CHAPTER-I

INTRODUCTION

EQUITY ANALYSIS

The listed company which trade shares in public is an interesting topic. The are so many books who study about equity. The Investors are interesting in equity analysis because it could give us so many return. The good analysis could predict which company could give multiple return. The investor has invested money at the company and they

It is impossible that a bad company could give us high return. Garbage in, Garbage out. Unfortunately, some bad companies looks very good. They often manipulate the financial statement.

The equity analysis may disclose the real company condition. This analysis is also important not only for investor but also other company.

There are two major equity analysis i.e. fundamental analysis and technical analysis. Both analysis has different way. Fundamental analysis analyze the financial statement of company; meanwhile, the technical just analyze the price movement.

In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If valuations placed on assets do not exceed liabilities, negative equity exists. In an accounting context, Shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital or similar terms) represents the remaining interest in assets of a company, spread among individual shareholders of common or preferred stock.

At the start of a business, owners put some funding into the business to finance operations. This creates a liability on the business in the shape of capital as the business is a separate entity from its owners. Businesses can be considered to be, for accounting purposes, sums of liabilities and assets; this is the accounting equation. After liabilities have been accounted for, the positive remainder is deemed the owner's interest in the business.

This definition is helpful in understanding the liquidation process in case of bankruptcy. At first, all the secured creditors are paid against proceeds from assets. Afterward, a series of creditors, ranked in priority sequence, have the next claim/right on the residual proceeds. Ownership equity is the last or residual claim against assets, paid only after all other creditors are paid. In such cases where even creditors could not get enough money to pay their bills, nothing is left over to reimburse owners' equity. Thus owners' equity is reduced to zero. Ownership equity is also known as risk capital, liable capital or simply, equity.

Equity investments

An equity investment generally refers to the buying and holding of shares of stock on a stock market by individuals and firms in anticipation of income from dividends and capital gains, as the value of the stock rises. It may also refer to the acquisition of equity (ownership) participation in a private (unlisted) company or a startup company. When the investment is in infant companies, it is referred to as venture capital investing and is generally understood to be higher risk than investment in listed going-concern situations.

The equities held by private individuals are often held via mutual funds or other forms of collective investment scheme, many of which have quoted prices that are listed in financial newspapers or magazines; the mutual funds are typically managed by prominent fund management firms, such as Schroders, Fidelity Investments or The Vanguard Group. Such holdings allow individual investors to obtain the diversification of the fund(s) and to obtain the skill of the professional fund managers in charge of the fund(s). An alternative, which is usually employed by large private investors and pension funds, is to hold shares directly; in the institutional environment many clients who own portfolios have what are called segregated funds, as opposed to or in addition to the pooled mutual fund alternatives.

A calculation can be made to assess whether an equity is over or underpriced, compared with a long-term government bond. This is called the Yield Gap or Yield Ratio. It is the ratio of the dividend yield of an equity and that of the long-term bond.SCOPE OF THE STUDY Investor can assess the company financial strength and factors that affect the company. Scope of the study is limited. We can say that 70% of the analysis is proved good for the investor, but the 30% depends upon market sentiment. The topic is selected to analyses the factors that affect the future EPS of a company based on fundamentals of the company.

The market standing of the company studied in the order to give a better scope to the Analysis is helpful to the investors, share holders, creditors for the rating of the company. NEED AND IMPORTENCE OF STUDYOne of the single best things you can do to further your education in trading commodities is to keep thorough records of your trades. Maintaining good records requires discipline, just like good trading. Unfortunately, many commodity traders dont take the time to track their trading history, which can offer a wealth of information to improve their odds of success most professional traders, and those who consistently make money from trading commodities, keep diligent records of their trading activity. The same cannot be said for the masses that consistently lose at trading commodities.Losing commodity traders are either too lazy to keep records or they cant stomach to look at their miserable results. You have to be able to face your problems and start working on some solutions if you want to be a successful commodities trader. If you cant look at your mistakes and put in the work necessary to learn from them, you probably shouldnt be trading commodities. OBJECTIVE OF THE STUDYThis study is done to know about Primary and Secondary market (Stock exchange) activities.

To know why the companies go to new issue market in INDIA INFOLINE LTD (IIFL).

To know how the primary market intermediaries communicate companies and investors in INDIA INFOLINE LTD (IIFL).

To know how the primary market activities used by the companies in their new issue shares in INDIA INFOLINE LTD (IIFL).

To know how the companies listed in the stock exchanges.

To know how trading activity is to be done.

To know the complete awareness of secondary market (stock exchanges like NSE, BSE).

METHODOLOGY The data collection methods include both the Primary and Secondary Collection methods.

1. Primary Collection Methods:

This method includes the data collected from the personal discussions with the authorized clerks and members of the Exchange.

2. Secondary Collection Methods:

The Secondary Collection Methods includes the lectures of the superintend of the Department of Market Operations, EDP etc, and also the data collected from the News, Magazines of the NSE, HSE and different books issues of this studyLIMITATIONS OF THE PROJECT Time constraint was a major limiting factor. Forty five days were insufficient to even grasp the theoretical concepts.

Several other strategies that could have been studied were not done.

Lack of knowledge with the brokers.

Difference of theory from practice.

Absence of required knowledge and technology.

CHAPTER-II

INDUSTRY PROFILE

&

COMPANY PROFILE

For the Indian investors, the year belonged to stock markets, which have been shining bright when it comes to generating wealth, while the glitter of gold and silver faded for the second straight year in 2013.

Measured byBSE Sensex, stock market has generated a positive return of about 9 per cent for investors in 2013, while gold prices fell by about three per cent and its poorer cousin silver plummeted close to 24 per cent.

After outperforming stock market for more than a decade, gold has been on back foot for two consecutive years now vis-a-vis equities, shows an analysis of their price movements.

"Gold's under-performance was mainly due to prices falling in dollar terms amid anticipated tapering over last several months combined with FII investment in Indian stocks.

"This movement has been equally true for global markets as 2013 saw gold losing its shine and markets coming back with a bang," said Jayant Manglik, President Retail Distribution, Religare Securities.

"As always, gold and stock prices follow opposite trends and this year was no different except that both changed direction," he said.

Improvement in the world economy has brought the risk appetite back amongst retail investors and this has drenched the liquidity from safe havens such as gold leading to its under-performance, an expert said.

In 2012, the Sensex had gained over 25 per cent, which was nearly double the gain of about 12.95 per cent in gold. The appreciation in silver was at about 12.84 per last year.

According to Hiren Dhakan, Associate Fund Manager, Bonanza Portfolio, "Markets have particularly shown great strength post July-August 2013 when RBI took some strong measures to control the steeply depreciating rupee."

"When the US Fed gave indications that it might taper its stimulus programme given the economy shows improvement, a knee-jerk correction was seen in most risky assets, including stocks in Indian markets. However, assurance by the Fed about planned and staggered tapering in stimulus once again proved to be a catalyst for the markets."

"External factors affecting Indian stocks seem to be negative for the first half of 2014 due to continued strength of the US dollar and benign in the second half. By that time, elections too would have taken place. A combination of domestic and international factors point to a bumper closing of Indian markets in 2014 with double-digit percentage growth," he said.

Stock market segment mid-cap and small-cap indices have fallen by about 10 per cent and 16 per cent, respectively, in 2013.

Foreign Institutional Investors have bought shares worth over Rs 1.1 lakh crore (nearly USD 20 billion) till December 19. In 2012, they had pumped in Rs 1.28 lakh crore (USD 24.37 billion).

EvolutionIndian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years ago. The earliest records of security dealings in India are meager and obscure. The East India Company was the dominant institution in those days and business in its loan securities used to be transacted towards the close of the eighteenth century.

By 1830's business on corporate stocks and shares in Bank and Cotton presses took place in Bombay. Though the trading list was broader in 1839, there were only half a dozen brokers recognized by banks and merchants during 1840 and 1850.

The 1850's witnessed a rapid development of commercial enterprise and brokerage business attracted many men into the field and by 1860 the number of brokers increased into 60.

In 1860-61 the American Civil War broke out and cotton supply from United States of Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers increased to about 200 to 250. However, at the end of the American Civil War, in 1865, a disastrous slump began (for example, Bank of Bombay Share which had touched Rs 2850 could only be sold at Rs. 87).

At the end of the American Civil War, the brokers who thrived out of Civil War in 1874, found a place in a street (now appropriately called as Dalal Street) where they would conveniently assemble and transact business. In 1887, they formally established in Bombay, the "Native Share and Stock Brokers' Association" (which is alternatively known as " The Stock Exchange "). In 1895, the Stock Exchange acquired a premise in the same street and it was inaugurated in 1899. Thus, the Stock Exchange at Bombay was consolidated.

Other leading cities in stock market operationsAhmadabad gained importance next to Bombay with respect to cotton textile industry. After 1880, many mills originated from Ahmadabad and rapidly forged ahead. As new mills were floated, the need for a Stock Exchange at Ahmadabad was realized and in 1894 the brokers formed "The Ahmadabad Share and Stock Brokers' Association".

What the cotton textile industry was to Bombay and Ahmadabad, the jute industry was to Calcutta. Also tea and coal industries were the other major industrial groups in Calcutta. After the Share Mania in 1861-65, in the 1870's there was a sharp boom in jute shares, which was followed by a boom in tea shares in the 1880's and 1890's; and a coal boom between 1904 and 1908. On June 1908, some leading brokers formed "The Calcutta Stock Exchange Association".

In the beginning of the twentieth century, the industrial revolution was on the way in India with the Swadeshi Movement; and with the inauguration of the Tata Iron and Steel Company Limited in 1907, an important stage in industrial advancement under Indian enterprise was reached.

Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies generally enjoyed phenomenal prosperity, due to the First World War.

In 1920, the then demure city of Madras had the maiden thrill of a stock exchange functioning in its midst, under the name and style of "The Madras Stock Exchange" with 100 members. However, when boom faded, the number of members stood reduced from 100 to 3, by 1923, and so it went out of existence.

In 1935, the stock market activity improved, especially in South India where there was a rapid increase in the number of textile mills and many plantation companies were floated. In 1937, a stock exchange was once again organized in Madras - Madras Stock Exchange Association (Pvt) Limited. (In 1957 the name was changed to Madras Stock Exchange Limited).

Lahore Stock Exchange was formed in 1934 and it had a brief life. It was merged with the Punjab Stock Exchange Limited, which was incorporated in 1936.

Indian Stock Exchanges - An Umbrella GrowthThe Second World War broke out in 1939. It gave a sharp boom which was followed by a slump. But, in 1943, the situation changed radically, when India was fully mobilized as a supply base.

On account of the restrictive controls on cotton, bullion, seeds and other commodities, those dealing in them found in the stock market as the only outlet for their activities. They were anxious to join the trade and their number was swelled by numerous others. Many new associations were constituted for the purpose and Stock Exchanges in all parts of the country were floated.

The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited (1940) and Hyderabad Stock Exchange Limited (1944) were incorporated.

In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited and the Delhi Stocks and Shares Exchange Limited - were floated and later in June 1947, amalgamated into the Delhi Stock Exchnage Association Limited.

Post-independence ScenarioMost of the exchanges suffered almost a total eclipse during depression. Lahore Exchange was closed during partition of the country and later migrated to Delhi and merged with Delhi Stock Exchange.

Bangalore Stock Exchange Limited was registered in 1957 and recognized in 1963.

Most of the other exchanges languished till 1957 when they applied to the Central Government for recognition under the Securities Contracts (Regulation) Act, 1956. Only Bombay, Calcutta, Madras, Ahmadabad, Delhi, Hyderabad and Indore, the well established exchanges, were recognized under the Act. Some of the members of the other Associations were required to be admitted by the recognized stock exchanges on a concessional basis, but acting on the principle of unitary control, all these pseudo stock exchanges were refused recognition by the Government of India and they thereupon ceased to function.

Thus, during early sixties there were eight recognized stock exchanges in India (mentioned above). The number virtually remained unchanged, for nearly two decades. During eighties, however, many stock exchanges were established: Cochin Stock Exchange (1980), Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982), and Pune Stock Exchange Limited (1982), Ludhiana Stock Exchange Association Limited (1983), Gauhati Stock Exchange Limited (1984), Kanara Stock Exchange Limited (at Mangalore, 1985), Magadh Stock Exchange Association (at Patna, 1986), Jaipur Stock Exchange Limited (1989), Bhubaneswar Stock Exchange Association Limited (1989), Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989), Vadodara Stock Exchange Limited (at Baroda, 1990) and recently established exchanges - Coimbatore and Meerut. Thus, at present, there are totally twenty one recognized stock exchanges in India excluding the Over The Counter Exchange of India Limited (OTCEI) and the National Stock Exchange of India Limited (NSEIL).

The Table given below portrays the overall growth pattern of Indian stock markets since independence. It is quite evident from the Table that Indian stock markets have not only grown just in number of exchanges, but also in number of listed companies and in capital of listed companies. The remarkable growth after 1985 can be clearly seen from the Table, and this was due to the favouring government policies towards security market industry.

Trading Pattern of the Indian Stock MarketTrading in Indian stock exchanges are limited to listed securities of public limited companies. They are broadly divided into two categories, namely, specified securities (forward list) and non-specified securities (cash list). Equity shares of dividend paying, growth-oriented companies with a paid-up capital of atleast Rs.50 million and a market capitalization of atleast Rs.100 million and having more than 20,000 shareholders are, normally, put in the specified group and the balance in non-specified group.

Two types of transactions can be carried out on the Indian stock exchanges: (a) spot delivery transactions "for delivery and payment within the time or on the date stipulated when entering into the contract which shall not be more than 14 days following the date of the contract" : and (b) forward transactions "delivery and payment can be extended by further period of 14 days each so that the overall period does not exceed 90 days from the date of the contract". The latter is permitted only in the case of specified shares. The brokers who carry over the outstandings pay carry over charges (cantango or backwardation) which are usually determined by the rates of interest prevailing.

A member broker in an Indian stock exchange can act as an agent, buy and sell securities for his clients on a commission basis and also can act as a trader or dealer as a principal, buy and sell securities on his own account and risk, in contrast with the practice prevailing on New York and London Stock Exchanges, where a member can act as a jobber or a broker only.

The nature of trading on Indian Stock Exchanges are that of age old conventional style of face-to-face trading with bids and offers being made by open outcry. However, there is a great amount of effort to modernize the Indian stock exchanges in the very recent times.

Over The Counter Exchange of India (OTCEI)The traditional trading mechanism prevailed in the Indian stock markets gave way to many functional inefficiencies, such as, absence of liquidity, lack of transparency, unduly long settlement periods and benami transactions, which affected the small investors to a great extent. To provide improved services to investors, the country's first ringless, scripless, electronic stock exchange - OTCEI - was created in 1992 by country's premier financial institutions - Unit Trust of India, Industrial Credit and Investment Corporation of India, Industrial Development Bank of India, SBI Capital Markets, Industrial Finance Corporation of India, General Insurance Corporation and its subsidiaries and CanBank Financial Services.

Trading at OTCEI is done over the centres spread across the country. Securities traded on the OTCEI are classified into:

Listed Securities - The shares and debentures of the companies listed on the OTC can be bought or sold at any OTC counter all over the country and they should not be listed anywhere else

Permitted Securities - Certain shares and debentures listed on other exchanges and units of mutual funds are allowed to be traded

Initiated debentures - Any equity holding atleast one lakh debentures of a particular scrip can offer them for trading on the OTC.

OTC has a unique feature of trading compared to other traditional exchanges. That is, certificates of listed securities and initiated debentures are not traded at OTC. The original certificate will be safely with the custodian. But, a counter receipt is generated out at the counter which substitutes the share certificate and is used for all transactions.

In the case of permitted securities, the system is similar to a traditional stock exchange. The difference is that the delivery and payment procedure will be completed within 14 days.

Compared to the traditional Exchanges, OTC Exchange network has the following advantages:

OTCEI has widely dispersed trading mechanism across the country which provides greater liquidity and lesser risk of intermediary charges.

Greater transparency and accuracy of prices is obtained due to the screen-based scripless trading.

Since the exact price of the transaction is shown on the computer screen, the investor gets to know the exact price at which s/he is trading.

Faster settlement and transfer process compared to other exchanges.

In the case of an OTC issue (new issue), the allotment procedure is completed in a month and trading commences after a month of the issue closure, whereas it takes a longer period for the same with respect to other exchanges.

Thus, with the superior trading mechanism coupled with information transparency investors are gradually becoming aware of the manifold advantages of the OTCEI.

National Stock Exchange (NSE) With the liberalization of the Indian economy, it was found inevitable to lift the Indian stock market trading system on par with the international standards. On the basis of the recommendations of high powered Pherwani Committee, the National Stock Exchange was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and Investment Corporation of India, Industrial Finance Corporation of India, all Insurance Corporations, selected commercial banks and others.

Trading at NSE can be classified under two broad categories:

(a) Wholesale debt market and

(b) Capital market.

Wholesale debt market operations are similar to money market operations - institutions and corporate bodies enter into high value transactions in financial instruments such as government securities, treasury bills, public sector unit bonds, commercial paper, certificate of deposit, etc.

There are two kinds of players in NSE:

(a) trading members and

(b) participants.

Recognized members of NSE are called trading members who trade on behalf of themselves and their clients. Participants include trading members and large players like banks who take direct settlement responsibility.

Trading at NSE takes place through a fully automated screen-based trading mechanism which adopts the principle of an order-driven market. Trading members can stay at their offices and execute the trading, since they are linked through a communication network. The prices at which the buyer and seller are willing to transact will appear on the screen. When the prices match the transaction will be completed and a confirmation slip will be printed at the office of the trading member.

NSE has several advantages over the traditional trading exchanges. They are as follows:

NSE brings an integrated stock market trading network across the nation.

Investors can trade at the same price from anywhere in the country since inter-market operations are streamlined coupled with the countrywide access to the securities.

Delays in communication, late payments and the malpractices prevailing in the traditional trading mechanism can be done away with greater operational efficiency and informational transparency in the stock market operations, with the support of total computerized network.

Unless stock markets provide professionalized service, small investors and foreign investors will not be interested in capital market operations. And capital market being one of the major source of long-term finance for industrial projects, India cannot afford to damage the capital market path. In this regard NSE gains vital importance in the Indian capital market system.

PreambleOften, in the economic literature we find the terms development and growth are used interchangeably. However, there is a difference. Economic growth refers to the sustained increase in per capita or total income, while the term economic development implies sustained structural change, including all the complex effects of economic growth. In other words, growth is associated with free enterprise, where as development requires some sort of control and regulation of the forces affecting development. Thus, economic development is a process and growth is a phenomenon.

Economic planning is very critical for a nation, especially a developing country like India to take the country in the path of economic development to attain economic growth.

Why Economic Planning for India?One of the major objective of planning in India is to increase the rate of economic development, implying that increasing the rate of capital formation by raising the levels of income, saving and investment. However, increasing the rate of capital formation in India is beset with a number of difficulties. People are poverty ridden. Their capacity to save is extremely low due to low levels of income and high propensity to consume. Therefor, the rate of investment is low which leads to capital deficiency and low productivity. Low productivity means low income and the vicious circle continues. Thus, to break this vicious economic circle, planning is inevitable for India.

The market mechanism works imperfectly in developing nations due to the ignorance and unfamiliarity with it. Therefore, to improve and strengthen market mechanism planning is very vital. In India, a large portion of the economy is non-monitised; the product, factors of production, money and capital markets is not organized properly. Thus the prevailing price mechanism fails to bring about adjustments between aggregate demand and supply of goods and services. Thus, to improve the economy, market imperfections has to be removed; available resources has to be mobilized and utilized efficiently; and structural rigidities has to be overcome. These can be attained only through planning.

In India, capital is scarce; and unemployment and disguised unemployment is prevalent. Thus, where capital was being scarce and labour being abundant, providing useful employment opportunities to an increasing labour force is a difficult exercise. Only a centralized planning model can solve this macro problem of India.

Further, in a country like India where agricultural dependence is very high, one cannot ignore this segment in the process of economic development. Therefore, an economic development model has to consider a balanced approach to link both agriculture and industry and lead for a paralleled growth. Not to mention, both agriculture and industry cannot develop without adequate infrastructural facilities which only the state can provide and this is possible only through a well carved out planning strategy. The governments role in providing infrastructure is unavoidable due to the fact that the role of private sector in infrastructural development of India is very minimal since these infrastructure projects are considered as unprofitable by the private sector.

Further, India is a clear case of income disparity. Thus, it is the duty of the state to reduce the prevailing income inequalities. This is possible only through planning.

Planning History of IndiaThe development of planning in India began prior to the first Five Year Plan of independent India, long before independence even. The idea of central directions of resources to overcome persistent poverty gradually, because one of the main policies advocated by nationalists early in the century. The Congress Party worked out a program for economic advancement during the 1920s, and 1930s and by the 1938 they formed a National Planning Committee under the chairmanship of future Prime Minister Nehru. The Committee had little time to do anything but prepare programs and reports before the Second World War which put an end to it. But it was already more than an academic exercise remote from administration. Provisional government had been elected in 1938, and the Congress Party leaders held positions of responsibility. After the war, the Interim government of the pre-independence years appointed an Advisory Planning Board. The Board produced a number of somewhat disconnected Plans itself. But, more important in the long run, it recommended the appointment of a Planning Commission.

The Planning Commission did not start work properly until 1950. During the first three years of independent India, the state and economy scarcely had a stable structure at all, while millions of refugees crossed the newly established borders of India and Pakistan, and while ex-princely states (over 500 of them) were being merged into India or Pakistan. The Planning Commission as it now exists, was not set up until the new India had adopted its Constitution in January 1950.

Objectives of Indian PlanningThe Planning Commission was set up the following Directive principles :

To make an assessment of the material, capital and human resources of the country, including technical personnel, and investigate the possibilities of augmenting such of these resources as are found to be deficient in relation to the nations requirement.

To formulate a plan for the most effective and balanced use of the countrys resources.

Having determined the priorities, to define the stages in which the plan should be carried out, and propose the allocation of resources for the completion of each stage.

To indicate the factors which are tending to retard economic development, and determine the conditions which, in view of the current social and political situation, should be established for the successful execution of the Plan.

To determine the nature of the machinery this will be necessary for securing the successful implementation of each stage of Plan in all its aspects.

To appraise from time to time the progress achieved in the execution of each stage of the Plan and recommend the adjustments of policy and measures that such appraisals may show to be necessary.

To make such interim or auxiliary recommendations as appear to it to be appropriate either for facilitating the discharge of the duties assigned to it or on a consideration of the prevailing economic conditions, current policies, measures and development programs; or on an examination of such specific problems as may be referred to it for advice by Central or State Governments.

The long-term general objectives of Indian Planning are as follows:

Increasing National Income

Reducing inequalities in the distribution of income and wealth

Elimination of poverty

Providing additional employment; and

Alleviating bottlenecks in the areas of : agricultural production, manufacturing capacity for producers goods and balance of payments.

Economic growth, as the primary objective has remained in focus in all Five Year Plans. Approximately, economic growth has been targeted at a rate of five per cent per annum. High priority to economic growth in Indian Plans looks very much justified in view of long period of stagnation during the British rule

COMPANY PROFILE

About IIFL

The IIFL (India Infoline) group, comprising the holding company, India Infoline Ltd (NSE: INDIAINFO, BSE: 532636) 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, GoI 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 Indias leading online destinations for personal finance, stock markets, economy and business.

IIFL has been awarded the Best Broker, India by FinanceAsia and the Most improved brokerage, India in the AsiaMoney 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, IIFLs research is acknowledged by none other than Forbes as Best of the Web and a must read for investors in Asia. Our 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.

History & Milestones

1995Commenced operations as an Equity Research firm

1997Launched research products of leading Indian companies, key sectors and the economy Client included leading FIIs, banks and companies.

1999Launched www.indiainfoline.com

2000Launched online trading through www.5paisa.com Started distribution of life insurance and mutual fund

2003Launched proprietary trading platform Trader Terminal for retail customers

2004Acquired commodities broking license Launched Portfolio Management Service

2005Maiden IPO and listed on NSE, BSE

2006Acquired membership of DGCX Commenced the lending business

2007Commenced institutional equities business under IIFL Formed Singapore subsidiary, IIFL (Asia) Pte Ltd

2008Launched IIFL Wealth Transitioned to insurance broking model

2009Acquired registration for Housing Finance SEBI in-principle approval for Mutual Fund Obtained Venture Capital license

2010Received in-principle approval for membership of the Singapore Stock Exchange Received membership of the Colombo Stock Exchange

2011

Launchied IIFL mutual funds

Board of directors

Mr. Nirmal Jain

Chairman & Managing Director , India Infoline Ltd.

Mr. Nirmal Jain is the founder and Chairman of India Infoline Ltd. He is a PGDM (Post Graduate Diploma in Management) from IIM (Indian Institute of Management) Ahmedabad, a Chartered Accountant and a rank-holder Cost Accountant. His professional track record is equally outstanding. He started his career in 1989 with Hindustan Lever Limited, the Indian arm of Unilever. During his stint with Hindustan Lever, he handled a variety of responsibilities, including export and trading in agro-commodities. He contributed immensely towards the rapid and profitable growth of Hindustan Levers commodity export business, which was then the nations as well as the Companys top priority.

He founded Probity Research and Services Pvt. Ltd. (later re-christened India Infoline) in 1995; perhaps the first independent equity research Company in India. His work set new standards for equity research in India. Mr. Jain was one of the first entrepreneurs in India to seize the internet opportunity, with the launch of www.indiainfoline.com in 1999. Under his leadership, India Infoline not only steered through the dotcom bust and one of the worst stock market downtrends but also grew from strength to strength.

Mr. R. Venkataraman

Executive Director , India Infoline Ltd.

Mr. 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. He previously held senior managerial positions in ICICI Limited, including ICICI Securities Limited, their investment banking joint venture with J P Morgan of US, BZW and Taib Capital Corporation Limited. He was also the Assistant Vice President with G E Capital Services India Limited in their private equity division, possessing a varied experience of more than 19 years in the financial services sector

Mr. Nilesh Vikamsey

Independent Director , India Infoline Ltd.

Mr. Nilesh Vikamsey Board Member since February 2005 - is a practicing Chartered Accountant for 25 years and Senior Partner at M/s Khimji Kunverji & Co., Chartered Accountants, a member firm of HLB International, a world-wide organisation of professional accounting firms and business advisers, ranked amongst the top 12 accounting groups in the world. Mr. Vikamsey headed the audit department till 1990 and thereafter also handled financial services, consultancy, investigations, mergers and acquisitions, valuations and due diligence, among others. He is elected member of the Central Council of Institute of Chartered Accountant of India (ICAI), the Apex decision making body of the second largest accounting body in the world, 20102013.

He is on the ICAI study group member for the introduction of the Accounting Standard 30 on financial instruments recognition and management. Convener of the Study group Formed by ASB of ICAI to formulate comments on various Exposure Drafts, Discussion Papers and other matters pertaining to IFRS originating from IASB, Representative of the Institute of Chartered Accountants of India on the Committee for Improvement in Transparency, Accountability and Governance(ITAG) of South Asian Federation of Accountants (SAFA), Member of Executive Committee & IFRS Implementation Committee of WIRC of Institute of Chartered Accountant of India (ICAI), Accounting and Auditing Committee of Bombay Chartered Accountant Society (BCAS) and also on its Core Group, member of Review, Reforms & Rationalisation Committee, IPR Committee of Bombay Chamber of Commerce and Industry (BCCI), Member of Legal Affairs Committee of Bombay Chamber of Commerce and Industry(BCCI), Corporate Members Committee of The Chamber of Tax Consultants (CTC), Regular Contributor to WIRC Annual Referencer on Bank Branch Audit, Study/ Sub Group formed by ICAI for Considering Developments on Fair Value Accounting (AS 30) post Sub Prime crisis, Sub Group formed by ICAI for approaching the Government and Regulatory Authorities for Convergence with IFRS.

He is also a Vice Chairman of Financial Reporting Review Board Accounting Standard Board and Member of Accounting Standard Board and various other Standing and Non Standing Committees. Mr. Vikamsey is also a Director of Miloni Consultants Private Limited, HLB Offices and Services Private Limited, Trunil Properties Private Limited, BarKat Properties Private Limited and India Infoline Investment Services Limited.

Mr. Kranti Sinha

Independent Director , India Infoline Ltd.

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. He served as the Director and Chief Executive of LIC Housing Finance Limited from August 1998 to December 2002 and concurrently as the Managing Director of LICHFL Care Homes (a wholly-owned subsidiary of LIC Housing Finance Limited). He retired from the permanent cadre of the Executive Director of LIC; served as the Deputy President of the Governing Council of Insurance Institute of India and as a member of the Governing Council of National Insurance Academy, Pune apart from various other such bodies. Mr. Sinha is also on the Board of Directors of Hindustan Motors Limited and Cinemax (India) Limited.

Mr. A. K. Purwar

Independent Director , India Infoline Ltd.

Mr. Purwar is currently the Chairman of IndiaVenture Advisors Pvt. Ltd., investment manager to IndiaVenture Trust Fund I, the healthcare and life sciences focussed private equity fund sponsored by the Piramal Group. He has also taken over as the Chairman of IL & FS Renewable Energy Limited in March 2008 and India Infoline Investment Services Ltd in November 2009. He is working as Independent Director in leading companies in Telecom, Steel, Textiles, Power, Auto components, Renewable Energy, Engineering Consultancy, Financial Services and Healthcare Services. He is an Advisor to Mizuho Securities in Japan and is also a member of Advisory Board for Institute of Indian Economic Studies (IIES), Waseda University, Tokyo, Japan.

Mr. Purwar was the Chairman of State Bank of India, the largest bank in the country from November 02 to May 06 and held several important and critical positions like Managing Director of State Bank of Patiala, Chief Executive Officer of the Tokyo branch covering almost the entire range of commercial banking operations in his illustrious career at the bank from 1968 to 2006. Mr. Purwar also worked as Chairman of Indian Bank Association during 2005 2006. Mr. Purwar has received the CEO of the year Award from the Institute for Technology & Management (2004); Outstanding Achiever of the year Award from Indian Banks Association (2004); Finance Man of the Year Award by the Bombay Management Association in 2006.

IIFLs philosophy on Corporate Governance

IIFL (India Infoline) is committed to placing the Investor First, by continuously striving to increase the efficiency of the operations as well as the systems and processes for use of corporate resources in such a way so as to maximize the value to the stakeholders. The Group aims at achieving not only the highest possible standards of legal and regulatory compliances, but also of effective management.

Audit Committee

Terms of reference & Composition, Name of members and Chairman: The Audit committee comprises Mr Nilesh Vikamsey (Chairman), Mr Sat Pal Khattar, Mr Kranti Sinha, three of whom are independent Directors. The Managing Director, the Executive Director along with the Statutory and Internal Auditors are invitees to the Meeting. The Terms of reference of this committee are as under: - To investigate into any matter that may be prescribed under the provisions of Section 292A of The Companies Act, 1956 - Recommendation and removal of External Auditor and fixation of the Audit Fees. - Reviewing with the management the financial statements before submission of the same to the Board. - Overseeing of Companys financial reporting process and disclosure of its financial information. - Reviewing the Adequacy of the Internal Audit Function.

Compensation/ Remuneration Committee

Terms of reference & Composition, Name of members and Chairman: The Compensation / Remuneration Committee comprises Mr Kranti Sinha (Chairman), Mr Nilesh Vikamsey and Mr. Sat Pal Khattar all of whom are independent Directors. The Terms of reference of this committee are as under: - To fix suitable remuneration package of all the Executive Directors and Non Executive Directors, Senior Employees and officers i.e. Salary, perquisites, bonuses, stock options, pensions etc. - Determination of the fixed component and performance linked incentives alongwith the performance criteria to all employees of the company - Service Contracts, Notice Period, Severance Fees of Directors and employees. - Stock Option details: whether to be issued at discount as well as the period over which to be accrued and over which exercisable. - To conduct discussions with the HR department and form suitable remuneration policies.

Share Transfer and Investor Grievance Committee

Details of the Members, Compliance Officer, No of Complaints received and pending and pending transfers as on close of the financial year. The committee functions under the Chairmanship of Mr Kranti Sinha, a Non-executive independent Director. The other Members of the committee are Mr. Nirmal Jain and Mr. R Venkataraman. Ms Sunil Lotke, Company Secretary is the Compliance Officer of the Company.

In line with our vision to be the most respected company in the financial services space, we recognize the importance of contributing to and sustaining social transformation. With this end in mind, we have setup the IIFL foundation, which will work for the support and upliftment of the underprivileged sections of society.

The IIFL Foundation focuses on specific areas of need such as healthcare and education, the foundation will screen and select institutions and developmental agencies which are working in these domains and will provide necessary aid to improve the lives of the underprivileged and help them in achieving their potential.

Some of the activities undertaken by the IIFL Foundation:Barsana eye campThe IIFL Foundation sponsored an eye and dental camp held in February, 2010 with the support of expert doctors and surgeons from the Bhaktivedanta Hospital in Barsana near Mathura. While over 2,600 people underwent eye tests and over 800 were selected for free eye surgery, a total of over 1,800 dental procedures like extraction, scaling and filling, among others, were performed.Team IIFL provided its whole-hearted support to this noble cause and will continue to do so in the future

Pandharpur medical campThe IIFL Foundation sponsored the Pandharpur medical camp which was held by the Bhaktivedanta Hospital in July 2010 at Pandharpur. Free medical treatment was given at 4 camp sites, to approximately 49,815 pilgrims who had come to Pandharpur during Ashadi Ekadashi. The pilgrims were treated for fever, injuries, fractures, gastroenteritis, myalagia, headache, epilepsy, malaria, respiratory infections etc, during the camp.

Blood donation driveIIFL regularly organizes blood donation drives via camps at its various locations across India. Over 800 employees have participated in these camps.

CHAPTER-III

LITERATURE REVIEW

Equity Analysis

Decisions like whether you should buy or sell when trading in the share market is a difficult task to do. It requires split-hair analysis of the market. To do so one also needs to have excellent understanding of the market. Equity analysis forms an integral part of the share trading experience. Equity analysis decides the stance one would take in the share trading industry. Finding out the highs and lows in the market and analyzing the equity is of utmost importance before making any sort of investment. Technical analysis, fundamental analysis and others form a part of the equity analysis. www.bestindiansites.com has found you five best sites for your equity analysis

www.sensex.in Gives you rigorous analysis of the stock market. Get advice on whether you should buy or sell or invest in a share. You will get technical analysis, history of technical analysis, a fundamental analysis, about the roulette wheel and also on automated trading. Find out the details from the site. You will surely get useful information from here. Enrich yourself before you do that little trading. Visit the site.

www.indiainfoline.comThis is the official website of indiainfoline. You can get your equity analysis here. They have carefully selected and rated stocks for you on measures based on facts. They update their equity analysis on a daily basis. So, you will get an updated version every day. You will only have to be a member and everytime you want an updated analysis, you will have to log in and find out. However, if you are a new user, they have a sample you can view online. Just follow the simple instructions and get acquainted with their equity analysis procedure.

www.equitymaster.com

Find out from equity master about their trends in equity analysis. Find the current listings, the day's market, the markets in motion and much more right here. You can trust this site to give you authentic information. Find out the market trends from the site before you plan on investment. Become a member and surely you will benefit additionally from this. To find out more on equity analysis, visit their site.

www.nseindia.com

National Stock Exchange of India is one of the most trusted names in the market. They have been active in the market and a great analyzer of the latest trends. You will find the top gainers and losers from their site. Get the trade verification, historical data on equity analysis, risk management tips and a lot more from this site. Have a look at their member's directory too. You can also become a member to avail their services. Look for the details in this site. Visit the link above.

www.chartalert.net

They offer easy to use technical analysis prospecting tools that help in trading, online trading and stock investing. They offer to analyze individual stocks, industry groups, sector and indices. Find out how they do it from their site. Their methods have been explained in details. All that you need to do is find out. Do this easily. Simply visit the link above and you will be showered with information.

Capital Market Instruments

The capital markets are relatively for long term (greater than one year maturity) financial nstruments e.g bonds and stocks). It is the largest source of funds with long and indefinite maturity for companies are there by enhances the capital formation in the country. It offers a investment avenues to investors. The capital market instruments are the vehicles between the companies and the investors. The financial instruments that have short or medium term maturity periods are dealt in the money market whereas the financial instruments that have long maturity periods are dealt in the capital market. The different types of financial instruments that are traded in the capital markets are equity instruments, credit market instruments, insurance instruments, foreign exchange instruments, hybrid instruments and derivative instrument Stock market is the capital and SEBI is the driver. These instruments are of two types

Primary market

Secondary market

A part from derivative instruments, the following is the major mediums of

approaching capital markets:

Equity shares

Preference shares

Debentures/ bonds

American Depository Receipts (ADR)

Global Depository Receipts (GDR)

Derivatives

Employee stock option plan.

EQUITY SHARES:

They are also called as common stock. The common stock holders of a company are its real owners, the own the company and assume the ultimate risk associate with ownership. Their liability, how ever is restricted to the amount of their investment in the event of liquidation, these stock holders have a residual claim on the assets of the company after the claims of all creditors and preferred stock holders,are settled in full. Common stock like preferred stock, as no maturity date.NSE started trading in the equities segment (Capital Market segment) on November 3, 1994 and within a short span of 1 year became the largest exchange in India in terms of volumes transacted.Trading volumes in the equity segment have grown rapidly with average daily turnover increasing from Rs.17 crores during 1994-95 to Rs.14,148 corers during FY 2007-08. During the year 2007- o8,NSE reported a turnover of Rs.3,551,038 crores in the equities segment.The Equities section provides you with an insight into the equities segment of NSE and also provides real-time quotes and statistics of the equities market. In-depth information regarding listing of securities, trading systems & processes,clearing and settlement, risk management, trading statistics etc are available here.

AUTHORIZED, ISSUED AND OUTSTANDING SHARES:

An authorized shares is the maximum no. of shares that the articles of association (AOA) of thecompany permit it to issue in the market. A company can however amend its AOA to increase the number. The number of shares that the company has actually issued out these authorized shares is called as issued shares. A company usually likes to have a number of shares that a authorized but un-issued. These un-issued allow flexibility in granting stock options, pursuing merger targets and

splitting the stock. Outstanding shares refer to the number of shares issued and actually held by public. The corporation can buy back part of its issued stock and hold it as a treasury stock.Par value , book value and liquidating value :The par value of a share of stock is merely a recorded figure in the corporate charter and is of little economic significance. A company should not, however, issue common stock at a price less than par value, because any discount from par value ( amount by which the issuing price is less than the par value) is considered a contingent liability of the own wrest to the creditors of the company. In the event of liquidation, the share holders would be legally liable to creditors of any discount from par value. Example: suppose that xyz inc. is ready to start business for the first time and sold 10000 shares rupees 10 each . the share holders equity portion of the balance sheet would be common stock @ 10 each at par value:10000 shares issued and outstanding RS100000 Total shares holders equity RS100000.The book value per share of common stock is the shareholders equity total assets minus liabilities and preferred stocks as listed on the balance sheet- dividing by the number of shares outstanding .suppose that xyz is now 1 year old has generated RS 500000 after- tax profits, but pays number dividing. Thus, retained earnings are RS 50000. the share holders equity is now RS 100000+ RS 50000 =150000 and the book value per share is rs 1500000/10000=RS 25.Although one might expect the book value per share of stock to correspond to the liquidating value (per share) of the company, most frequently does not. Often assts are sold for less than their values, particularly when liquidating costs are involved.Market value

Market value per share is the current price at which the stock is traded. For actively traded stocks,

market price quotations are readily available. For the many in active stocks that have thin markets,

price are difficult to obtain. Even when obtainable, the information may reflect only the sale of a few shares of stock of common stock and not typify the market value of the firm as the whole. The market value of a share of common stock will usually differs from its book value and its liquidating value. Market value per share of common stock is a function of the current and expected future dividends of the company and the perceived risk of the stock on the part of investors. Rights of common share holders:

1.Rights of income:

If the company fails to pay contractual interest and principle and payments to creditors, the creditors are able to take legal action to insure that principle payments are made of company is liquidated. Common share holders, on the other hand, have legal recourse to a company for not distributing profits. only if management, the board of directors, or both engaged in fraud may share holders take their case to court and possibly force the company to pay dividends.

1. voting rights:

The common shares of a company are its owners and they are entitled to elect a board of directors. In a large corporations shares holders usually exercise only indirect control through the board of directors they elect. The board, in turn, select the management, and the management actually controls the operations of the company. In a sole proprietorship, partnership, or small corporation, the owners usually control the operation of the business directly.

2. proxies and proxy contests:

common share holders are entitled to one vote for each share of stock that they own . it is usually difficult, both physically and financially, for the most share holders to attend a corporations annual meetings. Because of this, many share holders vote of means of a proxy, a legal document by which share holders assign their right to vote to another person.

3. voting procedures:

Depending on the corporate charter, the board of directors is elected under either majority rule voting system or a cumulative voting system. Under the majority rule system, stock holders have one for each share of stock that they own, and they must vote for each director position that is open. Under cumulating voting system, a stock holder is able to accumulate votes and cast them for less than the total number of directors being elected. The total number of votes of each share holders is equal to the number of shares the stock holder times the number of directors being

elected.ISSUE MECHNISM:

The success of an issue depends, partly, on the Issue Mechanism.

The methods by, which new issues are made of

1. public issue through prospectus.

2. Offer for sale.

3. Placement.

4. Rights issue.

1. Public Issue Through Prospectus :

Under this method, the issuing companies themselves offer directly to general public a fixed number of shares at a stated price, which in the case of new companies is invariably the face value of the securities, and in the case of existing companies, it may something include a underwritten to ensure arising out of unsatisfactory public response. Transparency and wide distributions of shares are its important and advantages. The foundation of the public issue method is a prospectus, the minimum contents of which are prescribed by the Companies Act 1956. It also provides both civil and criminal liability for any misstatement in the prospectus. Additional disclosure requirements are also mandated by the SEBI.

The content of the prospectus, inter aria, include:

Name and registered office of the issuing company.

Existing and proposed activities.

Board of directors.

Location of the industry.

Authorized, subscribed and proposed issued of capital to public.

Dates of opening and closing of subscription list.

Names of broker, underwriter, and other from whom application forms along with copies of

prospectus can be obtained.

Minimum subscription.

Names of underwriter , if any, along with a statement that in the opinion of the directors, the

resources of the underwriter are sufficient to meet the underwriting obligation.

A statement that the company will make an application stock exchange for the permission to

deal in or for a quotation of its and so on.

2. Offer for sale:

Broker to their own client of securities which have been previously purchased or

subscribed. Under this method, securities are acquired by the issue houses, as in offer for sale

method, but instead of being subsequently offered to the public, they are placed with the client of

the issue houses, both individual and institutional investors. Each issue house has a prepared to

subscribe to any securities which are issued in this manner. Its procedure is the same with the only

Difference of ultimate investors.

In this method, no formal underwriting of the issue is required as the placement itself

amount to underwriting since the houses agree to place the issue with their clients.The main

advantages of placing, as a method issuing new securities, is its relative cheapness. There is a cost

cutting on account of underwriting commission, expense relating to applications, allotment of

shares and the stock exchange requirements relating to contents of the prospectus and its

advertisement. This method is generally adopted by small companies with unsatisfactory financial

performances.

Its weakness arises from the point of distribution of securities. As the securities are

offered only to a select group of investors, it may lead to the concentration of shares in to a few

hands that may create artificial scarcity of scripts in times of hectic dealings in such shares in the

market.

3.Rights Issue :

Only the existing companies can use this method. In the case of companies whose shares

are already listed and widely-held , shares can be offered to the existing shareholders. This is

called right issue. Under this method, the existing shareholders. Are offered the right to subscribed

to new shares in proportion to the number of shares they already hold. This is made by

circular to existing shareholders only.

In India, section 81 of the companies act 1956 provides that where a company increases its subscribed capital by the issue of new shares, either after two years of its formation or after one year of first issue of shares whichever is earlier, these have to be first offered to the existing shareholders with this requirement by passing a special resolution to the same effect. The chief merit of rights issues is that it is an inexpensive method.

Sweat equity shares :

Under section 9Aof the companies Act , 1956, a company can issue sweat equity shares to its employees or directors at discount or for consideration other than cash for providing know-how making available rights in the nature of intellectual property rights or value additions etc on the following.

conditions:

1. The issue of sweat equity share is authorized by a special resolution passed by the company in

the general meeting.

2. The resolution specifies the number of shares, current market,

Price, resolution, if any, and the class or classes of directors Or employees to whom such

equity shares are to be issued.

3. The company is entitled to issue sweat equity shares after completion of one year from the

date of Commencement Of business.

4. The equity shares of the company must be listed on a recognized stock exchange.

5. The issue of sweat equity shares must be listed on a accordance with the regulations made by

the SEBI in the behalf.

6. An unlisted company can issue sweat equity shares in accordance with the prescribed

guidelines made for this purpose.

7. All the limitations, restrictions and provision relating to equity shares shall be applicable to

sweat equity shares.

PREFERENCE SHARES:

Preference shares are a hybrid security because it has both ordinary shares and bonds. Preference shareholders have preferential rights in respect of assets and dividends. In the event of winding up the preference share holders have a claim on available assets before the ordinary shareholders. In addition, preference shareholders get their stated dividend before equity shareholders can receive any dividends.

TYPES OF PREFERENCE SHARES:

1. Cumulative and Non-cumulative preference shares:

The cumulative preference gives rights to demand the unpaid dividends of any year, during the subsequent ears when the profits and ample. All preference dividends arrears must be paid before any dividends can be paid to equity shareholders. The non cumulative preference share carry a right to a fixed dividend out of the profits to any year. In case profits are not available in a year, the holders get nothing, nor can they claim unpaid dividends in subsequent years.

2. Cumulative convertible preference shares:

The cumulative convertible preference (CCP) share is an instruments that embraces features of both equity shares and shares and preference shares, but which essentially is a preference shares. Since the CCP shares capital would constitute a class of shares, distinct from purely equity and purely preferences share capital, the rights of the instrument holders must be stated either in a general body resolution or in the articles or in the terms of issues inhe offer documents viz., prospectus /letter of offer.

3. Participating and non participating preference shares:

Participating preference shares are those shares which are entitled to a fixed

preferential dividend and . in addition , carry a right to participate in the surplus profits along

with equity shares holders after dividend at a certain rate has been paid to equity share holders.

Again in the event of winding up, if after paying back both preference and equity share holders,

there is still any surplus left, then the participating preference share holders get additional shares in

the surplus assets of the company. Unless expressly provided, preference share holders get only the

fixed preference dividends and return on capital in the event of winding up out of realized values of

assets after meeting all external liabilities and nothing more. The rights to participate may be given

either in the memorandum or articles or by virtue of terms of issue.

4. Redeemable and Irredeemable preference shares:

Subjects to an authority in the articles of association, a public limited

company may issue redeemable preference shares to be redeemed either at a fixed date or after a

certain period of time during the life time of the company. The companies act, 1956 prohibits the

issue of any preference share which is irredeemable or is redeemable after the expiry of a period of

twenty years from the date issue.

Power to Issue Redeemable Preference Shares:

Section 80 of the companies act 1956 permits a company to issue

redeemable preference shares if:

The company is limited by shares.

Its article of association authoriese the issue of redeemable preference shares.

Those shares are redeemable at the option of the company.

A company is allowed to issue redeemable preference shares in the following circumstances:

Such preference shares shall be redeemed only out of profits of the company, which would otherwise be available for dividend.

Such redemption can also be made out of the proceeded of fresh issues of shares made of the purpose of redemption.

Before redemption, such shares must be fully paid up.The premium on redemption shall be provided out of profits of the company or out of securities premium account, before the share are redeemed.

Where shares are redeemed out of profits to a separate account called capital

The redemption of preference shares under this section shall not be taken as reducing the authorized capital of the company.

The capital redemption reserve account may used for issue of fully paid bonus shares.Companies are not allowed to issued irredeemable preference shares or preference shares which are redeemable after the expire of a period of 20 years from the date of its issue.In case of default, the company and every officer of the company who is indefault shall be punishable with a fine which may extend to Rs 10000. Deferred/ Founders shares:

A private company any issue what are known as deferred or founders shares. Such shares are normally held by promoters and directors of the company. That is why they are usually called of a smaller denomination, say on rupee each. How ever they are generally given. equal voting rights with equity shares, which may be of higher denomination, say Rs10 each. Thus, by investing relatively lower amounts, the promoter may gain control over the management of the company. As regards the payment of dividends have been declared on the preference and equity shares. It is because of this deferment of the dividend payment that these

shares are also called deferred shares. The promoters, founders and directors tend to have direct interest in the success of the company they will receive dividends on these shares only if the profits are high enough to leave a balance of after paying dividends to preference an equity shareholders. Besides greater the profits of the company , the higher will be dividends paid on these shares.

Issued share at a premium:

When a company issues shares at a premium, whether or cash or consideration other than cash, the premium collected on those shares shall be transferred to a separate account called securities premium account.The provision of the act relating reduction of shares capital shall also apply to the securities premium account may be applied by the company in the following ways:

In paying up un issued shares of the company to be issued to members of the company as fully paid up shares.

1. In writing off the preliminary expenses of the company.

2. In writing off the expenses of, or the commission paid or discount allowed on, any issue of shares debentures of the company.

3. In providing for the premium payable on redemption of any preference shares or debentures.

Issued share at a Discount:

The issued of shares at a discount must be of a class of shares issued by the

company.

1. The issue of shares at a discount must be authorized by a resolution passed in the general

meeting and sanctioned by the central government.

2. The resolution shall specify the maximum rate of Discount at which the shares are to be

issued.

3. The maximum rate of discount must not exceed 10% unless the central government is of the

opinion that higher percentage of discount may be allowed in special circumstances.

4. The shares must be issued within two months from the date of sanction by the or within such

extended time as the central government may allow.

5. The issue of shares at a discount can be done by a company only a year after the

commencement of the business by the company.

6. In case of revival and rehabilitation of sick industry companies under chapter VIA, the issue

of shares at discount shall be sanctioned by the Tribunal instead of central government.

7. Every prospectus relating to issue of shares shall contain the details of discount allowed on

the issue of shares or the unwritten off amount f discount at the date of issue of prospectus.

8. In case of default , the company and every officer of the company who is in default shall be

punishable with fine which may extend to Rs.500.Shares issued for consideration other than

cash

9. To the underwriters of shares and promoters by way of payment remuneration or for

expenses incurred.

10. To the vendor from whom the running business is purchased, as purchase price or

consideration.

11. Issued of bonus shares out of the reserves to the existing shareholders of the company

FURTURE TERMINOLOGY:

SPOT PRICE:

The price at which an asset trades in the spot market.

FURTURE PRICE:

The price at which the future contract trades in the futures market.

CONTRACT CYCLE:

The period over which a contract trades. The index futures contracts on the NSE as well as BSE

have one-month and two-months and three-months expiry cycles, which expire on last Thursday of the month. Thus a July expiration contract would expire on the last Thursday of July. On the Friday

following the last Thursday, a new contract having a three - months expiry would be introduced for

trading. More generally we can say, on the first trading day after the day of the expiry of the months future contract a new contract having a three - months expiry would be introduced for trading.

EXPIRY DATE:

It is the date specified in the future contract. This is the last day on which the contract will be

traded. I will cease to exist by the end of that day.

CONTRACT SIZE:

The amount of asset that has to be delivered under one contract. The contract size of the stock index

futures on NSE nifty is 200 and the contract size of the stock index futures on BSE Sensex is 50.

BASIS:

Basis is usually defined as the spot price minus the futures price. There will be a different basis for

each delivery month for same asset at any point in time. On 19th June 2001 nifty closed at 1096.65.

August 2001 nifty futures closed at 1098.90. Therefore the basis for the August nifty futures is -2.25

index points. In a normal market, basis will be negative. This reflects the fact that the underlying

asset is to be carried at a cost for delivery in the future.

COST OF CARRY:

The relationship between futures prices can be summarized in terms of what is known as the cost of

carry. This measures the Storage cost plus the interest that is paid to finance the asset less the

income earned on the asset. In the case of stocks, dividend will be the income earned on the asset.

The storage cost will be negligible.

INITIAL MARGIN:

The amount that must be deposited in the margin account kept with the broker at the time a futures

contract is first entered into is known as initial margin. Margins are to be strictly collected in the

future and options markets by brokers as per the exchange regulations. Otherwise the exchange

cannot guarantee the trades to all participants in the market.MARKING TO MARKETIn the futures market, at the end of each trading day, the margin account is a adjusted to reflect the

investors gain or loss depending upon the futures closing price or settlement price. This is called

Marking-to-Market.

MAINTENANCE MARGIN:

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

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

commences on the next day.

BETA:

Beta is a concept to be used futures and options for hedging. Beta measures the sensitivity of a share or a portfolio to that of the index. Beta of a share is found out by relating the daily price changes of a share to the daily changes in a stock price index. If a graph is drawn with daily changes of the share price on y axis and daily changes in the index on x axis the slope of the straight line fitted will be the value of beta. mathematically it is found by regression method. If the beta of Tisco is found to bel.23,it implies if the index increases by 10% in a period, price of Tisco will increase by 12.3%. Beta of the portfolios is found by weighted average of the betas of the shares in the portfolios. For example, an investors portfolio has equal value in Tisco and Infosys. Tisco has a beta of 1.23 and Infosys has a beta 1.37. the portfolio beta is the average of 1.23 and 1.37 which is 1.3.NSE website is providing values of beta for a large number of shares.

SPECULATORS AND HEDGERS IN FUTURES:

Speculators buy and sell derivatives to make profit, while hedgers buy and sell derivatives to reduce risk. Speculators are vital to derivatives markets. They facilitate hedging and provide liquidity. It is highly unlikely that hedger wishing to buy futures will precisely match hedgers selling futures in terms of contracts to be traded. If hedgers are net sellers there will be tendency for futures prices to fall. Speculators will buy such under period futures. Such purchases by speculators allow net sales on the part of hedgers. In so doing, they tend to maintain price stability since they are buying into a falling market. Proper speculation thus provides stability to prices in markets.In a liquid market, hedgers can make their transactions with ease and with little impact costs. Speculative transactions add to market liquidity. speculators by definition do a lot of information search and processing to forecast future behavior of prices. Therefore they make markets more information ally efficient. In the stock index futures markets speculators have two alternative strategies. If they are bullish on the index they can go long on index Futures. If the spot prices go up, future prices follow them along with their carry premiums and the speculators make the profits.If the speculator is bearish he can go short on the index futures. If the spot Index goes down, futures price also will go down and speculator makes a profit. The two speculative strategies can be summarized as:

Bullish market, long index futures

Bearish market, short index futures

ARBITRAGE IN FUTURE AND SPOT MARKET:Future prices and spot prices are tightly linked by the fair price formula. Also on the day of the expiry, the final settlement price of the future is made equal to the spot index price. thus at the end , the spot and futures prices converge. Any deviation between the fair price and actual price of a future can be utilized for earning risk less profits by agents who are willing to buy in the spot market and deliver in future at expiry. Such operations are called as arbitrage operations. Buying in the spot and delivering in the future market is resorted to when actual futures price in the market is higher than the fair price. if the actual future price is lower than the fair, then futures are bought and shares are sold in the spot market to carry out the arbitrage operations.

Introduction to options:

Options give the holder or buyer of the option the right to do something. If the option is called option, the buyer or holder has the right to buy the number of shares mentioned in the contract at the agreed strike price. if the option is a put option, the buyer of the option has the right to sell the number of shares mentioned in the contract at the agreed strike price. the holder or the buyer does not have to exercise this right. Thus on the expiry of day of the contract the option may or may not be exercised by the buyer. In the contrast, in a futures contract, the two parties to the contract have committed themselves to doing something at future date. To have this privilege of doing the transaction at a future only if it is profitable, the buyer of options has to a premium to the seller of options.

HISTORY OF OPTIONS:

In 1983 trading on stock index options contracts started. Since 1983, trading on options of

individual options decreased as most of the trading shifted to index options. One of the reasons is

that volatilities of the individual scripts is high and therefore premiums on individual scripts is also

high. In India stock index options were introduced in june 2001.

OPTION TERMINOLOGY:

INDEX OPTION:

An option having the index as the underlying asset. Like index futures contracts, index option

contract are also called cash settled.

STOCK OPTIONS:

Stock options are options on individual stocks. A contract gives the holder the right to buy or sell

shares at the specified price.

AMERICAN OPTIONS:

American options are options that can be exercised any time up to the expiration date. This name is

only a classification and does not imply that they are available only in America.

EUROPEAN OPTIONS:

European options are options that can be exercised only on the expiration date. European options

areeasier to analyze than American options, and properties of American options are frequently

deducted from those of its European counter part.

CALL OPTIONS:

A call option gives the holder the right but not the obligation to buy an asset by a certain date for a

certain price.

PUT OPTIONS:

A put option gives the holder the right but not the obligation to sell an asset by a certain date for a

certain price.

BUYER OF OPTIONS:

The buyer of the option, either call or put, pay the premium and buys the right but not the obligation

to exercise his option on the seller/writer.

WRITER OF AN OPTION:

The writer of a call/put option is the one who receives the option premium and is thereby obliged to

sell/buy the asset if the buyer exercises on him. Option writer is the seller of the option contract.

STRIKE PRICE:

The price specified in the option contract at which buying or selling will take place is known as the

strikeprice or the exercise price.

OPTIONS PRICE:

Option price is the premium, which the option buyer pays to the option seller or writer. Black and

scholes formula is widely used for determining the fair value of share.

EXPIRATION DATE:

It is the date on which the European option is exercised. It is also called as exercise date, strike date

or maturity date.

INTRINSIC VALUE OF AN OPTION:

The option premium cab be broken down into two components- intrinsic value and time value.The

intrinsic value of an option is the amount, which the holder will get by exercising his option and

immediately selling or buying the acquired shares in the spot market. For example, if the strike price of a call option on Reliance shares is Rs.325 and current market price is Rs.350. The holder of

the option can buy the Reliance share at Rs.325 by exercising the option and can make a profit of Rs.25 by immediately selling them in the market. In this case the intrinsic value of the call option is Rs.25.TIME VALUE OF THE OPTIONS:

The time value of an option is the difference between its premium and its intrinsic value.

AT-THE-MONEY:

An option is called at-the-money option when the strike price equals, or nearly equals, the spot price of the share. For example, if the strike price of stock index option on Nifty index is also at 1080, the option is called at-the-money option.

SPOT PRICE > STRIKE PRICE

IN-THE-MONEY:A call option is in the money when the underlying asset price is greater than the strike price. for

example, if the strike price in the case of Nifty stock index option is 1050 and Nifty is at 1080, the

option is in-the-money option.

SPOT PRICE = STRIKE PRICE

OUT-OF-THE-MONEY:

A call option is out-of-the-money if the strike price is greater than the underlying asset price. For

example, if the strike price in the case of Nifty stock index option is 1100 and Nifty is at 1080, the

option is out-of-the-money option.

SPOT PRICE < STRIKE PRICE

USES OF OPTIONS:

Like futures options are also used for hedging and speculations. Arbitrageurs can look for miss

Pricing between spot, option and futures markets and do transactions whenever they find miss

pricing.

TRADING OR SPECULATING WITH OPTIONS:

Options provide multiple opportunities for trading. Options premiums are determined by volatility of the underlying asset, time to expiration of the option and the risk free interest rate .Changes in any of these variables changes option premiums even though the price of the underlying asset remains constant. Thus a speculator who analyses multiple dimensions has a lot more opportunity in options to strategize and act.

ARBITRAGE WITH OPTIONS:

Arbitrage involves making risk less profits from miss pricing; relatively under priced options are bought and relatively overpriced are sold. Pure arbitrage requires that none of the arbitragers own capital is used. He should be able to borrow all the capital required. If the arbitrager uses his own capital, the process is called quasi-arbitrage. There will be number of situations providing arbitrage opportunity as three markets, spot, futures and options are involved

SUMMING UP:

Options are used by hedgers and speculators. Options provide a variety of ways in which they can be used to attain the hedging and speculative objectives. Thus trading interest comes from different participants with different motives. Arbitrageurs will have opportunities whenever option premiums are out of line with the fair prices. A fully developed option market provides a good market for traders to display their trading expertise and hedgers an alternative-hedging medium.FORWARD CONTRACTS:

In order to avoid this risk one way could be that the farmer may sell his crop at an agreed-upon rate now with a promise to deliver the asset, i.e., crop at a pre-determined date in future. This will at least ensure to the farmer the input cost and a reasonable profit. Thus, the farmer would sell wheat forward to secure himself against a possible loss in future. It is true that by this way he is also foreclosing upon him the possibility of a bumper profit in the event of wheat prices going up steeply. But the, more important is that the farmer has played safe and insured himself against any eventuality of closing down his source of livelihood altogether. The transaction which the farmer has entered into is called a forward transaction and the contract which covers such a transaction is called a forward contract.

QUICK AND LOW COST TRANSACTIONS:

Futures contracts can be created quickly at low cost to facilitate exchange of money for goods be

delivered at future date. Since these low cost instruments lead to a specified delivery of goods at a

specified price on a specified date, it becomes easy for the finance managers to take optimal decisions in regard to production, consumption and inventory. The costs involved in entering into future contracts in significant as compared to the value of commodities being traded underlying these contracts.

Price discovery function:

The price of futures contracts incorporates a set of information based on which the producers and

the consumers can get a fair idea of the future demand and supply position of the commodity and

consequently the futures spot price. this is known as the price discovery function of futures.

Advantage of informed individuals:

Individuals who have superior information in regard to factors like commodity demand supply,

market behavior, technology changes etc., can operate in futures markets and impart efficiency to

the commoditys price determination process. This in turn leads to a more efficient allocation of

resources.Hedging Advantage:

Adverse price changes, which may lead to losses, can be adequately and efficiently hedged against through futures contracts.An individual who is exposed to the risk of an adverse change while holding a position, either long or short a commodity will need to enter into a transaction which could protect him in the event of such an adverse change. For example a trader who has imported a consignment of copper and the shipment is to reach within a fortnight may sell copper futures if he foresees fall in copper prices. In case copper prices actually fall, the trader will lose on sale of copper but will recoup through futures. On the contrary if co