financial report of varrious industy

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A Project Report on

PORTFOLIO MANAGEMENT

AT

STEEL CITY SECURITIES LTD.,

By

ANDRA VANAJA

02008109

Project submitted in partial fulfillment for the award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

By

Osmania University, Hyderabad-500007


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DECLARATION

I hereby declare that this Project Report titled PORTFOLIO

MANAGEMENT submitted by me to the department ofNava Bharathi College

of P.G. Studies, Bolarum,Secundrabad, is a bonafide work undertaken by me

and it is not submitted to any other University or Institution for the award of

any degree diploma/ certificate or published any time before.

ANDRA VANAJA Signature of the Student

Anakapalli

Visakhapatnam

Date:


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Abstract:

As the business and industry expanded and economy became more complex in

nature, a need for permanent finance arose. Entrepreneurs require money for long-term

needs, were as investors demand liquidity the solution to this problem gave way for an

origin of stock exchange, which is a ready market for investment and liquidity.

As per the securities contract Act, 1956, Stock Exchange means any body of individuals

whether incorporated or not, constituted for the purpose of regulating or controlling the

business of buying, selling or dealing in securities.

Aim:

1 To evaluate the performance of 15 different companies Based on Risk, Rate of return

and Coefficient of Correlation

2. To compare the returns of the company to that of NSE, Nifty.

Conclusion:

There is an extraordinary amount of ignorance and of prejudice born out of

ignorance with regard to nature and function of stock exchange as economic development

proceeds; the scope for acquisition and ownership of capital by private individuals also

grows. Along with it, the opportunity for a stock exchange to render the service of

stimulating private savings and challenging such savings into productive investment

exists on a vastly great scale. These are services, which the stock exchange alone can

render efficiently


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ACKNOWLEDGEMENT

I extend my sincere gratitude to Dr. M. Ghosh, Director, and Nava Bharathi College of

P.G. Studies and to Mr. MD. Naseeruddin Ahmed, Head of the department of

managementstudies, for their kind support and guidance for making my project great

success.

I thank my internal faculty guide Ms. Mousumi Mahanty, able guide for the project, for

the continuous support extended to me, without which the project would not have been

efficiently completed.

I render my whole hearted thanks to all the other respected faculties of the management

department, librarian, for their assistance and co-operation given to me in regard to this

work.

I am extremely indebted to the management of Steel City Securities Ltd.,

Visakhapatnam and Mr. Satish Kumar Arya, Finance Department, who gave me the

privilege to carry out my project in their distinguished institution.

Andra Vanaja


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TABLE OF CONTENTS

SI:NO CONTENTS PG:NOI

II

III

1

2

3

4

5

6

7

List of Tables

List of Charts

List of Figures

INTRODUCTION

INDUSTRY PROFILE

COMPANY PROFILE

THEORETICAL FRAME WORK

DATA ANALYSIS & INTERPRETATION

FINDINGS & SUGGESTIONS

BIBLIOGRAPHY

i

ii

iii

1

7

24

48

75

92

95


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List of Tables

S.No Particulars Page No

2.1

2.2

2.3

5.1

5.2

5.3

5.4

5.5

5.6

5.7

5.8

5.9

5.10

5.11

5.12

5.13

Tables Showing the History of Indian Stock Market

Table showing the Pre Independence Scenario

Table showing the Table Pattern of the Indian Stock Market

Table showing the Market Returns of NIFTY

Table showing the Performance of MAHINDRA SATYAMLTD.,

Table showing the Performance of SBI

Table showing the Performance of ANDHRA BANK

Table showing the Performance of MAHINDRA &MAHINDRA

Table showing the Performance of MARUTHI SUZUKI

Table showing the Performance of HERO HONDA

Table showing the Performance of DLF

Table Showing the Performance of L&T

Table showing the Performance of R POWER

Table showing the Performance of TATA POWER

Table showing the Estimations Of SECURITY RETURNS

Table Showing the VARIANCE & COVARIANCE MATRIX

9

10

12

76

77

78

79

80

81

82

83

84

85

86

89

90


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List of Charts


5.1

5.2

5.3

5.4

5.5

5.6

5.7

5.8

5.9

5.10

5.11

5.12

5.13

Graph showing the Market Returns of NIFTY

Graph showing the performance of Mahindra Satyam Ltd.,

Graph showing the performance of SBI

Graph showing the performance of ANDHRA BANK

Graph showing the performance of MAHINDRA & MAHINDRA

Graph showing the performance of MARUTHI SUZUKI

Graph showing the performance of HERO HONDA

Graph showing the performance of DLF

Graph showing the performance of L&T

Graph showing the performance of R POWER

Graph showing the performance of TATA POWER

Graph showing the Estimation of SECURITY RETURNS

Graph showing the VARIANCE & COVARIANCE MATRIX

76

77

78

79

80

81

82

83

84

85

86

89

90


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List of Figures


2.1

2.2

3.1

Figure showing the Public Limited Companies

Figure showing the types of Transactions

Figure showing the Activities of Steel City

13

13

27

]


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CHAPTER 1

INTRODUCTION


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1.1 INTRODUCTION

Indian financial market consists of money market and capital market. Money market is

mainly for the short-term needs and capital market for long term needs.

CAPITAL MARKET AND ITS STRUCTURE

Capital market is a financial market, which provides and facilitates an orderly exchange

of long term needs. The capital market in India is classified into

Primary market or new issuance market

Secondary market

The primary market deals with new issue of long term securities. Whereas the secondary

market deals with buying and selling of old, second hand, existing securities, which are

already listed in official trading list of recognized stock exchange.

Players of New Issue Market are many, among them the most important are:

Merchant bankers

Registrars

Collecting and coordinating bankers

Underwriters and brokers

The players of secondary market are:

Issuers of securities like companies


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Intermediaries like brokers, and sub-brokers etc.

NEED FOR THE STUDY

As the business and industry expanded and economy became more complex in nature, a

need for permanent finance arose. Entrepreneurs require money for long-term needs,

were as investors demand liquidity the solution to this problem gave way for an origin of

stock exchange, which is a ready market for investment and liquidity.

As per the securities contract Act, 1956, Stock Exchange means any body of individuals

whether incorporated or not, constituted for the purpose of regulating or controlling the

business of buying, selling or dealing in securities.

SECURITIES INCLUDE

1. Shares, scrip's, stocks, bonds, debentures and other marketable Securities.

2. Government securities

3. Rights or interests in securities.

NATURE AND FUNCTION OF STOCK EXCHANGE

There is an extraordinary amount of ignorance and of prejudice born out of ignorance

with regard to nature and function of stock exchange as economic development proceeds;

the scope for acquisition and ownership of capital by private individuals also grows.

Along with it, the opportunity for a stock exchange to render the service of stimulating

private savings and challenging such savings into productive investment exists on a

vastly great scale. These are services, which the stock exchange alone can render

efficiently.


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The stock exchange in India has an important role to play in the building of a real

shareholders democracy. To protect the interests of the investing public, the authorities of

the stock exchange have been increasingly subjecting not only its members to high

degree of discipline, but also those who use its facilities- joint stock companies and other

bodies in whose stocks and shares it deals.

The activities of the stock exchange are governed by a recognized code of conduct apart

from statutory regulations, investors both actual and potential are provided, through the

daily stock exchange quotations The job of the stock exchange and its members is to

satisfy the need of market for investments - to bring the buyers and sellers of investments

together, and to make the exchange of stock between them as simple and fair a process as

possible.

CHARACTERISTICS OF THE EXCHANGES IN INDIA

Traditionally, a stock exchange has been an association of individual members called

brokers, formed for the express purpose of regulating and facilitating the buying and

selling of securities by the public and institutions at large. A stock exchange in India

operates with the recognition from the government under the securities and contracts

(Regulation Act, 1956). The member brokers are essentially the middlemen, who transact

in securities on behalf of the public for a communism or on their behalf. There are at

present 26 stock exchanges in India. The largest among them is being the Bombay stock

exchange (BSE), which alone accounts for over 80% of due total volume of transactions

in shares in the country.


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Securities and Exchanges Board of India (SEBI) has been setup in Bombay by the

Government to oversee the orderly development of stock exchanges in the country. All

companies wishing to raise capital from the public are required to list their securities on

at least one stock exchange thus, all ordinary shares, preferences shares and debentures of

publicity held companies are listed in one are more stock exchanges. Stock exchanges

also facilitate trading in the securities of the public sector companies as well as

government securities.

1.2 OBJECTIVES OF THE STUDY

1 To evaluate the performance of 15 different companies Based on Risk, Rate of return

and Coefficient of Correlation

2. To compare the returns of the company to that of NSE, Nifty.

1.3 METHODOLOGY OF THE STUDY

The study is conducted to know the past performance of the selected companies and to

construct the optimum portfolio based on RISK and RATE OF RETURNS of the

companies

SOURCES OF THE DATA:

The source includes only the secondary data

Secondary data is collected from the internet (www.nseindia.com)
http://www.nseindia.com/http://www.nseindia.com/


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1.4 LIMITATIONS OF THE STUDY:

1. The study is limited to only 15 companies.

2 Investors desired level of variance and desired expected return was not

taken into consideration

3. There may be scope for committing statistical errors.


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CHAPTER 2

INDUSTRY PROFILE


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INDIAN EQUITY MARKET

2.1 Introduction

Stock markets refer to a market place where investors can buy and sell stocks. The price

at which each buying and selling transaction takes is determined by the market forces (i.e.

demand and supply for a particular stock).

Let us take an example for a better understanding of how market forces determine stock

prices. ABC Co. Ltd. enjoys high investor confidence and there is an anticipation of an

upward movement in its stock price. More and more people would want to buy this stock

(i.e. high demand) and very few people will want to sell this stock at current market price

(i.e. less supply). Therefore, buyers will have to bid a higher price for this stock to match

the ask price from the seller which will increase the stock price of ABC Co. Ltd. On the

contrary, if there are more sellers than buyers (i.e. high supply and low demand) for the

stock of ABC Co. Ltd. in the market, its price will fall down.

In earlier times, buyers and sellers used to assemble at stock exchanges to make a

transaction but now with the dawn of IT, most of the operations are done electronically

and the stock markets have become almost paperless. Now investors dont have to gather

at the Exchanges, and can trade freely from their home or office over the phone or

through Internet.


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2.2 History of the Indian Stock Market - The Origin

One of the oldest stock markets in Asia, the Indian Stock Markets have a 200 years old

history.

18th

Century

East India Company was the dominant institution and by end of the century,

business in its loan securities gained full momentum

1830's Business on corporate stocks and shares in Bankand Cotton presses started in

Bombay.Trading list by the end of 1839 got broader

1840's Recognition from banks and merchants to about half a dozen brokers

1850's Rapid development of commercial enterprise saw brokerage businessattracting more people into the business

1860's The number of brokers increased to 60

1860-61 The American Civil War broke out which caused a stoppage of cotton supplyfrom United States of America; marking the beginning of the "Share Mania"

in India

1862-63 The number of brokers increased to about 200 to 250

1865 A disastrous slump began at the end of the American Civil War (as anexample, Bank of Bombay Share which had touched Rs. 2850 could only be

sold at Rs. 87)

2.1 Table showing the history of Indian stock market
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]

Pre-Independence Scenario - Establishment of Different Stock Exchanges

1874 With the rapidly developing share tradingbusiness, brokers used to gatherat a street (now well known as "Dalal Street") for the purpose of transacting

business.

1875 "The Native Share and Stock Brokers' Association" (also known as "The

Bombay Stock Exchange") was established in Bombay

1880's Development of cotton mills industry and set up of many others

1894 Establishment of "The Ahmedabad Share and Stock Brokers' Association"

1880- 90's Sharp increase in share prices of jute industries in 1870's was followed by a

boom in tea stocks and coal

1908 "The Calcutta Stock Exchange Association" was formed

1920 Madras witnessed boom and business at "The Madras Stock Exchange" wastransacted with 100 brokers.

1923 When recession followed, number of brokers came down to 3 and theExchange was closed down

1934 Establishment of the Lahore Stock Exchange

1936 Merger of the Lahore Stock Exchange with the Punjab Stock Exchange

1937 Re-organization and set up of the Madras Stock Exchange Limited (Pvt.)

Limited led by improvement in stock market activities in South India with

establishment of new textile mills and plantation companies

1940 Uttar Pradesh Stock Exchange Limited and Nagpur Stock Exchange

Limited was established

1944 Establishment of "The Hyderabad Stock Exchange Limited"1947 "Delhi Stock and Share Brokers' Association Limited" and "The Delhi

Stocks and Shares Exchange Limited" were established and later on merged

into "The Delhi Stock Exchange Association Limited"

2.2 Table showing the pre Independence scenario

Post Independence Scenario

The depression witnessed after the Independence led to closure of a lot of exchanges in

the country. Lahore Estock Exchange was closed down after the partition of India, and

later on merged with the Delhi Stock Exchange. Bangalore Stock Exchange Limited was

registered in 1957 and got recognition only by 1963. Most of the other Exchanges were in
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a miserable state till 1957 when they applied for recognition under Securities Contracts

(Regulations) Act, 1956. The Exchanges that were recognized under the Act were:

1. Bombay

2. Calcutta

3. Madras

4. Ahmedabad

5. Delhi

6. Hyderabad

7. Bangalore

8. Indore

Many more stock exchanges were established during 1980's, namely:

Cochin Stock Exchange (1980) Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982)

Pune Stock Exchange Limited (1982)

Ludhiana Stock Exchange Association Limited (1983) Gauhati Stock Exchange Limited (1984)

Kanara Stock Exchange Limited (at Mangalore, 1985)

Magadh Stock Exchange Association (at Patna, 1986) Jaipur Stock Exchange Limited (1989) Bhubaneswar Stock Exchange Association Limited (1989)

Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989)

Vadodara Stock Exchange Limited (at Baroda, 1990) Coimbatore Stock Exchange

Meerut Stock Exchange

At present, there are twenty one recognized stock exchanges in India which does not

include the Over The Counter Exchange of India Limited (OTCEI) and the National

Stock Exchange of India Limited (NSEIL).


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Government policies during 1980's also played a vital role in the development of the

Indian Stock Markets. There was a sharp increase in number of Exchanges, listed

companies as well as their capital, which is visible from the following table:8

Listed Cos. (LakRs.)

5

8

7

0

4

8

2

6

7

0

6

0 4 3


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2.3 Table showing the Trading Pattern of the Indian Stock Market

Indian Stock Exchanges allows trading of securities of only those public limited

companies that are listed on the Exchange(s). They are divided into two categories:

2.1 Figure showing the public limited companies

Types of Transactions

The flowchart below describes the types of transactions that can be carried out on the

Indian stock exchanges:


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2.2 Figure showing the Types of Transactions

Indian stock exchange allows a member broker to perform following activities:

Over The Counter Exchange of India (OTCEI)

Traditionally, trading in Stock Exchanges in India followed a conventional style where

people used to gather at the Exchange and bids and offers were made by open outcry.

This age-old trading mechanism in the Indian stock markets used to create much

functional inefficiency. Lack of liquidity and transparency, long settlement periods and

benami transactions are a few examples that adversely affected investors. In order to

overcome these inefficiencies, OTCEI was incorporated in 1990 under the Companies

Act 1956. OTCEI is the first screen based nationwide stock exchange in India created by

Unit Trust of India, Industrial Credit and Investment Corporation of India, Industrial

Development Bank of India, SBI Capital Markets, Industrial Finance Corporation of

India, General Insurance Corporation and its subsidiaries and CanBank Financial

Services.
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Advantages of OTCEI

Greater liquidity and lesser risk of intermediary charges due to widely

spread trading mechanism across India

The screen-based scripless trading ensures transparency and accuracy of

prices

Faster settlement and transfer process as compared to other exchanges

Shorter allotment procedure (in case of a new issue) than other exchanges

National Stock Exchange:

In order 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.

NSE provides exposure to investors in two types of markets, namely:

1. Wholesale debt market

2. Capital market

Wholesale Debt Market - Similar to money market operations, debt market operations

involve institutional investors and corporate bodies entering into transactions of highvalue in financial instrumets like treasury bills, government securities, commercial papers

etc.Trading at NSE

Fully automated screen-based trading mechanism Strictly follows the principle of an order-driven market

Trading members are linked through a communication network

This network allows them to execute trade from their offices 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

A confirmation slip will be printed at the office of the trading member
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Advantages of trading at NSE

Integrated network for trading in stock market of India

Fully automated screen based system that provides higher degree of

transparency Investors can transact from any part of the country at uniform prices

Greater functional efficiency supported by totally computerized network

2.3 NATIONAL STOCK EXCHANGEThe National Stock Exchange (NSE) is Indias leading stock exchange covering

various cities and town 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 and 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 micro structure, market practices and trading volumes. The market today uses slate

of art information technology to provide an efficient and transparent trading, clearing

and settlement mechanism, and has witnessed several innovations in products and

services viz., dematerialization of stock exchange governance, screen based trading,

compression of settlement cycles, dematerialization and electronic transfer of securities,

securities lending and borrowing, professionalization of trading members, fine turned


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risk management systems, emergence of clearing corporations to assume counter party

risks, market of debt and derivative instruments and intensive use of information

technology.

The National Stock Exchange of India Limited has genesis in the report of the

High Powered Study Group of Establishment of New Stock Exchanges, which

recommended promotion of a National Stock Exchange by financial institutions (FIS) to

provide access to investors from all across the country on an equal footing. Based on the

recommendations, NSE was promoted by leading Financial Institutions at the behest of

the Government of India and was incorporated in November 1992 as a tax paying

company unlike other stock exchanges in the country.

On its recognition as a stock exchange under the Securities Contracts

(Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale

Debit Market (WDM) segment commenced operations in November 1994 operations in

Derivatives segment commenced in June 2000.

OUR MISSION

NSEs, mission is setting the agenda for change in the securities markets in India. The

NSE was set-up with the main objectives of:

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.


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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 markets.

The standards set by NSE in terms of market practices and technology have

become industry benchmarks and are being emulated by other market participants. NSE

is more than a mere market facilitator. Its that force which is guiding the industry

towards new horizons and greater opportunities.

PROMOTERS

NSE has been promoted by leading financial institutions, banks, insurance companies and

other financial intermediaries:

Industrial Development Bank of India Limited.

Industrial Finance Corporation of India Limited.

Life Insurance Corporation of India

State Bank of India

ICICI Bank Limited

IL & FS Trust Company Limited

Stock Holding Corporation of India Limited

SBI Capital Markets Limited

The Administrator of the Specified Undertaking of Unit Trust of India

Bank of Baroda

Canara Bank


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General Insurance Corporation of India

National Insurance Company Limited

The New India Assurance Company Limited

The Oriental Insurance Company Limited

Punjab National Bank

Oriental Bank of Commerce

Corporation Bank

Indian Bank

Union Bank of India

OUR LOGO

The logo of the NSE symbolize a single nationwide securities trading facility

ensuring equal and fair access to investors, trading members and issuers all over the

country. The initials of the Exchange viz., N, S and E have been etched on the logo and

are distinctly visible. The logo symbolizes use of state of the art information technology

and satellite connectivity to bring about the change within the securities industry. The

logo symbolizes vibrancy and unleashing of creative energy to constantly bring about

change through innovation.

CORPORATE STRUCTURE

NSE is one of the first demulualised stock exchanges in the country, where the

ownership and management of the Exchange is completely divorced from the right to

trade on it. Though the impetus for its establishment came from policy makers in the


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country, it has been setup as a public limited company, owned by the leading institutional

investors in the country.

From day one, NSE has adopted the form of a demutualised exchange the

ownership, management and trading is in the hands of three different sets of people. NSE

is owned by a set of leading financial institutions, banks, insurance companies and other

financial intermediaries and is managed by professional, who do not directly or indirectly

trade on the Exchange. This has completely eliminated any conflict of interest and helped

NSE in aggressively pursuing policies and practices within a public interest framework.

The NSE model however, does not preclude, but in fact accommodates

involvement, support and contribution of trading members in a variety of way. Its board

comprises of senior executives from promoter institutions, eminent professionals in the

fields of law, economics, accountancy, finance, taxation, etc. public representative,

nominees of SEBI and one full time executive of the Exchange.

While the Board deals with broad policy issues decisions relating to market

operations are delegated by the Board to various committee constituted by it. Such

committee includes representatives from trading members, professionals, the public and

the management. The day-to-day management of the Exchange is delegated to the

Managing Director who is supported by a team of professional staff.


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2.4 BOMBAY STOCK EXCHANGE

The Stock Exchange, Mumbai, which was established in 1875 as The Native

Share and Stockbrokers Association (a voluntary non-profit making association), has

evolved over the years into it present status as the premier Stock Exchange in the country.

It may be noted that the Stock Exchange is the oldest one in Asia, even older than the

Tokyo Stock Exchange, which was founded in 1878.

The Exchange while providing an efficient market also upholds the interests of

the investors and ensures redressal of their grievances, whether against the companies or

its own member brokers. It also strives to educate and enlighten the investors by

making available necessary informative inputs.

A Governing Board comprising of 9 elected directors (one third of them retire

every year by rotation) and Executive Director, three Government nominees, a Reserve

Bank of India nominee and five public representatives, is the apex which regulates the

exchange and decides its policies.

The Governing Board following the election of directors annually elects a

President, Vide President and an Honorary Treasurer from among the elected directors.

The Executive Director as the Chief Executive Officer is responsible for the day-

do-day administration of the Exchange.

The exchange has obtained permission from Securities and Exchange Board of

India (SEBI) for expansion of its BSE-on-Line Trading (BOLT) network to locations

outside Mumbai. In term of the permission granted by SEBI, the members of the

Exchange are free to install their trading terminals to cities where there are no Stock

Exchange. However, at centers where the other exchanges are located, the Exchange is


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required to sign a Memorandum of Understanding with these Exchanges permitting it to

install the BOLT terminals in their jurisdictional areas.

The expression of BOLT network was inaugurated by the Finance Minister,

Government of India, Sri P. Chidambaram on August 30, 1997. The Exchange has signed

Memorandum of Understanding with eleven Stock Exchanges, viz., Calcutta, Pune,

Adhmedabad, Saurashtra, Kulch (Rajkot), Madaypradesh, Vadodara, Bhubaneshwar and

Magadh (i.e., Patna) Jaipur, Coimbatore and Chennai (Madras) to provide BOLT

connections to the members of these Exchanges after obtaining necessary clearance from

SEBI. The BOLT network has been expanded to centers outside Mumbai and covers 232

centres having 726 VSATs (Very Small Aperture Terminals) and 1020 TWSs (Trader

Work Stations) as on October 31, 1999. Of these, 648 VSATs and 872 TWSs

respectively are installed outside Mumbai. With the expansion of BOLT outside Mumbai.

The total average daily turnover at the Exchange has increased from Rs.1064 crores in

August 1997 to Rs. 1404 crores in April 1998 and further to Rs.2885 crores in October

1999.

The average daily turnover at the Exchange has increased from Rs. 851 crores in

1997-98 to R.1284 crores in 1998-99 and further to Rs.2885 crores in 1999-2000 (April

October 1999). Some of the important aspects of the working of the stock Exchange,

Mumbai are discussed below.

TRADING

The Exchange has switched over from the open outcry trading system to a fully

automated computerized mode of trading known as BOLT (BSE On Line Trading)

System. This system, which is both order and quote driven was commissioned on March


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14, 1995. It facilitates more efficient processing, automatic order matching and faster

execution of trades. Above all, the system is more transparent. The members now enter

orders / quotes on their Trader Work Stations (TWSs) in their offices instead of

assembling in the trading ring.

The strips traded on the Exchange have been classified into A, B1, B2,

C, F and Z group. The number of strips listed on the Exchange under A, B1

and B2 groups which represent the equity segments as on October 1999 was 152, 1109

and 4510 respectively. The F group represents the debt market (fixed income

securities) segment wherein 670 securities were listed as at the end of October 1999. The

Z group was introduced in the month of July 1999 and covers the list of companies that

fail to comply with listing requirements and also fail to resolve investor complaints. The

Z group comprises of 539 scripts as of October 1999. The C group covers the odd

lot securities in A, B1 and B2 groups and Rights renunciations.

The stock Exchange, Mumbai, is the only Stock Exchange in the country to

provide a facility of on-line trading in odd lot securities and rights renunciations. This

facility of trading in odd lots of securities and Rights renunciations not only offers an exit

route to investors to dispose of their odd lot of securities but also provides them an

opportunity to consolidate their securities into market lots. Trading in this segment covers

all the scripts listed in the equity segment.

The trading cycle for all these groups of securities is weekly. The trading cycle

for A, B1, B2, C and Z group securities representing the equity segment is from

Monday to Friday and that for F group securities representing the debt market is from

Thursday to Wednesday. The Transactions in A group scripts are allowed to be carried


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forward from one settlement to another settlement subject to a maximum of 75 days from

the date of outstanding positions in A group scripts. The trading session for carry

forward of transactions from one settlement to another is conducted on Saturdays, i.e., at

the end of every trading cycle in the equity segment.

Trading on the BOLT system is conducted from Monday to Friday between 10.00

a.m. and 3.30 p.m. while the carry forward session for A group securities is

conducted on Saturdays between 10.00 a.m. and 12.30 p.m.

The Information Systems Department of the Exchange generates the following

statements that can be downloaded by the members in their back offices on a daily basis :

a. Statements giving details of the daily transactions entered into by the members.

b. Statements giving details of margins payable by the members in respect of the

trades executed by them.

The members are allowed to enter into transactions on behalf of their Institutional

clients, viz., Scheduled Commercial Banks, Indian Financial Institutions (IFIs) and

Foreign Institutional Investors (FIIs) and Mutual Funds registered with SEBI. The

settlement of the trades (money and securities) done on behalf of the Institutions may be

either through the member himself or through a SEBI registered Custodian appointed by

an institution. In case the delivery / payment is to be given or taken by a Custodian on

behalf of an Institution; the former has to confirm the trade done by a member. For this

purpose, the Custodians have been admitted as members of the Clearing House. In case

the Custodian does not confirm an institutional transaction, the liability for pay in funds

or securities devolves on the concerned member.


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CHAPTER 3

COMPANY PROFILE


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3.1 HISTORICAL BACKGROUND OF THE COMPANY:

Steel City Securities Limited was incorporated on 22nd February 1995 and

raised equity of Rs.105 lakh on 24th June 1995 and obtained the membership of the

largest and prestigious National Stock Exchange of H-Limited (NSE) and Bombay Stock

Exchange (BSE) in 2000, in its capital market segment. The 1st VSAT for its trading

workstation (TWS) at Hyderabad was installed in 1995 and the 2nd at Visakhapatnam in

April 1996.

Presently, there are 64 VSATS installed at more than 50 centers in Andhra

Pradesh, Orissa, Tamilnadu and Karnataka. There are 219 computer trading terminals

put together connected to their VSAT at the centers (each VSAT can have 5 TWS

connected). Since its inception the service of this organisation is prompt and there is not

a single instance of payout of funds / deliveries delay to any client, from the beginning

the firm is committed to continue the same service in future also. Companies basic

principle is total commitment in service to all clients with all transparency and ensures

that is it their sacred policy not to indulge in own trading, there are no self-motives or

necessity to cancel or delay anything. Every branch is fully equipped and independently

connected to the NSE Hub at Mumbai, every branch is having 2 to 5 trading terminals

connected to VSAT. The company performance has not parallel on NSE.

Steel City Securities Ltd. follows a functional organization system. It provides various

services which are provided through different departments. They are:

Trading (System):

Deals with online trading facility through the VSAT

Registration of clients and interaction with clients

Dealing with new sub brokers and making them conversant with the system

Provides updated information of a days trading activities.


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Data Processing:

Opening of the account after the fulfillment of various formalities.

Shares are credited to the De-Mat account by dematerializing the physical

shares and those brought from the secondary market.

The process of settling the selling and buying obligations takes places

through the delivery instruction slip to their respective clients.

Accounts:

The function of accounts departments is to maintain a record of all the

pay-in, pay-out cash received for De-Mat account opening, account closing, transaction

charges for operating the account. Records of expenses incurred and incomes earned

from business are also maintained basing on which year after year an annual report is

prepared to which the latest data is annexed in its 1st chapter.

Deliveries:

This department acts as an intermediary between stock exchange and

clients. Hence proper knowledge is very essential. Proper records of all inward and

outward stocks should be maintained failing which there may be improper deliveries

leading to penalties and disagreements with clients. NSCCL is extended the

responsibility of settling the delivery obligations of sellers and buyers dealt in a given

settlement period.

BOARD OF DIRECTORS OF STEEL CITY SECURITIES LIMITED

Sri G.Sree Rama Murthy Chairman and Managing Director

Sri G.Raja Gopal Reddy Executive Director

Sri K.Satyanarayana Executive Director (S)

Sri Satish Kumar Arya Director Operations

Sri G.Satya Rama Prasad Director


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The various service departments in SCSL are:

Systems Departments

Inspection Department

Personal Department

Accounts

Deliveries

Depository Participant

Research and Development

ACTIVITIES OF STEEL CITY:

3.1 Figure showing the activities of steel city

3.2STRUCTURE OF THE ORGANISATION:

STEEL CITY SECURITIES LIMITED

TRADING FACILITIES SETTLEMENT OF TRADES

SECURITIESFUNDS

PAY IN PAY OUT

PAY IN PAY OUT

SECURITIES BOUGHT BY

CLIENTS

LOSS

FUNDS

INTERNAL FUNDS NSEPAY OUT TO CLIENTS


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Managing Director. Under him there are three Executive Directors for

surveillance & operations and also a Sleeping Director.

Mr.G.Sree Ram Murthy is the Chairman cum Managing Director,

Mr.G.Raja Gopal Reddy the Executive Director looks after the market development and

opening of new franchisees. He also looks after requirements of new and existing

branches. Mr.K.Satyanarayana the Executive Director, surveillance has an inspection

team under him for the purpose of vigilance in all branches and franchisees.

Mr.Satish Kumar Arya is the Director Operations. He controls the trading

limits, margins etc. All office related matters are dealt by him. He is also responsible for

meeting the requirements and following the rules set by the stock exchanges.

Mr.G.S.R.Prasad is the fourth Director who does not play any role in the day to day

working of the company.

Senior Manager (Operations) is Mr.Murali is responsible for De-Mat with

NSDL / CDSL. Senior Manager (Systems) is Mr.V.Srinivas who looks after the

Networking, Software, Hardware and trading related requirements and VSAT

connectivity. Finance and accounts were looked after by Mr.Ramu who is a Chartered

Accountant.

Mr. Samba Murthy is responsible for the trading and registration of new

clients. He is the Trading Manager. Mr. Krishna Naga Bhutan is the Marketing

Manager. He is also responsible for conduction various awareness seminars. The legal

section deals with the investors problems and legal issues with the company. Even

without relation to the company they render legal services.


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The different branches and franchisees of the company report directly to the Head

Office in Visakhapatnam and any activity taken up by these should be brought to the

notice of the Head Office. Every branch has a Branch Manager, Accountant, Trading

Manager and Trading Operator. The company has various functional departments for its

smooth functioning.

3.3 COMPANY POLICY

The basic policy of SCSL, is not to indulge in own trading. The basic

principle of SCSL is total commitment in service to all clients. The service of SCSL is

prompt and hence there are not delays in payout of funds or deliveries to any client.

SCSL collects pay in T+1 and its payout in T+3 days. Through SCSL, trade in NSE per

day is 200 crores whereas; trade in BSE per day is 4 crores.

Capital:

The base capital is set up a trade center is 1 crore, SCSL raised equity of

Rs.105 lakhs during its incorporation. Earlier, SCSL paid Rs.75 lakhs as base capital to

NSE when it was set up. Every trade corporation has to maintain a reserve of some

amount with NSE. At present, SCSL has 7.5 crores as margin with NSE.

Working Staff:

There is 100 to 150 staff employed in SCSL. The staff draws a salary

basing on the cadre they are employed. The salaries in SCSL vary from Rs.2000 to

Rs.20000 per month basing on the cadre of the employee.

Employee Recruitment:

In SCSL, the top managements select the candidate and the letter of

appointment or rejection is sent to the Board of Directors. The Directors do the


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placement in SCSL. The placement can either be in the Head Office or in any other

branches of SCSL.

Planning:

It involves planning of Human Resource Department i.e. recruitment,

selection, training etc. it also involves forecasting of personnel changing values, attitudes

and behavior of employees.

Directing:

In this company, the personnel manager co-ordinates various managers at

different levels as the personnel functions are concerned. The wilting and effective co-

operation of employees for the attainment of organization goals is possible through

proper direction.

Controlling:

In SCSL, the top management does the controlling. In this aspect, they do

auditing training programmes; directing moral surveys are some of the functions of the

top management.

Recruitment:

It is the process of searching for prospective employees and simulating

them to apply for jobs in the organization. In SCSL, if they want any person, they will

give notification in newspaper in order to simulate eligible persons to apply for that job.

Employee Relation:

The employee relations at all levels remains cordial. Training, Promotion

and Transfers are done in SCSL to motivate and increase the morale of the staff. All the

employees in SCSL from top to bottom perform their services with sincerity, hard work,


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dedication and with team spirit due to which SCSL is considered as one of the best stock

trading firm in India.

Selection, Placement and Training:

The top management shall do the selections. Placement is in the head

office and in the branches of SCSL, which are in different places. Selected candidates

are placed in one of the branches of SCSL and gives proper training.

3.4 Functions of the SCSL:

SCSL provides mock trading to its clients and members.

SCSL provides complete automated system both in trading and settlement

process.

SCSL enables clients to trade both in NSE and BSE.

SCSL converts the paper shares into electronic shares through DMAT

process.

SCSL provides market information.

SCSL acts as clearing member for trades taking place through SCSL.

SCSL is a depository participant of NSDL & CDSL and it is a trading and

clearing member of NSE & BSE.

Facilities provided to Client in SCSL:

Gross exposure facility given in SCSL is 5 times. But, up to 10 times, it is

relaxed to clients. Turnover facility given in SCSL to clients is 33.33 times. But, the

restrictions are not considered. Minimum of Rs.20, 000 margin money is collected from

professional clients who trade for speculation purpose. For deliver purpose, no margin


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money is collected. Due to the total commitment in service to its clients, SCSL is

considered to be one of the best Stock Broking Companies in India.

NSE Branches of SCSL:

Mumbai Gudiwada

Secunderabad Kakinada

Gajuwaka Cuddapah

Vizianagaram Guntur

Tirupathi Prodduttur

Bhimavaram Narsaraopet

Vijayawada Chilakalurpet

Mellor Eluru

Nandyala Ongole

NSE Franchisees:

Rourkela Berhampur (2)

Srikakulam Visakhapatnam

Chennai Kukatpalli

Anantapur Bakaram

Chittor TenaliAmalapuram Pidiguralla

Madanapalli Hanumakonda

Panjagutta Erragadda

3.5 SECURITIES TRADED IN SCSL:

In SCSL all the shares, scrips, stocks, bonds, debentures, derivatives,

government securities, debt instruments etc. can be traded. But generally, trading is

mostly done in scrips listed in BSE & NSE.


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The government securities and the corporate securities can be traded

through NEAT system in NSE. Only trading mechanism available in the debt market

was the telephone market before June 1994 when NSE launched wholesale debt

market (WDM) segment. This provides the only formal platform for trading of a

wide range of debt securities. Though many trades in the gilts takes place through

telephone, a longer chunk of trades get rented through NSE brokers.

Trading in derivatives of securities commenced in June 2002 with the

enactment of enabling legislation in early 2000.

3.6 THE TRADING PROCESS:

Steel City Securities Limited provides stock trading services to its clients

and members. It enables the clients to trade in both NSE & BSE. Through the

computer trading terminals in SCSL, the client places an order to buy or sell the

shares. After the trade is confirmed, the client receives the settlement net positions.

SCSL collects the margin, brokerage, service tax & commission from the clients for

the trades taking place in SCSL.

SCSL converts the physical shares into the electronic shares through D-

MAT process. Clearing and settlement of trades, dematerialization of shares,

providing market information to the clients are daily chores in SCSL, apart form

trading.

1. DOCUMENTATION:

The trading member or stockbroker shall enter into an agreement in the

specified format provided by NSE with the client before accepting orders on latters


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behalf. The said agreement shall be executed on non-judicial stamp paper of

adequate value, duly signed by both the parties on all the pages. This agreement is

known as Member Constraint Agreement. Copy of this agreement is to be kept with

the trading member permanently.

In addition to the agreement, the stock broker/trading member shall seek

information from the client in the Client Registration Application Form obtaining

information like investor risk profile, financial profile, social profile, investor

identification details, family, income, PAN, employment, age, investments, other

assets, financial liabilities etc.

A stockbroker shall not deal knowingly, directly or indirectly, with a client

who defaults to another stockbroker.

Similarly, the sub-broker shall enter into an agreement with the client

before placing orders, with shall be executed on non-judicial stamp paper. The client

should provide information to the sub-brokers in the client registration application

form

2. ON-LINE TRADING:

NEAT System:

The NEAT system supports an order driven market, wherein orders match

on basis of time and price priority. All quantity fields are in units and prices are


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quoted in Indian Rupees. The regular lot size and tick size for various securities

traded is notified by the exchange from time to time.

To bring in efficiency, transparency and depth in the market, NSE

provides a fully automated screen based trading system known as NEAT. Its trading

members use NEAT system for trading in the capital market segment in NSE.

a. Logging on to the NEAT system:

User ID

Trading Member ID

Password

New Password

b. Market Phase:

The system is normally made available for trading on all days except Saturdays,

Sunday & other holidays.

i. Pre-open phase:

The pre-open period is relevant only in the normal market. Order matching takes

place at the end of the session, based on which an opening price is computed &

assigned to all trades of pre-open.

ii. Opening:

In this period, all orders that have been entered in the pre-open phase are matched.

During this phase, the trading member cannot login to the system. If the member is

already logged in the cannot perform trading activities till market is opened.


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iii. Open Phase:

The open period indicates the commencement of trading activity. To signify the start

of a trading, a message is sent to all the trade workstation. Order entry is allowed

when all the securities have been opened. During this phase, orders are matched on a

continuous basis.

Trading in all the instruments is allowed unless they are specifically

prohibited by the exchange. The activities that are allowed at this stage are:

Inquiry: Inquiry about the market status, the shares and their prices.

Order entry: Placing an order to buy or sell the scrips by quoting the price and

the quantity of the share.

Order modification: Modifying the order that has been already placed. The

modification may be with respect to price or quantity.

Order cancellation: The order placed already can also be cancelled if the price

or the quantity of scrip is not satisfactory. Order cancellation also includes quick order

cancellation.

iv. Market close:

Where the market closes, trading in all instruments for that market comes to an

end. No further orders are accepted, but the user is permitted to perform activities

like inquiries.

v. Surcon:

Surveillance and control (SURCON) is that period after market close during

which, the users have inquiry access only. After the end of SURCON period, the

system processes the data for making the system available for the next trading day.


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When the system starts processing data, the interactive connection with the NEAT

system is lost and the message to that effect is displayed at the trader workstation.

Back Office:

To know the trade position of the client , back-office is done in SCSL everyday

immediately after the trade ends. STEEL PACK is the package used in back office

system. Steel City Software team was designed and maintained this STEELPACK

Package.

The main modules of back office system are:

Trading

Finance

Importing Exporting

Margins

Clearing

Business Controls

Payin-Payout

House Keeping

In the back office, first the Import Export module is opened where the

trade file of the days trade is collected and the text file was imported to the system.

There, the old closing prices are inserted by new prices from the Bhav copy file.

Bhav copy is the average of last half-an-hour prices of the scrips.

To calculate the net mark to market value, Bhav copy file is imported from

NSE/BSE/NCDEX/MCX. Net mark to market value is to be known to know the


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profit or loss position of the client, basing on which the Trading Manager of SCSL

will decide whether the client can trade or not for the next day on comparing it with

the margin paid by the client.

After importing the Bhav copy file, the trading module is opened. In

trading module, the sauda status is known from the Sauda Manager. Sauda manager

is the number of trade confirmations recorded. Confirmation of trading transaction

with brokerage commission is known as Sauda.

After Sauda Manager, Net positions process is done. In the net positions

process, cumulative net position reports, client-wise net position reports and other

reports are made and are given to clients and to the accounts department. The bills are

prepared and sent to the respective clients.

2. REPORTS:

After selecting REPORTS option from main menu, the member has to

specify the criteria for which the report is needed. The types of reports that may be

generated are: Net Position Reports Client Wise and Scrip Wise; Contract Note

reports; Client Wise Confirmation reports; Bills Summary reports; bad deliveries

reports; auctions reports; objections reports; margins reports; securities reports and

miscellaneous reports. The daily reports of various aspects relating to the trading

activities are maintained.

3. CLEARING:

Settlement of trades transacted on an exchange requires smooth, preferably

instantaneous, movement of securities and funds in accordance with the prescribed

schedule of pay-in / pay-out. Movement of securities has been almost instantaneous


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in the dematerialized environment. Two depositories are in place to provide

electronic transfer of securities. 10 major stock exchanges accounting for about 99%

of turnover have been connected to depositories. All actively traded scrips are held,

traded and settled in de-mat form. NSE follows a different model where a clearing

corporation guarantees settlement obligations emanating from trades.

4 SETTLEMENTS:

The trades accumulated over a trading cycle are clubbed together at the end of the

trading cycle, positions (trades) are netted and the balance obligations are settled.

There is one type of settlement:

A. Rolling settlement:

In a rolling settlement, each trading day is considered as a trading period and

trades executed during the day are settled based on the net obligations for the day.

At nse, trades in rolling settlement are settled on a t+2 basis i.e. On the 2nd

working day. For arriving at the settlement day all intervening holidays, which include

bank holidays, nse holidays, saturdays and sundays are excluded. Typically trades taking

place on monday are settled on wednesday, tuesday's trades settled on hursday and so on.

In order to enhance liquidity, to shorten the settlement cycle and to promote market for

derivatives, sebi permitted rolling settlement in respect of selected shares and trades in

this segment are settled by de-mat delivery only.

In this type of settlement, for confirmed trades, the settling bank will

arrange for payment and clearance and depository for effecting transfers by electronic

book entry system. Canara bank provides the clearinghouse facility.


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The following table and figure represent rolling settlement process.

A tabular representation of the settlement cycle for rolling settlement is given

below:

Activity Day

Trading Rolling Settlement Trading T

Clearing Custodial Confirmation T+1 working days

Delivery Generation T+1 working days

Settlement Securities and Funds pay in T+2 working days

Securities and Funds pay out T+2 working days

Valuation Debit T+2 working days

Post Settlement Auction T+3 working days

Settlement Agencies

The NSCCL, with the help of clearing members, custodians, clearing

banks and depositories settles the trades executed on exchanges. The roles of each of

these entities are explained bellow:

a. NSCCL

b. CLEARING MEMBERS

c. CUSTODIANS

d. CLEARING BANKS

e. DEPOSITORIES

f. PROFESSIONAL CLEARING MEMBER

Explanations:

1. Trade details from Exchange to NSCCL (real-time and end of day trade

file).


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2. NSCCL notifies the consummated trade details to CMs/custodians who

affirm back. Based on the affirmation, NSCCL applies multilateral netting and

determines obligations.

3. Download of obligation and pay-in advice of funds/securities.

4. Instructions to clearing banks to make funds available by pay-in-time.

5. Instructions to depositories to make securities available by pay-in-time.

6. Pay-in of securities (NSCCL advises depository to debit pool account of

custodians/CMs and credit its account and depository does it).

7. Pay-in of funds (NSCCL advises Clearing Banks to debit account of

custodians/CMs and credit its account and clearing bank does it).

8. Pay-out of securities (NSCCL advises Clearing Banks to credit account of

custodians/CMs and debit its account and depository does it).

9. Pay-out of funds (NSCCL advises Clearing Banks to credit account of

custodians/CMs and debit its account and clearing bank does it).

10. Depository informs custodians/CMs through DPs.

11. Clearing Banks inform custodians/CMs.

5. COST OF TRADING:

The various costs involved in the process of online trading in Steel City

Securities Limited, Visakhapatnam are as follows:

a. Margins:

The base capital to set up a trade center is one crore rupees. Earlier, SCSL paid

Rs.75 lakhs as base capital when it was set-up. The Trade Corporation has to

maintain a reserve of some amount with NSE where 30% - 50% will be in the form of

cash and the remaining in the form of bank guarantees (securities), FDRs etc. SCSL

has 7.5. crores as margin with NSE at present.


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Gross intra-day turnover (buy and sell) of a member shall not exceed 25 times the

base capital. Gross exposure of a member at any time shall not exceed 8.5 times the

free base capital of one crore rupees and not exceed 12 times over the free base

capital of one crore rupees.

Minimum of Rs.20000 is collected as margin money from professional clients in

SCSL. For delivery purpose no margin money is collected. Client margin collection

is calculated in 16 types known as Span calculation and the maximum margin is

collected from the clients. SCSL collects 25% margin money in futures from clients.

For trading in index 15% margin is charged. For retail clients, the full amount of the

value of shares is calculated and collected to allow them to purchase the shares.

Gross Exposure Margin Payable ( Rs. Crore)

1 Nil

> 1 3 2.5% in excess of Rs. 1 crores

> 3& 6 Rs. 5 lakh plus 5% in excess of Rs. 3crores

> 6& 8 Rs.20 lakh plus 10% in excess of Rs. 6 crores

> & 20 Rs.40 lakh plus 15% in excess of Rs. 8 crores

> 20 Rs. 220 lakh plus 20 % in excess of Rs.20

Brokerage:

Brokerage is of two types:

i. Speculation brokerage or square up commission:

This brokerage is charged where buying and selling of shares is done in one day only

and at the end of the days trade, the position is zero. The speculation brokerage is

charged from 0.02% to 0.05%.

ii. Delivery Brokerage :


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This brokerage is charged where there may be buying or selling lot remaining at the

end of the days trade. The delivery brokerage is charged from 0.3% to 0.5%.

As per SEBI, maximum brokerage shouldnt exceed 2.5% both in BSE and NSE. For

retail clients, the brokerage charged is 0.7%. A sub-broker charge 2.5% from the

clients to sell or buy the shares out of which, SCSL charges 1% from the sub-broker.

b. Service tax:

In SCSL, 10.2% service tax on brokerage is collected from the clients.

c. Stamp duty:

If the stamp duty of 0.006% on turnover is Rs30 or more, only Rs30 is collected in

NSE. In BSE, the minimum is 1Re and the maximum stamp duty is unlimited.

d. Security Transaction Tax

This has reference to the Securities Transaction Tax (STT) introduced in the

Finance Act 2004.

As per the Finance Act 2004, STT on the transactions executed on the Exchange

will be as under:

SI.No. Taxable securities transaction Rate Payable by

1. Purchase of an equity share in a company or a unit of

an equity oriented fund, where

(a) the transaction of such purchase is entered into in

a recognized stock exchange; and

(b) the contract for the purchase of such share or unit

is settled by the actual delivery or transfer of such share or

unit.

0.075 %. Purchaser

2. Sale of an equity share in a company or a unit of an

equity oriented fund, where

0.075 %. Seller


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(a) the transaction of such sale is entered into in a

recognized stock exchange; and

(b) the contract for the sale of such share or unit is

settled by the actual delivery or transfer of such share or unit.

3. Sale of an equity share in a company or a unit of an

equity oriented fund, where

(a) the transaction of such sale is entered into in a

recognized stock exchange; and

(b) the contract for the sale of such share or unit is

settled otherwise than by the actual delivery or transfer of

such share of unit

0.015 % Seller

7. ACCOUNTS:

The Accounts/ Finance department maintains the accounts in SCSL. The

accounts are prepared in three forms. They are:

a. Client-wise net positions,

b. Scrip-wise net positions,

c. Pay-in and Pay-out settlement of funds.

8.DEMATERIALIZATION AND ELECTRONIC TRANSFER OF

SECURITIES:

Though de-mat was introduced in 1994, it came into existence in 1996. The

depositories Act, 1996 was passed to provide for the establishment of depositories in

securities with the objective of ensuring free transferability of securities with speed,

accuracy and security by dematerializing the securities in the depository model. A

depository holds securities in dematerialized form. It maintains ownership records of

securities and effects transfer of ownership through book entry.


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The two depositories, National Securities Depository Limited (NSDL) and

Central Depository Services Limited (CDSL) provide services to investors and

clearing members through Depository Participants (DPs). They do not change the

investors and clearing members directly but charge their DPs, who are free to have

their own charge structure for their clients.

De-mat Process:

When a client places his physical shares for de-mat, SCSL after inputting the

information in depository participants sends the physical shares to the company,

which issued the shares. The client code number and the information and the clients

signature is sent to Share Holding Registrar.

There they verify whether the shares really belong to the client and whether the

signature is matching or not. Once they are satisfied that the information sent through

the DPs are right, the shares are cleared and the information is passed on to the

client. The physical shares are then torn away as they already exist in electronic

form.

When a client enters into DP for de-mat purpose, he is given a unique code

member. He can know his share position easily. It is known as client ID number.

Advantages of Dematerialization:

The process of transfer of securities became faster. The fear of loosing the

share certificates is not there because of dematerialization. Theft, forgery, mutilation

of certificates is not found in dematerialization.

9. INTERMEDIARIES:


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There are no intermediaries in between SCSL and NSE, BSE,NCDEX and

MCX. Similarly there are no intermediaries in between SCSL and professional

clients. Since SCSL is a share broker to NSE, BSE,NCDEX and MCX the

Clients operating in SCSL directly, on behalf of other clients are sub-brokers to the

ultimate clients who dont operate the trade directly. So, there may be sub-brokers as

intermediaries in between SCSL and clients who do not trade directly in SCSL.

As mentioned earlier, SCSL is depository participant. So, SCSL acts as an

intermediary between clients and NSDL & CDSL.

10. MARKET INFORMATION:

In SCSL, daily the research analyst collects the market information and it is

analyzed. The market information is used to forecast the index movement, price

movement of the shares and enables the clients to make use of the information in

trading to get better results.

The research analyst in forecasting the market movement follows the technical

analysis, fundamental analysis and efficient market hypothesis. The research analyst

collects the information about the company, the industry and the economy through

different media to know the companys position.

The research analyst follows the market closely by watching the price movement

of the shares in the market. The technical analysis is very helpful in making

investment decisions. The research analyst follows different tools of technical

analysis like Japanese candlestick method; Elliot wave theory; Dow theory; price


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trends and volume trends; volatility; floating stock and volume of trade etc., to assess

the market.

Technical analysis reveals the movement of the scrip. It explains when to buy a share

and when to sell. So, the research analyst gives much important to the technical

analysis to forecast the price movement of the scrip accurately.

Since, the NSE & BSE are markets with strong form efficiency, as the market

discounts the information itself very quickly and changes as per the information, the

research analyst has only fewer jobs to do here.

The research analyst not only analyses the marketing information but, every day

in SCSL an edition of the research analysts, suggestions on scrips that have to be

bought and sold is also printed which helps the clients of SCSL to invest in shares

that are profitable. Mostly, the predictions of the research analyst about the market

movement prove to be accurate. So market information in SCSL is trust worthy.

3.7 STEPS TAKEN BEFORE THE REGISTRATION OF THE CLIENT:

1. Registration of the Client:

The customer has to fill in the registration form and provide details of his

Qualifications, Date of Birth etc. He has to furnish his photographs and proof of Identity

through PAN Card, Driving License or Voter Identity Card.

2. Introduction of the Client:

The customer has to be introduced by one of the existing clients of the company

who voucher for the honesty and integrity of the former.

3. Background of the Client:


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A detailed background check of the client is necessary. Only after a thorough

check of his place of origin, his business etc. the client is registered.

4. Strengths / Weaknesses of the Client:

The clients financial position is also monitored. Only customers who have a

sound financial position are registered for trading.

5. Previous record of business:

The previous record of the business of the client is checked to see the fairness in

his dealings and promptness in settling the outstanding debts.

6. Undertaking / Agreement:

An undertaking is taken from the client to the effect that the deals have been done

on behalf of him by Steel City Securities Ltd on his instruction and is liable to the

profits / losses thereof.

7. Storing previous transactions:

All transactions of the client are stored for legality purpose. According to the

guidelines of SEBI the transactions of the past five year have to be maintained.


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CHAPTER 4

THEORETICAL FRAME

WORK


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4.1 INTRODUCTION TO PORTFOLIO MANAGEMENT

Investing in securities such as shares, debentures and bonds is profitable as well as

exciting. It in deeds it involves a great deal of risk. It is rare to find investors investing

their entire saving in a single security. Instead, they tend to invest in a group of securities.

Such, group of securities is called a portfolio creation of a Portfolio helps to reduce risk

without sacrificing returns.

WHAT IS PORTFOLIO MANAGEMENT?

An investor considering investment in securities is faced with the problem of choosing

from among a large number of securities His choice depends upon the risk - return

characteristics of individual securities. He would attempt to choose the most desirable

securities and like to allocate his funds over the group of securities. Again he is faced

with the problem of deciding which securities to hold and how much to invest in each.

The investor faces an infinite number of possible Portfolio or group of securities The risk

and return characteristics of Portfolios defer from those of individual securities

combining to form a Portfolio The investors tries to choose the optimal Portfolio taking

into consideration the risk - return characteristics of all possible Portfolios

As the economic and financial involvement keeps changing the risk - return

characteristics of individual securities as well as Portfolios also change. An Investor

invests his funds in a Portfolio expecting to get a good return with less risk to bear


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Portfolio management comprises all the processes involved in the creation and

maintenance of an investment Portfolio. It deals specifically with security analysis,

Portfolio analysis, Portfolio selection, Portfolio revision and Portfolio evaluation

4.2 OBJECTIVES OF PORTFOLIO MANAGEMENT

The objectives of investment Portfolio management can be classified into two categories.

1. BASIC OBJECTIVESa) To maximize yield/return and b.) To minimize risk

2. SECONDARY OBJECTIVE:

a.) Regular return

b.) Stable income

c.) Appreciation of capital

d.) More liquidity

e.) Safety of investment

f.) Tax Benefit

NEED FOR PORTFOLIO MANAGEMENT

Portfolio Management is a process encompassing many activities of investments in assets

and securities. It is a dynamic and flexible concept and involves regular and systematic

analysis, judgment and action. The objective of this service is to help the unknown and

investors with the expertise of professionals in investment Portfolio management It

involves construction of Portfolio based upon the investor's objectives, constraints,


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preferences for a risk and returns and tax liability. The Portfolio reviewed and adjusted

from time to time in tune with the market conditions The evolution of Portfolio is to be

done in term of targets set for risk and return The change in the Portfolio are to be

effected to meet the changing condition

Portfolio construction refers to the allocation of surplus funds in hand among the variety

of financial assets upon for investment Portfolio theory concerns itself with the principles

governing such allocation The modern view of investments is oriented more towards the

assembly of proper combinations of individual securities to form investment Portfolios A

combination of securities held together will give a beneficial result if they are grouped in

a manner to secure a high return after taking into consideration the risk element.

The modern theory is of the view that by diversification, risk can be reduced.

Diversification can make by the investor either by having a large number of shares of

companies in different reasons. In different industries are those producing different types

of product lines. Modern theories believe in the perspective of combination of securities

under constraints of risk and return.

ELEMENTS OF PORTFOLIO MANAGEMENT

Portfolio management is ongoing process involving the following basic tasks

1 Identification of investors objectives, constraints and preferences.

2. Strategies are to be developed and implemented in tune with investment

Policy formulated

3. Review and monitoring of the performance of the portfolio.

4 Finally the evolution of portfolio.


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SEBI GUIDELINES TO THE PORTFOLIO MANAGERS

On7th"' January 1993, the Security Exchange Board of India issued regulations to the

Portfolio managers for the regulation of Portfolio management services by merchant

bankers. They are as follows

Portfolio management services shall be in the nature of investment

or consultancy management for an agreed fee at clients risk.

The Portfolio manager shall not guarantee return directly or

indirectly the fee should not be depended upon or it should not be

returned sharing basis

Various term of agreements, fees, disclosures of risk and

repayment should be mentioned

Client's funds should be kept separately in client wise account

which should be subject to audit?

Manager should report clients at intervals not exceeding six

months

Portfolio manager should maintain high standards of integrity and

not desire any benefit directly or indirectly from client's funds.

The client shall be entitled to inspect the documents.

Portfolio managers shall not invest funds belonging to clients in

badla financing, bills discounting and lending operations.

Clients money can be invested in money and capital market instruments

Settlement on termination of contract as agreed in

the contract.


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Clients funds should be kept in a separate bank account opened in

scheduled commercial bank.

Purchase or sale of securities shall be made at prevailing market

price.

Portfolio managers with his Clint are fiduciary in nature. He shall

act both as an agent and trustee for the funds received.

4.3 PHASES OF PORTFOLIO MANAGEMENT

Each phase is an integral part of the whole process and the success of Portfolio

management depends upon the efficiency in carrying out each of the phases.

SECURITY ANALYSIS

The security available to an investor for investment is numerous and of various types the

shares of over seven thousand companies are listed in the stock exchange of the country.

Traditionally the securities were classified into ownership securities such as equity shares

and preference shares and creditor ship securities such as debentures and bonds. Security

analysis is the initial phase of the Portfolio management this consists of two alternative

approaches namely fundamental analysis and technical analysis

FUNDAMENTAL ANALYSIS

The primary motive of buying a share is to sell it subsequently at a higher rate An

investor would be interested to know the dividend to be paid on the share in the future as

also the future price of the share. These values can only be estimated and predicted with


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certainty. These values are primarily determined by the performance of the company,

which in turn is influenced, by the performance of the industry.

An investor at the time of the investment has to evaluate a lot of information about the

past performance and the expected future performance of companies, industries and the

economy as a whole before taking the investment decision such evaluation or analysis is

called fundamental analysis.

Fundamental analysis insists that no one should purchase or sell a share on the basis of

tips and rumors. The fundamental approach calls upon the information about company

belongs and the economy this result in informed investing for the fundamentalist makes

use of EIC framework of analysis.

a) Company specific factors such as the age of its plant, the quality of management,

brand image of its labor management relations act, and these factors are likely to make a

company performance quite different from that of its competitors in the same industry

b) Industry wide factors such as demand supply gap in the industry, the emergence of

substitute products, change in government policy relating to industry etc And these

factors affect only those companies belonging to a specific industry.

c) Economy wide factors such as growth rate of the economy, inflation rate, and foreign

exchange rates etc, which affects all companies.

A. ECONOMY ANALYSIS

he performance of a company depends on the performance of the economy if the

economy is booming, income raises and the demand for the goods will increase, on the

other hand, if the economy is in recession, the performance of the companies will be

generally bad.


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The following are the same of the key economic variable that an investor must monitor as

a part of his fundamental analysis

Growth rate of national income

Inflation

Interest rate

Governments revenue, expenditure and deficits

Exchange rate

Infrastructure

Monsoon

Economic and political stability

B. INDUSTRY ANALYSIS

Investors ultimately invest his money in the securities of one or more specific companies.

Each company can be characterized as belonging to an industry. The performance of

companies would therefore, be influenced by the fortunes of the industry to which it

belongs For this reason an analyst has to undertake an industry analysis so as to study the

fundamentals factors affecting the performance of different industries

4.4 INDUSTRY LIFE CYCLE

Marketing experts believes that each product has a life cycle. In the same way, an

industry is also said to have a life cycle this industry life cycle theory is generally

attributed to Julius Gowdinsky. According to the theory, the life of an industry can be

segregated into

1. Pioneering stage


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2. The expansion stage

3. The stagnation stage

4. The decay stage

4.5 COMPANY ANALYSIS

Company analysis is the final stage of fundamental analysis the economy analysis

provides the investor a board outline of prospectus of growth in the economy. The

industry analysis helps the investor to select the industry in which investment would be

rewarding. Now he has to decide the company in which he should invest his money.

Company analysis provides the answer to this question.

Company analysis deals with the estimation of return and risk of individual shares. This

calls for information this information influence investment decisions Information

regarding companies can be broadly classified into two board groups, internal and

external

Internal information sources include annual reports to shareholder, public and private

statement of officers of the company, the company's financial statements, etc, external

sources of information are those generated independently these are prepared by

investment services and the financial press

The prosperity of a company would depend upon its profitability and financial health.

The financial statements published by a company periodically help us to assess the

profitability and financial health's of the company are the balance sheet and the profit and

loss account The first gives us the picture of the company's assets and liabilities while the

second gives us a picture of its earnings.

Some of the factors to be analyzed at the time of selecting a company for investment are:


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Top management officials of that company

The company's past performance.

The rate of dividend declared by the company in the past

Growth opportunities of the company

Competitive opportunities of the company

Company's Turnover rate

Company's goodwill

Past annual reports, etc

4.6 TECHNICAL ANALYSIS

The analysts believe that share prices are determined by the demand and supply forces

operating in the market. These demand and supply forces in turn are influenced by a

number of factors these factors cannot be qualified. The combined impact of all these

factors is reflected in the share price moment. Technical analysis is the name given to

forecasting techniques that utilize historical share price date

The basic premise of technical analysis sis that price move in trends or waves which may

be upward or down ward. It is believed that due present trends are influenced by the past

trends and that due projection of future trends is possible by an analysis of past price

trends. The technical analysis is really a study of past or historical price and volume

movement so as to predict the future stock price behavior.

DOW THEORY


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Whatever is

Documents

financial report of varrious industy