Synopsis Capital Market

8/3/2019 Synopsis Capital Market

1/25

SYNOPSIS ON

PRESENT SCENARIO OF INDIAN CAPITAL MARKET WITHRELETION TO CURRENT GLOBAL RECESSION

BY

DIBYA RANJAN MALLICK


2/25

PRESENT SCENARIO OF INDIAN CAPITAL MARKET WITH

RELETION TO CURRENT GLOBAL RECESSION

I have chosen this topic to know about the market situation & problem of the

country, & how we can overcome this kind of problem, by which the global

recession cant affect us.

INTRODUCTION-

Before going for the present scenario of India Capital market, we have to

know what capital market is & what present scenario of capital market is.

Capital Market-

A capital market is simply any market where a government or a company (usually a corporation)

can raise money (capital) to fund their operations and long term investment. Selling bonds and

selling stock are two ways to generate capital, thus bond markets and stock markets are

considered capital markets.

Capital markets provide the lifeblood of capitalism. Companies turn to

them to raise funds needed to finance the building of factories, office buildings, airplanes, trains,

ships, telephone lines, and other assets; to conduct research and development; and to support a

host of other essential corporate activities. Much of the money comes from such major

institutions as pension funds, insurance companies, banks, foundations, and colleges and

universities. Increasingly, it comes from individuals as well.

Present Scenario of Indian Capital Market

Indian capital market including both NSE-National Stock Exchange and the BSE-Bombay Stock

Exchange has certainly taken a tremendous beating in the past few weeks. We are sure most of

us here knew that the correction in the trading curve was round the corner which would be

healthy, and the markets would bounce back from 18k levels with the help of mutual fund


3/25

investments & buying of Indian stocks again. However the anticipation went wrong, and the US

recession story along with global and Indian Commodity prices have added fuel to the global

equity market turmoil on a whole.

OBJECTIVES

My objective of doing this paper is to study the market, their situation and the problems & to

give possible solution to this scenario.

RESEARCH METHODOLOGY

SECONDARY RESEARCH

y Wikipediay Proquesty Cityman Networky Googley Market Line

CONCLUSIONTo analyze capital market keeping in mind the present recession period and impart appropriate

solutions when necessary.


4/25

A

PROJECT REPORT

ON



SUBMITTED TO

ANNAMALAI UNIVERSITY

MASTERS OF BUSINESS ADMINISTRATION

SUBMITTED BY


INTERNATIONAL SCHOOL OF BUSINESS AND RESEARCH

BANGALORE -100

GUIDED BY

PROF KISHAN K P


5/25

CERTIFICATE


6/25

CERTIFICATE

THIS IS TO CERTIFY THAT THE RESEARCH ENTITLED PRESENT

SCENARIO OF INDIAN CAPITAL MARKET WITH RELETION TO

CURRENT GLOBAL RECESSION SUBMITTED TO THE INTERNATIONAL

SCHOOL OF BUSINESS & RESEARCH(ANNAMALAI UNIVERSITY IN

COLLABORATION WITH BHARTI RESOURCES) FOR THE DEGREE OF M.B.A

(BUSINESS APPLICATIONS) IS A RECORD OF ORIGINAL PROJECT WORK DONE

BY DIBYA RANJAN MALLICK.DURING THE PERIOD OF STUDY HIS CONDUCT WAS GOOD.

FACULTY GUIDE DIRECTOR

PLACE:

DATE :


7/25

ACKNOWLEDGEMENT


8/25

ACKNOWLEDGEMENT

I HAVE PLEASURE IN SUCCESSFUL COMPLETION OF THIS WORK TITLED.



THE SPECIAL ENVIRONMENT AT ISBR BANGALORE, THAT ALWAYS

SUPPORTS EDUCATIONAL ACTIVITIES, FACILITATED MY WORK ON THIS

PROJECT.

I ACKNOWLEDGE THE SUPPORT AND ENCOURAGEMENT EXTENDED FOR

THIS STUDY BY DIRECTOR AMIT GUPTA.

I AM VERY MUCH THANKFUL TO PROF. KISHAN K P, FOR HIS

ENCOURAGEMENT AND GUIDANCE FOR THIS PROJECT WORK. IT WOULD

NOT HAVE BEEN POSSIBLE FOR ME TO COMPLETE THIS WORK WITHOUT HIS

SUGGESTIONS ON EVERY PART OF THIS WORK.

I ACKNOWLEDGE THE AUTHORS, WHOS WORKS GAVE ME INSIGHT ANDINFORMATION RELATED TO THIS SUBJECT.

I AM THANKFUL TO LIBRARY STAFF AND ADMINISTRATIVE STAFF OF

ISBR BANGALORE WHO, DIRECTLY OR INDIRECTLY, HAVE ALL BEEN

HELPFUL IN ONE WAY OR ANOTHER.

DATE:



9/25

INDEX

CHAPTER NO. CONTENT

CERTIFICATE

ACKNOWLEDGEMENT

1.

2.

3.

4.

5.

6.

7. CONCLUSION

8. ANNEXURE


10/25

References and suggested readings

The readings suggested here are supplementary in nature and would prove to be helpful for thoseinterested in acquiring advanced knowledge about Capital Markets.

1. Indian Securities Market: A Review - NSEIL publication

2. NSE Newsletters

3. SC(R) A, 1956 & Rules

4. SEBI Act, 1992, Rules & Regulations

5. Depository Act, 1996 & Rules

6. Rules, Regulations and Byelaws of NSEIL & NSCCL

7. www.nseindia.com

8. www.sebi.gov.in

9. www.rbi.org.in

10. www.finmin.nic.in


11/25

HISTORY OF INDIAN CAPITAL MARKET

The history of the capital market in India dates back to the eighteenth century when East India

Company securities were traded in the country. Until the end of the nineteenth century securitiestrading was unorganized and the main trading centers were Bombay (now Mumbai) and Calcutta(now Kolkata). Of the two, Bombay was the chief trading center wherein bank shares were themajor trading stock During the American Civil War (1860-61). Bombay was an important sourceof supply for cotton. Hence, trading activities flourished during the period, resulting in a boom inshare prices. This boom, the first in the history of the Indian capital market lasted for a half adecade. The bubble burst on July 1, 1865 when there was tremendous slump in share prices.

Trading was at that time limited to a dozen brokers; their trading place was under a banyan treein front of the Town hall in Bombay. These stock brokers organized informal association in 1897 Native Shares and Stock Brokers Association, Bombay. The Stock exchanges in Calcutta ad

Ahmadabad also industrial and trading centers came up later. The Bombay Stock Exchange wasrecognized in May 1927 under the Bombay Securities Contracts Control Act, 1925.

The capital market was not well organized and developed during the British rule because theBritish government was not interested in the economic growth of the country. As a result manyforeign companies depended on the London capital market for funds rather than in the Indiancapital market.

In the post independence period also, the size the capital market remained small. During the firstand second five year plans, the governments emphasis was on the development of theagricultural sector and public sector undertakings. The public sector undertakings were healthier

than the private undertakings in terms of paid up capital but shares were not listed on the stockexchanges. Moreover, the Controller of Capital Issues (CI) closely supervised and controlled thetiming, composition; interest rates pricing allotment and floatation consist of new issues. Thesestrict regulations de-motivated many companies from going public for almost four and a halfdecades.

In the 1950s, Century textiles, Tata Steel, Bombay Dyeing, National Rayon, Kohinoor mills werethe favorite scripts of speculators. As speculation became rampant, the stock market came to beknown as Satta Bazaar. Despite speculation non-payment or defaults were very frequent. Thegovernment enacted the Securities Contracts (regulation) Act in 1956 to regulate stock markets.The Companies Act, 1956 was also enacted. The decade of the 1950s was also characterized by

the establishment of a network for the development of financial institutions and state financialcorporations.

The 1960s was characterized by the wars and droughts in the country which led bearish trends.These trends were aggravated by the ban in 1969 on forward trading and Badla technically calledcontracts for clearing Badla provided a mechanism for carrying forward positions as well as forborrowing funds. Financial institutions such as LIC and GIC helped to revive the sentiment by


12/25

emerging as the most important group of investors. The first mutual fund of India, the Unit Trustof India (UTI) came into existence in 1964.

In the 1970s Badla trading was resumed under the disguised forms of hand delivery contracts A group. This revived the market. However, the capital market received another severe setback

on July 6, 1974, when the government promulgated the Dividend Restriction ordinance,restricting the payment of dividend by companies to 12 per cent of the face value or one-third ofthe profit of the companies that can be distributed as computed under section 369 of theCompanies Act, whichever was lower. This lead to a slump in market capitalism at the BSE byabout 20 per cent overnight and the stock market did not open for nearly a fortnight. Later camebuoyancy in the stock markets when the multinational companies (MNCs) were forced to dilutetheir majority stocks in their Indian ventures in favor of the Indian public under FERA 1973.Several MNCs opted out of India. One hundred and twenty three MNCs offered shares worth Rs150 crore, creating 1.8 million shareholders within four years. The offer prices of FERA shareswere lower than their intrinsic worth. Hence, for the first the FERA dilution created an equitycult in India. It was the spate of FERA issues that gave a real fillip to the Indian stock markets.

For the first time, many investors got an opportunity to invest in the stocks of such MNCs asColgate and Hindustan Liver Limited. Then in 1977, a little known entrepreneur, DhirubhaiAmbani tapped the capital market. The scrip Reliance Textiles is still a hot favorite anddominates trading at all stock exchanges.

The Significance & History of Capital Market

The capital market is a place where the suppliers and users of capital meet to share one anothers

views, and where a balance is sought to be achieved among diverse market participants. The

securities decouple individual acts of saving and investment over time, space and entities and

thus allow savings to occur without concomitant investment. Moreover, yield- bearing

securities makes present consumption more expensive relative to future consumption, inducing

people to save. The composition of savings changes with less of it being held in the form of idle

money or unproductive assets, primarily because more divisible and liquid assets are available.

The capital market acts as a brake on channeling savings to low- yielding enterprises and impels

enterprises to focus on performance. It continuously monitors performance through movementsof share prices in the market and the threats of takeover. This improves efficiency of resource

utilization and thereby significantly Increases returns on investment. As a result, savers and

investors are not constrained by their individual abilities, but facilitied by the economys

capability to invest and save, which inevitably enhances savings and investment in the economy.

Thus, the capital market converts a given stock of investible resources into a larger flow of goods

and services and augments economic growth. In fact, the literature is full of theoretical and


13/25

empirical studies that have established causal robust (statistically significant) two-way relation

between the developments in the securities market and economic growth. The Indian capital

markets dates back to the 18th century when the securities of the East India Company were

traded in Mumbai and Kolkata. However, the orderly growth of the capital market began with

the setting up of The Stock Exchange, Bombay in July 1875 and Ahmadabad Stock Exchange in

1894. Eventually, 22 other Exchanges in various cities sprang up. Given the significance of

capital market and the need for the economy to grow at the projected over 8 per cent per annum,

the managers of the Indian economy have been assiduously promoting the capital market as an

engine of growth to provide an alternative yet efficient means of resource mobilization and

allocation. Further, the global financial environment is undergoing unremitting transformation.

Geographical boundaries have disappeared. The days of insulated and isolated financial markets

are history. The success of any capital market largely depends on its ability to align itself with

the global order. To realize national aspirations and keep pace with the changing times, the

capital markets in India have gone through various stages of liberalization, bringing about

fundamental and structural changes in the market design and operation, resulting in broaderinvestment choices, drastic reduction in transaction costs, and efficiency, transparency and safety

as also increased integration with the global markets. The opening up of the economy for

investment and trade, the dismantling of administered interest and exchange rates regimes and

setting up of sound regulatory institutions have enabled this.

Primary Market

The primary market, which at one time was flooded with a number of issues floated by dubious

promoters, depriving gullible investors of their life-time savings has since been transformed. The

changes in this area have been epoch-making and include detailing of complete profile of

promoters, comprehensive disclosures, the existence of tangible assets and a track record of

profit as also reporting end uses of funds to the Company Board as a part of corporate

governance, etc.

Secondary Market

The secondary market, also known as the aftermarket, is the financial market where

previously issued securities and financial instruments such as stocks, bonds, options,

and futures are bought and sold. The term "secondary market" is also used refer to the market for

any used goods or assets, or an alternative use for an existing product or asset where the

customer base is the second market (for example, corn has been traditionally used primarily for


14/25

food production and feedstock, but a second- or third- market has developed for use in ethanol

production).

With primary issuances of securities or financial instruments, or the primary market, investors

purchase these securities directly from issuers such as corporations issuing shares in

an IPO or private placement, or directly from the federal government in the case of treasuries.

After the initial issuance, investors can purchase from other investors in the secondary market.

The secondary market for a variety of assets can vary from fragmented to centralized, and from

illiquid to very liquid. The major stock exchanges are the most visible example of liquid

secondary markets - in this case, for stocks of publicly traded companies. Exchanges such as

the New York Stock Exchange, NASDAQ and the American Stock Exchange provide a

centralized, liquid secondary market for the investors who own stocks that trade on those

exchanges. Most bonds and structured products trade over the counter, or by phoning the bond

desk of ones broker-dealer.

Trading

INTRODUCTION

The trading on stock exchanges in India used to take place through open outcry without use of

information technology for immediate matching or recording of trades. This was time consuming

and inefficient. This imposed limits on trading volumes and efficiency. In order to provide

efficiency, liquidity and transparency, NSE introduced a nation-wide on-line fully-automated

screen based trading system (SBTS) where a member can punch into the computer quantities of

securities and the prices at which he likes to transact and the transaction is executed as soon as it

finds a matching sale or buy order from a counter party. SBTS electronically matches orders on a

strict price/time priority and hence cuts down on time, cost and risk of error, as well as on fraud

resulting in improved operational efficiency. It allows faster incorporation of price sensitive

information into prevailing prices, thus increasing the informational efficiency of markets. It

enables market participants, irrespective of their geographical locations, to trade with one

another simultaneously, improving the depth and liquidity of the market. It provides full

anonymity by accepting orders, big or small, from members without revealing their identity, thus


15/25

providing equal access to everybody. It also provides a perfect audit trail, which helps to resolve

disputes by logging in the trade execution process in entirety. This sucked liquidity from other

exchanges and in the very first year of its operation, NSE became the leading stock exchange in

the country, impacting the fortunes of other exchanges and forcing them to adopt SBTS also.

Today India can boast that almost 100% trading take place through electronic order matching.

Technology was used to carry the trading platform from the trading hall of stock exchanges to

the premises of brokers. NSE carried the trading platform further to the PCs at the residence of

investors through the Internet and to handheld devices through WAP for convenience of mobile

investors. This made a huge difference in terms of equal access to investors in a geographically

vast country like India.

NEAT SYSTEM

The NEAT system supports an order driven market, wherein orders match on the basis of time

and price priority. All quantity fields are in units and prices are quoted in Indian Rupees. The

regular lot size and tick size for various securities traded is notified by the Exchange from time

to time.

MARKET TYPES

The Capital Market system has four types of market.

NORMAL MARKET

Normal market consists of various book types wherein orders are segregated as Regular Lot

Orders, Special Term Orders, Negotiated Trade Orders and Stop Loss Orders depending on their

order attributes.

ODD LOT MARKET

The odd lot market facility is used for the Limited Physical Market. The main features of the

Limited Physical Market are detailed in a separate section.


16/25

RETDEBT MARKET

The RETDEBT market facility on the NEAT system of capital market segment is used for

transactions in Retail Debt Market session. Trading in Retail Detail Market takes place in thesame manner as in equities (capital market) segment. The main features of this market are

detailed in a separate section on RETDEBT market.

AUCTION MARKET

In the Auction market, auctions are initiated by the Exchange on behalf of trading members for

settlement related reasons. The main features of this market are detailed in a separate section on

auction.

CORPORATE HIERARCHY

The trading member has the facility of defining a hierarchy amongst its users of the NEAT

system. This hierarchy comprises:

Corporate Manager

Branch 1 Branch 2

Dealer 11 Dealer 12 Dealer 21 Dealer 22

The users of the trading system can logon as either of the user type. The significance of each

type is explained below: Corporate Manager: The corporate manager is a term assigned to a user

placed at the highest level in a trading firm. Such a user receives the End of Day reports for all


17/25

branches of the trading member. The facility to set Branch Order Value Limits and User Order

Value Limits is available to the corporate manager.

Branch Manager: The branch manager is a term assigned to a user who is placed under the

corporate manager. The branch manager receives End of Day reports for all the dealers under

that branch. The branch manager can set user order value limit for each of his branch. Dealer:Dealers are users at the lower most level of the hierarchy. A dealer can view and perform order

and trade related activities only for one and does not have access to information on other dealers

under either the same branch or other branches.

LOCAL DATABASE

The Local Database provides faster response time to users. All inquiries made by a user for own

orders/trades are serviced through the local database. If however, a corporate manager/branchmanager makes inquiries for orders of any dealer/branch manager of the trading firm, then the

inquiry is serviced by the host. The data stored in the local database include system messages,

security related information and order/trade related data of the user.

MARKET PHASES

The system is normally made available for trading on all days except Saturdays, Sundays and

other holidays. Holidays are declared by the exchange from time to time. A trading day typically

consists of a number of discrete stages as explained in the subsequent section.

OPENING

The trading member can carry out the following activities after login to the NEAT system and

before the market opens for trading.

Set up Market Watch (the securities which the user would like to view on the screen)

Viewing Inquiry screens.

At the point of time when the market is opening for trading, the trading member cannot login to

the system. A message "Market status is changing. Cannot logon for some time." is displayed. If

the member is already logged in, he cannot perform trading activities till market is opened.


18/25

OPEN PHASE

The open period indicates the commencement of trading activity. To signify the start of trading,

a message is sent to all the trader workstations. The market open time for different markets isnotified by the Exchange to all the trading members. Order entry is allowed when all the

securities have been opened. During this phase, orders are matched on a continuous basis.

Trading in all the instruments is allowed unless they are specifically prohibited by the exchange.

The activities that are allowed at this stage are Inquiry, Order Entry, Order Modification, Order

Cancellation (including quick order cancellation) and Order Matching.

MARKET CLOSE

When the market closes, trading in all instruments for that market comes to an end. A message to

this effect is sent to all trading members. No further orders are accepted, but the user is

permitted to perform activities like inquiries.

SURCON

Surveillance and Control (SURCON) is that period after market close during which, the users

have inquiry access only. After the end of SURCON period, the system processes the data for

making the system available for the next trading day. When the system starts processing data, theinteractive connection with the NEAT system is lost and the message to that effect is displayed at

the trader workstation.

BASKET TRADING

The purpose of Basket Trading is to provide NEAT users with a facility to create offline order

entry file for a selected portfolio. On inputting the value, the orders are created for the selected

portfolio of securities according to the ratios of their market capitalizations.

BUY BACK TRADES

As per SEBI Notification, dated 14 November, 1998, buyback of securities is permitted in the

Secondary Market. This is termed as Buy-Back from the Open Market. In the open market,


19/25

buyback of shares is permitted through Stock Exchanges having electronic trading facility and

such buyback orders are required to be identified upfront in the electronic trading screen as

buyback orders.The purpose of Buy Back Trade functionality is to give information to themarket about the buyback trades executed from the start of the buyback period till current trading

date in the securities whose buyback period is currently on. It provides information about

Symbol, Series, Day's high price, Day's Low Price, Days Weighted Average Price, Days

Volume, Total Volume, Highest/Lowest/Weighted Average Prices till previous day; Buy Back

Start & End date. The Buyback Trade functionality provides users with the information about the

buyback trades going in various securities. The front screen shows Symbol, Series, Low price

(Today), High price (Today), Weight age. Average price, Volume (Today), and Previous day

Volume. The user after selecting a particular row from the buyback list box can view further

information viz. Symbol, Series, Start date, End date, Total Traded Qty (Till date), Previous

High price, Previous Low price and Wt avg. Price till date of buyback scheme. The Buyback

broadcast updates the information.

AN OVERVIEW OF THE INDIAN SECURITIES MARKET

Securities markets provide a channel for allocation of savings to those who have a productive

need for them. As a result, the savers and investors are not constrained by their individual

abilities, but by the economys 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 in allotment to less than 50 persons is private placement. There are

two major types of issuers who issue securities. The corporate entities issue mainly debt and

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


20/25

governments) issue debt securities (dated securities, treasury 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 a strict 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

183also 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 index or an individual security. In case of

options, securities are traded for conditional future delivery. There are two types of options aput 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 a security from the writer of the option at a

predetermined price. These options can also be on 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 coupon

bond and 6% notional 10 year bond.

The 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 several institutional changes resulting in drastic 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. Reforms in the securities market, particularly the establishment and empowerment of


21/25

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

dematerialization and electronic transfer of securities, rolling settlement and ban on deferral

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.

IMPACT OF GLOBAL RECESSION ON INDIAN MARKET

The recession in the US market and the global meltdown termed as Global recession have

engulfed complete world economy with a varying degree of recessional impact. World over the

impact has diversified and its impact can be observed from the very fact of falling Stock market,

recession in jobs availability and companies following downsizing in the existing available staff

and cutting down of the perks and salary corrections. Globally the financial sector sacking the

existing base of employees in high numbers in US the major example being CITI Group samestill followed by others in hospitality industry Jet and Kingfisher Airlines too. The cut in salary

for the pilots being 90 % can anyone imagine such a huge cut in salary.

In the globalized market scenario, the impact of recession at one place/ industry/ sector peculate

down to all the linked industry and this can be truly interpreted from the current market situation

which is faced by the world since approx 2 month and still the situation is not in control in spite

of various measures taken to fight back the recession in the market. The badly hit sector at

present is being the financial sector, and major issue being the "LIQUIDITY Crises" in the

market.

In-spite of the various measures to subsidize the impact of the recession and cut down

the inflation present nothing really sound has been done.

Various steps taken by RBI to curb the present recession in the economy and counter act theprevailing situation.

The sudden drying-up of capital inflows from the FDI which were invested in Indian stock

markets for greater returns visualizing the Potential Higher Returns flying back is continuing to

challenge liquidity management. At the heart of the current liquidity tightening is the balance of

payments deficit, and this NRI deposit move should help in some small way.

In total the recession have turned down the growth

process and have set the minds of economists and others for finding out the real solution to

sustain the economic growth and stability of the market which is desired for the smooth running

of the economy.

Complete business/industry is in dolled rum situation and this situation persist for a longerduration will create the small business to vanish as they have lower stability and to run smoothly

require continuous flow of liquidity which is derived from the market.

In present situation down fall in one sector one day leads to a negative impact on the other sector

thus altogether everyone feel the impact of the Financial crises with the result of the current

recession which started in US and slowly and gradually due to linked global world have

impacted everyone.


22/25

Solution for the problem still remain at the top of the mind of every one, still everyone facing the

impact of recession but how long is the major question which is of great importance.

PRESENT SCINARIO OF INDIAN CAPITAL MARKET VS US

RECESSION

1. Federal Reserve (US head banking institution, like RBI in India) is looking forward to make

more rate cuts (interest rate cuts) in the coming future to ease out the credit crunch that has

evoked since this subprime crisis. Its effect would take 6-8 months to reflect in the global

economies including markets of India: Derivatives Trading Market, Futures Trading Market, and

Commodities Trading Market of India. This reflection in trading and investment sentiment could

take some time to happen, but it would be definitely witnessed with an increment in local

business, FII investment in India and NRI Investment Services in India.

2. Indian Shares/Stocks market are not performing great in the gone weeks, but institutions still

have abundant money on the table to invest; but with the coming rate cuts, the debt market would

not look any good to them either (in the US).

Commodity prices have risen up real fast, not giving many investors the room or time to switch

from equities or debt market into commodities market. All this brings the investors, institutions,

banks & hedge funds in the land of uncertainty. They have to rethink their strategy and that is

where the emergingmarkets look attractive to these investors (because these investors would stillwant to invest their money. US recession doesn't mean people would stop investing for their

future, or hedge funds/banks would stop investing/speculating money). Thus bringing such

investors to look for good valuations and a very positive side for the Asian stock markets.

3. Nothing bad is happening in the Asian markets. We look pretty strong, and all this major

blood is on the street is a result of short-term panic we are witnessing. The momentum would

soon pick up once the US recession worries ease a little with fed pumping in more money

(bailout) into the subprime cycle. Thus we would see lot more buy orders coming into demat

accounts to buy the Indian stocks.

4. India story has not changed at all. We still believe that our economy has lot of potential with

great fuel to shoot up. However we still believe that this is not going to happen in short-term and

we might not see too much purchase orders coming into the Online Demat Accounts of Indians


23/25

as well as NRI, PIO or OCIs (non resident Indians). There is a lot of room for expansion in India,

and there is huge demand for credit consumption. We are just waiting for the liquidity to pour-in.

That liquidity is definitely on the table, but all big institutions are looking for some good

indicators, and when this happens we would be crawling back on the curve.

5. We all believe that the markets are majorly falling due to the US worries that are coming inand not because of the performances exhibited by the Indian corporate. Earning results of the

company are expected to be out in April (when companies declare their quarterly/annual

performances to the public). Everyone out here expects these numbers to be good, which could

thus decide the turn of the market sentiments

Important: This idea is not to put a very rosy picture in front of you, but to ease out some

tension by highlighting certain macro & micro economic points that are still in our favor. We

know investors not only with us, but also with other brokers are losing their portfolio strength in

terms of capital and valuations. However, keeping all the above notes in mind along with

strong/stable Indian fundamentals that are still pretty attractive we advise our clients to stay

strong and very importantly increase their time frame from 2 years to a minimum of 3-4 years

now.This advice for clients to INVEST IN INDIAN STOCK MARKET with caution and with a

long term view with a portfolio diversification view across various financial products like:

stocks, mutual funds, commodities and futures.

What Is Recession?For this reason, the official designation of recession may not come until after we are in a

recession for six months or longer. They define recession as: significant decline in economicactivity lasting more than a few months, which is normally visible in real GDP, real income,employment, industrial production, and wholesale-retail sales. National Bureau of EconomicResearch (NBER) is the official agency in charge of declaring that the economy is in a state ofrecession. A Recession is a contraction phase of the business cycle.

What Causes Recession?Investors spend less as they fear stocks values will fall and thus stock markets fall on negative

sentiment. This leads to a decreased demand for goods and services, which in turn leads to adecrease in production, lay-offs and a sharp rise in unemployment. A recession normally takes

place when consumers lose confidence in the growth of the economy and spend less. Aneconomy typically expands for 6-10 years and tends to go into a recession for about six monthsto 2 years. US Crisis Hits India

US faced major crisis because of Subprime mortgage crisis (home loan defaults) Rising oilprices at $100 a barrel Global Inflation High unemployment rates A declining dollar valueAll this slowed down the growth of the economy and as the GDP growth rate fell to 2%,recession set in.


24/25

Low GDP growth indicating Recession in US Impact on IndiaA slowdown in the US economy is bad news for India because: Indian companies havemajor outsourcing deals from the US India's exports to the US have also grown substantiallyover the years. Indian companies with big tickets deals in the US are seeing their profit marginsshrinking.

Anatomy of the economic depression in IndiaShare Market More people have sold the shares in the Indian share market than they boughtin the recent weeks. This has added to the fall of Sensex & Nifty to lower points. Foreigninvestors have pulled out from stock markets leading to heavy losses in stocks and mutual fundsStock broking houses are laying-off people Because of such uncertainty many people havestarted saving money in banks rather than investing.

IT and Real Estate Sector the key challenges faced by the industry now are inflation and thepsychological impact of the US crisis, leading the companies to hit the panic button. Bonuses,perks, lavish parties, and many other benefits are missing as companies look to cut cost. India'sIT export growth is also showering down One of the casualties this time are real estate, where

building projects are half-done all over the country and in this tight liquidity situation developersfind it difficult to raise finances.Layoffs and Unemployment Hundreds of workers have lost jobs in diamond jewellery,

textiles and leather industry. Companies in IT industry have stopped hiring and projected lowermanpower need. Firms attached to the capital market are lying off people and large companiesare putting their future expansion plans on hold.

Industrial sector Government and other private companies are reluctant in starting newventures and starting new projects. Projects that are halfway to completion, or companies that arestuck with cash flow issues on businesses that are yet to reach breakeven, will run out of cash.Car, bike & truck sales down Steel plants are cutting production Hospitality and airlines are hitby poor demand

On the issue Mr. Manmohan Singh suggested A coordinated fiscal stimulus by countriesthat are in a position to do so would help to mitigate the severity and duration of the recessionIt would also send a strong signal to investors around the world. Resort to fiscal stimulus maybe viewed as risky in some situations, but if we are indeed on the brink of the worst downturnsince the Great Depression, the risk may be worth taking, he added.

Corrective Steps to Check Recession RBI needs to neutralize the outflow of FII money byunwinding the market stabilization securities that it had used to sterilize the inflows when theyhappened. This will mean drawing down the dollar reserves which is important at this hour. Inthe IT sector, there should be correction in salary offerings rather than job cutting Public shouldspend wisely and save more Taxes including excise duty and custom duty should be reduced tolighten the adverse effect of economic crunch on various industries

In real estate the builders should drop prices, so as to bring buyers back into the market. Also,the government should try and improve liquidity, while CRR and SLR must be cut further IndianCompanies have to adopt a multi-pronged strategy, which includes diversification of the export


25/25

markets, improving internal efficiencies to maintain cost competitiveness in a tight export marketsituation.

Opportunities in India due to US recession US recession may be a boon for Indian offshoresoftware companies the impact of recession is higher to small and medium sized (SMEs)

enterprises whose bottom lines get squeezed due to lack of spending by consumers SMEs in theUS are under severe pressure to increase profitability and business margins to survive. This willforce them to outsource and even have M&A arrangements with Indian firms. India is going tobe a great beneficiary of this trend which will minimize the impact of the US recession on Indianindustry By March 2008, India had received SME outsourcing deals worth $7 billion from theUS as against $6.2 billion in the previous year

STRATEGY TO OVERCOME FROM THIS SITUATION

Cost cutting, cost reduction, consolidation or cost management has become central planning

topics in all competitive markets to avoid recession.In far too many cases, cost cutting is a

panic knee-jerk reaction to a situation that only arose because of an abject failure to plan ahead.

This economic slowdown or any slowdown that might occur in a business sector or

individual company even in more-stable economic times is a purely cyclical event, albeit

exacerbated by the derivative crisis. As such, it should have been on the radar of any alert

company, which should have prepared itself in more prudent fashion. Even a derivative

meltdown was always in the cards and would inevitably happen, simply because it is a lunatic

scheme that was bound to implode. Cost cutting is very common word in the current market

scenario.

Refinancing risk is also a current hot topic: If a company can borrow

long term to replace in advance debt that matures in 2009, its liquidity position is significantly

improved, even if the amount of leverage remains the same.

Rights offerings, which historically have been used mainly in international

contexts, have recently achieved greater interest among US companies as an effective way of

raising equity in a tight market. These offerings require consideration of SEC issues and entail

compliance with stock exchange re-quirements, negotiation of standby purchase arrangements

and a variety of other issues.

Similarly, new techniques of equity lines of credit, registered-direct

offerings and at-the-market offerings are being used to take advantage of windows of

opportunity in volatile equity capital markets to deliver and strengthen a companys balance

sheet.

Documents

Synopsis Capital Market