SMC GLOBAL SECURITIES LIMITED

2014

Khushbu Sachdeva

A Study on Indian Stock Market

Summer Internship Project Report

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DECLARATION

I Khushbu Sachdeva declare that the project done by me contains the original work

and I have not copied from anywhere, the portion which at some places in the

report that has been copied by me I have declare that in the end of the project

report and that portion is the originally belongs to its original writer and I don‘t

claim over it. It will be purely used for the academic purpose.

Place: ………….. Signature

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ACKNOWLEDGEMENT

The beatitude, bliss that accompanies the successful completion of any task would

not be complete with expression of simple virtue to the people who made it

possible. So, with the reverence honour we acknowledge all those guidance and

encouragement has made successful in winding up this opus. I wish to express my

deep sense of gratitude to

Mr. Sandeep Nagpal (Branch Manager), SMC Global Securities Limited.

For help, guidance and for assisting me with valuable suggestions during the

project. He not only infused in me best skill and guidance in the fields but also

invoked in me a spirit to undertake the project in his prospective and to complete it

successfully. The pleasant and fruitful discussions, which had given me

valuable training will help me in my future career. I would like to thank

Mrs. Poonam Luthra, H.O.D. (M.B.A.)

And all the lecturers who support and help me a lot during the project and by which

I am able to complete this project. Finally I wish to thank all my fellow trainees and

my parents for supporting me all the time and my heartiest thanks to Anagram

Capital Ltd.

for providing me exposure to the corporate world.

Khushbu Sachdeva

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PREFACE

Indian stock exchanges host the most number of listed companies after United

States. About 2500companies are listed in the Bombay Stock Exchange and the

National Stock Exchange. Apart from foreign institutional investors, Indian stock

market has some 30 million domestic investors. The working of stock markets has

started in India as early as 1875, when 318 persons coming together to Native

Share and Stock Brokers Association, with Re.1 for membership free. Closest to

BSE is National Stock Exchange, also located at Bombay. Nifty is the market index

of NSE.Indian stock market has seen many ups and downs, but now is flying high,

crossing every previous record and zoom to even further heights. BSE-Sensex

crossed the four-figure mark of 1000 in 1990and had a smooth bull ride till 1992,

when the big-full of Indian stock market, Harshad Mehta became villain in the in

famous Harshad Mehta scam broke out. The sensex lost 570 points in no time and

some eight to 12 million investors were pushed to bankruptcy. After that incidence,

came the Securities and Exchanges Board of India. With the enforcement of several

regulations and strict guidelines, the confidence of investors was somewhat

regained. With the present technology and practices, it is next to impossible to

commit a fraud in Indian Stock market. So claims the SEBI. Under the watchful

eyes of SEBI, Indian Stock markets once again gained momentum. The sensex

crossed reached and crossed 6000 mark in 2000 and crossed the 7000 and 8000

marks in 2005.Foreign Institutional Investors are pumping in money into the

market. The FIIs are confident of a sustainable momentum. The momentum in the

stock market can be associated with the growth in the fields of export, IT, ITES,

telecommunication, education, energy sector, agriculture etc. The reformist policies

being pursued by the government is also a factor for this growth. Due to large scale

outsourcing by American and European countries, a large number of jobs also went

to India, resulting in more affluent youth who are only happy to spend out their

money. This helped in the growth of telecommunication, FMCG and manufacturing

sectors. The steady growth of GDP is also a critical factor in the upward

movement of Indian stock market. Apart from FIIs, the non-resident Indians also

invest hugely in the stock Market. Diminishing returns from bank deposits and the

facilities of online trading made them turn to stock markets and with the current

bull-run many have made a good fortune from stock markets. The stockbrokers

also chip in on and open offices in foreign countries, aimed at him NRIs there. The

initial public offers by Tata Consultancy Services, Maruti Udyog Limited, ONGC

etc. were big events in Indian stock market. Not only did they put a great show, but

also took the stock market to newer heights. TCS is a big weight in the stock

market from the day it was listed. Traditional heavyweights are Reliance, Tata, and

Bharati etc.

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SMC GLOBAL SECURITIES LIMITED

Introduction

SMC Group is one of the leading financial services and investment providers. It was

founded in 1990 by Mr Subhash. C. Aggrawal, FCA and Mr Mahesh. C. Gupta, FCA.

It has been rated as India‘s best equity broker and best currency broker and best

broking house with the largest distribution network.

Over the years it has expanded its operations both domestically as well as

internationally. It has regional offices in Mumbai, Kolkata, Chennai, Ahmedabad,

Jaipur, Hyderabad, Bangalore plus a growing network of 43 branches & 2521

registered sub brokers and authorized persons spread across 500+ cities and towns

in India. It has its headquarters in Delhi.

It has a workforce of 2594 employees and 20361 registered associates and service

providers serving the financial needs of a large base of investors efficiently.

SMC Group offers a diverse range of financial services which are as follows

1. Institutional and retail brokerage of

Equity

Derivatives

Currency

Commodities

2. Online trading

3. Depository services

4. Distribution of IPO‘S, mutual funds, fixed deposits, bonds etc

5. Desk for NRI‘s and institutional clients

6. Insurance broking

7. Clearing services

8. Margin financing

9. Investment banking

10. Portfolio Management

11. Wealth Advisory

12. Research

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SMC Board of Directors

SUBHASH CHANDRA AGGARWAL

Mr. S C Aggarwal

(Chairman & Managing Director, SMC Group)

Mr. Aggarwal is a promoter of the SMC Group. He has rich and extensive

experience of more than 23 years. He is a fellow member of the Institute of

Chartered Accountants of India (ICAI). He has an in-depth knowledge and strong

understanding of various intricacies of Securities Market and Financial Services. It is

through his exceptional leadership skills and outstanding commitment towards the

company that SMC received several accolades. His efforts have led to the

diversification of group business from Stock Broking and Arbitrage to Commodity

Broking, IPOs & Mutual Funds distribution, Insurance Products, Merchant Banking,

Wealth Management and Advisory Services. He is the chairman of the India

European Union Business Promotion Council of ASSOCHAM, co-chairman of the

National Council of Capital Markets and a senior member of the management

committee of ASSOCHAM. He has also acted as a member of the expert group on

behalf of ASSOCHAM Working Group constituted by the Ministry of Corporate Affairs

and the Cost Accounting Board.

Mr MAHESH. C. GUPTA

Mr. Mahesh C Gupta

(Vice Chairman & Managing Director, SMC Group)

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Mr. Mahesh C Gupta is a Promoter of the SMC Group with more than 23 years of

widespread experience in Securities Market. He is a fellow member of the Institute

of Chartered Accountants of India. His extraordinary leadership skill, astute

business acumen and disciplined life style have helped SMC strongly diversify to a

fully fledged financial services firm with presence across 500 cities providing

Brokerage services in equity, commodity, currency & derivatives, depository

services, clearing services, Investment banking, portfolio & wealth management,

distribution of Insurance, IPOs, Mutual Funds, Fixed Deposits and other 3rd party

products. His principles of honesty, transparency and moral integrity have given

SMC strong foundation based on which it has become India‘s leading financial

services provider. Mr. Gupta has also given his vital contribution in various

conferences & seminars on securities market.

Mr D. K. AGGARWAL

Mr. D K Aggarwal

(Chairman & Managing Director – SMC Comtrade Limited; Director - SMC Capitals

Limited; Chairman - SMC Investments & Advisors Ltd)

Mr. DK Aggarwal is a promoter and one of the key architects of success of the SMC

Group. Innovation in offerings, Branding, Research and Arbitrage are his forte. He

has more than 20 years of wide and rich experience in Equity and Commodity

Broking and Arbitrage. He is an eminent speaker and regularly presents his views

and expertise on various market related issues through print and television media.

He is also a fellow member of the Institute of Chartered Accountants of India. He is

the Immediate Past President of Commodity Participants Association of India.

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Mr PRADEEP KUMAR AGGARWAL

Mr. Pradeep Kumar Aggarwal

Whole Time Director- SMC Global Securities Limited; Director- SMC Comtrade Ltd.)

Mr. Pradeep Aggarwal is a self motivated person having a professional approach

emphasising on ethics and integrity. He possesses excellent communication and

inter-personal skills & operates collaboratively with his team members to achieve a

common goal. With an experience of more than 17 years in equity and commodity

market, he innovates, develops and effectively implements new ideas for the

growth and progress of the Arbitrage business of the company‘s Securities and

Commodities business. Mr Aggarwal is a person with unmatched sharp calculative

skills and analytical bent of mind.

Mr AJAY GARG

Mr. Ajay Garg

(Whole Time Director- SMC Global Securities Limited & Director-SMC Insurance

Brokers Pvt Ltd.)

Mr. Ajay Garg is a fellow member of the Institute of Chartered Accountants of India

(ICAI). He has a wide experience of more than 15 years in the Capital Market. Mr.

Garg leads the Broking Operations of SMC Group including Back office operations,

entire technological functioning of the business, Risk Management & Surveillance,

Legal & Compliance, Corporate Communications & Brand Management and IT &

Software Development. His roles also include Business Development of Corporate

Client Group (CCG) and handling of Corporate Hedging Desk (SCHD). He is

responsible and instrumental for Internet Based Trading and Mobile Trading, QFI,

NRI and B2B Businesses. Under his able guidance within last few years, SMC has

evolved into a well known and a preferred brand in the Indian Capital Market.

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Mr ANURAG BANSAL

Mr Anurag Bansal

(Whole Time Director – SMC Global Securities Ltd.)

Mr. Anurag Bansal, aged 37 years, is a rank holder and fellow member of the

Institute of Chartered Accountants of India (ICAI) and a member of Institute of

Cost and Works Accountants of India (ICWAI). He has extensive experience of over

15 years with SMC in Capital Markets. His roles and responsibilities include

management and supervision of business development in the field of primary &

secondary market through branches spread all over the country, Institutional

Equities business and distribution division apart from legal and other strategic

functions of the organisation. His rich experience and efforts have helped SMC

establish as a reliable name and renowned brand in the country.

Mr RAVI AGGARWAL

Mr. Ravi Aggarwal

(Director- SMC Insurance Brokers Pvt. Ltd.)

Mr. Ravi Aggarwal has more than 12 years of experience in Equity and Commodity

Market. An innovative mind having a rich academic and professional background,

his roles and responsibilities include the establishment and development of

Insurance Broking venture, developing pan-India branch network, designing of

systems and processes and innovative marketing programs. He possesses excellent

communication and inter-personal skills & operates collaboratively with his team

members to achieve a common goal. He is also a member of Institute of Chartered

Accountants of India.

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Mr LALIT AGGARWAL

Mr. Lalit Aggarwal

(Director- Moneywise Financial Services Pvt. Ltd.)

Mr. Lalit Aggarwal has a rich working experience of more than 17 years in

Securities and Commodities market. He is actively involved in the development and

functioning of SMC‘s Arbitrage business His great dedication and devotion to his

work is an inspiration for his team. A man of great intellect, his ideas have helped

SMC in the introduction of new services in the Arbitrage business. His style of

working is highly motivational to his team members. Mr Aggarwal is a person with

unmatched sharp calculative skills and analytical bent of mind.

Ms Shweta Aggarwal

Ms. Shweta Aggarwal

(Director- SMC Capitals Limited)

Ms. Aggarwal joined the SMC group in 2005 and in a short span of time, she has

successfully handled multiple critical assignments. In her very first assignment at

SMC, she was the catalyst in successfully setting up of the Human Resource

function. She heads the investment banking vertical of SMC.

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Mr PRAVIN AGGARWAL

Mr. Pravin Aggarwal

(Director- SMC Insurance Brokers Pvt. Ltd.)

Mr. Pravin Aggarwal possesses a result oriented professional approach towards the

functions of the organization. With more than a decade of work experience in

Insurance and Financial Industry, he is actively involved in the development of

insurance broking venture, devising strategies for insurance broking and

undertaking business development responsibilities. He is a man with a vision to

create a wide-spread business of excellence; he is the inspiration as he spearheads

the company‘s management and operations; strategizing and directing it through

its next phase of growth.

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Corporate Ethos

VISION

We aspire to be a global organization having dominant position in financial &

investment services through customer centric approach.

MISSION

To help people make the right investment, the right way.

VALUES

passion

Helping People. Achieve financial goals.

integrity

Being ethical builds trust.

relationship

One transaction, lifetime relationship.

innovation

Being ahead. With research and technology.

trustworthy

Keeping our promise. Every time.

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MEMBERSHIP AND REGISTRATION

•Trading Member of NSE (Cash, F&O, Currency), BSE(Cash, F&O), NCDEX, MCX, NMCE, ICEX, ACE, USE, NSEL, NCDEX SPOT, MCX-SX, DGCX & DGR

•Clearing Member in NSE (F&O, Currency), BSE (F&O), MCX, NCDEX, NMCE, ICEX, ACE, USE, NSEL, NCDEX SPOT, MCX-SX & DGCX

•Depository Participant with CDSL & NSDL

•SEBI Approved Qualified Depository Participant (QDP)

•Category 1 Merchant banker

•Direct Insurance Broker for Life & General Insurance (Registered with IRDA)

•Distributor of IPOs & Mutual Funds (Registered with AMFI)

•Portfolio Management Services (PMS) registered with SEBI

•Non Banking Financial Company (NBFC) registered with RBI

SMC: ACHIEVEMENTS

•India‘s Best Currency Broker (Source: ICRA & Bloomberg-UTV Financial Leadership Awards, 2012 & 2011)

•Broking house with Largest distribution Network in the country (Source: BSE-D&B Equity Broking Awards, 2011 & 2010)

•India‘s Best Wealth management Company (Source : Business Sphere 2011)

•India‘s Best Equity Broking House (Source: BSE-D&B Equity Broking Awards, 2010)

•India‘s Best Market Analyst awards, 2012 for Equity Fundamentals - IPO & Commodities – Viewers‘ Choice (Source: Zee Business Best Market Analyst Awards,

2012)

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SMC PARTNERS

SANLAM INVESTMENTS

Established in 1918, Sanlam is one of the largest financial services services

group in South Africa.

It is managing over US $ 51 billion of client assets and operating in over 30

countries.

It is the investment arm of South Africa Financial Services giant, Sanlam

Limited. The agreement between the parties has led to the setting up of two

new businesses in India- a wealth management company and an asset

management company.

The deal was made possible through an acquisition into the SMC Group of

Companies, including warrants which will ultimately create a 5% equity stake

for Sanlam Investments in SMC

The total financial outlay by Sanlam Investments on this joint venture with

SMC is in the region of Rs. 215 crore.

PUNJAB NATIONAL BANK

Largest Nationalized Bank in India

Punjab National Bank is serving over 40 million customers through 4600+

offices & over 2600 ATM‘s.

SMC Group has signed an agreement with the Punjab National Bank (PNB) to

offer state of art online trading facilities into equities, derivatives, IPO‘s and

Mutual Funds to PNB customers.

This alliance is providing three in one product (Saving-Demat-Trading),

seamless funds and securities transfer and no extra blockage of funds in the

trading accounts after the trading hours.

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HONDA SIEL CARS INDIA

•SMC Insurance Brokers appointed by Honda Siel Cars India as exclusive PAN India

brokers for Honda cars

•Honda is a top notch automobile brand with a PAN India presence.

•Honda can clearly boast of a loyal customer base and a strong and widespread dealership network

•With Honda Insurance Program SMC has sold 71,328 policies & 136 Crore of

premium in FY 2010-11

•SMC expects to close FY 2011-12 year with over 1 lakh policies and premium above 150 Crore with Honda Tie up

•Almost 100% cash less settlement

•Transparent and hassle free claim settlement.

TIMES GROUP

•Bennett, Coleman & Co. Ltd., is one of the leading media house of the country

with an international presence.

•The group holds 3.46% stake in the flagship company, SMC Global Securities Ltd.

MILLENNIUM INDIA ACQUISITION CO.

•Millennium India Acquisition Company is a NASDAQ listed, US based company, which offers US investors the only mean for participating in India‘s fastest growing

financial sectors (currently closed to foreign investor under Indian Law.)

•The company holds 14.03% stake in SMC group.

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SMC PRODUCTS AND SERVICES

Your Personal Solution

Enter a world of private investment solutions. Take advantage of an exclusive

investment solution created just for you, built around our comprehensive suite of

investment products and services. Our Investment, Advisory and Research teams

closely monitor new investment ideas, trends and needs to ensure that we

consistently offer you innovative, balanced and relevant investment options. We are

also committed to partnering only with the leaders in each category of products

that we offer under referral arrangements.

Our Portfolio Management Services

• Equity PMS

• Conceptual PMS

• Strategic Transfer Portfolio (STP)

• Thematic PMS

Public Sector Units

Dividend Yield Plan

Energy Education Entertainment

Sector Rotation

• Portfolio Revamping Process

• Mutual Fund PMS

Multi Manager Investment Solution (MMIS)

• Debt MMIS

• Customized Portfolio

• Quant Based PMS

Equity Quant Strategy (EQS)

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Our Wealth Management Services

• Wealth Builder Process

Financial Planning

Investment Planning

• Alternate Investments

Structured Products

Private Equity

Real Estate Solutions

Strong offering and the Means to Deliver

We tailor your portfolio on the broad framework of these options:

• SMC Wealth Builders:

In this plan we study your investments and aspirations, and carry out elaborate

Risk Profiling to offer you the best range of investment products available in the

market. Our segment-based approach allows us to negotiate special terms for our

clients.

• SMC PMS Solutions

We also provide a range of innovative PMS offerings based on individual Risk

Profiling and Need- Gap Analysis. Thus, a basket of PMS solutions are proposed

to suit each individual‘s requirements.

• SMC Financial Planners

Here we create an exclusive financial plan based on holistic Risk Profiling, short-

and-long term goals and future need analysis. Regular reviews are carried out.

We tailor your portfolio on the broad framework of these options:

- Exclusive Privileges

- Expert Financial Advisors

- Monthly Market Rounds

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- Market Seminars and Knowledge sessions

- Regular Financial Health Checkups and Reports

- Round-the-clock Web Access

- Online Broking platform for cash and derivatives through our Parent Company

SMC Global Securities.

Portfolio Revamping Process

Our investment advisors periodically study your existing portfolio and offer advice

based on your changing risk appetite and financial goals.

BROKING

EQUITY & DERIVATIVE TRADING

The experienced team of Research Analysts and Advisory Managers guide with

appropriate solutions, backed by in-depth research, knowledge and expertise on a

regular basis. It constantly help the customers with strategies for equity and

derivatives investment, recommendations for trading on futures & options, hedging

with Nifty and other products and opportunities of near risk free arbitrage between

various segments.

The clients and customers can trade by calling to dealing desk at their branch/sub

broker with whom their account is opened

They can also online through desktop, tablet, PC etc. There are two ways of doing

online trading. These are as follows

Browser Based:

The customers can trade at your fingertips by visiting

www.smctradeonline.com and login into your Online Equity section. The

password for online trading is being sent to you in a separate pin-mailer.

Application Based:

Diet/Privilege users, need to download& install the application in their

Desktop PC, smart phone or tablet devise.

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CURRENCY TRADING

Currently in India, there are 3 major exchanges offering Currency future trading –

NSE, MCX-SX & USE . SMC Global Securities is a Trading cum Clearing Member of

all these exchanges for the currency segment. We believe in the tremendous

potential of currency future to become a dominant force of the Indian financial

market with a turnover which can outperform even equity and commodity segment.

We firmly believe that wider market participation will bring more strength to the

market & this can be achieved through disseminating education

& information among various market participants. For us, currency is not just any

other segment of business; it is "the business of future".

The clients and customers can trade by calling to dealing desk at their branch/sub

broker with whom their account is opened

They can also online through desktop, tablet, PC etc. There are two ways of doing

online trading. These are as follows

Browser Based:

The customers can trade at your fingertips by visiting

www.smctradeonline.com and login into your Online Equity section. The

password for online trading is being sent to you in a separate pin-mailer.

Application Based:

Diet/Privilege users, need to download& install the application in their

Desktop PC, smart phone or tablet devise.

DISTRIBUTION

SMC offers distribution services of IPO, Mutual Funds, Public Issues, Company Fixed

Deposits, Bonds, Acquisitions and Mergers through its mammoth network of

branches across India. SMC also provides retail application financing in IPO's , FPO's

& Bonds.

RESEARCH

With the EIC (Economy, Industry, Company) approach, our Research team offers

timely Research reports covering investment summary, Equity Trend, sector trends,

commodity trend, Currency Trend, along with the trend of world markets,. The

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same is covered in our esteemed weekly magazine ―Wise Money‖. We have a team

of highly experienced analysts in all the segments such as Equity, Commodity,

Derivatives, Mutual Funds and Currency.

ONLINE TRADING

SMC Online is a single gateway for all financial needs. With the help of SMC Online

the customers can invest online in equities, commodities, IPO‘s, Mutual Fund

Schemes and currency futures anywhere anytime. They can also view live quotes,

charts, research, advice and online assistance to help them take informed

decisions. The customers can also access their account from anywhere using Call-

N-Trade services.

WEALTH MANAGEMENT

At SMC Investments & Advisors Ltd., we abide by one principle, ‗Precious solutions

for your Precious Wealth‘. We bring together a comprehensive knowledge base with

over two decades of experience to design customized solutions. Our dedicated

Wealth Managers develop personalized wealth management strategies for our

clients by listening to them and understanding their financial needs and goals. Our

investment solutions cater to the financial needs of high net-worth individuals,

retail clients, corporate houses and financial institutions.

OUR OFFEREINGS

Portfolio Management Services

Multi Manager Investment Solutions

Portfolio Advisory

Trading in Equity, Currency, Interest Rate Futures

Depository Services

Mutual Funds & IPOs

Fixed Income Products

Near Risk-free Arbitrage Products

Structured Products

Real Estate Funds

Private Equity Funds

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Financial Planning

Interest rate futures

INVESTMENT BANKING

SMC Capitals Limited is the Investment Banking arm of SMC group and is a SEBI

registered Category I Merchant Banker with strong management team; financial

sponsors and corporate partners to help corporate clients achieve their financial and

strategic goals. We offer a wide spectrum of investment banking services covering

Corporate Advisory, Public Issues Management, Capital Restructuring,

Private Placement and Debt Syndication, Merger & Acquisition Advisory, Valuation

Services and ESOP.

INSURANCE

SMC through its subsidiary company SMC Insurance Brokers Pvt Ltd offers risk

management services and complete range of insurance solutions. The company

holds a Direct Insurance Brokers License from Insurance Regulatory

Development Authority (IRDA) and provides a wide array of general insurance and

life insurance products under professional guidance of experts in the field. SMC

provides customized solutions to individual clients, small and medium enterprises

as well as to the leading corporate houses and institutions across the country.

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EQUITY

In accounting and finance, equity is the residual value or interest of the most junior

class of investors in assets, after all liabilities are paid; if liability exceeds assets,

negative equity exists. In an accounting context, shareholders' equity (or

stockholders' equity, shareholders' funds, shareholders' capital or similar terms)

represents the remaining interest in the assets of a company, spread among

individual shareholders of common or preferred stock; a negative shareholders'

equity is often referred to as a positive shareholders' deficit.

At the very start of a business, owners put some funding into the business to

finance operations. This creates a liability on the business in the shape of capital as

the business is a separate entity from its owners. Businesses can be considered, for

accounting purposes, sums of liabilities and assets; this is the accounting equation.

After liabilities have been accounted for, the positive remainder is deemed the

owners' interest in the business.

This definition is helpful in understanding the liquidation process in case of

bankruptcy. At first, all the secured creditors are paid against proceeds from assets.

Afterwards, a series of creditors, ranked in priority sequence, have the next

claim/right on the residual proceeds. Ownership equity is the last or residual claim

against assets, paid only after all other creditors are paid. In such cases where

even creditors could not get enough money to pay their bills, nothing is left over to

reimburse owners' equity. Thus owners' equity is reduced to zero. Ownership equity

is also known as risk capital or liable capital.

On a company's balance sheet, the amount of the funds contributed by the

owners (the stockholders) plus the retained earnings (or losses). Also

referred to as "shareholders' equity".

In simple terms it is a stock or any other security representing an ownership

in a company.

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In terms of investment strategies, equity (stocks) is one of the principal

asset classes. The other two are fixed-income (bonds) and cash/cash-

equivalents. These are used in asset allocation planning to structure a

desired risk and return profile for an investor's portfolio.

In the context of margin trading, the value of securities in a margin account

minus what has been borrowed from the brokerage.

Equity markets

A stock market or equity market is a public market (a loose network of economic

transactions, not a physical facility or discrete entity) for the trading of company

stock and derivatives at an agreed price; these are securities listed on a stock

exchange as well as those only traded privately.

The size of the world stock market was estimated at about $36.6 trillion US at the

beginning of October 2008. The total world derivatives market has been estimated

at about $791 trillion face or nominal value, 11 times the size of the entire world

economy. The value of the derivatives market, because it is stated in terms of

notional values, cannot be directly compared to a stock or a fixed income security,

which traditionally refers to an actual value. Moreover, the vast majority of

derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is

offset by a comparable derivative 'bet' on the event not occurring). Many such

relatively illiquid securities are valued as marked to model, rather than an actual

market price.

The stocks are listed and traded on stock exchanges which are entities of a

corporation or mutual organization specialized in the business of bringing buyers

and sellers of the organizations to a listing of stocks and securities together. The

largest stock market in the United States, by market cap is the New York Stock

Exchange, NYSE, and while in Canada, it is the Toronto Stock Exchange. Major

European examples of stock exchanges include the London Stock Exchange, Paris

Bourse, and the Deutsche Brose. Asian examples include the Tokyo Stock

Exchange, the Hong Kong Stock Exchange, the Shanghai Stock Exchange, and the

Bombay Stock Exchange. In Latin America, there are such exchanges as the BM&F

Bovespa and the BMV.

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CONCEPT OF CAPITAL MARKET

Coupon bond and 6% notional 10 year bond. The past decade in many ways has

been remarkable for securities market in Indian It has grown exponentially as

measured in terms of amount raised from the market, number of stock exchanges

and other intermediaries, the number of listed stocks,marketcapitalisation, trading

volumes and turnover on stock exchanges, and investor population. Along with this

growth, the profiles of the investors, issuers and intermediaries have changed

significantly. The market has witnessed several institutional changes resulting

indrastic reduction in transaction costs and significant improvements in efficiency,

transparency, liquidity and safety. In a short span of time, Indian derivatives

market has got a place in list of top global exchanges. In single stock futures

category, the Futures Industry Association (FIA) placed NSE in second position in

the year 2000.

Introduction

The market for long-term securities like bonds, equity stocks and preferred stocks

is divided into primary market and secondary market. The primary market deals

with the new issues of securities. Outstanding securities are traded in the

secondary market, which is commonly known as stock market or stock exchange.

In the secondary market, the investors can sell and buy securities. Stock markets

predominantly deal in the equity shares. Debt instruments like bonds and

debentures are also traded in the stock market. Well-regulated and active stock

market promotes capital formation. Growth of the primary market depends on the

secondary market. The health of the economy is reflected by the growth of the

stock market.

Companies raise funds to finance their projects through various methods. The

promote scan bring their own money or borrow from the financial institutions or

mobilize capital by issuing securities. The funds may be raised through issue of

fresh shares at par or premium, preference shares, debentures or global depository

receipts. The main objectives of a capital issue are given below:

To promote a new company

To expand an existing company

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To diversify the production

To meet the regular working capital requirements

To capitalize the reverses Securities markets provide a channel for allocation of

savings to those who have aproductive need for them. As a result, the savers and

investors are not constrained by their individual abilities, but by the economy‘s

abilities to invest and save respectively, which inevitably enhances savings and

investment in the economy.

Market Segments

The securities market has two interdependent and inseparable segments: the

primary and the secondary market. The primary market provides the channel for

creation of new securities through issuance of financial instruments by public

companies as well as Governments and Government agencies and bodies whereas

the secondary market helps the holders of these financial instruments to sale for

exiting from the investment. The price signals, which subsume all information about

the issuer and his business including associated risk, generated in the secondary

market, help the primary market in allocation of funds. The primary market

issuance is done either through public issues or private placement. A public issue

does not limit any entity in investing while in private placement, the issuance is

done to select people. In terms of the Companies Act, 1956, an issue becomes

public if it results in allotment to more than 50 persons. This means an issue

resulting inallotment to less than 50 persons is private placement.There are two

major types of issuers who issue securities. The corporate entities issuemainly debt

and equity instruments (shares, debentures, etc.), while the governments(central

and state governments) issue debt securities (dated securities, reasury bills). The

secondary market enables participants who hold securities to adjust their holdings

in response to changes in their assessment of risk and return. They also sell

securities for cash to meet their liquidity needs. The exchanges do not provide

facility for spot trades in astrict sense. Closest to spot market is the cash market in

exchanges where settlement takes place after some time. Trades taking place over

a trading cycle (one day under rolling settlement) are settled together after a

certain time. All the 23 stock exchanges in the country provide facilities for trading

of corporate securities. Trades executed on NSE only are cleared and settled by a

clearing corporation which provides notation and settlement guarantee. Nearly

100% of the trades in capital market segment are settled through demat delivery.

NSE also provides a formal trading platform for trading of a wide range of debt

securities including government securities in both retail and wholesale mode. NSE

also provides trading in derivatives of equities, interest rate as well indices. In

derivatives market (F&O market segment of NSE), standardized contracts are

traded for future settlement. These futures can be on a basket of securities like an

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index or an individual security. In case of options, securities are traded for

conditional future delivery. There are two types of options – a put option permits

the owner to sell a security to the writer of options at a predetermined price while a

call option permits the owner to purchase asecurity from the writer of the option at

a predetermined price. These options can also beon individual stocks or basket of

stocks like index. Two exchanges, namely NSE and the Stock Exchange, Mumbai

(BSE) provide trading of derivatives of securities. Today the market participants

have the flexibility of choosing from a basket of products like

• Equities

• Bonds issued by both Government and Companies

• Futures on benchmark indices as well as stocks

• Options on benchmark indices as well as stocks

• Futures on interest rate products like Notional 91-day T-Bills, 10 year notional

zero

Reforms in the securities market, particularly the establishment and empowerment

of SEBI, market determined allocation of resources, screen based nation-wide

trading, dematerialization and electronic transfer of securities, rolling settlement

and ban onde ferral products, sophisticated risk management and derivatives

trading, have greatly Improved the regulatory framework and efficiency of trading

and settlement. Indian market is now comparable to many developed markets in

terms of a number of qualitative parameters.

Products and Participants

Financial markets facilitate the reallocation of savings from savers to

entrepreneurs.Savings are linked to investments by a variety of intermediaries

through a range of complex financial products called ―securities‖ which is defined in

the Securities Contracts(Regulation) Act, 1956 to include shares, bonds, scrips,

stocks or other marketablesecurities of like nature in or of any incorporate company

or body corporate, governmentsecurities, derivatives of securities, units of

collective investment scheme, interest and right sin securities, security receipt or

any other instruments so declared by the central government.

Trading

Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. Their orders usually end up with a

professional at a stock exchange, who executes the order.

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Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This type of auction is used in

stock exchanges and commodity exchanges where traders may enter "verbal" bids and offers simultaneously. The other type of stock exchange is a virtual kind,

composed of a network of computers where trades are made electronically via traders.

Actual trades are based on an auction market model where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. (Buying or selling at market means you will accept any ask price or bid price

for the stock, respectively.) When the bid and ask prices match, a sale takes place, on a first-come-first-served basis if there are multiple bidders or askers at a given

price.

The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price

discovery.

The New York Stock Exchange is a physical exchange, also referred to as a listed exchange — only stocks listed with the exchange may be traded. Orders enter by way of exchange members and flow down to a floor broker, who goes to the floor

trading post specialist for that stock to trade the order. The specialist's job is to match buy and sell orders using open outcry. If a spread exists, no trade

immediately takes place--in this case the specialist should use his/her own resources (money or stock) to close the difference after his/her judged time. Once a trade has been made the details are reported on the "tape" and sent back to the

brokerage firm, which then notifies the investor who placed the order. Although there is a significant amount of human contact in this process, computers play an

important role, especially for so-called "program trading".

The NASDAQ is a virtual listed exchange, where all of the trading is done over a computer network. The process is similar to the New York Stock Exchange.

However, buyers and sellers are electronically matched. One or more NASDAQ market makers will always provide a bid and ask price at which they will always purchase or sell 'their' stock.

The Paris Bourse, now part of Euronext, is an order-driven, electronic stock

exchange. It was automated in the late 1980s. Prior to the 1980s, it consisted of an open outcry exchange. Stockbrokers met on the trading floor or the Palais

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Brongniart. In 1986, the CATS trading system was introduced, and the order matching process was fully automated.

From time to time, active trading (especially in large blocks of securities) have

moved away from the 'active' exchanges. Securities firms, led by UBS AG, Goldman Sachs Group Inc. and Credit Suisse Group, already steer 12 percent of U.S. security trades away from the exchanges to their internal systems. That share probably will

increase to 18 percent by 2010 as more investment banks bypass the NYSE and NASDAQ and pair buyers and sellers of securities themselves, according to data

compiled by Boston-based Aite Group LLC, a brokerage-industry consultant.

Now that computers have eliminated the need for trading floors like the Big Board's, the balance of power in equity markets is shifting. By bringing more orders

in-house, where clients can move big blocks of stock anonymously, brokers pay the exchanges less in fees and capture a bigger share of the $11 billion

a year that institutional investors pay in trading commissions as well as the surplus of the century had taken place.

Market participants A few decades ago, worldwide, buyers and sellers were individual investors, such as

wealthy businessmen, with long family histories (and emotional ties) to particular corporations. Over time, markets have become more "institutionalized"; buyers and

sellers are largely institutions (e.g., pension funds, insurance companies, mutual funds, index funds, exchange-traded funds, hedge funds, investor groups, banks and various other financial institutions). The

rise of the institutional investor has brought with it some improvements in market operations. Thus, the government was responsible for "fixed" (and exorbitant) fees

being markedly reduced for the 'small' investor, but only after the large institutions had managed to break the brokers' solid front on fees. (They then went to 'negotiated' fees, but only for large institutions)

However, corporate governance (at least in the West) has been very much adversely affected by the rise of (largely 'absentee') institutional 'owners'.

History Established in 1875, the Bombay Stock Exchange is Asia's first stock exchange.

In 12th century France the courratiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. Because these men also traded with debts, they could be called the first brokers. A

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common misbelieve is that in late 13th century Bruges commodity traders gathered inside the house of a man called Van der Beurze, and in 1309 they became the

"Brugse Beurse", institutionalizing what had been, until then, an informal meeting, but actually, the family Van der Beurze had a building in Antwerp where those

gatherings occurred; the Van der Beurze had Antwerp, as most of the merchants of that period, as their primary place for trading. The idea quickly spread around Flanders and neighbouring counties and "Beurzen" soon opened in Ghent and

Amsterdam.

In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351 the Venetian government outlawed spreading rumours intended to lower the price of government funds. Bankers in Pisa, Verona, Genoa and

Florence also began trading in government securities during the 14th century. This was only possible because these were independent city states not ruled by a duke

but a council of influential citizens. The Dutch later started joint stock companies, which let shareholders invest in business ventures

and get a share of their profits - or losses. In 1602, the Dutch East India Company issued the first share on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds.

The Amsterdam Stock Exchange (or Amsterdam Beurs) is also said to have been

the first stock exchange to introduce continuous trade in the early 17th century. The Dutch "pioneered short selling, option trading, debt-equity swaps, merchant banking, unit trusts and other speculative instruments, much as we know them"

There are now stock markets in virtually every developed and most developing economies, with the world's biggest markets being in the United States,

United Kingdom, Japan, India, China, Canada, Germany, France, South Korea and the Netherlands.

IMPORTANCE OF STOCK MARKET

Function and purpose

The main trading room of the Tokyo Stock Exchange, where trading is currently completed through computers.

The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional capital for

expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange provides affords investors the ability to quickly and easily

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sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate.

History has shown that the price of shares and other assets is an important part of

the dynamics of economic activity, and can influence or be an indicator of social mood. An economy where the stock market is on the rise is considered to be an up-and-coming economy. In fact, the stock market is often considered the primary

indicator of a country's economic strength and development. Rising share prices, for instance, tend to be associated with increased business

investment and vice versa. Share prices also affect the wealth of households and their consumption. Therefore, central banks tend to keep an eye on the control and behaviour of the stock market and, in general, on the smooth operation of financial

system functions. Financial stability is the raison d'etre of central banks.

Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that the counterparty could

default on the transaction.

The smooth functioning of all these activities facilitates economic growth in that lower costs and enterprise risks promote the production of goods and services as

well as employment. In this way the financial system contributes to increased prosperity. An important aspect of modern financial markets, however, including

the stock markets, is absolute discretion. For example, American Stock markets see more unrestrained acceptance of any firm than in smaller

markets. For example, Chinese firms that possess little or no perceived value to American society profit American bankers on Wall Street, as they reap large commissions from the placement, as well as the Chinese company which yields

funds to invest in China. However, these companies accrue no intrinsic value to the long-term stability of the American economy, but rather only short-term

profits to American business men and the Chinese; although, when the foreign company has a presence in the new market, this can benefit the market's citizens. Conversely, there are very few large foreign corporations listed on the Toronto

Stock Exchange TSX, Canada's largest stock exchange. This discretion has insulated Canada to some degree to worldwide financial conditions. In order for the stock

markets to truly facilitate economic growth via lower costs and better employment, great attention must be given to the foreign participants being allowed in.

Relation of the stock market to the modern financial system

The financial systems in most western countries has undergone a remarkable transformation. One feature of this development is disintermediation. A portion of

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the funds involved in saving and financing, flows directly to the financial markets

instead of being routed via the traditional bank lending and deposit operations. The general public's heightened interest in investing in the stock market, either directly

or through mutual funds, has been an important component of this process. Statistics show that in recent decades shares have made up an increasingly large

proportion of households' financial assets in many countries. In the 1970s, in Sweden, deposit accounts and other very liquid assets with little risk made up

almost 60 percent of households' financial wealth, compared to less than 20 percent in the 2000s. The major part of this adjustment in financial portfolios has gone directly to shares but a good deal now takes the form of various

kinds of institutional investment for groups of individuals, e.g., pension funds, mutual funds, hedge funds, insurance investment of premiums, etc.

The trend towards forms of saving with a higher risk has been accentuated by new rules for most funds and insurance, permitting a higher proportion of shares to

bonds. Similar tendencies are to be found in other industrialized countries. In all developed economic systems, such as the European Union, the United States,

Japan and other developed nations, the trend has been the same: saving has moved away from traditional (government insured) bank deposits to more risky

securities of one sort or another. The stock market, individual investors, and financial risk

Riskier long-term saving requires that an individual possess the ability to manage the associated increased risks. Stock prices fluctuate widely, in marked

contrast to the stability of (government insured) bank deposits or bonds. This is

something that could affect not only the individual investor or household, but also the economy on a large scale. The following deals with some of the risks of the financial sector in general and the stock market in particular. This is certainly

more important now that so many newcomers have entered the stock market, or have acquired other 'risky' investments (such as 'investment' property, i.e., real

estate and collectables). With each passing year, the noise level in the stock market rises. Television

commentators, financial writers, analysts, and market strategists are all overtaking each other to get investors' attention. At the same time, individual investors,

immersed in chat rooms and message boards, are exchanging questionable and often misleading tips. Yet, despite all this available information, investors find it increasingly difficult to profit. Stock prices skyrocket

with little reason, then plummet just as quickly, and people who have turned to investing for their children's education and their own retirement become frightened.

Sometimes there appears to be no rhyme or reason to the market, only folly.

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This is a quote from the preface to a published biography about the long-term value-oriented stock investor Warren Buffett. Buffett began his career with $100,

and $100,000 from seven limited partners consisting of Buffett's family and friends. Over the years he has built himself a multi-billion-dollar fortune. The quote

illustrates some of what has been happening in the stock market during the end of the 20th century and the beginning of the 21st century.

Primary Market , also called the new issue market, is the market for issuing new securities. Many

companies, especially small and medium scale, enter the primary market to raise money from the public to expand their businesses. They sell their securities to the

public through an initial public offering. The securities can be directly bought from the shareholders, which is not the case for the secondary market. The primary market is a market for new capitals that will be traded over a longer period.

In the primary market, securities are issued on an exchange basis. The

underwriters, that is, the investment banks, play an important role in this market: they set the initial price range for a particular share and then supervise the selling of that share.

Investors can obtain news of upcoming shares only on the primary market. The issuing firm collects money, which is then used to finance its operations or expand

business, by selling its shares. Before selling a security on the primary market, the firm must fulfil all the requirements regarding the exchange.

After trading in the primary market the security will then enter the secondary market, where numerous trades happen every day. The primary market

accelerates the process of capital formation in a country's economy. The primary

market categorically excludes several other new long-term finance sources, such as loans from financial institutions. Many companies have entered the primary market

to earn profit by converting its capital, which is basically a private capital, into a public one, releasing securities to the public. This phenomena is known as "public issue" or "going public."

There are three methods though which securities can be issued on the primary

market: rights issue, Initial Public Offer (IPO), and preferential issue. A company's new offering is placed on the primary market through an initial public offer.

Secondary Market

is the market where, unlike the primary market, an investor can buy a security directly from another investor in lieu of the issuer. It is also referred as "after

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market". The securities initially are issued in the primary market, and then they enter into the secondary market.

All the securities are first created in the primary market and then, they enter into the secondary market. In the New York Stock Exchange, all the stocks belong to

the secondary market.

In other words, secondary market is a place where any type of used goods is available. In the

secondary market shares are manoeuvred from one investor to other, that is, one investor buys an asset from another investor instead of an issuing corporation. So,

the secondary market should be liquid. Example of Secondary market:

In the New York Stock Exchange, in the United States of America, all the securities

belong to the secondary market.

Importance of Secondary Market: Secondary Market has an important role to play behind the developments of an

efficient capital market. Secondary market connects investors' favouritism for liquidity with the capital users' wish of using their capital for a longer period. For

example, in a traditional partnership, a partner cannot access the other partner's investment but only his or her investment in that partnership, even on an emergency basis. Then if he or she may breaks the ownership of equity into

parts and sell his or her respective proportion to another investor. This kind of trading is facilitated only by the secondary market.

Current scenario of Capital Market in India.

Underwriters 43Venture Capital Funds 43Mutual Funds 38Collective Investment

Schemes 0*Data collected from DCA, DEA, RBI & SEBI

It is not that the users and suppliers of funds meet each other and exchange funds

for securities. It is difficult to accomplish such double coincidence of wants. The

amount of funds supplied by the supplier may not be the amount needed by the

user. Similarly, the risk, liquidity and maturity characteristics of the securities

issued by the issuer may not match preference of the supplier. In such cases, they

incur substantial search costs to find each other. Search costs are minimised by the

intermediaries who match and bring the suppliers and users of funds together.

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These intermediaries may act as agents to match then eeds of users and suppliers

of funds for a commission, help suppliers and users in creation and sale of

securities for a fee or buy the securities issued by users and in turn, sell their own

securities to suppliers to book profit. It is, thus, a misnomer that securities market

disinters mediates by establishing a direct relationship between the savers and the

users of funds. The market does not work in a vacuum; it requires services of a

large variety of intermediaries. The disintermediation in the securities market is in

fact an intermediation with a difference; it is a risk-less intermediation, where the

ultimate risks are borne by the savers and not the intermediaries. A large variety

and number of intermediary‘s provide intermediation services in the Indian

securities market. The securities market has essentially three categories of

participants, namely the issuers of securities, investors insecurities and the

intermediaries and products include equities, bonds and derivatives. The issuers

and investors are the consumers of services rendered by the intermediaries while

the investors are consumers (they subscribe for and trade in securities) of

securities issued by issuers. In pursuit of providing a product to meet the needs of

each investor and issuer, the intermediaries churn out more and more complicated

products. They educate and guide them in their dealings and bring them together.

Those who receive funds in exchange for securities and those who receive securities

in exchange for funds often need the reassurance

Current scenario of Capital Market in India. That it is safe to do so. This

reassurance is provided by the law and by custom, often enforced by the regulator.

The regulator develops fair market practices and regulates the conduct of issuers of

securities and the intermediaries so as to protect the interests of suppliers of funds.

The regulator ensures a high standard of service from intermediaries and supply of

quality securities and non-manipulated demand for them in the market. he past

decade in many ways has been remarkable for securities market in India. It has

grown exponentially as measured in terms of amount raised from the market,

number of stock exchanges and other intermediaries, the number of listed stocks,

market capitalization, trading volumes and turnover on stock exchanges, and

investor population. Along with this growth, the profiles of the investors, issuers

and intermediaries have changed significantly. The market has witnessed

fundamental institutional changes resulting in drastic reduction in transaction costs

and significant improvements inefficiency, transparency and safety.

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DEPENDENCECAPITAL MARKET

Three main sets of entities depend on securities market. While the corporate and

governments raise resources from the securities market to meet their obligations,

the households invest their savings in the securities.

Corporate Sector

The 1990s witnessed emergence of the securities market as a major source of

finance for trade and industry. A growing number of companies are accessing the

securities market rather than depending on loans from FIs/banks. The corporate

sector is increasingly depending on external sources for meeting its funding

requirements. There appears to be growing preference for direct financing (equity

and debt) to indirect financing (bank loan) within the external sources.

Current scenario of Capital Market in India.

According to CMIE data, the share of capital market based instruments in resources

raised externally increased to 53% in 1993-94, but declined thereafter to 33% by

1999-00 and further to21% in 2001-02. In the sector-wise shareholding pattern of

companies listed on NSE, it is observed that on an average the promoters hold

more than 55% of total shares. Though the non- promoter holding is about 44%,

Indian public held only 17% and the public float (holding by FIIs, MFs, Indian

public) is at best 25%. There is not much difference in the shareholding pattern of

companies in different sectors. Strangely, 63% of shares in companies in media

and entertainment sector are held by private corporate bodies though the

requirement of public offer was relaxed to 10% for them. The promoter holding is

not strikingly high in respect of companies in the IT and telecom sectors where

similar relaxation was granted.

Governments

Along with increase in fiscal deficits of the governments, the dependence on market

borrowings to finance fiscal deficits has increased over the years. During the year

1990-91, the state governments and the central government financed nearly 14%

and 18% respectively of their fiscal deficit by market borrowing. In percentage

terms, dependence of the state governments on market borrowing did not increase

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much during the decade 1991-2001. In case of central government, it increased to

77.6% by 2002-03.

Households

According to RBI data, household sector accounted for 82.4% of gross domestic

savings during2001-02. They invested 38% of financial savings in deposits, 33% in

insurance/provident funds,11% on small savings, and 8% in securities, including

government securities and units of mutual funds during 2001- 02. Thus the fixed

income bearing instruments are the most preferred assets of the household sector.

Their share in total financial savings of the household sector witnessed an

increasing trend in the recent past and is estimated at 82.4% in 2001- 02. In

contrast, the share of financial savings of the household sector in securities (shares,

debentures, public sector bond sand units of UTI and other mutual funds and

government securities) is estimated to have gone down from 22.9% in 1991-92 to

4.3% in 2000-01, which increased to 8% in 2001-02. Though there was a major

shift in the saving pattern of the household sector from physical assets to

financial assets and within financial assets, from bank deposits to securities, the tre

nd gotreversed in the recent past due to high real interest rates, prolonged

subdued conditions in the secondary market, lack of confidence by the issuers in

the success of issue process as well as of investors in the credibility of the issuers

and the systems and poor performance of mutual funds. The portfolio of household

sector remains heavily weighted in favour of physic

al assets and fixed income bearing instruments.

Investor Population

The Society for Capital Market Research and Development carries out periodical

surveys of household investors to estimate the number of investors. Their first

survey carried out in 1990 placed the total number of share owners at 90-100 lakh.

Their second survey estimated the number of share owners at around 140-150 lakh

as of mid-1993. Their latest survey estimates the number of shareowners at around

2 crore at 1997 end, after which it remained stagnant up to the end of 1990s. The

bulk of increase in number of investors took place during 1991-94 and tapered

doff thereafter. 49% of the share owners at the end of 2000 had, for the first time,

entered the market before the end of 1990, 44% entered during 1991-94, 6.3%

during 1995-96 and 0.8%since 1997. The survey attributes such tapering off to

persistent depression in the share market and investors‘ bad experience with

many unscrupulous company promoters and managements.

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National Stock exchange

With the liberalization of the Indian economy, it was found inevitable to lift the

Indian stock market trading system on par with the international standards. On the

basis of the recommendations of high powered Pherwani Committee, the National

Stock Exchange was incorporated in 1992 by Industrial Development Bank of India,

Industrial Credit and Investment Corporation of India, Industrial Finance

Corporation of India, all Insurance Corporations, selected commercial banks and

others.

Trading at NSE can be classified under two broad categories:

(a) Wholesale debt market and

(b) Capital market.

Wholesale debt market operations are similar to money market operations -

institutions and corporate bodies enter into high value transactions in financial

instruments such as government securities, treasury bills, public sector unit bonds,

commercial paper, certificate of deposit, etc.

There are two kinds of players in NSE:

(a) trading members and

(b) participants.

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Recognized members of NSE are called trading members who trade on behalf of

themselves and their clients. Participants include trading members and large

players like banks who take direct settlement responsibility.

Trading at NSE takes place through a fully automated screen-based trading

mechanism which adopts the principle of an order-driven market. Trading members

can stay at their offices and execute the trading, since they are linked through a

communication network. The prices at which the buyer and seller are willing to

transact will appear on the screen. When the prices match the transaction will be

completed and a confirmation slip will be printed at the office of the trading

member.

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

follows:

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

Investors can trade at the same price from anywhere in the country since

inter-market operations are streamlined coupled with the countrywide

access to the securities.

Delays in communication, late payments and the malpractice‘s prevailing in

the traditional trading mechanism can be done away with greater operational

efficiency and informational transparency in the stock market operations,

with the support of total computerized network.

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Unless stock markets provide professionalized service, small investors and foreign

investors will not be interested in capital market operations. And capital market

being one of the major source of long-term finance for industrial projects, India

cannot afford to damage the capital market path. In this regard NSE gains vital

importance in the Indian capital market system.

The National Stock Exchange of India Limited (NSE) has genesis in the report of

high Powered Group Study on Establishment of New Stock Exchanges, which

recommended promotion of National Stock Exchange by financial institutions(FIs)

to provide access to investors from all across the country on an equal footing.

Based on recommendations NSE was promoted by the leading Financial Institutions

at the behest of Govt. of India and was incorporated in November 1992 as a tax

paying company unlike other stock exchanges in the country.

On its recognition as a stock exchange under the Securities Contracts (Regulations)

Act,1956 in April 1993, NSE commenced operations in the Whole Sale Debt (WDM)

in June 1994. The Capital Market (Equities) segment commenced operations in

November 1994 and operations in Derivative segment

commenced in June 2000.

Over The Counter Exchange of India (OTCEI) was incorporated in 1990 as a Section

25 company under the Companies Act 1956. The Exchange was setup to aid

enterprising promoters in raising finance for new projects in cost effective manner

and to provide investors with a transparent and efficient mode of training.

Modelled along the lines of NASDAQ market USA, OTCEI introduced many novel

concepts to the Indian capital markets such as screen-based nationwide trading,

sponsorship of companies, market making and scrip less trading.

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NSE Indexes

Equities trading at NSE began in November 1994. By late 1995, NSE became

India‘s largest equity market and was looking for a market index to utilize this

unique information source. NSE also wanted a vehicle for the futures and options

market. NSE approached the economist Dr. Ajay Shah and Dr. Susan Thomas, then

at CMIE ( and now at IGIDR), to do research on methods in index construction. This

work was funded by the USAID FIRE project and led to the S&P CNX Nifty.

Index Future

NSE has been gearing up from 1995 to start an index futures market. Trading in

S&P CNX Nifty futures will soon commence here. With NSE‘s expertise, this future

market is expected to become reliable and liquid.

S&P CNX Nifty is uniquely equipped as an index for the index future market owing

to (a) low market impact cost and (b) high hedging effectiveness. The good

diversification of S&P CNX Nifty will generate low initial margin requirements.

Finally, S&P CNX Nifty is calculated using NSE prices, and NSE is the most liquid

exchange in India, thus making it easier to do arbitrage for S&P CNX nifty index

futures.

S&P CNX Defty

S&P CNX Defty in S&P CNX Nifty, measured in dollars. If S&P CNX Nifty rises by 2%

it means Indian stock market rose by 2%, measured in rupees. If S&P CNX Defty

rises by 2%, it means Indian stock market rose by 2% in dollars.

The S&P CNX Defty is measured in real-time. Data in S&P CNX Nifty and the dollar-

rupee is absorbed in real-time, and used to calculate S&P CNX Defty in real-time.

Real-time data is obtained from Knight Rider. When there is currency volatility, the

S&P CNX Defty is an ideal device for a foreign to know where he stands, even

intraday.

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S&P CNX Nifty

S&P CNX Nifty is the first rung of the largest, highly liquid stocks in India. CNX Nifty

Junior is an index built out of the next 50 large, liquid stock in India. It is not as

liquid as the S&P CNX Nifty which implies that the information in the CNX Nifty

Junior is not as noise-free as that of the S&P CNX Nifty.

It may be useful to think of the S&P CNX Nifty and CNX Nifty Junior as making up

the 100 most liquid stocks India. S&P CNX Nifty is the front line blue-chips, large

and highly liquids stocks. The CNX Nifty Junior is the second rung of growth stocks

which are not as established as those in the S&P CNX Nifty. As with the S&P CNX

Nifty, stocks in the CNX Nifty Junior are filtered for liquidity, so they are the most

liquid of the stocks excluded from S&P CNX Nifty. Buying and selling the entire CNX

Nifty as a portfolio I feasible.

The maintenance of the S&P CNX Nifty and CNX Nifty Junior are synchronised sp

that the two indexes will always be disjoint sets; i.e. a stock will appear in both

indexes at the same time. Hence it is always meaningful to pool the S&P CNX Nifty

and CNX Nifty Junior into a composite 100 stock index or portfolio.

S&P CNX Nifty is based upon solid economic research. A trillion were expended to

evolve the rule inside the S&P CNX Nifty index. The results of this work are

remarkably simple: (a) the correct size to use is 50, (b) stock considered for the

S&P CNX Nifty must be liquid by the ‗impact cost‘ criterion, (c) the largest 50 stocks

that meet the criterion go into the index.

S&P CNX Nifty is a contrast to the adhoc methods that have gone into index

construction in the preceding year, where indexes were made out of intuitions and

lacked a scientific basis. The research that led up to the S&P CNX Nifty is well

respected internationally as a pioneering effort in better understanding how to

make a stock market index.

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Over The Counter Exchange of India

Securities markets in developed countries are multi-tiered with an element of in-

built competition amongst various layers. This prevents monopolisation of securities

exchange and makes the markets more efficient. In India, however, the situation

has been altogether different because of the virtual monopoly enjoyed by stock

exchanges till recently.

The multi-tier securities exchange model was adopted in our country in October

1990 with the establishment of the Over the Counter Exchange of India (OTCEI).

The object of the OTCEI ―is to provide an alternate market for the securities of

smaller companies, public-sector companies, closely-held companies desirous of

listing, etc.

It has been promoted jointly by UTI, ICICI, IDBI, SBI Capital Markets Ltd., IFCI,

GIC and Canbank Financial Services Ltd. The Government has conferred it the

status of a ‗recognised stock exchange‘ under Sec. 4 of the Securities Contracts

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Regulation Act. Consequently, companies listed with OTCEI will practically be at par

with companies listed on any stock exchange in the country.

The OTCEI is ‗floor-less exchange‘ where all the activities are computerised be it

trading, billing, payments, etc. OTC designated dealers operate through their

computer terminals which are hooked to a central computer. All quotes and

transactions are recorded and processed here.

The dealers are spread over the country and have access to the central computer.

Besides, PTI OTC scan is available to each dealer which displays the best bids and

offers of the market makers in respect of each scrip. A transaction can be effected

by entering the bid or offer in a dealer‘s computer counter. The exact transaction

price alongwith other details is also displayed in the counter computer.

The trading documents of OTCEI include: (a) Counter Receipt (CR) which is handed

over to the buyer when a deal is made. It is a tradeable document and hence must

be preserved carefully. It is akin to a share certificate so far as its contents are

concerned; (b) Sale Confirmation Slip (SCS) which is passed on to the seller when a

deal is made. The seller also must preserve it carefully since he gets the payment

against this slip later on.

Trading at OTCEI will be permitted only in respect of the securities of the listed

companies. Listing may be obtained by (i) Companies with issued equity capital

between Rs. 30 lacs to 25 crores; (ii) Closely held companies interested in listing;

(iii) Venture capital companies; (iv) Companies which are not listed on any other

recognised stock exchange provided:

(a) they offer to the public at least 40% of the issued equity or Rs. 20 lacs,

whichever is higher, where the issued equity ranges between Rs. 30 lacs to less

than Rs. 300 lacs (i.e. 3 crores),

(b) they offer to the public at least 60% of the issued equity v. .ore issued equity is

between 3 crores to 25 crores of rupees,

(c) they offer at least 25% of the issued equity to the public in case of a venture

capital company,

(d) where the issued equity ranges between 3 crores to 25 crores of rupees, the

norms for listing on a recognised stock exchange must be satisfied,

(e) the company is not carrying on the business of investment, leasing, finance,

hire-purchase or amusement parks.

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OTCEI promoters have been designated as ‗sponsor members‘ and they alone are

entitled to sponsor a company for listing here. Before recommending a company for

enlistment, such members have to carry out the appraisal of the project to ensure

its technological and financial viability.

They also ensure that all government rules and regulations have been complied

with. They are required to clarify the investment worthiness of the company and its

project.

Finally, they would value the shares of the company, comply with SEBI guidelines

for the issue of securities and manage the public issue. OTCEI requires such

sponsor members to act as ‗market makers‘ in that scrip for at least 3 years and

also to appoint an additional market maker for that scrip for a period of at least one

year.

SEBI relaxed norms for listing on the OTCEI during March 1995. The minimum

post- issue capital to be offered to the public to enable listing was lowered from 40

per cent to 25 per cent. SEBI also permitted finance and leasing companies to get

listed on the OTCEI.

In April 1995, OTCEI modified its guidelines to allow listing of finance companies-

albeit with more stringency. The minimum issued capital was increased from Rs. 30

lakh to Rs. 1 crore for finance companies.

Further, a three-year track record of profitability was made compulsory before

listing takes place. The new guidelines also state that the OTCEI- sponsor of these

companies should hold at least 10 per cent of the public offer as market making

inventory as against 5 per cent for other companies. However, till December 1996,

no companies engaged in finance or leasing services was listed on the OTCEI.

To facilitate offers for sale of bought-out deals, OTCEI changed its guidelines in

January 1996. The revised guideline did away with the requirement of making an

offer for sale of the entire bought-out deal to the public, except the market making

inventory. The offered can now offer a minimum of 25 per cent of the bought-out

deal to the public.

At the same time, the ratio of involvement of OTCEI members to non-OTCEI

members has been brought down from 60:40 to 10:90. These guidelines came into

effect from 22 January 1996 and were made applicable to all the bought-out deals

registered with SEBI and the offer documents for offers for sale which were

awaiting SEBI clearance.

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Later in August 1996, SEBI exempted offers for sale of bought-out deals registered

with OTCEI on or before 16 April 1996 from the new guidelines governing entry

norms for public issues.

Briefly, the new guidelines issued by SEBI stated that any company wanting to

make a public issue should have a track record of dividend payment for at least

three in the immediately preceding five years before the making public issue.

If companies do not satisfy this requirement, then they must at least get their

project appraised by a financial institution or a nationalised bank which would

participate in the public issue to an extent of at least 10 per cent of the total project

outlay. The relaxation would benefit the 50-odd bought out deals registered with

the OTCEI.

With a view to review the working of the OTCEI and to make recommendations for

its further improvement, SEBI appointed an eight-member committee under the

chairmanship of Dr. S.A. Dave on 17 April 1996. On the recommendations of the

Committee, SEBI has made the eligibility criteria for companies desirous of making

a public issue very stringent.

The companies unable to make a public issue as a consequence of these guidelines

be allowed to seek listing on the OTCEI, albeit with some checks. Currently, only

those companies which have a track record of dividend payment of three years out

of the immediately preceding five years can make a public issue.

If the company does not have such a teach record, then the project for which the

company is entering the capital market needs to be appraised by a financial

institution or a nationalised bank. Further, there should be a minimum participation

of 10 per cent of the project outlay by the appraiser, in the form of equity or long-

term debt.

The committee has recommended that companies which do not satisfy these

criteria should be allowed to get listed on the OTCEI provided they appoint a

sponsor and two market makers to the issue. The committee has also

recommended that companies which do not meet the minimum shareholding norm

of having at least 5 shareholders for every Rs. 1 lakh of issued capital can get listed

on the OTCEI but should appoint sponsors and market makers.

Companies which get delisted from regional stock exchanges should be allowed to

list on the OTCEI since shareholders of delisted companies do not have a platform

to off load their holdings. These companies should, however, be traded under a

separate category on the OTCEI.

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Further, all the companies discussed above should be allowed listing on the OTCEI

with a minimum lock-in period of three years. After three years, these companies

may either choose to remain on the OTCEI or seek listing on other stock

exchanges.

The committee has recommended that the ceiling of Rs.25 crore on the equity

capital of a company seeking listing on the OTCEI be removed. It has also

suggested that the current rolling settlement system of three days (known as T ±

3) should be increased to five days.

The committee has also stressed upon the need of increased involvement of the

promoters of OTCEI. The main promoters of the exchange are Unit Trust of India,

Industrial Development Bank of India, Industrial Credit & Investment Corporation of

India, Industrial Finance Corporation of India, Life Insurance Corporation and

General Insurance Corporation.

The report points out that the some of these entities have promoted the National

Stock Exchange which has grown at a much faster pace than the OTCEI. One

recommendation for increased promoter participation is that the promoters should

have an OTCEI-dedicated fund of a corpus of around Rs.100 crore which would

invest in fundamentally sound companies of the OTCEI.

OTCEI is intended to provide easy marketability and better liquidity of securities to

an investor. Besides, it also offers facilities for transfer of shares listed here. The

investor can submit the transfer documents at any of the OTCEI counters in the

country. There is total transparency and fairness so far as the deals are concerned.

It takes lesser time to finalise a deal too. The companies listed with OTCEI are also

benefitted to a large extent.

Raising of funds becomes cheaper since they are priced fairly and the investor base

is large. The company can obtain enlistment even with 40% public issue (which is

60% in case of listing on a recognised stock exchange).

The company has also the option of allotting all the shares to a sponsor. In this

case, the company has only to negotiate the issue price with the sponsor who

finally markets the issue.

Despite being in existence for a number of years, the exchange does not have a

major presence amongst stock exchanges of the country.

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BOMBAY STOCK EXCHANGE

Established in 1875, BSE Ltd. (formerly known as Bombay Stock Exchange Ltd. and

established as "The Native Share and Stock Brokers' Association") is Asia‘s first and

fastest Stock Exchange, with the speed of 200 micro second and one of India‘s

leading exchange groups. BSE is a corporatized and demutualised entity, with a

broad shareholder-base that includes two leading global exchanges, Deutsche

Bourse and Singapore Exchange, as strategic partners. BSE provides an efficient

and transparent market for trading in equity, debt instruments, derivatives, and

mutual funds. It also has a platform for trading in equities of small-and-medium

enterprises (SME). Over the past 139 years, BSE has facilitated the growth of the

Indian corporate sector by providing an efficient capital-raising platform.

More than 5000 companies are listed on BSE, making it the world's top exchange in

terms of listed members. The companies listed on BSE Ltd. command a total

market capitalization of USD 1.24 Trillion as of March 2014. It is also one of the

world‘s leading exchanges (3rd largest in March 2014) for Index options trading

(Source: World Federation of Exchanges).

BSE also provides a host of other services to capital market participants, including

risk management, clearing, settlement, market data services, and education. It has

a global reach with customers around the world and a nation-wide presence. BSE

systems and processes are designed to safeguard market integrity, drive the

growth of the Indian capital market, and stimulate innovation and competition

across all market segments. BSE is the first exchange in India and the second in

the world to obtain an ISO 9001:2000 certification and the Information Security

Management System Standard BS 7799-2-2002 certification for its On-Line trading

System (BOLT). It operates one of the most respected capital market educational

institutes in the country (the BSE Institute Ltd.). BSE also provides depository

services through its Central Depository Services Ltd. (CDSL) arm.

BSE‘s popular equity index - the S&P BSE SENSEX - is India's most widely tracked

stock market benchmark index. It is traded internationally on the EUREX as well as

leading exchanges of the BRCS nations (Brazil, Russia, China and South Africa).

BSE has won several awards and recognitions that acknowledge its work and

progress, like India Innovation Award for the Big Data implementation, ICICI

Lombard and ET Now Risk Management BFSI Company 2013, SKOCH Order of Merit

Certificate (awarded to BSE Limited for E -Boss for qualifying among India's Best

2013), The Golden Peacock Global CSR Award (for its initiatives in Corporate Social

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Responsibility), NASSCOM - CNBC-TV18‘s IT User Awards, 2010 in Financial

Services category, Skoch Virtual Corporation 2010 Award in the BSE StAR MF

category, and Responsibility Award (CSR) by the World Council of Corporate

Governance. Its recent milestones include the launching of BRICSMART indices

derivatives, BSE-SME Exchange platform, S&P BSE GREENEX to promote

investments in Green India.

BSE‘s popular equity index - the S&P BSE SENSEX (Formerly SENSEX) - is India's

most widely tracked stock market benchmark index. It is traded internationally on

the EUREX as well as leading exchanges of the BRCS nations (Brazil, Russia, China

and South Africa). On Tuesday, 19 February 2013 BSE has entered into Strategic

Partnership with S&P DOW JONES INDICES and the SENSEX has been renamed as

"S&P BSE SENSEX".

BSE‘s websites http://www.bseindia.com/ provides comprehensive information of

the stock market. It is one of the most popular financial websites in India and is

regular visited by financial organizations and other stakeholders for updates.

BSE‘s team of experts and professionals, along with its strategic partners have put

into place several critical systems such as Derivatives Trading & Settlement System

(DTSS), Electronic Contract Notes (ECN), Unique Client Code registration(UCC),

Real time data dissemination- Data feed, Integrated back office system- CDB/IDB,

Book Building System(BBS) & Reverse Book Building System (RBBS) etc.

BSE also operates one of the largest private network in India, comprising campus

LAN; WAN set up within Mumbai and across some major metro in India and VSAT

set up across the country. BSE‘s campus LAN covers and around 350 member

offices across three BSE buildings P.J Towers, Rotunda and Cama building.

BSE WAB set up connects approximately 2000 member offices within Mumbai and

some major metros to BSE system. Leased MLLN circuits from MTNL/BSNL are

provided with ISDN/TIML leased circuit backup. Around 300 circuits are of 2mbps

capacity and rest are all of 64kbps capacity.

In year 2000 BSE set up its own VSAT Master Earth Station(HUB), which uses full

transponder on INSAT 3B satellite to cater to roughly 2000 locations in over 400

cities across the country.

Regional Hubs for local fan out of leased lines within Metros backed by high

availability trunk backbone to BSE. The regional technology hubs are commissioned

in Ahmadabad, Bangalore, Chandigarh, Chennai, Delhi, Hyderabad, Indore, Jaipur,

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Kolkata, Ludhiana, Pune and Rajkot provides cost-effective reliable services to

members.

The Trading and Settlement activities of the member-brokers are closely monitored

through On-Line Real Time System known as BSE Online Surveillance

System(BOSS). The system enables the Exchange to detect market abuses at a

nascent stage, improve the risk management system and strengthen the self-

regulatory mechanism. Currently, BSE is in the process of evolving an integrated

system for online surveillance of Cash and Derivatives segments through BSE

Online Surveillance System - Integrated (BOSS-i).

BSE uses higher end fault tolerant system for its trading and related functionalities.

It uses Integrity Non-stop S88000 system for its online trading systems (BOLT).

The systems have been designed to deliver the best performance without

compromising on key factors of availability, scalability, ROI and TCO.

History

The Bombay Stock Exchange is the oldest exchange in Asia. It traces its history to

1855, when four Gujarati and one Parsi stockbroker would gather under banyan

trees in front of Mumbai's Town Hall. The location of these meetings changed many

times as the number of brokers constantly increased. The group eventually moved

to Dalal Street in 1874 and in 1875 became an official organization known as "The

Native Share & Stock Brokers Association".

On 31 August 1957, the BSE became the first stock exchange to be recognized by

the Indian Government under the Securities Contracts Regulation Act. In 1980, the

exchange moved to the Phiroze Jeejeebhoy Towers at Dalal Street, Fort area. In

1986, it developed the BSE SENSEX index, giving the BSE a means to measure

overall performance of the exchange. In 2000, the BSE used this index to open its

derivatives market, trading SENSEX futures contracts. The development of SENSEX

options along with equity derivatives followed in 2001 and 2002, expanding the

BSE's trading platform.

Historically an open outcry floor trading exchange, the Bombay Stock Exchange

switched to an electronic trading system in 1995. It took the exchange only fifty

days to make this transition. This automated, screen-based trading platform called

BSE On-line trading (BOLT) had a capacity of 8 million orders per day. The BSE has

also introduced the world's first centralized exchange-based internet trading

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system, BSEWEBx.co.in to enable investors anywhere in the world to trade on the

BSE platform.

Timeline

Following is the timeline of the BSE.

1830 to 1875

1830's Business on corporate stocks and Share in Bank and Cotton presses

started in Bombay.

1860-1865 Cotton price bubble as a result of the American Civil War.

1870 - 90's Sharp increase in Share prices of jute industries followed by a

boom in tea stocks and coal.

1875 To 1995

9 July 1875 The Native Share & Stock Broker's Association formed

2 February 1921 Clearing House started by Bank of India

31 August 1957 BSE granted permanent recognition under Securities

Contracts (Regulation) Act (SCRA)

2 January 1986 SENSEX, country's first equity index launched (Base Year:

1978-79 =100)

10 July 1987 Investor's Protection Fund (IPF) introduced

3 January 1989 BSE Training Institute (BTI) inaugurated

25 July 1990 SENSEX closes above 1000

15 January 1992 SENSEX closes above 2000

30 March 1992 SENSEX closes above 4000

1 May 1992 SEBI Act established (An Act to protect, develop and regulate

the securities market)

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29 May 1992 Capital Issues (Control) Act repealed

1992 Securities Appellate Tribunal (SAT) established

14 March 1995 BSE On-Line Trading (BOLT) system introduced

1996 To 2000

19 August 1996 First major SENSEX revamp* 22 March 1999 Central

Depository Services Limited (CDSL) set up with other financial institutions

1 June 1999 Interest rate swaps (IRS) / Forward Rate Agreements (FRA)

allowed

15 July 1999 CDSL commences work

11 October 1999 SENSEX closed above 5000

11 February 2000 SENSEX crosses 6000 intra-day

9 June 2000 Equity Derivatives introduced

2001 To 2005

1 March 2001 Corporatisation of Exchanges proposed by the Union Govt.

1 February 2001 BSE Webx Launched

1 June 2001 Index Options launched

4 June 2001 BSE PSU index introduced

15 June 2001 WDM operations at commenced

2 July 2001 VaR model introduced for margin requirement calculation

9 July 2001 Stock options launched

11 July 2001 BSE Teck launched, India‘s First free float index

25 July 2001 Dollex 30 launched

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1 November 2001 Stock futures launched

29 November 2001 100% book building allowed

31 December 2001 All securities clearing move to T+5 (trade date + 5 days)

1 February 2002 Two way fungibility for ADR/GDR

15 February 2002 Negotiated Dealing System (NDS) established

1 April 2002 T+3 settlement Introduced

1 January 2003 India‘s first ETF on SENSEX - ‗SPICE' introduced

16 January 2003 Retail trading in G Sec

1 April 2003 T+2 settlement Introduced

1 June 2003 Bankex launched

1 September 2003 SENSEX shifted to free-float methodology

1 December 2003 T group launched

2 June 2004 SENSEX closes over 6000 for the first time (564.71 points,

11.14%)

17 May 2004 Second biggest fall of all time, Circuit filters used twice in a day

(the Scheme) announced by SEBI

20 May 2005 The BSE (Corporatisation and Demutualisation) Scheme, 2005

8 August 2005 Incorporation of Bombay Stock Exchange Limited

12 August 2005 Certificate of Commencement of Business

19 August 2005 BSE becomes a Corporate Entity

2006 To 2010

7 February 2006 SENSEX closed above 10000

7 July 2006 BSE Gujarati website launched

21 October 2006 BSE Hindi website launched

2 November 2006 ishares BSE SENSEX India Tracker listed at Hong Kong

Stock Exchange

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2 January 2007 Launch of Unified Corporate Bond Reporting platform: Indian

Corporate Debt Market (ICDM)

7 March 2007 Singapore Exchange Limited entered into an agreement to

invest in a 5% stake in BSE

16 May 2007 Appointed Date under the Scheme i.e. Date on which

Corporatisation and Demutualisation was achieved. Notified by SEBI in the

Official Gazette on 29.06.2007

10 January 2008 SENSEX All-time high 21206.77

1 October 2008 Currency Derivatives Introduced

18 May 2009 The SENSEX raised 2110.70 points (17.34%) and Index-wide

upper circuit breaker applied

7 August 2009 BSE - USE Form Alliance to Develop Currency & Interest Rate

24 August 2009 BSE IPO Index launched

1 October 2009 Bombay Stock Exchange introduces trade details facility for

the Investors

5 October 2009 BSE Introduces New Transaction Fee Structure for Cash

Equity Segment

25 November 2009 BSE launches FASTRADE™ - a new market access

platform

4 December 2009 BSE Launches BSE StAR MF – Mutual Fund trading

platform

7 December 2009 Launch of clearing and settlement of Corporate Bonds

through Indian Clearing Corporation Ltd.

14 December 2009 Marathi website launched

18 December 2009 BSE's new derivatives rates to lower transaction costs for

all

4 January 2010 Market time changed to 9.0 a.m. - 3.30 p.m.

20 January 2010 BSE PSU website launched

22 April 2010 New DBM framework @ Rs.10 lakhs - 90% reduction in

Membership Deposit

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12 May 2010 Dissemination of Corporate Action information via SWIFT

platform

23 July 2010 Options on BOLT

21 September 2010 First to introduce Mobile-based Trading

29 September 2010 Introduction of Smart Order Routing (SOR)

4 October 2010 EUREX - SENSEX Futures launch

11 October 2010 Launch of Fastrade on Web (FoW) - Exchange hosted

platform

5 November 2010 SENSEX closes above 21,000 for the first time

12 November 2010 Commencement of Volatility Index

22 November 2010 Launch of SLB

10 December 2010 Launch of SIP

27 December 2010 Commencement of Shariah Index

2011 To 2014

17 November 2011 Maharashtra and United Kingdom Environment Ministers

launched Concept Note for BSE Carbon Index

30 December 2011, picks up a stake in the proxy advisory firm, Institutional

Investor Advisory Services India Limited (IiAS)

7 January 2011 BSE Training Institute Ltd. with IGNOU launched India's first

2 year full-time MBA programme specialising in Financial Market

15 January 2011 Co-location facility at BSE - tie up with Netmagic.com

22 February 2012 Launch of BSE-GREENEX to promote investments in Green

India

13 March 2012 Launch of BSE - SME Exchange Platform

30 March 2012 BSE launched trading in BRICSMART indices derivatives

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19 February 2013 - SENSEX becomes S&P SENSEX as BSE ties up

with Standard and Poor's to use the S&P brand for Sensex and other indices.

28 November 2013 Launch of Currency Derivatives (BSE CDX)

28 January 2014 Launch of Interest Rate Futures (BSE –IRF)

11 Feb 2014 Launch of Institutional Trading Platform on BSE SME

07 Apr 2014 Launch of Equity Segment on BOLT Plus with Median Response

Time of 200 (µS)

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Members:

While the BSE has over 874 members-brokers across the country, NSE has more

than 1000 members. In NSE, a prospective trading member is admitted to any of

the following combinations of

marketsegments: Wholesale Debt Market segment, Capital Market (CM) and the Fut

ures and Optionssegments, CM Segment and the WDM segment, or CM Segment,

the WDM and the F and O segment. There is no such thing at BSE and members

join as any of the following: Trading Members, Tradingcum Clearing Members,

Professional clearing member, Limited trading member and Self Clearing member.

For NSE:

In order to be admitted as a trading member, the individual trading member/at

least two partners of the applicant firm/at least two directors of the applicant

corporate must be graduates

andmust possess at least two years' experience in securities markets. The applicant

for tradingmembership/any of its partners/shareholders/directors must not have

been declared defaulters on

anystock exchange, must not be debarred by SEBI for being associated with capital

market asintermediaries and must not be engaged in any fund-based activity. The

trades executed on the Exchange may be cleared and settled by a clearing

member. The initial joining fee for a member at BSE is Rs. 90 Lakhs while that for

an NSE member is between100 to 300 Lakh depending on the kind of membership

one chooses. In addition to annual fees, NSE members are required to pay

transaction charges on trades undertaken by them. They pay transaction charge at

the rate of Rs. 3.5 for every Rs. 1 lakh of turnover in the CM segment. The

transaction charges payable to the exchange by the trading member for the trades

executed by him on the F&O segment are fixed at the rate of Rs. 2 per lakh of

turnover (0.002%) subject to a minimum of Rs. 1, 00,000 per year. At BSE, these

fees differ according to the various types of members.

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Indices:

The main Index of BSE is SENSEX while that of NSE is CNX Nifty. The other

indices at BSE are: BSE 500, BSE 100, BSE 200, BSE PSU, BSE MIDCAP, BSE

SMLCAP, BSE BANKEX, BSE Teck,BSE Auto, BSE Pharma, BSE Fast Moving

Consumer Goods (FMCG), BSE Consumer Durables(SYMBOL: Cons Dura), BSE

Metal. NSE also set up as index services firm known as India Index Services &

Products Limited (IISL) and has launched several stock indices, including: S&P

CNX Nifty, CNX Nifty Junior, CNX 100 (= S&P CNX Nifty + CNX Nifty Junior), S&P

CNX 500 (= CNX100 + 400 major players across 72 industries), CNX Midcap

(introduced on 18 July 2005 replacing CNX Midcap 200).

CALCULATION OF SENSEX

SENSEX is calculated using a "Market Capitalization-

Weighted" methodology. As per thismethodology, the level of index at any point of

time reflects the total market value of 30 component stocks relative to a base

period. (The market capitalization of a company is determined by multiplying the

price of its stock by the number of shares issued by the company). An index of a

set of combined variables (such as price and number of shares) is commonly

referred as a 'Composite Index' by statisticians. A single indexed number is used to

represent the results of this calculation in order to make the value easier to work

with and track over time. It is much easier to graph a chart based on indexed

values than one based on actual values. The base period of SENSEX is 1978-79.

The actual total market value of the stocks in the Index during the base period has

been set equal to an indexed value of 100. This is often indicated by the notation

1978-79=100. The formula used to calculate the Index is fairly straightforward.

However, the calculation of the adjustments to the Index (commonly called Index

maintenance) is more complex. The calculation of SENSEX involves dividing the

total market capitalization of 30 companies in the Index by a number called the

Index Divisor. The Divisor is the only link to the original base period value of the

SENSEX. It keeps the Index comparable over time and is the adjustment point for

all Index maintenance adjustments. During market hours, prices of the index

scrip‘s, at which latest trades are executed, are used by the trading system to

calculate SENSEX every 15 seconds and disseminated in real time.

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CLOSURE OF SENSEX

The closing SENSEX is computed taking the weighted average of all the trades on S

ENSEXconstituents in the last 15 minutes of trading session. If a SENSEX

constituent has not traded in the last 15 minutes, the last traded price is taken for

computation of the Index closure. If a SENSEX constituent has not traded at all in a

day, then its last day's closing price is taken for computation of Index closure. The

use of Index Closure Algorithm prevents any intentional manipulation of the closing

index value.

MAINTAINENCE OF SENSEX

One of the important aspects of maintaining continuity with the past is to update

the base year

average.The base year value adjustment ensures that additional issue of capital an

d other corporateannouncements like bonus etc. do not destroy the value of the

index. The beauty of maintenance lies in the fact that adjustments for corporate

actions in the Index should not per se affect the index values. The Index Cell of the

Exchange does the day-to-day maintenance of the index within the broad

index policy framework set by the Index Committee. The Index Cell takes special

care to ensure that SENSEX and all the other BSE indices maintain their benchmark

properties by striking a delicate balance between high turnover in Index scrip‘s and

its representative character. The Index Committee of the Exchange has experts

from different field of finance related to the capital markets. They include

Academicians, Fund-managers from leading Mutual Funds, Finance - Journalists,

Market Participants, Independent Governing Board members, and Exchange

administration.

SENSEX UPDATION

During market hours, prices of the index scrip‘s, at which trades are executed, are

automatically used by the trading computer to calculate the SENSEX every 15

seconds and continuously updated on all trading workstations connected to the BSE

trading computer in real time.

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COMPANIES LISTED IN NIFTY

Company Name Industry

Scrip

Name

ABB Ltd. ELECTRICAL EQUIPMENT ABB

ACC Ltd.

CEMENT AND CEMENT

PRODUCTS ACC

Ambuja Cements Ltd.

CEMENT AND CEMENT

PRODUCTS

AMBUJACE

M

Bharat Heavy Electricals

Ltd. ELECTRICAL EQUIPMENT BHEL

Bharat Petroleum

Corporation Ltd. REFINERIES BPCL

Bharti Airtel Ltd.

TELECOMMUNICATION –

SERVICES

BHARTIART

L

Cairn Bharat Ltd.

OIL

EXPLORATION/PRODUCTION CAIRN

Cipla Ltd. PHARMACEUTICALS CIPLA

DLF Ltd. CONSTRUCTION DLF

GAIL (India) Ltd. GAS GAIL

Grasim Industries Ltd.

CEMENT AND CEMENT

PRODUCTS GRASIM

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HCL Technologies Ltd. COMPUTERS – SOFTWARE HCLTECH

HDFC Bank Ltd. BANKS HDFCBANK

Hero Honda Motors Ltd.

AUTOMOBILES – 2 AND 3

WHEELERS

HEROHOND

A

Hindalco Industries Ltd. ALUMINIUM HINDALCO

Hindustan Unilever Ltd. DIVERSIFIED

HINDUNILV

R

Housing Development

Finance Corporation Ltd. FINANCE – HOUSING HDFC

I T C Ltd. CIGARETTES ITC

ICICI Bank Ltd. BANKS ICICIBANK

Idea Cellular Ltd.

TELECOMMUNICATION –

SERVICES IDEA

Infosys Technologies Ltd. COMPUTERS – SOFTWARE

INFOSYSTC

H

Larsen & Toubro Ltd. ENGINEERING LT

Mahindra & Mahindra Ltd. AUTOMOBILES – 4 WHEELERS M&M

Maruti Suzuki Bharat Ltd. AUTOMOBILES – 4 WHEELERS MARUTI

NTPC Ltd. POWER NTPC

National Aluminium Co. Ltd. ALUMINIUM

NATIONALU

M

Oil & Natural Gas OIL ONGC

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Corporation Ltd. EXPLORATION/PRODUCTION

Power Grid Corporation of

Bharat Ltd. POWER

POWERGRI

D

Punjab National Bank BANKS PNB

Ranbaxy Laboratories Ltd. PHARMACEUTICALS RANBAXY

Reliance Communications

Ltd.

TELECOMMUNICATION –

SERVICES RCOM

Reliance Industries Ltd. REFINERIES RELIANCE

Reliance Infrastructure Ltd. POWER RELINFRA

Reliance Petroleum Ltd. REFINERIES RPL

Reliance Power Ltd. POWER RPOWER

Satyam Computer Services

Ltd. COMPUTERS – SOFTWARE

SATYAMCO

MP

Siemens Ltd. ELECTRICAL EQUIPMENT SIEMENS

State Bank of India BANKS SBIN

Steel Authority of Bharat

Ltd. STEEL AND STEEL PRODUCTS SAIL

Sterlite Industries (India)

Ltd. METALS STER

Sun Pharmaceutical

Industries Ltd. PHARMACEUTICALS

SUNPHARM

A

Suzlon Energy Ltd. ELECTRICAL EQUIPMENT SUZLON

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Tata Communications Ltd.

TELECOMMUNICATION –

SERVICES TATACOMM

Tata Consultancy Services

Ltd. COMPUTERS – SOFTWARE TCS

Tata Motors Ltd. AUTOMOBILES – 4 WHEELERS

TATAMOTO

RS

Tata Power Co. Ltd. POWER

TATAPOWE

R

Tata Steel Ltd. STEEL AND STEEL PRODUCTS TATASTEEL

Unitech Ltd. CONSTRUCTION UNITECH

Wipro Ltd. COMPUTERS – SOFTWARE WIPRO

Zee Entertainment

Enterprises Ltd. MEDIA & ENTERTAINMENT ZEEL

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COMPANIES LISTED IN SENSEX

• HDFC

• DLF

• ONGC

• Reliance Infra

• Sterlite India

• Mahindra and Mahindra

• Tata Motors

• Reliance Communications

• Wipro

• Tata Power

• Tata Steel

• Reliance

• NTPC

• Jaiprakash Associates

• Maruti Suzuki

• Jindal Steel

• SBI

• Larsen

• ICICI Bank

• Infosys

• Bharti Airtel

• TCS

• HDFC Bank

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• Hindalco

• BHEL

• Hero Honda

• Cipla

• ACC

• HUL

• ITC

Trend of stock market in India

Trend of Sensex and Nifty (for last two years)

Factors responsible for the fluctuation of Sensex and Nifty.

Traditionally, indexes have been used as information sources. By looking at an

index we know how the market is fairing. In recent years, indexes have come to

fore owing to direct applications in finance, in the form of index funds and index

derivatives. Index funds are funds which passively ‗invest in the index‗. Index

derivatives allow people to cheaply alter their risk exposure to an index (this is

called hedging) and to implement forecasts about index movements (this is called

speculation). Hedging using index derivatives has become a central part of risk

management in the modern economy. These applications are now a multi-trillion

dollar industry worldwide, and they are critically linked up to market indexes.

Finally, indexes serve as a benchmark for measuring the performance of fund

managers. An all-equity fund should obtain returns like the overall stock market

index. A 50:50 debt: equity fund should obtain returns close to those obtained by

an investment of 50% in the index and 50% in fixed income. A well-specified

relationship between an investor and a fund manager should explicitly define the

benchmark against which the fund manager will be compared, and in what fashion.

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SENSEX - THE BAROMETER OF INDIAN CAPITAL MARKETS

Sensex INDIA

The BSE Sensex or Bombay Stock Exchange Sensitive Index is a value-weighted

index composed of 30 stocks with the base April 1979 = 100. It consists of the 30

largest and most actively traded stocks, representative of various sectors, on the

Bombay Stock Exchange. These companies account for around one-fifth of the

market capitalization of the BSE.

The base value of the Sensex is 100 on April 1, 1979 and the base year of BSE-

SENSEX is 1978-79.

At irregular intervals, the Bombay Stock Exchange (BSE) authorities review and

modify its composition to make sure it reflects current market conditions.

The abbreviated form "Sensex" was coined by Deepak Mohoni around 1990 while

writing market analysis columns for some of the business newspapers and

magazines. It gained popularity over the next year or two.

The index has increased by over ten times from June 1990 to today. Using

information from April 1979 onwards, the long-run rate of return on the BSE

Sensex works out to be 18.6% per annum, which translates to roughly 9% per

annum after compensating for inflation.

Sensex milestones

Here is a timeline on the rise and rise of the Sensex through Indian stock market

history.

1000, July 25, 1990 -On July 25, 1990, the Sensex touched the four-digit figure

for the first time and closed at 1,001 in the wake of a good monsoon and excellent

corporate results.

2000, January 15, 1992 - On January 15, 1992, the Sensex crossed the 2,000-

mark and closed at 2,020 followed by the liberal economic policy initiatives

undertaken by the then finance minister and current Prime Minister Dr Manmohan

Singh.

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3000, February 29, 1992 - On February 29, 1992, the Sensex surged past the

3000 mark in the wake of the market-friendly Budget announced by the then

Finance Minister, Dr Manmohan Singh.

4000, March 30, 1992 - On March 30, 1992, the Sensex crossed the 4,000-mark

and closed at 4,091 on the expectations of a liberal export-import policy. It was

then that the Harshad Mehta scam hit the markets and Sensex witnessed unabated

selling.

5000, October 11, 1999 - On October 8, 1999, the Sensex crossed the 5,000-

mark as the BJP-led coalition won the majority in the 13th Lok Sabha election.

6000, February 11, 2000 - On February 11, 2000, the InfoTech boom helped the

Sensex to cross the 6,000-mark and hit and all time high of 6,006.

7000, June 21, 2005 - On June 20, 2005, the news of the settlement between the

Ambani brothers boosted investor sentiments and the scrips of RIL, Reliance

Energy, Reliance Capital and IPCL made huge gains. This helped the Sensex

crossed 7,000 points for the first time.

8000, September 8, 2005 - On September 8, 2005, the Bombay Stock

Exchange's benchmark 30-share index -- the Sensex -- crossed the 8000 level

following brisk buying by foreign and domestic funds in early trading.

9000, December 09, 2005 - The Sensex on November 28, 2005 crossed 9000 to

touch 9000.32 points during mid-session at the Bombay Stock Exchange on the

back of frantic buying spree by foreign institutional investors and well supported by

local operators as well as retail investors.

10,000, February 7, 2006- The Sensex on February 6, 2006 touched 10,003

points during mid-session. The Sensex finally closed above the 10K-mark on

February 7, 2006.

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11,000, March 27, 2006 - The Sensex on March 21, 2006 crossed 11,000 and

touched a life-time peak of 11,001 points during mid-session at the Bombay Stock

Exchange for the first time. However, it was on March 27, 2006 that the Sensex

first closed at over 11,000 points.

12,000, April 20, 2006 - The Sensex on April 20, 2006 crossed 12,000 and

touched a life-time peak of 12,004 points during mid-session at the Bombay Stock

Exchange for the first time.

13,000, October 30, 2006 - The Sensex on October 30, 2006 crossed 13,000 and

still riding high at the Bombay Stock Exchange for the first time. It took 135 days to

reach 13,000 from 12,000. And 124 days to reach 13,000 from 12,500. On 30th

October 2006 it touched a peak of 13,039.36 & closed at 13,024.26.

14,000, December 5, 2006 - The Sensex on December 5, 2006 crossed 14,000

and touched a life-time peak of 14028 at 9.58AM (IST) while opening for the day

December 5, 2006.

15,000, July 6, 2007- The Sensex on July 6, 2007 crossed another milestone and

reached a magic figure of 15,000. it took almost 7 month and 1 day to touch such a

historic milestone.

16,000, September 19, 2007- The Sensex on September 19, 2007 crossed the

16,000 mark and reached a historic peak of 16322 while closing. The bull hits

because of the rate cut of 50 bps in the discount rate by the Fed chief Ben

Bernanke in US.

17,000, September 26, 2007- The Sensex on September 26, 2007 crossed the

17,000 mark for the first time, creating a record for the fastest 1000 point gain in

just 5 trading sessions. It failed however to sustain the momentum and closed

below 17000. The Sensex closed above 17000 for the first time on the following

day. Reliance group has been the main contributor in this bull run, contributing 256

points. This also helped Mukesh Ambani's net worth to grow to over $50 billion or

Rs.2 trillion. It was also during this record bull run that the Sensex for the first time

zoomed ahead of the Nikkei of Japan.

18,000, October 9, 2007- The Sensex crossed the 18k mark for the first time on

October 9, 2007. The journey from 17k to 18k took just 8 trading sessions which is

the second fastest 1000 point rise in the history of the sensex. The sensex closed at

18,280 at the end of day. This 788 point gain on 9th October is the biggest single

day absolute gains ever. Sensex also saw intra-day gains of 1000 points from the

day's lows in the backdrop of political uncertainty between the UPA and Left parties

on the Nuke deal. The markets started coming off the day's lows on news that the

immediate threat to the government had receded after the warring factions agreed

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to talk further. Reliance Industries was again the biggest contributor in this 1000

point gain. The Reliance-pack along with Infosys and L&T lead the Bull Run.

On May 22, 2006, the Sensex plunged by a whopping 1100 points during intra-day

trading, leading to the suspension of trading for the first time since May 17, 2004.

The volatility of the Sensex had caused investors to lose Rs 6 lakh crore ($131

billion) within seven trading sessions. The Finance Minister of India, P.

Chidambaram, made an unscheduled press statement when trading was suspended

to assure investors that nothing was wrong with the fundamentals of the economy,

and advised retail investors to stay invested. When trading resumed after the

reassurances of the Reserve Bank of India and the Securities and Exchange Board

of India, the Sensex managed to move up 700 points, still 450 points in the red.

This is the largest ever intra-day crash (in points terms) in the history of the

Sensex.

The Sensex eventually recovered from the volatility, and on October 16, 2006, the

Sensex closed at an all-time high of 12,928.18 with an intra-day high of 12,953.76.

This was a result of increased confidence in the economy and reports that India's

manufacturing sector grew by 11.1% in August 2006.

On July 23, 2007, the Sensex touched a new high of 15,733 points. The index

touched the 15,828.98 mark the very next day. On July 27, 2007 the Sensex

witnessed a huge correction because of selling by Foreign Institutional Investors

and global cues to come back to 15,160 points by noon. Following global cues and

heavy selling in the International markets, the BSE Sensex fell by 615 points in a

single day on August 1, 2007, the third such biggest fall in its history. Following the

same trend, the BSE Sensex fell by 643 points in a single day on August 16, 2007,

which is the biggest fall since April, 2007 and the second biggest ever (absolute

terms) in history.

Introduction

For the premier Stock Exchange that pioneered the stock broking activity in India,

128 years of experience seems to be a proud milestone. A lot has changed since

1875 when 318 persons became members of what today is called "The Stock

Exchange, Mumbai" by paying a princely amount of Re1.

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Since then, the country's capital markets have passed through both good and bad

periods. The journey in the 20th century has not been an easy one. Till the decade

of eighties, there was no scale to measure the ups and downs in the Indian stock

market. The Stock Exchange, Mumbai (BSE) in 1986 came out with a stock index

that subsequently became the barometer of the Indian stock market.

SENSEX is not only scientifically designed but also based on globally accepted

construction and review methodology. First compiled in 1986, SENSEX is a basket

of 30 constituent stocks representing a sample of large, liquid and representative

companies. The base year of SENSEX is 1978-79 and the base value is 100. The

index is widely reported in both domestic and international markets through print

as well as electronic media.

The Index was initially calculated based on the "Full Market Capitalization"

methodology but was shifted to the free-float methodology with effect from

September 1, 2003. The "Free-float Market Capitalization" methodology of index

construction is regarded as an industry best practice globally. All major index

providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float

methodology.

Due to is wide acceptance amongst the Indian investors; SENSEX is regarded to be

the pulse of the Indian stock market. As the oldest index in the country, it provides

the time series data over a fairly long period of time (From 1979 onwards). Small

wonder, the SENSEX has over the years become one of the most prominent brands

in the country.

The growth of equity markets in India has been phenomenal in the decade gone by.

Right from early nineties the stock market witnessed heightened activity in terms of

various bull and bear runs. The SENSEX captured all these events in the most

judicial manner. One can identify the booms and busts of the Indian stock market

through SENSEX.

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SENSEX Calculation Methodology

SENSEX is calculated using the "Free-float Market Capitalization" methodology.

As per this methodology, the level of index at any point of time reflects the Free-

float market value of 30 component stocks relative to a base period. The market

capitalization of a company is determined by multiplying the price of its stock by

the number of shares issued by the company. This market capitalization is further

multiplied by the free-float factor to determine the free-float market capitalization.

The base period of SENSEX is 1978-79 and the base value is 100 index points. This

is often indicated by the notation 1978-79=100. The calculation of SENSEX involves

dividing the Free-float market capitalization of 30 companies in the Index by a

number called the Index Divisor. The Divisor is the only link to the original base

period value of the SENSEX. It keeps the Index comparable over time and is the

adjustment point for all Index adjustments arising out of corporate actions,

replacement of scrips etc. During market hours, prices of the index scrips, at which

latest trades are executed, are used by the trading system to calculate SENSEX

every 15 seconds and disseminated in real time.

Understanding Free-float Methodology

Concept:

Free-float Methodology refers to an index construction methodology that takes into

consideration only the free-float market capitalization of a company for the purpose

of index calculation and assigning weight to stocks in Index. Free-float market

capitalization is defined as that proportion of total shares issued by the company

that are readily available for trading in the market. It generally excludes promoters'

holding, government holding, strategic holding and other locked-in shares that will

not come to the market for trading in the normal course. In other words, the

market capitalization of each company in a Free-float index is reduced to the extent

of its readily available shares in the market.

In India, BSE pioneered the concept of Free-float by launching BSE TECk in July

2001 and BANKEX in June 2003. While BSE TECk Index is a TMT benchmark,

BANKEX is positioned as a benchmark for the banking sector stocks. SENSEX

becomes the third index in India to be based on the globally accepted Free-float

Methodology.

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Major advantages of Free-float Methodology:

A Free-float index reflects the market trends more rationally as it takes into

consideration only those shares that are available for trading in the market.

Free-float Methodology makes the index more broad-based by reducing the

concentration of top few companies in Index. For example, the concentration of top

five companies in SENSEX has fallen under the free-float scenario thereby making

the SENSEX more diversified and broad-based.

A Free-float index aids both active and passive investing styles. It aids active

managers by enabling them to benchmark their fund returns vis-à-vis an investable

index. This enables an apple-to-apple comparison thereby facilitating better

evaluation of performance of active managers. Being a perfectly replicable portfolio

of stocks, a Free-float adjusted index is best suited for the passive managers as it

enables them to track the index with the least tracking error.

Free-float Methodology improves index flexibility in terms of including any stock

from the universe of listed stocks. This improves market coverage and sector

coverage of the index. For example, under a Full-market capitalization

methodology, companies with large market capitalization and low free-float cannot

generally be included in the Index because they tend to distort the index by having

an undue influence on the index movement. However, under the Free-float

Methodology, since only the free-float market capitalization of each company is

considered for index calculation, it becomes possible to include such closely held

companies in the index while at the same time preventing their undue influence on

the index movement.

Globally, the Free-float Methodology of index construction is considered to be an

industry best practice and all major index providers like MSCI, FTSE, S&P and

STOXX have adopted the same. MSCI, a leading global index provider, shifted all its

indices to the Free-float Methodology in 2002. The MSCI India Standard Index,

which is followed by Foreign Institutional Investors (FIIs) to track Indian equities, is

also based on the Free-float Methodology. NASDAQ-100, the underlying index to

the famous Exchange Traded Fund (ETF) - QQQ is based on the Free-float

Methodology.

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Definition of Free-float:

Share holdings held by investors that would not, in the normal course come into the

open market for trading are treated as 'Controlling/ Strategic Holdings' and hence

not included in free-float. In specific, the following categories of holding are

generally excluded from the definition of Free-float:

*Holdings by founders/directors/ acquirers which has control element

*Holdings by persons/ bodies with "Controlling Interest"

*Government holding as promoter/acquirer

*Holdings through the FDI Route

*Strategic stakes by private corporate bodies/ individuals

*Equity held by associate/group companies (cross-holdings)

*Equity held by Employee Welfare Trusts

*Locked-in shares and shares which would not be sold in the open market in

normal course.

The remaining shareholders would fall under the Free-float category.

Determining Free-float factors of companies:

BSE has designed a Free-float format, which is filled and submitted by all index

companies on a quarterly basis with the Exchange. The Exchange determines the

Free-float factor for each company based on the detailed information submitted by

the companies in the prescribed format. Free-float factor is a multiple with which

the total market capitalization of a company is adjusted to arrive at the Free-float

market capitalization. Once the Free-float of a company is determined, it is

rounded-off to the higher multiple of 5 and each company is categorized into one of

the 20 bands given below. A Free-float factor of say 0.55 means that only 55% of

the market capitalization of the company will be considered for index calculation.

Index Closure Algorithm

The closing SENSEX on any trading day is computed taking the weighted average of

all the trades on SENSEX constituents in the last 30 minutes of trading session. If a

SENSEX constituent has not traded in the last 30 minutes, the last traded price is

taken for computation of the Index closure. If a SENSEX constituent has not traded

at all in a day, then its last day's closing price is taken for computation of Index

closure. The use of Index Closure Algorithm prevents any intentional manipulation

of the closing index value.

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Maintenance of SENSEX

One of the important aspects of maintaining continuity with the past is to update

the base year average. The base year value adjustment ensures that replacement

of stocks in Index, additional issue of capital and other corporate announcements

like 'rights issue' etc. do not destroy the historical value of the index. The beauty of

maintenance lies in the fact that adjustments for corporate actions in the Index

should not per se affect the index values.

The Index Cell of the exchange does the day-to-day maintenance of the index

within the broad index policy framework set by the Index Committee. The Index

Cell ensures that SENSEX and all the other BSE indices maintain their benchmark

properties by striking a delicate balance between frequent replacements in index

and maintaining its historical continuity. The Index Committee of the Exchange

comprises of experts on capital markets from all major market segments. They

include Academicians, Fund-managers from leading Mutual Funds, Finance-

Journalists, Market Participants, Independent Governing Board members, and

Exchange administration.

On-Line Computation of the Index:

During market hours, prices of the index scrips, at which trades are executed, are

automatically used by the trading computer to calculate the SENSEX every 15

seconds and continuously updated on all trading workstations connected to the

BSE trading computer in real time.

Adjustment for Bonus, Rights and Newly issued Capital:

The arithmetic calculation involved in calculating SENSEX is simple, but problem

arises when one of the component stocks pays a bonus or issues rights shares. If

no adjustments were made, a discontinuity would arise between the current value

of the index and its previous value despite the non-occurrence of any economic

activity of substance. At the Index Cell of the Exchange, the base value is adjusted,

which is used to alter market capitalization of the component stocks to arrive at the

SENSEX value.

The Index Cell of the Exchange keeps a close watch on the events that might affect

the index on a regular basis and carries out daily maintenance of all the 14 Indices.

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Adjustments for Rights Issues:

When a company, included in the compilation of the index, issues right shares, the

free-float market capitalisation of that company is increased by the number of

additional shares issued based on the theoretical (ex-right) price. An offsetting or

proportionate adjustment is then made to the Base Market Capitalisation (see 'Base

Market Capitalisation Adjustment' below).

Adjustments for Bonus Issue:

When a company, included in the compilation of the index, issues bonus shares, the

market capitalisation of that company does not undergo any change. Therefore,

there is no change in the Base Market Capitalisation, only the 'number of shares' in

the formula is updated.

Other Issues:

Base Market Capitalisation Adjustment is required when new shares are issued by

way of conversion of debentures, mergers, spin-offs etc. or when equity is reduced

by way of buy-back of shares, corporate restructuring etc.

Base Market Capitalisation Adjustment:

The formula for adjusting the Base Market Capitalisation is as follows:

New Base Market Capitalisation New Market Capitalisation

= Old Base Market Capitalisation x -----------------------------------

Old Market Capitalisation

To illustrate, suppose a company issues right shares which increases the market

capitalisation of the shares of that company by say, Rs.100 crores. The existing

Base Market Capitalisation (Old Base Market Capitalisation), say, is Rs.2450 crores

and the aggregate market capitalisation of all the shares included in the index

before the right issue is made is, say Rs.4781 crores. The "New Base Market

Capitalisation‖ will then be:

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2450 x (4781+100)

-------------------------- = Rs.2501.24 crores

4781

This figure of 2501.24 will be used as the Base Market Capitalisation for calculating

the index number from then onwards till the next base change becomes necessary.

SENSEX - Scrip selection criteria:

The general guidelines for selection of constituents in SENSEX are as follows:

Listed History:

The scrip should have a listing history of at least 3 months at BSE. Exception may

be considered if full market capitalisation of a newly listed company ranks among

top 10 in the list of BSE universe. In case, a company is listed on account of

merger/ demerger/ amalgamation, minimum listing history would not be required.

Trading Frequency:

The scrip should have been traded on each and every trading day in the last three

months. Exceptions can be made for extreme reasons like scrip suspension etc.

Final Rank:

The scrip should figure in the top 100 companies listed by final rank. The final rank

is arrived at by assigning 75% weight age to the rank on the basis of three-month

average full market capitalisation and 25% weight age to the liquidity rank based

on three-month average daily turnover & three-month average impact cost.

Market Capitalization Weight age:

The weight age of each scrip in SENSEX based on three-month average free-float

market capitalisation should be at least 0.5% of the Index.

Industry Representation:

Scrip selection would generally take into account a balanced representation of the

listed companies in the universe of BSE.

Track Record:

In the opinion of the Committee, the company should have an acceptable track

record.

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History of Replacement of Scrips in SENSEX

Date Outgoing Scrips Replaced by

01.01.1986 Bombay Burmah Voltas

Asian Cables Peico

Crompton Greaves Premier Auto.

Scinda G.E.Shipping

03.08.1992 Zenith Ltd. Bharat Forge

19.08.1996 Ballarpur Inds. Arvind Mills

Bharat Forge Bajaj Auto

Bombay Dyeing BHEL

Ceat Tyres BSES

Century Text. Colgate

GSFC Guj. Amb. Cement

Hind. Motors HPCL

Indian Organic ICICI

Indian Rayon IDBI

Kirloskar Cummins IPCL

Mukand Iron MTNL

Phlips Ranbaxy Lab.

Premier Auto State Bank of India

Siemens Steel Authority of India

Voltas Tata Chem

16.11.1998 Arvind Mills Castrol

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G. E. Shipping Infosys Technologies

IPCL NIIT Ltd.

Steel Authority of India Novartis

10.04.2000 I.D.B.I Dr. Reddy's Laboratories

Indian Hotels Reliance Petroleum

Tata Chem Satyam Computers

Tata Power Zee Telefilms

08.01.2001 Novartis Cipla Ltd.

07.01.2002 NIIT Ltd. HCL Technologies

Mahindra & Mahindra Hero Honda Motors Ltd.

31.05.2002 ICICI Ltd. ICICI Bank Ltd.

10.10.2002 Reliance Petroleum Ltd. HDFC Ltd.

10.11.2003 Castrol India Ltd. Bharti-Tele-Ventures Ltd.

Colgate Palomive (India) Ltd. HDFC Bank Ltd.

Glaxo Smithkline Pharma. Ltd. ONGC Ltd.

HCL Technologies Ltd. Tata Power Company Ltd.

Nestle (India) Ltd. Wipro Ltd.

19.05.2004 Larsen & Toubro Ltd. Maruti Udyog Ltd.

27.09.2004 Mahanagar Telephone Nigam Ltd. Larsen & Toubro Ltd.

06.06.2005 Hindustan Petroleum Corp Ltd. National Thermal Power Corpn. Ltd.

Zee Telefilms Ltd. Tata Consultancy Services Ltd.

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12.06.2006 Tata Power Ltd. Reliance Communication Ventures Ltd.

09.07.2007 Hero Honda Motors Ltd. Mahindra & Mahindra Ltd.

19.11.2007 Dr. Reddy's Laboratories Ltd. DLF Ltd.

14.03.2008 Bajaj Auto Ltd. Jaiprakash Associates Ltd.

28.07.2008 Ambuja Cements Ltd. Sterlite Industries Ltd.

Cipla Ltd. Tata Power Co. Ltd.

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Trend in Capital market

Top Gainers

This data was last updated on Thursday, May 30, 2014 05:23.31 pm

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top ten losers

This data was last updated on Thursday, May 30, 2014 05:23.42 pm

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INDIAN STOCK MARKET EFFICIENCY

The Indian stock market is considered to be one of the earliest in Asia and

is regarded as the barometer of the health of the Indian economy. In line with the

global trend, reforms of the Indian stock market also started with the

establishment of Securities and Exchange Board of India (SEBI). With the

establishment of SEBI and technological advancement Indian stock market has

now reached the global standards. The major indicators of stock market

development show that significant development has taken place in the Indian

stock market during the post-reform period.

The adoption of international quality in trading and settlement

Mechanisms and the reduction of transaction costs , removal of barriers to the

International equity investment, better allocation and mobilization of resources

Have made the investors both domestic and foreign to be more optimistic which

in turn evidenced a considerable growth in market volume and liquidity.

Together, all these market features infer better market efficiency in Indian stock

Efficient Market Hypothesis is an investment theory which states that it is

impossible to ‗beat the market‘ because market efficiency causes exiting share

prices to always incorporate and reflect all relevant information. Stocks are

always traded at their fair value on stock exchanges and so the scope of residual

returns either by purchasing undervalued stocks or by selling stocks for inflated

prices is impossible .In an efficient market, prices fully and instantaneously

reflect all available information.

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Ever since Fama (1965) propounded his famous Efficient Market

Hypothesis (EMH), a number of empirical studies have been conducted to test its

validity, both in developed markets and as well as in emerging markets. The

contradictory nature of the results and the change in the current market scenario

encouraged the researcher to conduct a research in the market efficiency of Indian

Stock Market.

Market Efficiency can be explained in three related concepts: Operational

Efficiency, Allocation Efficiency and Informational Efficiency. Operational

efficiency ensures that all transactions are completed on time, with maximum

accuracy and at least cost. Allocation efficiency talks about capital flow to the

projects with highest possible risk-adjusted returns whereas Informational

efficiency ensures that market price of a security fully reflect all information

which is affecting the pricing of security.

Efficient Market Hypothesis mainly discusses about informational

efficiency and states that markets are efficient if the prices of securities fully

reflect all available information. Again the theory talks about three forms of

efficiency:

-strong Form efficiency

One cannot beat the market by using historical information on prices of

securities if the market is said to be weak form efficient. Semi-strong efficiency

implies that the current prices of stocks of various companies reflects not only the

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information on historical prices but also reflect all publically available

information about these companies. Strong Form efficiency incorporates all types

of information in to the current pricing strategy, which is not yet proved to be

present in Indian stock market.

For the purpose of statistical analysis of weak form and semi strong form

of efficiency in Indian Stock Market the market prices of companies included in

the formation of Nifty index was collected from NSE official website. The study

was conducted with wide scope both in terms of depth of analysis and breadth of

coverage. It has taken a period of 6 years (2004-2009) and daily prices of shares

included in the formation of Nifty index.

In order to bring more validity to the result, the period in which Indian

markets were severely affected by global financial crisis was studied separately.

The period under study was 2007 October to 2008 April.

Statistical tools like autocorrelation and run test were used to test the

weak form market efficiency. One-sample Kolmogorov-Smirnov test was used to

find out how well a data series fits a particular distribution.

Semi-strong form market efficiency was tested by taking daily returns of

companies included in the formation of Nifty Index and compared with the daily

Index returns. Beta value for the stocks was calculated to arrive at the residual

return. Residual return is the difference between the actual return and expected

return. If the difference between the actual return and expected return is zero or

near to zero the market is said to be efficient.

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The formula for calculating expected return was:

Expected Return = Ri = αi + βi Rm + ei, where Rm is market index

return. The entire study period was divided in to different segments of three

months each and the process was repeated for a better result.

5.2 Market Efficiency in the Weak Form

Weak form efficiency states that current prices of stocks already reflect

all the information that is contained in the historical sequence of prices. Hence

there is no benefit in examining the historical prices as far as forecasting the

future is concerned. Weak form of market efficiency is popularly called as

random-walk theory.

If Indian Stock Market is efficient in its Weak form then it is a direct

repudiation of technical analysis. Technical analysis relies a lot on historical

prices for their future price prediction

Weak form efficiency of Indian market during the time frame of 6 years

(2004-09) had been tested using statistical tools like Autocorrelation, and Run

test. Daily prices of shares were taken for the study. One-Sample Kolmogorov-

Smirnov Test was also used to find out how well a data series fits a particular

distribution.

Population consisted of all companies listed in NSE. Sample size was 50

companies forming NSE Nifty Index. While doing the pilot study the researcher

found that due to constant revisions by NSE, to make the shares chosen for index

construction representative of the population, data for only 29 shares were

present through out the study period of 6 years. So the Weak form efficiency is

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studied in two ways; one taking only 29 shares whose data was present through

out the study period of six years and the second is taking NSE Nifty index shares

for a six year period.

Test Results of Weak Form of Market Efficiency

Study of 29 companies for a period of 5 years on the basis of daily

Returns

The summary statistics of the returns for all the companies included in the

study are given in Table 5.1. The normality of distribution is one among the basic

assumptions of Weak-form efficient market hypothesis. Mean stock returns are

positive with majority of them having comparatively larger volatility (standard

deviation).

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Semi-strong Market Efficiency of Indian Stock Market

Semi –strong market efficiency is part of Efficient Market Hypothesis

which implies that all publicly available information is calculated into a stock's

current share price. This means that neither fundamental nor technical analysis

can be used to achieve superior gains. In an efficient market, when a new piece of

information is added to the market, its implications for security returns are

instantaneously and un biasedly impounded in the current market price. In other

words it can be said that a capital market is efficient if the corporate event

announcements like stock split, buyback, right issue, bonus announcement,

merges & acquisitions, dividend etc are quickly and correctly reflected in the

security‘s prices.

In the second part of this chapter researcher presents the results of the test

of Semi-strong efficiency of Indian Stock market. The study had been conducted

on 29 companies‘ shares whose data were present through out the study period of

6 years.

Test Result of Semi-strong efficiency of Indian Stock Market

Semi-strong efficiency tests deal with whether or not security prices fully

reflect all publically available information. All these tests attempt to experiment

whether share prices react quickly and correctly to a new piece of information. If

the results give evidence that share prices do not react adequately and quickly to

the various information, it means that the market offers opportunities for earning

superior returns.

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An investor can earn excess returns by using this publicly available

information. Some of the earlier studies conducted in testing Semi-strong form of

market efficiency have been contributed by Fama, Fisher and Jense.

Methodology followed in various studies testing Semi-strong market efficiency is

to take an economic event and measure its impact on the share price. The impact

is measured by taking the difference between actual return and expected return on

a security. This is known as the residual analysis. Excess return would be present

if there is a positive difference between the actual return and expected return. In

the present study also the researcher had used the residual analysis model

suggested by William Sharpe.

The formula used for calculating Expected return (Ri )

Ri = αi + βi Rm + ei

Where:

Ri = Expected Return of the i th stock

αi = Intercept

βi = Beta value of the i th stock

Rm = Return of the market index

ei = The error factor

The formula used for calculating Actual Security return =

Today‘s security return Today‘s price – Yesterday‘s price *100

Yesterday‘s Price

Today‘s market return = Today‘s index – Yesterday‘s index *100

Yesterday‘s index

Systematic risk is the variability in security returns caused by economic or

other market factors. All securities traded in the market will be affected by such

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changes. But some of them exhibit greater variability while others have some

minor variations. The securities which are affected to a greater extend are said to

have higher systematic risk. Systematic risk is measured by relating the security‘s

variability with the variability in the market index.

Beta is the statistical measure of the risk of a security. A security can have

positive, negative or zero beta value. Lager the volatility of a share, larger will be

the beta value for that share. A beta of 1.0 indicates a security of average risk. If

beta value is more than 1.0 it has above average risk. Alpha is the difference

between the actual return produced by an investment and the rate that might have

been expected, given its level of beta. Beta expresses risk in relation to the

market as a whole and its value can be positive or negative, but in practice it

tends to fall between +0.25 and +1.75.

The formula used for finding the beta and alpha co-efficient can be expressed

as:

β = n Σ X Y – ( Σ x) Σ y)

nΣ X2 - ( Σ X )2

Where:

X = NSE Index

Y = Closing price of the security

x = Index return

y = security return

α = Y - β X

Residual Return = Actual return – Expected Return

(Residual return will be positive if the actual return is more than the estimated

return)

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If the excess return or residual return is close to zero, it implies that the

price reaction following any of the public announcements is immediate and price

adjusts quickly to the new level. If the excess return is zero or near to zero it

would validate the presence of Semi-strong form of market efficiency.

The following tables give the test result of Semi-strong form of market

efficiency. Tests have been conducted using daily closing price of the 29

companies‘ shares whose data was available for the study period of six years. The

entire study period was split in to three months each and the process was repeated

for better results. Residual mean indicate the mean of the residual returns on a

daily basis for the period under study.

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MARKET REGULATORS

Securities and Exchange Board of India:

Establishment:

The Securities and Exchange Board of India was established on April 12 1992 in

accordance with the provisions of the Securities and Exchange and Board of India

Act, 1992.

Preamble

The Preamble of the Securities and Exchange Board of India describes the basic

functions of the Securities and Exchange Board of India as

"...to protect the interests of investors in securities and to promote the

development of, and to regulate the securities market and for matters

connected therewith or incidental thereto"

Guidelines:

These Guidelines have been issued by the Securities and Exchange Board of India

under Section 11 of the Securities and Exchange Board of India Act,1992.

(a) These Guidelines may be called the Securities and Exchange Board of India

(Disclosure and Investor Protection) Guidelines, 2000.

(b) These Guidelines shall come into force from the date specified by the Board.

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Functions and Responsibilities:

SEBI has to be responsive to the needs of three groups, which constitute the

market:

The issuers of securities

The investors

The market intermediaries.

SEBI has three functions rolled into one body: quasi-legislative, quasi- judicial and

quasi-executive. It drafts regulations in its legislative capacity, it conducts

investigation and enforcement action in its executive function and it passes rulings

and orders in its judicial capacity. Though this makes it very powerful, there is an

appeals process to create accountability. There is a Securities Appellate Tribunal

which is a three-member tribunal and is presently headed by a former Chief Justice

of a High court -Mr. Justice N.K.Sodhi. A second appeal lies directly to the Supreme

Court. SEBI has enjoyed success as a regulator by pushing systemic reforms

aggressively and successively. SEBI has been active in setting up the regulations as

required under law. SEBI has also been instrumental in taking quick and effective

steps in light of the global meltdown and the Satyam fiasco. It had increased the

extent and quantity of disclosures to be made by Indian corporate promoters. More

recently, in light of the global melt down, it liberalised the takeover code facilitate

investments by removing regulatory structures. In one such move, SEBI has

increased the application limit for retail investors to Rs 2 Lakhs, from Rs 1 lakh at

present.

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The following departments of SEBI take care of the activities in secondary market.

Sr. No. Name of the

Department

Major Activities

1 Market

Intermediaries

Registration and

Supervision

department

(MIRSD)

Registration, supervision,

compliance monitoring and

inspections of all market

intermediaries in respect of all

segments of the markets viz.

equity, equity derivatives,

debt and debt related

derivatives.

2 Market Regulation

Department

(MRD)

Formulating new policies and

supervising the functioning

and operations (except

relating to derivatives) of

securities exchanges, their

subsidiaries, and market

institutions such as clearing

and settlement organizations

and depositories.

(Collectively referred to as

‗Market SROs‘)

3 Derivatives and

new products

departments

(DNPD)

Supervising trading at

derivatives segments of stock

exchanges, introducing new

products to be traded,

consequent policy changes.

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The issue of debt securities having maturity period of more than 365 days by

listed companies(i.e. which have any of their securities, either equity or debt,

offered through an offer document, and listed on a recognized stock

exchange and also includes Public Sector Undertakings whose securities are

listed on a recognized stock exchange) on private placement basis must

comply with the conditions prescribed by SEBI from time to time for getting

them listed on the stock exchanges. Further, unlisted companies/statutory

corporations/other entities, if they so desire, may get their privately placed

debt secinities listed on the stock exchanges, by complying with the relevant

conditions. Briefly, these conditions are:

Compliance with disclosure requirements under Chapter VI of the SEBI

(Disclosure and Investor Protection) Guidelines, 2000, Listing Agreement

with the exchanges and provisions of the Companies Act.

Such disclosures may be made through the web site of the stock exchanges

where the debt securities are sought to be listed if the privately placed debt

securities are issued in the standard denomination of Rs. 10 lakhs.

The company shall sign a separate listing agreement with the exchange in

respect of debt securities.

The debt securities shall carry a credit rating from a Credit Rating Agency

registered with SEBI.

The company

shall appoint a debenture trustee registered with SEBI in respect of dieissue

of the debt securities.

The debt securities shall be issued and traded in demat form.

All trades with the exception of spot transactions, in a listed debt security,

shall be executed only on the trading platform of a stock exchange.

Guidelines on Advertisements

An issue advertisement shall be truthful, fair and clear and shall not contain

any statement which is untrue or misleading.

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Any advertisement reproducing or purporting to reproduce any information

contained in a offer document shall reproduce such information in full and

disclose all relevant facts and not be restricted to select extracts relating to

that item.

An issue advertisement shall be considered to be misleading, if it contains –

a) Statements made about the performance or activities of the company in

the absence of necessary explanatory or qualifying statements, which may

give an exaggerated picture of the performance or activities, than what it

really is.

b) An inaccurate poruayal of past performance or its portrayal in a manner

which implies that past gains or income will be repeated in the future.

a) An advertisement shall be set forth in a clear, concise and understandable

language.

b) Extensive use of technical, legal terminology or complex language and the

inclusion of excessive details which may distract the investor, shall be

avoided.

An issue advertisement shall not contain statements which promise or

guarantee rapid increase in profits.

An issue advertisement shall not contain any information that is not

contained in the offer document.

No models, celebrities, fictional characters, landmarks or caricatures or the

likes shall be displayed on or form part of the offer documents or issue

advertisements.

Issue advertisements shall 110t appear in the form of crawlers (the

advertisements which run simultaneously with the programme in a narrow

strip at the bottom of the television screen) on television.

A In case of issue advertisement on television screen:

(a) the risk factors shall not be scrolled on the screen; and

(b) the advertisement shall advise the viewers to refer to the red herring

prospectus or other offer document for details.)

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No advertisement shall include any issue slogans or brand names for the

issue except the normal commercial name of the company or commercial

brand names of its products already in use.

No slogans, expletives or non-factual and unsubstantiated titles shall appear

in the issue advertisements or offer documents.

If any advertisement carries any financial data, it shall also contain

data for the past three years and shall include particulars relating to

sales, gross profit, net profit, share capital, reserves, earnings per

share, dividends and the book values.

(a) All issue advertisements in newspapers, Magazines, brochures, pamphlets

containing highlights relating to any issue shall also contain risk factors

given equal importance in all respects including the print size.

(b) The print size of highlights and risk factors in issue advertisements shall

not be less than point 162(7) size.

(c) 163(Subject to section 66 of the Companies Act, 1956, any advertisement

made by an issuer namely Pre — Issue advertisement, advertisement for

opening or closure of the issue, shall be in the format and contain the

minimum disclosures as given in the relevant part of Schedule XX - A.

FACTORS

The Indian Equity market is affected by a range of factors . Some of the

factors which influence capital market are as follows:-

A)Performance of domestic companies:-

The performance of the companies or rather corporate earnings is one of the

factors which has direct impact or effect on capital market in a country. Weak

corporate earnings indicate that the demand for goods and services in the economy

is less due to slow growth in per capita income of people . Because of slow growth

in demand there is slow growth in employment which means slow growth in

demand in the near future. Thus weak corporate earnings indicate average or not

so good prospects for the economy as a whole in the near term.

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In such a scenario the investors ( both domestic as well as foreign ) would be wary

to invest in the capital market and thus there is bear market like situation. The

opposite case of it would be robust corporate earnings and it‘s positive impact on

the capital market. The corporate earnings for the April – June quarter for the

current fiscal has been good. The companies like TCS, Infosys, Maruti Suzuki,

Bharti Airtel, ACC, ITC, Wipro,HDFC,Binani cement, IDEA, Marico Canara Bank,

Piramal Health, India cements , Ultra Tech, L&T, Coca-Cola, Yes Bank, Dr. Reddy‘s

Laboratories, Oriental Bank of Commerce, Ranbaxy, Fortis, Shree Cement ,etc have

registered growth in net profit compared to the corresponding quarter a year ago.

Thus we see companies from Infrastructure sector, Financial Services,

Pharmaceutical sector, IT Sector, Automobile sector, etc. doing well . This across

the sector growth indicates that the Indian economy is on the path of recovery

which has been positively reflected in the stock market( rise in sensex & nifty) in

the last two weeks. (July 13-July 24).

B) Environmental Factors :-

Environmental Factor in India‘s context primarily means- Monsoon . In India around

60 % of agricultural production is dependent on monsoon. Thus there is

heavy dependence on monsoon. The major chunk of agricultural production comes

from the states of Punjab , Haryana & Uttar Pradesh. Thus deficient or delayed

monsoon in this part of the country would directly affect the agricultural output in

the country. Apart from monsoon other natural calamities like Floods,

tsunami, drought, earthquake, etc. also have an impact on the capital market of a

country. The Indian Met Department (IMD) on 24th June stated that India would

receive only 93 % rainfall of Long Period Average (LPA). This piece of news directly

had an impact on Indian capital market with BSE Sensex falling by 0.5 % on the

25th June . The major losers were automakers and consumer goods firms since the

below normal monsoon forecast triggered concerns that demand in the crucial rural

heartland would take a hit. This is because a deficient monsoon could seriously

squeeze rural incomes, reduce the demand for everything from motorbikes to soaps

and worsen a slowing economy.

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C) Macro Economic Numbers :-

The macroeconomic numbers also influence the capital market. It includes Index of

Industrial Production (IIP) which is released every month, annual Inflation number

indicated by Wholesale Price Index (WPI) which is released every week,

Export – Import numbers which are declared every month, Core Industries growth

rate ( It includes Six Core infrastructure industries – Coal,

Crude oil, refining, power, cement and finished steel) which comes out every

month, etc. This macro –economic indicators indicate the state of the economy and

the direction in which the economy is headed and therefore impacts the capital

market in India. A case in the point was declaration of core industries growth

figure. The six Core Infrastructure Industries – Coal, Crude oil, refining, finished

steel, power & cement –grew 6.5% in June , the figure came on the 23 rd of July

and had a positive impact on the capital market with the Sensex and nifty rising by

388 points & 125 points respectively.

D) Global Cues:-

In this world of globalization various economies are interdependent and

interconnected. An event in one part of the world is bound to affect other parts of

the world , however the magnitude and intensity of impact would vary.

Thus capital market in India is also affected by developments in other parts of the

world i.e. U.S. , Europe, Japan , etc.

Global cues includes corporate earnings of MNC‘s, consumer confidence index in

developed countries, jobless claims in developed countries, global growth outlook

given by various agencies like IMF, economic growth of major economies, price of

crude –oil, credit rating of various economies given by Moody‘s, S & P, etc. An

obvious example at this point in time would be that of subprime crisis & recession.

Recession started in U.S. and some parts of the Europe in early 2008 .Since then it

has impacted all the countries of the world- developed, developing, less- developed

and even emerging economies.

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E) Political stability and government policies:-

For any economy to achieve and sustain growth it has to have political stability and

pro- growth government policies. This is because when there is political stability

there is stability and consistency in government‘s attitude which is communicated

through various government policies. The vice- versa is the case when there is no

political stability .So capital market also reacts to the nature of government,

attitude of government, and various policies of the government.

The above statement can be substantiated by the fact the when the mandate came

in UPA government‘s favour ( Without the baggage of left party) on May 16 2009,

the stock markets on Monday , 18th May had a bullish rally with Sensex closing 800

point higher over the previous day‘s close. The reason was political stability. Also

without the baggage of left party government can go ahead with reforms.

F) Growth prospectus of an economy:-

When the national income of the country increases and per capita income of people

increases it is said that the economy is growing. Higher income also means higher

expenditure and higher savings. This augurs well for the economy as higher

expenditure means higher demand and higher savings means higher investment.

Thus when an economy is growing at a good pace capital market of the country

attracts more money from investors, both from within and outside

the country and vice -versa. So we can say that growth prospects of an economy

do have an impact on capital markets.

G) Investor Sentiment and risk appetite :-

Another factor which influences capital market is investor sentiment and their risk

appetite. Even if the investors have the money to invest but if they are not

confident about the returns from their investment, they may stay away from

investment for some time. At the same time if the investors have low risk appetite,

which they were having in global and Indian capital market some four to five

months back due to global financial meltdown and recessionary situation in U.S. &

some parts of Europe , they may stay away from investment and wait for the right

time to come.

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CONCLUSIONS

After analyzing all the aspects of Indian Stock Market based on secondary research

and a primary research I conclude most of the people prefer equity over derivative

while trading in the stock exchange, thus this shows that equity has an edge over

derivative.

Whether the market will go up or down depends on several different factors. And

there is nothing fixed about the market it changes every second.

As far as Indian Stock Exchanges are concerned National Stock Exchange, Bombay

Stock Exchange and Over the Counter Exchange of India are leading amongst

others.

There are different indices for different markets and the most followed indices in

India are NSE‘s S & P CNX Nifty and BSE‘s Sensex.

Between NSE and BSE the NSE is considered to be safer on the basis of reward to

risk ratio as both give the same returns but risk is comparatively higher in BSE

I also want to conclude that during my two month of training I learned lots of thing

about stock market practically about which I do not know theoretically also.

After doing online trading for 3-4 weeks in the SMC Global Securities Limited I also

realized that stock market is highly volatile sometimes the market goes up while

sometimes the market goes down the leaving the clients and investors in distrust.

So after doing this research I recommended that market is highly volatile and

unexpected, there is need of constant analyzing the situation of stock market,

investors should invest in sound companies and keep update themselves.

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