CHAPTER - 1 OBJECTIVE AND METHODOLOGY

OBJECTIVE OF THE PROJECT

To evaluate that how stock market operates. To analyse different types of stock markets. To study different factors influencing the Indian stock market. To analyse the risk associated with the stock market.
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To study the behaviour of consumers in Indian stock market.

METHODOLOGY
A research project conducted scientifically has a specific frame work of research from problem identification to presentation of research report. This framework of conducting research is known as Research Design. A research can be conducted without a research plan but it may not solve the problem. A research cannot achieve its objectives without proper research design, without design, it increase its cost and energy.

DATA COLLECTION
PRIMARY DATA: consisting of questionnaire. SECONDARY DATA: consisted from Journals, Magazines, Books & Websites.

CHAPTER - 2 INTRODUCTION

DEFINITION
In economics, typically, the term market means the aggregate of possible buyers and sellers of a thing and the transactions between them. The term "market" is sometimes used for what are more strictly exchanges, organizations that facilitate the trade in financial securities, e.g., an exchange or commodity exchange. This may be a physical location (like the NYSE) or an electronic system (like NASDAQ). Much trading of stocks takes place on an exchange; still, corporate actions (merger, spinoff) are outside an exchange, while any two companies or people, for whatever reason, may agree to sell stock from the one to the other without using an exchange. Trading of currencies and bonds is largely on a bilateral basis, although some bonds trade on a stock exchange, and people are building electronic systems for these as well, similar to stock exchanges.
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Financial markets play a vital role in the economy and the financial system as they regulate or control the flow of finances in the economy. Financial markets are usually known as stock markets where we see that there are many companies of our country which together are progressing for the development of the economy. Financial markets can be domestic or they can be international.

FINANCIAL SYSTEM
A financial system is a network of financial institution, financial market s, financial services and financial intermediaries that helps in transfer of funds. This system includes the savers, intermediaries, instruments and the ultimate users of funds. The main participants that play an important role in a financial system are: Financial institutions like central bank, commercial bank, co-operative banks, leasing and financial companies, other money intermediaries and even the unorganized money lenders. Financial intermediaries like mutual funds companies. Financial instruments both short and long term like shares, debentures, commercial bills and treasury bills. Rules, regulations, procedures and the regulatory authorities, monitoring the flow of funds. A financial institution and its state largely influences the pace of economic growth it can be said that an efficient and effective financial system is thus highly describable for sound and substantial economic growth. An effective financial system thus influences the pace of economic development by making available the funds saved by the savers for the purpose of investment to the user of funds.
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Functions of a financial system:

A financial system works in an effective manner for optimum allocation of resources in economy. It helps in developing a link between the savers and the investors. It allows asset liability transformation for example: banks create liability against themselves by accepting deposits from customers and they also create assets when the same money used to give loans to clients. Economic resources that are the funds are transformed from one party to another through a financial system. A financial system ensures the efficient functioning of the payment mechanism in an economy. All transactions between the buyers and the sellers of goods and services are carried out smoothly due to the presence of an effects financial system. Financial system helps in risk transformation through diversification. Financial system enhances the liquidity position of the economy. It helps in price discovery of financial assets resulting from the interaction of buyers and sellers. It helps in introducing the cost of transactions.

INTRODUCTION TO INDIAN MARKETS:

THERE ARE TWO TYPES OF MARKETS IN INDIA
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MONEY MARKET

Money market is a market for debt securities that pay off in the short term usually less than one year, for example the market for 90-days treasury bills. This market encompasses the trading and issuance of short term non equity debt instruments including treasury bills, commercial papers, bankers acceptance, certificates of deposits, etc. In other word we can also say that the Money Market is basically concerned with the issue and trading of securities with short term maturities or quasi-money instruments. The Instruments traded in the money-market are Treasury Bills, Certificates of Deposits (CDs), Commercial Paper (CPs), Bills of Exchange and other such instruments of short-term maturities (i.e. not exceeding 1 year with regard to the original maturity)

CAPITAL MARKET

Capital market is a market for long-term debt and equity shares. In this market, the capital funds comprising of both equity and debt are issued and traded. This also includes private placement sources of debt and equity as well as organized markets like stock exchanges.

Capital market can be divided into Primary and Secondary Markets.

I.

PRIMARY MARKET

In the primary market, securities are offered to public for subscription for the purpose of raising capital or fund. Secondary market is an equity trading avenue in which already existing/pre- issued securities are traded amongst investors. Secondary market could be either auction or dealer market. While stock exchange is the part of an auction market, Over-the-Counter (OTC) is a part of the dealer market. In addition to the traditional sources of capital from family and friends, startup firms are created and nurtured by Venture Capital Funds and Private Equity Funds. According to the Indian Venture Capital Association Yearbook (2003), investments of $881million were
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injected into 80 companies in 2002, and investments of $470 million were injected into 56 companies in 2003. The firms which received these investments were drawn from a wide range of industries, including finance, consumer goods and health. The growth of the venture capital and private equity mechanisms in India is critically linked to their track record for successful exits. Investments by these funds only commenced in recent years, and we are seeing a rapid buildup in a full range of channels for exit, with a mix of profitable and unprofitable outcomes. This success with exit suggests that investors will allocate increased resources to venture funds and private equity funds operating in India, who will (in turn) be able to fund the creation of new firms.

II.

SECONDARY MARKET

Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets. For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, Secondary equity markets serve as a monitoring and control conduitby facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions.

Difference between the primary market and the secondary market: In the primary market, securities are offered to public for subscription for the purpose of raising capital or fund. Secondary market is an equity trading avenue in which already existing/pre- issued securities are traded amongst investors. Secondary market could be either auction or dealer market. While stock exchange is the part of an auction market, Over-the-Counter (OTC) is a part of the dealer market.

Main financial products/instruments dealt in the secondary market Equity: The ownership interest in a company of holders of its common and preferred stock. The various kinds of equity shares are as follows

Equity Shares: An equity share, commonly referred to as ordinary share also represents the form of fractional ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture. The holders of such shares are members of the company and have voting rights. A company may issue such shares with differential rights as to voting, payment of dividend, etc.

Rights Issue/ Rights Shares: The issue of new securities to existing shareholders at a ratio to those already held.

Bonus Shares: Shares issued by the companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years. Preferred Stock/ Preference shares: Owners of these kind of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid
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regularly before dividend can be paid in respect of equity share. They also enjoy priority over the equity shareholders in payment of surplus. But in the event of liquidation, their claims rank below the claims of the companys creditors, bondholders / debenture holders.

Cumulative Preference Shares: A type of preference shares on which dividend accumulates if remains unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares.

Cumulative Convertible Preference Shares: A type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company.

Participating Preference Share: The right of certain preference shareholders to participate in profits after a specified fixed dividend contracted for is paid. Participation right is linked with the quantum of dividend paid on the equity shares over and above a particular specified level.

Security Receipts: Security receipt means a receipt or other security, issued by a securitisation company or reconstruction company to any qualified institutional buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided right, title or interest in the financial asset involved in securitisation.

Government securities (G-Secs): These are sovereign (credit risk-free) coupon bearing instruments which are issued by the Reserve Bank of India on behalf of Government of India, in lieu of the Central Government's market borrowing programme. These securities have a fixed coupon that is paid on specific dates on half-yearly basis. These securities are available in wide range of maturity dates, from short dated (less than one year) to long dated (upto twenty years).

Debentures: Bonds issued by a company bearing a fixed rate of interest usually payable half yearly on specific dates and principal amount repayable on particular date on redemption of the debentures. Debentures are normally
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secured/ charged against the asset of the company in favour of debenture holder.

Bond: A negotiable certificate evidencing indebtedness. It is normally unsecured. A debt security is generally issued by a company, municipality or government agency. A bond investor lends money to the issuer and in exchange, the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bond holder periodic interest payments over the life of the loan. The various types of Bonds are as follows Zero Coupon Bond: Bond issued at a discount and repaid at a face value. No periodic interest is paid. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only one payment, at the maturity of the bond. Convertible Bond: A bond giving the investor the option to convert the bond into equity at a fixed conversion price. Commercial Paper: A short term promise to repay a fixed amount that is placed on the market either directly or through a specialized intermediary. It is usually issued by companies with a high credit standing in the form of a promissory note redeemable at par to the holder on maturity and therefore, doesnt require any guarantee. Commercial paper is a money market instrument issued normally for a tenure of 90 days. Treasury Bills: Short-term (up to 91 days) bearer discount security issued by the Government as a means of financing its cash requirements.

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Recent developments and trends in world financial markets Recent trends in global financial markets

Perhaps foremost among recent changes in world financial markets has been their accelerating integration and globalisation. This development, which has been fostered by the liberalisation of markets, rapid technological progress and major advances in telecommunications, has created new investment and financing opportunities for businesses and people around the world. Easier access to global financial markets for individuals and corporations will lead to a more efficient allocation of capital, which, in turn, will promote economic growth and prosperity. Apart from this ongoing integration and globalisation, world financial markets have also recently experienced increased securitisation. In part, this development has been spurred by the surge in mergers and acquisitions and leveraged buy-outs that has taken place in markets of late, not least in the euro area. One aspect of this securitisation process has been the increase in corporate bond issuance, which has also coincided with a diminishing supply of government bonds in many countries, particularly in the United States. Other interesting developments in world financial markets include the continued broadening and expansion of derivatives markets. The broadening of these markets has largely come about because rapid advances in technology, financial engineering, and risk management have helped to enhance both the supply of and the demand for more complex and sophisticated derivatives products. The increased use of derivatives to adjust exposure to risk in financial markets has also contributed to the rise in the notional amounts of outstanding derivatives contracts seen in recent years, in particular in over-the-counter (OTC) derivatives markets with interest rates and equities as underlying securities.
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While the leveraged nature of derivative instruments poses risks to individual investors, derivatives also provide scope for a more efficient allocation of risks in the economy, which is beneficial for the functioning of financial markets, and hence enhances the conditions for economic growth. Among the many changes in global financial markets, developments in the euro area have been particularly striking. Recent trends in euro area financial markets

The launch of the euro on 1 January 1999 was a historic event. 11 national currencies were converted into one single currency overnight. It marked the start of a period of profound change in Europe's financial landscape. The successful launch of the euro, which is a key element in the creation of a stable, prosperous and peaceful Europe, has also boosted the integration of financial markets in the euro area. This process of integration in European financial markets coincided with the trend towards globalisation. Both these factors help to explain current developments in Europe's financial markets. The main catalyst behind the huge changes that have taken place, and continue to take place, has, of course, been the arrival of the single currency. In January 1999, foreign exchange and interbank markets immediately switched over to the euro. At the same time, a single monetary policy was established, with a uniform policy implementation framework for all euro area countries. Furthermore, a unified payment system was introduced, providing for real-time gross settlement transfers throughout the euro area. As regards euro area banks, the transparency brought about by a single currency and a single monetary policy makes it easier for customers to compare bank products and costs.

This, in turn, will foster competition among banks. Although this increased competition will lead to lower bank margins, it will promote restructuring and consolidation among banks in the euro area, which will help them to compete globally. In fact, these events are already happening: banks all over Europe are merging or forming alliances on an unprecedented scale, thereby drastically changing the national banking environment and creating international networks. Hence, the introduction of the euro has not only provided banks with a market large enough to support their efforts in global competition, but also pressured them to undertake the restructuring and consolidation they need in order to be
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successful in an increasingly global market. In addition to these changes in the banking sector, the advent of the euro also provided the basis for a Europe-wide securities market. The euro area money market underwent a wide-ranging process of integration and standardisation following the introduction of the single monetary policy framework. The unsecured deposit markets and the derivatives markets became fully integrated in early 1999. Moreover, the need to redistribute liquidity among euro area countries, including liquidity provided by the Eurosystem as part of its refinancing operations, fostered the development of area-wide transactions in the money market. TARGET, the new area-wide payment system which constitutes the major settlement system for payments in euro, has played a key role in facilitating the redistribution of liquidity across the euro area. In addition, by encouraging greater arbitrage activity, TARGET has facilitated an equalisation of prices prevailing in the various segments of the money market throughout the euro area. While there has been less integration in other segments of the euro area money market, such as the repo markets and the short-term securities markets, I am convinced that the integration process will continue in these areas, given the favourable conditions provided by European Economic and Monetary Union. Another sector in which impressive changes have taken place following the introduction of the euro is the euro-denominated bond market. There was a marked rise in private bond issuance in the euro area in 1999, which has continued broadly unabated in 2000. Following the introduction of the euro, the euro-denominated component of international bond markets played a far larger role than the predecessor currencies of the euro had hitherto. In other words, the whole has turned out to be much greater than the sum of the parts. Apart from this, it also became clear that various characteristics of newly issued debt securities were changing. In particular, the average size of new bond issues rose considerably in 1999, as the number of very large issues, of EUR 1 billion or more, grew significantly. These changes show that the newly created euro-denominated bond market, by virtue of its size and high degree of openness, is more able to absorb very large issues than the individual bond markets of the predecessor currencies of the euro. Hence, the introduction of the single currency has resulted in more efficient and well-functioning markets, which benefit not only euro area residents, but also market participants outside the euro area. Furthermore, this market still has great potential since the use of securities

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finance by the corporate sector, relative to bank finance, is still only about half that of its counterpart in the United States. The single currency also appears to be a catalyst for restructuring the European corporate sector, and for the emergence of new companies. The ongoing integration process of the national stock exchanges has also been supportive in this respect. Primary issues of European equities have reached record highs, with whole new markets, such as the Neuer Markt in Frankfurt, becoming prominent internationally. These developments can only favour those companies which may have found it difficult in the past to finance themselves, but which will now be able to raise equity more easily. In addition, a number of Europe-wide equity indices have been established, thereby contributing to extending the trading possibilities and the position-taking opportunities for investors. Alliances between stock exchanges should also foster the integration of stock market infrastructures.

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CHAPTER - 3 STOCK EXCHANGES

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SEBI: SECURITY AND EXCHANGE BOARD OF INDIA

The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith and incidental thereto. Securities and Exchange Board of India constituted under the Resolution of the Government of India in the Department of Economic Affairs No.1 (44)SE/86, dated the 12th day of April, 1988;

The Board shall consist of the following members, namely:1. A Chairman 2. Two members from amongst the officials of the Ministry of the Central Government dealing with Finance (and administration of the Companies Act, 1956;) 2 of 1934 3. One member from amongst the officials of [the Reserve Bank 4. Five other members of whom at least three shall be the whole-time members

Departments of SEBI regulating trading in the secondary market

(1) Market Intermediaries Registration and Supervision department (MIRSD) Registration, supervision, compliance monitoring and inspections of all market intermediaries in respect of all segments of the markets viz. equity, equity derivatives, debt and debt related derivatives.

(2) Market Regulation Department (MRD) Formulating new policies and supervising the functioning and operations (except relating to derivatives) of securities exchanges, their subsidiaries, and market institutions such as Clearing and settlement organizations and Depositories (Collectively referred to as Market SROs).

(3)Derivatives and New Products Departments (DNPD)

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Supervising trading at derivatives segments of stock exchanges, introducing new products to be traded, and consequent policy changes.

POWERS & FUNCTIONS:

1. Regulating the business in stock exchanges and any other securities markets.

2. Registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with securities markets in any manner.

3. Registering and regulating the working of the depositories, participants custodians of securities, foreign institutional investors, credit rating agencies and such other intermediaries as the board may, by notification, specify in this behalf.
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4. Registering and regulating the working of (venture capital funds and collective investment schemes) including mutual funds.

5. Promoting and regulating self-regulatory organizations.

6. Prohibiting fraudulent and unfair trade practices relating to securities markets.

7. Promoting investors' education and training of intermediaries of securities markets.

8. Prohibiting insider trading in securities.

9. Regulating substantial acquisition of shares and take-over of companies.

10. Calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, (mutual funds) and other persons associated with the securities market and intermediaries and self- regulatory organizations in the securities market.

11. Performing such functions and exercising such powers under the provisions of securities contracts (regulation) act, 1956, as may be delegated to it by th central government.

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BOMBAY STOCK EXCHANGE OF INDIA LIMITED

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritage. Popularly known as "BSE", it was established as "The Native Share & Stock Brokers Association" in 1875. It is the first stock exchange in the country to obtain permanent recognition in 1956 from the Government of India under the Securities Contracts (Regulation) Act, 1956.

The Exchange's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized and its index, SENSEX, is tracked worldwide. Earlier an Association of Persons (AOP), the Exchange is now a demutualised and corporative entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatization and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). With demutualization, the trading rights and ownership rights have been de-linked effectively addressing concerns regarding perceived and real conflicts of interest. The Exchange is professionally managed under the overall direction of the Board of Directors. The Board comprises eminent professionals, representatives of Trading Members and the Managing Director of the Exchange. The Board is inclusive and is designed to benefit from the participation of market intermediaries. In terms of organization structure, the Board formulates larger policy issues and exercises over-all control. The committees constituted by the Board are broad based. The day-to-day operations of the Exchange are managed by the Managing Director and a management team of professionals. The Exchange has a nation-wide reach with a presence in 417 cities and towns of India. The systems and processes of the Exchange are designed to safeguard market integrity and enhance transparency in operations. During the year 2004-2005, the trading volumes on the Exchange showed robust growth. The Exchange provides an efficient and transparent market for trading in equity, debt instruments and derivatives. The BSE's On Line Trading System (BOLT) is a proprietary system of the Exchange and is BS 7799-2-2002 certified. The surveillance and clearing & settlement functions of the Exchange are ISO 9001:2000 certified. Bombay Stock
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Exchange Limited (BSE) which was founded in 1875 with six brokers has now grown into a giant institution with over 874 registered Broker-Members spread over 380 cities across the country. Today, BSE's Wide Area Network (WAN) connecting over 8000 BSE Online Trading (BOLT) System Trader Work Stations (TWS) is one of the largest of its kind in the country. With a view to provide efficient and integrated services to the investing public through the members and their associates in the operations pertaining to the Exchange, Bombay Stock Exchange Limited (BSE) has set up a unique Member Services and Development to attend to the problems of the Broker-Members. Member Services and Development Department is the single point interface for interacting with the Exchange Administration to address to Members' issues. The Department takes care of various problems and constraints faced by the Members in various products such as Cash, Derivatives, Internet Trading, and Processes such as Trading, Technology, Clearing and Settlement, Surveillance and Inspection,Membership, Training, Corporate Information, etc.

VISION OF BSE Emerge as the premier Indian stock exchange by establishing global benchmarks" COMMODITY EXCHANGES There are three categories: NCDEX MCX NMCE

A brief description of commodity exchanges are those which trade in particular commodities, neglecting the trade of securities, stock index futures and options etc. In the middle of 19th century in the United States, businessmen began
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organizing market forums to make the buying and selling of commodities easier. These central marketplaces provided a place for buyers and sellers to meet, set quality and quantity standards, and establish rules of business. Agricultural commodities were mostly traded but as long as there are buyers and sellers, any commodity can be traded. In 1872, a group of Manhattan dairy merchants got together to bring chaotic condition in New York market to a system in terms of storage, pricing, and transfer of agricultural products. In 1933, during the Great Depression, the Commodity Exchange, Inc., was established in New York through the merger of four small exchan ges the National Metal Exchange, the Rubber Exchange of New York, the National Raw Silk Exchange, and the New York Hide Exchange.

The major commodity markets are in the United Kingdom and in the USA.In india there are 25 recognized future exchanges, of which there are three national level multicommodity exchanges. After a gap of almost three decades, Government of India has allowed forward transactions in commodities through Online Commodity Exchanges, a modification of traditional business known as Adhat and Vayda Vyapar to facilitate better risk coverage and delivery of commodities. The three exchanges are:

1. National Commodity & Derivatives Exchange Limited (NCDEX) 2. Multi Commodity Exchange of India Limited (MCX) 3. National Multi-Commodity Exchange of India Limited (NMCEIL)

All the exchanges have been set up under overall control of Forward Market Commission (FMC) of Government of India.

1) National Commodity & Derivatives Exchange Limited (NCDEX) National Commodity & Derivatives Exchange Limited (NCDEX) located in Mumbai is a public limited company incorporated on April 23, 2003 under the Companies Act, 1956 and had commenced its operations on December 15, 2003.This is the only commodity exchange in the country promoted by national level institutions.
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It is promoted by ICICI Bank Limited, Life Insurance Corporation of India (LIC),National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India Limited (NSE). It is a professionally managed online multi commodity exchange. NCDEX is regulated by Forward Market Commission and is subjected to various laws of the land like the Companies Act, Stamp Act, Contracts Act, Forward Commission (Regulation) Act and various other legislations.

2) Multi Commodity Exchange of India Limited(MCX) Headquartered in Mumbai Multi Commodity Exchange of India Limited (MCX), is an independent and de-mutulised exchange with a permanent recognition from Government of India. Key shareholders of MCX are Financial Technologies (India) Ltd., State Bank of India, Union Bank of India, Corporation Bank, Bank of India and Canara Bank. MCX facilitates online trading, clearing and settlement operations for commodity futures markets across the country. MCX started offering trade in November 2003 and has built strategic alliances with Bombay Bullion Association, Bombay Metal Exchange, Solvent Extractors Association of India, Pulses Importers Association and Shetkari Sanghatana.

3) National Multi-Commodity Exchange of India Limited (NMCEIL) National Multi Commodity Exchange of India Limited (NMCEIL) is the first demutualzed, Electronic Multi-Commodity Exchange in India. On 25th July, 2001, it was granted approval by the Government to organize trading in the edible oil complex. It has operationalised from November 26, 2002. It is being supported by Central Warehousing Corporation Ltd., Gujarat State Agricultural Marketing Board and Neptune Overseas Limited. It got its recognition in October 2000. Commodity exchange in India plays an important role where the prices of any commodity are not fixed, in an organized way. Earlier only the buyer of produce and its seller in the market judged upon the prices. Others never had a say. Today, commodity exchanges are purely speculative in nature. Before discovering the price, they reach to the producers, end-users, and even the retail investors, at a grassroots level. It brings a price transparency and risk management in the vital market.
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A big difference between a typical auction, where a single auctioneer announces the bids, and the Exchange is that people are not only competing to buy but also to sell. By Exchange rules and by law, no one can bid under a higher bid, and no one can offer to sell higher than someone elses lower offer. That keeps the market as efficient as possible, and keeps the traders on their toes to make sure no one gets the purchase or sale before they do.

NSE - A NEW IDEOLOGY

Capital market reforms in India have outstripped the process of liberalization in most other sectors of the economy. However, the creation of an independent capital market regulator was the initiation of this reform process. After the formation of the Securities Market regulator, the Securities and Exchange Board of India (SEBI), attention were drawn towards the inefficiencies of the bourses and the need was felt for better regulation, discipline and accountability. A Committee recommended the creation of a 2nd stock exchange in Mumbai called the "National Stock Exchange". The Committee suggested the formation of an exchange which would provide investors across the country a single,
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screen based trading platform, operated through a VSAT network. It was on this recommendation that setting up of NSE as a technology driven exchange was conceptualized. NSE has set up its trading system as a nation-wide, fully automated screen based trading system. It has written for itself the mandate to create a world-class exchange and use it as an instrument of change for the industry as a whole through competitive pressure. NSE was incorporated in 1992 and was given recognition as a stock exchange in April 1993. It started operations in June 1994, with trading on the Wholesale Debt Market Segment. Subsequently it launched the Capital

Market Segment in November 1994 as a trading platform for equities and the Futures and Options Segment in June 2000 for various derivative instruments.

NSE was set up with the objectives of: Establishing a nationwide trading facility for all types of securities; Ensuring equal access to investors all over the country through an appropriate communication network; Providing a fair, efficient and transparent securities market using electronic trading system; Enabling shorter settlement cycles and book entry settlements; and Meeting international benchmarks and standards.

NSE has been able to take the stock market to the doorsteps of the investors. The technology has been harnessed to deliver the services to the investors across the country at the cheapest possible cost. It provides a nation-wide, screen-based, automated trading system, with a high degree of transparency and equal access to investors
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irrespective of geographical location. The high level of information dissemination through on-line system has helped in integrating retail investors on a nation-wide basis. The standards set by the exchange in terms of market practices, products, technology and service standards have become industry benchmarks and are being replicated by other market participants. Within a very short span of time, NSE has been able to achieve all the objectives for which it was set up. It has been playing a leading role as a change agent in transforming the Indian Capital Markets to its present form. The Indian Capital Markets are a far cry from what they used to be a decade ago in terms of market practices, infrastructure, technology, risk management, clearing and settlement and investor service.

The broad objective for which the exchange was set up has made it to play a leading role in enlarging the scope of market reforms in securities market in India. During last one decade it has been playing the role of a catalytic agent in reforming the markets in terms of market microstructure and in evolving the best market practices keeping in mind the investors. The Exchange is set up on a demutualised model wherein the ownership, Management and trading rights are in the hands of three different sets of people. This has completely eliminated any conflict of interest. This has helped NSE to aggressively pursue policies and practices within a public interest framework. NSE's nationwide, automated trading system has helped in shifting the trading platform from the trading hall in the premises of the exchange to the computer terminals at the premises of the trading members located at different geographical locations in the country and subsequently to the personal computers in the homes of investors and even to hand held portable devices for the mobile investors. It has been encouraging corporatization of membership in securities market. It has also proved to be instrumental in ushering in scrip less trading and providing settlement guarantee for all trades executed on the Exchange. Settlement risks have also been eliminated with NSE's innovative endeavors in the area of clearing and settlement viz., establishment of the clearing corporation (NSCCL), setting up a settlement guarantee fund (SGF), reduction of settlement cycle, implementing on-line, real-time risk management systems, dematerialization and electronic transfer of securities to name few of them. As a consequence, the market today uses state-of-the-art information technology to provide an efficient and transparent trading, clearing and settlement mechanism. In order to
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take care of investors interest, it has also created an investors protection fund (IPF), that would help investors who have incurred financial loss due to default of brokers.

The Exchange provides trading in 3 different segments viz. Wholesale debt market (WDM) Capital market (CM) segment and The futures & options (F&O) segment.

The Wholesale Debt Market segment provides the trading platform for trading of a wide range of debt securities which includes State and Central Government securities, T-Bills, PSU Bonds, Corporate Debentures, CPs, CDs etc. However, along with these financial instruments, NSE has also launched various products (e.g. FIMMDA-NSE

MIBID/MIBOR) owing to the market need. A reference rate is said to be an accurate measure of the market price. In the fixed income market, it is the interest rate that the market respects and closely matches. In response to this, NSE started computing and disseminating the NSE Mumbai Inter-bank Bid Rate (MIBID) and NSE Mumbai InterBank Offer Rate (MIBOR). Owing to the robust methodology of computation of these rates and its extensive use, this product has become very popular among the market participants. Keeping in mind the requirements of the banking industry, FIs, MFs, insurance companies, who have substantial investments in sovereign papers, NSE also started the dissemination of its yet another product, the Zero Coupon Yield Curve. This helps in valuation of sovereign securities across all maturities irrespective of its liquidity in the market. The increased activity in the government securities market in India and simultaneous emergence of MFs (Gilt MFs) had given rise to the need for a well defined bond index to measure the returns in the bond market. NSE constructed such an index the, NSE Government Securities Index. This index provides a benchmark for portfolio management by various investment managers and gilt funds.

The Capital Market segment offers a fully automated screen based trading system, known as the National Exchange for Automated Trading (NEAT) system. This operates on a price/time priority basis and enables members from across the country to trade with enormous ease and efficiency. Various types of securities e.g. equity shares, warrants,
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debentures etc. are traded on this system. The average daily turnover in the CM Segment of the Exchange during 2004-05 was nearly Rs. 4,506 crs. NSE started trading in the equities segment (Capital Market segment) on November 3, 1994 and within a short span of 1 year became the largest exchange in India in terms of volumes transacted. Trading volumes in the equity segment have grown rapidly with average daily turnover increasing from Rs.17 crores during 1994-95 to Rs.6,253 crores during 2005-06. During the year 2005-06, NSE reported a turnover of Rs.1,569,556 crores in the equities segment. The Equities section provides you with an insight into the equities segment of NSE and also provides real-time quotes and statistics of the equities market. In-depth information regarding listing of securities, trading systems & processes, clearing and settlement, risk management, trading statistics etc are available here.

Futures & Options segment: of NSE provides trading in derivatives instruments like Index Futures, Index Options, Stock Options, Stock Futures and Futures on interest rates. Though only four years into its operations, the futures and options segment of NSE has made a mark for itself globally. In the Futures and Options segment, trading in Nifty and CNX IT index and 53 single stocks are available. W.e.f. May 27 2005, futures and options would be available on 118 single stocks. The average daily turnover in the F&O Segment of the Exchange during 2004-05 was nearly Rs. 10,067 crs.

Technology: Technology has been the backbone of the Exchange. Providing the services to the investing community and the market participants using technology at the cheapest possible cost has been its main thrust. NSE chose to harness technology in creating a new market design. It believes that technology provides the necessary impetus for the organisation to retain its competitive edge and ensure timeliness and satisfaction in customer service. In recognition of the fact that technology will continue to redefine the shape of the securities industry, NSE stresses on innovation and sustained investment in technology to remain ahead of competition. NSE is the first exchange in the world to use satellite communication
27

technology for trading. It uses satellite communication technology to energise participation through about 2,829 VSATs from nearly 345 cities spread all over the country. The list of towns and cities and the state-wise distribution of VSATs as at end March 2005. Its trading system, called National Exchange for Automated Trading (NEAT), is a state of the art client server based application. At the server end all trading information is stored in an in-memory database to achieve minimum response time and maximum system availability for users. It has uptime record of 99.7%. For all trades entered into NEAT system, there is uniform response time of less than 1.5 seconds. NSE has been continuously undertaking capacity enhancement measures so as to effectively meet the requirements of increased users and associated trading loads. With recent up gradation of trading hardware, NSE can handle up to 6 million trades per day. NSE has also put in place NIBIS (NSE's Internet Based Information System) for online real-time dissemination of trading information over the Internet. As part of its business continuity plan, NSE has established a disaster back-up site at Chennai along with its entire infrastructure, including the satellite earth station and the highspeed optical fiber link with its main site at Mumbai. This site at Chennai is a replica of the production environment at Mumbai. The transaction data is backed up on near real time basis from the main site to thedisaster back-up site through the 2 mbps high-speed link to keep both the sites all the time synchronized with each other.

LISTING OF SECURITIES:

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The stocks, bonds and other securities issued by issuers require listing for providing liquidity to investors. Listing means formal admission of a security to the trading platform of the Exchange. It provides liquidity to investors without compromising the need of the issuer for capital and ensures effective monitoring of conduct of the issuer and trading of the securities in the interest of investors. The issuer wishing to have trading privileges for its securities satisfies listing requirements prescribed in the relevant statutes and in the listing regulations of the Exchange. It also agrees to pay the listing fees and comply with listing requirements on a continuous basis. All the issuers who list their securities have to satisfy the corporate governance requirement framed by regulators.

Benefits of Listing on NSE

NSE provides a trading platform that extends across the length and breadth of the country. Investors from approximately 345 centers can avail of trading facilities on the NSE trading network. Listing on NSE thus, enables issuers to reach and service investors across the country.

NSE being the largest stock exchange in terms of trading volumes, the securities trade at low impact cost and are highly liquidity. This in turn reduces the cost of trading to the investor.

The trading system of NSE provides unparallel level of trade and post-trade information. The best 5 buy and sell orders are displayed on the trading system and the total number of securities available for buying and selling is also displayed. This helps the investor to know the depth of the market. Further, corporate announcements, results, corporate actions etc are also available on the trading system, thus reducing scope for price manipulation or misuse.

The facility of making initial public offers (IPOs), using NSE's network and software, results in significant reduction in cost and time of issues.
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NSE's web-site www.nseindia.com provides a link to the web-sites of the companies that are listed on NSE, so that visitors interested in any company can visit that company's web-site from the NSE site.

Listed companies are provided with monthly trade statistics for the securities of the company listed on the Exchange.

CM Segment

Two categories, namely 'listed' and 'permitted to trade' categories of securities (equity shares, preference shares and debentures) are available for trading in the CM segment. However, the permitted to trade category is being phased out gradually and no new company is been given the benefit of this category. At the end of March 2005, 970 'listed' and 1 'permitted to trade' companies were available for trading. These securities had a market capitalisation of Rs. 1,585,585 crore.

Listing Criteria

The Exchange has laid down criteria for listing of new issues by companies, companies listed on other exchanges, and companies formed by amalgamation/restructuring, etc. in conformity with the Securities Contracts (Regulation) Rules, 1957 and directions of the Central Government and the Securities and Exchange Board of India (SEBI). The criteria include minimum paid-up capital and market capitalisation, project appraisal, company/promoter's track record, etc. The issuers of securities are required to adhere to provisions of the Securities Contracts (Regulation) Act,
30

1956, the Companies Act, 1956, the Securities and Exchange Board of India Act, 1992, and the rules, circulars, notifications, guidelines, etc. Prescribed there under.

Listing Agreement

All companies seeking listing of their securities on the Exchange are required to enter into a listing agreement with the Exchange. The agreement specifies all the requirements to be continuously complied with by the issuer for continued listing. The Exchange monitors such compliance. Failure to comply with the requirements invites suspension of trading, or withdrawal/delisting, in addition to penalty under the Securities Contracts (Regulation) Act, 1956. Shareholding Pattern

In the interest of transparency, the issuers are required to disclose shareholding pattern on a quarterly basis. On an average, the promoters hold more than 55.63% of total shares. Though non-promoter holding is nearly 44.37%, Indian public held only 17.03% and the public float (holding by foreign institutional investors, mutual funds, and Indian Public) is at best 27.27%.

De-listing

The securities listed on NSE can be de-listed from the Exchange as per the SEBI (Delisting of Securities) Guidelines, 2003 in the following manner:

Voluntary De-listing of Companies

Any promoter or acquirer desirous of delisting securities of the company under the provisions of these guidelines shall obtain the prior approval of shareholders of the company by a special resolution passed at its general meeting, make a public announcement in the manner provided in these guidelines, make an application to the delisting exchange in the form specified by the exchange, and comply with such other additional conditions as may be specified by the concerned stock exchanges from where securities are to be de-listed. Any promoter of a company which desires to de-list from the stock exchange shall also determine an exit price for delisting of securities in accordance with the book building process as stated in the guidelines. The stock exchanges shall provide the infrastructure facility for display of the price at the terminal of the trading
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members to enable the investors to access the price on the screen to bring transparency to the delisting process.

Compulsory De-listing of Companies

The stock exchanges may de-list companies which have been suspended for a minimum period of six months for non-compliance with the listing agreement. The stock exchanges have to give adequate and wide public notice through newspapers and also give a show cause notice to a company. The exchange shall provide a time period of 15 days within which 30 representation may be made to the exchange by any person who may be aggrieved by the proposed delisting. Where the securities of the company are de-listed by an exchange, the promoter of the company shall be liable to compensate the security holders of the company by paying them the fair value of the securities held by them and acquiring their securities, subject to their option to remain security-holders with the company.

WDM Segment

In the WDM segment, all government securities, state development loans and treasury bills are 'deemed' listed as and when they are issued. The other categories of securities are traded under the 'listed' category. All eligible securities whether publicly issued or privately placed can be made available for trading in the WDM segment. Amongst other requirements, privately placed debt paper of banks, institutions and corporates require credit rating to be eligible for listing.

MEMBERSHIP ADMINISTRATION

The trading in NSE has a three tier structure-the trading platform provided by the Exchange, the broking and intermediary services and the investing community. The trading members have been provided exclusive rights to trade subject to their continuously fulfilling the obligation under the Rules, Regulations, Byelaws, Circulars, etc. of the Exchange. The trading members are subject to its regulatory discipline. Any entity can
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become a trading member by complying with the prescribed eligibility criteria and exit by surrendering trading membership. There are no entry/exit barriers to trading membership. Eligibility Criteria The Exchange stresses on factors such as corporate structure, capital adequacy, track record, education, experience, etc. while granting trading rights to its members. This reflects a conscious effort by the Exchange to ensure quality broking services which enables to build and sustain confidence in the Exchange's operations. The standards stipulated by the Exchange for trading membership are substantially in excess of the minimum statutory requirements as also in comparison to those stipulated by other exchanges in India. The exposure and volume of transactions that can be undertaken by a trading member are linked to liquid assets in the form of cash, bank guarantees, etc. deposited by the member with the Exchange as part of the membership requirements. The trading members are admitted to the different segments of the Exchange subject to the provisions of the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992, the rules, circulars, notifications, guidelines, etc., issued there under and the byelaws, Rules and Regulations of the Exchange. All trading members are registered with SEBI.

INVESTOR GRIEVANCES Investors are the backbone of the securities market. Protection of their interests is paramount for NSE. In furtherance of their interests, NSE has put in place systems to ensure availability of adequate, up-to-date and correct information to investors to enable them to take informed decisions. It ensures that critical and price-sensitive information reaching the exchange is made available to all classes of investor at the same point of time. Such price-sensitive information as bonus announcements, mergers, new line of business, etc. received from the companies is disseminated to all the market participants through the network of NSE terminals all over India. Action is initiated by the Exchange whenever any kind of price sensitive information is not provided to the Exchange at the prescribed time by companies listed on the Exchange. In an attempt to ease the existing system of information dissemination by the listed companies, NSE launched the electronic interface for listed companies in August 2004. Under the new system, all corporate announcements including that of Board meetings which needs to be disclosed to the market is handled electronically in a straight through and hands free
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manner. The Exchange also conducts various seminars and programs for the investors all over the country with a view of educating them on their rights and obligations. Investors are also made aware of the precautions they need to take while dealing in the securities market.The Exchange makes an audit trail available on request for all transactions executed on NSE to enable investors to counter-check trade details for the trades executed on his behalf by the member. The Exchange has also prescribed and makes efforts to ensure the implementation of various safeguards like time schedules for issuing contract notes, for receiving funds and securities purchased by investors, segregation of client funds and securities from those of members, etc. In spite of all the necessary steps taken by the Exchange to offer quality services to investors, it is possible that some investors may still have certain complaints, grievances. For this NSE has put in place a system for redressal of investor grievances for matters/issues related to/against trading members/listed companies. The Investor Grievance Cell (IGC) of NSE is manned by a team of professionals possessing relevant experience in the areas of securities markets, company and legal affairs and specially trained to identify problems faced by the investor and to find and effect a solution quickly. It takes up complaints in respect of trades executed on the NSE through its NEAT terminal and routed through the NSE trading member or SEBI registered sub-broker of NSE trading member and trades pertaining to companies traded on NSE.

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DEMATERIALISATION & REMATERIALISATION

1. DEMATERIALISATION:

MEANING : Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited into the investor's account with his/her DP.

Dematerialising securities (physical holding into electronic holding) In order to dematerialise physical securities one has to fill in a DRF (Demat Request Form) which is available with the DP and submit the same along with physical certificates one wishes to dematerialise. Separate DRF has to be filled for each ISIN Number. The complete process of dematerialisation is outlined below: Surrender certificates for dematerialisation to your depository participant. Depository participant intimates Depository of the request through the system. Depository participant submits the certificates to the registrar of the Issuer Company. Registrar confirms the dematerialisation request from depository. After dematerialising the certificates, Registrar updates accounts and informs depository of the completion of dematerialisation. Depository updates its accounts and informs the depository participant. Depository participant updates the demat account of the investor.

2. REMATERIALISATION

The process of rematerialisation is used to convert the electronic holding into physical holdings. If one wishes to get back his securities in the physical form one has to fill in the RRF (Remat Request Form) and request his DP for rematerialisation of the balances in his securities account. The process of rematerialisation is outlined below: One makes a request for dematerialisation. Depository participant intimates depository of the request through the system. Depository confirms dematerialisation request to the registrar. Registrar updates accounts and prints certificates. Depository updates accounts and downloads details to depository participant.
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 Registrar dispatches certificates to investor.

Procedure for buying & selling dematerialised securities The procedure for buying and selling dematerialised securities is similar to the procedure for buying and selling physical securities. The difference lies in the process of delivery (in case of sale) and receipt (in case of purchase) of securities.

In case of purchase:1. The broker will receive the securities in his account on the payout day 2. The broker will give instruction to its DP to debit his account and credit investor's account 3. Investor will give Receipt Instruction to DP for receiving credit by filling appropriate form. However one can give standing instruction for creditinto ones account that will obviate the need of giving Receipt Instruction every time.

In case of sale:The investor will give delivery instruction to DP to debit his account and credit the brokers account. Such instruction should reach the DPs office at least 24 hours before the pay-in as other wise DP will accept the instruction only at the investors risk.

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CHAPTER - 4 BASIC TERMS DEFINED

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BROKER & SUB-BROKER

BROKER:

A broker is a member of a recognized stock exchange, who is permitted to do trades on the screen-based trading system of different stock exchanges. He is enrolled as a member with the concerned exchange and is registered with SEBI.

SUB BROKER:

A sub broker is a person who is registered with SEBI as such and is affiliated to a member of a recognized stock exchange.

i.

Client Agreement Form

This form is an agreement entered between client and broker in the presence of witness where the client agrees (is desirous) to trade/invest in the securities listed on the concerned Exchange through the broker after being satisfied of brokers capabilities to deal in securities. The member, on the other hand agrees to be satisfied by the genuineness and financial soundness of the client and making client aware of his (brokers) liability for the business to be conducted.

ii.

Details of Client Registration form

The brokers have to maintain a database of their clients, for which you have to fill client registration form. In case of individual client registration, you have to broadly provide following information: Your name, date of birth, photograph, address, educational qualifications, occupation, residential status(Resident Indian/ NRI/others) Unique Identification Number (wherever applicable) Bank and depository account details Income tax No. (PAN/GIR) which also serves as unique client code. If you are registered with any other broker, then the name of broker and concerned Stock exchange and Client Code Number.
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 Proof of identity submitted either as MAPIN UID Card/Pan No./Passport/Voter ID/Driving license/Photo Identity card issued by Employer registered under MAPIN

iii.

For proof of address (any one of the following):

1. Passport 2. Voter ID 3. Driving license 4. Bank Passbook 5. Rent Agreement 6. Ration Card 7. Flat Maintenance Bill 8. Telephone Bill 9. Electricity Bill 10. Certificate issued by employer registered under MAPIN 11. Insurance Policy Each client has to use one registration form. In case of joint names /family members, a separate form has to be submitted for each person.

In case of Corporate Client, following information has to be provided:

1. Name, address of the Company/Firm 2. Unique Identification Number (wherever applicable) 3. Date of incorporation and date of commencement of business. 4. Registration number(with ROC, SEBI or any government authority) 5. Details of PAN Account Number: 6. Details of Promoters/Partners/Key managerial Personnel of the Company/Firm in specified format. 7. Bank and Depository Account Details 8. Copies of the balance sheet for the last 2 financial years (copies of annual balance sheet to be submitted every year) 9. Copy of latest share holding pattern including list of all those holding more than 5% in the share capital of the company, duly certified by the Company
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Secretary / Whole time Director/MD. (copy of updated shareholding pattern to be submitted every year) 10. Copies of the Memorandum and Articles of Association in case of a company / body incorporate / partnership deed in case of a partnership firm 11. Copy of the Resolution of board of directors' approving participation in equity / derivatives / debt trading and naming authorized persons for dealing in securities. 12. Photographs of Partners/Whole time directors, individual promoters holding 5% or more, either directly or indirectly, in the shareholding of the company and of persons authorized to deal in securities. 13. If registered with any other broker, then the name of broker and concerned Stock exchange and Client Code Number.

iv.

Unique Client Code

In order to facilitate maintaining database of their clients, it is mandatory for all brokers to use unique client code which will act as an exclusive identification for the client. For this purpose, PAN number/passport number/driving License/voters ID number/ ration card number coupled with the frequently used bank account number and the depository beneficiary account can be used for identification, in the given order, based on availability.

MAPIN:

MAPIN is the Market Participants and Investors Integrated Database.

The SEBI (Central Database of Market Participants) Regulations, 2003 were notified on November 20, 2003. As per these regulations, all the participants in the Indian Securities Market viz., SEBI registered intermediaries, listed companies and their associates and the investors would need to get registered and obtain a Unique Identification Number (UIN). The system for allotment of UIN involves the use of biometric impressions for natural persons. The major objective is creation of a comprehensive database of market participants. Once created, the database would not only help the regulator in establishing the identity of person(s) who have taken large exposures in the market and/or who are trading through a
40

large number of different brokers but also enable the regulator to take adequate risk containment measures such as imposition of margins, trading or exposure limits etc., depending upon the exposures of various investors. Hence, in the event of a failure of market integrity, an immediate audit trail would be possible and the regulator would be able to take early preventive and / or remedial measures and track down the defaulters and / or manipulators. It has been decided to suspend all fresh registrations for obtaining UIN and the requirement to obtain/quote UIN under the MAPIN Regulations/Circulars with effect from July 01, 2005.

Maximum brokerage that a broker/sub broker can charge The maximum brokerage that can be charged by a broker has been specified in the Stock Exchange Regulations and hence, it may differ from across various exchanges. As per the BSE & NSE Bye Laws, a broker cannot charge more than 2.5% brokerage from his clients. This maximum brokerage is inclusive of the brokerage charged by the subbroker. Further, SEBI (Stock brokers and Sub brokers) Regulations, 1992 stipulates that sub broker cannot charge from his clients, a commission which is more than 1.5% of the value mentioned in the respective purchase or sale note.

Charges that can be levied on the investor by a stock broker/sub broker The trading member can charge: 1. Brokerage charged by member broker. 2. Penalties arising on specific default on behalf of client (investor) 3. Service tax as stipulated. 4. Securities Transaction Tax (STT) as applicable. The brokerage, service tax and STT are indicated separately in the contract note. STT (Securities Transaction Tax) Securities Transaction Tax (STT) is a tax being levied on all transactions done on the stock exchanges at rates prescribed by the Central Government from time to time. Pursuant to the enactment of the Finance (No.2) Act, 2004, the Government of India notified the Securities Transaction Tax Rules, 2004 and STT came into effect from October 1, 2004. Account Period Settlement
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An account period settlement is a settlement where the trades pertaining to a period stretching over more than one day are settled. For example, trades for the period Monday to Friday are settled together. The obligations for the account period are settled on a net basis. Account period settlement has been discontinued since January 1, 2002, pursuant to SEBI directives.

Rolling Settlement In a Rolling Settlement trades executed during the day are settled based on the net obligations for the day. Presently the trades pertaining to the rolling settlement are settled on a T+2 day basis where T stands for the trade day. Hence, trades executed on a Monday are typically settled on the following Wednesday (considering 2 working days from the trade day). The funds and securities pay-in and pay-out are carried out on T+2 day.

PAY-IN DAY AND PAY- OUT DAY

Pay in day is the day when the brokers shall make payment or delivery of securities to the exchange. Pay out day is the day when the exchange makes payment or delivery of securities to the broker. Settlement cycle is on T+2 rolling settlement basis w.e.f. April 01, 2003. The exchanges have to ensure that the pay out of funds and securities to the clients is done by the broker within 24 hours of the payout. The Exchanges will have to issue press release immediately after pay out.

Prescribed pay-in and pay-out days for funds and securities for Normal Settlement:

The pay-in and pay-out days for funds and securities are prescribed as per the Settlement Cycle. A typical Settlement Cycle of Normal Settlement is given below: Activity ay raiding polling Settlement Trading learning custodial Confirmation +1 working days delivery Generation +1 working days settlement securities and Funds pay in +2 working days
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securities and Funds pay out +2 working days cost Settlement valuation Debit +2 working days auction +3 working days Ad Delivery Reporting +4 working days auction settlement +5 working days Lose out +5 working days rectified bad delivery pay-in and day-out +6 working days E-bad delivery reporting and pickup +8 working days lose out of re-bad delivery +9 working days (Note: The above is a typical settlement cycle for normal (regular) market segment. The days prescribed for the above activities may change in case of factors like holidays, bank closing etc. You may refer to scheduled dates of pay-in/pay-out notified by the Exchange for each settlement from time-to-time.)

AUCTION

WHAT IS AN AUCTION? The Exchange purchases the requisite quantity in the Auction Market and gives them to the buying trading member. The shortages are met through auction process and the difference in price indicated in contract note and price received through auction is paid by member to the Exchange, which is then liable to be recovered from the client.

What happens if the shares are not bought in the auction? If the shares could not be bought in the auction i.e. if shares are not offered for sale in the auction, the transactions are closed out as per SEBI guidelines. The guidelines stipulate that the close out Price will be the highest price recorded in that scrip on the exchange in the settlement in which the concerned contract was entered into and up to the date of auction/close out OR 20% above the official closing price on the exchange on the day on which auction offers are called for (and in the event of there being no such closing price on that day, then the official closing price on the immediately preceding trading day on which there was an official closing price), whichever is higher.
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Since in the rolling settlement the auction and the close out takes place during trading hours, the reference price in the rolling settlement for close out procedures would be taken as the previous days closing price.

Factors affecting Indian stock market:

Stock market is something where you can never foretell what is going to happen in the market. You might get huge gain or incur losses when the stock market crashes. There are many factors affecting share prices. It is very hard to say just one or two factors affect the share prices. So, let us have a look at the factors that affect share prices. Demand and Supply

This is the first factor that affects share prices. When you get to see that more people are buying stocks, then there is an increase in the price of that particular stock. On the other hand price of stock falls when more people are selling their stocks. So it is very difficult to predict the Indian stock market. This is the main reason why you need to get in touch with a good stock market consultant. There is consultancy for you which can help you a lot on choosing the right stocks for you. Market cap

It is a very big mistake when you try to guess a companys worth from the price of a stock. You should know that the more important is the market capitalization of the particular company. This helps to determine the worth of a company. So market cap serves as an important use to determine share prices. Earning per share

Now when it comes to the term, earning per share, it means the profit that a particular company has made per share and that too on the last quarter. If you need to know the health of the company then this is the most important factor. Whats more earning per share also influences the buying tendency in the market that results in the increase of the particular stock price. This is the reason why it is very important for every public company to bring out the quarterly report. So when you wish to make a profitable investment, then the best thing for you would be to keep a good watch on the quarterly reports of different companies. This is very important before you wish to invest your hard earned money in the share market.
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 Impact

of

news

News is another factor that affects the share price. When there is positive news about a particular stock or company, people try to invest all their money in that particular stock or market. This leads to increase in the interest of buying the stock. But there are many circumstances where news could also bring a negative effect where it could ruin the prospect of the particular stock. So it is very important to know the overall news of a stock or company where you can invest your money so that it grows within a very short period of time. There are many things that you need to consider when you go for investing your hard earned money in the stock market. You should never be in a haste to invest your money in the stock market. You should always get in touch with a good stock market consultancy where it can give you some share tips. They are the one who can give you advice where to invest your money and where not to. They know to distinguish the good stock from the bad ones. So, you have come to know about the factors affecting share prices. Remember that it is very important to make a good market research before investing in any stock or company. Risk and Return: Almost all investments carry risk and yield return. Usually, higher the risk higher the return, lower the risk lower the return. However, a general understanding of this phenomenon is not sufficient to make appropriate decisions relating to investments. A more quantifiable analysis is required to understand investments better. The quantifiable analysis is done by use of simple arithmetic and statistics to analyze the relationship. "The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective", wrote Warren Buffet. During 1st semester of any MBA program, one is exposed to various complex theories in finance, which dissuades many bright fellows to continue with this subject and they look for greener pastures (Marketing, HR, Systems etc.,). Foremost among them are the Modern Portfolio Theory (MPT) and Efficient Market Hypothesis (EMH). I particularly remember one of the earliest chapters being taught in class- Risk & Return. Here we were taught a few definitions, which we
45

were supposed to know, understand and apply once we jump into the corporate bandwagon. Lets look at a few of them below: -. Risk was defined in terms of volatility, the greater the volatility of the portfolio, measured either in terms of standard deviation or beta, the greater the risk. Return was defined as the payoffs one receives for taking risk. The higher the risk (volatility) one takes the higher the payoffs and vice-versa. In simple terms the aforesaid definitions says that if a particular stock goes up or down by say 20%, then the risk is high and an investor can gain superior return by investing in such stocks only. This is because the definition says that higher the risk (volatility) the higher the return. The statement, if analyzed carefully, is devoid of all logic. Investors are very concerned by downside risk (volatility), but how many object when their portfolio moves up? Volatility, as measured by standard deviation, is a measure that regards upside movement as equally bad as movement to the downside. Unfortunately an entire generation has grown up with this fuzzy definition of risk & return. There are many problems with the whole concept. In a research paper J. Michael Murphy, cited four studies that found "realized returns appear to be higher than expected for low low-risk securities and lower than expected for high-risk securities ... or that the [riskreward] relationship was far weaker than expected." The author continued on: "Other important studies have concluded that there is not necessarily any stable relationship between risk and return; that there often may be virtually no relationship between return achieved and risk taken; and that high volatility unit trusts were not compensated by greater returns". Beta, as defined by Sharpe, Lintner and Mossin has been shown in various studies to have no predictive power. In a study done by Fama and French where 9,500 stocks between 1963 and 1990 were examined, it was concluded that a stock's risk, measured by beta, was not a reliable predictor of performance. Fama stated, "Beta as the sole variable in explaining returns on stocks ... is dead. ... What we are saying is that over the last 50 years, knowing the volatility of equity doesn't tell you much about the stock's return." This
46

revelation was like the priest of a shrine saying that God does not exist, the priest here being Prof. Fama who played a central role in the development of EMH and MPT. If risk as measured by standard deviation, beta etc., does not give a true picture then what should common investors do? Value Investors thinks that a more rational definition of risk would be "the chance of getting an acceptable return on investment" or permanent loss of capital". As an alternative approach to risk, let us look at how Warren Buffet bought a large chunk of shares of the Washington post company. During 1973 the economy was in a state of recession and Mr. Market was in a very bad mood. Washington Post market capitalization has dropped to $80 million, whereas the intrinsic value was $ 400 million. It was then Mr. Buffet stepped in, realizing value in the deal. Mr. Buffet purchased the share at a market capitalization of $80 million, only to see it going down to $40 million. Well that is very risky according to modern portfolio theory. But ask Mr. Buffet and he will tell you that it was not at all risky. In fact this fall would have increased already ample margin of safety and lowered whatever risk (he thinks there was none to begin with) existed in the purchase. Thus a true investor should welcome risk as measured by volatility. Markets fluctuating widely mean that good business will occasionally be subjected to irrationally low prices. "It is impossible to see how the availability of such prices can be thought of as increasing the hazards for an investor who is totally free to either ignore the market or exploit its folly", wrote Warren Buffet in his 1993 letter to shareholders. "I feel very strongly that, in the short run, the market is illogical, capricious, wanton and wild in the way that it prices financial assets. It behaves just as you would expect any mechanism driven by fear and greed to behave." said Robert G. Kirby. But if investors understand the concept of risk not as "volatility" (sharp fluctuations in share prices) but as "permanent loss of capital", then they will not be bothered if the market closed for a year or two. Return: A return from any investment can be calculated simply by subtracting the amount invested from the final amount realized. The figure of return thus obtained is a relative figure. Profit = (Final amount realized Amount Invested) Loss = (Amount Invested Final Amount Realized)
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Comparison of two such investments can be made by taking out the absolute value of returns from such investments. The absolute value of returns is the return percentage. The return obtained (profit or loss) multiplied by 100 and divided by the amount invested. Profit / Loss Percentage = Profit / Loss * 100 / Amount Invested Returns can be calculated for either specific periods or for a combination of periods together. For example, if one invested $50 in a stock in the beginning of 1 st year and got a return of $10 as dividend at the end of 1st year and finally on selling of his investments after the end of 5th year got $150 then we can represent the above returns as follows: Absolute Profit for 5 years = $10 (dividend) + ($150 - $50) = $110 Average Profit for 5 years = $110/5 = $22 Profit Percentage = $110 * 100 / $50 = 220% return Average Profit Percentage annualized = 220%/5 = 44% Of all the above representations of returns the last one, namely, annualized average profit percentage is the most appropriate to understand and compare returns. It is widely used in all financial and investment decision-making.

Risk: Risk refers to the dispersion or deviation of returns from the average return of such investment. Risk is measured by calculating Standard Deviation.

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FACTORS CAUSING RISK

TOTAL RISK

SYSTEMATIC RISK (NONDIVERSIFIABLE RISK)

UNSYSTEMATIC RISK (DIVERSIFIABLE RISK)

INFLATION RISK i.e. PURCHASIN G POWER RISK

INTEREST RISK MARKET

MARKET RISK

BUSINESSS OR OPERATIONAL RISK

FANANACIAL RISK

INTERNAL BUSINESS RISK

EXTERNAL BUSINESS RISK

The factors which can lead to deviation of actual return from expected returns from expected returns can be broadly divided into two parts: Systematic risk Unsystematic risk

SYSTEMATIC RISK It is non diversifiable risk and due to factors like economic, sociological, political etc. which have bearing on the entire market. The risks which are normally covered under this category are:

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a) Market risk It is referred to as variability in stock prices due to change in investors attitudes and expectations. For example, if there is war like situation or there is political instability the entire market would be affected and all the securities listed in the market would suffer decline in their respective prices. b) Interest rate risk This risk arises due to change in the value of security prices due to change in interest rate of market. The change in interest rate can affect the securities market in the following manner: i. The increase in interest rate would make debt instruments more lucrative than equity shares as they will offer reasonable return therefore, the equity shareholders would be tempted to invest in debt instrument. There will be switch over of investment from the equity market to the debt market which creates selling pressure in equity market. Consequently, the equity shares would become cheap and a decline stock index would be recorded. ii. If the interest rate would increase, the cost of borrowing of the companies would increase as a result of which profitability decrease as some additional part of their operating profit would be required to meet their interest payments. iii. The investor in the stock market which normally trade by depositing margin would have to incur higher cost for funding their margin requirements and therefore they would be discouraged to borrow large amount of funds for their margin requirement in the event of increase in interest rate. Hence, they would prefer to take low position in the stock market to avoid their borrowing cost of funds as a result of which the activity in the stock market would decrease and therefore in the absence of any demand of shares, the market would witness fall. c) Purchasing power risk Purchasing power risk arises due to inflation and therefore it is also known as inflation risk. Purchasing power risk arises when the change in price index for a given period is more than the change in return earn on investment by the investor. It is the risk faced
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by the investor by the possible changes in the purchasing power of money. Every investment is done with the objective of generating return and the return earned would be worthless if the value of money depletes drastically. UNSYSTEMATIC RISK Unsystematic risk arises due to factors peculiar to any given firm such as labour strike, change in management, change in product line, change in demand of product etc.; there are two kind of risk which are normally covered under unsystematic risk. a) Business risk Business risk is defined as the variability in the actual earning of a firm from the expected earnings of the firm. The change in actual performance may vary from the expected performance due to a number of reasons which can be either internal to the firm or external to the firm. Accordingly, they are referred to as internal business risk or external business risk. Internal business risk includes situations like discontinuity in production due to labour strike or shortage of power supply etc. external business risk arises due to change in demand of the product or change in price of raw material thereby affecting the profitability of the firm. Internal business risk can be managed and reduced by a firm whereas the external business risk cannot be easily managed by a firm.

b) Financial risk Financial risk arises due to presence of debt in the capital structure of the firm. A firm having higher debt content in its capital structure is considered to be more riskier than the firm having lower debt content in its capital structure, both having same amount of capital. This is due to the fact the presence of debt leads to fixed financial burden on the firm. If a firm has raised capital by way of debt, it will have to pay interest on it irrespective of the fact whether it earns it earns profits or not. Hence a firm has fixed financial commitments, towards the debts raised by it. In case the firm fails to earn adequate amount of operating profits which are enough to pay the interest cost of the firm, the firm may be declared insolvent by the creditors. Thus, financial risk arises due to capital structure of the firm. Hence, a levered company faces higher level of financial risk.
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Stock trading is a way to earn passive income apart from your monthly salary income. But it is also very risky and even you can lose your savings. Most of the people have "Burnt their fingers" by doing aggressive trading and "speculative trading". So you need to be more careful while doing stock trading. How to manage risks in stock trading? 1. Slow and steady wins the race.: The adage holds good in every area of human activity including investments in stock trading. If you sow a seed of investment cautiously and continue to water it regularly with funds, your money plant can grow steadily, flower and blossom in time to provide fruit and shade to your entire family over your life time. The only virtue required is patience, forbearance and regular investment. This virtue beats all stock market punditry. You can secure your future even if you are not overflowing with funds. You can make small yet regular investments even in high value equities. The only need is to find a stock broker who can provide you the right mechanism of fractionalized investments. You do not have to buy shares in big bunches, say, of at least 100 high value shares of a stock in one go. You can buy one share or even a fraction of a share. In this way you can diversify your investment in numerous high value stocks with strong fundamentals which can withstand the vicissitudes of unpredictable and volatile market. 2. Weed out the laggard stocks: Vigilance is not only the price of your personal security, it is also essential for every stock market trader. You must keep a constant watch over the performance of your portfolio. It is better to weed out the stocks that perform poorly over a period of time. 3. Use cost averaging techniques: An intelligent investor spares some amount of his income for regular investment on monthly basis in specific stock. It is a great way to build wealth and face the highs and lows of the market which are an inevitable part of stock trading.

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CHAPTER - 5 CASE STUDY

Satyam Scandal Rs 7,000 crore sham A financial scandal to the tune of Rs 7, 00,000 in Satyam took the world by surprise, leaving the investors and the clients of Satyam in lurch. The Chairman of the company, B. Ramalinga Raju, after resigning from his post is now untraceable. In a letter to one of the board members of the company, he disclosed that the Satyam has been showing the inflated balance sheet for the years. The fraud could not be noticed by even the auditors of the company PricewaterHouse.
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The scandal has resulted in deep plunge in the share value of the company. On January 7,2008, the share value of Satyam plummeted down by 78% leaving the associates high and dry. SEBI, the Securities and Exchange Bureau of India has launched a probe into the matter and a team has reached Hyderabad, the head office of the IT giant to question the company's management. The charges can lead to the arrest of Ramalinga Raju and he can face an imprisonment of up to 7-10 years. A lawsuit has also been filed against Satyam in USA. Satyam scandal has cast a shadow over the outsourcing industry of India, and has shook the confidence of the investors in the Indian market. The financial irregularities of such a high level were unheard of in the IT sector until yet but the recent developments in Satyam have raised questions about the management of companies of such repute. Satyam is the fourth largest IT service provider in India and is enlisted in New York Stock Exchange. The company also boasts a client list of who-is-who of the industry and has more than 50,000 people on its pay roll.

Stock Scandal in India The Indian economy is facing a recession. But its fundamentals remain strong. But the Indian stock market is not going with a steady increase and is more or less fluctuating around a declining trend. The situation of the country Forex Exchange slipped a little bit of billions of dollars, but is still a strong position. Inflation is low. Interest rates are quite low, but still pick. Short-term rates have tightened, which is a sign of improved economic activity. However, capital expenditures and financing of the project have taken a hit, mainly because the excess capacity was built during the heyday before the current downturn. As demand has not met expectations, the capacity remained idle.It was a paradox to observe the selection of non-banking financial companies (NBFC) bullish on the stock exchanges when Reserve Bank of India has triggered tighter standards for such companies accepting public deposits. The result of the regulation would make the scenario more competitive and reduce all differences which hampers profitability. On the other hand, RBI has failed to specify what steps would be taken against those who default in repayment of deposits, does not meet or exceed the required limits. Surprisingly, the term deposits accepted by manufacturing companies have not been affected by the new set of
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regulations. Accordingly, the objective with which RBI issued a new regulation is unclear. It seems fair to reduce the number of NBFC in the country. Rather the goal should be to discipline companies that accept deposits and undertake strict punitive measures against those default and those that exceed the prescribed limits. The only good is that companies need a rating would not be allowed access to deposits of 1997 market.The could probably be regarded as one of the worst years for the primary market in recent times . During this year, only 128 number of offers could exploit the market by companies mobilized Rs 5032 crore in 1445 against the issues that mobilized year95 Rs. 14,576 crores and 1183 issues raised Rs 12,400 crore in the year 96. it seems the impact of the plethora of issues that had appealed to the market within three years and subsequently left their investors in the lurch. All types of companies have flooded the market with many issues over the last three years. Investors have invested their hard earned money in hopes of high returns, but contrary to expectations, there were no buyers for their investments. This resulted in no listing of these businesses today, leaving aside all returns on investments. Belatedly, the regulator has awakened from his sleep and increased barriers to entry, particularly in relation to matters of finance. Now, according to SEBI guidelines a manufacturing company must have three years with a history of dividend exploit the market. A new company can enter the market if it has five per cent participation of financial institutions / banks in their projects.From the face of the Indian stock market the market, the small investor has been virtually removed. It is evident from a recent survey by the Federation of Indian Chamber of Commerce that the household sector investments in stocks and bonds have plunged from 93 to 94 and now represents almost 0.5% of GDP . Much of the apathy of the small investor can be attributed to the poor state of primary and secondary markets of the country. Although some of the fundamental reasons behind the decline in the primary market are macro-economic, such as the credit crunch in the economy. In the secondary market also, the excessive speculation, high volatility and systemic problems wreaked havoc with confidence small investors in the capital markets.As a direct result of the current debacle, competitiveness is a record for an argument persistent weak rupee. And how, as an extreme measure, the Reserve Bank of India has hardened its position to prevent a fall of more of the rupee.

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From this point of view it is time to look at the fundamental questions that guide the intrinsic motion of a currency, as interest rates that may affect the stock markets to a greater extent. Clearly, some banks are still learning their lessons. In the circumstances, it would be a mistake to think that the cycle of rate rises on preferential loans is due to a lack of liquidity in the system as a whole. We must distinguish between what is essentially the consequence of an asset liability mismatch in the various banks and a systemic problem for the banking sector as a whole

IPO SCANDLES: The Securities and Exchange Board of India (SEBI), the capital market watchdog, Thursday cracked down on some of the top brokerage firms and banks for their alleged involvement in an initial public offering (IPO) scam. SEBI conducted investigations in respect of all the IPOs from January 2003 to December 2005. The findings of investigations, prima facie, revealed violations of serious nature by several key operators, their financiers, concerned depository participants and the depositories.

In its order, SEBI has barred brokerage firms like Karvy Stockbroking and IndiaBulls from the market. It has also directed HDFC Bank and IDBI Bank not to open new demat accounts for share transactions. SEBI's Order fallout: 24 entities banned from primary and secondary market, including Indiabulls, Karvy Securities

Quasi-judicial proceedings against Karvy DP and Pratik DP, banned from the market 12 DPs cant open fresh demat accounts, including HDFC Bank, IDBI Bank, Central Bank, ING Vysya Bank, IL&FS and Motilal Oswal; 15 more under scrutiny, including ICICI Bank, Citibank, Stanchart 85 Financiers barred from the market. SEBI said certain entities had cornered shares reserved for retail applicants in the name of fictitious entities in the initial public offerings of Yes Bank and Infrastructure
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Development Finance Company (IDFC).

Each of the fictitious application was of small value so as to be eligible for allotment under the retail category, it added. After the allotment, these fictitious beneficiaries transferred these shares to their principals who in turn transferred the shares to their financiers. \ The financiers in turn sold most of these shares on the first day of listing, thereby realizing the windfall gain of the price difference between IPO price and the listing price.

Current state of Indian Economy: Quick Estimates of National Income released by CSO shows the real GDP growth at 8.0 percent during the year 2009-10. The Advance Estimates also expects the Indian economy to grow at 8.6 percent during 2010-11. There is also a high expectation from the agriculture sector. As per IIP estimates, industrial growth slowed to the level of 2.5 percent in December 2010 from the growth of 18 percent in the same month of previous year. The manufacturing sector logged 2 percent growth in IIP during December 2010; the slowest growth since April 2009. Volatility continues in the capital goods segment as the sector once again observed major contraction in output by 9.3 percent in December 2010. However, the cumulative growth in capital good s from April to December 2010 was more than 16 percent higher than the growth of 11.2 percent during the same period of 2009. Six core infrastructure industries grew by 6.1 per cent in December 2010 after logging a 21-month low growth. However, it was slightly low as compared to the numbers recorded in the same month last year. In December 2010 growth was mainly seen in crude oil sector, petroleum refinery sector and steel sector. The WPI based inflation continues to remain on the higher side on account of the rising prices of food articles. According to the Economic Survey 2010-11, this rise in food prices in December 2010 has been on account of supply side constraints e.g. vegetables, onions, tomatoes, fruits, milk, egg and fish. The broad money (M3) growth has been 10.8 percent during the period from March to December 2010-11; slightly down from the growth of 11.0 percent during the same period of previous fiscal.
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While growth in the bank credit to the government remained sluggish however, increased to the commercial sector during the year 2010-11. The fiscal performance has been better with higher growth in revenue vis-a-vis the percentage increase in expenditure during the month of December 2010. Subsequently, fiscal deficit narrowed by 45 percent in the ninth month of 2010 -11 over the same month of previous fiscal. Merchandise exports were valued USD 22.5 billion in December 2010, growing by 36.4 percent. However, Indias imports experienced a significant decline by 11.1 per cent in December 2010. As a result, the deficit saw a considerable reduction to USD 2.6 billion in December 2010 as against USD 11.8 billion in December 2009.

1. Industrial Growth: The industrial growth registered in December 2010 shows a slight increase by 2.5 percent as compared to the growth of 18 percent in December 2009. The industry constituents , manufacturing sector shows sluggish 2 percent expansion in manufacturing sector during the month which has been the slowest growth recorded by this sector since April 2009. The other sectors like mining and electricity saw an increase by 5.7 percent and 6 percent respectively in December 2010 as against the growth of 11.1 percent and 5.4 percent respectively in December 2009. According to industry experts, this slowdown in overall IIP growth was mainly due to the base effect, with the index having recorded a steep growth in December 2009. In terms of the use-based classification, the pace of IIP growth was dampened considerably by a sharp contraction in output by 9.3 percent in capital goods sector in December 2010 vis a vis the increase of 42.9 percent during the same month of 2009. Intermediate goods and basic goods posted moderate growth of 6.6 percent and 6.0 percent respectively in December 2010 compared to the growth of 23.5 percent and 8.4 percent respectively in the previous year. This is a positive indication of continued demand for finished goods during the month. Consumer non-durables too displayed de-growth in December 2010 shrinking by 1.1 percent during the month as compared to the growth of 3 percent in December 2009. Notably, consumer durables recorded an encouraging expansion of 18.5 percent in December 2010, compared to the 41 percent growth recorded in December 2009. As a result, a modest growth of 3.7 percent was observed in the
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consumer goods industry in December 2010. According to industry groups, twelve (12) out of the seventeen (17) industry groups have registered positive growth in December 2010 as compared to the same month of the previous year. The highest increase in output is evident in industries like Jute and other vegetable fibre Textiles (except cotton) (58.6 percent), followed by Other Manufacturing Industries (21.6 percent) and in Metal Products and Parts (21.0 percent). Interestingly, out of these twelve industries eight industry groups have secured higher growth in December 2010 as against the growth rates achieved during the same month of 2009.

2. Core Sector growth: The growth in output of six core infrastructure industries recovered sharply to 6.6 per cent in December 2010, after having slumped to a 21-month low of 3 per cent in November 2010. The growth in December 2010 has also been high as compared to 6.2 percent increase during the same month of 2009. This satisfactory performance is mainly buoyed by the smart jump in the production of crude oil, petroleum refinery products and steel industry. While the crude oil production increased by 15.8 percent during the month as against 1.1 percent increase in December 2009. The growth in petroleum refinery sector shows healthy signs with 8.3 percent growth in Dec 2010 compared to an increase by 0.9 percent in December 2009. The finished steel production grew at 11.2 per cent in December 2010, the growth was 9.6 per cent in December 2009.

3. Inflation trends: The aggregate inflation rose to 8.4 percent in December 2010. This sudden increase in the whole sale prices is primarily because of rise in the prices of primary food articles (especially vegetables) and fuel products. While the WPI of food articles rose by 13.5 percent in December 2010 from 10.1 percent in previous month i.e. November. Inflation in fuel group surged from 10.3 percent in November 2010 to 11.2 percent in December 2010.

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4. Monetary Indicators: With the expansion of 10.8 percent the broad money supply stood at Rs 602666 crores in Decxember 2010 as compared to the growth of 11.0 percent in the previous year. The net bank credit to the government grew slowly at 7.5 percent during in December 2010, this was lower in comparison to the growth of 19.9 percent observed during the same period of 2009-10. On the contrary the bank credit to the commercial sector grew by 15.3 percent during the period in 2010-11 which was 8.4 percent during the same period of 2009-10.

Aggregate deposits in the SCBs went up by 10.7 percent in the last month of 2010 over April, as compared to the increase of 11.3 percent during the same period of previous fiscal. During this period in 2010-11, the investments in government and other approved securities registered a growth of 4.6 percent as against the high growth of 21.4 percent during the same period in 2009-10. The only significant rise was evident in total bank credit that swelled by 16 percent during the period in 2010-11 from the 9 percent growth seen during the same period of 2009-10.

5. Stock market trends: The key benchmark indices of Indian stock market showed modest rise in both the markets during the last month of the calendar year 2010. The index BSE Sensex and the S&P CNX Nifty on 3rd January 2010 closed at 20, 561 k and 6157 k respectively

6. Fiscal indicators: During the period from April to December 2010-11, the total expenditure of central government amounted to Rs 786852 crores up from Rs 707540 crores during the same period in 2009-10. On the revenue side, the total revenue receipt was Rs 584268 crores during the nine month period of 2010-11 as against Rs 389271 crores in 2009-10. While the total expenditure showed an increase of 11.2 percent, the revenue growth has been much higher at 50.1 percent during the period from April to December of the current fiscal. As a result the magnitude of fiscal deficit went down by almost 45 percent over the period in 2010-11. Sustained growth was seen in tax revenue of the government in the current fiscal and which continued in the month of December 2010.
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Both the corporate and income taxes in direct tax category registered higher increase during the month as compared to the increase in the same month of 2009. According the Ministry of Finance, this persistent rise in direct tax has been possible due to rationalization of tax structure, improvement in tax administration and persistent efforts of the employees of income tax department.

7. Foreign Trade: Indias merchandise exports maintained the growth momentum during December 2010. It registered higher growth of 36.5 percent as against 9.3 percent growth in December 2009. The growth in December also remained higher compared to the 26.5 percent growth observed in the previous month (November). Imports during December 2010 were valued at USD 25 billion representing a negative growth of 11.1 per cent over the imports of USD 28.3 billion in December 2009. The resultant trade deficit was USD 2.6 billion in December 2010 as compared to USD 11.8 billion in December in the previous year.

8. Capital flows: The foreign institutional investment is badly shaped. High volatility is seen in foreign institutional flows (FIIs) to India which has been negative. What is more serious and cause of worry is the FDI, which are long term overseas investments as the trend seen in the FDI inflows in the past few months has not been encouraging.

9. Foreign Exchange Reserves: Indias forex registered an increase by USD 4.9 billion during the month of December 2010. Indias foreign exchange reserves were valued at USD 297.3 billion, an increase by 2.3 percent in December 2010 as against the 1.9 percent decline in November. The upsurge in foreign currency assets from USD 263.2 billion in November 2010 to USD 267.8 billion in December 2010 attributed to the increase in forex kitty during the month.
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CHAPTER - 6 CONCLUSION
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OUTCOME OF SURVEY:From our survey of 200 clients we segregated the client base into |:a) High risk b) Medium risk c) Low risk Following are the characteristics of high risk individuals: Individuals who invest into the stock market with the motive of making quick money. Investors who invest more than two third of their total investment in the form of stocks. Invest in the liquid stocks like IFCI, RNRL, ISPAT etc.
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 Individuals who generally do intraday trading. Individuals who do not use stop loss while trading. Investors who do not hedge their portfolio using futures and options (F&O) instead trade in options for quick returns.

Characteristics of middle risk individual: Individuals who invest into the stock market with the motive of making quick money as well as for investment. Investors who invest in between one third to two third of their total investment in the form of stocks. Investors who invest both in liquid and illiquid stocks like Reliance, ICICI Bank, ONGC etc. Investors who do both intraday and delivery base trading. Investors who hedge their portfolio using futures and options (F&O). Characteristics of low risk individual: Investors who invest into the stock market with the objective of long term investment. Investors who invest less than one third of their investment in the form of stocks. Invest in the illiquid stocks. Investors who generally do delivery base trading. Investors who diversified their portfolio by investing into different sectors.

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STATISTICAL OUTCOME OF THE SURVEY:

My analysis is based on the information collected through questionnaire that I obtained during my survey in different location s of PUNE.

Parameters for Risk: 1. Frequency of trade 2. Affect of stock market fall 3. Percentage of total investment in stock market. 4. Diversification of Portfolio 5. Stop loss 6. Hedging using derivatives 7. Major portion of trade Intraday or Delivery

RISK PROFILE OF REGULAR CLIENTS

13% 25% Low Risk Medium Risk High Risk

62%

Source survey outcome

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Risk profile of stock market clients

140 120 number of clients 100 80 60 40 20 0 Low Risk Medium Risk Risk profile High Risk

Source survey outcome

TRADING PREFERENCE OF THE CUSTOMER

34% Broking Firm Sub Broker 66%

The above chart shows that of the 100 costomer questioned nearly 66 % of them prefer trading firm like Indiabulls, ICICI direct , Religare etc. This shows that the consumer have
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their faith in in Trading firm by capurturing the market share OF 66 % .The share of Sub Broker os only 34 % , this shows that people are more interested in doing trading through Trading Firm

INVESTMENT PREFERENCE OF CUSTOMER

INVESTMENT PREFERENCE OF THE CUSTOMER Fixed deposit with banks Mutual fund 10% 13% 26% 21% 13% Stock / Share Insurance Real Estates Govt.bonds

17%

The above charts helps to know where do the people prefer to invest the maximum and we came to know from the sample survey that maximum people prefer to invest in Mutual fund than the Stock / Share and then comes the Insurance , Fixed Deposite with Banks.

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CHAPTER - 7 BIBLIOGRAPHY

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Newspapers: The Times of India The Economic Times

Internet: www.economictimes.com www.moneycontrol.com www.bseindia.com www.nseindia.com www.sebi.gov.in www.investors.com www.investopedia.com

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CHAPTER - 8 ANNEXURE

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QUESTIONNAIRE:

1. Name: 2. Age: 3. Occupation:

Service Student

Business Other

4. Are you investing in Equity market?

Yes No

5. What percentage of your investment is invested in equity market?

Less than 25% 25-50% 51-75% More than 75% -

6. From how long you are investing in equity market?

Less than 1 year 1 to 2 years 2 to 3 years More than 3 years -

7. Why do you invest in equity market?

a. For quick short term gain b. For high long term gain
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8. What attracts you towards equity market?

a. High return b. Speculation c. Dividend d. Liquidity of invested fund

9. What is the purpose of investment?

a. To meet the cost of Inflation b. To earn return on idle resources c. To generate a specified sum of money for a specific goal in life d. To make a provision for an uncertain future

10. How much is your total investment annually?

a. < 5000 b. 5000 10000 c. 10000 - 25000 d. 25000 50000

11. How much of investment for equity?

a. < 25% b. 25% - 50% c. 50% - 75% d. 75% - 100%

12. Generally which is the holding period of equity?

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a. Intraday b. Delivery

13. In which sector you invest most?

a. IT b. Pharmacy c. Telecom d. Banking e. Petroleum f. Others

14. What will be the future of equity market in India as per you?

a. Bullish b. Bearish c. Cant say

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