A STUDY ON INVESTMENT IN COMMODITY & DERRIVATIVE ON SHAREKHAN PVT LTD In the partial fulfillment of the requirement for the degree of POST GRADUATE PROGRAME IN MANGEMENT Submitted By DEEPAK KUMAR VATS ENROLL NO. 12BSP1856 Under the guidance of Dr. SOMBALA N. Assistant Professor, IBS GUGAON 1 CERTIFICATE OF ATTENDANCE This is to certify that Mr. Deepak Kumar Vats, who was engaged in our organization as a Summer Trainee, has been regular & punctual. He has attended the training from 15th March to 4th of june 2012. Signature MOHD. WAKEEL (Assistant Manager) Sharekhan Ltd. 2 GUIDE’S CERTIFICATE This is to certify that Mr. Deepak Kumar Vats, Enroll. No.12BSP1856, a student of Post Graduate Program In Management, Session 2011-2013, has completed Dissertation report on the topic “INVESTMENT IN COMMODITY & DERRIVATIVE ON SHAREKHAN PVT LTD” under my supervision. He has completed the project report in most systematic and regular way, his dedication and sincerity during project is highly commendable. I wish him all the best for his endeavour. Dr. SOMBALA N. FACULTY GUIDE IBS GURGAON 3 DECLARATION I hereby declare that the project work entitled “A STUDY ON INVESTMENT IN COMMODITY & DERRIVATIVE ON SHAREKHAN PVT LTD”, submitted to the IBS GURGAON, in partial fulfillment of the requirement for the award of the degree of Post Graduate Program In Management is a record bonafide research carried out by me under the guidance of Dr. Sombala N. Faculty guide at IBS GURGAON, and this project work has not formed the basis for the award of any Degree/Diploma/Fellowship or similar title to any candidate of any university. Deepak kumar vats 4 ACKNOWLEDGEMENT A project is never the work of an individual. It is moreover a combination of ideas, suggestions, review, contribution and work involving many folks. It cannot be completed without guidelines. It is my pleasure to acknowledge gratefully to all those honorable personalities who helped me lot into the creation of this project and shared their experiences. I would like to express my sincere indebtedness to Dr. SOMBALA N. (Faculty Mentor, IBS GURGAON) for giving me the opportunity to work on this project and make it a success. I would like to express my deep sense of gratitude to my Industry guide, MOHD WAKEEL, Assistant Manager– Sharekhan Ltd., Nirman Vihar Branch, New Delhi, who spent his valuable time and guided me. I have benefited a great deal from his incisive analysis and erudite suggestions. The atmosphere of a learning organization that he has created along with his peers in Nirman Vihar Branch has not only helped me but all the other trainees. Acknowledgements are also due to all the other staff members and executives in Sharekhan Ltd., Nirman Vihar Branch for providing information at various point of the project, especially the discussions on the market. I am also sincerely thankful to all the faculty members of IBS GURGAON for providing their help and advice whenever it was needed. Finally I wish to extend my sincere acknowledgement to my parents for their moral and financial support. Deepak kumar vats 5 TABLE OF CONTENTS Certificate Declaration Acknowledgement Executive Summary Objective of the Study Methodology Job Description Chapter 1. Introduction of Sharekhan Limited About Sharekhan Limited Sharekhan Limited‟s Management Team Products and Services of Sharekhan Limited Types of account in Sharekhan Limited How to open an account with Sharekhan Limited? Research section in Sharekhan Limited Awards and Achievements Chapter 2. Introduction to Derivatives Derivatives defined Emergence of Derivatives History of Derivatives Global Derivative Markets Derivatives Market in India Participants and Functions Types of Derivative Instruments Derivative Market at NSE Approval for Derivative Trading Clearing and Settlements Index Derivatives Trading Order type and Condition SEBI Advisory Committee on Derivative 6 Chapter 3. Introduction to Futures and Options Forward Contracts Future Contracts Options Payoffs for Derivative Contracts Chapter 4. Hedging, Arbitrage and Speculation Strategies Hedging Strategies with examples Arbitrage Strategies with examples Speculation Strategies with examples Chapter 5. Applicability of Derivative Instruments Risk Management: Concept and Definition Risk Management with Future Contract Risk Management with Options Introduction to Option Strategies Chapter 6. Introducion of Commodity Introduction of Commodity Why Structured Commodity Market ? Characterstics Of Future Trading Economic benefit of future trading Commodity are suitable for future trading Need For Futures Trading In Commodities Chapter 7. Hedging Strategies Hedging Regulatory body Why Commodities Market? Chapter 8. Problem Face By Commodity Market In India 7 Problem Faced By Commodities Markets In India Risks Associated With Commodities Market Key Factors For Success Of Commodities Market Key FActors For Success Of Commodities Exchange Future prospectis Regulatory approval for fit trading in commodity market Chapter 9.Online commodity trading SHAREKHAN COMMODITY ADVANTAGE KEY BENEFITS OF COMMODITIES@ SHAREKHAN Chapter 10. Research Research objective Hypothesis Source of data Sampling process Scope of study Limitation of study Analysis & Interpretation Testing of Hypothesis Chapter 11. Conclusion Chapter 12. Suggestions and Recommendations 8 Chapter 13. The Reference Material Glossary Bibliography EXECUTIVE SUMMARY Conceptually the mechanism of stock market is very simple. People who are exposed to the same risk come together and agree that if anyone of the person suffers a loss the other will share the loss and make good to the person who lost. The initial part of the project focuses on the job and responsibilities I was allotted as a summer trainee. It also makes the readers aware about the techniques and methodology used to bring this report alive. It also describe about the objective of this study. It also enlightens the readers about Sharekhan Limited’s strategies to acquire new customers. Further the project tells us about the profile of the company (Sharekhan Ltd.). It provides knowledge to the readers regarding the company’s history, mission, vision, customer base and the reasons to be associated with the company. Also it gives special emphasis on the selling of products and management of the company. The next few chapters are devoted to the study of the Derivative Market and Derivative Instruments in a very basic way. It also suggests some of the strategies that can be applied to earn more even when the market is too much volatile. The readers can also find the comparative analysis of the Derivative Market and the Cash Market in the Indian context. The next part of the project throws light upon my findings and analysis about the company and the suggestions for the company for better performance. 9 OBJECTIVE OF THE STUDY To find out whether the Derivative Instruments are applicable in the Indian Stock Market which can work both in good and bad times so that it can minimize our risk and maximize our returns. As a result one can have conviction in his portfolio in the hugely volatile stock market because a difficult and serious problem for all investors today is that there is entirely too much free information, hype, promotion, personal opinion, and advice about derivative instruments are there in stock market. One get it from friends, relatives, people at work, the Internet, brokers, stock analysts, advisers, entertaining cable TV market programs, and other media. It can be very risky and potentially dangerous. Realistically, there are not too many people one can listen to if he want to avoid confusing, contradictory, and faulty personal market opinions. So one need to confine himself to just a very few sources of relevant facts and data and a sound system that has proven to be accurate and profitable over time. Therefore, the objective of the Dissertation is to do in depth research on these derivative instruments. 10 METHODOLOGY During this project, I have analyzed the Futures and Options. I have tried to analyze the instruments as per the Market Participant and the Market Trend. Initially, I have given a brief introduction about the instruments, so that the reader is aware of basics of the subject. I have tried to identify various terms related to derivative trading, for which I have introduced a separate chapter, “Terms related to derivative market” Then I have tried to segregate the use of Instruments as per the Market Participants and Market Trend. I identified hedging, arbitrage and speculation strategies using both futures and options, and then segregated them into a chapter each. Segregation involved a thorough study of the strategies and possible use. Then I have done a secondary data based study on growth of Indian Derivative Market, which includes the comparison of derivative market with cash market, data regarding the traded volume and number of contracts traded from 2011. I have also analyzed the top five most traded symbols in futures and options segment. 11 JOB DESCRIPTION The company placed me as a Summer Trainee. I have been handling the Following responsibilities: My job profile was to sale the products of the organization. My job profile was to coordinate the team and also help them to sale the product and also help them in field. My job profile was to generate the leads by cold calling. My job profile was to understand customers’ needs and advising them to make a portfolio as per their investment. My job profile was to do sales promotion through e-mails, canopies, making cold calling, distributing pamphlets and etc. AREA ASSIGNED I covered areas like Delhi, Gurgaon, Ghaziabad, Faridabad and NCR. TARGET ASSIGNED To sell 6 accounts . TARGET MARKET Different properties dealers. Charted accountants. Lawyers Travel agencies Transport business House wives Businessmen Corporate Employees etc. 12 DAY TO DAY JOB DESCRIPTION Reporting time: 9.00 AM Fixing appointment with clients. Visit clients place. Demonstrate the product on Internet to the client. Completing the formalities like filling the application form and documentation. Cold calling. 13 Chapter 1 Introduction of Sharekhan ltd.