NEED OF THE STUDY:

Arbitrage trading is one of the fastest growing business segments in the Indian
market. The study helps to understand the Arbitrage trading which is a heavily
quantitative and computational approach of equity trading. The study will provide a
comprehensive overview of the trading strategies in these markets and an insight into
Arbitrage concept & practices. To understand the application of theoretical concepts
into actual practice, through analyzing the trading lively through selected scrip’s, case
studies and examples. It helps to understand the entry and exit strategy for intra-day
trading.

It involves data & statistical methods, as well as automated trading systems. Normally
it helps to understand the mechanism which involves two related markets - where
simultaneously buy one and sell is done. Thus, the arbitrager risk is restricted to the
relation between the two markets.

To know whether, Arbitrage is a safe technique for arbitragers whereby the capital
deployed is protected and the returns price differences of identical or similar financial
instruments, on different markets or in achieved are attractive when compared to other
conventional venues. It is a trade that portrays, profits by exploiting different forms.
Arbitrage exists as a result of market inefficiencies; it provides a mechanism to ensure
prices do not deviate substantially from fair value for long periods of time.

1
OBJECTIVES OF THE STUDY:

The aim of the study is “To study arbitrage trade analysis of stock trading of BSE &
NSE”.

 To analyze the possibility of taking advantage of arbitrage mechanism to make

profits on a trading day in NSE & BSE.
 To analyze the variation of scrip prices of blue chip companies from different
core sectors.
 To understand the opening & closing prices of each share in two exchanges
(i.e. NSE & BSE).
 To analyze differences between the prices of into exchange on a single intra-
day trading.

2
SCOPE OF THE STUDY:

The study covers introduction to Arbitrage trade analysis of stock trading in

NSE & BSE.The study is conducted at “Zen money pvt ltd”, Hyderabad and it will
not represent all stocks data of NSE & BSE.But, only few selected from different
sectors. However basic fundamentals have been brought out for the study.

METHODOLOGY OF THE STUDY:

Research methodology comprises of defining and redefining problems, formulating

hypothesis or suggested solution; collecting, organizing and evaluating data; making
deductions and reaching conclusion; and at last carefully testing the conclusions to
determine whether they fit the formulating hypothesis.

Research methodology is a way to systematically solve the research problem. It

involves few steps in it. They are,

 Research design
 Sample size
 Collection of data
 Statistical tools used for data analysis

MEANING OF RESEARCH DESIGN:

The formidable problem that follows the task of defining the research
problem is the preparation of design of the research project, popularly known as the
research design, decision regarding what, where, when, how much, by what means
concerning an inquiry of a research study constitute a research design.

SAMPLE DESIGN:A sample design is a definite plan for obtaining a sample from a
given population. It refers to the technique or procedure the researcher would adopt in
selecting items for the sample. Sample design may as well lay down the items to be
included in the sample i.e. the size of the sample. Sample design is determined before
3
data are collected. There are many samples designs in which some designs are more
precise and easier to apply than others.

SAMPLE SIZE: Sample size selected for the study is 8 companies from different
sectors and the type of sampling is simple random sampling.

COLLECTION OF DATA:

The required data for the study is collected from the following two sources.

Sources of data are:

 Primary data.
 Secondary data.
Primary data: Primary data has been collected by observing the share price
movements at “Zen money Pvt.ltd”, Hyderabad consisting of trading experts
opinions from market.

Secondary data: The Secondary data are those which have already been collected by
some other agency and which have already been processed. Sources used to collect
data are secondary data are as the following sources:

 News paper
 Books
 Stock exchange bulletins
 BSE data
 NSE data
 GOVT reports (SEBI)

4
TOOLS USED FOR ANALAYSIS:

Statistical tools used for data analysis are graphs of price movements or fluctuations
of different companies. By calculating Arithmetic average or mean, standard
deviation & Correlation etc.

STRUCTURE OF THE STUDY:

Structure of the study gives a glance overview (or) layout of the study. It is also
known as “Chapterisation”.The study consists of five chapters.

Chapter-I: This chapter includes the research problem, objectives of the study, need
for the study, hypothesis, scope of the study methodology (i.e., research design,
sample design, sample size, sources of data collection and tools & techniques for data
analysis), structure of the study and limitations of the study.

Chapter-II: This chapter focuses on the theoretical & empirical background of the
study, which helps to understand evolution of conceptual & methodological issues
pertaining to research.

Chapter-III: This chapter consists of brief historical retrospect about the entity (or)
companies chosen for the study.

Chapter-IV: This chapter prevails the presentation of data analysis & inferences.

Chapter-V: This chapter gives an overview of conclusions, implications & inferences

of the study conducted.

5
 LIMITATIONS OF THE STUDY:

The following are the limitation of this study.

 The scope of the study is limited to NSE & BSE exchanges.

 The scrip’s chosen for analyses are from different core sectors such as IT, Banking, IT,
Pharmacy, Power & Automobile sectors from 01-Feb-1April- 2012 (i.e. for a period of 45
days).
 The data collected is completely restricted to the “Zen money pvt ltd”-Hyd. Hence this
analysis cannot be taken as universal.

6
 REVIEW OF LITERATURE
Review of literature consists of empirical study of Arbitrage trade analysis of stock
trading.

Arbitrage Pricing Theory:

Definition:

An alternative asset pricing model to the Capital Asset Pricing Model (APT). Unlike
the Capital Asset Pricing Model, which specifies returns as a linear function of only
systematic risk, Arbitrage Pricing Theory may specify returns as a linear function of
more than a single factor.

Fundamental Analysis:

This investment strategy involves evaluating a stock by examining the company,

especially its operations and its financial condition. Here we look at several valuation
methods, factoring in price/earnings ratio, PEG, dividend yields, book value,
price/sales ratio, and return on equity.

Stock Strategies:

Learn about various strategies for investing in stocks, including the “buy and hold
approach,” analyzing market timing, and estimating a company’s potential for
growth.

Stocks and Your Portfolio:

I like this company, but should I add it to my portfolio? This article talks about
diversification and balancing risk with your stock selections.

7
 The Arbitrage Pricing Theory (APT) was developed primarily by Ross (1976a,
1976b). It is a one-period model in which every investor believes that the stochastic
properties of returns of capital assets are consistent with a factor structure. Ross
argues that if equilibrium prices offer no arbitrage opportunities over static portfolios
of the assets, then the expected returns on the assets are approximately linearly related
to the factor loadings. (The factor loadings, or betas, are proportional to the returns’
co variances with the factors.) The result is stated in Section 1. Ross’ (1976a)
heuristic argument for the theory is based on the preclusion of arbitrage. This intuition
is sketched out in Section 2. Ross’ formal proof shows that the Linear pricing relation
is a necessary condition for equilibrium in a market where agents maximize certain
types of utility. The subsequent work, which is surveyed below, derives either from
the assumption of the preclusion of arbitrage or the equilibrium futility-maximization.
A linear relation between the expected returns and the betas is tantamount to an
identification of the stochastic discount factor (SDF). Sections 3 and 4, respectively,
review this literature.

The APT is a substitute for the Capital Asset Pricing Model (CAPM) in that both
assert a linear relation between assets’ expected returns and their covariance with
other random variables. (In the CAPM, the covariance is with the market portfolio’s
return.) The covariance is interpreted as a measure of risk that investors cannot avoid
by diversification. The slope coefficient in the linear relation between the expected
returns and the covariance is interpreted as a risk premium. Such a relation is closely
tied to mean-variance efficiency, which is reviewed in Section 5. Section 5 also points
out that an empirical test of the APT entails a procedure to identify at least some
features of the underlying factor structure. Merely stating that some collection of
portfolios (or even a single portfolio) is mean-variance efficient relative to the mean-
variance frontier spanned by the existing assets does not constitute a test of the APT,
because one can always find a mean-variance efficient portfolio.

8
 Consequently, as a test of the APT it is not sufficient to merely show that a setoff
factor portfolio satisfies the linear relation between the expected return and its
covariance with the factors portfolios.

A sketch of the empirical approaches to the APT is offered in Section 6, while

Section 7 describes various procedures to identify the underlying factors. The large
number of factors proposed in the literature and the variety of statistical or ad hoc
procedures to find them indicates that a definitive insight on the topic is still missing.

Finally, Section 8 surveys the applications of the APT, the most prominent being the
evaluation of the performance of money managers who actively change their
portfolios. 1 Unfortunately, the APT does not necessarily preclude arbitrage
opportunities over dynamic portfolios of the existing assets. Therefore, the
applications of the APT in the evaluation of managed portfolios contradict at least the
spirit of the APT, which obtains price restrictions by assuming the absence of
arbitrage.

Arbitrage is an often-used term in share markets. The arbitrager is an

important intermediary that helps in price discovery mechanism in all markets be it
equity, moneyforex or derivatives. There are three important participants that are
important in a cash market, the speculator, arbitrager and an investor. In futures
market the investor is replaced by a hedger. Arbitrager and Speculator are often
confused and both are termed as Speculators. In this article I wish to explain the
difference between the two and show how arbitrage works in the market and its
influence on market volatility.

Arbitraging in India has been going on for several years. Initially arbitrage activity
was between Stock Exchange Mumbai and all other regional exchanges. Mr. Babulal
Bagri the founder of BLB Securities and Mr. ManubhaiManeklal were legendary
arbitragers of that era. They traded between Mumbai, Delhi and Calcutta markets.
Arbitraging in those days was done manually and not on any online system. The way
the fingers of these brokers flew on telex machines giving trade instructions was an

9
experience by itself. Then it shifted to cashing on price difference between NSE and
BSE limited. Today large amount of arbitrage happens between cash and derivative
markets. Arbitrage is also possible between the current month and near or far month
contracts. In case of Commodity exchanges also there is an arbitrage opportunity
between the local cash markets or mandis and the future markets which are popularly
known as National Commodity Exchanges.

Speculator is one who gives liquidity to the markets. The buyers and sellers
may not often decide at the same time to buy or sell a security. There is a time gap as
well as a difference in price and quantity at which the buyer and seller intend to do a
transaction. The speculator fills this time gap and gives quotes to buyers as well as
sellers on a continuous basis. This imparts liquidity to the market since each order has
a counter offer from a speculator even if there is no counter party to match the order.

The arbitrager is one who plays the role of balancing the price differences across
the markets. The markets may be two exchanges trading in the same product or two
segments such as cash and derivatives or across international markets and local
markets. The arbitrager continuously tracks prices across the chosen segment. are
momentary price differences in two markets due to difference in level of information
as well as demand supply situation in the market. These price differences are an

Opportunity for the arbitrager:

The arbitrager has money power at his disposal. He takes deliveries in a

particular market segment and is able to give deliveries in another market segment.
There is a time gap between giving and taking deliveries. He holds the stock for this
time and earns an interest on the funds invested which comes by way of price
differential between buy and sell rates. The arbitrager has a particular interest return
as his target. He does not have any open positions and all his purchases or sells in a
particular market segment have a counter position in another market segment. At the
net level his position is always zero. This is how the arbitrager earns a risk free return.

10
The arbitrager does not always wait for the expiry of the contract or the settlement of
the transaction. They may reverse the position before the actual settlement date even
if they have to compromise on some percentage of the price difference earned by
them. Lesser return is acceptable if it is earned with smaller or no investment. All
decisions are taken with reference to a benchmark-targeted return.

To give example of an arbitrage transaction, assume that the arbitrager has Rs.10
lacs available for doing arbitrage activity. His targeted return is say 18% p.a. which
works to about 1.5% p.m. We will take a simplistic transaction where he does just one
trade to earn the return. If some share is quoting at Rs.1000 in one cash market he will
look for opportunity to buy at Rs.1000/- and sell at Rs.1015/- or more in another cash
market simultaneously. These markets must have different settlement dates otherwise
in current rolling settlement scenario it is not possible to give and receive delivery
since both happen on the same day.

Now the same example can be extended to cash and derivative segment. Shares
are purchased in cash market; and sold in futures market. Delivery of the shares is
received in the rolling settlement. Since deliveries are not permitted in futures market
a reversal opportunity is looked for before the expiry of contract, otherwise the
arbitrager will be left with the delivery of shares. Hence if he gained say Rs.25 per
share on the first leg he will reverse the trades up to a loss of Rs.10 in order to achieve
his benchmark return of Rs.15.The returns are not often as fantastic but opportunities
are many. We also have to deduct from this the cost of brokerage, Securities
transaction tax, stock exchange charges and stamp duty. Hence it becomes unviable
for an investor unless the transaction costs are very low. The price difference is only
for a few minutes or seconds hence it must be captured instantly through a speedy
trading system. It should not so happen that one transaction is done and the other one
does not go through i.e. if the arbitrager buys and is unable to sell and the market falls
then instead of making a profit he will end up with a loss. Automated trading
programs are used in order to release both orders so that both the prices are captured
simultaneously.

11
 Arbitrage activity thus adds to liquidity in the markets and also helps in
balancing the prices of same shares across various markets. Prices continuously
balance out once the differences are cash upon. Arbitrage Helps in reducing volatility
in markets since continuous flow of orders reduces impact cost and more depth means
less volatility.

A small investor may not always be able to capture small differences in prices. They
are not constantly in front of the trading screen nor do they have sophisticated trading
systems to execute the orders. They are often linked to Internet or a network
connection that is not direct feed into the stock exchange system i.e. BOLT or NEAT.
Streaming quotes on online trading is closest that is available for such trading. Best
strategy is to look for difference in shares prices of stocks that you already have,
hence delivery is not a problem. Otherwise it is a volume game, small returns over
thousands of transactions is the name of the game. It is advisable to study the
opportunities. You may not act on all of them, but it prepares you to invest your
money wisely when you are a Billionaire….

Mutual Fund Feature:

There have been many successful arbitrage schemes launched in the Indian Mutual
Fund Industry, but JM Financial Mutual Fund is the pioneer in this segment. It
launched its first arbitrage scheme - JM Equity & Derivative Fund - and introduced
the concept across the country in 2005. After an overwhelming response to this
scheme, where the Company collected around Rs 823 crores, it has now come up with
a new fund offering called

Arbitrage Advantage Fund:

The objective of this Scheme is to generate income through arbitrage

opportunities emerging out of mis-pricing between the cash and the derivatives
12
markets and through deployment of surplus cash in fixed-income instruments.
Arbitrage Advantage Fund is an extended version of the JM Equity & Derivatives
Fund, which

According to the new guidelines by SEBI can hedge the entire position of its equity
stock, opposed to earlier when a mutual fund scheme could buy/sell futures for only
up to 50% of the corpus. Therefore in this new scheme, there is a mandate to deploy
up to 80% of the corpus into equity shares and hedge equivalent futures by allocating
the balance 20% towards margins. This will enhance the returns of an arbitrage
scheme phenomenally, just as the Company delivered 7% per annum returns in the
past; and with the new Scheme, the returns to investors would be higher, at 8.5-9% a
year.

Scheme Feature Asset Allocation

Instruments Risk Profile Min-Max
Equity & Equity-linked instruments Medium-High 65-80%
Derivatives, including stock futures and stock options# Medium-High 65-80%
Debt Securities, Money Market Instruments Medium-High 20-35%
JM Arbitrage Advantage Fund
14th June 2006 A market-neutral strategy

Arbitrage Strategies:

Arbitrage is a strategy involving a simultaneous purchase and sale of

identical or equivalent instruments across two or more markets in order to benefit
from a discrepancy in their price relationship. It is a risk-free transaction, as the long
and short legs of the transaction offset each other exactly. Thus, arbitrage engages in a
strategy in order to reduce risk of loss caused by price fluctuations of securities held
in the portfolio. It involves buying and selling of equal quantities of a security in two

13
different markets, with the expectations that a future change in price will offset by an
opposite change in the other.

Daily turnover in the derivatives segment is around 3.5 times the cash market
volumes and is to the tune of Rs 30,000 crores. Arbitrage activity is largely
concentrated in single stock futures, while index arbitrage is not very popular,
although it contributes about 25-30% of the total stock futures volumes. In India,
stock borrowing in the cash market is cumbersome, making the “Sell Stock buy
Futures” strategy difficult; hence, almost the entire arbitrage activity is concentrated
in “Buy Stock-Sell Futures”.

Advantages of Arbitrage Strategy:

 􀂾 Capitalises opportunities of mis-pricing (cost of carry) between cash and

derivatives.
 􀂾 It is safe, as it does not carry equity market risk, as all equity positions are
completely hedged.
 􀂾 Potential returns are higher than comparable investment avenues with similar
risks.
 Benefits of investing in an Arbitrage Fund
 􀂾 Since the arbitrage fund is categorized as equity fund, there will be no tax on
Long-Term capital gains;
 Dividends are also tax-free.
 􀂾 Potential returns are higher than those in comparable investment avenues
with similar risks like bank
 Fixed-deposits or liquid schemes.
 􀂾 It does not carry risk equivalent to the equity market risk, as all equity
positions are hedged.

Conclusion:

14
The Arbitrage Fund, in such uncertain times, can prove to be one of the good choices
by investors, other than putting the money in fixed deposits. The Fund House is
claiming a return of around 9-9.9%, which is much better than that of many other
savings instruments. However, finding an arbitrage opportunity in a bear phase is very

The Fundamental Theorem of Arbitrage Pricing:

Introduction

The Black-Schools theory, which is the main subject of this course and its sequel, is
based on the Efficient Market Hypothesis that arbitrages (the term will be defined
shortly) do not exist in efficient markets. Although this is never completely true in
practice, it is a useful basis for pricing theory, and we shall limit our attention (at least
for now) to efficient (that is, arbitrage-free) markets. We shall see that absence of
arbitrage sometimes leads to unique determination of prices of various derivative
securities, and gives clues about how these derivative securities may be hedged. In
particular, we shall see that, in the absence of arbitrage, the market imposes a
probability distribution, called a risk-neutral or equilibrium measure, on the set of
possible market scenarios, and that this probability measure determines market prices
via discounted expectation. This is the Fundamental Theorem of arbitrage pricing.
Before we state the Fundamental Theorem formally, or consider its ramifications, we
shall consider several simple examples of derivative pricing in which the Efficient
Market Hypothesis allows one to directly determine the market price.

Example: Forward Contracts

In the simplest forward contract, there is a single underlying asset Stock, whose
share price (in units of Cash) at time t = 0 is known but at time t = 1 is subject to
uncertainty.

It is also assumed that there is a riskless asset MoneyMarket, that is, an asset
whose

15
Share price at t = 1 is not subject to uncertainty; the share price of MoneyMarket at t
= 0 is 1 and at t = 1 is regardless of the market scenario. The constant r is called the
risk less rate of return. The forward contract calls for one of the agents to pay the
other an amount F (the forward price) in Cash at time t = 1 in exchange for one share
of Stock. The forward price F is written into the contract at time t = 0. No money or
assets change hands at time t = 0.

Proposition 1. In an arbitrage-free market, the forward price is F = S0er.Informally,

an arbitrage is a way to make a guaranteed profit from nothing, by short-selling
certain assets at time t = 0, using the proceeds to buy other assets, and then settling
accounts at time t = 1. When an investor sells an asset short, he/she must borrow
shares of the asset to sell in return for a promise to return the shares at a pre-specified
future time (and, usually, an interest charge). In real markets there are constraints on
short-selling imposed by brokers and market regulators to assure that the shares
borrowed for short sales can be repaid. In the idealized markets of the Black-Scholes
universe, such constraints do not exist, nor are there interest payments on borrowed
shares, nor are there transaction costs (brokerage fees). Furthermore, it is assumed
that investors may buy or sell shares (as many as they like) in any asset at the
prevailing market price without affecting the share price.

Fundamentals: Quantitative and Qualitative

You could define fundamental analysis as “researching the fundamentals”, but

that doesn’t tell you a whole lot unless you know what fundamentals are. As we
mentioned in the introduction, the big problem with defining fundamentals is that it
can include anything related to the economic well-being of a company. Obvious items
include things like revenue and profit, but fundamentals also include everything from
a company’s market share to the quality of its management.

The various fundamental factors can be grouped into two categories: quantitative
and qualitative. The financial meaning of these terms isn’t all that different from their
regular definitions. Here is how the MSN Encarta dictionary defines the terms:

16
Quantitative – capable of being measured or expressed in numerical terms.

Qualitative – related to or based on the quality or character of something, often as

opposed to its size or quantity.

In our context, quantitative fundamentals are numeric, measurable

characteristics about a business. It’s easy to see how the biggest source of quantitative
data is the financial statements. You can measure revenue, profit, assets and more
with great precision. Turning to qualitative fundamentals, these are the less tangible
factors surrounding a business - things such as the quality of a company’s board
members and key executives, its brand-name recognition, patents or proprietary
technology.

Quantitative Meets Qualitative:

Neither qualitative nor quantitative analysis is inherently better than the other.
Instead, many analysts consider qualitative factors in conjunction with the hard,
quantitative factors. Take the Coca-Cola Company, for example. When examining its
stock, an analyst might look at the stock’s annual dividend payout, earnings per share,
P/E ratio and many other quantitative factors. However, no analysis of Coca-Cola
would be complete without taking into account its brand recognition. Anybody can
start a company that sells sugar and water, but few companies on earth are recognized
by billions of people. It’s tough to put your finger on exactly what the Coke brand is
worth, but you can be sure that it’s an essential ingredient contributing to the
company’s ongoing success.

The Concept of Intrinsic Value:

Before we get any further, we have to address the subject of intrinsic value. One
of the primary assumptions of fundamental analysis is that the price on the stock
market does not fully reflect a stock’s “real” value. After all, why would you be doing

17
price analysis if the stock market were always correct? In financial jargon, this true
value is known as the intrinsic value.

For example, let’s say that a company’s stock was trading at $20. After
doing extensive homework on the company, you determine that it really is worth $25.
In other words, you determine the intrinsic value of the firm to be $25. This is clearly
relevant because an investor wants to buy stocks that are trading at prices
significantly below their estimated intrinsic value.

This leads us to one of the second major assumptions of fundamental analysis:

in the long run, the stock market will reflect the fundamentals. There is no point in
buying a stock based on intrinsic value if the price never reflected that value. Nobody
knows how long “the long run” really is. It could be days or years.

This is what fundamental analysis is all about. By focusing on a particular

business, an investor can estimate the intrinsic value of a firm and thus find
opportunities where he or she can buy at a discount. If all goes well, the investment
will pay off over time as the market catches up to the fundamentals.

The big unknowns are:

 You don’t know if your estimate of intrinsic value is correct; and

 You don’t know how long it will take for the intrinsic value to be reflected in
the marketplace.

Criticisms of Fundamental Analysis:

The biggest criticisms of fundamental analysis come primarily from two groups:
proponents of technical analysis and believers of the “efficient market hypothesis”.

Technical analysis is the other major form of security analysis. We’re not going to get
into too much detail on the subject. (More information is available in our Introduction
to Technical Analysis tutorial.)

18
 Put simply, technical analysts base their investments (or, more precisely,
their trades) solely on the price and volume movements of securities. Using charts and
a number of other tools, they trade on momentum, not caring about the fundamentals.
While it is possible to use both techniques in combination, one of the basic tenets of
technical analysis is that the market discounts everything. Accordingly, all news
about a company already is priced into a stock, and therefore a stock’s price
movements give more insight than the underlying fundamental factors of the business
itself.

Followers of the efficient market hypothesis, however, are usually in

disagreement with both fundamental and technical analysts. The efficient market
hypothesis contends that it is essentially impossible to produce market-beating returns
in the long run, through either fundamental or technical analysis. The rationale for
this argument is that, since the market efficiently prices all stocks on an ongoing
basis, any opportunities for excess returns derived from fundamental (or technical)
analysis would be almost immediately whittled away by the market’s many
participants, making it impossible for anyone to meaningfully outperform the market
over the long term.

19
FUNDAMENTAL ANALYSIS:

Qualitative Factors - The Company:

Before diving into a company's financial statements, we're going to take a look at
some of the qualitative aspects of a company.

Fundamental analysis seeks to determine the intrinsic value of a company's stock.

But since qualitative factors, by definition, represent aspects of a company's business
that are difficult or impossible to quantify, incorporating that kind of information into
a pricing evaluation can be quite difficult. On the flip side, as we've demonstrated,
you can't ignore the less tangible characteristics of a company.

In this section we are going to highlight some of the company-specific

qualitative factors that you should be aware of.

Business Model:

Even before an investor looks at a company's financial statements or does

any research, one of the most important questions that should be asked is: What
exactly does the company do? This is referred to as a company's business model – it's
how a company makes money. You can get a good overview of a company's business
model by checking out its website or reading the first part of its 10-K filing (Note:
We'll get into more detail about the 10-K in the financial statements chapter. For now,
just bear with us).

Sometimes business models are easy to understand. Take McDonalds, for instance,
which sells hamburgers, fries, soft drinks, salads and whatever other new special they
are promoting at the time. It's a simple model, easy enough for anybody to
understand.

Other times, you'd be surprised how complicated it can get. Boston Chicken
Inc. is a prime example of this. Back in the early '90s its stock was the darling of Wall
Street. At one point the company's CEO bragged that they were the "first new fast-

20
food restaurant to reach $1 billion in sales since 1969". The problem is, they didn't
make money by selling chicken. Rather, they made their money from royalty fees and
high-interest loans to franchisees. Boston Chicken was really nothing more than a big
franchisor. On top of this, management was aggressive with how it recognized its
revenue. As soon as it was revealed that all the franchisees were losing money, the
house of cards collapsed and the company went bankrupt.

At the very least, you should understand the business model of any company
you invest in. The "Oracle of Omaha", Warren Buffett, rarely invests in tech stocks
because most of the time he doesn't understand them. This is not to say the
technology sector is bad, but it's not Buffett's area of expertise; he doesn't feel
comfortable investing in this area. Similarly, unless you understand a company's
business model, you don't know what the drivers are for future growth, and you leave
yourself vulnerable to being blindsided like shareholders of Boston Chicken were.

Competitive Advantage:

Another business consideration for investors is competitive advantage. A company's

long-term success is driven largely by its ability to maintain a competitive advantage -
and keep it. Powerful competitive advantages, such as Coca Cola's brand name and
Microsoft's domination of the personal computer operating system, create a moat
around a business allowing it to keep competitors at bay and enjoy growth and profits.
When a company can achieve competitive advantage, its shareholders can be well
rewarded for decades.

Harvard Business School professor Michael Porter, distinguishes between

strategic positioning and operational effectiveness. Operational effectiveness means a
company is better than rivals at similar activities while competitive advantage means
a company is performing better than rivals by doing different activities or performing
similar activities in different ways. Investors should know that few companies are
able to compete successfully for long if they are doing the same things as their
competitors.

21
 Professor Porter argues that, in general, sustainable competitive advantage gained
by:

A unique competitive position Clear tradeoffs and choices vis-à-vis

competitor

Activities tailored to the company's strategy A high degree of fit across activities (it is
the activity system, not the parts that ensure sustainability) A high degree of
operational effectiveness

Management:

Just as an army needs a general to lead it to victory, a company relies

upon management to steer it towards financial success. Some believe that
management is the most important aspect for investing in a company. It makes sense -
even the best business model is doomed if the leaders of the company fail to properly
execute the plan.

So how does an average investor go about evaluating the management of a company?

This is one of the areas in which individuals are truly at a disadvantage compared to
professional investors. You can't set up a meeting with management if you want to
invest a few thousand dollars. On the other hand, if you are a fund manager interested
in investing millions of dollars, there is a good chance you can schedule a face-to-face
meeting with the upper brass of the firm.

Every public company has a corporate information section on its website. Usually
there will be a quick biography on each executive with their employment history,
educational background and any applicable achievements. Don't expect to find
anything useful here. Let's be honest: We're looking for dirt, and no company is going
to put negative information on its corporate website.

Instead, here are a few ways for you to get a feel for management:

1. Conference Calls:

22
The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) host quarterly
conference calls. (Sometimes you'll get other executives as well.) The first portion of
the call is management basically reading off the financial results. What is really
interesting is the question-and-answer portion of the call. This is when the line is open
for analysts to call in and ask management direct questions. Answers here can be
revealing about the company, but more importantly, listen for candor. Do they avoid
questions, like politicians, or do they provide forthright answers?

2. Management Discussion and Analysis (MD&A):

The Management Discussion and Analysis is found at the beginning of the annual
report (discussed in more detail later in this tutorial). In theory, the MD&A is
supposed to be frank commentary on the management's outlook. Sometimes the
content is worthwhile, other times its boilerplate. One tip is to compare what
management said in past years with what they are saying now. Is it the same material
rehashed? Have strategies actually been implemented? If possible, sit down and read
the last five years of MD&As; it can be illuminating.

3. Ownership and Insider Sales:

Just about any large company will compensate executives with a combination of cash,
restricted stock and options. While there are problems with stock options (See Putting
Management under the Microscope), it is a positive sign that members of
management are also shareholders. The ideal situation is when the founder of the
company is still in charge. Examples include Bill Gates (in the '80s and '90s), Michael
Dell and Warren Buffett. When you know that a majority of management's wealth is
in the stock, you can have confidence that they will do the right thing. As well, it's
worth checking out if management has been selling its stock. This has to be filed with
the Securities and Exchange Commission (SEC), so it's publicly available
information. Talk is cheap - think twice if you see management unloading all of its
shares while saying something else in the media.

23
4. Past Performance:

Another good way to get a feel for management capability is to check and see how
executives have done at other companies in the past. You can normally find
biographies of top executives on company web sites. Identify the companies they
worked at in the past and do a search on those companies and their performance.

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Corporate Governance:

Corporate governance describes the policies in place within an organization denoting

the relationships and responsibilities between management, directors and
stakeholders. These policies are defined and determined in the company charter and
its bylaws, along with corporate laws and regulations. The purpose of corporate
governance policies is to ensure that proper checks and balances are in place, making
it more difficult for anyone to conduct unethical and illegal activities.

Good corporate governance is a situation in which a company complies with all of its
governance policies and applicable government regulations (such as the Sarbanes-
Oxley Act of 2002) in order to look out for the interests of the company's investors
and other stakeholders. Although, there are companies and organizations (such as
Standard & Poor's) that attempt to quantitatively assess companies on how well their
corporate governance policies serve stakeholders, most of these reports are quite
expensive for the average investor to purchase.

24
 Fortunately, corporate governance policies typically cover a few general
areas: structure of the board of directors, stakeholder rights and financial and
information transparency. With a little research and the right questions in mind,
investors can get a good idea about a company's corporate governance

Technical Analysis:

Definition:

A method of evaluating securities by relying on the assumption that market data, such
as charts of price, volume, and open interest, can help predict future (usually short-
term) market trends. Unlike fundamental analysis, the intrinsic value of the security is
not considered. Technical analysts believe that they can accurately predict the future
price of a stock by looking at its historical prices and other trading variables.
Technical analysis assumes that market psychology influences trading in a way that
enables predicting when a stock will rise or fall. For that reason, many technical
analysts are also market timers, who believe that technical analysis can be applied just
as easily to the market as a whole as to an individual stock.

Related Terms:

advance/decline line, head and shoulders, moving average, point-and-figure

chart, resistance, analysis, ascending bottoms, ascending tops, descending bottoms,
descending tops, breadth-of-market theory, breakout, chartist, cup and handle, saucer,
flag, pennant, double bottom, double top, Elliott Wave Theory, high-low index,
momentum indicator, MACD, on-balance volume, overbought, oversold,
overbought/oversold indicator, random walk theory, reading the tape, relative
strength, support, signal, technical analyst, technical indicator, test, trendline, vertical
line charting, Arms Index, double top breakout, triple bottom, Bollinger bands

25
Technical Analysis:

Technical analysis is the study of a stock, or the market as a whole, strictly by using
the price and volume history of a stock. Technical analysis uses little or no
information about the actual business behind the stock. The common belief is that a
stock price represents all known information about a stock. Technical analysis is an
alternative to fundamental analysis.

Our service provides a very specialized type of technical analysis, performing real-
time statistical analysis on all relevant market data. Like many people we believe that
changes in the fundamentals will be visible through technical analysis.

Alert Types:

The methods used to analyze securities and make investment decisions fall
into two very broad categories: fundamental analysis and technical analysis.
Fundamental analysis involves analyzing the characteristics of a company in order to
estimate its value. Technical analysis takes a completely different approach; it doesn't
care one bit about the "value" of a company or a commodity. Technicians
(sometimes called chartists) are only interested in the price movements in the market.

Despite all the fancy and exotic tools it employs, technical analysis really
just studies supply and demand in a market in an attempt to determine what direction,
or trend, will continue in the future. In other words, technical analysis attempts to
understand the emotions in the market by studying the market itself, as opposed to its
components. If you understand the benefits and limitations of technical analysis, it
can give you a new set of tools or skills that will enable you to be a better trader or
investor.

What Is Technical Analysis?

Technical analysis is a method of evaluating securities by analyzing the statistics

generated by market activity, such as past prices and volume. Technical analysts do

26
not attempt to measure a security's intrinsic value, but instead use charts and other
tools to identify patterns that can suggest future activity.

Just as there are many investment styles on the fundamental side, there are also
many different types of technical traders. Some rely on chart patterns; others use
technical indicators and oscillators, and most use some combination of the two. In any
case, technical analysts' exclusive use of historical price and volume data is what
separates them from their fundamental counterparts. Unlike fundamental analysts,
technical analysts don't care whether a stock is undervalued - the only thing that
matters is a security's past trading data and what information this data can provide
about where the security might move in the future.

27
 INDUSTRY PROFILE

Bombay Stock Exchange (BSE):

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with
a rich heritage. Popularly known as "BSE", it was established as "The
Native Share Stock Brokers Association" in 1875. It is the first stock
exchange in the country to obtain permanent recognition in 1956 from the
Government of India under the Securities Contracts (Regulation) Act,
1956.The Exchange's pivotal and pre-eminent role in the development of
the Indian capital market is widely recognized and its index, SENSEX, is
tracked worldwide. Earlier an Association of Persons (AOP), the Exchange
is now a demutualised and corporative entity incorporated under the
provisions of the Companies Act, 1956,

BSE (Corporatization and Demutualization) Scheme, 2005 notified by

the Securities and Exchange Board of India (SEBI).With demutualization,
the trading rights and ownership rights have been de-linked effectively
addressing concerns regarding perceived and real conflicts of interest. The
Exchange is professionally managed under the overall direction of the
Board of Directors. The Board comprises eminent professionals,
representatives of Trading Members and the Managing Director of the
Exchange. The Board is inclusive and is designed to benefit from the
participation of market intermediaries.

28
 In terms of organization structure, the Board formulates larger policy
issues and exercises over-all control. The committees constituted by the
Board are broad-based. The day-to-day operations of the Exchange are
managed by the Managing Director and a management team of
professionals.

History of the Bombay Stock Exchange:

The Bombay Stock Exchange is known as the oldest

exchange in Asia. It traces its history to the 1850s, when stockbrokers
would gather under banyan trees in front of Mumbai's Town Hall. The
location of these meetings changed many times, as the number of
brokers constantly increased. The group eventually moved to Dalal
Street in 1874 and in 1875 became an official organization known as
'The Native Share & Stock Brokers Association'. In 1956, the BSE
became the first stock exchange to be recognized by the Indian
Government under the Securities Contracts Regulation Act.

The Bombay Stock Exchange developed the BSE Sensex in 1986,

giving the BSE a means to measure overall performance of the
exchange. In 2000 the BSE used this index to open its derivatives
market, trading Sensex futures contracts. The development of Sensex
options along with equity derivatives followed in 2001 and 2002,
expanding the BSE's trading platform. Historically an open-cry floor
trading exchange, the Bombay Stock Exchange switched to an
electronic trading system in 1995. It took the exchange only fifty days
to make this transition.

29
NATIONAL STOCK EXCHANGE OF INDIA LIMITED:

The National Stock Exchange of India Limited has genesis in the report of the
High Powered Study Group on Establishment of New Stock Exchanges, which
recommended promotion of a National Stock Exchange by financial institutions (FIs)
to provide access to investors from all across the country on an equal footing. Based
on the recommendations, NSE was promoted by leading Financial Institutions at the
behest of the Government of India and was incorporated in November 1992 as a tax-
paying company unlike other stock exchanges in the country.
On its recognition as a stock exchange under the Securities Contracts (Regulation)
Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market
(WDM) segment in June 1994. The Capital Market (Equities) segment commenced
operations in November 1994 and operations in Derivatives segment commenced in
June 2000.

The National Stock Exchange of India Ltd. is the largest stock exchange of the
country. NSE is setting the agenda for change in the securities markets in India. The
last 5 years have seen us play a major role in bringing investors from 363 cities and
towns online, ensuring complete transparency, introducing financial guarantee of
settlements, ensuring scientifically designed and professionally managed indices and
by nurturing the dematerialization effort across the country.
Our Technology:

Across the globe, developments in information, communication and network

technologies have created paradigm shifts in the securities market operations.
Technology has enabled organizations to build new sources of competitive advantage,

30
bring about innovations in products and services, and to provide for new business
opportunities. Stock exchanges all over the world have realized the potential of IT and
have moved over to electronic trading systems, which are cheaper, have wider reach
and provide a better mechanism for trade and post trade execution.
NSE believes that technology will continue to provide the necessary impetus
for the organization to retain its competitive edge and ensure timeliness and
satisfaction in customer service. In recognition of the fact that technology will
continue to redefine the shape of the securities industry, NSE stresses on innovation
and sustained investment in technology to remain ahead of competition. NSE's IT set-
up is the largest by any company in India. It uses satellite communication technology
to energies participation from around 320 cities spread all over the country. In the
recent past, capacity enhancement measures were taken up in regard to the trading
systems so as to effectively meet the requirements of increased users and associated
trading loads. With up gradation of trading hardware, NSE can handle up to 6 million
trades per day in Capital Market segment. In order to capitalize on in-house expertise
in technology, NSE set up a separate company, NSE.IT, in October 1999. This is
expected to provide a platform for taking up new IT assignments both within and
outside India NSE.IT is a state-of-the-art client server based application. At the server
end, all trading information is stored in an in-memory database to achieve minimum
response time and maximum system availability for users. The trading server software
runs on a fault tolerant STRATUS main frame computer while the client software.
The telecommunications network uses X.25 protocol and is the backbone of the
automated trading system. Each trading member trades on the NSE with other
members through a PC located in the trading member's office, anywhere in India. The
trading members on the various market segments such as CM / F&O , WDM are
linked to the central computer at the NSE through dedicated 64Kbps leased lines and
VSAT terminals. The Exchange uses powerful RISC -based UNIX servers, procured
from Digital and HP for the back office processing. The latest software platforms like
ORACLE 7 RDBMS, GUPTA - SQL/ORACLE FORMS 4.5 Front - Ends, etc. have
been used for the Exchange applications. The Exchange currently manages its data

31
centre operations, system and database administration, design and development of in-
house systems and design and implementation of tele communication solutions.

NSE is one of the largest interactive VSAT based stock exchanges in the
world. Today it supports more than 3000 VSATs. The NSE- network is the largest
private wide area network in the country and the first extended C- Band VSAT
network in the world. Currently more than 9000 users are trading on the real time-
online NSE application. There are over 15 large computer systems which include
non-stop fault-tolerant computers and high end UNIX servers, operational under one
roof to support the NSE applications. This coupled with the nation wide VSAT
network makes NSE the country's largest Information Technology user.
In an ongoing effort to improve NSE's infrastructure, a corporate network has
been implemented, connecting all the offices at Mumbai, Delhi, Calcutta and
Chennai. This corporate network enables speedy inter-office communications.

The National Stock Exchange of India Ltd. is the largest stock exchange of the
country. NSE is setting the agenda for change in the securities markets in India. The
last 5 years have seen us play a major role in bringing investors from 363 cities and
towns online, ensuring complete transparency, introducing financial guarantee of
settlements, ensuring scientifically designed and professionally managed indices and
by nurturing the dematerialization effort across the country.
NSE is a complete capital market prime mover. Its wholly-owned subsidiaries,
National Securities Clearing Corporation Ltd. (NSCCL) provides clearing and
settlement of securities, India Index Services and Products Ltd. (IISL) provides
indices and index services with a consulting and licensing agreement with Standard &
Poor's (S&P), and NSE.IT Ltd. forms the technology strength.
Today, we are one of the largest exchanges in the world and still forging ahead.
At NSE, we are constantly working towards creating a more transparent, vibrant &
innovative capital market. This invariably implies that our need for competent people
is continuous. As the leading stock exchange and fiscal entity in the country, we

32
believe in recruiting the finest of talent in the industry.
We are looking for talent to be developed into future leaders of our organization by
cross-departmental exposure, continuous self-development opportunities and ongoing
reinforcement to develop & enhance customer orientation & leadership potential.
Awaiting you is an excellent compensation package including medical benefits,
super-annotation benefits and a reward system designed to promote merit and
professionalism.

Trading:

NSE introduced for the first time in India, fully automated screen based trading. It
uses a modern, fully computerized trading system designed to offer investors across
the length and breadth of the country a safe and easy way to invest.The NSE trading
system called 'National Exchange for Automated Trading' (NEAT) is a fully
automated screen based trading system, which adopts the principle of an order driven
market.

Risk Management:

A sound risk management system is integral to an efficient clearing and settlement

system. NSE introduced for the first time in India, risk containment measures that
were common internationally but were absent from the Indian securities
markets.NSCCL has put in place a comprehensive risk management system, which is
constantly upgraded to pre-empt market failures. The Clearing Corporation ensures
that trading member obligations are commensurate with their net worth.
Risk containment measures include capital adequacy requirements of members,
monitoring of member performance and track record, stringent margin requirements,
position limits based on capital, online monitoring of member positions and automatic
disablement from trading when limits are breached, etc.

33
Market Updates:
IISL provides to specialized clients facts and figures, reports and equity market
updates on regular intervals. This is a paid service.

Listing

NSE plays an important role in helping an Indian companies access equity capital, by
providing a liquid and well-regulated market. NSE has about 1016 companies listed
representing the length, breadth and diversity of the Indian economy which includes
from hi-tech to heavy industry, software, refinery, public sector units, infrastructure,
and financial services. Listing on NSE raises a company’s profile among investors in
India and abroad. Trade data is distributed worldwide through various news-vending
agencies. More importantly, each and every NSE listed company is required to satisfy
stringent financial, public distribution and management requirements. High listing
standards foster investor confidence and also bring credibility into the markets.

34
 COMPANY PROFILE

COMPANY PROFILE:

Zen Securities Limited (ZSL) is one of the leading financial services company
-providing Financial and Investment related Services and Products. The
Company commenced as a proprietary concern of M/s K. Ravindra Babu in
1986 was converted to a Limited company in February 1995 as Zen Securities
Ltd. Zen has the distinction of being the First Corporate Member from
Hyderabad and also the first A.P. based broking firm to start trading on the
National Stock Exchange (NSE). ZEN is a registered Member on the Capital
Market Segment and Futures & Options segment of both NSE and BSE.

ZEN is also a Depository Participant (DP) with National Securities Depository

Ltd. (NSDL) and also with Central Depositories Services Ltd. (CDSL). ZEN is
also a SEBI Registered Portfolio Manager offering Portfolio Management
Services to clients.
Zen Comtrade Pvt. Limited a 100% subsidiary of ZSL and is a member of
National Commodities & Derivatives Exchange Limited (NCDEX) and Multi
Commodity Exchange (MCX).ZEN operates from Hyderabad as it head office
and has branches and associates in Andhra Pradesh, Tamil Nadu, Maharashtra,
Karnataka, West Bengal and Orissa. The Company operates from over 140
locations with ove 500 trading terminals.

Founder of ZEN Securities:

Shri Ravindra Babu Kantheti founded Zen Securities Ltd as a stock broking
company and led its evolution into a highly respectable financial services
company known for its ethics and values. He passionately believes that one
can be successful in business without compromising on ethics. Thru Zen he

35
 demonstrated this philosophy and inspired every one of us by setting an
example.His ethical, transparent and trustworthy approach to business has
inspired all of us to build a very vibrant, successful and strong
organisation.Zen totally as rededicate them self to continue to build the
organisation on sound foundations of trust, values and relationship with
clients, servicing their investment needs as set out by our founder Sri
K.Ravindra Babu.
Directors of Zen Securities Ltd. have considerable experience and expertise
ranging over many industries such as financial services, pharmaceuticals,
manufacturing, banking and Information Technology among others. They are
some of the most highly respected people in their professional circles.

Mr. Pratap Kantheti, Managing Director is the Managing Director of the

company. He is a Chartered Financial Analyst (CFA) and also has a Masters in
Business Administration (MBA) in Finance. He has a deep understanding of and
exposure to the financial services sector.

Mr. Satish Kantheti, Jt. Managing Director, looks after the Portfolio
Management Services and Equity Research divisions of the Company. He is a
Chartered Financial Analyst (CFA) and also has a Masters in Business
Administration (MBA) in Finance. He oversees the Equity Research division
and the Portfolio Management divisions.

Mr. K. Gandhi, Director is one of the founder directors of the company. He

holds a Masters degree in Electrical and Communication Engineering from IIT
Bombay. He has extensive experience in IT and General Management.

Mr. Satyanarayana Ch. Ravi (RS), Whole Time Director, He has more than
two decades of experience in the fields of Management, Administration,
Manufacturing, and Marketing. He holds a Bachelors degree in Chemical
Engineering.

36
 Mr. Sambasiva Rao Patibandla, Executive Director, He has worked with
several multinational pharmaceuticals companies before incorporating and
running a successful pharmacy business venture in U.S. He relocated to India
entered the Stock broking industry in 1994. He is the Executive Director of
company. He has a Masters degree in Pharmacy.

Mr. Narayanan Narayanan, Director is a very experienced Investment Analyst

and Tax Consultant possessing a deep understanding about investments and
stock market dynamics.

Mr. Ajay Kumar Mikkilineni, Director.He has over a decade of experience in

senior positions of the Pharmaceutical industry and also has twelve years of
experience in the banking sector. He holds a Masters degree in Agriculture.

Mr. K.Venkat Reddy, Director, chemical engineer. He worked in reputed

industrial houses in Paper & Power sectors for 16 years and in Financial markets
for 10 years. He has extensive experience in the areas of project management
and strategic management.

Mr. K. Narasimha Rao, Director. He is a Post Graduate in Literature. He is the

Chief Agent of A.P. LIC Mutual Fund since June 2002. He is an LIC agent since
1980 and has extensive knowledge about the securities and insurance markets.

Mr. Namashivaya Renukuntla, Director and Head of Compliance.He have

vast experience in the field of stock broking and has a deep understanding of the
regulatory framework of the Capital Markets. He heads the Commodity Broking
business of the Company. He holds a bachelors degree in Civil Engineering and
a Masters in Business Administration (MBA.)

Core Values:

37
  We are committed to honesty, integrity and ethics in all that we do.
 We create significant value by bringing together innovation, knowledge
and experience to help our customers achieve their goals.
 We treat customers the way we would want to be treated.
 We deliver happiness to customers, employees and other stakeholders.
 We work with passion, commitment and enthusiasm to deliver
excellence.
 We are a socially responsible and environment-friendly corporate citizen.

 Services Offered by Zen Securities Limited:

 Investment advisory services

 Trading in cash market of NSE and BSE
 Trading in Futures and Options on NSE and BSE
 Internet Trading in Stocks, futures and Options both NSE and BSE
 Mutual Funds advisory service
 Depository Services in Both NSDL and CDSL
 Trading in Commodities on MCX and NCDEX
 Portfolio Management Services
 NRI Investor Services
 PAN Application Service
 Mutual Fund KYC Registration Service
 New Pension System(NPS)
 Fixed Income Securities / Fixed Deposits / RBI Bonds / Tax Saving Bonds

 Stock Broking:
Zen Securities Limited provides the following equity related trading services
to the investors:

o Capital Market Segment of NSE and BSE

38
 o Futures & Options segment of NSE and BSE

ZEN operates from Hyderabad as it head office and has branches and associates in
Andhra Pradesh, Tamil Nadu, Maharashtra, Karnataka, West Bengal and Orissa.
The Company operates from over 140 locations with over 500 trading terminals

 Internet Trading:
Internet trading is easy, convenient and reliable with [email protected]
of ZenTr@de - Internet trading platform which is flexible and advanced trading
platform

 Simple, reliable and easy to use

 Futures & Options segment of NSE and BSE
 Integrated payment gateways – facilitates online transfer of funds from your
banks (ICICI /Axis/Corp / Yes bank etc.) for instant limits (on funds
transferred)
 Integrated with Zen DP account – seamless settlement
 Take full control of trading and trade with privacy from any place of your
choice.
 Choice of Trading from Internet or Branch
 Choice of Browser based or EXE based trading

 Market watch:

 Streaming market quotes

 Multiple market watch
 Integrated market watch for viewing NSE / BSE / NSE FAO on one screen
 Access to trade in NSE / BSE and NSE FAO Segments

 Intra and delivery differentiation:

 Different limits for intraday and delivery.

 Auto square off of all intraday orders 15 minutes before close of trading
 Convert intraday trades to delivery trades on availability of credit/margin
source

 Access to statements:

 Stock Statements - View Stocks in your DP account and also Zen Benf
account
 Statements – View Cash available in your Zen Broking account
 Mutual Funds – View Transaction/Holding statements with Latest NAV’s
 Net worth Statement - Net worth statement of assets with Zen,
(Stocks+Cash+Mutual funds) ZenTr@de is an integrated CTCL and internet
trading platform offering the choice to trade in a branch or in internet or both

39
 as per client’s convenience and choice. The platform offers all the
conveniences and advantages mentioned above.

ZEN’S MUTUAL FUND SERVICES :

 One stop shop for a range of Mutual fund products from top Mutual funds
such as HDFC, ICICI Prudential, Birla sun life, Franklin Templeton,
Reliance , HSBC, Sundaram BNP Paribas, Fidelity and many more
 Cost-effective, prompt and trustworthy service
 Facility to view your account information online 24 X 7, Updates every day.
o You can view your latest Holding statement
o You can view your latest transaction statement
o You can view value of all your mutual funds in one consolidated
statement
 Easy and convenient application process
 Good Advice keeping your financial goals in mind
 Offline presence in various locations convenient to you for better service

A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned
through these investments and the capital appreciation realized is shared by its unit
holders in proportion to the number of units owned by them. Thus a Mutual Fund is
the most suitable investment for the common man as it offers an opportunity to
invest in a diversified, professionally managed basket of securities at a relatively
low cost. The flow chart below describes broadly the working of a mutual fund:

Organization of a Mutual Fund:

There are many entities involved and the diagram below illustrates the
organizational set up of a mutual fund:

40
Advantages of investing in mutual funds:

 Professional Money Management & Research: Mutual funds are managed

by professional fund managers who regularly monitor market trends and
economic trends for taking investment decisions. They also have dedicated
research professionals working with them who make an in depth study of the
investment option to take an informed decision.

 Risk Diversification: Diversification reduces risk contained in a portfolio by

spreading it. It is about not putting all your eggs in one basket. As mutual
funds have huge corpuses to invest in, one can be part of a large and well-
diversified portfolio with very little investment.

 Convenience: With features like dematerialized account statements, easy

subscription and redemption processes, availability of NAVs and
performance details through journals, newspapers and updates and lot
more; Mutual funds are sure a convenient way of investing.

 Liquidity: One of the greatest advantages of Mutual funds investment is

liquidity. Open-ended funds provide option to redeem on demand, which is
extremely beneficial especially during rising or falling Markets.

 Reduction in Costs: Mutual funds have a pool of money that they have to
invest. So they are often involved in buying and selling of large amounts of
securities that will cost much lower than when you invest on your own

 Tax Advantages:Investment in mutual funds also enjoys several tax

advantages. Dividends from Mutual Funds are tax-free in the hands of the
investor (This however depends upon changes in Finance Act). Also Capital
Gain accrued from Mutual Fund investment for a period of over one year is

41
 treated as long term capital appreciation and is tax free.

 Other Advantages:
Indian Mutual fund industry also presents several other benefits to the
investor like: transparency - as funds have to make full disclosure of
investments on a periodic basis, flexibility in terms of needs based choices,
very well regulated by SEBI with very strict compliance requirements to
investor friendly norms.

 Depository:
Zen is a depository participant offering flexible, cost effective and
transparent depository services to its clients .Zen is a depository participant
with the National Securities Depository Limited and Central Depository
Services (India) Limited for trading and settlement of dematerialized shares.
Zen performs clearing services for all securities transactions through its
accounts. Zen offers depository services to create a seamless transaction
platform – execute trades through Zen Securities and settle these transactions
through the Zen Depository Services.
Zen Depository Services is a part of our value added services for our clients
that creates multiple interfaces with the client and provides for a solution that
takes care of all your needs

 Basic Services Provided by Zen DP

 Account Opening
 Account Transfers - Market and Off-Market
 Dematerialization
 Re-materialization
 Pledge

 Investment advice:
Provides investment advice through different reports such as following:

Money Mantra-Monthly
Daily Market Reports Company Report Delivery Calls
Newsletter
Daily Derivatives Monthly Mutual Funds Weekly
Industry Reports
Report Report Recommendation list
Results / Monthly
Weekly Market Report Event Tracker
AnalystMeet Recommendation list
Weekly Derivatives Special
Bulk & Block Deals AGM Report
Report Recommendation List
Weekly Mutual Funds Investment / Trading
Insider Tradings IPO Reports
Report Ideas

42
Weekly Commodities Budget / Monetary
Pledge Share Report Others
Reports Policies

 Commodities Broking
ZEN Securities provides trading in Commodities through its subsidiary, Zen Comrade
Pvt. Ltd.

Zen Comrade Pvt. Ltd. is a member of:

o National Commodities & Derivatives Exchange Limited (NCDEX) and

o Multi Commodities Exchange (MCX)

 PAN PROCESS FLOW:

As per SEBI guidelines -

 PAN card is compulsory for opening a demat account ( i.e. 01.04.2006)

 PAN card is compulsory for opening a trading account ( w.e.f.01.01.2007)

Zen Securities Limited is a service provider for processing PAN application.

As per SEBI guidelines & pursuant to implementation of Know Your Customer
(KYC) norms under Prevention of Money Laundering Act, 2002 (PMLA), Investors
investing in Mutual Funds (MF) either by investing a lump sum amount or through a
Systematic Investment Plan (SIP) will have to comply with the MF KYC procedure
effective from January 01, 2011 (ie; Demat Mode DP a/c is sufficient). This is a one-
time process.
Zen Securities Limited has tied up with CDSL's CVL for being a point of service
(POS) for processing MF KYC application.

 Portfolio management service:

Zen Securities Limited is a premier financial services company with a formidable
presence in the stock market and has earned the trust of its clients for its efficient and
investor friendly services.

o Portfolio Management Service (PMS) is a customized investment portfolio of

equity, debt, or instruments created to suit the individual investment objectives
of a client.
o A professional fund manager who is well equipped to handle the process
conducts the portfolio's day-to-day management, research, and idea
43
 generation.

Portfolio Management Services may be the right option for individuals who:

o Want to invest their money in equities but do not have the required expertise.
o Are equipped with the required awareness and knowledge to invest in equities
but do not have time to actively manage their portfolio.

o In today's markets, equity investment has become a more involved activity and
demands a greater awareness and in depth understanding of the business and
economic variables that affect equity valuations.
o Stocks operate in a wonderful tax environment, with no tax on long-term
capital gains and a minimal 10% tax on short-term capital gains. Also in this
economy, there are no investment avenues other than stocks and real estate to
earn inflation adjusted positive return and stocks offer more liquidity than real
estate. Zen's portfolio managers fully understand these advantages of stocks
and make them work in your favor.
o Zen's portfolio managers are supported by a strong research bureau that is well
equipped to understand the market and deliver superior returns.
o Each portfolio is personalized keeping in mind your investment parameters,
including return expectations, objectives, time horizon, liquidity constraints, a
distinctive tax status, and most importantly, personal risk tolerances.

 ZEN's investment philosophy:

We follow a simple yet effective philosophy of wealth creation through a long-
term investment strategy that focuses on quality and undervalued businesses
run by people of competence and integrity. We firmly believe that there will
always be opportunities for wealth creation, irrespective of the Sensex
movements. At Zen, we follow an elaborate procedure of studying each
company in detail before we in invest in them.

o We assess the size and durability of the opportunity.

o We focus on the track record of the company, pedigree of the management,
quality of earnings, growth potential and most importantly, sustainability of
earnings/ growth.
o We then shortlist companies applying various quantitative and qualitative
filters.
o We constantly monitor the business and revise the values accordingly.
o We follow a disciplined approach to investing.

 Scheme Features:
The minimum investment is Rs 25 Lakhs.Duration of investment for PMS &
Lock in Period Minimum period of Investment is one year. This will enable
the portfolio manager to design the portfolio in accordance with the needs of

44
 the client. It is also advisable to keep any equity portfolio invested over a
longer term because in the long run, equities outperform most other asset
classes. Voluntary termination by the client within one year is permitted upon
payment of a termination fee.
Rate of Return: As per SEBI regulations, returns cannot be guaranteed. Our
endeavor will be not only to beat benchmark indices like the Nifty but also
perform better than our peers in the industry.
Reports: All portfolio clients will receive a Portfolio Performance Report on a
monthly basis and a Transaction Statement along with a statement comparing
the performance of the portfolio to the benchmark indices on a quarterly basis.

 NRI Services:
ZEN Securities offers a total solution to its NRI clients. We offer services
under the RBI's Portfolio Investment Scheme (PIS) to buy and sell shares
through the Indian stock exchanges. They coordinate with the RBI approved
Bank to open an NRI account. We will also open the Brokerage account and
the Demat Account for the NRI. These three accounts will be opened
simultaneously in the NRI's name. They will coordinate the transfer of shares
to/from NRI's demat account and money to/from NRI's bank account as per
the settlement. They also have setup to separate NRI Services team to guide
the NRI through the application process and the day to day investment
process.

 New Pension System:

Zen Securities Limited is registered as POP (Point Of Presence) for NPS-PFRDA. It takes care of
functions relating to registration of subscribers, undertaking Know Your Customer (KYC) verificatio
receiving contributions and instructions from subscribers and transmission of the same to designated
intermediaries. It has 25 branches that are acting as Point of Presence Service Providers (POP-SP) wh
provides services like subscriber registration, receiving regular contributions, modifications in addres
nominations, bank details, grievance handling and MIS uploading etc.

And it is already providing services like Online Trading in Equity, Future & Option Seg, Commoditie
Currency Derivatives, Interest Rate Futures, Mutual Funds Distribution, Portfolio Management Servi
Depository Participant, Point of Service for PAN, Point of Collection for MF-KYC to its customers

45
 DATA ANALYSIS
Arithmetic average or mean:
The arithmetic average measures the central tendency. The purpose of
computing an average value for a set of observations is to obtain a single value, which
is representative of all the items. The main objective of averaging is to arrive at a
single value which is a representative of the characteristics of the entire mass of data
and arithmetic average or mean of a series (usually denoted by x) is the value
obtained by dividing the sum of the values of various items in a series (sigma x)
divided by the number of items (N) constituting the series.
Thus, if X1, X2……………..Xn are the given N observations. Then
X= X1+X2+……….Xn
N
RETURN = Current price-previous price *100

46
 Previous price
STANDARD DEVIATION:
The concept of standard deviation was first suggested by Karl Pearson in 1983.it may
be defined as the positive square root of the arithmetic mean of the squares of
deviations of the given observations from their arithmetic mean. In short S.D may be
defined as “Root Mean Square Deviation from Mean”
It is by far the most important and widely used measure of studying
dispersions.
For a set of N observations X1, X2……..Xn with mean X,
Deviations from Mean: (X1-X), (X2-X),….(Xn-X)
Mean-square deviations from Mean:
= 1/N (X1-X) 2+(X2-X) 2+………. + (Xn-X) 2
=1/N sigma(X-X) 2
Root-mean-square deviation from meantime.

VARIANCE:
The square of standard deviation is known as Variance.
Variance is the square root of the standard deviation:
Variance = (S.D) 2
Where, (S.D) is standard deviation
CORRELATION
Correlation is a statistical technique, which measures and analyses the degree
or extent to which two or more variables fluctuate with reference to one another.
Correlation thus denotes the inter-dependence amongst variables. The degrees are
expressed by a coefficient, which ranges between –1 and +1. The direction of change
is indicated by (+) or (-) signs. The former refers to a sympathetic movement in a
same direction and the later in the opposite direction.

47
 Karl Pearson’s method of calculating coefficient (r) is based on covariance of
the concerned variables. It was devised by Karl Pearson a great British Biometrician.
This measure known as Pearson an correlation coefficient between two
variables (series) X and Y usually denoted by ‘r’ is a numerical measure of linear
relationship and is defined as the ratio of the covariance between X and Y (written as
Cov(X,Y) to the product of standard deviation of X and Y
Symbolically
r = Cov (X, Y)
SD of X, Y
= Σ xy/N = ΣXY
SD of X, Y N
Where x =X-X, y=Y-Y
Σxy = sum of the product of deviations in X and Y series calculated with reference to
their arithmetic means.
X = standard deviation of the series X.
Y = standard deviation of the series Y
Root-mean-square deviation from meantime.
Where, (S.D) is standard deviation

Arbitrage price difference between BSE & NSE of Axis Bank Ltd
01.02.2012 to 10.04.2012
S.n Closing price Closing price
Date Difference of price
o in BSE in NSE
1 10-Apr-12 1154.2 1153.6 0.6
2 9-Apr-12 1144.1 1146.5 -2.4
3 4-Apr-12 1167.25 1168 -0.75
4 3-Apr-12 1173.05 1176.95 -3.9
5 2-Apr-12 1155.05 1152.95 2.1
6 30-Mar-12 1145.9 1144 1.9
7 29-Mar-12 1122.6 1118.95 3.65
8 28-Mar-12 1117.15 1113 4.15
9 27-Mar-12 1141.05 1144 -2.95
10 26-Mar-12 1126.25 1126 0.25
11 23-Mar-12 1180.3 1182.05 -1.75

48
12 21-Mar-12 1227.55 1241.6 -14.05
13 20-Mar-12 1188.15 1183.15 5
14 19-Mar-12 1199.4 1199.8 -0.4
15 16-Mar-12 1214.35 1217 -2.65
16 15-Mar-12 1242.15 1240 2.15
17 14-Mar-12 1273.45 1274.2 -0.75
18 13-Mar-12 1241.1 1240.5 0.6
19 12-Mar-12 1250 1221.7 28.3
20 9-Mar-12 1213.1 1213.95 -0.85
21 7-Mar-12 1165.65 1166 -0.35
22 6-Mar-12 1149.05 1138.1 10.95
23 5-Mar-12 1150.35 1150 0.35
24 2-Mar-12 1167.85 1163.8 4.05
25 1-Mar-12 1150.85 1141.95 8.9
26 29-Feb-12 1178.05 1179 -0.95
27 28-Feb-12 1170 1170 0
28 27-Feb-12 1113.4 1106 7.4
29 24-Feb-12 1184.7 1187.5 -2.8
30 23-Feb-12 1219.3 1220 -0.7
31 22-Feb-12 1217.45 1208 9.45

32 21-Feb-12 1287.85 1282.35 5.5

33 17-Feb-12 1281.3 1277.6 3.7

34 16-Feb-12 1222.65 1233 -10.35

35 15-Feb-12 1220.25 1210 10.25

36 14-Feb-12 1128.95 1128.05 0.9

37 13-Feb-12 1116.75 1116 0.75

38 10-Feb-12 1117.05 1111.8 5.25

39 9-Feb-12 1134.6 1138 -3.4

40 8-Feb-12 1127.2 1124 3.2

41 7-Feb-12 1114.3 1112.1 2.2

42 6-Feb-12 1107.15 1110.05 -2.9

43 3-Feb-12 1099.3 1090 9.3

49
 44 2-Feb-12 1072.2 1070.15 2.05

45 1-Feb-12 1087.6 1088.4 -0.8

Mean of Difference price 1.7822

Maximum of diff(Max arbitrage value) 28.3
Minimum of diff (Min arbitrage value) -14.05
Variance of difference price 39.6952
Correlation of BSE & NSE 0.9930
Standard deviation 59.3932
Maximum closing price of BSE 1287.85
Minimum closing price of BSE 1072.2
Maximum closing price of NSE 1282.35
Minimum closing price of NSE 1070.15

Arbitrage price analysis of Axis Bank Ltd from

01.02.2012 to 10.04.2012
40

30

20

10

0
e
Dat r-12 r-12 r-12 r-12 r-12 r-12 r-12 r-12 b-12 b-12 b-12 b-12 b-12 b-12 b-12
-10 Ap Ma Ma Ma Ma Ma Ma Ma Fe Fe Fe Fe Fe Fe Fe
4- 30- 27- 21- 16- 13- 7- 2- 28- 23- 17- 14- 9- 6- 1-
-20

Analysis & Interpretation:

The above table and graph represents arbitrage pricing analysis of Axis bank stock
trading in BSE and NSE.In the month of 01-Feb-2012 to 10-April-2012 Axis bank
stocks prevails minimum value as -14.05 and maximum value as + 28.3and Mean is
+1.7822. The above differences can shows that there is a scope for gaining profit
through arbitrage.

50
Arbitrage price difference between BSE & NSE of Kotak Mahindra Bank
Ltd
01.02.2012 to 10.04.2012
S.n Closing price in Closing price in
Date Difference of price
o BSE NSE
1 10-Apr-12 544.65 544 0.65
2 9-Apr-12 534.25 536.9 -2.65
3 4-Apr-12 550.4 550.95 -0.55
4 3-Apr-12 557 560.95 -3.95

51
5 2-Apr-12 553.7 559.5 -5.8
6 30-Mar-12 542.45 550 -7.55
7 29-Mar-12 525.05 524.6 0.45
8 28-Mar-12 521.6 519.25 2.35
9 27-Mar-12 539.7 541.95 -2.25
10 26-Mar-12 530.95 530 0.95
11 23-Mar-12 524.75 527.15 -2.4
12 21-Mar-12 544.7 545 -0.3
13 20-Mar-12 537.5 537 0.5
14 19-Mar-12 530.95 530 0.95
15 16-Mar-12 539.85 536 3.85
16 15-Mar-12 557.65 555 2.65
17 14-Mar-12 573.8 573.95 -0.15
18 13-Mar-12 569.55 570 -0.45
19 12-Mar-12 570 561 9
20 9-Mar-12 558.55 560.75 -2.2
21 7-Mar-12 552 551.75 0.25
22 6-Mar-12 550.3 547 3.3
23 5-Mar-12 557.05 558.55 -1.5
24 2-Mar-12 564.1 565 -0.9
25 1-Mar-12 553.7 552.5 1.2
26 29-Feb-12 547.9 547.9 0
27 28-Feb-12 550.55 553 -2.45
28 27-Feb-12 542.8 543.6 -0.8
29 24-Feb-12 551.2 548.7 2.5
30 23-Feb-12 567.85 565 2.85
31 22-Feb-12 568.45 567 1.45
32 21-Feb-12 575.3 574 1.3
33 17-Feb-12 577.85 579 -1.15
34 16-Feb-12 573.8 572.9 0.9
35 15-Feb-12 574.05 574 0.05
36 14-Feb-12 559.45 561 -1.55
37 13-Feb-12 565.65 569 -3.35
38 10-Feb-12 545.9 548.7 -2.8
39 9-Feb-12 550.35 552 -1.65

52
 40 8-Feb-12 532.25 531.1 1.15
41 7-Feb-12 536.1 534 2.1
42 6-Feb-12 519.8 517.1 2.7
43 3-Feb-12 517.45 519.2 -1.75
44 2-Feb-12 508.7 510 -1.3
45 1-Feb-12 509.2 507.1 2.1

Mean of Difference price -0.0944

Maximum of diff(Max arbitrage
9
value)
Minimum of diff (Min arbitrage
-7.55
value)
Variance of difference price 7.4763
Correlation of BSE & NSE 0.9888
Standard deviation 20.9258
Maximum closing price of BSE 577.85
Minimum closing price of BSE 508.7
Maximum closing price of NSE 579
Minimum closing price of NSE 507.1

Arbitrage price analysis of Kotak mahindra Bank ltd from

01.02.2012 to 10.04.2012

10
8
6
4
2
0
-2 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45
-4
-6
-8
-10

Analysis & Interpretation:

The above table and graph represents arbitrage pricing analysis of Kotak Mahindra
bank ltd stock trading in BSE and NSE.In the month of 01-Feb-2012 to 10-April-2012

53
Kotak Mahindra bank ltd stocks prevails minimum value as -7.55 and maximum
value as +9 and Mean is -0.0944. The above differences can shows that there is no
scope for gaining profit through arbitrage.

Arbitrage price difference between BSE & NSE of Ranbaxy Pharma ltd
01.02.2012 to 10.04.2012
Closing price in Closing price in Difference of
S.no Date
BSE NSE price
1 10-Apr-12 485.05 485 0.05
2 9-Apr-12 495.5 497 -1.5
3 4-Apr-12 477 480.7 -3.7
4 3-Apr-12 465.85 466 -0.15
5 2-Apr-12 456.85 457 -0.15
6 30-Mar-12 469 463.55 5.45
7 29-Mar-12 447 445.5 1.5
8 28-Mar-12 417.75 418.6 -0.85
9 27-Mar-12 412.45 414.55 -2.1
10 26-Mar-12 410.6 411.9 -1.3
11 23-Mar-12 415.45 417 -1.55
12 21-Mar-12 421.9 423 -1.1
13 20-Mar-12 404.1 401.4 2.7

54
14 19-Mar-12 401.75 400.5 1.25
15 16-Mar-12 410.35 411 -0.65
16 15-Mar-12 411.4 411.75 -0.35
17 14-Mar-12 425.55 425.5 0.05
18 13-Mar-12 425.75 426.55 -0.8
19 12-Mar-12 415.25 416.8 -1.55
20 9-Mar-12 416.5 416.5 0
21 7-Mar-12 416.8 420.5 -3.7
22 6-Mar-12 412.6 413.55 -0.95
23 5-Mar-12 417.55 416.5 1.05
24 2-Mar-12 426.9 428.3 -1.4
25 1-Mar-12 425.4 424 1.4
26 29-Feb-12 428.4 428.05 0.35
27 28-Feb-12 430.5 430 0.5
28 27-Feb-12 424.35 422.5 1.85
29 24-Feb-12 428.45 426.5 1.95
30 23-Feb-12 439.95 441 -1.05
31 22-Feb-12 438.85 441.95 -3.1
32 21-Feb-12 448.85 448.9 -0.05
33 17-Feb-12 448.05 449.5 -1.45
34 16-Feb-12 449.15 449.55 -0.4
35 15-Feb-12 441.5 441.9 -0.4
36 14-Feb-12 434.2 434.85 -0.65
37 13-Feb-12 438.8 438.3 0.5
38 10-Feb-12 443.3 440.5 2.8
39 9-Feb-12 451.55 451 0.55
40 8-Feb-12 454.65 454.25 0.4
41 7-Feb-12 455.45 456 -0.55
42 6-Feb-12 450.5 449 1.5
43 3-Feb-12 455.3 451.4 3.9
44 2-Feb-12 455.85 460.1 -4.25
45 1-Feb-12 445.6 444.5 1.1

Mean of Difference price -0.1077

Maximum of diff(Max arbitrage value) 5.45
Minimum of diff (Min arbitrage value) -4.25
Variance of difference 3.5603
Correlation of BSE & NSE 0.9962
Standard deviation 21.8011
Maximum closing price of BSE 495.5

55
 Minimum closing price of BSE 401.75
Maximum closing price of NSE 497
Minimum closing price of NSE 400.5

Arbitrage price analysis of Ranbaxy Pharma from

01.02.2012 to 10.04.2012
8

4 Arbitrage price difffernce be-

tween BSE & NSE of Ranbaxy
2 Pharma ltd 01.02.2012 to
10.04.2012
0
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46
-2

-4

-6

Analysis & Interpretation:

The above table and graph represents arbitrage pricing analysis of Ranbaxy Pharma
ltd stock trading in BSE and NSE.In the month of 01-Feb-2012 to 10-April-2012
Ranbaxy Pharma ltd stock prevails minimum value as -4.25 and maximum value as
+5.45 and Mean is -0.1077.The above differences can shows that there is no scope
for gaining profit through arbitrage.

56
 Arbitrage price difffernce between BSE & NSE of Orchid Chemicals &
Pharmaceuticals ltd
01.02.2012 to 10.04.2012
S.n Closing price in Closing price in Difference of
Date
o BSE NSE price
1 10-Apr-12 187.9 189.2 -1.3
2 9-Apr-12 182.85 182.6 0.25
3 4-Apr-12 189.1 189.5 -0.4
4 3-Apr-12 188.45 187.8 0.65
5 2-Apr-12 192.2 192.8 -0.6
6 30-Mar-12 184.85 184.3 0.55
7 29-Mar-12 179.8 181.55 -1.75
8 28-Mar-12 176.35 174.5 1.85
9 27-Mar-12 183.7 184 -0.3
10 26-Mar-12 175.15 175.2 -0.05
11 23-Mar-12 178.15 178.8 -0.65
12 21-Mar-12 180.45 180.9 -0.45
13 20-Mar-12 172.6 173 -0.4
14 19-Mar-12 171 170.55 0.45
15 16-Mar-12 168.25 168.15 0.1

57
16 15-Mar-12 174.75 174.2 0.55
17 14-Mar-12 176.7 176.45 0.25
18 13-Mar-12 178.55 179 -0.45
19 12-Mar-12 173.15 176.75 -3.6
20 9-Mar-12 177.75 178.2 -0.45
21 7-Mar-12 172.65 172.5 0.15
22 6-Mar-12 172.25 171 1.25
23 5-Mar-12 182.75 182.65 0.1
24 2-Mar-12 185.6 185.2 0.4
25 1-Mar-12 185.7 184.5 1.2
26 29-Feb-12 189 188.95 0.05
27 28-Feb-12 187.6 188 -0.4
28 27-Feb-12 178.7 179 -0.3
29 24-Feb-12 179.1 179 0.1
30 23-Feb-12 179.75 181.25 -1.5
31 22-Feb-12 173.6 172.8 0.8
32 21-Feb-12 186.25 185.6 0.65
33 17-Feb-12 176.4 176.3 0.1
34 16-Feb-12 181.9 181.25 0.65
35 15-Feb-12 175.5 175.2 0.3
36 14-Feb-12 174.25 174.3 -0.05
37 13-Feb-12 175.4 175.8 -0.4
38 10-Feb-12 170.55 170.3 0.25
39 9-Feb-12 169.7 169.4 0.3
40 8-Feb-12 172 171.7 0.3
41 7-Feb-12 189.75 189.85 -0.1
42 6-Feb-12 190.2 189.7 0.5
43 3-Feb-12 193.1 193.35 -0.25
44 2-Feb-12 173.95 173.5 0.45
45 1-Feb-12 174.25 174.5 -0.25

Mean of Difference price -0.0322

Maximum of diff(Max arbitrage value) 1.85
Minimum of diff (Min arbitrage value) -3.6
Variance of difference 0.7395
Correlation of BSE & NSE 0.9920
Standard deviation 0.8599
Maximum closing price of BSE 193.1

58
 Minimum closing price of BSE 168.25
Maximum closing price of NSE 193.35
Minimum closing price of NSE 168.15

Arbitrage price difffernce between BSE & NSE of

Orchid Chemicals & Pharmaceuticals
ltd 01.02.2012 to 10.04.2012
3

2 Arbitrage price difffernce

between BSE & NSE of
1 Orchid
Chemicals & Pharmaceuti-
0 cals ltd 01.02.2012 to
10.04.2012
1 5 9 13 17 21 25 29 33 37 41 45
-1

-2

-3

-4

Analysis & Interpretation:

The above table and graph represents arbitrage pricing analysis of Orchid Chemicals
& Pharmaceuticals ltd stock trading in BSE and NSE.In the month of 01-Feb-2012 to
10-April-2012 ltd stock prevails minimum value as -3.6 and maximum value as +1.85
and Mean is -0.0322.The above differences can shows that there is no scope for
gaining profit through arbitrage.

59
 Arbitrage price difference between BSE & NSE of Wipro technologies
01.02.2012 to 10.04.2012
Closing price Closing price Difference of
S.no Date
in BSE in NSE price
1 9 Apr, 2012 444.15 445.3 -1.15
2 8 Apr, 2012 437.6 440.05 -2.45
3 3 Apr, 2012 442.7 444.5 -1.8
4 2 Apr, 2012 445.05 443 2.05
5 1 Apr, 2012 441.65 442 -0.35
6 29 Mar, 2012 439 438.9 0.1
7 28 Mar, 2012 435.4 435 0.4
8 27 Mar, 2012 429.95 429.95 0
9 26 Mar, 2012 427 428 -1
10 25 Mar, 2012 421.5 423 -1.5
11 22 Mar, 2012 424.35 426.15 -1.8
12 21 Mar, 2012 421.4 427.75 -6.35
13 20 Mar, 2012 426.75 427.6 -0.85
14 19 Mar, 2012 428.15 424.85 3.3
15 18 Mar, 2012 426.75 428.45 -1.7
16 15 Mar, 2012 428.05 431 -2.95
17 14 Mar, 2012 431.5 426 5.5
18 13 Mar, 2012 425.4 430.5 -5.1
19 12 Mar, 2012 431.5 438.2 -6.7
20 11 Mar, 2012 430 430.2 -0.2
21 8 Mar, 2012 432.15 438.65 -6.5
22 6 Mar, 2012 439.3 431.9 7.4
23 5 Mar, 2012 430.8 433 -2.2
24 4 Mar, 2012 430.6 427.1 3.5
25 1 Mar, 2012 427.8 425 2.8

60
26 29 Feb, 2012 424.65 435.7 -11.05
27 28 Feb, 2012 431.75 422.3 9.45
28 27 Feb, 2012 420.3 425 -4.7
29 26 Feb, 2012 424.25 437 -12.75
30 23 Feb, 2012 437.55 437.6 -0.05
31 22 Feb, 2012 438 443.05 -5.05
32 21 Feb, 2012 442.5 442.5 0
33 20 Feb, 2012 442.65 450.5 -7.85
34 16 Feb, 2012 449.2 439 10.2
35 15 Feb, 2012 438.55 435.15 3.4
36 14 Feb, 2012 435.35 435.9 -0.55
37 13 Feb, 2012 435.05 436.5 -1.45
38 12 Feb, 2012 436.6 448.7 -12.1
39 9 Feb, 2012 448.1 448.1 0
40 8 Feb, 2012 444.55 434 10.55
41 7 Feb, 2012 434.65 427.35 7.3
42 6 Feb, 2012 426.85 426 0.85
43 5 Feb, 2012 425.75 427.5 -1.75
44 2 Feb, 2012 426.05 427 -0.95
45 1 Feb, 2012 425.85 412.9 12.95

Mean of Difference price -0.4688

Maximum of diff(Max arbitrage value) 12.95
Minimum of diff (Min arbitrage value) -12.75
Variance of difference 31.4294
Correlation of BSE & NSE 0.7486
Standard deviation 7.8452
Maximum closing price of BSE 449.2
Minimum closing price of BSE 420.3
Maximum closing price of NSE 450.5
Minimum closing price of NSE 412.9

61
 Arbitrage price analysis of Wipro technologies
01.02.2012 to 10.04.2012
15

10
Arbitrage price difffernce
5 between BSE & NSE of
Wipro technologies
01.02.2012 to 10.04.2012
0
1 5 9 13 17 21 25 29 33 37 41 45
-5

-10

-15

Analysis & Interpretation:

The above table and graph represents arbitrage pricing analysis of Wipro
technologies stock trading in BSE and NSE.In the month of 01-Feb-2012 to 10-April-
2012 Wipro technologies stock prevails minimum value as -12.75 and maximum
value as + 12.95 and Mean is -0.4688.The above differences can shows that there is
no scope for gaining profit through arbitrage.

Arbitrage price difference between BSE & NSE of TCS

01.02.2012 to 10.04.2012
S.n Closing price in Closing price in Difference of
Date
o BSE NSE price
1 10-Apr-12 1156.6 1155.95 0.65
2 9-Apr-12 1162.55 1165.35 -2.8
3 4-Apr-12 1178.35 1179.75 -1.4
4 3-Apr-12 1178.95 1175.75 3.2
5 2-Apr-12 1191.35 1198 -6.65
6 30-Mar-12 1167.85 1165 2.85
7 29-Mar-12 1143.25 1148.95 -5.7
8 28-Mar-12 1163.15 1165 -1.85
9 27-Mar-12 1172.5 1176 -3.5
10 26-Mar-12 1163.8 1158 5.8
11 23-Mar-12 1184.7 1185 -0.3
12 21-Mar-12 1171.85 1173.95 -2.1

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13 20-Mar-12 1135 1133.7 1.3
14 19-Mar-12 1122.4 1124.75 -2.35
15 16-Mar-12 1167.5 1163.6 3.9
16 15-Mar-12 1163.2 1164.8 -1.6
17 14-Mar-12 1154.9 1152 2.9
18 13-Mar-12 1197.55 1198.8 -1.25
19 12-Mar-12 1226.9 1185.6 41.3
20 9-Mar-12 1206.35 1207.1 -0.75
21 7-Mar-12 1192.55 1195.9 -3.35
22 6-Mar-12 1201.6 1190 11.6
23 5-Mar-12 1209.05 1208.1 0.95
24 2-Mar-12 1217.15 1219 -1.85
25 1-Mar-12 1221.25 1219 2.25
26 29-Feb-12 1221.05 1220.9 0.15
27 28-Feb-12 1227.7 1227.6 0.1
28 27-Feb-12 1250.2 1250 0.2
29 24-Feb-12 1269.15 1268 1.15
30 23-Feb-12 1259.25 1254.3 4.95
31 22-Feb-12 1251.9 1246.2 5.7
32 21-Feb-12 1233.9 1235.95 -2.05
33 17-Feb-12 1228.7 1225.35 3.35
34 16-Feb-12 1225.95 1222.3 3.65
35 15-Feb-12 1241 1238.2 2.8
36 14-Feb-12 1219.65 1221 -1.35
37 13-Feb-12 1224.55 1228 -3.45
38 10-Feb-12 1230.55 1228 2.55
39 9-Feb-12 1227.05 1229.95 -2.9
40 8-Feb-12 1218.75 1220 -1.25
41 7-Feb-12 1199.45 1201 -1.55
42 6-Feb-12 1191.95 1197.6 -5.65
43 3-Feb-12 1168.15 1169.7 -1.55
44 2-Feb-12 1146.3 1150 -3.7
45 1-Feb-12 1128 1131 -3

Mean of Difference price 0.8755

Maximum of diff(Max arbitrage value) 41.3
Minimum of diff (Min arbitrage value) -6.65
Variance of difference 50.1268
Correlation of BSE & NSE 0.9814
Standard deviation 36.0949

63
 Maximum closing price of BSE 1269.15
Minimum closing price of BSE 1122.4
Maximum closing price of NSE 1268
Minimum closing price of NSE 1124.75

Arbitrage price difffernce between BSE & NSE of

TCS from 01.02.2012 to 10.04.2012
50

40

30 Arbitrage price difffernce

between BSE & NSE of TCS
01.02.2012 to 10.04.2012
20

10

0
1 5 9 13 17 21 25 29 33 37 41 45
-10

Analysis & Interpretation:

The above table and graph represents arbitrage pricing analysis of TCS stock trading
in BSE and NSE.In the month of 01-Feb-2012 to 10-April-2012 TCS stock prevails
minimum value as -6.65 and maximum value as +41.3and Mean is 0.8755.The above
differences can shows that there is a slight scope for gaining profit through arbitrage.

Arbitrage price difffernce between BSE & NSE of Maruti Suzuki India
Ltd -BSE
01.02.2012 to 10.04.2012
S.n Closing price in Closing price in Difference of
Date
o BSE NSE price
1 10-Apr-12 1275.45 1273 2.45
2 9-Apr-12 1284.2 1282.05 2.15
3 4-Apr-12 1318.35 1313 5.35
4 3-Apr-12 1308.5 1307 1.5
5 2-Apr-12 1336.85 1335.3 1.55
6 30-Mar-12 1349.1 1350 -0.9

64
 7 29-Mar-12 1300.25 1311 -10.75
8 28-Mar-12 1287.6 1288.2 -0.6
9 27-Mar-12 1275.15 1273.15 2
10 26-Mar-12 1297 1295.1 1.9
11 23-Mar-12 1308.6 1307 1.6
12 21-Mar-12 1360.8 1360 0.8
13 20-Mar-12 1357.4 1357 0.4
14 19-Mar-12 1362.5 1362.6 -0.1
15 16-Mar-12 1373.65 1379 -5.35
16 15-Mar-12 1366.5 1364.75 1.75
17 14-Mar-12 1368.35 1369.95 -1.6
18 13-Mar-12 1367.9 1368 -0.1
19 12-Mar-12 1360 1336.9 23.1
20 9-Mar-12 1341.9 1340 1.9
21 7-Mar-12 1309.1 1308.2 0.9
22 6-Mar-12 1328.8 1332 -3.2
23 5-Mar-12 1312 1313.9 -1.9
24 2-Mar-12 1323.15 1328.05 -4.9
25 1-Mar-12 1314.55 1320 -5.45
26 29-Feb-12 1256.25 1260 -3.75
27 28-Feb-12 1269.25 1268.9 0.35
28 27-Feb-12 1255 1259.9 -4.9
29 24-Feb-12 1284.35 1282 2.35
30 23-Feb-12 1279.15 1287.05 -7.9
31 22-Feb-12 1306.45 1296.25 10.2
32 21-Feb-12 1309.4 1309 0.4
33 17-Feb-12 1320 1324.7 -4.7
34 16-Feb-12 1357.2 1350 7.2
35 15-Feb-12 1303.7 1305.2 -1.5
36 14-Feb-12 1265.25 1270 -4.75
37 13-Feb-12 1225.5 1225.25 0.25
38 10-Feb-12 1245.25 1237.1 8.15
39 9-Feb-12 1270.55 1266.05 4.5
40 8-Feb-12 1267.9 1265 2.9
41 7-Feb-12 1245.1 1245 0.1

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 42 6-Feb-12 1253.6 1252 1.6
43 3-Feb-12 1234.5 1235 -0.5
44 2-Feb-12 1215.65 1213.8 1.85
45 1-Feb-12 1213.75 1212.2 1.55

Mean of Difference price 0.9

Maximun of diff(Max arbitrage value) 23.1
Minimun of diff (Min arbitrage value) 1213.75
Variance of difference -10.75
Correlation of BSE & NSE 0.9931
Standard deviation 44.4221
Maxiumun closing price of BSE 1373.65
Minimun closing price of BSE 1213.75
Maximun closing price of NSE 1379
Minimum closing price of NSE 1212.2

Arbitrage price difffernce between BSE & NSE of

Maruti Suzuki India Ltd -BSE 01.02.2012 to 10.04.2012
30
25
20 Arbitrage price difffernce
between BSE & NSE of
15
Maruti Suzuki India Ltd -
10 BSE 01.02.2012 to
10.04.2012
5
0
-5 1 5 9 13 17 21 25 29 33 37 41 45

-10
-15

Analysis & Interpretation:

66
The above table and graph represents arbitrage pricing analysis of Maruti
Suzuki India Ltd stock trading in BSE and NSE.In the month of 01-Feb-2012
to 10-April-2012.It prevails minimum value as 1213.75 and maximum value
as 23.1 and Mean is 0.9.The above differences can shows that there is a slight
scope for gaining profit through arbitrage.

Arbitrage price difference between BSE & NSE of NTPC

01.02.2012 to 10.04.2012
S.n Closing price in Closing price in Difference of
Date
o BSE NSE price
1 10-Apr-12 162.3 162.25 0.05
2 9-Apr-12 163.35 163.25 0.1
3 4-Apr-12 167.75 167.65 0.1
4 3-Apr-12 167.35 167.4 -0.05
5 2-Apr-12 167.15 168 -0.85
6 30-Mar-12 162.7 162.7 0
7 29-Mar-12 162.65 163.3 -0.65
8 28-Mar-12 161.95 161.7 0.25
9 27-Mar-12 164.6 164.9 -0.3
10 26-Mar-12 165.5 165.15 0.35
11 23-Mar-12 171.55 172 -0.45
12 21-Mar-12 175.25 176 -0.75
13 20-Mar-12 172.9 171.95 0.95
14 19-Mar-12 171.7 171.5 0.2
15 16-Mar-12 172.7 172 0.7
16 15-Mar-12 179.55 179.2 0.35
17 14-Mar-12 177.55 178 -0.45
18 13-Mar-12 173 174.2 -1.2
19 12-Mar-12 175 172 3
20 9-Mar-12 173.6 173.8 -0.2
21 7-Mar-12 170.15 170 0.15
22 6-Mar-12 174.35 173.65 0.7
23 5-Mar-12 175.95 176.7 -0.75
24 2-Mar-12 178.6 179.5 -0.9
25 1-Mar-12 176.25 176.35 -0.1
26 29-Feb-12 180.85 181.6 -0.75
27 28-Feb-12 180.05 179.9 0.15
28 27-Feb-12 180.7 180.5 0.2
29 24-Feb-12 183.5 183.45 0.05
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30 23-Feb-12 184.7 185 -0.3
31 22-Feb-12 182.6 182.85 -0.25
32 21-Feb-12 186.15 185.5 0.65
33 17-Feb-12 187.65 187 0.65
34 16-Feb-12 183.4 183.85 -0.45
35 15-Feb-12 182.2 182 0.2
36 14-Feb-12 181.25 181.75 -0.5
37 13-Feb-12 181.3 180.8 0.5
38 10-Feb-12 179.85 180.05 -0.2
39 9-Feb-12 179.85 180.5 -0.65
40 8-Feb-12 177 177.2 -0.2
41 7-Feb-12 175.5 175.15 0.35
42 6-Feb-12 177.65 176.85 0.8
43 3-Feb-12 176.3 176.8 -0.5
44 2-Feb-12 171.65 171.6 0.05
45 1-Feb-12 170.75 171.1 -0.35

Mean of Difference price -0.006666667

Maximum of diff(Max arbitrage value) 3
Minimum of diff (Min arbitrage value) -1.2
Variance of difference 0.462454545
Correlation of BSE & NSE 0.99524205
Standard deviation 20513.33906
Maximum closing price of BSE 187.65
Minimum closing price of BSE 161.95
Maximum closing price of NSE 187.65
Minimum closing price of NSE 161.95

68
 Arbitrage price analysis of NTPC from 01.02.2012 to
10.04.2012
3.5
3
2.5
2
1.5
1
0.5
0
-0.5 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45
-1
-1.5

Series1

Analysis & Interpretation:

The above table and graph represents arbitrage pricing analysis of NTPC stock
trading in BSE and NSE.In the month of 01-Feb-2012 to 10-April-2012 NTPC stock
prevails minimum value as -1.2 and maximum value as + 3.0and Mean is -
0.006666667.The above differences can shows that there is no scope for gaining
profit through arbitrage.

69
Findings:
The study helps to know whether the selected eight scripts give any scope for
arbitration or not based on the study conducted for a period of forty-five days from
01-feb-2012 to 10-april-2012.
 Axis bank stock price on 12-March-2012 ranges by Rs.1250 & Rs.1221.7 in
BSE & NSE. The difference price is Rs.28.3.So, it helps to gain benefit from
the arbitrage value.
 Kotak Mahindra bank ltd stock price on 12-Mar-2012 ranges by Rs.570 &
Rs.561 in BSE & NSE. The difference price is Rs.9.0.So, it helps to gain
benefit from the arbitrage value.
 Ranbaxy Pharma ltd stock price on 30-Mar-2012 ranges by Rs.184.85 &
Rs.184.3 in BSE & NSE. The difference price is Rs.0.55.So, it helps to gain
benefit from the arbitrage value.
 Wipro technologies stock price on 01-Feb-2012 ranges by Rs.425.85 &
Rs.412.9 in BSE & NSE. The difference price is Rs.12.95.So, it helps to gain
benefit from the arbitrage value.
 TCS stock price on 12-March-2012 ranges by Rs.1226.9 & Rs1185.6 in BSE
& NSE. The difference price is Rs.41.3.So, it helps to gain benefit from the
arbitrage value.
 NTPC stock price on 12-March-2012 ranges by Rs.175 & Rs172 in BSE &
NSE. The difference price is Rs.3.So, it helps to gain benefit from the
arbitrage value.

70
  Maruthi Suzuki ltd stock price on 12-March-2012 ranges by Rs.1360 &
Rs.1336.9 in BSE & NSE. The difference price is Rs.23.1.So, it helps to gain
benefit from the arbitrage value.

Suggestions:
The study helps to study the arbitrage values of selected companies from core sectors
which helps to provide suggestions for the arbitragers & stock traders for a specific
period.

 Arbitrage analysis may help the arbitrager to gain profit in short span of period
or intraday. But, it is not suggest able according to the financial analyst to
practice frequently.

 It helps to check out the possibility of automated trading in nse or bse & the
analysis for effective decision making.

 This study will help to learn about the best entry & exit strategies and so much
more and it can bring the new edge of trading.

CONCLUSION:

71
Here, the study helps to analyze the stock prices through the market information such
as opening & closing prices, High & low prices speculation on an average, volume
scrips traded on a particular day.Also,It helped to calculate maximum & minimum
prices of scrips of both BSE & NSE,mean of arbitrage value, Variance & Standard
deviation.

In this study we have taken two variables BSE & NSE to calculate the Correlation.
There exists slight positive & negative arbitrage value and all data points are form as
non linear structure.

BIBLIOGRAPHY:
Books:
 Security Analysis & Portfolio Management - Fishers & Jordon
 Financial Management – M.Y. Khan
 Financial Management – Prasanna Chandra
News Papers:
 Business Line
 Economic times
 Times of India
Websites
 www.amfiindia.com
 www.sebi.com
 http://www.bseindia.com
 http://www.nseindia.com
 www.yahoofinance.com

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