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 Wal-Mart 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.
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:

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 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 in-house 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

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 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.

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 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) Sensex is a value weighted index
2) Composed of 30 stocks representing various sectors
3) These companies accounts for one fifth of market capitalization
4) Base value of sensex is 100 (april 1,1979)
5) Base year (1978-79)
6) Free float capitalization method
7) Iconic stature-tracked worldwide
8) 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 3) Bse 200
4) Bse500 5) Bse Mid Cap 6) Bse Small Cap

Sectoral Indices
1) Bse Auto 2) Bankex 3) Capital Goods
4) Consumerable Goods 5)Fmcg 6)IT, Power

Dollar Linked Indices

1) Dollex30 2) Dollex100 3) Dollex 200

Constituents list of BSE SENSEX

Bombay Stock Exchange has 30 companies sripted.
1. ACC
2. BHEL
3. BHARTI AIRTEL
4. DLF UNIVERSAL Ltd.
5. GRASIM INDUSTRIES
6. HDFC
7. HDFC BANK
8. HERO HONDA MOTORS Ltd.
9. HINDALCO INDUSTRIES Ltd.
10. HLL
11. ICICI BANK
12. INFOSYS
13. ITC Ltd.

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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 in between $10billion-$200billion),
Mid Caps (lie in between Small & Large)

MARKET CAPITALIZATION

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 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.

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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.

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 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 FINANCIAL 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:
1. EXPECTED MONSOON
2. PERSONAL HEALTH OF HEAD OF GOVERNMENT OR CHAIRMAN OF THE COMPANY
3. OIL PRICES IN THE INTERNATIONAL MARKET.
4. CHANGES IN EXCHANGE RATE
5. BORDER TENSION
6. STOCK BROKERS SCAM LIKE HARSHAD MEHTA AND KETHAN PAREKH
7. STRIKES AND LOCK-OUT OF THE COMPANY.
8. NEW BUDGET PROPOSALS
9. 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):

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 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. Ittook seven months for the Sensex to move from 14,000 to 15,000 points.
16,000, September 19, 2007 The Sensexscaled 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 intra day 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 intra day 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

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 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.

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