INTRODUCTION

Indian Stock Markets are one of the oldest in Asia. Its history dates back to
nearly 200 years ago. 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 certification. 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). Presently,
we are ISO 27001:2005 certified, which is a ISO version of BS 7799 for
Information Security. 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.

The BSE is located at Dalal Street, Mumbai, India. On Feb, 2010, the equity
market capitalization of the companies listed on the BSE was US$1.28 trillion,
making it the largest stock exchange in South Asia and the 12th largest in the
world. With over 4900 Indian companies listed & over 7700 scrips on the stock
exchange, it has a significant trading volume. The BSE SENSEX (SENSitive
indEX), also called the "BSE 30", is a widely used market index in India and
Asia. Though many other exchanges exist, BSE and the National Stock Exchange
of India account for most of the trading in shares in India.

As far as global stock markets are concerned, being a developing economy,

Indian stock markets are one of the most attractive one because of the scope of
the market, high ROI, good fundamentals, great macroeconomic data etc. The
stock indices are influenced by various factors. Some important factors are GDP,
inflation rate, Index of Industrial Production (IIP) data, liquidity, Foreign
Institution Investment etc.

Indian Capital Market – Evolution

Indian Stock Markets are one of the oldest in Asia. Its history dates back to
nearly 200 years ago. The earliest records of security dealings in India are
meager and obscure. The East India Company was the dominant institution in

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those days and business in its loan securities used to be transacted towards the
close of the eighteenth century.

By 1830's business on corporate stocks and shares in Bank and Cotton presses
took place in Bombay. Though the trading list was broader in 1839, there were
only half a dozen brokers recognized by banks and merchants during 1840 and
1850. The 1850's witnessed a rapid development of commercial enterprise and
brokerage business attracted many men into the field and by 1860 the number
of brokers increased into 60.

In 1860-61 the American Civil War broke out and cotton supply from United
States of Europe was stopped; thus, the 'Share Mania' in India begun. The
number of brokers increased to about 200 to 250. However, at the end of the
American Civil War, in 1865, a disastrous slump began

At the end of the American Civil War, the brokers who thrived out of Civil War in
1874, found a place in a street (now appropriately called as Dalal Street) where
they would conveniently assemble and transact business. In 1887, they formally
established in Bombay, the "Native Share and Stock Brokers' Association"
(which is alternatively known as "The Stock Exchange"). In 1895, the Stock
Exchange acquired a premise in the same street and it was inaugurated in
1899. Thus, the Stock Exchange at Bombay was consolidated.

Post-Independence Scenario

Most of the exchanges suffered almost a total eclipse during depression. Lahore
Exchange was closed during partition of the country. Bangalore Stock Exchange
Limited was registered in 1957 and recognized in 1963.

Most of the other exchanges languished till 1957 when they applied to the
Central Government for recognition under the Securities Contracts (Regulation)
Act, 1956. Only Bombay, Calcutta, Madras, Ahmedabad, Delhi, Hyderabad and
Indore, the well established exchanges, were recognized under the Act. Some of
the members of the other Associations were required to be admitted by the
recognized stock exchanges on a concessional basis, but acting on the principle
of unitary control, all these pseudo stock exchanges were refused recognition by
the Government of India and they thereupon ceased to function.
Thus, during early sixties there were eight recognized stock exchanges in India
(mentioned above). The number virtually remained unchanged, for nearly two
decades. During eighties, however, many stock exchanges were established.

Objective and Scope

A financial system plays a vital role in the economic growth of a country. It

intermediates between the flows of funds belonging to those who save a part of
their income and those who invest in productive assets. It mobilizes and usefully
allocates scarce resources of a country. Financial system has a great
significance in the economic development. The important functions of a
financial system are:

• Mobilise and allocate savings and helps in capital formation.

• Monitor corporate performance
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 • Provide payment and settlement systems
• Optimum allocation of risk bearing and reduction

Stock Exchange

The Securities Contract (Regulation) Act, 1956 [SCRA] defines ‘Stock

Exchange’ as any body of individuals, whether incorporated or not, constituted
for the purpose of assisting, regulating or controlling the business of buying,
selling or dealing in securities. Stock exchange could be a regional stock
exchange whose area of operation/jurisdiction is specified at the time of its
recognition or national exchanges, which are permitted to have nationwide
trading since inception. NSE was incorporated as a national stock exchange.

The main financial products/instruments dealt in the capital market are:

1. Equity Shares 8. Security Receipts

2. Rights Issue / Rights Shares 9. Government securities (G-Secs)
3. Bonus Shares 10. Debentures
4. Preferred Stock / Preference 11. Bond
shares 12. Zero Coupon Bond
5. Cumulative Preference Shares 13. Convertible Bond
6. Cumulative Convertible 14. Commercial Paper
Preference Shares 15. Treasury Bills
7. Participating Preference Share

The Structure of the Stock Exchanges in India

There are 19 recognised stock exchanges in India. Mangalore Stock Exchange,

Saurashtra Kutch Stock Exchange, Magadh Stock Exchange and Hyderabad
Stock Exchange have been derecognised by SEBI.

In terms of legal structure, the stock exchanges in India could be segregated

into two broad groups – 16 stock exchanges which were set up as companies,
either limited by guarantees or by shares, and 3 stock exchanges which were
set up as association of persons and later converted into companies, viz. BSE,
ASE and Madhya Pradesh Stock Exchange. Apart from NSE, all stock exchanges
whether established as corporate bodies or Association of Persons, were earlier
non-profit making organizations. As per the demutualisation scheme mandated
by SEBI, all stock exchanges other than Coimbatore stock exchange have
completed their corporatisation and demutualisation process. Accordingly, out
of 19 stock exchanges 18 are corporatised and demutualised and are
functioning as for-profit companies, limited by shares.

Corporatisation of Stock Exchanges

Corporatisation is the process of converting the organizational structure of the

stock exchange from a non-corporate structure to a corporate structure.
Traditionally, some of the stock exchanges in India were established as
“Association of persons”, e.g. the Stock Exchange, Mumbai (BSE), Ahmedabad
Stock Exchange (ASE) and Madhya Pradesh Stock Exchange (MPSE).
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Corporatisation of such exchanges is the process of converting them into
incorporated Companies.

Demutualisation of Stock Exchanges

Demutualisation refers to the transition process of an exchange from a

“mutually-owned” association to a company “owned by shareholders”. In other
words, transforming the legal structure of an exchange from a mutual form to a
business corporation form is referred to as demutualisation. The above, in effect
means that after demutualisation, the ownership, the management and the
trading rights at the exchange are segregated from one another. Currently there
are 18 stock exchanges are demutualised in India, viz. BSE, NSE, Calcutta Stock
Exchange etc.

Index

An Index shows how a specified portfolio of share prices is moving in order to

give an indication of market trends. It is a basket of securities and the average
price movement of the basket of securities indicates the index movement,
whether upwards or downwards.

Market Capitalization – Meaning

The total dollar market value of all of a company's outstanding shares. Market
capitalization is calculated by multiplying a company's shares outstanding
by the current market price of one share. The investment community uses this
figure to determining a company's size, as opposed to sales or total asset
figures. Market Capitalization is frequently referred to as "market cap".
If a company has 35 million shares outstanding, each with a market value of
$100, the company's market capitalization is $3.5 billion (35,000,000 x $100
per share).

Company size is a basic determinant of asset allocation and risk-return

parameters for stocks and stock mutual funds. The term should not be confused
with a company's "capitalization," which is a financial statement term that
refers to the sum of a company's shareholders' equity plus long-term debt.

Classification of Stocks

The stocks of large, medium and small companies are referred to as large-cap,
mid-cap, and small-cap, respectively. Investment professionals differ on their
exact definitions, but the current approximate categories of market
capitalization are:

Large Cap

• $10 billion plus and include companies with largest market capitalization
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 • Excellent track record
• Strong Balance Sheet
• Good investor coverage (Financials widely tracked)
• Typically in the stable phase of growth with good dividend policies

Mid Cap

• Medium sized companies with market capital of $2 billion to $10 billion and
good financials
• Balance Sheet varies from moderately strong to being wobbly
• Good growth prospectus but the aggressive phase behind it

Small Cap
• Startups to very small companies in an early stage of growth with less than
$2 billion of market capital.
• Typically not so strong Balance Sheet
• Promises high growth along with a lurking chance of bankruptcy.

Note: Classifications such as large cap, mid cap and small cap are only
approximations that change over time. Also, the exact definition of these terms
can vary among the various participants in the investment business.

SEBI and its role

The Securities and Exchange Board of India (SEBI) is the regulatory authority in
India established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for
establishment of Securities and Exchange Board of India (SEBI) with statutory
powers for (a) protecting the interests of investors in securities (b) promoting
the development of the securities market and (c) regulating the securities
market. Its regulatory jurisdiction extends over corporates in the issuance of
capital and transfer of securities, in addition to all intermediaries and persons
associated with securities market. SEBI has been obligated to perform the
aforesaid functions by such measures as it thinks fit. In particular, it has powers
for:

• Regulating the business in stock exchanges and any other securities markets
• Registering and regulating the working of stock brokers, sub–brokers etc.
• Promoting and regulating self-regulatory organizations
• Prohibiting fraudulent and unfair trade practices
• Calling for information from, undertaking inspection, conducting inquiries and
audits of the stock exchanges, intermediaries, self – regulatory organizations,
mutual funds and other persons associated with the securities market

The Bombay Stock Exchange (BSE)

Vision – BSE
"Emerge as the premier Indian stock exchange by establishing global
benchmarks"

Logo – BSE

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 The Stock Exchange, Mumbai is now Bombay Stock
Exchange Limited (BSE)… a new name, and an entirely new
perspective… a perspective born out of corporatisation and
demutualisation. As a corporate entity, the new logo
reflects new mission… smoother, seamless, and efficient,
whichever way you look at it.

Heritage / History – BSE

The oldest stock exchange in Asia (established in 1875) and the first in the
country to be granted permanent recognition under the Securities Contract
Regulation Act, 1956, BSE has had an interesting rise to prominence over the
past 133 years.

While BSE is now synonymous with Dalal Street, it was not always so. The first
venues of the earliest stock broker meetings in the 1850s were in rather natural
environs - under banyan trees - in front of the Town Hall, where Horniman Circle
is now situated. A decade later, the brokers moved their venue to another set of
foliage, this time under banyan trees at the junction of Meadows Street and
what is now called Mahatma Gandhi Road. As the number of brokers increased,
they had to shift from place to place, but they always overflowed to the streets.
At last, in 1874, the brokers found a permanent place, and one that they could,
quite literally, call their own. The new place was aptly called Dalal Street and
the group of brokers eventually became an official organization known as 'The
Native Share & Stock Brokers Association'.

SENSEX - The Barometer of Indian Capital Markets -

Introduction

SENSEX, first compiled in 1986, was calculated on a "Market Capitalization-

Weighted" methodology of 30 component stocks representing large, well-
established and financially sound companies across key sectors. The base year
of SENSEX was taken as 1978-79. SENSEX today is widely reported in both
domestic and international markets through print as well as electronic media. It
is scientifically designed and is based on globally accepted construction and
review methodology. Since September 1, 2003, SENSEX is being calculated on a
free-float market capitalization methodology. The "free-float market
capitalization-weighted" methodology is a widely followed index construction
methodology on which majority of global equity indices are based.
Summary of Index Specification

Base Year : 1978-79

Base Index Value : 100
Date of Launch : 01-01-1986
Method of calculation : Launched on full market capitalization method and
effective September 01, 2003, calculation method
shifted to free-float market capitalization.
Number of scrips : 30

SENSEX Calculation Methodology

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SENSEX is calculated using the "Free-float Market Capitalization" methodology,
wherein, the level of index at any point of time reflects the free-float market
value of 30 component stocks relative to a base period. The market
capitalization of a company is determined by multiplying the price of its stock
by the number of shares issued by the company. This market capitalization is
further multiplied by the free-float factor to determine the free-float market
capitalization.

The base period of SENSEX is 1978-79 and the base value is 100 index points.
This is often indicated by the notation 1978-79=100. The calculation of SENSEX
involves dividing the free-float market capitalization of 30 companies in the
Index by a number called the Index Divisor. The Divisor is the only link to the
original base period value of the SENSEX. It keeps the Index comparable over
time and is the adjustment point for all Index adjustments arising out of
corporate actions, replacement of scrips etc. During market hours, prices of the
index scrips, at which latest trades are executed, are used by the trading
system to calculate SENSEX on a continuous basis.

SENSEX - Scrip Selection Criteria

The general guidelines for selection of constituents in SENSEX are as follows:

1. Listed History: The scrip should have a listing history of at least 3

months at BSE. Exception may be considered if full market capitalization
of a newly listed company ranks among top 10 in the list of BSE universe.
In case, a company is listed on account of merger/ demerger/
amalgamation, minimum listing history would not be required.

2. Trading Frequency: The scrip should have been traded on each and
every trading day in the last three months at BSE. Exceptions can be
made for extreme reasons like scrip suspension etc.

3. Final Rank: The scrip should figure in the top 100 companies listed by
final rank. The final rank is arrived at by assigning 75% weightage to the
rank on the basis of three-month average full market capitalization and
25% weightage to the liquidity rank based on three-month average daily
turnover & three-month average impact cost.

4. Market Capitalization Weightage: The weightage of each scrip in

SENSEX based on three-month average free-float market capitalization
should be at least 0.5% of the Index.

5. Industry/Sector Representation: Scrip selection would generally take

into account a balanced representation of the listed companies in the
universe of BSE.

6. Track Record: In the opinion of the BSE Index Committee, the company
should have an acceptable track record.

Introduction to Pre-Open Call Auction Session (w.e.f.

18/10/2010)

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In the continuous market a trade occurs whenever a buy order and a sell order
match each other at a price during the hours when the market is open. In a Call
Auction market, orders are gathered for execution at predetermined times when
the market is called. At the call, all buy orders are aggregated into a downward
sloping demand function and all sell orders are aggregated in an upward sloping
supply function.

The market opening price and quantity traded are derived based on aggregated
supply and demand for the underlying The orders that trade and the price and
quantity at which they trade, are set by multilateral matching, rather than by
the sequence of bilateral matching used to determine trades in a continuous
market.

The concept of order batching which is core to the call auction mechanism can
be understood with the help of an example. We look at simple order book which
shows buy and sell quantities at various price points.

Salient Features of the pre open session

o All executable orders for a particular stock will match at one market
opening price
o Orders are collected in the order entry period & execution occurs in the
order matching period
o Duration of Pre-open session - 15 minutes from 9:00am – 9:15am
o Limit orders will get priority over market orders at the time of execution of
trades.
o All orders shall be disclosed in full quantity, i.e. orders where revealed
quantity function is enabled, will not be allowed during the pre-open
session.
o Unexecuted, eligible orders will be moved to the continuous session
o In the event of no trades in the pre-open session, the orders entered in
the pre-open session will be moved the continuous trading session on
time priority basis. The price of the first trade during the continuous
trading session will be taken as the opening price.
o Indicative opening price & matchable quantity for each stock and
indicative SENSEX will be disseminated at regular intervals of order entry
period.
o At the end of the matching period, the system will compute & disseminate
the opening values for all stocks, SENSEX and other indices.
o Uniform price band of 20% will be applicable to all eligible stocks during
the pre-open session.
Advantages

• It leads to reduced price volatility due to multiple matching of orders at a

single price.
• Greater liquidity due to the collection of orders providing a deeper
demand-supply schedule.

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 • Better Price discovery as errors get reduced due to collection of orders.
• It leads to reduced market impact as any given size of the order is small in
relation to the counterpart orders when the latter are collected over time.
• It leads to lower cost of transaction as the trades executed during the call
auction session do not incur impact cost.
• It acts as a fairer market especially for small, non professional investors
because all trades get executed at the same price. Also the simultaneity
of trades eliminates the possibility of front running customer orders in the
same security.
Session Timings

Session Time Action

Order Addition/Modification/Cancellation
Random stoppage between 7th and 8th
Order Entry 9:00am - minute
Period 9:07/08am Dissemination of Indicative Price, Cumulative
buy & sale Quantity & Indicative Index
Uniform price band of 20% is applicable
Order Matching No Order Addition/Modification/Cancellation
9:08am -
& Confirmation
9.12am
Period Opening price determination, order matching
and trade confirmation & trade confirmation
9:12am - To facilitate transition between pre open and
Buffer Period
9:15am continuous trading session
Continuous Trading Session 9:15am – 3:30pm
Trades occur continuously as orders match at time/price priority

With the introduction of the Call Auction session the trading day will look like:

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The continuous trading session will commence only after the pre open session
ends. The two trading sessions, continuous and call auction (pre-open) sessions
will not run concurrently. The block deal trading session (35 minutes) will start
with the commencement of the continuous session.
Index Closure Algorithm

The closing SENSEX on any trading day is computed taking the weighted
average of all the trades on SENSEX constituents in the last 30 minutes of
trading session. If a SENSEX constituent has not traded in the last 30 minutes,
the last traded price is taken for computation of the Index closure. If a SENSEX
constituent has not traded at all in a day, then its last day's closing price is
taken for computation of Index closure. The use of Index Closure Algorithm
prevents any intentional manipulation of the closing index value.

Typical Terms used in the Capital Market

Market Top: A recent top after which prices started falling

Market Bottom: A recent bottom after which prices rebounded
Rally: Used to indicate that prices increased during a time period
Correction: Used to indicate a brief reversal after a good rise
Trader/Speculator: Used to indicate a person who takes a short term bet on
market.
Investor: Typically a market participant who has a longer time horizon
Short Selling: The process of selling a borrowed security with the hope of
buying at a lower price
Leveraging: The act of using borrowing money to participate in the markets
Intra-day Trading: The process of buying/selling and reversing it the same day
Delivery: The process of buying a security for more than a trading session

Bear Market Rally: A period in which prices of stocks increase during a bear
market. A bear market rally is usually a short-lived market increase following a
period of market decline and is followed by another period of market decline
leading to a pronounced down trend.

Black Friday: A day of stock market catastrophe. Originally, September 24,

1869, was deemed Black Friday. The crash was sparked by gold speculators,
including Jay Gould and James Fist, who attempted to corner the gold market.
The attempt failed and the gold market collapsed, causing the stock market to
plummet.

Lemon: A very disappointing investment. Your expected return wasn't even

close to being achieved.

Panic Selling: Wide-scale selling of an investment, causing a sharp decline in

price. In most instances of panic selling, investors just want to get out of the
investment, with little regard for the price at which they sell.

Some Animals in the Capital Markets

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Bear: An investor who believes that a particular security or market is headed
downward. Bears attempt to profit from a decline in prices. Bears are
generally pessimistic about the state of a given market.

Bull: An investor who thinks the market, a specific security or an industry will
rise. Bulls are optimistic investors who are presently predicting good things for
the market, and are attempting to profit from this upward movement.

Elephants: Slang for large institutions that have the funds to make high
volumes trades. Due to the large volumes of stock that elephants deal in, any
investment decisions that they make will have a large influence on the price of
the underlying financial asset.

Herd Instinct: A mentality characterized by a lack of individuality, causing

people to think and act like the general population. This term is used in the
investing world to refer to the forces that cause unsubstantiated rallies or sell-
offs.

Lame Duck: A person who has defaulted on his or her debts or has gone
bankrupted due to the stock market. The financial use of the term is most
commonly used in Europe.

Ostrich: A slang term given to investors or other market participants

who ignore important pieces of information or situations, which have the ability
to impact them or the market in which they operate. The reasons behind type of
action can include risk aversion and bias.

Pig: An investor who is often seen as greedy, having forgotten his or

her original investment strategy to focus on securing unrealistic future gains.
After experiencing a gain, these investors often have very high
expectations about the future prospects of the investment and, therefore, do
not sell their position to realize the gain. Like a pig in the farmyard that
overindulges in feed, this type of investor will hold onto an investment even
after a substantial movement in the hope that the investment will provide even
greater gains.

Factors that influence the Capital Market and Price of a

stock

News or different factors have an effect on stock prices. Broadly there are two
factors: (1) stock specific and (2) market specific. Essentially, It has two parts:
Firstly - The type of News of Factor and Secondly - Its nature, i.e. positive or
negative.

The stock-specific factor is related to people’s expectations about the company,

its future earnings capacity, financial health and management, level of
technology and marketing skills.

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The market specific factor is influenced by the investor’s sentiment towards the
stock market as a whole. This factor depends on the environment rather than
the performance of any particular company. Events favourable to an economy,
political or regulatory environment like high economic growth, friendly budget,
stable government etc. can fuel euphoria in the investors, resulting in a boom in
the market. On the other hand, unfavourable events like war, economic crisis,
communal riots, minority government etc. depress the market irrespective of
certain companies performing well.

Thus below are different types of news or factors that affect stock market and
stock price.

1. Macroeconomic Data (IIP, 17. Split

Inflation, GDP, Industrial 18. Tax Benefits
Growth, Consumer confidence, 19. Change in stock Group
Employment, Unemployment 20. Inclusion in an Index
etc.) 21. Loss of customer
2. FII activities 22. Short and Long Positions
3. Crude Prices 23. Lawsuits (win or loss)
4. Government/Politics 24. Change in Demand
5. Draught/Monsoon 25. Change in Supply
6. Federal Policies (Interest Rates, 26. Budget
Monetary Policies) 27. Raw Materials
7. Company Results 28. War
8. Global Cues 29. Terrorist Attacks
9. Stock Manipulations 30. Management Changes
10. Insider Trading 31. Dividend
11. Mergers 32. Rights Issue
12. Acquisitions 33. Joint Ventures
13. Money Markets 34. Business Expansion
14. New Orders 35. New Invention
15. Buy Back 36. Rumors
16. Bonus

However, the effect of market-specific factor is generally short-term. Despite

ups and downs, price of a stock in the long run gets stabilized based on the
stock specific factors.

SWOT analysis of Indian Share market

Strengths Weakness

Senex and Nifty scripts are top Illiquidity outside the scripts in futures and
made up of top performing scripts options may lead to large scale price
that should capture much of manipulation in illiquid scripts and lower
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India’s growth over the next 10 price realizations in such counters. Poor
years. Companies that stand to Indian Accounting disclosures may lead to
gain the most as Indian economy large scale manipulation of figures by
gallops at 8-9% pa. publicly traded companies.

Opportunities Threats

A large domestic market that is Global Economic slowdown, Currency

still into traditional fixed income
and other government savings is
all buy bound to enter the market
sooner if not later.
mismanagement, High global commodity
prices, Over valuation in Index scripts, Non
liquidity in non derivatives related scripts,
Change in government focus on controlling
inflation, the attitude of government
relating to FII’s taxation etc.

Advantages & Disadvantages of Investment in Stock Market

Some of the biggest advantages to investing in the stock market include:

• Superior long term performance - over the long term, stocks have consistently provided better
returns than any other type of investment.

• Stocks have consistently stayed ahead of the inflation rate, something that is not always true
of bonds and other fixed income investments. For instance, if your money market is yielding
2% a year, but inflation is 3%, you are actually losing money. The returns of the stock market
provide investors with a better chance of staying ahead of inflation.

• Owning stocks allows the investor to participate in the growth of the economy. When you
buy shares of stock, you actually become part owner of the company, and you therefore are
entitled to share in the good fortunes of that company.

• Stocks can be an excellent choice for retirement vehicles, especially for those with a long
time to retirement. The longer your time horizon, the more valuable stocks can be. A long
time horizon will help to even out the inevitable ups and downs of the market.

Of course these advantages do not come without their challenges. Some of the major disadvantages
of investing in the stock market include:

• Stocks are volatile investments. The price of a single stock can vary quite widely from day to
day, and the factors that cause these price fluctuations are beyond the control of the investor.

• Buying a widely diversified basket of stocks can be difficult for all but the wealthiest
investor. Small investors are better off buying a quality stock mutual fund. Mutual funds pool
the investments of many different people in order to buy a diversified set of stocks. This
diversified approach helps to reduce the risk inherent in the stock market.

• As investors near retirement, the amount of stocks in the portfolio should be reduced.
Investors who are close to retirement age can no longer afford to take chances with their
money, and that means moving a significant portion of their retirement funds to safer and
more stable investments.

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 • Buying and selling stocks costs money in the form of brokerage commissions, and many
brokerage firms charge account maintenance fees as well. It is important to look for low cost
alternatives when buying and selling stocks.

National Stock Exchange (NSE)

The National Stock Exchange of India (NSE) , is a stock exchange located at Mumbai, India. It is
the 9th largest stock exchange in the world by market capitalization and largest in India by daily
turnover and number of trades, for both equities and derivative trading. NSE has a market
capitalization of around US$1.59 trillion and over 1,552 listings as of December 2010. The exchange
has more than 1,000 listed members, owned by more than 20 different financial and insurance
institutions. Though a number of other exchanges exist, NSE and the Bombay Stock Exchange are
the two most significant stock exchanges in India, and between them are responsible for the vast
majority of share transactions. The NSE's key index is the S&P CNX Nifty, known as the NSE
NIFTY (National Stock Exchange Fifty), an index of fifty major stocks weighted by market
capitalisation.

The National Stock Exchange of India was promoted by leading Financial institutions at the behest
of the Government of India, and was incorporated in November 1992 as a tax-paying company. In
April 1993, it was recognized as a stock exchange under the Securities Contracts (Regulation) Act,
1956. NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994.
The Capital market (Equities) segment of the NSE commenced operations in November 1994, while
operations in the Derivatives segment commenced in June 2000.

NSE is mutually-owned by a set of leading financial institutions, banks, insurance companies and
other financial intermediaries in India but its ownership and management operate as separate
entities.NSE is the third largest Stock Exchange in the world in terms of the number of trades in
equities. It is the second fastest growing stock exchange in the world with a recorded growth of
16.6%.

Currently, NSE has the following major segments of the capital market:

• Equity
• Futures and Options
• Retail Debt Market
• Wholesale Debt Market
• Currency futures
• MUTUAL FUND
• STOCKS LENDING & BORROWING

NSE also set up as index services firm known as India Index Services & Products Limited (IISL) and
has launched several stock indices, including:

• S&P CNX Nifty(Standard & Poor's CRISIL NSE Index)

• CNX Nifty Junior
• CNX 100 (= S&P CNX Nifty + CNX Nifty Junior)
• S&P CNX 500 (= CNX 100 + 400 major players across 72 industries)
• CNX Midcap (introduced on 18 July 2005 replacing CNX Midcap 200)

Over The Counter Exchange Of India (OCTEI)

Page | 14
Over The Counter Exchange of India(OTCEI) was incorporated in October 1990 under Section
25 of the Companies Act, 1956 with the objective of setting up a national, ringless, screen-based,
automated stock exchange. It is recognised as a stock exchange under Section 4 of the Securities
Contracts (Regulations) Act, 1956. It was set up to provide investors with a convenient, efficient and
transparent platform for dealing in shares and stocks; and to help enterprising promoters set up new
projects or expand. their activities, by providing them an opportunity to raise capital from the capital
market in a cost-effective manner. Trading in securities takes place through OTCEI’s network of
members and dealers spanning the length and breadth of India. OTCEI was promoted by a
consortium of financial institutions including :

• Unit Trust of India.

• Industrial Credit and Investment Corporation of India.
• Industrial Development Bank of India.
• Industrial Finance Corporation of India.
• Life Insurance Corporation of India.
• General Insurance Corporation and its subsidiaries.
• SBI Capital Markets Limited.
• Canbank Financial Services Ltd.

Salient Features of OTCEI:

1. Ringless and Screen-based Trading: The OTCEI was the first stock exchange to introduce
automated, screen-based trading in place of conventional trading ring found in other stock
exchanges. The network of on-line computers provides all relevant information to the market
participants on their computer screens. This allows them the luxury of executing their deals in
the comfort of their own offices.
2. Sponsorship: All the companies seeking listing on OTCE have to approach one of the
members of the OTCEI for acting as the sponsor to the issue. The sponsor makes a thorough
appraisal of the project; as by entering into the sponsorship agreement, the sponsor is
committed to making market in that scrip (giving a buy sell quote) for a minimum period of
18 months. sponsorship ensures quality of the companies and enhance liquidity for the scrip’s
listed on OTCEI.
3. Transparency of Transactions: The investor can view the quotations on the computer
screen at the dealer’s office before placing the order. The OTCEI system ensures that trades
are done at the best prevailing quotation in the market. The confirmation slip/trading
document generated by the computers gives the exact price at which the deals has been done
and the brokerage charged.
4. Liquidity through Market Making: The sponsor-member is required to give two-way
quotes(buy and sell) for the scrip for 18 months from commencement of trading. Besides the
compulsory market maker, there is an additional market maker giving two way quotes for the
scrip. The idea is to create an environment of competition among market makers to produce
efficient pricing and narrow spreads between buy and sell quotations.
5. Listing of Small and Medium-sized Companies: Many small and medium-sized companies
were not able to enter capital market due to the listing requirement of Securities Contracts
(Regulation) Act, 1956 regarding the minimum issued equity of Rs.10 crores in case of the
Mumbai stock Exchange and Rs.3 crores in case of other stock exchanges. The OTCEI
provides an opportunity to these companies to enter the capital market as companies with
issued capital of Rs.30 lacks onwards can raise finance from the capital market through
OTCEI.
6. Technology: OTCEI uses computers and telecommunications to bring members/dealers
together electronically, enabling them to trade with one another over the computer rather than
on a trading floor in a single location.

Page | 15
 7. Nation-wide Listing: OTCEI network is spread all over India through members, dealers and
representative office counters. The company and its securities get nation-wide exposure and
investors all over India can start trading in that scrip.
8. Bought-out Deals: Through the concept of a bought-out deal, OTCEI allows companies to
place its equity with the sponsor-member at a mutually agreed price. This ensures swifter
availability of funds to companies for timely completion of projects and a listed status at a
later date.

Benefits of getting OTCEI Listing for Companies.

The OTCEI offers facilities to the companies having a issued equity capital of more than Rs. 30
lakhs. The benefits of listing at the OTCEI are:

• Small and medium closely-held companies can go public.

• The OTCEI encourages entrepreneurship.
• Companies can get the money before the issue in cases of Bought-out-deals.
• It is more cost-effective to come with an issue of OTCEI.
• Small companies can get listing benefits.
• Easy issue marketing by using the nation-wide OTCEI dealer network.
• Nation-wide trading by listing at just one exchange.

Benefits of Trading on OTCEI for Investors :

• The OTCEI trading counters are easily accessible by any investors.

• The OTCEI provides greater confidence to investors because of complete transparency in
deals.
• At the OTCEl, the transactions are fast and are completed quickly.
• The OTCEI ensures security, liquidity by offering two-way quotes.
• The OTCEI is an investor friendly exchange with Single Window Clearance for all investor
requests

BSE & Capital Market Milestones

Date Milestones
Page | 16
 9 Jul 1875 The Native Share & Stock Broker's Association formed
2 Feb 1921 Clearing House started by Bank of India
BSE granted permanent recognition under Securities Contracts
31 Aug 1957
(Regulation) Act (SCRA)
SENSEX, country's first equity index launched (Base Year:1978-79
2 Jan 1986
=100)
SEBI Act established ( An Act to protect, develop and regulate the
1 May 1992
securities market)
29 May
Capital Issues (Control) Act repealed
1992
14 Mar 1995 BSE On-Line Trading (BOLT) system introduced
19 Aug 1996 First major SENSEX revamp
1997 BSE On-Line Trading (BOLT) system expanded nation-wide
Central Depository Services Ltd.(CDSL) set up with other financial
22 Mar 1999
institutions
15 Jul 1999 CDSL commences work
1 Mar 2001 Corporatisation of Exchanges proposed by the Union Govt.
1 Nov 2001 Stock futures launched
29 Nov 2001 100% book building allowed
31 Dec 2001 All securities turn to T+5
1 Apr 2002 T+3 settlement Introduced
1 Sep 2003 SENSEX shifted to free-float methodology
1 Apr 2003 T+2 settlement Introduced
1 June 2003 Bankex launched
20 May The BSE (Corporatisation and Demutualisation) Scheme, 2005 (the
2005 Scheme) announced by SEBI
8 Aug 2005 Incorporation of Bombay Stock Exchange Limited
12 Aug 2005 Certificate of Commencement of Business
19 Aug 2005 BSE becomes a Corporate Entity
Appointed Date” under the Scheme i.e. Date on which
16 May
Corporatisaton and Demutualisation was achieved. Notified by SEBI
2007
in the Official Gazette on 29.06.2007
10 Jan 2008 SENSEX All-time high 21206.77
4 Jan 2010 Market time changed to 9.00 a.m. - 3.30 p.m.

Some Interesting Data….

The Journey from 1000 to 21000

Date Milestone
Page | 17
 SENSEX closes above 1000 - the Sensex touched the four-digit figure
25-Jul-90 for the first time and closed at 1,001 in the wake of a good monsoon
and excellent corporate results.
SENSEX closes above 2000 - the Sensex crossed the 2,000-mark and
closed at 2,020 followed by the liberal economic policy initiatives
15-Jan-92
undertaken by the then finance minister and current Prime Minister
Dr Manmohan Singh.
29-Feb- Sensex surged past the 3000 mark in the wake of the market-
92 friendly Budget announced by Manmohan Singh.
SENSEX closes above 4000 - the Sensex crossed the 4,000-mark and
30-Mar- closed at 4,091 on the expectations of a liberal export-import policy.
92 It was then that the Harshad Mehta scam hit the markets and
Sensex witnessed unabated selling.
SENSEX closed above 5000 - the Sensex crossed the 5,000-mark as
11-Oct-
the Bharatiya Janata Party-led coalition won the majority in the 13th
99
Lok Sabha election.
SENSEX closes over 6000 for the first time - the information
2-Jun-04 technology boom helped the Sensex to cross the 6,000-mark and hit
and all time high of 6,006.
SENSEX closes over 7000 for the first time - the news of the
settlement between the Ambani brothers boosted investor
21-Jun-05 sentiments and the scrips of RIL, Reliance Energy, Reliance Capital
and IPCL made huge gains. This helped the Sensex crossed 7,000
points for the first time.
The Sensex crossed the 8000 level following brisk buying by foreign
8-Sep-05
and domestic funds in early trading.
The Sensex crossed 9000 to touch 9000.32 points during mid-
28-Nov- session at the Bombay Stock Exchange on the back of frantic buying
05 spree by foreign institutional investors and well supported by local
operators as well as retail investors.
SENSEX closed above 10000 - The Sensex touched 10,003 points
7-Feb-06 during mid-session. The Sensex finally closed above the 10,000-
mark on February 7, 2006.
The Sensex crossed 11,000 and touched a peak of 11,001 points
21-Mar- during mid-session at the Bombay Stock Exchange for the first time.
06 However, it was on March 27, 2006 that the Sensex first closed at
over 11,000 points.
20-Apr- The Sensex crossed 12,000 and touched a peak of 12,004 points
06 during mid-session at the Bombay Stock Exchange for the first time.
30-Oct- The Sensex crossed 13,000 for the first time. It touched a peak of
06 13,039.36 and finally closed at 13,024.26.
5-Dec-06 The Sensex crossed 14,000.
6-Jul-07 The Sensex crossed 15,000 mark.
19-Sep-
The Sensex crossed the 16,000 mark.
07
26-Sep-
The Sensex crossed the 17,000 mark for the first time.
07
9-Oct-07 The Sensex crossed the 18,000 mark for the first time.
15-Oct-
The Sensex crossed the 19,000 mark for the first time.
07
29-Oct-
The Sensex crossed the 20,000 mark for the first time.
07
Page | 18
 The Sensex crossed the 21,000 mark for the first time and touched a
8-Jan-08
peak of 21078 before closing at 20873

Biggest % Intraday Fall on

BSE
(1.1.1990 to 13.8.2010)
Date Points %
1 08-Oct-90 -215.35 -15.09
2 28-Apr-92 -570.42 -12.77
Biggest % Intraday Gain on
3 17-May-04 -564.71 -11.14
4 24-Oct-08 -1070.63 -10.96 BSE
5 12-May-92 -333.68 -9.76 (1.1.1990 to 13.8.2010)
6 15-Oct-90 -122.55 -8.74 Date Points %
7 06-May-92 -327.00 -8.41 1 09-Oct-90 347.88 28.71
8 31-Mar-97 -302.64 -8.26 2 18-May-09 2110.79 17.34
9 07-Mar-91 -94.88 -7.62 3 24-Mar-92 426.05 13.14
10 21-Jan-08 -1408.35 -7.41 4 13-May-92 344.76 11.17
11 07-Jan-09 -749.05 -7.25 5 19-Feb-91 110.29 10.61
12 05-Oct-98 -224.22 -7.23 6 02-Mar-92 315.57 10.46
13 04-Apr-00 -361.48 -7.15 7 29-Feb-92 258.46 9.37
14 12-Nov-90 -99.03 -7.11 8 18-May-04 371.86 8.25
15 10-Oct-08 -800.51 -7.07 9 31-Oct-08 743.55 8.22
10 30-Mar-92 300.25 7.92
11 08-Apr-92 310.46 7.72
Biggest Points Intraday 12 17-Jun-98 239.87 7.59
13 13-Oct-08 781.24 7.42
Fall on BSE
14 03-Jan-00 369.29 7.38
(1.1.1990 to 13.8.2010) 15 22-Apr-92 304.30 7.31
Date Points %
1 21-Jan-08 -1408.35 -7.41
2 24-Oct-08 -1070.63 -10.96
Biggest Points Intraday
3 17-Mar-08 -951.03 -6.03
4 03-Mar-08 -900.84 -5.12 Gain on BSE
5 22-Jan-08 -875.41 -4.97 (1.1.1990 to 13.8.2010)
6 06-Jul-09 -869.65 -5.83 Date Points %
7 11-Feb-08 -833.98 -4.78 2110.7
1 18-May-09
8 18-May-06 -826.38 -6.76 9 17.34
9 10-Oct-08 -800.51 -7.07 1139.9
2 25-Jan-08
10 13-Mar-08 -770.63 -4.78 2 6.62
11 17-Dec-07 -769.48 -3.84 3 25-Mar-08 928.09 6.07
12 07-Jan-09 -749.05 -7.25 4 14-Nov-07 893.58 4.69
13 31-Mar-08 -726.85 -4.44 5 23-Oct-07 878.85 4.99
14 06-Oct-08 -724.62 -5.78 6 23-Jan-08 864.13 5.17
15 18-Oct-07 -717.43 -3.83 7 23-Jul-08 838.08 5.94
8 14-Feb-08 817.49 4.82
9 09-Oct-07 788.85 4.51
Page | 19
10 13-Oct-08 781.24 7.42
11 31-Oct-08 743.55 8.22
12 29-Oct-07 734.50 3.82
13 04-May-09 731.50 6.41
14 19-Sep-08 726.72 5.46
15 02-Jul-08 702.94 5.42

Page | 20
 Sensex Constituents
Adj.
Name Sector Factor
ICICI Bank Ltd. Finance 1.00
HDFC Finance 0.90
Larsen & Toubro Limited Capital Goods 0.90
Infosys Technologies Ltd. Information Technology 0.85
HDFC Bank Ltd. Finance 0.80
Mahindra & Mahindra Ltd. Transport Equipments 0.80
Metal,Metal Products &
Hindalco Industries Ltd. Mining 0.70
ITC Ltd. FMCG 0.70
Tata Motors Ltd. Transport Equipments 0.70
Tata Power Company Ltd. Power 0.70
Metal,Metal Products &
Tata Steel Ltd. Mining 0.70
Cipla Ltd. Healthcare 0.65
Jaiprakash Associates Ltd. Housing Related 0.55
Reliance Industries Ltd. Oil & Gas 0.55
Reliance Infrastructure Ltd. Power 0.55
Bajaj Auto Limited Transport Equipments 0.50
Hero Honda Motors Ltd. Transport Equipments 0.50
Hindustan Unilever Ltd. FMCG 0.50
Maruti Suzuki India Ltd. Transport Equipments 0.50
Metal,Metal Products &
Jindal Steel & Power Ltd. Mining 0.45
State Bank of India Finance 0.45
Sterlite Industries (India) Metal,Metal Products &
Ltd. Mining 0.45
Bharat Heavy Electricals
Ltd. Capital Goods 0.35
Bharti Airtel Ltd. Telecom 0.35
Reliance Communications
Limited Telecom 0.35
Tata Consultancy Services
Limited Information Technology 0.30
DLF Ltd. Housing Related 0.25
Wipro Ltd. Information Technology 0.25
NTPC Ltd. Power 0.20
ONGC Ltd. Oil & Gas 0.20
 Sensex Returns

YOY YOY
Year Return Year Return
198 199
5 92.9 9 63.8
198 200
6 -0.6 0 -20.6
198 200
7 -15.7 1 -17.9
198 200
8 50.7 2 3.5
198 200
9 16.9 3 72.9
199 200
0 34.6 4 13.1
199 200
1 82.1 5 42.3
199 200
2 37 6 46.7
199 200
3 28.6 7 47.1
199 200
4 -16.9 8 -52.5
199 200
5 -20.9 9 79.7
199 201
6 -0.8 0 17.4
199 201
7 18.6 1 -7.4
199
8 -16.5

Sensex vs. Nifty… A Graphical Comparison

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