COMPARITIVE ANALYSIS OF PORTFOLIO

MANAGEMENT IN DIFFERENT SECTORS OF

THE FINANCIAL MARKETS, EQUITY
PORTFOLIO MANAGEMENT SERVICES

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 INDEX

SR TOPIC PG NO
NO
1 INTRODUCTION 3
2 FINANCIAL MARKETS – TYPES 3
3 EQUITY MARKETS 4
4 COMMODITIES 9
5 DERIVATIVE MARKETS 15
6 REAL ESTATE 19
7 FDI AND FII 21
8 CONCLUSION 21
9 ACKNOWLEDGEMENTS 22

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Introduction

“The markets can stay irrational longer than you can stay solvent.”

- John Keynes

In today's intricate and volatile market your investment requires constant monitoring and attention. The
demand made on your time and energy by other business may not leave you with capacity to attend to your
personal portfolio with the degree of care you deem appropriate.

A Portfolio in Securities Market refers to basket of securities that a person has invested into. Sometimes this
includes Debt Instruments, Mutual Funds and even Bank Balance in addition to regular equities. The person
designated to manage the portfolio is called Portfolio Manager. The Portfolio Manager advises, manages and
administers the securities and funds on behalf of the entrusting client. The service is offered by a portfolio
manager under a specific license from Securities and Exchange Board of India. This service is very similar to the
one provided by Mutual Fund Managers. The difference between a  Portfolio Management Service (PMS) and
Mutual Fund (MF) is that of customization. In most cases, MFs have preset schemes and investors join and exit
those schemes at various points of time at prevailing Net Asset Values (NAV). In PMS, the client and the
portfolio manager chart out specific needs of the client and the manager manage the portfolio in accordance
with those needs. Sometimes the portfolio manager

may also have separate ready schemes for the client to choose from. As a result of this customization, client,
with his specific needs, benefits. The service level in the form of reporting transactions, holdings statements
etc., also are comparable or even better than that of a mutual fund.

In short, a Portfolio manager manages client's wealth more efficiently; reduce risk by diversifying across assets,
sectors and funds, and improvise on returns. Expert Portfolio Manager's endeavor is to find best of avenues to
achieve optimum returns at managed levels of risk.

 Financial Markets:

Financial Market is a market where financial securities like stocks and bonds and commodities like valuable
metals are exchanged at efficient market prices. Financial markets can be domestic or international.
Basis of Financial Markets are the Borrowers and Lenders.

Borrowers of the Financial Market can be individual persons, private companies, public corporations,
government and other local authorities like municipalities. Individual persons generally take short term or long
term mortgage loans from banks to buy any property. Companies take short term or long term loans for
expansion of business or for improvement of the business infrastructure. Public Corporations like railway
companies and postal services also borrow from Financial Institutions to collect required money. Government
also borrows from Financial Market to bridge the gap between govt. revenue and govt. spending. Local
authorities like municipalities sometimes borrow in their own name and sometimes govt. borrows in behalf of
them from the Financial Market.

Lenders in the Financial Market are actually the investors. Their invested money is used to finance the
requirements of borrowers. So, there are various types of investments which generate lending activities. Some
of these types of investments are depositing money in savings bank account, paying premiums to Insurance
Companies, investing in shares of different companies, investing in govt. bonds and investing in pension funds
and mutual funds.

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Financial Market is nothing but a tool which is used to raise capital. Just like any other tool, it can be beneficial
and can be harmful too. So, the ultimate outcome solely lies in the hands of the people who use it to serve
their purpose.

Different Types of Financial Markets:

 Capital Market
 Money Market
 Derivatives Market
 Foreign Exchange Market
 Commodity Market
 Insurance Market

From this, we can see that the financial markets are used to raise funds from many different types of financial
instruments based on the types of financial markets. Here, we will bifurcate the financial instruments into two
main types:

1. Debt instruments:
 Bonds
 Debentures
 Money market instruments
 Bills

2. Non-debt instruments:
 Equity
 Commodities
 Derivatives
 Real Estate

There are four main types of financial markets that deal in non-debt instruments. They are:

 Equity Markets
 Commodity Markets
 Derivative Markets
 Real Estate Markets

1. Equity Markets

Equity

Equity is a stock or any other security representing an ownership interest. On a company's balance sheet,
the amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses).
The funds contributed by the owners and owned by the shareholders’ are also referred to as "shareholders'
equity".
In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets,
after all liabilities are paid. If valuations placed on assets do not exceed liabilities, negative equity exists. In an
accounting context, Shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital or
similar terms) represents the remaining interest in assets of a company, spread among individual shareholders
of common or preferred stock. Ownership equity is also known as risk capital, liable capital and equity.

Equity investments

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Equity investments generally refers to the buying and holding of shares of stock on a stock market by
individuals and firms in anticipation of income from dividends and capital gain as the value of the stock rises. It
also sometimes refers to the acquisition of equity (ownership) participation in a private (unlisted) company or
a start-up (a company being created or newly created). When the investment is in infant companies, it is
referred to as venture capital investing and is generally understood to be higher risk than investment in listed
going-concern situations.

The equities held by private individuals are often held via mutual funds or other forms of collective investment
scheme, many of which have quoted prices that are listed in financial newspapers or magazines; the mutual
funds are typically managed by prominent fund management firms.

Equity Markets:

When you see the major stock indexes bouncing up and down, it is easy to assume all or most stocks are
following the same trajectory. The reality is that a rising or falling stock market does not raise or lower all
stocks in the same way. One way to look at how a rising or falling market affects stocks is to sort them by
industry sectors. Stock sectors group like companies so you can follow broad sections of the market without
having to follow individual stocks. This is often a better way to look at market activity than relying on stock
indexes that group dissimilar companies by size.

Reporting Stock Sectors

There are a number of ways to report stock sectors, depending on how fine they are sorted.
The sectors are market-cap weighed, which gives more importance to larger companies.
There are chart tracks returns for:
 Five days
 Year-to-date
 One month
 Three month
 One year
 Three year
 Five year
What you see is a very different picture for the various stock sectors. Some are down sharply over the near
past, but better when looking back three to five years. Of course, when you limit all stocks to 12 sectors, you
will find some wide variations within each sector. Other sectors look better in the near past, but show
weakness when viewed over longer periods. The lesson for stock investors is to be thoughtful about what you
buy and sell and look at performance as compared to stock sectors as well as total market indexes.

Comparing one stock’s performance to its sector is another way to judge how well or poorly it has been
performing. Stocks that consistently underperform their sector are suspect, while a stock outperforming its
sector may be a buy candidate.

Background
A stock sector is a group of stocks that all do business in a particular field. For example, the automotive sector
includes Ford and Toyota, while the technology sector includes Microsoft and Google. The most common
sector classification used today is the Standard & Poor's sector classification system which contains 10 distinct
sectors.

Measuring a Sector's Returns

A sector's return is calculated by averaging the returns of all of the stocks within the sector. Sometimes, the
returns of each stock are weighted using a particular variable during the calculation. The stocks can be
weighted by each company's market capitalization, share price, or number of shares outstanding.

Sector Performance
A sector's performance refers to the rate of return that the sector achieved in the past. It is a backward looking
number based on the performance of all of the stocks within the sector.

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Sector Potential
A sector's potential refers to the possible future rate of return for the sector. This number is forward looking.
Sector potential is a forecast of how an investor believes a sector will perform in the future.
Many variables are used when calculating a sector's future potential. As a result, it is common for there to be
very different forecasts for the same sector. It is an investor's responsibility to understand how a sector
forecast was calculated and to determine if he agrees with the method of calculation.

 Auto sector

Auto Sales continued the robust momentum in February 2010 as well and touched record highs on the back of
positive consumer sentiment and partially due to pre-ponement of buying at dealers’ desk in anticipation of
roll back of Excise duty in the Union Budget. Volumes of most players showed no signs of tapering off and
recorded healthy growth for the month. The Commercial Vehicle (CV) Segment dominated the growth in
February 2010 led by the Medium & Heavy Commercial Vehicle (M&HCV) Segment, as the domestic recovery
was affirmed by the overall pick up in economic and industrial activities. The Passenger Vehicle (PV) Segment
also continued on growth path following new launches and a confident consumer in the market. The Two-
Wheeler Segment too maintained its growth momentum. Going ahead, we expect the demand to be strong,
albeit more normalised across segments, considering demand may have peaked in the past few months prior
to the expected price hikes post the Excise Duty hike and spurt in Raw Material prices.

Company 1 Year 9 Month 6 Month 3 Month 1 Month 2 Week 1 Week Last Price

Atul Auto 29.70 46.75 50.15 45.50 71.20 88.40 115.50 106.55
258.75% 127.91% 112.46% 134.18% 49.65% 20.53% -7.75%
Bajaj Auto 955.45 1500.10 1713.05 2047.05 2184.20 2307.85 2484.75 2,439.65
155.34% 62.63% 42.42% 19.18% 11.70% 5.71% -1.82%
Hero Honda 1358.65 1635.90 1695.85 2040.10 1977.50 2023.70 2046.30 2,012.05
48.09% 22.99% 18.65% -1.37% 1.75% -0.58% -1.67%
Kinetic Eng 42.40 83.70 82.70 83.55 79.70 85.75 92.30 94.40
122.64% 12.78% 14.15% 12.99% 18.44% 10.09% 2.28%
Kinetic Motor 12.03 25.15 22.25 23.90 20.15 20.10 19.10 19.30
60.43% -23.26% -13.26% -19.25% -4.22% -3.98% 1.05%
LML 8.71 10.45 11.83 9.81 8.74 9.33 9.90 11.02
26.52% 5.45% -6.85% 12.33% 26.09% 18.11% 11.31%
Mah Scooters 127.20 168.95 227.45 408.60 347.40 339.75 340.55 344.25
170.64% 103.76% 51.35% -15.75% -0.91% 1.32% 1.09%
Majestic Auto 31.75 63.75 72.00 87.75 91.60 103.00 114.50 133.00
318.90% 108.63% 84.72% 51.57% 45.20% 29.13% 16.16%
Scooters India 26.95 23.15 28.45 26.20 21.00 25.60 27.30 25.40
-5.75% 9.72% -10.72% -3.05% 20.95% -0.78% -6.96%
TVS Motor 43.75 57.10 68.05 83.85 104.65 98.45 115.45 114.55
161.83% 100.61% 68.33% 36.61% 9.46% 16.35% -0.78%

 Banking sector

Significance
• Banks are lending institutions to the world and their significance in the stock market cannot be understated.
Businesses both large and small rely on the strength of a bank's balance sheet for their own growth in the
capital markets.

Size
• Some financial institutions have been deemed too big to fail. In the U.S., this means that the federal
government would likely step in and prevent a colossal bank failure that poses a systemic risk to the global
economy from happening, according to John Douglas, former general counsel to the Federal Deposit Insurance
Corp., cited in a September 2009 article on Bloomberg.com.

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Compensation
• Banking sector professionals are among the highest paid of any industry. Bankers, traders and financial
analysts earn the majority of their salary in bonuses based on from profits generated in the stock market.
Compensation at Wall Street banks came under fire in 2008 and 2009 when top executives at some firms were
earning millions of dollars in bonuses while banks remained unprofitable.

Failures
• Two monumental bank failures in which billions of dollars evaporated include the collapse of Bear Stearns in
March 2008 and the bankruptcy of Lehman Brothers six months later. Fear of a financial contagion spread
among other banks and some markets became frozen as a result, according to the Financial Times.

1 Year 9 Month 6 Month 3 Month 1 Month 2 Week 1 Week Last Price

Company

Axis Bank 794.20 998.65 995.30 1171.35 1215.55 1250.05 1241.60 1,253.00
57.77% 25.47% 25.89% 6.97% 3.08% 0.24% 0.92%
Bk Of Rajasthan 55.40 82.25 78.10 61.70 163.45 174.50 169.70 170.85
208.39% 107.72% 118.76% 176.90% 4.53% -2.09% 0.68%
City Union Bank 17.68 24.19 26.05 29.20 34.60 33.75 35.40 36.40
105.88% 50.48% 39.73% 24.66% 5.20% 7.85% 2.82%
DCB 33.40 39.95 36.95 34.25 46.80 45.95 45.35 45.25
35.48% 13.27% 22.46% 32.12% -3.31% -1.52% -0.22%
Dhanalak Bnk 99.95 159.15 148.90 137.75 161.15 164.25 184.75 186.00
86.09% 16.87% 24.92% 35.03% 15.42% 13.24% 0.68%
Federal Bank 234.85 236.00 243.80 280.05 336.20 333.30 314.75 344.95
46.88% 46.17% 41.49% 23.17% 2.60% 3.50% 9.59%
Gold BeES 1620.45 1620.45 1620.45 1612.56 1834.68 1843.22 1843.95 1,816.84
12.12% 12.12% 12.12% 12.67% -0.97% -1.43% -1.47%
HDFC Bank 1427.20 1658.55 1709.45 1931.95 1880.20 1999.45 1903.75 1,959.10
37.27% 18.12% 14.60% 1.41% 4.20% -2.02% 2.91%
ICICI Bank 678.00 938.25 895.15 997.95 842.20 900.95 848.85 858.80
26.67% -8.47% -4.06% -13.94% 1.97% -4.68% 1.17%
IndusInd Bank 75.35 111.75 145.60 179.80 186.00 200.25 205.50 210.40
179.23% 88.28% 44.51% 17.02% 13.12% 5.07% 2.38%
ING Vysya Bank 163.70 263.65 299.80 283.60 306.95 324.15 342.80 354.55
116.59% 34.48% 18.26% 25.02% 15.51% 9.38% 3.43%
JK Bank 463.95 602.25 595.75 701.45 765.00 797.70 828.60 823.65
77.53% 36.76% 38.25% 17.42% 7.67% 3.25% -0.60%
Karnataka Bank 132.90 134.70 130.35 129.65 159.60 162.70 176.05 181.85
36.83% 35.00% 39.51% 40.26% 13.94% 11.77% 3.29%
Karur Vysya 276.50 362.75 389.80 476.10 497.55 516.85 521.90 583.70
111.10% 60.91% 49.74% 22.60% 17.31% 12.93% 11.84%
Kotak Mahindra 596.75 757.05 840.60 781.85 753.40 792.85 746.65 765.10
28.21% 1.06% -8.98% -2.14% 1.55% -3.50% 2.47%
Lakshmi Vilas 56.41 81.65 85.00 80.65 88.20 86.50 88.80 93.80
66.28% 14.88% 10.35% 16.31% 6.35% 8.44% 5.63%
South Ind Bk 87.75 120.90 147.60 175.35 166.90 158.55 166.45 171.80
95.78% 42.10% 16.40% -2.02% 2.94% 8.36% 3.21%
Yes Bank 133.15 191.95 268.55 263.25 286.15 281.70 267.60 276.30
107.51% 43.94% 2.89% 4.96% -3.44% -1.92% 3.25%

 Telecom sector

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Indian telecommunication Industry is one of the fastest growing telecom market in the world. The mobile
sector has grown from around 10 million subscribers in 2002 to reach 150 million by early 2007 registering an
average growth of over 90% yoy. The two major reasons that have fuelled this growth are low tariffs coupled
with falling handset prices. Surprisingly, CDMA market has increased it market share upto 30% thanks to
Reliance Communication. However, across the globe, CDMA has been loosing out numbers to popular GSM
technology, contrary to the scenario in India.

The other reason that has tremendously helped the telecom Industry is the regulatory changes and reforms
that have been pushed for last 10 years by successive Indian governments. According to Telecom Regulatory
Authority of India (TRAI) the rate of market expansion would increase with further regulatory and structural
reforms. Even though the fixed line market share has been dropping consistently, the overall (fixed and
mobile) subscribers has risen to more than 200 million by first quarter of 2007. The telecom reforms have
allowed the foreign telecommunication companies to enter Indian market which has still got huge potential.
International telecom companies like Vodafone have made entry into Indian market in a big way.
Currently the Indian Telecommunication market is valued at around $100 billion (Rupees 400,000 crore). Two
telecom players dominate this market – Bharti Airtel with 27% market share and Reliance Communication with
20% along with other players like BSNL (Bharat Sanchar Nigam Limited) and AT&T.
One segment of the market that has been puzzling is broadband Internet. Despite the manner in which the
countrys Internet market has been booming, India’s move into high-speed broadband Internet access has been
distinctly slow. And, while there appears to be considerable enthusiasm amongst the population for the
Internet itself, this has not been reflected in broadband subscription numbers. In 2006 India witnessed a good
surge in broadband users with the total subscriber base in the country expanding by almost 200% to just over
2 million by years end. Despite this surge, broadband penetration in India still remains around only 0.2%;
broadband services still account for only 25% of the total Internet subscriber base, still in itself comparatively
low.
The Ministry of Communications and Information Technology (MCIT) is has very aggressive plans to increase
the pace of growth, targeting 250 million telephone subscribers by end-2007 and 500 million by 2010. Most of
the expansion in subscribers is set to occur in rural India. India’s rural telephone density has been languishing
at around 1.9%;

GSM and CDMA subscription numbers:

GSM Subscribers GSM Annual CDMA Subscribers CDMA Annual

Year (millions) growth (millions) growth
2000 3.1 94% - -
2001 5.05 76% - -
2002 10.5 91% 0.8 -
2003 22.0 110% 6.4 700%
2004 37.4 70% 10.9 70%
2005 58.5 57% 19.1 75%
2006 105.4 80% 44.2 131%
2007 180.0 71% 85.0 92%

Performance in the stock markets:

Company
1 Year
9 Month
6 Month
3 Month

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 1 Month
2 Week
1 Week
Last Price

Bharti Airtel
391.80
-29.50%
359.40
-23.15%
327.05
-15.55%
316.05
-12.61%
267.90
3.10%
264.70
4.34%
265.95
3.85%
276.20

Goldstone Infra
20.45
29.10%
24.95
5.81%
29.90
-11.71%
27.60
-4.35%
26.65
-0.94%
26.00
1.54%
26.20
0.76%
26.40

HFCL Infotel
7.60
5.26%
6.40
25.00%
7.72
3.63%
8.20
-2.44%

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 10.19
-21.49%
8.81
-9.19%
8.57
-6.65%
8.00

Idea Cellular
69.50
-15.18%
64.75
-8.96%
61.30
-3.83%
63.75
-7.53%
54.60
7.97%
54.10
8.96%
57.20
3.06%
58.95

MTNL
96.20
-31.60%
82.90
-20.63%
84.15
-21.81%
77.15
-14.71%
55.10
19.42%
63.70
3.30%
64.15
2.57%
65.80

Northeast Sec
11.55
-0.87%
12.61
-9.20%
12.75
-10.20%

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 12.40
-7.66%
10.00
14.50%
10.95
4.57%
10.00
14.50%
11.45

Nu Tek India
24.45
37.63%
49.18
-31.58%
43.40
-22.47%
38.35
-12.26%
33.75
-0.30%
32.60
3.22%
32.85
2.44%
33.65

Reliance Comm
269.40
-31.27%
268.25
-30.98%
181.70
1.90%
177.15
4.52%
175.90
5.26%
186.65
-0.80%
193.75
-4.44%
185.15

Tata Comm
468.25
-43.58%
470.85
-43.89%

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 356.25
-25.84%
287.10
-7.98%
243.60
8.46%
255.60
3.36%
259.95
1.63%
264.20

TataTeleservice
34.25
-37.08%
32.45
-33.59%
28.00
-23.04%
24.50
-12.04%
20.35
5.90%
22.00
-2.05%
22.10
-2.49%
21.55

Tulip Telecom
169.01
3.90%
188.07
-6.63%
208.61
-15.82%
171.64
2.31%
184.18
-4.66%
172.06
2.06%
172.76
1.64%
175.60

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2.Commodities Markets:

Commodities

A commodity is a good for which there is demand, but which is supplied without qualitative differentiation
across a market. It is fungible, i.e. the same no matter who produces it. Examples are petroleum, notebook
paper, milk or copper. They are raw materials used to create the products consumers buy, from food to
furniture to gasoline. Commodities include agricultural products such as wheat and cattle, energy products
such as oil and gasoline, and metals such as gold, silver and aluminum. There are also “soft” commodities, or
those that cannot be stored for long periods of time, which include sugar, cotton, cocoa and coffee.
Commodities have also evolved as an asset class with the development of commodity futures indexes and,
more recently, the introduction of investment vehicles that track commodity indexes.

Commodity markets are markets where raw or primary products are exchanged. These raw commodities are
traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts.

The main commodity exchanges in the world are:

 Chicago Board of Trade

 Chicago Mercantile Exchange

 London Metal Exchange

 Multi-Commodity Exchange

 National Commodity and Derivative Exchange

 New York Mercantile Exchange

 New York Board of Trade

 Dalian Commodity Exchange

The main commodities traded on exchanges are:

1.Gold:

Gold was the first metal widely known to our species. When thinking about the historical progress of
technology, we consider the development of iron and copper-working as the greatest contributions to our
species' economic and cultural progress - but gold came first.

Historically, gold is rare because of the poverty of precious yellow metal in gold mines. Despite all the
difficulties, the world gold production managed to grow for centuries; it is multiplied by 4 in 100 years. But
since 2001, the miraculous growth of world gold production appears to have peaked. Today, gold forms a
major part in the global commodity markets.

In 2009, price of a gold ounce was averaged 871 dollars per ounce, 872 dollars an ounce in 2008. Thus 2008
and 2009 are the two best years for the price of gold for 150 years. After 9 years of rising gold prices and two
record years, the result is a small increase in gold production in 2009. The year 2009 was outstanding with high
prices per ounce of gold, a stabilization of production costs caused on crisis and increased production of
industrial metals caused on increased Chinese demand. Gold production for 2009 was 9.6% below its peak of

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2001. Since 2001, in annual average, the price of an ounce of gold rose from 271 dollars to 871 dollars, an
increase of 321%. Gold price had more than tripled and production fell by 9.6%.

In 2009, despite a small increase, gold production had not reached its peak in 2001: 2600 tons of gold. Gold
production rose from 2260 in 2008 to 2350 tonnes in 2009 according to estimates by the USGS, an increase of
3.9% of world gold production. In 2009 gold production had increased, but it did not reverse the trend of
declining gold production in the world.

The year 2009 was outstanding with high prices per ounce of gold, a stabilization of production costs caused
on crisis and increased production of industrial metals caused on increased Chinese demand. Gold production
for 2009 is 9.6% below its peak of 2001.

Major gold producing countries:

 Australia

 South Africa

 China

 USA

 Russia

 Peru

 Canada

 Indonesia

2.Silver:

Silver is a precious metal that is used in a wide array of industrial applications as well as in jewelry and
photographic film. Industrial applications (for example computers, cell phones, TV, batteries, pharmaceuticals)
made up about 54% of the world’s silver fabrication demand in 2007. As a whole, demand for silver has been
growing faster than annual production since 1990,and silver inventory has dropped 98% from 1942 to 2004,
5.9 billion oz to 115 million oz, respectively. Silver is even more scarce than gold as the above ground supply of
silver was about 5x less than that of gold in 2006.

Silver Demand and Supply

In 1980 the price of silver climbed to $50/oz from only $5/oz two years earlier. The reason for this was a
massive discrepancy between supply and demand. Previous to 1980 the US government tried to keep silver
prices low by periodically loaning out silver from the 2 billion ounce silver inventory that it kept in the U.S.
Strategic Stockpile. They loaned out the silver in return for silver certificates, essentially an IOU. By the time
the contracts were up, there was a demand of 4 billion ounces of silver, but in reality, there was only 2 billion
ounces of silver in the market. As a result prices skyrocketed to make up for the gap between supply and
demand.

Today, the majority of silver demand is from industrial applications. Industrial application demand has risen
every year since 2001 and now makes up 54% of silver demand with 455.3M ounces. At the same time, above
ground supply of silver decreased 8% and government sales (more government sales means more supply)
decreased 46% in 2007, primarily because China and India did not sell much silver that year. In addition, silver
mining is struggling to find new silver sites and keep up with demand (silver mining grew 4% in 2007).

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Silver Exchange Traded Funds (ETFs) :

Many of the ETFs buy actual silver reserves as backing to the fund. As a result, ETFs make up about 50% of the
world's silver market.

 iShares Silver Trust (SLV): This is an ETF that has silver reserves of over 180M oz.

 Central Fund of Canada (CEF): This ETF has about 45% of its reserves in silver while the remaining 55%
is in gold.

 ETFS Silver (SLVR): This ETF tracks the DJ-AIG Silver Sub Index.

 ETFS Physical Silver (PHAG): This ETF is backed by silver bullion.

 ZKB Silver ETF: This is a silver ETF entirely backed by physical silver. This ETF is not open to US
investors.

The picture for silver is bullish. Silver has been in deficit for the last 18 years. The dramatic rise in the price of
silver that ended in 1980 enticed people all over the world to cash in, by selling old coins, silverware, cutlery as
well as silver jewelry purchased over the years from manufacturers in Mexico, Peru and Italy. (As an aside, a

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large portion of silver jewelry, even though it will be marked .925, is actually silver plated. It pays to buy silver
jewelry only after checking it over with a magnet! That goes for chains and bracelets that are for sale in
‘reputable stores’ as well.

It took the world’s economies about 10 years to convert this 1980’s excess silver back into useful format, and
either use it up, or see it disappear into an investment portfolio, and today it is estimated that the world
‘consumes’ 1.5 ounces of silver for every 1 ounce the mines are producing.

Silver to Gold Ratio

As can be seen from the chart above throughout history silver has sold for about 16 ounces for each ounce of
gold. However in the last 200 years since the British tried to demonetise silver in the 1800’s (because they had
none) the ratio has increased dramatically. From (1808 – 2008), the ratio between gold and silver has been 33
ounces of silver equals one ounce of gold. More recently, say 1978 – 2008, the ratio has widened to on
average, 60 ounces of silver buys one ounce of gold. At the extremes the ratio fell to 17:1 in 1980 as both
metals peaked; and rose to 100:1 in 1991 during the depth of the recession. During the 1976 – 1980 bull
market in precious metals, the ratio fell from 40:1 to 17:1. During the 1990 – 1991 recession the ratio rose
from 71:1 to 100:1. The latest bull market in silver began in 2003, and from then until mid 2008, the ratio
dropped from 80:1 to 45:1. A few months ago, as more and more people began to suspect that the world was
heading for a recession, the ratio rose again, from 50:1 to the current 80:1.

3.Natural Gas

Natural gas is used extensively throughout the U.S. to heat homes, and also has important applications in
commercial and industrial settings. It is similar to what is referred to as biogas, which is methane produced
from the breakdown of organic matter. Because it is a fossil fuel, it contains many secondary products that
must be filtered out of the methane to render it commercially viable. Ethane, propane, butane, helium and
hydrogen sulfide are removed and are considered a secondary income source for refiners.

Once considered an ineffective byproduct of oil production, natural gas is steadily finding a foothold in today's
world. Economical, environmentally friendly and efficient, natural gas is the cleanest-burning fossil fuel, and
technologies are improving the way it is captured, transported and distributed.

Natural Gas Exchanges

The futures contract for natural gas is traded at the New York Mercantile Exchange (NYMEX, U.S. Futures

16
Exchange (USFE), Intercontinental Exchange (ICE) and Multi Commodity Exchange (MCX).

Factors That Influence Natural Gas Prices

The price of natural is influenced by the following factors: 

 While natural gas cannot be shipped around the world in pipes (and because of the impracticality of
building pipes across the ocean), liquid natural gas is gaining a foothold in the marketplace. The Gas
Technology Institute (GTI) released a report showing that the cost of producing liquid natural gas has
dropped by as much as 50%, virtually debunking the belief that it is too expensive to be a viable
alternative. This makes the option of importing and exporting natural gas more common in a world
that needs new forms of energy besides crude oil.
 Qatar is considered to be sitting on the world's largest natural gas fields, the North Field. It is
estimated to be 6,000 square kilometers and is partially shared by Iran. With the potential to develop
1,180 trillion cubic feet, Qatar is emerging as the leader in natural gas, holding almost 20% of the
world's natural gas within its borders.

4.Crude Oil

Crude oil is a naturally-occurring substance found in certain rock formations in the earth. To
extract the maximum value from crude, it needs to be refined into petroleum products. The
best-known of these is gasoline, or petrol. Others include liquefied petroleum gas (LPG),
naphtha, kerosene, gas oil and fuel. Crude oil is a naturally-occurring substance found in certain
rock formations in the earth. To extract the maximum value from crude, it needs to be refined
into petroleum products. The best-known of these is gasoline, or petrol. Others include liquefied
petroleum gas (LPG), naphtha, kerosene, gas oil and fuel oil.
Oil wells are used to release the oil from within the earth. Some of the earliest developed oil
wells were drilled in China using bamboo poles. These oil wells were developed in 347 A.D. for
the sole purpose of providing enough fuel to create a thriving salt industry. By the 1950s, crude
oil became a global energy source, which in effect killed the whaling industry by making whale
oil obsolete.

Crude Oil Exchanges

Futures contracts for crude oil are traded at the New York Mercantile Exchange (NYMEX),
Intercontinental Exchange (ICE), Dubai Mercantile Exchange (DME), Multi Commodity Exchange
(MCX), India's National Commodity and Derivatives Exchange (NCDEX) and the Tokyo
Commodity Exchange (TOCOM).

Factors That Influence Crude Oil's Price

The price is influenced by the following factors:

 For the past 50 years, the price of crude oil has been denominated in U.S. dollars. With the
fluctuation in the value of the U.S. dollar and the prominence that newer currencies such as
the euro are gaining, OPEC is considering switching crude oil from a U.S. dollar quotation
system to either the euro or to a basket of multiple currencies. This could have an adverse
affect on oil prices in the short run.
 In 1956,  geophysicist M. King Hubbert made the dire prediction that oil would reach a peak
production level, flatten out, and eventually decline - following a bell curve pattern of
distribution. Eventually, the world would deplete all of the available oil. The peak, as
calculated by Hubbert, was alleged to have been hit in 1970. Since then, peak oil predictions

17
 have been readjusted to account for current usage versus what is being pumped from the
ground. (For more on this phenomenon.
5.Cotton:

"King Cotton" has been around for thousands of years. Independently discovered in both the Old
World and New World, no other commodity has created more controversy, built more nations,
enriched more lives and caused more suffering. Extensively cultivated in India for 6,000 years,
cotton became the darling of the British Empire via the Dutch East India Company during the
18th century.
As slavery began to take root in the U.S., cheaper and heartier cotton from the South began to
supplement and later replace Indian cotton. This coincided with Britain's desire to de-
industrialize India's cotton industry and expand its own during the 19th century.

Cotton Exchanges
The futures contract for cotton is traded at the Intercontinental Exchange, Brazilian Mercantile
and Futures Exchange (BM&F), Multi Commodity Exchange (MCX), National Commodity
Exchange Ltd. (NCEL) and Zhengzhou Commodity Exchange (CZCE).

Factors That Influence Cotton Price

The price of cotton is influenced by the following factors:

 The U.S. government has provided cotton subsidies to farmers since 1930, which directly
hinder trade agreements around the world. In 2005, cotton subsidies averaged $230 per
acre of cotton farmland, amounting to $3.3 billion in subsidies. This is five times more than
the subsidies offered to grain producers.
 Directly because of subsidies, an estimated 68% of U.S. cotton is sold internationally below
production costs. This led Brazil to launch a formal complaint with the World Trade
Organization (WTO) in 2004, and the following year, the WTO sided with Brazil and claimed
that U.S. subsidies were illegal.

Markets for trading commodities can be very efficient, particularly if the division into pools matches demand
segments. These markets will quickly respond to changes in supply and demand to find an equilibrium price
and quantity. In addition, investors can gain passive exposure to the commodity markets through a commodity
price index.

Dow Jones-AIG Commodity Index Components

As of March 31, 2006

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One advantage of commodity exposure that tracks a broad index is that commodities are not highly correlated
with each other and index returns should be less volatile than the returns on an individual commodity.
Another advantage is that commodity indexes themselves have existed for decades, providing ample historic
data for asset allocation studies and research. While broad commodity exposure can provide investors with a
number of potential benefits, investing in commodities entails risks as well. In particular, commodities may not
perform well during cyclical downturns in the U.S. or global economy, when consumer and industrial demand
slows. Commodities have historically been about as volatile as the equity market.

The commodity market has evolved significantly from the days when farmers hauled bushels of wheat and
corn to the local market. In the 1800’s, demand for standardized contracts for trading agricultural products led
to the development of commodity futures exchanges. Today, futures and options contracts on a huge array of
agricultural products, metals, energy products and soft commodities can be traded on exchanges around the
world.

3. Derivative Markets:

A derivative is an agreement or contract that is not based on a real, or true, exchange, i.e.: There is nothing
tangible like money, or a product, that is being exchanged. For example, a person goes to the grocery store,
exchanges a currency (money) for a commodity (say, an apple). The exchange is complete, both parties have
something tangible. If the purchaser had called the store and asked for the apple to be held for one hour while
the purchaser drives to the store, and the seller agrees, then a derivative has been created. The agreement
(derivative) is derived from a proposed exchange (trade money for apple in one hour, not now).In financial
terms, a derivative is a financial instrument - or more simply, an agreement between two people or two
parties - that has a value determined by the price of something else (called the underlying). It is a financial
contract with a value linked to the expected future price movements of the asset it is linked to - such as a
share or a currency. There are many kinds of derivatives, with the most notable being swaps, futures, and
options. However, since a derivative can be placed on any sort of security, the scope of all derivatives possible
is nearly endless. Thus, the real definition of a derivative is an agreement between two parties that is
contingent on a future outcome of the underlying.

Derivative Makets

The overall derivatives market has five major classes of underlying asset:

 interest rate derivatives (the largest)

 foreign exchange derivatives
 credit derivatives
 equity derivatives
 commodity derivatives

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Growth of Derivatives Market in India

Equity derivatives market in India has registered an "explosive growth" (see Fig. 2) and is expected to continue
the same in the years to come. Introduced in 2000, financial derivatives market in India has shown a
remarkable growth both in terms of volumes and numbers of traded contracts. NSE alone accounts for 99
percent of the derivatives trading in Indian markets. The introduction of derivatives has been well received by
stock market players. Trading in derivatives gained popularity soon after its introduction. In due course, the
turnover of the NSE derivatives market exceeded the turnover of the NSE cash market. For example, in 2008,
the value of the NSE derivatives markets was Rs. 130, 90,477.75 Cr. whereas the value of the NSE cash markets
was only Rs. 3,551,038 Cr. If we compare the trading figures of NSE and BSE, performance of BSE is not
encouraging both in terms of volumes and numbers of contracts traded in all product categories. Among all
the products traded on NSE in F& O segment, single stock futures also known as equity futures, are most
popular in terms of volumes and number of contract traded, followed by index futures with turnover shares of
52 percent and 31 percent, respectively. In case of BSE, index futures outperform stock futures. An important
feature of the derivative segment of NSE is the huge gap between average daily transactions of its derivatives
segment and cash segment. In sharp contrast to NSE, the situation at BSE is just the opposite: its cash segment
outperforms the derivatives segment.

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21
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4. Real Estate:

Real estate investment has always been looked upon as a conventional mode of investment. However, the
house we live in cannot be considered an investment. It is only when we purchase land or property with a
viewpoint of making profit, can it be considered an investment. Hence, on account of the large amount of
initial investment and illiquidity of real estate, it has failed to be a very appealing avenue of investment to the
common retail investor, especially during the recent turbulent times.

Although as far as other categories of investors are concerned, real estate Investment in India has been one of
the most successful investment phenomenon in the last few decades. Real Estate industry in India has reached
a culmination point ever since, the gates were opened to the foreign investors. This is the reason why many
foreign investors are investing huge amounts of money in this sector.

India of today can be acknowledged as the one of the fastest growing economy in the world and in this
current economic status, real estate has emerged as one of the most appealing investment areas for domestic
as well as foreign investors. And this high growth curve in the real estate sector owes some credit to a
booming economy and liberalized Foreign Direct Investments (FDI) regime in the real estate sector

The Government of India in March 2005 amended existing norms to allow 100 per cent FDI in the construction
business. This liberalization act cleared the path for foreign investment to meet the demand into development
of the commercial and residential real estate sectors. It has also encouraged several large financial firms and
private equity funds to launch exclusive funds targeting the Indian real estate sector.

Until now, only Non Resident Indians (NRIs) and Persons of Indian Origin (PIOs) were permitted to invest in the
housing and the real estate sectors. Foreign investors other than NRIs were allowed to invest only in
development of integrated townships and settlements either through a wholly owned subsidiary or through a
joint venture company in India along with a local partner. .

Some of the foreign players who have already tied up with Indian real estate developers are Lee Kim Tah
Holdings, CESMA International Pvt Ltd., Evan Lim, and Keppel Land from Singapore, Salim Group from
Indonesia, Edaw Ltd., from USA, Emaar Group from Dubai, IJM, Ho Hup Construction Co., from Malaysia etc.

In 2003-04, India received total FDI inflow of US$ 2.70 billion, of which only 4.5% was committed to real estate
sector. In 2004-05 this increased to US$ 3.75 billion of which, the real estate shares was 10.6%.

However, in 2005-06, while total FDIs in India were estimated at US$ 5.46 billion, the real estate share in them
was around 16%. In 2006-07, total FDIs touched about US$ 8 billion in which the real estate share was
estimated to be about 26.5%.

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India Real Estate Investment has proven to be the highest yielding investment opportunity in the recent few
years. The realty industry in India is at its zenith and is thereby attracting the maximum investment not just
locally but overseas too. NRI investment in real estate segment in India have increased manifold. Special NRI
cities are being constructed by the leading Real Estate Builders in and around, major cities in India like Noida,
Bangalore, Mumbai, Pune, Kolkata etc.
The various Real Estate Developments in India include construction of residential units, townships,
commercial complexes, office buildings and retail stores and shopping malls. The newest entrant is
development of IT spaces that includes IT Parks and integrated townships for the employees of the IT industry
in that IT Park.

Many Banks and Financial Institutions like HDFC Property Fund, Dewan Housing Finance Limited-DHFL Venture
Capital Fund, Kotak Mahindra Realty Fund, Kshitij Venture Capital Fund (A group venture of Pantaloon Retail
India Ltd) and India Advantage Fund (ICICI), provide the funds for real estate development to the Builders and
Developers for construction of these structures. These are the major institutional investors in real estate in
India.

After the analysis of the above information, and to conclude, some of the various factors responsible for the
upswing in the India real estate investments are:

 The increasing demand in residential, commercial and industrial properties

 Growth in hospitality or hotel industry
 Development of Special Economic Zones (SEZ)
 Increased living standards of people with higher disposable incomes
 Development of IT and ITES industry.

India, the second fastest growing economy after China, has recently seen positive foreign institutional investor
(FII) inflows driven by the sound fundamentals and growth opportunities.

According to analysts, the upward revision of economic growth from 5.8 per cent to 6.1 per cent, better-than-
expected performance of companies in the quarter ended-June 30, the proposed new direct taxes code that
might lead to savings in the tax payer’s money, and the trade policy with an ambitious target of US$ 200 billion
exports for 2010-11 have all revived the confidence of FIIs investing in India. FIIs have made net investments of
US$ 10 billion in the first six months (April to September) of 2009-10. A major portion of these investments
have come through the primary market, than through buying via secondary markets. (Source: India Brand
Equity Foundation)

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FII inflows into Indian equities have been steady ever since the markets were opened up to FIIs in 1993. With
the exception of FY99 and FY09, net flows have been positive. FIIs own a dominant 16% of Indian equities
(worth US$147bn) and account for 10-15% of the equity volumes. (Source: CLSA Asia-Pacific Markets)

Although FIIs pulled out US$ 9.77 billion of the Indian equity markets during FY09, they have been quick to
return in FY10 and within just the first four months they have nearly made up for the exit, reinvesting US$ 8.50
billion or 87% of the amount that they had pulled out in FY09. (Source: CLSA Asia-Pacific Markets)

India is well placed to attract FII flows over the long term. With FIIs holding 16 per cent of equity of India's
biggest 500 companies (Source: India Brand Equity Foundation) and as growth in the Indian economy
accelerates, FII sentiment is expected to remain positive towards India.

SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWS:

Amount Rupees in crores (US$ in million)

Ranks Sector 2006-07 2007-08 2008-09 2009-10 Cumulativ % age

e to total
(April- (April- (April- (April- Inflows
March) March) Inflows
March) March) (In
(April ’00 - terms
of US$)
Mar. ‘10)
1. SERVICES SECTOR 21,047 26,589 28,411 20,958 105,411 21 %
(6,615)
(financial & non- (4,664) (6,116) (4,392) (23,640)
financial)
2. COMPUTER SOFTWARE 11,786 5,623 7,329 4,350 43,846 9%
& HARDWARE
(2,614) (1,410) (1,677) (919) (9,872)
3. TELECOMMUNICATIONS 2,155 5,103 11,727 12,338 40,706 8%

(radio paging, cellular (478) (1,261) (2,558) (2,554) (8,931)

mobile, basic telephone
services)

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 4. HOUSING & REAL 2,121 8,749 12,621 13,586 37,369 8%
ESTATE
(467) (2,179) (2,801) (2,844) (8,357)
5. CONSTRUCTION 4,424 6,989 8,792 13,544 35,721 7%
ACTIVITIES
(985) (1,743) (2,028) (2,868) (8,059)
(including roads &
highways)
6. POWER 713 3,875 4,382 6,908 20,919 4%

(157) (967) (985) (1,437) (4,627)

7. AUTOMOBILE INDUSTRY 1,254 2,697 5,212 5,609 20,677 4%

(276) (675) (1,152) (1,177) (4,565)

8. METALLURGICAL 7,866 4,686 4,157 1,935 13,440 3%
INDUSTRIES
(173) (1,177) (961) (407) (3,130)
9. PETROLEUM & NATURAL 401 5,729 1,931 1,328 11,504 2%
GAS
(89) (1,427) (412) (272) (2,666)
10. CHEMICALS 930 920 3,427 1,707 11,274 2%

(other than fertilizers) (205) (229) (749) (362) (2,496)

Investment in India - Investing in India - Venturing into the Indian Market

Foreign institutional investors (FIIs), the key drivers of Indian equity markets, are raising stakes in local
companies and rebuilding their portfolios after emerging from the global financial crisis, during which they sold
Indian stocks and took money out to meet redemption pressure in their home countries. In the past one year,
they have raised their stakes in two-thirds of the companies on the National Stock Exchange’s Nifty index.
Overseas investors have raised stakes in 23 out of 35 Nifty firms that have revealed their stakeholdings thus
far. The Nifty index has a total of 50 firms. The trend is almost similar for companies that form India’s most
tracked equity index, the Bombay Stock Exchange (BSE) Sensex. Of the 30 Sensex firms, 22 have so far revealed
March quarter holdings and FIIs have increased their stakes in 15 of them.

Investment in Indian market

India, among the European investors, is believed to be a good investment despite political uncertainty,
bureaucratic hassles, shortages of power and infrastructural deficiencies. India presents a vast potential for
overseas investment and is actively encouraging the entrance of foreign players into the market. No company,
of any size, aspiring to be a global player can, for long ignore this country which is expected to become one of
the top three emerging economies.

Success in India
Success in India will depend on the correct estimation of the country's potential, underestimation of its
complexity or overestimation of its possibilities can lead to failure. While calculating, due consideration should
be given to the factor of the inherent difficulties and uncertainties of functioning in the Indian system.Entering
India's marketplace requires a well-designed plan backed by serious thought and careful research. For those
who take the time and look to India as an opportunity for long-term growth, not short-term profit- the trip will
be well worth the effort.

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Market potential
India is the fifth largest economy in the world (ranking above France, Italy, the United Kingdom, and Russia)
and has the third largest GDP in the entire continent of Asia. It is also the second largest among emerging
nations. (These indicators are based on purchasing power parity.) India is also one of the few markets in the
world which offers high prospects for growth and earning potential in practically all areas of business. Yet,
despite the practically unlimited possibilities in India for overseas businesses, the world's most populous
democracy has, until fairly recently, failed to get the kind of enthusiastic attention generated by other
emerging economies such as China.

Lack of enthusiasm among investors

The reason being, after independence from Britain 50 years ago, India developed a highly protected, semi-
socialist autarkic economy. Structural and bureaucratic impediments were vigorously fostered, along with a
distrust of foreign business. Even as today the climate in India has seen a seachange, smashing barriers and
actively seeking foreign investment, many companies still see it as a difficult market. India is rightfully quoted
to be an incomparable country and is both frustrating and challenging at the same time. Foreign investors
should be prepared to take India as it is with all of its difficulties, contradictions and challenges.

Developing a basic understanding or potential of the Indian market, envisaging and developing a Market Entry
Strategy and implementing these strategies when actually entering the market are three basic steps to make a
successful entry into India.
Developing a basic understanding or potential of the Indian market
The Indian middle class is large and growing; wages are low; many workers are well educated and speak
English; investors are optimistic and local stocks are up; despite political turmoil, the country presses on with
economic reforms.But there is still cause for worries-

Infrastructural hassles.
The rapid economic growth of the last few years has put heavy stress on India's infrastructural facilities. The
projections of further expansion in key areas could snap the already strained lines of transportation unless
massive programs of expansion and modernization are put in place. Problems include power demand shortfall,
port traffic capacity mismatch, poor road conditions (only half of the country's roads are surfaced), low
telephone penetration (1.4% of population).

Indian Bureaucracy.
Although the Indian government is well aware of the need for reform and is pushing ahead in this area,
business still has to deal with an inefficient and sometimes still slow-moving bureaucracy.

Diverse Market.
The Indian market is widely diverse. The country has 17 official languages, 6 major religions, and ethnic
diversity as wide as all of Europe. Thus, tastes and preferences differ greatly among sections of consumers.

Therefore, it is advisable to develop a good understanding of the Indian market and overall economy before
taking the plunge. Research firms in India can provide the information to determine how, when and where to
enter the market. There are also companies which can guide the foreign firm through the entry process from
beginning to end --performing the requisite research, assisting with configuration of the project, helping
develop Indian partners and financing, finding the land or ready premises, and pushing through the paperwork
required.

Developing up-front takes:

Market Study
Is there a need for the products/services/technology? What is the probable market for the product/service?
Where is the market located? Which mix of products and services will find the most acceptability and be the
most likely to generate sales? What distribution and sales channels are available? What costs will be involved?
Who is the competi

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Check on Economic Policies
The general economic direction in India is toward liberalization and globalization. But the process is slow.
Before jumping into the market, it is necessary to discover whether government policies exist relating to the
particular area of business and if there are political concerns which should be taken into account.

Conclusion:
Investments in the non debt sector have increased drastically. Privatisation is one the main factor which has
led to increased numbers. People now are readily investing in fields like equity, commodities and derivatives.
Though the risk factor is high but high rate of investment is luring the masses. Presently investments are
roughly around $2bn. But we are hoping to reach a figure of $35bn as the figures are already looking at
reaching $25bn by 2015. Having said this, thought the numbers look lucrative and the lay investor is ready to
invest some of his hard earned income into these sectors and also trust a portfolio manager it is essential that
the interest of such an investor are protected. The need for more transparency is felt at the retail and also at
the HNI stage. The S.E.B.I has been working on that end, and this should definitely boost investments in the
above mentioned sectors.

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 ACKNOWLEDGEMENTS

We would like to thank Prof. Atul Sathe for his help and guidance al throughout the project
and also for allowing us to research on such an interesting and challenging topic.

29