Final Report

PREFACE

Indian stock market have been role during the past five years, generating an annual return of

28% (on the nifty index).Still general public prefers putting it money in bank, rather than

putting it in stock. Within Indian economy doing so well, return from stock market have been

far higher than return from any other investment. Avenue rupees 1, 00,000 invested in the

nifty in April would have been worth a little over rupees 3, 00,000 by April, 2011.But the top

value creatures have been delivered far superior returns the same lakh invested in unitech

would have been worth rupees 1.52cr if it had been invested in a ban off share.

Most of people are reluctant to put their money in shares, because of uncertainty of the return.

At times stock market is so volatile that it becomes very difficult for investors to decide

whether to purchase some more stocks or sell them, whether to enter the market or book

profit. with so much uncertainty prevailing, the case of investing in stock market is totally

different from the case of investing in some other places.

Lack of awareness is also holding people back to a great extent,until and unless one

understands the degree of risk involved in investing in shares,the kind of return one can get

from there and history of such returns and how to go about it,one will not go ahead.so

making aware the public about things happing in stock market is something that should be

done at war level.

1

PROFILE OF THE ORGANIZATION

SMC Global is one of the largest and most reputed

Investment Solutions Company that provides a wide range

of services to its substantial and diversified client base. Founded in 1990, by Mr. Subhash

Chand Aggarwal and Mr. Mahesh Chand Gupta, SMC, is a full financial services firm

catering to all classes of investors. The company is having its corporate office in New Delhi

with regional offices in Mumbai, Kolkata, Chennai, Ahemdabad, Cochin, Hyderabad, Jaipur

plus a growing network of more than 1250 offices across over 350 cities/towns in India and

overseas office in Dubai.

· Enabling shorter settlement cycles and book entry settlements systems, and meeting

the current international standards of securities market.

HISTORY OF SMC

 SMC acquired membership of the Delhi Stock Exchange in 1990 and later in 1995 became a

trading member of NSE. In 2000 the company became a member of BSE and a depository

participant of CDSL India Ltd. In the same year, the company acquired the Trading &

Clearing Membership of NSE Derivatives and the memberships of leading commodity

exchanges i.e. NCDEX and MCX in subsequent years. In 2009, SMC expanded globally and

acquired the Trading & Clearing Membership of Dubai Gold and Commodity Exchange

(DGCX). In the same year, the company also started its Insurance Broking division, IPO &

Mutual Fund Distribution Division and its Merchant Banking division.

2

OVERVIEW OF INDUSTRY

Mobilization of savings from surplus savers to deficit savers is most efficiently carried out by

the securities market through a range of complex products called "securities". The definition

of securities as per the SCRA, 1956 includes shares, bonds, scrips, stocks or other marketable

securities of like nature in or of any incorporate company or body corporate, government

securities, derivatives of securities, units of collective investment scheme, interest and rights

in securities, security receipt or any other instruments so declared by the central government.

This process of mobilization of resources is carried out under the supervision and overview of

the regulators.

Market Participants in Securities Market

Market Participants

2010 2011

Securities Appellate Tribunal 1 1

Regulators* 4 4

Depositories 2 2

Stock Exchanges

With Equities Trading 21 19

With Debt Market Segment 1 1

With Derivative Trading 2 2

Brokers 9,443 9,487

Corporate Brokers 4,110 4,190

Sub-brokers 27,541 44,074

FIIs 996 1319

Portfolio Managers 158 205

Custodians 15 15

Share Transfer Agents 82 76

Merchant Bankers 152 155

Bankers to an Issue 47 50

Debenture Trustees 30 28

Underwriters 45 35

Venture Capital Funds 90 106

3

Foreign Venture Capital Investors 78 97

Mutual Funds 40 40

Collective Investment Schemes 0 0

(Source: SEBI Bulletin.)

MARKET SEGMENT

The securities market has two interdependent segments: the primary and the secondary

market. The primary market is the channel for creation of new securities. These securities are

issued by public limited companies or by government agencies. In the primary market the

resources are mobilized either through the public issue or through private placement route. It

is a public issue if anybody and everybody can subscribe for it, whereas if the issue

is made available to a selected group of persons it is termed as private placement.

There are two major types of issuers of securities, the corporate entities who issue mainly

debt and equity instruments and the government (central as well as state) who issue debt

securities.

These new securities issued in the primary market are traded in the secondary market.

The secondary market enables participants who hold securities to adjust their holdings in

response to changes in their assessment of risks and returns. The secondary market operates

through two mediums, namely, the over-the-counter (OTC) market and the

exchange-traded market. OTC markets are informal markets where trades are

negotiated. Most of the trades in the government securities are in the OTC market. All the

spot trades where securities are traded for immediate deliver y and payment take place in the

OTC market. The other option is to trade using the infrastructure provided by the stock

exchanges.

There are 23 exchanges in India and all of them follow a systematic settlement period. All the

trades taking place over a trading cycle (day=T) are settled together after a certain time (T+2

day).

The trades executed on the National Stock Exchange (NSE) are cleared and settled by a

4

clearing corporation. The clearing corporation acts as a counterparty and guarantees

settlement.

Nearly 100% of the trades in capital market segment are settled through demat delivery. NSE

also provides a formal trading platform for trading of a wide range of debt securities,

including government securities. A variant of the secondary market is the forward market,

where securities are traded for future delivery and payment. A variant of the forward market

is Futures and options market. Presently only two exchanges viz., NSE and Stock Exchange,

Mumbai (BSE) provides trading in the derivatives of securities.

Dependence on Securities Market

· Corporate Sector

· Government

· Households

The above mentioned sectors are dependent on the Capital Market for their financial

needs. The following table shows their percentage share respectively.

Share (%) of Securities Market in

External Finance of Fiscal Deficit of Fiscal Deficit of Financial Savings Corporate Central Govt. State Govt Number of Households

1993-94 19.35 17.9 13.6 14.41994-95 19.17 20.7 17.5 22.91995-96 33.38 9.2 16.8 17.21996-97 53.23 48.0 17.6 14.01997-98 44.99 35.2 14.7 12.11998-99 21.67 54.9 18.7 7.71999-00 22.12 30.0 17.5 6.92000-01 28.16 36.5 16.5 4.52001-02 27.05 60.9 14.1 4.22002-03 33.58 67.1 13.9 7.32003-04 31.39 61.4 13.8 4.32004-05 20.60 69.4 15.2 8.02005-06 (17.98) 77.6 19.9 5.92006-07 N . A. 64.9 32.1 N . A.2007-08 24.86 26.73 18.69 6.62008-09 22.65 34.75 8.63 7.52009-10 38.78 52.75 23.98 7.8

Source: CMIE & RBI.

5

INTERNATIONAL SCENARIO

Following the implementation of reforms in the securities industry during the last decade,

Indian stock markets have graduated to a better position vis-à-vis the securities market in

developed and emerging markets. India has the number one ranking in terms of listed

securities on the Exchanges followed by the USA. These data, though quite impressive,

do not reflect the full Indian market, as S&P (even other international publications) does not

cover the whole market.

A comparative study of concentration of market indices and indices stocks in different world

markets is presented in the table below. It is seen that the index stocks’ share of total

market capitalization in India is 75.0% whereas US index accounted for 93.8%. The

ten largest index stocks share of total market capitalization is 36.5% in India and 16.4% in

case of US.

The stock markets worldwide have grown in size as well as depth over last one decade. The

turnover on all markets taken together has grown from US $ 5.5 trillion in 1990 to $ 38

trillion in 2002 when it reached a peak. Thereafter, it has witnessed a decline and stood at US

$ 34.6 trillion in 2009. It is significant to note that US alone accounted for about 47.4% of

worldwide turnover in 2009. Despite having a large number of companies listed on its stock

exchanges, India accounted for a meager 2.96% in total world turnover in 2009. The market

capitalization of all listed companies taken together on all markets stood at US $ 34.6 trillion

in 2009 ($ 23 trillion in 2005). The share of US in worldwide market capitalization decreased

from 47.24% as at end-2005 to 44.66% in end-2009, while Indian listed companies accounted

for 1.87% of total market capitalization in 2009.

6

INTERNATIONAL AND INDIAN SCENARIO IN ONLINE BROKING

In US markets, online brokerage has significantly changed the dynamics of the market place,

resulting in one of the biggest shifts in the individual investor's relationship with their

brokers. Investors access a wealth of financial information on the same time as do market and

financial professionals including breaking news, developments and market data. Online

brokerage provides investors the tools to analyse the information such as research reports.

In the US, 82 per cent of the deals are done on line. The European on line broking market is

expected to be of $8 billions and has risen to about $50 billion today.

Net trading shall initially faced some problems relating to infrastructure and understanding of

the concept. Presently, the legal frame work is right in place and there are organizations like

SEBI, RBI etc. which provide investor guidelines to the investors for protection of their right.

Also, investor grievance handling and redressal system is fast and efficient. Lack of investor

education and resistance from stock brokers though has always posed some problems.

With Internet trading, investment in the stock market is just a click away, in the comfort of

office or a home. It makes it easy for anyone to access net brokers and trade in stock. Even

the smallest retail investor can access information that was till now restricted to big traders.

Net trading provides investors with seamless, real time online access to stock markets.

7

BUSINESS ALLAINCES

1. SANLAM INVESTMENTS Sanlam

Investments was established in 1918, is one of the Largest Financial Services Groups

in South Africa. It is managing over US $51 billion of client assets and operating in

over 30 countries. It is the investment arm of South African Financial services giant.

The agreement between the parties has led to setting up of two new businesses in

India – a wealth management company and an asset management company. The deal

was made possible through an acquisition into the SMC Group of Companies.

Including warrants; this will ultimately create a 5% equity stake for Sanlam

Investments in SMC. The total financial outlay by Sanlam Investments on this joint

venture with SMC is in the region of Rs. 215 Crore.

2. PUNJAB NATIONAL BANK With over 60 million satisfied customers and more than 5100 offices including 5 overseas branches, PNB has continued to retain its leadership position amongst the nationalized banks. The bank enjoys strong fundamentals, large franchise value and good brand image. Besides being ranked as one of India's top service brands, PNB has remained fully committed to its guiding principles of sound and prudent banking. Apart from offering banking products, the bank has also entered the credit card, debit card; bullion business; life and non-life insurance; Gold coins & asset management business, etc. PNB has earned many awards and accolades during the year in appreciation of excellence in services, Corporate Social Responsibility (CSR) practices, transparent governance structure, best use of technology and good human resource management.

SMC Group has signed an agreement with PNB to offer State of art online trading facilities into equities, derivatives, IPOs & Mutual funds to PNB customers. This alliance is providing –

· Three in one product (Saving- Demat- Trading)· Seamless funds and securities transfer· No extra blockage of funds in the trading accounts after the trading hours

8

BUSINESS STRATEGY

Mission

· Establishing a nation-wide trading facility for equities, debt instruments and hybrids,

· Ensuring equal access to investors all over the country through an appropriate

communication network,

· Providing a fair, efficient and transparent securities market to investors using

electronic trading systems,

· Enabling shorter settlement cycles and book entry settlements systems, and meeting

the current international standards of securities market.

Vision

· Their vision is to be the most respected company in the financial services space.

Core Values

· Ethical deals: Honesty is the only policy.

· Experience and trust: Over 20 years of experience has made SMC earn the trust of

more than 6,00,000 investors.

· Expertise: Know-how and skills to provide investors an edge.

· Personalized Solution: Every investor is unique. Every solution is unique.

PRODUCT AND SERVICES OF SMC

Equity & Derivative Trading

SMC Trading Platform offers online equity & derivative trading facilities for investors who

are looking for the ease and convenience and hassle free trading experience. We provide

ODIN Application, which is a high -end, integrated trading application for fast, efficient and

reliable execution of trades. You can now trade in the NSE and BSE simultaneously from any

destination at your convenience. You can access a multitude of resources like live quotes,

charts, research, advice, and online assistance helps you to take informed decisions. You can

9

also trade through our branch network by registering with us as our client. You can also trade

through us on phone by calling our designated representatives in the branches where you are

registered as a client.

Clearing Services

Being a clearing member in NSE (derivative) segment we are clearing massive volumes of

trades of our trading members in this segment.

Commodity Trading

SMC is a member of two major national level commodity exchanges, i.e National

Commodity and Derivative Exchange and Multi Commodity Exchange and offers you

trading platform of NCDEX and MCX. You can get Real-Time streaming quotes, place

orders and watch the confirmation, all on a single screen. We use technology using ODIN

application to provide you with live Trading Terminals. In this segment, we have spread our

wings globally by acquiring Membership of Dubai Gold and Commodities Exchange. We

provide trading platform to trade in DGCX and also clear trades of trading members being a

clearing member.

Distribution of Mutual Funds & IPOs

SMC offers distribution and collection services of various schemes of all Major Fund houses

and IPOs through its mammoth network of branches across India . We are registered with

AMFI as an approved distributor of Mutual Funds. We assure you a hassle free and pleasant

transaction experience when you invest in mutual funds and IPOs through us. We are

registered with all major Fund Houses including Fidelity, Franklyn Templeton etc. We have a

distinction of being leading distributors of IPOs. Shortly we will be providing the facility of

online investment in Mutual Funds and IPOs

Online back office support

To provide robust back office support backed by excellent accounting standards to our

branches we have ensured connectivity through FTP and Dotnet based Application. To

ensure easy accessibility to back office accounting reports to our clients

10

MC Depository

They are ISO 9001:2000 certified DP for shares and commodities. We are one of the leading

DP and enjoy the trust of more than 40,000 investors. We offer a quick, secure and hassle

free alternative to holding the securities and commodities in physical form. They are one of

the few Depository Participants offering depository facilities for commodities. We are

empanelled with both NCDEX & MCX.

SMC Research Based Advisory Services

Their massive R&D facility caters to the need of Investors, who are continuously in need of

opportunities for striking rich rewards on their investment. We have one of the most

advanced, hitech inhouse R&D wing with some of the best people, process and technology

resources providing complete research solutions on Equity, Commodities, IPOs and Mutual

Funds. We offer proactive and timely world class research based advice and guidance to our

clients so that they can take informed decisions. Click on Research to unveil the treasure.

SMC Investor Awareness Forum

Their dedicated team of professionals is conducting investor meet/seminars across India. We believe that a well-informed investor is an empowered investor. We also seek your feedback on our services in these Investor meets.

11

S. W. O. T ANALYSIS OF THE ORGANIZATION

Strengths

· The `do-it-yourself' framework of online share trading offers retail investors the three

benefits of transparency, access and efficiency. Paperwork diminishes significantly, and

no more painful trips to your broker to check if everything's in order. Online trading has

made it possible to universalize access to retail investors. This was earlier very difficult,

as the cost of servicing often-outweighed transaction volumes. Online brokerage ranges

between 0.05-0.20 per cent of the value of transactions for non-delivery-based trades, and

between 0.25-0.95 per cent for delivery-based trades. Once major investments in online

infrastructure are over and done with - and with the economies of scale coming into play -

it is expected that brokerage rates would head further downwards.

· Access to online trading and latest financial happenings, apart from quotes and unbiased

investment analyses, all consolidate into a value-added product mix in tandem with

evolving markets that are freer and fairer. The Net result: An inquisitive, informed and

demanding investor. Today's investor is more involved in managing his or her assets and

analyzing a vast array of investment options. Technology and today's enabled investor

have, in turn, driven competition, resulting in reduced costs of trading, transparency in

dealings, and pricing info that is accurate and real-time. More and more investors now

want to know how their trades are executed, and whether they have received the best

possible price. Critical components of execution quality include the prices at which orders

were executed as well as the speed of execution. The quality of execution, in turn, hinges

on efficient order routing. We owe this to our investor fraternity.

Weakness

· Everything in the world has a flip side to it - Transaction velocity is crucial. And more

often than not, connections are lousy. There's also a degree of investor skepticism about

online payment and settlement mechanisms in spite of all the encryption and fire walling

brought into play. Time and technology will soon assuage these concerns, which hark

back to the `physical' days.

12

“The three main technology obstacles which have prevented Internet broking from taking off

are:

· Lack of Internet penetration

· Bandwidth infrastructure

· Poor quality of ISP infrastructure.

Opportunities

· You have some money to dabble with. Trading shares on BSE/NSE has always been

your dream. When will you ever find the time? And besides, the hassle of finding a

broker is not easy. This is your main opportunity.

· Realizing there is untapped market of investors who want to be able to execute their

own trades when it suits them, brokers have taken their trading rooms to the Internet.

Known as online brokers, they allow you to buy and sell shares via Internet.

· There are 2 types of online trading service: discount brokers and full service online

broker. Discount online brokers allow you to trade via Internet at reduced rates. Some

provide quality research, other don’t. Full service online brokerage is linked to

existing brokerages. These brokers allow their clients to place online orders with the

option of talking/ chatting to brokers if advice is needed. Brokerage rates here are

higher. 5Paisa.com, ICICIDirect.com, IndiaBulls.com, Sharekhan.com, Geojit

securities.com, HDFCsec.com, Tatatdw.com, Kotakstreet.com are some of the online

broking sites in India.

· And daily trading turnover is estimated in the vicinity of 0.75 per cent of the

combined BSE and NSE daily turnover of about RS 11,000 crore!!! The point is,

there's tremendous scope for growth. Especially when you consider the US, where

trading over the Net accounts for about 55 per cent of the total volumes. And, I

believe, in some Asian markets the figures as high as 70 per cent.

Threats

13

· On to some threat perception - Domestic funds, foreign institutional investors and

operators comprise the three main market constituents. And all three include term

investors as well as opportunists in their pecking order. Some, for instance, hitch their

fate with what the FIIs are up to. All this spells spurting volumes. But nobody gives a

damn about the resultant volatility.

· And some, not all, offer free investment advice over the Net to lure rookie investors with

misleading information. Prices of scripts can also be influenced to the advantage of vested

interests, courtesy the Net. Unlike in the US, stockbrokers out here willingly (or under the

force of circumstance) assume the role of `advisors', sans the neutral, non-vested stance.

14

FINANCIAL ANALYSIS

SMC Global Securities Ltd. reported unaudited consolidated earnings results for the year

ended March 31, 2011. For the year, the company's total revenues were INR 2,962,597

against INR 2,683,325 a year ago. Loss before income taxes was INR 321,595 against INR

262,956 a year ago. Loss after income taxes was INR 323,368 against INR 204,412 a year

ago. Loss before extraordinary gain was INR 321,373 or INR 19.04 per diluted share against

INR 217,059 or INR 18.03 per diluted share a year ago. Net loss was INR 199,474 or INR

19.04 diluted per share against INR 180,135 or INR 16.74 diluted per share a year ago. Net

cash used in operating activities was INR 504,236 against INR 562,881 a year ago. Purchase

of property and equipment was INR 77,526 against INR 202,992 a year ago.

SMC Global Securities Ltd. reported unaudited consolidated earnings results for the third

quarter and nine months ended December 31, 2010. For the quarter, the company reported

revenue of INR 794,423,000, loss before income taxes of INR 54,648,000, net loss of INR

58,351,000 or INR 5.57 per diluted share against revenue of INR 692,105,000, loss before

income taxes of INR 30,154,000, net income of INR 14,492,000 or INR 1.39 per diluted

share for the same period a year ago. Loss after income taxes was INR 110,661,000

compared to INR 20,656,000 for the same period a year ago. For the nine months, the

company reported revenue of INR 2,224,175,000, loss before income taxes of INR

192,548,000, net loss of INR 130,285,000 or INR 12.43 per diluted share against revenue of

INR 2,113,411,000, loss before income taxes of INR 35,645,000, net income of INR

10,214,000 or INR 0.98 per diluted share for the same period a year ago. Net cash used in

operating activities was INR 167,609,000, Purchase of property and equipment was INR

145,392,000 against INR 542,660,000, INR 57,991,000 respectively for the same period a

year ago. Loss after income taxes was INR 209,609,000 compared to INR 25,565,000 for the

same period a year ago.

15

The various financial ratios analyzed are as below:

  Year 2010-09 Year 2009-08 Year 2008-07

Liquidity Ratios

Current Ratio 4.55 4.14 2.01

Acid test Ratio 3.42 3.19 1.36

Inventory Turnover Ratio 1.15 1.47 0.90

Leverage Ratios

Debt-Equity Ratio 0.07 0.13 0.93

Fixed assets Turnover 3.06 5.89 4.59Financial charges coverage ratio 1.76 10.15 9.15

Profitability Ratios

Net Profit Margin (%) 1.18 30.93 36.38

Return on Net worth (%) 0.46 15.71 41.51Return on long term funds (%) 2.64 22.87 35.13

Operating Margin (%) -6.96 49.71 58.40

LIQUIDITY RATIOS

Liquidity refers to the ability of the firm to meet its obligations in the short run, usually one

year. Liquidity ratios are generally based on the relationship between current assets and

current liabilities. The important liquidity ratios are:

Current Ratio: A very popular ratio, which is defined as ratio of current assets and current

liabilities. In case of SMC has been 4.55, 4.14 and 2.01 which can be termed as very healthy

as compared to the market average reflecting that the company is able to meet its short term

obligations successfully as high current ratio is considered as a sign of financial strength.

Acid Test ratio: It is also called quick ratio and more stringent of measure of liquidity as it

excludes inventory. The acid test ratio of the company is high as 3.42, 3.19 and 1.36 which

mean the company is financially strong.

16

Inventory Turnover ratio: This ratio measures how fast the inventory is moving through the

firm and generating sales. This reflects efficiency of inventory management. The higher the

ratio more efficient is the management of inventory and vice versa. For the company the

figures are 1.15, 1.47 and 0.90; which are lower from industry standards and reflect

inefficiency in inventory management. A low turnover ratio implies poor sales or excess

inventory.

LEVERAGE RATIOS

Financial leverage refers to the use of debt finance. While debt capital is a cheaper source of

finance, it is also a riskier source of finance. Leverage ratio helps in assessing risk arising out

of use of debt capital. Two types of ratios commonly used to analyze financial leverage are

structural ratios and coverage ratios. Structural ratios are based on the proportion of debt and

equity in the firm and coverage ratios are based on relationship of debt servicing

commitments and the sources of meeting those burdens.

Debt Equity ratio: The numbers are as follows 0.07, 0.13 and 0.93. Hence this can be

termed as very low from industry standards and higher degree of protection enjoyed by the

creditors.

Financial Charges Coverage ratio: The figures are as follows 1.16 and 2.816 which can be

termed as low. High interest coverage means the firm can easily meet its interest burden even

if operating profit suffers a considerable decline. A low interest coverage ratio may result in

financial embarrassment when Earnings before interest taxes decline. This ratio is widely

used by the lenders to assess a firm’s debt capacity.

Fixed Assets Turnover ratio: This ratio measures the efficiency with which the fixed assets

are employed ad high ratio implies a high degree of efficiency is asset utilization. In case of

SMC the ratios are 3.06, 5.89 and 4.59 which means the fixed assets have been put to use

efficiently.

17

PROFITABILITY RATIOS

Net Profit Margin: This ratio shows earnings left for shareholders as a percentage of net

sales. It measures overall efficiency of production, administration, selling, financing , pricing

and tax management. The net profit margin for the company is very low at the moment as it

is offering more products to its clients than services. The numbers are 1.18%, 30.93% and

36.38%.

Return on Net Worth: It is a measure of great interest to the shareholders and is also called

return on equity. This ratio measures the profitability of equity funds invested in the firm

because maximizing the shareholders wealth is the dominant financial objective hence ROE

is the most important measure of performance in accounting sense. At present the numbers

are 0.46%, 15.71% and 41.51% which can be improved further by the company in the future

and more gain can be given to the shareholder as they are a cheaper source of finance.

18

RECOMMENDATIONS

FINANCIAL RECOMMENDATIONS

The firm SMC has a turnover of around 40-60 crores and hence it can be termed in the

category of SMEs. Therefore, effective management of finances is critical for its business. If

the company manages its finances well, it may be able to succeed in business situations not

always termed as optimal. Since SMC has ambitious plans for growth hence they need

substantial amount of working capital to achieve it. This can be done by having right amount

of working capital which can be raised through number of ways such as by borrowing money

and by better management of assets and liabilities, including cash, receivables, and

investments, short and long-term obligations. For building a small business good record

keeping, smart budgeting and sound accounting are a perquisite.

Currently SMC has two options i.e. it can either raise fresh equity or raise fresh loan from the

financial institutions which is debt. But the is scenario such that the size of the firm is small

hence it cannot go for an initial public offering hence it has a compulsion to rely on external

funding in form of loans or overdraft as effectively the loans and overdraft are charged by

the bank with same interest rate of around 15%. Hence the company has to have a good credit

history to impress the bankers. The balance sheet of the company have been analyzed and it

has been found that the company has strong liquidity position as it manages short term debt

obligations very well. Hence raising loans for the firm from financial institutions is not a

major issue.

But as the size of the company becomes big it cannot rely only on the loan funds or debt from

the bank as the cost of raising debt is going to be higher and being a services company, the

firm cannot rely on debt for long as this will give negative cash flows as well as this will

make the debt ratios and financial leverage ratios high which can be a risk for the firm. Hence

the company has to go for cheaper source of finance which is initial public offering in which

the investors have to be lured to invest in the firm. This is very important for the company as

to make the people invest in the company it has to make them trust its business and the

management. Then a proper care has to be taken in making sure that an accurate dividend

policy is followed and the earnings per share of the company to the shareholders is as per the

market standards. EPS has to be as per the market standards and the capital gain to be

provided to the shareholders has to be significant so that shareholders maintain their faith in

the company.

19

MARKETING RECOMMENDATIONS

Some recommendations that I will like to suggest apart from the financial recommendation

for the future growth of our organization.

Promotion: Apart from product, price and placement of the organization the one area where

we lag is the promotion of the organization. The visibility that we require in the market is not

up to the mark. We must understand that ours is a relatively young firm compared to other

comparable firms in the market and we need to make ourselves visible to our potential

customers. We have an excellent sales team in place which is working night and day to

promote the company in front of the potential customer. However that is not enough for the

company to grow. As we are involved in B2B marketing we should make a mark in making

our company visible to potential clients. We are currently involved in approaching the

customer to seek business; we should also try using a strategy in which the customer

remembers us/knows us and approach us for business. For doing this we will need to increase

our visibility in the market. Few recommendations for increasing our visibility are:

· We should promote SMC as an individual firm and build its own identity for its

growth. We should go ahead and develop it as a premium brand in the industry which

has expertise in verticals such as the hospitality industry.

· We should understand that this is a digital age and even when we exchange business

cards the name and website of the company is there. People first go and check and

research about the company and try to gather as much information about the company

as they can and only after they think of doing business. What we lack as a business

unit is the visibility over the internet. We need to develop a website for our firm so as

to make it visible over the internet. Currently if we search for “SMC Global

Securities” over Google or any other search engine we are not available in the top

results of any of them. We need to promote our company as SMC Global Securities

therefore we can create a website for us containing relevant content on it so as our

potential customers can see our achievements and the work we do. Apart from this

we can buy Google AdWords for ourselves. They are pretty cheap and this will refine

our search over the internet.

· We can ask our present clients to write us testimonials and references for the work we

have done with them and then boast these testimonials over the internet on our

20

website. This can become a promotional factor over the internet when the potential

customers are looking for doing business with us.

· We can register ourselves in various business award competitions at local as well as

national level. We have done a great job till now and we will continue to do it in the

future. We can contact and join trade associations and boast of our achievement in the

segment we are operating it. And if we can win awards we can boast about them and

put it on the website and keep the trophy in the office for the people who come and

visit our office.

· We can network our networks and get business leads from them. We can ask our

existing customers to spread our word and promote our company when projects come

in the future. Maintaining close contacts with the clients is required for our future

growth.

· We should not loosen our grip over any business leads that come our way. We have to

make sure that the business leads are contacted and report generated about that

meeting. The minutes of meeting should be written down and if any further scheduled

meeting is to be attended, a reminder about that should be made.

· We can outsource the business that is not our core business presently. For example,

the creation of website of our company can be outsourced to a third party vendor who

has an expertise in doing such a job. It will be easier for us and he can tailor the needs

of our website.

· Market research for all the upcoming projects and an Introduction emails should be

sent to the contacts that we can find and in case a contact is found in form of phone

numbers the respected person should be contacted for an audience so that we can

introduce ourselves.

Although we need to spend some part of our budget in these activities however it is a tool that

can bring in business for us and in long term it pays off.

Apart from the above recommendation we shall keep in mind the vision and core of the

company that we shall serve and gain expertise in a sector and make ourselves visible to the

upcoming clients in that industry. Although there may be a constraint on resources ranging

from finance, human resource, talent acquisition to going down on the roads to find and meet

the potential clients we should remember that we need to channel our resources in such a

manner that we become a critical mass in each sector we go ahead and operate.

21

COMPETITION INFORMATION

ICICIDIRECT.COM

Products and Services

A product for every need: ICICIdirect.com is the most comprehensive website, which

allows you to invest in Shares, Mutual funds, Derivatives (Futures and Options) and

other financial products. Simply put we offer you a product for every investment need

of yours.

ICICI Web Trade Limited (IWTL) maintains ICICIdirect.com. IWTL is an Affiliate of ICICI

Bank Limited and the Website is owned by ICICI Bank

Limited

Product & Services:

Trading in shares: ICICIdirect.com offers you various options while trading in shares.

Cash Trading: This is a delivery based trading system, which is generally done with the

intention of taking delivery of shares or monies.

Margin Trading: You can also do an intra-settlement trading up to 3 to 4 times your

available funds, wherein you take long buy/ short sell positions in stocks with the intention of

squaring off the position within the same day settlement cycle. (ONLY for intraday)

22

INDIA BULLS

India bulls Group is one of the top business houses in the country with business interests in

Real Estate, Infrastructure, Financial Services, Retail, Multiplex and Power sectors. India

bulls Group companies are listed in Indian and overseas markets and have a market

capitalization of over USD 7 billion. The Net worth of the Group exceeds USD 2.5 billion.

India bulls Group companies enjoy highest ratings from CRISIL, a subsidiary of Standard

and Poor’s. India bulls has been conferred the status of a “Business Super brand” by The

Brand Council, Super brands India.

India bulls Financial Services is an integrated financial services powerhouse providing

Consumer Finance, Housing Finance, Commercial Loans, Life Insurance, Asset Management

and Advisory services. India bulls Financial Services Ltd is amongst 68 companies

constituting MSCI - Morgan Stanley India Index. India bulls Financial is also part of CLSA’s

model portfolio of 30 Best Companies in Asia. India bulls Financial Services signed a joint

venture agreement with Sogecap, the insurance arm of Societé Generale (SocGen) for its

upcoming life insurance venture. India bulls Financial Services in partnership with MMTC

Limited, the largest commodity trading company in India, is setting up India’s 4th Multi-

Commodities Exchange.

ABHIPRA

Beginning as a Broking House, we grew into Business House. We broadened our horizons

and stepped into the field of Depository, Stock Broking, Full-Fledged Money Changing

Services, Category I Registrar & Transfer Agent, Commodity Trading, Online Trading

(Equity, F&O & Commodity), e-Return Intermediary. Abhipra today commands the status of

being one of the leading Depository Participants of Northern India in Private Sector.

Moreover, Abhipra has Trading Terminal Outlets for NSE & BSE spread to almost every

nook & corner of Northern India.

23

Abhipra Capital Limited is also empanelled as a Depository Participant with one of the

premier Commodity bourse, National Commodities and Derivatives Exchange Limited

(NCDEX). So a client now can open Commodity Demat Account with us

At Abhipra, we offer our clients far more than merely a comprehensive range of financial

services. We offer them ideas, innovations, and solutions with extra-ordinary results. We feel

that quality is an essential ingredient in building successful businesses. Not only do products

and services need to be of high quality, but potential customers also need to have assurance

that the products will be of high quality. This is evidenced from the fact that Abhipra is a ISO

9001 (Quality Assurance Systems) Registered Company.

KOTAK SECURITIES:-

Kotak Securities Limited, a subsidiary of Kotak Mahindra Bank, is the stock broking and

distribution arm of the Kotak Mahindra Group. Kotak Mahindra is one of India's leading

financial institutions, offering complete financial solutions that encompass every sphere of

life. From commercial banking, to stock broking, to mutual funds, to life insurance, to

investment banking, the group caters to the financial needs of individuals and corporate.

Kotak Securities was set up in 1994. Kotak Securities is a corporate member of both The

Bombay Stock Exchange and the National Stock Exchange of India Limited.

The company has four main areas of business:

· Institutional Equities,

· Retail (equities and other financial products),

· Portfolio Management and

· Depository Services.

24

MOTILAL OSWAL:-

Motilal Oswal Securities Ltd. was founded in 1987 as a small sub-broking unit, with just two

people running the show. It has established itself as the Best Local Brokerage House in India

(Asia Money Brokers’ Poll 2005). Their Institutional Equity Division combines the efforts of

the Research and Sales & Trading departments to best serve clients' needs. Consistent

delivery of high quality advice on individual stocks, sector trends and investment strategy has

established them as a reliable research unit amongst leading Indian as well as international

investors.

25

OBJECTIVES AND METHODOLOGY

SIGNIFICANCE

This project will accomplish to understand the problem faced by the new client with

respect to online share trading and find ways to solve their queries at microscopic level. The

study also aims to highlight the possible hurdles that a prospective client faces who are

interested to investing insecurities but is unaware of the system of online share trading. The

project is to study the effectiveness of the stock exchange as this is one of the best way of

investment.

OBJECTIVES

Before starting any project, we should keep in mind the clear objectives of the project

because in the absence of the objectives one cannot reach the conclusion or end result of the

project.

So, the objective of my project is to:

· To analyze the Securities market & Financial Instruments to judge

the future prospects of online trading for SMC GLOBAL

SECURITIES.

Stock market of India is now been one of the fascinating market worldwide. Indian is among

the top ten destination of the world to which global player want to invest.

Research comprises defining and redefining problems, formulating hypothesis or suggested

solutions; collecting, organizing and evaluating data; making deductions and reaching

conclusions; and at last carefully testing the conclusions to determine whether they fit the

formulating hypothesis.

26

In short, the search for knowledge through Objective and Systematic method of finding

solutions to a problem is Research.

SCOPE OF THE STUDY

Since better broadband connectivity across the country and wider awareness of equity as an

asset class will push the online trade volumes to over 50% of total Trade therefore it is

relevant to the future prospects emerging in the stock market.

In order to compete with the online trading market leader like ICICI the company has to work

a lot on Online Trading in order to get the competency with other players.

Since the online trading is accepted by major players in the Indian Stock Market, the

importance of Online Trading has increased over the past decade therefore it is very

important to consider the Online Trading as a future of the Indian Stock Market.

This project would also tell us about the working of the Indian Stock Market and the forces

acting in the Online Trading.

27

Risk Management System

The stock broking industry is associated with two type of risk, viz internal risk and external risk which includes very high risk in terms of volatility of stock prices, daily collection of payments from clients etc. In view of above, to avoid suck risks and to survive in this competitive environment, Company itself maintain Risk Management system follow up regular basis at the separate client level activities. To protect the capital & interest of the company for good self, the risk of the daily business is ascertained regularly by the separate department named Risk Management Department. Pursuant to the commitment of our business activity towards enhancing investor protection and providing greater transparency we have endeavored to bring out some rules & regulation of the Exchange and in house to the client and as well as update the system. The working activities are furnished below.

28

Registration of client

The KYC (Know Your Client) form shall be complete in all respect. The form shall be duly signed and all the documents which are marked as mandatory in the Form shall be enclosed. Adequate Due diligence of clients shall be done, along with proper verification of the documents with the original. The name of the client given in the PAN Card should tally with the name mentioned in KYC. Also verify the PAN from Income Tax website. The form shall be scrutinized and then the client shall get registered. Also, an internal audit shall be conducted in respect of all the forms, which has been executed for opening the Client Accounts. Any deficiency observed, shall be pointed out and it should be rectify with the immediate effect.

Initial Collection of Margin

Initial minimum margin shall be taken from all the clients. Accordingly the exposure limit shall be set. It can be in the form of cheque or by share pledge. At the time of share pledge, the value of closing price of share of the previous day shall be considered & effect of margin share capital provided to client for daily trading after deduction of haircut of 30-50 %. Margin registers shall be maintained by the RMS (Risk Management System) Department (soft & hard copy) for cash margin deposit or share margin deposit. Bank clearance cheque shall be followed through accounting system and the effect shall be given to the right client account through proper scrutiny.

Day To Day Operation

After opening of the client account in the back office, the capital limit for the client in the front office trading terminal server shall be set according to margin deposit. Before market hour, the Exchange information for free fresh trading capital shall be checked on a daily basis

Front office Trading

The trading exposure to the clients shall be allowed by 3 to 6 times gross exposure on cash or share margin deposit. For daily turnover it shall be allowed upto 10 times (buy + sale) against the margin deposit. The RMS server, in which the client code is mapped, shall control the daily exposure of the individual client and if any time set limit cross by the client, then system shall be block by default. Any time, when the exposure limit cross by the client then, fresh capital for trading exposure shall be set according to dealer request and side by side the scrutiny by the RMS (Risk Management System) Department shall be done on the fresh collate deposit by the client or current margin stock valuation after deducting hair cut. This fresh capital shall be treated as additional base capital. The margin data as span margin & var

29

margin data shall be provided to the client according to Exchange guide lines. Client related data such as F&O ban report to be provided to all the Branches, Sub brokers and clients and particularly F&O ban script suspended for trading, shall be locked through server. Exchange side operation - we follow up: The utilization of exposure shall be followed as per real time basis with the Exchange and according to the requirement with the custodian the necessary action shall be taken. The track of gross exposure utilized by the client above 70 % utilization of the exposure shall be done through RMS server at the time of trading hour towards.

System Upload

After trading hour, the trading data by the back office system shall be uploaded and electronic contract notes shall be issued and it shall be send through mail server. Client related data as open position, exercise & assign report, etc. shall be provided to all the clients through mail server.

Debtor & Creditor Management

Pay in & pay out of fund & securities operation shall be done within the time frame given by the Exchange. Securities shall be transferred to the respective clients Demat Account only on receipt of payment from them. Also, in case of sale of shares by the clients, the payment shall be made to them only when the shares be delivered by them in the Company's demat account.

Pay in fund - debit balance

The cheque can be either collected from the client or if the client deposited it directly in the bank of the Company, the effect in the client account shall be done only after verification in the bank book or bank deposit slip. The high value trade of both buy & sale side shall be treated cautiously and therefore early pay in & pay out funds or securities shall be done accordingly and also the benefit arises shall pass on to the client accordingly. Any additional margin levied by the Exchange shall be informed to the client & if any credit balance is available in the client's account, it shall be utilized for utilization of margin. If any cheque given by the client gets dishonored, it shall be taken care of before the fund pay out day. Also for the time being, client account shall be locked/freeze to avoid further trades by the said client and accordingly the client or the dealer shall be informed about the insufficiency of funds. Pay out of securities shall be done to the system generated procedure & only after verification of the same, the shares should be released according to credit position or on receipt of cheque from them. If any debit balance is lying in the client's ledger the shares shall be kept in the beneficiary account of the Company. These shares shall be released only on the receipt of payment by the client. The analysis of the debit client management shall be done by the system generated ageing report on weekly basis.The cheque shall be collected from client with in T+0 or T+1 day on day trading loss for trade or MTM loss.

30

Square Off Of Positions

In case a client defaults in his dues/ margin call we give him reminder calls and in the extreme cases only square off his position.

Margin Collection & Margin Reporting

Exchange data regarding margin levied by the Exchange for T+1 or T+2 days & in F&O segment, Span margin levied by the Exchange shall be informed to the clients via mail and margin reported MG 13 file shall be uploaded to the Exchange after collection of margin & updated figure according to client books shall be provided to the Exchange on a regular basis. Separately from back office side, the information to the client for margin collection shall be sent with in T+0 or T+1 day end. Any margin shortfall reported by the client shall be produced to the Exchange (for MG 13 reporting) and side by side trade exposure shall be reduced by squaring up trade or by locking the client account and accordingly the information shall be sent to the client. Any penalty levied by the Exchange shall pass on to client account on giving prior intimation to the client.

Online Trading Account and Demat Account

After the introduction of the online trading systems it is very easy to do online trading with

just a PC and an internet connection. All you need to do is just open a Demat account and a

trading account with a depository participant or DP. DP is connecting Depository to

investors. Depository is the people who stores shares in electronics form. In India there are

two depositories, NSDL and CDSL.

Most of the banks and brokerage houses provide trading account and Demat account. To

open a Demat account you need many things like PAN card, address proof, bank account etc.

To know more about Demat account Opening a Demat Account

31

CONCEPTUAL DISCUSSION

INVESTOR PERCEPTION

SEBI in association with National Council of Applied Economic Research (NCAER)

conducted a Survey of Indian Investors in 1998-99 and then followed it up in 2000-01. The

survey of 2000-01 was based on a sample of 288,081 geographically dispersed rural and

urban areas. The findings of this survey were released in September 2003. The survey

estimated that a total of 13.1 million or 7.4 per cent of all Indian households totaling 21

million individuals directly invested in equity shares or debentures or both during 2000-01.

The other findings are as listed below:

1. The number of debenture owning households and individual debenture holders far

exceeds household and individual equity investors. Of the total 13.1 million investor

households, 9.6 million households owned bonds or debentures, whereas only 6.5

million investor households owned equity shares.

2. The percentage of households investing in equity or debentures is more in urban areas

than in rural areas. This divergence is more in case of equities compared to debentures.

Of the 51 million urban households, 7.8 million households representing more than 12

million urban individual investors owned equity shares or debentures or both. Whereas,

of the 125 million rural households, only 5.3 million households representing more

than 8 million individual investors shows a definite migration of investors from equity

market to bond market during the period between the two surveys.

3. The survey results also clearly reveal that number of non-investor households

have increased from about 156 million in 1998-99 to nearly 164 million in 2001-02

constituting nearly 92.6 per cent of all households.

4. It was also observed that the investor population and town size are directly

proportional. The largest city with more than 50 lakh population accounted for about 17

per cent of investor households and the next higher segment, more than 31 per

cent investor households were in towns with population between 10 and 50 lakh.

32

Primary Market

An aggregate of Rs. 2,676,600 million were raised by the government and corporate sector

during 2005-06 as against Rs. 2,572,201 million during the preceding year. Government

raised about two third of the total resources, with central government alone raising nearly Rs.

1,476,360 million.

Corporate Securities

The average annual capital mobilization from the primary market has grown manifold since

the last two-three decades. It received a further boost during the first half of 1990s

with the capital raised by non-government public companies rising sharply from Rs. 43,120

million in 1990-91 to Rs. 264,170 million in 1994-95. Thereafter, there has been a decline

due to conditions prevailing in the secondary market. However, the year 2005-06 took a

turnaround in its performance as compared to the previous year by mobilizing Rs. 32,100

million. The capital raised, which used to be less than 1% of gross domestic saving (GDS) in

the 1970s increased to about 13% in 1992-93 but thereafter witnessed declines. Though there

has been a considerable increase in the amount mobilized in 2005-06, when seen as a

percentage of GDS, it is 1.20% (Table 1-8). Data in Table 1-9 shows that there is a

high preference for raising resources in the primary market through private placement route.

Private placements accounted for 89% of total resources mobilized through domestic issues

by corporate sector during 2005-06.

Indian market is getting integrated with the global market, though in a limited way through

Euro Issues. Since they were permitted access in 1992, Indian companies have raised about

Rs. 30,980 million through American Depository Receipts (ADRs)/Global Depository

Receipts (GDRs).

FIIs have invested heavily in Indian market in 2005-06. They had net cumulative

investments of US$ 38.75 billion as at end of March 2009. There were 745 FIIs registered

with SEBI as of end March 2009.

It appears that more and more people prefer mutual funds (MFs) as their investment vehicle.

This change in investor behavior is induced by the evolution of a regulatory framework for

MFs, tax concessions offered by Government and preference of investors for passive

33

investing. Starting with an asset base of Rs. 250 million in 1964, the total assets under

management at the end of March 2009 have risen to Rs. 1,396,160 million. During the last

one decade, the resources mobilized by the MFs are increased from Rs. 112,440 million in

1993-94 to Rs. 476,840 million in 2005-06.

Secondary Market

Corporat e Securities

There are 23 exchanges in the country, which offer screen based trading system. The trading

system is connected using the VSAT technology from over 357 cities. There were 9,368

trading members registered with SEBI as at end March 2009 (Table 1-10).

The market capitalization has grown over the period indicating more companies using the

trading platform of the stock exchange. The all India market capitalization is estimated at Rs.

13,187,953 million at the end of March 2009. The market capitalization ratio defined as the

value of listed stocks divided by GDP is used as a measure of stock market size. It

is of economic significance since market is positively correlated with the ability to mobilize

capital and diversify risk. It increased sharply to 52.3% in 2005-06 against 28.5% in the

previous year. The trading volumes on exchanges have been witnessing phenomenal growth

over the past decade. The trading volume which peaked at Rs. 28,809,900 million in 2000-

01, fell substantially to Rs. 9,689,093 million in 2004-05. However, the year 2005-06 saw a

turnaround in the total trading volumes on the exchanges. It registered a volume of Rs.

16,204,977 million. The turnover ratio, which reflects the volume of trading in relation to the

size of the market, has been increasing by leaps and bounds after the advent of screen based

trading system by the NSE. The turnover ratio for the year 2005-06 accounted at 122.9%.

The relative importance of various stock exchanges in the market has undergone dramatic

change during this decade. The increase in turnover took place mostly at the big exchanges.

The NSE yet again registered as the market leader with more 85% of total turnover (volumes

on all segments) in 2005-06. Top 5 stock exchanges accounted for 99.88% of turnover, while

the rest 18 exchange for less than 0.12% during 2005-06 (Table 1-11). About ten exchanges

reported nil trading volume during the year.

S&P CNX Nifty is the most widely used indicator of the market, .The index movement have

34

been responding to changes in the government’s economic policies , the increase in FIIs

inflows , etc. However, the year 2005-06 witnessed a favorable movement in the Nifty,

wherein it registered its all time high in January. The movement of the S&P CNX

Nifty, the most widely used indicator of the market, is presented in Chart 1-1. The index

movement have been responding to changes in the government’s economic policies , the

increase in FIIs inflows , etc. However, the year 2005-06 witnessed a favorable

movement in the Nifty, wherein it registered a high in January 2009 of 2014.65. The

point-to-point return of Nifty was 80.14% for 2005-06.

Resources mobilized through public Issues (Amount in Rs. Million)

Year Resources raised by % of GDS % of Mobilisationnon-government disbursement By MF

companies by Fis

1991-92 43,120 3.32 33.66 750,800

1992-93 61,930 4.38 38.08 112,530

1993-94 198,030 12.76 85.54 130,210

1994-95 193,300 9.98 74.85 112,430

1995-96 264,170 10.48 78.69 112,750

1996-97 160,750 5.34 41.59 –583,30

1997-98 104,100 3.28 24.40 –203,70

1998-99 31,380 0.84 5.85 40,640

1999-00 50,130 1.27 8.59 36,110

2000-01 51,530 1.11 7.51 199,532

2001-02 49,490 1.01 6.89 111,350

2002-04 56,924 1.17 10.18 71,370

2003-05 18,777 0.74 18.37 45,830

2004-06 32,100 1.20 15.08 476,840

Government Securities

The primary issues of the Central Government have increased manifold during the decade of

1990s from Rs. 89,890 million in 1990-91 to Rs. 1,476,360 million in 2005-06 (Table 1-9).

The issues by state governments have also increased over this period from Rs. 25,690

million to Rs. 505,210 million. The Central Government mobilized Rs. 1,215,000 million

through issue of dated securities and Rs. 261,360 million through issue of T-bills. After

meeting repayment liabilities of Rs. 326,930 million for dated securities, and redemption of

T-bills of Rs. 261,260 million, net market borrowing of Central Government amounted to

35

Rs. 888,160 million for the year 2005-06. The State Governments collectively raised Rs.

505,210 million during 2005-06 as against Rs. 308,530 million in the preceding year. The

net borrowings of State Governments in 2005-06 amounted to Rs. 463,760 million. The

trading in government securities exceeded the combined trading in equity segments of all the

exchanges in the country during 2005-06. The aggregate trading in central and state

government dated securities, including treasury bills, increased by manifold over a period of

time. During 2005-06 it reached a level of Rs. 26,792,090 million. The share of WDM

segment of NSE in total turnover for government securities decreased marginally from 52%

in 2004-05 to 47.6% in 2005-06. However, the share of WDM segment of NSE in the total of

Non-repo government securities increased marginally from 74.01% in 2004-05 to

74.89% in 2005-06.

Along with growth of the market, the investor base has also widened. In addition to banks

and insurance companies, corporate and individual investors are also investing in government

securities. Due to the soft interest rate policy pursued by the RBI, the coupon rates offered on

government borrowings have fallen sharply. The weighted average costs of its borrowing

have declined to 5.71% in 2005-06. The maturity structure of government debt is also

changing. About 77% of primary issues were raised through securities with maturities above

5 years and up to 10 years. As a result the weighted average maturity of dated securities

increased to 14.94 years in 2005-06.

Derivative Market

The number of instruments available in derivatives has been expanded. To begin with, SEBI

only approved trading in index futures contracts based on S&P CNX Nifty Index and BSE-30

(Sensex) Index. This was followed by approval for trading in options based on these two

indices and options on individual securities and also futures on interest rates

derivative instruments (91-day Notional T-Bills and 10-year Notional 6% coupon bearing as

well as zero coupon bonds). Now, there are futures and options based on benchmark index

S&P CNX Nifty and CNX IT Index as well as options and futures on single stocks.

The total exchange traded derivatives witnessed a value of Rs. 21,422,690 million during

2005-06 as against Rs. 4,423,333 million during the preceding year. While NSE accounted

for about 99.5% of total turnover, BSE accounted for less than 1% in 2005-06. NSE has

36

created a niche for itself in terms of derivatives trading in the global market.

Rationale behind Study

As result of reforms in financial and real sector new investment alternatives have emerged.

There was a time when few individuals possessed majority of the wealth in the society. With

the efforts of government our economy witnessed significant growth, which led to uniform

distribution of income in society. As a result income of masses started rising and they started

looking for suitable investment avenues, to achieve their financial goals. From savings

accounts, fixed deposits, post office savings schemes, several other investment alternatives

have emerged such as capital markets, mutual funds, commodities market, insurance

derivatives etc. There has been a major shift towards risky investments in order to earn higher

returns. There were also scams like US-64, Harshad Mehta’s scam, which forced investors to

make changes in their portfolio. But after government efforts investors’ confidence is

restored in equity markets, which led to growth in financial services sector. After this period

in today's market scenario we find Indian economy still struggling while the world is facing

massive recession. Indian economy is in such position because it is still in its developing

stage and so there is so much more to explore and develop. Recently market has faced

downtrend but still holding on and offering new investment avenues to investors and still

offers lucrative benefits to investors.

SMC GLOBAL AND SECURITY plays a very important role along with other players in the

market in current scenario by offering its financial services. Investors today are going in for

saving their money instead of investing it in the market due to current market situation.

Government of India is making constant efforts to support the economy by decreasing

interest rate on loans of all types. This showed a positive growth in the market by investors

turning back to the market. Also constant efforts have made auto industry to lower down the

rates of automotives and private banks also lowered their interest rates on loans to help Indian

investors to come forward and step in the market.

Thus, this study helps in understanding current market volatility and solutions to deal with it,

so as to find future prospects for \SMC GLOBAL AND SECURITY and answer questions

like, how to deal with recession evils? How to protect investors interest? How to sustain

market position and market share?

37

To understand it and deal with it one always has to go to the basics that is the investors and

the reason investor invests is his motive.

Motives for investment may vary from person to person, but there are some common desires.

Everybody expects some return out of investment. Investors are also concerned about the

safety of investment. And, in case of an emergency, people want their money back, quickly.

Hence, there are three criteria’s to evaluate every investment avenue:

1. Safety 2. Liquidity 3. Returns

Products & Services

SMC customers have the advantage of trading in all the market segments together in the

same window, as they understand the need of transactions to be executed with high speed and

reduced time. At the same time they have the advantage of having all kind of Insurance &

Investment Advisory Services for Life Insurance, General Insurance, Mutual Funds, and

IPO’s also.

SMC is a customer focused financial services organization providing a range of investment

solutions to their customers. They work with clients to meet their overall investment

objectives and achieve their financial goals. Their clients have the opportunity to get

personalized services depending on their investment profiles. Their personalized approach

enables clients to achieve their Total Investment Objectives.

Their key product offerings are as follows:

o Equity Trading

o Commodity Trading

o Depositary Services

o Portfolio Tracker

o Life Insurance

o General Insurance

o Mutual Fund

38

COMPANY FINANCIALS

The above shown graph depicts the revenue generated by SMC in 6 months starting from

September, 2010 to March’2011. This graph shows an upward sloping trend line. If we

look at the numbers, we see a 343% growth in the revenues from 29.05 lakhs in Sept’07 to

128.89 lakhs in March’08.

Though, there have been a few slips in January and March but over all its presents financials

of a growth company.

ONLINE Vs OFFLINE TRADING

Internet trading is expected to:

· Increase transparency in the markets.

39

Month Revenue (in Lakhs)

Sep ‘07 29.05Oct ‘07 60.27Nov ‘07 79.61Dec ‘07 107.94Jan’08 104.37Feb’08 140.43Mar’08 128.89

· Enhance market quality through improved liquidity, by increasing quote continuity

and market depth.

· Reduce settlement risks due to open trades, by elimination of mismatches.

· Provide management information system (MIS).

· Introduce flexibility in system, to handle growing volumes easily and to support

nationwide expansion of market activity.

· Besides, through Internet trading three fundamental objectives of securities regulation

can be easily achieved, these are: Investor protection, creation of a fair and efficient

market and, reduction of the systematic risks.

The investors would be able to track the fluctuations in a particular stock and the market as a

whole, while deciding to execute the order and also while the order is being executed. The

confirmation of the order would also be real time. The order routing system on which net

trading will be done is compatible with screen-based trading terminals used today.

Internet trading brings in total transparency between a broker and an investor in case of

secondary market operations. When the open outcry system was prevalent, only the broker

knew the actually transacted price. This practice diminished significantly when it was taken

over by screen-based trading. With on-line trading, investors can now see for themselves the

price at which the deal takes place.

It will also reduce transaction costs, increase liquidity in the market and ensure total

transparency. It allows quick and easy access to valuable research and information to an

investor and enables him execute transactions faster and more efficiently on a real time basis.

The volume of trade has also increased and has provided depth to the market. Thus, in a nut

shell, we can summarize the difference between online and offline trading as follows:

ONLINE OFFLINE

1. In online trading mechanism the

customer has full control on his Demat

and trading a/c.

2. Investor in online trading can easily

transfer it funds.

3. Broking houses providing online trading

In offline the investor has no control.

The investor needs to deposit and withdraw

fund each time of trading.

40

also provides live terminals to their

clients.

4. The broker provides investor at online

trading with advisory facility.

5. Online investor can directly invest into

IPO’s and Mutual funds also.

6. Investor can place order even after the

market closes.

7. The client can globally access the

account and can trade anywhere in the

world where Internet facility is

available.

8. No documents are required for trading.

9. Any Demat/DP account can be attached

with any company’s trading account.

10. Online trading is time effective

11. No pool account is maintained at online

process

No live terminal is provided.

Offline investors are deprived of advices.

Offline trader needs to open separate

account.

Investor cannot place After Market Order

(AMO).

Trader cannot trade away for the place

where he/she has opened its account.

DI slips are required for trading.

The Demat account cannot be linked with

any trading account.

It is time consuming process.

In offline pool account are maintained.

SEBI Guidelines for online Trading

According to SEBI guidelines on Internet trading, brokers providing e-trading must have a

minimum net worth of Rs. 50 lakhs, besides obtaining specific permission of the stock

exchange concerned. Stock exchanges should ensure that the systems used by the broker

provide for security, reliability and confidentiality of data through use of the encryption

technology. For signatures, participants should use authentication technologies and

certification agencies as and when notified later.

Stock exchanges should also ensure that brokers maintain adequate back-up systems and data

storage capacity. Brokers should have adequate system capacity for handling data transfer

and arrange for alternate means of communication in case of Internet failure. The following

security features are mandatory for all Internet-related trading systems:

41

User ID.

First level password.

Automatic expiry of password at the end of reasonable duration.

All transaction logs with proper audit facilities to be maintained in the system.

Secured socket level security server for access through Internet.

Suitable firewalls between trading set up directly connected to an exchange trading

system and the internet trading set up.

Internet Trading

At the end of March 2010, 78 trading members on the CM segment provided internet based

trading facility to investors. The members of the exchange in turn had registered 849,696

clients for web based access as on March 31, 2010. In the CM segment about 499 lakh trades

for Rs. 81,034 crores, constituting 7.11% of total trading volume, were routed and executed

through internet. The following table gives the growth of internet trading.

42

Year EnabledMembers*

RegisteredClients*

2001-02 3 -

2002-03 61 123578

2003-04 82 231899

2004-05 80 346420

2005-06 70 463560

2009-07 78 849696

Year Trading Volume(Rs. Crore)

% of total tradingvolume

2000-01 - -

2001-02 7287.81 0.54

2002-03 8138.81 1.59

2003-04 15360.76 2.48

2004-05 37945.08 3.45

2005-06 81033.81 7.11

(Source: - www.nseindia.com)

By the end of Dec. 2009 the number of clients doing the online trading has increased to

13lacs.

Liquidity

The liquidity in the CM segment, as measured by the turnover ratio, has witnessed a steady

increase and reached nearly 10.13% during March 2010. More than 98.02% of securities

available for trading are being traded every month and 95.6% of the securities were traded for

at least 100 days during 2005-06, as indicated below:

Distribution of Turnover

The concentration of trading among top ‘N’ securities/brokers. It is observed that the top ‘5’

and ‘100’ securities account for about 25.88% and 84.26% of total turnover in the CM

segment in 2005-06. The details of ‘50’ most active securities during 2005-06, which

accounted for 78.40% of turnover Broker-wise distribution of turnover increasing diffusion of

trades among a large number of trading members over the years. During 2005-06, top ‘5’

brokers accounted for only 13.52% of turnover, while top ‘100’ brokers accounted for

65.09% of total turnover. The following shows the turnover of the trade done through

internet.

Trade Date Settlement No. No. of Trades Turnover (Rs.cr)

5-May-2010 2010082 649071 1182.21

4-May-2010 2010081 655428 1234.84

3-May-2010 2010080 680710 1260.11

43

2-May-2010 2010079 669625 1216.86

29-Apr-2010 2010300 308508 735.79

28-Apr-2010 2010078 652819 1326.26

27-Apr-2010 2010077 677594 1597.00

26-Apr-2010 2010076 565581 1353.48

25-Apr-2010 2010075 613816 1263.89

24-Apr-2010 2010074 614635 1356.16

21-Apr-2010 N2010073 681553 1375.54

20-Apr-2010 N2010072 585334 1143.46

19-Apr-2010 N2010071 607168 1200.28

18-Apr-2010 N2010070 568237 1052.51

17-Apr-2010 N2010069 501438 922.51

13-Apr-2010 N2010068 686576 1315.20

12-Apr-2010 N2010067 681800 1284.18

10-Apr-2010 N2010066 570339 1143.94

7-Apr-2010 N2010065 758906 1655.68

5-Apr-2010 N2010064 633591 1306.19

4-Apr-2010 N2010063 635877 1238.40

3-Apr-2010 N2010062 591383 1180.07

MARKET CAPITALIZATION

The total market capitalization of securities available for trading on the CM segment

increased from Rs. 363,350 crore as at end March 1995 to Rs. 1,585,585 crore as at end

March 2010. Top 50 companies account for 69.21% of total market capitalization as at end

March 2010.

SECTORAL DISTRIBUTION

The share of top '50' companies, classified according to different sectors, in terms of trading

volume and market capitalization. A drastic change in the importance of different sectors is

observed since NSE commenced trading. The share of manufacturing companies in trading

volume of top '50' companies, which was more than 23% in 1998-99, had witnessed a decline

in the years 2001-02 and 2002-03, but a turnaround was noticed in the year 2003-04 (it

accounted for 37.66%) which was also maintained till 2009-07 with the share of

manufacturing companies rising to 41.81%. As compared to this, the share of information

technology (IT) companies in trading volume, which had been quite high in the year 2000-01,

witnessed a considerable decline and stood at only 19.56% in 2005-06. A mixed trend has

44

been noticed in these sectors in terms of market capitalization. Sectors like manufacturing,

which used to dominate in terms of market capitalization in the year 1999-00 witnessed a dip

in 2002-03, however this sector has witnessed a rebound and accounted for 31.13% and

23.35% in 2005-06 and 2009-07 respectively. The IT sector has also shown a turnaround this

year with 22.54% in the top ‘50’-market capitalization in 2009-07.

ONLINE TRADING WITH SMC

SMC launched online trading in June, 2009 in addition to the traditional offline mode

of trading on NEATXSV4. Since then SMC has managed to a fair share of client base

which is very much visible from the company financials.

SMC is doing a good job in the offline industry as it has established a good brand

name for itself in a short span of time.

But looking at the competition, the company decided to launch its online trading

portal in June, 2009.

Besides, being up in the line of competition, Online trading also helps the company to

cut recurring costs as it happens in offline trading.

Though, setting up online trading infrastructure requires one time set up cost like the

cost of software, bandwidth charges, skilled manpower etc. which is quite high. But

the benefits are recurring as the online trading is about volumes. Larger the client

base, higher the revenues.

This is screenshot of SMC, which is the online trading software of SMC.

Features of SMC

A browser based trading software that enables clients to access their accounts from anywhere

using internet by a unique ID and password. This facility is available to all the online clients

the moment they get registered with SMC INVESTMENT

SOLUTIONS & SERVICES

The product has a lot of features which provides various benefits to clients:

45

1) The screen gives live streaming quotes from respective exchanges. The client has an

option of having “live” Multiple Windows for different exchanges and his personal window

where he can add the scrips of his choice and save it.

2) It provides a Common window for display of market watch and order execution where the

client can click + (plus) for Buy and – (minus ) for Sell or Click on the scrip and Press F1 to

Buy and F2 to sell which provides an easy trading facility to the client. It also provides an

Offline order placement facility.

3) Before Buying or Selling, the client can watch the Market Depth, which tells about Best

Buy/Sell rates and Quantities etc of that security & also enables the clients to use the Stop-

loss Feature to minimize their losses.

4) A very useful feature of the product is FIRE THE TRIGGERFIRE THE TRIGGER,, whichwhich lets the client set an

“Alert” for itself to indicate a certain price of the scrip. The user can set a different color or

an audio alarm.

5) It enables clients to transfer funds online from their bank account

to SMC trading account. SMC has banking integration with PNB, HDFC,AXIS Bank.

6) It also enables the clients to view the transactions (Buy or Sell) done during the day.

Beside the rate, quantity, type of account etc, the client can also view the order number,

time of transaction & can also get the details of entire fortnight.

7) The client can see the Bids/Offers that are not yet executed by the Exchange and has the

options to “Modify” and “Cancel” the Order.

8) Greater exposure for trading on the available margin & DP MARGIN STOCK with very

competitive commission.

9) It also provides Real time updating of exposure and portfolio while trading & Online

Integration of trading a/c with two common depositories to help move clients shares to and

fro with ease.

They also have the authority to square of the positions of the clients who don’t pay their

margin money.

IT shares the responsibility of supporting the entire system so that it runs smoothly.

How to do trading with our SMC Swift Model:-

46

Step 1

Install the Software provided by us and register urself on the software

Step 2: Check the Current Status of the account

Step 3: Check the limit assigned

47

Step 4 Account Valuation

Step 5 To Buy

48

To Sell

ORDER BOOK

49

TRADE BOOK

Default Limit and Exposure to the Clients:-

1. For Liquidated Value greater than or equal to 2 LAC, default limits will be

opened in Intraday ten times and Delivery Three times (Only on a Cat) on

Cash market and one time on FNO market of Net Margin.

2. For Liquidated Value less than 2 LAC, default limits will be opened in

Intraday five times and Delivery Three times (Only on a Cat) on Cash

market and one time on FNO market of Net Margin .

50

Square Up:

It is a margin status when percentage of coverage is less then 25% when

comparing funding stock (A cat stock) with gross margin. It is a last alert that

the position of client may be squared up at any time if the Percentage of

coverage goes below 25%. It is a last alert that something must be done either

by reducing the position or enhancing the margin .It is a point where the

position of the client is squared up.

NORMAL SQUARE OFF (LESS THEN 25%) –

This activity has been done on daily basis with the help of software driven

Batch file (provided by the IT department). Codes which have been not

uploaded in the Batch file due to any exceptions are any commitment from

Branch end are done manually if commitment fails.

Sauda of a client BELOW 25% will be compulsory squared off next morning, in

case no proper reply received from the concerned RM/Branch.

Proper Reply here shall mean:

- Amount is being transferred to top up the margins only through a transfer

Cheque or Demand draft subject to the condition that the transfer Cheque or

Demand draft is reflected in the bank as having been deposited before 2:00

P.M.

- The reply should Specify what positions shall be squared off before that

10.30 a.m. , in case the same is not done to the extent of bringing the clients

margin above the required 50% margin levels , the RMS shall block the

client and square off the balance position so as to bring the client above the

required margin levels.

Margin Call square off process:-

51

1. Preparation of square off cases report.

2. Preparation of Batch File for Automated Square off.

3. Reconciliation of Batch File after and before it has been executed.

4. Consolidation of square off replies of margins from Branch end and make it considered.

5. Preparation of Exceptions client List.

6. Making note of commitments from Branch and Regional Heads against square off codes and make follow up accordingly.

7. Preparation clients Cheque deposit details.

Before: - We have to make sure that the batch file has been created according to

square off policy of RMS. All exceptions and necessary details has been taken

into consideration or not.

After: - After execution of the batch file we have to check that every order of

the file is properly executed or not and if there is any rejection then immediate

action to be taken (Rejection to be squared manually)

SQUARE OFF 5TH DAY LEDGER DEBIT CLIENTS (NON LAS):- This

activity is done on the Manual basis only. The process of square off 5th day

ledger debit is same as Normal Square off; only difference is that it is done

manually. To square off we have to prepare NON LAS LEDGER DEBIT

REPORT.

52

BIBLIOGRAPHY

1. Magazines and Journals:

S & P Emerging Stock Market Factbook

SEBI Bulletin

The Economic Times

The Mint

The Hindustan Times

The Times of India

The Wallstreet Journal

Indian Economy Magazine

Financial Management (Prasanna Chandra 12th Edition)

2. Websites

www.cmie.com

www.rbi.org.in

www.SMCindia.in

www.nse-india.com

www.wikipedia.com

www.ask.com

www.google.co.in

www.sebi.gov.in

http://moneycontrol.com/

53