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

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

Therefore. without seeking to control the freedom of the issuers to enter the market and freely price their issues. the SEBI further strengthened the norms for public issues in April 1996. However. Twin objectives mandated in the SEBI Act are investor protection and orderly development of the capital market. in general.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. reservation in issues. 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. 1992 for regulating the securities markets. inter alia. 2) The most significant development in the primary capital market has been the introduction of free pricing. track record of profitability. which.1. etc. the Securities and Exchange Board of India (SEBI). It. Alongside. exposed certain inadequacies of the regulations. 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. which was earlier set up in April 1988 as a non-statutory body under an administrative arrangement. SEBI raised the standards of disclosure in public issues to enhance their transparency for improving the levels of investor protection. such as. Issuers now also have 6 . risk factors. 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. cover the eligibility norms for making issues of capital (both public and rights) at par and at a premium by various types of companies. Issuers of capital are now required to disclose information on various aspects. was given statutory powers in January 1992 through an enactment of the SEBI Act.

Namely 7 . the settlement cycle was further shortened to T+3 for all listed securities. These are: margining system. 6) BSE and NSE in the country have established clearing houses. 7) Several measures have been undertaken/strengthened to ensure the safety and integrity of the market. With effect from April 1. Consequently. exposure limit and setting up of trade/settlement guarantee fund. 4) Trading infrastructure in the stock exchanges has been modernized by replacing the open outcry system with on-line screen based electronic trading. The settlement cycle is now T+2. which has eliminated some of the disadvantages of securities held in physical form. unlike several of the developed countries where the two systems still continue to exist on the same exchange. all transactions are settled through the clearing house only and not directly between members. In all. There are two depositories operating in the country. have been dematerialized and their transfer is done through electronic book entry. 8) Securities. 2002.the option of raising resources through fixed price floatation or the book building process. 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. as was practiced earlier. Subsequently. the country. rolling settlement was introduced on a T+5 basis. 23 stock exchanges in India have approximately 8.000 trading terminals spread all over improved discovery. to further enhance the efficiency of the secondary market. intra-day trading limit. which were earlier held in physical form.

To enhance the level of continuous disclosure by the listed companies. pension funds and country funds to operate in the Indian markets. American Depository Receipts (ADRs). PR Executives and brokers in the ratio of 25-25-50. 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. which in the past included mainly brokers. all listed companies are now required to furnish to the stock exchanges and also publish unaudited financial results on a quarterly basis. Income. 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. Consolidated Consolidated Financial Statements. Indian firms have also been allowed to operate in the Indian markets. respectively . 11) Boards of various stock exchanges. 10) The Indian capital market is also increasingly integrating with the international capital markets. mutual funds. To remove the influence of brokers in the functioning of stock exchanges. Related Party Disclosures and Compliance with Accounting Standards. 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. Reconstituted Governing Boards have now promoters. 9) In India. Vice President. 8 . Euro Convertible Bonds (ECBs). the SEBI decided to amend the Listing Agreement to incorporate Accounting for Taxes on the Segment Financial Reporting. Indian firms have also been allowed to raise capital from international capital markets through issues of Global Depository Receipts (GDRs).Central Depository and Services Ltd. Results. etc.(CDSL) and National Security Depository Ltd.(NSDL).

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

10 . The limit is 20 per cent of the paid-up capital in the case of public sector banks. 1. Foreign Currency Convertible Bonds (FCCBs) and External Commercial Borrowings (ECBs). A sub-account under the foreign corporate/individual category cannot hold more than 5 per cent of the paid up capital of the company. 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. when capital flows to emerging market economies were affected by contagion from the East Asian crisis. The Indian corporate sector has been allowed to tap international capital markets through American Depository Receipts (ADRs). The ceiling of 24 per cent for FII investment can be raised up to sectoral cap/statutory ceiling. FII investment in India started in 1993.4 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. jointly by all FIIs together is 24 per cent of the paid-up capital of that company.The Indian capital market was opened up for foreign institutional investors (FIIs) in 1992. Global Depository Receipts (GDRs). These investments account for over 10 per cent of the total market capitalization of the Indian stock market. subject to the approval of the board and the general body of the company passing a special resolution to that effect. These investment inflows have since then been positive. with the exception of 1998-99. Similarly.  The maximum permissible investment in the shares of a company. FIIs have been permitted in all types of securities including Government securities and they enjoy full capital convertibility. Mutual funds have been allowed to open offshore funds to invest in equities abroad. non-resident Indians (NRIs) have been allowed to invest in Indian companies.

(FIIs are required to allocate their investment between equity and debt instruments in the ratio of 70:30. a sub-ceiling of US $200 million is applicable for the 70:30 route. However. Within this ceiling of US $1. A cap 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.75 billion. 11 .)  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.75 billion for Government debt.

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. with any subsequent trading going on in the secondary market. Majority of the trading is done in the secondary market.2. Whether you say shares. your ownership stake in the company becomes greater. Stock Market 2. Also known as the equity market. Stock represents a claim on the company's assets and earnings. Profits are sometimes paid out in the form of dividends. 12 . it all means the same thing. The primary market provides the channel for sale of new securities. 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. y What is stock? Plain and simple. Primary market is where new issues are first offered. or stock. The more shares you own. equity. The securities market has two interdependent segments: the primary (new issues) market and the secondary market. stock is a share in the ownership of a company. 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. Secondary market comprises of equity markets and the debt markets. the larger the portion of the profits you get. As you acquire more stock.1 EQUITY OR STOCK MARKET There are markets in which shares are issued and traded either through exchanges or over-the-counter markets.

2. 1956. It got Government of India's recognition as a stock exchange in 1956 under Securities Contracts (Regulation) Act. The Native Share and Stock Broker's Association in 1875.2. Its history is synonymous with that of the Indian Share Market history. the SENSEX is calculated on a free-float market capitalization methodology. The total number of companies listed in BSE is around 4937. which are liable to be reviewed and modified from time-to-time. 13 .2 ORIGIN AND EXCHANGES Share market in Indian started functioning in 1875.1Bombay Stock Exchange Ltd. This association kicked of with 318 members. The main index of BSE is called BSE SENSEX or simply SENSEX. well established and financially sound companies.2. BSE is spread all over India and is present in 417 towns and cities. The "free-float Market Capitalization-Weighted" methodology is a widely followed index construction methodology on which majority of global equity benchmarks are based. y Index calculation methodology SENSEX. Indian Share Market mainly consists of two stock exchanges namely Bombay Stock Exchange (BSE) & National Stock Exchange (NSE). which later came to be known as Bombay Stock Exchange (BSE). From September 2003. At the time of its origin it was an Association of Persons but now it has been transformed to a corporate and demutualised entity.(BSE) Bombay Stock Exchange is the oldest stock exchange not only in India but in entire Asia. first compiled in 1986 was calculated on a "Market Capitalization-Weighted" methodology of 30 component stocks representing a sample of large. The name of the first share trading association in India was Native Share and Stock Broker's Association. BSE started functioning with the name. The base year of SENSEX is 1978-79. It is composed of 30 financially sound company stocks.

1994. In terms of market capitalization. BSE launched the BSE-PSU Index. two new index series viz. 2006.e.2.the BSE TECk Index.    The Exchange launched dollar-linked version of BSE-100 index i. The Exchange constructed and launched on 27th May. 2.(NSE) National Stock Exchange (NSE) founded although late than BSE. The Exchange shifted all its indices to a freefloat methodology (except BSE PSU index) in a phased manner. 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 . 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). 1996 and since then it is calculated taking into consideration only the prices of stocks listed at BSE.2 National Stock Exchange Ltd. the 'BSE-200' and the 'DOLLEX-200' indices. 1956. The launch of BSE-200 Index in 1994 was followed by the launch of BSE-500 Index and 5 sectoral indices in 1999. National Stock Exchange got its recognition as a stock exchange in July 1993 under Securities Contracts (Regulation) Act.. is currently the leading stock exchange in India in terms of total volume traded. It is also based in Mumbai but has its presence in over 1500 towns and cities. DOLLEX-30 and the country's first freefloat based index . Dollex-100 on May 22. The BSE National Index was renamed as BSE-100 Index from October 14. In 2001. NSE is the second largest bourse in South Asia.

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

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

). The Indian capital market is significant in terms of the degree of development. 3 & 5 in the world. France. accounts for the largest number of listed companies transacting their shares on a nation wide online trading system.23x. UK. the Sensex has posted excellent returns in the recent years. The two major exchanges namely the National Stock Exchange (NSE) and the Bombay Stock Exchnage (BSE) ranked no. Total market capitalisation of The Bombay Stock Exchange (BSE). India has the third largest investor base in the world after USA and Japan. 1997.3. India¶s market capitalisation was the highest among the emerging markets. as on July 31. The market cap of the sensex as on April 11th. 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. one of the oldest in the world. With daily average volume of US $ 9. 2007. Over 7500 companies are listed on the Indian stock exchanges (more than the number of companies listed in developed markets of Japan. Canada and Hong Kong. calculated by the number of daily transactions done on the exchanges. Switzerland. Turnover in the Spot and Derivatives segment both in NSE & BSE was higher by 45% into 2006 as compared to 2005. Germany.5% per cent every twelve months and was over US$ 834 billion as of January. 17 . transparency and its tremendous growth potential. was US$ 175 billion has grown by 37.4 billion. Australia. 2008 was Rs 2.540 crore with a P/E of 20. Bombay Stock Exchanges (BSE). volume of trading. which. THE INDIAN STOCK MARKET With over 25 million shareholders.237.

8 18.32 17.3 13.2 29.0 15.62 Bse Sensex Returns(%) End 13.22.5 21.8 27.2 272 348 450 540 686 785 13.50.528 42.07 21.6 22.1 18.0 18.394 39.8 11.61.P/E Index Nifty: Returns(%) End 10.509 63 64.881 mcap(RS crore) End year P/E 15.5 year 15.26 27.8 SIZE OF EQUITY MARKET. RETURNS (%).4 11.865 47.527 CY04 CY05 CY06 CY07 mcap(RS crore) End year P/E 15.341 mcap(RS crore) End year P/E 17.13.5 17.5 20.3 12.02.867 46.7 35.603 54.9 33.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 10.1 18 .8 19.831 36.6 22.579 BSE 500 Returns(%) End 17.2 17.3 9.2 28.58.4 12.36.762 36.4 8.1 year 7.7 year 9.

said that the company will invest US$1. Belgium.993 in 2006-07 and a whopping Rs 51. Samsung. LG.47 billion from $4 million in 1992. Corporates collected Rs.526 crore in 2004-05.676 crore in 2005-06.7 billion in India over the next four years to expand its operations. Hewlett Packard. the world¶s largest software company. International Corporations which have invested in India include GE. Texas Instruments. 2007 had reached around $ 51. chairman of Microsoft Corporation. Novartis. 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. Motorola. 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. Toyota.y Trends in Primary Markets According to Sebi data. Honda. Eli Lily. Microsoft. Daimler Chrysler.IBM. 2006 had reached around US$ 10 billion. Rs 23.22. 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. Registrations from non-traditional countries like Denmark. Italy.131 crore in 2003-04. Many Japanese and European investors have also started eyeing India. Coca Cola and McDonalds ± To name a few.GM. aiming to cash in on the rising equity markets. Bell Labs. Cummins. y FII inflows in India Net FIIs inflow in India increased steadily through the last decade of the 1990s. 19 . Dupont. Rs 25. as well as confidence of the foreign investors in the growth and stability of the Indian market. Nestle. Intel. Bayer. This buoyancy continued during 2005-06 and the cumulative FII inflow in 9 months period ending December. Mitsubishi. Caterpillar. The cumulative FII inflow till 6th March.408 crore in 2007-08 (till the end of January 2008). Rs 24. Canada. Bill Gates. reflecting the strong economic fundamentals of the country. Sweden and Ireland are on the rise. Monsato.

With SBTS.1 INTRODUCTION OF SCREEN-BASED TRADING SYSTEM (SBTS) Before the NSE was set up. which helps to make the market more transparent. 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. leading to increased investor confidence. The practice of physical trading imposed limits on trading volumes as well as. This was time consuming and inefficient. which have provided a completely transparent trading mechanism. improving the liquidity of the markets. cost and risk of error as well as on the chances of fraud. 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. 20 . To obviate this. The transaction is executed as soon as the quote punched by a trading member finds a matching sale or buys quote from counterparty. it becomes possible for market participants to see the full market. Regional exchanges lost a lot of business to NSE. forcing them to introduce SBTS. and hence cuts down on time. the speed with which new information was incorporated into prices.3. 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. 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. This increases the informational efficiency of markets. SBTS enables distant participants to trade with each other.

The trader workstations are connected directly to the backend server. 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. It electronically matches orders on a price/time priority and hence cuts down on time. and Reuters. BOLT has a two-tier architecture. transparent and efficient preservation and transactions. Other services like information dissemination. Bridge. BOLT has been interfaced with various information vendors like Bloomberg. thus increasing the informational efficiency of markets. which acts as a communication server and a Central Trading Engine (CTE). transparent and time saving. cost and risk of error. The stocks are hold in a demutualised format helping in fast.y Online Trading Mechanism: Bombay Stock Exchange's trading system is popularly known as BOLT (BSE's Online Trading System). NSE provides its customers with a fully automated screen based trading system known as NEAT system. resulting in improved operational efficiency. 1995. index computation. as well as on fraud. It allows faster incorporation of price sensitive information into prevailing prices. 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. The BSE has deployed an Online Trading system (BOLT) on March 14. It makes the trade efficient. and position monitoring are also provided by the system. 21 . Market information is fed to news agencies in real time.

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

the matter is taken up for full-fledged investigation. This is accomplished through Surveillance Cell in the stock exchanges. 23 . are the primary regulators for detection of market manipulation. 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. depositories and concerned entities. The surveillance system adopted by SEBI is two pronged viz. Based on the feedback from the exchanges. if necessary. The stock exchanges are charged with the primary responsibility of taking timely and effective surveillance measures in the interest of investors and market integrity. the matter is thereafter taken up for a preliminary enquiry and subsequently.: (1) Surveillance Cell in the stock exchange and (2) The Integrated Surveillance Department in SEBI. Unusual deviations are informed to SEBI. price rigging and other regulatory breaches regarding capital market functioning. it is imperative to have in place an effective market surveillance mechanism.y Market Surveillance Mechanism In order to ensure investor protection and to safeguard the integrity of the markets. 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. SEBI keeps constant vigil on the activities of the stock exchanges to ensure effectiveness of surveillance systems. depending on the findings gathered from the exchanges.

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

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

dividend mandate. No concept of Market Lots. A few important ones' are as below. address. registration of power of attorney.There are many advantages of holding a demat account. can be effected across companies held in demat form by a single instruction to the DP. transmission etc. Change of name. 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 . y y y y Shorter settlements thereby enhancing liquidity No stamp duty on transfer of securities held in demat form.

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

it is better to have a stockbroker to execute your buying and selling instructions. your portfolio will be diversified to reduce the risk to your capital. These roles are: y Execution only . Brokers perform different roles to provide services to their clients. It will not only save the service charges but also give you full confidence in stock market trading. y Discretionary dealing . These include trading in options such as binary options.This is the most comprehensive service that a broker provides. trading in foreign currency. This is the basic and the most commonly used service of the brokers.the General Securities Registered Representative Examination.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. 4. In this case the broker has the discretionary power to take the investment decisions on behalf of the investor. y Knowledge of other financial instruments: A good broker is one who is knowledgeable in various financial instruments.In this service the broker only carries out the trading according to the direction of the investor. 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. These are the basic services provided by the stock market brokers and it completely depends on you which service you will subscribe to.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. y Advisory dealing . and trading in commodities such as gold. This way. or its equivalent in other countries. For example. 28 .

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

but this decision should be balanced by an individual's knowledge of markets and temperament in dealing with the high stress of money management.give investment advice. 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. and others may be given permission by their clients to act on their behalf at their own discretion. the vast majority of brokers are highly trained and intelligent professionals who do honest work on behalf of millions of satisfied clients. most work as part of larger or smaller brokerage firms. y Considerations: The relationship between an investor and their broker is important. though most do offer client-specific research or advice for additional cost. all firms were full-service. consider their past success and the recommendations of other clients. 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. y Features: Though stock brokers develop their own clients and contacts. With the explosion of the internet and electronic trading. Whether an investor chooses to make 30 . If working with a fullservice broker. Be specific about goals and expectations. discount brokerage firms have filled the niche of lowcommission execution-only brokers. the commissions charged for doing so were quite high. 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. Wall Street as a whole enjoyed a less than ideal image among the public. meaning a client simply described their goals and the firm created and executed a strategy to meet those goals. Traditionally. 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. Nonetheless. Understandably.

favors the investors. it should be noted that keeping updated about the requirements of the client is the best service a stock broker can provide. However. He is well aware of the current market conditions and prospected market behavior. A stock broker offers many services to his clients in return of stock brokerage. Keeps client informed: a stockbroker is the jack of all trades. the ability to participate in one of the largest wealth-producing engines the world has ever known is an undeniable benefit. keeping the client updated and warning for future helps the client to decide over his investments plans and work out on current investments. Actually. 31 . other may offer cheap brokerage terms. competitive market keeps a check over the brokerage terms. 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. Keeping an eye over market is their job and in case they seize any opportunity that suits the client's requirements. physique or talks that impress you. may help client to get the benefit of the opportunity. As such there are many services provided by stock brokers. However. Some offers discount brokerages. experience and services that attract any investor towards stock broker. this stock brokerage may vary from one broker to another. thus. and the true role of stock brokers.their own buy and sell decisions through an online discount broker. or whether they prefer to utilize the vast expertise of a reputable firm to design a strategy to meet their financial needs. Hence. The heart of stock investment guidance lies with stock brokers. 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. but it's his intelligence. 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. Not his height.

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

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

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

unlike traditional stock brokers . and buy and sell commodities. 35 .do not exert much control over the stocks of the investor. Online trading offers investors a whole new level of independence.Investors are able to choose what stocks they want to buy . no longer are investors required to physically visit their stock brokers in order to examine their portfolio.regardless of what the stock broker prefers. 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. set financial goals. Online stock brokers . The world of investment has changed.

This is especially relevant to participants in bull markets since bulls are herding animals. A bull market is also sometimes described as a bull run.5.Trends of market Market trends refer to the general movement of an investment market. 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. metaphorically. 36 . motivating investors to buy in anticipation of future price increases and future capital gains. as a herd. In decreasing financial market behavior. Determining what type of investments to buy and sell is greatly influenced by accurately assessing and projecting market trends. 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. the largest group of market participants is often referred to.

Investors anticipating further losses are often motivated to sell. with negative sentiment feeding on itself in a vicious circle. Privatization. but a reversal of the primary trend. Globalization) News Interest rates Political issues Inflation Recession Companies profit 37 .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.or because of ³panic selling´ as a reaction to an adverse financial development. 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. It is described as being accompanied by widespread pessimism. Factors affecting market trend and economy: y y y y y y y LPG(Liberalization. A ³Bottom´ may occur because of the presence of a ³cycle´ .

5. a pictorial (shown in fig1)description will give a better understanding of that ugly period. 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.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.

5.7%.929 on June 14. as in the previous three years.399 at end-May 2006. The Indian indices recorded higher volatility on weekly returns during the two-year period.398 at end-December 2005 and 10. Sensex rose by 46. Malaysia and Taiwan. 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. According to the number of transactions. 2007. recovered soon thereafter to rise steadily to 13787 by end-December 2006. e. was higher than those in most emerging markets of Asia. after dropping to 8. the BSE ranks first in the world. is one of the main criteria sought by the investor while investing in the stock market. 2006. and as the second highest among emerging markets. Market forces of demand and supply determine the price of any security at any point of time. with the Sensex trading at a P/E multiple of 22.1 Year 2006 at a glance: In the secondary market. and other global factors such as continuation of relatively soft interest rates and fall in the international crude prices.g. In terms of listed companies. 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. NSE continued to occupy the third position among the world¶s biggest exchanges in 2006. slipping one position from 2005. 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. 39 . The better valuation could be on account of the good fundamentals and expected future growth in earnings of Indian corporate Liquidity. BSE Sensex (top 30stocks) which was 9.26. Thailand. the uptrend continued in 2006-07 with BSE indices closing above 14000(14. lower the impact cost. Higher the liquidity. In terms of volatility of weekly returns. The pick up in the stock indices could be attributed to impressive growth in the profitability of Indian corporate. BSE occupied the sixth position in 2006. on a point-to-point basis.76 and S&P CNX Nifty at 21. overall higher growth in the economy.1. South Korea. During 2006. which serves as a fuel for the price discovery process. Impact cost quantifies the impact of a small change in such forces on prices.015) for the first time on January 3.

But the reason behind roaring Sensex was not sachin¶s records rather it was rallied by strong FII inflows and robust data. the greatest demerger of Indian history between the Ambanis paved the way for 9000. 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. both Sensex and sachin tendulkar crossing 10000 mark. Sensex¶s surge to 11000 points on 21st march 2006 was prompted by PM Manmohan Singh¶s announcements on Capital Account Convertibility.1% in current year. with manufacturing and the agriculture sectors estimated to grow at 9. The government forecasted a GDP growth of 8.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. Prime Minister Manmohan Singh hinted at moving toward a free float of the rupee and on Tuesday. the BSE responded by crossing the 11. The new 40 .4% and 2.000 mark in a lifetime intraday high. And the Sensex entered the year 2006 with a 9000 + figure. 10th 2006.3% respectively. we saw two roaring figures. On Feb.

participants said it was evident the markets had sent out a message . The rise in share prices was partly attributed to a fall in oil price. Opening amidst weak global markets and reports of rising US interest rates. knocking the bottom off the jittery stock market. April 20.905. The US April crude oil prices plunged 3.42 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. Sensex lost 35. Only Nikkei. on the New York Mercantile Exchange due to sample US inventories. Earlier.7% or $2.017. the time it took to breach this milestone has been one of the fastest.000 at that time. it was based on the expectations that (corporate) results would be great and by the first few companies was more than matching those expectations. have chosen India as one of their top investment destinations. the 131-year-old BSE on Thursday.91 points to close at 10. 2006 crossed yet another milestone when it breached the 12. buoyed by a booming economy. Although. earnings. However the Dealers said the fall was accentuated by large-scale selling of client positions by 41 . fluctuating 153 points. Suddenly the Dalal Street experienced its worst single day crash on Thursday.20. The index was being driven by the strong flow of liquidity. Traders point to the fact that foreign investors. Although the index later ended lower with investors wanting to book gains. higher liquidity and robust economic backed by strong corporate growth. 18th may 2006 as an ambiguous Government circular on taxing investment gains prompted foreign funds to book profits. RBI said it constituted a panel to thrash out the contours for full convertibility. Hang Seng and Dow Jones could boast of being above 10. with most of the volatility coming in the last hour of trading. Sensex was beaten to the 12. everything was going fine perhaps it was the lull before the storm. to settle at $60.35.000 club on February 6.000 mark by various global indices.38. 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. After hitting a high of 11. Now. it was evident that the move will encourage investors and boost the confidence of the markets. Since full convertibility was expected to attract more foreign money and also allow local companies to tap foreign debt markets more high was reached 29 days after Sensex entered the elite 10.000-point mark. the BSE-30 Sensex went on to close 826.25 points in mid-afternoon trade.

respectively. This could be attributed to the larger inflows from Foreign Institutional Investors (FIIs) and wider participation of domestic investors. among other things. 30th 2006 driven by a heady cocktail of strong corporate earnings. which is unlikely.000-mark on Tuesday. India posting a relatively higher GDP growth amongst the emerging economies. which was sparked off by weak US GDP growth figure.1. December 5. a rapidly growing economy and relatively stable crude oil prices.8 per cent.1 and 54.300.000 and 6. FIIs bought net stocks worth Rs 17. in January 2008. Benchmark stock indices vaulted to new highs on Monday. the response of domestic mutual funds has been guarded.001 crore while local mutual funds have pumped in a net Rs638. the market activity expanded further during 2007-08 with BSE and NSE indices scaling new peaks of 21. Market watchers said sentiment could be affected only if the hike is more than 25 basis points. During 2007. The benchmark 30-share Sensex briefly crossed the psychological 14. on a point-to-point basis. The Sensex ended at its highest closing level of 13024. persistence of difference 42 . Higher interest rates drive up borrowing costs for corporate as well as the retail consumer. pointing to a slowdown. 2006.9%. reflecting change in the market sentiments. While foreign institutional investors have been aggressive buying stocks over the past few months. Oct.07 crore. In May.45 points or 0. Back home. respectively. who could then cut back on their investments and spending.broking firms due to margin calls or the lack of margins. the indices maintained their north-bound trend during the year.26. particularly the institutional investors. crash saw the Sensex shedding its market capitalization by as much as 14% in just one month. 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. Sensex and Nifty Indices rose by 47. continued uptrend in the profitability of Indian corporate. The buoyant conditions in the Indian bourses were aided by. Although the indices showed some intermittent fluctuations. In the last two months alone. a gain of 117. in turn causing a slack in domestic demand. 5.Marauding bulls defied the weak trend globally.2 Year 2007 at a glance: In the secondary market segment.

While the climb of BSE Sensex during 2007-08 so far was the fastest ever. It further crossed the 20. In terms of simple average.000 to 19. 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 journey of BSE Sensex from 18. 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.000 in an intraday January 2008.000 mark in December 2007 and 21.5 per cent per year between 2003 and 2007. However. 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 . impressive returns on equities and a strong Indian rupee on the back of larger capital domestic and international levels of interest rates. BSE and NSE indices trading in declined subsequently reflecting concerns on global developments. The BSE Sensex (top 30 stocks) too echoed a similar trend to NSE nifty.000 mark was achieved in just four trading sessions during October 2007.

000 to 7. 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.80 crore in four trading sessions from 26 February to 1 March 2007.12. 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. the day when Sensex had lost 273 points.000 point distance from 14. On Friday. February 23rd. the Sensex which closed at 14091 on January 31st closed at 12938 on February 28th. 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. July 06 2007 before closing at 14964. all the indices were in red.000-mark. The return provided by the BSE Sensex for 2007 turned into negative territory following the 389-point tumble on Friday. pharma.97 per cent.22. IT and metals stocks. As per provisional data FIIs were net sellers to the tune of Rs 613 crore on Friday 2 March. The Sensex again crossed the 14K mark and was trading at 14.59%. especially auto.000-mark. Despite weak global cues. though the year started on a rather tentative note with a marked slowdown being observed in the FII inflows into the country. Their net outflow was worth Rs 3080. for the first time intra-day on Friday.18 having gained 221.y An overview of year 2007: After touching 14K mark on December 5th 2006. As a result. FIIs have pressed substantial sales over those days in contrast to an intermittent surge in inflow in February 2007.000. The benchmark BSE 30-Share Sensitive Index (Sensex) breached the 15. Sensex entered into 2007 with a promising figure of 14000+. 44 .150.85 points or 1. The Sensex took 146 sessions to cover the 1. On April 24th. Further we can see May and June having month end figures at 14544 and 14651 respectively. This is the highest since the index took 371 trading sessions to move up from 6. 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. Indian stocks were in great demand. to reach a record high of 15007.000 till 15.

given their baffling run-up over the past one month. On the auspicious occasion of Ganesh chaturathi.280 on the back of eye-popping rallies in Reliance & Reliance. Eight years on.S. the same seems to hold true for any stock with the prefix µReliance¶.75.000 number. The bellwether index finally settled at 16. This trend shows that global cues had an influential effect on our market. it boiled over to the streets of Mumbai and its financial district. RBI's measures may not be enough to rein in the rupee. as the benchmark 30-share BSE Sensex moved up sharply by 653. But there were no takers for this. 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. 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.49. September 19th. Sensex hits a record high of 18. 2007.17 per cent at 16322.000 points. When FIIs were pumping money in stock market and were Net Buyers of Equity worth Crores. The festive spirit did not end with the immersion of Ganapati. the Sensex was moving Up . At the height of the dotcom mania in 1999-00. Eye-popping rallies in Reliance Industries. the easiest way to maximize returns was to buy into any stock with the suffix µSoftware¶ or µTechnologies¶. Reliance 45 . Many thought that FIIs were playing blind in Indian stock market.073. India experienced a flow of good news.03 points or 6.63 points or 4. On Wednesday. But when FIIs have turned Net Sellers of Equity and have started booking profit backed by massive sell off of shares in global markets.87 during the day. By staying well above the 16000-mark.39.921. tech stocks. As expected. Sensex closed down 951. 2007 gave thumbs up to the decision of the U. it outperformed most Asian peers and it was the biggest single day gain. the Sensex touched the magical 17. pushing the Sensex to a new high of 17. Up and Up on weekly basis. Sensex has to go down. On October 9th. At the end of the day.03% at 14809. It took Dalal Street just 5 days to travel 1. 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. Suddenly. which were the whipping boys till Tuesday. Fed Reserve to reduce the rates by 50 basis points. became hot favorites. But very soon the sensex surpassed the gloomy days and Stock markets on Wednesday.The Sensex experienced its second bigger ever fall on 2nd august 2007.

327.04 points or 1. 46 .47 per cent at 19058.63 points or 3.67.85 points after market regulator SEBI allowed sub-accounts of Foreign Institutional Investors (FIIS) to trade. Since September. capital goods. infrastructure and telecom.76 per cent at 18715. The market gain was because of global cues. BSE Sensex registered its biggest ever gain in a single of 893. the bull roared to breach the 19000 mark in just 4 sessions Sensex was up by 639. Foreign Institutional Investors were pumping in huge money in the equity market and this too was pushing up the index.82. But it was followed by a huge one-day gain as on October 23 when the BSE barometer rose 878. a re-rating of the emerging markets had been seen wherein liquidity flows were quite robust. After the U. the stock market crashed by 1743 points in intra-day.000 crore in the cash market. 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. On October 15th 2007. prompting suspension of trade for hour fallout of regulator Sebi's move to curb Foreign Institutional Investors. In a knee-jerk reaction to the cap proposed by the market regulator for the Participatory Notes.100 crore worth of shares over the last three trading sessions while local funds have net bought over Rs 2.42 intra-days. foreign funds have net sold over Rs 1.300 crore worth of shares. Federal Reserve cut interest rates by 50 basis points.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.000 mark. 30. it was the local institutions that were in the driver¶s seat. but recovered substantially later to close with a loss of 336. This rise came on the back of some strong sectors for which the macro picture is quite bright ² power. they nearly pumped in more than Rs. It took the index a little over 20 years to reach the first 10. On 13th November. an overseas derivative instrument (ODI). amidst heavy buying by investors.Energy and Reliance Communications lifted the 30-share Sensex to a record high of 18. Skeptics point to the fact that there were only a handful of stocks that was driving the market higher. 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.S. Besides. Significantly. As per BSE data. used by foreign institutional investors (FIIs).

the political development also gelled well with the involvement of foreign investors. After the worst January in the last 20 years for Indian equities. The rally was driven by short covering. they sold in the cash market to the tune of USD 45 billion. And they felt their predictions coming true when Sensex touched the 21000 mark on 8th January 2008.50. the journey from 20. India finished the month as the second worst emerging market. Fears over the solvency of major Western banks rattled stocks in Asia and Europe.605. 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 . However. there was not much experienced a black Monday on 17th December. It fell to a low of 16.000 marks. it has been domestic institutional investors which have been really putting the money.3 SENSEX during year 2008: After scaling new heights of 20000+. shedding 2062 points intra-day. but the impact of the global rout was the biggest in India.4%. So if one has to take out some pointers from this journey from 20.35. at 19.1. But the rosy picture soon turned gloomy.35 points or 7. The Sensex ended losing 769 points from the previous close. the midcaps and smallcaps have been outperformers and in terms of flows. The trade pundits. sensex again sentiment. 5. It¶s interesting if one sees in terms of flows.951. The market succumbed to profit booking. It closed at 17. Sensex entered year 2008 with rosy pictures.4 per cent. brokers and even investors predicted new heights for the year. But in December 2007.261. The skyrocketing Sensex suddenly started heading south and Sensex saw the biggest absolute fall in history.000 is dominated by domestic institutional investors. down 1408. FIIs were negative sellers. The market tumbled on account of a broad based sell-off that emerged in global equity markets. February turned out to be a flat month with the BSE Sensex down 0. strong buying by domestic investors.000. The fall was triggered as a result of weakness in global markets. that came in due to weak global cues as well as profit booking by FIIs in the holiday season.000 to 21.000 to 21. it is the longest journey which we have seen in the last 5.

every forecasting has failed. On 30th May an imminent hike in domestic retail fuel prices due to soaring crude oil 48 . Sometimes it surged by 600+ points. Indian IT firms depend on the US clients for a major share of their revenues. 31st march the last day of the financial quarter.impact of that outperformance.373.4 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.68% in march 2008 as a result RBI hiked CRR by 50 bps to take the figure to 8%. its biggest quarterly fall since the June 1992 quarter. to end the quarter of March down 22.cap index that rose 16% and 18% respectively. After then nobody saw a stable Sensex even.9 percent. developments in the US economy and US markets continued to dominate investor sentiments globally and we saw volatility move up sharply across most markets. According to market analysts. The Bombay Stock Exchange (BSE) Sensex fell 4. The BSE Sensex showed a gain of 10. still emergence of retail investors was also seen. 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. A combination of firming global markets and technical factors like short covering were the main reasons for the up move in the markets.57% against 6. a fact reinforced by the strong movement in the mid-cap and small.5% to close at 17287 points. The Sensex is dancing on the music of lifetime high inflation rates.1. political uncertainties and obviously the sentiments of domestic as well as FIIs.89 points or 0.01 on Tuesday. The key benchmark indices ended lower as investors resorted to profit booking due to lack of positive triggers in the market. but very next day it plunged by some 800 odd points and this story is still continuing.67% at 17. historic crude prices. Though inflation touched a high of 7. 5. 6May 2008. weak industrial production data.44 percent on Monday. In the shorter term. So April was the last month to close positive. Financial stocks led the Sensex slide along with IT. as reports of rising inflation and global economic slowdown dampened market sentiments. tightening RBI policies. IT stocks fell on worries about the health of the US economy. Every prediction. It was revolving around the figures of 14000 and no one knew what next? The 30-share BSE Sensex fell 117.

65 in the week. A setback to stocks in Asia and US. On 9th June 2008.2%. triggered possibility of a surge in inflation to double digit level. despite the fact that economic growth is slowing in key nations such as the US and UK.4% and slipped below 15. On 25 June 2008. The 30-share BSE Sensex declined 197.97% to 4627.22. 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.90 points or 4. Indian inflation stood at 8.54 points or 1.prices weighed on the market last week.18. 4 June 2008.25% to settle at 15. Bombay¶s Sensex index closed 506. fanning fears that they will keep climbing and hurt world growth. IT stocks gained on slipping rupee. equities staged a solid rebound after touching fresh calendar 2008 lows in early trade.066. Central banks across the globe warned that interest rates may have to rise as they look to keep inflation under control. The market declined sharply as a hike in fuel prices by about 10% announced by the Union government on Wednesday.80 in the week.10.000 for the first time since March. BSE Sensex rose in two out of five trading sessions.18 in the week ended 6 June 2008. sharp spurt in crude oil prices and political uncertainty due to Indo-US nuclear deal rattled bourses on 27 June2008.08 points down at 15.000 mark for the first time in 10 months since late August 2007. The BSE Sensex declined 843. The initial jolt was caused by the Reserve Bank of India's move to hike the key lending rate.07 points or 5. local benchmark indices underperformed their global peers. having earlier fallen 4. Oil prices surged to record levels. Equities extended losses for the fifth straight day on 24 June 2008 with the barometer index BSE Sensex falling below the psychologically important 14.572. However. The S&P CNX Nifty fell 242.802.572. In May. Foreign institutional investors sold close to Rs 2204 crore in the first three trading sessions of the week which accentuated the downfall.39 points or 5.28% to 13. The S&P CNX Nifty lost 210.3 points or 4. On 6 June 2008. On the week ending 27thJune 2008 Sensex declined 769.85% to 4136. 49 .14% to 15. expected Q4 gross domestic product figures provided some relief to the bourses on Friday.

On July 15th2008. Although Indian banks have no direct exposure to the US subprime mortgage sector. the global financial sector turmoil impacts sentiment in the local market and raises worries of more withdrawals by foreign funds. 50 .9 per cent to their lowest close in 15 months. Indian shares fell 4. 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. joining a world equities rout as investor¶s dumped financials on concerns about the fallout from worsening global credit turmoil.

Exports of these services and the resultant multiplier effect on private consumption due to extra income 51 . having the lowest entry barriers because relatively little technical or specific process expertise is required. At a time when the world is going through a turbulent time.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.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. Business process outsourcing(BPO) market share of Indian vendors are expected to nearly double by 2010 as budget was focused towards IT industry. India¶s export sector has shown a growth rate of 20. 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.4 per cent by 2010. but will be subjected to fulfillment of few pre-conditions.5. led by a strong growth in information technology(IT) and business process outsourcing(BPO). the Indian economy is expected to be the next trillion-dollar economy of the world.3 per cent in the first 11 months of 2008-09.5 per cent during April-December 2008 as against 21. India¶s exports increased by 17.9 per cent in April-December 2007 so it is expected that with the stress on growth of IT. Call centers and analytics services will likely see highest growth. as early as in third or fourth quarter of 2010. IT service and BPO have the potential to earn export revenues of $62 billion by 2010.

India Business Sector. recently. It has grown so much and is expected to continue to grow like this for a long time. The Indian Government is doing everything it can do to propel the growth rates in the Indian Industry. 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. When thinking about all of the bad things in the news that can affect the market in a negative way. India just keeps getting better and better. Also. The growth rates are very good and it wouldn¶t be wrong for people to overvalue it. are not permanent and the market will increase or decrease with the next thing. The economy is growing rapidly surpassing some of Asia¶s biggest economies. Indian companies.1 Stock market and investment decisions: When things happen in the news. 52 . Although India is growing. there can still be corrections in the market. A lot of people try to people undervalue India¶s accomplishment in growth. it affects the market. Sometimes it is good for the market and sometimes it is bad. y y The growth rates are substantial and that yearly exports are bringing in a lot of money. think about the things that affect it in a positive way as well. So India is expected to move rapidly. primarily in: India Stock Market. The Indian market is not that strong because the rupee is getting smaller and the effect on oil. India¶s manufacturing index. India¶s Company sector and other India investment industries. The export market has increased because other countries are in demand.2. India is now becoming the third largest country in Asia economically.could accelerate the GDP growth to over 7 per cent for 2005-10 period compared with 5. It is now over 30 per cent and between the years 1990 and 2004 the average was only 25 per cent. The yearly salaries are rising and the command to buy is under the command to spend.6 per cent in the past 10 years. 5. India has created the best growth story that happen over a long time. The Investment GDP ratio is at a high. Just remember that the things that happen in the news.

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

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

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.In recent years. This intensifies the curiosity of academics in exploring international market linkages. Foreign institutional investors(FIIs) turned net buyers in the Indian market in 2009. 55 .

y How can Investors fall in Stock market traps? 1. 21. 2007. The 26/11 terror attack on Mumbai. The government market borrowings programme has also put pressure on the rupee. FIIs suddenly identified the bubble and existed on massive scale to make huge profit. The increasing terrorist activity in the Indian subcontinent is a risk for stock markets. Thus. 2008 due to massive inflow of foreign funds and wonderful Quarter two results. raise India¶s investment risk profile. dampening exports. a further flight of foreign capital may pose increased risk for Indian markets. 56 . 2007 to 21. The recent terrorist strike on the Shrilankan cricketers. 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. That is the power of bubble. But Indian mutual funds managers were still talking about India growth story and kept their positions. 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. But Indian stock market moved from 13. All these could compound the risk for the Indian stock markets.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. There was sudden spurt in demand as India suddenly changed to American type of consumption economy from traditional savings economy. International stock markets reacted to the crisis after two months and crashed in October. it can have an adverse impact on Indian stock markets. besides increasing political turmoil among our neighbors. The recent heinous terror attack on Mumbai has impacted the economy and thus has increased the risk for foreign investment in India. 2007 when a French bank announced billions of losses in American mortgage business.900 in September.300 in January. and tight controls on corporate expansion plans as well as corporate spending.

200 levels and created hope for bounce back. Many of these of investor have little idea about Bear market. You need to track them regularly when you think that price is at least 30 per cent above the fundamental price. 2.200 to 21. 15. Believe in your research. 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. Note: Base was formed around 15200. Then Sensex moved in between 12. Now analyst talked above reasonable fundamentals and falling crude oil prices to create hope about bounce back Note: Base was formed around 12. Blind long term investments will not work in the current volatile markets. What happened! Many people was still in ³Bull Trans´ at that time.200 Trap: BSE Sensex fell to 15. Lessons: As long as business fundamentals are weak. Greed will make us fools. It is time for exit.600 level.000 in just one week and traded between 15. It is not the fault of investor. That hope was not due to good fundamentals bur due to ³Bull Trap´. It is just a matter of time. It means market will not fall below that level. Many of us thought that it is just another routine Bear market. By that time. But stock market investor noticed a severity of American credit crisis and Sensex fell to 12. Stock markets will definitely notice fundamentals but it will take some time especially in Bull run.600 to 15.400 to 17. But inflation and high crude oil prices spoilt the business environment.600.Lessons: Future growth(next 3 to 6 months) is more important than past growth. It means markets will not fall below that level.000 levels for sometime. That movement created hope in investors about strong bounce back. temporary bounce backs will not save markets from sharp falls. Don¶t bother about that stock if it moves further upwards. What happened! 57 .

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.


A steady decrease from 2006 onwards till 2009 is seen.2. 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.172 Year 2005 2006 2007 2008 2009 2010 From the above diagram secular pattern can be seen.033 768.674 567. yet the rate of change of the share price has been quite same for both companies till 2008. TCS: Share price 1377.75 1151. This is most definitely attributed to the world economic slowdown which hit us in the recent past. 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.282 789. that is a steady upward or downward trend. Though its rival Infosys has managed to keep a high share margin even in tough times.761 1475. 61 .

that is a steady upward or downward trend.492 691.845 517. Astonishingly the company in focus. However it is not the only company to face this improvement so. this change can be attributed to the entire IT sector¶s well performance rather than the company. Wipro has somehow managed to ³steady the boat´ amongst the financial maelstrom which hit during 2006 and went to 2008.3.213 395.55 Year 2005 2006 2007 2008 2009 2010 From the above diagram secular pattern can be seen.09 527. 62 . Another point to note is the company¶s appetite for acquisition and takeovers. Wipro: Share price 553. 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.393 429. A growth can be noticed in from 2009 over 2010 in the company¶s share price.

leveraged positions. 63 .32 405. 2008-09 has seen severe financial distress across especially the manufacturing sectors. cut down capacities. Bajaj: Share price 1516.79 2481.55 2668. and had to borrow funds at prohibitive interest rates.55 856.6. struggled with finances because of their earlier over. Companies broad sections of Indian industry- have got re-rated. delayed payments to vendors.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%. have scrapped investment plans and capital expenditure. 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.2 Automobile sector: 1.173 594.

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.82 760.63 1351.6% of net sales and other operating 2.3 1742. taxes.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. depreciation income. Despite falling demand in the motorcycle segment. Hero Honda: Share price 661.77 789.21 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. 64 .81 692. and amortisation) margin of 13. BAL or the Company').

3.402 65 . brand building initiatives backed by innovative communication has resulted in market share gain across every segment.97 35.61 42. Astonishingly the company in focus. In 2009 TVS Motor Company has posted 23% growth in.13 Year 2005 2006 2007 2008 2009 2010 From the above diagram secular pattern can be seen.58 73. Indeed. despite the slowdown in the two-wheeler industry. that is a steady upward or downward trend. TVS has somehow managed to ³steady the boat´ amongst the financial maelstrom which hit during 2006 and went to 2008.Hero Honda's strategy for aggressive top line growth through new product launches. registering total two wheeler sales of 120.844 units against 98.911 114. Hero Honda¶s share in domestic motorcycles market has been growing upward of 50 per cent. TVS: Share price 83.34 64.

491 in the corresponding period of the previous year. 66 .836 units in November 2009 as against 77.units in the corresponding period of the previous year. Domestic sales of the company witnessed a quantum increase in sales positing growth of 38% recording 106.

Still we can say that people can play safe by investing the blue-chips and undervalued shares. 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. Certain exceptions were also seen in the various companies like Hero Honda. Presently the hike and seek being played by crude prices. And adding inflation and RBI policies to the worries are are global slowdown. 67 . political instability. 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. negative public sentiments etc. we can say that stock market touched its peak at 21000 but then crashed badly. 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. affecting our market to a great extent. Now it is revolving around 15000-17000 figure. serial bomb blasts. Just accumulate good stocks with 2 year investments horizon. Intelligent Stock Market Investing: Yasaswy Indian Financial System: M Y Khan Rise and Fall of share price: Y P Sachdeva 68 www.References y y y y y y y

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