ACKNOWLEDGEMENT

Every individual from dusk to dawn of life need some co-operation from the surrounding environment. My self too is not an exception to others. It is very difficult to complete a project work without the help of some well-wisher. I consider it is a great privilege to acknowledge my gratitude to Mr. Brijesh Shrivastava (Branch Head, Share Khan Ltd. Jaipur) for giving his kind cooperation and valuable guidance and information he has. I am indeed grateful to Mr. Anirudh Mutha (AM-SALES), Mr. Anil Sharma (Relationship Manager, Share Khan Ltd.) for helping me in the collection of valuable information about the topic selected and also for his guidance in the preparation of the project. I am greatly indebt to all the employees of SHARE KHAN Ltd. For their kind co-operation during collection of data and information that helped me in conducting such project-work. I also express my sincere thanks to Prof.Neeren Gautam (Director, UIMS) Prof. Nishith Saxena (placement officer, UIMS), Ms. Juhi Jain (placement committee incharge) and UIMS family for giving me opportunity to undertake the project work and Guide for their inspiring guidance and timely suggestions during this project.

Jitendra gupta
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Preface

Share trading in India is undergoing a transition and consolidation phase witnessed never before. The competition is likely to become so severe after the entry of many players, retaining a customer is most difficult practice for any service provider. Though India has a very big untapped market but the players will not flourish unless they change the way the customers are being served. Given the awareness level of today customers every player has to treat with care and make the customer feel that he is the king. Number of Online Share trader in India has crossed the line. More and more customers are coming under this umbrella and many of the existing one are changing pavilion. So customer retention and satisfaction is now more important as it was never before. Players keep coming with new schemes in order to attract new customers and retain the existing one. This is being supplemented with increased advertising and brand building efforts. Success of any organization depends upon its being proactive. I am very lucky as I got an opportunity to work with SHARE KHAN LTD which is showing phenomenal growth and success in the Securities. My topic of study was “studying the working process of share khan ltd.” This project is an effort to do a depth study and analysis of various known and unknown reasons for customer satisfaction and retention. “To err is human” and I am not an exception, valuable comments are always welcomed since it will motivate to work with greater zeal and efficiency in the future.

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DECLARATION

I undersigned here by stating that the report entitled “STUDY OF CAPITAL MARKET” is a genuine and bonafied work prepared by me under a guidance of Mr. BRIJESH SHRIVASTAVA (Branch Head, SHAREKHAN LTD, JAIPUR) The empirical findings in this project report are based on the data collected by myself. The matter presented in this report is not copied from any source. I understand that any such copy is liable to the punishment in way the university authorities deem fit.

This

project

report

is

submitted

to

UDAI

INSTITUTE

OF

MANAGEMENT STUDIES in a partial fulfillment of the course of….

POST GRADUATE DIPLOMA IN MANAGEMENT (FINANCE)

PLACE: JAIPUR

(JITENDRA GUPTA)

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EXECUTIVE SUMMARY

Investment is nothing but the saving of an individual, which is remind after satisfying day-to-day necessity. He invests it somewhere to earn some returns on the saving. The investors has many choices to invest his money e.g. Saving Deposit, Fixed Deposit, Insurance Policy, Company Deposits, Capital Market, Properties and many other among all the option he have to choose one or two to invest his money and take care of not loosing the money in whatever he invest. It is not possible to study all the ingredients/options in such a short span of 45 days. Therefore I have chosen the share market to study as the title given is “STUDY OF CAPITAL MARKET”. Moreover, reason behind choosing “SHAREKHAN

LTD.JAIPUR”. For doing the project because it is purely a broking firm whole time engaged in the stock market’s operation. In addition, it has number of customers in jaipur city. The project work is carried out for 45 days and I have worked as full time management trainee in Jaipur Branch. I have visited number of new investors who want to invest the market, the questionnaire, and formal meeting and normal decision with the clients helped me for collecting valuable information for the study of market and investors. It is also useful for me to reach to the conclusion of the project. Most of them are in the age bracket of 30 – 40 years, I think this age group people are very enthusiastic to do anything and want to achieve things in shorter span of time. Therefore they attracted towards stock market. Because of volatile stock market gives higher return as well as losses to the investors. The end result I found after doing the whole exercise is that the investors expectations are very high they want more returns from short and small investment.

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INTRODUCTION AND HISTORY Share khan is the retail broking arm of SSKI, an organization with more than eight decades of trust & credibility in the stock market. It is India's leading retail financial Services Company with We have over 1000 share shops across 420 cities in India. While our size and strong balance sheet allow us to provide you with varied products and services at very attractive prices, our over 750 Client Relationship Managers are dedicated to serving your unique needs. Sharekhan is lead by a highly regarded management team that has invested crores of rupees into a world class Infrastructure that provides our clients with real-time access to all information and products. Our flagship Sharekhan Professional Network offers real-time prices, detailed data and news, intelligent analytics, and electronic trading capabilities, right at your fingertips. This powerful technology complemented by our knowledgeable and customer focused Relationship Managers. We are Creating a world of Smart Investor. Sharekhan offers a full range of financial services and products ranging from Equities to Derivatives enhance your wealth and hence, achieve your financial goals. .Sharekhan' Client Relationship Managers are available to you to help with your financial planning and investment needs. To provide the highest possible quality of service, Sharekhan provides full access to all our products and services through multi-channels.

ShareKhanLtd.
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GROWTH OF THE COMPANY Budget 2009-10: Populist yet growth oriented Given the election year, the finance minister (FM) tabled a populist budget aimed at pleasing a large section of rural population and also the salaried middle class. Apart from the substantial increase in budgetary allocation for rural and social infrastructure, the budget has proposed huge debt waiver and relief worth Rs60,000 crore to farmers. But in spite of the increased expenditure, the fiscal prudence has been maintained with fiscal deficit target set at 2.5% for 2009-10. MUMBAI: Sharekhan has upgraded their recommendation to 'buy' from 'hold' on Navneet Publications with a revised price target of Rs 80, at which the stock discounts its 2009-10 EPS of Rs 7.6 by 10.5x. The company’s Jan-Mar 2008-09 results are ahead of the brokerage expectation. The net sales for the quarter grew by a robust 29.5 per cent year on year to Rs 59.1 crore, which is ahead of their expectation of Rs 53.1 crore. The sales growth was on account of hefty growth in publication and stationery businesses. The publication business witnessed a robust growth of 28.5 per cent year on year to Rs 21.8 crore. The stationery business achieved a healthy growth of 33.8 per cent to Rs 38 crore, mainly on account of good domestic demand and introduction of non-paper stationery products. The operating profit margin declined by 102 basis points to 9 per cent, mainly on account of a higher other expenditure, as this, as a percentage of the sales increased by 313 basis points to 26.2 per cent in Jan-Mar 2007-08 6

Market NSE

BSE

Corporate Announcement SENSEX 13010.34 -320.17 NIFTY 3959.75 -79.95 DJIA 11055.19 -45.35 NASDAQ 2212.87 -26.21 RS/$ 42.82 -0.10

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INDUSTRY OVERVIEW A Brief History of Stock Exchanges Do you know that the world's foremost marketplace New York Stock Exchange (NYSE), started its trading under a tree (now known as 68 Wall Street) over 200 years ago? Similarly, India's premier stock exchange Bombay Stock Exchange (BSE) can also trace back its origin to as far as 125 years when it started as a voluntary non-profit making association. You hear about it any time it reaches a new high or a new low, and you also hear about it daily in statements like 'The BSE Sensitive Index rose 5% today'. Obviously, stocks and stock markets are important. Stocks of public limited companies are bought and sold at a stock exchange. But what really are stock exchanges? Known also as tNews on the stock market appears in different media every day. he stock market or bourse, a stock exchange is an organized marketplace for securities (like stocks, bonds, options) featured by the centralization of supply and demand for the transaction of orders by member brokers, for institutional and individual investors. The exchange makes buying and selling easy.

All stock exchanges perform similar functions with respect to the listing, trading, and clearing of securities, differing only in their administrative machinery for handling these functions. Most stock exchanges are auction markets, in which prices are determined by competitive bidding. Trading may occur on a continuous auction basis, may involve

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brokers buying from and selling to dealers in certain types of stock, or it may be conducted through specialists dealing in a particular stock. But where did it all start? The need for stock exchanges developed out of early trading activities in agricultural and other commodities. During the middle Ages, traders found it easier to use credit that required supporting documentation of drafts, notes and bills of exchange. India's other major stock exchange National Stock Exchange (NSE), promoted by leading financial institutions, was established in April 1993. Over the years, several stock exchanges have been established in the major cities of India. There are now 23 recognised stock exchanges — Mumbai (BSE, NSE and OTC), Calcutta, Delhi, Chennai, Ahmedabad, Bangalore, Bhubhaneswar, Coimbatore, Guwahati, Hyderabad, Jaipur, Kochi, Kanpur, Ludhiana, Mangalore, Patna, Pune, Rajkot, Vadodara, Indore and Meerut. Today, most of the global stock exchanges have become highly efficient, computerised organisations. Computerised networks also made it possible to connect to each other and have fostered the growth of an open, global securities market. INDIAN STOCK MARKET-A brief profile The two main stock markets of India are:• • NSE BSE

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In all there are 23 stock exchanges in India, but the two most popular amongst all of them are:• • National Stock Exchange(NSE) Bombay stock exchange(BSE)

Now, let’s discuss the history, functionality and other important details about these two important stock exchanges of India.

History of BSE and its brief profile:Indian stock markets are one of the oldest in Asia. Its history dates back to a 200 years ago. The East India Company was the dominant institution in those days and business in its loan securities used to be transacted towards the end of eighteenth century. By 1830’s business on corporate stocks and shares in the bank and cotton took place in Bombay. The 1850’s witnessed a rapid development of commercial enterprise and the brokerage business attracted many men into this field and by 1860 the number of brokers increased to 60. In 1860-61, the American civil war broke out and cotton supply from United States stopped; and thus the “share mania” in India begun, due to which the share brokers increased to about 200 to 250. At the end of the American civil war, the brokers who thrived out of this war in 1874, found a place in a street, where they would easily assemble and transact business. This street is nowadays, popularly known as DALAL STREET.

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In 1887, they formally established in Bombay, and were known as “Native Shares and Stock Brokers Association”. In 1895, it acquired a premise in the same street and finally was inaugurated in 1899 with the name Bombay Stock Exchange(BSE). In this way the stock market at Bombay was consolidated. NSE:With the liberalization of Indian economy it was found necessary to lift the Indian

stock markets on par with the international standards. The NSE was incorporated in 1992 by industrial development bank of India, industrial credit and Investment Corporation of India, industrial finance corporation of India, all insurance corporations, selected commercial banks and others. NSE is India’s leading stock exchange covering more than 160 cities and towns across the country. It provides the modern fully computerized trading system designed to offer investors across the country a safe and easy way to invest to liquidate investment and securities. Investors in many areas of country did not have the same access and opportunity to trade so there arise the need for setting up the national stock exchange. The NSE network has been designed to provide equal access to investors from anywhere in India and to be responsive to their needs. On its recognition as a stock exchange under the Securities Contract Act, 1956 in April 1993, NSE started operations in the Wholesale Debt Market (WDM) segment in

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June 1994. Capital market (equities) segment commenced operations in November 1994, and operations in derivative segment started in June 2000. NSE started trading in the capital market segment on November3, 1994 and within one year became the largest exchange in India, in terms of volumes transacted. During the year 2005-06 NSE reported, a turnover of Rs 1,569,556 crores in the equity segment. Online trading process The various transactions involved in online trading can be shown from the point of view of the
• • •

Client Broker Stock Exchange

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SIGNIFICANCE OF THE STUDY Every research is conducted to fulfill certain objective and these objectives in turn fulfill some purpose. MBA curricular is designed to give more practical exposes to the student so that he can make use of theoretical knowledge in the real life situation, with this thrust dissertation study has been included which provides opportunity to research to gain practical insight of the market. This hand on experience helps him in identifying the critical factor of consumer buying behavior. This rich experience will be great help in researcher’s future endeavors and it also solves the purpose for the partial fulfillment of MBA curriculum. The report consists of a step–wise efforts towards meeting the objectives of the study. It covers the step-wise collection of data collection and the representation of the

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data together with the analysis. It also includes some suggestions put forward hoping it would help the company achieve its vision. Equity Share:Total equity capital of the company is divided into equal units of small denomination, each called a share. For example, in a company total equity capital of Rs. 2,00,00,000 is divided into 20,00,000 units of Rs 10 each. Each such unit of Rs. 10 is called a Share. Thus, the company then is said to have 20,00,000 equity share of Rs 10 each. The holders of such shares are member of the company and have voting rights. Why do company need to issue Shares to the public? Most of the company are usually started privately by their promoter(s). However, the promoter’s capital and the borrowing from bank and financial institution may not be sufficient for setting up and running the business over a long term. Therefore, companies invite the public to contribute toward the equity and issue share 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 the share capital of a company. Once this is done, the company allot share to the applicants as per the prescribed rules and regulation laid down by SEBI. How can one acquire equity shares? The investors may subscribe issue made by corporate in the primary market. In the primary market, resources are mobilized by the corporate through fresh public issues (IPO’s) or through private placements. Alternately, investor may purchase shares from the secondary market. To buy and sell securities you should approach a SEBI registered trading member (broker) of a recognized stock exchange.

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Why should one invest in equities in particular? When an individual buy a share of a company he become a shareholder in that company. Shares are also known as Equities. Equities have a potential to increase in value over time. It also provides investors portfolio with the growth necessary to reach investor’s long-term investment goals. Research studies have proved that the equities have outperformed most than other forms of investments in the long term. This may be illustrated with the help of following.

Examples: • Over a 15-year period between the periods 1990 and 2005. Nifty has given an annualized return of 17%. • 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 is 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, as compared to other investment option. 15

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

Average return on Equities in India: Since 1990, till date, Indian share market has returned about 17% to investors in an average in terms of increase in share prices or capital appreciation annually. Beside these stocks have paid on an average 1.5% dividend annually Dividend is a percentage of the face value of a share that a company returns to its share holder from its annual profits. Composed topmost other form of investments, investing in equity share offers a highest rate of return, if invested over a longer duration. Factors that influence the price of stocks Broadly, there are two factors: • • Stock specific and Market specific. The stock – specific factor is relates to people’s expectation about the company, its future earning capacity, financial health and management, level of technology and marketing skills. The market specific factor are influence by the investor’s sentiments towards the stock market as a whole. This factor depends on the environment rather than the performance of any company. Events favorable to an economy, political or regulatory 16

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 event like war, economic crisis, communal riots, minority government etc. depress the market irrespective of certain companies performing well.

TYPES OF SHARE TRADING

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A Share khan outlet offers the following services: • Online BSE and NSE executions (through BOLT and NEAT terminals).

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• •

Free access to investment advice from Share Khan Research team. Share Khan value line (a monthly publication with reviews of recommendations, stock to watch out for etc.).

• • • • • • • •

Daily research report and market review (High Noon, Eagle Eye). Pre Market report (Morning Cuppa). Daily trading calls are based on technical analysis. Cool Trading products (Daring Derivatives, Trading Ring and Market Strategy). Personalized advice. Live Market information. Depository services: Demat and Remat transaction. Derivatives trading (Futures and options).

C S O E E UA I N UT MR D C T O AE D GN A
BROKERAGE: CASH BROKERAGE: - DELIVERY: 0.30%, INTRADAY: 0.03%* 19

EXPOSURE: - 4 TO 8 TIMES* (ON MARGIN MONEY) (* subject to change or as decided by Branch Manager) F&O BROKERAGE: - ON FIRST LEG {Buy} 0.04%, SAME DAY SQUARE {Sell} OFF: 0.04% SECOND LEG: 0.04%

Settlements of trades follow T+2 transaction cycle.

OTHER FEATURES:• • • No Demat Transaction Charges in case of buying and selling through
share khan.com

For the fund transfer and withdrawal, we have tie-up with four banks- HDFC Bank.

If you are having bank a/c in HDFC Bank you can transfer the funds and withdraw the funds online from

• • • •

Your trading a/c at anytime. BTST (Buy today Sell Tomorrow) Facility in all scripts. DIAL-N-TRADE:- Call and Trade through Toll free no. From anywhere in India (CUSTOMER CARE: 1600 22 7500, TRADING: 1-600-22 o -7500,39707500)

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TESTIMO CO

“V oted byy C b C “Voted India” dia In ”
Share khan was the proud recipient of the CNBC Awaaz Award for the being the most preferred stock broking company in India! (July 2005)

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DERIVATIVES Derivative is a product whose value is derived from the value of one or more basic variable called underlying. The underlying asset can be equity, index, foreign exchange (forex), commodity or any other asset. Derivative product initially emerged as heading devices against fluctuation commodity prices and commodity linked derivatives remained the sole from of such products for almost three hundred years .The financial deravatives came into spotlight in post-1970 period due to growing instability in the financial markets. However, since their emergence, these products have became very popular and by 1990s, they accounted for about two-thirds of total transactions in deravatives products. The difference between a share and deravatives is that shares/securities is an asset while derivative instrument is a contract. USES OF DERIVATIVES HEDGING The benefit of trading in index futures is to hedge your portfolio against the risk of trading. In order to understand how one can protect his portfolio from value erosion let us take an example. Let us try understanding how one can use hedging in a real life scenario. Stocks carry

two types risk- company specific and market risk. While company risk can be minimized by diversifying your portfolio, market risk cannoy be diversified but has to be hedged. So how does one measure the market risk? Market risk can be known from Beta. Beta measures the relationship between movements of the index to the movement of the stock. The Beta measures the percentage impact on the stock

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prices for 1% change in the index. Therefore , for portfolio whose value goes down by 11% when the index goes down by 10%, the beta would be 1.1. When the index increase by 10%, the value of the portfolio increase by 11%. The idea makes beta of your portfolio zero to nullify your losses.

Steps : Determine the beta of the portfolio. If the beta of any stock is not known, it is safer to assume that it is 1. Short sell the index in such a quantum that the gain on a unit decrease in the index would offset the losses on the on the rest of his portfolio. This is achieved by multiplying the relative volatility of the portfolio by the market value holdings. Therefore in the above scenario we have to short sell 1.2 * 1 million = 1.2 million worth of Nifty. Gain(Loss) in portfolio Gain(Loss) in futures Net Effect Index Up 10% Rs 120,000 RS120,000 Nil Index Down10% Rs120,000 Rs120,000 Nil

As , we see that portfolio is completed insulated from any losses arising out of a fall in the market sentiment. However, as accost, one has to forego any gains that arise out of the improvement in the overall sentiment. Then why does one invest in equities if all the gains will be offset by losses in futures market? The idea is that everyone expects his portfolio to outperform the market. Irrespective of whether the market goes up or not, his portfolio value would increase. .

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SPECULATION Speculators are those who do not have any position on which they enter in futures and option market. They only have a particular view on the market, stock, commodity etc. In short, speculators put their money at risk in the hope of profiting from an anticipated price change. They consider various factors such as demand supply, market positions, open interest, economics fundamentals and other data to take their positions. Illustration: Ram is a trader but has no time to track and analyze stock. However he fancies his chances in predicting the market trend. So instead of buying different stocks he buys a Sensex Futures. On May1, 2001, he buys 100 Sensex futures @ 3600 on expectations that the index will rise in future. On June 1, 2001, the Sensex rises to 4000 and at that time, he sells an equal number of contracts to close out his positions. Selling Price: 4000*100 Less: Purchase Cost: 3600*100 Net gain = Rs. 4,00,000 = Rs. 3,60,000 = Rs. 40,000

Ram has made a profit of Rs. 40,000 by taking a call on the future value of the Sensex. However, the Sensex had fallen he would have made loss. Similarly, if would have been bearish he could have Sensex Futures and made a profit from a falling profit. In Index Futures, players can have a long-term view of the market up to at least three months. ARBITRAGE

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An Arbitrageur is risk averse. He enters into those contracts were he can earn risk less profits. When markets are imperfect, buying in one market and simultaneously selling in other market give risk less profit. Arbitrageurs are always in a lookout for such imperfections. In the Futures market one can take advantages of arbitrage opportunities by buying from lower priced market and selling at the higher priced market. In index futures arbitrage is possible between the spot market and the future market (NSE has provided special software of buying all 50 Nifty stocks in the spot market). Take the case of the NSE Nifty. • • Assume that Nifty is at 1200 and 3 month’s Nifty Futures is at 1300. The Future price of Nifty can be worked out by taking the interest cost of 3 months into the account. FUTURE AND OPTION Future What are forward contracts? Derivation as a term conjure up vision of complex numeric calculations, speculative dealings and come across as an instrument, which is the prerogative of a few ‘smart finance professionals’. In reality it is not so. In fact, a derivative transaction helps cover risk, which would arise on the trading of securities on which the derivative is based and small investors can benefit immensely. A derivative security can be defined as a security whose value depends on the values of other underlying variable. Very often, the variables underlying the derivative securities are the prices of traded securities.

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Let us take an example of a simple derivative contract: • • • • Ram buys a future contract. He will make a profit of Rs 1000 if the price of Infosys rises by Rs 1000. If the price is unchanged, ram will receive nothing. If the stock price of Infosys falls by Rs 800 he will lose Rs 800.

Types of derivatives and futures Derivatives and future are three types. • • • Forwards and futures Options Swaps

Forward contract A forward contract is simplest mode of a derivative transaction. It is an agreement to buy or sell an asset (of a special quantity) at a certain future time for a certain price. No cash is exchanged when the contract is entered into. Futures and Stock Indices For understanding of stock index future, a through knowledge of the composition of indexes is essential. Choosing the right index is important in choosing the right contract for speculation or hedging. Since for speculation, the volatility of the index is important whereas for hedging the choice of index depends upon the relationship between the stock being hedged and the characters of the index.

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Choosing and understanding the right index in important as the movement of stock index future is quite similar to that of the underlying stock index. Volatility of the futures indexes is generally grater than spot stock indexes.

Understanding index futures A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Index futures are all futures contract where the underlying is the stock index (Nifty or Sensex) and helps a trader to take a view on the market as a whole. In India, we have index futures contracts based on S&P CNX Nifty and BSE Sensex and near 3 months durations contracts are available at all times. Each contract expires on the last Thursday of the expiry month and simultaneously a new contract is introduced for trading after the expiry of the contract. Options An option is a contract between two parties giving the taker (buyer) the right, but not the obligation, to buy or sell a parcel of shares at a predetermined price possibly on, or before a Stock market by their very nature are fickle. While fortunes can be made

in a jiffy more often than not the scenario is the reverse. Investing in stocks has two sides to it. • • Unlimited profit potential from any upside (remember Infosys, HFCL etc.) A downside which could make you a pauper.

What are options?

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Some people remain puzzled by options. The truth is that most people have been using options for some time because options are built into everything from mortgages to insurance. “An option is a contract, which gives the buyer the right, but not the obligation to buy or sell share of the underlying security at a specific price on or before a specific date”. ‘Option’, as the word suggests is a choice given to the investor to either honor the contract; or if he chooses not to walk away from the contract. When you buy a call option the price you pay for it called the option premium secures your right to buy that certain stock at a specified price called the strike price.

Types of option There are two types of options. • • Call Options Put Options

Call Options Call option give the taker the right, but not the obligation, to buy the underlying shares at a predetermined price, on or before a predetermined date.

Illustration Raj purchases 1 Shyam Computer (SATCOM) AUG 150 Call – premium 8.

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This contract allows Raj to buy 100 shares of SATCOM at Rs 150 per share at any time between the current date and the end of next August for the privilege, Raj pays a fee of Rs 800 (Rs eight a share for 100 shares). The buyer of a call has purchased the right to buy and for that, he pays a premium. Call options – Long & Short Positions When you expect prices to rise, then you take a long position by buying calls. You are Bullish. When you expect prices to fall, then you take a short position by selling calls. You are Bearish. Put options A Put Options gives the holder of the right to sell a specific number of share of an agreed securities at a fixed price for a period. Illustration Sam purchases 1 INFTEC (Infosys Technologies) AUG 3500 Put – Premium 200. This contract allows Sam to sell 100 shares INFTEC at Rs 3500 per share at any time between the current date and the end of the August. To have his privilege, Sam pays a premium of Rs 20,000 (Rs 200 a share for 100 shares).

Put Options-Long & Short Positions When you expect to fall, then you take a long position by buying Puts. You are bearish.

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When you expect prices to rise, then you take a short position by selling Puts. You are bullish. If you expect a fall in price (Bearish) If you expect a rise in price (Bullish) Summary: • • • • CALL OPTION BUYER Pays premium Right to exercise and buy the shares Profits from rising prices Limited losses, Potentially • CALL OPTION WRITER (Seller) • Receives premium • • Obligation to sell shares if exercised Profits from falling prices or CALL OPTIONS Short Long PUT OPTIONS Long Short

remaining neutral Potentially unlimited losses, limited

unlimited gain PUT OPTION BUYER Pays premium Right to exercise and sell shares Profits from falling prices Limited losses, Potentially

• • • •

gain PUT OPTION WRITER (Seller) • Receives premium • Obligation exercised • Profits from rising prices or to buy shares if

unlimited gain •

remaining neutral Potentially unlimited losses, limited gain

Trading strategies Bull market strategies • Calls in a Bullish Strategy. 30

• • •

Puts in a Bullish Strategy. Bullish Call Spread Strategy. Bullish Put Spread Strategy.

Calls in a Bullish Strategy An investor with a bullish market outlook should buy a call options. If you expect the market price of the underlying asset to raise, then you would rather have the right to purchase at a specified price and sell later at a higher price than have a obligation to deliver later at a higher price. The investor’s profit potential buying a call option is limited. The investor’s profit is the market price less the exercise price less the premium. The grater increase in the price of underlying stock, the grater the investor’s profit. The investor’s potential loss is limited. Even if the market takes a drastic decline in price levels, the holder of a call is under no obligation to exercise the option. He may let the option expire worthless. The investor breaks even when the market price equals the exercise price plus the premium.

Puts in a Bullish Strategy An investor with a bullish market outlook can also go short in a Put option. An investor anticipating a bull market could write put options. If market price increases and 31

puts become out-of-the-money, investor with long put positions will let their option expire worthless. By writing Puts, profit potential is limited. A Puts writer profits when the price of the underlying asset increases and the option expires worthless. The maximum profit is limited to the premium received. An increase in volatility will increase the value of your put nad decrease your return. As an option writer, the higher price you will be forced to pay in order to buy back the option at the later date, lower is the return.

Bullish Call Spread Strategies A vertical call spread is the simultaneous purchase and sale of identical call option but with different exercise profit. To “buy a call spread” is to purchase a call with a lower exercise price and write a call with a higher exercise price. The trader pays a net premium for the position. To “sell a call spread” is the opposite here the trader buys a call with a higher exercise price and write a call with a lower exercise price receiving net premium for the position. An investor with a bullish market outlook should buy a call spread. The “Bull Call Spread” allows the investor to participate to a limited extent in a bull market, while at the same time limiting risk exposure.

Bullish Put Spread Strategies

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A vertical Put spread is the simultaneous purchase and sale of identical Put option but with different exercise prices. To “buy a put spread” is to purchase a Put with a higher exercise price and to write a Put with a lower exercise price. The trader pays a net premium for the opposition. To “sell a put spread” is the opposite: the trader buys a put with a lower exercise price and writes a put with a higher exercise price, receiving a net premium for the position. An investor with a bullish market outlook should sell a Put spread. The “vertical bull put spread” allows the investor to participate to a limit extent in a bull market, while at the same time limiting risk exposure.

VOLATILITY IN STOCK MARKET

-THE BEARISH VIEW OF MARKET Market watchers, players and investors have been rudely shaken by the volatility in the Indian stock market. Indian stock markets were never caught in such a high volatile mode earlier. This volatility wiped off investments worth billions affecting the F&O segments, to which bled the most. The BSE vulnerability, to foreign, especially US markets again came to the forearound the time when the country was celebrating the 16th year of independence. 33

The BSE sensex fell 650pts on August16,2007, marking its second biggest plunge in the history. The fall was more pronounced on NIFTY which shed about 300pts. The sub-prime mass in the US market is believed, has slowed down the World’s largest economy. This has actually hurt India, without much direct exposure of Indian companies in the US. Before the scenario, the analyst companies, like Standard & Poor’s have come out with their reports that the sub-prime crises would not affect the Indian economy, but since, the market is sentiment driven, that is why, this great fall was beared. INDIAN STOCK MARKETS THE MOST INSULATED ONE’S When the market was facing highly volatile conditions, the Indian stock market was experiencing, relief rallys led by IT & banking stocks. IT scrips soared after the Government imposed curbs on overseas borrowings by Indian companies. As an illustration, Polaris led the IT rally and gained about 12%. Banks also gained as the US Federal Reserve added 38 billion dollars in bid to stem the internal mortgage crises. Industrial production numbers for the month of June, 2007 showed high growth in the manufacturing sectors like capital goods.

This is an indicator of the wellness of Indian economy. GLOBAL MARKETS ON A DOWNWARD SHIFT

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-Also affecting the Indian stock market

The global indices suddenly seem to have lost steam spooked by the rising crude oil prices and the clouds of recession hovering over the detrimental US market. It seemed that the Indian market will negate these short-term set backs in the long run. On 12Nov 2007, Sensex shed to 950pts with a net loss of 4.9%, while Nifty went down to 21pts, losing about 3.8%. the steep fall of indices wiped of wealth in crores of rupees. This was the most hurting fall for the Indian stock market. The very next day it got somewhat stabilized, while two days later i.e. 14Nov 2007, it experienced the biggest single day rise. As a result of this, crude oil and commodity market rushed upwards once again, taking inflation figure to above 3%. It resulted in rise in price of precious commodities

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owing to excess availability of money from the equity market, which at that time was, waiting for the sub-prime issue to get completely sorted out. Following the trend Worldwide, all the major indices fell around 4% and even more. Dow Jones fell by 3.7%, losing about 500pts. Other European markets also followed the same suit. The Brazilian market, which seemed rising for sometime, also acted sub-missive registering a fall of 4.6%. However the fall was brutal in the Asian economies. Nikkei fell 7.8%, while Shanghai composite lost 6.9%. The biggest fall was witnessed by the Korean market, since Seoul composite shed about 11.5%. All other Asian markets also followed the same suit. As a result, foreign money went out of the market in a fortnight, as FII’s sold Rs380 crores. Bear Market Strategies • • • • Puts in Bearish Strategy Calls in a Bearish Strategy Bearish Put Spread Strategies Bearish Call Spread Strategies.

Puts in a Bearish Strategy An Investor’s profit potential is practically unlimited. The higher the fall in price of the underlying asset, higher the profits. The investor’s potential loss is limited. If the price of the underlying asset rises instead of falling as the investors has anticipated, he may let the option expire worthless. At the most, he may lose the premium for he option.

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The trader’s breakeven point is the exercise price minus the premium. To profit, the market price must be below the exercise price. Since the trader has paid the premium, he must recover the premium he paid for the option. An increase in volatility will increase the value of your put and increase your return. An increase in volatility will make it more likely that the price of the underlying instrument will move. This increases the value of the option.

Calls in a Bearish Strategy Another option for the bearish investor is to go short on a call with the intent to purchase it back in the future. By selling a call, you have net short position and needs to be bought back before expiration and cancel out your position. For this, an investor needs to write a call option. If the market price falls, long call holder will let their out-of-themoney option options expire worthless, because they could purchase the underlying asset at the lower market price. The investor’s profit potential is limited because the trader’s maximum profit is limited to the premium received for writing the option. An increase in volatility will increase the value of your call and decrease your return. When the option writer has to buy back the option in order to cancel out his position he will be forced to pay a higher price due to the increased value of the calls. Bearish Put Spread Strategies A vertical out spread is simultaneous purchase and sale of identical put option but with different exercise prices. To “buy a put spread” is to purchase a put with a higher exercise price to write a put with a lower exercise price. The trader pays a net premium for the position. 37

To “sell a put spread” is the opposite. The trader buys a put with a lower exercise price and writes a put with a higher exercise price, receiving a net premium for the position. To put on a bear put spread by you the higher strike put and sell the lower strike put. You sell the lower strike and buy the higher strike of either calls or puts to set up a bear spread. An investor with a bearish market outlook should buy a put spread. The “Bear put Spread” allows the investors to participate to a limit extent in a bear market, while at the same time limiting risk exposure.

Bearish Call Spread Strategies A vertical call spread is the simultaneous purchase and sale of identical call option but with different exercise prices. A vertical call spread is the simultaneous purchase and sale of identical call option but with different exercise profit. To “sell a call spread” is the opposite here the trader buys a call with a higher exercise price and write a call with a lower exercise price receiving net premium for the position. To put on a bear call spread you sell the mower strike call and buy the higher strike call. An investor sells the lower strike and buys the higher strike of either calls or puts to put on the bear spread.

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An investor with a bearish market outlook should sell a call spread. The “Bear Call Spread” allows the investor to participate to a limited extent in a bear market, while at the same time limiting risk exposure. The investor’s profit potential is limited. When the market price falls to the lower exercise price both out-of-the-money option will expire worthless. The maximum profit that the trader can realize is the net premium: The premium he receives for the call at the higher exercise price.

SECURITIES AND EXCHANGE BOARD OF INDIA The Securities and Exchange Board of India Act, 1992 has been enacted to provide for the establishment of a Board to protect the investors in securities and to promote the development and to regulate the securities market and for matters connected there with or incidental there to. It came into force on the 30th day of the January 1992. Establishment and Incorporated of Board Major part of the liberalization process was the repeal of the capital issues (control) Act, 1947 in May 1992. With this, government’s control over issues of the capital, pricing the issues, fixing of premium and rates of interest on debentures etc. ceased, and the office which administered the Act, was abolished. The market was allowed to allocate resources to competing uses. However to ensure effective regulation of the market, SEBI Act 1992 was entered to empower SEBI with the statutory powers for (a) Protecting the interests of investors in securities. (b) Promoting the development of the securities and (c) regulating the securities market. Its regulatory jurisdiction extends over corporate in the insurance of the capital and transfer

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of securities, in addition to all intermediaries and person associated with the securities market. SEBI can specify the matters to be disclosed and the standard of disclosure required for the protection of investors in respect of issues; can issue direction to all intermediates and other persons associated with the securities market in the interest of the investors or of orderly development of the securities market and can conduct enquiries, audits and inspection of all concerned and adjudicate offences under the Act. In short, it has been given necessary autonomy and authority to regulate and develop an orderly serious market. A code of conduct for each intermediary has been prescribed in the regulations; capital adequacy and other norms have been specified; a system of monitoring and inspiring their operations has been specified a system of monitoring and inspecting their operations has been instituted to enforce compliance and disciplinary actions are being taken against the intermediaries violating any regulation. The Central Government may, by notification appoint for the purpose of this Act, a Board by the name of the securities and exchange board of India under section 3 of the SEBI Act. The board shall be a body corporate by the name aforesaid having perpetual succession and a common seal with proper subject to the provision for this act to acquire the hold and dispose of the property, both movable and immovable and to contract, and shall by the said name, sue or sued. The head office of the Board shall be at Mumbai. The Board may establish officers at other places in India. The SEBI has offices in Mumbai, Calcutta, New Delhi and Chennai.

The board shall consist of the following members namely:• A Chairman.

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Two members from amongst the officials of the Ministers of the Central Government dealing with Finance and Law.

One member from amongst the officials of the Reserve Bank of India constituted under section 3 of the Reserve Bank of India Act, 1934.

Two other members, to be appointed by the Central Government.

Functions of the Board The SEBI shall protect the interest of the investors in securities and to promote and development of and to regulate the securities market by such measures as it thinks fit. The measures referred to therein may provide for:• • Regulating the business in stock exchange and any other securities markets. Registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriter, portfolio managers, investment advisers and such other intermediates who may associated with securities markets in any manners. • Registering and regulating in working of the depositories, participants, custodians of securities, foreign institutional investors, credit rating agencies and such other intermediaries as the board may, by notification specify in this behalf. • Registering and regulating the working of venture capital funds and collective investments schemes including mutual funds. • • • Promoting and regulating self regulatory organizations. Prohibiting fraudulent and unfair trade practices relating to securities markets. Prohibiting insider training in securities. 41

• •

Regulating substantial acquisition of shares and take over of companies. Performing such functions and exercising according to securities contract (regulation) Act, 1956, as may be delegated to it by the Central Government.

• • •

Levying fees or other charges for carrying out the purpose of this section. Conduction research for the above purpose. Performing such other functions as may be prescribed.

Registration with SEBI A person in the following capacity shall buy, sell or deal in securities after obtaining a certificate of registration from SEBI, as required by Section 12. An application shall be made for registration in the prescribed manner with the prescribed fee. But the SEBI may, by order, suspend or cancel a certificate of registration. • • • • • • • • • • • Stock broker. Sub – broker. Share transfer agent. Bank to an issue. Trustee of trusted deed. Registrar to an issue. Merchant banker. Underwriter. Portfolio manager. Investment adviser. Depository. 42

Mutual Fund. DEPOSITORY PARTICIPANT A depository is an organization which holds securities of investors in electronic

form at the request of the investor through a registered Depository Participant. It also provides services related to transaction in securities. A depository participant (DP) is an agent of the depository through which it interfaces with the investors. A DP can offer depository services only after it gets proper registration from SEBI. Banking and services can be availed through the branch whereas depositary services can be availed through a DP. As per the available statistics at BSE and NSE, 99.9% settlement takes place in Demat mode only. Therefore, in view of the convenience in settlement through Demat mode it is advisable to have a beneficiary owner (BO) account to trade the exchanges. At present two Depositers viz. National securities depository limited (NSDL) and Central Depositary Services (I) Limited (CSDL) are registered with SEBI.

NSDL The first depositary in India established in Aug 1996 and promoted by Institutions of National Stature Responsible for Economic Development of the country has since established a national infrastructure of international standard that handles most of the settlement of securities in dematerialized from in Indian capital market. Using innovative and flexible technology systems, NSDL work to support the investors and brokers in the capital market of the country. NSDL aims at ensuring the

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safety and soundness of Indian market places by developing settlement solution that increase efficiency minimize risk and reduce costs. At NSDL, we play a quiet but central role in developing products and services that will continue to nature the growing needs of the financial industries. CSDL CSDL was set up with the objective of providing convenient, dependable and secure depository services at affordable cost to all market participants. CSDL received the certificate of commencement of business from SEBI in February, 1999. Honorable Union Finance Minister, Shri Yashwant Sinha flagged off the operations of CSDL on July 15, 1999. Settlement of trades in the demat mode through BOI shareholding Limited, the clearing house of BSE, standard in July 1999. All leading stock exchanges like the National Stock Exchange, Calcutta Stock Exchange, Delhi Stock Exchange, the Stock Exchange, Ahmedabad etc. have established connectivity with CSDL. At the end of Dec 2005, over 5000 issuers have admitted their securities units of mutual funds, certificate of deposits etc. into the CSDL system.

The categories that is eligible to become DP’s As per regulation 19 (a) of SEBI (Depositories and Participants) Regulations, following are the categories that are eligible to become DP’s. • A public financial institution as defined in section 4A of the Companies Act, 1956 (1 of 1956).

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A bank included for the time being in the second schedule to the Reserve Bank of India Act, 1934. (2 of 1934)

• •

A foreign bank operating in India with the approval of Reserve Bank of India. A state financial corporation established under the provision of the section 3 of the State Financial Corporations Act, 1951 (63 of 1951)

An institution engaged in providing financial services promoted by any of the institution mentioned in sub clause (i), (ii), (iii), (iv) jointly or severally.

A custodian of securities who has been granted a certificate of registration by the Board under sub section (1A) of section 12 of the Act.

• •

A clearing corporation or a clearing house of a stock exchange. A stock broker who has been granted certificate of registration by the Board under sub section (1) of section 12 of the Act.

A non – banking finance company, having a net worth of not less than rupees fifty lakhs.

Provided that such company shall act as a participant only on behalf of any other person. The Regulations empower NSDL to set its own selection criteria in the Bye Laws.

Therefore, the applicants must also adhere to the following criteria stated in NSDL bye Laws. • • The applicant should have a minimum net worth of Rs 1 crore. The applicant should not have been convicted in any of the five years immediately preceding the filling of the application in any manner involving

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misappropriation of funds and securities, theft, embezzlement of funds, fraudulent conversion or forgery. • The applicant should not have been expelled, barred or suspended by SEBI, self regulatory organization or any stock exchange. VARIOUS DEPARTMENTS REGULATED BY SEBI The following departments of SEBI take care of the activities in the secondary market. SNo 1. Name of the Department Major Activities Market Intermediaries Registration, supervision, Registration Supervision 2. (MIRSD) Market

compliance

monitoring

and

and inspections of all market intermediaries in respect of all department segments of the markets viz. equity, equity derivatives, debt and debt related derivatives. Regulation Formulating new policies and supervising the functioning and operations (except relating to derivatives) of securities exchanges, their subsidiaries, and market institutions such as Clearing and settlement organizations and Depositories

Department (MRD)

3.

Derivatives Products (DNPD)

and

(Collectively referred to as ‘Market SROs’.) New Supervising trading at derivatives segments of stock

Departments exchanges, introducing new products to be traded, and consequent policy changes

STOCK EXCHANGES The Securities Contract (Regulation) Act, 1956 (SCRAS) defines ‘Stock Exchange’ as anybody of individuals, weather incorporated or not, Constituted for the 46

purpose of the assisting, regulating or controlling the business of buying selling or dealing in securities. Stock exchange could be a regional stock exchange whose area of operation/jurisdiction is specified at time of its reorganization or national exchanges, which is permitted to have nationwide trading since inception. NSE was incorporated as a national stock exchange. Securities Market or Stock exchange is a place where buyers and sellers of securities can enter into transaction to purchase and sell shares, bonds, debentures etc. Further, it performs an important role of enabling corporate entrepreneur to raise resources for their companies and business ventures through public issues. The first organized stock exchange in India was started in Mumbai in 1875 with the formation of the Native Share and Stock Broker Association. Thus the Mumbai stock exchange is the oldest one in the country with the growth of joint stock companies, the stock exchange also made a steady growth and at present there are 23 recognized stock exchanges in our country with about 6000 stock brokers. In India, there are only two online trading stock exchanges, one is BSE and other is NSE. Functioning Stock exchange is a place where buyers and sellers of securities can enter into transaction to purchase and sell shares, bonds, debentures to raise resources for their companies and their business ventures through public issues transfer of resources from those having idle resources to other who have a need for them is most effectively achieved through a security market. Stated formally, security market provides channels for reallocation of saving to investments and entrepreneurship. Savings are linked to

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investments by a variety of intermediaries, through a range of financial products called ‘Securities’. Soaring Sensex The stock markets are on song, but their volatility and the rampant speculation deter genuine investors from venturing into the market.

At the Bombay Stock Exchange The Indian stock markets are sizzling. The primary measure of the mood in the markets, the Bombay Stock Exchange's (BSE) Sensex, appears to be on steroids. Analysts and self-appointed market pundits predict the Sensex will be at 10,000 by the end of the year. 48

Citing recent economic performance, which shows that the Indian economy grew by 8.5 per cent in the first quarter of 2007-08, they say international investors see India as a promising destination for investment. Skeptics remain muted amid the feel-good in the markets. Indian markets continued to remain scam-prone. On October 21, the markets tumbled by over 200 points. Although the Sensex recovered ground during the day, it collapsed again the following day. The attempt to get domestic financial institutions (FI) to prop the market failed. The media, which have generally aided the Bull Run in the bourses, reported that that the Prime Minister's Office (PMO) was tracking the happenings. The government was only investigating the sharp increase in the price of "penny stocks" - companies whose share prices have appreciated by as much as 1,000 per cent in a matter of days in some cases. Earlier, Union Finance Minister P. Chidambaram said Indian markets were in the "comfort zone". He asserted that there was "no scam in the offing". Chidambaram said he was not particularly concerned about the movement of the Sensex. He said he would rather place emphasis on the price-earnings ratio (P/E), a measure of the earning potential of equities in relation to their prices. Chidambaram said that as long as P/E ratios remained in the "comfort zone", there was no cause for worry. Chidambaram said the government maintained a close watch. The Securities and Exchange Board of India (SEBI) was looking into the sharp increase in the price of penny stocks. Although the Sensex recovered ground, gaining more than 400 points by October 29, several worrying issues remain unattended. First, there is growing evidence that the

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volatility in Indian markets has increased significantly. In fact, it is not only increasing but is far higher than that in most other markets worldwide.

Secondly, the stranglehold that foreign institutional investors (FII) have established in Indian markets in recent years not only exposes investors to greater volatility but also greatly destabilizes markets. There is growing concern that the size of these players can have serious consequences for Indian markets, investors and regulatory structures. Skeptical analysts and market-watchers point to the fact that the huge size of these funds has no matching countervailing domestic force.

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The volatility in the markets and the rampant speculation that accompanies it has been aided by a lack of regulatory oversight. The system of trading in the Indian markets is like gambling. It also discourages investors from taking a long-range (of at least five to10 years) view of the companies they are investing in. Instead, investors are primarily interested in returns over the next few days, weeks or months."

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Be gRa e A o in td m Co m

Mumbai Stock Exchange Mumbai Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritage. Popularly known as BSE it was establish as “the Native Share and Stock Brokers Association” in 1875. It is the first stock exchange in the country to obtain permanent recognition in 1956 from the government of India under the Securities Contracts (Regulation) Act, 1956. The Exchange pivotal and pre eminent role in the development of Indian capital market is widely recognized and its index. SENSEX is tracked worldwide. Earlier an Association of Persons (AOP), the exchange is now a demutualised and corporatized entity incorporated under the provision of the Companies Act, 1956, pursuant to the BSE (Corporatization and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI).

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National Stock Exchange The National Stock exchange of India Limited has genesis in the High Powered Study group on establishment of New stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors form all across the country on a equal footing. Based on the recommendation, NSE was promoted by leading Financial Institution at the behest of the government of India and was incorporated in November 1992 as a taxpaying company like other stock exchanges in the country. On its recognition as a stock Exchange under the securities contracts (Regulation) act, 1956 in April 1993, NSE commenced operations in the whole sale Debt Market (WDM) segment in June 1994. The Capital Market segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000. NSE stated trading in the equities segment (Capital Market segment) on November 3, 1994 and within a short span of 1 year became the largest exchange in India in terms of volumes transacted. Trading volumes in the equity segment have grown rapidly with the average daily turnover increasing from Rs 17 crores during 1994-95 to Rs 6,253 crores during 2005-06. During the year 2005-06, NSE reported a turnover of Rs 1,569,556 crores in the equities segment.

NIFTY

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NIFTY is the sensitivity index NSE (NATIONAL STOCK EXCHANGE) NIFTY is a basket of 50 constituent stocks. It consists of the 50 largest and most actively traded stocks, representative of various sectors, on the National Stock Exchange. 12 REASONS OF MARKET UNSTABILITY Portfolio adjustment made by the foreign institutional investors result in destabilizing tendencies in the country's system. The best policy option is to reduce the inflow of FII investment and focus on the creation of real wealth. The expected but abrupt end to the Bull Run in India's stock markets, once more focused attention on the volatility that has come to characterize India's stock markets. This volatility has been visible in the medium and long term as well. These wild fluctuations have meant that for those who bought into the market at the right time and exited at the appropriate moment, the average return earned through capital gains were higher despite the extended Bull Run in the latter year.

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The BSE Sensex display board at Church gate station in Mumbai. Movements in the Sensex during these two years have clearly been driven by the behavior of foreign institutional investors (FIIs), who were responsible for net equity purchases of as much as $6.6 and $8.5 billion respectively. In sum, the sudden FII interest in Indian markets in the last two years account for the two bouts of medium-term buoyancy that the Sensex recently displayed. A recent analysis, FIIs controlled on average 21.6 per cent of shares in Sensex companies. Further, if we consider only free-floating shares, or shares normally available for trading because they are not held by promoters, government or strategic shareholders,

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the average FII holding rises to more than 36 per cent. In a third of Sensex companies, FII holding of free-floating shares exceeded 40 per cent of the total. Given this presence of FIIs, their role in determining share price movements must be considerable. Indian stock markets are known to be narrow and shallow in the sense that there are few companies whose shares are actively traded. Thus, though there are more than 4,700 companies listed on the stock exchange, the BSE Sensex incorporates just 30 companies, trading in whose shares is seen as indicative of market activity. This shallowness would also mean that the effects of FII activity would be exaggerated by the influence their behavior has on other retail investors, who, in herd-like fashion tend to follow the FIIs when making their investment decisions. These features of Indian stock markets induce a high degree of volatility for four reasons:• Firstly, in as much as an increase in investment by FIIs triggers a sharp price increase, it would in the first instance encourage further investments so that there is a tendency for any correction of price increases unwarranted by price earnings ratios to be delayed. And when the correction begins, it would have to be led by an FII pull-out and can take the form of an extremely sharp decline in prices. • Secondly, as and when FIIs are attracted to the market by expectations of a price increase that tend to be automatically realized, the inflow of foreign capital can result in an appreciation of the rupee vis-a-vis the dollar (say). This increases the return earned in foreign exchange, when rupee assets are sold and the revenue converted into dollars. As a result, the investments turn even more attractive,

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triggering an investment spiral that would imply a sharper fall when any correction begins. • Thirdly, the growing realization by the FIIs of the power they wield in what are shallow markets, encourages speculative investment aimed at pushing the market up and choosing an appropriate moment to exit. This implicit manipulation of the market, if resorted to often enough, would obviously imply a substantial increase in volatility. • Finally, in volatile markets, domestic speculators too attempt to manipulate markets in periods of unusually high prices. Thus, most recently, the Securities and Exchange Board of India (SEBI) is supposed to have issued show-cause notices to four as-yet-unnamed entities, relating to their activities on around Black Monday, May 17, 2004, when the Sensex recorded a steep decline to a low of 4505.

MARKETS BOUNCING AGAIN

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During the year ending, the markets seemed have braced for a Happy New Year, with both Sensex and Nifty picking up, after a month long slump, on the back of global brightening. At that time, Sensex secured 625pts, while Nifty added 343pts. During that period, Sensex also hitted the 20-k mark, significantly without the rallies relying much on foreign institutional investors. Data gathered from reports, reveals that, the FII’s net investments of Rs 220 crores was surprisingly beaten by domestic institutional investors who invested up close to about Rs 1734 crores in the market. If comparison is made between the 50-scrip Nifty with the 30-scrip Sensex, we find that the Nifty had outperformed, that too taking two times advanced. As a result, in Asian markets, all indices went up including, Hang Seng, Nikkei, Seoul composite, etc. as a matter of exception, the Chinese stock market could not perform and fell about 4%. Some investment experts had the view that the Chinese market was over-valued. Even the investment guru, Mr. Warren Buffet termed it as a “Too hot”. This situation favored India, as it seemed better and safer destination to park the funds. To be a in a major development, NSE widened its F&O segments by introducing 150 new scrips. It resulted in an increased turnover at NSE significantly claiming some portion of BSE too. On this domestic front also, the auto makers seemed to rule the world as Tata motors, Mahindra & Mahindra, etc, submitted their collective bids for Jaguar and Land Rover. This showed the strong position of Indian stock market.

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STOCK MARKET CRASH January 21, 2008 Black Monday saw bloodbath on Dalal Street as the Indian stock markets crashed by over 1430 points in afternoon trade (the market has since then recovered somewhat), reminding investors that there is no one-way bet on the stock market.

Major crashes since 2000 May 2006 On May 22, 2006, the Sensex plunged by 1100 points during intra-day trading, leading to the suspension of trading for the first time since May 17, 2004. The volatility of the Sensex had caused investors to lose Rs 6 lakh crores ($131 billion) within seven trading sessions. The Finance Minister of India, P. Chidambaram, made an unscheduled press statement when trading was suspended to assure investors that nothing was wrong

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with the fundamentals of the economy, and advised retail investors to stay invested. When trading resumed after the reassurances of the Reserve Bank of India and the Securities and Exchange Board of India (SEBI), the Sensex managed to move up 700 points, still 450 points in the red. The Sensex eventually recovered from the volatility, and on October 16, 2006, the Sensex closed at an all-time high of 12,928.18 with an intra-day high of 12,953.76. This was a result of increased confidence in the economy and reports that India's manufacturing sector grew by 11.1% in August 2006. January 2008 In the third week of January 2008, the Sensex experienced huge falls along with other markets around the world. On 21 January 2008, the Sensex saw its highest ever loss of 1,408 points at the end of the session. The Sensex recovered to close at 17,605.40 after it tumbled to the day's low of 16,963.96, on high volatility as investors panicked following weak global cues amid fears of a recession in the US. The next day, the BSE Sensex index went into a free fall. The index hit the lower circuit breaker in barely a minute after the markets opened at 10 AM. Trading was suspended for an hour. On reopening at 10.55 AM IST, the market saw its biggest intraday fall when it hit a low of 15,332, down 2,273 points. However, after reassurance from the Finance Minister of India, the market bounced back to close at 16,730 with a loss of 875 points.[2] Over the course of two days, the BSE Sensex in India dropped from 19,013 on Monday morning to 16,730 by Tuesday evening or a two day fall of 13.9%.[2] Every dark cloud has a silver lining 60

A US depression is on anvil. Though not confirmed but in a hush way it is becoming the talk of the town. According to many experts the Depression in US Economy has already arrived. The mess of sub-prime mortgage has become somewhat unmanageable and is slowly taking the US towards an economic recession. The federal Bank of America is trying hard to keep this situation under control. The recent reduction in interest rates and announcement of relief package are some of the steps taken in this direction. However, this US depression is affecting the world economy in a big way. US investors, in fear of a deep recession, want to liquefy their assets and, therefore, are making heavy selling of their stocks. This has affected the stock markets of entire Globe. The Indian stock market is no exception. The market is very uncertain and nobody knows exactly where it will head in the days to come. Owing to such fluctuations in the market, millions of small investors in India have lost their money and sleep. The positive effect of this US depression for India First positive effect of this Depression is that the Indian stock market is again returning to its core fundamentals. For the last few months the market was soaring at such a high pace that it defied any business logic or commonsense. People were not ready to listen the same advice and everybody was ready to ride this bandwagon of a super bullish environment. The pace in the market was primarily due to heavy buying from big investors (FIIs to be precise). However, this buying was so huge that an imaginary atmosphere of ever increasing Sensex was developed. It is common knowledge that Share prices should be determined on the basis of the performance of the companies in their respective fields. However, the stocks of these

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companies were telling entirely different stories. The stocks which used to sell on a price range of 15 to 20 Price by earning ratio (P/E) were being sold for a P/E ratio of 45-50. This price was simply an inflated price with no solid logic behind it. However, people were in a rush to buy shares even on these prices on the belief that the prices will soar more and they will be able to make some serious cash. The recent fall in the stock market has helped in cooling off the heated share prices and has brought a common sense in the market. The prices have come down to their realistic value and this in fact is a very positive development for the Indian economy. The fall in prices has given a buying opportunity to those investors who wanted to buy stocks of companies but could not do so owing to their exorbitant prices. In the long run, this price correction will greatly help the Indian companies as only long term and serious investors will be able to get the real profit. The short term and nonserious investors will slowly move away and stability will come in the market. The second positive development of this US depression will come in the form of a fall in the global prices of Oil. A US depression clearly means a fall in the demand of oil. The lowering of demand will result in the fall of oil prices. This fall in oil prices will help India and China the most as these economies are having the fastest growth rate and a decrease in oil prices will keep deflation in control. The end result: more demand and more production. There is one scenario, however, which may spoil the party. If the OPEC countries (the group of Oil exporter’s countries) decide to lower their oil production in view of fall in demand from America, there will again be a increase in the global oil prices. It is, however, believed that OPEC can be persuaded for not doing this.

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The third and final benefit from a US depression for India is that soon we may see a fall in the interest rate here. As US federal bank is regularly lowering it’s interest rates to control the economy, the investment in US is becoming less and less attractive. As a result, the big investors are heading towards other profitable markets like India. This has resulted into a big dollar inflow into India making our currency rupee very strong which is pinching the exporters. Further, as interest rates are at their peak at the moment, this, along with a strong rupee has made many Indian companies postpone their investment plans for future. This situation, however, cannot last for long as doing so will hamper the growth rate. The only solution available is to decrease the interest rate which will make lending easy and spur the growth in many sectors. This will increase the inflow of money into the economy and give a boost to the demands. Further, a lower interest rate will also put a break on dollar inflow as the investment in India will become less profitable. Though, today, the Reserve Bank of India has not announced any decrease in interest rate and has asked the Banks to take a decision on their own, it is certain that sooner or later a reduction in interest rate is inevitable. Since India’s economy is not heavily dependent on US Economy and it has its own huge domestic market, a lower interest will give a boost to the production and help the economy.

REASONS OF CRASH IN A NUTSHELL The recent stock market crash was not unexpected. The market just required a trigger and when it got it, it fell down like the jack of cards. There were a number of factors responsible for this heavy loss:63

Firstly, during the period between August and December, the Sensex touched new height which was triggered by mainly five companies, namely:• • • • • Reliance Industries Limited Reliance Energy Larsen & Toubro HDFC Bank ICICI Bank

All these companies made an overall impact of about 55% on the market. This was not a positive sign for a market since the trading in Indian stock market greatly depends upon the market sentiments. Actually, what happened was that when the Sensex peaked up, the midcaps and small caps also showed some rise. When it was perceived that the Sensex will touch new heights then these momentum shares went to their peak levels. There were some shares which became four times oversubscribe of their actual value. Among them, some common names are:• • • • Reliance Petroleum Reliance Natural Ispaat Industries Essar Oil

The investors got huge profits on investing in such companies. Gradually the serious investors turned into speculators and this speculative behavior made them to bear heavy losses. 64

Secondly, the unexpected behavior of FIIs became a major cause of the crash. Generally, during December i.e. the Christmas time, the FIIs do not show any market momentum. But this year, was an exception, the FIIs went on buying from the Indian market due to which there was a continuous inflow of funds in the market. This resulted in peaking up the share prices. But suddenly, when FIIs drew all the money in one time from the market, it just dashed down. Thirdly, the international market was not in a good mood at that time. The main issue of concern, at that time was the US subprime crisis. This crisis was not yet solved and a new issue raised its heads up in India, which were the participatory notes (P-notes). Fourthly, there is a change in the global investment climate. One of the primary triggers is the huge fear of the United State’s economy going into a recession with foreign institutional investors trying to reallocate their funds from risky emerging markets to stable developed markets. Fifthly, the current volatility is also linked to global bourses. There is a big correlation among global markets. The presence of hedge funds across asset classes, along with increased global movement of capital, has increased event-related volatility. Volatility in commodities markets has also significantly affected equity markets.

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MAJOR FACTORS RESPONSIBLE FOR THIS CRASH

SUBPRIME CRISIS:The major reason behind the economic crisis on an international level was the US subprime mortgage. This crisis initiated when the American inflation and retail sales gave bad results. As per the figures of 2007, the increase in CPI of America was the biggest until now. Results also demonstrated that the purchase price index increased about 6.3%. Simultaneously, the results of December showed the net decrease of retail sales about 0.4%, which was even more than expected. Some of the important financial institutions of America like Citygroup, Meril Linch & company, in their fourth quarter results showed a net loss of 9.83 billion dollars and 9.91 respectively. Currently, the market is experiencing a similar sharp fall in equity indices and a large bout of volatility, thanks to negative news flows emanating from the US Economy Now, market participants are slowly coming to terms with the harsh reality that Indian capital Markets can no longer rely only on the India growth story, but will have to learn to live with global macro-economic developments that could temporarily offset strong domestic fundamentals. Market men feel that with the present crisis impacting global liquidity, the risk perception of global investors has also changed and that they are finding comfort in parking their money in safer assets like government bonds and treasury bills. As a result, emerging equity Markets, which are considered to be more

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risky compared to developed Markets, may not be able to attract huge investment, at least for another six to seven months. According to Apurva Shah, head of research, Prabhudas Lilladher: “There is no doubt that the stock market's basic strength lies in the strong India growth story. But on the other hand, the market is heavily dependent on capital coming from different parts of the world that provide immense liquidity to the system. When any development directly impacts these players negatively, the Indian market is bound to get affected. If we can enjoy the benefit of an upward rally, the main drivers behind them being foreign players, we should also learn to take some pain on the downside when they book profits and make an exit.” DOLLAR WEAKNESS AGAINST RUPEES

Sep.07

Dec.07

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As the dollar took a beating against all major international currencies, the Indian rupee has made a dramatic recovery. The rupee appreciated throughout the month with foreign banks selling dollars heavily in the market, said dealers. "The rupee has strengthened basically due to two reasons today, the dollar's fundamental weakness and expectations of good inflows into the local markets. The greenback lost ground against the Japanese Yen, Euro, Sterling, Pound and against the rupee. There is also an expectation in the market that despite the recent measures taken by the RBI — the cap on NRE deposit rates and bar of overseas corporate bodies as an investor class — dollar inflows will continue," said Mr Sharukh Wadia, Senior VicePresident, Head-Treasury, IndusInd Bank. The weakness of the dollar is expected to continue with unemployment rates in the US remaining high at over six per cent, said a forex dealer in a foreign bank. A section of the market feels that the sentiment in the local market is now positive. The Indian currency has risen more than 10 percent this year and nearly 2 percent since the U.S. Federal Reserve announced a larger-than-expected cut in its key lending rate and triggered a worldwide stock market rally. • As of Jan 21,2008 one U.S. dollar was worth 39.27 Indian rupees, more than 10 percent less than its worth (45.79 rupees) a year ago • To put the currency situation in historical context, the dollar hasn’t dipped this much against the rupee since 1996

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REASONS • Weakening Dollar Worldwide • The rupee’s rise is part of a larger trend of dollar weakness against all major currencies around the globe. • As opposed to the dollar weakness between 2002 to 2004 on account of inadequate capital inflows to finance the huge current account deficit, the present dollar weakness. is being driven by more structural factors,

particularly, the momentum of growth shifting away from the US towards Europe, Japan and the emerging markets. • Till 2005, the USD 13 trillion US economies provided nearly 50% of the incremental growth in the world economy; by 2006, it had fallen below 40% and in 2007 it is expected to fall further. • Another factor giving impetus to dollar weakness is start of a significant diversification into Euro-denominated assets of portfolios worldwide. There is a noticeable trend of oil invoicing in Euros and of several emerging market central banks diversifying their reserves holdings out of Dollar. • Dollar’s weakness can also be explained by US Federal Reserve’s easing of interest rates. As interest rates of any economy decrease, the value of its currency against other currencies also decreases which decreases its

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demand as the returns decrease. Hence investors move out of that particular country to greener pastures.

Capital Inflow into India • Currently, India as an emerging market is on the radar screen of investors and fund managers worldwide. • The impressive growth story, booming real estate and infrastructure makes India an attractive investment destination for ample liquidity floating around in the world markets at the moment. • In September 2007, investments during 2007 by foreign funds crossed the $11-billion mark, surpassing the previous high of $10.8 billion recorded during the whole of 2005. Foreign direct investment nearly tripled in the past financial year to US$16 billion from US$5.5 billion a year earlier.

IMPACT • The rise in rupee will have an adverse impact on the fortunes of sectors dependent on earnings in dollars like IT, textile, auto component manufacturers, BPOs and KPOs etc.

As the amount of Rupees per Dollar EARNED will decrease, the pressure on margins of companies in these sectors will be immense. Already, these guys have started feeling the pinch and are demanding a rescue act from the government. 70

According to the CII’s 19th Business Outlook Survey of Exporters, 71 % respondents expect a negative impact on their bottom-lines, while 29 % of respondents expect status quo.

The news is good for importers whose buying costs will greatly decrease as the number of rupees per dollar GIVEN goes down. • Already we have seen a significant surge in the export numbers. Data released from RBI shows that India’s import of automobiles went up by whopping 77.3 per cent and alcoholic beverages by 32.8 percent in the current financial year. • Overall imports have shown a rising trend, largely due to high imports of non-oil items. Non-oil imports have grown by 42.85 per cent higher so far this year, compared with last year. • Data on imports of sensitive items showed automobile import increased to Rs 350.52 crores from Rs 197.75 crores, while that of alcoholic beverages rose to Rs 41.78 crores from Rs 31.45 crores. • Imports of sensitive items from Indonesia, US, Brazil, Germany, Japan, Thailand, Australia, among others have risen, while those from Argentina, China, Ivory Coast, Malaysia and Sri Lanka have shown a decrease in rupee terms during April-July 2007-08.

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India imports 70-75 percent of its oil requirement. Even if the cost of oil per barrel has hit a record high of $84 in recent times, the appreciating rupee definitely helps to soothen the harshness of oil price increase.

As India pays in dollars for its oil imports, the cost lowers significantly even as the rupee gains in strength. If at $84 to a barrel India would pay Rs 3, 444 (assuming a dollar rupee rate of Rs 41 for simplicity) for every barrel, at Rs 39.91 India will have to pay only Rs 3,352 for every barrel, a gain of Rs 91.

A stronger rupee, will also force Indian companies to become even more efficient, which will make them more competitive in the global market, especially as China’s currency slowly appreciates over the next couple of years.

STEPS TAKEN BY RBI The rupee exchange rate is neither completely free-floating nor fixed, but is “managed” by the Reserve Bank of India through buying and selling other currencies. Up until April, the Reserve Bank was buying lots of U.S. dollars, as much as $24 billion to keep the rupee at around 44 to the dollar. But with investor sentiment so hot on India and money pouring in from abroad, the Reserve Bank found itself having to spend more and more on foreign currencies just to keep the rupee stable. When inflation shot up to over 6% in April, Bank officials appeared to decide to stop buying dollars. Instead of going in for direct intervention, the RBI has taken the following indirect measures to check the rupee rise:

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Overseas investment limit of corporate enhanced to 300 per cent of net worth from 200 per cent.

• •

Mutual funds allowed investing up to $4 billion abroad ($3 billion now). Ceiling on prepayments of foreign borrowing increased to $ 400 million from $ 300 million.

No questions asked remittances/investments’ of individuals raised to $100,000 from $50,000.

Interest rates on FCNR deposits have been reduced below LIBOR and those on NRI rupee deposits equated to LIBOR - effectively near-zero rates given forward premiums.

Participatory notes issue On October 16, 2007, SEBI (Securities & Exchange Board of India) proposed curbs on participatory notes which accounted for roughly 50% of FII investment in 2007. SEBI was not happy with P-notes because it was not possible to know who owned the underlying securities, and hedge funds acting through P-notes might therefore cause volatility in the Indian markets. This was, however not the end of the volatility. The next day (October 18, 2007), the Sensex tumbled by 717.43 points — 3.83 per cent — to 17998.39. The slide continued the next day when the Sensex fell 438.41 points to settle at 17559.98 at the end of the week, after touching the lowest level of that week at 17226.18 during the day. FORECASTING :-

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The effect of the housing/lending stocks collapse has spread beyond housing and disrupted global financial markets. Deregulated foreign and domestic hedge funds are forced to re-evaluate their risks and retail investors are unwinding their leveraged investments. Together they are causing increased volatility in the fixed income, equity and derivative markets.

The "Contagion" effect • • Access to credit lines will be cut aggressively. Sub-prime lending and leveraged loan markets may shut down or at least hibernate for some time. • Although the meltdown may pop up some good opportunities - the shockwaves from the US subprime collapse will put the private equity deals on hold for the next few months Who is going to fail next?

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The situations indicate that Bear Stearns has problems only with those CDOs issued in respect of Mortgage Backed Securities. Those CDOs were issued at the peak of the US housing market, so they have the least float. The older CDO issues will have more headroom before defaults become a problem for them. Do not invest in penny stocks Penny stocks and junk scripts look attractive to the investor when the indices are rising, since the price of these shares usually rise faster than the rise in prices of other shares. However, then the market falls, the investor is left with junk, which has no value. As a matter of principle, you should invest in stock of the only such companies whose fundamentals are known to you. Do not depend on tips, however reliable the source of tip may be. Most of the tips are generated by people with vested interest. Even when the source of the tip is genuine, the time frame the issuer has in mind may be different. If you are tempted to act on a tip, study facts before you decide to go ahead. Do not panic This is very important. More money is made in stock market by remaining inactive. It is foolish for a long-term investor to be excited or subdued by the market ticker. CNBC channel is for the short-term traders and day-traders, do not let the opinions expressed there affect your investment decision. If you are confident your investment is fundamentally strong, every fall should give you an opportunity to buy rather than sell. Of course, while you do that keep in mind the principle I have narrated in the next paragraph. Don't pull your flowers and water your weeds

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This strong advice comes from Warren Buffet, the most successful disciple of Ben Graham. The greatest mistake most investors make is to sell the shares that have appreciated, and hold the ones, which are giving a negative return. The investment strategy should be the other way round; you should sell the losers and let the winners ride. I do not mean that you should sell every share that has depreciated. The right course is to keep pruning your field regularly to identify the weed so that they could be removed, and to identify the flowers that should be watered as long as their fundamental value is below the prevailing market price. Do not invest in the company whose business you do not understand If you can understand a business and you find value there, invest. Do not be tempted to invest in industry about which you do not have much idea. While there is so much money to be made in technology shares, yet if you do not understand the business, it is better you do not go into it. My personal investment philosophy is to invest in the business, which I would be comfortable running on my own. I apply the same principles even when my investment is as low as 10 shares. Do your own research Security analysis is not as difficult as it may seem. You do not have to be a qualified analyst to do the analysis. A basic book on reading the financial statements of a company will be a great investment. When I say that more money is made by being inactive in the market, I certainly do not mean that you should invest and forget. On the other hand, you should keep reviewing the performance of the company you have invested in.

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OBJECTIVE

The objective of my summer training is to gain knowledge about how an organization works and in particular setup of a stock broking house. Under this summer training a small project was undertaken, the primary objective of which was to obtain a feedback from the clients of SHAREKHAN. Particularly about their experience while opening the online trading account with SHAREKHAN. The secondary objective of this project was to help out the clients with their problems in HMR to the extent possible.

Primary objectives of the project are:The primary objective is to know how the theoretical knowledge is applied in practice. It is also bridges the gap between the theoretical knowledge and practical aspects and provides professional exposure to the candidates as well. In addition to the above finding out the investor’s expectations from the stock market that is Shares and Derivatives.

Secondary objective:The secondary objective of the study is to understand the different investment options available in the stock market, how the investments are beneficial to the investors, what are the risks involved, how the broking company operates etc.

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METHODOLOGY

Methodology Specifies:• • • • • The objectives of the study. The method of conducting. The tools for collection of data. Approach of measurement and analysis of data. To collect specific data from concerned persons through questionnaire as well as informal decision. Sources of information:• Primary Sources:• • • • Through Questionnaire. Face to face interview. Normal decision.

Secondary Sources:• • • Record maintained by the company. Internet sites likes, www…………….. Book’s like Financial Management and advance Financial Management. 79

RESEARCH METHODOLOGY Data Sources - Primary Data, - Secondary Data Data sources: Secondary Data Under Secondary sources, we tapped information from internal & external sources. We made use of Internet (such as search engine www.google.com), www.icicidirect.com www.indiabulls.com and miscellaneous sources (such as brochures, pamphlets, library) under external sources. Primary Data Primary data is a data that is collected for the first time in the processing of the analysis. The researchers have adopted the contact through telephone for the purpose of collecting Primary data. The researchers discuss with Team Manager and employees of the company to get information about competitors of SHAREKHAN.com. ANALYSIS To make our research project most effective in a given time period of two months surveyed the information of the competitors. We undertook both Explorative as well as 80

Conclusive Research Design. The data has been collected from both Primary as well as Secondary sources and we also did the fieldwork for which utmost care has been taken to keep project unbiased from personal opinion.

FINDINGS AND ANALYSIS Findings On surveying various people who are involved in share trading both as trader as well as investor, we found that brokerage is the most important factor on which people select / opt a broking house, followed by image , convenience in trading , customer service, features, tips & suggestion & AMC.

M S IM O T N F C O W IL S L C IN AB O IN OT P RAT AT R H E EE T G R K G H U E OS
BOEAE R KRG IM G AE C N IN N E O V IE C (IN T AE R D) C S O E S R IC U T MR E V E FAU E E T RS T S&S G E T N IP U G S IO A C M

FACTORS

What is interesting to note is the weighted contribution of these factors towards decision making. Although brokerage leads the pack it has only 19% contribution, and is closely followed by broking houses’ image with 18% and convenience in trade with 16%.

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AMC & tips & suggestions having only 10% contribution each towards decision making end up the pack.

PIE CHA DEPECTING MOST IMPORTA FA RT NT CTOR IN SELECTING ABROKING HOUSE
18% 10% 10%

19% 12% 16%

15%

AMC CUSTOMER SERVICE CONVINIENCE(IN TRADE) IMAGE

TIPS & SUGGESTION FEATURES BROKERAGE

On surveying SHAREKHAN Customer why they opted for same, we got to know it was because of image SHAREKHAN carries in the market, followed by its competitive brokerage, convenience in trade, features, customer service, tips and suggestions, and AMC.

R A O F RS L C IN S A E H N ES N O EE T G HRK A
IM G AE BOEAE R KR G C N IN N E T A E O V IE C (IN R D ) FAU E ET RS C S O E S R IC U T MR E V E T S&S G E T N IP U G S IO A C M

FACTOR

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Analysis

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SHAREKHAN . COM A/C OPENING CHARGES DEMATA/C CHARGES Nil

ICICIDIRECT . COM

INDIABULLS

750/-(waive off if trading 1000(offline is more than Rs. 1 lakh) webbased) 1750(software) NO AMC

&

FREE (1 YEAR) AND 300/-P.A. FROM

ST

FREE FOR 1 YEAR AND 500/- P.A. FROM 2ND YEAR ONWARDS

ST

2ND YEAR TYPE A/C ONWARDS OF 3(off line,fast trade & Web based speed trade) BOTH WEBSITE Web based& software BOTH

TRADING THROUGH WEBSITE OR SOFTWARE

SHAREKHAN

ICICIDIRECT .COM NSE/BSE/ MUTUAL FUNDS/ Derivatives

INDIABULLS NSE/BSE DERIVATIVES

NSE/BSE/ DERIVATIVES/ ARBITRAGE/ MUTUAL FUNDS
SOFTWARE

.COM NSE/BSE/ DERIVATIVES/ COMMODITIES

500/-P.M.

N.A. 84

N.A.

CHARGES DAIL-NTRADE

(NEGOTIABLE ON BROKERAGE) UNLIMITED On 21st call Rs 20/per call(P.M.) RM NUMBER PROVIDED FOR TRADING RS. 17/PER TRANSACTION (ON SELLING) HDFC BANK,

DEMAT TRANSACTION CHARGES TIE UP WITH BANKS

NIL (THROUGH SHAREKHAN)

INCLUDING IN BROKERAG(Rs35)

HDFCBANK,

ICICIBANK ONLY (COMPULSORY)

SHAREKHAN. BUY TODAY SELL TOMORROW SMS ALERTS MINIMUM MARGIN EXPOSURE MINIMUM MARGIN Volume requirement YES 4 TO 8 TIMES COM YES

ICICIDIRECT .COM YES BUT ONLY ON 127 SCRIPS OF NSE YES 4 TIMES

INDIABULLS YES

YES 4 TIMES ONWARDS 500 BLOCKED BY THE SYSTEM NIL

Nil Nil

5000/Nil

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BROKERAGE

.03%(INTRADAY) .3% (DELIVERY)

.07% (INTRA-DAY) .75% (DELIVERY)

.04%(INTRADAY) .4% (DELIVERY)

Pure Click To Successfu

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Limitations

In such a short span of 45 days , it is very difficult to study the whole financial function of the organization.

• •

Conversion ratio of customer is very low. Most of the people are having conservative thinking and do not have any idea on capital market.

• •

People are not willing to disclose their portfolio. The focus of study is only on share market because is such a short span of time it is very difficult to study the whole capital market and its functions.

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Recommendation Recommendation for Share Khan Ltd. • Share Khan Ltd. Should try to track clients from BRO’s and software companies as in these companies majorities employees fall into the age group of 25-35 that is young influential, they should be the mainly targeted because these people have disposable income and are high risk taking people so they would be interested Demat account and Trading. • Share Khan Ltd can also target colleges and B-schools for growth. Company can sponsor event in these places so that more and more people will get to know about the company. The company can also organize small seminars. • Share Khan Ltd has recently opened many new branches in Pune area. They have clients from various categories and for convenience of the client. Share Khan Ltd should make tie-ups with other banks (ICICI & HDFC Bank). • Share Khan Ltd should give knowledge of derivative product. Derivatives product concern Future and Options for hedging positions.

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Share Khan Ltd can also use the method of mass marketing by giving advertisements on local cable network, newspapers and can distribute pamphlets in public places.

Recommendations for investors Some of the most common mistakes that investors should avoid are as follows:

Buying tips: In market, punters and market makers use to the optimum trading. What you as an investor should do is not buy anything that you do not understand. Do your own research. Trading too much: The trading bug is infectious and hard to get rid of. Trading reduces returns. The most common mistake that investors should realize is that companies are meant as ‘investments’ and not as trading opportunities. You start making more mistakes with more number of trading decisions. Buying into market trends: The most common mistake is that people buy according to market trends instead of buying businesses. A bull run does not mean that a company with a bad business will do well. Your stock will only move up if profits surpass expectations. Buying junk stocks: 89

Taking a position in a stock, which has not business model, can be dangerous. You may be left with dud paper at the end of day. ‘Vanishing Companies’ are common place in India. Over confidence: Do not be overconfident. Many investor fall pray to over confidence, trading too often and these blunders can really cost you. Never bypass the basic tenets of investing. Panic: Fear stops you optimizing profit or minimizing losses. Let fundamentals dictate your decisions not emotions. Chasing performance: Too many investors buy stocks when they are at their peak, after a long run-up. The fundamental rule is “Buy low, sell high”. Comparison on Market Performance of Companies

Companies

Share price on July Share price on Oct % increase in Share – 06 – 07 Price

INFOSYS ONGC BHARTI RELIANCE INDUSTRIES

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If investor does not want to take more risk and he is interested in investing share market then investor can go for long term investment in share market. As we see from the above data that if any person can hold the share of above mentioned companies for one year he can book the average return of 30%. Finally, my opinion is that outperforming the market is difficult task. Investor must be update himself regarding the current performances of the companies in which he invested and willing to invest.

Conclusion At the end of this report, I would like to conclude that the Indian Capital Market is a puzzle and it is very tough call to anticipate any conclusion on it and making suggestion to the individual investor. But Share Khan Ltd has got success in solving it by their eminent research team at an above average point. As per the report, the market is likely to go up is coming years because of development in various industrial sector and infrastructure. Share Khan Ltd has scope to expand and many areas to work on. I hope suggestion made by me will be helpful to Share Khan Ltd in future.

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Share Khan Ltd will go on to explore new heights in future. Share Khan Ltd has to implement its hardcore marketing effort to remain always strong in this competitive world. At the end, I would like to say that sometimes and rumors derived the capital market rather than research, technical and fundamental analysis.

Questionnaire Investment Experience How long you have been investing (in investment funds, stock, bonds or foreign exchange trading)? • • • • Age • What is your current age? • • > 55 46 to 55 92 No experience < 3 years 3 to 6 years > 6 years

• •

35 to 45 < 35

Financial Situation

What is your currently disposable income ? • • • • Below 20000 20000 -50000 50000-80000 Above 80000

What percentage of your total liquid asset (i.e. asset including self occupied property, emergency cash and any other outstanding financial commitments) will/have you invest/invested? • • • • > 50% 26% to 50% 10% to 25% < 10%

Investment Objective • What is your investment objective? 93

• • • •

To preserve the principal and earn a stable amount of regular income. To generate a high amount of regular income. To generate capital appreciation with regular income. To maximize the growth potential of my assets.

When do you expect to start withdrawing your investment?

• • • •

Not now, but with in 2 years. In 2 to 5 years. In 5 to 10 years. Not for at least 10 years.

Which of these statements would best describe your attitude towards risk? • I can tolerate a very low degree of risk, as capital preservation in crucial to me.

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I can tolerate some risk and look for some capital growth to keep pace with inflation.

I can tolerate some risk and look for moderate capital growth above inflation.

I can tolerate a high degree of risk and look for the highest capital growth potential.

Attitude to short term risk

Which one of these statements would best describe would best describe if the value of your portfolio decline by 15% in 3 months? • • I’ll hold my stock. I’ll sale it partially.

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Annexure &Bibliography

1. www.sharekhan.com. 2. www.nse.com 3. www.ncfm.com 4. www.google.com 5. www.bse.com 6. www.msn.com

7. Advance financial management by khan & Jain
8. Financial management by I M Panday

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