CHAPTER-I

INTRODUCTION OF THE STUDY

OBJECTIVES OF THE STUDY
SCOPE OF THE STUDY
LIMITATIONS OF THE STUDY
METHODOLOGY OF THE STUDY

INTRODUCTION
As Indian securities markets continue to evolve, market participants, investors and regulators
are looking at different ways in which the risk management may be efficiently met through
the introduction of Derivative markets. Through the use of derivative products, it is possible
to partially or fully transfer price risks by locking in asset prices. As instruments of risk
management, these generally do not influence the fluctuations in the underlying asset prices.
Derivatives are risk management instruments, which derive their value form an underlying
asset. The underlying asset can be bullion, index, share, bonds, currency, interest etc. banks,
securities firms, companies and investors to hedge risks, to gain access to cheaper money and
to make profit, uses derivatives. Derivatives are likely to grow even at a faster rate in future.
However, the advent of modern day derivative contracts is attributed to the need for farmers
to protect themselves from any decline in the price of their crops due to delayed monsoon, or
overproduction. The first futures contracts can be traced to the Yodoya rice market in
Osaka,
Japan around 1650. These were evidently standardized contracts, which made them
much like todays futures. The Chicago Board of trade (CBOT), the largest derivative
exchange in theworld, was established in 1848 where forward contracts on various
commodities were standardized around 1865. From then on, futures contracts have remained
more or less in the same form, as we know them today.
DERIVATIVES:
Derivatives are defined as financial instruments whose value derived from the prices of one
or more other assets such as equity securities, fixed-income securities, foreign currencies, or
commodities. Derivative is also a kind of contract between two counter parties to exchange
payments linked to the prices of underlying assets.

DEFINITION:
In the Indian context the Securities Contracts (Regulation) Act, 1956 (SC(R) A)
defines
derivative to include1. A security derived from a debt instrument, share, loan whether secured or unsecured,
risk instrument or contract for differences or any other from of security.
2. A contract which derives its value from the prices, or index or prices, of underlying
securities
The above definition conveys that Derivatives are financial products and derive its value
from the underlying assets. Derivatives are derived from a matter financial contract called the
underlying.

OBJECTIVES OF THE STUDY:

The following are the major objectives of the study.
1.

To present a theoretical framework relating to derivative market in India.

2.

To observe the daily price movement of selected stock futures.

3.

To identify the buying and selling signals to the selected scripts.

METHODOLOGY OF THE STUDY:

The Methodology of the study consists of
Source of data collection
Statistical tool
Data AAnalysis
SOURCE OF DATA COLLECTION
The data had been collected through Primary and Secondary sources.
PRIMARY SOURCES
The data had been collected through project guide and staff of the Company.
SECONDARY SOURCES
The data had been collected through Books, Journals and Websites.

STATISTICAL TOOL
4

The data collected from the above sources have been analysed through Moving Average
Method, which is one of the popular statistical tool in technical analysis is considered for
the study. To examine the underlying trend by smoothing of the data and to provide the Buy
and Sell signals to the selected stocks this method serves the best. Moving averages are used
along with the price of the scrip. The stock price may intersect the moving average at a
particular point. Downward penetration of the rising average indicates the possibility of a
further fall and gives sell signal. Upward penetration of the falling average would indicate
the possibility of the further rise and gives the buy signal.

SCOPE OF THE STUDY:

The present study on Derivative futures is very much appreciable on the grounds that it gives
deep insights about the stock futures market. It would be essential for the perfect way of
trading in stock futures. The study elucidates the role of derivative futures in Indian financial
markets. Studies of this type are more useful to academicians and scholars to make further
insights into the various aspects of derivative futures in similar organizations. An investor
can choose the right underlying for investment, which is risk free. The study included the
changes in daily price movement and buying and selling signals to the selected stocks. These
help the investor to take right decisions regarding trading in derivative stock futures.
LIMITATIONS OF THE STUDY:
1. The study is limited by time and cost factors.
2. The sample size chosen is limited to stock futures of ten underlying scrips.
3. The limited period of study may not be detailed and full-fledged in all aspects.

CHAPTER -II

INDUSTRY PROFILE
COMPANY PROFILE

Following diagram gives the structure of Indian Financial System:

FINANCIAL MARKET
Financial markets are helpful to provide liquidity in the system and for smooth
functioning of the system. These markets are the centers that provide facilities for buying and
selling of financial claims and services. The financial markets match the demands of investment
with the supply of capital from various sources.
According to functional basis financial markets are classified into two types.
They are:
Money markets (short-term)
Capital markets (long-term)
According to institutional basis again classified in to two types. They are
Organized financial market
Non-organized financial market.

The organized market comprises of official market represented by recognized institutions,

bank and government (SEBI) registered/controlled activities and intermediaries. The unorganized
market is composed of indigenous bankers, moneylenders, individual professional and nonprofessionals.

MONEY MARKET:
Money market is a place where we can raise short-term capital.
Again the money market is classified in to
Inter bank call money market
Bill market and
Bank loan market Etc.
E.g.; treasury bills, commercial papers, CD's etc.

CAPITAL MARKET:
Capital market is a place where we can raise long-term capital.
Again the capital market is classified in to two types and they are
Primary market and
Secondary market.
E.g.: Shares, Debentures, and Loans etc.

PRIMARY MARKET:
Primary market is generally referred to the market of new issues or market for mobilization
of resources by the companies and government undertakings, for new projects as also for
expansion, modernization, addition, diversification and up gradation. Primary market is also
referred to as New Issue Market. Primary market operations include new issues of shares by new
and existing companies, further and right issues to existing shareholders, public offers, and issue
of debt instruments such as debentures, bonds, etc.
The primary market is regulated by the Securities and Exchange Board of India (SEBI a
government regulated authority).

Function:
The main services of the primary market are origination, underwriting, and distribution.
Origination deals with the origin of the new issue. Underwriting contract make the shares
predictable and remove the element of uncertainty in the subscription. Distribution refers to the
sale of securities to the investors.
The following are the market intermediaries associated with the market:
1.Merchant banker/book building lead manager
2.Registrar and transfer agent
3.Underwriter/broker to the issue
4.Adviser to the issue
5.Banker to the issue
6.Depository
7.Depository participant.
9

Investors protection in the primary market:

To ensure healthy growth of primary market, the investing public should be protected. The
term investor protection has a wider meaning in the primary market. The principal ingredients of
investors protection are:
Provision of all the relevant information
Provision of accurate information and
Transparent allotment procedures without any bias.

SECONDARY MARKET
The primary market deals with the new issues of securities. Outstanding securities are traded
in the secondary market, which is commonly known as stock market or stock exchange. The
secondary market is a market where scrips are traded. It is a market place which provides
liquidity to the scrips issued in the primary market. Thus, the growth of secondary market
depends on the primary market. More the number of companies entering the primary market, the
greater are the volume of trade at the secondary market. Trading activities in the secondary
market are done through the recognized stock exchanges which are 23 in number including Over
The Counter Exchange of India (OTCE), National Stock Exchange of India and Interconnected
Stock Exchange of India.
Secondary market operations involve buying and selling of securities on the stock exchange
through its members. The companies hitting the primary market are mandatory to list their shares
on one or more stock exchanges in India. Listing of scrips provides liquidity and offers an
opportunity to the investors to buy or sell the scrips.
The following are the intermediaries in the secondary market:
1. Broker/member of stock exchange buyers broker and sellers broker
2. Portfolio Manager
3. Investment advisor
4. Share transfer agent
5. Depository
6. Depository participants

10

STOCK MARKETS IN INDIA:

Stock exchanges are the perfect type of market for securities whether of government and
semi-govt bodies or other public bodies as also for shares and debentures issued by the joint-stock
companies. In the stock market, purchases and sales of shares are affected in conditions of free
competition. Government securities are traded outside the trading ring in the form of over the
counter sales or purchase. The bargains that are struck in the trading ring by the members of the
stock exchanges are at the fairest prices determined by the basic laws of supply and demand.

Definition of a stock exchange:

Stock exchange means any body or individuals whether incorporated or not, constituted for the
purpose of assisting, regulating or controlling the business of buying, selling or dealing in
securities. The securities include:
Shares of public company.
Government securities,Bonds

History of Stock Exchanges:

The only stock exchanges operating in the 19 th century were those of Mumbai setup in
1875 and Ahmedabad set up in 1894. These were organized as voluntary non-profit-marking
associations of brokers to regulate and protect their interests. Before the control on securities
under the constitution in 1950, it was a state subject and the Bombay securities contracts (control)
act of 1925 used to regulate trading in securities. Under this act, the Mumbai stock exchange was
recognized in 1927 and Ahmedabad in 1937. During the war boom, a number of stock exchanges
were organized. Soon after it became a central subject, central legislation was proposed and a
committee headed by A.D.Gorwala went into the bill for securities regulation. On the basis of the
committees recommendations and public discussion, the securities contract (regulation) act
became law in 1956.

Functions of Stock Exchanges:

11

Stock exchanges provide liquidity to the listed companies. By giving quotations to the
listed companies, they help trading and raise funds from the market. Over the hundred and twenty
years during which the stock exchanges have existed in this country and through their medium,
the central and state government have raised crores of rupees by floating public loans. Municipal
corporations, trust and local bodies have obtained from the public their financial requirements,
and industry, trade and commerce- the backbone of the countrys economy-have secured capital
of crores or rupees through the issue of stocks, shares and debentures for financing their day-today activities, organizing new ventures and completing projects of expansion, diversification and
modernization. By obtaining the listing and trading facilities, public investment is increased and
companies
were able to raise more funds. The quoted companies with wide public interest have
enjoyed some benefits and assets valuation has become easier for tax and other purposes.

Various Stock Exchanges in India:

At present there are 23 stock exchanges recognized under the securities contracts (regulation),
Act, 1956. Those are:

Ahmedabad Stock Exchange Association Ltd.

Bangalore Stock Exchange

Bhubaneshwar Stock Exchange Association

Calcutta Stock Exchange

Cochin Stock Exchange Ltd.

Coimbatore Stock Exchange

Delhi Stock Exchange Association

Guwahati Stock Exchange Ltd

Hyderabad Stock Exchange Ltd.

Jaipur Stock Exchange Ltd

12

Kanara Stock Exchange Ltd

Ludhiana Stock Exchange Association Ltd

Madras Stock Exchange

Madhya Pradesh Stock Exchange Ltd.

Magadh Stock Exchange Limited

Meerut Stock Exchange Ltd.

Mumbai Stock Exchange

National Stock Exchange of India

OTC Exchange of India

Pune Stock Exchange

Uttar Pradesh Stock Exchange Association

Vadodara Stock Exchange Ltd.

MAJOR STOCK EXCHANGES:

NSE(NATIONAL STOCK EXCHANGE):
The National Stock Exchange of India Limited has genesis in the report of the High Powered
Study Group on Establishment of New Stock Exchanges, which recommended promotion of a
National Stock Exchange by financial institutions (FIs) to provide access to investors from all
across the country on an equal footing. Based on the recommendations, NSE was promoted by
leading Financial Institutions at the behest of the Government of India and was incorporated in
November 1992 as a tax-paying company unlike other stock exchanges in the country. On its
recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April
1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994.
The Capital Market (Equities) segment commenced operations in November 1994 and operations
in Derivatives segment commenced in June 2000 NSE's mission is setting the agenda for change
in the securities markets in India. The NSE was set-up with the main objectives of:
13

Establishing a nation-wide trading facility for equities and debt instruments.

Ensuring equal access to investors all over the country through an appropriate communication
network.

Providing a fair, efficient and transparent securities market to investors using

electronic

trading systems.

Enabling shorter settlement cycles and book entry settlements systems, and

Meeting the current international standards of securities markets.

The standards set by NSE in terms of market practices and technology, have become
industry benchmarks and are being emulated by other market participants. NSE is more
than a mere market facilitator. It's that force which is guiding the industry towards new
horizons and greater opportunities.

BSE(BOMBAY STOCK EXCHANGE):

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 programmers 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
14

directors, who are from the broking community (one third of them retire ever 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-today administration of the Exchange and the Chief Operating Officer and other Heads of
Department assist him.
The Exchange has inserted new Rule No.126 A in its Rules, Byelaws pertaining to
constitution of the Executive Committee of the Exchange. Accordingly, an Executive
Committee, consisting of three elected directors, three SEBI nominees or public
representatives, Executive Director & CEO and Chief Operating Officer has been
constituted. The Committee considers judicial & quasi matters in which the Governing
Board has powers as an Appellate Authority, matters regarding annulment of transactions,
admission, continuance and suspension of member-brokers, declaration of a memberbroker as defaulter, norms, procedures and other matters relating to arbitration, fees,
deposits, margins and other monies payable by the member-brokers to the Exchange, etc.

Regulatory Frame Work Of Stock Exchange

A comprehensive legal framework was provided by the Securities Contract
Regulation Act, 1956 and Securities Exchange Board of India 1952. Three tier regulatory
structure comprising
Ministry of finance
The Securities And Exchange Board of India
Governing bond

Members of the stock exchange:

15

The securities contract regulation act 1956 has provided uniform regulation for the
admission of members in the stock exchanges. The qualifications for becoming a member of a
recognized stock exchange are given below:

The minimum age prescribed for the members is 21 years.

He should be an Indian citizen.

He should be neither a bankrupt nor compound with the creditors.

He should not be convicted for fraud or dishonesty.

He should not be engaged in any other business connected with a company.

He should not be a defaulter of any other stock exchange.

The minimum required education is a pass in 12th standard examination.

STOCK EXCHANGE BOARD OF INDIA (SEBI)

The securities and exchange board of India was constituted in 1988 under a resolution of
government of India. It was later made statutory body by the SEBI act 1992.according to this act,
the SEBI shall constitute of a chairman and four other members appointed by the central
government.
With the coming into effect of the securities and exchange board of India act, 1992 some of
the powers and functions exercised by the central government, in respect of the regulation of
stock exchange were transferred to the SEBI.

OBJECTIVES AND FUNCTIONS OF SEBI

To protect the interest of investors in securities.

Regulating the business in stock exchanges and any other securities market.

Registering and regulating the working of intermediaries associated with securities

market as well as working of mutual funds.

Promoting and regulating self-regulatory organizations.

Prohibiting insider trading in securities.

16

Regulating substantial acquisition of shares and take over of companies.

Performing such functions and exercising such powers under the provisions of capital
issues (control) act, 1947and the securities to it by the central government.

SEBI

GUIDELINES

TO

SECONDARY

MARKETS:

(STOCK

EXCHANGES):

Board of Directors of Stock Exchange has to be reconstituted so as to include non-members,

public representatives and government representatives to the extent of 50% of total number of
members.

Capital adequacy norms have been laid down for the members of various stock exchanges
depending upon their turnover of trade and other factors.

All recognized stock exchanges will have to inform about transactions within 24 hrs.

TYPES OF ORDERS:
Buy and sell orders placed with members of the stock exchange by the investors. The orders
are of different types.

Limit orders:
Orders are limited by a fixed price. E.g. buy Reliance Petroleum at Rs.50.Here, the order
has clearly indicated the price at which it has to be bought and the investor is not willing to give
more than Rs.50.

Best rate order:

Here, the buyer or seller gives the freedom to the broker to execute the order at the best
possible rate quoted on the particular date for buying. It may be lowest rate for buying and
highest rate for selling.

Discretionary order:
17

The investor gives the range of price for purchase and sale. The broker can use his discretion
to buy within the specified limit. Generally the approximation price is fixed. The order stands as
this buy BRC 100 shares around Rs.40.

Stop loss order:

The orders are given to limit the loss due to unfavorable price movement in the market. A
particular limit is given for waiting. If the price falls below the limit, the broker is authorized to
sell the shares to prevent further loss. E.g. Sell BRC limited at Rs.24, stop loss at Rs.22.

Buying and selling shares:

To buy and sell the shares the investor has to locate register broker or sub broker who render
prompt and efficient service to him. The order to buy or sell specifying the number of shares of
the company of investors choice is placed with the broker. The order may be of any type. After
receiving the order the broker tries to execute the order in his computer terminal. Once matching
order is found, the order is executed. The broker then delivers the contract note to the investor. It
gives the details regarding the name of the company, number of shares bought, price, brokerage,
and the date of delivery of share. In this physical trading form, once the broker gets the share
certificate through the clearing houses he delivers the share certificate along with transfer deed to
the investor. The investor has to fill the transfer deed and stamp it. The stamp duty is one of the
percentage considerations, the investor should lodge the share certificate and transfer deed to the
register or transfer agent of the company. If it is bought in the DEMAT form, the broker has to
give a matching instruction to his depository participant to transfer shares bought to the investors
account. The investor should be account holder in any of the depository participant. In the case of
sale of shares on receiving payment from the purchasing broker, the broker effects the payment to
the investor.

Share groups:
The scrips traded on the BSE have been classified into A,B1,B2,C,F and Z groups.
The A group represents those, which are in the carry forward system. The F group represents
the debt market segment (fixed income securities). The Z group scrips are of the blacklisted
companies. The C group covers the odd lot securities in A, B1&B2 groups.
18

19

COMPANY PROFILE

20

ICICI BANK
ICICI Bank is a commercial banking outfit set up by the ICICI Group. The Bank was
registered a banking company on January 5th, 1994 and received its banking license from the
Reserve Bank of India on May 17th, 1994. The Bank has an authorized capital of INR
300crore (USD 75.96 million), of which subscribed and paid-up capital is INR 165 crore
(USD 41.78 million). The first ICICI Bank branch was started in Madras in June 1994. The
branches are fully computerized with state-of-the-art technology and systems. All of them are
fully networked through V-SAT (Satellite) technology. The Bank is connected to the
international SWIFT network since March 1995. ICICI Bank offers a wide spectrum of
domestic and international banking services to facilitate trade, investment, cross-border
business, and treasury and foreign exchange services. This is in addition to a whole range of
deposit services offered to individuals and corporate bodies. ICICI Banks Infinity was the
first Internet banking service in the country, and a prelude to banking in the next millennium.
Currently the Bank has around 150,000 customers.

CICI VENTURE FUNDS MANAGEMENT COMPANY LIMITED

With the recent spurt in entrepreneurship in the country, venture capital and private equity
capital financing are fast attaining a role of prominence. Uniquely positioned to take the
Indian entrepreneur further is ICICI Venture Funds, the wholly owned subsidiary of ICICI,
with its keen understanding of the Indian Financial Markets, entrepreneurial ethos, access to
global capital and a network through influential global alliances. Strong parentage and
affiliates provide ICICI Venture with access to a broad spectrum of financial and analytical
resources. An affiliation with (Trust Company of the West) provides a platform for
networking Indian Companies to global markets and technology. ICICI Venture Funds
currently manages / advises 11 Funds aggregating US$ 400 million, making it the most
significant private equity investor in the country. The investment experience of ICICI
Ventures professionals is the foundation its strengths and success in several areas of
investing. ICICI Venture seeks to invest in opportunities where its network through ICICI
21

and TCW can create value for all involved. ICICI Ventures primary investment objective is
capital investment through investments by way of equity or equity-related securities in
unlisted companies with significant growth potential. ICICI Ventures investments span a
broad spectrum of industries and stages of development, the investment focus being on

Information Technology

Biotechnology and Life Sciences

Media and entertainment

Retail Services

ICICI SECURITIES AND FINANCE COMPANY LIMITED

Formed in 1993 when ICICIs Merchant Banking Division was spun off into a new company,
I-SEC today are Indias leading Investment Bank and one of the most significant players in
the Indian capital markets. Its client list includes some of the best known, most respected
names in Indian business and industry, and I-SEC offers them what are probably the widest,
most in-depth range of services in the market, with the highest standards of professionalism.
Backed by a strong distribution network, I-SEC is acknowledged to be at the forefront of all
new developments in the Indian debt market. I-SEC Research Reports, Compendia, Updates,
I-BEX and sovereign Bond Index, have become industry standards, sought after by finance,
business and reputed publications alike. The Project Finance Group has helped take strategic
projects from the drawing board to financial closure, leveraging the expertise of parent
organization. I-SEC has also executed several assignments in M & A, including business
valuations, spin-offs and mergers, for both domestic and overseas clients. The range of
products offered by i-SEC includes:
Corporate Finance Mergers and Acquisitions, Equity, Bidding (especially for Telecom
Projects)
Fixed Income Primary Dealership, Debt Research

Equities Lend management, Underwriting, Syndication, Private Equity placement,

22

Sales, Trading, Broking, Sectoral and Company Research I - SEC

Continues to sustain a steady rate of growth by offering the most extensive range of
services combined with unrivalled standards of professionalism.

ICICI BROKERAGE SERVICES LIMITED

Set up in March 1995, ICICI Brokerage Services is a 100% subsidiary of I-SEC. It
commenced its securities brokerage activities in February 1996 and is registered with the
National Stock Exchange of India Limited and The Stock Exchange, Mumbai. We are a joint
venture between ICICI and the leading financial services provider in India, and prudential plc
of U.K., one of the finest Life insurance companies in the world. Together we provide you
with an extensive range of insurance products to suit your various needs at various life
stages. We aim to keep you covered, at every step in life. Their policies are need-specific and
address particular age groups. This means that no matter where in life you are, we offer
specific products to suit your needs for savings, protection and retirement. Our products can
be categorized into the following:
Saving plans
Protection plans
Retirement plans

ICICI PERSONAL FINANCIAL SERVICES LIMITED

ICICI Personal Financial Services Limited (ICICI PFS), formerly ICICI-Credit, was one of
the first four companies to obtain registration as a Non-Banking Financial Company (NBFC)
from the Reserve Bank of India (RBI) on September 10, 1997 under the new section 45IA of
the Reserve Bank of India Act, 1934. During the year 1998-99, there was a significant shift in
the Companys operation from leasing to hire purchase to distribution and servicing of all
rental products for the ICICI Group. It is now a focal point for marketing and distribution of
all rental asset products for ICICI, including auto loans, consumer durable finance and other
financial products. The Company has thus become part of ICICIs retail strategy aimed at
23

offering a comprehensive range of products and services to retail customers. In view of this
reorientation of the business, the name of the Company was changed from ICICI Credit
Corporation to ICICI Personal Financial Services Limited (ICICI PFS) effective March 22,
1999.
ICICI CAPITAL SERVICES LIMITED
ICICI Capital Services Ltd. was incorporated in the name of SCICI Securities Ltd. on
September 24, 1994 as a wholly owned subsidiary of erstwhile SCICI Ltd. with the objective
of providing stock broking services to the institutional clients and undertaking activities such
as underwriting, primary market placements & distribution industry & company research etc.
After the amalgamation of SCICI with ICICI effective from April 1, 1996, resulting in the
change of the name. The company is mandated, under review by ICICI, to carry out on its
behalf the retail resource raising activities and to provide front office services related to all
retail and semi retail liability products of ICICI. The company also operates the network of
ICICI Centers being set up by ICICI. As on date the company has set up 91 centers across the
country.

ICICI INFOTECH
ICICI InfoTech is a leading provider of end-to-end IT solutions. We have an in-depth
experience of having worked on varied technologies with leading corporations worldwide.
Our service portfolio includes the following:

IS & IT Consulting
Software Design and Development
Enterprise Application Integration
Value Chain Management Solutions (SCM, CRM etc.)
Application Re-engineering and Management
Knowledge Management Solutions
Embedded System Applications
Technology Incubation, IT-enabled Services & IT Outsourcing

24

ICICI Capital Ltd.

Its products are

RBI Bonds
E-invest (ICICI Direct.com)
Fixed Deposits
Mutual Funds
Bonds
Demat
Equity IPO

ICICI DIRECT.COM (ONLINE SHARE TRADING):

ICICI Direct.com is a truly online share-trading site. Which means that from the time you
punch in a buy or sell trade on your computer to the final settlement in your account,
everything happens completely online? The 3-in-1 e-invest account integrates your
brokerage, bank and one or more depository accounts to make sure that you can do the
otherwise cumbersome share trading from the comfort of your home or office, at absolutely
any time of the day or night

3.2 PERFORMANCE AND OPERATIONS

The Sales turnover of the Company during the year was Rs.2,602 million. There
is a decrease of 4% from the previous year. Decline in the sale of Carburettors for two
wheelers and four wheelers had contributed to the overall sales downturn though the
Company has improved the sale of MPFI parts to passenger cars.
The profit after tax of the Company for the year under review is Rs.377
million Due to inclusion of an extraordinary profit of Rs.250 million on sale of investments,
the Profit after Tax has registered an increase of 42% compared to previous year. The profit
from the manufacturing activities of the Company is lower mainly due to

25

a. price reduction offered to customers

b. increase in the input and raw materials cost
c. a particular customer in the two wheeler market witnessed a steep decline in the sale of a
model for which UFSL is supplying the Carburettors
Key Ratios 2005-06 2004-05
Net Profit Ratio (PAT/Sales) 14.49 9.49 Net Profit Ratio (PAT/Net worth) 22.21 18.13
Current Ratio (Current Assets/Current Liabilities) 1.67:1 2.55:1 Debt - Equity Ratio 0.47:1
0.04:1 Debtors Turnover (Debtors/Gross Sales) 1.18 Months 1.25 Months Creditors Turnover
(Creditors/Purchases)1.86 Months 1.59 Months Dividend Pay-out Ratio 17 15.37

. 3.3 SWOT ANALYSIS OF THE COMPANY:

Strengths :
1. Management philosophy and commitment to maximize shareholders returns
2. Upgraded product design and development facilities to develop new products and aid
diversification
3. Ongoing activities to support up gradation of operational performance and rise in
productivity
4. Team of talented and committed professionals available to improve companies
performance Weakness
1. Competition from cheap imports
2. Low customer base

Opportunities :
1. UFSL has initiated development of products for diesel application. This will provide
tremendous scope for diversification and growth
2. Acquisition of AMTEC to provide opportunities to access global OEMs
26

3. Opportunity to support AMTECs operations by supplying products from India

4. The introduction of new emission norms will provide UFSL opportunity to develop
injection systems and thereby upgrade the status of the company from product to system
supplier.

Threats, Risks & Concerns :

1. Constant pressure to be cost competitive to meet customer expectations
2. Relentless pressure to maintain profitability due to rising input/raw material prices
3. Increasing popularity of alternative fuel vehicles, such as Hybrid, Hydrogen powered,
CNG and LPG vehicles poses new challenges for the company
.

3.4 FUTURE PROSPECTS AND PLANS OF THE ORGANIZATION

For ICICI the past half has been a trying period more so because of the adverse
environmental conditions such as the depressed equity markets and the volatile currency
markets. However, its retail thrust and a perceptible shift in financing from manufacturing
projects to corporate finance will put it in good stead for the quarters to come. Its growing
importance in the telecom and infrastructural sectors, which have huge potential, will be a
key driver of growth for the futur

3.5 ACHIEVEMENT AND AWARDS:

Winning is a habit that is assiduously cultivated at ICICI

Securities Limited (i-SEC). Be it deals, mandates or awards,
we manage them all in our quite and efficient way.
27

For us winning awards is a matter of pride and honour. Each new award is a manifestation of
our hard work and commitment to our clients.
Since inception, i-SECs expertise has been time and again widely recognized by both
domestic and international agencies.
Our Fixed Income team for the last two years (CY 2004 and 2005) has been adjudged the
Best Bond House in India by both Asiamoney and Finance Asia. The equities team was
adjudged the Best Indian Brokerage House-2003 by Asiamoney. The Corporate Finance
team, according to Bloomberg topped the M&A league tables in 2003.

28

CHAPTER-III

LITERATURE REVIEW

29

DEVELOPMENT OF DERIVATIVE MARKETS IN INDIA:

Derivatives markets have been in existence in India in some form or other for a long time. In
the area of commodities, the Bombay Cotton Trade Association started futures trading in
1875 and, by the early 1900s India had one of the worlds largest futures industry. In 1952
the government banned cash settlement and options trading and derivatives trading shifted to
informal forwards markets. In recent years, government policy has changed, allowing for an
increased role for market-based pricing and less suspicion of derivatives trading. The ban on
futures trading of many commodities was lifted starting in the early 2000s, and national
electronic commodity exchanges were created. In the equity markets, a system of trading
called badla involving some elements of forwards trading had been in existence for
decades. However, the system led to a number of undesirable practices and it was prohibited
off and on till the Securities and Exchange Board of India (SEBI) banned it for good in 2001.
A series of reforms of the stock market between 1993 and 1996 paved the way for the
development of exchange-traded equity derivatives markets in India. In 1993, the
government created the NSE in collaboration with state-owned financial institutions. NSE
improved the efficiency and transparency of the stock markets by offering a fully automated
screen-based trading system and real-time price dissemination. In 1995, a prohibition on
trading options was lifted. In 1996, the NSE sent a proposal to SEBI for listing exchangetraded derivatives. The report of the L. C. Gupta Committee, set up by SEBI, recommended a
phased introduction of derivative products, and bi-level regulation (i.e., self-regulation by
exchanges with SEBI providing a supervisory and advisory role). Another report, by the J. R.
Varma Committee in 1998, worked out various operational details such as the margining
systems. In 1999, the Securities Contracts (Regulation)
Act of 1956, or SC(R) A, was amended so that derivatives could be declared securities.
This allowed the regulatory framework for trading securities to be extended to derivatives.
The Act considers derivatives to be legal and valid, but only if they are traded on exchanges.
Finally, a 30-year ban on forward trading was also lifted in 1999. The economic liberalization
of the early nineties facilitated the introduction of derivatives based on interest rates and
foreign exchange. A system of market-determined exchange rates was adopted by India in
30

March 1993. In August 1994, the rupee was made fully convertible on current account. These
reforms allowed increased integration between domestic and international markets, and
created a need to manage currency risk. Figure 1 shows how the volatility of the exchange
rate between the Indian Rupee and the U.S. dollar has increased since 1991.7 the easing of
various restrictions on the free movement of interest rates resulted in the need to manage
interest rate risk.

DERIVATIVES INSTRUMENTS TRADED IN INDIA:

In the exchange-traded market, the biggest success story has been derivatives on equity
products. Index futures were introduced in June 2000, followed by index options in June
2001, and options and futures on individual securities in July 2001 and November 2001,
respectively. As of 2009, the NSE trades futures and options on 118 individual stocks and 3
stock indices. All these derivative contracts are settled by cash payment and do not involve
physical delivery of the underlying product (which may be costly). Derivatives on stock
indexes and individual stocks have grown rapidly since inception. In particular, single stock
futures have become hugely popular; accounting for about half of NSEs traded value in
October 2009. In fact, NSE has the highest volume (i.e. number of contracts traded) in the
single stock futures globally, enabling it to rank 16 among world exchanges in the first half
of 2009. Single stock options are less popular than futures. Index futures are increasingly
popular, and accounted for close to 40% of traded value in October 2009. The growth in
volume of futures and options on the Nifty index, and shows that index futures have grown
more strongly than index options NSE launched interest rate futures in June 2007 but, in
contrast to equity derivatives, there has been little trading in them. One problem with these
instruments was faulty contract specifications, resulting in the underlying interest rate
deviating erratically from the reference rate used by market participants. Institutional
investors have preferred to trade in the OTC markets, where instruments such as interest rate
swaps and forward rate agreements are thriving. As interest rates in India have fallen,
companies have swapped their fixed rate borrowings into floating rates to reduce funding
costs. Activity in OTC markets dwarfs that of the entire exchange-traded markets, with daily
value of trading estimated to be Rs. 30 billion in 2008.
31

INSTRUMENTS AVAILABLE IN INDIA:

Financial derivative instruments: The National stock Exchange (NSE) has the
following derivative products:
Products

Underlying

Index Futures

Index Options

S&P CNX Nifty

S&P CNX Nifty

Instrument

Type

on Options
on
Individual

Securities

Securities

30 securities

30 securities

stipulated by

stipulated by

SEBI

SEBI

European
Maximu

Trading Cycle

Futures
Individual

m
Month
cycle.

American

3
of

At any
time,

- Same as index
trading
futures
i
poinT

Same as index

Same as index

futures

futures

Same as index

Same as index

futures

futures

there will be 3
contracts
:

available

1) near month,
2) mid month &
3) far
duration
Las
Expiry Day

t
the

month
o

Thursday

f Same as index
futures

expiry month

32

s
i
z
Contract Size

Permitted
is

lot

e Same as index

200 & multiples

futures

thereof

Price Steps

Re.0.05

Base Price-

previous

As stipulated by As stipulated by

NSE (not less

NSE (not less

than Rs.2 lacs)

than Rs.2 lacs)

previous day

Same as Index

Re.0.05

day Theoretical value

closing
First day of

of the options

closing value of options

contract arrived at

underlying

based on Black-

security

Nifty value
trading

Scholes model

Base Price-

Daily settlement

Subsequent

price

Price Bands

Operating

daily close price

Daily settlement Same as Index

price

options

Operating

Operating

for are kept at

ranges are kept

ranges for are

99% of the base

at + 20 %

kept at 99% of

ranges Operating ranges

are

kept at + 10 %

price
33

the base price

Quantity

20,000 units or

20,000 units or

Lower of 1% of

Same as

greater

greater

market wide

individual

position limit

futures

Freeze

stipulated for
open positions
or Rs.5 crores
BSE also offers similar products in the derivatives segment.

DERIVATIVES USERS IN INDIA:

The use of derivatives varies by type of institution. Financial institutions, such as banks,
have assets and liabilities of different maturities and in different currencies, and are
exposed to different risks of default from their borrowers. Thus, they are likely to use
derivatives on interest rates and currencies, and derivatives to manage credit risk. Nonfinancial institutions are regulated differently from financial institutions, and this affects
their incentives to use derivatives. Indian insurance regulators, for example, are yet to
issue guidelines relating to the use of derivatives by insurance companies. In India,
financial institutions have not been heavy users of exchange-traded derivatives so far, with
their contribution to total value of NSE trades being less than 8% in October 2009.
However, market insiders feel that this may be changing, as indicated by the growing share
of index derivatives (which are used more by institutions than by retail investors). In
contrast to the exchange-traded markets, domestic financial institutions and mutual funds
have shown great interest in OTC fixed income instruments. Transactions between banks
dominate the market for interest rate derivatives, while state-owned banks remain a small
presence (Chitale, 2007). Corporations are active in the currency forwards and swaps
markets, buying these instruments from banks. Why do institutions not participate to a
greater extent in derivatives markets? Some institutions such as banks and mutual funds
34

are only allowed to use derivatives to hedge their existing positions in the spot market, or
to rebalance their existing portfolios. Since banks have little exposure to equity markets
due to banking regulations, they have little incentive to trade equity derivatives. Foreign
investors must register as foreign institutional investors (FII) to trade exchange-traded
derivatives, and be subject to position limits as specified by SEBI. Alternatively, they can
incorporate locally as a broker-dealer. FIIs have a small but increasing presence in the
equity derivatives markets. They have no incentive to trade interest rate derivatives since
they have little investments in the domestic bond markets (Chitale, 2007). It is possible
that unregistered foreign investors and hedge funds trade indirectly, using a local
proprietary trader as a front (Lee, 2008).

THE NEED FOR A DERIVATIVES MARKET:

The derivatives market performs a number of economic functions:
1. They help in transferring risks from risk averse people to risk oriented people
2. They help in the discovery of future as well as current prices
3. They catalyze entrepreneurial activity
4. They increase the volume traded in markets because of participation of risk averse
people in greater numbers
5. They increase savings and investment in the long run

35

THE PARTICIPANTS IN A DERIVATIVES MARKET:

1. Hedgers use futures or options markets to reduce or eliminate the risk associated with
price of an asset.
2. Speculators use futures and options contracts to get extra leverage in betting on future
movements in the price of an asset. They can increase both the potential gains and
potential losses by usage of derivatives in a speculative venture.
3. Arbitrageurs are in business to take advantage of a discrepancy between prices in two
different markets. If, for example, they see the futures price of an asset getting out of line
with the cash price, they will take offsetting positions in the two markets to lock in a
profit.

TYPES OF DERIVATIVES:
1. FORWARDS: A forward contract is a customized contract between two entities,
where settlement takes place on a specific date in the future at todays pre-agreed
price.

2. FUTURES: A futures contract is an agreement between two parties to buy or sell

an asset at a certain time in the future at a certain price. Futures contracts are special
types of forward contracts in the sense that the former are standardized exchangetraded contracts
3. OPTIONS: Options are of two types - calls and puts. Calls give the buyer the right
but not the obligation to buy a given quantity of the underlying asset, at a given price
on or before a given future date. Puts give the buyer the right, but not the obligation
to sell a given quantity of the underlying asset at a given price on or before a given
36

date.
4. WARRANTS: Options generally have lives of upto 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.
5. LEAPS: The acronym LEAPS means Long-Term Equity Anticipation Securities.
These are options having a maturity of upto three years.
6. BASKETS: Basket options are options on portfolios of underlying assets. The
underlying asset is usually a moving average or a basket of assets. Equity index
options are a form of Basket options.

7. SWAPS: Swaps are private agreements between two parties to exchange cash flows
in the future according to a prearranged formula. They can be regarded as portfolios
of forward contracts. The two commonly used swaps are:

INTEREST RATE SWAPS: These entail swapping only the interest related cash
flows Between the parties in the same currency.

CURRENCY SWAPS: These entail swapping both principal and interest between
the
Parties, with the cash flows in one direction being in a different currency than those

In the opposite direction.

8. 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
37

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.

FACTORS DRIVING THE GROWTH OF FINANCIAL DERIVATIVES:

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

FUNCTIONS OF DERIVATIVE MARKET:

The following are the various functions that are performed by the derivatives markets. They
are:

Price in an organized derivatives market reflects the perception of market

participations about the futures and let the prices of underlying to the perceived future
level.

Derivatives market helps to transfer risks from those who have them but may not like
them to those who have an appetite for them.
38

Derivative trading acts as a catalyst for new entrepreneurial activity.

Derivatives markets help increase savings and investment in the long run.

THE ECONOMIC ROLE OF DERIVATIVES:

Derivative markets provide three essential economic functions:
Risk management
Price discovery
Transactional efficiency

RISK MANAGEMENT:
The principal benefit of the Derivative market is that it provides the opportunity for risk
management through Hedging.

RISKS INVOLVED IN DERIVATIVES:

Risk can be defined as The possibility or probability of loss. Derivatives are used to
separate risks from traditional instruments and transfer these risks. The fundamental risks
involved in derivatives business includes following:

1.CREDIT RISK:
This is the risk of a counterpart to perform its obligations as per the contract. Also
known as default or counterpart risk, it differs with different instruments.
39

2.MARKET RISK
Market risk is a risk of financial loss as a result of adverse movements of prices of the
underlying asset.
3.LIQUIDITY RISK:
The inability of a firm to arrange a transaction at prevailing market prices is termed as
liquidity risk.
A).Related to liquidity of separate products.
B).Related to the funding of activities of the firm including derivatives.
4.LEGAL RISK:
Derivatives cut a cross judicial boundaries therefore the legal aspects Associated with
the deal should be looked into carefully.
Risk management/Hedging strategies can be broadly grouped into three categories:
1. Inventory hedging to protect the value of existing portfolio of assets.
2. Anticipatory hedging to sell/buy derivatives especially forwards and futures instead
of the anticipated inflows (assets)/ outflows (liabilities). A classic example is that of
exporters and importers who sells/buys currency futures/options.
3. Return enhancement hedge using derivatives to create synthetic securities, which
minic cash assets.

PRICE DISCOVERY:
The second major function of derivative market is price discovery. This is a process of
providing equilibrium prices that reflect current and prospective demands on current and
prospective supplies, and making these prices visible to all.

TRANSACTIONAL EFFICIENCY:
Derivative markets allow institution to transact more efficiently than otherwise. They reduce
40

the direct cost of transacting in cash/financial markets are also provided, through clearing
houses, an efficient mechanism to deal with counter party risk.

INTRODUCTION TO FUTURES:
A Futures contract is an agreement between two parties to buy or sell an asset at a certain
time in the future at a certain price. Future markets were designed to solve the problems that
exist in forward markets. But unlike forward contracts, the futures contracts ate standardized
and exchange traded. To facilitate liquidity in the futures contracts, the exchange specifies
certain standard features of the contract. It is a standardized contract with standard
underlying instrument, a standard quantity and quality of the underlying instrument that can
be delivered, (or which can be used for reference purposes in settlement) and a standard
timing of such settlement. The standardized items in a futures contract are:

Quantity of the underlying

Quality of the underlying

Date and Month of Delivery

The units of Price quotations and Minimum price changes

Location of settlement

41

TYPES OF FUTURES
On the basis of the underlying asset they derive, the futures are divided into following types.
1. STOCK FUTURES:
The stock futures are the futures that have the underlying asset as the individual securities.
The settlement of the stock futures is of cash settlement and the settlement price of the future
is the closing price of the underlying security.
2. INDEX FUTURES
Index futures are the futures, which have the underlying asset as an Index. The Index futures
are also cash settled. The settlement price of the Index futures shall be the closing value of
the underlying index on the expiry date of the contract.
3. COMMODITY FUTURES
In this case, the underlying asset is a commodity. It can be an agricultural commodity like
wheat corn, or even a precious asset like gold, silver etc.
4.FINANCIAL FUTURES
In this case, the underlying assets are financial instruments like money market paper,
Treasury Bills, notes, bonds etc.
5.CURRENCY FUTURES
Currency futures are those in which the underlying assets are major convertible currencies
like the U.S. dollar, the Pound Sterling, the Euro and the Yen etc.
MARGINS:
Margins are the deposits, which reduce counter party risk, arise in a futures contract.
These margins are collected in order to eliminate the counter party risk. There are three types
of margin.
INITIAL MARGINS:
Whenever a futures contract is signed, both buyer and seller are required to post
42

initial margin. Both buyer and seller are required to make security deposits that are intended
to guarantee that they will infact be able to fulfill their obligation. These deposits ate Initial
margins and they are often referred as performance as performance margins. The amount of
margin is roughly 5% to 15% of total purchase price of futures contract.
MARKING OF MARKET MARGIN:
The process of adjusting the equity in an investors account in order to reflect the
change in the settlement price of futures contract is known as MTM Margin.
MAINTENANCE MARGINS:
The investor must keep the futures account equity equal to or grater than certain
percentage of the amount deposited as Initial Margin. If the equity goes less than that
percentage of Initial margin, then the investor receives a call for an additional deposit of cash
known as Maintenance Margin to bring the equity up to the Initial margin.
PRICING THE FUTURES:
The fair value of the futures contract is derived from a model known as the Cost of Carry
model. This model gives the fair value of the futures contract.
COST OF CARRY MODEL:
F=S (1+r-q) t
Where,
F Futures Price
S Spot price of the Underlying
R Cost of Financing
q Expected Dividend Yield
t Holding Period.
THE

ROLE

FOR

DEBT MARKET

DEVELOPMENT:
43

DERIVATIVES

IN

DEBT

MARKET

The traditional focus in debt market development has been to obtain a liquid market for
interest rate products which yields the rate of time preference for various maturities. Often it
is felt that there is an innate sequencing of market development, where countries should
embark upon debt derivatives after core issues of the spot market have been properly
addressed. A liquid spot market for interest rates is clearly valuable in the establishment of
interest rate derivatives. However, interest rate derivatives provide important feedback
mechanisms through which market efficiency can be obtained in the spot interest rate market
itself: Derivatives trading can lead to improvements in the liquidity of the spot market since
interest rate derivatives improve the ability of economic agents to reduce their vulnerability
to interest rate volatility. Many developing countries have started out on financial sector
reforms in an environment with fixed interest rates and a repressed financial sector. Moving
away from this regime towards greater interest rate flexibility imposes costs upon economic
agents who are used to fixed interest rates. From a political economy standpoint, it is useful
to develop institutional mechanisms for derivatives trading on a spot price before undertaking
economic reforms which would increase the volatility of that price. Interest rate derivatives
reduce the political cost of moving away from a repressed interest rate market.
The spot market for interest rates, in numerous countries, is notorious for non-transparency,
barriers to market access, and hence poor liquidity and market efficiency. The entrenched
nature of intermediation and regulation on the spot market often make it difficult for policy
makers to make progress in terms of making improvements on it. In this situation, policy
makers generally have an opportunity to start afresh on interest rate derivatives, in terms of
moving towards much more transparent markets, opening up access to the market to all
economic agents, and obtaining liquidity and market efficiency. It is often possible to obtain
a situation where price discovery is focused upon the derivative market, which would then
drive prices on the spot market. Trading in interest rate derivatives market enhances liquidity
of the interest rate spot market through three channels:
1. Arbitrage between spot and derivative market generates a new order flow for the spot
market.
2. Access to derivatives, which can be used in hedging systematic risk factors, reduces
44

the economic cost of holding undiversified inventories in spot market trading and
hence improves the supply of liquidity on the spot market.
3. Access to leveraged speculation on interest rates on the interest rate derivative markets
increases the supply of research and forecasting about interest rates. This reduces
uncertainty about future interest rates, and helps to narrows spreads on the spot
market.
GROWTH OF DERIVATIVES MARKET IN INDIA:
Equity derivatives market in India has registered an "explosive growth" and is expected to
continue the same in the years to come. Introduced in 2000, financial derivatives market in
India has shown a remarkable growth both in terms of volumes and numbers of traded
contracts. NSE alone accounts for 99 percent of the derivatives trading in Indian markets.
The introduction of derivatives has been well received by stock market players. Trading in
derivatives gained popularity soon after its introduction. In due course, the turnover of the
NSE derivatives market exceeded the turnover of the NSE cash market. For example, in
2012, the value of the NSE derivatives markets was Rs. 130, 90,477.75 Cr. whereas the
value of the NSE cash markets was only Rs. 3,551,038 C. If we compare the trading
figures of NSE and BSE, performance of BSE is not encouraging both in terms of volumes
and numbers of contracts traded in all product categories. Among all the products traded
on NSE in F& O segment, single stock futures also known as equity futures, are most
popular in terms of volumes and number of contract traded, followed by index futures with
turnover shares of 52 percent and 31 percent, respectively. In case of BSE, index futures
outperform stock futures.

45

CHAPTER- IV
DATA ANALYSIS

46

PRODUCT WISE TURNOVER OF F&O AT NSE FROM 2000-2012

Stock future

Index future

Stock option

Index option

52

31

13

NSE DERIVATIVES SEGMENT TURNOVER

RS IN CR
Year
s

Index
future

Stock
future

Index
option

Stock
option

Interes
t rate
future

Total

Average
daily
turnover

2015
2014

2583617.9
2

2558863.5
5

2358916.9
0

149498.4
0

7650896.80

46938.0
2

13090477.7
5

2012

3820667.2
7

7548563.2
3

1362110.8
8

359136.5
5

2011

52153.3
0

7356242

2010 2539574

3830967

791906

193795

4824174

29543

2009 1513755

2791697

338469

180253

2546982

19220

2008 772147

1484056

121943

168836

202

2130610

10107

2007 554446

1305939

52816

217207

439862

8388

2006 43952

286533

9246

100131

101926

1752

21483

51515

3765

25163

---

2365

410

2365

---

---

---

Source: Complied from NSE website

NSE CASH & DERIVATIVES SEGMENT TURNOVER
RS IN CR
Year Cash Segment Derivatives Segment
Year
2015-13

cash segment
3,551,038

derivate segment
13090477.75
47

11

2014-12

1,945,285

7356242

2012-11

1,569,556

4824174

2011-10

1,140,071

2546982

2010-09

1,099,535

2130610

2009-08

617,989

439862

2008-07

513,167

101926

2007-06

1,339,510

2365

Source: Complied From NSE Website

AVERAGE DAILY TRANSACTION AT NSE IN DERIVATIVES AND CASH

SEGMENT
RS IN CR
Years

Derivate segment

Cash segment

2015-09

52153.30

14.148

2014-08

29543

7,812

2012-07

19220

6,253

2011-06

10107

4506

2010-05

8388

4,328
48

2009-04

1752

2,462

2008-03

410

2,078

2003-02

11

5,337

Source: Complied from NSE website and NSE fact book 2015

STATUS

OF

INDIAN

DERIVATIVES

MARKET

VIS-A

VIS

GLOBAL

DERIVATIVES MARKET
The derivatives segment has expanded in the recent years in a substantial way both
globally as well as in the Indian capital market. The figures revealed by Futures Industry
Association (FIA) Annual Volume Survey and reported here under bring out the fact that
more than 15 billion futures and options contracts were traded during 2014 on the 54
important exchanges that report to the FIA, reflecting a remarkable increase of 28% from
the previous year. Looking back at the last four years, it can be worked out that these
figures reflect that the growth rate was 29 % in 2012, 19% in 2012, 12% in 2011, and 9%
in 2010. From the same table it also follows that of the total volume traded globally over
the period 2008-15, the US exchanges alone constituted as much as 35 percent share.
presents the break down of derivatives volume by region and it is clearly evident that after
North America with a share of about 40 percent, Asia-Pacific occupies the second slot with
a share of 28 percent and Europe falls at the third place with its contribution of 24 percent.
If we compare the turnover-wise performance of the derivatives segments over the last five
years, it may be noticed from an inspection of the relevant columns. the Indian segment
has expanded phenomenally as compared to the global segment. The turnover of the NSE
derivatives segment in 2010-08 stood at Rs. 2130610 crores. It grew to an astonishing
level of Rs.13090477 crores during the year 2015-13, displaying a more than six-time
49

increase over the

five year period. In marked contrast, at the global level the increase was less than even
two-fold: the turnover was $ 8163 million in 2007 and $ 15187 million in 2011.

GLOBAL TREND IN TURNOVER OF DERIVATIVES TRADING

Year

US exchange

Non-US exchange

Global

2008

1313.65

1675.80

2989.45

2009

1578.62

2768.70

4347.32

2010

1844.90

4372.38

6217.28

2011

2172.52

5990.22

8162.54

2012

2795.21

6069.50

8864.71

2013

3525.00

6448.67

9973.67

2014

4616.73

7245.48

11862.21

2015

6137.20

9049.47

15186.67

2008-15

23983 (35.48)

43620 (64.52)

67604 (100)

50

TECHNICAL ANALYSIS OF A SELECTED STOCK:-

Share Holding Patterns

Promoter (Ind)
Institution
Non-Institution
Custodians
Promoter (For)

86.36%
6.40%
7.24%
0.00%
0.00%

51

Prices of Power Grid

Month
Oct2014
Nov2014
Dec2014
Jan2015
Feb2015
Mar2015
Apr2015
May2015
Jun2015
July2015
Aug2015
Sept2015

Open
92.05
89.90
74.45
75.05
83.35
85.05
91.15
93.00
95.85
119.50
108.75
117.65

Close
89.90
74.45
75.05
83.35
85.05
91.15
93.00
95.85
119.50
108.75
117.65
108.45

Technical Analysis of Power Grid:

Accumulation/Distribution:

52

This chart is showing the pattern of accumulation/distribution with the price

pattern of Power Grid and we can easily see that the indicator is following the
same pattern as the price of power grid.

But for now looking at this indicator is showing downward trend in the prices.
Because as an when price move to 10m in indicator the price tend to fall and
there is one another reason that is prices are going down and indicator is going
up that also shows the negative trend in the prices.

Bollinger Bands:

53

The chart shows that prices are moving within bollinger band and
trading days where this script is very volatile and at some point of time its less
volatile. During the Oct Nov 2015 and May June 2015 the Script seems to
be more trading months.But looking at the current situation the script shows a
selling signal but as the prices reaches below the bollinger band the prices
would again tend to move upside but it all depends on the santiments and
situation which would be prevailing in the market at that point of time.
But for now one shold sell the particular script to gain a profit of about 5 10%
in near future.

Commodity Channel Index:

54

The chart shows that the CCI is moving in line with the prices and the as prices
goes up the CCI also goes up and vice versa.
By the chart, if we are looking for the current trend its moving downward for
short run but it still bullish for medium term.

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Envelope:

Currently stock is showing that prices will go down but as it will touch its lower
envelope band its will move upward

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MACD:-

Currently looking at the chart the MACD has crossed the EMA 9 from the
upside and this is a kind of negative sign and this negativity is going to be there
until the MACD move above the EMA cutting it from below

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Momentum:-

Earlier chart has shown some indication about sell and buy and they come true
as it can be seen from the chart itself. Now the chart is showing selling
indication for intraday basis and for short term its good when indicator goes to
the lower level as it has made earlier

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Moving Average:-

Looking at the chart one can easily interpret that moving average is roaming
around the price but still giving some indication about price movement for near
future. Sometime it shows indication of sale and buy at given point of time

Looking forfuture price we cannot easily interpret themovement at thi spoint of

time but still some indication of sale is shown in the graph as the price of share
take support at the 15 days moving average and futher going down. It shows a
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downturn for short term period and if price cross moving from below and goes
above the moving average that would be the best time to buy the stock.

On Balance Volume:-

Currently the indicator is making low high than the previous high and its
indicates the downturn in intraday basis. But as it breaks the cuurent trend
prices tend to move upside with a bang.

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CHAPTER-V
FINDINGS
SUGGESTIONS
CONCLUSION
BIBLIOGRAPHY

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FINDINGS & SUGGISTIONS

Investing rules to be remembered.

Don't speculate unless it's full-time job

Beware of barbers, beauticians, waiters-of anyone -bringing gifts of inside information or

tips.

Before buying a security, its better to find out everything one can about the company, its
management and competitors, its earning sand possibilities for growth.

Don't try to buy at the bottom and sell at the top. This can't be done-except by liars.

Learn how to take your losses and cleanly. Don't expect to be right all the time. If you have
made a mistake, cut your losses as quickly as possible

Don't buy too many different securities. Better have only a few investments that can be
watched.

Make a periodic reappraisal of all your investments to see whether changing developments
have altered prospects.

Study your tax position to known when you sell to greatest advantages.

Always keep a good part of your capital in a cash reserve. Never invest all your funds.

Don't try to be jack-off-all-investments. Stick to field you known best.

Purchasing stocks you do not understand if you can't explain it to a ten year old, just don't
invest in it.

Over diversifying: This is the most oversold, overused, logic-defying concept among
stockbrokers and registered investment advisors.

Not recognizing difference between value and price: This goes along with the failure to
compute the intrinsic value of a stock, which are simply the discounted future earnings of the
business enterprise.

Failure to understand Mr. Market: Just because the market has put a price on a business does
not mean it is worth it. Only an individual can determine the value of an investment and then
determine if the market price is rational.

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Failure to understand the impact of taxes: Also known as the sorrows of compounding, just as
compounding works to the investor's long-term advantage, the burden of taxes because pf
excessive trading works against building wealth

Too much focus on the market whether or not an individual investment has merit and value
has nothing to do with that the overall market is doing .

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CONCLUSION
Innovation of derivatives have redefined and revolutionized the landscape of financial
industry across the world and derivatives have earned a well deserved and extremely
significant place among all the financial products. Derivatives are risk management tool
that help in effective management of risk by various stakeholders. Derivatives provide an
opportunity to transfer risk, from the one who wish to avoid it; to one, who wish to accept
it. Indias experience with the launch of equity derivatives market has been extremely
encouraging and successful. The derivatives turnover on the NSE has surpassed the equity
market turnover. Significantly, its growth in the recent years has surpassed the growth of
its counterpart globally.

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BIBILOGRAPHY
INVESTMENT MANAGEMENT

BY V.K. BHALLA.

SECURITY ANALYSIS & PORTFOLIO MANAGEMENT

BY E. FISCHER & J. JORDAN.

WWW.icici.com
DALAL STREET MAGNAZINE.
BUSINESS TODAY MAGAZINE.
FINANCIAL EXPRESS.
BUSINESS LINE.

REFERENCES:
1. Chitale, Rajendra P., 2003, Use of Derivatives by Indias Institutional Investors:
Issues and Impediments, in Susan Thomas (ed.), Derivatives Markets in India, Tata
McGraw-Hill Publishing Company Limited, New Delhi, India.
2. FitchRatings, 2004, Fixed Income Derivatives---A Survey of the Indian Market,
www.fitchratings.com www.fitchratings.com
3. Gambhir, Neeraj and Manoj Goel, 2003, Foreign Exchange Derivatives Market in India--Status and Prospects, Susan Thomas (ed.), Derivatives Markets in India, Tata McGrawHill Publishing Company Limited, New Delhi, India.

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