Table of Contents

1. INTRODUCTION.......................................................................................................................... 3 1.1 Indian Capital Market: ................................................................................................................... 3 1.2 Major Reforms in the Indian Capital Market:.................................................................................. 6 1.3 Foreign Institutional Investment in India ........................................................................................ 9 1.4 Limits on Foreign Institutional Investors ...................................................................................... 10 2. Stock Market ................................................................................................................................ 12 2.1 EQUITY OR STOCK MARKET ................................................................................................. 12 2.2 ORIGIN AND EXCHANGES...................................................................................................... 13 2.2.1Bombay Stock Exchange (BSE) ............................................................................................. 13 2.2.2 National Stock Exchange (NSE) ............................................................................................ 14 2.3 GLOBAL EXCHANGES ............................................................................................................ 15 3. THE INDIAN STOCK MARKET............................................................................................... 17 3.1 3.2 4. INTRODUCTION OF SCREEN-BASED TRADING SYSTEM (SBTS)................................ 20 REGULATORS OF SECURITIES MARKET:....................................................................... 22

ROLE OF STCOK BROKER IN STOCK MARET................................................................... 27 4.1 Stock Broker: ............................................................................................................................... 27 4.2 Role of Stock Broker:................................................................................................................... 28 4.3 Some other roles: ......................................................................................................................... 33 4.4 Role of online Stock Broker: ........................................................................................................ 34

5.Trends of market .............................................................................................................................. 36 5.1 Recent Trends in Indian Capital market: ....................................................................................... 38 5.1.1 Year 2006 at a glance: ........................................................................................................... 39 5.1.2 Year 2007 at a glance: ........................................................................................................... 42 5.1.3 SENSEX during year 2008: ................................................................................................... 47 5.1.4 2008-09 slowdown: ............................................................................................................... 48 5.2 Future: ......................................................................................................................................... 51 5.2.1 Stock market and investment decisions: ................................................................................. 52 1

6. Trends in IT and Automobile sector ............................................................................................... 60 6.1 6.2 IT sector: ................................................................................................................................ 60 Automobile sector: ................................................................................................................. 63

Conclusion............................................................................................................................................ 67 References ............................................................................................................................................ 68


1.1 Indian Capital Market:
There are 22 stock exchanges in India, the first being the Bombay Stock Exchange (BSE), which began formal trading in 1875, making it one of the oldest in Asia. Over the last few years, there has been a rapid change in the Indian securities market, especially in the secondary market. Advanced technology and online-based transactions have modernized the stock exchanges. In terms of the number of companies listed and total market capitalization, the Indian equity market is considered large relative to the country¶s stage of economic development. The number of listed companies increased from 5,968 in March1990 to about 10,000 by May 1998 and market capitalization has grown almost 11 times during the same period. The debt market, however, is almost nonexistent in India even though there has been a large volume of Government bonds traded. Banks and financial institutions have been holding a substantial part of these bonds as statutory liquidity requirement. The portfolio restrictions on financial institutions¶ statutory liquidity requirement are still in place. A primary auction market for Government securities has been created and a primary dealer system was introduced in 1995. There are six authorized primary dealers. Currently, there are 31 mutual funds, out of which 21 are in the private sector. Mutual funds were opened to the private sector in 1992. Earlier, in 1987, banks were allowed to enter this business, breaking the monopoly of the Unit Trust of India (UTI), which maintains a dominant position. Before 1992, many factors obstructed the expansion of equity trading. Fresh capital issues were controlled through the Capital Issues Control Act. Trading practices were not transparent, and there was a large amount of insider trading. Recognizing the importance of increasing investor protection, several measures were enacted to improve the fairness of the capital market. The Securities and Exchange Board of India (SEBI) was established in 1988. Despite the rules it set, problems continued to exist, Including those relating to disclosure criteria, lack of broker capital adequacy, and poor regulation of merchant bankers and underwriters. There have been significant reforms in the regulation of the securities market since 1992 in conjunction with overall economic and financial reforms. In 1992, the SEBI Act was enacted giving SEBI statutory status as an apex regulatory body.


Explicit nationwide connectivity and implicit movement toward one national market has changed this situation (Shah and Thomas. Before 1995. BSE and the Delhi Stock Exchange are both expanding the number of trading terminals located all over the country. 1994/95. India has seen a tremendous change in the secondary market for equity. In March 1995. which started trading debt instruments in June 1994 and equity in November 1994. BSE shifted from open outcry to a limit order book market. Similarly. As a result. The amount of capital issued has dropped from the level of its peak year. Its equity market will most likely be comparable with the world¶s most advanced secondary markets within a year or two. Despite these big improvements in microstructure. NSE has established satellite communications which give all trading members of NSE equal access to the market. and efficiency of market operations. integration of national markets. The key ingredients that underlie market quality in India¶s equity market are: ‡ exchanges based on open electronic limit order book. In 1994/95. a trading process in which traders shouted and hand-signaled from within a pit. The arbitrages are eliminating pricing discrepancies between markets. the financial industry did not have equal access to markets and was unable to participate in forming prices. The first exchange to be based on an open electronic limit order book was the National Stock Exchange (NSE). motivated primarily by the need for greater transparency. Rs276 billion was raised in the primary equity 4 .17 of India¶s stock exchanges have adopted open electronic limit order. Among the processes that have already started and are soon to be fully implemented are electronic settlement trade and exchange-traded derivatives. automation of stock trading. These pricing errors limited order flow to these markets. One major policy initiated by SEBI from 1993 involved the shift of all exchanges to screen-based trading. 1997). ‡ nationwide integrated market with a large number of informed traders and fluency of short or long positions. the prices in markets outside Mumbai were often different from prices in Mumbai. Before 1994. and ‡ no counterparty risk. the Indian capital market has been in decline during the last three years. compared with market participants in Mumbai(Bombay). and so have equity prices.And a series of reforms was introduced to improve investor protection. In other parts of the country. markets in India used open outcry. Currently. India¶s stock markets were dominated by BSE.

Securities market development has to be supported by overall macroeconomic and financial sector environments. the sensitive index of equity prices. EFT is important for problems such as direct payments of dividends through bank accounts. First. There is a pressing need to develop a uniform settlement cycle and common clearing system that will bring an end to unnecessary speculation based on arbitrage opportunities. market infrastructure has to be improved as it hinders the efficient flow of information and effective corporate governance. The BSE-30 index or Sensex. Further liberalization of interest rates. The Indian capital market still faces many challenges if it is to promote more efficient allocation and mobilization of capital in the economy. eliminating counterparty risk. it has to be integrated with the other segments of the financial system. India¶s banking system has yet to come up with good electronic fund transfer (EFT) solutions. reduced fiscal deficits. Thus. peaked at 4. Second. and a more competitive banking sector will help in the development of a sounder and a more efficient capital market in India. This figure fell to Rs208 billion in 1995/96 and to Rs142 billion in1996/97. the payment system has to be improved to better link the banking and securities industries. Accounting standards will have to adapt to internationally accepted accounting practices. there was a reduced inflow of foreign investment after the Mexican and Asian financial crises.361 in September1994 and fell during the following years. it is time for regulatory authorities to make greater efforts to recover investors¶ confidence and to further improve the efficiency and transparency of market operations. Market information is a crucial public good that should be disclosed or made available to all participants to achieve market efficiency. India may need further integration of the national capital market through consolidation of stock exchanges. The trend all over the world is to consolidate and merge existing stock exchanges Not all of India¶s 22 stock exchanges may be able to justify their existence. Also. A leading cause was that financial irregularities and over-valuations of equity prices in the earlier years had eroded public confidence in corporate shares. Fourth. In asense. SEBI should also monitor more closely case of insider trading. the market is now undergoing a period of adjustment. 5 . fully market-based issuance of Government securities. The global trend is for the elimination of the traditional wall between banks and the securities market. The capital market cannot thrive alone. Third. the trading system has to be made more and facilitating foreign institutional investment. The court system and legal mechanism should be enhanced to better protect small shareholders¶ rights and their capacity to monitor corporate activities.

the SEBI further strengthened the norms for public issues in April 1996. Alongside. etc. was given statutory powers in January 1992 through an enactment of the SEBI Act.2 Major Reforms in the Indian Capital Market: The major reforms in the Indian capital market since the 1990s are presented below: 1) As a first step to reform the capital market. etc. SEBI raised the standards of disclosure in public issues to enhance their transparency for improving the levels of investor protection. the Securities and Exchange Board of India (SEBI).1. risk factors. Therefore. It. such as. in general. Issuers now also have 6 . reservation in issues. The issuers of securities are now allowed to raise the capital from the market without requiring any consent from any authority either for making the issue or for pricing it. Twin objectives mandated in the SEBI Act are investor protection and orderly development of the capital market. However. which was earlier set up in April 1988 as a non-statutory body under an administrative arrangement. 2) The most significant development in the primary capital market has been the introduction of free pricing. the issue of capital has been brought under SEBI¶s purview in that issuers are required to meet the SEBI guidelines for Disclosure and Investor Protection. without seeking to control the freedom of the issuers to enter the market and freely price their issues. 1992 for regulating the securities markets. 3) The abolition of capital issues control and the freeing of the pricing of issues led to unprecedented upsurge of activity in the primary capital market as the corporates mobilised huge resources. cover the eligibility norms for making issues of capital (both public and rights) at par and at a premium by various types of companies. exposed certain inadequacies of the regulations. track record of profitability. which. Issuers of capital are now required to disclose information on various aspects. inter alia.

There are two depositories operating in the country.000 trading terminals spread all over improved discovery.the option of raising resources through fixed price floatation or the book building process. all transactions are settled through the clearing house only and not directly between members. have been dematerialized and their transfer is done through electronic book entry. With effect from April 1. the settlement cycle was further shortened to T+3 for all listed securities. Consequently. 2002. 8) Securities. unlike several of the developed countries where the two systems still continue to exist on the same exchange. 23 stock exchanges in India have approximately 8. exposure limit and setting up of trade/settlement guarantee fund. as was practiced earlier. The settlement cycle is now T+2. These are: margining system. Subsequently. intra-day trading limit. which has eliminated some of the disadvantages of securities held in physical form. which were earlier held in physical form. This the liquidity of the Indian capital market and a better price 5) The trading and settlement cycles were initially shortened from 14 days to 7 days. the country. 7) Several measures have been undertaken/strengthened to ensure the safety and integrity of the market. 4) Trading infrastructure in the stock exchanges has been modernized by replacing the open outcry system with on-line screen based electronic trading. 6) BSE and NSE in the country have established clearing houses. to further enhance the efficiency of the secondary market. rolling settlement was introduced on a T+5 basis. In all. Namely 7 .

American Depository Receipts (ADRs). Related Party Disclosures and Compliance with Accounting Standards. the SEBI decided that no broker member of the stock exchange shall be an office bearer of an exchange or hold the position of President. pension funds and country funds to operate in the Indian markets. One of the significant steps towards integrating Indian capital market with the international capital markets was the permission given to Foreign Institutional Investors (FIIs) such as.(CDSL) and National Security Depository Ltd. Income. 9) In India. mutual funds. Indian firms have also been allowed to raise capital from international capital markets through issues of Global Depository Receipts (GDRs). etc. Vice President. To remove the influence of brokers in the functioning of stock exchanges. Indian firms have also been allowed to operate in the Indian markets. 8 . all listed companies are now required to furnish to the stock exchanges and also publish unaudited financial results on a quarterly basis.(NSDL). Consolidated Consolidated Financial Statements. the SEBI decided to amend the Listing Agreement to incorporate Accounting for Taxes on the Segment Financial Reporting. have been broad-based in order to make them more widely representative so that they represent different interests and not just the interests of their members.Central Depository and Services Ltd. Euro Convertible Bonds (ECBs). 11) Boards of various stock exchanges. To enhance the level of continuous disclosure by the listed companies. Reconstituted Governing Boards have now promoters. PR Executives and brokers in the ratio of 25-25-50. which in the past included mainly brokers. respectively . Results. 10) The Indian capital market is also increasingly integrating with the international capital markets.

various intermediaries. such as mutual funds.Treasurer. debenture trustees. 9 . The Regulations are aimed at making the takeover process more transparent and to protect the interests of minority shareholders. India received positive portfolio inflows in each year. stock brokers to an and sub-brokers share merchant bankers. 13) There are now regulations in place governing substantial acquisition of shares and takeovers of companies. 12) Apart from stock exchanges. 14) Trading in derivative products.3 Foreign Institutional Investment in India The liberalization and consequent reform measures have drawn the attention of foreign investors leading to a rise in portfolio investment in the Indian capital market. Efforts are afoot to demutualise and corporatize the stock exchanges. underwriters. bankers to an issue. custodian of securities. except for one year. Apart from such large inflows. The stability of portfolio flows towards India is in contrast with large volatility of portfolio flows in most emerging market economies. registrars issue and transfer agents. portfolio managers. etc. venture capital funds and issuers have been brought under the SEBI¶s regulatory purview. stock index options and futures and options in individual stocks have also been introduced 1. Over the recent years. such as stock index future. India has emerged as a major recipient of portfolio investment among the emerging market economies. reflecting the confidence of cross-border investors on the prospects of Indian securities market.

 The maximum permissible investment in the shares of a company. These investments account for over 10 per cent of the total market capitalization of the Indian stock market. Similarly. 1. A sub-account under the foreign corporate/individual category cannot hold more than 5 per cent of the paid up capital of the company. subject to the approval of the board and the general body of the company passing a special resolution to that effect. Mutual funds have been allowed to open offshore funds to invest in equities abroad. The limit is 20 per cent of the paid-up capital in the case of public sector banks. FIIs have been permitted in all types of securities including Government securities and they enjoy full capital convertibility. jointly by all FIIs together is 24 per cent of the paid-up capital of that company. These investment inflows have since then been positive. 10 . Global Depository Receipts (GDRs).4 Limits on Foreign Institutional Investors  Each FII (investing on its own) or sub-account cannot hold more than 10per cent of the paid-up capital of a company. when capital flows to emerging market economies were affected by contagion from the East Asian crisis. The ceiling of 24 per cent for FII investment can be raised up to sectoral cap/statutory ceiling. FII investment in India started in 1993. The FIIs started investing in Indian markets in January 1993. as FIIs were allowed to invest in the Indian debt and equity market in line with the recommendations of the High Level Committee on Balance of Payments. non-resident Indians (NRIs) have been allowed to invest in Indian companies. with the exception of 1998-99. Foreign Currency Convertible Bonds (FCCBs) and External Commercial Borrowings (ECBs). The Indian corporate sector has been allowed to tap international capital markets through American Depository Receipts (ADRs).The Indian capital market was opened up for foreign institutional investors (FIIs) in 1992.

75 billion. A cap of US $1. a sub-ceiling of US $200 million is applicable for the 70:30 route.)  A cumulative sub-ceiling of US $500 million outstanding has been fixed on FII investments in corporate debt and this is over and above the sub-ceiling of US $1.75 billion is applicable to FII investment in dated Government securities and treasury bills under 100 per cent and the 70:30 route. Within this ceiling of US $1. it is also possible for an FII to declare itself a 100 per cent debt FII in which case it can make its entire investment in debt instruments. 11 .75 billion for Government debt. However. (FIIs are required to allocate their investment between equity and debt instruments in the ratio of 70:30.

As you acquire more stock. y What is stock? Plain and simple. The securities market has two interdependent segments: the primary (new issues) market and the secondary market. the larger the portion of the profits you get. The primary market provides the channel for sale of new securities. your ownership stake in the company becomes greater. Primary market is where new issues are first offered. 12 .1 EQUITY OR STOCK MARKET There are markets in which shares are issued and traded either through exchanges or over-the-counter markets. Whether you say shares. Secondary market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Also known as the equity market. stock is a share in the ownership of a company.2. The more shares you own. it all means the same thing. Profits are sometimes paid out in the form of dividends. with any subsequent trading going on in the secondary market. Secondary market comprises of equity markets and the debt markets. or stock. Stock represents a claim on the company's assets and earnings. equity. Majority of the trading is done in the secondary market. Stock Market 2. The importance of being a shareholder is that you are entitled to a portion of the company¶s profits and have a claim on assets. it is one of the most vital areas of a market economy as it provides companies with access to capital and investors with a slice of ownership in the company and the potential of gains based on the company's future performance.

well established and financially sound companies. The base year of SENSEX is 1978-79.2. This association kicked of with 318 members. y Index calculation methodology SENSEX. 13 .2.(BSE) Bombay Stock Exchange is the oldest stock exchange not only in India but in entire Asia.1Bombay Stock Exchange Ltd. The main index of BSE is called BSE SENSEX or simply SENSEX. the SENSEX is calculated on a free-float market capitalization methodology. which later came to be known as Bombay Stock Exchange (BSE). BSE is spread all over India and is present in 417 towns and cities. The Native Share and Stock Broker's Association in 1875. From September 2003. The total number of companies listed in BSE is around 4937. At the time of its origin it was an Association of Persons but now it has been transformed to a corporate and demutualised entity. 2. BSE started functioning with the name. first compiled in 1986 was calculated on a "Market Capitalization-Weighted" methodology of 30 component stocks representing a sample of large. It got Government of India's recognition as a stock exchange in 1956 under Securities Contracts (Regulation) Act. Its history is synonymous with that of the Indian Share Market history. The name of the first share trading association in India was Native Share and Stock Broker's Association. It is composed of 30 financially sound company stocks. which are liable to be reviewed and modified from time-to-time. Indian Share Market mainly consists of two stock exchanges namely Bombay Stock Exchange (BSE) & National Stock Exchange (NSE). The "free-float Market Capitalization-Weighted" methodology is a widely followed index construction methodology on which majority of global equity benchmarks are based.2 ORIGIN AND EXCHANGES Share market in Indian started functioning in 1875. 1956.

(NSE) National Stock Exchange (NSE) founded although late than BSE. 2006. The BSE National Index was renamed as BSE-100 Index from October 14. It is also based in Mumbai but has its presence in over 1500 towns and cities. Dollex-100 on May 22. is currently the leading stock exchange in India in terms of total volume traded. NSE is the second largest bourse in South Asia.e.2 National Stock Exchange Ltd. National Stock Exchange got its recognition as a stock exchange in July 1993 under Securities Contracts (Regulation) Act. BSE launched the BSE-PSU Index. 1994.2. Launch of Other BSE Indices   The launch of SENSEX in 1986 was later followed up in January 1989 by introduction of BSE National Index (Base: 1983-84 = 100). In terms of market capitalization.. 1956. 1996 and since then it is calculated taking into consideration only the prices of stocks listed at BSE.the BSE TECk Index. 2. In 2001. two new index series viz. The Exchange shifted all its indices to a freefloat methodology (except BSE PSU index) in a phased manner. the 'BSE-200' and the 'DOLLEX-200' indices. DOLLEX-30 and the country's first freefloat based index . The launch of BSE-200 Index in 1994 was followed by the launch of BSE-500 Index and 5 sectoral indices in 1999. The products that can be traded in NSE are:       Equity or Share Futures (both index and stock) Options (Call and Put) Wholesale Debt Market Retail Debt Market Mutual Funds 14 . The Exchange constructed and launched on 27th May.    The Exchange launched dollar-linked version of BSE-100 index i.

NasdaqOMX now has a 15 .S. public shares. In fact. American Stock Exchange: The third largest exchange in the U. NASDAQ lists approximately 3. but that role has since been filled by the Nasdaq.NSE's leading index is Nifty 50 or popularly Nifty and is composed of 50 diversified benchmark Indian company stocks. Gillette and Wal-mart.S.200 securities. Nasdaq (History):The NASDAQ(acronym of National Association of Securities Dealers Automated Quotations) is an American stock exchange. Citigroup. is the market of choice for the largest companies in America. which is the parent of Nasdaq. with stocks like General Electric. The AMEX used to be an alternative to the NYSE. its exchange-traded fund tracks the largecap NASDAQ 100 index. Currently the NYSE. Nifty is constructed on the basis of weighted average market capitalization method. However. To qualify for listing on the exchange. who divested themselves of it in a series of sales in 2000 and 2001. capital. and shareholders. It is owned and operated by the NASDAQOMX Group. The "Big Board" was founded over 200 years ago in 1792 with the signing of the Buttonwood Agreement by 24 New York City stockbrokers and merchants. companies from 35 countries representing all industry sectors. It was founded in 1971 by the National Association of Securities Dealers (NASD).3 GLOBAL EXCHANGES The New York Stock Exchange: The most prestigious exchange in the world is the New York Stock Exchange (NYSE). which has been published since its inception. Its main index is the NASDAQ Composite. and meet minimum requirements for assets. a company must be registered with the SEC. bought the AMEX in 1998. have at least three market makers (financial firms that act as brokers or dealers for specific securities). which was introduced in 1985 alongside the NASDAQ 100 Financial Index. 2. It is the largest electronic screen-based equity securities trading market in the United States. McDonald's. of which 335 are non-U. Coca-Cola. the National Association of Securities Dealers (NASD). is the American Stock Exchange (AMEX).

Exxon and Microsoft. The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. the regional exchanges were merged in 1973 to form the Stock Exchange of Great Britain and Ireland. The DJIA includes companies like General Electric. the DJIA is the oldest and single most watched index in the world. and covers approximately 65% of its total market capitalization. the leading and most-respected index of Japanese stocks. and trading began on June 1st.K. The Nikkeiis equivalent to the Dow Jones Industrial Average Index in the U. later renamed the London Stock Exchange (LSE). y Asian Market Indices Tokyo Stock Exchange (TSE):Tokyo Stock Exchange was established on May 15.S. In fact. and has been published since 1969. 16 . European Market Index . is the dominant index. It is a price-weighted index comprised of Japan's top 225 blue-chip companies on the Tokyo Stock Exchange. The Index is maintained by a subsidiary of Hang Seng Bank. such as Microsoft. originated in 1773. Hong Kong Exchange: Hang Seng Index (HSI): In Hang Seng index there is market capitalization-weighted index of 40 of the largest companies that trade on the Hong Kong Exchange. Disney. The index aims to capture the leadership of the Hong Kong exchange. Nasdaq is traditionally home to many high-tech stocks. Japan Stock Exchange: Nikkei: Japan's Nikkei 225 Stock Average. The Financial Times Stock Exchange (FTSE) 100 Share Index. or "Footsie". Dow Jones Industrial Average (DJIA): "The Dow". Dell and Cisco.London Stock Exchange (LSE): The primary stock exchange in the U. containing 100 of the top blue chips on the LSE. Charles Dow invented the DJIA back in 1896. it was called the Nikkei DowJones Stock Average from 1975 to 1985. and the largest in Europe.dual listing agreement with the Tel Aviv Stock Exchange. 1878. Intel.

India¶s market capitalisation was the highest among the emerging markets. the Sensex has posted excellent returns in the recent years. UK. Germany. was US$ 175 billion has grown by 37. Bombay Stock Exchanges (BSE). 2007. The two major exchanges namely the National Stock Exchange (NSE) and the Bombay Stock Exchnage (BSE) ranked no. Australia. accounts for the largest number of listed companies transacting their shares on a nation wide online trading system. France.). 1997. calculated by the number of daily transactions done on the exchanges. 17 . With daily average volume of US $ 9. which.5% per cent every twelve months and was over US$ 834 billion as of January. The Indian capital market is significant in terms of the degree of development. one of the oldest in the world.540 crore with a P/E of 20. Total market capitalisation of The Bombay Stock Exchange (BSE).3. The market cap of the sensex as on April 11th.237. Switzerland. Turnover in the Spot and Derivatives segment both in NSE & BSE was higher by 45% into 2006 as compared to 2005.23x. 2008 was Rs 2. India has the third largest investor base in the world after USA and Japan. volume of trading. The Total Turnover of Indian Financial Markets crossed US$ 2256 billion in 2006 ± An increase of 82% from US $ 1237 billion in 2004 in a short span of 2 years only. as on July 31. 3 & 5 in the world. transparency and its tremendous growth potential. Over 7500 companies are listed on the Indian stock exchanges (more than the number of companies listed in developed markets of Japan. THE INDIAN STOCK MARKET With over 25 million shareholders.4 billion. Canada and Hong Kong. 18.80.867 46.6 22.32 17.762 36. RETURNS (%).81.22.8 18.3 13.7 17.1 18 .5 20.7 BSE 500 Returns(%) End 17.75.Sensex High 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 3758 6249 6954 11356 12671 13950 Sensex Low 2828 2905 4227 6118 8800 8799 Eps P/E High P/E Low 10.6 22.831 36.603 54.3 9.8 19.7 year 9.528 42.4 11.394 39.5 21.62 Bse Sensex Returns(%) End 13.02.8 11.341 mcap(RS crore) End year P/E 17.3 12.P/E Index Nifty: Returns(%) End 10.527 CY04 CY05 CY06 CY07 mcap(RS crore) End year P/E 15.35.5 year 15.2 28.61.26 27.881 mcap(RS crore) End year P/E 15.7 35.50.1 18.1 year 7.2 17.8 27.4 12.2 29.13.9 33.579 38.865 47.2 272 348 450 540 686 785 13.07 21.0 15.4 8.8 SIZE OF EQUITY MARKET.509 63 64.5 17.

Rs 23. Canada. Eli Lily. y FII inflows in India Net FIIs inflow in India increased steadily through the last decade of the 1990s.y Trends in Primary Markets According to Sebi data.676 crore in 2005-06. They have pumped in over US$ 23 billion in the past three years which strengthens India¶s position in emerging as a major investment destination for the world investors. Bill Gates. Corporates collected Rs. Bell Labs. LG. Caterpillar. Nestle. Intel. 2007 had reached around $ 51.993 in 2006-07 and a whopping Rs 51. Dupont. Toyota.408 crore in 2007-08 (till the end of January 2008). Belgium. as well as confidence of the foreign investors in the growth and stability of the Indian market.131 crore in 2003-04. Mitsubishi.IBM. Many Japanese and European investors have also started eyeing India. Italy. Cummins.GM.22.7 billion in India over the next four years to expand its operations. Monsato. chairman of Microsoft Corporation. reflecting the strong economic fundamentals of the country. The year 2003 was a watershed year for FIIs investments in Indian stock market which reached an annual peak of US$ 10 billion in 2004-2005. Rs 25. Texas Instruments.526 crore in 2004-05. Novartis. 2006 had reached around US$ 10 billion. Rs 24.47 billion from $4 million in 1992. Microsoft. the average size of IPO has increased from Rs 197 crore in FY06 to Rs 270 crore in FY07 and in FY08 this figure has magnified to 403 crore. Samsung. This buoyancy continued during 2005-06 and the cumulative FII inflow in 9 months period ending December. Motorola. Honda. International Corporations which have invested in India include GE. Registrations from non-traditional countries like Denmark. Hewlett Packard. said that the company will invest US$1. aiming to cash in on the rising equity markets. the world¶s largest software company. Bayer. The cumulative FII inflow till 6th March. Sweden and Ireland are on the rise. Daimler Chrysler. 19 . Coca Cola and McDonalds ± To name a few.

3. trading on the stock exchanges in India used to take place through open outcry without use of information technology for immediate matching or recording of trades. The NSE started nation-wide SBTS. To obviate this. leading to increased investor confidence. This increases the informational efficiency of markets. The high speed with which trades are executed and the large number of participants who can trade simultaneously allows faster incorporation of price-sensitive information into prevailing prices. The practice of physical trading imposed limits on trading volumes as well as. which helps to make the market more transparent. which have provided a completely transparent trading mechanism. With SBTS. This was time consuming and inefficient. the speed with which new information was incorporated into prices. cost and risk of error as well as on the chances of fraud. The transaction is executed as soon as the quote punched by a trading member finds a matching sale or buys quote from counterparty. Regional exchanges lost a lot of business to NSE. and hence cuts down on time.1 INTRODUCTION OF SCREEN-BASED TRADING SYSTEM (SBTS) Before the NSE was set up. SBTS electronically matches the buyer and seller in an order-driven system or finds the customer the best price available in a quote-driven system. forcing them to introduce SBTS. it becomes possible for market participants to see the full market. SBTS enables distant participants to trade with each other. improving the liquidity of the markets. 20 . the NSE introduced screen-based trading system (SBTS) where a member can punch into the computer the quantities of shares and the prices at which he wants to transact.

y Online Trading Mechanism: Bombay Stock Exchange's trading system is popularly known as BOLT (BSE's Online Trading System). in which a member can punch into the computer quantities of securities and the prices at which he likes to transact and the transaction is executed as soon as it finds a matching sale or buy order from a counter party. The BSE has deployed an Online Trading system (BOLT) on March 14. The stocks are hold in a demutualised format helping in fast. cost and risk of error. 1995. transparent and time saving. NSE provides its customers with a fully automated screen based trading system known as NEAT system. transparent and efficient preservation and transactions. BOLT has a two-tier architecture. 21 . and position monitoring are also provided by the system. BOLT has been interfaced with various information vendors like Bloomberg. as well as on fraud. Access to market related information through the trader workstations is essential for the market participants to act on real-time basis and take immediate decisions. It makes the trade efficient. Other services like information dissemination. The trader workstations are connected directly to the backend server. It allows faster incorporation of price sensitive information into prevailing prices. It electronically matches orders on a price/time priority and hence cuts down on time. Bridge. thus increasing the informational efficiency of markets. which acts as a communication server and a Central Trading Engine (CTE). index computation. and Reuters. resulting in improved operational efficiency. Market information is fed to news agencies in real time.

SEBI Act. self ±regulatory organizations. 22 .3. In particular. 1992. conducting inquiries and audits of the stock exchanges. y Securities and Exchange Board of India (SEBI) SEBI or Securities and Exchange Board of India is entitled to protect the investors' interests. it has powers for:      Regulating the business in stock exchanges and any other securities markets Registering and regulating the working of stock brokers. Its regulatory jurisdiction extends over corporates in the issuance of capital and transfer of securities. sub±brokers etc. undertaking inspection. y Role of SEBI SEBI has been obligated to perform the aforesaid functions by such measures as it thinks fit. regulate and develop securities market in India. The Securities and Exchange Board of India (SEBI) is the regulatory authority in India established under Section 3 of SEBI Act. mutual funds and other persons associated with the securities market. in addition to all intermediaries and persons associated with securities market. intermediaries. Promoting and regulating self-regulatory organizations Prohibiting fraudulent and unfair trade practices Calling for information from. 1992 provides for establishment of Securities and Exchange Board of India (SEBI) with statutory powers for (a) protecting the interests of investors insecurities (b) promoting the development of the securities market and (c) regulating the securities market.2 REGULATORS OF SECURITIES MARKET: The responsibility for regulating the securities market is shared by Department of Economic Affairs (DEA). Department of Company Affairs (DCA). It passes laws for streamlining the Indian share market for efficient outcomes. Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI).

Thesurveillance function is an extremely vital link in the chain of activities performed by the regulatory agency for fulfilling its avowed mission of protection of investor interest and development and regulation of capital markets. (1) Surveillance Cell in the stock exchange: The stock exchanges as said earlier. 23 . if necessary. This is accomplished through Surveillance Cell in the stock exchanges. The surveillance system adopted by SEBI is two pronged viz. the matter is thereafter taken up for a preliminary enquiry and subsequently. SEBI keeps constant vigil on the activities of the stock exchanges to ensure effectiveness of surveillance systems. Based on the feedback from the exchanges. depositories and concerned entities. The stock exchanges are charged with the primary responsibility of taking timely and effective surveillance measures in the interest of investors and market integrity.y Market Surveillance Mechanism In order to ensure investor protection and to safeguard the integrity of the markets. are the primary regulators for detection of market manipulation. depending on the findings gathered from the exchanges. the matter is taken up for full-fledged investigation. Unusual deviations are informed to SEBI.: (1) Surveillance Cell in the stock exchange and (2) The Integrated Surveillance Department in SEBI. Proactive steps are to be taken by the exchanges themselves in the interest of investors and market integrity as they are in a position to obtain real time alerts and thus know about any abnormalities present in the market. it is imperative to have in place an effective market surveillance mechanism. price rigging and other regulatory breaches regarding capital market functioning.

and a significant proportion of transactions would end up as bad delivery due to faulty compliance of paper work. 24 . SEBI has decided to put in place a world-class comprehensive Integrated Market Surveillance System (IMSS) across stock exchanges and across market segments (cash and derivative markets). In addition. The transfer was by physical movement of papers. Keeping the same in mind. other stakeholders (investors. y Depository System The erstwhile settlement system on Indian stock exchanges was also inefficient and increased risk. restricted liquidity and made investor grievance redressal time consuming and. All this added to costs and delays in settlement. forgery. In many cases the process of transfer would take much longer than the two months stipulated in the Companies Act. Theft.(2) Integrated Surveillance Department in SEBI : SEBI on its own also initiates surveillance cases based on references received from other regulatory agencies. with the change of ownership being evidenced by an endorsement on the security certificate. The second aspect of the settlement relates to transfer of shares in favor of the purchaser by the company. due to the time that elapsed before trades were settled. mutilation of certificates and other irregularities were rampant. shareholders) and media reports. intractable. News and rumours appearing in the media are discussed in the weekly surveillance meetings with the stock exchanges and necessary actions are initiated. corporates. the Integrated Surveillance Department of SEBI keeps tab on the news appearing in print and electronic media. at times. There had to be a physical delivery of securities -a process fraught with delays and resultant risks. Being proactive is one of the necessary features for success in taking surveillance measures. The system of transfer of ownership was grossly inefficient as every transfer involves physical movement of paper securities to the issuer for registration. the issuer has the right to refuse the transfer of a security. y Integrated Market Surveillance System: In order to enhance the efficacy of the surveillance function.

NSDL and CDSL. and (c) providing for maintenance of ownership records in a book entry form. In any stock exchange. 25 . It is safe. This account settlement period.To obviate these problems. the Act envisages transfer ownership of securities electronically by book entry without making the securities move from person to person. 1996 was passed.. It does so by (a) making securities of public limited companies freely transferable. are converted into electronic data and stored in computers by a Depository. secure and convenient buying. have come up to provide instantaneous electronic transfer of securities. You can convert your securities to electronic format with a Demat Account. if it is long leads to several price distortions and allows for market manipulation. trades or transactions have to be settled by either squaring up the carrying forward positions or settling by payment of net cash or net delivery of securities. which hurts the small investors. and the transfer deed and other procedural requirements under the Companies Act have been dispensed with. accuracy and security. In order to streamline both the stages of settlement process. the Depositories Act. restricting the company's right to use discretion in effecting the transfer of securities. subject to certain exceptions. It provides for the establishment of depositories in securities with the objective of ensuring free transferability of securities with speed. y Dematerialization Dematerialization or "Demat" is a process whereby your securities like shares. Two depositories. It increases the chances of speculation resulting in volatility. selling and transacting stocks without suffering endless paperwork and delays. debentures etc. (b) dematerializing the securities in the depository mode.screen-based trading and trading through the Internet . With the application of IT in the securities market .it has been possible to reduce this settlement period. viz. The Act has made the securities of all public limited companies freely transferable.

Change of name. can be effected across companies held in demat form by a single instruction to the DP. transmission etc.There are many advantages of holding a demat account. No concept of Market Lots. dividend mandate. A few features of a Demat account are: y y y y y Dematerialization of Securities Settlement of Securities traded on the exchange as well as off market transactions Pledging and Hypothecation of Dematerialised Securities Electronic credit in public issue Receipt of non-cash benefits in electronic form 26 . address. y y y y Shorter settlements thereby enhancing liquidity No stamp duty on transfer of securities held in demat form. registration of power of attorney. A few important ones' are as below.

you should get customer testimonials so that you can get an unbiased point of view. and he/she will know the rules and regulation. This does not have to be a degree in a university . To make sure the information is credible.1 Stock Broker: A stock broker is a professional who buys and sells stocks and other securities in the stock market through the book makers from the stock investors. These firms have a reputation to maintain and so they will not allow their brokers to engage in fraudulent activities. if that is possible. It is wise to get stock brokers from well known stock brokerage houses. y Theoretical know how: A good broker is one who has had theoretical knowledge in the field. y Experience: Go for brokers who have years of experience. there are good brokers and bad brokers. especially for novice traders. Such brokers are able to learn from their successes and from their failures. You should therefore do a one-on-one interview with your stock broker. You should therefore look at the resume of such stock brokers to look at the portfolios they have handled. You should always check whether the stock broker has taken 27 . Brokers work for stock brokerage houses and just like with other professions. This is important because such brokers have dealt with different stocks and they know what to do and what not to do.4.there are many online and offline courses on buying and selling stocks. ROLE OF STCOK BROKER IN STOCK MARET 4. he/she will know how to analyze the stocks and markets for more accurate predictions. y License/Registration: You should not enlist the services of a broker if he/she is not licensed by the relevant industry and government bodies. A broker who has had formal training will know the terms used in the industry. Getting a stock broker is a prudent decision.

if you are quite apt at stock market analysis and can regularly watch on the happenings of stock market and the stocks in which you invest.2 Role of Stock Broker: As per the law in United States one needs to pass the General Securities Representative Examination or the Series 7 exam for working as a stock broker. These roles are: y Execution only . It will not only save the service charges but also give you full confidence in stock market trading. Brokers perform different roles to provide services to their clients. These are the basic services provided by the stock market brokers and it completely depends on you which service you will subscribe to.In this service the broker only carries out the trading according to the direction of the investor. For example.This is the most comprehensive service that a broker provides.In this service the broker not only performs the buying and selling instructions of the client but also advises the investor about which stock to buy and which stock to sell. y Discretionary dealing . These include trading in options such as binary options. In this case the broker has the discretionary power to take the investment decisions on behalf of the investor. it is better to have a stockbroker to execute your buying and selling instructions. y Advisory dealing . trading in foreign currency. and trading in commodities such as gold. or its equivalent in other countries. 28 . 4. your portfolio will be diversified to reduce the risk to your capital.the General Securities Registered Representative Examination. This way. y Knowledge of other financial instruments: A good broker is one who is knowledgeable in various financial instruments. This is the basic and the most commonly used service of the brokers.

futures. which they usually do on behalf of clients. but not always. In this case the broker takes all the decisions for investing in the stock market. there is a constant temptation to make recommendations that ideally. Because of their experience and expertise. to offer advice and participate in shaping a financial plan. y Function: The essential purpose of a stock broker is to buy and sell stocks. at most. because brokers are pressured to generate income and clients are seeking to benefit from an insider's perspective.If you are relatively new to stock investment or if you do not have adequate knowledge of stock analysis or if you do not have the time or resource to do thorough research on the stock market the advisory service is effective for you. At its core." but the job is very similar. Though it will be a bit more expensive but then you can significantly gain from the technical knowledge and experience of the broker and its research and analysis team. and usually also bonds. After the profession took on a negative image in the 1980s and 1990s stock brokers prefer to call themselves "investment counselors" or "financial advisors. This is the most costly broking service but then it will not require you to spend any time for your stock market investment. balance risk and profitability for all. however. It will not only execute your trading directions but also provide you with effective tips and guidance for stock market investment. stock brokers may be in the position to 29 . That also applies to selecting your online trading company who will carry out the online trading on your behalf. the role of the stock broker is to execute the demands of their client or. While choosing your stock exchange broker. But. and because the brokers themselves are paid higher commissions on riskier investments. Just like the different types of stock broking services there are different categories of brokers as well. it is wise to select from the reputed stock trading companies as that will make sure you gain from their robust infrastructure from analysis and experience in stock market. The full service broker is the preferred solution for those who do not have the time or knowledge to maintain their portfolio. mutual funds and other investments.

y Features: Though stock brokers develop their own clients and contacts. Stock brokers in particular were linked with numerous scandals like account churning that produce commissions for the broker but little if any profit for the client. consider their past success and the recommendations of other clients. If working with a fullservice broker. and others may be given permission by their clients to act on their behalf at their own discretion. all firms were full-service. Understandably. Be specific about goals and expectations. y Considerations: The relationship between an investor and their broker is important. discount brokerage firms have filled the niche of lowcommission execution-only brokers. Nonetheless. y Misconceptions: Even before the financial meltdown of 2008 and the public disclosure of the dubious roles that ratings agencies and banking executives played in the debacle. meaning a client simply described their goals and the firm created and executed a strategy to meet those goals. the vast majority of brokers are highly trained and intelligent professionals who do honest work on behalf of millions of satisfied clients. With the explosion of the internet and electronic trading. Wall Street as a whole enjoyed a less than ideal image among the public. the commissions charged for doing so were quite high.give investment advice. Many small to medium-sized investors increasingly choose to forego the cost of full-service brokerage and manage their own money in discount brokerage accounts. Traditionally. but this decision should be balanced by an individual's knowledge of markets and temperament in dealing with the high stress of money management. Whether an investor chooses to make 30 . y Benefits: Money markets have become an essential part of the modern world and the best service a broker can offer their client is access to the market. most work as part of larger or smaller brokerage firms. though most do offer client-specific research or advice for additional cost.

keeping the client updated and warning for future helps the client to decide over his investments plans and work out on current investments.their own buy and sell decisions through an online discount broker. physique or talks that impress you. However. thus. Keeps client informed: a stockbroker is the jack of all trades. competitive market keeps a check over the brokerage terms. Keeping an eye over market is their job and in case they seize any opportunity that suits the client's requirements. As such there are many services provided by stock brokers. However. Some offers discount brokerages. 31 . or whether they prefer to utilize the vast expertise of a reputable firm to design a strategy to meet their financial needs. Actually. an overview is enlisted below: Keeps himself informed: it might sound amusing to you that keeping himself informed is no service that is provided to the client. but it's his intelligence. He is well aware of the current market conditions and prospected market behavior. Not his height. favors the investors. The heart of stock investment guidance lies with stock brokers. A stock broker offers many services to his clients in return of stock brokerage. Stock brokers are the people who wave the path to better investment prospects and support you to get through the winds and storms of stock market. experience and services that attract any investor towards stock broker. it should be noted that keeping updated about the requirements of the client is the best service a stock broker can provide. other may offer cheap brokerage terms. Hence. and the true role of stock brokers. this stock brokerage may vary from one broker to another. Not only are they the catalyst to stock exchange but also provides a chance for any investor to have better returns on their hard earned money. the ability to participate in one of the largest wealth-producing engines the world has ever known is an undeniable benefit. may help client to get the benefit of the opportunity.

stock broker make arrangements to cancel the deal. the stock broker may trade in stocks on behalf on the client.Confirming purchasing and selling of securities: the purchase and selling of securities is generally made by stock broker. Insurance protection: it is another tool that secures the investors investments. though they are repaid within a fix period of time to the stock broker with additional interest amount. This type of service needs a trustworthy relationship between the client and the broker. Marginal trading: marginal trading is another special service provided by stock broker. In case. details of price and proceeds of transaction are provided by stock broker. It allows the investor to trade beyond his actual amount in the trading account. Trading on behalf of client: there are certain special functions that are undertaken by any stock broker. Using marginal account limit allows investor to make sale or purchase on the amounts which are currently not there in his account. 32 . the insurance protection plan to make sure that investors get their amounts of their accounts with share brokerage firm. Hence. the future prospects details are detailed by every stock broker to his client. Hence. the investor do not find the deal suitable. In special accounts. Also. notice of confirmation of deal. the loss making share brokerage firm cannot compensate its loss with its clients. maintaining positive terms with the client is other service provided by stock broker. In case the broking firm gets to financial difficulties or has to go for liquidation. Hence. named. discretionary accounts.

Customers also get access to the firm's research. including the following: y Brokerage commissions: This fee is for buying and/or selling stocks and other securities. Personal stockbrokers make their money from individual investors like you and me through various fees. 33 . including the following: y Providing advisory services: Investors pay brokers a fee for investment advice. y Brokering other securities: Brokers can also buy bonds. y Margin interest charges: This interest is charged to investors for borrowing against their brokerage account for investment purposes. y Offering limited banking services: Brokers can offer features such as interest-bearing accounts. Brokers charge fees to investors for Individual Retirement Accounts (IRAs) and for mailing stocks in certificate form. and credit cards. and other investments on your behalf.3 Some other roles: Although the primary task of brokers is the buying and selling of securities (keep in mind that the word securities refers to the world of financial or paper investments. y Service charges: These charges are for performing administrative tasks and other functions. direct deposit. Exchange Traded Funds (ETFs). and that stocks are only a small part of that world). such as stocks. options. check writing. mutual funds.4. they can perform other tasks for you.

And round and round it goes. Traditionally. E-Trade Financial. Online stock brokers work within investment companies that offer online resources as either their entire service or as part of their traditional brokerage service. the financial plan they want to execute. In essence. and the stocks in which they are interested. Subsequently. the stock market acts as a facilitator between buyers and sellers. Investors turn to online trading and online stock brokers for a variety of benefits. online broker fees generally run between $7 and $10 per trade. There is also the control investors have to make decisions on behalf of their own portfolio. and Schwab. Fidelity. But in this age of the Internet.assessing the investor's financial situation. and in-depth information regarding each company's history and financial status is available for investors to perform research prior to investing. thus increasing the worth of their stock. Some of the more commonly used online stock brokers are Ameritrade. online stock brokers entered into this new world of finance in order to assist virtual customers in achieving their financial goals. investors need only turn on their computer to be linked into the stock exchange. increased profit means a higher worth for the stock. Working through these online stock brokers. Such brokers operate much as traditional brokers . Online brokerage houses offer an extensive amount of information in order for investors to make informed decisions regarding their trades. it is very difficult to know the best way to go about making your money work for you. as they exchange stock that they hold in companies. those looking to invest went to a stock broker in any number of brokerage companies who would assist the investor in the buying and selling of stock and the building of their financial portfolio. These companies use the money they receive from their investors to further their business and increase profits. historical performance on each stock can be accessed. investors create an account where they can access their financial information at the click of a mouse. For generations the stock exchange has given consumers the opportunity to invest their money into companies that they felt would perform solidly. stock quotes are kept scrolling at all times on the website.4 Role of online Stock Broker: In this ever-fluctuating financial world. 34 .4. to keep pace with this changing economy. not the least of which is low broker fees.

regardless of what the stock broker prefers. Online trading offers investors a whole new level of not exert much control over the stocks of the investor. set financial goals. Online stock brokers .unlike traditional stock brokers .Investors are able to choose what stocks they want to buy . Today's savvy investors work from their computers along with online stock brokers in order to be hands-on participants in their own financial future. and buy and sell commodities. The world of investment has changed. no longer are investors required to physically visit their stock brokers in order to examine their portfolio. 35 .

This is especially relevant to participants in bull markets since bulls are herding animals. 36 . A bull market is also sometimes described as a bull run. metaphorically. the largest group of market participants is often referred to.5. Market Trend Past Trend Present Trend Future Trend Bull Bear Market Bottom y Bull Market: A bull market trends to be associated with increasing investor confidence. People involved with stock markets attempt to identify the current type of movement that is taking place as well as project how long the current movement or trend is likely to continue.Trends of market Market trends refer to the general movement of an investment market. motivating investors to buy in anticipation of future price increases and future capital gains. as a herd. Determining what type of investments to buy and sell is greatly influenced by accurately assessing and projecting market trends. In decreasing financial market behavior.

Globalization) News Interest rates Political issues Inflation Recession Companies profit 37 . but a reversal of the primary trend. Investors anticipating further losses are often motivated to sell. y Market Bottom: A stock market bottom is a trend reversal-the end of a market downturn and the beginning of an upward moving trend. Factors affecting market trend and economy: y y y y y y y LPG(Liberalization. with negative sentiment feeding on itself in a vicious circle.y Bear Market: A bear market is a steady drop in the stock market over a period of time.´Bottom´ is more than just a recent low in a stock market index. A ³Bottom´ may occur because of the presence of a ³cycle´ . It is described as being accompanied by widespread pessimism.or because of ³panic selling´ as a reaction to an adverse financial development. Privatization.

a pictorial (shown in fig1)description will give a better understanding of that ugly period.1 Recent Trends in Indian Capital market: Indian Capital market has been existing(at least secondary module) since 1875 and has undergone a lot of changes over the years.5. Fig-1 38 . But no change was as drastic as seeing the market reach to the zenith of 21000 points as well as 9000 points in the same calendar year.

is one of the main criteria sought by the investor while investing in the stock market. During 2006. The pick up in the stock indices could be attributed to impressive growth in the profitability of Indian corporate. 2006. which serves as a fuel for the price discovery process. In terms of volatility of weekly returns. e.399 at end-May 2006. the uptrend continued in 2006-07 with BSE indices closing above 14000(14. Market forces of demand and supply determine the price of any security at any point of time. Higher the liquidity.398 at end-December 2005 and 10. Thailand. and as the second highest among emerging markets.26.929 on June 14. According to the number of transactions. slipping one position from 2005. The Indian indices recorded higher volatility on weekly returns during the two-year period. after dropping to 8. After a somewhat dull first half conditions on the bourses turned buoyant during the later part of the year with large inflows from Foreign Institutional Investors (FIIs) and larger participation of domestic investors. NSE continued to occupy the third position among the world¶s biggest exchanges in 2006.76 and S&P CNX Nifty at 21. recovered soon thereafter to rise steadily to 13787 by end-December 2006.1 Year 2006 at a glance: In the secondary market.5. South Korea. Impact cost quantifies the impact of a small change in such forces on prices. the BSE ranks first in the world. with the Sensex trading at a P/E multiple of 22. was higher than those in most emerging markets of Asia. 2007.g. 39 . The better valuation could be on account of the good fundamentals and expected future growth in earnings of Indian corporate Liquidity. Malaysia and Taiwan. January 2005 to December 2006 as compared to January 2004 to December 2005 the market valuation of Indian stocks at the end of December 2006. BSE Sensex (top 30stocks) which was 9.015) for the first time on January 3. lower the impact cost.1. as in the previous three years. BSE occupied the sixth position in 2006. In terms of listed companies. and other global factors such as continuation of relatively soft interest rates and fall in the international crude prices.7%. overall higher growth in the economy. Sensex rose by 46. on a point-to-point basis. uncertainties as depicted by Indian indices were higher than those in outside India such as S&P 500 of United States of America and Kospi of South Korea.

we saw two roaring figures. 10th 2006. On Saturday. The 238-point rally was contrary to expectations as it came despite negative news flow about a fresh tussle between Ambani brothers over transfer of ownership of the four companies demerged from erstwhile RIL. the greatest demerger of Indian history between the Ambanis paved the way for 9000.3% respectively.4% and 2. with manufacturing and the agriculture sectors estimated to grow at 9. The government forecasted a GDP growth of 8.000 mark in a lifetime intraday high. Sensex¶s surge to 11000 points on 21st march 2006 was prompted by PM Manmohan Singh¶s announcements on Capital Account Convertibility. The new 40 . On Feb. the BSE responded by crossing the 11.1% in current year.y SENSEX during 2006: 2006 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec BSE 9920 10370 11280 12043 10399 10609 10744 11699 12454 12962 13696 13787 y An overview of year 2006: During December 2005. And the Sensex entered the year 2006 with a 9000 + figure. Prime Minister Manmohan Singh hinted at moving toward a free float of the rupee and on Tuesday. both Sensex and sachin tendulkar crossing 10000 mark. But the reason behind roaring Sensex was not sachin¶s records rather it was rallied by strong FII inflows and robust data.

000-point mark. Only Nikkei.42 a barrel.that the growth story of Asia¶s third largest economy is intact and that liquidity flows into the bourses would continue to remain firm. knocking the bottom off the jittery stock market. buoyed by a booming economy. the time it took to breach this milestone has been one of the fastest.35. have chosen India as one of their top investment destinations. Sensex lost 35. The rise in share prices was partly attributed to a fall in oil price. Suddenly the Dalal Street experienced its worst single day crash on Thursday. it was based on the expectations that (corporate) results would be great and by the first few companies was more than matching those expectations. fluctuating 153 points. Since full convertibility was expected to attract more foreign money and also allow local companies to tap foreign debt markets more easily. Traders point to the fact that foreign investors. April 20. Sensex was beaten to the 12.7% or $2. it was evident that the move will encourage investors and boost the confidence of the markets.905. the 131-year-old BSE on Thursday. 2006 crossed yet another milestone when it breached the 12.20. Earlier. Now. earnings. Hang Seng and Dow Jones could boast of being above 10. on the New York Mercantile Exchange due to sample US inventories. with most of the volatility coming in the last hour of trading.017. The index was being driven by the strong flow of liquidity. Opening amidst weak global markets and reports of rising US interest rates. participants said it was evident the markets had sent out a message . to settle at $60. After falling by 307 points on 12th April 2006 on account of Heavy selling by FIIs in both cash and futures markets and a move by stock exchanges to raise margins on share transactions by about 250 basis points. 18th may 2006 as an ambiguous Government circular on taxing investment gains prompted foreign funds to book profits. the BSE-30 Sensex went on to close 826.25 points in mid-afternoon trade. However the Dealers said the fall was accentuated by large-scale selling of client positions by 41 . Although.000 at that time. RBI said it constituted a panel to thrash out the contours for full convertibility.000 mark by various global indices. everything was going fine perhaps it was the lull before the storm.000 club on February 6. The US April crude oil prices plunged high was reached 29 days after Sensex entered the elite 10. After hitting a high of 11.38. higher liquidity and robust economic backed by strong corporate growth.91 points to close at 10. Although the index later ended lower with investors wanting to book gains.

While foreign institutional investors have been aggressive buying stocks over the past few months.Marauding bulls defied the weak trend globally. a gain of 117. 5. respectively. 30th 2006 driven by a heady cocktail of strong corporate earnings. persistence of difference 42 . December 5. The buoyant conditions in the Indian bourses were aided by. which was sparked off by weak US GDP growth figure. the indices maintained their north-bound trend during the year. Back home. continued uptrend in the profitability of Indian corporate. This could be attributed to the larger inflows from Foreign Institutional Investors (FIIs) and wider participation of domestic investors. the response of domestic mutual funds has been guarded. FIIs bought net stocks worth Rs 17.1.000-mark on Tuesday.45 points or 0. reflecting change in the market sentiments. crash saw the Sensex shedding its market capitalization by as much as 14% in just one month.broking firms due to margin calls or the lack of margins. Although the indices showed some intermittent fluctuations. respectively. a rapidly growing economy and relatively stable crude oil prices. in January 2008.26. Sensex and Nifty Indices rose by 47. During 2007. particularly the institutional investors. the market activity expanded further during 2007-08 with BSE and NSE indices scaling new peaks of 21. The Sensex ended at its highest closing level of 13024.1 and 54.300. Benchmark stock indices vaulted to new highs on Monday.001 crore while local mutual funds have pumped in a net Rs638.2 Year 2007 at a glance: In the secondary market segment. who could then cut back on their investments and spending. on a point-to-point basis. which is unlikely. The benchmark 30-share Sensex briefly crossed the psychological 14. 2006.8 per cent. India posting a relatively higher GDP growth amongst the emerging economies. in turn causing a slack in domestic demand. Market watchers said sentiment could be affected only if the hike is more than 25 basis points. pointing to a slowdown. the mood was upbeat even as some expect that the RBI may raise interest rates by 25 basis points in its mid-term credit policy on Tuesday.9%.07 crore. Oct. In May.000 and 6. among other things. Higher interest rates drive up borrowing costs for corporate as well as the retail consumer. In the last two months alone.

000 mark in December 2007 and 21.5 per cent per year between 2003 and 2007. BSE Sensex yielded a Compounded return of 36. BSE Sensex has given an annual return of more than 40 per cent during the last three years. The sell-off in Indian bourses in August 2007 could partly be attributed to the concerns on the possible fallout of the sub-prime crisis in the West. The BSE Sensex (top 30 stocks) too echoed a similar trend to NSE nifty. While the climb of BSE Sensex during 2007-08 so far was the fastest ever. the journey of BSE Sensex from 18. impressive returns on equities and a strong Indian rupee on the back of larger capital inflows. It further crossed the 20.000 in an intraday January domestic and international levels of interest rates.000 mark was achieved in just four trading sessions during October 2007. In terms of simple average. y SENSEX during 2007: 2007 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec BSE 14091 12938 13072 13872 14544 14651 15551 15319 17251 19838 19363 20287 43 . BSE and NSE indices trading in declined subsequently reflecting concerns on global developments. However.000 to 19.

to reach a record high of 15007. This is the highest since the index took 371 trading sessions to move up from 6. though the year started on a rather tentative note with a marked slowdown being observed in the FII inflows into the country. The inflows received from FIIs in January and February 2007 was 48 per cent less than what was received during the same period in 2006. Sensex entered into 2007 with a promising figure of 14000+. FIIs have pressed substantial sales over those days in contrast to an intermittent surge in inflow in February 2007. this lifted the Bombay Stock Exchange's benchmark 30-share Sensex past the magical 15. the year-to-date return generated by the Sensex was negative 0.000-mark.85 points or 1. Despite weak global cues. The benchmark BSE 30-Share Sensitive Index (Sensex) breached the 15. The return provided by the BSE Sensex for 2007 turned into negative territory following the 389-point tumble on Friday. On April 24th. The Sensex took 146 sessions to cover the 1.80 crore in four trading sessions from 26 February to 1 March 2007. the day when Sensex had lost 273 points.000.000-mark.12. pharma. The Sensex again crossed the 14K mark and was trading at 14. the Sensex which closed at 14091 on January 31st closed at 12938 on February 28th. 44 . On Friday.22.y An overview of year 2007: After touching 14K mark on December 5th 2006.97 per cent.59%. IT and metals stocks. Their net outflow was worth Rs 3080. February 23rd.000 to 7. As a result.000.000 till 15. Indian stocks were in great demand. As per provisional data FIIs were net sellers to the tune of Rs 613 crore on Friday 2 March.000 point distance from 14. for the first time intra-day on Friday.150. Further we can see May and June having month end figures at 14544 and 14651 respectively. especially auto. Market continued to reel under selling pressure on 5th march 2007 taking cue from weak global markets and heavy FII sales as a result of fall over 400 points. July 06 2007 before closing at 14964.18 having gained 221. The midcap and smallcap indices were rather moving slow indicating that the actual movers are the large cap stocks but at the month end it finally closed at 13872. all the indices were in red.

2007.49.87 during the day.000 points. Suddenly. it boiled over to the streets of Mumbai and its financial district. Eye-popping rallies in Reliance Industries. It took Dalal Street just 5 days to travel 1. which were the whipping boys till Tuesday. given their baffling run-up over the past one month. Sensex hits a record high of 18. RBI's measures may not be enough to rein in the rupee. Why? Hopes that the rupee will soften as a result of RBI's latest announcements to allow more outflow sparked a rally in tech stocks. On Wednesday. Fed Reserve to reduce the rates by 50 basis points. the same seems to hold true for any stock with the prefix µReliance¶. Eight years on. The bellwether index finally settled at 16. But there were no takers for this. The festive spirit did not end with the immersion of Ganapati. it outperformed most Asian peers and it was the biggest single day gain.03% at 14809. This trend shows that global cues had an influential effect on our market.63 points or 4. When FIIs were pumping money in stock market and were Net Buyers of Equity worth Crores. But very soon the sensex surpassed the gloomy days and Stock markets on Wednesday.280 on the back of eye-popping rallies in Reliance & Reliance. At the height of the dotcom mania in 1999-00.75. The fall came after the Fed Reserve cut its discount in interest rate at an emergency meeting and JPMorgan Chase agreed to buy Bear Stearns for USD 2 a share. the Sensex was moving Up . On October 9th. Many thought that FIIs were playing blind in Indian stock market. India experienced a flow of good news.921.000 number.39. became hot favorites. As expected.03 points or 6. as the benchmark 30-share BSE Sensex moved up sharply by 653. September 19th. pushing the Sensex to a new high of 17. Reliance 45 .073. the easiest way to maximize returns was to buy into any stock with the suffix µSoftware¶ or µTechnologies¶. the Sensex touched the magical 17.The Sensex experienced its second bigger ever fall on 2nd august 2007. the Sensex plunged by 600 Points in early trading on 16th August and most of the shares were down by 4 to 5 per cent. Up and Up on weekly basis. 2007 gave thumbs up to the decision of the U.S. But when FIIs have turned Net Sellers of Equity and have started booking profit backed by massive sell off of shares in global markets.17 per cent at 16322. By staying well above the 16000-mark. Sensex has to go down. Sensex closed down 951. tech stocks. At the end of the day. On the auspicious occasion of Ganesh chaturathi.

On October 15th 2007.S. But it was followed by a huge one-day gain as on October 23 when the BSE barometer rose 878. capital goods.82.85 points after market regulator SEBI allowed sub-accounts of Foreign Institutional Investors (FIIS) to trade. Since September.04 points or 1.100 crore worth of shares over the last three trading sessions while local funds have net bought over Rs 2. This rise came on the back of some strong sectors for which the macro picture is quite bright ² power. Skeptics point to the fact that there were only a handful of stocks that was driving the market higher. a re-rating of the emerging markets had been seen wherein liquidity flows were quite robust. On 13th November. In a knee-jerk reaction to the cap proposed by the market regulator for the Participatory Notes. prompting suspension of trade for hour fallout of regulator Sebi's move to curb Foreign Institutional Investors. The market gain was because of global cues.300 crore worth of shares.63 points or 3. but recovered substantially later to close with a loss of 336. infrastructure and telecom. 30.000 mark. the stock market crashed by 1743 points in intra-day. As per BSE data. but just a little over 20 months to double that score and the sensex made history with touching the 20000 mark on October 29 2007. foreign funds have net sold over Rs 1.58 points to settle at the third-highest level ever on buying by investors in bank counters and blue chip companies such as Reliance Industries. they nearly pumped in more than Rs. Federal Reserve cut interest rates by 50 basis points.76 per cent at 18715. the bull roared to breach the 19000 mark in just 4 sessions Sensex was up by 639. it was the local institutions that were in the driver¶s seat. Then suddenly happened the second biggest crash the sensex ever experienced when the sensex crashed by 1743 points on 17thOctober 2007 within minutes of opening. amidst heavy buying by investors. Significantly. 46 . used by foreign institutional investors (FIIs).327.67.Energy and Reliance Communications lifted the 30-share Sensex to a record high of 18. After the U. BSE Sensex registered its biggest ever gain in a single of 893. Besides.47 per cent at 19058. Foreign Institutional Investors were pumping in huge money in the equity market and this too was pushing up the index. an overseas derivative instrument (ODI).42 intra-days.000 crore in the cash market. It took the index a little over 20 years to reach the first 10.

Sensex entered year 2008 with rosy pictures. that came in due to weak global cues as well as profit booking by FIIs in the holiday season.50.4%. but the impact of the global rout was the biggest in India. However. the midcaps and smallcaps have been outperformers and in terms of flows. strong buying by domestic investors. they sold in the cash market to the tune of USD 45 billion. 5. But the rosy picture soon turned gloomy.000 to 21. It closed at 17. So if one has to take out some pointers from this journey from 20. And they felt their predictions coming true when Sensex touched the 21000 mark on 8th January 2008. down 1408. The market tumbled on account of a broad based sell-off that emerged in global equity markets.605.3 SENSEX during year 2008: After scaling new heights of 20000+. The Sensex ended losing 769 points from the previous close. Fears over the solvency of major Western banks rattled stocks in Asia and Europe.4 per cent. But in December 2007. FIIs were negative sellers. It fell to a low of 16. India finished the month as the second worst emerging market.000 to 21. The trade pundits. The skyrocketing Sensex suddenly started heading south and Sensex saw the biggest absolute fall in history. The underperformance can partly be attributed to the fact that Indian markets outperformed global markets in the last two months of2007and hence we were seeing the lagged 47 . sensex again sentiment. The fall was triggered as a result of weakness in global markets. it is the longest journey which we have seen in the last 5.the political development also gelled well with the involvement of foreign investors. shedding 2062 points intra-day. the journey from 20. The rally was driven by short covering. brokers and even investors predicted new heights for the year. at 19.000 marks.000. there was not much experienced a black Monday on 17th December. The market succumbed to profit booking.000 is dominated by domestic institutional investors.35 points or 7. It¶s interesting if one sees in terms of flows. February turned out to be a flat month with the BSE Sensex down 0. it has been domestic institutional investors which have been really putting the money. After the worst January in the last 20 years for Indian equities.

Indian IT firms depend on the US clients for a major share of their revenues. its biggest quarterly fall since the June 1992 quarter. to end the quarter of March down 22. The Sensex is dancing on the music of lifetime high inflation rates.89 points or 0. 5. IT stocks fell on worries about the health of the US economy. 6May 2008.9 percent. According to market analysts.5% to close at 17287 points. tightening RBI policies. as reports of rising inflation and global economic slowdown dampened market sentiments. political uncertainties and obviously the sentiments of domestic as well as FIIs. but very next day it plunged by some 800 odd points and this story is still continuing. 31st march the last day of the financial quarter. a fact reinforced by the strong movement in the mid-cap and small. The BSE Sensex showed a gain of 10. every forecasting has failed.4 2008-09 slowdown: The first month of the financial year 08-09 proved to be a good one for investors with the month ending on a positive note. historic crude prices. Financial stocks led the Sensex slide along with IT.01 on Tuesday. weak industrial production data. On 30th May an imminent hike in domestic retail fuel prices due to soaring crude oil 48 .67% at 17. After then nobody saw a stable Sensex even.68% in march 2008 as a result RBI hiked CRR by 50 bps to take the figure to 8%. Sometimes it surged by 600+ points.57% against 6. It was revolving around the figures of 14000 and no one knew what next? The 30-share BSE Sensex fell 117. Though inflation touched a high of 7. Every prediction.impact of that outperformance.373.cap index that rose 16% and 18% respectively. In the shorter term. The only relief came in the form of weakening Indian rupees which enlightened the IT sector and most recently the UPA gaining vote of confidence.1. The Bombay Stock Exchange (BSE) Sensex fell 4. So April was the last month to close positive. The key benchmark indices ended lower as investors resorted to profit booking due to lack of positive triggers in the market. A combination of firming global markets and technical factors like short covering were the main reasons for the up move in the markets. still emergence of retail investors was also seen.44 percent on Monday. developments in the US economy and US markets continued to dominate investor sentiments globally and we saw volatility move up sharply across most markets.

having earlier fallen 4. The S&P CNX Nifty fell 242. In May.85% to 4136. A setback to stocks in Asia and US.18 in the week ended 6 June 2008. On 25 June 2008. despite the fact that economic growth is slowing in key nations such as the US and UK.97% to 4627.000 mark for the first time in 10 months since late August 2007.25% to settle at 15.572. However.2%. 49 .65 in the week. local benchmark indices underperformed their global peers.000 for the first time since March.3 points or 4. The S&P CNX Nifty lost 210.4% and slipped below 15.802.80 in the week.10.90 points or 4. 4 June 2008.08 points down at 15. Oil prices surged to record levels. hit by rumors that the Reserve Bank of India (RBI) may hike cash reserve ratio (CRR)or interest rate later in the day to tame runaway inflation. triggered possibility of a surge in inflation to double digit level. IT stocks gained on slipping rupee. Foreign institutional investors sold close to Rs 2204 crore in the first three trading sessions of the week which accentuated the downfall. The 30-share BSE Sensex declined 197.066.572. sharp spurt in crude oil prices and political uncertainty due to Indo-US nuclear deal rattled bourses on 27 June2008. The market declined sharply as a hike in fuel prices by about 10% announced by the Union government on Wednesday. fanning fears that they will keep climbing and hurt world growth.28% to 13. Central banks across the globe warned that interest rates may have to rise as they look to keep inflation under control. BSE Sensex rose in two out of five trading sessions. On 9th June 2008. Equities extended losses for the fifth straight day on 24 June 2008 with the barometer index BSE Sensex falling below the psychologically important 14.39 points or 5. expected Q4 gross domestic product figures provided some relief to the bourses on Friday.18. equities staged a solid rebound after touching fresh calendar 2008 lows in early trade. The initial jolt was caused by the Reserve Bank of India's move to hike the key lending rate. On the week ending 27thJune 2008 Sensex declined 769. Indian inflation stood at 8. Bombay¶s Sensex index closed 506. On 6 June 2008.14% to 15.07 points or 5. The BSE Sensex declined 843.prices weighed on the market last week.54 points or 1.22.

Although Indian banks have no direct exposure to the US subprime mortgage sector.9 per cent to their lowest close in 15 months. joining a world equities rout as investor¶s dumped financials on concerns about the fallout from worsening global credit turmoil.On July 15th2008. An 800+ point surge was experienced in the market on the day following UPA gaining vote of confidence but the very next day market couldn¶t maintain the momentum and since then it¶s in a doldrums¶ position. the global financial sector turmoil impacts sentiment in the local market and raises worries of more withdrawals by foreign funds. Indian shares fell 4. 50 .

Those are: Pre-dominantly four major factors such as y y y y Pragmatic monetary policy by RBI Less fractured parliament Normal monsoons and Government¶s spending on infrastructure will play decisive role in India¶s growth rate coming back to normal After China. as early as in third or fourth quarter of 2010.BP and Infra industry exports will increase by 25% after 2008 that¶s result in India¶s exports rising to $168 billion and gross domestic product(GDP) growth accelerating to 7. but will be subjected to fulfillment of few pre-conditions.5. At a time when the world is going through a turbulent time. India¶s exports increased by 17.4 per cent by 2010.2 Future: y Indian Economy: We might witness an upturn and restoration of normal GDP growth say of 8% against the projected sub six percent presently.5 per cent during April-December 2008 as against 21. Exports of these services and the resultant multiplier effect on private consumption due to extra income 51 .3 per cent in the first 11 months of 2008-09. IT service and BPO have the potential to earn export revenues of $62 billion by 2010. having the lowest entry barriers because relatively little technical or specific process expertise is required. India¶s export sector has shown a growth rate of 20. Business process outsourcing(BPO) market share of Indian vendors are expected to nearly double by 2010 as budget was focused towards IT industry. Call centers and analytics services will likely see highest growth.9 per cent in April-December 2007 so it is expected that with the stress on growth of IT. the Indian economy is expected to be the next trillion-dollar economy of the world. led by a strong growth in information technology(IT) and business process outsourcing(BPO).

The Investment GDP ratio is at a high. When thinking about all of the bad things in the news that can affect the market in a negative way.could accelerate the GDP growth to over 7 per cent for 2005-10 period compared with 5.1 Stock market and investment decisions: When things happen in the news. primarily in: India Stock Market. The growth rates are very good and it wouldn¶t be wrong for people to overvalue it. A lot of people try to people undervalue India¶s accomplishment in growth. India is now becoming the third largest country in Asia economically. think about the things that affect it in a positive way as well. The Indian Government is doing everything it can do to propel the growth rates in the Indian Industry. It has grown so much and is expected to continue to grow like this for a long time. The Indian market is not that strong because the rupee is getting smaller and the effect on oil. Although India is growing. y y The growth rates are substantial and that yearly exports are bringing in a lot of money.2. India has created the best growth story that happen over a long time. India¶s manufacturing index. India¶s Company sector and other India investment industries. So India is expected to move rapidly.6 per cent in the past 10 years. The yearly salaries are rising and the command to buy is under the command to spend. recently. are not permanent and the market will increase or decrease with the next thing. there can still be corrections in the market. India Business Sector. The economy is growing rapidly surpassing some of Asia¶s biggest economies. the uncertainty of what will happen between India and Pakistan and all of the bombings have affected the market and made others not want to invest. The export market has increased because other countries are in demand. Sometimes it is good for the market and sometimes it is bad. 5. Just remember that the things that happen in the news. 52 . Indian companies. Also. it affects the market. India just keeps getting better and better. It is now over 30 per cent and between the years 1990 and 2004 the average was only 25 per cent.

Indian markets remained strong throughout Friday¶s trading session. There are different views on where the BSE Sensex would be at the end of year 2009. y Banks. Brighter side 2. It is never guaranteed that you will make a lot of money when investing in any market. New sectors and stocks will find favor in the next Bull Run but not outdated sectors like IT in India. one can find bright picture. including an emerging one.There are two side in Indian market those are: 1. y Institutional buying in large cap stocks will help markets record positive breadth. 53 . India is said to be number one in the world right now for investment opportunities. FII and domestic institutions bought equities of Rs934Cr and Rs432Cr respectively. Dark side y Brighter Side of Indian market: India is not relying on just a few countries anymore. capital goods. When seeing it in the short-term every market will look bad due to recent news. You need to look at a ³Indian market in the long-term´.Although no one can predict with any accuracy the movement of the Indian stock markets in the coming days. It is now dealing with the countries that are said to have the fastest growth rate within the next few years. An investor needs to look past that. If you can able to face short term shocks and can look beyond 2009. Stock markets always provide wonderful opportunities for those investors who work hard and carefully analyze the news and emerging trends. Buying was witnessed in almost all sectors except FMCG. consumer durables and technology stocks led the rally. However. Bear markets always provide safe investment opportunities for long term investors but they need to bear extreme pain before earning those rewards. following cues from the global markets and strong institutional buying.

y Deliverable volumes in top 10 traded stocks on both the stock exchanges will improved substantially. they would be buying into a country that has an excellent opportunity to make money over long-term. India. This credit cycle and the investment cycle. especially the stock markets. that even with India doing so well. The financial markets. The Reserve Bank of India come up with a way that the domestic investment cycle can last for an extensive time. Consumption is increasing a lot and the middle class is growing as well. having a very rapid growing economy is also a very expensive country in Asia. Corporate companies and firms have a very high returns as well in India. just like every market. every month about six million people get a mobile phone. The deregulation and market liberalization measures and the increasing activities of multinationals companies will continually accelerate the growth of Indian stock market. They stopped/stopped the growth of the bank credit. In India. Many things can happen in which India can lose the things it relies on. The strong interest on the linkages among international stock markets and the interest has increased considerably after the loose of financial regulations in both mature and emerging markets. 54 . particularly due to strong deliverable volumes in oil & gas stocks. and the introduction of innovative financial products. India has a demographic outline greater than China¶s outline and they don¶t have to rely on global trade. Many have high hopes for India and if investors invest in India. Remember. the technological developments in communications and trading systems. creating more opportunities for international portfolio investments. This is more than China. The bank is taking control of the credit and loans very well so that India stays in the right track. there are always going to be flaws in the market. for developing and developed markets have now become more closely interlinked despite the uniqueness of the specific markets ot he country profile. will keep India in the Bull market for a long time. of course. Any news related event that happens in any country will affect that countries market and sometimes other countries as well.

This intensifies the curiosity of academics in exploring international market linkages. 55 . Foreign institutional investors(FIIs) turned net buyers in the Indian market in 2009.In recent years. The new remunerative emerging equity markets have attracted the attention of international fund managers as an opportunity for portfolio diversification. Direct investments inflows also remain strong prompting official expectations that foreign direct investment(FDI) inflows in 2009 would better the realized inflows of US$ 33 billion in 2008 and touch US$ 40 billion.

The government market borrowings programme has also put pressure on the rupee. That is the power of bubble. 56 . The increasing terrorist activity in the Indian subcontinent is a risk for stock markets. The recent heinous terror attack on Mumbai has impacted the economy and thus has increased the risk for foreign investment in India. Thus. raise India¶s investment risk profile.900 in September.000 Trap: Mortgage crisis was first noticed in August.y Dark Side: The decline in corporate profile could be in excess of the currently factored 18-20% due to numerous factors like lower domestic consumer spending owing to lesser availability of consumer credit and sharp decline in demand in international markets. All these could compound the risk for the Indian stock markets. Bubble was created in the real estate sector. If the risk of corporate profit de-growth results in the Sensex EPS coming below 850 in FY09. 2008 due to massive inflow of foreign funds and wonderful Quarter two results. FIIs suddenly identified the bubble and existed on massive scale to make huge profit.300 in January. International stock markets reacted to the crisis after two months and crashed in October. a further flight of foreign capital may pose increased risk for Indian markets. 2007 to 21. There was sudden spurt in demand as India suddenly changed to American type of consumption economy from traditional savings economy. it can have an adverse impact on Indian stock markets. But Indian stock market moved from 13. dampening exports. But Indian mutual funds managers were still talking about India growth story and kept their positions. The 26/11 terror attack on Mumbai. 2007. besides increasing political turmoil among our neighbors. The recent terrorist strike on the Shrilankan cricketers. y How can Investors fall in Stock market traps? 1. 2007 when a French bank announced billions of losses in American mortgage business. and tight controls on corporate expansion plans as well as corporate spending. 21. The sharp depreciation of the Indian rupee against the US dollar and expectations of further weakness in the rupee against the US Dollar also triggered the flight of capital overseas.

That movement created hope in investors about strong bounce back. Note: Base was formed around 15200.600 level. You need to track them regularly when you think that price is at least 30 per cent above the fundamental price.200 levels and created hope for bounce back. But stock market investor noticed a severity of American credit crisis and Sensex fell to 12. It is just a matter of time. Then Sensex moved in between 12. Many of these of investor have little idea about Bear market. temporary bounce backs will not save markets from sharp falls. Now analyst talked above reasonable fundamentals and falling crude oil prices to create hope about bounce back Note: Base was formed around 12. That hope was not due to good fundamentals bur due to ³Bull Trap´.200 to 21. Don¶t bother about that stock if it moves further upwards. 2. It is not the fault of investor. Many of us thought that it is just another routine Bear market. By that time. 15.600. But inflation and high crude oil prices spoilt the business environment.600 to 15. It means markets will not fall below that level. Lessons: As long as business fundamentals are weak. Stock markets will definitely notice fundamentals but it will take some time especially in Bull run. Blind long term investments will not work in the current volatile markets.000 in just one week and traded between 15. What happened! 57 . What happened! Many people was still in ³Bull Trans´ at that time.Lessons: Future growth(next 3 to 6 months) is more important than past growth. It means market will not fall below that level.000 levels for sometime. Believe in your research. It is time for exit. Greed will make us fools. Bear market was already set in across the world but consumption in China due to Olympics and real estate growth created hope among investor about strong bounce back.200 Trap: BSE Sensex fell to 15.400 to 17.

3. 12,600 Trap: Sensex stayed above 12,600 level for some months and created strong belief among investors about that support levels. To intensify such beliefs, Sensex moves upwards every time it touched that level. Meanwhile, American crisis stunted global economy and commodities collapsed due to massive fall and consumption after the Olympics in China. Sensex fell to 7,800 level due to failure of major investment banks like Bear Sterns and Lehman Brothers. Sensex is making smart gains every time it comes to 8,000 level. Investors now believe that Sensex will not fall from that level. Lessons: Even experienced investment giants was shocked by the ferocity of the fall. That is the way stock market works. 80 per cent of movements will occur in 20 per cent of sessions. Sensex is moving in between 8,500 to 10,500 despite for the fall in business fundamentals. Note: Base was formed around 7,800. It means markets will not fall below that level. What will happen? I don¶t talk about exact value but business fundamentals are looking extremely weak and Sensex has not discounted all the negatives. Lesson: As long as business fundamentals remain weak, ³traps´ will not save you. Business prospects in the next 3-6 months are crucial for stock market movements. I strongly believe in the below 6,500 levels for Sensex in the next 2-3 months unless dramatic positive happenings occur in the next quarter. While making an investment in Indian stock market there are lots of thing should be consider before it. Most important thing and tips that can implement while making any investments in stock market of India.



Stock market Investment Tips:

1) You have to wait for right moment before investing in stocks. Never invest in any stock with proper idea on its business and fundamentals. 2) First quality every investor should have is optimism. Ups and downs are common in stock movements but patience ultimately wins. 3) Monitor price moments regularly. Don¶t forget the past history of stocks. Never take decisions in hurry. 4) Believe in markets. Markets always do right thing in long term. Do not speculate. 5) Price at which you buy a stock is very important. Look for the opportunities around with a keen eye. 6) Maximize the profits and minimize the losses. Don¶t forget this basic rule. 7) Invest in a business not a company. 8) Don¶t took for excess profits in a over valued economy. Greed is not good for stock market investor. 9) You should have your independent opinion. Keenly observe and read relevant information with an open mind. Means are very important. Never follow herds. 10) Learning is a continuous process. Learn to accept losses with smile. 11) Indian stock markets will reach peak by 2010.


6. Trends in IT and Automobile sector
6.1 IT sector: 1. Infosys: Share price 2397.017 2485.653 1959.497 1543.569 1819.26 2595.368 Year 2005 2006 2007 2008 2009 2010

From the above diagram secular pattern can be seen, that is a steady upward or downward trend. The downward trend, 2006 onwards till 2008 can be attributed to the world economic stagnation due to a recessionary pressure in the world capital market. The major revenue source for the company is still its North American business which is around 63% in the current year and has traditionally been contributing by 60% (from 2005 onwards). But from 2009 onwards a steady growth on the company share price can be seen. The same phenomenon is a very good sign since we have just come out of the worst recession since 1929.


that is a steady upward or downward trend. TCS: Share price 1377. The reason can be attributed to the fact that the company is thoroughly dependent on the banking and finance sector(BFSI) for its revenue generation and like all other IT companies it is also dependent heavily on the United States has been noticed. This is most definitely attributed to the world economic slowdown which hit us in the recent past.761 1475.282 789.674 567. But unlike Infosys it could not pick its self up in year 2009 and has seen only 30% rise in this over last year¶s average price. 61 .75 1151. A steady decrease from 2006 onwards till 2009 is seen. Though its rival Infosys has managed to keep a high share margin even in tough times.172 Year 2005 2006 2007 2008 2009 2010 From the above diagram secular pattern can be seen. yet the rate of change of the share price has been quite same for both companies till 2008.2.033 768.

62 .55 Year 2005 2006 2007 2008 2009 2010 From the above diagram secular pattern can be seen. this change can be attributed to the entire IT sector¶s well performance rather than the company. Another point to note is the company¶s appetite for acquisition and takeovers.213 395. However it is not the only company to face this improvement so. A growth can be noticed in from 2009 over 2010 in the company¶s share price. that is a steady upward or downward trend.393 429. The basic reason can be the fact that most of its revenues sources are concentrated in India and its neighboring countries only rather than excessive dependency on United States.09 527.845 517. Wipro: Share price 553.3.492 691. Wipro has somehow managed to ³steady the boat´ amongst the financial maelstrom which hit during 2006 and went to 2008. Astonishingly the company in focus.

39 Year 2005 2006 2007 2008 2009 2010 The pattern shown here by Bajaj is a kind of irrational in nature whereby almost 200% growth is countered by a slump of around 300%.55 856. struggled with finances because of their earlier over. have scrapped investment plans and capital expenditure. 2008-09 has seen severe financial distress across especially the manufacturing sectors. cut down capacities.32 405.2 Automobile sector: 1. Bajaj: Share price 1516. 63 .leveraged positions.79 2481.55 2668.173 594. delayed payments to vendors. and had to borrow funds at prohibitive interest rates.6. Thus the pattern is definitely not predictable however certain factors like per capita consumption in India which increased in 2006 and decreased sharply thereafter etc can be attributed yet it is too big a fluctuation to rationalize. Companies broad sections of Indian industry- have got re-rated.

and amortisation) margin of 13.82 760.81 692. Hero Honda: Share price 661. 64 . This strong financial performance comes close on the heels of the company¶s good overall sales even in the face of the prevailing slowdown in the two wheeler industry.6% of net sales and other operating 2.21 Year 2005 2006 2007 2008 2009 2010 The pattern shown here by Hero Honda is a kind of company who has been gaining its share price over the years. depreciation income.It is in this context that one must look at the performance of Bajaj Auto Limited (Bajaj Auto'. the company has succeeded in maintaining an operating EBITDA (earnings before interest. BAL or the Company').77 789. Despite falling demand in the motorcycle segment.3 1742. taxes.63 1351.

61 42.97 35. that is a steady upward or downward trend. despite the slowdown in the two-wheeler industry.402 65 . 3.58 73. Astonishingly the company in focus. brand building initiatives backed by innovative communication has resulted in market share gain across every segment.Hero Honda's strategy for aggressive top line growth through new product launches. Hero Honda¶s share in domestic motorcycles market has been growing upward of 50 per cent.844 units against 98.911 114. registering total two wheeler sales of 120. TVS: Share price 83.13 Year 2005 2006 2007 2008 2009 2010 From the above diagram secular pattern can be seen. TVS has somehow managed to ³steady the boat´ amongst the financial maelstrom which hit during 2006 and went to 2008. In 2009 TVS Motor Company has posted 23% growth in. Indeed.34 64.

836 units in November 2009 as against 77. Domestic sales of the company witnessed a quantum increase in sales positing growth of 38% recording 106.491 in the corresponding period of the previous year. 66 .units in the corresponding period of the previous year.

which has never seen a decline even when the world was being hit by economic slowdown and if I talk about IT sector then Infosys and Wipro seem quicker than TCS from coming out of global economic meltdown. affecting our market to a great extent. negative public sentiments etc. And adding inflation and RBI policies to the worries are are global slowdown. Certain exceptions were also seen in the various companies like Hero Honda. serial bomb blasts. 67 . Presently the hike and seek being played by crude prices. Just accumulate good stocks with 2 year investments horizon. Still we can say that people can play safe by investing the blue-chips and undervalued shares. we can say that stock market touched its peak at 21000 but then crashed badly. political instability. Now it is revolving around 15000-17000 figure. If numbers could tell me anything the above mentioned graphs would certainly say that the economy as a whole is showing a positive trend since.Conclusion After going through all the analysis regarding the stock market in last few years. two different sectors considered here are simultaneously showing growth sign over the last two years. When will stock markets make Bull Run? It is impossible to predict at this stage of credit crisis. Though the sensex is a barometer and after seeing such fluctuations one could be afraid of investing.

org. Yasaswy Indian Financial System: M Y Khan Rise and Fall of share price: Y P Sachdeva 68 .References y y y y y y y Intelligent Stock Market Investing:

69 .

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