PART A

1. Industry Profile

Financial service is a process by which funds are mobilized from a large number of savers

and make them available to all those who are in need of it and particularly to corporate

customers. In general all types of activities which are financial in nature could be brought

under the term financial services. A well developed financial services industry is absolutely

necessary to mobilize the savings and to allocate them to various investible channels and

thereby to promote industrial development in a country.

The Indian financial services industry has undergone a metamorphosis since 1990. During the

late 70s and 80s the Indian financial service industry was dominated by commercial banks

and other financial institutions. Only the economic liberalization has brought in a complete

transformation in the Indian financial services industry. Prior to the liberalization, the Indian

financial service sector was characterized by many factors.

Classification of Financial services industry

The financial services in India can be traditionally classified into two:

1. Capital market intermediaries

2. Money market intermediaries.

The financial services cover a wide range of activities. They can be broadly classified into

two namely:

1. Traditional activities

2. Modern activities

Traditional activities: traditionally the financial intermediaries have been rendering a

wide range of services encompassing both capital and money market activities. They can

be grouped under two heads.

a. Fund based activity

b. Non fund based activity

Fund based activity: Traditional services that come under fund based activities are:

Underwriting of or investment in shares, debentures, bonds etc. of new issues.

Dealing in secondary market activities.

Participating in money market instruments like commercial papers, certificate of

deposits, treasury bills, discounting of bills etc.

Involving in equipment leasing, hire purchase, venture capital, seed capital etc.

Dealing in foreign exchange market activities.

Brokerage Industry

The basic function of a brokerage firm is to execute buy and sell orders for clients. The

brokerage industry continues to develop rapidly. Now a days the brokerages are well known

and long-established entities or institutions. The SEBI makes it mandatory that all the trading

in stocks must be routed through a broker only; no individual can trade in the secondary

market without the brokers. The brokerage industry is grown a lot in the recent years. These

brokerage houses differ enormously in the type of clientele they attempt to attract. The

brokerage houses with their number of products to offer to the customers have been

successful in attracting a large number of clients. Some try to develop business with investors

of modest means who are primarily interested in buying and selling odd lots; others seek

wealthier customers and still others are interested primarily in soliciting institutional

business. These differences are apparent in the public advertising of the brokerage firms.

Most brokers appear to offer same services, to an average investor; all firms appear equally

efficient in executing orders. Differences lies in what extra that a business can give to its

customers.

Most brokerage firm has research departments. The staff in these departments varies from a

large group of full-time, highly competent analysts to relatively uninformed persons who

process the analytical work of others and in effect turn out second hand analyses. The

research reports of certain houses are obviously written for general public reading, while

other houses turn out detailed and sophisticated evaluation aimed primarily at analysts for

large institutions.

Many firms combine their regular brokerage business with a volume of activity as

underwriters of new corporate securities. For an investor who is interested in purchasing new

issues, such a house is desirable.

The brokerage offices are the registered representatives for dealing in the stock exchanges. One can evaluate the representative by enquiring into his business and educational background and his investment philosophies and goals. An investor should also determine whether the representative is available at all times during business hours and should make sure that this individual is not so overburdened with other accounts that he will be unable to give the investor sufficient attention

2. Company Profile

a) Background and inception of the company

It was always the Group’s endeavour to emerge as a financial supermarket providing diverse financial products to suit different class of clientele. In the year 2008, the Securities market witnessed the unique launch, of the Muthoot Securities Limited, launched with 61 branches simultaneously on the opening day. The Company is all set to conquer the Market with its State of the Art technology and team of dedicated professionals.

The Company has already made an impact in the Kerala Market and it is now spreading its wings to other states as well. By this time, the investing public has already accepted MSTL as an important and reliable player in the Securities’ Market.

MSTL brings to the highly competitive Securities Trading business, its robust financial strength, experienced professional team, legendary trust of a vast customer base of the Group and an enduring commitment to values. MSTL has positioned itself as a different service provider with unremitting attention and providing the customers a world-class service.

It strongly believes that the Indian growth story will continue to gather momentum while growth slows down in the western hemisphere, offering equity investors opportunities to take in return far more than those in other asset classes. MSTL will build its strength offering to the customers, market insights through a dedicated research team and will strive to build customer loyalty on the platform of right service at the right time.

b) Nature of business carried

Muthoot Securities Ltd is a stock broking firm primarily engaged in buying and selling of

shares/stocks. The Muthoot Securities is also engaged in selling various other products like

mutual funds, Insurance policies, Bonds etc

c) Vision, Mission and Quality Policy

Vision

The Muthoot Group has had the singular honour of securing market leadership in all the financial service space it had entered. Through Muthoot Securities Ltd, they shall achieve leadership by positioning it as a highly professional outfit dedicated to service excellence, unflinching compliance to regulatory norms and sustained customer education

Values and Beliefs

We understand and respect customer needs to consistently deliver total quality

solutions through constant skills upgradation.

We believe that our company culture helps to attract and retain the best talent.

We uphold uncompromising ethical standards and strive to maintain a distinctive identity in

public mindshare through innovation and quality.

We are committed to achieve profitable progress, consistently.

We freely share our investment experience across all ages and strata of society to encourage a

wise investment for a better future.

d) Products and services

A strong brand certainly boosts sale, but without customer-friendly, innovative products,

even the best brand would not last long. It has thus built a flexible portfolio of products that

can be customized to cater to varying needs of people. The company’s philosophy has been to

help customers understand their financial needs and work closely with them to customize a

product that would meet. The products and services offered by the company are:

Equities

Derivatives

Internet Trading

Portfolio Management Services

Commodity Trading

Depository Services

Mutual Funds

IPO Services

Life Insurance

Margin Funding

Currency Trading

PAN Card Services

(i) Equities & Derivatives

The company offers automated online trading services and also a strong offline

presence. Moreover Call & Trade facility enables clients to place and track their orders

through the dedicated Customer Care Desk. The clients can also benefit from professional

advice from the research desk including daily SMS alerts, market pointers, periodical

research reports and stock recommendations

(ii) Portfolio Management Services

The Muthoot Securities Ltd is a SEBI registered Portfolio Manager. The company

offers a discretionary Portfolio Management Services (PMS). The PMS is backed by strong

Equity Research, and, Fundamental & Technical Analysis. The portfolio and NAV is

reported weekly as at the close of business on Fridays through e-mail or on request.

(iii) Internet Trading

The online trading system allows customers to track the markets by setting up their own

market watch, receiving research tips, stock alerts, real-time charts and news and many more

features enable the customer to take informed decisions.

There are two types internet trading they are:

Royal M-Trade: It is a software based trading. Here customer is provided with

ODIN software for trading.

Classic M-Trade:It is web base trading.

The online Trading Screen gives a whole lot of information to the viewer or the client. Some

of this information is detailed below.

There is easy access to NSE | BSE | NSEFO | Mutual Funds,

Market Watch for real time rates, Buy | Sell | View Market Information, Follow Order

Status | Real Time Positions View, Place Market | Limit | Stop Loss Orders as well as

Place Cash and Margin orders. View Order Book, Corporate actions, Research reports

and Market Pointer, Indices, View Exchange Messages and also Intraday and End of

Day charts.

Bank available for Online Fund Transfer:

Federal Bank

(iv) Mutual funds

Mutual fund is a pool of money collected from investors and is invested according to

stated investment objectives.

Various mutual funds available at Muthoot Securities Ltd are

Reliance Mutual Fund:

Reliance Mutual Fund, a part of the Reliance – Anil Dhirubhai Ambani Group,

is one of the fastest growing mutual funds in the country.

HDFC Mutual Fund:

HDFC Asset Management Company Limited (AMC) was incorporated under

the Companies Act, 1956, on December 10, 1999, and was approved to act as an

Asset Management Company for the Mutual Fund by SEBI on June 30, 2000. The

sponsor HDFC was incorporated in 1977 as first specialized housing finance

institution in India.

Franklin Templeton Mutual Fund:

Franklin Templeton Investments is one of the largest financial services groups

in the world based at San Mateo, California USA. Franklin Templeton has 73

schemes out of which 37 are equity schemes. Franklin Templeton Prima Plus,

Franklin Flexi Cap, Franklin Tax Shield are some of best performing schemes from

the Fund House.

SBI Mutual Fund:

SBI Mutual Fund is India’s largest bank sponsored mutual fund. SBI Mutual

Fund is a joint venture between the State Bank of India and Société Générale Asset

Management, one of the world’s leading fund management companies.

Sundaram BNP Paribas Mutual Fund:

Sundaram Finance Ltd. was incorporated in 1954 with a nationwide network

of nearly 170 branches. Schemes like Sundaram Select Midcap is first branded

Midcap Product, SBNPP Select Focus and Capex etc are some of its famous funds

that have performed quite well since inception.

Tata Mutual Fund:

Tata TD Waterhouse Asset Management Private Limited is a Joint Venture

between Tata group and Canadian Major TD Waterhouse.

UTI Mutual Fund

Religare Aegon Mutual Fund

HSBC Mutual Fund

Principal PNB Mutual Fund

ICICI Mutual Fund

Birla Sunlife Mutual Fund

DSP Blackrock Mutual Fund

Kotak Mahindra Mutual Fund

(v)Margin Funding

This facility is offered to all offline clients under the scheme of Margin Funding

approved by SEBI. Margin funding of up to 50% of the purchase value is permitted.

(vi) Commodity

Muthoot Securities Ltd offers futures trading in various commodities such as:

Agri commodities: oilseeds, soya, groundnut, pulses, rice, wheat, spices, Rubber, guar, pepper, cardamom, coffee, etc.

Precious metals : gold and silver

Base metals : steel, aluminium, nickel, zinc, copper, etc

Energy products: crude oil and furnace oil

e) Area of operation

The operations of Muthoot Securities are spread all over with a strong network of over 130 branches in India and abroad. Muthoot Securities Ltd has, in a short span of time rapidly grown and today occupies a significant position in the stock market arena. With dedicated branch network of 130, it is today able to reach out to customers in nearly every nook and corner in Kerala and Tamil Nadu and is rapidly spreading across Karnataka and Maharashtra.

Muthoot Securities Ltd is today a member of the National Stock Exchange, The Stock Exchange, Mumbai, the MCX Stock Exchange, the Central Depository Services Ltd and the National Securities Depository Ltd. It has also been granted a licence to commence Portfolio Management Services (PMS).

f) Ownership Pattern

Nature of relationship Name of the related party

Holding Company Muthoot Group

Fellow Subsidiaries Financial Services

Wealth Management

Money Transfer

Forex

Securities

InfoTech

Media

Healthcare

Education

Power Generation

Leisure & Hospitality

Vehicle & Asset Finance

Plantation & Estates

Travel Services

Precious Metals

Housing & infrastructure

Muthoot Global

Muthoot money

Key management

personnel

M.G.George Muthoot - Chairman

George Alexander Muthoot- Managing Director

G.R. Ragesh –Designated Director

Manoj Jacob-Designated Director

P.S. Sathyan-CEO

g) Competitors information

There innumerable competitors in the stock broking business. However there are some

prominent names that are very strong brokerage houses operating in India. All these firms are

high net worth firms with high level operational facility. All these firms are recognized as big

brands in the brokerage industry. They are appreciated for their operations, products,

customer services, transparency in the dealing, research etc. Some of the big names in the

Indian stock broking industries are:

Karvy Securities

Kotak Securities ltd

India infoline

Sharekhan

Anagram

Angel broking

Stock Holding Corporation of India (SHCIL)

Progressive

Anand Rathi

JRG securities

Raligear

Geojit

h) Infrastructural Facilities

All branches of Muthoot Securities Ltd have state-of-the-art infrastructural facilities.

Employees are provided with facilities such as telephone, internet access, air-cooled. All the

branches are fully computerized and are provided special IT infrastructural facilities. All the

branches are well equipped with trading terminals- computers to facilitate trading.

In the Udupi branch alone there are four terminals engaged to trade in NSE (National stock

exchange), One for BSE (Bombay stock exchange) and one for commodity. Connectivity for

internal trading is provided through V-sat. Proper power backup facilities are provided in

order to maintain a continuous power supply.

i) Awards and Achievements

Achievements:

Muthoot securities Ltd is the one which deal not only with commodity but also

physically providing gold to its customer through our own center (Muthoot Securities

got the special permission from MCX exchange).

Within one year after incorporating they introduced Portfolio Management Services

Muthoot Securities recently started its own Research Department in Equity %

Commodities segment.

j) Work flow model (End to End)

Client registration

Welcome Kit

Trades

Confirmation of Trades

Contract notes

Pay-in/pay-out of funds/shares

j) Future growth and prospectus

There is a lot of scope for growth in the market. The company has well established itself in

the south India. Many numbers of branches have also been operational in North India.

Since the Indian economy is showing the sign of development lot of prospective investors

have found the situations ideal for investment. The information regarding the investment

opportunities available in India have made things easier for an individual to invest.

Thus the company has a great opportunity to grow with the emerging market and

establish its business strongly in the northern and eastern parts of India. The company is also

well operational in gulf region which opens the company to newer international territories.

The company is planning to open 500 franchises and 100 branches all over India in

the next financial year.

Mckinsey’s 7S Framework

According to waterman et al., organizational change is not simply a matter of structure,

though it is a significant variable. Again it is also not a simple relationship between strategy

and structure, although strategy is also a critical aspect. In their view effective organizational

change is a complex relation between Strategy, Structure, Systems, Style, Skill, Staff and

Shared Values.

McKinsey’s 7S framework provides a useful framework for analyzing the strategic attributes

of an organization.

Those seven elements are distinguished in so called hard S’s and soft S’s. The hard elements

(green circles) are feasible and easy to identify. They can be found in strategy statements,

corporate plans, organizational charts and other documentations. The four soft S’s however,

are hardly feasible. They are difficult to describe since capabilities, values and elements of

corporate culture are continuously developing and changing. They are highly determined by

the people at work in the organization. Therefore it is much more difficult to plan or to

influence the characteristics of the soft elements. Although the soft factors are below the

surface, they can have a great impact of the hard Structures, Strategies and Systems of the

organization.

1. Structure

The design of an organizational structure is a critical task of the top management of

an organization. It is the skeleton of the whole organization edifice. Organizational structure

refers to the relatively more durable organizational arrangements and relationships. It

prescribes the formal relationships among various positions and activities. Arrangements

about reporting relationships, how an organizational member communicates with other

members, and what roles he/she has to perform and what rules and procedures exist that

guide the various activities performed by members are all part of the organizational structure.

Overall organizational structure

Board Of Directors

Name Designation

M.G. George Muthoot Chairman

George Alexander Muthoot Managing Director

George Jacob Muthoot Joint Managing Director

K.P. Padmakumar Executive Director

K.R. Bijimon General Manager

Chairman

Managing Director

Board of Directors

Management

Chief of Executive Chief of Distribution Chief of Finance

Chief of H.R Chief of Civil Chief of Technology

G.R.Ragesh Designated Director

Manoj Jacob Designated Director

P.S. Sathyan Non-executive Director

Mr.Satish Menon Chief Executive Officer

Audit Committee

The company has their own separate audit committee

Bankers

Muthoot Finance

Sub structure of various departments in Muthoot Securities Ltd

The sub structure of Muthoot Securities Ltd is spread in each state. Business

Development Manager holds the control of all the operations in the state. He has to in turn

report to the chiefs of the department at the corporate office.

The structure shows how the company is able to manage its staff and also

involves everyone in the decision making process.

Business Development Manager

Bangalore Mangalore Udupi

Branch Incharge Branch Incharge Branch Incharge

Staff Staff Staff

There are various functional departments at Muthoot Securities Ltd. They are:

A. Operations Department

The department is headed by the chief of operations officer for stock broking,

Commodity futures, PMS, Research, Depository and Call centre. The Operations department

oils the work processes between the customer and the company to ensure consistent and

quality service to the customer. To streamline the operations, the Operations department

interfaces between the clients, the branches, and manages work processes. A detailed

procedural anatomy of the operations department is,

1. Client Registration form (KYC- Know your client form) and Agreement (MCA-

Member Client Agreement).

The company has to maintain the database of all the registered clients, for which they have to

get the client registration form completed in all respects with necessary supporting

documents.

In case of an individual client registration, following information must necessarily be

furnished by the client.

Name, date of Birth, photograph, address, educational qualifications, occupation, residential

status (Resident Indian/NRI/Others)

Unique identification Number (wherever applicable)

Bank and Depository account details

Income Tax number-PAN/GIR (which also serves as client code)

If registered with any other broker, then name of the broker and concerned stock exchange

and Client Code number.

Proof of Identity. Following may be provided:

MAPIN UID card

PAN number

Passport

Voter ID

Driving license

Photo Identity card issued by Employer registered under MAPIN

In case of a corporate client account, following information has to be provided by the

corporate body:

Name, address of the Company/Firm

Unique Identification Number

Date of Incorporation and date of commencement of business.

Registration Number (with ROC, SEBI or any Government authority)

Details of PAN account number

Details of Promoters/Partners/Key managerial Personnel of the Company/Firm in specified

format.

Bank and Depository account details

Copies of the Balance sheet for the last 2 years

Copy of latest share holding pattern including list of all those holding more than 5% in the

share capital of the company, duly certified by the Company secretary/ whole time

director/MD(Updated shareholding pattern)

Copies of the Memorandum and Articles of Association in case of a company/body

incorporate/partnership deed in case of a partnership firm.

Copy of resolution of Board of directors’ approving participation in equity/derivatives/debt

trading and naming authorized persons for dealing in securities.

Photographs of Partners/whole time directors, individual promoters holding 5% of more,

either directly of indirectly, in the shareholding of the company and of persons authorized to

deal in securities.

If registered with any other broker, then the name of broker and concerned Stock exchange

and Client Code Number.

II. Unique Client Code

The Company in order to maintain the database of the clients, it becomes mandatory

for the company to use a unique client code, which will act as an exclusive identification for

the client. With this purpose, PAN number/passport number/driving license/voters ID

number/ration card number coupled with the frequently used bank account number and the

depository beneficiary account can be used for identification, in the given order, based on

availability.

Trading Department

The trading department is responsible for all the trade related issues. Its main

activities are issuing of contract notes, accepting order slips, maintaining order and trade files

etc.,

Contract Notes:

The contract note is a document through which is a contractual obligation is

established between a broker and a client. It helps in settling all the disputes between broker

and client. The contract notes are issued within 24 hours of execution of the trades and

acknowledgement is obtained from the client for having received the contract note.

All the offices maintain a proper record for dispatch of contract notes to the clients

and preserve duplicate copies of the same along with the proof of delivery for the period of

two years. The contract notes are dispatched from the head quarters directly, however hand

delivery notes are issued on the request of the clients.

Order slip: Dealers collect the order slip from the client before executing the order.

Order & Trade file: All the offices maintain the Order & Trade file on a daily basis for each

segment.

\

Confirmation of trades

All offices shall be required to maintain a record regarding the confirmation of the trades

given to the clients on the transaction day itself. The confirmation is given to the clients by

hand delivery or over telephone.

NRI Clients

There are two types of NRI accounts Through the Portfolio Investment Scheme (PIS). These

NRI clients’ transactions are done through designated banks only.

NRO- If the client operates the Trading A/c in NRO status, his/ her bank A/c and DP A/c

must also be on the NRO status.

NRE- If the client operates the Trading A/c in NRE status, his/her bank a/c and DP a/c must

also be in the NRE status.

Client Summary

All the offices shall tally the client summary reports with H.O records on settlement wise and

keep a record for the same. The client summary Report can be taken from the back office

system,

.This

verification will help to find the missing trades/carry over transactions in the back offices.

Error trades and Bulk Trades

All the errors are transferred to the error A/c should be informed to the Inspection

Department at HO/RM on the same day itself. When there are bulk trades it must be reported

to the HO clearing Department immediately upon execution of the same.

Depository Department

Maintenance of registers

All the offices are required to maintain the following registers with continuous updating of

the information regarding existing clients, new clients. This includes all the details of the

client like name, bank account information, number of transactions or number of shares held

by the client etc. and provides for or updates any changes if necessary. All these information

is to be maintained properly.

Trading Module Reports Summary Client Summary

The following forms are available with the Depository department

Depository account opening

Dematerialization request form

Account closing form

Pledge request form

Rematerialization request form

A. Demat Request Register: It contains the complete details of the shares sent for

demat to HO.

B. Demat request rejection register: It contains the complete details of the rejected

shares such as quantity of shares, reason for rejection and the date of return of the

shares to the clients with their acknowledgement. All the rejections are informed to

the clients immediately and the shares are delivered within the prescribed time limit.

In case the rejected shares are not delivered to the clients, they are immediately sent to

the HO. The branch is not authorized to keep the rejected shares. Monthly status of

rejected shares is to be informed to the HO as per the rules.

C. A separate book is maintained for issuing the DIS book- Delivery Instruction slip.

Keeping the Blank signed DIS is not authorized. Date and time if the receipt is

important while accepting the DIS, so these things should be clearly mentioned.

B. Finance Department

The finance department is headed by the chief of Finance officer for finance and

Accounts, Risk and Settlement and NBFC operations.

Risk & Clearing Department

Pay-in and Pay-out of shares

All the pay-in of funds and securities are to be collected from the clients on the

transaction day or the very next day itself. Wherein the pay-in of funds is due from the

clients, they are to be received from the respective clients account only.

All the pay-out of funds & securities are to be credited to the clients account within 24

hours from the pay-out date. If there are any dues to the clients they are to be made to

respective clients’ account only. A registrar is maintained of the pay-out cheques with full

details and clients’ signature and date. It will also be an acknowledgement for the issuing.

Movement of shares

The report regarding the share delivery/ receipt report is continually updated in the

back office system. While checking on the T+3rd day, there should not be any receipt/delivery

pending for any client.

Accounts Department

Maintenance of Bank Accounts

There is a need to maintain or make file of all the bank receipts. The bank accounts

are weekly reconciled and if there is anything remaining pending in the reconciliation report,

it is cleared at the earliest. All the bank receipts should be filed properly. A system generated

receipt is issued to the clients with seal and signature of the authorized person and the

duplicate copies of the cheque receipts are properly maintained.

Cash collection is allowed only in Depository services. The cash collected is

deposited in the bank on the same day of receipt or the next day. A cash denomination

register is also maintained in the department. A system generated receipt is issued to the

clients with seal and signature

General cash and petty cash a/c.

The general cash book and physical cash must tally in the denomination register. Must

tally physical cash with Petty cash book and denomination register. All the expenses are

supported by bills.

NBFC

The company is also providing non banking financial services to its clients. The

company provides facility such as loans against shares and commodities. The clients are

given loans based on the amount of share held. The client can avail the opportunity for

buying shares and trading in commodity.

C. Distribution department

The distribution department of Muthoot Securities is headed by the head of

distribution or sales of mutual funds, IPOs insurance, Bonds, Fixed deposits, PMS, and

development of Channel partners.

Department of distribution in Muthoot Securities Ltd is responsible for an array of

activities: sales, TV commercials, press and outdoor hoardings, news articles, product

brochures, direct mail or on-ground activities. . Aiding other departments, working with

different teams within the organization, understanding problems and finding solutions from a

business perspective, providing actionable insights based on statistical deduction and

analytical thinking is the way the research team operates!

Product Development

The product development team, structures products uniquely to strike a chord with

customers. It then supports the sales of these products through continuous competitor

comparisons, market insights, benefit illustrations, sales stories and on-ground help.

Direct Marketing

Direct marketing taps databases to generate high quality leads for profitable business,

mainly through telemarketing. The philosophy is to be innovative and be interactive, cut

through the clutter and inspire action.

As there are various products offered by the company, the department is responsible

for the sale of Mutual funds, Insurance, Bonds, IPO’s, Fixed deposits, PMS etc. There are

sales executives who carry out these operations. However the dealers in the company also

carry out the same as they have a close contact with the customers and that they closely know

the needs of the customer. Largely there is no separate division called marketing division at

branch level as every employee is also performing the job of marketing.

D. Technology department

It is headed by the Chief of technology officer. The technology department is an

important division in the company It is responsible for the Information Technology and

systems. In Muthoot Securities Ltd computer play a very significant role. All its operations

are inevitably processed with the help of computers only. As the company is continuously

engaged in buying and selling of shares on behalf of its customers it becomes necessary on

the part of the company to have an efficient technology support. The company is mainly into

brokering, has to place orders of the customers. These orders are executed on the internet

which is directly connected to the respective exchanges. Therefore in order to maintain a

continuous network it is the duty of technology department. Moreover the technology

department has to continuously update its technical viability.

E. Other Department

The various other departments include legal department, Compliance, administration,

Company secretariat, and Corporate communication.

Legal Department: Legal department is set up in order to see that there is a smooth

flow of operations without any hassles in the day to day activities. The employees being the

major assets of the organization, it is necessary that all the employees must obey the laws,

regulations, rules, policies, procedures adopted by the company. Any violation of standards

of conduct or commission of misconducts will be subjected to corrective action up to and

including termination.

The legal department also takes care of the legal requirements of the company with

the outsiders. However if there are any disputes between the clients and the company, the

legal department has to interfere into it and inspection is conducted. Valid action would be

taken based on the findings.

Compliance department: All the matters concerning to the clients are handled in the

compliance section. When the client posts any requests, complaints, suggestions etc. the

compliance department makes a note of it. Any dispute with the branch or company and the

client is also handled in the compliance department. It is the duty of compliance officer to

make good all the disputes, listen to all the general queries and suggestions.

.

2. Strategy:

Strategy defines key actions and capabilities along the major dimensions of marketing

product and services development, sales and channel distribution, business system and

processes, and management of alliances and partnerships. Strategic thinking involves the

understanding of basic economics of business, identifying ones sources of competitive

advantage, and allocating resources to ensure that ones distinctive capabilities remain strong.

Strategy’s most important contribution is searching for, and redefining, context. Strategic

thinking also creates a readiness to exploit unforeseen opportunities.

The concept strategy includes purposes, missions, objectives, goals and major action

plans and policies. According to proponents of McKinsey framework, super ordinate goals

refer to a set of values and aspirations that goes beyond the conventional formal statement of

corporate objectives. Super ordinate goals are the fundamental ideas around which a business

is built. They are its main values. They are the board of notions of future directions. That is

the way the top management as a team wants to express itself.

The major strategy the firm applies is less brokerage charges both for internet trading

and physical trading. The firm charges Rs.50 per lot for the futures trading which can attract

the customers. The company strongly believes in technology upgradation. Upgradation of

technology ensures efficient management of operations, higher level of transparency in the

deals. Technology upgradation retains the existing client base in addition to an increase in

new prospective clients.

The firm has been earning a good name since its inception. So it will be the

companies major effort to make sure that no bad remark is received due to any kind of

defaults and violation. The company also offers competitive facilities to the customer.

3. Skill:

Waterman, et al., considers Skills as one of the most crucial attributes or capabilities of

an organization. The term skills include those characteristics, which most people use to

describe a company. Organizations have strength in a number of areas but their key strengths

or dominant skills of few. These are developed over a period of time and are a result of the

interaction of a number of factors; performing certain tasks successfully over a period of

time, the kind of people in the organization, the top management style, the organization

structure, the management systems, the external environmental influences, etc. Hence, when

organizations make a strategic shift it becomes necessary to consciously build new skills.

If the staff managers are to acquire the skills, then there needs to be an appropriate

learning environment. One that:

Is driven by desire to realize the vision.

Has a sharing culture with mutual support.

Provides space and time for learning. Preferably closely linked to specific tasks and

objectives (just in time learning).

Allows risk

Tolerates failure, provided it is part of the learning process.

Has visible recognition for success that is built on new learning.

The Muthoot Group unit has departments, which has personnel with variety of skills. The

distribution department needs sales skill and product knowledge. The general manager

should have the managerial skill. They should have the ability to take right decisions. They

should manage the personnel and make them carry out their responsibility.

Human Skills:

A human skill consists of the ability to work effectively with other people both as

individual and as member of a group so that they can work cooperatively with one other and

build effective teams. Spirit, which in turn helps in achieving the organization goals.

The newly appointed employees are put to training on certain aspects relating to the

company. The trainee is provided either on-the-job or off-the job training, whichever is

suitable. Different types of on –the-job training provided including coaching, and job

instruction.

1. on – the- job training: It consists of following training

Coaching: Class room coaching is provided on various aspects relating to the company and

the market conditions.

Job Instruction: Job instructions are provided to the new employees.

2. Off-the- job training: It consists of following training methods

A) Vestibule

B) Lecturing method

C) Conference/ Discussions

Muthoot Group selecting candidates for employment through campus interview also

and selected candidates undergo through Off the job training. They are given 15days class

room training.

Once the trainee is finished with his initial training, he will be posted to his concerned

job at the concerned location wherein he will continuously undergo on the job training at

branch level or regional level. Some of the on the job training includes

New product information: The new product information is either given by the

manager of the branch or a trainer is appointed for the same. When any new products

from mutual fund companies and insurance companies are released, the trainer from

the respective company gives detailed information about the product.

Current issues: Depending upon the current market scenarios, the training is taken up

at branch level. The employees essentially need to be aware of the current issues that

affect the market sensitivity. Issues like inflation, RBI regulations, government

policies are some of the very prominent issues that affect and thus the employees need

to be well aware of situations to help the clients regarding the investment

4. Staff:

All the branches of Muthoot Securities Ltd consist of a front office, dealers’ room or the

trading hall, and a manager.

Front office: The front office employees must have requisite knowledge on working on

computers. Maintaining all transactions in detail on the computers. When the customers ask

for immediate receipts, the front office staff should be able to generate receipt to be issued to

the client. All the bank receipts should be filed properly.

Dealers: The dealers are the individuals who receive the orders for buying and selling of

shares from the customers. A dealer holds a high degree of responsibility in any branch. He

should have all the knowledge about the various practices involved in trading. The dealers

need to have technical skills. A technical skill refers to the ability and knowledge in using the

equipment, technique and procedures involved in performing specific tasks. He should meet

the following requirements

A dealer must necessarily hold the NCFM certificate i.e., he has to pass the requisite

number of NCFM (National Certification exams conducted by NSE.

The dealers’ must also have a sound knowledge of all the products offered by the

company. This is because the dealers’ themselves also carryout the marketing

operations of the firm or the branch as they have a close relation with the customers.

Marketing executives: The marketing executive’s main work is to market the products of

the company. The marketing executive must have the detailed knowledge of all the products

like mutual funds, insurances, demat, PMS etc offered by the company. He is responsible for

introducing the existing customers to newer products and also attract the new prospective

customers. The executives possess the communication skill that is very much needed to

attract the new customers.

Remisers: Their work also same like marketing executives like fresh account opening & new

client activation.

Manager: A manager should posses all the managerial skills. They should have the ability to

take right decisions. They should manage the personnel and make them carry out their

responsibility.

Functions of a manager:

The manager is responsible for all the day to day activities, so his job is to see that all

the operations inside the branch are carried out in conformity with the company

policies.

The manager has to also achieve the targets set by the management regarding the

revenues

Business improvement is another major responsible of the manager. The manager ahs

to recognize the key factors that aid in the growth of the business in the region.

Recruitment at the branch level is also handled by the manager. The manager goes by

the procedure of recruitment of the new employees required at branch level and

submits the request to the HR department at the corporate office.

Branch level training programmes are also conducted by the branch manager. The

manager has to train the branch level employees regarding the current market

scenarios. This is generally held as class room training.

After the training the manager needs to monitor the performance of the employees

and effective measures must be taken to motivate the employees for an effective

result.

5. Shared Values

The shared values of organization are guiding concepts, fundamental ideas around

which a business is built-must be simple, usually stated at abstract level, have great meaning

inside the organization even though outsiders may not see or understand them.

6. Style

Style refers to the employees shared and common way of thinking and behaving -

unwritten norms of behaviour and thought. The managerial approach is more projects focused

than process focused. The management is likely mixture of self-management for customer

facing activities and task management for organizational activities. For ex: if the staff is to

treat customers as individuals, then they will need to be managed as individuals, this suggests

a self-management style.

Leadership Styles in Muthoot Securities Ltd:

The behavior of superior towards the subordinates is pleasant. They motivate fresher

who are working under them. The superior tells the subordinates what he has to do. The

objective of the work is clearly defined to them. Otherwise the superior talks to the

subordinate, ask the difficulties that the subordinate is facing, and tries to solve his problems.

It is also been observed that in the organization that while speaking to their

subordinates, superiors will be very friendly and affectionate to the subordinates. The

superior in the State bank of India gives equal importance to objectives of the company as

well as relationship with the subordinates (executive style). Superiors who act as leaders

conduct meeting, discussions, presentations etc on regular basis and take the suggestions and

ideas given by subordinates, the leaders take the final decisions only. This style of leadership

is called Participative style of leadership.

However the major decisions are taken by board of directors only.

7. System:

Order execution system:

The order execution system is a systematic process that starts from receiving the order

till dispatch of contract notes. The detailed procedure is as follows.

Order request: The client calls the dealers engaged in dealing on the fixed telephone number

and requests his required desired order to the dealers. The client has to give his client id

number so that his order is correctly placed.

Client enquiry: Once the dealer receives the request and the client ID, dealer then verifies it

with the office. This is to ensure that the order is received from the same client who has given

the request.

Order placement: Once the verification is done, the dealer places the order with the help of

computers that is connected to the exchange.

Execution of the order: The client has to wait till his order is executed in the exchange for

his requested scrip value. The dealer receives the information immediately once the execution

takes place which in turn is informed to the client.

Confirmation of Trade: The contract notes would be dispatched within a day of the

execution.

Payment: After the execution of the trades and confirmation, the client needs to pay the

funds for his order execution.

SWOT Analysis

SWOT Analysis is an important planning tool that helps a Person or an Institution identify, in

a systematic and organized way, its internal strengths/weakness.

STRENGHTS

The Stake holders: The major strength that the Muthoot Group itself own the 100%

stake in the company.

Brand: The Company has earned a very good brand recognition, which makes the

company one of the major successful brokerage houses in the country.

Overseas operations: Muthoot Securities has branches spanning the gulf countries

thus making it a global company. Overseas operations have been successful and bring

name and huge revenues to the company.

Membership: Muthoot Securities Ltd is a member of NSE (National Stock Exchange),

BSE (Bombay Stock Exchange), MCX (Multi Commodity Exchange), NCDEX

(National Commodity And Derivatives Exchange Ltd), NMCE (National Multi-

Commodity Exchange of India Ltd).

Manpower: Muthoot Securities has the largest pool of professionally certified

manpower.

Products and services: Muthoot Securities offers a wide range of variety of products

to its customers including loans on commodities, loans on shares, Margin funding.

Internet trading: Internet trading facility is the unique feature of Muthoot Securities in

this technological arena. It provides Trading platforms for the customers through the

internet who are not able to access the physical or manual trading methods.

Customer services: The value added services provided to the customers can also be

considered as strength of the company. Besides, a very friendly customer care service

is provided by the company.

WEAKNESS

The major weakness of the brokerage firms are the fluctuations in the market.

OPPORTUNITIES

Regulations liberalized: As the regulations regarding the stock market, commodity

market have eased up along with the transparency in the operations of stock

exchanges, growing Indian economy etc all these factors do provide a great pool

of opportunities to the brokerage house.

Overseas operations: Now that Muthoot Securities has already started its overseas

operations.

Developing Indian economy: India is a favourite hub for foreign investors as it has

shown a great signs of development in IT, ITES services and other industries.

Thus even the city of Belgaum, Karnataka, has large number of business

opportunities coming up through real estate, IT, ITES sectors. The company can

grab the opportunity for setting up more branches and expand its operations.

THREATS

Market conditions: The bearish market conditions can be considered as threat to the

firm as common to other firms, which can eventually affect the operations.

Competition: There is a lot of competition among the stock broking firms. Some of

the big names in the market are a real threat to the company.

New entrants: Apart from the prominent competitors, there are lot of new firms

entering the market with the growing market conditions.

PART B

CHAPTER - 1

INTRODUCTION

1.1 OVERVIEW OF THE INDUSTRY

Derivatives trading in India are as old as money and finance it. Exchange-traded derivatives

however, were introduced in June 2000 with the only product on offer being index futures.

A total of 1191 contracts with a turnover of Rs.35 crore and an average daily turnover of

Rs.2 crore were recorded for the inaugural month. Derivatives volumes rose gradually, with

the growth becoming more rapid as new products were introduced. Though there was initial

skepticism regarding this market in India, derivatives took off with the introduction of stock

futures. Since the completion of the whole basket of equity derivative products viz. futures

(stock and index), options (index and stock) and interest rate futures contracts, the market

has grown exponentially. It eclipsed the total turnover of the cash market in 2003.

Internationally, derivatives volumes are 4-5 times the underlying cash market volume. The

total turnover of the derivatives segment for the month of March 2005 stood at Rs.2,60,481

crore and a total of over 70 lakh contracts were traded at an average daily turnover of

Rs.11,840 crore. The growth has also been spectacular in terms of the number of accounts

in the derivatives segment. From less than 80,000 client accounts at the beginning of 2003,

by July there were 1, 10,000 accounts, with an average of 5,000 new accounts being opened

every month. An interesting feature to note in the derivatives market is the predominance

of NSE which has an overwhelming market share of almost 99%.

Geographical Distribution of Derivatives

Geographical distribution of derivatives turnover closely mirrors that of the equity market.

Mumbai accounted for the largest chunk of trading, about 48%, in March 2005. Mumbai

also has the largest number of active members in the F&O segment. The other major

contributors are Delhi (26.2%), Kolkata (10.4%) followed by Ahmedabad, Hyderabad,

Chandigarh and Chennai (with about 2% each).

1.2 INTRODUCTION TO THE RESEARCH TOPIC

Derivatives are exchange traded contracts like futures, options etc. Such a contract is built

upon a tradable asset or assets like equities, stock indices, and commodities and so on.

Buyers and sellers on such assets are agreed upon to buy or sell on the asset as per mutually

agreed terms like price, quantity and date. Since a derivative contract is based on certain

quantity of an asset, the value of the contract is derived from the value of the asset, also

known as the underlying.

In the F&O segment of NSE, derivative contracts like futures and option contracts

that are based on major indices like S&P CNX Nifty, CNX IT etc are being traded along with

similar contracts on fifty two major scrip’s. These instruments can be used as good

instruments for attractive short term profit and as an effective mechanism to hedge market

risk of an investment portfolio.

Futures

A futures contract is an agreement between the buyer and seller for the purchase and sale

of a particular asset at a specific future date. The price at which the asset would change

hands in the future is agreed upon at the time of entering into the contract. The actual

purchase or sale of the underlying involving payment of cash and delivery of the instrument

does not take place until the contracted date of delivery. A future contract involves an

obligation on both the parties to fulfill the terms of the contract

Options

Options are derivative contracts which give the right either to buy or sell a specified quantity

of the underlying asset at a fixed exercise price on or before the expiration date.

Accordingly, an option contract is specific on the quantity of the asset to be bought or sold,

the price at which the transaction has to take place i.e. it is called the strike price or exercise

price and the date up to which the contract is valid i.e. Expiry date. Unlike futures, option

buyers are no way under obligation in exercising their right to buy or sell. Their right to buy

or sell can be exercised only if its execution is in their favor.

Option Premium

Call and put options are bought by paying a price to the seller of the option who is known as

option writer and this is called option premium. From the buyers' side, this is the cost for

acquiring options where as the premium is the price or reward to the option seller.

Call Options

Call option gives its holder i.e. the buyer the right to buy a specified quantity of the

underlying asset at a fixed exercise price on or before the expiration date. If the market

price of the asset is higher than the exercise price, the option holder exercises his right to

buy due to the simple reason that he can make a profit under this situation i.e., buying at a

lower price from the option market and selling at a better price in the cash market. In the

event that the situation is just the reverse, he simply allows the option to lapse. By doing so,

the maximum he has to lose is the premium paid and brokerage charges.

Those who are bullish on the asset price i.e. index, stock etc go for buying the call option

whereas bears on the asset price would be the sellers.

Put Options

Put option gives its buyer or holder the right to sell a specified quantity of the underlying at

a fixed price called the strike price on or before the expiration date. Such an option is

executed when the price in the cash market is lower than the strike price of the option

which he can cover through buying the asset from the cash market at a lower price. The

difference is his profit. On the other side, the option holder lets the option lapse if the cash

market price is higher than the strike price, since the option does not have any intrinsic

value in this situation. The maximum loss he has to incur is the premium paid and brokerage

charges. Put option on an asset is bought when the buyer is bearish on its price front.

Conversely, sellers would be those who believe that the price of the asset may remain

steady or go upward.

In the Money

An option contract is in the money when the contract has an intrinsic value and its

execution will result in a profit. A call option is in the money when the price of the asset in

the cash market is higher than the strike price of the option. In this scenario, the execution

of the contract will conclude in a profit. A put option is said to be in the money when the

price of the asset in the cash market is lower than the strike price of the option. As per the

contract terms, the option holder has the right to sell the asset at a higher price than the

cash market price and this difference intrinsic value brings him a profit.

At the money

A call or put option is at the money when the strike price of the option is exactly equal to

the cash market price of the asset. In such cases, the intrinsic value of the contract is zero

and hence no profit can be generated by executing the option.

Out of the Money

An option is out of the money when the execution of the contract is only to generate a loss

to the option holder. A call option is out of the money when the cash market price of the

asset is lower than the strike price of the option. Conversely, a put option is out of the

money when the cash market price of the asset is higher than the strike price. In both the

cases, the intrinsic value of the contract is negative and therefore, the execution of the

contract will result in a loss.

Derivatives are financial securities whose value is derived from another

"Underlying" financial security. Options, futures are all examples of derivative securities.

Derivatives can be used for hedging, protecting against financial risk, or can be used to

speculate on the movement of commodity or security prices, interest rates or the levels of

financial indices. A derivative financial product is a contrived instrument, the value of which

depends indirectly on the price of a cash instrument. The price of the cash instrument is

often referred to as the "underlying" price. Examples of cash instruments include actual

shares in a company, physical stocks of commodities, cash foreign exchange, etc.

INTRODUCTION TO FUTURES

Futures of Derivative in India

The internet is also playing its part in bringing the market within the reach of a larger

number of investors. Liquidity is one of the most important parameters in judging the

attractiveness of a market for investors. In the index futures market, the bid-offer spread i.e.

the difference between the price at which one can sell and the price at which one can buy, is

around 0.15-0.2, or around two basis points. However, liquidity worsens as one moves to

the further month contracts, and in options. Some of the most liquid index options have bid-

offer spreads of one percent or more. Futures on some of the individual securities trade up

to ten times the volume traded in the cash market. However, the top five traded counters

account for almost fifty percent of the traded volumes in the stock futures segment, and

about sixty percent of the volumes in the stock options segment. Players expect the market

to grow to about three times the size of the cash market in the next one year, and about five

times in the next two years.

An average Indian investor is more aware of speculation than hedging in equities.

With the introduction of options and futures trading on the index and certain stocks,

learned investors can speculate in equity markets. Speculation for an ordinary investor

would mean four things - multiplier for actual available investment, open positions with low

cost of carry, short selling and no delivery of shares. A derivative product offers all these

functions with a built in 'stop-loss' function.

Practical Application of Derivatives in the Stock Market

You are an investor and have around Rs. 20,000 to invest. Say for instance, according to

your analysis, price of Infosys shares (assumed current price: Rs 5,000) is going to move up

by Rs 500 in one month. You have two options: either you buy the stock in the cash market

or buy the same in the derivatives market. If you buy in the cash market you will be able to

buy around four shares (20,000/5,000 per share). And if the target materializes, your profit

will be Rs 2,000 (500 x 4 shares). If the price of Infosys falls by Rs 500, your loss will be Rs

2,000.

On the other hand, in the derivatives market, an investor can buy an option of 100 such

shares by paying a premium determined by the market. The market determines the

premium on the prevailing perception of Infosys. In our case, we will take the premium

(strike price: Rs 50,00) per share as Rs 200. So, when the Infosys stock moves up by Rs 500,

your profit will be Rs 30,000 (Rs 500 x 100 shares minus premium amount of Rs 20,000). But

if the price of Infosys falls by Rs 500, your loss is capped at only Rs 20,000 (to the extent you

paid the premium) and not Rs 50,000 (Rs 500 x 100 shares). Also remember that for a Rs 500

fall in price, the loss here would be Rs 20,000 as against Rs 2,000 in the cash market. In

addition, brokerages have not been considered in the transactions and this can impact the

prices slightly.

Hedging

It is a way of reducing risks when you have the underlying security. In the above example,

let's say you have 100 shares of Infosys bought at Rs 5,000 each and you expect the stock to

fall by Rs 500. So you buy a put option of Infosys at a strike price of Rs 5,000 for a premium

of say Rs 100 per share. So, if the Infosys stock does fall by Rs 500, your loss is restricted to

only Rs 10,000 as -you have recovered Rs 400 a share by buying an Infosys put.

Derivatives offer a number of advantages such as cash settlement, lower transactions

costs, leverage and flexibility as a wide range of payoffs can be achieved by combining

various instruments. Though the perception is that only the well-capitalized high net worth

individuals (HNI) can take positions in the derivatives market, the fact is that many

derivatives transactions are within the means of the ordinary investor. According to NSE, the

monthly market size for index futures has increased from Rs 56,000 crore in October to Rs

80,000 crore in March 2005. In January, index futures touched almost Rs 1,00,000 crore. FIIs

played a key role in the 73% surge in the Indian equity market last year as FIIs considered

Indian equities undervalued and bought significantly.

Small Investors and Lot Sizes in Derivatives Market

Retail investors who wanted to hedge or speculate using the derivatives market were often

kept out of certain counters such as Tata Motors, Mahindra and Mahindra (M&M) and Tisco

because of large market lots, which made the margins unaffordable.

The downward reduction of the market lot of derivatives contracts has enabled the

small investor to participate in the market without too much investment. Globally, futures

and options exchanges keep a standard market lot (generally 100) for all contracts,

regardless of the contract size. However, at the time of introduction of the derivatives

contracts in June 2000, Sebi had prescribed a market lot, corresponding to a contract size of

Rs 2 lakh for each scrip, fearing that small investors may burn their fingers in the leveraged

derivatives market in the absence of such an entry barrier. The reduction of lot sizes was

long-awaited since most stocks have gained in price since the fixing of the lot sizes,

especially in the last one year, and the contract values have shot through the roof. Tata

Motors, for example, has seen its price appreciate from Rs 63 when the contract was

introduced, in 2000, to Rs 466 in January 2005, leading to a contract size of Rs 15 lakh. The

margin per contract of Tata Motors is about Rs 3.5 lakh, which is unaffordable for many

investors. So also in the cases of Mahindra and Mahindra, Bajaj Auto, Ranbaxy and Tisco.

Retail participants have welcomed this move.

Options settled by delivery gives the owner the right to receive delivery (if it is a call) or to

make the delivery (if it is a put), of the underlying when the option is exercised.

Cash settled options gives the owner the right to receive a cash payment based on the

difference between a determined value of the underlying at the time of exercise and the

fixed exercise price of the option. Nifty options are cash settled. Example: You bought Nifty

November call at a strike price of Rs.1400. On expiry of November options, the expiration

level was Rs. 1430. The cash settlement will be Rs.30 per Nifty and for one contract, Rs.6000

(i.e.30*200, the minimum contract size).

Assigned writer Option writer who has been assigned an exercise is known as an assigned

writer.

Expiration date is the date on which the option expires. If an option has not been exercised

prior to its expiration, it ceases to exist after the expiration date, i.e. the option holder shall

no longer have any right and the option, no value.

Style of Option

Refers to the time at/ within which the option is exercisable. Two different styles of options

are: American and European.

American style

Options which may be exercised at any time prior to their expiration.

European style

Options which may be exercised only during a specified period before the option expires.

Generally, they are exercisable on the expiration date.

Opening transaction is a purchase or a sale transaction by which a person establishes or

increases a position either as the holder or the writer of an option.

Closing transaction is a transaction by which a person reduces or cancels out previous

position either as the holder or the writer of that option. For example, an investor, at some

point prior to expiration, may make an offsetting sale of an identical option, if he is an

option holder or make an offsetting purchase of an identical option, if he is an option writer.

Long and short Long refers to a position as the holder of an option. Short refers to a position

as the writer of an option.

Advantages of Futures and Options

Trading in futures and options facilitates attractive trading profit even in the very short

term. These instruments are also useful as an effective mechanism to hedge market risk.

From the operators' point of view, the advantages are many.

1) Limited Risk and Unlimited Profit

As stated earlier, buyers of put or call options have to lose only unto the premium they paid

and hence the risk is limited on their side. On the other hand, the profitability from option

buying stands unlimited.

A call option is bought on the anticipation that the price of the asset is likely to go up

during the contract period. If the price is moving up as expected, the option buyer can make

immense returns, which may go up to any amount depending on the unmoved in asset

valuation. Similarly, a put option buyer can make sizable profit if the price of the asset

comes down as anticipated and the potential gain is really vast.

2) Higher leverage

Options and futures are high leverage products in the sense that one can hold a

substantially valuable position through investing a limited amount of money. For example, a

futures contract valued at many lakhs can be bought or sold by paying a fraction of that

amount as the initial margin. Similarly, the price or premium for buying a put or a call is just

a few thousand rupees while the value of the contract is very much higher.

3) Hedging Futures and options are very effective devices to hedge price or market risk.

Suppose that you have long positions in stocks that value a few lakhs and you want to avoid

probable losses resulting from a price fall. Your objective can easily be attained through

selling futures on stock indices or stocks itself or through buying of put options.

CHAPTER - 2

RESEARCH DESIGN

1 STATEMENT OF THE PROBLEM

Managing finance is the most important for the success of every investor. Only those

investors, who are capable of managing the finance and related activities effectively, can

make profit within a short period of time. Only such investors are able to see whether there

is any risk less profit securities available in the market.

The study has been undertaken to analyze the measurement of risk and variations of ten

company’s shares. The study also shows the analysis of different kinds of trading strategies

like Hedging strategies Speculative strategies and Arbitrage strategies.

2.2 NEED AND IMPORTANCE OF THE STUDY

The study covers derivatives market with specific reference to Future market.

The study covers different strategies which can be used in different market scenarios.

The study shows the profit enhancement and risk reduction in derivatives.

The study shows the Beta and Volatility calculation for the purpose of measuring the risk

and variability of different company’s shares.

The study also shows how an investor can minimize risk through hedging.

2.3 REVIEW OF LITERATURE

PURPOSE OF THE LITERATURE

In this project work, secondary data are used as a basis of analysis. In this study, Beta and

Volatility calculations and different types of trading strategies are analyzed.

The current study has been undertaken to measure the risk and variability of

different company’s shares. It is also helpful for analyzing the company’s performance in the

derivative market. So the progress in the derivative market is high and we can see the

investors are in the right path or they are achieving their objectives.

METHODS OF REVIEW

In this project work, the method used was the one month share prices of ten different

companies for the purpose of calculating the Beta values and Volatility values and trading

strategy analysis. In order to get the Beta values NSE Nifty is the base and from which top

ten companies have been selected. The data collected for the purpose of calculations are

mainly from the websites like nseindia.com and derivativesindina.com

BENEFITS FROM THE LITERATURE

The monthly prices of the shares were the main source for the Beta and Volatility calculation and for analyzing the different strategies. Without these secondary sources, it is not able to do the same; the web site is one of the much useful sources of secondary data for getting information about the derivatives and futures. Thus this secondary data played an important role in completing this project.

2.4 OBJECTIVES OF THE STUDY

To analyze the company’s performance in the derivatives market.

To see whether there is any risk less profit derivative available in the market.

To suggest suitable measures and strategies in the future market.

To show the beta and volatility calculation for measuring the risk and variability of

different company’s shares.

2.5 OPERATIONAL DEFINITIONS OF CONCEPTS

Buy Open: - Means a buy transaction which will have the effect of creating or increasing a

long position.

Clearing Member: - Clearing Member means a Member of the Clearing Corporation.

Closing buy transaction Means a buy transaction which will have the effect of partly or fully

offsetting a short position.

Closing sell transaction: - Means a sell transaction which will have the effect of partly or

fully offsetting a long position.

Constituent: - A constituent means a person, on whose instructions and, on whose account,

the Trading Member enters into any contract for the purchase or sale of any security or

does any act in relation thereto.

Contract Month: - Contract month means the month in which a contract is required to be

finally settled.

Derivatives Contract: - A contract which derives its value from the prices of underlying

securities.

Expiration Day: - The day on which the final settlement obligation are determined in a

Derivatives Contract.

Futures Contract: - means a firm contractual agreement to buy or sell the underlying

security in the future.

Last Trading Day: - Means the day unto and on which a Derivatives Contract is available for

trading.

Long Position: - Long Position in a Derivatives contract means outstanding purchase

obligations in respect of a permitted derivatives contract at any point of time.

Open Position: - Open position means the sum of long and short positions of the Member

and his constituent in any or all of the Derivatives Contracts outstanding with the Clearing

Corporation.

Open Interest: - Open Interest means the total number of Derivatives Contracts of an

underlying security that have not yet been offset and closed by an opposite Derivatives

transaction nor fulfilled by delivery of the cash or underlying security or option exercise. For

calculation of Open Interest only one side (either the long or the short) of the Derivatives

Contract is counted.

Options Contract: - Options Contract is a type of Derivatives Contract which gives the

buyer/holder of the contract the right (but not the obligation) to buy/sell the underlying

security at a predetermined price within or at end of a specified period. The option contract

which gives a right to buy is called a Call Option and the option contract that gives a right to

sell is called a Put Option.

Option Holder: - Option Holder means a Trading Member who is the buyer of the Options

Contracts.

Option Writer: - Option Writer means a Trading Member who is the seller of the Options

Contracts.

Outstanding Obligation: - Means the obligation which has neither been closed out nor been

settled.

Permitted Derivatives: - Contract Permitted Derivatives Contract is a derivative contract

which is permitted to be traded on the Futures & Options segment of the Exchange. Regular

lot / Market Lot Means the number of units that can be bought or sold in a specified

derivatives contract and it is also termed as Contract Multiplier.

Risk Disclosure Document: - Refers to the document to be issued to all potential investors

at the time of registration for disclosure of the risks inherent to derivatives.

Settlement Date: - Means the date on which the settlement of outstanding obligations in a

permitted Derivatives contract are required to be settled.

Sell Open: - Means a sell transaction which will have the effect of creating or increasing a

short position.

Short Position: - Short position in a derivatives contract means outstanding sell obligations

in respect of a permitted derivatives contract at any point of time.

Trading cycle: - Trading cycle means the period during which the derivatives contract will be

available for trading.

Trading Member: - Trading Member is a member of Derivative Exchange.

Trading cum Clearing Member: - Means Member of Derivatives Exchange as well as its

Clearing Corporation.

Trade Type: - Trade type is the type of trade as may be permitted by the F&O Segment of

the Exchange from time to time for each Market Type.

Underlying Securities: - Means a security with reference to which a derivatives contract is

permitted to be traded on the Futures & Options segment of the Exchange from time to

time.

Beta; - Beta is the measurement of risk; if the Beta value is more it shows the more risk of

the respective share.

Volatility; - More the volatility, higher is the probability of the future generating higher

returns to the buyer. The downside in both the cases of call and put is fixed but the gains

can be unlimited.

2.6 RESEARCH METHODOLOGY

DATA COLLECTION:

The report is prepared by using both primary and secondary data. Primary data are

collected from office and through NSE terminal. The secondary data are collected from

reports, magazines, and journals and also from websites.

Market movements of the ten different companies was observed for one month with

Nifty Index Futures, observation on the price movement of derivative market for the

purpose of analysis of data were collected from the official websites of National Stock

exchange and Derivatives India (www.nseindia.com & derivativesindia.com) .The data

collected from websites were used to analyze the strategies and for calculations.

POPULATION:

Research will be conducted on top ten companies in NSE NIFTY.

SAMPLE PROCEDURE:

Here the researcher has selected top ten companies from NSE Nifty according to his

convenience by using convenient sampling.

TOOLS & TECHNIQUES

The statistical tools that will be used are tracking 1 months share prices of ten different

companies for the purpose of calculating the beta values and trading strategy analysis. In

order to get the beta values NSE Nifty will base for all the ten different companies

2.7 LIMITATIONS OF THE STUDY

In this study, only Futures are taken due to time and cost constraints.

Derivatives were introduced recently in India. As a result the information regarding

derivatives is limited.

2.8 SCOPE OF THE STUDY

This study is conducted in order to select few companies so that the results can’t be

generalized.

ANALYSIS &

INTERPRETATION OF

DATA

PROFILE OF COMPANIES TAKEN FOR ANALYSIS OF RESEARCH

WIPRO

Wipro Limited is the first PCMM Level 5 and SEI CMM Level 5 certified IT Services Company

globally. Wipro provides comprehensive IT solutions and services, including systems

integration, Information Systems outsourcing, package implementation, software

application development and maintenance, and research and development services to

corporations globally.

Wipro Limited (NYSE:WIT) is a leading provider of IT solutions for customers across

Americas, Europe, Asia, Australia and the Middle East. Started as a ground nut crushing unit

in 1947, Wipro has grown into a multi business multi location conglomerate. We have grown

from a India centric consumer products manufacturing company to a global company

providing comprehensive service portfolio, an adaptive, value-driven engagement model

and our quality leadership in every aspect of service delivery. The depth and width of the

services that we provide is perhaps unmatched by any other company.

In our non-IT businesses, we have a significant presence in Consumer Products and in

Infrastructure Engineering. We have a significant presence in toiletries and lighting products

and solutions. We are the preferred suppliers to OEMs supplying to the growing

infrastructure industry globally

ONGC

Is Asia’s best Oil & Gas company, as per a recent survey conducted by US-based magazine

‘Global Finance’.Crossed the landmark of earning Net Profit exceeding Rs.10,000 Crore, the

first to do so among all Indian Corporates, and a remarkable Net Profit to Revenue ratio of

29.8 per cent. The growth in ONGC's profits is not solely due to deregulation in crude prices

in India, as deregulation has affected all the oil companies, upstream as well as downstream,

but it is only ONGC which has exhibited such a performance (of doubling turnover and

profits).Has paid the highest-ever dividend in the Indian corporate history.

Its 10 per cent equity sale (India's highest-ever equity offer) received unprecedented Global

Investor recognition. This was a landmark in Indian equity market, establishing beyond

doubt, the respect ONGC's professional management commands among the global investor

community. According to a report published in 'The Asian Wall Street Journal (Hongkong)',

ONGC's Public Issue brought in 20 Foreign Institutional Investors (FIls) to India, as (it was

reported), 'they could not ignore the company representing India's energy security'.The

Market Capitalization of the ONGC Group (ONGC & MRPL) constitutes 10 per cent of the

total market capitalization on the Bombay Stock Exchange (BSE). ONGC has an equity

weightage of 5 per cent in Sensex; 15 per cent in the Nifty (the only Indian corporate with a

two-digit presence there); ONGC commands a 7 per cent weightage in the Morgan Stanley

Capital International (MSCI) Index.

The growth in ONGC's Market Capitalization (from Rs. 18,500 Crore before May 2001 to Rs.

1,25,000 Crore in January 2004) is unprecedented and except Wipro (who had a higher

market capitalization temporarily), no other Indian company (either in public or private

sector) has seen such a phenomenal growth.

ONGC has come a long way from the day (a few years back) when India and ONGC did not

figure on the global oil and gas map. Today, ONGC Group has 14 properties in 10 foreign

countries. Going by the investments (Committed: USD 2.708 billion, and Actual: USD 1.919

billion), ONGC is the biggest Indian Multinational Corporation (MNC).

TATA CONSULTANCY SERVICES

Tata Consultancy Services (TCS) is one of the leading information technology companies in

the world. With a workforce of over 74,000 professionals spread across more than 50 global

delivery centres, it helps organisations stay ahead with new technology. Its clients include

seven of the top ten corporations in the Fortune 500 list of the largest corporations in the

United States.

TCS products and services help companies in various sectors effectively meet their business

challenges. With technical expertise and employing a flexible approach to client

relationships, TCS offers its clients: consulting, IT services, business process outsourcing,

infrastructure outsourcing, and engineering and industrial services.

Since its inception, the company has invested in new technologies, processes, and people in

order to help its customers succeed. With inputs from its innovation labs and university

alliances, and drawing on the expertise of key partners, TCS keeps clients up-to-date with

new technology. This has helped the company meet various benchmarks of excellence in

software development - it is the world's first organisation to achieve an enterprise-wide

Maturity Level 5 on quality improvement models, CMMI® and P-CMM®, using the most

rigorous assessment methodology, SCAMPISM.

The company is listed on the National Stock Exchange and Bombay Stock Exchange in India.

HINDUSTAN LEVER LIMITED

Hindustan Lever Limited (HLL) is India's leading consumer goods supplier, with a focus on

the Fast-Moving Consumer Goods (FMCG) category that includes detergents, soap,

shampoo, deodorant, toothpaste, and other personal care items, and cosmetics. HLL's

personal care brands include soap brands such as Lux, Lifebuoy, Liril, Breeze, Dove, Pear's,

and Rexona; shampoos and hair coloring brands including Sunsilk Naturals and Clinic; skin

care brands Fair & Lovely and Pond's; and oral care brands Pepsodent and Close-Up. The

company's cosmetic line is led by the Lakme brand; HLL also produces a line of Ayurvedic

personal and healthcare items under the Ayush brand. In addition to the FMCG segment,

HLL has developed a line of food items, primarily under the Kissan and Knorr Annapurna

brands, as well as the ice cream brand Kwality Wall's. In the early 2000s, HLL also acquired

baked goods producer Modern Food Industries. In addition to its domestic brand family, HLL

sells bulk foods, including maize, rice, salt, and atta. HLL is also an active exporter, shipping

its FMCG and food brands, as well as rice; marine products including surimi, shrimp,

crabsticks, and others; and castor oil. HLL has completed a restructuring of its business in

the first half of the 2000s, streamlining its brand portfolio, from 110 brands to 35 "power"

brands, while exiting a number of businesses, such as teas (sold to the Woodbriar Group in

2006) and specialty chemicals. HLL maintains a strong manufacturing presence in India, with

some 80 factories located throughout the country; the company also subcontracts to more

than 150 third-party producers. HLL is itself a subsidiary of Unilever, which controls 51.55

percent of the group. HLL is listed on the Mumbai Stock Exchange.

ITC

ITC is one of India's foremost private sector companies with a market capitalisation of nearly

US $ 13 billion and a turnover of US $ 3.5 billion. Rated among the World's Best Big

Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine,

among India's Most Respected Companies by Business World and among India's Most

Valuable Companies by Business Today, ITC ranks third in pre-tax profit among India's

private sector corporations.

ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers,

Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology,

Branded Apparel, Greeting Cards, Safety Matches and other FMCG products. While ITC is an

outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards,

Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses

of Packaged Foods & Confectionery, Branded Apparel and Greeting Cards.

ITC's diversified status originates from its corporate strategy aimed at creating multiple

drivers of growth anchored on its time-tested core competencies: unmatched distribution

reach, superior brand-building capabilities, effective supply chain management and

acknowledged service skills in hoteliering. Over time, the strategic forays into new

businesses are expected to garner a significant share of these emerging high-growth

markets in India.

ITC employs over 21,000 people at more than 60 locations across India. The Company

continuously endeavors to enhance its wealth generating capabilities in a globalising

environment to consistently reward more than 4,94,000 shareholders, fulfill the aspirations

of its stakeholders and meet societal expectations. This over-arching vision of the company

is expressively captured in its corporate positioning statement: "Enduring Value. For the

nation. For the Shareholder."

HDFC

HDFC Bank Limited, a private sector bank, provides financial services to corporations, and

middle and upper-income individuals in India. It operates in three divisions: Retail Banking,

Wholesale Banking, and Treasury Operations. The Retail Banking division provides various

deposit products, loans, credit cards, debit cards, third party mutual funds and insurance,

investment advisory services, and depositary services. The Wholesale Banking division offers

loans, deposit products, documentary credits, guarantees, bullion trading, foreign exchange,

and derivative products, as well as cash management services, clearing and settlement

services for stock exchanges, tax and other collections for the government, custody services

for mutual funds, and correspondent banking services. The Treasury Operations division

manages debt securities, money market operations, foreign exchange, and derivative

products. In addition, it provides telephone, Internet, and mobile banking services. As of

December 22, 2006, the bank operated 569 branches. The company was incorporated in

1994 and is headquartered in Mumbai, India. HDFC Bank was incorporated in August 1994

in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. The Bank

commenced operations as a Scheduled Commercial Bank in January 1995. The Housing

Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in

principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private

sector, as part of the RBI's liberalization of the Indian

Banking Industry in 1994.

Headquartered in Mumbai, HDFC Bank, has a network of over 531 branches spread over 228

cities across India. All branches are linked on an online real-time basis. Customers in over

120 locations are serviced through Telephone Banking. The Bank also has a network of

about over 1054 networked ATMs across these cities. HDFC Bank's ATM network can be

accessed by all domestic and international Visa / MasterCard, Visa Electron / Maestro, Plus /

Cirrus and American Express Credit / Charge cardholders.

HDFC Bank has won many awards for its excellent service. Major among them are "Best

Bank in India" by Hong Kong-based Finance Asia magazine in 2005 and "Company of the

Year" Award for Corporate Excellence 2004-05.

HERO HONDA

Hero Honda Motorcycles is the World's biggest manufacturer of motorcycles (by quantity).

Hero Honda is a 50:50 joint venture that began in 1984 between the Hero group of India

and Honda from Japan. It has been the world's biggest manufacturer of 2-wheeled

motorized vehicles since 2001, when it produced 1.3 million motorbikes in a single year.

Hero Honda's Splendor is the world's largest selling motorcycle. Its 2 plants are in Dharuhera

and Gurgaon, both in India. It specializes in dual use motorcycles that are low powered but

very fuel efficient. When Hero Cycles and Honda Motor Company of Japan inked their joint

venture in India in April 1984, few could have imagined that the two would go on to create

history and become the subject of a case study at business schools,internationally.

But that's the Hero Honda saga for you. In a little over two decades, the world's largest

manufacturer of bicycles and the global leader in motorcycles have created not only the

world's single largest motorcycle company but also the most endearing and successful joint

venture for Honda Motor Company worldwide. The company has sold over 15 million

motorcycles and has consistently grown at double digits since its inception and today,

every second motorcycle sold in the country is a Hero Honda.

In two decades, Hero Honda has built two world-class manufacturing facilities at Dharuhera

and Gurgaon in Haryana that now churn out over 3 million bikes per year.

In this period, Hero Honda has set up over 2400 customer touch points, comprising a mix of

dealers, service centres and stockists across rural and urban India. Today, Hero Honda is an

amalgam of winning networks and relationships with internal and external stakeholders,

including Investors, Dealers, Vendors and Employees. These relationships have helped the

company hold on to the mantle of World No.1 for years in succession.

RELIANCE

The Reliance Group, founded by Dhirubhai H. Ambani (1932-2002), is India's largest private

sector enterprise, with businesses in the energy and materials value chain. Group's annual

revenues are in excess of USD 22 billion. The flagship company, Reliance Industries Limited,

is a Fortune Global 500 company and is the largest private sector company in India.

Backward vertical integration has been the cornerstone of the evolution and growth of

Reliance. Starting with textiles in the late seventies, Reliance pursued a strategy of backward

vertical integration - in polyester, fibre intermediates, plastics, petrochemicals, petroleum

refining and oil and gas exploration and production - to be fully integrated along the

materials and energy value chain.

The Group's activities span exploration and production of oil and gas, petroleum refining

and marketing, petrochemicals (polyester, fibre intermediates, plastics and chemicals),

textiles and retail.

Reliance enjoys global leadership in its businesses, being the largest polyester yarn and fibre

producer in the world and among the top five to ten producers in the world in major

petrochemical products.

The Group exports products in excess of USD 11 billion to more than 100 countries in the

world. There are more than 25,000 employees on the rolls of Group Companies. Major

Group Companies are Reliance Industries Limited (including main subsidiaries Reliance

Petroleum Limited and Reliance Retail Limited), Indian Petrochemicals Corporation Limited

and Reliance Industrial Infrastructure Limited.

INFOSYS TECHNOLOGIES

Infosys Technologies Ltd. (NASDAQ: INFY) provides consulting and IT services to clients

globally - as partners to conceptualize and realize technology driven business

transformation initiatives. With over 72,000 employees worldwide, we use a low-risk Global

Delivery Model (GDM) to accelerate schedules with a high degree of time and cost

predictability.

As one of the pioneers in strategic offshore outsourcing of software services, Infosys has

leveraged the global trend of offshore outsourcing. Even as many software outsourcing

companies were blamed for diverting global jobs to cheaper offshore outsourcing

destinations like India and China, Infosys was recently applauded by Wired magazine for its

unique offshore outsourcing strategy - it singled out Infosys for turning the outsourcing

myth around and bringing jobs back to the US.

Infosys provides end-to-end business solutions that leverage technology. We provide

solutions for a dynamic environment where business and technology strategies converge.

Our approach focuses on new ways of business combining IT innovation and adoption while

also leveraging an organization's current IT assets. We work with large global corporations

and new generation technology companies - to build new products or services and to

implement prudent business and technology strategies in today's dynamic digital

environment.

Learning experience

Learning experience means getting experience out of learning process. Organization

study helped me to know the real picture of the organization, its functions, policies,

procedures, methods. It also helped me to learn the new methods, technology, culture and

leadership skills used by the company. It enhanced my knowledge about the company, the

various products offered and its competitors and the techniques and strategies adopted by

them to beat their competitors.

During the inplant training at Muthoot Securities Ltd, I was exposed to a lot of

practical aspects such as recruiting, advertising, and interacting with the people. Apart from

the organizational study, I got familiar with the culture of Muthoot Securities Ltd along with

the corporate culture. The functioning or operations of Muthoot Group serves as helping hand

to its customers.

The company has a good network of regional offices and dealers throughout the country so

that it can serve to customer located in different parts in the country. This helps the customer

to carry out his transactions with ease and do the settlement payments from any part of the

country without much hassle.

The company has efficient employees who are committed to their work towards

company growth and client satisfaction. The branch manager, dealers, and the front office

staff all work as a team which gives a clear picture of the efficient team work in the branch

thereby giving chance to all the employees develop in their respective domain.

It was very surprising to discover that whatever I had studied in the books

were actually practiced in real. The manager and the subordinates’ relations in the office are

found to be very friendly and each one has their own element of priority. All the operations

are carried out swiftly by the respective designated employees. The manager heads the branch

with all the key decisions associated with the branch. This made me learn about the

managerial functions in the company.

The HR department follows a very intense procedure in recruiting the man power

necessary for the organization. However the recruitment is done both centralized and

decentralized way. The centralized way of recruitment is made for the overall requirement of

employees whereas decentralized way of recruitment is done in order to fill the vacancies at

branch level.

The company recruits its man power through both internal as well as external sources.

The selection process consists of collection of application blanks, screening of

applications, tests, interviews, etc.

Training programmes at Muthoot Group ltd are excellent and commit to work

efficiency. They are concentrating on both on the job as well as off the job training

programme regularly. Training is imparted through lecture method, simulation

methods, etc. in various aspects related to functioning i.e., trading of shares, product

knowledge, latest or current scenario in the market and economy and its possible

effects on the stocks.

There is huge competition among the brokerage firms in India. Some of the very big

names have really occupied the market with their brand name. This is making the smaller

brokerage firms weak in the competitive market. The tug of war between the firms have

benefited the investors in the form of lower brokerage charges, immediate or fast service,

varied products and transparency in the dealing.

The Organisational Study program taught the trainee the behaviour, the discipline, the

attitude and the culture that one should carry out in an organisation which will be an immense

help in the work place in the coming days of trainees’ future.