A study on equity & equity derivative indian securities market

“A STUDY ON EQUITY & EQUITY DERIVATIVE - INDIAN

SECURITIES MARKET”

IN

PARTIAL FULFILLMENT

OF

POST GRADUATE DIPLOMA IN MANAGEMENT (PGDM)

July, 2015

VIGNANA JYOTHI INSTITUTE OF MANAGEMENT

HYDERABAD

DECLARATION

I hereby declare that this Project Report titled _”A STUDY ON EQUITY & EQUITY

DERIVATIVE - INDIAN SECURITIES MARKET”_ submitted by me is a bonafide work

undertaken by me and it is not submitted to any other Institution or university for the award of any

degree/diploma certificate or published any time before.

Name of the Student Signature of the Student

CERTIFICATE

This is to certify that the Project Report titled _”A STUDY ON EQUITY & EQUITY

DERIVATIVE - INDIAN SECURITIES MARKET”_ being submitted to Vignana Jyothi Institute

of Management is a bonafide work done by _____________________________________,

bearing Roll no. ___________, under my guidance.

Date:

I

ACKNOWLEDGEMENT

I would like to express my gratitude to all those who gave me the possibility to complete this

project. I want to thank Vignana Jyohi Institute of Management for providing me such an

opportunity to work with corporate people and get a lifetime experience.

I would like to thank Mr. B. Srinivas Rao, the Branch Manager of Karvy Stock Broking Limited,

Dilsukhnagar branch for being a support throughout my Project work. Mr. B. Srinivas Rao has

always encouraged me to stay focused towards my project no matter what the conditions are. I

have furthermore to thank my respected Project Guide Mrs. D Srijanani, who gave and confirmed

this permission and encouraged me to go ahead with my Project. She always guided me in the right

direction whenever I asked her for help.

I would also like to thank God for giving me the patience throughout my project and my parents

who supported me and helped me in all ways. Without all, I could not have successfully completed

my project properly in time with adequate data and relevant substance in it.

Thanking you,

II

EXECUTIVE SUMMARY

The Indian security market has a very old and interesting history. It all began during the 18th

century when the East India Company used to transact loan securities. In the 1830s, trading on

corporate stocks and shares in Bank and Cotton presses took place in Bombay. Though the trading

was broad but the brokers were hardly half dozen during 1840 and 1850. In 1956, the Government

of India recognized the Bombay Stock Exchange as the first stock exchange in the country under

the Securities Contracts (Regulation) Act. Later on due to manipulations in market, National Stock

Exchange was started on 4th November, 1994, which brought a revolution in the stock market by

providing an electronic marketplace. Within less than a year, NSE turnover exceeded the BSE and

till today it remains the same.

Presently the Indian Security market is classified into primary market and secondary market. The

primary market consists of Initial Public Offering (IPO) whereas the secondary market consists of

equity market, debt market and derivatives market.

In this report, we are going to find the relation (if exists) between equity market and derivative

market and their effect on each other.

To understand the equity market, I have taken the stocks that makes CNX NIFTY and on the basis

of some factors like annual profit, Return on net worth, operating margin, D/E Ratio, PBV ,

dividend yield and few more have filtered out the stocks that can give good returns in long term.

I have also compared the return on investment on CNX Nifty and 11 selected stocks for 5 years

i.e. FY 2010-15. The comparison of ROI results in higher returns on investment in 11 stocks. The

returns calculated of 11 stocks is higher but there is not much difference in their return. To further

increase the returns, I took the analysis to the next level and applied a simple strategy of switching

the stocks that were not performing well enough. The returns on applying this simple strategy

resulted in a huge difference on returns, thus archiving some of the objective of this report but still

there was a long way to go.

III

One of the most significant events in the securities markets has been the development and

expansion of financial derivatives. Derivative products like futures and options on Indian stock

markets have become important instruments of price discovery, portfolio diversification and risk

hedging in recent times.

To achieve the objective of impact of derivative market effect in cash market segment, it is

important to identify the link between them and then to compare them. This is the exact thing

which I have done. I have compared the settlement price of FUTIDX NIFTY with the underlying

price of CNX NIFTY.

The result of the comparison was that the settlement price was in and around underlying prices of

FUTIDX, thus showing a relation between the two markets. In the comparison of settlement price

with underlying price it showed that they accompanied each other but when similar comparison

was done for the turnover of FUTIDX NIFTY and CNX NIFTY for the period of 3 months, the

result was completely different. The turnover of CNX NIFTY in the beginning of the 3 months

was high compared to the FUTIDX NIFTY but in the last month before expiry date the turnover

of the FUTIDX NIFTY was greater than CNX NIFTY. The reason for the higher turnover in the

last month was decrease in the margin that is required for the day-to-day settlement of the futures.

We often hear market analysts or experienced traders talking about an equity price nearing a

certain support or resistance level, each of which is important because it represents a point at which

a major price movement is expected to occur. But how do these analysts and professional traders

come up with these so-called levels? One of the most common methods is using pivot points.

There are several different methods for calculating pivot points, the most common of which is the

five-point system which I have used for the predicting the settlement price for next day for

FUTIDX NIFTY. The pivot point along with it also has 2 resistance level and 2 Support level

which helps the investor in comparing the open price take the correct decision. The calculated

pivot point when compared with the open price for the day, 91% of the prediction were correct.

Thus proving pivot point is an important tool which can be used for prediction of prices in the

stock market.

IV

TABLE OF CONTENTS

ACKNOWLEDGEMENT ............................................................................................................... I

EXECUTIVE SUMMARY ............................................................................................................ II

1. INTRODUCTION ................................................................................................................... 1

1.1. An overview of the Indian securities market ................................................................... 2

1.2. Key Indicators of Securities Market................................................................................. 3

1.3. Products and Participants ................................................................................................. 4

1.4. Market Segments and their Products ................................................................................ 5

1.5. Reforms in Indian Securities Markets .............................................................................. 6

1.6. Objectives of the Study .................................................................................................... 9

1.7. Scope of the study .......................................................................................................... 10

1.8. Methodology .................................................................................................................. 10

2. LITERATURE REVIEW ...................................................................................................... 12

3. KARVY STOCK BROKING LIMITED .............................................................................. 15

3.1. COMPANY OVERVIEW.............................................................................................. 15

4. EQUITY MARKET .............................................................................................................. 23

4.1. Identification of stocks for investment from CNX NIFTY Index:................................. 24

4.2. Return on investment in CNX NIFTY index and the identified stocks ......................... 37

4.3. Return on investment using portfolio management techniques ..................................... 39

5. EQUITY DERIVATIVE MARKET ..................................................................................... 41

V

5.1. Derivative markets ......................................................................................................... 42

5.2. The Need for a Derivatives market ................................................................................ 43

5.3. Functions of derivative market ....................................................................................... 43

5.4. The Economic Role of Derivatives ................................................................................ 44

5.5. The Participants in a Derivatives market ....................................................................... 45

5.6. Factors driving the growth of financial derivatives ....................................................... 45

5.7. Types of Derivatives ...................................................................................................... 46

5.8. Equity Derivatives in India ............................................................................................ 47

5.8.1. Impact of cash market segment on derivative market ................................................ 48

5.8.2. Prediction of future values for derivative instruments ............................................... 57

6. FINDINGS............................................................................................................................. 62

7. CONCLUSION ...................................................................................................................... 64

APPENDICES

APPENDIX A

APPENDIX B

BIBILOGRAPHY

VI

TABLE OF FIGURES

Figure 1: Market Segments in India ....................................................................................................... 5

Figure 2: Subsidiaries of Karvy Group ............................................................................................. 16

Figure 3: 5 years Annual Net Profit of Yes Bank ........................................................................... 26

Figure 4: 5 years Annual Net Profit of BPCL ................................................................................. 27

Figure 5: 5 years Annual Net Profit of Infosys Ltd. ........................................................................ 28

Figure 6:5 years Annual Net Profit of HCL Tech. Ltd. .................................................................. 29

Figure 7: 5 years Annual Net Profit of ITC Limited ...................................................................... 30

Figure 8:5 years Annual Net Profit of L&T Ltd. ............................................................................. 31

Figure 9:5 years Annual Net Profit of GAIL India Ltd. ................................................................ 33

Figure 10: 5 years Annual Net Profit of Wipro Ltd. ...................................................................... 34

Figure 11: Performance of CNX Nifty & Other Scripts ................................................................ 36

Figure 12: Movement of Underlying Value & Settlement price of FUTIDX Nifty ................................... 49

Figure 13: Volatility in CNX Nifty Futures ................................................................................... 51

Figure 14: Price comparison of FUTIDX & CNX Nifty ............................................................... 52

Figure 15: Turnover comparison of FUTIDX & CNX Nifty ........................................................ 52

Figure 16: Spread in FUTIDX NIFTY ............................................................................................. 53

Figure 17: Spread in CNX NIFTY ................................................................................................... 54

Figure 18: Options CE closing price for different strike prices ................................................... 55

Figure 19: Options PE closing price for different strike prices .................................................... 56

Figure 20: Trend Analysis of FUTIDX from 1st June, 2015 to 15th June, 2015.......................................... 60

Figure 21: Trend Analysis of FUTIDX ....................................................................................................... 61

VII

LIST OF TABLES

Table 1: Selected Companies from CNX Nifty .......................................................................................... 25

Table 2: Investment in Nifty BeES & other selected stocks ....................................................................... 37

Table 3: Return on Investment in Nifty BeES & other stocks .................................................................... 38

Table 4: Difference in gain in Nifty BeES & other stocks……….. ........................................................... 38

Table 5: Portfolio Management .................................................................................................................. 39

Table 6: Returns for Equity Portfolio Management .................................................................................... 40

Table 7: Details of NIFTY Futures along with the Settlement prices & underlying prices ........................ 49

Table 8: Day-to-day movement of CNX NIFTY ........................................................................................ 50

Table 9: Day-to-day prices of FUTIDX NIFTY ......................................................................................... 58

Table 10: Pivot Points for different FUTIDX prices .................................................................................. 59

Table 11: Comparison of Pivot points & closing prices of FUTIDX ......................................................... 60

1

1. INTRODUCTION

Indian stock market marks to be one of the oldest stock market in Asia. It dates back to the close

of 18th century when the East India Company used to transact loan securities. In the 1830s, trading

on corporate stocks and shares in Bank and Cotton presses took place in Bombay. Though the

trading was broad but the brokers were hardly half dozen during 1840 and 1850.

An informal group of 22 stockbrokers began trading under a banyan tree opposite the Town Hall

of Bombay from the mid-1850s, each investing a (then) princely amount of Rupee 1. This informal

group of stockbrokers organized themselves as the Native Share and Stockbrokers Association

which, in 1875, was formally organized as the Bombay Stock Exchange (BSE).

In 1956, the Government of India recognized the Bombay Stock Exchange as the first stock

exchange in the country under the Securities Contracts (Regulation) Act. The most decisive period

in the history of the BSE took place after 1992. In the aftermath of a major scandal with market

manipulation involving a BSE member named Harshad Mehta, BSE responded to calls for reform

with intransigence. The foot-dragging by the BSE helped radicalize the position of the government,

which encouraged the creation of the National Stock Exchange (NSE), which created an electronic

marketplace.

National Stock Exchange started trading on 4th November, 1994. Within less than a year, NSE

turnover exceeded the BSE. BSE rapidly automated, but it never caught up with NSE spot market

turnover. The second strategic failure at BSE came in the following two years. NSE embarked on

the launch of equity derivatives trading. BSE responded by political effort, with a friendly SEBI

chairman (D. R. Mehta) aimed at blocking equity derivatives trading. The BSE and D. R. Mehta

succeeded in delaying the onset of equity derivatives trading by roughly five years. But this

trading, and the accompanying shift of the spot market to rolling settlement, did come along in

2000 and 2001 - helped by another major scandal at BSE involving the then President Mr. Anand

Rathi. NSE scored nearly 100% market share in the runaway success of equity derivatives trading,

thus consigning BSE into clearly second place. Today, NSE has roughly 66% of equity spot

turnover and roughly 100% of equity derivatives turnover.

2

1.1. An overview of the Indian securities market

Securities markets provides a channel for allocation of savings to those who have a

productive need for them. The Indian securities market has two interdependent and

inseparable segments:

1. Primary market

2. Secondary market

1.1.1. Primary Market:

Primary market provides an opportunity to the issuers of securities, both Government

and corporations, to raise resources to meet their requirements of investment.

Securities, in the form of equity or debt, can be issued in domestic/international markets

at face value, discount or premium.

The primary market issuance is done either through public issues or private placement.

Under Companies Act, 1956, an issue is referred as public if it results in allotment of

securities to 50 investors or more. However, when the issuer makes an issue of

securities to a select group of persons not exceeding 49 and which is neither a rights

issue nor a public issue it is called a private placement.

1.1.2. Secondary Market:

Secondary market refers to a market where securities are traded after being offered to

the public in the primary market or listed on the Stock Exchange. Secondary market

comprises of equity, derivatives and the debt markets. The secondary market is

operated through two mediums, namely, the Over-the-Counter (OTC) market and the

Exchange-Traded market. OTC markets are informal markets where trades are

negotiated.

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1.2.Key Indicators of Securities Market

1.2.1. Index:

An Index is used to give information about the price movements of products in the

financial, commodities or any other markets. Stock market indices are meant to capture

the overall behavior of the equity markets. The stock market index is created by

selecting a group of stocks that are representative of the whole market or a specified

sector or segment of the market. The bluechip index of NSE is S&P CNX Nifty and for

BSE is Sensex.

1.2.2. Market Capitalization:

Market capitalization is defined as value of all listed shares on the country’s exchanges.

It is computed on a daily basis. Market capitalization of a particular company on a

particular day can be computed as product of the number of shares outstanding and the

closing price of the share. Here the number of outstanding shares refers to the issue size

of the stock.

1.2.3. Market Capitalization Ratio:

The market capitalization ratio is defined as market capitalization of stocks divided by

GDP. It is used as a measure of stock market size.

1.2.4. Turnover:

Turnover for a share is computed by multiplying the traded quantity with the price at

which the trade takes place. Similarly, to compute the turnover of the companies listed

at the Exchange we aggregate the traded value of all the companies traded on the

Exchange.

1.2.5. Turnover Ratio:

The turnover ratio is defined as the total value of shares traded on a country’s stock

Exchange for a particular period divided by market capitalization at the end of the

period. It is used as a measure of trading activity or liquidity in the stock markets.

4

1.3.Products and Participants

1.3.1. Products:

Financial markets facilitate reallocation of savings from savers to entrepreneurs.

Savings are linked to investments by a variety of intermediaries through a range of

complex financial products called “Securities”.

Under the Securities Contracts (Regulation) Act [SC(R)A], 1956, “Securities” include

A. Shares, bonds, scrips, stocks or other marketable securities of like nature

in or of any incorporate company or body corporate

B. Government securities

C. Derivatives of securities

D. Units of collective investment scheme

E. Interest and rights in securities, and security receipt or any other

instruments so declared by the central government.

Broadly, securities can be of three types

1. Equities

2. Debt securities

3. Derivatives.

1.3.2. Participants:

The securities market has essentially three categories of participants

1. The investors

2. The issuers

3. The intermediaries

These participants are regulated by the Securities and Exchange Board of India (SEBI),

Reserve Bank of India (RBI), Ministry of Corporate Affairs (MCA) and the Department of

Economic Affairs (DEA) of the Ministry of Finance.

5

1.4. Market Segments and their Products

The Exchange provides trading in four different segments as shown in the figure below

Figure 1: Market Segments in India Source: NSE, NCFM Module

1.4.1. Wholesale Debt Market (WDM) Segment:

This segment at NSE commenced its operations in June 1994. It provides the trading

platform for wide range of debt securities which includes State and Central

Government securities, T-Bills, PSU Bonds, Corporate debentures, Commercial

Papers, Certificate of Deposits etc.

1.4.2. Capital Market (CM) Segment:

This segment at NSE commenced its operations in November 1994. It offers a fully

automated screen based trading system, known as the National Exchange for

Automated Trading (NEAT) system. Various types of securities e.g. equity shares,

warrants, debentures etc. are traded on this system.

1.4.3. Futures & Options (F&O) Segment:

This segment provides trading in derivatives instruments like index futures, index

options, stock options, and stock futures, and commenced its operations at NSE in June

2000.

1.4.4. Currency Derivatives Segment (CDS) Segment:

This segment at NSE commenced its operations on August 29, 2008, with the launch

of currency futures trading in US Dollar-Indian Rupee (USD-INR). Trading in other

Market Segments

Whole sale debt market

Capital MaketFutures & Options

Currency Derivatives

6

currency pairs like Euro-INR, Pound Sterling-INR and Japanese Yen-INR was further

made available for trading in February 2010. ‘Interest rate futures’ was another product

made available for trading on this segment with effect from August 31, 2009.

1.5. Reforms in Indian Securities Markets

Over a period, the Indian securities market has undergone remarkable changes and grown

exponentially, particularly in terms of resource mobilization, intermediaries, the number

of listed stocks, market capitalization, turnover and investor population. The following

paragraphs list the principal reform measures undertaken since 1992.

1.5.1. Creation of Market Regulator:

Securities and Exchange Board of India (SEBI), the securities market regulator in India,

was established under SEBI Act 1992, with the main objective and responsibility for

A. Protecting the interests of investors in securities

B. Promoting the development of the securities market

C. Regulating the securities market

1.5.2. Screen Based Trading:

Prior to setting up of NSE, the trading on stock exchanges in India was based on an

open outcry system. The system was inefficient and time consuming because of its

inability to provide immediate matching or recording of trades. In order to provide

efficiency, liquidity and transparency, NSE introduced a nation-wide on-line fully

automated screen based trading system (SBTS) on the CM segment on November 3rd,

1994.

1.5.3. Reduction of Trading Cycle:

Earlier, the trading cycle for stocks, based on type of securities, used to vary between

14 days to 30 days and the settlement involved another fortnight. The Exchanges,

however, continued to have different weekly trading cycles, which enabled shifting of

positions from one Exchange to another. It was made mandatory for all Exchanges to

7

follow a uniform weekly trading cycle in respect of scrips not under rolling settlement.

In December 2001, all scrips were moved to rolling settlement and the settlement

period was reduced progressively from T+5 to T+3 days. From April 2003 onwards,

T+2 days settlement cycle is being followed.

1.5.4. Equity Derivatives Trading:

In order to assist market participants in managing risks better through hedging,

speculation and arbitrage, SC(R) A was amended in 1995 to lift the ban on options in

securities. Trading in derivatives, however, took off in 2000 with index futures after

suitable legal and regulatory framework was put in place. The market presently offers

index futures, index options, single stock futures and single stock options.

1.5.5. Demutualization:

Historically, stock exchanges were owned, controlled and managed by the brokers. In

case of disputes, integrity of the stock exchange suffered. NSE, however, was set up

with a pure demutualized governance structure, having ownership, management and

trading with three different sets of people. Currently, all the stock exchanges in India

have a demutualized set up.

1.5.6. Dematerialization:

As discussed before, the old settlement system was inefficient due to the time lag for

settlement and the physical movement of paper-based securities. To obviate these

problems, the Depositories Act, 1996 was passed to provide for the establishment of

depositories in securities with the objective of ensuring free transferability of securities

with speed and accuracy.

There are two depositories in India

1. National Securities Depository Limited (NSDL)

2. Central Depository Services Limited (CDSL)

They have been set up to provide instantaneous electronic transfer of securities.

Demat (Dematerialized) settlement has eliminated the bad deliveries and associated

8

problems. To prevent physical certificates from sneaking into circulation, it has

been made mandatory for all newly issued securities to be compulsorily traded in

dematerialized form. Now, the public listed companies making IPO of any security

for Rs.10 crore or more have to make the IPO only in dematerialized form.

1.5.7. Clearing Corporation:

The anonymous electronic order book ushered in by the NSE or BSE did not permit

members to assess credit risk of the counter-party and thus necessitated some

innovation in this area. To address this concern, NSE had set up the first clearing

corporation, viz. National Securities Clearing Corporation Ltd. (NSCCL), which

commenced its operations in April 1996.

1.5.8. Investor Protection:

In order to protect the interest of the investors and promote awareness, the Central

Government (Ministry of Corporate Affairs1) established the Investor Education and

Protection Fund (IEPF) in October 2001. With the similar objectives, the Exchanges

and SEBI also maintain investor protection funds to take care of investor claims. SEBI

and the stock exchanges have also set up investor grievance / service cells for redress

of investor grievance. All these agencies and investor associations also organize

investor education and awareness programs.

1.5.9. Globalization:

Indian companies have been permitted to raise resources overseas through issue of

ADRs, GDRs, FCCBs and ECBs. Further, FIIs have been permitted to invest in all

types of securities, including government securities and tap the domestic market. The

investments by FIIs enjoy full capital account convertibility. They can invest in a

company under portfolio investment route up to 24% of the paid up capital of the

company. This can be increased up to the sectorial cap/statutory ceiling, as applicable

to the Indian companies concerned, by passing a resolution of its Board of Directors

followed by a special resolution to that effect by its general body. The Indian stock

exchanges have been permitted to set up trading terminals abroad. The trading platform

9

of Indian exchanges is now accessible through the Internet from anywhere in the world.

RBI permitted two-way fungibility for ADRs / GDRs, which means that the investors

(foreign institutional or domestic) who hold ADRs / GDRs can cancel them with the

depository and sell the underlying shares in the market.

1.5.10. Direct Market Access:

In April 2008, SEBI allowed the direct market access (DMA) facility to the institutional

investors. DMA allows brokers to offer their respective clients, direct access to the

Exchange trading system through the broker’s infrastructure without manual

intervention by the broker.

1.6. Objectives of the Study

The growth of the security market in India especially in equity and equity derivative

instruments can be seen with the increase in the interest of investors for these instruments

and their willingness to take risk.

Investors investing in any security ultimately looks for the return on investment and the

return on risk whether it is for long term or short term. But a value investor takes all the

factors into consideration and invests in the best available securities. Thus it is important

to find value stocks or securities to get maximum possible return with the minimum

possible risk.

The objective of this report is to help the investors through the following activities:

1. To identify the best stocks for long term investment in NSE index CNX Nifty using

fundamental analysis.

2. To find the return on investment in CNX NIFTY index and the identified stocks for

the span of 5years i.e. FY 2010-15.

3. To analyze the return on investment in CNX NIFTY index and the identified stocks

with and without portfolio management techniques.

10

4. To study the impact of cash market segment on derivative market using settlement

price and the value of underlying equity.

5. To predict the cash market index (CNX NIFTY) & underlying index (FUTIDX

NIFTY) using PIVOT POINT Method.

1.7. Scope of the study

All the data required for present study were collected from reliable sources and thus are

secondary data. The data collected for equity picks were from CNX Nifty index only and

thus the study deals with stocks from CNX Nifty index only. The data used for the equity

study is the historical data of last 5 years i.e. FY 2010-15.

For equity derivative market the derivative instrument taken for study is FUTIDX NIFTY

and the span of future derivative is 3 months i.e. 23rd March, 2015 to 21st June, 2015

expiring on 25th June, 2015.

1.8. Methodology

Defining objective won’t suffice unless and until a proper methodology is used to achieve

the objectives. Hence different methods were used to archive different objectives as

follows:

For investment in Equity:

1. We started with the 50 stocks in the CNX Nifty index as it is a large cap index,

small and midcap stocks get eliminated.

2. To avoid value traps, only companies that made profits during the past five years

were considered—1 company fell out, leaving only 49 stocks.

3. Of these profitable companies, only those with at least 10% annualized net profit

growth were considered—28 companies fell out, leaving only 21 stocks.

11

4. Next, only companies with positive operating margin were retained to ensure that

the net profit is from business operations and not from other incomes—1 stock

moved out, leaving 20 stocks.

5. While profits are good, the stocks must justify the investment in the business. Only

stocks with at least 10% ROCE & RONW of at least 15% were kept—1 company

fell through, leaving us with 19 stocks.

6. The next filter was a debt to equity ratio of less than 2. One of the company had a

debt to equity ratio of more than 2 which left us with 18 stocks.

7. Next, only stocks that paid dividends in the past five years and distributed at least

10% of their profits as dividend were kept—1 company fell out, leaving us with

17 stocks.

8. A good company can be a bad buy at a high price. Stocks with a PE of over 25

were kept out—5 high priced stocks fell out, leaving us with 12 stocks.

9. Another valuation metric is the price to book value (PBV). The PBV can vary

greatly, so we kept a liberal cut off of 5. One company got dropped, leaving us

with 11 stocks.

10. Lastly, only stocks with a dividend yield of at least 1% were considered. None of

the companies moved out. Leaving us with 11 value picks.

For investment in Equity Derivative:

1. Settlement price of FUTIDX NIFTY & CNX NIFTY index are compared using

charts.

2. Turnover of both the indexes are compared using different charts.

3. Spread of both the indexes are observed using Volume-Open-High-Low-Close

charts.

4. For prediction of Settlement price: Pivot Point of each day is calculated and

compared with the day’s opening price.

5. Trend Analysis: The trend of calculated pivot point is observed for finding out

whether the market is bullish or bearish using trend line feature in the chart.

12

2. LITERATURE REVIEW

The Indian capital market has changed dramatically over the last few years, especially since 1990.

Changes have also been taking place in government regulations and technology. The expectations

of the investors are also changing. The only inherent feature of the capital market, which has not

changed is the “Risk” involved in investing in corporate securities. Managing the risk is emerging

as an important function of both large scale and small-scale investors.

The risk taken by the investors can be minimized when the investors understand the company and

does some research about the future performance of the company. Apart from the research, the

investors should understand the current market scenario i.e. the economy of the country, industry

performance etc. and have a prediction of the same.

Now a days the information about the companies are easily available through annual reports but

connecting the dots of external environment with the internal operation of the companies is what

is needed.

Mr. Narendra Nathan in his article on “Learn how to pick value stock” in economics times

(18th May, 2015) has made the long researches short to understand the company from different

aspects. Mr. Nathan has carried out 11 steps to pick the best stocks for investment. All the 11 steps

are very logical which gives the overall performance of the company and to understand the

companies better. The 11 steps are eliminating steps which eliminates stocks which doesn’t meet

the criteria from an index thus leaving us with filtered stocks for investment. The stocks are not

only selected on the basis of these 11 steps, it also considers the recent information in the market

about the company and a comparison of the 11 steps is repeated to predict the future performance

of the company. The process of fundamental analysis is compressed to these 11 steps which is the

method used in this report for equity analysis.

Avijit Banerjee (1998) reviewed Fundamental Analysis and Technical Analysis to analyze

the worthiness of the individual securities needed to be acquired for portfolio construction. The

Fundamental Analysis aims to compare the Intrinsic Value (I.V) with the prevailing market price

13

(M.P) and to take decisions whether to buy, sell or hold the investments. The fundamentals of the

economy, industry and company determine the value of a security. If the I.V is greater than the

M.P., the stock is underpriced and should be purchased. He observed that the Fundamental

Analysis could never forecast the M.P. of a stock at any particular point of time. Technical

Analysis removes this weakness. Technical Analysis detects the most appropriate time to buy or

sell the stock. It aims to avoid the pitfalls of wrong timing in the investment decisions. He also

stated that the modern portfolio literature suggests 'beta' value p as the most acceptable measure

of risk of scrip. The securities having low P should be selected for constructing a portfolio in order

to minimize the risks.

The trading of financial derivatives has received extensive attention, while at the same time it has

led to a debate over its impact on the underlying stock market from various facets by the

academicians. The researchers all over the world have done research on derivative trading and

were able to find out various facts about derivative and its trading.

Mr. S. Dinesh in his study on “Effectiveness of Equity Derivatives in Cash Market Segment

in India” have assess the impact of derivative market effect in cash market segment by evaluate

different strike price movement of the contract. Mr. S. Dinesh have also tried to predict the cash

market index and underlying index using Pivot Point method.

James (1993) studied the impact of price discovery by futures market on the cash market

volatility. The study is conducted using Garbade and Silber model to estimate the price discovery

function of the futures market. The results affirm that futures market is beneficial with respect to

cash market as it offers better efficiency, liquidity and also lowers the long-term volatility of the

spot market.

Darrat et al (1995) examines if futures trading activity has caused stock price volatility.

The study is conducted on S & P 500 index futures for a period of 1982 - 1991. The study also

examines the influence of macro-economic variables such as inflation, term structure rates on the

volatility of the S&P 500 stock returns. Granger causality tests are applied to assess the impact on

stock price volatility due to futures trading and other relevant macro-economic variables. The

14

results indicate that the futures trading have not caused any jump volatility (occasional and sudden

extreme changes in stock prices). Term structure rates and OTC index have caused the stock price

volatility while, inflation and risk premium have not influenced the volatility of stock prices.

Gregory et al (1996) examined how volatility of S&P 500 index futures affects the S&P

500 index volatility. The study also examines the effect of good and bad news on the spot market

volatility. The change in the correlation between the index and futures before and after October

1987 crash is also examined. Volatility is estimated by E-GARCH model. It is shown that the bad

news increases the volatility than the good news and the degree of asymmetry is much higher for

the futures market. The correlation between the S&P 500 index future and S&P500 index declines

during the October 1987 crash.

15

3. KARVY STOCK BROKING LIMITED

3.1. COMPANY OVERVIEW

KARVY was established as “KARVY & Company” by 5 chartered accountants during

the year1979-80. At that time it was confined only to audit and taxation. Later on it

diversified into financial and accounting services during the year 1981-82 with a capital

of Rs.1,50,000. It achieved its first milestone after its first investment in technology.

Karvy became a known name during the year 1985-86 when it forayed into capital market

as registrar.

But now KARVY, is a premier integrated financial services provider, and ranked among

the top five in the country in all its business segments, services over 16 million individual

investors in various capacities, and provides investor services to over 300 corporates,

comprising who is who of corporate India.

KARVY covers the entire spectrum of financial services such as Stock broking,

Depository Participants, Distribution of financial products like mutual funds, bonds, fixed

deposit, Merchant Banking & Corporate Finance, Commodities Broking, Personal

Finance Advisory Services, placement of equity, IPOs, among others.

16

KARVY has a professional management team and ranks among the best in technology,

operations, and more importantly, in research of various industrial segments.

Figure 2: Subsidiaries of Karvy Group Source: www.karvy.com

KARVY CONSULTANT LIMITED

As the flagship company of the Karvy Group, Karvy Consultants Limited has always remained at

the helm of organizational affairs, pioneering business policies, work ethic and channels of

progress.

Having emerged as a leader in the registry business, the first of the businesses that Karvy Group

ventured into, they have now transferred this business into a joint venture with Computershare

Limited of Australia, the world’s largest registrar. With the advent of depositories in the Indian

17

capital market and the relationships that they have created in the registry business, Karvy

Consltants Ltd. believe that they were best positioned to venture into this activity as a Depository

Participant. Karvy Consltants were one of the early entrants registered as Depository Participant

with NSDL (National Securities Depository Limited), the first Depository in the country and then

with CDSL (Central Depository Services Limited). Today, Karvy Consltants service over 6 lakhs

customer accounts in this business spread across over 250 cities/towns in India and are ranked

amongst the largest Depository Participants in the country. With a growing secondary market

presence, Karvy Consltants Ltd. have transferred this business to Karvy Stock Broking Limited

(KSBL), an associate and a member of NSE and BSE.

KARVY REALITY & SERVICES

(INDIA) LIMITED

KARVY Realty & Services (India) Limited (KRSIL) is engaged in the business of real estate and

property services offering value added property services and offers individuals and establishments

a myriad of options across investments, financing and advisory services in the realty sector.

KARVY Realty & Services India Limited carries forward its legacy of trust and excellence in

investor and customer services delivered with a passion for services and the highest level of quality

that align with global standards.

KARVY INVESTOR SERVICES

LIMITED

Karvy investor services limited is recognized as a leading merchant banker in the country,

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 them the reputation of a merchant banker. Raising resources for corporate or

18

Government Undertaking successfully over the past two decades have given them the confidence

to renew their focus in this sector.

The quality professional team and their work-oriented dedication have propelled them to offer

value-added corporate financial services and act as a professional navigator for long term growth

of their clients, which include leading corporates, State Governments, foreign institutional

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

They 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. Their team of committed industry specialists, having extensive experience

in capital markets, further nurtures this relationship.

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

offs, joint ventures, privatization and takeover defense mechanisms have elevated their

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

KARVY COMTRADE LIMITED

At Karvy Commodities is focused on taking commodities trading to new dimensions of reliability

and profitability. They have made commodities trading, an essentially age-old practice, into a

sophisticated and scientific investment option.

They enable trade in all goods and products of agricultural and mineral origin that include lucrative

commodities like gold and silver and popular items like oil, pulses and cotton through a well-

systematized trading platform. Their technological and infrastructural strengths and especially

their street-smart skills make them an ideal broker. Their service matrix is holistic with a gamut of

advantages, the first and foremost being their legacy of human resources, technology and

infrastructure that comes from being part of the Karvy Group.

19

KARVY COMPUTERSHARE PRIVATE

LIMITED

Karvy Computershare is the largest registrar and a market leader, servicing over 70 million

investor accounts spread over 900 issuers including banks, PSUs and mutual funds. With a work

force of over 2500 experienced professionals drawn from various disciplines. Karvy

Computershare has emerged as a market leader in Investor Servicing in the country by offering its

services through its network of 450 Branches + 400 locations spread across the country. Karvy

Computershare has set new benchmarks in Investor Servicing by establishing performance

standards for its Service Delivery. The company has developed and enhanced its Service delivery

through structured and custom built training and development initiatives.

Karvy Computershare is the first organization, in its line of business, to achieve the distinction of

receiving an ISO 9002 certification and have now migrated to ISO 9001:2008 standards, for quality

management systems, certified by DNV. They have also been awarded ISO 27001:2005

certification by DNV, for our high standards with respect to information security and management

system. Karvy Computershare Pvt. Ltd. is a 50:50 Joint Venture between Karvy and Australia

based Computershare - the world's largest Transfer Agent. The joint venture with Computershare

Limited helps us adopt international practices in client and investor servicing.

KARVY GLOBAL SERVICES LIMITED

Karvy Global Services Ltd is a wholly owned subsidiary of the Karvy Group, which was formed

in the year 2004 as a third party service provider. The company has its headquarters and multiple

global delivery centers at Hyderabad and a business development office at New York. The service

specialization of Karvy lies in providing high end advanced analytical knowledge process services

in domains like advanced financial modeling & analysis, investment research, market research

analytics, CRM analytics, models for demand forecasting etc. The company also provides

20

outsourcing services for F&A function supported with process expertise and scalable IT platforms

in synergy with domain knowledge. Karvy has strategic technical partnerships with globally top

software solution enterprises like Oracle Financials, Peoplesoft HRMS and SAP.

The services offered by KGSL includes Finance & Accounting, Inbound/Outbound Voice, Human

Resource Services, Data Capture/Management, Market Analysis and Investment Research.

KARVY STOCK BROKING LIMITED

Karvy Stock Broking Limited, one of the cornerstones of the Karvy edifice, flows freely towards

attaining diverse goals of the customer through varied services. Creating a plethora of

opportunities for the customer by opening up investment vistas backed by research-based advisory

services. Here, growth knows no limits and success recognizes no boundaries. Helping the

customer create waves in his portfolio and empowering the investor completely is the ultimate

goal.

Karvy Stock Brokers Limited, a 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. It is an

undisputed fact that the stock market is unpredictable and yet enjoys a high success rate as a wealth

management and wealth accumulation option. The difference between unpredictability and a

safety anchor in the market is provided by in-depth knowledge of market functioning and changing

trends, planning with foresight and choosing one & more options with care. KSBL offer services

that are beyond just a medium for buying and selling stocks and shares. Instead they provide

services which are multi-dimensional and multi-focused in their scope. There are several

advantages in utilizing KSBL services, which are the reasons why it is one of the best in the

country.

21

KARVY STOCK BROKING LIMITED (KSBL), DILSUKHNAGAR is a branch under the Karvy

Stock Broking Limited segment of the Karvy Group which caters to stock broking services and

other broking related services.

This KSBL branch has its head office at Banjara hills, Hyderabad. It covers the suburban area of

south-eastern Hyderabad and surrounding places, Dilsukhnagar branch is one of the three branches

of karvy, spread across Hyderabad and Secunderabad. This branch was established in the year

2003 and since then it has been very popular in its area and have a fair client base.

KSBL Dilsukhnagar previously had two offices, one for stock broking and other for gold loan. But

recently both these offices has been combined and are under one roof. This branch has

approximately 40 employees including the two departments that is gold loans and stock broking.

Stock broking was my department for Summer Internship where I was a trainee under the guidance

of Mr. B. Srinivas Rao.

Mr. B. Srinivas Rao is the head of KSBL Dilsukhnagar branch who is also the cluster manager of

stock broking department and manages two branches i.e. Dilsukhnagar branch and Kukatpally

branch. The stock broking segment has two parts that deal with daily trading. Mr. B. Srinivas Rao

is liable to report to the Zonal manager of South Zone and the flow will go (in reverse order) to

country manager and finally to Chairman.

22

There are various functions performed by Dilsukhnagar branch namely

1. Depository Participant:

KSBL is registered with the National Securities Depository Ltd (NSDL)

and Central Securities Depository Ltd (CSDL) as DP which gives it the

permission to hold the securities of investors in electronic form at the

request of the investors.

2. Trading Center:

KSBL offers online trading on both key platforms—National Stock

Exchange and Bombay Stock Exchange. They make trading safe to the

maximum possible extent by accounting for several risk factors and

planning accordingly. They have created a very robust trading platform that

facilitates customers to trade online not only in equities, but also buy fixed

deposits, mutual funds, commodities, currencies and also participate in a

public issue. The online platform enables customers to view their portfolio

online and also access various research reports and views on stocks. It also

provides them with a facility to communicate with research/advisory teams

online.

3. PAN Center:

KSBL Dilsukhnagar branch also provides the TIN or PAN card facility to

the investors thus providing a services from the beginning to facilitate the

easy process of investing.

The learning and the experience at the KSBL Dilsukhnagar branch during internship will be

reflected in this project.

23

4. EQUITY MARKET

The secondary market is where securities are traded after being initially offered to the public in

the primary market and/or being listed on the stock exchange. The stock exchanges along with a

host of other intermediaries provide the necessary platform for trading in the secondary market,

and also for clearing and settlement.

The trading volumes in the equity segments of the stock exchanges have witnessed a phenomenal

growth over the last few years. The year 2013-14 witnessed a remarkable performance of the

Indian equity markets supported by improved conditions in global financial markets and some

decisive actions on the domestic policy front. During the year, there has been a rise in inflows of

foreign capital, increased trading activity in equity markets and moreover, new highs have been

attained by benchmark indices and market capitalization.

The NSE and the BSE were the only two stock exchanges that reported significant trading volumes.

No other stock exchange in India reported any significantly large trading volumes during 2013–

14. The NSE consolidated its position as the market leader by contributing 84.1 percent of the total

turnover in India in 2013–14 and 83.7 percent in first half of 2014–15. Since its inception in 1994,

the NSE has emerged as the favored exchange among trading members. The attraction of investors

towards NSE is more leading to higher turnover and make NSE stocks and indexes a proper

platform of investing in securities. Thus it is advisable to find value stocks listed on NSE for

investment. The S&P CNX Nifty and S&P CNX 500 are the most preferred NSE index and hence

investment in stocks of these index reduces the risk in investment. CNX Nifty is a larger cap index

which consists of blue chip stocks, an ideal index to look for valuable stocks. Thus to understand

the Indian equity market I have taken S&P CNX Nifty Index for identifying the best value stocks

for investment.

24

4.1. Identification of stocks for investment from CNX NIFTY Index:

S&P CNX Nifty Index includes 50 large cap companies and to identify the best stocks for

investment, the company’s overall performance was taken into consideration. The factors on

the basis of which the companies were selected were

1) At least 10% annualized net profit growth

2) Positive Operating Margin

3) At least 10% ROCE & RONW of at least 15%

4) Debt to equity ratio of less than 2

5) Dividends paying stocks for the past five years and distributed at least 10%

of their profits as dividend

6) Price to Earning (P/E) Ratio of less than 25

7) Price to book value (PBV) of less than 5

8) Dividend yield of at least 1%

All the above factors acts as a filters for stocks from CNX NIFTY which will ultimately

give us the best stocks. All the important factors are covered which an investor has to keep

in mind before selecting stocks for investment.

When all the above factors were taken into consideration we were left with only 11

companies out of 50 large cap companies which can be considered as an equity portfolio

for investors.

25

The 11 companies which can be considered as an equity portfolio for an investor are

mention in the table below out of which detail analysis of 8 companies have been include

in this report.

Table 1: Selected Companies from CNX Nifty

Sr. No. Sector Company

1 Banks Yes Bank Limited

2 Banks Axis Bank

3 Refineries Bharat Petroleum Corporation

4 Oil Drilling and Exploration GAIL INDIA

5 Software HCL Technologies

6 Software Wipro

7 IT-Software Infosys

8 IT-Software Tata Consultancy Services

9 Cigarettes and FMCG ITC Limited

10 Infrastructure Larsen & Toubro Limited

11 Automobile Mahindra & Mahindra Limited

Source: Analysis

26

Figure 3: 5 years Annual Net Profit of Yes Bank Source: Moneycontrol.com

Despite being one of the fast growing banks, its net profit has grown at an annualized rate

of 36.26% in the last five years and it is still quoting at reasonable valuations.

Yes Bank is now focusing on the retail segment and given its relatively low share, this

should be its next growth engine.

Due to higher interest rate offered by the bank on its savings accounts, its CASA (current

and savings account) funding base is also been improving over the years, helping the bank

bring down its cost of funds.

Due to increased reach and softening interest rate structure, its NIM should improve further

from the current 3.2%.

YES Bank

Net profit growth(5 years)36.26%

PBV2.94

RONW21.33%

PriceRs.866.40

Dividend Payout(5 years average)

15.898

P/E Ratio17.07

Dividend Yield

1.09%

2010 2011 2012 2013 2014

Net Profit (Rs. Crore) 727.14 977 1300.68 1617.78 2005.36

0

500

1000

1500

2000

2500

27

Figure 4: 5 years Annual Net Profit of BPCL Source: Moneycontrol.com

BPCL stands to benefit from the government's decontrol of diesel prices. The resultant

subsidy reduction on oil products will reduce its working capital requirement and its

interest cost.

Since international crude oil prices have now stabilized, there should not be any inventory

losses in the coming quarters. What makes BPCL unique, however, is its exposure to

foreign upstream oil assets in Brazil and Mozambique.

Though the counter suffered when crude oil prices of the Brent variety crashed from $115

dollars a barrel to less than $40 a barrel, the recent recovery is helping BPCL.

Bharat Petroleum Corporation


PBV2.52

RONW22.50%

PriceRs.860.85


31.26

P/E Ratio12.18

Dividend Yield

2.60%

2010 2011 2012 2013 2014

Net Profit (Rs. Crore) 1,537.62 1,546.68 1,311.27 2,642.90 4,060.88

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

4,500.00

28

Figure 5: 5 years Annual Net Profit of Infosys Ltd. Source: Moneycontrol.com

The erstwhile IT bellwether is in a transformative phase under its new CEO Vishal Sikka.

Even as the firm lags behind peers such as TCS and HCL Tech, Sikka aims to make Infosys

a $20-billion company by 2020 and return to an above-industry growth rate.

Vishal Sikka’s strategy includes heavy-mining the company's top 100 clients, with

dedicated partners for each, driving up margins through automation, squeezing higher share

of revenue from services such as consulting, and acquisitions.

Analysts are optimistic about Sikka's vision of taking Infosys away from its traditional

maintenance-centric business model to a next-generation technology solutions provider. Its

current valuations make it a compelling buy, despite weakness in earnings.

Infosys Limited


PBV4.81

RONW26.98%

PriceRs.995.10


37.85

P/E Ratio19

Dividend Yield

2.96%

2010 2011 2012 2013 2014


0.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

29

Figure 6:5 years Annual Net Profit of HCL Tech. Ltd. Source: Moneycontrol.com

HCL Technologies have increased its net profit 5 folds in the last 5 years with best ever

currency growth in the last 16 quarters led by broad based growth.

HCL Technologies signed new deals worth $1 billion TCV during Q2 of FY 2015 taking

LTM order booking to $4 billion+ (FY14 total was >$5 billion). Noticeably, this is the

ninth consecutive quarter where the company signed deals in excess of $1 billion.

Though HCLT reported 25%, 38% PAT CAGR in FY09-14 with average 18.2% EBIT

margins, its current PER represents a modest 20% premium relative to its FY09-14

HCL Technologies Limited


PBV8.31

RONW46.06%

PriceRs.938.10


29.06

P/E Ratio18.97

Dividend Yield

1.07%

2010 2011 2012 2013 2014


0.00

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

30

average. Further, HCLT could report revenue, PAT CAGR of 13%, 15% in FY14-16E with

average 23.4% margins in FY15-16E led by order book conversion. We can believe the

scope for PE expansion exists as lop-sided growth concerns seem to be alleviating with

recovery in core software business.

Figure 7: 5 years Annual Net Profit of ITC Limited Source: Moneycontol.com

ITC, the undisputed leader in cigarettes in India (~75% share by volume in FY12), has

been witnessing a moderation in volume growth since the beginning of FY14. But ITC

plans to shift its focus on other sectors especially FMCG can make up for the moderation.

ITC Limited


PBV9.29

RONW36.27%

PriceRs.312.35


66.08

P/E Ratio25.42

Dividend Yield

1.97%

2010 2011 2012 2013 2014


0.00

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

8,000.00

9,000.00

10,000.00

31

ITC’s distribution strategy for its FMCG business by increasing its direct reach to ~1 lakh

villages in India depicts ITC’s aggressive approach towards growing its FMCG business,

which currently accounts for ~25% of its net sales (FY14) in comparison to ~16% in FY08.

The company’s aggressive diversification in newer categories can also be seen through the

acquisition of two brands “Savlon” & “Shower to Shower”.

We can believe that with continuous regulatory pressure and belligerent price hikes in

cigarettes, ITC would be far more aggressive to grow its FMCG business.

Figure 8:5 years Annual Net Profit of L&T Ltd. Source: Moneycontrol.com

Larsen & Toubro Limited


PBV9.29

RONW36.27%

PriceRs.312.35


66.08

P/E Ratio25.42

Dividend Yield

1.97%

2010 2011 2012 2013 2014


0.00

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

32

L&T is the most diversified engineering & infrastructure developer in the country with a

presence across all segments of infrastructure i.e. power, roads, hydrocarbons & process

industries. It is also planning to scale up in niche areas like defence, nuclear power and

shipbuilding, which have the potential to add significantly to overall revenues in the next

three to five years.

Strong Order pipeline of L&T i.e. on a consolidated basis, order inflow was up 19% YoY

to Rs.34,580 crore, taking the total tally of order inflows in 9MFY15 at Rs.10,77,785 crore.

The consolidated backlog as of 9MFY15 stood at Rs.225788 crore, up 14% YoY. L&T has

trimmed its order inflow growth guidance to 15-20% vs. 20% earlier.

In terms of ordering pipeline, L&T has Rs.150000-170000 crore of pipeline, majority of

which is from the infrastructure segment and thus for the next 2-3years the growth of the

company is clearly visible.

33

Figure 9:5 years Annual Net Profit of GAIL India Ltd. Source: Moneycontrol.com

GAIL India’s volumes are expected to increase gradually on account of the gas pooling

policy for power plants and also incremental volumes from fertilizer plants. According to

the management, the company will increase volumes by ~8 mmscmd during monsoons

when the gas pooling mechanism gets implemented.

In the gas trading business, out of the 8.3 mmtpa (US - 5.8 mmtpa; Russia-Gazprom - 2.5

mmtpa) long term contract signed, ~6 mmtpa will be sold domestically while ~1 mmtpa

will be sold in the international market via GGSPL Singapore. With majority of the long

term gas linked to Henry Hub and the company considering swapping gas, the landed cost

of gas in India is expected to come down. This will lead to better volumes in the long term.

GAIL INDIA


PBV1.63

RONW17.06%

PriceRs.399.50


66.08

P/E Ratio16.14

Dividend Yield

2.69%

2010 2011 2012 2013 2014


0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

4,500.00

5,000.00

34

The gas trading segment reported an EBIT of Rs.93.4 crore in Q4FY14 due to a sharp

decline in spot gas prices leading to lower trading margins but the performance of the gas

trading business is expected to improve in the next fiscal.

Figure 10: 5 years Annual Net Profit of Wipro Ltd. Source: Moneycontrol.com

Wipro have laid the roadmap, which is similar to other IT companies & is backed by

execution targets. The company plans to execute its run strategy through driving scale in

core markets, hyper-automation, building IP assets. Its change strategy hinges on servicing

Wipro Limited


PBV4.68

RONW27.57%

PriceRs.558.65


27.41

P/E Ratio16.76

Dividend Yield

1.44%

2010 2011 2012 2013 2014


0.00

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

8,000.00

35

the new buyer with distinct agenda, accelerating the digital agenda, and reimagining

business with artificial intelligence (AI) and open source.

Wipro plans to drive market leadership in the US, UK, Middle East and India geography

even as it invests in building scale in Continental Europe, Canada, Australia and South

Africa. Wipro also plans to reboot Japan and is open to Joint Ventures, partnerships and

acquisition.

Wipro had a team of 200 employees working for the past two years on building automation,

AI and IP tools, which could be rolled out in this year i.e. FY2015. Noticeably, the

company has set a roadmap to drive hyper-automation in each of its accounts over the next

year. Further, it also plans to shift 80% of basic process resolution to predictive, proactive

vs. current reactive leading to 90% reduction in mean processing time, 73% reduction in

headcount for similar scope of work and 90% error reduction. Finally, audacious targets of

35% employee reduction for same work scope, if achieved, could drive significant

productivity gains.

Wipro is driving cultural change in its sales organization (primarily farmers) to improve

client mining. Though improved hunting efficiency led to 12 times improvement in its

pipeline over two years, it believes, farmers need cultural change as account size grows.

To achieve the same, the company has changed its incentive plan from portfolio size to

incremental growth and set cross-selling targets for account managers (selling at least three

service lines of its portfolio). Noticeably, the same, overtime could apply to delivery teams

and implies that promotion policy could be driven by value generation along with skill set.

The company growth plans and keen interest in improving client satisfaction along with

increase in its revenue makes it a value stock for investment.

36

Fig

ure

11:

Per

form

ance

of

CN

X N

ifty

& O

ther

Scr

ipts

Sourc

e: N

SE

web

site

37

The performance of CNX Nifty and the value scripts can be compared from the chart.

If we look at the chart of CNX Nifty we see that it has been performing well over the past 5 years

i.e. FY2010-15 which is an outcome of the stocks which it is consists of. The scripts like Infosys

and HCLT have been star performer for CNX Nifty over a long time but in the FY 2014-15 they

were not able to perform but the demand for these stocks are still intact and makes a good choice

for investment.

Similarly stocks like BPCL, Yes Bank and GAIL India are the stocks which are proving themselves

and thus long term investment in these stocks can give higher returns for sure.

4.2. Return on investment in CNX NIFTY index and the identified stocks

To compare the return on investment from CNX NIFTY & identified stocks, we need to invest

equally in all the stocks and the sum of investments of all the stock in CNX NIFTY to have a

better comparison of the returns.

Table 2: Investment in Nifty BeES & other selected stocks

Company/Index Price Shares Purchased Amount

Invested

Nifty Bees 532.75 206 110000

Axis Bank 1242.40 8 10000

Yes Bank 269.30 37 10000

BPCL 662.75 15 10000

Gail 467.30 21 10000

HCL 364.15 27 10000

Wipro 384.50 26 10000

Infosys 2791.00 4 10000

TCS 751.00 13 10000

ITC 305.45 33 10000

L&T 1808.96 6 10000

M&M 627.35 16 10000

Source: NSE Website

The table above shows the price of shares and NIFTY Bees index in July, 2010. Equal amount is

invested i.e. Rs.10,000 in all the 11 stocks and thus the sum of amount i.e. Rs.1,10,000 is invested

in NIFTY BeES. The investment is done in NIFTY BeES as it replicates CNX NIFTY index in

the same manner thus it will give the same result as CNX NIFTY.

38

The number of shares of different stocks purchased in July, 2010 are also shown in the table. If

these shares are sold in 2015 the return on the investment will be as shown below.

Table 3: Return on Investment in Nifty BeES & other stocks

Company/Index Price No. of shares Returns

Nifty Bees 847.19 206 174924

Axis Bank 585.4 8 4712

Yes Bank 882.3 37 32763

BPCL 850.15 15 12828

Gail 388.85 21 8321

HCL 1010.75 27 27756

Wipro 561.7 26 14609

Infosys 2023.16 4 7249

TCS 2610.3 13 34758

ITC 327.1 33 10709

L&T 1654.45 6 9146

M&M 1258.1 16 20054

Source: Calculations

The return on investment of TCS, Yes Bank, HCL and Mahindra & Mahindra is above Rs.20,000

indicating more than 200% as gain.

Table 4: Difference in gain in Nifty BeES & other stocks Source: Calculations

Company/Index July 2010 May 2015 Difference

Nifty Bees 110000 174924 64924

Axis Bank 10000 4712 -5288

Yes Bank 10000 32763 22763

BPCL 10000 12828 2828

Gail 10000 8321 -1679

HCL 10000 27756 17756

Wipro 10000 14609 4609

Infosys 10000 7249 -2751

TCS 10000 34758 24758

ITC 10000 10709 709

L&T 10000 9146 -854

M&M 10000 20054 10054

39

The total return on investment of Rs.1,10,000 in all the 11 stocks is Rs.72,904 whereas the return

on the same investment in NIFTY BeES is Rs.64,924.

Difference in the return (in Rs.):

Equity Portfolio Nifty Bees Difference

72,904 64,924 7,980

Hence the return on investing in equity portfolio of the 11 stocks is higher than investment in Nifty

BeES.

4.3. Return on investment using portfolio management techniques

The return on the equity portfolio can be increased by managing the portfolio of these 11

stocks. For instance, by using the simple method of buying or switching of stock when the

stock is not performing well.

Table 5: Portfolio Management

Shares Sold Share Bought

Company Share

Price

No. of

Shares

Amount

(Rs.) Company

Share

Price

No. of

Shares

Amount

(Rs.)

Axis

Bank 1404 8 11300

Yes

Bank 310 36 11300

Gail 488 21 10447 Axis

Bank 481 22 10447

Infosys 4051 4 14515 BPCL 725 20 14515


The table above shows the buying and selling of stocks i.e. switching of stocks. As the table shows,

the share of companies like Axis Bank, Gail and Infosys which were not performing well at some

point of the time and thus to protect from the downtrend of these stocks it is important to get out

of these stocks. The money got by selling these stocks has to be invested in other good performing

stocks i.e. Stocks like Yes bank, Axis Bank and BPCL.

40

The return on investment by switching from one stock to another is higher when compared to one

time investment in a portfolio which is depicted by the table on the next page.

Table 6: Returns for Equity Portfolio Management

Company/Index Price (Rs.) No. of shares Return (Rs.)

Nifty Bees 847.19 206 174924

Axis Bank 585.4 22 12710

Yes Bank 882.3 74 65290

BPCL 850.15 35 29755

HCL 1010.75 27 27756

Wipro 561.7 26 14609

TCS 2610.3 13 34758

ITC 327.1 33 10709

L&T 1654.45 6 9146

M&M 1258.1 16 20054

Return on Equity

Portfolio (Rs.) 224787

Difference 49862


Managing equity portfolio by simply switching from one stock to another bullish stock can give

outstanding results. In this case the difference in the return has increased from Rs.7,980 to

Rs.49,862.

With PM (Rs.) Without PM (Rs.) Difference (Rs.) Increase (%)

49862.24 7979.529 41882.71 525%

The increase in the difference in return on NIFTY BeES and stocks has increased by 525% by

managing the portfolio of these 11 equities.

41

5. EQUITY DERIVATIVE MARKET

As Indian securities markets continue to evolve, market participants, investors and regulators are

looking at different ways in which the risk management may be efficiently met through the

introduction of Derivative markets. Through the use of derivative products, it is possible to

partially or fully transfer price risks by locking in asset prices. As instruments of risk management,

these generally do not influence the fluctuations in the underlying asset prices. Derivatives are risk

management instruments, which derive their value form an underlying asset. The underlying asset

can be bullion, index, share, bonds, currency, interest etc. banks, securities firms, companies and

investors to hedge risks, to gain access to cheaper money and to make profit, uses derivatives.

Derivatives are likely to grow even at a faster rate in future. However, the advent of modern day

derivative contracts is attributed to the need for farmers to protect themselves from any decline in

the price of their crops due to delayed monsoon, or overproduction. The first „futures‟ contracts

can be traced to the Yodoya rice market in Osaka, Japan around 1650. These were evidently

standardized contracts, which made them much like today’s futures. The Chicago Board of trade

(CBOT), the largest derivative exchange in the world, was established in 1848 where forward

contracts on various commodities were standardized around 1865. From then on, derivatives have

remained more or less in the same form, as we know them today.

“Derivatives are defined as financial instruments whose value derived from the prices of one or

more other assets such as equity securities, fixed-income securities, foreign currencies, or

commodities. Derivative is also a kind of contract between two counter parties to exchange

payments linked to the prices of underlying assets.”

In the Indian context the Securities Contracts (Regulation) Act, 1956 (SC(R) A) defines

“derivative” to include

1. A security derived from a debt instrument, share, loan whether secured or unsecured, risk

instrument or contract for differences or any other form of security.

2. A contract which derives its value from the prices, or index or prices, of underlying

securities.

42

The above definition conveys that Derivatives are financial products and derive its value from the

underlying assets. Derivatives are derived from a matter financial contract called the underlying.

5.1. Derivative markets

Derivatives markets have been in existence in India in some form or other for a long time. In

the area of commodities, the Bombay Cotton Trade Association started futures trading in 1875

and, by the early 1900s India had one of the world’s largest futures industry. In 1952 the

government banned cash settlement and options trading and derivatives trading shifted to

informal forwards markets. In recent years, government policy has changed, allowing for an

increased role for market-based pricing and less suspicion of derivatives trading. The ban on

futures trading of many commodities was lifted starting in the early 2000s, and national

electronic commodity exchanges were created. In the equity markets, a system of trading

called “Badla” involving some elements of forwards trading had been in existence for

decades. However, the system led to a number of undesirable practices and it was prohibited

off and on till the Securities and Exchange Board of India (SEBI) banned it for good in 2001.

A series of reforms of the stock market between 1993 and 1996 paved the way for the

development of exchange-traded equity derivatives markets in India. In 1993, the government

created the NSE in collaboration with state-owned financial institutions. NSE improved the

efficiency and transparency of the stock markets by offering a fully automated screen-based

trading system and real-time price dissemination. In 1995, a prohibition on trading options

was lifted. In 1996, the NSE sent a proposal to SEBI for listing exchange-traded derivatives.

The report of the L. C. Gupta Committee, set up by SEBI, recommended a phased introduction

of derivative products, and bilevel regulation i.e., self-regulation by exchanges with SEBI

providing a supervisory and advisory role. Another report, by the J. R. Varma Committee in

1998, worked out various operational details such as the margining systems. In 1999, the

Securities Contracts (Regulation) Act of 1956, or SC(R) A, was amended so that derivatives

could be declared “securities.” This allowed the regulatory framework for trading securities

to be extended to derivatives. The Act considers derivatives to be legal and valid, but only if

they are traded on exchanges. Finally, a 30-year ban on forward trading was also lifted in

1999. The economic liberalization of the early nineties facilitated the introduction of

43

derivatives based on interest rates and foreign exchange. A system of market-determined

exchange rates was adopted by India in March 1993. In August 1994, the rupee was made

fully convertible on current account. These reforms allowed increased integration between

domestic and international markets, and created a need to manage currency risk. The use of

derivatives varies by type of institution. Financial institutions, such as banks, have assets and

liabilities of different maturities and in different currencies, and are exposed to different risks

of default from their borrowers. Thus, they are likely to use derivatives on interest rates and

currencies, and derivatives to manage credit risk. Non-financial institutions are regulated

differently from financial institutions, and this affects their incentives to use derivatives.

5.2. The Need for a Derivatives market

The derivatives market performs a number of economic functions:

1. They help in transferring risks from risk averse people to risk oriented people.

2. They help in the discovery of future as well as current prices.

3. They catalyze entrepreneurial activity.

4. They increase the volume traded in markets because of participation of risk

averse people in greater numbers.

5. They increase savings and investment in the long run

5.3. Functions of derivative market

The following are the various functions that are performed by the derivatives markets.

Price in an organized derivatives market reflects the perception of market

participations about the futures and let the prices of underlying to the perceived

future level.

Derivatives market helps to transfer risks from those who have them but may

not like them to those who have an appetite for them.

Derivative trading acts as a catalyst for new entrepreneurial activity.

Derivatives markets help increase savings and investment in the long run.

44

5.4. The Economic Role of Derivatives

5.4.1. Risk Management

The principal benefit of the Derivative market is that it provides the opportunity for

risk management through Hedging. Risk can be defined as “The possibility or

probability of loss”. Derivatives are used to separate risks from traditional instruments

and transfer these risks. The fundamental risks involved in derivatives business

includes following:

Credit Risk is the risk of a counterpart to perform its obligations as per the

contract. Also known as default or counterpart risk, it differs with different

instruments.

Market risk is a risk of financial loss as a result of adverse movements of

prices of the underlying asset.

Liquidity risk is the inability of a firm to arrange a transaction at prevailing

market prices.

Legal risk is the legal aspects associated with the deal.

5.4.2. Price Discovery

The second major function of derivative market is price discovery. This is a process of

providing equilibrium prices that reflect current and prospective demands on current

and prospective supplies and making these prices visible to all.

5.4.3. Transactional Efficiency

Derivative markets allow institution to transact more efficiently than otherwise. They

reduce the direct cost of transacting in cash/financial markets are also provided, through

clearing houses, an efficient mechanism to deal with counter party risk.

45

5.5. The Participants in a Derivatives market

1. Hedgers use futures or options markets to reduce or eliminate the risk

associated with price of an asset.

2. Speculators use futures and options contracts to get extra leverage in betting

on future movements in the price of an asset. They can increase both the

potential gains and potential losses by usage of derivatives in a speculative

venture.

3. Arbitrageurs are in business to take advantage of a discrepancy between prices

in two different markets. For example, they see the futures price of an asset

getting out of line with the cash price, they will take offsetting positions in the

two markets to lock in a profit.

5.6. Factors driving the growth of financial derivatives

1. Increased volatility in asset prices in financial markets

2. Increased integration of national financial markets with the international

markets

3. Marked improvement in communication facilities and sharp decline in their

costs

4. Development of more sophisticated risk management tools, providing

economic agents a wider choice of risk management strategies

5. Innovations in the derivatives markets, which optimally combine the risks and

returns over a large number of financial assets leading to higher returns, reduced

risk as well as transactions costs as compared to individual financial assets.

46

5.7. Types of Derivatives

1. FORWARDS: A forward contract is a customized contract between two

entities, where settlement takes place on a specific date in the future at today‟s

pre-agreed price.

2. FUTURES: A futures contract is an agreement between two parties to buy or

sell an asset at a certain time in the future at a certain price. Futures contracts

are special types of forward contracts in the sense that the former are

standardized exchange-traded contracts.

3. OPTIONS: Options are of two types - calls and puts. Calls give the buyer the

right but not the obligation to buy a given quantity of the underlying asset, at a

given price on or before a given future date. Puts give the buyer the right, but

not the obligation to sell a given quantity of the underlying asset at a given price

on or before a given date.

4. WARRANTS: Options generally have lives of upto one year, the majority of

options traded on options exchanges having a maximum maturity of nine

months. Longer-dated options are called warrants and are generally traded over-

the-counter.

5. LEAPS: The acronym LEAPS means Long-Term Equity Anticipation

Securities. These are options having a maturity of upto three years.

6. BASKETS: Basket options are options on portfolios of underlying assets. The

underlying asset is usually a moving average or a basket of assets. Equity index

options are a form of Basket options.

47

7. SWAPS: Swaps are private agreements between two parties to exchange cash

flows in the future according to a prearranged formula. They can be regarded

as portfolios of forward contracts. The two commonly used swaps are:

Interest Rate Swaps: These entail swapping only the interest related

cash flows between the parties in the same currency.

Currency Swaps: These entail swapping both principal and interest

between the Parties, with the cash flows in one direction being in a

different currency than those in the opposite direction.

8. SWAPTIONS: Swaptions are options to buy or sell a swap that will become

operative at the Expiry of the options. Thus a swaption is an option on a forward

swap. Rather than have Calls and puts, the swaptions market has receiver

swaptions and payer swaptions. A receiver swaption is an option to receive

fixed and pay floating. A payer swaption is an Option to pay fixed and receive

floating.

5.8. EQUITY DERIVATIVES IN INDIA

Equity derivatives market in India has registered an "explosive growth" and is expected to

continue the same in the years to come. Introduced in 2000, financial derivatives market in

India has shown a remarkable growth both in terms of volumes and numbers of traded

contracts. NSE alone accounts for 99 percent of the derivatives trading in Indian markets.

The introduction of derivatives has been well received by stock market players. Trading in

derivatives gained popularity soon after its introduction. In due course, the turnover of the

NSE derivatives market exceeded the turnover of the NSE cash market. For example, in

2008, the value of the NSE derivatives markets was Rs.130, 90,477.75 Cr. whereas the

value of the NSE cash markets was only Rs.35,51,038 Cr, similarly the value of the NSE

equity derivatives markets now i.e. 2015 is Rs.90,442.91 Cr. and the value of equity market

is Rs.5,464.87 Cr.

48

On compare the trading figures of NSE and BSE, performance of BSE is not encouraging

both in terms of volumes and numbers of contracts traded in all product categories. Among

all the products traded on NSE in F& O segment, index options are most popular in terms

of volumes and number of contract traded, followed by stock futures also known as equity

futures with turnover shares of 74.9 percent and 10.69 percent, respectively. In case of

BSE, index options outperform stock options.

5.8.1. Impact of cash market segment on derivative market

The impact of cash market on derivative market can be studied by comparing the

settlement price of derivative instrument i.e. FUTIDX NIFTY with the underlying price

of CNX NIFTY.

Settlement Price:

The settlement price is the average price at which a contract trades, calculated at

both the open and close of each trading day. In derivatives markets, the price used for

determining profit or loss for the day, as well as margin requirements. Additionally, it

is important because it determines whether a trader may be required to post additional

margins. It is generally set by defined procedures that differ slightly among each

exchange and the instrument traded.

Underlying Price:

In derivatives, the security that must be delivered when a derivative contract, such as a

put or call option, is exercised. Whereas in equities, the common stock that must be

delivered when a warrant is exercised, or when a convertible bond or Convertible

preferred share is converted to common stock.

49

Table 7: Details of NIFTY Futures along with the Settlement prices & underlying prices

Date Settle Price Underlying Value No. Of Contracts Open Interest Change in OI

01-Jun-15 8,431.65 8,433.40 3,09,987 1,60,97,875 2,46,850

02-Jun-15 8,225.35 8,236.45 8,29,989 1,61,10,750 12,875

03-Jun-15 8,136.35 8,135.10 5,29,274 1,60,24,700 -86,050

04-Jun-15 8,141.60 8,130.65 4,72,806 1,62,56,250 2,31,550

05-Jun-15 8,114.25 8,114.70 5,40,264 1,63,34,750 78,500

08-Jun-15 8,044.20 8,044.15 3,76,842 1,62,46,550 -88,200

09-Jun-15 8,030.60 8,022.40 3,85,780 1,63,78,950 1,32,400

10-Jun-15 8,120.05 8,124.45 5,17,670 1,54,08,525 -9,70,425

11-Jun-15 7,959.20 7,965.35 6,97,716 1,65,90,775 11,82,250

12-Jun-15 7,978.70 7,982.90 4,07,275 1,66,57,725 66,950

15-Jun-15 8,009.20 8,013.90 5,02,224 1,58,95,775 -7,61,950

Source: NSE Website

The table above shows the details of CNX Nifty Futures Index (FUTIDX) from 1st June, 2015 up

to 15th June, 2015 expiring on 25th June, 2015.

Figure 12: Movement of Underlying Value & Settlement price of FUTIDX Nifty

7400

7600

7800

8000

8200

8400

8600

8800

9000

9200

Underlying Value Settle Price

50

The chart on the previous page shows the movement of daily settlement price and underlying price

in future market. From the graph above it is clear that the settlement price is in and around

underlying prices of FUTIDX.

When we consider the open interest along with the settlement price from the TABLE 1 (Appendix

B), we can observe that the open interest is increasing continuously and the settlement price is

increasing initially indicating that the market is strong but later on the settlement price decreases

indicating that the market is has started weakening.

Table 8: Day-to-day movement of CNX NIFTY

Date Open High Low Close

01-Jun-15 8,450.00 8,484.80 8,421.00 8,431.65

02-Jun-15 8,436.00 8,438.90 8,210.95 8,225.35

03-Jun-15 8,204.70 8,222.00 8,098.70 8,136.35

04-Jun-15 8,137.00 8,164.75 8,055.25 8,141.60

05-Jun-15 8,113.90 8,200.00 8,101.45 8,114.25

08-Jun-15 8,113.00 8,127.75 8,031.35 8,044.20

09-Jun-15 8,024.70 8,064.00 8,001.10 8,030.60

10-Jun-15 8,025.30 8,154.00 8,011.00 8,120.05

11-Jun-15 8,151.35 8,156.00 7,950.00 7,959.20

12-Jun-15 7,949.00 7,994.00 7,931.00 7,978.70

15-Jun-15 7,968.00 8,065.00 7,944.00 8,009.20

Source: NSE Website

The table shows the day-to-day volatility of CNX Nifty Futures index from 1st June, 2015 to 15th

June, 2015. The opening price as well as the closing price was highest on 1st June as seen in the

table above. Similarly when we take CNX Nifty Futures index data from 23rd March, 2015 to 21st

June, 2015 from the TABLE 1 (Appendix B) and plot it we get the chart as shown on the next

page.

51

Figure 13: Volatility in CNX Nifty Futures Source: NSE Website

The above Open-High-Low-Close chart indicates clearly the volatility in the FUTIDX. The candle

sticks in the chart represent the increase and decrease in the settlement prices. The decrease in the

price is represented in colored candle sticks whereas the increase in the price is indicated by simple

uncolored candle sticks. 6th May, 2015 is the day with the highest negative difference between the

opening and the closing or settlement price. Similarly 29th May is the day with highest positive

change.

To understand equity derivatives better let us plot CNX NIFTY FUTURE with CNX NIFTY to

get a broad picture of the performance of the market.

7400

7600

7800

8000

8200

8400

8600

8800

9000

9200

Open High Low Close

52

Figure 14: Price comparison of FUTIDX & CNX Nifty Source: NSE Website

The chart shows the relation between the prices of FUTIDX Nifty and CNX Nifty for the period

of 3 months i.e. 23rd March, 2015 to 21st June, 2015. We can clearly see from the chart that most

of the time the movement of FUTIDX NIFTY accompanied the movement of CNX NIFTY. This

give the clear indication that there is an effect of CNX NIFTY on FUTIDX or vice-versa.

Figure 15: Turnover comparison of FUTIDX & CNX Nifty Source: NSE Website

The chart above shows the relation between the turnover of FUTIDX Nifty and CNX Nifty. As we

can see from the chart that the turnover of CNX NIFTY in the beginning of the 3 months is high

7400

7600

7800

8000

8200

8400

8600

8800

9000

9200

CNX NIFTY FUTIDX NIFTY

0

5000

10000

15000

20000

25000

30000

35000

FUTIDX (Rs. Cr.) CNX NIFTY (Rs. Cr)

53

compared to the FUTIDX NIFTY but in the last month before expiry date the turnover of the

FUTIDX NIFTY is greater than CNX NIFTY. The reason for the higher turnover in the last month

is the decrease in the margin that is required for the day-to-day settlement of the futures.

Figure 16: Spread in FUTIDX NIFTY Source: NSE Website

The chart above shows the relation between the volume of the future traded with the day to day

opening and closing prices of the FUTIDX.

The turnover in the beginning of the month is less but as the expiry date comes nearer the turnover

increases drastically as seen from the figure. There is an increase in the turnover of futures in the

ending of the May month as well as in the beginning of the June month.

The Chart also represents the volatility in the price of futures for the period of 3 months. The

highest positive volatility is on the 30th March, 2015 and the negative volatility is on 6th May, 2015.

7400

7600

7800

8000

8200

8400

8600

8800

9000

9200

0

100000

200000

300000

400000

500000

600000

700000

800000

900000

Volume Open High Low Close

54

Figure 17: Spread in CNX NIFTY Source: NSE Website

The above chart shows the volume traded for 3 months i.e. from 23rd March, 2015 to 21st June,

2015. Along with the volume traded it also represents the volatility in the cash market i.e. CNX

NIFTY. Unlike the futures, the trade in cash market is continuous as seen in the chart.

The continuous trade in cash market is the reason for higher turnover. The volatility in the cash

market is also higher as compared to derivatives which can be seen clearly from the figure above.

7400

7600

7800

8000

8200

8400

8600

8800

9000

0

50000000

100000000

150000000

200000000

250000000

300000000

350000000

400000000

450000000

Volume Open High Low Close

55

Figure 18: Options CE closing price for different strike prices Source: NSE Website

The chart shows the settlement price of two different call options with different strike price of

ST8450 & ST8500.

The reason for choosing these two strike price is the turnover of options at these strike prices.

ST8450 and ST8500 has the highest turnover over the span of 3 months thus making it sensible

to compare them.

The chart also shows that there is not much difference in the settlement price for ST8450 & ST8500

but for the month of April we can find a bit variation in their prices. The higher settlement price

in the 1st month also shows higher expectation of the buyers or investors but with the time the

buyer’s or investor’s expectation decreases as there might be no good information for the investor

or buyer to continue investing.

0

100

200

300

400

500

600

700

Settle Price for ST8450 Settle Price for ST8500

56

Figure 19: Options PE closing price for different strike prices Source: NSE Website

As the call and put options goes in different direction, similarly the expectation of buyers or

investors changes from call option to put option.

When there is no good information in the market the buyer’s or investor’s expectations changes

and thus from call the buyer or investor rely on put option to take advantage of the decreases in

settlement price which is the case shown in the chart above.

The settlement price of both the put options is low in the beginning but with the time the buyer

or investor starts taking the advantage of put options, the settlement price of put options starts

increasing.

0

100

200

300

400

500

600

Settle Price for ST8450 Settle Price for ST8500

57

5.8.2. Prediction of future values for derivative instruments

We often hear market analysts or experienced traders talking about an equity price

nearing a certain support or resistance level, each of which is important because it

represents a point at which a major price movement is expected to occur. But how do

these analysts and professional traders come up with these so-called levels? One of the

most common methods is using pivot points.

There are several different methods for calculating pivot points, the most common of

which is the five-point system which we are going to use for the predicting the

settlement price for next day for FUTIDX NIFTY.

The five-point system includes:

Pivot Point (P): It is simply the average of the high, low and closing prices

from the previous trading day, which is used as an indicator to determine the

overall trend of the market over different time frame.

Support (S1, S2) and Resistance level (R1, R2): Price support and

resistance levels are key trading tools in any market. Their roles may be

interchangeable, depending on whether the price level is approached in an up-

trending or a down-trending market.

58

Table 9: Day-to-day prices of FUTIDX NIFTY

Date Open High Low Close

01-Jun-15 8,450.00 8,484.80 8,421.00 8,431.65

02-Jun-15 8,436.00 8,438.90 8,210.95 8,225.35

03-Jun-15 8,204.70 8,222.00 8,098.70 8,136.35

04-Jun-15 8,137.00 8,164.75 8,055.25 8,141.60

05-Jun-15 8,113.90 8,200.00 8,101.45 8,114.25

08-Jun-15 8,113.00 8,127.75 8,031.35 8,044.20

09-Jun-15 8,024.70 8,064.00 8,001.10 8,030.60

10-Jun-15 8,025.30 8,154.00 8,011.00 8,120.05

11-Jun-15 8,151.35 8,156.00 7,950.00 7,959.20

12-Jun-15 7,949.00 7,994.00 7,931.00 7,978.70

15-Jun-15 7,968.00 8,065.00 7,944.00 8,009.20

Source: NSE Website

The table above shows the day-to-day different prices of CNX Nifty Futures index from

1st June, 2015 to 15th June, 2015.

The previous day's high, low and close, along with two support levels and two

resistance levels (totaling five price points) are needed to derive a pivot point using the

following equations:

R2 = P + ( H – L ) = P + ( R1 – S1 ) where, S = Support level

R1 = ( P x 2 ) – L R = Resistance level

P = ( H + L + C ) / 3 P = Pivot Point

S1 = ( P x 2 ) – H H = High ,L = Low

S2 = P - ( H – L ) = P - ( R1 – S1 ) C = Close

59

Caring out the calculations need for pivot point and arranging it, we get a table which is shown

below

Table 10: Pivot Points for different FUTIDX prices

Date Open High Low Close S2 S1 Pivot Point R1 R2

01-Jun-15 8,450 8,485 8,421 8,432 8,382 8,407 8,446 8,471 8,510

02-Jun-15 8,436 8,439 8,211 8,225 8,064 8,145 8,292 8,373 8,520

03-Jun-15 8,205 8,222 8,099 8,136 8,029 8,083 8,152 8,206 8,276

04-Jun-15 8,137 8,165 8,055 8,142 8,011 8,076 8,121 8,186 8,230

05-Jun-15 8,114 8,200 8,101 8,114 8,040 8,077 8,139 8,176 8,237

08-Jun-15 8,113 8,128 8,031 8,044 7,971 8,008 8,068 8,104 8,164

09-Jun-15 8,025 8,064 8,001 8,031 7,969 8,000 8,032 8,063 8,095

10-Jun-15 8,025 8,154 8,011 8,120 7,952 8,036 8,095 8,179 8,238

11-Jun-15 8,151 8,156 7,950 7,959 7,816 7,887 8,022 8,093 8,228

12-Jun-15 7,949 7,994 7,931 7,979 7,905 7,942 7,968 8,005 8,031

15-Jun-15 7,968 8,065 7,944 8,009 7,885 7,947 8,006 8,068 8,127

Source: NSE Website

The pivot point calculated from the previous day’s high, low & close is compared with the present

day’s open price.

If we see 4th June’s open price and the calculated pivot point, the open price lies between S1 and

Pivot point, which indicates the support level i.e. the market is going to go above the opening price

and thus it is advisable to invest until the price crosses the pivot point i.e. reaching the resistance

level which expects market to go down.

Open Price: 8,137 < Pivot Point: 8,152

Similarly if the market is going down the investor can take the advantage of this information and

can go short, booking profit for the day.

60

For example, if you have gone short at 8420 with different strike price as shown below

Future Price Strike Price Difference Lot Size Profit

8420 8400 20 25 500

8420 8300 120 25 3000

8420 8230 190 25 4750

In the above example, it depends on the investor’s capability to take risk, the higher risk taken the

higher is the return.

The pivot point can also be used for trend analysis as it the average of high, low and close.

Table 11: Comparison of Pivot points & closing prices of FUTIDX

Date Close Pivot Point

01-Jun-15 8,432 8,446

02-Jun-15 8,225 8,292

03-Jun-15 8,136 8,152

04-Jun-15 8,142 8,121

05-Jun-15 8,114 8,139

08-Jun-15 8,044 8,068

09-Jun-15 8,031 8,032

10-Jun-15 8,120 8,095

11-Jun-15 7,959 8,022

12-Jun-15 7,979 7,968

15-Jun-15 8,009 8,006

Source: NSE Website & Calculations

The chart & table shows the trend of the future index market for a period from 1st June, 2015 to

15th June, 2015 similarly we can find the trend for entire 3 months from the TABLE 3 (Appendix

B) as shown on the next page.

7,600

7,700

7,800

7,900

8,000

8,100

8,200

8,300

8,400

8,500

01

-Ju

n-1

5

02

-Ju

n-1

5

03

-Ju

n-1

5

04

-Ju

n-1

5

05

-Ju

n-1

5

06

-Ju

n-1

5

07

-Ju

n-1

5

08

-Ju

n-1

5

09

-Ju

n-1

5

10

-Ju

n-1

5

11

-Ju

n-1

5

12

-Ju

n-1

5

13

-Ju

n-1

5

14

-Ju

n-1

5

15

-Ju

n-1

5

FUTIDX Close Pivot Point Linear (FUTIDX Close)

Figure 20: Trend Analysis of FUTIDX from 1st June, 2015 to 15th June, 2015

61

Figure 21: Trend Analysis of FUTIDX

As seen from the chart, the FUTIDX price and the pivot point are accompanying each other from

the 8,432 point sliding down to 8006 indicating bearish market. Thus pivot points can also be used

as an indicator for market.

7400

7600

7800

8000

8200

8400

8600

8800

9000

9200

Close Pivot Point Linear (Pivot Point)

62

6. FINDINGS

The finding of this study can be divided into two parts i.e. for equity market and for equity

derivatives market.

For equity market:

1. The study suggest that there are various ways through which an investor can

select stocks for investment but a fundamental analysis is a must.

2. From the study it is clear that the return on investment from the 11 identified

stocks is Rs.72,904 whereas return on investment from CNX NIFTY index is

Rs.64,924 for the investment period of 5years. The return on investment from

equity portfolio of 11 stocks is Rs.7980 higher than the return on investment

from NIFTY BeES.

3. The study clearly shows that the return on investment of equity portfolio can be

maximized from Rs.72,904 to Rs.2,24,787 i.e. increase by 208% when

managed through portfolio management.

For equity derivative market:

1. The comparison of FUTIDX NIFTY and CNX NIFTY in the study on the basis

of settlement price and underlying price identifies that equity derivative market

follows equity market.

2. The Open interest along with the settlement price can be used as indicator to

the market as shown in the study.

3. The study was successful in showing that most of the time the movement of

FUTIDX accompanied the movement of the underlying asset price.

4. The turnover in equity derivative market is very high due to high volatility and

quick response to market information.

5. The study confirms that the turnover in the derivative market increases as the

expiry date comes nearer with decrease in the margin.

63

6. The settlement price of derivative instrument as well as stock price of any stock

can be predicted using Pivot point as depicted in the study.

7. Pivot point can also be used as an indicator for market trend i.e. bearish or

bullish.

64

7. CONCLUSION

A well developed, regulated and vibrant securities market provides effective mode of investment

and thereby facilitates economic growth. Over the years India has become more open to invite

capital flows and has experienced various transformations. Persistent reforms in capital market in

order to create enabling environment can go a long way to support economic growth. The growth

of Indian stock market from 2003 reflected the improving macroeconomic fundamentals and

economy of India. However subprime crisis in United States followed by Euro Zone crisis has

given rise to volatility in capital flows in emerging economies including India not withstanding

their internal economic developments.

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

traded derivatives. This reiterates the strength of modern developments in India’s securities

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

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

major role in shaping price discovery. The Indian derivatives market has recorded an impressive

CAGR of 34 per cent, in terms of annual turnover, in the last five years.

This study has empirically provided the information about the equity and equity derivative market.

It has also provided information on selecting stocks for investment through the 11 steps. While

investing it is important to understand the importance of portfolio management for maximum

returns. The result of the study showed the fact that the strike price reacts to the index price. The

analysis presented in this study has implications to know the terminology and technical analysis

of the market efficiency.

From the findings of this study, it clearly states that the returns in strike prices are same as

movement in the settlement period. Pivot points can be used to know the level at which the investor

is going to take a decision for buying and selling of the instruments. This study further provide

better scope for doing research study in the areas of equity and equity derivative market and their

effects on each other.

APPENDICES

APPENDIX A

TABLE 1

NET PROFIT OF CNX NIFTY COMPANIES FOR FY 2014-15 AND THEIR ANNUALIZED

PROFIT IN PERCENTAGE

Company Net Profit

(Rs. Cr) Mar-14 Mar-13 Mar-12 Mar-11

ACC 1168.29 7% 3% -20% 18%

Ambuja Cement 1496.36 16% 0% 6% -3%

Asian Paints 1169.06 14% 11% 10% 24%

Axis Bank 6217.66 18% 20% 22% 25%

Bajaj Auto 3,243.32 7% 1% -10% 96%

Bank of Baroda 3398.44 -25% 1% -11% 18%

Bharti Airtel 6600.2 30% -11% -26% -18%

BHEL 3,460.78 -48% -6% 17% 39%

BOSCH 884.7 -8% -15% 31% 45%

BPCL 4060.88 54% 102% -15% 1%

Cairn India 7,454.33 -82% -49% 33446% -121%

Cipla 1,388.34 -8% 34% 17% -11%

Coal India 15,008.54 53% 21% 72% 24%

Dr. Reddy Labs 1,932.80 53% 39% 2% 6%

GAIL India 4,375.27 9% 10% 3% 13%

Grasim Industries 895.99 -27% 4% 0% -44%

HCL Technologies Ltd. 5,984.62 62% 90% 63% 13%

HDFC 5,440.24 10% 12% 18% 17%

HDFC Bank 8,478.38 20% 26% 30% 32%

Hero Motocorp 2,109.08 0% -11% 23% -14%

Hindalco 1,413.33 -17% -24% 5% 12%

Hindustan Unilever Ltd. 4,315.26 12% 2% 41% 17%

ICICI Bank 11,175.35 14% 18% 29% 26%

Idea Cellular 1,689.31 106% 42% -32% -20%

IndusInd Bank 1408.02 33% 32% 39% 65%

Infosys Limited 12,164.00 19% 12% 8% 31%

ITC Limited 8,785.21 9% 18% 20% 24%

Kotak Mahindra Bank 1,865.98 24% 10% 25% 33%

Larsen &Toubro 5,493.13 12% 10% 13% -10%

Lupin 2,324.22 84% 57% -1% 25%

M&M 3,758.35 12% 16% 8% 28%

Maruti Suzuki 2,783.00 16% 46% -29% -8%

NMDC 6,420.08 1% -13% 12% 89%

NTPC 10,974.74 -13% 37% 1% 4%

ONGC 22,094.81 6% -17% 33% 13%

Punjab National Bank 3,061.58 -8% -30% -3% 10%

Power Grid Corporation 4,497.42 6% 30% -163% -355%

Reliance Industries 22,719.00 3% 5% 5% -1%

State Bank of India 13,101.57 20% -23% 20% 59%

Sun Pharmaceutical

Industries -2,828.52 -648% -70% 23% 54%

Tata Motors 334.52 11% -76% -31% -19%

Tata Power 954.08 -7% -12% 24% -1%

Tata Steel 6,412.19 27% -24% -2% 36%

Tata Consultancy Services 18,474.92 4% 44% 16% 45%

Tech Mahindra 2,685.50 312% 42% -34% -6%

UltraTech Cement 2,144.47 -19% 9% 74% 28%

Vedanta 1,927.20 79% 791% -93% -51%

Wipro limited 7,387.40 11% 31% 21% -3%

Yes Bank 2,005.36 24% 24% 33% 34%

Zee Entertainment

Enterprises 772.3 8% 21% 31% -15%

Colors:

Negative Growth

Annual Profit less than 10%

TABLE 2

IMPORTANT RATIOS OF SELECTED COMPANIES

Company

Operating

Margin

Ratio

ROCE

(%)

RONW

(%)

Debt/Equity

Ratio

Dividend

(RS.Cr)

P/E

Ratio

P/BV

Ratio

Dividend

Yield

(%)

Axis Bank 0.10 15.2 17.43 0.06 778.25 17.69 3.4 0.83

BPCL 3.10 18.24 22.5 1.22 1032.66 12.18 2.52 2.6

Dr. Reddy Labs 28.38 23.08 22.59 0.28 306.2 34.68 5.29 0.51

GAIL India 11.65 18.58 17.06 0.38 1319.21 16.14 1.63 2.69

HCL Technologies

Ltd. 44.31 52.52 46.06 0.05 700.27 18.97 8.31 1.07

HDFC 97.11 11.66 20.61 6.5 2184 33.96 5.99 1.16

HDFC Bank 0.15 21.53 21.28 0.07 1643.35 24.89 4.73 0.68

Hindustan Unilever

Ltd. 16.90 122.78 130.01 0 3245.32 41.62 54.78 1.57

ICICI Bank 0.15 10.64 14.02 4.5 2898.81 16.34 2.49 1.46

IndusInd Bank 0.09 15.2 17.53 0.07 184.07 24.72 4.91 0.47

Infosys Limited 0.29 37.12 26.98 0 5111 19 4.81 2.96

ITC Limited 37.47 51.94 36.27 0 4771.91 25.42 9.29 1.97

Kotak Mahindra

Bank 0.09 14.57 13.82 0.05 82.07 69.64 9.14 0.06

Larsen &Toubro 11.77 18.2 15.55 0.32 1320.85 30.95 4.65 0.85

Lupin 32.57 49.36 39.31 0.07 269.1 33.24 11.42 0.34

M&M 11.65 22.63 23.92 0.24 862.25 22.54 3.72 1.16

Tata Consultancy

Services 33.29 53.73 43.05 0 6267.33 26.17 11.44 1.24

Wipro limited 23.50 30.8 27.57 0.16 1973.6 16.76 4.68 1.44

Yes Bank 0.1 14.4 21.33 0.06 375.96 17.07 2.94 1.09

Zee Entertainment

Enterprises 33.53 32.06 28.8 0 192.9 39.12 11.61 0.59

APPENDIX B

TABLE 1

FUTIDX NIFTY PERFORMANCE FROM 23rd March, 2015 to 21st June, 2015

Date Underlying

Value

Settle

Price Open High Low Close Volume

Open

Interest

27-Mar-15 8341.4 8529.1 8545 8576 8460 8529.1 7069 95150

30-Mar-15 8492.3 8645.65 8515.15 8659 8515.15 8645.65 2774 119525

31-Mar-15 8491 8618.6 8667.1 8686.25 8582.15 8618.6 4404 170500

01-Apr-15 8586.25 8716.7 8607.5 8724.95 8596 8716.7 6218 234225

06-Apr-15 8659.9 8769.9 8720 8777 8689 8769.9 2343 254000

07-Apr-15 8660.3 8788.9 8789 8812.5 8700 8788.9 5098 270900

08-Apr-15 8714.4 8838.25 8814.9 8852.55 8795 8838.25 2879 279900

09-Apr-15 8778.3 8886.85 8859 8897 8795 8886.85 2334 276125

10-Apr-15 8780.35 8888.6 8880 8898 8847.95 8888.6 2731 273750

13-Apr-15 8834 8933.05 8882.8 8948 8868.25 8933.05 3329 272550

15-Apr-15 8750.2 8867.4 8919.8 8948.7 8836 8867.4 3735 286525

16-Apr-15 8706.7 8807.55 8860.35 8860.35 8756.55 8807.55 3723 286950

17-Apr-15 8606 8724.65 8790 8803.65 8713 8724.65 2577 299800

20-Apr-15 8448.1 8563.55 8710.05 8713 8538.05 8563.55 6602 345075

21-Apr-15 8377.75 8499.95 8565 8593.75 8470.35 8499.95 5487 353775

22-Apr-15 8429.7 8549.7 8520 8574.95 8395 8549.7 7760 394250

23-Apr-15 8398.3 8491.6 8560 8614.95 8455 8491.6 6497 416875

24-Apr-15 8305.25 8412.2 8485.55 8485.55 8370 8412.2 5891 426200

27-Apr-15 8213.8 8313.75 8409 8431 8302.5 8313.75 7954 478825

28-Apr-15 8285.6 8384.9 8313 8409.95 8282.4 8384.9 9917 539175

29-Apr-15 8239.75 8330.45 8350.2 8409.85 8315 8330.45 9338 594900

30-Apr-15 8181.5 8275.3 8315 8315 8233.35 8275.3 13658 719975

04-May-15 8331.95 8404.85 8291.8 8419 8287 8404.85 11446 763175

05-May-15 8324.8 8393.8 8392 8428.8 8341.1 8393.8 8880 811975

06-May-15 8097 8153.75 8370 8380.05 8142.85 8153.75 22811 940050

07-May-15 8057.3 8113.4 8119.65 8180 8051.3 8113.4 21721 1091875

08-May-15 8191.5 8240.25 8159.55 8275.25 8159.55 8240.25 17022 1130975

11-May-15 8325.25 8372.45 8285 8385 8273 8372.45 18649 1258250

12-May-15 8126.95 8160.4 8350.05 8352.05 8148.35 8160.4 28112 1452400

13-May-15 8235.45 8278.35 8199 8307 8126.1 8278.35 28429 1520525

14-May-15 8224.2 8264.8 8265.05 8279 8172 8264.8 20036 1598675

15-May-15 8262.35 8286.25 8280 8322.2 8240 8286.25 18248 1679750

18-May-15 8373.65 8399.3 8305 8410.8 8291.6 8399.3 26726 1858875

19-May-15 8365.65 8394.8 8371.25 8461.95 8352.55 8394.8 35934 2042050

20-May-15 8423.25 8449.45 8409 8474 8408.95 8449.45 30344 2107000

21-May-15 8421 8440.6 8472.7 8472.7 8407 8440.6 42119 2513425

22-May-15 8458.95 8476.5 8437 8512.65 8436.8 8476.5 104823 3783475

25-May-15 8370.25 8389.3 8450 8470 8380 8389.3 99996 4464750

26-May-15 8339.35 8355.35 8390 8390.5 8330 8355.35 152116 6563975

27-May-15 8334.6 8349.2 8324.4 8362 8291.45 8349.2 282326 10164475

28-May-15 8319 8318.55 8360 8376 8275.5 8318.55 375191 12973375

29-May-15 8433.65 8458.65 8324 8472 8308.5 8458.65 680534 15851025

01-Jun-15 8433.4 8431.65 8450 8484.8 8421 8431.65 309987 16097875

02-Jun-15 8236.45 8225.35 8436 8438.9 8210.95 8225.35 829989 16110750

03-Jun-15 8135.1 8136.35 8204.7 8222 8098.7 8136.35 529274 16024700

04-Jun-15 8130.65 8141.6 8137 8164.75 8055.25 8141.6 472806 16256250

05-Jun-15 8114.7 8114.25 8113.9 8200 8101.45 8114.25 540264 16334750

08-Jun-15 8044.15 8044.2 8113 8127.75 8031.35 8044.2 376842 16246550

09-Jun-15 8022.4 8030.6 8024.7 8064 8001.1 8030.6 385780 16378950

10-Jun-15 8124.45 8120.05 8025.3 8154 8011 8120.05 517670 15408525

11-Jun-15 7965.35 7959.2 8151.35 8156 7950 7959.2 697716 16590775

12-Jun-15 7982.9 7978.7 7949 7994 7931 7978.7 407275 16657725

15-Jun-15 8013.9 8009.2 7968 8065 7944 8009.2 502224 15895775

16-Jun-15 8047.3 8047 7988 8063.8 7946.25 8047 448623 15549575

17-Jun-15 8091.55 8079.05 8095.15 8127 8042.1 8079.05 538588 15644450

18-Jun-15 8174.6 8157.55 8099 8178.7 8089.45 8157.55 547889 15873475

19-Jun-15 8224.95 8237.6 8181 8250.25 8181 8237.6 457277 15013975

TABLE 2

TURNOVER OF FUTIDX NIFTY & CNX NIFTY FROM 23rd March, 2015 to 21st June, 2015

Date FUTIDX (Rs. Cr.) CNX NIFTY (Rs. Cr)

27-Mar-15 150.7259 9528.86

30-Mar-15 59.5433 6713.2

31-Mar-15 95.2031 8108.36

01-Apr-15 134.6732 6863.03

06-Apr-15 51.1364 7633

07-Apr-15 111.7667 7287.01

08-Apr-15 63.5378 7889.65

09-Apr-15 51.6347 8391.19

10-Apr-15 60.5798 7119.96

13-Apr-15 74.1488 6242.71

15-Apr-15 83.2412 8908.26

16-Apr-15 81.9538 8268.33

17-Apr-15 56.4144 9134.37

20-Apr-15 142.4361 8930.38

21-Apr-15 117.1068 32873.45

22-Apr-15 164.7253 10002.48

23-Apr-15 138.3847 9801.34

24-Apr-15 124.1089 10984.24

27-Apr-15 166.0142 10143.36

28-Apr-15 206.5431 9560.13

29-Apr-15 195.023 8571.95

30-Apr-15 282.2449 14755.35

04-May-15 239.2168 7856.18

05-May-15 186.1571 8138.54

06-May-15 468.322 10894.12

07-May-15 440.6877 8443.96

08-May-15 350.3814 8961.33

11-May-15 389.1215 8396.12

12-May-15 576.8568 8779.53

13-May-15 585.1176 8391.93

14-May-15 412.2385 6763.72

15-May-15 377.9824 6463.64

18-May-15 557.9638 7459.18

19-May-15 754.7442 7266.52

20-May-15 641.2933 6151.44

21-May-15 888.2206 7641.6

22-May-15 2222.609 8261.69

25-May-15 2105.609 5555.29

26-May-15 3178.486 5908.3

27-May-15 5880.796 8131.59

28-May-15 7802.55 11449.91

29-May-15 14321.57 20736.2

01-Jun-15 6547.648 7254.01

02-Jun-15 17251.27 8083.17

03-Jun-15 10787.64 7920.26

04-Jun-15 9596.199 7560.49

05-Jun-15 11000.72 7588.4

08-Jun-15 7596.738 6230.61

09-Jun-15 7745.701 6442.05

10-Jun-15 10489.35 6790.27

11-Jun-15 14005.81 7868.44

12-Jun-15 8109.358 6737.25

15-Jun-15 10058.82 6129.12

16-Jun-15 8968.709 5923.8

17-Jun-15 10879.91 7878.66

18-Jun-15 11164 7767.77

19-Jun-15 9396.209 7722.05

TABLE 3

PIVOT POINTS FOR DIFFERENT FUTIDX PRICES

Date Open High Low Close S2 S1 Pivot

Point R1 R2

27-Mar-15 8545.0 8576.0 8460.0 8529.1 8405.7 8467.4 8521.7 8583.4 8637.7

30-Mar-15 8515.2 8659.0 8515.2 8645.7 8462.8 8554.2 8606.6 8698.1 8750.5

31-Mar-15 8667.1 8686.3 8582.2 8618.6 8524.9 8571.8 8629.0 8675.9 8733.1

01-Apr-15 8607.5 8725.0 8596.0 8716.7 8550.3 8633.5 8679.2 8762.4 8808.2

06-Apr-15 8720.0 8777.0 8689.0 8769.9 8657.3 8713.6 8745.3 8801.6 8833.3

07-Apr-15 8789.0 8812.5 8700.0 8788.9 8654.6 8721.8 8767.1 8834.3 8879.6

08-Apr-15 8814.9 8852.6 8795.0 8838.3 8771.1 8804.7 8828.6 8862.2 8886.2

09-Apr-15 8859.0 8897.0 8795.0 8886.9 8757.6 8822.2 8859.6 8924.2 8961.6

10-Apr-15 8880.0 8898.0 8848.0 8888.6 8828.1 8858.4 8878.2 8908.4 8928.2

13-Apr-15 8882.8 8948.0 8868.3 8933.1 8836.7 8884.9 8916.4 8964.6 8996.2

15-Apr-15 8919.8 8948.7 8836.0 8867.4 8771.3 8819.4 8884.0 8932.1 8996.7

16-Apr-15 8860.4 8860.4 8756.6 8807.6 8704.4 8756.0 8808.2 8859.8 8912.0

17-Apr-15 8790.0 8803.7 8713.0 8724.7 8656.5 8690.6 8747.1 8781.2 8837.8

20-Apr-15 8710.1 8713.0 8538.1 8563.6 8429.9 8496.7 8604.9 8671.7 8779.8

21-Apr-15 8565.0 8593.8 8470.4 8500.0 8398.0 8449.0 8521.4 8572.4 8644.8

22-Apr-15 8520.0 8575.0 8395.0 8549.7 8326.6 8438.2 8506.6 8618.1 8686.5

23-Apr-15 8560.0 8615.0 8455.0 8491.6 8360.6 8426.1 8520.5 8586.0 8680.5

24-Apr-15 8485.6 8485.6 8370.0 8412.2 8307.0 8359.6 8422.6 8475.2 8538.1

27-Apr-15 8409.0 8431.0 8302.5 8313.8 8220.6 8267.2 8349.1 8395.7 8477.6

28-Apr-15 8313.0 8410.0 8282.4 8384.9 8231.5 8308.2 8359.1 8435.8 8486.6

29-Apr-15 8350.2 8409.9 8315.0 8330.5 8256.9 8293.7 8351.8 8388.5 8446.6

30-Apr-15 8315.0 8315.0 8233.4 8275.3 8192.9 8234.1 8274.6 8315.8 8356.2

04-May-15 8291.8 8419.0 8287.0 8404.9 8238.3 8321.6 8370.3 8453.6 8502.3

05-May-15 8392.0 8428.8 8341.1 8393.8 8300.2 8347.0 8387.9 8434.7 8475.6

06-May-15 8370.0 8380.1 8142.9 8153.8 7988.4 8071.1 8225.6 8308.3 8462.8

07-May-15 8119.7 8180.0 8051.3 8113.4 7986.2 8049.8 8114.9 8178.5 8243.6

08-May-15 8159.6 8275.3 8159.6 8240.3 8109.3 8174.8 8225.0 8290.5 8340.7

11-May-15 8285.0 8385.0 8273.0 8372.5 8231.5 8302.0 8343.5 8414.0 8455.5

12-May-15 8350.1 8352.1 8148.4 8160.4 8016.6 8088.5 8220.3 8292.2 8424.0

13-May-15 8199.0 8307.0 8126.1 8278.4 8056.3 8167.3 8237.2 8348.2 8418.1

14-May-15 8265.1 8279.0 8172.0 8264.8 8131.6 8198.2 8238.6 8305.2 8345.6

15-May-15 8280.0 8322.2 8240.0 8286.3 8200.6 8243.4 8282.8 8325.6 8365.0

18-May-15 8305.0 8410.8 8291.6 8399.3 8248.0 8323.7 8367.2 8442.9 8486.4

19-May-15 8371.3 8462.0 8352.6 8394.8 8293.7 8344.3 8403.1 8453.7 8512.5

20-May-15 8409.0 8474.0 8409.0 8449.5 8379.1 8414.3 8444.1 8479.3 8509.2

21-May-15 8472.7 8472.7 8407.0 8440.6 8374.4 8407.5 8440.1 8473.2 8505.8

22-May-15 8437.0 8512.7 8436.8 8476.5 8399.5 8438.0 8475.3 8513.8 8551.2

25-May-15 8450.0 8470.0 8380.0 8389.3 8323.1 8356.2 8413.1 8446.2 8503.1

26-May-15 8390.0 8390.5 8330.0 8355.4 8298.1 8326.7 8358.6 8387.2 8419.1

27-May-15 8324.4 8362.0 8291.5 8349.2 8263.7 8306.4 8334.2 8377.0 8404.8

28-May-15 8360.0 8376.0 8275.5 8318.6 8222.9 8270.7 8323.4 8371.2 8423.9

29-May-15 8324.0 8472.0 8308.5 8458.7 8249.6 8354.1 8413.1 8517.6 8576.6

01-Jun-15 8450.0 8484.8 8421.0 8431.7 8382.0 8406.8 8445.8 8470.6 8509.6

02-Jun-15 8436.0 8438.9 8211.0 8225.4 8063.8 8144.6 8291.7 8372.5 8519.7

03-Jun-15 8204.7 8222.0 8098.7 8136.4 8029.1 8082.7 8152.4 8206.0 8275.7

04-Jun-15 8137.0 8164.8 8055.3 8141.6 8011.0 8076.3 8120.5 8185.8 8230.0

05-Jun-15 8113.9 8200.0 8101.5 8114.3 8040.0 8077.1 8138.6 8175.7 8237.1

08-Jun-15 8113.0 8127.8 8031.4 8044.2 7971.4 8007.8 8067.8 8104.2 8164.2

09-Jun-15 8024.7 8064.0 8001.1 8030.6 7969.0 7999.8 8031.9 8062.7 8094.8

10-Jun-15 8025.3 8154.0 8011.0 8120.1 7952.0 8036.0 8095.0 8179.0 8238.0

11-Jun-15 8151.4 8156.0 7950.0 7959.2 7815.7 7887.5 8021.7 8093.5 8227.7

12-Jun-15 7949.0 7994.0 7931.0 7978.7 7904.9 7941.8 7967.9 8004.8 8030.9

15-Jun-15 7968.0 8065.0 7944.0 8009.2 7885.1 7947.1 8006.1 8068.1 8127.1

16-Jun-15 7988.0 8063.8 7946.3 8047.0 7901.5 7974.2 8019.0 8091.8 8136.6

17-Jun-15 8095.2 8127.0 8042.1 8079.1 7997.8 8038.4 8082.7 8123.3 8167.6

18-Jun-15 8099.0 8178.7 8089.5 8157.6 8052.7 8105.1 8141.9 8194.4 8231.2

19-Jun-15 8181.0 8250.3 8181.0 8237.6 8153.7 8195.7 8223.0 8264.9 8292.2

BIBILOGRAPHY

R. Stafford Johnson (2009), Introduction to derivatives: Options, futures and swaps (1st

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Citigroup, “Bringing equity derivative into focus” (2004). Available from URL:

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http://www.nseindia.com

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http://www.moneycontrol.com

http://www.karvyonline.com

http://www.investopedia.com

http://www.karvy.com/

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http://www.nseindia.com/

http://www.bseindia.com/

http://www.capiataline.in/

http://www.moneycontrol.com/

http://www.karvyonline.com/

http://www.investopedia.com/

Economy & Finance

A study on equity & equity derivative indian securities market