Project Report on

“An Analysis on Hedging Strategies by using the Index Futures”

Submitted By
Mr. Ranjith
(1NX19MBA18)
Submitted to
VISVESVARAYA TECHNOLOGICAL UNIVERSITY,
BELAGAVI

In partial fulfilment of the requirements for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION
Under the guidance of
Internal guide External guide

Dr. Dharmanand. M Mr.Prashanth kumar

Assistant Professor Branch Manager
Department of Management Studies Aditya Birla Money Ltd
NMIT, Bengaluru Belthangady

NITTE MEENAKSHI INSTITUTE OF TECHNOLOGY

Department of Management Studies
BENGALURU-560064
2019-2021
 NITTE MEENAKSHI INSTITUTE OF TECHNOLOGY

Department of Management Studies

P.B.NO 6429, Yalahanka, Bengaluru-560064

BONAFIDE CERTIFICATE

This is to certify that Mr. Ranjith bearing USN 1NX19MBA18, is a Bonafide student of
master of business administration, 4rd semester NMIT, Bengaluru, affiliated to Visvesvaraya
Technology of University, Belagavi, project report titled “An Analysis on Hedging Strategies
by using the Index Futures” is prepared by him under the guidance of Dr. Dharmanand M,
Assistant Professor, NMIT in partial fulfillment of requirement for the award of the degree of
Master of Business Administration of Visvesvaraya Technology of university, Belagavi,
Karnataka.

Dr. Dharmanand M Dr.Shilpa Ajay Dr.H.C.Nagaraj

(Internal Guide) (HOD of MBA) (Principal)
 DECLARATION

As I am Mr. Ranjith student of 2ndyear MBA I hereby declare that I have prepared this report
in “Aditya Birla Money Ltd” Belthangady Dakshinakannada district under the guidance of
Dr. Dharmanand M, Assistant professor department of Management Studies, Nitte
Meenakshi Institute of Technology, Yalahanka, Bangalore.

I also declare that this project is the result of my own efforts and has not been submitted
earlier to any other university or institution for the award of any degree or published any time
before.

Place: Bengaluru Signature

Date:
 ACKNOWLEDGEMENT

This piece of work is fruit of assistance of several people while it is impossible to mention all
by names, there are some whom the investigator particularly would like to thank.

First and foremost, we acknowledge our deepest gratitude to our Principal Dr.H.C Nagaraj
for their help to complete the project work. We would like to thank our parents for their
constant support and encouragement to complete this work successfully.

It’s my privilege to thank Dr. Dharmanand M, Assistant Professor Department of

Management Studies for his valuable suggestions and advice while drafting this project work.

It’s my pleasure to thank the Branch Manager of “Aditya Birla Money Ltd” Belthangady
found for granting the permission to do the project by giving a timely guidance and co-
operation as external guide.

I like to thank all of our friends, who are close to our heart, for supporting and helping us to
conduct this project successfully.

Thank you one and all

 Chapter No Particulars Page No

Industry and Company Profile 1

1
1.1. Industry Profile 1-4

1.2. Company Profile 5-6

1.2a. Promoters
6
1.2b. Nature of business
6
1.2c. Vision, Mission, Achievement
6
1.2d. Product and Service Profile
6-8
1.2e. Area of Operation
8
1.2f. Major Market Players
9

1.3. Financial Statement Analysis 10-17

2.1. MCKINSEY’s 7 S frame work 18-27

2
2.2. SWOC Analysis 28

3.1. Introduction to the Study 29

3
3.2. Topic chosen for study 29-34

3.2a. Need for the study 34

3.2b. Statement of the Problem 34

3.2c.Objectives of the Study 34

3.3. Source of Data 34

3.4. Literature review 35-38

3.5. Limitations for the Study 39

4 Data Analysis and Interpretation 40-58

5 Findings, Suggestion and Conclusion 59-61

Bibliography 61

Table of Content

Particulars of Tables, Charts, and Figures

Table
Particulars Page no
No
1 Major players in Indian stock Brokerage 9
2 Balance sheet of ABML 10-11
3 Profit and loss Account of ABML 11-12
4 Calculation of Current Ratio 13
5 Calculation of Liquid Ratio 14
6 Calculation of Debt - Equity Ratio 15
7 Calculation of Investment Turnover Ratio 16
8 Calculation of Net Profit Ratio 17
9 Organisation Management details of ABML 21
10 Calculation of Loss or Gain on Stock portfolio (long position) 42
11 Calculation of Loss or Gain on Index future portfolio (Short position) 43
12 Calculation of Gain or loss on Stock portfolio (long position) 44
13 Calculation of Gain or loss on Index future portfolio (Short position) 44
14 Investment along with Beta value of various stocks 46
15 Calculation of Weights 47
16 Descriptive Statistics 48
17 Historical Simulation 49
18 Beta value 51
19 VAR value 52
20 Monte Carlo Simulation 53
21 Calculation of Mean and Standard Deviation 55
22 VAR 55
23 Boot Strap 56
24 VAR 58

Chart
Particulars Page no
No
1 Current Ratio 13
2 Liquid Ratio 14
3 Debt - Equity Ratio 15
4 Investment Turnover Ratio 16
5 Net Profit Ratio 17
6 Perfect Hedge 45

Figure
Particulars Page No
No
1 Organisation Structure 20

Executive Summary
Derivatives are a type of risk management tool that gets their value from an underlying asset. The
underlying asset can be a stock, a bond, a commodity, a currency's interest rate, and so on.

The futures market serves a vital purpose, which is to provide effective hedging to market
participants as well as price discovery at a distant future date.

The availability of hedging facilities to market participants is one of the most significant tasks of
the futures market. The dictionary definition of the term "hedge" is "to protect oneself financially
by buying or selling futures contracts as a hedge against price movements."

Hedging is the process of taking an offsetting position to reduce the risk of an investment. The
basic goal of the futures market is to provide a cost-effective and efficient hedging tool.
Participants buy or sell futures contracts, which specify a price level for an asset that will be
delivered later, in order to protect themselves against price fluctuations in the product being
traded. Hedging with futures is the term for this. A futures hedge decreases price risk by
increasing the certainty of the outcome.

This research is limited to derivatives, with a focus on Index Futures.

Futures contracts based on a stock market index are known as stock index futures. These are
derivatives whose value is derived from an underlying index. Participants in Index futures trade
bets on the overall stock market's movement.
 Chapter - 1

Industry and Company Profile

1
Industry and Company Profile

1.1 Overview of Industry

The stock market is a marketplace where consumers can purchase and sell publicly traded
company shares. It provides a platform that allows for smooth stock exchange. Simply stated, if
‘A' wants to sell shares of Reliance Industries, the stock market will facilitate him in finding a
seller who is willing to purchase Reliance Industries. It is vital to note, however, that only a
registered middleman, known as a stock broker, can trade in the stock market. The electronic
media is used to buy and sell shares. The stock market is a set of markets and exchanges where
regular operations such as buying, selling, and issuance of publicly traded company shares take
place. Such financial transactions can happen on structured official exchanges or over-the-
counter (OTC) marketplaces that are governed by a set of rules. In a country or region, there may
be many stock trading venues that allow transactions in stocks and other securities.While the
phrases stock market and stock exchange are sometimes used interchangeably, the latter is
usually considered a subset of the former. When someone says they trade in the stock market,
they are referring to buying and selling shares/equities on one (or more) of the stock exchanges
that make up the entire stock market.The leading stock exchanges in the U.S. include the New
York Stock Exchange (NYSE), Nasdaq, and the Chicago Board Options Exchange (CBOE).
These leading national exchanges, along with several other exchanges operating in the country,
form the stock market of the U.S.

Though it is recognized as a stock market or equity market for trading stocks/equities, it also
trades other financial assets such as exchange traded funds (ETF), corporate bonds, and
derivatives based on stocks, commodities, currencies, and bonds.
The London Stock Exchange was the world's first stock exchange. In 1773, it began in a cafe
where dealers gathered to exchange stock.

In a word, stock exchanges provide a safe and regulated environment in which market
participants can confidently trade shares and other qualified financial products with zero to low
operational risk. The stock markets operate as primary and secondary markets, according to the
guidelines set forth by the regulator.

The Securities and Exchange Board of India (SEBI) is the primary regulator for Indian stock
exchanges, and it was founded under the SEBI Act 1992.

2
1.1A. Types of Capital Market

i. Primary Market

The primary market, also known as the "New Issue Market," is where a firm launches an Initial
Public Offering (IPO) in order to become the company to be listed on a stock exchange for first
time.

ii. Secondary Market

The secondary market is a sort of capital market that trades securities that have already been
listed on an exchange.
The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the two major
stock exchanges in India, where the majority of trades are carried (NSE).

1.1B. Stock Market Participants

There are many varied types of players engaged with the stock market, including long-term
investors and short-term traders. Each has a distinct job to play, yet many of the roles are
interconnected and interdependent on one another to keep the market running well.

i. Stockbrokers, also known in the United States as registered representatives, are

certified professionals that buy and sell shares on behalf of investors. Brokers operate as a link
between the stock exchanges and the investors, purchasing and selling equities on their behalf.
To access the markets, you'll need an account with a retail broker.

ii. Portfolio managers are financial specialists who manage client portfolios, or collections
of securities. Analysts provide suggestions to these managers, and they decide whether to buy or
sell the portfolio. Portfolio managers are employed by mutual fund firms, hedge funds, and
pension plans to make investment decisions and develop investment strategies for the money
they hold.

iii. Investment bankers represent businesses in a variety of capacities, including private

corporations seeking to go public through an initial public offering (IPO) or businesses involved

3
in upcoming mergers and acquisitions. They handle the listing procedure in accordance with the
stock market's regulatory standards.

iv. Custodian and depot service providers, which are institutions that hold customers' assets
for safekeeping to reduce the risk of theft or loss, also work in tandem with the exchange to
move shares to and from the accounts of transacting parties based on stock market trading.

iv. Market maker: A market maker is a broker-dealer who helps people trade stocks by
posting bid and ask prices and keeping a stock inventory. He maintains adequate market liquidity
for a specific (set of) share(s) and benefits on the spread between the bid and ask prices he
quotes.

The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are India's two
largest stock exchanges, handling the majority of the stock market's transactions (NSE). The
BSE has been around since 1875. On the other side, the National Stock Exchange was founded
in 1992 and began trading in 1994. Both exchanges, however, use the identical trading
mechanism, trading hours, and settlement procedures.
There are around 5000 businesses listed on the Bombay Stock Exchange, which is the country's
oldest stock exchange. This is the most number of businesses. The BSE holds the distinction of
being the only bourse in the world with the largest number of listed companies.
In comparison to the BSE, the National Stock Exchange is a relatively new exchange. As a
result, it has a smaller number of companies listed, estimated to be approximately 2000.

The Securities and Exchange Board of India (SEBI) is the primary regulator for Indian stock
exchanges, and it was founded under the SEBI Act 1992.

4
1.2 Company Profile

Aditya Birla Money Limited (ABML)

Since 2008, Aditya Birla Money Limited (ABML), a subsidiary of Aditya Birla Capital Limited,
has been listed on the Bombay Stock Exchange and the National Stock Exchange of India.
ABML is now involved in the securities broking business and is a SEBI-registered stock
broker.It trades stocks and derivatives on the NSE and BSE, and it has a PMS license from
SEBI. It also provides portfolio management services.

Aditya Birla Money Limited is a broking and distribution company that trades stocks and
derivatives on the NSE and BSE, as well as currency derivatives on the MCX-SX. It is a
Depository Participant with both NSDL and CDSL, and through its subsidiary firm, it trades
commodities on the MCX and NCDEX.

The National Securities Depository Limited (NSDL) and the Central Depository Services (India)
Limited have both registered ABML as a Depository Participant (CDSL). It also has a SEBI
research analyst and investment adviser license. ABML also has an AMFI ARN code and is
registered with CDSL as an e-Repository for keeping electronic insurance policies. Aditya Birla
Commodities Brokerage Limited (a wholly owned subsidiary of ABML) was merged with
ABML in December 2018, delivering commodity broking services as a member of Multi
Commodity Exchange of India Limited and National Commodity & Derivatives Exchange
Limited.

It has 755 franchised offices and a combined pan-India distribution network of over 41 branches
in Andhra Pradesh, Chandigarh, Rajasthan, Chhattisgarh, Madhya Pradesh, UP, West Bengal,
Punjab, Maharashtra, Kerala, Karnataka, Delhi, Gujarat, and Tamil Nadu. It also has a strong
online and offline business, as well as a strong technology backbone, to serve a big customer
base of active users of around 350,685 customers.Brokering, portfolio management, depository
and e-insurance repository solutions, and distribution of other financial products are among the
services it provides.

The financial services platform of the Aditya Birla Group is Aditya Birla Money Limited
(ABML). With a strong presence in life insurance, asset management, private equity, corporate

5
lending, structured finance, project finance, general insurance broking, wealth management,
equity, currency and commodity broking, online personal finance management, housing finance,
and pension fund management, the company is well-positioned, pension fund management, and
health insurance business, ABML is dedicated to provide its retail and corporate customers with
end-to-end financial services. ABML has a nationwide reach and more than 200,000 agents and
channel partners, home to the more than 17,000 workers.

1.2a. Promoters information

The Aditya Birla Group promotes Aditya Birla Money Limited.

1.2b. Nature of the business carried

Aditya Birla Money Ltd is currently involved in the securities broking business and is a SEBI-
registered stock broker. It trades stocks and derivatives on the NSE and BSE, and it has a PMS
license from SEBI. It also provides portfolio management services.

1.2c. Vision, Mission and Achievement

Vision
To be a leader and a role model in a broad-based and integrated Financial Services Business.

Mission
To deliver superior value to our customers, shareholder, employees and society at large

Achievements/Awards
At the CNBC TV 18 Financial Advisors award, Aditya Birla Money was named best performing
national financial advisor.

1.2d. Product and Services Profile

A) Aditya Birla Money Products

6
The following is information on Aditya Birla Money's products and services:

i. ABM Equity Trading:

ABM provides an equity trading service that allows traders and investors to buy and sell
business stock. In equity trading, purchasers purchase shares based on market value, and sellers
sell shares based on market value.

ii. ABM Currency Trading:

Currency trading is a service provided by Aditya Birla Money in which traders or investors can
buy or sell a certain amount of currency at a pre-determined or future date.

iii. ABM Futures & Options Trading:

Traders and investors at Aditya Birla Money can now trade futures and options. Futures are
contracts that allows customers to buy or sell shares at a future date. Buyers and sellers of
options have the right to acquire or sell a specific number of shares at a pre-determined date or
earlier..

iv. ABM Mutual Fund:

It provides a mutual fund as a viable investment alternative. Wealth creation, retirement plans,
cash management, tax savings, and risk diversification are all benefits of this investment
product.

v. ABM Insurance :
Avail the benefits of Insurance products that are offered by the ABM. With the help of this
facility individuals can get protection against financial losses or reimbursement against losses
from an insurance company.

vi. ABM Loans:

Meet immediate money requirements not by selling your shares but by availing loan from the
ABM.

7
B) Aditya Birla Money Services

i. ABM Demat Services:

For opening a trading account, ABM offers a 100% paperless eKYC process. Traders and
investors can now hold their shares in an electronic format with ease. To purchase and sell
stocks electronically, you must first open an account with ABM. So, choose ABM demat
services to trade in the stock market in a hassle-free environment.

ii. Aditya Birla Money Trading Services:

ABM provides you with a trading account. You can trade or invest in the stock market with this
account. ABM, like other online stock exchanges, allows dealers and investors to trade in a wide
range of asset classes.
iii. ABM Intraday Services:
Rather than waiting two days, it lets investors and dealers to purchase and sell shares on the
same day.

iv. Aditya Birla Money IPO services:

The company's business approach is based on a significant profit margin. As a result, it provides
a variety of add-on services, including IPO. An initial public offering (IPO) provides the
possibility to earn substantial returns in a shorter period of time.
v. ABM PMS Services:
Take advantage of the portfolio management services provided by the ABM. This service
provides you with solutions and services that assist you in achieving your investment objectives.
vi. Aditya Birla Money Issue Management:
Take advantage of the Issue Management tool to settle all issues involving corporate securities.
vii. ABM Depository Services:
Investors and traders can use its depository facilities to store their securities electronically.

1.2e. Area of Operation:

ABML is a national operating business with over 41 branches and 755 franchised offices located
over Andhra Pradesh, Chandigarh, Rajasthan, Chhattisgarh, Madhya Pradesh, UP, West Bengal,
Punjab, Maharashtra, Kerala, Karnataka, Delhi, Gujarat, and Tamil Nadu.

1.2f. Major players

8
Table 1: Major players in Indian stock Brokerage

Market
Last Cap. Net Net
Company Name Price (Rs. Cr.) Income Profit
1 91.3 222.39 39.05 2.91
ADITYA BIRLA MONEY

2 SHRIRAM CITY 2125.9 9596.51 1561.6 304.94

3 GIC HOUSING 504.9 851.12 312.11 -9.97

4 MUTHOOT FINANCE 500.3 30471.71 2397.38 908.54

5 TOURISM FINANCE 140.85 545.24 80.33 18.58

6 CAN FIN HOMES 551.5 4999.94 500.49 97.62

7 LT FINANCE 205.9 25346.44 3611.31 647.89

8 SATIN CREDITCARE 321.5 1187.51 366.01 54.32

9 EQUITAS 156 3583.66 696.74 41.25

10 MOTILAL OSWAL 1482.6 12909.88 618.05 142.31

1.2f. Financial Statements Analysis

9
Table 2: Balance sheet of ABML

BALANCE SHEET OF Mar-20 Mar-19 Mar-18

ADITYA BIRLA MONEY
(in Rs. Cr.)
EQUITIES AND Rs Rs Rs
LIABILITIES
SHAREHOLDER'S FUNDS
Equity Share Capital 5.63 5.63 5.61
TOTAL SHARE CAPITAL 5.63 5.63 5.61
Reserves and Surplus 24.63 14.83 5.16
TOTAL RESERVES AND 24.63 14.83 5.16
SURPLUS
TOTAL SHAREHOLDERS 31.27 21.48 10.77
FUNDS
NON-CURRENT
LIABILITIES
Long Term Borrowings 223.77 393.69 266.06
Deferred Tax Liabilities [Net] 0 0 0
Other Long Term Liabilities 212.03 199.97 215.81
Long Term Provisions 9.28 7.07 6.11
TOTAL NON-CURRENT 445.08 600.73 487.98
LIABILITIES
CURRENT LIABILITIES
Short Term Borrowings 0 23.73 0
Trade Payables 30.72 27.11 22.34
Other Current Liabilities 41.13 19.27 18.11
Short Term Provisions 0 0 0
TOTAL CURRENT 71.86 70.12 40.45
LIABILITIES
TOTAL CAPITAL AND 548.21 692.32 539.2
LIABILITIES
ASSETS
NON-CURRENT ASSETS
Tangible Assets 23.6 4.47 3.15
Intangible Assets 2 2.51 2.76
Capital Work-In-Progress 0 0.55 0.3
Other Assets 0 0 0
FIXED ASSETS 26.01 7.66 6.55
Non-Current Investments 0 0 0
Deferred Tax Assets [Net] 4.29 3.35 1.92
Long Term Loans And 0 0 0

10
Advances
Other Non-Current Assets 17.01 17.09 13.33
TOTAL NON-CURRENT 47.32 28.09 21.81
ASSETS
CURRENT ASSETS
Current Investments 0 0 24.29
Inventories 90.48 280.58 115.62
Trade Receivables 64.14 112.66 133.47
Cash And Cash Equivalents 282.87 241.19 215.22
Short Term Loans And 56.9 23.31 22.24
Advances
Other Current Assets 6.5 6.5 6.55
TOTAL CURRENT 500.89 664.23 517.39
ASSETS
TOTAL ASSETS 548.21 692.32 539.2

Table 3: Profit and loss Account of ABML

PROFIT & LOSS Mar-20 Mar-19 Mar-18

ACCOUNT OF ADITYA
BIRLA MONEY (in Rs. Cr.)
INCOME
REVENUE FROM 166.66 166.76 160.16
OPERATIONS [GROSS]
Less: Excise/Service 0 0 0
Tax/Other Levies
REVENUE FROM 166.66 166.76 160.16
OPERATIONS [NET]
TOTAL OPERATING 166.66 168.05 162.15
REVENUES
Other Income 7.07 3.61 2.65
TOTAL REVENUE 173.74 171.66 164.8
EXPENSES
Cost Of Materials Consumed 0 0 0
Operating And Direct 37.71 38.17 50.98
Expenses
Changes In Inventories Of 0 0 0
FG,WIP And Stock-In Trade
Employee Benefit Expenses 55.88 53.58 54.13
Finance Costs 28.02 30.44 10.91
Depreciation And 6.46 2.09 2.18

11
 Amortisation Expenses
Other Expenses 29.35 33.11 33.03
TOTAL EXPENSES 157.24 157.66 154.7
PROFIT/LOSS BEFORE 16.5 14 10.1
EXCEPTIONAL,
EXTRAORDINARY ITEMS
AND TAX
Exceptional Items 0 0 0
PROFIT/LOSS BEFORE 16.5 14 10.1
TAX
TAX EXPENSES-
CONTINUED
OPERATIONS
Current Tax 5.46 6.42 4.2
Less: MAT Credit Entitlement 0 0 0
Deferred Tax -0.95 -2.41 -1.4
Tax For Earlier Years 0 0 0
TOTAL TAX EXPENSES 4.51 4.01 2.8
PROFIT/LOSS AFTER TAX 11.99 9.99 7.3
AND BEFORE
EXTRAORDINARY ITEMS
PROFIT/LOSS FROM 11.99 9.99 7.3
CONTINUING
OPERATIONS
PROFIT/LOSS FOR THE 11.99 9.99 7.3
PERIOD

Ratio Analysis
Ratio analysis is a quantitative analysis of financial details kept in the financial statements of a
corporation. Ratio analysis is used to analyse various aspects of a business, such as its
effectiveness, liquidity , profitability and solvency, such as operational and financial
performance.

1.Current Ratio
Table 4: Calculation of Current Ratio

Year Current Asset Current Liability Current Ratio

12
 2018 517.39 40.45 12.79

2019 664.23 70.12 9.47

2020 500.89 71.86 6.97

Current ratio = Current asset / Current liability

Chart 1: Current Ratio

The current ratio is used to determine the potential of the company to pay its short-term
obligations on time. It is commonly believed that a 2:1 ratio indicates an appropriate spot of
working capital. The ideal Current Ratio that a company should strive to maintain is 2:1. This
suggests that the quantity of the current assets should be twice the value of current obligations so
that organization can meet its obligations.

2.Liquid Ratio

Year Liquid Asset Current Liability Liquid Ratio

2018 401.77 40.45 9.93

2019 383.65 70.12 5.47

2020 410.41 71.86 5.71

13
 Liquid ratio = Liquid asset/Current liability

Table 5: Calculation of Liquid Ratio

Chart 2: Liquid Ratio

Liquid ratio indicates, if the company is in a position to immediately pay its current
liabilities.The standard ratio of quick ratio 1:1. It means for every quick liability there should
be at least one quick asset. Quick ratio of this organization for the year 2020 is 5.71 which
indicates that it has sufficient quick resources to meet its immediate obligation.

3.Debt Equity Ratio

Table 6: Calculation of Debt - Equity Ratio

Year Debt Equity Debt Equity Ratio

2018 266.06 10.77 24.70

2019 393.69 21.48 18.33

2020 223.77 31.27 7.16

14
 Debt Equity Ratio = Total Debt/ Total Equity

Chart 3: Debt- Equity Rtio

The Debt Equity Ratio creates a relationship between long-term surface liabilities and the
funds of shareholders. The portion of long-term external and internal equity assets is seen.

A higher ratio means that outside creditors have a greater claim than the company's
shareholders. When borrowing cash, the company with a high debt position would need to
meet tougher conditions from the lenders.

4. Investment Turnover Ratio

Table 7: Calculation of Investment Turnover Ratio

Year Revenue Equity + Debt Investment Turnover Ratio

2018 164.8 539.2 30.56

2019 171.66 692.32 24.79

15
 2020 173.74 548.21 31.69

Investment Turnover Ratio = Net sale / (Equity+Debt) * 100

Chart 4: Investment Turnover ratio

The investment turnover ratio is a financial tool used to determine how efficiently a company is
generating revenues using their debts and equity. This ratio provides insight for investors on how
effectively a company utilizes its resources to generate revenues.

High investment turnover ratio means that the company is efficiently turning over stockholders
invested shares in increasing its value. Low investment turnover ratio indicates that the company
is less efficient as it struggles to generate revenue from its debts and equity. The above figure
shows the company is efficient to earn revenue from its investment.

5. Net Profit Ratio

Table 8: Calculation of Net Profit Ratio

Year Net Profit Net Revenue Net Profit Ratio

2018 7.3 164.8 4.43

16
 2019 9.99 171.66 5.82

2020 11.99 173.74 6.90

Net profit Ratio = Net Profit / Net revenue *100

Chart 5: Net Profit Ratio

The ratio of net profit assesses the net profit rate gained on revenue. It helps to assess the
overall business activity performance. An increase in the ratio over the previous year
indicates an improvement in the company's overall effectiveness. We determine from the
above chart that the business is successful in earning net profit on its operation as its profit is
increasing successively.

17
 Chapter-2
McKinsey's 7S frame work &
SWOC Analysis

18
2.1 McKinsey's 7S frame work

Hard S
(Strategy, structure system- easy to identify, manage, control)

Soft S
(Skill, style, staff and shared values – difficult to manage)

i. Strategy:

Technical analysis is a pure branch of price action trading. It is a trading strategy that entails
evaluating price fluctuations in securities over time. It tries to predict the market's future
direction by looking at how market players have reacted in the past. As a result, it makes use
of behavioral economics principles.The price action technique, on the other hand, completely
disregards basic ratios and fails to consider a stock's qualitative features. It merely tries to
relate a security's current price to its former price.

Traders that use a price action strategy combine basic price action strategy tools with
traditional technical analysis tools. Volume, price, market movements, and human
behavioural tendencies are all taken into account by price action traders. To predict price
changes, they use techniques such as candlestick charts, put/call ratios, bear/bull ratios, trend
lines, price/volume indices, support or resistance levels, relative strength index, moving
averages, parabolic SAR, and so on.

It has been noted that no two traders speculate the same way on a given price action. Each
trader employs a variety of techniques and tools based on his or her knowledge and
preferences.

Price action trading is most commonly used by speculators, arbitrageurs, trading firms that
employ technical analysts, aggressive retail investors, intraday traders, short-term investors,
medium-term investors, hedge fund managers, and others because it involves making
predictions based on empirical evidence.

Price action trading is used to speculate on the price of a wide range of securities and
instruments, including stocks, bonds, derivatives, foreign currency, commodities, and so on.

19
It is, however, most conveniently employed in volatile markets where highly liquid assets are
traded.

ii. Structure

Aditya Birla Money Limited's Organization Structure; The organization

structure of Aditya Birla Money Limited is depicted in the diagram below,
which follows a top-to-bottom vertical hierarchical structure of authority
and responsibility flow.

Figure 1: Organisation Structure

20
 Table 9: Organisation Management details of ABML

Name Designation
G Vijayaraghavan Independent Director

Gopi Krishna Tulsian Chairman & Non-Exe.Director

L R Murali Krishnan Manager

P Sudhir Rao Independent Director

Pinky A Mehta Non Executive Director

Pradeep Sharma Chief Financial Officer

Sangeeta Shetty Co. Secretary & Compl. Officer

Shriram Jagetiya Non Executive Director

Tushar Shah Non Executive Director

iii. System:

Aditya Birla Money has a lengthy history in the stock broking industry. The full-service stock
broker, which is backed by the Aditya Birla Group, first opened its doors in 1994. Apollo
Sindhoori Capital Investments was the moniker of the Chennai-based broker in its early days, till
2009. Aditya Birla Group purchased a stake in it at that time.

The stock broker, which is a member of the NSE and BSE, provides a variety of stock brokerage
services to its clients.

It is also a Depository Participant with National Securities Depository Limited (“NSDL”) and
Central Depository Services (India) Limited (“CDSL”), and possesses a Portfolio Management
Services (PMS) license from SEBI. Aditya Birla Commodities Broking Limited, the company's
wholly-owned subsidiary, also provides commodity trading services.

Securities broking, portfolio management, depository, and e-insurance repository services are just
a few of the services provided by ABML.

Process to Open an account at Aditya Birla Money

21
To trade or invest with Aditya Birla Money Limited, one must first open an account with a stock
broker.

If you want to invest or trade in stocks, mutual funds, IPOs, SIPs, or currency derivatives, should
open an ABML Trading Account.

Aditya Birla Money accounts can be opened in one of three ways.

1. Online Account Opening (Instant Paperless Account)

ABML offers a quick paperless account opening process. This enables its clients you to open a
trading and demat account online in just a few minutes. This process can be followed if you have
e-KYC and Aadhaar. You need to have your present mobile number linked to your Aadhar for
OTP verification. It doesn’t need you to fill a form and send to the broker.

Steps of Instant Trading & Demat Account Opening:

 Fill in your personal detail like Name, Email ID, Date of Birth, PAN and Aadhaar Number
 Validate your Aadhaar card information pulled from KYC Database.
 Fill in your Bank details like Account Number and IFSC Code
 Upload documents (Scanned copy of Cancelled Cheque leaf and Income Proof like Bank
Statement)
 Pay account opening fee online.
 E-Sign your application using Aadhaar OTP received on the mobile number linked with
your Aadhar.
The process takes just a few minutes. Once you submit the application, it is verified by company
executives. The account is opened in the same working day provided all your documents are in
order.

2. Visit ABML Branch Offices

Aditya Birla Money has more than 40 branches located across leading cities of India. You can
choose to visit any of these branch offices closer to you and follow the account opening process.

3. Contact Customer Support

22
If none of the above account opening options seems feasible to you, it is recommended to call or
email Aditya Birla Money customer service for account opening. The customer service executive
will assist you in opening a trading and demat account.

Documents needed for account opening

You need the below documents to open a trading and demat account with ABML:

 PAN Card (HUF Pan Card & Karta Pan Card for HUF account)
 AADHAR Card
 Address Proof- Ration Card/Voter ID/Utility Bill with complete address
 Latest Bank Statement with IFSC/MICR Code
 Photocopy of the Bank Passbook or Bank Statement showing Account Number, Name &
Address
 Cancelled Cheque
 2 Passport Size Photographs
All the documents need to be self-attested. Please remember that additional documents for income
proof are required to trade in derivative segments.

Account Opening Charges

 Aditya Birla Money Account Opening Charges (Trading Acct): Rs 750

 Aditya Birla Money AMC Charges (Trading Acct): Nil

 Aditya Birla Money Account Opening Charges (Demat Acct): Nil

 Aditya Birla Money AMC Charges (Demat Acct): Rs 436

iv. Skill

ABML Hiring Philosophy

Knowledge and experience with coupled with opportunity, can lead to great achievement. And it
is our firm belief that while knowledge and experience can be acquired, opportunities need you to
be at the right place at the right time.

23
Hence, our hiring philosophy can be best described as ‘culture-based’, i.e. we want the right
people for the right job but we want someone who is also the right fit for our culture. Our hiring
practices are therefore, geared for both - a role fit and culture fit - and adopted across all
businesses of Aditya Birla Capital.

ABML ideal candidate would -

Understand and appreciate the intent that defines our Core Values

Demonstrate Integrity, Commitment, Passion, Seamlessness and Speed consistently, having stood
firm by these values during times of personal and professional duress

Be aligned to Vision so as to effectively contribute towards Aditya Birla Capital’s position as a

leader and a role-model in the Indian financial services industry

Exciting times lie ahead for Aditya Birla Capital. AMBL have the unique opportunity of creating
a legacy – the legacy of building an institution that creates value for all its stakeholders.

As an organization that focuses on service excellence, they always looking for bright and
enthusiastic minds to join our World of Opportunities. They are looking for those who have the
courage to dream big and pursue those dreams with relentless passion to achieve nothing short of
excellence. Those driven to achieve what the world considers to be impossible. And those who
have a never-ending hunger to be more do more and achieve more.

v. Style:

The Aditya Birla Group stands as an important testimony to the manner in which a traditional
Marwari business empire has transformed into a modern-day business group, embracing top-notch
professionals across the world while, at the same time, remaining deeply in touch with its
traditional values.

Value creation, the culture of productivity, efficiency, prudence in financial management and the
parta system, where you worked on a daily profit and loss account, are among the traits that I
clearly saw in the Birla family. These have been great enablers which, with time and technology,
one has been able to hone further.

24
The control and command chain, extremely hierarchy-oriented, where information is power and
seniority is in terms of years, formed the major planks of the traditional management style. This
had to change because the business context has changed dramatically. Of course, we carry forward
the family legacy of values, the trusteeship concept of management, the philosophy of building
businesses for the long haul—all of which are invaluable.

We have embraced most modern management practices. We lay big bets on people, providing
them with unparalleled opportunities, dynamic challenges and an environment that is
professionally rewarding and personally fulfilling. In a highly competitive world, high-performing
teams and individuals, supported by a strong performance culture, are the cornerstones of all that
we seek to achieve.

the professionalization of management includes not only the induction of the best talent but also a
culture that stokes entrepreneurial drive, thinking afresh across all levels, to be a learning and
growing organisation that is constantly creating value for our multiple stakeholders. Our
leadership is inclusive and has a penchant for collaborative and innovative solutions and for new
ways of working. This is so that our companies, our products and our services are on our clients’
and customers’ radar all the time and we remain competitive.

There is no substitute to smart hard work. Create leaders. Embrace change. Innovate
constantly. And, finally, the quality of your future depends entirely upon the quality of your
imagination, of what that future can be, today. “Kumar Mangalam Birla on the Principles
and Practices of the Aditya Birla Group”

vi. Staff:

HR provides specialist services to the businesses in the areas of staffing, learning, leadership
development, rewards and benefits, job analysis and evaluation, performance management,
organisational development, human resource management systems, etc. Group HR also monitors
and takes proactive steps to promote employee engagement through embedding world-class
people processes and a value-based work culture. It partners with businesses and other functions
to realise the Group People Vision, which is to build the Aditya Birla Group as an exciting world
of global opportunities for professional growth with human care.

ABCL is committed to serving the end-to-end financial services needs of its retail and corporate
customers. Anchored by more than 17,000 employees

25
vii. Shared values:

To actively contribute to the social and economic development of the communities in which we
operate. In doing so, build a better, sustainable way of life for the weaker sections of society and
raise the country's human development index.

-Mrs. Rajashree Birla, Chairperson Aditya Birla Centre for Community Initiatives and Rural
Development

ABML Values:

Integrity: Acting and taking decisions in a manner that these are fair, honest, following the
highest standards of professionalism and are also perceived to be so. Integrity for us means not
only financial and intellectual integrity, but in all other forms as are commonly understood.

Commitment: On the foundation of Integrity, doing whatever it takes to deliver value to all
stakeholders. In the process, taking ownership for our own actions and decisions, those of our
team and that part of the organization that we are responsible for.

Passion: A missionary zeal arising out of emotional engagement with the organization that makes
work joyful and inspires each one to give his or her best. Relentless pursuit of goals and
objectives with the highest level of energy and enthusiasm, that is voluntary and spontaneous.

Seamlessness: Thinking and working together across functional silos, hierarchies, businesses and
geographies. Leveraging the available diversity to garner synergy benefits and promote oneness
through sharing and collaborative efforts.

Speed: Responding to internal and external customers with a sense of urgency. Continuously
seeking to crash timelines and choosing the right rhythm to optimize organization efficiencies.
They collectively believe that the consistent and sustained demonstration of ‘FAIR’ behaviours by
each one of us will help in shaping the desired culture at ABC as they echo the ABG values of
Speed, Commitment, Passion, Integrity and Seamlessness.

26
Focus on Results – Being clear about outcomes being sought from everyone and achieving these
in a timely manner with accuracy and quality. By focusing on results, we ensure performance that
enables ABC to be a desired place for good talent to work in

Accountability with discipline – Being accountable for our responsibilities and coupling that
with discipline and adherence to commitments allows us to empower each member of our team to
perform optimally to the best of their potential

Innovation and Entrepreneurship – Innovation means the ability to think of issues differently
so we find better solutions to our problems which you can only have if you have Passion. If you
are passionate, you will inculcate a sense of ownership. This feeling of ownership is what drives
our entrepreneurial spirit - A feeling that you are ABC and ABC is you

Respect and Openness – These manifestations for integrity and seamlessness reflect our working
together without any hidden agenda and seamlessly across man-made silos. Openness is a method
to ensure the voice of every person is heard and respect ensures it is acted upon.

27
2.2 SWOC Analysis

Strength
 Rising Net cash flow and cash from operating activity
 Company with high TTP EPS growth
 Effectively using its capital to generate profit – RoCE improving in last 2 years
 Efficient in managing asset top generate profit – ROA improving since last 2 year growth
in quarterly net profit with increasing profit margin
 Strong cash generating ability from core business – improving cash flow from operation
for last 2 years
 Company able to generate net cash – Improving net cash flow for last 2 years
 Annual Net profit improving for last 2 years
 Book value per share improving for last 2 years
 Company with Zero Promoter Pledge
 Recent results : Growth in operating profit with increase in operating margin

Weakness
 Company with high debt
 Decline in Net profit with falling margin
 Inefficient use of shareholders funds – ROE declining in the last
2 years
 Negative Breakdown first support (LTP<S1)
 Bearish Engulfing (Bearish Reversal)

Opportunity

 Highest recovery from 52 weeks low

 Decrease Provision in recent results

28
Challenges

 Increasing trend in non - core income

29
 Chapter-3

Introduction to Study

30
"An Analysis on Hedging Strategies by using the Index Futures"

Hedging against investment risk is employing financial instruments or market tactics in a

strategic manner to mitigate the risk of adverse price changes. To put it another way, an investor
hedges one investment by trading in a another one.
The use of financial products known as derivatives is common in hedging tactics. Options and
futures are the two most frequent derivatives. We can use derivatives to create trading strategies
in which a loss in one investment is offset by a gain in another.
Financial contracts whose value is linked to the value of an underlying asset are known as
derivatives. They are sophisticated financial instruments used for a variety of purposes,
including hedging and gaining access to new assets or markets.

Types of Derivatives
There are four types of derivatives that can be traded in the Indian stock market.
• Forward Contracts
• Future Contracts
• Options Contracts
• Swap Contracts

• Forward Contracts

A forward contract is an agreement between two parties to buy or sell an underlying asset at a
specific date and at an agreed price in the future. A forward contract is a contract between two
people to sell something at a later date. The forward contracts are unique and come with a high
level of counterparty risk.Because the contract is customized, the contract's size is determined by
the contract's term. Forward contracts are self-regulatory, and there is no requirement for
collateral. Because forward contracts are settled on the maturity date, they must be reversed by
the expiration term.

• Futures Contracts
A futures contract, like a forward contract, is an agreement to buy or sell an underlying
instrument at a predetermined price on a specific date in the future. The buyer and seller of a
futures contract are not required to meet in order to enter into an agreement. In fact, they reach
an agreement through exchange. The counterparty risk in a futures contract is quite low because
it is a standardised contract. Furthermore, the clearing house serves as a counter-party to the
contracting parties, lowering credit risk even further. The size of a standardised contract is

31
defined, and the stock exchange regulates it. Future contracts cannot be modified in any manner
because they are listed on the stock exchange and are standard in nature. Future contracts, to put
it another way, have a pre-determined format, expiration duration, and size. Initial margin is
required as security in subsequent transactions, and settlement is done on a daily basis.

• Option Contracts
The third type of derivatives contract is an option contract. Options contracts differ from futures
and forwards contracts in that they are not required to be discharged on a specific date. Contracts
that grant the right but not the obligation to acquire or sell an underlying asset are known as
options contracts. Call and put options are the two types of options available. The buyer of a call
option has the right to purchase an underlying asset at a price fixed at the time the contract is
signed. The buyer of a put option has the right, but not the responsibility, to sell an underlying
asset at a price fixed at the time the contract is entered. The buyer has the option to settle the
contracts on or before the expiration date of both contracts. As a result, anyone trading options
contracts has the choice of taking one of four positions: long or short in either the put or call
option. Options are exchanged on the stock exchange and in the over-the-counter market.

• Swap Contracts
Swap contracts are the most complicated of the various types of derivatives contracts. Swap
contracts are agreements between two parties that are kept private. The contracting parties agree
to swap their future cash flow according to a preset formula. The interest rate or currency is the
underlying security in swap contracts. Swap contracts are risky since interest rates and currencies
are both volatile. Swap contracts safeguard the parties against a variety of problems. These
contracts are not traded on exchanges, and investment bankers serve as intermediaries.
To conclude, derivatives contracts like forwards, futures and options are one of the best hedging
instruments.

Index Derivatives

The index derivative is a financial derivative contract with the index as the underlying asset. This
means that an investor can trade in the asset group that the index reflects without having to buy
each underlying security or asset in the market.

Index derivative comprises futures and options.

Examples of the index derivatives along with their underlying asset (index) are

32
 Nifty futures and Nifty options:- for both the futures and options the underlying asset is
Nifty 50
 Sensex futures and options: – the underlying asset is Sensex.

Futures contracts are a sort of derivative in which the buyer must bet on the price of the
underlying assets before deciding to buy the item from the seller at a pre-determined price at a
later date. This asset can be anything, including commodities such as gold and grains, as well as
stocks, bonds, government securities, and indices.Index derivatives are generally future contracts
with a market index as the underlying asset. The buyer of an index future contract must bet on
the price of the index in the future and then opt to sell the asset at a pre-determined price on a
future date.

The first index-based stock futures contracts were created in India in the year 2000. The Bombay Stock
Exchange (BSE) and the National Stock Exchange (NSE) are two stock exchanges where these futures
are traded (NSE). For both the BSE Sensex and the NSE Nifty, they are available.

Types of index futures

 S&P BSE Sensex:30 underlying securities make up the BSE’s Sensitive Index or
Sensex.
 Nifty 50: 50 underlying securities make up the NSE’s Nifty index.
 Nifty IT: Here, shares of information technology make up the underlying securities.
Fortunes of these futures will depend on the performance of the overall sector.
 Nifty Bank: Bank shares make up this index. So, how the Nifty Bank futures will
perform will depend on how well the banks are doing.
 S&P BSE Bankex: These futures consist of banking stocks listed on the Sensex.
 S&P BSE Sensex 50: This index includes 50 stocks instead of the 30 that make up the
Sensex.
 S&P BSE Bharat 22 Index: This index is made up of 22 central public sector
enterprises (CPSE).

The Nifty Futures have an unique place in the Indian derivatives market. The 'Nifty Futures'
contract is the most widely traded futures instrument, making it the most liquid contract in the
Indian derivative markets. Indeed, we might be shocked to learn that Nifty Futures is
undoubtedly one of the top ten index futures contracts traded globally.

33
Hedging is a common technique used by investors in the stock market to protect
themselves from losses caused by market fluctuations.
In the stock market, the hedging technique is used in the following areas:
 Commodities: It includes agricultural products, energy products, metals, etc. The risk
associated with these is known as commodity risk.
 Securities: It includes investments in shares, equities, indices, etc. The risks associated
with these are known as equity risk or securities risk.
 Currencies: It includes foreign currencies. There are various types of risks associated
with it like - currency risk volatility risk, etc.
 The interest rate: It includes lending and borrowing rates. The risks associated with these
are known as interest rate risks.  
 Weather: It is also one of the areas where hedging is possible.

Hedging strategies
Hedging helps investors spread their risks and lessen them to some extent when looking for
investment choices. Hedging tactics are as unpredictable as the market. The hedging strategy
will be adjusted on a regular basis depending on market conditions and the type of
investment. 
Some of the common strategies followed in hedging are as follows.
 Asset allocation: When investing, the investor can reduce risk by diversifying his or
her portfolio into asset allocations that carry risk and assets that generate consistent returns
and balance the portfolio.
 Structuring the portfolio: The structuring technique is another sort of hedging. A
portion of the investor's portfolio will be allocated to debt, while the remainder will be
allocated to derivatives. Debt provides stability, and derivatives provide risk protection for an
investor's portfolio.
Hedging by options: This strategy employs instrument call and put options. This allows the
investor to directly protect their portfolio.

Benefits of hedging:
 The basic advantage of hedging is that it limits the losses of the investor.
 Hedging protects the profits of the investor.

34
 It increases the liquidity of the financial markets as hedging prompts the investor to
trade across different markets of commodity, currencies and derivative markets.
 The hedging offers flexible price mechanism as it requires very less margin outlay.
 
Hedging provides investors and traders with a scalable advantage in order to trade well in the
market. Because risk is an important aspect of the trading cycle, and the primary goal is to
make money. Hedging, on the other hand, provides a safety net for investors by allowing them
to protect themselves against market instability.

Investing in individual assets entails numerous risk. To limit risk, it is preferable to invest in a
group of assets. The challenge of selecting a group of securities is crucial. Investors want to
make the most money with the least amount of risk.

Need for the study

The study of hedging strategy is conducted in able to aid stockholders in limiting their losses.
With the help of this project, stockholders will be able to concentrate on areas where hedging
strategies are required.

Statement of the Problem

India's capital market is usually volatile. In the market, anything may happen. A stock picker
buys stocks with care, believing that they are worth more than the market price. While doing so,
he runs the risk of the entire market moving against him, resulting in a loss despite the fact that
the basic premise was correct. To get out of this, we need to make securities index-independent
by hedging with index futures. Index futures hedging eliminates the risk of being exposed to
index changes. This project can be used as a guide to help stockholders come up with fresh
ideas.

Objectives of the Study

 To find out the effectiveness of index futures as a Hedging instruments
 To analyse effectiveness of Hedging in reducing risks

35
 To visualize about Derivative market
Source of Data
The study use Secondary Data sources

Tools for data collection

National stock exchange, Money control, Yahoo Finance and various research papers

Tools Utilised for Analysis

MS Excel and SPSS

REVIEW OF LITERATURE

1. Peter Ritchken (1999)

A perfect hedge is a strategy that totally removes the risk of making a market commitment in the
future. The trader must match the holding term to the futures expiration date, and the physical
properties of the commodity to be hedged must exactly match the commodity underlying the
futures contract to provide a flawless hedge. A perfect hedge is impossible to achieve if either of
these criteria is missing. Risk can still be decreased, but not eliminated, under such scenarios.

2. Figlewski (1984) was the first to conduct study on hedging effectiveness of S&P 500
stock index futures for the period between June 1982 and September 1983. He estimated hedge
ratio by OLS and found that MVHRs of out-of sample performance was better than beta hedge
ratio.

3. David Becker
Hedging risk is a strategy for reducing an investor's exposure to stock price volatility. If an
investor holds a stock portfolio, he is exposed to a drop in stock values. Many various forms
of financial instruments can be used to hedge, including a stock index that acts as a proxy for
a stock portfolio.

4. Global Journal of Finance and Management

36
The provision of hedging facilities to market participants is one of the most significant tasks of
the futures market. The dictionary definition of a "hedge" is "to protect oneself financially by
buying or selling futures contracts as a hedge against loss due to market volatility". The purpose
of futures trading is to provide economic agents with hedging opportunities by reducing or
eliminating risks that cannot be insured or diversified away.

5. The journal of finance 1984

Stock index futures were an immediate success, and quickly led to a proliferation of new futures
and options markets tied to various indexes. One reason for this success was that index futures
greatly extended the range of investment and risk management strategies available to investors
by offering them, for the first time, the possibility of unbundling the market and nonmarket
components of risk and return in their portfolios. Many portfolio management and other hedging
applications in investment banking and security trading have been described elsewhere^ ranging
from use by a passive fund manager to reduce risk over a long time horizon to use by an
underwriter to hedge the market risk exposure in a stock offering for one or two days

6. Anjali Prashad,
Literature on hedging offers a wide variety of alternative models that can be used to model and
quantify the hedge and hedge effectiveness of derivatives products. However, the results on the
performance of these models have been mixed. This is a non- trivial problem, since it has been
found that different models yield different hedge measures for the same derivative product.
Therefore, practical application of hedging with futures requires choosing among these
alternatives for best fit and hedge performance.

7. L. C. Gupta Committee survey ( 1998)

According to the committee, financial derivatives provide “the facility for hedging in the most
cost efficient way against market risk”. A market wide survey conducted by the committee
reported, hedging to be the primary purpose for participants to engage in derivative trading.
Here, stock index futures were found to be the most popular and preferred type of financial
derivatives. The Committee cited several reasons for the wide acceptance and strong preference
of stock index futures. Accordingly, index futures were the first to be introduced in India’s
derivatives markets.

37
8. Choudhary (2004) investigated the hedging effectiveness of Australian, Hong Kong, and
Japanese stock futures markets and found that time-varying GARCH hedge ratio outperformed
the constant hedge ratios in most of the cases, inside-the-sample as well as outside-the-sample.

9. Bhaduri and Durai (2008) found the effectiveness of hedge ratio through mean return and
variance reduction between hedge and un hedged position for various horizon periods of NSE
Stock Index Futures.

10. Kailash Chandra Pradhan (2011) The paper provides an empirical investigation of the
risk transfer functions of the futures market. Hedging with stock index futures applies directly to
the management of stock portfolios An optimal hedge ratio is usually defined as the proportion
of a spot position that should be covered with an opposite position on a futures market.

11. Johnson (1960) and Ederington (1979). The hedge ratio is the ratio of the size of the
position taken in futures contracts to the size of the exposure in the cash market. Before using
futures contract to hedge a particular position established in the cash market, the market
participants must decide on the optimal hedge ratio. Hedging decisions as such clearly depend
on the hedge ratio which is the number of units traded in futures market to the number of units
traded in the cash market. There are basically three hedging strategies namely traditional one to
one; the beta hedge and the minimum variance hedge ratio (MVHR).

12. Junkus and Lee (1985) investigated the hedging effectiveness of three US stock index
futures under alternative hedging strategies. The optimal hedge ratios were calculated using the
OLS conventional regression model. Their results indicated the superiority of MVHR.
Moreover, there was little evidence about the impact of contract expiration and hedging
effectiveness.

38
13. Dr. K. Srinivasan, Dr. Jain Mathew, Miss. Aditi Davidson (2012) this study concluded
that the index futures are playing a very significant role in mitigating the volatility of the market
and has contributed towards increased market efficiency and the spill over in the futures market
lead to spot market, thereby making the spot market unstable.

14. Gupta and Singh (2009) estimated the optimal hedge ratio for the Indian derivatives
market through the examination of three indices viz. Nifty, Bank Nifty and CNX IT, and 84
most liquid individual stock futures traded on National Stock Exchange of India Ltd. The results
suggested that hedge ratio calculated through VAR model and VEC Model performs better and
this is due to presence of co-integration between spot and futures markets.

15. Kapil Choudhary, Sushil Bajaj, Intraday (2012), this study investigated whether spot and
futures markets are playing an important role in the assimilation of information and price
discovery in the Indian stock market. The study applied the Johansen’s co-integration and Engle
and Granger’s residual based approach to determine the long-run equilibrium between the two
markets.

16. Lokare, S.M. (2007) concludes that, by taking a position in the derivatives market, a
producer can potentially offset losses in the spot market. This argument of risk reduction through
hedging rests on the premise that the spot and future markets move together so that losses in one
market can be made good through gains in other market.

17. David Walsh (1995) said that, hedging risk of any sort using derivative securities has
become an important part of any financial manager's job. He has discussed the strategies that can
be used for hedging the risks using derivatives like forwards, futures, options and swaps.

Limitations for the Study

39
The major limitation for the study:-

 There was time constraint for the study

 The data has been collected from secondary sources, relevance of information may not
fully trustworthy

 Collection of appropriate data was one among the hurdles for the study

 Selection of suitable Model for analysis became perplexity

 Covid pandemic also one of the limitation for the study

40
Chapter- 4
Analysis

41
Nifty Futures for Hedging a Stock Portfolio

Case 1:

Mr. Investor holds 4000 equity shares of HDFC. Such shares are currently priced at Rs 400 per
share. Nifty is quoted at Rs 7960 in Spot. The correlation of equity share Of HDFC with NIFTY
Futures is 0.8.

Standard Deviation of HDFC stock = 6%

Standard Deviation of NIFTY=4%

3 months Nifty future is quoted at Rs 8000

If Share increase 448 Rs and decreased by 340 Rs per share, how investor can create Perfect
Hedge?

Determination of hedging effectiveness

Step1: Determination of the value of stock portfolio at present

=Number of share * Spot price per share

4000 shares*400Rs =1600000

Step2: Determination of Beta

Beta = Standard deviation of index X Correlation of index and market

Standard deviation of market

42
Beta (HDFC) = 6/8*0.8 = 1.2

Step 3: Determine the desired value of Index future Portfolio

=Value of stock portfolio * Beta

=1600000*1.2 = 1920000

Step4: Determine the number of index Future to be contracted

= Desired value of index future

Index future prise

= 1920000/8000 = 240 Indices

Step5: Determine the outcome of the scenario

i) If price fall to Rs 340 Rs

Table 10: Calculation of Loss or Gain on Stock portfolio (long position)

Particulars Rs

Value Today 1600000

(-)Value after 3 months: 4000*340 1360000

Resulting Loss (A) (240000)

Interpretation:

From the above table it is shown that, if an investor buy futures today it costs him Rs 1600000. If
he purchase the same after 3 months it will costs him Rs 1360000 (4000*340). It is clear that he
is incurring loss of 240000 by paying excess price today.

43
 Table 11: Calculation of Loss or Gain on Index future portfolio (Short position)

Particulars Rs

Expected price of Index Future after 3 Month (Note) 7000

Contract sale price of index Future 8000

Gain per Index 1000

Number of Indices contracted is 240

Resulting Gain (240*1000) (B) 240000

Interpretation:

From the above table it is shown that, if an investor sells futures today he will get Rs 8000. If
he sells the same after 3 months he will get Rs7000. It is clear that he is gaining profit of Rs
240000 (1000*240) by taking short position today

Note:1 Calculation of expected price of Index Future after 3 Month

% Decrease in Share price = 400-340/400 *100 = 15%

% Decrease in Share price = % Decrease in index * Beta

15% = %Decrease in Index * 1.2

% Decrease in Index = 15/1.2 = 12.5%

Therefore, Index Future price after 3 months,

= Rs 8000 – (12.5% of 8000) = Rs 7000

Hedging Effectiveness

Net Gain or Loss = (A) – (B)

= 240000 – 240000

Nil

44
Perfect hedge

ii) If price raise to Rs 448 Rs

Table 12: Calculation of Gain or loss on Stock portfolio (long position)

Particulars Rs

Value Today 1600000

(-)Value after 3 months: 4000*448 1720000

Resulting Gain (A) 192000

Interpretation:

From the above table it is shown that, if an investor buy futures today it costs him Rs 1600000. If
he purchase the same after 3 months it will costs him Rs 1720000 (4000*448). It is clear that he
is resulting in gain of 192000 by paying lower prices today.

Table 13: Calculation of Gain or loss on Index future portfolio (Short position)

Particulars Rs

Expected price of Index Future after 3 Month (Note) 8800

Contract sale price of index Future 8000

Loss per Index 800

Number of Indices contracted is 240

Resulting Loss (240*800) (B) (192000)

Interpretation:

From the above table it is shown that, if the investor sells futures today he will get Rs 8000. If
he sells the same after 3 months he will get Rs8800. It is clear that he is resulting in loss of Rs
192000 (240*800) by taking short position today

45
Note:2 Calculation of expected price of Index Future after 3 Month

% Increase in Share price = 448-400/400 *100 = 12%

% Increase in Share price = % Decrease in index * Beta

12% = % Increase in Index * 1.2

% Increase in Index = 12/1.2 = 10%

Therefore, Index Future price after 3 months,

= Rs 8000 + (8000*10%) = Rs 8800

Hedging Effectiveness

Net Gain or Loss = (A) – (B)

= 192000 - 192000

= Nil

Perfect hedge

Graph 6: Perfect Hedge

46
Case 2:

Let us assume hedging a stock portfolio by employing Nifty futures.  When it comes to offsetting
the systematic risk on a stock portfolio, the Nifty futures is the natural choice to hedge and
mitigate the risk. ( Nifty Futures (one-month) is trading at 11834, and with the current lot size of
75)

Let’s assume we have Rs. 700,000 rupees invested across following stocks –

Table 14: Investment along with Beta value of various stocks

Beta Value
Stock Name Investment Amount (in Rs.)
(Monthly-Two Year Range)
Asian Paints Ltd. 0.598 30,000
Bajaj Auto Ltd. 0.895 1,25,000
Coal India Ltd. 0.964 1,80,000
Gail (India) Ltd. 1.2 65,000
Grasim Industries Ltd. 1.48 75,000
HCL Technologies Ltd. 0.704 85,000
Infosys Ltd. 0.313 1,40,000
Total Rs. 7,00,000/-

Step 01: Calculating Portfolio Beta

The first thing we have to do is to calculate the overall ‘Portfolio Beta’ by summing the weighted
beta of each stock in our portfolio.

Weighted Beta = Individual stock beta * Weight of respective beta  

Weight in Portfolio = Sum invested in each stock / Total portfolio value

47
 Table 15: Calculation of Weights

Weight in
S. No. Stock Name Beta Investment Weighted Beta
Portfolio
1 Asian Paints Ltd. 0.598 30,000 4.30% 0.026
2 Bajaj Auto Ltd. 0.895 1,25,000 17.90% 0.16
3 Coal India Ltd. 0.964 1,80,000 25.70% 0.248
4 Gail (India) Ltd. 1.2 65,000 9.30% 0.111
5 Grasim Industries Ltd. 1.48 75,000 10.70% 0.159
6 HCL Technologies Ltd. 0.704 85,000 12.10% 0.085
7 Infosys Ltd. 0.313 1,40,000 20.00% 0.063
Total Rs. 7,00,000 100% 0.851

Interpretation

As we can see, the overall Portfolio Beta is 0.851. Let say, the Nifty index goes up by 1 per cent
then the stock portfolio is expected to go up by 0.851 per cent and vice-versa.

Step 02: Calculate Hedge Value

Now that we have the correlation between the Nifty index and our stock investment portfolio, it
is time to calculate the hedge value which is as:

Hedge value = Total Weighted Beta * Total Portfolio value

= 0.851 * 700,000 = Rs. 595,700

Remember, the stocks we have in our portfolio is in the spot market and our current position is
‘Long’. So, Nifty Futures Hedging against our stock portfolio will be a ‘Short’ position in the
futures. The hedge value of Rs. 5,95,700 suggests to short futures worth Rs. 5,95,700.

Step 03: Calculate the Lot Size

At present, the Nifty Futures (one-month) is trading at 11834, and with the current lot size of 75,
the contract value per lot will be,

= 11834 * 75

48
= Rs. 887,550

Hence, the number of amounts required to short Nifty Futures would be

= Rs. 887,550

As we can see that to perfectly hedge our stock portfolio, we would require the extra amount of
Rs. 291,850 to buy 1 lot of Nifty Futures. If that amount is less than our hedge value then we will
be under hedged but as in this case, if we hedge our self, then it would be over hedged.
Therefore, we cannot always perfectly hedge the stock portfolio.            

If the hedge value and portfolio value was close, then similar to the previous example, there be
no loss or gain except a minor difference that can be ignored. But, if we continue with the
imperfect hedging like under-hedged or over-hedged then you may bear some loss or make some
profits out of our net position. But, that would offset the purpose of hedging to neutralize the
adverse movement in stock prices.

But, truth is, no one can hedge small positions whose value is relatively lower than the value of
Nifty Futures.

Descriptive Statistics:

Table 16: Descriptive Statistics

Indices/Summary Statistics Nifty return Nifty Future return

Mean 20865.06 14750.58

Median 20924.61 14759.65

Std. Deviation 562.136 386.18

Variance 315997.24 149138.56

Skewness -0.554 -0.491

Kurtosis -0.255 -0.311

Minimum 19346 13744

49
 Maximum 21740 15376.65

Summary statistics and the results of the diagnostics checks on the distributional properties of
Nifty index and Nifty future are presented. Average returns of both the markets for the sample
period are more fluctuating. The variances in the two return series differ with the futures returns
showing relatively higher variance. The unconditional distributions of spot and futures returns
are non-normal, as shown by high skewness, high kurtosis

Value at Risk Model

Value at Risk is a financial metric that estimates the risk of an investment; VaR is a statistical
technique use to measure the amount of potential loss that could happen in investment over a
specified period of time. Value at Risk gives the probability of losing more than a given amount
in a given investment.

Methods used for calculating V a R

Historical Simulation: The historical method is the simplest method for calculating Value at
Risk. This method simply re-organizes actual historical returns, putting them in order from worst
to best. It then assumes that history will repeat itself, from a risk perspective.

Table 17: Historical Simulation

Sl.
Nifty Return Nifty Future Return Expected Gain or loss
No
1 0.008 0.0081 115.9183
2 0.005 0.005 67.0525
3 -0.004 -0.004 -53.5865
4 -0.001 -0.001 -8.9759
5 0.015 0.015 210.2005
6 0.010 0.009 136.0363
7 0.005 0.005 77.2823
8 0.000 0.000 1.3710

50
 9 0.002 0.002 30.0798
10 -0.011 -0.011 -159.0883
11 -0.011 -0.011 -151.3923
12 0.017 0.017 237.5439
13 0.008 0.008 120.8354
14 -0.004 -0.004 -53.0298
15 -0.015 -0.0001 -1.8320
16 -0.009 -0.009 -132.6015
17 -0.019 -0.019 -274.4727
18 -0.011 -0.011 -153.9441
19 -0.013 -0.013 -190.1017
20 0.046 0.046 660.8255
21 0.025 0.025 361.5466
22 0.010 0.010 137.6942
23 0.007 0.007 101.5674
24 0.002 0.002 27.3579
25 0.013 0.013 181.8909
26 0.000 0.000 -6.1344
27 0.000 0.000 -2.6433
28 0.004 0.004 62.9285
29 -0.001 -0.001 -9.4028
30 0.010 0.010 141.6989
31 0.000 0.000 -1.1642
32 -0.007 -0.007 -97.7083
33 -0.006 -0.006 -84.6027
34 -0.009 -0.009 -130.0182
35 -0.021 -0.021 -294.3727
36 0.002 0.002 31.1620
37 0.018 0.018 263.4487
38 0.008 0.008 109.3893
39 -0.038 -0.038 -547.1390
40 0.016 0.016 226.3284
41 0.011 0.011 151.4163
42 0.022 0.022 308.7626
43 -0.011 -0.011 -155.0589
44 -0.010 -0.009 -135.5516
45 0.001 0.001 17.2709

51
 46 0.009 0.009 134.9632
47 0.005 0.005 71.9879
48 -0.010 -0.009 -135.8461
49 -0.007 -0.007 -96.5893
50 -0.001 -0.001 -18.2104
51 -0.013 -0.013 -182.0868
52 -0.011 -0.011 -159.2408
53 0.013 0.013 181.2163
54 -0.001 -0.001 -7.3537
55 0.005 0.005 75.6291
56 -0.018 -0.018 -257.7727
57 -0.016 -0.015 -221.7875

Notes

1. Value of Beta Calculated with help of SPSS

Table 18: Beta value

Model Beta

Independent 0.995

2. Calculation of Nifty Return

= Closing rate today- Closing rate previous day/ Closing rate previous day

3. Calculation of Nifty Future Return

= Beta * Nifty Return

4. Calculation of Expected Gain or Loss

= Recent closing price * Nifty Future Return

5. Calculation of VAR

= Percentile * Expected Gain or loss * 0.05

52
 Table 19: VAR value

VAR -261.11 Loss@95% level of confidence

Interpretation

At 95% level of confidence the expected loss will be exceeding 261.11 Rs that is at the worst
case the loss may go up to 261.11 Rs. There is 5% chance the lass may go above Rs 261.11.

So investors can opt for hedging so that they can reduce their losses due to various constraints.

Monte Carlo Simulation: Under Monte Carlo Method, Value at Risk is calculated by randomly
creating a number of scenarios for future rate using non linear pricing models to estimate the
change in value for same scenario, and then calculating the VaR according to the worst losses.
This method is suitable for great range of risk measurement problems, especially when dealing
with complicated factors. It assumes that there is known probability distribution for risk Factor

Table 20: Monte Carlo Simulation

Nifty Future
Sl.no Random no Nifty Return Expected Gain or Loss
Return
1 0.6494 0.0055 0.0055 78.6778
2 0.7549 0.0096 0.0096 137.2269
3 0.4328 -0.0019 -0.0019 -26.9311
4 0.2633 -0.0081 -0.0081 -115.5212
5 0.5989 0.0037 0.0037 53.2646
6 0.8587 0.0148 0.0147 210.6831
7 0.5146 0.0009 0.0009 12.4205
8 0.1189 -0.0154 -0.0153 -220.0278

53
 9 0.3750 -0.0039 -0.0039 -55.4681
10 0.2432 -0.0089 -0.0089 -127.5622
11 0.6603 0.0059 0.0059 84.3246
12 0.1510 -0.0134 -0.0134 -191.7654
13 0.6495 0.0055 0.0055 78.7538
14 0.0587 -0.0206 -0.0205 -293.6527
15 0.6306 0.0048 0.0048 69.0745
16 0.9096 0.0183 0.0182 261.0712
17 0.4756 -0.0004 -0.0004 -6.2900
18 0.6450 0.0054 0.0053 76.4155
19 0.7622 0.0099 0.0099 141.6598
20 0.9823 0.0285 0.0284 407.1149
21 0.0111 -0.0302 -0.0301 -431.3460
22 0.0126 -0.0296 -0.0294 -421.9999
23 0.8966 0.0173 0.0172 246.5204
24 0.2662 -0.0080 -0.0079 -113.8621
25 0.7591 0.0098 0.0098 139.7859
26 0.9212 0.0193 0.0192 275.3420
27 0.0995 -0.0168 -0.0167 -239.9579
28 0.2210 -0.0099 -0.0099 -141.4351
29 0.6314 0.0049 0.0048 69.5084
30 0.3724 -0.0040 -0.0040 -56.7542
31 0.6573 0.0058 0.0058 82.7969
32 0.3070 -0.0064 -0.0063 -90.9292
33 0.9006 0.0176 0.0175 250.8063
34 0.4660 -0.0008 -0.0008 -10.8816
35 0.2635 -0.0081 -0.0081 -115.4392
36 0.1222 -0.0152 -0.0151 -216.9045
37 0.0098 -0.0309 -0.0307 -440.6245
38 0.0975 -0.0170 -0.0169 -242.1035
39 0.0857 -0.0179 -0.0178 -255.7735
40 0.8891 0.0167 0.0167 238.7729
41 0.9680 0.0252 0.0251 359.2623
42 0.7756 0.0105 0.0105 150.1050
43 0.2405 -0.0091 -0.0090 -129.1920
44 0.2158 -0.0102 -0.0101 -144.8373
45 0.4112 -0.0026 -0.0026 -37.4543

54
 46 0.5748 0.0029 0.0029 41.4357
47 0.6801 0.0066 0.0066 94.7733
48 0.3827 -0.0036 -0.0036 -51.5686
49 0.1432 -0.0139 -0.0138 -198.1880
50 0.2597 -0.0082 -0.0082 -117.6251
51 0.5612 0.0024 0.0024 34.8345
52 0.0964 -0.0171 -0.0170 -243.3579
53 0.8401 0.0137 0.0136 195.4564
54 0.3934 -0.0032 -0.0032 -46.2343
55 0.8821 0.0163 0.0162 231.8985
56 0.4997 0.0004 0.0004 5.2755
57 0.8504 0.0143 0.0142 203.7399
Notes

1. Calculation of Random number

= Rand () [In Excel]

2. Calculation of Nifty Returns

= Norm.Inv (Mean * Standard deviation * Random numbers) [In Excel]

3. Calculation of Mean and Standard deviation

Table 21: Calculation of Mean and Standard Deviation

Mean 0.000379323

Standard deviation 0.013392154

4. Calculation of Nifty Future Return

= Beta * Nifty Return

5. Calculation of Expected Gain or Loss

= Recent closing price * Standard Deviation

6. Calculation of VAR

= Percentile * Expected Gain or loss * 0.05

Table 22: VAR

55
 VAR -262.37 Loss@95% level of confidence

Interpretation

At 95% level of confidence the expected loss will be exceeding 262.37 Rs that is at the worst
case the loss may go up to 262.37 Rs. There is 5% chance the lass may go above Rs 262.37.

So investors can opt for hedging so that they can reduce their losses due to varius constraints.

Bootstrap Sampling: It is defined as a quantile of fixed order of random variable being the
value of losses from investment. Bootstrap method are applied in the estimation on parameters of
a random variables distribution, when there is no information about distribution class and when it
is not possible to use the asymptotic properties of estimators of the of the parameters which are
being estimated.

Table 23: Bootstrap

Random
Sl.no V Lookup Nifty Future Return Expected Gain or Loss
Between
1 9 0.001243699 0.0012 17.74
2 15 -0.01394461 -0.0139 -198.88
3 54 -0.001006846 -0.0010 -14.36
4 11 -0.012440639 -0.0124 -177.43
5 38 0.008736427 0.0087 124.60
6 11 -0.012440639 -0.0124 -177.43
7 42 0.02252136 0.0224 321.21
8 15 -0.01394461 -0.0139 -198.88
9 18 -0.012379712 -0.0123 -176.56
10 25 0.012870771 0.0128 183.57
11 25 0.012870771 0.0128 183.57
12 27 0.001148212 0.0011 16.38
13 39 -0.039742422 -0.0395 -566.82
14 49 -0.005506316 -0.0055 -78.53
15 55 0.006174258 0.0061 88.06

56
16 42 0.02252136 0.0224 321.21
17 31 0.000123572 0.0001 1.76
18 53 0.012231901 0.0122 174.46
19 9 0.001243699 0.0012 17.74
20 6 0.00892467 0.0089 127.29
21 56 -0.018892498 -0.0188 -269.45
22 48 -0.010436073 -0.0104 -148.84
23 2 0.00359832 0.0036 51.32
24 50 -0.000604776 -0.0006 -8.63
25 16 -0.008844416 -0.0088 -126.14
26 57 -0.015313874 -0.0152 -218.41
27 49 -0.005506316 -0.0055 -78.53
28 57 -0.015313874 -0.0152 -218.41
29 12 0.019559327 0.0195 278.96
30 5 0.011934744 0.0119 170.22
31 50 -0.000604776 -0.0006 -8.63
32 25 0.012870771 0.0128 183.57
33 13 0.005369712 0.0053 76.59
34 4 0.000389638 0.0004 5.56
35 25 0.012870771 0.0128 183.57
36 35 -0.020378751 -0.0203 -290.65
37 4 0.000389638 0.0004 5.56
38 56 -0.018892498 -0.0188 -269.45
39 34 -0.009152419 -0.0091 -130.54
40 43 -0.012669097 -0.0126 -180.69
41 20 0.045486303 0.0453 648.75
42 51 -0.01267381 -0.0126 -180.76
43 14 -0.003849631 -0.0038 -54.91
44 21 0.024198025 0.0241 345.12
45 3 -0.00190813 -0.0019 -27.21
46 54 -0.001006846 -0.0010 -14.36
47 24 0.002163558 0.0022 30.86
48 23 0.004936492 0.0049 70.41
49 45 0.001066104 0.0011 15.21
50 57 -0.015313874 -0.0152 -218.41
51 37 0.018436516 0.0183 262.95
52 54 -0.001006846 -0.0010 -14.36

57
 53 24 0.002163558 0.0022 30.86
54 34 -0.009152419 -0.0091 -130.54
55 49 -0.005506316 -0.0055 -78.53
56 56 -0.018892498 -0.0188 -269.45
57 36 0.002750539 0.0027 39.23

Note

1. Calculation of Random Between

= Random Between (1 to 57) [In Excel]

2. Calculated V lookup in excel

3. Calculation of Nifty Return

= Lookup value * Beta

4. Calculation of Expected Gain or Loss

= Recent closing price * Nifty Return

5. Calculation of VAR

= Percentile * Expected Gain or loss * 0.05

Table 24: VAR

VAR -269.453 Loss@95% level of confidence

Interpretation

At 95% level of confidence the expected loss will be exceeding 269.453 Rs that is at the worst
case the loss may go up to 269.453 Rs. There is 5% chance the lass may go above Rs 269.453.

So investors can opt for hedging so that they can reduce their losses due to various constraints.

58
 Chapter- 5
Findings, Suggestion and Conclusion

59
 Finding:

i. Hedging is a most powerful technique to reduce the loss on investment

ii. Hedging protects the profits of the investor.

iii. Hedging increases the liquidity of the financial markets as hedging prompts the
investor to trade across different markets of commodity, currencies and derivative markets.

iv. Investors can utilize various strategies to hedge their loss on various investment

v. Derivatives are found to be most use as hedging instruments

vi. Index future is a popular derivatives used for hedging

vii. Value at Risk is a best model to ascertain probability of losing more than a given amount
in a given investment.

viii. From the analysis , it is found that effective strategy will results in perfect hedge

ix. It was found out that hedging will reduce the risks

Suggestion:

a. Investors must have complete knowledge about derivatives

b. Investors can use the Index futures as an hedging instrument

c. Investors has to analyse various aspects before hedging

d. Hedger has to hedge using suitable strategies

e. Hedging may not always end with fruitful result

60
Conclusion:

The primary objective of futures market is to provide a facility for hedging against market risk.
Hedging against investment risk means strategically using financial instruments or market
strategies to offset the risk of any adverse price movements.

In this study VAR is utilized. Value at Risk is a financial metric that estimates the risk of an
investment. VAR is a statistical technique use to measure the amount of potential loss that could
happen in investment over a specified period of time. Value at Risk gives the probability of
losing more than a given amount in a given investment.

Utilisation of various hedging strategies will mostly reduce loss or minimised future risk of loss
it may act like insurance for an investment.

Hedging offers a scalable advantage to investors and traders to effectively trade in the market.
As risk is an essential part of the trading cycle and its main motive is to gain profit. However,
as the market remains unpredictable, hedging offers a safety net for investors and helps them
to protect themselves from market uncertainty.

61
Reference (Bibliography):

1.David Becker ,How to Hedge With Stock Index Futures

2.Global Journal of Finance and Management (2011) “Hedging Effectiveness of Index Futures
Contract: The Case of S & P CNX Nifty”.

3.Stephen Figlewski 1984 THE JOURNAL OF FINANCE Hedging Performance and Basis Risk
in Stock Index Futures

4.Anjali Prashad, Hedging performance of Nifty index futures, Centre for International Trade
and Development, JNU, New Delhi, India.

5. L. C. Gupta, 1998, L. C. Gupta Committee survey

6.Choudhary (2004) investigated the hedging effectiveness .

7.Bhaduri and Durai (2008) ‘Optimal hedge ratio and hedging effectiveness of stock index
futures: evidence from India’. Macroeconomics and Finance in Emerging Market Economies

8.Ederington, L. H. (1979). ‘The hedging performance of the new futures markets’. Journal of
Finance

9.Junkus and Lee (1985) investigated the hedging effectiveness of three US stock index

10.Ederington, L. (1979) ‘The hedging performance of the new futures markets’, Journal of
Finance

11.Figlewski, S. (1984) ‘Hedging performance and basis risk in stock index futures’, Journal of
Finance

13.Ghosh, A. (1993). ‘Hedging with stock index futures: Estimation and forecasting with error
correction model’. Journal of Futures Markets

62
14.Bhattacharya, P., Singh, H., & Gannon, G. (2006). Time-varying hedge ratios: an application
to the Indian stock futures market. Econometric Society Australasian Meetings Papers.

15.https://www.topstockresearch.com/index/BetaValuesOfNIFTY_50Stocks1.html

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