Capital Market Final Report

7/29/2019 Capital Market Final Report

1/83

A

Project Report

On

ROLE OF CAPITAL MARKET ININDIA

Submitted to

PUNJAB TECHNICAL UNIVERSITY, JALANDHAR

In the partial fulfillment of the requirement for the degree of

MASTER OF BUSINESS ADMINISTRATION

Project Guide SUBMITTED BY

Mr. Rajdeep Singh Sarbjit kaur

Lecturer, MBA Deptt. MBA 4

TH

SEMESTERS.B.B.S.I.E.T UNIVERSITY.ROLL NO .

90682234705

SANT BABA BHAG SINGH INSTITUTE

OF ENGINEERING & TECHNOLOGY

SESSION 2009-111


2/83

CertificateThis is to be certified that this project report Role OF

CAPITALMARKET IN INDIA Submitted by sarbjit

kaur is a bona fied piece Of work carried out under mysupervision & guidance . This data source have been

duly acknowledged. It may be considered for the

evaluation in partially fulfilment of the degree of master

of business administration.

( Project Guide )

Lect. RAJDEEP

SINGH

SBBSIET

2


3/83

DECLARATION

This is certifying that I Sarbjit kaur, student of

MBA 4th semester has prepared the report titled

ROLE OFCAPITAL MARKET IN INDIA . All

the theory contained in report are from the list of

websites & newspapers given in the end in

bibliography. I have not copied from any report

submitted earlier this or any other university. This

is purely original & authentic work.

SARBJIT KAUR

MBA 4TH SEM.

ROLL NO - 90682234705

3


4/83

ACKNOWLEDGEMENT

It gives me great satisfaction on completion of Project entitled

ROLE OF CAPITAL MARKET IN INDIA

The entire journey from the very idea of this project to reality

would not have been possible without the guidance and

support of my college .

I am deeply indebted to my project guide Mr. Rajdeep singh for

sharing their insights on the topics and for being a constant source

of inspiration & courage during the entire project work. He was

always available; correcting mistakes, intelligently directing me to

proper sources of information advising to aim for simplicity,brevity, clarity and accuracy. I am extremely grateful for their

guidance and support that was indispensable for the completion of

this project.

Finally, my special thanks to all those who have help me directly

or indirectly in the completion of my project work by providing

motivation, inspiration & valuable information as well.

4


5/83

Contents

Sr. no.

1 CERTIFICATE

2. DECLARATION

3. ACKNOWLEDGEMENT

4. INFORMATION OF CAPITAL MARKET

5. CLASSIFICATION OF ISSUES

6. PATICIPANTS IN CAPITAL MARKET

7. CAPITAL MARKET INTERMEDIATORS

8. HISTORY OF CAPITAL MARKET

9. EXECUTIVE SUMMARY

10. AFTER STUDING THIS YOU WILL

BE ABLE TO KNOW

11. INTRODUCTION & MEANING OF STOCK

EXCHANGE

12. LIST OF REGIONAL STOCK EXCHANGES

IN THE COUNTRY

13. FUNCTION OF STOCK EXCHANGE

14 NATIONAL STOCK EXCHANGE &

5


6/83

POWERS THAT MAY BE EXCERCISED BY

15.. INTRODUCTION OF BSE

16. BSE or NSE WHICH IS BETTER STOCK EXCHANGE FORDELIVERY or DERIVATIVE TRADING.

17. DIFFERENCE BETWEEN REGIONAL STOCK EXCHANGEAND BSE.

18. DIFFERENCE BETWEEN NSE AND BSE.

19. SENSEX & THE NIFTY.

20.MEANING OF STOCK MARKET.

21. PURPOSE OF STOCK MARKET.

22 Impact on The Economy.

23. FUNCTIONS OF DEPOSITORY

24 .Demat a/c, rematerialisation, dematerialisation

25.FACTORS AFFECTING CAPITAL MARKET IN INDIA

26. OBJECTIVE OF THE STUDY

27.RESEARCH METODOLOGY

28. DATA ANALYSIS

29.FINDINGS & SUGGESTIONS

30. CONCLUSION

31. BIBLIOGRAPHY

32. QUESTIONNAIRE

6


7/83

INDIAN CAPITAL MARKET

Introduction:-

The capital market is the market for securities, where companies and

governments can raise long term funds. Selling stock and selling bonds are twoways to generate capital and long term funds. Thus bond markets and stockmarkets are considered capital markets. The capital markets consist of the

primary market, where new issues are distributed to investors, and the secondarymarket, where existing securities are traded .The Indian Equity Markets and theIndian Debt markets together form the Indian Capital markets

Indian Equity Market at present is a lucrative field for investors. Indian stocksare profitable not only for long and medium-term investors but also the position

traders, short-term swing traders and also very short term intra-day traders.For a developing economy like India, debt markets are crucial sources of capitalfunds. The debt market in India is amongst the largest in Asia. It includesgovernment securities, public sector undertakings, other government bodies,financial institutions, banks and companies.

SEGMENTS OF THE CAPITAL MARKET

Primary market

Secondary market

PRIMARY MARKET

7


8/83

The primary market provides the channel for creation of new securities throughthe issuance of financial instruments by public companies as well as governmentcompanies, bodies and agencies.

Features of primary markets are:

This is the market for new long term capital. The primary market is the marketwhere the securities are sold for the first time. Therefore it is also called the NewIssue Market (NIM).In a primary issue, the securities are issued by the company directly toinvestors. The Company receives the money and issues new security certificates to theinvestors. Primary issues are used by companies for the purpose of setting up new

business or for expanding or modernizing the existing business.The primary market performs the crucial function of facilitating capitalformation in the economy.

The primary market issuance is done either through public issue or privateplacement. A public issue does not limit any entity in investing while in privateplacement, the issuance is done to select people. In terms of Indian CompaniesAct, 1956 as issue becomes public if it results in allotment to more than 50

persons. This means an issue resulting in allotment to less than 50 persons isprivate placement. An IPO is the first sale of stock by a company to the public.In this market company can raise money by issuing equity. If the company hasnever issued equity to the public, it's known as an IPO. Mostly public companies

go for IPO. But large privately-owned companies may also go for an IPO tobecome publicly traded. In an IPO the company offloads a certain percentage ofits total shares to the public at a certain` price In an IPO, the issuer obtains theassistance of an underwriting firm, which helps it determine what type ofsecurity to issue (common or preferred), best offering price and time to bring itto market.. Most IPOS these days do not have a fixed offer price.

8


9/83

CLASSIFICATION OF ISSUES

Initial Public Offer

Initial Public Offering (IPO) is when an unlisted company makes either afresh issue of securities or an offer for sale of its existing securities or

both for the first time to the public.

A follow on public offering (Further Issue) is when an already listedcompany makes either a fresh issue of securities to the public or an offer

for sale to the public, through an offer document.

9


10/83

Book Building Process

Book Building is basically a process used in IPOs for efficient pricediscovery.

It is a mechanism where, during the period for which the IPO is open,bids are collected from investors at various prices, which are above orequal to the floor price. The offer price is determined after the bid closingdate.Rights Issue

Rights Issue is when a listed company which proposes to issue fresh securities to

its existing shareholders as on a record date .The rights are normally offered in a

particular ratio to the number of securities held prior to the issue and generally

issued at a price lower than the currently traded market price of the share

Preferential Issue

A Preferential issue is an issue of shares or of convertible securities by listed

companies to a select group of persons which is neither a rights issue nor a

public issue.

This is a faster way for a company to raise equity capital.

Private Placement

A Private Placement is the issue of securities;debt or equity, to a limitednumber of subscribers such as banks,financial institutions,mutual fundsand high net worth individuals.

Private placement can be done with a maximum of 50 investors.

10


11/83

ADVANTAGES OF GOING PUBLIC

Increased Capital:-A public offering will allow a company to raise capital to

use for various corporate purposes such as working capital, acquisitions,research and development, marketing, and expanding plant and equipment.Liquidity

Once shares of a company are issue through an IPO & traded on a publicexchange, those shares have a market value and can be resold. This allows acompany to attract and retain employees by offering stock incentive packages tothose employees. Moreover, it also provides investors in the company the optionto trade their shares thus enhancing investor confidence.

Increased Prestige

Public companies often are better known and more visible than privatecompanies, this enables them to obtain a larger market for their goods orservices. Public companies are able to have access to larger pools of capital aswell as different types of capital.

Valuation

Public trading of a company's shares sets a value for the company that is set bythe public market and not through more subjective standards set by a privatevaluator. This is helpful for a company that is looking for a merger or

acquisition. It also allows the shareholders to know the value of the shares.

Increased wealth

The founders of the company often have the sense of increased wealth as a resultof the IPO. Prior to the IPO these shares were illiquid and had a more subjective

price. These shares now have an ascertainable price and after any lockup periodthese shares may be sold to the public, subject to limitations of law.

DISADVANTAGES OF GOING PUBLIC

Time and Expense -Conducting an IPO is time consuming and expensive. Asuccessful IPO can take up to a year or more to complete and a company canexpect to spend large amount of money on attorneys, accountants, and printers.In addition, the underwriter's fees can range from 3% to 10% of the value of theoffering. Due to the time and expense of preparation of the IPO, many

companies simply cannot afford the time or spare the expense of preparing theIPO.

11


12/83

Disclosure:-Once a company goes public it comes under the purview of SEBI.It is supposed to file quarterly results with SEBI and follow other regulations as

per SEBI guidelines.

Decisions based upon Stock Price

Management's decisions may be affected by the market price of the shares andthe feeling that they must get market recognition for the company's stock. Theymay give more consideration to market price of the share and as a consequencemay take a decision which is not prudent & sound .

Regulatory Review

The Company will be open to review by the SEBI to ensure that the company ismaking the appropriate filings with all relevant disclosures.

Falling Stock Price

If the shares of the company's stock fall, the company may lose marketconfidence, decreased valuation of the company may affect lines of credits,secondary offering pricing, the company's ability to maintain employees, and the

personal wealth of insiders and investors.

Vulnerability

If a large portion of the company's shares are sold to the public, the companymay become a target for a takeover, causing insiders to lose control. A takeover

bid may be the result of shareholders being upset with management or corporateraiders looking for an opportunity. Defending a hostile bid can be bothexpensive and time consuming.

PARAMETERS TO JUDGE AN IPO

Good investing principles demand that you study the minutes of details prior toinvesting in an IPO. Here are some parameters you should evaluate:-

PromotersIs the company a family run business or is it professionally owned?

12


13/83

Even with a family run business what are the credibility and professionalqualifications of those managing the company? Do the top level managers haveenough experience (of at least 5 years) in the specific type of business?

Industry Outlook

The products or services of the company should have a good demand and scopefor profit.

Business Plans

Check the progress made in terms of land acquisition, clearances from variousdepartments, purchase of machinery, letter of credits etc. A higher initialinvestment from the promoters will lead to a higher faith in the organization.

Financials

Why does the company require the money? Is the company floating more equitythan required? What is the debt component? Keep a track on the profits, growthand margins of the previous years. A steady growth rate is the quality of afundamentally sound company. Check the assumptions the promoters aremaking and whether these assumptions or expectations sound feasible.

Risk Factors

The offer documents will list our specific risk factors such as the companysliabilities, court cases or other litigations. Examine how these factors will affectthe operations of the company.

Key Names -Every IPO will have lead managers and merchant bankers. Youcan figure out the track record of the merchant banker through the SEBI website.

PricingCompare the companys PER with that of similar companies. With this you canfind out the P/E Growth ratio and examine whether its earning projections seemviable.

SECONDARY MARKET

13


14/83

Secondary market is the market for buying and selling securities of the existingcompanies. Under this, securities are traded after being initially offered to the

public in the primary market and/or listed on the stock exchange. The stockexchanges are the exclusive centres for trading of securities. It is a sensitivebarometer and reflects the trends in the economy through fluctuations in theprices of various securities. It been defined as, "a body of individuals, whetherincorporated or not, constituted for the purpose of assisting, regulating andcontrolling the business of buying, selling and dealing in securities". There are23 stock exchanges in India. Listing on stock exchanges enables theshareholders to monitor the movement of the share prices in an effectivemanner. This assists those to take prudent decisions on whether to retain theirholdings or sell off or even accumulate further. However, to list the securities ona stock exchange, the issuing company has to go through set norms and

procedures.

Various aspects of secondary/ stock market in India:-

(a)Corporate Securities:

The stock exchanges are the exclusive centres for trading of securities.

Though the area of operation/jurisdiction of an exchange is specified at the timeof its recognition, they have been allowed recently to set up trading terminalsanywhere in the country. The three newly set up exchanges (OTCEI, NSE andICSE) were permitted since their inception to have nationwide trading. Thetrading platforms of a few exchanges are now accessible from many locations.Further, with extensive use of information technology, the trading platforms of afew exchanges are also accessible from anywhere through the Internet andmobile devices. This made a huge difference in a geographically vast countrylike India.

(b) Exchange Management:

Most of the stock exchanges in the country are organised as Mutuals whichwas considered beneficial in terms of tax benefits and matters of compliance.The trading members, who provide brokering services, also own,control andmanage the exchanges. This is not an effective model for self -regulatoryorganisations as the regulatory and public interest of the exchange conflicts with

private interests.

14


15/83

c. Membership :

The trading platform of an exchange is accessible only to brokers. The brokerenters into trades in exchanges either on his own account or on behalf of clients.

No stock broker or sub-broker is allowed to buy, sell or deal in securities, unlesshe or she holds a certificate of registration granted by SEBI. A broker/sub-broker complies with the code of conduct prescribed by SEBI. Over time, anumber of brokers proprietor firms and partnership firms - have convertedthemselves into corporate. The standards for admission of members stress onfactors, such as corporate structure, capital adequacy, track record, education,experience, etc. and reflect a conscious endeavour to ensure quality brokingservices.

(d) Trading Mechanism:

The exchanges provide an on-line fully-automated ScreenBased Trading System (SBTS) where a member can punch into the computerquantities of securities and the prices at which he likes to transact and thetransaction is executed as soon as it finds a matching order from a counter party.SBTS electronically matches orders on a strict price/time priority and hence cutsdown on time, cost and risk of error, as well as on fraud resulting in improvedoperational efficiency. It allows faster incorporation of price sensitiveinformation into prevailing prices, thus increasing the informational efficiency

of markets. It enables market participants to see the full market on real-time,making the market transparent. It allows a large number of participants,irrespective of their geographical locations, to trade with one anothersimultaneously, improving the depth and liquidity of the market. It provides fullanonymity by accepting orders, big or small, from members without revealingtheir identity, thus providing equal access to everybody. It also provides a

perfect audit trail, which helps to resolve disputes by logging in the tradeexecution process in entirety.

(e) Trading Rules:

Regulations have been framed to prevent insider trading as well as unfair tradepractices. The acquisitions and takeovers are permitted in a well- defined andorderly manner. The companies are permitted to buy back their securities toimprove liquidity and enhance the shareholders' wealth.

(f) Price Bands: Stock market volatility is generally a cause of concern for both

policy makers as well as investors. To curb excessive volatility, SEBI hasprescribed a system of price bands. The price bands or circuit breakers bring

15


16/83

about a coordinated trading halt in all equity and equity derivatives marketsnation-wide. An index-based market-wide circuit breaker system at three stagesof the index movement either way at 10%, 15% and 20% has been prescribed.The movement of either S&P CNX Nifty or Sensex, whichever is breached

earlier, triggers the breakers. As an additional measure of safety, individualscrip-wise price bands of 20% either way have been imposed for all securitiesexcept those available for stock options.

(g) Demat Trading:

The Depositories Act, 1996 was passed to proved for the establishment ofdepositories in securities with the objective of ensuring free transferability ofsecurities with speed, accuracy and security by :-

(i) Making securities of public limited companies freely transferable subject tocertain exceptions;

(ii) Dematerialising the securities in the depository mode; and(iii) Providing for maintenance of ownership records in a book entry form.In order to streamline both the stages of settlement process, theAct envisages transfer of ownership of securities electronically by book entrywithout making the securities move from person to person. Two depositories,viz. NSDL and CDSL, have come up to provide Instantaneous electronic transferof securities. Demat settlement accounts for over 99% of turnover settled by

delivery. This has almost eliminated the bad deliveries and associated problems.To prevent physical certificates from sneaking into circulation, it has beenmandatory for all new IPOs to be compulsorily traded in dematerialised form.The admission to a depository for dematerialisation of securities has been madea prerequisite for making a public or rights issue or an offer for sale. It has also

been made compulsory for public listed companies making IPO of any securityfor Rs. 10 crore or more to do the same only in dematerialised form.

(h) Charges:

A stock broker is required to pay a registration fee of Rs.5, 000every financial year, if his annual turnover does not exceed Rs. 1crore.The maximum brokerage a trading member can levy in respect ofsecurities transactions is 2.5% of the contract price, exclusive of statutorylevies like SEBI turnover fee, service tax and stamp duty. However,

brokerage charges as low as 0.15% are also observed in the market.

(i) Trading Cycle:

16


17/83

Rolling settlement on T+3 basis gave way to T+2 fromApril 2003. The markethas moved close to spot/cash market.

(j) Risk Management:

To pre-empt market failures and protect investors, the regulator/exchanges havedeveloped a comprehensive risk management system, which is constantlymonitored and upgraded. It encompasses capital adequacy of members, adequatemargin requirements, limits on exposure and turnover, indemnity insurance, on-line position monitoring and automatic disablement, etc. They also administeran efficient market surveillance system to curb excessive volatility, detect and

prevent price manipulations. A clearing corporation assures the counterparty riskof each member and guarantees financial settlement in respect of tradesexecuted on Nse.

PARTICIPANTS IN THE CAPITAL MARKET

Following are the market participants in the capital market:-

(a) Foreign institutional Investors(b) Non- Resident Indians(c) Persons of Indian Origin(d) Retail investors(e) Venture capital funds(f) Mutual Funds(g) Private Equity(h) High Net worth Individuals (HNIs)

(i)Financial Institutions(j)Insurance companies(k) Pension funds, etc.

CAPITAL MARKET INTERMEDIARIES

17


18/83

Merchant Bankers

Registrar &Transfer Agents (R&T agents)

Stock Brokers

Custodians

Mutual Funds

Depositories

Depository Participants

EXPLANATION OF ABOVE

Merchant Bankers

As per the SEBI [Merchant Bankers]Rules, 1992 merchant banker means anyperson who is engaged in the business of issue management either by makingarrangements regarding selling,buying or subscribing to securities or acting asmanager, consultant, adviser or rendering corporate advisory services in relationto issue management

R&T Agents-Registrar to Issue

The R&T agents provide services to shareholders on behalfof issuers for

Maintaining Register of Members [ROM]

18


19/83

Managing corporate benefits like distribution of dividends,interest on debentures, bonus shares, rights etc.

Share transfer services

Stock Brokers

A stock-broker is a member of the Stock Exchange

Stock-brokers are the intermediaries who are allowed totrade in securities on the exchange of which they are

members

Brokers buy and sell on their own behalf as well as on thebehalf of their clients

Any person can act as a stock-broker only after registeringas such with SEBI

Custodians

Custodians are appointed by institutional investors, mutualfunds, banks etc for physical custody of securities,settlement services, monitoring and collection of corporatebenefits and maintaining of their accounts of securities

HSBC Bank,SHCIL,Citibank, Deutsche bank, StandardChartered Bank provide custodial services

Mutual Funds

Mutual Funds are financial intermediaries. A mutual fund isa collective investment that allows many investors, with acommon objective, to pool individual investments and giveto a professional manager who in turn would invest thesemonies in line with the common objective.

The units of Mutual Funds are tradable securities

19


20/83

Their price is determined by their Net Asset Value (NAV)which is declared periodically .

Depositories

A depository is an organisation which holds securities of investors in electronic

form at request of investors through a registered depository participant. A

depository holds securities like shares,debentures,bonds,government securities

etc. of investors in electronic form.

The Depository Act,1996 defines a depository to mean a company formed and

registered under the companies act,1956 and which has been granted a

certificate of registration under Sub section (IA)of section 12 of this securities

&Exchange Board of India act, 1992.

The term depository means a place where something is deposited for safe

keeping, a bank in which other deposits, funds and other securities ,usually

under the terms of specific depository agreement.

National Securities Depository Limited(NSDL) promoted by IDBI,NSE is the

first depository of country. Later on Central Depository Services

Limited(CDSL) was promoted by BSE,Bank of Baroda etc.

DEFINITION:IN SIMPLE TERMS

A depository is an organization where the securities of a share holder held in an

electronic form and the depository can legally transfer the beneficial ownership

at the request of the shareholder through a medium of depository participant.

20


21/83

The Depository System is concerned with conversion of securities from physical

to electronic form, settlement of trade in electronic segment, electronic transfer

of shares and custody of securities. In depository system ,there is no physical

script and such most of the problems or fraudulent transfer, fake certificate

etc.Electronic transfer is faster in comparison to paper work.

It is understood from the above two definitions that the depository is a place

where securities are stored, recorded in the books on behalf of the investors.

Therefore, a depository can be defined as, an institution which transfers the

ownership of securities in electronic mode on behalf of its members.

CAPITAL MARKET

HISTORY

Securities Market Development under British Colonization 1833 1947

Indian corporate and securities law has its roots in English common law.

England passed a homogenous set of company laws throughout the British

Colonies to assist British entrepreneurs via a common investment framework.

Managing Agency System

British owners used a governing structure known as the managing agency

system.

This system operated as a holding company that held and

controlled several companies across several industries.

A managing agency house had control over promotional,

financial, and managerial functions.

21


22/83

Boards of Directors performed very few decision-making

functions.

This gave the shareholders in the holding company effective

control over the subsidiaries even though their equity stakewas often very small.

Industries and Development Regulation Act of 1951

The Act restricted investment by requiring all existing and proposed industrial

units to acquire licenses from the central government. Business owners that hadexisting companies and political connections used the licensing regime to

extract monopolistic and oligopolistic privileges in new and existing industries.

The licensing requirements grew stricter over the years as the government thrust

itself into an increasingly central planning role.

The Act granted the government power to prevent the

transfer of 10% or more of shares if the transfer would alterthe board of directors and is prejudicial to the interest of the

company or the public interest.

It prohibited individuals from transferring shares to foreign

firms.

Securities Contracts (Regulation) Act 1956

The Securities Contracts Act heavily regulated the stock exchanges and

prohibited the trading of options. The Acts preamble stated its purpose as, An

Act to prevent undesirable transactions in securities by regulating the business

of dealings in therein, by prohibiting options and by providing for certain other

matters connected therewith. It emphasized investor protection and

government control and placed little emphasis on market development.

22


23/83

Maintaining Control:From the mid-1960s until the economic reforms of 1991,

the government viewed the financial system as a source of public finance.

During this time, the government controlled the banks and their lending

decisions and used this to control competition. Commercial and cooperative

banks provided companies with working capital. Indian development banks and

a few government-funded financial institutions provided most of the medium- to

long-term financing of companies.

1969 Monopolies and Restrictive Trade Practices Act

The Act placed additional licensing restrictions on the private sector, further

limiting competition and restricting investment. The Act defined a monopoly

based on asset size instead of on market share.

Policies from 1960s 1991 The government prohibited the development

of an equity market through control directed by the Controller of Capital

Issues.

Public financial institutions such as the Unit

Trust of India, the General Insurance Corporation, and development financial

institutions such as the Industrial Finance Corporation of India and the Industrial

Development Bank of India were the largest shareholders of all major Indianfirms, holding approximately 40-45% of share capital.

Large state ownership resulted in an underperforming

corporate structure as the state institutions failed to monitor

the corporations management.

This prolonged the inefficiencies of the managing agency

system, as promoters often had effective control over

companies with little investment.

High tax rates encouraged fraudulent accounting practices

and the manipulation of earnings.

Rapid Liberalization:

Sri Lankan Tamil rebels assassinated Prime Minister Ghandi in May 1991.

Following the assassination of the Prime Minister, India chose P.V. Narashimha

23


24/83

Rao as the new Prime Minister. During this time Indias financial system faced a

foreign exchange crisis and its economy was in shambles. The new

administration immediately began liberalization efforts in capital and trade.

Initial reforms

The first major liberalization effort occurred when the Indian government issued

a new Industrial Policy Act on June 24, 1991. The act repealed most industrial

licensing requirements, relaxed the restrictions on foreign investments, and

replaced the Monopolies and Restrictive Trade Practices Act of 1969. The

removal of licensing requirements allowed private firms to make decisions

without government input and allowed private industries to compete with state-

owned industries.

Controller of Capital Issues Abolition

The most significant reform involving capital markets was the governments

abolition of the Controller of Capital Issues in 1992. After the government

abolished the Act, companies were free to set the price of their issues.

Formation of Securities and Exchange Board of India (SEBI)

The SEBI received legislative backing in 1992. The SEBIs mandate included

the promotion and development of the securities markets. This was a dramatic

shift from the focus of the Securities Contracts Act of 1956, which primary

focused on investor protection through heavy regulation and disregarded market

promotion. The Act granted the SEBI the responsibility of registering and

regulating market participants.

Formation of the National Stock Exchange (NSE)

The Indian government formed the NSE in 1992. Prior to the NSEs formation,

the Sensex was a monopoly and it was plagued with manipulative practices.

The government created the NSE to compete with the Sensex

and drive down transaction costs.

24


25/83

The NSE was set up as an automated electronic exchange

allowing stock brokers from all over the country to link to

the NSE computers and trade with automatic buy and sell

order matching.

Fraud Hits

Howard Mehta Scam

The first securities market fraud struck almost immediately following economic

liberalization. Between December 1991 and April 1992, the Sensex rose by

nearly 150%. A fraud involving manipulating settlement practices helped fuel

the rally. The fraudulent settlement practices induced large banks to

unknowingly make unsecured loans to smaller banks that then made moneyavailable to brokers. This diverted substantial sums of money from the banking

sector to the stock market. After the fraud was discovered, the Sensex fell nearly

40%.

Vanishing Companies 1992 1994

Vanishing companies also plagued the primary Indian securities markets,

destroying investor confidence in the markets. Between July 1993 and

September 1994 the Indian stock market gained 120%. Hundreds of companies

took advantage of the hot IPO market and raised substantial sums of money.

Several of these companies then proceeded to vanish after raising the capital.

Multinationals

In 1994, multinationals took advantage of the lack of a developed regulatorystructure by issuing preferential equity allotments to controlling shareholders at

steep discounts to prevent takeovers. These issuances substantially diluted

minority shareholders. The capital markets went through a series of minor

reforms during the mid-1990s. Several of these efforts including improving

transparency and corporate governance. The SEBI did not have many

enforcement or investigatory powers under the original SEBI Act. Through a

series of reforms, the government significantly strengthened SEBIs

enforcement and regulatory power. As the chart below shows, the number ofinvestigation and enforcement actions increased dramatically after the reforms.

25


26/83

Corporate Governance Reform and Clause 49

After the series of frauds shook investor confidence, the Confederation of Indian

Industry formed a task force to improve corporate governance.

In April 1997, the task force published a draft of Desirable

Corporate Governance, A Code, and defined good

corporate governance as maximizing long term shareholder

value.

The SEBI adopted Clause 49 in 1999, making many of theCodes recommendations mandatory.

Clause 49 requires at least 50% of the Board to be

independent when the CEO is also the chairman of the board.

It works in coordination with company listing standards on

exchanges.

The clause requires the CEO and CFO to certify the financialstatements.

EXECUTIVE SUMMARY

Stock Exchanges in the capital market of INDIA plays a very significant role at

present there are 24 regional stock exchanges in the country. The first stock

exchange in INDIA is BOMBAY STOCK EXCHANGE (BSE). The all others

stock exchanges are regional in nature, they take place due to the local need of

the industry and they grew very fastly and rapidly.

But in 1994-95, when multinational companies was come to India they want thesecurities listed at big stock exchange so that they can have easy trading and

26


27/83

easy collection of money from throughout the country and having nation wide

reach.

And then NATIONAL STOCK EXCHANGE come into existence and in filled

all the regional stock exchanges because it was started with new technology ofscreen based technology and many other new inventions for the purpose of

trading and it start establishing their terminals outside the city of exchange, so

BSE cant compete NSE, but because of the oldest in the country it is competing

with NSE, but all other REGIONAL STOCK EXCHANGES cant compete with

NSE and trading at all regional stock exchanges was nil by the year ending

2001-02 and when NSE starting trading in derivatives (FUTURES). BSEs

turnover also starting down very rapidly. All companies and investors and

brokers prefer trading at NSE because of the reason that terminals of the NSEare easily available in every town of the country, whereas other exchanges cant

provide it because of low resources.

At present there is no stock exchanges except NSE and BSE where trading is

going on. And all others left regional stock exchanges in order to survive make a

subsidiary company and take membership of NSE/BSE and start working like

their broker and brokers of exchanges were sub brokers of the regional stock

exchanges According to survey conducted, the perception of the respondent is

that they are not in favour of starting trading at regional stock exchanges rather

they feel that regional stock exchanges infrastructure can be used by appointing

them as the compliances of the SEBI or National Stock Exchange and working

as compliance of these bodies or remain in the business of broker as now they

are doing.

AFTER STUDYING THIS PROJECT YOU WILL BE

ABLE TO KNOW:-

27


28/83

o Stock Exchanges in India.

o When and Why Regional Stock Exchange come into existence.

o Why National Stock Exchange come into existence.

o Growth of NSE,BSE and Regional Stock Exchanges.

o About capital market

o Depositories in india

o Capital market & its intermediaries

o Factors affecting capital market

o Demat,remat,nomination & transmission

CHAPTER 1

MEANING OF STOCK EXCHANGE

STOCK MARKET

A Stock exchange is a key institution facilitating the issue and sale of various

types of securities. It is a pivot around which every activity of the capital market

revolves. In the absence of stock exchange, the people with savings would

hardly invest in corporate securities for which there would be no liquidity

28


29/83

(buying and selling facility). Corporate investments from the general public

would have been thus lower.

Stock Exchanges are an organised marketplace, either corporation or mutual

organisation, where members of the organisation gather to trade company stockand other securities. The members may act either as agents for their customers,or as principals for their own accounts.Stock exchanges also facilitate for the issue and redemption of securities andother financial instruments including the payment of income and dividends. Therecord keeping is central but trade is linked to such physical place becausemodern markets are computerised.

.

BRIEF HISTORY OF STOCK EXCHANGES

Do you know that the world's foremost marketplace New York Stock Exchange(NYSE), started its trading under a tree (now known as 68 Wall Street) over 200years ago? Similarly, India's premier stock exchange Bombay Stock Exchange(BSE) can also trace back its origin to as far as 125 years when it started as avoluntary non-profit making association.

News on the stock market appears in different media every day. You hear about

it any time it reaches a new high or a new low, and you also hear about it dailyin statements like 'The BSE Sensitive Index rose 5% today'. Obviously, stocksand stock markets are important. Stocks of public limited companies are boughtand sold at a stock exchange. But what really are stock exchanges? Known alsoas the stock market or bourse, a stock exchange is an organized marketplace forsecurities (like stocks, bonds, options) featured by the centralization of supplyand demand for the transaction of orders by member brokers, for institutionaland individual.The exchange makes buying and selling easy. For example, youdon't have to actually go to a stock exchange, say, BSE - you can contact a

broker, who does business with the BSE, and he or she will buy or sell yourstock on your behalf.

HISTORY OF INDIAN CAPITAL MARKET AT A GLANCE

18th century

1800-Trading of shares of East India Company in Kolkata and Mumbai

29


30/83

1850-Joint stock companies came into existence

1860-Speculation and feverish dealing in securities

1875-Formation of Stock Exchanges of Mumbai

1894-Formation of Ahmedabad Stock Exchange

19th century

1908-Formation of Calcutta Stock Exchange

1939-Formation of Lahore and Madras Stock Exchange

20th century

2000-Depositories came into existence (Electronic form of shares)

2001-Trading in Future Tradings

2002-Start of rolling settlement and banning of Badla Trading

2004-BSE sensex touches all time high of 6194 in January

ROLE OF STOCK EXCHANGE

Facilitate Listing of Securities

Register members -Stock Brokers,sub brokers

Make and enforce bye-laws

30


31/83

Provide trading platform to investors

Manage risk in securities transactions

Provide indices

Pooling the capital resources and Developing enterprises investors

Solve the problem of paucity of funds

Mobilize the small and scattered savings

Augment the availability of investible funds

Growth of joint stock business

Provide a number of profitable investment opportunities for a small savers.

List of REGIONAL STOCK EXCHANGES IN

THE COUNTR

1. Ahmedabad Stock Exchange2. Bangalore Stock Exchange3. Bhubaneshwar Stock Exchange4. Calcutta Stock Exchange5. Cochin Stock Exchange

6. Coimbatore Stock Exchange7. Delhi Stock Exchange8. Guwahati Stock Exchange9. Hyderabad Stock Exchange10. Jaipur Stock Exchange11. Ludhiana Stock Exchange12. Madhya Pradesh Stock Exchange13. Madras Stock Exchange14. Magadh Stock Exchange15. Mangalore Stock Exchange16. Meerut Stock Exchange

31
http://www.surfindia.com/finance/ahmedabad-stock-exchange.htmlhttp://www.surfindia.com/finance/bangalore-stock-exchange.htmlhttp://www.surfindia.com/finance/bhubaneshwar-stock-exchange.htmlhttp://www.surfindia.com/finance/calcutta-stock-exchange.htmlhttp://www.surfindia.com/finance/cochin-stock-exchange.htmlhttp://www.surfindia.com/finance/coimbatore-stock-exchange.htmlhttp://www.surfindia.com/finance/delhi-stock-exchange.htmlhttp://www.surfindia.com/finance/guwahati-stock-exchange.htmlhttp://www.surfindia.com/finance/hyderabad-stock-exchange.htmlhttp://www.surfindia.com/finance/jaipur-stock-exchange.htmlhttp://www.surfindia.com/finance/ludhiana-stock-exchange.htmlhttp://www.surfindia.com/finance/madhya-pradesh-stock-exchange.htmlhttp://www.surfindia.com/finance/madras-stock-exchange.htmlhttp://www.surfindia.com/finance/magadh-stock-exchange.htmlhttp://www.surfindia.com/finance/mangalore-stock-exchange.htmlhttp://www.surfindia.com/finance/meerut-stock-exchange.htmlhttp://www.surfindia.com/finance/bangalore-stock-exchange.htmlhttp://www.surfindia.com/finance/bhubaneshwar-stock-exchange.htmlhttp://www.surfindia.com/finance/calcutta-stock-exchange.htmlhttp://www.surfindia.com/finance/cochin-stock-exchange.htmlhttp://www.surfindia.com/finance/coimbatore-stock-exchange.htmlhttp://www.surfindia.com/finance/delhi-stock-exchange.htmlhttp://www.surfindia.com/finance/guwahati-stock-exchange.htmlhttp://www.surfindia.com/finance/hyderabad-stock-exchange.htmlhttp://www.surfindia.com/finance/jaipur-stock-exchange.htmlhttp://www.surfindia.com/finance/ludhiana-stock-exchange.htmlhttp://www.surfindia.com/finance/madhya-pradesh-stock-exchange.htmlhttp://www.surfindia.com/finance/madras-stock-exchange.htmlhttp://www.surfindia.com/finance/magadh-stock-exchange.htmlhttp://www.surfindia.com/finance/mangalore-stock-exchange.htmlhttp://www.surfindia.com/finance/meerut-stock-exchange.htmlhttp://www.surfindia.com/finance/ahmedabad-stock-exchange.html


32/83

17. Pune Stock Exchange18. Saurashtra Kutch Stock Exchange19. Uttar Pradesh Stock Exchange20. Vadodara Stock Exchange

Functions of stock exchange

1) Liquidity and marketability of securities

2)Safety of funds

3)Supply of long term funds

4) Flow of capital to profitable ventures

5)Motivation for improved performance

6) Promotion of investment

7) Reflection of business cycle

8)Marketing of new issues

NATIONAL STOCK EXCHANGE OF INDIA

LTD.

INTRODUCTION

32
http://www.surfindia.com/finance/pune-stock-exchange.htmlhttp://www.surfindia.com/finance/kutch-stock-exchange.htmlhttp://www.surfindia.com/finance/uttar-pradesh-stock-exchange.htmlhttp://www.surfindia.com/finance/vadodara-stock-exchange.htmlhttp://www.surfindia.com/finance/pune-stock-exchange.htmlhttp://www.surfindia.com/finance/kutch-stock-exchange.htmlhttp://www.surfindia.com/finance/uttar-pradesh-stock-exchange.htmlhttp://www.surfindia.com/finance/vadodara-stock-exchange.html


33/83

The National Stock Exchange of India Limited has genesis in the report of theHigh Powered Study Group on Establishment of New Stock Exchanges, whichrecommended promotion of a National Stock Exchange by financial institutions(FIs) to provide access to investors from all across the country on an equal

footing. Based on the recommendations, NSE was promoted by leadingFinancial Institutions at the behest of the Government of India and wasincorporated in November 1992 as a tax-paying company unlike other stockexchanges in the country. On its recognition as a stock exchange under theSecurities Contracts (Regulation) Act, 1956 in April 1993, NSE commencedoperations in the Wholesale Debt Market (WDM) segment in June 1994. TheCapital Market (Equities) segment commenced operations in November 1994and operations in Derivatives segment commenced in June 2000.

NSEs MISSION

NSE's mission is setting the agenda for change in the securities markets in India.The NSE was set-up with the main objectives of:

1. Establishing a nation-wide trading facility for equities, debt instruments andhybrids,

2. Ensuring equal access to investors all over the country through an appropriatecommunication network,

3. Providing a fair, efficient and transparent securities market to investors usingelectronic trading systems, enabling shorter settlement cycles and book entrysettlements systems, and

4. Meeting the current international standards of securities markets.

5. The standards set by NSE in terms of market practices and technologies havebecome industry benchmarks and are being emulated by other market

participants. NSE is more than a mere market

o EXISTING STRUCTURE OF THE STOCK EXCHANGES

IN INDIAo The Act recognizes stock exchanges with different legal structure.

Presently the stock exchanges which are recognised under the SecuritiesContracts (Regulation) Act in India, could be segregated into two broad

groups 20 stock exchanges which were set up as companies, eitherlimited by guarantees or by shares, and the 3 stock exchanges which are

33


34/83

functioning as associations of persons (AOP) viz. BSE, Ahmedabad StockExchange and Indore Stock Exchange. The 20 stock exchanges which arecompanies are: the stock exchanges of Bangalore, Bhubaneswar, Calcutta,Cochin, Coimbatore, Delhi, Gauhati, Hyderabad, Interconnected SE,

Jaipur, Ludhiana, Madras, Magadh, Managalore, NSE, Pune, OTCEI,Saurashtra-Kutch, Uttar Pradesh, and Vadodara. Of these, the stockexchanges of Ahmedabad, Bangalore, BSE, Calcutta, Delhi, Hyderabad,Madhya Pradesh, Madras and Gauhati were given permanent recognition

by the Central Government at the time of setting up of these stock

exchanges. Apart from NSE, all stock exchanges whetherestablished as corporate bodies or Association of Persons (AOPs), arenon-profit making organizations.

POWERS THAT MAY BE EXERCISEDBY THE STOCKExchange

The powers of the stock exchange are to be exercised as per provisions inits bye-law. As per SCRA Act any recognised stock exchange may,subject to the previous approval of the[Securities and Exchange Board ofIndia make bye-laws for the regulation and control of contracts. The bye-

laws can provide for the exercise of following powers by the stockexchange.

a. The opening and closing of markets and the regulation of the hours oftrade

b. Set up a clearing house for the periodical settlement of contracts anddifferences thereunder, the delivery of and payment for securities, the

passing on of delivery orders and the regulation and maintenance of suchclearing house;

c. The regulation or prohibition of blank transfers;d. The regulation, or prohibition of badlas or carry-over facilities;e. The fixing, altering or postponing of days for settlements;f. The determination and declaration of market rates, including theopening, closing, highest and lowest rates for securities;g. The terms, conditions and incidents of contracts, including the

prescription of margin requirements, if any, and conditions relatingthereto, and the forms of contracts in writing;h. The regulation of the entering into, making, performance, rescission

and termination, of contracts, including contracts between members orbetween a member and his constituent or between a member and a person

34


35/83

who is not a member, and the consequences of default or insolvency onthe part of a seller or buyer or intermediary, the consequences of a breachor omission by a seller or buyer, and the responsibility of members whoare not parties to such contracts;

i. The regulation of taravani business including the placing of limitationsthereon;j. The listing of securities on the stock exchange, the inclusion of anysecurity for the purpose of dealings and the suspension or withdrawal ofany such securities, and the suspension or prohibition of trading in anyspecified securities;

ADVANTAGES OF NSE OVER RSEs

It has brought an integrated stock market trading network across the

country.

Investors can trade at any place sitting across the country at common

trading platform.

Delays in communications, late payments have been done away with.

Settlement Guarantee Fund backs each and every trade.

Complete transparency in trading operations.

Faster settlements of trades.

Imparting training and education to the trading members.

Dematerialisation and Electronic transfer of securities.

State-of-the-art technology for efficient trading, settlement and clearing

system

THREAT TO NSE

As NSE has achieved growth since its inception as NSE failed the concept of

RSEs it is equally possible that NSE may also be failed by some other

exchange e.g. some foreign exchange like NYSE, DOW JONES and LONDON

35


36/83

STOCK EXCHANGE etc. As SEBI has permitted the Indian stock exchanges

and they are not going for that as they know that they cant compete with

foreign exchanges, so if they come in our country they may fail the NSE and

Indian capital market may fail, so for competing them NSE should take some

steps as it should merge all RSEs with itself and compel they to go back

without any business.

Mostly respondents in the study shows that they are in the favour of the foreign

stock exchange, they feel that if in every other industry market foreign players

are working then why not stock exchange

INTRODUCTION OF BSE

Bombay Stock Exchange is the oldest stock exchange in Asia with a rich

heritage, now spanning three centuries in its 133 years of existence. What is now

popularly known as BSE was established as "The Native Share & Stock Brokers'

Association" in 1875.

BSE is the first stock exchange in the country which obtained permanent

recognition (in 1956) from the Government of India under the Securities

Contracts (Regulation) Act 1956. BSE's pivotal and pre-eminent role in the

development of the Indian capital market is widely recognized. It migrated from

the open outcry system to an online screen-based order driven trading system in

36


37/83

1995. Earlier an Association Of Persons (AOP), BSE is now a corporatised and

demutualised entity incorporated under the provisions of the Companies Act,

1956, pursuant to the BSE (Corporatisation and Demutualisation) Scheme, 2005

notified by the Securities and Exchange Board of India (SEBI). With

demutualisation, BSE has two of world's best exchanges, Deutsche Brse and

Singapore Exchange, as its strategic partners.

Over the past 133 years, BSE has facilitated the growth of the Indian corporate

sector by providing it with an efficient access to resources. There is perhaps no

major corporate in India which has not sourced BSE's services in raising

resources from the capital market.

Today, BSE is the world's number 1 exchange in terms of the number of listed

companies and the world's 5th in transaction numbers. The market capitalization

as on December 31, 2007 stood at USD 1.79 trillion . An investor can choose

from more than 4,700 listed companies, which for easy reference, are classified

into A, B, S, T and Z groups.

The BSE Index, SENSEX, is India's first stock market index that enjoys an

iconic stature , and is tracked worldwide. It is an index of 30 stocks representing

12 major sectors.

in India christened the ICDM or Indian Corporate Debt Market and a unique

ticker-cum-screen aptly named 'BSE Broadcast' which enables informationdissemination to the common man on the street. In 2006, BSE launched the

Directors Database and ICERS (Indian Corporate Electronic Reporting System)

to facilitate information flow and increase transparency in the Indian capital

market. While the Directors Database provides a single-point access to

information on the boards of directors of listed companies, the ICERS facilitates

the corporates in sharing with BSE their corporate announcements.

OBJECTIVES OF BSE

To allow companies listed only with RSEs to raise fresh resources fromthe capital market, given higher liquidity in their shares.

To create liquidity in all the scrips listed on the Exchanges. To provide an avenue for new SMEs from various regions of the country

to raise fresh resources from the capital markets, which would help,achieve balanced regional growth.

To harness the infrastructure at RSEs

37


38/83

BSE or NSE WHICH IS BETTER STOCKEXCHANGE FOR DELIVERY or DERIVATIVETRADING

BSE is 133 year old and NSE is just 14 year old stock exchange of India butNSE is now the worlds third largest stock exchange in terms of transactions anddealings. If you are day trader or trading in future and option segment heavily,

better you should stick with NSE. You can trade with high volume without toomuch unexpected result.

NSE is far better and fast to implement high technology for trading incomparison to BSE. NSE is popular with huge volumes as compared to BSE, as

NSEs bid-ask price are excellent compared to BSE. FII can invest easily inNSE in comparison to BSE. BSE is more prone to scams. You should not expectany scams in future in NSE.

In the cash segment, where shares change hands, BSE had the first-moveradvantage and in the futures segment, both exchanges started simultaneous

trading in June 2000. Today, NSE has a virtual monopoly of the market withaverage daily futures and options trading turnover of Rs 45,827 crore thisfinancial year, while BSEs has slipped to around Rs20 crore.

Conclusion- If you want to trade in cash segment, you should use BSE as thereare more actual seller and buyer of stocks for long term. If you are interested inF&O segment you should use NSE.

DIFFERENCE BETWEEN REGIONAL STOCKEXCHANGE AND BSE

The BSE is a national stock exchange - meaning it is common to all residents ofthe country. (Note: There is a separate exchange called the National StockExchange. The term national is used to stress on the fact that, the exchange isavailable nation wide)

A Regional stock exchange is usually located in a particular city and is open for

38


39/83

trading only to the residents of that particular city/state which makes itinaccessible for other investors who do not reside in that region.

DIFFERENCE BETWEEN NSE AND BSE

BSE is Bombay Stock Exchange and NSE is National Stock Exchange.

Apart from these n all other mentioned differences, the most important

one is the difference in their respective benchmark index's i.e. SENSEX nNIFTY. While the SENSEX is an index of top 30 co's in terms of m-cap,

NIFTY is of top 50 co's, hence NIFTY is more diversified n real time,

closer to ground picture of the market.

BSE Bombay Stock Exchange

NSE National stock Exchange.

even though both entities are dealing in securities , are yet differentcompanies. BSE started as a regional stock exchange, and later spread its

wings all over India when manual trading was done away with. National

Stock Exchange started with an all India base. That is the only difference

between these two but otherwise, they are fish of the same water.

BSE (Bombay Stock Exchange) is an old stock exchange, while NSE

(National Stock Exchange) is a very new one. Both have companies listed(associated) with them. Since BSE is old(started in 1875), it is famous

throughout the world, but does not use much of technology for its

operation and calculation of stock index (index is a group of highly

volatile stocks that the stock exchange monitors, SENSEX by BSE and

NIFTY by NSE are examples). NSE, started in 1994, and uses the latest

technology. Companies consider it a pride to list their stocks in the BSE,

since it is old, but companies are listing in NSE also. There are many

other stock exchanges in India, but not as famous as BSE or NSE. Bothare like different markets, selling the same product, so there might be very

39


40/83

small difference in prices of the stock of the same company between the

two market.

SENSEX & THE NIFTY

The Sensex is an "index". An index is basically an indicator. It gives you ageneral idea about whether most of the stocks have gone up or most of thestocks have gone down. The Sensex is an indicator of all the major companies ofthe BSE. The Nifty is an indicator of all the major companies of the NSE. Thesensex is calculated taking into consideration the top 30 companies of BombayStock Exchange (BSE).In case of National Stock Exchange (NSE) , top 50companies are taken into consideration to calculating nifty. If the Sensex goesup, it means that the prices of the stocks of most of the major companies on theBSE have gone up. If the Sensex goes down, this tells you that the stock price of

most of the major stocks on theBSE have gone down.Just like the Sensex represents the top stocks of the BSE, the Nifty representsthe top stocks of the NSE.

The sensex 30 includes the following companies (As on24th July2009)Name of the company1 Reliance Industries2 Infosys Technologies3 L &T4 ICICI Bank5 HDFC

6 ITC

7 Reliance Communication

40


41/83

8 Bharti Airtel9 HDFC Bank10 SBI11 ONGC

12 BHEL13 Hindustan Unilever14 Tata Consultancy15 Tata Steel

16 Grasim Industries

17 Maruti Suzuki18 NTPC

19 Sterlite Industries20 Tata Power21 Reliance Infrastructures22 Mahindra & Mahindra23 Jai Prakash Associates

24 Hero Honda

25 DLF

26 Wipro

27 Hindalco

28 Tata Motors29 Sun Pharma

30 ACC

The Nifty 50 Companies as on 24th July 2009 are asfollows :-S.NoName of the company S.No.Name of the company1 Reliance Industies2 Infosys Technologies3 L &T

4 ICICI Bank5 HDFC

41


42/83

6 ITC 7 Bharti Airtel8 HDFC Bank9 SBI

10 ONGC

11 BHEL12 Hindustan Unilever13 Tata Consultancy14 Tata Steel15 Grasim Industries16 Reliance Communication17 Jindal Steel18 Axis Bank19 Maruti Suzuki

20 NTPC21 Sterlite Industries22 Tata Power23 Reliance Infrastructure24 Mahindra & Mahindra25 GAIL(I)

26 Hero Honda27 DLF28 Wipro

29 Cipla

30 Idea Celluar31 Unitech32 Cairn

33 Hindalco34 Reliance capital

35 Tata Motors36 SAIL37 Punjab National Bank

38 Sun Pharma

39 ACC

40 Ambuja Cement

41 ABB42 Siemens

42


43/83

43 Power Grid

44 Reliance Power45 Suzlon Energy

46 BPCL

47 HCL Technologies

48 Ranbaxy Laboratories

49 Tata Communication50 National Aluminium

MARKET CAPITALISATION (MARKET CAP)

Market cap or market capitalization is simply the worth of a company in termsof its shares. To calculate the market cap of a particular company, simplymultiply the current share price by the number of shares issued by thecompany. Thus, Depending on the value of the market cap, the company willeither be a mid-cap or large-cap or small-cap company

The criteria for selecting top 30 and 50 stocks in case ofBSE & NSE respectively

The following are the criteria for selecting the top 30 and 50Stocks for BSE & NSE respectively:-

(a) Market capitalization: -The company should have amarket capitalization in the Top 100 market capitalizations ofthe BSE. Also the market capitalization of each company should

be more than 0.5% of the total market capitalization of theIndex.

(b)Trading frequency: -The Company to be included shouldhave been traded on each and every trading day for the lastone year. Exceptions can be made for extreme reasons likeshare suspension etc.

(c) Number of trades: -The scrip should be among the top

150 companies listed by average number of trades per day forthe last one year.

43


44/83

(d)Industry representation: -The companies should beleaders in their industry group.

(e)Listed history:-The companies should have a listinghistory of at least one year on BSE.

(f)Track record:- In the opinion of the index committee, thecompany should have an acceptable track record.

MEANING OF STOCK MARKET

INTRODUCTION

In general, the financial market divided into two parts, Money market andcapital market. Securities market is an important, organized capital marketwhere transaction of capital is facilitated by means of direct financing usingsecurities as a commodity. Securities market can be divided into a primary

market and secondary market.

PRIMARY MARKET

The primary market is an intermittent and discrete market where the initiallylisted shares are traded first time, changing hands from the listed company to theinvestors. It refers to the process through which the companies, the issuers ofstocks, acquire capital by offering their stocks to investors who supply thecapital. In other words primary market is that part of the capital markets thatdeals with the issuance of new securities. The process of selling new issues toinvestors is called underwriting. In the case of a new stock issue, this sale iscalled an initial public offering (IPO). Dealers earn a commission that is builtinto the price of the security offering, though it can be found in the prospectus.

SECONDARY MARKET

The secondary market is an on-going market, which is equipped and organizedwith a place, facilities and other resources required for trading securities aftertheir initial offering. It refers to a specific place where securities transaction

among many and unspecified persons is carried out through intermediation ofthe securities firms, i.e., a licensed broker, and the exchanges, a specialized

44


45/83

trading organization, in accordance with the rules and regulations established bythe exchanges. A bit about history of stock exchange they say it was under a treethat it all started in 1875.Bombay Stock Exchange (BSE) was the majorexchange in India till 1994.National Stock Exchange (NSE) started operations in

1994. NSE was floated by major banks and financial institutions. It came as aresult of Harshad Mehta scam of 1992. Contrary to popular belief the scam wasmore of a banking scam than a stock market scam. Investors weren't allowedaccess and the system was opaque and misused by brokers. The shares were in

physical form and prone to duplication and fraud.NSE was the first to introduceelectronic screen based trading. BSE was forced to follow suit. The present daytrading platform is transparent and gives investors prices on a real time basis.With the introduction of depository and mandatory dematerialization of shareschances of fraud reduced further.

The trading screen gives you top 5 buy and sell quotes on every scrip.

A typical trading day starts at 10 ending at 3.30. Monday to Friday.BSE has 30 stocks which make up the Sensex .NSE has 50 stocks in its indexcalled Nifty. FII s Banks, financial institutions mutual funds are biggest playersin the market. Then there are the retail investors and speculators.

ORIGIN OF INDIAN STOCK MARKET

The origin of the stock market in India goes back to the end of the eighteenthcentury when long-term negotiable securities were first issued. However, for all

practical purposes, the real beginning occurred in the middle of the nineteenthcentury after the enactment of the companies Act in 1850, which introduced thefeatures of limited liability and generated investor interest in corporatesecurities.

An important early event in the development of the stock market in India wasthe formation of the native share and stock brokers 'Association at Bombay in1875, the precursor of the present day Bombay Stock Exchange. This wasfollowed by the formation of associations/exchanges in Ahmedabad (1894),Calcutta (1908), and Madras (1937). In addition, a large number of ephemeralexchanges emerged mainly in buoyant periods to recede into oblivion duringdepressing times subsequently. Stock exchanges are intricacy inter-woven in thefabric of a nation's economic life. Without a stock exchange, the saving of thecommunity- the sinews of economic progress and productive efficiency- wouldremain underutilized. The task of mobilization and allocation of savings could

be attempted in the old days by a much less specialized institution than the stock

45


46/83

exchanges. But as business and industry expanded and the economy assumedmore complex nature, the need for 'permanent finance' arose. Entrepreneursneeded money for long term whereas investors demanded liquidity the facilityto convert their investment into cash at any given time. The answer was a ready

market for investments and this was how the stock exchange came into being.Stock exchange means any body of individuals, whether incorporated or not,constituted for the purpose of regulating or controlling the business of buying,selling or dealing in securities. These securities include:

(i) Shares, scrip, stocks, bonds, debentures stock or other marketablesecurities of a like nature in or of any incorporated company or other bodycorporate;

(ii) Government securities;(iii) Rights or interest in securities.

PURPOSE OF STOCK MARKET

Stock markets basic role is to provide a platform for the masses of the

country to invest their savings and also as a source of funds for various

organizations and institutions. It provides an opportunity for any

person to become a part-owner of the company by buying the

companies shares. These shares can be sold and exchanged as well as

used as collateral in certain cases. One can deal in a variety of

financial instruments in a stock market such as Equity which has

already been explained, Future's, Retail Debt, Wholesale Debt,

Currency Future's, Derivatives, Bonds etc. Trading can only be

performed by a registered broker of the respective stock one wants to

deal in or through a broker.

Impact on The EconomyThe stock market has both positive and negative effects on the Indian Economy.

Some of which are listed below.

1. Provides a source of funding for organizations.

2. An investment avenue.

46


47/83

3. A source of income for investors.

4. A source of revenue for the government in the form of taxes.

5. A source of employment opportunities.

6. Idle funds of common investors can be used for profitable

purposes.

BANK-DEPOSITORY AN ANALOGY

BANK DEPOSITORY

Holds funds in an account Holds securities in an account

Transfers funds between

accounts on the instruction of

the account holder

Transfers securities between

accounts on the instruction of

the BO account holder

Facilitates transfer without

having to handle money

Facilitates transfer of ownership

without having to handle

securities

Facilitates safekeeping of

money

Facilitates safekeeping of

securities

BANK-DEPOSITORY DISTINCTION

BANK DEPOSITORY

Either of holder can sign instruction All joint holders can sign instruction

Minimum balance to be maintained No minimum balance required

47


48/83

Entitled interest Interest can be earned only by

participated in stock leading scheme.

Uses balances in account Does not move balance in account

without account holders authorized

Nomination is kept confidential. Signature & photograph of nominee to

be provide.

In case of transaction in a bank ,anyone of joint holders can sign the cheques,

Minimum funds balance has to be maintained in account prescribed by bank. A

bank uses funds in banks for lending purpose. And nomination is kept

confidential.

SERVICES OF DEPOSITORY

A depository established under the depositories act,1996 can provide services

connecting with recording of allotment of securities or transfer of ownership in

the record of a depository. Any person willing to avail the services of a

depository can do by entering into an agreement with the depository through anyof its DPs.The depository can provide depository services only through a DP.A

depository cannot directly open account and provide services to clients.

Every depository in its byelaws must state which securities are eligible for

demat holding. Generally the following securities are eligible for

dematerialisation.

a) Shares,scripts,stocks,bonds,debenture,stock or other marketable securities

of a like nature in or any incorporated or other body corporate.

b) Units of mutual funds, rights under collective investment scheme and

venture capital funds, commercial paper, certificate or deposit, securities

debt, money market,instrument,government securities and unlisted

securities.

c) Securities admitted to NSDL depository are notified to al

DPs through circulars sent by email everyday. Investors

48


49/83

are informed about these securities through NSDLs

website www.nsdl.co.in

FUNCTIONS OF DEPOSITORY

DEMATERIALIZATIONOne of the primary functions of depository is to eliminate or minimize the

movement of physical securities in market. This is achieved through

dematerialized of securities. Dematerialization is the process of converting

securities held in physical form into holding in book entry form.

ACCOUNT TRANSFER

The depository gives effect s to all transfer resulting from the settlement oftrades and other transaction between various beneficial owners by recording

entries in the accounts between such beneficial owners.

TRANSFER AND REGISTRATION A transfer is the legal change ofownership of a security in the records of the issuers. For affecting atransfer, certain legal steps have to be taken endorsement, execution of a

transfer instrument and payment of stamp duty. The depositoryaccelerated the transfer process by registering, the ownership of entireissue in the name of the depository. Under a depository system, transfer ofsecurity occurs merely by passing bank entries in the records of thedepositories, on the instructions of the beneficial owners.

PLEDGE AND HYPOTHECATION

Depositories allow the securities placed with them to be used to secure loans

and other credits. In a manual environment, borrowers are required to deliver

pledge securities in physical form to the lender. These securities are verified for

authenticity often needs to be transferred in the name of order. All this takestime, it also has a money cost by way of transfer fees or stamp duty. If the

49
http://www.nsdl.co.in/http://www.nsdl.co.in/


50/83

borrower wants to substitute the pledge securities, these steps have to be

repeated of depository services for pledge I hypothecation of the securities

makes the process very simple and cost effective. The securities pledged

/hypothecated are transferred to a segregated or collateral account through book

entries in records of the depository.

CORPORATE ACTIONS

A depository may handle corporate actions in two ways, in the first case-it

merely provides information to the issuers about the persons entitled to receive

corporate benefits. In other case, depository itself takes the responsibility of

distribution of corporate benefits.

DEPOSITORY IN INDIA

NSDL, the first depository in India, established in August 1996 and promoted

by institutions of national stature responsible for economic development of the

country has since established a national infrastructure of international standards

that handles most of the securities held and settled in dematerialised form in the

Indian capital market.

Promoters

(1) Industrial Development Bank of India Limited

(2) Unit Trust of India

(3) National Stock Exchange of India Limited

Other Shareholders

50


51/83

(1) State Bank of India

(2) Oriental Bank of Commerce

(3) Citibank NA

(4) Standard Chartered Bank

(5) HDFC Bank Limited

(6) The Hongkong and Shanghai Banking Corporation Limited

(7) Deutsche Bank

(8) Dena Bank

(9) Canara Bank

(10)Union Bank of India

2.. CENTRAL DEPOSITORIES SERVICES LIMITED (CDSL)

The Central Depository Services India Limited (CDSL) was

established in 1999 and is second securities depository in India. Its objectives to

provide conveinnent, dependable and secure depository services and facilitates

holdings of Demats (securities in electronic form).Its networks covers 100 cities

and offers always on connectivity to around 500 centres nationwide. The

company has handled demat for over 8000 million securities settlements. The

number is still growing and will continue since the government plans to phaseout physical trading of shares.

To open your demat account, you first need to select a Depository Participant or

DP of you convenience.CDSL has a host of top-notch DPs spread across the

length and breadth of the country. A depository facilitates holding of securities

in electronic form and enables securities transactions to be processed by book

entry by a Depository Participant, who as an agent of depository offers

depository services to investors. According to SEBI guidelines, financial

institutions,banks,custodians,stock brokers etc. are eligible to act as DPs.The

51


52/83

investor who is known as beneficial owner(BO) has to open a demat account

through any DP for dematerialization of his holdings and transferring securities.

A demat with CDSL can be opened only through a CDSL registered DP.The DP

is required to provide the investor, at regular intervals, a statement of accountwhich gives the details of securities holdings and transcations.The depository

system has effectively eliminated paper-based certificates which are prone to b

fake, forged and resulting in bad deliveries.CDSLofers an efficient and

instantaneous transfer of securities.

CDSL was promoted by Bombay Stock Exchange Limited(BSE) jointly leading

with State Bank of India, Bank of India,HDFC,Bank of Baroda, Standard

chartered Bank.

DEMAT ACCOUNT

Demat refers to a dematerialised account. Just as you have to

open an account with a bank if you want to save your money,

make cheque payments etc, you need to open a demat account

if you want to buy or sell stocks. So it is just like a bank account

where actual money is replaced by shares. You have to

approach the DPs (remember, they are like bank branches), to

open your demat account.

Account opening procedure

1. Select, approach & collect DAOF (Depository AccountOpening Form)

2. Fill & submit the DAOF along with all required documents3. Verification of all the documents

52


53/83

4. Agreement signed between investor and depositoryparticipant.

5. Open depository account, generates client ID & transmitsall the details to depository

6. DP allots client ID number & informs the client.

Demat Benefits

The benefits are enumerated below:-

A safe and convenient way to hold securities;

Immediate transfer of securities;

No stamp duty on transfer of securities;

Elimination of risks associated with physical certificates such

as bad delivery, fake securities, delays, thefts etc.;

Reduction in paperwork involved in transfer of securities;

Reduction in transaction cost;

No odd lot problem, even one share can be sold;

Nomination facility;

Change in address recorded with DP gets registered with all

companies in which investor holds securities electronically

eliminating the need to correspond with each of them

separately;

Transmission of securities is done by DP eliminating

correspondence with companies;

DELIVERY INSTRUCTION SLIP

53


54/83

To give the delivery one has to fill a form called Delivery Instruction

Slip (DIS). DIS may be compared to cheque book of a bank account.The following precautions are to be taken in respect of DIS:-

Ensure and insist with DP to issue DIS book.

Ensure that DIS numbers are pre-printed and DP

takes acknowledgment for the DIS booklet issued to investor.

Ensure that your account number [client id] is pre-stamped.

If the account is a joint account, all the joint holders have to sign

the instruction slips. Instruction cannot be executed if all joint

holders have not signed.

Avoid using loose slips.

Do not leave signed blank DIS with anyone viz., broker/sub-

broker, DPs or any other person/entity.

Keep the DIS book under lock and key when not in use.

CONTENTS OF DI SLIP

Market type -The DI slip contains the market type for whichsecurities are being transferred to Cash market.

Settlement number -The DI slip contains this number ofTrading periods of market segments in which securitiesbeing transferred to Cash market.

54


55/83

Clearing member - CM account is identified with a number called 'CM-BP-ID'. The DI slip should contain the CM-BP-ID in which the trade wasdone

Demat Conversion (Dematerialisation)

Converting physical holding into electronic holding

(dematerializing securities)

In order to dematerialize 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

dematerialize. Separate DRF has to be filled for each ISIN

Number.

The complete process of dematerialization is outlined

below:

Surrender certificates for dematerialization to your depository

participant.

Depository participant intimates Depository of the requestthrough the system.

Depository participant submits the certificates to the registrar

of the Issuer Company.

Registrar confirms the dematerialization request from

depository.

After dematerializing the certificates, Registrar updatesaccounts and informs depository of the completion of

dematerialization.

Depository updates its accounts and informs the depository

participant.

Depository participant updates the demat account of the

investor.

55


56/83

Rematerialisation

The process of converting electronic holdings (demat shares)

back into Physical Certificates is called Rematerialisation.

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 rematerialisation.

Depository participant intimates depository of the request

through the system.

Depository confirms rematerialisation request to the registrar.

Registrar updates accounts and prints certificates.

Depository updates accounts and downloads details to

depository participant.

Registrar dispatches certificates to investor.

TRANSMISSION

. Transmission is the process by which securities of a deceased account holder

are transferred to the account of the surviving joint holder(s)/ legal heirs /

nominee of the deceased account holder. Process of transmission in case of

dematerialised holdings is more convenient as the transmission formalities for

all securities held in a demat account can be completed by submitting

documents to your DP whereas in case of physical securities the surviving joint

holder(s)/ legal heirs/ nominee has to correspond independently with eachcompany in which shares are held.

56


57/83

MUTUAL FUNDS, PENSION FUNDS AND FINANCIAL INSTITUTIONS

The meaning of above terms is as follows:-

Pension Fund

A pension fund is a pool of assets forming an independent legal entity that arebought with the contributions to a pension plan for the exclusive purpose offinancing pension plan benefits.

Mutual fund-Amutual fund is a professionally managed type of collective

investment scheme that pools money from many investors and invests it instocks, bonds, short-term money market instruments, and/or other securities.The mutual fund will have a fund manager that trades the pooled money on aregular basis. The net proceeds or losses are then typically distributed to theinvestors annually.

Financial Institution

A financial institution is an institution that provides financial services for its

clients or members. Probably the most important financial service provided byfinancial institutions is acting as financial intermediaries. Most financialinstitutions are highly regulated by government bodies. Broadly speaking, thereare three major types of financial institution:-

1) Deposit -taking institutions that accept and manage deposits and make loans(this category includes banks, credit unions, trust companies, and mortgage loancompanies);

2) Insurance companies and pension funds; and

3) Brokers, underwriters and investment funds.

Impact of capital market on Indian Economy

57


58/83

1. Long term finance for corporate and government:-The capital market isthe market for securities, where companies and governments can raise long termfunds. Selling stock and selling bonds are two ways to generate capital and longterm funds. It provides a new avenue to corporate and government to raise funds

for long term.

2. Helps to bridge investment savings gap:-It is seen mostly in case ofdeveloping countries that they suffer from investment savings gap . This gapmeans that funds available fall far short of the amount needed to stimulateeconomic development.Thus this gap hinders the economic growth of adeveloping country like India.In such a situation capital market plays animportant role . Capital market expand the investment options available in thecountry , which attracts portfolio investments from are also facilitated abroad.Domestic savings by the availability of additional investment options. Thisenables to bridge the gap between investment and savings and paves the way foreconomic development .Indias improving macroeconomic fundamentals, asizeable skilled labour force and greater integration with the world economyhave increased.Indias global competitiveness, placing the country on the radarscreens of investors the world over. The global ratings agencies Moodys andFitch have

Documents

Capital Market Final Report