sharekhan seema - copy
DESCRIPTION
DMSTRANSCRIPT
A
Project Report
On
“Study of Investment decision of Invester”
Submitted in partial fulfillment for theAward of degree of
Master of Business Administration2009-2011
Submitted By: - Submitted To:- SEEMA DARA PADMA SHARMA MBA:- IInd year
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. Acknowledgement
I express my sincere thanks to my project guide, Miss.Padma Sharma faculty of., Deptt-MBA., for guiding me right form the inception till the successful completion of the project. I sincerely acknowledge him/her/them for extending their valuable guidance, support for literature, critical reviews of project and the report and above all the moral support he/she/they had provided to me with all stages of this project.
Seema dara
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Preface
.
Though India has a very big untapped market but the players will not flourish
unless they change the way the customers are being served. Given the awareness level of
today customers every player has to treat with care and make the customer feel that he is
the king. Number of Online Share trader in India has crossed the line. More and more
customers are coming under this umbrella and many of the existing one are changing
pavilion. So customer retention and satisfaction is now more important as it was never
before. Players keep coming with new schemes in order to attract new customers and
retain the existing one. This is being supplemented with increased advertising and brand
building efforts. Success of any organization depends upon its being proactive.
I am very lucky as I got an opportunity to work with SHARE KHAN LTD
which is showing phenomenal growth and success in the Securities.
My topic of study was “study of capital market.” This project is an effort to do a
depth study and analysis of various known and unknown reasons for customer
satisfaction and retention. “To err is human” and I am not an exception, valuable
comments are always welcomed since it will motivate to work with greater zeal and
efficiency in the future.
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EXECUTIVE SUMMERY
I undersigned here by stating that the report entitled “STUDY OF
INVESTMENT DECISION OF INVESTER” is a genuine and bonafied work prepared
by me under a guidance of Mr. Mathul Jain (Branch Head, SHAREKHAN LTD,
JAIPUR)
The empirical findings in this project report are based on the data collected by
myself. The matter presented in this report is not copied from any source.
This project report is submitted to Arya Insitute of Engineering
&Technology in a partial fulfillment of the course of….
MBA (FINANCE)
PLACE: JAIPUR
(SEEMA DARA)
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Contents
Chapter TOPIC
1.
2
3.
4.
5.
6.
7.
8.
9.
10.
Introduction to the Indutry
Company Profile
Research Methodology
Data Analysis
Interpretations and discussions
Conclusion
Recommendation and suggestions
Limitations
Annexure
Bibliography
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INTRODUCTION
AND
HISTORY
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Share khan is the retail broking arm of SSKI, an organization with more than eight
decades of trust & credibility in the stock market.
It is India's leading retail financial Services Company with We have over 1000 share
shops across 420 cities in India. While our size and strong balance sheet allow us to
provide you with varied products and services at very attractive prices, our over 750
Client Relationship Managers are dedicated to serving your unique needs. Sharekhan is
lead by a highly regarded management team that has invested crores of rupees into a
world class Infrastructure that provides our clients with real-time access to all
information and products.
Our flagship Sharekhan Professional Network offers real-time prices, detailed data and
news, intelligent analytics, and electronic trading capabilities, right at your fingertips.
This powerful technology complemented by our knowledgeable and customer focused
Relationship Managers. We are Creating a world of Smart Investor. Sharekhan offers a
full range of financial services and products ranging from Equities to Derivatives
enhance your wealth and hence, achieve your financial goals.
.Sharekhan' Client Relationship Managers are available to you to help with your financial
planning and investment needs. To provide the highest possible quality of service,
Sharekhan provides full access to all our products and services through multi-channels.
ShareKhanLtd.
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GROWTH OF THE COMPANY
Budget 2009-10: Populist yet growth oriented
Given the election year, the finance minister (FM) tabled a populist budget aimed
at pleasing a large section of rural population and also the salaried middle class. Apart
from the substantial increase in budgetary allocation for rural and social infrastructure,
the budget has proposed huge debt waiver and relief worth Rs60,000 crore to farmers.
But in spite of the increased expenditure, the fiscal prudence has been maintained with
fiscal deficit target set at 2.5% for 2009-10.
MUMBAI: Sharekhan has upgraded their recommendation to 'buy' from 'hold' on
Navneet Publications with a revised price target of Rs 80, at which the stock discounts its
2009-10 EPS of Rs 7.6 by 10.5x. The company’s Jan-Mar 2008-09 results are ahead of
the brokerage expectation.
The net sales for the quarter grew by a robust 29.5 per cent year on year to Rs
59.1 crore, which is ahead of their expectation of Rs 53.1 crore. The sales growth was on
account of hefty growth in publication and stationery businesses.
The publication business witnessed a robust growth of 28.5 per cent year on year
to Rs 21.8 crore. The stationery business achieved a healthy growth of 33.8 per cent to Rs
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38 crore, mainly on account of good domestic demand and introduction of non-paper
stationery products.
The operating profit margin declined by 102 basis points to 9 per cent, mainly on
account of a higher other expenditure, as this, as a percentage of the sales increased by
313 basis points to 26.2 per cent in Jan-Mar 2007-08
INDUSTRY OVERVIEW
A Brief History of Stock Exchanges
Do you know that the world's foremost marketplace New York Stock Exchange
(NYSE), started its trading under a tree (now known as 68 Wall Street) over 200 years
ago? Similarly, India's premier stock exchange Bombay Stock Exchange (BSE) can also
trace back its origin to as far as 125 years when it started
as a voluntary non-profit making association.
You hear about it any time it reaches a new high or a new
low, and you also hear about it daily in statements like
'The BSE Sensitive Index rose 5% today'. Obviously,
stocks and stock markets are important. Stocks of public
limited companies are bought and sold at a stock exchange. But what really are stock
exchanges? Known also as tNews on the stock market appears in different media every
day. he stock market or bourse, a stock exchange is an organized marketplace for
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securities (like stocks, bonds, options) featured by the centralization of supply and
demand for the transaction of orders by member brokers, for institutional and individual
investors. The exchange makes buying and selling easy.
All stock exchanges perform similar functions with respect to the listing, trading, and
clearing of securities, differing only in their administrative machinery for handling these
functions. Most stock exchanges are auction markets, in which prices are determined by
competitive bidding. Trading may occur on a continuous auction basis, may involve
brokers buying from and selling to dealers in certain types of stock, or it may be
conducted through specialists dealing in a particular stock.
But where did it all start? The need for stock exchanges developed out of early trading
activities in agricultural and other commodities. During the middle Ages, traders found it
easier to use credit that required supporting documentation of drafts, notes and bills of
exchange.
India's other major stock exchange National Stock Exchange (NSE), promoted by leading
financial institutions, was established in April 1993. Over the years, several stock
exchanges have been established in the major cities of India. There are now 23
recognised stock exchanges — Mumbai (BSE, NSE and OTC), Calcutta, Delhi, Chennai,
Ahmedabad, Bangalore, Bhubhaneswar, Coimbatore, Guwahati, Hyderabad, Jaipur,
Kochi, Kanpur, Ludhiana, Mangalore, Patna, Pune, Rajkot, Vadodara, Indore and
Meerut. Today, most of the global stock exchanges have become highly efficient,
computerised organisations. Computerised networks also made it possible to connect to
each other and have fostered the growth of an open, global securities market.
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INDIAN STOCK MARKET-A brief profile
The two main stock markets of India are:-
NSE
BSE
In all there are 23 stock exchanges in India, but the two most popular amongst all of them
are:-
National Stock Exchange(NSE)
Bombay stock exchange(BSE)
Now, let’s discuss the history, functionality and other important details about these two
important stock exchanges of India.
History of BSE and its brief profile:-
Indian stock markets are one of the oldest in Asia. Its history dates back to a 200
years ago. The East India Company was the dominant institution in those days and
business in its loan securities used to be transacted towards the end of eighteenth century.
By 1830’s business on corporate stocks and shares in the bank and cotton took place in
Bombay. The 1850’s witnessed a rapid development of commercial enterprise and the
brokerage business attracted many men into this field and by 1860 the number of brokers
increased to 60.
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In 1860-61, the American civil war broke out and cotton supply from United
States stopped; and thus the “share mania” in India begun, due to which the share brokers
increased to about 200 to 250.
At the end of the American civil war, the brokers who thrived out of this war in
1874, found a place in a street, where they would easily assemble and transact business.
This street is nowadays, popularly known as DALAL STREET.
In 1887, they formally established in Bombay, and were known as “Native Shares
and Stock Brokers Association”.
In 1895, it acquired a premise in the same street and finally was inaugurated in 1899
with the name Bombay Stock Exchange(BSE).
In this way the stock market at Bombay was consolidated.
NSE:-
The NSE 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.
NSE is India’s leading stock exchange covering more than 160 cities and towns
across the country. It provides the modern fully computerized trading system designed to
offer investors across the country a safe and easy way to invest to liquidate investment
and securities.
Investors in many areas of country did not have the same access and opportunity
to trade so there arise the need for setting up the national stock exchange. The NSE
network has been designed to provide equal access to investors from anywhere in India
and to be responsive to their needs.
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On its recognition as a stock exchange under the Securities Contract Act, 1956 in
April 1993, NSE started operations in the Wholesale Debt Market (WDM) segment in
June 1994. Capital market (equities) segment commenced operations in November 1994,
and operations in derivative segment started in June 2000.
NSE started trading in the capital market segment on November3, 1994 and
within one year became the largest exchange in India, in terms of volumes transacted.
During the year 2005-06 NSE reported, a turnover of Rs 1,569,556 crores in the equity
segment.
Online trading process
The various transactions involved in online trading can be shown from the point of view
of the
Client
Broker
Stock Exchange
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, the promoter’s capital and the borrowing from bank and financial institution may not be
sufficient for setting up and running the business over a long term. Therefore, companies
invite the public to contribute toward the equity and issue share to individual investors.
The way to invite share capital from the public is through a ‘Public Issue’. Simply stated
a public issue is an offer to the public to subscribe the share capital of a company. Once
this is done, the company allot share to the applicants as per the prescribed rules and
regulation laid down by SEBI.
How can one acquire equity shares?
The investors may subscribe issue made by corporate in the primary market. In
the primary market, resources are mobilized by the corporate through fresh public issues
(IPO’s) or through private placements. Alternately, investor may purchase shares from
the secondary market. To buy and sell securities you should approach a SEBI registered
trading member (broker) of a recognized stock exchange.
Why should one invest in equities in particular?
When an individual buy a share of a company he become a shareholder in that
company. Shares are also known as Equities. Equities have a potential to increase in
value over time. It also provides investors portfolio with the growth necessary to reach
investor’s long-term investment goals. Research studies have proved that the equities
have outperformed most than other forms of investments in the long term. This may be
illustrated with the help of following.
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Average return on Equities in India:
Since 1990, till date, Indian share market has returned about 17% to investors in
an average in terms of increase in share prices or capital appreciation annually. Beside
these stocks have paid on an average 1.5% dividend annually Dividend is a percentage of
the face value of a share that a company returns to its share holder from its annual profits.
Composed topmost other form of investments, investing in equity share offers a highest
rate of return, if invested over a longer duration.
Factors that influence the price of stocks
Broadly, there are two factors:
Stock specific and
Market specific.
The stock – specific factor is relates to people’s expectation about the company,
its future earning capacity, financial health and management, level of technology and
marketing skills.
The market specific factor are influence by the investor’s sentiments towards the
stock market as a whole. This factor depends on the environment rather than the
performance of any company. Events favorable to an economy, political or regulatory
environment like high economic growth, friendly budget, stable government etc. can fuel
euphoria in the investors, resulting in a boom in the market. On the other hand,
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unfavorable event like war, economic crisis, communal riots, minority government etc.
depress the market irrespective of certain companies performing well.
INTRODUCTION OF SHAREKHAN LTD.
ABOUT SHAREKHAN LIMITEDSharekhan Ltd. is one of the leading retail stock broking house of SSKI Group which is running successfully since 1922 in the country. It is the retail broking arm of the Mumbai-based SSKI Group, which has over eight decades of experience in the stock broking business. Sharekhan offers its customers a wide range of equity related services including trade execution on BSE, NSE, Derivatives, depository services, online trading, investment advice etc.
The firm’s online trading and investment site - www.sharekhan.com - was launched on Feb 8, 2000. The site gives access to superior content and transaction facility to retail customers across the country. Known for its jargon-free, investor friendly language and high quality research, the site has a registered base of over one lakh customers. The content-rich and research oriented portal has stood out among its contemporaries because of its steadfast dedication to offering customers best-of-breed technology and superior market information. The objective has been to let customers make informed decisions and to simplify the process of investing in stocks.
On April 17, 2002 Sharekhan launched Speed Trade, a net-based executable application that emulates the broker terminals along with host of other information relevant to the Day Traders. This was for the first time that a net-based trading station of this caliber was offered to the traders. In the last six months Speed Trade has become a de facto standard for the Day Trading community over the net.
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Sharekhan’s ground network includes over 640 centers in 280 cities in India which provide a host of trading related services.
Sharekhan has always believed in investing in technology to build its business. The company has used some of the best-known names in the IT industry, like Sun Microsystems, Oracle, Microsoft, Cambridge Technologies, Nexgenix, Vignette, Verisign Financial Technologies India Ltd, Spider Software Pvt Ltd. to build its trading engine and content. The Morakhiya family holds a majority stake in the company. HSBC, Intel & Carlyle are the other investors.
With a legacy of more than 80 years in the stock markets, the SSKI group ventured into institutional broking and corporate finance 18 years ago. Presently SSKI is one of the leading players in institutional broking and corporate finance activities. SSKI holds a sizeable portion of the market in each of these segments. SSKI’s institutional broking arm accounts for 7% of the market for Foreign Institutional portfolio investment and 5% of all Domestic Institutional portfolio investment in the country. It has 60 institutional clients spread over India, Far East, UK and US. Foreign Institutional Investors generate about 65% of the organization’s revenue, with a daily turnover of over US$ 2 million. The Corporate Finance section has a list of very prestigious clients and has many ‘firsts’ to its credit, in terms of the size of deal, sector tapped etc. The group has placed over US$ 1 billion in private equity deals. Some of the clients include BPL Cellular Holding, Gujarat Pipavav, Essar, Hutchison, Planetasia, and Shopper’s Stop.
PROFILE OF THE COMPANY
Name of the company: Sharekhan ltd.
Year of Establishment: 1925
Headquarter : ShareKhan SSKI A-206 Phoenix House Phoenix Mills Compound Lower Parel Mumbai - Maharashtra, INDIA- 400013
Nature of Business : Service Provider
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Services : Depository Services, Online Services and Technical Research.
Number of Employees : Over 3500
Revenue : Data Not Available
Website : www.sharekhan.com Slogan : Your Guide to The Financial Jungle.
Vision
To be the best retail brokering Brand in the retail business of stock market.
Mission
To educate and empower the individual investor to make better investment decisions through quality advice and superior service.
Sharekhan is infact-• Among the top 3 branded retail service providers • No. 1 player in online business• Largest network of branded broking outlets in the country
serving more than 7,00,000 clients.
REASON TO CHOOSE SHAREKHAN LIMITED
Experience
SSKI has more than eight decades of trust and credibility in the Indian stock market. In the Asia Money broker's poll held recently, SSKI won
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the 'India's Best Broking House for 2004 ' award. Ever since it launched Sharekhan as its retail broking division in February 2000, it has been providing institutional-level research and broking services to individual investors.
Technology
With its online trading account one can buy and sell shares in an instant from any PC with an internet connection. One can get access to its powerful online trading tools that will help him take complete control over his investment in shares.
Accessibility
Sharekhan provides ADVICE, EDUCATION, TOOLS AND EXECUTION services for investors. These services are accessible through its centers across the country over the internet (through the website www.sharekhan.com) as well as over the Voice Tool.
Knowledge
In a business where the right information at the right time can translate into direct profits, one can get access to a wide range of information on Sharekhan limited’s content-rich portal. One can also get a useful set of knowledge-based tools that will empower him to take informed decisions.
Convenience
One can call its Dial-N-Trade number to get investment advice and execute his transactions. Sharekhan ltd. have a dedicated call-centre to provide this service via a Toll Free Number 1800-22-7500 & 1800-22-7050 from anywhere in India.
Customer Service
Sharekhan limited’s customer service team will assist one for any help that one may require relating to transactions, billing, demat and other queries. Its customer service can be contacted via a toll-free number, email or live chat on www.sharekhan.com.
Investment Advice
Sharekhan has dedicated research teams of more than 30 people for fundamental and technical researches. Its analysts constantly track the
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pulse of the market and provide timely investment advice to its clients in the form of daily research emails, online chat, printed reports and SMS on their mobile phone.
SHAREKHAN LIMITED’S MANAGEMENT TEAM
Dinesh Murikya : Owner of the company
Tarun Shah : CEO of the company
Shankar Vailaya : Director (Operations)
Jaideep Arora : Director (Products & Technology)
Pathik Gandotra : Head of Research
Rishi Kohli : Vice President of Equity Derivatives
Nikhil Vora : Vice President of Research
PRODUCTS AND SERVICES OF SHAREKHAN LIMITEDThe different types of products and services offered by Sharekhan Ltd. are as follows:
Equity and derivatives trading Depository services Online services Commodities trading Dial-n-trade Portfolio management
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Share shops Fundamental research Technical research
TYPES OF ACCOUNT IN SHAREKHAN LIMITEDSharekhan offers two types of trading account for its clints
Classic Account (which include a feature known as Fast Trade Advanced Classic Account for the online users) and
Speed Trade Account
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CLASSIC ACCOUNT
This is a User Friendly Product which allows the client to trade through website www.sharekhan.com and is suitable for the retail investor who is risk-averse and hence prefers to invest in stocks or who does not trade too frequently. This account allow investors to buy and sell stocks online along with the following features like multiple watch lists, Integrated Banking, Demat and digital contracts, Real-time portfolio tracking with price alerts and Instant credit & transfer.
This account comes with the following features:
a. Online trading account for investing in Equities and Derivatives
b. Free trading through Phone (Dial-n-Trade) I. Two dedicated numbers(1800-22-7500 and
39707500) for placing the orders using cell phones or landline phones
II. Automatic funds transfer with phone banking facilities (for Citibank and HDFC bank customers)
III. Simple and Secure Interactive Voice Response based system for authentication
IV. get the trusted, professional advice of Sharekhan limited’s Tele Brokers
V. After hours order placement facility between 8.00 am and 9.30 am
c. Integration of: Online Trading +Saving Bank + Demat Account.
d. Instant cash transfer facility against purchase & sale of shares.
e. IPO investments. f. Instant order and trade confirmations by e-mail. g. Single screen interface for cash and derivatives.
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SPEED TRADE ACCOUNT
This is an internet-based software application, which enables one to buy and sell in an instant. It is ideal for active traders and jobbers who transact frequently during day’s session to capitalize on intra-day price movement.
This account comes with the following features:
a. Instant order Execution and Confirmation.b. Single screen trading terminal for NSE Cash, NSE F&O &
BSE.c. Technical Studies.d. Multiple Charting.e. Real-time streaming quotes, tic-by-tic charts.f. Market summary (Cost traded scrip, highest value etc.)g. Hot keys similar to broker’s terminal.h. Alerts and reminders.i. Back-up facility to place trades on Direct Phone lines.j. Live market debts.
CHARGE STRUCTURE
Fee structure for General Individual:
Charge Classic Account Speed Trade AccountAccount Opening Rs. 750/= Rs. 1000/=
Brokerage Intra-day – 0.10 %Delivery - 0.50 %
Intra-day - 0.10%Delivery - 0.50%
Depository Charges:
Account Opening Charges Rs. NILAnnual Maintenance Charges Rs. NIL first year Rs. 300/= p.a.
from second calendar year onward
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HOW TO OPEN AN ACCOUNT WITH SHARE KHAN LIMITED?For online trading with Sharekhan Ltd., investor has to open an account. Following are the ways to open an account with Sharekhan Ltd.:
One need to call them at phone number provided below and asks that he want to open an account with them.
a. One can call on the Toll Free Number: 1-800-22-7500 to speak to a Customer Service executive
b. Or If one stays in Mumbai, he can call on 022-66621111
One can visit any one of Sharekhan Limited’s nearest branches. Sharekhan has a huge network all over India (640 centers in 280 cities). One can also log on to “http://sharekhan.com/Locateus.aspx” link to find out the nearest branch.
One can send them an email at [email protected] to know about their products and services.
One can also visit the site www.sharekhan.com and click on the option “Open an Account” to fill a small query form which will ask the individual to give details regarding his name, city he lives in, his email address, phone number, pin code of the city, his nearest Sharekhan Ltd. shop and his preferences regarding the type of account he wants. These information are compiled in the headquarter of the company that is in Mumbai from where it is distributed through out the country’s branches in the form of leads on the basis of cities and nearest share shops. After that the executives of the respective branches contact the prospective clients over phone or through email and give them information regarding the various types of accounts and the documents they need to open an account and then fix appointment with the prospective clients to give them demonstration and making them undergo the formalities to open the account. After that the forms that has collected from the clients, is scrutinized in the branch and then it is sent to Mumbai for further processing where after a few days the clients’ account are generated and activated. After the accounts are activated, a Welcome Kit is dispatched from
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Mumbai to the clients’ address mentioned in the documents provided by them. As soon as the clients receive the Welcome Kit, which contains the clients’ Trading ID and Trading Password, they can start trading and investing in shares.
Generally the process of opening an account follows the following steps:
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LEAD MANAGEMENT SYSTEM (LMS) / REFERENCES
CONTACT THE PERSON OVER PHONE OR THROUGH EMAIL
FIXING AN APPOINTMENT WITH THE PERSON
GIVINGDEMONST- RATION
NO YES
DOCUMENTATION
FILLING UP THE FORM
SUBMISSION OF THE FORM
LOGIN OF THE FORM
Apart from two passport size photographs, one needs to provide with the following documents in order to open an account with Sharekhan Limited.:
Photocopy of the clients’ PAN Card which should be duly attached
Photo copy of any of the following documents duly attached which will serve as correspondence address proof:
a. Passport (valid)b. Voter’s ID Cardc. Ration Cardd. Driving License (valid)e. Electricity Bill (should be latest and should be in the name of the
client)f. Telephone Bill (should be latest and should be in the name of
the client)g. Flat Maintenance Bill (should be latest and should be in the
name of the client)h. Insurance Policy (should be latest and should be in the name of
the client)i. Lease or Rent Agreement.j. Saving Bank Statement** (should be latest)
Two cheques drawn in favour of Sharkhan Limited, one for the Account Opening Fees and the other for the Margin Money (the minimum margin money is Rs. 5000).
** A cancelled cheque should be given by the client if he provides Saving Bank Statement as a proof for correspondence address.
NOTE: Only Saving Bank Account cheques are accepted for the purpose of Opening an account.
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SENDING ACCOUNT OPENING KIT TO THE CLIENT
TRADING
AWARDS AND ACHIEVEMENTS
SSKI has been voted as the Top Domestic Brokerage House in the research category, twice by Euromoney Survey and four times by Asiamoney Survey.
Sharekhan Limited won the CNBC AWARD for the year 2004.
POLL RESULTS: BROKER PREFERENCE
TYPES
OF
SHARE TRADING
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5paise 119 13.45%Sharekhan 194 21.92%Motilal oswal 38 4.29%ICICI Direct 192 21.69%HDFC 46 5.20%Indiabulls 121 13.67%Kotak 59 6.67%Others 116 13.11%
A Share khan outlet offers the following services:
Online BSE and NSE executions (through BOLT and NEAT terminals).
Free access to investment advice from Share Khan Research team.
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Share Khan value line (a monthly publication with reviews of recommendations,
stock to watch out for etc.).
Daily research report and market review (High Noon, Eagle Eye).
Pre Market report (Morning Cuppa).
Daily trading calls are based on technical analysis.
Cool Trading products (Daring Derivatives, Trading Ring and Market Strategy).
Personalized advice.
Live Market information.
Depository services: Demat and Remat transaction.
Derivatives trading (Futures and options).
Seminars on important topics ranging from ‘Derivatives Trading’ & help on ‘Doing Your Own Stock Research’ to insight into ‘Commodities Trading’
CUSTOMER EDUCATION – A CORE AGENDA
BROKERAGE: -
CASH BROKERAGE: - DELIVERY: 0.30%, INTRADAY: 0.03%*
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EXPOSURE : - 4 TO 8 TIMES* (ON MARGIN MONEY)
(* subject to change or as decided by Branch Manager)
F&O BROKERAGE: - ON FIRST LEG {Buy} 0.04%,
SAME DAY SQUARE {Sell} OFF: 0.04%
SECOND LEG: 0.04%
Settlements of trades follow T+2 transaction cycle.
OTHER FEATURES:-
No Demat Transaction Charges in case of buying and selling through
share khan.com
For the fund transfer and withdrawal, we have tie-up with four banks- HDFC
Bank.
If you are having bank a/c in HDFC Bank you can transfer the funds and
withdraw the funds online from
Your trading a/c at anytime.
BTST (Buy today Sell Tomorrow) Facility in all scripts.
DIAL-N-TRADE:- Call and Trade through Toll free no. From anywhere in India
(CUSTOMER CARE: 1600 22 7500, TRADING: 1-600-22
o -7500,39707500)
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TESTIMONY OF CUSTOMER CONFIDENCE
“Voted by CNBC Awaaz as the Most Preferred Stock broker in India”
“Voted by CNBC Awaaz as the Most Preferred Stock broker in India”
Share khan was the proud recipient of the CNBC Awaaz Award for the being the
most preferred stock broking company in India! (July 2005)
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DERIVATIVES
Derivative is a product whose value is derived from the value of one or more
basic variable called underlying. The underlying asset can be equity, index, foreign
exchange (forex), commodity or any other asset.
Derivative product initially emerged as heading devices against fluctuation
commodity prices and commodity linked derivatives remained the sole from of such
products for almost three hundred years .The financial deravatives came into spotlight in
post-1970 period due to growing instability in the financial markets. However, since their
emergence, these products have became very popular and by 1990s, they accounted for
about two-thirds of total transactions in deravatives products. The difference between a
share and deravatives is that shares/securities is an asset while derivative instrument is a
contract.
USES OF DERIVATIVES
HEDGING
The benefit of trading in index futures is to hedge your portfolio against the risk
of trading. In order to understand how one can protect his portfolio from value erosion let
us take an example.
Let us try understanding how one can use hedging in a real life scenario. Stocks carry
two types risk- company specific and market risk. While company risk can be minimized
by diversifying your portfolio, market risk cannoy be diversified but has to be hedged. So
how does one measure the market risk? Market risk can be known from Beta.
Beta measures the relationship between movements of the index
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to the movement of the stock. The Beta measures the percentage impact on the stock
prices for 1% change in the index. Therefore , for portfolio whose value goes down by
11% when the index goes down by 10%, the beta would be 1.1. When the index increase
by 10%, the value of the portfolio increase by 11%. The idea makes beta of your portfolio
zero to nullify your losses.
Steps :
Determine the beta of the portfolio. If the beta of any stock is not known, it is
safer to assume that it is 1.
Short sell the index in such a quantum that the gain on a unit decrease in the index
would offset the losses on the on the rest of his portfolio. This is achieved by multiplying
the relative volatility of the portfolio by the market value holdings.
Therefore in the above scenario we have to short sell 1.2 * 1 million = 1.2 million worth
of Nifty.
Index Up 10% Index Down10%
Gain(Loss) in portfolio Rs 120,000 Rs120,000
Gain(Loss) in futures RS120,000 Rs120,000
Net Effect Nil Nil
As , we see that portfolio is completed insulated from any losses arising out of a fall in
the market sentiment. However, as accost, one has to forego any gains that arise out of
the improvement in the overall sentiment. Then why does one invest in equities if all the
gains will be offset by losses in futures market? The idea is that everyone expects his
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portfolio to outperform the market. Irrespective of whether the market goes up or not, his
portfolio value would increase.
.
SPECULATION
Speculators are those who do not have any position on which they enter in futures
and option market. They only have a particular view on the market, stock, commodity
etc. In short, speculators put their money at risk in the hope of profiting from an
anticipated price change. They consider various factors such as demand supply, market
positions, open interest, economics fundamentals and other data to take their positions.
Illustration:
Ram is a trader but has no time to track and analyze stock. However he fancies his
chances in predicting the market trend. So instead of buying different stocks he buys a
Sensex Futures.
On May1, 2001, he buys 100 Sensex futures @ 3600 on expectations that the
index will rise in future. On June 1, 2001, the Sensex rises to 4000 and at that time, he
sells an equal number of contracts to close out his positions.
Selling Price: 4000*100 = Rs. 4,00,000
Less: Purchase Cost: 3600*100 = Rs. 3,60,000
Net gain = Rs. 40,000
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Ram has made a profit of Rs. 40,000 by taking a call on the future value of the
Sensex. However, the Sensex had fallen he would have made loss. Similarly, if would
have been bearish he could have Sensex Futures and made a profit from a falling profit.
In Index Futures, players can have a long-term view of the market up to at least three
months.
ARBITRAGE
An Arbitrageur is risk averse. He enters into those contracts were he can earn risk
less profits. When markets are imperfect, buying in one market and simultaneously
selling in other market give risk less profit. Arbitrageurs are always in a lookout for such
imperfections.
In the Futures market one can take advantages of arbitrage opportunities by buying from
lower priced market and selling at the higher priced market. In index futures arbitrage is
possible between the spot market and the future market (NSE has provided special
software of buying all 50 Nifty stocks in the spot market).
Take the case of the NSE Nifty.
Assume that Nifty is at 1200 and 3 month’s Nifty Futures is at 1300.
The Future price of Nifty can be worked out by taking the interest cost of 3
months into the account.
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FUTURE AND OPTION
Future
What are forward contracts?
Derivation as a term conjure up vision of complex numeric calculations,
speculative dealings and come across as an instrument, which is the prerogative of a few
‘smart finance professionals’. In reality it is not so. In fact, a derivative transaction helps
cover risk, which would arise on the trading of securities on which the derivative is based
and small investors can benefit immensely.
A derivative security can be defined as a security whose value depends on the
values of other underlying variable. Very often, the variables underlying the derivative
securities are the prices of traded securities.
Let us take an example of a simple derivative contract:
Ram buys a future contract.
He will make a profit of Rs 1000 if the price of Infosys rises by Rs 1000.
If the price is unchanged, ram will receive nothing.
If the stock price of Infosys falls by Rs 800 he will lose Rs 800.
Types of derivatives and futures
Derivatives and future are three types.
Forwards and futures
Options
Swaps
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Forward contract
A forward contract is simplest mode of a derivative transaction. It is an agreement
to buy or sell an asset (of a special quantity) at a certain future time for a certain price. No
cash is exchanged when the contract is entered into.
Futures and Stock Indices
For understanding of stock index future, a through knowledge of the composition
of indexes is essential. Choosing the right index is important in choosing the right
contract for speculation or hedging. Since for speculation, the volatility of the index is
important whereas for hedging the choice of index depends upon the relationship between
the stock being hedged and the characters of the index.
Choosing and understanding the right index in important as the movement of
stock index future is quite similar to that of the underlying stock index. Volatility of the
futures indexes is generally grater than spot stock indexes.
Understanding index futures
A futures contract is an agreement between two parties to buy or sell an asset at a
certain time in the future at a certain price. Index futures are all futures contract where the
underlying is the stock index (Nifty or Sensex) and helps a trader to take a view on the
market as a whole.
In India, we have index futures contracts based on S&P CNX Nifty and BSE
Sensex and near 3 months durations contracts are available at all times. Each contract
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expires on the last Thursday of the expiry month and simultaneously a new contract is
introduced for trading after the expiry of the contract.
Options
An option is a contract between two parties giving the taker (buyer) the right, but
not the obligation, to buy or sell a parcel of shares at a predetermined price possibly on,
or before a Stock market by their very nature are fickle. While fortunes can be made
in a jiffy more often than not the scenario is the reverse. Investing in stocks has two sides
to it.
Unlimited profit potential from any upside (remember Infosys, HFCL etc.)
A downside which could make you a pauper.
What are options?
Some people remain puzzled by options. The truth is that most people have been
using options for some time because options are built into everything from mortgages to
insurance.
“An option is a contract, which gives the buyer the right, but not the obligation to
buy or sell share of the underlying security at a specific price on or before a specific
date”.
‘Option’, as the word suggests is a choice given to the investor to either honor the
contract; or if he chooses not to walk away from the contract.
When you buy a call option the price you pay for it called the option premium
secures your right to buy that certain stock at a specified price called the strike price.
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Types of option
There are two types of options.
Call Options
Put Options
Call Options
Call option give the taker the right, but not the obligation, to buy the underlying
shares at a predetermined price, on or before a predetermined date.
Illustration
Raj purchases 1 Shyam Computer (SATCOM) AUG 150 Call – premium 8.
This contract allows Raj to buy 100 shares of SATCOM at Rs 150 per share at
any time between the current date and the end of next August for the privilege, Raj pays a
fee of Rs 800 (Rs eight a share for 100 shares).
The buyer of a call has purchased the right to buy and for that, he pays a
premium.
Call options – Long & Short Positions
When you expect prices to rise, then you take a long position by buying calls.
You are Bullish.
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When you expect prices to fall, then you take a short position by selling calls.
You are Bearish.
Put options
A Put Options gives the holder of the right to sell a specific number of share of an
agreed securities at a fixed price for a period.
Illustration
Sam purchases 1 INFTEC (Infosys Technologies) AUG 3500 Put – Premium 200.
This contract allows Sam to sell 100 shares INFTEC at Rs 3500 per share at any
time between the current date and the end of the August. To have his privilege, Sam pays
a premium of Rs 20,000 (Rs 200 a share for 100 shares).
Put Options-Long & Short Positions
When you expect to fall, then you take a long position by buying Puts. You are
bearish.
When you expect prices to rise, then you take a short position by selling Puts.
You are bullish.
CALL OPTIONS PUT OPTIONS
If you expect a fall in price (Bearish) Short Long
If you expect a rise in price (Bullish) Long Short
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Summary:
CALL OPTION BUYER CALL OPTION WRITER (Seller)
Pays premium
Right to exercise and buy the shares
Profits from rising prices
Limited losses, Potentially
unlimited gain
Receives premium
Obligation to sell shares if exercised
Profits from falling prices or
remaining neutral
Potentially unlimited losses, limited
gain
PUT OPTION BUYER PUT OPTION WRITER (Seller)
Pays premium
Right to exercise and sell shares
Profits from falling prices
Limited losses, Potentially
unlimited gain
Receives premium
Obligation to buy shares if
exercised
Profits from rising prices or
remaining neutral
Potentially unlimited losses, limited
gain
Trading strategies
Bull market strategies
Calls in a Bullish Strategy.
Puts in a Bullish Strategy.
Bullish Call Spread Strategy.
Bullish Put Spread Strategy.
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Calls in a Bullish Strategy
An investor with a bullish market outlook should buy a call options. If you expect
the market price of the underlying asset to raise, then you would rather have the right to
purchase at a specified price and sell later at a higher price than have a obligation to
deliver later at a higher price.
The investor’s profit potential buying a call option is limited. The investor’s profit
is the market price less the exercise price less the premium. The grater increase in the
price of underlying stock, the grater the investor’s profit.
The investor’s potential loss is limited. Even if the market takes a drastic decline
in price levels, the holder of a call is under no obligation to exercise the option. He may
let the option expire worthless.
The investor breaks even when the market price equals the exercise price plus the
premium.
Puts in a Bullish Strategy
An investor with a bullish market outlook can also go short in a Put option. An
investor anticipating a bull market could write put options. If market price increases and
puts become out-of-the-money, investor with long put positions will let their option
expire worthless.
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By writing Puts, profit potential is limited. A Puts writer profits when the price of
the underlying asset increases and the option expires worthless. The maximum profit is
limited to the premium received.
An increase in volatility will increase the value of your put nad decrease your
return. As an option writer, the higher price you will be forced to pay in order to buy back
the option at the later date, lower is the return.
Bullish Call Spread Strategies
A vertical call spread is the simultaneous purchase and sale of identical call
option but with different exercise profit.
To “buy a call spread” is to purchase a call with a lower exercise price and write a
call with a higher exercise price. The trader pays a net premium for the position.
To “sell a call spread” is the opposite here the trader buys a call with a higher
exercise price and write a call with a lower exercise price receiving net premium for the
position.
An investor with a bullish market outlook should buy a call spread. The “Bull
Call Spread” allows the investor to participate to a limited extent in a bull market, while
at the same time limiting risk exposure.
Bullish Put Spread Strategies
A vertical Put spread is the simultaneous purchase and sale of identical Put option
but with different exercise prices.
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To “buy a put spread” is to purchase a Put with a higher exercise price and to
write a Put with a lower exercise price. The trader pays a net premium for the opposition.
To “sell a put spread” is the opposite: the trader buys a put with a lower exercise
price and writes a put with a higher exercise price, receiving a net premium for the
position.
An investor with a bullish market outlook should sell a Put spread. The “vertical
bull put spread” allows the investor to participate to a limit extent in a bull market, while
at the same time limiting risk exposure.
VOLATILITY IN STOCK MARKET
- THE BEARISH VIEW OF MARKET
Market watchers, players and investors have been rudely shaken by the volatility in the
Indian stock market. Indian stock markets were never caught in such a high volatile mode
earlier. This volatility wiped off investments worth billions affecting the F&O segments,
to which bled the most.
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The BSE vulnerability, to foreign, especially US markets again came to the fore-
around the time when the country was celebrating the 16th year of independence.
The BSE sensex fell 650pts on August16,2007, marking its second biggest plunge
in the history. The fall was more pronounced on NIFTY which shed about 300pts.
The sub-prime mass in the US market is believed, has slowed down the World’s
largest economy. This has actually hurt India, without much direct exposure of Indian
companies in the US.
Before the scenario, the analyst companies, like Standard & Poor’s have come out
with their reports that the sub-prime crises would not affect the Indian economy, but
since, the market is sentiment driven, that is why, this great fall was beared.
INDIAN STOCK MARKETS THE MOST INSULATED ONE’S
When the market was facing highly volatile conditions, the Indian stock market was
experiencing, relief rallys led by IT & banking stocks.
IT scrips soared after the Government imposed curbs on overseas borrowings by Indian
companies. As an illustration, Polaris led the IT rally and gained about 12%.
Banks also gained as the US Federal Reserve added 38 billion dollars in bid to stem the
internal mortgage crises.
Industrial production numbers for the month of June, 2007 showed high growth in the
manufacturing sectors like capital goods.
This is an indicator of the wellness of Indian economy.
GLOBAL MARKETS ON A DOWNWARD SHIFT
-Also affecting the Indian stock market
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The global indices suddenly seem to have lost steam spooked by the rising crude
oil prices and the clouds of recession hovering over the detrimental US market. It seemed
that the Indian market will negate these short-term set backs in the long run.
On 12Nov 2007, Sensex shed to 950pts with a net loss of 4.9%, while Nifty went
down to 21pts, losing about 3.8%. the steep fall of indices wiped of wealth in crores of
rupees. This was the most hurting fall for the Indian stock market. The very next day it
got somewhat stabilized, while two days later i.e. 14Nov 2007, it experienced the biggest
single day rise.
As a result of this, crude oil and commodity market rushed upwards once again,
taking inflation figure to above 3%. It resulted in rise in price of precious commodities
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owing to excess availability of money from the equity market, which at that time was,
waiting for the sub-prime issue to get completely sorted out.
Following the trend Worldwide, all the major indices fell around 4% and even
more. Dow Jones fell by 3.7%, losing about 500pts. Other European markets also
followed the same suit. The Brazilian market, which seemed rising for sometime, also
acted sub-missive registering a fall of 4.6%.
However the fall was brutal in the Asian economies. Nikkei fell 7.8%, while
Shanghai composite lost 6.9%. The biggest fall was witnessed by the Korean market,
since Seoul composite shed about 11.5%. All other Asian markets also followed the same
suit. As a result, foreign money went out of the market in a fortnight, as FII’s sold Rs380
crores.
Bear Market Strategies
Puts in Bearish Strategy
Calls in a Bearish Strategy
Bearish Put Spread Strategies
Bearish Call Spread Strategies.
Puts in a Bearish Strategy
An Investor’s profit potential is practically unlimited. The higher the fall
in price of the underlying asset, higher the profits.
The investor’s potential loss is limited. If the price of the underlying asset rises
instead of falling as the investors has anticipated, he may let the option expire worthless.
At the most, he may lose the premium for he option.
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The trader’s breakeven point is the exercise price minus the premium. To profit,
the market price must be below the exercise price. Since the trader has paid the premium,
he must recover the premium he paid for the option.
An increase in volatility will increase the value of your put and increase your
return. An increase in volatility will make it more likely that the price of the underlying
instrument will move. This increases the value of the option.
Calls in a Bearish Strategy
Another option for the bearish investor is to go short on a call with the intent to
purchase it back in the future. By selling a call, you have net short position and needs to
be bought back before expiration and cancel out your position. For this, an investor needs
to write a call option. If the market price falls, long call holder will let their out-of-the-
money option options expire worthless, because they could purchase the underlying asset
at the lower market price.
The investor’s profit potential is limited because the trader’s maximum profit is
limited to the premium received for writing the option.
An increase in volatility will increase the value of your call and decrease your return. When the option writer has to buy back the option in order to cancel out his position he will be forced to pay a higher price due to the increased value of the calls.
Bearish Put Spread Strategies
A vertical out spread is simultaneous purchase and sale of identical put option but
with different exercise prices.
To “buy a put spread” is to purchase a put with a higher exercise price to write a
put with a lower exercise price. The trader pays a net premium for the position.
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To “sell a put spread” is the opposite. The trader buys a put with a lower exercise
price and writes a put with a higher exercise price, receiving a net premium for the
position.
To put on a bear put spread by you the higher strike put and sell the lower strike
put. You sell the lower strike and buy the higher strike of either calls or puts to set up a
bear spread.
An investor with a bearish market outlook should buy a put spread. The “Bear put
Spread” allows the investors to participate to a limit extent in a bear market, while at the
same time limiting risk exposure.
Bearish Call Spread Strategies
A vertical call spread is the simultaneous purchase and sale of identical call
option but with different exercise prices.
A vertical call spread is the simultaneous purchase and sale of identical call
option but with different exercise profit.
To “sell a call spread” is the opposite here the trader buys a call with a higher
exercise price and write a call with a lower exercise price receiving net premium for the
position.
To put on a bear call spread you sell the mower strike call and buy the higher
strike call. An investor sells the lower strike and buys the higher strike of either calls or
puts to put on the bear spread.
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An investor with a bearish market outlook should sell a call spread. The “Bear
Call Spread” allows the investor to participate to a limited extent in a bear market, while
at the same time limiting risk exposure.
The investor’s profit potential is limited. When the market price falls to the lower
exercise price both out-of-the-money option will expire worthless. The maximum profit
that the trader can realize is the net premium: The premium he receives for the call at the
higher exercise price.
SECURITIES AND EXCHANGE BOARD OF INDIA
The Securities and Exchange Board of India Act, 1992 has been enacted to
provide for the establishment of a Board to protect the investors in securities and to
promote the development and to regulate the securities market and for matters connected
there with or incidental there to. It came into force on the 30th day of the January 1992.
Establishment and Incorporated of Board
Major part of the liberalization process was the repeal of the capital issues
(control) Act, 1947 in May 1992. With this, government’s control over issues of the
capital, pricing the issues, fixing of premium and rates of interest on debentures etc.
ceased, and the office which administered the Act, was abolished.
The market was allowed to allocate resources to competing uses. However to
ensure effective regulation of the market, SEBI Act 1992 was entered to empower SEBI
with the statutory powers for (a) Protecting the interests of investors in securities. (b)
Promoting the development of the securities and (c) regulating the securities market. Its
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regulatory jurisdiction extends over corporate in the insurance of the capital and transfer
of securities, in addition to all intermediaries and person associated with the securities
market. SEBI can specify the matters to be disclosed and the standard of disclosure
required for the protection of investors in respect of issues; can issue direction to all
intermediates and other persons associated with the securities market in the interest of the
investors or of orderly development of the securities market and can conduct enquiries,
audits and inspection of all concerned and adjudicate offences under the Act. In short, it
has been given necessary autonomy and authority to regulate and develop an orderly
serious market. A code of conduct for each intermediary has been prescribed in the
regulations; capital adequacy and other norms have been specified; a system of
monitoring and inspiring their operations has been specified a system of monitoring and
inspecting their operations has been instituted to enforce compliance and disciplinary
actions are being taken against the intermediaries violating any regulation.
The Central Government may, by notification appoint for the purpose of this Act,
a Board by the name of the securities and exchange board of India under section 3 of the
SEBI Act. The board shall be a body corporate by the name aforesaid having perpetual
succession and a common seal with proper subject to the provision for this act to acquire
the hold and dispose of the property, both movable and immovable and to contract, and
shall by the said name, sue or sued. The head office of the Board shall be at Mumbai. The
Board may establish officers at other places in India. The SEBI has offices in Mumbai,
Calcutta, New Delhi and Chennai.
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The board shall consist of the following members namely:-
A Chairman.
Two members from amongst the officials of the Ministers of the Central
Government dealing with Finance and Law.
One member from amongst the officials of the Reserve Bank of India constituted
under section 3 of the Reserve Bank of India Act, 1934.
Two other members, to be appointed by the Central Government.
Functions of the Board
The SEBI shall protect the interest of the investors in securities and to promote
and development of and to regulate the securities market by such measures as it thinks fit.
The measures referred to therein may provide for:-
Regulating the business in stock exchange and any other securities markets.
Registering and regulating the working of stock brokers, sub-brokers, share
transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue,
merchant bankers, underwriter, portfolio managers, investment advisers and such
other intermediates who may associated with securities markets in any manners.
Registering and regulating in working of the depositories, participants, custodians
of securities, foreign institutional investors, credit rating agencies and such other
intermediaries as the board may, by notification specify in this behalf.
Registering and regulating the working of venture capital funds and collective
investments schemes including mutual funds.
Promoting and regulating self regulatory organizations.
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Prohibiting fraudulent and unfair trade practices relating to securities markets.
Prohibiting insider training in securities.
Regulating substantial acquisition of shares and take over of companies.
Performing such functions and exercising according to securities contract
(regulation) Act, 1956, as may be delegated to it by the Central Government.
Levying fees or other charges for carrying out the purpose of this section.
Conduction research for the above purpose.
Performing such other functions as may be prescribed.
Registration with SEBI
A person in the following capacity shall buy, sell or deal in securities after
obtaining a certificate of registration from SEBI, as required by Section 12.
An application shall be made for registration in the prescribed manner with the
prescribed fee. But the SEBI may, by order, suspend or cancel a certificate of registration.
Stock broker.
Sub – broker.
Share transfer agent.
Bank to an issue.
Trustee of trusted deed.
Registrar to an issue.
Merchant banker.
Underwriter.
Portfolio manager.
Investment adviser.
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Depository.
Mutual Fund.
DEPOSITORY PARTICIPANT
A depository is an organization which holds securities of investors in electronic
form at the request of the investor through a registered Depository Participant. It also
provides services related to transaction in securities.
A depository participant (DP) is an agent of the depository through which it
interfaces with the investors. A DP can offer depository services only after it gets proper
registration from SEBI. Banking and services can be availed through the branch whereas
depositary services can be availed through a DP.
As per the available statistics at BSE and NSE, 99.9% settlement takes place in
Demat mode only. Therefore, in view of the convenience in settlement through Demat
mode it is advisable to have a beneficiary owner (BO) account to trade the exchanges.
At present two Depositers viz. National securities depository limited (NSDL) and
Central Depositary Services (I) Limited (CSDL) are registered with SEBI.
NSDL
The first depositary in India established in Aug 1996 and promoted by Institutions
of National Stature Responsible for Economic Development of the country has since
established a national infrastructure of international standard that handles most of the
settlement of securities in dematerialized from in Indian capital market.
Using innovative and flexible technology systems, NSDL work to support the
investors and brokers in the capital market of the country. NSDL aims at ensuring the
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safety and soundness of Indian market places by developing settlement solution that
increase efficiency minimize risk and reduce costs. At NSDL, we play a quiet but central
role in developing products and services that will continue to nature the growing needs of
the financial industries.
CSDL
CSDL was set up with the objective of providing convenient, dependable and
secure depository services at affordable cost to all market participants. CSDL received
the certificate of commencement of business from SEBI in February, 1999. Honorable
Union Finance Minister, Shri Yashwant Sinha flagged off the operations of CSDL on
July 15, 1999. Settlement of trades in the demat mode through BOI shareholding Limited,
the clearing house of BSE, standard in July 1999.
All leading stock exchanges like the National Stock Exchange, Calcutta Stock
Exchange, Delhi Stock Exchange, the Stock Exchange, Ahmedabad etc. have established
connectivity with CSDL.
At the end of Dec 2005, over 5000 issuers have admitted their securities units of
mutual funds, certificate of deposits etc. into the CSDL system.
The categories that is eligible to become DP’s
As per regulation 19 (a) of SEBI (Depositories and Participants) Regulations,
following are the categories that are eligible to become DP’s.
A public financial institution as defined in section 4A of the Companies Act, 1956
(1 of 1956).
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A bank included for the time being in the second schedule to the Reserve Bank of
India Act, 1934. (2 of 1934)
A foreign bank operating in India with the approval of Reserve Bank of India.
A state financial corporation established under the provision of the section 3 of
the State Financial Corporations Act, 1951 (63 of 1951)
An institution engaged in providing financial services promoted by any of the
institution mentioned in sub clause (i), (ii), (iii), (iv) jointly or severally.
A custodian of securities who has been granted a certificate of registration by the
Board under sub section (1A) of section 12 of the Act.
A clearing corporation or a clearing house of a stock exchange.
A stock broker who has been granted certificate of registration by the Board under
sub section (1) of section 12 of the Act.
A non – banking finance company, having a net worth of not less than rupees fifty
lakhs.
Provided that such company shall act as a participant only on behalf of any other
person.
The Regulations empower NSDL to set its own selection criteria in the Bye Laws.
Therefore, the applicants must also adhere to the following criteria stated in NSDL bye
Laws.
The applicant should have a minimum net worth of Rs 1 crore.
The applicant should not have been convicted in any of the five years
immediately preceding the filling of the application in any manner involving
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misappropriation of funds and securities, theft, embezzlement of funds, fraudulent
conversion or forgery.
The applicant should not have been expelled, barred or suspended by SEBI, self
regulatory organization or any stock exchange.
VARIOUS DEPARTMENTS REGULATED BY SEBI
The following departments of SEBI take care of the activities in the secondary market.
SNo Name of the Department Major Activities
1. Market Intermediaries
Registration and
Supervision department
(MIRSD)
Registration, supervision, compliance monitoring and
inspections of all market intermediaries in respect of all
segments of the markets viz. equity, equity derivatives, debt
and debt related derivatives.
2. Market Regulation
Department (MRD)
Formulating new policies and supervising the functioning
and operations (except relating to derivatives) of securities
exchanges, their subsidiaries, and market institutions such as
Clearing and settlement organizations and Depositories
(Collectively referred to as ‘Market SROs’.)
3. Derivatives and New
Products Departments
(DNPD)
Supervising trading at derivatives segments of stock
exchanges, introducing new products to be traded, and
consequent policy changes
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STOCK EXCHANGES
The Securities Contract (Regulation) Act, 1956 (SCRAS) defines ‘Stock
Exchange’ as anybody of individuals, weather incorporated or not, Constituted for the
purpose of the assisting, regulating or controlling the business of buying selling or
dealing in securities. Stock exchange could be a regional stock exchange whose area of
operation/jurisdiction is specified at time of its reorganization or national exchanges,
which is permitted to have nationwide trading since inception. NSE was incorporated as a
national stock exchange.
Securities Market or Stock exchange is a place where buyers and sellers of
securities can enter into transaction to purchase and sell shares, bonds, debentures etc.
Further, it performs an important role of enabling corporate entrepreneur to raise
resources for their companies and business ventures through public issues.
The first organized stock exchange in India was started in Mumbai in 1875 with
the formation of the Native Share and Stock Broker Association. Thus the Mumbai stock
exchange is the oldest one in the country with the growth of joint stock companies, the
stock exchange also made a steady growth and at present there are 23 recognized stock
exchanges in our country with about 6000 stock brokers.
In India, there are only two online trading stock exchanges, one is BSE and other
is NSE.
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Functioning
Stock exchange is a place where buyers and sellers of securities can enter into
transaction to purchase and sell shares, bonds, debentures to raise resources for their
companies and their business ventures through public issues transfer of resources from \
those having idle resources to other who have a need for them is most effectively
achieved through a security market. Stated formally, security market provides channels
for reallocation of saving to investments and entrepreneurship. Savings are linked to
investments by a variety of intermediaries, through a range of financial products called
‘Securities’.
Soaring Sensex
The stock markets are on song, but their volatility and the rampant speculation deter
genuine investors from venturing into the market.
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At the Bombay Stock Exchange
The Indian stock markets are sizzling. The primary measure of the mood in the markets,
the Bombay Stock Exchange's (BSE) Sensex, appears to be on steroids. Analysts and
self-appointed market pundits predict the Sensex will be at 10,000 by the end of the year.
Citing recent economic performance, which shows that the Indian economy grew by 8.5
per cent in the first quarter of 2007-08, they say international investors see India as a
promising destination for investment. Skeptics remain muted amid the feel-good in the
markets. Indian markets continued to remain scam-prone. On October 21, the markets
tumbled by over 200 points. Although the Sensex recovered ground during the day, it
collapsed again the following day. The attempt to get domestic financial institutions (FI)
to prop the market failed. The media, which have generally aided the Bull Run in the
bourses, reported that that the Prime Minister's Office (PMO) was tracking the
happenings.
The government was only investigating the sharp increase in the price of "penny
stocks" - companies whose share prices have appreciated by as much as 1,000 per cent in
a matter of days in some cases. Earlier, Union Finance Minister P. Chidambaram said
Indian markets were in the "comfort zone". He asserted that there was "no scam in the
offing".
Chidambaram said he was not particularly concerned about the movement of the
Sensex. He said he would rather place emphasis on the price-earnings ratio (P/E), a
measure of the earning potential of equities in relation to their prices. Chidambaram said
that as long as P/E ratios remained in the "comfort zone", there was no cause for worry.
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Chidambaram said the government maintained a close watch. The Securities and
Exchange Board of India (SEBI) was looking into the sharp increase in the price of penny
stocks.
Although the Sensex recovered ground, gaining more than 400 points by October
29, several worrying issues remain unattended. First, there is growing evidence that the
volatility in Indian markets has increased significantly. In fact, it is not only increasing
but is far higher than that in most other markets worldwide.
Secondly, the stranglehold that foreign institutional investors (FII) have
established in Indian markets in recent years not only exposes investors to greater
volatility but also greatly destabilizes markets. There is growing concern that the size of
these players can have serious consequences for Indian markets, investors and regulatory
structures. Skeptical analysts and market-watchers point to the fact that the huge size of
these funds has no matching countervailing domestic force.
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The volatility in the markets and the rampant speculation that accompanies it has
been aided by a lack of regulatory oversight. The system of trading in the Indian markets
is like gambling. It also discourages investors from taking a long-range (of at least five
to10 years) view of the companies they are investing in. Instead, investors are primarily
interested in returns over the next few days, weeks or months."
Being Rated Amongst Top 20 Wired Companies
Rated among the top 20 wired companies along with Reliance, HLL, Infosys etc by
Business Today Jan 2004 edition
63
Mumbai Stock Exchange
Mumbai Stock Exchange Limited is the oldest stock exchange in Asia with a rich
heritage. Popularly known as BSE it was establish as “the Native Share and Stock
Brokers Association” in 1875. It is the first stock exchange in the country to obtain
permanent recognition in 1956 from the government of India under the Securities
Contracts (Regulation) Act, 1956. The Exchange pivotal and pre eminent role in the
development of Indian capital market is widely recognized and its index. SENSEX is
tracked worldwide. Earlier an Association of Persons (AOP), the exchange is now a
demutualised and corporatized entity incorporated under the provision of the Companies
Act, 1956, pursuant to the BSE (Corporatization and Demutualization) Scheme, 2005
notified by the Securities and Exchange Board of India (SEBI).
National Stock Exchange
The National Stock exchange of India Limited has genesis in the High Powered
Study group on establishment of New stock Exchanges, which recommended promotion
of a National Stock Exchange by financial institutions (FIs) to provide access to investors
form all across the country on a equal footing. Based on the recommendation, NSE was
promoted by leading Financial Institution at the behest of the government of India and
was incorporated in November 1992 as a taxpaying company like other stock exchanges
in the country.
On its recognition as a stock Exchange under the securities contracts (Regulation)
act, 1956 in April 1993, NSE commenced operations in the whole sale Debt Market
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(WDM) segment in June 1994. The Capital Market segment commenced operations in
November 1994 and operations in Derivatives segment commenced in June 2000.
NSE stated trading in the equities segment (Capital Market segment) on
November 3, 1994 and within a short span of 1 year became the largest exchange in India
in terms of volumes transacted.
Trading volumes in the equity segment have grown rapidly with the average daily
turnover increasing from Rs 17 crores during 1994-95 to Rs 6,253 crores during 2005-06.
During the year 2005-06, NSE reported a turnover of Rs 1,569,556 crores in the equities
segment.
NIFTY
NIFTY is the sensitivity index NSE (NATIONAL STOCK EXCHANGE) NIFTY
is a basket of 50 constituent stocks. It consists of the 50 largest and most actively traded
stocks, representative of various sectors, on the National Stock Exchange.
REASONS OF MARKET UNSTABILITY
Portfolio adjustment made by the foreign institutional investors result in
destabilizing tendencies in the country's system. The best policy option is to reduce the
inflow of FII investment and focus on the creation of real wealth.
The expected but abrupt end to the Bull Run in India's stock markets, once more
focused attention on the volatility that has come to characterize India's stock markets.
This volatility has been visible in the medium and long term as well.
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These wild fluctuations have meant that for those who bought into the market at
the right time and exited at the appropriate moment, the average return earned through
capital gains were higher despite the extended Bull Run in the latter year.
The BSE Sensex display board at Church gate station in Mumbai.
Movements in the Sensex during these two years have clearly been driven by the
behavior of foreign institutional investors (FIIs), who were responsible for net equity
purchases of as much as $6.6 and $8.5 billion respectively. In sum, the sudden FII
interest in Indian markets in the last two years account for the two bouts of medium-term
buoyancy that the Sensex recently displayed.
A recent analysis, FIIs controlled on average 21.6 per cent of shares in Sensex
companies. Further, if we consider only free-floating shares, or shares normally available
for trading because they are not held by promoters, government or strategic shareholders,
the average FII holding rises to more than 36 per cent. In a third of Sensex companies,
FII holding of free-floating shares exceeded 40 per cent of the total.
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Given this presence of FIIs, their role in determining share price movements must
be considerable. Indian stock markets are known to be narrow and shallow in the sense
that there are few companies whose shares are actively traded. Thus, though there are
more than 4,700 companies listed on the stock exchange, the BSE Sensex incorporates
just 30 companies, trading in whose shares is seen as indicative of market activity. This
shallowness would also mean that the effects of FII activity would be exaggerated by the
influence their behavior has on other retail investors, who, in herd-like fashion tend to
follow the FIIs when making their investment decisions.
These features of Indian stock markets induce a high degree of volatility for four
reasons:-
Firstly, in as much as an increase in investment by FIIs triggers a sharp price
increase, it would in the first instance encourage further investments so that there
is a tendency for any correction of price increases unwarranted by price earnings
ratios to be delayed. And when the correction begins, it would have to be led by
an FII pull-out and can take the form of an extremely sharp decline in prices.
Secondly, as and when FIIs are attracted to the market by expectations of a price
increase that tend to be automatically realized, the inflow of foreign capital can
result in an appreciation of the rupee vis-a-vis the dollar (say). This increases the
return earned in foreign exchange, when rupee assets are sold and the revenue
converted into dollars. As a result, the investments turn even more attractive,
triggering an investment spiral that would imply a sharper fall when any
correction begins.
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Thirdly, the growing realization by the FIIs of the power they wield in what are
shallow markets, encourages speculative investment aimed at pushing the market
up and choosing an appropriate moment to exit. This implicit manipulation of the
market, if resorted to often enough, would obviously imply a substantial increase
in volatility.
Finally, in volatile markets, domestic speculators too attempt to manipulate
markets in periods of unusually high prices. Thus, most recently, the Securities
and Exchange Board of India (SEBI) is supposed to have issued show-cause
notices to four as-yet-unnamed entities, relating to their activities on around Black
Monday, May 17, 2004, when the Sensex recorded a steep decline to a low of
4505.
MARKETS BOUNCING AGAIN
During the year ending, the markets seemed have braced for a Happy New Year,
with both Sensex and Nifty picking up, after a month long slump, on the back of global
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brightening. At that time, Sensex secured 625pts, while Nifty added 343pts. During that
period, Sensex also hitted the 20-k mark, significantly without the rallies relying much on
foreign institutional investors.
Data gathered from reports, reveals that, the FII’s net investments of Rs 220
crores was surprisingly beaten by domestic institutional investors who invested up close
to about Rs 1734 crores in the market. If comparison is made between the 50-scrip Nifty
with the 30-scrip Sensex, we find that the Nifty had outperformed, that too taking two
times advanced.
As a result, in Asian markets, all indices went up including, Hang Seng, Nikkei,
Seoul composite, etc. as a matter of exception, the Chinese stock market could not
perform and fell about 4%. Some investment experts had the view that the Chinese
market was over-valued. Even the investment guru, Mr. Warren Buffet termed it as a
“Too hot”. This situation favored India, as it seemed better and safer destination to park
the funds. To be a in a major development, NSE widened its F&O segments by
introducing 150 new scrips. It resulted in an increased turnover at NSE significantly
claiming some portion of BSE too. On this domestic front also, the auto makers seemed
to rule the world as Tata motors, Mahindra & Mahindra, etc, submitted their collective
bids for Jaguar and Land Rover. This showed the strong position of Indian stock market.
STOCK MARKET CRASH
January 21, 2008
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Black Monday saw bloodbath on Dalal Street as the Indian stock markets crashed
by over 1430 points in afternoon trade (the market has since then recovered somewhat),
reminding investors that there is no one-way bet on the stock market.
Major crashes since 2000
May 2006
On May 22, 2006, the Sensex plunged by 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 crores ($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 (SEBI), the Sensex managed to move up 700
points, still 450 points in the red.
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
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was a result of increased confidence in the economy and reports that India's
manufacturing sector grew by 11.1% in August 2006.
January 2008
In the third week of January 2008, the Sensex experienced huge falls along with
other markets around the world. On 21 January 2008, the Sensex saw its highest ever loss
of 1,408 points at the end of the session. The Sensex recovered to close at 17,605.40 after
it tumbled to the day's low of 16,963.96, on high volatility as investors panicked
following weak global cues amid fears of a recession in the US.
The next day, the BSE Sensex index went into a free fall. The index hit the lower
circuit breaker in barely a minute after the markets opened at 10 AM. Trading was
suspended for an hour. On reopening at 10.55 AM IST, the market saw its biggest intra-
day fall when it hit a low of 15,332, down 2,273 points. However, after reassurance from
the Finance Minister of India, the market bounced back to close at 16,730 with a loss of
875 points.[2]
Over the course of two days, the BSE Sensex in India dropped from 19,013 on
Monday morning to 16,730 by Tuesday evening or a two day fall of 13.9%.[2]
Every dark cloud has a silver lining
A US depression is on anvil. Though not confirmed but in a hush way it is
becoming the talk of the town. According to many experts the Depression in US
Economy has already arrived. The mess of sub-prime mortgage has become somewhat
unmanageable and is slowly taking the US towards an economic recession. The federal
Bank of America is trying hard to keep this situation under control. The recent reduction
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in interest rates and announcement of relief package are some of the steps taken in this
direction.
However, this US depression is affecting the world economy in a big way. US
investors, in fear of a deep recession, want to liquefy their assets and, therefore, are
making heavy selling of their stocks. This has affected the stock markets of entire Globe.
The Indian stock market is no exception. The market is very uncertain and nobody knows
exactly where it will head in the days to come. Owing to such fluctuations in the market,
millions of small investors in India have lost their money and sleep.
The positive effect of this US depression for India
First positive effect of this Depression is that the Indian stock market is again
returning to its core fundamentals. For the last few months the market was soaring at such
a high pace that it defied any business logic or commonsense. People were not ready to
listen the same advice and everybody was ready to ride this bandwagon of a super bullish
environment. The pace in the market was primarily due to heavy buying from big
investors (FIIs to be precise). However, this buying was so huge that an imaginary
atmosphere of ever increasing Sensex was developed.
It is common knowledge that Share prices should be determined on the basis of
the performance of the companies in their respective fields. However, the stocks of these
companies were telling entirely different stories. The stocks which used to sell on a price
range of 15 to 20 Price by earning ratio (P/E) were being sold for a P/E ratio of 45-50.
This price was simply an inflated price with no solid logic behind it. However, people
were in a rush to buy shares even on these prices on the belief that the prices will soar
more and they will be able to make some serious cash.
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The recent fall in the stock market has helped in cooling off the heated share
prices and has brought a common sense in the market. The prices have come down to
their realistic value and this in fact is a very positive development for the Indian
economy. The fall in prices has given a buying opportunity to those investors who
wanted to buy stocks of companies but could not do so owing to their exorbitant prices.
In the long run, this price correction will greatly help the Indian companies as only long
term and serious investors will be able to get the real profit. The short term and non-
serious investors will slowly move away and stability will come in the market.
The second positive development of this US depression will come in the form of a
fall in the global prices of Oil. A US depression clearly means a fall in the demand of oil.
The lowering of demand will result in the fall of oil prices. This fall in oil prices will help
India and China the most as these economies are having the fastest growth rate and a
decrease in oil prices will keep deflation in control. The end result: more demand and
more production.
There is one scenario, however, which may spoil the party. If the OPEC countries
(the group of Oil exporter’s countries) decide to lower their oil production in view of fall
in demand from America, there will again be a increase in the global oil prices. It is,
however, believed that OPEC can be persuaded for not doing this.
The third and final benefit from a US depression for India is that soon we may see
a fall in the interest rate here. As US federal bank is regularly lowering it’s interest rates
to control the economy, the investment in US is becoming less and less attractive. As a
result, the big investors are heading towards other profitable markets like India. This has
resulted into a big dollar inflow into India making our currency rupee very strong which
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is pinching the exporters. Further, as interest rates are at their peak at the moment, this,
along with a strong rupee has made many Indian companies postpone their investment
plans for future. This situation, however, cannot last for long as doing so will hamper the
growth rate. The only solution available is to decrease the interest rate which will make
lending easy and spur the growth in many sectors. This will increase the inflow of money
into the economy and give a boost to the demands. Further, a lower interest rate will also
put a break on dollar inflow as the investment in India will become less profitable.
Though, today, the Reserve Bank of India has not announced any decrease in interest rate
and has asked the Banks to take a decision on their own, it is certain that sooner or later a
reduction in interest rate is inevitable. Since India’s economy is not heavily dependent on
US Economy and it has its own huge domestic market, a lower interest will give a boost
to the production and help the economy.
REASONS OF CRASH IN A NUTSHELL
The recent stock market crash was not unexpected. The market just required a
trigger and when it got it, it fell down like the jack of cards.
There were a number of factors responsible for this heavy loss:-
Firstly, during the period between August and December, the Sensex touched new
height which was triggered by mainly five companies, namely:-
Reliance Industries Limited
Reliance Energy
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Larsen & Toubro
HDFC Bank
ICICI Bank
All these companies made an overall impact of about 55% on the market. This
was not a positive sign for a market since the trading in Indian stock market greatly
depends upon the market sentiments. Actually, what happened was that when the Sensex
peaked up, the midcaps and small caps also showed some rise. When it was perceived
that the Sensex will touch new heights then these momentum shares went to their peak
levels. There were some shares which became four times oversubscribe of their actual
value. Among them, some common names are:-
Reliance Petroleum
Reliance Natural
Ispaat Industries
Essar Oil
The investors got huge profits on investing in such companies. Gradually the
serious investors turned into speculators and this speculative behavior made them to bear
heavy losses.
Secondly, the unexpected behavior of FIIs became a major cause of the crash.
Generally, during December i.e. the Christmas time, the FIIs do not show any market
momentum. But this year, was an exception, the FIIs went on buying from the Indian
market due to which there was a continuous inflow of funds in the market. This resulted
75
in peaking up the share prices. But suddenly, when FIIs drew all the money in one time
from the market, it just dashed down.
Thirdly, the international market was not in a good mood at that time. The main
issue of concern, at that time was the US subprime crisis. This crisis was not yet solved
and a new issue raised its heads up in India, which were the participatory notes (P-notes).
Fourthly, there is a change in the global investment climate. One of the primary
triggers is the huge fear of the United State’s economy going into a recession with
foreign institutional investors trying to reallocate their funds from risky emerging
markets to stable developed markets.
Fifthly, the current volatility is also linked to global bourses. There is a big
correlation among global markets. The presence of hedge funds across asset classes,
along with increased global movement of capital, has increased event-related volatility.
Volatility in commodities markets has also significantly affected equity markets.
Capital Inflow into India
Currently, India as an emerging market is on the radar screen of investors
and fund managers worldwide.
The impressive growth story, booming real estate and infrastructure makes
India an attractive investment destination for ample liquidity floating
around in the world markets at the moment.
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In September 2007, investments during 2007 by foreign funds crossed the
$11-billion mark, surpassing the previous high of $10.8 billion recorded
during the whole of 2005. Foreign direct investment nearly tripled in the
past financial year to US$16 billion from US$5.5 billion a year earlier.
IMPACT
The rise in rupee will have an adverse impact on the fortunes of sectors dependent
on earnings in dollars like IT, textile, auto component manufacturers, BPOs and
KPOs etc.
As the amount of Rupees per Dollar EARNED will decrease, the pressure
on margins of companies in these sectors will be immense. Already, these
guys have started feeling the pinch and are demanding a rescue act from
the government.
According to the CII’s 19th Business Outlook Survey of Exporters, 71 %
respondents expect a negative impact on their bottom-lines, while 29 % of
respondents expect status quo.
The news is good for importers whose buying costs will greatly decrease as the
number of rupees per dollar GIVEN goes down.
Already we have seen a significant surge in the export numbers. Data
released from RBI shows that India’s import of automobiles went up by
whopping 77.3 per cent and alcoholic beverages by 32.8 percent in the
current financial year.
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Overall imports have shown a rising trend, largely due to high imports of
non-oil items. Non-oil imports have grown by 42.85 per cent higher so far
this year, compared with last year.
Data on imports of sensitive items showed automobile import increased to
Rs 350.52 crores from Rs 197.75 crores, while that of alcoholic beverages
rose to Rs 41.78 crores from Rs 31.45 crores.
Imports of sensitive items from Indonesia, US, Brazil, Germany, Japan,
Thailand, Australia, among others have risen, while those from Argentina,
China, Ivory Coast, Malaysia and Sri Lanka have shown a decrease in
rupee terms during April-July 2007-08.
India imports 70-75 percent of its oil requirement. Even if the cost of oil
per barrel has hit a record high of $84 in recent times, the appreciating
rupee definitely helps to soothen the harshness of oil price increase.
As India pays in dollars for its oil imports, the cost lowers significantly
even as the rupee gains in strength. If at $84 to a barrel India would pay
Rs 3, 444 (assuming a dollar rupee rate of Rs 41 for simplicity) for every
barrel, at Rs 39.91 India will have to pay only Rs 3,352 for every barrel, a
gain of Rs 91.
A stronger rupee, will also force Indian companies to become even more efficient,
which will make them more competitive in the global market, especially as
China’s currency slowly appreciates over the next couple of years.
STEPS TAKEN BY RBI
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The rupee exchange rate is neither completely free-floating nor fixed, but is
“managed” by the Reserve Bank of India through buying and selling other currencies. Up
until April, the Reserve Bank was buying lots of U.S. dollars, as much as $24 billion to
keep the rupee at around 44 to the dollar. But with investor sentiment so hot on India and
money pouring in from abroad, the Reserve Bank found itself having to spend more and
more on foreign currencies just to keep the rupee stable. When inflation shot up to over
6% in April, Bank officials appeared to decide to stop buying dollars.
Instead of going in for direct intervention, the RBI has taken the following
indirect measures to check the rupee rise:
Overseas investment limit of corporate enhanced to 300 per cent of net worth
from 200 per cent.
Mutual funds allowed investing up to $4 billion abroad ($3 billion now).
Ceiling on prepayments of foreign borrowing increased to $ 400 million from $
300 million.
No questions asked remittances/investments’ of individuals raised to $100,000
from $50,000.
Interest rates on FCNR deposits have been reduced below LIBOR and those on
NRI rupee deposits equated to LIBOR - effectively near-zero rates given forward
premiums.
Participatory notes issue
On October 16, 2007, SEBI (Securities & Exchange Board of India) proposed
curbs on participatory notes which accounted for roughly 50% of FII investment in 2007.
SEBI was not happy with P-notes because it was not possible to know who owned the
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underlying securities, and hedge funds acting through P-notes might therefore cause
volatility in the Indian markets.
This was, however not the end of the volatility. The next day (October 18, 2007),
the Sensex tumbled by 717.43 points — 3.83 per cent — to 17998.39. The slide
continued the next day when the Sensex fell 438.41 points to settle at 17559.98 at the end
of the week, after touching the lowest level of that week at 17226.18 during the day.
FORECASTING :-
The effect of the housing/lending stocks collapse has spread beyond housing and
disrupted global financial markets. Deregulated foreign and domestic hedge funds are
forced to re-evaluate their risks and retail investors are unwinding their leveraged
investments. Together they are causing increased volatility in the fixed income, equity
and derivative markets.
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The "Contagion" effect -
Access to credit lines will be cut aggressively.
Sub-prime lending and leveraged loan markets may shut down or at least
hibernate for some time.
Although the meltdown may pop up some good opportunities - the shockwaves
from the US subprime collapse will put the private equity deals on hold for the
next few months
Who is going to fail next?
The situations indicate that Bear Stearns has problems only with those CDOs
issued in respect of Mortgage Backed Securities. Those CDOs were issued at the peak of
the US housing market, so they have the least float. The older CDO issues will have more
headroom before defaults become a problem for them.
Do not invest in penny stocks
Penny stocks and junk scripts look attractive to the investor when the indices are
rising, since the price of these shares usually rise faster than the rise in prices of other
shares. However, then the market falls, the investor is left with junk, which has no value.
As a matter of principle, you should invest in stock of the only such companies whose
fundamentals are known to you. Do not depend on tips, however reliable the source of tip
may be. Most of the tips are generated by people with vested interest. Even when the
source of the tip is genuine, the time frame the issuer has in mind may be different. If you
are tempted to act on a tip, study facts before you decide to go ahead.
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Do not panic
This is very important. More money is made in stock market by remaining
inactive. It is foolish for a long-term investor to be excited or subdued by the market
ticker. CNBC channel is for the short-term traders and day-traders, do not let the opinions
expressed there affect your investment decision. If you are confident your investment is
fundamentally strong, every fall should give you an opportunity to buy rather than sell.
Of course, while you do that keep in mind the principle I have narrated in the next
paragraph.
Don't pull your flowers and water your weeds
This strong advice comes from Warren Buffet, the most successful disciple of
Ben Graham. The greatest mistake most investors make is to sell the shares that have
appreciated, and hold the ones, which are giving a negative return. The investment
strategy should be the other way round; you should sell the losers and let the winners
ride.
I do not mean that you should sell every share that has depreciated. The right
course is to keep pruning your field regularly to identify the weed so that they could be
removed, and to identify the flowers that should be watered as long as their fundamental
value is below the prevailing market price.
Do not invest in the company whose business you do not understand
If you can understand a business and you find value there, invest. Do not be
tempted to invest in industry about which you do not have much idea. While there is so
much money to be made in technology shares, yet if you do not understand the business,
it is better you do not go into it. My personal investment philosophy is to invest in the
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business, which I would be comfortable running on my own. I apply the same principles
even when my investment is as low as 10 shares.
Do your own research
Security analysis is not as difficult as it may seem. You do not have to be a
qualified analyst to do the analysis. A basic book on reading the financial statements of a
company will be a great investment. When I say that more money is made by being
inactive in the market, I certainly do not mean that you should invest and forget. On the
other hand, you should keep reviewing the performance of the company you have
invested in.
OBJECTIVE
The objective of project is to gain knowledge about how an organization works and in
particular setup of a stock broking house.
the primary objective of which was to obtain a feedback from the clients of
SHAREKHAN. Particularly about their experience while opening the online trading
account with SHAREKHAN.
The secondary objective of this project was to help out the clients with their
problems in HMR to the extent possib
Primary objectives of the project are:-
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The primary objective is to know how the theoretical knowledge is applied in
practice. It is also bridges the gap between the theoretical knowledge and practical
aspects and provides professional exposure to the candidates as well.
In addition to the above finding out the investor’s expectations from the stock
market that is Shares and Derivatives.
Secondary objective:-
The secondary objective of the study is to understand the different investment
options available in the stock market, how the investments are beneficial to the investors,
what are the risks involved, how the broking company operates etc.
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METHODOLOGY
Methodology Specifies:-
The objectives of the study.
The method of conducting.
The tools for collection of data.
Approach of measurement and analysis of data.
To collect specific data from concerned persons through questionnaire as well as
informal decision.
Sample size
50
Sources of information:-
Primary Sources:-
Through Questionnaire.
Face to face interview.
Normal decision.
Secondary Sources:-
Record maintained by the company.
Internet sites likes, www……………..
Book’s like Financial Management and advance Financial Management.
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RESEARCH METHODOLOGY
Data Sources - Primary Data,
- Secondary Data
Data sources:
Secondary Data
Under Secondary sources, we tapped information from internal & external sources. We
made use of Internet (such as search engine www.google.com),
www.icicidirect.com
www.indiabulls.com
and miscellaneous sources (such as brochures, pamphlets, library) under external
sources.
Primary Data
Primary data is a data that is collected for the first time in the processing of the
analysis.
The researchers have adopted the contact through telephone for the purpose of
collecting Primary data. The researchers discuss with Team Manager and employees of
the company to get information about competitors of SHAREKHAN.com.
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ANALYSIS
To make our research project most effective in a given time period of 15 days
surveyed the information of the competitors. We undertook both Explorative as well as
Conclusive Research Design. The data has been collected from both Primary as well as
Secondary sources and we also did the fieldwork for which utmost care has been taken to
keep project unbiased from personal opinion.
FINDINGS AND ANALYSIS
Findings
On surveying various people who are involved in share trading both as trader as
well as investor, we found that brokerage is the most important factor on which people
select / opt a broking house, followed by image , convenience in trading , customer
service, features, tips & suggestion & AMC.
MOST IMPORTANT FACTOR WHILE SELECTING A BROKING HOUSE
AMC
TIPS & SUGGESTION
FEATURES
CUSTOMER SERVICE
CONVINIENCE(INTRADE)
IMAGE
BROKERAGE
FAC
TOR
S
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What is interesting to note is the weighted contribution of these factors towards
decision making. Although brokerage leads the pack it has only 19% contribution, and is
closely followed by broking houses’ image with 18% and convenience in trade with 16%.
AMC & tips & suggestions having only 10% contribution each towards decision making
end up the pack.
PIE CHART DEPECTING MOST IMPORTANT FACTOR IN SELECTING A BROKING HOUSE
19%
16%
12%
15%
10%10%18%
AMC TIPS & SUGGESTIONCUSTOMER SERVICE FEATURESCONVINIENCE(IN TRADE) BROKERAGEIMAGE
On surveying SHAREKHAN Customer why they opted for same, we got to know
it was because of image SHAREKHAN carries in the market, followed by its competitive
brokerage, convenience in trade, features, customer service, tips and suggestions, and
AMC.
REASON FOR SELECTING SHAREKHAN
AMC
TIPS & SUGGESTION
CUSTOMER SERVICE
FEATURES
CONVINIENCE(IN TRADE)
BROKERAGE
IMAGE
FAC
TOR
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Analysis
Please mark √ in the appropriate brackets:
In which of the following age brackets do you fall:
18-30 □
30- 45 □
45 – 60 □
60 and above □
Age of the investors:- From the survey it can be seen that there are most
of the investors are under age 30-45.
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90
Please select your respective occupation:
Service □
Profession □
Business □
Others □
Occupation of investors:- From the survey I found that 40% investors are
businessman, 30% investors are serviceman, 25% are professionals and 5% are
others.
91
Investment Experience
How long you have been investing (in investment funds, stock, bonds or foreign
exchange trading)?
No experience
< 3 years
3 to 6 years
> 6 years
92
Financial Situation
What is your currently disposable income ?
Below 20000
20000 -50000
50000-80000
Above 80000
93
What percentage of your total liquid asset (i.e. asset including self occupied
property, emergency cash etc.) will/have you invest/invested?
> 50%
26% to 50%
10% to 25%
< 10%
94
Investment Objective
What is your investment objective?
To preserve the principal and earn a stable amount of regular income.
To generate a high amount of regular income.
To generate capital appreciation with regular income.
95
To maximize the growth potential of my assets.
Which of these statements would best describe your attitude towards risk?
I can tolerate a very low degree of risk, as capital preservation in crucial to
me.
I can tolerate some risk and look for some capital growth to keep pace
with inflation.
96
I can tolerate some risk and look for moderate capital growth above
inflation.
I can tolerate a high degree of risk and look for the highest capital growth
potential.
How do you prefer Trading?
Online □
Offline □
97
Why do you prefer Trading Online?
Faster Transactions □
Online Analysis □
Convenient □
Lesser Charges □
98
Online Facility: From the survey it can be seen that there has been an increase
in the degree of confidence an investor attaches towards online trading of shares
as the majority of the sample comprised of people who professionals who are
conversant with the internet. But the majority of the people from the business
community depend on offline trading through their broker’s
Why do you prefer Trading Offline?
Brokers Advice □
Higher Exposure Limit □
Secure Transactions □
99
Not Comfortable with Online □
Why Offline Trading: Out of 22 people who preferred Offline trading 36% of
people preferred it because of the valuable suggestion of Broker. They carried
out their transactions by consulting with their broker. Some people also preferred
Offline Trading because of higher exposure limit in Offline Trading as compared
to Online Trading.
How much your decision to invest in securities depends on the
advice from your broker?
Least agree □
100
Somewhat agree □
Agree moderately □
Agree to a great extent □
Strongly agree □
.
Broker’s Advice: It can be seen that 58% of the sample had somewhat agreed
that their investment decision depended on the advice of the brokers. Thus the
brokerage firm’s need to concentrate on the credibility the investor’s attach to the
broker’s advice during investment.
101
How much your decision to invest depends on your personal
analysis/self evaluation of the securities/ derivatives?
Least agree □
Somewhat agree □
Agree moderately □
Agree to a great extent □
Strongly agree □
102
Personal Analysis: It can be clearly seen that 45% of the sample were confident
in their own personal analysis to arrive at a decision related to investment. This
may be the result of the efforts undertaken by various organizations in improving
the investor’s attitude towards the market
Do you invest in listed companies with good current market price?
Least agree □
Somewhat agree □
Agree moderately □
Agree to a great extent □
Strongly agree □
103
Market Price: The chart shows that majority (68%) of the investors
strongly agree that the current market price of the equities is the most
dominant factor affecting their investment. This figure implies the
relative immaturity of the majority of the sample as most technical
analyst’s are of the opinion that historical data pertaining to the
performance of the equities should influence investor’s decisions
104
How much your decision to invest depends on using analyst’s
recommendations (privately circulated or published)?
Least agree □
Somewhat agree □
Agree moderately □
Agree to a great extent □
Strongly agree □
105
Factors that would improve the current securities investment
scenario:
Better Regulations□
Market information □
Government □
Lesser scandals □
Intermediaries □
Factors to improve Investors Confidence in future: It is clearly seen
from the survey that investor’s confidence in capital market would increase
if there would be Lesser Scandals
106
107
SHAREKHAN. COM
ICICIDIRECT. COM
INDIABULLS
A/C OPENING CHARGES
Nil 750/-(waive off if trading is more than Rs. 1 lakh)
1000(offline & webbased)1750(software)
DEMATA/C CHARGES
FREE (1ST YEAR)
AND 300/-P.A.
FROM
2ND YEAR
ONWARDS
FREE FOR 1ST YEAR
AND 500/- P.A. FROM 2ND YEAR
ONWARDS
NO AMC
TYPE OF A/C
3(off line,fast trade & speed trade)
Web based Web based& software
TRADING
THROUGH
WEBSITE OR SOFT-WARE
BOTH WEBSITE BOTH
SHAREKHAN.COM
ICICIDIRECT.COM
INDIABULLS
NSE/BSE/
DERIVA-TIVES/
ARBIT-RAGE/
MUTUAL FUNDS
NSE/BSE/
DERIVATIVES/
COMMODITIES
NSE/BSE/
MUTUAL
FUNDS/
Derivatives
NSE/BSEDERIVATIVES
SOFT-WARECHARGES
500/-P.M.
(NEGOTIABLE
N.A. N.A.
108
ON BROKERAGE)DAIL-N-TRADE
UNLIMITED On 21st
call Rs 20/-
per call(P.M.)
RM NUMBER
PROVIDED
FOR
TRADINGDEMAT TRANSAC-TION CHARGES
NIL (THROUGHSHAREKHAN)
INCLUDINGIN BROKERAG(Rs35)
RS. 17/-
PER TRANSACTION
(ON SELLING)TIE UP WITH BANKS
HDFCBANK, ICICIBANK ONLY(COMPULSORY)
HDFC BANK,
BROKE-RAGE
.03%(INTRADAY)
.3%
(DELIVERY)
.07% (INTRA-DAY)
.75%
(DELIVERY)
.04%(INTRADAY)
.4%
(DELIVERY)
109
Durable DotcomsTen years into the internet age, a brief history of the dotcoms that have weathered the crisis and emerged stronger for it.
- Business Today, September 11, 2005
Pure Click To Click & Brick..A Successful Transition
110
.
Recommendation
Recommendation for Share Khan Ltd.
From the survey it can be seen that there has been an increase in the
degree of confidence an investor attaches towards online trading of
shares as the majority of the sample comprised of people who
professionals who are conversant with the internet. But the majority of the
people from the business community depend on offline trading through
their broker’s
Share Khan Ltd. Should try to track clients from BRO’s and software companies
as in these companies majorities employees fall into the age group of 30-45 that is
young influential, they should be the mainly targeted because these people have
disposable income and are high risk taking people so they would be interested
Demat account and Trading.
Share Khan Ltd can also target colleges and B-schools for growth. Company can
sponsor event in these places so that more and more people will get to know about
the company. The company can also organize small seminars.
Share Khan Ltd has recently opened many new branches in Pune area. They have
clients from various categories and for convenience of the client. Share Khan Ltd
should make tie-ups with other banks (ICICI & HDFC Bank).
111
Share Khan Ltd should give knowledge of derivative product. Derivatives product
concern Future and Options for hedging positions.
Share Khan Ltd can also use the method of mass marketing by giving
advertisements on local cable network, newspapers and can distribute pamphlets
in public places.
Recommendations for investors
Some of the most common mistakes that investors should avoid are as follows:
Buying tips:
In market, punters and market makers use to the optimum trading. What you as an
investor should do is not buy anything that you do not understand. Do your own research.
Trading too much:
The trading bug is infectious and hard to get rid of. Trading reduces returns. The
most common mistake that investors should realize is that companies are meant as
‘investments’ and not as trading opportunities. You start making more mistakes with
more number of trading decisions.
Buying into market trends:
The most common mistake is that people buy according to market trends instead
of buying businesses. A bull run does not mean that a company with a bad business will
do well. Your stock will only move up if profits surpass expectations.
112
Buying junk stocks:
Taking a position in a stock, which has not business model, can be dangerous.
You may be left with dud paper at the end of day. ‘Vanishing Companies’ are common
place in India.
Over confidence:
Do not be overconfident. Many investor fall pray to over confidence, trading too
often and these blunders can really cost you. Never bypass the basic tenets of investing.
Panic:
Fear stops you optimizing profit or minimizing losses. Let fundamentals dictate
your decisions not emotions.
Chasing performance:
Too many investors buy stocks when they are at their peak, after a long run-up.
The fundamental rule is “Buy low, sell high”.
If investor does not want to take more risk and he is interested in investing share
market then investor can go for long term investment in share market. As we see from the
above data that if any person can hold the share of above mentioned companies for one
year he can book the average return of 30%.
Finally, my opinion is that outperforming the market is difficult task. Investor
must be update himself regarding the current performances of the companies in which he
invested and willing to invest.
113
Conclusion
At the end of this report, I would like to conclude that the Indian Capital Market
is a puzzle and it is very tough call to anticipate any conclusion on it and making
suggestion to the individual investor. But Share Khan Ltd has got success in solving it by
their eminent research team at an above average point.
As per the report, the market is likely to go up is coming years because of
development in various industrial sector and infrastructure. Share Khan Ltd has scope to
expand and many areas to work on. I hope suggestion made by me will be helpful to
Share Khan Ltd in future.
Share Khan Ltd will go on to explore new heights in future. Share Khan Ltd has to
implement its hardcore marketing effort to remain always strong in this competitive
world.
At the end, I would like to say that sometimes and rumors derived the capital
market rather than research, technical and fundamental analysis.
114
Limitations
Conversion ratio of customer is very low.
Most of the people are having conservative thinking and do not have any idea on
capital market.
People are not willing to disclose their portfolio.
The focus of study is only on share market because is such a short span of time it is very
difficult to study the whole capital market and its functions
115
Annexure
Questionnaire
Please mark √ in the appropriate brackets:
In which of the following age brackets do you fall:
18-30 □
30- 45 □
45 – 60 □
60 and above □
Please select your respective occupation:
Service □
Profession □
Business □
Others □
Investment ExperienceHow long you have been investing (in investment funds, stock, bonds or foreign
exchange trading)?
No experience
< 3 years
116
3 to 6 years
> 6 years
Financial Situation
What is your currently disposable income ?
Below 20000
20000 -50000
50000-80000
Above 80000
What percentage of your total liquid asset (i.e. asset including self occupied
property, emergency cash and any other outstanding financial commitments)
will/have you invest/invested?
> 50%
26% to 50%
10% to 25%
< 10%
Investment Objective
What is your investment objective?
To preserve the principal and earn a stable amount of regular income.
To generate a high amount of regular income.
To generate capital appreciation with regular income.
To maximize the growth potential of my assets.
117
When do you expect to start withdrawing your investment?
Not now, but with in 2 years.
In 2 to 5 years.
In 5 to 10 years.
Not for at least 10 years.
Which of these statements would best describe your attitude towards risk?
I can tolerate a very low degree of risk, as capital preservation in crucial to
me.
I can tolerate some risk and look for some capital growth to keep pace
with inflation.
I can tolerate some risk and look for moderate capital growth above
inflation.
I can tolerate a high degree of risk and look for the highest capital growth
potential.
Attitude to short term risk
118
Which one of these statements would best describe would best describe if the
value of your portfolio decline by 15% in 3 months?
I’ll hold my stock.
I’ll sale it partially.
How do you prefer Trading?
Online □
Offline □
Why do you prefer Trading Online?
Faster Transactions □
Online Analysis □
Convenient □
Lesser Charges □
Why do you prefer Trading Offline?
Brokers Advice □
Higher Exposure Limit □
Secure Transactions □
Not Comfortable with Online □
119
How much your decision to invest in securities depends on the
advice from your broker?
Least agree □
Somewhat agree □
Agree moderately □
Agree to a great extent □
Strongly agree □
How much your decision to invest depends on your personal
analysis/self evaluation of the securities/ derivatives?
Least agree □
Somewhat agree □
Agree moderately □
Agree to a great extent □
Strongly agree □
Please select your level of confidence on online trading of shares and
derivatives:
Least confidence □
Somewhat confident □
Moderately confident □
120
Confident to a great extent □
Absolute confidence □
Do you invest in listed companies with good current market price?
Least agree □
Somewhat agree □
Agree moderately □
Agree to a great extent □
Strongly agree □
How much your decision to invest depends on using analyst’s
recommendations (privately circulated or published)?
Least agree □
Somewhat agree □
Agree moderately □
Agree to a great extent □
Strongly agree □
121
Factors that would improve the current securities investment
scenario:
Better Regulations□
Market information □
Government □
Lesser scandals □
Intermediaries □
122
Bibliography
1. www.sharekhan.com .
2. www.nse.com
3. www.ncfm.com
4. www.google.com
5. www.bse.com
6. www.msn.com
7. Advance financial management by khan & Jain
8. Financial management by I M Panday
123