A Study on Investor s Perception Towards Online Trading

8/12/2019 A Study on Investor s Perception Towards Online Trading

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A REPORT

ON

A STUDY ON INVESTORS PERCEPTION

TOWARDS ONLINE TRADING

BY

ANKEM LAKSHMI PRADEEP

RELIGARE SECURITIES LTD

MATS School of Business & IT

BANGALORE

2006-2008

1
http://www.jgi.ac.in/http://www.religare.in/index.asp


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ACKNOWLEDGEMENT:

The satisfaction that is generated by the successful completion of a task would

remain unfulfilled without mentioning people who have encouraged and guided at

every step toward the completion of the task.

I express my sincere thanks to Prof. NVH Krishnanand Prof.

Udayachandra, Deans of MT! !chool of "usiness and IT, "angalore, for their

valuable suggestions and help to prepare this pro#ect.

I express my deep sense of gratitude to my external guide Mrs. Brna!i "

Mr.Dhi#an$ %Mana&r on!in $radin&'( Mr.)i*ay( #r.Tari+,, Mr.-ard-( "

Mr. Manishfor offering me suggestions and help in successfully completing my

pro#ect report.. $e has been a constant source of inspiration and motivation.

I wish to take this opportunity to express my deep sense of gratitude to Dr

K Pani&rahi ( MT! !chool of "usiness, "angalore, for his invaluable

guidance in this endeavor. I sincerely thank him for his suggestions and help to

prepare this report

I would like to express my sincere thank all the department heads, in%charge and

the administrative staff of the organi&ations for giving me relevant information and

support re'uired to complete my study.

I humbly acknowledge there is always some scope for further improvement

and to that end sincerely I invite valuable suggestions of your by which my future

assignments, pro#ects could be benefited

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/NTODUCT/ON

*onstructive uses of new technologies have always contributed positively

towards improving human life standards and the economy of a country .!uch asonline trading, in e'uity markets it increased trade volumes and number ofinvestors trading in stock markets. +nline trading was started in India in the year1-,where a new system is formed which allows the investor to trade through aninternet site where banks and demat accounts are electronically integrated .!uchservices are provided by many financial institutions like I*I*I, eligare, $D/*,India bulls and so on.

Da$a Co!!c$ion M$hods:

0rimary Data 2 Interview will be collected with trading advisors, investors and

company professionals and 'uestionnaires will be collected from targeted

customers.

"0!econdary Data

*ompany records and reports

Maga&ines, #ournals, pamphlets, advertisements.

!tandard reference textbooks

3ebsites like nseindia.com and money control.com

The purpose of using the secondary data is to increase the accuracy of analysis.

0.1 PLACE O2 THE 3TUD4

The study was conducted in "angalore.

Li#i$a$ions $o $h s$,dy

4etting appropriate response from the respondents

4etting appointment from the investors.

The study is limited to the curriculum.

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In !eptember (99B, 6@ffective executive7 special edition speaks about

understanding customers perception to get a distinctive competitive advantage in

the market.

Internet trading in India is discussed in chapter 11,Dalal street #ournal


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*ustomers can trade online with a real time basis and buying and selling of

shares happens with a press of a button.

2 Flexibility:

*ustomers can modify the placing orders according to the market

movements.

3 Standardized Procedure

3hen the order is accepted by the exchange ,it will give pay%in and pay%out

dates and customer can easily expect the cash or shares to be credited to his

account.

4 One stop shop:

"ank statements and transaction statements can be viewed at the click of a

button.

5 n!ormed "esearch:

!ervice providers carry stock analysis like intraday and @+DC@nd of day0

technical charting which helps the customer to make right choices

# Flexibility o! timin$

*ustomers can place orders before start of a trading session.

Disad)an$a&s of On!in Tradin&:

1%imited &no'led$e:

In online terminal, investor can


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) rivacy is less due to hacking scandals

5 Transactional errors due to technical problems

Va!, addd sr)ics

1 Tradin& in shars

1Spot Tradin$:3hen an investor is looking at an immediate li'uidityoption . E*ash on spot


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2,$,rs: Through online trading service providers, one can trade in index and

stock futures on the ;!@. In futures trading, investor takes buyFsell positions in

index or stocks contracts having a long contract period of up to ) months.

O-$ions Through online trading service providers ,one can trade in index and

stock options.

5 /PO9s On!in: Investors could also invest in Initial ublic +ffersCI+


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chart data when making investing decisions more fre'uently , and tend to choose

stocks to buy and sell on their own.

OB;ECT/VE3 O2 THE 3TUD4

The main ob#ectives of the study are

To study investor


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1(


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2/NANC/AL 3EV/CE3 3ECTO

/NTODUCT/ON:

/inancial services are vital tools of machinery for economy and they lubricatethe wheels of economic development. In advanced nations, giant economies like

G!,G8,Aapan,etc..,.ma#or portion of the national income is accounted from the

services sector and minimum from the product sector.

Indian economy has undergone a sea change in its structure, policy and

regulation, due to liberali&ation and globali&ation, since 11.Markets for services

are no exception to this. The contribution of service sector Cincluding financial

services sector0 for 4D has increased to -1> in (99),from )B > in 1=9.The

financial service sector include factoring, merchant banking, venture capital ,etc.

/inancial services like banking, merchant banking, factoring, Insurance, Henture

capital ,act as vital machinery of an economy. These financial services that

facilitate, financial transactions of individuals and institutional services resulting

in their resources allocation activities through time. The sector that deals with suchfinancial services is known as 6financial services sector7. +nce the economy

crosses the subsistence level, financial services become more prominent and

important to that economy. /inancial services in current days are emerging as a

crucial industry world over and is termed as a sun rise industry. The services

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offered by this sector not only raise the re'uired funds, but also lead to the

efficient management of funds.Today,the financial service products, as turned out

to by financial services industry are innovative and paving ways for vivid

opportunities for further economic development.

E#r&nc of financia! sr)ics ind,s$ry in /ndia

!ervices sector industry has started gaining large scale momentum since the

process of liberali&ation in 11.rior to its contribution to 4D was around 59

> ,but since 1( it has been grown rapidly and reached a value of -1 >

4D.*ontribution of service sector to 4; in advanced counties like G! is as

high as :->.In India many innovative financial products and services like credit

cards,TMs,consumer finance, venture financing have been emerging since 1=9s

nd these financial services have become an integral component of Indian

financial system. This integration is largely attributed to the liberali&ation of

economic policies and deregulation that led to economic changes ,development

and contemporary evolution of capital market and financial dis%intermediation.

The far%reaching change in the Indian economy since liberali&ation in the

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early 19s have had a deep impact on the Indian financial sector. The

financial sector has gone through a complex and sometimes painful process of

restructuring, capitali&ing on new opportunities as well as responding to new

*hallenges. During the last decade, there has been a broadening and deepening offinancial markets. !everal new instruments and products have been introduced.

@xisting sectors have been opened to new private players. This has given a strong

impetus to the development and moderni&ation of the financial sector. ;ew players

have adopted international best practices and modern technology to offer a more

sophisticated range of financial services to corporate and retail customers. This

process has clearly improved the range of financial services and service providers

available to Indian customers.

The entry of new players has led to even existing players upgrading their product

offerings and distribution channels. This continued to be witnessed in (99(%9)

across key sectors like commercial banking and insurance, where private players

achieved significant success.

These changes have taken place against a wider systemic backdrop of easing

of controls on interest rates and their realignment with market rates, gradual

reduction in resource pre%emption by the government, relaxation of

stipulations on concessional lending and removal of access to concessional

resources for financial institutions. +ver the past few years, the sector has also

witnessed substantial progress in regulation and supervision. /inancial

intermediaries have gradually moved to internationally acceptable norms for

income recognition, asset classification, and provisioning and capital ade'uacy.

This process continued in (99(%9), with "I announcing guidelines for

risk%based supervision and consolidated supervision. 3hile maintaining its

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soft interest rate stance, "I cautioned banks against taking large interest rate

risks, and advocated a move towards a floating rate interest rate structure. The past

decade was also an eventful one for the Indian capital markets.

eforms, particularly the establishment and empowerment of securities and@xchange "oard of India C!@"I0, market%determined prices and allocation of

resources, screen%based nation%wide trading,dematerialisation and electronic

transfer of securities, rolling settlement and derivatives trading have greatly

improved both the regulatory framework and efficiency of trading and

settlement.

+n account of the subdued global economic conditions and the impact on the

Indian economy of the drought conditions prevailing in the country, (99(%9) was a

subdued year for e'uity markets. Despite this, the ;ational !tock @xchange C;!@0

and the "ombay !tock @xchange C"!@0 ranked

third and sixth respectively among all exchanges in the world with respect to the

number of transactions. The year also witnessed the grant of approval for setting

up of a multicommodity exchange for trading of various commodities.

The G! (= billion Indian financial sector has grown at around 1- per cent and

has displayed stability for the last several years, even when other markets in the

sian region were facing a crisis. This stability was ensured through the resilience

that has been built into the system over time. The financial sector has kept pace

with the growing needs of corporate and other borrowers. "anks, capital market

participants and insurers have developed a wide range of products and services to

suit varied customer re'uirements. The eserve "ank of India C"I0 has

successfully introduced a regime where interest rates are more in line with market

forces.

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/inancial institutions have combated the reduction in interest rates and pressure on

their margins by constantly innovating and targeting attractive consumer segments.

"anks and trade financiers have also played an important role in promoting

foreign trade of the country. $ere we will study the three industries with respectto India.

/N3UANCE AND /ND/A

The insurance sector in India has come a full circle from being an opencompetitive market to nationali&ation and back to a liberali&ed market again.

Tracing the developments in the Indian insurance sector reveals the )B9 degreeturn witnessed over a period of almost two centuries.

A The Indian Jife ssurance *ompanies ct enacted as the first statute toregulate the life insurance business.0=>? The Indian Insurance *ompanies ct enacted to enable the government tocollect statistical information about both life and non%life insurance businesses.0=@? @arlier legislation consolidated and amended to by the Insurance ct withthe ob#ective of protecting the interests of the insuring public.0=1 (5- Indian and foreign insurers and provident societies taken over by thecentral government and nationali&ed. JI* formed by an ct of arliament, vi&.JI* ct, 1-B, with a capital contribution of s. - crore from the 4overnment ofIndia. The 4eneral insurance business in India, on the other hand, can trace itsroots to the Triton Insurance *ompany Jtd., the first general insurance companyestablished in the year 1=-9 in *alcutta by the "ritish.

!ome of the important milestones in the general insurance business in India are0= The Indian Mercantile Insurance Jtd. set up, the first company to transact allclasses of general insurance business.0=1 4eneral Insurance *ouncil, a wing of the Insurance ssociation of India,frames a code of conduct for ensuring fair conduct and sound business practices.0=? The Insurance ct amended to regulate investments and set minimumsolvency margins and the Tariff dvisory *ommittee set up.

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0=> The 4eneral Insurance "usiness C;ationali&ation0 ct, 1:( nationali&edthe general insurance business in India with effect from 1st Aanuary 1:).107 insurers amalgamated and grouped into four companies viz.the NationalInsurance Company Ltd., the New India ssurance Company

Ltd., the!riental Insurance Company Ltd. and the "nited India InsuranceCompanyLtd. #IC incorporated as a company.

Ky P!ayrs in ins,ranc 3c$or of /ndia

eliance 4eneral Insurance *ompany Jtd

Jife Insurance *orporation of India

$D/* Insurance

8otak Mahindra

I*I*I rudential

!"I Jife Insurance *ompany Jtd

+riental Insurance *ompany Jtd

;ational Insurance *ompany Jtd

"a#a# llian& Jife Insurance *ompany Jtd

MUTUAL 2UND3 AND /ND/A

Jet us start the discussion of the performance of mutual funds in India from theday the concept of mutual fund took birth in India. The year was 1B). Gnit Trustof India invited investors or rather to those who believed in savings, to park theirmoney in GTI Mutual /und.

/or )9 years it goaled without a single second player. Though the 1== year sawsome new mutual fund companies, but GTI remained in a monopoly position.The performance of mutual funds in India in the initial phase was not even closerto satisfactory level. eople rarely understood, and of course investing was out of'uestion. "ut yes, some (5 million shareholders was accustomed with guaranteedhigh returns by the beginning of liberali&ation of the industry in 1(. This goodrecord of GTI became marketing tool for new entrants. The expectations of

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investors touched the sky in profitability factor. $owever, people were miles awayfrom the preparedness of risks factor after the liberali&ation.

The ssets Gnder Management of GTI was s. B:bn. by the end of 1=:. Jet meconcentrate about the performance of mutual funds in India through figures. /rom

s. B:bn. the ssets Gnder Management rose to s. 5:9 bn. in March 1) andthe figure had a three times higher performance by pril (995. It rose as high ass.1,-59bn.

The net asset value C;H0 of mutual funds in India declined when stock pricesstarted falling in the year 1(. Those days, the market regulations did not allowportfolio shifts into alternative investments. There were rather no choice apartfrom holding the cash or to further continue investing in shares. +ne more thing tobe noted, since only closed%end funds were floated in the market, the investorsdisinvested by selling at a loss in the secondary market.

The performance of mutual funds in India suffered 'ualitatively. The 1( stockmarket scandal, the losses by disinvestments and of course the lack of transparentrules in the whereabouts rocked confidence among the investors. artly owing to arelatively weak stock market performance, mutual funds have not yet recovered,with funds trading at an average discount of 19(9 percent of their net asset value.

The supervisory authority adopted a set of measures to create a transparent andcompetitive environment in mutual funds. !ome of them were like relaxinginvestment restrictions into the market, introduction of open%ended funds, andpaving the gateway for mutual funds to launch pension schemes.

The measure was taken to make mutual funds the key instrument for long%termsaving. The more the variety offered, the 'uantitative will be investors.

t last to mention, as long as mutual fund companies are performing with lowerrisks and higher profitability within a short span of time, more and more peoplewill be inclined to invest until and unless they are fully educated with the dos anddon


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!ahara Mutual /und.

!tate "ank of India Mutual /und.

Tata Mutual /und.

DEMAT ACCOUNT AND /ND/A

There are 'uite a few institutions that are directly andFor indirectly connected withdemateriali&ed operations of securities. Gnderstanding the inter%linkages andfunctional responsibilities of these institutions will help us to have correct andholistic perspective about functioning of demateriali&ation. The institutionsconnected with demat operations includeK a0 Depositories, b0 !tock @xchangesC!@s0, c0 *learing *orporations C**s0 F *learing $ouses C*$s0, d0 Depositoryarticipants CDs0, e0 egistrars and Transfer gents CTs0. "oth thedepositories ;!DJ and *D!J are primarily promoted by the two leading stock

exchanges vi&., ;ational !tock @xchange of India Jtd C;!@0 and The !tock@xchange, Mumbai C"!@0 respectively. "esides, there are many other institutionalpromoters in both the depositories. "oth are registered as organi&ations%for%profitand professionally managed. Inter%connectivity between these two depositories hasbeen established, thus Ds and investors can transfer smoothly their shares fromone account to another between the depositories. Most of the stock exchanges areconnected with the depositories to provide trading in demateriali&ation segment.@ventually, all the exchanges will be connected to either of or both thedepositories. esultantly, functioning of exchanges altered with thecommencement of depositoriesK shorter trade cycles, negligible bad%deliveries,

immediate transfer of beneficial ownership and lower transaction costs. n in%depth study on transaction cost for e'uity shares in India by a#u C(9990 revealedsubstantial decrease in transaction costs and observed that the demateriali&ation asone of the important factor for this trend.

/unctioning of clearing corporations F clearing houses materially changed after theentry of depositoriesK reduced manpower re'uirements and faster clearingoperations. It also helped them to diversify into related businesses such as on%linestock lending. Depository participants are the new commercial intermediaries thatsprang up. They interpose between investor and depository. It can be stated thatthey are the back%bone for the success of demateriali&ation. Ts facilitatedematerialisation and rematerialisation of shares.

Ma*or P!ayrs /n On!in Tradin& Bro7ra& Ho,ss in /ndia

I*I*I !ecurities Jtd.

8otak !ecurities Jtd.

India bulls /inancial !ervices Jimited

(9
http://finance.indiamart.com/india_business_information/sahara.htmlhttp://finance.indiamart.com/india_business_information/sbi.htmlhttp://finance.indiamart.com/india_business_information/tata.htmlhttp://finance.indiamart.com/india_business_information/sahara.htmlhttp://finance.indiamart.com/india_business_information/sbi.htmlhttp://finance.indiamart.com/india_business_information/tata.html


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India Infoline

IJL/! investmart Jimited

!!8I Jtd.

Motilal +swal !ecurities

eligare !ecurities Jtd.

4eo#it !ecurities

$D/* !ecurities

On!in Tradin&: /ndian scnario

In the Indian context ,online trading can be rightly called as a recentphenomenon ,which took root with the change of century i.e. pril (999,and eventill day online trading is not much popular among investors for which a list offactors can be blamed. This fact is more clear from the information available thatwhere number of stocks exchanges in India has grown from : exchanges in 15Bto total () exchanges till (99-,only ( stock exchanges are providing online sharetrading .Indian stock exchanges have started adopting technology because itprovides the necessary impetus for the organi&ation to retain its competitive edgeand ensure timeliness and satisfaction in customer service.

+nline trading has gained momentum from #ust 9.-> of total traded volumes -?rs back, which now account for -> of total trading volume of approximately s15999 *r. +n +nce%+ver the past two years ,the value of all trades executedthrough internet on ;!@ has grown from less than s 199 *r in Aune (99) to overs :99 *r in Aune (99-.+nline trading is growing by 1-9 > per annum.;ow ;!@has 19= registered brokers and 1.9-) million internet trading subscribers.

(1


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$owever mainly - companies control 9 > of the market in Internettrading.I*I*Idirect.com has around -9 > market share ,whereas India "ulls hold(B> share ,other dominant players are 8otak securities and !hare 8han .I*I*I hasbeen able to gain its dominant presence in Internet trading because they have

strong connectivity of stock trading,demat account, bank account ,etc.I*I*IDirecthas recorded B,:-,999 registered customers and has become 19 th largest onlinebroker in G! whereas share khan and -paisa are loosing their way.

((


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-ompany pro!ile

!i&ar 3c,ri$is L$d.

eligare !ecurities Jtd is a anbaxy promoter group company, is one of India


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not resting on its laurels, it has also aggressively started eyeing global

geographies.

Vision

To build eligare as a globally trusted brand in the financial services domain and

present it as the EInvestment 4ateway of India


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EU/T4 AND DE/VAT/VE TAD/NG:

The term e'uity derivative describes a class of financial instruments whose value

is at least partly derived from one or more underlying e'uity securities. Marketparticipants trade e'uity derivatives in order to transfer or transform certain risksassociated the underlying. +ptions are by far the most common e'uity derivative,however there are many other types of e'uity derivatives that are actively traded.

/N3T/TUT/ONAL D/3T/BUTON 3EV/CE

The *lient !ervice Manager will be responsible for all aspects of client reportingfor institutional investment clients and industry organi&ations. The candidate willalso be responsible for client servicing which includes working with clients,

internal groups and G8 based portfolio management.

DEPO3/TO4 3EV/CE3

Depository is an organisation which holds your securities in electronic Calsoknown asEbook entry


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3WOT ANAL43/3 O2 EL/GAE

3TENGTH3

It is the anbaxy promoter group company.

It has a good research team.

;o nnual maintenance charges for their online broking services.

WEAKNE33

It has changed its name from /+TI! to @JI4@ where the maximum

*ustomers don


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eligare products are well known for +nline Trading ,+ffline Trading,ortfolio Management !ervices , *ommodity Trading and Intuitional "rokingservices.

0.On!in Tradin& in E+,i$y Mar7$s:

+nline Trading products in @'uity markets are named as *@, which isdivided into three segments ,*@%basic, lite and ro.

2a$,rs of ACE -rod,c$s:

/ixed "rokerage and @xposure

*all center support provided for trading, back%office and IT support

Minimum branch level support

/ully automated processes

/eature%rich software

Interest on cash margin deposited with eligare

Target 4roup 2 Mass Market

G!

o Interest on cash margin deposited with eligare

o "etter 'uality product at competitive brokerage

+ffline Trading roducts in @'uity markets are named as %JJ?,which isdivided into

ALL4 -lassic

Trade over the phone ALL4%ite

browser based internet trading facilityALL4Pro

n application based diet odinCsoftware0 over Internet

2a$,rs of ALL4 -rod,c$s: /lexible brokerage L exposure

;o call center support

/ull branch level support

$igh level of manual intervention for flexible processes

"asic software

;o interest on cash margin

Target 4roup 2 $igh Holume Traders.

(=


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is suitable for the 6Jow isk Jow eturn7 investor with a strategy to invest in

blue chip companies, as these companies have steady performance.

Ca$r-i!!ar

The *aterpillar portfolio aims to achieve capital appreciation over a long period oftime by investing in a diversified portfolio. The investment strategy would be to

invest in scrips which are poised to get a re%rating either because of change in

business, potential fancy for a particular sector in the coming yearsFmonths,

business diversification leading to a better operating performance, stocks in their

early stages of an upturn or for those which are in sectors currently ignored by the

market.

5. /N3T/TUT/ONAL BOK/NG 3EV/CE3

The mission of this division is to institutionali&e and implement a process driven

approach to cater to the needs of leading corporate houses and institutions.

The division would like to be seen as a one stop investment gateway and

knowledge repository for its clients servicing their uni'ue and sophisticated needs.

The division is structured as a separate !"G and is housed out of Mumbai,

manned by a small yet fleet footed and extremely skilled group of top notch

professionals drawn from the best in the industry.

Documents

A Study on Investor s Perception Towards Online Trading