INTRODUCTION

Securities market is a component of the wider financial market where securities can be bought
and sold between subjects of the economy, on the basis of demand and supply. Securities
markets encompasses equity markets, bond markets and derivatives markets where prices can
be determined and participants both professional and non professionals can meet.

Securities markets can be split into below two levels. Primary markets, where new securities are
issued and secondary markets where existing securities can be bought and sold. Secondary
markets can further be split into organized exchanges, such stock exchanges and over-the-
counter where individual parties come together and buy or sell securities directly. For securities
holders knowing that a secondary market exists in which their securities may be sold and
converted into cash increases the willingness of people to hold stocks and bonds and thus
increases the ability of firms to issue securities.

There are a number of professional participants of a securities market and these

include; brokerages, broker-dealers, market makers, investment managers, speculators as well
as those providing the infrastructure, such as clearing houses and depositories. A securities
market is used in an economy to attract new capital, transfer real assets in financial assets,
determine price which will balance demand and supply and provide a means to invest money
both short and long term.

Security Market: Securities are financial assets of any kind. Security market is the best
component of financial market where securities are bought and sold on the basis of demand and
supply.

Conditions
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A securities market is a system of interconnection between all participants (professional and
nonprofessional) that provides effective conditions:

 to attract new capital by means of issuing new security (securitization of debt)

 to transfer real asset into financial asset
 to invest money for short or long term periods with the aim of deriving profitability
 commercial function (to derive profit from operation on this market)
 price determination (demand and supply balancing, the continuous process of prices
movements guarantees to state correct price for each security so the market corrects
mispriced securities)
 informative function (market provides all participants with market information about
participants and traded instruments)
 regulation function (securities market creates the rules of trade, contention regulation,
priorities determination)
 Transfer of ownership (securities markets transfer existing stocks and bonds from owners
who no longer desire to maintain their investments to buyers who wish to increase those
specific investments
 Insurance (hedging) of operations though securities market (options, futures, etc.)

Levels of securities market

Primary market
The primary market is that part of the capital markets that deals with the issue of new
securities. Companies, governments or public sector institutions can obtain funding through the
sale of a new stock or bond issue. This is typically done through a syndicate of securities
dealers. The process of selling new issues to investors is called underwriting. In the case of a
new stock issue, this sale is a public offering. Dealers earn a commission that is built into the
price of the security offering, though it can be found in the prospectus. Primary markets create
long term instruments through which corporate entities borrow from capital market...

Features of primary markets are:

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 This is the market for new long term equity capital. The primary market is the market where
the securities are sold for the first time. Therefore, it is also called the new issue market
(NIM).
 In a primary issue, the securities are issued by the company directly to investors.
 The company receives the money and issues new security certificates to the investors.
 Primary issues are used by companies for the purpose of setting up new business or for
expanding or modernizing the existing business.
 The primary market performs the crucial function of facilitating capital formation in the
economy.
 The new issue market does not include certain other sources of new long term external
finance, such as loans from financial institutions. Borrowers in the new issue market may be
raising capital for converting private capital into public capital; this is known as "going
public."

Secondary market
Main article: Secondary market

The secondary market, also known as the aftermarket, is the financial market where
previously issued securities and financial instruments such as stock, bonds, options, and futures
are bought and sold. The term "secondary market" is also used to refer to the market for any
used goods or assets, or an alternative use for an existing product or asset where the customer
base is the second market (for example, corn has been traditionally used primarily for food
production and feedstock, but a "second" or "third" market has developed for use in ethanol
production). Stock exchange and over the counter markets.

With primary issuances of securities or financial instruments, or the primary market, investors
purchase these securities directly from issuers such as corporations issuing shares in an IPO or
private placement, or directly from the federal government in the case of treasuries. After the
initial issuance, investors can purchase from other investors in the secondary market.

The secondary market for a variety of assets can vary from loans to stocks, from fragmented to
centralized, and from illiquid to very liquid. The major stock exchanges are the most visible
example of liquid secondary markets - in this case, for stocks of publicly traded companies.
Exchanges such as the New York Stock Exchange, Nasdaq and the American Stock Exchange
provide a centralized, liquid secondary market for the investors who own stocks that trade on
those exchanges. Most bonds and structured products trade “over the counter,” or by phoning
the bond desk of one’s broker-dealer. Loans sometimes trade online using a Loan Exchange.
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Over-the-counter market
Main article: Over-the-counter (finance)

Over-the-counter (OTC) or off-exchange trading is to trade financial instruments such as

stocks, bonds, commodities or derivatives directly between two parties. It is contrasted with
exchange trading, which occurs via facilities constructed for the purpose of trading (i.e.,
exchanges), such as futures exchanges or stock exchanges. In the U.S., over-the-counter trading
in stock is carried out by market makers that make markets in OTCBB and Pink Sheets
securities using inter-dealer quotation services such as Pink Quote (operated by Pink OTC
Markets) and the OTC Bulletin Board (OTCBB). OTC stocks are not usually listed nor traded
on any stock exchanges, though exchange listed stocks can be traded OTC on the third market.
Although stocks quoted on the OTCBB must comply with United States Securities and
Exchange Commission (SEC) reporting requirements, other OTC stocks, such as those stocks
categorized as Pink Sheets securities, have no reporting requirements, while those stocks
categorized as OTCQX have met alternative disclosure guidelines through Pink OTC Markets.
An over-the-counter contract is a bilateral contract in which two parties agree on how a
particular trade or agreement is to be settled in the future. It is usually from an investment bank
to its clients directly. Forwards and swaps are prime examples of such contracts. It is mostly
done via the computer or the telephone. For derivatives, these agreements are usually governed
by an International Swaps and Derivatives Association agreement.

Main financial instruments

Bond, Promissory note, Cheque – a security contains requirement to make full payment to the
bearer of cheque, Certificate of deposit, Bill of Lading (a Bill of Lading is a “document
evidencing the receipt of goods for shipment issued by a person engaged in the business of
transporting or forwarding goods." ), Stock.

Promissory note

A promissory note, referred to as a note payable in accounting, or commonly as just a "note", is

a contract where one party (the maker or issuer) makes an unconditional promise in writing to
pay a sum of money to the other (the payee), either at a fixed or determinable future time or on
demand of the payee, under specific terms. They differ from IOUs in that they contain a specific
promise to pay, rather than simply acknowledging that a debt exists.

Certificate of deposit
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A certificate of deposit or CD is a time deposit, a financial product commonly offered to
consumers by banks, thrift institutions, and credit unions. CDs are similar to savings accounts in
that they are insured and thus virtually risk-free; they are "money in the bank" (CDs are insured
by the FDIC for banks or by the NCUA for credit unions). They are different from savings
accounts in that the CD has a specific, fixed term (often three months, six months, or one to five
years), and, usually, a fixed interest rate. It is intended that the CD be held until maturity, at
which time the money may be withdrawn together with the accrued interest.

Bond

Bond - an issued security establishing its holder's right to receive from the issuer of the bond,
within the time period specified therein,

 its nominal value

 and the interest fixed therein on this value or other property equivalent.

The bond may provide for other property rights of its holder, where this is not contrary to
legislation.

Stocks (shares)

Common shares

Common shares represent ownership in a company and a claim (dividends) on a portion of

profits. Investors get one vote per share to elect the board members, who oversee the major
decisions made by management.Over the long term, common stock, by means of capital
growth, yields higher returns than almost every other investment. This higher return comes at a
cost since common stocks entail the most risk. If a company goes bankrupt and liquidates, the
common shareholders will not receive money until the creditors, and preferred shareholders are
paid.

Preferred share

Preferred share represents some degree of ownership in a company but usually doesn't come
with the same voting rights. (This may vary depending on the company.) With preferred shares
investors are usually guaranteed a fixed dividend forever. This is different than common stock,
which has variable dividends that are never guaranteed. Another advantage is that in the event
of liquidation preferred shareholders are paid off before the common shareholder (but still after
debt holders). Preferred stock may also be callable, meaning that the company has the option to

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purchase the shares from shareholders at any time for any reason (usually for a premium). Some
people consider preferred stock to be more like debt than equity.

NEED, SCOPE AND OBJECTIVES OF THE STUDY

NEED OF THE STUDY

The need of the study was to fill the gap that was identified in the previous researches. The researchers
conducted earlier lay emphasis on the working of Security market. Considering the ample importance of
this aspect, the present study was conducted to know the Security market & various options available in
the Security market to invest & study the behavior of investors and determine their awareness level
regarding various investment avenues available in stock market.

SCOPE OF STUDY:
This study covers the Markowitz model. The study covers the calculation of correlations between the
different securities in order to find out at what percentage funds should be invested among the companies in the
portfolio. Also the study includes the calculation of individual Standard Deviation of securities and ends at the
calculation of weights of individual securities involved in the portfolio. These percentages help in allocating the
funds available for investment based on risky portfolios.

OBJECTIVES OF THE STUDY

The study has been undertaken in order to achieve the following objectives:
The two main players in the security market are the businesses issuing stock to raise money for
their business and investors buying that stock to make money for themselves. ...
The main objective of the security market is to help businesses raise capital to expand,
modernize their business etc.
 To take an overview of the Security market and encapsulate the various investment avenues
available.
 To know various options available in the Capital Market to invest.
 To know investor’s perception regarding investment in stock market

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RESEARCH METHODOLOGY OF THE STUDY:
The study is both descriptive and analytical in nature. It is a blend of primary data and secondary
data.The primary data has been collected personally by approaching the online share traders who are
engaged in share market. The data are collected with a carefully prepared questionnaire. The secondary
data has been collected from the books, journals and websites which deal with online share trading.

Source of data

Primary Sources: The primary data was collected through structured unbiased questionnaire and
personal interviews of investors. For this purpose questionnaire included were both open ended & close
ended & multiple-choice questions.

Secondary method: The secondary data collection method includes:

 Websites
 Journals
 Text books
Method Used For Analysis of Study

The methodology used for this purpose is Survey and Questionnaire Method. It is a time consuming and
expensive method and requires more administrative planning and supervision. It is also subjective to
interviewer bias or distortion.

Sample Size: 100 respondents

Sampling Unit: Businessmen, Government Servant, Retired Individuals

Statistical Tools: MS-excel and pie and bar diagrams are used to analyze the
data.

4.1 RESEARCH DESIGN:

Research design is the conceptual structure within which research is conducted. It constitutes the
blueprint for collection, measurement and analysis of data was a descriptive research. Descriptive
research involves collecting numerical through self-reports collected, through questionnaires or
interviews (person or phone), or through observation. For present study, the research was
descriptive and conclusion oriented.

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4.2 SAMPLING DESIGN:

4.2.1 Universe: The Universe is most commonly defined as everything that physically exists: the
entirety of space and time, all forms of matter, energy and momentum, and the physical laws and
constants that govern them. All those persons who make investment.

Theoretical Universe: It included investors make investment in all over world.

Accessible Universe: It included investors make investment in Security market.

4.2.2 Sampling unit – The target population must be defined that has to be sampled. The sampling
unit of research included students and professionals residing in Chandigarh city.

4.2.3 Sample size – This refers to number of respondents to be selected from the universe to constitute a
sample. The sample size of 50 Investors was taken.

4.2.4 Sampling Technique – Convenience Sampling was used to select the sample. Convenient
sampling is a non probability sampling technique that attempts to obtain a sample of convenient
elements .In case of convenience sampling, the selection of sample depends upon the discretion of the
interviewer. In this project, Questionnaire Method was used for the collecting the data. With the help of
this method of collecting data, a sample survey was conducted.

4.3 DATA COLLECTION AND ANALYSIS:

4.3.1 Data Collection
Information has been collected from both Primary and Secondary Data.

 Secondary sources- Secondary data are those which have already been collected by
someone else and which already had been passed through the statistical process. The
secondary data was collected through web sites, books and magazines.
 Primary sources- Primary data are those which are fresh and are collected for the first
time, and thus happen to be original in character. The primary data was collected through
direct personal interviews (open ended and close ended questionnaires)

4.3.2 Tools of Presentation & Analysis:

To analyze the data obtained with the help of questionnaire, following tools were used.
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 1. Likert scale: These consist of a number of statements which express either a
favourable or unfavourable attitude towards the given object to which the respondents are asked
to react. The respondent responds to in terms of several degrees of satisfaction or dissatisfaction.

2. Percentage, Bar Graphs and Pie Charts: These tools were used for analysis
of data

4.4 LIMITATIONS OF STUDY

It is said, “What is worth doing is worth doing best”. In other words a person should aim at
perfection. However in real life this is not always possible. Human have to work within the
limitation set by the nature and society. That is to say even though every possible effort has
been made to make this project report authentic and comprehensive however many constraints
were also at play. The major limitations of the study are:-

 Due to paucity of time and resources a countrywide survey was not possible.
Hence only Chandigarh city has been taken for the study.
 Since a smaller sample was chosen so it may not be a true representative of the
population under study.
 The possibility of the respondent’s responses being biased cannot be ruled out.
 Most of the study was restricted to Internet and published data because of the non
availability of primary data.
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 The information given by the respondents might be biased because some of them might
not be interested to given correct information..
 Some of the respondents could not answer the questions due to lack of knowledge.
 Some of the respondents of the survey were unwilling to share information.

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 CHAPTER-II
REVIEW OF LITERATURE

REVIEW OF LITERATURE

Barents Group LLC (1997) studied that India‟s household savings and foreign investors are
key sources of this capital and can and will be increasingly attracted to more efficient, safe and
transparent market. Retail investors in India are mostly short-term traders, and day trading is
not uncommon. To the extent that buying publicly traded equities is perceived as a risky and
speculative short-term activity, many potential investors will simply avoid capital market
instruments altogether in deciding to allocate savings.

R. Dixon and R.K. Bhandari (1997) said in their study that consequently derivative
instruments can have a significant impact on financial institutions, individual investors and
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even national economies. Using derivatives to hedge against risk carries in itself a new risk
was brought sharply into focus by the collapse of Barings Bank. There is a clear call for
international harmonization and its recognition by both traders and regulators. There are calls
also for a new international body to be set up to ensure that derivatives, while remaining an
effective tool of risk management, carry a minimum risk to investors, institutions and
national/global economies. Considers the expanding role of banks and securities houses in the
light of their sharp reactions to increases in interest rates and the effect their presence in the
derivatives market may have on market volatility.

Patrick McAllister and John R. Mansfield (1998) stated that derivatives have been an
expanding and controversial feature of the financial markets since the late 1980s. They are
used by a wide range of manufacturers and investors to manage risk. This paper analyses the
role and potential of financial derivatives investment property portfolio management. The
limitations and problems of direct investment in commercial property are briefly discussed and
the main principles and types of derivatives are analyzed and explained. The potential of
financial derivatives to mitigate many of the problems associated with direct property
investment is examined.

Yoon Je Cho (1998) showed in his study that increasing turnover figures in the Indian stock
exchanges from 1994-95 to 1996-97, implying that they are dominated by speculative
investments, which is not unusual in emerging markets. However, trading volumes in the
Indian capital market are fairly large compared to those in other emerging markets. The
substantial increase in turnover may be attributed primarily to the expansion of the NSE‟s

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trading network. But this also reflects the fact that the Indian stock market is dominated by
speculative investments for short-term capital gains, rather than long-term investment.

Abdulla Yameen (2001) delivered massage, investors will need to be alert to any new
development in capital market and take advantage of the Investor Education and Awareness
Campaign program which to be undertaken by the Capital Market Section to acquaint of the
risks and rewards of investing on the Capital market.Speech was also focused on to create a
new breed of financial intermediaries, which will deal on the market for their clients. These
intermediaries have to be professionals with quite advanced knowledge on stock exchange
operations, techniques, law and companies valuation. Investors depend to a large extent on
their professional advice when investing on the market. Furthermore, these intermediaries
must be men of integrity and honesty as they would deal with clients‟ money Confidence of
investors in these professionals is a key to the success of the capital market.

Makbul Rahim (2001) argued in his speech that the regulatory framework must provide the
right environment for the development and the growth of the market. High standards of
probity and professional conduct have to be maintained and reach world class standards.
Integrity is very important as well confidence. The development of a proper free flow of
information and disclosure helps investors to make informed investment decisions.

P. M. Deleep Kumar and G. Raju (2001) showed that the capital market is becoming more
and more risky and complex in nature so that ordinary investors are unable to keep track of its
movement and direction. The study revealed that the Indian market is probably more volatile
than developed country markets, which is probably why a much higher proportion of savings
in developed countries go into equities. More than half of individual shareowners in India
belonged to just five cities. The distribution of share ownership by States and Union
Territories show that just five States accounted for 74.7 per cent of the country‟s share
ownership population and 71.7 per cent of the aggregate value of the shareholdings of
individuals in India. Among the five States Maharashtra tops the list with Gujarat as a distant
second followed by West Bengal, Delhi and Tamil Nadu. In the midpoint of the study also
argued that introduction of derivatives is the first step to hedge the risk of unfavourable
movement in the market. This will also lower transaction cost and provides depth and liquidity
to the market.

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Peter Carr and Dilip Madan (2001) disclosed that generally does not formally consider
derivatives securities as a potential investment vehicles. Derivatives are considered at all, they
are only viewed as tactical vehicles for efficiently re-allocating funds across broad asset
classes, such as cash, fixed income, equity and alternative investments. They studied that
under reasonable market conditions, derivatives comprise an important, interesting and
separate asset class, imperfectly correlated with other broad asset classes. If derivatives are not
held in our economy then the investor confines his holdings to the bond and the stock and the
optimal derivatives position is zero.

Prof. Peter McKenzie (2001) in his speech at seminar investors have a choice instead of
placing their money in only one company they can pick areas of growth and move their
money, buying and selling and placing it where it is going to be most profitable. The
individual investor does not have to make an individual decision where to place his savings.
These decisions are made by an expert fund manager, which would spread the risk by
spreading the investments across different sectors of the economy.

Hong Kong Exchanges and Clearing Ltd. (2002) surveyed on derivatives retail investors,
and argued first based on empirical evidence that years of trading experience and usual deal
size have a positive correlation. Second, Male investors traded to trade more frequently than
female investors. Third, the usual deal size of investor with higher personal income traded to
be larger. Fourth majority of respondents are motivated by their stock trading experience to
start derivatives trading. Fifth, trading for profit is the key reason for derivatives trading other
than high rate of return, hedging, etc. Sixth, the most significant motivating factors are more
liquid market and more transparent market. Seventh, majority of traders are infrequent in
trade- 3 times or less in a month and Index futures is the most popular product to trade most
frequently. Ninth, a large proportion of the investors invest in exchange cash products than
derivatives or investment avenues.

Through empirical evidence form investor‟s opinion, study argued that the liquidity of
derivatives products other than futures is low. High transaction costs or margin requirement is
the barrier for active participation in derivatives market. But also shows that more active
traders do not have much complaint towards transaction costs and margin requirement.

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S. M. Imamual Haque and Khan Ashfaq Ahmad (2002) argued that the sluggish trends in
primary equity markets need to be reverse by restoring investors‟ confidence in market.

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Savings for retirement essential seek long term growth and for that investment in equity is
desirable. It is a well established fact that investments in equities give higher returns than debt
and it would, therefore, be in the interest of the banks to invest in equities.

Warren Buffet (2002) argued that derivatives as time bombs, both for the parties that deal in
them and the economic system. He also argued that those who trade derivatives are usually
paid, in whole or part, on “earnings” calculated by mark-to-market accounting. But often there
is no real market, and “mark-to-model” is utilized. This substitution can bring on large- scale
mischief. In extreme cases, mark-to-model degenerates into mark-to-myth.Many people argue
that derivatives reduce systemic problems, in that participant who can‟t bear certain risks are
able to transfer them to stronger hands. He said that the derivatives genie is now well out of
the bottle, and these instruments will almost certainly multiply in variety and number until
some event makes their toxicity clear.

Swarup K. S. (2003) empirically found that equity investors first enter capital market though
investment in primary market. The main reason for slump in equity offering is lack of investor
confidence in the primary market. It appeared from the analysis that the investors give
importance to own analysis as compared to brokers‟ advice. They also consider market price
as a better indicator than analyst recommendations. Accordingly number of suggestive
measures in terms of regulatory, policy level and market oriented were suggested to improve
the investor confidence in equity primary markets.

Leyla Şenturk Ozer, Azize Ergeneli and Mehmet Baha Karan (2004) studied that the risk
factor is one of the main determinants of investment decisions. Market participants that are
rational investors ultimately should receive greater returns from more risky investments. They
also concluded that the crisis and resulting deep recession in 2002 changed many things,
including market confidence of investors and financial analysts. In addition to decreasing
trading volume of Istanbul Stock Exchange (ISE), the number of individual investors reduced
and investment horizon of investors shortened and liquid instruments.

JenniferReynolds-Moehrle (2005) used a sample of derivative user and non-user firms; they
came to know that analysts‟ forecast accuracy increased and that unexpected earnings are
incorporated into subsequent earnings forecasts to a greater extent subsequent to disclosure of
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sustained hedging activity. Additionally, the findings indicated an increase in the earnings-
return relation in the hedging activity period.

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Rajeswari, T. R. and Moorthy, V. E. R. (2005) said that expectations of the investors
influenced by their perception and human generally relate perception to action. The study
revealed that the most preferred vehicle is bank deposit with mutual funds and equity on fourth
and sixth respectively. The survey also revealed that the investment decision is made by
investors on their own, and other sources influencing their selection decision are news papers,
magazine, brokers, television and friends or relatives.

Chris Veld and Yulia V. Veld-Merkoulova (2006) found that investors consider the original
investment returns to be the most important benchmark, followed by the risk-free rate of return
and the market return. Study found that investors with longer time horizon would generally be
better off investing in stocks compared to investors with shorter time horizon. They knew
through the question on risk perceptions that investors who are more risk tolerant would
benefit from relatively larger investment in stocks. Their study showed the investors optimize
their utility by choosing the alternative with the lowest perceived risk.

G.N.Bajpai (2006) showed that continuously monitors performance through movements of

share prices in the market and the threats of takeover improves efficiency of resource
utilisation and thereby significantly increases returns on investment. As a result, savers and
investors are not constrained by their individual abilities, but facilated by the economy‟s
capability to invest and save, which inevitably enhances savings and investment in the
economy. Thus, the capital market converts a given stock of investible resources into a larger
flow of goods and services and augments economic growth. The study concluded the investors
and issuers can take comfort and undertake transactions with confidence if the intermediaries
as well as their employees (i.) follow a code of conduct and deal with probity and (ii) are
capable of providing professional services.

J. K. Nayak (2006) interpreted the preferred mode of investment is first equity, banks,
mutual fund and then any other in a descending order. It means Investor‟s faith has increased
and their risk taking ability has also increased. One thing that could be drawn from this study
is that problems are mostly broker related and therefore that is one area where reforms are
required. The investors feel that the amount of knowledge available on the equity market is
not satisfactory. Investors, it appears, need to be educated more. Investors still considered the
capital market as highly risky. But from the investment pattern from the descriptive statistics

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it seems that the number of people willing to invest in capital market has increased.

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Narender L. Ahuja (2006) expressed Futures and options trading helps in hedging the price
risk and also provides investment opportunity to speculators who are willing to assume risk for
a possible return. They can also help in building a competitive edge and enable businesses to
smoothen their earnings because non-hedging of the risk would increase the volatility of their
quarterly earnings. At the same time, it is true that too much speculative activity in essential
commodities would destabilize the markets and therefore, these markets are normally
regulated as per the laws of the country.

Randall Dodd and Stephany Griffith-Jones (2006) studied that derivatives markets serve
two important economic purposes: risk shifting and price discovery. Derivatives markets can
serve to determine not just spot prices but also future prices (and in the options the price of the
risk is determined). In the research, interviews with representatives from several major
corporations revealed that they sometimes prefer to use options as a means to hedge. They also
argued derivatives have a potential to encourage international capital inflows.

K. Ravichandran (2007) argued the younger generation investors are willing to invest in
capital market instruments and that too very highly in Derivatives segment. Even though the
knowledge to the investors in the Derivative segment is not adequate, they tend to take
decisions with the help of the brokers or through their friends and were trying to invest in this
market. He also argued majority the investors want to invest in short-term funds instead of
long-term funds that prefer wealth maximization instruments followed by steady growth
instruments. Empirical study also shows that market risk and credit risk are the two major
risks perceived by the investors, and for minimizing that risk they take the help of news paper
and financial experts. Derivatives acts as a major tool for reducing the risk involved in
investing in stock markets for getting the best results out of it. The investors should be aware
of the various hedging and speculation strategies, which can be used for reducing their risk.
Awareness about the various uses of derivatives can help investors to reduce risk and increase
profits. Though the stock market is subjected to high risk, by using derivatives the loss can be
minimized to an extent.

Nicole Branger and Beate Breuer (2007) showed that investors can benefit from including
derivatives into their portfolios. For retail investors, however, a direct investment in
derivatives is often too complicated. They argued if the investor can trade only in the stock

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and money market account, the exposure of his portfolio to volatility risk will be zero, and the
relation between the exposure to stock diffusion risk and jump risk will be fixed. They

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proved through documentation both theoretically and empirically that investors can increase
their utility significantly by trading plain vanilla options. And also told that in a complete
market and with continuous trading, it does not matter which derivatives an investor uses to
realize his optimal asset allocation. But with incomplete markets, and in particular, discrete
trading, on the other hand, the choice of derivatives may actually matter a lot. This problem
particularly sever for retail investor, who are hindered from implementing their optimal payoff
profile by too high minimum investment amounts, high transaction costs or margin
requirements, short-selling restrictions and may be also lack of knowledge.

Philipp Schmitz and Martin Weber (2007) exposed that the trading behavior is also
influenced if the underlying reaches some exceptional prices. The probability to buy calls is
positively related to the holding of the underlying in the portfolio, meaning that investors tend
to leverage their stock positions, while the relation between put purchases and portfolio
holdings of the underlying is negative. They also showed higher option market trading activity
is positively correlated with past returns and volatility, and negatively correlated with book-to-
market ratios. In addition they report that investors open and close long and short call
positions if past week's return is positive and write puts as well as close bought and written put
positions if the past returns are negative.

B. Das, Ms. S. Mohanty and N. Chandra Shil (2008) studied the behavior of the investors in
the selection of investment vehicles. Retail investors face a lot of problem in the stock market.
Empirically they found and concluded which are valuable for both the investors and the
companies having such investment opportunities. First, different investment avenues do not
provide the same level of satisfaction. And majority of investors are from younger group.

Gupta and Naveen Jain (2008) found that majority of the investors are from younger group
and as per occupation, salaried persons are more inclined towards investment. Study also
argued education qualification is the major influenced factor in investment. Their most
preferred investment is found to be shares followed by mutual funds. Empirically they found
and argued the Indian stock market is considerably dominated by the speculating crowd, the
large scale of day trading and also fact the futures trading in individual stocks is several times
the value of trading in cash segment. They also found the largest proportions of the investors
are worried about too much volatility of the market. For trader and speculators, price volatility

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is an opportunity to make quick profits. In the study, high proportions of investors have a very
favorable opinion about the capital market regulation.

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Prasanna P. K. (2008) empirically fond that foreign investors invested more in companies
with a higher volume of shares owned by general public. Foreign investors choose the
companies where family shareholding of promoters is not essential. The study concluded that
corporate performance is the major influencing factor for investment decision for any investor.
As far as financial performance is concerned the share return and earnings per share are
significant factors influencing investment decision. The study concluded that it is required to
understand when FII withdraw their funds and when they pump in more money.

Deleep Kumar P M and Deyanandan M N (2009) analyzed the opinion of retail investors on
the major market reforms as well as their investment performance. The study revealed
introduction of derivatives trading and internet trading are found useful by only a marginal
group of investors. The empirical results of the study concluded that even though SEBI claims
itself to be the champion of investor protection, it has not been successful in instilling a sense
of confidence in the minds of majority of investors.

G. Ramakrishna Reddy and Ch. Krishnudu (2009) summarized that a majority of the
investors are quite unaware of corporate investment avenues like equity, mutual funds, debt
securities and deposits. They are highly aware of traditional investment avenues like real
estate, bullion, bank deposits, life insurance schemes and small saving schemes.Study argued
the primary motive of investment among the small and individual investors is to earn a regular
income either in form of interest or dividend on the investment made. The other motives like
capital gains, tax benefits, and speculative profits are stated to be the secondary motives of
investment. From empirical research they argued to motivate the people to invest their savings
in the stock market to be achieved only if the regulatory authorities succeed in providing a
manipulation free stock market.

K. Logeshwari and V. Ramadevi (2009) advocated that a commodities market provides a

platform for the investors as well as hedgers to protect their economic interests as well as
increase their investible wealth. Commodity prices are generally less volatile than the stocks.
Therefore it‟s relatively safer to trade in commodities. But the volume being traded in
commodities is much less than the stock market. This is because of the two reasons that the
investors are less aware about the commodities market and their risk perception.

24
Nidhi Walia and Ravi Kiran (2009) studied that to satisfy the needs of investors‟ mutual
funds are designing more lucrative and innovative tools considering the appetite for risk

25
taking of individual investors. A successful investor is one who strives to achieve not less than
rate of return consistent with risk assumed. They also argued as per observation by survey
responses of the individual investor‟s fact is clear that overall among other investment avenues
capital market instruments are at the priority of investors but level of preference varies with
different category/ level of income, and an association exists between income status of
investors and their preference for capital market instrument with return as objective.

Vinay Mishra and Harshita Bhatnagar (2009) documented that Derivatives are considered
to be extremely versatile financial instruments, as they help to manage risks, lower funding
costs, enhance yields and diversify portfolios. The contributions made by derivatives have
been so great that they have been credited with having „changed the face of finance‟ in the
world. Derivatives markets are an integral part of capital markets in developed as well as in
emerging market economies. These instruments assist business growth by disseminating
effective price signals concerning exchange rates, indices and reference rates or other assets,
thereby, rendering both cash and derivatives markets more efficient.

Ashutosh Vashishtha and Satish Kumar (2010) studied encompasses scope an analysis of
historical roots of derivative market of India. The emergence of derivatives market is an
ingenious feat of financial engineering that provides an effective and less costly solution to the
problem of risk that is embedded in the price unpredictability of the underlying asset. In India,
since its inception derivatives market has exhibited exponential growth both in terms of
volume and number of traded contracts. They argued that NSE and BSE has added more
products in their derivatives segment but still it is far less than the depth and variety of
products prevailing across many developed capital markets.

Daniel Dorn (2010) concluded market for OTC derivatives have grown rapidly during the last
decade in many Asian and European countries. Investors often face a choice between dozens
of OTC options that differ only slightly in their attributes. He argued that professional advice
can help uninformed investor better navigate the menu of choices, unless issuers raise
complexity or offer advisors incentives to share in industry profit.

David Nicolaus (2010) studied that retail derivatives allow retail investors to pursue
sophisticated trading, investment strategies and hedging financial instruments. Retail
investors‟ motivation for improving the after tax return of their household portfolio represents
26
a major driver of the derivatives choice of the products and that provide only little equity
exposure for the investor. The derivatives reveal the divergent belief of retail investors about

27
the future price level of the underlying as these can be tailored to specific demand of the
investor. He argued the potential role of search costs and financial advice on the portfolio
decisions of retail investors, the flexibility of retail derivatives and low issuance costs are
likely to emphasize the existing frictions in financial retail markets such as an increase of
strategies and heuristics used by retail investors to cope with the complex decision situation or
an inadequate disclosure of conflicts of interest in financial retail markets.

Gaurav Kabra, Prashant Mishra and Manoj Dash (2010) studied key factors influencing
investment behaviour and ways these factors impacts investment risk tolerance and decision
making process among men and women and those different age groups. They said that not all
investments will be profitable, as investor will not always make the correct investment
decisions over the period of years. Through evidence they proved that security as the most
important criterion; there is no significant difference of security, opinion, hedging in all age
group. But there is significant difference of awareness, benefits and duration in all age group.
From the empirical results they concluded the modern investor is a mature and adequately
groomed person.

Rajiv Gupta (2010) argued in Capital Market 2009-10 IPO-QIP Report there have been
several noticeable trends over the past five years. First, the size of offerings by Indian issuers
has been growing and there are more and larger size global offerings reflecting the maturing
and increasing depth of the Indian capital markets. Second, India has become a destination and
region in its own right for 13 raising capital - previously companies could not raise more than
a few hundred million, but now have capital issues like Reliance Power, in excess of Rs.
13,200 crore ($ 3 billion). While the ADR/GDR markets remain attractive, fewer companies
are using that route as Indian markets have become strong and have the appetite for large
transactions. Third, Indian capital markets now attract companies across sectors, rather than in
any single sector.

R R Rajamohan (2010) analyzed the role of the financial knowledge is important in decision
making in information intensive assets like stocks and other risky securities. Hence, reading
habit, as a proxy for financial knowledge. Younger people have greater labor flexibility than
older people; if the returns on their investments turn out to be low, they could work more or
retire later. Hence age an important factor to be considered in household portfolio analysis.

28
Sheng-Hung Chen and Chun-Hung Tsai (2010) wanted to identifying key factors
influencing individual investor‟s decision to make portfolio choices is of importance to
understand their heterogeneous investment behavior. Through conjoint analysis examine how
individual investors derive their preferences for financial assets. Study stated female investors
tend to be more detail oriented; elder is more likely to have low level of risk tolerance; the
level of education is thought to impact on a person‟s ability to accept risk; increasing income
level of individual investor is associated with increased levels of risk tolerance. At last they
argued single investors are more risk tolerance than married investors.

Shyan-Rong Chou, Gow-Liang Huang and Hui-Lin Hsu (2010) expressed that faced with
the series of financial events leading to the current turmoil, unpleasant investor experience has
become common and personal experiences and reports of such are demonstrated in risk and
attitudes to risk. The paper showed that investors are able to choose an investment with
potential risk and returns to suit their own preferences. Products of lower potential profit are
tolerated when the risk associated with those products is similarly low. In their study they
found that attitude to risk is very similar for both the genders. The study shows most stock
trading is transacted by individual rather than institutional investors, therefore the capital gains
and losses from stock price fluctuations are felt first-hand by individual investors.

Yu-Jane Liu, Ming-Chun Wang and Longkai Zhao (2010) found options are important
investment financial instruments as their flexibility makes financial market complete.
Accordingly, options are complicated for those who do not educate themselves on the subject.
Study found a trader who is more professional, sophisticated, and experienced is less
susceptible to isolate his decision-making sets and simplify complicated investment strategies
to form his portfolios. The study revealed that traders in option markets don‟t trade call/put
contracts to such a great degree. In general, most investors prefer to trade front-month or near-
the-money. Trading in a futures market for option traders, this suggests that almost half of the
investors are trading in both options and futures market.

Gopikrishna Suvanam & Amit Trivedi (2011) studied derivative trading is essential tool for
the health of markets as they enhance price discovery and supplement liquidity. In a span of a
year and a half after that index options, stock options and lastly stock futures were introduced,
derivatives volumes have grown to multiples of cash market volumes and have been a mode of

29
speculation and hedging for market participants, not possible otherwise through cash markets.
The investor invests for a certain period, the issuer of the product

constantly uses derivatives segment to hedge his positions to create the desired payoff for its
clients.

M. Sathish, K. J. Naveen and V. Jeevanantham (2011) studied in the options available to

investors are different and the factors motivating the investors to invest are governed by
their socio-economic. They argued that instead of investing directly, the investors
particularly, small investors may go for indirect investment because they may not be in a
position to undertake fundamental and technical analysis before they decide about their
investment options. Their empirical study showed that majority of the investors of mutual
funds is also belongs to equities who give the first preference to that avenue which gives
good return. From the study, concluded that lack of knowledge as the primary reason for not
investing in investment vehicle.

S. Gupta, P. Chawla and S. Harkant (2011) stated financial markets are constantly
becoming more efficient providing more promising solutions to the investors. Study also
proved that occupation of the investor is not affected in investment decision. The most
preferred investment avenue is insurance with least equity market. The study also argued
that return on investment and safety are the most preferred attributes for the investment
decision instead of liquidity.

S. Saravanakumar, S. Gunasekaran and R. Aarthy (2011) showed the upswing in capital

market allows the investors to harvest handsome return in their investments, but day-trader
in stock market hard to take advantage in bullish and bearish market conditions by holding
long or short positions. Now the derivative instruments offer them to hedge against the
adverse conditions in the stock market. They argued that secondary market is the most
preferred than primary market and cash market is the most preferred market than derivatives
market because of high risk when derivatives market is preferred than cash market for
higher return.

30
CHAPTER III – COMPANY PROFILE

31
 IIFL Ltd

The IIFL (India Infoline) group, comprising the holding company, India Infoline Ltd and its
subsidiaries, is one of the leading players in the Indian financial services space. IIFL offers advice and
execution platform for the entire range of financial services covering products ranging from Equities
and derivatives, Commodities, Wealth management, Asset management, Insurance, Fixed deposits,
Loans, Investment Banking, Gold bonds and other small savings instruments. IIFL recently received
an in-principle approval for Securities Trading and Clearing memberships from Singapore Exchange
(SGX) paving the way for IIFL to become the first Indian brokerage to get a membership of the SGX.
IIFL also received membership of the Colombo Stock Exchange becoming the first foreign broker to
enter Sri Lanka. IIFL owns and manages the website, www.indiainfoline.com, which is one of India’s
leading online destinations for personal finance, stock markets, economy and business.

IIFL has been awarded the ‘Best Broker, India’ by Finance Asia and the ‘Most improved brokerage,
India’ in the Asia Money polls. India Infoline was also adjudged as ‘Fastest Growing Equity Broking
House - Large firms’ by Dun & Bradstreet. A forerunner in the field of equity research, IIFL’s
research is acknowledged by none other than Forbes as ‘Best of the Web’ and ‘…a must read for
investors in Asia’.

The company’s research is available not just over the Internet but also on international wire services
like Bloomberg, Thomson First Call and Internet Securities where it is amongst one of the most read
Indian brokers.

A network of over 2,500 business locations spread over more than 500 cities and towns across India
facilitates the smooth acquisition and servicing of a large customer base. All our offices are connected
with the corporate office in Mumbai with cutting edge networking technology. The group caters to a
customer base of about a million customers, over a variety of mediums viz. online, over the phone and
at our branches.

32
VISION

The company’s vision is to be the most respected company in the financial services space.

COMPANY STRUCTURE

India Infoline Limited

India Infoline Limited is listed on both the leading stock exchanges in India, viz. the Stock Exchange,
Mumbai (BSE) and the National Stock Exchange (NSE) and is also a member of both the exchanges.
It is engaged in the businesses of Equities broking, Wealth Advisory Services and Portfolio
Management Services. It offers broking services in the Cash and Derivatives segments of the NSE as
well as the Cash segment of the BSE. It is registered with NSDL as well as CDSL as a depository
participant, providing a one-stop solution for clients trading in the equities market. It has recently
launched its Investment banking and Institutional Broking business.

33
A SEBI authorized Portfolio Manager; it offers Portfolio Management Services to clients. These
services are offered to clients as different schemes, which are based on differing investment strategies
made to reflect the varied risk-return preferences of clients.

India Infoline Media and Research Services Limited

The services represent a strong support that drives the broking, commodities, mutual fund and
portfolio management services businesses. It undertakes equities research which is acknowledged by
none other than Forbes as 'Best of the Web' and '…a must read for investors in Asia'. India Infoline's
research is available not just over the internet but also on international wire services like Bloomberg
(Code: IILL), Thomson First Call and Internet Securities where India Infoline is amongst the most
read Indian brokers.

India Infoline Commodities Limited.

India Infoline Commodities Pvt Limited is engaged in the business of commodities broking.
Their experience in securities broking empowered them with the requisite skills and
technologies to allow them to offer commodities broking as a contra-cyclical alternative to
equities broking. It enjoys memberships with the MCX and NCDEX, two leading Indian
commodities exchanges, and recently acquired membership of DGCX. It has a multi-channel
delivery model, making it among the select few to offer online as well as offline trading
facilities.

India Infoline Marketing & Services

India Infoline Marketing and Services Limited is the holding company of India Infoline Insurance
Services Limited and India Infoline Insurance Brokers Limited.

 India Infoline Insurance Services Limited is a registered Corporate Agent with the Insurance
Regulatory and Development Authority (IRDA). It is the largest Corporate Agent for ICICI
Prudential Life Insurance Co Limited, which is India's largest private Life Insurance
Company. India Infoline was the first corporate agent to get licensed by IRDA in early 2001.
 India Infoline Insurance Brokers Limited India Infoline Insurance Brokers Limited is a newly
formed subsidiary which will carry out the business of Insurance broking.

34
India Infoline Investment Services Limited

Consolidated shareholdings of all the subsidiary companies engaged in loans and financing activities
under one subsidiary. Recently, Orient Global, a Singapore-based investment institution invested
USD 76.7 million for a 22.5% stake in India Infoline Investment Services. This will help focused
expansion and capital raising in the said subsidiaries for various lending businesses like loans against
securities, SME financing, distribution of retail loan products, consumer finance business and housing
finance business. India Infoline Investment Services Private Limited consists of the following step-
down subsidiaries.

 India Infoline Distribution Company Limited (distribution of retail loan products)

 Moneyline Credit Limited (consumer finance)
 India Infoline Housing Finance Limited (housing finance)

IIFL (Asia) Private Limited

IIFL (Asia) Private Limited is wholly owned subsidiary which has been incorporated in Singapore to
pursue financial sector activities in other Asian markets. Further to obtaining the necessary regulatory
approvals, the company has been initially capitalized at 1 million Singapore dollars.

35
IIFL MANAGEMENT

 THE MANAGEMENT TEAM

Mr. Nirmal Jain, Chairman & Managing Director

Nirmal Jain, MBA (IIM, Ahmadabad) and a Chartered and Cost Accountant, founded India’s leading
financial services company India Infoline Ltd. in 1995, providing globally
acclaimed financial services in equities and commodities broking, life
insurance and mutual funds distribution, among others.

Mr. R Venkataraman, Executive Director

R Venkataraman, co-promoter and Executive Director of India Infoline Ltd., is a

B. Tech (Electronics and Electrical Communications Engineering, IIT
Kharagpur) and an MBA (IIM Bangalore). He joined the India Infoline
board in July 1999.

 THE BOARD OF DIRECTORS

Apart from Nirmal Jain and R Venkataraman, the Board of Directors of India Infoline Ltd. comprises:

Mr. Nilesh Vikamsey, Independent Director

Mr. Vikamsey, Board member since February 2005 - a practicing Chartered Accountant and partner
(Khimji Kunverji & Co., Chartered Accountants), a member firm of HLB
International, headed the audit department till 1990 and thereafter also
handles financial services, consultancy, investigations, mergers and
acquisitions, valuations etc

36
Mr Kranti Sinha, Independent Director

Mr. Kranti Sinha — Board member since January 2005 — completed his
masters from the Agra University and started his career as a Class I
officer with Life Insurance Corporation of India.

Mr Arun K. Purvar, Independent Director

Mr. A.K. Purvar – Board member since March 2013 – completed his
Masters degree in commerce from Allahabad University in 1966 and a
diploma in Business Administration in 1967.

PRODUCTS & SERVICES

Equities

India Infoline provided the prospect of researched investing to its clients, which was hitherto
restricted only to the institutions. Research for the retail investor did not exist prior to India
Infoline. India Infoline leveraged technology to bring the convenience of trading to the
investor’s location of preference (residence or office) through computerized access. India
Infoline made it possible for clients to view transaction costs and ledger updates in real time.
The Company is among the few financial intermediaries in India to offer a complement of
online and offline broking. The Companies network of branches also allows customers to
place orders on phone or visit our branches for trading.

Commodities

India Infoline’s extension into commodities trading reconciles its strategic intent to emerge as
a one stop solutions financial intermediary. Its experience in securities broking has
empowered it with requisite skills and technologies. The Companies commodities business
provides a contra-cyclical alternative to equities broking. The Company was among the first
to offer the facility of commodities trading in India’s young commodities market (the MCX
commenced operations in 2003). Average monthly turnover on the commodity exchanges
increased from Rs 0.34 bn to Rs 20.02 bn.

37
Insurance
An entry into this segment helped complete the client's product basket; concurrently, it
graduated the Company into a one stop retail financial solutions provider. To ensure
maximum reach to customers across India, it has employed a multi pronged approach and
reaches out to customers via our Network, Direct and Affiliate channels. India Infoline was
the first corporate in India to get the agency license in early 2001.
Invest Online
India Infoline has made investing in Mutual funds and primary market so effortless. Only
registration is needed. No paperwork no queues and No registration charges. India Infoline
offers a host of mutual fund choices under one roof, backed by in-depth research and advice
from research house and tools configured as investor friendly.
Wealth Management
The key to achieving a successful Investment Portfolio is to have a carefully planned
financial strategy based on a thorough understanding of the client's investment needs and risk
appetite. The IIFL Private Wealth Management Team of financial experts will recommend an
appropriate financial strategy to effectively meet customer’s investment requirements.
Asset Management
India Infoline is a leading pan-India mutual fund distribution house associated with leading
asset management companies. It operates primarily in the retail segment leveraging its
existing distribution network to reach prospective clients. It has received the in-principle
approval to set up a mutual fund.
Portfolio Management
IIFL Portfolio Management Service is a product wherein an equity investment portfolio is
created to suit the investment objectives of a client. India Infoline invests the client’s
resources into stocks from different sectors, depending on client’s risk-return profile. This
service is particularly advisable for investors who cannot afford to give time or don't have
that expertise for day-to-day management of their equity portfolio.

Newsletters
As a subscriber to the Daily Market Strategy, client’s get research reports of India Infoline research
team on a priority basis. The Indiainfoline Weekly Newsletter is the flashback for the week gone by.
A weekly outlook coupled with the best of the web stories from Indiainfoline and links to important
investment ideas, Leader Speak and features is delivered in the client’s inbox every Friday evening.

38
INDUSTRY PROFILE

39
FINANCIAL MARKETS

Finance is the pre-requisite for modern business and financial institutions play a vital role in the
economic system. It is through financial markets and institutions that the financial system of an
economy works. Financial markets refer to the institutional arrangements for dealing in financial
assets and credit instruments of different types such as currency, cheques, bank deposits, bills, bonds,
equities, etc.

Financial market is a broad term describing any marketplace where buyers and sellers participate in
the trade of assets such as equities, bonds, currencies and derivatives. They are typically defined by
having transparent pricing, basic regulations on trading, costs and fees and market forces determining
the prices of securities that trade.

Generally, there is no specific place or location to indicate a financial market. Wherever a financial
transaction takes place, it is deemed to have taken place in the financial market. Hence financial
markets are pervasive in nature since financial transactions are themselves very pervasive throughout
the economic system. For instance, issue of equity shares, granting of loan by term lending
institutions, deposit of money into a bank, purchase of debentures, sale of shares and so on.

In a nutshell, financial markets are the credit markets catering to the various needs of the individuals,
firms and institutions by facilitating buying and selling of financial assets, claims and services.

40
CLASSIFICATION OF FINANCIAL MARKETS

Financial
markets

Organized Unorganized
markets markets

Money Lenders,
Capital Markets Money Markets Indigenuos
Bankers

Industrial
Call Money
Securities
Market
Market

Commercial Bill
Primary Market
Market

Secondary
No
market

Government
Securities
Market

Long-term loan
market

41
Capital Market

The capital market is a market for financial assets which have a long or indefinite maturity. Generally,
it deals with long term securities which have a period of above one year. In the widest sense, it
consists of a series of channels through which the savings of the community are made available for
industrial and commercial enterprises and public authorities. As a whole, capital market facilitates
raising of capital.

The major functions performed by a capital market are:

1. Mobilization of financial resources on a nation-wide scale.

2. Securing the foreign capital and know-how to fill up deficit in the required resources for
economic growth at a faster rate.
3. Effective allocation of the mobilized financial resources, by directing the same to projects
yielding highest yield or to the projects needed to promote balanced economic development.

Capital market consists of primary market and secondary market.

Primary market: Primary market is a market for new issues or new financial claims. Hence it is also
called as New Issue Market. It basically deals with those securities which are issued to the public for
the first time. The market, therefore, makes available a new block of securities for public subscription.
In other words, it deals with raising of fresh capital by companies either for cash or for consideration
other than cash. The best example could be Initial Public Offering (IPO) where a firm offers shares to
the public for the first time.

Secondary market: Secondary market is a market where existing securities are traded. In other words,
securities which have already passed through new issue market are traded in this market. Generally,
such securities are quoted in the stock exchange and it provides a continuous and regular market for
buying and selling of securities. This market consists of all stock exchanges recognized by the
government of India.

42
Money Market

Money markets are the markets for short-term, highly liquid debt securities. Money market securities
are generally very safe investments which return relatively low interest rate that is most appropriate
for temporary cash storage or short term time needs. It consists of a number of sub-markets which
collectively constitute the money market namely call money market, commercial bills market,
acceptance market, and Treasury bill market.

Derivatives Market

The derivatives market is the financial market for derivatives, financial instruments like futures
contracts or options, which are derived from other forms of assets. A derivative is a security whose
price is dependent upon or derived from one or more underlying assets. The derivative itself is merely
a contract between two or more parties. Its value is determined by fluctuations in the underlying
asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest
rates and market indexes. The important financial derivatives are the following:

 Forwards: Forwards are the oldest of all the derivatives. A forward contract refers to
an agreement between two parties to exchange an agreed quantity of an asset for cash
at a certain date in future at a predetermined price specified in that agreement. The
promised asset may be currency, commodity, instrument etc.
 Futures: Future contract is very similar to a forward contract in all respects excepting
the fact that it is completely a standardized one. It is nothing but a standardized
forward contract which is legally enforceable and always traded on an organized
exchange.
 Options: A financial derivative that represents a contract sold by one party (option
writer) to another party (option holder). The contract offers the buyer the right, but not
the obligation, to buy (call) or sell (put) a security or other financial asset at an
agreed-upon price (the strike price) during a certain period of time or on a specific
date (exercise date). Call options give the option to buy at certain price, so the buyer
would want the stock to go up. Put options give the option to sell at a certain price, so
the buyer would want the stock to go down.
 Swaps: It is yet another exciting trading instrument. Infact, it is the combination of
forwards by two counterparties. It is arranged to reap the benefits arising from the
fluctuations in the market – either currency market or interest rate market or any other
market for that matter.

43
Foreign Exchange Market

It is a market in which participants are able to buy, sell, exchange and speculate on
currencies. Foreign exchange markets are made up of banks, commercial companies, central
banks, investment management firms, hedge funds, and retail forex brokers and investors.
The forex market is considered to be the largest financial market in the world. It is a
worldwide decentralized over-the-counter financial market for the trading of currencies.
Because the currency markets are large and liquid, they are believed to be the most efficient
financial markets. It is important to realize that the foreign exchange market is not a
single exchange, but is constructed of a global network of computers that connects
participants from all parts of the world.

Commodities Market

It is a physical or virtual marketplace for buying, selling and trading raw or primary products. For
investors' purposes there are currently about 50 major commodity markets worldwide that facilitate
investment trade in nearly 100 primary commodities. Commodities are split into two types: hard and
soft commodities. Hard commodities are typically natural resources that must be mined or extracted
(gold, rubber, oil, etc.), whereas soft commodities are agricultural products or livestock (corn, wheat,
coffee, sugar, soybeans, pork, etc.)

44
INDIAN FINANCIAL MARKETS

India Financial market is one of the oldest in the world and is considered to be the fastest
growing and best among all the markets of the emerging economies. The history of Indian
capital markets dates back 200 years toward the end of the 18th century when India was
under the rule of the East India Company. The development of the capital market in India
concentrated around Mumbai where no less than 200 to 250 securities brokers were active
during the second half of the 19th century. The financial market in India today is more
developed than many other sectors because it was organized long before with the securities
exchanges of Mumbai, Ahmadabad and Kolkata were established as early as the 19th
century. By the early 1960s the total number of securities exchanges in India rose to eight,
including Mumbai, Ahmadabad and Kolkata apart from Madras, Kanpur, Delhi, Bangalore
and Pune. Today there are 21 regional securities exchanges in India in addition to the
centralized NSE (National Stock Exchange) and OTCEI (Over the Counter Exchange of
India).

However the stock markets in India remained stagnant due to stringent controls on the market
economy that allowed only a handful of monopolies to dominate their respective sectors. The
corporate sector wasn't allowed into many industry segments, which were dominated by the state
controlled public sector resulting in stagnation of the economy right up to the early 1990s. Thereafter
when the Indian economy began liberalizing and the controls began to be dismantled or eased out; the
securities markets witnessed a flurry of IPO’s that were launched. This resulted in many new
companies across different industry segments to come up with newer products and services.

A remarkable feature of the growth of the Indian economy in recent years has been the role played by
its securities markets in assisting and fuelling that growth with money rose within the economy. This
was in marked contrast to the initial phase of growth in many of the fast growing economies of East
Asia that witnessed huge doses of FDI (Foreign Direct Investment) spurring growth in their initial
days of market decontrol. During this phase in India much of the organized sector has been affected
by high growth as the financial markets played an all-inclusive role in sustaining financial resource
mobilization. Many PSUs (Public Sector Undertakings) that decided to offload part of their equity
were also helped by the well-organized securities market in India.

45
The launch of the NSE (National Stock Exchange) and the OTCEI (Over the Counter Exchange of
India) during the mid 1990s by the government of India was meant to usher in an easier and more
transparent form of trading in securities. The NSE was conceived as the market for trading in the
securities of companies from the large-scale sector and the OTCEI for those from the small-scale
sector. While the NSE has not just done well to grow and evolve into the virtual backbone of capital
markets in India the OTCEI struggled and is yet to show any sign of growth and development. The
integration of IT into the capital market infrastructure has been particularly smooth in India due to the
country’s world class IT industry. This has pushed up the operational efficiency of the Indian stock
market to global standards and as a result the country has been able to capitalize on its high growth
and attract foreign capital like never before.

The regulating authority for capital markets in India is the SEBI (Securities and Exchange Board of
India). SEBI came into prominence in the 1990s after the capital markets experienced some
turbulence. It had to take drastic measures to plug many loopholes that were exploited by certain
market forces to advance their vested interests. After this initial phase of struggle SEBI has grown in
strength as the regulator of India’s capital markets and as one of the country’s most important
institutions.

46
 CHAPTER-IV
DATA ANALYSIS

47
 DATA ANALYSIS
1. From how many years you are in the security market?

0-2 year 2-4 year

4-6 year more than 6 year

No. of years No. of persons

0-2 year 21
2-4 year 24
4-6 year 9
more than 6 year 6

45%
40%
40%
35%
35%

30%

25%

20%
15%
15%
10%
10%

5%

0%
0-2 YEAR 2-4 YEAR 4-6 YEAR MORE THAN 6 YEAR

As shown above 35 % persons of my study have experience of about 2 years, about 40 % persons of
my study have experience about 2 to 4 years, 15 % persons of my study have experience about 4 to 6
years, about 10 % persons of my study have experience of more than 6 years in security market.

48
 2. How much investment have you made in the market? (Approximate)

0-2 lakh 2-4 lakh

4-6 lakh more than 6 lakh

Investment No. of persons

0-2 lack 30

2-4 lack 18

4-6 lack 9

more than 6 lack 3

60%
50%
50%

40%
30%
30%

20% 15%

10% 5%

0%
0-2 LAKH 2-4 LAKH 4-6 LAKH MORE THAN 6 LAKH

As per my research about 50 % persons would like to invest up to 2 lack while 30 % persons would
like to invest 2 to 4 lack and about 15 % persons would like to invest 4 to 6 lack while only 5 %
persons would like to invest more than 6 lack. So company should focus on those customers who
would like to invest more in security market.

49
 3. Who brings you in security market?

Friends & Relative News paper

Advertise Mega public issue

Source No. of persons

Friends & Relative 42
News paper 12
Advertise 0
Mega public issue 6

80%
70%
70%

60%

50%

40%

30%
20%
20%
10%
10%
0%
0%
FRIENDS & RELATIVE NEWSPAPER & ADVERTISE MEGA PUBLIC ISSUE
MAGAZINE

As per above chart about 70 % persons would like to invest in security market as per opinion of their
friends and relatives while 20 % persons would like to invest as per newspaper and magazines and
persons do not like to invest through advertising and about 10 % persons would like to invest as per
mega public issue. So it can be conclude that most of the people invest as per opinion of their friends
and relatives.

50
 4. What you prefer more?

Investment Trading Both

Preference No. of persons

Investment 36
Trading 18
Both 6

70%
60%
60%

50%

40%
30%
30%

20%
10%
10%

0%
INVESTMENT TRADING BOTH

As per my research 60 % persons prefer investment while 30 % persons prefer trading and only 10 %
persons prefer both investment & trading. So we can conclude that majority of the people prefer to
invest rather than trading in the security market.

51
 5 How much investment experience do you have?

Very little knowledge & experience

Some investment knowledge & understanding

Very huge experience & good knowledge of investment

Experience No. of persons

Very little knowledge & experience 6

Some investment knowledge & understanding 42

Very huge experience &good knowledge of investment 12

80%
70%
70%

60%

50%

40%

30%
20%
20%
10%
10%

0%
Very little know ledge & Some investment Very huge experience
experience knowledge & understanding &good knowledge of
investment

As per above chart 10% persons have Very little knowledge & experience while about 70 % persons
have Some investment knowledge & understanding and about 20% persons have Very huge
experience &good knowledge of investment. From above information it is clear that the majority of
people who invest in security market have average knowledge of investment.

52
 6. How frequently do you invest in the market?

Weekly Monthly

Quarterly Half yearly

Frequency of investment No. of persons

Weekly 24
Monthly 18
Quarterly 8
Half yearly 10

45%
40%
40%

35%
30%
30%

25%

20% 16.67%
15% 13.33%

10%

5%

0%
Weekly Monthly Quarterly Half yearly

As per my research about 40 % persons would like to invest weekly in security market while 30%
persons would like to invest monthly in security market and about 13.33% persons would like to
invest quarterly in security market while about 16.67% persons would like to invest half yearly in
security market.

53
 7. From total saving how much portion of amount you invest in security market?

10-20% 20-40% 40-60%

60-80% 80-100%

Investment in security market No. of persons

10-20% 10

20-40% 24

40-60% 18

60-80% 4

80-100% 4

45.00%
40%
40.00%

35.00%
30%
30.00%
25.00%

20.00% 16.66%
15.00%

10.00% 6.67% 6.67%

5.00%

0.00%
10-20 % 20-40% 40-60% 60-80% 80-100%

As per above chart about 16.66% persons invest 10 to 20% of their saving while about 40% persons
invest 20 to 40% of their saving and about 30% persons invest 40 to 60% of their saving and about
6.67% persons invest 60 to 80% of their saving while about 6.67% persons invest 80 to 100% of their
saving.

54
 8 How much do you invest at a time? (In1000Rs.)

Up to 5 5-10

10-15 15-20

20-25 More than 25

Investment at a time (In1000Rs.) No. of persons

Up to 5 20

5-10 20

10-15 10

15-20 2

20-25 2

More than 25 6

40.00%

35.00% 33.34% 33.34%

30.00%

25.00%

20.00% 16.66%
15.00%
10%
10.00%

5.00% 3.33% 3.33%

0.00%
Up to 5 5-10 10-15 15-20 20-25 MORE THAN 25

As per my research about 33.34% persons invest up to 5000 Rs. At a time and about 33.345 persons
invest 5000 to 10000 Rs. At a time while about 16.66% persons invest 10000 to 15000 Rs. At a time
and about 3.33% persons invest 15000 to 20000 Rs. At a time while another 3.33% persons would
like to invest 20000 to 25000 Rs. At a time and about 10% persons invest more than 25000 Rs. At a
time.

55
 9. For how much period you made investment?

8-10 Days 1-3 Month

3-6 Month 6-12 Month

More than 1year

Period for investment No. of persons

8-10 Days 4

1-3 Month 24

3-6 Month 6

6-12 Month 18

More than 1year 8

45.00%
40%
40.00%
35.00%
30%
30.00%
25.00%
20.00%
15.00% 13.33%
10%
10.00% 6.67%
5.00%
0.00%
8-10 Days 1-3 Month 3-6 Month 6-12 Month More than 1year

Above chart shows that about 6.67% persons invest for 8 to 10 days while about 40% persons invest
for 1 month to 3 month and about 10% persons invest for 3 month to 6 month while 30% persons
invest for 6 month to 12 month and about 13.33% persons invest for more than one year.

56
10. How much return you expect on your investment decision?

8-12% 12-16%

16-20% More than 20%

Expected return No. of persons

8-12% 18

12-16% 11

16-20% 16

More than 20% 15

35%
30%
30%
26.67%
25%
25%

20% 18.33%

15%

10%

5%

0%
8-12% 12-16% 16-20% MORE THAN 20%

As per my research 30% persons expect 8 to 12% return while 18.33% persons expect 12 to 16%
return and about 26.67% expect 16 to 20% return while 25% persons expect more than 2

57
11. On what basis you take your investment decision?

Broker’s advise Market situation

Tips, paid service News paper, Magazine

Company’s news, Result Own study

Base No.of persons

Broker’s advise 12

Market situation 12

Tips, paid service 6

News paper, Magazine 8

Company’s news, Result 6

Own study 16

Broker’s advise 20%

26.67% 20%
Market situation
20%
Tips, paid service
10%
News paper,
20% Magazine 13.33%
10% Company’s news,
Result 10%
Own study 26.67%
13.33%
10%

Above chart shown the various factors and its impact on investment and how investor consider such
factors while investing. The chart suggest that people much like to invest according to their own study
ofsecuritymarket.

58
12. At current level which sector do you prefer more for investment?

Banking & Construction Energy & Power

Reality (real estate) Engineering

Metal Information technology

Capital Goods Financial Services

FMCG Telecom

Sector No. of persons

Banking & Construction 8
Energy & Power 12
Reality (real estate) 5
Engineering 4
Metal 4
Information technology 7
Capital Goods 5
Financial Services 6
FMCG 6
Telecom 3

Telecom
5%
FMCG Banking &
10% Construction
13%
Financial
Services Energy & Power
10% 20%

Capital Goods
8% Reality
(real estate)
Information Metal
8%
technology 7%
12% Engineering
7%

59
 13. From below mentioned share price range which range do you prefer for

Buying share?

Below Rs.50 Rs.50-100

Rs100-500 More than Rs.500

Price range No. of persons

Below Rs.50 6
Rs.50-100 26
Rs100-500 20
More than Rs.500 8

50%
45% 43.34%

40%
35% 33.33%

30%
25%
20%
15% 13.33%
10%
10%
5%
0%
Below Rs.50 Rs.50-100 Rs100-500 More than Rs.500

Above chart shows the price range preferred by various persons. From the above chart it can be
conclude that majority of people prefer the price of share from 50 to 100.

60
 14. What is your Investment strategy?

 Don’t invest more than 40% of your income

 Intention (market) environment based selection of sector and in that sector
invest in powerful companies
 Installment type investment like SIP
 Invest at every decline
 Invest for long term
 Invest in Blue Chip Company with good management.
 More investment, more money
 Invest in company which give good return to shareholder & have good
performance.
 Invest in short term profit making companies.
 Take delivery and wait up to sufficient return
15. In your opinion what are the mistakes made by common investors?

 Buy when price of share is high

 Don’t buy when price of share is low
 Purchase according to other’s views & tips
 Not buying in correction
 Buying speculative shares
 Buy at every upside and sell at every decline
 Invest money without understanding risk factor of sector and company
 Investors do not have patience.
16. What are your views for making money insecuritymarket?

Long term investment in powerful companies in recession time

 Buy in correction
 Avoid penny and speculative shares
 Buy at every decline and sell at every upside
 Give more time to your investment

61
 Invest your money systematically
 Study the companies, make your own policies for investment and do not
fall victim of fear and greed
 To make money, take chances
 Buy shares when people sell and sell shares when people buy
17. Give your opinion reasons for this major correction?

 World recession
 Forth coming political elections
 Excessive rise of equities market in recent time
 Global financial crisis
 American subprime issue
 Lowest consumers and industrial demand
 Historical recession in world market
 Stock loss their trust in public
 Change in normal investor’s thinking regarding stock
 Inflation
 Foreign investor

62
 People who invest insecuritymarket have experience ofsecuritymarket average 2 to 4 years.

 Most of the people do not want to invest insecuritymarket more than 2 lack.

 Many people take decision to invest insecuritymarket as per opinion of their friends and
relatives.

 People prefer to invest insecuritymarket rather than trading

 People who invest insecuritymarket have some investment knowledge & understanding
regardingsecuritymarket.

 Most of the people make investment insecuritymarket weekly or monthly.

 People would like to invest about 40% of their saving insecuritymarket.

 People like to invest up to 10,000 rs. At a time

 Most of the people would like to invest for 1 to 3 months insecuritymarket.

 Most of the people expect 15 % return of their investment.

 Most of the people invest on the basis of their own study, broker’s advice & market situation.

 Most of the people prefer to invest in energy & power sector and banking & construction
sector.
 Most of the people prefer price of share about 50 to 100 rs.

63
 Invest in company which give good return to shareholder & have good performance.

 Take delivery and wait up to sufficient return

 Intention (market) environment based selection of sector and in that sector invest in powerful
companies
 Long term investment in powerful companies in recession time
 Study the companies, make your own policies for investment and do not fall victim of fear
and greed

64
It is a good experience for me to conduct research about study of investor
investment behavior insecuritymarket & suggesting good investment strategy.

It will prove very helpful to me in my future career.

While conducting this research I can understand the strategies of the people
who invest insecuritymarket, their preference for investment, their experience
ofsecuritymarket, frequency of investment, expected return, on which basis they
invest & their views to about to make money insecuritymarket.

65
  WEBSITE

www.geojit.com

 ANNEXURE

Questionnaire

66
 Dear Sir/ Madam,

I am student of B.B.A programme in. I m conducting a survey on

study of security market in Hyderabad city. Please help me in this by
answering the following simple questions. I will treat any information you give
me in strictest confident and will use only for academic purpose.

1. From how many years you are in the security market?

0-2 year 2-4 year

4-6 year more than 6 year

2. How much investment have you made in the market? (Approximate)

0-2 lakh 2-4 lakh

4-6 lakh more than 6 lakh

3. Who brings you insecuritymarket?

Friends & Relative News paper

Advertise Mega public issue

4. What you prefer more?

Investment Trading Both

67
5. How much investment experience do you have?

Very little knowledge & experience

Some investment knowledge & understanding

Very huge experience & good knowledge of investment

6. How frequently do you invest in the market?

Weekly Monthly

Quarterly Half yearly

7. From total saving how much portion of amount you invest in security market?

10-20% 20-40% 40-60%

60-80% 80-100%

68
8. How much do you invest at a time? (In1000Rs.)

Up to 5 5-10

10-15 15-20

20-25 More than 25

9. For how much period you made investment?

8-10 Days 1-3 Month

3-6 Month 6-12 Month

More than 1year

10. How much return you expect on your investment decision?

8-12% 12-16%

16-20% More than 20%

69
11. On what basis you take your investment decision?

Broker’s advise

Market situation

Tips, paid service

News paper, Magazine

Company’s news, Result

Own study

12. At current level which sector do you prefer more for investment?

Banking & Construction Energy & Power

Reality (real estate) Engineering

Metal Information technology

Capital Goods Financial Services

70
 FMCG Telecom

13. From below mentioned share price range which range do you prefer for

Buying share?

Below Rs.50 Rs.50-100

Rs100-500 More than Rs.500

14. What is your Investment strategy?

------------------------------------------------------------------------------------------------

15. In your opinion what are the mistakes made by common investors?

------------------------------------------------------------------------------------------------

16. What are your views for making money in security market?

------------------------------------------------------------------------------------------------

17. Give your opinion reasons for this major correction?

------------------------------------------------------------------------------------------------ -----
---------------------------------- PERSONAL INFORMATION-------------------------------------

71
NAME: ---------------------------------------------------------------------

ADDRESS: -------------------------------------------------------------

AGE: ------------ YEARS

PROFESSION:

A) BUSINESS B) SERVICE C) PROFESSION D) OTHER

ANNUAL INCOME:

A) LESS THAN 50,000 B) 50,000 TO 1,00,000

C) 1, 00,001 TO 3, 00,000 D) 3, 00,001 TO 5, 00,000

E) MORE THAN 5, 00,000

72