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CONTENTS

1ST Chapter - Abstract


1. Introduction of the study

2. Objectives of the study

3. Need for the study

4. Scope of study

5. Methodology

2nd Chapter – Introduction


1. Industry profile

2. Company profile

3rd Chapter – Main text


1. Contribution

2. Analysis

3. Learning’s

4th Chapter – Summary


1. Findings

2. Suggestions

3. Conclusions

4. Questionnaire

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5. Bibliography

ABSTRACT
I am doing project in reliance money under the guidance of Mr. Murali
Krishna sir (he is a central manager in reliance money) and my faculty guide is
Prof.P.S.Rajesh.

I was allotted to the SIP program with “reliance money” and I was told to report
there on 27/04/2009.my company guide gave a brief notes on DMAT, SIP and
ULIPS .

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INTRODUCTION

Introduction of the study:-

Reliance Money is a financial super market. It contains all financial products. Like,

Life insurance, mutual funds, demit a\co’s, portfolio management, general

insurance, gold coins etc

Reliance Money, the financial services and products Distribution Company of

Reliance Anil Dhirubhai Amana Group, on Friday became the first financial

intermediary to introduce financial market information across mobile platforms. It

has tied up with webaroo for the initiative.

The company unveiled its “Mobile Financial Portal “, the first-of-its-kind portal

offering a range of financial services and information to its investors, across all

telecom operators .With this initiative, the company will now be tapping around

200 million telecom user base in India, that adds over five million customers every,

with its services.

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Objectives of the study:-
1. Financial market analysis and promotion of investments avenues to
prospective investors.

2. Capital Market Analysis

3. To create awareness in public about Reliance Money products.

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Needs for the study:-
1. Financial Analysis is very essential and important for the
betterment of the company.

2. In this heavy competition Reliance Money stands in 3rd place.

3. The brand of Reliance Money places a very important role in


the investment decision of the customers.

4. The Internal Rate of Return (IRR) is also very important role


where the company stands.

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Scope of the study:-
The survey was conducted by me in Visakhapatnam. A complete and a detailed

Study about Reliance Money in a span of 60 days all quite impossible. The scope

Of the study is very much confined some departments related to finance.

Especially Finance in that particular organization.

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METHODOLOGY OF THE STUDY

Data has been obtained from two sources.

1. Primary data.

2. Secondary data.

1. Primary Sources of Data

Interaction with the customers

2. Secondary Sources of Data

1. News papers

2. Business Line

3. Magazines

4. Web sties

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CHAPTER - 1
INTRODUCTION

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Industry profile
Reliance Money having more treats from Kary. KARVY a premier integrated
financial services company which has, over the years, firmly entrenched its name
into various segments of the financial services industry. Backed by a sound state-
of-the-art technology and a highly motivated employee force, Kirby has carved a
niche for itself and is ranked among the top companies in the area of financial
services. It has a wide network of 35 Branches and 93 customer service points,
which give Kirby a tremendous mileage in being close to the retail customer. All of
Kirby services are also backed by strong quality aspects, which have helped Kirby
to be certified as an ISO 9002 Company by DNV.

Apart from being the largest Registrar in the country, we are also a registered
Depository Participant with NSDL and CDSL, and ranked among the top 5
Depository Participants in the country. We offer these services at about 50
locations across the country and are one of the most widely networked Depository
Participants.

We are Stock Brokers and are Registered Members of the National Stock
Exchange and the Hyderabad Stock Exchange. We have over the last few years, set
up Trading Terminals across the country and today have a network of 100
Terminals located at 30 cities to provide retail stock broking services. Our Stock
Broking arm is backed by a very strong research team comprising of highly
charged professionals who conduct studies on various industry segment and
corporates.Karvy is SEBI registered Category I merchant banker and is today
ranked among the top ten in the country. Kirby is known in the merchant banking
segment as a professional advisor in structuring IPOs, takeover assignments and
buyback exercises.

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With the economy trends offering multifarious opportunities in corporate
consolidations, mergers and acquisitions, hive offs and corporate restructuring,
Kirby is positioning itself as a corporate consultant which would offer value added
services and act as a professional navigator for long term growth of its clients.
Kirby has the backing of a professional team with experience in handling financial
climates in both Indian and global markets. Backed by a predominantly service
oriented culture and also capitalizing on its experience of handling a variety of
customers, we offer a plethora of financial products through our retail arm –
KARVY-THE FINAPOLIS. The business of distribution of financial products

Includes Public Issue of bonds, equity shares, fixed deposits of corporate,


distribution of units of various Mutual Funds, a basket of liability products
comprising personal loans, car loans, housing loans and loans against shares and as
the sunrise market of Insurance products. Apart from these products, "The Fin
polis" also offers personal tax planning advice, share broking and demat services.
All these products reach the ultimate customer through our wide spread network of
branches and retail outlets.

An exclusive comprehensive financial portal offering a wide spectrum of financial


services and also supports the Electronic Custody and Mutual Fund servicing
businesses. The site is positioned to be an online personal finance advisor and
counsels investors on their personal financial planning based on individual earning
capacities. It is also a complete resource center for review of corporate actions like
bonus, rights, mergers, book closures and board meetings. Further, comprehensive
investment reviews of IPOs, mutual funds, bonds, fixed deposits and insurance
makes karvy.com a one-stop guide to the average investor. Other IT initiatives by
Kirby are an e-mail call centre and a medical transcription division.The underlying
reason for our steady growth is attributed to our ability to improve our work ethos
and, the quality of our human resources. We focus on continues training of our
workforce to enhance their skills and have a full fledged training centre catering to
the same. Kirby therefore offers good opportunities for various professionals to
upgrade their skills and add value to their learning curve.

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Company profile
Reliance Capital (RELCAPITAL) is a non-banking financial company (NBFC)
incorporated as a public limited company in 1986. In terms of net worth,
RELCAPITAL ranks among the top three companies in the private financial
services and banking sector in the country. RELCAPITAL primary focuses on
funding projects in the infrastructure along with leasing, investment in
infrastructure sector and insurance, supports the growth of its subsidiary
companies. Its subsidiary companies include Reliance Mutual Fund (RMF) of
Reliance Capital Asset Management, Reliance Capital Trustee Company, Reliance
General Insurance Company and Reliance Life Insurance Company and Reliance
Life Insurance Company.

After the demerger of Reliance Industries, Reliance Capital Venture is to be


amalgamated with Reliance Capital which in turn will be under the umbrella of
Anil Ambani owned Anil Dhirubhai Ambani group (ADAG) as a part of the
reliance group. Reliance land & Reliance Capital own 2,18,55,000 shares of
Adlabs films aggregating to 54.91% of the total paid-up capital of the company.
Reliance Capital Limited is a financial services company. The Company has
interests in asset management and mutual funds, life and general insurance, private
equity and investments, stock broking, depository services, distribution of financial
products, consumer finance and other activities in financial services. During the
fiscal year ended March 31, 2008, it launched Reliance Money and Reliance
Consumer Finance. Reliance Money is a brokerage and distributor of financial
products, which provides investment and trading access to equities, equity options,
commodities futures, mutual funds, initial public offerings (IPOs), life and general
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insurance products and credit cards. Reliance Consumer Finance provides a range
of products, such as personal loans, vehicle loans (car and commercial), home
loans and loan against property.

Other group companies include Reliance Life Insurance and Reliance Asset
Management. Reliance Capital Limited is a part of Reliance Anil Dhirubhai
Ambani Group.

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


Dhirubhai Amana Group. It is a comprehensive financial services and solution
provider providing customers with access to Equity, Equity and Commodity
Derivatives, Portfolio Management Services, Mutual Funds, IPOs, Life and
General Insurance and Gold Coins. Customers can also avail Loans, Credit Card,
Money Transfer and Money Changing services.

The largest broking house in India with over 2.5 million customers and a wide
network of over 10,000 outlets and 20,000 touch points in 5,000+ locations.
Reliance Money endeavors to change the way investors transact in financial
markets and avails financial services. The average daily volume on the stock
exchanges is Rs. 2,000 crores, representing approximately 3% of the total stock
exchange volume.

Reliance Capital is one of India's leading and fastest growing private sector
financial services companies, and ranks among the top 3 private sector financial
services and banking groups, in terms of net worth.

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About Reliance Money

Reliance Money has over 22 lakhs customers and more then 10'000 branches in
around 5000 cities in India. Company is among the largest broking and distribution
house of financial products and having share of more then 3% of total stock market
volume at BSE & NSE.

RelianceMoney.com is the web based investment portal (with Online Stock


Trading) from Reliance Money. This website enables its customer to invest &
manage most of the services provided by Reliance Money including Equity (Stock)
Trading, Commodity Trading, Derivatives, Mutual Fund Investment, IPO
Investment, Life Insurances, General insurances, Money Transfer, Forex exchange,
Gold Coins and Credit Cards Services. Company recently entered in to Wealth
Management with tools like investment in equity-linked portfolio management
services, structured products, insurance and mutual funds.

The Reliance Money stock trading websites uses special security features ', which
makes your online trading experience more secure without complexity.

Stock Trading through RelianceMoney.com is available for BSE and NSE stock
exchanges. Offline trading is also available through Reliance Money partners in
more then 5000 city across

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Products in Reliance Money

The investment options available with Reliance Money online portal are as below:

Equity (Stock) Trading at BSE, NSE and NSE F&O

IPO Investment

Derivatives Trading

Forex Trading

Commodity Trading (Gold, Silver, Crude etc....) at MCX, NCDEX and NMCE
Fund Investment

Life & General Insurance

'Pure Swiss' Gold Coins (99.99% pure, 24 carat)

Trading Platforms

Reliance Money provides 3 different trading platforms for equity trading:

Insta Trade

Fast Trade

Easytrade

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Reliance Money Technical Analysis (A paid service)

Reliance Money offers a simplified, automated, sophisticated technical analysis to


Indian retail broking consumers with the help of Recognia's Technical Analysis
tools. Recognia, a Canada based company, has proprietary pattern recognition
technology capable of recognizing patterns in the price charts of any publicly
traded financial instrument including stocks, bonds, funds, commodities,
currencies and indexes.

The technical services are available for introductory free 7-day trail period to
Reliance Money users. Post the trail period, this service is available to users at a
nominal subscription of Rs. 99 for 3 months/ Rs. 179 for 6 months/ Rs. 299 for a
year, i.e., less than Re 1 a day.

Reliance Money Brokerage and fees:

Reliance Money offers lowest brokerage rates in today's online stock trading
industry in India. The brokerages are as low as 0.075% for delivery based trading
and 0.02 for now delivery. For more detail about Reliance Money’s brokerage and
fees visit the below section of this

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The products offered by Reliance Money:-

Various polices of Reliance Money Major among them

1. Demat accounts

2. Life insurance

3. Mutual Fund

4. Gold coins

5. Portfolio Management

6. Franchise

7. General insurance

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Demat a/c:

It means De materialization. It is like entry pass for persons who are dealing with
share markets. The cost of Demat a/c in Reliance Money is 750/-.

Demat Account: Demat is simply short for Dematerialized account. Just as you
require an account with a bank for savings or making other transactions, you would
need a Demat account to buy or sell stocks and shares. In other words, a Demat
account holds the electronic listing of your shares....Demat account is an account
wherein you can hold shares of various companies in the dematerialized
electronic form.

Requirements of Demat Account:

1. Pan card ( Permanent Account Number)

2. Resident proof

3. Two Pass Port Photographs

4. Cancel Cheque

5. 1250/- Cheque

 Secured (Tokens):- This token which Reliance Money provides in which for
every 32 secs the number will be changed which is safe for the customer.

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Reliance Money Demat Account Charges

Reliance Money - Transacting and investing simplified


Fee Head DP Charges
Annual Services Charges - For Individuals / HUFs / Trust Rs. 50/-
Annual Services Charges - For NRIs / Foreign Nationals, Corporates / Others Rs. 1000/-
Transaction Charges - SELL (Market & Off Market)
Rs. 25/-
For instructions given in physical form.
Transaction Charges - SELL (Market & Off Market)
For instructions received through Internet/ online trading through Reliance Rs. 12/-
Securities Ltd.
Get ready to change the way you transact and invest in financial products and
services. Whether you wish to transact in Equity, Equity & Commodity
Derivatives, IPOs, Offshore Investments, or prefer to invest in Mutual Funds, Life
& General Insurance products or avail Money Transfer and Money Changing
services, you can do it all through Reliance Money. Simply open a Reliance
Money account and enjoy the convenience of handling all your key financial
transactions through this one window.

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Benefits of having Reliance Money account:

1. It's Cost-effective
You pay comparatively lower transaction fees. As an introductory offer, we
invite you to pay a flat fee of just Rs. 500/- and transact through Reliance
Money. This fee is valid for two months or a specified transaction value*.
See the table for details.
Validity (whichever is
Turnover limit
earlier)
Access Fee Time Turnover Non-delivery Delivery
(Rs.) Validity Validity turnover turnover
500 2 months Rs. l Cr. Rs. 90 Lac Rs. 10 Lac
1350 6 months Rs. 3 Cr. Rs. 2.7 Cr. Rs. 30 Lac
2500 12 months Rs. 6 Cr. Rs. 5.4 Cr. Rs. 60 Lac
2. It offers Single Window Access to almost all financial products.
3. It’s Convenient - Reliance Money's services are through the Internet,
Transaction Kiosks and over the phone.
4. Its Safe
Accounts are safe guarded with a unique security number that changes every
32 seconds. This number works as a dynamic password to keep your account
extra safe.
5. It provides you a 3...in...L facility
of Banking, Trading and Demat Account through a single window and
transfer funds across accounts seamlessly!

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LIFE INSURANCE

Insurance may be described as a social device to reduce or


eliminate risk of loss to life and property. Insurance is a collective
bearing of risk. Insurance is a financial device to spread the risks
and losses of few people among a large number of people, as
people prefer small fixed liability instead of big uncertain and
changing liability.

Insurance can be defined as a “legal contract between two parties


whereby one party called insurer undertakes to pay a fixed
amount of money on the happening of a particular event, which
may be certain or uncertain.” The other party called insured pays
in exchange a fixed sum known as premium. Insurance is desired
to safeguard oneself and one’s family against possible losses on
account of risks and perils. It provides financial compensation for
the losses suffered due to the happening of any unforeseen
events.

Insurance constitutes one of the major segments of the financial


market. Insurance services play predominant role in the process
of financial intermediary. Today insurance industry is one of the
most growing sectors in India. There is lot of potential in the
Indian Insurance Industry. There are many issues, which require
study. The scope of the study of insurance industry of India would
be very great as there are ongoing developments in the industry
after the opening of the sector. The major issue right now is the
hike in FDI (Foreign Direct Investment) limit from 26% to 49% in
the insurance sector. Government may in near future allow 49%
FDI in Insurance. This would lead to more capital inflow by foreign
partners .Another major issue is the effects on LIC after the entry
of private players in the market. Though market share of LIC has
been affected, it has improved
In terms of efficiency.

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There are number of other hot topics like penetration of Health
Insurance, Rural marketing of insurance, new distribution
channels, new product ranges, insurance brokers’ regulation,
incentive scheme of development officers of LIC etc. So it offers
lot of scope for studying the insurance industry.

Right now the insurance industry has great opportunities in a


country like India or China which huge population. Also the
penetration of insurance in India is very low in both life and non-
life segment so there is lot potential to be tapped. Before starting
the discussion on insurance industry and related issues, we have
to start with the basics of insurance. So first we understand what is
insurance? How the word ‘insurance’ is different from the word ‘assurance’?
Etc.

Unit Linked Insurance Plan (ULIP) provides for life insurance where the policy
value at any time varies according to the value of the underlying assets at the time.
ULIP is life insurance solution that provides for the benefits of protection and
flexibility in investment. The investment is denoted as units and is represented by
the value that it has attained called as Net Asset Value (NAV).

ULIP came into play in the 1960s and is popular in many countries in the world.
The reason that is attributed to the wide spread popularity of ULIP is because of
the transparency and the flexibility which it offers.

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Mutual Funds: A mutual fund is a company that brings together money from many
people and invests it in stocks, bonds or other assets. The combined holdings of
stocks, bonds or other assets the fund owns are known as its portfolio. Each
investor in the fund owns shares, which represent a part of these holdings.

Types of Mutual funds:

There are two types of mutual funds are there they are:

1. Open end
2. Close end

MUTUAL FUND

A mutual fund is a pool of money that is professionally managed for the benefit of
all shareholders. As an investor in a mutual fund, you wn a portion of the fund,
sharing in any increases or decreases in the value of the fund. A mutual fund may
focus on stocks, bonds, cash, or a combination of these asset classes.

The beauty of mutual funds Mutual funds offers a number of advantages, including
diversification, professional management, cost efficiency and liquidity.

Diversification. A mutual fund spreads your investment dollars around better than
you could do by yourself. This diversification tends to lower the risk of losing
money. Diversification usually results in lower volatility, because when some
investments are doing poorly, others may be doing well.

Professional management. Many people don't have the time or expertise to make
investment decisions. A mutual fund's investment managers, however, are trained
to search out the best possible returns, consistent with the fund's strategies and

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goals. In essence, your mutual fund investment brings you the services of a
professional money manager.

Cost efficiency. Putting your money together with other investors creates collective
buying power that may help you achieve more than you could on your own. As a
group, mutual fund investors can buy a large variety and number of specific
investments. They can also afford to pay for professional money managers and
fund operating expenses, where they wouldn't be able to afford it on their own.

Liquidity. With most funds, you can easily sell your fund shares for cash. Some
mutual fund shares are traded only once a day at a fixed price, while stocks and
bonds can be bought or sold any time the markets are open at whatever price is
then available.

No-load funds: Many funds are no-load funds that charge no (or a very low) sales
fee or commission. Financial companies typically sell no-load funds directly to
investors in places like newspapers and magazines. In this case, you complete all
the paperwork yourself.

Load funds: These funds charge a sales fee or commission for purchases. Some
funds charge the fee when you buy shares; others charge when you sell them.
Brokerage firms and banks often sell load funds, and will help process any
paperwork.

There are reputable, high-performing funds in both categories. Because sales


charges reduce your return, we believe that investors should consider no-load
funds whenever possible.

Funds typically give you two ways in which to invest: Lump sum. You can invest
any amount you want at one time, as long as you meet the minimum requirements

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of that fund. Some funds have no minimum for opening an account or no minimum
for additional share purchases, while others do.

Automatic investment. Most funds offer plans that allow you to transfer set
amounts on a regular basis automatically from your bank account or paycheck.
This is a great way to save money on a routine basis.

With automatic investing, you get the benefits of dollar cost averaging. That is,
when you make regular investments in a mutual fund, such as investing $100 every
month, you can take advantage of both the ups and downs of the market. When the
market is down, your monthly investment typically buys you more shares of the
fund, helping to increase your ownership in the fund. When the market is up, your
monthly investment typically buys you fewer shares of the fund, helping you avoid
buying too many shares at higher prices. Over a long period of time, the end result
is that the average cost of your fund shares is lower than the average price of the
fund shares during the same period.

To sell shares, you either call the fund directly if you have a no-load fund, or have
your broker or bank officer do it if you have a load fund. Typically, you are given
the option to have the proceeds deposited into your account or sent directly to you
by check or wire. Some funds will charge you a fee if you don't keep the fund
shares for a minimum amount of time (e.g., 90 or 180 days).

SharepriceThe value of a mutual fund share is calculated based on the value of the
assets owned by the fund at the end of every trading day. Here is how it works:

The fund calculates the value: A share's value is called the Net Asset Value
(NAV). The fund calculates the NAV by adding up the total value of all of the
securities it owns, subtracting the expenses of the fund, and then dividing by the
number of shares owned by shareholders like you.

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Value changes daily: Since the value of the stocks or bonds owned by the fund can
change daily, the value of the fund can also change daily. Therefore, a fund is
required by law to adjust its price once every trading day to provide investors with
the most current NAV.

To see the value of your investment, you take the value of one share and multiply it
by the number of shares you have in the fund. Or, if you are considering investing
say $1,000 in the fund, you would divide that money by the value of one share to
see how many shares that $1,000 would give you. While you cannot buy a fraction
of a share of stock, you can own a fraction of a mutual fund share, if the amount
you invest does not divide evenly by the NAV. Earning money once your money is
in a fund; it can provide you with earnings in three ways.

Appreciation: The value of a fund share can appreciate or go up in value. (Of


course, it can also go down in value.) When the total value of the securities owned
by the fund rises, the value of your fund shares rises with it. Again, the reverse is
also true.

Dividends: If the fund receives dividends from stocks, interest from bonds, or other
investment income, it distributes those earnings to shareholders as a dividend
according to the terms outlined in its prospectus. Depending on the fund, these
distributions can be monthly, quarterly, or annually.

Capital gain distributions: Every time the fund manager sells securities at a profit,
the fund earns capital gains. Funds are required to distribute these gains to the
shareholders at regular intervals, typically once or twice a year. You can choose to
have the fund automatically reinvest the money in more fund shares, keep it as
cash in your account, or send the money to you.

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Choosing the right funds—and trusting your decisions enough to back them with
your money—is challenging. To keep from getting overwhelmed, be sure you
understand what you want for your money (protection, income, growth), then look
only at the funds that aim for the same thing. But where can you look for
information...Look at the fund prospectus the prospectus is essentially the user's
manual for a mutual fund. It has the reputation of being dense and complicated to
read, but recent changes in regulations have required funds to make every
prospectus much simpler, especially in the key areas of understanding performance
and expenses. Simply looking at the charts and tables in the first few pages will tell
you a lot you need to know.

The SEC requires every fund to publish a prospectus and update it annually. It
covers all of the important elements, such as the history, management, financial
condition, performance, expenses, goals, strategies, types of allowable
investments, and policies. Performance. Each fund must tell you how much it has
increased or decreased in value in each of the past 10 years (or for every year of its
existence, if shorter). This is labeled in the prospectus as "performance" or as
"annual total return." Fund performance is required to be shown against a relevant
industry benchmark, a performance measure used by the industry of how the
market segment has performed as a whole compared to the investments in that
segment held by the fund. Typically, the benchmark will be an "index" for that
category. Average annual return. While every fund has to show its annual
performance, every fund also must to tell you its average return on a yearly basis.
Average annual return is important because it keeps funds from promoting their
best years and ignoring their worst years. It takes the total returns for each year and
averages them across the number of years the fund has been in existence.

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Fees and expenses. The prospectus will tell you if a fund charges a sales charge or
is a "no-load" fund, meaning that there is no up-front sales charge. All funds
charge management fees and expenses, which will be described in the prospectus.

Use independent rating services


Independent rating services, such as Morningstar, Lipper and Barons, often provide
a convenient way to find out information about a fund very quickly. These services
typically provide you with a rating or ranking of a fund based on its performance
relative to its broader peer group, as well an opinion about a fund's management
team and operations. When you subscribe to a service, you may get access to a
wide range of information and services, depending on your subscription level.
Tools and resources typically include access to fund ratings or rankings, computer-
based guides, educational materials, and monthly and quarterly newsletters.

Risks Because mutual funds typically hold a large number of securities, their level
of diversification provide them with a lower level of risk than investing in a single
stock or bond.

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ABOUT SYSTEMATIC INVESTMENT PLAN

The Systematic Investment Plan (SIP) is a simple and time honored investment
strategy for accumulation of wealth in a disciplined manner over long term period.
The plan aims at a better future for its investors as an SIP investor gets good rate of
returns compared to a one time investor.

• A specific amount should be invested for a continuous period at regular


intervals under this plan.
• SIP is similar to a regular saving scheme like a recurring deposit. It is a
method of investing a fixed sum regularly in a mutual fund.
• SIP allows the investor to buy units on a given date every month. The
investor decides the amount and also the mutual fund scheme.
• While the investor's investment remains the same, more number of units can
be bought in a declining market and less number of units in a rising market.
• The investor automatically participates in the market swings once the option
for SIP is made.

SIP ensures averaging of rupee cost as consistent investment ensures that average
cost per unit fits in the lower range of average market price. An investor can either
give post dated cherubs or ECS instruction and the investment will be made
regularly in the mutual fund desired for the required amount. SIP generally starts at
minimum amounts of Rs.1000/- per month and upper limit for using an ECS is
Rs.25000/- per instruction. For instance, if one wishes to invest Rs.1, 00,000/- per
month, then they need to do it on four different dates.

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Protection and wealth creation are the two objectives of any investor. Birla
Sun Life Mutual fund now offers you the benefit of both through Birla Sun
Life Century SIP (CSIP).

Wealth Creation – Systematic Investment Plans (SIP) as a mode of


investment is known to create long term wealth for the investor.

Protection – Century SIP offers its investors Life Insurance Cover of up to


100 times the SIP installment amount.

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CAPITAL
MARKET

CAPITAL MARKET

Capital market is a market for long-term debt and equity shares. In this market, the
Capital funds comprising of both equity and debt are issued and traded. This also
Includes private placement sources of debt and equity as well as organized markets
Like stock exchanges.

Capital market can be divided into Primary and Secondary Markets.

PRIMARY MARKET

Role of the ‘Primary Market

The primary market provides the channel for sale of new securities. Primary
Market provides opportunity to issuers of securities; Government as well as
Corporate, to raise resources to meet their requirements of investment And /or

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discharge some obligation. They may issue the securities at face value, or at a
discount/premium and these securities may take a variety of forms such as equity,
debt etc. They May issue the securities in domestic market and/or international
market.

Face Value of a share/debenture

The nominal or stated amount (in Rs.) assigned to a security by the issuer. For
shares, it is the original cost of the stock shown on the certificate; for Bonds, it is
the amount paid to the holder at maturity. Also known as par Value or simply par.
For an equity share, the face value is usually a very Small amount (Rs. 5, Rs. 10)
and does not have much bearing on the price of the share, which may quote higher
in the market, at Rs. 100 or Rs. 1000? Or any other price.

For a debt security, face value is the amount repaid to the investor when the bond
matures (usually, Government securities and Corporate bonds have a face value of
Rs. 100). The price at which the Security trades depends on the fluctuations in the
interest rates in the Economy.

Premium and Discount in security Market

Securities are generally issued in denominations of 5, 10 or 100. This is known as


the Face Value or Par Value of the security as discussed earlier. When a security is
sold above its face value, it is said to be issued at a Premium and if it is sold at less
than its face value, then it is said to be issued at a Discount.

Issue of Shares
Companies need to issue shares to the public
Most companies are usually started privately by their promoter(s). However, the
promoters’ capital and the borrowings from banks and financial Institutions may
not be sufficient for setting up or running the business over a long term. So
companies invite the public to contribute towards the equity and issue shares to
individual investors. The way to invite share capital from the public is through a
‘Public Issue’. Simply stated, a public issue is an offer to the public to subscribe to
the share capital of a company. Once this is done, the company allots shares to the
applicants as per the prescribed Rules and regulations lay down by SEBI.

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Kinds of issues
Primarily, issues can be classified as a Public, Rights or Preferential issues (Also
known as private placements). While public and rights issues involve a detailed
procedure, private placements or preferential issues are relatively Simpler. The
classification of issues is illustrated below:

Initial Public Offering (IPO) is when an unlisted company makes either a Fresh
issue of securities or an offer for sale of its existing securities or both for the first
time to the public. This paves way for listing and trading of the Issuer’s securities.

A follow on public offering (Further Issue) is when an already listed Company


makes either a fresh issue of securities to the public or an offer for Sale to the
public, through an offer document.

Rights Issue is when a listed company which proposes to issue fresh Securities to
its existing shareholders as on a record date. The rights are normally offered in a
particular ratio to the number of securities held prior to the issue. This route is best

suited for companies who would like to raise Capital without diluting stake of its
existing shareholders.

A Preferential issue is an issue of shares or of convertible securities by listed


companies to a select group of persons under Section 81 of the Companies Act,
1956 which is neither a rights issue nor a public issue. This is a faster way for a
company to raise equity capital? The issuer company Has to comply with the
Companies Act and the requirements contained in The Chapter pertaining to
preferential allotment in SEBI guidelines which Inter-alia includes pricing,
disclosures in notice etc.

Issue price
The price at which a company's shares are offered initially in the primary Market is
called as the Issue price. When they begin to be traded, the Market price may be
above or below the issue price.

Market Capitalization
The market value of a quoted company, which is calculated by multiplying its
current share price (market price) by the number of shares in issue, is called as
market capitalization. E.g. Company A has 120 million shares in Issue. The current

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market price is Rs. 100. The market capitalization of Company A is Rs. 12000
million.
Classification of Issues
Issues
Rights Preferential
Initial Public Offering
Public
Further Public Offering
Fresh Issue Offer for Sale Fresh Issue Offer for Sale

Public issue and private placement


When an issue is not made to only a select set of people but is open to the General
public and any other investor at large, it is a public issue. But if the Issue is made
to a select set of people, it is called private placement. As per Companies Act,
1956, an issue becomes public if it results in allotment to 50 Persons or more. This

Means an issue can be privately placed where an Allotment is made to less than 50
persons.

Initial Public Offer (IPO)


An Initial Public Offer (IPO) is the selling of securities to the public in the Primary
market. It is when an unlisted company makes either a fresh issue of securities or
an offer for sale of its existing securities or both for the first Time to the public.
This paves way for listing and trading of the issuer’s Securities. The sale of
securities can be either through book building or through normal public issue.

Indian primary market ushered in an era of free pricing in 1992. Following this, the
guidelines have provided that the issuer in consultation with Merchant Banker shall
decide the price. There is no price formula stipulated By SEBI. SEBI does not play
any role in price fixation. The company and Merchant banker are however required
to give full disclosures of the Parameters which they had considered while
deciding the issue price. There Are two types of issues, one where company and
Lead Merchant Banker fix a Price (called fixed price) and other, where the
company and the Lead Manager (LM) stipulates a floor price or a price band and
leaves it to market Forces to determine the final price (price discovery through
book building Process).

Book Building is basically a process used in IPOs for efficient price discovery. It is
a mechanism where, during the period for which the IPO is open, bids are collected

35
from investors at various prices, which are above or equal to the floor price. The
offer price is determined after the bid closing date.

Offer of shares through book building and offer of shares through normal
public issue
Price at which securities will be allotted is not known in case of offer of Shares
through Book Building while in case of offer of shares through normal Public
issue, price is known in advance to investor. Under Book Building, Investors bid
for shares at the floor price or above and after the closure of the book building
process the price is determined for allotment of shares. In case of Book Building,

The demand can be known everyday as the book is being built. But in case of the
public issue the demand is known at the Close of the issue.

Cut-Off Price
In a Book building issue, the issuer is required to indicate either the price Band or a
floor price in the prospectus. The actual discovered issue price can be any price in
the price band or any price above the floor price. This issue Price is called “Cut-
Off Price”. The issuer and lead manager decides this after considering the book
and the investors’ appetite for the stock.

Floor price in case of book building


Floor price is the minimum price at which bids can be made.

Price Band in a book built IPO


The prospectus may contain either the floor price for the securities or a price Band
within which the investors can bid. The spread between the floor and the cap of the
price band shall not be more than 20%. In other words, it means that the cap should
not be more than 120% of the floor price e. The Price band can have a revision and
such a revision in the price band shall be Widely disseminated by informing the
stock exchanges, by issuing a press Release and also indicating the change on the
relevant website and the Terminals of the trading me ambers participating in the
book building process. In case the price band is revised, the bidding period shall be
extended for a further period of three days, subject to the total bidding period not
exceeding ten days.

Price Band

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It may be understood that the regulatory mechanism does not play a role in setting
the price for issues. It is up to the company to decide on the price or the price band,
in consultation with Merchant Bankers As per SEBI guidelines, the Basis of
Allotment should be completed with 15 Days from the issue close date. As soon as

The basis of allotment is completed, within 2 working days the details of credit to
demit account / Allotment advice and dispatch of refund order needs to be

Completed. So an Investor should know in about 15 day’s time from the closure of
issue, whether shares are allotted to him or not.

The role of a ‘Registrar’ to an issue


The Registrar finalizes the list of eligible allotters after deleting the invalid
Applications and ensures that the corporate action for crediting of shares to the
demit accounts of the applicants is done and the dispatch of refund Orders to those
applicable are sent. The Lead Manager coordinates with the Registrar to ensure
follow up so that that the flow of applications from Collecting bank branches,
processing of the applications and other matters Till the basis of allotment is
finalized, dispatch security certificates and Refund orders completed and securities
listed.

NSE provide any facility for IPO


NSE’s electronic trading network spans across the country providing Access to
investors in remote areas. NSE decided to offer this infrastructure for conducting
online IPOs through the Book Building process. NSE operates a fully automated
screen based bidding system called NEAT IPO that enables Trading members to
enter bids directly from their offices through a sophisticated telecommunication
network. Book Building through the NSE system offers several advantages:
§ The NSE system offers a nation wide bidding facility in securities

§ It provide a fair, efficient & transparent method for collecting bids using the
latest electronic trading systems
§ Costs involved in the issue are far less than those in a normal IPO
§ The system reduces the time taken for completion of the issue Process the IPO
market timings are from 10.00 a.m. to 3.00 p.m. On the last day of The IPO, the

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session timings can be further extended on specific request by The Book Running
Lead Manager.

Prospectus
A large number of new companies float public issues. While a large number of
these companies are genuine, quite a few may want to exploit the Investors.
Therefore, it is very important that an investor before applying for any issue
identifies future potential of a company. A part of the guidelines Issued by SEBI
(Securities and Exchange Board of India) is the disclosure of Information to the
public. This disclosure includes information like the reason for raising the money,
the way money is proposed to be spent, the return expected on the money etc. This
information is in the form of ‘Prospectus’ Which also includes information
regarding the size of the issue, the current Status of the company, its equity capital,
its current and past performance, The promoters, the project, cost of the project,
means of financing, product And capacity etc. It also contains lot of mandatory
information regarding Underwriting and statutory compliances. This helps
investors to evaluate Short term and long term prospects of the company.

Draft Offer document


‘Offer document’ means Prospectus in case of a public issue or offer for sale And
Letter of Offer in case of a rights issue which is filed with the Registrar of
Companies (ROC) and Stock Exchanges (SEs). An offer document covers all the
relevant information to help an investor to make his/her investment Decision.
‘Draft Offer document’ means the offer document in draft stage. The draft Offer
documents are filed with SEBI, at least 21 days prior to the filing of the Offer
Document with ROC/SEs. SEBI may specify changes, if any, in the Draft Offer
Document and the issuer or the lead merchant banker shall carry out such changes
in the draft offer document before filing the Offer Document with ROC/SEs. The
Draft Offer Document is available on the SEBI Website for public comments for a
period of 21 days from the filing of the Draft Offer Document with SEBI.

Abridged Prospectus
‘Abridged Prospectus’ is a shorter version of the Prospectus and contains all the
salient features of a Prospectus. It accompanies the application form of Public
issues.

Prospectuses/‘Offer Documents’
Generally, the public issues of companies are handled by ‘Merchant Bankers’ Who
are responsible for getting the project appraised, finalizing the cost of The project,

38
profitability estimates and for preparing of ‘Prospectus’. The ‘Prospectus’ is
submitted to SEBI for its approval.

‘Lock-in’
‘Lock-in’ indicates a freeze on the sale of shares for a certain period of time. SEBI
guidelines have stipulated lock-in requirements on shares of promoters mainly to
ensure that the promoters or main persons, who are controlling The Company,
shall continue to hold some minimum percentage in the Company after the public
issue.
‘Listing of Securities’ Listing means admission of securities of an issuer to
trading privileges (Dealings) on a stock exchange through a formal agreement. The
prime Objective of admission to dealings on the exchange is to provide liquidity
And marketability to securities, as also to provide a mechanism for effective
Control and supervision of trading.

‘Listing Agreement’ at the time of listing securities of a company on a stock


exchange, the Company is required to enter into a listing agreement with the
exchange. The listing agreement specifies the terms and conditions of listing and
the Disclosures that shall be made by a company on a continuous basis to the
Exchange.

‘Delisting of securities’ the term ‘Delisting of securities’ means permanent


removal of securities of a listed company from a stock exchange. As a
consequence of delisting, the Securities of that company would no longer be traded
at that stock Exchange.

SEBI’s Role in an Issue Any company making a public issue or a listed company
making rights Issue of value of more than Rs 50 laky is required to file a draft offer
Document with SEBI for its observations. The company can proceed further
On the issue only after getting observations from SEBI. The validity period of
SEBI’s observation letter is three months only i.e. the company has to open
Its issue within three months period.

SEBI recommends an issue


SEBI does not recommend any issue nor does take any responsibility either
For the financial soundness of any scheme or the project for which the issue
Is proposed to be made or for the correctness of the statements made or Opinions
expressed in the offer document. SEBI mainly scrutinizes the issue For seeing that

39
adequate disclosures are made by the issuing company in the Prospectus or offer
document.

SEBI tag makes one’s money safe


The investors should make an informed decision purely by themselves based on
the contents disclosed in the offer documents. SEBI does not associate itself with
any issue/issuer and should in no way be construed as a Guarantee for the funds
that the investor proposes to invest through the Issue. However, the investors are
generally advised to study all the material Facts pertaining to the issue including
the risk factors before considering any Investment. They are strongly warned
against relying on any ‘tips’ or news through unofficial means.

Foreign Capital Issuance


Yes. Indian companies are permitted to raise foreign currency resources Through
two main sources: a) issue of foreign currency convertible bonds More commonly
known as ‘Euro’ issues and b) issue of ordinary shares Through depository receipts
namely ‘Global Depository Receipts (GDRs)/American Depository Receipts
(ADRs)’ to foreign investors i.e. to the Institutional investors or individual
investors.

American Depository Receipt


An American Depositary Receipt ("ADR") is a physical certificate evidencing
Ownership of American Depositary Shares ("ADSs"). The term is often used to
refer to the ADSs themselves.

Adman American Depositary Share ("ADS") is a U.S. dollar denominated form of


Equity ownership in a non-U.S. company. It represents the foreign shares of The
Company held on deposit by a custodian bank in the company’s home Country and
carries the corporate and economic rights of the foreign shares, Subject to the
terms specified on the ADR certificate. One or several ADSs can be represented by
a physical ADR certificate. The Terms ADR and ADS are often used
interchangeably. ADSs provide U.S. investors with a convenient way to invest in
overseas

Securities and to trade non-U.S. securities in the U.S. ADSs are issued by a
Depository bank, such as JPMorgan Chase Bank. They are traded in the Same
manner as shares in U.S. companies, on the New York Stock Exchange (NYSE)
and the American Stock Exchange (AMEX) or quoted on NASDAQ And the over-
the-counter (OTC) market. Although ADSs are U.S. dollar denominated securities

40
and pay dividends in U.S. dollars, they do not eliminate the currency risk
associated with an Investment in a non-U.S. company.

Global Depository Receipts Global Depository Receipts (GDRs) may be defined


as a global finance Vehicle that allows an issuer to raise capital simultaneously in
two or Markets through a global offering. GDRs may be used in public or private
Markets inside or outside US. GDR, a negotiable certificate usually represents
Company’s traded equity/debt. The underlying shares correspond To the GDRs in
a fixed ratio say 1 GDR=10 shares.

SECONDARY MARKET

Introduction Secondary market

Secondary market refers to a market where securities are traded after being initially
offered to the public in the primary market and/or listed on the Stock Exchange.
Majority of the trading is done in the secondary market. Secondary market
comprises of equity markets and the debt markets.

The role of the Secondary Market


For the general investor, the secondary market provides an efficient Platform for
trading of his securities. For the management of the company, Secondary equity
markets serve as a monitoring and control conduit—by Facilitating value-
enhancing control activities, enabling implementation of Incentive-based
management contracts and aggregating information (via Price discovery) that
guides management decisions. In the primary market, securities are offered to
public for subscription for The purpose of raising capital or fund. Secondary
market is an equity trading Venue in which already existing/pre-issued securities
are traded among Investors. Secondary market could be either auction or dealer
Market. While Stock exchange is the part of an auction market, Over-the-Counter
(OTC) is a part of the dealer market.

Stock Exchange
The role of a Stock Exchange in buying and selling shares

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The stock exchanges in India, under the overall supervision of the regulatory
Authority, the Securities and Exchange Board of India (SEBI), provide a Trading
platform, where buyers and sellers can meet to transact in Securities. The trading
platform provided by NSE is an electronic one and there is no need for buyers and
sellers to meet at a physical location to Trade. They can trade through the
computerized trading screens available With the NSE trading members or the
internet based trading facility provided by the trading members of NSE.

Demutualization of stock exchanges


Demutualization refers to the legal structure of an exchange whereby the
Ownership, the management and the trading rights at the exchange are segregated
from one another.

In a mutual exchange, the three functions of ownership, management and Trading


is concentrated into a single Group. Here, the broker members of the exchange are
both the owners and the traders on the exchange and they further manage the
exchange as well. This at times can lead to conflicts Of interest in decision making.
A demutualised exchange, on the other hand, has all these three functions clearly
segregated, i.e. the ownership, Management and trading are in separate hands.
Currently, two stock exchanges in India, the National Stock Exchange (NSE)
And Over the Counter Exchange of India (OTCEI) is demutualised.

Stock Trading
The trading on stock exchanges in India used to take place through open Outcry
without use of information technology for immediate matching or Recording of
trades. This was time consuming and inefficient. This imposed Limits on trading
volumes and efficiency. In order to provide efficiency, Liquidity and transparency,
NSE introduced a nationwide, on-line, and fully automated Screen based trading
system (SBTS) where a member can punch Into the computer the quantities of a
Security and the price at which he would like to transact, and the transaction is
executed as soon as a Matching sale or buy order from a counter party is found.

NEAT
NSE is the first exchange in the world to use satellite communication Technology
for trading. Its trading system, called National Exchange for Automated Trading
(NEAT), and is a state of-the-art client server based Application. At the server end
all trading information is stored in an in memory Database to achieve minimum
response time and maximum system Availability for users. It has uptime record of

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99.7%. For all trades entered Into NEAT system, there is uniform response time of
less than one second.

Place orders with the broker

You may go to the broker’s office or place an order on the phone/internet or as


defined in the Model Agreement, which every client needs to enter into with his or
her broker.

An investor get access to internet based trading facility


There are many brokers of the NSE who provide internet based trading Facility to
their clients. Internet based trading enables an investor to buy/sell Securities
through internet which can be accessed from a computer at the Investor’s residence
or anywhere else where the client can access the Internet. Investors need to get in
touch with an NSE broker providing this Service to avail of internet based trading
facility.

Contract Note
Contract Note is a confirmation of trades done on a particular day on behalf Of the
client by a trading member. It imposes a legally enforceable Relationship between
the client and the trading member with respect to Purchase/sale and settlement of
trades. It also helps to settle Disputes/claims between the investor and the trading
member. It is a Prerequisite for filing a complaint or arbitration proceeding against
the Trading member in case of a dispute. A valid contract note should be in the
Prescribed form, contain the details of trades, stamped with requisite value and
duly signed by the authorized signatory. Contract notes are kept in Duplicate, the
trading member and the client should keep one copy each. After verifying the
details contained therein, the client keeps one copy and Returns the second copy to
the trading member duly acknowledged by him.

Required to be mentioned on the contract note issued by the stock broker

A broker has to issue a contract note to clients for all transactions in the Form
specified by the stock exchange. The contract note inter-alia should Have
following:
§ Name, address and SEBI Registration number of the Member broker.
§ Name of partner/proprietor/Authorized Signatory.
§ Dealing Office Address/Tel. No. /Fax no., Code number of the member Given by
he Exchange.

43
§ Contract number, date of issue of contract note, settlement number and time
period for settlement.
§ Constituent (Client) name/Code Number.
§ Order number and order time corresponding to the trades.
§ Trade number and Trade time.
§ Quantity and kind of Security bought/sold by the client.
§ Brokerage and Purchase/Sale rate.
§ Service tax rates, Securities Transaction Tax and any other charges Levied by the
broker.
§ Appropriate stamps have to be affixed on the contract note or it is mentioned that
the consolidated stamp duty is paid.
§ Signature of the Stock broker/Authorized Signatory.

The maximum brokerage that a broker can charge


The maximum brokerage that can be charged by a broker from his clients as
Commission cannot be more than 2.5% of the value mentioned in the Respective
purchase or sale note.

One trade on a recognized stock exchange only for buying/selling shares


An investor does not get any protection if he trades outside a stock Exchange.
Trading at the exchange offers investors the best prices Prevailing at the time in the
market, lack of any counter-party risk which is Assumed by the clearing
corporation, access to investor grievance and Redressed mechanism of stock
exchanges, protection up to a prescribed limit, From the Investor Protection Fund
etc.
The broker or sub broker is registered
One can confirm it by verifying the registration certificate issued by SEBI. A
Broker’s registration number begins with the letters ‘INB’ and that of a sub Broker
with the letters ‘INS’.

Precautions must one take before investing in the stock markets


Here are some useful pointers to bear in mind before you invest in the Markets:
§ Make sure your broker is registered with SEBI and the exchanges and Do not
deal with unregistered intermediaries.
§ Ensure that you receive contract notes for all your transactions from your broker
within one working day of execution of the trades.
§ All investments carry risk of some kind. Investors should always know the risk
that they are taking and invest in a manner that matches their risk tolerance.

44
§ Do not be misled by market rumors, luring advertisement or ‘hot Tips’ of the
day.
§ Take informed decisions by studying the fundamentals of the Company. Find out
the business the company is into, its future Prospects, quality of management, past
track record etc Sources of Knowing about a company is through annual reports,
economic Magazines, databases available with vendors or your financial
Advisor.

§ If you’re financial advisor or broker advises you to invest in a company you have
never heard of, be cautious. Spend some time checking out about the company
before investing.
§ Do not be attracted by announcements of fantastic results/news Reports, about a
company. Do your own research before investing in any stock.
§ Do not be attracted to stocks based on what an internet website Promotes, unless
you have done adequate study of the company.
§ Investing in very low priced stocks or what are known as penny Stocks do not
guarantee high returns.
§ Be cautious about stocks which show a sudden spurt in price or Trading activity.
§ Any advise or tip that claims that there are huge returns expected, especially for
acting quickly, ma y be risky and may to lead to losing some, most, or all of your
money.

Investing in the stock markets


§ Ensure that the intermediary (broker/sub-broker) has a valid SEBI Registration
certificate.
§ Enter into an agreement with your broker/sub-broker setting out Terms and
conditions clearly.
§ Ensure that you give all your details in the ‘Know Your Client’ form.
§ Ensure that you read carefully and understand the contents of the ‘Risk
Disclosure Document’ and then acknowledge it.
§ Insist on a contract note issued by your broker only, for trades done each day.
§ Ensure that you receive the contract note from your broker within 24 Hours of
the transaction.
§ Ensure that the contract note contains details such as the broker’s Name, trade
time and number, transaction price, brokerage, service Tax, securities transaction
tax etc. and is signed by the Authorized Signatory of the broker.
§ To cross check genuineness of the transactions, log in to the NSE Website
(www.nseindia.com) and go to the trade verification facility Extended by NSE at
www.nseindia.com/content/equities/ eq_trdverify.htm.

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§ Issue account payee cherubs/demand drafts in the name of your Broker only, as it
appears on the contract note/SEBI registration Certificate of the broker.
§ While delivering shares to your broker to meet your obligations, Ensure that the
delivery instructions are made only to the designated Account of your broker only.
§ Insist on periodical statement of accounts of funds and securities from your
broker. Cross check and reconcile your accounts promptly and in case of any
discrepancies bring it to the attention of your Broker immediately.
§ Please ensure that you receive payments/deliveries from your broker, for the
transactions entered by you, within one working day of the Payout date.
§ Ensure that you do not undertake deals on behalf of others or trade On your own
name and then issue cherubs from a family members’/ Friends’ bank accounts.
§ Similarly, the Demit delivery instruction slip should be from your Own Demit
account, not from any other family members’/friends’ Accounts.
§ Do not sign blank delivery instruction slip(s) while meeting security Paying
obligation.
§ No intermediary in the market can accept deposit assuring fixed Returns. Hence
do not give your money as deposit against assurances of returns.
§ ‘Portfolio Management Services’ could be offered only by Intermediaries having
specific approval of SEBI for PMS. Hence, do not part your funds to unauthorized
persons for Portfolio Management.
§ Delivery Instruction Slip is a very valuable document. Do not leave Signed blank
delivery instruction slip with anyone. While meeting pay in obligation make sure
that correct ID of authorized intermediary is filled in the Delivery Instruction
Form.
§ Be cautious while taking funding form authorized intermediaries as These
transactions are not covered under Settlement Guarantee Mechanisms of the
exchange. Insist on execution of all orders under unique client code allotted to
You. Do not accept trades executed under some other client code to your account.
When you are authorizing someone through ‘Power of Attorney’ for Operation of
your DP account, make sure that: Your authorization is in favor of registered

Intermediary only. Authorization is only for limited purpose of debits and Credits
arising out of valid transactions executed through that intermediary only.

You verify DP statement periodically say every month/ Fortnight to ensure that no
unauthorized transactions Have taken place in your account.
§ Authorization given by you has been properly used for the purpose for which
authorization has been given.

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§ In case you find wrong entries please report in writing to the authorized
intermediary.
§ Don’t accept unsigned/duplicate contract note.
§ Don’t accept contract note signed by any unauthorized person.
§ Don’t delay payment/deliveries of securities to broker.
§ In the event of any discrepancies/disputes, please bring them to the Notice of the
broker immediately in writing (acknowledged by the Broker) and ensure their
prompt rectification.
§ In case of sub-broker disputes, inform the main broker in writing about the
dispute at the earliest and in any case not later than 6 Months.
§ If your broker/sub-broker does not resolve your complaints within a Reasonable
period (say within 15 days), please bring it to the Attention of the ‘Investor
Grievances Cell’ of the NSE.
§ While lodging a complaint with the ‘Investor Grievances Cell’ of the NSE, it is
very important that you submit copies of all relevant Documents like contract

Notes, proof of payments/delivery of shares Etc. along with the complaint.


Remember, in the absence of sufficient Documents, resolution of complaints
becomes difficult.

§ Familiarize yourself with the rules, regulations and circulars issued by Stock
exchanges/SEBI before carrying out any transaction.

Products in the Secondary Markets

The products dealt in the Secondary Markets

Following are the main financial products/instruments dealt in the Secondary


Market which may be divided broadly into Shares and Bonds:

Shares:
Equity Shares: An equity share, commonly referred to as ordinary Share,
represents the form of fractional ownership in a business Venture.

Rights Issue/ Rights Shares: The issue of new securities to existing Shareholders at
a ratio to those already held, at a price. For e.g. a 2:3 rights issue at Rs. 125, would
entitle a shareholder to receive 2 Shares for every 3 shares held at a price of Rs.
125 per share.

47
Bonus Shares: Shares issued by the companies to their shareholders Free of cost
based on the number of shares the shareholder owns. Preference shares: Owners of
these kinds of shares are entitled to a fixed dividend or dividend calculated at a
fixed rate to be paid regularly before dividend can be paid in respect of equity
share. They also enjoy priority over the equity shareholders in payment of
Surplus. But in the event of liquidation, their claims rank below the Claims of the
company’s creditors, bondholders/debenture holders. Cumulative Preference

Shares: A type of preference shares on which Dividend accumulates if remained


unpaid. All arrears of preference Dividend has to be paid out before paying
dividend on equity Shares.

Cumulative Convertible Preference Shares: A type of preference Shares where the


dividend payable on the same accumulates, if not paid. After a specified date, these
shares will be converted into Equity capital of the company.

Bond: is a negotiable certificate evidencing indebtedness. It is normally unsecured.


A debt security is generally issued by a company, municipality or Government
agency. A bond investor lends money to the issuer and in Exchange, the issuer
promises to repay the loan amount on a specified Maturity date. The issuer usually
Pays the bond holder periodic interest Payments over the life of the loan. The
various types of Bonds are as Follows:

Zero Coupon Bond: Bond issued at a discount and repaid at a face Value. No
periodic interest is paid. The difference between the issues Price and redemption
price represents the return to the holder. The Buyer of these bonds receives only
one payment, at the maturity of the bond.

Convertible Bond: A bond giving the investor the option to convert the bond into
equity at a fixed conversion price.

Treasury Bills: Short-term (up to one year) bearer discount security Issued by
government as a means of financing their cash Requirements.

Equity Investment
When you buy a share of a company you become a shareholder in that Company.
Shares are also known as Equities. Equities have the potential to Increase in value
over time. It also provides your portfolio with the growth Necessary to reach your

48
Long term investment goals. Research studies have proved that the equities have
outperformed most other forms of Investments in the long term. This may be
illustrated with the help of following examples:

a) Over a 15 year period between 1990 to 2005, Nifty has given an Annualized
return of 17%.

b) Mr. Raja invests in Nifty on January 1, 2000 (index value 1592.90). The Nifty
value as of end December 2005 was 2836.55. Holding this investment over this
period Jan 2000 to Dec 2005 he gets a return of 78.07%. Investment in shares of
ONGC Ltd for the same period gave a return of 465.86%, SBI 301.17% and
Reliance 281.42%. Therefore,

§ Equities are considered the most challenging and the rewarding, when compared
to other investment options.

§ Research studies have proved that investments in some shares with a longer
tenure of investment have yielded far superior r returns than any other investment.
However, this does not mean all equity investments would guarantee similar High
returns. Equities are high risk investments. One needs to study them carefully
before investing.

The average return on Equities in India


Since 1990 till date, Indian stock market has returned about 17% to Investors on an
average in terms of increase in share prices or capital Appreciation annually.
Besides that on average stocks have paid 1.5% Dividend annually. Dividend is a
percentage of the face value of a share that a company returns to its shareholders
from its annual profits. Compared to Most other forms of investments, investing in
equity shares offers the highest rate of return, if invested over a longer duration.

The factors that influence the price of a stock

Broadly there are two factors: (1) stock specific and (2) market specific. The
Stock-specific factor is related to people’s expectations about the company, its
Future earnings capacity, financial health and management, level of Technology
and marketing skills. The market specific factor is influenced by the investor’s
sentiment towards the stock market as a whole. This factor depends on the

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Environment rather Than the performance of any particular company. Events
favorable to an Economy, political or regulatory environment like high economic
growth, Friendly budget, stable government etc. can fuel euphoria in the investors,

Resulting in a boom in the market. On the other hand, unfavorable events like war,
economic crisis, communal riots, minority government etc. depress the market

Irrespective of certain companies performing well. However, the Effect of market-


specific factor is generally short-term. Despite ups and Downs, price of a stock in
the long run gets stabilized based on the stock specific Factors. Therefore, a
prudent advice to all investors is to analyze and invest and not speculate in shares.

Growth Stocks:
In the investment world we come across terms such as Growth stocks, Value
Stocks etc. Companies, whose potential for growth in sales and earnings are
Excellent, are growing faster than other companies in the market or other Stocks in

The same industry is called the Growth Stocks. These companies usually pay little
or no dividends and instead prefer to reinvest their profits in their business for
further expansions.

Value Stocks:
The task here is to look for stocks that have been overlooked by other Investors
and which may have a ‘hidden value’. These companies may have been beaten
down in price because of some bad event, or may be in an Industry that's not
fancied by most investors. However, even a company that has seen its stock price
decline still has assets to its name - buildings, Real estate, inventories, subsidiaries,
and so on. Many of these assets still have value, yet that value may not be reflected
in the stock's price. Value

Investors look to buy stocks that are undervalued, and then hold those Stocks until
the rest of the market realizes the real value of the company's Assets. The value
investors tend to purchase a company's stock usually based on relationships
Between the current market price of the company and certain business
fundamentals. They like P/E ratio being below a certain Absolute limit; dividend
yields above a certain absolute limit; Total sales at a certain level relative to the
company's market capitalization, or market value Etc.

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Acquire equity shares You may subscribe to issues made by corporate in the
primary market. In The primary market, resources are mobilized by the corporate
through fresh Public issues (IPOs) or through private placements. Alternately, you
may Purchase shares from the secondary market. To buy and sell securities you
Should approach a SEBI register trading member (broker) of a recognized Stock
exchange.

Bid and Ask price


The ‘Bid’ is the buyer’s price. It is this price that you need to know when you have
to sell a stock. Bid is the rate/price at which there is a ready buyer for the stock,
which you intend to sell. The ‘Ask’ (or offer) is what you need to know when
You’re buying i.e. this is the rate/ price at which there is seller ready to sell his
stock. The seller will sell his stock if he gets the quoted “Ask’ price. If an investor
looks at a computer screen for a quote on the stock of say XYZ Ltd, it might look
something like this:
Bid (Buy side) Ask (Sell side)
______________________________________________________
Qty. Price (Rs.) Qty. Price (Rs.)
_____________________________________________________________
1000 50.25 50.35 2000
500 50.10 50.40 1000
550 50.05 50.50 1500
2500 50.00 50.55 3000
1300 49.85 50.65 1450
_____________________________________________________________
Total 5850 8950

Here, on the left-hand side after the Bid quantity and price, whereas on the Right
hand side we find the Ask quantity and prices. The best Buy (Bid) order is the
order with the highest price and therefore sits on the first line of the Bid side (1000
Shares @ Rs. 50.25). The best Sell (Ask) order is the order with the lowest sell
price (2000 shares @ Rs. 50.35). The difference in the Price of the best bid and ask
is called as the Bid-Ask spread and often is an Indicator of liquidity in a stock. The
narrower the difference the more liquid or highly traded is the stock.

Portfolio is a combination of different investment assets mixed and Matched for


the purpose of achieving an investor's goal(s). Items that are considered a part of

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your portfolio can include any asset you own-from Shares, debentures, bonds,
mutual fund units to items such as gold, art and even real estate etc. However, for
Most investors a portfolio has come to signify an investment in financial
instruments like shares, debentures, fixed Deposits, mutual fund units.

Diversification It is a risk management technique that mixes a wide variety of


investments within a portfolio. It is designed to minimize the impact of any one
security on overall portfolio performance. Diversification is possibly the best way
to reduce the risk in a portfolio.

Advantages of having a diversified portfolio


A good investment portfolio is a mix of a wide range of asset class. Different
Securities perform differently at any point in time, so with a mix of asset Types,
your entire portfolio does not suffer the impact of a decline of any One security.
When your stocks go down, you may still have the stability of the bonds in your
portfolio. There have been all sorts of academic studies And formulas that
demonstrate why diversification is important, but it's really just the simple practice
of "not putting all your eggs in one basket." If you spread your investments across
various types of assets and markets, you’ll reduce the risk of your entire portfolio
getting affected by the adverse Returns of any single asset class.

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MAIN TEXT

53
ANALYSIS

Technical and Fundamental Analysis:

The methods used to analyze securities and make investment decisions fall into
two very broad categories: fundamental analysis and technical analysis.

54
Fundamental analysis involves analyzing the characteristics of a company in order
to estimate its value. Technical analysis takes a completely different approach; it
doesn't care one bit about the "value" of a company or a commodity. Technicians
(sometimes called chartists) are only interested in the price movements in the
market.

Despite all the fancy and exotic tools it employs, technical analysis really just
studies supply and demand in a market in an attempt to determine what direction,
or trend, will continue in the future. In other words, technical analysis attempts to
understand the emotions in the market by studying the market itself, as opposed to
its components. If you understand the benefits and limitations of technical analysis,
it can give you a new set of tools or skills that will enable you to be a better trader
or investor.

In this tutorial, we'll introduce you to the subject of technical analysis. It's a broad
topic, so we'll just cover the basics, providing you with the foundation you'll need
to understand more advanced concepts down the road.
A method of evaluating securities by analyzing statistics generated by market
activity, such as past prices and volume. Technical analysts do not attempt to
measure a security's intrinsic value, but instead use charts and other tools to
identify patterns that can suggest future activity

Technical analysts believe that the historical performance of stocks and markets
are indications of future performance. In a shopping mall, a fundamental analyst
would go to each store, study the product that was being sold, and then decide
whether to buy it or not. By contrast, a technical analyst would sit on a bench in the

Mall and watch people go into the stores. Disregarding the intrinsic value of the
products in the store, his or her decision would be based on the patterns or activity
of people going into each store.

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A method of evaluating a security by attempting to measure its intrinsic value by
examining related economic, financial and other qualitative and quantitative
factors.

Fundamental analysts attempt to study everything that can affect the security's
value, including macroeconomic factors (like the overall economy and industry
conditions) and individually specific factors (like the financial condition and
management of companies).

The end goal of performing fundamental analysis is to produce a value that an


investor can compare with the security's current price in hopes of figuring out what
sort of position to take with that security (underpriced = buy, overpriced = sell or
short).This method of security analysis is considered to be the opposite of technical
analysis.

Fundamental analysis is about using real data to evaluate a security's value.


Although most analysts use fundamental analysis to value stocks, this method of
valuation can be used for just about any type of security.

For example, an investor can perform fundamental analysis on a bond's value by


looking at economic factors, such as interest rates and the overall state of the
economy, and information about the bond issuer, such as potential changes in
credit ratings. For assessing stocks, this method uses revenues, earnings, future
growth, return on equity, profit margins and other data to determine a company's
underlying value and potential for future growth. In terms of stocks, fundamental
analysis focuses on the financial statements of a company being evaluated.

One of the most famous and successful users of fundamental analysis is the Oracle
of Omaha, Warren Buffett, who has been well known for successfully
employing fundamental analysis to pick securities. His abilities have turned him
into a billionaire.
1. An annual publication that public corporations must provide to shareholders to
describe their operations and financial conditions. The front part of the report often
contains an impressive combination of graphics, photos and an accompanying
narrative, all of which chronicle the company's activities over the past year. The
back part of the report contains detailed financial and operational information.

56
2. In the case of mutual funds, an annual report is a required document that is made
available to fund shareholders on a fiscal year basis. It discloses certain aspects of
a fund's operations and financial condition. In contrast to corporate annual reports,

Mutual fund annual reports are best described as "plain vanilla" in terms of their
presentation.

1. It was not until legislation was enacted after the stock market crash in 1929 that
the annual report became a regular component of corporate financial reporting.
Typically, an annual report will contain the following sections:

-Financial Highlights
-Letter to the Shareholders
-Narrative Text, Graphics and Photos
-Management's Discussion and Analysis
-Financial Statements
-Notes to Financial Statements
-Auditor's Report
-Summary Financial Data
-Corporate Information

2. A mutual fund annual report, along with a fund's prospectus and statement of
additional information, is a source of multi-year fund data and performance, which
is made available to fund shareholders as well as to prospective fund investors.
Unfortunately, most of the information is quantitative rather than qualitative,
which addresses the mandatory accounting disclosures required of mutual funds.

So, you want be a stock analyst? Perhaps not, but since you're reading this we'll
assume that you at least want to understand stocks. Whether it's your burning
desire to be a hotshot analyst on Wall Street or you just like to be hands-on with
your own portfolio, you've come to the right spot.

Fundamental analysis is the cornerstone of investing. In fact, some would say that
you aren't really investing if you aren't performing fundamental analysis. Because
the subject is so broad, however, it's tough to know where to start. There are an
endless number of investment strategies that are very different from each other, yet

57
almost all use the fundamentals.

The goal of this tutorial is to provide a foundation for understanding fundamental


analysis. It's geared primarily at new investors who don't know a balance sheet
from a statement. While you may not be a "stock-picker extraordinaire" by the end of
this tutorial, you will have a much more solid grasp of the language and concepts
behind security analysis and be able to use this to further your knowledge in other
areas without feeling totally lost.

The biggest part of fundamental analysis involves delving into the financial
statements. Also known as quantitative analysis, this involves looking at revenue,
expenses, assets, liabilities and all the other financial aspects of a company.
Fundamental analysts look at this information to gain insight on a company's future
performance. A good part of this tutorial will be spent learning about the balance
sheet, income statement, cash flow statement and how they all fit together.

But there is more than just number crunching when it comes to analyzing a
company. This is where qualitative analysis comes in - the breakdown of all the

Intangible, difficult-to-measure aspects of a company. Finally, we'll wrap up the


tutorial with an intro on valuation and point you in the direction of additional
tutorials you might be interested in.

(Also, although it's not required, you might find it helpful to read our Investing 101
tutorial, as well as our tutorial on Stock Basics, before starting.) The income
statement is basically the first financial statement you will come across in an
annual report or quarterly Securities And Exchange Commission (SEC) filing.

It also contains the numbers most often discussed when a company announces its
results - numbers such as revenue, earnings and earnings per share. Basically, the
income statement shows how much money the company generated (revenue), how
much it spent (expenses) and the difference between the two (profit) over a certain
time period.

When it comes to analyzing fundamentals, the income statement lets investors


know how well the company’s business is performing - or, basically, whether or
not the company is making money. Generally speaking, companies ought to be
able to bring in more money than they spend or they don’t stay in business for
long. Those companies with low expenses relative to revenue - or high profits

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relative to revenue - signal strong fundamentals to investors.

Revenue as an investor signal


Revenue, also commonly known as sales, is generally the most straightforward part
of the income statement. Often, there is just a single number that represents all the
money a company brought in during a specific time period, although big
companies sometimes break down revenue by business segment or geography.

The best way for a company to improve profitability is by increasing sales revenue.
For instance, Starbucks Coffee has aggressive long-term sales growth goals that
include a distribution system of 20,000 stores worldwide. Consistent sales growth
has been a strong driver of Starbucks’ profitability.

The best revenue is those that continue year in and year out. Temporary increases,
such as those that might result from a short-term promotion, are less valuable and
should garner a lower price-to-earnings multiple for a company

There are many kinds of expenses, but the two most common are the cost of goods
sold (COGS) and selling, general and administrative expenses (SG&A). Cost of

Goods sold are the expense most directly involved in creating revenue. It
represents the costs of producing or purchasing the goods or services sold by the
company. For example, if Wal-Mart pays a supplier $4 for a box of soap, which it
sells to customers for $5. When it is sold, Wal-Mart’s cost of good sold for the box
of soap would be $4.

Next, costs involved in operating the business are SG&A. This category includes
marketing, salaries, utility bills, technology expenses and other general costs
associated with running a business. SG&A also includes depreciation and
amortization. Companies must include the cost of replacing worn out assets.
Remember, some corporate expenses, such as research and development (R&D) at
technology companies, are crucial to future growth and should not be cut, even
though doing so may make for a better-looking earnings report. Finally, there are
financial costs, notably taxes and interest payments, which need to be considered.

Profits = Revenue - Expenses

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Profit, most simply put, is equal to total revenue minus total expenses. However,
there are several commonly used profit subcategories that tell investors how the
company is performing. Gross profit is calculated as revenue minus cost of sales.
Returning to Wal-Mart again, the gross profit from the sale of the soap would have
been $1 ($5 sales price less $4 cost of goods sold = $1 gross profit).

Companies with high gross margins will have a lot of money left over to spend on
Other business operations, such as R&D or marketing. So be on the lookout for
downward trends in the gross margin rate over time. This is a telltale sign of future
problems facing the bottom line. When cost of goods sold rises rapidly, they are
likely to lower gross profit margins - unless, of course, the company can pass these
costs onto customers in the form of higher prices.

Operating profit is equal to revenues minus the cost of sales and SG&A. This
number represents the profit a company made from its actual operations, and
excludes certain expenses and revenues that may not be related to its central

Operations. High operating margins can mean the company has effective control of
costs, or that sales are increasing faster than operating costs. Operating profit also
gives investors an opportunity to do profit-margin comparisons between companies
that do not issue a separate disclosure of their cost of goods sold figures (which are
needed to do gross margin analysis). Operating profit measures how much cash the
business throws off, and some consider it a more reliable measure of profitability
since it is harder to manipulate with accounting tricks than net earnings.

Net income generally represents the company's profit after all expenses, including
financial expenses, have been paid. This number is often called the "bottom line"
and is generally the figure people refer to when they use the word "profit" or
"earnings".
When a company has a high profit margin, it usually means that it also has one or
more advantages over its competition. Companies with high net profit margins

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Have a bigger cushion to protect themselves during the hard times. Companies
with low profit margins can get wiped out in a downturn. And companies with
profit

Margins reflecting a competitive advantage is able to improve their market share


during the hard times - leaving them even better positioned when things improve
again.
Conclusion
You can gain valuable insights about a company by examining its income
statement. Increasing sales offers the first sign of strong fundamentals. Rising
margins indicate increasing efficiency and profitability. It’s also a good idea to
determine whether the company is performing in line with industry peers and
competitors. Look for significant changes in revenues, costs of goods sold and
SG&A to get a sense of the company’s profit fundamentals.
Business Model
Even before an investor looks at a company's financial statements or does any
research, one of the most important questions that should be asked is: What exactly
does the company do? This is referred to as a company's business model – it's how
a company makes money. You can get a good overview of a company's business
model by checking out its website or reading the first part of its 10-K filing (Note:
We'll get into more detail about the 10-K in the financial statements chapter. For
now, just bear with us).
Sometimes business models are easy to understand. Take McDonalds, for instance,
which sells hamburgers, fries, soft drinks, salads and whatever other new special
they are promoting at the time. It's a simple model, easy enough for anybody to
understand.

Other times, you'd be surprised how complicated it can get. Boston Chicken Inc. is
a prime example of this. Back in the early '90s its stock was the darling of Wall
Street. At one point the company's CEO bragged that they were the "first new fast-
food restaurant to reach $1 billion in sales since 1969". The problem is, they didn't

Make money by selling chicken. Rather, they made their money from royalty fees
and high-interest loans to franchisees. Boston Chicken was really nothing more

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than a big franchisor. On top of this, management was aggressive with how it
recognized its revenue. As soon as it was revealed that all the franchisees were
losing money, the house of cards collapsed and the company went bankrupt.

At the very least, you should understand the business model of any company you
invest in. The "Oracle of Omaha", Warren Buffett, rarely invests in tech stocks
because most of the time he doesn't understand them. This is not to say the
technology sector is bad, but it's not Buffett's area of expertise; he doesn't feel
comfortable investing in this area. Similarly, unless you understand a company's
business model, you don't know what the drivers are for future growth, and you
leave yourself vulnerable to being blindsided like shareholders of Boston Chicken
were.

Competitive Advantage
Another business consideration for investors is competitive advantage. A
company's long-term success is driven largely by its ability to maintain a
competitive advantage - and keep it. Powerful competitive advantages, such as
Coca Cola's brand name and Microsoft's domination of the personal computer
operating system, create a moat around a business allowing it to keep competitors
at bay and enjoy growth and profits. When a company can achieve competitive
advantage, its shareholders can be well rewarded for decades.

Harvard Business School professor Michael Porter distinguishes between strategic


positioning and operational effectiveness. Operational effectiveness means a
company is better than rivals at similar activities while competitive advantage
means a company is performing better than rivals by doing different activities or
performing similar activities in different ways. Investors should know that few
companies are able to compete successfully for long if they are doing the same
things as their competitors.

Professor Porter argues that, in general, sustainable competitive advantage gained


by:

• A unique competitive position


• Clear tradeoffs and choices vis-à-vis competitors
• Activities tailored to the company's strategy
• A high degree of fit across activities (it is the activity system, not the parts,

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that ensure sustainability)

• A high degree of operational effectiveness

Management
Just as an army needs a general to lead it to victory, a company relies upon
management to steer it towards financial success. Some believe that management
is the most important aspect for investing in a company. It makes sense - even the
best business model is doomed if the leaders of the company fail to properly
execute the plan.
This is one of the areas in which individuals are truly at a disadvantage compared
to professional investors. You can't set up a meeting with management if you want
to invest a few thousand dollars. On the other hand, if you are a fund manager
interested in investing millions of dollars, there is a good chance you can schedule
a face-to-face meeting with the upper brass of the firm.
Every public company has a corporate information section on its website. Usually
there will be a quick biography on each executive with their employment history,
educational background and any applicable achievements. Don't expect to find
anything useful here. Let's be honest: We're looking for dirt, and no company is
going to put negative information on its corporate website.

Instead, here are a few ways for you to get a feel for management:
Conference Calls
The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) host
quarterly conference calls. (Sometimes you'll get other executives as well.) The

First portion of the call is management basically reading off the financial results.
What is really interesting is the question-and-answer portion of the call. This is
when the line is open for analysts to call in and ask management direct questions.
Answers here can be revealing about the company, but more importantly, listen for
candor.

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Management Discussion and Analysis (MD&A) The Management Discussion and
Analysis is found at the beginning of the annual report (discussed in more detail
later in this tutorial). In theory, the MD&A is supposed to be frank commentary on
the management's outlook. Sometimes the content is worthwhile, other times its
boilerplate. One tip is to compare what management said in past years with what
they are saying now. Is it the same material rehashed? Have strategies actually
been implemented? If possible, sit down and read the last five years of Midas; it
can be illuminating.

3. Ownership and Insider Sales


Just about any large company will compensate executives with a combination of
cash, restricted stock and options. While there are problems with stock options
(See Putting Management under the Microscope), it is a positive sign that members
of management are also shareholders. The ideal situation is when the founder of
the company is still in charge. Examples include Bill Gates (in the '80s and '90s),
Michael Dell and Warren Buffett. When you know that a majority of
management's wealth is in the stock, you can have confidence that they will do the
right thing. As well, it's worth checking out if management has been selling its
stock. This has to be filed with the Securities and Exchange Commission (SEC), so
it's publicly available information. Talk is cheap - think twice if you see
management unloading all of its shares while saying something else in the media.

4. Past Performance
another good way to get a feel for management capability is to check and see how
executives have done at other companies in the past. You can normally find
biographies of top executives on company web sites. Identify the companies they
worked at in the past and do a search on those companies and their performance.

Corporate Governance
Corporate governance describes the policies in place within an organization
denoting the relationships and responsibilities between management, directors and
stakeholders. These policies are defined and determined in the company charter
and its bylaws, along with corporate laws and regulations. The purpose of
corporate governance policies is to ensure that proper checks and balances are in

64
place, making it more difficult for anyone to conduct unethical and illegal
activities.
Good corporate governance is a situation in which a company complies with all of
its governance policies and applicable government regulations (such as the
Sarbanes-Oxley Act of 2002) in order to look out for the interests of the company's
investors and other stakeholders.

3. Although, there are companies and organizations (such as Standard & Poor's)
that attempt to quantitatively assess companies on how well their corporate
governance policies serve stakeholders, most of these reports are quite
expensive for the average investor to purchase. Fortunately, corporate
governance policies typically cover a few general areas: structure of the board
of directors, stakeholder rights and financial and information transparency.
With a little research and the right questions in mind, investors can get a good
idea about a company's corporate governance. Financial and Information
Transparency This aspect of governance relates to the quality and timeliness of
a company's financial disclosures and operational happenings. Sufficient
transparency implies that a company's financial releases are written in a manner
that stakeholders can follow what management is doing and therefore have a
clear understanding of the company's current financial situation.
Stakeholder Rights
this aspect of corporate governance examines the extent that a company's
policies are benefiting stakeholder interests, notably shareholder interests.
Ultimately, as owners of the company, shareholders should have some access to
the board of directors if they have concerns or want something addressed.
Therefore companies with good governance give shareholders a certain amount
of ownership voting rights to call meetings to discuss pressing issues with the
board.

Another relevant area for good governance, in terms of ownership rights, is


whether or not a company possesses large amounts of takeover defenses (such
as the Macaroni Defense or the Poison Pill) or other measures that make it
difficult for changes in management, directors and ownership to occur. (To read
more on takeover strategies, see The Wacky World of Mass.)

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Structure of the Board of Directors
The board of directors is composed of representatives from the company and
representatives from outside of the company. The combination of inside and
outside director’s attempts to provide an independent assessment of

Management’s performance, making sure that the interests of shareholders are


represented.

The key word when looking at the board of directors is independence. The board of
directors is responsible for protecting shareholder interests and ensuring that the
upper management of the company is doing the same. The board possesses the
right to hire and fire members of the board on behalf of the shareholders. A board

Filled with insiders will often not serve as objective critics of management and
will defend their actions as good and beneficial, regardless of the
circumstances.
Information on the board of directors of a publicly traded company (such as
biographies of individual board members and compensation-related info) can be
found in the DEF 14A proxy statement

we’ve now gone over the business model, management and corporate
governance. These three areas are all important to consider when analyzing any
company. We will now move on to looking at qualitative factors in the

Environment in which the company operates.


Now move on to looking at qualitative factors in the environment in which the
company

Proxy Statement Mean


A document containing the information that a company is required by the SEC to
provide to shareholders so they can make informed decisions about matters that
will be brought up at an annual stockholder meeting.

Issues covered in a proxy statement can include proposals for new additions to the
board of directors, information on directors' salaries, information on bonus and
options plans for directors, and any declarations made by company management.

66
Each industry has differences in terms of its customer base, market share among
firms, industry-wide growth, competition, regulation and business cycles. Learning
about how the industry works will give an investor a deeper understanding of a
company's financial health.

Customers
some companies serve only a handful of customers, while others serve millions. In
general, it's a red flag (a negative) if a
business relies on a small number of customers for a large portion of its sales
because the loss of each customer could dramatically affect revenues.

For example, think of a military supplier who has 100% of its sales with the U.S.
government. One change in government policy could potentially wipe out all of its
sales. For this reason, companies will always disclose in their 10-K if any one
customer accounts for a majority of revenues.

Market Share
Understanding a company's present market share can tell volumes about the
company's business. The fact that a company possesses an 85% market share tells
you that it is the largest player in its market by far. Furthermore, this could also
suggest that the company possesses some sort of "economic moat," in other words,
a competitive barrier serving to protect its current and future earnings, along with
its market share. Market share is important because of economies of scale. When
the firm is bigger than the rest of its rivals, it is in a better position to absorb the
high fixed costs of a capital-intensive industry.

Industry Growth
One way of examining a company's growth potential is to first examine whether
the amount of customers in the overall market will grow. This is crucial because
without new customers, a company has to steal market share in order to grow.

In some markets, there is zero or negative growth, a factor demanding careful


consideration. For example, a manufacturing company dedicated solely to creating
audio compact cassettes might have been very successful in the '70s, '80s and early
'90s. However, that same company would probably have a rough time now due to

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the advent of newer technologies, such as CDs and MP3s. The current market for
audio compact cassettes is only a fraction of what it was during the peak of its
popularity.

Competition simply looking at the number of competitors goes a long way in


understanding the competitive landscape for a company. Industries that have
limited barriers to entry and a large number of competing firms create a difficult
operating environment for firms.

One of the biggest risks within a highly competitive industry is pricing power. This
refers to the ability of a supplier to increase prices and pass those costs on to
customers. Companies operating in industries with few alternatives have the ability
to pass on costs to their customers. A great example of this is Wal-Mart. They are
so dominant in the retailing business, that Wal-Mart practically sets the price for

Any of the suppliers wanting to do business with them. If you want to sell to Wal-
Mart, you have little, if any, pricing power.

Regulation certain industries are heavily regulated due to the importance or


severity of the industry's products and/or services. As important as some of these
regulations are to the public, they can drastically affect the attractiveness of a
company for investment purposes.

In industries where one or two companies represent the entire industry for a region
(such as utility companies), governments usually specify how much profit each
company can make. In these instances, while there is the potential for sizable
profits, they are limited due to regulation. In other industries, regulation can play a
less direct role in affecting industry pricing. For example, the drug industry is one
of most regulated industries. And for good reason - no one wants an ineffective
drug that causes deaths to reach the market.

As a result, the U.S. Food and Drug Administration (FDA) require that new drugs
must pass a series of clinical trials before they can be sold and distributed to the
general public. However, the consequence of all this testing is that it usually takes
several years and millions of dollars before a drug is approved. Keep in mind that

68
all these costs are above and beyond the millions that the drug company has spent
on research and development.

All in all, investors should always be on the lookout for regulations that could
potentially have a material impact upon a business' bottom line. Investors should
keep these regulatory costs in mind as they assess the potential risks and rewards
of investing

Equity Funds Lag Sensex Performance

The mutual fund industry’s performance chart for its equity diversified schemes
has failed to match up to the pace of markets in the recent times. The same was
evident on Monday, 4th May. While they have not lost by a huge margin, yet funds
have not been able to beat the performance of stock market indices.
While Sensex crossed the 12,000-point mark on Monday, a peak that was last seen
in October 2008, clocking a gain of 6.41 per cent, Nifty too rose by as much as
5.18 per cent. Thereby, Indian stock markets have continued to keep their gaining
streak going and enter the month of May with a bang.

69
With the mutual fund managers not being particularly aggressive, the main driver
of these gains on May 4 became the foreign institutional investors (FIIs).
Reflecting this fact were the numbers -- FIIs were net investors in equities worth
Rs 1,417.28 crore (sold off Rs 2,347.30 worth and bought Rs 3,764.58 worth) on
the day.
The domestic institutional investors (DIIs), that include mutual funds, managed to
actually enter negative territory -- they sold off more than they bought. The net
amount invested was a negative Rs 92.60 crore (bought Rs 1,155.64 crore and sold
Rs 1,248.24 crore).
The open-end equity diversified funds’ category managed to deliver approximately
a 4.16 per cent gain. Of the total 204 funds whose returns are available for this
one-day period, only two managed to deliver more than six per cent. The fund of
the day was Templeton India Equity Income (6.67%) and following it was
Reliance Equity Opportunities Regular (6.26%). Apart from these, 36 funds
managed to deliver returns above five per cent. One fund, Religare AGILE that
works on a mathematical model, went the other way to deliver negative returns of
7.86 per cent.
Even when the Sensex registered a gain of 17.26 per cent over the one-month
period ending May 4, 2009, that is highest in almost 10 years, of the 196 funds
only 19 funds have been able to deliver monthly returns above 17 per cent. As far
as the average return of equity diversified funds is concerned, then, over this one-
month period, they generated a gain of around 14 per cent.
The reason that is holding back the diversified equity funds from matching stock
market gains is probably the high cash allocations they are still clutching onto,
which is restricting their gains -- they are continuing to sit on the fence thinking
70
this rally may not last considering that most economic data is still in negative
territory, worldwide

The SENSEX, An abbreviation of the Bombay Exchange Sensitive Index


(SENSEX), is a "Market
Capitalization-Weighted" index of 30 stocks representing a sample of large, well-
established and financially sound companies. It is the oldest index in India and has
acquired a unique place in the collective consciousness of investors. The index is
widely used to measure the performance of the Indian stock markets.

SENSEX is considered to be the pulse of the Indian stock markets as it represents


the underlying universe of listed stocks at The Stock Exchange, Mumbai. Further,
as the oldest index of the Indian Stock market, it provides time series data over a
fairly long period of time
(since 1978-79). The index has just one job: To capture the price movement. So a
stock index will reflect the price movements of shares while a bond index captures

the manner in which bond prices go up or down.

If the SENSEX rises, it indicates the market is doing well. Since stocks are
supposed to reflect
what companies expect to earn in the future, a rising index indicates investors
expect better
earnings from companies. It is, therefore, also a measure of the state of the Indian
economy. If Indian companies are expected to do well, obviously the economy
should do well too...

January 16, Jan 16, 2009 (Asia Pulse Data Source via COMTEX) -- WIT | Quote |
Chart | News | Power Rating -- Satyam Computers fraud rattled investors
confidence and drove the Bombay Stock Exchange benchmark Sensex down to one
month low level as brokers off-loaded their holdings in panic. The selling pressure
gathered further momentum after the World Bank barred the country’s third largest
computer software firm, Wipro Ltd till 2011. However, the releasing of third
71
quarter results by the largest software export Infosys Technologies supported the
market but only to prune losses.

With a long five days fall in the current fortnight ending January 14, the Bombay
Stock Exchange benchmark Sensex settled with an unbalance loss of 575.95 points
to 9071.36 during the current fortnight ending January 14. At one point of time, the
key index dipped below 9,000 points level. The wide-based National Stock
Exchange index dropped by 214.20 points at 2,744.95. The selling was mainly
sparked after Satyam fraud case came to light. Ramalinga Raju, chairman of
Satyam, Indians fourth-biggest software maker over two decades undermined the
company’s future with revelations that he overstated profit and falsified assets for
years, triggering a scandal that’s being compared to Enron Corp.

In two trading sessions, the Satyam stocks fell from Rs 188 to Rs 6.30 in the NSE,
wiping of over 10,000 crore capital of investors, after Raju told the company’s
board that Rs 51.6 billion of cash and bank balances the company reported on Sept.
30 were nonexistent. Even reports of inflation data easing in last few weeks and
dipping below 6 per cent failed to boost the sentiment. The market remained on
downward walk with every session losing substantial ground. Soon after the

company’s fraud report, the Indian stocks fell the most in more than two months,
heightening concern about corporate governance in the country. In single day, the
nation’s fourth-largest software developer plunged 78 per cent, the most since
listing in 1992.

The scandal shook confidence in Indians stock market, sending the Sensex down to
its biggest drop in more than 10 weeks. Securities & Exchange Board of India
Chairman C.B. Behave said the disclosure was of? Horrifying magnitude and the
markets regulator ordered a probe into trading of Satyam shares. Houston based
Enron’s 2001 bankruptcy wiped out more than 5,000 jobs and one billion dollar in
employee retirement funds. The fall of the 54-year-old entrepreneur, a pioneer of
Indians software industry, began a fortnight ago when Satyam proposed paying 1.6
billion dollar for two companies connected to Raju. The plan was scrapped 12
hours later, after investors called it a? Woeful misuse of cash.

Satyam chief Raju resigned from the board, which further fuelled selling pressure
as investors totally lost confidence in the company. The bearish trend spread over a
wide-front and all sect oral shares tumbled to their recent lows. The Stocks that
recorded the biggest declines on the BSE500 Index include Tania Solutions, Rolta

72
India and Bombay Rayon Fashions. Tania fell 17 per cent to Rs 45.70, its lowest
since it started trading two years ago. Rolta dropped 17 per cent to Rs 87.55.
Trading of equites on the Bombay stock exchange was 55 times its average daily
volume over the past six months. Bombay Rayon fell 14 per cent to Rs 100.65, its
lowest in three years. Wipro became the next target after the World Bank barred
the company from dealing with it till 2011. The stocks crashed in single day and
placed the stock to over six months low level. Reports that the some of the Satyam
clients in overseas markets were cancelling their link with the company and might
shift to other leading software giants like Tata Consultancy and Infosys, pushed up
their prices even during such a rough patch of time. Infosys announcing 33 per cent
gains in its profits during the quarter ending December 31, further rallied stocks of
Infosys. The company stocks added 5.9 per cent to Rs 1,228.15, the most since
Nov. 10. Infosys net income advanced to Rs16.4 billion in the three months from
Rs 12.3 billion a year earlier. With a downward trend, stocks of Wipro dropped 9.4
per cent, the most in almost three months, after admitting it had been punished for
selling shares to employees of the financial institution in its initial public offering.

The stocks touched Rs 227.40, the most since Oct. 24. World Bank employees,
their family and friends bought 1,750 Wipro shares for about 72,000 dollar at the
IPO price.

State Bank of India, the nation’s largest lender, slipped 5.1 per cent to Rs 1,158.90.
State Bank has loaned Rs 500 crore to the Maytas group of companies, the
construction firm belonging to Raju?s brother. Stocks that recorded the biggest
decline on the Sensex the same day included Tata Steel, the nation’s biggest maker
of the alloy, and Ranbaxy Laboratories. DLF Ltd., the leading real- estate
developer, fell 5.4 per cent to Rs 204.75, its lowest since Dec. 5. Ranbaxy fell 5.8
per cent to Rs 206.50, the lowest since Dec. 3. Tata Steel dropped 6.9 per cent to
Rs 200.15, the lowest since Dec. 8.

Axis Bank Ltd. shed Rs 34.90, or 7.2 per cent, to Rs 451.70, lowest since Dec. 5.
The Indian lenders stock price estimate was cut by 14 per cent to Rs 645 at
Macquarie Research and by 2 per cent to Rs 553 at JPMorgan Chase. Maytas Infra
Ltd., the real-estate developer founded by Ramalinga Raju dropped Rs 7.5, or by
its 5 per cent limit, to Rs 143.30, extending a two-day 9.7 per cent decline. Unitech
Ltd. 5.1 per cent, to Rs 34.15. The Indian developer is seeking rescheduling of the
payment of loans worth Rs 8000 crores taken from Indian state-run banks.
Reliance Communications fell 9.5 per cent to Rs186.85, the lowest since Nov. 20.
Reliance Industries Ltd. declined 4 per cent to Rs 1,153.25, while Jaiprakash lost

73
4.2 per cent to Rs 68.50. Punj Lloyd Ltd., also in construction business dropped 17
per cent, to Rs 115.35, its lowest since July 2006.

The company fell after saying its U.K. unit began court proceedings against
SABIC Petrochemicals U.K. Ltd. seeking 28.5 million pounds compensation.

With the compensation dispute now into the adjudication process, the entire
amount is less likely to be recovered and Punj Lloyd could be hit by as much as Rs
3.2 per share, J.P. Morgan Securities said. Tata Motors Ltd. fell 4.8 per cent to
Rs165.75. Indians biggest truck maker will stop production at a commercial
vehicle factory for six days as higher borrowing costs stymie demand. The
Jamshedpur plant in eastern India will close from Jan. 12 to 17.

74
Technical Analysis of Indian stock market BSE Sensex Index

The BSE SENSEX is not only scientifically designed but also based on globally
accepted construction and review methodology. First compiled in 1986, SENSEX is a
basket of 30 constituent stocks representing a sample of large, liquid and
representative companies. The base year of SENSEX is 1978-79 and the base value is
100. The index is widely reported in both domestic and international markets through
print as well as electronic media.

Technical Analysis of Indian stock market BSE Sensex Index

The Index was initially calculated based on the "Full Market Capitalization"
methodology but was shifted to the free-float methodology with effect from
September 1, 2003. The "Free-float Market Capitalization" methodology of index
construction is regarded as an industry best practice globally. All major index
providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float
methodology.

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


the pulse of the Indian stock market. As the oldest index in the country, it provides the
time series data over a fairly long period of time (From 1979 onwards). Small wonder,
the SENSEX has over the years become one of the most prominent brands in the
country.

Technical Analysis of Indian stock market BSE Sensex Index

75
1 Day Technical Analysis Chart of Indian stock market BSE Sensex Index

5 Day Technical Analysis Chart of Indian stock market BSE Sensex Index

1 Year Technical Analysis Chart of Indian stock market BSE Sensex Index

SENSEX
The SENSEX, short form of the BSE-Sensitive Index, is a "Market Capitalization-
Weighted" index of 30 stocks representing a sample of large, well-established and
financially sound companies. It is the oldest index in India and has acquired a
unique place in the collective consciousness of investors. The index is widely used
to measure the performance of the Indian stock markets. SENSEX is considered to
be the pulse of the Indian stock markets as it represents the underlying universe of

76
listed stocks at The Stock Exchange, Mumbai. Further, as the oldest index of the
Indian Stock market, it provides time series data over a fairly long period of time
(since 1978-79).

The objectives of SENSEX


The SENSEX is the benchmark index of the Indian Capital Markets with wide
acceptance among individual investors, institutional investors, foreign investors
and fund managers. The objectives of the index are:

To measure market movements


Given its long history and its wide acceptance, no other index matches the
SENSEX in reflecting market movements and sentiments. SENSEX is widely
used to describe the mood in the Indian Stock markets.

Benchmark for funds performance


The inclusion of blue chip companies and the wide and balanced industry
representation in the SENSEX makes it the ideal benchmark for fund managers to
compare the performance of their funds.

For index based derivative products


Institutional investors, money managers and small investors all refer to the
SENSEX for their specific purposes The SENSEX is in effect the proxy for the
Indian stock markets. The country's first derivative product i.e. Index-Futures was
launched on SENSEX.
The criteria for selection and review of scrips for the SENSEX

77
A. Quantitative Criteria:
1. Market Capitalization:
The scrip should figure in the top 100 companies listed by market capitalization.
Also market capitalization of each scrip should be more than 0.5 % of the total
market capitalization of the Index i.e. the minimum weight should be 0.5 %. Since
the SENSEX is a market capitalization weighted index, this is one of the primary
criteria for scrip selection. (Market Capitalization would be averaged for last six
months)

2. Liquidity:
(I) Trading Frequency: The scrip should have been traded on each and every
trading day for the last one year. Exceptions can be made for extreme reasons like
scrip suspension etc. (ii) Number of Trades: Number of Trades: The scrip should
be among the top 150 companies listed by average number of trades per day for
the last one year. (iii) Value of Shares Traded: Value of Shares Traded: The scrip
should be among the top 150 companies listed by average value of shares traded
per day for the last one year.

3. Continuity:
Whenever the composition of the index is changed, the continuity of historical
series of index values is re-established by correlating the value of the revised
index to the old index (index before revision). The back calculation over the last
one-year period is carried out and correlation of the revised index to the old index
should not be less than 0.98. This ensures that the historical continuity of the
index is maintained.

78
4. Industry Representation:
Scrip selection would take into account a balanced representation of the listed
companies in the universe of BSE. The index companies should be leaders in their
industry group.

5. Listed History:
The scrip should have a listing history of at least one year on BSE.

B. Qualitative Criteria:

Track Record:
In the opinion of the Index Committee, the company should have an acceptable
track record.

The beta of SENSEX scrips


Beta measures the sensitivity of a scrip movement relative to movement in the
benchmark index i.e. SENSEX. A Beta of one means that for every change of 1%
in index, the scrip moves by 1%. Statistically Beta is defined as: Covariance
(SENSEX, Stock)/ Variance (SENSEX)
Note: Covariance and variance are calculated from the Daily Returns data of the
SENSEX and SENSEX scrips.

SENSEX calculation
SENSEX is calculated using a "Market Capitalization-Weighted" methodology.
As per this methodology, the level of index at any point of time reflects the total

79
market value of 30 component stocks relative to a base period. (The market
capitalization of a company is determined by multiplying the price of its stock by
the number of shares issued by the company). An index of a set of combined
variables (such as price and number of shares) is commonly referred as a
'Composite Index' by statisticians. A single indexed number is used to represent
the results of this calculation in order to make the value easier to work with and
track over time. It is much easier to graph a chart based on indexed values than
one based on actual values.

The base period of SENSEX is 1978-79. The actual total market value of the
stocks in the Index during the base period has been set equal to an indexed value
of 100. This is often indicated by the notation 1978-79=100. The formula used to
calculate the Index is fairly straightforward. However, the calculation of the
adjustments to the Index (commonly called Index maintenance) is more complex.

The calculation of SENSEX involves dividing the total market capitalization of 30


companies in the Index by a number called the Index Divisor. The Divisor is the
only link to the original base period value of the SENSEX. It keeps the Index
comparable over time and is the adjustment point for all Index maintenance
adjustments. During market hours, prices of the index scrips, at which latest trades
are executed, are used by the trading system to calculate SENSEX every 15
seconds and disseminated in real time.

The closing Index calculation


The closing SENSEX is computed taking the weighted average of all the trades on
SENSEX constituents in the last 15 minutes of trading session. If a SENSEX

80
constituent has not traded in the last 15 minutes, the last traded price is taken for
computation of the Index closure. If a SENSEX constituent has not traded at all in
a day, then its last day's closing price is taken for computation of Index closure.
The use of Index Closure Algorithm prevents any intentional manipulation of the
closing index value.

The routine maintenance of SENSEX carried out

One of the important aspects of maintaining continuity with the past is to update
the base year average. The base year value adjustment ensures that additional
issue of capital and other corporate announcements like bonus etc. do not destroy
the value of the index. The beauty of maintenance lies in the fact that adjustments
for corporate actions in the Index should not per se affect the index values.

The Index Cell of the Exchange does the day-to-day maintenance of the index
within the broad index policy framework set by the Index Committee. The Index
Cell takes special care to ensure that SENSEX and all the other BSE indices
maintain their benchmark properties by striking a delicate balance between high
turnover in Index scrips and its representative character. The Index Committee of
the Exchange has experts from different field of finance related to the capital
markets. They include Academicians, Fund-managers from leading Mutual Funds,
Finance - Journalists, Market Participants, Independent Governing Board
members, and Exchange administration.

Adjustments for Bonus, Rights and newly issued Capital carried out in
SENSEX
The arithmetic calculation involved in calculating SENSEX is simple, but problem

81
arises when one of the component stocks pays a bonus or issues rights shares. If
no adjustments were made, a discontinuity would arise between the current value
of the index and its previous value. The Index Cell of the Exchange periodically
adjusts the base value to take care of such corporate announcements.
Adjustments for Rights Issues:
When a company, included in the compilation of the index, issues right shares, the
market capitalization of that company is increased by the number of additional
shares issued based on the theoretical (ex-right) price. An offsetting or
proportionate adjustment is then made to the Base Market Capitalization (see '
Base Market Capitalization Adjustment' below).
Adjustments for Bonus Issue:
When a company, included in the compilation of the index, issues bonus shares,
the market capitalization of that company does not undergo any change.
Therefore, there is no change in the Base Market Capitalization, only the 'number
of shares' in the formula is updated.
Other Issues: Base Market Capitalization Adjustment is required when new shares
are issued by way of conversion of debentures, mergers, spin-offs etc. or when
equity is reduced by way of buy-back of shares, corporate restructuring etc.
Base Market Capitalization Adjustment: The formula for adjusting the Base
Market Capitalization is as follows:

New Base Market Capitalization = Old Base Market Capitalization X (New


Market Capitalization/Old Market Capitalization)

To illustrate, suppose a company issues right shares which increases the market
capitalization of the shares of that company by say, Rs.100 crores. The existing

82
Base Market Capitalization (Old Base Market Capitalization), say, is Rs.2450
crores and the aggregate market capitalization of all the shares included in the
index before the right issue is made is, say Rs.4781 crores. The "New Base Market
Capitalization " will then be: Rs.2501.24 crores = 2450 X (4781+100)/4781

This figure of 2501.24 will be used as the Base Market Capitalization for
calculating the index number from then onwards till the next base change becomes
necessary.

During market hours, prices of the index scrips, at which trades are executed, are
automatically used by the trading computer to calculate the SENSEX every 15
seconds and continuously updated on all trading workstations connected to the
BSE trading computer in real time.

Technical Analysis, Trend Analysis, Support and Resistant levels of the Indian
Stock Market BSE Sensex Index

Normally Blue chips are used for large cap shares. A term used by the investment
community to refer to companies with a market capitalization value of more than
$10 billion. Large cap is an abbreviation of the term "large market capitalization".
Market capitalization is calculated by multiplying the number of a company's
shares outstanding by its stock price per share. Investopedia explains Large Cap -
Big Cap Large cap companies are the big Kahunas of the financial world.
Examples include Wal-Mart, Microsoft and General Electric. Keep in mind that the
dollar amounts used for the classifications "large cap", mid cap", or "small cap" are
only approximations that change over time. Among market participants, their exact

definitions can vary. A company with a market capitalization between $2 and $10
billion, which is calculated by multiplying the number of a company''''s shares
outstanding by its stock price. Mid cap is an abbreviation for the term "middle
capitalization". As the name implies, a mid cap company is in the middle of the
pack between large cap and small cap companies. Keep in mind that classifications
83
such as large cap, mid cap and small cap are only approximations that change over
time. Also, the exact definition of these terms can vary among the various
participants in the investment business.

Normally Blue chips are used for large cap shares. A term used by the investment
community to refer to companies with a market capitalization value of more than
$10 billion. Large cap is an abbreviation of the term "large market capitalization".
Market capitalization is calculated by multiplying the number of a company's
shares outstanding by its stock price per share. Investopedia explains Large Cap -
Big Cap Large cap companies are the big Kahunas of the financial world.
Examples include Wal-Mart, Microsoft and General Electric. Keep in mind that the
dollar amounts used for the classifications "large cap", mid cap", or "small cap" are
only approximations that change over time. Among market participants, their exact
definitions can vary. A company with a market capitalization between $2 and $10
billion, which is calculated by multiplying the number of a company''''s shares
outstanding by its stock price. Mid cap is an abbreviation for the term "middle
capitalization". As the name implies, a mid cap company is in the middle of the
pack between large cap and small cap companies. Keep in mind that classifications
such as large cap, mid cap and small cap are only approximations that change over
time. Also, the exact definition of these terms can vary among the various
participants in the investment business

Best Answer:

Market capitalization of a company is calculated by multiplying the total number


of paid up shares of a company with the market price of the shares of that
company. The market capitalization of companies differs depending on the rise n
fall of the share prices. A company with more number of shares with higher market
price comes under high capitalized stocks. Less than that is mid cap or middle

capitalization stock. The lowest capitalization companies come under small cap
stocks. The yard stick for determining the different categories of capitalized stock
is prepared by the market regulator. In India, SEBI does it.

Companies having medium capital value are called as midcap and company’s
small level of capital value comes under small cap

84
Market capitalization of a company is calculated by multiplying the total number
of paid up shares of a company with the market price of the shares of that
company. The market capitalization of companies differs depending on the rise n
fall of the share prices. A company with more number of shares with higher market
price comes under high capitalized stocks. Less than that is mid cap or middle
capitalization stock. The lowest capitalization companies come under small cap
stocks. The yard stick for determining the different categories of capitalized stock
is prepared by the market regulator. In India, SEBI does

A company with a market capitalization between $2 and $10 billion, which is


calculated by multiplying the number of a company''''s shares outstanding by its
stock price. Mid cap is an abbreviation for the term "middle capitalization". Small
Cap: Refers to stocks with a relatively small market capitalization. The definition
of small cap can vary among brokerages, but generally it is a company with a
market capitalization of between $300 million and $2 billion. Large Cap: An
abbreviation for the term "large market capitalization". Market capitalization is
calculated by multiplying the number of a company's shares outstanding by its
stock price per share. The expression "large cap" is used by the investment
community as an indicator of a company's size. For example, a large-cap stock
would be from a company with a market-capitalization dollar value of over $10
billion. Mega Cap: Companies having a market capitalization greater than $200
billion these are the big kahunas of the financial world. Examples include Wal-
Mart, Microsoft and General Electric. Keep in mind that classifications such as
"large cap" or "small cap" are only approximations that change over time. Also, the
exact definition of these terms can vary between brokerage houses Blue Chi: A
nationally recognized well-established and financially sound company. Blue chips
generally sell high-quality, widely accepted products and services. Blue-chip
companies are known to weather downturns and operate profitably in the face of

adverse economic conditions, which help to contribute to their long record of


stable and reliable growth. The name "blue chip" came about because in the game
of poker the blue chips have the highest value. Blue-chip stock is seen as a less
volatile investment than owning shares in companies without blue-chip status
because blue chips have an institutional status in the economy. The stock price of a
blue chip usually closely follows the SP 500. Micro-Cap: capitalization below
$250 million. Small-Cap: capitalization between approximately $250 million and

85
$1 billion Mid-Cap: capitalization between approximately $1 billion and $10
billion Large-Cap or blue chip: capitalization over approximately $10 billion

Now to my third sector. One of the seemingly indestructible myths of investing is


that stocks with small market capitalizations outpace stocks with large market
capitalizations over time. Having accepted this proposition, its proponents then
explain why, in terms easily understood: Small caps carry higher risks; therefore it
follows, as the night the day that they must earn higher returns. This reasoning
would seem to make consummate good sense. But, in fact, as shown in Figure
10.5, the cycles of small-cap superiority have been relatively spasmodic. From
1925 through 1964 - a period of fully 39 years - small caps and large caps provided
identical returns. Then, in just four years, through 1968, the small-cap return more
than doubled the large-cap return. Virtually that entire margin was lost during the
next five years. By 1973, small caps were about at part with large caps for nearly
the full half-century. The small caps' reputation was made largely during the 1973-
1983 decade. Then, perhaps inevitably, RTM (reversion to the mean) struck again
in a fifth cycle. Paralleling the observation of the poet Thomas Fuller in 1650, it
was darkest for the large caps just before the dawn, for the sun has shone brightly
upon them since

86
On balance, for the full period, the compound annual return on small-cap stocks
was 12.7 percent, compared with 11.0 percent for large-cap stocks. This difference
resulted in a terminal value for small-cap stocks that was three times that of large-
cap stocks, as shown in Figure 10.5. But, given the dominance of small caps in a
single decade, I'm not sure I'd rely on it. (Certainly the truly awesome strength of
large caps, in a so-so 1998 for small caps, meant it was not wise to accept
uncritically the small-cap thesis). Without the relatively brief cycle of small-cap
domination in 1973-1983 - only one of seven decades in the period - large caps
were actually superior. When that period is excluded, annual returns were: large
caps, 11.1 percent; small caps, 10.4 percent. In any event, the relationship between
large caps and small caps, if not entirely dominated by RTM, is permeated with the
force of market gravity.

REVIEW OF
LITERATURE
87
LEARNINGS

88
Learning’s:-

 Interaction with the staff members.

 Interaction with different types of customers.

 The way activities are coordinated between the various


business units and organizations.

 I learned how to work as a team.

 I learned how to create awareness about reliance money


products.

89
FINDINGS

90
FINDINGS:-

 Most of the customers are interested to invest in banks and


life insurance companies.

 Investing in is having high risk and high returns as per the


market values.

 Only few people are aware of reliance money products.

 There a lot of competitors to the reliance money.

91
LIMITATIONS
92
LIMITATIONS

The collection of SIP’S, ULIPS, and DMATS is the main work done by
me .it involves convincing and motivating customers by explaining the
plans of above mentioned financial products.

 The work I done for the explanation of financial products is limited to


some areas for reaching my targets.

So the work I done in some places is 1.vizag, 2.kharagpur.

93
Suggestions

94
SUGGESTIONS:

1. Create awareness of Reliance Products through advertising and publicity

2. There are 96% of peoples are non insured so the company should concentrate
on them.

3. From the beginning safety is the prime concern for investors. The fact should
be revealed that some schemes of Reliance money also having safety .

4. Educate investor about risk management in Reliance money.

5. Regular contacts should be maintain with the investors and feedback should
be obtained on the product and schemes invested by them.

6. Educating investors about the advantages of Reliance money products.

95
CONCLUSION

96
CONCLUSION.
We finally conclude that reliance money is one of the top financial company .This
company provides full of products. The lower income personal also can gain more
profits through reliance money, because of the investments rates are very less when
compare to other companies.

Let us think about the investment options apart from stock markets available with
us. Bank FD’s and post office schemes come to the mind almost immediately. This
is because, for ages these were the only option available with us. They offered
returns as well as the ever –important security. If one ever needed to look for other
options one could invest in corporate fixed deposits.

With the revival of economy in early 1990,s there was a flurry of NBFC,s wooing
people and vying for a share in their investments .They offered some astounding
return and people got stuck in to them. However , their fall was quicker then their
rase. The fall out of changes in economic conditions was that people lost money
heavily and also lost some of the trust they had for non government agencies when
it came to savings. The second round of bouncing back of the economy brought to
the fore another major area, despite the fact that UTI had been a round for over 30
years and had been a preferred destination for many people with US64, Its
flagship, being the single largest scheme in terms of its

Corpus and its investor base, this industry has started picking pace only in the last
few years. People started receiving investments with caution and it was only when
they found them to be safe did some semblance of confidence return.

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The industry took a steep rise when the market saw, what could aptly be termed as
the IT .with the returns of equity-based funds jacking up to astronomical levels,
people found an easy way of making some quic k bucks. The basic objective of
investments was kept at bay and greed started coming in .The tremendous growth
was too good to last for long and with market getting in to a correction mode
returns offered by funds fell.

The industry that had been seeing net inflows till some time back has now started
showing outflows. However there are several things that should go against this run.
For one people who invested early this year are not likely to have made money till
now with both equity and debt markets witnessing volatility. This makes it
essential to stay invested for a longer period than envisaged to safeguard their
principal. Second, the market conditions are temporary. With market reviving,
equity based funds will see the net worth of people going up. Intact, if return of the
market in last six months is compared with average return of equity funds then
MFs are still better off, having gone down by just 15%as against the fall of over
20% in the market. More over they help people diversify risks on the debt market
front, the

Market is not expecting future consolidation of interest rates even though there are
some concerns about the rising inflationary pressures and a falling rupee. With the
previous rise in market yield already discounted, the higher yield will help people
recover fast. This in run implies that the debt funds too will perform well.

For the investors these are expected to be positive signs that can help them regain
some of the confidence. Mutual funds are not the instruments of speculation.
Equity investors need to understand that timing the market correctly being virtually
impossible a task; they would do well to stay invested for longer periods. Market
will reward the investors for their patience, as the economic cycle will turn positive

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in long run. Another important issue that needs to be addressed pertains to finding
the right products to suit the investment objective. People have to control greed
and invest in schemes that suit their need. They also need to decide upon their
investment horizon as then they can choose the product with much more ease. On
the hole, the industry may have seen some market factors go against it in recent
past but the industry is here to stay. Though investor confidence has been shaken a
bit, mutual funds are still a safe destination for investors.

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SUMMARY

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Reliance Money provides a comprehensive platform, offering an investment venue
or a wide range of asset classes. Its Endeavour is to change the way India Transact
in financial markets and avails financial services. Reliance Money offers a single
window facility, enabling u to access among others. Equity, and Commodity
Derivatives offshore Investments, IPOS, Mutual Funds, Life Insurance & General
Insurance products Reliance Money is the most cost-effective, convenient and
secures way to transact in wide range of financial products and services.

The highlights of Reliance Money’s offering are: Cost-effective:

The fee charge by the affiliates of Reliance Money, through whom the
transactions can be placed, is among the lowest charged in the present scenario. As
an introductory offers, pay a flat fee of just Rs.500/- valid for 2 months or specified
transactional value.

Convenience

You have the flexibility to access reliance money services in multiple ways:

Through the internet, transaction kiosks, call &transact (phone) or seek assistance
through our business partners.

Security:

Reliance money provides secure access through an electronic token that flashes a
unique security numbers every 32 seconds (and ensure that the number used for the
earlier transaction is discarded).this number works as a third level password that
keeps you account extra safe

Single window for multiple products:

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Reliance money through its affiliates/partners, facilities transactions in equity,
&commodity derivatively offshore investments, mutual funds iPod’s life insurance
and general insurance products.

3 in integrated access

Reliance money offers integrated access to your banking, trading and drat account.
You can transact with out the hassle of writing cherubs.

Drat account with reliance capital:

Through reliance money, you get a hassle-free demit account with reliance capital.
The annual maintained charge for the drat account is just Rs.50/- per annum.

Other services:

# through the portal www.reliance money .com reliance money provides:

#reliable research, including views of external experts with an enviable track


record.

#live news from returns and down Jones

#CEOs’/experts’ views on the economy and financial markets.

#the personal finance section provides tools that help you plan your investments,
tetairment, tax etc.

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BIBLIOGRAPHY

Bibliography:

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Websites

• www.google.com
• www.amfiindia.com
• www.moneycontrol.com
• www.equitymastes.com

Newspaper

• Business line

• The Hindu

Magazines

• Business World

• Out Look

104
QUESTIONNARY

105
QUESTIONNAIRE

NAME :

AGE :

OCCUPATION :

INCOCE :

AREA :

1. Do you have any idea about Reliance money

a) Yes b) No

2. Do you know about Reliance money scheme

a) Yes b) No

3) if yes what type of scheme you know

a) Gold coins b) Insurance c) Mutual funds

d) De mat a/c,s d)portfolio management

3. Do you have idea about reliance franchise?

a) Yes b) no

4. If you are interested to invest in Reliance money which scheme you want to
invest

106
a)mutual funds b)life insurance c)general insurance

d) De mat a/c, s e) portfolio management.

5.If you are an existing client of Reliance money, how did you come to know about
Reliance money

a) Advertisement b) broachers

c) Word of mouth d) own interest

6) Did you ever recommend to your friends to invest in Reliance money

a) Yes b) no

7) Which is the worlds cheapest stock broking company

a) Indiainfoline b) karvy

c) Reliance securities d) India bulls

8) Do you have any idea about distribution channel (agency in reliance money?)

A) Yes b)no

9) What is the minimum investment in portfolio management?

a) 5, 00,000 b) 10, 00,000

c) 15, 00,000 d) 20, 00,000

10) Do you have any idea about de mat account?

a) Yes b) no
107
THANK YOU

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