CHAPTER-1

INTRODUCTION

INTRODUCTION

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

1.1.1 OVERVIEW
Derivatives:
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.
Definition:
In the Indian context the Securities Contracts (Regulation) Act, 1956 (SC(R)A) defines
derivative to include1. A security derived from a debt instrument, share, loan whether secured or unsecured,
risk instrument or contract for differences or any other from of security.
2. A contract which derives its value from the prices, or index or prices, of underlying
securities
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.

1.3 NEED OF THE STUDY

The present study on Derivative futures is very much appreciable on the grounds that
it gives deep insights about the stock futures market. It would be essential for the perfect way of
trading in stock futures. The study elucidates the role of derivative futures in Indian financial
markets.
Studies of this type are more useful to academicians and scholars to make further
insights into the various aspects of derivative futures in similar organizations.
An investor can choose the right underlying for investment, which is risk free. The
study included the changes in daily price movement and buying and selling signals to the
selected stocks. These helps the investor to take right decisions regarding trading in derivative
stock futures.

1.4 SIGNIFICACNC OF STUDY

1.4.1 RESERCH PROBLEMS
The Methodology of the study consists of

Source of data collection

Statistical tool

Data Analysis

Source of data collection:

The data had been collected through Primary and Secondary sources.
Primary sources:
The data had been collected through project guide and staff of the Company.
Secondary sources:
The data had been collected through Books, Journals and Websites.

Statistical tool:
The data collected from the above sources have been analyzed through Moving Average
Method, which is one of the popular statistical tool in technical analysis is considered for the
study. To examine the underlying trend by smoothing of the data and to provide the Buy and Sell
signals to the selected stocks this method serves the best.
Moving averages are used along with the price of the scrip. The stock price
may intersect the moving average at a particular point. Downward penetration of
the rising average indicates the possibility of a further fall and gives sell
signal. Upward penetration of the falling average would indicate the possibility
of the further rise and gives the buy signal.

1.4.2 REASERCH GOALS

The limitations of the study are:
1. The study is confined to only two weeks trading of JAN month contract.
2. The study is limited by time and cost factors.
3. The sample size chosen is limited to stock futures of ten underlying scrips.
4. The limited period of study may not be detailed and full-fledged in all aspects.

1.5 OBJECTIVES OF THE STUDY

The following are the major objectives of the study.
1. To present a theoretical framework relating to derivative market in India.
2. To observe the daily price movement of selected stock futures.
3. To identify the buying and selling signals to the selected scripts.
4. To observe the daily price movement of Nifty Index Futures.
5. To offer suggestions based on the findings to the study.

1.6 SCOPE OF STUDY:

The present study is designed to make an effort to understand the Derivatives market.
With the help of stock prices and moving averages of different companies. So as to determine the
financial position of the companies.
This report is compiled result of the information gathered during the project duration
period at Data Churn Financial services. The project is mainly based on the study stock prices so
as so suggest when to buy or sell the shares.

1.7 PERIOD OF STUDY********************

1.7.1 ANYLISES PERIOD************
1.7.2 PROJECT DURSTION 45DAYS*********
1.8 HYPOTHESIS
HYPOTHESIS is to Test the significance difference between pre and post merger net
profit margin
H0 (Null Hypothesis) There is no significance difference between the pre and post merger
performance in terms of gross profit margin, net profit margin, return on capital employed, return
on net worth and debt equity ratio.
H1 (Alternative Hypothesis) There is significance difference between the pre and post merger
performance in terms of gross profit margin, net profit margin, return on capital employed, return
on net worth and debt equity ratio. The financial and accounting data of companies are collected
from companys annual report to examine the impact of M&A on the performance of the sample
companies. Financial data has been collected from BSE, NSE, SEBI and money control for the
study. To test the research prediction, methodology of comparing the pre and post performance of
companies after merger and acquisition has been adopted by using following financial
parameters i.e. ratio analysis.

1.9 SAMPLE DESIGN

Sample Design: This paper is focused on the determinants of derivative structure in Tata
Capital and has a case study approach. The companies considered for study in the paper are Tata
Capitals.

1.10 DATA COLLECTION

1.10.1
The data had been collected through Primary and Secondary sources.
Primary sources:
The data had been collected through project guide and staff of the Company.

1.10.2
Secondary sources:
The data had been collected through Books, Journals and Websites.

1.13 LIMATIONS OF STUDY

The limitations of the study are:

1. The study is confined to only two weeks trading of JAN month contract.
2. The study is limited by time and cost factors.
3. The sample size chosen is limited to stock futures of ten underlying scrips.
The limited period of study may not be detailed and full-fledged in all aspects

1.1.2 INDUSTRY OVERVIEW

As capital market operations is a complex activity which require an in depth knowledge

of stock market and about the company performance, security analysis of the stock. A full time
practicing firm/person is needed to advise for our investment; in fact a broker can also invest his
own money to make profit out of stock market operations.
A stockbroker invests in the stock market for individuals or corporations so whenever
individuals or corporations want to buy or sell stocks they must go through a brokerage house.
Stockbrokers often advise and counsel their clients on appropriate investments. Brokers explain
the workings of the stock exchange to their clients and gather information from them about their
needs and financial ability, and then determine the best investments for them. The broker then
sends the order out to the floor of the securities exchange by computer or by phone. When the
transaction has been made, the broker supplies the client with the price. The buyer pays for the
stock and the broker transfers the title of the stock to the client and performs clearing and
settlement procedures. The settlement process is discussed in subsequent pages. The beginning
stockbrokers first priority is learning the market. One broker said, First you have to decide
whether you have an interest in the stock market. This will determine how well you will do. If
you are just interested in making money you wont get very far. Stockbrokers spend their time
in a fast-paced office, usually working from nine to five, unless they are just starting out or have
to meet with clients. The new broker spends many hours on the phone building up a client base.
Sometimes brokers teach financial education classes to expose themselves to potential investors
who may then become their clients.
Brokerage clerks handle much of the day-to-day operations of brokerages, performing a
number of different jobs with a wide range of responsibilities; all involve computing and
recording data pertaining to securities transactions.
Brokerage clerks also may contact customers, take orders, and inform clients of changes
to their accounts. Some of these jobs are more clerical. Brokerage clerks, who work in the
operations departments of securities firms, on trading floors, and in branch offices, also are
called margin clerks, dividend clerks, transfer clerks, and brokers assistants.

Brokerage clerks in the operations areas of securities firms perform many duties to
facilitate the sale and purchase of stocks, bonds, commodities, and other kinds of investments.
These clerks produce the necessary records of all transactions that occur in their area of the
business.

Job titles for many of them depend upon the type of work that they perform.

Purchase-and-sale clerks, for example, match orders to buy with orders to sell. They balance and
verify trades of stock by comparing the records of the selling firm with those of the buying firm.
Dividend clerks ensure timely payments of stock or cash dividends to clients of a particular
brokerage firm. Transfer clerks execute customer requests for changes to security registration
and examine stock certificates to make sure that they adhere to banking regulations. Receiveand-deliver clerks facilitate the receipt and delivery of securities among firms and institutions.
Margin clerks record and monitor activity in customers accounts to ensure that clients make
payments and stay within legal boundaries concerning their purchases of stock.
Technology is changing the nature of many of these jobs. A significant and growing
number of brokerage clerks use custom-designed software programs to process transactions more
quickly. Only a few customized accounts are still handled manually. Furthermore, the rapid
expansion of online trading reduces the amount of paperwork because brokerage clerks are able
to make trades electronically.

Stockbroker and the investor:

The stockbroker should provide adequate information regarding the stocks. He should
be capable of giving short term and long-term investment suggestions to the investor and able to
confirm the purchase and sale of securities quickly. He should have adequate experience in the
market to take correct decision. He should have contact with other stock exchanges to execute
the orders profitably and also offer incidental service like arranging for financing the clients
transaction.

Types of stockbrokers
The stock brokers the key players in secondary market. There are various categories
of brokers as stated below.

Floor Brokers: They are representatives of the brokers, who enter the trading floor and
execute orders for their clients of for members.

Commission Broker: A commission broker is a broker who buys and sells securities on
behalf of his clients for a commission. He does not purchase or sell his own name. A
broker act for the large number of his clients, and therefore, he deals in a large variety of
securities.

Jobbers: A jobber is an independent broker who deals in securities as a owner, keeps

them for a very short period and sells them for profit known as the jobbers turn.
Thus a jobber does not work for commission but works for profits. A jobber
transacts in the market for quick returns. In the London Stock Exchange even member
has to act as a broker or as a jobber. In India, there is no such rigid classification.

Badla Financiers/Badliwallas: Badliwallas are the intermediaries who finance the

forward deals in specified securities in return for interest. This interest is called Badla
rate.

Arbitragers: They are brokers who buy securities in one market and sell them in another
market to take the advantages of the price differences prevailing in different markets for
same scripts.

Wolves: They are clever speculators. They perceive the changing trends in the market
and trade fast and make a fast duck.

Buying and selling of shares:

To buy and sell the script the investor has to locate register broker or a sub broker who
render prompt and efficient services to him. The order to buy of sell specified number of
scrip of the company of investors choice ate laced with the broker, the order may be of any of
the below mentions type after receiving the order the broker tries to execute the order in his

computer terminal. Once matching order is found, the order is executed. The broker delivers
the contract note.
To the investor, it gives the details regarding the name of the company,
number of scripts bought, price, brokerage, and the date of delivery of share. In the physical
trading form, once the broker gets the script certificate through the clearing houses the stock
broker delivers the share certificate along with transfer deed to the investor. The investor has
to fill the transfer deed and stamp it. The stamp duty is one of the percentage consideration,
the investor should lodge the share certificate and transfer deed to the register or transfer
agent of the company if it is bought in the demit form the broker has to give a matching
instruction to his depository participant to transfer shares bought to the investor account. The
investor should be account holder in any of depository participant. In the case of sell of
shares on receiving payment from the purchasing broker, the broker effects the payment to the
investor

Orders:
Buy and sell orders placed with members of the stock exchange by the investor. The
broker is responsible for getting the best price for his customer at the time the order is placed.

Online Trading:
The Net is used as a medium of trading in Internet trading. Orders are communicated to
the stock exchange through website. Internet trading started in India on 1 st April 2000 with 79
members seeking permission for online trading.

The SEBI committees on Internet based

securities trading services trading services has allowed the net to be used as an Order Routing
System (ORS) through registered stock brokers on behalf of their clients for execution of
transaction.
The user should have the user id and password to enter into the electronic ring. He
should also have a demat account and bank account. The system permits only a registered client
to log in using user ID and password. Order can be placed using place order window of the
website.

 The client has to enter stock code and other parameters such as quantity and price of the
scrip on the place order window.
The client can review the order placed by clicking the review option. He can also reset to
clear the values
Satisfactory orders are sent by clicking the send option.
The client receives an order confirmation message with order number and value of the
order.
If the order is rejected by the broker or stock exchange of r certain reasons such as invalid
price limit, a related message appears at the bottom of the screen. The time taken to
execute the order is 10 seconds.
When the trade is executed, the broker asks for the transfer of funds by the investor to his
account.

Stocks are credited/debited according to the buy/sell order in the demat

accounts.

Regulatory Framework
The securities and Exchange Board of India was constituted in 1998 under a resolution of
government of India. It was later made statutory body by the SEBI act 1992. According to this
act, the SEBI shall constitute of a chairman and five other members appointed by the central
government with the coming into effect of the Securities and Exchange Board of India act, 1992.
Some of the power and functions exercised by the central government, in respect of the
regulation of stock exchange were transferred to the SEBI.

Objects and functions of SEBI:

I. To protect the interest of investors in securities.
II. Regulation the business in stock exchange and any other securities market.
III. Registering and regulation the working of intermediaries associated with securities
market as well as working of mutual fund.

IV. Promoting and regulating self-regulating organizations.

V. Prohibiting insides trading in securities.
VI. Regulation substantial acquisition of share and take over of companies.
VII. Performing such functions and exercising such powers under the provisions of capital
issues (control) act, 1947 and the securities to it by the central government.

Securities and Exchange Board of India (Stock Brokers And Sub-Brokers)

Regulations, 1992,

New Membership -CM and F&O segment

Eligibility
The following persons are eligible to seek membership of the Exchange as Trading
Members (Brokers):
a. Individuals
b. Partnership Firms registered under the Indian Partnership Act, 1932.
c. Corporations, Companies or institutions or subsidiaries of such Corporations, Companies
or institutions set up for providing financial services.
d. Such other persons or entities as may be permitted from time to time by RBI/SEBI under
the securities Contracts (Regulations) Rules, 1957.

General Eligibility Conditions:

Criteria

Individuals

AGE

Minimum

Firms
age:

21 years
Maximum

Minimum

Corporate
age:

Minimum

age:

21 years (applicable 21 years (applicable

age: for partners)

for directors)

60 years
STATUS

Indian Citizen

Registered
partnership
under
partnership

Corporate
firm registered under The
Indian Companies

Act,

Act, 1956 (Indian)

1932

1.1.3 COMPANY OVERVIEW

Overview
Tata Capital Limited is a subsidiary of Tata Sons Limited. The Company is registered
with the Reserve Bank of India as a Systemically Important Non Deposit Accepting Non
Banking Financial Company (NBFC) and offers fund and fee-based financial services to its
customers.
A trusted and customer-centric, one-stop financial services provider, Tata Capital Limited caters
to the diverse needs of retail, corporate and institutional customers, directly or indirectly, through
its subsidiaries across various areas of business namely the Commercial Finance, Investment
Banking, Private Equity, Infrastructure Finance, Securities, Wealth Management, Consumer
Loans, Cards and Travel Related Services.
Tata Capital is headquartered in Mumbai and has a wide network of over 100 branches spanning
all critical markets in India.

The Tatas are amongst the most respected business houses in the world. Tata Capital aims to
bring the trust and expertise of the Tatas to an economically and socially relevant sector like
financial services.
The essence of brand Tata Capital is encapsulated in our brand proposition We only do whats
right for you'. The proposition reflects our strong resolve to deliver financial solutions that are
right for our customers and the society at large.
Tata Capital seeks to build strong relationships with its customers and deliver superior and
consistent customer experience across all products and touch-points.
VISION
Leaders with a vision Tata Capital Board consists of valuable and extensively experienced
individual experts in their domains. They direct and nurture the Company with their priceless
guidance, foresight and vision. Farrakhan K. Kavarana is a Director of Tata Sons Limited and
Tata Industries Limited, the apex holding companies of the Tata Group. He is the Chairman of
several ... to that; he shared his experience and vision as the Vice-Chairman and Managing
Director of Tata
Our motto We only do whats right for you emphasizes that our vision reaches
beyond financial services. Our belief in employee ownership offers a unique experience in
entrepreneurialism. A strong national, and soon to be global, footprint enables our employees to
learn from a diverse group of colleagues whose insight, integrity and commitment, set the
standard for success in our industry.
To ensure that this culture that promotes the desire to win in a competitive atmosphere
does not lead people to succeed by stepping over each other, we inculcate an environment of
equal opportunity, high growth and meritocracy thus becoming the employer of choice for both
existing and aspiring employees. To gain a sustainable competitive advantage and to ensure that
each individual working with us is satisfied, loyal and productive, we marry opportunities for
both the individuals and the Company.
Lets talk about YOU now. Are you an individual with an inner passion and fire to
succeed? Would you like the opportunity to bloom and grow in a positively driven, high learning,

ethical and ambitious work culture? If you possess pride, passion and drive together, you possess
the DNA of a Tata Capital employee! Were looking for individuals who want to make a
difference, develop and inspire others, drive innovative ideas and deliver results, and who live
the TATA values.
If you believe Tata Capital is the right place for you, take the next step now and send us
your resume. Get ready to enjoy a thrilling ride with us!
MISSION
Safety Precautions while applying for Auto Loan To ensure your safety and to prevent
anyone from taking undue advantage of your loan application, here are some safety tips that you
must always follow: Each position is designed with the ultimate mission at its core We only do
whats right for you. You will be provided opportunities, services, and advice, enabling you to
achieve your long-term financial goals. Be a part of the team that is geared to be the financial
pillar.
The advantages of joining Tata Capital are numerous. Each position is designed with an
ultimate mission at its core We only do whats right for you .You will be provided
opportunities, services, and advice, enabling you to achieve your long-term financial goals. Be a
part of the team that is geared to be the financial pillar of strength for the Tatas and the leader in
the financial services sector. Rewarding and recognizing outstanding talent as part of the Tatas
one that is rich in people
Each position is designed with an ultimate mission at its core We only do whats right for you.
You will be provided opportunities, services, and advice, enabling you to achieve your long-term
financial goals. Be a part of the team that is geared to be the financial pillar of strength for the
Tatas and the leader in the financial services sector.

MILE STONES
Asia assignments fuel regional expansion. Diversification of assets in Japan gives glimpse of
the future
Capital Servicing Co., Ltd. established in 1998 to service a major US investment bank's
Japan NPL Portfolios
Utilizing the resources and personnel of US asset management firms and experienced
local personnel, Capital provides an immediate foundation and a platform for future
growth
Capital Serving Co., Ltd. obtained servicer license no.23 for commercial loan servicing
from the Japanese Ministry of Justice in September 1999
Began commercial operations in December 1999
Localizing the Capital Servicing Co., Ltd. model the Capital Services Group opens
offices in Thailand and Taiwan in 2000
Capital begins to manage structured loans in 2001
Beginning of the conduit programs with the first MBS loans coming under management
in 2002
2008-20011
Investments under management surge. Capital emerges as a leading independent
servicer and real estate asset management specialist in Asia
Industry leading proprietary asset management system (SCORE) developed and rolled
out in 2003
Capital emerges as a leading Japan and regional servicer. Multiple rating agency upgrades
Dramatic growth in structured loans, conduit and CMBS products under management

 Capital Services Group opens offices in Singapore and the Philippines in 2005
Commercial licensing of SCORE commences
Ratings upgraded. Standard & Poor's issues its highest possible servicer rating of
"Strong" to Capital's Japan special servicing operation in 2006
2012-2015
Capital affirmed with Standard & Poor's and Fitch's highest servicer ratings
Capital is issued the highest Fitch rating of any special servicer in Japan in 2007.
Standard & Poor's assigns Capital high ratings as a primary servicer
Capital's Thailand operation becomes the first loan servicer to be rated in Thailand by
Fitch or any other agency in 2007
SCORE's Business Intelligence tool (SCORE B.I.) added allowing integration with
external systems
Capital Services Group establishes office in Malaysia
Capital enters Joint Venture with UK based Invested Real Estate Asset Management to
assist in creation of their Asia real estate platform in 2008
Reaffirmations for all Fitch and Standard & Poor's servicer ratings through 2010
2016-Present
Capital continues expansion into new markets
Capital Portfolio Services LLC established in Miami, Florida
Capital partners with IFC and Tata Capital to establish servicing operations in India

1.2 REVIEW OF LITERATURE

1.2.1 Text book literature
The study is organized as under.

In the first chapter theoretical aspects relating to Technical analysis of Derivative stock
futures is presented.

In the second chapter profile of the industry and company is incorporated.

In the third chapter objectives and methodology are presented.

In the fourth chapter study on Technical Analysis of Derivative stock futures analyzed.

In the fifth chapter findings and suggestions of the study are given.

TYPES OF DERIVATIVES:
The following are the most common types of derivatives. They are
FORWARDS:
A forward contract is a customized contract between two entities, where settlement takes
place on a specific date in the future at todays pre-agreed price.

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. These are one of the most
popular and widely used derivative instruments.

OPTIONS:
Options are of tow 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.

WARRANTS:
Options generally have lives of up to 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.

LEAPS:
The acronym LEAPS means Long-Term Equity Anticipation Securities. These are
options having a maturity of up to three years.

BASKETS:
Basket options are options on portfolios of underlying assets. The underlying asset is
usually a moving average of a basket of assets. Equity index options are a form of basket
options.

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 swap
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.

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.

CHRONOLOGY OF DERIVATIVE MARKET IN INDIA:

DATE

PARTICULARS

14 DEC 1996

NSE asked SEBI for permission to trade Index Futures.

18 NOV 1996

Formed L.C.Gupta Committee to design framework for

Index Futures.

7 JULY 1999

RBI

gave

permission

of

OTC

Forward

Rate

Agreements and Interest Rate Swaps.

24 MAY 2000

SIMEX chose NIFTY for trading futures and options

on India Index.

25 MAY 2000

SEBI gave permission to NSE to do Index Futures

trading.

9 JUN 2000

Trading of BSE Futures.

22 JUN 2000

Trading of NSE Futures and Index Options market.

JULY 2001

Stock Options introduced.

NOV 2001

Stock Futures.

3 OCT 2003

Commodity Futures.

REGULATORY FRAMEWORK:
The trading of derivatives is governed by the provisions contained in the SC (R) A, the
SEBI Act and the regulations framed there under the rules and byelaws of stock exchanges.

REGULATIONS FOR DERIVATIVES TRADING:

SEBI set up a 24 member committed under Chairmanship of Dr. L. C. Gupta develop the
appropriate regulatory frame work for derivative trading in India. The committee submitted its
report in March 1998. On May 11, 1998 SEBI accepted the recommendations of the committee
and approved the phased introduction of Derivatives trading in India beginning with Stock Index
Futures. SEBI also approved he Suggestive bye-laws recommended by the committee for
regulation and control of trading and settlement of Derivatives contracts.

The provision in the SC (R) A governs the trading in the securities. The amendment of the
SC(R) A to include DERIVATIVES within the ambit of Securities in the SC (R) A Made
trading in Derivatives possible within the frame work of the Act.

1. Eligibility criteria as prescribed in the L.C. Gupta committee report may apply to SEBI
for grant of recognition under Section 4 of the SC(R)A 1956 to start Derivatives Trading.
The derivatives exchange/segment should have a separate governing council and
representation of trading/ clearing members shall be limited to maximum of 40% of the
total members of the governing council. The exchange shall regulate the sales practices of
its members and will obtain approval of SEBI before start of Trading in any derivative
contract.

2. The exchange shall have minimum 50 members.

3. The members of an existing segment of the exchange will not automatically become the
members of the derivative segment. The members of the derivative segment need to
fulfill the eligibility conditions as lay down by the L. C. Gupta Committee.
4. The clearing and settlement of derivates trades shall be through a SEBI approved
Clearing Corporation / Clearing house. Clearing Corporation / Clearing House complying
with the eligibility conditions as lay down By the committee have to apply to SEBI for
grant of approval.
5. Derivatives broker / dealers and Clearing members are required to seek registration from
SEBI.
6. The minimum contract value shall not be less than Rs.2Lakh. Exchanges should also
submit details of the futures contract they purpose to introduce.
7. The trading members are required to have qualified approved user and sales person who
have passed a certification programme approved by SEBI

THE ECONOMIC ROLE OF DERIVATIVES

Derivative markets provide three essential economic functions:

Risk management

Price discovery

Transactional efficiency

Risk management:
The principal benefit of the Derivative market is that it provides the opportunity for risk
management through Hedging.

Risks involved in derivatives:

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:
This 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:
Market risk is a risk of financial loss as a result of adverse movements of prices of the
underlying asset.
Liquidity risk:
The inability of a firm to arrange a transaction at prevailing market prices is termed as
liquidity risk.

Related to liquidity of separate products.

Related to the funding of activities of the firm including derivatives.

Legal risk:
Derivatives cut a cross judicial boundaries therefore the legal aspects Associated with the
deal should be looked into carefully.
Risk management/Hedging strategies can be broadly grouped into three categories:
1. Inventory hedging to protect the value of existing portfolio of assets.
2. Anticipatory hedging to sell/buy derivatives especially forwards and futures instead of
the anticipated inflows (assets)/ outflows (liabilities). A classic example is that of
exporters and importers who sells/buys currency futures/options.
3. Return enhancement hedge using derivatives to create synthetic securities, which manic
cash assets.
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.
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.

Tata Review: April - June 2016

Tata Review, the Tata groups quarterly magazine, has been in print for over six decades. The
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1.11 FUTURES SCOPE OF STUDY:

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. Future markets were designed to solve the problems that
exist in forward markets. But unlike forward contracts, the futures contracts ate standardized and
exchange traded. To facilitate liquidity in the futures contracts, the exchange specifies certain
standard features of the contract. It is a standardized contract with standard underlying
instrument, a standard quantity and quality of the underlying instrument that can be delivered, (or
which can be used for reference purposes in settlement) and a standard timing of such settlement.
The standardized items in a futures contract are:

o Quantity of the underlying

o Quality of the underlying
o Date and Month of Delivery
o The units of Price quotations and Minimum price changes
o Location of settlement
TYPES OF FUTURES:

On the basis of the underlying asset they derive, the futures are divided into following types.
STOCK FUTURES
The stock futures are the futures that have the underlying asset as the individual securities.
The settlement of the stock futures is of cash settlement and the settlement price of the future
is the closing price of the underlying security.
INDEX FUTURES

Index futures are the futures, which have the underlying asset as an Index. The Index
futures are also cash settled. The settlement price of the Index futures shall be the closing
value of the underlying index on the expiry date of the contract.
COMMODITY FUTURES
In this case, the underlying asset is a commodity. It can be an agricultural commodity like
wheat corn, or even a precious asset like gold, silver etc.
FINANCIAL FUTURES
In this case, the underlying assets are financial instruments like money market paper,
Treasury Bills, notes, bonds etc.

CURRENCY FUTURES
Currency futures are those in which the underlying assets are major

convertible

currencies like the U.S. dollar, the Pound Sterling, the Euro and the Yen etc.
PARTIES IN THE FUTURES CONTRACT:

There are two parties in a future contract, the Buyer and the Seller.

The buyer of the futures contract is one who is LONG on the futures contract and

The seller of the futures contract is one who is SHORT on the futures contract.

PROFIT

The pay off for the buyer and the seller of the futures contract are as follows.
PAYOFF FOR A BUYER OF FUTURES:

LOSS

E2

E1

CASE 1:
The buyer bought the future contract at (F); if the futures price goes to E1 then the buyer
gets the profit of (FP).

CASE 2:
The buyer gets loss when the future price goes less then (F), if the futures price goes to
PROFIT

E2 then the Buyer gets the loss of (FL).

PAYOFF FOR A SELLER OF FUTURES:

LOSS

E2

E1 F

F-FUTURES PRICE
E1, E2-SETTLEMENT PRICE

CASE 1:

The Seller sold the future contract at (f); if the futures price goes to E1 then the Seller
gets the profit of (FP).

CASE 2:

The Seller gets loss when the future price goes grater than (F), if the futures price goes to
E2 then the Seller gets the loss of (FL).

MARGINS:

Margins are the deposits, which reduce counter party risk, arise in a futures contract.
These margins are collected in order to eliminate the counter party risk. There are three types of
margin.
INITIAL MARGINS:
Whenever a futures contract is signed, both buyer and seller are required to post initial
margin. Both buyer and seller are required to make security deposits that are intended to
guarantee that they will infact be able to fulfill their obligation. These deposits ate Initial margins
and they are often referred as performance as performance margins. The amount of margin is
roughly 5% to 15% of total purchase price of futures contract.
MARKING OF MARKET MARGIN:
The process of adjusting the equity in an investors account in order to reflect the change
in the settlement price of futures contract is known as MTM Margin.

MAINTENANCE MARGINS:
The investor must keep the futures account equity equal to or grater than certain
percentage pf the amount deposited as Initial Margin. If the equity goes less than that percentage
of Initial margin, then the investor receives a call for an additional deposit of cash known as
Maintenance Margin to bring the equity up to the Initial margin.

PRICING THE FUTURES:

The fair value of the futures contract is derived from a model known as the Cost of Carry
model. This model gives the fair value of the futures contract.
Cost of Carry Model:

F=S (1+r-q) t

Where

F Futures Price
S Spot price of the Underlying

R Cost of Financing

q Expected Dividend Yield

t Holding Period.
FUTURES TERMINOLOGY:

SPOT PRICE:
The price at which an asset trades in the spot market.
FUTURES PRICE:
The price at which the futures contract trades in the futures market.
CONTRACTCYCLES:
It is the period over which a contract trades. The index futures contracts on the NSE
have near month (one-month), middle month (two-months) and far month (three-months) expiry

cycles, which expire on the last Thursday of the month. Thus a January expiration contract
expires on the last Thursday of January and a February expiration contract ceases trading on the
last Thursday of February. On the Friday following the last Thursday, a new contract having a
three-month expiry is introduced for trading.

EXAMPLE 1:
DEC 31ST

JAN 27TH

FEB 24TH

MAR 31ST

FAR MONTH
MIDDLE
NEAR MONTH

EXAMPLE 2:
JAN 28TH

FEB 24TH

MAR 31ST

FAR MONTH
MIDDLE
NEAR MONTH

EXPIRY DATE:
It is the date specified in the futures contract. This is the last day on which the correct will
be traded, at the end of which it will cease to exist.
CONTRACT SIZE:
The amount of asset that has to be delivered less than one contract, For instance,
the contract size on NSE s futures market is 50 Niftiest.
BASIS:
In the context of financial futures, basis can be defined as the futures price minus the spot
price. There will be a different basis for each delivery reflects that futures prices normally exceed
spot prices.
COST OF CARRY:
The relationship between futures process and spot prices can be summarized in terms of
what is known as the cost of carry. This measures the storage cost plus the interest that is paid to
finance the asset less the income earned on the asset.
OPEN INTEREST:

Open Interest means the Total outstanding long or short positions in the market at any
specific time. As total long positions for market would be equal to short positions, for
calculation of open interest, only one side of the contract is counted.
CHOICE OF FUTURES:
Choice of futures consists of 3 decisions. They are

Which futures commodity

Which expiration month

Whenever to be long or short

ORGANIZATION STRUCTURE
Tata Capital to establish servicing operations in India

INTERNATIONAL ALLIANCES:
Tata Capitals alliances and partnerships are based on and are an extension of the Companys
core objects and values. These include:

 With Mizuho Securities Co. Ltd. to foster business cooperation in private equity,
investment banking including cross border mergers and acquisitions, securities business
including broking and distribution, structured finance and other business areas such as
wealth management.
With Mizuho Corporate Bank Limited (MHCB) to foster business cooperation, enhancing
cross-market value creation capabilities, strengthening competitive advantages in
addition to aiding each other in gaining a deeper understanding of the Indian and
Japanese markets. As part of the understanding, Tata Capital and MHCB will cooperate in
a wide-range of business areas. Some of these include Ninja Loans, Project and
Infrastructure Finance and Treasury Products.
With Mitsubishi UFJ Securities Co., Limited to establish a basis of cooperation in a wide
range of strategic business areas that include cross-border investment banking, global
offering of Indian equities and working towards development of the local bond market.

1.12 TOOLES & TECHNICAL OF THE STUDY:

Technical analysis is a process of identifying trend reversals at an earlier

stage to formulate the buying and selling strategy with the help of several indicators.
The technical analysis mainly focuses the attention on the past history of
prices. Generally technical analysts choose to study two basic market data-price and volume.
They mainly predict short-term price movement rather than long-term movement.
History of Technical Analysis:
The technical analysis is based on the doctrine given by Charles H. Dow in
1984, in the Wall Street Journal. He wrote a series of articles in the Wall Street Journal. A. J.
Nelson, a close friend of Charles Dow formulised the Dow theory for economic forecasting.

Technical Tools:
Generally used technical tools are, Dow theory, volume of trade, short
selling, bars and line charts, moving averages and oscillators.
Dow Theory:
Dow developed his theory to explain the movement of indices of Dow Jones Averages on the
basis of certain hypotheses. The first hypothesis is that, no single individual or buyer can
influence the major trend of the market. His second hypothesis is that the market discounts
everything. His third hypothesis is that the theory is not infallible.
The theory According to Dow Theory the trend is divided into primary, intermediate and shortterm trend. The primary trend may be the broad upward or downward movement that may last
for a year or two. The intermediate trends are corrective movements, which may last for three
weeks to three months. The short-term trend refers to the day-to-day price movement.
Volume of trade:

Dow gave special emphasis on volume. Volume expands along with the bull market and narrows
down in the market. If the volume falls with rise in price or vice-versa, it is a matter of concern
for the investor and the trend may not persist for a longer time.
Short selling:
Short selling is a technical indicator known as short interest. Short sales refer to the selling of
shares that are not owned. The bears are the short sellers who sell now in the hope of purchasing
at a lower price in the future to make profits.
Moving Average:
The market indices do not rise or fall in straight line. The upward and downward movements are
interrupted by counter moves. The underlying trend can be studied by smoothening of the data.
To smooth the data moving average technique is used. If it is five day moving average, on the
sixth day the body of the data moves to include the sixth day observation eliminating the first
days observation. Likewise continues. For this calculation, closing price of the stock is used.
Oscillators:
Oscillator shows the share price movement across a reference point from one extreme to another.
The momentum indicates:

Overbought and oversold conditions of the scrip or the market.

Signaling the possible trend reversal.

Rise or decline in the momentum.

Bar Charts:
In bar charts, two dots are entered to represent the highest and lowest price at which the stock is
traded. A line is drawn to connect both the points a horizontal nub is drawn to mark the closing
prices.
CHART PATTERNS:
These are used as a supplement to other information and confirmation of signals provided by
trend lines. Some of the chart patterns are discussed her1. V Formation:

The name itself indicates that in the V formation there is a long sharp decline and a fast
reversal. The V pattern occurs mostly in popular stocks where the market interest changes
quickly from hope to fear and vice-versa. In the case of inverted ^ the rise occurs first and
declines. These changes are shown in the following diagram.

Price

Days
2. Double Top and Bottom:
This type of formation signals the end of one trend and the beginning of another. The double top
pattern resembles the letter M. The double top may indicate the onset of the Bear Market.
In a double bottom, the price of the falls to a certain level and increase with diminishing activity.
Then it falls again to the same or to lower price and turns up to a higher level. The double bottom
resembles the letter W. Technical analysis views this pattern as a sign for Bull Market. These
patterns are shown in the following charts.

Price

Price

Days

Days

3. Head and Shoulders:

In the head and shoulder pattern there are three rallies resembling the left shoulder, a head and a
right shoulder. A neckline is drawn connecting lows of the tops. When the stock price cuts the
neckline from above, it signals the Bear market.
4. Inverted head and shoulders:
Here the reverse of the previous pattern holds true. It indicates end of bear market and the
beginning of the bull market. These patterns have to be confirmed with the volume and trend of
the market.
These patterns are shown in the following charts.

Neckline

Price

Price
Neckline

Days

Days

CHAPTER-2
DATA ANALYSIS
AND INTERPRETATION

DATA ANALYSIS
The data had been analyzed using Tables and Charts.

LIST OF SCRIPS:

The following are the 10 scripts selected for analysis.

1. RELIANCE IND
2. HINDALCO
3. BAJAJAUTO
4. INFOSYS
5. MARUTI
6. BHEL
7. MTNL
8. ACC
9. RANBAXY

10. TISCO

STUDY ON TECHNICAL ANALYSISOF

DERIVATIVES STOCK FUTURES

Table 4.1:

Table showing Closing price and Moving Average of RELIANCE

IND:

DATE

STOCK PRICE

MOVING AVERAGE

5TH JAN

925.45

6TH JAN

907.05

7TH JAN

893.70

894.38

8TH JAN

824.50

888.87

9TH JAN

921.20

878.70

12TH JAN

897.90

871.91

13TH JAN

856.25

886.77

14TH JAN

859.70

886.76

15TH JAN

898.80

16TH JAN

921.15

Chart 4.1:
Chart showing Daily price movement and Moving averages of
RELIANCE IND.
940
920
900
880
STOCK PRICE

860

STOCK PRICE

MOVING AVERAGE

840
820
800
1

10

DAYS

Interpretation:

By observing the above chart,

The stock price curve shows a decreasing trend during first four days. It formed as
V pattern on JAN 8th due to a long sharp decline and a fast reversal and it
formed as an inverted ^ pattern on Jan 9th. On JAN 16th it settled at a price of
921.15, with a loss of 4.30(925.45-921.15) points.
The moving average moves along with the stock price. Downward penetration of
the moving average indicates the further fall. Hence Sell signal is generated on
JAN 9th. Upward penetration of moving average would indicate the possibility of
further rise and gives the Buy signal on JAN 13th.

Table 4.2

Table showing Closing price and Moving Average of

HINDALCO:
DATE

STOCK
PRICE

MOVING AVERAGE

5TH JAN

170.90

6TH JAN

161.55

7TH JAN

154.65

159.73

8TH JAN

151.55

156

9TH JAN

160.00

153.43

12TH JAN

152.25

151.3

13TH JAN

148.70

151.58

14TH JAN

144.00

150.98

15TH JAN

152.95

16TH JAN

157.00

Chart 4.2:

Chart showing Daily price movement and Moving averages of HINDALCO.

175
170
165
160
STOCK PRICE

155

STOCK PRICE

MOVING AVERAGE

150
145
140
1

10

DAYS

Interpretation:
From the above chart it is observed that,
The stock price curve shows a decreasing trend during first four days. It formed as
V pattern on JAN 8th and JAN 14th due to a long sharp decline and a fast
reversal. It formed as an inverted ^ pattern on JAN 9 th due to the rise and fast
reversal in the stock price. Finally it settled at a price of 157.00, with a loss of
13.90(170.90-157) points on JAN 16th.
The moving average moves along with the stock price. Downward penetration of
the moving average indicates the further fall. Hence Sell signal is generated on
JAN 8th. Upward penetration of moving average would indicate the possibility of
further rise and gives the Buy signal on JAN 12th.

Table 4.3:

Table showing Closing price and Moving Average of

BAJAJ AUTO:

DATE

STOCK PRICE

MOVING AVERAGE

5TH JAN

2625.70

6TH JAN

2568.70

7TH JAN

2503.00

2486.61

8TH JAN

2313.15

2417.63

9TH JAN

2422.50

2333.91

12TH JAN

2280.80

2273.94

13TH JAN

2150.10

2304.14

14TH JAN

2203.15

2338.77

15TH JAN

2464.15

16TH JAN

2595.65

Chart 4.3:
Chart showing Daily price movement and Moving averages of BAJAJ AUTO.
2700
2600
2500
2400
STOCK PRICE

2300

STOCK PRICE

MOVING AVERAGE

2200
2100
2000
1

10

DAYS

Interpretation:
From the above chart it is observed that,
The stock price curve shows a decreasing trend during first four days. It formed
as V pattern on the fourth day and inverted ^ on the fifth day of the study. The
price of stocks falls and rises that makes the Inverted head and shoulders.
Connecting the tops of the inverted head and shoulders gives the Neckline. When
the price pierces the neckline from below, it indicates the end of bear-market and
the beginning of the bull market.
The moving average moves along with the stock price. Downward penetration of
the moving average indicates the further fall. Hence Sell signal is generated on
JAN 8th. Upward penetration of moving average would indicate the possibility of
further rise and gives the Buy signal on JAN 12th.

Table 4.4:

Table showing Closing price and Moving Average

of INFOSYS:

DATE

STOCK PRICE

MOVING AVERAGE

5TH JAN

2808.80

6TH JAN

2768.25

7TH JAN

2752.40

2761.54

8TH JAN

2689.80

2747.81

9TH JAN

2788.45

2721.81

12TH JAN

2740.15

2669.71

13TH JAN

2638.25

2675.58

14TH JAN

2491.90

2676.82

15TH JAN

2719.15

16TH JAN

2794.65

Chart 4.4:

Chart showing Daily price movement and Moving averages of INFOSYS.

3000

2900

2800

STOCK PRICE

2700

STOCK PRICE

MOVING AVERAGE

2600

2500

2400
1

10

DAYS

Interpretation:
From the above chart it is observed that,
The stock price curve shows a decreasing trend during first four days. It

formed

as V pattern on JAN 8th and again on JAN 14th due to a long sharp decline and a
fast reversal in the stock price and it formed as inverted ^ pattern on JAN 9 th and
finally it settled at a price of 2794.65, with a loss of 14.15(2808.80-2794.65)
points on JAN 16th.
The moving average moves along with the stock price. Downward penetration of
the moving average indicates the further fall. Hence Sell signal is generated on

JAN 8th. Upward penetration of moving average would indicate the possibility of
further rise and gives the Buy signal on JAN 12th.

Table 4.5:

Table showing Closing price and Moving Average

of MARUTI:

DATE

STOCK PRICE

MOVING AVERAGE

5TH JAN

734.35

6TH JAN

726.25

7TH JAN

714.80

727.86

8TH JAN

708.95

728.2

9TH JAN

754.95

722.63

12TH JAN

736.05

715.54

13TH JAN

698.40

717.02

14TH JAN

679.35

711.49

15TH JAN

716.35

16TH JAN

727.30

Chart 4.5:
Chart showing Daily price movement and Moving averages
of MARUTI.
760
750
740
730
720
STOCK PRICE

710

STOCK PRICE

MOVING AVERAGE

700
690
680
670
1

10

DAYS

Interpretation:
By observing the above chart,
The stock price curve shows a decreasing trend during first four days. It

formed

as an inverted ^ pattern on JAN 9 th and a V pattern on JAN 14 th and finally

settled at a price of 727.30 on JAN 16th.
The moving average moves along with the stock price. Downward penetration of
the moving average indicates the further fall. Hence Sell signal is generated on
JAN 8th. Upward penetration of moving average would indicate the possibility of
further rise and gives the Buy signal on JAN 12th.

Table 4.6:

Table showing Closing price and Moving Average of BHEL:

DATE

STOCK PRICE

5TH JAN

1927.10

6TH JAN

1851.60

7TH JAN

1820.70

1835.83

8TH JAN

1726.10

1792.51

9TH JAN

1853.65

1741.21

12TH JAN

1710.50

1695.68

13TH JAN

1595.10

1713.63

14TH JAN

1593.05

1715.23

15TH JAN

1815.85

16TH JAN

1861.65

Chart 4.6:
Chart showing Daily price movement and Moving averages
of BHEL.

MOVING AVERAGE

2000

1900

1800
STOCK PRICE
STOCK
1700PRICE

MOVING AVERAGE

1600

1500
1

10

DAYS

Interpretation:
By observing the above chart,
The stock price curve shows a decreasing trend during first four days. It

formed

as V pattern on JAN 8th and an inverted ^ pattern on JAN 9 th and finally

settled at a price of 1861.65 on JAN 16th.
The moving average moves along with the stock price. Downward penetration of
the moving average indicates the further fall. Hence Sell signal is generated on
JAN 8th. Upward penetration of moving average would indicate the possibility of
further rise and gives the Buy signal on JAN 12th.

Table 4.7:

Table showing Closing price and Moving Average of MTNL:

DATE

STOCK PRICE

MOVING AVERAGE

5TH JAN

151.40

6TH JAN

148.75

7TH JAN

143.50

148.25

8TH JAN

143.90

147.48

9TH JAN

153.70

145.1

12TH JAN

147.55

143.53

13TH JAN

136.85

145.22

14TH JAN

135.65

143.97

15TH JAN

152.35

16TH JAN

147.45

Chart 4.7:
Chart showing Daily price movement and Moving averages
of MTNL.

155

150

145
STOCK PRICE
STOCK
140 PRICE

MOVING AVERAGE

135

130
1

10

DAYS

Interpretation:
By observing the above chart,
The stock price curve shows a decreasing trend during first four days. It

formed

as V pattern on JAN 9th and an inverted ^ pattern on JAN 15 th and finally

settled at a price of 147.45 on JAN 16th.
The moving average moves along with the stock price. Downward penetration of
the moving average indicates the further fall. Hence Sell signal is generated on
JAN 8th. Upward penetration of moving average would indicate the possibility of
further rise and gives the Buy signal on JAN 12th.

Table 4.8:

Table showing Closing price and Moving Average of ACC:

DATE

STOCK PRICE

MOVING AVERAGE

5TH JAN

742.65

6TH JAN

728.70

7TH JAN

710.60

727.57

8TH JAN

700.35

722.4

9TH JAN

755.55

717.07

12TH JAN

716.80

714.23

13TH JAN

702.05

722.06

14TH JAN

696.40

717.73

15TH JAN

739.55

16TH JAN

733.85

Chart 4.8:
Chart showing Daily price movement and Moving averages of ACC.

760
750
740
730
STOCK PRICE

720

STOCK PRICE

MOVING AVERAGE

710
700
690
1

10

DAYS

Interpretation:
By observing the above chart,
The price of the ACC stock falls to a certain level and increase with a diminishing
activity. Then it falls again to the same or to a lower price and turns up to a higher
level. It resembles a Double Bottom, which looks like the letter W. The double
bottom is a sign for Bull market.
The moving average moves along with the stock price. Downward penetration of
the moving average indicates the further fall. Hence Sell signal is generated on
JAN 8th. Upward penetration of moving average would indicate the possibility of
further rise and gives the Buy signal on JAN 12th.

Table 4.9:

Table showing Closing price and Moving Average of

RANBAXY:
DATE

STOCK PRICE

MOVING AVERAGE

5TH JAN

406.15

6TH JAN

385.20

7TH JAN

360.60

369.91

8TH JAN

338.20

359.86

9TH JAN

359.40

353

12TH JAN

355.90

349.74

13TH JAN

350.65

354.86

14TH JAN

344.55

357.19

15TH JAN

363.80

16TH JAN

371.05

Chart 4.9:
Chart showing Daily price movement and Moving averages
of RANBAXY.

400

380

360
STOCK PRICES
STOCK
340PRICE

MOVING AVERAGE

320

300
1

10

DAYS

Interpretation:
By observing the above chart,
The stock price curve of Ranbaxy shows a decreasing trend during first four days.
It formed as V pattern on JAN 8 th due to a long sharp decline and a fast reversal.
Finally it settled at a price of 371.05 with a loss of 35.10(406.15-371.05) points on
JAN 16th.
The moving average moves along with the stock price. Downward penetration of
the moving average indicates the further fall. Hence Sell signal is generated on
JAN 9th. Upward penetration of moving average would indicate the possibility of
further rise and gives the Buy signal on JAN 12th.

Table 4.10:
Table showing Closing price and Moving Average of TISCO:

DATE

STOCK PRICE

MOVING AVERAGE

5TH JAN

490.60

6TH JAN

479.25

7TH JAN

460.00

462.11

8TH JAN

423.95

448.27

9TH JAN

456.75

429.55

12TH JAN

421.40

414.56

13TH JAN

385.65

412.79

14TH JAN

385.05

412.26

15TH JAN

415.10

16TH JAN

454.10

Chart 4.10:

Chart showing Daily price movement and Moving averages

of TISCO.

490
470
450
430
STOCK PRICES
410 PRICE
STOCK

MOVING AVERAGE

390
370
350
1

10

DAYS

Interpretation:
By observing the above chart,
The stock price curve shows a decreasing trend during first four days. It

formed

as V pattern on JAN 8th and an inverted ^ pattern on JAN 9 th and finally

settled at a price of 454.10 on JAN 16th with a loss of 36.50(490.60-454.10) points.
The moving average moves along with the stock price. Downward penetration of
the moving average indicates the further fall. Hence Sell signal is generated on
JAN 8th. Upward penetration of moving average would indicate the possibility of
further rise and gives the Buy signal on JAN 12th.

Table 4.11:

Table Showing Daily Price Movement of Nifty Index Future:

DATE

NIFTY INDEX FUTURE

5TH JAN

2959.00

6TH JAN

2886.70

7TH JAN

2842.00

8TH JAN

2691.00

9TH JAN

2825.55

12TH JAN

2690.00

13TH JAN

2619.45

14TH JAN

2648.00

15TH JAN

2793.00

16TH JAN

2846.20

Chart 4.11:

Chart Sowing Daily Price Movement of Nifty Index Future.

3000
2900
2800
2700
2600
2500
2400
5TH JAN6TH JAN7TH JAN8TH JAN9TH JAN
12TH JAN
13TH JAN
14TH JAN
15TH JAN
16TH JAN

Interpretation:
By observing the above chart,
The Nifty Index Future shows a downtrend during the study period. It settled at
the price of 2846.20 with a loss of 112.80(2959.00-2846.2) points on Jan 16th.

CHAPTER-3

FINDINGS,
SUGGESTIONS&CONCLUSIONS

FINDINGS:
The following are the major findings of the study.
1. The stock price of RELIANCE IND decline from 925.45 to 921.15 during the
study period. It shows the V and inverted ^ patterns which are the signs of
fluctuations in the price of the stock. The intersection of stock price and moving
average curves gives a sell signal on January 9th and a buy signal on January 13th.
2. There is a downtrend observed in the stock price of HINDALCO during the study
period. The stock price curve shows the V and inverted ^ patterns which are
the signs of fluctuations in the price of the stock. The intersection of stock price
and moving average curves gives a sell signal on January 8 th and a buy signal on
January 12th
3. The daily price movement of BAJAJ AUTO scrip included the V and inverted
^ patterns which are the signs of fluctuations in the stock price. The price of
stocks falls and rises that makes the Inverted head and shoulders that is an
indication of the end of bear market and the beginning of the bull market. The
intersection of stock price and moving average curves gives a sell signal on
January 8th and a buy signal on January 12th.
4. The stock price curve of INFOSYS shows a decreasing trend during the study
period. It falls down from 2808.8 to 2794.65. The formation of V and inverted
^ patterns of the stock price shows the changes in the market interest quickly
from hope to fear and vice-versa. The intersection of stock price and moving
average curves gives a sell signal on January 8th and a buy signal on January12th.
5. The daily price movement of MARUTI scrip also shows a decreasing trend like
the other scripts including some fluctuations due to changes in the market interest
which is indicated through the formation of the V and inverted ^ patterns. The
intersection of stock price and moving average curves gives a sell signal on
January 8th and a buy signal on January 12th.

6. The same downtrend is observed in the stock price of BHEL like other scripts. The
formation of the V and inverted ^ patterns shows the fluctuations in the stock
price. Though it settled with a loss, it indicates an increasing trend from January
14th. The intersection of stock price and moving average curves gives a sell signal
on January 8th and a buy signal on January12th.
7. There is a downtrend observed in the stock price of MTNL during the study
period. The stock price curve shows the V and inverted ^ patterns which are
the signs of fluctuations in the price of the stock. The intersection of stock price
and moving average curves gives a sell signal on January 8 th and a buy signal on
January 12th.
8. The price of ACC scrip resembles a Double Bottom form during the study period,
which indicates the sign for bull market. The intersection of stock price and
moving average curves gives a sell signal on January 8 th and a buy signal on
January 12th.
9. The stock price curve of RANBAXY shows a decreasing trend during the study
period. It formed as V pattern on January 8 th due to a long sharp decline and a
fast reversal. The intersection of stock price and moving average curves gives a
sell signal on January 9th and a buy signal on January 12th.
10. There is a downtrend observed in the stock price of TISCO during the study
period. The stock price curve shows the V and inverted ^ patterns which are
the signs of fluctuations in the price of the stock. The intersection of stock price
and moving average curves gives a sell signal on January 8 th and a buy signal on
January 12th.
11. The Nifty Index Future shows a downtrend during the study period. It settled with
a loss of 112.80 points on January 16th.

SUGGESTIONS:
The following are the suggestions of the study.
1. The findings of the study reveals the buying and selling signals relating to
RELIANCE stock future it is suggested to sell the scrip on January 9th and buy the
scrip on January 13th.
2. The downtrend observed in the stock price of HINDALCO indicates that it is the
right time to buy the stock as it may rise in future. It is suggested to sell the stock
future on January 8th and buy the scrip on January 12th.
3. It is suggested to sell the BAJAJ AUTO stock future on January 8th and buy the
scrip on January 12th.
4. It is suggested to sell the INFOSYS stock future on January 8th and buy the scrip
on January 12th.
5. It is suggested to sell the MARUTI stock future on January 8th and buy the scrip on
January 12th.
6. It is suggested to sell the BHEL stock future on January 8 th and buy the scrip on
January 12th.
7. As study reveals that the intersection of the stock price and the moving average
curves gives a sell signal on January 8 th and a buy signal on January 12th. It is
suggested to follow these signals.
8. The price of ACC scrip resembles a Double Bottom form during the study period,
which indicates the sign for bull market. The intersection of the stock price and the
moving average curves gives a sell signal on January 8 th and a buy signal on
January 12th. It is suggested to follow these signals.
9. The intersection of stock price and moving average curves of RANBAXY scrip
gives a sell signal on January 9th and a buy signal on January 12th. It is suggested to
follow these signals.
10. It is suggested to sell the TISCO stock future on January 8th and a buy signal on
January 12th.

CONCLUSIONS:
By using the tools and techniques helps us to assess and evaluate the companys financial
position and also its share value and moving averages. In this study I used statistical tool of moving
averages which indicates on which date to buy or sell the shares in respected companies.

For example Sell signal is generated on JAN 9 th. Upward penetration of moving
average would indicate the possibility of further rise and gives the Buy signal on JAN
13th for reliance ltd.

BIBLIOGRAPHY

S.NO

BOOK NAME/PUBLISHER

AUTHOR

FINANCIAL MANAGEMENT

Prasanna Chandra

Security Analysis and

2

Portfolio Management

Derivatives Core Module

3

JOURNALS

Business line

Punithavathi pandian

NCFM Material

Economic Times

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