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TITLE OF THE PROJECT:

THE BEHAVIOUR OF INDIAN STOCK

MARKET

REPORT SUBMITTED IN PARTIAL FULFILLMENT OF REQUIREMENTFOR

POST GRADUATE PROGRAMME IN MANAGEMENT

BY-

AMAL SAIKIAREGISTRATION NUMBER: EIILM/PGP/08-09/4H007

SESSION: 2008-2010August, 2009

UNDER THE GUIDANCE OF

Mr. Subhendu MookherjeeRegional Head, West Bengal

&

Prof. Abhijit ChakrabartyFaculty, EIILM, Kolkata

EASTERN INSTITUTE FOR INTEGRATED LEARNING IN MANAGEMENT

6, WATERLOO STREET, KOLKATA 700069


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THE BEHAVIOUR OF INDIAN STOCK MARKET

Acknowledgement

For me, acknowledgement is a genuine opportunity to express my sincere thanks

to all those who have supported and encouraged me in the completion of the

project.

First of all, my sincere gratitude is extended to Mr. Subhendu Mookherjee

(Regional Head, KARVY Stock Broking Ltd., West Bengal), my external

guide, for his guidance and immense support for the completion of the project.

I further express my sincere thanks and indebtness to Ms. Mohua Chatterjee,

Branch Head, Dalhousie Branch and Mr. Amit Sonthalia, Branch Head,

Phoolbagan Branch, Kolkata (KARVY) who in spite of having a very busy

schedule helped me immensely.

I express my deep sense of regards to Prof. Abhijit Chakrabarty, (Faculty,

EIILM, Kolkata) my guide in the institute for his valuable guidance and whole

hearted support, which were of immense help for completing my project.

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Declaration

The project report on The Behaviour of Indian Stock Market at KARVY

Stock Broking Ltd. is submitted by me in partial fulfillment of the requirement

for MBA from EIILM, is an original work of mine.

I declare that this project has not been published previously elsewhere; it is a

result of my own efforts and has been taken solely for the academic purposes. All

educational materials consulted in the course of study have been declared in the

Reference and all information provided in the project is true to the best of my

knowledge.

I have done this work independently under the guidance of Prof. Abhijit

Chakrabarty my guide in the institute. This work has not been submitted in full

or part to any institute or university for the award of any degree /diploma.

________________

Amal Saikia

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TABLE OF CONTENTS

TITLE OF THE PROJECT: ......................................................................................... 1

THE BEHAVIOUR OF INDIAN STOCK MARKET.........................................................1

Acknowledgement....................................................................................................2Declaration...............................................................................................................3

1.Company Profile:...................................................................................................6

............................................................................................................................. 7

KARVY STOCK BROKING PRIVATE LIMITED ............................................................ 7

2.Introduction:........................................................................................................11

3.Objective:............................................................................................................12

4.Methodology:.......................................................................................................13

4.1Data Collection: .............................................................................................. 13

5.Data Projection and Analysis:..............................................................................14

5.1STOCK MARKET: ............................................................................................. 14

Function and purpose .......................................................................................... 14

Stock market investment: ................................................................................... 15

Main Participants of the Stock market ................................................................. 15

5.2 Functioning of the Stock Market .................................................................... 15

Contribution of Stock Market ............................................................................... 16

5.3 Stock Market and Economic Growth: ............................................................. 16

5.4 Stock Market in India: ................................................................................... 17

POST-REFORMS STOCK MARKET SCENARIO: ....................................................... 17

How Stock Exchanges Operate: .......................................................................... 19

Pattern of Growth of Stock Exchange: ................................................................. 19

5.5Bombay Stock Exchange (BSE): ..................................................................... 21

5.6SENSEX - The Barometer of Indian Capital Markets ....................................... 22

Companies Listed in the Sensex: ........................................................................ 22

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Sensex milestones: ............................................................................................. 24

Graphical Presentation: ...................................................................................... 26

............................................................................................................................ 26

May 2009 ............................................................................................................ 26

Sensex falls: ........................................................................................................ 26

The top 18 single-day falls of the Sensex have occurred on the following dates:

............................................................................................................................ 26

Major crashes since 2000:......................................................................................27

May 2006 ......................................................................................................... 27

Effects of the subprime crisis in the U.S. : ........................................................ 27

January 2008 .................................................................................................... 27

Gigantic drops of the SENSEX in a day ................................................................ 28

5.7Major Indian Stock Market Reforms: ............................................................... 28

Securities and Exchange Board of India (SEBI): .....................................................28

Over-the-Counter Exchange of India (OTCEI): .......................................................28

5.8National Stock Exchange (NSE): ..................................................................... 29

Index-based Market-wide Circuit Breakers: ......................................................... 33

5.9FOREIGN INSTITUTIONAL INVESTMENTS AND THE INDIAN STOCK MARKET: . .33

FIIs Flows: ........................................................................................................... 33

6.Market Trend:......................................................................................................35

Where Did the Terms Come from? ...................................................................... 36

Characteristics of a Bull and Bear Market: .......................................................... 36

6.1 BULL MARKET: .............................................................................................. 37

Features of Bull market: ...................................................................................... 38

Existence Period of Bull market: .......................................................................... 39

Factor responsible for Bull Market: ...................................................................... 39

Bull Market Strategy: ........................................................................................... 40

6.2 BEAR MARKET: .............................................................................................. 41

Factors Responsible For Bear Market: ................................................................. 42

7.Volatility:.............................................................................................................44

RETURNS IN BULL PHASE AND BEAR PHASE: ...................................................... 47

Analysis: ............................................................................................................. 48

8.Findings:..............................................................................................................49

Factors responsible for Volatility: ........................................................................ 49

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9.Recommendtions:...............................................................................................50

10.Conclusion:........................................................................................................51

11.Limitations:........................................................................................................52

12.References:.......................................................................................................53

13.Annexure:..........................................................................................................55

1. Company Profile:

KARVY STOCK BROKING LTD

KARVY is one of the premier integrated financial intermediaries in the country, which is into businesses such as Merchant Banking, Stock Broking, Depository Participant Services,Financial Products Distribution, Mutual Fund Servicing and Registrar and Transfer Agents. Itsa premier integrated financial services provider, and ranked among the top five in the countryin all its business segments, services over 16 million individual investors in various capacities,and provides investor services to over 300 corporate. Karvy covers the entire spectrum offinancial services such as Stock broking, Depository Participants, Distribution of financial

products mutual funds, bonds, fixed deposit, equities, Insurance Broking, CommoditiesBroking, Personal Finance Advisory Services, Merchant Banking & Corporate Finance,

placement of equity and IPOs.

BACKGROUND

In 1982, a group of Hyderabad-based practicing Chartered Accountants started KarvyConsultants Limited with a capital of Rs.1,50,000 offering auditing and taxation servicesinitially. Later, it forayed into the Registrar and Share Transfer activities and subsequently intofinancial services. All along, Karvys strong work ethic and professional background leveragedwith Information Technology enabled it to deliver quality to the individual. A decade ofcommitment, professional integrity and vision helped Karvy achieve a leadership position in itsfield when it handled the largest number of issues ever handled in the history of the Indian

stock market in a year. Thereafter, Karvy made inroads into a host of capital market services,corporate and retail, which proved to be a sound business synergy. The birth of Karvy was on amodest scale in 1981. It began with the vision and enterprise of a small group of practicingChartered Accountants who founded the flagship company Karvy Consultants Limited. Itstarted with consulting and financial accounting automation, and carved inroads into the fieldof registry and share accounting by 1985. Since then, it has utilized its experience andsuperlative expertise to go from strength to strength, to better its services, to provide new ones,to innovate, diversify and in the process, evolved Karvy as one of Indias premier integratedfinancial service enterprise. Thus over the last 20 years Karvy has traveled the success route,towards building a reputation as an integrated financial services provider, offering a widespectrum of services.

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The business of KCL includes:

Equity services.

Mutual Funds Services.

Insurance advisory. Tax Advisory.

Home Loans.

THE KARVY CREDO

Our Clients. Our Focus

Clients are the reason for our being.

Personalized service, professional care; pro-activeness are the values that help the organisationnurture enduring relationships with clients.

Respect for the individual Each and every individual is an essential building block

of the organization.

Teamwork

None of us is more important than all of us

Responsible CitizenshipA social balance sheet is as rewarding as a business one.

As a responsible corporate citizen, Karvys duty is to foster a better environment in the societywhere we live and work. Abiding by its norms, and behaving responsibly towards theenvironment, is some of our growing initiatives towards realizing it.

KARVY STOCK BROKING PRIVATE LIMITED

Member- Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and HyderabadStock Exchange (HSE).

Karvy Stock Broking Limited, one of the cornerstones of the Karvy edifice, flows freel towardsattaining diverse goals of the customer through varied services, creating a plethora ofopportunities for the customer by opening up investment vistas backed by researchbasedadvisory services. Here, growth knows no limits and success recognizes no boundaries.

Stock broking services

It is an undisputed fact that the stock market is unpredictable and yet enjoys a high success rate

as a wealth management and wealth accumulation option. The difference betweenunpredictability and a safety anchor in the market is provided by in-depth knowledge of market

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functioning and changing trends, planning with foresight and choosing one option with care.This is what it provides in the Stock Broking services. It offers services that are beyond just amedium for buying and selling stocks and shares, rather services which are multi dimensionaland multi-focused in their scope. There are several advantages in utilizing its Stock Broking

services, which are the reasons why it is one of the best in the country. Karvy offers trading ona vast platform; National Stock Exchange, Bombay Stock Exchange and Hyderabad StockExchange. More importantly, it makes trading safe to the maximum possible extent, byaccounting for several risk factors and planning accordingly. This crucial information is givenas a constant feedback to the customers, through daily reports delivered thrice daily-

The Pre-session Report, where market scenario for the day is predicted.

The Mid-session Report, timed to arrive during lunch break, where the market forecastfor the rest of the day is given and

The Post-session Report, the final report for the day, where the market and the reportitself is reviewed.

To add to this repository of information, it publish a monthly magazine; Karvy, The Finapolis,which analyzes the latest stock market trends and takes a close look at the various investmentoptions, and products available in the market, while a weekly report, called; Karvy BazaarBaatein, keeps the investors more informed on the immediate trends in the stock market. Inaddition, the specific industry reports give comprehensive information on various industries.Besides this, it also offer special portfolio analysis packages that provide daily technical adviceon scrip for successful portfolio management and provide customized advisory services helpingto make the right financial moves that are specifically suited to the concern portfolio.

Karvys Stock Broking services are widely networked across India, with the number of tradingterminals providing retail stock broking facilities. To empower the investor further thecompany has made serious efforts to ensure that our research calls are disseminatedsystematically to all our stock broking clients through various delivery channels like email,chat, SMS, phone calls etc. Its foray into commodities broking has been path breaking and weare in the process of converting existing traders in commodities into the more organizedmainstream of trading in commodity futures, both as a trading and risk hedging mechanism.

Depository participants

The onset of the technology revolution in financial services Industry saw the emergence ofKarvy as an electronic custodian registered with National Securities Depository Ltd(NSDL)and Central Securities Depository Ltd (CSDL) in 1998. Karvy set standards enabling furthercomfort to the investor by promoting paperless trading across the country and emerged as thetop 3 Depository Participants in the country in terms of customer service. Offering a widetrading platform with a dual membership at NSDL and CDSL, Karvy is a powerful medium fortrading and settlement of dematerialized shares.

www.karvydp.nic.in

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Distribution of Financial Product

The paradigm shift from pure selling to knowledge based selling drives the business today.With the wide portfolio offerings, it occupies all segments in the retail financial services

industry. A 1600 team of highly qualified and dedicated professionals drawn from the best ofacademic and professional backgrounds arecommitted to maintaining high levels of client service delivery. This has propelled to a positionamong the top distributors for equity and debt issues with an estimated market share of 15% interms of applications mobilized, besides being established as the leading procurer in all publicissues. To further tap the immense growth potential in the capital markets we enhanced thescope of the retail brand, Karvy the Finapolis, thereby providing planning and advisoryservices to the mass affluent.

http://mfportfolio.karvy.com/

Advisory Services

Under the retail brand Karvy the Finapolis', it deliver advisory services to a cross-section ofcustomers. The service is backed by a team of dedicated and expert professionals with variedexperience and background in handling investment portfolios. They are continually engaged indesigning the right investment portfolio for each customer according to individual needs and

budget considerations with a comprehensive support system that focuses on trading customers'portfolios and providing valuable inputs, monitoring and managing the portfolio through variedtechnological initiatives.

www.the-finapolis.com

Private client group

This specialized division was set up to cater to the high net worth individuals and institutionalclients keeping in mind that they require a different kind of financial planning and managementthat will augment not just existing finances but their life-style as well. For this purpose it offera comprehensive and personalized service that encompasses planning and protection offinances, planning of business needs and retirement needs and a host of other services, all

provided on a one-to-one basis.

Quality Policy

To achieve and retain leadership, Karvy shall aim for complete customer satisfaction, bycombining its human and technological resources, to provide superior quality financialservices. In the process, Karvy will strive to exceed Customer's expectations.

Quality Objectives

As per the Quality Policy, Karvy will:

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Build in-house processes that will ensure transparent and harmonious relationshipswith its clients and investors to provide high quality of services.

Establish a partner relationship with its investor service agents and vendors that willhelp in keeping up its commitments to the customers.

Provide high quality of work life for all its employees and equip them with adequateknowledge & skills so as to respond to customer's needs.

Continue to uphold the values of honesty & integrity and strive to establish

Unparalleled standards in business ethics. Use state-of-the art information technology in developing new and innovative

financial products and services to meet the changing needs of investors and clients.

Strive to be a reliable source of value-added financial products and services andconstantly guide the individuals and institutions in making a judicious choice of it.

Strive to keep all stake-holders (shareholders, clients, investors, employees,Suppliers and regulatory authorities) proud and satisfied.

Karvy has always believed in adding value to services it offers to clients. A top-notch researchteam based in Mumbai and Hyderabad supports its employees to advise clients on theirinvestment needs. On a typical working day Karvy:

Has more than 25,000 investors visiting our 575 offices. Publishes / broadcasts at least 50 buy / sell calls. Attends to 10,000+ telephone calls. Mails 25,000 envelopes, containing Annual Reports, dividend cheques / advises,

allotment / refund advises.

Executes 150,000+ trades on NSE / BSE. Executes 50,000 debit / credit in the depositary accounts. Advises 3,000+ clients on the investments in mutual funds.

Achievements:

Among the top 3 stock brokers in India (4% of NSE volumes). India's No. 1 Registrar & Securities Transfer Agents. Top most Depository Participants. Largest Network of Branches & Business Associates. ISO 9002 certified operations by DNV.

Among top 10 Investment bankers. Largest Distributor of Financial Products. Adjudged as one of the top 50 IT uses in India by MIS Asia. Full Fledged IT driven operations.

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2. Introduction:

Stock prices change everyday in the market. Buyers and sellers cause prices to change as theydecide how valuable each stock is. Basically, share prices change because of supply anddemand. If more people want to buy a stock, then the price of that stock moves up. Conversely,if more people want to sell a stock, there would be more supply (sellers) than demand (buyers),the price would start to fall. In financial term, this is called as Volatility. Volatility is asymptom of a highly liquid stock market. Pricing of securities depends on volatility of eachasset. An increase in stock market volatility brings a large stock price change of advances ordeclines. Investors interpret a raise in stock market volatility as an increase in the risk of equityinvestment and consequently they shift their funds to less risky assets. Technically, volatility isfound by calculating the "standard deviation" of the daily change in price. If the price of aninvestment moves up and down by large percentage amounts, and in short periods of time, ithas high volatility. If the price almost never changes, or only by very small amounts, then it hasvery low volatility.

It has an impact on business investment spending and economic growth through a number ofchannels. Changes in local or global economic and political environment influence the shareprice movements and show the state of stock market to the general public.

The behavior of Stock Market and the prices of stocks depend greatly on the speculation of theinvestors. So, over- reactions and wrong speculation can give rise to irrational behavior of theStock Market. Excessive optimistic speculation of future prospects can raise the prices ofstocks to an extreme high and excessive pessimism on the part of the investors can result inextremely low prices. Stock Market behavior is also affected by the psychology of GroupThinking. The thinking of a majority group of people many times influences others to think inthe same line and the Stock Market behavior gets naturally affected.

Sometimes the Stock Market behavior is affected by rumors and mass panic. The prices of thestocks fluctuate tremendously by the economic use even if it has nothing to done with values ofstocks and securities.

So, it is extremely difficult to make predictions about the Stock Market and the inexperiencedinvestors who are not that much interested in financial analysis of stocks; rarely get thefinancial assistance from the Stock Market at the time of need.

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3. Objective:

Share in the market offer a high capital appreciation but the movement of the share price isalways like a wave and tide motion of the sea. Volatility in the stock return is an integral part of

stock market with the alternating bull and bear phases. In the bullish market, the share pricessoar high and in the bearish market share prices fall down and these ups and downs determinethe return and volatility of the stock market. Volatility is a symptom of a highly liquid stockmarket. Pricing of securities depends on volatility of each asset. It has an impact on businessinvestment spending and economic growth through a number of channels. Changes in local orglobal economic and political environment influence the share price movements and show thestate of stock market to the general public. The issues of return and volatility have becomeincreasingly important in recent times to the Indian investors, regulators, brokers, policymakers, dealers and researchers with the increase in the FIIs investment. Hence an analysis has

been made to know the volatility trend in the Indian stock market and the reasons for the bearand bull trend in the market. Nifty and Sensex are taken as representative of Indian markets.

This project gave me opportunity to have an idea about volatility in stock market. This gave meidea about and fundamental analysis in stock market and how trading is being done in stockmarket.

The objectives of the project can be mentioned as below:

To study volatility in Indian stock market while taking SENSEX of Bombay stockexchange as a source of secondary data which broadly represent Indian stock marketalong with NIFTY of National Stock Exchange.

To study the factors which are making Indian stock market volatile.

Build understanding of central ideas of stock market. Develop familiarity with the analysis of stock market.

Furnish institutional material relevant for understanding the environment in whichtrading decisions are taken.

Understanding of Bull Market and Bear Market.

This project will be helpful to know volatility in Indian Stock Market and reasons for such highvolatility and would be able to take decisions for investment in volatile stock market.

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4. Methodology:

Methodology means the methods, processes or tools used in driving the project. At the very

biggining, an overview of the stock market is given. The level of SENSEX at various points of

time and causes for the same is given. Some graphs and tables also used here. Bull market and

Bear market have been broadly described in the report. Volatility of Indian stock market is

analysed through graph and table. The returns in bull and bear phase are also given. Hence an

analysis has been made to know the volatility trend in the Indian stock market and the reasons

for the bear and bull trend in the market.

4.1 Data Collection:

All the data are collected from secondary source, i.e, magazines, newspapers, websites etc.Data were collected from BSE Sensex and NSE Nifty. Sensex is a basket of 30 constituentstocks representing a sample of large, liquid and representative companies. Due to its wideacceptance amongst the Indian investors, sensex is regarded the pulse of the Indian stockmarket. Nifty is a well diversified 50 stock index accounting for 24 sectors of the economy.Hence these two indices were taken for the study.

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5. Data Projection and Analysis:

5.1STOCK MARKET:

The Stock Market is a market for the trading of company stocks. In other words, Stock Marketrefers to the business of buying and selling shares in companies and the place where thishappens is known as stock exchange.

The Stock Market is distinct from a stock exchange, which can be said to be an entity, say acorporation or a mutual organization countenance within the business of bringing people andsellers of stocks and securities together.

Function and purpose

The stock market is one of the most important sources forcompanies to raise money. Thisallows businesses to be publicly traded, or raise additional capital for expansion by sellingshares of ownership of the company in a public market. The liquidity that an exchange providesaffords investors the ability to quickly and easily sell securities. This is an attractive feature ofinvesting in stocks, compared to other less liquid investments such as real estate.

History has shown that the price ofshares and other assets is an important part of the dynamicsof economic activity, and can influence or be an indicator of social mood. An economy wherethe 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 anddevelopment. Rising share prices, for instance, tend to be associated with increased businessinvestment and vice versa. Share prices also affect the wealth of households and theirconsumption. Therefore, central banks tend to keep an eye on the control and behavior of thestock market and, in general, on the smooth operation offinancial system functions.

Exchanges also act as the clearinghouse for each transaction, meaning that they collect anddeliver the shares, and guarantee payment to the seller of a security. This eliminates the risk toan 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 costsand enterprise risks promote the production of goods and services as well as employment. Inthis way the financial system contributes to increased prosperity.

The Financial System of the Market Performs Three Main tasks:

It handles transfer of payments in the markets.

It channels savings to investments with a good return for future consumption in theStock Market.

It spreads and reduces the economic risks in relation to the players' targeted returns.The smooth functioning of all these activities and facilitates in the Stock Market give economicgrowth and the lower costs and enterprise risks promote the production of goods and servicesas well as employment.The stock market is one of the primary most important sources for companies to raise money.The continuously rising share prices tend to be associated with increased business investment

and vice versa in the Stock Market.Share prices also affect the wealth of households and their consumption. So, central banks keepa bull's eye on the magnificent control and behavior of the market.

Stock market investment:

Stock Market Investment refers to the investment in the market; where exchange of company

stocks or collective shares of the companies and other kinds of securities and derivatives takes

place. Stocks are traded in Stock Market by the help of Stock Exchange.

The Stock Exchange brings the sellers and buyers of stocks and securities under same roof. The

available stocks are listed and traded in the Stock Exchange among the buyers and the sellers.

Proper investment in Stock Market essentially requires detailed knowledge of Stock Market,

its participants, knowledge about the functioning, behavior and contribution of the stock

market.

Main Participants of the Stock market

The main participants of Stock Market are the individual investors, banks, insurance

companies, mutual funds and pension funds. Since, markets of today have turned more

institutionalized, the largest share of the market participation comes from the large

institutions rather than individual rich investors.

5.2 Functioning of the Stock Market

The stock market functions through the Stock Exchanges. Stock Exchanges can be a physical

entity and sometimes a virtual entity. In physical stock exchanges, transactions are made by

auctioning. In this case, a buyer offers a specific price for a stock by verbal bid and the seller

asks a specific price for the stock. When the buyers bid price and sellers price match,

exchange of stock takes place. In the presence of multiple buyers and sellers market operations

are carried on a first come first served basis.

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Contribution of Stock Market

Stock Market is the best medium of raising funds. Businesses which need financing for

expansion or improvement can easily raise required capital by participating in Stock Market.

On the other hand, for the investors; investing in stocks is a better option than investing inproperty or real estate as the stocks contain more liquidity than any other property. This means,

stocks can be sold more easily and quickly than any other property and so, the investors can get

their money back by selling the stocks anytime they need.

The prices of stocks or shares in the Stock Market have strong effects on the economy in

various ways. Prices of stock influence business investment, individual household consumption

and wealth of individual households. For this deepening effect, Central banks of each country

keep a track of the Stock Market activities. A proper functioning of Stock Market in a country

can result in low costs, increased production of goods and services and increased level of

employment. In this way, an efficient Stock Market can contribute to economic growth of thecountry.

5.3 Stock Market and Economic Growth:

A countrys economic growth is largely associated with the changing dynamics of its stockmarket. Since Independence, Indian stock market has been incessantly growing. Manygovernment norms and regulations have been formulated so as to keep the market free fromtrickery and deception. In spite of all these norms and regulations, Indian Stock market couldnot be totally sterilized from scams; even through the performance was quite noticeable. But

the market got a boost after the financial reforms which opened the doorway for FII inflow.

Economic growth of the nations is closely linked with the liquidity of the stock market existingin the country. The concept of liquidity that is dealt here is market liquidity, which stands insharp contrast to the definition of liquidity from the point of view of a firm. The stock marketsaround the globe contribute to the economic development by imparting liquidity to the capitalinvestments. It is this market that allows entry even to the small savers, who invests theirsavings for short peroids. The liquidity of the stock market enables them to sell off their shareseasily within a short span of time, which has undoubtedly attracted investments in shares.

However, the most profitable business requires long-term investments. When the small

potential investors reach the comfort zone in terms term of investing in long-term equities,they balance their portfolios more towards long-term investments. This balancing mechanismforces the financial units to shift towards more profitable, productive and long-term products,resulting in higher capital productivity. The higher-productivity capital boosts economicgrowth and raises the returns on equity investment, which further increases the incentives tosave and invest and hence, furthers economic growth.

So, we have to focus on the linkage between the stock market and economic growth. On thepositive side, a well-functioning stock market helps in developing the economy through thegrowth of savings, efficient allocation of investment resources and better utilization of theexisting resources. However, on the otherhand, the analysts view stock market as a place,

where the owners buy and sell stocks according to their convenience. This often affects theprofitability of the firms by affecting the funds available to them. In this processs, economic

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growth gets hampered due to the volatile nature of the stock market. Hence, the aspect ofvolatity needs to be addressed.

5.4 Stock Market in India:

The origin of the stock market in India dates back to the end of the eighteenth century whenlong-term negotiable securities were first issued. The real beginning, however, occurred in themiddle of the eighteenth century, after the enactment of the companies Act in 1850 whichintroduced the feature of limited liability, and generated investor interest in corporatesecurities.

The stock market is also known as secondary market. In India, the secondary market consists ofrecognized stock exchanges operating under rules, by-laws and regulations duly approved bygovernment. These stock exchanges constitute an organized market where securities issued bythe central and state governments, public bodies, and joint stock companies are traded. A stockexchange is defined under Section 2(3) of the Securities Contracts (Regulation) Act, 1956, asany body of individual whether incorporated or not, constituted for the purpose of assisting,regulating or controlling the business of buying, selling or dealing in securities.

Thus, astock exchange, (formerly a securities exchange) is a corporation or mutualorganization which provides "trading" facilities for stock brokers and traders, to trade stocksand other securities. Stock exchanges also provide facilities for the issue and redemption ofsecurities as well as other financial instruments and capital events including the payment ofincome and dividends.

The securities traded on a stock exchange include: shares issued by companies, unit trusts,derivatives, pooled investment products andbonds. Everyday, stocks are exchanged and tradedin numerous stock markets around the world. The liquidity they bring a vital component ofeconomic growth.

Stock exchanges are open markets that trade financial assets. Whether associated with acompany or acting as an individual, a stock exchange is the place where stocks are bought andsold. There are a number of major stock exchanges around the world and each of these plays a

part in determining the overall financial and economic condition of any economy.

Stock exchanges deal with a number of financial instruments such as stocks, bonds and

equities. Both corporate and government bonds are traded in stock exchanges. Equities includepopular investment options, rights issues, bonus issues, and all other forms of shares andstocks. The actual trading of stocks takes place through mediators such as financial advisors,

brokerage houses, and stockbrokers.

POST-REFORMS STOCK MARKET SCENARIO:

After the initiation of reforms in 1991, the Indian stock market now has a three-tier form:

Regional stock exchanges.

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The National Stock exchange (NSE).

The Over the counter exchange of India (OTCEI).

The NSE was set up in 1994. It was the first modern stock exchange to bring in newtechnology, new trading practices, new institutions, and new products. The OTCEI was set upin 1992 as a stock exchange providing small and medium-sized companies the means togenerate capital.

The Organizational forms of the various recognized stock exchanges in India as follows:

Mumbai, Ahmedabad, Patna, Indore ----------- Voluntary non-profit making.

Kolkata, Delhi, Bangalore, Cochin,Kanpur, Guwahati, Ludhiana, Chennai------------ Public limited company.

Hyderabad, Pune, Rajkot, Magadh ----------------Company by gurantee. The National Stock Exchange -----------------------A tax-paying company incorporated

under the Companies Act and promoted byleading financial institutions and banks.

The Over the Counter Exchange Of India ----------A company under Section 25 of theCompanies Act, 1956.

Functions of Stock Exchanges: An Overview

The main function of a stock exchange is to facilitate the transactions associated with both thebuying and selling of securities. Buyers and sellers of shares and stocks can track the pricechanges of securities from the stock markets in which they operate. The ups and downs of stockindexes help the investors to speculate on the return on investment (ROI) of various investment

options.

Stock exchanges also serve as a source of capital formation for listed companies. Businessentities that are listed in a particular stock exchange can issue shares to the public and sell thoseshares in that market.

To take part in these transactions, listed companies need to abide by the rules and requirementsof that market. The stock exchanges protect the interests of both buyers and sellers by assuringa timely transfer of money. The participants of a stock market are required to operate within thespecified transaction limits fixed by the regulatory authority of that stock market.

Speed and transparency are vital for all stock market transactions. The companies listed in a

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There are some factors that can help predict whether a stock is good or questionable, and these

can help one to determine the best stocks for his portfolio and needs. Some of ways to identify

a good stock are mentioned below:

CAPEX or Capital Expenditure:

One way to identify a good stock is by looking at the CAPEX, or capital expenditure,compared to other similar stocks in the same industry. Make sure that the stocks beingcompared are from the same industry and that the companies are similar, otherwise the stockanalysis will be inaccurate and the stock may not be such a good deal. Consumer stocks, suchas Coca Cola and Nestle, usually have a minimum or low capital expenditure. Having a lowcapital expenditure means that the company uses their operating profits for investment funding

instead of taking out loans that can have fluctuating interest rates and cost money. During aneconomic recession, low CAPEX stocks are a better bet than many from heavy industriesbecause of the fluctuation of interest rates when the economy falls.

Reliability:

Finding a good stock also means looking at other factors; one of which is reliability. Choosestock in a company that has been shown to be reliable and that has a high potential for growth.Look at the price the stock is currently listed at and evaluate this price against the currentcompany condition and the potential for future growth. This evaluation will help youdetermine whether the stock price is reasonable, which makes it a good stock, or if it is inflated

compared to the current situation and conditions.

Risk and the level of reward:

The higher the risk, the better a reward is going to be if the stock performs well. One shoulddetermine what level of risk he is willing and can afford to take, and only choose stocks thatreflect this risk level. There are many different formulas that can be used to try and place valueon a stock, and each investor will be able to tell what formula they are most comfortable within determining whether a stock is good or bad.

High profit margin:

A good stock should have a high profit margin. The profit margin of a company will alert youto vital information concerning the effectiveness of the current company management. A goodmanagement team will be able to reduce the operating costs of a company and at the same timeincrease revenue and possibly growth as well. When comparing and evaluating stocks, oneshould look at those with the highest profit margins.

Any investment carries some risk, but choosing a good stock can minimize the risks of theinvestment and maximize the gains one will see. One should look for stocks that have gonedown in price simply because of market conditions and not because of problems with themanagement or company. With the way the stock prices have dropped in the last six months,

there are plenty of excellent stock choices available, and the prices are low simply becausealmost all stock prices have fallen and many investors wanted out of the market before it could

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crash. Some of these stocks represent a great investment opportunity because the price is goodand the company is solid.

5.5 Bombay Stock Exchange (BSE):

Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, nowspanning three centuries in its 133 years of existence. What is now popularly known as BSEwas established as "The Native Share & Stock Brokers' Association" in 1875.

BSE is the first stock exchange in the country which obtained permanent recognition (in 1956)from the Government of India under the Securities Contracts (Regulation) Act 1956. BSE's

pivotal and pre-eminent role in the development of the Indian capital market is widelyrecognized. It migrated from the open outcry system to an online screen-based order driventrading system in 1995. Earlier an Association of Persons (AOP), BSE is now a corporatisedand demutualised entity incorporated under the provisions of the Companies Act, 1956,

pursuant to the BSE (Corporatisation and Demutualisation) Scheme, 2005 notified by theSecurities and Exchange Board of India (SEBI). With demutualisation, BSE has two of world's

best exchanges, Deutsche Brse and Singapore Exchange, as its strategic partners.

Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector byproviding it with an efficient access to resources. There is perhaps no major corporate in Indiawhich has not sourced BSE's services in raising resources from the capital market.

Today, BSE is the world's number 1 exchange in terms of the number of listed companies andthe world's 5th in transaction numbers. The market capitalization as on December 31, 2007stood at USD 1.79 trillion. An investor can choose from more than 4,700 listed companies,which for easy reference, are classified into A, B, S, T and Z groups.

The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic stature, andis tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The SENSEX isconstructed on a 'free-float' methodology, and is sensitive to market sentiments and marketrealities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral indices.

The first Exchange Traded Fund (ETF) on SENSEX, called "SPIcE" is listed on BSE. It bringsto the investors a trading tool that can be easily used for the purposes of investment, trading,hedging and arbitrage. SPIcE allows small investors to take a long-term view of the market.

Awards:

The World Council of Corporate Governance has awarded the Golden Peacock GlobalCSR Award for BSE's initiatives in Corporate Social Responsibility (CSR).

The Annual Reports and Accounts of BSE for the year ended March 31, 2006 andMarch 31 2007 have been awarded the ICAI awards for excellence in financialreporting.

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The Human Resource Management at BSE has won the Asia - Pacific HRM awards forits efforts in employer branding through talent management at work, healthmanagement at work and excellence in HR through technology

5.6 SENSEX - The Barometer of Indian Capital Markets

BSE Sensex or Bombay Stock Exchange Sensitive Index is a value-weighted indexcomposed of 30 stocks started in 01 of Jan, 1986. It consists of the 30 largest and most activelytraded stocks, representative of various sectors, on the Bombay Stock Exchange. Thesecompanies account for around one-fifth of the market capitalization of the BSE. The base valueof the sensex is 100 on April 1, 1979, and the base year of BSE-SENSEX is 1978-79.

At irregular intervals, the Bombay Stock Exchange (BSE) authorities review and modify itscomposition to make sure it reflects current market conditions. The index is calculated based ona free-float capitalization method; a variation of the market cap method. Instead of using acompany's outstanding shares it uses its float, or shares that are readily available for trading.The free-float method, therefore, does not include restricted stocks, such as those held bycompany insiders.

The index has increased by over ten times from June 1990 to the present. Using informationfrom April 1979 onwards, the long-run rate of return on the BSE Sensex works out to be 18.6%

per annum, which translates to roughly 9% per annum after compensating forinflation.

Index Specification:

Base Year :1978-79

Base Index Value :100

Date of Launch : 01-01-1986

Method of

calculation

: Launched on full market capitalization method and effectiveSeptember 01, 2003, calculation method shifted to free-floatmarket capitalization.

Number of scrips : 30

Index calculation

frequency

: 15 seconds

Companies Listed in the Sensex:

A list of BSE Sensex listed companies is given below which provides the full list of companiesthat have been part of the BSE Sensex since its inception in 1986 (baselined to 1979).

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(As of January 12, 2009)

Code Name Sector Market Cap

(Rs. In Crore)

Weight in

Index (%)

500410 ACC Housing Related 15,500.35 0.87

500103 BHEL Capital Goods 100,672.24 3.29

532454 Bharti Airtel Telecom 156,785.10 5.12

532868 DLF Universal Limited* Housing related 110,217.43 1.54

500300 Grasim Industries Diversified 23,603.36 1.65

500010 HDFC Finance 67,579.99 5.36

500180 HDFC Bank Finance 46,771.18 3.49

500440 Hindalco Industries Metal, Metal Products &

Mining

20,217.87 1.32

500696 Hindustan Lever Limited FMCG 49,804.67 2.32

532174 ICICI Bank Finance 85,589.54 7.98

500209 Infosys Information Technology 81,783.17 6.49

500875 ITC Limited FMCG 77,736.80 5.08

532532 Jaiprakash Associates Housing Related 26,524.96 1.48

500510 Larsen & Toubro Capital Goods 88,321.36 7.42

500520 Mahindra & Mahindra

Limited

Transport Equipments 17,095.03 1.28

532500 Maruti Udyog Transport Equipments 23,966.53 1.12

532555 NTPC Power 162,435.65 2.27

500312 ONGC Oil & Gas 209,898.26 3.29

500359 Ranbaxy Laboratories Healthcare 16.375.36 1.07

532712 Reliance Communications Telecom 104,914.49 3.43

500325 Reliance Industries Oil & Gas 329,178.73 15.35

500390 Reliance Infrastructure Power 29,593.48 1.93

500112 State Bank of India Finance 100,976.76 4.24

500900 Sterlite Industries* Metal, Metal Products, and

Mining

18,428.34 0.95

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524715 Sun Pharmaceutical

Industries*

Healthcare 26,441.43 2.34

532540 Tata Consultancy Services Information Technology 79,355.53 1.85

500570 Tata Motors Transport Equipments 24,033.43 1.35

500400 Tata Power* Power 17,080.98 1.04

500470 Tata Steel Metal, Metal Products &

Mining

50,685.24 3.31

507685 Wipro Information Technology 62,133.50 1.16

DLF replaced Dr. Reddy's Lab on November 19, 2007.

Sterlite Industries replaced Ambuja Cements on July 28, 2008.

Tata Power Company replaced Cipla Ltd. on July 28, 2008.

Sun Pharmaceutical Industries replaced Satyam Computer Services on January 8, 2009.

Sensex milestones:

Here is a timeline on the rise and rise of the Sensex through Indian stock market history.

1000, July 25, 1990 - On July 25, 1990, the Sensex touched the four-digit figure for thefirst time and closed at 1,001 in the wake of a good monsoon and excellent corporateresults.

2000, January 15, 1992 - On January 15, 1992, the Sensex crossed the 2,000-mark andclosed at 2,020 followed by the liberal economic policy initiatives undertaken by thethen finance minister and current Prime Minister DrManmohan Singh.

3000, February 29, 1992 - On February 29, 1992, the Sensex surged past the 3000

mark in the wake of the market-friendly Budget announced by Manmohan Singh.

4000, March 30, 1992 - On March 30, 1992, the Sensex crossed the 4,000-mark andclosed at 4,091 on the expectations of a liberal export-import policy. It was then that theHarshad Mehta scam hit the markets and Sensex witnessed unabated selling.

5000, October 11, 1999 - On October 8, 1999, the Sensex crossed the 5,000-mark asthe Bharatiya Janata Party-led coalition won the majority in the 13th Lok Sabhaelection.

6000, February 11, 2000 - On February 11, 2000, the information technology boom

helped the Sensex to cross the 6,000-mark and hit and all time high of 6,006.

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7000, June 21, 2005 - On June 20, 2005, the news of the settlement between theAmbani brothers boosted investor sentiments and the scrips ofRIL, Reliance Energy,Reliance Capital and IPCL made huge gains. This helped the Sensex crossed 7,000

points for the first time.

8000, September 8, 2005 - On September 8, 2005, the Bombay Stock Exchange'sbenchmark 30-share index the Sensex - crossed the 8000 level following brisk buyingby foreign and domestic funds in early trading.

9000, December 9, 2005 - The Sensex on November 28, 2005 crossed 9000 to touch9000.32 points during mid-session at the Bombay Stock Exchange on the back offrantic buying spree by foreign institutional investors and well supported by localoperators as well as retail investors.

10,000, February 7, 2006 - The Sensex on February 6, 2006 touched 10,003 pointsduring mid-session. The Sensex finally closed above the 10,000-mark on February 7,2006.

11,000, March 27, 2006 - The Sensex on March 21, 2006 crossed 11,000 and touched apeak of 11,001 points during mid-session at the Bombay Stock Exchange for the firsttime. However, it was on March 27, 2006 that the Sensex first closed at over 11,000

points as robust foreign fund inflows and a move by government towards greater capitalaccount convertibility.

12,000, April 20, 2006 - The Sensex on April 20, 2006 crossed 12,000 and touched a

peak of 12,004 points during mid-session at the Bombay Stock Exchange for the firsttime in the wake of massive buying from mutual funds around Rs. 3400 cr. in just 19trading sessions, favourable credit policy.

13,000, October 30, 2006 - The Sensex on October 30, 2006 crossed 13,000 for thefirst time. It touched a peak of 13,039.36 and finally closed at 13,024.26. Sensex driverswere fund infusion from market players, falling oil prices, strong second quarter resultsfrom technology and banking companies, robust growth in infrastructure sector.

14,000, December 5, 2006 - The Sensex on December 5, 2006 crossed 14,000 in thewake of strong FII inflow and healthy corporate earnings.

15,000, July 6, 2007 - The Sensex on July 6, 2007 crossed 15,000 mark.

16,000, September 19, 2007 - The Sensex on September 19, 2007 crossed the 16,000mark.

17,000, September 26, 2007 - The Sensex on September 26, 2007 crossed the 17,000mark for the first time.

18,000, October 9, 2007 - The Sensex on October 09, 2007 crossed the 18,000 markfor the first time.

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19,000, October 15, 2007 - The Sensex on October 15, 2007 crossed the 19,000 markfor the first time.

20,000, October 29, 2007 - The Sensex on October 29, 2007 crossed the 20,000 mark

for the first time. The main drivers were strong FII buying coupled with short coveringled to sharp up move. Registration of FIIs and Participatory Note issue clarification has

put momemtum into sensex.

21,000, Jan 08, 2008 - The Sensex on January 08, 2008 touched all time peaks of21078 before closing at 20873 due to expectation of excellent quaterly result and strongforward momemtum.

Graphical Presentation:

May 2009

On May 18, 2009, the sensex surged 2110.79 points from the previous closing of 12174.42 this

leading to the suspension of trade for the whole day. This event created history in Dalal Street,by being the first ever time that trade had been suspended for an increase in value. This rally isprimarily due to the victory of the UPA in the 15th General elections.

Sensex falls:

The top 18 single-day falls of the Sensex have occurred on the following dates:

January 21, 2008 ---------1,408.35 points Oct 24, 2008---------------1070.63 points

March 17, 2008 --- -------951.03 points January 22, 2008 ---------857 points

February 11, 2008 --------833.98 points

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May 18, 2006 --------------826 points October 10,2008 --------- 800.10 points

March 13, 2008 --- -------770.63 points

December 17, 2007 ----- 769.48 points

January 7,2009 ------------749.05 points

March 31, 2007 ---------- 726.85 points

October 06, 2008 ---------724.62 points

October 17, 2007 ---------717.43 points

September 15, 2008 ------710.00 points January 18, 2007 ----------687.82 points

November 21, 2007 ------678.18 points

August 16, 2007 ----------642.70 points

June 27, 2008 -------------600.00 points

Major crashes since 2000:

May 2006

On May 22, 2006, the Sensex plunged by 1100 points during intra-day trading, leading to thesuspension of trading for the first time since May 17, 2004. The volatility of the Sensex hadcaused investors to lose Rs 6 lakh crore ($131 billion) within seven trading sessions. TheFinance Minister of India, P. Chidambaram, made an unscheduled press statement whentrading was suspended to assure investors that nothing was wrong with the fundamentals of theeconomy, and advised retail investors to stay invested. When trading resumed after thereassurances of the Reserve Bank of India and the Securities and Exchange Board of India(SEBI), the Sensex managed to move up 700 points, still 450 points in the red.

The Sensex eventually recovered from the volatility, and on October 16, 2006, the Sensexclosed at an all-time high of 12,928.18 with an intra-day high of 12,953.76. This was a result ofincreased confidence in the economy and reports that India's manufacturing sector grew by11.1% in August 2006.

Effects of thesubprime crisis in the U.S. :

On July 23, 2007, the Sensex touched a new high of 15,733 points. On July 27, 2007 theSensex witnessed a huge correction because of selling by Foreign Institutional Investors andglobal cues to come back to 15,160 points by noon. Following global cues and heavy selling inthe international markets, the BSE Sensex fell by 615 points in a single day on August 1, 2007.

January 2008

In the third week of January 2008, the Sensex experienced huge falls along with other marketsaround the world. On January 21, 2008, the Sensex saw its highest ever loss of 1,408 points atthe end of the session. The Sensex recovered to close at 17,605.40 after it tumbled to the day'slow of 16,963.96, on high volatility as investors panicked following weak global cues amid

fears of a recession in the US.

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The next day, the BSE Sensex index went into a free fall. The index hit the lower circuitbreaker in barely a minute after the markets opened at 10 AM. Trading was suspended for anhour. On reopening at 10.55 AM IST, the market saw its biggest intra-day fall when it hit a lowof 15,332, down 2,273 points. However, after reassurance from the Finance Minister of India,

the market bounced back to close at 16,730 with a loss of 875 points.

Gigantic drops of the SENSEX in a day

Of the six major falls of sensex in a day, three can be attributed to political developments andrests to scams. Political stability and scams have, to a large extent, influenced the marketinvestor sentiment ---- domestic and international.

Date Fall (points) Culprits

28th April 1992 570 Harshad Mehta involved in scam.

12th May 1992 333 Full effect of the scam.

9th May 1992 327 National Housing Bank involved in ascam.

31st March 1997 303 Congress withdraws support to Deve

Gowdas government17th April 1999 246 Vajpayees government falls.

17th May 2004 894.31 Defeat of the BJP-led NDAgovernment.

6th July, 2009 869 2009-10 Union Budget.

5.7Major Indian Stock Market Reforms:

Securities and Exchange Board of India (SEBI):

On 31st March 1992, the SEBI was established as an autonomous and statutory body. The SEBIis the regulatory authority to oversee the new issues, protect the interests of investors, promotethe development of the capital market and regulate the working of stock exchanges. It hasinitiated a number of measures in these directions such as registration of intermediaries, strictdisclosure norms, regulations on insider trading and inspection of the functioning of the stockexchanges and mutual funds, etc.

Over-the-Counter Exchange of India (OTCEI):

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Over the Counter Exchange of India has been promoted jointly by ICICI, UTI, IDBI, IFCI,GIC, LIC, SBI, Capital Markets, and Canbank Financial Servics. It has been registered as astock exchange with the SEBI and has commenced its operations from 6 th October 1992. Itsmain aim is to provide small and medium companies an access to capital market in order to

raise capital in a cost-effective manner. It is a regulatory body which supervises monitors andcontrols the trading activity at OTC (over the counter). The OTCEI operates at Mumbai withregional windows at other metrpolitan cities and representative offices in a few major cities.

5.8 National Stock Exchange (NSE):

With the liberalization of the Indian economy, it was found inevitable to lift the Indian stockmarket trading system on par with the international standards. On the basis of therecommendations of high powered Pherwani Committee, the National Stock Exchange wasincorporated in 1992 as a tax-paying company unlike other stock exchanges in the country byIndustrial Development Bank of India, Industrial Credit and Investment Corporation of India,Industrial Finance Corporation of India, all Insurance Corporations, selected commercial banksand others.

On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 inApril 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment inJune 1994. The Capital Market (Equities) segment commenced operations in November 1994and operations in Derivatives segment commenced in June 2000.

The NSE was incorporated with the following objectives:-

To establish a nationwide trading facility for equities, debt intruments and hybrids.

To ensure all investor all over the country equal access through an appropiatecommunication network.

To provide a fair, efficient, and transparent securities market to investors through anelectronic trading system.

To enable shorter settlement cycles and book entry settlement system.

To meet the current international standards of securities markets.

The exchange is professionally managed in that the ownership and managemet of the NSE arecompletely separated from the rightto trade on the exchange. In order to upgrade the

professional standards of the market intermediaries, the exchange lays stress on factors such ascapital adequacy, corporate structure, track record, and educational experience.

Trading at NSE can be classified under two broad categories:

Wholesale debt market and

Capital market.

Wholesale debt market operations are similar to money market operations - institutions and

corporate bodies enter into high value transactions in financial instruments such as governmentsecurities, treasury bills, public sector unit bonds, commercial paper, certificate of deposit, etc.

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There are two kinds of players in NSE:

Trading members and

Participants.

Recognized members of NSE are called trading members who trade on behalf of themselvesand their clients. Participants include trading members and large players like banks who takedirect settlement responsibility.

Trading at NSE takes place through a fully automated screen-based trading mechanism whichadopts the principle of an order-driven market. Trading members can stay at their offices andexecute the trading, since they are linked through a communication network. The prices atwhich the buyer and seller are willing to transact will appear on the screen. When the pricesmatch 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 are streamlined coupled with the countrywide access to thesecurities.

Delays in communication, late payments and the malpractices prevailing in thetraditional trading mechanism can be done away with greater operational efficiencyand informational transparency in the stock market operations, with the support of

total computerized network.

Unless stock markets provide professionalised service, small investors and foreign investorswill not be interested in capital market operations. And capital market being one of the majorsources of long-term finance for industrial projects, India cannot afford to damage the capitalmarket path. In this regard NSE gains vital importance in the Indian capital market system.

NSE Milestones

November 1992 Incorporation.

April 1993 Recognition as a stock exchange.

May 1993 Formulation of business plan.

June 1994 Wholesale Debt Market segment goes live.

November 1994 Capital Market (Equities) segment goes live.

April 1995 Establishment ofNSCCL, the first Clearing Corporation.

June 1995 Introduction of centralised insurance cover for all trading

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June 2001 Commencement of trading in Index Options.

July 2001 Commencement of trading in Options on Individual

Securities.

November 2001 Commencement of trading in Futures on Individual

Securities.

December 2001 Launch ofNSE VaR for Government Securities.

January 2002 Launch ofExchange Traded Funds (ETFs).

May 2002 NSE wins the Wharton-Infosys Business Transformation

Award in the Organization-wide Transformation category.

October 2002 Launch ofNSE Government Securities Index.

January 2003 Commencement of trading in Retail Debt Market .

June 2003 Launch ofInterest Rate Futures.

August 2003 Launch of Futures & options in CNXIT Index .

June 2004 Launch of STP Interoperability.

August 2004 Launch of NSEs electronic interface for listed companies.

March 2005 India Innovation Award by EMPI Business School, New

Delhi.

June 2005 Launch of Futures & options in BANK Nifty Index.

December 2006 'Derivative Exchange of the Year', by Asia Risk magazine.

January 2007 Launch of NSE CNBC TV 18 media centre.

March 2007 NSE, CRISIL announce launch of IndiaBondWatch.com

June 2007 NSE launches derivatives on Nifty Junior & CNX 100.

October 2007 NSE launches derivatives on Nifty Midcap 50.

January 2008 Introduction of Mini Nifty derivative contracts on 1st

January 2008.

March 2008 Introduction of long term option contracts on S&P CNX

Nifty Index.

April 2008 Launch ofIndia VIX.

August 2008 Launch of Currency Derivatives.

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Index-based Market-wide Circuit Breakers:

An index based market-wide circuit breaker system applies at three stages of the indexmovement either way at 10%, 15% and 20%. These circuit breakers bring about a coordinatedtrading halt in trading on all equity and equity derivatives markets across the country. The

breakers are triggered by movements in either Nifty 50 or Sensex, whichever is breachedearlier.

In case of a 10% movement in either of these indices, there would be a one-hour markethalt if the movement takes place before 1:00 p.m. In case the movement takes place ator after 1:00 p.m. but before 2:30 p.m. there would be trading halt for hour. In casemovement takes place at or after 2:30 p.m. there will be no trading halt at the 10% level

and market would continue trading. In case of a 15% movement of either index, there should be a two-hour halt if themovement takes place before 1 p.m. If the 15% trigger is reached on or after 1:00 p.m.

but before 2:00 p.m., there should be a one-hour halt. If the 15% trigger is reached on orafter 2:00 p.m. the trading should halt for remainder of the day.

In case of a 20% movement of the index, trading should be halted for the remainder ofthe day.

5.9 FOREIGN INSTITUTIONAL INVESTMENTS AND THE INDIAN

STOCK MARKET:

An important feature of the 1990s was the participation of FIIs in the stock market.FIIs wasallowed to participate in the Indian stock Market in September 1992. They have become activeinvestors since August 1993. As of 31st July, 2009, there are 1,679 FIIs registered with SEBI.

FIIs Flows:

From the graph, we can see thesubstantial increase in FIIsinvestment during the years

between 2000 and 2006. FIIinvestment in India has come inwaves. The first wave of FII

came in 1993-94 when thestock markets were opened upfor foreign investors. FII netflow touched Rs. 6,791 crore in2000. Then a large number ofFIIs arrived with emergingmarket funds in 2000-01wherein the FII net investmenttouched a high of Rs. 13,084crore. However, the FII fundflow declined tremendously inthe year 2002. It came down to Rs. 3,555 crore. The major reasons for the decline in their

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investment were the dismal performance of the Indian stock market and the slow pace ofreforms.The third wave which came in 2003 brought in new FIIs such as Hedge funds,university funds and development market funds to encash Indias growth story. The net FIIinflow touched a record Rs. 30,893 crore in 2003 and Rs. 37,183 crore in 2004 with most of the

investment in promising mid-cap stocks. Since 2004, a rally in mid-cap shares raised themarket capitalisation ratio thereby benefitting FIIs and increasing their interest in Indian stock.This increased investment was on the account of strong macro-economic fundamentals,abolition of long-term capital gains tax, etc.

Most FIIs took advantage of depressed prices increased their stakes in frontline Sensex stockssuch as Infosys, HLL, Reliance, ITC, etc. FIIs increase their activity whenever there isdownturn in the stock market. They identified and picked up the old economy Indiancompanies which were being traded at a discount and actively bought those shares.

Sectoral Holding of FIIs:

Structural Reforms and Impact of FIIs on the Capital Market:

India has been in the forefront of utilizing technology to enhance its stock market performance.Both the stock exchanges (BSE and NSE) web sites provide a real-time update of variousindices, streaming quotes of stocks, the news updates, screen-based order matching system.

Further reforms on practices like rolling settlements, trade guarantee, demat settlement andderivative trading have certainly added depth (volume of a particular stock) and breadth(number of stocks traded) to the market.

Change in the Pattern of Equity Holding of Sensex Listed Companies:

Equity Holding Pattern of Sensex Companies

(In percentage) %

Promoters

Share

Institutional

Investor Share

Mutual

Fund &

UTI share

Banks, FIs,

Insurance

cos share

FIIs

share

Others

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March

-05

32.42 35.81 6.67 11.62 17.52 31.77

March

06

31.66 35.84 5.38 13.91 16.55 32.50

March 07

34.49 36.54 4.46 10.27 21.63 28.97

March

08

38.28 35.88 3.46 9.67 22.75 25.84

Source: CMIE Prowees Database

The growing significance of FIIs in the stock market can be observed from the share of FIIs inthe equity holding of the Sensex companies, which has increased from 17.52% in March 2005to 22.75% in March 2008. On the other hand, the domestic institutions have continuously

divested their share over the same period. Despite the increase in the share of FIIs thecombined share of the domestic institutions exceeds that of FIIs holding. Hence the FIIs alonecannot be squarely blamed for the destabilizing developments in the Sensex. The magnitudeand the duration of FIIs involvement in the stock market has definitely created opportunitiesand scope for the domestic players to grow to strength in terms of depth and breadth.

The total proportion of households investing in equities or in mutual funds has been around9%. Indian institutions of long-term finance like provident and pension funds do not invest inequities. This is on account of the prevailing legislation as well as the opposition of workmento equity investments. While insurance companies do invest a portion of their funds in equities,the penetration of insurance in India is at a very low level, limiting the availability of funds for

equity investments. Thus, a lot of domestic capital is flowing into unproductive uses like goldand in financing the fiscal deficit of the government.

6. Market Trend:

Almost every day in the investing world, we used to hear the terms "bull" and "bear" todescribe market conditions. As common as these terms are, however, defining andunderstanding what they mean is not so easy. Because the direction of the market is a majorforce affecting ones portfolio, it's important to know exactly what the terms bull and bear

market actually signify, how they are characterized and how each affects.

Bull and Bear- these two terms are constantly buzzing around the investing world. At the sametime, because the market is determined by investors' attitudes, these terms also denote howinvestors feel about the market and the ensuing trend.

Simply put, a bull market refers to a market that is on the rise. It is typified by a sustainedincrease in market share prices. In such times, investors have faith that the uptrend willcontinue in the long term. Typically, the country's economy is strong and employment levelsare high.

On the other hand, a bear market is one that is in decline. Share prices are continuously

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