A study of online trading @ lkp securities ltd. project report

A Study of Online Trading at LKP Securities Ltd.
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1.1
METHODOLOGY
RESEARCH PLAN
The study has been conducted with the assistance from the data collected through different sources. This research methodology requires gathering relevant data from the specified documents and compiling databases in order to analyze the material and arrive at a more complete understanding.
The data collection methods include both primary and secondary data collection methods.
Primary Data Collection Method:
 This method includes the data collected from the personal interaction with authorized members of LKP Securities Ltd.
 Through day-to-day interaction with clients during the period of Summer Internship which was a part of the curriculum.
 Engaging with fellow interns in studying various economic, political and social factors affecting price fluctuations of securities.
Secondary Data Collection Method:
 On-the-Job (OJT) classroom training and lectures delivered by the superintendents of respective departments at LKP Securities Ltd.
 The brochures and study material provided by LKP Securities Ltd.
 The data collected from the magazines of the National Stock Exchange (NSE), Economic Times etc.
 The data collected from various websites like financial times, editorial columns of newspapers etc.
 Materials from various books relating to investment and capital market.
RESEARCH DESIGN
 The proposed research is purely descriptive and explanatory.
 The Proposed research is descriptive because it describes the Investment Scenario in India and explanatory because it explains the evolution of online trading in India- its benefits, limitations, disadvantages and the various tools for trading.

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1.2
OBJECTIVE AND PURPOSE OF THE STUDY
PURPOSE AND NEED FOR THE STUDY
Designing a research plan calls for outlining the need and purpose of the study. It gives details on the objectives and effective need for conducting this study.
This present study is conducted with the need to review the process and procedure of online trading while taking “LKP Securities Ltd.” as a case study after a shift from open outcry trading system to online trading system, there is a need to assess the capital market performance.
The study also outlines the basics of investment and the regulatory bodies for monitoring investment for investors as a need is felt to outline their functions and objectives.
OBJECTIVES OF THE STUDY
 To understand the investment and economic scenario in India keeping it parallel with the investment in shares through online trading.
 To understand the basic trading tools and instruments like equities, currencies, mutual funds, bonds etc.
 To analyze the changes in trading after the exchange shifted from open outcry trading system to online trading system.
 To know about the latest and future developments in the stock exchange trading system.
SCOPE OF THE STUDY
 The study presents adoption of screen based trading system from a traditional system of trading or ‘outcry system’
 The study presents the use and benefits of software for online trading (web and exe).
 The study develops a SWOT analysis and comparative analysis between LKP Securities and other players in the Brokerage Industry.

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LIMITATIONS OF THE STUDY
Despite the best efforts, there are a few limitations listed below:
 Facts and figures for presenting data are bound to fluctuate depending on the economy and market conditions
 For outlining the investment scenario in India, statistical figures have been presented which are subjected to recent changes.
 All industry and company information, and financial statements of the company and its competitors acquired from LKP securities Ltd. itself, and other relevant industry sources are deemed accurate.
 The research, as a result of outlining the advantages of online trading undermines the significance of advisory services available from brokers.
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PART II
INTRODUCTION TO TRADING AND INVESTMENT

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2.1
TRADING AND INVESTMENT
BACKGROUND
Trading and Investment are two closely related concepts carrying the same meaning and purpose but both varying in behavior and method adopted.
A Trader is person or entity, in finance, who buys and sells financial instruments such as stocks, bonds, commodities and derivatives, in the capacity of agent, hedger, arbitrageur, or speculator. Traders are either professionals (institutional) working in a financial institution or a corporation, or individual (retail). They buy and sell financial instruments traded in the stock markets, derivatives markets and commodity markets, comprising the stock exchanges, derivatives exchanges and the commodities exchanges.
An Investor is a person who allocates capital with the expectation of a financial return. The types of investments include, — gambling and speculation, equity, debt securities, real estate, currency, commodity, derivatives such as put and call options, etc. This definition makes no distinction between those in the primary and secondary markets. That is, someone who provides a business with capital and someone who buys a stock are both investors. Since those in the secondary market are considered investors, speculators are also investors.
In finance, investment is putting money into an asset with the expectation of capital appreciation, dividends, and/or interest earnings. This may or may not be backed by research and analysis. Most or all forms of investment involve some form of risk, such as investment in equities, property, and even fixed interest securities which are subject, among other things, to inflation risk.
Common Characteristics of Traders:
Traders enter a position to make money.
Traders will hold for a short period of time.
Traders cut losses.
Traders take profits quickly.
Common Characteristics of Investors:

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Investors will buy and hold.
Investors will hold for a long period of time.
Investors are not concerned with short-term losses.
Investors let profits accumulate.
Difference between Investor and Trader
SR.
NO.
INVESTMENT
TRADING
1.
The goal of investing is to gradually build wealth over an extended period of time through the buying and holding of a portfolio of stocks.
Trading, involves the more frequent buying and selling of stock, commodities, currency pairs or other instruments.
2.
Investors often enhance their profits through compounding, or reinvesting any profits and dividends into additional shares of stock.
Traders generate returns that outperform buy-and-hold investing.
3.
Investments are often held for a period of years, or even decades, taking advantage of perks like interest, dividends and stock splits along the way.
Trading is short term and is held only for a day or two.
4.
Investors focus on fundamental analysis.
Traders use technical indicators and charts.
The above table tabulates the difference between the buying and selling behaviors of an Investor and a Trader.
Investors and trader both may or may not fall into the category of speculators. Speculators are typically sophisticated risk-taking investors with expertise in the market(s) in which they are trading and will usually use highly leveraged investments.

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INVESTMENT INSTRUMENTS AND TOOLS
Financial Investment tools mainly comprise of Financial Securities.
Securities are investment instruments that are issued by corporations, governments, and other organizations to give evidence of debt or equity, excluding life insurance policies and fixed annuities.
Some examples of securities are stocks, bonds, treasury notes, interests in profit-sharing agreements, shares of royalties or leases of mineral and other mining rights, certificates of deposit, and collateral trust certificates. Each of these instruments has a physical, monetary value that can increase or decrease depending on market trends and economic indicators.
Before describing the investment tools, let us understand the means for earning profit through these instruments. An investor/trader builds up a position in the market in two ways:
Long Position (Buy Position): In finance, a long position in a security, such as a stock or a bond, or equivalently to be long in a security, means the holder of the position owns the security and will profit if the price of the security goes up. Going long is the more conventional practice of investing and is contrasted with going short.
Figure: 2.1.1
Investors usually hold long position by buying at a dip or a decrease in price and sell when the price rises, thereby earning profit as the difference.
BUY @ LOW PRICE
LONG POSITION
SELL @ HIGH PRICE

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Short Position (Sell Position): In finance short selling (also known as shorting or going short) is the practice of selling securities or other financial instruments that are not currently owned, with the intention of subsequently repurchasing them ("covering") at a lower price. Speculators may sell short in the hope of realizing a profit on an instrument which appears to be overvalued, just as long investors or speculators hope to profit from a rise in the price of an instrument which appears undervalued. Traders or fund managers may hedge a long position or a portfolio through one or more short positions.
Figure: 2.1.2
After understanding the two common ways of holding positions in the financial/capital market, let us understand the various instruments for investment.
They are categorized into two major heads:
I. Financial Assets
II. Physical Assets
Sell @ High Price
SHORT POSITION
Buy back @ Low Price
(Covering)

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I. FINANCIAL ASSETS
A) EQUITIES
In finance, in general, equity is understood as ownership in any asset after all debts associated with that asset are paid off.
1. A stock or any other security representing an ownership interest.
2. on a company's balance sheet, the amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses). Also referred to as "shareholders' equity".
3. In the context of margin trading, the value of securities in a margin account minus what has been borrowed from the brokerage.
Stocks are equity because they represent ownership in a company.
An Equity trading is the purchasing and selling of corporate stock shares on public exchanges or in over-the-counter markets, whether they’re domestic or foreign. Among other factors, equities trading rates act as economic indicators by which financial analysts gauge the fiscal status of world markets.
Where Does Equity Trading Take Place?
Typically, equity trading is done through the major national stock exchanges, such as the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE). Other large international markets are the London Stock Exchange, which is mainly for the European market, and the Tokyo Stock Exchange, which is the main Asian and Oceanic market. Each stock exchange has its own particular market makers, which limit volatility (price fluctuations) by purchasing and selling the shares of particular companies on behalf of their clients and themselves.
How Does It Work?
Equity trading is done electronically, with buying and selling orders matched by computer, by almost every exchange worldwide. Owners of the securities can trade equities, or agents, or brokers, may

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handle them for short-term profit or longer-term investment. Agents are paid commissions. Money is made or lost when the spread, or difference, varies from the original price of the security as determined by market makers.
B) CURRENCY
Currencies are traded through buying and selling on an exchange or a platform, just like equities. National Stock Exchange and MCX Stock Exchange are the two exchanges where currencies are traded in India.
Unlike equities, the exchange rates are relative and are expressed as a comparison of the currencies of two countries. For examples USD/INR = 67.This means that one $US is equivalent to Rs.67.As, USD/INR increases from 67 to 70, the value of INR decreases in terms of $US.
Currency trading is similar to stock trading. A stock trader will buy a stock if they think its price will rise in the future and sell a stock if they think its price will fall in the future. Similarly, a FOREX trader will buy a currency pair if they expect its exchange rate will rise in the future and sell a currency pair if they expect its exchange rate will fall in the future.
What is an exchange rate?
It is rare that any two currencies will be identical to one another in value, and it’s also rare that any two currencies will maintain the same relative value for more than a short period of time. In FOREX, the exchange rate between two currencies constantly changes.
For example, on January 3, 2011, one euro was worth about $1.33. By May 3, 2011, one euro was worth about $1.48. The euro increased in value by about 10% relative to the U.S. dollar during this time.
Why do exchange rates change?
Currencies trade on an open market, just like stocks, bonds, computers, cars, and many other goods and services. A currency's value fluctuates as its supply and demand fluctuates, just like anything else.

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 An increase in supply or a decrease in demand for a currency can cause the value of that currency to fall.
 A decrease in the supply or an increase in demand for a currency can cause the value of that currency to rise.
So if you think the Eurozone is going to break apart, you can sell the euro and buy the dollar (sell EUR/USD).
Factors affecting currency fluctuations:
1. Differentials in Inflation. As a general rule, a country with a consistently lower inflation rate exhibits a rising currency value, as its purchasing power increases relative to other currencies.
2. Differentials in Interest Rates. Interest rates, inflation and exchange rates are all highly correlated. By manipulating interest rates, central banks exert influence over both inflation and exchange rates, and changing interest rates impact inflation and currency values. Higher interest rates offer lenders in an economy a higher return relative to other countries. Therefore, higher interest rates attract foreign capital and cause the exchange rate to rise.
3. Current-Account Deficits. . A deficit in the current account shows the country is spending more on foreign trade than it is earning, and that it is borrowing capital from foreign sources to make up the deficit. In other words, the country requires more foreign currency than it receives through sales of exports, and it supplies more of its own currency than foreigners demand for its products
4. Political Stability and Economic. Performance Foreign investors inevitably seek out stable countries with strong economic performance in which to invest their capital. A country with such positive attributes will draw investment funds away from other countries perceived to have more political and economic risk.
C) MUTUAL FUNDS
A Mutual Fund is a special type of investment institution which collects or pools the savings of the community and invests large funds in a variety of blue-chip companies. Some of the mutual fund providers in India are Unit trust of India (UTI), Morgan Stanley growth Fund.
The flow chart below broadly describes the working of a mutual fund:

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Figure: 2.1.3
Mutual funds are basically a trust which mobilizes savings from the people and invests them in a mix of corporate and government securities. Mutual funds also pay attractive dividends. The share (units) of mutual funds may also be traded in Stock Exchanges. Mutual Funds sell their units to public and redeem them at the current net asset value (NAV) of the units which is computed as below:
NAV= Total market value of all mutual fund holdings - Liabilities
Number of funds outstanding
D) BONDS
In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity. Interest is usually payable at fixed intervals (semiannual, annual, and sometimes monthly).
MUTUAL FUNDS
INVESOTRS
FUND MANAGERS
SECURITIES
RETURNS

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Thus a bond is a form of loan or IOU: the holder of the bond is the lender (creditor), the issuer of the bond is the borrower (debtor), and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure.
A bond comes under the category of ‘Fixed Income”. Unlike equities and currencies, they are not subjected to market risks. Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an equity stake in the company (i.e. they are owners), whereas bondholders have a creditor stake in the company (i.e. they are lenders). Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks are typically outstanding indefinitely.
Bonds are among the safest investments in the world. But that hardly means that they’re risk free. Here’s a look at some of the dangers inherent in fixed-income investing:
1. Interest Rates. Market interest rates are a function of several factors such as the demand for, and supply of, money in the economy, the inflation rate, the stage that the business cycle is in as well as the government's monetary and fiscal policies.
Bond prices have an inverse relationship to interest rates. When one rises, the other falls.
2. Inflation Risk. Because of their relative safety, bonds tend not to offer extraordinarily high returns. That makes them particularly vulnerable when inflation rises.
Imagine, for example, that you buy a Treasury bond that pays interest of 3.32%. That’s about as safe an investment as you can find. As long as you hold the bond until maturity and the government doesn’t collapse, nothing can go wrong….unless inflation climbs. If the rate of inflation rises to, say, 4 percent, your investment is not “keeping up with inflation.”
E) PPF/PF
Public Provident Fund (PPF) is a savings-cum-tax-saving instrument in India. It also serves as a retirement-planning tool for many of those who do not have any structured pension plan covering them. The account can be opened in designated post offices, State Bank of India branches and branches of some nationalized banks. ICICI Bank was the first private sector bank which was authorized to open PPF accounts.
A minimum yearly deposit of Rs. 500 is required to open and maintain a PPF account and a maximum deposit of Rs.100000/ can be made in a PPF account in any given financial year. The investments can

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be made in multiples of Rs. 500, either as a whole sum, or in installments (not exceeding 12 in a year, though more than one deposit can be made in a month). The credit to the PPF account is made on the date of clearance of the cheque, not on the date of its presentation.
The government of India decides the rate of interest for PPF account. The current interest rate effective from 1 April 2013 is 8.70% Per Annum (compounded annually).Interest is calculated on the lowest balance between the close of the fifth day and the last day of every month. Till March 2010, cheque deposited for clearing, up to 5th of the month were eligible for that month's interest. Since 29 March 2010, only the amounts which are actually cleared on or before the 5th of the month are eligible for that month's interest.
The minimum tenure of the PPF account is 15 years, which can be further extended in blocks of 5 years each for any number of blocks. The extension can be with or without contribution. An account holder, continuing with fresh subscription, can withdraw up to 60% of the balance to his credit at the commencement of each extended period in one or more installments but only once in a year.
F) FIXED DEPOSITS
A fixed deposit (FD) is a financial instrument provided by Indian banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date. It may or may not require the creation of a separate account. It is known as a term deposit or time deposit in Canada, Australia, New Zealand, and the US, and as a bond in the United Kingdom. They are considered to be very safe investments.
The defining criterion for a fixed deposit is that the money cannot be withdrawn for the FD as compared to a recurring deposit or a demand deposit before maturity. It's important to note that banks may offer lesser interest rates under uncertain economic conditions. The interest rate varies between 4 and 11 percent. The tenure of an FD can vary from 10, 15 or 45 days to 1.5 years and can be as high as 10 years.

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II. PHYSICAL ASSETS
A) COMMODITIES
Commodities like gold, silver, metals, food grains and crude oil are also extensive sources of investment since they too are subjected to price fluctuation thereby leading to profit/loss and market risks.
Commodities in India are traded on the Multi Commodity Exchange (MCX). Commodity market refers to physical or virtual transactions of buying and selling involving raw or primary commodities. A soft commodity generally refers to commodities harvested as products like coffee, cocoa, sugar, corn, wheat, soybean, and fruit traded in the commodity market. Hard commodities usually refer to commodities that are extracted such as (gold, rubber, oil).
Commodity markets can include direct physical trading and derivatives trading in the form of spot prices, forwards, futures, and options on futures.
B) REAL ESTATE
Real estate investing involves the purchase, ownership, management, rental and/or sale of real estate for profit. Improvement of realty property as part of a real estate investment strategy is generally considered to be a sub-specialty of real estate investing called real estate development. Real estate is an asset form with limited liquidity relative to other investments, it is also capital intensive (although capital may be gained through mortgage leverage) and is highly cash flow dependent.

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EXCHANGES AND INDICES
Stock Markets
Stock Market is a market where the trading of company stock, both listed securities and unlisted takes place. It is different from stock exchange because it includes all the national stock exchanges of the country.
A) Exchanges
Stock Exchanges are an organized marketplace, either corporation or mutual organization, where members of the organization gather to trade company stocks or other securities. The members may act either as agents for their customers, or as principals for their own accounts. Stock exchanges also facilitates for the issue and redemption of securities and other financial instruments including the payment of income and dividends. The record keeping is central but trade is linked to such physical place because modern markets are computerized. The trade on an exchange is only by members and stock broker do have a seat on the exchange.
There are two leading stock exchanges in India which help us trade are:
i) NATIONAL STOCK EXCHANGE: National Stock Exchange incorporated in the year 1992 provides trading in the equity as well as debt market. Maximum volumes take place on NSE and hence enjoy leadership position in the country today.
The National Stock Exchange (NSE) is India's leading stock exchange covering 364 cities and towns across the country. NSE was set up by leading institutions to provide a modern, fully automated screen-based trading system with national reach.
Let us understand the meaning of market capitalization:
“Market capitalization (or market cap) is the total value of the issued shares of a publicly traded company; it is equal to the share price times the number of shares outstanding.”
For Example: A company, XYZ Ltd. has 1000 shares (200 held by promoters and 800 held by the public) of Rs.120 each. Hence the market capitalization would be as :
Market Cap = Number of shares * Share price
=120 * 1000
=120,000

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Primarily the stocks that are listed in the National Stock Exchange are divided into three different categories on the basis of the market capitalization – large cap, mid cap and the small cap.
Large Cap Stocks – These are stocks that represent the biggest and most reputed companies among all the listed companies in the stock exchange. Generally the companies that have a market capitalization of more than $ 10 billion are considered to have a large market capitalization. The stocks of these companies are categorized as the large cap stocks. At NSE as well companies with the large market capital is labeled as the large cap stocks. The large cap companies are mostly the companies that are in business for years and making significant growth in terms of profit and asset accumulation. This is primarily the reason that the large cap stocks are considered for including in the Nifty that is the prime index of the National Stock Exchange.
Mid Cap Stocks – The mid-size businesses with moderate market capitalization are considered to be mid cap companies. Generally those companies that have a market capital between $ 2 billion and $ 10 billion is considered to be mid cap companies. The stocks of these companies are categorized as the mid cap stocks. The mid cap stocks have great investment proposition as they have all the sign of rising in the market and give you good return on your investment.
Small Cap Stocks – Then there are of course the small cap companies that have small capital. Generally companies with a market capital between $ 200 million and $ 2 billion are said to be small cap companies and stocks of these companies are considered in the small cap segment. Mostly the small cap companies are relatively new companies that have got listed at the stock market. Investing in the small cap stocks are have more risk as these companies take too long to rise in the market. As these companies are relative new and you hardly have any resources to guess the potential of the company it is not wise to invest in these companies for long term. But you can invest in these companies and do some margin trading if you have definite and trustworthy tips.
ii) BOMBAY STOCK EXCHANGE: BSE on the other hand was set up in the year 1875 and is the oldest stock exchange in Asia. It has evolved in to its present status as the premier stock exchange.
Primarily there are five groups in which the listed stocks are divided and they are A, B, T, Z, and F. The ‘A’ group comprises stocks that have fairly good growth rate. These companies offer dividend to the investors and have good capital appreciation over the time. The stocks that are listed with ‘A’ category have the facility to carry forward to the next settlement cycle. This is an advantage from the margin and derivative trading point of view. The category ‘B’ is basically a subset of all the listed stocks and the stocks listed in this category have greater market capitalization that the rest of the stocks. The

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trading of the stocks that are listed in the ‘T’ category needs to be settled on the very trading day and the deals cannot be carried forward. This is done by BSE to restrict any unwanted movement in these scripts. The stocks in the ‘Z’ group are marked for not complying with the rules and regulations of the stock exchange and these stocks are often suspended from trading. The ‘F’ group is reserved for the stocks listed at the debt market.
B) INDICES
BSE’s “SENSEX” and NSE’s “NIFTY” are the major indices or benchmarks in India and are also tracked worldwide as the performance of the nation’s economy and growth as an investment hub/destination.
i) SENSEX
SENSEX is a value based index composed of weighted average of 30 stocks of companies with highest market capitalization. The 30 stocks that are selected are reviewed from time to time.
ii) NIFTY
NIFTY on the other hand is value based index composed of weighted average of 50 stocks of companies with highest market capitalization.
UNDERSTANDING HOW SENSEX AND NIFTY IS CALCULATED
Suppose,
1) Market capitalization of a company is 120,000 ( 1000 shares * Rs. 120).
2) Out of these 1000 shares, 200 are owned by promoters and 800 are owned by the public. These 800 shares are called free-floating shares
3) The market capitalization of the 800 free floating shares would be 800 * Rs. 120 = 96000.This is the free floating market Capitalization.
4) The highest free floating market capitalization of 30 company forms SENSEX and the highest free floating market capitalization of 50 company forms NIFTY.

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MULTI COMMODITY EXCHANGE AND STOCK EXCHANGE
Multi Commodity Exchange of India Ltd (MCX) (BSE: 534091) is an independent commodity exchange based in India. It was established in 2003 and is based in Mumbai. The turnover of the exchange for the fiscal year 2009 was US$ 1.24 trillion, and in terms of contracts traded, it was in 2009 the world's sixth largest commodity exchange.
MCX has also set up in joint venture the MCX Stock Exchange MCX Stock Exchange Limited (MCX-SXAT) is an Indian stock exchange. It commenced operations in the Currency Derivatives (CD) segment on October 7, 2008 under the regulatory framework of Securities & Exchange Board of India (SEBI) and Reserve Bank of India (RBI).
SX40 is the flagship Index of MCX-SX. A free float based index of 40 large caps - liquid stocks representing diversified sectors of the economy. It is designed to be a performance benchmark and to provide for efficient investment and risk management instrument. It would also help in structuring passive investment vehicles.
FACTORS AFFECTING THE INDICES:
1). Internal Developments
Developments that can occur within companies will affect the price of its stock, including mergers and acquisitions, earnings reports, the suspension of dividends, the development or approval of a new innovative product.
2). World Events
Company stock prices and the stock market in general can be affected by world events such as war and civil unrest, natural disasters and terrorism. The social uncertainty and fear generated by the terrorist attacks on Sept. 11, 2001, affected markets directly as they caused many investors in the United States to trade less and to focus on stocks and bonds with less risk. An example of an indirect influence on markets is the announcement of a new military venture by a country in response to the outbreak of civil unrest or conflict abroad. This announcement likely would cause the price of the stocks of military equipment and weapons manufacturers to rise due to an expected increase in defense

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contracts, which in turn can raise the value of stocks for companies that supply military equipment parts and technology
3).Inflation and Interest Rates
One of the more predictable influences of the stock market are periodic adjustments of interest rates by the U.S. Federal Reserve to combat inflation. When interest rates are raised, many investors sell or trade their higher risk stocks for government-backed securities such as bonds to take advantage of the higher interest rates they yield and to ensure that their investments are protected.
4). Hype
Stocks and the stock market also can be affected by hype about a company or the release of new products or services. Many people and organizations have an interest in promoting particular stocks and industries to increase the value of their own shares and profits, and positive financial reports and stock market newsletters, Internet blogs, press releases and news reports can build high expectations for the performance of companies, which will raise the price of their stocks.

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2.2
INVESTMENT SCENARIO IN INDIA
OVERVIEW
GDP: $1.824 trillion (nominal)
Currency, 1INR: 100 Paise, USD/INR ~65, EUR/INR ~85, GBP/INR ~100
Fiscal year: 1 April – 31 March
Trade organizations: WTO, SAFTA, G-20 and others
Inflation (CPI): CPI: 9.31%, WPI: 4.7% (April 2013)
Exports: $309.1 billion (2012 est.)
Imports: $488.6 billion (2012 est.)
FDI stock: $47 billion (2011–12)
Foreign reserves: $295.29 billion (October 2012)
BACKGROUND
Prime Minister Narasimha Rao, along with his finance minister Manmohan Singh, initiated the economic liberalization of 1991. The reforms did away with the License Raj, reduced tariffs and interest rates and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors.
By the turn of the 21st century, India had progressed towards a free-market economy, with a substantial reduction in state control of the economy and increased financial liberalization. This has been accompanied by increases in life expectancy, literacy rates and food security, although urban residents have benefited more than agricultural residents.
While the credit rating of India was hit by its nuclear weapons tests in 1998, it has since been raised to investment level in 2003 by S&P and Moody's. India enjoyed high growth rates for a period from

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2003-2007 with growth averaging 9% during this period. Growth then moderated due to the global financial crisis starting in 2008.
Figure: 2.2.1
Starting in 2012, India entered a period of more anemic growth, with growth slowing down to 4.4%. Other economic problems also became apparent: a plunging Indian rupee, a persistent high current account deficit and slow industrial growth. Hit by the U.S. Federal Reserve's decision to taper quantitative easing, foreign investors have been rapidly pulling out money from India. Some economists believe that an economic crisis is emerging in India.
As a result, the Indian Rupee as been facing new low while going as low as 68.7 against the dollar and nearly $US 4 Billion being pulled out from the Indian Stock Market by the foreign Institutional Investors (FII).
Despite the recent investment pullout from the Indian equity market, India still enjoys the status of an Emerging Market.

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MAJOR EVENTS AFFECTING THE INVESTMENT SCENARIO
1) India recorded a Current Account deficit of 18.10 USD Billion in the first quarter of 2013. Current Account in India is reported by the Reserve Bank of India. India Current Account averaged a deficit equivalent to 1.51 USD Billion from 1949 until 2013, reaching the best surplus at 7.36 USD Billion in March of 2004 and the worst deficit at 32.63 USD Billion in December of 2012.
Figure: 2.2.2
2) Tapering of the US Bond buying Program. The new of tapering of quantitative easing is driving away the investors from the Indian Equity and Debt market.
3) The Indian rupee hit a record low and is the worst performing currency in Asia. In the debt market, foreign investors have net sold $4.7 billion over 18 sessions, pressuring the rupee.

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4) The automobile is the worst hit by the depreciation in the Indian rupee as most of the part are imported whereas the IT and Pharma companies have an advantage over the fall since they exporting at higher prices. However costly imports could drive up the inflation rate.
4) Corporates with unhedged forex exposure could suffer increased losses as the rupee inches lower. This will further weaken investor sentiments.
REFORMS FOR BOOSTING INVESTMENTS
1) Hike in FDI Caps:
Foreign investors in the insurance sector, the government hiked the 26 per cent FDI limit to 49 per cent under the automatic approval route.
For basic and cellular services in the telecom sector, the government hiked the limit under the automatic route to 49 per cent and 49 to 100 per cent under the FIPB route.
In petroleum and natural gas refining, commodity exchanges, power exchanges, stock exchanges and depositories, the cap has gone up to 49 per cent under the automatic route.
In the case of single-brand retail trading, the 49 per cent limit has been brought under the automatic route and from 49 per cent to 100 per cent under the FIPB route.
2) Curbing Gold Imports.
-- raised the import duty on gold for the third time in eight months to 10 per cent from 8 per cent.
-- It banned imports of gold coins and medallions.
-- All imports of gold now need a license from the foreign trade office and would have to be brought into a customs-bonded warehouse.
-- Unrefined gold will now be included under an existing rule stipulating that 20 per cent of all imports must be used for exports, which is usually in the form of jewelry.
3) Oil from Iran
The government is aiming to cut the oil import bill by $1.5 billion this fiscal year. It is also looking for ways to boost oil imports from Iran, which will result in dollar savings.

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2.3
REGULATORS IN INDIA
The Financial System in India is regulated and supervised by two government agencies under the ministry of Finance. They are:
1) Reserve Bank of India (RBI)
2) The Securities Exchange Board of India (SEBI)
1) The Reserve Bank of India
The Reserve Bank of India (RBI) is India's central bank. It formulates India's monetary policy with regard to the Indian rupee. RBI was established on 1 April 1935 during the British Raj in accordance with the provisions of the Reserve Bank of India Act; 1934.The share capital was divided into shares of 100 each fully paid, which was entirely owned by private shareholders in the beginning. Following India's independence in 1947, the RBI was nationalized in the year 1949.
FUCNTIONS:
i) Bank of Issue
Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the government.
ii) Monetary authority
The Reserve Bank of India is the main monetary authority of the country and beside that.. It formulates implements and monitors the monetary policy as well as it has to ensure an adequate flow of credit to productive sectors.

27
iii) Regulator and supervisor of the financial system
The institution is also the regulator and supervisor of the financial system and prescribes broad parameters of banking operations within which the country's banking and financial system functions.
iv) Management of foreign exchange
The RBI is in charge of facilitating the achievement of the goals of the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
v) Banker of banks
RBI also works as a central bank where commercial banks are account holders and can deposit money. RBI maintains banking accounts of all scheduled banks. Commercial banks create credit. It is the duty of the RBI to control the credit through the CRR, bank rate and open market operations.
2) Securities Exchange Board of India (SEBI)
The Securities and Exchange Board of India (frequently abbreviated SEBI) is the regulator for the securities market in India. It was established in the year 1988 and given statutory powers on 12 April 1992 through the SEBI Act, 1992.
SEBI has enjoyed success as a regulator by pushing systematic reforms aggressively and successively. SEBI is credited for quick movement towards making the markets electronic and paperless by introducing T+5 rolling cycle from July 2001 and T+3 in April 2002 and further to T+2 in April 2003. The rolling cycle of T+2 means, Settlement is done in 2 days after Trade date. SEBI has been active in setting up the regulations as required under law. SEBI did away with physical certificates that were prone to postal delays, theft and forgery, apart from making the settlement process slow and cumbersome by passing Depositories Act, 1996.
OBJECTIVES AND FUNCTIONS OF SEBI
 To protect the interest of investors in securities.
 Regulating the business in stock exchanges and any other securities market.

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 Registering and regulating the working of intermediaries associated with securities market as well as working of mutual funds.
 Promoting and regulating self-regulatory organizations.
 Prohibiting insider trading in securities.
 Regulating substantial acquisition of shares and takeover of companies.
SEBI GUIDELINES TO SECONDARY MARKETS: (STOCK EXCHANGES):
 Capital adequacy norms have been laid down for the members of various stock exchanges depending upon their turnover of trade and other factors.
 All recognized stock exchanges will have to inform about transactions within 24 hrs.

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PART III
ONLINE TRADING AT LKP SECURITIES LTD.

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3.1
COMPANY PROFILE (LKP Securities Limited)
ABOUT LKP SECURITIES LIMITED
What started as one of India’s first securities brokerage houses in 1948 is today one of the country’s largest multi-dimensional financial services group. LKP Finance Limited is a Non-Banking Finance Company (NBFC) registered with Reserve Bank of India & a listed public limited company having a net worth of Rs.142 crores as on FY10.
India's first financial group to be awarded the prestigious ISO 9002 certified KPMG Quality Registrar, USA, for certain businesses.
Since 1948, LKP continues to provide clients with a single source capable of meeting all their needs – be it Equities markets, Debt markets, Corporate Finance, Investment Banking, Merchant Banking, Wealth Management or Commodities.
OVERVIEW
 LKP Finance (NBFC) is registered with RBI and listed on BSE.
 Established in 1948. The company went public in 1986.
 Key businesses include Equity broking and Distribution, Fixed Income, Merchant Banking and Treasury.
 Large client base of ~79,600 registered customers in broking.
 Total broking turnover of ~ Rs. 604 billion in FY12 and Rs. 435 billion in FY11.
 Fixed Income volumes in secondary market of Rs.796 billion in FY09 and Rs.1754 billion in FY10
 Network of 822 outlets in more than 200 cities across India with 800 Sub brokers and 22 branches.
 Current staff strength of more than 350 people

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Figure: 3.1.1
Figure: 3.1.2

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SALIENT FEATURES
 Secured and sophisticated systems, operation processes and clear Risk management policies to handle high volumes business
 850 + outlets across India covering 150 cities in the country, including 7 regional offices at Delhi, Kolkata, Pune, Ahmedabad, Bangalore, Chennai and Gujarat.
 Research covers a wide spectrum from macroeconomics forecasts to penetrating analysis of companies and sectors; the research is highly rated for its accuracy, clarity and comprehensive coverage which include Fundamental Analysis, Technical Analysis & daily research reports. Research also covers Fixed Income Markets, Mutual Fund Schemes & Commodities Markets.
ASSOCIATIONS
 Merchant Bankers with SEBI
 Membership of BSE & NSE (Capital & Debt Market)
 AMFI registered all India Mutual Fund Distributors
 Member of Commodity Exchanges MCX, NCDX and DGCX (Dubai)
 Member of NSE for Interest Rate Futures
 Member of MCX SX and NSE Currency

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THE COMPANY: STRUCTURE
Figure: 3.1.3 & 3.1.4
ORGANISATION STRUCTURE
LKP FINANCE (PARENT CO.)
COMAPANY
STRUCTURE: LKP FINANCE
(NBFC)
LKP
Securities
LKP Debt LKP IPO LKP MF
ALPHA
COMMODITY

34
A STRONG BALANCE SHEET
PROFITABILITY
Figure: 3.1.5
*Consolidated Balance Sheet and Profit and Loss of LKP Finance Ltd

35
A BROKERAGE FIRM: THE OPPORTUNITY
 Total brokerage market: 12,000
cr per annum growing at 20%
per annum with the natural
tailwinds of GDP and greater
domestic and foreign
participation. 800 brokers and
62,000 sub-brokers.
 Retail pool 3 times bigger than
the institutional pool.
 Industry revenue pool from
equity broking at ~Rs 13,000 cr
for FY11 grew by only 13% as
compared to the 46% growth in
exchange trading volumes. Figure: 3.1.6
 15,000 brokers and 37,000 SEBI registered sub-brokers. Among these, there are over 1,200
active brokers on NSE and over
600 on BSE. The industry is
witnessing challenging times with
the top brokers losing market
share with competition from
foreign brokerage houses and
declining volumes in the cash
segment.
 Risks: Pro-longed de-rating of
India.
Figure: 3.1.7

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EQUITIY (RETAIL AND INSTITUTIONAL)
EQUITY RETAIL
LKP offers a wide spectrum of services that includes Equity Broking in Cash and Derivatives, Internet
based trading, Demat services & Research services. When you deal with LKP you are dealing with a
professional broker who has centralized risk management system in place at Mumbai. LKP follows a
hub & spoke model of Branch management where in all the branches & franchise interact with the
hub/regional office & in turn the regional/hub office talks to Head office. This company a great level
of flexibility in managing the risk level of the clients, which in turn benefit the client.
 Pan India footprint with 822 outlets
 Strong network to facilitate reach
 Large customer base of ~79,600 clients
 Strong network of 800 Sub-brokers
Figure: 3.1.8 Figure: 3.1.9

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RETAIL DISTRIBUTION
Figure: 3.1.10

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EQUITY INSTITUTIONAL
Clientele at the institutional desk include Mutual Funds, Financial Institutions, Foreign and Domestic
Institutional investors, Insurance companies, Banks and Corporates. Some of our esteemed domestic
clients include among others – UTI MF, Birla MF, LIC, HDFC MF, Pru ICICI MF, Reliance MF,
Principal MF, Sundaram MF, Tata MF, Benchmark MF, ILFS, Canara Robecco MF, ABN
Amro MF and FII clients include Morgan Stanley, JP Morgan, Matterhorn and Blackstone
among others.
Clients whom we have been serving for the past twenty-five years include UTI, LIC, IDBI, ICICI,
Tata Group, Birla Group, and Dabur, Jain Irrigation, Emco, Godrej, JB Chemicals, Paper
Products and UB Group of Companies among others.
 Established in 1948, taken over by Mr. Mahendra Doshi in 1982
 Strong risk management culture, managed 2008 downside with minimal losses. Minimal
proprietary trading activities
 Presence in 400+ locations, 75,000 retail and high net worth clients giving nationwide access
 More than 50 senior level employees and 504 franchises.
 Current Net worth - More than Rs. 150 cr.
 Cash and cash equivalents – More than Rs. 40 cr
Figure: 3.1.11

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FIXED INCOME
 LKP understands Debt & Money Market in all its dimensions. Recognized as major dealer of Fixed Income Securities, we execute deals for Banks, Institutions, FIIs, MFs, Insurance companies, Primary Dealers, large Corporates, PSUs & PF Trusts
 We are leading Merchant Banker for Primary Placement of short term & long term debts and leading intermediary on Secondary Wholesale Debt Markets
 We deal in wide spectrum of debt instruments such as fixed and floating rate Debentures, Bonds, CDs, CPs, PTCs, Gsec, T-Bills & Oil / Fertiliser / Food Bonds
 Fixed Income volumes in secondary market of Rs.796 billion in FY2009 and Rs.1754 billion in FY2010
 Ranked in the top 3 WDM brokers in India.
 Supported by a team of 40 personnel.
 Member of NSE and BSE WDM segment
Figure: 3.1.12
PRODUCTS AND SERVICES
•Government Securities and Treasury Bill
•Corporate Bonds/PSU Bonds/Bank Bonds
CLIENTELE
•Nationalized, Foreign, Private, Co-operative Banks
•Insurance Companies
•Mutual Fund
•Corporates
•Institutions

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FIXED INCOME: DEALS AND PLACEMENTS
 Ranked No.2 Arranger for CP & Short Term Debts and Prime League Table
 Placed Fertilizer bonds worth Rs.55 bn. for various Fertiliser companies in FY09.
 Primary placement of
CPs, NCDs and CD’s of
~Rs.480 bn & Rs.980 bn
in FY09 and FY10
respectively. Achieved
turnover of ~Rs. 800 bn
in secondary debt market
in FY09 and Rs 1748 bn
in FY 10
 Acted as an Arranger for
private placement of long
term bond issues
aggregating to Rs. 123 bn
in FY09 & of Rs 236 bn during FY10.
Figure: 3.1.13
Figure: 3.1.14

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CURRENCY
Currency Derivatives
With the launch of currency derivatives, LKP offers its clients yet another segment for trading. Jointly regulated by SEBI and RBI provides traders with another lucrative trading avenue.
Currency derivatives can be described as a future contract between two parties, to buy or sell the underlying at a future date, in this case the underlying being a currency.
Why exchange traded currency futures?
 Better transparency and real time efficient price discovery.
 Elimination of counter party risk with the presence of a Clearing House/Corporation.
 Due to fixed lots of $1000, the doors are wide open for all types of market participants, small or big.
LKP offers currency derivative trading through:-
 NSE --- Futures and Options
 MCX-SX --- Futures
Who can trade? :-
 All resident Indians, banks, corporations, institutions are allowed to trade.
 Only NRIs and FIIs are restricted from trading in Currency Derivatives.
Advantages of Currency Futures:-
 Hedging of risk - as currency futures act as insurance against unforeseen exchange rate movements.
 Low Margins - Margins required are very low and contract lot sizes are small, allowing market participation from all types and sizes of traders.
 Low Transaction costs - Since there is no STT and no Exchange Transaction Charges, the overall transaction charges are quite low.
 Low Risk- With the presence of a Clearing House / Corporation, counter party risk is totally eliminated.
 Open to all - As compared to the OTC markets, there are standard contract sizes and participation is open to everyone, not just a limited few.

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COMMODITY
A sister concern of the renowned and trusted LKP Group, Alpha Commodities offers a complete bouquet of client- friendly services in the burgeoning Commodity Futures market. Commodities have always been the foundation of world trade, and as they become an increasingly attractive investment option, we at Alpha Commodities look to guide and assist you in all the possible ways to help you in all your endeavors in the Commodity markets.
Alpha Commodities provides a host of facilities to their clients, ranging from dealing, investing or hedging in Commodity Futures which includes Bullions, Metals, Energy and Agro Commodities.
RETAIL DISTRIBUTION……OTHER PRODUCTS
MUTUAL FUND DISTRIBUTION
• AUM worth ~Rs.1155 cr. with Rs.155cr in Equity and Rs.900cr in Debt
• Supported by a team of 23 personnel.
• Income generated by way of brokerage i.e., upfront and trail
• Mutual Fund Advisory
• Servicing direct clients, Institutions and Sub Brokers
PORTFOLIO MANAGEMENT SERVICES
• In-house team of fundamental and technical research analysts
• Supported by a host of financial databases and information packages like Bloomberg, CRISINFAC, Capitaline etc.
• Services available to both individuals and corporates.
INSURANCE
• Forayed in the sales of General and Life Insurance products in November 2007
• Tie-up with Bajaj-Allianz for distribution of their insurance products.

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VALUE ADDED SERVICES
 Dial and trade
 Online Trading
 Online research
 Real-time equity and F&O quotes
 Intra-day calls & News flash
 Intra-day & historical charts with technical tools*
 Portfolio tracker
 DP services
 Electronic Contract
 LKP BOSS - E-broking & back-office software
 Live Stock SMS Alerts
ADVISORY
 Real-time market information with News updates
 Investment Advisory services
 Dedicated Relationship Managers.
RESEARCH
 Wide range of daily, weekly and special Research reports with in-depth analysis on markets.
 Wide array of products including Technical, Fundamental, Derivatives, Macroeconomic and Mutual Fund research undertaken by Expert Sector Analysts with professional industry experience.

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RELATIONSHIPS WITH CORPORATES AND INSTITUTIONS
LKP Securities ltd has strong relationship with over 475 corporates and Institutions.
LKP has successfully dealt with these clients.

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3.2
ONLINE TRADING/INVESTMENTS
BACKGROUND
The trading(buying and selling of financial securities) on stock exchanges in India used to take place through an open outcry system without use of information technology for immediate matching or recording of trades. Before getting into the introduction and evolution of trading through the internet, let us understand the concept of an open outcry system.
“Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange. It involves shouting and the use of hand signals to transfer information primarily about buy and sell orders.”
Traders usually flash the signals quickly across a room to make a sale or a purchase. An open outcry system is carried out in the exchange on the “trading floor” and is the most conventional method for purchase and sale of securities. A "trading floor" is a trading venue. This expression often refers to a place where traders or stockbrokers meet in order to buy and sell financial securities. Sometimes, the expression "trading floor" is also used to refer to the "trading room" or "dealing room", i.e. the office space where market activities are concentrated in investment banks or brokerage houses.
The open outcry system is being replaced by electronic trading systems. The supporters of electronic trading claim that they are faster, cheaper, more efficient for users, and less prone to manipulation by market makers and broker/dealers. However, many traders advocate for the open outcry system on the basis that the physical contact allows traders to speculate as to a buyer/seller's motives or intentions and adjust their positions accordingly. Today, most stocks and futures contracts are no longer traded using open outcry due to the lower cost of the aforementioned technological advances.
In order to provide efficiency, liquidity and transparency, NSE introduced a nationwide online fully automated screen based trading system (SBTS) where a member can punch into the computer quantities of securities and the prices at which he likes to transact and the transaction is executed as soon as it finds a matching sale or buy order from a counter party. NSE became the leading stock exchange in the country, impacting the fortunes of other exchanges and forcing them to adopt SBTS also.
As of May 1997, there were 17 exchanges with Screen based trading system. NSE was given recognition as a stock exchange in April 1993 and started operations in June 1994, with trading on the Wholesale Debt Market Segment. Subsequently, it launched the Capital Market Segment in November

46
1994 as a trading platform for Equities and the Futures and Options segment in June 2000 for various derivative instruments. So, the floorless automated trading system with nationwide inter-linked network of broker/dealer members, such like NSE may at one stroke resolve the inter-market difficulties faced by investors and also reduce the transaction cost for investors.
This led to the introduction of online trading amongst not only the Institutional investors but also the retail investors for convenient buying and selling of shares, currencies, commodities etc.
‘Picture showing an open outcry system where shares are traded on the “trading floor” of a stock exchange.’
ONLINE TRADING
Online Trading, sometimes called e-trading, is a method of trading securities (such as stocks, and bonds), foreign exchange or financial derivatives electronically. Information technology is used to bring together buyers and sellers through an electronic trading platform and network to create virtual market places such as NSE, NASDAQ, and NYSE Arca which are also known as electronic communication networks (ECNs).
Electronic trading is in contrast to older floor trading and phone trading and has a number of advantages. Investing online, or self-directed investing, has become the norm for individual investors and traders over the past decade with many brokers now offering online services with unique trading platforms.
DEFINITION AND EXPLANATION BY INVESTOPEDIA
The act of placing buy/sell orders for financial securities and/or currencies with the use of a brokerage's internet-based proprietary trading platforms. The use of online trading increased

47
dramatically in the mid- to late-'90s with the introduction of affordable high-speed computers and internet connections. Investopedia explains 'Online Trading' The use of online trades has increased the number of discount brokerages because internet trading allows many brokers to further cut costs and part of the savings can be passed on to customers in the form of lower commissions. Another benefit of online trading is the improvement in the speed of which transactions can be executed and settled, because there is no need for paper-based documents to be copied, filed and entered into an electronic format.
‘An Electronic Trading Platform being used.’
HISTORY OF ONLINE TRADING
The first electronic trading platforms were typically associated with stock exchanges and allowed brokers to place orders remotely using private dedicated networks and dumb terminals. Early systems would not always provide live streaming prices and instead allowed brokers or clients to place an order which would be confirmed some time later; these were known as 'request for quote' based systems.
Trading systems evolved to allow for live streaming prices and near instant execution of orders as well as using the internet as the underlying network meaning that location became much less relevant. Some electronic trading platforms have built in scripting tools and even APIs allowing traders to develop automatic or algorithmic trading systems and robots.
Set up in 1971, NASDAQ was the world's first electronic stock market, though it originally operated as an electronic bulletin board.
In August 1994, K. Aufhauser & Company, Inc. (later acquired by TD Ameritrade) became the first brokerage firm to offer online trading via its "WealthWEB".Online investing has experienced

48
significant growth since that time. Investors can now enter orders directly online or even trade with other investors via electronic communication networks (ECN).
By 2011 investment firms on both the buy side and sell side were increasing their spending on technology for electronic trading. With the result that many floor traders and brokers were removed from the trading process. Traders also increasingly started to rely on algorithms to analyze market conditions and then execute their orders automatically.
The move to electronic trading compared to floor trading continued to increase with many of the major exchanges around the world moving from floor trading to completely electronic trading.
Trading in the financial markets can broadly be split into two groups:
Business-to-business (B2B) trading, often conducted on exchanges, where large investment banks and brokers trade directly with one another, transacting large amounts of securities, and
Business-to-consumer (B2C) trading, where retail (e.g. individuals buying and selling relatively small amounts of stocks and shares) and institutional clients (e.g. hedge funds, fund managers or insurance companies, trading far larger amounts of securities) buy and sell from brokers or "dealers", who act as middle-men between the clients and the B2B markets.
While the majority of retail trading in the United States happens over the Internet, retail trading volumes are dwarfed by institutional, inter-dealer and exchange trading. However, in developing economies, especially in Asia, retail trading constitutes a significant portion of overall trading volume.
IMPACT
The increase of electronic trading has had some important implications:
 Reduced cost of transactions – By automating as much of the process as possible (often referred to as "straight-through processing" or STP), costs are brought down. The goal is to reduce the incremental cost of trades as close to zero as possible, so that increased trading volumes don't lead to significantly increased costs. This has translated to lower costs for investors.
 Greater liquidity – electronic systems make it easier to allow different companies to trade with one another, no matter where they are located. This leads to greater liquidity (i.e. there are more buyers and sellers) which increases the efficiency of the markets.

49
 Greater competition – While electronic trading hasn't necessarily lowered the cost of entry to the financial services industry, it has removed barriers within the industry and had a globalization-style competition effect. For example, a trader can trade futures on Eurex, Globex or LIFFE at the click of a button – he or she doesn't need to go through a broker or pass orders to a trader on the exchange floor.
 Increased transparency – Electronic trading has meant that the markets are less opaque. It's easier to find out the price of securities when that information is flowing around the world electronically.
 Tighter spreads – The "spread" on an instrument is the difference between the best buying and selling prices being quoted; it represents the profit being made by the market makers. The increased liquidity, competition and transparency means that spreads have tightened, especially for commoditised, exchange-traded instruments.
 For retail investors, financial services on the web offer great benefits. The primary benefit is the reduced cost of transactions for all concerned as well as the ease and the convenience. Web-driven financial transactions bypass traditional hurdles such as logistics.

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UNDERSTANDING THE GROWTH OF ONLINE TRADING (WITH REFERNCE TO THE INDIAN INVESTMENT MARKET)
Online trading in India is the internet based investment activity that involves no direct involvement of the broker. There are many leading online trading portals in India along with the online trading platforms of the biggest stock houses like the National stock exchange and the Bombay stock exchange. The total portion of online share trading India has been found to have grown from just 3 per cent of the total turnover in 2003-04 to 16 per cent in 2006-07.
WHY ONLINE TRADE:
 Freedom of information
-Latest prices
- Historical data in the form of charts
- Latest market news updates
- Extensive financial research
- Wealth of free commentary
 Sense of control over investors’ money
 Access to the market
 Greater Transparency
 Hassle free trading
 Instant trade execution
 Reduces Settlement risk
 Helpdesk
 Instant order confirmation

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GROWTH OF INTERNET USERS IN INDIA
POPULATION v/s INTERNET USERS IN INDIA
Source: World Bank Data
Figure: 3.2.1 & 3.2.2
7.07
16.74
18.65
22.19
27.23
32.46
46.37
52.16
61.84
91.85
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
No of internet users ( Million)
Growth
1.07
1.09
1.11
1.12
1.14
1.16
1.17
1.19
1.21
1.22
0.01
0.02
0.02
0.02
0.03
0.03
0.05
0.05
0.06
0.09
88%
90%
92%
94%
96%
98%
100%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Internet users (Billion) India
Population ( Billion) India

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METRO V/S NON- METRO INTERNET USERS IN INDIA
Source: World Bank Data
TOTAL NUMBER OF TRADES (IN CRORES)
Source: National Stock Exchange (NSE)
Figure: 3.2.3 & 3.2.4
112
99
24
66.08
0
20
40
60
80
100
120
Total Internet users
Non- metro cities
Metro cities
No of internet users ( Mobile)
Total Internet users
Non- metro cities
Metro cities
No of internet users ( Mobile)
10.39
18.21
30.14
37.56
47.91
41.15
36.30
0
10
20
30
40
50
60
2005
2006
2007
2008
2009
2010
2011
Total No of Trades (Crores)

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From figure: 3.2.1 and 2, it is evident that there is a significant growth amongst the internet user in India and the adoption of Internet as a source of reliability for not just online trading, but e- commerce, net banking and social networking.
Surprisingly, from figure: 3.2.3 it is amazing how the usage of internet users in India is more in non- metro cities than in metro cities. The last figure i.e. Figure: 3.2.4 shows the growth of trades and transactions through Online Trading over a period of time. From a period of 2005-2011, the number of transactions has increased form 10 crores to a high of 48 crores and currently between 35-40 crores.
Apart from this, there is still less knowledge about the use of online trading in many parts of the country.
SOME OF THE MYTHS THAT STILL PERSISTS IN THE INDIAN MARKET ABOUT ONLINE TRADING ARE:
 Brokerage is high compared to offline
 Privacy is less due to hacking
 Transactional errors due to technical problems
REQUIREMENTS FOR ONLINE TRADING
For investors:
1. Installation of a computer with required specification
2. Installation of a modem/Telephone connection or Wi-Fi
4. Registration for on-line trading with broker
5. A bank account
6. Depository account with a depositary participant
7. Compliance with SEBI guidelines for net trading

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For stock brokers:
1. Permission from stock exchange for net trading
2. Net worth of Rs. 50 lac
3. Adequate back-up system
4. Secured and reliable software system
5. Adequate, experienced and trained staff
6. Communication of order (trade confirmation to investor by e-mail)
7. Use of authentication technologies
8. Issue of contract notes within 24 hours of the trade execution
9. Setting up a website.

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3.3
ONLINE TRADING AT LKP SECURITIES LIMITED
ONLINE TRADING AT LKP SECURITIES LIMITED
“At LKP we help you take the right decisions with our value added products like Daily research notes, Fundamentals research, Company / Sector coverage and Daily strategies.” – lkpsec.com
Active traders as well as regular investors have a choice of 2 software Packages (each with desktop and browser).Desktop mode gives the client online charting facility.
 Technical research reports provides buy and sell levels.
 Digital contracts.
 Integrated banking - no hassles of writing cheques.
 Integrated DP - no more Demat instructions.
 Access to back office data on the Internet. The Internet trading accounts have state-of-the-art technologies for risk management.
Value-added services:
 LKP boss-your Back office reports.
 Investment Ideas
 Daily Market Updates
LKP Securities Limited: Registered Office and BSE, NSE & MCX-SX Registration:
LKP SECURITIES LTD.
Registered Office: 203, Embassy Centre, Nariman Point, Mumbai - 400021. Tel: +91 22 4002 4785/4002 4786 Fax: +91 22 2287 4787
SEBI REG NO: NSE: INB/INF 230720030 BSE: INB/F 010675433 MCX-SX INE260720030 NSE INE230720030

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BENEFITS AT LKP SECURITIES LTD.
1) Online Trading – exe software as well as web based application
2) Two level security authentication for all online trading accounts
3) Power Calls
4) Mutual fund tracker through online account.
5) LKP BOSS – Lkp’s Back office access for clients for looking into the margin statements and financial statements.
LKP BOSS - Back office data on 24x7 basis
This is the comprehensive service for the esteem LKP Clients to view their back office data on the net any time of the day they wish. The service is a direct window to the LKP Back office server, that is to say you see what we see for you on the server.
Depository Services
LKP’s Depository Services offer dematerialization services to individual and corporate investors as a Depository Participant with the Central Depository Services (India) Limited (CDSL).
With a highly experienced team of professionals, backed with sophisticated technical support, and a national network of franchisees, we ensure quality and convenience in our service.
LKP’s online depository service offers you a paperless and cost effective way to hold your investments, not to forget the elimination of handling physical documents

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TRADESMART @ LKP (TRADING SOFTWARES)
Tradesmart @ LKP is an initiative by LKP Securities for providing platforms (software) for online trading. The clients can invest using new trading platform's that are powerful, user-friendly stock trading tools designed to provide everything they need for online trading.
TRADESMART @ LKP - "The Smart Way to Trade Online"
TRADESMART PLATFROMS (SOFTWARES)
Figure: 3.3.1
Web Based
BLUE SILVERLIGHT Developer: Financial technologies ltd.
BLUE+ NEST Developer: Omnesys
Desktop/Exe Based
BLUE * ODINDIET Developer: Financial technologies ltd.
BLUE++ NESTRADER Developer: Omnesys

58
TRADESMART @ LKP POWERED BY FT POWERED BY OMNESYS TRADESMART@LKP BLUE An Extra light, superfast website. All the features of a dealer terminal have been combined with a fresh new look TRADESMART@LKP BLUE + Blue+ is ideal for those who travel often and hence cannot access their own computer for trading. TRADESMART@LKP BLUE An EXE based desktop software designed for active traders who transact frequently to capture favorable short-term price movements. TRADESMART@LKP BLUE + + A power packed Trading platform which provides you with Live streaming quotes & Research Calls, integrated fund transfer system along with multiple watch list facility.
Figure: 3.3.2

59
SEGMENTS OFFERED
Figure: 3.3.4
TradeSmart@LKP
Equities
BSE
NSE
MCX-SX
F&O
BSE
NSE
Currency
MCX-SX
NSECDS
Commodities
NCDEX
MCX
NSCL
Exe
Mobile
Web

60
TRADESMART EXE (Figure: 3.3.5)
TRADESMART WEB (Figure: 3.3.6)

61
TRADESMART EXE AND TRADESMART WEB PARTICULARS TRADESMART EXE TRADESMART WEB Order Entry Y Y
Pending Order
Y
Y
Order Modification Y Y
Order Cancellation
Y
Y
Market By Price Y Y
Market Watch/Touch Line
Y
Y
Trades Y Y
News & Information
Y
Y
Technical Analysis Y N*
Supporting Systems
Windows & Mac
All Browsers
Band-Width Utilization MEDIUM LOW
Products - Margin/delivery
Y
Y
User Customization Y Y
Integrated Risk Management
Y
Y
Basic Intraday Charting Y Y
Historical Charting
Y
N
Help Desk - Phone & Online Y Y

62
Bank account Integration
Y
Y
Call & Trade Y Y
Security Requirements
Y
Y
Initial Setup Cost N N LKP Advisory Y Y
Figure: 3.3.7
OPENING AN ACCOUNT WITH LKP SECURITIES LIMITED
1) Request KYC Form
2) Documents needed:
 Photo identification proof
 Address Proof
 One Photograph
 Six months Bank account statements (for futures and options)
 One cancelled cheque
3) Payment mode:
 NEFT/RTGS transactions
 Payment by cheque
4) Welcome kit and first trade tip from LKP Advisory service.
BROKERAGE STRUCTURE AT LKP
1) Free account opening
2) Annual Maintenance charge waived off for the first year.
3) Margin Amount Rs.5000 - Rs.10, 000/-

63
CASH
FUTURES
OPTIONS
CURRENCY
DELIVARY
30paisa
5paisa
Rs.50(per lot)
Rs.70 (per lot)
INTRADAY
3paisa
5paisa
Rs.50(per lot)
Rs.70 (per lot)
Figure: 3.3.8
ADVANCE BROKERAGE SCHEME
Advance Brokerage is a Pre-paid model of charging brokerage.
Terms and Conditions:
1) Brokerage will be charged at the rates as mentioned in the applicable brokerage table herein above during the validity period.
2) On a fortnightly basis (every 15 days), the client will be reimbursed with the subscription amount to the extent of the brokerage generated during the term.
3) If the subscription amount is not exhausted up to the end of the validity period & the scheme is not renewed within 1 month from the end of the validity period, the same shall stand forfeited. The brokerage thereafter shall be charged at the normal rate.

64
3.4
ANALYSIS
SWOT ANALYSIS (STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS)
STRENGTHS:
1. Strong credibility among investors because of its heritage.
2. Excellent reputation among the business society.
3. Capability of providing superior customer service.
4. Quality research team.
5. Easier access to the customer due to largest ground network of 822 outlets
6. Highly sophisticated infrastructure.
WEAKNESSES:
1. Brand awareness is low in the financial market.
2. Promotional activities conducted by the company are not at par with the other firms.
3. Inadequate product awareness among the retail investors.
OPPORTUNITIES:
1. Attractive brokerage rates
2. Scope in non-metro cities still unexplored entirely.
THREATS:
1. Availability of Unit Linked Insurance Policies (ULIP’s) and mutual funds in the market.
2. Threat of entry is high in this industry as the manpower required is less and capital requirement is medium.

65
COMPARATIVE ANALYSIS
THE MAJOR PLAYERS IN ONLINE TRADING
1) SHAREKHAN LTD.
2) KOTAK SECURITIES LTD.
3) INDIABULLS
4) ICICIDIRECT
5) HDFC SECURITIES LTD.

66
BROKERS’ PREFERENCE: POLL RESULTS (Figure: 3.4.1)
COMPARATIVE ANALYSIS (Figure: 3.4.2)
LKP SECURITIES
SHAREKHAN
INDIABULLS
ICICI DIRECT
Account Type
Only one type
Variety of accounts
Variety of accounts
Only one type
Brokerage
Negotiable
Non Negotiable and very High
Negotiable for HNI clients
Negotiable
Research
Qualitative and free
Qualitative and free
Charges for analysis
Free Research
Online Trading Platforms
Web –free
Exe- chargeable
Web and Exe-Free
Web – Free
Exe- chargeable
No Exe platform. Web- free
Customer Service
Focus on retail + institutional clients
Negligent due to wide customer base
Special focus on HNI clients
Focus on Retail clients
LKP SECURITIES 17%
SHAREKHAN 42%
HDFC SECURITIES 14%
ICICI DIRECT 22%
OTHERS 5%
MARKET SHARE

67
LKP SECURITIES LTD. ONLINE TRADING INTERFACES
The customer can choose the online trading interface that meets their requirement based on his trading habits and preferences
DIAL-N-TRADE – Toll Free
The DNT is a value added services meant for all customers who want to transact but are not online.
 Dedicated Toll – Free number for Order placements
 Automatic fund transfer with phone banking*
 Simple and secure IVR based system for authentication
 After-hours order placement facility
WEBSITE FEATURES
 Facility to integrate choice of Banks/DP/Trading Account
 Automatic pick-up of shares from linked DP for DP for pay – in
 Automatic deposit of shares into linked DP after pay-out
 4 Times exposure on Margin Trades
 Margin Trading available for entire marker session
 Slab wise brokerage structure for delivery and margin trades
 Daily Research newsletter (Investor Eye) via e-mail
 Access to new IPO without any paperwork
 Advanced portfolio monitoring Tools
 Integrated DP account with trading account
 Cash and Derivatives trading in a single account
 E-mail confirmations for all transactions
 Choice of electronic/Physical contracts
 Instant Order/trade confirmations in the same window
 Hot keys similar to a Broker’s Terminal
 Cancel All/Square off all Facility
 Window for Top Gainers, Top Losers, and Most Active updated Live

68
PART IV
CONCLUSION

69
4.1
FINDINGS AND OBERVATIONS
FINDINGS
1) Fluctuations are more in secondary market than any other market.
2. There are more speculators than investors.
3. Information plays a vital role in the secondary market.
4. Previously rolling settlement is T+5 days, now it changed to T+2 days and further it will be changing to T+1 day.
5. It was also observed that many broking houses offering internet trading allow clients to use their conventional system as well just ensure that they do not lose them and this instead of offering e- broking services they becomes service providers.
6. The number of players is increasing at a steady rate and today there are over a dozen of brokerage houses who have opted to offer net trading to their customers and prominent among them are LKP SECURITIES, SHARE KHAN, INDIA BULLS, KOTAKSTREET, ICICI DIRECT AND GEOJIT.
7) The Bombay stock exchange and the broader index – fluctuate with variations and volatility in the stock prices of heavyweights like TCS, INFOSYS, HUL, MARUTI, BAJAJ, RIL etc.
8) Lately, due to an upward rate of inflation India, the rupee has been testing new lows. The indices are sometimes losing 200-700 points in a single trading session due to capital pullout and rising back in the next session due to reforms and reassurance by the government.

70
4.2
CONCLUSION AND RECOMMENDATIONS
CONCLUSION AND RECOMMENDATIONS
1. Things have changed for the better with LKP group going on-line coupled with endeavor to stream line the whole trading system, things have changed dramatically over the last 3 to 4 years. New and advanced technologies have breached geographical and cultural barriers, and have brought the countrywide market to doorstep.
2. In the present scenario to compete with the Broker’s would require sound infrastructure and trading as per international standards.
3. The introduction of on-line trading would influence the investors resulting in an increase in the business of the exchange. It has helped the brokers handling a vast amount of transactions and this can be an efficient trading, delivering, settlement system with adequate protection to investors.
4. Due to invention of online trading there has been greater benefit to the investors as they could sell / buy shares as and when required and that to with online trading.
5. The broker’s has a greater scope than compared to the earlier times because of invention of online trading.
6. The concept of business has changed today, this is a service oriented industry hence the survival would require them to provide the best possible service to the clients.
7. I recommend the exchange authorities to take steps to educate Investors about their rights and duties. I suggest to the exchange authorities to increase the investors’ confidences. Necessary steps should be taken by the exchange to deal with the situations arising due to break down in online trading.
8. I recommend the exchange authorities to be vigilant to curb wide fluctuations of prices.
9. The speculative pressures are responsible for the wide changes in the price, not attracting the genuine investors to the greater extent towards the market.
10. Genuine investors are not at all interested in the speculative gain as their investment is based on the future profits, therefore the authorities of the exchange should be more vigilant to curb the speculation.

71
PART V
BIBLIOGRAPHY

72
5.1
BIBLIOGRAPHY
BIBLIOGRAPHY
I. PRIMARY DATA:
Brochures
Lectures
Investment Guides and study notes
II. SECONDARY DATA:
1) WEBSITES:
Lkpsec.com
Investopedia.com
Moneycontrol.com
Nseindia.in
Financewalk.com
2) ARTICLES:
Wall Street Journal
Growth and Performance of Turnover in Capital Market Segment at the National Stock Exchange - Dr. Gurcharan Singh and Shaminder Kaur.

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