RESEARCH REPORT On

COMPARATIVE ANALYSIS OF EQUITY & DERIVATIVE MARKET Company Name:

Submitted by: CHETNA MISHRA B.COM (HONOURS) Under Guidance Of: Industrial Guide:
MR.SHARAD MISHRA (Area Head)
BMA WEALTH CREATORS

Faculty Guide: Mrs. SHIKHI MISHRA, Lecturer, Marketing

MODERN GIRLS COLLEGE OF PROFESSIONAL STUDIES Lucknow, Uttar Pradesh

CONTENTS
Chapter No. Title
Certificate from organization Declaration from Student Acknowledgement List of Tables List of Graphs List of charts List if abbreviations Executive summary Introduction Background of the study Company Profile Company History

Page no.
4 5 6 6 6 7 8 9 11 22 25

1 1.1 1.2

Top management

31
31 33 37 38 39 39 40 40 40 42

1.3 1.4 1.5 1.6 2 2.1

Competitive advantage of Religare Research Methadology Need of the Study Objective of the Study Methodology of the Study Limitation of the Study Data Processing & Analysis Equity Benefits from equity Risk in equity investment

How to overcome from risk Process of diversification Selection of shares When to buy/sell shares Types of cash market margin

42 42 43 44 49 53 54 66 66 69 73 79 79 82

2.2

Derivatives Factors driving the growth of derivative Types of derivatives Types of trades I derivative Types of F& O margin Comparative analysis Findings Practical situation Comparative analysis of the traded values in the F & O segment with Cash segment Conclusions Recommendations Bibliography 86

2.3 3

4 5 6
7

83 84 85

List of Table Table No. 1 2 3 4 5 6 Title Performance of sensex from 1991 Client interface Distinction between futures and forward Distinction between future and option Comparative analysis Comparative analysis in the F & O segment with cash segment List of Graph Graph No. 1 2 3 4 5 Title Sensex performance Exchange traded derivatives Forward Payoff from forward contract Exchange traded in derivative Option Payoff from option List of Charts Chart No. 1 2 3 4 Title An overview of a BMA BMA Financial service group overview BMA vision and mission BMA & its subsidiaries

List of Abbreviations Abbreviation BSE CDSL DP EPS EWMA FIIs F&O IPO LN MTM NAV NSDL P/E ratio RBI SCRA SEBI SRO VaR FICCI Full Form Bombay stock Exchange Central depository services limited Depository Participant Earnings per share Exponentially weighted moving average Foreign institutional investors Futures & Options Initial Public Offering Natural log Mark to market Net asset value National securities depository limited Price per earnings ratio Reserve bank of India Securities contract regulation act Securities & Exchange board of India Self-regulatory organization Value at Risk Federation of Indian Chambers of Commerce and Industry

DECLARATION
I, Chetna Mishra hereby declare that this project report is the record of authentic work carried out by me during the period from 2011-2012 and has not been submitted to any other University or Institute for the award of any degree / diploma etc. Name of the student: Chetna Mishra

Acknowledgement
It gives me an immense pleasure to present this project report, for the partial fulfillment of the course. This project has been made possible through the direct and indirect co-operation of so many people for whom by profound through appreciation the gratitude remains. First, of all I would like to thank Mr. Sharad Mishra(Area Head)

Lucknow,for his valuable suggestions and constructive criticisms that have acted as a guiding light for me. I also acknowledge the help given to me by the people of the organization whose valuable inputs were the driving force behind this project. Last but not the least. I would also like to thank Mrs.Shikhi Mishra, Lecturer, Marketing.

EXECUTIVE SUMMARY
The project is about the study of brand awareness of BMA WEALTH CREATORS among investors. It gives the knowledge of market position of the company. I studied as to how this company proves to an option for the investors, by studying the performance of investing in equity & derivative for few months considering their analysis. I selected area of COMPARITIVE ANALYSIS OF EQUITY & DERIVATIVE, which attract different kinds of investors to invest in equity derivative and to face high risk and get high returns. The major findings of the project are to overview of the comparison of equity cash segment and equity derivative segment, overview of the equity and F & O segment from May 2011 to June 2011. The methodology of the project here is to analyze the Equity & Derivative performance based on NAV, EPS and other things. The methodology of the project here is to analyze the investment opportunities available for those investors & study the returns & risk involved in various investment opportunities and also study of investment management & risk management. So for that we have to study & analyze the performance of Equity & Derivative in the market. We know that there is a high risk, high return in equity but in a long time only. While in derivative there is a high risk, high return in the short term, because derivative contract is for short time for 1/2/3 months only. So this project included different types of returns, margin & risk involved in equity, and types, need, use & margin involved in the derivatives market and also participants & terms use in derivative market.

CHAPTER-1
INTRODUCTION & RESERCH METHODOLOGY

Background of the study:

The oldest stock exchange in Asia (established in 1875) and the first in the country to be granted permanent recognition under the Securities Contract Regulation Act, 1956, Bombay Stock Exchange Limited (BSE) has had an interesting rise to prominence over the past 133 years. A lot has changed since 1875 when 318 persons became members of what today is called Bombay Stock Exchange Limited paying a princely amount of Re 1. In 2002, the name "The Stock Exchange, Mumbai" was changed to Bombay Stock Exchange. Subsequently on August 19, 2005, the exchange turned into a corporate entity from an Association of Persons (AoP) and renamed as Bombay Stock Exchange Limited. BSE, which had introduced securities trading in India, replaced its open outcry system of trading in 1995, with the totally automated trading through the BSE Online trading (BOLT) system. The BOLT network was expanded nationwide in 1997. Since then, the stock market in the country has passed through both good and bad periods. The journey in the 20th century has not been an easy one. Till the decade of eighties, there was no measure or scale that could precisely measure the various ups and downs in the Indian stock market. Bombay stock Exchange Limited (BSE) in 1986 came out with a stock Index that subsequently became the barometer of the Indian Stock Market.

SENSEX first compiled in 1986 was calculated on a Market Capitalization Weighted methodology of 30 component stocks representing a sample of large, well established and financially sound companies. The base year of SENSEX is 1978-79. The index is widely reported in both domestic and international markets through prints as well as electronic media. SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. From September 2003, the SENSEX is calculated on a free-float market capitalization methodology. The freefloat Market Capitalization-Weighted methodology is a widely followed index construction methodology on which majority of global equity benchmarks are based. The growth of equity markets in India has been phenomenal in the decade gone by Right from early nineties the stock market witnessed heightened activity in terms of various bull and bear runs. The SENSEX captured all these happenings in the most judicial manner. One can identify the booms and bust of the Indian equity market through SENSEX. The Exchange also disseminates the Price-Earnings Ratio, the Price to Book Value Ratio and the Dividend Yield Percentage on day-to-day basis of all its major indices. The value of all BSE indices are every 15 seconds during the market hours and displayed through the BOLT system. BSE website and news wire agencies. All BSE-Indices are reviewed periodically by the Index Committee of the Exchange. The Committee frames the broad policy guidelines for the

development and maintenance of all BSE indices. Department of BSE Indices of the exchange carries out the day to day maintenance of all indices and conducts research on development of new indices. Institutional investors, money managers and small investors all refer to the Sensex for their specific purposes The Sensex is in effect the substitute for the Indian stock markets. The country's first derivative product i.e. IndexFutures was launched on SENSEX.

NEED OF THE STUDY

Different kinds of investors to invest in equity & derivative and to face high risk and get high returns.

Company proves to an option for the investors.

Studying the performance of investing equity & derivative for few months considering their analysis.

OBJECTIVE OF THE STUDY

Any investors vision is a long term investment ad short term investment and gets high returns by bearing high risk. For that objective need to be climbed successfully an so objectives of this project are,

1) To find the RIGHT SCRIPT to buy and sell at the RIGHT TIME 2) To get good return. 3) To know how derivatives can be use for hedging. 4) To know the outcome of Equity and Derivative. 5) How to achieve Capital appreciations.

METHODOLOGY OF THE PROJECT

Defining objective wont suffice unless and until a proper methodology is to achieve the objectives. 1) Analyzing and observing the investment opportunities. 2) Analyzing the performance of Equity and Derivative market with the help of NAV, EPS, P/E ratio etc.

LIMITATIONS OF THE STUDY

This project was restricted for two months; hence exhaustive data is not available upon which conclusions can be relied.

Investment in Securities carry risk so investment in Equity & Derivative is also carrying risk on the basis of the market.

Factors affecting the Market Price of Investment may be due to Market forces, performance of the companies is not possible, and so all the data is not available.

Research Methodology: Descriptive Research

The research is primarily descriptive in nature. The sources of information are both primary and secondary.

Method of data collection: Primary sources:Questionnaire Analysis Secondary sources:It is the data which has already been collected by someone or an organization for some other purpose or research study .The data for study has been collected from various sources: Books Journals Magazines Internet sources The objective of the exploratory research is to gain insights and ideas. The Objective of the descriptive research study is typically concerned with determining the frequency with which something occurs. A well structured questionnaire was prepared for the primary research.

Sampling Methodology Sampling Technique: Judgment sampling. Sampling Unit:

The respondents who were asked to fill out the questionnaire were from gorakhpur, are the sampling units. These respondents comprise of the persons dealing in stock trading. The people have been interviewed in the open market, in front of the companies, telephonic interviews and through other sources also.

Sample Size:
The sample size was restricted to only 120 respondents.

Sampling Area:

The area of the research was Gorakhpur only.

Time:

2 months

Statistical Tools Used:

Limited Resources: Limited resources Simple tools like bar graphs

& pie-charts have been used.

Limitations of Study Limited Time:

The time available to conduct the study was only 2

months. It being a wide topic had a limited time. Are available to collect the information about the commodity trading.

Volatility:

Share market is so much volatile and it is difficult to

forecast anything about it whether you trade through online or offline.

Aspects Coverage: Some of the aspects may not be covered

in my study.

CHAPTER-2
Industry Profile

INTRODUCTION OF STOCK MARKET

A stock, also referred to as a share, is commonly a share of ownership in a corporation. In British English, the word stock has another completely different meaning in finance, referring to a bond. It can also be used more widely to refer to all kinds of marketable securities. Where a share of ownership is meant the word share is usually used in British English.

Ownership
The owners and financial backers of a company may want additional capital to invest in new projects within the company. If they were to sell the company it would represent a loss of control over the company. Alternatively, by selling shares, they can sell part or all of the company to many part-owners. The purchase of one share entitles the owner of that share to literally share in the ownership of the company, including the right to a fraction of the assets of the company, a fraction of the decision-making power, and potentially a fraction of the profits, which the company may issue as dividends. However, the original owners of the company often still have control of the company, and can use the money paid for the shares to grow the company. In the common case, where there are thousands of shareholders, it is impractical to have all of them making the daily decisions required in the running of a company. Thus, the shareholders will use their shares as votes

in the election of members of the board of directors of the company. However, the choices are usually nominated by insiders or the board of the directors themselves, which over time has led to most of the top executives being on each other's boards. Each share constitutes one vote (except in a cooperative society where every member gets one vote regardless of the number of shares they hold). Thus, if one shareholder owns more than half the shares, they can out-vote everyone else, and thus have control of the company.

Shareholder rights
Although owning 51% of shares does mean that you own 51% of the company and that you have 51% of the votes, the company is considered a legal person, thus it owns all its assets, (buildings, equipment, materials etc) itself. A shareholder has no right to these without the company's permission, even if that shareholder owns almost all the shares. This is important in areas such as insurance, which must be in the name of the company not the main shareholder. In most countries, including the United States, boards of directors and company managers have a fiduciary responsibility to run the company in the interests of its stockholders. Nonetheless, as Martin Whitman writes: "...it can safely be stated that there does not exist any publicly traded company where management works exclusively in the best interests of

OPMI [Outside Passive Minority Investor] stockholders. Instead, there are both "communities of interest" and "conflicts of interest" between stockholders (principal) and management (agent). This conflict is referred to as the principal/agent problem. It would be naive to think that any management would forego management compensation, and management entrenchment, just because some of these management privileges might be perceived as giving rise to a conflict of interest with OPMIs." [Whitman, 2004, 5] Even though the board of directors run the company, the shareholder has some impact on the company's policy, as the shareholders elect the board of directors. Each shareholder has a percentage of votes equal to the percentage of shares he owns. So as long as the shareholders agree that the management (agent) are performing poorly they can elect a new board of directors which can then hire a new management team. Owning shares does not mean responsibility for liabilities. If a company goes broke and has to default on loans, the shareholders are not liable in any way. However, all money obtained by converting assets into cash will be used to repay loans, so that shareholders cannot receive any money until creditors have been paid.

Means of financing

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 of ownership of the company.

Trading

Shares of stock are usually traded on a stock exchange, where people and organizations may buy and sell shares in a wide range of companies. A given company will usually only trade its shares in one market, and it is said to be quoted, or listed, on that stock exchange. However, some large, multinational corporations are listed on more than one exchange. They are referred to as inter-listed shares.

Buying

There are various methods of buying and financing stocks. The most common means is through a stock broker. Whether they are a full service or discount broker, they are all doing one thing arranging the transfer of stock

from a seller to a buyer. Most of the trades are actually done through brokers listed with a stock exchange such as the New York Stock Exchange. There are many different stock brokers to choose from such as full service brokers or discount brokers. The full service brokers usually charge more per trade, but give investment advice or more personal service; the discount brokers offer little or no investment advice but charge less for trades. Another type of broker would be a bank or credit union that may have a deal set up with either a full service or discount broker. There are other ways of buying stock besides through a broker. One way is directly from the company itself. If at least one share is owned, most companies will allow the purchase of shares directly from the company through their investor's relations departments. However, the initial share of stock in the company will have to be obtained through a regular stock broker. Another way to buy stock in companies is through Direct Public Offerings which are usually sold by the company itself. A direct public offering is an initial public offering a company in which the stock is purchased directly from the company, usually without the aid of brokers. When it comes to financing a purchase of stocks there are two ways: purchasing stock with money that is currently in the buyers ownership or by buying stock on margin. Buying stock on margin means buying stock with money borrowed against the stocks in the same account. These stocks, or collateral, guarantee that the buyer can repay the loan; otherwise, the stockbroker has the right to

sell the stocks (collateral) to repay the borrowed money. He can sell if the share price drops below the margin requirement, at least 50 percent of the value of the stocks in the account. Buying on margin works the same way as borrowing money to buy a car or a house using the car or house as collateral. Moreover, borrowing is not free; the broker usually charges you 8-10 percent interest.

Selling

Selling stock in a company goes through many of the same procedures as buying stock. Generally, the investor wants to buy low and sell high, if not in that order; however, this is not how it always ends up. Sometimes, the investor will cut their losses and claim a loss. As with buying a stock, there is a transaction fee for the broker's efforts in arranging the transfer of stock from a seller to a buyer. This fee can be high or low depending on if it is a full service or discount broker. After the transaction has been made, the seller is then entitled to all of the money. An important part of selling is keeping track of the earnings. It is important to remember that upon selling the stock, in jurisdictions that have them, capital gains taxes will have to be paid on the additional proceeds, if any, that are in excess of the cost basis.

Technologys on Trading

Stock trading has evolved tremendously. Since the very first Initial Public Offering (IPO) in the 13th century, owning shares of a company has been a very attractive incentive. Even though the origins of stock trading go back to the 13th century, the market as we know it today did not catch on strongly until the late 1800s. Co-production between technology and society has led the push for effective and efficient ways of trading. Technology has allowed the stock market to grow tremendously, and all the while society has encouraged the growth. Within seconds of an order for a stock, the transaction can now take place. Most of the recent advancements with the trading have been due to the Internet. The Internet has allowed online trading. In contrast to the past where only those who could afford the expensive stock brokers, anyone who wishes to be active in the stock market can now do so at a very low cost per transaction. Trading can even be done through Computer-Mediated Communication (CMC) use of mobile devices such as hand computers and cellular phones. These advances in technology have made day trading possible. The stock market has grown so that some argue that it represents a country's economy. This growth has been enjoyed largely to the credibility and reputation that the stock market has earned.

Types of shares
There are several types of shares, including common stock, preferred stock, treasury stock, and dual class shares. Preferred stock, sometimes called preference shares, have priority over common stock in the distribution of dividends and assets, and sometime have enhanced voting rights such as the ability to veto mergers or acquistions or the right of first refusal when new shares are issued (i.e. the holder of the preferred stock can buy as much as they want before the stock is offered to others). A dual class equity structure has several classes of shares (for example Class A, Class B, and Class C) each with its own advantages and disadvantages. Treasury stock are shares that have been bought back from the public.

Derivatives

A stock option is the right (or obligation) to buy or sell stock in the future at a fixed price. Stock options are often part of the package of executive compensation offered to key executives. Some companies extend stock options to all (or nearly all) of their employees. This was especially true during the dot-com boom of the mid- to late- 1990s, in which the major compensation of many employees was in the increase in value of the stock options they held, rather than their wages or salary. Some employees at dotcom companies became millionaires on their stock options. This is still a major method of compensation for CEOs.

The theory behind granting stock options to executives and employees of a corporation is that, since their financial fortunes are tied to the stock price of the company, they will be motivated to increase the value of the stock over time.

Primary market (IPOs)

The primary is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Features of primary markets are:

This is the market for new long term capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called New Issue Market (NIM).

In a primary issue, the securities are issued by the company directly to investors.

The company receives the money and issues new security certificates to the investors.

Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.

The primary market performs the crucial function of facilitating capital formation in the economy.

The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as going public.

Methods of issuing securities in the primary market are:

Initial public offering, Rights issue (for existing companies), and Preferential issue.

Secondary market
A market where investors purchase securities or assets from other investors, rather than from issuing companies themselves. The national exchanges such as the New York Stock Exchange and the NASDAQ are secondary markets. Secondary markets exist for other securities as well, such as when funds, investment banks, or entities such as Fannie Mae purchase mortgages from

issuing lenders. In any secondary market trade, the cash proceeds go to an investor rather than to the underlying company/entity directly. A newly issued IPO will be considered a primary market trade when the shares are first purchased by investors directly from the underwriting investment bank; after that any shares traded will be on the secondary market, between investors themselves. In the primary market prices are often set beforehand, whereas in the secondary market only basic forces like supply and demand determine the price of the security. In the case of assets like mortgages, several secondary markets may exist, as bundles of mortgages are often re-packaged into securities like GNMA Pools and re-sold to investors.

CHAPTER-3
Company Profile

ABOUT BMA WEALTH CREATORS:

BMA is India's leading retail financial services company with We have over 250 share shops across 115 cities in India. While our size and strong balance sheet allow us to provide you with varied products and services at very attractive prices, our over 750 Client Relationship Managers are dedicated to serving your unique needs.

BMA is lead by a highly regarded management team that has invested crores of rupees into a world class Infrastructure that provides our clients with realtime service & 24/7 access to all information and products. Our flagship BMA Professional Network offers real-time prices, detailed data and news, intelligent analytics, and electronic trading capabilities, right at your fingertips. This powerful technology complemented by our knowledgeable and customer focused Relationship Managers. We are creating a world of Smart Investor.

BMA offers a full range of financial services and products ranging from Equities to Derivatives enhance your wealth and hence, achieve your financial goals.

BMA Client Relationship Managers are available to you to help with your

financial planning and investment needs. To provide the highest possible quality of service, India bulls provide full access to all our products and services through multi-channels.

Services provided by the BMA:--

1. Equities & Derivatives

:--Comprehensive

services for independent investors, active traders & Non-Resident Indians.

2.BMA equity analysis

companies updated daily.

:--Premium research on 401+ :--Value added

3. Depository Services
services for seamless delivery.

Equities and Derivatives

Our Retail Equity Business caters to the needs of individual Indian and NonResident Indian (NRI) investors. BMA offers broker assisted trade execution, automated online investing and access to all IPO's. Through various types of brokerage accounts, India bulls offers the purchase and sale of securities which includes Equity, Derivatives and Commodities Instruments listed on National Stock Exchange of India Ltd (NSEIL), The Stock Exchange, Mumbai (BSE) and NCDEX. Choose the service options that fit you best. BMA Classic account - Comprehensive services including research and investing guidance for independent investors. *BMA Fast trade BMA is dedicated to empower Active Traders through personal service and advanced trading technology. BMA Speed trade plus - With an extensive range of investment products, you will discover an unwavering commitment to helping you invest in India.

BMA equity analysis

Trading in Equities with BMA truly empowers you for your investment needs. We ensure you have a superlative trading experience through

A highly process driven, diligent approach Powerful Research & Analytics and One of the best in class dealing rooms

Further,BMA also has one of the largest retail networks, with its presence in more than 1300 locations across more than 400 towns & cities. This means, you can walk into any of these branches and connect to our highly skilled and dedicated relationship managers to get the best services.

Depository Services
RSL provides depository services to investors as a Depository Participant with NSDL and CDSL. The Depository system in India links issuers, Depository Participants, Depositories National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) and clearing houses / clearing Corporation of Stock Exchanges. These facilitate holding of securities in dematerialized form and securities transactions are processed by means of account transfers. Our customer centric account schemes have been designed keeping in mind the investment psychology. With a competent team of skilled professionals, we manage over 380,000 accounts and have a dedicated customer care centre, exclusively trained to handle queries from our customers. With our country wide network of branches, you are never far from BMA depository services. BMA depository service offers you a secure, convenient, paperless and cost effective way to keep track of your investment in shares and other instruments over a period of time, without the hassle of handling physical documents. Your DP account with us takes care of your depository needs

like dematerialization, rematerialisation, transfer and pledging of shares, stock lending and borrowing. Your demat account is safe and absolutely secure in our hands, every debit instruction is executed only after its authenticity is established. Our hi-tech in-house capabilities cater to the needs of software maintenance, database administration, network maintenance, backups and disaster recovery. This extra cover of security has gained the trust of our clients.

Different competitors
The major players in online trading Religare.com India INFOLINE KotakStreet.com IndiaBulls.com, ICICIDirect.com HDFCsec.com etc.

Companys History
A premier financial services organisation providing individual and corporates with customized financial solutions. We work towards understanding your financial goals and risk profile. Our expertise combined with thorough understanding of the financial markets results in appropriate investment solutions for you. At Wealth Creators we realize your dreams, needs, aspirations, concerns and resources are unique. This is reflected in every move we make with and for you. We have deep appreciation for the Value of building an everlasting relationship with YOU.

Our financial services corporate entities are represented by:

BMA Wealth Creators Limited - which holds corporate membership in National Stock Exchange Ltd, Bombay Stock Exchange Ltd. and Central Depositories Securities Ltd.

BMA Commodities Limited - which holds corporate membership in commodities exchange of NCDEX and MCX. It is also is SEBI approved AMFI registered Mutual Fund advisory and intermediary.

They inherit the legacy of BMA group which has been one of the dominant entities in Ferrous and Ferro Alloy industry in India. The BMA Group has

created its niche in by promoting successful ventures in the fields of coal mining, refractory, steel and ferrous alloy. The strive to achieve excellence and dynamic growth has been possible through optimum mix of technology, customer orientation, best business practices, forging alliances, high quality standards and proactive business culture.

MANAGEMENT TEAM OF BMA

Company is managed by a team of highly qualified and experienced professionals from the finance industry across the country. Know more about them:

Anubhav Bhatter Managing Director & CEO Shiv Kumar Damani Director Saikat Ganguly COO

Avinash Agarwal Director Asit Kumar Ghosh Director

ANUBHAV

BHATTER:

As the Managing Director and Chief Executive Officer, Mr Anubhav Bhatter is the guiding force of the Company. A graduate in Commerce from St Xaviers College, Kolkata and a Chartered Financial Analyst, Mr Anubhav Bhatter founded one of the leading financial services company in India, BMA Wealth Creators Limited. With over nine years of financial experience, he has set new standards and established niche operations to bring BMA Wealth Creators Limited to a position that it has reached today.

AVINASH AGARWALLA An MBA from Xavier Institute of Management, Bhubaneshwar, Mr Avinash Agarwal is the voice of knowledge on the Board of Directors of the Company. With over nine years of severe market experience in Financial as well as the Product Manufacturing industry, Mr Avinash Agarwal has given shape to the growth of BMA Wealth Creators Limited. With an extensive knowledge of the nuances involved in the financial sector and a strong foot hold over the market, the entire Group looks up to his contribution.

ASIT KUMAR GHOSH A pillar of strength to the Company, Asit Kumar Ghosh has been associated with BMA Wealth Creators Limited since the day of its inception. Having joined in the capacity of a Vice President, currently he is operating as Director, BMA Wealth Creators Limited. From establishing and strengthening the customer base to setting up the entire Retail Channel, he has played a vital role in the formation of the Company.

A Bachelor of Science from the University of Kolkata and a Post Graduate in Computer Applications, Mr Asit Kumar Ghosh has worked in the capacity of various managerial positions for numerous organizations including Alliance Credit & Investments, Tata TD Waterhouse, Anagram Securities and IL&FS where he successfully proved his worth. With over fifteen years of experience and his extensive knowledge, Mr Ghosh keeps adding value to the Company.

SHIV KUMAR DAMANI Experience is the greatest education. And you know it when you meet Mr Shiv Kumar Damani. With a financial career spanning over twenty years, currently he is operating as Director, BMA Wealth Creators Limited. He has been associated with the Company since its inception and ever since, he has nurtured the growth and operation of the Company just as a parent would do for its child. A Bachelor in Commerce from the University of Calcutta, Mr Shiv Kumar Damani has studied the financial market from close quarters to manage the risks involved while working towards the benefit of the Company and the people it is associated with, thus saving them the wrath of the global economic slowdown.

SAIKAT GANGULY With over twelve years of financial market experience, Saikats knowledge of the industry is comprehensive. A certified Chartered Financial Analyst and an MBA from Birla Institute of Management, he held several top managerial positions in various organizations including Reliance Money before he joined BMA Wealth Creators Limited in the year 2009 as its Chief Operating Officer.

Ever since, he has led BMA Wealth Creators Limited in handling several niche Sales, Distribution and Product Management initiatives. He has been instrumental in setting the pan India foot print of the organization by setting up Branches and distribution network in every nook and corner of the country. His extensive knowledge, along with his leadership skills will surely help BMAWC touch zenith.

COMPANYS VISION AND MISSION

MISSION To be a premier financial supermarket providing integrated investment services.

VISION To provide integrated financial services building investor wealth and confidence.

BMA AND ITS SUBSIDIARIES

COAL & COKE

STEEL PRODUC TS

EXPORT AND IMPORT

FERRO ALLOYS

FINALCI AL SERVICE S

BMA & its subsidiaries

Structurally, all businesses are operated through various subsidiaries of the holding company, Religare Enterprises Limited.

Competitive advantage of BMA Wealth Creators

Lowest Brokerage Online Money Transfer. Daily Confirmation Calls. Daily Contract Notes. Different Kinds of Accounts like, R-Ally, R-Ally Lite, R-Ally Pro etc. Providing Funding Facility.

Client Interface:
Retail Spectrum Institutional Spectrum Positioning Leverage Leverage reach and offer integrated product and service portfolio relationship with growing SME segment spread across India Products and Services Equity Trading Commodity Trading Online Investment portal Personal Financial Services Investment Solutions Investmen t Banking Insurance Advisory Institution al Broking Portfolio Managemen t Services Premier Client Group Services Arts To be a client centric wealth management advisory firm for the high net worth individuals (HNIs) Wealth Spectrum

 Insurance Loans Consumer Finance Insurance Solutions Life Insurance Non-Life Insurance

Initiative

Internationa l Advisory Fund Managemen t Service (AFMS)

CHAPTER-4
ANALYSIS & INTERPRITATION Of DATA

PERFORMANCE OF SENSEX FROM 1991

Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Open 1,027.38 1,957.33 2,617.78 3,436.87 3,910.16 3,114.08 3,096.65 3,658.34 3,064.95 5,209.54 3,990.65 3,262.01 3,383.85 5,872.48 6,626.49

high 1,955.29 4,546.58 3,459.07 4,643.31 3,943.66 4,131.22 4,605.41 4,322 5,150.99 6,150.69 4,462.11 3,758.27 5,920.76 6,617.15 9,442.98

low 947.141 1,945.48 980.06 3,405.88 2,891.45 2,713.12 3,096.65 2,741.22 3,042.25 3,491.55 2,594.87 2,828.48 2,904.44 4,227.50 6,069.33

Close 1,908.85 2,615.37 3,346.06 3,926.90 3,110.49 3,085.20 3,658.98 3,055.41 5,005.82 3,972.12 3,262.33 3,377.28 5,838.96 6,602.69 9,397.93

2006 2007 2008 2009 2010

9,422.49 13,827.77 20,325.27 9,720.55 17,473.45

14,035.30 20,498.11 21,206.77 17,530.94 21,108.64

8,799.01 12,316.10 7,697.39 8,047.17 15,651.99

13,786.91 20,286.99 9,647.31 14,493.84* 19,459.85

As of 30/June/2011

GRAPH SHOWING SENSEX PERFORMANCE

DATA PROCESSING & ANALYSIS

Equity
Total equity capital of a company is divided into equal units of small denominations, each called a share. It is a stock or any other security representing an ownership interest.

It proves the ownership interest of stock holders in a company.

For example:In a company the total equity capital of Rs 2, 00, 00,000 is divided into 20, 00,000 units of Rs 10 each. Each such unit of Rs 10 is called a Share. Thus, the company then is said to have 20, 00,000 equity shares of Rs 10 each. The holders of such shares are members of the company and have voting rights.

Benefits from Equity

The benefits distributed by the company to its shareholders can be: 1) Monetary Benefits and 2) Non Monetary Benefits. Monetary Benefits: 1. Dividend: An equity shareholder has a right on the profits generated by the company. Profits are distributed in part or in full in the form of dividends. Dividend is an earning on the investment made in shares, just like interest in case of bonds or debentures. A company can issue dividend in two forms: a) Interim Dividend and b) Final Dividend. While final dividend is distributed only after closing of financial year; companies at times declare an interim dividend during a financial year. Hence if X Ltd. earns a profit of Rs 40 crore and decides to distribute Rs 2 to each shareholder, a holding of 200 shares of X Ltd. would entitle you to Rs 400 as dividend. This is a return that you shall earn as a result of the investment made by you by subscribing to the shares of X Ltd. 2. Capital Appreciation: A shareholder also benefits from capital appreciation. Simply put, this means an increase in the value of the company usually reflected in its share price. Companies generally do not distribute all their profits as dividend. As the companies grow,

profits are re-invested in the business. This means an increase in net worth, which results in appreciation in the value of shares. Hence, if you purchase 200 shares of X Ltd at Rs 20 per share and hold the same for two years, after which the value of each share is Rs 35. This means that your capital has appreciated by Rs 3000. Non-Monetary Benefits: Apart from dividends and capital appreciation, investments in shares also fetch some type of nonmonetary benefits to a shareholder. Bonuses and rights issues are two such noticeable benefits. Bonus: An issue of bonus shares is the distribution free of cost

to the shareholders usually made when a company capitalizes on profits made over a period of time. Rather than paying dividends, companies give additional shares in a pre-defined ratio. Prima facie, it does not affect the wealth of shareholders. However, in practice, bonuses carry certain latent advantages such as tax benefits, better future growth potential, and an increase in the floating stock of the company, etc. Hence if X Ltd decides to issue bonus shares in a ration of 1:1, every existing shareholder of X Ltd would receive one additional share free for each share held by him. Of course, taking the bonus into account, the share price would also ideally fall by 50 percent post bonus. However, depending upon market expectations, the share price may rise or fall on the bonus announcement. Rights Issue: A rights issue involves selling of ordinary shares to the existing shareholders of the company. A company wishing to increase its subscribed capital by allotment of further shares should

first offer them to its existing shareholders. The benefit of a rights issue is that existing shareholders maintain control of the company. Also, this results in an expanded capital base, after which the company is able to perform better. This gets reflected in the appreciation of share value.

Risks In equity investment:

Although an equity investment is the most rewarding in terms of returns generated, certain risks are essential to understand before venturing into the world of equity.

Market/ Economy Risk. Industry Risk. Management Risk. Business Risk. Financial Risk Exchange Rate Risk. Inflation Risk. Interest Rate Risk.

How to overcome risks:

Most risks associated with investments in shares can be reduced by using the tool of diversification. Purchasing shares of different companies and creating a diversified portfolio has proven to be one of the most reliable tools of risk reduction. The process of Diversification: When you hold shares in a single company, you run the risk of a large magnitude. As your portfolio expands to include shares of more companies, the company specific risk reduces. The benefits of creating a well diversified portfolio can be gauged from the fact that as you add more shares to your portfolio, the weightage of each companys share gets reduced. Hence any adverse event related to any one company would not expose you to immense risk. The same logic can be extended to a sector or an industry. In fact, diversifying across sectors and industries reaps the real benefits of diversification. Sector specific risks get minimised when shares of other sectors are added to the portfolio. This is because a recession or a downtrend is not seen in all sectors together at the same time.

However all risks cannot be reduced: Though it is possible to reduce risk, the process of equity investing itself comes with certain inherent risks, which cannot be reduced by strategies such as diversification. These risks are called systematic risk as they arise from the system, such as interest rate risk and inflation risk. As these risks

cannot be diversified, theoretically, investors are rewarded for taking systematic risks for equity investment.

Selection of Shares: Proper selections of shares are of two types:-

Fundamental analysis:
It involves in depth study and analysis of the prospective company whose shares we want to buy, the industry it operates in and the overall market scenario. It can be done by reading and assessing the companys annual reports, research reports published by equity research houses, research analysis published by the media and discussions with the companys management or the other experienced investors.

Technical analysis:
It involves studying the prices movement of the stock over an extended period of time in the past to judge the trend of the future price movement. It can be done by software programs, which generate stock prices charts indicating upward. Downward and sideways movements of the stock price over the stipulated time period.

When to buy & sell shares:

With high volatility prevailing in the market, major price fluctuations in equities are not uncommon. Therefore, apart from ascertaining which stock to buy or sell, it becomes equally important to consider when to buy or sell. Any investor should be aware of the fact where all the investor is following i.e., Buy Low. Sell High. That means we should buy stocks at a low price and sell them at a high price.

When to buy

Three ways by which we can figure that out what it is about this stock that makes it hot.

1. Earnings per Share (EPS): How well the company is doing EPS is the total earning or profits made by company (during a given period of time) calculated on per share basis. It aims to give an exact evaluation of the returns that the company can deliver. Example: Company XYZ Ltd. Capital: Rs 100 crore (Rs 1 billion).

Capital is the amount the owner has in the business. As the business grows and makes profits, it adds to its capital. This capital is subdivided into shares (or stocks). The capital is divided into 100 million shares of Rs 10 each. Net Profit in 2003-04: Rs 20 crore (Rs 200 million). EPS is the net profit divided by the total number of shares. EPS = net profit/ number of shares EPS = Rs 20 crore (Rs 200 million)/ 10 crore (100 million) shares = Rs 2 per share Lesson to be learnt If a company's EPS has grown over the years, it means the company is doing well, and the price of the share will go up. If the EPS declines, that's a bad sign, and the stock price falls. Companies are required to publish their quarterly results. Keep an eye out for these results; check for the trend in their EPS.

Price earnings ratio (PE ratio): How other investors view this share An indicator of how highly a share is valued in the market. It arrived at by dividing the closing price of a share on a particular day by EPS. The ratio tends to be high in the case of highly rated shares. The average PE ratio for companies in an industry group is often given in investment journal. Two stocks may have the same EPS. But they may have different market prices. That's because, for some reason, the market

places a greater value on that stock. PE ratio is the market price of the stock divided by its EPS. PE = market price/ EPS lets take an example of two companies. Company XYZ Ltd Market price = Rs 100 EPS = Rs 2 PE ratio = 100/ 2 = 50 Company ABC Ltd Market price = Rs 200 EPS = Rs 2 PE ratio = 200/ 2 = 100 In the above cases, both companies have the same EPS. But because their market price is different, the PE ratio is different.

Lesson to be learnt
In the case of EPS, it is not so much a high or low EPS that matters as the growth in the EPS. The company's PE reflects investors' expectations of future growth in the EPS. A high PE company is one where investors have hopes that earnings will rise, which is why they buy the share.

3. Forward PE: Looking ahead The stock market is not nostalgic. It is forward looking. For instance, it sometimes happens that a sick company, that has made losses for several years, gets a rehabilitation package from its bank and a new CEO. As a consequence, the company's stock shoots up. Because investors think the company will do better in the future because of the package and new leadership, and its earnings will go up. And we think it is a good time to buy the shares of the company now. Suddenly, the demand for the shares has gone up. Because stock prices are based on expectations of future earnings, analysts usually estimate the future earnings per share of a company. This is known as the forward PE. Forward PE is the current market price divided by the estimated EPS, usually for the next financial year.

Forward PE = Current market price/ estimate EPS for the next financial year. To illustrate what we have been talking about, let's take the example of Infosys Technologies. Trailing 12-month EPS = Rs 56.82 (EPS of the last four quarters) Closing price on January 6 = Rs 2043.15 PE = Price/EPS = 2043.15/ 56.82 = 35.95

Estimated EPS for 2004-05 = Rs 67 Estimated EPS for 2005-06 = Rs 90 these figures are according to brokers' consensus estimates. Forward PE = current market price/ estimated EPS for next financial year Forward PE for 2004-05 = 2043.15/ 67 = 30.49 Forward PE for 2005-06 = 2043.15/ 90 = 22.70 With an EPS growth of over 30%, a forward PE of 22.7 is not high, indicating that there is scope to be optimistic about the stock's price.

Lesson to be learnt Sometimes, investors look out for a low PE stock, expecting that its price will rise in the future. But sometimes, low PE stocks may remain low PE stocks for ages, because the market doesn't fancy them. Keep tab on the business news to check out the company's prospects in the future

When to sell Stock Reaches Fair Value or Target Price This is the easiest part of selling. We should sell when a stock reaches its fair value. It is the main reason why we chose to buy it on the first place.

The target price can be computed by assessing the companys estimated financial performance over the next 3 to 5 years, computing its EPS and using an acceptable P/E ratio to compute the future market price. Based on this future estimated price and our required return on our investment, compute our target price.

When the prices reaches Stop loss

It is advisable to always consider the possibility of a loss before making our investment. We should decide how much loss we are willing to book in the stock. The lower price i.e., the price at which we are willing curtail our loss, is called Stop Loss.

Need the money

The generally happens due to improper planning. However, things happen. Even the most carefully planned strategy may not work. Catastrophic events may force investors to sell an investment if his household is affected by it.

The book is unclean

When management left their post abruptly or when the SEBI conduct a criminal investigation on a company, it may be time to sell. Our assumption may be inaccurate as a lot of fair value calculation is based on the company's balance sheet, cash flow or other financial statement published by management.

Takeover news
When one of your stock holding is getting bought by other companies, it may be time to sell. Sure, you might like the acquiring company but you still need to figure out the fair value of the common stock of the acquiring company. If the acquiring company is overvalued, then it is best to sell.

Other Investment Opportunity

Let us consider we bought stock A and it has risen to 10% below its fair value. Meanwhile, we noticed that stock B fallen to below 50% of our calculated fair value. This is an easy decision. We will sell our stock A and buy stock B. Our goal as an investor is to maximize our investment return. Sacrificing a 10% of return in order to earn a 50% return is a sensible way to do that.

Inaccurate Fair Value Calculation As investors, we sometimes made errors in our fair value calculation. There are factors that we might not take into accounts when researching a particular company. For example, satyam scandal.

New Competitors with Better Products

When new competitors sprung up, the company that you hold might have to spend more money in order to fend off competition. Recent example includes the emergence of pay-per click advertising by Google. Any advertising business such as newspapers or cable network, this new product by Google might hurt profit margins and eventually the fair value of the stock. Not having a valid reason to Buy

When we don't know why we bought a particular stock, we won't know how much our potential return is or when we should sell it. This is the easiest way of losing money. When we have no valid reason to buy, we should sell immediately.

Types of Cash market margin

Value at Risk (VaR) margin. Extreme loss margin Mark to market Margin Value at Risk (VaR) margin :

VaR Margin is at the heart of margining system for the cash market segment. VaR is a technique used to estimate the probability of loss of value of an asset or group of assets (for example a share or a portfolio of a few shares), based on the statistical analysis of historical price trends and volatilities. A VaR statistic has three components: a time period, a confidence level and a loss amount (or loss percentage). Keep these three parts in mind as we give some examples of variations of the question that VaR answers:

With 99% confidence, what is the maximum value that an asset or portfolio may lose over the next day?

Example:-

Suppose shares of a company bought by an investor. Its market value today is Rs.50 lakhs but its market value tomorrow is obviously not known. An investor holding these shares may, based on VaR methodology, say that 1day VaR is Rs.4 lakhs at 99% confidence level. This implies that under normal trading conditions the investor can, with 99% confidence, say that the value of the shares would not go down by more than Rs.4 lakhs within next 1-day.

In the stock exchange scenario, a VaR Margin is a margin intended to cover the largest loss (in %) that may be faced by an investor for his / her shares (both purchases and sales) on a single day with a 99% confidence level. The VaR margin is collected on an upfront basis (at the time of trade).

How is VaR margin calculated? VaR is computed using exponentially weighted moving average (EWMA) methodology. Based on statistical analysis, 94% weight is given to volatility on T-1 day and 6% weight is given to T day returns.

To compute, volatility for January 1, 2008, first we need to compute days return for Jan 1, 2009 by using LN (close price on Jan 1, 2009 / close price on Dec 31, 2008). Take volatility computed as on December 31, 2008. Use the following formula to calculate volatility for January 1, 2009: Square root of [0.94*(Dec 31, 2008 volatility)*(Dec 31, 2008 volatility)+ 0.06*(January 1, 2009 LN return)*(January 1, 2009 LN return)]

Example: Share of ABC Ltd

Volatility on December 31, 2008 = 0.0314 Closing price on December 31, 2008 = Rs. 360 Closing price on January 1, 2009 = Rs. 330 January 1, 2009 volatility = Square root of [(0.94*(0.0314)*(0.0314) + 0.06 (0.08701)* (0.08701)] = 0.037 or 3.7%

How is the Extreme Loss Margin computed?

The extreme loss margin aims at covering the losses that could occur outside the coverage of VaR margins. The Extreme loss margin for any stock is higher of 1.5 times the standard deviation of daily LN returns of the stock price in the last six months or 5% of the value of the position. This margin rate is fixed at the beginning of every month, by taking the price data on a rolling basis for the past six months. Example: In the Example given at question 10, the VaR margin rate for shares of ABC Ltd. was 13%. Suppose the 1.5 times standard deviation of daily LN returns is 3.1%. Then 5% (which is higher than 3.1%) will be taken as the Extreme Loss margin rate.

Therefore, the total margin on the security would be 18% (13% VaR Margin + 5% Extreme Loss Margin). As such, total margin payable (VaR margin + extreme loss margin) on a trade of Rs.10 lakhs would be 1, 80,000/-

How is Mark-to-Market (MTM) margin computed?

MTM is calculated at the end of the day on all open positions by comparing transaction price with the closing price of the share for the day.

Example: A buyer purchased 1000 shares @ Rs.100/- at 11 am on January 1, 2008. If close price of the shares on that day happens to be Rs.75/-, then the buyer faces a notional loss of Rs.25, 000/ - on his buy position. In technical terms this loss is called as MTM loss and is payable by January 2, 2008 (that is next day of the trade) before the trading begins.

In case price of the share falls further by the end of January 2, 2008 to Rs. 70/-, then buy position would show a further loss of Rs.5,000/-. This MTM loss is payable.

In case, on a given day, buy and sell quantity in a share are equal, that is net quantity position is zero, but there could still be a notional loss / gain (due to

difference between the buy and sell values), such notional loss also is considered for calculating the MTM payable.

MTM Profit/Loss = [(Total Buy Qty X Close price)] - Total Buy Value] [Total Sale Value - (Total Sale Qty X Close price)]

3. Derivatives
Derivative is a product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index, or reference rate), in a contractual manner. The underlying asset can be equity, forex, commodity or any other asset. For example, wheat farmers may wish to sell their harvest at a future date to eliminate the risk of a change in prices by that date. Such a transaction is an example of a derivative. The price of this derivative is driven by the spot price of wheat which is the "underlying".

In the Indian context the Securities Contracts (Regulation) Act, 1956 (SCRA) defines "derivative" to include1. A security derived from a debt instrument, share, loan whether secured or unsecured, risk instrument or contract for differences or any other form of security.

2. A contract which derives its value from the prices, or index of prices, of underlying securities. Derivatives are securities under the SC(R)A and hence the trading of derivatives is governed by the regulatory framework under the SC(R)A.

Factors driving the growth of derivatives Over the last three decades, the derivatives market has seen a phenomenal growth. A large variety of derivative contracts have been launched at exchanges across the world. Some of the factors driving the growth of financial derivatives are:

1. Increased volatility in asset prices in financial markets, 2. Increased integration of national financial markets with the international markets, 3. Marked improvement in communication facilities and sharp decline in their costs, 4. Development of more sophisticated risk management tools, providing economic agents a wider choice of risk management strategies, and 5. Innovations in the derivatives markets, which optimally combine the risks and returns over a

large number of financial assets leading to higher returns, reduced risk as well as transactions costs as compared to individual financial assets.

Types of derivatives:
Forward Contract:

A forward contract is an agreement to buy or sell an asset on a specified date for a specified price. One of the parties to the contract assumes a long position and agrees to buy the underlying asset on a certain specified future date for a certain specified price. The other party assumes a short position and agrees to sell the asset on the same date for the same price. Other contract details like delivery date, price and quantity are negotiated bilaterally by the parties to the contract. The forward contracts are normally traded outside the exchanges.

The salient features of forward contracts are:

They are bilateral contracts and hence exposed to counter-party risk. Each contract is custom designed, and hence is unique in terms of contract size, expiration date and the asset type and quality. The contract price is generally not available in public domain.

 On the expiration date, the contract has to be settled by delivery of the asset. If the party wishes to reverse the contract, it has to compulsorily go to the same counterparty, which often results in high prices being charged.

Limitations of Forward Contract Forward markets world-wide are afflicted by several problems: Lack of centralization of trading, Illiquidity, and Counterparty risk In the first two of these, the basic problem is that of too much flexibility and generality. The forward market is like a real estate market in that any two consenting adults can form contracts against each other. This often makes them design terms of the deal which are very convenient in that specific situation, but makes the contracts non-tradable.

Counterparty risk arises from the possibility of default by any one party to the transaction. When one of the two sides to the transaction declares bankruptcy, the other suffers. Even when forward markets trade standardized contracts, and hence avoid the problem of illiquidity, still the counterparty risk remains a very serious issue.

 Future Contracts:
Futures markets were designed to solve the problems that exist in forward markets. A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. But unlike forward contracts, the futures contracts are standardized and exchange traded. To facilitate liquidity in the futures contracts, the exchange specifies certain standard features of the contract. It is a standardized contract with standard underlying instrument, a standard quantity and quality of the underlying instrument that can be delivered, (or which can be used for reference purposes in settlement) and a standard timing of such settlement. A futures contract may be offset prior to maturity by entering into an equal and opposite transaction. More than 99% of futures transactions are offset this way.

The standardized items in a futures contract are: Quantity of the underlying Quality of the underlying The date and the month of delivery The units of price quotation and minimum price change Location of settlement

The payoff from a long position in a forward contract is P = S - X, where S is a spot price of the security at time of contract maturity, X is the delivery price. Similarly, the payoff from a short position is P = X - S. For example, let's say the current price of the stock is $80.00 and we entered in forward contract to buy this stock in 3 months time for $81.00 (that means we hope that price will not fall lower than $81.00). If after three months price is more than $81.00, let's say $83.00, than we can buy the same stock for $81.00 (as stated by forward contract) and after reselling it on the market our payoff will be P = $83.00 - $81.00 = $2.00

If at forward maturity the stock price falls to $78.00, than our loss will be P = $81.00 - $78.00 = $3.00 The graphs above illustrate the forward contract payoff patterns for long and short positions.

Distinction between futures and forwards

Futures Trade on an organized exchange Standardized contract terms hence more liquid Follows daily settlement

Forwards OTC in nature Customised contract terms hence less liquid Settlement happens at end of period

Future terminology
Spot price: The price at which an asset trades in the spot market. Futures price: The price at which the futures contract trades in the futures market. Contract cycle: The period over which a contract trades. The index futures contracts on the NSE have one- month, two-month and three months expiry cycles which expire on the last Thursday of the month. Thus a January expiration contract expires on the last Thursday of January and a February expiration contract ceases trading on the last Thursday of February. On the Friday following the last Thursday, a new contract having a three- month expiry is introduced for trading.

Expiry date: It is the date specified in the futures contract. This is the last day on which the contract will be traded, at the end of which it will cease to exist.

Contract size: The amount of asset that has to be delivered less than one contract. Also called as lot size.

Basis: In the context of financial futures, basis can be defined as the futures price minus the spot price. There will be a different basis for each delivery

month for each contract. In a normal market, basis will be positive. This reflects that futures prices normally exceed spot prices.

Cost of carry: The relationship between futures prices and spot prices can be summarized in terms of what is known as the cost of carry. This measures the storage cost plus the interest that is paid to finance the asset less the income earned on the asset.

Initial margin: The amount that must be deposited in the margin account at the time a futures contract is first entered into is known as initial margin.

Marking-to-market: In the futures market, at the end of each trading day, the margin account is adjusted to reflect the investor's gain or loss depending upon the futures closing price. This is called marking-to-market.

Maintenance margin: This is somewhat lower than the initial margin. This is set to ensure that the balance in the margin account never becomes negative. If the balance in the margin account falls below the maintenance margin, the investor receives a margin call and is expected to top up the margin account to the initial margin level before trading commences on the next day.

Option Contracts
Options are fundamentally different from forward and futures contracts. An option gives the holder of the option the right to do something. The holder does not have to exercise this right. In contrast, in a forward or futures contract, the two parties have committed themselves to doing something. Whereas it costs nothing (except margin requirements) to enter into a futures contract, the purchase of an option requires an up-front payment.

Option Terminology
Index options: These options have the index as the underlying. Some options are European while others are American. Like index futures contracts, index options contracts are also cash settled. Stock options: Stock options are options on individual stoc ks. Options currently trade on over 500 stocks in the United States. A contract gives the holder the right to buy or sell shares at the specified price. Buyer of an option: The buyer of an option is the one who by paying the option premium buys the right but not the obligation to exercise his option on the seller/writer. Writer of an option: The writer of a call/put option is the one who receives the option premium and is thereby obliged to sell/buy the asset if the buyer exercises on him.

Option price/premium: Option price is the price which the option buyer pays to the option seller. It is also referred to as the option premium.

Expiration date: The date specified in the options contract is known as the expiration date, the exercise date, the strike date or the maturity.

Strike price: The price specified in the options contract is known as the strike price or the exercise price.

American options: American options are options that can be exercised at any time upto the expiration date. Most exchange-traded options are American.

European options: European options are options that can be exercised only on the expiration date itself. European options are easier to analyze than American options, and properties of an American option are frequently deduced from those of its European counterpart.

In-the-money option: An in-the-money (ITM) option is an option that would lead to a positive cash flow to the holder if it were exercised immediately. A call option on the index is said to be in-the-money when the current index stands at a level higher than the strike price (i.e. spot price

>strike price). If the index is much higher than the strike price, the call is said to be deep ITM. In the case of a put, the put is ITM if the index is below the strike price.

At-the-money option: An at-the-money (ATM) option is an option that would lead to zero cash flow if it were exercised immediately. An option on the index is at-the-money when the current index equals the strike price (i.e. spot price = strike price).

Out-of-the-money option: An out-of-the-money (OTM) option is an option that would lead to a negative cash flow if it were exercised immediately. A call option on the index is out-of-the money when the current index stands at a level which is less than the strike price (i.e. spot price < strike price). If the index is much lower than the strike price, the call is said to be deep OTM. In the case of a put, the put is OTM if the index is above the strike price.

Intrinsic value of an option: The option premium can be broken down into two components - intrinsic value and time value. The intrinsic value of a call is the amount the option is ITM, if it is ITM. If the call is OTM, its intrinsic value is zero. Putting it another way, the intrinsic value of a call is Max[0, (St K)] which means the intrinsic value of a call is the greater of 0 or (St K). Similarly, the intrinsic value of a put is Max[0, K St],i.e. the greater of 0 or (K St). K is the strike price and St is the spot price.

Time value of an option: The time value of an option is the difference between its premium and its intrinsic value. Both calls and puts have time value. An option that is OTM or ATM has only time value. Usually, the maximum time value exists when the option is ATM. The longer the time to expiration, the greater is an option's time value, all else equal. At expiration, an option should have no time value.

Types of options:
Call options and Put options. Call option: A call option gives the holder the right but not the obligation to buy an asset by a certain date for a certain price. Long a call:- person buys the right (a contract) to buy an asset at a certain price. We feel that the price in the future will exceed the strike price. This is a bullish position. Short a call:- person sells the right ( a contract) to someone that allows them to buy to buy an asset at a certain price. The writer feels that asset will devaluate over the time period of the contract. This person is bearish on that asset.

Put option: A put option gives the holder the right but not the obligation to sell an asset by a certain date for a certain price. Long a put:- Buy the right to sell an asset at a pre-determined price. We feel that the asset will devalue over the time of the contract. Therefore we can sell the asset at a higher price than is the current market value. This is a bearish position. Short a put:- sell the right to someone else. This will allow them to sell the asset at a specific price. We feel the price will go down and we do not. This is a bullish position.

Profit / payoff in Option:

The payoff to a derivative portfolio is the market value of the portfolio at expiration. (Also gross payoff). The profit on a derivative portfolio is the payoff less the cost of acquisition or assembling the portfolio. (Net profit). We will be looking at a number of option strategies and combinations. The (gross) payoff is the value (positive or negative) of the option or portfolio at maturity. The payoff does not include the initial cost (or the initial cash inflow) at the time the portfolio was set up.

 Net profit= (gross) Payoff- cost of buying options or other securities+ premium received for selling options or other securities.

If S is a final price of the option underlying security, X is a strike price and OP is an option price, than the profit is

Long Call: P = S - X - OP Short Call: P = X - S + OP Long Put: P = X - S - OP Short Put: P = S - X + OP For example, let's say the stock price is $50.00, we bought European call option with strike $53.00 and paid $2.00 for this option. If option price is less than $53.00, we will not exercise the option to buy the stock, because it doesn't make sense to buy security for higher price than it costs on the market. In this case we lose all initial investment equal to the option price $2.00. If stock price is more than $53.00, we will exercise the option. For example if the stock price is $56.00, after exercising the option and immediately reselling the acquired stock our profit will be: P = $56.00 - $53.00 - $2.00 = $1.00 if the stock price is $54.00, than the profit is: P = $54.00 - $53.00 - $2.00 = - $1.00 As we see in latter case we lose money. The reason is that increase of stock price just by $1.00 above the strike ($53.00) doesn't cover our initial investment of $2.00, although we still exercise the option to recover at least $1.00 of initial investment. If the stock price at exercise time is $55.00 than we exercise the option to cover our initial expenses(equal to option price): P = $55.00 - $53.00 - $2.00 = $0.00

This latter case corresponds to option graph intersection point with horizontal axis on the drawing above.

Distinction between futures and options:

Futures Exchange traded, with novation Exchange defines the product Price is zero, strike price moves Price is zero Linear payoff Both long and short at risk

Options Same as futures. Same as futures. Strike price is fixed, price moves. Price is always positive. Nonlinear payoff. Only short at risk.

Types of traders in derivative market:

Hedgers:- Hedgers are those who protect themselves from the risk associated with the price of an asset by using derivatives. A person keeps a close watch upon the prices discovered in trading and when

the comfortable price is reflected according to his wants, he sells futures contracts. In this way he gets an assured fixed price of his produce. In general, hedgers use futures for protection against adverse future price movements in the underlying cash commodity. Hedgers are often businesses, or individuals, who at one point or another deal in the underlying cash commodity. Take an example: A Hedger pay more to the farmer or dealer of a produce if its prices go up. For protection against higher prices of the produce, he hedges the risk exposure by buying enough future contracts of the produce to cover the amount of produce he expects to buy. Since cash and futures prices do tend to move in tandem, the futures position will profit if the price of the produce raise enough to offset cash loss on the produce.

Speculators:
Speculators are somewhat like a middle man. They are never interested in actual owing the commodity. They will just buy from one end and sell it to the other in anticipation of future price movements. They actually bet on the future movement in the price of an asset. They are the second major group of futures players. These participants

include independent floor traders and investors. They handle trades for their personal clients or brokerage firms

Buying a futures contract in anticipation of price increases is known as going long. Selling a futures contract in anticipation of a price decrease is known as going short. Speculative participation in futures trading has increased with the availability of alternative methods of participation.

Speculators have certain advantages over other investments they are as follows:
If the traders judgment is good, he can make more money in the futures market faster because prices tend, on average, to change more quickly than real estate or stock prices. Futures are highly leveraged investments. The trader puts up a small fraction of the value of the underlying contract as margin, yet he can ride on the full value of the contract as it moves up and down. The money he puts up is not a down payment on the underlying contract, but a performance bond. The actual value of the contract is only exchanged on those rare occasions when delivery takes place.

Arbitrators:
According to dictionary definition, a person who has been officially chosen to make a decision between two people or groups who do not agree is known as Arbitrator. In commodity market Arbitrators are the person who takes the advantage of a discrepancy between prices in two different markets. If he finds future prices of a commodity edging out with the cash price, he will take offsetting positions in both the markets to lock in a profit. Moreover the commodity future investor is not charged interest on the difference between margin and the full contract value.

Types of Futures and Options Margins:

Margins on Futures and Options segment comprise of the following:
1) Initial Margin 2) Exposure margin In addition to these margins, in respect of options contracts the following additional margins are collected 1) Premium Margin 2) Assignment Margin

How is Initial Margin Computed?

Initial margin for F&O segment is calculated on the basis of a portfolio (a collection of futures and option positions) based approach. The margin calculation is carried out using software called - SPAN (Standard Portfolio Analysis of Risk). It is a product developed by Chicago Mercantile Exchange (CME) and is extensively used by leading stock exchanges of the world. SPAN uses scenario based approach to arrive at margins. It generates a range of scenarios and highest loss scenario is used to calculate the initial margin. The margin is monitored and collected at the time of placing the buy / sell order. The SPAN margins are revised 6 times in a day - once at the beginning of the day, 4 times during market hours and finally at the end of the day. Obviously, higher the volatility, higher the margins.

How is exposure margin computed?

In addition to initial / SPAN margin, exposure margin is also collected. Exposure margins in respect of index futures and index option sell positions have been currently specified as 3% of the notional value. For futures on individual securities and sell positions in options on individual securities, the exposure margin is higher of 5% or 1.5 standard deviation of the LN returns of the security (in the underlying cash market)

over the last 6 months period and is applied on the notional value of position.

How is Premium and Assignment margins computed?

In addition to Initial Margin, a Premium Margin is charged to trading members trading in Option contracts. The premium margin is paid by the buyers of the Options contracts and is equal to the value of the options premium multiplied by the quantity of Options purchased. For example, if 1000 call options on ABC Ltd are purchased at Rs. 20/-, and the investor has no other positions, then the premium margin is Rs. 20,000. The margin is to be paid at the time trade. Assignment Margin is collected on assignment from the sellers of the contracts.

How Marked to Market Margins are computed?

Future contracts:- The open positions (gross against clients and

net of proprietary/ self trading) in the futures contracts for each member are marked to market to the daily settlement price at the end

of each day is the weighted average price of the last half an hour of the futures contract. The profits/losses arising from the different between the trading price and the settlement price are collected/ given to all clearing members

Option contracts:- the marked o market for option contracts is computed and collected as part of the Initial Margin in the form of Net Option Values. The Initial Margin is collected on an online real time basis based on the data feeds given to the system at discrete time intervals.

How Client Margins are computed?

Client Members and Trading Member are required to collect initial margins from all their clients. The collection of margins at client level in the derivatives markets is essential as derivatives are leveraged products and non-collection of margins at the client level would provide zero cost leverage. In the derivative markets all money paid by the client towards margins is kept in trust with the Clearing House/ Clearing Corporation and in the event of default of the Trading or Clearing Member the amounts paid by the client towards margins are segregated and not utilized towards the dues of the defaulting member.

Therefore, Clearing members are required to report on a daily basis details in respect of such margin amounts due and collected from their Trading members/ clients clearing and settling through them. Trading members are also required to report on a daily basis details of the amount due and collected from their clients. The reporting of the collection of the margins by the clients is done electronically through the system at the end of each trading day. The reporting of collection of client level margins plays a crucial role not only in ensuring that members collect margin from clients but it also provides the clearing corporation with a record of the quantum of funds it has to keep in trust for the clients.

Comparative Analysis
Basis Return Equity Capital appreciation Dividend Income Risk Company Specified Sector specified Global risk General Market Risk Types of margin VaR Derivative Capital gain Price Fluctuation Market risk Credit risk Liquidity risk Settlement risk Initial margin

Extreme Loss Mark to market Duration Generally Long term (more than 1 yr) Participants Long term Investors Hedgers Safe Investors

Exposure margin Premium margin Short term (Max. 3 months) Speculations Arbitragers Hedgers

Expiry Date of contract

No such things

Last Thursday of any month

Comparative analysis is easy to understand when we are analysis with the example of the real market situation. Now I would like to quote a real life example during my internship where I understood the actual comparison of equity and derivative market.

Example:There was an investor Mr. Jaichand. He has Rs. 1, 00,000/- and he wants to invest it in share market. Now he has two options either to invest in equity cash market or equity derivative market (F&O).

Now suppose if he invest in equity cash market and buy shares of Rs. 1, 00, 000/- and diversified risk so he buys different scrips. So he purchases 10 RIL shares of Rs. 2350/- each. 10 L&T shares of Rs 800/- each, 15 Religare Enterprises Shares of Rs. 370/- each, 20 ICICI bank shares of Rs. 800/- each, 10 Tata power shares of Rs. 1250 each and 10 BHEL shares of Rs. 1595/each. So for investing Rs. 1, 00,000/- in equity cash market he has to pay Rs. 1,00,000/- and gets the delivery of the shares. Now suppose if he invest in equity derivative market then he will able to purchase the shares worth Rs. 5,00,000/- though he has capital of Rs. 1,00,00/- only, because of the margin payment. But he has to purchase the share in a lot size. So he is able to purchase the 1 lot (100 shares) of RIL at Rs. 2350/-, 1 lot (50 shares) of L&T at 2650/-, 2 lots (100 shares each) of Religare Enterprises at Rs. 370/- and 1 lot (70 shares) of ICICI bank at Rs. 800/-. Here Mr. Jaichand has to pay Rs. 1,00,000/- as a margin money and he is able to purchase a shares worth Rs. 5,00,000/- But he has to pay the full amount of money at T+3 basis. So he has to pay the remaining amount on the 3rd day of the trading if he wants the delivery.

Returns
Mr. Jaichand gets return on equity by two ways. One is when the share price of the holding shares will increases in futures, called as capital appreciation. Second is by getting a dividend income from the holding shares.

Mr. Jaichand gets return on equity derivative when the future prices of the shares are increase in short term called as capital gain through price fluctuation or through options premium.

Risk:
There are four types of risk involved in equity cash market. Company Specified risk:- If company is not performing well than process of the shares will declining and vice versa. Sector specified risks:- If the sector is not performing well i.e. power sector, metal sector, oil & gas sector, banking sector then prices of the shares will go down and vice versa. Global risk:- If global cues are positive then prices will increases but if global cues are not good than prices of shares will go down. General market risk:- General market risk is also affect the equity cash market like inflation, banks interest rates etc.

So Mr. Jaichand has to consider all these risk factors while dealing in the equity cash market. There are four types of risk involved in equity derivative market. Market risk:- In derivative market we have to calculate the market risk or mark to market risk involved in the stocks or securities, that is

the exposure to potential loss from fluctuations in market prices (as opposed to changes in credit status). It is calculated on the tradable assets i.e., stocks, currencies etc. Credit risk: It may possible in derivative contract that the counterparty may be fail to perform the contract or say defaulted then it is a risk for us. It is calculated on non-tradable assets i.e., loans. So generally it is for long term purpose. Liquidity Risk:- If Mr. Jaichand will not able to find a price( or a price within a reasonable tolerance in terms of the deviation from prevailing or expected prices) for one or more of its financial contracts in the secondary market. Consider the case of a counterparty who buys a complex option on European interest rates. He is exposed to liquidity risk because of the possibility that he cannot find anyone to make him a price in the secondary market and because of the possibility that the price he obtains is very much against him and the theoretical price for the product. Settlement Risk:- The risk of non-payment of an obligation by a counterparty to a transaction, exacerbated by mismatches in payment timings. So, Mr. Jaichand has to consider all these factors while dealing in the equity derivative market.

Margins:

Now Mr. Jaichand has also seen the margin paid in the equity cash segment. Var Margin: - Now Mr. jaichand bought shares of a company. Its market value today is Rs. 1, 00,000/- Obviously, we do not know what would be the market value of these shares next day. Now Mr. Jaichand holding these shares may, based on VaR methodology, say that 1-day Var is Rs. 1, 00,000/- at the 99% confidence level. This implies that under normal trading conditions the investors can with 99% confidence, say that the value of shares would not go down by more than Rs. 1,00,000/- within next 1-day. Extreme loss margin: - In the above situation, the VaR margin rate for shares of RIL was 13%. Suppose that SD would be 1.5 x 3.1= 4.65. Then 5% (which is higher than 4.65%) will be taken as the Extreme Loss margin rate. Therefore, the total margin on the security would be 18% (13% VaR Margin + 5% Extreme Loss margin). As such, total margin payable( VaR margin + extreme loss margin) on a trade of Rs. 23, 500/- woud be 4, 230/-

Mark to Market Margin:-

Now Mr. Jaichand purchased 10

shares of RIL @ Rs. 2350/-, at 11 am on May 12, 2009. If close price of the shares on that happened to be Rs. 2350, then the buyer faces a notional loss of Rs. 500/- on his buy position. In technical term this loss is called as MTM loss and is payable by May 13, 2009 (that is next day of the trade) before the trading begins.

In case, price of the shares falls further by the end of May 13 2009 to Rs. 2200/-, then buy postion would show a further loss of Rs. 1, 000/-. This MTM loss is payable by next day. Now we will consider the margin payable under the equity derivatives segment. Initial Margin: The initial margin required to be paid by the

investor would be equal to the highest loss the portfolio would suffer in any of the scenarios considered. The margin is monitored and collected at the time of placing the buy/ sell order. As higher the volatility, higher the initial margin. Exposure Margin:- Exposure margins in respect of index Premium margin:- If 1000 call option on RIL are purchased at futures and index option sell position are 3% of the notional value. Rs. 20/- and Mr. Jaichand has no other positions, then the premium margin Rs. 20,000. Assignment Margin:- Assignment Margin is collected on assignment from the sellers of the contract.

Duration:

Generally equity market is a long term market and people invested in it for more than one year and then only they get good return on equity. Generally any safe investors can invest in it because here risk is comparatively low then derivative market. While in derivative market investors are investing for less than one yea, generally for 2 months or 3 months. Here they get high returns on it because they are bringing high risk.

Participants:
Generally any long term investors can invest in equity or hedgers are investing in the equity, who wants to reduce their risk. Any person who wants to be safe investors and wanted to earn a good amount of returns after a period of more than one year is also invested in equity. In derivative market mostly speculators and arbitragers are invested because they wanted quick money in short time period and hedgers are also invested in derivative market to reduce their risk. Expiry date: Its a last Thursday of any month in case of a derivative market but no such things in case of an equity market.

CHAPTER-5
FINDINGS & RECOMMENDATIONS

FINDINGS Practical situation

During my training internship I had experience of real practical situation in the stock Market and in an Organization. End of June 2009 turned out to be favorable for Indian stock markets. The first few sessions saw optimism in the market on the hope that the government will make policy announcements in the budget. However, the market corrected soon after the announcement of budget due to absence of major policy announcements. The sentiments remained negative during following few sessions. However, the market picked momentum from mid of the month. This was helped by better-than-expected corporate earnings, huge overseas inflows and encouraging global cues. The buoyancy in the market continued in the second half helping the BSE Sensex to touch highest in more than a year towards the month end. On the whole, the market closed on a strong note. Global stocks rallied over the month on encouraging economic data and earnings reports. The MSCI AC World Index gained 8.70%, where as the MSCI Emerging Markets Index climbed 10.86% during the month. The performance of Indian markets was in line with the global counterparts

The Sensex settled the month with a gain of 8.12%, while the Nifty registered a rise of 8.05%. The BSE Mid and Small caps performance was in line with their larger counterparts, gaining 9.74% and 8.11% respectively over the month.

Sector Performance All the BSE Sectoral indices wrapped the month with gains except Capital Goods. Intense buying spree was seen in Auto, Realty, FMCG and IT indices, which posted gains of over 20%. Metal, Teck, Health Care and Consumer Durable indices were among other top gainers whereas Oil & Gas index posted a marginal rise over the month.

Institutional Activities
The FIIs flow remained positive in equities with net inflows of Rs 11,625 crores (USD 2.40 bn) during the month. The domestic MFs were also net buyers with inflows of Rs 1,825.50 crores (USD 381 mn) during the month.

Major Corporate Events

Infosys Technologies announced a 17.28% y-o-y rise in consolidated net profit for the quarter ended June 2009 to Rs 1,527 crores (USD 318.59 mn).

Income from operations for the quarter climbed 12.73% y-o-y to Rs 5,472 crores (USD 1.14 bn). Reliance Industries reported a drop of 11.53% y-o-y in net profit for the quarter ended June 2009 to Rs 3,636 crores (USD 758.60 mn). Total income for the quarter slipped 21.64% y-o-y to Rs 32,757 crores (USD 6.83 bn). Steel Authority of India earmarked Rs 59,800 crores (USD 12.48 bn) capex plan. It includes ongoing modernization and expansion, value addition, technology up-gradation and sustenance. Of the total capex plan, Rs 10,000 crores (USD 2.10 bn) will be spent during 2009-10. Punj Lloyd along with its group companies bagged orders worth Rs 10,250 crores (USD 2.14 bn) during the month. It reported a 27% y-o-y rise in consolidated profit after tax for the quarter ended June 2009 to Rs 125 crores (USD 26.1 mn). Consolidated revenues for the quarter climbed 12% y-o-y to Rs 2,658 crores (USD 554.56 mn).

Key Macro Developments

Industrial production continued to remain positive in May 2009, with a growth of 2.7%. Core sectors registered a growth of 6.5% for June 2009. Exports growth continued to drop for a ninth consecutive month. In dollar terms, exports plunged 27.70% to USD 12.81 billion, however, in rupee terms, it dropped 17.40% to Rs 61,217 crores during June 2009. Meanwhile, oil prices slipped marginally 0.63% over the month to USD 69.45 a barrel.

Outlook
On the international front, the markets will track developments and key economic data from US, China and Japan. The exit strategy of the central banks will also have bearing on the global markets. On the other hand, the Indian markets will be driven by the progress of monsoon, policy announcements from the government and key economic data. Overall quarterly corporate earnings performance was better than the market expectations. The market is now hoping for better earnings growth prospects for FY2010. The manufacturing growth has also started showing signs of improvement. Now, with signs of economic recovery in developed countries and improvement in risk appetite globally, the funds will flow in the emerging markets like India in search of higher growth. This coupled with encouraging earnings outlook for FY2010, provides good opportunity for investors to take active participation in the market and increase the equity allocation from long term perspective.

Comparative analysis of the traded value in the F & O Segment with the cash segment:

Thus we can say that in practical life though equity cash segment is better than the derivatives because it involves lesser risk more numbers of investors are trading in derivatives (F& O) segment. It is a major finding of the projects shows that by 60% to 70% investors are bear more risk and traded in derivatives market because they want to earn more profits by trading in derivatives.

CONCLUSIONS

This project has covered several areas. Its main conclusions are:

Derivatives market growth continues almost irrespective of equity cash market turnover growth. Since 2000. Cash equity turnover has fallen in the developed markets, but derivatives turnover continued to rise steeply and steadily.

Equity derivatives businesses like interest derivatives are highly concentrated. Using notional value as the measure, the 2 main US markets and the 2 cross-border European markets accounted for about 75% of the total. This was most apparent in index derivatives, which make 99% of the notional value of equity derivatives. In single stock derivatives, other markets have established niches and the dominance of the gig four is less evident.

Equity market volume and derivative market notional value are strongly correlated- with a ratio significant differences between individual markets.

 A number of cash equity markets- particularly in developing Asia- do not have equity derivatives markets. Comparison of their cash market volumes with those that do have derivative exchanges shows that the markets without derivatives are of similar size. I am not convinced that market or infrastructure differences explain this, but suspects that regularity barriers have effectively prevented the development, markets in several developing Asian countries.

RECOMMENDATIONS
RBI should play a greater role in supporting Derivatives. Because nowadays derivatives market are increasing rapidly and it plays a major role in the whole securities market. Derivatives market should be developed in order to keep it at par with other derivative market in the world. Nowadays more number of investors are shows their interest in derivatives market because it includes high return by bearing high risk. Speculation should be discouraged because it affects the market conditions badly and new investors are reducing their interest in the market. There must be more derivatives instruments aimed at individual investors. SEBI should conduct seminars regarding the use of derivatives to educate individual investors There is a need to have a smaller contract size in F & O Market. We can review the size of the contract from Rs. Two lacs to On Lacs. In the FICCIsurvey, 73%of the respondents also held the same view.

BIBLIORAPHY

Books: National Securities Depository Limited Fundamentals of Futures & Options Markets- John C. Hull Securities Markets. Financial Derivatives- S. L. Gupta Laws and Regulations of Financial

Websites: www.world-exchange.org www.nseindia.com www.bseindia.com www.bmasecurities.com www.moneycontrol.com