IntroductionStock exchange:

The stock exchange is the important segment of its capital market. If the stock exchange

is well-regulated function smoothly, then it is an indicator of healthy capital market. If the state

of the stock exchange is good, the overall capital market will grow and otherwise it can suffer a

great set back which is not good for the country. The government at various stages controls the

stock market and the capitals market.

A capital market deals in financial assets, excluding coin and currency. Banking accounts

compromises the majority of financial assets. Pension and provident funds insurance policies

shares and securities.

Financial assets are claim of holders over issuer (business firms and governments). They

enter low different segment of financial market.

Those having short maturities that are non transferable like bank savings and current

accounts set the identification of the monetary financial assets. This market is known as money

market, Equity, Preferential shares and bonds and debentures issued by companies and securities

issued by the government constitute the financial assets, which are traded in the capital market.

Project Report on Money Market and Capital Market

Both money market and capital market constitute the financial market. Capital market

generally known as stock exchange. This is a institution around which every activity of national

capital market revolves. Through the medium stock exchange the investor gets on impetus and

motivations to invest in securities without which they would not be able to liquidate the

securities. If there would have been no stock exchange many of the savers would have hold their

saving either in cash i.e. idle or in bank with low interest rate or low returns. the stock  exchange

provides the opportunity to investors for the continuous trading in securities. It is continuously

engaged in the capital mobilization process.

Another coNSEquence of non-existence of stock exchange would have been low saving of the

community, which means low investment and lower development of the country.

S          -           Securities provide for investor.

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T          -           Tax Benefits planning and exemption.

O         -           Optimum return on investment.

C         -           Cautious Approach.

K         -           Knowledge of Market.

Ex        -           Exchange of Securities Transacted.

C         -           Cyclopedia of Listed Companies.

H         -           High Yield.

A         -           Authentic Information

N         -           New Entrepreneur encouraged.

G         -           Guidance of Investor & Company.

E          -           Equity

History of stock exchange

     The first stock exchange was established in London in the year 1773. Just after establishment

of London stock exchange various countries like France, Germany and USA also established

their own stock exchange markets. In India, the first exchange established in Bombay in the year

1875. Later, in year 1908, Calcutta stock exchange was established which was recognized in the

company in 1923. Mean which in 1920 the madras stock exchange limited in 1973. So far the

government of India has recognized 22 stock exchanges, which was located at major business

centers in different parts of country.

Till the mid fifties the stock exchange was governed by their own bye laws and

regulations with very little interface by the government. In the year 1925, the government of

Bombay promulgated an act “securities contracts and control act, 1625 for regulation and the

stock exchange. During the world was second trading outside the stock exchange flourished with

adverse effect on investor’s confidence due to base – less issues and higher rate of liquidation of

companies. In 1956, the center government passed contracts (regulation) act 1956, which came

into force through out the country on 20th Feb. 1957.

A stock market is a market in which stocks are bought and sold. It is also called industrial

securities market, because it is the market for the trading of company stocks i.e. corporate

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

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The term ‘Stock Market’ is often used as synonymous to ‘Stock Exchange’. But there is a

difference in the two terms. Stock exchange is a corporation in the business of bringing buyers

and sellers of stocks together. It is a major part of stock market, but not whole of it. Because a

stock market besides stock exchanges also includes the market for new issue of securities.

In financial markets, stock is the capital raised by a corporation through the issuance and

distribution of shares. A person or organisation which holds at least a partial share of stocks is

called a shareholder. The aggregate value of a corporation's issued shares is its market

capitalization. In the United Kingdom, South Africa and Australia, the term share is used the

same way, but stocks there refer to either a completely different financial instrument, the bond,

or more widely to all kinds of marketable securities.

Functions of the stock market

1. The stock market is structured to provide liquidity and marketability to the securities

industry. It is a place where stock certificates can be turned into cash at the prevailing

price. This kind of liquidity makes investing in stock attractive.

2. It provides linkage between the savings of household sector and investment in the

corporate sector/economy.

3. It provides the market quotation of shares. Debentures and bonds which is a sort of

buyers and selling in the market.

4. To ensure that the investors reap full benefit

5. To ensure recognized code of conduct.

6. Stock exchange ensures fail pieces and free market

7. To provide update rates for actual and potential investors.

8. Stock exchange indirectly helps in providing employment to million of people.

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History of stock exchanges in India

In India only registered stock exchanges can operate the stock market activities and the

recognition is governed under the provision of securities and contract (regulation) act, 1956.

There are 24 regional stock exchanges in India. Bombay stock exchange (BSE) and

national stock exchange (NSE) daily turnover of all the stock exchanges is about 30,000 crore

daily. BSE is 129 years old, which was established in the year 1875 where NSE is just 11 year

old and was established in 1993. NSE has brought screen based trading system in India.

History of Indian capital market at a glance:

18th century

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

1850 – Joint stock companies came into existence

1860- Speculation and feverish dealing in securities

1875- Formation of stock exchange of Mumbai

1894 – Formation of Ahmadabad stock exchange

19th century

1908 – Formation of Calcutta stock exchange

1939 – Formation of Lahore and madras stock exchange

1940 - Formation of U.P. and Delhi stock exchange

1956- Securities contract regulation act enacted

1957 – Scam of Haridas Mundhra

1988 – Securities and exchange board of India set up

1991 – Scam of ms shoes

1992 – SEBI given power under SEBI act, 1992

1993- Formation of national stock exchange (NSE)

1995 – Harshad Mehta scam

1995 –SESA Goa scam

1997 – CRB scam

1998- BPL and Videocon scam

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20th century

2000 – Depositories came into existence (electronic form, of shares)

2001 – Ketan Parekh scam

2002 – Start of rolling settlement and banning of badla trading

2002 – Introduction t + 3 settlement in April.

2003- Introduction of t+2 settlements in April

2005 – BSE sensex touches all time high of 6954 in January 2005

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Features or characteristics

Stock exchanges has been an association of individual members called member broker

Stock exchanges are formed for the express purpose of regulating and facilitating the

buying and selling of securities by and institution at large.

Stock exchange operate with due recognition from the govt. Under securities and contract

regulation act 1956.

The member brokers are middlemen who transact on behalf of public for commission.

Board of directors’ limit given by SEBI

SEBI has been set to oversee the orderly development of stock exchange.

Stock exchange lists the companies who wish to raise the funds of capital from public.

Stock exchange facilitates trading in securities of the public sector companies as well as

govt. Securities.

The recognition accorded to a stock exchange is valid for period of five years subject to

satisfactory performance of stock exchange during this period.

The stock market can be divided into two constituents as follows: -

1. Primary Market or New Issue Market

2. Secondary Market or Stock Exchange

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Primary market

Primary stock markets are also called new issue markets. A primary market is the market in

which assets are sold for the first time. In other words, it is that market in which new shares,

debentures etc are bought and sold. The essential function of the primary market is to arrange for

the raising of new capital by corporate enterprises, whether new or old. The firms raising funds

may be new companies or old companies, planning expansion. The issues of the new firms are

called “initial issues” and those of old firms already existing are called “further issues”. Initial

capital is raised by issuing ordinary and preference shares only, whereas further capital can be

raised by selling all three types of industrial securities. The new companies need not always be

entirely new enterprises. They may be private firms already in business, but going public to

explain their capital base.

The volume of initial issues has mostly been smaller than that of further issues; it has mostly

accounted for 30 to 40 percent of the total issues till 1988-89, 10 to 28 percent during 1990-97,

and one percent to 48 percent after 1998. Thus, the rang of fluctuations in the share of initial

(and, there of further) issues in total issues has been, as in cases of other aspects of stock market

activity, very wide indeed; this share has varied between 10 to 63 percent during 1957-97. There

has been an inverse relationship between the volume of initial and further issues in most of the

years.

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Financial Instruments in New Issue: – A number of securities are issued by companies

in the new issue markets. They include:

Equity shares : – Equity shares represent the ownership position in the company. The

holders of the equity shares are the owners of the company, and they provide permanent

capital. They have voting rights and receive dividends at discretion of the Board of

Directors.

Preference Shares : – the holders of the preference shares have a preference over the

equity in the event of the liquidation of the company. The preference dividend rate is

fixed and known. A Company may issue preference with a maturity period (called

redeemable preference shares). A preference share may also provide for the

accumulation of dividend. It is called cumulative preference share.

Debentures : – Debentures represent long-term loan given by the holders of debentures to

the company. The rate of interest is specified and interest charges are treated deductible

expeNSEs in the hands of the company. Debentures may be issued without an interest

rate. They are called zero-interest debentures. Such debentures are issued at a price much

lower than their face value. Therefore, they are also called deep-discount

debentures/bonds.

Convertible Securities : – A debenture or a preference share may be issued with the

feature o of being convertible into equity shares after a specified period of time at a given

price.Thus a convertible debenture will have features of debenture as well as equity.

Warrants : – A company may issue equity shares or debentures attached with warrants.

Warrants entitle an investor to buy equity shares after a specified period at a given price.

Cumulative Convertible Preference Shares (CCPS ) : – CCPS is an instrument giving

regular returns at 10% during the gestation period from three years to five years and

equity benefit thereafter introduced by the Government in 1984 CCPS has, however,

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failed to catch the investor’s interest mainly because the rate of return was considered to

be too low in the initial years and the provision for conversion into equity was also

unattractive if the company failed to perform well.

Zero Coupon Bonds and Convertible Warrants : – These are two new instruments that

have been floated by certain companies. Their overall impact and popularity will be

known only in the years ahead.

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I.P.O.'s (Initial Public Offer)

A Company proposing to raise resources by a public issue should first select the type of

securities i.e. Share and /or debentures to be issued by it. The decision regarding the issue of

shares to be made at par or premium should be decided keeping in view the SEBI guidelines.

The whole process of issue of shares can be divided into two parts:

- Pre issue activities

- Post issue activities

All activities beginning with the planning of capital issues, till the opening of the subscription list

are pre issue activities, while all activities subsequent to the opening of the subscription list may

be called post issue activities.

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Secondary stock markets (stock exchanges)

A stock exchange is an organized market for sale and purchase of listed existing shares and other

corporate securities. It is a platform for bringing together the buyers and sellers of securities. The

securities which may be bought and sold in stock exchange generally includes shares and

debentures of public companies. These may include Government securities and bonds issued by

municipalities, public corporations, utility undertakings etc. Securities held by the investors are

also traded on the stock exchange. Only listed securities are dealt in stock exchanges. The listed

securities are those securities that appear on the approved list of stock exchange.

The association or body of individuals generally organizes it. Hence it is defined as an

association or body of individuals established for the purpose of assisting and controlling

business buying, selling and dealing in securities.

The stock markets play an important role in the mobilization of financial resources for the

corporate sector. They provide an organized market for transactions in shares and other

securities.

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Products available in the Secondary and Primary Market

 New issue market instruments

The term initial public offering (IPO) slipped into everyday speech during the tech  bull market

of the late 1990s. Back then, it seemed you couldn't go a day without hearing about a dozen new

dotcom millionaires in Silicon Valley who were cashing in on their latest IPO. The phenomenon

spawned the term silicon ire, which described the dotcom entrepreneurs in their early 20s and30s

who suddenly found themselves living large on the proceeds from their internet companies' IPOs.

Selling Stock 

An initial public offering, or IPO, is the first sale of stock by a company to the public. A

company can raise money by issuing either debtor equity. If the company has never issued equity

to the public, it's known as an IPO. Companies fall into two broad categories:   private and public.

A privately held company has fewer shareholders and its owners don't have to disclose much

information about the company. Anybody can go out and incorporate a company: just put in

some money, file the right legal documents and follow the reporting rules of your jurisdiction.

Most small businesses are privately held. But large companies can be private too. Did you know

that IKEA, Domino's Pizza and Hallmark Cards are all privately held? It usually isn't possible to

buy shares in a private company. You can approach the owners about investing, but they're not

obligated to sell you anything. Public companies, on the other hand, have sold at least a portion

of themselves to the public and trade on a stock exchange. This is why doing an IPO is also

referred to as "going public." Public companies have thousands of shareholders and are subject to

strict rules and regulations. They must have a  board of directors  and they must report financial

information every quarter. In the United States, public companies report to the Securities and

Exchange Commission (SEC). In other countries, public companies are overseen by governing

bodies similar to the SEC. From an investor's standpoint, the most exciting thing about a public

company is that the stock is traded in the open market, like any other commodity. If you have the

cash, you can invest. The CEO could hate your guts, but there's nothing he or she could do to

stop you from buying stock. Going public raises cash, and usually a lot of it. Being publicly

traded also opens many financial doors:

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•Because of the increased scrutiny, public companies can usually get better rates when they issue

debt.

•As long as there is market demand, a public company can always issue more stock. Thus,

mergers and acquisitions are easier to do because stock can be issued as part of the deal.

•Trading in the open markets means liquidity. This makes it possible to implement things like

employee stock ownership plans, which help to attract top talent. Being on a major stock

exchange carries a considerable amount of prestige. In the past, only private companies with

strong fundamentals could qualify for an IPO and it wasn't easy to get listed. The internet boom

changed all this. Firms no longer needed strong financials and a solid history to go public.

Instead, IPOs were done by smaller startups seeking to expand their businesses. There's nothing

wrong with wanting to expand, but most of these firms had never made a profit and didn't plan

on being profitable any time soon. Founded on venture capital funding, they spent like Texans

trying to generate enough excitement to make it to the market before  burning  through all their

cash. In cases like this, companies might be suspected of doing an IPO just to make the founders

rich. This is known as an exit strategy, implying that there's no desire to stick around and create

value for shareholders. The IPO then becomes the end of the road rather than the beginning.

The Underwriting Process

 Getting a piece of a hot IPO is very difficult, if not impossible. To understand why, we need to

know how an IPO is done, a process known as underwriting.

When a company wants to go public, the first thing it does is hire an investment bank. A

company could theoretically sell its shares on its own, but realistically, an investment bank is

required - it's just the way Street works. Underwriting is the process of raising money by either

debt or equity (in this case we are referring to equity). You can think of under writers’ as

middlemen between companies and the investing public. The biggest underwriters are Goldman

Sachs, Merrill Lynch, Credit Suisse First Boston, Lehman Brothers and Morgan Stanley. The

company and the investment bank will first meet to negotiate the deal. Items usually discussed

include the amount of money a company will raise, the type of securities to be issued and all the

details in the underwriting agreement. The deal can be structured in a variety of ways. For

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example, in a firm commitment, the underwriter guarantees that a certain amount will be raised

by buying the entire offer and then reselling to the public. In a  best efforts agreement, however,

the underwriter sells securities for the company but doesn't guarantee the amount rose. Also,

investment banks are hesitant to shoulder all the risk of an offering. Instead, they form a

syndicate of underwriters. One underwriter leads the syndicate and the others sell a part of the

issue. Once all sides agree to a deal, the investment bank puts together a registration statement to

be filed with the SEC. This document contains information about the offering as well

as company

info such as financial statements, management background, any legal problems, where the

money is to be used and insider   holdings. The SEC then requires a cooling off period, in which

they investigate and make sure all material information has been disclosed. Once the SEC

approves the offering, a date (the effective date) is set when the stock will be offered to

the public. During the cooling off period the underwriter puts together what is known as the red

herring. This is an initial prospectus containing all the information about the company except for

the offer  price and the effective date, which aren't known at that time. With the red herring in

hand, the underwriter and company attempt to hype and build up interest for the issue. They go

on a road show - also known as the "dog and pony show" - where the big institutional investors

are courted. As the effective date approaches, the underwriter and company sit down and decide

on the price. This isn't an easy decision: it depends on the company, the success of the road show

and, most.

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Organization and Structure of Stock Exchanges in India: –

The number of stock exchanges in India has increased from nine in 1979-80 to 25 till now.

Presently, the stock market in India consists of twenty three regional stock exchanges and two

national exchanges, namely, the National Stock Exchange (NSE) And Over the Counter

Exchange of India (OTC)

The Bombay Stock Exchange (BSE) is the largest Stock Exchange, in the country, where

maximum transactions, in terms of money and shares take place. The other major stock

exchanges are Calcutta, Madras and Delhi Stock Exchanges. India has now the largest number of

organized and recognized stock exchanges in the world. All of them are regulated by SEBI. They

are organized either as voluntary, non-profit making associations (viz., Mumbai, Ahemdabad,

Indore), or public limited companies (viz., Calcutta, Delhi, Banglore ),or company limited by

guarantee(viz. Chennai, Hyderabad).

Various stock exchanges in India are as follows:-

Name of Stock Exchange Incorporated Type of Organization

1. Bombay Stock Exchange 1875 Voluntary non profit organization

2. Calcutta Stock Exchange 1908 Public Ltd. Company

3. Madras Stock Exchange 1937 Company Ltd. By Guarantee

4. Ahmedabad Stock Exchange 1897 Voluntary non profit organization

5. Delhi Stock Exchange 1947 Public Ltd. Company

6. Hyderabad Stock Exchange 1943 Company Ltd. By Guarantee

7. Madhya Pradesh Stock Exchange

(Indore)

1930 Voluntary non profit organization

8. Bangalore Stock Exchange 1957 Private Converted into Public Ltd.

Company

9. Cochin Stock Exchange 1978 Public Ltd. Company

10. Utter Pradesh Stock Exchange

(Kanpur)

1982 Public Ltd. Company

11. Ludhiana Stock Exchange 1983 Public Ltd. Company

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12. Guahati Stock Exchange 1984 Public Ltd. Company

13. Kannar Stock Exchange

(Mangalore)

1985 Public Ltd. Company

14. Pune Stock Exchange 1982 Company Ltd. By Guarantee

15. Magadh Stock Exchange (Patna) 1986 Company Ltd. By Guarantee

16. Bhubaneshwar Stock Exchange 1989 Company Ltd. By Guarantee

17. Saurashtra Stock Exchange (Kutch) 1989 Company Ltd. By Guarantee

18. Jaipur Stock Exchange 1983 Public Ltd. Company

19. Vadodra Stock Exchange 1990 ND

20. Coimbtore Stock Exchange 1996 ND

21. Meerut Stock Exchange 1991 ND

22.National Stock Exchange 1994 ND

23.Over The Counter Exchange 1992 ND

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Main stock exchanges in India

BSE i.e. BOMBAY STOCK EXCHANGENSE i.e. NATIONAL STOCK EXCHANGE

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Bombay stock exchange:

The stock exchange, Mumbai, which was established in 1875 as “THE NATIVE SHARE AND

STOCKBROKERS ASSOCIATION” (a voluntary non-profit making association), has evolved

over the year into its present stratus as the premier Stock Exchange in the country. The sstock

exchange Mumbai (BSE) is generally referred to as the Gateway to capital market in India.

It is the oldest one in Asia, even than the Tokyo stock exchange, which was established in 1878.

It is a voluntary non-profit making Association of Persons (AOP) and is currently engaged in the

process of converting itself into demutualised and corporate entity. It has evolved over the years

into its present status as the premier Stock Exchange in the country. It is the first Stock Exchange

in the country to have obtained permanent recognition in 1956 from the Govt. Of India under the

securities contracts (regulation) act, 1956.

The exchange, while providing an efficient and transparent market for trading in securities, debt

and derivatives upholds the interest of the investors and ensures redressal of their grievances

whether against the companies or its own member-broker. It also strives to educate and enlighten

the investors by conducting investor educating programmes and making available to them

necessary informative inputs.

A Governing Board having 20 directors is the apex body, which decides the policies and

regulates the affairs of the exchange. The governing board consists of 9 elected directors, who

are from the broking community (one third of them retire ever year by rotation), three SEBI

nominees, six public representatives and an Executive director as the chief Executive officer, one

chief operating officer. The executive director as the chief executive officer is responsible for the

day to day administration of the exchange and he is assisted by the chief operating officer and

other heads of departments.

The objectives of BSE

1. To safegaurd the interest of investing public having dealing on Exchange and the

members

2. To establish and promote honorable and just practices in securities transactions.

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3. To promote, develop and maintain a well- regulated marlket for dealing in securities.

4. To promote industrial developments in the country through efficient resource

mobilization by way of investment in corporate securities.

Stock market index

The movements of the prices in a market or section of a market are captured in price indices

called stock market indices, of which there are many, e.g., the S&P, the FTSE and the Euro next

indices. Such indices are usually market capitalization (the total market value of floating capital

of the company) weighted, with the weights reflecting the contribution of the stock to the index.

The constituents of the index are reviewed frequently to include/exclude stocks in order to reflect

the changing business environment.

A market index helps us evaluate the performance of a given market. For instance if one wants to

understand how the stock market has performed over last 5,10 or 15 years, one would need to

study the performance of each of the stock listed in the stock market. It would be easier to

construct representative sample that makes it simple to understand and interpret market

performance. Such a sample is termed as an Index.

Well- known indices in the Indian equity market are the BSE Sensex and S&P CNMX Nifty

which reflect the movement of 30 stocks on the Bombay Stock Exchange and 50 stocks on the

National Stock Exchange respectively. The BSE Sensex has grown from a base of 100 in 1979-

1980

BSE sensex

Background: For the premier Stock Exchange that pioneered the stock broking activity in India,

128 years of experience seems to be a proud milestone. A lot has changed since 1875 when 318

persons became members of what today is called "The Stock Exchange, Mumbai" by paying a

princely amount of Re1.

Since then, the country's capital markets have passed through both good and bad periods. The

journey in the 20th century has not been an easy one. Till the decade of eighties, there was no

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scale to measure the ups and downs in the Indian stock market. The Stock Exchange, Mumbai

(BSE) in 1986 came out with a stock index that subsequently became the barometer of the Indian

stock market.

SENSEX is not only scientifically designed but also based on globally accepted construction and

review methodology. First compiled in 1986, SENSEX is a basket of 30 constituent stocks

representing a sample of large, liquid and representative companies. The base year of SENSEX

is 1978-79 and the base value is 100. The index is widely reported in both domestic and

international markets through print as well as electronic media.

The Index was initially calculated based on the "Full Market Capitalization" methodology but

was shifted to the free-float methodology with effect from September 1, 2003. The "Free-float

Market Capitalization" methodology of index construction is regarded as an industry best

practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use

the Free-float methodology.

Due to is wide acceptance amongst the Indian investors; SENSEX is regarded to be the pulse of

the Indian stock market. As the oldest index in the country, it provides the time series data over a

fairly long period of time (From 1979 onwards). Small wonder, the SENSEX has over the years

become one of the most prominent brands in the country.

The growth of equity markets in India has been phenomenal in the decade gone by. Right from

early nineties the stock market witnessed heightened activity in terms of various bull and bear

runs. The SENSEX captured all these events in the most judicial manner. One can identify the

booms and busts of the Indian stock market through SENSEX. The aBSEnce of an index number

of equity prices to reflect the trend of the market was felt a long time by the members of

exchange, investors and other market participants. With this end in view the stock exchange,

Mumbai started compiling and publishing the BSE- SENSEX index number of equity prices 2nd

January, 1986.

Base period: the base period of BSE SENSEX is 1979-80. The base value of BSE SENSEX is

100 points.

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Method of compilation: BSE SENSEX is a market capitalization- weighted index of 30 stocks

presenting a sample of large, well established and financially sound companies. BSE SENSEX is

calculated using a market capitalization – weighted methodology. As per this methodology, the

level of index at any point of time fleet the total market capitalization of a company is

determined by multiplying the price of stock by the number of shares issued by the company.

Statistician call an index of a set of combined variable ( such as price and number of shares ) a

composite index.

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National stock exchange:

The organization

The national stock exchange of Indial limited has genesis the report of high powered study group

on the establishment of the new stock exchanges, which recommended promotion of a national

stock exchange by financial institutions (Fis) to provide access to investors from all across the

country on an equal footing. Based on the rcommendatios, NSE was promoted by leading

Financial Institutions at the behes tof the government of India and was incorporated in november

1992 as a tax –paying company unlike others stock exchange in the country .

On its recognisation as a stock exchange inder the securities contracts regulation act, 1956 in

april 1993, NSE commenced operations in the wholesales debt market (WDM)

Segment in june 1994 the capital market (equities) segment commenced operations in november

1994 and operations in derivatives segments commenced in June 2000.

Features:

The national stock exchange (NSE) is India’s leading stock exchange covering 350 cities and

towns across the country. NSE was set up by leading institutions to provide a modern, fully

automated screen based trading system with national reach. The exchange has brought about

unparalled transparency, speed and efficiency, safety and market integrity. It has set up facilities

that serve as a model for the securities industry in terms of system practices and procedures. NSE

has played a catalytic role in reforming the Indian securities market in terms of microstructure

market practices and trading volumes. The market today uses state- of art information technology

to provide an efficient and transparent trading , clearing and st\ettlement mechanism and has

witnessed several innovations in products and services viz. Demutualization and electronic

transfer of securities , securities lending and rowing , professionalisation of trading members,

fine –tuned risk manage\ment systems, emergence of clearing corporations to assume counter

party risks, market of debt and derivative instruments and intensive use of information

technology.

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NSE mission

NSE’s mission is setting the agenda for change in the securities market in India. The NSE was

set up with the main objectives of:

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

2. Ensuring equal access to investors all over the country through an appropriate

communication network

3. Providing a fair , efficient and transparent securities market to investors using electronic

trading systems.

4. Enabling shorter settlement cycles and book entry settlements systems

5. Meeting the current international standards of securities markets.

The standards set by NSE in terms of the market practices and technologies have

become industry benchmarks and are being emulated by other market participants. NSE’s is

more than a mere market facilitator. It’s that force which is guiding the industry towards new

horizons and greater opportunities.

NSE's markets:

NSE provides a fully automated screen-based trading system with national reach in the following

major market segments:-

Equity or capital markets {NSE's market share is over 65%}

Futures & options or derivatives market {NSE's market share over 99.5%}

Wholesale debt market (wdm)

Mutual funds (mf)

Initial public offers

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NSE group:

NSCCL

iisl NSE.it

nsdldotex intl. Ltd.

NSCCL

The national securities clearing corporation ltd. (NSCCL), a wholly owned subsidiary of

NSE, was incorporated in august 1995. It was set up to bring and sustain confidence in clearing

and settlement of securities; to promote and maintain, short and consistent settlement cycles; to

provide counter-party risk guarantee, and to operate a tight risk containment system. NSCCL

commenced clearing operations in April 1996.

NSCCL carries out the clearing and settlement of the trades executed in the equities and

derivatives segments and operates subsidiary general ledger (SGL) for settlement of trades in

government securities. It assumes the counter-party risk of each member and guarantees

financial settlement. It also undertakes settlement of transactions on other stock exchanges like,

the over the counter exchange of India.

NSCCL has successfully brought about an up-gradation of the clearing and settlement

procedures and has brought Indian financial markets in line with international markets.

It was set up with the following objectives:

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To bring and sustain confidence in clearing and settlement of securities;

To promote and maintain, short and consistent settlement cycles;

To provide counter-party risk guarantee, and

To operate a tight risk containment system.

NSCCL commenced clearing operations in April 1996. It has since completed more than 1800

settlements (equities segment) without delays or disruptions.

Clearing

Clearing is the process of determination of obligations, after which the obligations are discharged

by settlement.

NSCCL has two categories of clearing members: trading members and custodian. The trading

members can pass on its obligation to the custodians if the custodian confirms the same to

NSCCL. All the trades whose obligation the trading member proposes to pass on to the custodian

are forwarded to the custodian by NSCCL for their confirmation. The custodian is required to

confirm the trade on t + 1 days basis.

Once, the above activities are completed, NSCCL starts its function of clearing. It uses the

concept of multi-lateral netting for determining the obligations of counter parties. Accordingly, a

clearing member would have either pay-in or pay-out obligations for funds and securities

separately. Thus, members pay-in and pay-out obligations for funds and securities are

determined latest by t + 1 day and are forwarded to them so that they can settle their obligations

on the settlement day (t+2).

IISL

India index services & products ltd. (IISL) is a joint venture between the national stock

exchange of India ltd. (NSE) and CRISIL ltd. (formerly the credit rating information services of

India limited). Iisl has been formed with the objective of providing a variety of indices and index

related services and products for the capital markets.

IISL has a consulting and licensing agreement with standard and poor's (s&p), the world's

leading provider of investible equity indices, for co-branding IISL's equity indices.

25

IISL - products & services

IISL offers a wide range of products and services which are key support tools for the equity

markets. We provide reliable, accurate and valuable data on indices and index related services to

cater to the needs of various segments of users. Our specialty is indices based on Indian equity

markets, which may be used for benchmarking, trading or research. Use of IISL data or name or

indices requires a lice NSE or subscription.

NSDL

In order to solve the myriad problems associated with trading in physical securities, NSE joined

hands with the industrial development bank of India (IDBI) and the unit trust of India (UTI) to

promote dematerialization of securities. Together they set up national securities depository

limited (NSDL), the first depository in India.

NSDL commenced operations in november 1996 and has since established a national

infrastructure of international standard to handle trading and settlement in dematerialised form

and thus completely eliminated the risks to investors associated with fake/bad/stolen paper.

Dotex international limited

"The data and info-vending products of the national stock exchange are provided through a

separate company dotex international ltd., a 100% subsidiary of NSE, which is a professional

set-up dedicated solely for this purpose."

NSE.it ltd.

NSE.it, a 100% subsidiary of national stock exchange of India limited (NSE), is the

information technology arm of the largest stock exchange of the country. A leading edge

technology user, NSE houses state-of-the-art infrastructure and skills. NSE.it possesses the

wealth of expertise acquired in the last six years by running the trading and clearing

infrastructure of largest stock exchange of the country. NSE.it is uniquely positioned to provide

products, services and solutions for the securities industry. There has been a long felt need for

top-of-the-line products, services and solutions in the area of trading, broker front-end and back-

office, clearing and settlement, web-based trading, risk management, treasury management, asset

26

liability management, banking, insurance etc. NSE.it's expertise in these areas is the primary

focus. The company also plans to provide consultancy and implementation services in the areas

of data warehousing, business continuity plans, stratus mainframe facility management, site

maintenance and backups, real time market analysis & financial news over NSE-net, etc.

NSE.it is an export oriented unit with stp and plans to go global for various it services in due

course. In the near future the company plans to release new products for broker back-office

operations and enhance neatxs / neat ixs to support straight through processing on the net.

Corporate structure

NSE is one of the first de-mutualised stock exchanges in the country, where the ownership and

management of the exchange is completely divorced from the right to trade on it. Though the

impetus for its establishment came from policy makers in the country, it has been set up as a

public limited company, owned by the leading institutional investors in the country. From day

one, NSE has adopted the form of a demutaualised exchange – the ownership, management and

trading is in the hands of three different sets of people. NSE is owned by set of leading

institutions, banks, insurance companies and other financial intermediaries and is managed by

professional, who do not directly or indirectly trade on the exchange. The NSE model however,

does not preclude, but in fact accommodates involvement, support and contribution of trading

members in a variety of ways. Its Board comprises of senior executive from promoter

institutions, eminent Professionals in the field of laws, economics, accountancy, finance,

taxation, etc, public representatives, nominees of SEBI and one full time executive of the

exchange.

Nifty:

The nifty is relatively a new comer in the Indian market. S&P CNX nifty is a 50 stock index

accounting for 23 sectors of economy. It is used for purposes such as benchmarking fund

portfolios; index based derivatives and index funds.

27

The base period selected for nifty is the close prices on November 3, 1995, which marked the

completion of one-year of operations of NSE’s a capital market segment. The base value of

index was set at 1000.

S&P CNX Nifty is owned and managed by India index services and product ltd.(IISL), which is

a joint venture between NSE and CRISIL. IISL is a specialized company focused upon the index

as a core product. IISL have a consulting and licensing agreement with Standard & Poor’s

(S&P), who are world leaders in index services.

Advantages of NSE

- Wider Accessibility

The NSE ensures wider accessibility through satellite linked trading facility. Computer terminals

and links with VSAT help the traders to contact their counterparts in other parts of the country

quickly. The quick trading system ensures better pricing.

- Screen Based Trading

Originally, the basic advantage of NSE is computer based trading. The back office loads have

been reduced as everything is stored in the computer. At present, BSE and many other stock

exchanges have introduced the computer based trading. The ring based trading is vanishing in

the recent days.

- Non-Disclosure of the Trading Members Identity

While placing the orders there is no need to disclose the identity of the member on the screen. It

depends upon the wish of the trading member. So without any fear of influencing the prices, any

member can place large size orders.

- Transparent Transactions

The major advantage of the NSE trading is the complete transparency. The investor can find out

the rate of the deal, the counterparty and the time of execution of the deal. The enquiry facilities

offered in the terminals help the investor to find out the price and the depth of the market of the

particular security. The investor can have the high and low quotations and the last traded price of

28

the particular security. This information enables him to make a healthy decision regarding his

investment.

- Matching of Orders

Once the order has been fed into the computer, the computer searches and finds out the suitable

matching order subject to the conditions placed by the investor or the trader. The conditions are

related to the price, volume and time of the trade. While matching the order, priority is given on

the basis of price and time. If the matching order is found, the deal Is struck, otherwise as per the

instructions the order would be kept pending or cancelled.

- Effective Settlement of Corporate Benefit

All monetary benefits lodged, dividend, interest and redemption amount, claims on company

objections, are debited/credited directly in the clearing account of the clearing members. This

reduces the problems faced by the members in settlement of corporate benefits.

- Trading in dematerialized Form

According to the SEBI directives, trading in the depository segment is carried out only on the

rolling (T + S) settlement basis. This rolling settlement basis helps the traders to settle the

accounts quickly without waiting for a fixed settlement date. The total number of compulsorily

dematerialized stock was 30 in June 1998. The dematerialized trading helps the institutions to

effect the transfer of shares immediately after the payment.

- SGL Facility in the Debt Market

The SGL (Subsidiary General Ledger) facility provided by the NSE allows the trusts and other

retail constituents to hold and settle their trades through electronic book transfer. This speeds up

the transfer process. Settlement of trades in Government Securities would become paperless,

more prompt and safer. The constituents get their securities registered in their names

immediately after making payments. They would also get the interest on due dates without delay.

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Speculation on the stock exchange

Stock exchange transactions are made for the purpose of investment or for the speculation.

Investment transactions are made with the intention of earning a return on the securities by

holding them gain by disposing of the securities at favourable prices.

The nature of the investment transaction and speculative transaction differs. The ionvestment

transactions require the actual delivery of securities on the part of sellers and the payment of

their full price by the buyers. Speculative transactions, on the other hand, do not involve full

payment for and taking delivery of the securities that the speculators have contracted to transfer.

As the speculative transactions do not call for the payment of the full price but can be made by

the deposit of a fractional part of the price , the volume of speculative transactions usually far

exceed that of the investment to ensure sufficient volume and continuity of business in the stock

exchange.

Types of speculation: The speculations on a stock exchange may be categorised into the

following three

1. Bull: A bull also, known as tejwalla , is a speculator who buys shares in the expectation

of selling it at a higher price later

2. Bear: A bear also known as mundiwalla, who sells securities in the expectation of fall in

their prices in future

3. Stag: A stag neither buys nor sells but applies for sibscription to the new issue expecting

that he can sell them at a premium.

Shareholder

A shareholder (or stockholder) is an individual or company (including a corporation) that

legally owns one or more shares of stock in a joint stock company. Companies listed at the stock

market strive to enhance shareholder value.Shareholders are granted special privileges depending

on the class of stock, including the right to vote (usually one vote per share owned) on matters

30

such as elections to the board of directors, the right to share in distributions of the company's

income, the right to purchase new shares issued by the company, and the right to a company's

assets during a liquidation of the company. However, shareholder's rights to a company's assets

are subordinate to the rights of the company's creditors. This means that shareholders typically

receive nothing if a company is liquidated after bankruptcy (if the company had had enough to

pay its creditors, it would not have entered bankruptcy), although a stock may have value after a

bankruptcy if there is the possibility that the debts of the company will be restructured.

Shareholders are considered by some to be a partial suBSEt of stakeholders, which may include

anyone who has a direct or indirect equity interest in the business entity or someone with even a

non-pecuniary interest in a non-profit organization. Thus it might be common to call volunteer

contributors to an association stakeholders, even though they are not shareholders.Although

directors and officers of a company are bound by fiduciary duties to act in the best interest of the

shareholders, the shareholders themselves normally do not have such duties towards each other.

Function and purpose

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

allows businesses to go public, or raise additional capital for expansion. The liquidity that an

exchange provides affords investors the ability to quickly and easily sell securities. This is an

attractive feature of investing in stocks, compared to other less liquid investments such as real

estate.

History has shown that the price of shares and other assets is an important part of the dynamics

of economic activity, and can influence or be an indicator of social mood. 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.

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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 employment. In this way

the financial system contributes to increased prosperity.

Definition of stock: A stock (also known as equity or a share) is a portion of the ownership of a

corporation. A share in a corporation gives the owner of the stock a stake in the company and its

profits. If a corporation has issued 100 stocks in total, then each stock represents a 1% ownership

in the company.

Stock is ownership of the company, with each share of stock representing a tiny piece of

ownership. The more shares you own, the more of the company you own. The more shares you

own, the more dividends you earn when company makes a profit. In the financial world,

ownership is called equity.

There are two primary classes of stock. The one you choose depends on what you want from a

stock. Preferred stock typically pays regular dividends and is favored by investors who want

income offer more rights and privileges than preferred stock.

Investors may purchase stock on the primary or secondary market. A company sells its stocks to

the public on the primary market through its initial public offering. Investors may sell their

shares through brokers to other investors on the secondary market. The secondary market can be

structured as a auction market, like the other exchanges, or a dealer market, like the NASDAQ.

Stock prices can be found (quotes) in newspapers, on television and the internet.

Leveraged strategies

Stock that a trader does not actually own may be traded using short selling; margin buying may

be used to purchase stock with borrowed funds; or, derivatives may be used to control large

blocks of stocks for a much smaller amount of money than would be required by outright

purchase or sale.

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Short selling

In short selling, the trader borrows stock (usually from his brokerage which holds its clients'

shares or its own shares on account to lend to short sellers) then sells it on the market, hoping for

the price to fall. The trader eventually buys back the stock, making money if the price fell in the

meantime or losing money if it rose. Exiting a short position by buying back the stock is called

"covering a short position." This strategy may also be used by unscrupulous traders to artificially

lower the price of a stock. Hence most markets either prevent short selling or place restrictions

on when and how a short sale can occur. The practice of naked shorting is illegal in most (but not

all) stock markets.

Investment strategies

One of the many things people always want to know about the stock market is, "How do I make

money investing?" There are many different approaches; two basic methods are classified as

either fundamental analysis or technical analysis. Fundamental analysis refers to analyzing

companies by their financial statements found in SEC Filings, business trends, general economic

conditions, etc. Technical analysis studies price actions in markets through the use of charts and

quantitative techniques to attempt to forecast price trends regardless of the company's financial

prospects. One example of a technical strategy is the Trend following method, used by John W.

Henry and Ed Seykota, which uses price patterns, utilizes strict money management and is also

rooted in risk control and diversification.

Additionally, many choose to invest via the index method. In this method, one holds a weighted

or unweighted portfolio consisting of the entire stock market or some segment of the stock

market (such as the S&P 500 or Wilshire 5000). The principal aim of this strategy is to maximize

diversification, minimize taxes from too frequent trading, and ride the general trend of the stock

market .Finally, one may trade based on inside information, which is known as insider trading.

However, this is illegal in most jurisdictions (i.e., in most developed world stock markets).

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Blue chip

A nationally recognized, well-established and financially sound company. Blue chips generally

sell high-quality, widely accepted products and services. Blue-chip companies are known to

weather downturns and operate profitably in the face of adverse economic conditions, which help

to contribute to their long record of stable and reliable growth. The name "blue chip" came about

because in the game of poker the blue chips have the highest value. Blue-chip stock is seen as

a less volatile investment than owning shares in companies without blue-chip status because blue

chips have an institutional status in the economy. The stock price of a blue chip usually closely

follows the S&P 500.. Stock of a well-established and financially sound company that has

demonstrated its ability to pay dividends in both good and bad times. These stocks are usually

less risky than other stocks. The stock price of a blue chip usually closely follows the S&P 500.

Large cap

Companies with a market capitalization between $10 billion and $200 billion. These are the big

kahunas of the financial world. Examples include Wal-Mart, Microsoft and General Electric.

However, these stocks are sometimes called "mega caps".

Keep in mind that classifications such as "large cap" or "small cap" are only approximations that

change over time. Also, the exact definition can vary between brokerage houses.

Mid cap

Companies having a market capitalization between $2 billion and $10 billion. Shortened form of

"middle cap".As the name implies, mid-cap companies are in the middle of the pack. Mid caps

aren't too big, but they have a respectably sized market cap.

Keep in mind that classifications such as "large cap" or "small cap" are only approximations that

change over time. Also, the exact definition of these terms can vary between brokerage houses.

34

Market capitalization

It is a measure of a company's total value. It is estimated by determining the cost of buying an

entire business in its current state. Often referred to as "market cap", it is the total dollar value of

all outstanding shares. It is calculated by multiplying the number of shares outstanding by the

current market price of one share. 

Brokerages vary on their exact definitions, but the current approximate classes of market

capitalization are:

Mega Cap: Market cap of $200 billion and greater

Big/Large Cap: $10 billion to $200 billion

Mid Cap: $2 billion to $10 billion

Small Cap: $300 million to $2 billion

Micro Cap: $50 million to $300 million

Nano Cap: Under $50 million

If a business has 50 shares, each with a market value of $10, the business's market capitalization

is $500 (50 shares x $10/ share).

Market value

1. The current quoted price at which investors buy or sell a share of common stock or a bond at

a given time. Also known as "market price".

2. The market capitalization plus the market value of debt. Sometimes referred to as "total

market value. In the context of securities, market value is often different from book value

because the market takes into account future growth potential. Most investors who use

fundamental analysis to picks stocks look at a company's market value and then determine

whether or not the market value is adequate or if it's undervalued in comparison to it's book

value, net assets or some other measure

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Fair market value:

The price that a given property or asset would fetch in the marketplace, subject to the following

conditions:

1. Prospective buyers and sellers are reasonably knowledgeable about the asset; they are

behaving in their own best interests and are free of undue pressure to trade.

2. A reasonable time period is given for the transaction to be completed.

Given these conditions, an asset's fair market value should represent an accurate valuation or

assessment of its worth. Fair market values are widely used across many areas of commerce. For

example, municipal property taxes are often assessed based on the fair market value of the

owner's property. Depending upon how many years the owner has owned the home, the

difference between the purchase price and the residence's fair market value can be substantial.

Fair market values are often used in the insurance industry as well. For example, when an

insurance claim is made as a result of a car accident, the insurance company covering the

damage to the owner's vehicle will usually cover damages up to the fair market value of the

automobile.

36

SEBI (Securities and Exchange Board of India)

In 1998, the SEBI was established by the Government of India through an executive resolution,

and was subsequently upgraded as a fully autonomous body (a statutory board) in the year 1992

with the passing of the SEBI act on 30th Jan 1992. In place of Government control statutory and

autonomous regulatory boards with defined responsibilities, to cover both development and

regulation of the market, and independent powers have been set up. Paradoxically this is a

positive outcome of the securities scam of 1990-91.

The basic objectives of the board were identified as:

• To promote the interests of investors in securities.

• To promote the development of securities market.

• To regulate the securities market and

• For matters connected there with or incidental there zto.

Since its inception SEBI has been working targeting the securities and is attending to the

fulfillment of its objectives with commendable zeal and dexterity. The improvements in the

securities markets like capitalizations requirements, margining, establishments of clearing

corporation etc. reduced the risk of credit and also reduced the market.

SEBI has introduced the comprehensive regulatory measures prescribed norms, the eligibility

criteria, the code of obligations and the code of conduct for different intermediaries like, bankers

to issue, merchant bankers, brokers and sub-brokers, registrars, portfolio managers, credit rating

agencies, underwriters and others. It has framed by-laws, risk identification and risk management

systems for clearing houses of stock exchanges, surveillance system etc. which has made dealing

in securities both safe And transparent to the end investors.

Another significant event is the approval of trading in stock indices (like S&P CNX Nifty and

Sensex) in 2000. A market index is a convenient and effective product because of the following

reasons:

• It acts as a barometer for market behavior.

• It is used to benchmark portfolio performance.

37

• It is used in derivative instrument like index futures and index options.

• It can be used for passive fund management as in case if index funds.

Two board approaches of SEBI is to integrate the securities market at the national level, and also

to diversify the trading products, so that there is an increase in number of traders including

banks, financial institutions, insurance companies, mutual funds, primary dealers etc. to transact

through the exchanges. In this context the introduction of derivatives trading through Indian

stock exchanges permitted by SEBI in 2000 AD is a real landmark.

SEBI appointed the L.C. Gupta Committee in 1998 to recommend the regulatory frameworks for

derivatives trading and suggest by-laws for regulation and control of trading and settlement of

derivatives contracts. The board of SEBI in its meeting held on May 11, 1198 accepted the

recommendations of the committee and approved the phased introduction of derivatives trading

in India beginning with stock index futures. The board also approved the “Suggestive by-laws”

as recommended by the Dr. L.C. Gupta Committee for regulation and control of trading and

settlement of derivatives contracts.

SEBI then appointed the J. R. Verma Committee to recommend Risk Containment Measures

(RCM) in the Indian stock index futures market. The report was submitted in November 1998.

However the Securities Contracts (Regulation) act, 1956 (SCRA) required amendment to include

“derivatives” in the definitions of securities to enable SEBI to introduce trading in derivatives.

The necessary amendment was then carried out by the Government in 1999. The Securities law

(Amendment) bill, 1999 was introduced. In December 1999 the new framework was approved.

Derivatives have been accorded the status of ‘Securities’. The ban imposed on trading in

derivatives in 1969 under a notification issued by the central government was revoked.

Thereafter SEBI formulated the necessary regulations and intimated the stock exchanges in the

year 2000. The derivatives trading started in India at NSE in 2000 and BSE started trading in the

year 2001.

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Stock brokers

SEBI registered stock - brokers interested in providing internet based trading services

will be required to apply to the respective stock exchange for a formal permission. The stock

exchange should grant approval or reject the application as the case may be, and communicate its

decision to the member within thirty calendar days of the date of completed application

submitted to the exchange.

The exchange closely monitors outstanding position of top buying member-brokers and

top selling member-brokers on a daily basis. For this purpose, it has developed various market

monitoring reports based on certain pre-set parameters. These reports are scrutinized by officials

of the surveillance dept. To ascertain whether a member-broker has built up excessive purchase

or sale position compared to his normal level of business. Further, it is examined whether

purchases or sales are concentrated in one or more scripts, whether the margin cover is adequate,

whether transactions have been entered into on behalf of institutional clients and even the quality

of scripts, i.e., liquid or illiquid is looked into in order to assess the quality of exposure. The

exchange also scrutinizes the pay-in position of the member-brokers and the member-brokers

having larger funds pay-in positions are at times, at the discretion of the exchange, required to

make advance pay-in on t+1 day instead of on t+2 day.

Basic requirements for stock brokers

Trading will be on existing stock exchanges through order routing system for execution

of trades. Therefore, stockbrokers are to comply with the following before the start of trade on

internet.

1. The broker must have a net worth of Rs. 50 lakh if he wants to avail the facility of

internet for his own.

2. Provision for maintenance of adequate back up system.

3. The software system to be used by him should be secured and reliable.

4. To employ the qualified staff for this purpose.

5. To send order/trade confirmation to the client also through e-mail.

6. The contract notes must be issued to the clients as per existing regulation within 24 hours

of the execution of trades.

7. The broker and his client should use authentication technologies.

39

The above are some of the important pre-requisites for the stockbroker should intend to take

benefits of trading on internet. However, detailed guidelines issued by the sebi for the stock

exchange

Kind of stock brokers

1.         Commission broker

Near about all the brokers buy and sell securities for earning a  commission for investor point of

view he is the most important person and responsibility is to buy and sell stoke for his customer.

It means that he acts as an agent of investor and earns commission for his services rendered. The

broker is also an independent dealer in securities. He purchases and sell securities in his own

name but he is not allowed to deal with non-member.

2.         Jobber

He is an professional speculator who works for a profit called ‘turn’ he makes a continuous

auction in the market in the stoke in which he specialized. He  trades in the market evens for

small difference in the prices and helps to maintain liquidity  in the stoke exchange.

3.         Floor broker

The floor broker buys and sells shares for the other broker on the floor of the exchange. He is an

individual member owns his seat and receives his own commission on the orders he execute. He

helps other brokers when they are buying and as compensation receives a portion the broker.

4.         Odd lit dealer

For trading in stock exchange there a certain number of share a fixed to be transacted in a lot,

this is known as round lat which is usually a, 100 share a. Any thing less than the round lot are

add lot. If a person is in possession of add lot of share i.e. 10, 20, 30, 40 etc. They he will has to

look for the add lot dealer.

40

5.         Budliwala

He is the person who finance or provide credit facilities to the  market for this service he charges

a fees called contango or backwardation charges. The budliwala gives a fully secured loan for

period of 2 to 3 weeks.

6.         Arbitrageur

A person who is specialist in dealing with securities in different stoke exchange centers at the

same time. He makes a profit by the difference in the piece prevailing in different centers of the

market activity. For example the rte of a certain scrip is higher in some stoke exchange than

other on. In this case the broker will buy the scrip from the marked lower price and will sell the

scrip in the market at higher price. The profit of the arbitrageur depends on the ability to get the

prices from different centers before trading in other stoke exchanges.

41

Objectives

42

Objectives

Objectives of this research are:-

To study investor’s perceptions about stock market

To study the factor’s influencing their decision for choosing a particular share.

43

Research methodology

44

Research methodology

Research is an art of scientific investigation. As per the advanced learner’s dictionary of current

English, “Research is a careful investigation or equity especially through search for new facts in

any brand of knowledge”, thus research is the pursuit of truth with the help of study, observation,

comparison, and experiments

Methodology: Survey method was adopted for the study. Survey work with a structured

questionnaire was administered to collect primary data. This study is totally based on Primary

data collected from the respondent.

The purpose of research methodology section is to describe the procedure for conducting the

study. It includes Research design, Sample unit, Sample size, Sampling technique, Tools for

data collection, Statistical tools, sources of data & Procedure of analysis of research

instrument.

Research design: The research design indicates a plan of action to be carried out in connection

with a proposed research work. It provides only a guideline for the research to enable him to

keep that he is moving in the right direction in order to enable his goals.

In this research the research design was be the descriptive research design.

45

Data collection: A structured questionnaire was used to collect the primary data from

respondents at different locations randomly.

Statistical tools:

For the representation of the data various statistical tools like Column Diagrams

have been used. These statistical tools have really provided great help to understand the results of

the analysis.

Sources of data:

Primary data: Structured Questionnaire

Secondary data: Newspapers, Television, Internet, Journals & Magazines

Sampling design: Sampling is one of the most fundamental concepts underlying any research work.

Most research studies attempt to make generalization or draw inferences regarding the population,

based on their study of a part of the population that is the sample. The sample data enables the

researcher to correctly estimate the population parameters.

There are two method of sampling methods:

1. Probability Method

2. Non – Probability Method

As far as study is concerned, I have used Non- Probability sampling as well as Snowball

Sampling. Basically my Sample consists of Retail investors as well as corporate investors.

On the basis of this sampling, I have made my project and finally come on the findings and

conclusion.

46

Element: The element of the research were the investors

Sampling unit: The data was collected from various locations of LUDHIANA

Extent: The extent was the scope or the area of the research

Time: The duration of this research was six months.

Sampling plan:  Random Sampling was carried out to identify the respondents from the

different areas at different times; the data is collected from various locations so there are very

less chances of duplication of data

Sampling frame: The list of the respondents is called the sampling frame. In this research the

list of the respondents can be those persons who have their D-mat accounts in different banks.

There are two types of the sampling one is proportional sampling and other is the disproportional

sampling. The proportional sampling is that sampling in which the researcher can cover all the

respondents in the sampling frame and the disproportional sampling is that sampling in which the

researcher cannot cover all the respondents of his sampling frame. This research is

disproportional research.

Sampling technique: The sampling technique is of two types of sampling technique. One is

probability sampling technique and other is non probability sampling technique

As far as Sampling Technique is concerned, a nicely prepared Questionnaire has been filed by

the Investors at the time of handling their queries. As we know most of the corporate investors

don’t have sufficient time to fill up the form so it was found convenient to fill the information at

the time of handling queries.

47

Analysis and

interpretation

48

Analysis and interpretation

This chapter analyzes the investors’ perceptions about stock market.

This chapter therefore deals with analysis and discussions of the project.

Q1: Profession of investor

OPTIONS NO. OF RESPONDENTS

BUSINESSMAN 20

SERVICEMAN 15

STUDENTS 8

OTHERS 7

Table1 showing occupation of people

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Graph1 showing occupation of people

Analysis:-

This diagram shows that 40% respondents are businessman, 30% are serviceman, 16% are

students and 14% are other respondents.

Q2: Various alternatives for investing money?

OPTIONS NO.OF RESPONDENTS

BANKS 15

REAL ESTATE 1O

SHARES 12

INSURANCE 8

MUTUAL FUNDS 5

Table 2 showing alternatives for investing money

Graph 2 showing alternatives for investing money

Analysis:-

50

0

10

20

30

40

50

60

70

COMMODITIES DERIVATIVES EQUITY

Per

cen

tag

eThis diagram shows that 30% respondents said that they are investing their savings in banks,

24% respondents

Are investing in shares, 20%

respondents investing in real

estate, 16% respondents

investing in insurance and

other

10% respondents are investing in

mutual funds.

Q3: Various options for investment

Table 3 showing the investment of investors in the share market

    NO. OF

RESPODENTS

  PERSENTAGE

COMMODITIES 33 19

DERIVATIVES 35 20

EQUITY 100 59

51

Graph 3 showing the investment of the

investors in the share market

Analysis:-

From the above table and graph we can

interpret that all the respondents are

investing in the equity shares along with equity shares there are 19% respondents who are

investing in the commodities and there are 20% investors who are investing in derivatives also.

Q4: The type of shares for investment

Table 4 showing the types of shares in which investors are investing

Responses Percentage

Mid cap 39 39

Small cap 32 32

Large cap 23 23

Mega cap 6 6

52

39%

32%

23%

6%

Mid cap Small cap Large cap Mega cap

Graph 4 showing the types of shares in which investors are investing

Analysis:-

From the above table and graph we can interpret that most of the investors prefers mid cap and

small cap for their investments. Large cap is preferred by very less investors. Mega cap is the

least preferred by the investors. There are 39% of investors who prefers mid cap companies for

their investments and there are 32% of the investors who prefers small cap companies for their

investments. Large cap companies are prefers by 23% investors only. It is very less preferred

companies. The least preferred is mega cap companies’ shares. There are only 6% investors who

prefers mega cap companies’ shares.

Q.5) Average %age of investor’s total income contributed to shares trading

Responses Percentage

0 to 25% 56 59

26 to 50% 34 35

51 to 75% 6 6

76 to 100% 0 0

53

59%

35%

6%

0 to 25%

26 to 50%51 to 75%

Table 5 showing the total income contribution to the shares trading

Graph 5 showing the total income contribution to the shares trading

Analysis:-

From the above table and graph we can interpret that most of the respondents are investing 0 to

25% of their income in the share market. There are about 59% of investors who are investing 0

to 25% of their income in the share market. There are 35 % of the investors who are investing

26 to 50% of there income in the share market. And only 6% investors are investing 51 to 75%

of their income in the share market.

Q6) Investor’s main purpose of trading in stock market

Purpose Responses Percentage

Investment purpose 38 37.24

Speculation purpose 14 13.72

Capital gain 46 45.08

54

Table 6 showing the main purpose of trading in the stock market

Perpose of trading

29.4

9.8

56.84

0

10

20

30

40

50

60

Investment Speculation Capital gain

Pers

enta

ge

Graph 6 showing the main purpose of trading in the stock market

Analysis:-

From the above table and graph we can interpret that the basic purpose the investors of investing

in the share market are to earn capital gain. There are 56.84% respondents who are investing for

the capital gain in the stock market. There are 29% respondents who are investing in the share

market for the investment in the share market. And only 9.8 % respondents are investing for the

speculation in the share market. So we can interpret that most of the investors are investing in the

share market for the capital gain.

Q7) Various influencing factors while investing in the shares

Table 7 showing the influence factor while investing in the shares

REPONCES PERCENTAGE

Brokers recommendation 41 41

Business channels 35 35

Own research 24 24

55

The basis of investment

Business channels35%

Brokers’ recommendations 41%

Own research24%

Broker’s recommendations Business channels Own research

Graph 7 showing the influence factor while investing in the shares

Analysis: From the above table and graph we can interpret that the most of the respondents are

influenced by the brokers’ recommendations, there are 41% of respondents who are influenced

by the brokers’ recommendations and 35% are influenced by the business channels and only

24% respondents are such who are taking the investment decision based on their own research

Q. 8) Investor’s response for trading in shares on the basis of foreign stock exchanges

Table 8 showing the Responses on the foreign stock exchange

Responses Percentage

Yes 38 39

No 60 61

56

0

10

20

30

40

50

60

70

percentage

1

yes no

Graph 8 showing the Responses on the foreign stock exchange

Analysis:-

From the above table and graph we can interpret that there are 61% of respondents, who are not

trading on the basis of foreign stock exchange. It means they are considering Indian stock market

for the trading in the stock market.

Q 9: (1). The FII’s have its full influence on the Sensex and Nifty

Table 9.1 showing the investors’ perception regarding FII’s

Respondents

S A 12 *2 =24

A 3 *1 =3

D 20 *-1 =-20

S D 65 *-2 =-130

Total 100 -123

57

12

3

20

65

0

10

20

30

40

50

60

70

S A A D S D

NO o

f Res

pond

ents

Graph 9.1 showing the investors’ perception regarding FII’s

Analysis:-

From above graph and table we can conclude that the investors are strongly disagree that FII’s

have its influence on the Sensex and Nifty. There are 65 respondents who strongly disagree that

FII’s have its influence on the Sensex and Nifty. 20 respondents disagree on this statement and

12 respondents are strongly agreed on this statement.

Q 9: (2) One should have bulk deals to gain more profits.

58

Table 9.2 showing the

investors’ perception

regarding bulk deals

50

20

10

5

0

10

20

30

40

50

60

S A A D S D

No o

f Res

pond

ents

Graph 9.2 showing the investors’ perception regarding bulk deals

Analysis:-

From the above graph and table we can interpret that 50 respondents are strongly agree that one

should have bulk deals to gain more profits in the shares. 20 respondents agree on this statement.

10 respondents disagree with the statement. And only 5 respondents are such who strongly

disagree with this statement.

Q 9: (3) Day trading gives better results than regular trading.

No of

Respondents

S A 50 *2 =100

A 20 *1 =20

D 10 *-1 =-10

S D 5 *-2 =-10

Total 100

59

Table 9.3 showing the

investors’ perception

regarding day trading

12

16

27

45

0

5

10

15

20

25

30

35

40

45

50

S A A D S D

No o

f Res

pond

ents

Graph 9.3 showing the investors’ perception regarding day trading

Analysis:-

From the above graph and table we can interpret that the investors are strongly disagree that the

Day trading gives better results than regular trading. There are 45 respondents who are strongly

disagreeing that Day trading gives better results than regular trading. There are 27 respondents

who are disagreeing that Day trading gives better results than regular trading.

No of

Respondents

S A 12 *2 =24

A 16 *1 =16

D 27 *-1 =-27

S D 45 *-2 =-90

60

Q10) The benefits of trading in shares

Table 10 showing the benefits of trading in shares

Graph 10 showing the benefits of trading in shares

Analysis:-

From the above table and graph we can interpret that from this question we can interpret that the

major benefit of investing in the shares is the high gain from the market. There are 71%

respondents are favoring that the major benefit of investing in the shares in high gain. And 29%

respondents are favoring that the benefit of investing in the share market is that one can have low

investment in the share market.

Benefits Responses Percentage

High gain 67 71

Low investment 27 28

61

Benefits of investment

High gain

71%

Low investment

29%

High gain Low investment

Q.11) Number f investors preferring online trading in shares

Table 11 showing the investors’ perception regarding online trading

0

10

20

30

40

50

60

70

80

percentage

1

yes no

Graph 11 showing the investors’ perception regarding online trading

Analysis:-

From the above table and graph we can interpret that out of 94 respondents 71% of investors

prefer online trading and 29% of the investors do not prefer the online trading.

Responses Percentage

Yes 67 71

No 27 29

62

Q12: The risky investments

Table 12 showing the risky investment

The risky investment acc. to the investors

38

48

14

0

10

20

30

40

50

60

Commodities Equity Derivatives

Perc

enta

ge

Graph 12 showing the risky investment

Analysis:-

From the above table and graph we can interpret that from the equity shares, derivatives and

commodities the most risky investment is equity shares. There are 48% respondents who are

considering equity as the most risky investment. There are 38% respondents who are considering

Responses Percentage

Commodities 38 38

Equity 48 48

Derivatives 14 14

63

commodities as a risky investment. There are only 14% respondents who are considering

derivatives as the risky investment.

Q.13 ) Average returns on the investments in shares

Table 13 showing the average returns on the investor’s investment in shares

8%

48%25%

19%

0 to 10%

11 to 20%

21 to 30%

30 % & above

Graph 13 showing the average returns on the investor’s investment in shares

Analysis:-

From the above table and graph we can interpret that out of 98 respondents 48% of investors are

getting their returns in between 11 to 20% of their investments. 25% of investors are getting 21

to 30% of returns. 19 % of the investors are getting their returns above 30% of their investment.

Responses Percentage

0 to 10% 8 8

11 to 20% 47 48

21 to 30% 19 19

30 % & above 24 25

64

Q. 14) Number of investors satisfied with the returns which they gett from stock market

Table 14 showing the satisfaction level of returns that investors are getting from their investment

64

36

0

10

20

30

40

50

60

70

Yes No

prec

enta

ge

Graph 14 showing the satisfaction level of returns that investors are getting from their

investment

Analysis:-

From the above table and graph we can interpret that out of 92 respondents 64% respondents are

satisfied with their returns. But 36% of the investors are not satisfy with their returns.

Responses Percentage

Yes 59 64

No 33 36

65

Q 15) Source of information about stock market

Table 15 showing the various options for getting information

Graph 15 showing various options for getting information

Analysis:-

This diagram shows that 25% respondents get the information about stock market from

newspaper, 32.5% respondents get information from television, 12.5% respondents get

information from brokers, 20% get information from internet and 10% respondents get

information from other sources.

Options No.of respondents

Newspaper 10

Television 13

Brokers 5

Internet 8

Other sources 4

66

Q 16) Various sources to buy shares

Table 16 showing the various sources to buy shares

Graph 16 showing the various sources to buy shares

Analysis:-

Options No. of respondentsBroking co.’s 15

Private brokers 5

Banks 12

IPOs’ 8

67

This diagram shows that 37.5% respondents said that they buy shares from broking co.’s,12.5%

respondents said That they buy shares from private brokers,30% said that they buy shares from

banks and the other 20%respondents said that they buy shares from IPO’S

Q 17) Number of investors satisfied with the services of the brokers

Table 17 showing the satisfaction of investors

Graph 17 showing the satisfaction of investors

Analysis:-

This diagram shows that 80% respondents are satisfied with the services of brokers and other

20% respondents are not satisfied with the services of brokers.

Options No. Of respondents

Yes 32

No 8

68

Results and findings

69

Results and findings

1. Most of the investors are investing in the mid cap shares and a few are investing in the

mega cap shares.

2. Most of the investors are investing 0 to 25% of their income in the share market.

3. The basic motive of the investors for investing in the share market is capital gain.

4. The investors are mainly influenced by the broker and business channels.

5. The investors are not investing on the basis of foreign stock exchange.

6. The major benefit for the investors to investing in the share market is that they are able to

earn high gain from the shares.

7. The second major benefit is that they need very less investment for investing in the share

market.

8. Most of the investors preferred online trading. There are 71% of the investors who

preferred online trading.

9. The investors find equity more risky investment than derivatives. 48% of the investors find

equity as most risky investment in the share market.

10. 48% of the investors investing 11 to 20% of their income in the share market. There are

25% investors who are investing more than 30% of their income in the share market.

11. 64% of the investors are satisfied with the returns they are getting from the share market.

12. The investors believe that bulk deals are profitable.

13. According to the investors the regular trading is much better than day trading.

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Limitation of the Study

No study is complete itself, however good may be and every study has some limitations. The

limitation of the study can be summarized as:

Time and resources played the biggest constraint in the study

Due to time as a limitation factor sample size had to be kept small.

In fast changing environment the data collection becomes historic very soon and the

research finding based on them irrelevant.

71

Conclusion

72

Conclusion

From this research we can conclude that the investors are more influenced by the broker or the

business channels. Most of the investors are investing in the mid cap shares and a few are

investing in the mega cap shares. The investors are not investing on the basis of foreign stock

exchange. The major benefit for the investors to investing in the share market is that they are

able to earn high gain from the shares. Due to some of the limitations there is further scope of

research.

73

Questionnaire

74

Questionnaire

Q: 1) Are you investing in the stock market?

A) Yes B) No

Q. 2) From how long you are investing in stock market?

A) 6 months B) 1 year C) 2 years D) More than 2 years

Q.3) Are you investing

A) Only in Commodities

B) Only in Derivatives

C) Only in Equity

D) Only in two of them ……………………………… (Please mention here)

Q. 4) Which are the shares in which you are investing?

A) Mid cap C) Large cap

B) Small cap D) Mega cap

75

Q.5) What average %age of your total income contributes to shares trading?

A. 0 to 25%

B. 26 to 50%

C. 51 to 75%

D. 76 to 100%

Q.6) What is your main purpose of trading in stock market?

A. Investment Purpose

B. Speculations Purpose

C. Capital gain

Q. 7): What influence you while investing?

A. Brokers Recommendation

B. Business Channels

C. Own Research

Q. 8) Do you trade in shares on the basis of foreign stock exchanges?

Yes No

76

Q. 9) What do you think?

1. The FII’s have its full influence on the Sensex and Nifty.

Strongly agree Agree Disagree Strongly disagree

2. One should have bulk deals to gain more profits.

Strongly agree Agree Disagree Strongly disagree

3. Day trading gives better results than regular trading..

Strongly agree Agree Disagree Strongly disagree

Q. 10) What are the benefits of trading in shares?

High Gain

Low investment

Q.11) Do you prefer online trading in shares?

Yes No

77

Q. 12) which one do you find more risky

A. Commodities

B. Equity

C. Derivatives

Q.13 ) What are the average returns on your investments in shares?

A 0 to 10% D. 30% and above

B 11 to 20% E. Negative Returns

C 21 to 30%

Q. 14) Are you satisfied with the returns you are getting from stock market?

A) Yes b) No

Q. 15) Any Suggestions, Comments on Commodity….

Name __________________________

Occupation __________________________

Phone No ________

Income level

10,000 to 20,000 per month __________

20,000 to 40,000 per month __________

40,000 to 60,000 per month __________

Above 60,000 per month __________

78

Bibliography

• Http://www.BSEIndia.com/about/introBSE.asp

• Http://www.BSEIndia.com

• Http://en.wikipedia.org/wiki/Stock_market#Definition

• Http://www.NSE-India.com/

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