Summer Internship Project Report

On

“IMPEDIMENTS OF GROWTH IN EQUITY MARKET”

Submitted in partial fulfillment for the award of the Post Graduate Diploma in Management

Submitted byRajat Pandey

Roll No: M2013050

Under the guidance of Dr. Deepti Sinha

APEEJAY INSTITUTE OF TECHNOLOGYSCHOOL OF MANAGEMENT & COMPUTER SCIENCES

GREATER NOIDA2013-2015

DECLARATION

The work in this summer internship project report is based on the original work carried out by

me towards the partial fulfillment for the award of Post Graduate Diploma in Management.

No part of this report has been submitted elsewhere for any other degree or qualification and

it is all my own work.

(Rajat pandey)

Roll No.2013050

i.

ii.

CERTIFICATE

This is to certify that RAJAT PANDEY Roll No M2013050, a student of Apeejay Institute

of Technology-School of Management & Computer Science, Greater Noida (PGDM

2013-2015) has done the project work on “Impediments of growth in Equity Market”

under my supervision and guidance. I understand this project report is being submitted for

award of Post Graduate Diploma in Management. To the best of my knowledge, this report

has not been submitted to any other Institute/University for award of any other

degree/Diploma/Certificate.

During this period, I have found his work satisfactory.

Dr. Deepti Sinha

(Asst. Professor & Project Guide)

Prof. D N Bajpai

(Executive Director)

iii.

ACKNOWLEDGMENT

I, here by take the opportunity to express my deep and profound gratitude to Dr. Deepti

Sinha, my supervisor for this project report, without whose help my report would not have

been a success.

I would also like to thank our Executive Director Prof. D.N. Bajpai, Registrar Dr. M.K. Tyagi

and all faculty members. This project couldn’t be initiated without the help Mr. Neeraj

Mishra, our Lucknow branch Manager Mr. Pradip Dilip Agarwal, Lucknow branch Mentor

Mr. Tapesh Saxena, and all other Reliance Securities staff.

Last but not least, I would like to thank my parents and my friends for their support and help

during the execution of the study.

All may not have been mentioned but none is forgotten.

Rajat Pandey

iv.

LIST OF FIGURES

S.NO FIGURE

CHART

NO.

FIGURE CHART NAME PAGE

NO.

1. Fig 1 Indian Inflation Rate 22

2. Fig 2 India Industrial Production 24

3. Fig 3 Recent trend IIP 25

4. Fig 4 Rise and fall of global currencies 27

5. Fig 5 FII’s impact on Indian market 31

6. Fig 6 Awareness about equity market 47

7. Fig 7 Investment in equity market 48

8. Fig 8 Respondent having demat account 49

9. Fig 9 Demat account in different Organization 50

10. Fig 10 Operating demat account by respondent 51

11. Fig 11 How long investing in equity and derivative markets 52

12. Fig 12 Type of trading 52

13. Fig 13 What is the biggest problem in trading 55

14. Fig 14 Problem of market uncertainty in trading. 56

15. Fig 15 Unsatisfactory services provided by the broking firm creates

problem in trading.

57

16 Fig 16 Respondent having Demat account in reliance securities 58

16. Fig 17 Perception about reliance securities 58

v.

TABLE OF CONTENT

CONTENTS Page No.

Declaration i

Company Certificate ii

College Certificate iii

Acknowledgment iv

List of Figures v

1. Introduction

1.1 About the Topic 1 - 32

1.2 Scope of the study 33

1.3 Objectives 33

1.4 Research Methodology 34 - 36

1.5 Limitations 37

2. Company Profile 38 - 46

3. Data Analysis 47 - 59

4. Findings 60

5. Suggestions & Conclusion 61

Bibliography

Annexure (Questionnaire)

1. INTRODUCTION

This project is based on the concept of equity and equity market, the term “Equity” and

“Equity Market” is described as follows-

1.1 Equity

Investopedia explain the term “Equity” as its meaning depends very much on the context. In

finance, in general, you can think of equity as ownership in any asset after all debts

associated with that asset are paid off. For example, a car or house with no outstanding debt

is considered the owner's equity because he or she can readily sell the item for cash. Stocks

are equity because they represent ownership in a company.

1.1.1 Definition of 'Equity'

1. A stock or any other security representing an ownership interest.

2. On a company's balance sheet, the amount of the funds contributed by the owners (the

stockholders) plus the retained earnings (or losses).Also referred to as "shareholders' equity".

3. In the context of margin trading, the value of securities in a margin account minus what

has been borrowed from the brokerage.

4. In the context of real estate, the difference between the current market value of the

property and the amount the owner still owes on the mortgage. It is the amount that the owner

would receive after selling a property and paying off the mortgage.

5. In terms of investment strategies, equity (stocks) is one of the principal asset classes. The

other two are fixed-income (bonds) and cash/cash-equivalents. These are used in asset

allocation planning to structure a desired risk and return profile for an investor's portfolio.

a) In accounting and finance ‘Equity’

is the residual claimant or interest of the most junior class of investors in assets, after all

liabilities are paid; if liability exceeds assets, negative equity exists In an accounting context,

shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital or

similar terms) represents the remaining interest in the assets of a company, spread among

1.

individual shareholders of common or preferred stock; a negative shareholders' equity is

often referred to as a positive shareholders' deficit.

At the very start of a business, owners put some funding into the business to finance

operations. This creates a liability on the business in the shape of capital as the business is a

separate entity from its owners. Businesses can be considered, for accounting purposes, sums

of liabilities and assets; this is the accounting equation. After liabilities have been accounted

for, the positive remainder is deemed the owners' interest in the business.

This definition is helpful in understanding the liquidation process in case of bankruptcy. At

first, all the secured creditors are paid against proceeds from assets. Afterwards, a series of

creditors, ranked in priority sequence, have the next claim/right on the residual proceeds.

Ownership equity is the last or residual claim against assets, paid only after all other creditors

are paid. In such cases where even creditors could not get enough money to pay their bills,

nothing is left over to reimburse owners' equity. Thus owners' equity is reduced to zero.

Ownership equity is also known as risk capital or liable capital.

1.1.2 Equity investments

An equity investment generally refers to the buying and holding of shares of stock on a stock

market by individuals and firms in anticipation of income from dividends and capital gains,

as the value of the stock rises.

1.1.2 (a) Shareholders’ Equity

When the owners are shareholders, the interest can be called shareholders' equity; the

accounting remains the same, and it is ownership equity spread out among shareholders. If all

shareholders are in one and the same class, they share equally in ownership equity from all

perspectives. However, shareholders may allow different priority ranking among themselves

by the use of share classes and options. This complicates both analysis for stock valuation

and accounting.

1.1.2 (b) Market value of shares

In the stock market, market price per share does not correspond to the equity per share

calculated in the accounting statements. Stock valuations, which are often much higher, are

based on other considerations related to the business' operating cash flow, profits and future

prospects; some factors are derived from the accounting statements.

2.

1.1.2 (c) Equity in real estate

The notion of equity with respect to real estate comes under the equity of redemption. This

equity is a property right valued at the difference between the market price of the property

and the amount of any mortgage or other encumbrance

1.1.3 'Equity Market'

Investopedia explains ‘Equity market’ can be split into two main sectors: the primary and

secondary market. The primary market is where new issues are first offered. Any subsequent

trading takes place in the secondary market.

1.1.3 (a) Definition of 'Equity Market'

The markets in which shares are issued are traded, either through exchanges or over-the-

counter markets. Also known as the stock market, it is one of the most vital areas of a market

economy because it gives companies access to capital and investors a slice of ownership in a

company with the potential to realize gains based on its future performance.

1.1.3 (b) Stock market

A stock market or equity market is the aggregation of buyers and sellers (a loose network of

economic transactions, not a physical facility or discrete entity) of stocks (shares); these are

securities listed on a stock exchange as well as those only traded privately.

1.1.4 Equity Market in India

The Indian Equity Market is more popularly known as the Indian Stock Market. The Indian

equity market has become the third biggest after China and Hong Kong in the Asian region.

According to the latest report by ADB, it has a market capitalization of nearly $600 billion.

As of March 2009, the market capitalization was around $598.3 billion (Rs 30.13 lakh crore)

which is one-tenth of the combined valuation of the Asia region. The market was slow since

early 2007 and continued till the first quarter of 2009. Stock Exchange: Stock Exchange is an

Organized and regulated financial market where securities (bonds, notes, shares) are bought

and sold at prices governed by the forces of demand and supply. The Role of Stock

3.

Exchanges: Stock exchanges have multiple roles in the economy. This may include the

following:-

1.1.4(a) Raising Capital For Businesses :

The Stock Exchange provides companies with the facility to raise capital for expansion

through selling shares to the investing public.

1.1.4(b) Facilitating Company Growth:

A takeover bid or a merger agreement through the stock market is one of the simplest and

most common ways for a company to grow by acquisition or fusion.

1.1.4(c) Creating Investment Opportunities For Small Investors:

As opposed to other businesses that require huge capital outlay, investing in shares is open to

both the large and small stock investors because a person buys the number of shares they can

afford. Therefore the Stock Exchange provides the opportunity for small investors to own

shares of the same companies as large investors.

1.1.4(d) Barometer of the Economy:

At the stock exchange, share prices rise and fall depending, largely, on market forces. Share

prices tend to rise or remain stable when companies and the economy in general show signs

of stability and growth. An economic recession, depression, or financial crisis could

eventually lead to a stock market crash. Therefore the movement of share prices and in

general of the stock indexes can be an indicator of the general trend in the economy.

1.1.4(e) Speculation : The stock exchanges are also fashionable places for speculation. In a

financial context, the terms "speculation" and "investment" are actually quite specific. For

instance, although the word "investment" is typically used, in a general sense, to mean any

act of placing money in a financial vehicle with the intent of producing returns over a period

of time, most ventured money—including funds placed in the world's stock markets—is

actually not investment but speculation. The Indian market has 22 stock exchanges. The

larger companies are enlisted with BSE and NSE. The smaller and medium companies are

listed with OTCEI (Over the Counter Exchange of India).

4.

1. Bombay Stock Exchange (BSE): BSE is the oldest stock exchange in Asia. The

extensiveness of the indigenous equity broking industry in India led to the formation

of the Native Share Brokers Association in 1875, which later became Bombay Stock

Exchange Limited (BSE). BSE is widely recognized due to its pivotal and pre-

eminent role in the development of the Indian capital market. In 1995, the trading

system transformed from open outcry system to an online screen-based order-driven

trading system.

The exchange opened up for foreign ownership (foreign institutional investment).

Allowed Indian companies to raise capital from abroad through ADRs and GDRs.

Expanded the product range (equities/derivatives/debt).

Introduced the book building process and brought in transparency in IPO issuance.

Depositories for share custody (dematerialization of shares).

Internet trading (e-broking).

BSE has a nation-wide reach with a presence in more than 450 cities and towns of India. BSE

has always been at par with the international standards. It is the first exchange in India and

the second in the world to obtain an ISO 9001:2000 certifications. The equity market

capitalization of the companies listed on the BSE was US$1.63 trillion as of December 2010,

making it the 4th largest stock exchange in Asia and the 8th largest in the world. The BSE

has the largest number of listed companies in the world. As of June 2011, there are over

5,085 listed Indian companies and over 8,196 scrips on the stock exchange, the Bombay

Stock Exchange has a significant trading volume. Though many other exchanges exist, BSE

and the National Stock Exchange of India account for the majority of the equity trading in

India. National Stock Exchange (NSE) : With the liberalization of the Indian economy, it was

found inevitable to lift the Indian stock market trading system on par with the international

standards. On the basis of the recommendations of high powered Pherwani Committee, the

National Stock Exchange was incorporated in 1992 by Industrial Development Bank of India

(IDBI), Industrial Credit and Investment Corporation of India (ICICI), Industrial Finance

Corporation of India (IFCI), all Insurance Corporations, selected commercial banks and

others. Trading at NSE takes place through a fully automated screen-based trading

mechanism which adopts the principle of an order-driven market. Trading members can stay

at their offices and execute the trading, since they are linked through a communication

network. The prices at which the buyer and seller are willing to transact will appear on the

5.

screen. When the prices match the transaction will be completed and a confirmation slip will

be printed at the office of the trading member.

NSE has several advantages over the traditional trading exchanges. They are as follows:

NSE brings an integrated stock market trading network across the nation.

Investors can trade at the same price from anywhere in the country since inter-market

operations is streamlined coupled with the countrywide access to the securities.

Delays in communication, late payments and the malpractice’s prevailing in the

traditional trading mechanism can be done away with greater operational efficiency

and informational transparency in the stock market operations, with the support of

total computerized network.

1.1.4(f) Over The Counter Exchange of India (OTCEI) : The traditional trading

mechanism prevailed in the Indian stock markets gave way to many functional inefficiencies,

such as, absence of liquidity, lack of transparency, unduly long settlement periods and

benami transactions, which affected the small investors to a great extent. To provide

improved services to investors, the country's first ring less, scrip less, electronic stock

exchange -

OTCEI - was created in 1992 by country's premier financial institutions - Unit Trust of India

(UTI), Industrial

Credit and Investment Corporation of India (ICICI), Industrial Development Bank of India

(IDBI), SBI Capital Markets, Industrial Finance Corporation of India (IFCI), General

Insurance Corporation and its subsidiaries and Canara Bank Financial Services.

Compared to the traditional Exchanges, OTC Exchange network has the following

advantages:

OTCEI has widely dispersed trading mechanism across the country which provides

greater liquidity and lesser risk of intermediary charges.

Greater transparency and accuracy of prices is obtained due to the screen-based scrip

less trading.

Since the exact price of the transaction is shown on the computer screen, the investor

gets to know the exact price at which she/he is trading.

6.

Faster settlement and transfer process compared to other exchanges.

Derivative Markets: The emergence of the market for derivative products such as futures

and forwards can be traced back to the willingness of risk-averse economic agents to guard

themselves against uncertainties arising out of price fluctuations in various asset classes. This

instrument is used by all sections of businesses, such as corporate, SMEs, banks, financial

institutions, retail investors, etc. According to the International Swaps and Derivatives

Association, more than 90 percent of the global 500 corporations use derivatives for hedging

risks in interest rates, foreign exchange, and equities.

Three broad categories of participants—hedgers, speculators, and arbitragers—trade in the

derivatives market.

Hedgers face risk associated with the price of an asset. They belong to the business

community dealing with the underlying asset to a future instrument on a regular

basis. They use futures or options markets to reduce or eliminate this risk.

Speculators have a particular mindset with regard to an asset and bet on future

movements in the asset’s price. Futures and options contracts can give them an extra

leverage due to margining system.

Arbitragers are in business to take advantage of a discrepancy between prices in two

different markets. For example, when they see the futures price of an asset getting out

of line with the cash price, they will take offsetting positions in the two markets to

lock in a profit.

1.1.5 History of Indian Equity Market/Evolution of BSE (Bombay Stock

Exchange)

7.

The Bombay Stock Exchange is the oldest exchange in Asia. It traces its history to 1855,

when four Gujarati and one Parsi stockbroker would gather under banyan trees in front of

Mumbai's Town Hall. The location of these meetings changed many times as the number of

brokers constantly increased. The group eventually moved to Dalal Street in 1874 and in

1875 became an official organization known as "The Native Share & Stock Brokers

Association".

On 31 August 1957, the BSE became the first stock exchange to be recognized by the Indian

Government under the Securities Contracts Regulation Act. In 1980, the exchange moved to

the Phiroze Jeejeebhoy Towers at Dalal Street, Fort area. In 1986, it developed the BSE

SENSEX index, giving the BSE a means to measure overall performance of the exchange. In

2000, the BSE used this index to open its derivatives market, trading SENSEX futures

contracts. The development of SENSEX options along with equity derivatives followed in

2001 and 2002, expanding the BSE's trading platform.

Historically an open outcry floor trading exchange, the Bombay Stock Exchange switched to

an electronic trading system in 1995. It took the exchange only fifty days to make this

transition. This automated, screen-based trading platform called BSE On-line trading (BOLT)

had a capacity of 8 million orders per day. The BSE has also introduced the world's first

centralized exchange-based internet trading system, BSEWEBx.co.in to enable investors

anywhere in the world to trade on the BSE platform.

1.1.5(a) Establishment of BSE

Established in 1875, BSE Ltd. (formerly known as Bombay Stock Exchange Ltd. and

established as "The Native Share and Stock Brokers' Association") is Asia’s first and fastest

Stock Exchange, with the speed of 200 micro second and one of India’s leading exchange

groups. BSE is a corporatized and demutualized entity, with a broad shareholder-base that

includes two leading global exchanges, Deutsche Bourse and Singapore Exchange, as

strategic partners. BSE provides an efficient and transparent market for trading in equity, debt

instruments, derivatives, and mutual funds. It also has a platform for trading in equities of

small-and-medium enterprises (SME). Over the past 139 years, BSE has facilitated the

growth of the Indian corporate sector by providing an efficient capital-raising platform.

More than 5000 companies are listed on BSE, making it the world's top exchange in terms of

listed members. The companies listed on BSE Ltd. command a total market capitalization of 8.

USD 1.24 Trillion as of March 2014. It is also one of the world’s leading exchanges (3rd

largest in March 2014) for Index options trading.

BSE also provides a host of other services to capital market participants, including risk

management, clearing, settlement, market data services, and education. It has a global reach

with customers around the world and a nation-wide presence. BSE systems and processes are

designed to safeguard market integrity, drive the growth of the Indian capital market, and

stimulate innovation and competition across all market segments. BSE is the first exchange in

India and the second in the world to obtain an ISO 9001:2000 certification and the

Information Security Management System Standard BS 7799-2-2002 certification for its On-

Line trading System (BOLT). It operates one of the most respected capital market educational

institutes in the country (the BSE Institute Ltd.). BSE also provides depository services

through its Central Depository Services Ltd. (CDSL) arm.

BSE’s popular equity index - the S&P BSE SENSEX - is India's most widely tracked stock

market benchmark index. It is traded internationally on the EUREX as well as leading

exchanges of the BRCS nations (Brazil, Russia, China and South Africa). BSE has won

several awards and recognitions that acknowledge its work and progress, like India

Innovation Award for the Big Data implementation, ICICI Lombard and ET Now Risk

Management BFSI Company 2013, SKOCH Order of Merit Certificate (awarded to BSE

Limited for E -Boss for qualifying among India's Best 2013), The Golden Peacock Global

CSR Award (for its initiatives in Corporate Social Responsibility), NASSCOM - CNBC-

TV18’s IT User Awards, 2010 in Financial Services category, Skoch Virtual Corporation

2010 Award in the BSE STAR MF category, and Responsibility Award (CSR) by the World

Council of Corporate Governance. Its recent milestones include the launching of

BRICSMART indices derivatives, BSE-SME Exchange platform, S&P BSE GREENEX to

promote investments in Green India.

BSE’s popular equity index - the S&P BSE SENSEX (Formerly SENSEX) - is India's most

widely tracked stock market benchmark index. It is traded internationally on the EUREX as

well as leading exchanges of the BRCS nations (Brazil, Russia, China and South Africa). On

Tuesday, 19 February 2013 BSE has entered into Strategic Partnership with S&P DOW

JONES INDICES and the SENSEX has been renamed as "S&P BSE SENSEX".

1.1.6 Significance of Indian Equity Market

9.

Stock market is an important part of the economy of a country. The stock market plays a play

a pivotal role in the growth of the industry and commerce of the country that eventually

affects the economy of the country to a great extent. That is reason that the government,

industry and even the central banks of the country keep a close watch on the happenings of

the stock market. The stock market is important from both the industry’s point of view as

well as the investor’s point of view.

Whenever a company wants to raise funds for further expansion or settling up a new business

venture, they have to either take a loan from a financial organization or they have to issue

shares through the stock market. In fact the stock market is the primary source for any

company to raise funds for business expansions. If a company wants to raise some capital for

the business it can issue shares of the company that is basically part ownership of the

company. To issue shares for the investors to invest in the stocks a company needs to get

listed to a stocks exchange and through the primary market of the stock exchange they can

issue the shares and get the funds for business requirements. There are certain rules and

regulations for getting listed at a stock exchange and they need to fulfill some criteria to issue

stocks and go public. The stock market is primarily the place where these companies get

listed to issue the shares and raise the fund. In case of an already listed public company, they

issue more shares to the market for collecting more funds for business expansion. For the

companies which are going public for the first time, they need to start with the Initial Public

Offering or the IPO. In both the cases these companies have to go through the stock market.

This is the primary function of the stock exchange and thus they play the most important role

of supporting the growth of the industry and commerce in the country. That is the reason that

a rising stock market is the sign of a developing industrial sector and a growing economy of

the country.

Of course this is just the primary function of the stock market and just an half of the role that

the stock market plays. The secondary function of the stock market is that the market plays

the role of a common platform for the buyers and sellers of these stocks that are listed at the

stock market. It is the secondary market of the stock exchange where retail investors and

institutional investors buy and sell the stocks. In fact it is these stock market traders who raise

the fund for the businesses by investing in the stocks.

For investing in the stocks or to trade in the stock the investors have to go through the brokers

of the stock market. Brokers actually execute the buy and sell orders of the investors and 10.

settle the deals to keep the stock trading alive. The brokers basically act as a middle man

between the buyers and sellers. Once the buyer places a buy order in the stock market the

brokers finds a seller of the stock and thus the deal is closed. All these take place at the stock

market and it is the demand and supply of the stock of a company that determines the price of

the stock of that particular company.

So the stock market is not only providing the much required funds for boosting the business,

but also providing a common place for stock trading. It is the stock market that makes the

stocks a liquid asset unlike the real estate investment. It is the stock market that makes it

possible to sell the stocks at any point of time and get back the investment along with the

profit. This makes the stocks much more liquid in nature and thereby attracting investors to

invest in the stock market.

The stock market is one of the most important sources for companies to raise money. This

allows businesses to be publicly traded, or raise additional financial capital for expansion by

selling shares of ownership of the company in a public market. The liquidity that an exchange

affords the investors gives them the ability to quickly and easily sell securities. This is an

attractive feature of investing in stocks, compared to other less liquid investments. Some

companies actively increase liquidity by trading in their own shares.

An economy where the stock market is on the rise is considered to be an up-and-coming

economy. In fact, the stock market is often considered the primary indicator of a country's

economic strength and development.

Rising share prices, for instance, tend to be associated with increased business investment

and vice versa. Share prices also affect the wealth of households and their consumption.

Therefore, central banks tend to keep an eye on the control and behavior of the stock market

and, in general, on the smooth operation of financial system functions. Financial stability is

the raison d'être of central banks.

Exchanges also act as the clearinghouse for each transaction, meaning that they collect and

deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk

to an individual buyer or seller that the counterparty could default on the transaction.

The smooth functioning of all these activities facilitates economic growth in that lower costs

and enterprise risks promote the production of goods and services as well as possibly

11.

employment. In this way the financial system is assumed to contribute to increased

prosperity.

1.1.7 Growth of Indian Equity Market

The Indian Equity Market is more popularly known as the Indian Stock Market. The Indian

equity market has become the third biggest after China and Hong Kong in the Asian region.

According to the latest report by ADB, it has a market capitalization of nearly $600 billion.

As of March 2009, the market capitalization was around $598.3 billion (Rs 30.13 lakh crore)

which is one-tenth of the combined valuation of the Asia region. The market was slow since

early 2007 and continued till the first quarter of 2009.

A stock exchange has been defined by the Securities Contract (Regulation) Act, 1956 as an

organization, association or body of individuals established for regulating, and controlling of

securities.

The Indian equity market depends on three factors -

-Funding into equity from all over the world

-Corporate houses performance

-Monsoons

The stock market in India does business with two types of fund namely private equity fund

and venture capital fund. It also deals in transactions which are based on the two major

indices - Bombay Stock Exchange (BSE) and National Stock Exchange of India Ltd. (NSE).

The market also includes the debt market which is controlled by wholesale dealers, primary

dealers and banks. The equity indexes are allied to countries beyond the border as common

calamities affect markets. E.g. Indian and Bangladesh stock markets are affected by

monsoons.

The equity market is also affected through trade integration policy. The country has

advanced both in foreign institutional investment (FII) and trade integration since 1995. This

is a very attractive field for making profit for medium and long term investors, short-term

swing and position traders and very intraday traders. 12.

The Indian market has 22 stock exchanges. The larger companies are enlisted with BSE and

NSE. The smaller and medium companies are listed with OTCEI (Over The counter

Exchange of India). The functions of the Equity Market in India are supervised by SEBI

(Securities Exchange Board of India).

History of Indian Equity Market The history of the Indian equity market goes back to the

18th century when securities of the East India Company were traded. Till the end of the 19th

century, the trading of securities was unorganized and the main trading centers were Calcutta

(now Kolkata) and Bombay (now Mumbai).

Trade activities prospered with an increase in share price in India with Bombay becoming

the main source of cotton supply during the American Civil War (1860-61). In 1865, there

was drop in share prices. The stockbroker association established the Native Shares and Stock

Brokers Association in 1875 to organize their activities. In 1927, the BSE recognized this

association, under the Bombay Securities Contracts Control Act, 1925.

The Indian Equity Market was not well organized or developed before independence. After

independence, new issues were supervised. The timing, floatation costs, pricing, interest rates

were strictly controlled by the Controller of Capital Issue (CII). For four and half decades,

companies were demoralized and not motivated from going public due to the rigid rules of

the Government.

In the 1950s, there was uncontrollable speculation and the market was known as 'Satta

Bazaar'. Speculators aimed at companies like Tata Steel, Kohinoor Mills, Century Textiles,

Bombay Dyeing and National Rayon. The Securities Contracts (Regulation) Act, 1956 was

enacted by the Government of India. Financial institutions and state financial corporation

were developed through an established network.

In the 60s, the market was bearish due to massive wars and drought. Forward trading

transactions and 'Contracts for Clearing' or 'badla' were banned by the Government. With

financial institutions such as LIC, GIC, some revival in the markets could be seen. Then in

1964, UTI, the first mutual fund of India was formed.

In the 70's, the trading of 'badla' resumed in a different form of 'hand delivery contract'. But

the Government of India passed the Dividend Restriction Ordinance on 6th July, 1974.

According to the ordinance, the dividend was fixed to 12% of Face Value or 1/3 rd of the

profit under Section 369 of The Companies Act, 1956 whichever is lower. 13.

This resulted in a drop by 20% in market capitalization at BSE (Bombay Stock Exchange)

overnight. The stock market was closed for nearly a fortnight. Numerous multinational

companies were pulled out of India as they had to dissolve their majority stocks in India

ventures for the Indian public under FERA, 1973.

The 80's saw a growth in the Indian Equity Market. With liberalized policies of the

government, it became lucrative for investors. The market saw an increase of stock

exchanges, there was a surge in market capitalization rate and the paid up capital of the listed

companies.

The 90s was the most crucial in the stock market's history. Indians became aware of

'liberalization' and 'globalization'. In May 1992, the Capital Issues (Control) Act, 1947 was

abolished. SEBI which was the Indian Capital Market's regulator was given the power and

overlook new trading policies, entry of private sector mutual funds and private sector banks,

free prices, new stock exchanges, foreign institutional investors, and market boom and bust.

In 1990, there was a major capital market scam where bankers and brokers were involved.

With this, many investors left the market. Later there was a securities scam in 1991-92 which

revealed the inefficiencies and inadequacies of the Indian financial system and called for

reforms in the Indian Equity Market.

Two new stock exchanges, NSE (National Stock Exchange of India) established in 1994 and

OTCEI (Over the Counter Exchange of India) established in 1992 gave BSE a nationwide

competition. In 1995-96, an amendment was made to the Securities Contracts (Regulation)

Act, 1956 for introducing options trading. In April 1995, the National Securities Clearing

Corporation (NSCC) and in November 1996, the National Securities Depository Limited

(NSDL) were set up for demutualized trading, clearing and settlement. Information

Technology scrips were the major players in the late 90s with companies like Wipro, Satyam,

and Infosys.

In the 21st century, there was the Ketan Parekh Scam. From 1st July 2001, 'Badla' was

discontinued and there was introduction of rolling settlement in all scrips. In February 2000,

permission was given for internet trading and from June, 2000, futures trading started.

1.1.8 Corporate Governance in Indian Equity Market

14.

Corporate governance refers to the system of structures, rights, duties, and obligations by

which corporations are directed and controlled. The governance structure specifies the

distribution of rights and responsibilities among different participants in the corporation (such

as the board of directors, managers, shareholders, creditors, auditors, regulators, and other

stakeholders) and specifies the rules and procedures for making decisions in corporate affairs.

Governance provides the structure through which corporations set and pursue their

objectives, while reflecting the context of the social, regulatory and market environment.

Governance is a mechanism for monitoring the actions, policies and decisions of

corporations. Governance involves the alignment of interests among the stakeholders.

There has been renewed interest in the corporate governance practices of modern

corporations, particularly in relation to accountability, since the high-profile collapses of a

number of large corporations during 2001–2002, most of which involved accounting fraud;

and then again after the recent financial crisis in 2008. Corporate scandals of various forms

have maintained public and political interest in the regulation of corporate governance. In the

U.S., these include Enron Corporation and MCI Inc. (formerly WorldCom). Their demise is

associated with the U.S. federal government passing the Sarbanes-Oxley Act in 2002,

intending to restore public confidence in corporate governance. Comparable failures in

Australia (HIH, Onetel) are associated with the eventual passage of the CLERP 9 reforms.

Similar corporate failures in other countries stimulated increased regulatory interest (e.g.,

Parmalat in Italy). (Source Wikipedia)

1.1.8(a) Principles of corporate governance

Contemporary discussions of corporate governance tend to refer to principles raised in three

documents released since 1990: The Cadbury Report (UK, 1992), the Principles of Corporate

Governance (OECD, 1998 and 2004), the Sarbanes-Oxley Act of 2002 (US, 2002). The

Cadbury and OECD reports present general principles around which businesses are expected

to operate to assure proper governance. The Sarbanes-Oxley Act, informally referred to as

Sarbox or Sox, is an attempt by the federal government in the United States to legislate

several of the principles recommended in the Cadbury and OECD reports.

Rights and equitable treatment of shareholders: Organizations should respect the

rights of shareholders and help shareholders to exercise those rights. They can help

shareholders exercise their rights by openly and effectively communicating

information and by encouraging shareholders to participate in general meetings.

15.

Interests of other stakeholders: Organizations should recognize that they have

legal, contractual, social, and market driven obligations to non-shareholder

stakeholders, including employees, investors, creditors, suppliers, local communities,

customers, and policy makers.

Role and responsibilities of the board: The board needs sufficient relevant skills

and understanding to review and challenge management performance. It also needs

adequate size and appropriate levels of independence and commitment.

Integrity and ethical behavior: Integrity should be a fundamental requirement in

choosing corporate officers and board members. Organizations should develop a code

of conduct for their directors and executives that promotes ethical and responsible

decision making.

Disclosure and transparency: Organizations should clarify and make publicly

known the roles and responsibilities of board and management to provide

stakeholders with a level of accountability. They should also implement procedures

to independently verify and safeguard the integrity of the company's financial

reporting. Disclosure of material matters concerning the organization should be

timely and balanced to ensure that all investors have access to clear, factual

information.

1.1.8(b) India

India's SEBI Committee on Corporate Governance defines corporate governance as the

"acceptance by management of the inalienable rights of shareholders as the true owners of the

corporation and of their own role as trustees on behalf of the shareholders. It is about

commitment to values, about ethical business conduct and about making a distinction

between personal & corporate funds in the management of a company." It has been suggested

that the Indian approach is drawn from the Gandhian principle of trusteeship and the

Directive Principles of the Indian Constitution, but this conceptualization of corporate

objectives is also prevalent in Anglo-American and most other jurisdictions.

1.1.8(c) India in Development of Corporate Governance

On account of the interest generated by Cadbury Committee Report, The CII, ASSOCHAM

& SEBI constituted committees to recommend initiatives in Corporate Governance. KPMG

in its survey on State of Corporate Governance in India has stated that, the Good corporate

governance is characterized by a firm commitment and adoption of ethical practices by an

16.

organization across its entire value chain and in all of its dealings with a wide group of

stakeholders encompassing employees, customers, vendors, regulators and shareholders

(including the minority shareholders), in both good and bad times. To achieve this, certain

checks and practices need to be whole-heartedly embraced. In India, corporate governance

initiatives have been undertaken by the Ministry of Corporate Affairs (MCA) and the

Securities and Exchange Board of India (SEBI). India has the largest number of listed

companies in the world,6 and therefore efficiency and well-being of the financial markets is

critical for the economy in particular and the society as a whole. According to a report

prepared by Pune-based India forensic Consultancy Services (ICS), at least 1,200 companies

listed on domestic stock exchanges have forged their financial results. The figure included

20-25 firms on benchmark Sensex and Nifty indices. The study called ‘Early Warning

Signals of Corporate Frauds’ had alleged that such improper accounting included deferring

revenue and inflating expenses. The survey examined 4,867 companies listed on the BSE and

1,288 companies listed on the NSE.

1.1.8(d) Indian Securities Market & Corporate Governance Norms

Improved corporate governance is the key objective of the regulatory framework in the

securities market. After discussing need of corporate governance, there are many factors that

are responsible for ensuring corporate governance in India.

1.1.8(e) Clause 49 of the Listing Agreements

The SEBI implemented the recommendations of the Birla Committee through the enactment

of

Clause 49 of the Listing Agreements.11 Clause 49 may well be viewed as a milestone in the

evolution of corporate governance practices in India. It is similar in spirit and in scope to the

Sarbanes-Oxley Measures in the United States. The requirements of Clause 49 were applied

in the first instance to the companies in the BSE 200 and S&P C&X NIFTY stock indices,

and all newly listed companies, on March 31, 2001. These rules were applied to companies

with a paid up capital of INR 100 million or with a net worth of INR 250 million at any time

in the past five years on March 31, 2002, and to other listed companies with a paid up capital

of over INR 30 million on March 31, 2003. The Narayana Murthy Committee worked on

further refining the rules, and Clause 49 was amended accordingly in 2004. The key

mandatory features of Clause 49 regulations deal with the following:

a. Composition of the board of directors;

17.

b. The composition and functioning of the audit committee;

c. Governance and disclosures regarding subsidiary companies;

d. Disclosures by the company;

e. CEO/CFO certification of financial results;

f. Reporting on corporate governance as part of the annual report; and

g. Certification of compliance by company with the provisions of Clause 49.

The composition and proper functioning of the board of directors emerges as the key area of

focus for Clause 49. It stipulates that non-executive members should comprise at least half of

a board of directors. It defines an “independent” director and requires that independent

directors comprise at least half of a board of directors if the chairperson is an executive

director and at least a third if the chairperson is a non-executive director. It also lays down

rules regarding compensation of board members, sets caps on committee memberships and

chairmanships, lays down the minimum number and frequency of board meetings, and

mandates certain disclosures for board members.

1.1.8(f) Company Law

The primary protection to minority shareholders is laid down in the company’s law. Some of

these provisions are the regulatory equivalent of an atom bomb - they are drastic remedies

suitable only for the gravest cases of dry governance. Company law provides that a company

can be wound up if the Court is of the opinion that it is just and equitable to do so. This is, of

course, the ultimate resort for a shareholder to enforce his ownership rights. In most realistic

situations, this is hardly a meaningful remedy as the break-up value of a company when it is

wound up is far less than its value as a “going concern.” It is well known that winding up and

other bankruptcy procedures usually lead only to the enrichment of the lawyers and other

Intermediaries involved.

1.1.8(g) Securities Law-SEBI

Historically, most matters relating to the rights of shareholders were governed by the

company law. Over the last few decades, in many countries, the responsibility for protection

of investors has shifted to the securities law and the securities regulators at least in case of

large listed companies. In India, the Securities and Exchange Board of India (SEBI) was set

up as a statutory authority in 1992, and has taken a number of initiatives in the area of

investor protection. Another area in which SEBI has intervened to tackle the dominant

shareholder is the pricing rule that it has imposed on preferential allotments. Company law

18.

itself provides that new issue of shares must be rights issues to existing shareholders unless

the shareholders in general meeting allow the company to issue shares to the general public

or to other parties

As discussed above, the company law itself mandates certain standards of information

disclosure both in prospectuses and in annual accounts. SEBI has added substantially to these

requirements in an attempt to make these documents more meaningful. Some of these

disclosures are important in the context of dealing with the dominant shareholder. One of the

most valuable is the information on the performance of other companies in the same group,

particularly those companies which have accessed the capital markets in the recent past. This

information enables investors to make a judgment about the past conduct of the dominant

shareholder and factor that into any future dealings with him.

1.1.8(h) Corporate Governance in SCRA

Another aspect of the SEBI regulations is that in most public issues, the promoters (typically

the Dominant shareholders) are required to take a minimum stake of about 20% in the capital

of the Company and to retain these shares for a minimum lock-in period of about three years

as per the Provisions of The Securities Contracts (Regulation) Act, 1956 (SCRA) Further it

also provides that any stock exchange, which is desirous of being recognized, may make an

application in the prescribed manner to the Central Government. Securities Contracts

(Regulation) Amendment Act, 2007 has been enacted in order to further amend the Securities

Contracts (Regulation) Act, 1956, with a view to include securitization instruments under the

definition of 'securities' and provide for disclosure based regulation for issue of the

securitized instruments and the procedure thereof. This has been done keeping in view that

there is considerable potential in the securities market for the certificates or instruments under

securitization transactions.

1.1.8(i) Corporate Governance in FEMA

FEMA emerged as an investor friendly legislation which is purely a civil legislation in the

sense that its violation implies only payment of monetary penalties and fines. FEMA permits

only authorized person to deal in foreign exchange or foreign security in Capital Market. The

rules, regulations and norms pertaining to several sections of the Act are laid down by the

Reserve Bank of India, in consultation with the Central Government. The Act requires the

Central Government to appoint as many officers of the Central Government as Adjudicating

Authorities for holding inquiries pertaining to contravention of the Act.

19.

1.1.9 Inflation

Inflation is a state in the economy of a country, when there is a price rise of goods as well as

services. To meet the required price rise, individuals have to shell out more than is presumed.

With increase in inflation, every sector of the economy is affected. Ranging from

unemployment, interest rates, exchange rates, investment, stock markets, there is an aftermath

of inflation in every sector. Inflation is bound to impact all sectors, either directly or

indirectly. Inflation and stock market have a very close association. If there is inflation, stock

markets are the worst affected. (Source Wikipedia)

1.1.9(a) The effect of Inflation

Inflation represent one of the major threat to stock investors, many industries

wait for the response of the RBI for tactics of combating inflation.

One of the alternatives is to increase interest rates, but then it becomes

expensive for companies to borrow money, their borrowing costs increase and

their expansion plans are stopped.

The globalization of the market may lead to loss of competitiveness of

companies that Compete in the global arena. Since inflation rates are not same

in the foreign countries the rise will not be reflected in the prices of foreign

goods.

Inflation has another negative impact namely the prices rise but no additional

value is added. This means that your money lose purchasing power as a result

you buy less with the money you have than before.

Since revenue and earnings of companies rise at the same pace as inflation,

their financials are overstated since no additional value is created.

When the inflation starts to fall to its normal level, overstated earnings and

revenues will decline as well. These ups and downs leads to blurring the

actual state of actual value.

1.1.9(b) Inflation and Stock Market

Inflation is a state in the economy of a country, when there is a price rise of goods as well as

services. To meet the required price rise, individuals have to shell out more than is presumed.

20.

With increase in inflation, every sector of the economy is affected. Ranging from

unemployment, interest rates, exchange rates, investment, stock markets, there is an aftermath

of inflation in every sector. Inflation is bound to impact all sectors, either directly or

indirectly. Inflation and stock market have a very close association. If there is inflation, stock

markets are the worst affected.

1.1.9(c) Global Trade

Inflation in India generally occurs as a consequence of global traded commodities and the

several efforts made by The Reserve Bank of India to weaken rupee against dollar. This was

done after the Pokhran Blasts in 1998. This has been regarded as the root cause of inflation

crisis rather than the domestic inflation. According to some experts the policy of RBI to

absorb all dollars coming into the Indian Economy contributes to the appreciation of the

rupee. When the US dollar has shrieked by a margin of 30%, RBI had made a massive

injection of dollar in the economy makes it highly liquid and this further triggered off

inflation in non-traded goods. The RBI picture clearly portrays for subsidizing exports with a

weak dollar-exchange rate. All these account for a dangerous inflationary policies being

followed by the central bank of the country. Further, on account of cheap products being

imported in the country which are made on a high technological and capital intensive

techniques happen to either increase the price of domestic raw materials in the global market

or they are forced to sell at a cheaper price, hence fetching heavy losses.

1.1.9(d) effect of inflation on capital market

Prices of stocks are determined by the net earnings of a company. It depends on how much

profit, the company is likely to make in the long run or the near future. If it is reckoned that a

company is likely to do well in the years to come, the stock prices of the company will

escalate. On the other hand, if it is observed from trends that the company may not do well in

the long run, the stock prices will not be high. In other words, the prices of stocks are directly

proportional to the performance of the company. In the event when inflation increases, the

company earnings (worth) will also subside. This will adversely affect the stock prices and

eventually the returns. Effect of inflation on stock market is also evident from the fact that it

increases the rates if interest. If the inflation rate is high, the interest rate is also high. In the

wake of both (inflation and interest rates) being high, the creditor will have a tendency to

compensate for the rise in interest rates. Therefore, the debtor has to avail of a loan at a

higher rate. This plays a significant role in prohibiting funds from being invested in stock

21.

markets. When the government has enough funds to circulate in the market, the cost of goods,

services usually go up. This leads to the decrease in the purchasing power of individuals. The

value of money also decreases. In a nut shell, for the economy to flourish, inflation and stock

market ought to be more conforming and predictable.

Fig 1: India Inflation Rate

1.2 Index of industrial production (IIP)

It is one of the essential short term indicators of the industrial activity in an economy. Index

of Industrial production conveys whether the industrial output of a country has increased or

decreased and to what extent with respect to a fixed base reference. A shrinking IIP is

unfavourable to the overall GDP of a country while a rising IIP suggests that the industrial

activity is expanding and capacity addition is taking place in the economy.

22.

IIP data is released every month in India. Office of Economic Advisor, Ministry of

Commerce and Industry released the first estimate of Index of Industrial Production officially

with the base year 1937 covering 15 important industries. After many revisions, the base year

currently stands at 2004-05. Over time, the items that are included in computing this index

and their relative weights have been changed many times.

To arrive at the IIP estimate, data is accumulated and sourced from as many as 15 agencies

like Central Statistical Organization, department of Industrial Policy and Promotion etc. As

more data is made available and responses are received from the manufacturing and other

units, the estimates are revised twice subsequently.

In computing the IIP, production data across 543 items that are grouped into 287 item groups

is taken into consideration and appropriate weights are assigned to reflect a representative

index. These are then broadly clubbed into 3 main categories - mining, electricity and

manufacturing. Mining and electricity are seen as the enablers of manufacturing - and as

such, are very important for growth in overall industrial activity - which in turn impacts

overall GDP growth.

IIP can also be classified on a "use" basis. A 'Use based classification' classifies items used in

computing IIP into Basic Goods, Capital goods, Intermediate goods, Consumer durables and

Non-consumer durables.

1.1.10 IIP's importance for our stock markets

We have observed in our Jargon Busters article covering GDP and its composition  that

industry accounts for only 18% of India's GDP - one of the lowest among all large countries.

It should have therefore followed that industrial activity would have a relatively muted

impact on our stock markets, and that services (65%) and agriculture (17%) would also play a

very important role in terms of being a barometer for growth as far as stock markets are

concerned.

However, the facts are quite different. Large parts of Indian agriculture remain in the

unorganised sector and are not corporatized. Same is the case with many services, which have

remained unorganised and relatively small scale and localised - and therefore not

corporatized. Lack of corporate culture means no access to equity markets. This perhaps

23.

explains why out of the 30 stocks that make up the BSE Sensex, as many as 23 are

manufacturing companies. Of the remaining 7 which are banks, IT companies, a telecom

services provider and a housing finance institution, one can argue that banks do get sizeably

impacted by the underlying manufacturing activity that they lend to. One can thus see that

with only an 18% weightage in the overall GDP, industrial activity wields a

disproportionately large influence on stock markets as the industrial sector has far many more

listed entities than the other 2 sectors.0

1.1.11 Trends in IIP

The graph here shows annual growth rate of Indian IIP from 1995 to 2013. Those of us who

track stock markets over the years will notice a very sharp correlation between trends in IIP

and long term trends in the stock market.

Fig 2: India Industrial Production

The period 1996-1997 saw a sharp deceleration in IIP growth, and we know this was quite a

bad phase for the stock markets. A sustained upward momentum in IIP growth rates is clearly

visible from 2003 onwards and this peaked at a massive 20% growth rate in some quarters in

2007. This also coincided with one of the biggest equity bull markets we have seen in recent

history. IIP skidded sharply thereafter in 2008 and bounced back in 2010, only to fall back

sharply in 2011. The stock market pretty much mirrored this movement. Since 2012, although

IIP growth rates are still very muted, we can see an upward trajectory in the direction of the

growth chart. This should perhaps give us some comfort that though growth in industrial

24.

activity is still nowhere near what we saw in the 2005-2007 phase, at least the direction now

seems to be upward rather than downward.

1.1.11(a) what’s dragging down our IIP?

As we observed earlier, IIP is normally sub-divided into 3 broad categories : mining,

electricity and manufacturing, with mining and electricity being seen as enablers of

manufacturing activity. Their relative weightages in the IIP are as follows : mining (14.2%),

electricity (10.3%) and manufacturing (75.5%). Recent trends in the 3 components of IIP are

depicted in the graph below.

Fig 3: Recent trends in IIP

As is evident, the 2 key enablers - mining and electricity - have slowed down very sharply

and there is no evidence of any turnaround yet in the growth rates of these enablers. Hobbled

by this, manufacturing growth seems to be presently stuck in a slow growth mode, although it

has moved up from the de-growth phases of 2011 and 2012. For the blue line (manufacturing)

to start moving up more purposefully, it will need much more support from its two enablers,

which continues to be lacking. The ban on mining activities in several states following

corruption scandals is clearly showing up in the mustard line's progress, while all the issues

surrounding coal availability has clearly impacted the green line, as India does depend quite

substantially on thermal sources of power. For a sustainable move upwards, we will need

these 2 key enablers of industrial activity to move into a higher gear quickly.

25.

1.1.12 Impact of Currency Movement on equity market

Financial globalization means that all markets have an impact on each other—equities,

currencies bonds or commodities. Hence, currency movement not only depends on the

economic scenario of a country, but also on the overall macro-economic environment.

Rupee's recent depreciation is an example as its movement is largely driven by global factors,

which may not be under the control of the Indian central bank

Hence, having an in depth understanding of the overall market mechanism can help gauge the

trend in the currency markets. It's easy to understand the factors that affect the currency

markets if we segregate them in two durations—short term and long term.

1.1.12(a) Short-term factors

Among the crucial short-term factors are interest rates, economic growth, trade flows,

inflation, commodity-based currency impact, political or geopolitical conflicts and natural

calamities in a country.

Interest rate: It plays a crucial role in providing direction to a currency, and a weak

policy could lead to depreciation. A central banker usually adopts a loose policy

when economic growth needs a boost. The near zero monetary policy, along with

quantitative easing by the Federal Reserve after the 2008 financial crisis, had led to

weakness in the Dollar Index. Though the index fell, sharp losses in the currency

were prevented due to the increase in safe-haven demand. Hence, the impact of the

event was two-fold. A country's monetary policy or interest rate regime impacts not

only the movement of a domestic currency, but global currencies as well.

Economic growth: A country's strong economic growth translates into better

expectations by investors. A currency strengthens when the economic scenario is

upbeat and there are expectations that a stable trend will continue, or vice versa.

26.

Fig 4: rise and fall of global currencies.

Trade balance: This has a major impact on the currency movement. A nation that has

more exports than imports will witness a trade surplus, which will support gains for

the currency. On the other hand, trade deficit will lead to depreciation in the currency.

Inflation: If inflationary expectations in a country are high, the central banker will

look to curb it by increasing interest rates, or vice versa. A rise in rates will support

the currency, while a fall will cause the demand for the currency to deteriorate.

Commodity imports: The countries that are dependent on commodity imports for

domestic consumption usually face headwinds in terms of the currency movement.

For India, the increase in gold imports caused the trade deficit to widen sharply,

leading to depreciation in the currency. Political turmoil, geopolitical tensions or

natural disasters can also have a negative impact. Currency movement is largely

dependent on the day-to-day economic data released across the globe, movement in

the global equity markets and a change in commodity prices.

1.1.12(b) Long-term factors

Economic growth and inflation: Expectations of economic growth and inflation

over a long period affect currency price movement. Consider the US economy, which

underwent a long period of slow growth, during which the Dollar Index suffered

losses. However, the current expectations of long term growth are bullish,

27.

strengthening the Dollar Index as markets expect a reversal in the state of the

economy. As for inflation, the central bank targets a lower range as a higher inflation

rate leads to depreciation in the currency as each unit can buy fewer goods and

services. A high rate will restrict central bankers' steps to change the rate scenario.

Hence, inflation expectations drive currency movement.

Stimulus measures: Such steps by central bankers to boost economic growth also

impact currency. The quantitative easing program by the Federal Reserve led to a

sharp bounce back in market sentiment during the financial crisis and led to the

weakening of the Dollar Index. While stimulus measures led to a rise in risk

sentiment and weakened the Dollar Index, the on-going developments on the

withdrawal of these steps is strengthening the Dollar Index, indicating the economic

Recovery in the US. While these factors provide cues, new developments on the

global economic front are equally important in deciding the trend.

1.1.13 Impact of Current Account Deficit in equity market

India’s current account deficit (CAD) touched a record high of $ 32.6bn or 6.7% of gross

domestic product for the quarter to December 2012. This deficit occurred because more

money was paid out of India than brought into the country. If a country primarily imports

more than it exports, it runs a current account deficit.

The Reserve Bank of India governor, D Subbarao said last month that the sustainable CAD

for India is 2.5% of GDP. Finance minister, P Chidambaram has said that such a high current

deficit was ‘worrying’. This has raised concerns over the impact on the economy.

I. Here are pointers that could explain the situation:

Quality of India’s imports is worrying: An economy that is growing at a faster clip

than other nations has high imports and usually runs a current account deficit. The

RBI governor, D Subbarao has expressed concern about the quality of imports. He

argued in a speech last month that if a country imports more capital goods, it means

there is an increase in the economic activity. Companies import capital goods

equipment only when they expand capacities. However, India’s imports primarily

include oil and gold. These two commodities do not help any manufacturing and

export growth. India’s oil imports rose despite an overall economic slowdown. India

28.

also continued to import gold as demand stayed high. This was despite the additional

duties imposed on import of gold.

No signs of exports growth: India’s overall trade deficit stood at $ 59.6bn during the

quarter to December 2012. This is the excess value of imports over exports. India’s

exports fell marginally due to an overall slowdown in demand for goods and services

overseas. With overall slowdown in the global economy, there are few signs of a

sharp surge in exports.

1.1.13(a) Impact on the Rupee: A high current account deficit puts pressure on the value of

the rupee. However, the Indian rupee has not witnessed a sharp fall so far. This is due to

strong flows from foreign institutional investors into equity markets as well as foreign direct

investment by companies. This largely finances the current account deficit. The RBI also

ensures that the rupee does not fall sharply, as this could increase the inflation in the

economy. It conducts periodic ‘intervention’ in the foreign exchange markets by selling

foreign currency and buying the rupee.

Prime minister Dr. Manmohan said that the Indian economy could easily absorb close to $

50bn in foreign direct investment and more in foreign institutional investment. He was in

Japan to woo foreign institutional investors to India. Ahead of the presentation of the budget

in February 2013, he went to Hong Kong and London. The RBI governor, Subbarao has

cautioned against depending too much on volatile foreign flows. He said in his speech in

March 2013 that the country was exposed to the risk of a sudden stop and exit of capital

flows. “Should the risk of capital exit materialize, the exchange rate will become volatile

causing knock-on macroeconomic disruptions,” he cautioned.

RBI governor D Subbarao highlighted India’s macro-economic challenges. He expressed

concern about CAD in his speech.

1.1.13(b) how worrying is India’s current account deficit?

India’s total external debt stood at $ 376bn as December 2012, according to RBI data. A high

growth economy usually witnesses a rise in borrowing. However, the worrying factor is the

quality of the borrowing. The short-term debt, the borrowing with a term of less than one

year, rose to $ 92bn or 5% of GDP. This means the country could potentially see an outflow

of money in less than a year and could put a downward pressure on the Indian rupee. A sharp

fall in the Indian rupee could add to high inflation. (Source: www.kotaksecurities.com)

29.

1.1.13(c) Impact of FII’s on Equity Market

The term Foreign Institutional Investor is defined by SEBI as under: "Means an institution

established or incorporated outside India which proposes to make investment in India in

securities. Provided that a domestic asset management company or domestic portfolio

manager who manages funds raised or collected or brought from outside India for investment

in India on behalf of a sub-account, shall be deemed to be a Foreign Institutional Investor."

-Investment by FII’s

There are generally two ways to invest for FIIs.

• Equity investment

100% investments could be in equity related instruments or up to 30% could be invested in

debt instruments i.e.70 (Equity Instruments): 30 (Debt Instruments)

• 100% debt

100% investment has to be made in debt securities only.

-Some major impact of FII on stock market:

• They increased depth and breadth of the market.

• They played major role in expanding securities business.

• Their policy on focusing on fundamentals of share had caused efficient pricing of share

These impacts made the Indian stock market more attractive to FII & also domestic investors.

The impact of FII is so high that whenever FII tend to withdraw the money from market, the

domestic investors fearful and they also withdraw from market.

30.

Fig 5: FII impact on Indian Markets

1.1.14 Interest rates affect equity markets

Interest rates are set by central banks all over the world. In India, Reserve Bank of India sets

the repo rate. This is the rate at which RBI lends to commercial banks. This becomes the

benchmark rate. Commercial banks decide borrowing rates for businesses and people like us

based on this benchmark rate. On 29 January 2013, RBI will conduct its quarterly review of

monetary policy. According to a survey of 10 economists polled by The Economic Times, a

business daily, it is expected that RBI would cut repo rates by 0.25 per cent to 7.75 per cent.

Equity markets would watch out for steps taken by the Reserve Bank of India. Here are

pointers that highlight the relationship between interest rates and equity markets:

High interest rates hurt company profits In the first half of the financial year 2012-13,

companies across sectors paid 3.7% of their sales as interest, according to RBI's monthly

bulletin for January 2013. This was just 1.6% four years ago. This ate into company profits.

The net profit as a percentage of sales for companies stood at 6.4% in the first half of 2012-

13 against 9.2% four years ago

Small companies hit most The RBI study of small, medium and large listed companies

suggests that small and medium sized companies are hit hardest due to high interest rates.

Banks make small companies pay higher interest rate than large companies. The interest paid

31.

as a percentage of sales was 9.2% for small companies, 5.8% for medium companies and

3.3% for large companies. RBI defines small companies as those with sales of less than Rs

100 crore. Medium sized companies have sales between Rs 100 crore to Rs 1,000 crore.

Large sized companies are those with sales of over Rs 1,000 crore.

High interest rates reduce domestic participation in stock markets: Investors tend to keep

their money in fixed deposits or fixed return assets when interest rates are high. Indian

investors pulled out money from equity markets in 2012. For January 2013, mutual funds

were net sellers to the tune of Rs 2,770 crore, according to Securities and Exchange Board of

India. This means investors in India do not feel the need to take any risk and bet on equity

markets. In contrast, low interest rates in US and others markets drove foreign institutional

investors to risky assets in emerging markets. In January 2013 so far, FIIs have injected $ 3bn

in Indian equity markets.

High interest rates slow growth Future growth of companies and expansion is also affected

due to persistent high interest rates. Companies struggle to repay existing loans and put on

hold expansion plans. This results in fewer jobs than before. Companies also cut spending

and consume less. This reduces the demand for goods and services and slows economic

growth.

For the first half of 2012-13, the interest rate paid on loans by 2,832 listed companies stood at

30.7% of the gross profit. This is the profit before interest and taxation. It was 25.2% in the

first half of 2011-12, according to the monthly bulletin of Reserve Bank of India. This clearly

shows how profitability of companies is eroded by high interest rates.

32.

1.2 Scope of the Study

The scope of study for this project covers the whole India stock market.

It consists of BSE (Bombay Stock Exchange) Sensex and NSE (National Stock

Exchange) Nifty.

Its scope covers all Indian and foreign investors.

It is useful for equity investors and may also useful for commodity investors.

It may also be useful for further research.

1.3 Objectives of Study

To know about the equity market in India and its structure.

To know about the factors that have impact over the study of the topic like Corporate

Governance, Inflation, CAD, FII’s, Currency movement, Commodity Prices, IIP, etc.

To know about the causes of impediments of growth in the equity market.

To know about the remedies to solve the impediments prevalent in the equity market.

To know about the regulatory bodies in the equity market.

33.

1.4 Research Methodology

1.4.1 Research design

A research design is a systematic plan to study a scientific problem. The design of a study

defines the study type (descriptive, correlational, semi-experimental, experimental, review,

meta-analytic) and sub-type (e.g., descriptive-longitudinal case study), research question,

hypotheses, independent and dependent variables, experimental design, and, if applicable,

data collection methods and a statistical analysis plan.

Descriptive Study

A descriptive study is one in which information is collected without changing the

environment. Descriptive studies are also conducted to demonstrate associations or

relationships between things in the world around you. Descriptive Research Design

was used for the purpose of this project.

1.4.2 Data collection

Data collection is the process of gathering and measuring information on variables

of interest, in an established systematic fashion that enables one to answer stated research

questions and evaluate outcomes. The data collection component of research is common to all

fields of study including physical and social sciences, humanities, business, etc.

1.4.2(a) Using primary data

An advantage of using primary data is that researchers are collecting information for the

specific purposes of their study. In essence, the questions the researchers ask are tailored to

elicit the data that will help them with their study. Researchers collect the data themselves,

using surveys, interviews and direct observations (such as observing safety practices on a

shop floor).

For the purpose of this study multiple choice, structured questionnaire having 15 questions is

used to collect the primary data.

34.

1.4.2(b) Using secondary data

There are several types of secondary data. They can include information from the Census, a

company’s health and safety records such as their injury rates, or other government statistical

information such as the number of workers in different sectors across Canada.

Secondary data tends to be readily available and inexpensive to obtain. In addition, secondary

data can be examined over a longer period of time. The type of data researchers choose can

depend on many things including the research question, their budget, their skills and available

resources.

1.4.3 Sampling

Sampling means picking some identical units from the universe of populations.

1.4.3(a) Sampling methods: Non-Probability Convenience Sampling

Convenience sampling is a type of non-probability sampling which involves the sample being

drawn from that part of the population which is close to hand. That is, a population is selected

because it is readily available and convenient. It may be through meeting the person or

including a person in the sample when one meets them or chosen by finding them through

technological means such as the internet or through phone.

1.4.3(b) Sample size

Total sample size is 50 out of which 15 are from Reliance Securities and 35 are from clients

of Reliance Securities.

1.4.3(c) Sampling Units

Employees of Reliance Securities.

Clients of Reliance Securities.

1.4.3(d) Data analysis

Data has been analyzed by using simple arithmetical methods like percentage, Frequency

tables and is represented to pie charts and bar charts.

35.

1.5 Limitations of the study

Following are the limitations of the project:

Lack of the proper knowledge of Indian stock market.

Lack of the understanding of the public regarding share market.

Lack of the support from general public regarding the de-mat account opening.

Required huge amount of time, money and efforts.

Lack of the proper knowledge of the stock market trading and listing of stock market.

36.

2. COMPANY PROFILE

2.1 Introduction to the Company

The Reliance – Anil Dhirubhai Ambani Group (ADAG) is among India’s top three private

sector business houses on all major financial parameters, with a market capitalisation of Rs

100,000 crore (US$ 22 billion), net assets in excess of Rs 31,500 crore (US$ 7 billion), and

net worth to the tune of Rs 27,500 crore (US$ 6 billion).

Reliance Money Limited has been promoted by Reliance Capital Limited a part of Anil

Dhirubhai Ambani Group with the Net-worth – Rs. 4500 cr., amongst the top 3 banking &

financial services companies in the private sector.

Management Team

Chairman Mr. Anil Dhirubhai Ambani

CEO Mr. Sudip Bandhupadhyay

Deputy CEO: Mr. Kapil Bali

National Head: Mr. Anshu Azare

Regional Head: Mr. Ritu Raj chauhan

Cluster Head: Navdeep Kaur

Center Managers : Sandeep saini

37.

Board of Directors

Anil Ambani- Chairman

Amitabh Jhunjhunwala-Vice-Chairman

Rajendra Chitale- Independent Director

Shri C. P. Jain

Shri. P N Ghatalia

2.2 Reliance Capital Ltd

Reliance Capital is one of India’s leading and fastest growing private sector financial services

companies, and ranks among the top 3 private sector financial services and banking

companies, in terms of net worth. Reliance Capital has interests in asset management and

mutual funds, life and general insurance, private equity and proprietary investments, stock

broking and other activities in financial services. Reliance Capital entered into lucrative

online trading business with Reliance money. There are mixed reports about this online

trading platform. It shook up online trades business with cheap brokerage charge offer.

2.2.1 Business Overview

RCL is registered as a depository participant with National Securities Depository Ltd (NSDL)

and Central Depository Services Ltd (CDSL) under the Securities and Exchange Board of

India (Depositories and Participants) Regulations, 1996. RCL has sponsored the Reliance

Mutual Fund within the framework of the Securities and Exchange Board of India (Mutual

Fund) Regulations, 1996.RCL primarily focuses on funding projects in the infrastructure

sector and supports the growth of its subsidiary companies, Reliance Capital Asset

Management Limited, Reliance Capital Trustee Co. Limited, Reliance General Insurance

Company Limited and Reliance Life Insurance Company Limited. As of March 31, 2005, the

company’s investment in infrastructure projects stood at Rs. 1071 Crores. The investment

portfolio of RCL is structured in a way that realizes the highest post-tax return on its

investments. Reliance Capital Ltd. is one of India’s leading and amongst the fastest growing

private sector financial services companies, and ranks among the leading private sector

financial services and banking companies, in terms of net worth. Reliance Capital Ltd. has

interests in asset management and mutual funds, life and general insurance, private equity

and proprietary investments, stock broking and other financial services.

38.

2.2.3 Reliance Money limited

Reliance Money, a Reliance Capital company, is part of the Reliance Anil Dhirubhai

Ambani Group Reliance Money commenced commercial operations in April 2007. It is a

comprehensive financial services and solution provider providing customers with access to

Equity, Equity and Commodity Derivatives, Portfolio Management Services, Mutual Funds,

IPOs, Life and General Insurance and Gold Coins. Customers can also avail Loans, Credit

Card, Money Transfer and Money Changing services. The largest broking house in India with

over 2.5 million customers and a wide network of over 10,000 outlets and 20,000 touch

points in 5,000+ locations. Reliance Money endeavours’ to change the way investors transact

in financial markets and avails financial services. The average daily volume on the stock

exchanges is Rs. 2,000 crores, representing approximately 3% of the total stock exchange

volume. Reliance Capital is one of India's leading and fastest growing private sector financial

services companies, and ranks among the top 3 private sector financial services and banking

groups, in terms of net worth. “Success is a journey, not a destination.” If we look for

examples to prove this quote then we can find many but there is none like that of Reliance

Money. The company which is today known as the largest financial service provider of India

Success sutras of Reliance Money

The success story of the company is driven by 9 success sutras adopted by it namely

Trust, Integrity, Dedication, Commitment, Enterprise, Hard work, Homework,

Team work play, Learning and Innovation, Empathy and Humility and last but not

the least it’s the Network .

2.2.3 (a) Vision of Reliance Money

-To achieve & sustain market leadership, Reliance Money shall aim for complete customer

satisfaction, by combining its human and technological resources, to provide world class

quality services.

-In the process Reliance Money shall strive to meet and exceed customer's satisfaction and set

industry standards.

39.

2.2.3 (b) Mission statement

“Our mission is to be a leading and preferred service provider to our customers, and we aim

to achieve this leadership position by building an innovative, enterprising , and technology

driven organization which will set the highest standards of service and business ethics.”

2.2.3 (c) Highlights of Reliance Money

The highlights of Reliance money's offerings are:

i. Cost-effective

The fee charged by the affiliates of Reliance Money, through whom the transactions can be

placed, is among the lowest charged in the present scenario. Pay a flat fee of just Rs. 500/-

valid for 2 months or specified transactional value. The facility of trading is subject to expiry

of the validity period or value limit, whichever comes first.

Illustrations depicting fee structure and validity limits

Access fee- Rs. 500

Validity- Time validity of 2 months or Turnover validity of Rs. 1 cr., whichever is

earlier?

Turnover limit- Non-delivery turnover of Rs. 90 lac, Delivery turnover of Rs. 10 lac

Access fee- Rs. 1350

Validity- Time validity of 6 months or Turnover validity of Rs. 3 cr., whichever is earlier?

Turnover limit- Non-delivery turnover of Rs. 2.7 cr., Delivery turnover of Rs. 30 lakh

Access fee- Rs. 2500

Validity- Time validity of 12 months or Turnover validity of Rs. 6 cr., whichever is earlier?

Turnover limit- Non-delivery turnover of Rs. 5.4 cr., Delivery turnover of Rs. 60 lakh

Unutilized delivery limit may be added to Non-delivery limit

ii. Convenience

You have the flexibility to access Reliance Money services in multiple Ways: through the

Internet, Transaction Kiosks Call & transact (phone) Or seek assistance through our Business

Partners. Security Reliance Money provides secure access through an electronic token that

flashes a unique security number every 32 seconds (and ensures that the number used for

earlier transaction is discarded). This number works as a third level password that keeps your

account extra safe.

40.

iii. Single window for multiple products

Reliance Money, through its affiliates/partners, facilitates transactions in Equity, Equity &

Commodity Derivatives, Offshore Investments, Mutual Funds, IPOs, Life Insurance and

General Insurance products. All overseas investments are subject to rules, regulations and

guidelines of the Reserve Bank of India as laid down from time to time

iv. 3 in 1 integrated access

Reliance Money offers integrated access to your banking, trading and demat account. You

can transact without the hassle of writing cheques Demat account with Reliance Capital

hassles free demat account with Reliance Capital. The Annual Maintenance Charge for the

Demat Account is just Rs. 50/- per annum.

v. Other Services

Through the portal www.reliancemoney.com, Reliance Money provides:

Reliable research, including views of external experts with an enviable track record

Live news from Reuters and Dow Jones

C.E.Os. Experts' views on the economy and financial markets

The Personal finance section provides tools that help you plan your investments,

retirement, tax, etc.

Analyze your risk profile through the Risk Analyzer.

Get a suitable investment portfolio using the Asset Allocator

2.2.3 (d) Key benefits of Reliance money

Equity is a share in the ownership of a company. It represents a claim on the company’s

assets and earnings. As you acquire more stock, your ownership stake in the company gets

increases. The terms share, equity and stock mean the same thing and can be used

interchangeably. Holding a company’s stock means that you are one of the many owners

(shareholders) of a company, and, as such, you have a claim (to the extent of your holding) to

everything the company owns. Yes, this means that technically, you own a portion of every

piece of furniture; every trademark; every contract, etc. of the company. As an owner, you

are entitled to your share of the company’s earnings as well as any voting rights attached to

the stock. Another extremely important feature of equity is its limited liability, which means

41.

that, as a part-owner of the company, you are not personally liable if the company is not able

to pay its debts.

In case of other entities such as partnerships, if the partnership goes bankrupt, the partners

are personally liable towards the creditors/lenders and they may have to sell off their personal

assets like their house, car, furniture, etc., to make good the loss. In case of holding equity

shares, the maximum value you can lose is the value of your investment. Even if a company

of which you are a shareholder goes bankrupt, you can never lose your personal assets.

Reliance Money gives you the access to Over 5000 Schemes of 28 Assets Management

Companies (AMCs) with just one account. Some of them included are.

Portfolio Tracker

Manage your mutual fund portfolio from the Reliance Money account. Benefit from

live valuation and alerts and also track NAVs of any scheme online.

Choice of investment strategies

From just two scheme types (equity scheme and debt scheme) offered when the

mutual fund industry was conceived more than four decades ago, today, mutual funds

offer a plethora of scheme types with different investment strategies.

Life Insurance

Reliance Money Account gives you the advantage of buying policies from 12

different Life Insurance companies, helping you get unbiased opinion.

General Insurance

Reliance Money Account also extends the product offerings from 10 General

Insurance Companies with exhaustive range of insurance products that covers most

risks including Motor, Health, Property, Marine, Casualty and Liability.

Over the Counter Products

Your Reliance Money Account makes it so simple for you to buy insurance products

that it’s as easy as buying something over the counter. RelianceMoney.com is offering

most dynamic web based trading environment to its customers. The new trading

platform has many new features which basically fill up the gap between old online

trading companies in India and their customers. The Reliance Money trading websites

comes with special security features Security Token, which makes you online trading

experience more secure without complexity. Stock Trading is available in BSE and

NSE. Offline trading is also available through Reliance Money partners in your city

and through phone by dialing 022-39886000.

42.

2.2.3(e) Types of account

Reliance money is offering 3 types of accounts to its customers.

- Account for beginners,

-for Meddlers and,

-For Experts.

2.2.3(f) How to open account with Reliance Money?

Account opening with Reliance Money is easy. Simply fill a form online at below address

and somebody from Reliance Money will contact you soon.

2.2.3(g) Advantages of Reliance Money

1. Extra security features with 'Security which is the most secures and tested technology in

computer world.

2. Simple, easy and fast online stock trading.

3. Almost all investment options are available under one account including Equity Trading,

Derivatives, Forex, Commodity, IPO, Mutual Funds and Insurance.

4. Branches are now available in all major cities and the number is growing. Branches are

open from 9am to 9pm. online trading is presently at its nascent stage and is not the most

preferred option for financial transactions owing to security concerns and lack of accessibility

points. Reliance Money through this hi-speed, technologically secure kiosks will therefore be

able to reach out to all its existing and potential customers at even the remotest locations in

the country without compromising on the security of its customer’s funds.

2.2.3(h) Why should you choose Reliance Money?

1. Because it is from Reliance. Reliance capital has big plans regarding this business. It may

announce attractive offers to gain market share. Reliance will never enter into a business with

small plans.

2. Its brokerage charges are lowest in the country among major providers. With Rs 2500

prepaid amount, you can trade for Rs 5 crore.

3. Site is simple in design, fast to access and easy to find required information.

4. Its daily reports on market trends and technical breakouts are very useful.

5. Website content is divided according to the requirements of experts and beginners.

43.

6. You can trade in Forex, Derivatives, Mutual funds, IPO and buy Insurance.

2.2.3(i) Why should you stay away from reliance Money?

1. The trading platform is still in development stage. There are many bugs needs to be

rectified.

2. Its “Insta trade” service is not up to the standard. Reliance Money software is a java based

simple software. It should provide advanced software to meet the needs of advanced traders.

3. Its system is sometimes very slow and orders are not placed at the time.

4. Its market watch solution is a way behind its competitors like Money control and ICICI

direct.

5. Its service people are not as efficient as competitors.

6. It is still not providing options to buy Post office savings.

7. It is recommending few stocks even when stock markets are on roll.

2.2.4 Organisation structure

-Reliance ADA Group Structure

2.2.4(a) Products-

PRODUCTS offered by Reliance Money are: -

1. Trading Portal (with almost negligible brokerage)

-Equity Broking

-Commodity Broking

-Derivatives (Futures & Options)

-Offshore Investment s (Contract For Differences)

-Demat Account.

2. Financial Products

-Mutual Funds

-Life Insurance

-ULIP plan

-Term Plan

-Money Back Plan

-General Insurance

-Vehicle/Motor Insurance44.

-Health Insurance

-House insurance

-IPO’s

-NFOs

3. Value-Added Services

-Retirement Planning

-Financial Planning

-Tax Saving

-Children Future Planning

4. Credit Cards

5. Gold coins retailing

3. DATA ANALYSIS

45.

Data analysis is done on the basis of primary method through “Questionnaire” here we have

taken few questions with regarding the topic of “Impediments of growth in Equity market”

causes and remedies on the basis of such questions we try to analyse the problems faced by

investors and what are the major impediments of growth in Equity market. The scope of

Questionnaire and the information collected is limited up to the boundaries of India.

Following are the data analysed:

Q1. Are you aware about Equity Market?

Yes No

100 0

Interpretation: 100% respondents considered for the study that they know about equity

market.

Q2 Do you make investment in Equity Market?

Yes No

Series1 100 0

5152535455565758595

Awareness about equity market

% o

f res

pond

ents

46.

Yes No

100 0

Interpretation: 100% respondents considered that they make investment in Equity Market

yes no

Series1 100 0

5152535455565758595

Investment in equity market

%of

resp

onde

nts

47.

Q3. Do you have Demat Account?

Yes No

100 0

Fig 8: respondent having demat account

Interpretation: 100% respondents considered for the study that they having Demat Account.

yes no

Series1 100 0

5152535455565758595

respondent having Demat Account

% o

f res

pond

ents

Q4. Your Demat Account is from which organisation?

Reliance Securities 25

Kotak Securities 10

HDFC securities 15

Karvy Securities 45

Any Other 5

Reliance Se-curities

Kotak Securi-ties

HDFC Securi-ties

Karvy Securi-ties

Any Other

Series1 25 10 15 45 5

2.57.5

12.517.522.527.532.537.542.5

Demat account in Different Organisation

% o

f res

pond

ents

Fig 9: demat account in different organisation

Interpretation: Maximum (45%) of respondents has Demat Account in Karvy Security

followed by Reliance securities (25%).

48.

Q5. How often you operate your Demat Account?

everyday 49

once in a month 35

once in a year 16

every day once in a month once in a year

Series1 49 35 16

2.57.5

12.517.522.527.532.537.542.547.5

Operating Demat Account by Respondent

% o

f res

pond

ents

Fig 10: operating demat account by respondent.

Interpretation: 49% of respondent operating demat account every day, follow by 35%

operate once in a month.

49.

Q6. For how long have you been investing in Equity Derivative Market?

From 6 months 10

6 months to 1 year 30

1 year to 2 year 35

2 year and above 25

Fig 11: how long investing in Equity and Derivatives market.

Interpretation: 35% of respondents investing in Equity Market from 1 to 2 years, follow by 30% from 6 months to 1 year.

from 6 months

6 months to 1 year

1 to 2 year 2 year and above

Series1 10 30 35 25

2.57.5

12.517.522.527.532.5

how long investing in Equity and Derivatives Market

% o

f res

pond

ents

50.

Q7. Types of trading you generally do?

Intraday 65

Delivery 20

Both 10

Intraday Delivery Both

Series1 65 25 10

5

15

25

35

45

55

65

Type of Trading

% o

f res

pond

ents

Fig 12: type of trading.

Interpretation: (65%) respondents considered for the study that most of them do intraday

trading.

51.

52.

Q8 According to you what are the factors that influence Equity trading (Please rank them

from (1 to 7). Rank %respondent

People think that in shares money always lost 5 8

Impact of increasing inflation bring share market down 4 9

Foreign investors invest less in Indian stock Market 3 14

Many broker demand huge money for open the demat account 6 6

Govt. policies have impact on stock market which negatively

affected

1 45

Less return in stock market 7 3

Foreign exchange rate also negatively affected Equity Market 2 15

Interpretation: (45%) respondents ranked govt. policies have major impact on stock

market; follow by 15% for Foreign exchange rate also negatively affected equity market.

52.

53.

Q9. What are the Problems that you witness in Equity Market? (Please rank them from 1 to 5) rank %of respondent

In stock market new equity is governed by several complex rules, regulations and restrictions

3 16

The stock trading is secondary market sometimes lacks transparency

4 8

There is a limit on the level of ownership and associated right 6 6

Due to high volatility investor feels that their money is not secured.

2 24

Stock market is very unpredictable so people have fear of losing their money while investing in stock market

1 43

Hidden or Undisclosed Charges 5 3

Interpretation: (43%) respondents considered that stock market is very unpredictable;

follow by 24% due to high volatility investor feels that their money is not secured.

Q10. In your opinion what is biggest problem in trading?

54.

Problem %

Lack of knowledge or experience 48

Unsatisfactory service of broking firms 22

Market uncertainty 12

Charges by broking firm 18

48%

22%

12%

18%

what is the Biggest problem in trading

Lack of knowledge or experience Unsatisfactory service of broking firms Market uncertainty Charges by broking firm

Fig 13: what is the biggest problem in trading.

Interpretation: (48%) respondents believe that the lack of knowledge is the biggest problem

in trading, follow by 22% for unsatisfactory services of broking firms.

Q11. What is your opinion about the problem of market uncertainty in trading?

Problem %

It is a big challenge 55

It is difficult to manage 35

Difficult to identify opportunity 10

Fig 14: problem of market uncertainty in trading.

Interpretation: Maximum respondents (55%) think that market uncertainty in trading is a

big challenge. Another problem was identified was difficulty in managing it followed by

identification of right opportunity.

Q11 It is a big chal-lenge

it is difficult to manage

It an opportu-nity

Series1 NaN 55 35 10

5

15

25

35

45

55

Problem of Market Uncertainity in trading

% o

f Res

pond

ents

55.

Q12. Does unsatisfactory service provided by the broking firm creates problem in trading?

Problem %of respondent

65%

26%

9%

unsatisfactory service provided by the broking firm creates problem in trading

Yes Partially No

Fig 15: unsatisfactory services provided by the broking firm creates problem in trading.

Interpretation: Maximum 65% number of respondents considered that unsatisfactory

services provided by the broking firm creates problem in trading, follow by 26% for partially.

Yes 65

Partially 26

No 9

56.

Q13. Do you have an account with Reliance Securities?

% of respondent

Yes 45

No 55

yes no

Series1 45 55

51525354555

Do you have an account with Reliance Securities

% o

f res

pond

ents

Fig 16: do you have account with reliance securities.

Interpretation: 45% of respondent have Demat Account in Reliance Securities; follow by

55% in other securities.

57.

Q14. What is your perception about Reliance Securities?

Perception % of respondent

Good 68

Average 22

Poor 10

fig 17: perception about reliance securities

good

average

poor

0 10 20 30 40 50 60 70

perception about reliance securities

Series1

% of respondents

perc

eptio

ns

58.

Interpretation: 68% of total respondents have good experience with Reliance Securities,

22% respondent have average perception for reliance securities.

4. FINDINGS

From the above data analysis we have found the following results-

Respondents who were considered for the purpose of study were either investors or

reliance securities employees. We had (100%) response from the respondents that

they know about equity market. All the respondents (100%) agree that they make

investment in equity market. All the respondents had Demat account.

(45%) respondents have demat account with Karvy securities, followed by Reliance

Securities (25%), HDFC Securities (15%) and soon.

49% respondents operate their account every day. 35% respondents have been

investing in equity market from 1 to 2 years. 65% respondents generally do intraday

trading.

48% respondents believe that lack of good knowledge and experience is the biggest

problem in trading. 55% respondents believe that market uncertainty in trading is a

big challenge.

64% respondents are satisfied with their broking firm. Still there is market for the

remaining 36% who could be persuaded to switch their accounts to other service

providers.

In spite of these impediments there are many more also which I have found while

training in reliance securities like lack of good services provided to customers, unable

59.

to provide good knowledge to investors for the high risk involved in equity market

trading, brokers are also not fully aware about the current trend of market means they

are not sure about the movement of stock market.

5. SUGGESTIONS AND CONCLUSIONS

From this research report on Impediments of growth in equity market we found that in order

to obtain the growth of equity market in India by motivating the people to invest in share

market and by providing them knowledge and awareness of equity market or stock market so

that the fear and misunderstandings which they are having should be reduced.

It has been realised that equity market suffers from lot of uncertainty thereby unable to

capture investors trust. Because of this very reason common people are not very comfortable

in making investment in this sector. The situation can be improved by linking certain fixed

returns with the investment made. The investments could also be broken down into different

kinds of schemes and funds like debt and equity so as to minimize the risk. To overcome the

uncertainties involved in equity market investors should learn and understand the

fundamental and technical analysis so that what is the current trend in market can be known

and what will be the stock market position can also be guessed.

Certain steps need to be taken by the government or any regulatory body, for Indian share

market like SEBI (Securities Exchange board of India) is a regulatory body for stock market

in India who should provide a protective cover for the investors, like opening of stock

exchange education institution in both rural and urban areas where people can learn and

understand about high risk market like equity market and other markets, for brokerage firm

they should also need to reduce or finish (if possible) the annual maintenance charges which

are incurred in account maintenance. To achieve good economic and stock market growth

60.

govt. should try to increase FII’s (foreign institutional investor) which is important for the

developments of equity and debt market, and by increasing industrial productions so that

IIP’s shows best performance for equity market and in order to attain the confidence of

investors it is important to ensure that proper information and services should be provided to

investors and there should be clarity of information of Equity Market in the minds of

investors so that any confusion or misunderstanding should not be born.

BIBLIOGRAPHY

INTERNET SOURCE:

Wikipedia - corporate governance

Wikipedia- Inflation

http://www.vsrdjournals.com/MBA/Issue/2012_07_July/Web/

9_Juhi_Ahuja_812_Research_Communication_MBA_July_2012.pdf-inflation

www.kotaksecurities.com)- CAD(current account deficit)

61.

ANNEXURE

Questionnaire

Name

Age

Occupation (please tick (√) below)

(a) Service (b) Business () (c) Student

Education (please (√) appropriate box)

(a) High School (b) Intermediate (c) Graduate

(d) Doctorate

What is your annual income (please tick (√) below)

(a) Upto 1 lac Rs. (b) 1 Lac to 5 Lac Rs. (c) 5 Lac to 10 Lac Rs.

(1) Are you aware about Equity Market (please tick (√) below)

(a) Yes (b) No

(2) Do you make investment in Equity Market (please tick (√) below)

(a) Yes (b) No

(3) Do you have Demat Account (please tick (√) below)

(a) Yes (b) No

(4) Your Demat Account is from which organisation (please tick (√) below)

(a) Reliance Securities (b) Kotak Securities (c) HDFC securities

(d) Karvy Securities (e) Any Other

(5) How often you operate your Demat Account (please tick (√) below)

(a)everyday (b) once in a month (c)once in a year

(6) For how long have you been investing in Equity Derivative Market? (Please tick (√) below)

(a) From 6 months (b) 6 months to 1 year (c) 1 year to 2 year

(d) 2 year and above

(7) Type of trading you generally do

(a) Intraday (b) Delivery (c) Both

(8) According to you what are the factors that influence Equity trading (Please rank them from (1 to 7))

(a) People think that in shares money always lost

(b) Impact of increasing inflation bring share market down

(c) Foreign investors invest less in Indian stock Market

(d) Many broker demand huge money for open the demat account

(e) Govt. policies have impact on stock market which negatively affected

(f) Less return in stock market

(g) Foreign exchange rate also negatively affected Equity Market

(9) What are the Problems that you witness in Equity Market? (Please rank them from (1 to 5))

(a) In stock market new equity is governed by several complex rules, regulations and restrictions

(b) The stock trading is secondary market sometimes lacks transparency

(c) There is a limit on the level of ownership and associated right

(d) Due to high volatility investor feels that their money is not secured.

(e)Stock market is very unpredictable so people have fear of losing their money while investing in stock market

(f) Hidden or Undisclosed Charges

(10) In your opinion what is biggest problem in trading (please tick (√) below)

(a) Lack of knowledge or experience

(b) Unsatisfactory service of broking firms

(c) Market uncertainty

(d) Charges by broking firm

(11) What is your opinion about the problem of market uncertainty in trading?

(a) It is a big challenge

(b) It is manageable

(c) It an opportunity

(12) Does unsatisfactory service provided by the broking firm creates problem in trading?

(a) Yes

(b) Partially

(c) No

(13) Do you have an account with Reliance Securities? (Please tick (√) below)

(a) Yes (b) No

(14) What is your perception about Reliance Securities (Please tick (√) below)

(a) Good (b) Average (c) Poor