1

Introduction

There was a time when India was discussed as the land of snake charmers, black
magic and epidemics but the revolutionary Indian growth story changed everything. Indian
economy at its height compelled the world to change its viewpoint towards India. Out of the
several factors which changed the face of modern India, we are going to discuss the most
roaring of them i.e. our share market. The earlier reform procedures adopted by India gave
India the two most sought after world-class brands i.e. SENSEX and NIFTY. The magical
figures displayed by our market turned all the heads on India. And India became one of the
most favored places for investment.

Of all the modern service institutions, stock exchanges are perhaps the most crucial
agents and facilitators of entrepreneurial progress. After the industrial revolution, as the
size of business enterprises grew, it was no longer possible for proprietors or partnerships
to raise colossal amount of money required for undertaking large entrepreneurial ventures.
Such huge requirement of capital could only be met by the participation of a very large
number of investors; their numbers running into hundreds, thousands and even millions,
depending on the size of business venture.

There have been significant reforms in the regulation of the securities market since
1992 in conjunction with overall economic and financial reforms. In 1992, the SEBI Act was
enacted giving SEBI statutory status as an apex regulatory body. And a series of reforms was
introduced to improve investor protection, automation of stock trading, integration of
national markets, and efficiency of market operations.

Securities market development has to be supported by overall macroeconomic and

financial sector environments. Further liberalization of interest rates, reduced fiscal deficits,
fully market-based issuance of Government securities and a more competitive banking
sector will help in the development of a sounder and a more efficient capital market in
India. Improving macroeconomic fundamentals, a sizeable skilled labor force and greater
integration with the world economy have increased India’s global competitiveness, placing
the country on the radar screens of investors the world over.

B.R.C.M. College of Business Administration

 2

1.1 Introduction to Investment

Investment may be defined as an activity that commits funds in any financial

form in the present with an expectation of receiving additional return in the future. The
expectations bring with it a probability that the quantum of return may vary from a
minimum to a maximum. This possibility of variation in the actual return is known as
investment risk. Thus every investment involves a return and risk.

“The money you earn is partly spent and the rest saved for meeting future expenses. Instead
of keeping the savings idle you may like to use savings in order to get return on it in the
future. This is called Investment.”
Source: www.sebi.gov.in

Why should one invest?

One needs to invest to:
 Earn return on your idle resources.
 Generate a specified sum of money for a specific goal in life.
 Make a provision for an uncertain future.
 One of the important reasons why one needs to invest wisely is to meet the cost of
Inflation. Inflation is the rate at which the cost of living increases.

What are various options available for investment?

One may invest in:
 Physical assets like real estate, gold/jewellery, commodities etc. and/or
 Financial assets such as fixed deposits with banks, small saving instruments with post
offices, insurance/provident/pension fund etc. or securities market related
instruments like shares, bonds, debentures etc.

The classification of corporate securities that can be chosen as investment avenues can be
depicted as shown below:

Equity Shares Preference shares Bonds Warrants Derivatives

B.R.C.M. College of Business Administration

 3

1.2 Capital Market

Basically the capital market is a type of financial market, it includes the stocks
and bonds market as well. But in general the capital market is the market for securities
where either companies or the government can raise long term funds. One way that the
companies or the government raise these long term funds is through issuing bonds, which is
where a person buys the bond for a set price and allows the government or company to
borrow their money for a certain time period but they are promised a higher return for
allowing them to borrow the money, the higher return is paid through interest that accrues
on the money that the government or company borrows.

Another way that the companies or government can raise money in the
capital market is through the stock market, most of the time you don't see the government
as a part of the stock market, but it can actually happen so we need to include them. But
how the stock market works is that the companies decide to sell shares of their stock, which
is basically ownership in the company, to ordinary people and other companies, as a way to
raise money. Following is the capital Market structure working presently in India.

 Background
The securities market in India witnessed several policy initiatives since the year 2000, which
further refined the market micro-structure, modernized operations and broadened
investment choices for the investors. A Joint Parliamentary Committee was constituted to
go into the irregularities and manipulations in all their ramifications in all transactions
relating to securities, decisions were taken to complete the process of demutualization and
corporatization of stock exchanges to implement the decision to separate ownership,
management and operation of stock exchanges and to effect legislative changes for investor
protection, and to enhance the effectiveness of SEBI as the capital market regulator. The
mainly event is described with date below:
Date Event
1876 Birth of Bombay Stock Exchange (BSE).
27 Jun 1969 Notification issued by government under SC(R)A prohibiting forward or

B.R.C.M. College of Business Administration

 4

futures trading.
Jan 1983 Regulatory permissions obtained for badla trading, a mechanism to carry
forward positions.
2 Jan 1986 Computation of BSE ’sensitive’ index commenced.
12 Apr 1988 SEBI created.
1992 Fixed income and equity markets scandal.
30 Jun 1994 Start of electronic debt trading at National Stock Exchange (NSE).
3 Nov 1994 Start of electronic equity trading at NSE.
13 Dec 1994 Ban on badla.
14 Mar 1995 Start of electronic trading on a few stocks at BSE.
3 Jul 1995 Electronic trading of all stocks on BSE.
5 Oct 1995 Ban on badla reversed.
Apr 1996 National Securities Clearing Corporation (NSCC) commenced operations.
8 Nov 1996 National Securities Depository Ltd (NSDL) commenced operations.
1999 Securities law modified to enable derivatives trading.
12 Jun 2000 Start of equity index futures trading.
4 Jun 2001 Start of equity index options trading.
2 Jul 2001 Major stocks moved to rolling settlement; start of stock options market.
After the above revolution the Rolling settlement on T+5 bases was
introduced in respect of most active 251 securities from July 2, 2001. Rolling settlement on
T+3 basis commenced for all listed securities from April 1, 2002 and subsequently on T+2
basis from April 1, 2003. Trading in index options commenced in June 2001 and trading in
options on individual securities commenced in July 2001. Futures contracts on individual
stock were launched in November 2001. Futures and options contracts on 49 individual
securities were made available from August 2003. Interest rate futures contract was
launched from June 2003.
The year 2001-02 has been quiet eventful for debt markets in India, with
implementation of several important decisions like setting up of a clearing corporation for
government securities, a negotiated dealing system to facilitate transparent electronic
bidding in auctions and secondary market transactions on a real time bases an
dematerialization of debt instruments. These developments in the securities market, which
support corporate initiatives, finance the exploitation of new ideas and facilitate
management of financial risks, hold out necessary impetus for growth, development and
strength of the emerging market economy of India.

Role of Capital Markets in Economy

 Mobilization of Savings & acceleration of Capital Formation

B.R.C.M. College of Business Administration

 5

 Promotion of Industrial Growth

 Raising of long term Capital
 Ready & Continuous Markets
 Proper Channelization of Funds
 Provision of a variety of Services
 Factors contributing to growth of Indian Capital Market
 Establishment of Development banks & Industrial financial institution.
 Legislative measures
 Growing public confidence
 Increasing awareness of investment opportunities
 Growth of underwriting business
 Setting up of SEBI
 Mutual Funds

Indian Capital Market

The Indian capital market is broadly divided into the gilt-edged market
and the industrial securities market.

(1) Gilt-edged market:

The gilt-edged market refers to the market for Government
and semi-government securities, backed by the Reserve Bank of India (RBI). Government
securities are tradable debt instruments issued by the Government for meeting its financial
requirements. The term gilt-edged means 'of the best quality'. This is because the
Government securities do not suffer from risk of default and are highly liquid (as they can be
easily sold in the market at their current price). The open market operations of the RBI are
also conducted in such securities.

(2) Industrial securities market:

The industrial securities market refers to the market which
deals in equities and debentures of the corporate. It is further divided into primary market
and secondary market.
(i) Primary Market (New Issue Market)

B.R.C.M. College of Business Administration

 6

It deals with 'new securities', that is, securities which were not previously available and are
offered to the investing public for the first time. It is the market for raising fresh capital in
the form of shares and debentures. It provides the issuing company with additional funds
for starting a new enterprise or for either expansion or diversification of an existing one, and
thus its contribution to company financing is direct. The new offerings by the companies are
made either as an initial public offering (IPO) or rights issue.

(ii) Secondary Market (Stock Market)

It is the market for buying and selling securities of the existing companies. Under this,
securities are traded after being initially offered to the public in the primary market and/or
listed on the stock exchange. The stock exchanges are the exclusive centers for trading of
securities. It is a sensitive barometer and reflects the trends in the economy through
fluctuations in the prices of various securities. It been defined as, "a body of individuals,
whether incorporated or not, constituted for the purpose of assisting, regulating and
controlling the business of buying, selling and dealing in securities".

Regulatory Framework
In India, the capital market is regulated by the Capital Markets Division of
the Department of Economic Affairs, Ministry of Finance. The division is responsible for
formulating the policies related to the orderly growth and development of the securities
markets (i.e. share, debt and derivatives) as well as protecting the interest of the investors.
In particular, it is responsible for:
(i) Institutional reforms in the securities markets,
(ii) Building regulatory and market institutions,
(iii) Strengthening investor protection mechanism, and
(iv) Providing efficient legislative framework for securities markets, such as securities
and exchange board of India act, 1992 (sebi act 1992); securities contracts
(regulation) act, 1956; and the depositories act, 1996.

The Securities and Exchange Board of India (SEBI) is the regulatory authority
established under the SEBI Act 1992, in order to protect the interests of the investors in
securities as well as promote the development of the capital market. It involves regulating

B.R.C.M. College of Business Administration

 7

the business in stock exchanges; supervising the working of stock brokers, share transfer
agents, merchant bankers, underwriters, etc; as well as prohibiting unfair trade practices in
the securities market. The following departments of SEBI take care of the activities in the
secondary market:

 Market Intermediaries Registration and Supervision Department (MIRSD) -

concerned with the registration, supervision, compliance monitoring and inspections
of all market intermediaries in respect of all segments of the markets, such as equity,
equity derivatives, debt and debt related derivatives.
 Derivatives and New Products Departments (DNPD) - concerned with supervising
trading at derivatives segments of stock exchanges, introducing new products to be
traded and consequent policy changes.
 Market Regulation Department (MRD) - concerned with formulation of new policies
as well as supervising the functioning and operations (except relating to derivatives)
of securities exchanges, their subsidiaries, and market institutions such as Clearing
and settlement organizations and Depositories.
1.3 Stock Market

Name of the STD Phone

No Stock Exchange Addresses Code no Email Id
OTC Exchange of 92, Maker Towers F, Cuffe Parade, 2218816
1 India Mumbai - 400005 022 4 www.otcei.com

B.R.C.M. College of Business Administration

 8

The Uttar Pradesh

Stock Exchange Padam Towers, 14/113, Civil
2 Association Ltd. Lines, Kanpur - 208001 0512 2338115 upse@vsnl.in
Stock Exchange Building, JLN
Jaipur Stock
Marg, Malviya Nagar, Jaipur -
3 Exchange Ltd. 302017 0141 2729094 jsel@datainfosys.net
P O Box no 183, New No: 30, (old
Madras Stock 2522895
no:11), Second Line Beach,
4 Exchange Ltd. Chennai - 600001 044 1 mseed@vsnl.com
MES Dr P K Abdul Gafoor
Cochin Stock Memorial Cultural Complex,
Exchange Ltd. 36/1565, 4th Floor, Judges
5 Avenue, Kaloor, Cochin - 682017 0484 3048521 cse1@vsnl.com
Stock Exchange Towers, 51, 1st
Bangalore Stock 4157523 edbgse@giasbg01.net
Cross, J C Road, Bangalore -
6 Exchange Ltd. 560027 080 4 .in
National Stock Exchange Plaza, Bandra-Kurla
Exchange of India Complex, Bandra(E), Mumbai - 2659823
7 Ltd. 400051 022 5 cmlist@nse.co.in
H/NO, 57 2A, 2nd Floor, Shine
Gauhati Stock Tower, Sati Jaymati Road, Arya
Exchange Ltd. Chowk, Rehabari, Guwahati - 781
8 008. 0361 2517883 iseght@iscindia.com
The Ludhiana
Stock Exchange Feroze Gandhi Market, Ludhiana -
9 Ltd. 141001 0161 2774716 lse@satyam.net.in
The Calcutta
Stock Exchange 2220692
10 Association Ltd. 7, Lyons Range, Kolkata - 700001 033 8 www.cseindia.com
Bhubaneshwar Stock Exchange Bhavan, P-2,
Jayadev Vihar,P.O.
Stock Exchange Chandrasekharpur, Bhubaneswar
11 Ltd. – 751 023” 0674 2545082 bhse@sancharnet.in
The Delhi Stock DSE House, 3/1, Asaf Ali Road, 2329241
12 Exchange Ltd. New Delhi - 110002 011 7 www.dseindia.com
Vadodara Stock Fortune Tower, Sayajigunj,
13 Exchange Ltd. Vadodara 0265 2361534 vse@d2visp.com
Kamdhenu Complex, Opp,
Ahmedabad Stock 2630797
Sahajanand College, Panjarapole,
14 Exchange Ltd. Ambawadi, Ahmedabad - 380001 079 1- 74 info@aseindia.org
Madhya Pradesh Palika Plaza, Phase II, 201, 2nd
Stock Exchange Floor, MTH Compound, Indore - 2432842 mpseind@sancharnet.
15 Ltd. 452001 0731 - 48 in
Shivleela Chambers, 752,
Pune Stock 2448570
Sadashiv Peth, RB Kumthekar
16 Exchange Ltd. Marg, Pune - 411030 020 2 punestock@vsnl.com
Bombay Stock Phiroze Jeejeebhoy Towers , Dalal 2272123
17 Exchange Ltd. Street, Mumbai - 400023 022 4 www.bseindia.com
(Source : www.sebi.gov.in)

B.R.C.M. College of Business Administration