intrim report- avinash kumar singh

7/28/2019 Intrim Report- Avinash Kumar Singh

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Summer Internship Program 2013

Intrim Project Report

on

Derivative Markets in India:Trading, Pricing, Risk Management,

Future Outlook & Investors Perception .

By,AVINASH KUMAR SINGH (Enrolment No. : - 12BSP1658)

Unicon Securities Pvt. Ltd.

A report submitted in partial fulfilment of the requirements of PGPM Programof IBS Gurgaon

Submitted to,

Faculty Guide:- Company Guide:-

Prof. Bhavna Chhabra Mr. Gaurav Jain


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TABLE OF CONTENTS :-SL.NO Topics Page No.

1. SUMMARY 3

2. INTRODUCTION:- 4 to 12

I. The Company:-

a) Introduction to the company,

b) Mission

c) Vision

4 to 5

II. Literature Review6 to 7

III. Research Gap 7

IV. Introduction to research 8

V. Why Derivative Market? 8 to 9

VI. The Problem Statement

a) Defining The Problem

b) Defining The Hypothesis

9 to 10

VII. Scope Of The Project 10

VIII. Importance Of The project 10 to 11

IX. Objective Of The Project 11

X. Research Methodology 11 to 12

XI. Assumptions 12

3. DATA COLLECTED FROM SECONDARY SOURCES:- 13 to 19

4. DATA COLLECTED FROM PRIMARY SOURCES 20 to 21


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SUMMARY:-New ideas and innovations have always been the hallmark of progress made by mankind. At everystage of development, there have been two core factors that drive man to ideas and innovation.These are increasing returns and reducing risk, in all facets of life.

The financial markets are no different. The endeavour has always been to maximize returns andminimize risk. A lot of innovation goes into developing financial products centred on these twofactors. It brings us into a whole new era of financial innovation.

Derivatives are among the forefront of the innovations in the financial markets and aim toincrease returns and reduce risk. They provide an outlet for investors to protect themselves fromthe vagaries of the financial markets. These instruments have been very popular with investorsthroughout the world.

Indian financial markets have been on the ascension and catching up with global standards

in financial markets. The advent of screen based trading, dematerialization, rolling settlement hasput our markets on par with international markets. As a logical step to the above progress,derivative trading was introduced in the country in June 2000. Starting with index futures, we havemade rapid strides and have four types of derivative products- Index future, index option, stockfuture and stock options.

This market presents a tremendous opportunity for individual investors .The markets haveperformed smoothly over the last two years and has stabilized. The time is ripe for investors tomake full use of the advantage offered by this market.

With little bit of knowledge and careful watch, one can make fortunes in this market. Suchastounding features and still small traders fears to go inside, what is the reason, this project will totry to cover some untouched and interesting solutions to it.

Depository participant firms, one of the most important entity in the entire capital market, theyare so essential for the market that one cannot even think of trading if they were not present.

The project will try to shed some lights upon few of the aspects of Depository participant andInvestors relation their support and requirement for each other.

If the project would help you in any way, the purpose of the project will get fulfilled then only.


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INTRODUCTION:-

1) The company:- Unicon Securities Pvt. Ltd.

A. Introduction to the Company:-

UNICON is a financial services company which has emerged as a one-stop investment solutions

provider. It was founded in 2004 by two visionary and hardworking entrepreneurs, Mr. Gajendra

Nagpal and Mr. Ram M. Gupta , who possess expertise in the field of Finance.

The company is headquartered in New Delhi, and has its Corporate office in Mumbai with regional

offices in Kolkata, Chennai, Hyderabad and Noida

UNICON is a professionally managed company led by a team with outstanding managerial acumen

and cumulative experience of more than 400 man years in the financial markets The Company is

supported by more than 2400 Uniconians and has an extensive network of over 323 business

offices in 152 cities across India.

With a customer base of over 200,000 the Unicon Group has an eye for the intricate financial

needs of its clients and caters to both their short term and long term financial needs through a

comprehensive bouquet of investment services. It has been founded with the aim of providing

world class investing experience to the investing community. These services range from offline &

online trading in equity, commodities and currency derivatives to debt markets to corporate

finance and portfolio management services. The company has a sizable presence in the

distribution of 3rd party financial products like mutual funds, insurance products and property

broking. It also provides expert Advisory on Life Insurance, General Insurance, Mutual Funds and

IPOs. The distribution network is backed by in-house back office support to provide prompt and

efficient customer service

The Equity broking arm UNICON Securities Pvt. Ltd offers personalized premium services on the

NSE, BSE & Derivatives market. The Commodity broking arm Unicon Commodities Pvt. Ltd offers

services in Commodity trading on NCDEX and MCX. The UNICON group also has a PCG division

providing investments solutions for High Net Worth Individuals. The Corporate Advisory Services

arm Unicon Capital Services (P) Ltd offers entire gamut of Investment Banking services to

corporates.

UNICON can boast of some of the most respected names in the private equity space like SequoiaCapitals, Nexus India Capital and Subhkam Ventures as its shareholders.


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B. Mission of the company:Unicons mission is to protect and promote the wealth of all its stakeholders by providing trustworthy, bestin class financial products and services.

C. Vision of the company:To be India's financial services company of choice recognized for its reliability, innovation, responsivenessto customers and exemplary citizenship.

D. Slogan:We work hard so that you stay a step ahead .

The Company have an excellent In-house research Department for Equity, Mutual Funds and Insurance.

The Parent Company & its Branches

Unicon is a customer focused financial serves organization, providing a range of investment

solutions to their customers, some of which are:-

Equity Distribution NRI Services

Back Office Fixed Income Investment Banking

Commodity Currency Derivatives DepositoryPortfolio Management


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2) Literature Review:-The studies of literature of related topics are broadly based upon volatility and inception of new

trading system derivatives trading

Sathya Swaroop Debasish (2009) in his study An Empirical Study on Impact of Index Futures

Trading on Spot Market in India examines the effect of futures trading on spot price volatility and

market efficiency of the underlying stock market. His study suggests that there is a trade-off

between gains and costs associated with the introduction of derivatives trading at least on a short-

term perspective.

Prof. Asani Sarkar (2006) in study Indian Derivatives Market Suggest that as derivatives markets

will grow more sophisticated, greater investor awareness will become essential. NSE has

programmes to inform and educate brokers, dealers, traders, and market personnel. In addition,

institutions will need to devote more resources to develop the business processes and technology

necessary for derivatives trading.

Prof. Ashutosh Vashishtha & Mr. Satish Kumar (2010) in their study Development of financial

derivatives Market in India- A case study explained how derivatives market has grown from its

nascent stage to capturing almost 60 % of market share. They have used secondary data provided

at NSE to comment a conclusion.

In the paper Issues and concerns of commodity derivative market in India: An agenda for

research, Mr. Nilanjan Ghosh(2006), discussed the micro-economics and macro-economic

concerns of not only commodity derivatives but also he tried to shed some light on how the future

farket of commodities would behave like.

Mr. Bhagaban(2007) Das in his report An economic study of Impact of futures trading on the

stability of stock index in India has done a comprehensive study on stability of NSE Sensex returnsby using two statistical tests namely Kolmogorov Smirnov 2-sample test and Wilcoxon Rank Sum

test, and by use of daily observations on the NSE index over the period of study is from Jan 1996 to

Dec 2007.He tried to relate how things got changed when in 2001 Derivatives were introduced.

Dr. (MRS.) Kamlesh Gakhar(2008), in his paper Derivatives market in India : Evolution, Trading

mechanism & Future prospects has shown how the derivative market has grown in India, the

paper state that marked with the ability to partially and fully transfer the risk by locking in assets

prices, derivatives are gaining popularity among the investors. The paper also has shown the


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issues related to the derivative market, which when solved will boost the investors confidence to

a new level.

Mr. Matloob Ullah Khan, Dr. Ambrish Gupta & Dr. Sadaf Siraj(2005) in his paper Regulations and

accounting treatment of future and options in Indian derivative market they discussed about the

Regulation of Indian Derivative Market as per Dr. L.C. Gupta committee report and they also

described accounting adjustment procedure of Future and Option at the time of payment or

receipt of mark-to-market margin, initial margin, open interest as on balance sheet date, final

settlement or square-up, daily settlement, at the time of default, discloser requirement and

method for determination of profit or loss in multiple option situations.

3) Research Gap:-

The previous researchers had either used primary or secondary data. This report will have

both primary and secondary data analysis together.

Previous researchers have not shown the perception of the investor

Most of the research is being done up to 2009-09, before euro zone crisis, this report will

contains analysis after the Eurozone crisis.

Previous researchers havent discussed and analysed top ten stocks traded on derivative

market, this report will do. Previous researchers do not discussed the prevailing myths about derivative market, in this

report I will try to cover the myths which came into my knowledge during discussion with

depository participants & Investors at Unicon.

Previous researchers have done their study mostly on a section of derivatives; this will

take derivative market as a whole.

Previous researchers havent tried to analyse the awareness level among investors about

derivative market, this report will do.

Previous researchers did not had tried to analyse preference of investor in terms of fixed

income and trading/investment.

None of the above research has been done in relation to the point of view of a brokerage

firm.


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4) Introduction to research:-Since its Inception, the stock market is all about boosting investors confidence. The same has

been strengthened by introduction of Derivative trading for stocks in June, 2000.

The turnover of derivatives on the NSE increased from Rs 24 billion in 2000-2001 to Rs 292,482

billion in 2010-1011, and reached Rs 313,497 billion in 2011-2012.

India is one of the most successful developing countries in terms of a vibrant market for exchange-

traded derivatives. This reiterates the strengths of the modern development in Indias securities

markets, which are based on nationwide market access, anonymous electronic trading, and a

predominantly retail market. There is an increasing sense that the equity derivatives market plays

a major role in shaping price discovery.

With such boost in the segment, it becomes very fascinating sector for many investors/traders.

But as the good and evil are the opposite side of the same coin, derivative market surely has some

hidden risk and concerns.

It is of essence need is to analyse how trading happens in this new system of trade. What & how

the price varies Special emphasis on game of premium. What are the risks involved how to tackle

them and most importantly to use them for profit generation. What and how the investors see or

feel about derivative markets. This report will try to shed some lights upon these issues.

5) Why Derivative Market?Since its introduction in 2000, financial derivatives market in India has shown a remarkable growth

both in terms of volumes and numbers of traded contracts. NSE alone accounts for 99 % of the

derivatives trading in Indian markets. Comparing the trading figures of NSE and BSE, performance

of BSE is not encouraging both in terms of volumes and numbers of contracts traded in all product

categories and the turnover of the NSE derivatives market exceeded the turnover of the NSE cash

market.

Today with almost 70% of overall market capitalization, the market seems to be still way under its

actual potential because of lack of knowledge and investors confidence. The reason behind

choosing Derivative market lies in the fact itself that the Derivatives was introduced to increaseVolume, Volatility and reducing risk factor in the market.


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Such an exponential boost, then also traders feels uneasy in investing in derivative market, lot of

myths prevailing, many say only game of luck, why is it so???

To go in depth of these is the basic purpose of this research project, to see what present scenario

is and what the perception of investors about it is.

6) The Problem Statement:-

Since its inception in 2001 the derivative market has established records in terms of turnover and

volume traded. From nothing it almost captured 70 % of total traded in capital market.

So much success and still the sector remain quite a distant dream for small and marginal traded,

this fact itself make people wonder why is it so?, to understand this one need to understand the

concepts that how actually traded happens in derivative market, How the premium plays a role,

what is investors perception about it and what lies in the future for it.

Moreover as an intern in a depository participant firm, it is of great importance for me to analyse

what does customer feels about the firms related to the sector, what they want in terms of quality

services, timely advice, technological support, etc.

A. Defining the Problem:-The research will be based upon data collected by both primary and secondary sources.

Based upon primary data, the report will try to determine following:-

a) What percentage of male and female user performs derivative trading?

b) What is the age group involved most in trading?

c) Income range, and its percentage involved in trading?

d) Where do the investors place their savings?e) What they think about various investment instruments?

f) What they feel about derivative trading?

g) In which of the derivative instrument they trade?

h) Advantage & dis advantage of derivative trading, etc.

From the secondary data the project will try to shed some lights upon:-

A. Last 5 years growth in derivative market.

B. Which stocks traded the most?


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C. Comparison of these top stocks traded volume with the actual share price for last 5 years.

D. Segment wise growth of volume trade in different derivatives.

E. Volume trade and turnover of different types of derivatives.

B. Defining the Hypothesis:-Hypothesis 1:- Testing the significance difference between deliveries of services fromDepository participant firm to their investors.

H10 (Null Hypothesis): There is no significance difference between deliveries of services fromdifferent Depository participant firm to its investors.

H11 (Alternate Hypothesis): There is significance difference between deliveries of servicesfrom Depository participant firm to its investors.

Hypothesis 2: - Testing the significance difference of choice for different trading andinvestment options.

H20 (Null Hypothesis): There is no significance difference of choice for different trading andinvestment options.

H21 (Alternate Hypothesis): There is significance difference of choice for different trading andinvestment options

7) Scope of the Project:-The report will try to give the overview of the Derivative market segment, it would also emphasis

how and why there is an exponential growth in volume of derivative trading.

Not limiting to any one segment the report would give a view of derivative market as whole. By

analysing the past figures and the survey data the project could be able to give a picture where the

derivative market will go on and what is in it for small and medium traders.

8) Importance of Project:-The project will help in understanding the current, past and future scenario of the Derivative

market, it will also help in understanding what derivative trading is all about and in a market full of

speculations how one can make money based upon calculations and strategies.


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The project will also help in understanding how and why the market moves, what impacts it both

in terms of Bullish and Bearish behaviour.

The project will be able to shed some light on Unicons perception and satisfaction level among its

customers and employees.

9) Objectives of Project:- To know about different types of Financial Derivative.

To understand some of the concepts and strategies of the Derivatives Trading used by

investors and brokers in day to day trading.

To analyse the performance of Derivatives trading since 2001, with special reference to

Future and Options. To know the Depository Beneficiary perception towards derivative trading.

To analyse top 10 stocks traded on derivative market for past 5 years and their

corresponding share prices.

To know the volume traded in each segment in last decade and how it has grown from its

nascent stage to capitalizing a total market share of almost 70%.

10) Research Methodology:-

1. Method of data collection:-a) Secondary Data:- The utilization of data already collected by someone or some

organization on the topic related.In this project the source of secondary data would be the websites of NSE, BSE,Moneycontrol, India Infoline, etc.In addition to it books and journals on the topic derivatives would also be used as tocollect data.

b) Primary Data:- the data collected via interview and questionnaire. It will be the datacollected to give better analysis and thus a better picture of the objectives of the

report.2. Research Design:-

As the data is both primary and secondary in nature, Exploratory and Descriptive researchdesign is going to be used in the project.The exploratory research will give an insight on the topics concerned whereas thedescriptive research will be used to determine the frequency with which something occurs.

3. Sampling Methodology:-a) Sampling techniques: - To collect primary data, questionnaire will be prepared. To

draft the questionnaire the sampling techniques, which is going to be used is-

combination of Nominal Scale and likert scale.b) Sampling Strategy: - Random Sampling is done among investors to collect data.


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c) Sample Size: - the sample size of primary data would be around 150 respondents.d) Population of interest:- Investors, Depository Participants and persons having

knowledge of Capital market and the ones who trade in it

4. Preparation of the questionnaire:-The questionnaire contains set of questions which will be used in the collection of primary

data which will further give in depth and desired citation of the problem.In the preparation of questionnaire dependent and in dependent variables are consideredand according to them only the questions are formulated.For example, quality of service, brokerage rate, time dedicated, technology provided andawareness of brokerage firm are independent variable and perception and requirement of investors from their respective firms is dependent variable.

5. Method Of data Collection:-The data will be collected over personal interview, over phone, online both through mail

and surveys posting on trading blogs.6. Data Analysis:-

To analyse the data, data analysing tools like, IBM SPSS, Minitab and Sofatab will be used.Also the statistical method that will be used would be Co-relation, Co-Variance andRegression analysis.In addition to it, Ms Excel will be used to project the data in more concise and meaningfulmanner via tables, charts and graph.


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DATA COLLECTED FROM SECONDARY SOURCES:1. Business Growth In Future And Option Segment :-

a) Index Future:-

Year No. Of Contracts Turnover (InRs. Cr)

2012-13 96100385 2527130.762011-12 146188740 3577998.412010-11 165023653 4356754.532009-10 178306889 3934388.672008-09 210428103 3570111.42007-08 156598579 3820667.272006-07 81487424 25395742005-06 58537886 15137552004-05 21635449 7721472003-04 17191668 5544462002-03 2126763 439522001-02 1025588 214832000-01 90580 2365

0

500000

1000000

15000002000000

2500000

3000000

3500000

4000000

4500000

5000000

Turn Over(In Rs. Cr.)


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b) Stock Futures:-

Year No. Of Contracts

Turnover

2012-13 147711691 4223872.022011-12 158344617 4074670.732010-11 186041459 5495756.7

2009-10 145591240 5195246.642008-09 221577980 3479642.122007-08 203587952 7548563.232006-07 104955401 38309672005-06 80905493 27916972004-05 47043066 14840562003-04 32368842 13059392002-03 10676843 2865332001-02 1957856 515152000-01 - -

0

50000000

100000000

150000000

200000000

250000000

No. Of Contracts


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0

50000000

100000000

150000000

200000000

250000000

No. Of Contracts

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

Turnover


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c) Index Options:-

Year No. Of Contracts National Turnover In RsCr.

2013-14 85812669 2477832.512012-13 820877149 22781574.142011-12 864017736 22720031.642010-11 650638557 18365365.762009-10 341379523 8027964.22008-09 212088444 3731501.842007-08 55366038 1362110.882006-07 25157438 791906

2005-06 12935116 3384692004-05 3293558 1219432003-04 1732414 528162002-03 442241 92462001-02 175900 37652000-01 - -

0

100000000

200000000

300000000

400000000

500000000

600000000

700000000

800000000

900000000

1E+09

No. Of Contracts


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d) Stock Option:-

Year No. Of Contracts National Turnover (in Rs.Cr.)

2013-14 8938993 270642.542012-13 66778193 2000427.29

2011-12 36494371 977031.132010-11 32508393 1030344.212009-10 14016270 506065.182008-09 13295970 229226.812007-08 9460631 359136.552006-07 5283310 1937952005-06 5240776 1802532004-05 5045112 168836

2003-04 5583071 2172072002-03 3523062 1001312001-02 1037529 251632013-14 8938993 270642.542012-13 66778193 2000427.29

0

5000000

10000000

15000000

20000000

25000000

National Turnover In Rs Cr.


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0

500000

1000000

1500000

2000000

2500000

National Turnover (in Rs. Cr.)

0

10000000

20000000

30000000

40000000

50000000

60000000

70000000

80000000

No. Of Contracts


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e) Total:-

Year No. Of Contracts

Turnover In Rs. Cr. Avg. Daily Turnover In Rs.Cr.

2013-14 116866161 3400694.86 147856.3

2012-13 1131467418 31533003.96 126638.572011-12 1205045464 31349731.74 125902.542010-11 1034212062 29248221.09 115150.482009-10 679293922 17663664.57 72392.072008-09 657390497 11010482.2 45310.632007-08 425013200 13090477.75 52153.32006-07 216883573 7356242 295432005-06 157619271 4824174 192202004-05 77017185 2546982 101072003-04 56886776 2130610 83882002-03 16768909 439862 17522001-02 4196873 101926 4102000-01 90580 2365 11

0

20000

40000

60000

80000

100000

120000

140000

160000

2012-13 2011-122010-11 2009-10 2008-092007-08 2006-072005-06 2004-05 2003-042002-03 2001-02

Avg. Daily Turnover In Rs. Cr.


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Questions:-


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Bibliography:-1. Books Referred:-

Hull ,John C. , Basu, Sankarshan, Options, Futures, And Other Derivatives, 7 th Edition,2011, Pearson Prentice Hall.

2. Reports And Journals Referred:-

FINANCIAL DERIVATIVES MARKET IN INDIA CURRENT SCENERIO & GROWTH,Author:- MS. PARUL MITTAL, ZENITH International Journal of Business Economics &Management research, Vol.2 Issue 8, August 2012, ISSN 2249 8826

An Empirical Study on Impact of Index Futures Trading On Spot Market in IndiaAuthor:- Sathya Swaroop Debasish, Kca Journal Of Business Management. Vol. 2,Issue 2 (2009).

Development of Financial Derivatives Market in India- A Case Study Authors:-Ashutosh Vashishtha & Satish Kumar, International Research Journal of Finance andEconomics, ISSN 1450-2887 Issue 37 (2010), EuroJournals Publishing, Inc. 2010

3. Resource Used:- http://www.nseindia.com/ http://www.eurojournals.com/finance.htm
http://www.nseindia.com/http://www.nseindia.com/http://www.nseindia.com/

intrim report- avinash kumar singh

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