INTRODUCTION

SMS Paryavaran has vast experience in the field of public health works such as Water
transmission, treatment, storage & distribution; Sewerage system, treatment, recycle &
disposal and Industrial effluent collection, treatment & disposal. We are proud of
establishing the eco-friendly facilities on a turnkey project basis, executing the projects to
its final stage of commissioning.

With the expertise and exposure in the field of environmental technologies in India &
abroad, incorporation of SMS Paryavaran provided new dimensions & horizon to the
creative concepts and innovative professional approaches to our founders, helping us to
associate & work with various reckoned firms of private & public sectors which has
placed SMS in the selected top group of professionals within a short span of time.

Today at SMS, we design, manufacture undertake consultancy and offer complete

turnkey projetcs from concept to commissioning with expertise.

Vision

To achieved customer delight by focussing on value adding activities throughout our

value chain.

Improve the quality of life by offering solutions that meet the essential needs of people.

Become a proactive, integral and responsible member of our environment and

communitiesroviding integrated financial care driven by the relationship of trust and
confidence.

1
Mission

It seeks to be a dynamic and proactive company that creates and develops opportunities
in its core business sectors.

To formulating compelling value propositions for our clients within the shortest time
schedules.

Emphasise on the beneficial reuse of the materials we handle, to the environment and
future generations..

2
1.1 ABOUT COMPANY

WATER SYSTEM

Water treatment plant and system operators treat water so that it is safe to drink.
Liquid waste treatment plant remove harmful pollutants from domestic and industrial
liquid waste so that it is safe to return to the environment. It includes:

1. Water intake and transmission systems

2. Water Treatment Plants

3. Water supply and distribution systems

4. DM/RO/Ion Exchange systems

5. Swimming pools

3
WASTEWATER SYSTEMS

Wastewater systems are designed, managed, and maintained with the health of the
public in mind. This system provides a proper environment that convert the incoming
sewage into clear, odorless water. It includes:

1. Sewage Treatment Plants

2. Sullage Treatment Plants

3. Package Treatment Plants

4. Industrial Effluent Treatment Plants covering :-

- Refinery, Petrochemicals, Fertiliser, Chemicals,

- Distillery, Sugar, Brewery,

- Pulp & Paper, Textile, Dying & Printing,

- Dairy, Food processing, Soft Drink, Edible Oil,

- Meat processing, Tannery,

- Heavy metals, Electroplating, Iron & steel,

- Ceramics, Miscellaneous

Recovery, Reuse and effluent recycling systems

4
-

WASTE MANAGEMENT

We design and construct plants and process stages for effective treatment of semi
solid/ solid waste. The spectrum ranges from Sludge Treatment Plants to Energy
Recovery Plants. It includes:

1. Sludge Treatment Plants

2. Energy Recovery Plants from Sludge/Organic waste

ENVIRONMENTAL MANAGEMENT

We specialise in environmental consenting and analysis - providing services in

environment management and planning, impact assessments, impact statements
etc. It includes:

1. Environment Impact Assessments

2. Environment Impact Statements

3. Environment Management Plan

5
SERVICES

We offer following services:

Engineering covering Process, Mechanical, Piping, Electrical, Instrumentation, Control &

Automation and Civil/ structural, equipped with number of computers, printers, Drawing
Machine, Ammonia Printing, Photo copier etc. and having all latest software for design &
drawings for process & Civil design/ drawings.

Execution comprising of Project Management, Procurement/ vending of bought outs,

Supply of electrical/mechanical/ process equipment & instrumentation on turnkey basis,
Erection of all E&M items including piping, Testing & commissioning, and Complete
turnkey projects, fully equipped with plant & machinery for this purpose.

Operation & Maintenance undertaking monthly/annual operation & maintenance of the

treatment plants.

6
Consultancy offering our services right from picking up the project from basic
parameters, designing the same, preparing the tender papers with technical specifications,
Bill of Quantities, preparing the budgetary cost for the project and if required assistance
in evaluating the bids, complete basic & detail engineering along with supervisory
services for any treatment plant project.

OUR ACHIEVEMENTS

Our proclamation is substantiated by our achievements which may be categorized in

terms of :

- Works executed/ in hand and qualified for

- Creating employment ( list of staff personnel)

- Building up infrastructure plant & machinery

- Developing a sound financial status (solvency & balance sheet) for best move

- Social contribution ( Income & sales tax clearance).

7
PROJECTS EXECUTED/IN HAND

Turnkey Projects (Rs 50 lacs and above)

- Water Treatment Plants-WTP & Water Supply System-WSS

- STP/ETP & Sewerage system

Water Treatment Plants and Water Supply System

S.N. Description of work Client Contract Remarks

value
(Rs lacs)

1. 80 MLD WTP at MJP, Solapur 333 Work

Solapur Town Completed

2. 22.8 MLD WTP & MJP, Buldana 1002 Work

2500m3 ESR & Completed
distribution system at
Buldana town

3. Intake, pumping, MJP, Wardha 324 Work

piping, 4.7 Completed
MLDWTP, ESRs &
d/s system at
Nachangaon

4. Intake, pumping, KUWS & DB, 301 Work

6.81 MLD WTP, Banglore, Completed

8
 piping , ESRs at KR Karnataka
Nagar

5. 144 MLD (54new & KDMC, Kalyan 379 Work

90 MLD renewal) (MS) Completed
WTP & Pumping at
Kalyan

6. 16 MLD WTP at Cantonment 170 Work

Dehu Road, Pune Board, Dehu Completed
Road, Pune

7. 1150m3/hr WTP at PHED, Bikaner, 188 Work

Sriganganagar Rajasthan Completed

8. Intake, MJP, Wardha 134 Work

pumping,piping, 0.9 Completed
MLD WTP, GSR &
d/s system at Karanja

9. 8.5 MLD WTP , MJP Panvel 262 Work

ESRs Completed
at Karjat

10. 10.2 MLD WTP and P.H.E.D, 896 Work

distribution system at Jharkahnd, Completed
Hazaribag town Ranchi

11. Intake, pumping, MJP, Gondia 677 Work

piping 4.5+1.75 completed
MLD WTPs, ESRs
& d/s at Khambi

12. 11.5 MLD WTP at PHED, Kota, 89 Work

Eklingpura Rajasthan Completed

13. 7.2 MLD WTP at MJP, Solapur 65 Work

Akkalkot town Completed

14. 7.7 MLD WTP , MJP, Latur 81 Work

9
 Udgir Completed

15. 10.25 MLD WTP at MJP Buldana 82 Work

Chikhali town Completed

16. 2.15 MLD WTP at IPHD, Kullu 61 Work

Manali, HP Manali HP Completed

17. 16.8 MLD WTP, at KUIDFC/ 180 Work

Sirsi, Dandeli KUDCEMP completed
Karnatka

18. Water Supply SLEC, Jalanidhi, 167 Work

scheme, piping,1.2 DPMU, West completed
MLD WTP, GSR, Manalaya,
pumping etc. at Kerala
Kodakkparamb,
Kerala

19. 45 MLD WTP at Kerala Water 349 Work

Changlapalam, Authority Completed
Mevelloor, Kerala commissioning
held for no
water

20. Water Supply SLEC, Jalanidhi, 218 Work

scheme, piping,1.2 DPMU, West completed
MLD WTP, GSR, Manalaya,
pumping etc. at West Kerala
Manalaya, Kerala

21. 2.75 MLD WTP, MJP, 437 Work in

ESRs, pumping, Khamgaon, Progress
piping at Morkhed Buldana

22. Intake, pumping, MJP, Gondia 790 Work

piping 5.3 MLD completed
WTP, ESRs & d/s
system at Arjuni

10
 More

23. Intake, pumping, IVRCL/ 708 Work in

piping & d/s at KINFRA, Kerala Progress
Kakkanchery, Kerala

24. 12.5 MLD WTP at Kerala Water 169 Work in

Valiyakunnu, Authority, Progress
Attingal Kerala

25. 100 MLD WTP at PMC, Pune 975 Substantially

Cantt. W. Works completed
Pune

26. Intake, 19 MLD DW & SD, 1750 Substantially

WTP, ESRs & d/s Ranchi, completed
system at Birsa nagar Jharkhand

27. Intake, 12 MLD DW & SD, 1060 Work

WTP & d/s system Ranchi, completed
at Gumla, Jharkhand Jharkhand

28. 15 MLD WTP & Kerala Water 198 Work in

GSR at Chennithala, Authority, Progress
Kottayam Kerala

29. 45.6 MLD WTP & PHED, Jodhpur, 492 Work in

3400m3 CWR at Rajasthan Progress
Umedsagar, Jodhpur

30. 23.6 MLD WTP at MES, Jaipur/ CE 199 Work

Jodhpur MES Bhopal zone completed

31. WSS & 10 MLD PHE, P.W.D., 1178 Substantially

WTP at Dabose, Alto Porvorim, completed
Valpoi, Goa Goa.

32. 10 MLD WTP at PHE, P.W.D., 441 Substantially

Canacona, Margao Fatorda, Margao, completed
Goa Goa

11
33. 6 MLD WTP at Kerala, KWA 98 Work in
Kunnekkattumala, Progress
Kerala

34. 7.5 MLD WTP at Kerala, KWA 125 Work in

Koovappady, Kerala Progress

35. 87000m3 RWR & PHED, Pali, 158 Work

water supply Jodhpur completed
scheme for Sojat, Rajasthan
Shivpura

36. 608000m3 RWR & PHED, RGLC, 687 Work in

W/S head work for Jodhpur Progress
Devania- Shergarh Rajasthan

37. 568900m3 RWR & PHED, RGLC, 562 Substantially

W/S head work for Jodhpur completed
Manaklao- Indroka Rajasthan

38. 48.5 MLD WTP at Nasik Municipal 581 Work in

Shivajinagar, Nasik Corporation, Progress
Nasik

39. 26 MLD WTP at Nasik Municipal 324 Work in

Gandhinagar, Nasik Corporation, Progress
Nasik

40. WSS scheme-piping ERA, J & K, 2343 Work in

nishat-zindshah Srinagar Progress
masjid

41. Intake works, OHT PIU, ERA, J & 715 & 55 Work in
& GSR -works at K, Jammu Progress
Boria, Jammu

42. Distribution PIU, ERA, J & 3242 Work in

network (ph-II) K, Jammu Progress
Improvement -
works at Boria

12
43. Water Distribution RUSDIP, IPIU 1360 Work in
System ESR & PS, (Ph-II), Progress
at Jaisalmer Jaisalmer

44. Water storage, Haryana Urban 13000 Lowest

treatment & Development (as JV)
transmission, at Authority
Chandu Bhu., 22 (HUDA)
MGD, Gurgaon

Sewage /EffluentTreatment Plants & Sewerage system

S.N. Description of work Client Contract Remarks

value
(Rs lacs)

1. 10 MLD STP at BAPL/ DWS & 71 Work

Vasantkunj Delhi SDU ( now DJB) Completed

2. 1.0 + 0.2 MLD STPs GAIL, Delhi 96 Work

at Dibiyapur Completed
township,UP

3. 1.0 MLD STP at IPHD, Rampur, 52 Work

Reckong Peo, HP HP Completed

4. 0.53 MLD STP at SAIL, Ranchi 75 Work

Satellite township, Completed

5. 8.0 MLD STP, FAB PHED, Haryana 140 Work

at Rewari, Haryana Completed

13
6. 22 MLD STP, Nasik Municipal 475 Work
UASB, at Chehedi, Corporation completed
Nasik

7. 12 MLD STP, UASB PHED, Indore, 357 Work

at Bhamori, Indore MP Completed

8. 3.0 MLD STP and CCL, Ranchi, 163 Work

Sewerage system, World Bank Completed
pumping, at KDH
town

9. 3.0 MLD STP and CCL, Ranchi, 135 Work

Sewerage system, World Bank Completed
pumping at Parej
town

10. 1.5 MLD STP - Cantonment 145 Work

recycle plant at board, Ambala Completed
Ambala cantt, Haryana

11. 675 m3/d ETP, at KINFRA, Kerala, 84 Work

Kakkancherry,Calicut MACL, Mumbai Completed

12. 10 MLD STP- PWD, PHED, 345 Substantially

MBBR/ FAB at Rohtak, Haryana completed
Rohtak town

13. 14 MLD STP, UASB YPCU, UP J.N. 715 & Work in

with power Agra, UP 325 Progress
generation at
Jaganpur, N Z, Agra

14. Sewerage & 10 MLD RUDIP (PH-II), 2509 Work in

STP (WSP), phase-I

14
 at Jaisalmer Jaisalmer Progress

15. Sewerage system, Thane Municipal 18900 Work in

pumping stations & Corporation, (As JV, Progress
100 MLD STP at Thane, MS 10100
Kalwa, Thane, our
Maharashtra share)

Consultancy/ association Projects

S.N.

Des Client
crip
tion
of
wor

15
k

1. 300m3 Swimming Pool at Patna J.P. Enterprises, Patna

2. ETP at Sanand oil field, ONGC Gannon Dunkerly, Delhi
3. ETP-recycling plant at Maruti, Western India Ind. Ltd.,
Gurgaon Delhi
4. ETP Boingaigaon refinery Punj Lloyd ltd./ EIL Delhi
5. Defluoridation plant at Jaipur R.S. Shekhawat/ PHED,
Jaipur
6. 180 MGD WTP at Nangloi, Delhi NBCC ltd./ DWS&SB ,
Delhi
7. 300 MLD WTP at Bangkok Som datt Builders, Delhi
8. 25 MLD intake well, DAE, RAPP, Orientaal/ EIL/ NPCL, Delhi
Rajsthan
9. FireWater system, Nawagaon Punj Lloyd ltd.
10. 100 MLD STP at Nagpur A.K. Mukherjee/ MJP
Nagpur
11. 120 MLD STP at Gwalior, Redecon India ltd./ PHED,
MP
12. 1.8 MLD STP at Manali, Kullu IPHD, Kullu/ KCT Delhi
13. Electrical works for ETP at GHP, BAPL/ IOCL Baroda, Gujrat
Baroda
14. 13.5 MLD STP at Munger, Bihar J.P.Enterprises/ GPD/
BISWAS
15. 4.0 MLD STP at Eastern zone, Patna J.P.Enterprises/ GPD/
BISWAS

Work Tendered - Turnkey Projects (as on Oct 09)

Bac

S.N. Description of Client Estimated Remarks

work value

16
 (Rs lacs)
1. 107 MLD STP at KSUDP, Kerala 7500 Technical bid
Thiruvananthpuram, submitted
Kerala
2. 30 MLD STP at UP Jal Nigam 2500 Technical bid
Loni, Ghaziabad,UP submitted

3. 40 MLD STP at PHED, Haryana 2000 Lowest

Rohtak, Haryana

4. Intake, 80 MLD MIDC , MS 2500 Technical bid

WTP & w/s system submitted
at Talegaon, M.S.

5. 100 MLD WTP and HUDA, Haryana 13000 (JV Lowest

allied works, at project)
Chandu Bhudhera,
Gurgaon, Haryana

6. Renovation of ERA, J & K 3400 Technical bid

drainage Pumping submitted
Station system -
Lot A & Lot B,
Srinagar

7. Laterals drain ERA, J & K 4300 Technical bid

system -at submitted
RawalPora,
Srinagar

Work Tendered - Boot basis Projects (as on Oct 09)

S.N. Description of Client Estimated Remarks

work value
(Rs lacs)
1. 1 MLD STP , PMC, Pune 421/p.a., Lowest
MBR basis – 4 10 years
units; at Pune,

17
 M.S.

2. 1.5 MLD STP, MIDC, Pune 52/p.a., 20 Lowest

MBBR basis at years
Chakan, Pune,
M.S.

EQUIPMENT SUPPLY

Equipment Supply - SMS Make

18
 - Clarifier & sludge thickener mechanism

- Clariflocculator Mechanism

- Surface Aerators

- Agitator Assembly mechanism

Pump Supply & Installations

- Horizontal Centrifugal

- Submersible/Vertical Turbine/V. Centrifugal

- Submersible Pump/Positive Displacement

- Chemical Dosing

Clarifier & sludge thickener mechanism

S.N. Description of Year of Name and Size Quantity

Project supply Address of (m) (Nos.)
c lient

19
1. 0.6MLD STP at April,1998 JKPCC Ltd., 6.8f 1
Medical College, Darbar Garh (old
Jammu. sect.), Jammu.

2. 3MLD STP at Jan, 2001 Central Coalfields 10f 2

KD Hesalong , Ltd.
Ranchi, Darbhanga House,
Ranchi – 834 001.

3. 3MLD STP at Feb, 2001 Central Coalfields 10f 2

Parej Dist. Ltd.
Hazaribagh Darbhanga House,
Ranchi – 834 001.

4. Revamping of Sept, 2002 Ex. Engr (E) 1st. 9.5f 1

STP at ONGC Floor, Service
Complex, Phase Bldg, Phase II,
II, Panvel. ONGC Complex,
Panvel.

5. 1MLD STP at Mar, 2003 CDS, U.P.Jal 6.8f 1

IIM, Lucknow Nigam,
25/110, Indira
Nagar, Lucknow.

6. 675 m3/d, CETP July, 2004 KINFRA, Kerala. 8.8f 1

at Calicut

7. 8 MLD, STP at Sept, 2004 PHED, Haryana 18.6f 2

Rewari

8. 8 MLD, STP at June, 2004 PHED, Haryana 4.8f 1

Rewari (Sludge
thickener)

20
9. 1.5 MLD STP April,2003 Cantonment 2.9f 1
recycle plant at Board, Ambala,
Ambala Cantt. Haryana
(Sludge
thickener)

Clariflocculator Mechanism

S.N. Description of Year of Name and Address Size Quantity

Project supply of client (m) (Nos.)

1 80 MLD WTP at Jan 1998 MJP,Solapur, 43.0f 2

Solapur. Maharashtra

2 7.2 MLD WTP at Mar,1998 MJP, Akkalkot, 19.0f 1

21
 Akkalkot Maharashtra

3 10.25MLD WTP at Dec,1998 MJP, Chikhali, 21.5f 1

Chikhali. Buldana,
Maharashtra

4 7.7MLD WTP at Jan,1999 MJP, Udgir, Latur, 19.0f 1

Udgir Maharashtra

5 22.8MLD WTP at Mar, MJP, Buldana, 30.0f 1

Buldana, 2001 Maharashtra

6 54MLD WTP at May, KDMC, Kalyan, 45.0f 1

Kalyan 2002 MS.

7 10MLD WTP, Sept, PH E D, 14.0f 2

Eklingpura, 2003 RamganjMandi,
Rajasthan. Distt. Kota,
Rajasthan

8 23MLD WTP at Sri July, P H E D, Region, 25.5f 2

Ganganagar, 2003 Bikaner, Rajasthan
Rajasthan.

9 16MLD WTP at Dehu May, Cantonment Board, 27.0f 1

Road, Pune. 2003 Dehu Road, Pune,
Maharashtra

10 8.5 MLD WTP at Jan 2004 MJP Panvel 20.0f 1

Karjat

11 45MLD WTP at Feb, 2004 Kerala Water 32.0f 2

Changalapalam, Authority, Kochi,
Kerala Kerala

12 425m3/hr WTP at July, PHED, Jharkhand, 22.0f 1

22
 Hazaribagh,Jharkhand 2004 Ranchi

13 4.0 MLD WTP, at Oct 2005 PHED, Rajasthan 14.6f 1

Jhalrapatan, Kota

14 4.0 MLD WTP, at Oct 2005 PHED, Rajasthan 14.6f 1

Jhalawar, Kota

15 12.5 MLD WTP, at Nov 2005 Kerala Water 16.5f 2

Valiyakunnu, Kerala Authority,
Thiruvananthapuram

Surface Aerators Back

S.N. Description of Year of Name and Size Quantity

Project supply Address of client HP (Nos.)

1 0.6MLD STP at April,1998. JKPCC Ltd., 15 1

Medic- al Darbar Garh (old
College, Jammu. sect.), Jammu

2 3MLD STP at Jan, 2001 CCL, Darbhanga 7.5 2

KD Hesalong , House,
Ranchi, Ranchi – 834 001.

3 3MLD STP at Feb, 2001 CCL, Darbhanga 7.5 2

Parej Dist. House,
Hazaribagh, Ranchi – 834 001.

4 1MLD STP at Mar, 2003 CDS, U.P.Jal 7.5 2

IIM, Lucknow Nigam, 25/ 110,

23
 Indira Nagar, Lko.

5 675 m3/d CETP July, 2004 KIDC/ KINFRA, 7.5 2

at Calicut Kerala

Top

gitator Assembly Mechanism

Nos. / Horse Power.

Description of Year of Name and Address
S.N Flash Alum Lime TCL/BP
Project supply of client
Mixer

1 80 MLD WTP Jan 1998 MJP, Solapur, MS 2 / 5.0 3 / 5.0 2 / 3.0 3 / 1.0

2 7.2 MLD WTP Mar 1998 MJP, Akkalkot, MS 1 / 1.0 1 / 0.5 - 1 / 0.5

3 10.25MLD Dec 1998 MJP, Chikhali, MS 1 / 1.5 2 / 0.5 - 1 / 0.5

WTP

4 7.7MLD WTP Jan 1999 MJP, Udgir, Latur 1 /1.5 2 / 0.5 1 / 0.5 1 / 0.5

5 22.8MLD WTP Mar 2001 MJP, Buldana, MS 1 / 1.5 3 / 0.5 2 / 0.5 -

6 54MLD WTP May KDMC, Kalyan, 1 / 7.5 - - -

2002 MS

7 10MLD WTP Sept PH E D, Kota, 2 / 1.0 2 / 0.5 2 / 0.5 -

24
 2003 Eklingpura

8 23MLD WTP July 2003 PHED, Sri 2 / 2.0 3 / 1.0 - -

Ganganagar,
Bikaner, Rajasthan

9 16MLD WTP May, Cantonment Board, 1 / 2.0 3 / 1.0 2 / 1.0 2 / 1.0

2003 Dehu Road, Pune

10 8.5 MLD WTP Jan 2004 MJP Panvel, Karjat, 1 / 1.0 2 / 0.5 - 1 / 0.5
MS

11 45MLD WTP Feb 2004 Kerala Water 2 / 2.0 2 / 1.0 2 / 1.0 2 / 0.5
Authority,
Changalapalam
Kochi

12 425m3/hr WTP July 2004 PHED, Hazaribagh, 1 / 1.0 2 / 0.5 2 / 0.5 2 / 0.5
Jharkhand, Ranchi

13 4.0 MLD WTP Oct 2005 PHED, Jhalrapatan 1 / 1.0 2 / 0.5 - -

Kota Rajasthan

14 4.0 MLD WTP Oct 2005 PHED, Jhalawar, 1 / 1.0 2 / 0.5 - -

Rajasthan

15 12.5 MLD WTP Nov 2005 KWA,Valiyakunnu, 1 / 1.0 2 / 0.5 2 / 1.0 -

Trivendrum, Kerala

16 2.44 MLD WTP Jan 2000 I& PH, Chamunda, 1 / 0.5 2 / 1.0 - -
HP

17 0.86 MLD WTP Nov 2001 MJP, Karanja, - 2 / 0.5 - -

Wardha

18 4.5 MLD WTP Jan2006 MJP, Khambi, - 2 / 1.0 - -

25
 Gondia

19 1.75 MLD WTP Jan 2006 MJP, Siregaon, - 2 / 0.5 - -

Gondia

20 6.81 MLD WTP Nov 2003 KUWS & DB, 1 / 1.0 2 / 0.5 - -
K.R.Nagar
Karnataka

21 2.15 MLD WTP Jan 2000 IPHED, Kullu 1 / 0.5 2 / 0.5 - -

Manali

22 4.70 MLD WTP Oct 2001 MJP, Nachan Gaon, - 2 / 0.5 - -

MS

23 16.5 MLD WTP Feb 2006 KUIDFC, Sirsi, 1 / 3.0 3 / 0.5 - -

Dandeli, Karnataka

24 5.30 MLD WTP Oct 2006 MJP,ArjuniMor, - 2 / 1.0 1 / 1.5 2 / 0.5

Gondia

26
Pump Supply & Installations

Horizontal Centrifugal Back

27
S.N. Rating/ description Qty. Make/model Client/ Project
1. 7m3/h *50mH, 4 Kirloskar, DB 32/20 MJP, 80 MLD WTP
7.5HP,BOP (2+2) Solapur, MS
400m3/h*18mH, 50 2 Kirloskar 8UP1M
HP, HSC (1+1)
2. 50m3/h*16mH, 7.5 2 Kirloskar , DB 50/13 MJP, 10.25 MLD
HP, BOP (1+1) WTP at Chikhali
52 m3/h*10mH,5HP, 2 Kirloskar, SHM town
HCN (1+1) 65/32N
3. 33.4m3/h*19mH, 2 Kirloskar , DB 50/13 MJP, 7.7 MLD WTP
5HP, BOP (1+1) , Udgir,
4. 50m3/h*17mH, 2 Kirloskar , DB 65/26 MJP,7.2 MLD WTP
7.5HP, BOP (1+1) at Akkalkot
5. 7.5m3/h*15mH, 2HP, 2 Kirloskar , DB 32/13 IPHD, 2.15 MLD
BOP (1+1) WTP, Manali,HP
6. 42.96m3/h*20mH, 2 Kirloskar,DB50/13 MJP, Intake, 4.7
7.5 HP (1+1) MLD WTP, ESRs &
142.86m3/h*53mH, 2 Kirloskar, DB 80/20 d/s at Nachangaon
40 HP (1+1)
32.5m3/h*16mH, 2 Kirloskar , DB 50/13
5HP BOP (1+1)
7. 12.5m3/h*18mH, 2 Kirloskar, DB 32/13 MJP,0.9 MLD WTP,
3HP BOP (1+1) GSR & d/s system at
Karanja
8. 6.25m3/h*13m H, 2 Kirloskar , DB 32/13 IPHD,2.44 MLD
1.5HP BOP (1+1) WTP at Chamunda,
HP
9. 75 m3/hr *11mH, 2 Kirloskar, SHM MJP, 19 MLD WTP
7.5HP HCN (1+1) 65/32N & ESR at Buldana
115m3/h*18m H, 2 Kirloskar , DB 100/26 town

28
 12.5HP, BOP (1+1)
10. 42m3/h*15mH, 5HP, 2 Kirloskar, DB 65/26 Cantt.board,16 MLD
BOP (1+1) WTP at Dehu Road,
Pune
11. 833.4m3/h*55mH, 8(5+3) Kirloskar, KDMC, 54 MLD
250 HP HSC WTP & Pumping at
10 UP 3M-17
Kalyan
12. 250m3/h*121mH, 2 Kirloskar, DSM150/46 KUWS & DB,
170 HP, HSC (1+1) Intake, 6.81 MLD
20m3/h*16mH, 3 HP 2 Kirloskar , DB 40/13 WTP, ESRs at KR
(1+1) Nagar
BOP
13. 3m3/h*30mH, 3HP 3(2+1) Kirloskar, KON-222 PHED,1150m3/hr
multistage WTP at
120m3/h*15mH, 2 Kirloskar , UP100/24 Sriganganagar,
12.5HP, HSC (1+1) Rajsthan
14. 150m3/h*15mH, 2 Kirloskar , DB 125/26 PHED, 478m3/hr
15HP, BOP (1+1) WTP at Eklingpura ,
Kota
15. 18m3/h*17mH, 3HP 2 Kirloskar , DB 40/13 MJP, 8.5 MLD WTP
BOP (1+1) , ESRs, at Karjat
1.2m3/h*53mH, 1HP 2 Kirloskar , KON-112
multistage (1+1)
16. 30m3/h* 15mH, 3 HP 2 Kirloskar, KDS 318 MJP, Intake,
(1+1) 4.5+1.75 MLD
12m3/h*14mH, 1 HP 2 Kirloskar, KDS 116 WTPs, ESRs & d/s
(1+1) at Khambi
137.75m3/hr*42mH, 2 Kirloskar, DB 80/20
40HP (1+1)
54.25m3/hr*41mH,15 2 Kirloskar, KDS 1555
HP (1+1)
29
17. 220m3/h*16mH, 20 2 Kirloskar, DB 125/26 KWA,45 MLD
HP (1+1) WTPChanglapalam,
Kerala
18. 227m3/h*75mH, 100 4 Kirloskar, UP 150/45 PHED,425m3/hr
HP HSC (2+2) WTPat Hazaribag
19. 612m3/h*22mH, 2 Kirloskar , UP250/30 KUIDFC,16.8 MLD
75HP, HSC (1+1) WTP, at Sirsi,
Dandeli Karnatka
20. 33.5m3/h*16mH, 2 Kirloskar , KS-316 PHED,4MLD WTP
3HP, BOP, (1+1) at Jhalrapatan, Kota
21. 33.5m3/h*16mH, 2 Kirloskar , KS-316 PHED,4MLD WTP
3HP, BOP, (1+1) at Jhalawar, Kota
22. 23.4m3/h*63mH, 2 Kirloskar, Jalnidhi,WS scheme,
20HP, HSC, two (1+1) DSM65/32B 1.2MLD WTP,GSR
stage etc. at West
Manalaya, Kerala
23. 27m3/h*30mH, 2 Kirloskar, UP-50/30B Jalnidhi,WS scheme,
10HP, HSC (1+1) 1.2MLD WTP,GSR
etc. at
Kodakkparamb,
Kerala
24. 118m3/h*12mH, 10 2 Kirloskar, KS-1012 KWA,12.5 MLD
HP (1+1) WTP, Valiyakunnu,

Attingal, Kerala
25. 6.5m3/hr * 60mH, 3 Kirloskar, DB 32/20 PMC,100 MLD
7.5HP BOP (2+1) WTP at Cantt .W.
12m3/hr * 28mH, 2 Kirloskar, DB 32/16 Works Pune
5HP BOP (1+1)
26. 21m3/h *7mH, 3(2+1) Kirloskar,SHM50/26N GAIL, 1.0 + 0.2
2HP,HCN MLD STPs at

30
 5m3/h*7mH, 1HP 1 Kirloskar, SP-O Dibiyapur ,
mono block township, UP
4.17m3/hr * 5mH, 3-2+1 Kirloskar, SP-2H
3HP mono block
27. 25m3/hr * 7head, 2 Kirloskar, SHM J & K PCC, 600 m3/d
3HP, (1+1) 50/26N STP , Jammu

HCN
28. 41.7m3/hr * 7mH, 2 Kirloskar, SHM IPHD, 1.0 MLD STP
3HP (1+1) 50/26N at Reckong Peo, HP

HCN
2HP, mono block 1 Kirloskar, SP- 1H
29. 41.7m3/h*7mH, 3HP, 2 Kirloskar, CCL, Sewerage
HCN (1+1) system, 1.0 MLD
SHM 50/26N
STP at KDH town,
3
8m /h*12mH, 1HP, 1 Kirloskar, SP-OM
Ranchi
mono block
30. 41.7m3/h*7mH, 3HP, 2 Kirloskar, CCL, Sewerage
HCN (1+1) system, 1.0 MLD
SHM 50/26N
STP at Parej town,
3
8m /h*12mH, 1HP, 1 Kirloskar, SP-OM
Ranchi
mono block
31. 100m3/hr*16mH, 2(1+1) Kirloskar SHM Punjab milkfed,
12.5HP 80/26N Chandigarh, 900
m3/d ETP (UASB)
HCN
40m3/hr* 12mH, 2(1+1) Kirloskar SHD 65/32N at Ludhiana, Punjab
3HP, HCN
40m3/hr* 8mH, 2(1+1) Kirloskar SHD 50/26N
7.5HP
32. 62.5m3/h*7mH, 5HP, 2 Kirloskar, Ambala cantt, 1.5

31
 HCN (1+1) MLD STP - recycle
plant at Ambala
SHM 65/32N
cantt,
34m3/h*34mH, 3(2+1) Kirloskar, DB 50/16
10HP, BOP
33. 30m3/hr* 16mH, 5HP 2(1+1) Kirloskar SHM KINFRA, 675 m3/d
50/26N ETP,Kakkancherry,
22.5m3/hr* 7mH, 2(1+1) Kirloskar SHM Calicut
2HP 50/26N

Submersible/Vertical Turbine/V. Centrifugal Back

S.N. Rating/ description Qty. Make/model Client/ Project

1. 195.6m3/hr* 35mH, 2(1+1) Worthington MJP, Intake, 4.7
40HP VT pump MLDWTP,
3-C12 TC
ESRs & d/s
system at
Nachangaon
2. 35.5m3/hr* 75mH, 2 Worthington MJP, Intake, 0.9
18HP, VT (1+1) MLD WTP,
A 8 TC
GSR & d/s
system at
Karanja
2. 142m3/hr* 24mH, 20 2 Calama MJP, Intake,
HP, submersible (1+1) 4.5+1.75 MLD
Q-101/1
WTPs, ESRs &
55.9 2 Calama
d/s at Khambi/
3
m /h*24mH,10HP, (1+1)
siregaon
Q-65/4
32
 submersible
3. 600m3/h*20mH, 2 Kirloskar , BHR- PMC, 100 MLD
75HP, VT, (1+1) 35-300 WTP , Cantt.
pune
4. 90m3/hr * 20mH, 2 Kishor NVE RSBCC, 0.5
15HP vertical (1+1) 100*250 MLD STP at
centrifugal Kota Engg.
College

Submersible Pump/Positive Displacement Back

S.N. Rating/ Qty. Make/model Client/ Project

description
1. 100m3/hr * 5mH, 2(1+1) Kirloskar, PMC, 100 MLD
5HP vertical End SHV100/26N WTP at Cantt .W.
Suction with Works Pune
vertical dry pit
mounting Type
2. 21m3/hr * 6mH, 2(1+1) Kishor, KDS RSBCC, 0.5 MLD
2HP, submersible 002MS DN100 STP at Kota Engg.
36.5m3/hr * 7mH, 3(2+1) Kishor, KDS College
3HP submersible 003MS DN100
3. 41.7m3/hr * 11mH, 5(3+2) Kishor, KDS GAIL, 1.0 + 0.2
5HP submersible 005MS DN 100 MLD STPs at
12.5m3/hr * 11mH, 3(2+1) Kishor, KDS Dibiyapur township,
3HP submersible 003MS DN100 UP
4. 33m3/hr * 7mH, 3(2+1) Kishor, KDS SAIL, 530 m3/d
3HP submersible 003MS DN100 STP,Satellite,Ranchi
33
5. 23 m3/h*9mH, 2(1+1) Kishor, KDS CCL, Sewerage
3HP submersible 003 MS DN100 system, 1.0 MLD
57 m3/h* 12mH, 2(1+1) Kishor, KDS 10 STP at KDH town,
10HP submersible MS Ranchi
DN100
6. 84 m3/h* 20mH, 2(1+1) Kishor, KDS 15 CCL, Sewerage
15HP, MS DN 100 system, 1.0 MLD
submersible STP at Parej town,
123 m3/h*23mH, 2(1+1) Kishor, KDS 25 Ranchi
25HP, MS DN 100
submersible,
7. 3.6m3/hr * 6mH, 2(1+1) Roto, RDAA PHED, 8.0 MLD
1HP positive dis- 531R2CD1A STP, FAB at Rewari,
placement Haryana
8. 6.25m3/hr *7mH, 2(1+1) KSB, KRTUE Punjab milkfed,
1.5HP 65-110/12 150m3/d ETP at
Submersible MCC Ferozpur
9. 42m3/hr * 8mH, 2(1+1) KSB, NMC, 22 MLD STP,
5HP submersible KRTUK100- UASB, at Chehedi,
180/24 Nasik
7m3/hr * 14mH, 2(1+1) KSB, Ama
2HP submersible Porter503 SE
10. 22m3/hr * 6mH, 2(1+1) Kishor, KDS 2 PHED, 12 MLD
2HP submersible MS100 STP, UASB at
6m3/hr * 12mH, 2(1+1) Kishor, KDV Bhamori, Indore
2HP submersible 312V1550
11. 62.5 m3/h, 13mH, 3(2+1) Kirloskar, NS Ambala cantt, 1.5
10HP 80/26 QM, MLD STP - recycle
submersible, plant

34
Chemical Dosing Back

S.N. Rating/ description Qty. Make/model Client/ Project

1. 6 LPH dosing pumps 1 set Fontus water Ambala cantt,
1.5 MLD STP -
recycle plant
2. 35m3/hr*18mH, 4(2+2) Anuvin CPP 50/13 PMC, 100 MLD
7.5HP Horizontal, WTP at
PP pumps Cantt .W. Works
0.18m3/hr * 15mH, 4(2+2) Chemtral, model Pune
1HP 2044

PLANT & MACHINERY

For Execution (Oct 2009) For Design & Engineering

S.No. Machinery/ Equipment Capacity/ size Quantity

1. Concrete mixers 10/7 20 nos.
each
2. Vibrators 40mm 20 nos.
25mm 20 nos.
3. Cube moulds 6" *6" *6" 50 nos.
4. Grouting pumps Hand operated 5nos.
5. Gen-set Potable 2 KVA, 10 KVA, 1 no. each
35
 40 KVA, 80 KVA 1 no. each
6. Drilling machines 1" & ½" 5 nos. each
7. Cube testing machine 15 MT 4 nos.
8. Pipe bending machine 50 mm 2 nos.
9. Grinding machine GQ 7/ AG 7 4nos.
10. Theodalite - 3 nos.
11. Dumpy levels - 5 nos.
12. Hydraulic testing pumps 5 HP 2 nos.
13. Dewatering pumps 5 HP & 10 HP 5 sets each
15 HP 2 sets
14. Mud pumps 7.5 HP 2 sets
15. Floor vibrator 2 HP 1 no.
16. Welding set (electrical) - 4 sets
17. Welding set ( diesel) - 1 set
18. Megger 2.5/1.5 KVA 2 nos.
19. Muck removal crane 5HP/ 0.25m3 2 nos.
20. Tractor with tripping trolley 40HP, 150cft 1 no.
21. Excavator/loader JCB 3D 2 nos.
JCB, 3DX 1 no.
22. Excavator scrapper attachment 80cft carriage cap. 4 nos.
23. Hoist tower with winch 7.5 HP . 2 nos.
24. Lathe machine 6 ft long 1 no.
25. Column drill - 1 no.
26. Magnetic drill - 1 no.
27. Hand Drill - 4 nos.
28. Power saw - 2 nos.
29. Curing machine/pumping set - 1 no.
30. Spray painting Gun - 1 no.
31. Vehicles - Jeep & cars - 12 nos.
- Scooter/ Mobike - 20 nos.

36
32. Sand blasting machine (for P7-1001 & IRBT 1 no.
pipe internal) 196
33. Crimping tool Up to 400mm 1 no.
34. Form work/ scaffolds - LOT
35. Chain pulley blocks & tools - LOT
36. Concrete trolley with rail 0.3m 3 carry 2 sets
capacity
37. Tractors 65 HP, HMT 6522 4 nos.
38. Lifting crane attachment to 3 MT capacity 1no.
tractor
39. Concrete conveyer & tipper 1.5m3 capacity 1no.
with 4 wheel driven engine
40. Concrete batching plant, 30 HP 10-15m3/hr 1no.
capacity
41. Steel plate bending machine 1500*16mm thick 1no.
42. Cup lock system - Lot
43. Trucks Tata 909, 9T, 3no.
200cft 1no.
Tata 407, 150cft
44. Pick up van Tata 207, 3T- 2no.
5seater
45. Generator 40KVA attached to 1no.
tractor
46. U/R piling equipment Suitable up to 300 f 2 sets
47. Reciprocating pump for - 1 no.
Hydromel piling
48. Batching plants 15 MLD 1no.
Mini 1no.
49. Stone crusher 12 T/hr 1no.
50. Tower crane 5T 1 no.

37
51. Grab with Clampshell 1.5m 3 1no.
52. DG sets 15 HP, 80 HP 1no. each
125 KVA 1no.
30 HP 2nos.
53. Hydro C.8000 - 1no.
54. Total Station (Topcon) - 1no.
55. Hydraulic Testing Machine - 3nos.
56. L & T Excavator 72 CK 1no
57. Schewing Setter (Miller) 300 MT 1no
58. Transit Mixer Machine - 1no
59. Cast in situ piling equipment Suitable up to 450 f 1no

For us, each leaf of the clover has a special meaning. It is a symbol of Hope, Trust, Care
and Good Fortune. For the world, it is the symbol of Religare.

The first leaf of the clover represents Hope. The aspirations to succeed. The dream of
becoming of new possibilities. It is the beginning of every step and the foundation on
which a person reaches for the stars.

The second leaf of the clover represents Trust. The ability to place one’s own faith in
another. To have a relationship as partners in a team. To accomplish a given goal with the
balance that brings satisfaction to all, not in the binding, but in the bond that is built.

38
 The third leaf of the clover represents Care. The secret ingredient that is the cement in
every relationship. The truth of feeling that underlines sincerity and the triumph of
diligence in every aspect. From it springs true warmth of service and the ability to adapt to
evolving environments with consideration to all.

The fourth and final leaf of the clover represents Good Fortune. Signifying that rare ability
to meld opportunity and planning with circumstance to generate those often looked for
remunerative moments of success.

Hope, Trust, Care and Good Fortune. All elements perfectly combine in the emblematic
and rare, four-leaf clover to visually symbolize the values that bind together and form the
core of the Religare vision.

1.2 OBJECTIVES

The basic objective of my study on DERIVATIVE is mainly as under-

• To analyze and evaluate the complex derivative instruments.

• To study and incorporate the hedging tools.
• To gain knowledge about derivative market.
• Various aspects of hedging like forward, futures, option, swap etc.
• To know traders prevent themselves from fluctuation in exchange rates.
• To analyses how derivative instruments work.
• To learn how to manage the risk.

39
1.3 RESEARCH METHODOLOGY

The project study has been conducted by using both primary data as well as secondary
data. The major part was by collecting primary data through directly calling up people
from the database provided by the company. A pre determined set of question were asked
to know their preferences.

40
1.4 Title

Trading in Derivative market

Most of the organization and individuals face financial risk. Changes in the stock market
prices, interest rates and exchange rates can have great significance. Adverse changes
may even threaten the survival of otherwise successful businesses. It is therefore not
surprising that financial instruments for the management of such risk have developed.
These instruments are known as financial derivatives. By providing commitments to
prices or rates for the future dates or by giving protection against adverse movements,
financial derivatives can be used to reduce the extent of financial risk. Conversely they
also provide profit opportunities for those prepared to accept risk. Indeed, at least to
extent, they involve the transfer of risk from those who wish to who willing to except it.

41
The emergence of the market for derivative products, most notably forwards, futures and
options, can be traced back to the willingness of risk-adverse economic agents to guard
themselves against uncertainties arising out of fluctuation in asset prices. By their very
nature, the financial markets are marked by a very high degree of volatility.

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 fluctuation in the underlying assets prices. However, by locking in
assets prices; derivative products minimize the impact of fluctuations in asset prices on
the profitability and cash flow situation of risk-adverse investors.

Derivatives have widely been used as they facilitate hedging, that enable fund managers
of an underlying assets portfolio to transfer some parts of the risk of price changes to
others who are willing to bear such risk. Option are the specific derivative instruments
that give their owner the right to buy (call option holder) or to sell (put option holder) a
specific number of shares (assets) at a specified prices (exercise prices) of a given
underlying asset at or before a specified date (expiration date).

42
1.5 RESEARCH DESIGN

• Defining the population: The population taken for the research consists of
investors or prospective clients of Panipat, Delhi & NCR region (both retail &
institutional)

• Defining the sample: A random sample has been taken for the purpose of
extensive market survey. A structured set of question has been prepared & asked
to people by directly calling them & their feedback was analyzed for precise
finding.

• Size & type of samples: A random sample of size 100 people was taken for
surveying.

• Method to be used: A frequency count has been done for different

parameters/questions & the most important factors have suggested to the company
for betterment of sales operations.

43
1.6 QUESTIONNAIRE

Questionnaire is an important step in formulating a research design. Once the researcher

has specified the nature of research design, and determined the scaling procedures, he or
she can develop a questionnaire.

Objectives of a questionnaire

Any questionnaire has three specific objectives.

11. It must translate the information needed into a set of specific questions that the
respondents can and will answer.
22. It must uplift, motivate and encourage the respondent to become involved in the
interview, to cooperate, and to complete the interview. Incomplete interviews
have limited usefulness at best.
33. It should be able to minimize response errors.

44
It was also important as researchers to respect the samples time and energy hence the
questionnaire was designed in such a way, that its administration would not exceed
4-5 minutes. These questionnaires were personal administered.

1.7 DATA COLLECTION

PRIMARY DATA

Primary data collected from religare securities personal in the fields of financial securities
& index analysis. Interviews were conducted with pre-written questions pertinent to
research work.

SECONDARY DATA

This study is based on secondary data, which are collected from the websites of the
Bombay stock Exchange, National Stock Exchange, religare securities & money control.

45
1.8 LIMITATIONS

• The biggest disadvantage of the derivative trading is that you have a time frame to
complete the selling of the stock. If the stock price does not rise up to the
expected level, even then you have to sell off the stocks to honor the contract.
• Another negative aspect is that the if the stock price fall then the investor loose
huge money in derivative trading as the amount of stock involved in this trading is
huge.
• Another limitation of derivative trading is that not all the listed stocks are
available for derivative trading. There are selected stocks in a stock exchange i.e.
NSE in which you can do derivative trading.
• The respondents selected to be interviewed were not always available and willing
to cooperate.
• The sample size of our survey is only 100, which cannot determine the investment
behaviors of the total population.
• Respondents were apprehensive in giving their correct income level and some
gave them incorrectly.
• Many respondents were unwilling to give their contact details specially their
Telephone numbers.

46
ABOUT TOPIC

2.1 DERIVATIVES DEFINED

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

In the Indian context the Securities Contracts (Regulation) Act, 1956 [SC(R)A] defines
"Derivative" to include-

1. A security derived from a debt instrument, share, loan whether secured or unsecured,
risk instrument or contract for differences or any other form of security.

2. A contract which derives its value from the prices, or index of prices, of underlying
securities.

Derivatives are securities under the SCRA and hence the trading of derivatives is
governed by the regulatory framework under the SCRA.
47
Derivative products initially emerged as hedging devices against fluctuations in
commodity prices, and commodity-linked derivatives remained the sole form of such
products for almost three hundred years. Financial derivatives came into spotlight in the
post-1970 period due to growing instability in the financial markets. However, since their
emergence, these products have become very popular and by 1990s, they accounted for
about two-thirds of total transactions in derivative products. In recent years, the market
for financial derivatives has grown tremendously in terms of variety of instruments
available, their complexity and also turnover. In the class of equity derivatives the world
over, futures and options on stock indices have gained more popularity than on individual
stocks, especially among institutional investors, who are major users of index-linked
derivatives. Even small investors find these useful due to high correlation of the popular
indexes with various portfolios and ease of use.

48
2.2 DERIVATIVE PRODUCTS

Derivative contracts have several variants. The most common variants are Forwards,
futures, options and swaps. We take a brief look at various derivatives contracts that have
come to be used.

DERIVATIVE
S
INSTRUMENT
S

FUTURES FORWARDS OPTIONS SWAPS

49
Forwards: A forward contract is a customized contract between two entities, where
settlement takes place on a specific date in the future at today's pre-agreed Price.

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 exchange-traded contracts.

Options: Options are instruments whereby the right is given by the option seller to the
option buyer to buy or sell a specific asset at a specific price on or before a specific date.

• Option Seller/ Option Writer- In any contract there are two parties. In case of an
option there is a buyer to the contract and also a seller. The seller of the contract is
called the options writer. He receives premium through the clearing house against
which he is obliged to buy or sell the underlying if the buyer of the contract so
desires.

• Option Buyer - One who buys the option. He has the right to exercise the option
but not obligation & he has to pay a premium for having such right to be
exercised.

• Call Option - A call option gives the buyer a right to buy the underlying that is the
index or stock at the specified price on or before the expiry date.

50
 • Put Option - A put option on the other hand gives the right to sell at the specified
price on or before expiry date.

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:

1. Interest rate swaps: These entail swapping only the interest related cash flows
between the parties in the same currency.

2. 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.

Swaptions: Swaptions are options to buy or sell a swap that will become operative at the
expiry of the options. Thus a swaption is an option on a forward swap. Rather than have
calls and puts, the swaptions market has receiver swaptions and payer swaptions. A
receiver swaption is an option to receive fixed and pay floating. A payer swaption is an
option to pay fixed and receive floating.

51
2.3 PARTICIPANTS IN THE DERIVATIVES MARKETS

The following three broad categories of participants - hedgers, speculators, and

arbitrageurs trade in the derivatives market.

1. Hedgers face risk associated with the price of an asset. They use futures or
options markets to reduce or eliminate this risk.

2. Speculators wish to bet on future movements in the price of an asset. Futures and
options contracts can give them an extra leverage; that is, they can increase both
the potential gains and potential losses 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.

52
FACTORS DRIVING THE GROWTH OF DERIVATIVES

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

1. Increased volatility in asset prices in financial markets,

2. Increased integration of national financial markets with the international markets,

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

4. Development of more sophisticated risk management tools, providing economic agents

a wider choice of risk management strategies, and

5. Innovations in the derivatives markets, which optimally combine the risks and returns
over a large number of financial assets leading to higher returns, reduced risk as well as
transactions costs as compared to individual financial assets.

53
2.4 FORWARD CONTRACTS

A forward contract is an agreement to buy or sell an asset on a specified date for a

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

The salient features of forward contracts are:

• They are bilateral contracts and hence exposed to counter-party risk.

• Each contract is custom designed, and hence is unique in terms of contract size,
expiration date and the asset type and quality.

• The contract price is generally not available in public domain.

• On the expiration date, the contract has to be settled by delivery of the asset.

• If the party wishes to reverse the contract, it has to compulsorily go to the same
counter-party, which often results in high prices being charged.

54
However forward contracts in certain markets have become very standardized, as in the
case of foreign exchange, thereby reducing transaction costs and increasing transactions
volume. This process of standardization reaches its limit in the organized futures market.

Forward contracts are very useful in hedging and speculation. The classic hedging
application would be that of an exporter who expects to receive payment in dollars three
months later. He is exposed to the risk of exchange rate fluctuations. By using the
currency forward market to sell dollars forward, he can lock on to a rate today and reduce
his uncertainty. Similarly an importer who is required to make a payment in dollars two
months hence can reduce his exposure to exchange rate fluctuations by buying dollars
forward. If a speculator has information or analysis, which forecasts an upturn in a price,
then he can go long on the forward market instead of the cash market. The speculator
would go long on the forward, wait for the price to rise, and then take a reversing
transaction to book profits. Speculators may well be required to deposit a margin upfront.
However, this is generally a relatively small proportion of the value of the assets
underlying the forward contract. The use of forward markets here supplies leverage to the
speculator.

55
LIMITATIONS OF FORWARD MARKETS

Forward markets world-wide are afflicted by several problems:

• Lack of centralization of trading,

• Illiquidity, and

• Counterparty risk

In the first two of these, the basic problem is that of too much flexibility and generality.
The forward market is like a real estate market in that any two consenting adults can form
contracts against each other. This often makes them design terms of the deal which are
very convenient in that specific situation, but makes the contracts non-tradable.
Counterparty risk arises from the possibility of default by any one party to the
transaction. When one of the two sides to the transaction declares bankruptcy, the other
suffers. Even when forward markets trade standardized contracts, and hence avoid the
problem of illiquidity, still the counterparty risk remains a very serious issue.

56
2.5 FUTURES CONTRACTS

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

The standardized items in a futures contract are:

 Quantity of the underlying

 Quality of the underlying

 The date and the month of delivery

 The units of price quotation and minimum price change

 Location of settlement

Merton Miller, the 1990 Nobel laureate had said that 'financial futures represent the most
significant financial innovation of the last twenty years." The first exchange that traded

57
financial derivatives was launched in Chicago in the year 1972. A division of the Chicago
Mercantile Exchange, it was called the International Monetary Market (IMM) and traded
currency futures. The brain behind this was a man called Leo Melamed, acknowledged as
the 'father of financial futures" who was then the Chairman of the Chicago Mercantile
Exchange. Before IMM opened in 1972, the Chicago Mercantile Exchange sold contracts
whose value was counted in millions. By 1990, the underlying value of all contracts
traded at the Chicago Mercantile Exchange totaled 50 trillion dollars. These currency
futures paved the way for the successful marketing of a dizzying array of similar products
at the Chicago Mercantile Exchange, the Chicago Board of Trade, and the Chicago Board
Options Exchange. By the 1990s, these exchanges were trading futures and options on
everything from Asian and American stock indexes to interest-rate swaps, and their
success transformed Chicago almost overnight into the risk-transfer capital of the world.

FUTURES TERMINOLOGY

 Spot price: The price at which an asset trades in the spot market.
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 Futures price: The price at which the futures contract trades in the futures market.

 Contract cycle: The period over which a contract trades. The index futures
contracts on the NSE have one- month, two-month and three months expiry
cycles which expire on the last Thursday of the month. Thus a January expiration
contract expires on the last Thursday of January and a February expiration
contract ceases trading on the last Thursday of February. On the Friday following
the last Thursday, a new contract having a three- month expiry is introduced for
trading.

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

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

 Basis: In the context of financial futures, basis can be defined as the futures price
minus the spot price. There will be a different basis for each delivery month for
each contract. In a normal market, basis will be positive. This reflects that futures
prices normally exceed spot prices.

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

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

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

 Maintenance margin: This is somewhat lower than the initial margin. This is set to
ensure that the balance in the margin account never becomes negative. If the

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 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.

DISTINCTION BETWEEN FUTURES AND FORWARDS CONTRACTS

Forward contracts are often confused with futures contracts. The confusion is primarily
because both serve essentially the same economic functions of allocating risk in the
presence of future price uncertainty. However futures are a significant improvement over
the forward contracts as they eliminate counterparty risk and offer more liquidity.

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2.6 OPTIONS

In this section, we look at the next derivative product to be traded on the NSE, namely
options. Options are fundamentally different from forward and futures contracts. An
option gives the holder of the option the right to do something. The holder does not have
to exercise this right. In contrast, in a forward or futures contract, the two parties have
committed themselves to doing something. Whereas it costs nothing (except margin
requirements) to enter into a futures contract, the purchase of an option requires an up-
front payment.

OPTION TERMINOLOGY

 Index options: These options have the index as the underlying. Some options are
European while others are American. Like index futures contracts, index options
contracts are also cash settled.

 Stock options: Stock options are options on individual stocks. Options currently
trade on over 500 stocks in the United States. A contract gives the holder the right
to buy or sell shares at the specified price.

 Buyer of an option: The buyer of an option is the one who by paying the option
premium buys the right but not the obligation to exercise his option on the
seller/writer.

 Writer of an option: The writer of a call/put option is the one who receives the
option premium and is thereby obliged to sell/buy the asset if the buyer exercises
on him.

There are two basic types of options, call options and put options.

 Call option: A call option gives the holder the right but not the obligation to buy
an asset by a certain date for a certain price.

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 Put option: A put option gives the holder the right but not the obligation to sell an
asset by a certain date for a certain price.

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

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

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

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

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

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FUTURES AND OPTIONS

An interesting question to ask at this stage is - when would one use options instead of
futures? Options are different from futures in several interesting senses. At a practical
level, the option buyer faces an interesting situation. He pays for the option 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 (other than the funds already paid
for the option). This is different from 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".

INDEX DERIVATIVES

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Index derivatives are derivative contracts which derive their value from an Underlying
index. The two most popular index derivatives are index futures and index options. Index
derivatives have become very popular worldwide. Index derivatives offer various
advantages and hence have become very popular.

 Institutional and large equity-holders need portfolio-hedging facility. Index-

derivatives are more suited to them and more cost-effective than derivatives based
on individual stocks. Pension funds in the US are known to use stock index
futures for risk hedging purposes.

 Index derivatives offer ease of use for hedging any portfolio irrespective of its
composition.

 Stock index is difficult to manipulate as compared to individual stock prices,

more so in India, and the possibility of cornering is reduced. This is partly
because an individual stock has a limited supply, which can be cornered.

 Stock index, being an average, is much less volatile than individual stock prices.
This implies much lower capital adequacy and margin requirements.

 Index derivatives are cash settled, and hence do not suffer from settlement delays
and problems related to bad delivery, forged/fake certificates.

2.7 APPLICATIONS OF FUTURES AND OPTIONS

The phenomenal growth of financial derivatives across the world is attributed the
fulfillment of needs of hedgers, speculators and arbitrageurs by these products. In this
chapter we first look at how trading futures differs from trading the underlying spot. We
then look at the payoff of these contracts, and finally at how these contracts can be used

64
by various entities in the economy. A payoff is the likely profit/loss that would accrue to
a market participant with change in the price of the underlying asset. This is generally
depicted in the form of payoff diagrams which show the price of the underlying asset on
the X-axis and the profits/losses on the Y-axis.

TRADING UNDERLYING VERSUS TRADING SINGLE STOCK FUTURES

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 up-tick.

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 (the expiration date of the contract). Security futures do not
represent ownership in a corporation and the holder is therefore not regarded as a
shareholder.

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A futures contract represents a promise to transact at some point in the future. In this
light, a promise to sell security is just as easy to make as a promise to buy security.
Selling security futures without previously owning them simply obligates the trader to
selling a certain amount of the underlying security at some point in the future. It can be
done just as easily as buying futures, which obligates the trader to buying a certain
amount of the underlying security at some point in the future. In the following sections
we shall look at some uses of security future.

2.8 FUTURES PAYOFFS

Futures contracts have linear payoffs. In simple words, it means that the losses as well as
profits for the buyer and the seller of a futures contract are unlimited. These linear

66
payoffs are fascinating as they can be combined with options and the underlying to
generate various complex payoffs.

Payoff for buyer of futures: Long futures

The payoff for a person who buys a futures contract is similar to the payoff for a person
who holds an asset. He has a potentially unlimited upside as well as a potentially
unlimited downside. Take the case of a speculator who buys a two month Nifty index
futures contract when the Nifty stands at 2220. The underlying asset in this case is the
Nifty portfolio. When the index moves up, the long futures position starts making profits,
and when the index moves down it starts making losses.

Payoff for a buyer of Nifty futures

The figure shows the profits/losses for a long futures position. The investor bought
futures when the index was at 2220. If the index goes up, his futures position starts
making profit. If the index falls, his futures position starts showing losses.

Payoff for seller of futures: Short futures

The payoff for a person who sells a futures contract is similar to the payoff for a person
who shorts an asset. He has a potentially unlimited upside as well as a potentially
unlimited downside. Take the case of a speculator who sells a two-month Nifty index
futures contract when the Nifty stands at 2220. The underlying asset in this case is the
Nifty portfolio. When the index moves down, the short futures position starts making
profits, and when the index moves up, it starts making losses.

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Payoff for a seller of Nifty futures

The figure shows the profits/losses for a short futures position. The investor sold futures
when the index was at 2220. If the index goes down, his futures position starts making
profit. If the index rises, his futures position starts showing losses.

2.9 APPLICATION OF FUTURES

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Understanding beta the index model suggested by William Sharpe offers insights into
portfolio diversification. It expresses the excess return on a security or a portfolio as a
function of market factors and non market factors. Market factors are those factors that
affect all stocks and portfolios. These would include factors such as inflation, interest
rates, business cycles etc. Non-market factors would be those factors which are specific
to a company, and do not affect the entire market. For example, a fire breakout in a
factory, a new invention, the death of a key employee, a strike in the factory, etc. The
market factors affect all firms. The unexpected changes in these factors cause unexpected
changes in the rates of returns on the entire stock market. Each stock however responds to
these factors to different extents. Beta of a stock measures the sensitivity of the stocks
responsiveness to these market factors. Similarly, Beta of a portfolio, measures the
portfolios responsiveness to these market movements. Given stock beta’s, calculating
portfolio beta is simple. It is nothing but the weighted average of the stock betas. The
index has a beta of 1. Hence the movements of returns on a portfolio with a beta of one
will be like the index. If the index moves up by ten percent, my portfolio value will
increase by ten percent. Similarly if the index drops by five percent, my portfolio value
will drop by five percent. A portfolio with a beta of two, responds more sharply to index
movements. If the index moves up by ten percent, the value of a portfolio with a beta of
two will move up by twenty percent. If the index drops by ten percent, the value of a
portfolio with a beta of two will fall by twenty percent. Similarly, if a portfolio has a beta
of 0.75, a ten percent movement in the index will cause a 7.5 percent movement in the
value of the portfolio. In short, beta is a measure of the systematic risk or market risk of a
portfolio. Using index futures contracts, it is possible to hedge the systematic risk. With
this basic understanding, we look at some applications of index futures.

We look here at some applications of futures contracts. We refer to single stock futures.
However since the index is nothing but a security whose price or level is a weighted
average of securities constituting an index, all strategies that can be implemented using
stock futures can also be implemented using index futures.

Hedging: Long security, sell futures

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Futures can be used as an effective risk-management tool. Take the case of an investor
who holds the shares of a company and gets uncomfortable with market movements in
the short run. He sees the value of his security falling from Rs.450 to Rs.390. In the
absence of stock futures, he would either suffer the discomfort of a price fall or sell the
security in anticipation of a market upheaval. With security futures he can minimize his
price risk. All he need do is enter into an offsetting stock futures position, in this case,
take on a short futures position. Assume that the spot price of the security he holds is
Rs.390. Two-month futures cost him Rs.402. For this he pays an initial margin. Now if
the price of the security falls any further, he will suffer losses on the security he holds.
However, the losses he suffers on the security will be offset by the profits he makes on
his short futures position. Take for instance that the price of his security falls to Rs.350.
The fall in the price of the security will result in a fall in the price of futures. Futures will
now trade at a price lower than the price at which he entered into a short futures position.
Hence his short futures position will start making profits. The loss of Rs.40 incurred on
the security he holds, will be made up by the profits made on his short futures position.
Index futures in particular can be very effectively used to get rid of the market risk of a
portfolio. Every portfolio contains a hidden index exposure or a market exposure. This
statement is true for all portfolios, whether a portfolio is composed of index securities or
not. In the case of portfolios, most of the portfolio risk is accounted for by index
fluctuations (unlike individual securities, where only 30-60% of the securities risk is
accounted for by index fluctuations). Hence a position LONG PORTFOLIO + SHORT
NIFTY can often become one-tenth as risky as the LONG PORTFOLIO position!
Suppose we have a portfolio of Rs. 1 million which has a beta of 1.25. Then a complete
hedge is obtained by selling Rs.1.25 million of Nifty futures.

Warning: Hedging does not always make money. The best that can be achieved using
hedging is the removal of unwanted exposure, i.e. unnecessary risk. The hedged position
will make fewer profits than the unhedged position, half the time. One should not enter
into a hedging strategy hoping to make excess profits for sure; all that can come out of
hedging is reduced risk.

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Speculation: Bullish security, buy futures

Take the case of a speculator who has a view on the direction of the market. He would
like to trade based on this view. He believes that a particular security that trades at
Rs.1000 is undervalued and expects its price to go up in the next two-three months. How
can he trade based on this belief? In the absence of a deferral product, he would have to
buy the security and hold on to it. Assume he buys 100 shares which cost him one lakh
rupees. His hunch proves correct and two months later the security closes at Rs.1010. He
makes a profit of Rs.1000 on an investment of Rs. 1,00,000 for a period of two months.
This works out to an annual return of 6 percent. Today a speculator can take exactly the
same position on the security by using futures contracts. Let us see how this works. The
security trades at Rs.1000 and the two-month futures trades at 1006. Just for the sake of
comparison, assume that the minimum contract value is 1,00,000. He buys 100 security
futures for which he pays a margin of Rs.20,000. Two months later the security closes at
1010. On the day of expiration, the futures price converges to the spot price and he makes
a profit of Rs.400 on an investment of Rs.20,000. This works out to an annual return of
12 percent. Because of the leverage they provide, security futures form an attractive
option for speculators.

Speculation: Bearish security, sell futures

Stock futures can be used by a speculator who believes that a particular security is over-
valued and is likely to see a fall in price. How can he trade based on his opinion? In the
absence of a deferral product, there wasn't much he could do to profit from his opinion.
Today all he needs to do is sell stock futures. Let us understand how this works. Simple
arbitrage ensures that futures on an individual securities move correspondingly with the
underlying security, as long as there is sufficient liquidity in the market for the security.
If the security price rises, so will the futures price. Now take the case of the trader who

71
expects to see a fall in the price of ABC Ltd. He sells one two-month contract of futures
on ABC at Rs.240 (each contact for 100 underlying shares). He pays a small margin on
the same. Two months later, when the futures contract expires, ABC closes at 220. On
the day of expiration, the spot and the futures price converges. He has made a clean profit
of Rs.20 per share. For the one contract that he bought, this works out to be Rs.2000.

Arbitrage: Overpriced futures: buy spot, sell futures

As we discussed earlier, the cost-of-carry ensures that the futures price stay in tune with
the spot price. Whenever the futures price deviates substantially from its fair value,
arbitrage opportunities arise. If you notice that futures on a security that you have been
observing seem overpriced, how can you cash in on this opportunity to earn riskless
profits?

Say for instance, ABC Ltd. trades at Rs.1000. One- month ABC futures trade at Rs.1025
and seem overpriced. As an arbitrageur, you can make riskless profit by entering into the
following set of transactions.

1. On day one, borrow funds, buy the security on the cash/spot market at 1000.

2. Simultaneously, sell the futures on the security at 1025.

3. Take delivery of the security purchased and hold the security for a month.

4. On the futures expiration date, the spot and the futures price converge. Now unwind
the position.

5. Say the security closes at Rs.1015. Sell the security.

6. Futures position expires with profit of Rs.10.

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7. The result is a riskless profit of Rs.15 on the spot position and Rs.10 on the futures
position.

8. Return the borrowed funds.

When does it make sense to enter into this arbitrage? If your cost of borrowing funds to
buy the security is less than the arbitrage profit possible, it makes sense for you to
arbitrage. This is termed as cash-and-carry arbitrage. Remember however, that exploiting
an arbitrage opportunity involves trading on the spot and futures market. In the real
world, one has to build in the transactions costs into the arbitrage strategy

Arbitrage: Underpriced futures: buy futures, sell spot

Whenever the futures price deviates substantially from its fair value, arbitrage
opportunities arise. It could be the case that you notice the futures on a security you hold
seem underpriced. How can you cash in on this opportunity to earn riskless profits? Say
for instance, ABC Ltd. trades at Rs.1000. One month ABC futures trade at Rs. 965 and
seem underpriced. As an arbitrageur, you can make riskless profit by entering into the
following set of transactions.

1. On day one, sell the security in the cash/spot market at 1000.

2. Make delivery of the security.

3. Simultaneously, buy the futures on the security at 965.

4. On the futures expiration date, the spot and the futures price converge. Now unwind
the position.
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5. Say the security closes at Rs.975. Buy back the security.

6. The futures position expires with a profit of Rs.10.

7. The result is a riskless profit of Rs.25 on the spot position and Rs.10 on the futures
position.

If the returns you get by investing in riskless instruments are more than the return from
the arbitrage trades, it makes sense for you to arbitrage. This is termed as reverse-cash-
and-carry arbitrage. It is this arbitrage activity that ensures that the spot and futures prices
stay in line with the cost-of-carry. As we can see, exploiting arbitrage involves trading on
the spot market. As more and more players in the market develop the knowledge and
skills to do cash and-carry and reverse cash-and-carry, we will see increased volumes and
lower spreads in both the cash as well as the derivatives market.

2.10 OPTIONS PAYOFFS

The optionality characteristic of options results in a non-linear payoff for options. In

simple words, it means that the losses for the buyer of an option are limited, however the
profits are potentially unlimited. For a writer, the payoff is exactly the opposite. His
profits are limited to the option premium; however his losses are potentially unlimited.
These non-linear payoffs are fascinating as they lend themselves to be used to generate
various payoffs by using combinations of options and the underlying. We look here at the
six basic payoffs.

Payoff profile of buyer of asset: Long asset

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In this basic position, an investor buys the underlying asset, Nifty for instance, for 2220,
and sells it at a future date at an unknown price, once it is purchased, the investor is said
to be "long" the asset.

Payoff profile for seller of asset: Short asset

In this basic position, an investor shorts the underlying asset, Nifty for instance, for 2220,
and buys it back at a future date at an unknown price, once it is sold, the investor is said
to be "short" the asset.

Payoff profile for buyer of call options: call

A call option gives the buyer the right to buy the underlying asset at the strike price
specified in the option. The profit/loss that the buyer makes on the option depends on the
spot price of the underlying. If upon expiration, the spot price exceeds the strike price, he
makes a profit. Higher the spot price more is the profit he makes. If the spot price of the
underlying is less than the strike price, he lets his option expire un-exercised. His loss in
this case is the premium he paid for buying the option.

Payoff profile for buyer of put options: put

A put option gives the buyer the right to sell the underlying asset at the strike price
specified in the option. The profit/loss that the buyer makes on the option depends on the
spot price of the underlying. If upon expiration, the spot price is below the strike price, he
75
makes a profit. Lower the spot price more is the profit he makes. If the spot price of the
underlying is higher than the strike price, he lets his option expire un-exercised. His loss
in this case is the premium he paid for buying the option

2.11 APPLICATION OF OPTIONS

We look here at some applications of options contracts. We refer to single stock options
here. However since the index is nothing but a security whose price or level is a weighted
average of securities constituting the index, all strategies that can be implemented using
stock futures can also be implemented using index options.

Hedging: Have underlying buy puts

Owners of stocks or equity portfolios often experience discomfort about the overall
stock market movement. As an owner of stocks or an equity portfolio, sometimes you
may have a view that stock prices will fall in the near future. At other times you may see
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that the market is in for a few days or weeks of massive volatility, and you do not have an
appetite for this kind of volatility. The union budget is a common and reliable source of
such volatility: market volatility is always enhanced for one week before and two weeks
after a budget. Many investors simply do not want the fluctuations of these three weeks.
One way to protect your portfolio from potential downside due to a market drop is to buy
insurance using put options. Index and stock options are a cheap and easily
implementable way of seeking this insurance. The idea is simple. To protect the value of
your portfolio from falling below a particular level, buy the right number of put options
with the right strike price. If you are only concerned about the value of a particular stock
that you hold, buy put options on that stock. If you are concerned about the overall
portfolio, buy put options on the index.

When the stock price falls your stock will lose value and the put options bought by you
will gain, effectively ensuring that the total value of your stock plus put does not fall
below a particular level. This level depends on the strike price of the stock options chosen
by you. Similarly when the index falls, your portfolio will lose value and the put options
bought by you will gain, effectively ensuring that the value of your portfolio does not fall
below a particular level. This level depends on the strike price of the index options
chosen by you. Portfolio insurance using put options is of particular interest to mutual
funds who already own well-diversified portfolios. By buying puts, the fund can limit its
downside in case of a market fall.

Speculation: Bullish security, buy calls or sell puts

There are times when investors believe that security prices are going to rise. For instance,
after a good budget, or good corporate results, or the onset of a stable government. How
does one implement a trading strategy to benefit from an upward movement in the
underlying security? Using options there are two ways one can do this:

1. Buy call options; or

2. Sell put options

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We have already seen the payoff of a call option. The downside to the buyer of the call
option is limited to the option premium he pays for buying the option. His upside
however is potentially unlimited. Suppose you have a hunch that the price of a particular
security is going to rise in a month’s time. Your hunch proves correct and the price does
indeed rise, it is this upside that you cash in on. However, if your hunch proves to be
wrong and the security price plunges down, what you lose is only the option premium.
Having decided to buy a call, which one should you buy?

Let us take a look at call options with different strike prices. Assume that the current
price level is 1250, risk-free rate is 12% per year and volatility of the underlying security
is 30%. The following options are available:

1. A one month call with a strike of 1200.

2. A one month call with a strike of 1225.

3. A one month call with a strike of 1250.

4. A one month call with a strike of 1275.

5. A one month call with a strike of 1300.

Which of these options you choose largely depends on how strongly you feel about the
likelihood of the upward movement in the price, and how much you are willing to lose
should this upward movement not come about. There are five one-month calls and five
one-month puts trading in the market. The call with a strike of 1200 is deep in-the-money
and hence trades at a higher premium. The call with a strike of 1275 is out-of-the-money
and trades at a low premium. The call with a strike of 1300 is deep-out-of-money. Its
execution depends on the unlikely event that the underlying will rise by more than 50
78
points on the expiration date. Hence buying this call is basically like buying a lottery.
There is a small probability that it may be in-the-money by expiration, in which case the
buyer will make profits. In the more likely event of the call expiring out-of-the-money,
the buyer simply loses the small premium amount of Rs.27.50. As a person who wants to
speculate on the hunch that prices may rise, you can also do so by selling or writing puts.
As the writer of puts, you face a limited upside and an unlimited downside. If prices do
rise, the buyer of the put will let the option expire and you will earn the premium. If
however your hunch about an upward movement proves to be wrong and prices actually
fall, then your losses directly increase with the falling price level. If for instance the price
of the underlying falls to 1230 and you've sold a put with an exercise of 1300, the buyer
of the put will exercise the option and you'll end up losing Rs.70.

Taking into account the premium earned by you when you sold the put, the net loss on
the trade is Rs.5.20. Having decided to write a put, which one should you write? Given
that there are a number of one-month puts trading, each with a different strike price, the
obvious question is: which strike should you choose?

Underlying Strike price of option

Call Premium (Rs.) Put Premium (Rs.)

1250 1200 80.10 18.15

1250 1225 63.65 26.50

1250 1250 49.45 37.00

1250 1275 37.50 49.80

1250 1300 27.50 64.80

In the example, at a price level of 1250, one option is in-the-money and one is out-of-the-
money. As expected, the in-the-money option fetches the highest premium of Rs.64.80
whereas the out-of-the-money option has the lowest premium of Rs. 18.15.

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Speculation: Bearish security, sell calls or buy puts

Do you sometimes think that the market is going to drop? That you could make profit by
adopting a position on the market? Due to poor corporate results, or the instability of the
government, many people feel that the stocks prices would go down. How does one
implement a trading strategy to benefit from a downward movement in the market?
Today, using options, you have two choices:

1. Sell call options; or

2. Buy put options

We have already seen the payoff of a call option. The upside to the writer of the call
option is limited to the option premium he receives upright for writing the option. His
downside however is potentially unlimited. Suppose you have a hunch that the price of a
particular security is going to fall in a month’s time. Your hunch proves correct and it
does indeed fall, it is this downside that you cash in on. When the price falls, the buyer of
the call lets the call expire and you get to keep the premium. However, if your hunch
proves to be wrong and the market soars up instead, what you lose is directly proportional
to the rise in the price of the security.

Payoff for buyer of call options at various strikes

The figure shows the profits/losses for a buyer of calls at various strikes. The in-the-
money option with a strike of 1200 has the highest premium of Rs.80.10 whereas the out-
of-the-money option with a strike of 1300 has the lowest premium of Rs.27.50.

Payoff for writer of put options at various strikes

The figure shows the profits/losses for a writer of puts at various strikes. The in the
money option with a strike of 1300 fetches the highest premium of Rs.64.80 whereas the
80
out-of-the-money option with a strike of 1200 has the lowest premium of Rs.
18.15.Having decided to write a call, which one should you write? Given that there are a
number of one-month calls trading, each with a different strike price, the obvious
question is: which strike should you choose? Let us take a look at call options with
different strike prices. Assume that the current stock price is 1250, risk-free rate is 12%
per year and stock volatility is 30%. You could write the following options:

1. A one month call with a strike of 1200.

2. A one month call with a strike of 1225.

3. A one month call with a strike of 1250.

4. A one month call with a strike of 1275.

5. A one month call with a strike of 1300.

Which of this options you write largely depends on how strongly you feel about the
likelihood of the downward movement of prices and how much you are willing to lose
should this downward movement not come about. There are five one-month calls and five
one-month puts trading in the market. The call with a strike of 1200 is deep in-the-money
and hence trades at a higher premium. The call with a strike of 1275 is out-of-the-money
and trades at a low premium. The call with a strike of 1300 is deep-out-of-money. Its
execution depends on the unlikely event that the stock will rise by more than 50 points on
the expiration date. Hence writing this call is a fairly safe bet. There is a small probability
that it may be in-the-money by expiration in which case the buyer exercises and the
writer suffers losses to the extent that the price is above 1300. In the more likely event of
the call expiring out of-the-money, the writer earns the premium amount of Rs.27.50. As
a person who wants to speculate on the hunch that the market may fall, you can also buy
puts.

As the buyer of puts you face an unlimited upside but a limited downside. If the price
does fall, you profit to the extent the price falls below the strike of the put purchased by
you. If however your hunch about a downward movement in the market proves to be
wrong and the price actually rises, all you lose is the option premium. If for instance the
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security price rises to 1300 and you've bought a put with an exercise of 1250, you simply
let the put expire. If however the price does fall to say 1225 on expiration date, you make
a neat profit of Rs.25.

Having decided to buy a put, which one should you buy? Given that there are a number
of one-month puts trading, each with a different strike price, the obvious question is:
which strike should you choose? This largely depends on how strongly you feel about the
likelihood of the downward movement in the market. If you buy an at-the-money put, the
option premium paid by you will by higher than if you buy an out-of-the-money put.
However the chances of an at-the-money put expiring in-the-money are higher as well.

One month calls and puts trading at different strikes

The spot price is 1250. There are five one-month calls and five one-month puts trading in
the market. The call with a strike of 1200 is deep in-the-money and hence trades at a
higher premium. The call with a strike of 1275 is out-of-the-money and trades at a low
premium. The call with a strike of 1300 is deep-out of- money. Its execution depends on
the unlikely event that the price will rise by more than 50 points on the expiration date.
Hence writing this call is a fairly safe bet. There is a small probability that it may be in-
the-money by expiration in which case the buyer exercises and the writer suffers losses to
the extent that the price is above 1300. In the more likely event of the call expiring out-
of-the-money, the writer earns the premium amount of Rs.27.50. Figure 4.12 shows the
payoffs from writing calls at different strikes. Similarly, the put with a strike of 1300 is
deep in-the-money and trades at a higher premium than the at-the-money put at a strike of
1250. The put with a strike of 1200 is deep out-of-the-money and will only be exercised
in the unlikely event that the price falls by 50 points on the expiration date. The choice of
which put to buy depends upon how much the speculator expects the market to fall.

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Price Strike price of option

Call Premium (Rs.) Put Premium (Rs.)

1250 1200 80.10 18.15

1250 1225 63.65 26.50

1250 1250 49.45 37.00

1250 1275 37.50 49.80

1250 1300 27.50 64.80

Payoff for seller of call option at various strikes

The figure shows the profits/losses for a seller of calls at various strike prices. The in-the-
money option has the highest premium of Rs.80.10 whereas the out-of-the-money option
has the lowest premium of Rs. 27.50.

Payoff for buyer of put options at various strikes

The figure shows the profits/losses for a buyer of puts at various strike prices. The in-the-
money option has the highest premium of Rs.64.80 whereas the out-of-the-money option
has the lowest premium of Rs. 18.50.

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 3 Analysis & interpretation

Q -1 where do you invest your saving?

• Share
• Mutual funds
• Bonds
• Derivative

Derivative
10%
Share
Bonds Mutual fund
20% Share
Bonds
45%
Derivative

Mutual fund
25%

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INTERPRETATION

In above pie chart we can understand easily that mostly investor invests in share then they are
interested to invest in mutual fund. And in derivative market very few investor are interested to
invest in derivative market.

Q -2 Are you aware of online religare trading?

• Yes
• No

YES
NO NO
45%
YES
55%

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INTERPRETATION

In market survey we find that 55% of people are known about the religare online trading

and 45% of people are not aware of online trading in religare.

Q – 3. Heard about religare?

• Yes

• No

NO
28%

YES
NO

YES
72%

INTERPRETATION

In market survey we find that 72% of people heard about the religare co.
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and 28% of people are not aware of religare co.

Q – 4 Do you know about the facilities provided by religare?

• Yes
• No

YES
YES NO
47%
NO
53%

INTERPRETATION

HERE, 47% of people known about the facility which is provided by religare.but 53%of people
are not aware of the facility of religare.They are interested to know about the facility which is
provided by the religare to investor. But lack of sources they don’t get the proper knowledge about
the religare facility.

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Q –5 With which company do you has demat account?

• Religare
• ICICI Direct
• India bulls
• Sharekhan
• Others

Others RELIGARE
10% 25% RELIGARE
Sharekhan ICICI Direct
23% India Bulls
Sharekhan
India Bulls ICICI Others
15% Direct
27%

INTERPRETATION

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HERE, to see the pie chart we understand easily that the ICICI Direct has maximum proportion.
Which shows that investors are more interested to invest in ICICI Direct then others. Then in
second no.religare comes religare have 25% of the total survey. In third no. sharekhan company
which has 23% of total market. Then 15% in India Bulls. Then 10 % to other companies.

Q –6. Are you currently satisfied with your share trading company?

• Yes

• No

YES YES
40%
NO

NO
60%

INTERPRETATION

In market survey we find that 40% of people are satisfy with their share trading company
89
and 60% of people are not satisfy with their share trading company.

Q –7 what percentage of your earning do you invest in share trading?

• Up to 10%
• Up to 25%
• Up to 50%
• Above 50%

Above
50%
15%
Up to 10%
Up to 10%
35%
Up to 50% Up to 25%
20% Up to 50%
Above 50%
Up to 25%
30%

INTERPRETATION

IN Market survey we known that how much invest by investor in share market. For above pie
chart its shows that how much the investor invests their earning in share market.

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 Q – 8. What kind of investment risk do you prefer?

•More Risk More Return

•Moderate Risk Moderate Return

•Less Risk Less Return

More Risk
More Return
Less Risk More Risk
Less Return More Return
24% 22%
Moderate
Risk
Moderate
Return
Less Risk
Less Return
Moderate
Risk
Moderate
Return
54%

INTERPRETATION

In market survey we find that 22% want more risk more return, 24% want less risk less return

91
and 54% want moderate risk moderate return.

Q – 9. Do you survey the market risk before investing your money?

• Yes

• No

YES
YES NO
43%
NO
57%

INTERPRETATION

In market survey we find that 43% of people survey the market risk before investing your money

and 57% of people are not survey the market risk before investing your money.

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Q – 10. Are you satisfied with the kind of returns and features associated with your investment?

• Yes

• No

YES
NO
NO
47% YES
53%

INTERPRETATION

In market survey we find that 53% people are satisfied with returns and features associated with
your investment and 47% of people are not satisfied with returns and features associated with your
investment.

93
4 FINDINGS

On analyzing all the information collected through questionnaire, conversation with

investors, articles from economic surveys and journals and discussions with faculty and
experienced professionals in details, I find some very crucial things about investors
thinking and perceptions (Consumer Behaviors) regarding their investment decisions.

Some of these findings are as follows:

• Investors of FD and depositors with Banks and Post Office’s are not very much
satisfied with their returns and the kind of services they get from them. So we
(stock broking company) should must try to capture this market investors. For that
we have to create awareness, advertise more, and approachability to customers.
• The biggest advantage of derivative trading is that you can buy stocks in future
trading by paying only 20% or 30% of the price. That means if you are buying a
stock of Rs.10 each and the lot contains 1000 stocks you can pay only Rs.2000 to
Rs.3000 to buy the lot. Whereas, the stock price in that cases would have been
Rs.10000. So, you are gaining more profit at a time without investing more
money.
• In case of derivative trading you can short sell the stocks. That means you can
first sell the lot of stock and then buy them back within the stipulated time to
honor the contract. In case of an overvalued stock that are sure to fall in near
future, you can gain from short selling. This is an option that you can not get in
equity trading unless you are doing intraday trading.

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 • In future trading the brokerage is usually lower than the equity trading. As you are
buying the stocks in a lot the brokerage is calculated not on the unit of the stocks
but on the unit of the lot.

4Conclusions

In this project I have learned about the major types of derivatives and that the derivative
can be used as a risk management tool. One of the main reasons for the popularity of
derivatives is its risk hedging features.

One should however careful while using derivatives because wrong use of the same can
result in unlimited risk. There can be no doubt that derivatives are powerful tools for
risk management if used properly. However, derivatives can produce disastrous results.
There are several characteristics of derivatives, which necessitate very careful
management of exposures .first and foremost, derivative instrument are highly ‘geared’.
because of this, it is possible to lose far more than one’s original capital in a derivative
transaction. In a normal business deal, with a capital of rs.10 million the maximum loss
that can be suffered is rs.10 million or there abouts.however, if rs.10 million is
deployed in a transaction, it is quite possible to lose rs.100 million that is, 10 times the
value of the capital put in. This is the single most important reason why derivative
transactions require a much tighter supervision and control mechanism. Secondly,
derivative markets move at great speed. The markets are open virtually on a 24 hour
basis, due to the integration to various exchanges across the world. Big price
movements can occur overnight. Every firm and individuals who uses derivatives must
therefore exercise considerable caution and care in handing its derivative exposures.

There is no question on the existence and need for derivatives as an instrument of risk
management, but a part this risk is manmade, and can be effectively controlled at the
macro level. The growing fierce competition in the derivative markets of today
95
 certainly improves trading conveniences and lower transaction costs but at the same
time this may mean increasing number of frauds. The exchange is therefore required to
keep a tight control over to check such happenings

5 APPENDICES

5.1 QUESTIONNAIRE

PERSONAL DETAIL

NAME:

AGE:

CONTACT NO:

ADDRESS NO:

1. WHERE DO YOU INVEST YOUR SAVING?

• Shares

• Mutual funds

• Bonds

• Derivative

2. Are you aware of online religare trading?

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 • Yes

• No

3. Heard about religare?

• Yes

• No

4. Do you know about the facilities provided by religare?

• Yes

• No

5. With which company do you have demat account?

• Religare

• ICICI Direct

• India Bulls

• Sharekhan

• Others (please specify)………………….

6. Are you currently satisfied with your share trading company?

• Yes

97
 • No

7. What percentage of your earning do you invest in share trading?

• Upto 10%

• Upto 25%

• Upto 50%

• Above 50%

8. What kind of investment risk do you prefer ?

• More Risk More Return

• Moderate Risk Moderate Return

• Less Risk Less Return

9. Do you survey the market risk before investing your money?

• Yes

• No

10. Are you satisfied with the kind of returns and features associated with your
investment?

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• Yes

• No

5.2 BIBLIOGRAPHY

• Rm equity training manual: religare securities ltd

• Derivative module: NCFM

• http:// www.commoditymarket.com

• http:// www.moneycontrol.com

• http:// www.nseindia.com

• http:// www.religaresecurities.in

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• http:// www.bseindia.com

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