Scenario of Indian Stock Market (1)

8/8/2019 Scenario of Indian Stock Market (1)

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Scenario of Indian Stock Market

Introduction

The Indian Stock Market is a collection of various regional and national level stock exchanges in India.It is platform for the masses of the country to invest their savings and also as a source of funds for various organizations and institutions that feature in business category.

Indian Stock Market contains more then 20 Stock Exchanges, some of which are popular nationally aswell as regionally. The first stock market started in the country was the Bombay Stock Exchange (BSE).Its the oldest stock market in Asia and was established as "the Native Share and Stock Broker'sAssociation" in the year 1875.It has around 7500 listings and a volume of more than US$ 1 Trillion. Theother most popular Stock Exchange is the National Stock Exchange (NSE). Its also the largest Stock Exchange in the country and third in the world. These two exchanges constitute a major part of theIndian Capital Market.

Indian capital market is considered the second largest capital market in the world next only to the UnitedStates of America. Stock markets in India have grown exponentially as measured in terms of the number

of listed companies, market capitalization, turnover on stock exchanges, price indices and others. Interms of reforms and development, the Indian stock market has been the fastest to grab everyopportunity presented by the paradigm shift in Indias economic policy. A well-organized and well-regulated capital market facilitates sustainable development of the economy by providing long-termfunds in exchange for financial assets to investors

What is their purpose ?

Stock markets basic role is to provide a platform for the masses of the country to invest their savings andalso as a source of funds for various organizations and institutions. It provides an opportunity for any

person to become a part-owner of the company by buying the companies shares. These shares can besold and exchanged as well as used as collateral in certain cases. One can deal in a variety of financialinstruments in a stock market such as Equity which has already been explained, Future's, Retail Debt,Wholesale Debt, Currency Future's, Derivatives, Bonds etc. Trading can only be performed by aregistered broker of the respective stock one wants to deal in or through a broker.

Impact on the Economy

The stock market has both positive and negative effects on the Indian Economy. Some of which arelisted below

Provides a source of funding for organizations An investment avenue A source of income for investorsA source of revenue for the government in the form of taxes A source of employment opportunitiesMeeting place for investors and organizations Idle funds of common investors can be used for profitable

purposes


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Present Scenario

The current condition of Indian markets have drastically improved. There is absolute transparency andinstant transactions. All Indian Stock markets are now computerized and Internet Trading has become acommon phenomenon. Indian stock markets have also developed a dynamic nature and can change froma bullish temperament to a bearish slide. Any small bit of information or even a rumor from any part of the country can affect the market and is a fairly accurate indicator of the prevalent atmosphere in the

region or country. People from across the country and globe get in touch with minute wise readings onthe stock market and gain a lot of trading aptitude after daily seeing BSE Stock Gainers or BSE toplosers list which does a world of good to their investment portfolio.

Price Determination of Shares

The price of shares/scrips is fixed in the market by the invisible forces of demand and supply. When the purchase price is more than the selling price, the prices of share rise i.e. if A wants to sell a TCS share atRs 40 but B is willing to buy the share at Rs 45, then automatically the transaction is carried out by thecomputer, and the price of the share increases.

The regulator of the Indian capital market is the Securities and exchange board of India (SEBI). It makessure that the small investors are not cheated and ensures transparency of the transactions.Recently, our markets witnessed a drastic fall, owing to the pull out of the foreign institutional investors (FII).

History of Indian Stock Market

The working of stock exchanges in India started in 1875. BSE is the oldest stock market in India. Thehistory of Indian stock trading starts with 318 persons taking membership in Native Share and Stock Brokers Association, which we now know by the name Bombay Stock Exchange or BSE in short. In1965, BSE got permanent recognition from the Government of India. National Stock Exchange comessecond to BSE in terms of popularity. BSE and NSE represent themselves as synonyms of Indian stock

market. The history of Indian stock market is almost the same as the history of BSE.The 30 stock sensitive index or Sensex was first compiled in 1986. The Sensex is compiled based on the

performance of the stocks of 30 financially sound benchmark companies. In 1990 the BSE crossed the1000 mark for the first time. It crossed 2000, 3000 and 4000 figures in 1992. The reason for such hugesurge in the stock market was the liberal financial policies announced by the then financial minister Dr.Manmohan Singh.

The up-beat mood of the market was suddenly lost with Harshad Mehta scam. It came to publicknowledge that Mr. Mehta, also known as the big-bull of Indian stock market diverted huge funds from

banks through fraudulent means. He played with 270 million shares of about 90 companies. Millions of small-scale investors became victims to the fraud as the Sensex fell flat shedding 570 points.

To prevent such frauds, the Government formed The Securities and Exchange Board of India, through anAct in 1992. SEBI is the statutory body that controls and regulates the functioning of stock exchanges,

brokers, sub-brokers, portfolio managers investment advisors etc. SEBI oblige several rigid measures to protect the interest of investors. Now with the inception of online trading and daily settlements thechances for a fraud is nil, says top officials of SEBI.


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Sensex crossed the 5000 mark in 1999 and the 6000 mark in 2000. The 7000 mark was crossed in Juneand the 8000 mark on September 8 in 2005. Many foreign institutional investors (FII) are investing inIndian stock markets on a very large scale. The liberal economic policies pursued by successiveGovernments attracted foreign institutional investors to a large scale

In earlier times, buyers and sellers used to assemble at stock exchanges to make a transaction but now

with the dawn of IT, most of the operations are done electronically and the stock markets have becomealmost paperless. Now investors dont have to gather at the Exchanges, and can trade freely from their home or office over the phone or through Internet.

The OriginOne of the oldest stock markets in Asia, the Indian Stock Markets have a 200 years old history.

18th Century East India Company was the dominant institution and by end of the century, business inits loan securities gained full momentum

1830's Business on corporate stocks and shares in Bank and Cotton presses started in Bombay.Trading list by the end of 1839 got broader

1840's Recognition from banks and merchants to about half a dozen brokers1850's Rapid development of commercial enterprise saw brokerage business attracting more

people into the business1860's The number of brokers increased to 601860-61 The American Civil War broke out which caused a stoppage of cotton supply from

United States of America; marking the beginning of the "Share Mania" in India1862-63 The number of brokers increased to about 200 to 2501865 A disastrous slump began at the end of the American Civil War (as an example, Bank of

Bombay Share which had touched Rs. 2850 could only be sold at Rs. 87)

Pre-Independence Scenario - Establishment of Different Stock Exchanges

1874 With the rapidly developing share trading business, brokers used to gather at a street(now well known as "Dalal Street") for the purpose of transacting business.

1875 "The Native Share and Stock Brokers' Association" (also known as "The Bombay Stock Exchange") was established in Bombay

1880's Development of cotton mills industry and set up of many others1894 Establishment of "The Ahmedabad Share and Stock Brokers' Association"1880 - 90's Sharp increase in share prices of jute industries in 1870's was followed by a boom in tea

stocks and coal

1908 "The Calcutta Stock Exchange Association" was formed1920 Madras witnessed boom and business at "The Madras Stock Exchange" was transactedwith 100 brokers.

1923 When recession followed, number of brokers came down to 3 and the Exchange wasclosed down

1934 Establishment of the Lahore Stock Exchange1936 Merger of the Lahoe Stock Exchange with the Punjab Stock Exchange1937 Re-organisation and set up of the Madras Stock Exchange Limited (Pvt.) Limited led by

improvement in stock market activities in South India with establishment of new textilemills and plantation companies


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1940 Uttar Pradesh Stock Exchange Limited and Nagpur Stock Exchange Limited wasestablished

1944 Establishment of "The Hyderabad Stock Exchange Limited"1947 "Delhi Stock and Share Brokers' Association Limited" and "The Delhi Stocks and Shares

Exchange Limited" were established and later on merged into "The Delhi Stock Exchange Association Limited"

Post Independence Scenario

The depression witnessed after the Independence led to closure of a lot of exchanges in the country.Lahore Stock Exchange was closed down after the partition of India, and later on merged with the DelhiStock Exchange. Bangalore Stock Exchange Limited was registered in 1957 and got recognition only by1963. Most of the other Exchanges were in a miserable state till 1957 when they applied for recognitionunder Securities Contracts (Regulations) Act, 1956. The Exchanges that were recognized under the Actwere:

1. Bombay

2. Calcutta3. Madras4. Ahmedabad5. Delhi6. Hyderabad7. Bangalore8. Indore

Many more stock exchanges were established during 1980's, namely:

Cochin Stock Exchange (1980) Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982) Pune Stock Exchange Limited (1982) Ludhiana Stock Exchange Association Limited (1983) Gauhati Stock Exchange Limited (1984) Kanara Stock Exchange Limited (at Mangalore, 1985) Magadh Stock Exchange Association (at Patna, 1986) Jaipur Stock Exchange Limited (1989)

Bhubaneswar Stock Exchange Association Limited (1989) Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989) Vadodara Stock Exchange Limited (at Baroda, 1990) Coimbatore Stock Exchange Meerut Stock Exchange

National Stock Exchange


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In order 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 wasincorporated in 1992 by Industrial Development Bank of India, Industrial Credit and InvestmentCorporation of India, Industrial Finance Corporation of India, all Insurance Corporations, selectedcommercial banks and others.

NSE provides exposure to investors in two types of markets, namely:

1. Wholesale debt market2. Capital market

Wholesale Debt Market - Similar to money market operations, debt market operations involveinstitutional investors and corporate bodies entering into transactions of high value in financialinstruments like treasury bills, government securities, commercial papers etc.

Trading at NSE Fully automated screen-based trading mechanism Strictly follows the principle of an order-driven market Trading members are linked through a communication network This network allows them to execute trade from their offices 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

A confirmation slip will be printed at the office of the trading member Advantages of trading at NSE

Integrated network for trading in stock market of India Fully automated screen based system that provides higher degree of transparency Investors can transact from any part of the country at uniform prices

Greater functional efficiency supported by totally computerized network

Overview of US Stock Market


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Dow Jones Industrial Average

Dow Jones & Company is an American publishing and financial information firm.

The company was founded in 1882 by three reporters: Charles Dow, Edward Jones, and CharlesBergstresser. Like The New York Times and the Washington Post, the company was in recent years

publicly traded but privately controlled. The company was led by the Bancroft family, which effectively

controlled 64% of all voting stock, before being acquired by News Corporation.

The company became a subsidiary of News Corporation after an extended takeover bid during 2007.Itwas reported on August 1, 2007 that the bid had been successful after an extended period of uncertaintyabout shareholder agreement. The transaction was completed on December 13, 2007. It was worth US$5

billion or $60 a share, giving NewsCorp control of The Wall Street Journal and ending the Bancroftfamily's 105 years of ownership

S&P 500

The S&P 500 index is probably the most commonly referenced U.S. equity benchmark. This diverse

index comprises over 70% of the total market cap of all stocks traded in the U.S. First developed in1923, the index initially contained 233 stocks. However, in 1957 it was modified to include a diversified

basket of 500 common stocks.

The S&P 500 is not comprised of simply the 500 largest U.S. stocks. Instead, it consists primarily of leading companies from a wide variety of different economic sectors. The index started with 23identified sectors, but today contains over 100 unique sectors. Most analysts choose to use the S&P astheir preferred benchmark index thanks to its diversified sector coverage as well as its market valueweighting. Because the index is weighted by market cap, the largest firms have the greatest impact onthe S&P's value.

NASDAQ

The NASDAQ Stock Market , known as NASDAQ , is an American stock exchange. "NASDAQ"originally stood for "National Association of Securities Dealers Automated Quotations," but theexchange's official stance is that the acronym is obsolete. It is the largest electronic screen-based equitysecurities trading market in the United States. With approximately 3,700 companies and corporations, ithas more trading volume than any other stock exchange in the world.

How US Markets Affect Indian Stock Market


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It is lending to people who are less capable of repaying (More credit risk; Less credit worthiness).In USsome institutions has lend loans like this to such people(less capability to repay). Since they are high risk loans interest rate will be high. These institutions also adopt a process called securitization (conversionof these loans into tradable securities).

In simple terms the institutions says that i will earn repayment every month from these borrowers andinstitutions will trade this loan as bonds and investors will invest in it. As most of the housing loans were

traded like this in us these borrowers didnt pay back.

So it led to non-performing assets in banks balance sheet. So investors in these bonds started selling their bonds which pull down the us stock market. Everyone wanted to take their money in these bonds asloans are not repaid.

It had an impact on Indian stock market as well some people who lost their money also wanted tocompensate their loss by selling shares they holded in Indian companies, this pulled back Indian stock market also for a while.

Note: stock market will come down when sellers are more (bearish). It will go up when buyers are more

(bullish)

What did US GOVERNMENT DO to minimize this risk? They cut down the interest rates so that peoplewill borrow at lesser rate and invest. But this helped Indian market also because they borrowed in us atlesser rate and invested in Indian market which is bullish now. thats is why our market adjusted veryquickly.

But critics also comment on these that when US market is not good who will invest outside and hencethis didnt have much impact on curbing the appreciation.

Different Global Stock Market Overview


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- The London International Financial Futures Exchange (LIFFE)

- The International Petroleum Exchange (IPE)

- The London Metal Exchange (LME)

- The London Bullion Market Association (LBMA)

- The London Securities and Derivatives Exchange (OMLX)

- The Chicago Board of Trade (CBOT)

- The Mid America Commodity Exchange (MIDAM)

- The Chicago Merchantile Exchange(CME)

- The Chicago Board Options Exchange (CBOE)

- The New York Merchantile Exchange ( NYMEX)

- The Coffee, Sugar and Cocoa Exchange (CSCE)

- The New York Cotton Exchange (NYCE)

- The Philadelphia Stock Exchange (PHLX)- The Kansas City Board of Trade (KCBOT)

- The Minneapolis Grain Exchange (MGE)

- Marche a Terme International de France (MATIF)

- Deutche Terminborse (DTB)

- Other European exchanges

- The Winnepeg Commodity Exchange (WCE)

- Other Canadian exchanges

- Bolsa de Mercadorias & Futuros (BM&F)

- The Sydney Futures Exchange (SFE)

- The New Zealand Futures and Options Exchange (NZFOE)

- Japanese futures exchanges

- The Singapore International Monetary Exchange (SIMEX)

- The Honk Kong Futures Exchange (HKFE)

- Other Far Eastern exchanges

- China- The Former Soviet Union and Eastern Europe

- South Africa


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Abbreviations:

NSE- National Stock Exchange of India Ltd.

SEBI - Securities Exchange Board of India

NCFM - NSEs Certification in Financial Markets

NSDL - National Securities Depository Limited

CDSL - Central Depository Services (India) LimitedNCDEX - National Commodity and Derivatives Exchange Ltd.

NSCCL - National Securities Clearing Corporation Ltd.

FMC Forward Markets Commission

NYSE- New York Stock Exchange

AMEX - American Stock Exchange

OTC- Over-the-Counter Market

LM Lead Manager

IPO- Initial Public Offer

DP - Depository Participant

DRF - Demat Request Form

RRF - Remat Request Form

NAV Net Asset Value

EPS Earnings Per Share

DSCR - Debt Service Coverage Ratio

S&P Standard & Poor

IISL - India Index Services & Products Ltd

CRISIL- Credit Rating Information Services of India Limited

CARE - Credit Analysis & Research Limited

ICRA - Investment Information and Credit Rating Agency of India

ISC Investor Service Cell

IPF Investor Protection Fund

SCRA - Securities Contract (Regulation) Act

SCRR Securities Contract (Regulation) Rules


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QUIZ

Q1. What do you mean by book value of a share?

a) It indicates what shareholders would get if the company were making profits. b) It indicates what shareholders would get if the company were sold.

Q2.ADR stands for a) All Depositary Receiptb) Asian Depositary Receiptc) African Depositary Receiptd) American Depositary Receipt

Q3.How many indices does the BSE have?a) 1b) 13c) 6

Q4.What method of computation does the Sensex use? a) Free float

b) Market capitalizationc) Neither of the above

Q5.Which Exchange is owned by Financial Technologies?

Q6. What is Arbitrage?

Q7. A faster way of buying / selling the same number of shares that you earlier hadsold / bought, on the same day, in the same exchange, at the market value is known as

_______

Q8. The statement, with reference to investing in shares, Dont put all the eggs in onebasket, means invest in different companies rather than in one company: TRUE or FALSE?

Q9. What is it called when a person trades a security while in possession of non-publicinformation?a) Insider tradingb) Solicitation tradingc) Informed tradingd) Smart trading


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Q10. The FTSE 100 index is used to measure stock market performance

in which country?a) Finlandb) France

c) United Kingdomd) Germany

Q11. When looking at stock prices I notice that the buying price isusually lower than the selling price. What is the technical name for this differential?

Q12. What is the name for selling shares in an intraday mode, even though you donthave the same shares in your demat account?

Q13. The most important benefit to society of the futures market

a) Speculationb) price discoveryc) Arbitraged) Hedging

Q14. Option that can be exercised before or at the time of expiration

a) Eurob) Europeanc) Americand) Canadian

Q15. What is Floor Price :
http://www.indiapaisa.com/Dic_Stocks.asp#%23http://www.indiapaisa.com/Dic_Stocks.asp#%23

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Scenario of Indian Stock Market (1)