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THE NATIONAL STOCK EXCHANGE OF INDIA (NSE) Located in India’s financial capital Mumbai, the National Stock Exchange (NSE) is the third largest stock exchange in the world. During 31 December 2005, NSE VSAT terminals, 2799 in total, were spanning across 320 cities of India. The NSE has been a podium for securities exchange for 14 years now! Thousand member strong, NSE provides dealing of different securities, some of them being equity, corporate debt, certificate of deposit, commercial paper, and central and state government securities. National Securities Clearing Corporation, India Index Services and Products, National Securities Depository, and NSE-IT (trading technology) are the associates of NSE. Owner of diverse financial and insurance establishments, NSE can be broadly divided into three segments:
• • •
Wholesale debt Capital market (automatic screen-based dealing system) Futures and options (derivatives)
GENESIS OF NSE It all began 16 years back, in November 1992, when the NSE was integrated as a taxpaying company. In April 1993, NSE was given the status of a stock exchange under the Securities Contract (Regulations) Act of 1956. A year later, in June 1994, NSE began operations in the Wholesale Debt Market (WDM), and in November that year, the Capital Market (Equities) Segment of the NSE began operations. Two years hence, in 1996, NSE became the first exchange in India to trade derivatives specifically on an equity index. In the new millennium, NSE began Indian Internet Online trading system. Today the NSE deals in online examinations and award certification. Comprising branches all over India, NSE introduced India’s first clearing corporation (National Securities Clearing Corporation Ltd.) and India’s first depository (National Securities Depository Ltd.). NSE is India’s earliest national, anonymous, electronic limit order book (LOB) exchange that deals with securities. MARKET INDICES NSE established an index services firm called IISL – India Index Services and products Ltd. – and opened numerous stock indices, including:
S&P CNX Nifty CNX Nifty Junior
Retail Debt Market 4.• • • CNX 100 (this is the total of S&P CNX Nifty and CNX Nifty Junior) S&P CNX 500 (this is equal to CNX 100 plus 400 major players across 72 industries) CNX Midcap (this replaced CNX Midcap 200 on 18 July 2005) The other NSE Indices are: • • • S&P CNX Defty CNX IT Bank IT MARKET CAPITALISATION Currently. Wholesale Debt Market MAJOR COMPANIES OF NSE The major companies listed with the NSE are: • • • • • • • • • • Asian paints Dabur Glaxo Escorts Hindustan Lever Bank of Baroda Infosys technologies ONGC Hero Honda Jet Airways The top investors of NSE are: • • • • • • • • Corporation Bank ITC MTNL ICICI Bank Grasim Biocon Maruti HDFC Bank . Equity 2. NSE has four important capital market segments: 1. Futures and Options 3.
The Singapore Exchange has become an alliance of BSE by acquiring a strategic investment in the BSE. the SENSEX is measured on the method of free-float capitalisation. charting. The oldest stock exchange of Asia. Managing . the BSE SENSEX is the stock index or SENSitive indEX of the BSE. shareholding pattern and results of the companies that are enlisted in the exchange. encompassing eminent financial professionals. The SENSEX was based on market-capitalisation-weighted method and included stocks of some of the top financial houses. Mr. the total equity market capitalization of the Bombay Stock Exchange was US$ 1. the BSE SENSEX.005 trillion. GENESIS OF BSE Way back in 1986. Noted financial analyst and columnist. C/1. Since September 2003. also known as BSE 30. is the focal stock index of India. Exchange Plaza Plot No. Deepak Mohoni in the year 1990. announcements. company contact. The Board of Directors. There are 4800 companies listed with the BSE. MARKET INDICES Apart from maintaining the BSE SENSEX. G Block Bandra-Kurla Complex Bandra (E) Mumbai 400051 BOMBAY STOCK EXCHANGE (BSE) Having its headquarters in Mumbai. introduced the term “BSE SENSEX” which is an acronym for Bombay Stock Exchange SENSitive indEX. the BSE introduced the stock index that eventually became the most important stock index of the country.• • Cipla Federal Bank LOCATION OF NSE National Stock Exchange of India Ltd. As of July 2007. the Bombay Stock Exchange also maintains stock indices like: • • • • • • SENSEX MIDCAP SMLCAP BSE-100 BSE-200 BSE-500 The BSE gives information on the price.
BSE PERFORMANCE Since June 1990. The returns thus have been 27% per year. and the representatives of the Trading Members. Beta being calculated by the formula: Beta = Co-Variance (SENSEX. While listing securities that may be from public limited companies. the figure has come down to 18% per year. with the rate of standard deviation being almost 3. maintain the overall functionality of the exchange.67%. As per the data available. state governments or other financial institutions. The stocks listed here are the most active stocks on the BSE. the BSE Index has been increasing ten-fold. The relevant authorities update BSE SENSEX and in the process inspect and change the SENSEX.52% every week. central government. BSE also gives the Beta value of the SENSEX Scrips. The BSE SENSEX has a base value of 100. Stock)/Variance (SENSEX). BSE COMPANIES Given below is a catalogue of stocks listed in the BSE: • • • • • • • Wipro ACC ITC Limited Bajaj Auto Larsen & Tourbo BHEL Maruti Udyog . since April 1979.Director of the exchange. the underlying idea being that the SENSEX represents the prevailing market condition. However after inflation. there are certain objectives followed by the BSE: • • • Protect the interest of the investors by giving full disclosures Provide liquidity to securities Mobilise savings to enable economic development BSE SENSEX OVERVIEW The BSE SENSEX comprises thirty stocks and is a value-weighted index. the long run rate of return on the BSE SENSEX has been at almost 0.
• • • • • • • • • • • • • • • • • • • • • • • Bharti Airtel NTPC Cipla ONGC Dr. Reddy's Laboratories Ranbaxy Laboratories Grasim Industries Reliance Communications Gujarat Ambuja Cements Reliance Energy HDFC Reliance Industries HDFC Bank Satyam Computer Services Hero Honda Motors State Bank of India Hindalco Industries Tata Consultancy Services Hindustan Lever Limited Tata Motors ICICI Bank Tata Steel Infosys About the Author: Myself Aditya Sharma (Sr.NriInvestIndia. .com) that helps NRIs. PIOs and OCIs to invest in India's top mutual funds.Investment Advisor). and I work for a NRI Investment company (www.
who knows the risk and can advise the investor accordingly. unlike other commodities. PE Ratio and Growth in earnings per share are the key. Buy stocks grown in top line and bottom line over the past years. Invest in companies with proven management. The broker is a professional. Only buy fundamentally strong stocks. Secondly. and are traded only in special market places called exchanges. or make offers to sell equities. 6. 10. Avoid loss-making companies. 3. however. However. Investors cannot.General Market Advice: 1. Buy when markets are in the grip of panic. The basic property of any asset class is to grow. Look for the dividend paying record. 13. Invest a fixed amount each month. 5. 4. Why are brokers required? Investing in equities is quite risky. How does the exchange works? An exchange has pre-specified timings. . an exchange will become an unwieldy mechanism if the entire universe of investors were to go and start making bids and offers. 9. What is an exchange? An exchange is a mechanism through which buyers and sellers of equities are brought together. Stocks have been the high yielding asset class over the past. 2. The members then place bids to buy equities. What is equity trading? It is simply buying and selling of equities. 12. this is largely electronic and done with computers. 7. Members of stock exchanges place bids and offers on behalf of their clients. all the members of the exchange link up to a central computer through their remote terminals. which are undervalued. During that time. Buy when everyone is selling and sell when everyone buys. participate directly in the exchange and can participate only through members of the exchange. 14. popularly referred to as brokers. Other members who can match the bid or the offer confirm their acceptance. 8. and the transaction is completed. Invest in stocks for sure returns. Never chase a stock. equities are not traded everywhere. Stocks are an asset class. Reducing the number of individuals is a way of keeping control. 11. who are the investors. These days.
the financial performance of the . To prevent these abuses. Which shares to Buy and sell? An index is an indicator of how the stock market is doing on the whole. once the broker confirms the trade. If you are selling the shares. the process is completed in a week to ten days time. What is an index? Buying and selling shares involve a fair amount of research. Equally. preventing abuse of the system.Third. The stocks selected are based upon a number of parameters that the creators of the index decide. the index for stocks listed on the Bombay Stock Exchange and Nifty. Periodically. When settlement does happen? Each exchange has its own settlement period within which the entire process of delivery and purchase should be completed. equity trading can also be abused. the list of shares used for computing the index also undergoes a change. These involve assessing how well the company is managed. you hand over the equities to the broker and the broker will pay you for your shares. how the industry itself is doing. The movement of the index itself is no indicator for individual shares. From that day onwards. Restricting activity to the members of the exchange will enable the regulations to be followed. how the company is performing compared to others in the industry. on the whole. the index for stocks listed on the National Stock Exchange. Typically. How are shares traded? Like in any other buying or selling. These changes are decided by the index creators based on the parameters they have set for the stocks for inclusion. An index shows whether the stock market. you pay the broker the value of the shares and take delivery of the shares. the value of these stocks is tracked and its score relative to 100 is computed. An index comprises a basket of stocks. exchanges as well as the Government has a number of regulations in place. The index is only an indicator of the general trend The common indexes in Indian stock markets are the SENSEX. the valuation is also done using complex mathematical principles. The collective value of these stocks on a given date is taken and given a score of 100. is appreciating in value or declining in value. You may find that a particular share may be increasing in its price even when the index is down and vice versa. if you are buying the share.
at least once in a year. before you decided to buy or sell a particular share. evaluate your holdings and decide whether to continue with them or change them. do not hold on to the share of a company whose value is declining. These risks arise as a result of factors described earlier. today there is strong legislation. it has been demonstrated that investments in equities offer the best long term returns and hence the highest opportunity to enhance your capital. Shares. as a class of investment have the highest element of risk. to drop its value overnight. etc. just because its history has been very good! Are investment in shares safe? Any investment is prone to a certain degree of risk. which to a large extent prevents risk as a result of misleading the investing public. one very important thumb rule which the professionals offer is. It is best that you consult an expert in such analysis. How Long to hold on the shares? Historically. Such investment advice is also provided by your share brokers. What is a Mutual Fund? . However. the longer you stay invested in the equity markets. Thus. NOTE:. The only services riskier than shares are lotteries and other games of chance. as a result of unpredictable factors ranging from Government policy to acts of omission and commission by the management of the company. and not necessarily for shares of individual companies. the interest of the lay public in the company. The value of shares of specific companies are subject to various pulls and pressures which could cause a share that is highly valued one day. It is advisable that you periodically.There is no risk involved if you follow our calls and then invest as our tips are very useful. never to get emotional about a share. In other words. However. However. this holds true for the equity market as a whole. procedures and a regulatory authority Securities Exchange Board of India (SEBI).company. the better will be your returns.
A mutual fund is a pool of money put together by a group of investors. On the other hand. mutual funds invest in investment opportunities that have a trading market around it. Professional investors. since there is no need to sell or buy from the market . when investors want to buy. etc. How does the investors benefit? The most important factors in choosing who to have a deposit with. This is called a mutual fund. the mutual fund itself is not traded nor does it offer guaranteed returns like a deposit. is the safety of the deposit. The investments that the mutual fund is going to make are discussed in the mutual fund's offer document. Thus. The mutual fund's Net Asset Value (NAV) determines the value of the investment. the investor can have greater control on the outcome of the investment. The funds collected are then invested by the AMC and are continually managed. so losses are minimized Access to funds is quick. The investments are managed by professionals who know more about deciding what to buy and sell and when to buy and sell The risks and rewards of investments are spread across a large number of individuals. This pool is created since small individual investments have limited power and ability to influence the outcome of the investment. bonds and debentures. How does a Mutual funds works? mutual fund is managed by an Asset Management Company (AMC). when the investment is large. What does the Mutual fund invest in? Mutual funds can be created for investing in anything. and the rate of interest that is paid on the deposit. such as stocks and shares. who stand to benefit or loose from that pool to the extent they have invested. The AMC creates a mutual fund. and invites the public to subscribe in the mutual fund with their investment. Investors redeem their investments in the mutual fund on the basis of the NAV from the mutual fund itself. Typically. who study where and when to make investments staff the AMC. Unlike other investments. they buy into the mutual fund on the basis of the NAV. Equally. many small investors gather their individual small investments into a larger investment to take advantage of the opportunities offered by large investments.
then the announced dividend is taken as the accrued dividend. Accrued dividends/interest: Companies announce dividends. on that specified date. interest is payable on debentures/bonds in a pre determined frequency at a pre determined rate. if the mutual fund were to be dissolved or liquidated. however. such as expenses. which is calculated by dividing the periodic interest payment with the number of days in each period. If a dividend is announced. are calculated on a daily basis. management fees. Expenses including management fees. interest is said to be accrued. by selling off all the assets in the fund. at the daily interest rate. the Net Asset Value is what all the holders of the mutual fund will collectively own and will be given this amount in proportion to their holdings. accrued interest on a particular day is equal to the daily interest rate multiplied by the number of days since the last interest payment date. Similarly. For debentures and bonds. Thus. pay it at a later date. What this means is. Therefore for every passing day. etc. . value is estimated on the basis of yields of comparable liquid securities after adjusting for illiquidity. How is Net Asset value calculated? Net Asset Value is calculated as follows: Net Asset Value = (Market value of shares/debentures + Liquid assets/cash held. It is calculated simply by dividing the Net Asset Value of the fund by the number of units. this could be the book value per share or an estimated market price based on performance of other shares in the industry. You can estimate your share of the holding of the mutual fund by the Net Asset Value per unit. if any + Dividends/interest accrued) .(Amount due on unpaid assets + Expenses incurred but not paid + Management and other fees) This is how the above are calculated Valuation of marketable shares/debentures: The last or closing market price on the principal exchange where the security is traded Valuation of illiquid and unlisted and/or thinly traded shares/debentures: For shares. custody charges etc.What is Net Asset value? The Net Asset Value of a mutual fund is the total market value of the holdings of the mutual fund less its liabilities. This is calculated on a daily basis. The management fees is as per the declaration in the offer document of the mutual fund. This is the value represented by the ownership of one unit in the fund. Commonly Net Asset Value is always referred by its unit value rather than by the total Net Asset Value of the fund.
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