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A SUMMER TRAINING REPORT

IN

RELIGARE SECURITIES

ON

EQUITIESCash & Derivatives

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT

OF BACHELOR OF BUSINESS ADMINISTRATION (B.B.A)GURU JAMBESHWAR UNIVERSITY OF SCIENCE &

TECHNOLOGY, HISSAR

TRAINING SUPERVISOR SUBMITTED BY:

MR. ASHISH MISHRA MOUMITA SAMANTA

ENROLLEMNT NO:

08511243085

SESSION: 2008-2011

Directorate of Distance Education

Guru Jambeshwar University of Science & Technology,

Hisar-125001

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CERTIFICATE

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CERTIFICATE

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DECLARATION

I hereby declare that this training program entitled A study on Equity market in

RELIGARE EQUITIESCash & Derivativesis my work, carried out under theguidance of my guide Mr.Ashish Mishra. This report neither full nor in part has ever been

submitted for award of any other degree of either this university or any other university.

MOUMITA SAMANTA

(2008-2011)

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ACKNOWLEDGEMENT

I gratefully acknowledge the expert support and guidance extended to me by

RELIGARE and the guidance ofMr. Ashish Mishra as regards this project and the

subsequent report. There impartial and enlightened guidance and the sophisticated

communication and the commodities knowledge has been on immense help and has been

paramount in this project and report maintaining and further meeting the requisite

standards and the dead lines.

I would like to thanks MS.NISHI AGGARWAL (faculty) our project supervisor

JAGANNATH INSTITUTE OF MANAGEMENT SCIENCES whose able guidance

and whole heart cooperation was a source of immense inspiration without which my

present work could never materialized.

MOUMITA SAMANTA

(2008-2011)

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EXECUTIVE SUMMARY

In few years Share Market has emerged as a tool for ensuring ones

financial well being. Share Markets have not only contributed to the India growth story

but have also helped families tap into the success of Indian Industry. As information and

awareness is rising more and more people are enjoying the benefits of investing in Share

Markets. once people are aware of Share Market investment opportunities, the number

who decide to invest in Share Markets increases to as many as one in every five people.

This Project gave me a great learning experience and at the

same time it gave me enough scope to implement my analytical ability.

The first part gives an insight about Share Market and its various aspects, the Company

Profile, Objective of the study, Research Methodology. One can have a brief knowledge

about Share market and its basics through the project.

The second part of the Project consists of

Friday market analysis collected from past records This Project covers

the topic of FRIDAY MARKET INVESTING PLAN The data collected

has been well organized and presented. I hope the research findingsand conclusion will be of use.

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TABLE OF CONTENT

TOPICS PAGE No.

1. Introduction to industry 9-14

2. Introduction to company 15-56

Company profile

Competitors

Product of the company

Trading of derivatives

SWOT analysis

3. Conceptual description 57-62

4. Research methodology 63-67

Title justification

Objectives

Significance of study

Research Design

Sampling Methodology

o Sampling unit

o Sampling technique

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o Sampling area

o Sampling size

o

Limitations

5. Data analysis and interpretation 67-78

6. Facts and findings 79-82

7. Conclusion 83-85

8. Recommendation 86-87

9. Annexure 88-91

10.Bibliography 92-93

INTRODUCTION TO INDUSTRY

In this first instalment, we are going to look at why the stock market exists and explain

how a business goes from being a small, family-owned company to a corporation with

publicly traded stock.

Earnings per Share: The amount of profit to which each share is entitled.

Going Public: Slang for when a company is planning an IPO.

IPO: Short for Initial Public Offering. An IPO is when a company sells stock in itself for

the first time.

Market Cap: The amount of money you would have to pay if you bought ever share of

stock in a company. (To calculate market cap, multiply the number of shares by the price

per share.) Short for Market Capitalization.

Share: A share represents an investor's ownership in a "share" of the profits, losses, and

assets of a company. It is created when a business carves itself into pieces and sells them

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to investors in exchange for cash.

Ticker Symbol: A short group of letters that represents a particular stock (e.g., "Coca

Cola" is referred to as "KO".) Underwriter: The financial institution or investment bank

that is doing all of the paperwork and orchestrating a company's IPO.

BSE-(BOMBAY STOCK EXCHANGE)

Bombay Stock Exchange Limited (the Exchange) is the oldest stock exchange in Asia

with a rich heritage. Popularly known as "BSE", it was established as "The Native Share

& Stock Brokers Association" in 1875. It is the first stock exchange in the country to

obtain permanent recognition in 1956 from the Government of India under the Securities

Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the

development of the Indian capital market is widely recognized and its index, SENSEX, is

tracked worldwide.

India's oldest and first stock exchange: Mumbai (Bombay) Stock Exchange.

Established in 1875. More than 6,000 stocks listed.

Total number of stock exchanges in India: 22.

They are in: Ahmedabad, Bangalore, Calcutta, Chennai, Delhi etc.

There is also a National Stock Exchange (NSE) which is located in Mumbai.

There is also an Over the Counter Exchange of India (OTCEI) which allows

listing of small and medium sized companies.

The regulatory agency which oversees the functioning of stock markets is the

Securities and Exchange Board of India (SEBI), which is also located in Bombay.

Vision "Emerge as the premier Indian stock exchange by establishing global

benchmarks"

NSE-(NATIONAL STOCK EXCHANGE OF INDIA)

The National Stock Exchange (NSE) is India's leading stock exchange covering

various cities and towns across the country. NSE was set up by leading

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institutions to provide a modern, fully automated screen-based trading system

with national reach. The Exchange has brought about unparalleled transparency,

speed and efficiency, safety and market integrity.

NSE has played a catalytic role in reforming the Indian securities market in terms

of microstructure, market practices and trading volumes. The market today uses

state-of-art information technology to provide an efficient and transparent trading,

clearing and settlement mechanism, and has witnessed several innovations in

products & services viz. demutualisation of stock exchange governance, screen

based trading, compression of settlement cycles, dematerialisation and electronic

transfer of securities, securities lending and borrowing, professionalization of

trading members, fine-tuned risk management systems.

Securities and Exchange Board of India (SEBI):

The Securities and Exchange Board of India (SEBI) is an autonomous body

established by an act of parliament in 1992. SEBI is controlled by a statutory board

consisting of one chairman and six members. SEBIs main objective is to protect the

interest of investors, and to regulate all securities market particularly the share

market. SEBI is a market regulator whose major functions include regulation,

superintendence and control of all securities markets in India, overseeing the

functioning of stock exchanges, framing rules for trading practices, attending to and

removing investor grievances, framing rules for and regulating public issues, training

and education of investors, and all matters pertaining to market intermediaries.

Introduction

The stock market can be a great source of confusion for many people. The average person

generally falls into one of two categories. The first believe investing is a form of

gambling; they are certain that if you invest, you will more than likely end up losing your

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money. Often these fears are driven by the personal experiences of family members and

friends who suffered similar fates or lived through the Great Depression. These feelings

are not ground in facts and are the result of personal experience. Someone who believes

along this line of thinking simply does not understand what the stock market is or why it

exists.

The second category consists of those who know they should invest for the long-run, but

dont know where to begin. Many feel like investing is some sort of black-magic that

only a few people hold the key to. More often than not, they leave their financial

decisions up to professionals, and cannot tell you why they own a particular stock or

mutual fund. Their investment style is blind faith or limited to this stock is going up. We

should buy it. This group is in far more danger than the first. They invest like the masses

and then wonder why their results are mediocre (or in some cases, devastating).

In this series of lessons, I set out to prove that the average investor can evaluate the

balance sheet of a company, and following a few relatively simple calculations, arrive at

what they believe is the real, or intrinsic value of the company. This will allow a person

to look at a stock and know that it is worth, for instance, Rs.40 per share. This gives each

investor the freedom to know when a security is undervalued, increasing their long-term

returns substantially. Before we examine how to value a company, it is important to

understand the nature of businesses and the stock market. This is the cornerstone of

learning to invest well.

Business is the cornerstone of every economy. Almost every large corporation started out

as a small, mom-and-pop operation and through growth, became financial giants. Wal-

Mart, Dell Computer, and McDonalds had combined profits of Rs.10.34 billion this

year. Wal-Mart was originally a single-store business in Arkansas. Dell computer began

with Michael Dell selling computers out of his college dorm room. McDonalds was once

a small restaurant no one had heard of. How did these small companies grow from tiny,

hometown enterprises to three of the largest businesses in the American economy? They

raised capital by selling stock in themselves.

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When a company is growing, the biggest hurdle is often raising enough money to expand.

Owners generally have two options to overcome this. They can either borrow the money

from a bank or venture capitalist, or sell part of the business to investors and use the

money to fund growth. Taking out a loan is common, and very useful to a point. Banks

will not always lend money to companies, and over-eager managers may try to borrow

too much initially, wrecking the balance sheet. Factors such as these often provoke

owners of small businesses to issue stock. In exchange for giving up a tiny fraction of

control, they are given cash to expand the business. In addition to money that doesnt

have to be paid back, going public [as its called when a company sells stock in itself for

the first time], gives the business managers and owners a new tool: instead of paying cash

for an acquisition, they can use their own stock.

To better understand how issuing stock works; lets look at a fictional company ABC

Furniture, Inc.

After getting married, a young couple decided to start a business. It would allow them to

work for themselves, as well as arrange their hours around their family. Both husband

and wife have always had a strong interest in furniture, so they decide to open a store in

their hometown. After borrowing money from the bank, they name their company ABC

Furniture and go into business. The first few years, the company makes little profit

because the earnings are plowed back into the store, buying additional inventory and

adding onto the building to accommodate the increasing level of merchandise.

Ten years later, the business has grown rapidly. The couple has managed to pay off the

companys debt, and profits are over Rs.500,000 per year. Convinced that ABC Furniture

could do as well in several larger, neighboring cities, the couple decides they want to

open two new branches. They research their options and find out it is going to cost over

Rs.4 million dollars to expand. Not wanting to borrow money and be strapped with

interest payments again, they decide to sell stock in the company.

The company approaches an underwriter, such as Goldman Sachs or JP Morgan, who

determines the value of the business. As mentioned before, ABC Furniture earns

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Rs.500,000 after-tax profits each year. It also has a book value of Rs.3 million [the value

of the land, building, inventory, etc. subtracted by the companys debt] the underwriter

researches and discovers the average furniture stock is trading at 20 times earnings [a

concept we will discuss more in-depth later].

What does this mean? Simply, you would multiply the earnings of Rs.500,000 by 20. In

ABCs case, the answer is Rs.10 million. Add book value, and you arrive at Rs.13

million. This means, in the underwriters opinion, ABC Furniture, is worth thirteen

million dollars.

Our young couple, now in their 30s, must decide how much of the company they are

willing to sell. Right now, they own 100% of the business. The more they sell, the morecash theyll raise, but they will also be giving up a larger part of their ownership. As the

company grows, that ownership will be worth more, so a wise entrepreneur would not

sell more than he or she had to.

After discussing it, the couple decides to keep 60% of the company and sell the other

40% to the public as stock. [This means that they will keep Rs.7.8 million worth of the

business. Because they own a majority of the stock, they will still be in control of the

store.] The other 40% they sold to the public is worth Rs.5.2 million. The underwriters

find investors who are willing to buy the stock, and give a check for Rs.5.2 million to the

couple.

Although they own less of the company, their stake will hopefully grow faster now that

they have the means to expand rapidly. Using the money from their public offering, ABC

Furniture successfully opens the two new stores and have Rs.1.2 million in cash left over

[remember it was going to cost Rs.4 million for the new stores]. Business is even better inthe new branches, which are in more populated cities. The two new stores both make

around Rs.800,000 a year in profit each, with the old store still making the same

Rs.500,000. Between the three stores, ABC now makes an annual profit of Rs.2.1 million

dollars.

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To make a mark in the global arena, REL acquired UK-based Hichens, Harrison & Co. in

2008 which was subsequently re-named as Religare Hichens Harrison PLC ("RHH").

Hichens, Harrison & Co. was incorporated in London in the year 1803 and is believed to

be one of the oldest firms of stockbrokers in the City of London. Pursuant to expansion of

REL's business, the company has grown from largely an equity trading company into a

diversified financial services company. With the addition of RHH the REL group now

operates out of multiple global locations, other than India, (the UK, the USA, Brazil,

South Africa, Dubai and Singapore).

RELIGARE was founded with the vision of providing integrated financial care driven by

the relationship of trust. The bouquet of services offered by RELIGARE includes

Broking (Stocks and Commodities), Depository Participant Service, Advisory on MutualFund Investments and Portfolio Management Services.

RELIGARE is a pioneer in the concept of partnership to reach multiple locations in order

to effectively service its large base of individual clients. Besides the reach of

RELIGARE, the clients of the company greatly benefit by its strong research capability,

which encompasses fundamentals as well as technical knowledge.

RELIGARE GROUP:

RELIGARE in recent years has expanded its reach in health care and financial

services wherein it has multiple specialty hospital and labs which provide health care

services and multiple financial services such as secondary market equity services,

portfolio management services, depository services etc.

RELIGARE financial services group comprises of Religare Securities Limited,

RELIGARE Comdex Limited and RELIGARE Finvest Limited which provide services in

Equity, Commodity and Financial Services business & Religare Insurance Advisory Ltd.

RELIGARE SECURITIES LIMITED

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1. Member of National Stock Exchange of India and Bombay Stock Exchange of

India.

2. Depository Participant with National Securities Depository Limited (NSDL) andCentral Depository Services Limited (CDSL). A SEBI approved Portfolio

Manager.

RSL provides platform to all segments of the investor to leverage the immense

opportunity offered by equity investing in India either on their own or through managed

funds in Portfolio Management.

The ARN No. of the Religare Securities Ltd. is 33764. The ARN No. is

required by to be available with the broker who deals on behalf of investors or sell the

mutual funds of the different companies present in the market.

About Religare Securities Limited (RSL)

One of the leading integrated financial services groups of India

Diverse range of offerings

Client base of more than 5000,000 and growing across the retail, wealth and

Institutional Spectrum.

Pan India and global footprint.

Width and depth of management leading a formidable employee base.

Best-in-class Research.

Sweetly placed to spot new opportunities and power ahead.

The Religare Edge

Diverse offerings

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Dynamic Management Team

State-of-the art technology

Vast Distribution and Reach

Robust Brand RecognitionSynergistic partnerships

COMPETITORS

ICICI Securities Ltd

KOTAK Securities Ltd

INDIA Bulls Financial Services Ltd

HDFC Securities

PRODUCTS

Religare Securities Limited

Equity Broking

Online Investment Portal

Portfolio Management Services

Depository Services

Religare Commodities Limited

Commodity Broking

Religare Capital Markets Limited

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Investment Banking

Proposed Institutional Broking

Religare Realty Limited

In house Real Estate Management Company

TRADING

Trading on the BOLT System is conducted from Monday to Friday between 9:00 a.m.

and 3:30 p.m. The scrips traded on the Exchange have been classified into 'A', 'B1',

'B2','T', S', TS' 'F' ,'G' and 'Z' groups.

The Exchange has for the guidance and benefit of the investors have classified the scrips

in the Equity Segment into 'A', 'B1', 'B2','T', S', TS' and 'Z' groups on certain qualitative

and quantitative parameters which include number of trades, value traded, etc.

The F Group represents the Fixed Income Securities.

The T Group represents scrip's which are settled on a trade to trade basis as a

surveillance measure.

The S Group represent scrips forming part of the BSE-Indonext segment . The

TS Group consists of scrips in the BSE-Indonext segment which is settled on a

trade to trade basis as a surveillance measure.

Trading in Govt. Securities for retail investors is done under "G" group.

The 'Z' group was introduced by the Exchange in July 1999 and includes the companies

which have failed to comply with the listing requirements of the Exchange and/or have

failed to resolve investor complaints or have not made the required arrangements with

both the Depositories, viz., Central Depository Services (I) Ltd. (CDSL) and National

Securities Depository Ltd. (NSDL) for dematerialization of their securities.

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The Exchange also provides a facility to the market participants for on-line trading of

odd-lot securities in physical form in 'A', 'B1', 'B2' T','S', TS' and 'Z' groups and Rights

renunciations in all the groups of scrips in the Equity Segment.

With effect from December 31, 2001, trading in all securities listed in equity segment of

the Exchange takes place in one market segment, viz., Compulsory Rolling Settlement

Segment (CRS).

The scrips of the companies which are in demat can be traded in market lot of one but

the securities of companies which are still in the physical form are traded on the

Exchange in the market lot of generally either 50 or 100. However, the investors having

quantities of securities less than the market lot are required to sell them as "Odd Lots".

The facility of trading in odd lots of securities not only offers an exit route to investors to

dispose of their odd lots of securities but also provides them an opportunity to consolidate

their securities into market lots.

This facility of selling physical shares in compulsory demat scripts is called an Exit

Route Scheme. This facility can also be used by small investors for selling upto 500

shares in physical form in respect of scripts of companies where trades are required to be

compulsorily settled by all investors in demat mode.

There are many 80 companies listed under Religare securities. All these

securities are divided into different categories of securities different

categories of securities are given below:-

Listed Securities:

The securities of companies which have signed Listing Agreement with the Exchange are

traded at the Exchange as "Listed Securities". Baring a few scrips, all scrips traded in

the Equity Segment at the Exchange fall in this category.

Permitted Securities:

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To facilitate the market participants to trade in securities of the companies which are

actively traded at other Regional Stock Exchanges but are not listed on the Exchange, the

Exchange has in April 2002 decided to permit trading in such securities as Permitted

Securities" provided they meet the relevant norms specified by the Exchange.

Tick Size:

Tick size provided by Religare securities is re 1.

Tick size is the minimum differences in rates between two orders on the same side i.e.,

buy or sell, entered on the system for particular scrip. Trading in scrips listed on the

Exchange is done with the tick size of 5 paise.

However, in order to increase the liquidity and enable the market participants to put

orders at finer rates, the Exchange has reduced the tick size from 5 paise to 1 paise in

case of units of mutual funds, securities traded in "F" group and equity shares having

closing price upto Rs. 15/- on the last trading day of the calendar month. Accordingly, the

tick size in various scrips quoting upto Rs.15/- is revised to 1 paise on the first trading

day of month. The tick size so revised on the first trading day of month remains

unchanged during the month even if the prices of scrips undergo change.

Computation of closing price of scrips in the Cash Segment:

The closing price of scrip's is computed by the Exchange on the basis of weighted

average price of all trades executed during the last 30 minutes of the continuous trading

session. However, if there is no trade recorded during the last 30 minutes, then the last

traded price of scrip in the continuous trading session is taken as the official closing

price.

Compulsory Rolling Settlement (CRS) Segment:

As per the directive by SEBI, all transactions in all groups of securities in the Equity

Segment and Fixed Income securities listed on the Exchange are required to be settled on

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T+2 basis w.e.f. from April 1, 2003. The settlement calendar, which indicates the dates of

the various settlement related activities, is drawn by the Exchange in advance and is

circulated among the market participants.

Under rolling settlements, the trades done on a particular day are settled after a given

number of business days. A T+2 settlement cycle means that the final settlement of

transactions done on T, i.e., trade day by exchange of monies and securities between the

buyers and sellers respectively takes place on second business day (excluding Saturdays,

Sundays, bank and Exchange trading holidays) after the trade day.

The transactions in securities of companies which have made arrangements for

dematerialization of their securities are settled only in demat mode on T+2 on net basis,

i.e., buy and sell positions of a member-broker in the same scrip are netted and the net

quantity and value is required to be settled. However, transactions in securities of

companies, which are in "Z" group or have been placed under "trade to trade" by the

Exchange as a surveillance measure (T and TS group) , are settled only on a gross

basis and the facility of netting of buy and sell transactions in such scrips is not

available.

The Exchange has introduced a new segment named BSE Indonext w.e.f. January 7,2005. S group consists of scrips from B1 & B2 group on BSE and companies

exclusively listed on regional stock exchanges having capital of 3 crores to 30 crores. All

trades in this segment are done through BOLT system under S group.

The transactions in 'F' group securities representing "Fixed Income Securities" and " G"

group representing Govt. Securities for retail investors are also settled at the Exchange on

T+2 basis.

In case of Rolling Settlements, pay-in and pay-out of both funds and securities is

completed on the same day.

The members are required to make payment for securities sold and/ or deliver securities

purchased to their clients within one working day (excluding Saturday, Sunday, bank &

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Exchange trading holidays) after the pay-out of the funds and securities for the concerned

settlement is completed by the Exchange. This is the timeframe permitted to the members

of the Exchange to settle their funds/ securities obligations with their clients as per the

Byelaws of the Exchange.

The following table summarizes the steps in the trading and settlement cycle for scrips

under CRS

DAY ACTIVITY

T

Trading on BOLT and daily downloading of

statements

s

h

o

w

in

g

d

e

t

a

i

l

s

o

Downloading of provisional securities and

funds obligation statements by

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f

t

r

a

n

s

a

c

t

i

o

n

s

a

n

d

m

a

r

g

i

n

s

a

t

t

h

e

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e

n

d

o

f

e

a

c

h

t

r

a

d

i

n

g

d

a

y

.

M

e

m

6A/7A

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b

e

r

-

b

r

o

k

e

r

s

.

T+1

C

n statements by members.

T+2

Pay-in of funds and securities by 11:00 a.m.

and pay-out of funds and securities by 1:30

p.m. The member-bro

vary by 10: 30 a.m.

T+3

A

LT at 11.00 a.m.

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T+4

Auction pay-in and pay-out of funds and

securities by 12:00 noon and 1:30

Thus, the pay-in and pay-out of funds and securities takes places on the second

business day (i.e., excluding Saturday, Sundays and bank & Exchange trading holidays)

of the day of the execution of the trade.

* 6A/7A : A mechanism whereby the obligation of settling the transactions done by a

member-broker on behalf of a client is passed on to a custodian based on confirmation of

latter. The custodian can confirm the trades done by the members on-line and upto 11

a.m. on the next trading day. The late confirmation of transactions by the custodian after

11:00 a.m. upto 12:15 p.m., on the next trading day is, however, permitted subject to

payment of charges for late confirmation @ 0.01% of the value of trades confirmed or

Rs. 10,000/-, whichever is less.

The settlement of the trades (money and securities) done by a member-broker on his own

account or on behalf of his individual, corporate or institutional clients may be either

through the member-broker himself or through a SEBI registered custodian appointed by

him/client. In case the delivery/payment in respect of a transaction executed by a

member-broker is to be given or taken by a registered custodian, then the latter has to

confirm the trade done by a member-broker on the BOLT System through 6A-7A entry.

For this purpose, the custodians have been given connectivity to BOLT System and have

also been admitted as clearing member of the Clearing House. In case a transaction done

by a member-broker is not confirmed by a registered custodian within the time permitted,

the liability for pay-in of funds or securities in respect of the same devolves on the

concerned member-broker.

The following statements can be downloaded by the members in their back offices on a

daily basis.

a. Statements giving details of the daily transactions entered into by the members.

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b. Statements giving details of margins payable by the member-brokers in respect of

the trades executed by them.

c. Statements of securities and fund obligation.

d. Delivery/Receive orders for delivery /receipt of securities.

The Exchange generates Delivery and Receive Orders for transactions done by the

members in A, B1, B2, S and F and G group scrips after netting purchase and sale

transactions in each scrip whereas Delivery and Receive Orders for T, TS,"C" & "Z"

group scrips and scrips which are traded on the Exchange on "trade to trade" basis are

generated on gross basis, i.e., without netting of purchase and sell transactions in a scrip.

However, the funds obligations for the members are netted for transactions across allgroups of securities.

The Delivery Order/Receive Order provides information like the scrip and quantity of

securities to be delivered/received by the members through the Clearing House. The

Money Statement provides scrip wise/item wise details of payments/receipts of monies

by the members in the settlement. The Delivery/Receive Orders and Money Statement, as

stated earlier, can be downloaded by the members in their back office.

Settlement

Pay-in and Pay-out for 'A', 'B1', 'B2', T, S, TS, 'C', "F", "G" & 'Z' group

of securities.

The trades done on BOLT/Exchange by the members in all the securities in CRS are now

settled on the Exchange by payment of monies and delivery of securities on T+2 basis.

All deliveries of securities are required to be routed through the Clearing House,

The Pay-in /Pay-out of funds based on the money statement and that of securities based

on Delivery Order/ Receive Order issued by the Exchange are settled on T+2 day.

Demat pay-in :

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The members can effect pay-in of demat securities to the Clearing House through either

of the Depositories i.e. the National Securities Depository Ltd. (NSDL) or Central

Depository Services (I) Ltd. (CDSL). The members are required to give instructions to

their respective Depository Participants (DPs) specifying details such as settlement no.,

effective pay-in date, quantity, etc.

Members may also effect pay-in directly from the clients' beneficiary accounts through

CDSL. For this, the clients are required to mention the settlement details and clearing

member ID through whom they have sold the securities. Thus, in such cases the Clearing

Members are not required to give any delivery instructions from their accounts.

In case, if a member-broker fails to deliver the securities, then the value of sharesdelivered short is recovered from him at the standard/closing rate of the scrips on the

trading day.

Auto delivery facility :

Instead of issuing Delivery instructions for their securities delivery obligations in demat

mode in various scrips in a settlement /auction, a facility has been made available to the

members of automatically generating Delivery instructions on their behalf from their CM

Pool accounts maintained with NSDL and CM Principal Accounts maintained with

CDSL. This auto delivery facility is available for CRS (Normal & Auction) and for trade

to trade settlements. This facility is, however, not available for delivery of non-pair passu

shares and shares having multiple ISINs. The members wishing to avail of this facility

have to submit an authority letter to the Clearing House. This auto delivery facility is

currently available for Clearing Member (CM) Pool accounts and Principal accounts

maintained by the members with the respective depositories .

Pay-in of securities in physical form

In case of delivery of securities in physical form, the members have to deliver the

securities to the Clearing House in special closed pouches along with the relevant details

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like distinctive numbers, scrip code, quantity, etc., on a floppy. The data submitted by the

members on floppies is matched against the master file data on the Clearing House

computer systems. If there is no discrepancy, then the securities are accepted.

Funds Pay-in:

The bank accounts of members maintained with the clearing banks, viz., Bank of India,

HDFC Bank Ltd., Oriental Bank of Commerce., Standard Chartered Bank, Centurion

Bank Ltd., UTI Bank Ltd., ICICI Bank, Indusind Bank Ltd., Union Bank of India and

Hongkong Shanghai Banking Corporation Ltd. are directly debited through computerized

posting for their funds settlement obligations.

In case of those members, whose funds pay-in obligations are not cleared at the

scheduled time, action such as levy of penalty and/or deactivation of BOLT TWSs, is

initiated as per penalty norms prescribed .

Securities Pay-out:

In case of demat securities, the same are credited by the Clearing House in the

Pool/Principal Accounts of the member-brokers. The Exchange has also provided afacility to the member-brokers for transfer of pay-out securities directly to the clients'

beneficiary owner accounts without routing the same through their Pool/Principal

accounts in NSDL/ CDSL. For this, the concerned member-brokers are required to give a

client wise break up file which is uploaded by the member-brokers from their offices to

the Clearing House. Based on the break up given by the member-brokers, the Clearing

House instructs depositories, viz., CDSL & NSDL to credit the securities to the

Beneficiary Owners (BO) Accounts of the clients. In case delivery of securities received

from one depository is to be credited to an account in the other depository, the Clearing

House does an inter depository transfer to give effect to such transfers.

In case of physical securities, the Receiving Members are required to collect the same

from the Clearing House on the pay-out day.

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Funds Payout:

The bank accounts of the members having pay-out of funds are credited by the Clearing

House with the Clearing Banks on the pay-in day itself

In case, if a member-broker fails to deliver the securities, then the value of shares

delivered short is recovered from him at the standard/closing rate of the scrips on the

trading day.

Dematerialization of shares:

In Religaredematerialize only those certificates that are already registered in your name

and are in the list of securities admitted for dematerialization at NSDL. All the scripts

included in S&P, CNX, NIFTY and BSE SENSEX have already joined NSDL. This list

has more than 7,000 companies and is steadily growing. You can get an updated list of

these companies from your DP or from NSDL website at www.nsdl.co.in

Dematerialization as the name suggests, is a term used for conversion of shares from their

physical form to electronic form. This conversion is done by NSDL and CDSL. The

CDSL acts as a depository for BSE, whereas the NSDL acts as a depository for NSE.

After dematerialization, shares cease to exist in their physical form.

Merits of dematerialization:

No risk of being fake or stolen shares.

No stamp duty while transfer of shares.

Free from tedious paperwork as it was in the physical form.

Rematerialization: Rematerialization is the reverse of dematerialization. It meansto convert the electronically held shares back into physical form. You have the complete

freedom of conversion from electronic form to physical form whenever you want to do

so.

OPEN INTEREST IN DERIVATIVE MARKET

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Open interest means the total number of open contracts on a security, that is, the number

of future contracts or options contracts that have not been exercised, expired or full filled

by delivery. Hence we can say that the open interest position at the end of each day

represents the net increase or decrease in the number of contracts for that day. However,

it is to be noted that open interest is not the same as trading volume. Trading volume

represents the total number of contracts that are traded during a day, inclusive of both

squared off (closed) positions and new positions. Thus, for any day, the trading volume

will always be higher than the open interest.

What is open interest?

Every trade in the exchange would have an impact on the open interest for that day. Say,

for example, A buys one contract of Nifty on Monday while B buys two on the same

day. Open interest at the end of the day will be three. On Tuesday, while A sells his

one contract to C, B buys another Nifty contract. The open interest at the end of the

day is now four. In other words, if both parties to the trade initiate a new position, it

increases the open interest by one contract.

But if the traders square off their existing positions, Open interest will decrease by the

same number of contracts.

However, if one of the parties to the transaction squares off his position while the other

creates one open interest will remain unchanged. Open interest, thus, mirrors the flow of

money into the derivatives market, which makes it a vital indicator of market direction.

RISING MARKET AND INCREASING OPEN INTEREST

If the markets are on an uptrend and open interest is also increasing, it its a bullish

signal. It implies the entry of new players into the market, who are creating fresh longpositions and suggests the flow of extra money into the market.

RISING MARKET AND DECREASING OPEN INTEREST

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If despite a rise in market, the open interest decreases, it can be interpreted as a precursor

to a trend reversal. The lack of additions to open interest shows that the markets are rising

on the back of short-sellers covering their existing positions. This also implies that money

is flowing out of the market, given that open interest is decreasing.

FALLING MARKET AND INCREASING OPEN INTEREST

When open interest records an increase in value amidst falling market, it could be a

bearish signal. Though a rise in open interest means that new money is probably being

used for creating fresh short positions, which will lead to a further downtrend.

FALLING MARKET AND DECREASING OPEN INTEREST

If open interest decreases in a falling market, it can be attributed to the forced squaring-

off of long positions by traders. It, thus, represents a trend reversal, since the downtrend

in the market is likely to reverse after the long positions have been squared off. Thus, in a

falling market, a declining open interest can be considered a signal indicating the

strengthening of the market.

SIDEWAYS MARKET AND INCRESING OPEN INTEREST

If the open interest decreases in a sideways market, we can say that flat market trends

will continue for some more time. A decrease in open interest only represents the

squaring-off of old positions and lack of any new positions might result in a sideways or

weak trends in the market.

Though open interest is a good barometer of where the markets are heading; it is only an

indicator that helps us trade intelligently it cannot be considered foolproof.

THE INDEX NUMBER

An index is a number which measures the change in a set of values over a period of time.

A stock index represents the change in value of a set of stocks which constitute the index.

More specifically, a stock index number is the current relative value of a weighted

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average of the prices of a pre-defined group of equities. It is a relative value to the

weighted average of prices at some arbitrarily chosen starting date or base period. The

starting value or base of the index is usually set to a number such as 100 or 1000. for

example the base value of the Nifty was set to 1000 on the start date of November 3,

1994.

A good stock market index is on which captures the behaviour of the overall equity

market. It should represent the market, it should be well diversified and yet highly liquid.

Movements of the index should represent the returns obtained by typical portfolios in

the country.

A market index is very important for its use

As a barometer for market behaviour,

As a benchmark portfolio performance,

As an underlying in derivative instruments like index futures,

In passive fund management by index funds

Also acts a barometer for lot of elements such as liquidity in the market, the

growth of the economy, the investors confidence, government policies etc.

DESIRABLE ATTRIBUTE OF AN INDEX

A good market index should have the following attributes:

It should capture the behaviour of a large variety of different portfolios in the

market.

The stocks included in the index should be highly liquid.

It should be professionally maintained.

Capturing Behaviour Of Portfolios

A good market index should accurately reflect the behaviour of the overall market as well

as of different portfolios. This is achieved by diversification in such a manner that a

portfolio is not vulnerable to any individual stock or industry risk. A well diversified

index is more representative of the market. However there is diminishing returns form

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diversification, there is very little gain by diversifying beyond a point; the more serious

problem lies in the stocks that are included in the index when it is diversified. We end up

including illiquid stocks, which actually worsen the index. Since an illiquid stock does

not reflect the current price behaviour of the market, its inclusion in index results in an

index, which reflects, delayed or stale price behaviour rather than current price behaviour

of the market.

Including Liquid Stocks

Liquidity is much more than trading frequency, it is about ability to transact at a price,

which is very close to the current market price. For example, a stock is considered liquid

if one can buy some shares at around Rs.120.05 and sell at around Rs.119.95, when the

market price is ruling at Rs.120. a liquid stock has very tight bid ask spread.

Maintaining Professionally

It is now clear that an index should contain as many stocks with as little impact cost as

possible. This necessarily means that the same set of stocks would not satisfy these

criteria at all times, a good index methodology must therefore incorporate a steady pace

of change in the index set. It is crucial that such changes are made at a steady pace. It is

very healthy to make a few changes every year, each of which is small and does not

dramatically alter the character of the index, on a regular basis, the index set should be

reviewed, and brought inline with the current state of market, to meet the application

needs of users, a time series of the index sold be available.

Impact cost

Market impact cost is a measure of the liquidity of the market. It reflects the costs faced

when actually trading an index. For a stock to qualify for possible inclusion into the

index, it has to have market impact cost of below 0.75% when doing Nifty trades of half

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a crores rupees. The market impact cost on a trade of Rs.3 million of the full Nifty works

out to be about 0.05%. This means that if Nifty is at 4000, a buy order goes through at

4002, i.e. 4000+ (4000*0.0005) and a sell order gets 3998 i.e. 4000-(4000*0.0005)

FUTURES AND OPTIONS

An option is different form futures in several ways. At practical level, the option buyer

faces an interesting situation. He pays for the options in full at the time it is purchased.

After this, he only has an upside. There is no possibility of the options position

generating any further losses to him. This is different form futures, which is free to enter

into, but can generate very large losses. This characteristic makes options attractive to

many occasional market participants, who cannot put in the time to closely monitor their

futures positions.

Buying put options is buying insurance. To buy a put option on Nifty is to buy insurance

which reimburses the full extent to which Nifty drops below the strike price of the put

option. This is attractive to many people, and to mutual funds creating guaranteed return

products.

TRADING UNDERLYING VERSUS TRADING SINGLE

STOCK FUTURES

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The single stock futures market in India has been a great success story across the world.

NSE ranks first in the world in terms of number of contracts traded in single stock

futures. One of the reasons for the success could be the ease of trading and settling these

contracts.

To trade securities, a customer must open a security trading account with a securities

broker and a demat account with a securities depository. Buying security involves putting

up all the money upfront. With the purchase of shares of a company, the holder becomes

a part owner of the company. The shareholder typically receives the rights and privileges

associated with the security, which may include the receipt of dividends, invitation to the

annual shareholders meeting and the power to vote.

Selling securities involves buying the security before selling it. Even in cases where short

selling is permitted, it is assumed that the securities broker owns the security and then

lends it to the trader so that he can sell it, besides, even if permitted, short sales on

security can only be executed on an uptick.

To trade futures, a customer must open a futures trading account with a derivatives

broker. Buying futures simply involves putting in the margin money. They enable the

futures traders to take a position in the underlying security without having to open an

account with a securities broker. With the purchase of futures on a security, the holder

essentially makes a legally binding promise or obligation to buy the underlying security

at some point in the future. Security futures do not represent ownership in a corporation

and the holder is therefore not regarded as a shareholder.

DERIVATIVE MARKET AT NSE

The derivatives trading on the 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. Single stock futures were

launched on November9, 2001. Today, both in terms of volume and turnover, The mini

derivative Futures & Options contract on S&P CNX Nifty was introduced for trading on

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January 1, 2008 while the long term option contracts on S&P CNX Nifty were introduced

for trading on March 3 2008

NSE is the largest derivatives exchange in India.

Currently, the derivatives contracts have a maximum of 3-month expiration cycles.

Three contracts are available for trading, with 1 month, 2 months and 3 months expiry.

A new contract is introduced on the next trading day following the expiry of the near

month contract.

INDEX DERIVATIVES

Index derivatives are derivative contracts which have the index as the underlying. Themost popular index derivatives contract the world over is index futures and index options.

NSEs 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 NSEs market was the index futures contract with the Nifty as the

underlying. This was followed by Nifty options and thereafter by sectoral indexes, CNX

IT and BANK Nifty contracts.

FUTURES TERMINOLOGY

SPOT PRICE: The price at which an asset trades in the spot market

FUTURES PRICE:The price at which the futures contract trades in the futures market.

CONTRACT CYCLE: The period over which a contract trades. The index futures

contracts on the NSE have one month, two months and three months expiry cycles which

expire on the last Thursday of the month. Thus a January expiration contract expires on

the last Thursday of January.

EXPIRY DATE: It is the date specified in the futures contract. This is the last day on

which the contract will be traded, at the end of which it will cease to exist.

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CONTRACT SIZE: The amount of asset that has to be delivered under one contract.

For instance, the contract size on NSEs futures market is 200 Nifties.

BASIS: In the context of financial futures, basis can be defined as the futures price minus

the spot price, there will be a different basis for each delivery month for each contract. In

a normal market, basis will be positive; this reflects that futures prices normally exceed

spot prices.

COST OF CARRY: the relationship between futures prices and spot prices can be

summarized in terms of what is known as the cost of carry. This measures the storage

cost plus the interest that is paid to finance the asset less the income earned on the asset.

INITIAL MARGIN: the amount that must be deposited in the margin account at the

time a futures contract is first entered into is known as initial margin.

MARKET TO MARKET: in the futures market, at the end of each trading day, the

margin account is adjusted to reflect the investors gain or loss depending upon the

futures closing price. This is called Marking-to-market.

MAINTENANCE MARGIN:This is somewhat lower than the initial margin. This is

set to ensure that the balance in the margin account never becomes negative. If the

balance in the margin account falls below the maintenance margin, the investor receives a

margin call and is expected to top up the margin account to the initial margin level before

trading commences on the next day.

A futures contract is different from the underlying stock in the following ways:

When we buy a stock, we pay the full value of the transaction (i.e. the number of

shares multiplied by market price of each share) whereas in futures we pay only

the margin which is a fraction of the total transaction value. There is no time limit of settlement in cash market but in case of futures contracts,

they are dated. An Indian futures settlement currently takes place on the last

Thursday of every month. So the current months futures expire on the months

last Thursday. If a trader has to carry his position to the next month, he has to

shift his position to the next months future.

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Source: NCFM Derivative Module Work Book

ELIGIBILITY FOR ANY STOCK TO ENTER IN DERIVATIVE

MARKET

Non promoter holding (free float capitalization) should not be less than Rs.750

crores for the last 6 months.

Daily Average Trading value should not be less than 5 crores in last 6 months

It must be traded least 90% of Trading days in last 6 months.

Non Promoter Holding must at least be 30%

BETA should not be more than 4 (for previous 6 months)

TRADING MECHANISM

The futures and options trading system of NSE, called NEAT-F&O trading system,

provides a fully automated screen-based trading for Nifty futures & options and stock

futures & options on a nation wide basis and an online monitoring and surveillance

mechanism. It supports an anonymous order driven market which provides complete

transparency of trading operations and operates on strict price-time priority. It is similar

to that of trading of equities in the cash market segment. The NEAT-F&O trading system

is accessed by two types of users. The trading members have access to functions such as

order entry, order matching, order and trade management. It provides tremendous

flexibility to users in terms of kinds of orders that can be placed on the system. various

conditions like Immediate or Cancel, Limit/Market price, Stop loss, etc. can be built into

an order. The clearing members use the trader workstation for the purpose of monitoring

the trading members for whom they clear the trades. Additionally, they can enter and set

limits to positions, which a trading member can take.

VOLUMES

The trading volumes on NSEs derivatives market have seen a steady increase since the

launch of the first derivatives contract, i.e. index futures in June 2000. The average daily

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turnover at NSE now exceeds Rs.35000 crores. A total of 216,883,573 contracts with a

total turnover of Rs. 7,356,271 crores were traded during 2006-2007.

INDEX DERIVATIVES FOR HEDGING

To understand the use and functioning of the index derivatives markets, it is necessary to

understand the underlying index. By looking at an index, we know how the market is

faring. Index derivatives allow people to cheaply alter their risk exposure to an index

(hedging) and to implement forecasts about index movements (speculation). Hedging

using index derivatives has become a central part of risk management in the modern

economy.

Pricing the Futures

A futures price can be simply derived by applying the cost of carry logic, by which the

fair value of a futures contract can be determined. Every time the observed price deviates

from the fair value, arbitragers would enter into trades to capture the arbitrage profit. This

in turn would push the futures price back to its fair value. The cost of carry model used

for pricing futures is as follows:

F=Se

rT

Where:

r= cost of financing continuously compounded interest rate

T= Time till expiration in years

e= 2.71828

Example:

Security XYZ ltd trades in the spot market at Rs. 1150. Money can be invested at 11%

p.a. The fair value of a one month futures contract on XYZ is calculated as follows:

F = SerT

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=1150*e0.11*1/12

=1160

INITIAL MARGIN

At the inception of a contract every client is required to pay initial margin. This

margin is must to every trading member.

Initial margins are charged on Trade by Trade basis

Initial margins are charged by NSCCL

Initial margins are charged for the purpose of recovery and safe guard against the

fluctuation in the market.

A future value is calculated on cost of carry model.

INITIAL MARGINS CHARGED ON F&O MARKET

Index futures: 5%

Index options: 3%

Stock options: 7.5%

CONVERGENCE OF FUTURES PRICE TO SPOT PRICE

As the delivery month of a futures contract is approached, the futures price converges to

the spot price of the underlying asset. When the delivery period is reached, the futures

price equals or is very close to the spot price.

To see why this so, we first suppose that the futures price is above the spot price during

the delivery period. Traders then have a clear arbitrage opportunity:

Short a futures contract

Buy the asset

Make the delivery

These steps are certain to lead to a profit equal to the amount by which the futures price

exceeds the spot price. As traders exploit this arbitrage opportunity, the futures price will

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fall. Suppose next that the futures price is below the spot price during the delivery period.

Companies interested in acquiring the asset will find it attractive to enter into a long

futures contract and then wait for delivery to be made. As they do so, the futures price

will tend to rise. The result is that the futures price is very close to the spot price during

the delivery period.

The convergence of the futures price to the spot price when future price is

above the spot price can be pictorially represented

The convergence of the futures price to the spot price when future price is below the

spot price can be pictorially represented as follows:

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MARK TO MARKET (MTM) MARGINS

MTM margin is charged on continuous Basis t the end of each day on Daily basis

of cumulative net outstanding open position.

CM (clearing member) is responsible to collect and settle the daily MTM Margins

(Profits/loss) from their trading members according to their open positions.

TM (Trading Member) are responsible to collect and settle the daily MTM

margins for pay in/ pay out of their clients according to the clients open position.

For calculating MTM margin future last hour average price is takes, if it is not

traded on that day or last half hour MTM is calculated on theoretical price model.

MTM margin balance at the yearend shown in current asset account.

OPEN INTEREST CALCULATION

Open interest means out standing orders of (long position + short position)

Contracts in a particular point of time.

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OPEN INTEREST CALCULATION (EXAMPLE)

200(Total buy)-400(total sell) = 200 short (net position)

Client Open Position

Client A 400(Total buy) - 200(total sell) = 200 long net position

Client B 200(total buy) - 400(total sell) = 200 short net position

Client C 500(total buy) - 400(total sell) = 100 long net position

= 500 long + short

Trading Member Total Open Position = 700 long+ short

Clearing member open position: All trading member open position and custodial

participants

OPTIONS

An option is a contract, or a provision of a contract, that gives one party (the option

holder) the right, but not the obligation, to perform a specified transaction with another

party (the option issuer or option writer) according at specified terms. The owner of a

property might sell another party an option to purchase the property any time during the

next three months at a specified price. For every buyer of an option there must be a seller.

The seller is often referred to a s the writer. As with futures, options are brought into

existence by being traded, if none is traded, none exists; conversely, there is no limit to

the number of option contracts that can be in existence at any time. As with futures, the

process of closing out options positions will cause contracts to cease to exist, diminishing

the total number.

Thus an option is the right to buy or sell a specified amount of a financial instrument at a

pre- arranged price on, or before, a particular date.

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There are two options which can be exercised:

Call option, a right to buy is referred to as a call option.

Put option, the right to sell is referred as a put option.

OPTION TERMINOLOGY

INDEX OPTIONS:these options have the index as the underlying. Some options are

European while others are American. European style options can be exercised only on the

maturity date of the option, which is known as the expiry date. An American style option

can be exercised at any time up to, and including, the expiry date. It is to be noted that the

distinction has nothing to do with geography. Both type of the option are traded

throughout the world

STOCK OPTIONS: Stock options are options on individual stocks. A contract gives the

holder the right to buy or sell shares at the specified price.

BUYER OF AN OPTION:the buyer of an option is the one who by paying the option

premium buys the right but not the obligation to exercise his options on the seller/writer.

WRITER OF AN OPTION:The writer of a call/put option is the one who receives theoption premium and is thereby obliged to sell/buy the asset if the buyer exercised on him.

STRIKE PRICE:the price specified in the options contract is known as the strike price

or the exercise price.

IN THE MONEY OPTION:An in the money option is an option that would lead to a

positive cash flow to the holder if it were exercised immediately. A call option on the

index is said to be in-the-money (ITM) when the current index stands at a level higher

than the strike price (i.e. spot price> strike price). If the index is much higher than the

strike price, the call is said to be deep ITM.. In the case of a put, the put is ITM if the

index is below the strike price.

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AT THE MONEY OPTION:An at the money option is an option that would lead to

zero cash flow if it were exercised immediately. An option on the index is at the money

when the current index equals the strike price (i.e. spot price = strike price).

OUT OF THE MONEY OPTION:An out of the money (OTM) option is an optionthat would lead to a negative cash flow if it were exercised immediately. A call option on

the index is out of the money when the current index stands at a level which is less than

the strike price(i.e. spot price < strike price). If the index is much lower than the strike

price, the call is said to be deep OTM. In the case of a put, the put is OTM if the index is

above the strike price.

INTRINSIC VALUE OF AN OPTION:The option premium can be broken down into

two components- intrinsic value and time value. The intrinsic value of a call is the

amount the option is ITM, if it is ITM. If the call is OTM, its intrinsic value is zero.

TIME VALUE OF AN OPTION:The time value of an option is the difference between

its premium and its intrinsic value. Usually, the maximum time value exists when the

option is ATM. The longer the time to expiration, the greater is an options time value, or

else equal. At expiration, an option should have no time value.

STRATEGIES IN FUTURES AND OPTIONS

The following are the four basic strategies in options market which can be further

designed in combination of one or more of the basic strategies, but all the complex

strategies are based on the following 4 basic kind of strategies, so the understanding of

these 4 strategies is very essential before we go any further:

BUYING A CALL OPTION

A buyer of the option paying a premium (price) for the option to buy a specified quantity

at a specified price any time prior to the maturity of the option.

We can consider the live example of taking a call option of GMR Infrastructure at a strike

price of Rs.500 , a call can be taken upto a duration of 3 months from now. Here we have

taken a call at the strike price of Rs.500, at a premium of Rs. 25 on 01-06-2009.

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The following is the tabulation of the payoffs at expiration.

Table: A

The following is the

graphical

representation of

the above strategy:

CALL OPTION PAYOFF

-50

0

50

100

150

200

250

300

PRICE

PAY

OFF

GROSS PAYOFF

NET PAYOFF

400 450 500 550 600 650 700 750

In the above example when GMR falls to a price of Rs.400, the buyer of the option can

purchase the share from the market at Rs.400 without exercising the right to buy the stock

at Rs.500. However, on that he incurs a loss of Rs.25 as the premium being paid for the

option remaining unexercised. But suppose that the share prices rise to Rs.750 then the

holder of the option has the right to purchase that share at a price of Rs.500 form the

seller of the option. In this case any price level above Rs.525 (500+25), which is the

48

STOCK PRICE

ON EXPIRY

GROSS PAYOFF

ON OPTION

NET PAYOFF ON

OPTION

400 0 -25

450 0 -25

500 0 -25

550 50 25

600 100 75

650 150 125

700 200 175

750 250 225


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breakeven point, results in a profit for the buyer of the option. Investment in the above

option is Rs.25*1000=Rs.25000.

In the above diagram we can notice that the payoffs are one to one after the price of the

underlying security rises above the exercise price. When the security price is less than the

exercise price, the option is referred to as out of the money.

Form the above figure it can be seen that the investor who is already long i.e. holds a

stock bears a loss only to the extent of Rs.25 because no matter if the share price fall

below Rs.500 the investor is not holding any stock. Once the investor is either long or

short the stock he can adopt any of these strategies to hedge his risk.

The above strategy was applied in the month of June

The following are the updates:-

TABLE:-B

49

DATE STRIKE

PRICE

OPEN HIGH LOW

01-06-2010 500 27 27 23

15-06-2010 500 54 64.75 52.45

21-06-2010 500 99 104.50 99

27-06-2010 500 200.90 249 200.90


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As it can be seen from the above table that the call option price of the stock has given a

fantastic return of over 900% on investment of Rs.25000 only. Here the risk of the above

investment was limited only to Rs.25000

BUYING A PUT

The second strategy is the put strategy where the buyer of the put option has to pay a

premium(price) for the option to sell a specified quantity at a specified price any time prior to

the maturity of the option. Here we take the example of buying a put option on the stock of

AIR DECCAN. The exercise price was Rs.140. The premium paid on the above option was

Rs.4.10 on 04-06-2009. investment in the above strategy is Rs.4.10*2500=Rs.10,250.

The pay off form a put can be illustrated. Notice that the payoffs are one to one when the

price of the security is less than the exercise price.

PRICE GROSS PAYOFF NET PAYOFF

110 30 24.9

120 20 14.9

130 10 4.9

140 0 -4.1

150 0 -4.1

160 0 -4.1

170 0 -4.1

Table: C

Following are the update of the above option

DATE STRIKE PRICE OPEN HIGH LOW

04-06-2010 140 4.40 4.40 4.40

07-06-2010 140 4.00 4.00 4.00

08-06-2010 140 4.90 8.75 4.90

27-06-2010 140 6.75 6.75 6.75

Table: D

The following is the graphical representation of the above strategy:

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PUT OPTION PAYOF

-10

-5

0

5

10

15

20

25

30

35

PRICE

PAYOFF

GROSS PAYOF

NET PAYOFF

110 120 130 140 150 160 170

A put option is a contact giving its owner the right to sell a fixed amount of a specified

underlying asset at a price at any time on or before a fixed date. On the expiration date, the

value of the put on a per share basis will be the larger of the exercise price minus the stock

price or zero.

In the above diagram we can notice how the down side risk is minimized if the stock is

volatile and the share prices may fall.

Here an investor will get profits only if the stock falls below Rs.134.9

In this option the investor has gained 64.6% within a month.

WRITING THE CALL OPTIONS

A call option gives the buyer the right to buy the underlying asset at the strike price specified

in the option. For selling the option, the writer of the option charges a premium. The

profit/loss that the buyer makes on the option depends on the spot price of the underlying.

Whatever is the buyers profit is the sellers loss. If upon expiration, the spot price exceeds

the strike price, the buyer will exercise the option on the writer. Hence as the spot priceincreases the writer of the option starts making losses. Higher the spot price more is the loss

he makes, if upon expiration the spot price of the underlying is less than the strike price, the

buyer lets his option expire unexercised and the writer gets to keep the premium.

As the options are always costly at the beginning of the month we have written a call option

on CAIRN INDIA LIMITED ON 1st of June at a strike price of Rs.140 with a premium of

Rs.8.5,

Following is the payoff chart for the above option:

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110 0 8.5

120 0 8.5

130 0 8.5

140 0 8.5

150 -10 -1.5

160 -20 -11.5

170 -30 -21.5

Table: E

Following are the updates of the option rates in the market:

DATE STRIKE PRICE OPEN HIGH LOW

01-Jun-2010 140.00 8.5 8.5 8.5

12-Jun-2010 140.00 2.4 4.2 2.1

20-Jun-2010 140 4.35 4.85 2.35

28-Jun-2010 140 4.30 4.90 4.2

Table: F


CALL WRITTING PAYOFF CHART

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

PRICE

PAYOF

GROSS PAYOFF

NET PAYOFF

110 120 130 140 150 160 170

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From the above we can notice that the liability is potentially unlimited when a investor are

writing options.

Here we can see that the investment in this option is nil, as the call writer will get the

premium at which he is writing. The net return on this option at the expiry period was

Rs.10,624.

WRITING OF PUT OPTIONS

A put option gives the buyer the right to sell the underlying asset at the strike price specified

in the option. For selling the option, the writer of the option charges a premium, the

profit/loss that the buyer makes on the option depends on the spot price of the underlying.

Whatever is the buyers profit is the sellers loss. If upon expiration, the spot price of the

underlying happens to be below the strike price, the buyer will exercise the option on the

writer. If upon the expiration the spot price of the underlying is more than the strike price, the

buyer lets his option expire un-exercised and the writer gets to keep the premium.

The put writer will first get a premium of amount Rs.9375

Following is the payoff chart of writing the put option


650 -150 -125

700 -100 -75

750 -50 -25

800 0 25

850 0 25

900 0 25

Table: G

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WRITINGPUT OPTION PAYOFF

-200

-150

-100

-50

0

50

PRICE

PAYO GROSS PAYOFF

NETPAYOFF

650 700 750 800 850 900

As with the written call, the upside is limited to the premium of the option (the initial price).The downside is limited to the minimum asset price-which is zero. We can clearly see from

these diagrams that the investor, depending upon his risk appetite and the outlook about the

market conditions, can minimize his losses. The net return on this option at the expiry period

was Rs.8, 212.5

FRIDAY MARKET ANALYSIS

Date 1 2 3 4 5 difference

81 80 83

06-march 8198 04 8348 47 26 128

84 84 87

13-march 8344 81 8793 81 57 413

89 88 89

20-march 9002 51 9000 67 67 -35

10 10

03 99 04

27-match 10003 7 10128 13 08 45

11 10 11

06 94 02

17-april 10947 8 11340 6 3 7611 11 11

15 07 32

24-april 11135 0 111363 0 9 194

12 11 11

09 76 87

8-may 12117 2 12181 5 6 -124

11 11 12

94 94 17

15-may 11872 9 12219 9 2 300

13 13 13

66 61 8822-may 13736 3 13937 1 7 151

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14 14 14

29-may 14296 0 14727 0 5 329

PREs

1. CLOSED

2. OPEN

3. HIGH

4. LOW

5. CLOSING

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SWOT ANALYSIS

STRENGTH

Ranbaxy promoter group company

Good research company

No annual maintenance charges

for their online broking service

WEAKNESS

It has changed its name from

FORTIS to RELIGARE where the

maximum customers dont know

about this

Non performing website as reported

by customer

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OPPORTUNITIES

Financial services sector in India is

growing by leaps and bounds

In the upcoming days Religare is

coming up with their own mutual

fund and banking

THREATS

Cut-throat competition from

corporate big houses like Reliance

and ICICI

As they have changed the name of

their company the consumers still did

not know about Religare.

CONCEPTUAL

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DESCRIPTION

CONCEPTUAL DESCRIPTION

STOCK MARKET:- A stock market or equity market is a public market (a loose

network of economic transactions, not a physical facility or discrete entity) for the trading of

companystock(shares) and derivatives at an agreed price; these are securities listed on a

stock exchange as well as those only traded privately.

The size of the world stock market was estimated at about $36.6 trillion USD at the

beginning of October 2008.The total world derivatives market has been estimated at about

$791 trillion face or nominal value, 11 times the size of the entire world economy. The value

of the derivatives market, because it is stated in terms ofnotional values, cannot be directly

compared to a stock or a fixed income security, which traditionally refers to an actual value.

Moreover, the vast majority of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an

event occurring is offset by a comparable derivative 'bet' on the event not occurring). Many

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such relatively illiquid securities are valued as marked to model, rather than an actual market

price.

The stocks are listed and traded on stock exchanges which are entities of a corporation or

mutual organization specialized in the business of bringing buyers and sellers of the

organizations to a listing of stocks and securities together. The largest stock market in the

United States, by market cap, is the New York Stock Exchange,NYSE. In Canada, the

largest stock market is the Toronto Stock Exchange. Major European examples of stock

exchanges include the London Stock Exchange, Paris Bourse, and the Deutsche Brse. Asian

examples include the Tokyo Stock Exchange, the Hong Kong Stock Exchange, the Shanghai

Stock Exchange, and the Bombay Stock Exchange. In Latin America, there are such

exchanges as the BM&F Bovespa and the BMV.

SHARE: -In finance a share is a unit of account for various financial instruments including

stocks, mutual funds, limited partnerships, and REIT's. In British English, the usage of the

word share alone to refer solely to stocks is so common that it almost replaces the word stock

itself.

In simple Words, a share or stock is a document issued by a company, which entitles its

holder to be one of the owners of the company. A share is issued by a company or can be

purchased from the stock market.

By owning a share you can earn a portion and selling shares you get capital gain. So, your

return is the dividend plus the capital gain. However, you also run a risk of making a capital

loss if you have sold the share at a price below your buying price.

A company's stock price reflects what investors think about the stock, not necessarily what

the company is "worth." For example, companies that are growing quickly often trade at a

higher price than the company might currently be "worth." Stock prices are also affected by

all forms of company and market news. Publicly traded companies are required to report

quarterly on their financial status and earnings. Market forces and general investor opinions

can also affect share price.

Quick Facts on Stocks and Shares

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Owning a stock or a share means you are a partial owner of the company, and you get

voting rights in certain company issues

Over the long run, stocks have historically averaged about 10% annual returns

However, stocks offer no guarantee of any returns and can lose value, even in the long

run.

ACTIVE SHARES: - Sharesin which there are frequent and day-to-day dealings, as

distinguished from partly active shares in which dealings are not so frequent. Most shares of

leading companies would be active, particularly those which are sensitive to economic and

political events and are, therefore, subject to sudden price movements. Some market analysts

would define active shares as those which are bought and sold at least three times a week.

Easy to buy or sell.

STOCK MARKET INDEX: - stock market index is a method of measuring a section of

the stock market. Many indices are cited by news or financial services firms and are used as

benchmarks, to measure the performance ofportfolios such as mutual funds.

TYPE OF INDEX:-

1. Weighting

2. Ethical stock market indices

3. Environmental stock market indices

DEMAT ACCOUNT: -Demat refers to a dematerialised account.

Though the company is under obligation to offer the securities in both physical and demat

mode, you have the choice to receive the securities in either mode.

If you wish to have securities in demat mode, you need to indicate the name of the depository

and also of the depository participant with whom you have depository account in your

application.

It is, however desirablethat you hold securities in demat formas physical securities carry the

risk of being fake, forged or stolen.

Just as you have to open an account with a bank if you want to save your money, make

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cheque payments etc, Nowadays, you need to open a demat account if you want to buy or sell

stocks.

HOW TO OPEN A DEMAT ACCOUNT?

Opening an individual Demat account is a two-step process: You approach a DP and fill up

the Demat account-opening booklet. The Web sites of the NSDL and the CDSL list the

approved DPs. You will then receive an account number and a DP ID number for the

account. Quote both the numbers in all future correspondence with your DPs.

So it is just like a bank account where actual money is replaced by shares. You have to

approach the DPs (remember, they are like bank branches), to open your demat account. Let's

say your portfolio of shares looks like this: 150 of Infosys, 50 of Wipro, 200 of HLL and 100

of ACC. All these will show in yourdemat account. So you don't have to possess any

physical certificates showing that you own these shares. They are all held electronically in

your account. As you buy and sell the shares, they are adjusted in your account. Just like a

bank passbook or statement, the DP will provide you with periodic statements of holdings

and transactions.

DERIVATIVES: - as the name indicates the financial instruments which derive their value

from some other asset of monetary value called as underlying asset. This underlying asset

can begold, currency, stock or any commodity. In short, derivative is not an asset in itself but

an agreement or a contract to transfer the real asset in future whenever exercised!! The date

and price of execution is mentioned in the contract as per agreement between the parties.

There are varieties of derivatives available at present like futures, options and swaps ; futures

and options being the most common ones. Before looking into details here are few

components of a derivative agreement which need to be introduced first.

Holder: Holder is the buyer of derivative agreement. By buying an agreement, the buyer may

agree to buy or sell the underlying asset.

Seller: One who sells the contract to holder.

Expiry date: The date at which agreement will get matured / exercised.

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Strike price: The price at which derivat

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