indian stock market
DESCRIPTION
indian stock market information to all the details related to stock market in indiaTRANSCRIPT
Khushbu Sachdeva
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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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PREFACEIndian 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.
SMC GLOBAL SECURITIES LIMITED
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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
SMC Board of Directors
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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)
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
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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.
Mr PRADEEP KUMAR AGGARWAL
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Mr. Pradeep Kumar AggarwalWhole 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.
Mr ANURAG BANSAL
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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.
Mr LALIT AGGARWAL
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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.
Mr PRAVIN AGGARWAL
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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.
Corporate Ethos
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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.
MEMBERSHIP AND REGISTRATION
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•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)
SMC PARTNERS
SANLAM INVESTMENTS
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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.
HONDA SIEL CARS INDIA
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•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.
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
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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)
Our Wealth Management Services
• Wealth Builder Process
Financial Planning
Investment Planning
• Alternate Investments
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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
- 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
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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.
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
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& 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 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
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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
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
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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.
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.
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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.
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.
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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.
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.
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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
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
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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 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
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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.
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
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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 ownresources (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 "programtrading".
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 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 asthe 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
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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 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.
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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 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 businessinvestment 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, AmericanStock 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-termprofits 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
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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
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 variouskinds 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 riskysecurities of one sort or another.
The stock market, individual investors, and financial riskRiskier 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 certainlymore 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).
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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 availableinformation, 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.
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."
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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
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, evenon 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
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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.
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
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institutional changes resulting in drastic reduction in transaction costs and significant improvements inefficiency, transparency and safety.
DEPENDENCECAPITAL MARKETThree 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
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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
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 trend 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
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persistent depression in the share market and investors’ bad experience with many unscrupulous company promoters and managements.
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.
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.
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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.
BOMBAY STOCK EXCHANGE
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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
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
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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,
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
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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
system, BSEWEBx.co.in to enable investors anywhere in the world to trade on the BSE platform.
Timeline
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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)
29 May 1992 Capital Issues (Control) Act repealed
1992 Securities Appellate Tribunal (SAT) established
14 March 1995 BSE On-Line Trading (BOLT) system introduced
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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
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
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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
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
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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
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
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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
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 Futures 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:
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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.
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
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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.
CLOSURE OF SENSEX
The closing SENSEX is computed taking the weighted average of all the trades on SENSEXconstituents 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 and 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
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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.
COMPANIES LISTED IN NIFTY
Company Name IndustryScrip Name
ABB Ltd. ELECTRICAL EQUIPMENT ABB
ACC Ltd.CEMENT AND CEMENT PRODUCTS ACC
Ambuja Cements Ltd.CEMENT AND CEMENT PRODUCTS
AMBUJACEM
Bharat Heavy Electricals Ltd. ELECTRICAL EQUIPMENT BHEL
Bharat Petroleum Corporation Ltd. REFINERIES BPCL
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Bharti Airtel Ltd.TELECOMMUNICATION – SERVICES
BHARTIARTL
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
HCL Technologies Ltd. COMPUTERS – SOFTWARE HCLTECH
HDFC Bank Ltd. BANKS HDFCBANK
Hero Honda Motors Ltd.AUTOMOBILES – 2 AND 3 WHEELERS
HEROHONDA
Hindalco Industries Ltd. ALUMINIUM HINDALCO
Hindustan Unilever Ltd. DIVERSIFIEDHINDUNILVR
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 – SOFTWAREINFOSYSTCH
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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. ALUMINIUMNATIONALUM
Oil & Natural Gas Corporation Ltd. OIL EXPLORATION/PRODUCTION ONGC
Power Grid Corporation of Bharat Ltd. POWER
POWERGRID
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
SATYAMCOMP
Siemens Ltd. ELECTRICAL EQUIPMENT SIEMENS
State Bank of India BANKS SBIN
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Steel Authority of Bharat Ltd. STEEL AND STEEL PRODUCTS SAIL
Sterlite Industries (India) Ltd. METALS STER
Sun Pharmaceutical Industries Ltd. PHARMACEUTICALS
SUNPHARMA
Suzlon Energy Ltd. ELECTRICAL EQUIPMENT SUZLON
Tata Communications Ltd.TELECOMMUNICATION – SERVICES TATACOMM
Tata Consultancy Services Ltd. COMPUTERS – SOFTWARE TCS
Tata Motors Ltd. AUTOMOBILES – 4 WHEELERSTATAMOTORS
Tata Power Co. Ltd. POWERTATAPOWER
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
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• Larsen
• ICICI Bank
• Infosys
• Bharti Airtel
• TCS
• HDFC Bank
• 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.
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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.
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
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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
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.
Major advantages of Free-float Methodology:
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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.
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
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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.
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
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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.
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).
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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:
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.
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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.
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
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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
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
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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.
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.
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Cipla Ltd. Tata Power Co. Ltd.
Trend in Capital market
Top Gainers
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This data was last updated on Thursday, May 30, 2014 05:23.31 pm
top ten losers
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This data was last updated on Thursday, May 30, 2014 05:23.42 pm
INDIAN STOCK MARKET EFFICIENCYThe Indian stock market is considered to be one of the earliest in Asia and
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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.
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
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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:
Weak Form Efficiency
Semi-strong Form efficiency
Strong Form
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
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
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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.
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
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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
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
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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).
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
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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.
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.
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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
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
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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)
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
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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.
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
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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.
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.
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(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.
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.
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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.
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.
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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.)
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
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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.
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
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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.
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.
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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.
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 :-
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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.
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.
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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.
WEBLIOGRAPHY
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