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ICBM- SCHOOL OF BUISNESS EXCELLENCE

A PROJECT REPORT

ON

STUDY ON CAPITAL MARKET OF INDIA AND COMPARISON

BETWEEN ONLINE TRADING V/S OFFLINE TRADING

AT

BY

AJAY KUMAR

FOR PARTIAL FULFILLMENT OF POST GRADUATE

DIPLOMA IN MANAGEMENT

SUBMITTED TO

ICBM-SCHOOL OF BUISNESS EXCELLENCE, HYDERABAD


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TABLE OF CONTENT

CHAPTER :1

DECLARATION

CERTICATE FROM THE ORGANIZATION

ACKNOWLEDGEMENT

EXECUTIVE SUMMARY

OBJECTIVE OF THE STUDY

SCOPE OF THE STUDY

SIGNIFICANCE OF THE STUDY

LIMITATIONS

NEED OF THE STUDY

COMPANY PROFILE

CHAPTER:2

INTRODUCTION

CAPITAL MARKET IN INDIA

ADVANTAGES

DISADVANTAGES

PARAMETERS TO JUDGE IPO

FREQUENTLY ASKED QUESTIONS

CHAPTER:3

CAPITAL MARKET IN INDIA : IMPACT AND FACTORS

IMPACTS OF CAPITAL MARKET IN INDIA


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FACTORS AFFECTING CAPITAL MARKET IN INDIA

ONLINE TRADING AND OFFLINE TRADING

CHAPTER:4

DATA ANALYSIS AND INTERPRETATION

CHAPTER:5

FINDINGS

SUGGESTIONS

APPENDIX

CHAPTER:6

CONCLUSION

BIBLIOGRAPHY


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DECLARATION

I hereby declare that the project on STUDY ON CAPITAL MARKET IN

INDIA AND COMPARISON BETWEEN ONLINE TRADING V/S

OFFLINE TRADING is completely my work. It has been submitted to ICBM-

SCHOOL OF BUSINESS EXCELLENCE for partial fulfillment of the educational

session and allotment of marks.

AJAY KUMAR

PGDM (09/03)

ICBM- SBE


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CERTICATE FROM THE ORGANIZATION

This is to certify that the project entitled, STUDY ON CAPITALMARKET OF INDIA AND COMPARISON BETWEEN ONLINE TRADING

V/S OFFLINE TRADING is a bonafide record of Interim report

carried out by AJAY KUMAR, Roll No.09/03 at ICBM-SCHOOL OF

BUSINESS EXCELLENCE, HYDERABAD, has successfully completed

her summer training project for a period of 8 weeks from 17th May

2010.He has worked sincerely in this duration and has completed

the project successfully.


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ACKNOWLEDGEMENT

I sincerely thank Mr. AATISH GUPTA, vice president, INDIABULLS

for giving me this opportunity to work in his esteemed

organization and helping me for completing the project in a

successful manner.

I am also thankful to Professor S Zaraar,principal and

director of ICBM- School of Business Excellence for guiding me

during the project work and giving me some valuable tips aboutthe market condition of mutual fund . I am thankful to Professor S

Nayar, Head of department of strategic research who is always

ready to help me.

I am very thankful to ICBM-SCHOOL OF BUSINESS

EXCELLENCE, HYDERABAD, for helping me in resolving every

issue. My regards to my faculty guide Prof. ANNIE KAVITA for

guiding me and clarifying the doubts in area of my project work.

Last but not least, I am very thankful to ICBM-SCHOOL OF

BUSINESS EXCELLENCE (staff) for helping me in resolving all the

issues.


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AJAYKUMAR

PGDM (09/03)

EXECUTIVE SUMMARY

As per the title suggest the project report has been prepared regarding the study on

capital market and comparison between online trading v/s offline trading. Online

trading was initiated by NSE in india and soon after the other exchanges also

followed it. There was a major boom in year 2000 when lots of online trading

companies came with a bang but only few were survived because of lack of

computer knowledge and low internet penetration.

There are two types of online trading companies one is the banking online trading

companies and the other is non-banking trading.Today online trading contributes are about 8-10%. It is continuosly growing and

has a huge market potential.

Major findings indicates that out of a survey of 100 respondents it was seen that

most of the investors prefer online trading because of few major factors such as

time saving , convenience etc. although during my research project I have seen

that most of the respondents feel online trading , a secure way of investing into

stock market still a few of them feel it unsafe and a bit complicated but they posses

information about online trading.

Today the online trading companies having cut throat competition in our offering

whose brokerage discounts lower margin money and zero balance accounts.


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Due to rising education awareness and use of internet there is a huge potential for

online trading in future and companies must come pu with innovative offerings in

capture the untapped market.

OBJECTIVE OF THE STUDY

The main objective of this study is doing an in depth study of capital market

and online V/s offline trading by taking sample of investors view .

To know that which trading is good for investors : online or offline trading .

To asses an awareness of online trading and offline trading.

Which of the parties involved in capital market.

To determine the growth and development of online and offline trading.

To understand the customer perception of online trading and offline trading.


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SCOPE OF THE STUDY

Since the year 2000 a big boom has been witnessed in the Indian

Stock Market when the market showed the coming up of Online

Trading System. Many online stock trading companies came but

initially due to lack of online trading some companies vanished

and some survived. The companies which survived are getting the

handsome returns also attracting the foreign Investment

Companies. Now a days this sector is facing cut-throat

competition and also provides huge growth prospects. The studythen goes to evaluate and analyze the findings so as to present a

clear picture of the trends in the online trading sector.


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SIGNIFICANCE OF THE STUDY

The 100 people have been interviewed through various sources and their responses

have been analyzed. This data can be explorated to take in the trends all Indian

online and offline stock trading industry.

The significance for the industry lies in studying the growth trends that emerge

from the study. It is one of the fastest growing and evolving sectors.


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LIMITATIONS

The various limitations of the study are :

There is a lack of awareness among people about investing in stock market .

so the people who are aware of such things were found in specific areas for

survey purposes.

Most people are comfortable with traditional system in small towns and like

to trade from their respective brokers , hence not providing a true opinion of

theirs.


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Some of the respondents who did not do online trading were able to respond

to only some questions.

The survey was done in Hyderabad and may not truly express the opinion of

whole country.

NEED OF THE STUDY

During my studies I knew something about the company, but now I have

specialized in a particular department for gaining industrial knowledge about

financial department for further continuation of my studies.

Because all departments will not give overall up to date knowledge about industry,

if we went for particular department overall functioning of department will come to

know. This company is one of the leading and professionally managed stock

broking firm involved in quality services and research.


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COMPANY PROFILE

Indiabulls Group is one of Indias top business houses with businesses spread overReal Estate, Infrastructure, Financial Services, Securities, Retail, Multiplex and

Power sectors. The group companies are listed on important Indian and Overseasmarkets. Indiabulls has been conferred the status of a Business Super brand byThe Brand Council, Super brands India.


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To be the largest and most profitable financialservices organization in Indian retail market and become one stop shop for all non

banking financial products and services for the retail customers.

Rapidly increase the number of client relationships byproviding a broad array of product offering to emerge as a clear market leader.

Indiabulls Group has five separately listed companies withsubsidiaries which contributed in enhancing scope and profile of the business.


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Top Indiabulls Financial Services Limited

Indiabulls Financial Services Limited was incorporated on January 10, 2000 as M/sOrbis Infotech Private Limited at New Delhi under the Companies Act, 1956. Thename of company was changed to M/s. Indiabulls Financial Services PrivateLimited on March 16, 2001. In the year 2004, Indiabulls came up with it own

public issue & became a public limited company on February 27, 2004. The nameof company was changed to M/s. Indiabulls Financial Services Limited.

The company was promoted by three engineers from IIT Delhi, and has attractedmore than Rs.700 million as investments from venture capital, private equity andinstitutional investors and has developed significant relationships with largecommercial banks such as Citibank, HDFC Bank, Union Bank, ICICI Bank, ABNAmro Bank, Standard Chartered Bank and IL&FS.

Mr. Rajiv RattanCo-Founder &

Vice Chairman

(Indiabulls Group)

Mr. Sameer GelhautChairman

(Indiabulls Group)

Mr. Saurabh K MittalDirector

(Indiabulls Group)

The company headquarters are co-located in Mumbai and Delhi, allowing it toaccess the two most important regions for Indian financial markets, The marketingand sales efforts are headquartered out of Mumbai, with a regional headquarter in

Delhi. Back office, risk management, internal finances etc. are headquartered outof Delhi/NCR allowing the company to scale these processes efficiently for thenationwide network.

Company is listed on:
http://tms.indiabulls.com/Training/Training1/1-1.htm#tophttp://tms.indiabulls.com/Training/Training1/1-1.htm#top


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National Stock Exchange Bombay Stock Exchange Luxemburg Stock Exchange

Market capitalization:

Over 7 Billion USD

Net worth

Over 2.5 Billion USD

Highest Ratings from CRISIL CRISIL is India's leading ratings, research, riskand policy advisory company

Broad array of product offering

1. Consumer Finance2. Housing Finance3. Commercial Loans4. Life Insurance5. Asset Management

6. Advisory Services

Top Strategic Updates

Indiabulls Financial Services Limited (IBFSL) completed the de-merger ofits real estate business into a separate publicly traded company, (IBREL)unlocked over Rs. 10000 crore of shareholder wealth.


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De-merger: De-merger of Indiabulls Securities Limited from IndiabullsFinancial Services Limited. Each shareholder of Indiabulls FinancialServices Limited received a share of Indiabulls Securities Limited.

SARFAESI Act Notification: Indiabulls Housing Finance Limited, a

wholly owned subsidiary of Indiabulls Financial Services Limited has beennotified as a Financial Institution for the purpose of SARFAESI Act, 2002.This notification is being effectively used by the company to yield positiveresults in speedy recoveries of delinquent mortgage loans.

New Business Venture Updates:

Life Insurance Venture: Indiabulls Financial Services Limited (IBFSL) hasentered into an MOU with Sogecap, the insurance arm of Societe Generale(SocGen) for its upcoming life insurance joint venture. Sogecap will investRs 150 crore to subscribe to 26% of the paid up capital in the joint venture.

Commodities Exchange (ICEX) : a screen based on-line derivativesexchange for commodities and has established a reliable, time tested, and atransparent trading platform. It is also in the process of putting in placerobust assaying and warehousing facilities in order to facilitate deliveries.ICEX is promoted by Indiabulls Financial Services and MMTC.

Asset Management Business: Indiabulls Financial Services Limitedproposes to set up an asset management company to manage mutual fundsand has applied to SEBI for its approval and the same is awaited.

Indiabulls Real Estate Limited

Indiabulls stepped into the real estate market as Indiabulls Real Estate Limited(IREL) in 2005. A joint venture between Indiabulls and a US based investmentmajor Farallon Capital Management LLC resulted in bringing FDI (Foreign DirectInvestment) for the first time in the Indian real estate market. Another joint ventureamongst Indiabulls and DLF, Kenneth Builders and Developers (KBD), has

brought up projects for development of residential apartments.

Our Projects:


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Indiabulls is currently evaluating many large-scale projects worth several hundredmillion dollars.

1. One Indiabulls Centre2. Indiabulls Central Park3. Central Park Madurai4. Central Park Hyderabad5. Castlewood6. Indiabulls Finance Center7. HighStreet Vadodara8. Central Park Vadodara9. Indiabulls Greens10.Centrum Park11.Indiabulls Riverside12.Gurgoan Housing

13.Sonepat Township14.Chennai Township15.Indiabulls Greens Panvel16.Mumbai Township17.Nashik SEZ18.Raigarh SEZ19.Goa Luxury Resort

Indiabulls Power Limited

Indiabulls Power Limited was established in 2007 to capitalize on emergingopportunities in the Indian power sector. It develops and intends to operate andmaintain power projects in India. Indiabulls is currently developing five thermal

power projects with an aggregate capacity of approximately 6600 MW. Theseprojects include:


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- Amravati Phase-I (1320 MW)

- Amravati Phase-II (1320 MW)

- Nasik (1335 MW) in Maharashtra

- Bhaiyathan Thermal Power Project (1320 MW)

- Chhattisgarh Power Project (1320 MW)

In addition to the above Indiabulls is also developing four medium size HydroPower Projects in Arunachal Pradesh aggregating to 167 MW.

Indiabulls Securities Limited

Indiabulls Securities Limited is the jewel in the crown of Indiabulls group.

Indiabulls Securities Limited is Indias leading capital markets company with All-India presence and an extensive client base. Indiabulls Securities is the first andonly brokerage house in India to be assigned the highest rating BQ 1 by CRISIL.Indiabulls Securities Limited is listed on NSE, BSE & Luxembourg stockexchange.

Indiabulls also provide commodity brokerage services under Indiabulls

Commodities Limited (ICL). It deals in research work and formation of reports onagri-commodites and metals. ICL has one of the largest retail branch networks inthe country.


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Products offeredEquities and Derivatives

Offers purchase and sale of securities (stock, bonds, debentures etc.)

Broker assisted trade execution

Automated online investing

Access to all IPO's

Equity Analysis

Helps to build ideal portfolio

Satisfies need by rating stocks based on facts-based measures

Free of cost for all securities clients

Depository Services

Depository participant with NSDL and CDSL

Helps in trading and settlement of dematerialized shares

Performs clearing services for all securities transactions

Offers platform to execute trade and settle transactions

Top Sales Team Structure

Sales force in Indiabulls Securities Limited is divided into two groups. i.e. Online& Offline

Mentioned below are the names of EVP's managing respective regions


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EVP's Name

(Online)Vijay Babbar Amiteshwar Chaudhay

Prasenjeet

Mukherjee

Region

Managing NCR and UP,Punjab,Haryana,Uttranchal,

Rajasthan and Gujarat

Managing Mahrashtraand Goa, Kerala,

Karnataka, AndhraPradesh

and Tamil Nadu

Managing WestBengal,

Orissa, Bihar andJharkhand

EVP's Name

(Offline)Nirdosh Gaur

Hemanshu

Kamdar

Anirban

Bhattacharya

Manoj

Srivastava

Region

Managing NCRand Haryana

, Punjab, Uttar

Pradesh andMadhyaPradesh

Managing Bengal,Andhra Pradesh

,Tamil Nadu,

Karnataka and partof Mumbai andGujarat

Managing Mumbai,Pune and other

surrounding regions

ManagingRajasthan,

part of

Gujaratand Mumbai

Top Customer Care Department Providing solution to the queries of customersas well as branches from a centralized location based out of gurgaon

Clients

Client Helpline Number 0124 - 4572444

39407777

(Local dialing from 25 cities)

Securities client can E-mail at [email protected]

Available from 25 cities: Ahmedabad, Bangalore, Bhopal, Chandigarh, Chennai,Coimbatore, Delhi, Ernakulam, Hyderabad, Jaipur, Jalandhar, Kolkata, Kozhikode,

Ludhiana, Lucknow, Mumbai, Mangalore, Nashik,Pune, Salem, Surat, Vadodra,Vadodra - Alkapuri, Vishakhapatnam.

Branch

Branch Helpline Number 0124-3989444

Queries E-mail at

Funds related [email protected]
http://tms.indiabulls.com/Training/Training1/1-4.htm#topmailto:99CCFFmailto:[email protected]://tms.indiabulls.com/Training/Training1/1-4.htm#topmailto:99CCFFmailto:[email protected]


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Reallocation related [email protected]

Documents related [email protected]

Other queries except above [email protected]

Milestones Achieved

Developed one of the first internet trading platforms in India

Amongst the first to develop in-house real-time CTCL (computer tocomputer link) with NSE

Introduction of integrated accounts with automatic gateways to client bankaccounts

Development of products such as Power Indiabulls for high volume traders

Indiabulls Signature Account for self-directed investors

Indiabulls Group Professional Network for information and trading service
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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INTRODUCTION

Capital Market in India

The capital market is the market for securities, where companies and

governments can raise long term funds. Selling stock and selling bonds are

two ways to generate capital and long term funds. Thus bond markets and

stock markets are considered capital markets. The capital markets consist of

the primary market, where new issues are distributed to investors, and the

secondary market, where existing securities are traded .The Indian Equity

Markets and the Indian Debt markets together form the Indian Capital markets

Indian Equity Market at present is a lucrative field for investors. Indian stocks

are profitable not only for long and medium-term investors but also theposition traders, short-term swing traders and also very short term intra-day

traders. In India as on December 30 2007, market capitalisation (BSE 500) at

US$ 1638 billion was 150 per cent of GDP, matching well with other emerging

economies and selected matured markets.

For a developing economy like India, debt markets are crucial sources of

capital funds. The debt market in India is amongst the largest in Asia. It

includes government securities, public sector undertakings, other government

bodies, financial institutions, banks and companies.

Equity market in India:-

Stock is the type of equity security with which most people are familiar.

When investors (savers) buy stock, they become owners of a "share" of a

company's assets and earnings. If a company is successful, the price that

investors are willing to pay for its stock will often rise and shareholders whobought stock at a lower price then stand to make a capital profit. If a company

does not do well, however, its stock may decrease in value and shareholders

can lose money. Stock prices are also subject to both general economic and

industry-specific market factors.

The equity market is classified as :-


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(a) Primary market

(b) Secondary market

(a) Primary market:-

The primary market provides the channel for creation of new

securities through the issuance of financial instruments by public companies

as well as government companies , bodies and agencies.

Features of primary markets are:

This is the market for new long term capital. The primary market is the

market where the securities are sold for the first time. Therefore it is

also called the New Issue Market (NIM).

In a primary issue, the securities are issued by the company directly to

investors.

The company receives the money and issues new security certificates to

the investors.

Primary issues are used by companies for the purpose of setting up new

business or for expanding or modernizing the existing business.

The primary market performs the crucial function of facilitating capitalformation in the economy.

The primary market issuance is done either through public issue 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 Indian

Companies Act , 1956 as 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 .

An IPO is the first sale of stock by a company to the public. In this marketcompany can raise money by issuing equity. If the company has never issued

equity to the public, it's known as an IPO. Mostly public companies go for IPO.

But large privately-owned companies may also go for an IPO to become

publicly traded. In an IPO the company offloads a certain percentage of its

total shares to the public at a certain` price In an IPO, the issuer obtains the

assistance of an underwriting firm, which helps it determine what type of


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security to issue (common or preferred), best offering price and time to bring it

to market.. Most IPOS these days do not have a fixed offer price. Instead they

follow a method called BOOK BUILDIN PROCESS, where the offer price is

placed in a band or a range with the highest and the lowest value (refer to the

newspaper clipping on the page). The public can bid for the shares at any price

in the band specified. Once the bids come in, the company evaluates all the

bids and decides on an offer price in that range. After the offer price is fixed,

the company allots its shares to the people who had applied for its shares or

returns them their money in case of non allotment of shares.


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Advantages of going public

Increased Capital

A public offering will allow a company to raise capital to use for various

corporate purposes such as working capital, acquisitions, research and

development, marketing, and expanding plant and equipment.

Liquidity

Once shares of a company are issue through an IPO & traded on a publicexchange, those shares have a market value and can be resold. This allows a

company to attract and retain employees by offering stock incentive packages

to those employees. Moreover, it also provides investors in the company the

option to trade their shares thus enhancing investor confidence.

Increased Prestige

Public companies often are better known and more visible than private

companies, this enables them to obtain a larger market for their goods or

services. Public companies are able to have access to larger pools of capital aswell as different types of capital.

Valuation

Public trading of a company's shares sets a value for the company that is set

by the public market and not through more subjective standards set by a

private valuator. This is helpful for a company that is looking for a merger or

acquisition. It also allows the shareholders to know the value of the shares.

Increased wealth

The founders of the company often have the sense of increased wealth as a

result of the IPO. Prior to the IPO these shares were illiquid and had a more

subjective price. These shares now have an ascertainable price and after any

lockup period these shares may be sold to the public, subject to limitations of

law.


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Disadvantages of going Public

Time and Expense

Conducting an IPO is time consuming and expensive. A successful IPO can take

up to a year or more to complete and a company can expect to spend large

amount of money on attorneys, accountants, and printers. In addition, the

underwriter's fees can range from 3% to 10% of the value of the offering. Due

to the time and expense of preparation of the IPO, many companies simply

cannot afford the time or spare the expense of preparing the IPO.

Disclosure

Once a company goes public it comes under the purview of SEBI . It is

supposed to file quarterly results with SEBI and follow other regulations as per

SEBI guidelines. .

Decisions based upon Stock Price

Management's decisions may be affected by the market price of the shares

and the feeling that they must get market recognition for the company's stock.

They may give more consideration to market price of the share and as a

consequence may take a decision which is not prudent & sound .

Regulatory Review

The Company will be open to review by the SEBI to ensure that the company is

making the appropriate filings with all relevant disclosures.

Falling Stock Price

If the shares of the company's stock fall, the company may lose market

confidence, decreased valuation of the company may affect lines of credits,

secondary offering pricing, the company's ability to maintain employees, and

the personal wealth of insiders and investors.

Vulnerability


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If a large portion of the company's shares are sold to the public, the company

may become a target for a takeover, causing insiders to lose control. A

takeover bid may be the result of shareholders being upset with management

or corporate raiders looking for an opportunity. Defending a hostile bid can be

both expensive and time consuming.

Parameters to judge an IPO

Good investing principles demand that you study the minutes of details prior

to investing in an IPO. Here are some parameters you should evaluate:-

Promoters

Is the company a family run business or is it professionally owned? Even

with a family run business what are the credibility and professional

qualifications of those managing the company? Do the top level managers

have enough experience (of at least 5 years) in the specific type of business?

Industry Outlook

The products or services of the company should have a good demand

and scope for profit.

Business Plans

Check the progress made in terms of land acquisition, clearances from

various departments, purchase of machinery, letter of credits etc. A higher

initial investment from the promoters will lead to a higher faith in the

organization.

Financials

Why does the company require the money? Is the company floating

more equity than required? What is the debt component? Keep a track on the

profits, growth and margins of the previous years. A steady growth rate is the

quality of a fundamentally sound company. Check the assumptions thepromoters are making and whether these assumptions or expectations sound

feasible.

Risk Factors


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The offer documents will list our specific risk factors such as the

companys liabilities, court cases or other litigations. Examine how these

factors will affect the operations of the company.

Key Names

Every IPO will have lead managers and merchant bankers. You can

figure out the track record of the merchant banker through the SEBI website.

Pricing

Compare the companys PER with that of similar companies. With this

you can find out the P/E Growth ratio and examine whether its earning

projections seem viable.

Listing

You should have access to the brokers of the stock exchanges where the

company will be listing itself.


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Secondary market:-

Secondary market is the market for buying and selling securities of the

existing companies. Under this, securities are traded after being initiallyoffered to the public in the primary market and/or listed on the stock

exchange. The stock exchanges are the exclusive centres for trading of

securities. It is a sensitive barometer and reflects the trends in the economy

through fluctuations in the prices of various securities. It been defined as, "a

body of individuals, whether incorporated or not, constituted for the purpose of

assisting, regulating and controlling the business of buying, selling and dealing

in securities". There are 23 stock exchanges in India. Listing on stock

exchanges enables the shareholders to monitor the movement of the share

prices in an effective manner. This assist them to take prudent decisions on

whether to retain their holdings or sell off or even accumulate further.

However, to list the securities on a stock exchange, the issuing company has

to go through set norms and procedures.

Various aspects of secondary/ stock market in India :-

(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 a huge difference in a geographically vast country like India.

(b) Exchange Management :

Most of the stock exchanges in the country are organised 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


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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 model eliminates conflict of interest and helps the

exchange to pursue market efficiency and investor 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 into corporates. The standards for

admission of members stress on factors, such as corporate structure, capital

adequacy, track record, education, experience, etc. and reflect a conscious

endeavour to ensure quality broking services.

(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. theoffer 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 is made 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 minimum level 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


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exchanges are uniform for all the exchanges. These norms are specified in

the listing agreement entered into between the company and the concerned

exchange. The listing agreement prescribes a number of requirements to be

continuously 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 the companies 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 the concerned 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 computerquantities 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. It allows faster

incorporation of price sensitive information into prevailing prices, thus

increasing 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.


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(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- defined and orderly manner. The companies are permitted to buy

back their securities to 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 way at 10%, 15% and20% 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 been imposed 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 :-

(i) making securities of public limited companies freely transferable

subject to

certain exceptions;

(ii) dematerialising the securities in the depository mode; and

(iii) providing for maintenance of ownership records in a book entry

form.

In order to streamline both the stages of settlement process, the Act

envisages transfer of ownership of securities electronically by book entry

without making the securities move from person to person. Two

depositories, viz. NSDL and CDSL, have come up to provide instantaneous

electronic transfer of securities. At the end of March 2002, 4,172 and

4,284 companies were connected to NSDL and CDSL respectively. The


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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 for all new IPOs to be compulsorily traded in

dematerialised 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 years from 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 ofsecurities 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.

(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 also administer an efficient market


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surveillance system to curb excessive volatility, detect and prevent price

manipulations. A clearing corporation assures the counterparty risk of

each member and guarantees financial settlement in respect of trades

executed on NSE.

Thus in a nutshell the following diagram explains what all is discussed above


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Debt Market in India:-

For a developing economy like India, debt markets are crucial sources

of capital funds. The debt market in India is amongst the largest in Asia. It

includes government securities, public sector undertakings, other government

bodies, financial institutions, banks and companies. The debt markets in Indiais divided into three segments, viz., Government Securities, Public Sector

Units (PSU) bonds, and corporate securities.

The market for Government Securities comprises the Centre, State and State-

sponsored securities. Government securities (G-secs) or gilts are sovereign

securities, which are issued by the Reserve Bank of India (RBI) on behalf of the

Government of India (GOI). The GOI uses these funds to meet its expenditure

commitments. The PSU bonds are generally treated as surrogates of sovereignpaper, sometimes due to explicit guarantee and often due to the comfort of

public ownership. Some of the PSU bonds are tax free, while most bonds

including government securities are not tax-free. The RBI also issues tax-free

bonds, called the 6.5% RBI relief bonds, which is a popular category of tax-free

bonds in the market. Corporate bond markets comprise of commercial paper

and bonds. These bonds typically are structured to suit the requirements of

investors and the issuing corporate, and include a variety of tailor- made

features with respect to interest payments and redemption.

Debt Market Segments

Government

Securities

PSU Bonds Corporate

Bonds


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PARTICIPANTS IN THE DEBT MARKETS

1. Central Government:-

Central government raises money through bond issuances, to fundbudgetary

deficits and other short and long term funding requirements.

2. Reserve Bank of India:-

Reserve Bank Of India (RBI), the central bank of the country, acts as

investment banker to the government, raises funds for the government

through bond and T-bill issues, and also participates in the market through

open- market operations, in the course of conduct of monetary policy.3. Primary dealers:-

Primary dealers are market intermediaries appointed by the Reserve Bank of

India who underwrite and make market in government securities


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4. State Governments, municipalities and local bodies :-

State governments , municipalities and local bodies issue securities in

the debt markets to fund their developmental projects, as well as to financetheir budgetary deficits.

5. Public sector units (PSU):-

Public Sector Units are large issuers of debt securities, for raising funds

to meet the long term and working capital needs.

6. Corporate treasuries:-

Corporate treasuries issue short and long term paper to meet the

financial requirements of the corporate sector.7. Banks:-

Commercial banks are the largest investors in the debt markets, particularly

the treasury bill and G-sec markets. They have a statutory requirement to hold

a certain percentage of their deposits (currently the mandatory requirement is

24% of deposits) in approved securities (all government bonds qualify) to

satisfy the statutory liquidity requirements.

8. Mutual funds :-

Mutual Funds have emerged as another important player in the debt markets,

owing primarily to the growing number of bond funds that have mobilised

significant amounts from the investors.

9. Foreign Institutional Investors:-

Foreign Institutional Investors are permitted to invest in Dated Government

Securities and Treasury Bills within certain specified limits.

10. Provident funds:-

Provident funds are large investors in the bond markets, as the prudential

regulations governing the deployment of the funds they mobilise, mandate

investments pre-dominantly in treasury and PSU bonds.

Primary market/ New Issue Market:-


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As in the case of equity primary market , this is the market in which

debt instruments government securities, PSU Bonds & corporate bonds are

issued for the first time .

Government Securities:-

In case of government securities , it is the RBI which issues securities on

behalf of the government (both state as well as central government). Thus RBI

periodically conducts auction of GOI/SDL under Central/State borrowing

Treasury program as per the auction calendar and also under MSS for GOI

Securities.

The Primary issuance process involves:-

AUCTION TYPE:

Yield-based auction Price-based auction.

In this, successful bids are decided

by filling up the notified amount

from the lowest bid upwards.

In this, successful bids are filled up

in terms of prices that are bid by

participants from the highest price

downward.

This auction creates a new

security, every time an auction is

completed & the name of the

security is the cut-off yield

This auction facilitates the re-issue

of an existing security

For example, the G-sec 10.3% 2010

derives its name from the cut-off

yield at the auction, which in thiscase was 10.3%, which also

becomes the coupon payable on

the bond.

For example, in March 2001, RBI

auctioned the 11.43% 2015

security. This was a G-sec, whichhad been earlier issued and trading

in the market. The auction was for

an additional issue of this existing

security. The coupon rate and the

dates of payment of coupons and

redemption are already known.

The additional issue increases the

gross

cash flows only on these dates.


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The two choices in treasury auctions, which are widely

known and used, are:

Discriminatory Price Auctions (French Auction)

Uniform Price Auctions (Dutch Auction)

In both these kinds of auctions, the winning bids are those that exhaust the

amount on offer, beginning at the highest quoted price (or lowest quoted

yield). In the Indian markets, discriminatory price auction as well as uniform

price auction is used for all bond issuances. Whether an auction will be Dutch

or French is announced in the notification of the auction.

If all the successful bidders have to pay the cut-off price of Rs. 111.2, the

auction is called a Dutch auction, or a uniform price auction. If the successful

bidders have to pay the prices they have actually bid, the auction fills up the

notified amounts, in various prices at which each of the successful bidders bid.

This is called a French auction, or a discriminatory price auction. Each

successful bidder pays the actual price bid by him.

BID TYPE

1. Competitive Bid: Participants having SGL a/c & current a/c

2. Non-Competitive Bid: Participants not having SGL a/c & current a/c

COMPETITIVE BIDDING PROCESS:

RBI announces the auction of G-sec through a press notification, and invites bids.

Front office takes a view about Bank's participation in the auction, taking into

consideration the market factors, Bank's liquidity and the existing portfolio.

Accordingly, proposal is placed before the Investment Committee


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Non-Competitive Bidding in Government Securities

To enable medium and small investors to participate in the auction process

without taking the price risk in auctions, the Reserve Bank of India has

introduced a facility of non-competitive bidding in dated government securities

auctions for select set of investors. Non-competitive bidding means that a

person would be able to participate in the auctions of dated government

securities without having to quote the yield or price in the bid. Thus, he will not

have to worry about whether his bid will be on or off-the-mark; as long as he

bids in accordance with the scheme, he will be allotted securities fully or

partially.

Participants in the Scheme:

Investment committee consists of GM, AGM of different departments & CMD.

Proposal for investment is placed before the Investment Committee. Decision is

taken.

Bids are submitted through NDS_OM platform giving details of the quantum and

expected price/yield of securities. Report is generated.

Result of the auction is declared by RBI on the same day evening on NDS.

If bid is accepted either partially or fully, the same is entered and authorized in bank

system.

Back-Office Operation:Duly authorized Deal Slip is verified by the back office. On the

day of allotment/settlement back office will settle the deal in the system & categorising

securities in HTM, AFS & HFT.

EndNO

Y

e

s


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Participation in the Scheme of non-competitive bidding is open to any person

including firms, companies, corporate bodies, institutions, provident funds,

trusts and any other entity as prescribed by RBI. As the focus is on the small

investors lacking market expertise, the Scheme will be open to those who do

not have current account (CA) or Subsidiary General Ledger (SGL) account

with the Reserve Bank of India. As an exception, Regional Rural Banks (RRBs)

and Urban Cooperative Banks (UCBs) can also apply under this Scheme in view

of their statutory obligations.

Amount offered for non-competitive bidding:

Non-competitive bids will be allowed up to 5 per cent of the notified amount in

the specified auctions of dated securities, within the notified amount. That is, if

the notified amount is Ra.1000 crore, the amount reserved for non-competitive

bidders would be Rs.50 crore and the remaining Rs.950 crore will be put up for

competitive auctions. The minimum amount for bidding will be Rs.10, 000

(face value) and in multiples in Rs.10,000.

Corporate Bonds :-

The corporate bond market has been in existence in India for a long time.

However, despite a long history, the size of the public issue segment of the

corporate bond market in India has remained quite insignificant.

Secondary Market :-

Like in the case of equity secondary market, the secondary debt market

involves buying and selling of debt instruments which are already issued in

the primary market or listed on the exchanges.

Government bonds are deemed to be listed as soon as they are issued.

Markets for government securities are pre-dominantly wholesale markets, with


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trades done on telephonic negotiation. NSE WDM provides a trading platform

for Government bonds, and reports over 65% of all secondary market trades in

government securities.

Currently, transactions in government securities are required to be settled on

the trade date or next working day unless the transaction is through a brokerof a permitted stock exchange in which case settlement can be on T+2 basis.

In NDS, all trades between members of NDS have to be reported immediately.

The settlement is routed through CCIL for all NDS members.

The lack of market infrastructure and comprehensive regulatory framework

coupled with low issuance leading to low liquidity in the secondary market,

narrow investor base, inadequate credit assessment skills, high cost of

issuance and lack of transparency in trades are some of the major factors that

hindered the growth of the private corporate debt market.

Factors affecting bond interest rates :

The key variables having a bearing on interest rate outlook are:-

US 10 year government bond yields :

The correlation between Indian 10 yr G-sec has held reasonably well in the

recent past. Although, the correlation might not hold on a day to day basis,

but over a slightly longer period, the direction of the movement of theIndian 10 yr bond is quite similar to that of the US 10 yr bond.

The yields of the bonds have increased as the green shoots of recovery in

the global economy has led to an increase in risk taking behaviour among

the investors who are selling bonds to enter other asset classes which are

relatively more risky and offers higher yields. The S&Ps decision to lower

ratings outlook on US sovereign debt to negative from stable led to sell off

in the US treasuries.

Similarly in India, the rally in equity markets since the election results on18th May might have led to some sell off in the bond markets which have

pushed the Indian 10 yr bond yields to 6.70% levels from 6.22% in Mid May,

in line with the sharp rise in the US 10 yr bonds .

Inflation / crude oil prices :


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Inflation arises as the purchasing power of people increases, the value of

Rupee increases. To control the inflation and to suck excess liquidity

from the system the bonds are issued t higher yield.

Political stability / sovereign rating outlook :

The sense of political stability following election results has reduced the

risk of an outright sovereign rating downgrade by international credit

rating agencies in the near future . Although , the fiscal deficit concerns

remain, the continuity of the political regime will abate the risk of

runaway fiscal deficits. The reduced risk of sovereign rating downgrade

due to a stable government and a likely controllable fiscal deficit

scenario will therefore provide support to the bond market sentiments.

RBI policy stance / liquidity outlook:-

The bond interest rate is also affected by the RBI policy stance. If the RBI

goes for an expansionary monetary policy , then the bond coupon rate

will come down , as there will be ample liquidity in the system which

easily would meet the demand for the same. It is a reverse situation

when the RBI goes for a contractionary monetary policy. This is because

then the money supply in the economy would be less as compared to

the demand for the same and the consequence would be hardening ofthe bond coupon rate.

Frequently Asked Questions (FAQs)

1. What are the Sensex & the Nifty?

ANS:-The Sensex is an "index". An index is basically an indicator. It gives you

a general idea about whether most of the stocks have gone up or most of the

stocks have gone down. The Sensex is an indicator of all the major companies

of the BSE. The Nifty is an indicator of all the major companies of the NSE.

The sensex is calculated taking into consideration the top 30 companies of

Bombay Stock Exchange (BSE).In case of National Stock Exchange (NSE) , top

50 companies are taken into consideration to calculating nifty.

If the Sensex goes up, it means that the prices of the stocks of most of


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the major companies on the BSE have gone up. If the Sensex goes down, this

tells you that the stock price of most of the major stocks on the BSE have gone

down.

Just like the Sensex represents the top stocks of the BSE, the Nifty

represents the top stocks of the NSE.

2. Which are the top 30 companies of BSE & top 50

companies of NSE, which are used to calculate sensex &

nifty ?

ANS:- The following is the list of top 30 companies of BSE :-

The sensex 30 includes the following companies (As on 24th

July 2009)

S. No. Name of the

company

S.

No

Name of the company

1 Reliance Industies 16 Grasim Industries

2 Infosys Technologies 17 Maruti Suzuki

3 L &T 18 NTPC

4 ICICI Bank 19 Sterlite Industries

5 HDFC 20 Tata Power

6 ITC 21 Reliance Infrastructure

7 Reliance

Communication

22 Mahindra & Mahindra

8 Bharti Airtel 23 Jai Prakash Associates

9 HDFC Bank 24 Hero Honda

10 SBI 25 DLF11 ONGC 26 Wipro

12 BHEL 27 Hindalco

13 Hindustan Unilever 28 Tata Motors

14 Tata Consultancy 29 Sun Pharma


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15 Tata Steel 30 ACC

The 30 companies that make up the Sensex are selected and reviewed fromtime to time by an index committee. This index committee is made up of

academicians, mutual fund managers, finance journalists, independent

governing board members and other participants in the financial markets.

The Nifty 50 Companies as on 24th July 2009 are as follows :-

S.N

o

Name of the company S.

No.

Name of the company

1 Reliance Industies 26 Hero Honda

2 Infosys Technologies 27 DLF

3 L &T 28 Wipro

4 ICICI Bank 29 Cipla

5 HDFC 30 Idea Celluar

6 ITC 31 Unitech

7 Bharti Airtel 32 Cairn

8 HDFC Bank 33 Hindalco

9 SBI 34 Reliance capital

10 ONGC 35 Tata Motors

11 BHEL 36 SAIL

12 Hindustan Unilever 37 Punjab National Bank

13 Tata Consultancy 38 Sun Pharma14 Tata Steel 39 ACC

15 Grasim Industries 40 Ambuja Cement

16 Reliance Communication 41 ABB

17 Jindal Steel 42 Siemens


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18 Axis Bank 43 Power Grid

19 Maruti Suzuki 44 Reliance Power

20 NTPC 45 Suzlon Energy

21 Sterlite Industries 46 BPCL

22 Tata Power 47 HCL Technologies

23 Reliance Infrastructure 48 Ranbaxy Laboratories

24 Mahindra & Mahindra 49 Tata Communication

25 GAIL(I) 50 National Aluminium

3. What is market capitalisation ( Market cap ) ?

ANS:- Market cap or market capitalization is simply the worth of a company in

terms of its shares. To calculate the market cap of a particular company,

simply multiply the current share price by the number of shares issued by

the company. Thus,

Depending on the value of the market cap, the company will either be a mid-

cap or large-cap or small-cap company

4.What do we mean by Free Float Market Capitalisation

?

ANS:- Many different types of investors hold the shares of a company. These

include government, founders( promoters ) or directors of the company, FDIs

, retail investors, etc. Only the open market shares that are free for trading

by anyone, are called the free-float shares.A particular company, may have

certain shares in the open market and certain shares that are not available for

trading in the open market.

Market Cap= Current Share Price X no. of shares issued by

he com an .


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According the BSE, any shares that DO NOT fall under the following criteria,

can be considered to be open market shares:

Holdings by founders/directors/ acquirers which has control element

Holdings by persons/ bodies with "controlling interest"

Government holding as promoter/acquirer

Holdings through the FDI Route

Strategic stakes by private corporate bodies/ individuals

Equity held by associate/group companies (cross-holdings)

Equity held by employee welfare trusts

Locked-in shares and shares which would not be sold in the open market in

normal course.

A company has to submit a complete report about who has how many of the

companys shares to the BSE. On the basis of this, the BSE will decide the

free-float factor of the company. The free-float factor is a very valuable

number. If you multiply the "free-float factor" with the market cap of that

company, you will get the free-float market cap ,which is the value of the

shares of the company in the open market

5.What is the criteria for selecting top 30 and 50 stocks in

case of BSE & NSE respectively ?

ANS:- The following are the criteria for selecting the top 30 and 50 Stocks for

BSE &

NSE respectively:-

(a)Market capitalization: -The company should have a market capitalization

in the Top 100 market capitalizations of the BSE. Also the market

capitalization of each company should be more than 0.5% of the total market

capitalization of the Index.


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(b)Trading frequency: -The company to be included should have been

traded on each and every trading day for the last one year. Exceptions can be

made for extreme reasons like share suspension etc.

(c) Number of trades: -The scrip should be among the top 150 companies

listed by average number of trades per day for the last one year.

(d)Industry representation: -The companies should be leaders in their

industry group.

(e)Listed history:- The companies should have a listing history of at least

one year on BSE.

(f)Track record:- In the opinion of the index committee, the company should

have an acceptable track record.

6.How to calculate the value of sensex at a particular

point ?

ANS:- The following are the steps to calculate sensex at a particular point of

time:-

First: Find out the free-float market cap of all the 30 companies that make

up the Sensex.

Second: Add all the free-float market caps of all the 30 companies.

Third: Make all this relative to the Sensex base. The value you get is the

Sensex value. To understand the third step let us take an example .

Example:-Suppose, the free float market cap of all the 30 companies was Rs.

100,000,000 at the end of one trading day and the value of sensex is 12500. Themarket cap at the end of next trading day becomes Rs.120,000,000, then the

sensex value at the end of that day is

Sensex value = 120,000,000 x12500 = 15000

100,000,000


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Thus the sensex value at the end of next trading day is 15000.

Please note that every time one of the 30 companies has a stock split or a

"bonus" etc. appropriate changes are made in the market cap calculations.

7. What is price earnings ratio ( P/E ratio) ?

ANS: - PE Ratio is a short form for Price to Earnings Ratio. This is the ratio of

the market price of a stock and its EPS. It is used to judge the valuation of a

company. This ratio shows how much the investors are willing to pay for a

company for each rupee of profit.

As a rule of thumb, companies in mature industries / markets having stable

growth

have a

low to

moderate PE ratio. Companies in high-growth industries / markets having rapidgrowth have a moderate to high PE ratio.

8. Who are the participants in the capital market ?

ANS:-The following are the market participants in the capital market :-

(a) Foreign institutional Investors

(b) Non- Resident Indians

(c) Persons of Indian Origin

(d) Retail investors

(e) Venture capital funds

(f) Mutual Funds

Price Earnings ratio = Market price per shareEarnings Per Share
http://www.raagvamdatt.com/index.php?module=pnEncyclopedia&func=display_term&id=26&vid=1http://www.raagvamdatt.com/index.php?module=pnEncyclopedia&func=display_term&id=16&vid=1http://www.raagvamdatt.com/index.php?module=pnEncyclopedia&func=display_term&id=26&vid=1http://www.raagvamdatt.com/index.php?module=pnEncyclopedia&func=display_term&id=16&vid=1


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(g) Private Equity

(h) High Net worth Individuals (HNIs)

(i)Financial Institutions

(j)Insurance companies

(k) Pension funds , etc.

9. What are Mutual Funds, Pension Funds and Financial

Institutions ?

ANS:- The meaning of above terms is as follows:-

Pension Fund

A pension fund is a pool of assets forming an independent legal entity that arebought with the contributions to a pension plan for the exclusive purpose offinancing pension plan benefits.

Mutual fund

A mutual fund is a professionally managed type ofcollective investmentscheme that pools money from many investors and invests it in stocks,bonds,short-term money market instruments, and/or other securities. The mutualfund will have a fund manager that trades the pooled money on a regularbasis. The net proceeds or losses are then typically distributed to the investors

annually.

Financial Institution

A financial institution is an institution that provides financial services for itsclients or members. Probably the most important financial service provided byfinancial institutions is acting as financial intermediaries. Most financialinstitutions are highly regulated by government bodies. Broadly speaking,there are three major types of financial institution :-

1) Deposit-taking institutions that accept and manage deposits and

make loans (this category includes banks, credit unions, trustcompanies, and mortgage loan companies);

2) Insurance companies and pension funds; and3) Brokers, underwriters and investment funds.
http://en.wikipedia.org/wiki/Pensionhttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Fund_managerhttp://en.wikipedia.org/wiki/Trade_(financial_instrument)http://en.wikipedia.org/wiki/Institutionhttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Financial_intermediarieshttp://en.wikipedia.org/wiki/Financial_regulationhttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Loanshttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Credit_unionshttp://en.wikipedia.org/wiki/Trust_companieshttp://en.wikipedia.org/wiki/Trust_companieshttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Insurance_companieshttp://en.wikipedia.org/wiki/Pension_fundshttp://en.wikipedia.org/wiki/Brokershttp://en.wikipedia.org/wiki/Underwritershttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Pensionhttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Fund_managerhttp://en.wikipedia.org/wiki/Trade_(financial_instrument)http://en.wikipedia.org/wiki/Institutionhttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Financial_intermediarieshttp://en.wikipedia.org/wiki/Financial_regulationhttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Loanshttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Credit_unionshttp://en.wikipedia.org/wiki/Trust_companieshttp://en.wikipedia.org/wiki/Trust_companieshttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Insurance_companieshttp://en.wikipedia.org/wiki/Pension_fundshttp://en.wikipedia.org/wiki/Brokershttp://en.wikipedia.org/wiki/Underwritershttp://en.wikipedia.org/wiki/Collective_investment_scheme


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10. What is the difference between FDI and FII? Which Form

of Investment is good for the economy ?

ANS:-Foreign Direct Investment (FDI ) is the investment made by the foreign

companies / investors in a company with a strategic perspective. The

investment is not only made to gain return but also made to have a say in the

management of the affairs of the company.

On the other hand, Foreign Institutional Investments (FIIs) , also called as

portfolio investments are made by foreign investors primarily to get a

healthy return on their investment.

FDI is preferred overFII investments since it is considered to be the most

beneficial form of foreign investment for the economy as a whole. Direct

investment targets a specific enterprise, with the aim of increasing its

capacity/productivity or changing its management control. Direct investmentto create or augment capacity ensures that the capital inflow translates into

additional production. In the case of FII investment that flows into the

secondary market, the effect is to increase capital availability in general,

rather than availability of capital to a particular enterprise. Translating an FII

inflow into additional production depends on production decisions by someone

other than the foreign investor some local investor has to draw upon the

additional capital made available via FII inflows to augment production. In the

case of FDI that flows in for the purpose of acquiring an existing asset, no

addition to production capacity takes place as a direct result of the FDI inflow.Just like in the case of FII inflows, in this case too, addition to production

capacity does not result from the action of the foreign investor the domestic

seller has to invest the proceeds of the sale in a manner that augments

capacity or productivity for the foreign capital inflow to boost domestic

production. There is a widespread notion that FII inflows are hot money that

it comes and goes, creating volatility in the stock market and exchange rates.

While this might be true of individual funds, cumulatively, FII inflows have only

provided net inflows of capital.

FDI tends to be much more stable than FII inflows. Moreover, FDI brings notjust capital but also better management and governance practices and, often,

technology transfer. The know-how thus transferred along with FDI is often

more crucial than the capital per se. No such benefit accrues in the case of FII

inflows, although the search by FIIs for credible investment options has tended

to improve accounting and governance practices among listed Indian


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companies.

The following graph shows the FDI & FII inflows in India during the last 5 years

Capital Market in India - Impact & Factors


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Impact of capital market on Indian Economy:-

1. Long term finance for corporate and government :-

The capital market is the market for securities, where companies and

governments can raise long term funds. Selling stock and selling bonds are

two ways to generate capital and long term funds. It provides a new avenue to

corporate and government to raise funds for long term.

At present the central government has a large fiscal deficit of 6.8% of GDP,

which comes to around Rs. 4,00,000 cr. To finance this large deficit the

government would look to capital market . Corporates at the moment are

also looking at raising funds through capital market.

2. Helps to bridge investment savings gap:-

It is seen mostly in case of developing countries that they suffer from

investment savings gap . This gap means that funds available fall far short

of the amount needed to stimulate economic development.Thus this gap

hinders the economic growth of a developing country like India.In such a

situation capital market plays an important role . Capital market expand theinvestment options available in the country , which attracts portfolio

investments from abroad. Domestic savings are also facilitated by the

availability of additional investment options. This enables to bridge the gap

between investment and savings and paves the way for economic

development .

Indias improving macroeconomic fundamentals, a sizeable skilled labour

force and greater integration with the world economy have increased Indias

global competitiveness, placing the country on the radar screens of investors

the world over. The global ratings agencies Moodys and Fitch have awardedIndia investment grade ratings, indicating comparatively low sovereign risks.

These positive dynamics have led to a sustained surge in Indias equity

markets since 2003 ,attracting sizeable capital from foreign investors. The net

cumulative portfolio flows from 2003-2006 ( bonds & equities) amounted to $35

billion. In current year (from Jan to July) the Foreign Institutional Investors

have pumped in over $6 billion or around Rs . 29,940 cr.


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3. Cost effective mode of raising finance :-

Capital market in any country provides the corporate and government to raise

long term finance at a low cost as compared to other modes of raisingfinance .Therefore capital market is important, more so for India as it embarks

on the path of becoming a developed country.

4. Provides an avenue for investors to park their surplus funds :-

Capital market provides the investors both domestic as well as foreign

,various instruments to invest their surplus funds. Not only it provides an

avenue to park surplus funds but it also helps the investors to reap decent

rewards on their investment. This realisation has resulted in increased

investments in capital market both from domestic as well as foreign investors

in Indian capital market.

Also there is an opportunity for investors to diversify their investment

portfolio, as wide range of instruments for investment are available in capital

market.

5. Conducive to implementation of Monetary Policy:-

Through open Market Operation (OMO), the Reserve Bank of India controls the

cost and availability of money supply in the Indian economy.Thus when RBI

follows expansionary monetary policy it purchases government securities fromthe Bond market and when it intends to contract the money supply in the

economy it sells the securities from the secondary bond market . Because of

these operation there is also an impact on the interest rates , which in turn

impacts the cost of the funds in the economy. Thus capital market helps the

RBI to check the cost and availability of funds in the economy.

6.Indicates the state of the economy:-

Capital market also indicate the state of the economy. It is said to be the face

of the economy. This is so because when capital market is stable ,

investments flow into capital market from within as well as outside the

country , which indicates that the future prospects of the economy are good.


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Factors affecting capital market in India :-

The capital market is affected by a range of factors . Some of the factors which

influence capital market are as follows:-

a)Performance of domestic companies:-

The performance of the companies or rather corporate earnings is one of

the factors which has direct impact or effect on capital market in a country.

Weak corporate earnings indicate that the demand for goods and services in

the economy is less due to slow growth in per capita income of people .

Because of slow growth in demand there is slow growth in employment which

means slow growth in demand in the near future. Thus weak corporateearnings indicate average or not so good prospects for the economy as a

whole in the near term. In such a scenario the investors ( both domestic as

well as foreign ) would be wary to invest in the capital market and thus there

is bear market like situation. The opposite case of it would be robust

corporate earnings and its positive impact on the capital market.

The corporate earnings for the April June quarter for the current fiscal

has been good. The companies like TCS, Infosys,Maruti Suzuki, Bharti Airtel,

ACC, ITC, Wipro,HDFC,Binani cement, IDEA, Marico Canara Bank, Piramal

Health, India cements , Ultra Tech, L&T, Coca- Cola, Yes Bank, Dr. Reddys

Laboratories, Oriental Bank of Commerce, Ranbaxy, Fortis, Shree Cement ,etc

have registered growth in net profit compared to the corresponding quarter a

year ago. Thus we see companies from Infrastructure sector, Financial

Services, Pharmaceutical sector, IT Sector, Automobile sector, etc. doing well .

This across the sector growth indicates that the Indian economy is on the path

of recovery which has been positively reflected in the stock market( rise in

sensex & nifty) in the last two weeks. (July 13-July 24).

b)Environmental Factors :-

Environmental Factor in Indias context primarily means- Monsoon . In India

around 60 % of agricultural production is dependent on monsoon. Thus there

is heavy dependence on monsoon. The major chunk of agricultural production

comes from the states of Punjab , Haryana & Uttar Pradesh. Thus deficient or

delayed monsoon in this part of the country would directly affect the

agricultural output in the country. Apart from monsoon other natural


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calamities like Floods, tsunami, drought, earthquake, etc. also have an impact

on the capital market of a country.

The Indian Met Department (IMD) on 24thJune stated that India would receive

only 93 % rainfall of Long Period Average (LPA). This piece of news directly had

an impact on Indian capital market with BSE Sensex falling by 0.5 % on the 25th

June . The major losers were automakers and consumer goods firms since the

below normal monsoon forecast triggered concerns that demand in the

crucial rural heartland would take a hit. This is because a deficient monsoon

could seriously squeeze rural incomes, reduce the demand for everything

from motorbikes to soaps and worsen a slowing economy.

c)Macro Economic Numbers :-

The macro economic numbers also influence the capital market. It includes

Index of Industrial Production (IIP) which is released every month, annual

Inflation number indicated by Wholesale Price Index (WPI) which is released

every week, Export Import numbers which are declared every month, Core

Industries growth rate ( It includes Six Core infrastructure industries Coal,

Crude oil, refining, power, cement and finished steel) which comes out every

month, etc. This macro economic indicators indicate the state of the economy

and the direction in which the economy is headed and therefore impacts the

capital market in India.

A case in the point was declaration of core industries growth figure. The six

Core Infrastructure Industries Coal, Crude oil, refining, finished steel, power &

cement grew 6.5% in June , the figure came on the 23 rd of July and had a

positive impact on the capital market with the sensex and nifty rising by 388

points & 125 points respectively.

d)Global Cues :-

In this world of globalisation various economies are interdependent and

interconnected. An event in one part of the world is bound to affect other

parts of the world , however the magnitude and intensity of impact would vary.

Thus capital market in India is also affected by developments in other parts of

the world i.e. U.S. , Europe, Japan , etc.

Global cues includes corporate earnings of MNCs, consumer confidence index

in developed countries, jobless claims in developed countries, global growth


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outlook given by various agencies like IMF, economic growth of major

economies, price of crude oil, credit rating of various economies given by

Moodys, S & P, etc.

An obvious example at this point in time would be that of subprime crisis &

recession . Recession started in U.S. and some parts of the Europe in early2008 .Since then it has impacted all the countries of the world- developed,

developing , less- developed and even emerging economies.

e)Political stability and government policies:-

For any economy to achieve and sustain growth it has to have political

stability and pro- growth government policies. This is because when there is

political stability there is stability and consistency in governments attitude

which is communicated through various government policies. The vice- versa

is the case when there is no political stability .So capital market also reacts tothe nature of government , attitude of government, and various policies of the

government.

The above statement can be substantiated by the fact the when the mandate

came in UPA governments favour ( Without the baggage of left party) on May

16 2009, the stock markets on Monday , 18th May had a bullish rally with

sensex closing 800 point higher over the previous days close. The reason

was political stability. Also without the baggage of left party government can

go ahead with reforms.

f)Growth prospectus of an economy:-

When the national income of the country increases and per capita income of

people increases it is said that the economy is growing . Higher income also

means higher expenditure and higher savings.This augurs well for the

economy as higher expenditure means higher demand and higher savings

means higher investment. Thus when an economy is growing at a good pace

capital market of the country attracts more money from investors, both from

within and outside the country and vice -versa. So we can say that growth

prospects of an economy does have an impact on capital markets.g)Investor Sentiment and risk appetite :-

Another factor which influences capital market is investor sentiment and their

risk appetite .Even if the investors have the money to invest but if they are

not confident about the returns from their investment , they may stay away

from investment for some time.At the same time if the investors have low


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risk appetite , which they were having in global and Indian capital market

some four to five months back due to global financial meltdown and

recessionary situation in U.S. & some parts of Europe , they may stay away

from investment and wait for the right time to come.

WHAT IS ONLINE TRADING?

Online trading involves investment activity which takes place over the internet and

it does not require physical inclusion of the broker. An investor has to register with

an online portal like ICICI direct com, motiwals.com and many companies like that

and investors gets into an agreement with the firm to trade in different securitiesaccording to the terms and conditions given to the agreement. As the servers of the

online trading portal are connected all the time to the stock exchanges and

designated banks the order processing is done in real time and investors can also

have updates on the trading. They can also check status of their orders either

through email or through the interface that it cannot be accessed by a third party.

Some options are usually given to users such as to link their bank account, demat

account and brokerage accounts into a single interface.

Online trading has some advantages over offline trading:

-It is usually cheaper

-It is convenient.

-You have direct access to the actual prices and much more data if you have your

own terminal.

-There is no back office work to be taken care of.

WHAT IS OFFLINE TRADING?

Online trading means apart from online trading , goods or things involved in

buying and selling activity, those are all the activities considered as offline trading.

For example retail marketing, vegetable markets, jewel shop and so on.


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Now a days banking sectors also involved in offline trading. They involved selling

and buying gold from customers.

DATA ANALYSIS AND INTERPRETATION

TABLE-1

CLASSIFICATION OF THE RESPONDENTS BASED ON GENDER

GENDER PERCENTAGE

Male 85Female 15

Total 100

INFRENCE:-

The above table shows that out of 100 investors 85 percents investors are male and

only 15 percent investors are female.

Chart:1


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Table :2

CLASSIFICATION OF THE RESPONDENTS BASED ON KNOWLEDGE

ABOUT STOCK MARKET

STOCK MARKET PERCENTAGE

Yes 90

No 10

Total 100

INFERENCE:-

The above table shows that 90 % of the respondents says yes that they

have knowledge about stock market and only 10% respondents says that

no about stock market , they dont have knowledge .


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CHART:2

TABLE :3

CLASSIFICATION OF THE RESPONDENTS BASED ON MARKET

/INVE