CHAPTER – 1

INTRODUCTION
INTRODUCTION

Risk management occurs everywhere in the financial world. It occurs when an investor buys

low-risk government bonds over more risky corporate bonds, when a fund

manager hedges his currency exposure with currency derivatives and when a bank performs

a credit check on an individual before issuing a personal line of credit. Stockbrokers use

financial instruments like options and futures, and money managers use strategies

like portfolio and investment diversification, in order to mitigate or effectively manage risk.

In the financial world, risk management is the process of identification, analysis and

acceptance or mitigation of uncertainty in investment decisions. Essentially, risk management

occurs any time an investor or fund manager analyzes and attempts to quantify the potential

for losses in an investment and then takes the appropriate action (or inaction) given

his investment objectives and risk tolerance.

Risk management is an important part of planning for businesses. The process of risk

management is designed to reduce or eliminate the risk of certain kinds of events happening

or having an impact on the business.

Definition of Risk Management

Risk management is a process for identifying, assessing, and prioritizing risks of different

kinds. Once the risks are identified, the risk manager will create a plan to minimize or

eliminate the impact of negative events. A variety of strategies is available, depending on the

type of risk and the type of business. There are a number of risk management standards,

including those developed by the Project Management Institute, the International

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Organization for Standardization (ISO), the National Institute of Science and Technology,

and actuarial societies.

Types of Risk

There are many different types of risk that risk management plans can mitigate. Common

risks include things like accidents in the workplace or fires, tornadoes, earthquakes, and other

natural disasters. It can also include legal risks like fraud, theft, and sexual harassment

lawsuits. Risks can also relate to business practices, uncertainty in financial markets, failures

in projects, credit risks, or the security and storage of data and records.

Goals of Risk Management

The idea behind using risk management practices is to protect businesses from being

vulnerable. Many business risk management plans may focus on keeping the company viable

and reducing financial risks. However, risk management is also designed to protect the

employees, customers, and general public from negative events like fires or acts of terrorism

that may affect them. Risk management practices are also about preserving the physical

facilities, data, records, and physical assets a company owns or uses.

Process for Identifying and Managing Risk

While a variety of different strategies can mitigate or eliminate risk, the process for

identifying and managing the risk is fairly standard and consists of five basic steps. First,

threats or risks are identified. Second, the vulnerability of key assets like information to the

identified threats is assessed. Next, the risk manager must determine the expected

consequences of specific threats to assets. The last two steps in the process are to figure out

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ways to reduce risks and then prioritize the risk management procedures based on their

importance.

Strategies for Managing Risk

There are as many different types of strategies for managing risk as there are types of risks.

These break down into four main categories. Risk can be managed by accepting the

consequences of a risk and budgeting for it. Another strategy is to transfer the risk to another

party by insuring against a particular, like fire or a slip-and-fall accident. Closing down a

particular high-risk area of a business can avoid risk. Finally, the manager can reduce the

risk’s negative effects, for instance, by installing sprinklers for fires or instituting a back-up

plan for data.

Having a risk management plan is an important part of maintaining a successful and

responsible company. Every company should have one. It will help to protect people as well

as physical and financial assets.

NEED OF THE STUDY

The idea behind using risk management practices is to protect businesses from being

vulnerable. Many business risk management plans may focus on keeping the company viable

and reducing financial risks. However, risk management is also designed to protect the

employees, customers, and general public from negative events like fires or acts of terrorism

that may affect them. Risk management practices are also about preserving the physical

facilities, data, records, and physical assets a company owns or uses.

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OBJECTIVES:

 To study the investment decision process.

 To analysis the risk return characteristics of sample scripts.

 Ascertain Risk Management.

 To construct an effective portfolio which offers the maximum return for minimum

risk

SCOPE OF STUDY:

This study covers the Markowitz model. The study covers the calculation of

correlations between the different securities in order to find out at what percentage funds

should be invested among the companies in the portfolio. Also the study includes the

calculation of individual Standard Deviation of securities and ends at the calculation of

weights of individual securities involved in the portfolio. These percentages help in

allocating the funds available for investment based on risky portfolios.

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RESEARCH METHODOLOGY:

The study is both descriptive and analytical in nature. The data has been collected from the

books, journals

and websites which deal with online share trading.

Source of data

The data collection method includes:

 Websites

 Journals

 Text books

TOOLS AND TECHNIQUES:

The following parameters were considered:

 NIT – Net interest income.

The impact of volatility on short run profit is measured by NII

 NII = Interest Income – Interest Expenses

 NIM = Net Interest Margin

It is net interest income to average total assets.

NIM= NII/ Avg total assets.

 Economic equity ratio:-

The ratio of shareholders funds to total assets measures the shifts in the ratio of own funds to

total funds

which assess the sustenance capacity?

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 CHAPTER-II

REVIEW OF LITERATURE

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 REVIEW OF LITERATURE

Risk management is the identification, assessment, and prioritization of risks (defined in

ISO 31000 as the effect of uncertainty on objectives, whether positive or negative) followed

by coordinated and economical application of resources to minimize, monitor, and control the

probability and/or impact of unfortunate events or to maximize the realization of

opportunities. Risks can come from uncertainty in financial markets, project failures (at any

phase in design, development, production, or sustainment life-cycles), legal liabilities, credit

risk, accidents, natural causes and disasters as well as deliberate attack from an adversary, or

events of uncertain or unpredictable root-cause. Several risk management standards have

been developed including the Project Management Institute, the National Institute of Science

and Technology, actuarial societies, and ISO standards. Methods, definitions and goals vary

widely according to whether the risk management method is in the context of project

management, security, engineering, industrial processes, financial portfolios, actuarial

assessments, or public health and safety.

The strategies to manage risk typically include transferring the risk to another party, avoiding

the risk, reducing the negative effect or probability of the risk, or even accepting some or all

of the potential or actual consequences of a particular risk.

Certain aspects of many of the risk management standards have come under criticism for

having no measurable improvement on risk, whether the confidence in estimates and

decisions seem to increase.

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Introduction
This section provides an introduction to the principles of risk management. The vocabulary of

risk management is defined in ISO Guide 73, "Risk management. Vocabulary."

In ideal risk management, a prioritization process is followed whereby the risks with the

greatest loss (or impact) and the greatest probability of occurring are handled first, and risks

with lower probability of occurrence and lower loss are handled in descending order. In

practice the process of assessing overall risk can be difficult, and balancing resources used to

mitigate between risks with a high probability of occurrence but lower loss versus a risk with

high loss but lower probability of occurrence can often be mishandled.

Intangible risk management identifies a new type of a risk that has a 100% probability of

occurring but is ignored by the organization due to a lack of identification ability. For

example, when deficient knowledge is applied to a situation, a knowledge risk materializes.

Relationship risk appears when ineffective collaboration occurs. Process-engagement risk

may be an issue when ineffective operational procedures are applied. These risks directly

reduce the productivity of knowledge workers, decrease cost effectiveness, profitability,

service, quality, reputation, brand value, and earnings quality. Intangible risk management

allows risk management to create immediate value from the identification and reduction of

risks that reduce productivity.

Risk management also faces difficulties in allocating resources. This is the idea of

opportunity cost. Resources spent on risk management could have been spent on more

profitable activities. Again, ideal risk management minimizes spending (or manpower or

other resources) and also minimizes the negative effects of risks.

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Method

For the most part, these methods consist of the following elements, performed, more or less,

in the following order.

identify, characterize, and assess threats

assess the vulnerability of critical assets to specific threats

determine the risk (i.e. the expected consequences of specific types of attacks on specific

assets)

identify ways to reduce those risks

prioritize risk reduction measures based on a strategy

Principles of risk management

The International Organization for Standardization (ISO) identifies the following principles

of risk management:

Risk management should:

create value - resources expended to mitigate risk should generally exceed the consequence

of inaction, or (as in value engineering), the gain should exceed the pain

be an integral part of organizational processes

be part of decision making

explicitly address uncertainty and assumptions

be systematic and structured

be based on the best available information

be tailorable

take into account human factors

be transparent and inclusive

be dynamic, iterative and responsive to change

be capable of continual improvement and enhancement

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be continually or periodically re-assessed

Process
According to the standard ISO 31000 "Risk management -- Principles and guidelines on

implementation," the process of risk management consists of several steps as follows:

Establishing the context

Establishing the context involves:

Identification of risk in a selected domain of interest

Planning the remainder of the process.

Mapping out the following:

the social scope of risk management

the identity and objectives of stakeholders

the basis upon which risks will be evaluated, constraints.

Defining a framework for the activity and an agenda for identification.

Developing an analysis of risks involved in the process.

Mitigation or Solution of risks using available technological, human and organizational

resources.

Identification

After establishing the context, the next step in the process of managing risk is to identify

potential risks. Risks are about events that, when triggered, cause problems. Hence, risk

identification can start with the source of problems, or with the problem itself.

Source analysisRisk sources may be internal or external to the system that is the target of risk

management.

Examples of risk sources are: stakeholders of a project, employees of a company or the

weather over an airport.

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Problem analysis Risks are related to identified threats. For example: the threat of losing

money, the threat of abuse of confidential information or the threat of accidents and

casualties. The threats may exist with various entities, most important with shareholders,

customers and legislative bodies such as the government.

When either source or problem is known, the events that a source may trigger or the events

that can lead to a problem can be investigated. For example: stakeholders withdrawing during

a project may endanger funding of the project; confidential information may be stolen by

employees even within a closed network; lightning striking an aircraft during takeoff may

make all people on board immediate casualties.

The chosen method of identifying risks may depend on culture, industry practice and

compliance. The identification methods are formed by templates or the development of

templates for identifying source, problem or event. Common risk identification methods are:

Objectives-based risk identification Organizations and project teams have objectives. Any

event that may endanger achieving an objective partly or completely is identified as a risk.

Scenario-based risk identification inscenario analysis different scenarios are created. The

scenarios may be the alternative ways to achieve an objective, or an analysis of the

interaction of forces in, for example, a market or battle. Any event that triggers an undesired

scenario alternative is identified as risk - see Futures Studies for methodology used by

Futurists.

Taxonomy-based risk identification the taxonomy in taxonomy-based risk identification is a

breakdown of possible risk sources. Based on the taxonomy and knowledge of best practices,

a questionnaire is compiled. The answers to the questions reveal risks.

Common-risk checking in several industries, lists with known risks are available. Each risk in

the list can be checked for application to a particular situation.

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Risk charting This method combines the above approaches by listing resources at risk,

threats to those resources, modifying factors which may increase or decrease the risk and

consequences it is wished to avoid. Creating a matrix under these headings enables a variety

of approaches. One can begin with resources and consider the threats they are exposed to and

the consequences of each. Alternatively one can start with the threats and examine which

resources they would affect, or one can begin with the consequences and determine which

combination of threats and resources would be involved to bring them about.

Assessment

Once risks have been identified, they must then be assessed as to their potential severity of

impact (generally a negative impact, such as damage or loss) and to the probability of

occurrence. These quantities can be either simple to measure, in the case of the value of a lost

building, or impossible to know for sure in the case of the probability of an unlikely event

occurring. Therefore, in the assessment process it is critical to make the best educated

decisions in order to properly prioritize the implementation of the risk management plan.

Even a short-term positive improvement can have long-term negative impacts. Take the

"turnpike" example. A highway is widened to allow more traffic. More traffic capacity leads

to greater development in the areas surrounding the improved traffic capacity. Over time,

traffic thereby increases to fill available capacity. Turnpikes thereby need to be expanded in

seemingly endless cycles. There are many other engineering examples where expanded

capacity (to do any function) is soon filled by increased demand. Since expansion comes at a

cost, the resulting growth could become unsustainable without forecasting and management.

The fundamental difficulty in risk assessment is determining the rate of occurrence since

statistical information is not available on all kinds of past incidents. Furthermore, evaluating

the severity of the consequences (impact) is often quite difficult for intangible assets. Asset

valuation is another question that needs to be addressed. Thus, best educated opinions and

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available statistics are the primary sources of information. Nevertheless, risk assessment

should produce such information for the management of the organization that the primary

risks are easy to understand and that the risk management decisions may be prioritized. Thus,

there have been several theories and attempts to quantify risks. Numerous different risk

formulae exist, but perhaps the most widely accepted formula for risk quantification is:

Rate (or probability) of occurrence multiplied by the impact of the event equals risk

magnitude

A security is a fungible, negotiable instrument representing financial value. Securities are

broadly categorized into debt securities (such as banknotes, bonds and debentures) and

equitysecurities, e.g., common stocks; and derivative contracts, such as forwards, futures,

options and swaps. The company or other entity issuing the security is called the issuer. A

country's regulatory structure determines what qualifies as a security. For example, private

investment pools may have some features of securities, but they may not be registered or

regulated as such if they meet various restrictions.

Securities may be represented by a certificate or, more typically, "non-certificated", that is in

electronic or "book entry" only form. Certificates may be bearer, meaning they entitle the

holder to rights under the security merely by holding the security, or registered, meaning they

entitle the holder to rights only if he or she appears on a security register maintained by the

issuer or an intermediary. They include shares of corporate stock or mutual funds, bonds

issued by corporations or governmental agencies, stock options or other options, limited

partnership units, and various other formal investment instruments that are negotiable and

fungible. Corporations or governmental agencies, stock options or other options, limited

partnership units, and various other formal investment instruments those are negotiable and

fungible

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RISK RETURN ANALYSIS:

All investment has some risk. Investment in shares of companies has its own risk or

uncertainty; these risks arise out of variability of yields and uncertainty of appreciation or

depreciation of share prices, losses of liquidity etc.

The risk over time can be represented by the variance of the returns. While the return over

time is capital appreciation plus payout, divided by the purchase price of the share.

Normally, the higher the risk that the investor takes, the higher is the return.

There is, however, a risk-less return on capital of about 13% which is the bank rate charged

by the R.B.I or long term, yielded on government securities at around 15% to 16%. This risk

less return refers to lack of variability of return and no uncertainty in the repayment or

capital. But other risks such as loss of liquidity due to parting with money etc., may however

remain, but are rewarded by the total return on the capital. Risk-return is subject to variation

and the objectives of the portfolio manager are to reduce that variability and thus reduce the

risk by choosing an appropriate portfolio.

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 Traditional approach advocates that one security holds the better, it is according to

the modern approach diversification should not be quantity that should be related to the

quality of scripts which leads to quality of portfolio.

Experience has shown that beyond certain securities by adding more securities is expensive.

Composite Risk Index

The above formula can also be re-written in terms of a Composite Risk Index, as follows:

Composite Risk Index = Impact of Risk event x Probability of Occurrence

The impact of the risk event is commonly assessed on a scale of 1 to 5, where 1 and 5

represent the minimum and maximum possible impact of an occurrence of a risk (usually in

terms of financial losses). However, the 1 to 5 scale can be arbitrary and need not be on a

linear scale.

The probability of occurrence is likewise commonly assessed on a scale from 1 to 5, where 1

represents a very low probability of the risk event actually occurring while 5 represents a

very high probability of occurrence. This axis may be expressed in either mathematical terms

(event occurs once a year, once in ten years, once in 100 years etc.) or may be expressed in

"plain English" - event has occurred here very often; event has been known to occur here;

event has been known to occur in the industry etc.). Again, the 1 to 5 scale can be arbitrary or

non-linear depending on decisions by subject-matter experts.

The Composite Index thus can take values ranging (typically) from 1 through 25, and this

range is usually arbitrarily divided into three sub-ranges. The overall risk assessment is then

Low, Medium or High, depending on the sub-range containing the calculated value of the

Composite Index. For instance, the three sub-ranges could be defined as 1 to 8, 9 to 18 and 19

to 25.

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Note that the probability of risk occurrence is difficult to estimate, since the past data on

frequencies are not readily available, as mentioned above. After all, probability does not

imply certainty.

Likewise, the impact of the risk is not easy to estimate since it is often difficult to estimate

the potential loss in the event of risk occurrence.

Further, both the above factors can change in magnitude depending on the adequacy of risk

avoidance and prevention measures taken and due to changes in the external business

environment. Hence it is absolutely necessary to periodically re-assess risks and

intensify/relax mitigation measures, or as necessary. Changes in procedures, technology,

schedules, budgets, market conditions, political environment, or other factors typically

require re-assessment of risks.

Risk Options
Risk mitigation measures are usually formulated according to one or more of the following

major risk options, which are:

Design a new business process with adequate built-in risk control and containment measures

from the start.

Periodically re-assess risks that are accepted in ongoing processes as a normal feature of

business operations and modify mitigation measures.

Transfer risks to an external agency (e.g. an insurance company)

Avoid risks altogether (e.g. by closing down a particular high-risk business area)

Later research has shown that the financial benefits of risk management are less dependent on

the formula used but are more dependent on the frequency and how risk assessment is

performed.

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In business it is imperative to be able to present the findings of risk assessments in financial,

market, or schedule terms. Robert Courtney Jr. (IBM, 2070) proposed a formula for

presenting risks in financial terms. The Courtney formula was accepted as the official risk

analysis method for the US governmental agencies. The formula proposes calculation of ALE

(annualized loss expectancy) and compares the expected loss value to the security control

implementation costs (cost-benefit analysis).

Potential risk treatments

Once risks have been identified and assessed, all techniques to manage the risk fall into one

or more of these four major categories:

Avoidance (eliminate, withdraw from or not become involved)

Reduction (optimize - mitigate)

Sharing (transfer - outsource or insure)

Retention (accept and budget)

Ideal use of these strategies may not be possible. Some of them may involve trade-offs that

are not acceptable to the organization or person making the risk management decisions.

Another source, from the US Department of Defense (see link), Defense Acquisition

University, calls these categories ACAT, for Avoid, Control, Accept, or Transfer. This use of

the ACAT acronym is reminiscent of another ACAT (for Acquisition Category) used in US

Defense industry procurements, in which Risk Management figures prominently in decision

making and planning.

Risk avoidance

This includes not performing an activity that could carry risk. An example would be not

buying a property or business in order to not take on the legal liability that comes with it.

Another would be not flying in order not to take the risk that the airplane were to be hijacked.

Avoidance may seem the answer to all risks, but avoiding risks also means losing out on the

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potential gain that accepting (retaining) the risk may have allowed. Not entering a business to

avoid the risk of loss also avoids the possibility of earning profits.

Hazard Prevention

Hazard prevention refers to the prevention of risks in an emergency. The first and most

effective stage of hazard prevention is the elimination of hazards. If this takes too long, is too

costly, or is otherwise impractical, the second stage is mitigation.

Risk reduction

Risk reduction or "optimization" involves reducing the severity of the loss or the likelihood

of the loss from occurring. For example, sprinklers are designed to put out a fire to reduce the

risk of loss by fire. This method may cause a greater loss by water damage and therefore may

not be suitable. Halon fire suppression systems may mitigate that risk, but the cost may be

prohibitive as a strategy.

Acknowledging that risks can be positive or negative, optimizing risks means finding a

balance between negative risk and the benefit of the operation or activity; and between risk

reduction and effort applied. By an offshore drilling contractor effectively applying HSE

Management in its organization, it can optimize risk to achieve levels of residual risk that are

tolerable.

Modern software development methodologies reduce risk by developing and delivering

software incrementally. Early methodologies suffered from the fact that they only delivered

software in the final phase of development; any problems encountered in earlier phases meant

costly rework and often jeopardized the whole project. By developing in iterations, software

projects can limit effort wasted to a single iteration.

Outsourcing could be an example of risk reduction if the outsourcer can demonstrate higher

capability at managing or reducing risks. For example, a company may outsource only its

software development, the manufacturing of hard goods, or customer support needs to

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another company, while handling the business management itself. This way, the company can

concentrate more on business development without having to worry as much about the

manufacturing process, managing the development team, or finding a physical location for a

call center.

Risk sharing

Briefly defined as "sharing with another party the burden of loss or the benefit of gain, from a

risk, and the measures to reduce a risk."

The term 'risk transfer' is often used in place of risk sharing in the mistaken belief that you

can transfer a risk to a third party through insurance or outsourcing. In practice if the

insurance company or contractor goes bankrupt or ends up in court, the original risk is likely

to still revert to the first party. As such in the terminology of practitioners and scholars alike,

the purchase of an insurance contract is often described as a "transfer of risk." However,

technically speaking, the buyer of the contract generally retains legal responsibility for the

losses "transferred", meaning that insurance may be described more accurately as a post-

event compensatory mechanism. For example, a personal injuries insurance policy does not

transfer the risk of a car accident to the insurance company. The risk still lies with the policy

holder namely the person who has been in the accident. The insurance policy simply provides

that if an accident (the event) occurs involving the policy holder then some compensation

may be payable to the policy holder that is commensurate to the suffering/damage.

Some ways of managing risk fall into multiple categories. Risk retention pools are technically

retaining the risk for the group, but spreading it over the whole group involves transfer

among individual members of the group. This is different from traditional insurance, in that

no premium is exchanged between members of the group up front, but instead losses are

assessed to all members of the group.

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Risk retention

Involves accepting the loss, or benefit of gain, from a risk when it occurs. True self-insurance

falls in this category. Risk retention is a viable strategy for small risks where the cost of

insuring against the risk would be greater over time than the total losses sustained. All risks

that are not avoided or transferred are retained by default. This includes risks that are so large

or catastrophic that they either cannot be insured against or the premiums would be

infeasible. War is an example since most property and risks are not insured against war, so

the loss attributed by war is retained by the insured. Also any amount of potential loss (risk)

over the amount insured is retained risk. This may also be acceptable if the chance of a very

large loss is small or if the cost to insure for greater coverage amounts is so great it would

hinder the goals of the organization too much.

Create a Risk Management Plan

Select appropriate controls or countermeasures to measure each risk. Risk mitigation needs to

be approved by the appropriate level of management. For instance, a risk concerning the

image of the organization should have top management decisions behind it whereas IT

management would have the authority to decide on computer virus risks.

The risk management plan should propose applicable and effective security controls for

managing the risks. For example, an observed high risk of computer viruses could be

mitigated by acquiring and implementing antivirus software. A good risk management plan

should contain a schedule for control implementation and responsible persons for those

actions.

According to ISO/IEC 27001, the stage immediately after completion of the risk assessment

phase consists of preparing a Risk Treatment Plan, which should document the decisions

about how each of the identified risks should be handled. Mitigation of risks often means

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selection of security controls, which should be documented in a Statement of Applicability,

which identifies which particular control objectives and controls from the standard have been

selected, and why.

Implementation

Implementation follows all of the planned methods for mitigating the effect of the risks.

Purchase insurance policies for the risks that have been decided to be transferred to an

insurer, avoid all risks that can be avoided without sacrificing the entity's goals, reduce

others, and retain the rest.

Review and evaluation of the plan

Initial risk management plans will never be perfect. Practice, experience, and actual loss

results will necessitate changes in the plan and contribute information to allow possible

different decisions to be made in dealing with the risks being faced.

Risk analysis results and management plans should be updated periodically. There are two

primary reasons for this:

to evaluate whether the previously selected security controls are still applicable and effective,

and

to evaluate the possible risk level changes in the business environment. For example,

information risks are a good example of a rapidly changing business environment.

Limitations
If risks are improperly assessed and prioritized, time can be wasted in dealing with risk of

losses that are not likely to occur. Spending too much time assessing and managing unlikely

risks can divert resources that could be used more profitably. Unlikely events do occur but if

the risk is unlikely enough to occur it may be better to simply retain the risk and deal with the

result if the loss does in fact occur. Qualitative risk assessment is subjective and lacks
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consistency. The primary justification for a formal risk assessment process is legal and

bureaucratic.

Prioritizing the risk management processes too highly could keep an organization from ever

completing a project or even getting started. This is especially true if other work is suspended

until the risk management process is considered complete.

It is also important to keep in mind the distinction between risk and uncertainty. Risk can be

measured by impacts x probability.

Areas of risk management

As applied to corporate finance, risk management is the technique for measuring, monitoring

and controlling the financial or operational risk on a firm's balance sheet. See value at risk.

The Basel II framework breaks risks into market risk (price risk), credit risk and operational

risk and also specifies methods for calculating capital requirements for each of these

components.

Enterprise risk management

In enterprise risk management, a risk is defined as a possible event or circumstance that can

have negative influences on the enterprise in question. Its impact can be on the very

existence, the resources (human and capital), the products and services, or the customers of

the enterprise, as well as external impacts on society, markets, or the environment. In a

financial institution, enterprise risk management is normally thought of as the combination of

credit risk, interest rate risk or asset liability management, market risk, and operational risk.

In the more general case, every probable risk can have a pre-formulated plan to deal with its

possible consequences (to ensure contingency if the risk becomes a liability).

From the information above and the average cost per employee over time, or cost accrual

ratio, a project manager can estimate:

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the cost associated with the risk if it arises, estimated by multiplying employee costs per unit

time by the estimated time lost (cost impact, C where C = cost accrual ratio * S).

the probable increase in time associated with a risk (schedule variance due to risk, Rs where

Rs = P * S):

Sorting on this value puts the highest risks to the schedule first. This is intended to cause the

greatest risks to the project to be attempted first so that risk is minimized as quickly as

possible.

This is slightly misleading as schedule variances with a large P and small S and vice versa are

not equivalent. (The risk of the RMS Titanic sinking vs. the passengers' meals being served at

slightly the wrong time).

the probable increase in cost associated with a risk (cost variance due to risk, Rc where Rc =

P*C = P*CAR*S = P*S*CAR)

sorting on this value puts the highest risks to the budget first.

see concerns about schedule variance as this is a function of it, as illustrated in the equation

above.

Risk in a project or process can be due either to Special Cause Variation or Common Cause

Variation and requires appropriate treatment. That is to reiterate the concern about extremal

cases not being equivalent in the list immediately above.

Risk management activities as applied to project management

In project management, risk management includes the following activities:

Planning how risk will be managed in the particular project. Plans should include risk

management tasks, responsibilities, activities and budget.

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Assigning a risk officer - a team member other than a project manager who is responsible for

foreseeing potential project problems. Typical characteristic of a risk officer is a healthy

skepticism.

Maintaining a live project risk database. Each risk should have the following attributes:

opening date, title, short description, probability and importance. Optionally a risk may have

an assigned person responsible for its resolution and a date by which the risk must be

resolved.

Creating an anonymous risk reporting channel. Each team member should have the

possibility to report risks that he/she foresees in the project.

Preparing mitigation plans for risks that are chosen to be mitigated. The purpose of the

mitigation plan is to describe how this particular risk will be handled – what, when, by who

and how will it be done to avoid it or minimize consequences if it becomes a liability.

Summarizing planned and faced risks, effectiveness of mitigation activities, and effort spent

for the risk management.

Risk management for megaprojects

Megaprojects (sometimes also called "major programs") are extremely large-scale investment

projects, typically costing more than US$1 billion per project. Megaprojects include bridges,

tunnels, highways, railways, airports, seaports, power plants, dams, wastewater projects,

coastal flood protection schemes, oil and natural gas extraction projects, public buildings,

information technology systems, aerospace projects, and defense systems. Megaprojects have

been shown to be particularly risky in terms of finance, safety, and social and environmental

impacts. Risk management is therefore particularly pertinent for megaprojects and special

methods and special education have been developed for such risk management.

Risk management of Information Technology

Information technology is increasingly pervasive in modern life in every sector.

25
IT risk is a risk related to information technology. This is a relatively new term due to an

increasing awareness that information security is simply one facet of a multitude of risks that

are relevant to IT and the real-world processes it supports.

A number of methodologies have been developed to deal with this kind of risk.

ISACA's Risk IT framework ties IT risk to Enterprise risk management.

Risk management techniques in petroleum and natural gas

For the offshore oil and gas industry, operational risk management is regulated by the safety

case regime in many countries. Hazard identification and risk assessment tools and

techniques are described in the international standard ISO 19776:2000, and organizations

such as the IADC (International Association of Drilling Contractors) publish guidelines for

HSE Case development which are based on the ISO standard. Further, diagrammatic

representations of hazardous events are often expected by governmental regulators as part of

risk management in safety case submissions; these are known as bow-tie diagrams. The

technique is also used by organizations and regulators in mining, aviation, health, defense,

industrial and finance.

Risk management and business continuity

Risk management is simply a practice of systematically selecting cost effective approaches

for minimizing the effect of threat realization to the organization. All risks can never be fully

avoided or mitigated simply because of financial and practical limitations. Therefore all

organizations have to accept some level of residual risks.

Whereas risk management tends to be preemptive, business continuity planning (BCP) was

invented to deal with the consequences of realized residual risks. The necessity to have BCP

in place arises because even very unlikely events will occur if given enough time. Risk

management and BCP are often mistakenly seen as rivals or overlapping practices. In fact

these processes are so tightly tied together that such separation seems artificial. For example,

26
the risk management process creates important inputs for the BCP (assets, impact

assessments, cost estimates etc.). Risk management also proposes applicable controls for the

observed risks. Therefore, risk management covers several areas that are vital for the BCP

process. However, the BCP process goes beyond risk management's preemptive approach and

assumes that the disaster will happen at some point.

Risk communication

Risk communication is a complex cross-disciplinary academic field. Problems for risk

communicators involve how to reach the intended audience, to make the risk comprehensible

and relatable to other risks, how to pay appropriate respect to the audience's values related to

the risk, how to predict the audience's response to the communication, etc. A main goal of

risk communication is to improve collective and individual decision making. Risk

communication is somewhat related to crisis communication.

Seven cardinal rules for the practice of risk communication

Accept and involve the public/other consumers as legitimate partners (e.g. stakeholders).

Plan carefully and evaluate your efforts with a focus on your strengths, weaknesses,

opportunities, and threats (SWOT).

Listen to the stakeholders’ specific concerns.

Be honest, frank, and open.

Coordinate and collaborate with other credible sources.

Meet the needs of the media.

Speak clearly and with compassion.

Financial risk management is the practice of creating economic value in a firm by using financial

instruments to manage exposure to risk, particularly credit risk and market risk. Other types include

foreign exchange, Shape, Volatility, Sector, Liquidity, Inflation risks, etc. Similar to general risk

27
management, financial risk management requires identifying its sources, measuring it, and plans to

address them.

Financial risk management can be qualitative and quantitative. As a specialization of risk

management, financial risk management focuses on when and how to hedge using financial

instruments to manage costly exposures to risk.

In the banking sector worldwide, the Basel Accords are generally adopted by internationally active

banks for tracking, reporting and exposing operational, credit and market risks.

When to use financial risk management

Finance theory (i.e., financial economics) prescribes that a firm should take on a project when it

increases shareholder value. Finance theory also shows that firm managers cannot create value for

shareholders, also called its investors, by taking on projects that shareholders could do for themselves

at the same cost.

When applied to financial risk management, this implies that firm managers should not hedge risks

that investors can hedge for themselves at the same cost. This notion was captured by the hedging

irrelevance proposition: In a perfect market, the firm cannot create value by hedging a risk when the

price of bearing that risk within the firm is the same as the price of bearing it outside of the firm. In

practice, financial markets are not likely to be perfect markets.

This suggests that firm managers likely have many opportunities to create value for shareholders

using financial risk management. The trick is to determine which risks are cheaper for the firm to

manage than the shareholders. A general rule of thumb, however, is that market risks that result in

unique risks for the firm are the best candidates for financial risk management.

The concepts of financial risk management change dramatically in the international realm.

Multinational Corporations are faced with many different obstacles in overcoming these challenges.

There has been some research on the risks firms must consider when operating in many countries,

such as the three kinds of foreign exchange exposure for various future time horizons: transactions

exposure, accounting exposure, and economic exposure.

28
Megaprojects (sometimes also called "major programs") have been shown to be particularly risky in
terms of finance. Financial risk management is therefore particularly pertinent for megaprojects and
special methods have been developed for such risk management.
Implementation of study:

For implementing the study, securities or scripts constituting the Sensex market are
selected from one month closing share movement price data from Economic Times and
financial express on Jan 2016.

In order to know how the risk of the stock or script, we use the formula, which is given
below:
------------

Standard deviation = √variance

n _
Variance = (1/n-1) ∑(R-R) ^2
t =1
Where (R-R) ^2=square of difference between sample and mean.
n=number of samples observed.
After that, we need to compare the stocks or scripts of two companies with each other by
using the formula for correlation coefficient as given below.

n _ _
Co-variance(COVAB) = 1/n∑ (RA-RA) (RB-RB)
t =1
(COV AB)
Correlation-Coefficient (P AB) = ---------------------
(Std. A) (Std. B)
Where (RA-RA) (RB-RB) = Combined deviations of A&B
(Std. A) (Std B) =standard deviation of A&B
COVAB= covariance between A&B
n =number of observations
The next step would be the construction of the optimal portfolio on the basis of what
percentage of investment should be invested when two securities and stocks are combined i.e.

29
calculation of two assets portfolio weight by using minimum variance equation which is
given below.
FORMULA (Std. b) ^2 –pab (Std. a) (Std. b)

Xa =------------------- ----------------------------------

(Std. a) ^2 + (std. b) ^2 –2 pab (Std. a) (Std. b)

Where
Std. b= standard deviation of b
Std. a = standard deviation of a
Pab= correlation coefficient between A&B
The next step is final step to calculate the portfolio risk (combined risk) ,that shows how
much is the risk is reduced by combining two stocks or scripts by using this formula:
___________________________________

σp=√ X1^2σ1^2+X2^2σ2^2+2(X1)(X2)(X13)σ1σ

Where
X1=proportion of investment in security 1.
X2=proportion of investment in security 2.
σ 1= standard deviation of security 1.
σ 2= standard deviation of security 2.
X13=correlation coefficient between security 1&2.
σ p=portfolio risk

30
 REVIEW OF LITERATURE

ARTICLES : 1

TITLE: RISK MANAGEMENT IN COMMERCIAL BANKS.

AUTHOR: G. KOTRESHWAR.

YEAR: 25 JAN 2006

ABSTRACT:

“Banks are in the business of managing risk, not avoiding it……….”

Risk is the fundamental element that drives financial behavior. without risk, the financial

system would be vastly simplified. however, risk is omnipresent in the real world. financial

institutions, therefore, should manage the risk efficiently to survive in this highly uncertain

world. the future of banking will undoubtedly rest on risk management dynamics. only those

banks that have efficient risk management system will survive in the market in the long run.

the effective management of credit risk is a critical component of comprehensive risk

management essential for long-term success of a banking institution.

31
ARTICLE : 2

TITLE: RISK MANAGEMENT IN FINANCIAL INSTITUTIONS

AUTHOR: ADRIANO A. RAMPINI.

YEAR: 17 OCT 2016.

ABSTRACT:

We study risk management in financial institutions using data on hedging of interest rate and

foreign exchange risk. We find strong evidence that better capitalized institutions hedge more

both in the cross-section and within institutions over time for identification, we exploit net

worth shocks resulting from loan losses due to drops in house prices institutions that sustain

such losses reduce hedging substantially relative to otherwise similar institutions. The

evidence is consistent with the theory that financial constraints impede both financing and

hedging. We find no evidence that risk shifting, changes in interest rate risk exposures, or

regulatory capital explain hedging behavior.

32
ARTICLE : 3

TITLE: TRUST-LEVEL RISK EVALUATION AND RISK CONTROL GUIDANCE IN

THE NHS EAST OF ENGLAND

AUTHOR: ALAN J. CARD

YEAR: DECEMBER 2013

ABSTRACT:

In recent years, the healthcare sector has adopted the use of operational risk assessment tools

to help understand the systems issues that lead to patient safety incidents. but although these

problems-focused tools have improved the ability of healthcare organizations to identify

hazards, they have not translated into measurable improvements in patient safety. one

possible reason for this is a lack of support for the solution-focused process of risk control.

this article describes a content analysis of the risk management strategies, policies, and

procedures at ali acute (i.e., hospital), mental health, and ambulance trusts (health service

organization) in the east of England area of the British nation health service. the primary goal

was to determine what organization-level guidance exists to support risk control practice. a

secondary goal was to examine the risk evaluation guidance provided by these trusts. with

regard to risk control, we found an almost complete lack of useful guidance to promote good

practice. with regard to risk evaluation, the trusts relied exclusively on risk matrices. a

number of weaknesses were found in the use of this tool, especially related to the guidance

for scoring an event’s likelihood. we make a number of recommendations to address these

concerns. the guidance assessed provides insufficient support for risk control.

33
ARTICLE : 4

TITLE: A STUDY ON BANK FAILURES WHERE CAUSED BY RISK MANAGEMENT

AUTHOR: BROWNBRIDGE

JOURNAL: A  JOURNAL ON BANK FAILURES WHERE CAUSED BY RISK

MANAGEMENT

ABSTRACT:

According to a study by Brownbridge (2098), most of the bank failures were caused by

fixed assets management. Arrears affecting more than half the loan risk managements were

typical of the failed banks. Many of the bad debts were attributable to moral hazard: the

adverse incentives on bank owners to adopt imprudent lending strategies, in particular insider

lending and lending at high interest rates to borrowers in the riskiest segments of the credit

markets.

34
ARTICLE : 5

TITLE: A STUDY OF A WRONG ECONOMIC DECISION TAKEN BY INDIVIDUALS

AUTHOR: BLOEM AND GORTER

JOURNAL: A  JOURNAL ON THE RISK MANAGEMENT IN INDIAN BANKING

SYSTEM

ABSTRACT:

Bloom and Gorter (2001) suggested that a more or less predictable level of fixed assets

management, though it may vary slightly from year to year, is caused by an inevitable

number of ‘wrong economic decisions by individuals and plain bad luck (inclement weather,

unexpected price changes for certain products, etc.). Under such circumstances, the holders of

loans can make an allowance for a normal share of non-performance in the form of bad loan

provisions, or they may spread the risk by taking out insurance. Enterprises may well be able

to pass a large portion of these costs to customers in the form of higher prices. For instance,

the interest margin applied by financial institutions will include a premium for the risk of

nonperformance on granted loans.

At this time, banks’ fixed assets management increase, profits decline and substantial losses

to capital may become apparent. Eventually, the economy reaches a trough and turns towards

a new expansionary phase, as a result the risk of future losses reaches a low point, even

though banks may still appear relatively unhealthy at this stage in the cycle.

35
ARTICLE : 6

TITLE: A STUDY OF ALLOWANCE OF NORMAL SHARE TO THE HOLDERS OF

LOAN

AUTHOR: BLOEM AND GORTER

JOURNAL: A  JOURNAL ON THE CAUSES OF MAKING OF POOR RISK

MANAGEMENT CITED BY 4 RELATED ARTICLES

ABSTRACT:

According to Gorter and Bloem (2002) fixed assets management are mainly caused by an

inevitable number of wrong economic decisions by individuals and plain bad luck (inclement

weather, unexpected price changes for certain products, etc.). Under such circumstances, the

holders of loans can make an allowance for a normal share of nonperformance in the form of

bad loan provisions, or they may spread the risk by taking out insurance.

36
ARTICLE : 7

TITLE: A STUDY ON PERFORMANCE OF INDIAN BANKS DURING THE

LIBERALIZATION PERIOD

AUTHOR: PETYAKOEVA

JOURNAL: A  JOURNAL ON THE PAPER PROVIDES NEW EMPIRICAL EVIDENCE

ON THE IMPACT OF FINANCIAL LIBERALIZATION ON THE PERFORMANCE OF

INDIAN COMMERCIAL BANKS SEP 30 SOURCE: REPEC

ABSTRACT:

PetyaKoeva (2003), his study on the Performance of Indian Banks. During Financial

Liberalization states that new empirical evidence on the impact of financial liberalization on

the performance of Indian commercial banks. The analysis focuses on examining the

behavior and determinants of bank intermediation costs and profitability during the

liberalization period. The empirical results suggest that ownership type has a significant

effect on some performance indicators and that the observed increase in competition during

financial liberalization has been associated with lower intermediation costs and profitability

of the Indian banks.

37
ARTICLE  :  8

TITLE: THE DESCRIPTION OF RISK MANAGEMENTS 

AUTHOUR: RICHARD GRINOLD

PUBLISHING YEAR: 2004

ABSTRACT:

Grinold provides a general framework for the description of various aspects of a risk

management using a set of factors. The work is cousin to the well – worn topic of

performance analysis and attribution, and in that sense, is fairly represented as being old wine

in new bottles the scope is much more general, however. Grinold first provides a theoretical

structure with a model that describes various aspects of a risk management as either the

allocation of a risk management’s variance or as the results in terms of the risk and

correlation of risk managements. The expanded framework and risk management focus opens

up a wide range of problems that can be studied with the same framework. Grinold uses

exampled to illustrate what the methodology can accomplish and as a guide to sense when we

are asking too much from the model. 

38
 CHAPTER-III
INDUSTRY PROFILE
&
COMPANY PROFILE

39
Evolution

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 210 years
ago. The earliest records of security dealings in India are meager and obscure. The East India
Company was the dominant institution in those days and business in its loan securities used
to be transacted towards the close of the eighteenth century.

By 2130's business on corporate stocks and shares in Bank and Cotton presses took place in
Bombay. Though the trading list was broader in 2139, there were only half a dozen brokers
recognized by banks and merchants during 2140 and 2150.

The 2150's witnessed a rapid development of commercial enterprise and brokerage business
attracted many men into the field and by 2160 the number of brokers increased into 60.

In 2160-61 the American Civil War broke out and cotton supply from United States of
Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers increased
to about 210 to 250. However, at the end of the American Civil War, in 2165, a disastrous
slump began (for example, Bank of Bombay Share which had touched Rs 2850 could only be
sold at Rs. 87).

At the end of the American Civil War, the brokers who thrived out of Civil War in 2174,
found a place in a street (now appropriately called as Dalal Street) where they would
conveniently assemble and transact business. In 2187, they formally established in Bombay,
the "Native Share and Stock Brokers' Association" (which is alternatively known as " The
Stock Exchange "). In 2205, the Stock Exchange acquired a premise in the same street and it
was inaugurated in 2209. Thus, the Stock Exchange at Bombay was consolidated.

Other leading cities in stock market operations

Ahmadabad gained importance next to Bombay with respect to cotton textile industry. After
2180, many mills originated from Ahmadabad and rapidly forged ahead. As new mills were
floated, the need for a Stock Exchange at Ahmadabad was realized and in 2204 the brokers
formed "The Ahmadabad Share and Stock Brokers' Association".

What the cotton textile industry was to Bombay and Ahmadabad, the jute industry was to
Calcutta. Also tea and coal industries were the other major industrial groups in Calcutta.

40
After the Share Mania in 2161-65, in the 2170's there was a sharp boom in jute shares, which
was followed by a boom in tea shares in the 2180's and 2200's; and a coal boom between
2104 and 2108. On June 2108, some leading brokers formed "The Calcutta Stock Exchange
Association".

In the beginning of the twentieth century, the industrial revolution was on the way in India
with the Swadeshi Movement; and with the inauguration of the Tata Iron and Steel Company
Limited in 2107, an important stage in industrial advan under Indian enterprise was reached.

Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies generally
enjoyed phenomenal prosperity, due to the First World War.

In 2121, the then demure city of Madras had the maiden thrill of a stock exchange
functioning in its midst, under the name and style of "The Madras Stock Exchange" with 100
members. However, when boom faded, the number of members stood reduced from 100 to 3,
by 2123, and so it went out of existence.

In 2135, the stock market activity improved, especially in South India where there was a
rapid increase in the number of textile mills and many plantation companies were floated. In
2137, a stock exchange was once again organized in Madras - Madras Stock Exchange
Association (Pvt) Limited. (In 2157 the name was changed to Madras Stock Exchange
Limited).

Lahore Stock Exchange was formed in 2134 and it had a brief life. It was merged with the
Punjab Stock Exchange Limited, which was incorporated in 2136.

Indian Stock Exchanges - An Umbrella Growth

The Second World War broke out in 2139. It gave a sharp boom which was followed by a
slump. But, in 2143, the situation changed radically, when India was fully mobilized as a
supply base.

On account of the restrictive controls on cotton, bullion, seeds and other commodities, those
dealing in them found in the stock market as the only outlet for their activities. They were
anxious to join the trade and their number was swelled by numerous others. Many new

41
associations were constituted for the purpose and Stock Exchanges in all parts of the country
were floated.

The Uttar Pradesh Stock Exchange Limited (2140), Nagpur Stock Exchange Limited (2140)
and Hyderabad Stock Exchange Limited (2144) were incorporated.

In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited and the
Delhi Stocks and Shares Exchange Limited - were floated and later in June 2147,
amalgamated into the Delhi Stock Exchnage Association Limited.

Post-independence Scenario

Most of the exchanges suffered almost a total eclipse during depression. Lahore Exchange
was closed during partition of the country and later migrated to Delhi and merged with Delhi
Stock Exchange.

Bangalore Stock Exchange Limited was registered in 2157 and recognized in 2163.

Most of the other exchanges languished till 2157 when they applied to the Central
Government for recognition under the Securities Contracts (Regulation) Act, 2156. Only
Bombay, Calcutta, Madras, Ahmadabad, Delhi, Hyderabad and Indore, the well established
exchanges, were recognized under the Act. Some of the members of the other Associations
were required to be admitted by the recognized stock exchanges on a concessional basis, but
acting on the principle of unitary control, all these pseudo stock exchanges were refused
recognition by the Government of India and they thereupon ceased to function.

Thus, during early sixties there were eight recognized stock exchanges in India (mentioned
above). The number virtually remained unchanged, for nearly two decades. During eighties,
however, many stock exchanges were established: Cochin Stock Exchange (2180), Uttar
Pradesh Stock Exchange Association Limited (at Kanpur, 2182), and Pune Stock Exchange
Limited (2182), Ludhiana Stock Exchange Association Limited (2183), Gauhati Stock
Exchange Limited (2184), Kanara Stock Exchange Limited (at Mangalore, 2185), Magadh
Stock Exchange Association (at Patna, 2186), Jaipur Stock Exchange Limited (2189),
Bhubaneswar Stock Exchange Association Limited (2189), Saurashtra Kutch Stock Exchange
Limited (at Rajkot, 2189), Vadodara Stock Exchange Limited (at Baroda, 2200) and recently
established exchanges - Coimbatore and Meerut. Thus, at present, there are totally twenty one

42
recognized stock exchanges in India excluding the Over The Counter Exchange of India
Limited (OTCEI) and the National Stock Exchange of India Limited (NSEIL).

The Table given below portrays the overall growth pattern of Indian stock markets since
independence. It is quite evident from the Table that Indian stock markets have not only
grown just in number of exchanges, but also in number of listed companies and in capital of
listed companies. The remarkable growth after 2185 can be clearly seen from the Table, and
this was due to the favouring government policies towards security market industry.

Trading Pattern of the Indian Stock Market

Trading in Indian stock exchanges are limited to listed securities of public limited companies.
They are broadly divided into two categories, namely, specified securities (forward list) and
non-specified securities (cash list). Equity shares of dividend paying, growth-oriented
companies with a paid-up capital of atleast Rs.50 million and a market capitalization of
atleast Rs.100 million and having more than 21,000 shareholders are, normally, put in the
specified group and the balance in non-specified group.

Two types of transactions can be carried out on the Indian stock exchanges: (a) spot delivery
transactions "for delivery and payment within the time or on the date stipulated when
entering into the contract which shall not be more than 20 days following the date of the
contract" : and (b) forward transactions "delivery and payment can be extended by further
period of 20 days each so that the overall period does not exceed 90 days from the date of the
contract". The latter is permitted only in the case of specified shares. The brokers who carry
over the outstandings pay carry over charges (cantango or backwardation) which are usually
determined by the rates of interest prevailing.

A member broker in an Indian stock exchange can act as an agent, buy and sell securities for
his clients on a commission basis and also can act as a trader or dealer as a principal, buy and
sell securities on his own account and risk, in contrast with the practice prevailing on New
York and London Stock Exchanges, where a member can act as a jobber or a broker only.

The nature of trading on Indian Stock Exchanges are that of age old conventional style of
face-to-face trading with bids and offers being made by open outcry. However, there is a
great amount of effort to modernize the Indian stock exchanges in the very recent times.

43
Over The Counter Exchange of India (OTCEI)

The traditional trading mechanism prevailed in the Indian stock markets gave way to many
functional inefficiencies, such as, absence of liquidity, lack of transparency, unduly long
settlement periods and benami transactions, which affected the small investors to a great
extent. To provide improved services to investors, the country's first ringless, scripless,
electronic stock exchange - OTCEI - was created in 2202 by country's premier financial
institutions - 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.

Trading at OTCEI is done over the centres spread across the country. Securities traded on the
OTCEI are classified into:

 Listed Securities - The shares and debentures of the companies listed on the OTC can
be bought or sold at any OTC counter all over the country and they should not be
listed anywhere else

 Permitted Securities - Certain shares and debentures listed on other exchanges and
units of mutual funds are allowed to be traded

 Initiated debentures - Any equity holding atleast one lakh debentures of a particular
scrip can offer them for trading on the OTC.

OTC has a unique feature of trading compared to other traditional exchanges. That is,
certificates of listed securities and initiated debentures are not traded at OTC. The original
certificate will be safely with the custodian. But, a counter receipt is generated out at the
counter which substitutes the share certificate and is used for all transactions.

In the case of permitted securities, the system is similar to a traditional stock exchange. The
difference is that the delivery and payment procedure will be completed within 20 days.

Compared to the traditional Exchanges, OTC Exchange network has the following
advantages:

44
  OTCEI has widely dispersed trading mechanism across the country which provides
greater liquidity and lesser risk of intermediary charges.

 Greater transparency and accuracy of prices is obtained due to the screen-based

scripless trading.

 Since the exact price of the transaction is shown on the computer screen, the investor
gets to know the exact price at which s/he is trading.

 Faster settlement and transfer process compared to other exchanges.

 In the case of an OTC issue (new issue), the allotment procedure is completed in a
month and trading commences after a month of the issue closure, whereas it takes a
longer period for the same with respect to other exchanges.

Thus, with the superior trading mechanism coupled with information transparency investors
are gradually becoming aware of the manifold advantages of the OTCEI.

National Stock Exchange (NSE)

With the liberalization of the Indian economy, it was found inevitable to lift the Indian stock
market trading system on par with the international standards. On the basis of the
recommendations of high powered Pherwani Committee, the National Stock Exchange was
incorporated in 2202 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.

Trading at NSE can be classified under two broad categories:

(a) Wholesale debt market and

(b) Capital market.

Wholesale debt market operations are similar to money market operations - institutions and
corporate bodies enter into high value transactions in financial instruments such as
government securities, treasury bills, public sector unit bonds, commercial paper, certificate
of deposit, etc.

45
There are two kinds of players in NSE:

(a) trading members and

(b) participants.

Recognized members of NSE are called trading members who trade on behalf of themselves
and their clients. Participants include trading members and large players like banks who take
direct settlement responsibility.

Trading at NSE takes place through a fully automated screen-based trading mechanism which
adopts the principle of an order-driven market. Trading members can stay at their offices and
execute the trading, since they are linked through a communication network. The prices at
which the buyer and seller are willing to transact will appear on the screen. When the prices
match the transaction will be completed and a confirmation slip will be printed at the office
of the trading member.

NSE has several advantages over the traditional trading exchanges. They are as follows:

 NSE brings an integrated stock market trading network across the nation.

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

 Delays in communication, late payments and the malpractice’s prevailing in the

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

Unless stock markets provide professionalized service, small investors and foreign investors
will not be interested in capital market operations. And capital market being one of the major
source of long-term finance for industrial projects, India cannot afford to damage the capital
market path. In this regard NSE gains vital importance in the Indian capital market system.

46
Preamble

Often, in the economic literature we find the terms ‘development’ and ‘growth’ are used
interchangeably. However, there is a difference. Economic growth refers to the sustained
increase in per capita or total income, while the term economic development implies
sustained structural change, including all the complex effects of economic growth. In other
words, growth is associated with free enterprise, where as development requires some sort of
control and regulation of the forces affecting development. Thus, economic development is a
process and growth is a phenomenon.

Economic planning is very critical for a nation, especially a developing country like India to
take the country in the path of economic development to attain economic growth.

Why Economic Planning for India?

One of the major objective of planning in India is to increase the rate of economic
development, implying that increasing the rate of capital formation by raising the levels of
income, saving and investment. However, increasing the rate of capital formation in India is
beset with a number of difficulties. People are poverty ridden. Their capacity to save is
extremely low due to low levels of income and high propensity to consume. Therefor, the rate
of investment is low which leads to capital deficiency and low productivity. Low productivity
means low income and the vicious circle continues. Thus, to break this vicious economic
circle, planning is inevitable for India.

The market mechanism works imperfectly in developing nations due to the ignorance and
unfamiliarity with it. Therefore, to improve and strengthen market mechanism planning is
very vital. In India, a large portion of the economy is non-monitised; the product, factors of
production, money and capital markets is not organized properly. Thus the prevailing price
mechanism fails to bring about adjustments between aggregate demand and supply of goods
and services. Thus, to improve the economy, market imperfections has to be removed;
available resources has to be mobilized and utilized efficiently; and structural rigidities has to
be overcome. These can be attained only through planning.

In India, capital is scarce; and unemployment and disguised unemployment is prevalent.

Thus, where capital was being scarce and labour being abundant, providing useful

47
employment opportunities to an increasing labour force is a difficult exercise. Only a
centralized planning model can solve this macro problem of India.

Further, in a country like India where agricultural dependence is very high, one cannot ignore
this segment in the process of economic development. Therefore, an economic development
model has to consider a balanced approach to link both agriculture and industry and lead for a
paralleled growth. Not to mention, both agriculture and industry cannot develop without
adequate infrastructural facilities which only the state can provide and this is possible only
through a well carved out planning strategy. The government’s role in providing
infrastructure is unavoidable due to the fact that the role of private sector in infrastructural
development of India is very minimal since these infrastructure projects are considered as
unprofitable by the private sector.

Further, India is a clear case of income disparity. Thus, it is the duty of the state to reduce the
prevailing income inequalities. This is possible only through planning.

Planning History of India

The development of planning in India began prior to the first Five Year Plan of independent
India, long before independence even. The idea of central directions of resources to overcome
persistent poverty gradually, because one of the main policies advocated by nationalists early
in the century. The Congress Party worked out a program for economic advan during the
2121’s, and 2130’s and by the 2138 they formed a National Planning Committee under the
chairmanship of future Prime Minister Nehru. The Committee had little time to do anything
but prepare programs and reports before the Second World War which put an end to it. But it
was already more than an academic exercise remote from administration. Provisional
government had been elected in 2138, and the Congress Party leaders held positions of
responsibility. After the war, the Interim government of the pre-independence years
appointed an Advisory Planning Board. The Board produced a number of somewhat
disconnected Plans itself. But, more important in the long run, it recommended the
appointment of a Planning Commission.

The Planning Commission did not start work properly until 2150. During the first three years
of independent India, the state and economy scarcely had a stable structure at all, while
millions of refugees crossed the newly established borders of India and Pakistan, and while

48
ex-princely states (over 500 of them) were being merged into India or Pakistan. The Planning
Commission as it now exists, was not set up until the new India had adopted its Constitution
in January 2150.

Objectives of Indian Planning

The Planning Commission was set up the following Directive principles :

 To make an assessment of the material, capital and human resources of the country,
including technical personnel, and investigate the possibilities of augmenting such of
these resources as are found to be deficient in relation to the nation’s requirement.

 To formulate a plan for the most effective and balanced use of the country’s
resources.

 Having determined the priorities, to define the stages in which the plan should be
carried out, and propose the allocation of resources for the completion of each stage.

 To indicate the factors which are tending to retard economic development, and
determine the conditions which, in view of the current social and political situation,
should be established for the successful execution of the Plan.

 To determine the nature of the machinery this will be necessary for securing the
successful implementation of each stage of Plan in all its aspects.

 To appraise from time to time the progress achieved in the execution of each stage of
the Plan and recommend the adjustments of policy and measures that such appraisals
may show to be necessary.

 To make such interim or auxiliary recommendations as appear to it to be appropriate

either for facilitating the discharge of the duties assigned to it or on a consideration of
the prevailing economic conditions, current policies, measures and development
programs; or on an examination of such specific problems as may be referred to it for
advice by Central or State Governments.

49
The long-term general objectives of Indian Planning are as follows:

 Increasing National Income

 Reducing inequalities in the distribution of income and wealth

 Elimination of poverty

 Providing additional employment; and

 Alleviating bottlenecks in the areas of : agricultural production, manufacturing

capacity for producer’s goods and balance of payments.

Economic growth, as the primary objective has remained in focus in all Five Year Plans.
Approximately, economic growth has been targeted at a rate of five per cent per annum. High
priority to economic growth in Indian Plans looks very much justified in view of long period
of stagnation during the British rule

50
51
Introduction to Indiabulls

Indiabulls is India’s leading Financial and Real Estate Company with a wide
presence throughout India. They ensure convenience and reliability in all their products and
services. Indiabulls has over 640 branches all over India. The customers of Indiabulls are
more than 4,50,000 which covers from a wide range of financial services and products from
securities, derivatives trading, depositary services, research & advisory services, consumer
secured & unsecured credit, loan against shares and mortgage & housing finance. The
company employs around 4000 Relationship managers who help the clients to satisfy their
customized financial goals. Indiabulls entered the Real Estate business in the year 2105 with
its group of companies. Large scale projects worth several hundred million dollars are
evaluated by them.
Indiabulls Financial Services Ltd is listed on the National Stock Exchange (NSE), Bombay
Stock Exchange (BSE) and Luxembourg Stock Exchange. The market capitalization of
Indiabulls is around USD 2500 million (29thDecember, 2106). Consolidated net worth of the
group is around USD 700 million. Indiabulls and its group companies have attracted USD
500 million of equity capital in Foreign Direct Investment (FDI) since March 2100. Some of
the large shareholders of Indiabulls are the largest financial institutions of the world such as
Fidelity Funds, Goldman Sachs, Merrill Lynch, Morgan Stanley and Farallon Capital.

In middle of 2209, when e-commerce was just about starting in India, Sameer Gehlaut and
his close IIT Delhi friend Rajiv Rattan got together and bought a defunct securities company
with a NSE membership and started offering brokerage services . A Few months later, their
friend Saurabh Mittal also joined them. By December 2209, the company embarked on its
journey to build one of the first online platforms in India for offering internet brokerage
services. In January 2100, the 3 founders incorporated Indiabulls Financial Services and
made it as the flagship company.

In mid 2100, Indiabulls Financial Services received venture capital funding from Mr L.N.
Mittal & Mr Harish Fabiani. In late 2100, Indiabulls Securities, a subsidiary of Indiabulls
Financial Services started offering online brokerage services and simultaneously opened
physical offices across India. By 2103, Indiabulls securities had established a strong pan
India presence and client base through its offices and on the internet.

52
In September 2104, Indiabulls Financial Services went public with an IPO at Rs 21 a share.
In late 2104, Indiabulls Financial Services started its financing business with consumer loans.
In March 2105, Indiabulls Properties Private Ltd, a subsidiary of Indiabulls Financial
Services, participated in government auction of Jupiter Mills, a defunct 14 acre textile mill
owned by NTC in Lower Parel, Mumbai. Indiabulls Properties private Ltd won the mill in
auction and that purchase started Indiabulls real estate business. A few months later,
Indiabulls Real Estate company pvt ltd bought Elphinstone mill in Lower Parel, another
textile mill auctioned by NTC.

With real estate business gaining size, Indiabulls Financial Services demerged the real estate
business under Indiabulls Real Estate and each shareholder of Indiabulls Financial Services
received additional share of Indiabulls Real Estate through the demerger. Subsequently,
Indiabulls Financial Services also demerged Indiabulls Securities and each shareholder of
Indiabulls Financial Services also received a share of Indiabulls Securities.

In year 2107, Indiabulls Real Estate incorporated a 100% subsidiary, Indiabulls Power, to
build power plants and started work on building Nashik & Amrawati thermal power plants.
Indiabulls Power went public in September 2109.

Today, Indiabulls Group has a networth of Rs 16,796 Crore & has a strong presence in
important sectors like financial services, power & real estate through independently listed
companies and Indiabulls Group continues its journey of building businesses with strong cash
flows.

53
MANAGEMENT TEAM

Indiabulls Group

 Mr Rajiv Rattan - Vice Chairman

 Mr Saurabh Mittal - Vice Chairman
 Mr Gagan Banga - Group Spokesperson
 Mr Ashok Kacker - Group President
 Mr Saket Bahuguna - Group CLO
 Mr Ashok Sharma - Group CFO
 Mr Ajit Mittal - Group Director
 Mr Gurbans Singh - Group Director
 Mr Tejinderpal Singh Miglani - Group CIO

Indiabulls Financial Services Limited

 Mr Gagan Banga - CEO

 Mr Ashwini Kumar Hooda - DMD

Indiabulls Real Estate Limited

 Mr Vipul Bansal - CEO

 Mr Narendra Gehlaut - Joint MD

Indiabulls Power Limited

 Mr Ranjit Gupta - CEO

 Mr Murali Subramanian - COO

Indiabulls Securities Limited

 Mr Divyesh Shah - CEO

 Mr Vijay Babbar – DMD

54
India bulls supports Money life Foundation in Empowering
Investors

“Moneylife Foundation”  in collaboration with Indiabulls, recently organized an ‘Investor,

Empower Yourself’ seminar, which was held at the lush Town & Country Club at New
Gurgaon, in the National Capital Region (NCR), on Saturday, 7th May 2114. This was the
first occasion for Moneylife Foundation to venture into other territories outside Maharashtra.
Indiabulls played a major role in helping this event happen successfully.

The event witnessed over 300 attendees not only from Gurgaon but also from other parts of
National Capital Region (NCR), Delhi, Allahabad, Ludhiana, Chandigarh & other cities from
northern region of India. The venue was fully packed with eager & curious investors.
“Moneylife Foundation” expressed its gratitude towards helpful team of Indiabulls led by Mr.
Gagan Banga, CEO - Indiabulls Financial Services Ltd, for making this event such a huge
success.

The event started with introductory remarks & guidance by Mr. Gagan Banga, CEO -
Indiabulls Financial Services Ltd. Mr. Veeresh Malik, Consulting Editor, Moneylife, Delhi
gave a brief introduction about Moneylife Foundation.Then audience was guided by Sucheta
Dalal, Trustee - Moneylife Foundation and Managing Editor- Moneylife, on How to be Safe
with your money & Debashis Basu, Trustee - Moneylife Foundation and Editor- Moneylife
about How to be smart with your investments. Mr. Sachin Choudhary, Director & Business
Head - Indiabulls Housing Finance Ltd, talked about Do's and Don’ts of Housing Mortgages.
Ms. Sucheta Dalal also explained the importance & procedure of Wills & Nominations.

This event helped people in understanding how to become an aware and empowered investor.
The attendees included both finically literate & new investors. They posted number of
intelligent questions which were adequately answered by all the speakers. Empowering
today’s investors by creating awareness and guiding them in taking wise decisions when it
comes to money or investments was the main objective of ‘Investor, Empower Yourself’
seminar. During the Panel Discussion with the panel members Sucheta Dalal, Debashis Basu
& Sachin Choudhary, quite a few interesting & informative issues regarding Investments
were discussed. Mr. Monu Ratra, National Sales Manager - Indiabulls housing Finance Ltd
gave Vote of Thanks.

55
This event received many request and suggestions from audience about continuing with such
events all over India so that citizens of India will be more empowered investors & ultimately
nation will benefit from it. There were some requests from audience to telecast further events
live on television & internet so that those who are unable to attend the event will also get the
guidance. The knowledge shared about the investments during the event was well appreciated
by all.  

Moneylife Foundation has been instrumental in promoting financial literacy & pro-customer
advocacy in India.  Moneylife Foundation has been organizing such events at the Moneylife
Knowledge Centre in Mumbai, and also in various cities across Maharashtra. The Foundation
has completed 21months of spreading financial literacy & has hosted around 49 speakers and
61 events. Currently, more than 5,000 people are members of the Foundation.

After the seminar, Indiabulls received feedbacks from some attendees congratulating
Indiabulls’ team about the success of seminar. Many of the attendees mentioned that they are
looking forward to such seminars in future.

Indiabulls has been participating in such Corporate Social Activities with many other socially
aware groups and trusts & Indiabulls is committed to continue in doing so in future.

56
THE HUB

The Hub at One Indiabulls Centre at Lower Parel is an intelligently designed business centre
in Mumbai

In the past few years serviced office industry has been maturing in India and today is a
mainstream occupancy option for businesses of all sizes. Whether a start-up, SME or a multi-
national, companies are now opting for viable alternative to leasing or the outright purchase
of commercial workspace.

Thus managed business centers have emerged as an innovative solution to these workspace
requirements. The Hub at One Indiabulls Centre at Lower Parel is one such intelligently
designed business centre in Mumbai  that offers 25,000sqft of fully equipped, serviced
workspace not only suitable for large corporations but also for small businesses and lean team
set ups due to the option of small customized spaces.

The real advantage of The Hub is not just that it is more cost effective but also it offers best
possible working environment by offering conveniences such as advanced security, pantry
and maintenance services including IT and utility bills for electricity, water & HVAC.

What’s more, those moving into The Hub serviced offices enjoy the added benefit of cutting
edge IT and telecom infrastructure, reception and secretarial support, hi-tech meeting rooms
and video conferencing suites as well as business lounge, food courts and state of the art
fitness centre.

Not to forget among various factors that can affect a business and its success and growth, is
the address or the location of the office especially those of newly established enterprises. The
Hub within a world class contemporary business complex located between Nariman Point
and Bandra Kurla Complex and in close proximity to Bandra Worli Sea Link is undeniably in
the finest commercial location in Mumbai’s upcoming central business district- Lower Parel.

Undeniably, The Hub is a new age business centre that provides a very attractive proposition
to businesses of all sizes to help their own business grow and prosper.

Indiabulls CSR Initiative - Drug Access Program for cancer patients in partnership
with Novartis

57
As part of our deep commitment to social causes, Indiabulls has taken up this noble project
named “Novartis Oncology Access” in partnership with Novartis (manufacturer of drugs) &
Max foundation (NGO). We as the financial partner are helping them assess actual income of
patient & family & based on assessed income; recommend the drugs donation slab as per
approved guidelines & SOP.

Novartis are the developers & makers of Glivec (Imatinib) - a medication for the treatment
of Ph+ chronic myeloid leukemia (CML) in chronic phase, accelerated phase and blast crisis
for both pediatric and adult patients.  This drug is also indicated for adult patients with
adjuvant, unresectable and/or metastatic c-kit / cd-147 gastrointestinal stromal tumors
(GIST). Tasigna (nilotinib) a drug recently launched by Novartis is used as medication for the
treatment of Ph+ chronic myeloid leukemia (CML) in chronic phase, accelerated phase and
blast crisis for only adult patients.

NOA program:

The NOA program is a drug access program for to help patients who have been prescribed
Glivec and Tasigna but cannot afford to pay for the entire treatment cost. This program is run
by Novartis along with its partner Physicians- enrolls patient under this program after
diagnosis, The MAX Foundation- independent NGO – Assist patient  throughout the
program in completing formalities & procurement of medicines, Indiabulls Financial
Services - independent body for financial evaluation of patient, collection & safekeeping the
submitted documents with confidentiality and C&F outlets – Independent pharmacist,
dispenses drugs to patients & manage drug inventory.

Indiabulls Financial Services: As a NOA partner we are performing task of the local credit
evaluation agency which works as an independent and unbiased body for the financial
analysis and assessment of the patient and family members’ earning capacity to afford
medical expenses on critical disease. The analysis bases on income levels assessment by way
of financial evaluation ,field verification, living standard, personal discussion with patient/
care taker & guidelines as per standard operating procedure (SOP) which is prepared by
Novartis based on the WHO guidelines for drug donation programs using Business for Social
Responsibility’s (BSR) cost of living index, a well-established international guide often used
as eligibility criteria for determining access to drug assistance programs.  Based on the family
composite Income a suitable donation decision is given.

58
Contractibility

Indiabulls has designated a dedicated Help-Line Number: 022 30492021 that will receive
patient calls during office hours (9:00 a.m. to 6.00 p.m.) so it may handle in-bound calls in
response only to queries regarding the submission of requirements for the NOA. For any
medical or clinical queries, Indiabulls Financial Services refer patients to their treating
physician.

Businesses

Indiabulls Group is one of the country's leading business houses with business interests in
Power, Financial Services, Real Estate and Infrastructure . Indiabulls Group companies are
listed in Indian and overseas financial markets. The Net worth of the Group is Rs 16,796
Crore and the total planned capital expenditure of the Group by 2116-20 is Rs 35,000 Crore.

Indiabulls Power is currently developing Thermal Power Projects with an aggregate

capacity of 5400 MW. The first unit is expected to go on stream in May 2115. The net worth
of Indiabulls Power is Rs 3,920 Crore. The company has a total capital expenditure of Rs
27,500 Crore. The company has been assigned 'BBB' rating.

Indiabulls Financial Services is one of India’s leading non-banking finance companies

providing Home Loans, Commercial Vehicle Loans and Secured SME Loans. The company
has a net worth of Rs 4,680 crore with an asset book of over Rs 21,500 Crore. The company
has disbursed loans over Rs 45,000 Crore to over 3,00,000 customers till date. Amongst its
financial services and banking peers, Indiabulls Financial Services ranks amongst the top few
companies both in terms of net worth and capital adequacy. Indiabulls Financial Services has
been assigned ‘AA+’ rating and has presence in over 90 cities and towns with a total branch
network of 200 branches.

Indiabulls Real Estate is among India's top Real Estate companies with development
projects spread across residential complexes, integrated townships, commercial office
complexes, hotels, malls, Special Economic Zones (SEZs) and infrastructure development.
Indiabulls Real Estate partnered with Farallon Capital Management LLC of USA to bring the
first FDI into real estate in the country. The company has a networth of Rs 7,953 Crore and
has purchased prime land, mostly in the metros and other Tier 1 cities worth Rs 4,000 Crore

59
in government auctions alone. Indiabulls Real Estate is currently developing 57 million sqft
into premium quality, high-end commercial, residential and retail spaces. The company has
been assigned 'A+' rating.

Indiabulls Securities is one of India's leading capital markets companies providing securities
broking and advisory services. Indiabulls Securities also provides depository services, equity
research services and IPO distribution to its clients and offers commodities trading through a
separate company. These services are provided both through on-line and off-line distribution
channels. Indiabulls Securities is a pioneer of on-line securities trading in India. Indiabulls
Securities’ in-house trading platform is one of the fastest and most efficient trading platforms
in the country. Indiabulls Securities has been assigned the highest rating BQ-1 by CRISIL.

Indiabulls foundation

India has witnessed an economic transformation over the past two decades, translating into
higher incomes, better educational opportunities, improved infrastructure, a dynamic private
sector, and leadership in the global community. We have much to be proud of.

But we also recognize that we have a long way to go. Over 700 million people live under $2 a
day. Learning levels in schools remain abysmally low,  most of our rural population do not
have access to basic health care, regular electricity, clean water, and sanitation. India has
some of the world’s worst statistics on basic development indicators such as malnutrition,
infant mortality, and gender discrimination.

As a society, we are at the confluence of accelerated economic progress and extreme

deprivation, all in the same country, at the same time.

As corporate citizens, we at Indiabulls are conscious of the opportunities and the

responsibility that this confluence presents.

Investments to increase income levels of our poorest people will expand business
opportunities manifold. Investments to improve education, health and skills training will
improve the efficiency of the economy. Protecting our environment will actually lower our
costs of doing business. Providing our youth with gainful employment and a chance to
improve their lives will ensure societal and political stability- setting a strong foundation for

60
economic sustainability. All of these investments will help create an inclusive society,
ensuring a sustainable return to our shareholders.

The Indiabulls Group is keen to help in building an inclusive and prosperous society and we
are beginning our efforts in this direction through Indiabulls Foundation.

One of the first initiatives of the Foundation is to support the development of rural districts.
Our aim is to support development across multiple domains in a district based approach.
Some of the areas where we want to help are in economic development and skills training,
access to drinking water, school education, public health, agriculture and support to the local
government.

Commercial Vehicle Loans

Indiabulls Commercial Vehicle Loans offers commercial auto loans to a variety of business
owners. We are a preferred financer with first time buyers as well as fleet operators providing
commercial vehicle loans with simple documentation and quick results.

The Commercial Vehicle Finance provided by us helps the small and medium
operators to acquire vehicles with minimum hassle and documentation.We provide
customized financing options to suit your needs.Our strength lies in the quick completion of
transactions, long association with transporters and the intimate knowledge of the market and
its nuances.Our finance schemes are easy to understand with no hidden costs.

We assure you a quick, transparent and hassle-free deal.

1. Product Offering

 Finance for new commercial vehicles

 Finance for used vehicles
 Tractor Loans

2. Proposed Finance

 Tyre Funding
 Accidental Funding

61
  Engine Funding
 Take over loans
 Top up loan on existing loan with us

3. Features of Loan Offering

 Loan for up to 21years old vehicles.

 The best loan offering in the market – up to 95% for used vehicles & 100% for new
commercial vehicle chassis
 Max tenure of upto 48 months for used vehicles 60 months for new commercial
vehicle chassis
 Max tenure of upto 48 months for used vehicles 60 months for new commercial
vehicle chassis
 Customized loan to suit your needs
 Door Step Services
 Easy Documentation
 Quick & Hassle free services
 Attractive Rate of Interest
 No intermediary or Direct Marketing Agent for loan processing

Organization Structure- Board of Directors:

Senior Vice President

Regional Manager

Branch Manager
Senior Sales Manager
62

Support System Sales Function

 RM/SRM
Back Office Local Compliance
Executive Officer

ARM

Dealer

Trading Products of Indiabulls Securities

Indiabulls Securities
Trading Products

Cash Account Intraday Account Margin Trading

Indiabulls Securities provide three products for trading. They are

 Cash Account
63
  Intraday Account
 Margin Trading (Mantra)

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

Indiabulls Financial Services Ltd

Indiabulls Financial Services Ltd. was incorporated in the year 2105.The Auditors of
Indiabulls Financial Services Ltd. are Deloitte, Haskins & Sells. The main activity of this
company is in relation to securities and stock brokerage. It was also responsible for setting up
one of India’s first trading platforms.

The subsidiaries of Indiabulls Financial Services Ltd. include:

 Indiabulls Capital Services Ltd.
 Indiabulls Commodities Pvt. Ltd.
 Indiabulls Credit Services Ltd.
 Indiabulls Finance Co. Pvt. Ltd
 Indiabulls Housing Finance Ltd.
 Indiabulls Insurance Advisors Pvt. Ltd.
 Indiabulls Resources Ltd.
 Indiabulls Securities Ltd.

Projects Pipeline
Projects Launched in Q1 FY 16
1. BLU, Worli, Mumbai – 7‐Star luxury residential complex spread over 10 acres in South
Mumbai with breathtaking sea views

64
2. IB Golf City, Savroli, MMR – Premium residential township with 21‐hole golf course
spread over 350 acres of greens1 IB City Sonepat Haryana 210 Acres of integrated township
with plotted development commercialY 16
1. City, Sonepat, – development, and group housing
2. IB Enigma II, Sec 104, Gurgaon – Super premium residential complex with Villa’s and
high rise towers spread over 34 acres
3. IB Imperial, Sec 106, Gurgaon – 54 Acres of Integrated township with high end residential
apartments, villa’s, luxury retail and commercial
4. IB Commercial Centre, Sec 109, Gurgaon – Over 5 acres of commercial development on
the Dwarka Expressway
5. IB Greens, Chennai – Premium residential township with high rise towers near the IT
corridor spreadover 32 acres
6. IB Mint, Sec 104, Gurgaon – Iconic Commercial tower on the Dwarka Expressway
7. IB Greens, Indore ‐ 21Acres of Integrated township with high end residential apartments,
retail andcommercial in the heart of the city
8. IB Mega Mall, Agra & Kanpur – Destination mall/multiplex in the heart of the city

The Bankers of Indiabulls Financial Services Ltd. are as follows:

 ABN-Amro Bank
 Andhra Bank
 Bank of Maharashtra
 Bank of Rajasthan Ltd.
 Canara Bank
 Citibank
 Corporation Bank
 Dena Bank
 HDFC Bank Ltd
 HSBC Ltd.
 Indiabulls.
 IDBI Ltd
 Industrial Bank Ltd.

65
 ING Vysya Bank Ltd
 Karnataka Bank
 Punjab National Bank
 State Bank Of India
 Syndicate Bank
 Union Bank Of India
 UTI Bank Ltd.
 Yes Bank Ltd.

66
 CHAPTER-IV

DATA ANALYSES AND INTERPRETATION

Calculation of return of WIPRO

Year Beginning Ending Dividend(Rs)

price(Rs) price(Rs)

2015-2016 2052.00 748.8 29.00

2016-2017 755.00 463.35 5.00

2017-2018 462.00 605.9 5.00

2018-2019 603.00 525.65 8.00

2019-2020 521.54 635.68 8.50

67
Return=Dividend+(Ending Price-Beginning price)

Beginning Price

Return(2015) = 29.00+(748.8-2052.00) * 100 = -55.60%

2052.00

Return(2016) = 5.00+(463.35-755.00) * 100 = -37.96%

755.00

Return(2017) = 5.00+(605.9-462.00) * 100 = 32.23%

462.0

Return(2018) = 8.00+(525.65-603.00) * 100 = -11.5%

603.00

Return(2019) = 8.50+(635.68-521.54) * 100 = 23.51%

521.54
Interpretation
After analyzing the data from the period 2015 to 2020 in WIPRO I can find that the dividend
is decreasing.

Calculation of return of CIPLA

Year Beginning Ending Dividend(Rs)
price(Rs) price(Rs)

2015-2016 898.00 1671.05 10.00

2016-2017 1634.00 320.8 3.00
2017-2018 320.00 448 3.50
2018-2019 447.95 251.35 2.00
2019-2020 251.5 215.65 2.00

Return=Dividend+(Ending Price-Beginning price)

Beginning Price

68
 Return(2015)=10.00+(1675.05-898.00) * 100 = 54.23%

898.00

Return(2016) = 3.00+(320.8-1634.00) * 100 = -75.95%

1634

Return(2017) = 3.50+(448-320.00) * 100 = 41.09%

320

Return(2018) = 2.00+(251.35-447.95) * 100 = -43.44%

447.95

Return(2019) = 2.00+(215.65-251.5) * 100 = -17.65%

251.5
Interpretation
After analyzing the data from the period 2015 to 2020 in CIPLA ,I am able to find that the
dividend is decreasing.

Calculation of return of RANBAXY

Year Beginning Ending Dividend(Rs)
price(Rs) price(Rs)

2015-2016 598.45 1095.25 18.00

2016-2017 1109.00 1551.18 20.00
2017-2018 1568 362.75 17.50
2018-2019 363 391.8 8.50
2019-2020 391 425.5 8.50

Return=Dividend+(Ending Price-Beginning price)

Beginning Price

69
Return(2015) = 18.00+(1095.25-598.45) * 100 = 85.52%

598..45

Return(2016) = 20.00+(1551.18-1109.00) * 100 = 17.35%

1109

Return(2017) = 17.50+(362.75-1568.00) * 100 = -70.24%

1568.00

Return(2018) = 8.50+(391.8-363) * 100 = 10.27%

363

Return(2019) = 8.50+(425.5-391.00) * 100 = 10.99%

391.00
Interpretation
After analyzing the data from the period 2015 to 2020 in RANBAXY I am able to find that
the dividend is decreasing.

Calculation of return of BAJAJ AUTO

Year Beginning Ending Dividend(Rs)
price(Rs) price(Rs)

2015-2016 502 1166.3 17.00

2016-2017 1155.05 1161.2 25.00
2017-2018 1179.00 2001.1 25.00
2018-2019 2019.00 2620.18 40.00
2019-2020 2648.65 2627.9 40.00

Return=Dividend+(Ending Price-Beginning p
Beginning Price

70
Return(2015)=17.00+(1166.3 -502)* 100 = 159.17%
502

Return(2016)=25.00+(1161.2-1155.05)* 100 = 2.77%

1155.05

Return(2017)= 25.00+(2001.1-1179.00) * 100 = _76.34%

1179.00

Return(2018)=40.00+(2620.18-2019.00) * 100 = 31.9%

2019.00
Return(2019)=40.00+(2627.9-2648.65) * 100 = 0.726%
2648.65
Interpretation
After analyzing the data from the period 2015 to 2020 in BAJAJ AUTO I am able to find that
the dividend is increasing.

Calculation of standard deviation of WIPRO

_ _ _
Year Return (R) R R-R ( R-R )2
2015-2016 -55.6 -9.482 -46.15 2156.86992
2016-2017 -37.96 -9.482 -28.48 810.996484
2017-2018 32.23 -9.482 41.715 2039.89094
2018-2019 -11.5 -9.482 -2.020 4.072324
2019-2020 25.42 -9.482 34.902 1520.1796

71
 -47.41     5899.97928

_
Average (R) = ∑ R = -47.41 = -9.48
N 5
_
Variance = 1/n-1 ∑ (R-R)2

Standard Deviation = Variance

= 1 (5899.97)
= 70.24
Interpretation After analyzing the data from the period 2015 to 2020 in WIPRO I am able to
find that the dividend is increasing.

Calculation of standard deviation of CIPLA

_ _ _
Year Return (R) R R-R ( R-R )2
2015-2016 54.23 -7.744 61.974 3840
2016-2017 -75.95 -7.744 -68.206 4652
2017-2018 41.09 -7.744 48.834 2384
2018-2019 -43.44 -7.744 -35.696 1574
2019-2020 -17.65 -7.744 -6.906 47.692
-38.72 15207.692
_

72
 Average (R) = ∑ R = -38.72 = -7.744
N 5
_
Variance = 1/n-1∑ (R-R)2

Standard Deviation = Variance _

= 1 (15207.692)
4
=55.22
Interpretation
After analyzing the data from the period 2015 to 2020 in CIPLA I am able to find that the
dividend is increasing.

Calculation of standard deviation of RANBAXY

_ _ _
Year Return (R) R R-R ( R-R )2
2015-2016 85.52 10.20 75.34 5676
2016-2017 17.35 10.20 4.20 20.39
2017-2018 -70.24 10.20 -80.42 6467
2018-2019 10.27 10.20 0.09 0.0081
2019-2020 10.99 10.20 0.81 0.6561
50.89 15191

73
 _
Average (R) =∑ R = 50.89 = 10.20
N 5

Variance = 1 ∑ (R-R) 2
n-1

Standard Deviation = Variance

= 1 (15191)
4 = 55.16
Interpretation
After analyzing the data from the period 2015 to 2020 in BAJAJ AUTO I am able to find that
the dividend is increasing.

Calculation of standard deviation of BAJAJ AUTO

_ _ _
Year Return R R-R ( R-R )2
(R)
2015-2016 159.17 48.205 80.965 6555.3
2016-2017 2.77 48.205 -45.405 2061.6
2017-2018 76.34 48.205 28.195 793.3
2018-2019 31.9 48.205 -19.275 264.9
2019-2020 0.726 48.205 -47.449 2251.4

74
 240.876 12026.5
__
Average R = ∑ R
N

= 240.876 = 48.205
5
__
Variance = 1 ∑ (R-R) 2
N-1

Standard Deviation = Variance

= 1 (12026.54 = 54.6
Interpretation
After analyzing the data from the period 2015 to 2020 in BAJAJ AUTO I am able to find that
the dividend is increasing.

Correlation between CIPLA & RANBAXI

DEVIATION 0F DEVIATION OF COMBINED
Year CIPLA RANBAXI DEVIATION
___ __ ___ ___
RA-RA RB-RB (RA-RA ) (RB-RB)
2015-2016 61.974 75.34 4669.15
2016-2017 -68.206 4.20 -284.42
2017-2018 48.834 -80.42 -3927.23
2018-2019 -35.696 0.09 -3.216

75
2019-2020 -6.906 0.81 -5.59
448.667
n
Co-variance(COVAB )=1/n ∑ (RA-RA) (RB-RB)
t=1
Co-variance(COVAB )=1/5 448.667
= 89.7334
Correlation – Coefficient (PAB) = COV AB
(Std. A) (Std. B)
= 89.7334 (55.22)(55.16) =0.0295
Interpretation
After analyzing the data from the period 2015 to 2020 in CIPLA & RANBAXI I am able to
find that the dividend is decreasing.

Correlation between RANBAXY WIPRO

DEVIATION OF DEVIATION OF COMBINED
Year RANBAXY WIPRO DEVIATION
___ __ ___ ___
RA-RA RB-RB (RA-RA ) (RB-RB)
2015-2016 75.34 21.117 1890.73
2016-2017 4.20 -42.67 -207.93
2017-2018 -80.42 -25.03 2017.91
2018-2019 0.09 45.19 4.0644

76
2019-2020 0.81 1.43 1.188
3430.93
n
Co-variance(COVAB )=1/n ∑ (RA-RA) (RB-RB)
t=1

Co-variance(COVAB )=1/5 (3430.93)

=686.20

Correlation – Coefficient (PAB) = COV AB

(Std. A) (Std. B)
= 686.20
(55.16)(35.153)
= 0.354
Interpretation
After analyzing the data from the period 2015 to 2020 in RANBAXY & WIPRO I am able to
find that the dividend is increasing.

Correlation between CIPLA BAJAJ

DEVIATION OF DEVIATION OF COMBINED
Year CIPLA BAJAJ DEVIATION
___ __ ___ ___
RA-RA RB-RB (RA-RA ) (RB-RB)
2015-2016 61.974 80.965 5020.72
2016-2017 -68.206 -45.405 3096.90
2017-2018 48.834 28.195 1675.41
2018-2019 -35.696 -19.275 580.95

77
2019-2020 -6.906 -47.449 327.68
10398.70
n
Co-variance(COVAB )=1/n ∑ (RA-RA) (RB-RB)
t=1
Co-variance(COVAB )=1/5 (10398.70)
=2079.74

Correlation – Coefficient (PAB) = COV AB

(Std. A) (Std. B)

= 2079.74
(55.22)(54.60)
= 0.690
Interpretation
After analyzing the data from the period 2015 to 2020 in CIPLA & BAJAJ I am able to find
that the dividend is increasing.

STANDARD DEVIATION

COMPANY STANDARD DEVIATION

BAJAJ 54.60
RANBAXY 55.16
WIPRO 70.24
CIPLA 55.22

78
 STANDARED DEVIATION

STANDARED DEVIATION

AVERAGE

COMPANY AVERAGE
BAJAJ 48.205
RANBAXY 10.20
WIPRO -9.45
CIPLA -7.744

79
 Chart Title

Series1

CORRELATION COEFFICIENT
COMPANY R
BAJAJ AUTO RANBAXY 0.605
CIPLA RANBAXY 0.0295
RANBAXY WIPRO 0.354
CIPLA BAJAJ 0.690

PORTFOLIO WEIGHTS

Formula:

Xa = (St.) 2 – p ab (std.a )(std.b)

(std.a) 2 + (std.b) 2 -2 pab (std.a) (std.b)

80
Xb = 1–Xa

Where X a = WIPRO
Xa = (34.846)2 – (0.586) (35.153 )(34.846)
(35.153) 2 + (34.846) 2
- 2 (0.586) (35.153) (34.846)
Xb = 1 –X a

Xa = 0.4905
Xb = 0.5095

PORTFOLIO WEIGHTS
CIPLA RANBAXY:
Formula:

Xa = (Std.b) 2 – p ab (std.a )(std.b)

(std.a) 2 + (std.b) 2 -2 pab (std.a) (std.b)
Xb = 1–Xa

81
Where X a = CIPLA
Xb = RANBAX
Std.a = 55.22
Std.b = 55.16

p ab = 0.0295

Xa = (55.16)2 – 0.0295 (55.22) (55.16)

(55.22) 2 + (55.16) 2
- 2 (0.0295) (55.22) (55.16)
Xb = 1 –X a

Xa = 0.49919

X b = 0.50084

PORTFOLIO WEIGHTS

BAJAJ AUTO CIPLA:

Formula:

Xa = (Std.b) 2 – p ab (std.a )(std.b)

(std.a) 2 + (std.b) 2 -2 pab (std.a) (std.b)
Xb = 1–Xa
82
 Where X a = BAJAJ AUTO
Xb = CIPLA
Std.a = 54.60
Std.b = 104.206

p ab = 0.605

Xa = (104.20)2 – o.605 (54.60) (104.20)

(54.60) 2 + (104.20) 2
- 2 (0.605) (54.60) (104.20)
Xb = 1 –X a

Xa = 1.6206
X b = -0.6206

Two Correlation COMPANY COMPANY Xb PORTFOLIO PORTF

Portfolios Coefficient Xa RETURN Rp OLIO

RISK σp
ICICI PRU 0.5206 0.8209 ..0.2001 117.24 31.17
ITC 0.5008 0.0563 0.9497 26.835 22.77
COLGATE
CIPLA 0.605 0.49919 0.50084 1.2335 49.43
RANBAXY

83
M&M 0.0295 1.6206 -0.620 152.61 201.22
&BAJAJ
__ __
PORTFOLIO RETURN ( Rp)=(Ra)(Xa) + (Rb) (Xb)

PORTFOLIO RISK= ___________________________________

σp=√ X1^2σ1^2+X2^2σ2^2+2(X1)(X2)(X15)σ1σ2

Portfolio return Rp
ICICI PRU 117.24
ITC COLGATE 26.835
CIPLA RANBAXY 1.234
M&M &BAJAJ 152.61

PORTFOLIO RETURN

Portfolio risk
WIPRO CIPLA 31.17
WIPRO RANBAXY 22.77
CIPLA RANBAXY 49.43

84
WIPRO &BAJAJ 201.22

1
2
3
4

85
 CHAPTER-V

FINDINGS

SUGGESTIONS

CONCLUSIONS

BIBLIOGRAPHY

86
 FINDINGS

WIPRO & CIPLA

The combination of WIPRO and CIPLA gives the proportion of investment is 0.0478 and

0.4025 for WIPRO and CIPLA, based on the standard deviations The standard deviation for

WIPRO is 70.47 and for CIPLA is 22.2.

Hence the investor should invest their funds more in CIPLA when compared to

WIPRO as the risk involved in CIPLA is less than WIPRO as the standard deviation of

CIPLA is less than that of WIPRO.

CIPLA&RANBAXY

The combination of CIPLA and RANBAXY gives the proportion of investment is 0.49918

and 0.50084 for CIPLA and RANBAXY, based on the standard deviations The standard

deviation for CIPLA is 55.22 and for RANBAXY is 55.15. When compared to both the

risk is almost same, hence the risk is same when invested in either of the security.

RANBAXY & BAJAJ AUTO

The combination of RANBAXY and BAJAJ AUTO gives the proportion of investment is

1.6206 and 0.6206 for RANBAXY and BAJAJ AUTO, based on the standard deviations The

standard deviation for RANBAXY is 104. 196 and for BAJAJ AUTO is 54.6.

Hence the investor should invest their funds more in BAJAJ AUTO

when compared to RANBAXY as the risk involved in BAJAJ AUTO is less than

RANBAXY as the standard deviation of BAJAJ AUTO is less than that of RANBAXY.

87
SUGGESTIONS

 Investor would be able to achieve when the returns of shares and debentures 

 Resultant portfolio would be known as diversified portfolio. Thus portfolio construction

would address itself to three majors via. Selectivity, timing and diversification, in case

of portfolio management, negatively correlated assets are most profitable. 

 Correlation between the BAJAJ & CIPLA are negatively correlated which means both

the combinations of portfolios are at good position to gain in future. Investors may

invest their money for long run, as both the combinations are most suitable portfolios.

 A rational investor would constantly examine his chosen portfolio both for average

return and risk.

 Foreign exchange facilities can be availed by customs at any of our branch’s transaction

in foreign exchange 

 Foreign exchange can be availed against payments by cash, cheque, or pay

order/demand draft   

88
LIMITATIONS

 The study is confined just to the foreign exchange risk but not the total risk.

 The analysis of this study is mainly done on the income statements.

 This study is limited for the year 2017-2018.

 It does not take into consideration all Indian companies foreign exchange risk.

 The hedging techniques are studied only which the company adopted to minimize foreign

exchange risk

 Only two samples have been selected for constructing a portfolio.

 Share prices of scripts of 5 years period was taken.

 The study is to confine just to the foreign exchange risk but not the total risk

 The analysis of this study is mainly done on the income statements 

 It does not take into consideration all Indian companies foreign exchange risk  

89
CONCLUSIONS

In case of perfectly correlated securities or stocks, the risk can be reduced to a minimum

point.

In case of negatively correlated securities the risk can be reduced to a zero.(which is

the company's risk) but the market risk prevails the same for the security or stock in the

portfolio.

The market risk prevails the same for the security or stock in the portfolio. From the study we

can depict the changes in the expenses and revenues of the company. This study helps to take

necessary action when variance in exchange rate affects the profitability. This study reveals

the net income of the company when exchange fluctuates.

90
 BIBLIOGRAPHY

Books referred: 

1. Ranganatha, R,Madhumathi Investment Analysis and Portfolio

Management, Pvt.Ltd., 3 Edition by Dorling Kindersley (India). 

rd

2. Prasanna Chandra Investment Analysis and Portfolio Management,  

3. V.A.Avadhani, Security Analysis and Portfolio Management, Pvt.Ltd

4. Punithavathi Pandian Security Analysis and Portfolio Management, 8th

Edition published by Mc  Graw-Hill. 

5. Levin R,I, Rubin David, “statistics for management”. 

6. Arora PN and others complete” statistical methods” ,2010 Ed.S.Chand. 

7. Keller, G, “ Statistics for management”, 2009, 1 Ed, Cengage Learning.

st

Website

www.iciciprulife.com

WWW. Investopedia.com

www.nseindia.com

www.bseindia.com.

www.dbfs securities .com

Newspaper & magazine

DAIRY NEWS PAPERS.

ECONOMIC TIME, FINANCIAL EXPRESS.ETC

APPENDICES

91
Implementation of study:
For implementing the study,8 securities or scripts constituting the Sensex market are selected

for one month closing share movement price data From Economic Times and financial

express from Jan 3rd to 31stJan 2019.

In order to know the risk of the stock or script, we use the formula, which is given

below..

Standard deviation= √ variance

Variance= (1/n-1) ∑ (R-R)2

t=1

where (R-R)2 = square of difference between sample and mean

n = number of samples observed

After that ,we need to compare the stocks or scripts of two companies with each other by

using the formula or correlation coefficient as given below.

Covariance [COVAB ] =1/n ∑ (RA-RA) (RB-RB)

t=1

correlation-Coefficient (PAB ) = (COVAB )

(std.a) ( std.b)

Where (RA-RA)(RB-RB) = Combined deviation of A&B

(std.a)(std.b)deviation of A&B

COVAB = Covariance between A&B n= number of observations.

The next step would be the construction of the optimal portfolio on the basis of what

percentage of investment should be invested when two securities and stocks are combined i.e.

92
calculation of two assets portfolio weight by using minimum variance equation which is

given below.

FORMULA (Std. b) ^2 –pab (Std. a) (Std. b)

Xa =------------------- ----------------------------------

(Std. a) ^2 + (std. b) ^2 –2pab (Std. a) (Std. b)

Where

Std. b= standard deviation of b

Std. a = standard deviation Of a

93
Pab = correlation coefficient between A&B

The next step is final step to calculate the portfolio risk (combined risk) ,that shows how

much is the risk is reduced by combining two stocks or scripts by using this formula:

_________________________________-

σp=√ X1^2σ1^2+X2^2σ2^2+2(X1)(X2)(X13)σ1σ2

Where

X1=proportion of investment in security 1.

X2=proportion of investment in security 2.

σ 1= standard deviation of security 1.

σ 2= standard deviation of security 2.

X13=correlation coefficient between securities

σ p=portfolio risk.

99
100