Introduction... Naga

Global Economical Crisis-Impact on Indian Stock Markets
1.1 INTRODUCTION
Global Financial Crisis of 2008
The global financial crisis of 2008 is a major ongoing financial crisis, the worst of its
kind since the Great Depression.
It became prominently visible in September 2008 with the failure, merger or conservator
ship of several large United States-based financial firms. The underlying causes leading
to the crisis had been reported in business journals for many months before September,
with commentary about the financial stability of leading US and European investment
banks, insurance firms and mortgage banks consequent to the sub-prime mortgage crisis.
Beginning with failures of large financial institutions in the United States, it rapidly
evolved into a global crisis resulting in a number of European banks' failures and declines
in various stock indexes, and significant reductions in the market-value of equities (stock)
and commodities worldwide. The crisis has led to a liquidity problem and the deleveraging of financial institutions especially in the United States and Europe, which
further accelerated the liquidity crisis. World political leaders and national ministers of
finance and central bank directors have coordinated their efforts to reduce fears, but the
crisis is ongoing and continues to change, evolving at the close of October 2008 into a
currency crisis with investors transferring vast capital resources into stronger currencies
such as the Yen, the Dollar and the Swiss Franc, leading many emergent economies to
seek aid from the International Monetary Fund. The crisis has roots in the sub-prime
mortgage crisis and is an acute phase of the financial crisis of 2007-2008.
Net Worth Stock Broking Limited

Sub-Prime Mortgage Crisis
Sub-prime, as the word suggests, is anything that is not prime. In the sub-prime crisis
context, it simply means lending money to sub-prime borrowers, i.e., lending to people
with low or poor credit worthiness. Much thought and energy has already been spent in
the literature in understanding the causes of the sub-prime crisis.
To put it very simply, the sub-prime crisis was caused because the lending norms in the
USA were very lax. It is joked about in the academic circles that any man who was not on
a respirator was given a loan without any regard to his or her credit-worthiness. This was
brought about by the "spend yourself out of the post dotcom bust recession" policy of the
American government at that time.
The question is whether the American crisis has seen its worst, or will it deepen? The US
Federal Reserve Board has cut the interest rates by a steep 0.75 percent on January 22,
2009. There is an expectation that the US economy will stabilize as a result. Will such
measures succeed? It is unlikely. They still do not remove the basic weakness of the
American economy.
The first weakness is in the service sector. Previously the US was leading in software
production and new designs, etc. This supremacy is now being challenged by Indian
companies like TCS, Infosys and Wipro. Many leading companies are transferring their
research departments to India because wages are low here. Similar trends can be seen in
many areas like clinical trials, translation, architectural designing, tele-marketing, and
publishing and printing. This weakness can only marginally be managed from
devaluation of the dollar. It is rooted more in the moribund nature of the US education
system.
The second source of weakness is in the auto-loans and credit cards. Another crisis, like
that in the sub-prime housing sector, is in the making. The present troubles started here.
The US Federal Reserve Board encouraged people to take loans to buy houses. The
consequent demand from the housing sector kept the US economy chugging for about
three years. But the borrowers could not repay their housing loans because of decline in
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salaries and wages due to international competition. The loans went into default. Banks
seized the houses, but had to sell them at much lower prices, and had to book huge losses.
A similar crisis is in the making in the auto-loans sector. Car majors are extending loans
to borrowers. The loans backed by security of an automobile are considered 'safe', much
like the sub-prime housing was considered safe. The borrowers are likely to default on
these auto-loans and also credit cards just as they did on housing loans.
The third source of weakness is high oil prices. Americans love big and fast cars. They
have to import huge quantities of oil to keep them running. This is a big drain on the
American economy especially in view of the rising oil prices. The American economy is
more energy intensive than, say, India. They consume more oil per dollar of income
generated. Consequently, high oil prices have a greater negative impact on that economy.
The adverse impact on India is reduced for another reason. The oil-rich Arab countries
are making grand projects like hotels on artificial islands. The manpower for these
projects is supplied in large measure by India. These workers send remittances back
home. Thus, part of the money spent by the world in buying Arab oil flows to India. The
negative impact of high oil prices is partly cancelled by remittances for India but not for
America.
The fourth source of weakness is the expenditure that country has taken upon itself by
acting as the global policeman. The US is incurring huge expenditures in wars in Iraq and
Afghanistan. There seems to be no end to these in sight.
Global Responses
On September 15, 2008, China cut its interest rate for the first time since 2002. Indonesia
reduced its overnight repo rate, by two percentage points to 10.25 percent. The Reserve
Bank of Australia injected nearly $ 1.5 Billion into the banking system, nearly three times
as much as the market's estimated requirement. The Reserve Bank of India added almost
$ 1.32 Billion, through a re-finance operation, its biggest in at least a month.
In Taiwan, the Central Bank on September 16, 2008, said it would cut its required reserve
ratios for the first time in eight years. The Central Bank added $ 3.59 Billion into the
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foreign-currency interbank market the same day. Bank of Japan pumped $ 29.3 Billion
into the financial system on September 17, 2008, and the Reserve Bank of Australia
added $ 3.45 Billion the same day. The European Central Bank injected $ 99.8 Billion in
a one-day money-market auction. The Bank of England pumped in $ 36 Billion.
Altogether, central banks throughout the world added more than $ 200 Billion from the
beginning of the week to September 17, 2008.
US Responses
The Federal Reserve, Treasury, and Securities and Exchange Commission took several
steps on September 19 to intervene in the crisis. To stop the potential run on money
market mutual funds, the Treasury also announced on September 19 a new $ 50 Billion
program to insure the investments, similar to the Federal Deposit Insurance Corporation
(FDIC) program. Part of the announcements included temporary exceptions to Section
23A and 23B (Regulation W), allowing financial groups to more easily share funds
within their group. The exceptions would expire on January 30, 2009, unless extended by
the Federal Reserve Board. The Securities and Exchange Commission announced
termination of short-selling of 799 financial stocks, as well as action against naked short
selling, as part of its reaction to the mortgage crisis.
American Crisis and India
The basic reason for the decline is crisis in the US economy. Indian and American
economies are interlinked in two ways - through trade in goods and flow of capital.
The demand for Indian exports declines as the American economy sinks. But India
certainly gains from cheaper imports in the same measure. Garment exporter suffers
because his orders are cancelled but software engineer makes merry because he gets
Windows software cheap. The combined effect of exports and imports on the economy is
nearly zero. However, share markets respond to the woes of exporters who are listed on
the bourses and not to the gains of consumers. Thus, there is a negative impact on Indian
share markets although there is little impact on the economy.
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The interlinkage through capital flows is tricky. There is an outflow of capital from India
in the short run as the American economy sinks, but there is greater inflow towards India
in the long term.
Global Banks incur losses as troubles of the American economy deepen. Loans given by
them to American home-owners are not repaid. They have to resort to sale of shares in the
Indian markets to raise money to meet these losses in the US. The decline in Indian
share markets in the last two weeks started with such a sell off by foreign banks.
The Government of India is concerned that global black money is being invested in
Indian share markets. The recent clamp-down on Promissory Notes was made to prevent
such inflows. The
Impact of the Crisis on India
While the overall policy approach has been able to mitigate the potential impact of the
turmoil on domestic financial markets and the economy, with the increasing integration
of the Indian economy and its financial markets with rest of the world, there is
recognition that the country does face some downside risks from these international
developments. The risks arise mainly from the potential reversal of capital flows on a
sustained medium-term basis from the projected slow-down of the global economy,
particularly in advanced economies, and from some elements of potential financial
contagion. In India, the adverse effects have so far been mainly in the equity markets
because of reversal of portfolio equity flows, and the concomitant effects on the domestic
forex market and liquidity conditions. The macro effects have so far been muted due to
the overall strength of domestic demand, the healthy balance sheets of the Indian
corporate sector, and the predominant domestic financing of investment.
As might be expected, the main impact of the global financial turmoil in India has
emanated from the significant change experienced in the capital account in 2008-09 so
far, relative to the previous year (Table 1). Total net capital flows fell from US $ 17.3
Billion in April-June 2007 to US $ 13.2 Billion in April-June 2008. Nonetheless, capital
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flows are expected to be more than sufficient to cover the current account deficit this year
as well.
While Foreign Direct Investment (FDI) inflows have continued to exhibit accelerated
growth (US $ 16.7 Billion during April-August 2008 as compared with US $ 8.5 Billion
in the corresponding period of 2007), portfolio investments by Foreign Institutional
Investors (FIIs) witnessed a net outflow of about US $ 6.4 Billion in April-September
2008 as compared with a net inflow of US $ 15.5 Billion in the corresponding period last
year.
Similarly, external commercial borrowings of the corporate sector declined from US $ 7.0
Billion in April-June 2007 to US $ 1.6 Billion in April-June 2008, partially in response to
policy measures in the face of excess flows in 2007-08, but also due to the current
turmoil in advanced economies.
With the existence of a merchandise trade deficit of 7.7 per cent of GDP in 2007-08, and
a current account deficit of 1.5 per cent, and change in perceptions with respect to capital
flows, there has been significant pressure on the Indian exchange rate in recent months.
Whereas the real exchange rate appreciated from an index of 104.9 (Base 1993-94=100)
(US $ 1 = Rs. 46.12) in September 2006 to 115.0 (US $ 1 = Rs. 40.34) in September
2007, it has now depreciated to a level of 101.5 (US $ 1 = Rs. 48.74) as on October 8,
2008.
decline of the dollar has forced global investors to look for another place to invest their
capital. The Saudi Royal Family, for example, is earning huge amounts from the sale of
oil due to high prices that are prevailing. Till recently, they were investing this income in
New York. But this will now flow to Mumbai, and Indian share markets will glow.
Remember the Indian share markets have been scaling new heights as the US economy
has been sinking in the last two years. Surely, Indian share markets jitter every time bad
news comes from America.
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Trends in Capital Flows

Component
Foreign Direct Investment to India
FIIs (Net) *
External Commercial Borrowings (Net)
Short-Term Trade Credits (Net)
Memo
ECB Approvals
Foreign Exchange Reserves (Variation)
Foreign Exchange Reserves (End-Period)
Period
April - August
April - September 26
April - June
April - June
April - August
April - September 26
September 26, 2008
US $ Million
2007-08 2008-09
8,536
16,733
15,508
-6,421
6,990
1,559
1,804
2,173
13,375
48,583
247,762
8,127
-17,904
291,819
* Data on FIIS presented in this table represent inflows into the country and, thus, may
differ from data relating to net investment in stock exchanges by FIIs.
Impact on the Indian Banking System
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One of the key features of the current financial turmoil has been the lack of perceived
contagion being felt by banking systems in EMEs, particularly in Asia. The Indian
banking system also has not experienced any contagion, similar to its peers in the rest of
Asia.
A detailed study undertaken by the RBI in September 2007 on the impact of the subprime episode on the Indian banks had revealed that none of the Indian banks or the
foreign banks, with whom the discussions had been held, had any direct exposure to the
sub-prime markets in the USA or other markets. However, a few Indian banks had
invested in the Collateralized Debt Obligations (CDOs) / bonds which had a few
underlying entities with sub-prime exposures. Thus, no direct impact on account of direct
exposure to the sub-prime market was in evidence. However, a few of these banks did
suffer some losses on account of the mark-to-market losses caused by the widening of the
credit spreads arising from the sub-prime episode on term liquidity in the market, even
though the overnight markets remained stable.
Consequent upon filling of bankruptcy under Chapter 11 by Lehman Brothers, all banks
were advised to report the details of their exposures to Lehman Brothers and related
entities both in India and abroad. Out of 77 reporting banks, 14 reported exposures to
Lehman Brothers and its related entities either in India or abroad. An analysis of the
information reported by these banks revealed that majority of the exposures reported by
the banks pertained to subsidiaries of Lehman Bros Holdings Inc., which are not covered
by the bankruptcy proceedings. Overall, these banks' exposure especially to Lehman
Brothers Holding Inc., which has filed for bankruptcy, is not significant and banks are
reported to have made adequate provisions.
In the aftermath of the turmoil caused by bankruptcy, the Reserve Bank has announced a
series of measures to facilitate orderly operation of financial markets and to ensure
financial stability which predominantly includes extension of additional liquidity support
to banks.
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Impact on IT Sector
The air of pessimism of a possible slowdown of the US economy has been a cause of
concern for the Indian IT industry at large. Most Indian IT service providers generate
more than 50% of their revenues from the US market, and it is natural that a possible
slowdown will impact their revenues, either directly by a shift in the demand of IT
services from specific industries in the US, or indirectly by a shift of investments to other
favorable markets and assets.
Although it is too early to gauge whether this slowdown will have a net positive or
negative impact, the following industry-wise analysis will focus on possible trends in the
demand of IT services in specific industries directly or indirectly impacted by the subprime crisis.
The current crisis parallels the 2001-2002 bust especially for India's IT (export) sector.
Approximately 61% of the Indian IT sector's revenues are from US clients. If you just
take the top five India players who account for 46% of the IT industry's revenues, the
revenue contribution from US clients is approximately 58%. About 30% of the industry
revenues are estimated to be from financial services. In addition, from a qualitative standpoint, the tentacles of the financial sector business are quite well-entrenched and have
significant structural impact as well.
A recent study by Forrester reveals that 43% of Western companies are cutting back their
IT spend and nearly 30 percent are scrutinizing IT projects for better returns. Some of this
can lead to off-shoring, but the impact of overall reduction in discretionary IT spends,
including offshore work, cannot be denied. The slowing US economy has seen 70 percent
of firms negotiating lower rates with suppliers and nearly 60 percent are cutting back on
contractors. With budgets squeezed, just over 40 percent of companies plan to increase
their use of offshore vendors
The US financial crisis puts a question mark on growth for Indian IT in the short-tomedium term. At the time of Q1 results, we saw growth numbers that were revised down
by 2-3% after sentiments started building up against the US financial sector. A worse
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downward revision is expected this quarter as well, though some larger players like TCS
and Satyam have officially denied any possible impact on growth. Going by Infy
numbers, a gloomy forecast can be expected.
Impact on Banking & Financial Services
The real losses incurred by most financial institutions from the exposure to mortgage
business are yet to be confirmed. Such uncertainties on overall projected earnings will
call for stricter budgetary controls and the overall demand for IT services will go through
a slump in the first two quarters of 2008. However, most financial institutions will
introduce new controls to their credit risk management processes. These initiatives will
not only be voluntary in nature but also be made mandatory as the regulators will demand
more transparency. Regulatory and process improvement initiatives would become the
primary sponsors of new IT initiatives within these organizations.
IT service companies, who have focused on building strong vertical expertise in the areas
of credit risk management, compliance and business intelligence, will have a first mover
advantage in quickly aligning their service portfolio to the needs of the business and still
generate new sources of revenues in the Banking and Financial Services sector. IT
product companies with niche products on risk management and compliance will lead the
pack during the initial budgetary control periods.
Impact on Manufacturing - Automotive, High-Tech

These industries in the US will have the most knock-on effect of the sub-prime crisis on
their sales volumes. Negative savings and higher monthly payments on mortgages will
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make sizeable population of the Americans in the average and low income ranges to think
twice before owning a new car or savvy electronic equipments. In addition, the credit
crunch will also impact the availability of easy credit for acquiring new automobiles and
expensive electronic goods. Rising oil prices will only make things worse.
In the face of reducing sales volumes and the need to keep up the productivity growth,
job-cuts will be prominent in these industries. Although the reducing sales volumes will
have an overall drag on IT spends, more job cuts will call for further automation of
business processes. Rising pressure on margins with competition from Asian and
European manufacturers will create the demand for leaner and efficient business
processes resulting in a demand for process re-engineering and system integration
services. Although most large Indian IT service providers have focused verticals around
these industries (Approximately 10% of the revenues of both TCS and Infosys come from
Manufacturing), niche IT and business process consulting service providers will have an
advantage over others in this segment with a stronger focus on building business process
consulting capabilities.
Impact on Retail
Standing next to automobile and electronics segment is the retail segment, which will
have a considerable impact due to reduced consumer spending induced by higher
mortgage payments and a psychological drag to spend on further credit with credit cards.
Although the 2007 Christmas sales volumes of major retailers in the US did not show any
alarming signs of reduced consumer demands, a possible recession in the year 2008 will
force most retailers to slice down their product prices to attract consumers.
Dealing with the Impact of the Global Financial Crisis

Eleven Point Agenda for Indian Economy: Key Issues
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Domestic liquidity shortage
Exchange rate volatility and reduction in access to foreign currency funds Inadequate
credit availability and slowdown in demand
Decline in business and investor confidence and optimism
Highlights of Recommendations Credit Flow & Impetus to Growth
Establishment of a corpus for lending to SMEs
Speedy release of government funds for various projects to ensure timely
implementation and generation of economic activity
Fast tracking of all infrastructure projects to spur investments and growth through intersectoral linkages
Domestic Liquidity & Interest Rates
Further reduction in repo rate by at least 50 bps and in CRR by 150 bps to ensure
adequate liquidity and reasonable cost of funding
Provision of liquidity to mutual fund and NBFC sectors, to enable orderly operation of
financial markets
Guarantee for all bank deposits for a two year period, to maintain depositor confidence
in the banking sector
Foreign Exchange Management
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Focused exchange rate management to prevent volatility without reducing rupee
liquidity
Permitting higher levels of FDI in order to attract foreign capital
Utilization of foreign exchange reserves for meeting critical foreign currency needs
Removal of the cap on NRE and FCNR (B) deposits
Communication
Comprehensive communication exercise by Government and regulators in consultation
with industry to articulate the approach to mitigate risks arising out of the global
financial crisis and strengthen confidence in the economy
1.2 OBJECTIVES OF STUDY

1. To know what financial crisis.
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2. To find the orgin of the crisis going on currently in the financial

market/.
3. To understand the sub-prime theory in the US market
4. To know the impact sub-prime on the US & global market
5. To understand the insurance of the US on the Indian market.
6. To find out impact financial crisis specified on each sector of Indian
stock market.
7. On micro to know the financial crisis on its impact on Indian stock
market.
8. To know how the financial influences the stock market
9. To analysis what the precautions can be taken to avoid issues like
sub prime theory and non-NPA in India.
10.To analysis the step to be taken to control the financial crisis and how
to overcome from current scenario.
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1.3 RESEARCH METHODOLOGY

Sample Size:
Three sectors
Three in each Sector
Sampling Technique:
Simple Random Sampling
Analysis:
Technical analysis: Through the Tables and Graphs
Data:
Secondary data from 01-01-2009 to 01-02-2009
Interpretation:
Percentage of change of each company and represents the Average of change
to the whole sector movement of sector.
Sectorial movement shows whether the sector is positive or negative. And the
sector shows impact on Indian Stock Market.
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1.4 Limitations
Sample Size is three sectors, which may not be able to show that exact picture
of the market.
We took three companys in each which may not be able show that exact
picture of the sector
Time period of sector is for thirty days which is to find out the market
movement
The fundamental news and company results may show the impact on the
study during the study period.
Sub prime crisis in still showing its impact on the market on few sector
majority
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2.1 COMPANY PROFILE
A world of intelligent investing
Ever since its inception in 1993, Net worth Stock Broking Limited
(NSBL) has sought to provide premium financial services and information,
so that the power of investment is vested with the client. We equip those
who invest with us to make intelligent investment decisions, providing them
with the flexibility to either tap into our extensive knowledge and expertise,
or make their own decisions. NSBL made its debut into the financial world
by servicing Institutional clients, and proved its high scalability of
operations by growing exponentially over a short period of time. Now,
powered by a top-notch research team and a network of experts, we provide
an array of retail broking services across the globe - spanning India, Middle
East, Europe and America. Currently, we are a Depository participant at
Central Depository Services India (CDSL) and aim to become one at
National Securities Depository (NSDL) by the end of this quarter. Our
strong support, technology-driven operations and business units of research,
distribution and advisory coalesce to provide you with a one-stop solution to
cater to all your broking and investment needs. Our customers have been
participating in the booming commodities markets with our membership at
the Multi Commodity Exchange of India (MCX) and National Commodity
& Derivatives Exchange (NCDEX) through Networth Stock.Com Ltd.
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NSBL is a member of the National Stock Exchange of India Ltd (NSE)

and the Bombay Stock Exchange Ltd (BSE) on the Capital Market and
Derivatives (Futures & Options) segment. It is also a listed company at
the BSE.
Corporate overview
Net worth is a listed entity on the BSE since 1994
The company is professionally managed with experience of over a
decade in broking and advisory services
Net worth is a member of BSE, NSE, MCX, NCDEX, AMFI, CDSL
Current network in India with 256 branches and franchise. Presence in
major metros and cities
Empanelled with prominent domestic Mutual Funds, Insurance
Companies, Banks, Financial Institutions and Foreign Financial
Institutions.
Strong experienced professional team
50000+ strong and growing client base
Average daily broking turnover of around INR 5 billion
AUM with Investment Advisory Services of around INR 6 billion
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2.2INFRASTRUCTURE
A corporate office and 3 divisional offices in CBD of Mumbai which
houses state-of-the-art dealing room, research wing & management
and back offices.
All of 256 branches and franchisees are fully wired and connected to
hub at corporate office at Mumbai. Add on branches also will be wired
and connected to central hub
Web enabled connectivity and software in place for net trading.
200 operative IDs for dealing room
State of the Art accounting and billing system, on line risk
management system in place with 100% redundancy back up.
In house technology backs up team to ensure un-interrupted
connectivity.
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2.3 PRODUCTS AND SERVICES AND PROTFOLIO

Retail and institutional broking
Research for institutional and retail clients
Distribution of financial products
Corporate finance
Net trading
Depository services
Commodities Broking
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Services
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1 0 7 b ra n c h e s
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The Networth connectivity with 256 branches and growing
Networth Research Products
India Daily Notes
Market Musing
Bullion Tracker
Analysis of trends in Gold & Silver
Economy Pulse
Monthly overview of macro factors
Company-Specific Reports
Market Insight for the day

Whats Hot and Whats not !!!
Detailed fundamental report
subsequent to plant visit & management meet
Pre-Quarter Result Previews Result preview of companies under

coverage
Result Update
Post result review of companies under coverage
Stock Stance
Theme-Based Reports Budget Analysis, Dividend
Management Visit Note
NSBL - Objectives of the Company:
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To increase its investors all over the country
To provide better services to their clients
To maintain good relation with the clients
Increasing the profits of the company
To lead their transactions under the control Act of Securities Exchange Board of
India 1992
NSBL - Product / Service produced:

Here the product means service relate to the company the company Brokerage Services.
Its has spreaded across over the country with experienced and expertized in the
Brokerage services rendered by the Brokers in their Branches to their Investors.
NSBL Market Research:

Market research is one of important Methodology for finding the problem and make
analyze and interpret and solve the problem. In every area it has sharing the contribution
towards successing the projects / problems.
In the NSBL company has also adopted this technique by Research analysts to these
brokers utilizes and understands their researches then they will moving in a right path.
The research analysts analyses the company performance and what are the companys
stocks are moving why the companys scrips prices are fluctuating and what are the
effects for this situations under the circumstances. Then the company successfully
operating their activities produce of good operating Results.
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NSBL Operating Results:
The Operating Results of the NSBL company is satisfactory compare to its competitors
are India Bulls, Networth Stock Broking ltd, India info line etc., They are giving quality
services to their clients and improving their retained gains. Through this they are creating
new clients through adopting different strategies for attracting the clients towards its
business then its future glorious.
NSBL Future Outlook:

Its future will be Glorious because it has recently launches new service to
expand its business i.e., NSBL - INSURANCE it tie ups with other insurance companies
like Reliance insurance and Bajaj life insurance to gather the customers towards their
company to other insurance companies they will gain the profit like the company NSBL
planned for the future make its fruitful
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3.1 EXECUTIVE SUMMARY:

The global markets and the Indian markets have been volatile over the past few days and
have caused concern among investors. The whole global meltdown can be attributed to
whats happening in the US and some other influential developed economies. It all started
with the Sub prime crisis resulting in a liquidity and Credit Crunch.
During my training in Asit C.Mehta Investment Intermediaries Ltd. I have tried to study
the Impact of this economic changes and global meltdown on our stock markets and its
various sectors. I have studied and explained the sub prime situation and its impact on
stock market. Also I have studied the impact of Budget on various Sectors through the
Training.
INTRODUCTION:
The seventh largest and second most popular country in the world, India has long been
considered a country of unrealized potential. A new spirit of economic freedom is now
stirring in the country, bringing sweeping changes in its wake. A series of ambitious
economic reforms aimed at deregulating the country and stimulating foreign investment
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has moved India firmly into the front ranks of the rapidly growing Asia Pacific region
and unleashed the latent strengths of a complex and rapidly changing nation.
India's process of economic reform is firmly rooted in a political consensus that spans her
diverse political parties. India's democracy is a known and stable factor, which has taken
deep roots over nearly half a century. Importantly, India has no fundamental conflict
between its political and economic systems. Its political institutions have fostered an
open society with strong collective and individual rights and an environment supportive
of free economic enterprise.
India's time tested institutions offer foreign investors a transparent environment that
guarantees the security of their long term investments. These include a free and vibrant
press, a judiciary which can and does overrule the government, a sophisticated legal and
accounting system and a user friendly intellectual infrastructure. India's dynamic and
highly competitive private sector has long been the backbone of its economic activity. It
accounts for over 75% of its Gross Domestic Product and offers considerable scope for
joint ventures and collaborations. Today, India is one of the most exciting emerging
markets in the world. Skilled managerial and technical manpower that match the best
available in the world and a middle class whose size exceeds the population of the USA
or the European Union, provide India with a distinct cutting edge in global competition.
A firm faces several types of risks. Its profitability fluctuates due to unanticipated
changes in demand, cost, price, taxes, interest rates, exchange rates, etc. managers may
not be able to fully control these risks, but to some extent, can decide the risk that a firm
can bear. They adopt many strategies to reduce the risk by keeping several options open,
which ultimately creates flexibility that might bail them out in difficulties. One major
way of reducing the exposure to risk is by entering into financial derivatives. Risk
management is an integral part of the financial service industry: and due to globalization
the Indian financial market will see an increase in the products in this category.
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The changing scenario has forged a change in the Indian security market. Also certain
market imperfections operative in the market called for change. A majority of
organizations and individuals face financial risk due to changes in the stock market,
prices, interest rates and exchange rates having great significance on the financial
soundness.
Risk taking is the core competence of entrepreneurial spirit: without embracing risks a
business can not reap rewards. Risk and return are the two sides of a coin: while risk
taking is known for ages, the emergence of risk management as a specialized field is a
fairly recent phenomenon. Risk management is an integral part of the financial service
industry. Fund managers, merchant bankers, brokers and portfolio managers, are all
exposed to various types of risks. One of the most important risks is price risk.
In todays era investor invest their funds after basic analysis. The basic function of
financial market is to facilitate the transfer of funds from surplus sectors that is from
(lenders) to deficit sectors (borrowers). If we look at the financial cycle then we can say
that households make their savings, which is provided to industrial sectors, which earn
profit and finally this profit will go to the households in the form of interest and dividend.
Indian Financial System is made-up of 2 types of markets i.e. Capital Market & Money
market.
CAPITAL MARKET HISTORY

The history of the Indian capital markets and the stock market, in particular can be traced
back to 1861 when the American Civil War began. The opening of the Suez Canal during
the 1860s led to a tremendous increase in exports to the United Kingdom and United
States. Several companies were formed during this period and many banks came to the
fore to handle the finances relating to these trades. With many of these registered under
the British Companies Act, the Stock Exchange, Mumbai, came into existence in 1875.
It was an unincorporated body of stockbrokers, which started doing business in the city
under a banyan tree. Business was essentially confined to company owners and brokers,
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with very little interest evinced by the general public. There had been much fluctuation in
the stock market on account of the American war and the battles in Europe. Sir
Premchand Roychand remained a kingpin for many years.
Sir Phiroze Jeejeebhoy was another who dominated the stock market scene from 1946 to
1980. His word was law and he had a great deal of influence over both brokers and the
government. He was a good regulator and many crises were averted due to his wisdom
and practicality. The BSE building, icon of the Indian capital markets, is called P.J. Tower
in his memory. The planning process started in India in 1951, with importance being
given to the formation of institutions and markets The Securities Contract Regulation Act
1956 became the parent regulation after the Indian Contract Act 1872, a basic law to be
followed by security markets in India. To regulate the issue of share prices, the Controller
of Capital Issues Act (CCI) was passed in 1947.
The stock markets have had many turbulent times in the last 140 years of their existence.
The imposition of wealth and expenditure tax in 1957 by Mr. T.T. Krishnamachari, the
then finance minister, led to a huge fall in the markets. The dividend freeze and tax on
bonus issues in 1958-59 also had a negative impact. War with China in 1962 was another
memorably bad year, with the resultant shortages increasing prices all round. This led to a
ban on forward trading in commodity markets in 1966, which was again a very bad
period, together with the introduction of the Gold Control Act in 1963.
The markets have witnessed several golden times too. Retail investors began participating
in the stock markets in a small way with the dilution of the FERA in 1978. Multinational
companies, with operations in India, were forced to reduce foreign share holding to
below a certain percentage, which led to a compulsory sale of shares or issuance of fresh
stock. Indian investors, who applied for these shares, encountered a real lottery because
those were the days when the CCI decided the price at which the shares could be issued.
There was no free pricing and their formula was very conservative.
35

The next big boom and mass participation by retail investors happened in 1980, with the
entry of Mr. Dhirubhai Ambani. Dhirubhai can be said to be the father of modern capital
markets. The Reliance public issue and subsequent issues on various Reliance companies
generated huge interest. The general public was so unfamiliar with share certificates that
Dhirubhai is rumoured to have distributed them to educate people.
Mr. V.P. Singhs fiscal budget in 1984 was pathbreaking for it started the era of
liberalization. The removal of estate duty and reduction of taxes led to a swell in the new
issue market and there was a deluge of companies in 1985. Mr. Manmohan Singh as
Finance Minister came with a reform agenda in 1991 and this led to a resurgence of
interest in the capital markets, only to be punctured by the Harshad Mehta scam in 1992.
The mid-1990s saw a rise in leasing company shares, and hundreds of companies, mainly
listed in Gujarat, and got listed in the BSE. The end- 1990s saw the emergence of Ketan
Parekh and the information, communication and entertainment companies came into the
limelight. This period also coincided with the dotcom bubble in the US, with software
companies being the most favoured stocks. There was a melt down in software stock in
early 2000. Mr. P Chidambaram continued the liberalization and reform process, opening
up of the companies, lifting taxes on long-term gains and introducing short-term turnover
tax. The markets have recovered since then and we have witnessed a sustained rally that
has taken the index over 13000.
Several systemic changes have taken place during the short history of modern capital
markets. The setting up 5of the Securities and Exchange Board (SEBI) in 1992 was a
landmark development. It got its act together, obtained the requisite powers and became
effective in early 2000. The setting up of the National Stock Exchange in 1984, the
introduction of online trading in 1995, the establishment of the depository in 1996, trade
guarantee funds and derivatives trading in 2000, have made the markets safer. The
introduction of the Fraudulent Trade Practices Act, Prevention of Insider Trading Act,
Takeover Code and Corporate Governance Norms, are major developments in the capital
markets over the last few years that has made the markets attractive to foreign
institutional investors.
This history shows us that retail investors are yet to play a substantial role in the market
as long-term investors. Retail participation in India is very limited considering the overall
36

savings of households. Investors who hold shares in limited companies and mutual fund
units are about 20-30 million. Those who participated in secondary markets are 2-3
million.
Capital markets will change completely if they grow beyond the cities and stock
exchange centers reach the Indian villages. Both SEBI and retail participants should be
active in spreading market wisdom and empowering investors in planning their finances
and understanding the markets.
3.2 CAPITAL Markets
Securities market may be classified is by the types of securities bought and sold there.
The broadest classification is based upon whether the securities are new issues or are
already outstanding and owned by investors. Now we see following chart for
understanding market types.
Capital Market
Primary Market
Secondary Market
Organized
Exchanges
37
Over The
Counter
Primary market:
Securities available for the first time are offered through the primary securities markets.
The issuer may be a brand-new company or one that has been in business for many years.
The securities offered may be a new type for the issuer of additional amounts of a
securities used frequently in the past. In primary market funds are mobilized in the
primary market through prospectus, rights issues, and private placement.
Secondary market:
Once new issues have been purchased by investors, they change hands in the secondary
markets. This market also known as stock market. In India the secondary market consist
of recognized stock exchanges operating under rules, by-laws and regulations duly
approved by the government. There are actually two broad segments of the secondary
markets:
A. Organized market:
Organized exchange are physical marketplaces where the agents of buyers and sellers
operate thorough the auction process. There are number of organized exchanges in India.
NSE (National Stock Exchange) and BSE (Stock Exchange Mumbai) are main stock
exchange. Other than this there are more then 19 stock exchanges.
B. Over The Counter (OTC):
The OTC market is not a central physical marketplace but a collection of broker-dealer
scattered across the country. This market is more a way of doing business than a place.
Buying and selling inters in unlisted stocks are matched not through the auction process
on the floor of an exchange but through negotiated bidding, over a massive network of
telephone and teletype wires that link thousand of securities firms here and abroad.
38

MONEY MARKET:
The money market has 2 components-The organized & unorganized. The organized
market is dominated by commercial banks. The other major participants are RBI,
LIC, GIC, and UTI. The main function of it is that of borrowing & lending of short term
funds. On the other hand unorganized money market consists of indigenous bankers &
money lenders. This sector is continuously providing finance for trade as well as personal
consumption.
DERIVATIVES:Derivatives are contracts that are based on or derived from some underlying asset,
reference rate, or index. Most common financial derivatives are forwards, futures, options
and swaps.
Derivatives trading commenced in India in June 2000 after SEBI granted the final
approval to this effect in May 2000 for trading in index futures. Currently, the Indian
markets provide equity derivatives of the following types:
Index Futures
Stock Futures
Index Options
Stock Options
Derivatives help to improve market efficiencies because risks can be isolated and sold to
those who are willing to accept them at the least cost. Using derivatives breaks risk into
pieces that can be managed independently. Corporations can keep the risks they are most
comfortable managing and transfer those they do not want to other companies that are
more willing to accept them. From a market-oriented perspective, derivatives offer the
free trading of financial risks.
NEED FOR DERIVATIVES:

39

The derivatives market caters to the following needs of prospective investors:
Moving the risk from the risk averse to risk taker.
Discovering the current as well as future prices.
Catalyzing entrepreneurial activities.
Increase the volume of savings and investments.
Types of derivatives:
Forwards: it is a customized contract between two parties, where the settlement takes
place on a specific date in the future at the contract price.
Futures: it is an agreement between two parties to exchange commodity or financial
asset for a certain consideration after a specified period. Thee\se types of contracts are
exchange-traded.
Options: it is a type of contract which provides the buyer the right but not the obligation,
to buy or sell a specific asset or commodity at a specific price.\, on or before any time
prior to the specific date.
Warrants: options with longer maturity are refereed to as warrants.
Baskets: these are options on portfolio of underlying assets.
Swaps: it is a contract whereby the parties agree to exchange a predetermined series of
payments, or exchange interest payments or one set of interest payment with another, for
a specified time.
40
INFORMATION FLOW IN DERIVATIVE MARKET:-
One of the important functions of the futures market is to provide hedging facilities to
hedge price risk. This market also provides scope to speculators due to low transaction
41

cost and leverage. This paper tests whether futures trading is going towards hedging
price risk or towards fulfilling the speculative desires of sophisticated traders.
Being traded in the US for over 100 years commodity futures are still unidentified long
term assets. This may be due to the inflict difference of commodity futures with that of
corporate securities such as stocks, bonds and other conventional assets where, investors
bear the risk during recession period where as investors in commodity futures are
compensated for bearing short-term price fluctuations. The research paper Facts and
Fantasies about Commodity Futures tries to address some commonly raised questions
like future risk and return on investments. The questions are being addressed with respect
to the asset class as a whole, rather than individual commodity futures.
4.1 GLOBAL ECONOMY:

We should consider that we are in a recession and we need to wait for the National Board
of Economic Research (NBER) to opine on whether we have two consecutive quarters of
decline in the Gross Domestic Product (GDP), but that will not happen for up to a year
after the fact. Here are some of the economic factors that lead me to this conclusion:
1. The jobs outlook is detracting. For February the government reported that the economy
lost 63,000 jobs. Actually, the private sector lost 101,000, meaning that government
hiring continues to increase. Due to the way the government counts the impact of births
and deaths, this factor supposedly added 135,000 new jobs. This bit of statistical
chicanery probably means that the real loss in jobs was probably much larger. Moreover,
the unemployment rate fell slightly to 4.8% from 4.9% due to a sharp contraction in the
total number of people looking for work. This is not a good sign.
Generally, employment is a lagging indicator and is is highly unusual to see two months
in a row of job losses and not experience a recession. Yes, that is right; jobs fell in
January as well.
42

2. The U.S. dollar hit new lows against the basket of nineteen currencies, trading as low
as 72.46. The dollar's weakness is one of the reasons we are seeing the price of most
commodities climb higher, since it takes more dollars to buy such commodities as oil. A
falling dollar is considered good for any companies that exports from the U.S. as their
goods and services are less expensive each time the U.S. Dollar falls. On the other hand,
a falling U.S. dollar depreciates the value of the U.S. government, so investors and
countries that are holding this debt may sell part of their holdings to find higher returns.
If this happens it tends to raise interest rates on this debt, which can cause the U.S. to
experience higher inflation and raises the cost of our own debt. The best scenario is
stability in the U.S. dollar which allows investors to have more confidence in their
holdings.
3. Oil is trading around $105 a barrel. As mentioned part of this high price is due to the
falling U.S. Dollar, as oil is priced in that currency. Part is due to concern that Veneuzela,
Ecuador and Columbia will escalate the current saber rattling and actually go to war. It
looks like this risk is now over as the presidents of the countries involved have backed
away from their threats and now seem to want to avoid further confrontation. But such is
the story of oil. There seems to be new problems poking its head up all over the world
when there are large reservoirs of oil.
There are 99 of companies that comprise this group. And as Tom said, In the casino
business, they would be known as whales. The whales can and do move the market.
Then they move on to the next thing that interests them and the market gets back to
normal.
4. The index of Leading Economic Indicators (LEI) continues to plunge, and is not far
away from levels last seen in 2001. Such a drop by the LEI has always been accompanied
by a recession. U.S. leading index decreased 0.1 percent which is the fourth straight
month of declines.
5. Personal income for the average U.S. consumer rose by the same amount as inflation,
around 0.4%, and with rising energy and food costs, it is no wonder that retail sales are
43

down and falling. The savings rate is still negative, which means consumers are using
savings to maintain their consumption.
The world's richest man, Warren Buffett recently said that any reasonable person believes
the U.S. is in a recession.
Going Down from Here
The Federal Reserve has some of the best economists, so it pays to listen to what they
have to say. The table below is from the minutes of the Federal Open Market Committee
(FOMC) held January 30-31, 2008. As you can see the average Fed member is more
bearish now than they were in October. For those of you inclined to read the minutes they
are available at this link.
The Fed's Central Tendency forecast indicates that the U.S. GDP will be 1.3 to 2.0 % for
2008 down from their forecast of 1.8 to 2.5 in October. It looks like their forecasts are
trending down which is not a good sign, especially given the further weakness we are
now seeing. I suspect we will see an even lower forecast in the release of the minutes
from their next meeting in March.
Of further concern is the upward trend in inflation as measured by the Core PCE now
projected to be 2.0 to 2.2 up from 1.7 to 1.9. First, this is now above the Fed's own target
for inflation which is believed to be below 2.0. Second, with the January Consumer Price
Index reports in at 4.3% tells us that inflation is rising not falling. However, the Fed
expects inflation to fall further later in 2008. Perhaps this is because the economy will be
much weaker than it is now, which will cause downward pressure on prices, helping to
reduce inflation. This is usually what happens during a recession. If so, then that means
they really expect much slower growth. An interesting conflict in their forecasts.
If we see further rate cuts, and many analysts believe there will be, then it is a sign the
Fed is even more worried about economic growth and not as worried about inflation.
Moreover, do not expect the Fed to predict we are in or about to enter a recession. First,
the markets are likely to react much more negatively to such an announcement and the
44

Fed would not want to take the blame. Second, even though the Fed is an independent
agency it still must report to the Congress. The Fed needs to keep its independence, so it
is very unlikely to forecast the economy is going into a recession. If they did so, many in
congress would want to take away some of their power, thinking the elected
representatives could do better. Talk about out of the frying pan and into the fire, or how
to make a bad situation worse.
Looking for the Bottom

The bear market started with the problems in the mortgage industry that are spilling over
into other parts of the credit arena. Banks and investment firms must have the necessary
liquidity to meet their margins calls and provide sufficient capital to remain a going
business. As a result, investors keep trying to determine if the problems in the mortgage
business will end any time soon.
As of November, housing was down 8.4%. It is certainly worse now, but that is a place to
start for this discussion. The question is, how much further down can it go? Goldman was
the firm that saw the problems in the mortgage business coming and managed to short
some of the market, thus avoiding the hit to earnings that other financial firms
encountered. According to Goldman if there is no recession, the housing market will fall
by 15%. On the other hand, if there is a recession, then housing prices could fall by 30%.
Ouch! That is substantially more than the 8.4% experienced up through last November.
Along comes First American (FAF), who has calculated how many homeowners will be
experiencing negative equity in their homes if the prices fall 15% and then 30%. It is not
a good picture as the table below shows.
TOTAL % DECLINE IN HOUSING
PRICES
8.4% (today)
15% (No Recession)
30 % (Recession)
PERCENT MORTGAGES WITH NEGATIVE

EQUITY
13.5%
21%
39%
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If this forecast from Goldman and the analysis from First American is correct, then by the
end of November 13.5% of the mortgages outstanding are backed by homes with
negative equity. This not much of surprises, since many of the mortgages that have been
written in the last few years were with little or no money down. All parties counted on the
appreciation in homes to continue. When the value of the house falls, the borrower is
paying for an asset that is worth less than the outstanding loan(s). This causes people to
walk away from their commitments and the house goes into foreclosure.
If Goldman's prediction of a 15% decline in the value of housing , then 21% of the
outstanding mortgages will be backed by negative equity. Moreover, this is without a
recession. However, we are in a recession, so, according to Goldman, we will see a 30%
decline in the value of homes; and with it, 39% of the mortgages will be backed by
negative equity.
This means the financial crisis we are now experiencing has more to go. There are going
too be more unhappy surprises coming from the financial sector as this problem works
through the system. Keep in mind that more defaults on these loans cause the banks and
other owners of these credits to experience losses that must be written off. These write
offs cause the institutions to either sell off their good loans or sell additional equity to
meet the minimal capital requirements. But no one wants to buy these loans, since they
are having the same problem. It creates a vicious cycle that brings down the good firms
along with the bad. It also makes borrowing more difficult as rates climb even for the
firms with the best of credit. The recent implosion by Bear Stearns is just one example.
The Fed sees this, which is why they are providing $200 billion in emergency credit and
backing the bail out of the Bear Stearns investors. But so far that hasn't fixed the
problem. I suspect that we will see more failures that will then cause them to buy more of
these securities to get them off the books of these firms. In the mean time the economy
will suffer even more.
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4.2 INDIAN ECONOMY:

STOCK MARKETS IN INDIA
Evolution and structure
India is one of the oldest stock markets in the world with a strong presence of domestic
and local intermediation. It was the extent of the indigenous equity broking industry in
India that led to the formation of the Native Share Brokers Association in 1875 which
later came to be known as Bombay Stock Exchange (BSE). As early as in 1864, there
were more than 1,000 brokers in Mumbai trading in stocks. High premiums were also not
something new. At the height of the stock market boom in the 1860s, following the
American Civil War which led to the formation of a large number of joint stock
cotton/ginning mills that stirred the equity culture later booming into what was then
called share mania, share prices reached stratospheric levels. Bombay at that time
enjoyed the distinction of being known as a major financial centre in the Asia region
having headquarters of 31 banks, 20 insurance companies and 62 joint stock companies.
47

Stock markets in India surged once again following the introduction of a wide range of
economic reforms, with liberalisation of financial markets as one of the central themes.
Buoyed by greater freedom and flexibility, stock markets in India showed growth in the
last one and half decades. Despite major setbacks in the early 1990s and 2000s that led to
extensive investigations into the stock markets by the Joint Parliamentary Committees,
stock markets in India continued to show robust growth.
Some of the fundamental changes that fuelled rapid pace of market growth and at the
same time brought in orderliness in the manner and the conduct of the operations are a
large number of reforms that equipped Indian markets with the best of the processes and
practices that included abolition of open outcry and introduction of electronic trading
(secondary markets), allowing foreign ownership (foreign institutional investment) of
shares, permitting Indian companies to raise capital from abroad (ADRs/GDRs),
expansion in the product range (equities/derivatives/debt), book building process and
transparency in IPO issuance (primary markets), T+2 settlement cycle (payments and
settlements), depositories for share custody (dematerialization of shares) governance of
the stock exchanges (demutualization and corporatisation of stock exchanges) and
internet trading (e-broking). These changes resulted in dramatic growth of the stock
markets in India as well as the equity broking firms. The broking industry is emerging as
a rapidly growing segment in Indian finance, in terms of business growth, distribution
and network and enterprise value.
Indian stocks markets have an extensive market infrastructure in terms of a large number
of institutions and intermediaries.
48
49
India in Global Markets

The stature and significance of India is growing in the world capital markets. India is not
only attracting greater interest from world markets, but is also assuming increasing
importance in global finance.
a. India is a major recipient of foreign institutional flows amongst the emerging
markets. Since the opening up of domestic stock markets to foreign investors, cumulative
net FII investments reached US$ 67 bn by Nov 07
b. Indian companies are regularly covered by global and regional investment banking
research
c. India is major destination of private equity flows into the emerging markets
d. India was host to the annual meetings/conference of the World Federation of
Exchanges (2005) and International Organization of Securities Commission (IOSCO)
(2007)
e. India emerged a trillion dollar market capitalization market in 2007, and was among
the top 10 stock exchanges in the world in terms of market capitalisation
f. India is amongst the top fifteen stock exchanges in the world in respect of equity
turnover
g. India emerged as a leading player in commodities futures market
h. India is amongst the top five in the number of transactions
i. India is among the top five in respect of volume traded in Stock Index Futures and
Stock Futures
j. India is one of the few markets with extensive dematerialization of shares
k. Indias T+2 securities settlement cycle is on par with the global standards
l. Indian stock markets have largest number of listings. Trading takes place in about
2500-3000 stocks
m. Indias most popular stock index (Sensex) is constructed on the basis of full float
methodology, one of the firsts in the Asia region and a global standard
n. Indian market indices such as Sensex and CNX Nifty are listed in foreign exchanges
for trading as ETFs.
50
Recent policy Initiatives

Several policy innovations were evident in the year 2007. A few of the important ones
pertaining to primary and secondary markets, foreign investors, mutual funds and stock
exchanges are summarized below.
1. An Integrated Market Surveillance System (IMSS) that monitors across stock
exchanges (NSE/BSE) and market segments (cash and derivatives) aimed to enhance
efficacy of surveillance function became operational with effect from Dec 1, 2006
2. Listed companies are now required to maintain a minimum level of public share
holding at 25% of the total shares issues with some exceptions
3. Grading of IPOs was made optional. In case an issuer opts for the grading, then these
grades including the unaccepted ones should be disclosed in the detailed and abridged
prospectus
4. Guidelines on issue of Indian Depository Receipts (IDRs) were issued
5. Qualified Institutional Placement (QIP) was facilitated to enable companies raise funds
by way of private placement from Qualified Institutional Buyers. In case of QIP, the
issuer is not required to file a draft offer document with SEBI. Resources raised under
QIP showed a quantum jump in the first eight months of the year
6. BSE and NSE began maintaining a reporting platform for corporate bonds, though
volumes in corporate debt trading remain sluggish. At the instance of SEBI, BSE and
NSE jointly launched a common portal at www.corpfiling.co.in which will disseminate
filings made by companies listed in both the exchanges. In future, when the system
becomes streamlined, a company would be required to file the information only once,
irrespective of the exchange where it is listed
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7. Stock exchanges were advised to update the applicable VAR margin rates at least five
times in a day; by taking the closing price of the previous day, at the start of trading and
the prices at 11.00 am, 12.30 am, 2.00 pm, and at the end of the trading session
8. As a part of strengthening KYC (Know Your Client), Permanent Account Number
(PAN) was made mandatory for all the entities/persons having transactions in cash
market. PAN was made mandatory for all categories of Demat account holders
9. Depository Participants were advised to submit tariff/charge structure to the respective
depositories every year
10. SEBI approved and notified the Corporatisation and Demutualisation Schemes of 19
stock exchanges
11. SEBI communicated the policy of the Government of India in regard to foreign
investments in stock exchanges, depositories and clearing corporations where by:
(a) Foreign investment up to 49% will be allowed in these companies with a separate FDI
cap of 26% and FII cap of 23%
(b) FDI will be allowed with specific prior approval of Foreign Investment Promotion
Board
(c) FIIs will be allowed only through purchases in the secondary markets;
(d) FII shall not seek and will not get representation in the Board of Directors
(e) No foreign investor, including persons in acting in concert, will hold more than five
percent of the equity in these companies
12. Mutual fund trustees are required to certify that the scheme approved by them is a
new product and is not a minor modification of an existing scheme/product
13. SEBI Mutual Fund regulations were amended so as to permit the launch of Capital
Protection Oriented schemes
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14. SEBI directed mutual funds to dispatch statement of accounts to the unit holders
under SIP/STP/SWP on every quarter
15. SEBI allowed the launch of Gold Exchange Traded Funds (GEFTs)
16. SEBI permitted listed companies to send abridged annual report to the shareholders
17. Limits for overseas investments by mutual funds enhanced
18. SEBI approved new derivative products which included; mini-contracts on equity
indices, options with longer life/tenure, volatility index and F&O contracts, Options on
Futures, Bond Indices and F&O contracts, Exchange-Traded Currency (ForeignExchange)Futures and Options and Exchange Traded products to cater to different
investment Strategies
19. SEBI made some important decisions regarding the Participatory Notes (PNs) in Oct
2007, among which is about not allowing FIIs and their sub-accounts to issue/renew
ODIs with underlying as derivatives with immediate effect. It requires them to wind up
the current positions over 18 months, during which period SEBI will review the position
from time to time. SEBI has clarified that there is no proposed bar to ODI contracts,
expiring in Oct 2007 or in the following months, or being renewed, provided the renewal
does not go beyond 18 months. This decision unsettled the foreign institutional investors
resulting in a sharp drop in the markets, but normalcy was back soon after the
clarifications were issued.
53
Business in stock Exchanges

Business has been exceptionally good in primary and secondary markets, in the equities
and derivatives segments across both the national level stock exchanges. Average daily
turnover in equities segment in NSE rose from Rs 88 bn in Jan 2007 to Rs 198 bn in Dec
2007, and in BSE from Rs 44 bn to Rs 86 bn during this period. Cash market turnover in
NSE during the first eight months of FY08 reached Rs 25,707 bn showing a y-o-y rise of
33%. Similarly, cash market turnover in BSE rose to Rs 11,602 bn during Apr-Dec 07,
showing a growth of 21% during the first eight months of the year. Turnover in
Derivatives segment in NSE rose to Rs 99,162 bn during Apr-Dec 2007 signifying a
growth of 35 % in the first eight months of the FY08. Average Daily Turnover in the
Derivatives segment in NSE rose from Rs 314 bn in Jan 2007 to Rs 671 bn in Dec 2007.
Net cumulative investments by the Foreign Institutional Investors reached US$ 67 bn by
Nov 2007, and during the first eight months the gross purchases and sales by the FIIs
amounted to Rs 5,972 bn and Rs 5,321 bn respectively. BSE Sensex closed at 20286 in
Dec 07 from a level of 13,827.77 in Jan 2007, showing a rise of 46.7 % during the year.
During this period, it touched a low of 12316 and a high of 20498. S&P CNX Nifty rose
from 4007.4 on Jan 2, 2007 to 6138.6 on Dec 31, 2007 and showing a growth of 54.8%
(local currency) based on monthly averages of index movement. Except some parts of the
information technology, most of the sectors witnessed sizeable spurt in the stock prices.
Primary markets too were very robust. During the period Apr-Nov 2007, capital
mobilized through public issues, rights issues, qualified institutional placements, and
preferential allotments reached Rs 927 bn in 300 issues as compared to Rs 339 bn in 334
issues showing a growth of 173% during the same period last year. During this period,
amount raised from IPOs increased from Rs 151 bn to Rs 246 bn. In the first eight
months of FY08, 19 issues were offered under Qualified Institutions Placement that
raised Rs 127 bn, as compared to the 10 issues that raised Rs 20 bn in the first eight
months of FY07. Preferential allotments too showed high growth; from Rs 145 bn in 257
issues in Apr-Nov 2006 to Rs 339 bn during Apr-Nov 2007 (133%) in 231 issues. The
54

NSE and BSE reported private placement of corporate debt to the tune of Rs 776 bn
during Apr-Nov 2007. Trading in corporate debt at the exchanges for the first eight
months of FY08 amounted to Rs 325 bn in BSE and Rs 214 bn in NSE. During the same
period, mutual funds mobilised Rs 1,351 bn as against Rs 1,008 bn during the same
period last year.
By Jan 2008, 235 bn shares were under dematerialized form with the National Securities
Depository Ltd and 42 bn shares with Central Depository Services Ltd. Shares of about
7,000 companies are under dematerialization. The market capitalization of shares under
dematerialization rose from Rs 38,769 bn in Apr 2007 to Rs 64,691 bn in Nov 2007.
There are about 7,000 DP locations in the country. NSDL holds 9 million depository
accounts with a geographical coverage of 792 cities and towns.
Market Intermediaries
The number of stock brokers registered with Securities and Exchange Board of India
showed a net increase of 108 from 9,335 in FY06 to 9,443 in FY07. There were 263
additions and 155 cancellations during the year. National Stock Exchange of India has the
highest number of brokers (1077) followed by Calcutta Stock Exchange (960), InterConnected Stock Exchange (925) and BSE (901). The proportion of corporate members
at NSE was at 92% and at BSE at 76%. The number of sub brokers registered during
FY07 rose from 23,479 in FY06 to 27,541. NSE and BSE account for 95% of all sub
brokers. This segment showed a growth of 17.3% during the year. As on Jan 25, 2007,
1,269 Foreign Institutional Investors and 3,760 Sub Accounts were registered with SEBI.
As on Mar 31, 2007, 40 mutual funds were registered with SEBI of which 33 were in the
private sector and seven in the public sector. The number of domestic venture capital
funds rose to 90 during FY07 from 80 in the previous year. Number of foreign venture
funds doubled from 39 to 78 during the period. The fees charged of market intermediaries
by the regulator rose from Rs 580 mn to Rs 2,010 mn. Major heads that generated fees
included take over fees (Rs 520 mn), stock brokers and sub-brokers (Rs 450 mn), offer
documents/prospects (Rs 340 mn), mutual funds (Rs 210 mn), derivative members (Rs
55

110 mn) and FIIs (Rs 90 mn). As a part of investigations, SEBI suspended 52 market
intermediaries, issued warning to 27 intermediaries and prohibitive directions issued to
345 intermediaries and non intermediaries during FY07.
An important feature of the Indian stock markets as compared to other emerging markets
as also developed markets is the large number of listed companies and also a good
number of member brokers. While the share of top securities in the total turnover is
declining over the years, the share of top brokers in trading volumes is increasing. For
instance in FY01, the top 10 securities accounted for 70% of the turnover in BSE which
gradually fell to 24% in FY07. Similarly in NSE, the top 10 securities accounted for 73%
of the volume in FY01, which came down to 28% in FY07. The top 100 securities now
account for 71% of the trading volume in BSE and 84% in NSE. The top 10 members of
BSE, who accounted for 14% of the turnover in cash segment in FY01, saw their share
climbing to 24% in FY07. In NSE, the share of top members rose from 13% to 25%
during FY01-07. The top 100 members now account for 73% and 75% of the cash market
turnover of BSE and NSE respectively.
Commodities futures markets, which began in India in the early 2000s, are showing rapid
growth and progress. Total value of trading at all commodities exchanges for the period
Apr 2, 2007 - Jan 31, 2008 stood at Rs 31,610 bn as against Rs 30,313 bn during the
corresponding period in FY07. Commodities futures markets in India have taken off in a
big way; but concerns arising from sharp spurt in prices of certain essential commodities
and limits imposed on trading of a few agricultural commodities dampened the growth in
their volumes, though trading in other commodities continues to grow. Though a large
number of equity broking houses offer commodities trading also, exclusive commodity
brokerages are emerging as a separate class.
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IMPACT OF FDI ON INDIAN ECONOMY:

LATELY INDIA has emerged as the latest and the most sort after destination for FDI,
reasons for this are many. Being the 10th largest economy in the world and the 4th in
terms of PPP India has emerged as a potential player for FDI and NRI investment. India
has a large reservoir of skilled laborer at internationally competitive cost and a large
entrepreneurial base and a diversified manufacturing structure makes it easy to find
partners for collaborations. The country has a vast scientific and technical manpower of
over 20 million whose size exceeds the population of Taiwan .The number of literates in
India is more than the combined population of France and Japan.
India has a vast domestic market of 300 million strong middle class population having a
substantial purchasing power and another 700 million people whose capacity to purchase
is gradually increasing. Being a vibrant democracy with a large democratic setup together
with a broad based legal framework including arbitration and an independent judicial
system coupled with a vast network of bank branches, financial institutions and wellorganized capital and money markets makes India a favorable destination for FDI and
NRI investments. The country also has a huge network of technical and management
institutions of highest international standards for development of excellent human
resources. India has a record of meeting its international financial obligations as per
schedule and has never been a defaulter. The country has a strong English language base
for business purposes .The strong and vibrant small-scale sector is again good for
establishing strategic alliances with the foreign counterparts. Strategic location of the
country for the third world markets particularly for the rapidly growing South and South
East Asian countries together with a supportive infra structure base helps in generating a
healthy environment for FDI inflow into the country.
A recent international agency report has predicted that the Indian economy will become
one of the worlds largest by 2050 A.D. What became as a drizzle in the 1980s the boom
time of the Indian economy is now pouring in torrents like the Indian monsoonal rains.
With a GDP growth rate of 8 per cent since 2003 starting with a rebound in the Indian
57

agriculture initially but now followed with a boom in manufacturing and service
industries similar to that of China.
In the last couple of months there has been a series of announcements of big investments
by big foreign and NRI companies. Bill Gates in his recent visit to India has announced
that the Microsoft will invest around $ 1.7 billion over the next four years in India. Intel
the largest computer chips company of the world has decided to invest over $ 1 billion in
India. CISCO has announced plans to spend $ 1.1 billion over the next 3- 4 years in India.
For Microsoft India is emerging as a big market to exploit as Microsoft doesnt have
much in stake in China. Buying of shares to the tune of $ 1.5 Billion in Bharti-Tele
ventures by Vodaphone is another big FDI inflow into the country. To be a genuine
competitor of China in FDI, India should aim to an annual growth rate of 10 percent
which the Indian Prime Minister Dr Manmohan Singh has also rightly pointed out
recently. So far India has not attracted more then $ 3-4 Billion annually when compared
to FDI inflows of $ 55- 60 Billion for China. The number of foreign and NRI equities
which have invested in India between August 1991 November 2002 is 15761 with a
total foreign investment of Rupees 283447 Crores. However things are improving in
India too. FDI investment in India has nearly doubled to $2.9 billion during April July
2006 from $ 1.5 billion for the same period last year representing a growth rate of 259 %.
According to the RBI India has received $50.1 billion since 1991 of which $16 billion or
32% of it came since April 2004.
The negative side of this bouncing FDI and NRI inflow is the constraints of Indian
economic growth which are not external but internal .Ups and downs in Indian
agriculture plays a major role in constraining Indian growth rate coupled with unhealthy
infrastructure like pot holed roads, incomplete flyovers, undeveloped airport facilities etc
are the main bottlenecks in the growth of the Indian economy.
Again lopsided regional variation in the economic growth of the country is another major
impediment in the growth of Indian economy. Truant Left Parties whose support is
crucial for the survival of the UPA government at the center is another major hindrance in
the inflow to FDI investment in India.
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However a very reassuring development has been the tremendous boost up which the
recent budget has given to industrial infrastructure and FDI investment in India. Positive
side of the story is the tremendous resilience of the Indian economy, rapid growth of
Indian agriculture, boost up to infrastructure, the tremendous global outsourcing boom in
India and a well-regulated and deep capital market. Looking at the current rate of FDI
inflow India can attract a record of $ 12 billion FDI inflow this fiscal year. The commerce
minister feels it is possible though he has a note of caution, There is competition not
only just from China but also from others like Thailand, Malaysia and so on. We cant
lose focus on attracting investments since we cant get inflows by giving lectures but
work on ways to get investors.
If a comparative analysis of the Indian and Chinese economy is done some interesting
comparison emerges through India lags behind China in many areas a lot needs to be
done if India has to catch up with China. Indias total population is 1033 billion; Chinas
is 1272 billion. Indias labor force is 451 billion; Chinas labor force is 757 billion.
Indias annual GDP is 478 US $ billion, Chinas is US $ 1159 billion. 27 per cent is the
share of Indian agriculture in its GDP in China it is only 15 per cent .27 per cent is the
share of industry in Indian GDP in China it is 52 per cent. 48 per cent of GDP in India
comes from services in China it is only 33 percent. Rail routes in India are 62.5 thousand
sq kms in China it is only 56.7 thousand sq kms. Motor vehicles per 1000 people in India
are 7 in China it is 8. R& D expenditure in India is 0.6 % of GNP in China it is 0.1 %.
Internet host in India is 0.8 per 10000 people in China it is 0.6 per 10000. Education
expenditure in India is 3.2 per cent of GNP and in China it is 2.3 per cent.
Undernourished people in India are 23 per cent of the total population in China it is only
9 percent.Thus if we look into the overall scene of Indian economy with a booming stock
touching almost the 14000 mark, a buoyant Rupee of Rs 43.44 /Dollar and a healthy
growth trend of the major sectors of the Indian economy the environment is very positive
for FDI and NRI inflows. However compared to China it is still behind even though it is
marching ahead. A lot more needs to be done. The Indian bull is no doubt energetic now
however it has to run fast to overtake the Chinese dragon which is not impossible if
friendly ground is created.
59
60
Investment Boom: The Role of Fiscal Reforms

The unprecedented economic growth of last four years has been the result of the interplay
between both demand and supply side factors. Amongst the demand side factors, robust
investment growth has been one of the major ones. Gross capital formation (GCF) has
been growing twice as fast as the gross domestic product (GDP) in recent years, thereby
increasing its share in the GDP pie. As a percentage of GDP, the share of gross capital
formation has increased from 22 per cent in 2001-02 to over 36 per cent in 2007- 08 (as
per the CSO advance estimates).
The growth momentum has clearly changed gears from consumption-led growth to being
an Investment-led growth since 2001-02. The growth rate of investment peaked in 200405 and has slowed down in recent years. It however, continues to be much above the
growth of consumption. Unlike the consumption slowdown, which has been hit by the
tight monetary policy of the RBI, there were little signs until recently that investment has
been dented significantly. The increase in the deployment of incremental credit to capital
goods in 2007-08 also points towards the continuation of strong investment trends in the
economy.
In recent months tentative signs of slowdown in investment activity have emerged. In
January 2008, the capital goods sector clocked a disappointing 2.1 per cent growth - the
lowest for nearly six years. While a blip in growth of capital goods sector for one month
is too early to represent a downturn in investment, it is a cause of worry - more so, if
consumption side is already reeling under a downturn due to high interest rates prevailing
in the economy.
Further analysis done on the trend growth rate of GDP and gross fixed capital formation
(GFCF) also throws up some interesting insights first, both GDP and GFCF have been
growing at the rate which is below their respective trend values at 8.5 and 16.8 percent.
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Second, the business cycles of GDP and investment had been pro-cyclical until 2003-04
however, since then the pattern of growth has been different. Investment grew rapidly and
much above its long run trend for couple of years when GDP was in fact growing below
its trend. Why has investment turned counter-cyclical in recent years?
The improvement in investment has been driven by a significant increase in the private
corporate sector's investment which has doubled as a share of GDP in a matter of four
years - from 6.6 per cent in 2003-04 to 14.5 per cent in 2006-07. Over the same period,
government investment increased from 6.3 per cent of GDP to 7.8 percent. What did
private investment grow rapidly compared to GDP after 2001-02 and experience a
relative slowdown in its growth in recent years when the GDP growth was at all time
high? To find answers to the discerning questions raised above regarding the investment
growth overriding the GDP growth, one needs to probe the fiscal side of the story. At the
beginning of the reform process in 1991, fiscal imbalance was identified as the root cause
of the balance of payments crisis and domestic inflation. The fiscal consolidation, which
followed in response, however failed to sustain itself as it lacked a statutory mandate and
the required institutional support. The enactment of the Fiscal Responsibility and Budget
Management Act (FRBMA), 2003, however, provided the required mandate and lent
credibility to the fiscal reforms process of the government. The fiscal deficit of the centre
as a proportion of GDP has come down from 5.9 per cent in 2002-03 to 3.1 per cent in
2007-08 and is further estimated to decline to 2.5 per cent in 2008-08. Similarly, the
revenue deficit also declined from 4.4 per cent in 2002-03 to 1.4 per cent in 2007-08 and
is estimated to decline to 1.0 per cent by the next year. The fiscal performance of the state
governments has also shown considerable improvement, post FRBMA.
Private sector savings and investment decisions are affected by the fiscal consolidation
steps undertaken by the government both in response to specific revenue and outlays
measures and also as a result of the improved economic outlook that results from the
improved fiscal consolidation. The gradual reduction in both the fiscal and revenue
deficit mandated under the FRBM by the central government has improved its credibility
in the regard that it is serious enough to curtail non-developmental expenditure and
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instead spend in sectors like infrastructure and industrial sector which are thought to be
growth stimulating sectors. Even mere expectations about future fiscal consolidation can
lead to increased confidence of the private sector. There may also be positive wealth
effects associated with actual or expected lower interest rates and perceptions as to
reduced future tax liabilities.
Fiscal consolidation will enhance growth prospects by reducing risk premia as the
government balance sheet improves, and thereby freeing more resources for private
investment at relatively lower market interest rates. Also, it is known that where the fiscal
consolidation is large and part of a broader adjustment and reform agenda, as in the case
of India, it is more likely to be perceived by the private sector as a credible government
commitment and revive private sector confidence.
One more trend which has been quite clear and resulted out of the fiscal consolidation
efforts of the government has been the improvement in the public savings. The savings
rate of the overall public sector has improved from -2.0 per cent of GDP in 2001-02 to
3.2 per cent of GDP in 2006-07, the turnaround of 5.2 percentage points of GDP has been
a key factor that has enhanced not only overall domestic savings, but also boosted private
sector's confidence in the government. The trend of increase in public savings is a clear
indicator of better control on public sector expenditure and improvement in efficiency of
the government finances.
As has been pointed out earlier as well, private investment as a proportion of GDP had
started to rise only after the surge in public sector savings in 2003-04, even though the
GDP growth rate was stabilizing. In fact, for three years since 2003-04 the gross fixed
capital formation was growing much above its long run trend as shown in figure 2, even
when GDP growth moderated. The reason behind this could be that the private sector
essentially viewed the slowdown in economic growth as a temporary phase and expected
a long run momentum to continue given the strong fiscal position of the government.
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How would investment perform going forward? What happens to private investment
going forward depends much on the level and mode of financing of public investment as
economic growth slows. As long as the g o v e r n m e n t demonstrates the sustainability
of public finances and avoids any negative impulse that poses a threat to the fiscal and
revenue deficit targets, private investment should remain resilient, though it is likely to
witness some further slowdown in immediate future as the demand for their products
slows down.
Also, corporate profits, i.e.; private corporate savings are expected to slow down and
hence more of private investment would have to be funded from the external sources. It is
therefore, important that more and more public investment is funded via public sector
savings which would leave more household savings to be transferred to the private
corporate sector for investment. In the immediate future, however, we could see a period
of relatively weak investment demand with firms concentrating on improving efficiency
and optimally utilizing existing capacity.
Conclusion
The ongoing fiscal consolidation effort has reassured the private sector about the
governments commitment to improve the health of the economy. Since 2003-04, an
increase in public savings and a subsequent drop in public sector financing needs from
private savings increased the quantity of resources and lowered the cost of investment for
the corporate sector. It has contributed to improving overall business confidence.
Sustained fiscal consolidation, especially via reduction in revenue expenditure, would
help maintain business confidence as economic growth slows down. In this scenario any
slowdown in investment activity could be relatively short-lived.
Industrial Production
This is the third consecutive month in which industrial production data has been
disappointing. This is clearly a sign of growth slowdown. The overall industrial
production slipped to 5.3 per cent in January 2008 as against 11.6 per cent in last January.
All the three major components namely manufacturing, mining and electricity recorded
64

slower growth in January 2008 as compared to January 2007. The severity of the
slowdown can be gauged from the fact that both the overall industrial growth as also the
growth f its major components in January 2008 are less than half of that recorded in
January 2007.
However, the cumulative industrial growth for the period April-January 2007-08 looks
marginally better at 8.7 per cent, as compared to 11.2 per cent for the same period last
fiscal. Manufacturing for the period April-January 2007-08 clocked a 9.2 per cent growth
as compared to 12.1 per cent for the same period a year ago. Mining showing a marginal
downturn clocked a growth of 4.6 per cent for the period April-January 2007- 08 as
against 4.8 per cent for the same period last year. Growth in electricity also declined to
6.3 per cent in April-January 2007-08 from 7.6 per cent in April-January 2006-07. A
glance at the use-based classification suggests that deceleration in industrial growth is
most pronounced in the consumer durable sector as it recorded a negative growth of 3.1
per cent in January 2008.
However, what is more distressing and disappointing is the 2.1 per cent growth clocked
by the capital goods sector. It may be worthwhile to point out that despite the dismal
performance of rate sensitive consumer durable sector; it is the sustained double-digit
growth of capital goods sector that was keeping the sentiments positive about the future
prospect of industrial growth. While a blip in the growth of capital goods sector for one
month is too early to represent a downturn in investment, it is definitely a cause for
concern- more so, if consumption side is already reeling under a downturn.
At 2-digit classification, out of 17 industries only two industries namely wood & wood
products and machinery & equipment recorded negative growth in January 2008 as
compared to just one industry - jute & fibre textiles in January 2007. However, what is
more striking about the growth pattern of industries at 2-digit level is wide variation in
growth across industries in January 2008. Some of the industry categories that recorded
65

very high growth in January 2008 are - jute & fibre textiles, leather & leather products
basic chemicals & chemical products and metal products and parts. As noted above, the
main disappointment of January 2008 has been the capital goods sector and therfore it is
not a surprise to see that while machinery & equipment clocked negative growth,
transport equipments and parts clocked a paltry 1.5 per cent growth- the two key
constituents of the capital goods sector.
Inflation
The tight monetary policy by the RBI has managed to contain the headline inflation
(measured in terms of the WPI) to 2.97 per cent for the week ended October 27, 2007 but
mainly on account of a larger base. For the first time in five years, a level of below 3 per
cent was attained. Inflation has been ruling below 4 per cent since August 18, 2007 after
touching 6.69 per cent earlier in 2007. It was ruling at 3.50 per cent for three consecutive
weeks and rose to 3.79 per cent as on January 5, 2008. The rise was mainly on account of
rise in prices of some manufactured products including metals and alloys. It further rose
to 3.83 per cent as on January 12, 2008 on account of rise in food prices. The point-topoint rate of inflation based on the All India Consumer Price Index Industrial Workers
(CPI-IW) Index (base year: 2001) remained at 5.51 per cent in November 2007. Even
global commodity and food prices are causing price pressures. The Food & Agriculture
Organisation (FAO) of the United Nations has predicted that food prices would be rising
at a higher rate in the next 5-10 years than in the past, adversely impacting those
economies that have accorded higher weights to the food index in the inflation basket. In
India, food items account for 57 per cent in consumer index (CPI) and 26.94 per cent
(primary and manufactured products) in the wholesale index (WPI) that is used to
measure inflation. Global outlook for edible oils is also tight for the year 2008.
Crude oil had touched $98.62 per barrel mark in the U.S in the first week of November
2007. It crossed the $99 per barrel mark by peaking at $99.29 per barrel on November 21,
2007. On January 2, 2008, crude oil futures touched the psychological mark of $100 per
barrel on apprehensions that inventories might have fallen in the U.S for a seventh week
in a row. On the demand side, the Energy Information Administration (EIA) has
66

estimated that crude consumption in the U.S would increase by 1.4 per cent in 2008
thereby putting an upward pressure on prices. Also, the report by EAC states, crude oil
prices are likely to stay firm. However, the main lesson of the past months has been that
the world can live with $80-90 per barrel. Cartelised oil producers are thus likely to be
emboldened to use production quotas, if necessary, to keep oil prices close to their
present highs, and higher still, if market conditions permit.
The government has announced a relief package for the domestic oil marketing and
refining companies. These companies are now being permitted to hedge crude oil price
risk to the extent of 50 per cent of their inventory, based on the volumes in the quarter
preceding the previous quarter.
So far the government has been keeping the fuel prices in India artificially lower than the
prices world over, in a bid to help the aam aadmi. The government is considering a
combination of measures to contain the impact of rising crude oil prices. They are
namely; reduction in the excise duty, enhanced oil bonds and a marginal hike in retail
prices of petrol and diesel.
67
Inflation in India in 2008 will depend much on how the food prices behave globally and
how much of the increase in oil prices will be passed on to the consumers. Also, rising
subsidies in food, fertilizers and petroleum are a major concern and needs to be
addressed. Thirdly, India imports 70 per cent of its crude oil requirements.
There are yet concerns on the demand-supply mismatch pertaining to agriculture-based
items. It is also expected that the government might go in for imports of some of the
agricultural commodities in case there is a shortfall especially in the case of wheat. The
London-based International Grains Council has made a preliminary forecast for global
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wheat output at 645 million tonnes for 2008-09, up over 40 million tonnes from 2007-08.
Only if this happens would there be a respite from high prices. Similarly, the World
Agricultural Supply and Demand Estimates (WASDE) report released by the U.S
Department of Agriculture (USDA) states that the inventory of wheat for 2007-08 are
projected lower by 32 million bushels in December 2007, reflecting higher expected
domestic offtake and exports. This implies higher demand and hence hardening prices.
Global oilseeds stocks are also expected to decline by almost 25 per cent during 2007-08
to 53.2 million tonnes. Global vegetable oil stocks are also expected to decline further by
about 7 per cent during 2007-08 to 8.1 million tonnes. According to USDA, rice stocks
are expected to decline by about 4 per cent in 2007-08.
FINANCIAL MARKETS:
i Foreign Exchange
The past few months has witnessed quite a few landmark highs of the rupee against the
dollar. The rupee breached the 40 levels for the first time in September 2007 when it
touched 39.90. On November 7, 2007, the rupee touched a 10-year high of 39.16 and then
moved back down at the end of the trading session. The stock market fallout on January
17-18, 2008 on account of FIIs drawing out dollars has caused the rupee to depreciate,
and settle at 39.38 versus the greenback as on January 21, 2008. The rupee sustained at
39.39 on January 31, 2008, mainly on account of continued inflows, despite some
downward pressure of refunds for Reliance Power IPO.
The forward premia has remained positive throughout not nearing the 0 level implying
that the sentiments are towards a weakening rupee and consequently a strengthening
dollar. On January 17-18, 2008, the RBI intervened in the forex market through swap
transactions, with the first leg being a spot transaction (buy) and the other being a
forward transaction (sell). The reason for carrying swap trades was to postpone infusion
69

of rupee liquidity into the system. This pushed up the 6-month and 1-year forward premia
above 2 per cent.
The rapid growth in turnover in the foreign exchange market was sustained by large
surplus conditions in the spot market as average daily turnover increased to $50.1 billion
for the quarter ended December 2007 from $27.6 billion in the corresponding quarter of
the previous year.
On the forex reserves front, after a decline from December 14, 2007 December 21,
2007, the countrys forex reserves increased by $232 million. It was standing at $284.90
billion for the week ended January 18, 2008. The reason for decline was on account of
RBIs intervention in the forex market. The latest figures available for October 2007
shows that RBIs net purchase of dollars was $12.54 billion.
ii Fixed Income
The debt market in India comprises mainly of the G-sec market and the corporate debt
market, with the size of the latter being only around 14 per cent of the total debt market.
The FIIs are allowed to invest in the Indian debt markets subject to quantitative limits
that are reviewed on an ongoing basis. On January 31, 2008, SEBI raised the limit of FIIs
investment in government securities from $2.6 billion to $3.2 billion. The limit of FIIs in
corporate debt market is $1.5 billion. The access provided to the FIIs in the debt market is
to facilitate liquidity management arising from their operations in the equity market since
they have liberal access to the latter in India. The second Tarapore Committee on Fuller
Capital Account Convertibility and the High-Powered Committee report on making
Mumbai an international financial center, have recommended scrapping of caps on FII
investment in rupee-denominated debt. Also, following the announcement of disclosure
norms in P-Notes, FIIs have pepped up investments in the debt markets.
70
ii (a) Corporate Debt

The development of a corporate bond market in India has lagged behind as compared to
other financial market segments owing to many structural factors (Annexure V). While
primary issuances have been significant, most of these were accounted for by public
sector financial institutions and were issued on a private placement basis to institutional
investors. The total private placements amounted for the period January December 2007
amounted to Rs. 1,172.90 billion. The secondary market lacks market liquidity. The total
volumes for January 2007 - January 2008 was Rs. 1,002.69 billion. RBI is also
considering allowing market repos in corporate bonds as one of the steps to deepen the
market (in accordance with recommendations by the Deepak Parekh Committee).
Public Sector banks are expected to swamp the domestic financial markets with bonds
over the next four months in order to build up their Tier II Capital, as part of the Basel II
compliance. Some of the banks that have queued up are State Bank of India, Bank of
India, Union Bank of India, Vijaya Bank, UCO Bank and Dena Bank. One of the first in
the queue is Bank of Baroda which raised Rs. 5,000 million through upper Tier-II bonds
to fund business growth. Among private banks, Yes Bank is planning to raise Rs. 5,0007,500 million via Tier II. (Annexure VI). This is expected to deepen the debt market.
(b) Government Securities
The Indian yield curve (diagram), which was rising at the long-end till December-end,
started to flatten. There have been many studies that have proven that the yield curve is a
predictor of the future interest rates and inflation. But, the yields have flattened out,
especially on account of the economy entering the surplus liquidity mode from the deficit
mode and narrowing of the short and long-term spreads. There is also much expectation
that interest rates would slightly come off before the end of fiscal 2007-08.
The gross borrowings of the Central Government through dated securities was at Rs.
1,470 billion during 2007-08 upto January 25, 2008. This constituted 94.6 per cent of the
71

budget estimates. On January 11, 2008, the government auctioned two dated securities of
7.99% 2017 of Rs. 60 billion and 8.33% 2036 of Rs. 40 billion for the first time in the
New Year.
Heavy volumes were witnessed on January 18, 2008 to the tune of Rs. 29.85 billion,
which resulted in a massive fall in yields. The yield on the 10-year benchmark bond was
7.55 per cent. Concurrently, it was the day of closing for the Reliance Power IPO coupled
with failure in the RTGS system, which drained out liquidity from the system, causing
call rates to break-out the interest rate corridor to touch 60 per cent. On January 21, yields
rose 2 basis points up at 7.57 per cent on expectations of inflationary pressures and
issuance of MSS bonds worth Rs. 60,000 million on January 23, 2008. Feds 75 basis
point emergency rate cut on January 22, 2008 led to the 10-year benchmark yield touch a
2-year low of 7.29 per cent (on January 23, 2008).
But, on January 28, 2008, the yields bounced back to 7.45 per cent on expectations that
the RBI would cut rates in its quarterly Monetary Review Policy announcement. On
January 29, 2008, the yields jumped to 7.52 per cent, the weeks high, on similar
72

expectations. However, in the absence of a rate cut, the yields closed at 7.56 per cent on
January 30, 2008, with total volumes being Rs.8.95 billion. Markets opened with yields
hovering around 7.55 per cent on January 31, 2008 after the Federal Reserve cut interest
rates by 50 basis points.
iii Equity
The market has been reining on global cues and continuous FII inflows. On October 29,
2007, the Sensex breached the 20,000 mark. On November 14, 2007, it registered its
biggest one-day gain of 893.58 points. It was moving in the range of 18,300 19,900
since the third week of October and touched 20,333.06 points on Dec 11, 2007. The Nifty
also touched 6,097.25 points for the first time. On December 13, the Sensex touched
20,498.11 points and the Nifty touched 6185.40 points. Again on January 4, 2008, the
Sensex and the Nifty hit a new record of 20,686.89 and 6,274.30 points, respectively. The
Sensex made a new record on Jan 10, 2008 by touching 21,206.77 points. But it lost 750
points on January 18, 2008 and continued to do so till January 21, 2008 to the extent of
1,400 points, as a result of global pressures and subsequent pull-out by FIIs. . By January
29, 2008, both the Sensex and Nifty somewhat regained their positions at 18,091.94
points and 5,280.80 points, respectively. But, they bled again on January 30, 2008. The
Sensex and Nifty closed at 17,758.64 and 5,167.6 points, respectively. On January 31,
2008, the markets displayed mixed sentiments as it opened weak but bounced back on the
upside in the latter part of the trading session.
The correlation between FIIs turnover (sales + purchases) and Gross turnover of the
Sensex for the period Apr 3, 2006 Dec 31, 2007 was 0.56. Usually domestic MFs and
FIIs have contrary views on the market. Over the last five years, FIIs have been found
buying in December while MFs were net sellers. But, this December has been different
with both being net buyers. Domestic institutions were active in the market towards the
end of CY2007 and beginning January 2008 and continue to remain bullish on the equity
markets. The net position of Mutual Funds in equity was Rs. 55,442 million from January
1-30, 2008, whereas their net position in the debt market was Rs. -44,454 million for the
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same period. Interestingly, Mutual Funds were seen active in the debt markets on January
30, 2008.
Apart from bank credit, the corporate sector continued to meet its funding requirements
from non-bank sources especially the capital markets. Resources raised through domestic
equity issuances from April December 2008 was Rs.318,970 million, which was 40 per
cent higher than the corresponding period of the previous year. Mobilization in the form
of equity issuances through American depository receipts (ADRs) and global depository
receipts (GDRs) for the same period was Rs.114,390 million, which was 43 per cent
higher than the previous year. In a move to deepen the secondary market, the government
has allowed all trusts to invest in the stock market as well as the debt market.
SEBI has permitted short selling to all classes of investors including sub-accounts of FIIs.
Short selling occurs when investors sell stocks that they do not own at the time of
transaction. SEBI proposes to introduce the Securities Lending & Borrowing (SLB)
scheme along with short selling. Borrowing of equity shares by FIIs will only be for the
purpose of delivery into short sale.
74
SUB PRIME THEORY

Banks in the US provided loans to people for purchasing homes.
Between 1980 and 2000 the US economy witnessed a prolonged bull market
which saw an appreciation of housing assets. Hence in this king of a situation the
banks were not too worried about the loans handed out as the appreciation of the
mortgaged property was good enough to hedge them against any default.
As the loans increased, the banks bundled them as securities in order to spread the
loans and mitigate their risks.
The banks managed to get AAA certification from rating agencies for these
securities. Rating agencies based on the growth potential fo the underlying assets
went along with the banks without a thorough credit check of the constituents of
the securities.
Thus these high rated papers got distributed to various investors in the market.
Investment banks themselves were one set of active investors in these papers.
Since the underlying assets were appreciating year on year, they were lured into
making more investments in these papers.
They even borrowed to fund these investments since it was looking very hunky
dory all the way. After all inflation was under check, interest rates wre attractive
and hence loans were cheap. Leveraging made immense sense to the participants.
The sub-prime securities were used as collateral for the funds borrowed.
75
The price of the securities soared on the back of increasing demand aided by the
liquidity glut.
The appreciating securities attracted more buyers causing further price

appreciation.
Every thing looked fine till the growth in housing started to slow down and the
sub prime nature of the loans got exposed. Once borrowers saw the house prices
declining defaults on these loans started.
By the time sanity dawned, it was too late. The mess stared at the lenders of
housing loan. A large number of borrowers were of sub-prime nature incapable of
paying back their loans. This coupled with falling asset value spelt problems for
the financial system.
The securities, which essentially mirrored these assets, likewise lost value.
The highly leveraged investment banks holding on the large quantities of sub
prime securities tried to redeem themselves by liquidating them in order settle
their debt outstanding.
This unwinding triggered a further price collapse of the securities making it

difficult for the investment banks to realize enough from their sale of securities to
enable them to meet their debt obligations.
76
NEXT STRATEGIES
On January 29, 2008, the IMF has downgraded its global growth projections at 4.1 per
cent in 2008 from 4.9 per cent in 2007, mainly on account of lower growth projections of
the advanced economies. While the Indian economy has begun its journey on the growth
path, there are questions being raised on the pace of this journey? If GDP growth would
moderate to 8.5-8.9 per cent as is being ascertained by different quarters, this indicates
that growth in the remaining two quarters would decline to 8-8.6 per cent. This is
substantially lower than performance of the first two quarters. This may be attributed to
decline in exports, decline in domestic demand, which is interestingly coupled with a
resilient growth in investment demand. While economic theory (Annexure I) endorses the
view that investment demand creates domestic demand, its practical implication remains
to be seen. But, currently the picture is lull as the latest manufacturing data has just been
released. Domestic liquidity remains strong but there are few takers at the current interest
rates.
On January 30, 2008, Federal Reserve once again cut the federal funds rate by 50 basis
points to 3 per cent from 3.50 per cent. On January 22, 2008, it had cut the rate by 75
basis points from 4.25 per cent. This is the third time that the Federal Reserve has cut
rates in the last two months. On January 29, RBI left its key interest rates unchanged at
the Q3 Monetary Policy Review. Postfacto, concerns have been raised on the increasing
interest rate differential between the two countries. But, there is not enough evidence to
state that the interest differential between India and the U.S. is the sole driver of inflows.
Therefore, quite contrary to Feds decision, RBIs decision of not going in for a rate cut in
this review was quite expected. The reason being that there are persisting inflationary
pressures in the economy despite the pressures of global softening of rates. At the same
77

time, it has not ruled out the readiness to act if turbulence in global markets threatened
growth and financial stability.
IMPACT OF BUDGET ON VARIOUS SECTORS

5.1 BANKING SECTOR
HISTORICAL DATA OF HDFC BANK
Series
Date
Prev
Close
Open
Price
High
Price
Low
Price
Last
Price
Close
Price
EQ
1-Jan-09
998.35
996
1,019.80
996
1,014.15
1,013.75
EQ
2-Jan-09
1,013.75
1,020.00
1,032.00
1,003.20
1,016.00
1,015.65
EQ
5-Jan-09
1,015.65
1,030.00
1,049.50
1,028.05
1,049.50
1,044.10
EQ
6-Jan-09
1,044.10
1,044.15
1,113.00
1,034.00
1,110.30
1,100.40
EQ
7-Jan-09
1,100.40
1,115.00
1,125.25
996
1,024.25
1,009.25
EQ
9-Jan-09
12-Jan09
13-Jan09
14-Jan09
15-Jan09
16-Jan09
19-Jan09
20-Jan09
21-Jan09
22-Jan09
23-Jan09
27-Jan09
28-Jan09
29-Jan09
30-Jan09
1,009.25
1,000.00
1,057.00
975
1,013.00
1,017.50
1,017.50
1,012.00
1,022.00
990
1,004.20
1,003.70
1,003.70
1,000.00
1,012.00
975.1
990
988.85
988.85
1,044.70
1,044.70
966.9
973.9
977.55
977.55
960
960
907.05
920.4
924.8
924.8
938
944.55
922.2
939
937.55
937.55
949
954.5
931.5
940
941.1
941.1
925
925
902
914
912.45
912.45
906.8
906.8
880
883.15
889.45
889.45
900
917
882
893
900.5
900.5
892.6
911.3
865.1
873
872.45
872.45
897
903.95
880
890
889.45
889.45
898
915.8
895.35
912
911.75
911.75
924.9
937.55
910
921.05
923.45
923.45
892.4
935
892.4
922
925.6
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
78
GRAPHICAL REPRESENTATION OF HDFC
From the above graph and table we can conclude that the HDFC Bank has ended up
with negative from 1,013.75to 925.6, and this shows a negative impact on the overall
Bank sectors.
79
HISTORICAL DATA OF IDBI BANK

Series
Date
Prev
Close
Open
Price
High
Price
Low
Price
Last
Price
Close
Price
EQ
1-Jan-09
67.7
69
70
67.5
69.55
69.7
EQ
2-Jan-09
69.7
71
73.25
69.35
72.3
72.15
EQ
5-Jan-09
72.15
74
74.4
71
72.7
72.55
EQ
6-Jan-09
72.55
72.65
73.95
69.2
71.75
71.45
EQ
7-Jan-09
71.45
72
72.35
62
65.85
66.5
EQ
9-Jan-09
12-Jan09
13-Jan09
14-Jan09
15-Jan09
16-Jan09
19-Jan09
20-Jan09
21-Jan09
22-Jan09
23-Jan09
27-Jan09
28-Jan09
29-Jan09
30-Jan09
66.5
64
68.1
63
65.3
64.65
64.65
64
65.3
60.2
61.6
61.5
61.5
63
64.9
60
62
61.25
61.25
62.45
63.8
60.6
62.4
62
62
60.5
61.75
58
59.2
59.25
59.25
60
60.5
58.75
60
59.9
59.9
59.95
60.85
59
60
60.4
60.4
58.7
59.5
58.05
58.4
58.3
58.3
58.3
58.3
56.05
56.3
56.3
56.3
56.8
58
54.6
55.25
55.4
55.4
56.9
56.9
50.6
54.05
53.7
53.7
55
56.7
54.1
55.5
55.45
55.45
56.25
56.9
55.45
56.45
56.35
56.35
57.7
57.8
55.65
57
56.7
56.7
55.2
57.75
54.05
56.85
57.15
80
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
GRAPHICAL REPRESENTATION OF IDBI BANK
From the above graph and table we can conclude that the IDBI Bank has ended up
with negative from 69.7to 57.15, and this shows a negative impact on the overall
Bank sectors.
81
HISTORICAL DATA OF ICICI BANK

Series
Date
Prev
Close
Open
Price
High
Price
Low
Price
Last
Price
Close
Price
EQ
1-Jan-09
448.1
450
466.95
450
465
464.15
EQ
2-Jan-09
464.15
465
479.8
462.25
472.55
471.25
EQ
5-Jan-09
471.25
475.5
504
474.15
500.9
499.9
EQ
6-Jan-09
499.9
480
530.7
480
526
523.45
EQ
7-Jan-09
523.45
528
538.6
454.05
462.5
467.85
EQ
9-Jan-09
12-Jan09
13-Jan09
14-Jan09
15-Jan09
16-Jan09
19-Jan09
20-Jan09
21-Jan09
22-Jan09
23-Jan09
27-Jan09
28-Jan09
29-Jan09
30-Jan09
467.85
458.7
483
441
445.8
456.6
456.6
440
463.3
428.2
442
438
438
435
448.4
418.05
428.85
425.45
425.45
428.65
451
428.65
443.35
441.1
441.1
429
429
398.3
410.55
408.65
408.65
415
427.7
408.65
420.4
423.75
423.75
425
444.4
408.5
412.35
412.6
412.6
403
407.8
390.25
395.8
396.3
396.3
389.7
389.7
360
366.6
369.35
369.35
381.95
385.9
358.75
380.05
378.05
378.05
331.55
391
331.55
365.9
363.85
363.85
372.95
389
359.1
380
381.1
381.1
386.95
412.5
382.45
410.9
408.05
408.05
430
433.7
402.6
404
410.1
410.1
402
418.9
395
415.25
416.25
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
82
GRAPHICAL REPRESENTATION OF ICICI
From the above graph and table we can conclude that the ICICI Bank has ended up
with negative from 464.15to 416.25, and this shows a negative impact on the overall
Bank sectors.
83
AVEREAGES OF BANKING SECTOR
S.NO
COMPANY NAME
AVERAGE
HDFC
959.96
IDBI
61.53
ICICI
427.79
84
CHANGE IN % OF THREE COMPANIES
S.NO
COMPANY NAME
CHANGE IN %
HDFC
-9.52
IDBI
-21.95
ICICI
-11.5
85
BANKING --- NEGETIVE

Issues and Industry Demand
Re-introduction of tax concession on interest earned on infrastructure loans
u/s 10(23G) of Income Tax Act, 1961.
Bank deposits should be brought under section 80 L for income tax
deductions.
Relaxation in lock in period for savings u/s 80C from 5years to 3 years,
which will increase attractiveness of term deposit.
Increase in ceiling of Rs 15,000 for TDS on interest earned on bank fixed
deposits.
Sec 36 (1) (VIIA) and sec 43 (D)- RBI norms allows banks deduction on
provision made for all grades of assets but IT department allowed only on
bad and doubtful debts.
Simplification of service and fringe benefit tax norms
86

Perpetual non-cumulative preference shares to be included in Tier-I capital
and redeemable cumulative preference shares to be included in Tier-II capital
in order to improve CAR.
Increase the FII/ FDI limit in PSU banks from 20% to 49%.
Further liberalization of directed lending norms.
Levy of BCTT (banking cash transaction tax) should be made applicable only
in those cases where people buy drafts from banks without quoting their
Permanent Account Number (PAN). All other assesses should be outside the
purview of this levy.
Allow another round of VRS and more power to attract suitable talent in PSU
banks.
Impact
Reimbursement by the government for loan waiver of farmers of Rs.60, 000 will be in 3
years have a neutral impact on PSU banks as they will be able to write off these loans &
show a cleaner balance sheet in 2009. But, PSU banks are expected to face pressure on
their net interest margins until the subsidy for waiver of agricultural loans and one time
settlement of loans is released from the government. The cost of adding more rural
households in their rural branches may increase the operating cost for the PSU banks.
Whereas, banks that receive dividend from their subsidiaries will benefit from the set off
of dividend distribution tax & the creation of fund in NABARD, SIDBI & NHB and
withdrawn of BCTT are the favorable steps. However, no measures were taken to comply
with Basel II guidelines as PSU banks need huge cheap capital but stringent restrictions
on FII/FDI participation & structural hurdles like restrictions on capital availability (due
to high government ownership), restrictions on credit deployment and restrictive labour
laws, weak corporate governance have impaired the ability of public sector banks.
87
5.2 CEMENT SECTOR

1.HISTORICAL DATA OF AMBUJA CEMENT
Series
Date
Prev
Close
Open
Price
High
Price
Low
Price
Last
Price
Close
Price
EQ
1-Jan-09
70.05
70.25
71.7
69.8
70.55
70.75
EQ
2-Jan-09
70.75
71.75
72
67.85
69.5
69.1
EQ
5-Jan-09
69.1
70.5
71.6
68.25
70.05
70.1
EQ
6-Jan-09
70.1
70.5
78.4
69.1
77.3
76.4
EQ
7-Jan-09
76.4
78.65
79.2
71
72.35
72.2
EQ
9-Jan-09
12-Jan09
13-Jan09
14-Jan09
15-Jan09
16-Jan09
19-Jan09
20-Jan09
21-Jan09
72.2
71
74.5
69
72.9
72.65
72.65
72
73.75
67.1
69.5
69.35
69.35
68.8
71.65
68
71.65
70.5
70.5
71
72.45
70.05
71.8
71.95
71.95
70
70.55
68
69
69.1
69.1
69.9
71.9
69
71
70.75
70.75
71.75
74
70.1
73.95
73.3
73.3
73.5
73.5
69
69.05
69.6
69.6
68.1
71.75
68.1
70.9
70.6
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
88
EQ
EQ
EQ
EQ
EQ
EQ
22-Jan09
23-Jan09
27-Jan09
28-Jan09
29-Jan09
30-Jan09
70.6
71
71.8
68.6
69.35
70.05
70.05
69.85
69.9
65.1
67.4
66.1
66.1
66.75
72
66.75
69.3
69.6
69.6
70.1
72
69.55
70.8
70.75
70.75
71.5
72.4
67.1
67.75
67.9
67.9
68.4
71.45
66.5
70.6
70.85
GRAPHICAL REPRESENTATION OF AMBUJA CEMENT
89
From the above graph and table we can conclude that the Ambuja Cement has
ended up with negative from 70.75to 70.85, and this shows a negative impact on the
overall Cement sectors.
2. HISTORICAL DATA OF DECCAN CEMENT
90
Series
Date
Prev
Close
Open
Price
High
Price
Low
Price
Last
Price
Close
Price
EQ
1-Jan-09
126.1
148.8
148.8
126
146.9
144.95
EQ
2-Jan-09
144.95
135
149.9
131
138.1
138.25
EQ
5-Jan-09
138.25
132
144.75
127.35
141.9
140.75
EQ
6-Jan-09
140.75
139.5
147.35
137
142.5
144.45
EQ
7-Jan-09
144.45
140.25
140.25
140
140
140
EQ
9-Jan-09
12-Jan09
13-Jan09
14-Jan09
15-Jan09
20-Jan09
21-Jan09
22-Jan09
23-Jan09
27-Jan09
28-Jan09
29-Jan09
30-Jan09
140
138.5
138.5
138.5
138.5
138.5
138.5
131.6
131.6
131.6
131.6
131.6
131.6
132
132.95
126
132.95
132.95
132.95
131
132
131
132
132
132
131.9
131.9
131.9
131.9
131.9
131.9
131
131
131
131
131
131
135.7
137.55
130.5
130.5
130.9
130.9
125.4
131
125.4
127.5
127.5
127.5
122
132
122
131.9
132
132
130
135.95
130
135.95
135.95
135.95
130.2
139.9
130.2
138
138.95
138.95
132.05
140
132.05
140
140
140
133.05
133.05
133.05
133.05
133.05
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
GRAPHICAL REPRESENTATION OF DECCAN CEMENT
91
From the above graph and table we can conclude that the Deccan Cement has ended
up with negative from 144.95 to133.05, and this shows a negative impact on the
overall Cement sectors.
92
3. HISTORICAL DATA OF INDIAN CEMENT
Series
Date
Prev
Close
Open
Price
High
Price
Low
Price
Last
Price
Close
Price
EQ
1-Jan-09
97.7
99
101.35
97
100.6
EQ
2-Jan-09
100.3
102
104.9
99.25
102.9
102.8
EQ
5-Jan-09
102.8
105
106.9
103.6
106.4
106.25
EQ
6-Jan-09
106.25
107
121
105.25
121
118.95
EQ
7-Jan-09
118.95
124
124.9
110.2
116.2
117.7
EQ
9-Jan-09
12-Jan09
13-Jan09
14-Jan09
15-Jan09
16-Jan09
19-Jan09
20-Jan09
21-Jan09
22-Jan09
23-Jan09
27-Jan09
28-Jan09
29-Jan09
30-Jan09
117.7
110
123.55
110
113
114.95
114.95
123.35
123.35
110.55
114.75
113.4
113.4
113
117.9
104.45
106.9
106.45
106.45
108.2
112.25
108.1
111.2
110.8
110.8
101
110
99.75
106.5
105.05
105.05
104.3
110
102.1
105
105.55
105.55
100
109.8
100
108.3
108.05
108.05
108
108.8
104.05
107.05
107.1
107.1
106.45
107.95
103.05
104.1
103.65
103.65
105.35
108.5
101
101.5
102.1
102.1
101
104.9
98.6
101.5
101.7
101.7
102
104.8
99.15
99.95
99.9
99.9
100
108.6
90.65
106.8
105.9
105.9
105.5
108.9
99.5
100.35
100.35
100.35
99.5
104.3
99.5
102
102
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
93
100.3
GRAPHICAL REPRESENTATION OF INDIA CEMENT
From the above graph and table we can conclude that the India Cement has ended
up with negative from 100.3 to102 , and this shows a negative impact on the overall
Cement sectors
94
AVERAGES OF THREE COMPANIES
S.NO
COMPANY
AVERAGE
AMBUJA
70.58
DECCAN
122.23
INDIA
203.13
95
S.NO
COMPANY
CHANGE IN %
AMBUJA
0.14
DECCAN
-8.94
INDIA
1.66
CEMENT --- NEGATIVE

Issues and Industry demands
Reduction of Central Levies and Excise Duty, which constitutes over 60% of
the ex-factory price of cement.
Abatement of 35%-55% on Excise Duty.
96

Reduction of VAT on cement and clinker from existing 12.5% to 4%.
Abolition of 5% Import Duty on coal and pet coke.
CVD be re-imposed to the extent of Excise Duty on cement imports.
Reduction in royalty on limestone, currently at Rs 67/tonne.
Supply of fly ash to cement firms at no cost.
Greater emphasis on Housing and Infrastructure.
Impact
The Union Budget did not meet any of the cement industry-specific demands. The
industry had expected some rebates on taxes as cement is one of the heavily taxed items
but that did not come in the budget. On the contrary, a Rs 100/MT increase in the Excise
Duty on clinker might effect sale of clinker and might squeeze the margins of cement
companies. The Excise Duty on bulk cement at Rs 400/MT or 14% whichever is higher,
will have a negligible impact as bulk cement does not constitute more than 2% of the
overall demand. But an emphasis on power, housing, infrastructure, rural spends and
overall economic growth has brought in expectations of a demand boost as the industry is
positively co-related with economic growth.
5.3 POWER SECTOR

1.HISTORICAL DATA BIRLA SECTOR
Series
Date
Prev
Close
Open
Price
High
Price
Low
Price
Last
Price
Close
Price
EQ
1-Jan-09
11
11.45
11.55
11.05
11.55
11.5
EQ
2-Jan-09
11.5
12
12.1
11.65
12.1
12.1
97

EQ
5-Jan-09
12.1
12.7
12.75
12.1
12.75
12.75
EQ
6-Jan-09
12.75
13
13.25
12.2
12.5
12.35
EQ
7-Jan-09
12.35
12.5
12.8
11.15
11.15
11.2
EQ
9-Jan-09
12-Jan09
13-Jan09
14-Jan09
15-Jan09
16-Jan09
19-Jan09
20-Jan09
21-Jan09
22-Jan09
23-Jan09
27-Jan09
28-Jan09
29-Jan09
30-Jan09
11.2
10.5
10.5
10.1
10.25
10.35
10.35
10.25
10.4
10
10.05
10.2
10.2
10.3
10.5
10.05
10.1
10.1
10.1
10.25
10.7
10.25
10.6
10.6
10.6
10.95
10.95
10
10.5
10.5
10.5
10.2
10.65
9.75
10
10.1
10.1
10.1
10.45
10.1
10.15
10.2
10.2
10.25
11
10
10.8
10.75
10.75
10.45
10.95
9.85
10.3
10.3
10.3
10.3
10.65
9.85
10.1
10
10
10
10.2
9.55
10
9.9
9.9
10.55
10.85
10.3
10.6
10.6
10.6
10.45
11
10.2
10.7
10.5
10.5
10.65
10.8
10
10
10.15
10.15
10.05
10.5
10
10.25
10.4
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
GRAPHICAL REPRESENTATION OF BIRLA POWER
98
From the above graph and table we can conclude that the Birla Power has ended up
with negative from 11.5 to 10.4, and this shows a negative impact on the overall
Power sectors
2. HISTORICAL DATA OF IMP POWER LTD
Series
Date
99

Prev
Close
Open
Price
High
Price
Low
Price
Last
Price
Close
Price
EQ
1-Jan-09
49.75
50.9
51.95
50.9
51.95
51.95
EQ
2-Jan-09
51.95
52.8
55
52.8
53.15
53.15
EQ
5-Jan-09
53.15
53
58.5
53
58
57.6
EQ
6-Jan-09
57.6
58.8
58.8
53.15
54.05
54.05
EQ
7-Jan-09
54.05
55
55.45
49.4
50
50
EQ
9-Jan-09
12-Jan09
13-Jan09
14-Jan09
15-Jan09
16-Jan09
19-Jan09
20-Jan09
21-Jan09
22-Jan09
23-Jan09
27-Jan09
28-Jan09
29-Jan09
30-Jan09
50
48
49.5
46.7
46.7
47.6
47.6
46.7
50.95
46.55
46.55
46.6
46.6
52.75
54
45.8
46.6
46.85
46.85
47.55
50.8
47.55
48.6
49.4
49.4
59
59
48.3
48.5
48.5
48.5
47.05
52.4
47.05
48.15
48.15
48.15
47.2
49
47
47
47.5
47.5
46.2
46.2
46.2
46.2
46.2
46.2
48.5
48.5
44
44
45.25
45.25
47
49
41.6
42
42.2
42.2
40
44.85
39.15
43.4
42.6
42.6
41.55
43.2
37
37
39.15
39.15
38
39.65
36
39.65
39.65
39.65
47
47
40.2
42.6
42.6
42.6
41.75
42
37
39
39.35
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
GRAPHICAL REPRESENTATION OF IMP POWER LTD
100
From the above graph and table we can conclude that the IMP Power has ended up
with negative from 51.95 to 39.35, and this shows a negative impact on the overall
Power sectors
3. HISTORICAL DATA OF RELIANCE POWER

Series
Date
101

Prev
Close
Open
Price
High
Price
Low
Price
Last
Price
Close
Price
123.35
EQ
1-Jan-09
119.95
121.5
124.25
116.7
123.25
EQ
2-Jan-09
123.35
123.9
125.8
123.05
123.25
123.5
EQ
5-Jan-09
123.5
125
126.25
121.1
125
124.55
EQ
6-Jan-09
124.55
124.65
127.95
121
123.95
123.55
EQ
7-Jan-09
123.55
124.5
125.45
110.75
112.5
112.8
EQ
9-Jan-09
12-Jan09
13-Jan09
14-Jan09
15-Jan09
16-Jan09
19-Jan09
20-Jan09
21-Jan09
22-Jan09
23-Jan09
27-Jan09
28-Jan09
29-Jan09
30-Jan09
112.8
112
120
99
106.85
106.7
106.7
106.05
107.25
102.05
102.95
102.95
102.95
103
105
96.2
98.15
97.8
97.8
98.55
108.9
95.5
107.5
102.4
102.4
101
101.35
97.15
98.35
98.9
98.9
98.25
102.2
98.25
100.5
101
101
101.5
103.95
100.75
101.05
101.65
101.65
100
104.9
98.05
101.6
102.5
102.5
100
103.6
99.25
99.7
100.35
100.35
101
102.4
98
98.25
98.5
98.5
97.85
99.9
97.25
98.15
98.05
98.05
101
102.35
99.25
100.7
100.55
100.55
101.85
103.5
100.2
102.5
102.6
102.6
104
108.65
102.5
103.9
104.5
104.5
103
107.4
101.7
105.85
106.4
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
EQ
GRAPHICAL REPRESENTATION OF RELIANCE
102
From the above graph and table we can conclude that the Reliance Power has ended
up with negative from 123.35 to106.4, and this shows a negative impact on the
overall Power sectors
AVERAGES OF THREE COMPANIES
103
S.NO
COMPANY
AVERAGE
BIRLA
10.72
IMP
46.91
RELIANCE
106.63
104
S.NO
COMPANY
CHANGE IN %
BIRLA
-10.57
IMP
-32.02
RELIANCE
-15.93
POWER --- NEGETIVE

105
Issues and Industry demands

Custom duty on Fuels Oils like furnace oil, LSHS from 10% to 5%.
Custom duty on Non-coking coke & Petroleum coke from 5% to 2%.
Custom duty on Naphtha & Liquefied propane fro 5% to 2%.
Custom duty on Metallurgical coke with ash content to less than 12%.
Section 80 IA to be extended from FY 11 to FY 17
Impact
Government promise on power sector reforms can clearly be seen from the steps taken.
The only negative factor is the removal of exemption of additional duty of customs of 4%
from power generation projects (other than mega power projects), transmission, subtransmission, distribution projects and goods for high voltage transmission projects that
will increase the cost of implementation of such projects. Focus on UMPPs projects will
speed up the target capacity expansion programme and higher allocation to APDRP will
fastly reduce the losses to State Electricity boards. Setting up of T&D fund, continuance
of RGGVY, are other key positives for the industry to take from the Budget 2008-09. The
major beneficiaries from the above action are Tata Power, NTPC and Reliance Power
6.1 FINDINGS
106
We can conclude that the HDFC Bank has ended up with negative from
1,013.75to 925.6, and this shows a negative impact on the overall Banking
sectors.
We can conclude that the IDBI Bank has ended up with negative from 69.7to
57.15, and this shows a negative impact on the overall Banking sectors.
We can conclude that the ICICI Bank has ended up with negative from
464.15to 416.25, and this shows a negative impact on the overall Banking
sectors.
We can conclude that the Ambuja Cement has ended up with negative from
70.75to 70.85, and this shows a negative impact on the overall Cement
sectors.
We can conclude that the Deccan Cement has ended up with negative from
144.95 to133.05, and this shows a negative impact on the overall Cement
sectors.
We can conclude that the India Cement has ended up with negative from
100.3 to102, and this shows a negative impact on the overall Cement sectors
107

We can conclude that the Birla Power has ended up with negative from 11.5
to 10.4, and this shows a negative impact on the overall Power sectors
We can conclude that the IMP Power has ended up with negative from 51.95
to 39.35, and this shows a negative impact on the overall Power sectors
We can conclude that the Reliance Power has ended up with negative from
123.35 to106.4, and this shows a negative impact on the overall Power sectors
108
6.2 Questionnaires
1. What is the reason of the financial crisis?

A) Indian Market
B) Power sector
C) Political Impact
D) Sub-prime Crisis
[]
2.Why it has shown impact o Indian stock market?

A) Major impact on IT sector
B) Major impact on banking sector
C) Major impact on power sector
D) All the above
[]
3.What is the impact on our Indian Export and Import sales?

A) Declined
B) High profit oriented
C) Average profit Oriented
D) None of the above
[]
4.How can retail investors help to over come on the Economical Crisis? []
A) More participating
B) Slight participation
C) Not participation
5.What is the Major effect on this crisis?
A) Un employment
B) Negative profits
C) Effect on secondary market
D) All the above
[]
6.Which sector is taking more impact on this financial crisis

A) Exporting sector
B) IT sector
C) Import sales
D) Auto mobiles
[]
109
7. Where Sub-prime mortgage Crisis was first started?

A) UAE
B) UK
C) USA
D) USSR
[]
8. What is the result of banking sector based on this crisis?

A) Positive Impact
B) Negative Impact
C) High growth oriented
[]
9.Why the Banking sector is moving more insolvency stage?

A) Irrecoverable loans
B) Government subsidies
C) Political issues
D) All the above.
[]
10.What is the result of Cement sector based on this financial crisis?

A) High growth
B) Positive Impact
C) Negative Impact
[]
11.What is the result of power sector based on this financial crisis?

A) Positive Impact
B) Negative Impact
C) High growth
[]
12.What is the reason of the RRB always decreasing CRR, SLR, Repo and
Reverse Repo rate?
[]
A) Getting income in to the Indian Economy
B) Over come on this Financial Crisis
C) Benefits for the Banking
D) Providing for highest Investment
13.What is the highest inflation rate in the year of 2008?

110
[]
A) 9
B) 10.6
C) 11.68
D) 0.18
14.When Net-worth stock Broking Ltd was established?
A) 1950
B) 1993
C) 1995
D) 1990
[]
15. When NSBL was listed in BSE?

A) 1994
B) 1962
C) 1981
D) 1975
[]
111
6.3 SUGGESTIONS AND CONCLUSIONS

PSU banks and regional rural banks (RRBs) to offer debt waiver on all
agricultural loans disbursed up to March 2007 and due until the end of December
2007. The total value of relief to be offered to farmers is estimated at Rs 60,000
crore.
Advise commercial banks including RRBs, to add at least 250 rural household
accounts every year at each of their rural and semi-urban branches.
Allow individuals such as retired bank officers, ex-servicemen etc to be appointed
as business facilitator or business correspondent or credit counselor.
Encourage banks to embrace concept of Total Financial Inclusion to meet the
entire credit requirements of SHG members.
Creation of fund of Rs.5, 000 crore in NABARD to enhance its refinance
operations to short term cooperative credit institutions.
Creation of two funds of Rs.2, 000 crore each in SIDBI - one for risk capital
financing and other for enhancing refinance capability to the MSME sector.
Creation of fund of Rs.1,200 crore in NHB to enhance its refinance operations in
the rural housing sector.
Parent company allowed to set-off the dividend received from its subsidiary
company against dividend distributed by the parent company.
BCTT being withdrawn with effect from April 1, 2009.
PSU banks under the Differential Rate of Interest (DRI) scheme lend up to Rs
20,000 per unit at an interest rate of 4%.
Excise Duty on clinker increased to Rs 450/MT from Rs 350/MT.
Excise Duty on bulk cement at Rs 400/MT or 14% in proportion to the estimated
value of the cement, whichever is higher.
112
Exemption from additional duty of customs of 4% levied under section 3(5) of

Customs Tariff Act, 1975 has been withdrawn from power generation projects
(other than mega power projects), transmission, sub-transmission, distribution
projects and goods for high voltage transmission projects.
Fourth UMPP at Tilaiya to be awarded shortly; Chhattisgarh, Karnataka,
Maharashtra, Orissa and Tamilnadu urged to bring five more UMPPs to the
bidding stage by extending the required support.
Rajiv Gandhi Grameen Vidyutikaran Yojana to be continued during the Eleventh
Plan period with a capital subsidy of Rs.28,000 crore; allocation of Rs.5,500 crore
for 2008-09.
Accelerated Power Development and Reforms Project: Rs.800 crore to be
provided in 2008-09, A National Fund for transmission and distribution reform to
be created.
Rs 8 bn to be provided for Accelerated Power Development and Reforms Project
(APDRP) in FY09.
Proposal to create of national fund for transmission and distribution reform.
Coal distribution policy and appointment of a coal regulator to bring regularity to
the process of coal production and pricing.
113
6.4 BIBLIOGRAPHY:
Web sites:
www.investopidia.com
www.nseindia.com
www.bseindia.com
www.networthdirect.com
COMPANY PROFILE:
Collected from the companys website www.NSBLindia.com
114

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