Indian stock market overview and analysis

Projectsformba.blogspot.com

A Project Report

On
“AN OVERVIEW OF INDIAN STOCK MARKET”

Submitted in Partial fulfillment for the award of the degree
MASTER IN BUSINESS ADMINISTRATION.

(Batch—2008-2010)

Under Guidance Of, Submitted By,

(faculty in finance) Roll No-
MBA 6th trimester

ASTHA SCHOOL OF
MANAGEMENT,BBSR

Projectsformba.blogspot.com 1


ORISSA

CANDIDATE DECLARATION

I solely declare that the report titled “An Overview Of Indian Stock Market”
is a bonafied record of work carried by me, submitted partial fulfillment of requirement for the
award of degree Master Of Business administration under the guidance of

……………………………(FINANCE FACULTY OF ASTHA SCHOOL OF
MANAGEMENT)

This research is solely the work of me based upon questionnaire, printed material given in
bibliography. The matter embodied in this report has not been submitted for the award of any
other degree.

Dated


ACKNOWLEDGEMENT

Dissertation Report is a bridge connecting the educational and professional use. It is the path
leading to success by shouldering responsibilities under the careful guidance of seniors and
experienced personnel without fear and failures.

It gives me immense pleasure to take the opportunity to remember and thanks to the
personalities who are involved with this project work during its study stage during my days of
hard work. I feel that it is my duty to express thanks and deep gratitude to everyone who is
directly or indirectly associated in the completion of this Dissertation Report

With deep reverence, I offer my deepest regards gratitude to ……………………… who is my finance
faculty and ………………………………, finance faculty of Astha School Of Management, without whom
this Report could not have been fulfilled.

Astha school of management



Executive Summary

Indian securities markets have undergone many changes during the last decade.
Exponential growth in trading volumes is pushing existing trading systems and
processes to capacity and increasing settlement risk. With Indian market moving
to a T+3 rolling settlement cycles in line with global markets, SEBI is continuing
its efforts to increase the efficiency and transparency in Indian markets. Indeed it
has been SEBI endeavor to make the Indian markets, one of the most
competitive and efficient markets of the world.

Income, Savings mobilization and promotion of investment are functions of the
stock and capital markets which are a part of the organized financial system in
India.

This Project titled ‘An Overview of Indian stock market’ is an attempt to
understand the stock market and role played by Indian retail Brokerage Firms in
stock market. The objective of brokerage firms is to help the investor to minimize
the risk involved in investment and maximize the return. Some of the main
characteristics of the brokerage industry include growth in e-broking; growing
derivatives market, decline in brokerage fees etc. An endeavor was also made to
understand the role played by Indiabulls Securities compared to its competitors in
Indian retail brokerage market.

The role played by Indian retail brokerage industry is of immense significance,
taking into account the health of the capital markets and the intensity of
competition among the brokerage companies.



Table of Contents
Particulars

Chapter 1 Outlook on Indian Stock market...........................

Chapter 2 Overview of Indiabulls..........................................

Chapter 3 Overview of Indiabulls Securities.........................

Chapter 4 Financial Analysis..................................................

Chapter 5 Understanding Capital market..............................

Chapter 6 Derivatives............................................................

Chapter 7 Competitors..........................................................

Chapter 8 Competitive Analysis.............................................

Chapter 9 SWOT Analysis......................................................

Chapter 10 Research Methodology ………………………………

Chapter 11 Findings & Suggestions.......................................

Questionnare……………………………………………………………

Conclusion ………………………………………………………………

Bibliography..........................................................................

Appendix...............................................................................



Chapter 1

OUTLOOK ON INDIAN STOCK MARKET
1.1 Introduction

Indian Stock Markets is 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 to Europe was stopped; thus, the 'Share
Mania' in India began. The number of brokers increased to about 200 to 250.

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.



The Indian stock market has been assigned an important place in financing the
Indian corporate sector. The principal functions of the stock markets are
• enabling mobilizing resources for investment directly from the investors
• providing liquidity for the investors and monitoring
• Disciplining company management.

The two major stock exchanges in India are National Stock Exchange (NSE)
and Bombay Stock Exchange (BSE).

1.2 National Stock Exchange

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.

The National Stock Exchange (NSE) is India's leading stock exchange
covering various cities and towns across the country. NSE was set up by leading
institutions to provide a modern, fully automated screen-based trading system
with national reach. The Exchange has brought about unparalleled transparency,
speed & efficiency, safety and market integrity. It has set up facilities that serve
as a model for the securities industry in terms of systems, practices and
procedures.

NSE has played a catalytic role in reforming the Indian securities market in terms
of microstructure, market practices and trading volumes. The market today uses
state-of-art information technology to provide an efficient and transparent



trading, clearing and settlement mechanism, and has witnessed several
innovations in products & services viz. demutualization of stock exchange
governance, screen based trading, compression of settlement cycles,
dematerialization and electronic transfer of securities, market of debt and
derivative instruments and intensive use of information technology.

Trading at NSE can be classified under two broad categories:

• Wholesale debt market
• 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.

Capital market: A market where debt or equity securities are traded.

There are two kinds of players in NSE:

• Trading members
• 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 malpractice’s 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.

NSE Nifty
S&P CNX Nifty is a well diversified 50 stock index accounting for 22 sectors
of the economy. It is used for a variety of purposes such as benchmarking fund
portfolios, index based derivatives and index funds.
NSE came to be owned and managed by India Index Services and Products Ltd.
(IISL), which is a joint venture between NSE and CRISIL. IISL is India's first
specialised company focused upon the index as a core product. IISL have a
consulting and licensing agreement with Standard & Poor's (S&P), who are world
leaders in index services. CNX stands for CRISIL NSE Indices. CNX ensures
common branding of indices, to reflect the identities of both the promoters, i.e.
NSE and CRISIL. Thus, 'C' stands for CRISIL, 'N' stands for NSE and X stands for
Exchange or Index. The S&P prefix belongs to the US-based Standard & Poor's
Financial Information Services.



1.3 Bombay Stock Exchange

The Bombay Stock Exchange is one of the oldest stock exchanges in Asia. It
was established as "The Native Share & Stock Brokers Association" in
1875. It is the first stock exchange in the country to obtain permanent
recognition in 1956 from the Government of India under the Securities Contracts
(Regulation) Act, 1956. The Exchange's pivotal and pre-eminent role in the
development of the Indian capital market is widely recognized and its index,
SENSEX, is tracked worldwide.

SENSEX

The Stock Exchange, Mumbai (BSE) in 1986 came out with a stock index that
subsequently became the barometer of the Indian stock market.

SENSEX is not only scientifically designed but also based on globally accepted
construction and review methodology. First compiled in 1986, SENSEX is a
basket of 30 constituent stocks representing a sample of large, liquid and
representative companies. The base year of SENSEX is 1978-79 and the base
value is 100. The index is widely reported in both domestic and international
markets through print as well as electronic media

The Index was initially calculated based on the "Full Market Capitalization"
methodology but was shifted to the free-float methodology with effect from
September 1, 2003. The "Free-float Market Capitalization" methodology of index
construction is regarded as an industry best practice globally. All major index
providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float
methodology.

Due to is wide acceptance amongst the Indian investors; SENSEX is regarded to
be the pulse of the Indian stock market. As the oldest index in the country, it
provides the time series data over a fairly long period of time. Small wonder, the



SENSEX has over the years become one of the most prominent brands in the
country.

The SENSEX captured all these events in the most judicial manner. One can
identify the booms and busts of the Indian stock market through SENSEX.

The launch of SENSEX in 1986 was later followed up in January 1989 by
introduction of BSE National Index (Base: 1983-84 = 100). It comprised of 100
stocks listed at five major stock exchanges. The Exchange launched dollar-linked
version of BSE-100 index i.e. Dollex-100 on May 22, 2006.

In order to fulfill the need of the market participants for still broader, segment-
specific and sector-specific indices, the Exchange has continuously been
increasing the range of its indices. The launch of BSE-200 Index in 1994 was
followed by the launch of BSE-500 Index and 5 sectoral indices in 1999. In 2001,
BSE launched the BSE-PSU Index, DOLLEX-30 and the country's first free-float
based index - the BSE TECK Index. The Exchange shifted all its indices to a free-
float methodology (except BSE PSU index) in a phased manner.

The values of all BSE indices are updated every 15 seconds during the market
hours and displayed through the BOLT system, BSE website and news wire
agencies.

All BSE-Indices are reviewed periodically by the "Index Committee" of the
Exchange.



Chapter 2

OVERVIEW OF INDIABULLS

2.1 Introduction

Indiabulls is India’s leading Financial and Real Estate Company with a wide
presence throughout India. Indiabulls Financial Services Limited was established
in the year 2000 by three promoters all of whom are engineers from Indian
Institute of Technology, New Delhi, and has attracted over Rs 700 million of
investments from venture capital firms, private equity funds and institutional
investors.

History

• Indiabulls Financial Services Limited was incorporated on January 10, 2000
as Orbis Infotech Private Limited at New Delhi.
• The name of the Company was changed to Indiabulls Financial Services
Private Limited on March 16, 2001 due to change in the main objects of
our Company from Infotech business to Investment & Financial Services
business.
• It became a Public Limited Company on February 27, 2004 and the name
of the Company was changed to Indiabulls Financial Services Limited.

Indiabulls has over 640 branches all over India. The customers of Indiabulls
are more than 4,50,000 which covers from a wide range of financial services
and products from securities, derivatives trading, depositary services,
research & advisory services, consumer secured & unsecured credit, loan
against shares and mortgage & housing finance. The company employs
around 4000 Relationship managers who help the clients to satisfy their



customized financial goals. Indiabulls entered the Real Estate business in the
year 2005 with its group of companies.

Indiabulls Financial Services Ltd is listed on the National Stock Exchange,
Bombay Stock Exchange and Luxembourg Stock Exchange. The market
capitalization of Indiabulls is around USD 2500 million (29th December 2006).
Indiabulls and its group companies have attracted USD 500 million of equity
capital in Foreign Direct Investment (FDI) since March 2000. Some of the
large shareholders of Indiabulls are the largest financial institutions of the
world such as Fidelity Funds, Goldman Sachs, Merrill Lynch, Morgan Stanley
and Farallon Capital.

2.2 Growth of Indiabulls

Year 2000-01:

One of India’s first trading platforms was set up by Indiabulls Financial Services
Ltd. with the development of an in-house team.

Year 2001-03: The service offered by Indiabulls was increased to include
Equity, F&O, Wholesale Debt, Mutual fund, IPO Financing/Distribution and Equity
Research.

Year 2003-04: In this particular year Indiabulls ventured into Distribution and
Commodities Trading business.



Year 2004-05: This was one of the most important years in the history of
Indiabulls. In this year:

• Indiabulls came out with its initial public offer (IPO) in September 2004.
• Indiabulls started its Consumer Finance business.
• Indiabulls entered the Indian Real Estate market and became the first
company to bring FDI in Indian Real Estate.
• Indiabulls won bids for landmark properties in Mumbai.

Year 2005-06: The world renowned investment banks like Merrill Lynch and
Goldman Sachs increased their shareholding in Indiabulls. It also became a
market leader in securities brokerage industry, with around 31% share in Online
Trading. The world’s largest hedge fund, Farallon Capital and its affiliates
committed Rs. 2000 million for Indiabulls subsidiaries Viz. Indiabulls Credit
Services Ltd. and Indiabulls Housing Finance Ltd. In the same year, the Steel
Tycoon Mr. LN Mittal promoted LNM India Internet venture Ltd. acquired 8.2%
stake in Indiabulls Credit Services Ltd.

Year 2006-07: In this year, Indiabulls Financial Services Ltd. was included in
the prestigious Morgan Stanley Capital International Index (MSCI). The company
also received an “in principle approval” from Government of India for
development of multi product SEZ in the state of Maharashtra.



Diversified Business Group of Indiabulls

Securities &
Secured
Derivatives
Financing
Broking

Mortgage & Financial
Housing Products
Finance Distribution

Consumer
Financing

Fig 2.1: Diversified Business Groups of Indiabulls

2.3 IndiaBulls Subsidiaries

Indiabulls securities limited: business comprises of Securities & Derivatives
broking.

Indiabulls Credit services limited: business comprises of personal loans,
secured and unsecured loans, and housing and auto loans.



Financial products distribution: distribution of mutual funds and insurance
products.

Indiabulls commodities Pvt ltd: deals with commodity brokerage business

Indiabulls Realities limited: is into development of Real estate and mining.

Indiabulls housing loans: is into mortgage of properties and housing loan
business.

2.4 Organizational Structure of Indiabulls

The organizational structure of Indiabulls is Functional, which consist of several
departments.

Functioning Online: serving clients primarily through an Internet based
relationship targeted towards clients who value anytime, anywhere access and
can be serviced at low incremental costs.

Functioning Offline: serving clients primarily through an office based
relationship targeted towards clients who value physical interaction.

Online & offline business consist of following departments

• Administration
• Operations & Service quality
• Technology
• Finance
• Corporate affairs
• Human resources
• Marketing
• Corporate communications
• Legal



Department based Organizational Structure:

Director-Online Director-Offline

Operations Corporate
Technolog Corporate Human
Administration & Finance Communi Legal
y Affairs Resources cation
Service

Customer Recruitment Marketing Training
Service

Sr. Vice President

Regional Manager

Branch Manager

Relationship
Manager



Figure 2.2 Department based organizational Structure of
Indiabulls

Regional Hierarchy of Indiabulls


Senior Vice President

Regional Manager

Branch Manager
Senior Sales Manager

Support System Sales Function

RM/SRM
Back Office Local Compliance
Executive Officer

ARM

Dealer



Figure 2.3 Regional hierarchies of Indiabulls

Key Positions

Chairman

CFO & President

Securities Consumer Finance Real Estate

Chief Executive
Executive Director Executive Director
Officer

Figure 2.4 Key Positions



2.5 Products and Services of Indiabulls

Indiabulls offer the following products and services in the financial markets:

• Stocks
• Options and Futures

• Depository Services
• Commodities
• Insurance Products
• Mutual Funds
• Bonds and Debt Products

Services

Commercial Vehicle Loans:

In April 2006 Indiabulls started Commercial Vehicle Finance under the flagship of
Indiabulls Credit Services Ltd. in order to provide refinance to its commercial
vehicle clients. Their fundamentals, competent management and expertise in
financing the transporters are pretty sound. The company’s unique market
position enables it to excel in client contentment, quick service and growth–led
profitability.



.Mortgage Loans:

Indiabulls Housing Finance Ltd. which is a flagship of Indiabulls has started
lending of Mortgage Loans to prospective customers. This company enables the
home-seekers to access finance to buy their homes. They provide different types
of loans like plot loans, Loan against Residential, Commercial and Rental
Property, thereby enabling the borrower to leverage the property owned to fund
any genuine needs be it Business Expansion, Child's Education, Child's Marriage
or for Holiday Abroad.

Consumer Finance:

Indiabulls is a retail focused organization that fulfills the credit needs of a large
percentage of population in India. The key aspect of Indiabulls business model is
to provide an extremely unique customer experience.



Chapter 3

OVERVIEW OF INDIABULLS SECURITIES LTD

3.1 Introduction
Indiabulls Securities Ltd is engaged in the business of Internet based trading and
is registered with SEBI as a stockbroker, trading and clearing member of NSE,
member of BSE and as a depositary participant with National Securities
Depository Limited (“NSDL”) and Central Depository Services (India) Limited
(“CDSL”). ISL is also a member of the National Securities Clearing Corporation
Limited.

History
Indiabulls Securities Limited (ISL) was incorporated as GPF Securities Private
Limited on June 9, 1995.
The name of the company was changed to Orbis Securities Private Limited on
December 15, 1995 to change the profile of the company and subsequently due
to the conversion of the company into a public limited company; the name was
further changed to Orbis Securities Limited on January 5, 2004.
The name of the company was again changed to Indiabulls Securities Limited on
February 16, 2004 so as to capitalize on the brand image of the term “Indiabulls”
in the company name. ISL is a corporate member of capital market & derivative
segment of The National Stock Exchange of India Ltd.



Trading With Indiabulls

This section will introduce us about the process and instruments used to help a customer
or a client to trade with Indiabulls securities. This process is almost similar to any other
trading firm but there will be some difference in the cost of brokerage commission.

Trading: It is a process by which a customer is given facility to buy and sell share this
buying and selling can only be done through some broker and this is where Indiabulls
help its customer.
A customer willing to trade with any brokerage house need to have a demat account,
trading account and saving account with a brokerage firm. Any one having following
document can open all the above mentioned account and can start trading.

Document Required
• 3 photographs ( signed across)
• Photo Identification Proof - any of the following - Voter ID/Driving
License/Passport.
• Address Proof any of the following - Voter ID/Driving License/ Passport/ Bank
statement or pass book sealed and attestation by bank official/ BSNL landline bill.
• A crossed Cheque favoring “India bulls Securities Ltd”. of the required
amount. The amount for Demat as well as trading will be Rs. 900/-(free Demat
+900 Trading Account) the minimum amount being Rs. 900 a cheque can be
given for a larger amount.
• Copy of PAN Card is mandatory.
• Registration Kit
• CDSL Demat Kit
• Bank and address proof declaration. (Master undertaking)



• PAN name discrepancy form
These documents may not be consumer friendly but it is to avoid illegal transaction
and to prevent black money this ensures that money invested is accounted.

3.2 Business Model & Operations of Indiabulls Securities Ltd

The three distinct internal business segments are:

• Online business

• Offline business

• Other Sales

Online business: serving clients primarily through an Internet based
relationship targeted towards clients who value anytime, anywhere access and
can be serviced at low incremental costs. The Online sales force sells all products
and services and follows the relationship manager model.

Offline business: serving clients primarily through an office based relationship
targeted towards clients who value physical interaction and are typically larger
accounts. The Offline Sales force sells all products and services and follows the
relationship manager model. The Institutional business serving clients such as
mutual funds and pension funds is considered part of the offline business due to
largely similar client servicing and channel needs as required for high net worth
clients. Indiabulls Securities Limited has established relationships with some large
institutional players in India and is qualified broker for Equities, F&O and Debt
markets for 145 such institutional clients.

Other Sales: includes insurance, research services and other offerings



3.3 Basic Requirement for doing Trading

Trading requires Opening a Demat account. Demat refers to a dematerialized
account.

You need to open a Demat account if you want to buy or sell stocks. So it is just
like a bank account where actual money is replaced by shares. We need to
approach the Depository Participants (DP, they are like bank branches), to open
Demat account.

A depository is a place where the stocks of investors are held in electronic form.
The depository has agents who are called depository participants (DPs).

Think of it like a bank. The head office where all the technology rests and details
of all accounts held is like the depository. And the DPs are the branches that
cater to individuals.

There are only two depositories in India –

• The National Securities Depository Ltd (NSDL) and the
• Central Depository Services Ltd (CDSL).



3.4 Trading Products of Indiabulls Securities

Indiabulls
Securities

Cash Account Intraday Account Margin Trading

Fig

showing 3.1 Trading Products of Indiabulls securities

Indiabulls Securities provide three products for trading. They are
• Cash account
• Intraday account
• Margin trading (Mantra)



Cash account provides the client to buy 4 times of cash balance in his trading
account.

Intraday product provides the client to buy 8 times of his cash balance in the
trading account.
Mantra account – called as margin trading, is a special account to buy on leverage for a
longer duration

Chapter 4

FINANCIAL ANALYSIS OF INDIABULLS SECURITIES

4.1 Income: Indiabulls Securities Ltd income unit has the following components

Income from Online business : The contribution of revenue from Online
business have grown from Rs. 31.85 million in FY 2002 to Rs. 242.26 million in FY
2004 and from 24.05% of total business in FY 2002 to 34.85% of business in FY
2004. The rapid growth of the online business is driven by growth in total clients,
increasing product flexibility and quality, enhanced online-only features such as
portfolio analysis and updates, streaming tickers, enhanced product offering of
Power Indiabulls.

• Brokerage
• Equities
• F&O

Income from Offline Business: The offline business unit has one of the widest
branch networks in India with a pan India presence with large market share. The



revenues have grown from Rs. 96.02 million in FY 2002 to Rs. 447.25 million in
FY 2004 and have changed from 72.52% of total business in FY 2001 to 64.34%
of business in FY 2004. The rapid growth of the Offline business is driven by
growth in total clients, increased geographical presence.

• Brokerage
• Equities
• F&O
• Wholesale Debt Markets

Brokerage Income

Brokerage Income comprises revenues earned from Equities, F&O and Wholesale
debt markets on all stock exchanges.

• The income from brokerage services is driven primarily by the number of
active clients.
• The rapid growth in total clients is driven primarily by increased
geographical presence.
• Equities constitute the largest portion of brokerage business.
• F&O brokerage is becoming an increasingly important component of its
revenues as Futures & Options trading gains more acceptance.
• Wholesale Debt market is focused on institutional clients.

Income from transaction and service charges and interest
income



Related income comprises revenues earned from market related activities such as
transaction charges, service charges and interest levied on customer
transactions. These charges are dependent on trading volume, number of
transactions completed and any ledger debit amount in the client account.

Income from other Sales including Insurance, Mutual Fund
Sales and Other Products

Other income comprises revenues earned from sale of third party products such
as Insurance, Mutual Funds and new services such as Research Services.
Revenues are a function of volume of mutual funds sold, the type of fund sold
(active managed equity, passive fixed income etc.) and the commissions paid on
the funds sold.

Brokerage Income of Indiabulls Securities



Brokerage Income of Indibulls Securities of 3 Years( in Crore)

300
261.11
250
Brokerage Income

200

150
99.65
100
47.2
50

0
2004 2005 2006
Years

Mar-04 Mar-05 Mar-06

Bar Chart 4.1 Brokerage Income of Indiabulls Securities (in Crore)

Segment wise Sales of Indiabulls securities for March 2005(in Crore)



Segmentwise Sales of Indiabulls Securities For March 2005(in Crore)

9.88, 9%
2, 2% 1.93, 2%

0.84, 1%

Brokerage Income
99.65, 86%
Income From Depository Service
Income From other Financial Activity
Interest
Transaction Charges

Pie Chart 4.2 Segment wise Sales of IndiaBulls Securities for year 2005

Segment wise Sales of Indiabulls securities for March 2006(in Crore)



Segmentwise sales of Indiabulls Securities For March 2006(in
Crore)
21.16, 7%
23.06, 7%
9.08, 3%

3.57, 1%

261.11, 82%

Brokerage Income Income From Depository Service
Income From other Financial Activity Interest
Transaction Charges

4.2 Financial Ratio Analysis of Indiabulls Securities Ltd



Profitability ratios:



Indiabulls Securities Ltd. Mar 2004 Mar Mar 2006
2005
Per cent (Non-Annualized) 12 months 12 12 months
months
-
Margins ratios (%)
-
As % of operating income
PBDT 43.05 44.75 58.76
PBT 41.45 42.87 56.7
PAT 25.92 27.25 37.49
PBDT (NNRT) 43.01 44.52 58.72
PBT (NNRT) 41.41 42.63 56.66
PAT (NNRT) 25.88 27.02 37.45
-
Corporate tax as per cent of PBT 35.83 33.69 32.47
-
Returns ratios (%)
-
As % of total assets
PBDT 18.95 31.35
PBT 18.15 30.25
PAT 11.54 20
PAT (NNRT) 11.44 19.98
Operating cash flow 77.78 65.19
-
As % of net worth
PBDT 53.48 128.77
PBT 51.23 124.25
PAT 32.57 82.16
PAT (NNRT) 32.29 82.07
-
As % of capital employed
PBDT 47.39 58.11
PBT 45.39 56.06
PAT 28.86 37.07
PAT (NNRT) 28.61 37.03
-
Appropriation of profits (as % of
PAT)
Dividends 3.89 19.66 0.52



Equity dividends 0.44 2.27 0.07
Preference dividends 3.44 17.39 0.45
Retained profits 96.11 80.34 99.48
-
Dividends / net worth 6.4 0.43
Equity dividends / equity capital 3.98 0.45
Equity dividends / equity cap. & sh. 3.98 0.45
prem.

Liquidity ratios:
Indiabulls Securities Ltd. Mar 2004 Mar 2005 Mar 2006
Times (Non-Annualized) 12 months 12 months 12 months
-
Short term liquidity
-
Cash / current liabilities & provisions 0.67 0.86 1.7
Quick ratio 1.6 0.86 1.89
-
Medium to long term liquidity
-
Current ratio 1.776 1.141 2.137
Solvency ratio 1.567 1.561 1.269
Debt equity ratio 1.237 0.848 2.056
-
Interest incidence (%) 11.42 19.13 11.67
-
Interest cover
-
PBIT / interest 3.63 4.01 5.2
PBIT (NNRT) / interest 3.63 4 5.2
Operating cash flow / interest -2.99 11.97 8.91
-
(Rs. Crore)
Current assets 231.47 261.19 914.49
Current liabilities 130.34 228.86 427.87
Working capital 101.13 32.33 486.62
Net worth 83.34 108.43 181.77
Reserves & surplus 20.24 45.33 163.94



Asset utilization ratios
Indiabulls Securities Ltd. Mar Mar 2005 Mar 2006
2004
Times (Non-Annualized) 12 12 12 months
months months
-
Efficiency ratios
-
Operating cash flow / total assets 0 0.78 0.65
Operating cash flow / gross fixed 0 17.46 14.15
assets
Operating cash flow / capital 0 1.95 1.21
employed
-
Operating income / total assets 0.42 0.53
Operating income / GFA / leased 9.51 11.58
assets
Operating income / capital employed 1.06 0.99
-
PBDT (NNRT) / total assets 0.19 0.31
PBDT (NNRT) / gross fixed assets 4.23 6.8
PBDT (NNRT) / capital employed 0.47 0.58
-
PBT / total assets 0.18 0.3
PBT / gross fixed assets 4.05 6.56
PBT / capital employed 0.45 0.56
-
PAT / total assets 0.11 0.2
PAT / gross fixed assets 2.57 4.34
PAT / capital employed 0.29 0.37

4.3 Interpretation:



Profitability Ratios: Profitability is the net result of a number of policies and
decisions. The ratios examined thus far provide useful clues to the effectiveness
of firms operations.

Liquidity Ratios: liquidity ratios deal with firm’s ability to pay off its debts. It
includes

• Current ratio: The current ratio is calculated by dividing current assets by
current liabilities. The current ratio of Indiabulls securities is 1.776, 1.441,
& 2.137 for year 2004, 2005 & 2006 respectively.

Current ratio = Current assets

Current Liabilities

• Quick ratio (acid test ratio): The quick ratio is calculated by deducting
inventories from current assets and then dividing the remainder by current
liabilities. The quick ratio is a measure of the firm’s ability to pay-off the
short-term liabilities. A large part of the firms current assets are tied up in
slow paying debts. The industry average for Acid test ratio is 2.1, but for
Indiabulls securities quick ratio is 1.6, 0.86 & 1.89 for year 2004, 2005 &
2006 respectively, which is less than Industry average. The quick ratio
should be high which indicates the company’s ability to pay-off short term
obligations.

Debt equity Ratio:



Debt equity ratio is the related contribution of creditors and owners of the
business in its financing.

4.4 Financial performance Year on Year

(1)
Increasing Market Share of Indiabulls on NSE Trading Volumes

35
%
30.7
30
%
25 22.3
% 21.9
18.8 %
20 %
17.5

15

10
5.5
5 3.4
%
% 1.1 1.9 2.2
% %
0
(1)
FY200 FY200 FY200 FY200 FY200

Share in Online Share in Total

(1) Source: NSE data from NSE website (Equity Segment)



Graph 4.3 Market share of Indiabulls on NSE trading Volumes

Market Shares of Top Brokers on NSE (2)

40%
35%
35%
30%
24%
25%
20%
20%
14%
15% 12%
10% 7%
5%
0%
Top 5 Top 10 Top 25
FY02 FY05

UNDERSTANDING CAPITAL MARKET



5.1 Project Framework

An Outlook on Indian Stock Market

Capital Market Derivative Segment

Intraday Delivery Futures Options

Figure 5.1 Project Framework



The Indian capital markets have witnessed a transformation over the last decade.
India now finds its place amongst some of the most sophisticated and largest
markets of the world. With over 20 million shareholders, India has the third
largest investor base in the world after the USA and Japan. The Indian capital
market is significant in terms of the degree of development, volume of trading
and its tremendous growth potential.

Over the past few years, the capital markets have also witnessed substantial
reforms in regulation and supervision. Reforms, particularly the establishment
and empowerment of SEBI, market-determined prices and allocation of
resources, screen-based nation-wide trading, dematerialization and electronic
transfer of securities, rolling settlement and derivatives trading have greatly
improved both the regulatory framework and efficiency of trading and settlement.

5.2 Indian Capital markets - Chronology

• 1994- Equity Trading commences on NSE
• 1995- All Trading goes Electronic
• 1996- Depository comes in to existence
• 1999- FIIs Participation- Globalization
• 2000- over 80% trades in Demat form
• 2001- Major Stocks move to Rolling Set
• 2003- T+2 settlements in all stocks
• 2003 - Demutualization of Exchanges

5.3 Capital Market Participants
• Banks
• Exchanges



• Clearing Corporations
• Brokers
• Custodians
• Depositories
• Investors
• Merchant Bankers

5.4 Types of Investors
• Institutional Investors- MFs / FI / FIIs / Banks
• Retail Investors
• Arbitrageurs / Speculators
• Hedgers
• Day traders/Jobbers

5.5 Cash Market

The Spot Market or Cash Market is a commodities or securities market in
which goods are sold for cash and delivered immediately. Contracts bought and
sold on these markets are immediately effective. Spot markets can operate
wherever the infrastructure exists to conduct the transaction. The Spot market
for most securities exists primarily on the internet. The trading in this cash
market can be further divided into Intraday and Delivery.

5.6 Key Terms
• Intraday refers to buying or selling stocks today with an obligation to sell
or buy the stock on the same day. It means completing the trading cycle
in the same day. Here the stocks do not come to the Demat account.



• Delivery refers to buying stocks today with a plan of selling it in future. In
India there is a concept of T+2 settlements. Which means a stock bought
on trade day is credited to your Demat account (or delivered) into your
Demat account after 2 days.

• Square off- making the position nil. Say selling off the stocks. (or buying
back in case of short selling)
• Short selling- selling without having the possession of the stocks
(possible in intraday trade). Selling the stocks initially and buying them
back later. It is a concept used in the falling markets.

• Demat Account- the account where in the shares are delivered. Every
Demat account is linked to a trading account and a savings bank account.
Demat account are provided by CDSL (central depository services limited)
and NSDL (national securities depository limited). Indiabulls is a depository
participant which links the depository to the beneficial owner of the
account (client).

• Trading pool/margin account- the place where the stock is received
after the trade, it is the broker’s account called the broker pool account.

• T+2= Transaction + 2 days



Chapter 6

DERIVATIVES
By far the most significant event in finance during the past decade has been the
extraordinary development and expansion of financial derivatives. These
instruments enhance the ability to differentiate risk and allocate it to those
investors most able and willing to take it

6.1 Definition:
Derivatives are instruments whose value is ‘derived’, in whole or in part, from the
value of one or more underlying assets.

History of Derivatives

The history of derivatives is surprisingly longer than what most people think.
Some texts even find the existence of the characteristics of derivative contracts in
incidents of Mahabharata. Traces of derivative contracts can even be found in
incidents that date back to the ages before Jesus Christ. However, the advent of
modern day derivative contracts is attributed to the need for farmers to protect
themselves from any decline in the price of their crops due to delayed monsoon,
or overproduction.



The first 'futures' contracts can be traced to the Yodoya rice market in Osaka,
Japan around 1650. These were evidently standardized contracts, which made
them much like today's futures.

The Chicago Board of Trade (CBOT), the largest derivative exchange in the
world, was established in 1848 where forward contracts on various commodities
were standardized around 1865. From then on, futures contracts have remained
more or less in the same form, as we know them today.

Derivatives have had a long presence in India. The commodity derivative market
has been functioning in India since the nineteenth century with organized trading
in cotton through the establishment of Cotton Trade Association in 1875. Since
then contracts on various other commodities have been introduced as well.

Exchange traded financial derivatives were introduced in India in June 2000 at
the two major stock exchanges, NSE and BSE. There are various contracts
currently traded on these exchanges. National Commodity & Derivatives
Exchange Limited (NCDEX) started its operations in December 2003, to provide a
platform for commodities trading.

The derivatives market in India has grown exponentially, especially at NSE. Stock
Futures are the most highly traded contracts on NSE accounting for around 55%
of the total turnover of derivatives at NSE, as on April 13, 2005.

6.2 Understanding Derivatives



The primary objectives of any investor are to maximize returns and minimize
risks. Derivatives are contracts that originated from the need to minimize risk.

The word 'derivative' originates from mathematics and refers to a variable, which
has been derived from another variable. Derivatives are so called because they
have no value of their own. They derive their value from the value of some other
asset, which is known as the underlying.

Derivatives are specialized contracts which signify an agreement or an option to
buy or sell the underlying asset of the derivate up to a certain time in the future
at a prearranged price, the exercise price. The contract also has a fixed expiry
period mostly in the range of 3 to 12 months from the date of commencement of
the contract. The value of the contract depends on the expiry period and also on
the price of the underlying asset.

For example, a farmer fears that the price of soybean (underlying), when his crop
is ready for delivery will be lower than his cost of production.

Let's say the cost of production is Rs 8,000 per ton. In order to overcome this
uncertainty in the selling price of his crop, he enters into a contract (derivative)
with a merchant, who agrees to buy the crop at a certain price (exercise price),
when the crop is ready in three months time (expiry period).

In this case, say the merchant agrees to buy the crop at Rs 9,000 per ton. Now,
the value of this derivative contract will increase as the price of soybean
decreases and vice-a-versa.

If the selling price of soybean goes down to Rs 7,000 per ton, the derivative
contract will be more valuable for the farmer, and if the price of soybean goes
down to Rs 6,000, the contract becomes even more valuable.



This is because the farmer can sell the soybean he has produced at Rs 9000 per
ton even though the market price is much less. Thus, the value of the derivative
is dependent on the value of the underlying.

6.3 Difference between Commodity Derivative & Financial Derivative

If the underlying asset of the derivative contract is coffee, wheat, pepper, cotton,
gold, silver, precious stone or for that matter even weather, then the derivative is
known as a commodity derivative.

If the underlying is a financial asset like debt instruments, currency, share price
index, equity shares, etc, the derivative is known as a financial derivative.

Derivative contracts can be standardized and traded on the stock exchange. Such
derivatives are called exchange-traded derivatives. Or they can be customized as
per the needs of the user by negotiating with the other party involved.

Such derivatives are called over-the-counter (OTC) derivatives. Continuing with
the example of the farmer above, if he thinks that the total production from his
land will be around 150 quintals, he can either go to a food merchant and enter
into a derivatives contract to sell 150 quintals of soybean in three months time at
Rs 9,000 per ton. Or the farmer can go to a commodities exchange, like the
National Commodity and Derivatives Exchange Limited, and buy a standard
contract on soybean.



The standard contract on soybean has a size of 100 quintals. So the farmer will
be left with 50 quintals of soybean uncovered for price fluctuations.

However, exchange traded derivatives have some advantages like low transaction
costs and no risk of default by the other party, which may exceed the cost
associated with leaving a part of the production uncovered.

In India we have several derivatives, two of the most famous derivatives traded
on National stock exchange are

• Futures
• Option

Futures and options are traded on the NSE platform, with a normal IndiaBulls
trading account the client get the access to trade in the F&O contracts.

6.4 Futures and Forwards

As the name suggests, futures are derivative contracts that give the holder the
opportunity to buy or sell the underlying at a pre-specified price some time in the
future.

They come in standardized form with fixed expiry time, contract size and price.
Forwards are similar contracts but customizable in terms of contract size, expiry
date and price, as per the needs of the user.

6.5 Options



Option contracts give the holder the option to buy or sell the underlying at a pre-
specified price some time in the future.

• An option to buy the underlying is known as a Call Option.
• An option to sell the underlying at a specified price in the future is known
as Put Option.

In the case of an option contract, the buyer of the contract is not obligated to
exercise the option contract. Options can be traded on the stock exchange or on
the OTC market.

6.6 Futures Terminology

• Spot Price: the price at which an asset trades in the spot market.
• Futures Price: the price at which the futures contract trades in the
futures market
• Contract Cycle: The period over which the contract trades. The index
futures contracts on the NSE have a one-month, two-month and three-
month expiry cycles which expire on the last Thursday of the month.
On the Friday following the last Thursday, a new contract having a
three-month expiry is introduced for trading.
• Expiry Date-the date specified in the futures contract. It is the last
Thursday of the month
• Contract Size: the amount of asset that has to be delivered less than
one contract. For instance, the contract size on NSE futures market is
100 Niftiest. It is prescribed by NSE for stocks. Each stock had a
different lot size.
• Basis – the futures price minus the spot price. There will be a different
basis for each delivery month for each contract. In a normal market,



basis will be positive. This reflects that futures prices normally exceed
spot prices.
• Cost of Carry – the storage cost plus the interest that is paid to
finance the asset less the income earned on the asset.
• Initial Margin – the amount that must be deposited in the margin
account at the time the futures contract is first entered into. These
margins are prescribed by the exchange. It varies from stock to stock.
• Marking to Market – the adjustment made at the end of each
trading day to the investor’s margin account to reflect the investor’s
gain or loss depending upon the futures closing price. It is the
difference between today’s closing price and yesterdays closing. The
MTM profit /loss are credited to the client account on day to day basis.
Thus we call this a T+0 settlement.
• Maintenance Margin – somewhat lower than the initial margin; the
balance in the margin account must never become negative and in
case it does, the investor receives a margin call that must top-up the
account to the initial margin level before trade commences the
following day.
•

Difference between Long Position & Short Position

A long position is an agreement to buy. You take a long position on a
stock when you are bullish or have a feeling that the stock will move up.

LONG => BUY

A short position is an agreement to sell. You take a short position on a
stock when you are bearish or have a feeling that the stock will move
down.



SHORT => SELL

There are around 152 companies which are underlying for future and
options in NSE. There are

• index Futures (Nifty futures, Bank Nifty, CNX IT futures)
• Stock Futures (Infosys futures. ITC futures, etc linked to specific stocks)
• Index options (linked to indices)
• Stock option (linked to specific stocks).

6.7 Option Contracts: The owner of an option has the OPTION to buy or sell
something at a predetermined price. Option provides the buyer of the contract
the right but not the obligation to exercise.

Right to BUY / OWN – CALL OPTION

Or Right to SELL / WRITE – PUT OPTION

You buy a call option when you are bullish or have an upward target.

You buy a put option when you are bearish or have a downward target.

6.8 Options Terminology

• Stock options – options on individual stocks. A contract gives the buyer
the right to buy or sell shares at the specified price
• Buyer of an option – the one who by paying price (premium) buys the
right but not the obligation to exercise his/her option on the seller/writer
• Writer of an option – the one who by receiving premium, is obliged to
sell/buy the asset if the buyer exercises on him



• Call Option – gives the buyer the right but not the obligation to buy an
asset by a certain date for a certain price
• Put Option – gives the buyer the right but not the obligation to sell an
asset by a certain date for a certain price
• Spot Price – the price at which an asset trades in the spot market.
• Strike Price – the target price or the expected price.
• Contract Cycle – the period over which the contract trades. There are
three month contracts just like the futures.
• Expiry Date – the date specified in the option contract. It is the last
Thursday of the month, just as in futures.
• Contract Size – the amount of asset that has to be delivered under one
contract.
• In-The-Money Option (ITM) – an option that would lead to a positive
cash-flow to the holder if it were exercised immediately.
• A call option on the index is said to be ITM if the current index stands
higher than the strike price (Spot Price > Strike Price).
• A put option is ITM if the index is below the Strike price (Spot Price <
Strike Price).
• At-The-Money (ATM) – an option that would lead to zero cash flows to
the holder if it were exercised immediately.
• Out-Of-The-Money Option (OTM) – an option that would lead to a
negative cash-flow to the holder if it were exercised immediately.
• A call option on the index is said to be OTM if the current index stands at a
level which is less than the strike price (Spot Price < Strike Price).



Chapter 7

THE COMPETITORS
7.1 Major Competitors of Indiabulls Securities Ltd
Indiabulls Securities faces significant competition from companies seeking to
attract client financial assets, including traditional and online brokerage firms,
mutual fund companies and institutional players having wide presence and a
strong brand name. They are;

• ICICI Securities Ltd.
• Kotak Securities Ltd.
• India Infoline
SSKI Ltd.
• Motilal Oswal Securities
• Karvy
• Geojit Securities
• HDFC Securities

7.2 India Infoline Ltd



India Infoline Ltd is listed on both the leading stock exchanges in India,
viz. the Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE).
The India Infoline group, comprising the holding company, India Infoline Ltd and
its subsidiaries, straddles the entire financial services space with offerings ranging
from Equity research, Equities and derivatives trading, Commodities trading,
Portfolio Management Services, Mutual Funds, Life Insurance, Fixed deposits and
other small savings instruments to loan products and Investment banking. India
Infoline also owns and manages the websites, www.indiainfoline.com and
www.5paisa.com .

India Infoline Securities Pvt Ltd

India Infoline Securities Pvt Ltd is a 100% subsidiary of India Infoline Ltd, which
is engaged in the businesses of Equities broking and Portfolio Management
Services. It offers broking services in the Cash and Derivatives segments of the
NSE as well as the Cash segment of the BSE.

A choice of technologically advanced trading that is with the help of 5paisa.com.
5 paisa also represents the availability of world class service to investors at the
lowest possible rate - 5 paisa for every trade of Rs100, i.e., a brokerage rate of
0.05%.

Features of 5 paisa.com:

Paisa sense - They offer a good value for money proposition. Their brokerage
rates are very competitive, charging only 5 paise for Rs100 of trade done, which
is 0.05% brokerage. They offer the most reasonable rates, independent of your



net worth or volumes. In case of trades that result in delivery, they charge an
additional 0.20% for back office and securities handling.

Personalized service - At 5paisa.com, they are committed to provide you with
unparalleled service, using e-mail, call centers and support staff. They have also
invested in physical infrastructure.

Protection – All transactions of 5paisa.com are secure and confidential. The
orders are electronically routed via sophisticated trading systems for execution.
They follow a world class security system that enables them to protect from any
fraud or hacking.

Pedigree - 5paisa.com is a brand renowned for quality of information and
services, they are professionally managed, with a skill set which is of high
standard. Their top management has years of experience in financial services
with leading banks and institutions.

7.3 Sharekhan Securities

Sharekhan was created when SSKI Investor Services Pvt. Ltd., a company in the
securities and equities segment decided to harness the power of the Internet and
offer services to its customers through an online stock trading portal. Sharekhan
brings and provides a user-friendly online trading facility. They also have an
extensive all-India ground network of franchisees across the country.



The company offers its services through a combination of online and offline
channels. The online model comprises a portal, chat facilities, and 'speed trade'
terminals. And the offline model uses a combination of an IVR infrastructure and
a team of customer agents to receive orders over the telephone.

7.4 Motilal Oswal

Motilal Oswal Securities Ltd. was founded in 1987 as a small sub-broking unit,
with just two people running the show. Motilal Oswal Securities Limited has
established itself as the Best Local Brokerage House in India (Asia Money Brokers’
Poll 2005). Their Institutional Equities Division combines the efforts of the
Research and Sales & Trading departments to best serve clients' needs.
Consistent delivery of high quality advice on individual stocks, sector trends and
investment strategy has established them as a reliable research unit amongst
leading Indian as well as international investors.

Their sales & trading team, comprising top equity professionals, translates the
research findings into actionable advice for clients, based on their specific needs.
Sophisticated computerized tools are used to understand client investment profile
and objectives, which ensures proactive and timely service.

FEATURES
Integrity: A company honoring commitment with highest ethical and business
practices.



Team Work: Attaining goals collectively and collaboratively.
Meritocracy: Performance gets differentiated, recognized and rewarded in an
apolitical environment.
Passion & Attitude: High energy and self motivated with a “Do It” attitude.
Excellence in Execution: Time bound results within the framework of the
company’s value system.

7.5 Karvy

The birth of Karvy was on a modest scale in the year 1982. It began with the
vision and enterprise of a small group of practicing Chartered Accountants based
in Hyderabad, who founded Karvy. They started with consulting and financial
accounting automation, and then carved inroads into the field of Registry and
Share Transfers. Karvy has built a reputation as an integrated financial services
provider, offering a wide spectrum of services for over 20 years.

In 1982, a group of Hyderabad-based practicing Chartered Accountants started
Karvy Consultants Limited with a capital of Rs.150, 000 offering auditing and
taxation services initially. Later, it forayed into the Registrar and Share Transfer
activities and subsequently into financial services.

Karvy made inroads into a host of capital-market services, - corporate and retail -
which proved to be a sound business synergy. In January 1998, Karvy became
the first Depository Participant in Andhra Pradesh.



Karvy Securities Limited
Deals in distribution of various investment products, viz., equities, mutual funds,
bonds and debentures, fixed deposits, insurance policies for the investor.

7.6 Kotak Securities

Kotak Securities Limited, a subsidiary of Kotak Mahindra Bank, is the stock
broking and distribution arm of the Kotak Mahindra Group. Kotak Mahindra is one
of India's leading financial institutions, offering complete financial solutions that
encompass every sphere of life. From commercial banking, to stock broking, to
mutual funds, to life insurance, to investment banking, the group caters to the
financial needs of individuals and corporate.

Kotak Securities was set up in 1994. Kotak Securities is a corporate member of
both The Bombay Stock Exchange and the National Stock Exchange of India
Limited.

Its operations include stock broking and distribution of various financial products
- including private and secondary placement of debt and equity and mutual
funds. Currently, Kotak Securities is one of the largest broking houses in India
with wide geographical reach. The company has four main areas of business:

• Institutional Equities,
• Retail (equities and other financial products),
• Portfolio Management and
• Depository Services.

Kotak Securities Ltd is also a depository participant with National Securities
Depository Limited (NSDL) and Central Depository Services Limited (CDSL),



providing dual benefit services wherein the investors can use the brokerage
services of the company for executing the transactions and the depository
services for settling them.

Kotak Securities has 195 branches servicing more than 2, 20,000 customers and
coverage of 231 Cities. Kotaksecurities.com, the online division of Kotak
Securities Limited offers Internet Broking services and also online IPO and Mutual
Fund Investments.

Features of Kotak Securities

• AKSESS Kotak securities Electronic Search Service: AKSESS offers
you an easy way to get to Kotak Securities' institutional research. On this
online archive you will be able to access estimates, company reports,
sector reports, strategy reports and a bunch of other products including
the daily India Market Flash produced by Kotak Securities.
• High Quality of software (KEAT): K.E.A.T is special software that
Koataksecurities.com provides its customers using which they can view live
market rates of scrip’s on both the NSE and BSE.
• Research Reports: Kotak Securities provide Different reports to investors
which include

• Intraday calls
• Daily Technical View
• Daily Morning Brief
• Weekly Technical Report
• Sectoral Reports
• Stock Ideas
• Derivative Reports
• SMS Alerts: Kotak Securities also provides SMS alerts to customers
providing useful tips about stocks & shares.



7.7 ICICI SECURITIES

ICICI Securities, A subsidiary of ICICI Bank, was set up in February 1993 to
provide investment-banking services to investors in India. As on date ICICI Bank
holds 99.9% of the share capital of ICICI Securities.

ICICI Securities Limited is India’s leading full service investment bank with a
dominant position in all segments of its operations –
• Corporate Finance
• Fixed Income and
• Equities.

Features of ICICI securities ICICI provides multiple channels in banking like,
which is unique feature.

• Internet Banking
• Mobile Banking
• ATM banking
• Phone Banking
• ICICI Securities is amongst the largest arranger of funds in Debt and
Equity segments and also amongst the leading advisors in Mergers and
Acquisitions.



Chapter 8

COMPETITIVE ANALYSIS FOR INDIABULLS
SECURITIES

8.1 Indian Retail Brokerage Market
The Indian retail brokerage industry consists of companies that primarily act as
agents for the buying and selling of securities (e.g. stocks, shares, and similar
financial instruments) on a commission or transaction fee basis.

It has two main interdependent segments: Primary market and the
Secondary market.

Indian Retail Brokerage Market

Interdepende
nt
Segments


Primary Market Secondary Market

Figure 8.1 Interdependent Segments of Brokerage Market

Objective: The main objective is to
• Analyze retail brokerage industry taking into account the health of the
capital markets, Derivative Market and the intensity of competition among
the brokerage companies.
• Doing Competitive Analysis for Indiabulls

8.2 Major growth drivers for brokerage revenue and trading volume
are:

• Continuous fall in brokerage fees
• Adoption of technology — screen-based trading, electronic matching, and
paperless securities.
• Centralized operations, effective risk management, and control on large
interconnected operations spanning multiple locations, which is enabled by
telecom connectivity and low costs
• Increasing access to capital and the ability to provide margin finance



8.3 Parameter Assessment for Doing Competitive analysis
A differentiating aspect is a comparative assessment of the top retail brokerages
on various value indicators, comprising of
• Product
• Pricing
• Service

Competitive analysis

Product Price Service Value Proposition

• Unique Value proposition.



8.4 Customers need to analyze the Brokerage Firms Based on these 5
Parameters.
• Brokerage & Miscellaneous charges
• Quote Software
• Execution Platform
• Demat Account, and finally
• Back office Support.

Brokerage & Miscellaneous charges: This accounts for all the charges that
you incur for your trading/investing. A few examples would be: Demat Account
maintenance, Brokerage, Annual account Fee, Telephone based trading charges,
trading software usage charges, etc.

Quote Software: This is used mainly for technical study and for live quotes.
Many people don’t evaluate quote software. Some Investors don’t pay attention
to the quality of data (how accurate it is). Or how fast and often it refreshes.
Does it allow us to back test our strategy? Does it allow customizing technical
signals/parameters?? Does it allow us to see historic data? For, what period is



intra day data available? They might need all this information. They should be
clear on what they need and ensure quote software provides it all.

Execution Platform: It’s nothing but a platform that allows us to execute our
trade fast. It should automate trade management and execution, and should
automatically give protection against human errors.

Demat Account: Demat account should only be opened with a well known and
established brokerage firm in the market.

Back office Support: People while trading face lots of problem because of lack
of good back office support. Relationship Managers trading without their client’s
knowledge, funds not being transferred, trades not being executed, slow
execution etc are a few examples.

8.5 Brokerage Charges

Intraday Brokerage charges of the Competitors of Indiabulls
Securities Ltd



Intraday Brokerage Charges
0.3
0.25
0.25

0.2
Charges

0.15
0.1 0.1 0.1 0.1
0.1
0.05 0.05
0.05

0
Indiabulls Kotak India-infoline ICICI direct Karvy Motilal Sharekhan
Securities oswal
Financial Brokerage Firms

Indiabulls Kotak Securities India-infoline ICICI direct Karvy Motilal oswal Sharekhan

Graph 8.2 Intraday Brokerage Charges

Delivery Brokerage charges of the Competitors of Indiabulls
Securities Ltd



Delievery Brokerage Charges

0.8 0.75

0.7

0.6
0.5 0.5 0.5 0.5 0.5
0.5 0.45
Charges

0.4

0.3

0.2

0.1

0
Indiabulls Kotak India- ICICI Direct Karvy Motilal oswal Sharekhan
Securities infoline
Financial Brokerage Firms

Indiabulls Kotak Securities India-infoline ICICI Direct Karvy Motilal oswal Sharekhan

Graph 8.3 Delivery Brokerage Charges

8.6 Analyzing the Blogs from Web Site Traderji.com (online community
for Indian Investors & Traders)



We were interpreting the blogs written by customers, their experiences and their
review on brokerage firms.
In this web site they have conducted opinion poll on broker preferences of
customers & reasons for choosing the particular brokerage firm. In this poll
opinion, customers have shared their viewpoint about pros & cons of different
brokerage firms.

Experiences of Customers

Poll Options

Which online broker u prefer and why - chose one
5paise
ShareKhan
Motilal Oswal
ICICI Direct
HDFC
India Bulls
Kotak
Any other (mention name)
View Poll Results

Poll Results of Blogs: Total Number of Voters =457

Which Online Broker You Prefer? Poll Results of Blog(Voters 457)

Any other Mention,
India-Infoline(5paisa),
(58), 13%
(68), 15%

Kotak, (34), 7% Sharekhan, (83), 18%

Indiabulls, (75), 16% Motilal Oswal, (16),
4%
ICICI direct, (109), 24%

HDFC, (14), 3%


India-Infoline(5paisa) Sharekhan Motilal Oswal ICICI direct
HDFC Indiabulls Kotak Any other Mention


Pie chart 8.4 showing Poll results

8.7 Competitive Strength of Indiabulls Securities
Indiabulls securities Ltd have a distinct set of competitive advantages that make
it uniquely capable of winning in the marketplace against its competitors
• Diverse Branch Network
• Bouquet of financial products and services
• Advanced technology team that delivers market leading product innovation
• Strong sales and marketing teams with continuous reinvestment and
training
• Strong cross-selling opportunities.
• Strong and experienced promoters
• Leading product innovation and marketing strategies
• Well capitalized player, with strong banking relationships and credit ratings
• Ability to combine people and technology in unique ways
• Strong market presence and increased market share leading to a virtuous
cycle of growth and Profitability.

Core pillars of Business strategy
• Increase the number of Client Relationships.
• Offer Diversified Financial Products & Services.
• Multiple Channels – Enhance Customer Experience and Opportunities.
• Low cost and highly scalable business.

Merits of Indiabulls Securities
• Low brokerage charges (Competitive) with 0.10 for Intra-day and 0.50 %
for delivery.


• Indiabulls securities provide 8 times margin for Intra-day and 4 times
margin for delivery.
• Indiabulls is suitable for both Day trading & Long term investment
• IndiaBulls has software called Power IndiaBulls. It is a Java based
application, with real-time streaming quotes. It is fast in terms of speed
and execution
• Research reports are free of cost to trading members.
• They Provide 3 in 1 interface, i.e. Demat Account, Trading account & bank
account all are linked in one interface.

De-Merits of Indiabulls Securities
• You have to open a bank account with the banks mentioned in Indiabulls
site for Credit/ Debit Facility as they don’t have their own bank. And In
ICICI direct , you have a direct debit/credit facility with the bank
• Most customers feel that it is difficult to understand the ledger reports of
Indiabulls securities, so proper customer guidance should be given.
• Lack of Banking arm
• Rural market is yet to be tapped.
• More importance should be given to promotions & advertisements.

Value Proposition of Indiabulls Securities
• ISL provide a very good Trading tools like Power Indiabulls &
Indiabulls market trader.
• Power Indiabulls: A desktop Trading application offering clients
sophisticated trading tools accessible at lightning fast speed.



• Indiabulls Market Trader: Browser based trading application built for
retail investor.
• Indiabulls Equity Analysis: Premium research on 400 plus companies.
• Indiabulls Professional Network: Offers real-time prices, detailed data
and news, intelligent analytics and electronic trading capabilities.
• Relationship manager: Indiabulls securities robust technology is
integrated with knowledgeable and customer-focused relationship
managers who are available 24X7 to assist the clients.
• In Depth Market Analysis and Research
Their special research cell bring you intensive research reports on how the
stock market is faring, when is the right time to invest, when to execute
your order and more. Depending on what kind of investor you are, they
bring you fundamental or basic research and technical research.

8.8 Number of Branches of Competitors compared with Indiabulls
securities

Branches of Competitors of Indiabulls as per the Year 2005-06

800 750
Number of Branches

700 667

600
500
500
400
400
306 257
300 250
200
100
0
Kotak Indiabulls ICICI Sharekhan India- Motilal- Karvy
Infoline oswal
Competitors

Kotak Indiabulls ICICI Sharekhan India-Infoline Motilal-oswal Karvy



Number of Customers of competitors compared with Indiabulls

Number of Customers Using Online Trading Terminal as per Year 2005

800,000
Number of Customers using Online Trading

675,000
700,000

600,000

500,000

400,000
Terminal

300,000
140,000
200,000
75,000 60,000 90,000
100,000

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Brokerage Firms

8.9 Merits & De-merits of Competitors

ICICI securities: It provides products & services in fixed income, equity &
corporate finance.
Merits of ICICI Securities
• ICICI Direct is considered best for long term investment.( Indiabulls is
suitable for both Day trading & Long term investment)
• A direct debit/credit facility with the bank.
• All facilities available under one umbrella.
• BTST (Buy today & sell tomorrow) is available; this facility is available only
in ICICI Direct.
• Can apply for IPO online (we can’t do this in Indiabulls).



• Can apply for mutual funds online and can also sell them online.
• Internet banking demo which gives customers an opportunity to learn.

De-Merits of ICICI Securities
• Brokerage charges are high - intraday 0.3% and 0.75% delivery compared
to other brokerage firms (is considered as highest in the market).
• Day trading is a night mare in ICICI because of Web based terminal, which
is very slow. Orders placed at or around 10.00 hrs may be queued for a
while. So
intra-day Margin trading could be annoying now & then. It's not much of a
hassle for Cash trading though.
(Indiabulls offers you a trading terminal 'powerIndiabulls', which is java
based software. It is fast in terms of speed and execution).
• ICICI Direct brokerages are not negotiable ( Where as Indiabulls
Brokerage Charges are negotiable)
• While opening Demat account, three accounts are opened ,the saving
bank account, trading account and Demat account and you have to
maintain minimum of rs5000 in case if it is not a salaried account. (That
Rs5000 sleeps without earning any money)
• Other banks account cannot be linked with the ICICI trading account.
• They charge an annual maintenance charges are Rs540.

Value Proposition of ICICI Securities

• E-Instructions: You can transfer securities 24 hours a day, 7 days a
week through Internet & Interactive Voice Response (IVR) at a lower cost.
Now with "Speak to transfer", you can also transfer or pledge instructions
through our customer care officer.



• Mobile Request: Access your Demat account by sending SMS to enquire
about Holdings, Transactions, Bill & ISIN details.

• The equities research team tracks over 15 key sectors of the Indian
economy and publishes in-depth research reports every year.

• The equities team at ICICI Securities comprises of research desk, sales
desk and the trading desks.

ShareKhan
Merits of ShareKhan Securities
• Low brokerage charges, intraday 0.1% and 0.5% for delivery.
• Live streaming quotes
• Customer support is good
• No monthly charges
• Can trade in both BSE and NSE
De-Merits of ShareKhan Securities
No BTST (buy today sell tomorrow), in ShareKhan you can’t sell a share today
which you bought yesterday.
• You have to open a bank account with the banks mentioned in ShareKhan
site.
• Streaming quotes requires JVM (Java Virtual Machine); this may be big
headache for customers.
• Annual charges are Rs330.
• Their trading terminals are certainly not for "investors", only for active
traders. That is because, you have to trade a certain volume every month,
otherwise you end up paying a fine

Comparing ShareKhan & ICICI Direct



Sharekhan ICICI Securities

Live Streaming quotes No live streaming quotes

but streaming quotes require JVM

No BTST facility BTST facility is available

(Buy today sell tomorrow)

Annual Maintenance charge Rs 330 Annual Maintenance charge Rs
540
You have to open a bank account other banks account cannot be

With the banks mentioned in ShareKhan linked with ICICI trading account
site
Can apply IPO online Can apply IPO online

Not necessary while opening a Demat account
you
Need to maintain a minimum of
Rs 5000
Can trade in BSE & NSE Can Trade in BSE & NSE

No Monthly Charges No Monthly Charges

Cannot apply can apply mutual funds online

India Infoline
Merits of India Infoline (5 Paisa.com) Securities


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