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Executive Summary

Indian securities markets have undergone many changes during the last
decade. Exponential growth in trading volumes is pushing existing trading
systems and processes to capacity and increasing settlement risk. With
Indian market moving to a T+3 rolling settlement cycles in line with global
markets, SEBI is continuing its efforts to increase the efficiency and
transparency in Indian markets. Indeed it has been SEBI endeavor to make
the Indian markets, one of the most competitive and efficient markets of the
world.
Income, Savings mobilization and promotion of investment are functions of
the stock and capital markets which are a part of the organized financial
system in India.
This Project titled An Overview of Indian stock market is an attempt to
understand the stock market and role played by Indian retail Brokerage Firms
in stock market. The objective of brokerage firms is to help the investor to
minimize the risk involved in investment and maximize the return. Some of
the main characteristics of the brokerage industry include growth in ebroking; growing derivatives market, decline in brokerage fees etc. An
endeavor was also made to understand the role played by Indiabulls
Securities compared to its competitors in Indian retail brokerage market.
The role played by Indian retail brokerage industry is of immense
significance, taking into account the health of the capital markets and the
intensity of competition among the brokerage companies.

Table of Contents
Particulars

Page No

Chapter 1 Outlook on Indian Stock market.......................1-5


Chapter 2 Overview of Indiabulls.....................................6-13
Chapter 3 Overview of Indiabulls Securities.....................14-16
Chapter 4 Financial Analysis...........................................17-25
Chapter 5 Understanding Capital market.........................26-28
Chapter 6 Derivatives.....................................................29-35
Chapter 7 Competitors....................................................36-41
Chapter 8 Competitive Analysis.......................................42-55
Chapter 9 SWOT Analysis................................................56-60
Chapter 10 Findings & Suggestions.................................61
Bibliography..................................................................62
Appendix.......................................................................64

Chapter 1
OUTLOOK ON INDIAN STOCK MARKET
1.1 Introduction
Indian Stock Markets is one of the oldest in Asia. Its history dates back to
nearly 200 years ago. The earliest records of security dealings in India are
meager and obscure. The East India Company was the dominant institution
in those days and business in its loan securities used to be transacted
towards the close of the eighteenth century.
By 1830's business on corporate stocks and shares in Bank and Cotton
presses took place in Bombay. Though the trading list was broader in 1839,
there were only half a dozen brokers recognized by banks and merchants
during 1840 and 1850. The 1850's witnessed a rapid development of
commercial enterprise and brokerage business attracted many men into the
field and by 1860 the number of brokers increased into 60. In 1860-61 the
American Civil War broke out and cotton supply from United States to Europe
was stopped; thus, the 'Share Mania' in India began. The number of brokers
increased to about 200 to 250.
At the end of the American Civil War, the brokers who thrived out of Civil War
in 1874, found a place in a street (now appropriately called as Dalal Street)
where they would conveniently assemble and transact business. In 1887,
they formally established in Bombay, the "Native Share and Stock
Brokers' Association, which is alternatively known as The Stock
Exchange". In 1895, the Stock Exchange acquired a premise in the same
street and it was inaugurated in 1899. Thus, the Stock Exchange at Bombay
was consolidated.
The Indian stock market has been assigned an important place in financing
the Indian corporate sector. The principal functions of the stock markets are

enabling mobilizing

resources

for investment directly from the

investors

providing liquidity for the investors and monitoring

Disciplining company management.

The two major stock exchanges in India are National Stock Exchange (NSE)
and Bombay Stock Exchange (BSE).

1.2 National Stock Exchange


With the liberalization of the Indian economy, it was found inevitable to lift
the Indian stock market trading system on par with the international
standards. On the basis of the recommendations of high powered Pherwani
Committee, the National Stock Exchange was incorporated in 1992 by
Industrial Development Bank of India, Industrial Credit and Investment
Corporation of India, Industrial Finance Corporation of India, all Insurance
Corporations, selected commercial banks and others.
The National Stock Exchange (NSE) is India's leading stock exchange
covering various cities and towns across the country. NSE was set up by
leading institutions to provide a modern, fully automated screen-based
trading system with national reach. The Exchange has brought about
unparalleled transparency, speed & efficiency, safety and market integrity. It
has set up facilities that serve as a model for the securities industry in terms
of systems, practices and procedures.
NSE has played a catalytic role in reforming the Indian securities market in
terms of microstructure, market practices and trading volumes. The market
today uses state-of-art information technology to provide an efficient and
transparent trading, clearing and settlement mechanism, and has witnessed
several innovations in products & services viz. demutualization of stock
exchange governance, screen based trading, compression of settlement

cycles, dematerialization and electronic transfer of securities, market of debt


and derivative instruments and intensive use of information technology.
Trading at NSE can be classified under two broad categories:

Wholesale debt market

Capital market

Wholesale debt market operations are similar to money market operations institutions and corporate bodies enter into high value transactions in
financial instruments such as government securities, treasury bills, public
sector unit bonds, commercial paper, certificate of deposit, etc.
Capital market: A market where debt or equity securities are traded.
There are two kinds of players in NSE:

Trading members

Participants

Recognized members of NSE are called trading members who trade on behalf
of themselves and their clients. Participants include trading members and
large players like banks who take direct settlement responsibility.
Trading at NSE takes place through a fully automated screen-based trading
mechanism which adopts the principle of an order-driven market. Trading
members can stay at their offices and execute the trading, since they are
linked through a communication network. The prices at which the buyer and
seller are willing to transact will appear on the screen. When the prices match
the transaction will be completed and a confirmation slip will be printed at
the office of the trading member.
NSE has several advantages over the traditional trading exchanges. They are
as follows:

NSE brings an integrated stock market trading network across the


nation.

Investors can trade at the same price from anywhere in the country
since inter-market operations are streamlined coupled with the
countrywide access to the securities.

Delays in communication, late payments and the malpractices


prevailing in the traditional trading mechanism can be done away with
greater operational efficiency and informational transparency in the
stock market operations, with the support of total computerized
network.

NSE Nifty
S&P CNX Nifty is a well diversified 50 stock index accounting for 22
sectors of the economy. It is used for a variety of purposes such as
benchmarking fund portfolios, index based derivatives and index funds.
NSE came to be owned and managed by India Index Services and Products
Ltd. (IISL), which is a joint venture between NSE and CRISIL. IISL is India's first
specialised company focused upon the index as a core product. IISL have a
consulting and licensing agreement with Standard & Poor's (S&P), who are
world leaders in index services. CNX stands for CRISIL NSE Indices. CNX
ensures common branding of indices, to reflect the identities of both the
promoters, i.e. NSE and CRISIL. Thus, 'C' stands for CRISIL, 'N' stands for NSE
and X stands for Exchange or Index. The S&P prefix belongs to the US-based
Standard & Poor's Financial Information Services.

1.3 Bombay Stock Exchange


The Bombay Stock Exchange is one of the oldest stock exchanges in Asia.
It was established as "The Native Share & Stock Brokers Association" in
1875. It is the first stock exchange in the country to obtain permanent
recognition in 1956 from the Government of India under the Securities
Contracts (Regulation) Act, 1956. The Exchange's pivotal and pre-eminent

role in the development of the Indian capital market is widely recognized and
its index, SENSEX, is tracked worldwide.

SENSEX
The Stock Exchange, Mumbai (BSE) in 1986 came out with a stock index that
subsequently became the barometer of the Indian stock market.
SENSEX is not only scientifically designed but also based on globally
accepted construction and review methodology. First compiled in 1986,
SENSEX is a basket of 30 constituent stocks representing a sample of
large, liquid and representative companies. The base year of SENSEX is 197879 and the base value is 100. The index is widely reported in both domestic
and international markets through print as well as electronic media
The Index was initially calculated based on the "Full Market Capitalization"
methodology but was shifted to the free-float methodology with effect from
September 1, 2003. The "Free-float Market Capitalization" methodology of
index construction is regarded as an industry best practice globally. All major
index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float
methodology.
Due to is wide acceptance amongst the Indian investors; SENSEX is regarded
to be the pulse of the Indian stock market. As the oldest index in the country,
it provides the time series data over a fairly long period of time. Small
wonder, the SENSEX has over the years become one of the most prominent
brands in the country.
The SENSEX captured all these events in the most judicial manner. One can
identify the booms and busts of the Indian stock market through SENSEX.
The launch of SENSEX in 1986 was later followed up in January 1989 by
introduction of BSE National Index (Base: 1983-84 = 100). It comprised of 100
stocks listed at five major stock exchanges. The Exchange launched dollarlinked version of BSE-100 index i.e. Dollex-100 on May 22, 2006.

In order to fulfill the need of the market participants for still broader,
segment-specific and sector-specific indices, the Exchange has continuously
been increasing the range of its indices. The launch of BSE-200 Index in 1994
was followed by the launch of BSE-500 Index and 5 sectoral indices in 1999.
In 2001, BSE launched the BSE-PSU Index, DOLLEX-30 and the country's first
free-float based index - the BSE TECK Index. The Exchange shifted all its
indices to a free-float methodology (except BSE PSU index) in a phased
manner.
The values of all BSE indices are updated every 15 seconds during the market
hours and displayed through the BOLT system, BSE website and news wire
agencies.
All BSE-Indices are reviewed periodically by the "Index Committee" of the
Exchange.

Chapter 2
OVERVIEW OF INDIABULLS
2.1 Introduction
Indiabulls is Indias leading Financial and Real Estate Company with a wide
presence

throughout

India.

Indiabulls

Financial

Services

Limited

was

established in the year 2000 by three promoters all of whom are engineers
from Indian Institute of Technology, New Delhi, and has attracted over Rs 700
million of investments from venture capital firms, private equity funds and
institutional investors.
History

Indiabulls Financial Services Limited was incorporated on January 10,


2000 as Orbis Infotech Private Limited at New Delhi.

The name of the Company was changed to Indiabulls Financial Services


Private Limited on March 16, 2001 due to change in the main objects of
our Company from Infotech business to Investment & Financial
Services business.

It became a Public Limited Company on February 27, 2004 and the


name of the Company was changed to Indiabulls Financial Services
Limited.

Indiabulls has over 640 branches all over India. The customers of
Indiabulls are more than

4,50,000 which covers from a wide range of

financial services and products from securities, derivatives trading,


depositary services, research & advisory services, consumer secured &
unsecured credit, loan against shares and mortgage & housing finance.
The company employs around 4000 Relationship managers who help the
clients to satisfy their customized financial goals. Indiabulls entered the
Real Estate business in the year 2005 with its group of companies.
Indiabulls Financial Services Ltd is listed on the National Stock Exchange,
Bombay Stock Exchange and Luxembourg Stock Exchange. The market
capitalization of Indiabulls is around USD 2500 million (29th December
2006). Indiabulls and its group companies have attracted USD 500 million
of equity capital in Foreign Direct Investment (FDI) since March 2000.
Some of the large shareholders of Indiabulls are the largest financial
institutions of the world such as Fidelity Funds, Goldman Sachs, Merrill
Lynch, Morgan Stanley and Farallon Capital.

2.2 Growth of Indiabulls


Year 2000-01:
One of Indias first trading platforms was set up by Indiabulls Financial
Services Ltd. with the development of an in-house team.

Year 2001-03: The service offered by Indiabulls was increased to include


Equity, F&O, Wholesale Debt, Mutual fund, IPO Financing/Distribution and
Equity Research.

Year 2003-04: In this particular year Indiabulls ventured into Distribution


and Commodities Trading business.

Year 2004-05: This was one of the most important years in the history of
Indiabulls. In this year:

Indiabulls came out with its initial public offer (IPO) in September 2004.

Indiabulls started its Consumer Finance business.

Indiabulls entered the Indian Real Estate market and became the first
company to bring FDI in Indian Real Estate.

Indiabulls won bids for landmark properties in Mumbai.

Year 2005-06: The world renowned investment banks like Merrill Lynch and
Goldman Sachs increased their shareholding in Indiabulls. It also became a
market leader in securities brokerage industry, with around 31% share in
Online Trading. The worlds largest hedge fund, Farallon Capital and its
affiliates committed Rs. 2000 million for Indiabulls subsidiaries Viz. Indiabulls
Credit Services Ltd. and Indiabulls Housing Finance Ltd. In the same year, the
Steel Tycoon Mr. LN Mittal promoted LNM India Internet venture Ltd. acquired
8.2% stake in Indiabulls Credit Services Ltd.

Year 2006-07: In this year, Indiabulls Financial Services Ltd. was included
in the prestigious Morgan Stanley Capital International Index (MSCI). The
company also received an in principle approval from Government of India
for development of multi product SEZ in the state of Maharashtra.

10

Diversified Business Group of Indiabulls

Securities &
Derivatives
Broking

Secured
Financing

Mortgage &
Housing
Finance

Financial
Products
Distribution

Consumer
Financing

Fig 2.1: Diversified Business Groups of Indiabulls

2.3 IndiaBulls Subsidiaries


Indiabulls securities limited: business comprises of Securities &
Derivatives broking.
Indiabulls Credit services limited: business comprises of personal loans,
secured and unsecured loans, and housing and auto loans.
Financial products distribution: distribution of mutual funds and
insurance products.
Indiabulls commodities Pvt ltd: deals with commodity brokerage business
Indiabulls Realities limited: is into development of Real estate and mining.

11

Indiabulls housing loans: is into mortgage of properties and housing loan


business.

2.4 Organizational Structure of Indiabulls


The organizational structure of Indiabulls is Functional, which consist of
several departments.
Functioning Online: serving clients primarily through an Internet based
relationship targeted towards clients who value anytime, anywhere access
and can be serviced at low incremental costs.
Functioning Offline: serving clients primarily through an office based
relationship targeted towards clients who value physical interaction.
Online & offline business consist of following departments

Administration

Operations & Service quality

Technology

Finance

Corporate affairs

Human resources

Marketing

Corporate communications

Legal

12

Department based Organizational Structure:

Director-Offline

Director-Online

Administration

Customer
Service

Operations
&
Service

Technology

Finance

Corporate
Affairs

Recruitment

Human
Resources

Marketing

Sr. Vice President

Regional Manager

Branch Manager

Relationship
13
Manager

Corporate
Communi
cation

Legal

Training

Figure 2.2 Department based organizational Structure of Indiabulls

Regional Hierarchy of Indiabulls

14

Senior Vice President

Regional Manager

Branch Manager
Senior Sales Manager

Support System

Back Office
Executive

Sales Function

RM/SRM

Local Compliance
Officer

ARM

Dealer

15

Figure 2.3 Regional hierarchies of Indiabulls

Key Positions

Chairman
Figure 2.4 Key Positions

2.5 Products and Services of Indiabulls

CFO & President

Indiabulls offer the following products and services in the financial markets:

Stocks
Options and Futures
Securities
Depository Services
Commodities

Consumer Finance

Real Estate

16
Executive Director

Chief Executive
Officer

Executive Director

Insurance Products
Mutual Funds
Bonds and Debt Products

Services
Commercial Vehicle Loans:
In April 2006 Indiabulls started Commercial Vehicle Finance under the flagship
of Indiabulls Credit Services Ltd. in order to provide refinance to its
commercial vehicle clients. Their fundamentals, competent management and
expertise in financing the transporters are pretty sound. The companys
unique market position enables it to excel in client contentment, quick
service and growthled profitability.
.Mortgage Loans:
Indiabulls Housing Finance Ltd. which is a flagship of Indiabulls has started
lending of Mortgage Loans to prospective customers. This company enables
the home-seekers to access finance to buy their homes. They provide
different types of loans like plot loans, Loan against Residential, Commercial
and Rental Property, thereby enabling the borrower to leverage the property
owned to fund any genuine needs be it Business Expansion, Child's
Education, Child's Marriage or for Holiday Abroad.

Consumer Finance:
Indiabulls is a retail focused organization that fulfills the credit needs of a
large percentage of population in India. The key aspect of Indiabulls business
model is to provide an extremely unique customer experience.

17

Chapter 3

OVERVIEW OF INDIABULLS SECURITIES


LTD
3.1 Introduction
Indiabulls Securities Ltd is engaged in the business of Internet based trading
and is registered with SEBI as a stockbroker, trading and clearing member of
NSE, member of BSE and as a depositary participant with National Securities
Depository Limited (NSDL) and Central Depository Services (India) Limited
(CDSL). ISL is also a member of the National Securities Clearing Corporation
Limited.

History
Indiabulls Securities Limited (ISL) was incorporated as GPF Securities Private
Limited on June 9, 1995.
The name of the company was changed to Orbis Securities Private Limited on
December 15, 1995 to change the profile of the company and subsequently
due to the conversion of the company into a public limited company; the
name was further changed to Orbis Securities Limited on January 5, 2004.
The name of the company was again changed to Indiabulls Securities Limited
on February 16, 2004 so as to capitalize on the brand image of the term
Indiabulls in the company name. ISL is a corporate member of capital
market & derivative segment of The National Stock Exchange of India Ltd.

18

3.2 Business Model & Operations of Indiabulls Securities Ltd


The three distinct internal business segments are:

Online business

Offline business

Other Sales

Online business: serving clients primarily through an Internet based


relationship targeted towards clients who value anytime, anywhere access
and can be serviced at low incremental costs. The Online sales force sells all
products and services and follows the relationship manager model.
Offline business: serving clients primarily through an office based
relationship targeted towards clients who value physical interaction and are
typically larger accounts. The Offline Sales force sells all products and
services and follows the relationship manager model. The Institutional
business serving clients such as mutual funds and pension funds is
considered part of the offline business due to largely similar client servicing
and channel needs as required for high net worth clients. Indiabulls Securities
Limited has established relationships with some large institutional players in
India and is qualified broker for Equities, F&O and Debt markets for 145 such
institutional clients.
Other Sales: includes insurance, research services and other offerings

3.3 Basic Requirement for doing Trading


Trading requires Opening a Demat account. Demat refers to a dematerialized
account.
You need to open a Demat account if you want to buy or sell stocks. So it is
just like a bank account where actual money is replaced by shares. We need
to approach the Depository Participants (DP, they are like bank branches), to
open Demat account.

19

A depository is a place where the stocks of investors are held in electronic


form. The depository has agents who are called depository participants
(DPs).
Think of it like a bank. The head office where all the technology rests and
details of all accounts held is like the depository. And the DPs are the
branches that cater to individuals.
There are only two depositories in India

The National Securities Depository Ltd (NSDL) and the

Central Depository Services Ltd (CDSL).

3.4 Trading Products of Indiabulls Securities


Indiabulls Securities
Trading Products

Cash Account

Intraday Account

20

Margin Trading

Fig showing 3.1 Trading Products of Indiabulls securities

Indiabulls Securities provide three products for trading. They are

Cash account

Intraday account

Margin trading (Mantra)

Cash account provides the client to buy 4 times of cash balance in his
trading account.
Intraday product provides the client to buy 8 times of his cash balance in
the trading account.
Mantra account called as margin trading, is a special account to buy on
leverage for a longer duration

Chapter 4
FINANCIAL ANALYSIS OF INDIABULLS
SECURITIES
4.1 Income: Indiabulls Securities Ltd income unit has the following
components
Income from Online business : The contribution of revenue from Online
business have grown from Rs. 31.85 million in FY 2002 to Rs. 242.26 million

21

in FY 2004 and from 24.05% of total business in FY 2002 to 34.85% of


business in FY 2004. The rapid growth of the online business is driven by
growth in total clients, increasing product flexibility and quality, enhanced
online-only features such as portfolio analysis and updates, streaming tickers,
enhanced product offering of Power Indiabulls.

Brokerage

Equities

F&O

Income from Offline Business: The offline business unit has one of the
widest branch networks in India with a pan India presence with large market
share. The revenues have grown from Rs. 96.02 million in FY 2002 to Rs.
447.25 million in FY 2004 and have changed from 72.52% of total business in
FY 2001 to 64.34% of business in FY 2004. The rapid growth of the Offline
business is driven by growth in total clients, increased geographical presence.

Brokerage

Equities

F&O

Wholesale Debt Markets

Brokerage Income

Brokerage Income comprises revenues earned from Equities, F&O and


Wholesale debt markets on all stock exchanges.

The income from brokerage services is driven primarily by the number


of active clients.

22

The rapid growth in total clients is driven primarily by increased


geographical presence.

Equities constitute the largest portion of brokerage business.

F&O brokerage is becoming an increasingly important component of its


revenues as Futures & Options trading gains more acceptance.

Wholesale Debt market is focused on institutional clients.

Income from transaction and service charges and interest income


Related income comprises revenues earned from market related activities
such as transaction charges, service charges and interest levied on customer
transactions. These charges are dependent on trading volume, number of
transactions completed and any ledger debit amount in the client account.
Income from other Sales including Insurance, Mutual Fund Sales and
Other Products
Other income comprises revenues earned from sale of third party products
such as Insurance, Mutual Funds and new services such as Research Services.
Revenues are a function of volume of mutual funds sold, the type of fund sold
(active managed equity, passive fixed income etc.) and the commissions paid
on the funds sold.

Brokerage Income of Indiabulls Securities

23

Bar Chart 4.1 Brokerage Income of Indiabulls Securities (in Crore)

Segment wise Sales of Indiabulls securities for March 2005(in


Crore)

24

Pie Chart 4.2 Segment wise Sales of IndiaBulls Securities for year 2005

Segment wise Sales of Indiabulls securities for March 2006(in


Crore)

25

4.2 Financial Ratio Analysis of Indiabulls Securities Ltd


Profitability ratios:
Indiabulls Securities Ltd.

Mar 2004

Per cent (Non-Annualized)


Margins ratios (%)
As % of operating income
PBDT
PBT
PAT
PBDT (NNRT)
PBT (NNRT)
PAT (NNRT)
Corporate tax as per cent of PBT
Returns ratios (%)
As % of total assets
PBDT
PBT
PAT
PAT (NNRT)
Operating cash flow
As % of net worth
PBDT
PBT
PAT
PAT (NNRT)
Operating cash flow
As % of capital employed
PBDT
PBT
PAT
PAT (NNRT)
Operating cash flow
Appropriation of profits (as % of
PAT)
Dividends

26

Mar 2006

12
months

Mar
2005
12
months

43.05
41.45
25.92
43.01
41.41
25.88

44.75
42.87
27.25
44.52
42.63
27.02

58.76
56.7
37.49
58.72
56.66
37.45

35.83

33.69

32.47

18.95
18.15
11.54
11.44
77.78

31.35
30.25
20
19.98
65.19

53.48
51.23
32.57
32.29
219.53

128.77
124.25
82.16
82.07
267.75

47.39
45.39
28.86
28.61
194.53

58.11
56.06
37.07
37.03
120.82

19.66

0.52

3.89

12 months

Equity dividends
Preference dividends
Retained profits
Dividends / net worth
Equity dividends / equity capital
Equity dividends / equity cap. & sh.
prem.

0.44
3.44
96.11

2.27
17.39
80.34

0.07
0.45
99.48

6.4
3.98
3.98

0.43
0.45
0.45

Liquidity ratios:
Indiabulls Securities Ltd.

Mar
2004

Mar 2005

Mar 2006

Times (Non-Annualized)

12
months

12 months

12 months

0.67
1.6

0.86
0.86

1.7
1.89

1.776
1.567
1.237

1.141
1.561
0.848

2.137
1.269
2.056

11.42

19.13

11.67

3.63
3.63
-2.99

4.01
4
11.97

5.2
5.2
8.91

231.47
130.34
101.13
83.34
20.24

261.19
228.86
32.33
108.43
45.33

914.49
427.87
486.62
181.77
163.94

Short term liquidity


Cash / current liabilities & provisions
Quick ratio
Medium to long term liquidity
Current ratio
Solvency ratio
Debt equity ratio
Interest incidence (%)
Interest cover
PBIT / interest
PBIT (NNRT) / interest
Operating cash flow / interest
(Rs. Crore)
Current assets
Current liabilities
Working capital
Net worth
Reserves & surplus

Asset utilization ratios


27

Indiabulls Securities Ltd.


Times (Non-Annualized)
Efficiency ratios
Operating cash flow / total assets
Operating cash flow / gross fixed
assets
Operating cash flow / capital
employed
Operating income / total assets
Operating income / GFA / leased
assets
Operating income / capital employed
PBDT (NNRT) / total assets
PBDT (NNRT) / gross fixed assets
PBDT (NNRT) / capital employed
PBT / total assets
PBT / gross fixed assets
PBT / capital employed
PAT / total assets
PAT / gross fixed assets
PAT / capital employed

Mar
2004
12
months

Mar 2005

Mar 2006

12
months

12 months

0
0

0.78
17.46

0.65
14.15

1.95

1.21

0.42
9.51

0.53
11.58

1.06

0.99

0.19
4.23
0.47

0.31
6.8
0.58

0.18
4.05
0.45

0.3
6.56
0.56

0.11
2.57
0.29

0.2
4.34
0.37

28

4.3 Interpretation:
Profitability Ratios: Profitability is the net result of a number of policies
and decisions. The ratios examined thus far provide useful clues to the
effectiveness of firms operations.

Liquidity Ratios: liquidity ratios deal with firms ability to pay off its
debts. It includes

Current ratio: The current ratio is calculated by dividing current assets


by current liabilities. The current ratio of Indiabulls securities is 1.776,
1.441, & 2.137 for year 2004, 2005 & 2006 respectively.
Current ratio = Current assets
Current Liabilities

Quick ratio (acid test ratio): The quick ratio is calculated by deducting
inventories from current assets and then dividing the remainder by
current liabilities. The quick ratio is a measure of the firms ability to
pay-off the short-term liabilities. A large part of the firms current assets
are tied up in slow paying debts. The industry average for Acid test
ratio is 2.1, but for Indiabulls securities quick ratio is 1.6, 0.86 & 1.89
for year 2004, 2005 & 2006 respectively, which is less than Industry
average. The quick ratio should be high which indicates the companys
ability to pay-off short term obligations.

Debt equity Ratio:


Debt equity ratio is the related contribution of creditors and owners of the
business in its financing.

29

4.4 Financial performance Year on Year

Increasing Market Share of Indiabulls on NSE Trading Volumes (1)


Graph 4.3 Market share of Indiabulls on NSE trading Volumes
35
%

Market Shares of Top Brokers on NSE

(2)

30.7
%

30
%
25
%
20
%
15
%

22.3
%

21.9
%

18.8
%

17.5
%

10
%
5
%
0
%

1.1
%
FY200
2

3.4
%

2.2
%

1.9
%
FY200
3

FY200
4
Share in Online
Trading

(1) Source: NSE data from NSE website (Equity Segment)

30

FY200
5
Share in Total
Trading

5.5
%

FY200
6

(1)

Chapter 5
UNDERSTANDING CAPITAL MARKET
5.1 Project Framework
An Outlook on Indian Stock Market

Derivative Segment

Capital Market

Intraday

Delivery

Figure 5.1

Futures

Project Framework

31

Options

The Indian capital markets have witnessed a transformation over the last
decade. India now finds its place amongst some of the most sophisticated
and largest markets of the world. With over 20 million shareholders, India has
the third largest investor base in the world after the USA and Japan. The
Indian capital market is significant in terms of the degree of development,
volume of trading and its tremendous growth potential.
Over the past few years, the capital markets have also witnessed substantial
reforms in regulation and supervision. Reforms, particularly the establishment
and empowerment of SEBI, market-determined prices and allocation of
resources, screen-based nation-wide trading, dematerialization and electronic
transfer of securities, rolling settlement and derivatives trading have greatly
improved both the regulatory framework and efficiency of trading and
settlement.

5.2 Indian Capital markets - Chronology

1994- Equity Trading commences on NSE

1995- All Trading goes Electronic

1996- Depository comes in to existence

1999- FIIs Participation- Globalization

2000- over 80% trades in Demat form

2001- Major Stocks move to Rolling Set

2003- T+2 settlements in all stocks

2003 - Demutualization of Exchanges

5.3 Capital Market Participants

Banks

Exchanges

Clearing Corporations

Brokers

Custodians

Depositories

32

Investors

Merchant Bankers

5.4 Types of Investors

Institutional Investors- MFs / FI / FIIs / Banks

Retail Investors

Arbitrageurs / Speculators

Hedgers

Day traders/Jobbers

5.5 Cash Market


The Spot Market or Cash Market is a commodities or securities market in
which goods are sold for cash and delivered immediately. Contracts bought
and sold on these markets are immediately effective. Spot markets can
operate wherever the infrastructure exists to conduct the transaction. The
Spot market for most securities exists primarily on the internet. The trading in
this cash market can be further divided into Intraday and Delivery.

5.6 Key Terms

Intraday refers to buying or selling stocks today with an obligation to


sell or buy the stock on the same day. It means completing the trading
cycle in the same day. Here the stocks do not come to the Demat
account.

Delivery refers to buying stocks today with a plan of selling it in


future. In India there is a concept of T+2 settlements. Which means a
stock bought on trade day is credited to your Demat account (or
delivered) into your Demat account after 2 days.

Square off- making the position nil. Say selling off the stocks. (or
buying back in case of short selling)

33

Short selling- selling without having the possession of the stocks


(possible in intraday trade). Selling the stocks initially and buying them
back later. It is a concept used in the falling markets.

Demat Account- the account where in the shares are delivered.


Every Demat account is linked to a trading account and a savings bank
account. Demat account are provided by CDSL (central depository
services limited) and NSDL (national securities depository limited).
Indiabulls is a depository participant which links the depository to the
beneficial owner of the account (client).

Trading pool/margin account- the place where the stock is received


after the trade, it is the brokers account called the broker pool
account.

T+2= Transaction + 2 days

Chapter 6

DERIVATIVES
By far the most significant event in finance during the past decade has been
the extraordinary development and expansion of financial derivatives. These
instruments enhance the ability to differentiate risk and allocate it to those
investors most able and willing to take it

6.1 Definition:
Derivatives are instruments whose value is derived, in whole or in part, from
the value of one or more underlying assets.

History of Derivatives
The history of derivatives is surprisingly longer than what most people think.
Some texts even find the existence of the characteristics of derivative
contracts in incidents of Mahabharata. Traces of derivative contracts can
even be found in incidents that date back to the ages before Jesus Christ.
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.

34

The first 'futures' contracts can be traced to the Yodoya rice market in Osaka,
Japan around 1650. These were evidently standardized contracts, which
made them much like today's futures.
The Chicago Board of Trade (CBOT), the largest derivative exchange in the
world, was established in 1848 where forward contracts on various
commodities were standardized around 1865. From then on, futures contracts
have remained more or less in the same form, as we know them today.
Derivatives have had a long presence in India. The commodity derivative
market has been functioning in India since the nineteenth century with
organized trading in cotton through the establishment of Cotton Trade
Association in 1875. Since then contracts on various other commodities have
been introduced as well.
Exchange traded financial derivatives were introduced in India in June 2000
at the two major stock exchanges, NSE and BSE. There are various contracts
currently traded on these exchanges. National Commodity & Derivatives
Exchange Limited (NCDEX) started its operations in December 2003, to
provide a platform for commodities trading.
The derivatives market in India has grown exponentially, especially at NSE.
Stock Futures are the most highly traded contracts on NSE accounting for
around 55% of the total turnover of derivatives at NSE, as on April 13, 2005.

6.2 Understanding Derivatives


The primary objectives of any investor are to maximize returns and minimize
risks. Derivatives are contracts that originated from the need to minimize
risk.
The word 'derivative' originates from mathematics and refers to a variable,
which has been derived from another variable. Derivatives are so called
because they have no value of their own. They derive their value from the
value of some other asset, which is known as the underlying.

35

Derivatives are specialized contracts which signify an agreement or an option


to buy or sell the underlying asset of the derivate up to a certain time in the
future at a prearranged price, the exercise price. The contract also has a fixed
expiry period mostly in the range of 3 to 12 months from the date of
commencement of the contract. The value of the contract depends on the
expiry period and also on the price of the underlying asset.
For example, a farmer fears that the price of soybean (underlying), when his
crop is ready for delivery will be lower than his cost of production.
Let's say the cost of production is Rs 8,000 per ton. In order to overcome this
uncertainty in the selling price of his crop, he enters into a contract
(derivative) with a merchant, who agrees to buy the crop at a certain price
(exercise price), when the crop is ready in three months time (expiry period).
In this case, say the merchant agrees to buy the crop at Rs 9,000 per ton.
Now, the value of this derivative contract will increase as the price of
soybean decreases and vice-a-versa.
If the selling price of soybean goes down to Rs 7,000 per ton, the derivative
contract will be more valuable for the farmer, and if the price of soybean goes
down to Rs 6,000, the contract becomes even more valuable.
This is because the farmer can sell the soybean he has produced at Rs 9000
per ton even though the market price is much less. Thus, the value of the
derivative is dependent on the value of the underlying.

6.3 Difference between Commodity Derivative & Financial


Derivative
If the underlying asset of the derivative contract is coffee, wheat, pepper,
cotton, gold, silver, precious stone or for that matter even weather, then the
derivative is known as a commodity derivative.

36

If the underlying is a financial asset like debt instruments, currency, share


price index, equity shares, etc, the derivative is known as a financial
derivative.
Derivative contracts can be standardized and traded on the stock exchange.
Such derivatives are called exchange-traded derivatives. Or they can be
customized as per the needs of the user by negotiating with the other party
involved.
Such derivatives are called over-the-counter (OTC) derivatives. Continuing
with the example of the farmer above, if he thinks that the total production
from his land will be around 150 quintals, he can either go to a food merchant
and enter into a derivatives contract to sell 150 quintals of soybean in three
months time at Rs 9,000 per ton. Or the farmer can go to a commodities
exchange, like the National Commodity and Derivatives Exchange Limited,
and buy a standard contract on soybean.
The standard contract on soybean has a size of 100 quintals. So the farmer
will be left with 50 quintals of soybean uncovered for price fluctuations.
However, exchange traded derivatives have some advantages like low
transaction costs and no risk of default by the other party, which may exceed
the cost associated with leaving a part of the production uncovered.
In India we have several derivatives, two of the most famous derivatives
traded on National stock exchange are

Futures

Option

Futures and options are traded on the NSE platform, with a normal
IndiaBulls trading account the client get the access to trade in the F&O
contracts.

6.4 Futures and Forwards

37

As the name suggests, futures are derivative contracts that give the holder
the opportunity to buy or sell the underlying at a pre-specified price some
time in the future.
They come in standardized form with fixed expiry time, contract size and
price. Forwards are similar contracts but customizable in terms of contract
size, expiry date and price, as per the needs of the user.

6.5 Options
Option contracts give the holder the option to buy or sell the underlying at a
pre-specified price some time in the future.

An option to buy the underlying is known as a Call Option.

An option to sell the underlying at a specified price in the future is


known as Put Option.

In the case of an option contract, the buyer of the contract is not obligated to
exercise the option contract. Options can be traded on the stock exchange or
on the OTC market.

6.6 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

Contract Cycle: The period over which the contract trades. The
index futures contracts on the NSE have a one-month, two-month
and three-month expiry cycles which expire on the last Thursday of
the month. On the Friday following the last Thursday, a new
contract having a three-month expiry is introduced for trading.

38

Expiry Date-the date specified in the futures contract. It is the last


Thursday of the month

Contract Size: the amount of asset that has to be delivered less


than one contract. For instance, the contract size on NSE futures
market is 100 Niftiest. It is prescribed by NSE for stocks. Each stock
had a different lot size.

Basis the futures price minus the spot price. There will be a
different basis for each delivery month for each contract. In a
normal market, basis will be positive. This reflects that futures
prices normally exceed spot prices.

Cost of Carry the storage cost plus the interest that is paid to
finance the asset less the income earned on the asset.

Initial Margin the amount that must be deposited in the margin


account at the time the futures contract is first entered into. These
margins are prescribed by the exchange. It varies from stock to
stock.

Marking to Market the adjustment made at the end of each


trading day to the investors margin account to reflect the
investors gain or loss depending upon the futures closing price. It is
the difference between todays closing price and yesterdays
closing. The MTM profit /loss are credited to the client account on
day to day basis. Thus we call this a T+0 settlement.

Maintenance Margin somewhat lower than the initial margin;


the balance in the margin account must never become negative
and in case it does, the investor receives a margin call that must
top-up the account to the initial margin level before trade
commences the following day.

Difference between Long Position & Short Position

39

A long position is an agreement to buy. You take a long position on a


stock when you are bullish or have a feeling that the stock will move
up.
LONG => BUY
A short position is an agreement to sell. You take a short position on a
stock when you are bearish or have a feeling that the stock will move
down.
SHORT => SELL
There are around 152 companies which are underlying for future and
options in NSE. There are

index Futures (Nifty futures, Bank Nifty, CNX IT futures)

Stock Futures (Infosys futures. ITC futures, etc linked to specific stocks)

Index options (linked to indices)

Stock option (linked to specific stocks).

6.7 Option Contracts: The owner of an option has the OPTION to buy or
sell something at a predetermined price. Option provides the buyer of the
contract the right but not the obligation to exercise.
Right to BUY / OWN CALL OPTION
Or

Right to SELL / WRITE PUT OPTION

You buy a call option when you are bullish or have an upward target.
You buy a put option when you are bearish or have a downward target.

40

6.8 Options Terminology

Stock options options on individual stocks. A contract gives the


buyer the right to buy or sell shares at the specified price

Buyer of an option the one who by paying price (premium) buys


the right but not the obligation to exercise his/her option on the
seller/writer

Writer of an option the one who by receiving premium, is obliged


to sell/buy the asset if the buyer exercises on him

Call Option gives the buyer the right but not the obligation to buy
an asset by a certain date for a certain price

Put Option gives the buyer the right but not the obligation to sell an
asset by a certain date for a certain price

Spot Price the price at which an asset trades in the spot market.

Strike Price the target price or the expected price.

Contract Cycle the period over which the contract trades. There are
three month contracts just like the futures.

Expiry Date the date specified in the option contract. It is the last
Thursday of the month, just as in futures.

Contract Size the amount of asset that has to be delivered under


one contract.

In-The-Money Option (ITM) an option that would lead to a positive


cash-flow to the holder if it were exercised immediately.

A call option on the index is said to be ITM if the current index stands
higher

than the strike price (Spot Price > Strike Price).

41

A put option is ITM if the index is below the Strike price (Spot Price <
Strike Price).

At-The-Money (ATM) an option that would lead to zero cash flows to


the holder if it were exercised immediately.

Out-Of-The-Money Option (OTM) an option that would lead to a


negative cash-flow to the holder if it were exercised immediately.

A call option on the index is said to be OTM if the current index stands
at a level which is less than the strike price (Spot Price < Strike Price).

Chapter 7
THE COMPETITORS
7.1 Major Competitors of Indiabulls Securities Ltd
Indiabulls Securities faces significant competition from companies seeking to
attract client financial assets, including traditional and online brokerage firms,
mutual fund companies and institutional players having wide presence and a
strong brand name. They are;

ICICI Securities Ltd.

Kotak Securities Ltd.

India Infoline
SSKI Ltd.

Motilal Oswal Securities

Karvy

Geojit Securities

HDFC Securities

7.2 India Infoline Ltd

42

India Infoline Ltd is listed on both the leading stock exchanges in


India, viz. the Stock Exchange, Mumbai (BSE) and the National Stock
Exchange (NSE). The India Infoline group, comprising the holding company,
India Infoline Ltd and its subsidiaries, straddles the entire financial services
space with offerings ranging from Equity research, Equities and derivatives
trading, Commodities trading, Portfolio Management Services, Mutual Funds,
Life Insurance, Fixed deposits and other small savings instruments to loan
products and Investment banking. India Infoline also owns and manages the
websites, www.indiainfoline.com and www.5paisa.com .

India Infoline Securities Pvt Ltd


India Infoline Securities Pvt Ltd is a 100% subsidiary of India Infoline Ltd,
which is engaged in the businesses of Equities broking and Portfolio
Management Services. It offers broking services in the Cash and Derivatives
segments of the NSE as well as the Cash segment of the BSE.
A choice of technologically advanced trading that is with the help of
5paisa.com. 5 paisa also represents the availability of world class service to
investors at the lowest possible rate - 5 paisa for every trade of Rs100, i.e., a
brokerage rate of 0.05%.

Features of 5 paisa.com:
Paisa sense - They offer a good value for money proposition. Their
brokerage rates are very competitive, charging only 5 paise for Rs100 of
trade done, which is 0.05% brokerage. They offer the most reasonable rates,
independent of your net worth or volumes. In case of trades that result in
delivery, they charge an additional 0.20% for back office and securities
handling.

43

Personalized service - At 5paisa.com, they are committed to provide you


with unparalleled service, using e-mail, call centers and support staff. They
have also invested in physical infrastructure.
Protection All transactions of 5paisa.com are secure and confidential. The
orders are electronically routed via sophisticated trading systems for
execution. They follow a world class security system that enables them to
protect from any fraud or hacking.
Pedigree - 5paisa.com is a brand renowned for quality of information and
services, they are professionally managed, with a skill set which is of high
standard. Their top management has years of experience in financial services
with leading banks and institutions.

7.3 Sharekhan Securities


Sharekhan was created when SSKI Investor Services Pvt. Ltd., a company in
the securities and equities segment decided to harness the power of the
Internet and offer services to its customers through an online stock trading
portal. Sharekhan brings and provides a user-friendly online trading facility.
They also have an extensive all-India ground network of franchisees across
the country.
The company offers its services through a combination of online and offline
channels. The online model comprises a portal, chat facilities, and 'speed
trade' terminals. And the offline model uses a combination of an IVR
infrastructure and a team of customer agents to receive orders over the
telephone.

7.4 Motilal Oswal

44

Motilal Oswal Securities Ltd. was founded in 1987 as a small sub-broking unit,
with just two people running the show. Motilal Oswal Securities Limited has
established itself as the Best Local Brokerage House in India (Asia Money
Brokers Poll 2005). Their Institutional Equities 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.
Their sales & trading team, comprising top equity professionals, translates
the research findings into actionable advice for clients, based on their specific
needs. Sophisticated computerized tools are used to understand client
investment profile and objectives, which ensures proactive and timely
service.

FEATURES
Integrity: A company honoring commitment with highest ethical and
business practices.
Team Work: Attaining goals collectively and collaboratively.
Meritocracy: Performance gets differentiated, recognized and rewarded in
an apolitical environment.
Passion & Attitude: High energy and self motivated with a Do It attitude.
Excellence in Execution: Time bound results within the framework of the
companys value system.

7.5 Karvy
The birth of Karvy was on a modest scale in the year 1982. It began with the
vision and enterprise of a small group of practicing Chartered Accountants
based in Hyderabad, who founded Karvy. They started with consulting and
financial accounting automation, and then carved inroads into the field of
Registry and Share Transfers. Karvy has built a reputation as an integrated
financial services provider, offering a wide spectrum of services for over 20
years.

45

In 1982, a group of Hyderabad-based practicing Chartered Accountants


started Karvy Consultants Limited with a capital of Rs.150, 000 offering
auditing and taxation services initially. Later, it forayed into the Registrar and
Share Transfer activities and subsequently into financial services.
Karvy made inroads into a host of capital-market services, - corporate and
retail - which proved to be a sound business synergy. In January 1998, Karvy
became the first Depository Participant in Andhra Pradesh.
Karvy Securities Limited
Deals in distribution of various investment products, viz., equities, mutual
funds, bonds and debentures, fixed deposits, insurance policies for the
investor.

7.6 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.
Its operations include stock broking and distribution of various financial
products - including private and secondary placement of debt and equity and
mutual funds. Currently, Kotak Securities is one of the largest broking houses
in India with wide geographical reach. The company has four main areas of
business:

Institutional Equities,

46

Retail (equities and other financial products),

Portfolio Management and

Depository Services.

Kotak Securities Ltd is also a depository participant with National Securities


Depository Limited (NSDL) and Central Depository Services Limited (CDSL),
providing dual benefit services wherein the investors can use the brokerage
services of the company for executing the transactions and the depository
services for settling them.
Kotak Securities has 195 branches servicing more than 2, 20,000 customers
and coverage of 231 Cities. Kotaksecurities.com, the online division of Kotak
Securities Limited offers Internet Broking services and also online IPO and
Mutual Fund Investments.

Features of Kotak Securities

AKSESS Kotak securities Electronic Search Service: AKSESS


offers you an easy way to get to Kotak Securities' institutional
research. On this online archive you will be able to access estimates,
company reports, sector reports, strategy reports and a bunch of other
products including the daily India Market Flash produced by Kotak
Securities.

High Quality of software (KEAT): K.E.A.T is special software that


Koataksecurities.com provides its customers using which they can view
live market rates of scrips on both the NSE and BSE.

Research Reports: Kotak Securities provide Different reports to


investors which include

Intraday calls

Daily Technical View

47

Daily Morning Brief

Weekly Technical Report

Sectoral Reports

Stock Ideas

Derivative Reports

SMS Alerts: Kotak Securities also provides SMS alerts to customers


providing useful tips about stocks & shares.

7.7 ICICI SECURITIES


ICICI Securities, A subsidiary of ICICI Bank, was set up in February 1993 to
provide investment-banking services to investors in India. As on date ICICI
Bank holds 99.9% of the share capital of ICICI Securities.
ICICI Securities Limited is Indias leading full service investment bank with a
dominant position in all segments of its operations

Corporate Finance

Fixed Income and

Equities.

Features of ICICI securities ICICI provides multiple channels in banking


like, which is unique feature.

Internet Banking

Mobile Banking

ATM banking

Phone Banking

48

ICICI Securities is amongst the largest arranger of funds in Debt and


Equity segments and also amongst the leading advisors in Mergers and
Acquisitions.

Chapter 8
COMPETITIVE ANALYSIS FOR INDIABULLS SECURITIES
8.1 Indian Retail Brokerage Market
The Indian retail brokerage industry consists of companies that primarily act
as agents for the buying and selling of securities (e.g. stocks, shares, and
similar financial instruments) on a commission or transaction fee basis.
It has two main interdependent segments: Primary market and the
Secondary market.

Indian Retail Brokerage Market

Interdepende
nt
Segments

Primary Market

Secondary Market

Figure 8.1 Interdependent Segments of Brokerage Market

49

Objective: The main objective is to

Analyze retail brokerage industry taking into account the health of the
capital markets, Derivative Market and the intensity of competition
among the brokerage companies.

Doing Competitive Analysis for Indiabulls

8.2 Major growth drivers for brokerage revenue and trading


volume are:
Continuous fall in brokerage fees
Adoption of technology screen-based trading, electronic matching,
and paperless securities.
Centralized operations, effective risk management, and control on large
interconnected operations spanning multiple locations, which is enabled
by telecom connectivity and low costs
Increasing access to capital and the ability to provide margin finance
8.3 Parameter Assessment for Doing Competitive analysis
A differentiating aspect is a comparative assessment of the top retail
brokerages on various value indicators, comprising of

Product

Pricing

Service

50

Competitive analysis

Product

Price

Service

Value Proposition

Unique Value proposition.

8.4 Customers need to analyze the Brokerage Firms Based on


these 5 Parameters.

Brokerage & Miscellaneous charges

Quote Software

Execution Platform

Demat Account, and finally

Back office Support.

Brokerage & Miscellaneous charges: This accounts for all the charges
that you incur for your trading/investing. A few examples would be: Demat
Account maintenance, Brokerage, Annual account Fee, Telephone based
trading charges, trading software usage charges, etc.

51

Quote Software: This is used mainly for technical study and for live
quotes. Many people dont evaluate quote software. Some Investors dont
pay attention to the quality of data (how accurate it is). Or how fast and often
it refreshes. Does it allow us to back test our strategy? Does it allow
customizing technical signals/parameters?? Does it allow us to see historic
data? For, what period is intra day data available? They might need all this
information. They should be clear on what they need and ensure quote
software provides it all.

Execution Platform: Its nothing but a platform that allows us to execute


our trade fast. It should automate trade management and execution, and
should automatically give protection against human errors.

Demat Account: Demat account should only be opened with a well known
and established brokerage firm in the market.

Back office Support: People while trading face lots of problem because of
lack of good back office support. Relationship Managers trading without their
clients knowledge, funds not being transferred, trades not being executed,
slow execution etc are a few examples.

8.5 Brokerage Charges


Intraday Brokerage charges of the Competitors of Indiabulls
Securities Ltd

52

Graph 8.2 Intraday Brokerage Charges

Delivery Brokerage charges of the Competitors of Indiabulls


Securities Ltd

53

Graph 8.3 Delivery Brokerage Charges

8.6 Analyzing the Blogs from Web Site Traderji.com (online


community for Indian Investors & Traders)
We were interpreting the blogs written by customers, their experiences and
their review on brokerage firms.
In this web site they have conducted opinion poll on broker preferences of
customers & reasons for choosing the particular brokerage firm. In this poll
opinion, customers have shared their viewpoint about pros & cons of different
brokerage firms.

Experiences of Customers
Poll Options
Which online broker u prefer and why - chose one
54

5paise
ShareKhan
Motilal Oswal
ICICI Direct
HDFC
India Bulls
Kotak
Any other (mention name)
View Poll Results

Vote Now

Poll Results of Blogs: Total Number of Voters =457

Pie chart 8.4 showing Poll results

8.7 Competitive Strength of Indiabulls Securities


Indiabulls securities Ltd have a distinct set of competitive advantages that
make it uniquely capable of winning in the marketplace against its
competitors

Diverse Branch Network

55

Bouquet of financial products and services

Advanced technology team that delivers market leading product


innovation

Strong sales and marketing teams with continuous reinvestment and


training

Strong cross-selling opportunities.

Strong and experienced promoters

Leading product innovation and marketing strategies


Well capitalized player, with strong banking relationships and credit
ratings

Ability to combine people and technology in unique ways

Strong market presence and increased market share leading to a


virtuous cycle of growth and Profitability.

Core pillars of Business strategy

Increase the number of Client Relationships.

Offer Diversified Financial Products & Services.

Multiple Channels Enhance Customer Experience and Opportunities.

Low cost and highly scalable business.

Merits of Indiabulls Securities

Low brokerage charges (Competitive) with 0.10 for Intra-day and 0.50
% for delivery.

Indiabulls securities provide 8 times margin for Intra-day and 4 times


margin for delivery.

Indiabulls is suitable for both Day trading & Long term investment

IndiaBulls has software called Power IndiaBulls. It is a Java based


application, with real-time streaming quotes. It is fast in terms of speed
and execution

Research reports are free of cost to trading members.


They Provide 3 in 1 interface, i.e. Demat Account, Trading account &
bank account all are linked in one interface.

56

De-Merits of Indiabulls Securities

You have to open a bank account with the banks mentioned in


Indiabulls site for Credit/ Debit Facility as they dont have their own
bank. And In ICICI direct , you have a direct debit/credit facility with the
bank

Most customers feel that it is difficult to understand the ledger reports


of Indiabulls securities, so proper customer guidance should be given.

Lack of Banking arm

Rural market is yet to be tapped.

More importance should be given to promotions & advertisements.

Value Proposition of Indiabulls Securities

ISL provide a very good Trading tools like Power Indiabulls &
Indiabulls market trader.

Power Indiabulls: A desktop Trading application offering clients


sophisticated trading tools accessible at lightning fast speed.

Indiabulls Market Trader: Browser based trading application built for


retail investor.

Indiabulls

Equity

Analysis:

Premium

research

on

400

plus

companies.

Indiabulls Professional Network: Offers real-time prices, detailed


data and news, intelligent analytics and electronic trading capabilities.

Relationship manager: Indiabulls securities robust technology is


integrated with knowledgeable and customer-focused relationship
managers who are available 24X7 to assist the clients.

In Depth Market Analysis and Research


Their special research cell bring you intensive research reports on how
the stock market is faring, when is the right time to invest, when to
execute your order and more. Depending on what kind of investor you
are, they bring you fundamental or basic research and technical
research.

57

8.8 Number of Branches of Competitors compared with


Indiabulls securities

Number

of

Customers

of

Indiabulls

58

competitors

compared

with

8.9 Merits & De-merits of Competitors


ICICI securities: It provides products & services in fixed income, equity &
corporate finance.
Merits of ICICI Securities

ICICI Direct is considered best for long term investment.( Indiabulls is


suitable for both Day trading & Long term investment)

A direct debit/credit facility with the bank.

All facilities available under one umbrella.

BTST (Buy today & sell tomorrow) is available; this facility is available
only in ICICI Direct.

Can apply for IPO online (we cant do this in Indiabulls).

Can apply for mutual funds online and can also sell them online.

Internet banking demo which gives customers an opportunity to learn.

De-Merits of ICICI Securities

Brokerage charges are high - intraday 0.3% and 0.75% delivery


compared to other brokerage firms (is considered as highest in the
market).

Day trading is a night mare in ICICI because of Web based terminal,


which is very slow. Orders placed at or around 10.00 hrs may be
queued for a while. So
intra-day Margin trading could be annoying now & then. It's not much
of a hassle for Cash trading though.
(Indiabulls offers you a trading terminal 'powerIndiabulls', which is
java based software. It is fast in terms of speed and execution).

ICICI Direct brokerages are not negotiable ( Where as Indiabulls


Brokerage Charges are negotiable)

While opening Demat account, three accounts are opened ,the saving
bank account, trading account and Demat account and you have to
maintain minimum of rs5000 in case if it is not a salaried account.
(That Rs5000 sleeps without earning any money)

59

Other banks account cannot be linked with the ICICI trading account.

They charge an annual maintenance charges are Rs540.

Value Proposition of ICICI Securities

E-Instructions: You can transfer securities 24 hours a day, 7 days a


week through Internet & Interactive Voice Response (IVR) at a lower
cost. Now with "Speak to transfer", you can also transfer or pledge
instructions through our customer care officer.

Mobile Request: Access your Demat account by sending SMS to


enquire about Holdings, Transactions, Bill & ISIN details.

The equities research team tracks over 15 key sectors of the Indian
economy and publishes in-depth research reports every year.

The equities team at ICICI Securities comprises of research desk, sales


desk and the trading desks.

ShareKhan
Merits of ShareKhan Securities

Low brokerage charges, intraday 0.1% and 0.5% for delivery.

Live streaming quotes

Customer support is good

No monthly charges

Can trade in both BSE and NSE

De-Merits of ShareKhan Securities


No BTST (buy today sell tomorrow), in ShareKhan you cant sell a share today
which you bought yesterday.

You have to open a bank account with the banks mentioned in


ShareKhan site.

Streaming quotes requires JVM (Java Virtual Machine); this may be big
headache for customers.

60

Annual charges are Rs330.

Their trading terminals are certainly not for "investors", only for active
traders. That is because, you have to trade a certain volume every
month, otherwise you end up paying a fine

Comparing ShareKhan & ICICI Direct


Sharekhan

ICICI Securities

Live Streaming quotes

No live streaming quotes

but streaming quotes require JVM


No BTST facility

BTST facility is available

(Buy today sell tomorrow)


Annual Maintenance charge Rs 330
You have to open a bank account
With the banks mentioned in ShareKhan

Annual Maintenance charge Rs


540
other banks account cannot be
linked with ICICI trading account

site
Can apply IPO online

Can apply IPO online

Not necessary

while opening a Demat account


you
Need to maintain a minimum of
Rs 5000

Can trade in BSE & NSE

Can Trade in BSE & NSE

No Monthly Charges

No Monthly Charges

Cannot apply

can apply mutual funds online

61

India Infoline
Merits of India Infoline (5 Paisa.com) Securities

Low brokerage charges, intraday 0.10% and 0.50% for delivery and it is
negotiable.

Minimum brokerage per share will be 1 paisa for trading transactions


and 5 paisa for delivery based transactions.

5 paisa provides 6 times margin for Intraday & 8 times margin for
Delivery.

All customers will get Digital Contract Notes. Physical contract notes
could be provided on request which would entail a nominal charge.

De- Merits of India Infoline (5 Paisa.com) Securities

Registration Fees (one time) Rs.500/ and is non-refundable.

Software License Fee Rs.799/- per month or 7999/- per annum and is
non-refundable.

There is lot of Hidden costs.

Annual Service Charges Rs.250.

Customers who just want to have a depository relationship will be


required to pay Rs.1000/-, for each Demat account, which will be
adjusted against service charges.

The information in their web based terminal is too much compressed in


one screen.

Trader terminal is good, but the interface is too complicated

Kotak Securities
Merits

They provide streaming quote software free.

Low Brokerage charges with 0.05% for Intra-day & 0.45% for delivery.

Kotak Securities will offer small-time retail investors with invest able
surpluses as low as Rs.5, 000 a chance to invest in capital markets.

62

Transactions are transparent with effective back office support.

They provide Simple Ledger reports, which customers feel easy to


understand than any other brokerage firms.

Mutual fund & IPO facility is available online.

Flexibility of products - Once you invest with Kotak Securities, you can
enjoy access to a wide range of products and services to help you
make the most of your investments.

De-Merits

Unethical act: Geojit Securities Ltd has accused kotak securities stock
broking firm of hacking into its account to steal critical business
information and blocking information access. (Report: dated 2002, Ref:
www.domain-b.com).

Some investors have bad experience with accounts opening & they
complain that it takes a long time for opening accounts.

Some customers are not happy with customer care of Kotak securities.

Value Proposition of Kotak Securities

Kotak Securities have a definite policy on brokerage, and they have


different slabs for different clients based on their turnover. You can
always choose your brokerage based on your style and quantum of
trading.

63

High Quality of software (KEAT)


K.E.A.T is a special software that Koataksecurities.com provides its
customers using which they can view live market rates of scrips on
both the NSE and BSE, create a watch list and simultaneously place
orders, view order reports, research companies etc. It is a complete
online trading terminal.

Mobile trading
The facility is exclusively designed to give you instant access to the
stock market through mobile phone.

Phone Trading Call and Trade


Call & Trade is a service offered by Kotak Securities for its customers,
which provides customers with a facility to trade over the phone. Kotak
Securities provides you a toll free number that you can call from
anywhere in India.

Chapter 9
SWOT ANALYSIS OF INDIABULLS SECURITIES
9.1 STRENGTHS

Integrated technology platform: - Since the launch of their website,


www.indiabulls.com their online trading platform, they have invested in
building a technology platform. They have also developed software
called power Indiabulls. Their trader terminal is an application
which allows customers to trade on both the BSE and the NSE, has
features like live intra-day tick by tick charts, historical charts, price
alerts and other features. The features allow them to seamlessly
integrate across delivery channels, online or offline through branches
or telephone.

Pan India distribution network: - They have 640 branches across


India. These branches help in customer acquisition as well as customer
service. Their distribution network is well spread to capture the target
audience and cater to the needs of their potential customers.

64

Relationship manager facility: - This is one of the unique services


that Indiabulls offers its customers. Every customer is provided with a
relationship manager, where in the customers can contact these
managers at anytime of the day to get information on the market or
get their queries clarified.

Growth rate: - The Company is growing at a very rapid rate, from 25


branches in the year 2003 it has grown to 650 branches in the
beginning of 2007. Not only has it seen a fast growth rate in the
number of branches but also it has grown in the number of clients and
the employee strength. They have a customer base of more than
450,000 and over 4500 relationship managers. Indiabulls has been
rated as the Fastest Growing Large Cap Company in India in a report
by Business Today magazine in April, 2006.

Power Indiabulls has developed into brands: - Indiabulls.com and


power Indiabulls which is their software are well known brands
amongst retail investors across India. In all the cities that they have
expanded into, they have been able to leverage upon brand awareness
and have established a customer base.

Strong sales and marketing teams that deliver market leading


product innovation: - their relationship manager channel offers a
single point contact to all their retail customers. These managers offer
personalized services to their customers and help to build strong and
continuing relationships with them. The marketing associates help the
company in client acquisition at minimal cost and they also help the
company and its subsidiaries in increasing their penetration into
smaller towns and cities.

Strong banking relations and credit ratings: - Indiabulls has


banking relation with some of the major banking institutions in the
country such as HDFC Bank, ICICI Bank, Standard Chartered Bank, etc,
for easy mobilization of funds of the customers.

Strong market presence and increased market share: - Their


growing client base and market share have increased their market
presence and brand recognition has enhanced their profitability. Their

65

brand and profitability allows them to recruit good and efficient


employees, compensate them attractively and provides the flexibility
for them to invest in the business and technology systems these
attributes in turn has a positive effect on the growth of the company.

9.2 WEAKNESSES

Lack of a banking arm: - Indiabulls does not have a banking arm of


its own which otherwise would have helped the company to a large
extent. Whereas a few of its competitors like HDFC securities, ICICI
securities, Kotak securities, etc have their own banking arms which
make the transactions easier and simpler.

Loss of relationship managers leads to loss of clients: - Their


business is dependent on the team of relationship managers who
directly manage client relationships. Any events that harm these
relationships including the loss of their relationship managers may lead
to the loss of client.

9.3 OPPORTUNITIES

Changing demographics with higher disposable income: - India


is one of the fastest growing economies in the world. It has a large and
rapidly growing middle class of 300 million people with increasing
levels

of

discretionary

income

available

for

consumption

and

investment purposes. The options they have for investments are fixed
deposits, post office deposits etc,. This gives them a limited interest
rate on their investment; where as the stock market provides a good
scope for making good returns. The evolution in Indias demographic
setup with a median age of 24 years and higher consumption

66

expenditure is expected to have a virtuous cycle effect by improving


the economic growth and per capita income which would result in
higher savings and investments.

Rapid penetration of internet and computers: -Technology is


vastly used in stock market trading. Now, with the use of the
computers and internet the stock market trading has become fast. The
traders can place orders through the internet and execute them. This
saves the time of the investors, who earlier had to make calls to their
brokers in order to trade. These people are willing to use advanced
communication tools, such as computers and telephones, and want to
take charge of their personal investment decisions. The use of
technology is influencing more people to invest in the stock market.

Market size and Characteristics: -India is a large and growing


economy with rapidly expanding financial services sector. The sector
has witnessed a transformation over the last decade as a result of the
economic liberalization which started in 1991. India is the worlds 12th
largest economy in dollar terms and the 4th largest in PPP terms. The
projected growth rate of real GDP is greater than 9% per annum with
higher growth in many sectors such as financial services. Indian
financial sector presents a huge retail finance opportunity. As a result
of falling interest rates, bank deposits, other traditional investment
opportunities are losing their attraction. Thus, Indian investors are
getting attracted towards alternate investments such as the equity
markets and are looking for newer financial products.

Diversified business model: -Our Company and our subsidiaries


offer various financial services and products ranging from equity, F & O
and wholesale debt, insurance and IPO distribution, depository services
to cater to the specific needs of the retail and institutional investors
thus providing all these services in a single platform. Thus Indiabulls is
not dependent on any single of its subsidiary for survival and failure of

67

any one subsidiary will not have an adverse effect on the company as
a whole.

9.4 THREATS

Economic slowdown: - Terrorist attacks and other acts of violence or


war, including those involving India or other countries could adversely
affect national economy or world economy as a whole. Such act may
also result in a loss of business confidence. Travel restrictions as a
result of such incidents may have adverse affect on the ability to
operate effectively. This will result in an economic slowdown (example:
the 9/11 attack on the World Trade Centre, New York).

Political instability in the country: - The government of India has


pursued the policy of economic liberalization, including relaxing
restriction on the private sector. With the change in government, there
is no assurance that these liberalization polices will continue in the
future. Any political instability could delay the economic reforms and
could have adverse effect on the market.

Volatile movement in market indices: - The Indian stock market is


very volatile in nature and is capable of shedding or gaining several
points in a single day. Unless and until the market stabilizes the
investors will be very hesitant to invest in the market. Stock market
falls will have a cascading effect on the investors and economy of the
country.

Competition:

Indiabulls

faces

significant

competition

from

companies seeking to attract clients financial assets, including


traditional and online brokerage firms, mutual fund companies, etc,
which are having a wide presence and strong brand name. As the
company

enters

new

markets

their

bound

to

face

additional

competition from those who have longer operating history have grater

68

retail and brand presence than Indiabulls. If the company is unable to


manage its business it might impede their competitive position and
their profitability.

Substitutes: - Various alternative forms of investment including fixed


deposits with banks and post offices etc act as substitutes to retail
broking products and services. The stock market is very unpredictable
with fluctuations; this may prompt many people to invest in fixed
deposits, posy office deposits, etc in order to avoid risk.

Low product differentiation: - The retail broking services provided


by the various companies are homogeneous with very low product
differentiation. This does not allow the company to freely fix their
prices due to the threat of competition, which in turn reduces their
profit.

Chapter 10
FINDINGS & SUGGESTIONS

69

Aggressive Promotions: Indiabulls Securities compared to its competitors


concentrates

less

on

advertising

and

promotions,

especially

through

electronic media. Its competitors like Sharekhan, ICICI and Kotak are
advertising aggressively through media. Hence Indiabulls should concentrate
more on advertising through print and electronic media.
Tapping Rural Market: The Indian rural investors market are relatively
untapped, with only small and private firms meeting the current demand.
Indiabulls Securities can gain the First Mover Advantage over its
competitors, especially in areas were commercial crops are grown and the
standard of living is high. These people do not have much option to invest
other than banks and post offices.
Reduce the initial account opening charges: The charge for opening a
trading and demat account in Indiabulls securities is high compared to its
competitors. This influences the potential investors to open their account with
another company which provides the same at lower prices. Thus it acts as a
mental barrier for potential customers, who tend to overlook all other
benefits offered by Indiabulls. Hence Indiabulls should consider reducing their
account opening charges.
Bring in more product differentiation: Product differentiation here means
that Indiabulls securities should bring in more customized services and more
value proposition for large investors. It can reduce the brokerage charges for
large investors which will encourage them to invest more in the company.
Invest more on R&D: Indiabulls should concentrate on its research and
development since most of its competitors are investing on R&D. This will
help the company to read the market better and will also be in a better
position to understand the needs of the customers. This can be extremely
beneficial for Indiabulls in the long run.

Appendix
70

Profit & loss Summary

Mar 2004
Rs. Crore (NonAnnualized)
Income
Leasing & hire services
Security transactions
Dividend income
Interest income
Others
Other income
Non-recurring income
Expenditure
Loss on security
transactions
Other operating
expenses
Personnel cost
Other expenses
Finance charges
Lease rent
Less: expenses
capitalized
Non-recurring expenses
Profits / losses
PBDT
Depreciation
PBT
Tax provision
PAT
Appropriation of profit
Dividends
Retained earnings

12 months

Mar
2005

Mar 2006

12
months

12 months

69.48
0
0.18
0
15.36
53.94
0
0.03

114.59
0
0
0.29
1.93
112.37
0
0.27

317.97
0
0
0
21.16
296.81
0
0.13

0.28

0.04

3.58
10.72
11.33
13.97
2.19

7.92
20.88
13.71
21.48
3.89

13.84
50.24
21.24
46.7
3.08

0
0

0
0

0
0

29.91
1.11
28.8
10.79
18.01

51.28
2.16
49.12
17.89
31.23

186.85
6.57
180.28
61.06
119.22

0.7

6.14

0.62

17.31

25.09

118.6

Format of Questionnaire For Doing Promotions

71

The format of Questionnaire given to people is as follows:


Name of Person:
Contact Number:
E-mail Id

Are you interested in Share Market?

Yes

Do you invest in Share market?

Yes

Are you aware of Indiabulls?

Yes

Do you have a Demat Account?

Yes

No
No
No
No

Presently in which security are you trading?

Signature

Brokerage & Tax break up format of Indiabulls


(For Security reasons all data are not revealed)
72

Intraday (%)

Delivery (%)

Futures (%)

Buy

Sell

Buy

Sell

Buy

Sell

Brokerage Charges

0.1

0.1

0.5

0.5

0.1

0.1

Security Transaction

0.025

0.125

0.125

Tax (STT)
Service Tax (12.24% on brokerage)
Turn over Tax (TOT)
Stamp duty
Total

Bibliography

73

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Securities

India-Infoline.Com.

26

Mar.

2007

<http://trade.indiainfoline.com>.
"

India

Infoline

Securities

5paisa.Com.

26

Mar.

2007

<http://www.5paisa.com>.
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74