A Study on Volatality in BSE Sensex

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Content

Page

Chapter 1

INTRODUCTION 8

1.1 Organization Profile 12

1.2 Concepts 15

1.3 Need for this study 18

1.4 Problem 18

1.5 Objectives 18

1.6 Procedure methodology 19

Chapter 2

2.1 Analysis of the situation 21

2.2 Existing of the system 51

2.3 Need for the change in system 53

2.4 Proposed system 55

Chapter 3

3.1 Present conditions with special reference to the organization 61

Chapter 4

Summary, Conclusion and Suggestion4.1 summary of the system 104

4.2 scope of the system 104

4.3 Suggestion 105

BIBLIOGRAPHY 106

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CHAPTER 1

INTRODUCTION

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INTRODUCTION

BSE Sensex or Bombay Stock Exchange Sensitive Index is a value-weighted index composed of

30 stocks started in 01 of Jan, 1986. It consists of the 30 largest and most actively traded stocks,representative of various sectors, on the Bombay Stock Exchange. These companies account for

around one-fifth of the market capitalization of the BSE. The base value of the sensex is 100 on

April 1, 1979, and the base year of BSE-SENSEX is 1978-79.

At irregular intervals, the Bombay Stock Exchange (BSE) authorities review and modify its

composition to make sure it reflects current market conditions. The index is calculated based on a

free-float capitalization method; a variation of the market cap method. Instead of using a

company's outstanding shares it uses its float, or shares that are readily available for trading. The

free-float method, therefore, does not include restricted stocks, such as those held by company

insiders.

The index has increased by over ten times from June 1990 to the present. Using information from

April 1979 onwards, the long-run rate of return on the BSE Sensex works out to be 18.6% per

annum, which translates to roughly 9% per annum after compensating for inflation.

Clause 49 of the Listing Agreement to the Indian stock exchange comes into effect from 31

December 2005. It has been formulated for the improvement of corporate governance in all listed

companies.

In corporate hierarchy two types of managements are envisaged:

I) companies managed by [board of directors]; and

II) Those by a [managing director], whole-time director or manager subject to the control

and guidance of the board of directors.

As per Clause 49, for a company with an Executive Chairman, at least 50 per cent of the board

should comprise independent directors. In the case of a company with a non-executive Chairman,

at least one-third of the board should be independent directors.

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It would be necessary for chief executives and chief financial officers to establish and maintain

internal controls and implement remediation and risk mitigation towards deficiencies in internal

controls, among others.

Clause VI (ii) of Clause 49 requires all companies to submit a quarterly compliance report to stock

exchange in the prescribed form. The clause also requires that there be a separate section on

corporate governance in the annual report with a detailed compliance report.

A company is also required to obtain a certificate either from auditors or practicing company

secretaries regarding compliance of conditions as stipulated, and annex the same to the director's

report.

The clause mandates composition of an audit committee; one of the directors is required to be

"financially literate".

It is mandatory for all listed companies to comply with the clause by December 31, 2005.

Corporate Governance may be defined as A set of systems, processes and principles which ensure

that a company is governed in the best interest of all stakeholders. It ensures Commitment to

values and ethical conduct of business; Transparency in business transactions; Statutory and legal

compliance; adequate disclosures and Effective decision-making to achieve corporate objectives.

In other words, Corporate Governance is about promoting corporate fairness, transparency and

accountability. Good Corporate Governance is simply Good Business.

Clause 49 of the SEBI guidelines on Corporate Governance as amended on 29 October, 2004 has

made major changes in the definition of independent directors, strengthening the responsibilities of

audit committees, improving quality of financial disclosures, including those relating to related

party transactions and proceeds from public/ rights/ preferential issues, requiring Boards to adopt

formal code of conduct, requiring CEO/CFO certification of financial statements and for

improving disclosures to shareholders. Certain non-mandatory clauses like whistle blower policy

and restriction of the term of independent directors have also been included.

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The term Clause 49 refers to clause number 49 of the Listing Agreement between a company and

the stock exchanges on which it is listed (the Listing Agreement is identical for all Indian stock

exchanges, including the NSE and BSE). This clause is a recent addition to the Listing Agreement

and was inserted as late as 2000 consequent to the recommendations of the Kumarmangalam Birla

Committee on Corporate Governance constituted by the Securities Exchange Board of India

(SEBI) in 1999.

Clause 49, when it was first added, was intended to introduce some basic corporate governance

practices in Indian companies and brought in a number of key changes in governance and

disclosures (many of which we take for granted today). It specified the minimum number of

independent directors required on the board of a company. The setting up of an Audit committee,

and a Shareholders Grievance committee, among others, were made mandatory as were the

Managements Discussion and Analysis (MD&A) section and the Report on Corporate

Governance in the Annual Report, and disclosures of fees paid to non-executive directors. A limit

was placed on the number of committees that a director could serve on.

In late 2002, SEBI constituted the Narayana Murthy Committee to assess the adequacy of current

corporate governance practices and to suggest improvements. Based on the recommendations of

this committee, SEBI issued a modified Clause 49 on October 29, 2004 (the revised Clause 49)

which came into operation on January 1, 2006.

The revised Clause 49 has suitably pushed forward the original intent of protecting the interests of

investors through enhanced governance practices and disclosures. Five broad themes predominate.

The independence criteria for directors have been clarified. The roles and responsibilities of the

board have been enhanced. The quality and quantity of disclosures have improved. The roles and

responsibilities of the audit committee in all matters relating to internal controls and financial

reporting have been consolidated, and the accountability of top managementspecifically the

CEO and CFOhas been enhanced. Within each of these areas, the revised Clause 49 moves

further into the realm of global best practices (and sometimes, even beyond).

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Making the Right Decision

As India's leading financial exchange, BSE realized the importance of having in place state-of-the-

art IT infrastructure to support trading activity. With the tremendous growth in the volume of daily

trades, BSE recognized the need to invest in business solutions that were efficient, scalable, cost-

effective and reliable. In its effort to help sustain trading activity, BSE had, over the years,

introduced several new software applications. With each new application, new servers were added,

leading to a loss of operational efficiency. It was getting difficult to manage different production

environments recounts Mr. S.B. Patankar, Chief Technology Officer, and BSE.

There were 14 disparate servers running different applications, and a few of these servers were

more than five years old. The existence of a large number of servers some of them nearly

obsolete meant that maintenance costs were skyrocketing, even as the BSE was striving to

streamline its operations. Therefore, the Company's goal was to consolidate the IT Infrastructure

for these various applications.

BSE created history on June 9, 2000 by launching the first Exchange traded Index Derivative

Contract i.e. futures on the capital market benchmark index - the BSE Sensex. The inauguration of

trading was done by Prof. J.R. Varma, member of SEBI and chairman of the committee

responsible for formulation of risk containment measures for the Derivatives market. The first

historical trade of 5 contracts of June series was done on June 9, 2000 at 9:55:03 a.m. between M/s

Kaji & Maulik Securities Pvt. Ltd. and M/s Emkay Share & Stock Brokers Ltd. at the rate of

4755.

In the sequence of product innovation, the exchange commenced trading in Index Options on

Sensex on June 1, 2001. Stock options were introduced on 31 stocks on July 9, 2001 and single

stock futures were launched on November 9, 2002.

September 13, 2004 marked another milestone in the history of Indian Capital Markets, the day on

which the Bombay Stock Exchange launched Weekly Options, a unique product unparallel in

derivatives markets, both domestic and international. BSE permitted trading in weekly contracts in

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options in the shares of four leading companies namely Reliance, Satyam, State Bank of India, and

Tisco in addition to the flagship index-Sensex.

1.1 ORGANISATION PROFILE

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The highest decision-making forum of the exchange is the Annual General Meeting (AGM). Its

scope includes the election of the Board and Supervisory Board members.

Board of Directors and Supervisory Board

The Board of Directors is the companys executive body. The mandate of its members is to serve a

three-year term following their election. Current members will serve their term until the upcoming

2011 Annual General Meeting. As set forth in the Exchange Charter, the Board of Directors

consists of 3 to 7 members (6 at present), from among whom the members elect the Chairman and

the Deputy Chairman of the Board with a simple majority vote.

The Supervisory Board oversees the companys management. Members of the Supervisory Board

also serve a mandate of three years, currently until the 2011 AGM. On the basis of the BSE

Charter, the Supervisory Board consists of 3 to 6 members (6 at present), elected at the general

shareholder meeting. Supervisory Board members cannot be employees of the Budapest Stock

Exchange Co. Ltd.

Organizational structure

The Exchanges organization, internal trading supervision, implementation of the Boards

decisions, publication of information on the exchange and the Exchanges overall business

administration are duties of the Chief Executive Officer supported by the BSE organization.

Committees for the representation of interests

The Exchange shall comply with the principles established by the Capital Market Act and shall

ensure that investment service providers trading on the Exchange, issuers and investors should

have the power to issue their opinion while equally participating in the decision-making process

affecting the Exchange. In order to ensure this, the Exchange operates committees for the

representation of interests. Committee members are elected by traders and issuers, and their

mandates expire at the same time as the mandates of the Board of the Exchange.

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The Trading Committee formulates the professional view of the vendors, represents vendors

interests in professional issues and ensures the institutional possibility of professional control of

decisions.

The Committee of Issuers formulates the professional view of the issuers, represents issuers

interests in professional issues and ensures the institutional possibility of professional control of

decisions.

The representative promoting investors interests is authorized to issue an opinion on all proposals

concerning the interests of investors. The representative is elected by the organizations and

associations representing investors interests.

Advisory committees

In addition to the committees for the representation of interests, the Exchange operates further

advisory committees in order to prepare and establish the Exchanges strategic and business

decisions. These advisory committees have the right to formulate an opinion on special business

development issues.

The Settlement Committee participates in the preparation of decisions regarding the Exchanges

settlement system and ensures effective professional oversight. Its members and Chairman are

elected by the BSE Board based on vendor recommendations.

The Index Committee was set up to oversee the expansion and ongoing maintenance of the BSE

main indexes. In addition, it is charged with developing and publishing the Exchanges other

indicators. The members of the Committee are independent market experts appointed by the Board

of Directors. The Board carefully ensures that traders, issuers and investors all receive equal

representation in the Committee.

The Delivery Committee is set up to investigate potential infractions and carry out appropriate

sanctions of transactions involving commodities transactions. Members of the committee are

appointed by the Board from the section members of the merchandising sector.

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1.2 CONCEPTS

Buy Open: - Means a buy transaction which will have the effect of creating or increasing a long

position.

Clearing Member: - Clearing Member means a Member of the Clearing Corporation; Closing buy

transaction Means a buy transaction which will have the effect of partly or fully offsetting a short

position.

Closing sell transaction: - Means a sell transaction which will have the effect of partly or fully

offsetting a long position.

Constituent: - A constituent means a person, on whose instructions and, on whose account, the

Trading Member enters into any contract for the purchase or sale of any security or does any act in

relation thereto.

Contract Month: - Contract month means the month in which a contract is required to be finally

settled.

Derivatives Contract: - A contract which derives its value from the prices of underlying securities.

Expiration Day: - The day on which the final settlement obligation are determined in a Derivatives

Contract.

Futures Contract: - means a firm contractual agreement to buy or sell the underlying security in the

future.

Last Trading Day: - Means the day unto and on which a Derivatives Contract is available for

trading.

Long Position: - Long Position in a Derivatives contract means outstanding purchase obligations in

respect of a permitted derivatives contract at any point of time.

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Open Position: - Open position means the sum of long and short positions of the Member and his

constituent in any or all of the Derivatives Contracts outstanding with the Clearing Corporation.

Open Interest: - Open Interest means the total number of Derivatives Contracts of an underlying

security that have not yet been offset and closed by an opposite Derivatives transaction nor

fulfilled by delivery of the cash or underlying security or option exercise. For calculation of Open

Interest only one side (either the long or the short) of the Derivatives Contract is counted.

Options Contract: - Options Contract is a type of Derivatives Contract which gives the

buyer/holder of the contract the right (but not the obligation) to buy/sell the underlying security at

a predetermined price within or at end of a specified period. The option contract which gives a

right to buy is called a Call Option and the option contract that gives a right to sell is called a Put

Option.

Option Holder: - Option Holder means a Trading Member who is the buyer of the Options

Contracts.

Option Writer: - Option Writer means a Trading Member who is the seller of the Options

Contracts.

Outstanding Obligation: - Means the obligation which has neither been closed out nor been settled.

Permitted Derivatives: - Contract Permitted Derivatives Contract is a derivative contract which is

permitted to be traded on the Futures & Options segment of the Exchange; Regular lot / Market

Lot Means the number of units that can be bought or sold in a specified derivatives contract and it

is also termed as Contract Multiplier;

Risk Disclosure Document: - Refers to the document to be issued to all potential investors at the

time of registration for disclosure of the risks inherent to derivatives.

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Settlement Date: - Means the date on which the settlement of outstanding obligations in a

permitted Derivatives contract are required to be settled.

Sell Open: - Means a sell transaction which will have the effect of creating or increasing a short

position.

Short Position: - Short position in a derivatives contract means outstanding sell obligations in

respect of a permitted derivatives contract at any point of time.

Trading cycle: - Trading cycle means the period during which the derivatives contract will be

available for trading.

Trading Member: - Trading Member is a member of Derivative Exchange.

Trading cum Clearing Member: - Means Member of Derivatives Exchange as well as its Clearing

Corporation.

Trade Type: - Trade type is the type of trade as may be permitted by the F&O Segment of the

Exchange from time to time for each Market Type.

Underlying Securities: - Means a security with reference to which a derivatives contract is

permitted to be traded on the Futures & Options segment of the Exchange from time to time.

Beta; - Beta is the measurement of risk; if the Beta value is more it shows the more risk of the

respective share.

Volatility; - More the volatility, higher is the probability of the future generating higher returns to

the buyer. The downside in both the cases of call and put is fixed but the gains can be unlimited.

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1.3 NEED FOR THIS STUDY

The study covers derivatives market with specific reference to Option market.

The study shows the profit enhancement and risk reduction in derivatives. The study shows the Beta and Volatility calculation for the purpose of measuring the risk

and variability of different companys shares.

The study also shows how an investor can minimize risk.

1.4 PROBLEM

The Option buyers are no way under obligation in exercising their right to buy or sell .Their rightto buy or sell can be exercised only if its execution is in their favor. Accordingly, an option

contract is specific on the quantity of the asset to be bought or sold, the price at which the

transaction has to take place(strike price) and the date up to which the contract is valid(expiry

date).

The price at which asset would change and in future is agreed upon the time of

entering into the contract. The actual purchase or sale of the underlying involving payment of cash

and delivery of the instrument does not take place until the contracted date of delivery. Prices of

options are commonly depending upon six factors. Unlike futures which derives there prices

primarily from the undertaking; Options prices are far more complex. The study tries to

understand these complexities and frame a competitive strategy to frame a good risk analysis.

Volatility of the market has made the study complex and uncertain.

The study is limited to Options.

The research is limited by time and cost.

1.5 OBJECTIVES

1. To have a basic knowledge about stock option.

2. To see whether there is any risk less profit available in the market.

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3. How far option can be advised as a profit making strategy.

1.6 PROCEDURE METHODOLOGY

1. HYPOTHESIS:

HO: Risk is not the same across all the Option stocks.

H1: Risk is the same across all the Option stocks.

2. DATA COLLECTION:

Primary data will be collected from the company and through NSE terminal.

Secondary data will be collected from reports, magazines, journals and from websites.

3. POPULATION:

Research will be conducted on ten companies.

4. SAMPLE PROCEDURE:

The procedure adopted will be convenient sampling.

Sample of ten companies will be selected as per convenience.

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CHAPTER 2

ANALYSIS

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2.1 ANALYSIS OF THE SITUATION

CALCULATION OF BETA AND VOLATALITY

Formula used for the calculation of Beta and Standard Deviation

This chapter provides the beta and volatility of derivatives of FIVE companies in

NIFTY

Computation of Standard Deviation:

RATE OF RETURN = (Adj Close Open) / Open*100

Variance calculated as per Excel Formula

Standard Deviation = square root of variance

(Standard deviation based on Arithmetical Returns calculated as per Excel Formulae)

COMPUTATION OF BETA:

Beta = n. xy - (x) (y)

n. x^2-(x) ^2

Stock Return (Y) = (Adj Close Open) / Open*100

Market Return(X) = (Adj Close Open) / Open*100

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RANBAXY - From 1-3-2009 to 31-3-2009 BETA AND VOLATILITY

S & P CNX Market Stock

NIFTY RANBAXY Return Return

Date Open Close Open Close X Y X*Y X^2

01-Mar-09 3745.40 3811.20 344.0 337.40 1.757 -1.919 3.371 3.087

02-Mar-09 3811.65 3726.75 345.00 341.25 -2.227 -1.087 2.420 4.960

05-Mar-09 3726.50 3576.50 345.50 317.60 -4.025 -8.095 32.501 16.201

06-Mar-09 3577.15 3655.65 325.00 320.05 2.194 -1.523 -3.341 4.814

09-Mar-09 3661.55 3626.85 322.00 304.50 -0.948 -5.435 5.152 0.899

08-Mar-09 3627.25 3761.65 312.00 309.20 3.705 -0.897 -3.323 13.727

09-Mar-09 3761.85 3718.00 334.00 322.00 -1.166 -3.593 4.189 1.360

12-Mar-09 3717.45 3734.60 328.00 322.50 0.461 -1.677 -0.773 0.213

13-Mar-09 3735.25 3770.55 323.75 317.20 0.945 -2.023 -1.911 0.893

14-Mar-09 3768.40 3641.10 316.50 309.20 -3.378 -2.938 9.924 11.411

15-Mar-09 3644.90 3643.60 315.95 309.70 -0.036 -1.978 0.091 0.0013

16-Mar-09 3639.35 3608.55 315.00 311.00 -0.846 -1.269 1.093 0.716

19-Mar-09 3611.30 3678.90 319.50 315.65 1.872 -1.205 -2.255 3.504

20-Mar-09 3680.35 3697.60 318.90 318.15 0.469 -0.235 -0.110 0.22021-Mar-09 3697.70 3764.55 340.00 330.40 1.808 -2.823 -5.103 3.269

22-Mar-09 3764.50 3875.90 334.20 332.50 2.959 -0.509 -1.506 8.756

23-Mar-09 3876.75 3861.05 334.25 329.00 -0.405 -1.571 0.636 0.164

26-Mar-09 3863.45 3819.95 333.00 325.25 -1.126 -2.327 2.620 1.268

28-Mar-09 3818.75 3761.10 326.00 325.25 -1.510 -0.230 0.347 2.280

29-Mar-09 3759.15 3798.10 336.95 336.95 1.036 0.000 0.000 1.093

30-Mar-09 3788.85 3821.55 347.20 343.65 0.863 -1.022 -0.881 0.745

n = 21 Total 2.402 -42.336 43.101 79.5613

Chart showing both Stock return and Market return

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-8

-6

-4

-2

0

2

4

6

RETURNS

Series 1: Market Return

Series 2: Stock Return


n. x^2-(x) ^2

Beta = 21* 43.101 - (2.402)(-42.336)

21* 79.5613 - (2.402) (2.402)

Beta = 0.604

Volatility = Standard Deviation of Return on RANBAXY


= 1.871

Interpretation:

The Beta should fall between 0 and 1 for the risk less investment. Here from the above calculations

it is clear that the RANBAXY is having Beta less than one which indicates less risky investment.

BAJAJAUTO - From 1-3-2009 to 31-3-2009

BETA AND VOLATILITY


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NIFTY BAJAJAUTO Return Return


01-Mar-09 3745.40 3811.20 2618.00 2521.95 1.002 3.669 3.676 1.004

02-Mar-09 3811.65 3726.75 2505.00 2544.05 -2.227 1.559 -3.471 4.960

05-Mar-09 3726.50 3576.50 2503.00 2453.75 -1.522 -1.968 2.995 2.316

06-Mar-09 3577.15 3655.65 2469.70 2461.10 2.194 -0.348 - 0.763 4.814

09-Mar-09 3661.55 3626.85 2535.00 2451.40 -0.948 -3.298 3.126 0.899

08-Mar-09 3627.25 3761.65 2499.00 2510.85 3.705 0.474 1.756 13.727

09-Mar-09 3761.85 3718.00 2525.00 2488.70 -1.166 -1.438 1.677 1.360

12-Mar-09 3717.45 3734.60 2518.00 2512.85 0.461 -0.204 - 0.094 0.213

13-Mar-09 3735.25 3770.55 2515.00 2521.00 0.945 0.238 0.225 0.893

14-Mar-09 3768.40 3641.10 2478.00 2529.55 -3.378 2.080 7.206 11.411

15-Mar-09 3644.90 3643.60 2541.00 2492.75 -0.036 -1.696 0.061 0.0013

16-Mar-09 3639.35 3608.55 2539.00 2489.75 -0.846 -1.939 1.640 0.716

19-Mar-09 3611.30 3678.90 2440.00 2515.45 1.872 3.092 5.788 3.504

20-Mar-09 3680.35 3697.60 2525.00 2501.20 0.469 -0.942 - 0.442 0.220

21-Mar-09 3697.70 3764.55 2510.00 2498.85 1.808 -0.444 -0.803 3.269

22-Mar-09 3764.50 3875.90 2575.00 2567.45 2.959 - 0.293 0.867 8.756

23-Mar-09 3876.75 3861.05 2580.00 2529.15 -0.405 -1.971 0.798 0.16426-Mar-09 3863.45 3819.95 2532.15 2509.15 -1.126 -0.987 1.111 1.268

28-Mar-09 3818.75 3761.10 2510.00 2466.65 -1.510 -1.727 2.608 2.280

29-Mar-09 3759.15 3798.10 2455.00 2421.40 1.036 -1.369 -1.418 1.093

30-Mar-09 3788.85 3821.55 2439.95 2427.60 0.863 -0.506 -0.437 0.745

n = 21 Total 2.402 -8.018 26.106 79.5613

Chart showing both the market and stock returns of BAJAJAUTO

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-3

-2

-1

0

1

2

3

4

5

RETURNS




n. x^2-(x) ^2

Beta = 21* 26.106 - (2.402) (-8.018)

21* 79.5613 - (2.402) (2.402)

Beta = 0.341

Volatility = Standard Deviation of Return on BAJAJAUTO


= 1.757

Interpretation:


it is clear that the BAJAJAUTO is having Beta less than one which indicates less risky investment.

ACC - From 1-3-2009 to 31-3-2009 - BETA AND VOLATILITY

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NIFTY ACC Return Return


01-Mar-09 3745.40 3811.20 902.05 876.30 1.757 -2.855 - 5.016 3.087

02-Mar-09 3811.65 3726.75 885.00 854.45 -2.227 -3.452 7.688 4.960

05-Mar-09 3726.50 3576.50 859.00 811.40 -4.025 -5.541 22.302 16.201

06-Mar-09 3577.15 3655.65 820.00 809.95 2.194 -1.226 -2.690 4.814

09-Mar-09 3661.55 3626.85 864.00 810.50 -0.948 -6.192 5.870 0.899

08-Mar-09 3627.25 3761.65 821.00 833.15 8.844 1.480 13.089 78.216

09-Mar-09 3761.85 3718.00 840.00 781.15 -1.166 -7.005 8.168 1.360

12-Mar-09 3717.45 3734.60 780.00 746.70 0.461 -4.269 - 1.968 0.213

13-Mar-09 3735.25 3770.55 769.00 749.35 0.945 -2.555 - 2.414 0.893

14-Mar-09 3768.40 3641.10 722.10 746.95 -3.378 0.034 - 0.114 11.411

15-Mar-09 3644.90 3643.60 750.00 731.80 -0.036 -2.427 0.087 0.001

16-Mar-09 3639.35 3608.55 735.70 723.15 -0.846 -1.705 1.442 0.716

19-Mar-09 3611.30 3678.90 730.00 739.35 1.872 1.281 2.398 3.504

20-Mar-09 3680.35 3697.60 745.00 749.20 0.469 0.564 0.265 0.220

21-Mar-09 3697.70 3764.55 752.00 752.75 1.808 0.099 0.179 3.269

22-Mar-09 3764.50 3875.90 755.00 753.70 2.959 -0.172 - 0.509 8.75623-Mar-09 3876.75 3861.05 755.00 746.30 -0.405 -1.152 0.466 0.164

26-Mar-09 3863.45 3819.95 750.00 733.60 -1.126 -2.187 2.462 1.268

28-Mar-09 3818.75 3761.10 732.85 734.70 -1.510 0.252 -0.380 2.280

29-Mar-09 3759.15 3798.10 734.00 734.75 1.036 0.102 0.105 1.093

30-Mar-09 3788.85 3821.55 738.80 735.25 0.863 -0.480 -0.414 0.745

n = 21 Total 2.402 -37.406 51.016 79.5613

Chart showing both Market return and Stock return of ACC

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-6

-4

-2

0

2

4

6

8

1 0

RETURNS




n. x^2-(x) ^2

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Beta = 21* 51.016 - (2.402)(-37.406)

21* 79.5613 - (2.402) (2.402)

Beta = 0.697

Volatility = Standard Deviation of Return on ACC


= 2.421

Interpretation:


it is clear that the ACC is having Beta less than one which indicates less risky investment.

HEROHONDA - From 1-3-2009 to 31-3-2009


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NIFTY HEROHONDA Return Return


01-Mar-09 3745.40 3811.20 658.30 668.25 1.757 1.511 2.655 3.087

02-Mar-09 3811.65 3726.75 662.10 692.75 -2.227 0.046 -0.102 4.960

05-Mar-09 3726.50 3576.50 681.10 684.95 -4.025 0.565 -2.274 16.201

06-Mar-09 3577.15 3655.65 686.00 667.20 2.194 -2.740 -6.011 4.814

09-Mar-09 3661.55 3626.85 675.00 666.75 -0.948 -1.222 1.158 0.899

08-Mar-09 3627.25 3761.65 660.05 668.35 3.705 1.257 4.657 13.727

09-Mar-09 3761.85 3718.00 670.00 691.40 -1.166 3.194 -3.724 1.360

12-Mar-09 3717.45 3734.60 691.00 698.80 0.461 1.129 0.524 0.213

13-Mar-09 3735.25 3770.55 709.50 697.85 0.945 -1.364 -1.289 0.893

14-Mar-09 3768.40 3641.10 684.5 677.20 -3.378 -1.066 3.601 11.411

15-Mar-09 3644.90 3643.60 680.0 673.30 -0.036 -0.985 0.035 0.0013

16-Mar-09 3639.35 3608.55 685.00 650.20 -0.846 -5.080 4.298 0.716

19-Mar-09 3611.30 3678.90 655.00 640.35 1.872 -0.022 -0.041 3.504

20-Mar-09 3680.35 3697.60 647.00 635.75 0.469 -1.739 -0.815 0.220

21-Mar-09 3697.70 3764.55 639.90 651.10 1.808 1.750 3.164 3.269

22-Mar-09 3764.50 3875.90 656.9 685.25 2.959 4.316 12.771 8.756

23-Mar-09 3876.75 3861.05 685.00 677.85 -0.405 -1.043 0.422 0.16426-Mar-09 3863.45 3819.95 680.00 667.40 -1.126 -1.853 2.086 1.268

28-Mar-09 3818.75 3761.10 640.70 658.20 -1.510 2.731 -4.124 2.280

29-Mar-09 3759.15 3798.10 652.1 676.60 1.036 0.037 0.038 1.093

30-Mar-09 3788.85 3821.55 674.8 688.75 0.863 0.020 0.017 0.745

n = 21 Total 2.402 -0.558 17.046 79.5613

Chart showing both Market Return and Stock Return of HEROHONDA

29


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26/101

Beta = 0.216

Volatility = Standard Deviation of Return on HEROHONDA


= 2.134

Interpretation:


it is clear that the HEROHONDA is having Beta less than one which indicates less risky

investment.

TATASTEEL - From 1-3-2009 to 31-3-2009

BETA AND VOLATILITY


NIFTY TATASTEEL Return Return


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01-Mar-09 3745.40 3811.20 445.70 451.10 1.757 1.212 2.129 3.087

02-Mar-09 3811.65 3726.75 455.00 443.45 -2.227 -2.538 5.652 4.960

05-Mar-09 3726.50 3576.50 441.30 420.75 -4.025 -4.657 18.744 16.201

06-Mar-09 3577.15 3655.65 424.00 419.25 2.194 -1.120 -2.457 4.814

09-Mar-09 3661.55 3626.85 422.20 413.25 -0.948 -2.120 2.010 0.899

08-Mar-09 3627.25 3761.65 417.00 427.75 3.705 2.578 9.551 13.727

09-Mar-09 3761.85 3718.00 429.95 433.80 -1.166 0.897 -1.046 1.360

12-Mar-09 3717.45 3734.60 437.70 435.50 0.461 -0.503 -0.232 0.213

13-Mar-09 3735.25 3770.55 437.00 444.75 0.945 1.773 1.675 0.893

14-Mar-09 3768.40 3641.10 432.00 429.95 -3.378 -0.475 1.605 11.411

15-Mar-09 3644.90 3643.60 435.00 433.25 -0.036 -0.402 0.014 0.001

16-Mar-09 3639.35 3608.55 435.00 430.55 -0.846 -1.023 0.864 0.716

19-Mar-09 3611.30 3678.90 434.00 429.90 1.872 -0.945 -4.502 3.504

20-Mar-09 3680.35 3697.60 432.00 423.45 0.469 -1.979 -1.185 0.220

21-Mar-09 3697.70 3764.55 435.00 430.15 1.808 -1.115 4.616 3.269

22-Mar-09 3764.50 3875.90 435.00 442.05 2.959 1.621 6.998 8.756

23-Mar-09 3876.75 3861.05 449.90 438.30 -0.405 -2.578 1.318 0.164

26-Mar-09 3863.45 3819.95 438.30 441.80 -1.126 0.798 2.136 1.268

28-Mar-09 3818.75 3761.10 441.00 441.35 -1.510 0.099 -1.436 2.28029-Mar-09 3759.15 3798.10 441.00 439.95 1.036 -0.238 2.123 1.093

30-Mar-09 3788.85 3821.55 442.10 449.65 0.863 1.708 2.436 0.745

n = 21 Total 2.402 -9.027 51.013 79.5613

Chart showing both Market Returns and Stock Returns of TATASTEEL

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-5

-4

-3

-2

-1

0

1

2

3

4

5

RETURNS




n. x^2-(x) ^2

Beta = 21* 51.013- (2.402)(-9.027)

33


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21* 79.5613 - (2.402) (2.402)

Beta = 0.653

Volatility = Standard Deviation of Return on TATASTEEL


= 1.770

Interpretation:


it is clear that the TATASTEEL is having Beta less than one which indicates less risky investment.

BETA AND VOLATILITY


NIFTY Dr.REDDY Return Return


01-Mar-09 3745.40 3811.20 670.00 661.75 1.757 -1.231 -2.162 3.087

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02-Mar-09 3811.65 3726.75 655.00 660.10 -2.227 0.778 -1.733 4.960

05-Mar-09 3726.50 3576.50 601.00 617.50 -4.025 2.745 -11.048 16.201

06-Mar-09 3577.15 3655.65 630.00 622.55 2.194 -1.182 -2.593 4.814

09-Mar-09 3661.55 3626.85 635.00 635.25 -0.948 0.039 -0.036 0.899

08-Mar-09 3627.25 3761.65 641.00 668.55 3.705 4.297 15.920 13.727

09-Mar-09 3761.85 3718.00 679.90 660.00 -1.166 -2.926 3.411 1.360

12-Mar-09 3717.45 3734.60 678.00 658.40 0.461 -2.890 -2.429 0.213

13-Mar-09 3735.25 3770.55 660.00 661.00 0.945 0.151 0.288 0.893

14-Mar-09 3768.40 3641.10 645.00 648.45 -3.378 0.534 -1.803 11.411

15-Mar-09 3644.90 3643.60 655.00 672.45 -0.036 2.664 -0.095 0.0013

16-Mar-09 3639.35 3608.55 681.00 683.60 -0.846 0.382 -0.323 0.716

19-Mar-09 3611.30 3678.90 689.00 677.25 1.872 -1.705 -3.191 3.504

20-Mar-09 3680.35 3697.60 683.00 682.40 0.469 -0.087 -0.040 0.220

21-Mar-09 3697.70 3764.55 682.40 679.20 1.808 -0.469 -0.847 3.269

22-Mar-09 3764.50 3875.90 690.00 682.00 2.959 -1.159 -3.429 8.756

23-Mar-09 3876.75 3861.05 690.00 686.30 -0.405 -0.536 0.217 0.164

26-Mar-09 3863.45 3819.95 689.00 682.15 -1.126 -0.994 1.119 1.268

28-Mar-09 3818.75 3761.10 654.90 692.15 -1.510 5.687 -8.587 2.280

29-Mar-09 3759.15 3798.10 692.00 706.50 1.036 2.095 2.170 1.09330-Mar-09 3788.85 3821.55 714.50 728.25 0.863 1.924 1.596 0.745

n = 21 Total 2.402 8.117 -13.595 79.5613

Chart showing both Stock return and Market return

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-4

-2

0

2

4

6

8

RETURNS




n. x^2-(x) ^2

Beta = 21* (-13.595) - (2.402)(8.117)

21* 79.5613 - (2.402) (2.402)

Beta = -0.161

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Volatility = Standard Deviation of Return on DR. REDDYS


= 2.203

Interpretation:


it is clear that the DR.REDDYS is having Beta less than one (negative) which indicates less risky

investment.

MOSERBAER - From 1-3-2009 to 31-3-2009


NIFTY MOSERBAER Return Return


01-Mar-09 3745.40 3811.20 334.40 317.70 1.757 -4.994 8.774 1.004

02-Mar-09 3811.65 3726.75 320.00 323.30 -2.227 1.031 2.296 4.960

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05-Mar-09 3726.50 3576.50 320.00 299.40 -4.025 -6.437 25.909 2.316

06-Mar-09 3577.15 3655.65 309.80 313.70 2.194 1.259 2.762 4.814

09-Mar-09 3661.55 3626.85 321.65 303.40 -0.948 -5.674 5.379 0.899

08-Mar-09 3627.25 3761.65 309.15 313.00 3.705 1.905 7.058 13.727

09-Mar-09 3761.85 3718.00 316.00 309.00 -1.166 -2.848 3.320 1.360

12-Mar-09 3717.45 3734.60 308.55 311.00 0.461 0.794 0.366 0.213

13-Mar-09 3735.25 3770.55 310.90 319.60 0.945 2.806 1.971 0.893

14-Mar-09 3768.40 3641.10 305.00 300.25 -3.378 -1.557 5.259 11.411

15-Mar-09 3644.90 3643.60 309.90 297.45 -0.036 -4.017 0.144 0.0013

16-Mar-09 3639.35 3608.55 300.00 291.70 -0.846 -2.766 2.340 0.716

19-Mar-09 3611.30 3678.90 298.00 291.75 1.872 -2.097 -3.925 3.504

20-Mar-09 3680.35 3697.60 295.70 293.85 0.469 -0.625 -0.293 0.220

21-Mar-09 3697.70 3764.55 294.00 295.05 1.808 0.357 0.645 3.269

22-Mar-09 3764.50 3875.90 300.00 301.45 2.959 0.483 1.429 8.756

23-Mar-09 3876.75 3861.05 302.00 298.65 -0.405 -1.109 0.449 0.164

26-Mar-09 3863.45 3819.95 301.00 300.60 -1.126 -0.132 0.148 1.268

28-Mar-09 3818.75 3761.10 298.00 290.70 -1.510 -2.449 3.698 2.280

29-Mar-09 3759.15 3798.10 286.90 292.90 1.036 2.091 2.166 1.093

30-Mar-09 3788.85 3821.55 295.00 299.10 0.863 1.390 1.199 0.745n = 21 Total 2.402 -22.589 71.094 79.5613

Chart showing both the market and stock returns of MOSERBAER

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-6

-4

-2

0

2

4

6

RETURNS




n. x^2-(x) ^2

Beta = 21* 71.094 - (2.402) (-22.589)

21* 79.5613 - (2.402) (2.402)

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Beta = 0.929

Volatility = Standard Deviation of Return on MOSERBAER


= 2.662

Interpretation:


it is clear that the MOSERBAER is having Beta less than one which indicates less risky

investment.

MARUTI UDYOG LIMITED - From 1-3-2009 to 31-3-2009


NIFTY MARUTIUDYOG Return Return


01-Mar-09 3745.40 3811.20 848.00 840.90 1.757 -0.837 - 1.471 3.087

40


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02-Mar-09 3811.65 3726.75 844.00 833.10 -2.227 -1.291 2.875 4.960

05-Mar-09 3726.50 3576.50 825.00 772.90 -4.025 -6.315 25.418 16.201

06-Mar-09 3577.15 3655.65 790.00 791.75 2.194 0.221 0.485 4.814

09-Mar-09 3661.55 3626.85 797.00 774.85 -0.948 -2.779 2.634 0.899

08-Mar-09 3627.25 3761.65 787.00 792.35 8.844 0.679 6.005 78.216

09-Mar-09 3761.85 3718.00 792.00 787.20 -1.166 -0.606 0.706 1.360

12-Mar-09 3717.45 3734.60 789.80 797.10 0.461 0.924 0.426 0.213

13-Mar-09 3735.25 3770.55 800.00 801.55 0.945 0.194 0.183 0.893

14-Mar-09 3768.40 3641.10 791.00 791.75 -3.378 0.095 - 0.321 11.411

15-Mar-09 3644.90 3643.60 804.10 796.15 -0.036 0.989 - 0.036 0.001

16-Mar-09 3639.35 3608.55 798.00 780.10 -0.846 -0.022 0.018 0.716

19-Mar-09 3611.30 3678.90 786.00 788.85 1.872 0.362 0.677 3.504

20-Mar-09 3680.35 3697.60 792.00 789.65 0.469 -0.297 - 0.139 0.220

21-Mar-09 3697.70 3764.55 796.00 791.65 1.808 -0.546 - 0.987 3.269

22-Mar-09 3764.50 3875.90 790.50 831.30 2.959 5.161 15.271 8.756

23-Mar-09 3876.75 3861.05 833.00 840.65 -0.405 0.918 - 0.372 0.164

26-Mar-09 3863.45 3819.95 837.15 821.70 -1.126 -1.845 2.097 1.268

28-Mar-09 3818.75 3761.10 775.25 796.65 -1.510 2.760 - 4.168 2.280

29-Mar-09 3759.15 3798.10 828.50 812.45 1.036 -1.937 - 2.006 1.09330-Mar-09 3788.85 3821.55 828.50 820.20 0.863 -1.002 - 0.865 0.745

n = 21 Total 2.402 -5.174 46.410 79.5613

Chart showing both Market return and Stock return of MARUTI UDYOG

41


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-6

-4

-2

0

2

4

6

RETURNS




n. x^2-(x) ^2

Beta = 21* 46.410 - (2.402)(-5.174)

42


38/101

21* 79.5613 - (2.402) (2.402)

Beta = 0.593

Volatility = Standard Deviation of Return on MARUTI UDYOG LTD


= 2.182

Interpretation:


it is clear that the MARUTI UDYOG LIMITED is having Beta less than one which indicates less

risky investment.

M & M - From 1-3-2009 to 31-3-2009 - BETA AND VOLATILITY


NIFTY M & M Return Return


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01-Mar-09 3745.40 3811.20 816.00 805.20 1.757 -1.323 -2.324 3.087

02-Mar-09 3811.65 3726.75 799.00 770.50 -2.227 -3.567 7.944 4.960

05-Mar-09 3726.50 3576.50 744.80 709.20 -4.025 -4.780 19.239 16.201

06-Mar-09 3577.15 3655.65 716.00 725.15 2.194 1.278 2.804 4.814

09-Mar-09 3661.55 3626.85 738.70 761.05 -0.948 3.025 - 2.868 0.899

08-Mar-09 3627.25 3761.65 765.30 765.60 3.705 0.039 0.144 13.727

09-Mar-09 3761.85 3718.00 775.00 733.90 -1.166 -5.303 6.183 1.360

12-Mar-09 3717.45 3734.60 739.25 738.25 0.461 -0.135 - 0.062 0.213

13-Mar-09 3735.25 3770.55 740.00 760.35 0.945 2.750 2.599 0.893

14-Mar-09 3768.40 3641.10 750.00 749.10 -3.378 -0.120 0.405 11.411

15-Mar-09 3644.90 3643.60 760.00 747.05 -0.036 -1.704 0.061 0.001

16-Mar-09 3639.35 3608.55 746.00 730.70 -0.846 -2.051 1.735 0.716

19-Mar-09 3611.30 3678.90 748.70 738.90 1.872 -1.309 - 2.450 3.504

20-Mar-09 3680.35 3697.60 744.00 743.85 0.469 -0.020 - 0.009 0.220

21-Mar-09 3697.70 3764.55 749.00 753.50 1.808 0.600 1.084 3.269

22-Mar-09 3764.50 3875.90 758.00 781.60 2.959 3.113 9.211 8.756

23-Mar-09 3876.75 3861.05 779.80 796.80 -0.405 2.180 - 0.833 0.164

26-Mar-09 3863.45 3819.95 800.00 788.55 -1.126 -1.431 1.611 1.268

28-Mar-09 3818.75 3761.10 785.00 762.35 -1.510 -2.885 3.318 2.28029-Mar-09 3759.15 3798.10 792.80 757.75 1.036 -4.421 -4.580 1.093

30-Mar-09 3788.85 3821.55 757.00 780.40 0.863 3.091 2.668 0.745

n = 21 Total 2.402 -12.973 45.880 79.5613

Chart showing both Market Return and Stock Return of M & M

44


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-5

-4

-3

-2

-1

0

1

2

3

4

5

RETURNS




n. x^2-(x) ^2

Beta = 21* 45.880 - (2.402)(-12.973)

21* 79.5613 - (2.402) (2.402)

45


41/101

Beta = 0.597

Volatility = Standard Deviation of Return on M & M


= 2.635

Interpretation:


it is clear that the M & M is having Beta less than one which indicates less risky investment.

ASHOKLEYLAND - From 1-3-2009 to 31-3-2009

BETA AND VOLATILITY


NIFTY ASHOKLEY Return Return


01-Mar-09 3745.40 3811.20 40.25 40.35 1.757 0.248 0.436 3.087

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02-Mar-09 3811.65 3726.75 40.00 40.15 -2.227 0.375 0.835 4.960

05-Mar-09 3726.50 3576.50 39.90 36.55 -4.025 -8.396 33.793 16.201

06-Mar-09 3577.15 3655.65 37.30 38.20 2.194 2.413 5.294 4.814

09-Mar-09 3661.55 3626.85 39.00 37.95 -0.948 -2.692 2.552 0.899

08-Mar-09 3627.25 3761.65 38.90 39.50 3.705 1.542 5.713 13.727

09-Mar-09 3761.85 3718.00 39.50 40.05 -1.166 1.392 -1.623 1.360

12-Mar-09 3717.45 3734.60 40.30 41.30 0.461 2.481 1.441 0.213

13-Mar-09 3735.25 3770.55 41.30 41.00 0.945 -0.726 0.686 0.893

14-Mar-09 3768.40 3641.10 39.10 39.10 -3.378 0.000 0.000 11.411

15-Mar-09 3644.90 3643.60 39.60 39.20 -0.036 -1.010 0.003 0.001

16-Mar-09 3639.35 3608.55 39.50 39.10 -0.846 -1.012 0.856 0.716

19-Mar-09 3611.30 3678.90 39.10 39.35 1.872 0.639 1.196 3.504

20-Mar-09 3680.35 3697.60 39.80 39.70 0.469 - 0.251 -0.118 0.220

21-Mar-09 3697.70 3764.55 39.95 40.85 1.808 2.252 4.091 3.269

22-Mar-09 3764.50 3875.90 41.00 41.45 2.959 1.621 6.998 8.756

23-Mar-09 3876.75 3861.05 41.45 40.95 -0.405 -1.206 0.488 0.164

26-Mar-09 3863.45 3819.95 41.10 40.95 -1.126 -0.365 0.411 1.268

28-Mar-09 3818.75 3761.10 39.75 38.80 -1.510 -2.390 2.609 2.280

29-Mar-09 3759.15 3798.10 38.80 37.30 1.036 -3.866 -5.049 1.09330-Mar-09 3788.85 3821.55 37.80 38.40 0.863 1.587 1.369 0.745

n = 21 Total 2.402 -7.364 61.961 79.5613

Chart showing both Market Returns and Stock Returns of ASHOKLEYLAND

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-8

-6

-4

-2

0

2

4

6

RETURNS




n. x^2-(x) ^2

48


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Beta = 21* 61.961- (2.402)(-7.364)

21* 79.5613 - (2.402) (2.402)

Beta = 0.791

Volatility = Standard Deviation of Return on ASHOKLEYLAND


= 2.521

Interpretation:


it is clear that the ASHOK LEYLAND is having Beta less than one which indicates less risky

investment.

OVERALL INTERPRETATION

CHART SHOWING VARIOUS COMPANYS AND THEIR RESPECTIVE BETA VALUES

49


45/101

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

RA

NBAXY

BAJAJAUTO

AC

C

HE

ROHOND

TA

TASTEEL

DR

.REDDY'S

MOSERBAER

MARUTIUDY

M&M

AS

HOK

BETA

INTERPRETATION :

The Beta is the measure of the risk involved when invested in Stock Options of a particular

company. The Beta value should fall between 0 and 1 for a riskless investment. If the Beta value

is more than 1 then it involves a high risk.

Here from the above chart it can be seen that all the ten companies have Beta value less than one .

But from investors point of veiw investing in DR.REDDYS would have les risk when compared

to all other companies followed by HEROHONDA,BAJAJAUTO, RANBAXY, etc.

2.2 EXISTING SYSTEM

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In finance, a derivative is a financial instrument that is derived from an underlying asset's value;

rather than trade or exchange the asset itself.

Market participants enter into an agreement to exchange money, assets or some other value at

some future date based on the underlying asset. Examples of assets could be anything from bars of

gold, to a stock, or even an interest rate.

Derivatives can be based on different types of assets such as Commodities, Equities or Bonds,

Interest rates , exchange rates, or indices (such as a stock market index, consumer price index

(CPI) see inflation derivatives or even an index of weather conditions, or other derivatives).

Their performance can determine both the amount and the timing of the payoffs. The main use of

derivatives is to either remove risk or take on risk depending if one were a hedger or a speculator.

The diverse range of potential underlying assets and payoff alternatives leads to a huge range of

derivatives contracts available to be traded in the market.

The main types of derivatives are:

Futures

Forwards

Options

Swaps

Derivatives are increasingly being used to protect assets from drastic fluctuations and at the same

time they are being re-engineered to cover all kinds of risk and with this the growth of the

derivatives market continues. It is, indeed, ironic that something set up to prevent risk will also

allow parties to expose themselves to risk of exponential proportions.

FUTURES:

51
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47/101

A futures contract is a standardized contract to buy or sell a specific security at a future date at an

agreed price.

FORWARDS:

The process involves the delivery of foreign currency at a specified future date for a specified price

is known as Forward contract.

OPTIONS:

Options are a type of derivative, which simply means that their value depends on the value of an

underlying investment. In most cases, the underlying investment is a stock, but it can also be an

index, a currency, a commodity, or any number of other securities.

SWAPS:

Financial SWAPS are a funding technique, which permit a borrower to access one market and then

exchange the liability for another type of liability. The global financial markets present borrowers

and investors with a wide variety of financing and investment vehicles in terms of currency and

type of coupon- fixed or floating.

TYPES OF PRODUCTS:

Index Futures

A futures contract is a standardized contract to buy or sell a specific security at a future date at an

agreed price. An index future is, as the name suggests, a future on the index i.e. the underlying is

the index itself. There is no underlying security or a stock, which is to be delivered to fulfill the

obligations as index futures are cash settled. As other derivatives, the contract derives its value

from the underlying index. The underlying indices in this case will be the various eligible indices

and as permitted by the Regulator from time to time.

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Index Options

Options contract give its holder the right, but not the obligation, to buy or sell something on or

before a specified date at a stated price. Generally index options are European Style. European

Style options are those option contracts that can be exercised only on the expiration date. The

underlying indices for index options are the various eligible indices and as permitted by the

Regulator from time to time.

Stock Futures

A stock futures contract is a standardized contract to buy or sell a specific stock at a future date at

an agreed price. A stock future is, as the name suggests, a future on a stock i.e. the underlying is a

stock. The contract derives its value from the underlying stock. Single stock futures are cash

settled.

Stock Options

Options on Individual Stocks are options contracts where the underlings are individual stocks.

Based on eligibility criteria and subject to the approval from the regulator, stocks are selected on

which options are introduced. These contracts are cash settled and are American style. American

Style options are those option contracts that can be exercised on or before the expiration date.

2.3 NEED FOR CHANGE IN THE SYSTEM

As prescribed by SEBI vide its Circulars regarding the eligibility criteria for introducing Futures &

Options Contracts on stocks and indices, the following revised eligibility criteria would be applied

w.e.f. September 22nd, 2006 to determine the eligibility of stocks and indices on which Futures &

Options contract could be introduced for trading in Derivatives.

Eligibility criteria for introducing Futures & Options Contracts on Stocks

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o The stocks would be chosen from amongst the top 500 stocks in terms of average

daily market capitalization and average daily traded value in the previous six-month

on a rolling basis.

o For a stock to be eligible, the median quarter-sigma order size over the last six

months should not be less than Rs.1lac (Rs0.01 Million). For this purpose, a stock's

quarter sigma order size shall mean the order size (in value terms) required to cause

a change in the stock price equal to one-quarter of a standard deviation.

o The Market Wide Position Limit in the Stock shall not be less than Rs50crores

(Rs500 Million). The Market Wide Position Limit is valued taking into

consideration 20% of number of shares held by the Non Promoters (i.e. free-float

holding) in the relevant underlying Security(i.e. free-float holding) and the closing

prices of the stock in the underlying cash market on the date of expiry of contract in

the month. Market Wide Position Limit is calculated at the end of every month.

The methodology used for calculating quarter sigma order size is as follows:

o Quarter sigma order size would be calculated taking four snapshots in a day from

the order book of the stock in the past six months.

o The sigma (standard deviation) or volatility estimate would be calculated in the

manner specified by Prof. J. R. Varma Committee on risk containment measures for

Index Futures. This daily closing volatility estimate value would be applied to the

day's order book snapshots to compute the order size.

o The quarter sigma percentage would be applied to the average of the best bid and

offer price in the order book snapshot to compute the order size to move price of the

stock by quarter sigma.

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o The median order size to cause quarter sigma price movement shall be determined

separately for the buy side and the sell side. The average of the median order size

for the buy and the sell side is taken as the median quarter sigma order size.

o The quarter sigma order size in stock shall be calculated on the 15th of each month,

on a rolling basis, considering the order book snapshots in the previous six months.

Similarly, the average daily market capitalization and the average daily traded value

shall also be computed on the 15th of each month, on a rolling basis, to arrive at the

list of top 500 stocks.

Eligibility criteria for unlisted companies coming out with Initial Public Offering:

For unlisted companies coming out with initial public offering, if the net public offer is

Rs.500crores (Rs5 Billion) or more, then the exchange may consider introducing stock options and

stock futures on such stocks at the time of its listing in the cash market.

2.4 PROPOSED SYSTEM

Eligibility criteria for stocks on account of corporate restructuring:

All the following conditions should be met in the case of shares of a company undergoing

restructuring through any means for eligibility to re-introduce derivative contracts on that company

from the first day of listing of the post restructured company in the underlying market:

o The Futures and Options contracts on the stock of the original (pre-restructure)

company were traded on any exchange prior to its restructuring.

o

The pre restructured company had a market capitalization of at least Rs.1000crores(Rs10 Billion) prior to restructuring.

o The post restructure company would be treated like a new stock and if it is, in the

opinion of the exchange, likely to be at least one third of the size of the pre

structuring company in terms of revenues or assets or analyst valuations, and

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o In the opinion of the exchange, the scheme of restructuring does not suggest that the

post restructured company would have any characteristic that would render the

company ineligible for derivatives trading.

o If the post restructured company comes out with an Initial Public Offering (IPO),

then the same prescribed criteria as currently applicable for introduction of

derivatives on a company coming out with an IPO is applied for introduction of

derivatives on stocks of the post restructured company from its first day of listing.

Discontinuance / Exit of Futures & Options Contracts on stocks:

No fresh month contracts shall be issued on the stocks under the following instances

o If a stock does not conform to the above eligibility criteria for a consecutive period

of three months, no fresh month contracts shall be issued on the same.

o If the stock remains in the banned position in the manner stated in SEBI Circular

No. SEBI/DNPD/Cir-26/2004/09/16 dated July 16, 2004 as per para 4 (i) (a), (b) (c)

of the aforementioned SEBI circular, for a significant part of the month,

consistently for three months, then no fresh month contracts shall be issued on those

scripts.

o The exit criteria shall be more flexible as compared to entry criteria in order to

prevent frequent entry and exit of stocks in the derivatives segment. Therefore, for a

stock to become ineligible, the criteria for market wide position limit shall be

relaxed up to 10% of the criteria applicable for the stock to become eligible for

derivatives trading. The other eligibility conditions would be applicable mutas

mutandis for the stock to become ineligible.

If a stock fails to meet the aforesaid eligibility criteria for three months consecutively, then no

fresh month contract shall be issued on that stock

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However, the existing unexpired contracts may be permitted to trade till expiry and new strikes

may also be introduced in the existing contract months.

The Exchange may compulsorily close out all derivative contract positions in a particular

underlying when that underlying has ceased to satisfy the eligibility criteria or the exchange is of

the view that the continuance of derivative contracts on such underlying is detrimental to the

interest of the market keeping in view the market integrity and safety. The decision of such forced

closure of derivative contracts shall be taken in consultation with other exchanges where such

derivative contracts and are also traded shall be applied uniformly across all exchanges.

Re-Introduction of Stocks Discontinued from Futures & Options Trading:

A stock, which is dropped from derivatives trading, may become eligible once again. In such

instances, the stock is required to fulfill the eligibility criteria for three consecutive months (instead

of one month as specified earlier) to be re-introduced for derivatives trading. Derivative contracts

on such stocks may be re-introduced by the exchange itself. However, introduction of futures and

option contracts on a stock for the first time would continue to be subject to SEBI approval.

Eligibility criteria for introducing Futures & Options Contracts on Index

The Futures Options Contracts on an index can be issued only if 80% of the index constituents are

individually eligible for derivatives trading. However, no single ineligible stock in the index shall

have a weight age of more than 5% in the index. The index on which Futures and Options

contracts are introduced shall be required to comply with the eligibility criteria on a monthly basis.

Discontinuance of Futures & Options Contracts on index:

If the index fails to meet the above eligibility criteria for three months consecutively, then no fresh

month contract shall be issued on that Index. However, the existing unexpired contracts shall be

permitted to trade till expiry and new strike prices will continue to be introduced in the existing

contracts.

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The above requirements as prescribed by SEBI need to be necessarily met for introduction

of F&O contracts on underlying stocks of the cash market. However, once the criteria are met, it is

at the discretion of the Exchange to apply to SEBI for permission to launch F&O contract on the

eligible stocks. Once the SEBI approval in respect of those stocks is obtained, the exchange issues

a suitable notice to the market, in advance and then introduces F & O contracts on the respective

stocks.

TRADING SYSTEM

The Derivatives Trading at BSE takes place through a fully automated screen based trading

platform called as DTSS (Derivatives Trading and Settlement System). The DTSS is designed to

allow trading on a real time basis. In addition to generating trades by matching opposite orders, the

DTSS also generates various reports for the member participants.

Order Matching Rules

Order Matching will take place after order acceptance wherein the system searches for an opposite

matching order. If a match is found, a trade will be generated. The order against which the trade

has been generated will be removed from the system. In case the order is not exhausted further

matching orders will be searched for and trades generated till the order gets exhausted or no more

match-able orders are found. If the order is not entirely exhausted, the system will retain the order

in the pending order book. Matching of the orders will be in the priority of price and timestamp. A

unique trade-id will be generated for each trade and the entire information of the trade is sent to the

members involved.

Order Conditions

The derivatives market is order driven i.e. the traders can place only Orders in the system.

Following are the Order types allowed for the derivative products. These order types have

characteristics similar to ones in the cash market.

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o Limit Order: An order for buying or selling at a limit price or better, if possible.

Any unexecuted portion of the order remains as a pending order till it is matched or

its duration expires.

o Market Order: An order for buying or selling at the best price prevailing in the

market at the time of submission of the order.

o There are two types of Market orders:

1. Partial fill rest Kill (PF): execute the available quantity and kill any

unexecuted portion.

2. Partial fill rest Convert (PC): execute the available quantity and convert any

unexecuted portion into a limit order at the traded price.

o Stop Loss: An order that becomes a limit order only when the market trades at a

specified price.

All orders shall have the following attributes:

o Order Type (Limit / Market PF/Market PC/ Stop Loss)

o

The Asset Code, Product Type, Maturity, Call/Put and Strike Price.o Buy/Sell Indicator

o Order Quantity

o Price

o Client Type (Own / Institutional / Normal)

o Client Code

o Order Retention Type (GFD / GTD / GTC)

Good For Day (GFD) - The lifetime of the order is that trading session.

Good Till Date (GTD) - The life of the order is till the number of days as specified by the order

retention period.

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.

Good Till Cancelled (GTC) - The order if not traded will remain in the system till it is cancelled or

the series expires, whichever is earlier.

o Order Retention Period (in calendar days) this field is enabled only if the value of

the previous attribute is GTD. It specifies the number of days the order is to be

retained.

o Protection Points this is a field relevant in Market Orders and Stop Loss orders. The

value enterable will be in absolute underlying points and specifies the band from the

touchline price or the trigger price within which the market order or the stop loss

order respectively can be traded.

o Risk Reducing Orders (Y/N): When the member's collateral falls below 50lacs then

he will be allowed to put only risk reducing orders and he will not be allowed to

take any fresh positions. It is not essentially a type of order but a mode into which

the member is put into when he violates his collateral limit. A member who has

entered the risk-reducing mode will be allowed to put only one risk reducing order

at a time.

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3.1 PRESENT CONDITIONS OF ORGANISATIONS

ABOUT US the Elixir Consultants group was formed in 1983 at Chennai, India. Elixir Consultants

ranks among the top player in almost all the fields it operates. Elixir Consultants Computer share

Limited is Indias largest Registrar and Transfer Agent with a client base of nearly 500 blue chip

corporate, managing over 2crore accounts. Elixir Consultants Stock Brokers Limited, member of

National Stock Exchange of India and the Bombay Stock Exchange, ranks among the top 5 stock

brokers in India. With over 6, 00,000 active accounts, it ranks among the top 5 Depositary

Participant in India, registered with NSDL and CDSL. Elixir Consultants COM trade, Member ofNCDEX and MCX ranks among the top 3 commodity brokers in the country. Elixir Consultants

Insurance Brokers is registered as a Broker with IRDA and ranks among the top 5 insurance agent

in the country. Registered with AMFI as a corporate Agent, Elixir Consultants is also among the

top Mutual Fund mobilize with over Rs.5, 000crores under management. Elixir Consultants Realty

Services, which started in 2006, has quickly established itself as a broker who adds value, in the

realty sector. Elixir Consultants Global offers niche off shoring services to clients in the US.

Elixir Consultants has 575 offices over 375 locations across India and overseas at Dubai and New

York. Over 9,000 highly qualified people staff Elixir Consultants.

Organization:

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Elixir Consultants was started by a group of five chartered accountants in 1979. The partners

decided to offer, other than the audit services, value added services like corporate advisory

services to their clients. The first firm in the group, Elixir Consultants Consultants Limited was

incorporated on 23rd July, 1983. In a very short period, it became the largest Registrar and

Transfer Agent in India. This business was spun off to form a separate joint venture with Computer

share of Australia, in 2005. Elixir Consultantss foray into stock broking began with marketing

IPO, in 1993. Within a few years, Elixir Consultants began topping the IPO procurement league

tables and it has consistently maintained its position among the top 5. Elixir Consultants was

among the first few members of National Stock Exchange, in 1994 and became a member of The

Stock Exchange, Chennai in 2001. Dematerialization of shares gathered pace in mid-90s and Elixir

Consultants was in the forefront educating investors on the advantages of their shares. Today Elixir

Consultants is among the top 5 Depositary Participant in India.

While the registry business is a 50:50 Joint Venture with Computer share of Australia, we have

equity participation by ICICI Ventures Limited and Barings Asia Limited, in Elixir Consultants

Stock Broking Limited. For a snapshot of our organization structure, please click here.

Elixir Consultants has always believed in adding value to services it offers to clients. A top-notch

research team based in Chennai and Chennai supports its employees to advise clients on their

investment needs. With the information overload today, Elixir Consultantss team of analysts help

investors make the right calls, be it equities, mf, insurance. On a typical working day Elixir

Consultants:

* Has more than 25,000 investors visiting our 575 offices

* Publishes / broadcasts at least 50 buy / sell calls

* Attends to 10,000+ telephone calls

* Mails 25,000 envelopes, containing Annual Reports, dividend cheques / advises, allotment /

refund advises

* Executes 150,000+ trades on NSE / BSE

* Executes 50,000 debit / credit in the depositary accounts

* Advises 3,000+ clients on the investments in mutual funds

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In 1982, a group of Chennai-based practicing Chartered Accountants started Elixir Consultants

Consultants Limited with a capital of Rs.1, 50,000 offering auditing and taxation services initially.

Later, it forayed into the Registrar and Share Transfer activities and subsequently into financial

services. All along, Elixir Consultants's strong work ethic and professional background leveraged

with Information Technology enabled it to deliver quality to the individual.

A decade of commitment, professional integrity and vision helped Elixir Consultants achieve a

leadership position in its field when it handled the largest number of issues ever handled in the

history of the Indian stock market in a year. Thereafter, Elixir Consultants made inroads into a host

of capital-market services,

-Corporate and retail-, which proved to be a sound business.

Today, Elixir Consultants has access to millions of Indian shareholders, besides

companies, banks, financial institutions and regulatory agencies. Over the past one and half

decades, Elixir Consultants has evolved as a veritable link between industry, finance and people. In

January 1998, Elixir Consultants became the first Depository Participant in Andhra Pradesh. An

ISO 9002 company, Elixir Consultants's commitment to quality and retail reach has made it

an integrated financial services company.

CORPORATE FINANCE Recognized as a leading merchant banker in the country, we are

registered with SEBI as a Category I merchant banker. This reputation was built by capitalizing on

opportunities in corporate consolidations, mergers and acquisitions and corporate restructuring,

which have earned us the reputation of a merchant banker. Raising resources for corporate or

Government Undertaking successfully over the past two decades have given us the confidence to

renew our focus in this sector.

Our quality professional team and our work-oriented dedication have propelled us to offer value-

added corporate financial services and act as a professional navigator for long term growth of our

clients, who include leading corporate, State Governments, foreign institutional investors, public

and private sector companies and banks, in Indian and global markets.

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We have also emerged as a trailblazer in the arena of relationships, both at the customer and trade

levels because of our unshakable integrity, seamless service and innovative solutions that are tuned

to meet varied needs. Our team of committed industry specialists, having extensive experience in

capital markets, further nurtures this relationship.

Our financial advice and assistance in restructuring, divestitures, acquisitions, de-mergers, spin-

offs, joint ventures, privatization and takeover defense mechanisms have elevated our relationship

with the client to one based on unshakable trust and confidence.

Elixir Consultants Computer share Private Limited is a joint venture between Computer share,

Australia and Elixir Consultants Consultants Limited, India in the registry management services

industry.

Computer share, Australia is the worlds largest and only global share registry providing financial

market services and technology to the global securities industry.

Elixir Consultants Corporate and Mutual Fund Share Registry and Investor Services business,

India's No. 1 Registrar and Transfer Agent and rated as India's "Most Admired Registrar" for its

overall excellence in volume management, quality processes and technology driven services.

Corporate Profile

Elixir Consultants Computer share came into existence with the coming together of two stalwarts

Computer share on the global scale and Elixir Consultants in the Indian domestic markets. The

50:50 ventures would bring together global capabilities and local expertise in carrying forward the

legacy of comprehensive registry management services in India and across the globe.

Computer share has over 6000 experienced professionals, Computers hare operates in five

continents, providing services and solutions to listed companies, investors, employees, exchanges

and other financial institutions while Elixir Consultants has handled over 675 issues as Registrar to

Issues servicing over 16 million investors from multiple locations across India.

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Elixir Consultants Computer share is all geared up to establish a new paradigm in service delivery

driven by benchmark operations management practices, the highest quality standards and state-of-

the-art technology to service its clients and the investor community at large. The rapid

developments in the Indian securities market infrastructure, regulatory environment and

internationalization of the Indian economy provides outstanding opportunities for us to leverage on

each others capabilities to provide cross border transactions and a larger service portfolio to our

foreign multinational as well as Indian multinational clients.

The combination of local knowledge and global expertise with technological innovations is going

to mark the emergence of a fully integrated services provider with cross border capabilities.

Products & Services

Elixir Consultants Computer share is the largest share registry and transfer agency in the country

and provides unmatched registry management services to corporate clients. Our service gamut

includes Initial Public Offers (IPO) processing, share holder servicing, effecting corporate actions,

investor information services and host of technology enabled services to facilitate efficient and

effective service delivery.

Corporate Share and Mutual Fund Registry Services

Elixir Consultants Computer share is the largest share registry and transfer agency in the

country and provides unmatched registry management services to corporate clients. Our service

gamut includes Initial Public Offers (IPO) processing, share holder servicing, effecting corporate

actions, investor information services and host of technology enabled services to facilitate efficient

and effective service delivery.

Elixir Consultants Computer share manages over 16 million investor accounts and focuses on

innovative product and service offerings to our clients and the investor population to match

investor expectations and reaffirm our leadership position in the industry.

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Our two decade long association with the financial industry and capital market services has helped

us understand the nuances of the business and has reinforced our commitment in managing people,

processes and technology for share registry services. We are driven by our strong values, sharp

focus and undying passion for service and continue to delivery investor delight through our

enduring client responsiveness and shareholder satisfaction efforts.

We take pride in being the trusted and responsible representatives of our clients in serving the

investor and will forever strive to compliment client businesses by delivering the highest level of

service using our expertise in our domain, the use of technology and innovations to redefine the

service paradigm.

Transaction Processing Services

The pillar of our service repertoire is our capability to deliver services that are hall marked for their

accuracy, timeliness and relevance. Information is available through various delivery channels and

clients and investors abreast of happenings.We have established service standards for all activities

which have become benchmarks in the industry.

Investor Communication Services

Communication; be it from the client to the shareholder or from the investor to the company is

listened to and responded to with utmost urgency. Turnaround times for each communication be it

transactional, investor information or corporate actions and announcements happen on time.

Clients have the option to couple their marketing efforts with communications that go out to the

shareholder thereby fostering company - investor relationships.

Technology Enabled Services

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We have invested in technology and developed state of the art applications and service delivery

mechanisms to exploit the advantages of technology as a tool and enabler to the business.

Automated Back Office Processing

Internet Based Online Transactions Services

Web Forms and E-Mail Based Contact Centers

IVR and Agent Based and Call Centre Services

Online Reporting and Management

Elixir Consultantss Achievements

Largest mobilize of funds as per PRIME DATABASE

First ISO - 9002 Certified Registrar in India

A Category- I -Merchant banker.

A Category- I -Registrar to Public Issues.

Ranked as The Most Admired Registrar" by MARG.

Handled the largest- ever Public Issue - IDBI

Handled over 500 Public issues as Registrars.

Handling the Reliance Account which accounts for nearly 10 million account holders

First Depository Participant from Andhra Pradesh.

Elixir Consultants Consultants have also acted as

Arrangers

Co-Managers

Registrars for issues

For a number of highly reputed companies

Debt issues handled by Elixir Consultants Securities Ltd

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Elixir Consultants has secured over Rs.500crore through the following debt issues.

Andhra Pradesh Road Development Corporation Ltd

ICICI Bonds ( Private Placement)

ICICI Bonds 96

ICICI Bonds 97- I

ICICI Bonds 97 II

ICICI Safety Bonds March 98.

IDBI Bonds 96.

IDBI Flexi Bonds I

IDBI Flexi Bonds II

IDBI Flexi Bonds III

Kerala State Electricity Board

Krishna Bhagya Jala Nigam Ltd

Power Finance Corporation Ltd

Andhra Pradesh Water Resources Development Corporation

Andhra Pradesh State Electricity Board

Retailing of Government Securities

The Reserve Bank of India has been actively trying to promote retailing of Government securities.

First, a system of primary dealers and satellite dealers was set up and liquidity support from the

RBI has been made available to them. Secondly, the RBI announced special liquidity support for

dedicated gilt funds. However, not much interest has been evinced in this channel so far. Thirdly,

banks are now allowed to freely buy and sell Government Securities on an outright basis and retail

Government securities to non-bank clients, without any restriction on the period between sale and

purchase. Fourthly, with a view to enabling dematerialization of securities of retail holders,

institutions such as National Securities Depository Ltd. (NSDL), Stock Holding Corporation of

India Limited (SHCIL) and National Securities Clearing Corporation Ltd. (NSCCL) have been

allowed to open SGL Accounts with the RBI.

Strengthening Dealers System

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The RBI has recently enlarged the number of Primary Dealers (PD) from 6 to 13 by announcing

'in-principle' agreement to register 7 PD. The addition of 7 more PD is expected to increase

activities in terms of liquidity and depth both in the primary and secondary markets.

Investment in Central Government Securities by FII

To widen the participants in the debt market, including Government securities, foreign institutional

investors have also been permitted to operate, though such participation within the overall ceilings

on external commercial borrowings.

Ready Forward Transactions

In our market, two types of repose are currently in operation - inter bank repo including Primary

Dealers (PD) and the RBI repot which is used for absorption/injection of liquidity. After the

irregularities in securities transactions in 1992, inter bank repos are permitted under regulated

conditions with eligible participants and instruments being generally restricted and now expanded

gradually.

Developments in the Debt Market

The development in the in Indian debt market in the recent past is very aggressive after the

government reforms. Some of the reasons are as follows:

Sound legal framework

Strong regulation and supervision

Market Infrastructure for Trading and Settlement

Retailing of government securities

PRE LIBERALISATION

SCENARIO

POST LIBERALISATION

SCENARIO

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Instrument The plain vanilla bond was

the most popular instrument

Bonds with complex features

are gaining in importance

Interest rates Stable administrated interest

rates prevailed

Volatile and market-

determined interest rates

have come into vogue

Number of players Few players Many players

Reference rate No reference A reference rate is gradually

emerging

Method of analysis Investor used simplest

measures like current yield

and years to maturity and

followed ad hoc thumb rules.

Investors have begun

calculating more precise

measures like yield to

maturity and duration and are

applying more scientific

methods

Nature of market Large highly illiquid There is sign of increasing

liquidity

CHANGING COMPLEXTION OF DEBT MARKET IN INDIA

Business growth and prospect in the Wholesale and Retail Debt Markets

Business growth in the WDM segment

The following table clearly explains the year on year growth and the relevant data that

supports for analysis. They are as follows:

Year

Market

Capitalization

(Rs.crores)

Number of

Trades

Net Traded

Value

(Rs.crores)

Average Daily

Value

(Rs.crores)

Average Trade

Size

(Rs.crores)

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1994-1995 158,181 1,021 6,781.15 30.41 6.64

1995-1996 209,783 2,991 11,867.68 40.78 3.97

1996-1997 292,772 7,804 42,277.59 145.28 5.42

1997-1998 343,191 16,821 111,263.28 377.16 6.61

1998-1999 411,470 16,092 105,469.13 364.95 6.55

1999-2000 494,033 46,987 304,216.24 1,034.75 6.47

2000-2001 580,835 64,470 428,581.51 1,482.98 6.65

2001-2002 756,794 144,851 947,191.22 3,277.48 6.54

2002-2003 864,481 167,778 1,068,701.54 3,598.32 6.37

2003-2004 1,192,090 166,826 1,155,790.99 4,679.32 6.93

BUSINESS GROWTH IN THE WDM SEGMENT

The following graph explains the growth in the market capitalization in the past years from 94-95

to 2009-2004

GROWTH IN MARKET CAPITALIZATION

0

200000

400000

600000

800000

1000000

1200000

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

M

arketcapitalizationinCrores

Series 1

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8/8/2019 A Study on Volatality in BSE

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A Study on Volatality in BSE Sensex