A SUMMER TRAINING REPORT ON

ANALYSIS OF INDIAN BROKING INDUSTRY AND

COMPETITIVE POSITION OF MASTER TRUST LTD.

SUBMITTED BY:
RAJDEEP SINGH

A report submitted in the partial fulfillment of

M.Com (Honors) Program of UBS Chandigarh

Submitted to:
FACULTY GUIDE

COMPANY GUIDE

DR. PARAMJIT KAUR

MR. NITIN SHAHI

UBS CHANDIGARH

V.P., MASTER TRUST

Date of submission:

DECLARATION

I Rajdeep Singh, a student of University business School,

Chandigarh of hereby declare that the project work,
presented in this report is my own and has been carried out
under the supervision of Mr. Nitin Shahi, senior vice president
of Master Trust Ltd..

This work has not been previously submitted to any

other university for any examination.

Date: Place: -

Signature-: Rajdeep Singh

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ACKNOWLEDGEMENT

I hereby take this opportunity to thank MASTER TRUST LTD., for

providing me a corporate exposure through the course of my summer
internship.
I would like to express my sincere gratitude towards my company
guide Mr. NITIN SHAHI, for providing me great insights about
Indian broking industry ,stock markets, futures , commodity markets
various other ventures, for guiding me all throughout and for being a
great support.
I would also like to thank Dr.Paramjit Kaur, my faculty guide for
instructing me and giving me her valuable advice on my project.
I will also like to thank Mr. Aman Baweja one of the members of
Master Trusts family who provided a great co-operation and help all
throughout.
I would like to extend my gratitude to UBS Chandigarh, for providing
me such a platform.
Last but not the least all my friends and family for their support and
co-operation.

Thanking You,
Rajdeep Singh,

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EXECUTIVE SUMMARY

The increasing trend towards globalization and industrialization has

increased the trend of competition in the financial market, intensified
by the coming of Non Banking Financial Company (NBFC), like
Master Trust, and so has the need for the marketing of financial
instruments has intensified.
This project is completely focused to study and analyse the Indian
Broking Industry. The tools used for studying the attractiveness of the
industry are Michael E. Porters five forces model and PESTEL
analysis. It also undertakes the study some of the demand drivers and
supply factors that affect the working of the Indian broking industry,
and in this regard what are the various differentiating factors that
provide Master Trust a competitive edge over other players in the
market.
There has been an emphasis on the various aspects of Master Trust
that make it standout in this league, rather than being a me too
product. In words of Al Ries and Jack Trout, differentiate or die.

TABLE OF CONTENTS
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SL
NO.
01

CONTENTS
Declaration

02

Acknowledgement

03

Executive summary

04-a

Introduction- Background and Literature review

Objective of project

The Brokerage Industry

Michael Porters five Force anlaysis

05-a
b

Demand & supply drivers of the industry

Global & domestic economic environment

c
d
e
f
g

Phases of Indian Brokerage industry

Pestel analysis of Indian Brokerage industry
Legal issues with a brokerage firm
Company overview
Mission, Vision & Corporate Philosophy

h
i

Group Milestones
SWOT analysis

j
k
06-a

Porters 5 force analysis

Market Dynamics
Factors affecting investment decisions

b
c

Comparison of various rates

Competitive advantage of Master Trust

d
e
f

Financial Evaluation
Conclusion
References

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PAGE
NO.

LIST OF FIGURES AND TABLES

Sl.
NO.

01

CONTENT
Porters Five Force analysis

02

Critical Success factors of industry

03

Pestel analysis of industry

04

Value system of Master Trust

05

SWOT analysis of Master Trust

06

Comparison of various rates

BACKGROUND AND LITERATURE REVIEW

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Pg.
NO.

The Securities Brokerage Industry is cyclical and comprised of two

distinct types of businesses. Brokerages, also known as financial
services companies, strive to meet the investing needs of their clients,
and exchanges facilitate securities trading. Net profits correlate to the
performance of the broader equity market.
In this market with less differentiated products and many players,
there exists an oligopoly (saying in book terms), characterized by
tough competition, entry and exit barriers and many more.
1. Al Ries and Jack Trout, in his work said differentiate or die,
too many less differentiated products creates a kind of
information overload, and in this clutter of too much
information, products which are not properly differentiated or
advertised just end up becoming a me too product. To avoid it
every marketer needs to position his/ her products in a way that
makes a specific image in the minds of consumers.
2. Jack Miller, in his work published on June 03, 2010, talked
about how investors make investment decisions. He broke the
process of decision making in pulling the buy or sell trigger.
According to him investors made the investment decisions in the
ways like simple screening, then lateral recommendation,
followed by piggy bank investing.
3. According to U.S. Securities and Exchange Commissions,
one of the articles: investors first evaluate their current financial
roadmap, and then they evaluate their comfort zone in taking on
risk. Consider an appropriate mix of investments, create and
maintain an emergency fund, consider dollar averaging, consider
rebalancing portfolio occasionally, and in the process also try to
avoid the circumstances that can lead to fraud.

OBJECTIVE OF THE PROJECT

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An increasing trend has been observed in demand for the services of

Non Banking Financial Institutions nowadays. This project focuses on
the brokerage industry in general and the competitive position of
Master Trust Ltd. in particular. There has also been emphasis to find
out the plus points of Master Trust or the differentiating factors that
give Master Trust a competitive edge. In short:
To analyse the Indian Broking Industry.
To find out various competitive advantages that makes Master
Trust of the leading stock broking companies in India.

THE BROKERAGE INDUSTRY

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The brokerage industry is currently characterized by a large number

of companies (private or unorganized). In effect it is a fragmented
industry with a large number of participants. The industry thus has
monopolistic competition, i.e. a large number of firms selling a
slightly differentiated product.
Indian stock broking industry is the oldest trading industry that has
been around even before the establishment of BSE in 1875. Despite
passing through a number of changes in post liberalization period, the
industry has found its way towards sustainable growth. With the
purpose of gaining deeper understanding about the role of Indian
stock broking industry, in the countrys economy, let us have a look at
the following data-:
On the basis of geographical concentration, Western region has
maximum of 52%, around 24% are located in the North, 13% in
South, and 10% in the East.
3% of firms started broking operations before 1950, 65%
between 1950-1995, and 32% post 1995.
On the basis of terminals 40% are located in Mumbai, 12% in
Delhi, 8% in Ahmadabad, 7% in Kolkata, 4% in Chennai, and
29% in other cities.
From the study it was found that 36% of firms trade in cash,
27% in derivatives, and 20% in cash, derivatives and
commodities.
In the cash market, 34% trade in NSE, 14% in BSE, 45% in
both. Whereas in debt market, 31% trade in NSE, 26% trades in
BSE, and 43% in both.
Majority branches are located in North, i.e. 40%, 31% in West,
24% in South, and 5% in East.
In terms of sub-brokers, around 55% are located in South, 29%
in West, 11% in North, and 4% in East.

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 Trading, IPOs and Mutual Funds are the top three products
offered by 90% of firms offering trading, 67% IPOs, and 53%
offering Mutual Fund transaction.
In terms of various areas of growth, 84% of firms have shown
their interest in expanding their institutional clients, 66% firms
intend to increase FIIs, and 34% are interested in setting up Joint
Ventures in India and abroad.
In terms of IT penetration 62% firms provide their website, and
90% have email facility.

Analysis of brokerage industry based on Michael Porters 5 factor

model

CP o o t
mew n p t i
eae tlr i t i
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twp h p e
iel ni e n d t
ur as s n t r
yt s

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P o w e r P o C t f o e s m n u t p p i a p e l lt i o i e t f i r o s n n e i w n e t h n e t r i a n n d t u s s t r y

TP
ho r
ew
ae t r
o f
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bu s
is t t
uo t
em s
e r
s

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wh

re e r a

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cf u s su t bo

sm i t eu

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Fig: 1
Competition
The industry is now in a fairly high growth phase. However the
brokerage industry is very cyclical and is impacted by activity levels
in the markets. During the downturns such as 2008-2009 periods, the
smaller players were squeezed out of the business. As a result there is
a contrast consolidation happening in the industry.
Potential of new entrants
A new entrant in addition to the above also needs a reasonable level of
capital to fund the working requirements of the business (finance to
customers, deposits with exchanges, etc).
The scale requirements are increasing constantly and as a result a new
entrant will require higher levels of investments in the future to enter
the business. As pointed out, it is likely to see many entrants in the
industry. On the contrary, it is likely that the smaller players will exit
by selling out or closing.
Power of the supplier
Not much relevant in most segments except investment banking,
where employees control client relationships and hence have to be
highly compensated.
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 Power of the buyers/customers

This is important in the institutional brokerage business which
involves high volume and low brokerage charges. The extent of buyer
power is very low to non-existent in all kinds of retail segments.
Threat of substitutes
The products offered by all firms in this industry are more or less
differentiated. Investing rather saving in the bank rather than investing
in a brokerage firm can be one option; else this is not applicable for
this industry.

In a summary the industry has a moderate to low level of competitive

advantage. There is low level of customer lock-in and customer will
move his or her business if the brokerage rates are not competitive
with rest of the industry. The only competitive advantage for
companies in this sector comes from size and scale which enables
them to leverage their size to reduce average costs and thus make a
profit on low brokerage margins.
In addition to high fixed costs, the industry has very low margin cost.
As a result the cost of adding an additional customer is low and per
transaction costs are limited. Due to this reason, we are seeing a
constant pressure on the brokerage rates has intensified the
competition in the industry and is resulting in consolidation with the
top players.
The basic brokerage business is now sometimes a loss leader to
enable the brokerage firm to acquire customers and sell other products
such as wealth management services, or third party mutual funds. This
segment will provide adequate returns in the future for a company
with scale.

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DEMAND AND SUPPLY DRIVERS OF THE INDUSTRY

Demands for financial products are driven by risk-reward

assessment, which considers:
Potential yield
The expectation of financial incentives or return on investment is a
great demand driver which tempts people to invest or engage into
transactions of the financial markets.
Risk Rating
Higher risks assumes higher profits and vice versa. Risk ratings are
a vital point when making a decision to park ones resources into
this industry.
Liquidity
To maintain strong and flexible liquidity position people tend to
invest in financial markets, in order to meet their contingencies.
Availability of information
The more disclosure, the more is information symmetry, and so
will be visibility and access to returns and so will be the
expectation from this market increase along with investment.
Access to alternatives
More the disclosure in the market more will be the competition
with more profits, so more will be the choices and access to
alternatives to park ones resources.

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The major supply drivers are:

Money supply
The supply of money has a big role to play in this industry, the
more the supply of money in this industry; more will be the
availability of financial services and products.
Interest rates
Interest rate determines the terms of trade, fluctuations in interest
rates can entirely fluctuate this industry. Higher interest rate= will
give higher returns, with great supply no doubt but borrowing or
ascertaining the real market value may become difficult.
Inflation
Value of a currency appreciates and depreciates with the rates of
inflation. Inflation thus serves as a great supply driver in this
market. As in high inflation with higher supply of money there will
be higher supply and vice versa.
Economic conditions
Rates of inflation, the upsurge or downturn in the domestic and
global economy is another supply driver which is beyond the
control of any business firm.
Government Regulations
The attitude of the government towards the trade policies and
various other financial firms and industry matters a lot. Various
restrictions or duties or taxes may restrict the supply and may
hinder the growth of this industry. And will flourish with the ease
of trade.

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GLOBAL AND DOMESTIC ECONOMIC ENVIRONMENT OF

The financial industry
According to global 2000 (annual report by Forbes), seven of the
top 10 companies belonged to the financial industry. These included
the Citigroup, Bank of America, HSBC Holdings, and JPMorgan
Chase. Their combined revenue in 2007 was worth $647 billion, down
from 2006 high of $785 billion.
According to Fortune 500 rankings, in 2006 financial services
generated $257 billion in profits, a third of total Fortune 500 profits.
In 2008, however, they lost a staggering $213 billion, a total swing of
$470 billion. Big players on the list, such as Citygroup and Bank of
America, may only be alive today just because of government money.
The financial industry is an industry in itself as well as an ancillary
that supports other industries. Trade and commerce across the world
would come to standstill if there was no means to fund, pay and
protect the transactions.

The Brokerage industry

Domestic Economic Environment
In 1991, Manmohan Singh, as Finance Minister in Narasimha Raos
government, embarked on a programme of liberalization prompted by
an acute balance-of-payment crisis.

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Fig: (Indian economy growth factors)

PHASES OF INDIAN BROKERAGE INDUSTRY
Indian Brokerage Industry-Pre 2000

Post liberalization period.

Business restricted to friends and relatives.
Settlement T+15 days.
Low trade volumes- No derivatives trading allowed.
Lack of investment in technology- No front or back office
software.
Indian Brokerage Industry 2000-2008

Venture capital funding for brokerage businesses.

Investment in technology- Front end and back end.
National presence.
Integrated risk management system.
Significant increase in trade volumes- Derivatives trades play a
major role.
Margin funding for the retail clients.

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Indian Brokerage Industry 2009 onwards

Paradigm shift from transaction oriented to research/ portfolio
based advisory.
Focus on franchisee based business model.
Dematerialized accounts access for international trade.
Access to international stock exchange.
Trading on hand held platform (mobile phones etc) allowed.
Current Global Economic Environment
The global economy is slowly recovering from a deep recession,
with significant risks remaining.
Euro crisis has become one of the hindrance in the overall
economic growth of the world economy and thereby, Indian
economy too.
Countries are looking for ways to achieve sustainable economic
growth and job creation.
Competitiveness has become more important than ever
-Globalization will continue and strong international
competitors are emerging.
-Companies are re-examining everything in terms of how and
where they operate.
India has achieved a long-term competitive transformation, but
the next stage of development will be more challenging.

Critical Success Factors of the Industry

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Fig:2
Seeing the overall brokerage as a single unit, the key success factors
or the winning strategy of Indian Brokerage Industry is a mixture of:
People
Process
Technology
There are the three ingredients that together create value for both
international and domestic customers.
By people it indicates to the service providers or the employees of the
various firms of this industry, who day in and day out interact with the
customers and provide them services and satisfy them.
Transparency of the process followed and disclosure method is yet
another success factor. The settlement of transactions is generally
done in a process of T+2 days. And the government support even still
plays a very vital role in forming the rules and norms of such
processes.
Technology enables to stay competitive and on edge with the
competitors; facilitating the ease of processes and speed and to
maintain and be up to date. This serves as a great success of the
brokerage industry.
All these factors together help create value to the customer.
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PESTEL ANALYSIS OF BROKERAGE INDUSTRY

PESTEL analysis stands for "Political, Economic, Social,
Technological, Environmental and Legal analysis" and describes a
framework of macro-environmental factors used in the environmental
scanning component of strategic management. It is a part of the
external analysis when conducting a strategic analysis or doing
market research, and gives an overview of the different macro
environmental factors that the company has to take into consideration.
It is a useful strategic tool for understanding market growth or
decline, business position, potential and direction for operations.
Political factors are how and to what degree a government
intervenes in the economy. Specifically, political factors include
areas such as tax policy, labour law, environmental law, trade
restrictions, tariffs, and political stability.
Economic factors include economic growth, interest rates,
exchange rates and the inflation rate. These factors have major
impacts on how businesses operate and make decisions. For
example, interest rates affect a firm's cost of capital and
therefore to what extent a business grows and expands.
Social factors include the cultural aspects and include health
consciousness, population growth rate, age distribution, career
attitudes and emphasis on safety. Trends in social factors affect
the demand for a company's products and how that company
operates.
Technological factors include technological aspects such as
R&D activity, automation, technology incentives and the rate of
technological change. They can determine barriers to entry,
minimum efficient production level and influence outsourcing
decisions. Furthermore, technological shifts can affect costs,
quality and lead to innovation.
Environmental factors include ecological and environmental
aspects such as weather, climate, and climate change, which
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may especially affect industries such as tourism, farming, and

insurance.
Legal factors include discrimination law, consumer law,
antitrust law, employment law, and health and safety law. These
factors can affect how a company operates, its costs, and the
demand for its products.

Fig: 3

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LEGAL ISSUES WITH A BROKERAGE FIRM

Securities Exchange Act of 1934 (Exchange Act)
In contrast to the Securities Act, the Exchange Act primarily regulates
transactions of securities in the secondary market - that is, sales that
take place after a security is initially offered by a company (the
issuer). These transactions often take place between parties other than
the issuer, such as trades that retail investors execute through
brokerage firms. The Exchange Act operates somewhat differently
from the Securities Act. To protect investors, Congress crafted a
mandatory disclosure process that is designed to force companies to
make public information that investors would find pertinent to making
investment decision. In addition, the Exchange Act provides for
direct regulation of the markets on which securities are sold (the
securities (stock) exchanges) and the participants in those markets
(industry associations, brokers, and issuers).
Monetary and Fiscal Policies
In the securities industry there exist regulators who have established a
set of rules and regulations that administer the entire industry.
Financial markets, depositors, clearing houses, and vendors work
together to regulate the investment in the industry.
The 3 major US government agencies that govern the securities
industry and frame monetary and fiscal policy, they are: the Federal
Reserve System, the Securities Exchange Commission (SEC), and the
Office of Comptroller of the Currency.
Federal Reserve System
The Federal Reserve System is a government institution created to
administer nations credit and monetary policies and to oversee the
banking industry as well as certain aspects of the broker activity, such
as credit.
The Fed is responsible for establishing and enforcing monetary
policy and for regulating the amount of credit outstanding. The fed
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does this by establishing the bank discount rates and the rules for
credit. The markets response to the Feds determination to control
inflation by raising and lowering the discount rate affects long term
interest rates, which have a significant impact on the securities
market.
Securities Exchange Commission
The Securities Exchange Commission (SEC) is the primary regulatory
agency that oversees the securities industry. The SEC is an
independent bipartisan, quasi-judicial agency of the government. The
laws administered by SEC deal with securities and finance and seek to
provide protection for investors in their securities transactions.

COMPANY OVERVIEW
Master Trust is one of the leading financial services group in India
with 26 years of customer's patronage built on loyalty and trust.
The Philosophy of Master Trust has its seeds embedded in the
group's belief in nurturing the investment culture towards value
investing.
Its constant endeavor to understand the client's needs and meeting
them with the right financial solutions has helped it emerge as one of
the leading broking houses in the country.
As a one stop shop catering to all kinds of investment needs, Master
Trust focuses on the retail investors who are looking for value added
financial solutions.
With a network of over 750 Business Locations across India & around
1.5 Lac client base we provide products like Equity, Derivatives,
Commodity, Currency, Gold ETF, Mutual Funds, Insurance, IPO,
Forex, NRI Services & Merchant Banking.

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Our endeavor is to constantly meet every financial need of our clients.

The one-stop destination is specifically designed for retail customers
who require a very strong relationship driven approach towards value
investing. We provide unmatched convenience by serving individual
consumers, small and middle market businesses and large
corporations with a full range of investment, asset management and
risk mitigation products. Our strength is seamless integration of asset
holdings, advisory based execution of trades & financial planning.
Needless to say Master Trust services have ushered in an era of
unmatched quality and excellence never experienced before.
Our open-mindedness together with our innovative and personalized
services has helped us emerge as one of the leading financial services
group in India.
MISSION AND VISION

MISSION:
To always earn the right to be our clients first choice through
personal & social wealth maximization

VISION:
To be well diversified financial shop for wealth creation and being an
ideal service provider in our domain of business.

CORPORATE PHILOSOPHY:

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Becoming an expert at anything takes a strong will, unyielding

determination and pure ability

VALUE SYSTEM:

Fig:4

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Group Milestones-:
2007

Set up regional offices at Baroda, Kolkata and Hyderabad

2006

Became SEBI registered Portfolio Manager

2005

Acquired the membership of Bombay Stock Exchange Ltd.(

Commenced Internet Trading and margin funding against S

2004

Became Member of NCDEX (National Commodity Derivat

Introduced Virtual Private Network (VPN)
Became Insurance Broker under name of M/s Master Insura

2002

Entered into Insurance business as corporate agents for Life

2001

Launched Depository Services as a Depository Participant o

Commenced Trading in Derivatives Segments in NSE

1999

Launched Depository Services as a Depository Participant o

1997

Became RBI approved Fully Fledged Money Changers

1995

Master Trust Ltd. came out with the IPO (Initial Public Offe
Upgraded Dealership of OTCEI to Membership.

1994

Master Capital Services Ltd. became Corporate Members o

1993

Acquired status of SEBI accredited Category I Merchant Ba

Became Dealer of OTCEI (Over the Counter Exchange of I

1987

Became members of DSE (Delhi Stock Exchange) under th

Brokers Ltd.

1986

Acquired membership of Ludhiana Stock Exchange under t

Brokers Ltd.)

1985

The seeds of the Group were sown as Arora Financial Cons

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SWOT ANALYSIS OF MASTER TRUST LTD.

This is a strategic planning method to evaluate the Strength,
Weaknesses (limitations), Opportunities and Threats involved in a
project or business venture. It involves specifying the objectives of
the business venture or project and identifying internal and external
factors that are favorable or unfavorable to achieve it. This technique
is credited to Albert Humphrey of Stanford University.

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WS t er ae k n ge st h e s

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OT hp r e oa ut sr t u n i t e s
Fig: 5

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PORTERs 5 FACTOR MODEL OF BROKING INDUSTRY

Named after Michel E. Porter, this model identifies and analyses 5
competitive forces that shape every industry and determines
industrys weaknesses and strength. They are:
Competition in the industry
Master Trust Ltd. faces competition from various firms like:

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Potential of new entrants

The market for Non Banking Financial Companies or rather
broking houses are flourishing. This new trend poses for new
threats also; this may be either the entry of local players who can
provide lower rates or a very big player who can enter into a price
war. Threat of new entry is high when:
Capital requirements to start the business are less
Few economies of scale are in place
Customers can easily switch (low switching cost)
Your key technology is not hard to acquire or isnt protected
well
Your product is not differentiated
Power of suppliers
Master Trust Group has very high profile corporate suppliers, who
for obvious reasons have great bargaining power and offers from
competitors also. The operations largely depend on these supplies.
Bargaining Power of supplier means how strong is
the position of a seller. Suppliers are more powerful
when:
Suppliers are concentrated and well organized
Few substitutes available to suppliers
Their product is most effective or unique
Switching cost, from one suppliers to another, is high
You are not an important customer to Supplier
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Power of customers
Customer is the king of the market. They have a lot of options while
planning to purchase products. Products offered by Master trust are
unsought in nature and are industry dependent. The threats which lies
here are:
Too many goods chasing too few consumers.
Buyer purchases in bulk quantities and are mostly corporate
clients.
Product is not much differentiated.
Buyers cost of switching to a competitors product is low.
Shopping cost is low.
Credible Threat of integration.
Threat of substitutes
Master Trust poses great threat of substitutes like people of low risk
appetite would like to invest in bank rather than in share market, real
estate, commodities, etc. Its products can very well be substituted by
substitutes offered by competitors.

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MARKET DYNAMICS
The pricing signals that are created as a result of changing supply and
demand level in a given market. Market dynamics describe the
dynamic, or changing, price signals that result from the continual
changes in both supply and demand of any particular product or group
of products. Market dynamics is a fundamental concept in supply,
demand and pricing economic models.
There is great shift in the Indian consumption pattern that is being
observed like:
69% of the population is less than 35 years of age and has
spurred consumption demand.
54% of the population is in the working group.
High savings and investment rate (over 35% of GDP).
Indias manufacturing growth is amongst the fastest in the
world. Indias manufacturing base is the fourth largest globally.
The growth potential of the services sector in India is enormous
at $200 billion offering employment to 40 million people. The
confidence of a robust growth in the services sector is the
highest in India among the 4 BRIC countries including Brazil,
Russia, China and India service sector. Among 60% of firms
there expect a rise in activity while
The above factors along with many other factors are some of those
market dynamics which greatly affect this market.

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FACTORS AFFECTING INVESTMENT DECISIONS

There are a numerous reasons that affect investment decisions here
are some of them:
Risk Tolerance
Risk refers to the volatility of portfolios value. The amount of risk
the investor is willing to take on is an extremely important factor.
While some people do become more risk averse as they get older; a
conservative investor remains risk averse over his life-cycle. An
aggressive investor generally dares to take risk throughout his life. If
an investor is risk averse and he takes too much risk, he usually panic
when confronted with unexpected losses and abandon their
investment plans mid-stream and suffers huge losses.
Return Needs
This refers to whether the investor needs to emphasize growth or
income. Younger investors who are accumulating savings will want
returns that tend to emphasize growth and higher total returns, which
primarily are provided by equity shares. Retirees who depend on their
investment portfolio for part of their annual income will want
consistent annual payouts, such as those from bonds and dividendpaying stocks. Of course, many individuals may want a blending of
the two some current income, but also some growth.
Investment Time Horizon
The time horizon starts when the investment portfolio is implemented
and ends when the investor will need to take the money out. The
length of time you will be investing is important because it can
directly affect your ability to reduce risk. Longer time horizons allow
you to take on greater risks with a greater total return potential
because some of that risk can be reduced by investing across different
market environments. If the time horizon is short, the investor
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has greater liquidity needs some attractive opportunities of earning

higher return has to be sacrificed and the result is reduced in return.
Tax Exposure
Investors in higher tax brackets prefer such investments where the
return is tax exempt, others will have no such preference.
Management Outlook
lf the management is progressive and has an aggressively marketing
and growth outlook, it will encourage innovation and favor capital
proposals which ensure better productivity on quality or both. In some
industries where the product being manufactured is a simple
standardized one, innovation is difficult and management would be
extremely cost conscious. In contrast, in industries such as chemicals
and electronics, a firm cannot survive, if it follows a policy of 'makedo' with its existing equipment. The management has to be
progressive and innovation must be encouraged in such cases.
Competitors Strategy
Competitors' strategy regarding capital investment exerts significant
influence on the investment decision of a company. If competitors
continue to install more equipment and succeed in turning out better
products, the existence of the company not following suit would be
seriously threatened. This reaction to a rival's policy regarding capital
investment often forces decision on a company'.
Opportunity created by technological change
Technological changes create new equipment which may represent a
major change in process, so that there emerges the need for reevaluation of existing capital equipment in a company. Some changes
may justify new investments. Sometimes the old equipment which has
to be replaced by new equipment as a result of technical innovation
may be downgraded to some other applications, A proper evaluation
of this aspect is necessary, but is often not given due consideration. In
34 | P a g e

this connection, we may note that the cost of new equipment is a

major factor in investment decisions.

Market Forecast
Both short and long run market forecasts are influential factors in
capital investment decisions. In order to participate in long-run
forecast for market potential critical decisions on capital investment
have to be taken.
Fiscal Incentives
Tax concessions either on new investment incomes or investment
allowance allowed on new investment decisions, the method for
allowing depreciation deduction allowance also influence new
investment decisions.
Cash Flow Budgets
The analysis of cash-flow budget which shows the flow of funds into
and out of the company may affect capital investment decision in two
ways. 'First, the analysis may indicate that a company may acquire
necessary cash to purchase the equipment not immediately but after
say, one year, or it may show that the purchase of capital assets now
may generate the demand for major capital additions after two years
and such expenditure might clash with anticipated other expenditures
which cannot be postponed. Secondly, the cash flow budget shows the
timing of cash flows for alternative investments and thus helps
management in selecting the desired investment project.
Non-economic Factors
New equipment may make the workshop a pleasant place and permit
more socializing on the job. The effect would be reduced absenteeism
and increased productivity. It may be difficult to evaluate the benefits
in monetary terms and as such we call this as non-economic factor.
Let us take one more example. Suppose the installation of a new
35 | P a g e

machine ensures greater safety in operation. It is difficult to measure

the resulting monetary saving through avoidance of an unknown
number of injuries. Even then, these factors give tangible results and
do influence investment decisions.
COMPARISON OF VARIOUS RATES
FIRMS

HDFC

FACTOR

SHAREK
HAN

MOTILA
L
OSWAL

M.T

KOTAK

INDIABULLS

BROKERAG
E

5p to 50p

5p to 25p

5p to50p,
1p-10p ( min)

3p to 25p

4p to 40p

2p to 20p or
1p to 10p (min)

MINIMUM
AMOUNT

Rs 10000,
Rs 0
(for big
corporate
clients)

Rs 10000

Rs 50000

Rs 0

Rs 10000

Rs 0

Rs 799

Nil

Rs 200

Rs 555

Rs 550

Rs 1350

-Equity, features
and options,
ETF, IPO,
mutual funds.
-Do it yourself
systematic
investment
planning, and
-NRI offerings,
loans, FD.

Trade
Tigers,
IPO, MF
online,
contract note
on paper, and
ODIN
Software.

ETF, IPO,
mutual
funds, and
NRI
offerings.

IPO,
Mutual
Funds,
and
Commod
ities

K-25 and
T-25.
Brokerage,
IPO,
Mutual
Funds,
Commodit
ies.

IPO, Mutual
Funds, Real
Estate, Home
loans, Commodity,
and Derivatives.

-J2 ME
windows,
blackberry,
android, iphone.
- Call and trade,
online and
offline services
for different time
zones.

Brokerage
services,
trade on
mobile,
online, call
and trade,
dedicated
dealer desk
at every city.

Call and
trade.

Brokerag
e-e and
banking
services.

Brokerage
and
banking
services.

Brokerage, Online
and Offline
Trading available
on all phones, No
extra charges on
calls from clients.

MINIMUM
OPENING
CHARGES
PRODUCTS

SERVICES

36 | P a g e

QUALITY OF
SALESPERSO
N

PROCESS

Good

Good

Good

Good

Good

Good

T+2 days

T+2 days

T+2 days

T+2 days

T+2 days

T+2 days

Fig: 6

COMPETITIVE ADVANTAGE OF MASTER TRUST

BROKERAGE SERVICES
One of the lowest brokerage charge in the industry (currently).
Best software in the industry.
Listed company and aggressive in brand promotion.
Mobile trading tie ups with Blackberry and other phones, where
one can trade with ease.
Both online and offline facilities are provided.
Competitive commissions and service support at fair price
(value for money).
Relationship manager facility to assist customers as and when
they need assistance and guidance.
Full access to Master Trusts Equity Analysis, follows a fact
based approach to rating stocks.
Easy access to customers of the snap shots of their account
statement and portfolio statements and to digital contract notes.

37 | P a g e

FINANCIAL EVALUATION OF MASTER TRUST

(1) INCOME STATEMENT
Mar Mar Mar Mar Mar
'12
'11 '10
'09 '08
12
12
12
12
12
mths mths mths mths mths
Income
Sales
Turnover
Excise Duty
Net Sales
Other Income
Stock
Adjustments
Total Income
Expenditure
Raw Materials
Power & Fuel
Cost
Employee
Cost
38 | P a g e

10.57
0
10.57
0.13

5.73
0
5.73
0.13

4.6
0
4.6
0.06

4.72
0
4.72
0.69

4.06
0
4.06
0.65

0
10.7

0
5.86

0
4.66

0
5.41

0
4.71

0.81

0.85

0.92

0.72

0.53

Other
Manufacturing
Expenses
Selling and
Admin
Expenses
Miscellaneous
Expenses
TotExpenses

1.09

0.22

0.21

0.36

0.67 0.18 0.52 0.37 0.19

1.48 2.12 1.66
1.3 1.08
Mar Mar Mar Mar Mar
'12
'11 '10
'09
'08
12
12
12
12
12
mths mths mths mths mths

Operating
Profit
PBDIT
Interest
PBDT
Depreciation
Other Written
Off
Profit Before
Tax
Extra-ordinary
items
PBT (Post
Extra-ord
Items)
Tax
Reported Net
Profit
Total Value
39 | P a g e

9.09
9.22
6.77
2.45
0.07

3.61
3.74
1.76
1.98
0.05

2.94
3
1.87
1.13
0.05

3.42
4.11
2.39
1.72
0.04

2.98
3.63
2.18
1.45
0.03

0.01

0.01

0.01

0.01

2.38

1.92

1.07

1.67

1.41

0.01 -0.03

0.14 -0.42

2.39
0.01

1.89
0.22

1.21
0.05

1.25
0.3

1.41
0.22

2.38
1.48

1.69
2.12

1.03
1.66

1.35
1.3

1.5
1.08

Addition
Preference
Dividend
0
Equity
Dividend
1.09
Corporate
Dividend Tax
0.03
Per share data
(annualised)
Shares in issue 108.7
(lakhs)
7
Earning Per
Share (Rs)
2.19
Equity
Dividend (%)
10
Book Value
(Rs)
63.36

0.61

0.61

68.4

62

62

57

2.47

1.66

2.18

2.64

10
57.7
8

10
55.0
2

0
46.3
6

0
36.9
7

Source : Dion Global Solutions Limited

40 | P a g e

(2) BALANCE SHEET

Mar '12

Mar '11

Mar '10

Mar '09

12 mths

12 mths

12 mths

12 mths

10.92

6.78

6.14

6.14

10.92

6.78

6.14

6.14

7.03

4.82

0
57.99

0
32.74

0
27.97

0
22.6

0
68.91
13.14

0
46.55
1.73

0
34.11
3.47

0
33.56
0.81

54.23
67.37

1
2.73

1
4.47

1
1.81

136.28

49.28

38.58

35.37

Sources Of Funds
Total Share
Capital
Equity Share
Capital
Share
Application
Money
Preference
Share Capital
Reserves
Revaluation
Reserves
Networth
Secured Loans
Unsecured
Loans
Total Debt
Total
Liabilities
41 | P a g e

Mar '12
12 mths
Application Of Funds
Gross Block
1.44
Less: Accum.
Depreciation
0.67
Net Block
0.77
Capital Work
in Progress
0
Investments
25.35
Inventories
3.74
Sundry
Debtors
12.72
Cash and Bank
Balance
2.44
Total Current
Assets
18.9
Loans and
Advances
93.5
Fixed Deposits
0
Total CA,
Loans &
Advances
112.4
Current
Liabilities
0.93
Provisions
1.31
Total CL &
Provisions
2.24
Net Current
Assets
110.16
Miscellaneous
Expenses
0
Total Assets
Contingent
Liabilities
42 | P a g e

Mar '11
12 mths

Mar '10
12 mths

Mar '09
12 mths

1.18

2.74

2.97

0.61
0.57

0.55
2.19

0.5
2.47

0.07
16.1
5.91

0
17.69
0.96

0
12.44
2.99

0.1

0.37

0.86

0.47

0.27

0.46

6.48

1.6

4.31

48.07
2.83

38.24
4.79

46.1
2.31

57.38

44.63

52.72

23.6
1.24

24.66
1.27

31.74
0.54

24.84

25.93

32.28

32.54

18.7

20.44

0.01

0.01

0.02

136.28

49.29

38.59

35.37

117

141.05

67.55

45.63

Book Value
(Rs)

63.36

57.78

55.02

(3) CASH FLOW STATEMENT

Mar
'12

Mar
'11

Mar
'10

Mar
'09

Mar
'08

12
mths

12
12
12
12
mths mths mths mths

Net Profit Before

Tax
2.38
1.91 1.08 1.65 1.73
Net Cash From
Operating
11.9
Activities
1 -13.89 4.63 13.66
2.7
Net Cash (used
in)/from
Investing Activities -9.44
3.09 -5.01 3.56 -5.41
Net Cash (used
in)/from Financing 20.4
Activities
9
9.04 2.67 11.02 0.02
Net
(decrease)/increas
e In Cash and
Cash Equivalents -0.86 -1.76 2.28 0.92 -2.68
Opening Cash &
Cash Equivalents
3.3
5.06 2.77 1.85 4.53
Closing Cash &
Cash Equivalents
2.44
3.3 5.06 2.77 1.85
43 | P a g e

46.36

Source : Dion Global Solutions Limited

(4) FINANCIAL RATIOS

Mar '12 Mar '11 Mar '10 Mar '09
Investment Valuation Ratios
Face Value
10
Dividend Per Share
1
Operating Profit Per
Share (Rs)
8.36
Net Operating Profit
Per Share (Rs)
9.72
Free Reserves Per
Share (Rs)
-Bonus in Equity
Capital
-Profitability Ratios
Operating Profit
Margin(%)
86.01
Profit Before
Interest And Tax
Margin(%)
84.32
Gross Profit
Margin(%)
85.35
Cash Profit
Margin(%)
22.8
Adjusted Cash
22.8
44 | P a g e

Mar
'08

10
1

10
1

10
--

10
--

5.27

4.75

5.52

5.23

8.37

7.42

7.62

7.11

40

36.99

--

--

62.93

63.99

72.5 73.47

60.66

62.06

62.97 58.78

62.03

62.84

71.66 72.68

29.84
29.84

23.29
23.29

25.94 30.75
25.94 30.75

36.42 27.03
--

--

Margin(%)
Net Profit
Margin(%)
22.24
Adjusted Net Profit
Margin(%)
22.24
Return On Capital
Employed(%)
6.71
Return On Net
Worth(%)
3.45
Adjusted Return on
Net Worth(%)
3.44
Return on Assets
Excluding
Revaluations
63.36
Return on Assets
Including
Revaluations
63.36
Return on Long
Term Funds(%)
6.71
Liquidity And Solvency
Ratios
Current Ratio
50.34
Quick Ratio
48.6
Debt Equity Ratio
0.98
Long Term Debt
Equity Ratio
0.98
Debt Coverage Ratios
Interest Cover
1.35
Total Debt to
Owners Fund
0.98
Financial Charges
Coverage Ratio
1.36
Management Efficiency
Ratios
Inventory Turnover
Ratio
2.83
Debtors Turnover
1.65
45 | P a g e

28.88

22.04

25.11 30.01

28.88

22.04

25.11 30.01

7.46

7.63

11.39 16.68

4.28

3.01

4.7

7.14

4.28

3.01

4.7

7.14

57.77

55.01

46.33 36.93

57.77

55.01

46.33 36.93

9.04

8.35

13.45 16.94

2.05
2.06
0.07

1.37
1.68
0.13

1.58
1.54
0.06

1.1
1.04
0.11

0.03

0.03

0.04

0.09

2.1

1.59

1.72

1.81

0.07

0.13

0.06

0.11

2.12

1.61

1.71

1.81

-24.13

-7.45

-5.89

-4.43

Ratio
Investments
Turnover Ratio
Fixed Assets
Turnover Ratio
Total Assets
Turnover Ratio
Asset Turnover
Ratio

2.83

0.97

--

1.63

1.36

7.36

--

--

--

--

0.08

0.12

--

0.14

0.17

0.11

0.13

0.12

0.16

1.96

--

--

--

Average Raw
Material Holding
--Average Finished
Goods Held
--Number of Days In
3,752.0
Working Capital
7 2,045.05
Profit & Loss Account Ratios
Material Cost
Composition
--Imported
Composition of Raw
Materials Consumed
--Selling Distribution
Cost Composition
-0.98
Cash Flow Indicator Ratios
Dividend Payout
Ratio Net Profit
47.07
36.04
Dividend Payout
Ratio Cash Profit
45.74
34.88
Earning Retention
Ratio
52.74
63.96
Cash Earning
Retention Ratio
54.08
65.12
AdjustedCash Flow
Times
27.61
1.56

46 | P a g e

---1,462.5
2 1,558.11 430.9

--

--

--

--

--

--

0.06

0.24

3.36

59.83

--

--

56.64

--

--

40.17

100

100

43.36

100

100

4.12

1.3

1.5

Mar '12 Mar '11 Mar '10 Mar '09

Earnings Per Share
Book Value

2.19
63.36

2.47
57.78

1.66
55.02

2.18 2.64
46.36 36.97

Source : Dion Global Solutions Limited

REFERENCES

www.mastertrust.co.in
www.moneycontrol.com
www.rediffmoney.com
www.bseindia.com
www.nseindia.com
www.wikipedia.org
www.icra.in
www.secgov/investor/pubs/financialnavigating.html
www.tradestreaming.com/2010/06/04/investment decisions
economicstimes.indiatimes.com>opinion
en.wikipedia.org/wiki/marketing_research
www.quickmba.com/strategy/matrix/bcg
www.smallbusiness.wa.gav.au/business-life-cycle
www.valueline.com/stock/industry
en.wikipedia.org/wiki/porters-five-factor

47 | P a g e

Mar
'08

48 | P a g e