financial services provided by anand rathi - copy
TRANSCRIPT
A
Project Study Report
On
Titled
“FINANCIAL SERVICES PROVIDED BY ANAND RATHI”
Submitted in partial fulfillment for the
Award of degree of
Master In Management Studies
Submitted By
Ompu
MMS Roll No. 101
(2010-2012)
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ACKNOWLEDGEMENT
The Project would not be completed without the mention of those who have spared their
valuable time and shared their rich experience in making this project this success.
Research is the search of knowledge and searching knowledge is very tedious job. Hence it is
my responsibility to pay my thanks regard s that has directly or indirectly helped out to solve
the objectives.
First of all, I express my deep sense of gratitude and deep beholden to Mr NIKHIL PATEL,
Relationship Manager, Anand Rathi Securities Ltd. for giving me the permission to
undertake my project training in the company and their valuable guidance and motivation in
completing the assignment.
I am equally thankful to our, GECJ and to all those who have directly or indirectly helped me
in completing this project a reality.
Date: 26/07/2011
Place: Mumbai SOHAN KAMBLE
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COMPANY PROFILE
Training is the essence for the practical orientation of the professional studies undertaken and
without practical training one cannot understand the real basics and theoretical applications in
practice and everything just goes in vain. A Trainee come to face live problems in the industries
and the field the institute where one person pursues his studies cannot provide him that practical
knowledge on all aspects of learning often the studies of a subject is said to be incomplete until
the student has been expose to his practical.
In the equity market, ANAND RATHI SECURITIES is a growing name with the rising users in
its arm and I would be honored to say that it is going to push up the growth of securities and
equity market in the coming years to come as well as financially viable for the upcoming market
segment. Our performance area was FINANCIAL SERVICES.
Under ANAND RATHI SECURITIES I made a deep understanding of share market, opening
of Demat accounts and growth opportunities in the sector since people are getting aware and
investing in the share and securities market which we say equity market. With the feedback that
we gathered from customers we tried to provide fruitful information that would be important
for the organization.
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EXECUTIVE SUMMARY
In my summer internship I did project in finance stream with ANAND RATHI
at its office in Chandrapur (Maharashtra). Working with ANAND RATHI as a summer
trainee has been a real learning experience. My tenure at ANAND RATHI was of 45 days.
During my internship, I worked on financial services project in the organization. In my
project I analysed the type of Services Company provide to its customer to achive the
objective of the project.
I started the project from understanding project, defining its objective and divide it into steps to
achieve defined objective. These steps became helpful to me in timely completion and
acquiring information at required time.
An insight view of the project will encompass – what it is all about,what it aims to achieve,
what is its purpose and scope, the various methods used for collecting data and their sources,
including literature survey done further specifying the limitations of our study and in the last,
drawing inferences from the learning so far.
Under ANAND RATHI SECURITIES I made a deep understanding of share market, opening
of Demat accounts and growth opportunities in the sector since people are getting aware and
investing in the share and securities market which we say equity market. With the feedback that
we gathered from customers we tried to provide fruitful information that would be important
for the organization.
5
CONTENT
SR.No. Topic Page No.1 Introduction to the Industry 72 Introduction to the Company 83 Private Wealth Management 114 Brokerage and Distribution Services 135 Managed Investment Services 156 Institutional Wealth Management 167 Corporate Advisory Services 198 Investment Banking and Corporate Finance 209 Anand Rathi (History Profile) 2210 Equity and Derivatives 2411 Swot Analysis 3312 Conclusion 35
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INTRODUCTION TO THE INDUSTRY
1.1 WHAT IS FINANCIAL SERVICE INDUSTRY
There is a potential source of confusion regarding careers in finance. On the one hand there is a
function called finance that is a common to all business enterprises, in every industry. On the
other hand, there is a financial service industry. Our focus will be on the later definition. To add
yet more potential confusion, the finance functions but one of many possible career paths
within the financial service industry.
1.2 THE FINANCE FUNCTION
The finance function encompasses a variety of jobs categories. Degrees and / or professional
certification in accounting are necessary in only a minority of cases, for the most part, fall into
these three broad categories:
Corporate controller staff
Internal audit staff
Corporate treasury staff
1.3 THE FINANCIAL SERVICE INDUSTRY
The financial services industry includes firms that are engaged in activities such as investing,
lending, insurance, securities trading and securities issuance. This is not an exhaustive list, but
these is companies can be characterized as being in one or more of the following line of
business:
Banking
Insurance
Securities Brokerage
Investment Banking
Securities Trading
Investment management (or money management)
Securities Analysis
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INTRODUCTION TO THE COMPANY
ABOUT ANAND RATHI
AnandRathi (AR) is a leading full service securities firm providing the entire gamut of
financial services. The firm, founded in 1994 by Mr. AnandRathi, today has a pan India
presence as well as an international presence through offices in Dubai and Bangkok. AR
provides a breadth of financial and advisory services including wealth management, investment
banking, corporate advisory, brokerage & distribution of equities, commodities, mutual funds
and insurance, structured products - all of which are supported by powerful research teams. The
firm's philosophy is entirely client centric, with a clear focus on providing long term value
addition to clients, while maintaining the highest standards of excellence, ethics and
professionalism. The entire firm activities are divided across distinct client groups: Individuals,
Private Clients, Corporates and Institutions and was recently ranked by Asia Money 2006 poll
amongst South Asia's top 5 wealth managers for the ultra-rich. In year 2007 Citigroup Venture
Capital International joined the group as a financial partner.
Anand Rathi CORE STRENGTHS
Breadth of Services: In line with its client-centric philosophy, the firm offers to its clients the
entire spectrum of financial services ranging from brokerage services in equities and
commodities, distribution of mutual funds, IPOs and insurance products, real estate, investment
banking, merger and acquisitions, corporate finance and corporate advisory.
Clients deal with a relationship manager who leverages and brings together the product
specialists from across the firm to create an optimum solution to the client needs.
MANAGEMENT TEAM
AR brings together a highly professional core management team that comprises of individuals
with extensive business as well as industry experience.
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In-Depth Research: Our research expertise is at the core of the value proposition that we offer
to our clients. Research teams across the firm continuously track various markets and products.
The aim is however common - to go far deeper than others, to deliver incisive insights and
ideas and be accountable for results.
Management Team:
Our senior Management comprises a diverse talent pool that brings together rich experience
from across industry as well as financial services.
1. Mr. Anand Rathi - Group Chairman, Chartered Accountant, Past
President, BSE; Held several Senior Management positions with one
of India's largest industrial groups
2. Mr. Pradeep Gupta - Vice Chairman; Plus 17 years of experience in
Financial Services
3. Mr. Amit Rathi - Managing Director; Chartered Accountant & MBA;
Plus 11 years of experience in Financial Service
MILESTONES
1994: Started activities in consulting & Institutional equity sales with 15 staff.
1995: Set up a research desk and empanelled with major institutional investors
1997: Introduced investment banking businesses; Retail brokerage services launched
1999: Lead managed first IPO and executed first M & A deal
2001: Initiated Wealth Management Services
2002: Retail business expansion recommences with ownership model
2003: Wealth Management assets cross Rs1500 crores; Insurance broking launched; Launch of
Wealth Management services in Dubai; Retail Branch network exceeds 50
2004: Commodities brokerage and real estate services introduced; Wealth Management assets
cross Rs3000crores; Institutional equities business relaunched and senior research team put in
place; Retail Branch network expands across 100 locations within India
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2005: Real Estate Private Equity Fund Launched; Retail Branch network expands across 200
locations within India
2006: AR Middle East, WOS acquires membership of Dubai Gold & Commodity Exchange
(DGCX); Ranked amongst South Asia's top 5 wealth managers for the ultra-rich by Asia
Money 2006 poll; Ranked 6th in FY2006 for All India Broker Performance in equity
distribution in the High Networth Individuals (HNI) Category; Ranked 9th in the Retail
Category having more than 5% market share; Completes its presence in all States across the
country with offices at 300+ locations within India
2009: Citigroup Venture Capital International picks up 19.9% equity stake; retail customer base
crosses 100 thousand ; Eastablishes presence in over 350 locations.
2010: Anand Rathi Private Wealth adjudged Best Domestic Private Bank (India) by Asia
Money Polls 2010 for the second consecutive year.
2011: AnandRathi for the third time in a row has been voted as the 'Best Domestic Private
Wealth Management Firm' by Asiamoney Polls 2011.
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PRIVATE WEALTH MANAGEMENT
PRIVATE WEALTH MANAGMENT
Introduction
Affluent individuals need sophisticated advice and strategic guidance to capitalize on
opportunities to preserve, grow and transfer their wealth. In addition, a desire exists within
wealthy families to simplify the management of multigenerational needs and lessen the
profound emotional impact of wealth on family members. AR offers the most extensive
platform of customized servicing, individual strategies and products to help meet the
requirements of the affluent private investor. We provide comprehensive, integrated investment
strategies to address your wealth management needs. Working closely with specialists across
firm PWM offers an array of products & services, which includes AR's highly-rated research.
Philosophy
We at AnandRathi try and understand your financial needs; to offer you personal advice and
expert analysis that you need to make your assets go the Xtra mile. Our ability to think far
ahead and formulate a long-term strategy, coupled with long hours of practice and research are
the key drivers, which make your wealth work harder for you.
We believe that the key to build wealth lies in allocating assets across various markets,
financial instruments and industry sectors. Keeping this in mind we leverage our expertise in
scientific asset allocation, to help you maximize returns and minimize risks.
Process
We realize the need to simplify the complexities of the investment strategies and we achieve
this by offering highly customized wealth management product - LaXmi TM (let your Assets
go the Xtra Mile TM). Our Personalized Relationship Managers along with the expert team of
analysts and advisors will assist you in analyzing all your investment needs and advice you on
specialized solutions created exclusively for you. We have a dedicated research team who
constantly screens the market for investment prospects. The team provides support in fine-
tuning the investment strategy & suggests how to capitalize on these opportunities.
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Research
Our research expertise is at the core of the value proposition that we offer to our clients.
Research teams across the firm continuously track various markets and products. The aim is
however common - to go far deeper than others, to deliver incisive insights and ideas and be
accountable for results. AR research processes incorporate quantitative areas well as qualitative
analyses. This multi-pronged approach helps us to provide superior risk- adjusted returns for
our clients. AR analysts provide objective and decisive research that is designed to enable
clients to make informed investment decisions. The team covers entire spectrum of financial
markets from equities, fixed income, and commodities to currencies. They also cover the global
markets, to give clients an unparalleled macro-view of the investment opportunities across the
globe.
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BROKERAGE & DISTRIBUTION SERVICES
1 Equity & Derivatives Brokerage: AnandRathi provides end-to-end equity solutions to
institutional and individual investors. Consistent delivery of high quality advice on individual
stocks, sector trends and investment strategy has established us a competent and reliable
research unit across the country. Clients can trade through us online on BSE and NSE for both
equities and derivatives. They are supported by dedicated sales & trading teams in our trading
desks across the country. Research and investment ideas can be accessed by clients either
through their designated dealers, email, web or SMS.
2. Mutual Funds: AR is one of India's top mutual fund distribution houses. Our success lies in
our philosophy of providing consistently superior, independent and unbiased advice to our
clients backed by in-depth research. We firmly believe in the importance of selecting
appropriate asset allocations based on the client's risk profile. We have a dedicated mutual fund
research cell for mutual funds that consistently churns out superior investment ideas, picking
best performing funds across asset classes and providing insights into performances of select
funds.
3. Depository Services: AR Depository Services provides you with a secure and convenient
way for holding your securities on both CDSL and NSDL. Our depository services include
settlement, clearing and custody of securities, registration of shares and dematerialization. We
offer you daily updated internet access to your holding statement and transaction summary.
4. Commodities: Commodities broking - a whole new opportunity to hedge business risk and
an attractive investment opportunity to deliver superior returns for investors. Our commodities
broking services include online futures trading through NCDEX and MCX and depository
services through CDSL. Commodities broking is supported by a dedicated research cell that
provides both technical as well as fundamental research. Our research covers a broad range of
traded commodities including precious and base metals, Oils and Oilseeds, agri-commodities
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such as wheat, chana, guar, guar gum and spices such as sugar, jeera and cotton. In addition to
transaction execution, we provide our clients customized advice on hedging strategies,
investment ideas and arbitrage opportunities.
5. Insurance Broking: As an insurance broker, we provide to our clients comprehensive risk
management techniques, both within the business as well as on the personal front. Risk
management includes identification, measurement and assessment of the risk and handling of
the risk, of which insurance is an integral part. The firm deals with both life insurance and
general insurance products across all insurance companies. Our guiding philosophy is to
manage the clients' entire risk set by providing the optimal level of cover the least possible cost.
The entire sales process and product selection is research oriented and customized to the client's
needs. We lay strong emphasis on timely claim settlement and post sales services.
Our services:
Risk Management
Due diligence and research on policies available
Recommendation on a comprehensive insurance cover based on clients needs
Maintain proper records of client policies
Assist client in paying premiums
Continuous monitoring of client account
Assist client in claim negotiation and settlement
6. IPO: We are a leading primary market distributor across the country. Our strong
performance in IPOs has been a result of our vast experience in the Primary Market, a wide
network of branches across India, strong distribution capabilities and a dedicated research team.
We have been consistently ranked among the top 10 distributors of IPOs on all major offerings.
Our IPO research team provides clients with indepth overviews of forthcoming IPOs as well as
investment recommendations. Online fillng of forms is also available.
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MANAGED INVESTMENT SERVICES
1. Portfolio Management Services (PMS): AR Portfolio Management Service is a
discretionary investment service created to meet the demand for more targeted investment
styles and opportunities. It offers a range of specialized investment strategies designed to
capture opportunities across the market spectrum. The range of products varies from the highly
defensive, capital-protected to the most aggressive strategies in the equities and derivatives
markets. Our investment process ensures that your strategy and portfolio are built on solid
foundations. Together you and your relationship manager select the strategy in line with your
individual goals. AR investment specialists then construct and manage your portfolio in
accordance with the chosen investment strategy.
2. Real Estate Opportunities Fund: AR Real Estate Opportunities Fund is a private equity
fund for high net-worth individuals, corporates and institutions, to invest in equity-linked
instruments in the Indian real estate and infrastructure sectors. As part of the structural reforms
to further boost India's economic growth, the government has recognized the need for
institutional finance in the real estate sector. In early 2005, the government has relaxed the FDI
guidelines in real estate and also allowed the setting up of real estate investment funds under
SEBI guidelines. These developments are expected to provide much needed capital to provide
for the increasing demand for quality real estate in major urban centers across the country. To
capture this opportunity, AR has brought together a team of specialists and advisors to guide
the fund's investments who bring together expertise in the areas of real estate consulting,
development, legal and financial structuring.
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INSTITUTIONAL WEALTH MANAGEMNET
Introduction
Corporate and Institutional treasuries need ever more sophisticated advice that is backed by
serious and credible research. AR IWM provides its institutional clients integrated wealth
management solutions across global markets, which are backed by proprietary global economic
& investment research.
We understand that your needs could range from finding short-term surplus management
strategies to higher yielding and long term investments. The IWM team brings together the
highly-rated AR research across fixed income, currencies and equities markets to provide
investment solutions that meet your complex needs - from simple money-market mutual funds
to complex arbitrage strategies in the equities or commodities markets.
Products
Equity & Derivatives
Mutual Funds
Depository Services
Commodities
Insurance
IPOs
Client List
ACC
Bayer
Tata Iron & steel
Century Textiles
Clariant
CRISIL
Crompton Greaves
Dabur
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Datamatics
GE Shipping
Godrej
Goodlass Nerolac
Grasim
Gujarat Ambuja Cements
Gujarat Pipavav Port
Heinz India
Hindalco
Hindustan Lever
H&R Johnson
IDFC
Indian Rayon
Jindal Group
Larsen & Toubro
Mastek
Mahindra & Mahindra
Raymonds
Sterlite Group
Syngen
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Research: Our research expertise is at the core of the value proposition that we offer to our
clients. Research teams across the firm continuously track various markets and products. The
aim is however common - to go far deeper than others, to deliver incisive insights and ideas and
be accountable for results. AR research processes incorporate quantitative areas well as
qualitative analyses. This multi-pronged approach helps us to provide superior risk- adjusted
returns for our clients. AR analysts provide objective and decisive research that is designed to
enable clients to make informed investment decisions. The team covers entire spectrum of
financial markets from equities, fixed income, and commodities to currencies. They also cover
the global markets, to give clients an unparalleled macro-view of the investment opportunities
across the globe.
CORPORATE ADVISORY SERVICES
Introduction: AnandRathi Advisors assists companies in realizing tangible improvements in
various facets of their businesses by providing a range of corporate advisory services that
includes the entire gamut from financial, organizational and operational restructuring, to profit
improvement and business turnaround strategies. Highly qualified and thoroughly professional,
our specialists, experts and associates assist you in conceptualising problems and devising
effective solutions, whatever be your need.
Successful assignments undertaken for leading organisations in India as well as overseas bear
ample testimony to our wide-ranging capabilities, utilising our unparalleled business know-how
to give you the competitive edge. We have successfully handled various assignments under
industry segments like refinery, cement, mining, power, paper, metals, airlines and optic fibre.
Services
1. Performance Improvement and Cost Reduction
2. Business Strategy and Re-engineering
3. Financial, Business & Organizational restructuring
4. Business Turn-around Strategies
5. Management Systems: MIS, Review & Control Mechanism
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INVESTMENT BANKING AND CORPORATE FINANCE
INVESTMENT BANKING AND CORPORATE FINANCE
Investment Banking: AR Investment Banking provides comprehensive services to clients
including raising money in the equity capital markets to identifying strategic alliances, mergers
and acquisition opportunities and debt financing & restructuring advisory.
Corporate Finance: The AR Corporate Finance team helps clients manage their debt-financing
needs by profiling business and cash-flow risks, defining the alternative sources of funding,
building in multiple variables such as currencies, fixed-floating, tenure, collateral etc. in a
comprehensive manner and finally negotiating with the prospective lenders / buyers. The team
has also built an impressive track-record in debt restructuring based on its superior
understanding of business needs and relationships with key lenders. The Corporate Finance
team has handled assignments in businesses like paper, hospitality, telecom, textiles and sugar.
Services
Investment Banking :
Merchant Banking
A highly experienced equity capital markets team, a pan-India distribution presence and a high
level of quality and integrity in executing client's transactions has enabled us to provide
tangible value to our clients' businesses.
We bring quality independent advice and excellent execution capabilities to create landmark
transactions for clients. Our track record of successfully lead managed IPOs includes Tips
Industries, Emami, HCL Infosystems and Provogue.
M&A, Private Equity
Our Mergers & Acquisition team works with clients in creating lasting stakeholder value
through advice on mergers, acquisitions, divestitures and private equity financing.The team
leverages on the firm's superior understanding of businesses and tax and regulatory
environments as well as a deep network of relationships across the professional and corporate
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world. We have worked extensively with clients in industries like cement, sugar, chemicals,
power and textiles for mergers and acquisition deals, valuation and business restructuring.
Corporate Finance :
Raising Cost-effective debt resources in Rupee and Foreign Currency for Projects, Working
Capital and Specific needs.
Financial Restructuring, CDR, OTS, Interest Cost Reduction, Long-term Corporate Loans
for Working Capital Margins.
Financial products and services in hedging of interest and currency risks.
Distribution Capabilities
1. Strong pan- India distribution network, with presence at over 130 locations across India.
2. Leading distributor of equity related products including IPOs & mutual fund
3. Have been consistently amongst the top 8 brokers, inspite of not being a lead manager.
4. 50000 plus captive Institutional clients and HNIs
5. Strong after market support
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ANAND RATHI (HISTORY PROFILE)
ANAND RATHI – HISTORY FILE
1994: Started activities in consulting and Institutional equity sales with staff of 15
1995: Set up a research desk and empanelled with major institutional investors
1997: Introduced investment banking businesses
Retail brokerage services launched
1999: Lead managed first IPO and executed first M & A deal
2001: Initiated Wealth Management Services
2002: Retail business expansion recommences with ownership model
2003: Wealth Management assets cross Rs1500 crores
Insurance broking launched
Launch of Wealth Management services in Dubai
Retail Branch network exceeds 50
2004: Commodities brokerage and real estate services introduced
We
alth Management assets cross Rs3000crores
Institutional equities business relaunched and senior research team put in place
Retail Branch network expands across 100 locations within India
2005: Real Estate Private Equity Fund Launched
Retail Branch network expands across 200 locations within India
2006: AR Middle East, WOS acquires membership of Dubai Gold & Commodity Exchange
(DGCX) Ranked amongst South Asia's top 5 wealth managers for the ultra-rich by Asia Money
2006 poll Ranked 6th in FY2006 for All India Broker Performance in equity distribution in the
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High Net worth Individuals (HNI) Category Ranked 9th in the Retail Category having more
than 5% market share
Completes its presence in all States across the country with offices at 300+ locations within
India
2009: Citigroup Venture Capital International picks up 19.9% equity stake
Retail customer base crosses 100 thousand
Establishes presence in over 350 locations
2010: Anand Rathi Private Wealth adjudged Best Domestic Private Bank (India) by Asia
Money Polls 2010 for the second consecutive year.
2011: AnandRathi for the third time in a row has been voted as the 'Best Domestic Private
Wealth Management Firm' by Asiamoney Polls 2011.
When any corporate event such as rights or bonus or dividend is
announced for a particular security, the Depositories will give all the details of the clients
having electronic holdings of that security as of record date / book closure to the Registrars and
Transfer Agents of the Company who will then calculate the corporate benefits due to all the
share holders. The disbursement of cash benefits such as dividend / interest will be done by the
Company whereas the distribution of securities / entitlements will be done by the Depositories
based on the information provided by the Registrars and Transfer Agents of the Company.
Thus, bonus / rights shares, if any, will be credited to your account electronically.
Well, in case of those corporate events where you can exercise your
option such as rights issue or optional conversion of debentures to shares, you do have a choice
of either physical or electronic mode of holdings. However, corporate entitlements such as
bonus will be made in the same form as of your original holdings.
You can approach your DP who in turn will contact the Registrars
and Transfer Agents of the Company for clarifications regarding allotment of securities. In case
of discrepancies in cash benefits you will have to contact the Registrars and Transfer Agents of
the Company.
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EQUITY AND DERIVATIVES
Equity
Equity is a share in the ownership of a company. It represents a claim on the company's assets
and earnings. As you acquire more stock, your ownership stake in the company increases. The
terms share, equity and stock mean the same thing and can be used interchangeably.
Holding a company''s stock means that you are one of the many owners (shareholders) of a
company, and, as such, you have a claim (to the extent of your holding) to everything the
company owns. Yes, this means that technically, you own a portion of every piece of furniture;
every trademark; every contract, etc. of the company. As an owner, you are entitled to your
share of the company's earnings as well as any voting rights attached to the stock Another
extremely important feature of equity is its limited liability, which means that, as a part-owner
of the company, you are not personally liable if the company is not able to pay its debts.
In case of other entities such as partnerships, if the partnership goes bankrupt, the partners are
personally liable towards the creditors/lenders and they may have to sell off their personal
assets like their house, car, furniture, etc., to make good the loss. In case of holding equity
shares, the maximum value you can lose is the value of your investment. Even if a company of
which you are a shareholder goes bankrupt, you can never lose your personal assets.
Characteristics of equity
1. Equity is unsecured and a high risk-return investment: When you invest your money in
a debt investment such as a bank deposit, bonds, etc., you are promised a fixed amount of
interest on your investment and return of capital. This isn't the case with an equity investment.
By becoming an owner, you bear the risk of the company not being successful. However, the
rewards for bearing this risk are high. Equity shareholders are entitled to a share in the profits
of the company’s business as well as any appreciation in the perceived value of the shares. The
risks and rewards of investing in equity are clearly apparent from the Bombay Stock Exchange
Sensitive Index (BSE Sensex), which is a popular stock market index.
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2. Equity remains in perpetual existence: The perpetual existence of a company implies
that the death, disability, retirement or termination of a shareholder, director or officer, will not
affect the existence of the company. For an equity shareholder, this is convenient since he does
not need to renew/renegotiate the terms of his investment (like in the case of a fixed tenure debt
investment). He also has the option to sell his equity holding through the stock exchange if he
no longer wants to remain invested in the company.
3. Limited liability: Another extremely important feature of equity is its limited liability,
which means that, as a part-owner of the company, you are not personally liable if the company
is not able to pay its debts. In case of other entities such as partnerships, if the partnership goes
bankrupt the partners are personally liable towards the creditors/lenders and they may have to
sell off their personal assets like their house, car, furniture, etc., to make good the loss
4. Income from equity investing
Capital appreciation: Equity shares of companies are listed and traded on a stock exchange
(the Bombay Stock Exchange or the National Stock Exchange). The market prices of
these shares are continuously moving up or down depending on the interest in the company’s
stock, it’s business potential, etc. As an equity shareholder, you can profit/lose from the market
price rise/fall.
Bonus shares: When you purchase shares of a company, you become a shareholder of the
company. When the company is doing well, it may declare a ‘bonus issue’. This means that the
company will issue fresh equity shares to its existing shareholders, for free. As a shareholder,
you will be entitled to receive bonus shares in proportion to your holding in the company.
When you sell your bonus shares in the stock market, the market price at which you sell your
bonus, minus brokerage charges and necessary taxes (Service Tax, Securities Transaction Tax,
etc.), will be your profit i.e. capital appreciation. In this case, there will be no cost of purchase
since you have received the bonus for free.
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Rights shares: Another way a company offers benefits to its shareholders is by offering ‘rights
shares’. This means that the company will offer fresh equity shares to its existing shareholders
at a price, which is lower than the current market price of the share.
Dividend income: Companies report their profits earned on a quarterly basis. Based on the
quantum of profits, companies declare dividends to distribute a portion of these profits to their
shareholders. Dividends are declared as a percentage of the share’s face value. As a
shareholder, you will be entitled to dividend to the extent of your share holding.
Stock Selection Guidelines
1. Know the business: Warren Buffett, one of the world’s most successful investors, follows
the philosophy of buying stocks of only those businesses that he understands. Select companies
in businesses that you already have an idea of and find interesting. One of the businesses that
could be of interest to you would be the one, which you are affiliated to because of your
employment. For instance, if you are working in a pharma company, you may understand this
business well.
2. Assess the past performance: All companies present details of their financial performance
in their Annual Reports. In case of a company having its Initial Public Offering – IPO (when a
company offers its shares to the public for the first time, it is called Initial Public Offering), it is
required to publish its past performance in its IPO offer document. There are also a vast number
of research reports published by research and brokerage houses, and company analysis done by
the media, which is worth reading, to assess a company’s past performance and future potential.
‘Ratio Analysis’ is widely used to assess a company’s past performance.
3. Know the promoters: The promoters and management team of a company are the key
people who drive its business. Their integrity dictates whether the business benefits or they
benefit personally. Also, their experience and business competence is crucial for business
26
growth. Evaluate the company’s promoters and management on the basis of four Cs:
Competence, Credibility, Corporate governance and Concern for shareholders.
4. Assess the future prospects of the company: Although a company may have performed
well in the past, it is not necessary that it will continue performing well in the future. All
companies go through business cycles of ups and downs. It is important that you form a view
on the future trends of the business the company is a player in.
5. Assess the stock price: As mentioned earlier, the share price of all companies continuously
fluctuate on the stock markets with investors buying and selling the shares. The price at which
an investor is willing to buy or sell a share of a company is the perceived value of the share of
the company taking into consideration the company’s present business and future business
growth. In addition to this, investor sentiment plays a large role in pricing of stocks. To help
you assess this, you could use a popular stock market ratio called the Price/Earning ratio (P/E
ratio) & is based on the following formula: P/E ratio = Market price of the share; Earning per
share (EPS); *EPS = Profit After Tax (PAT) The P/E ratio helps judge by how many times the
company’s share is traded based on its earnings. In this case, the company’s stock is available
at a multiple of 15 times its earnings. The higher the P/E ratio, the higher is the stock’s
valuation. Usually market prices of well-established companies with a good past track record
and reputed promoters command a high P/E ratio.
Equity Investing Strategies
There are various methods and strategies one can adopt while investing in equity. Some of the
popular ones are enumerated below
1. Value investing: Value investing means investing in companies that are believed to be
currently undervalued but whose worth will be recognized by the market eventually. These
companies’ intrinsic or fundamental values are higher than their market values. This strategy
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implies investing in such rcompanies before the markets recognize their true values and push up
their share prices accordingly.
2. Investing in dividend yield stocks: Dividend yield is a ratio, which divides the dividend
paid out by a company with the current market price. For instance, if a company pays out Rs 5
per share as dividend and its current market price is Rs 55, its dividend yield is about 9 per cent
(Rs 5 / Rs 55 x 100). Companies, which offer high dividend yields, are usually ‘value’
companies, which ‘value investors’ look for.
3. Diversification: Diversification means spreading your money over a number of investments.
In other words, you don’t concentrate your money over just one or two, or only over a few
investments. For instance, if you have an investible surplus of Rs 1 lakh, you can diversify into
two ways. Firstly, don’t invest the entire Rs 1 lakh in just one asset class.
Diversification benefit and pitfall. Diversification is a well-established risk management
investment strategy. It helps spread your risks over investment options offering different risk-
return levels. Diversification especially help when one invests in investment options with
complementary risk-return profiles.
However, by investing in both, debt and equity, a portion of your portfolio, which is invested in
debt, will offer profits during this time to reduce the losses on your equity investments,
resulting in either an overall lower loss, or even a marginal gain depending on the level of
investment in debt. The reverse will hold true if the equity markets are moving upwards and the
debt markets are stagnant. However, diversification also results in lower profits.
Diversification methods: Diversification can be done across different asset classes (equity,
debt, mutual funds, gold, property, etc.) as well as across different investment options (say, in
case of equity – investment in companies with different market capitalisations, in different
sectors, etc.). The amount of investment made in each asset class and investment option will
depend on your investment risk profile and expected investment returns.
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4. Growth investing: Growth investing means investing in companies, whose turnover and
profits are expected to grow significantly, which will result in appreciation in their share prices.
These companies are in a phase of rapid growth and expansion of their businesses.
5. Rupee cost averaging / value averaging
To buy ‘low’ and sell ‘high’ is very difficult to do, especially in volatile markets (where prices
rise and fall significantly over very short periods of time). One investment strategy that helps
overcome this volatility and take advantage of it by averaging out cost of investment, is ‘Rupee
cost averaging’ (RCA) or ‘Value averaging’.
Procedure Of Investing In Equity: In the past, investing in equity involved a high cost (high
brokerage charges of about 2 per cent of the transaction value) and a number of hassles (shares
were traded in the physical form, which involved a lot of paperwork and often resulted in bad
deliveries due to signature mis-matches, forgery, etc.). Today, the entire scenario of equity
investing has changed for the better. Shares are now traded in the electronic (dematerialized)
form and costs of investing have reduced dramatically. All this will be done without the
investor having to make efforts at every stage for the necessary action
3-step process of investing in equity:
Step 1: Open the necessary accounts
Before you start investing in equity, you need to open the following accounts:
Broking account: This is an account you open with a broker. You will need to fill in an
application form, which will require you to submit details such as your full name, address,
Permanent Account Number (PAN), etc. Once your application has been processed, you will
receive a broking account number.
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Demat account: This is the account, which will hold shares purchased by you, in electronic
form. This works like a bank account. In case of a bank account, you deposit and withdraw
your money and receive a bank statement periodically, which shows you how much money is
remaining in your account. Similarly, in case of a demat account, shares purchased by you are
deposited into your account and shares sold by you are withdrawn from your account, and you
receive a statement periodically, showing the shares remaining in your account. A demat
account can be opened with a depository participant. It is preferable to have your demat account
maintained with your broker or an entity affiliated to your broker.
This ensures prompt transfers to and from your demat account of shares purchased and sold by
you without any effort required to be made by you (you simply need to issue necessary one-
time instructions to your broker).
Bank account: You can use an existing bank account for your equity investments.
Step 2 : Decide your mode of transacting – in cash or with margins
You have two options of investing in equity:
1. By making purchases in cash and taking delivery of the shares or
2. By undertaking margin trading (you pay only a portion of the cost for purchases and your
broker funds the balance) and squaring off your positions (you don’t take delivery of the shares.
You simply book your profit or loss).
If you decide to undertake cash purchases, you need to have sufficient funds in your bank
account to make the purchases. If you decide to undertake margin trading, you need to pay the
broker the margin amount and start your trading.
Step 3: Deciding on which mediums to use for transacting
There are a number of mediums you can use to transact in equity. These are:
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Visits to the broker’s office/branches: You can simply visit your broker’s office or closest
branch and undertake your transaction by interacting with a counter representative.
Via telephone: This is the traditional way of transacting. You simply call your broker and place
your order. This facility is available in the form of call centres.
The Internet: Register yourself with your broker’s internet portal and use the equity-trading
platform available to conduct your trades.
Kiosks: Kiosks are like booths or cabins placed at prominent locations across the city. Simply
enter a kiosk and execute your trade. A kiosk is used for trading through the internet. The only
difference is that instead of using your home computer, you can use the kiosk located outside
your home.
DERIVATIVES
Derivatives, as the name suggests, are financial instruments that derive their value from an
underlying security or asset. The underlying could be equity shares or an index, a commodity, a
currency or the exchange rate, bonds, etc. Sounds complicated? In a way, it is. But once you are
clear about how a derivative product derives its value from an underlying asset and yet has a
price and an identity of its own, it will become just another financial product to you. Then
again, derivative products have more variants than any other financial products since they have
been created to meet a variety of niche needs. There are various derivative products, which
derive their value from equity shares or an index, a commodity, a currency or the exchange rate,
bonds, etc. These derivative products vary according to their structure and terms and
conditions. The most popular derivative products are Forwards, Futures, Options, Warrants and
Swaps. Some of these are short term in nature while others are long term. For example stock
and index options that can be traded on stock exchanges are short term in nature, while options
like warrants and rights have a longer term.
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Derivative products have been around for a long, long time. In fact, as early as the 1650s,
dealings resembling present day derivative market transactions were seen in rice markets in
Osaka, Japan. The first leap towards an organized derivatives market came in 1848, when the
Chicago Board of Trade (CBOT), the largest derivative exchange in the world, was established.
Today, equity and commodity derivative markets are rapidly gaining in size in India. In terms
of popularity too, these markets are catching on like a forest fire. So, what are these markets all
about? What are the products that they trade in? Why do people feel the need to trade in such
products and what sort of traders benefit from such trades? Do these markets hold scope for
retail investors too? And if so, how exactly can you go about trading in them?
Derivative markets in India
Globally, the last four decades have seen phenomenal growth in derivative markets. In the
process, many new products have been developed and this has also led to a sharp rise in
volumes over the years. Today, derivative markets have become an integral feature of financial
markets in developed countries and this phenomenon is gaining momentum in developing
countries, too.
Since the introduction of futures and options in the Indian equity markets, the turnover in this
segment has increased manifold. For instance, in the case of the National Stock Exchange
(NSE), the average daily turnover in the futures and options segment stood at Rs 410 crore for
the financial year 2001-02. By fiscal 2004-05, it increased 24 times over to more than Rs
10,000 crore!
Since the introduction of futures and options in the Indian equity markets, the turnover in this
segment has increased manifold. For instance, in the case of the National Stock Exchange
(NSE), the average daily turnover in the futures and options segment stood at Rs 410 crore for
the financial year 2001-02. By fiscal 2004-05, it increased 24 times over to more than Rs
10,000 crore!.
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SWOT ANALYSIS
STRENGTHS
1. The Company has a good reputation with the bulk of financial services under its arm to
offer to the customers at large.
2. The firm offers to its clients the entire spectrum of financial services ranging from
brokerage services in equities and commodities, distribution of mutual funds, IPOs and
insurance products, real estate, investment banking, merger and acquisitions, corporate finance
and corporate advisory.
3. The management of the company is consisting of highly trained and skilled
professionals
WEAKNESSES
1. Since the company is reaping the benefits of its high level performance still due to the
low network there is a low customer base being foreseen as compare to other competing
companies in Indian stock and security market.
OPPORTUNITIES
1. Immense opportunities in Indian Stock market since very few investors have turned up
as compared to the past years.
2. Still few competitors fighting for the vast securities market.
3. Increasing knowledge of DEMAT inspiring hesitant investors to deal with Indian stock
market without any issue of being loss of their money.
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THREAT
1. Since there is a wide speculation involved in securities and stock market, people prefer to
invest in mutual fund, insurance and in banks for their safety of money.
2. Competitors are rising and making their tremendously and many other FIIs and MNCs are
planning to come in to field of securities and investment since rising finance sector is attracting
them a lot.
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CONCLUSION
At the conclusion of the summer training project in ANAND RATHI Securities Ltd., I
would like to conclude my opinion that there is a vast untapped potential for a emerging and
rising company like ANAND RATHI to grow in business of securities with other supporting
financial services being provided by the company.
Since a highly enriched corporate environment is being provided in the company I gained a
tremendous knowledge and experience in respect to learning the concept of Dematerlisation
and its significance to the shareholders and every new prospects applying for the existing shares
and/or any new public offer (NPO) without any hesitation and with all legal procedures so that
the amount invested could be remain secure and safe legally.
Thereby I came to realize the growth of the financial sector as it is reaping success since the
major rising sector being notified as per my knowledge is finance since company are
establishing their business entities in securities, mutual fund, insurance and many others.
The experience of summer training was indeed a worth in utilizing my professional approaches
under the prestigious like company ANAND RATHI Securities Ltd.
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