Project Report

On
Bombay Stock Exchange

CONTENTS

What Is Stock?
STOCK EXCHANGE
Name of Indian Stock Exchanges

BOMBAY STOCK EXCHANGE

Introduction
NEED FOR BSE
FUNCTIONS OF BSE
OBJECTIVES OF BSE
FEATURES OF SENSEX
INDICES OF BSE
Constituents list of BSE SENSEX
WHO SELECTS THE SCRIP
MARKET CAPITALIZATION
BENEFITS OF BSE
FACTORS AFFECTING BSE
CAUSES OF PRICE FLUCTUATION:
SPECULATION
HIGHS AND LOWS OF BSE
CONCLUSION

What Is Stock?
Imagine you wanted to start a retail store with members of your family.
You decide you need Rs.100,000 to get the business off the ground so
you incorporate a new company. You divide the company into 1,000
pieces, or "shares" of stock. (They are called this because each piece of
stock is entitled to a proportional share of the profit or loss). You price
each new share of stock at Rs.100. If you can sell all of the shares to your
family members, you should have the Rs.100,000 you need (1,000 shares
x Rs.100 contributed capital per share = Rs.100,000 cash raised for the
company).
If the store earned Rs.50,000 after taxes during its first year, each share
of stock would be entitled to 1/1,000th of the profit. You'd take
Rs.50,000 and divide it by 1,000, resulting in Rs.50.00 earnings per
share (or EPS). You could call a meeting of the company's Board of
Directors (these are the people the stockholders elected to watch over
their interest since they couldn't run the business) and decide to use the
money to pay dividends, repurchase, or expand the company by
reinvesting in the retail store.
At some point, you may decide you want to sell your shares of the family
retailer. If the company is large enough, you could trade on a stock
exchange. That's what is happening when you buy or sell shares of a
company through a stock broker. You are telling the market you are
interested in acquiring or selling shares of a certain company and Wall
Street matches you up with someone and takes fees and commissions for

doing it. Alternatively, shares of stock could be issued to raise millions,

or even billions, of dollars for expansion. When Sam Walton formed WalMart Stores, Inc., the initial public offering that resulted from him selling
newly created shares of stock in his company gave him enough cash to
pay off most of his debt and fund Wal-Mart's nationwide expansion.

STOCK EXCHANGE
STOCK EXCHANGE is an organized market place, either corporation
or mutual organization, where members of the organization gather to
trade company stocks or other securities.Stock Exchange also
facilitates for the issue and redemption of securities and other
financial instruments including the payment of income and
dividends. The trade on an exchange is only by members and stock
broker who have a seat on the exchange.
Name of Indian Stock Exchanges

1. Ahmedabad Stock Exchange

2. Bangalore Stock Exchange
3. Bhubaneswar Stock Exchange
4. Bombay Stock Exchange
5. Calcutta Stock Exchange
6. Cochin Stock Exchange
7. Coimbatore Stock Exchange
8. Delhi Stock Exchange Association
9. Gawahati Stock Exchange
10.

Hyderabad Stock Exchange

11.

Inter-connected Stock Exchange of India

12.

Jaipur Stock Exchange

13.

Ludhiana Stock Exchange

14.

Madhya pradesh Stock Exchange

15.

Madras Stock Exchange

16.

Mangalore Stock Exchange

17.

National Stock Exchange

18.

Magadh Stock Exchange (Patna)

19.

Over The Counter Stock Exchange of India (OTCEI)

20.

Pune Stock Exchange

21.

Uttar Pradesh Stock Exchange

22.

Vadodara Stock Exchange

23.

Meerut Stock Exchange

24.

United Stock Exchange (started in June09)

25.

Saurashtra Stock Exchange

Stock Exchange being a very vast topic, we are focusing on BOMBAY

STOCK EXCHANGE (BSE).

INTRODUCTION
Bombay Stock Exchange is the oldest stock exchange in Asia What is now
popularly known as the BSE was established as "The Native Share &
Stock

Brokers'

Association"

in

1875.

Over the past 135 years, BSE has facilitated the growth of the Indian
corporate sector by providing it with an efficient capital raising platform.

Today, BSE is the world's number 1 exchange in the world in terms of the
number of listed companies (over 4900). It is the world's 5th most active
in terms of number of transactions handled through its electronic

trading system. And it is in the top ten of global exchanges in terms of

the market capitalization of its listed companies (as of December 31,
2009). The companies listed on BSE command a total market
capitalization

of

USD

Trillion

1.28

as

of

Feb,

2010.

BSE is the first exchange in India and the second in the world to obtain
an ISO 9001:2000 certifications. It is also the first Exchange in the
country and second in the world to receive Information Security
Management System Standard BS 7799-2-2002 certification for its BSE
On-Line

trading

System

(BOLT).

The BSE Index, SENSEX, is India's first and most popular Stock Market
benchmark index. Exchange traded funds (ETF) on SENSEX, are listed
on BSE and in Hong Kong. Futures and options on the index are also
traded

at

BSE.

BSE continues to innovate:

Became the first national exchange to launch its website in

Gujarati and Hindi and now Marathi

Purchased of Marketplace Technologies in 2009 to enhance the inhouse technology development capabilities of the BSE and allow
faster time-to-market for new products

Launched a reporting platform for corporate bonds christened the

ICDM or Indian Corporate Debt Market

Acquired a 15% stake in United Stock Exchange (USE) to drive the

development and growth of the currency and interest rate
derivatives markets

Launched 'BSE StAR MF' Mutual fund trading platform, which

enables exchange members to use its existing infrastructure for
transaction in MF schemes.

BSE now offers AMFI Certification for Mutual Fund Advisors

through BSE Training Institute (BTI)

Co-location facilities for Algorithmic trading

BSE also successfully launched the BSE IPO index and PSU
website

BSE revamped its website with wide range of new features like 'Live
streaming quotes for SENSEX companies', 'Advanced Stock Reach',
'SENSEX View', 'Market Galaxy', and 'Members'

With its tradition of serving the community, BSE has been undertaking
Corporate Social Responsibility (CSR) initiatives with a focus on
Education, Health and Environment. BSE has been awarded by the
World Council of Corporate Governance the Golden Peacock Global CSR
Award for its initiatives in Corporate Social Responsibility (CSR).

Other Awards:

The Annual Reports and Accounts of BSE for the year ended March
31, 2006 and March 31, 2007 have been awarded the ICAI awards
for excellence in financial reporting.

The Human Resource Management at BSE has won the Asia Pacific HRM awards for its efforts in employer branding through
talent management at work, health management at work and
excellence in HR through technology

Drawing from its rich past and its equally robust performance in the
recent times, BSE will continue to remain an icon in the Indian capital
market.

NEED FOR BSE

BSE is one of the factors Indian Economy depends upon. BSE has played
a major role in the development of the country. Through BSE, Foreign
Investors have invested in India. Due to inward flow of foreign currency
the, the Indian economies have started showing the upward trend
towards the development of the country.
BSE provides employment for many people. Trading in BSE is also a
business for a few, their family income depends on it that is the reason
why when scandals occur in the stock market it not only affects the
companies listed but also affects many families. In the few extreme cases,
it is observed that the bread winner of a family tends to suicide due to
the losses occurred.
In most of major industrial cities all over the world, where the businesses
were evolving and required investment capital to grow and thrive, stock
exchanges acted as the interface between Suppliers and Consumers of
capital. One of the key advantages of the stock exchanges is that they are
efficient medium for raising resources and channeling savings from the
general public by the way of issue of Equity / Debt Capital by joint stock
companies which are listed on stock exchanges.
Not to forget that the taxes and other statutory charges paid by BSE are
substantial and make a sizeable contribution to the Government
exchequer (Financial resources; funds). For example, transactions on the
stock exchanges are subject to stamp duties, which are paid to the State

Government. The annual revenue from this source ranges from Rs 75

100 crores
With the opening up of the financial markets to Foreign Investors a
number of foreign institutional investors and brokers have established a
sizeable presence in Mumbai.

FUNCTIONS OF BSE
The Stock Market is a pivotal institution in the financial system. A
well-ordered stock market performs several economic functions: It
ensures the measure of safety and fair dealing

It performs an act of magic by translating short-term

investments into long-term funds for companies.

It directs the flow of capital in the most profitable

channels.

It

induces

companies

to

raise

their

standard

of

performance.

It offers guidance to management about the cost of

capital.

1. Measure of Safety and Fair Dealing:

The stock exchanges operate under a regulatory framework which
seeks to protect the interest of investors. The rules, regulations, and
bye-laws of a stock exchange, which are approved by the central
government, are meant to ensure that a reasonable measure of
safety is provided to investors and transactions take place in
competitive conditions which are fair to all concerned.

2. Act of Magic:
Most of the investors are interested in short-term investments. The
requirements of companies are, however, long-term in naturethey
require equity capital on a more or less permanent basis and
debenture capital for 3 to 15 years. Thanks to the negotiability and
transferability of securities, through the stock market, it is possible
for companies to obtain their long-term requirements from investors
with short-term horizons. While one investor is substituted by
another when a security is transacted, the company is assured of
availability of funds.
3. Flow of Capital in the Most Profitable Channels:
Companies which have more profitable investment opportunities are
normally able to raise substantial funds through the stock market,
whereas companies which do not have such opportunities are
normally not able to do so. As a result, the stock market facilitates
the direction of the flow of capital in the most profitable channels.
4. Inducement to Companies to Raise their Standard of
Performance:
When the equity, capital of a company is listed on a stock exchange,
the performance of the company is reflected in the market price of
the equity stock, which is readily available for public consumption.
Put differently, the companys performance is more visible in the
eyes of public. Such a public exposure normally induces companies
to raise their standard of performance.
5. Guidance of Cost of Capital:

The market value of the securities of company are required for

computing its cost of capital. Such values can be obtained from
stock market quotations. Hence the stock market offers guidance on
cost of capital.

OBJECTIVES OF BSE
1) To safeguard the interest of investing public having dealings on the
exchange.
2) To establish and promote honorable and just practices in securities
transactions.
3) To promote, develop and maintain well regulated market in securities.
4) To promote industrial development in the country through efficient
resource mobilization by the way of investment in corporate securities.

FEATURES OF SENSEX
1)
2)
3)
4)
5)
6)
7)
8)

Sensex is a value weighted index

Composed of 30 stocks representing various sectors
These companies accounts for one fifth of market capitalization
Base value of sensex is 100 (april 1,1979)
Base year (1978-79)
Free float capitalization method
Iconic stature-tracked worldwide
Index cooperation agreement with deutsche borse has made sensex
available to investors in europe and america

9) Also available in hong kong

INDICES OF BSE
Broad Market Indices
1) Sensex

2) Bse 100

4) Bse500

5) Bse Mid Cap

3) Bse 200
6) Bse Small Cap

Sectoral Indices
1) Bse Auto

2) Bankex

4) Consumerable Goods

5) Fmcg

3) Capital Goods
6)IT, Power

Dollar Linked Indices

1) Dollex30

2) Dollex100

CONSTITUENTS LIST OF BSE SENSEX

Bombay Stock Exchange has 30 companies scripted
1. BHEL
2. BHARTI AIRTEL
3. DLF UNIVERSAL Ltd.
4. GRASIM INDUSTRIES
5. HDFC
6. HDFC BANK
7. HERO HONDA MOTORS Ltd.
8. HINDALCO INDUSTRIES Ltd.
9. HLL
11.

ICICI BANK

12.

INFOSYS

13.

ITC Ltd.

3) Dollex 200

14.

JAIPRAKASH ASSOCIATES

15.

L&T

16.

M&M Ltd.

17.

MARUTI UDYOG

18.

NTPC

19.

ONGC

20.

RELIANCE COMMUNICATION

21.

RELIANCE INDUSTRIES

22.

RELIANCE INFRASTRUCTURE

23.

SBI

24.

STERLITE INDUSTRIES

25.

SUN PHARMACEUTICAL INDUSTRIES

26.

TCS

27.

TATA MOTERS

28.

TATA STEEL

29.

TATA POWER

30.

WIPRO

WHO SELECTS THE SCRIP

1. They are selected by the Index Committee.
2. This committee consists of all sorts of individuals including
academicians, mutual fund managers, finance journalists,
Independent governing board members and Other participants in
the financial markets.

SCRIP SELECTION CRITERIA

Market capitalization: The company should have a market capitalization

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

capitalization of each company should Be more than 0.5% of the total

market capitalization of the Index.

Trading frequency: The Company to be included should have been

traded on each and every trading day for the last one year. Exceptions
can be made for extreme reasons like share suspension etc.

Number of trades: The scrip should be among the top 150 companies
listed by average number of trades per day for the last one year.
Industry representation: The companies should be leaders in their
industry group.

Listed history: The companies should have a listing history of at least

one year on BSE.

Track record: In the opinion of the index committee, the company

should have an acceptable track record.

KINDS OF SHARES

Small Caps (small market Capitalization less lie in between

$300 million - $2billion),

Large Caps (large Capitalization

$200billion),
Mid Caps (lie in between Small & Large)

in

between

$10billion-

MARKET CAPITALIZATION

It is the worth of the company in terms of shares

Based on this market capitalization values onlycompanies are

classified into "large-cap", "mid-cap"and "small cap"

Market Capitalization = No. of outstanding shares
x Current market price of one share

IN CASE OF BONUS SHARES

Sensex will be based on some adjustment in the total market

capitalization
Total market capitalization (new) = Total market capitalization(old) x
[ New market capitalizationof stock / old market capitalization of
stock]

BENEFITS OF BSE
FROM THE POINT OF VIEW OF COMMUNITY:
1. It assist the economic development by providing a body of interested
investors.
2. it uploads the position of superior enterprises and assist them in
raising further funds.
3. Government can undertake projects of national importance and social
value raising funds through the sale of its securities on the stock
exchange.
4. It is the stock exchanges that central bank of a country can control
credit by undertaking open market operations (purchase and sale of
security)

FROM THE COMPANY POINT OF VIEW:

1. A company whose shares quoted on stock exchange they enjoy better
reputation and credit.
2. The market for the shares of such a company is naturally widened.
3. The market price of securities is likely to be higher in relation to its
earnings, dividends and property values. This raises the bargaining
power of

the company in the

event

of a

takeover,

merger or

amalgamation.

FROM THE INVESTORS POINT OF VIEW:

1. Liquidity of the investment is increased
2.The securities dealt on a stock exchange are good
collateral security for loans.
3. The stock exchange safeguards interests of investors through strict
enforcement of rules and regulations.
4. The present net worth of investments can be easily known by the daily
quotations.
5. His risk is considerably less when he holds or purchases listed
securities.

FACTORS AFFECTING BSE

There are various factors that affect BSE:

(a)

THE KETAN PAREKH SCAM

Ketan Parekh was a graduate from HR College and CA by profession.

Ketan Parekhs scam was often referred to as the one-man army or
Pentafour Bull. The 176-point Sensex crash on March 1, 2001 came as a
major shock for the Government of India, the stock markets and the
investors alike
This sudden crash in the stock markets prompted the Securities
Exchange Board of India (SEBI) to launch immediate investigations into
the volatility of stock markets.
The scam shook the investor's confidence in the overall functioning of the
stock markets. By the end of March 2001, at least eight people were
reported to have committed suicide and hundreds of investors were
driven to the brink of bankruptcy.
The first arrest in the scam was of the noted bull, Ketan Parekh (KP), on
March 30, 2001, by the Central Bureau of Investigation (CBI). Soon,
reports abounded as to how KP had single handedly caused one of the
biggest scams in the history of Indian financial markets. He was charged
with defrauding Bank of India (BoI) of about $30 million among other
charges.
KP's arrest was followed by yet another panic run on the bourses and the
Sensex fell by 147 points. By this time, the scam had become the 'talk of
the nation,' with intensive media coverage and unprecedented public
outcry.

Bank of India along with Punjab National Bank and SBI were at the
receiving end. Madhavapura Bank and Classic Cooperative Bank are the
others affected. Ketan Parekh owes around Rs1.3bn to the Bank of India
KPs scam was one of the major scam in India after Harshad Mehta
which lost the confidence of investors in investing in share market. KPs
scam is also regarded as one mans army scam.
(b) FOREIGN INSTITUTIONAL INVESTORS (FII)
Foreign investment refers to investments made by residents of a
country in another countrys financial assets and production
processes. After the opening up of the borders for capital movement,
foreign investments in India have grown enormously. It affects the
productivity factor of the beneficiary or the receiver country and has
the potential to create a ripple effect on the balance of payments of
that country. In developing countries like India, foreign capital helps
in increasing the productivity of labor and to build up foreign
exchange reserves to meet the current account deficit. It provides a
channel through which these countries can have access to foreign
capital.
Foreign investment can be of two forms: Foreign direct investment
(FDI) and Foreign portfolio investment (FPI).FDI involves direct
production activity and has a medium to long term investment
plans. In contrast the FPI has a short term investment horizon. They
mostly investment in the financial markets which consist of Foreign
Institutional Investors (FIIs). They invest in domestic financial
markets like money market, stock market, foreign exchange market
etc.

Foreign institutional investors investments are volatile in nature,

and they mostly invest in the emerging markets. They usually keep
in mind the potential of a particular market to grow.

FII has lead a significant improvement in India relating to the flow of

foreign capital during the period of post economic reforms. The
inflow of FII investments has helped the stock market to raise at a
greater height according to financial analysts. Sensex touched a new
height. It crossed 10000-mark in January 2006, which was 8073 on
November 2, 2005, and 9323 in December 2005.FII participation in
the Indian stock market triggers its upward movement, but, at the
same time, increased liquidity through FII investment inflow
increases volatility too.
FIIs IMPACT ON THE INDIAN ECONOMY.
The Ashok Lahiri Committee Report on encouraging FII Flows (Ministry
of Finance, the Government of India) mentions some reasons for the need
of FII flows. FII flows supplement and augment domestic savings and
domestic investment without increasing the foreign debt of our country.
Capital inflows to the equity market increase stock prices lower the cost
of equity capital and encourage investment by Indian firms.
The Indian stock markets are both shallow and narrow and the
movement of stocks depends on limited number of stocks. As FIIs
purchases and sells these stocks there is a high degree of volatility in the
stock markets. If any set of development encourages outflow of capital

that will increase the vulnerability of the situation. The high degree of
volatility can be attributed to the following reasons:

The increase in investment by FIIs increases stock indices in turn

increases the stock prices and encourages further investments. In
this event when any correction takes place the stock prices
declines and there will be full out by the FIIs in large number as

earning per share declines.

The FIIs manipulate the situation of boom in such a manner that
they wait till the index raises up to a certain height and exit at an
appropriate time. This tendency increases the volatility further.

So even though the portfolio investment by FIIs increases the flow of

money in the economic system, it may create problems of inflation.

CAUSES OF PRICE FLUCTUATION:

1. DEMAND AND SUPPLY
2. BANK RATE
3. SPECULATIVE PRESSURE
4. ACTIONS

OF

UNDERWRITERS

AND

OTHER

INSTITUTIONS
5. CHANGE IN COMPANYS BOARD OF DIRECTORS
6. FINANCIAL POSITION OF THE COMPANY
7. TRADE CYCLE
8. POLITICAL FACTORS
9. SYMPATHETIC FLUCTUATIONS
10.

OTHER FACTORS:
i) EXPECTED MONSOON

FINANCIAL

ii) PERSONAL HEALTH OF HEAD OF GOVERNMENT OR

CHAIRMAN OF THE COMPANY
iii) OIL PRICES IN THE INTERNATIONAL MARKET.
iv) CHANGES IN EXCHANGE RATE
v) BORDER TENSION
vi) STOCK BROKERS SCAM LIKE HARSHAD MEHTA AND
KETHAN PAREKH
vii)STRIKES AND LOCK-OUT OF THE COMPANY.
viii)

NEW BUDGET PROPOSALS

ix) LIBERLIZATION AND PRIVATIZATION OF THE COMPANY.

SPECULATION:

It involves the buying, holding, selling, short-term selling of stocks,

bonds, commodities, currencies, collectible or any valuable financial
instrument to profit from fluctuations in its price as opposed to
buying it for use or for income via method like dividends or interest.

Kinds of speculation

Bull Market (Tejiwala):

In case of that they purchase the shares at current prices to sell at a
higher price in the near future and makes a profit if his expectations
come true. He is also called a long buyer.

Bear Market (Mandiwala):

He sells security in the hope that he will be able to buy them back at
lesser price. It is also called short selling.

Stag:
He is that type of speculator who applies for a large number of shares
in a new issue with the intention of selling them at a premium. He is
bullish and very cautious.

HIGHS AND LOWS OF BSE

15,000, July 6, 2007 The Sensex on July 6,2007 crossed the magical
figure of 15,000 to touch 15,005 points in afternoon trade. It took seven
months for the Sensex to move from 14,000 to 15,000 points.
16,000, September 19, 2007 The Sense scaled yet another milestone
during early morning trade on September 19, 2007.Within minutes after
trading began, the Sensex crossed 16,000, rising by 450 points from the
previous close. The 30-share Bombay Stock Exchange's sensitive index
took 53 days to reach 16,000 from 15,000
17,000, September 26, 2007 The Sensex scaled yet another height
during early morning trade on September 26, 2007.Within minutes after
trading began, the Sensex crossed the 17,000-mark .
18,000, October 09, 2007 The BSE Sensex crossed the 18,000-mark on
October 09, 2007. It took just 8 days to cross 18,000 points from the
17,000 mark. The market set several new records including the biggest
single day gain of 789 points at close, as well as the largest intra-day
gains of 993.
19,000, October 15, 2007 The Sensex crossed the 19,000-mark backed
by revival of funds-based buying in blue chip stocks in metal, capital

goods and refinery sectors. The index gained the last 1,000 points injust
four trading days.
20,000, October 29, 2007 The Sensex crossed the 20,000 mark on the
back of aggressive buying by funds ahead of the US Federal Reserve
meeting. The index took only 10 trading days to gain 1,000 points after
the index crossed the 19,000-mark on October 15. The major drivers
were index
21,000, January 8, 2008 The sensex peaks. It crossed the 21,000 mark
in intraday trading after 49 trading sessions. However, it later fell back
due to profit booking.
15,200, June 13, 2008 The sensex closed below 15,200 mark, Indian
market suffer with major downfall from January 21,2008
14,220, June 25, 2008 The sensex touched an intraday low of 13,731
during the early trades, then pulled back and ended up at 14,220 amidst
a negative sentiment.

12,822, July 2, 2008 The sensex hit an intraday low of 12,822.70 on

July 2nd, 2008.This is the lowest that it has ever been in the past year.
Six months ago, on January 10th, 2008, the market had hit an all time
high of
21206.70. This is a bad time for the Indian markets, although Reliance
and Infosys continue to lead the way with mostly positive results.
11801.70, Oct 6, 2008 The sensex closed at 11801.70 hitting the lowest
in the past 2years.
10527, Oct 10, 2008 The Sensex today closed at 10527,800.51 points
down.

14284.21, May 18, 2009 After the result of15th Indian general election
Sensex gained 2110.79 points from the previous close of 12173.42 these
creates a new history in Indian Market. In the Opening Trade itself
sensex gains 15% from the previous day close this leads to the
suspension of 2 hours trade. After 2 hours sensex again surged this
leads to the suspension of full day trading.
Sensex falls
Some major single-day falls of the Sensex have occurred on the following
dates
January 21, 2008 --- 1,408.35 points
Oct 24, 2008---1070.63 points
March 17, 2008 --- 951.03 points
July 6, 2009 --- 870 points
January 22, 2008 --- 857 points
February 11, 2008 --- 833.98 points
May 18, 2006 --- 826 points
October 10,2008 --- 800.10 points

CONCLUSION
With the increasing Globalization, the Stock Exchanges have
tremendously affected the financial conditions of India.

The stock markets of the future will have a redefined pupose and
reinvented architecture due to the advent and widespread

use of

technology. Information and stock price quotations are available

almost instantaneously, and, more importantly, investors can act on
this data by executing a trade from anywhere at anytime. This new
market will bring benefits to investors, the listed companies, and the
economies of the company. Trading will become cheaper, faster and
settlement will be simpler wit reduced risk. Raising capital for
companies will become easier, thereby contributing directly to the
Economic Growth.
Already, BSE has shown its proactive response by increasingly using
leading edge to technologies to effectively compete in the global
environment. In the not too distant future, once full capital account
convertibility is permitted in India, one could well witness an
expansion of trading volumes and its resultant economic benefits to
the thriving and ever young metropolis of Mumbai.
Inspite of all these positive predictions, the future of Stock
Exchanges is likely to be uncertain and even their survival is a
major question mark.