysis, price of Infosys shares (assumed
current price: Rs 5,000) is going to move up by Rs 500 in one month. You
have two options: either you buy the stock in the cash market or buy the
same in the derivatives market. If you buy in the cash market you will be
able to buy around four shares (20,000/5,000 per share). And if the target
materializes, your profit will be Rs 2,000 (500 x 4 shares). If the price of
Infosys falls by Rs 500, your loss will be Rs 2,000.

On the other hand, in the derivatives market, an investor can buy an

option of 100 such shares by paying a premium determined by the
market. The market determines the premium on the prevailing perception
of Infosys. In our case, we will take the premium (strike price: Rs 50,00)
per share as Rs 200. So, when the Infosys stock moves up by Rs 500, your
profit will be Rs 30,000 (Rs 500 x 100 shares minus premium amount of
Rs 20,000). But if the price of Infosys falls by Rs 500, your loss is capped
at only Rs 20,000 (to the extent you paid the premium) and not Rs 50,000
(Rs 500 x 100 shares). Also remember that for a Rs 500 fall in price, the
loss here would be Rs 20,000 as against Rs 2,000 in the cash market. In
addition, brokerages have not been considered in the transactions and
this can impact the prices slightly.

Hedging
It is a way of reducing risks when you have the underlying security. In the
above example, let's say you have 100 shares of Infosys bought at Rs
5,000 each and you expect the stock to fall by Rs 500. So you buy a put
option of Infosys at a strike price of Rs 5,000 for a premium of say Rs 100
per share. So, if the Infosys stock does fall by Rs 500, your loss is
restricted to only Rs 10,000 as -you have recovered Rs 400 a share by
buying an Infosys put.

Derivatives offer a number of advantages such as cash settlement,

lower transactions costs, leverage and flexibility as a wide range of
payoffs can be achieved by combining various instruments. Though the
perception is that only the well-capitalized high net worth individuals (HNI)
can take positions in the derivatives market, the fact is that many
derivatives transactions are within the means of the ordinary investor.
According to NSE, the monthly market size for index futures has increased
from Rs 56,000 crore in October to Rs 80,000 crore in March 2005. In
January, index futures touched almost Rs 1,00,000 crore. FIIs played a key
role in the 73% surge in the Indian equity market last year as FIIs
considered Indian equities undervalued and bought significantly.

Small Investors and Lot Sizes in Derivatives Market

Retail investors who wanted to hedge or speculate using the derivatives

market were often kept out of certain counters such as Tata Motors,
Mahindra and Mahindra (M&M) and Tisco because of large market lots,
which made the margins unaffordable.

The downward reduction of the market lot of derivatives contracts

has enabled the small investor to participate in the market without too
much investment. Globally, futures and options exchanges keep a
standard market lot (generally 100) for all contracts, regardless of the
contract size. However, at the time of introduction of the derivatives
contracts in June 2000, Sebi had prescribed a market lot, corresponding to
a contract size of Rs 2 lakh for each scrip, fearing that small investors may
burn their fingers in the leveraged derivatives market in the absence of
such an entry barrier. The reduction of lot sizes was long-awaited since
most stocks have gained in price since the fixing of the lot sizes,
especially in the last one year, and the contract values have shot through
the roof. Tata Motors, for example, has seen its price appreciate from Rs
63 when the contract was introduced, in 2000, to Rs 466 in January 2005,
leading to a contract size of Rs 15 lakh. The margin per contract of Tata
Motors is about Rs 3.5 lakh, which is unaffordable for many investors. So
also in the cases of Mahindra and Mahindra, Bajaj Auto, Ranbaxy and
Tisco. Retail participants have welcomed this move.

Options settled by delivery gives the owner the right to receive

delivery (if it is a call) or to make the delivery (if it is a put), of the
underlying when the option is exercised.

Cash settled options gives the owner the right to receive a cash
payment based on the difference between a determined value of the
underlying at the time of exercise and the fixed exercise price of the
option. Nifty options are cash settled. Example: You bought Nifty
November call at a strike price of Rs.1400. On expiry of November
options, the expiration level was Rs. 1430. The cash settlement will be
Rs.30 per Nifty and for one contract, Rs.6000 (i.e.30*200, the minimum
contract size).

Assigned writer Option writer who has been assigned an exercise is

known as an assigned writer.

Expiration date is the date on which the option expires. If an option has
not been exercised prior to its expiration, it ceases to exist after the
expiration date, i.e. the option holder shall no longer have any right and
the option, no value.

Style of Option

Refers to the time at/ within which the option is exercisable. Two different
styles of options are: American and European.

American style
Options which may be exercised at any time prior to their expiration.

European style

Options which may be exercised only during a specified period before the
option expires. Generally, they are exercisable on the expiration date.

Opening transaction is a purchase or a sale transaction by which a

person establishes or increases a position either as the holder or the
writer of an option.

Closing transaction is a transaction by which a person reduces or

cancels out previous position either as the holder or the writer of that
option. For example, an investor, at some point prior to expiration, may
make an offsetting sale of an identical option, if he is an option holder or
make an offsetting purchase of an identical option, if he is an option
writer.

Long and short Long refers to a position as the holder of an option.

Short refers to a position as the writer of an option.

Advantages of Futures and Options

Trading in futures and options facilitates attractive trading profit even in

the very short term. These instruments are also useful as an effective
mechanism to hedge market risk. From the operators' point of view, the
advantages are many.

1) Limited Risk and Unlimited Profit

As stated earlier, buyers of put or call options have to lose only unto the
premium they paid and hence the risk is limited on their side. On the
other hand, the profitability from option buying stands unlimited.

A call option is bought on the anticipation that the price of the asset
is likely to go up during the contract period. If the price is moving up as
expected, the option buyer can make immense returns, which may go up
to any amount depending on the unmoved in asset valuation. Similarly, a
put option buyer can make sizable profit if the price of the asset comes
down as anticipated and the potential gain is really vast.

2) Higher leverage

Options and futures are high leverage products in the sense that one can
hold a substantially valuable position through investing a limited amount
of money. For example, a futures contract valued at many lakhs can be
bought or sold by paying a fraction of that amount as the initial margin.
Similarly, the price or premium for buying a put or a call is just a few
thousand rupees while the value of the contract is very much higher.

3) Hedging Futures and options are very effective devices to hedge price
or market risk. Suppose that you have long positions in stocks that value a
few lakhs and you want to avoid probable losses resulting from a price
fall. Your objective can easily be attained through selling futures on stock
indices or stocks itself or through buying of put options.
CHAPTER - 2
RESEARCH
DESIGN
1 STATEMENT OF THE PROBLEM

Managing finance is the most important for the success of every investor.
Only those investors, who are capable of managing the finance and
related activities effectively, can make profit within a short period of time.
Only such investors are able to see whether there is any risk less profit
securities available in the market.

The study has been undertaken to analyze the measurement of risk

and variations of ten company’s shares. The study also shows the
analysis of different kinds of trading strategies like Hedging strategies
Speculative strategies and Arbitrage strategies.

2.2 NEED AND IMPORTANCE OF THE STUDY

The study covers derivatives market with specific reference to Future

market.

The study covers different strategies which can be used in different

market scenarios.
The study shows the profit enhancement and risk reduction in derivatives.

The study shows the Beta and Volatility calculation for the purpose of
measuring the risk and variability of different company’s shares.

The study also shows how an investor can minimize risk through hedging.

2.3 REVIEW OF LITERATURE

PURPOSE OF THE LITERATURE

In this project work, secondary data are used as a basis of analysis. In this
study, Beta and Volatility calculations and different types of trading
strategies are analyzed.

The current study has been undertaken to measure the risk and
variability of different company’s shares. It is also helpful for analyzing the
company’s performance in the derivative market. So the progress in the
derivative market is high and we can see the investors are in the right
path or they are achieving their objectives.

METHODS OF REVIEW

In this project work, the method used was the one month share prices of
ten different companies for the purpose of calculating the Beta values and
Volatility values and trading strategy analysis. In order to get the Beta
values NSE Nifty is the base and from which top ten companies have been
selected. The data collected for the purpose of calculations are mainly
from the websites like nseindia.com and derivativesindina.com

BENEFITS FROM THE LITERATURE

The monthly prices of the shares were the main source for the Beta and
Volatility calculation and for analyzing the different strategies. Without
 these secondary sources, it is not able to do the same; the web site is
one of the much useful sources of secondary data for getting
information about the derivatives and futures. Thus this secondary data
played an important role in completing this project.

2.4 OBJECTIVES OF THE STUDY

• To analyze the company’s performance in the derivatives market.

• To see whether there is any risk less profit derivative available in the
market.
• To suggest suitable measures and strategies in the future market.
• To show the beta and volatility calculation for measuring the risk and
variability of different company’s shares.

2.5 OPERATIONAL DEFINITIONS OF CONCEPTS

Buy Open: - Means a buy transaction which will have the effect of
creating or increasing a long position.

Clearing Member: - Clearing Member means a Member of the Clearing

Corporation. Closing buy transaction Means a buy transaction which will
have the effect of partly or fully offsetting a short position.

Closing sell transaction: - Means a sell transaction which will have the
effect of partly or fully offsetting a long position.

Constituent: - A constituent means a person, on whose instructions and,

on whose account, the Trading Member enters into any contract for the
purchase or sale of any security or does any act in relation thereto.

Contract Month: - Contract month means the month in which a contract

is required to be finally settled.

Derivatives Contract: - A contract which derives its value from the

prices of underlying securities.
Expiration Day: - The day on which the final settlement obligation are
determined in a Derivatives Contract.

Futures Contract: - means a firm contractual agreement to buy or sell

the underlying security in the future.

Last Trading Day: - Means the day unto and on which a Derivatives
Contract is available for trading.

Long Position: - Long Position in a Derivatives contract means

outstanding purchase obligations in respect of a permitted derivatives
contract at any point of time.

Open Position: - Open position means the sum of long and short
positions of the Member and his constituent in any or all of the Derivatives
Contracts outstanding with the Clearing Corporation.

Open Interest: - Open Interest means the total number of Derivatives

Contracts of an underlying security that have not yet been offset and
closed by an opposite Derivatives transaction nor fulfilled by delivery of
the cash or underlying security or option exercise. For calculation of Open
Interest only one side (either the long or the short) of the Derivatives
Contract is counted.

Options Contract: - Options Contract is a type of Derivatives Contract

which gives the buyer/holder of the contract the right (but not the
obligation) to buy/sell the underlying security at a predetermined price
within or at end of a specified period. The option contract which gives a
right to buy is called a Call Option and the option contract that gives a
right to sell is called a Put Option.

Option Holder: - Option Holder means a Trading Member who is the

buyer of the Options Contracts.

Option Writer: - Option Writer means a Trading Member who is the

seller of the Options Contracts.
Outstanding Obligation: - Means the obligation which has neither been
closed out nor been settled.

Permitted Derivatives: - Contract Permitted Derivatives Contract is a

derivative contract which is permitted to be traded on the Futures &
Options segment of the Exchange. Regular lot / Market Lot Means the
number of units that can be bought or sold in a specified derivatives
contract and it is also termed as Contract Multiplier.

Risk Disclosure Document: - Refers to the document to be issued to all

potential investors at the time of registration for disclosure of the risks
inherent to derivatives.

Settlement Date: - Means the date on which the settlement of

outstanding obligations in a permitted Derivatives contract are required to
be settled.

Sell Open: - Means a sell transaction which will have the effect of
creating or increasing a short position.

Short Position: - Short position in a derivatives contract means

outstanding sell obligations in respect of a permitted derivatives contract
at any point of time.

Trading cycle: - Trading cycle means the period during which the
derivatives contract will be available for trading.

Trading Member: - Trading Member is a member of Derivative

Exchange.

Trading cum Clearing Member: - Means Member of Derivatives

Exchange as well as its Clearing Corporation.

Trade Type: - Trade type is the type of trade as may be permitted by the
F&O Segment of the Exchange from time to time for each Market Type.
Underlying Securities: - Means a security with reference to which a
derivatives contract is permitted to be traded on the Futures & Options
segment of the Exchange from time to time.

Beta; - Beta is the measurement of risk; if the Beta value is more it shows
the more risk of the respective share.

Volatility; - More the volatility, higher is the probability of the future

generating higher returns to the buyer. The downside in both the cases of
call and put is fixed but the gains can be unlimited.

2.6 RESEARCH METHODOLOGY

DATA COLLECTION:

The report is prepared by using both primary and secondary data. Primary
data are collected from office and through NSE terminal. The secondary
data are collected from reports, magazines, and journals and also from
websites.

Market movements of the ten different companies was observed for

one month with Nifty Index Futures, observation on the price movement
of derivative market for the purpose of analysis of data were collected
from the official websites of National Stock exchange and Derivatives
India (www.nseindia.com & derivativesindia.com) .The data collected from
websites were used to analyze the strategies and for calculations.

POPULATION:

Research will be conducted on top ten companies in NSE NIFTY.

SAMPLE PROCEDURE:
Here the researcher has selected top ten companies from NSE Nifty
according to his convenience by using convenient sampling.

TOOLS & TECHNIQUES

The statistical tools that will be used are tracking 1 months share prices of
ten different companies for the purpose of calculating the beta values and
trading strategy analysis. In order to get the beta values NSE Nifty will
base for all the ten different companies

2.7 LIMITATIONS OF THE STUDY

• In this study, only Futures are taken due to time and cost
constraints.
• Derivatives were introduced recently in India. As a result the
information regarding derivatives is limited.

2.8 SCOPE OF THE STUDY

This study is conducted in order to select few companies so that the

results can’t be generalized.
 ANALYSIS &
INTERPRETATIO
N OF DATA

PROFILE OF COMPANIES TAKEN FOR ANALYSIS OF RESEARCH

WIPRO
Wipro Limited is the first PCMM Level 5 and SEI CMM Level 5 certified IT
Services Company globally. Wipro provides comprehensive IT solutions
and services, including systems integration, Information Systems
outsourcing, package implementation, software application development
and maintenance, and research and development services to corporations
globally.

Wipro Limited (NYSE:WIT) is a leading provider of IT solutions for

customers across Americas, Europe, Asia, Australia and the Middle East.
Started as a ground nut crushing unit in 1947, Wipro has grown into a
multi business multi location conglomerate. We have grown from a India
centric consumer products manufacturing company to a global company
providing comprehensive service portfolio, an adaptive, value-driven
engagement model and our quality leadership in every aspect of service
delivery. The depth and width of the services that we provide is perhaps
unmatched by any other company.

In our non-IT businesses, we have a significant presence in Consumer

Products and in Infrastructure Engineering. We have a significant
presence in toiletries and lighting products and solutions. We are the
preferred suppliers to OEMs supplying to the growing infrastructure
industry globally

ONGC
Is Asia’s best Oil & Gas company, as per a recent survey conducted by US-
based magazine ‘Global Finance’.Crossed the landmark of earning Net
Profit exceeding Rs.10,000 Crore, the first to do so among all Indian
Corporates, and a remarkable Net Profit to Revenue ratio of 29.8 per cent.
The growth in ONGC's profits is not solely due to deregulation in crude
prices in India, as deregulation has affected all the oil companies,
upstream as well as downstream, but it is only ONGC which has exhibited
such a performance (of doubling turnover and profits).Has paid the
highest-ever dividend in the Indian corporate history.

Its 10 per cent equity sale (India's highest-ever equity offer) received
unprecedented Global Investor recognition. This was a landmark in Indian
equity market, establishing beyond doubt, the respect ONGC's
professional management commands among the global investor
community. According to a report published in 'The Asian Wall Street
Journal (Hongkong)', ONGC's Public Issue brought in 20 Foreign
Institutional Investors (FIls) to India, as (it was reported), 'they could not
ignore the company representing India's energy security'.The Market
Capitalization of the ONGC Group (ONGC & MRPL) constitutes 10 per cent
of the total market capitalization on the Bombay Stock Exchange (BSE).
ONGC has an equity weightage of 5 per cent in Sensex; 15 per cent in the
Nifty (the only Indian corporate with a two-digit presence there); ONGC
commands a 7 per cent weightage in the Morgan Stanley Capital
International (MSCI) Index.

The growth in ONGC's Market Capitalization (from Rs. 18,500 Crore before
May 2001 to Rs. 1,25,000 Crore in January 2004) is unprecedented and
except Wipro (who had a higher market capitalization temporarily), no
other Indian company (either in public or private sector) has seen such a
phenomenal growth.

ONGC has come a long way from the day (a few years back) when India
and ONGC did not figure on the global oil and gas map. Today, ONGC
Group has 14 properties in 10 foreign countries. Going by the investments
(Committed: USD 2.708 billion, and Actual: USD 1.919 billion), ONGC is
the biggest Indian Multinational Corporation (MNC).

TATA CONSULTANCY SERVICES

Tata Consultancy Services (TCS) is one of the leading information

technology companies in the world. With a workforce of over 74,000
professionals spread across more than 50 global delivery centres, it helps
organisations stay ahead with new technology. Its clients include seven of
the top ten corporations in the Fortune 500 list of the largest corporations
in the United States.

TCS products and services help companies in various sectors effectively

meet their business challenges. With technical expertise and employing a
flexible approach to client relationships, TCS offers its clients: consulting,
IT services, business process outsourcing, infrastructure outsourcing, and
engineering and industrial services.

Since its inception, the company has invested in new technologies,

processes, and people in order to help its customers succeed. With inputs
from its innovation labs and university alliances, and drawing on the
expertise of key partners, TCS keeps clients up-to-date with new
technology. This has helped the company meet various benchmarks of
excellence in software development - it is the world's first organisation to
achieve an enterprise-wide Maturity Level 5 on quality improvement
models, CMMI® and P-CMM®, using the most rigorous assessment
methodology, SCAMPISM.

The company is listed on the National Stock Exchange and Bombay Stock
Exchange in India.
 HINDUSTAN LEVER LIMITED

Hindustan Lever Limited (HLL) is India's leading consumer goods supplier,

with a focus on the Fast-Moving Consumer Goods (FMCG) category that
includes detergents, soap, shampoo, deodorant, toothpaste, and other
personal care items, and cosmetics. HLL's personal care brands include
soap brands such as Lux, Lifebuoy, Liril, Breeze, Dove, Pear's, and
Rexona; shampoos and hair coloring brands including Sunsilk Naturals and
Clinic; skin care brands Fair & Lovely and Pond's; and oral care brands
Pepsodent and Close-Up. The company's cosmetic line is led by the Lakme
brand; HLL also produces a line of Ayurvedic personal and healthcare
items under the Ayush brand. In addition to the FMCG segment, HLL has
developed a line of food items, primarily under the Kissan and Knorr
Annapurna brands, as well as the ice cream brand Kwality Wall's. In the
early 2000s, HLL also acquired baked goods producer Modern Food
Industries. In addition to its domestic brand family, HLL sells bulk foods,
including maize, rice, salt, and atta. HLL is also an active exporter,
shipping its FMCG and food brands, as well as rice; marine products
including surimi, shrimp, crabsticks, and others; and castor oil. HLL has
completed a restructuring of its business in the first half of the 2000s,
streamlining its brand portfolio, from 110 brands to 35 "power" brands,
while exiting a number of businesses, such as teas (sold to the Woodbriar
Group in 2006) and specialty chemicals. HLL maintains a strong
manufacturing presence in India, with some 80 factories located
throughout the country; the company also subcontracts to more than 150
third-party producers. HLL is itself a subsidiary of Unilever, which controls
51.55 percent of the group. HLL is listed on the Mumbai Stock Exchange.
 ITC

ITC is one of India's foremost private sector companies with a market

capitalisation of nearly US $ 13 billion and a turnover of US $ 3.5 billion.
Rated among the World's Best Big Companies, Asia's 'Fab 50' and the
World's Most Reputable Companies by Forbes magazine, among India's
Most Respected Companies by Business World and among India's Most
Valuable Companies by Business Today, ITC ranks third in pre-tax profit
among India's private sector corporations.

ITC has a diversified presence in Cigarettes, Hotels, Paperboards &

Specialty Papers, Packaging, Agri-Business, Packaged Foods &
Confectionery, Information Technology, Branded Apparel, Greeting Cards,
Safety Matches and other FMCG products. While ITC is an outstanding
market leader in its traditional businesses of Cigarettes, Hotels,
Paperboards, Packaging and Agri-Exports, it is rapidly gaining market
share even in its nascent businesses of Packaged Foods & Confectionery,
Branded Apparel and Greeting Cards.

ITC's diversified status originates from its corporate strategy aimed at

creating multiple drivers of growth anchored on its time-tested core
competencies: unmatched distribution reach, superior brand-building
capabilities, effective supply chain management and acknowledged
service skills in hoteliering. Over time, the strategic forays into new
businesses are expected to garner a significant share of these emerging
high-growth markets in India.

ITC employs over 21,000 people at more than 60 locations across India.
The Company continuously endeavors to enhance its wealth generating
capabilities in a globalising environment to consistently reward more than
4,94,000 shareholders, fulfill the aspirations of its stakeholders and meet
societal expectations. This over-arching vision of the company is
expressively captured in its corporate positioning statement: "Enduring
Value. For the nation. For the Shareholder."

HDFC

HDFC Bank Limited, a private sector bank, provides financial services to

corporations, and middle and upper-income individuals in India. It
operates in three divisions: Retail Banking, Wholesale Banking, and
Treasury Operations. The Retail Banking division provides various deposit
products, loans, credit cards, debit cards, third party mutual funds and
insurance, investment advisory services, and depositary services. The
Wholesale Banking division offers loans, deposit products, documentary
credits, guarantees, bullion trading, foreign exchange, and derivative
products, as well as cash management services, clearing and settlement
services for stock exchanges, tax and other collections for the
government, custody services for mutual funds, and correspondent
banking services. The Treasury Operations division manages debt
securities, money market operations, foreign exchange, and derivative
products. In addition, it provides telephone, Internet, and mobile banking
services. As of December 22, 2006, the bank operated 569 branches. The
company was incorporated in 1994 and is headquartered in Mumbai,
India. HDFC Bank was incorporated in August 1994 in the name of 'HDFC
Bank Limited', with its registered office in Mumbai, India. The Bank
commenced operations as a Scheduled Commercial Bank in January 1995.
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an 'in principle' approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector, as part of the
RBI's liberalization of the Indian

Banking Industry in 1994.

Headquartered in Mumbai, HDFC Bank, has a network of over 531

branches spread over 228 cities across India. All branches are linked on
an online real-time basis. Customers in over 120 locations are serviced
through Telephone Banking. The Bank also has a network of about over
1054 networked ATMs across these cities. HDFC Bank's ATM network can
be accessed by all domestic and international Visa / MasterCard, Visa
Electron / Maestro, Plus / Cirrus and American Express Credit / Charge
cardholders.

HDFC Bank has won many awards for its excellent service. Major among
them are "Best Bank in India" by Hong Kong-based Finance Asia magazine
in 2005 and "Company of the Year" Award for Corporate Excellence 2004-
05.

HERO HONDA

Hero Honda Motorcycles is the World's biggest manufacturer of

motorcycles (by quantity). Hero Honda is a 50:50 joint venture that began
in 1984 between the Hero group of India and Honda from Japan. It has
been the world's biggest manufacturer of 2-wheeled motorized vehicles
since 2001, when it produced 1.3 million motorbikes in a single year. Hero
Honda's Splendor is the world's largest selling motorcycle. Its 2 plants are
in Dharuhera and Gurgaon, both in India. It specializes in dual use
motorcycles that are low powered but very fuel efficient. When Hero
Cycles and Honda Motor Company of Japan inked their joint venture in
India in April 1984, few could have imagined that the two would go on to
create history and become the subject of a case study at business
schools,internationally.

But that's the Hero Honda saga for you. In a little over two decades, the
world's largest manufacturer of bicycles and the global leader in
motorcycles have created not only the world's single largest motorcycle
company but also the most endearing and successful joint venture for
Honda Motor Company worldwide. The company has sold over 15 million
motorcycles and has consistently grown at double digits since its
inception and today,

every second motorcycle sold in the country is a Hero Honda.

In two decades, Hero Honda has built two world-class manufacturing

facilities at Dharuhera and Gurgaon in Haryana that now churn out over 3
million bikes per year.

In this period, Hero Honda has set up over 2400 customer touch points,
comprising a mix of dealers, service centres and stockists across rural and
urban India. Today, Hero Honda is an amalgam of winning networks and
relationships with internal and external stakeholders, including Investors,
Dealers, Vendors and Employees. These relationships have helped the
company hold on to the mantle of World No.1 for years in succession.

RELIANCE
The Reliance Group, founded by Dhirubhai H. Ambani (1932-2002), is
India's largest private sector enterprise, with businesses in the energy and
materials value chain. Group's annual revenues are in excess of USD 22
billion. The flagship company, Reliance Industries Limited, is a Fortune
Global 500 company and is the largest private sector company in India.

Backward vertical integration has been the cornerstone of the evolution

and growth of Reliance. Starting with textiles in the late seventies,
Reliance pursued a strategy of backward vertical integration - in
polyester, fibre intermediates, plastics, petrochemicals, petroleum refining
and oil and gas exploration and production - to be fully integrated along
the materials and energy value chain.

The Group's activities span exploration and production of oil and gas,
petroleum refining and marketing, petrochemicals (polyester, fibre
intermediates, plastics and chemicals), textiles and retail.

Reliance enjoys global leadership in its businesses, being the largest

polyester yarn and fibre producer in the world and among the top five to
ten producers in the world in major petrochemical products.

The Group exports products in excess of USD 11 billion to more than 100
countries in the world. There are more than 25,000 employees on the rolls
of Group Companies. Major Group Companies are Reliance Industries
Limited (including main subsidiaries Reliance Petroleum Limited and
Reliance Retail Limited), Indian Petrochemicals Corporation Limited and
Reliance Industrial Infrastructure Limited.

INFOSYS TECHNOLOGIES
Infosys Technologies Ltd. (NASDAQ: INFY) provides consulting and IT
services to clients globally - as partners to conceptualize and realize
technology driven business transformation initiatives. With over 72,000
employees worldwide, we use a low-risk Global Delivery Model (GDM) to
accelerate schedules with a high degree of time and cost predictability.

As one of the pioneers in strategic offshore outsourcing of software

services, Infosys has leveraged the global trend of offshore outsourcing.
Even as many software outsourcing companies were blamed for diverting
global jobs to cheaper offshore outsourcing destinations like India and
China, Infosys was recently applauded by Wired magazine for its unique
offshore outsourcing strategy - it singled out Infosys for turning the
outsourcing myth around and bringing jobs back to the US.
Infosys provides end-to-end business solutions that leverage technology.
We provide solutions for a dynamic environment where business and
technology strategies converge. Our approach focuses on new ways of
business combining IT innovation and adoption while also leveraging an
organization's current IT assets. We work with large global corporations
and new generation technology companies - to build new products or
services and to implement prudent business and technology strategies in
today's dynamic digital environment.
 Learning experience

Learning experience means getting experience out of learning process. Organization

study helped me to know the real picture of the organization, its functions, policies,
procedures, methods. It also helped me to learn the new methods, technology, culture and
leadership skills used by the company. It enhanced my knowledge about the company, the
various products offered and its competitors and the techniques and strategies adopted by
them to beat their competitors.

During the inplant training at Muthoot Securities Ltd, I was exposed to a lot of
practical aspects such as recruiting, advertising, and interacting with the people. Apart from
the organizational study, I got familiar with the culture of Muthoot Securities Ltd along with
the corporate culture. The functioning or operations of Muthoot Group serves as helping hand
to its customers.

The company has a good network of regional offices and dealers throughout the country so
that it can serve to customer located in different parts in the country. This helps the customer
to carry out his transactions with ease and do the settlement payments from any part of the
country without much hassle.

The company has efficient employees who are committed to their work towards
company growth and client satisfaction. The branch manager, dealers, and the front office
staff all work as a team which gives a clear picture of the efficient team work in the branch
thereby giving chance to all the employees develop in their respective domain.

It was very surprising to discover that whatever I had studied in the books
were actually practiced in real. The manager and the subordinates’ relations in the office are
found to be very friendly and each one has their own element of priority. All the operations
are carried out swiftly by the respective designated employees. The manager heads the branch
with all the key decisions associated with the branch. This made me learn about the
managerial functions in the company.

The HR department follows a very intense procedure in recruiting the man power
necessary for the organization. However the recruitment is done both centralized and
decentralized way. The centralized way of recruitment is made for the overall requirement of
employees whereas decentralized way of recruitment is done in order to fill the vacancies at
branch level.

• The company recruits its man power through both internal as well as external sources.

• The selection process consists of collection of application blanks, screening of

applications, tests, interviews, etc.

• Training programmes at Muthoot Group ltd are excellent and commit to work
efficiency. They are concentrating on both on the job as well as off the job training
programme regularly. Training is imparted through lecture method, simulation
methods, etc. in various aspects related to functioning i.e., trading of shares, product
knowledge, latest or current scenario in the market and economy and its possible
effects on the stocks.

There is huge competition among the brokerage firms in India. Some of the very big
names have really occupied the market with their brand name. This is making the smaller
brokerage firms weak in the competitive market. The tug of war between the firms have
benefited the investors in the form of lower brokerage charges, immediate or fast service,
varied products and transparency in the dealing.

The Organisational Study program taught the trainee the behaviour, the discipline, the
attitude and the culture that one should carry out in an organisation which will be an immense
help in the work place in the coming days of trainees’ future.