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Risk Management Through Derivatives

Risk Management Through Derivatives

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  • 1. SUMMER TRAINING REPORTOnRisk Management through DerivativesAtPrabhudasLilladher Pvt. Ltd.<br /> Submitted in partial fulfillment of the requirements of the two year <br />Post Graduate Programme (PGP)<br />Submitted by: Manisha Gupta<br />IILM Institute for Higher Education<br />
  • 2. Industry Study<br />Total trading volume of brokerage companies has increased from USD1239.1Bn. in 2004 to USD1492.1Bn. in 2005, and is expected to reach USD6535.7 Bn. by 2015.<br />9,000 odd brokers in the cash segment and around 24,000 sub-brokers.<br />Top five brokers in India still control around 15-16% of the market share.<br />Retail trading contributed around 60% of the market and FII’s averaged around 20%. <br />In 2010 –<br /><ul><li>Market capitalization –USD 980 Bn.
  • 3. 180,000 + Trading Terminal
  • 4. Presence in 1500 + Cities in India
  • 5. Average Daily Turnover – USD 19 Bn. </li></li></ul><li>Organization Study<br />Established – 1944 <br />Headquarter – Worli, Mumbai<br />Vision - To be a leading financial services house providing maximum value addition by offering innovative.<br />Group Companies - <br /><ul><li>PL Advisory Services Private Limited
  • 6. PL Private Limited
  • 7. PL Capital Markets Private Limited
  • 8. PL Fund Advisors Private Limited
  • 9. Distribution Company Private Limited</li></ul>Group Directors:<br /><ul><li>DhirenSheth
  • 10. DilipBhat
  • 11. ArunSheth
  • 12. MihirSheth
  • 13. AmishaVora</li></ul>Group CFO: RakeshBharucha<br />President and Head of Equities: SanjeevPatni<br />Vice President: Apurva Shah<br /> <br />
  • 14. Organization Study<br />Achievements –<br /><ul><li>Ranked 8th Best Indian Broking House by Asia Money 2007
  • 15. Rated 3rd in generating small cap ideas by Asia Money 2007</li></ul>Associated Banks - ICICI and HDFC Banks<br />Sub Brokers – <br /><ul><li>SRG Investment Consultants
  • 16. Mulki Investments & Financial Consultants (Pvt.) Ltd.
  • 17. Parekh Shares & Securities </li></ul>Divisions -<br /><ul><li>Stock broking
  • 18. Insurance</li></ul>Ownership Pattern - Family owned<br />Number of people -<br /><ul><li>India- 1000-1500
  • 19. Kirti Nagar(New Delhi)- about 450</li></ul>Network - 21 cities<br />
  • 20. Product & Services<br />PL’s Products -<br />Institutional Broking <br />Retail Broking <br />Online Trading<br />Loan Facilities Offered <br />Investment Banking <br />Corporate Advisory <br />Wealth Management <br />Portfolio Management Services <br />Distribution<br />Company’s services –<br />Account opening facilities<br />
  • 21. Competitor Analysis<br />
  • 22. Introduction to Derivatives & Risk Management<br />Derivative - Derivative is a product whose value is derived from the value<br />of an underlying asset in a contractual manner.<br />Types of Derivatives -<br />Forward Contract<br />Futures<br />Options<br />Swaps<br />Function of Derivatives -<br />Risk management <br />Price discovery <br />Transactional efficiency <br />Risk Management Strategies –<br />Hedging<br />Arbitraging<br />Speculation<br />
  • 23. Statement of Problem - PrabhudasLilladher is recently entered into Delhi market. It is necessary to know how other brokerage firms managing risk through derivatives in Delhi and what strategies they are following to mitigate risk. With a vision of prevailing company for any loss in future due to derivatives and risk management factor, this research was made.<br />Objectives –<br />To find out extent to which risk can be reduced by applying different strategies.<br />To find out methods and techniques available in the modern market to evaluate and lay off the risk.<br />To know the awareness & familiarity investors, dealers and brokers hold regarding Risk management and derivatives market.<br />Research Methodology –<br />Research Design<br />Sample Selection<br />Elements <br />Sampling Units<br />Sampling Frame <br />Sample Size <br />Time Frame <br />Sources of Data <br />
  • 24. Limitations of the Study<br />Limited time<br />Limited Area<br />Unwillingness of respondent<br />Response error<br />Non response<br />Conclusion<br />A derivatives transaction allows a firm to alter its market risk profile by<br /> transferring to counter party some type of risk for a price. <br />Hedging is prime reason for the advent of derivatives.<br />Markets in India have developed a lot day by day these instruments are becoming the integral part of Investments.<br />
  • 25. Findings<br />About half of nonfinancial firms, brokers and investors are not investing in derivatives.  <br />Hedging provides a safe position on an underlying security. The loss gets shifted to a counter party. <br />Brokers haven't adequate knowledge about options, so most of them are dealing in futures only.<br />People are not aware of derivatives, even people who have invested in it, hasn’t adequate knowledge about it. <br />If the trader is not sure about the direction of the movement of the profits of the current position, he can counter position in the future contract and reduces the level of risks.<br />Results suggest that foreign currency hedging rather than eliminating exposures, generally only reduces the exposure, but typically by less than half of original outstanding exposure.<br />Most of the firms are evaluating their portfolio on monthly basis. That is beneficial for the firm.<br />
  • 26. Recommendations<br />Lot Size – Should be reduced.<br />Training Classes or Seminars - The first step towards it should be seminars provide to brokers, investors and employees and secondly seminar to students.<br />New Software - Company should go for change the product according to the customer need.<br />Promotional activities - Advertisement<br />Industry Relevance<br />The Company will be able to know their market position with other competitors in Delhi (NCR) region.<br />The changing perception of Indian consumers, investor and brokers, and their requirements will also be made clear.<br />They will get knowledge about different risk management strategies used in equity market.<br />Learnings<br />Learned how to interact with people, how to convince them and guide them in trading.<br />Learned how to maintain good relation with the employees and the co- trainees.  <br />Improved my communication skills.<br />Learned how to approach the customers.<br />
  • 27. References<br />Website -<br />http://www.plindia.com/ (Accessed on - 2/05/2010)<br />http://nseindia.com/ (Accessed on - 4/05/2010)<br />http://bseindia.com/ (Accessed on - 4/05/2010)<br />http://money.rediff.com/ (Accessed on - 16/05/2010)<br />http://www.religare.in/ (Accessed on - 20/05/2010)<br />http://www.sharekhan.com/ (Accessed on - 20/05/2010)<br />http://www.indiabulls.com/ (Accessed on - 22/05/2010)<br />http://www.reliancemoney.com/ (Accessed on - 22/05/2010)<br />http://www.indiainfoline.com/ (Accessed on - 23/05/2010)<br />http://karvy.com/v2/ (Accessed on - 23/05/2010)<br />http://www.traderji.com/ (Accessed on - 12/06/2010)<br />http://www.investorguide.com/ (Accessed on - 14/06/2010)<br /> <br />Newspapers -<br />Economics Times<br />Times of India<br />Financial Express<br />
  • 28. THANK YOU<br />

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