Hedging with Option strategy

COCHIN STOCK EXCHANGE LTD

“A Study on Hedging with Index Options using

S&P CNX NIFTY Index with special reference to

Cochin Stock Exchange Ltd”

PROJECT REPORT

PROJECT DONE BY

ANPU MATHEW SIMON

UNDER THE GUIDANCE OF

SONY JOSEPH

(FACULTY)

SB COLLEGE, BIMS, Changanacherry

Berchmans Institute of Management Studies, Changanacherry 2008-2010 1


Introduction



1.1 Introduction

Capital market plays as important role in the economic development a country. It is a

major segment of the financial system of the country. Main function of a capital market is

to converts savings of the people towards profitable investments. “Capital market refers

to the institutional arrangements for facilitating the borrowing and lending of long term

funds”. The capital market is the market for securities, where companies and

governments can raise long-term funds. It is a market in which money is lent for periods

longer than a year. The capital market includes the stock market and the debenture

market. The capital markets consist of the primary market and the secondary market. The

primary markets are where new stock and bonds issues are sold to investors. The

secondary markets are where existing securities are sold and bought from one investor or

speculator to another, usually on an exchange.

Risk is a characteristic feature of all commodity and capital markets. Investing in

securities is profitable as well as exciting. It is indeed rewarding but involves a great deal

of risk. There is no return without risk. Higher the risk, higher the return. Lower the risk,

lower the return. Neither is desirable. A certain level of risk is desirable and should be

taken particularly when tools that minimize the risk are available. Risk and returns in the

case of an investment are like the two sides of the same coin. Though high returns are the

basic motive behind investment, the dodgy element of risk cannot be overlooked. Now,

future is uncertain, so one has to protect oneself from future uncertainties. So one hedges

against possible uncertainties and mitigates risk by counterbalancing. Hedging refers to a

method of reducing the risk of loss caused by price fluctuation. Portfolio managers and

corporations use hedging techniques to reduce their exposure to various risks. Derivatives

are an important tool used for hedging. Derivatives include options, futures, swaps etc.



Derivatives treated as one of the remarkable developments in the financial markets.

Derivatives are financial instruments which help in reducing the impact of business risks.

Derivative is a mechanism for covering against risks. 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 most commonly used derivatives

contracts are forwards, futures and options. The importance of derivative is that it helps

in transferring risk. Making clearer it can't eliminate risk but can transfer. Derivatives act

as a risk management tool.

Derivatives allow investors to leverage relatively small amounts of funds over a wide

class of assets and thus diversify their portfolios. Derivative prices reveal information to

investors and provide more stability to the financial markets. The risk associated with

derivatives depends upon how these securities are used in a particular market and

economic environment. Though the derivative market(s) exist where standardized

derivative are traded on formal, legally recognized and legally unrecognized markets

where many privately negotiated customized financial contracts (derivative) are traded,

which are known as Over the Counter (OTC) derivatives. Such OTC traded financial

contracts expose markets to a great amount of financial, operational, counterparty,

liquidity and legal risk.

The emergence of the market for derivative products, most notably forwards, futures and

options can be traced back to the willingness of the risk averse economic agents to guard

themselves against uncertainties arising out of fluctuations in asset prices. By their

nature, the financial markets are marked by a very high degree of volatility. Through the

use of derivative products it is possible to partially of fully transfer the price risks by

locking in asset prices. As instruments of risk management, these generally do not

influence the fluctuations in asset prices on the profitability and cash flow situation of

risk averse investors.



1.2 Statement of the Problem

Every investment is characterized by risk and return. An investment whose returns are

fairly stable is considered to be a low risk investment , where as an investment whose

returns fluctuate significantly is considered to be a high risk investment. Capital market is

one of the most risky places for investment. But the return from the capital market

investment is always high. Therefore share become an attractive area for investment.

Traditionally rising markets (bullish) have been profit making times and falling markets

(bearish) have given risk to losses for ordinary investors. This is because on a cash

market the only way of capitalizing on a bearish view is to short stock with an intention

to buy it back when the prices have fallen. However, due to the uncertainties this is not a

viable proposition unless the investors already hold a stock or have some way of

borrowing the stock in order to short it.

An investor is able to make money expecting the market or a particular stock to go up or

down by two different ways; by simple thinking and analyzing using probability.

According to studies both the ways are proved to be risky.

When considering the investment in Derivatives, the options are less, so the probability

of loosing investment is also less. The derivatives especially the financial derivatives are

now a days emerging trend in the financial market. Derivative products initially emerged

as hedging devices against fluctuations in commodity prices, and commodity-linked

derivatives remained the sole form of such products for almost three hundred years. The

financial derivatives are used to minimize the losses of investors. The risk taking

investors who are ready to take risk can maximize their profit by using derivatives.

Derivative market provides a few ways to do this by allowing us to do transactions that

provides payoff, which are the same as or similar to short selling. Derivative instruments

thus offer several avenues or gaining even in the bearish market. This flexibility is one of

the features that make this market so attractive for the investors.



Futures and Options are now traded on many exchanges throughout the world. A hedge is

any act that reduces the price risk of an existing or anticipated position in the cash

market. An Option contact involves a right to buy or a right to sell an asset of certain time

in the future for a certain price. There are two types of Options: Call Option and Put

Option. A Call Option gives the holder the right to buy an asset by a certain date for a

certain price. A Put Option gives the holder to sell an asset by a certain date for certain

price. A put optimal portfolio is a group of securities, which gas the maximum return and

minimum risk.

The main focus of the study is to find out the effectiveness of Index Options as a hedging

technique. As the share market is volatile i.e. Changes may happen at any time, the risk

and return are equally uncertain so the investor has always of fear in his mind. The risk

and uncertainty need to be minimized. Hence the present stock seeks to reduce the risk

uncertainty using hedging technique trading. In a highly unpredictable market such as the

stocks, hedging plays a crucial role in protecting an investor against losses resulting from

unforeseen price or violating changes after a detailed study, the researcher is convinced

of the significance of Hedging as it helps reduce risk in an effective manner.

1.3 Objectives

To have an understanding about the derivative market and instruments.

To understand the various risks associated with investments and the risk

minimizing techniques.

To know the effectiveness of Hedging.

To know the role of Index Options in Hedging.

To know how to make profit even in the falling (bearish) market.



Industry Profile



2.1 Industry Profile

The capital market is a market for financial assets, which have longer or indefinite

maturity. Generally, it deals with long-term securities which have maturity period of

above one year. The capital market may be further divided into three namely.

1. Industrial securities market

2. Government securities market

3. Long-term loan market

The industrial market, which deals with shares and debentures, can further be divided

into:

Primary market

Secondary Market

2.1.1 New issue market (Primary market)

Stocks available for the first time are offers through new issue market. The issuer may be

new company or an existing company. These issues may be of new type or the security

used in the past. In the new issue market the issuer can be considered as a manufacturer.

The issuing houses, investment bankers’ and brokers act as the channel of distribution for

the new issue.

The Functions

The main service function the primary market ate organization underwriting and

distribution. Organization deals with the origin of the new issue. The Proposal is

analyzed in terms of nature of security, the size of the issue and flotation method of issue.



Underwriting contract makes the share predictable and removes the element of

uncertainty in the subscription. This carried out with the help of the lead managers and

brokers to the issue

2.1.2 Secondary market

Secondary Market refers to a market where securities are traded after being initially

offered to the public in the primary market and / or listed on the stock Exchange.

Majority of the trading is done in the secondary market. Secondary market comprises of

equity markets and the debt markets. For the general investor, the secondary market

provides and efficient platform for trading of his securities. For the management of the

company, Secondary equity markets serve as a monitoring and control conduit – by

facilitating value-enhancing control activities, enabling implementation of incentive-

based management contracts, and aggregating information (via price discovery) that

guides management decisions.

Stock exchange

Stock Exchange is an organized marketplace where securities are traded. These securities

are by the government, semi-government Bodies, Public sector undertakings and

companies for borrowing funds and raising resources. Securities are defined as monetary

claims and include stock, shares, debentures, bonds etc. If these securities are marketable

as in the case of Government stock, they are transferable by endorsement and are like

movable property. Under the securities Contract Regulation Act of 1956, securities

trading are regulated by the Central Government and such trading can take place only in

Stock Exchange recognized by the Government under this Act. At present there are 23

recognized stock Exchanges in India. Of these major Stock Exchange, like Mumbai,

Calcutta, Delhi, Chennai, Hyderabad, Bangalore etc. are permanently recognized while a

few are temporarily recognized.



Functions of Stock exchange

1. Maintains Active Trading

Shares are traded on the stock exchanges, enabling the investors to buy and

sell securities. The prices may vary from transaction to transaction. A continuous trading

increases the liquidity or marketability of the shares traded on stock exchanges.

2. Mobilizing savings for Investment

When people draw their savings and investment in shares, it leads to a more

rational allocation of resources because funds, which could have been consumed, or kept

in idle deposits with banks, are mobilized and redirected to promote business activity

with benefits for several economic sectors such as agriculture, commerce and industry

resulting in a stronger economic growth and higher productivity levels.

3. Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines,

increase distribution channels, hedge against volatility, increase its market share, or

acquire other necessary business assets

4. Fixation of prices

Price is determined by the transactions that flow from investor’s demand and

supplier’s preference. Usually the traded prices are made known to the public. This helps

the investors to make better decisions.

5. Creating investment opportunities for small investors



As opposed to other businesses that require huge capital outlay, investing

in shares is open to both the large and small stock investors because a person buys the

number of shares they can afford.

6. Barometer of the economy

Share prices tend to rise or remain stable when companies and the economy in general

show signs of stability and growth. An economic recession, depression, or financial crisis

could eventually lead to a stock market crash.

7. Ensures safe fair dealing

The rules, regulations and by laws of the stock exchanges provide a measure of safety to

the investors. Transactions are conducted under competitive conditions enabling the

investors to get a fair deal.

8. Dissemination of information

Stock Exchanges provide information through their various publications.

They publish the shares prices traded on daily basis along with the volume traded.

2.1.3 National Stock Exchange (NSE)

With the liberalization of the Indian economy, it was found inevitable to lift the Indian

stock market trading system on par with the international standards. On the basis of the

recommendations of high powered Pherwani Committee, the National Stock Exchange

was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and

Investment Corporation of India, Industrial Finance Corporation of India, all Insurance

Corporations, selected commercial banks and others.

Trading at NSE can be classified under two broad categories:

(a) Wholesale debt market and

(b) Capital market.



Wholesale debt market operations are similar to money market operations - institutions

and corporate bodies enter into high value transactions in financial instruments such as

government securities, treasury bills, public sector unit bonds, commercial paper,

certificate of deposit, etc.

There are two kinds of players in NSE:

(a) Trading members

(b) Participants.

Recognized members of NSE are called trading members who trade on behalf of

themselves and their clients. Participants include trading members and large players like

banks who take direct settlement responsibility.

Trading at NSE takes place through a fully automated screen based trading mechanism,

which adopts the principle of an order driven market. Trading members can stay at their

offices and execute the trading, since they are linked through a communication network.

The prices at which the buyer and seller are willing to transact will appear on the screen.

When the prices match the transaction will be completed and a confirmation slip will be

printed at the office of the trading member.

2.1.4 Over The Counter Exchange of India (OTCEI)

The traditional trading mechanism prevailed in the Indian stock

markets gave way to many functional inefficiencies, such as, absence of liquidity, lack of

transparency, unduly long settlement periods and binami transactions, which affected the

small investors to a great extent. To provide improved services to investors, the country's

first ring less, scrip less, electronic stock exchange OTCEI - was created in 1992 by

country's premier financial institutions – UTI, ICICI, and IDBI etc.

Trading at OTCEI is done over the centers spread across the country. Securities traded on

the OTCEI are classified into:

Listed Securities - The shares and debentures of the companies listed on the OTC

can be bought or sold at any OTC counter all over the country and they should not

be listed anywhere else



Permitted Securities - Certain shares and debentures listed on other exchanges and

units of mutual funds are allowed to be traded

Initiated debentures - Any equity holding at least one lakh debentures of particular

scrip can offer them for trading on the OTC.

2.1.5 Bombay Stock Exchange (BSE)

The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as

"The Native Share and Stock Brokers Association". It is the oldest one in Asia, even

older than the Tokyo Stock Exchange, which was established in 1878. It is a voluntary

non-profit making Association of Persons (AOP) and is currently engaged In the process

of converting itself into demutualised and corporate entity. It has evolved over the years

into its present status as the premier Stock Exchange in the country. It is the first Stock

Exchange in the Country to have obtained permanent recognition in 1956 from the Govt.

of India under the Securities Contracts (Regulation) Act, 1956.

The Exchange, while providing an efficient and transparent market for trading in

securities, debt and derivatives upholds the interests of the investors and ensures

redresses of their grievances whether against the companies or its own member- brokers.

It also strives to educate and enlighten the investors by conducting investor education

programmes and making available to them necessary informative inputs.

A Governing Board having 20 directors is the apex body, which decides the policies and

regulates the affairs of the Exchange. The Governing Board consists of 9 elected

directors, who are from the broking community (one third of them retire every year by

rotation), three SEBI nominees, six public representatives and an Executive Director &

Chief Executive officer and a Chief Operating Officer. The Executive Director as the

Chief Executive Officer is responsible for the day-to-day administration of the Exchange

and he is assisted by the Chief Operating Officer and other Heads of Departments.



Company profile



2.2.1 Cochin Stock Exchange (CSE)

Cochin Stock Exchange limited (CSE) is one of he premier sock exchanges in India.

Established in the year 1978, the exchange has undergone tremendous transformation

over the years. The Exchange had a humble beginning with just 5 companies listen in

1978-79, and had onl7 14 members. The trading operation on the Exchange commenced

in 1980, which were till then carried out through the brokers located outside Kerala.

Today, the Exchange has 240 listed companies and 508 members.

In 1989 the company went for computerization of its offices. In order to keep with the

pace with the changing scenario in the capital market CSE took various initiatives

including trading in dematerialized shares. CSE introduced the facility of computerized

trading called “Cochin Online trading” (COLT) on March 17, 1997. CSE is one of the

promoters of the Interconnected Stock Exchange of India (ISE). The objective was to

consolidate the small fragmented and less liquid markets into a national level integrated

liquid markets.

With the enforcement of efficient margin system and surveillance, CSE has successfully

prevented defaults. “Introduction of fast track system made CSE the stock exchange with

shortest settlement cycle in the country at that time. By the dawn of the new century, the

regional exchange faced the serious challenges from the NSE &BSE. To face this

challenge CSE promoted a 100% subsidiary called the Cochin Sand Stock Brokers Ltd

(CSBL) and started trading in the National Stock Exchange (NSE) and Bombay Stock



Exchange (BSE). CSBL is the first subsidiary of a Sock Exchange to get membership in

both NSE&BSE, and become a participant in the Central Depository Service Ltd

(CDSL). The CSE has been playing a vital role in the economic development of the

country and the state.

2.2.2 Organization structure of CSE.

2.2.3 Legal framework of the organization

The Cochin stock exchange is directly under the control and supervision of Securities &

Exchange Board of India (the SEBI), and is today a demutualised entity in accordance


Administration &Personnel

Legal & Secretarial

Listing Marketing &Public Relations

Finance

Legal CDSLSystems Settlement Surveillance

Board of Directors

Executive Director


with thee Cochin Stock Exchange (Demutualization) Scheme. 2005 approved and

notified by SEBI on 29th of August 2005

2.2.4 Membership profile

Cochin Stock Exchange Currently has 508 members. All the members of CSE have a

share each value of Rs100 thus making the issued, subscribed and paid up capital of

Rs.50800. Thus authorized capital of CSE is Rs.100000with the total membership limited

to 1000.

As per the SEBI norms CSE charges an initial deposit of Rs.2 lakhs from each member.

Based on the volume of trade each member is to contribute additional deposits. Along

with this an annual subscription fee of Rs.200 for individual members and Rs.500 for

corporate members will be charged by CSE. The members are appointing their assistants

are sub brokers based on the guidelines given by the SEBI. During the 5 years

membership each members have to pay Rs.5000 annually to SEBI as advance payment

on or before 1st October of each financial year.

From the 6th to the 10th year of membership of the total amount payable is Rs.5000 which

is payable at the beginning of the 6th year (counted as payment of Rs.1000 per year).

2.2.5 Management of Cochin Stock Exchange

The policy decisions of the CSE are taken by the Board Of Directors. The Board is

constituted with 12 members of whom less than one-fourth are elected from amongst the

trading member of CSE, another one fourth are Public Interest Directors selected by

SEBI from the panel submitted by the Exchange and the remaining are Shareholder

Directors. The Board appoints the Executive Director who functions as an ex-officio

member of the Board and takes charge of the administration of the Exchange.



The Exchange is professionally managed, under the overall direction of the Board of

Directors. The Board consists of eminent professionals from fields such as judiciary,

administration and management, who are known as Public Interest Directors. The Public

Interest Directors constitute one fourth of the total strength of the

Board .The representation of brokers of the Exchange is limited to one fourth of the total

strength of the Board .The remaining are representatives of shareholders without trading

rights, called the Shareholder Directors.

2.2.6 Cochin Stock Brokers Limited.

Rapid changes taking place in the capital market has dwindled the importance of

Regional Stock Exchange. With the introduction of online trading by NSE and BSE

investors could trade online from any remote location of the through a broker terminal.

Taking into consideration all this developments and considering the future, the sock

exchange decoded to start a 100% subsidiary called Cochin Stock brokers Limited

(CSBL).

This enabled the CSE to acquire membership of other stock exchange through its

subsidiary. CSBL was incorporated on 28-12-1999 and later it got membership in NSE &

BSE. The CSBL started its operation in full swing from February 2001.

At present the CSBL offers trading in BSE&NSE with more than 50 registered brokers

and this have been increasing day by day. Each member is given separate terminal for

online trading. The staff in the exchange provides the necessary help for various matter

involved in the trading activities.

2.2.7 Products & Services

Cochin Stock Brokers ltd (CSBL), a wholly owned subsidiary company of Cochin Stock

Exchange is a corporate member of both NSE and BSI, and provides trading facilities on

here exchange through the brokers if exchange.

The subsidiary offers a wide range of products and services.



1. Trading on National Stock Exchange

2. Trading on Bombay Stock Exchange

3. Internet Trading (WEBS)

4. Depository Participant

5. IPO (Initial Public Offer) Primary Market binding.

6. Issue of new Shares.

2.2.8 Departmental profile

The Cochin Stock Exchange carries on its functions through seven main department s.

There exist a very cordial relationship between each department in CSE and the day to

day operations are well delegated to each department through the staff member at various

levels. The council of management is the apex body, which coordinates all the operations

of the exchange. The executive director gives the guideline to the heads of various

department s.

The various functional department Stock under Cochin Stock Exchange are:

Finance department

Administration department

Surveillance department

Legal department

Systems department

Settlement Department

Listing

Finance Department

This department takes care of the various financial transactions of CSI thus acting as the

life line of the organization. The department is headed by a Finance officer and assisted

by Deputy Manager and several senior and junior officers

Administration Department



A legal officer with two deputy manager for administration and complains and

management information system heads the department two senior officers looking after

public relations and administration form part of administration

Surveillance Department

The Exchange has setup Surveillance Department to keep close watch on price

movements of scrip, detect market abuses like price rigging, monitor abnormal price and

volumes which are not consistent with normal trading pattern etc. The main objectives of

the department are top be provide a free and fan market, to arrest unsystematic risk form

entering into the system and to manage risks. The surveillance function at the exchange

has assumed greater importance in the last few years. SEBI has directed the stock

exchanges to set up a separate surveillance dep0artment with staff exclusively assigned

for this function.

Legal Department

CSE has a full - fledged Legal Department, by Manger-Legal and is primarily engaged in

advising the management in the merits and demerits of legal issues involving the

exchange

A major function under taken by the department is to ensure that the various rules,

regulations and directives of SEBI with regard to trading in the Capital Market by brokers

and sub brokers are brought to the notice to members and the investing public.

System department



It is the heart of the various operations of CSE. The department provides stock the

necessary technical supports for screen based trading and the computerized functioning

of all other department.

The various activities of the department include:-

Developments of various software needed for functioning of the exchange

Maintenance of Multex software, which provides online trading NSE and BSE.

Maintenance of an effective network of computers for the smooth

functioning of the exchange.

The major back office system soft wares used are NESS and BOSS for NSE and BSE

trade calculations respectively. These soft wares are developed in house by CSE. These

soft wares are used organization maintain the entire records of all the trades that occur

each day. It also does the require calculations for deductions and also crease kinds of

reports needed by the brokers and their clients.

Now a days CSE using CBRS (Core Broking Software). The clients and members are

directly used by CBRS system.

Listing department

Listing means admission of the securities of a company to trading privileges on a Stock

Exchange. The principal objectives of listing are to provide ready marketability and

important liquidity and free negotiability to stock and shares; ensure proper supervision

and control of dealings therein, and protect the Interests of shareholders and of the

general investing public.

Settlement Department

Settlement department is a key department of the CSE. It is dealing with cash and

securities. It helps the broker in setting the matters related to their pay in and payout,

recovery of dues and selling the matters related to the bad deliveries. This department is

headed by a Deputy Manager and assisted by two senior officers who look the operations



involved in the settlement activities in CSE. CSE following T+2 settlement system

(where T-dates of transaction)

DERIVATIVES



3.1 DERIVATIVES

A derivative is, as the name suggests, a financial contract whose value is derived from the

value of another asset. The underlying asset can be securities, commodities, bullion,

currency, live stock or anything else. In other word, Derivative means a Forward, Future,

Option or any other Hybrid contract of pre determined fixed duration, linked for the

purpose of contract fulfillment to the value of a specified real or financial asset to an

index of securities.

The basic concept of derivative is a simple ancient one, with evidence that the Romans

used them thousands of years ago, and that they have roots in Japan and Netherlands

dating back to the early sixteenth century (Market History). A common example is a

farmer use forward contract, type of derivative, to sell wheat before the harvest at a

predetermined fixed price. The derivative in this case is used to protect the farmer against

an expected decrease of the price in wheat, thus reducing g his exposure organization

market risk (link organization market risk). On the other hand, the buyer accepts the risk

associated with the fixed price and faces the possibility of either financial gain or loss,



depending on the difference between the fixed price and the actual price at the time of

harvest. Consequently, one may think of derivatives as tool to buy and sell risk ‘

In finance, a derivative security is a contract that specifies the rights and obligations

between the issuer of the security is a contract that specifies the rights and obligations

between the issuer of the security is a contract that specifies the rights sand obligations

between the issuer of the security and the holder to receiver or deliver future cash flows

(or exchange of other securities or assets) based on some future event/ Derivative can

have a large number of properties, so that its value depends on many factors. The terms

and payments can be derived from the price of a security or commodity, an event, or

something else. Derivatives that are fully standardized like Futures and Options are

generally traded through a securities exchange or future exchange.

3.1.1 Definition of 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. Example of derivatives includes futures and options. Advanced investors

sometimes purchase or sell derivates to manage the risk associated with the underlying

security, to protect against fluctuations in values, or to profit from periods of inactivity or

decline. These techniques can be quite complicated and quite risky. Derivatives can be

used to mitigate the risk of economic loss arising from changes in the value of the

underlying. This activity is known as hedging. Alternatively, derivatives can be used by

investors to increase the profit arising if the value of the underlying moves in the

direction they expect. This activity is known as speculation.

Derivatives - contracts that gamble on the future prices of assets—

are secondary assets, such as options and futures, which derive their value from primary



assets, such as currency, commodities, stocks, and bonds. With securities Laws (Second

Amendment) Act, 1999, Derivatives has been include in the definition of Securities. The

term Derivative has been defined in Securities Contracts (Regulations) Act, as:-

a. “Security derived from a debt instrument, share loan whether secured or

unsecured, risk instrument or contract for difference or any other from of security”.

b. “Contract which derives its value from the prices, or index of prices, of

underlying securities”.

3.1.2 Types of Derivatives instruments

Derivative contracts have several variants. The most common

variants are forwards, futures, options and swaps. All derivatives can be divided into two

broad classes: linear and nonlinear. The distinction lies in how the derivatives function

relates to the underlying asset value. Within this to classes are four general types of

derivatives

Furthermore, derivatives may be grouped as exchange –traded or

over the counter (OTC). Exchange derivatives, which included furthers, are traditional,

highly standardized contracts that readily provided liquidity and minimize credit risk. On

other hand, OTC derivatives are customized to meet the need of the user. For what swaps

are example of OTC derivatives. Options can be either exchange traded or OTC.

Following are the types of derivative products.

a. Futures

Future Contracts organized/standardized contracts, which are traded

on the exchanges. These contracts can be defined as “a standardized, exchange traded



agreement specifying a quality and price of particular type of commodity (Soybeans,

gold, oil, etc.) to be purchased or sold at predetermined date in the future”. On contract

date, delivery and physical possession take place unless contract has been closed out.

Futures are also available on various financial products and indexes today.

Futures markets were design to solve the problem that exists in

forward market. A future contracts an agreement between two parties to buy or sell asset

at certain time in the future at a certain price but unlike forward contracts, futures

contracts are standardized and exchange traded. To facilitate liquidity in the futures

contracts, the exchange specifies certain standards features of the contracts. It is a

standardized contracts with standard underline instrument, a standard quantity and quality

of the underlying instrument that can be delivered, ( or which can be used for references

purpose in settlement 0 and a standard timing of such settlement,. A futures contract may

be offset prior to maturity by entering into an equal and opposite transactions. More than

99% of futures transactions are offset this way.

The standardized items in a futures contract are:

1. Quantity of the underlying

2. Quality of the underlying

3. The date and month of delivery

4. The units of price of quotation and minimum price charge

5. Location of settlement

Every futures contract is a forward contract, that they

Are entered into through exchange, traded on exchange and clearing

Corporation/ house provide the settlement guarantee for trades.

Are standard quantity; standard quality (In case of commodities)

Future contract is thus a forward contract, which trades on an exchange. S & P CNX

Nifty futures are traded on National Stock Exchange. This provides them transparency,

liquidity anonymity of trades, and also eliminates the counter party risk due to the



guaranty provided by National Securities Clearing Corporation limited. A futures

contract is one where there is an agreement between two parties to exchange any asset,

currency, or commodity for cash at a certain future date, at an agreed price. There is no

reference to an agreement ‘between two parties’ – this because futures contracts are often

entered into through an intermediary (the exchange and seller to clearing house), which

acts as the buyer to each seller and seller to each

The Securities & Exchange Board of India (SEBI) regulates trading

in futures. SEBI exists to guard against traders controlling the market in an illegal or un

ethical manner, and to prevent to fraud in the futures market.

b. Forward

A forward contract is one to one bi- partite contract, to be performed in the future, at the

terms decided today. Forward contracts offer tremendous flexibility to the parties design

the contract in terms of the price, quality (in case if commodities), delivery time and

place but it suffers from poor liquidity and default risk.

Forward contract different from a spot transaction, where payment of

price and delivery of commodity concurrently takes place immediately the transaction is

settled. In a forward contract the sale /purchase transaction of an asset is settled including

the price payable, not for delivery/ settlement at spot, but a specified future date. India

has strong dollar rupee forward market with contracts being traded for one, two …six–

month expiration. Daily trading volume on this forward market is around $ 500 million a

day. This contract includes currencies, stocks, swaps etc. Indian users of hedging services

are also allowed to buy derivatives involving other currencies on foreign markets.

c. Swaps



A swap, another type of liner derivatives, is a contract that allows two parties to

exchange, or swap, payments for a period of time based on some notional principle

amount. Swaps are private agreement between two parties to exchange cash flows in the

futures according to the pre-arranged formulae. The notional principle amount is not

swapped, only the payment flows are exchange. i.e., Swaps are exchange of stream

payment over agreed period. They can be regarded as a portfolio of forward contracts.

Swaps are two types:

1. Currency Swaps: In currency swaps, currency potions are exchanged in the

beginning, which are reversed.

2. Interest Rate Swaps: In interest rate swap only fixed interest obligation are

exchanged with floating exchange rate obligations without exchanging the

principle amount.

The purpose of swap transactions is to take advantage of relative cost reduction.

d. Options

Options are the standardized financial contracts that allows the buyer (holder) of the

options, i.e. the right at the cost of option premium, not the obligation, to by (call

options) or space sell (put options) a specified asset at a price on or before a specified

date through exchanges under stringent financial securities against default. Options are

instruments whereby the right is given by the option seller to option buyer to buy or sell

asset at a specific prince price on or before a specific date.

e. Swaptions

Swaptions are options to buy or sell a swap that will become operative at the expiry of

the options. Thus a swaption is an option on a forward swap. Rather than have calls and

puts, the swaptions market has receiver swaptions and payer swaptions. A receiver

swaption is an option to receive fixed and pay floating. A payer swaption is an option to

pay fixed and receive floating.



f. Warrants

Options generally have lives of up to one year; the majority of options traded on options

exchanges having a maximum maturity of nine months. Longer-dated options are called

warrants and are generally traded over-the-counter.

g. LEAPS

The acronym LEAPS means Long-Term Equity Anticipation Securities. These are

options having a maturity of up to three years.

3.2 Index derivatives

Index derivatives are derivative contracts which have the index as the underlying. The

most popular index derivatives contracts over the world are index futures and index

options. NSE's market index, the S&P CNX Nifty was scientifically designed to enable

the launch of index-based products like index derivatives and index funds. The first

derivative contract to be traded on NSE's market was the index futures contract with the

Nifty as the underlying. This was followed by Nifty options, derivative contracts on

sectoral indexes like CNX IT and BANK Nifty contracts. Trading on index

derivatives were further introduced on CNX Nifty Junior, CNX 100, Nifty Midcap 50

and Mini Nifty 50. S&P CNX Nifty Options. NSE introduced trading in index options on

June 4, 2001. The options contracts are European style and cash settled and are based on

the popular market benchmark S&P CNX Nifty index.



Futures contract based on an index i.e. the underlying asset is the index, are known as

Index Futures Contracts. For example, futures contract on NIFTY Index and BSE-30

Index. These contracts derive their value from the value of the underlying index.

Similarly, the options contracts, which are based on some index, are known as Index

options contract. However, unlike Index Futures, the buyer of Index Option Contracts has

only the right but not the obligation to buy / sell the underlying index on expiry. Index

Option Contracts are generally European Style options i.e. they can be exercised /

assigned only on the expiry date. An index in turn derives its value from the prices of

securities that constitute the index and is created to represent the sentiments of the market

as a whole or of a particular sector of the economy. Indices that represent the whole

market are broad based indices and those that represent a particular sector are sectoral

indices.

In the beginning futures and options were permitted only on S&P Nifty and BSE Sensex.

Subsequently, sectoral indices were also permitted for derivatives trading subject to

fulfilling the eligibility criteria. Derivative contracts may be permitted on an index if 80%

of the index constituents are individually eligible for derivatives trading. However, no

single ineligible stock in the index shall have a weightage of more than 5% in the index.

The index is required to fulfill the eligibility criteria even after derivatives trading on the

index have begun. If the index does not fulfill the criteria for 3 consecutive months, then

derivative contracts on such index would be discontinued.

By its very nature, index cannot be delivered on maturity of the Index futures or Index

option contracts therefore, these contracts are essentially cash settled on Expiry.

3.3 Derivatives in Indian context



Keeping in view, the experience of even strong and development economies the world

over, it is no denying the fact hat financial market it extremely volatile in nature. India’s

financial market is not an exception to this phenomenon. The attendant risk arising out of

the volatility and complexity of the financial market is an important concern for financial

analysis. As a result, there us a logical need for those financial instruments which allow

fund managers to better manage or reduce these risks. Out of various risks, credit risk and

interest rate risk are the two core risks, which are commonly acknowledged by various

categories of financial health of business organization, especially banks.

With gradual liberalization of Indian financial system and the growing integration among

market stock, the risks associated with operations of banks and all India financial

institutions have become increasingly complex requiring strategic management. In

keeping with spirit of the guidelines on Asset-Liability Management system to deal with

credit and market risk is also the need of the hour. Fr enabling he banks and the financial

institutions, among others, to mange their risk effectively the concept of derivatives come

into the picture.

The term “Derivative” indicates that it has no independent value i.e. its value is entirely

“derived” from the value of the underlying asset. The underlying asset can be securities,

commodities, bullion currency, livestock or anything else.

In other words Derivative means forward, future, option or any other hybrid contract of

pre-determined fixed duration, linked for the purpose of contract fulfillment to the value

of a specified real or financial asset or to an index of securities

3.3.1 Development of derivatives market in India

The first step towards introduction of derivatives trading in India was the promulgation of

the Securities Laws (Amendment) Ordinance, 1995, which withdrew the prohibition on

Options in securities. The market for derivatives, however, did not take off, as there was

no regulatory framework to govern trading of derivatives. SEBI set up a 24–member.

Committee under the Chairmanship of Dr.L.C.Gupta on November 18, 1996 to develop



appropriate regulatory framework for derivatives trading in India. The committee

submitted its report on March 17, 1998 prescribing necessary pre–conditions for

introduction of derivatives trading in India. The committee recommended that derivatives

should be declared as ‘securities’ so that regulatory framework applicable to trading of

‘securities’ could also govern trading of securities. SEBI also set up a group in June 1998

under the Chairmanship of Prof. J.R.Varma, to recommend measures for risk

containment in derivatives market in India.

Derivatives trading commenced in India in June 2000 after SEBI granted the final

approval to this effect in May 2000. SEBI permitted the derivative segments of two stock

exchanges, NSE and BSE, and their clearing house/corporation to commence trading and

settlement in approved derivatives contracts. To begin with, SEBI approved trading in

index futures contracts based on S&P CNX Nifty and BSE–30(Sensex) index. This was

followed by approval for trading in options based on these two indexes and options on

individual securities.

The trading in BSE Sensex options commenced on June 4, 2001 and the trading in

options on individual securities commenced in July 2001. Futures contracts on individual

stocks were launched in November 2001. The derivatives trading on NSE commenced

with S&P CNX Nifty Index futures on June 12, 2000. The trading in index options

commenced on June 4, 2001 and trading in options on individual securities commenced

on July 2, 2001. Trading and settlement in derivative contracts is done in accordance with

the rules, byelaws, and regulations of the respective exchanges and their clearing

house/corporation duly approved by SEBI and notified in the official gazette. Foreign

Institutional Investors (FIIs) are permitted to trade in all Exchange traded derivative

products.

The following factors have been driving the growth of financial derivatives:

Increased volatility in asset prices in financial markets,

Increased integration of national financial markets with the international markets,

Marked improvement in communication facilities and sharp decline in their costs,



Development of more sophisticated risk management tools, providing economic

agents a wider choice of risk management strategies, and

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 trans-actions costs as compared to individual financial

assets.

3.3.2 Issues and opportunities in Indian Derivative Market

In India, there has been a phenomenal growth in derivative market in the last few years.

However, there is still a long way to go. Institutional participation is still very low for a

number of reason, the prime one among them is the position limit cap imposed by the

regulator of FIIs. Each FIIs grows exposure in an Index product is restricted to a

maximum of 15% of the open interest of Rs. 100 Cr. The limit for single stock product is

20% of the market wide limit or Rs.50 Cr. Whichever is lower.

Since a FII having a large exposure to Indian market can only hedged a portion of his

exposure because of the restrictive limit specified. Many FII prefer not to hedge their

exposure at all rather than a hedged a small portion of their portfolio. These restrictive

limits were laid down in 2002, which need to be revised since market conditions have

changed a lot. More over there are number of FIIs who are active participant abroad and

wish to play in Indian market are unable to get FII registration under current regulation.

Thus it is essential that position limit of FIIs be increased and wider set of participant to

increase the depth of the market and improve pricing mechanism are allowed.

Trading in Options, which has remained relatively low will also increase. FII investment

in spot equities will also move up if they get the confidence of hedging their positions in

a liquid derivative market. Domestic players have negligible participation in derivative

market because existing regulations do not permit them to use derivatives to hedge their

portfolios.



Another hurdle towards the growth of derivatives is over all the cap on the total gross

position in any underlying asset, which is currently set at the lower of 30 times average

daily volume in the stock of 10% free float. It is very essential that this limit also be

revised.

Indian debt markets are used to trading on an YTM basis whereas interest rate futures are

settled on the basis of Zero Coupon Yield curve. It is because of this reason that interest

rate futures have not become popular till date. Banks which are major players in fixed

income market have been permitted to use futures only for hedging. This poses a

restriction on their participation. Also there is a need for clarity regarding accounting and

taxation of derivative.

3.3.3 Structure of derivatives market in India

Derivative trading in India can takes place either on a separate and independent

derivative exchange or on separate segment of an existing stock exchange. Derivative

exchange/ segment function as a Self Regulatory Organization (SRO) and SEBI acts as

the oversight regulator. The clearing and settlement of all trades on the derivative

exchange/ segment would have to be through a clearing corporation/ house, which is

independent in governance and membership from the derivative exchange/ segment.

3.3.4 Various types of membership in the derivatives market

Trading Member (TM) – A TM is a member of the derivatives exchange and can

trade on his own behalf and on behalf of his clients.

Clearing Member (CM) –These members are permitted to settle their own trades

as well as the trades of the other non-clearing members known as Trading

Members who have agreed to settle the trades through them.



Self-clearing Member (SCM) – A SCM are those clearing members who can clear

and settle their own trades only.

3.3.5 Introduction to Index Numbers

An Index number measures the change in a set of values over a period of time. A stock

Index number records the change in value of set stocks. An Index is a barometer for

market behavior. It is treated to be a bench mark of portfolio performance. In this study

researcher took the data from NSE and it’s index called S&P CNX NIFTY.

Popular Indices in India

S&P CNX 500

S&P CNX NIFTY

S&P CNX NIFTY JUNIOR

BSE-30 SENSEX

BSE-100 NATEX

Trading Systems

NSE’s trading system for its futures and options segment is called NEAT F&O. It is

based on the NEAT system for the cash segment.

BSE’s trading system for its derivatives segment is called DTSS. It is built on a platform

different from the BOLT system though most of the features are common.

3.3.6 Minimum contract size

It has been specified that the value of a derivative contract should not be less than Rs. 2

lakh at the time of introducing the contract in the market. The contract size is frequently

updated depending upon the current market price of the underlying. The standing

committee on Finance, a parliamentary committee, at the time of recommending

amendment to Securities Contract (Regulation) Act, 1956 had recommended that the



minimum contract size of derivative contracts traded in the Indian markets should be

pegged not below two lakhs. Based on this recommendation SEBI has specified that the

value of a derivative contract should not be less than two lakh at the time of introducing

the contract in the market. In February 2004, the Exchanges were advised to re-align the

contracts sizes of existing derivative contracts to two lakhs. Subsequently, the Exchanges

were authorized to align the contracts sizes as and when required in line with the

methodology prescribed by SEBI.

3.3.7 Lot size of a derivative contract

Lot size refers to number of underlying securities in one contract. The lot size is

determined keeping in mind the minimum contract size requirement at the time of

introduction of derivative contracts on a particular underlying.

For example, if shares of XYZ Ltd are quoted at Rs.1000 each and the minimum contract

size is Rs.2 lacs, then the lot size for that particular scrip’s stands to be 200000/1000 =

200 shares i.e. one contract in XYZ Ltd. covers 200 shares.

3.3.8 Types of Traders in a Derivatives Market

Hedgers, speculators and arbitrators are the types of traders in derivatives 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 rise enough to offset cash loss on the produce.

Speculators:

Speculators are some what 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 trader’s 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 futures investor is not charged interest on the difference

between margin and the full contract value.

3.4 Risks in Investments

The dictionary meaning of risk is the possibility of loss or injury. It is the possibility of

the actual outcome being different from expected outcome. Risk is composed of the

demands that bring in variations in returns of income. Risk means the variations in

returns of income. Risk is an important consideration in holding any portfolio. Risk in

holding securities is generally associated with possibility that realized returns will be less

than the returns that were expected. The main forces contributing to risk are price and

interest. Risk also influenced by external and internal considerations. The source of such

disappointment is the failure of dividends (interest) and/or the security’s price to

materialize as expected. Forces that contribute to variations in return price or dividend

(interest) constitute elements of risk. Some influences are external to the firm, cannot be

controlled, and affect large numbers of securities. Other influences are internal to the firm

and are controllable to a large degree. . In investments, those forces that are

uncontrollable, external and broad in their effect are called sources of systematic risk.

Conversely, controllable internal factors somewhat peculiar to industries and/or firms are

refereed to as sources of unsystematic risk. The total variability return of a security

represents the total risk of that security. Systematic risk and unsystematic risk are the two

components of total risk .Thus,

Total risk = Systematic risk +Unsystematic risk.

3.4.1 Systematic Risk



These are risk associated with the economic, political, sociological and other macro level

changes. They effects and entire market whole and cannot be controlled or eliminated

merely by diversifying one’s portfolio. These risks are undiversifiable. It affects the

entire market. Systematic risk is further sub divided into interest rate risk, market risk,

and purchasing power risk.

Interest rate risk

Rising the current market interest rates are bad news for fixed income investments

because bond prices generally move in the opposite direction of interest rates. As the

prices of bonds in a fund adjust to a rise in interest rates, the fund's share price may

decline. Interest-rate risk refers to the uncertainty of future market values and of the size

of future income, caused by fluctuations in the general level of interest rates

Market risk

Variability in return on most common stocks that is due to basic sweeping changes in

investor expectations are referred to as market risk. Market risk is caused by investor

reaction to tangible as well as intangible events. Expectations of lower corporate profits

in general may cause the larger body of common to fall in price. Investors are expressing

their judgment that too much is being paid for earnings in the light of anticipated events.

The basis for the reaction is a set of real, tangible events political, social, or economic.

Intangible events are related to market psychology. Market risk is usually touched off by

a reaction to real events, but the emotional instability of investors acting collectively

leads to a snow balling over reaction

Purchasing Power Risk

Purchasing-power risk is the uncertainty of the purchasing power of the amounts to be

received. In more understandable terms, purchasing-power risk refers to the impact of

deflation on an investment.



3.4.2 Unsystematic Risks

Unsystematic risk is the portion of total risk that is unique or peculiar to a firm or an

industry, above and beyond that affecting securities markets in general. Factors such as

management capability, consumer preferences, and labor strikes can cause unsystematic

variability of returns for a company’s stock. Factors such as management capability,

consumer preferences, labour, etc. contribute to unsystematic risk. Unsystematic risks are

controllable by nature and can be considerably reduced by sufficiently diversifying one’s

portfolio.

Following are the type of unsystematic risks

Financial risk

Financial risk is associated with the way in which a company finances its activities. We

usually gauge financial risk by looking at the capital structure of a firm. The presence of

borrowed money of debt in the capital structure creates fixed payment in the form of

interest that must be sustained by the firm. The presence of these interest commitments

fixed interest payments due to debt of fixed-dividend payments on preferred stock causes

the amount of residual earnings available for common stock dividends to be more

variable than if no interest payments were required. Financial risk is avoidable risk to the

extent that managements have the freedom to decide to borrow or not to borrow funds. A

firm with no debt financing has no financial risk.

Business risk

Business risk is that portion of the unsystematic risk caused by the operating environment

of the business. This arises from the inability of a firm to maintain its competitive edge

and the growth or stability of the earnings. Variation that occurs in the operating



environment is reflected on the operating income and expected dividends. The variation

in the expected operating income indicates the business risk.

Business risk can be divided into two broad categories: external and internal. Internal

business risk is associated with the operating efficiency of the firm. They are fluctuations

in the sales, effectiveness of R&D department, good personnel management department,

content of fixed cost in cost of production, product variety etc

External business risk is the result of operating conditions imposes upon the firm by

circumstances beyond its control. They are political conditions, business cycle, social and

regulatory factors etc.

3.5 Measure of Beta ()

Beta is a measure of systematic risk. It describes the relationship between the stock’s

return and the Index returns. It measures the sensitivity of a scrip/portfolio vies-a-vies

index movement. Beta of scrip is index specific, i.e., Beta of the same scrip vis-à-vis

Sensex will be different from the beta value vies-a-vies Nifty. Also beta is a time frame

specific value, i.e. beta of scrip vis-à-vis Sensex taking last 6 months historical data into

consideration , will be different from the beta value that we get by taking the last one-

year date into consideration , keeping all the other parameters constant.

1. Beta = +1.0

One percent change in market index return causes exactly one percent change in

the stock return hence they move in tandem.

2. Beta = +0.5.

One percent change in market index return caused 0.5% change. so the stock is

less volatile compared to the market .

3. Beta = +2.0



One percent change in market index return causes 2% change in the stock return,

so the stock is highly volatile and hence risky.

4. Negative beta

This value indicates that stock return moves in the opposite direction to the

market return. A negative beta will give positive return.

3.6 Risk management

Every investor wants to guard himself from the risk. This can be done by understanding

the nature of the risk and careful planning. Risk Management is the identification,

assessment, and prioritization of risks followed by coordinated and economical

application of resources to minimize, monitor, and control the probability and/or impact

of unfortunate events Risk management is the process of managing the risk to an

acceptable level. Risk Management is the name given to a logical and systematic method

of identifying, analyzing, treating and monitoring the risks involved in any activity or

process.

There are different methods for risk management. Diversification and hedging are the

most commonly used methods. With the help of diversification we can reduce the

unsystematic risk as it affects a particular company. Diversification spreads our risk

across numerous financial investments; reducing the impact of poor returns from any one

investment is likely to have on our portfolio. Diversification cannot eliminate market risk.

Usually a well diversified portfolio will provide smoother returns that an investment in a

single asset class.



Hedging is one of the methods through which risk is managed. It refers to the process of

protecting the price of a financial instrument or commodity at a date in the future by

undertaking an off setting position in the present using futures, options, forward contracts

or very other financial instrument.

3.7 Hedging

Risk and returns in the case of an investment are like the two sides of the same coin.

Though high returns are the basic motive behind investment, the dodgy element of risk

cannot be overlooked. Now, future is uncertain, so one has to protect oneself from future

uncertainties. So one hedges against possible uncertainties and mitigates risk by

counterbalancing. Hedging refers to a method of reducing the risk of loss caused by price

fluctuation. Portfolio managers and corporations use hedging techniques to reduce their

exposure to various risks.

Hedging is the process of managing the risk of price changes in physical material by

offsetting that risk in the futures market. Hedging can vary in complexity from a

relatively simple activity, through to highly complex strategies, including the use of

oppositions. The ability to hedge means that industry can decide on the amount of risk it

is prepared to accept. It may wish to eliminate the risk entirely and can generally stock do

so quickly and easily. Managing price risk means achieving greater control of either the

cost of inputs, or revenues; and eliminating concerns that a sharply adverse move in the

price of material could turn on otherwise flourishing and efficient business into a loss

maker. Hedging means reducing or controlling risk. This is done by taking a position in

the futures market that is opposite to the one in the physical market with the objective of

reducing or limiting risks associated with price changes.

Hedging is a two-step process. A gain or loss in the cash position

due to changes in price levels will be countered by changes in the value of a future

position. If there is a fall in price, the loss in the cash market position will be countered

by a gain in future position. Hedging by trade and industry is the opposite of speculation



and is undertaken in order to eliminate an existing physical price risk, by talking a

compensating position in the futures market. Speculators come to the futures market with

no initial risk. They assume risk by taking futures positions. Hedgers reduce or eliminate

the chance of further losses or profits, while the speculators risk losses in order to make

profits.

Before a staring a hedging programme it is essential to assess the

risk due to exposure to the price of physical material. Once the hedger has an

understanding of the tools available, it is relatively easy to select the appropriate action to

manage this risk. It is important that this action is properly mange at all times and that

the appropriate controls and approval procedures are in place.

Investors studying the market often come across a security, which

they believe is intrinsically undervalued. It may be the case that the profits and the

quality of the company make it seem worth a lot more than the market think. A stock

picker carefully purchases securities based on a sense that they worth more than the

market price. When doing so, he faces two kinds of risk s.:

1. His understanding can be wrong, and the company is really not worth more than

the market price.

2. The entire market moves against him and generates loses even though the

underlying idea was correct.

Risk is an essential yet precarious element of investing. So in order to protect the value of

his investment, the investor needs to reduce his w exposure to one or more kinds of risks.

This can be achieved by hedging. So hedging is defined as a position taken in futures,

options or other contracts for the purpose of reducing w exposure to one or more kinds of

risk. Every hedge has a cost, so before we decide to use hedging, we must ask our self

whether the benefits received from it justify the expense. Remember, the goal of hedging

isn't to make money but to protect from losses. The cost of the hedge - whether it is the

cost of an option or lost profits from being on the wrong side of a derivative contract -



cannot be avoided. This is the price you have to pay to avoid uncertainty. The amount

paid to buy an option is called premium. When we are comparing hedging versus

insurance, we should emphasize that insurance is far more precise than hedging. With

insurance, we are completely compensated for our loss. Hedging a portfolio isn't a perfect

science and things can go wrong. Although risk managers are always aiming for the

perfect hedge, it is difficult to achieve in practice.

The Hedging technique

Hedging techniques generally involve the use of complicated financial instruments

known as derivatives, the two most common of which are options and futures. The core

problem when deciding upon a hedging policy is to strike a balance between uncertainty

and the risk of opportunity loss. It is in the establishment of balance that investor must

consider the risk aversion, the preferences, of the shareholders. Setting hedging policy is

a strategic decision, the success or failure of which can make or break a firm. This

decision includes checking whether there are instruments that address both certainty and

opportunity loss. Fortunately, there are. They are called derivatives or derivative

products. With the help of these instruments we can develop trading strategies where a

loss in one investment is offset by a gain in a derivative. Most financial institutions make

markets in panoply of risk management solutions involving derivative products. Some of

them come as stand – alone solutions and others are presented a packages or

combinations. Financial derivatives are used to hedge the exposure to market risk.

Hedgers transfer their risk to speculators who are willing to assume the risk

3.8 Derivatives and risk management.

This term risk management was largely emerged during the early 1990s, but the term

“risk management” was used long before this. Since the 1960s, it has been – and

frequently still is – used to describe techniques for addressing insurable risks.

This form of “risk management “encompasses:



Risk reduction through safely, quality control and hazard education.

Alternative risk financing including self-insurance and captive insurance

The purchase of traditional insurance products, as suitable.

More recently, derivatives dealers have promoted “risk management” as the use of

derivatives to hedge or customize market –risk exposures. For this reason, derivatives

instruments are sometimes called “risk management products”. Derivatives allow risk

about the price of the underlying asset to be transferred from one party to another.

The new “risk management” evolved during the 1990s is different from either of the

earlier forms. Often called “financial risk management”, it treats derivatives as a

problem as much as a solution. It focuses on reporting, oversight and segregation of

duties within organizations.

3.9 Introduction to Options

An option is a contract written by a seller that conveys to the buyer the right— but not the

obligation — to buy (in the case of a call option) or to sell (in the case of a put option) a

particular asset, at a particular price (Strike price/ Exercise price) in future. In return for

granting the option, the seller collects a payment (the premium) from the buyer.

Exchange-traded options form an important class of options which have standardized

contract features and trade on public exchanges, facilitating trading among large number

of investors. They provide settlement guarantee by the Clearing Corporation thereby



reducing counterparty risk. Options can be used for hedging, taking a view on the future

direction of the market, for arbitrage or for implementing strategies which can help in

generating income for investors under various market conditions.

An option gives a person the right but not the obligation to buy or sell something. An

option is a contract between two parties wherein the buyer receives a privilege for which

he pays a fee (premium) and the seller accepts an obligation for which he receives a fee.

The premium is the price negotiated and set when the option is bought or sold. A person

who buys an option is said to be long in the option. A person who sells (or writes) an

option is said to be short in the option. Options can be of two types; Call Option and Put

Option

Call Option

A call option is a financial contract between two parties, the buyer and the seller of this

type of option. It is the option to buy shares of stock at a specified time in the future.

Often it is simply labeled a "call". The buyer of the option has the right, but not the

obligation to buy an agreed quantity of a particular commodity or financial instrument

(the underlying instrument) from the seller of the option at a certain time (the expiration

date) for a certain price (the strike price). The seller (or "writer") is obligated to sell the

commodity or financial instrument should the buyer so decide. The buyer pays a fee

(called a premium) for this right.

Call options are most profitable for the buyer when the underlying instrument is moving

up, making the price of the underlying instrument closer to the strike price. The call

buyer believes it's likely the price of the underlying asset will rise by the exercise date.

The risk is limited to the premium. The profit for the buyer can be very large, and is

limited by how high underlying's spot rises. When the price of the underlying instrument

surpasses the strike price, the option is said to be "in the money". The call writer does not

believe the price of the underlying security is likely to rise. The writer sells the call to

collect the premium. The total loss, for the call writer, can be very large indeed, and is

only limited by how high the underlying's spot price rises.



Put Option

A put option (sometimes simply called a "put") is a financial contract between two

parties, the seller (writer) and the buyer of the option. The buyer acquires a short position

offering the right, but not obligation, to sell the underlying instrument at an agreed-upon

price (the strike price). If the buyer exercises the right granted by the option, the seller

has the obligation to purchase the underlying at the strike price. In exchange for having

this option, the buyer pays the writer a fee (the option premium). A put option gives us

the right to sell the underlying shares at a predetermined price called the ‘strike price’.

Buying options allows us to profit from falling markets. A put option is a financial

instrument like a share, which we can buy and sell in the derivatives segment of the stock

market. When we buy a put option, we get the right to sell a specific quantity of the

underlying shares, which the put option represents.

Selling a put option, for example, when we feel that the underlying instrument’s price

will remain stable or at least not fall sharply, allows us take in premium income. As the

option nears expiry, the time value of our short put will be eroded and if, as we

forecasted, the underlying price has not moved sharply, we will be able to close out our

short put position at a cheaper premium than that at which we sold to open the position,

thus realizing a profit. By buying ‘put options’ we can safely hedge ours portfolio against

market downswings without selling our shares. The only price we pay is a small premium

just like we do for our life insurance policies.

OPTION TERMINOLOGY

• Index options: These options have the index as the underlying. In India, they have a

European style settlement. E.g. Nifty options, Mini Nifty options etc.

• Stock options: Stock options are options on individual stocks. A stock option

contract gives the holder the right to buy or sell the underlying shares at the

specified price. They have an American style settlement.



• 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 / seller of an option: The writer / seller 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.

• 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.

• 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.

• 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 up to the expiration date.

• European options: European options are options that can be exercised only

on the expiration date itself.



3.10 Index Options

Index derivatives are derivative contracts which have the index as the underlying. The

options contracts, which are based on some index, are known as Index options contract.

The buyer of Index Option Contracts has only the right but not the obligation to buy / sell

the underlying index on expiry. Index Option Contracts are generally European Style

options i.e. they can be exercised / assigned only on the expiry date. Like equity options,

index options offer the investor an opportunity to either capitalize on an expected market

move or to protect holdings in the underlying instruments. The difference is that the

underlying instruments are indexes. These indexes can reflect the characteristics of either

the broad equity market as a whole or specific industry sectors within the marketplace.

Index options can be further classified into Put and Call options as in the case of equity

option. A Put Index Option gives us the right to sell the underlying at a predetermined

price called the ‘strike price’ on a predetermined future period. A Call Index Option gives

us the right to buy the underlying at a predetermined price called ‘strike price’ on a

predetermined future period. Buying Index Options allows us to profit from rising

markets (in the case of call options) and falling markets (in the case of put options),

however, the versatility of options also means that certain option strategies will enable us

to profit in a static market.

Benefits of Index Options

Diversification

Index options enable investors to gain exposure to the market as a whole or to

specific segments of the market with one trading decision and frequently with one

transaction. To obtain the same level of diversification using individual stock issues

or individual equity option classes, numerous decisions and transactions would be

required. Employing index options can defray both the costs and complexities of

doing so.



Predetermined Risk for Buyer

Unlike other investments where the risks may have no limit, index options offer a

known risk to buyers. An index option buyer absolutely cannot lose more than the

price of the option, the premium.

Leverage

Index options can provide leverage. This means an index option buyer can pay a

relatively small premium for market exposure in relation to the contract value. An

investor can see large percentage gains from relatively small, favorable percentage

moves in the underlying index. If the index does not move as anticipated, the buyer's

risk is limited to the premium paid. However, because of this leverage, a small

adverse move in the market can result in a substantial or complete loss of the buyer's

premium. Writers of index options can bear substantially greater, if not unlimited,

risk.

Guaranteed Contract Performance

The seller or writer of the put option is obliged to buy the underlying shares at the

specified price if the buyer decides to sell. When an option holder want to exercise an

option depended on the ethical and financial integrity of the writer at the time of

expiration of the contract the option writer can’t escape from his obligation. i.e.., the

performance of the option writer is guaranteed.



Hedging strategy

Have portfolio, buy Puts

Owner of equity portfolios often experience discomfort about the overall stock market

movement. As an investor of a portfolio, sometimes we may have a view that stock prices

will fall in the near future. At other times we may see that the market is in massive

volatility, and we do not have an appetite for this kind of volatility. The union budget is a

common and reliable source of such volatility; market volatility is always enhanced for

one week before and two week after the budget. Many investors do not want the



fluctuations of these three weeks. One way to protect our portfolio from potential

downside due to a market drop is to buy portfolio insurance.

Index option is a cheap and easily implemental way of seeking this insurance. The idea

is simple. To protect the value of portfolio from falling below a particular level, buy the

right number of put options with the right strike price. When the index falls portfolio will

lose value and the put options bought us will gain, effectively ensuring that the value of

portfolio does not fall below a particular level. This level depends on the strike price of

the options chosen by the investor.

Portfolio insurance using put options is of particular interest to mutual funds who already

own well-diversified portfolios. By buying puts, the fund can limit its downside in case of

a market fall.

4.1 Scope of the study

The study covers the Index Options as a hedging tool for aggressive risk management.

The other hedging tools like Forward, SWAP are not covered in this study. The study is

confined to “Have Portfolio, Buy Puts” strategy.

4.2 Period of the study



The study covers a period of two months, i.e. January and April. Because in the month of

January the market was in a bearish trend and in the month of April market was in a

bullish trend.

4.3 Data collection

Data collection was done by the researcher himself. This study was descriptive in nature

and was mainly based on the secondary data. The data for analysis were collected from

the journals, like Treasury Management, NSE Bulletin, and Internet sources. The data for

review were collected from magazines, journals, records & reports and bulletin. In this

study the primary data have limited use. The beta values were calculated by the

researcher himself on the basis of available secondary data.

4.4 Framework of analysis

In this study the researcher have used the strategy” Have portfolio, Buy Put strategy”

4.5 Design of the study

4.5.1 Selection of securities from different sectors .

The securities are selected from the different sectors in order to have the effect of

diversification. Securities from different sectors are selected on the basis of Liquidity,

P/E ration, good beta value and past performance. The securities selected are as follows



Table No. 1

SELECTED COMPANYS AND THEIR RESPECTIVE SCRIP CODES AND

INDUSTRY

NO. COMPANY SCRIP CODE INDUSTRY

1. BHARAT PETROLEUM CORPORATION Ltd.

BPCL REFINERIES

2. DLF Ltd. DLF CONSTRUCTION

3. HINDUSTAN UNILEVER Ltd. HINDUNILVR DIVERSIFIED

4. INFOSYS TECHNOLOGIES Ltd. INFOSYSTCH COMPUTERS – SOFTWARE

5. I T C Ltd. ITC CIGARETTES

6. LARSEN & TOURBRO Ltd. LT ENGINEERING

7. MAHINDRA & MAHINDRA Ltd.

SAIL AUTOMOBILES - 4 WHEELERS

8. STEEL AUTHORITY of INDIA Ltd

SBIN STEEL AND STEEL PRODUCTS

9. STATE BANK of INDIA SUNPHARMA BANKS

10. SUN PHARMACEUTICAL INDUSTRIES Ltd.

M&M PHARMACEUTICALS

4.5.2 Calculation of Beta value of each security .

Beta is a measure of systematic risk. Beta describes the relationship between the stock‘s

return and the index return. Hedging will have more effect when the securities which

were selected have good beta value as these securities have more fluctuation from the

market performance. In this research, beta values of individual securities were calculated

for two different periods viz. for December 2009 and or May 2010.



Beta was calculated by using the following formula

β = n Σ XY- ( Σ X) ( Σ Y) nΣX2 - (ΣX)2

N = number of observations

X= market return

Y= individual securities return

The security return = Today’s price – Yesterday’s price * 100 Yesterday’s price

Today’s market return = Today’s index – Yesterday’s index * 100 Yesterday’s index

4.5.3 Construction of portfolio.

Portfolio is a basket of individual securities. In this study the portfolio was created by

combining the securities from different sectors on the basis that on an average Rs. 2 lakh

is invested in each stock. The quantity of the individual securities in the portfolio was

calculated by dividing Rs. 2 lakh with market price of the each security as on hedging

day.

4.5.4 Calculation of beta of the portfolio

The beta amount of individual scrip was calculated by multiplying the beta value of

individual security with amount of money invested in the particular security. The total of

beta value of individual securities is known as portfolio beta value. The division of

portfolio beta value with portfolio value will provide the portfolio beta. Beta of the

portfolio was calculated by using the following formula



Beta of the portfolio= Portfolio Beta Amount Value of the portfolio

4.5.5 Calculation of the amount to be hedged

The product of the portfolio value and portfolio beta reveals the amount of Nifty to be

hedged. In this stage the number of Nifty to be sold and number of lot to be sold were

calculated. Number of Nifty to be sold was calculated by dividing the amount of Nifty to

be sold with closing Nifty Index value of the day on which the hedging is done. Number

of market lots to be sold was calculated dividing the number of Nifty to be sold by

current market lot i.e. 50.

The amount of Nifty to be sold for the purpose of hedging was calculated by the

following formula

Amount of Nifty to be sold = Value of the Portfolio amount * Portfolio Beta

Number of Nifty to be sold was calculated by

Number of Nifty to be sold= Amount of Nifty to be sold Closing Value of Nifty Index as on hedging day

Number of lots to be sold can be calculated by

Number of lots to be sold= Number of Nifty to be sold Current Market lot

4.5.6 Hedging the portfolio using Index Put Options.

In this stage the portfolio is hedged by using the Index Put Option. Put Option can be

bought along with the Strike Price. In order to buy the Put Option an amount called

premium is to be paid. This premium is different for different strike prices. The premium

to be paid can be calculated by multiplying premium amount for the particular strike



price with current market price and number of lots to be sold. Premium to be paid was

calculated by using following formula

Premium to be paid =

Premium for the particular strike price * Current market lot * Number of lot to be sold

4.6 Limitations of the study

The duration of the study was limited to period of two months so that the

extensive and deep study could not be possible.

Hedging with index options is only considered.

The study is limited to 10 companies of NSE.

The derivative market index in India is not full fledged. Hence the information

available is limited.

The study is depending mostly on the secondary.



Analysis of Data

Analysis of Data

The overall analysis and interpretation of the study is divided into three parts,

(a) Portfolio creation

(b) analysis of hedging effectiveness in bearish market

(c) analysis of hedging effectiveness in bullish market.



First stage shows the Portfolio creation. And the Second stage shows the analysis and

interpretation of hedging effectiveness in bearish market and third stage shows the

analysis and interpretation of hedging effectiveness in bullish market.

5.1 PORTFOIO CREATION

A portfolio is created on 1st April 2009 as at that point of time the market was favorable

for an investment. A portfolio of 10 securities with an investment of Rs.2000000 in total.

In each Security Rs.200000 is invested. . The quantity of the individual securities in the



portfolio was calculated by dividing Rs. 2 lakh with market price of the each security as

on 1st April 2009 .

Table No. 2

NUMBER OF SECURITIES SELECTED FROM EACH SCRIP AS ON

1ST APRIL 2009

SCRIP PRICE QUANTITY

BPCL 364.80 548

DLF 177.10 1129

HINDUNILVR 236.45 845

INFOSYSTCH 1373.75 145

ITC 184.35 1084

LT 672.45 297

SAIL 97.45 2052

SBIN 1077.45 185

SUNPHARMA 1065.45 187

M&M 394.95 506

TOTAL 6978

The above table shows the calculation of number of securities in each company for the

purpose of portfolio creation on 1st April 2010. The quantity of the individual securities in

the portfolio was calculated by dividing Rs. 2 lakh with market price of the each security

as on 1st April 2010. The total number of securities in the portfolio is 6978.

Table No.3

VALUE OF PROTFOLIO AS ON 1ST APRIL 2009



SCRIP PRICE(P) QUANTITY(Q) AMOUNT(P*Q)

BPCL 364.8 548 199910.4

DLF 177.1 1129 199945.9

HINDUNILVR 236.45 845 199983.8

INFOSYSTCH 1373.75 145 199800.25

ITC 184.35 1084 199835.4

LT 672.45 297 199717.65

SAIL 97.45 2052 199967.4

SBIN 1077.45 185 199328.25

SUNPHARMA 1065.45 187 199239.15

M&M 394.95 506 199844.7

TOTAL 6978 1996782.85

It is clear from the table that the value of portfolio as on 1st April is Rs.1996782.85. It also

reveals the amount of money invested in each security, number of shares in each security.

Number of shares is more in the case of STATE BANK OF INDIA and less in the case of

INFOSYS TECHNOLOGIES Ltd , SUN PHARMACEUTICAL INDUSTRIES Ltd., and

MAHINDRA & MAHINDRA Ltd.as the price of the securities are different. If the

market price of the security is more, then the number of securities for investment will be

less and vice versa

5.2 Analysis of portfolio in bearish market

The month of January 2010 was a bearish market. On 4th January 2010 the market opened

with a Nifty Index of 5200 and in the 29th January the Nifty Index closed in 4882.05.



Chart No. 2 Fluctuation in Nifty Index in the month of January 2010

This graph shows the fluctuation of Nifty Index rates in the Opening Indexes from 4th

January 2010 to 29th January 2010. It is clear from the graph that the Nifty Index went

down 317.95 points. This results indicates a Bearish Market in the month of January.

Table No. 4

VALUE OF PROTFOLIO AS ON 4TH JANUARY 2010




BPCL 650.75 548 356611

DLF 364.6 1129 411633.4

HINDUNILVR 264.8 845 223756

INFOSYSTCH 2612.6 145 378827

ITC 253.65 1084 274956.6

LT 1691.4 297 502345.8

M&M 1129.85 506 571704.1

SAIL 247.6 2052 508075.2

SBIN 2291.2 185 423872

SUNPHARMA 1507.35 187 281874.45

TOTAL 6978 3933655.55

It is clear from the table that the value of portfolio as on 4 th January is Rs. 3933655.55. It

also reveals the amount of money invested in each security, number of shares in each

security

Table No. 5

VALUE OF PROTFOLIO AS ON 29TH JANUARY 2010




BPCL 540.8 548 296358.4

DLF 333.65 1129 376690.85

HINDUNILVR 255.3 845 215728.5

INFOSYSTCH 2491.75 145 361303.75

ITC 250.15 1084 271162.6

LT 1423.85 297 422883.45

M&M 1017.55 506 514880.3

SAIL 214.5 2052 440154

SBIN 2056.6 185 380471

SUNPHARMA 1473.05 187 275460.35

TOTAL 6978 3555093.2

This table shows that value of the portfolio as on 29th January 2010 was Rs. 3555093.2.

There is reduction of prices in all the securities as compared to the price as on 4 st

January.

Table No. 6

CHANGE IN PROTFOLIO VALUE WITH THE CHANGE IN NIFTY INDEX



DATEINDEX MOVEMENT

PORTFOLIO VALUE

4-Jan-10 5200.9 3933655.555-Jan-10 5277.15 3971960.66-Jan-10 5278.15 3972958.85

7-Jan-10 5281.8 3919253.68-Jan-10 5264.25 3934476.55

11-Jan-10 5263.8 3953550.312-Jan-10 5251.1 3932088.5513-Jan-10 5212.6 3931862.1514-Jan-10 5234.5 3929835.115-Jan-10 5259.9 3897335.1518-Jan-10 5253.65 3920063.3519-Jan-10 5274.2 3864318.520-Jan-10 5226.1 3836968.3521-Jan-10 5220.2 3765177.822-Jan-10 5094.15 3705822.825-Jan-10 5034.55 3663370.927-Jan-10 5008.5 354604128-Jan-10 4863 3553731.829-Jan-10 4866.15 3555093.2

The above table shows the change in portfolio value along with the change in Nifty Index

for the month January 2010. The changes shows a proportional relationship between the

Nifty Index and Portfolio Value

Chart No. 3 Movement of S&P CNX NIFTY in the month of January 2010



This graph shows a declining trend, it proves that in the month of Janauary there existed a

bearish trend.

Chart No. 4 Change in the Portfolio Value in the month of January 2010

This graph also shows a declining trend, it proves that the bearish trend, in the month of

January had a negative effected the Portfolio Value.



Table No. 7

Profit/loss of unhedged portfolio as on 29th January 2009

Value of the portfolio as on 30th January 3555093.2

Less: Value of the portfolio as on 1st January 3933655.55

LOSS -378562.35

The above table shows value of the portfolio on the beginning and on the end of the

period. From this table it is clear that the closing value of the portfolio is less than the

opening value. The investor who holds this unhedged portfolio will suffer a loss of

Rs 378562.35

5.2.1 Analysis of hedging effectiveness



AssumptionsThere is no brokerage, plenty of liquidity in the market.

Table No. 8

BETAVALUE OF SECURITIES AS ON DECEMBER 2009

No. SCRIP CODE BETA β

1 BPCL 0.4

2 DLF 1.59

3 HINDUNILVR 0.35

4 INFOSYSTCH 0.68

5 ITC 0.6

6 LT 1.25

7 M&M 1.12

8 SAIL 1.38

9 SBIN 1.17

10 SUNPHARMA 0.54

Beta value of December 2009 is considered as, for calculating the Beta value of the

securities in the Hedging month is not possible. For calculating the Beta value the details

regarding the changes in the Index as well as the price variation of the securities of a

whole month is needed.

Beta value of December 2009 was taken from http://www.nseindia.com/

Table No.9



PROTFOLIO POSITION AS ON 4TH JANUARY 2009

SCRIP CODE BETA(β) QTY(Q) PRICE(P) AMT(P*Q)BETA AMT(AMT*β)

BPCL 0.4 548 650.75 296358.4 142644.4DLF 1.59 1129 364.6 376690.85 654497.106HINDUNILVR 0.35 845 264.8 215728.5 78314.6INFOSYSTCH 0.68 145 2612.6 361303.75 257602.36ITC 0.6 1084 253.65 271162.6 164973.96LT 1.25 297 1691.4 422883.45 627932.25M&M 1.12 506 1129.85 514880.3 640308.6SAIL 1.38 2052 247.6 440154 701143.776SBIN 1.17 185 2291.2 380471 495930.24SUNPHARMA 0.54 187 1507.35 275460.35 152212.203TOTAL 6978 3555093.2 3915559.495

The above table shows the beta value, quantity, price, amount invested and beta amount

of individual securities. This table also reveals the total beta value of the portfolio i.e.,

Rs. 3915559.495. This portfolio beta value is used for calculating the beta of the portfolio.

Portfolio Beta amount = 3915559.495

Value of the portfolio = 3933655.55

Beta of the portfolio = Portfolio Beta amount Value of the portfolio

= 3915559.495 3933655.55

Beta of the portfolio (βp ) = .995

The amount of Nifty to be sold for the purpose of Hedging = Value of the Portfolio * Portfolio Beta



= 3933655.55* .995

= 3913987.272

Number of Nifty to be sold for the purpose of Hedging = Amount of Nifty to be sold

Closing Index as on 1st January

= 3913987.272 5232.2

= 748.05

Number of Lot to be sold = Number of Nifty to be sold

Market Lot

= 748.05 = 15 Lots 50

Premium to be paid for buying Index PUT for the Strike price of 5100

Premium for the strike price 5100 = Rs. 70

Total Premium to be paid for buying Index PUT = Premium for the strike price 5100 * Number of lots to be sold * Current market lot

= 70*15*50 = Rs. 52500

Calculation of profit/ loss from the Hedged portfolio

Return from the Hedged portfolio =



Strike Price as on the day of Hedge (4TH Jan 2010) - Closing Value of CNX Nifty Index (29th Jan

2010)

= 5100 – 4863 = 237

Gross gain = 237 * 50*15 = Rs. 213300

Less: premium paid on Index PUT for the Strike price of 5100 =

70*15*50 = 52500

Net gain = 213300– 52500 = Rs. 160800

Table No.10

Comparison of Profit/ Loss from Hedged & Unhedged portfolios 0n 29th January 2010

Positions Profit/ Loss



Hedged Portfolio Rs. 160800 (Profit)

Unhedged Portfolio Rs. 378562.35 (Loss)

The above comparison reveals that in the bearish market the unhedged portfolio gives a

loss of Rs. 378562.35. This table also explains that hedged portfolio gives a profit of Rs.

160800. From this comparison it can be concluded that even in a bearish market the

hedged portfolio holder can earn a profit.

Chart No. 5 Comparison of profit/ loss from Hedged & Unhedged portfolios

This graph show that hedged portfolio gives a positive return i.e. profit and unhedged

portfolio gives a negative returns i.e. loss. It also reveals that with the help of hedging the

investor can make profit even in the bearish market otherwise he will have loss. So it can

be concluded that hedging help to minimize the loss of the portfolio and also help to

make profit even in the bearish market.

5.3 Analysis of portfolio in bullish market

The month of June 2010 was a bullish market. On 1st June 2010 the market opened with

a Nifty Index of 5086.25 and in the 30th June the Nifty Index closed in 5312.50.



Chart No. 6 Fluctuation in Nifty Index in the month of June 2010

This graph shows the fluctuation of Nifty Index rates in the Opening Indexes from 1th

June 2010 to 30th June 2010. It is clear from the graph that the Nifty Index went up

226.25 points. This results indicates a Bullish Market in the month of June.

Table No.11



NUMBER OF SECURITIES AND ITS PRICE AS ON 1ST JUNE 2010

SCRIP PRICE(P) QUANTITY(Q)

BPCL 576.65 548

DLF 270.9 1129

HINDUNILVR 233.8 845

INFOSYSTCH 2624.35 145

ITC 283 1084

LT 1593.6 297

SAIL 198.6 2052

SBIN 2209.65 185

SUNPHARMA 1680.9 187

M&M 567.4 1012

TOTAL 7484

It is clear from the above table that the number of securities in the portfolio had increased

from 6978 to 7484, there had been an increase of 506 shares. This happened because the

number of securities of MAHINDRA &MAHINDRA Ltd. In the portfolio had doubled

from 506 to 1012, it is due to the stock split that happened in 29th March. At this time the

face value of the share was reduced from Rs.10 to Rs.5. The closing share price on 28th

March 2010 was Rs 1078.78 and on 29th March 2010 opening price was Rs. 546.2.

Table No.12

VALUE OF PROTFOLIO AS ON 1ST JUNE 2010




BPCL 576.65 548 316004.2

DLF 270.9 1129 305846.1

HINDUNILVR 233.8 845 197764

INFOSYSTCH 2624.35 145 380530.75

ITC 283 1084 306772

LT 1593.6 297 473299.2

M&M 567.4 1012 574208.8

SAIL 198.6 2052 407527.2

SBIN 2209.65 185 408785.25

SUNPHARMA 1680.9 187 314328.3

TOTAL 7484 3685065.8

It is clear from the table that the value of portfolio as on 1st June is Rs.1996782.85. It also

reveals the amount of money invested in each security, number of shares in each security

Table No. 13

VALUE OF PROTFOLIO AS ON 30TH JUNE 2010




BPCL 656.98 548 360025.04

DLF 285.43 1129 322250.47

HINDUNILVR 265.26 845 224144.7

INFOSYSTCH 2800 145 406000

ITC 302.6 1084 328018.4

LT 1802.99 297 535488.03

M&M 621.81 1012 629271.72

SAIL 196.23 2052 402663.96

SBIN 2300.08 185 425514.8

SUNPHARMA 1773.3 187 331607.1

TOTAL 7484 3964984.2

This table shows that value of the portfolio as on 30th June 2010 was Rs. 3964984.2. There

is increase of prices in all the securities as compared to the price as on 1 st June, except

for Steel Authority of India Ltd , the price of the share got reduced from Rs.198.6 to Rs.

196.23.

Table No. 14

CHANGE IN PROTFOLIO VALUE WITH THE CHANGE IN NIFTY INDEX



Date INDEX MOVEMENTENT

PORTFOLIO VALUE

1-Jun-10 5086.25 3684862.8

2-Jun-10 5019.85 3724555.5

3-Jun-10 5110.5 3783789.75

4-Jun-10 5135.5 3813304.75

7-Jun-10 5034 3729133.2

8-Jun-10 4987.1 3686816.4

9-Jun-10 5000.3 3690255.5

10-Jun-10 5078.6 3750193.7

11-Jun-10 5119.35 3758502.4

14-Jun-10 5197.7 3823282.95

15-Jun-10 5222.35 3827422.1

16-Jun-10 5233.35 3848863.95

17-Jun-10 5274.85 3875034.35

18-Jun-10 5262.6 3868366.75

21-Jun-10 5353.3 3938517.35

22-Jun-10 5316.55 3932045.95

23-Jun-10 5323.15 3940015.1

24-Jun-10 5320.6 3952224.4

25-Jun-10 5269.05 3922041.95

28-Jun-10 5333.5 3968840.9

29-Jun-10 5256.15 3921552.55

30-Jun-10 5312.5 3978195.85

The above table shows the change in portfolio value along with the change in Nifty Index

for the month June 2010. The changes shows a proportional relationship between the

Nifty Index and Portfolio Value

Chart No. 7 Movement of S&P CNX NIFTY in the month of June 2010



This graph shows a upward trend, it proves that in the month of June there existed a

bullish trend.

Chart No. 8 Change in the Portfolio Value in the month of January 2010

This graph also shows a upward trend, it proves that the bullish trend, in the month of

June had positively affected the Portfolio Value.



Table No. 14

Profit/loss of unhedged portfolio as on 30th June 2010

Value of the portfolio as on 30th January 3964984.2

Less: Value of the portfolio as on 1st January 3685065.8

PROFIT 279918.4

The above table shows value of the portfolio on the beginning and on the end of the

period. From this table it is clear that the closing value of the portfolio is less than the

opening value. The investor who holds this unhedged portfolio will get a profit of

Rs 279918.4

5.3.1 Analysis of hedging effectiveness

Assumptions



There is no brokerage, plenty of liquidity in the market.

Table No. 15

BETAVALUE OF SECURITIES AS ON MAY 2010

No. SCRIP CODE BETA β

1 BPCL 0.25

2 DLF 1.74

3 HINDUNILVR 0.43

4 INFOSYSTCH 0.65

5 ITC 0.67

6 LT 1.1

7 M&M 1.22

8 SAIL 1.38

9 SBIN 1.13

10 SUNPHARMA 0.33

Beta value of May 2010 is considered as, for calculating the Beta value of the securities

in the Hedging month is not possible. For calculating the Beta value the details regarding

the changes in the Index as well as the price variation of the securities of a whole month

is needed.

Beta value of May 2010 was taken from http://www.nseindia.com/



Table No.16

PROTFOLIO POSITION AS ON 1TH JUNE 2010

SCRIP CODE BETA(β) QTY(Q) PRICE(P) AMT(P*Q)

BETA AMT(AMT*β)

BPCL 0.25 548 576.65 316004.2 79001.05DLF 1.74 1129 270.9 305846.1 532172.2HINDUNILVR 0.43 845 233.8 197764 84951.23INFOSYSTCH 0.65 145 2624.35 380530.75 247345ITC 0.67 1084 283 306772 205537.2LT 1.1 297 1593.6 473299.2 520629.1M&M 1.22 1012 567.4 574208.8 497183.2SAIL 1.38 2052 198.6 407527.2 564123.6SBIN 1.13 185 2209.65 408785.25 355191SUNPHARMA 0.33 187 1680.9 314328.3 189488.9TOTAL 7484 3685065.8 3275623

The above table shows the beta value, quantity, price, amount invested and beta amount

of individual securities. This table also reveals the total beta value of the portfolio i.e.,

Rs. 3275623. This portfolio beta value is used for calculating the beta of the portfolio.

Portfolio Beta amount = 3275623

Value of the portfolio = 3685065.8

Beta of the portfolio = Portfolio Beta amount Value of the portfolio

= 3275623 3685065.8

Beta of the portfolio (βp ) = .888

The amount of Nifty to be sold for the purpose of Hedging



= Value of the Portfolio * Portfolio Beta

= 3685065.8* .888

= 3272338.4304

Number of Nifty to be sold for the purpose of Hedging = Amount of Nifty to be sold

Closing Index as on 1st January

= 3272338.4304 4970

= 658.41

Number of Lot to be sold = Number of Nifty to be sold

Market Lot

= 658.41 = 13 Lots 50

Premium to be paid for buying Index PUT for the Strike price of 4900

Premium for the strike price 4900 = Rs. 120

Total Premium to be paid for buying Index PUT = Premium for the strike price 4900 * Number of lots to be sold * Current market lot

= 120*13*50 = Rs. 78000

Calculation of profit/ loss from the Hedged portfolio



Return from the Hedged portfolio =

Strike Price as on the day of Hedge (1TH Jun 2010) - Closing Value of CNX Nifty Index (30th Jun

2010)

= 4900 – 5312 = -412

The closing value of the CNX Nifty Index is more than the Strike Price so the

investor can make use of the portfolio profit. Then the only loss is the amount of

premium paid for buying the Put Index Option.

Profit from the portfolio = 279918.4

Less: premium paid on Index PUT for the Strike price of 4900 =

120*13*50 = 78000

Net gain = 279918.4– 78000 = Rs. 201918.4

Table No.17



Comparison of profit/ loss from Hedged & Unhedged portfolios as on 30 th JUNE

2010

The

above table reveals that the hedged portfolio gives a lesser profit than the unhedged one.

Profit from the hedged portfolio was Rs. 201918.4 and profit from unhedged portfolio

was Rs. 279918.4.

Chart No. 9 Comparison of profit/ loss from Hedged & Unhedged portfolios

From this graph it is clear that the return from the unhedged portfolio is higher that the

hedged one. So it can be concluded that in the rising market the profit which can be

earned from hedged portfolio will always less than the unhedged one as the investor have

to pay premium for buying the put option.

Berchmans Institute of Management Studies, Changanacherry 2008-2010

Positions Profit/ Loss

Hedged Portfolio 201918.4( Profit)

Unhedged Portfolio 279918.4 (Profit)

85


Findings



6.1 Findings

Based on the research work the following things have been found out by the researcher.

With the help of hedging the investor can reduce the risk of portfolio.

The study reveals that with the help of hedging even in the bearish market the

investors are in a position to get profit. During the research it was found out that the

Hedging does not always make profit. The best that can be achieved using hedging is

the reduction of unwanted exposure. i.e., unnecessary risk.

In the bullish market Put Option is less effective.

Put Option is the right to sell the underlying at a certain price in future. If the market

is in a bullish trend the investor can exercise this right only at a lesser price than the

current market price. If he exercises this right it will be a lesser profit than the usual

portfolio.

The investor can sell the Call Option when the Index falls.

If the market is in a bullish trend the investor who holds a Put Option can sell the Put

option to any other party. In this way the investor can get back the premium paid by

him.

In the case of bearish market Put Option is more effective.

This study reveals that in a bearish market Put Option gives a profit otherwise it will

be a loss. The investor who holds a Put Option can make use of the portfolio profit

when the market is in bullish trend.



6.2 Suggestions

An investor can make a combination of cash market and derivatives to minimize loss and

maximize profits. The various suggestions about investment in the cash market and

derivatives are listed below. These suggestions are strictly based on the analysis done.

Higher the beta value higher will be the risk, in this context hedging suggested.

Options protect the portfolio by paying small premium amount.

Put option is more effective in bearish market. If the market is in a bullish trend,

the Put Option holder can sell the right to another party.

At the time of bullish trend in Index Call Option is more effective. If the market is

in a bearish trend the Call Option holder can sell the right to another party.

Speculation helps the investor to gain at the time bearish and bullish Index



6.3 Conclusion.

Developments in derivative markets are still in a nascent stage and there is a great scope

for further developments. But there are serious doubts about stable developments as

Indian markets are still very narrow, shallow and rely more on the mercy of manipulators

and speculators. In order to achieve good derivative market operations regulators and

exchanges in consultation with market participants should come up with necessary

regulatory changes which are friendly to all. Apart from this, what is more required is

that the players should have a strong financial base to deal in derivative contracts, proper

capital adequacy norms, training of financial intermediaries and brokers. Well developed

indices are some other areas which need attention. International experiences have

popularized these products. India has just began its voyage in the derivative arena and

one hope that it will out perform the other markets in the years to come.

Even though derivative market is relatively new in our country, it is attracting many

investors. The result of derivative trading is fantastic because of a simple reason; it is

flexible. The flexibility of derivatives can be learnt from the fact that the investors who

need to hedge their funds can use it and also the investors who want to increase returns

can use it.



BIBLIOGRAPHY

Books

Fisher E Donld and Jordan J Ronald, “Security Analysis and Portfolio

Management” Prentice Hall India Pvt. Ltd., New Delhi, 6th edition.

Kevin S, “Portfolio Management” Prentice Hall India Pvt. Ltd., New Delhi, 7 th

edition.

Pandey I.M, “Financial Management”, Vikas Publication House, New Delhi,

2004

Pandian Punithavathy, “Security Analysis and Portfolio Management” Vikas

Publishing House Pvt. Ltd., New Delhi, 2nd edition, 2000.

Business Dailies

Economic Times, May-July 20010

Business Line, May-July 20010

Websites

www.capitaline.com

www.bseindia.com

www.nseindia.com

www.equitymaster.com/portfolio/index.asp

www.equitymaster.com/detail.asp


http://www.equitymaster.com/detail.asp

http://www.equitymaster.com/portfolio/index.asp

http://www.nseindia.com/

http://www.bseindia.com/

http://www.capitaline.com/


Portfolio as on 4th January 2010


BPCL 650.75 548 356611

DLF 364.6 1129 411633.4

HINDUNILVR 264.8 845 223756

INFOSYSTCH 2612.6 145 378827

ITC 253.65 1084 274956.6

LT 1691.4 297 502345.8

M&M 1129.85 506 571704.1

SAIL 247.6 2052 508075.2

SBIN 2291.2 185 423872

SUNPHARMA 1507.35 187 281874.45

TOTAL 6978 3933655.55





BPCL 640.95 548 351240.6

DLF 369.45 1129 417109.05

HINDUNILVR 264.7 845 223671.5

INFOSYSTCH 2621.35 145 380095.75

ITC 256.15 1084 277666.6

LT 1694.4 297 503236.8

M&M 1150.65 506 582228.9

SAIL 254.55 2052 522336.6

SBIN 2292.05 185 424029.25

SUNPHARMA 1552.65 187 290345.55

TOTAL 6978 3971960.6



BPCL 631.3 548 345952.4

DLF 378 1129 426762

HINDUNILVR 263.8 845 222911

INFOSYSTCH 2583.1 145 374549.5

ITC 256.75 1084 278317

LT 1675.65 297 497668.05

M&M 1178.85 506 596498.1

SAIL 248.35 2052 509614.2

SBIN 2305.8 185 426573

SUNPHARMA 1572.8 187 294113.6

TOTAL 6978 3972958.85





BPCL 619.05 548 339239.4

DLF 374.5 1129 422810.5

HINDUNILVR 265 845 223925

INFOSYSTCH 2525.05 145 366132.25

ITC 255.95 1084 277449.8

LT 1667.6 297 495277.2

M&M 1155.8 506 584834.8

SAIL 241.6 2052 495763.2

SBIN 2292.9 185 424186.5

SUNPHARMA 1548.85 187 289634.95

TOTAL 6978 3919253.6



BPCL 629.55 548 344993.4

DLF 389.9 1129 440197.1


INFOSYSTCH 2464.2 145 357309

ITC 256.5 1084 278046

LT 1678.15 297 498410.55

M&M 1155.9 506 584885.4

SAIL 238.85 2052 490120.2

SBIN 2286.05 185 422919.25

SUNPHARMA 1574.95 187 294515.65

TOTAL 6978 3934476.55



BPCL 627.9 548 344089.2



DLF 399.45 1129 450979.05


INFOSYSTCH 2489.65 145 360999.25

ITC 256.6 1084 278154.4

LT 1677.3 297 498158.1

M&M 1159.2 506 586555.2

SAIL 242.1 2052 496789.2

SBIN 2267.2 185 419432

SUNPHARMA 1574.7 187 294468.9

TOTAL 6978 3953550.3



BPCL 627.55 548 343897.4

DLF 383.95 1129 433479.55


INFOSYSTCH 2586.95 145 375107.75

ITC 250.05 1084 271054.2

LT 1679.25 297 498737.25

M&M 1192.2 506 603253.2

SAIL 234.05 2052 480270.6

SBIN 2203.2 185 407592

SUNPHARMA 1571.8 187 293926.6

TOTAL 6978 3932088.55



BPCL 629.8 548 345130.4

DLF 387.85 1129 437882.65



HINDUNILVR 262.1 845 221474.5

INFOSYSTCH 2683.5 145 389107.5

ITC 248.95 1084 269861.8

LT 1673.2 297 496940.4

M&M 1153.6 506 583721.6

SAIL 241.6 2052 495763.2

SBIN 2175.9 185 402541.5

SUNPHARMA 1547.8 187 289438.6

TOTAL 6978 3931862.15



BPCL 625.8 548 342938.4

DLF 383.3 1129 432745.7

HINDUNILVR 262.5 845 221812.5

INFOSYSTCH 2689.75 145 390013.75

ITC 248.15 1084 268994.6

LT 1668.4 297 495514.8

M&M 1171.65 506 592854.9

SAIL 240.85 2052 494224.2

SBIN 2157.35 185 399109.75

SUNPHARMA 1559.5 187 291626.5

TOTAL 6978 3929835.1



BPCL 617.35 548 338307.8

DLF 386.3 1129 436132.7




INFOSYSTCH 2675.8 145 387991

ITC 252.75 1084 273981

LT 1651.2 297 490406.4

M&M 1157.2 506 585543.2

SAIL 237.3 2052 486939.6

SBIN 2143.35 185 396519.75

SUNPHARMA 1525.1 187 285193.7

TOTAL 6978 3897335.15



BPCL 618.4 548 338883.2

DLF 397.3 1129 448551.7

HINDUNILVR 256.4 845 216658

INFOSYSTCH 2686.65 145 389564.25

ITC 250.55 1084 271596.2

LT 1654.75 297 491460.75

M&M 1183.65 506 598926.9

SAIL 234.85 2052 481912.2

SBIN 2156.4 185 398934

SUNPHARMA 1516.45 187 283576.15

TOTAL 6978 3920063.35



BPCL 605.6 548 331868.8

DLF 379.7 1129 428681.3




INFOSYSTCH 2635.9 145 382205.5

ITC 249.9 1084 270891.6

LT 1642.5 297 487822.5

M&M 1159.6 506 586757.6

SAIL 233.45 2052 479039.4

SBIN 2173.1 185 402023.5

SUNPHARMA 1485.9 187 277863.3

TOTAL 6978 3864318.5



BPCL 577.5 548 316470

DLF 373.7 1129 421907.3

HINDUNILVR 255.4 845 215813

INFOSYSTCH 2657.7 145 385366.5

ITC 247.1 1084 267856.4

LT 1635.95 297 485877.15

M&M 1145.45 506 579597.7

SAIL 238.3 2052 488991.6

SBIN 2159.85 185 399572.25

SUNPHARMA 1473.35 187 275516.45

TOTAL 6978 3836968.35

Portfolio as on 21st January 2010


BPCL 573.25 548 314141

DLF 363.55 1129 410447.95

HINDUNILVR 257.8 845 217841



INFOSYSTCH 2625.2 145 380654

ITC 244.5 1084 265038

LT 1524.1 297 452657.7

M&M 1144.85 506 579294.1

SAIL 233.05 2052 478218.6

SBIN 2124.1 185 392958.5

SUNPHARMA 1464.85 187 273926.95

TOTAL 6978 3765177.8

Portfolio as on 22nd January 2010


BPCL 575.75 548 315511

DLF 352.75 1129 398254.75


INFOSYSTCH 2575.6 145 373462

ITC 253.65 1084 274956.6

LT 1471.7 297 437094.9

M&M 1133.1 506 573348.6

SAIL 225.6 2052 462931.2

SBIN 2087.35 185 386159.75

SUNPHARMA 1432 187 267784

TOTAL 6978 3705822.8



BPCL 569.7 548 312195.6

DLF 344.15 1129 388545.35




INFOSYSTCH 2542.3 145 368633.5

ITC 255.1 1084 276528.4

LT 1490.45 297 442663.65

M&M 1071.25 506 542052.5

SAIL 223.45 2052 458519.4

SBIN 2091.6 185 386946

SUNPHARMA 1444.5 187 270121.5

TOTAL 6978 3663370.9



BPCL 554.45 548 303838.6

DLF 317.15 1129 358062.35

HINDUNILVR 263.9 845 222995.5

INFOSYSTCH 2502.25 145 362826.25

ITC 255.9 1084 277395.6

LT 1458.05 297 433040.85

M&M 1010.9 506 511515.4

SAIL 215.85 2052 442924.2

SBIN 1987.65 185 367715.25

SUNPHARMA 1421 187 265727

TOTAL 6978 3546041

Portfolio as on 28th January 2010SCRIP PRICE(P) QUANTITY(Q) AMOUNT(P*Q)

BPCL 542.5 548 297290

DLF 324.3 1129 366134.7

HINDUNILVR 259.3 845 219108.5



INFOSYSTCH 2502.25 145 362826.25

ITC 254.25 1084 275607

LT 1431.5 297 425155.5

M&M 1022.3 506 517283.8

SAIL 218.95 2052 449285.4

SBIN 2003.25 185 370601.25

SUNPHARMA 1446.2 187 270439.4

TOTAL 6978 3553731.8



BPCL 540.8 548 296358.4

DLF 333.65 1129 376690.85

HINDUNILVR 255.3 845 215728.5

INFOSYSTCH 2491.75 145 361303.75

ITC 250.15 1084 271162.6

LT 1423.85 297 422883.45

M&M 1017.55 506 514880.3

SAIL 214.5 2052 440154

SBIN 2056.6 185 380471

SUNPHARMA 1473.05 187 275460.35

TOTAL 6978 3555093.2



Portfolio as on 1st June 2010

SCRIP PRICE(P) QUANTITY(Q) AMOUNT(P*Q)BPCL 576.65 548 316004.2DLF 270.9 1129 305846.1HINDUNILVR 233.8 845 197561

INFOSYSTCH 2624.35 145 380530.75

ITC 283 1084 306772LT 1593.6 297 473299.2M&M 567.4 1012 574208.8SAIL 198.6 2052 407527.2SBIN 2209.65 185 408785.25SUNPHARMA 1680.9 187 314328.3

TOTAL 7484 3684862.8

Portfolio as on 2nd June 2010

SCRIP PRICE(P) QUANTITY(Q) AMOUNT(P*Q)BPCL 575.45 548 315346.6DLF 273.2 1129 308442.8HINDUNILVR 237.75 845 200898.75

INFOSYSTCH 2640.25 145 382836.25

ITC 281.3 1084 304929.2



LT 1631.55 297 484570.35M&M 574.55 1012 581444.6SAIL 201.6 2052 413683.2SBIN 2258.25 185 417776.25SUNPHARMA 1682.5 187 314627.5

TOTAL 7484 3724555.5

Portfolio as on 3rd June 2010


INFOSYSTCH 2698 145 391210

ITC 285.5 1084 309482LT 1666.75 297 495024.75M&M 582.95 1012 589945.4SAIL 202.6 2052 415735.2SBIN 2287.3 185 423150.5SUNPHARMA 1702.9 187 318442.3

TOTAL 7484 3783789.75

Portfolio as on 4th June 2010


INFOSYSTCH 2728.95 145 395697.75

ITC 290.85 1084 315281.4LT 1672 297 496584



M&M 585.2 1012 592222.4SAIL 201.35 2052 413170.2SBIN 2340.75 185 433038.75SUNPHARMA 1704.8 187 318797.6

TOTAL 7484 3813304.75

Portfolio as on 7th June 2010SCRIP PRICE(P) QUANTITY(Q) AMOUNT(P*Q)BPCL 563.5 548 308798DLF 263.9 1129 297943.1HINDUNILVR 251.05 845 212137.25

INFOSYSTCH 2671.65 145 387389.25

ITC 287.7 1084 311866.8LT 1640.2 297 487139.4M&M 580.25 1012 587213SAIL 193.35 2052 396754.2SBIN 2286.75 185 423048.75SUNPHARMA 1694.35 187 316843.45

TOTAL 7484 3729133.2

Portfolio as on 8th June 2010SCRIP PRICE(P) QUANTITY(Q) AMOUNT(P*Q)BPCL 543.75 548 297975DLF 257.3 1129 290491.7HINDUNILVR 251.4 845 212433

INFOSYSTCH 2654.5 145 384902.5

ITC 289.7 1084 314034.8LT 1627.4 297 483337.8M&M 570.75 1012 577599



SAIL 189.1 2052 388033.2SBIN 2283.8 185 422503SUNPHARMA 1687.2 187 315506.4

TOTAL 7484 3686816.4


SCRIP PRICE(P) QUANTITY(Q) AMOUNT(P*Q)BPCL 552.75 548 302907DLF 258.2 1129 291507.8HINDUNILVR 249.55 845 210869.75

INFOSYSTCH 2624.95 145 380617.75

ITC 277.6 1084 300918.4LT 1642.75 297 487896.75M&M 578.35 1012 585290.2SAIL 192.2 2052 394394.4SBIN 2272.5 185 420412.5SUNPHARMA 1686.85 187 315440.95

TOTAL 7484 3690255.5


SCRIP PRICE(P) QUANTITY(Q) AMOUNT(P*Q)BPCL 551 548 301948DLF 262.75 1129 296644.75HINDUNILVR 252 845 212940

INFOSYSTCH 2645.55 145 383604.75

ITC 280.05 1084 303574.2LT 1672.4 297 496702.8M&M 592.75 1012 599863



SAIL 197.9 2052 406090.8SBIN 2326.85 185 430467.25SUNPHARMA 1702.45 187 318358.15

TOTAL 7484 3750193.7


SCRIP PRICE(P) QUANTITY(Q) AMOUNT(P*Q)BPCL 541 548 296468DLF 262.4 1129 296249.6HINDUNILVR 252.75 845 213573.75

INFOSYSTCH 2630.75 145 381458.75


TOTAL 7484 3758502.4



INFOSYSTCH 2746.4 145 398228

ITC 286.1 1084 310132.4LT 1703.9 297 506058.3M&M 615.7 1012 623088.4SAIL 200.15 2052 410707.8SBIN 2345 185 433825



SUNPHARMA 1702 187 318274

TOTAL 7484 3823282.95



INFOSYSTCH 2734.7 145 396531.5

ITC 291.7 1084 316202.8LT 1724.45 297 512161.65M&M 608.15 1012 615447.8SAIL 201.4 2052 413272.8SBIN 2364.2 185 437377SUNPHARMA 1701.5 187 318180.5

TOTAL 7484 3827422.1



INFOSYSTCH 2769.4 145 401563

ITC 290.9 1084 315335.6LT 1721.2 297 511196.4M&M 629.3 1012 636851.6SAIL 197.95 2052 406193.4SBIN 2361.7 185 436914.5



SUNPHARMA 1702.8 187 318423.6

TOTAL 7484 3848863.95


SCRIP PRICE(P) QUANTITY(Q) AMOUNT(P*Q)BPCL 535.4 548 293399.2DLF 283 1129 319507HINDUNILVR 253 845 213785

INFOSYSTCH 2764.85 145 400903.25

ITC 293.9 1084 318587.6LT 1777 297 527769M&M 634.7 1012 642316.4SAIL 197.95 2052 406193.4SBIN 2350.85 185 434907.25SUNPHARMA 1698.75 187 317666.25

TOTAL 7484 3875034.35



INFOSYSTCH 2786.2 145 403999




TOTAL 7484 3868366.75

Portfolio as on 21st June 2010

SCRIP PRICE(P) QUANTITY(Q) AMOUNT(P*Q)BPCL 526.55 548 288549.4DLF 290.15 1129 327579.35HINDUNILVR 258.75 845 218643.75INFOSYSTCH 2800.8 145 406116


TOTAL 7484 3938517.35

Portfolio as on 22nd June 2010

SCRIP PRICE(P) QUANTITY(Q) AMOUNT(P*Q)BPCL 550.15 548 301482.2DLF 288.25 1129 325434.25HINDUNILVR 261.75 845 221178.75INFOSYSTCH 2767.1 145 401229.5




TOTAL 7484 3932045.95

Portfolio as on 23rd June 2010

SCRIP PRICE(P) QUANTITY(Q) AMOUNT(P*Q)BPCL 558.8 548 306222.4DLF 291.8 1129 329442.2HINDUNILVR 266.2 845 224939

INFOSYSTCH 2797.75 145 405673.75


TOTAL 7484 3940015.1



INFOSYSTCH 2822.7 145 409291.5

ITC 305.75 1084 331433LT 1791.65 297 532120.05M&M 632.05 1012 639634.6SAIL 198.8 2052 407937.6SBIN 2357.55 185 436146.75SUNPHARMA 1809.8 187 338432.6

TOTAL 7484 3952224.4





INFOSYSTCH 2777.7 145 402766.5

ITC 301.45 1084 326771.8LT 1759.1 297 522452.7M&M 613.35 1012 620710.2SAIL 195.25 2052 400653SBIN 2300.8 185 425648SUNPHARMA 1790.65 187 334851.55

TOTAL 7484 3922041.95



INFOSYSTCH 2809 145 407305


TOTAL 7484 3968840.9





INFOSYSTCH 2793.55 145 405064.75ITC 296.35 1084 321243.4LT 1796.8 297 533649.6M&M 613.9 1012 621266.8SAIL 192.9 2052 395830.8SBIN 2291.15 185 423862.75SUNPHARMA 1756.85 187 328530.95

TOTAL 7484 3921552.55


SCRIP PRICE(P) QUANTITY(Q) AMOUNT(P*Q)BPCL 662.75 548 363187DLF 288.65 1129 325885.85HINDUNILVR 267.55 845 226079.75INFOSYSTCH 2791 145 404695ITC 305.45 1084 331107.8LT 1808.95 297 537258.15M&M 627.35 1012 634878.2SAIL 192.7 2052 395420.4SBIN 2302 185 425870SUNPHARMA 1785.1 187 333813.7

TOTAL 7484 3978195.85


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