summer project report(priyaank harit)
TRANSCRIPT
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SUMMER PROJECT REPORT ON
INVESTMENT IN INDIAN STOCK MARKET
In Partial Fulfillment of Award ofPost Graduate Diploma in Business Management
By
ARUP KALITA
Under the guidance of
Prof. A V K Murthy
PGDM (BM)
Entrepreneurship and Management Processes International
New Delhi 74
July 2011
ENTREPRENEURSHIP AND MANAGEMENT PROCESSES
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ACKNOWLEDGEMENT
It gives me immense pleasure for an opportunity to have undergone my SummerInternship at Indiainfoline Limited. There is always a sense of gratitude which one
expresses to other people for their helpful and needy service they render during
phases of life. I too would like to do the same as I really wish to express my
gratitude to those who have been helpful to me in getting this project completed.
In representing this report, I would like to express my gratitude to Mr. Atul
Yadav, Indiainfoline Limited for giving me this wonderful opportunity and
providing me with his able guidance and inspiration for completing this report. I
am also indebted to all the internal employees of Indiainfoline for providingconsistent encouragement and congenial atmosphere to complete the project.
Last but not the least I express my sincere thanks to Prof. A V K Murthy and
EMPI Business School for providing me with support and necessary guidance for
completion of this report.
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INTRODUCTION
Indiainfoline Limited
The IIFL (India Infoline) group, comprising the holding company, India Infoline Ltd
and its subsidiaries, is one of the leading players in the Indian financial services space.
IIFL offers advice and execution platform for the entire range of financial services
covering products ranging from Equities and derivatives, Commodities, Wealth
management, Asset management, Insurance, Fixed deposits, Loans, Investment
Banking, GoI bonds and other small savings instruments. IIFL recently received an in-
principle approval for Securities Trading and Clearing memberships from Singapore
Exchange (SGX) paving the way for IIFL to become the first Indian brokerage to get a
membership of the SGX. IIFL also received membership of the Colombo Stock
Exchange becoming the first foreign broker to enter Sri Lanka. IIFL owns and
manages the website, www.indiainfoline.com, which is one of Indias leading online
destinations for personal finance, stock markets, economy and business.
IIFL has been awarded the Best Broker, India by FinanceAsia and the Most
improved brokerage, India in the AsiaMoney polls. India Infoline was also adjudged
as Fastest Growing Equity Broking House - Large firms by Dun & Bradstreet. A
forerunner in the field of equity research, IIFLs research is acknowledged by none
other than Forbes as Best of the Web and a must read for investors in Asia. Its
research is available not just over the Internet but also on international wire services
like Bloomberg, Thomson First Call and Internet Securities where it is amongst one of
the most read Indian brokers.
A network of over 2,500 business locations spread over more than 500 cities and towns
across India facilitates the smooth acquisition and servicing of a large customer base.
All our offices are connected with the corporate office in Mumbai with cutting edge
networking technology. The group caters to a customer base of about a million
customers, over a variety of mediums viz. online, over the phone and at our branches.
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History & Milestones
1995
Commenced operations as an Equity Research firm
1997
Launched research products of leading Indian companies, key sectors and the economy Client
included leading FIIs, banks and companies.
1999
Launched www.indiainfoline.com
2000
Launched online trading through www.5paisa.com Started distribution of life insurance and
mutual fund
2003
Launched proprietary trading platform Trader Terminal for retail customers
2004
Acquired commodities broking license
Launched Portfolio Management Service
2005
Maiden IPO and listed on NSE, BSE
2006
Acquired membership of DGCX
Commenced the lending business
2007
Commenced institutional equities business under IIFL
Formed Singapore subsidiary, IIFL (Asia) Pte Ltd
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2008
Launched IIFL Wealth
Transitioned to insurance broking model
2009
Acquired registration for Housing Finance
SEBI in-principle approval for Mutual Fund
Obtained Venture Capital license
2010
Received in-principle approval for membership of the Singapore Stock Exchange
Received membership of the Colombo Stock Exchange
PRODUCTS AND SERVICES:
Indian Infoline Ltd. is a one-stop financial services shop, most respected for quality of
its advice, personalized service and cutting-edge technology.
Equities
IIFL is a member of BSE and NSE registered with NSDL and CDSL as a depository
participant and provides broking services in the cash, derivatives and currency segments,
online and offline. IIFL is a dominant player in the retail as well as institutional
segments of the market. It recently became the first Indian broker to get a membership
of the Colombo Stock Exchange and is also the first Indian broker to have received an
in-principle approval for membership of the Singapore Stock Exchange. IIFLs Trader
Terminal, its proprietary trading platform, is widely acknowledged as one of the best
available for retail investors. Investors opt for IIFL given its unique combination of
superior Service, cutting-edge proprietary Technology, Advice powered by world-
acclaimed research and its unparalleled Reach owing to its over 2500 business locations
across over 500 cities in India.
IIFL received the BQ1 broker grading (highest grading) from CRISIL. The assigned
grading reflects an effective external interface, robust systems framework and strong
risk management. The grading also reflects IIFLs healthy regulatory compliance track
record and adequate credit risk profile.
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IIFLs analyst team won Zee Business Indias best market analysts awards 2009 for
being the best in the Oil and Gas and Commodities sectors and a finalist in the Banking
and IT sectors.
IIFL has rapidly emerged as one of the premier institutional equities houses in Indiawith a team of over 25 research analysts, a full-fledged sales and trading team coupled
with an experienced investment banking team.
The Institutional equities business conducted a very successful Enterprising India
global investors conference in Mumbai in March 2010, which was attended by funds
with aggregate AUM over222.58 trillion and CEOs and other executives representing
corporates with a combined market capitalization of over 22,257.53 billion. The
Discover Sri Lanka global investors conference, held in Colombo in July 2010, was
attended by more than 50 leading global and major local investors and 25 Sri Lankancorporates, along with senior Government officials.
Commodities
IIFL offers commodities trading to its customers vide its membership of the MCX and
the NCDEX. Our domain knowledge and data based on in depth research of complex
paradigms of commodity kinetics, offers our customers a unique insight into behavioral
patterns of these markets. Our customers are ideally positioned to make informed
investment decisions with a high probability of success.
Credit and finance
IIFL offers a wide array of secured loan products. Currently, secured loans (mortgage
loans, margin funding, loans against shares) comprise 94% of the loan book. The
Company has discontinued its unsecured products. It has robust credit processes and
collections mechanism resulting in overall NPAs of less than 1%. The Company has
deployed proprietary loan-processing software to enable stringent credit checks while
ensuring fast application processing. Recently the company has also launched Loans
against Gold.
Insurance
IIFL entered the insurance distribution business in 2000 as ICICI Prudential Life
Insurance Co. Ltds corporate agent. Later, it became an Insurance broker in October
2008 in line with its strategy to have an open architecture model. The Company now
distributes products of major insurance companies through its subsidiary India Infoline
Insurance Brokers Ltd. Customers can choose from a wide bouquet of products fromseveral insurance companies including Max New York Life Insurance, MetLife,
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Reliance Life Insurance, Bajaj Allianz Life, Birla Sunlife, Life Insurance Corporation,
Kotak Life Insurance and others.
Wealth Management ServiceIIFL offers private wealth advisory services to high-net-worth individuals (HNI) and
corporate clients under the IIFL Private Wealth brand. IIFL Private Wealth is managed
by a qualified team of MBAs from IIMs and premier institutes with relevant industry
experience. The team advises clients across asset classes like sovereign and quasi-
sovereign debt, corporate and collateralized debt, direct equity, ETFs and mutual funds,
third party PMS, derivative strategies, real estate and private equity. It has developed
innovative products structured on the fixed income side.
It also has tied up with Interactive Brokers LLC to strengthen its execution platform and
provide investors with a global investment platform.
Investment Banking
IIFLs investment banking division was launched in 2006. The business leverages upon
its strength of research and placement capabilities of the institutional and retail sales
teams. Our experienced investment banking team possesses the skill-set to manage all
kinds of investment banking transactions. Our close interaction with investors as well as
corporates helps us understand and offer tailor-made solutions to fulfill requirements.
The Company possesses strong placement capabilities across institutional, HNI and
retail investors. This makes it possible for the team to place large issues with marquee
investors.
In FY10, the team advised and managed more than 10 transactions including four IPOs
and four Qualified Institutions Placements
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INVESTMENT SCENARIO IN INDIAN STOCK MARKET
Introduction of study
The project on Stock market is an attempt to study an overall primary market and
secondary market of India. It helped to know and study the parameters opted by all
the Capital market and the companies who are operating themselves under the rulesand regulation of Capital Market. The performance of Capital Market has registered a
significant upward in recent times.
Objective:
To analyze the Indian capital markets and the genesis of investment in capital marketand the reason behind its popularity.
To study the constituents and participants of the Indian capital market. The proposedstudy will define the following market segments like
Primary markey Secondary market Derivative Market
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CONCEPT OF CAPITAL MARKET
The past decade in many ways has been remarkable for securities market in India. It
has grown exponentially as measured in terms of amount raised from the market,
number of stock exchanges and other intermediaries, the number of listed stocks,
market capitalization, trading volumes and turnover on stock exchanges, and investor population. Along with this growth, the profiles of the investors, issuers and
intermediaries have changed significantly. The market has witnessed several
institutional changes resulting in drastic reduction in transaction costs and significant
improvements in efficiency, transparency, liquidity and safety. In a short span of time,Indian derivatives market has got a place in list of top global exchanges. In single
stock futures category, the Futures Industry Association (FIA) placed NSE in second
position in the year 2000.
Introduction
The market for long-term securities like bonds, equity stocks and preferred stocks is
divided into primary market and secondary market. The primary market deals with the
new issues of securities. Outstanding securities are traded in the secondary market,
which is commonly known as stock market or stock exchange. In the secondary
market, the investors can sell and buy securities. Stock markets predominantly deal in
the equity shares. Debt instruments like bonds and debentures are also traded in the
stock market. Well-regulated and active stock market promotes capital formation.Growth of the primary market depends on the secondary market. The health of the
economy is reflected by the growth of the stock market.
Companies raise funds to finance their projects through various methods. The
promoters can bring their own money or borrow from the financial institutions or
mobilize capital by issuing securities. The funds may be raised through issue of fresh
shares at par or premium, preference shares, debentures or global depository receipts.
The main objectives of a capital issue are given below:
To promote a new company
To expand an existing company
To diversify the production
To meet the regular working capital requirements
To capitalize the reverses
Securities markets provide a channel for allocation of savings to those who have a
productive need for them. As a result, the savers and investors are not constrained bytheir individual abilities, but by the economys abilities to invest and save respectively,
which inevitably enhances savings and investment in the economy.
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Market Segments
The securities market has two interdependent and inseparable segments: the primary
and the secondary market.
The primary market provides the channel for creation of new securities through
issuance of financial instruments by public companies as well as Governments and
Government agencies and bodies whereas the secondary market helps the holders of
these financial instruments to sale for exiting from the investment. The price signals,
which subsume all information about the issuer and his business including associated
risk, generated in the secondary market, help the primary market in allocation of
funds. The primary market issuance is done either through public issues or private placement. A public issue does not limit any entity in investing while in private
placement, the issuance is done to select people. In terms of the Companies Act, 1956,an issue becomes public if it results in allotment to more than 50 persons. This means
an issue resulting in allotment to less than 50 persons is private placement.
There are two major types of issuers who issue securities. The corporate entities
issue mainly debt and equity instruments (shares, debentures, etc.), while the
governments (central and state governments) issue debt securities (dated securities,
treasury bills). The secondary market enables participants who hold securities to
adjust their holdings in response to changes in their assessment of risk and return.They also sell securities for cash to meet their liquidity needs. The exchanges do not
provide facility for spot trades in a strict sense. Closest to spot market is the cash
market in exchanges where settlement takes place after some time. Trades takingplace over a trading cycle (one day under rolling settlement) are settled together after
a certain time. All the 23 stock exchanges in the country provide facilities for trading
of corporate securities. Trades executed on NSE only are cleared and settled by a
clearing corporation which provides novation and settlement guarantee. Nearly 100%
of the trades in capital market segment are settled through demat delivery. NSE also
provides a formal trading platform for trading of a wide range of debt securities
including government securities in both retail and wholesale mode. NSE also providestrading in derivatives of equities, interest rate as well indices. In derivatives market
(F&O market segment of NSE), standardized contracts are traded for future
settlement. These futures can be on a basket of securities like an index or an
individual security. In case of options, securities are traded for conditional future
delivery.
There are two types of options a put option permits the owner to sell a security
to the writer of options at a predetermined price while a call option permits the owner
to purchase a security from the writer of the option at a predetermined price. These
options can also be on individual stocks or basket of stocks like index.
Two exchanges, namely NSE and the Stock Exchange, Mumbai (BSE) providetrading of derivatives of securities. Today the market participants have the flexibility
of choosing from a basket of products like:
Equities Bonds issued by both Government and Companies
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Futures on benchmark indices as well as stocks Options on benchmark indices as well as stocks
Futures on interest rate products like Notional 91-day T-Bills, 10 year notional zero
Reforms in the securities market, particularly the establishment and
empowerment of SEBI, market determined allocation of resources, screen based
nation-wide trading, dematerialization and electronic transfer of securities, rollingsettlement and ban on deferral products, sophisticated risk management and
derivatives trading, have greatly improved the regulatory framework and efficiency oftrading and settlement. Indian market is now comparable to many developed markets
in terms of a number of qualitative parameters.
Products and Participants
Financial markets facilitate the reallocation of savings from savers to
entrepreneurs. Savings are linked to investments by a variety of intermediaries
through a range of complex financial products called securities which is defined in
the Securities Contracts (Regulation) Act, 1956 to include shares, bonds, scripts,stocks or other marketable securities of like nature in or of any incorporate company
or body corporate, government securities, derivatives of securities, units of collective
investment scheme, interest and rights in securities, security receipt or any other
instruments so declared by the central government.
The past decade in many ways has been remarkable for securities market in India. Ithas grown exponentially as measured in terms of amount raised from the market,
number of stock exchanges and other intermediaries, the number of listed stocks,
market capitalization, trading volumes and turnover on stock exchanges, and investor population. Along with this growth, the profiles of the investors, issuers and
intermediaries have changed significantly. The market has witnessed fundamental
institutional changes resulting in drastic reduction in transaction costs and significant
improvements in efficiency, transparency and safety.
CAPITAL MARKET AT A GLANCE
Primary market
Stocks available for the first time are offered through new issue market. Theissuer may be a new company. These issues may be of new type or the security used
in the past. In the new issue market the issuer can be considered as a manufacturer.
The issuing houses, investment bankers and brokers act as the channel of distribution
for the new issues. They take the responsibility of selling the stocks to the public. A
total of Rs. 2,520,179 million were raised by the government and corporate sector
during 2002-03 as against Rs. 2,269,110 million during the preceding year.Government raised about two third of the total resources, with central government
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alone raising nearly Rs. 1,511,260 million.Corporate Securities Average annual capital mobilization from the primary market,
which used to be about Rs.70 crore in the 1960s and about Rs.90 crore in the 1970s,
increased manifold during the 1980s, with the amount raised in 1990-91 being Rs.
4,312 crore. It received a further boost during the 1990s with the capital raised by
non-government public companies rising sharply to Rs. 26,417 crore in 1994-95. Thecapital raised which used to be less than 1% of gross domestic saving (GDS) in the
1970s increased to about 13% in 1992-93. In real terms, the capital raised increased 4
times between 1990-91 and 1994-95. During 1994-95, the amount raised through newissues of securities from the securities market accounted for about four-fifth of the
disbursements by FIs. Issuers have shifted focus to other avenues for raising resourceslike private placement.
There is a preference for raising resources in the primary market through private
placement of debt instruments. Private placements accounted for about 93% of total
resources mobilized through domestic issues by the corporate sector during 2002-03.
Rapid dismantling of shackles on institutional investments and deregulation of the
economy are driving growth of this segment. There are several inherent advantages ofrelying on private placement route for raising resources. While it is cost and time
effective method of raising funds and can be structured to meet the needs of theentrepreneurs, it does not require detailed compliance with formalities as required in
public or rights issues. It is believed in some circles that private placement hascrowded out public issues. However, to prevent public issues from being passed on as
private placement, the Companies (Amendment) Act, 2001 considers offer of
securities to more than 50 persons as made to public.
Functions of Primary Market
The main service functions of the primary market are organization, underwriting anddistribution. Origination deals with the origin of the new issue. The proposal is
analyzed in terms of the nature of the security, the size of the issue, and timing of the
issue and floatation method of the issue. Underwriting contract makes the sharepredictable and removes the element of uncertainty in the subscription. Distribution
refers to the lead managers and brokers to the issue.In the new issue market stocks are offered for the first time. The functions and the
organization of the new issue market is different from the secondary market. In the
new issue the lead mangers manage the issue, the underwriters assure to take up the
unsubscribed portion according to his commitment for a commission and the bankers
take up the responsibility of the collecting the application form and the money.
Advertising agencies promote the new issue through advertising. Financialinstitutions and underwriter lend term loans to the company. Government agencies
regulate the issue. The new issues are offered through prospectus. The prospectus isdrafted according to SEBI guidelines disclosing the needed information to the
investing public. In the bought out deal banks or a company buys the promotersshares and they offer them to the public at a later date. This reduces the cost of raising
the fund. Private placement means placing of the issue with financial institutions.
They sell shares to the investors at a suitable price. Right issue means the allotment of
shares to the previous shareholders at a pro-ratio basis. Book building involves firm
allotment of the instrument to a syndicate created by the lead managers. The book
runner manages the issue. Norms are given by the SEBI to price the issue.
Proportionate allotment method is adopted in the allocation of shares. Projectappraisal, disclosure in the prospectus and clearance of the prospectus by the stock
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exchanges protect the investors in the primary market along with the active roleplayed by the SEBI.
SECONDARY MARKET:
Outstanding securities are traded in the secondary market, which is commonly known
as stock market or stock exchange. In the secondary market, the investors can sell and
buy securities. Stock markets predominantly deal in the equity shares. Debt
instruments like bonds and debentures are also traded in the stock market.
Current scenario of Capital Market in India.
The primary market for equity, which consists of both the initial public offering
(IPO) market and the seasoned equity offering (SEO) markets, experienced
considerable activity in 2005 and 2006 (Table 4.1). In 2006,Rs.30,325 crore of
resources were raised on this market, of which Rs.9,918 crore were made up by 55
companies which were listed for the first time (IPOs). The number of IPOs per year
has risen steadily from 2002 onwards. A level of 55 IPOs in the year translates toroughly 4 IPOs every month. The mean IPO size, which was elevated in 2005,
returned to Rs.180 crore, which is similar to the value prevalent in 2003.The primaryissuance of debt securities, as per SEBI, fell to a low of around Rs. 66 crore in 2006,
which is one facet of the far-reaching difficulties of the debt market. Unlike equity
securities, debt securities issued at previous dates are redeemed by companies every
year. Hence, a year with a low issuance of fresh debt securities is a year in which the
stock of outstanding debt securities drops. In addition to resource mobilization by theissuance of debt and equity securities, one of the most important mechanisms of
financing that has been used by Indian firms is retained earnings, which are also a part
of equity financing.
Functions of Stock Exchange
Maintains active trading: shares are traded on the stock exchanges, enabling the
investors to buy and sell securities. The prices may vary from transactions to
transaction. A continuous trading increases the liquidity or marketability of the sharestraded on the stock exchanges.
Fixation of prices: Price is determined by the transactions that flow from
investors demand and suppliers preferences. Usually the traded prices are made
known to the public. This helps the investors to make better decisions.
Ensures safe and fair dealing: The rules, regulations and by-laws of the stockexchanges provide a measure of safety to the investors. Transactions are conducted
under competitive conditions enabling the investors to get a fair deal.
Aids in financing the industry: A continuous market for shares provides a
favorable climate for raising capital. The negotiability and transferability of the
securities helps the companies to raise long-term funds. When it is easy to trade the
securities, investors are willing to subscribe to the initial public offerings. Thisstimulates the capital formation.
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Dissemination of information: Stock exchanges provide information through
their various publications. They publish the share prices traded on daily basis along
with the volume traded. Directory of Corporate Information is useful for the investors
assessment regarding the corporate. Handouts, handbooks and pamphlets provide
information regarding the functioning of the stock exchanges.
Performance inducer: The prices of stocks reflect the performance of the traded
companies. This makes the corporate more concerned with its public image and tries
to maintain good performance.
Self-regulating organization: The stock exchanges monitor the integrity of the
members, brokers, listed companies and clients. Continuous internal audit safeguards
the investors against unfair trade practices. It settles the dispute between memberbrokers, investors and brokers.
Secondary Market
(a) Corporate Securities: The stock exchanges are the exclusive centres for trading
of securities. Though the area of operation/jurisdiction of an exchange is specified at
the time of its recognition, they have been allowed recently to set up trading terminals
anywhere in the country. The three newly set up exchanges (OTCEI, NSE and ICSE)
were permitted since their inception to have nation wide trading. The trading
platforms of a few exchanges are now accessible from many locations. Further, with
extensive use of information technology, the trading platforms of a few exchanges are
also accessible from anywhere through the Internet and mobile devices. This made ahuge difference in a geographically vast country like India.
(b) Exchange Management: Most of the stock exchanges in the country are
organized as mutuals which was considered beneficial in terms of tax benefits and
matters of compliance. The trading members, who provide brokering services, also
own, control and manage the exchanges. This is not an effective model for self-
regulatory organisations as the regulatory and public interest of the exchange conflicts
with private interests. Efforts are on to demutualise the exchanges whereby ownership,
management and trading membership would be segregated from one another. Two
exchanges viz. OTCEI and NSE are demutualised from inception, where ownership,
management and trading are in the hands of three different sets of people. This modeleliminates conflict of interest and helps the exchange to pursue market efficiency andinvestor interest aggressively.
(c) Membership: The trading platform of an exchange is accessible only to brokers.
The broker enters into trades in exchanges either on his own account or on behalf of
clients. No stock broker or sub-broker is allowed to buy, sell or deal in securities,
unless he or she holds a certificate of registration granted by SEBI. A broker/sub-
broker complies with the code of conduct prescribed by SEBI. Over time, a number of
brokers - proprietor firms and partnership firms have converted themselves intocorporates. The standards for admission of members stress on factors, such as
corporate structure, capital adequacy, track record, education, experience, etc. andreflect a conscious endeavor to ensure quality broking services.
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(d) Listing: A company seeking listing satisfies the exchange that at least 10% of the
securities, subject to a minimum of 20 lakh securities, were offered to public for
subscription, and the size of the net offer to the public (i.e. the offer price multiplied
by the number of securities offered to the public, excluding reservations, firm
allotment and promoters contribution) was not less than Rs.100 crore, and the issue ismade only through book building method with allocation of 60% of the issue size to
the qualified institutional buyers. In the alternative, it is required to offer at least 25%
of the securities to public. The company is also required to maintain the minimumlevel of non-promoter holding on a continuous basis. In order to provide an
opportunity to investors to invest/trade in the securities of local companies, it ismandatory for the companies, wishing to list their securities, to list on the regional
stock exchange nearest to their registered office. If they so wish, they can seek listing
on other exchanges as well. Monopoly of the exchanges within their allocated area,
regional aspirations of the people and mandatory listing on the regional stock
exchange resulted in multiplicity of exchanges. The basic norms for listing of
securities on the stock exchanges are uniform for all the exchanges. These norms arespecified in the listing agreement entered into between the company and the
concerned exchange. The listing agreement prescribes a number of requirements to becontinuously complied with by the issuers for continued listing and such compliance
is monitored by the exchanges. It also stipulates the disclosures to be made by thecompanies and the corporate governance practices to be followed by them. SEBI has
been issuing guidelines/circulars prescribing certain norms to be included in the
listing agreement and to be complied with by the companies. A listed security is
available for trading on the exchange. The stock exchanges levy listing fees - initial
fees and annual fees - from the listed companies. It is a major source of income for
many exchanges. A security listed on other exchanges is also permitted for trading. A
listed company can voluntary delist its securities from non-regional stock exchanges
after providing an exit opportunity to holders of securities in the region where theconcerned exchange is located. An exchange can, however, delist the securities
compulsorily following a very stringent procedure.
(e) Trading Mechanism: The exchanges provide an on-line fully-automated screen
based trading system (SBTS) where a member can punch into the computer quantities
of securities and the prices at which he likes to transact and the transaction is executed
as soon as it finds a matching order from a counter party. SBTS electronically
matches orders on a strict price/time priority and hence cuts down on time, cost and
risk of error, as well as on fraud resulting in improved operational efficiency. Itallows faster incorporation of price sensitive information into prevailing prices, thusincreasing the informational efficiency of markets. It enables market participants to
see the full market on real-time, making the market transparent. It allows a large
number of participants, irrespective of their geographical locations, to trade with one
another simultaneously, improving the depth and liquidity of the market. It provides
full anonymity by accepting orders, big or small, from members without revealing
their identity, thus providing equal access to everybody. It also provides a perfect
audit trail, which helps to resolve disputes by logging in the trade execution process in
entirety.
(f) Trading Rules: Regulations have been framed to prevent insider trading as well as
unfair trade practices. The acquisitions and takeovers are permitted in a well definedand orderly manner. The companies are permitted to buy back their securities to
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improve liquidity and enhance the shareholders wealth.
(g) Price Bands: Stock market volatility is generally a cause of concern for both
policy makers as well as investors. To curb excessive volatility, SEBI has prescribed a
system of price bands. The price bands or circuit breakers bring about a coordinated
trading halt in all equity and equity derivatives markets nation-wide. An index-based
market-wide circuit breaker system at three stages of the index movement either wayat 10%, 15% and 20% has been prescribed. The movement of either S&P CNX Nifty
or Sensex, whichever is breached earlier, triggers the breakers. As an additional
measure of safety, individual scrip-wise price bands of 20% either way have beenimposed for all securities except those available for stock options.
(h) Demat Trading: The Depositories Act, 1996 was passed to proved for the
establishment of depositories in securities with the objective of ensuring free
transferability of securities with speed, accuracy and security by (a) making securities
of public limited companies freely transferable subject to certain exceptions; (b)
dematerialising the securities in the depository mode; and (c) providing for
maintenance of ownership records in a book entry form. In order to streamline boththe stages of settlement process, the Act envisages transfer of ownership of securities
electronically by book entry without making the securities move from person toperson.
Two depositories, viz. NSDL and CDSL, have come up to provideinstantaneous electronic transfer of securities. At the end of March 2002, 4,172 and
4,284 companies were connected to NSDL and CDSL respectively. The number of
dematerialised securities increased to 56.5 billion at the end of March 2002. As on the
same date, the value of dematerialsied securities was Rs. 4,669 billion and the number
of investor accounts was 4,605,588. All actively traded scrips are held, traded and
settled in demat form. Demat settlement accounts for over 99% of turnover settled by
delivery. This has almost eliminated the bad deliveries and associated problems. To
prevent physical certificates from sneaking into circulation, it has been mandatory forall new IPOs to be compulsorily traded in dematerialized form. The admission to a
depository for dematerialisation of securities has been made a prerequisite for making
a public or rights issue or an offer for sale. It has also been made compulsory for
public listed companies making IPO of any security for Rs. 10 crore or more to do the
same only in dematerialised form.
(i) Charges: A stock broker is required to pay a registration fee of Rs.5,000 every
financial year, if his annual turnover does not exceed Rs. 1 crore. If the turnover
exceeds Rs. 1 crore during any financial year, he has to pay Rs. 5,000 plus one-hundredth of 1% of the turnover in excess of Rs.1 crore. After the expiry of five yearsfrom the date of initial registration as a broker, he has to pay Rs. 5,000 for a block of
five financial years. Besides, the exchanges collect transaction charges from its
trading members. NSE levies Rs. 4 per lakh of turnover. The maximum
brokerage a trading member can levy in respect of securities transactions is 2.5% of
the contract price, exclusive of statutory levies like SEBI turnover fee, service tax and
stamp duty. However, brokerage charges as low as 0.15% are also observed in the
market.
(j) Trading Cycle: Rolling settlement on T+3 basis gave way to T+2 from April 2003.
The market has moved close to spot/cash market.
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(k) Risk Management: To pre-empt market failures and protect investors, the
regulator/exchanges have developed a comprehensive risk management system,
which is constantly monitored and upgraded. It encompasses capital adequacy of
members, adequate margin requirements, limits on exposure and turnover, indemnity
insurance, on-line position monitoring and automatic disablement, etc. They alsoadminister an efficient market surveillance system to curb excessive volatility, detect
and prevent price manipulations. Exchanges have set up trade/settlement guarantee
funds for meeting shortages arising out of nonfulfillment/partial fulfillment of fundsobligations by the members in a settlement. A clearing corporation assures the
counterparty risk of each member and guarantees financial settlement in respect oftrades executed on NSE.
(l) Government Securities: The reforms in the secondary market include Delivery
versus Payment system for settling scripless SGL transactions to reduce settlement
risks, SGL Account II with RBI to enable financial intermediaries to open custody
(Constituent SGL) accounts and facilitate retail transactions in scripless mode,enforcement of a trade-for-trade regime, settlement period of T+0 or T+1 for all
transactions undertaken directly between SGL participants and up to T+5 days fortransactions routed through NSE brokers, routing transactions through brokers of NSE,
OTCEI and BSE, repos in all government securities with settlement through SGL,liquidity support to PDs to enable them to support primary market and undertake
market making, special fund facility for security settlement, etc. As part of the
ongoing efforts to build debt market infrastructure, two new systems, the Negotiated
Dealing System (NDS) and the Clearing Corporation of India Limited (CCIL)
commenced operations on February 15, 2002. NDS, interalia, facilitates screen based
negotiated dealing for secondary market transactions in government securities and
money market instruments, online reporting of transactions in the instruments
available on the NDS and dissemination of trade information to the market.Government Securities (including T-bills), call money, notice/term money, repos in
eligible securities, Commercial Papers and Certificate of Deposits are available for
negotiated dealing through NDS among the members. The CCIL facilitates settlement
of transactions in government securities (both outright and repo) on Delivery versus
Payment (DvP-II) basis which provides for settlement of securities on gross basis and
settlement of funds on net basis simultaneously. It acts as a central counterparty for
clearing and settlement of government securities transactions done on NDS.
Derivatives MarketTrading in derivatives of securities commenced in June 2000 with the enactment ofenabling legislation in early 2000. Derivatives are formally defined to include: (a) a
security derived from a debt instrument, share, loan whether secured or unsecured,
risk instrument or contract for differences or any other form of security, and (b) a
contract which derives its value from the prices, or index of prices, or underlying
securities. Derivatives are legal and valid only if such contracts are traded on a
recognized stock exchange, thus precluding OTC derivatives. Derivatives trading
commenced in India in June 2000 after SEBI granted the approval to this effect in
May 2000. SEBI permitted the derivative segment of two stock exchanges, i.e. NSE
and BSE, and their clearing house/corporation to commence trading and settlement in
approved derivative contracts. To begin with, SEBI approved trading in index futurescontracts based on S&P CNX Nifty Index and BSE-30 (Sensex) Index. This was
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followed by approval for trading in options based on these two indices and options onindividual securities. The trading in index options commenced in June 2001 and
trading in options on individual securities would commence in July 2001 while
trading in futures of individual stocks started from November 2001. In June 2003,
SEBI/RBI approved the trading on interest rate derivative instruments.
The total exchange traded derivatives witnessed a volume of Rs.4,423,333 millionduring 2002- 03 as against Rs. 1,038,480 million during the preceding year. While
NSE accounted for about 99.5% of total turnover, BSE accounted for less than 1% in
2002-03. The market witnessed higher volumes from June 2001 with introduction ofindex options, and still higher volumes with the introduction of stock options in July
2001. There was a spurt in volumes in November 2001 when stock futures wereintroduced. It is believed that India is the largest market in the world for stock futures.
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METHODOLOGY
Data collection methods and instrument
The leads for customer acquisition primarily came from the questionnaires filled up by prospective customers. Apart from these customers were also pitched through
personal references and contacts. Moreover the organization takes every possible
effort in order to spread mass awareness. As a result of this publicity campaign,
influenced prospective customers approach the organization.
Initial leads generated are contacted personally for further development. These leadswere then contacted through tele calling and after developing a relationship, they
were pitched in at the addresses provided by them. After giving them a presentation
about the product and its advantages over its competitors, pitch for the product is done.
Also references were collected from such people and the same methodology wasrepeated.
Sample size:
Sample size for the questionnaire prepared for Investor was 100.
Area covered in survey is Delhi and Noida region.
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FINDINGS AND ANALYSIS
Profile of Respondents Participated in Survey:
Sex:
Age group the respondents belong (in Yrs):
Education Qualification:
Male
Female
Percentage
60
12thStandard
Graduate
PostGraduate
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Occupation:
Category in which respondents income fall ( in ` /month):
Student
Govt.Sector
Pvt.Sector
OwnBusiness
Others
0
10
20
30
40
50
60
0-15,000 15,000-35,000 35,000-60,000 >60,000
percentage
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QUESTIONNAIRE AND FINDINGS:
Majority of the respondents agreed that investment in stock markets is profitable.
Around 30 % of the respondents are not sure about it. This percentage of respondentsare not aware of different aspects of investments in stock market.
Of those who invest in Stock markets, majority expects long term profitability.
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this shows that the sentiment of the stock market is Bearish.
Majority of the respondents surveyed invest in Mutual funds and stocks alike.
Only a minority ( 8%) invest in derivatives. This is due to low level of knowledge
about derivatives. Risk avoiders also refrain from investing in derivatives ( futures
and option).
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What percentage of your annual income do you invest in Share market ?
Around 55% percentage of investors invest 0 to a maximum of 10% of their income
in stock markets. And 15 % of investors put a max 15% of their income in stockmarket.
Majority of the investors consider good return on investment from the market. Also amajority respondents want at least safety of their Principal.
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Most of the customers rate Customer service, Trustworthiness and Proper guidance on
higher side than Brokerage charges ( though it matters) which influence their
decision in choosing a Broking house.
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Do you have a Demat Account?
Majority of the respondents dont have a demat A/c , though most of them has at leastsome knowledge about the Stock market.
It can be interpreted as low level of overall public participation in Indian stock
market.
Percentage
Yes
No
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If yes,
Kindly mention the broking house (optional)
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If you dont have one
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Survey Analysis
The survey was conducted in parts of Delhi and Noida.
The respondents belonged to different age groups and professions. It was gathered from the survey that there is a very little awareness about
investing in share markets and very few people were fully conversant with the
technicalities of the stock markets.
Moreover people were aversive taking risks in their investments and weremostly looking for safer investment avenues.
It was found that very few people were aware of the capital appreciation oftheir principal investment money and they just wanted to invest in secured
security for the purpose of saving only rather than increasing the money value
of their capital or capital gain.
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CONCLUSION
Investing in various types of assets is an interesting activity that attracts people from
all walks of life irrespective of their occupation, economic status, education and
family background. When a person has more money than he requires for current
consumption, he would be coined as a potential investor. The problem of surplus
gives rise to the question of where to invest.
For an investor the main investment objectives are increasing the rate of return and
reducing the risk other objectives like safety, liquidity and hedge against inflation canbe considered as subsidiary objectives.
My two months of Summer Internship at Indiainfoline Ltd. was a great experience as
it gave the scope of adding knowledge by interacting with different people of different
level as well as building up relation with them.
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BIBLIOGRAPHY
Websites:
www.sebi.gov.in
www.nseindia.com
www.bseindia.com
www.mcxindia.com
www.ncdex.com
www.destimoney.com
www.dawnaydayavsecurities.com
www.moneycontrol.com
www.wikipedia.org
BOOKS:
Research Methodology By Kothari C. R.
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APPENDIX:
SURVEY QUESTIONNAIRE(Please tick the appropriate)
1. Personal InformationName: _________________________ Sex: Male Female
Contact no: _____________________ email ID (if any):..
Age (in Yrs): Education:..
Occupation:.
In which category does your income fall (in ` per month)0-15,000 15,000-35,000 35,000-60,000 > 60,000
2. Do you think investment in equity market is profitable ?Yes No Cant say
a) If yes, what is the reason for the same ?
Market volatility Huge returns in Long term profitability Others .
less time
b) Do you believe that SENSEX will touch 25000 this year ?
Yes No
3. In which segment do you invest?Equity Derivatives Mutual funds
4. What percentage of your annual income do you invest in Share market0-10 10-15 15-20 >20
5. Which factors do you consider before investing in share market ?Capital appreciation Safety of principal Return on investment Liquidity
6. Have you heard about India Infoline Ltd.?Yes No
7. Rate the following Share trading Companies according to the quality of service they provide in the scale of 1 to5. [ 1 poor 5 excellent ]
Indiainfoline Indiabulls Religare Sharekhan
ICICI Direct Others: ..
8. Rate the following attributes which influence your decision in choosing a Broking House, in the scale of 1 to5.
[1- Low 3 Average 5 High]
Customer Service Proper Guidance Regular Updates
Trustworthiness Brokerage Charges Others: ..
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9. Do you have a Demat A/c ? Yes No If Yes,
(i) Then kindly mention the Broking House ?
Indiainfoline Indiabulls Religare Sharekhan
ICICI Direct Others: ..
(ii) Since how long you have been carrying this A/c
< 6 months 6 months 1 yr 1yr 2 yrs > 2yrs
(iii) Are you satisfied with the services of your Broking house ?
Yes No
If No, Do you wish to open one (Demat A/c) in near future ?Yes No