SUMMER INTERNSHIP PROJECT REPORT On“ANALYSIS OF CONSUMER BEHAVIOR TOWARDS SHARE TRADING IN INDIABULLS SECURITIES LTD” MANAGEMENT THESIS REPORTFACULTY GUIDE: Prof. Nidhi KumariCOMPANY GUIDE: Mr. Sourav Agarwal Submitted By: Pritpal Singh 7NBRN040
TABLE OF CONTENTS ACKNOWLEDGEMENT PREFACE EXECUTIVE SUMMARY RESEARCH OBJECTIVE INTRODUCTION TO INDIABULLS. HISTORY AND OTHER CORPORATE MATTERS FUNCTIONAL AREAS OF INDIABULLS. INTRODUCTION TO THE CONCEPT OF SHARE TRADING FINDINGS AND ANALYSIS BIBLIOGRAPHY
ACKNOWLEDGEMENTS I would like to express my sincere thanks to Indiabulls Securities Ltd.,Delhi for giving me the opportunity to carry out the Summer Internship Program intheir organization. The whole period spent with the organization has been ofimmense learning experience about the Indian Stock Market. Preparing a project of such a kind is not an easy task in itself and I amsincerely thankful to all those people who help me lot, in preparing and completingthis project. I am grateful to Indiabulls Securities Ltd. who has given me this opportunityto carry out the project “Analysis of Consumer Behavior Towards ShareTrading in Indiabulls Securities Ltd.” A study on investor’s perception theirbehavior about equities. I sincerely thank Mr. Sourav Agarwal (AVP) for providing me this valuablelearning opportunity. Finally I would like to thank Mr. Piyush Jain (Relationship
Manager) my project supervisor without his help and guidance the completion ofthis project would have become difficult task.PREFACE No professional curriculum is considered complete without work experience.It is well evident that work experience is an indispensable part of everyprofessional course. In the same manner practical work in any organization ismust for each an every individual, who is undergoing management course.Without the practical exposure one cannot consider himself as a qualified capablemanager. Entering in the organization is like stepping into altogether a new world. Atfirst, everything seems strange and unheard but as the time passes one canunderstands the concept and working of the organization and thereby developprofessional relationship. Initially it is felt that as if classroom study was irrelevant and it is useless inany concern working. But gradually it is realize that all fundamental basic conceptsstudied are linked in one or other ways to the organization. But how and what canbe done with fundamentals depends upon the intellectual and applicability of anindividual.
EXECUTIVE SUMMARY Investing in equities in a market like India is speculative and involves riskthat may be greater than other types of investment strategies. Before investingan Investor should be careful enough about him investment decision to avoiderosion of wealth. As seen in the recent times the volatility of market is moredetrimental to the retail investors as it seems to be lucrative for speculative gainsof short duration of time. Hence an investor has to evaluate his options carefullyfor a prudent investment, keeping long-term horizon in mind. The report has tried to bring out the parameters those are of paramountimportance to general public dealing in an equity trading on day-to day anddelivery base trading. The working methodology has been discussed i.e. the datacollection methods, sampling methods and the survey questionnaire methods. Thequestionnaire prepared is designed so as to cover a wide range of customer “touchpoints”
The report given a view about the investors perception that what thy thinkwhile making investments in shares. A sample of 50 people was selected randomly and survey was done as perthe parameters of the questionnaire. The results of every parameter have beenincluded in this report and shown graphically (Pie Charts, bar graphs etc.) Acomplete structure of the research design has been included. Apart from above discussed points the brief history of Indiabulls SecuritiesLtd, its business diversification and a brief introduction about the concept of sharetrading. RESEARCH OBJECTIVES To study investor’s behavior towards different attributes such as risk, return liquidity etc. of investment in Equities. To study the issues and challenges that investors face while making investment in share market. To study the preferences and perceptions of investors regarding various financial products from the stable of Indiabulls Securities Ltd. so that the firm can benefit from the findings of the report in launching any new investment product in future.
DATA COLLECTION The data collected was a primary in nature no secondary data was used. Primary data wascollected using structured questionnaire. The questionnaire has been designed for the target groupto get the best amount of data possible keeping in view the importance and authenticity of theinformation and convenience of the respondent. The selection of investor was predetermined innature Personal contacts were established to conduct a face-to-face interview. Interview wasconducted under strict supervision to maintain the standards of the data collected.Research Design Research design is a specification of methods and procedures for acquiring the informationwe need to solve the problems. Research design was adopted for the purpose of collection andanalysis of data in a manner aimed at getting relevant information. It was conceptual structurewithin which research was conducted, collected, measured and analyzed.Research Idea To know the market scene of trading and Investment in equities through Indiabullssecurities Ltd.Research Question What is the market trend regarding investment? What difficulties and challenges investorsare facing while making investments?
Research Statement “To get an insight into the mind of investors regarding trading and investment in Equities” “To get an insight into the mindset of investors regarding the importance assigned to different attributes such as risk, return, liquidity etc. of various investment channels such as equities. In the report this tries to understand the investor’s behavior while trading.” “To study the preferences and perceptions of investors regarding various financial products from the stable of Indiabulls Securities Ltd. so that the firm can benefit from the findings of the report in launching any new investment product in future.”RESEARCH METHODOLOGY The methodology section is the blue print for researcher activity and specifies bow theinvestigator intents to study the people or describe social settings. In other words the methodologysection make explicit the study desire and constitutes the “how to do it” phase.The project study has been conducted by collecting primary data only using structuredquestionnaire. No secondary data is used.I have put my best possible effort to do this research and collect the necessary information to learnabout this topic thoroughly.
SURVEY QUESTIONNAIRENAME:ADDRESS:PHONE NUMBER:1. Where do you prefer to invest your money? a) Bank Deposits b) Shares c) Mutual Funds d) Real estate e) Insurance Plans2. What are the factors, which attracts you for the investment? a) High Return b) Moderate Return c) Low Risk d) Moderate Risk3. Do you prefer to invest in shares? a) Yes b) No4. If yes, out of following, which intermediating company would you go for? a) Kotak Securities b) Indiabulls Securities c) ICICI d) Fortis Securities e) Others, please specify5. If Indiabulls, What are the factors, which attract you to deal with Indiabulls?6. If Others, What are the factors, which attract you, please specify?7. What attracts you to invest in Shares? a) Brokerage b) Expertise Knowledge c) Exposures/loan d) Brand
8. On what basis do you prefer to trade in shares? a) Daily b) Monthly c) Yearly d) other, please specify9. Does the companies profile matter for the investment decisions? a) Yes b) No10. Do you require the opinion of portfolio managers to manage your investment? a) Yes b) No11. What is the most important service parameter that you look for while trading? a) Information b) Speed c) Quality d) Other12. Any recommendation / Suggestion
Limitations of the study To study share market is a very vast topic and the search is just limited to a small portion. Due to the reluctant nature of the respondents it was not an easy task to collect relevant information from them. Sometime it was difficult to make the respondents understand the purpose of the survey. Busy schedule of the respondents was also a major hindrance to establish a contact with them. It may be possible the information provided by them is not true.
INTRODUCTION TO INDIABULLS Indiabulls is Indias leading retail financial services company with over 414 locations inmore than 124cities. While our size and strong balance sheet allow us to provide you with variedproducts and services at very attractive prices, our over 5400 Client Relationship Managers arededicated to serving your unique needs. Indiabulls is lead by a highly regarded management team that has invested crores of rupeesinto a world class Infrastructure that provides our clients with real-time service & 24/7 access to allinformation and products. Our flagship Indiabulls Professional Network offers real-time prices,detailed data and news, intelligent analytics, and electronic trading capabilities, right at yourfinger-tips. This powerful technology is complemented by our knowledgeable and customer focusedRelationship Managers. Indiabulls offers a full range of financial services and products ranging
from Equities to Insurance to enhance your wealth and hence, achieve your financial goals.Indiabulls Client Relationship Managers are available to you to help with your financial planning andinvestment needs. To provide the highest possible quality of service, Indiabulls provides full accessto all our products and services through multi-channels. Sameer Gehlaut, Rajiv Rattan and Saurabh Mittal, friends got together to start thecompany. For some years they worked in the oil field services industry. The idea to start their ownoutfit on a technology platform was born in 1999 when Gagan Banga joined the three IIT-Delhiengineers who promoted the company. These first generation entrepreneurs knew very well thatnothing small works. They didn’t want to build a small business which would get overnight successand shut down; rather they wanted to build a sustainable profitable business. This idea was totarget the huge untapped retail segment of the market. The first task of course was to work out asound business model, which was sustainable and profitable. They soon realized the implicitstrength of their model. India was toying around with the idea of brokerage getting done throughthe internet and clients directly managing their accounts. Around the middle of 1999, the corepromoters had got together and acquired a shut down brokerage firm from its promoters at thattime. The whole idea was to get a brokerage license from the stock exchange and a membership ofthe stock exchange. In 1999-2000, there was dotcom boom, there were a lot of dotcoms coming into being, lotof venture capitalists were funding the dotcoms business but none of the dotcom had any revenuemodel so the scope of a dotcom business was immense. Indiabulls came into existence to takeadvantage of this. The three promoters got together and took over a defunct brokerage company Orbis Securities- the whole idea was to get a brokerage license and a membership of thestock exchange. This brokerage firm was restarted and it started making miniscule amount ofrevenue for the company – it basically catered to the HNIs - High Net worth Individuals.Immediately after this the venture capitalists were contacted. In this there were several models,which were discussed including involving a strategic investor. Initially the company was promotedas a dotcom company. The promoters chose the famous Charles Schwab model, which perfectlyaddressed their need to have the business on a technology platform. The idea was that since itworked in other parts of the world, it would work here also. The company thus had clear-cutrevenue model. It was very clear in the minds of the promoters that revenue was very important.Profitability is the key to the entire thing. The emphasis on profitability was there from day one.Indiabulls has been profitable for every financial year beginning 2000-01 the only financial year ithas not been profitable has been 1999-2000. The company focused on the retail segment and used
Internet to exploit the massive scope in the retail segment. The company also enjoyed the firstmover advantage, as at that time there was no company catering to the needs of retail segmentthrough Internet Sameer Gehlaut, took over as chairman and CEO, and now looks after sales,marketing and external relationships, while Rajiv Rattan, in the role of CFO and president,manages operations, finance and back office.HISTORY AND OTHER CORPORATE MATTERS OVERVIEW Indiabulls Financial Services Limited was incorporated on January 10, 2000 as M/s OrbitsInfoTech Private Limited at New Delhi under the Companies Act, 1956 with Registration No. 55 –103183. The name of the Company was changed to M/s. Indiabulls Financial Services PrivateLimited on March 16, 2001 due to change in the main objects of the Company from Infotechbusiness to Investment & Financial Services business. It became a Public Limited Company onFebruary 27, 2004 and the name of Company was changed to M/s. Indiabulls Financial ServicesLimited. Company was promoted by three engineers from IIT Delhi, and has attracted morethan Rs.700 million as investments from venture capital, private equity and institutional investorssuch as LNM India Internet Ventures Ltd., Transatlantic Corporation Ltd., Farallon Capital Partners,L.P., R R Capital Partners L.P., and Infinity Technology Trustee Pvt. Ltd. and has developed
significant relationships with large commercial banks such as Citibank, HDFC Bank, Union Bank,ICICI Bank, ABN Ambro Bank, Standard Chartered Bank, Lord Krishna Bank and IL&FS. Companyand there subsidiaries have facilities from the above mentioned banks and financial institutionsaggregating to Rs. 1760 million. Companies headquarters are co-located in Mumbai and Delhi,allowing it to access the two most important regions for Indian financial markets, the Westernregion including Mumbai, rest of Maharashtra and Gujarat; and the Northern region, including theNational Capital Territory of Delhi, nearby cities, parts of Haryana, Uttar Pradesh and Punjab; andaccess the highly skilled and educated workforce in these cities. The Marketing and Sales effortsare headquartered out of Mumbai; with a regional headquarter in Delhi; and its back office, riskmanagement, internal finances etc. are headquartered out of Delhi, allowing our Company to scalethese processes efficiently for the nationwide network.Main Objects of The CompanyThe main objects to be pursued by the Company on its incorporation are:1. To hold investments in various step-down subsidiaries for investing, acquiring, holding, purchasing or procuring equity shares, debentures, bonds, mortgages, obligations, securities of any kind issued or guaranteed by our Company.2. To provide financial consultancy services; to provide investment advisory services on the internet or otherwise; provide financial consultancy in the area of personal and corporate finance; publish books and CD ROMs and any other information related to the above.3. To conduct the business of sale, purchases, distribution and transfer of shares, debts, instruments and hybrid financial instruments and to perform all related, incidental, ancillary and allied services.4. To conduct depository participant services; to conduct de-materialization and re- materialization of shares; set up depository participant centers at various regions in India and to perform all related, incidental, ancillary and allied services.5. To receive funds, deposits and investments from the public, Government agencies, financial institutions and corporate bodies; grant advances and loans; conduct advisory services related to banking activities, project financing, funding of mergers and acquisition activities; fund management and activities related to money market operations.
6. To carry on the business of portfolio management services, investment advisory services; custodial services; asset management services; leasing and hire purchase; mutual fund services and to act as brokers of real estate and financial instruments.7. To carry on the business of financing; provide lease and hire purchase services; to provide consultancy in the area of lease and hire purchase financing.8. To operate mutual funds; receive funds from investors; equity or debt instrument research activity instrument in debt and/or equity instruments.Shareholders Agreement Shareholders Agreement was entered into by and among our Company (formerly OrbisInfotech Private Limited), Infinity Technology Trustee Private Limited as the trustee of InfinityVenture India Fund, LNM India Internet Ventures Limited, Transatlantic Corporation Limited(together the “VC Investors”) and the Promoters dated November 2, 2000. The VC Investorsinvested an aggregate amount of Rs. 206,000,000 in our Company for which they were issued55,425 equity shares at an average price of Rs. 3,716.73 per equity share. Pursuant to a letteragreement (the “Letter Agreement”) dated May 27, 2004 between the parties to the ShareholdersAgreement, each of the VC Investors have agreed not to enforce rights that have accrued to thembefore the said Letter Agreements and have agreed that the Shareholders Agreement, togetherwith all the rights and obligation on the parties will stand terminated immediately upon the listingof the shares of our Company and consequent to the listing, the rights of the ShareholdersAgreement, including the rights that have arisen prior to such termination shall be terminated. Acopy of the Shareholders Agreement and a copy of the Letter Agreement terminating theShareholders Agreement are available for inspection as material documents at the corporate officesof our Company.Key Competitive Strengths Diverse Branch Network Bouquet of financial products and services
Advanced Technology team that delivers market leading product innovation Strong Sales and Marketing Teams with continuous reinvestment and training Strong cross Selling Opportunities Strong Team of Experienced Promoters Leading Product innovation and marketing strategies Well capitalized player, with strong banking relationships and credit ratings Ability to combine People & Technology in unique ways Strong market presence and increased market share leads to virtuous cycle of growth and profitabilityKey Business Strategies Increase the number of Client Relationships Offer Diversified Financial Products & Services – Capture Greater Share of Wallet Multiple Channels – Enhance Customer Experience and Opportunities to interact with us Relationship Manager driven sales model, provide high quality service and exploit cross-sell opportunities Low cost and highly scalable business Brokerage Offering Online Automated Channel Third Party Financial Products Offering.FUNCTIONAL AREAS OF INDIABULLSThe product range offered by Indiabulls includes 1. Equity Analysis 2. Depositories 3. Personal Loans 4. Equity And Derivative
5. Indiabulls Resource Ltd. 1. INDIABULLS Equity Analysis. Building and maintaining your ideal portfolio demands objective, dependable information. Indiabulls Equity Analysis helps satisfy that need by rating stocks based on carefully selected, fact- based measures. And because were not focused on investment banking, we dont have the same conflicts of interest as traditional brokerage firms. This objectivity is an important difference in our ratings. What is Indiabulls Equity Analysis? An Equity Rating approach is objective and easy to understand Indiabulls Equity Analysis provides clients with an objective stock rating system for more than 500+ stocks An unbiased approach to help in deciding which shares to buy and sell. Includes third party opinions to facilitate more informed investing decisions. Features of Indiabulls Equity Analysis This feature of Equity Analysis provides its clients in short and precise the company’s background, stock price, asset class, ratings along with the 3rd party opinions. Following are the parameters: Overview: Contains precise information about the industry (cement, pharmaceutical, IT, etc), current stock price, asset class (large cap; mid cap; small cap) and 52 week high-low. i. Company background /details: • Services and products offered • Client profile • Core competency • Achievements and its relative position (market share) in the industry. ii. Equity Ratings: Ratings are based on a set of parameters, which are as follows:
• Fundamentals - Assessed on parameters like net profit margin and ROE (Return on Equity).• Valuation - Assesses the attractiveness of a particular stock. Higher the current value of the company, lower is its future attractiveness.• Risk - Assessed on parameters like price volatility, liquidity of the stock, debt/equity ratio, etc.• Momentum - Assesses the potential of the stock to keep performing at a stronger than market level in the future. The more the number of buy/buy-hold recommendation the better the momentum rating for the company. iii. Current consensus opinion:Perspective from the viewpoint of the Analyst which are used to generate ratings for each company(scrip wise). This includes the following: Third party opinions Only for companies researched by some analysts Parameters include Buy, Buy/Hold, Hold, Weak/Hold, Sell, No opinion iv. Fundamental information :Under this parameter the company’s share is compared with the industry and market which isbased on the following parameters: • Revenue: Income generated from sales of the product. • Market capital : Number of shares * market price • Price/sales: Stocks current price / revenue per share • Profit margin(%): This parameter is an indicator of profitability which is calculated as: Net earnings after taxes/revenues • ROE (%) Return on Equity : This is useful in comparing the profitability of a company to other firms in the same industry and this calculated as: Net income/shareholder’s equity • Long Term Debt/Equity: A measure of financial leverage indicating the proportion of equity and debt used by the company to finance its assets. v. Peer analysis: The Scrip is compared with it peers with respect to various parameters like revenue, growthP/E and the analyst Consensus.This includes the following:
Revenue: Income generated from sales compared to its peers. Growth %: Growth measured in terms of percentage which is compared to its peers in the same industry. P/E: PE Ratio is calculated as the current market price of a share divided by the earnings per share (EPS). Higher P/E multiple would indicate the investor’s willingness to pay more for the stock relative to its earnings which is reflected in a high growth %. Analyst consensus: The Analyst views are mentioned under this category. vi. Growth expectations and valuation measures This parameter is based on the following valuations: Annual EPS Trend Current P/E multiples Valuing Potential Growth Annual EPS Trend: EPS: The EPS is arrived by dividing the net profit by the number of shares in the company. The ratio shows the kind of price that investors are willing to pay for each rupee of earnings. Indiabulls Equity Analysis provides the clients with a measure of the companies future profitability with the help of forecasted EPS, which is derived from historical data. It shows the trend of the annual EPS generated. Current P/E multiples: P/E: It measures the stock ‘price relative’ to its earnings. PE Ratio is calculated as the current market price of a share divided by the earnings per share (EPS). It includes trailing data, which indicates last 4 quarters along with the estimated financials. Here the higher P/E multiple would indicate the investor’s willingness to pay more for the stock relative to its earnings which is reflected in a high growth %. It is useful to compare the P/E ratios of companies in the same industry, market, or against the companys own historical P/E. This explains the use of this ratio in case of peer analysis and the comparative analysis with respect to the industry and the market as a whole. Valuing Potential Growth: PEG: The PEG (price/earnings to growth) ratio is a tool that can help investors find undervalued and overvalued stocks.
If PEG =1 - then market is pricing the stock to fully reflect the stocks EPS growth. If PEG > 1 - then the stock is possibly overvalued or that the market expects future EPS growth to be greater than what is currently in the market. If the PEG < 1 - it is a sign of a possibly undervalued stock or that the market does not expect the company to achieve the earnings growth that is reflected in the market.2) Depositories Indiabulls is a depository participant with the National Securities Depository Limited andCentral Depository Services (India) Limited for trading and settlement of dematerialized shares.Indiabulls performs clearing services for all securities transactions through its accounts. We offerdepository services to create a seamless transaction platform – execute trades through IndiabullsSecurities and settle these transactions through the Indiabulls Depository Services. IndiabullsDepository Services is part of our value added services for our clients that create multipleinterfaces with the client and provide for a solution that takes care of all your needs.SCHEDULE OF CHARGES • NSDL • CDSL3. Personal Loans.Offers the shortest route to a loan with minimum paperwork and procedures. With Easymoney,you can avail of easy loans for a minimum of Rs.10, 000 to a maximum amount of Rs.1,00,000.Features of Easymoney are: Flexible loan tenor of up to 4 years (i.e. 1 month to 48 months). Loans available from a minimum of Rs.10,000 up to a maximum of Rs.100,000. Easy monthly repayment through equated monthly installments (EMI). Mediclaim Insurance bundled with every loan you avail. Easy documentation and quick disbursal. You take today and you can pay it tomorrow with no penaltiesDocuments required: Residence Proof Identity Proof Income Proof
4. EQUITY & DERIVATIVEEquity Business caters: Needs of independent investors. Active traders Non-Resident Indian (NRI) investors.Indiabulls offers: Broker assisted trade execution Automated online investing Access to all IPOs. Indiabulls offers the purchase and sale of securities, which includes Equity, Derivatives andCommodities Instruments listed on National Stock Exchange of India Ltd (NSEIL), The StockExchange, Mumbai (BSE) and NCDEX.Types of Accounts Indiabulls Signature Account - Comprehensive services including research and investing guidance for independent investors. Power Indiabulls - Indiabulls is dedicated to empower Active Traders through personal service and advanced trading technology. Non-Resident Indian (NRI) Investor Services - With an extensive range of investment products, you will discover an unwavering commitment to helping you invest in India.All of this comes to you backed by your Relationship Manager available to you 24x7. Indiabulls is Indias leading retail financial services company with 414 locations spread across 124 cities. Over 4400 Client Relationship Managers are dedicated to serving your unique needs. Is complemented by our knowledgeable and customer focussed Relationship Managers. Provides our clients with real-time service & 24/7 access to all information and products. Indiabulls offers a full range of financial services and products ranging from Equities to Insurance to enhance your wealth and hence, achieve your financial goals.
Post Registration Services: • Deliver and receive cheques and securities • Obtain market information • Place orders • Get access to IPOs via the Book Building route as well as to all the fixed price issues.Documents required for trading account and D-Mat A/C 2-passport size photograph. Photocopy of Income Tax Permanent Account Number (PAN) Card - If you do not have PAN, then you would be required to give a declaration to that effect and fill form 60. • Identity Proof - Photocopy of any of the following: Passport PAN Card Voter ID Driving License Ration Card Address Proof - Photocopy of any one of Driving License / Passport/Ration Card/Voter Card/ Bank Statement.Features of Power Indiabulls. (It is a unique offering by the company which helps an investor to trade online).An investor can avail this feature by paying a fee of Rs. 750; with this he can track all the listedscripts at NSE.The features include: Live Streaming Quotes Fast Order Entry Tic by Tic Live Charts Technical Analysis Live News and Alerts Extensive Reports for Real-time Accounting
5. Indiabulls Resources Ltd Indiabulls Resources Ltd, a 100 per cent subsidiary of Indiabulls Financial Services Ltd.,has been established with the objective of evolving as an independent oil company over time. Theimmediate short-term goal is to partner with oil companies who are willing to come to India and bidin the current NELP-6 round. Through its group companies, Indiabulls is also engaged in real estate development. Thecompany is in the process of developing modern commercial complexes in the heart of Mumbai.Indiabulls Estates Pvt Ltd. the real estate arm of Indiabulls Financial Services will set up anintegrated township spread across 100 acres in Sonepat, 15 km from Delhi.INTRODUCTION AND CONCEPT OF SHARE TRADING
Trading in shares is old phenomena its regulation had been started when securities contractact had been formed in 1956. Transfer of resources from those with idle resources to others whohave a productive need for them is most efficiently achieved through the securities market. Itprovides a channel for reallocation of savings to investments.SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) is a regulatory governing body ofsecurity market. The SEBI Act 1992 was enacted to empower SEBI with statutory powers for: Protecting the interests of investors in securities. Promoting the development of the securities market Regulating the securities marketIts regulatory jurisdiction extends over corporate in the issuance of capital and transfer ofsecurities. It has powers to register and regulate all the market all market intermediaries and alsoto penalize them in case of violations of the provisions of the ACT, rules and regulations madethere under. SEBI has a full autonomy and authority to regulate and develop an orderly securitiesmarket.The share market can be segmented in two parts one is Primary Market another is SecondaryMarket.Financial market can be divided into following four sub-markets.Primary Market It provides opportunity to issuers of securities government as well as corporate to raiseresources to meet their requirements of investments. In this market companies issue fresh securitysin exchange of funds through public issues or private placements. The market design for primarymarket is provided in the provision of Companies Act, 1956 which deals with issues, listing andallotment of securities. The investors have to apply the shares by filling the application form issueby the company along with the application money. According to Disclosure and Investor Protectionguidelines of SEBI, 1992 company has to disclose all the necessary information regarding pricing ofissues, listing requirements, disclosure norms lock-in-period for promoters contribution, contents ofoffer documents pre and post issue obligations etc.
Company can issue shares at face value, at premium or at discount. Another method ofpricing which is now days common is issuing the securities through online system of the stockexchange has to comply with the section 55 to 68a of the companies Act, 1956 and SEBI guidelines2000. The company is required to enter in to an agreement with the stock exchanges which havethe requisite system for online offer of securities. The advantages for this new system are:- (a) The investors part with money only after allotment. (b) It eliminates refunds except in case of direct applications. (c) It reduces the time taken for issue processSecondary Market Secondary market is the place for sale and purchase of existing securities. It enables aninvestor to adjust his holdings of securities in response to changes in his assessment about risk andreturn. It enables him to sell securities for cash to meet his liquidity needs. It essentially comprisesof the stock exchanges which provide platform for trading of securities and a host of intermediarieswho assist in trading of securities and clearing and settlement of trades. The securities are traded,cleared and settled as per prescribed regulatory framework under the supervision of the exchangesand oversight of SEBI. Trading Mechanism Earlier trading on stock exchanges in India used to take place through open outcry withoutuse of information technology for immediate matching or recording of trades. This was timeconsuming and inefficient. This imposed limits on trading volumes and efficiency. In order toprovide efficiency, liquidity and transparency National Stock Exchange introduced a nation wide online fully automated screen based trading system where a member can punch in to the computerquantities of securities and the prices at which he likes to transact and the transaction is executedas soon as it finds a matching sale or buy order from a counter party. Screen based tradingelectronically matches orders on a price/time priority and hence cuts down on time, cost and risk oferror, as well as on fraud resulting in improved operational efficiency. It enables marketparticipants, irrespective of their geographical locations to trade with one another and it providesequal access to everybody.
NSE has main computer which is connected through Very Small Aperture Terminal (VSAT)installed at its office. The main computer runs on a default tolerant STRATUS mainframe computerat the exchange. Brokers have terminals installed at their premises which are connected throughVSATs. An investor informs a broker to place an order on his behalf.What is Equity? Financing a company through the sale of stock in a company is known as equity financing.Alternatively, debt financing (for example issuing Bonds) can be done to avoid giving up shares ofownership of the company. Unofficial financing known as trade financing usually provides the majorpart of a companys working capital (day-to-day operational needs). Trade financing is provided byvendors and suppliers who sell their products to the company at short-term, unsecured creditterms, usually 30 days. Equity and debt financing are usually used for longer-term investmentprojects such as investments in a new factory or a new foreign market. Customer providedfinancing exists when a customer pays for services before they are delivered, e.g. subscriptionsand insurance.EQUITY MARKET Public equity markets are those where corporates raise resources through IPOs by gettinglisted in the stock exchanges. Public equity markets are subjected to a wide range of governance,disclosure, transparency and compliance norms set by the securities exchangescommissions/government agencies and also the self-regulatory functions set by the exchangesthemselves. Institutional and retail investors mostly use this channel.The distinct advantages of the public equity capital are: Lower cost of capital for the firm Provide liquidity for current stockholders Shift monitoring costs for private lenders Firm can learn from information contained in the stock price movements. However, public equity capital has some costs too. These include Disclosure of proprietary information Agency costs of outside equity Costs of reporting/filing with regulators/exchanges Costs of corporate control Under-pricing
A few features generally observed in the respect of the IPO markets include: • Typically, IPO prices are below the level that they reach on the market a few days or weeks later, when more public information is available (under pricing). However the extent of under-pricing will narrow with several companies coming up for listing. • Each IPO generates beneficial information externalities for other companies that are about to go public. • Privatized companies tend to list in public equity markets that offering better legal protection of shareholders. • The decisions to go public are affected by firms’ ownership structure. When company has only one owner or when banks holds majority shares, companies are less likely to prefer public equity.PUBLIC EQUITY CAPITALGovernments:The scope of government in further development of public equity markets could consist of: Extend the realm of regulation to other markets as well Extend fiscal support to corporate accessing public equity markets Evolve policy framework that will streamline compliance requirements and thereby costs of regulation Refine regulation so as to make it cohesive, comprehensive and more integrated. Choice of public equity markets in case of privatization and divestment process of government stake.DERIVATIVE MARKET A derivative security can be defined as a security whose value depends on the values ofother underlying variables. Very often, the variables underlying the derivative securities are theprices of traded securities. In fact, a derivative transaction helps cover risk, which would arise onthe trading of securities on which the derivative is based and a small investor can benefitimmensely.Let us take an example of a simple derivative contract:
• Ram buys a futures contract. • He will make a profit of Rs 1000 if the price of Infosys rises by Rs 1000. • If the price is unchanged Ram will receive nothing. • If the stock price of Infosys falls by Rs 800 he will lose Rs 800.As we can see, the above contract depends upon the price of the Infosys scrip, which is theunderlying security. Similarly, futures trading have already started in Sensex futures and Niftyfutures. The underlying security in this case is the BSE Sensex and NSE Nifty.Derivatives and futures are basically of 3 types: • Forwards and Futures • Options • Swaps Forward contract A forward contract is the simplest mode of a derivative transaction. It is an agreement tobuy or sell an asset (of a specified quantity) at a certain future time for a certain price. No cash isexchanged when the contract is entered into. Illustration 1: Shyam wants to buy a TV, which costs Rs 10,000 but he has no cash to buy it outright. Hecan only buy it 3 months hence. He, however, fears that prices of televisions will rise 3 monthsfrom now. So in order to protect himself from the rise in prices Shyam enters into a contract withthe TV dealer that 3 months from now he will buy the TV for Rs 10,000. What Shyam is doing isthat he is locking the current price of a TV for a forward contract. The forward contract is settled atmaturity. The dealer will deliver the asset to Shyam at the end of three months and Shyam in turnwill pay cash equivalent to the TV price on delivery. Illustration 2: Ram is an importer who has to make a payment for his consignment in six months time. Inorder to meet his payment obligation he has to buy dollars six months from today. However, he is
not sure what the Re/$ rate will be then. In order to be sure of his expenditure he will enter into acontract with a bank to buy dollars six months from now at a decided rate. As he is entering into acontract on a future date it is a forward contract and the underlying security is the foreigncurrency. The difference between a share and derivative is that shares/securities is an asset whilederivative instrument is a contract Index To understand the use and functioning of the index derivatives markets, it is necessary tounderstand the underlying index. A stock index represents the change in value of a set of stocks,which constitute the index. A market index is very important for the market players as it acts as abarometer for market behavior and as an underlying in derivative instruments such as indexfutures. The Sensex and Nifty In India the most popular indices have been the BSE Sensex and S&P CNX Nifty. The BSESensex has 30 stocks comprising the index which are selected based on market capitalization,industry representation, trading frequency etc. It represents 30 large well-established andfinancially sound companies. The Sensex represents a broad spectrum of companies in a variety ofindustries. It represents 14 major industry groups. Then there is a BSE national index and BSE200. However, trading in index futures has only commenced on the BSE Sensex. While the BSE Sensex was the first stock market index in the country, Nifty was launched bythe National Stock Exchange in April 1996 taking the base of November 3, 1995. The Nifty indexconsists of shares of 50 companies with each having a market capitalization of more than Rs 500crore. Futures and stock indices For understanding of stock index futures a thorough knowledge of the composition ofindexes is essential. Choosing the right index is important in choosing the right contract forspeculation or hedging. Since for speculation, the volatility of the index is important whereas forhedging the choice of index depends upon the relationship between the stocks being hedged andthe characteristics of the index.
Choosing and understanding the right index is important as the movement of stock indexfutures is quite similar to that of the underlying stock index. Volatility of the futures indexes isgenerally greater than spot stock indexes. Every time an investor takes a long or short position on a stock, he also has an hiddenexposure to the Nifty or Sensex. As most often stock values fall in tune with the entire marketsentiment and rise when the market as a whole is rising. Retail investors will find the index derivatives useful due to the high correlation of the indexwith their portfolio/stock and low cost associated with using index futures for hedging Understanding index futures A futures contract is an agreement between two parties to buy or sell an asset at a certaintime in the future at a certain price. Index futures are all futures contracts where the underlying isthe stock index (Nifty or Sensex) and helps a trader to take a view on the market as a whole. Index futures permits speculation and if a trader anticipates a major rally in the market hecan simply buy a futures contract and hope for a price rise on the futures contract when the rallyoccurs. We shall learn in subsequent lessons how one can leverage ones position by taking positionin the futures market. In India we have index futures contracts based on S&P CNX Nifty and theBSE Sensex and near 3 months duration contracts are available at all times. Each contract expireson the last Thursday of the expiry month and simultaneously a new contract is introduced fortrading after expiry of a contract.Example:Futures contracts in Nifty in July 2006 Contract month Expiry/settlement July 2006 July 27 August 2006 August 24 September 2006 September 28
On July 27 Contract month Expiry/settlement August 2006 August 25 September 2006 September 28 October 2006 October 26 The permitted lot size is 100 or multiples thereof for the Nifty. That is you buy one Niftycontract the total deal value will be 100*3000 (Nifty value)= Rs 3,00,000. In the case of BSE Sensex the market lot is 50. That is you buy one Sensex futures the totalvalue will be 50*4000 (Sensex value)= Rs 2,00,000.The index futures symbols are represented as follows: BSE NSE BSXJUN2006 (June contract) FUTDXNIFTY28-JUN2006 BSXJUL2006 (July contract) FUTDXNIFTY28-JUL2006 BSXAUG2006 (Aug contract) FUTDXNIFTY28-AUG2006 Stock markets by their very nature are fickle. While fortunes can be made in a jiffy moreoften than not the scenario is the reverse. Investing in stocks has two sides to it –a) Unlimitedprofit potential from any upside (remember Infosys, HFCL etc) or b) a downside which could makeyou a pauper. Derivative products are structured precisely for this reason -- to curtail the riskexposure of an investor. Index futures and stock options are instruments that enable you to hedgeyour portfolio or open positions in the market. Option contracts allow you to run your profits whilerestricting your downside risk. Apart from risk containment, options can be used for speculationand investors can create a wide range of potential profit scenarios. We have seen in the Derivatives School how index futures can be used to protect oneselffrom volatility or market risk. Here we will try and understand some basic concepts of options. What are options? An option is a contract, which gives the buyer the right, but not the obligation to buy or sellshares of the underlying security at a specific price on or before a specific date. ‘Option’, as the
word suggests, is a choice given to the investor to either honour the contract; or if he chooses notto walk away from the contract.To begin, there are two kinds of options: Call Options and Put Options.A Call Option is an option to buy a stock at a specific price on or before a certain date. In this way,Call options are like security deposits. If, for example, you wanted to rent a certain property, andleft a security deposit for it, the money would be used to insure that you could, in fact, rent thatproperty at the price agreed upon when you returned. If you never returned, you would give upyour security deposit, but you would have no other liability. Call options usually increase in valueas the value of the underlying instrument rises. When you buy a Call option, the price you pay forit, called the option premium, secures your right to buy that certain stock at a specified price calledthe strike price. If you decide not to use the option to buy the stock, and you are not obligated to,your only cost is the option premium. Put Options are options to sell a stock at a specific price on or before a certain date. In thisway, Put options are like insurance policies. If you buy a new car, and then buy auto insurance onthe car, you pay a premium and are, hence, protected if the asset is damaged in an accident. Ifthis happens, you can use your policy to regain the insured value of the car. In this way, the putoption gains in value as the value of the underlying instrument decreases. If all goes well and theinsurance is not needed, the insurance company keeps your premium in return for taking on therisk. With a Put Option, you can "insure" a stock by fixing a selling price. If something happenswhich causes the stock price to fall, and thus, "damages" your asset, you can exercise your optionand sell it at its "insured" price level. If the price of your stock goes up, and there is no "damage,"then you do not need to use the insurance, and, once again, your only cost is the premium. This isthe primary function of listed options, to allow investors ways to manage risk.Technically, an option is a contract between two parties. The buyer receives a privilege for whichhe pays a premium. The seller accepts an obligation for which he receives a fee. Call option An option is a contract between two parties giving the taker (buyer) the right, but not theobligation, to buy or sell a parcel of shares at a predetermined price possibly on, or before apredetermined date. To acquire this right the taker pays a premium to the writer (seller) of thecontract.
There are two types of options: • Call Options • Put Options Call options Call options give the taker the right, but not the obligation, to buy the underlying shares ata predetermined price, on or before a predetermined date.Illustration 1:Raj purchases 1 Satyam Computer (SATCOM) AUG 150 Call --Premium 8 This contract allows Rajto buy 100 shares of SATCOM at Rs 150 per share at any time between the current date and theend of next August. For this privilege, Raj pays a fee of Rs 800 (Rs eight a share for 100 shares).The buyer of a call has purchased the right to buy and for that he pays a premium.Now let us see how one can profit from buying an option.Sam purchases a December call option at Rs 40 for a premium of Rs 15. That is he has purchasedthe right to buy that share for Rs 40 in December. If the stock rises above Rs 55 (40+15) he willbreak even and he will start making a profit. Suppose the stock does not rise and instead falls hewill choose not to exercise the option and forego the premium of Rs 15 and thus limiting his loss toRs 15..Let us take another example of a call option on the Nifty to understand the concept better.
Nifty is at 3000. The following are Nifty options traded at following quotes. Option contract Strike price Call premium JUNE Nifty 3000 Rs 90 3100 Rs 65 JULY Nifty 3000 Rs 160 3100 Rs 130 A trader is of the view that the index will go up to 3100 in July 2006 but does not want totake the risk of prices going down. Therefore, he buys 10 call of July contracts at 3100. He pays apremium for buying calls (the right to buy the contract) for 130*10*100= Rs 130000/-.In July 2006 suppose the Nifty index goes up to 3100. He sells the call or exercises the option andtakes the difference in spot index price which is (3100-3000) * 100 (market lot) = 10,000 percontract. Total profit = 100,000/- (10,000*10).He had paid Rs 130,000/- premium for buying the call option. So he earns by buying call option isRs 40,000/- (130,000-60,000).If the index falls below 3100 the trader will not exercise his right and will opt to forego his premiumof Rs 60,000. So, in the event the index falls further his loss is limited to the premium he paidupfront, but the profit potential is unlimited.Call Options-Long & Short Positions When you expect prices to rise, then you take a long position by buying calls. You arebullish. When you expect prices to fall, then you take a short position by selling calls. You arebearish. Hedging
We have seen how one can take a view on the market with the help of index futures. Theother benefit of trading in index futures is to hedge your portfolio against the risk of trading. Inorder to understand how one can protect his portfolio from value erosion let us take an example.Illustration:Ram enters into a contract with Shyam that six months from now he will sell to Shyam 10 dressesfor Rs 4000. The cost of manufacturing for Ram is only Rs 1000 and he will make a profit of Rs3000 if the sale is completed. Cost (Rs) Selling price Profit 1000 4000 3000However, Ram fears that Shyam may not honour his contract six months from now. So he inserts anew clause in the contract that if Shyam fails to honour the contract he will have to pay a penaltyof Rs 1000. And if Shyam honours the contract Ram will offer a discount of Rs 1000 as incentive. Shyam defaults Shyam honours 1000 (Initial Investment) 3000 (Initial profit) 1000 (penalty from Shyam) (-1000) discount given to Shyam - (No gain/loss) 2000 (Net gain)As we see above if Shyam defaults Ram will get a penalty of Rs 1000 but he will recover his initialinvestment. If Shyam honours the contract, Ram will still make a profit of Rs 2000. Thus, Ram hashedged his risk against default and protected his initial investment.The above example explains the concept of hedging. Let us try understanding how one can usehedging in a real life scenario. Stocks carry two types of risk – company specific and market risk. While company risk canbe minimized by diversifying your portfolio market risk cannot be diversified but has to be hedged.So how does one measure the market risk? Market risk can be known from Beta.
Beta measures the relationship between movement of the index to the movement of thestock. The beta measures the percentage impact on the stock prices for 1% change in the index.Therefore, for a portfolio whose value goes down by 11% when the index goes down by 10%, thebeta would be 1.1. When the index increases by 10%, the value of the portfolio increases 11%.The idea is to make beta of your portfolio zero to nullify your losses. Hedging involves protecting an existing asset position from future adverse pricemovements. In order to hedge a position, a market player needs to take an equal and oppositeposition in the futures market to the one held in the cash market. Every portfolio has a hidden exposure to the index, which is denoted by the beta. Assumingyou have a portfolio of Rs 1 million, which has a beta of 1.2, you can factor a complete hedge byselling Rs 1.2 mn of S&P CNX Nifty futures.Steps: 1. Determine the beta of the portfolio. If the beta of any stock is not known, it is safe to assume that it is 1. 2. Short sell the index in such a quantum that the gain on a unit decrease in the index would offset the losses on the rest of his portfolio. This is achieved by multiplying the relative volatility of the portfolio by the market value of his holdings.Therefore in the above scenario we have to shortsell 1.2 * 1 million = 1.2 million worth of NiftyNow let us study the impact on the overall gain/loss that accrues: Index up 10% Index down 10% Gain/(Loss) in Portfolio Rs 120,000 (Rs 120,000) Gain/(Loss) in Futures (Rs 120,000) Rs 120,000 Net Effect Nil Nil As we see, that portfolio is completely insulated from any losses arising out of a fall inmarket sentiment. But as a cost, one has to forego any gains that arise out of improvement in theoverall sentiment. Then why does one invest in equities if all the gains will be offset by losses infutures market. The idea is that everyone expects his portfolio to outperform the market.
Irrespective of wh The same methodology can be applied to a single stock by deriving the beta ofthe scrip and taking a reverse position in the futures market.Thus, we have seen how one can use hedging in the futures market to offset losses in the cashmarket. Either the market goes up or not, his portfolio value would increase. Speculation Speculators are those who do not have any position on which they enter in futures andoptions market. They only have a particular view on the market, stock, commodity etc. In short,speculators put their money at risk in the hope of profiting from an anticipated price change. Theyconsider various factors such as demand supply, market positions, open interests, economicfundamentals and other data to take their positions.Example: Ram is a trader but has no time to track and analyze stocks. However, he fancies hischances in predicting the market trend. So instead of buying different stocks he buys SensexFutures.On May 1, 2001, he buys 100 Sensex futures @ 3600 on expectations that the index will rise infuture. On June 1, 2001, the Sensex rises to 4000 and at that time he sells an equal number ofcontracts to close out his position.Selling Price : 4000*100 = Rs 4,00,000Less: Purchase Cost: 3600*100 = Rs 3,60,000Net gain = Rs 40,000 Ram has made a profit of Rs 40,000 by taking a call on the future value ofthe Sensex. However, if the Sensex had fallen he would have made a loss. Similarly, if would havebeen bearish he could have sold Sensex futures and made a profit from a falling profit. In indexfutures players can have a long-term view of the market up to at least 3 month.
Arbitrage An arbitrageur is basically risk averse. He enters into those contracts were he can earnriskless profits. When markets are imperfect, buying in one market and simultaneously selling inother market gives riskless profit. Arbitrageurs are always in the look out for such imperfections.In the futures market one can take advantages of arbitrage opportunities by buying from lowerpriced market and selling at the higher priced market. In index futures arbitrage is possiblebetween the spot market and the futures market (NSE has provided a special software for buyingall 50 Nifty stocks in the spot market. • Take the case of the NSE Nifty. • Assume that Nifty is at 1200 and 3 month’s Nifty futures is at 1300. • The futures price of Nifty futures can be worked out by taking the interest cost of 3 months into account. • If there is a difference then arbitrage opportunity exists. Let us take the example of single stock to understand the concept better. If Wipro is quoted at Rs1000 per share and the 3 months futures of Wipro is Rs 1070 then one can purchase ITC at Rs1000 in spot by borrowing @ 12% annum for 3 months and sell Wipro futures for 3 months at Rs1070.Sale = 1070Cost = 1000+30Arbitrage profit = 1040These kinds of imperfections continue to exist in the markets but one has to be alert to theopportunities as they tend to get exhausted very fast.
ANALYSIS OF THE PREFERRED INVESTMENT AREA The investment was broadly divided into five areas, mainly-Bank deposits.Shares, Mutual Fund, Real Estate and insurance plans. Following observations can be made on the basis of above analysis: Bank Deposits being the most preferred area, 43% respondents out of hundred invested in bank deposits. The second preferred area was Shares as 27% respondents were investing in the share market. Then preferred area was the Mutual Funds with 13% of respondents Real estates were the least preferred area i.e. only 7%
.ANALYSIS OF THE FACTORS AFFECTING INVESTMENTThe factors are categorized in to four parameters to know the purpose ofinvestment made by the investor. 52% respondents go invests for higher returns. 29% respondents prefer Moderate Return for their investments. 15% prefer moderate risk. Only 4% for Low risk.
ANALYSIS FOR INTERMEDIATING COMPANY These factors are categorized into brokerage, Information provided by themthe exposure limit or loan facility provided by them and their Brand Name. 21% respondents choose Kotak Securities Ltd. 38% respondents choose Indiabulls Securities Ltd. for trading. 7% respondents choose ICICI direct. 4% respondents choose Fortis. 30% go for others.
ANALYSIS OF THE FACTORS FOR BROKING HOUSE These factors are categorized into brokerage, Information provided by themthe exposure limit or loan facility provided by them and their Brand Name. 44% respondents choose their broking house on basis of information provided by them. 28% prefer by the exposure limit and the loan facility provided to them. 12% by the brokerage charge by the broking house. 16% by Brand Name.
ANALYSIS OF THE INFLUENCE OF THE PAST PROFILE OF A COMPANY 58% respondents say yes they study profile of the company before making investment. 42% respondents say no.
ANALYSIS OF THE REQUIREMENT OF EXPERTISE 93% respondents say yes, they required expertise knowledge. 7% respondents say no.
MOST IMPORTANT SERVICE PARAMETER The most important service parameter that came up as a result of survey is Information i.e. the investors feel that the information contained in the service package is the key to more profits. Second major parameter is Quality of service. 20% investors feel that the quickness of service is above par than any other aspect.
CONCLUSION The perceptions of people about share markets are very strong. But theycan be influenced, if not completely changed.The reason people prefer staying away from the share markets is lack ofconfidence - about their own understanding of the market and the very nature ofthe market.The fact that stock markets themselves are volatile and wide open to changes inexternal forces makes it much more difficult for people to consider them as aninvestment alternative.The right kind of campaigning directed towards increasing the awareness ofpeople will get new customers. But more than that, this campaign will help retaincustomers, which is the key to staying ahead in the market.Indiabulls Securities is currently one of the biggest broking houses in the countryand its strategies to penetrate further into the market will certainly take it wayahead of its competitors.
RECOMMENDATIONS INTRODUCTION PROGRAMS must be held for the sales teams before letting them go into the field. In these induction classes the experienced sales staff employees should share their valuable live experiences and knowledge, which they have experienced while in field. Weekly magazines must be published and distributed to the investors that can help them for making better investments. Sales team must be fully equipped with latest technology such as using Laptop that can be used for making presentation to the customers especially to the corporate clients about their product and services provided by them. Make your site user friendly so that more and more people know about trading and do the same also. Advertisement through Canopy, help to generate leads. Company should advertise with a concern that has a brand name in the market.
Promotional Strategies Press publicity: Outdoor publicity: Press publicity: Paper inserts Advertisements in newspaper (local and national). Interest cards distribution Mailers/personal invitations to selective section of the society Leaflets Outdoor publicity: Banners in commercial areas and prime sites. Air balloons at shopping complex. Bus stands shelters. Off site ATM for developing business
BIBLIOGRAPHY www.indiabulls.com www.nseindia.com www.bseindia.com www.sebi.gov.in www.moneycontrole.com Economics Times C.R. Kothari, Marketing Research NCFM W.Breen, “Low Price-Earnings Ratio & Industry Relatives”, Financial Analysts’ Journal, July-Feburary 1968. W.Breen & Savage J. “Portfolio Distribution & Security Selection Models”, Journal of Finance, December 1968. S.Basu, “Investment Performance of Common Stocks in Relation to Their Price-Earning Ratios: A Test of the Efficient Market Hypothesis”, Journal of Finance, June 1977. Basu, Sanjoy, "The Relationship between Earnings Yield, Market Value and Return for NYSE Common Stocks: Further Evidence," Journal of Financial Economics 12 (1983): 129-156. Indiabulls Broachres and Mannuals