SUMMER INTERNSHIP PROJECT

AN INTERIM REPORT ON ANALYSIS OF FINANCIAL MARKETS & INTEREST FUTURES AND CURENCY RATE FUTURES IN INDIA Undertaken at

ANAND RATHI SECURITIES LTD. HYDERABD

Submitted By C.ASWIN KUMAR ROLL NO. 09BSHYD1044

Submitted To

Mr. G.K.SRIKANTH
Date of Submission: 16th April 2010

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STUDENT’S DECLARATION
I, C. Aswin Kumar, student of M.B.A , here by declare that project entitled “Analysis of Financial markets and Currency rate and Interest rate futures in India “ submitted in the partial fulfillment of the degree for Master of Business Administration to is of my own accurate work. I further declare that all the facts and figures furnished in this project report are the outcome of my own intensive research and findings.

Submitted By
C.Aswinkumar

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ACKNOWLEDGEMENT

“Expression of feelings by words makes them less
significant when it comes to make statement of gratitude”
It gives me pleasure to express my most profound regards and sense of great indebtedness and sincere gratitude to my Company Guide Mr. Vivek Vardhan (Head,Equities Anand Rathi Securities Ltd. Hyderabad). I would thank to my project guide Mr. G.K.Srikanth for his guidance in preparing this report.

I would also like to thank my co employees who gave guidance and support during the completion of the project.

Regards
C.Aswinkumar

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TABLE OF CONTENTS
 

ABSTRACT……………………………………………………………………………….5 MAIN TEXT………………………………………………………………………………7 COMPANY PROFILE……………………………………………………………………7 • ABOUT ANARATHI……………………………………………………………..7 • MILESTONES…………………………………………………………………….8 • AR CORE STRENGTHS………………………………………………………..11 • MANAGEMENT TEAM………………………………………………………..11 INTRODUCTION……………………………………………………………………….14 • BEAR…………………………………………………………………………….15 • BULL…………………………………………………………………………….15 • CONTRACT NOTE……………………………………………………………..15 • ARBITRAGE…………………………………………………………………….16 • MAJOR ENTITES INVOLVED IN STOCK MARKET………………………..16 INTRODUCTION TO BSE-SENSEX…………………………………………………..17 • BSE INDICES…………………………………………………………………...18 • TRANSACTIONS ON INDIAN STOCK EXCHANGE………………………..19 • TRADING TYPES………………………………………………………………20

FUNADMAENTAL ANALYSIS OF BSE SENSEX…………………………………...21 • MILESTONES OF BSE-SENSEX………………………………………………21 • ANALYSIS IN THE YEAR 2000……………………………………………….23 • ANALYSIS IN THE YEAR 2002……………………………………………….24 • ANALYISIS IN THE YEAR 2003………………………………………………25 • ANALYSIS IN THE YEAR 2004……………………………………………….26 • ANALYSIS IN THE YEAR 2008……………………………………………….28 • POSITIVES AND NEGITIVE SOF STOCK MARKET………………………..31 INTRODUCTION TO NIFTY FIFTY INDEX…………………………………………32 • MILESTONES OF NIFTY FIFTY INDEX……………………………………..33 • NIFTY TRADING……………………………………………………………….33 FUNDAMENTAL ANALYSIS OF NIFT FIFTY INDEX……………………………35 • ANALYSIS IN THE YEAR 2000……………………………………………..35 • ANALYSIS IN THE YEAR 2002……………………………………………..36

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SUMMER INTERNSHIP PROJECT LIST OF ILLUSTRATIONS…………………………………………………………….19
• • • • • TABLE 1.............................................................................................................................19  TABLE 2……………………………………………………………………………………………………………………….25  TABLE 3……………………………………………………………………………………………………………………….27  GRAPH 1………………………………………………………………………………………………………………………24  GRAPH 2………………………………………………………………………………………………………………………36 

FINDINGS AND CONCLUSION………………………………………………………38 LITERATURE RIVIEW………………………………………………………………..39 (REFERENCES) A LIST OF CONCEPTS REVISITED…………………………………………………..40 REFERENCES………………………………………………………………………….41 ATTACHMENTS………………………………………………………………………44

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ABSTRACT
First part(what has done):
The project basically involves an analysis of financial markets and financial Instruments and measurements of financial risk by various risk analysis factors, by comparing various types of portfolios & measure the Risk & Return. The returns will be considered based on the performance of the financial markets and the past ten financial years returns i.e.., (0104-2000 to 31-03-2010) has taken for the anlysis.The financial markets which has taken into the analysis are, I. II. III. IV. Capital Markets (Bse Sensex,Nifty Fifty) Money Market Instruments Commodity Market (Mainly Gold,Silver,Crude Oil,Copper) Foreign Exchange Market (USD/INR)

Once this was done, and before analyzing the financial performance of the markets,Some theoretical concepts of Finance were revisited. This includes an understanding of the objectives of Financial Management , the Risk and Return Factor, Valuation of bonds , forecasting the financial performance of the markets ,and understanding the various concepts like hedging , futures trading , forward trading etc.., The purpose of this reading was to refresh the concepts learned till now in the MBA curriculum and to apply these concepts in understanding the firm & markets to analyze its operations better.

Second part(what has to be done):
Then , a schedule was prepared for understanding the practices and important features followed in the financial markets , some useful information regarding the managing of the portfolios , the issues happened in the different capital markets for ups and downs in the sensex.This information was obtained through sessions with the employees and through various websites and the news channels etc..,

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SUMMER INTERNSHIP PROJECT A brief analysis of the financial markets in comparison with the analysis of these new instruments such as currency rate futures and interest rate futures which are recently implemented in the market to ascertain the extent the risk can be minimised through these instruments, if it is then whether it is for the long term or medium or short term. In the subsequent stages of the project the relationship between the Gold and the USD,USD and INR to know whether these relationships are affecting the stock market and the analysis of these in the previous years . So that by doing this analysis we can easily find whether the market has to come up with some new financial instruments or not, if it is required then what can be the instruments whether in currency or interest rates. For example, what are all the interest rate futures available in the market whether it is easy to liquidate or not. Since we are not having corporate papers in the markets so these are the instruments which in turn be used in determining optimum Financial Instruments in the market for the better returns. This helps the organisation to suggest which type of financial instruments has to be their, in their portfolios to increase profits of the wealth clients as well as to increase the wealth of the organisation.

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COMPANY PROFILE
Organization History:
Company Profile Milestones AR Core Strengths Management Team

I.   About AnandRathi 
AnandRathi (AR) is a leading full service securities firm providing the entire gamut of financial services. The firm, founded in 1994 by Mr. AnandRathi, today has a pan India presence as well as an international presence through offices in Dubai and Bangkok. AR provides a breadth of financial and advisory services including wealth management, investment banking, corporate advisory, brokerage & distribution of equities, commodities, mutual funds and insurance, structured products - all of which are supported by powerful research teams. The firm's philosophy is entirely client centric, with a clear focus on providing long term value addition to clients, while maintaining the highest standards of excellence, ethics and professionalism. The entire firm activities are divided across distinct client groups: Individuals, Private Clients, Corporate and Institutions and was recently ranked by Asia Money 2006 poll amongst South Asia's top 5 wealth managers for the ultra-rich. In year 2007 Citigroup Venture Capital International joined the group as a financial partner.

Equity & Derivatives Brokerage
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SUMMER INTERNSHIP PROJECT AnandRathi provides end-to-end equity solutions to institutional and individual investors. Consistent delivery of high quality advice on individual stocks, sector trends and investment strategy has established us a competent and reliable research unit across the country. Clients can trade through us online on BSE and NSE for both equities and derivatives. They are supported by dedicated sales & trading teams in our trading desks across the country. Research and investment ideas can be accessed by clients either through their designated dealers, email, web or SMS

II. Milestones:  
1994: Started activities in consulting and Institutional equity sales with staff of 15 1995: Set up a research desk and empanelled with major institutional investors 1997: Introduced investment banking businesses Retail brokerage services launched 1999: Lead managed first IPO and executed first M & A deal 2001: Initiated Wealth Management Services 2002: Retail business expansion recommences with ownership model 2003:

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Wealth Management assets cross Rs1500 crores Insurance broking launched Launch of Wealth Management services in Dubai Retail Branch network exceeds 50 2004: Commodities brokerage and real estate services introduced Wealth Management assets cross Rs3000crores Institutional equities business re-launched and senior research team put in place Retail Branch network expands across 100 locations within India 2005: Real Estate Private Equity Fund Launched Retail Branch network expands across 200 locations within India 2006: AR Middle East, WOS acquires membership of Dubai Gold & Commodity Exchange (DGCX) Ranked amongst South Asia's top 5 wealth managers for the ultra-rich by Asia Money 2006 poll Ranked 6th in FY2006 for All India Broker Performance in equity distribution in the High Net worth Individuals (HNI) Category Ranked 9th in the Retail Category having more than 5% market share Completes its presence in all States across the country with offices at 300+ locations within India 2007:
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Citigroup Venture Capital International picks up 19.9% equity stake Retail customer base crosses 100 thousand Establishes presence in over 350 locations 2008: 2009:

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III. AR Core Strengths:  
Breadth of Services: In line with its client-centric philosophy, the firm offers to its clients the entire spectrum of financial services ranging from brokerage services in equities and commodities, distribution of mutual funds, IPO’s and insurance products, real estate, investment banking, merger and acquisitions, corporate finance and corporate advisory. Clients deal with a relationship manager who leverages and brings together the product specialists from across the firm to create an optimum solution to the client needs.

IV.

Management Team: 

AR brings together a highly professional core management team that comprises of individuals with extensive business as well as industry experience. In-Depth Research: Our research expertise is at the core of the value proposition that we offer to our clients. Research teams across the firm continuously track various markets and products. The aim is however common - to go far deeper than others, to deliver incisive insights and ideas and be accountable for results. The senior Management comprises a diverse talent pool that brings together rich experience from across industry as well as financial services.

Mr. Anand Rathi - Group Chairman Chartered Accountant Past President, BSE Held several Senior Management positions with one of India's largest industrial groups Mr. Pradeep Gupta - Vice Chairman Plus 17 years of experience in Financial Services Mr. Amit Rathi - Managing Director Chartered Accountant & MBA
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Plus 11 years of experience in Financial Services

ACQUISITION:
ANZ Grind lays : $ 1.34 bn from August 2000.

Hong Kong Consumer Bank : $ 1.32 bn Thailand Nakornthan Bank Indonesians Bank Per-Mata Korea First Bank : $ 320 million : $ 366 million from Oct. 2004. : $ 3.3 bn from Apr. 2005.

Standard Chartered PLC is listed on both the London Stock Exchange and the Stock Exchange of Hong Kong and is in the top 25 FTSE-100 companies, by market capitalization.. Offices of ANANDRATHI are in 197 cities across 28 states & it has also branches in Dubai & Bangkok with more than 44000 employees. It has daily turnover in excess of Rs.4bn. It has 1, 00,000+ clients nationwide. It is also leading distributor of IPO’s. In India where ANANDRATHI is present in 21 STATES: Andhra Pradesh Assam Bihar Chhattisgarh Delhi Goa Gujrat Haryana Jammu & Kashmir Jharkhand Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu Uttar Pradesh Uttaranchal

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SUMMER INTERNSHIP PROJECT West Bengal

LIST OF PRODUCTS : Demat Accounts Mutual Funds Derivatives Commodities Bonds Trading Account Insurance

VISION: To be a Shining Example As a Leader in Innovation and the First choice for Clients and Employees.

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INTRODUCTION
The Main objective of the project is mainly based on “ Analysis of Financial markets” is to understand the various markets, and Stock market is mechanism that allows people to buy and sell securities , commodities , and fungible items of value at low transaction costs and at prices that reflects the efficient market hypothesis. Markets work by placing many interested buyers and sellers in one "place", then it will be easier for them to find each other. A market which relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy. Financial markets are their to facilitate, The Raising of capital The transfer of Risk International Trade The capital Market is mainly divided into Primary Market and Secondary market, where the Primary Market is mainly it is where the issuers access the prospective customers/investors directly for funds required by them either for expansion or for meeting the working capital needs. This Process is disintermediation where the funds flow directly from investors to issuers.

Activities of Primary Market :
Appointment of merchant bankers Pricing of securities being issued Communication/ Marketing of the issue Information on credit risk

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SUMMER INTERNSHIP PROJECT Making public issues Collection of money Minimum subscription Listing on the stock exchange(s) Allotment of securities in demat / physical mode Record keeping Secondary Market is where investors buy/sell securities through Stock Exchanges. Trading of securities on stock exchange results in exchange of money and securities between the investors. Secondary market provides liquidity to the securities on the exchange and this activity commences subsequent to the original issue. For example, customer subscribed to the securities of a company, if one wishes to sell the same, it can be done through the secondary market. Similarly one can also buy the securities of a company from the secondary market.

a) Bear:
A stock market operator who expects share prices to fall in the immediate future and keeps selling with the intention to pick up the shares later at a lower price for actual delivery causing selling pressure and lowering the prices further.

b) Bull: 
A stock market operator who expects share prices to rise and keeps buying to sell the shares later at higher price causing buying pressure and increasing the prices further.

c) Contract note: 
Contract Note is a document given by the stockbroker to his clients giving particulars of the securities bought / sold, rate and date of transaction and the broker’s commission. The broker sends the contract note after executing the client’s order as an agreement. The contract note must be carefully preserved. It also serves as an evidence to income tax authorities.

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d) Arbitrage : 
It means buying shares on one stock exchange at a lower rate and selling the same on other stock exchange at a higher price.

Activities in the Secondary market:
Trading of securities Risk management Clearing and settlement of trades Delivery of securities and funds

e) Major Entities Involved in the Stock Market:

SEBI (Securities Exchange Board of India) Stock Exchanges Clearing Corporations Depository Participants Custodians Stock Brokers and Sub brokers Mutual Funds Merchant Bankers Credit rating agencies Financial Institutions Foreign Institutional Investors Non banking Institutions Issuers/registrar and transfer agents Investors

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INTRODUCTION TO BSE SENSEX
The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate etc.., The Prices of shares and the other assets is an important of the dynamics of the economic activity and can influence of social mood, where the stock market is raise is considered to be an upcoming economy. In fact, the stock market is often considered the primary indicator of a country's economic strength and development. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. Therefore, central banks tend to keep an eye on the control and behavior of the stock market and in general, on the smooth operation of financial system functions. Financial stability is the main reason for central banks. Exchanges also act as the clearinghouse for each transaction, it means they collect and deliver the shares, and guarantee payment to the seller of a security, this eliminates the risk to an individual buyer or seller that the counterparty could default on the transaction. The behavior of the stock market may be Rational Irrational Crashes These Share prices of equities is listed on the Stock Exchanges in parallel with the various economic factors, this is the one main reason of stock market crashes and also due to panic and investing public’s loss of confidence also stock market crashes end speculative economic bubbles . For Example , the New york Stock Exchange circuit breakers are like
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TABLE 1:

Percentage Drop 10% drop 10% drop 10% drop 20% drop 20% drop 20% drop 30% drop

Timing of Drop Before 2pm 2pm to 2.30 pm After 2.30.pm Before 1 pm 1pm to 2 pm After 2pm Any time during day

Trading closes One hour halt Half an hour halt Market stays open Halt for two hours Halt for one hour Close for the day Close for the day

New York stock Exchange Circuit Breakers So based on the above example crashing of stock market is mainly based on the Economic Indicators and the Investors mind set etc..,

i.

BSE Indices: 

BSE in 1986 came out with stock index sense that subsequently became the barometer of the Indian Market. All BSE Indices are reviewed periodically by the BSE Index Committee. This Committee which comprises eminent independent finance professionals frames the broad policy guidelines for the development and maintenance of all BSE indices. The BSE Index Cell carries out the day-to-day maintenance of all indices and conducts research on development of new indices. The values of all BSE indices are updated on real time basis during market hours and displayed through the BOLT system, BSE website and news wire agencies. BSE displays the information based on Price Earning Ratio, the prices to Book Value Ratio and the Dividend Yield Percentage on day to day basis of all its major indices. The various indices are,

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BSE 100 INDEX BSE 200 INDEX BSE 500 INDEX BSE IPO INDEX BSE TECK INDEX DOLLEX SERIES OF BSE INDICES BSE PSU INDEX BSE MID-CAP AND SMALL-CAP INDEX SECTORIAL INDICES

ii.
are,

Transactions on Indian Stock Exchanges:

There are two types of transactions that can be carried out in the Indian Stock Exchanges

1. Spot Delivery Transactions 2. Forward Transactions Spot delivery transactions that require delivery and payment within the stipulated time period at the time of entering the contract, this period shall not be more than 14 days following the date of the contract. Forward transactions in which delivery and the payments both can be extended by further period of 14 days each ,the overall period should not 90 days from the days of the contract, these transactions can be permitted in case of specified shares .

iii.

Trading types :

Share Market Trading can be classified into either so these categories, a) Day Trading b) Swing Trading

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SUMMER INTERNSHIP PROJECT c) Position trading Day trading requires the most intense approach to stock market trading, to be on top of the fluctuations in stock prices, day traders spend hours together in monitoring the market. Day traders could make dozens of trades any day, sometimes in a matter of minutes hoping to grab the wave of price change. They avoid the risks of long term buy and hold. Day trading could be exciting, the fast pace attracting risk takers. Yet this strategy for stock market trading is only effective for day traders, who apply analysis rather then emotion to trading decision. Savvy day traders could turn profits quick. Emotional traders usually lose fast and leave disenchanted.

Swing trading uses a slightly longer time horizon than day trading, watching a stock for weeks or months before trading. This type of stock market trading depends on careful monitoring of fundamental and technical analysis. Swing traders has to be specialize in a certain business or industry so that they become experts in the movement within those stocks. They also have more time to study the company financial reports and industry forecasts. Since swing trading does not require hours of daily monitoring, it is a good strategy for the trader who wants to make money from stock market trading without turning it into a full time job. Even the study of reports could be done during the daily commute or lunch hour so that the swing trader should be well informed.

Position trading helps well for investors who want to be involved in the stock market trading, but run short of time. Stocks are being held for months awaiting any changes in the trend. Position traders keep up with the fundamental and technical analysis as well as news events but apply a long term strategy to their stock market trading.

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FUNDAMENTAL ANALYSIS OF BSE SENSEX
The BSE Sensex is value weighted Index composed of over 4000 stocks with the Base April 1979 = 100.It consists of 30 largest and most actively traded stocks, representative of various factors on the BSE . These companies account for around one-fifth of the market capitalization of the BSE. The Base value Sensex is 100 on April 1,1979 , and the base year of BSE-Sensex is 1978-1979 The stock market has grown by over ten times from June 1990 to today. Using information from April 1979 onwards, the long-run rate of return on the BSE Sensex can be estimated to be 0.52% per week (continuously compounded) with a standard deviation of 3.67%. This translates to 27% per annum, which translates to roughly 18% per annum after compensating for inflation.

1. Milestones of BSE Sensex : 
Here is a timeline on the Raise of the Sensex through Indian Stock Market History, 1000, July 25, 1990 - On July 25, 1990, the Sensex touched the four-digit figure for the first time and closed at 1,001 in the wake of a good monsoon and excellent corporate results. 2000, January 15, 1992 - On January 15, 1992, the Sensex crossed the 2,000-mark and closed at 2,020 followed by the liberal economic policy initiatives undertaken by the then finance minister and current Prime Minister Dr Manmohan Singh. 3000, February 29, 1992 - On February 29, 1992, the Sensex surged past the 3000 mark in the wake of the market-friendly Budget announced by Manmohan Singh. 4000, March 30, 1992 - On March 30, 1992, the Sensex crossed the 4,000-mark and closed at 4,091 on the expectations of a liberal export-import policy. It was then that the Harshad Mehta scam hit the markets and Sensex witnessed unabated selling.

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SUMMER INTERNSHIP PROJECT 5000, October 11, 1999 - On October 8, 1999, the Sensex crossed the 5,000-mark as the Bharatiya Janata Party-led coalition won the majority in the 13th Lok Sabha election. 6000, February 11, 2000 - On February 11, 2000, the information technology boom helped the Sensex to cross the 6,000-mark and hit and all time high of 6,006. 7000, June 21, 2005 - On June 20, 2005, the news of the settlement between the Ambani brothers boosted investor sentiments and the scripts of RIL, Reliance Energy, Reliance Capital and IPCL made huge gains. This helped the Sensex crossed 7,000 points for the first time. 8000, September 8, 2005 - On September 8, 2005, the Bombay Stock Exchange's benchmark 30-share index – the Sensex - crossed the 8000 level following brisk buying by foreign and domestic funds in early trading. 9000, December 9, 2005 - The Sensex on November 28, 2005 crossed 9000 to touch 9000.32 points during mid-session at the Bombay Stock Exchange on the back of frantic buying spree by foreign institutional investors and well supported by local operators as well as retail investors. 10,000, February 7, 2006 - The Sensex on February 6, 2006 touched 10,003 points during mid-session. The Sensex finally closed above the 10,000-mark on February 7, 2006. 11,000, March 27, 2006 - The Sensex on March 21, 2006 crossed 11,000 and touched a peak of 11,001 points during mid-session at the Bombay Stock Exchange for the first time. However, it was on March 27, 2006 that the Sensex first closed at over 11,000 points. 12,000, April 20, 2006 - The Sensex on April 20, 2006 crossed 12,000 and touched a peak of 12,004 points during mid-session at the Bombay Stock Exchange for the first time. 13,000, October 30, 2006 - The Sensex on October 30, 2006 crossed 13,000 for the first time. It touched a peak of 13,039.36 and finally closed at 13,024.26. 14000, December 5, 2006 - The Sensex on December 5, 2006 crossed 14,000. 15,000, July 6, 2007 - The Sensex on July 6, 2007 crossed 15,000 mark.

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SUMME INTERNS ER NSHIP PROJE ECT 16,000, Septe ember 19, 2 2007 - The S Sensex on Se eptember 19, 2007 crosse the 16,00 , ed 00 mark. m 17,000, Septe ember 26, 2 2007 - The S Sensex on Se eptember 26, 2007 crosse the 17,00 , ed 00 mark for the first time. m f 18,000, Octo ober 9, 2007 - The Sens on Octob 9, 2007 crossed the 18,000 mar 7 sex ber rk fo the first time. or 19,000, October 15, 2007 - The Sens on Octob 15, 2007 crossed the 19,000 mar 7 sex ber 7 e rk fo the first time. or 20,000, October 29, 2007 - The Sens on Octob 29, 2007 crossed the 20,000 mar 7 sex ber 7 e rk or fo the first time. 21,000, Jan 08, 2008 - The Sensex on January 8, 2008 t x y touched all time peak o of 21078 before closing at 2 20873. On O May 18, 2009, the s sensex surge 2110.79 points from the previou closing o ed m us of 12 2174.42 this leading to the suspensi of trade for the whole day.This event create s ion ed history in Da Street, by being the first ever tim that trade had been s alal y me e suspended fo or an increase in value. This rally is pri n n s imarily due t the victor of the UPA in the 15t to ry th General elect G tions.
18 8000 16 6000 14 4000 12 2000 10 0000 8000 8 6000 6 4000 4 2000 2 0 OPENING PRICE HIGH LOW CLOSING PRICE

GRAP 1 :Trend Analysis of the BSE-SE PH d f ENSEX from the year 2000-2010

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SUMMER INTERNSHIP PROJECT In the Year 2000: The BSE Sensex ended Year 2000 with a loss of 26%. The loss was fueled by the TMT (Technology, Media and Telecom) sector. To underscore the impact on the Sensex it needs to be highlighted that the TMT stocks lost 46% of their market value during the period under study. The petrochemical and energy sectors on the other hand logged an increase in an otherwise falling market. Attractive valuations and improving fundamentals attracted investors to these sectors. The sector leader, Reliance Industries, gained an impressive 34%. Among others, ITC (the tobacco major) and Nestle (a foods company) gained a remarkable 25% and 22% respectively. On the other hand, FMCG giant HLL lost 14% of its market value due to concerns regarding top line growth. In the year 2002: Many investors, one would imagine, are disillusioned by the stock market performance over the past ten years. Stock markets, as acquaintances put it, is where they made their millions. If that is the way it really happened, wave it off as the graciousness of lady luck. Many, in their pursuit to beat the street, have burnt their fingers. TABLE 2: Year Jan-91 Jan92 % Returns 27.6 95.9 Jan93 29.8 Jan94 36.5 Jan95 13.5 -20.5 Jan-96 Jan- Jan97 4.2 98 13.3 -17.2 Jan-99 Jan00 75.6 -26.4 -17.9 Jan-01 Jan-02

Investment 10,000 Profit/Loss 2,762

9,588 2,975 3,647 1,345 (2,045) 424

1,331 (1,717) 7,564 (2,642) (1,792)

Stock market yields from past ten years Incremental Cash flow-21,440 Analysis: Starting 1990, had a participant invested Rs 10,000 in an equity portfolio replicating the index, and kept that amount invested in every succeeding year i.e. booking any profit or loss, he would have earned a compounded return of 10% year to date . Being invested in the market would have yielded positive returns. However, on a comparative basis, for

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SUMMER INTERNSHIP PROJECT lower risk, an investor could have earned as much if not more by investing in fixed income avenues. Interest rates have been declining only in the past couple of years. Over a ten year period -- the previous decade -- a similar strategy would have yielded a Compounded Return of 13.6%.

If an investor did not book his profit or loss and exited at the start of 2000 the Compounded returns earned would be 21.2%. But if he held on till start of the current year the returns would have dwindled to 12.6% annually. Considering a similar investment pattern over the preceding ten years (from 1992 onwards), the annual returns fall to an even lower 5.3%. It does look like the markets have completed a cycle and investors are back at the start line. But if one adopted a more disciplined methodology, not wanting to time the market, the strategy offers a systematic plan.

In the Year 2003: While investors who believed in fundamentals were hardly questioning the fact that the stock markets were poised for a upward correction the same time last year, it is for sure that the extent of the rally has caught many by surprise. Just to put things in perspective, the Sensex has gained 67% in the last one year (till December 24, 2003). During the same time last year, stock market was mired by the Iraq crisis, which had infused significant uncertainty in the minds of investors. This lasted till a large part of Fourth quarter financial year and as a result, overall sentiment was that of caution even though select stocks from power, engineering, banking and auto sectors gaining ground. While Iraq concern was easing, Infosys announced its Fourth quarter financial year 03 performance and its guidance for FY04. While Infosys expected revenues to grow 24%, EPS guidance was lower at 12% for FY04, which came as a shock for the stock market. On the same day, the market corrected down by 3% with Infosys falling by more than 20%. Key macro factors that typically lead to a upward correction like favorable interest rates, manageable inflation, promising long-term growth prospects and improving margins were all in place in April 2003, Starting late May, initial reports on monsoon started to flow in. The Indian Meteorological Department also announced that monsoons were

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SUMMER INTERNSHIP PROJECT likely to be normal and well distributed, and this acted as a fillip for the stock markets. Most of the economic research organizations like CMIE (Centre for Monitoring Indian Economy) revised GDP growth estimates upwards, the RBI topping with expectations of 6.5% to 7% GDP growth in the mid-term monetary policy.

In the Year 2004 : In this year the effects that politics have on the stock market is measured, the post labialization phase has considered to analyze the stock market , we have considered the years 1991, 1996, 1998, 1999 .., TABLE 3: Years January December Change (%) GDP (%) 1991 1996 1998 1999 982 3,049 3,720 3,060 1,909 3,085 2,963 5,006 94.4 1.2 -20.3 63.6 5.6 7.3 4.8 6.6 Growth

Stock market performance in the month of January and December From the table below, we notice that for two of the years i.e. 1991 and 1999, the stocks markets rallied. Of course, liberalization in early 1990s and tech mania in early 1999 were also reasons for robust stock markets. The performance in the other two years has been rather dismal. Interestingly 1991 and 1999 were the two years in which the population voted in a government , which had a clear majority to rule the country for the next five years. The investor may be tempted to conclude that during years when the population voted for stable governments at the Centre, the stock markets rallied. A stable government is not the beginning and the end of it. Inspite strong economic growth in the last few years of the Congress tenure between 1995-96, the party was voted out of power in 1996. For the next two years, the country was plagued by political uncertainty and the economic condition was also mixed. While the real GDP growth in FY97 was over 8%, one of the highest ever in the history of the country, it fell to 4.3% in the succeeding year.

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SUMMER INTERNSHIP PROJECT Upto certain extent, be observed that political uncertainty has a bigger impact on the stock markets than the performance of the economy. This is because, for any economy to grow and prosper, it needs to implement policies and reform measures that may bring fruit only over the long term. So, while the stock market participants may factor in the benefits of a stable government very early, it will take some time to reflect on broader economic parameters like per capita income, interest rates, inflation and so on. In 1991, when the economy was liberalized, it was more so out of compulsion than out of choice. In the Indian context, while the economic liberalization was gradual, results started to show in the latter years of the Congress rule of 1991-96. The stock markets rewarded this performance in the period between 1991 and 1996 by way of a huge 210% rise in the Sensex levels. This directly corroborates the argument that a stable government at the Centre is of significance for the stock markets. Without taking political sides, we observe similar performance in the stock market in the period since 1999 and now. Even if one were to discount the 2000 stock market rally, which may have been an anomaly, on a point-to-point basis (1999-04), the Sensex has gained 94%.As is evident, during period of a stable government rule early 1990s and in the last five years, more number of steps seems to have been taken as far as economic policies are concerned. All these reforms carried out over the period of the last 14 years have managed to make India Inc. more competitive in the global scenario. The investing community, recognizing this improvement and potential of Indian companies, has shown its confidence in the stock market. In the year 2008: 2008 was a mixed year for most of us, but also like to remember it for the hard lessons it taught us. • Fall of financial Berlin Wall: 15th September 2008 was the day Lehman Brothers filed for bankruptcy. An era ended on Wall Street. This 158-year old institution, which had earlier survived the two world wars and the Great Depression, was finally liquidated on this day. None of the other financial firms was willing to acquire Lehman considering the magnitude of its potential losses. • Global recession :

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SUMMER INTERNSHIP PROJECT The realization that economies, especially those in the developed world are in a stage of stagnation and decline finally set in during 2008. The National Bureau of Economic Research (NBER) confirmed the ‘recession’, twelve months after it actually began in the US. This late realization was in spite of the increasing unemployment rates, lower consumer spending and the slowdown in real estate and auto industries. • Lot of bubbles burst : There have been bull runs aplenty in the past. But never have they been as coordinated as the one that has preceded the current bear market. Coordinated because virtually every asset class, right from stocks and commodities, to real estate went up in perfect synchronization. And investors made merry while the fun lasted., leaving them with no place to hide. Almost a year into the carnage, most stocks and commodities are now trading at their multi year lows, with the very same people who did not hesitate to invest in crude at US$ 147, shying away from the commodity at US$ 40 a barrel. While US$ 147 may prove to be an extreme in hindsight, few years from now, US$ 40 might also prove to be the same. • Myth of a Decoupled India broken : While the Indian economy is domestically driven and as a result rather insulated from the world, Indian financial markets have very strong global linkages. This is the age of electronic capital flows. And it glides across the world with great ease. If foreign money drove the Sensex to the heydays of 21,000, its flight out of India also plugged the rug under its (Sensex) feet. No one will speak of the decoupling of financial markets for a long time to come. • Inflation goes for a toss : Wholesale Price Index (WPI) which is the metric on which inflation is commonly measured in India trooped dangerously close to its decade highs. The final months of 2008 although offering some notional relief on the inflation number, failed to kick the consumption demand. The onset of 2009 is expected to do most of that. • Bailouts flying thick and fast, liquidity crunch, real estate crash :

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SUMMER INTERNSHIP PROJECT While the subprime crisis reared its ugly head in 2007, the crisis escalated in 2008 and the demise of Lehman Brothers only aggravated the situation further. Governments all over the world went on an overdrive to announce bailout packages to ensure that the financial community and economies did not collapse under the strain of the crisis. With the era of investment banking coming to an end, liquidity suddenly dried up as banks (also hit hard in this crisis) became vary of lending to one another. • From irrationality to sheer panic : At the start of the year, speculation was the name of the game .The financial crisis translated to a significant amount of panic seeping into sentiments. This led to steady sell-off at the bourses throughout the year by both domestic and overseas investors. The global crisis put the Indian stocks under the heat as overseas investors pulled out nearly US$ 13 bn during the year. This is the highest amount of net outflow in 15 years. Also, this is the first time in 11 years that there has been a net outflow of FII money from India. FIIs invested nearly US$ 17 bn in the markets during 2008. • Rupee appreciates, depreciates, then appreciates, and then depreciates again: The rupee’s movement in the past two years was highly volatile keeping those relying heavily on exports and imports on their toes. The sharp appreciation of the rupee against the US dollar in 2007 had adversely restricted the revenue of companies in sectors like software, textiles and pharmaceuticals as these largely depend upon exports for business. However, given that India imports nearly 70% of the oil that it consumes, oil companies benefited to some extent from the rise in the rupee although crude prices remained firm. The situation reversed completely in 2008. The intensity of the financial crisis led many to question the safety of emerging nations including India, thereby driving down the value of the rupee. While this was expected to be a major boon for the software and pharma sectors, it ended up being only a consolation prize. With the global economy slowing down, software sector had more serious issues to deal with. For pharma, the rupee depreciation only aggravated forex losses as many companies had foreign debt on their books which were marked-to-market. For oil companies, it was a double

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SUMMER INTERNSHIP PROJECT whammy till the middle of the year at least, as oil prices escalated to a record high and the rupee deteriorated sharply. • Investors dealt with dirty lies : In India, while investors did not have to contend with losses of such magnitude, there was awe and fear with which promoters treated minority shareholders. While minority shareholders were dealt a poor hand by Reliance Infrastructure and Sterlite, it was Satyam Computers that took the cake. The last few days of the year saw a spate of asatya (lie) fall out of the baggage of Satyam, India’s fourth largest software services company and the most prominent in corporate governance malpractices. After a failed “funds transfer to promoters” scheme, the promoters have tried hands at damage control without much success. • FCCBs… not convertible anymore : When markets were in their boom phase, FCCBs (foreign currency convertible bonds), the new financial instrument, were the easiest way for cash strapped companies to raise capital. It offered companies the advantage of almost nil interest rates and equity dilution that was a comfortable 3-4 years away. In fact, companies never thought of FCCBs as debt, always thinking of it as an equity infusion, which was not to require any cash outlay. suddenly, the holders of FCCBs who are strapped for cash themselves do not want any conversion to equity. Instead, they are looking at calling back their debt instead. For companies that are already substantially leveraged, this would mean a huge cash outflow. And there aren’t enough avenues to replace the current one. If they go for equity financing, it would mean huge dilution for promoters at current depressed prices and if they go for debt financing, it may well prove very costly at current interest rates.

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SUMMER INTERNSHIP PROJECT Positives About Stock market :

It assists the economic development by providing a body of interesting investors. It uploads the position of superior enterprises assist them in raising further funds It encourages capital formation. Government can undertake projects of national importance and social value raising funds through the sale of its on stock exchange. It is the stock exchanges that central bank of a country can control credit by undertaking open market operations.

Negatives of a Stock Market :

Many beginners underestimate the difficulty of trading and overestimate their ability as a beginner, also they have a lot of expectations. Therefore, most of them lose money and infect some degree of psychological damage upon themselves. Traders can't achieve to their expectations, a conflict created between their beliefs about how things should be and the actual conditions that don't match their beliefs. This conflict causes stress, fear, anxiety, confusion and so on. Money must often be left untouched long-term. May be minimum deposit requirements May be high charges which reduce earnings from investment returns Risk of losing your money No guarantee of returns very steep learning curve in the beginning. It is not that easy to control your emotion. you can end up broker if you do things wrong.

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Introduction To Nifty Fifty Index
Capital market reforms in India and the launch of the Securities and Exchange Board of India accelerated the incorporation of the second Indian stock exchange called the National Stock Exchange in 1992. After a few years of operations, the NSE has become the largest stock exchange in India. Three segments of the NSE trading platform were established one after another. The Wholesale Debt Market commenced operations in June 1994 and the Capital Market segment was opened at the end of 1994. Finally, the Futures and Options segment began operating in 2000. Today the NSE takes the 14th position in the top 40 futures exchanges in the world.

In 1996, the National Stock Exchange of India launched Standard& Poor CRISIL NSE INDEX Nifty and CNX Junior Indices that make up 100 most liquid stocks in India. CNX Nifty is a diversified index of 50 stocks from 25 different economy sectors. The Indices are owned and managed by India Index Services and Products Ltd that has a consulting and licensing agreement with Standard & Poor's. In 1998, the National Stock Exchange of India launched its web-site and was the first exchange in India that started trading stock on the Internet in 2000. The NSE has also proved its leadership in the Indian financial market by gaining many awards such as 'Best IT Usage Award' by Computer Society in India in 1996 and 1997 and CHIP Web Award by CHIP magazine 1999. NSE S&P CNX Nifty 50 is the prime stock index in India. The NIFTY index is made of top 50 listed companies in the national stock exchange. These companies are selected on the basis of market capitalization and the 50 stocks that have made the NIFTY account for about 58.64% of the total market capitalization. In fact these stocks are the most actively traded stocks in the national stock exchange and NIFTY stocks make about 50% of the total trading volume in NSE. The companies that are listed in the NIFTY index are selected from 21 different sectors and they represent the leading companies in the country. Therefore, NIFTY is a profitable investment proposition for any investor who is

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SUMMER INTERNSHIP PROJECT looking forward to invest in the index. In fact the growth of the NIFTY index in the recent years have attracted retail investors, institutional investors and foreign investors to invest in the NIFTY either directly or through the index funds. MILESTONES OF NIFTY INDEX: April 1993: Recognition of a Stock Exchange November 1994: Capital Market Equities Segment goes live October 1995: Become largest stock exchange in the country April 1996: Launch of S&P CNX Nifty June 2000: Commencement of Derivatives Trading June 2001: Commencement of trading in Index Options July 2001: Commencement of trading in options on Individual Securities November 2001: Commencement of trading in futures on Individual securities August 2003: Launch of futures & options in CNXIT Index June 2005: Launch of futures & options in BANK Nifty Index December 2006: Derivative Exchange of the year by Asia risk Magazine March 2007: NSE, CRISIL announce of IndiaBondWatch.com How to enter in nifty and make good profit out of Nifty trading? There are primarily two ways to invest in the NIFTY – one is the derivative trading on the index and other is the index funds that are operated by the mutual fund companies. Derivative trading is a unique financial product that is based on the underlying instrument that may be a stock or index. In national stock exchange derivative trading was first introduced in the year 2000. For trading in the NIFTY index directly we have to derivative instruments – Nifty Future and Nifty Option. In both the cases the value of the derivative is determined by the position of the index. The Future and the Option are basically a contract between the buyer and the seller. Like any other derivative trading the NIFTY is also traded in a lot. A Future contract is an agreement between the buyer and the seller for buying or selling a lot of NIFTY on a future date. For buying a Nifty Future we have to pay the margin amount of about 15% of the total price of the lot. But this margin amount most likely changes every day depending on the variation of the price in the market that is called the

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SUMMER INTERNSHIP PROJECT mark to market. When traders will gain on the Future contract according to this settled price you will earn the difference and if the index goes down you can wait till the settlement date. But whatever is the price of the lot on the date of settlement we have to close the deal on that very day irrespective of the profit or loss. In an option contract the contract is between the buyer and the seller for buying or selling one more lots of Nifty on a future date and at a specific price. The buyer of the option pays a premium for owning the option contract and this premium depends on the current position of Nifty and the specific option that the buyer is buying. Though the buyer of the option contract is not liable to honor the option contract the seller of course is obliged to honor the contract if the buyer is exercising the contract. These are the two most popular ways to do derivative trading on the NIFTY index. One of the leading indices in the Indian stock market, the Nifty is preferred by so many investors from all round the globe along with domestic investors. But if trader a beginner in stock market investment then the derivative trading mechanics might seem to you bit difficult, as little difference in the index has great influence on the Future and Option contracts, it is also too risky to invest in the derivative trading, especially who have little fund and do not want to take chances. For them the most viable solution for entering Nifty is the index funds. These are basically mutual funds that invest in the indices and there are so many profit making Nifty funds that are worth to invest. Why Trade NSE Nifty 50 & CNX IT Stock Index Futures? It is difficult for most investors to select and invest only in the top performing stocks, investing in products that track stock indices, which provide exposure to the whole market rather a few individual stocks has become increasing popular. The advantage of indexing is available in mutual funds and exchange-traded funds. A trader should consider stock index futures instead for two main reasons: • • Flexibility Leverage.

So this helps the investors to gain maximum returns in their portfolio ,and it will be very easy to trade CNX IT Stock Index Futures.

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SUMME INTERNS ER NSHIP PROJE ECT

Fundam F mental Analys of Nifty Fif Inde sis fty ex
60 000 50 000 40 000 30 000 20 000 10 000 0 OPENING PRICE HIGH PRICE LOW P PRICE CLOSE EPRICE

Grap 2: Trend analysis of n ph a nifty fifty Stoc Index for the year200 ck 00-2010 In Th year 2000 he 0-2002: While in the past three-four quarters, co ompanies ha improved profitabili with som ave d ity me belt-t tightening; th strategy did not pay off this quar his rter, though it may have helped avoi id furthe strain. Th rise in ex er he xpenditure s surpassed tha of sales. Operating e at expenses ros se 1.02 p cent aga per ainst sales growth of just 0.44 per cen t nt. Operating profits fell 3.10 pe cent and o s er operating pro margins 13.57 per ce compare ofit ent ed t esponding pr revious quar rter. Despite a moderate 4.44 per cen nt to 14.07 per cent in the corre n ome', the PB BDIT margin fell by 1.65 per cent. T n 5 Though cost-cutting coul ld rise in `other inco add t the botto line only to a certa extent, the continuo focus o improvin to om y ain ous on ng effici iency should pay off in t long run. This also su d the . uggests that only a genu growth i uine in top l line would improve f future prosp pects and t the earnings performan s nce of thes se comp panies. Intere costs de est eclined 5.08 per cent in the Decem n mber 2001 quarter com mpared to th he previ ious quarter, thanks to th two perce he entage point cut in intere rates. Bu this did no est ut, ot provi the much ide h-needed pu to the bo ush ottom line. Though a fu urther 50-10 percentag 00 ge point cut can be expected in the near f t n future, this m might not have much im mpact on th he

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SUMMER INTERNSHIP PROJECT profitability of these companies as suggested by the numbers in the December 2001 quarter. Taxes and extraordinary income: The significant rise in taxes and provisions was due to the deferred taxation requirement introduced this year. A 12.67 per cent rise in tax liabilities led to a one percentage point rise in the effective taxation rate to 38.69 per cent. Even the substantial increase in extraordinary income did not provide the required impetus to the bottom line. Sectorial performance and outlook: FMCG companies suffered continued pressure on top line due to lower rural demand. Companies such as HLL reported modest top- and bottom-line growth. As for technology stocks, lower growth rates continued. The growth for most companies was modest compared to the last two years. NIIT suffered the most as its education business declined sharply. Cement companies, however, performed better in comparison, thanks to the pick-up in volumes and prices. Two-wheeler makers such as Bajaj Auto and Hero Honda, however, were upbeat on the back of rising volumes. Two-wheelers witnessed good demand growth the past few months and this is likely to be sustained in the near future. As for other sectors, one can only wait and watch if the demand picks up in the near future. Though the farm sector has just started showing some signs of a pick-up, it could take a while for the manufacturing sector to get going. Till then, sluggish topline growth would continue to cast a shadow on profitability.

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FINDINGS AND CONCLUSION
Findings:
Impact of politics on Stock Markets Impact of commodity market in the stock market Impact of economic conditions on the stock market Reasons why the stock market impact on the other countries How to hedge the stock index futures? How to trade in intra day markets? What are risk factors has to consider while trading in stock market? Falling of stock market at the time of panic conditions Analysis for the bearish market Analysis for the bullish market

Conclusion:
Investors at this stage need to realize that a stable political situation at the Centre is always beneficial for the investor. Since economic conditions touches each of our lives in one way or the other, it becomes important that the investment decision has to be depends on to whom should be voted in to power., one needs to exercise higher weightage to the overall direction of a economic conditions and the people who are likely to make decisions on behalf of clients or on behalf of them selves has to take carefully.

“Prevention is better than cure Pre-emption is better than Redemption Proactive planning is better than Reactive address”
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Literature review

S.NO. 1 2 3 4 5 6 7 8 9

Research paper Title
Capital markets Impact of FIIS on Sensex Introduction to financial markets Corporate finance Technical analysis of financial markets Sensex the year 2000 Capital markets How the stock market works? Capital markets

Author
John.j.murphy

Objectives

Learning’s
Analysis of financial markets Analysis of financial markets Analysis of financial markets Analysis of financial markets

Fundamental analysis Ravi kumar Fundamental analysis Alen anderson Fundamental analysis katharinalawellen Fundamental analysis John murphy Technical analysis

National stock exchange Fundamental analysis Fundamental analysis

Bombay stock exchange

Analysis of financial markets Analysis of financial markets Analysis of financial markets Analysis of financial markets

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A LIST OF THEORITICAL CONCEPTS REVISITED
1. An overview of financial markets 2. Risk and Return : Basics 3. Stocks and their valuation 4. Investment banking :Basics 5. Forecasting of stock values and demand 6. Cash management 7. Business cycles 8. Basics of Share Market 9. Features of Index 10. Trading types 11. Sensex Index 12. Volataility of the market 13. Technical analysis of Market indices :Basics

Note: These were some of the theoretical concepts that were studied till date. The purpose of this reading is to refresh the concepts learnt till now in the MBA curriculum and to apply these concepts in understanding the firm and to analyze its operations better .
 

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REFERENCES
1. http://www.rathionline.com/ (Accessed in April 12th) 2. http://www.equitymaster.com (Accesses in April 13th) 3. http://www.investopedia.com 4. http://www.bseindia.com 5. http://www.icharts.com 6. http://www.stockta.com 7. http://www.myiris.com 8. http://www.indiastockmarket.com 9. http://www.bullishindian.com/ 10. http://www.marketguru.com/ 11. http://www.stockpickr.com/ 12. http://www.bseindia.com

 
Note: Harvard Style Referencing has been used

 

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