A COMPARATIVE STUDY BETWEEN BSE AND NSE STOCK.

A project submitted to
University of Mumbai for partial completion of the degree of

Bachelor of Commerce (Accounting and Finance)

Under the faculty of Commerce

By

KUNAL ARJUN JADHAV ROLL NO : - 28

Under the Guidance of

ASST. PROF. SANGJUKTA HALDER

SHREE LR TIWARI DEGREE COLLEGE. OF ARTS, COMMERCE & SCIENCE

Shree L.R. Tiwari educational campus, Kanakia Park,
Mira road, Thane, Maharashtra - 401107

March, 2022

i
 SHREE LR TIWARI DEGREE COLLEGE OF ARTS, COMMERCE &
SCIENCE
Shree L.R. Tiwari educational campus, Kanakia Park,
Mira road, Thane, Maharashtra - 401107

Certificate

This is to certify that Mr. KUNAL ARJUN JADHAV has worked and duly completed his
Project Work for the degree of Bachelor's in Commerce (Accounting and Finance) under the
Faculty of Commerce in the subject of ACCOUNTING AND FINANCE and his project is
entitled, “A COMPARATIVE STUDY BETWEEN BSE AND NSE STOCK” under my
supervision.

I further certify that the entire work has been done by the learner under my guidance and that
no part of it has been submitted previously for any Degree or Diploma of the any University.

It is his own work and facts reported by his personal findings and investigations.

Seal of
the
College

Name and signature of

Guiding teacher

Date of Submission:

ii
 Declaration by learner

I the undersigned Mr. KUNAL ARJUN JADHAV here by, declare that the work embodied
in this project work titled “A COMPARATIVE STUDY BETWEEN BSE AND NSE
STOCK ”, forms my own contribution to the research work carried out under the guidance
of Asst. Prof. SANGJUKTA HALDER is result of my own research work and has not
been previously submitted to any other University for any other Degree/Diploma to this or
any other University.

Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.

I here by further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.

KUNAL ARJUN JADHAV

Name and signature of the learner

Certified by

SANGJUKTA HALDER Name and signature of the Guiding teacher

Acknowledgment

iii
It is my pleasure to thank all the people who have helped me directly or indirectly in
completion of this project work. I take this humble opportunity to express my gratitude to all
of them.

I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to do this
project.

I would like to thank my Principal, Dr. Sanjay Mishra for providing the necessary
facilities required for completion of this project. I take this opportunity to thank our
Coordinator Asst. Prof. for his moral support the guidance.

I would also like to express my sincere gratitude towards my Project Guide Asst. Prof.
Sangjukta Halder whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference books and
magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped me in
the completion of the project especially my Parents and Peers who supported me
throughout my project.

Sr. No. Index Page

No.

Chapter Introduction on BSE And NSE Stock 01 - 25

1

1.1 What is Stock Exchange? 01

1.2 The BSE and NSE 02

1.2.1 History of National Stock Exchange 02-08
1.2.2 History of Bombay Stock Exchange 08- 09

iv
 1.3 Transformation of the Indian Stock Market 09-10
1.3.1 Methods of Trading in Stock Exchange 10-14
1.3.2 Current Settlement Procedure of Trading 14-16
1.3.3 Speculative Trading Transactions 17

1.4 Demutualization of Stock Exchanges 17- 19

1.5 Regulatory Framework of Indian Stock Market 19-20

1.5.1 Companies Act, 1956 20
1.5.2 The Capital Issues (Control) Act, 1947 20-21
1.5.3 The Securities Contract (Regulation) Act, 1956 21- 22

1.6 Advantages and Disadvantages of Online Trading: 23

1.6.1 Advantages of Online Trading 23-24
1.6.2 Disadvantages of Online Trading 24- 25

Chapter Research Methodology 26-44

2

2.1 Objectives of Stock Market 26- 27

2.2 Functions of Stock Market 27- 28

2.3 Characteristics of Stock Market 29

2.4 Reserve Bank of India (RBI) 29-30

2.4.1 Functions of RBI 31

2.5 Stock Exchange Board of India (SEBI) 32

2.5.1 Constitution and Organization 32-34
2.5.2 Objective and Regulatory Approach of SEBI 34-35
2.5.3 Powers, Scope, and Functions of SEBI 35- 36

v
 2.6 SEBI Guidelines for Primary Market and Secondary 37-38
Market

2.7 Recent Developments in Indian Stock Market 38- 44

Chapter Review of Literature 45-59

3

Chapter Data Analysis 60-82

4

4.1 Year Effect of Stock Market 60

4.1.1 Year Effect of NSE 60-63
4.1.2 Year Effect of BSE 63- 66

4.2 Market Capitalization of Stock Markets (2000-2020) 66-67

4.2.1 Market Capitalization of NSE (Nifty) 68-71
4.2.2 Benefits of Investing in NIFTY50 Index 72
4.2.3 Market Capitalization of BSE (SENSEX) 72-74
4.2.4 Benefits of Investing in BSE (SENSEX) 75

4.3 Risk and Returns of Indian Stock Market (2000- 75-76

2020)
4.3.1 Risk and Returns of NSE 76-79
4.3.2 Risk and Returns of BSE 79- 82

Chapter Conclusion, Findings and Suggestions 83-91

5

Bibliography 92

vi
 Chapter 1: Introduction on BSE and NSE Stock

Abstract:- As a part of MBA circular and in order to gain in-depth knowledge in field of Finance, it was
essential to make a report on Comprehensive Project “A COMPARATIVE STUDY on BSE and NSE”. The
basic objectives of preparing the report is to get knowledge about various tools of financial management.
The importance of any academic courses would gain advantage and the acceptance of the true form, only
through practical experiences. Hence it is quite necessary put theories as into task. This is made possible
with the summer training at any of the companies under the expert guidance of a competent person

Introduction:- Mark Twain once divided the world into two kinds of people: those who have seen the
famous Indian monument, the Taj Mahal, and those who haven't. The same could be said about investors.

There are two kinds of investors: those who know about the investment opportunities in India and those who
don't. Although India's exchanges equate to less than 3% of the total global market capitalization as of 2020,
upon closer inspection, you will find the same things you would expect from any promising market.

If you’re looking to become an investor, you may be aware of stock markets, and stock exchanges, however,
you may want to know what are NSE and BSE? To understand that let first understand a Stock, a stock or a
share, can be considered as one part of the total parts of a company - so if you own some stocks of a
company, you’re a part owner. A share, therefore, has some value, and so a company raises money by
issuing shares to the public. The NSE or National Stock Exchange is the leading stock exchange of India. It
is the fourth largest in the world (based on equity trading volume). Based in Mumbai and established in
1992, it was the first stock exchange in India to offer a screen-based system for trading. The NSE was
initially set up with an aim to usher in transparency to the Indian market system, and it has ended up
delivering on its aim quite well. With the help of the government, the NSE successfully offers services such
as trading, clearing as well as the settlement in debt and equities comprising domestic and international
investors. The BSE or the Bombay Stock Exchange is a lot older than its cousin. It was Asia’s first stock
exchange. With a trading speed of 6 microseconds, the BSE is the fastest stock exchange in the world.

1.1 What is Stock Exchange?

The stock exchange or market is a place where stocks, shares and other long-term commitments or
investment are bought and sold. The economic significance of a stock market results from the increased
marketability resulting from a stock exchange share quotation. The stock exchange is an essential institution

1
for the existence of the capitalist system of the economy and for the smooth functioning of the corporate
form of organisation.

The Securities Contracts (Regulation) Act of 1-956 defines, a stock exchange as “an association,
organisation or body of individuals, whether incorporated or not, established for the purpose of assisting,
regulating and controlling, business in buying, selling and dealing in securities.”

Stock Exchanges are noted as “an essential concomitant of the Capitalistic System of economy. It is
indispensable for the proper functioning of corporate enterprise. It brings together large amounts of capital
necessary for the economic progress of a country. It is a citadel of capital and pivot of money market. It
provides necessary mobility to capital and indirect the flow of capital into profitable and successful
enterprises. It is the barometer of general economic progress in a country and exerts a powerful and
significant influence as a depressant or stimulant of business activity.”

A stock exchange, share market or bourse is a corporation or mutual organization which provides "trading
facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide
facilities for the issue and redemption of securities as well as other financial instruments and capital events
including the payment of income and dividends. The securities traded on a stock exchange include: shares
issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a
security on a certain stock exchange, it has to be listed there. Usually there is a central location a least for
recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic
networks, which gives them advantages of speed and cost of transactions, Trade on an exchange is by
members. only. The initial offering of stocks and bonds to investors is by definition done in the primary
market and subsequent trading is done in the secondary market. A stock exchange is often the most
important component of a stock market. Supply and demand in stock markets are driven by various factors
which, as in all free markets, affect the price of stocks (see stock valuation). There is usually no compulsion
issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such
trading is said to be off exchange or overthe-counter This is the usual way that bonds are traded.
Increasingly, stock exchanges are part of a global market for securities.

A stock exchange is simply a market that is designed for the sale and purchase of securities of corporations
and municipalities. A stock exchange sells and buys stocks, shares, and other such securities. In addition, the
stock exchange sometimes buys and sells certificates representing commodities of trade.

1.2 The BSE and NSE

Most of the trading in the Indian stock market takes place on its two stock exchanges: the Bombay Stock
Exchange (BSE) and the National Stock Exchange (NSE). The BSE has been in existence since 1875.3 The
2
NSE, on the other hand, was founded in 1992 and started trading in 1994.4 However, both exchanges follow
the same trading mechanism, trading hours, and settlement process.

As of November 2021, the BSE had 5,565 listed firms,5 whereas the rival NSE had 1,920 as of Mar. 31,
2021.Almost all the significant firms of India are listed on both the exchanges. The BSE is the older stock
market but the NSE is the largest stock market, in terms of volume. Both exchanges compete for the order
flow that leads to reduced costs, market efficiency, and innovation. The presence of arbitrageurs keeps the
prices on the two stock exchanges within a very tight range.

1.2.1 History of National Stock Exchange:

The first organised stock exchange in India was started in 1875 at Bombay and it is stated to be the oldest in
Asia. In 1894 the Ahmedabad Stock Exchange was started to facilitate dealings in the shares of textile mills
there. The Calcutta stock exchange was started in 1908 to provide a market for shares of plantations and jute
mills.

Then the madras stock exchange was started in 1920. At present there are 24 stock exchanges in the country,
21 of them being regional ones with allotted areas. Two others set up in the reform era, viz., the National
Stock
Exchange (NSE) and Over the Counter Exchange of India (OICEI), have mandate to have nation-wise
trading.

They are located at Ahmedabad, Vadodara, Bangalore, Bhubaneswar, Mumbai, Kolkata, Kochi, Coimbatore,
Delhi, Guwahati, Hyderabad, Indore, Jaipur’ Kanpur, Ludhiana, Chennai Mangalore, Meerut, Patna, Pune,
Rajkot.

The Stock Exchanges are being administered by their governing boards and executive chiefs. Policies
relating to their regulation and control are laid down by the Ministry of Finance. Government also
Constituted Securities and Exchange Board of India (SEBI) in April 1988 for orderly development and
regulation of securities industry and stock exchanges. National Stock Exchange of India Limited (NSE) is
the leading stock exchange of India, located in Mumbai, Maharashtra. It is world’s largest derivatives
exchange in 2021 by number of contracts traded based on the statistics maintained by Futures Industry
Association (FIA), a derivatives trade body. NSE is ranked 4th in the world in cash equities by number of
trades as per the statistics maintained by the World Federation of Exchanges (WFE) for the calendar year
2021. It is under the ownership of some leading financial institutions, banks, and insurance companies. NSE
was established in 1992 as the first dematerialized electronic exchange in the country. NSE was the first
exchange in the country to provide a modern, fully automated screen-based electronic trading system that

3
offered easy trading facilities to investors spread across the length and breadth of the country. Vikram
Limaye is the Managing Director and Chief Executive Officer of NSE. National Stock Exchange has a total
market capitalization of more than US$3.4 trillion, making it the world's 10th-largest stock exchange as of
August 2021. NSE's flagship index, the NIFTY 50, a 50 stock index is used extensively by investors in India
and around the world as a barometer of the Indian capital market. The NIFTY 50 index was launched in
1996 by NSE. However, Vaidyanathan (2016) estimates that only about 4% of the Indian economy / GDP is
actually derived from the stock exchanges in India.

Unlike countries like the United States where nearly 70% of the country's GDP is derived from large
companies in the corporate sector, the corporate sector in India accounts for only 12-14% of the national
GDP (as of October 2016). Of these only 7,400 companies are listed of which only 4000 trade on the stock
exchanges at BSE and NSE. Hence the stocks trading at the BSE and NSE account for only around 4% of the
Indian economy, which derives most of its income-related activity from the so-called unorganized sector and
household spending.

Economic Times estimates that as of April 2018, 6 crore (60 million) retail investors had invested their
savings in stocks in India, either through direct purchases of equities or through mutual funds. Earlier, the
Bimal Jalan Committee report estimated that barely 1.3% of India's population invested in the stock market,
as compared to 27% in the United States and 10% in China.

National Stock Exchange was incorporated in the year 1992 to bring about transparency in the Indian equity
markets. Instead of trading memberships being confined to a group of brokers, NSE ensured that anyone
who was qualified, experienced, and met the minimum financial requirements was allowed to trade. In this
context, NSE was ahead of its time when it separated ownership and management of the exchange under
SEBI's supervision. Stock price information that could earlier be accessed only by a handful of people could
now be seen by a client in a remote location with the same ease. The paper-based settlement was replaced by
electronic depository-based accounts and settlement of trades was always done on time. One of the most
critical changes involved a robust risk management system that was set in place, to ensure that settlement
guarantees would protect investors against broker defaults.

NSE was set up by a group of leading Indian financial institutions at the behest of the Government of India
to bring transparency to the Indian capital market. Based on the recommendations laid out by the Pherwani
committee, NSE was established with a diversified shareholding comprising domestic and global investors.
The key domestic investors include Life Insurance Corporation, State Bank of India, IFCI Limited, IDFC
Limited and Stock Holding Corporation of India Limited. Key global investors include Gagil FDI Limited,
GS Strategic Investments Limited, SAIF II SE Investments Mauritius Limited, Aranda Investments
(Mauritius) Pte Limited, and PI Opportunities Fund I.

4
The exchange was incorporated in 1992 as a tax-paying company and was recognized as a stock exchange in
1993 under the Securities Contracts (Regulation) Act, 1956, when P. V. Narasimha Rao was the Prime
Minister of India and Manmohan Singh was the Finance Minister. NSE commenced operations in the
Wholesale Debt Market (WDM) segment in June 1994. The capital market (equities) segment of the NSE
commenced operations in November 1994, while operations in the derivatives segment commenced in June
2000. NSE offers trading, clearing and settlement services in equity, equity derivative, debt, commodity
derivatives, and currency derivatives segments. It was the first exchange in India to introduce an electronic
trading facility thus connecting the investor base of the entire country. NSE has 2500 VSATs and 3000
leased lines spread over more than 2000 cities across India.

NSE was also instrumental in creating the National Securities Depository Limited (NSDL) which allows
investors to securely hold and transfer their shares and bonds electronically. It also allows investors to hold
and trade in as few as one share or bond. This not only made holding financial instruments convenient but
more importantly, eliminated the need for paper certificates and greatly reduced incidents involving forged
or fake certificates and fraudulent transactions that had plagued the Indian stock market. The NSDL's
security, combined with the transparency, lower transaction prices, and efficiency that NSE offered, greatly
increased the attractiveness of the Indian stock market to domestic and international investors.

NSE EMERGE is NSE's new initiative for Small and medium-sized enterprises (SME) & Startup companies
in India. These companies can get listed on NSE without an Initial public offering (IPO). This platform will
help SME's & Start-ups connect with investors and help them with the raising of funds. In August 2019, the
200th company listed on NSE's SME platform.

NSE's trading systems are a state-of-the-art application. It has an uptime record of 99.99% and processes
more than a billion messages every day with a sub-millisecond response time.

NSE has taken huge strides in technology in 20 years. In 1994, when trading started, NSE technology was
handling 2 orders a second. This increased to 60 orders a second in 2001. Today NSE can handle 1,60,000
orders/messages per second, with infinite ability to scale up at short notice on demand, NSE has
continuously worked towards ensuring that the settlement cycle comes down. Settlements have always been
handled smoothly. The settlement cycle has been reduced from T+3 to T+2/T+1.

NSE has collaborated with several universities like Gokhale Institute of Politics & Economics (GIPE), Pune,
Bharati Vidyapeeth Deemed University (BVDU), Pune, Guru Gobind Singh Indraprastha University, Delhi,
the Ravenshaw University of Cuttack and Punjabi University, Patiala, among others to offer MBA and BBA
courses. NSE has also provided mock market simulation software called NSE Learn to Trade (NLT) to
develop investment, trading, and portfolio management skills among the students. The simulation software is
very similar to the software currently being used by the market professionals and helps students to learn how
to trade in the markets.
5
NSE also conducts online examinations and awards certification, under its Certification in Financial Markets
(NCFM) programs. At present, certifications are available in 46 modules, covering different sectors of
financial and capital markets, both at the beginner and advanced levels. The list of various modules can be
found at the official site of NSE India. In addition, since August 2009, it has offered a short-term course
called NSE Certified Capital Market Professional (NCCMP). The NCCMP or NSE Certified Capital Market
Professional is a 100-hour program for over 3–4 months, conducted at the colleges, and covers theoretical
and practical training in subjects related to the capital markets. NCCMP covers subjects like equity markets,
debt markets, derivatives, macroeconomics, technical analysis, and fundamental analysis. Successful
candidates are awarded joint certification from NSE and the concerned.

On 8 July 2015, Sucheta Dalal wrote an article on Moneylife alleging that some NSE employees were
leaking sensitive data related to high-frequency trading or co-location servers to a select set of market
participants so that they could trade faster than their competitors. NSE alleged defamation in the article by
Moneylife. On 22
July 2015, NSE filed a ₹1 billion (US$13 million) suit against the publication. However, on 9 September
2015, the Bombay High Court dismissed the case and fined NSE ₹5 million (US$66,000) in this defamation
case against Moneylife. The High Court asked NSE to pay ₹150,000 (US$2,000) to each journalist Debashis
Basu and Sucheta Dalal and the remaining ₹4.7 million (US$62,000) to two hospitals.

The Bombay High Court has stayed the order on costs for a period of two weeks, pending the hearing of the
appeal filed by NSE.

In May 2019 SEBI has debarred NSE from accessing the markets for a period of 6 months. While NSE
confirmed this will not impact their functioning, they won't be able to list their IPO or introduce any new
trading products for that period. Additionally, the watchdog also ordered NSE to disgorge Rs 624.9 crores
(along with accrued interest for the period), an amount equivalent to the profits it made from the unfair trade
practice of co-location servers they provided during the period from 2010–11 to 2013–14.

The board also passed orders against 16 individuals including former managing directors and CEOs Ravi
Narain and Chitra Ramakrishna ordering them to disgorge 25% of their salaries during that period along with
interest. All money is to be paid into the Investor protection and education fund. These individuals have also
been debarred from the markets or holding any position in a listed company for a period of five years.

NSE offers trading and investment in the following segments:

Equity

Indices

Mutual fund

6
Exchange-traded funds

Initial public offerings

Security Lending and Borrowing etc.

Derivatives

Equity Derivatives (including Global Indices like S&P 500, Dow Jones and FTSE)

Currency derivatives

Commodity Derivatives

Interest rate futures

Debt Market

Corporate bonds

a) Equity Derivatives

The National Stock Exchange of India Limited (NSE) commenced trading in derivatives with the launch of
index futures on 12 June 2000. The futures and options segment of NSE has made a global mark. In the
Futures and Options segment, trading in the NIFTY 50 Index, NIFTY IT index, NIFTY Bank Index, NIFTY
Next 50 index, and single stock futures are available. Trading in Mini Nifty Futures & Options and Long
term Options on NIFTY 50 are also available. The average daily turnover in the F&O Segment of the
Exchange during the financial year April 2013 to March 2014 stood at ₹1.52236 trillion (US$20 billion).

On 29 August 2011, National Stock Exchange launched derivative contracts on the world's most-followed
equity indices, the S&P 500 and the Dow Jones Industrial Average. NSE is the first Indian exchange to
launch global indices. This is also the first time in the world that futures contracts on the S&P 500 index
were introduced and listed on an exchange outside of their home country, the USA. The new contracts
include futures on both the DJIA and the S&P 500 and options on the S&P 500.

On 3 May 2012, the National Stock exchange launched derivative contracts (futures and options) on FTSE
100, the widely tracked index of the UK equity stock market. This was the first of its kind index of the UK
equity stock market launched in India. FTSE 100 includes the 100 of largest UK-listed blue-chip companies
and has given returns of 17.8 percent on investment over three years. The index constitutes 85.6 per cent of
UK's equity market cap.

7
On 10 January 2013, the National Stock Exchange signed a letter of intent with the Japan Exchange Group,
Inc. (JPX) on preparing for the launch of NIFTY 50 Index futures, a representative stock price index of
India, on the Osaka Securities Exchange Co., Ltd. (OSE), a subsidiary of JPX.

Moving forward, both parties will make preparations for the listing of yen-denominated NIFTY 50 Index
futures by March 2014, the integration date of the derivatives markets of OSE and Tokyo Stock Exchange,
Inc. (TSE), a subsidiary of JPX. This is the first time that retail and institutional investors in Japan will be
able to take a view on the Indian markets, in addition to current ETFs, in their own currency and in their own
time zone. Investors will therefore not face any currency risk, because they will not have to invest in
dollardenominated or rupee-denominated contracts.

In August 2008, currency derivatives were introduced in India with the launch of Currency Futures in USD–
INR by NSE. It also added currency futures in Euros, Pounds, and Yen. The average daily turnover in the
F&O Segment of the Exchange on 20 June 2013 stood at ₹419.2616 billion (US$5.6 billion) in futures and
₹273.977 billion (US$3.6 billion) in options, respectively.

b) Interest Rate Features

In December 2013, exchanges in India received approval from market regulator SEBI for launching interest
rate futures (IRFs) on a single GOI bond or a basket of bonds that will be cash-settled. Market participants
have been in favor of the product being cash-settled and being available on a single bond. NSE will launch
the NSE Bond Futures on 21 January on highly liquid 7.16 percent and 8.83 percent 10-year GOI bonds.
Interest Rate Futures were introduced in India by NSE on 31 August 2009, exactly one year after the launch
of Currency Futures. NSE became the first stock exchange to get approval for interest-rate futures, as
recommended by the SEBI-RBI committee.

c) Debt Market

On 13 May 2013, NSE launched India's first dedicated debt platform to provide a liquid and transparent
trading platform for debt-related products.

The Debt segment provides an opportunity for retail investors to invest in corporate bonds on a liquid and
transparent exchange platform. It also helps institutions that are holders of corporate bonds. It is an ideal
platform to buy and sell at optimum prices and help Corporates to get adequate demand when they are
issuing the bonds.

8
1.2.2 Bombay Stock Exchange

BSE Limited, also known as the Bombay Stock Exchange (BSE), is an Indian stock exchange located on
Dalaal Street in Mumbai. Established in 1875 by cotton merchant Premchand Roychand, a Rajasthani Jain
businessman, it is the oldest stock exchange in Asia, and also the tenth oldest in the world. The BSE is the
9th largest stock exchange with an overall market capitalisation of more than ₹276.713 lakh crore, as of
January 2022.

Bombay Stock Exchange was started by Premchand Roychand in 1875. While BSE Limited is now
synonymous with Dalal Street, it was not always so. In the 1850s, five stock brokers gathered together under
a Banyan tree in front of Mumbai Town Hall, where Horniman Circle is now situated. A decade later, the
brokers moved their location to another leafy setting, this time under banyan trees at the junction of
Meadows Street and what was then called Esplanade Road, now Mahatma Gandhi Road. With a rapid
increase in the number of brokers, they had to shift places repeatedly. At last, in 1874, the brokers found a
permanent location, the one that they could call their own. The brokers group became an official
organization known as "The Native Share & Stock Brokers Association" in 1875.

The Bombay Stock Exchange continued to operate out of a building near the Town Hall until 1928. The
present site near Horniman Circle was acquired by the exchange in 1928, and a building was constructed and
occupied in 1930. The street on which the site is located came to be called Dalal Street in Hindi (meaning
"Broker Street") due to the location of the exchange.

On 31 August 1957, the BSE became the first stock exchange to be recognized by the Indian Government
under the Securities Contracts Regulation Act. Construction of the present building, the Phiroze Jeejeebhoy
Towers at Dalal Street, Fort area, began in the late 1970s and was completed and occupied by the BSE in
1980. Initially named the BSE Towers, the name of the building was changed soon after occupation, in
memory of Sir Phiroze Jamshedji Jeejeebhoy, chairman of the BSE since 1966, following his death.

In 1986, the BSE developed the S&P BSE SENSEX index, giving the BSE a means to measure the overall
performance of the exchange. In 2000, the BSE used this index to open its derivatives market, trading S&P
BSE SENSEX futures contracts. The development of S&P BSE SENSEX options along with equity
derivatives followed in 2001 and 2002, expanding the BSE's trading platform.

On 12 March 1993, a car bomb exploded in the basement of the building during the 1993 Bombay bombings.

Historically an open outcry floor trading exchange, the Bombay Stock Exchange switched to an electronic
trading system developed by Cmc ltd. in 1995. It took the exchange only 50 days to make this transition.
This automated, screen-based trading platform called BSE On-Line Trading (BOLT) had a capacity of 8

9
million orders per day. Now BSE has raised capital by issuing shares and as on 3 May 2017 the BSE share
which is traded in NSE only closed with ₹999.

The BSE is also a Partner Exchange of the United Nations Sustainable Stock Exchange initiative, joining in
September 2012.

BSE established India INX on 30 December 2016. India INX is the first international exchange of India.
BSE is Asia's first and the Fastest Stock Exchange in world with the speed of 6 micro seconds and one of
India's leading exchange groups. In 2013, BSE upgraded its technology platform to Bolt Plus, which is based
on the business architecture of global giant Deutsche Börse.

1.3 Transformation of the Indian Stock Market

The Indian stock market has witnessed colossal transformation ever since trading first started with the
formation of the Bombay Stock Exchange 135 years ago. It was the usual outcry method with transactions
being a complicated process as online stock trading not yet introduced. With launch of online trading in the
Indian stock market, first by NSE and then by the BSE, the investors count increased in large numbers. India
is currently the second fastest developing economy in the world and given the huge growth potential, the

count of foreign investors is increasing too.

The Indian stock market is often interpreted as the NSE BSE market as majority of the transactions takes
place at these bourses though there are other smaller stock exchanges. Both bourses have been instrumental
in steering the Indian stock market towards the present position. It is the Securities and Exchange Board of
India (SEBI) that monitors the functioning of the stock exchanges besides protecting the interests of
investors in securities in the Indian stock market. With appropriate regulations from time to time, this Govt.
of India body also promotes the development of the securities market.

The Indian stock market is counted as one of the world’s best performing markets. The NSE today is the
second fastest growing stock exchange in the world besides being the world’s third largest Stock Exchange
in terms of the number of trades in equities. The BSE, is the 11th largest stock exchange in the world besides
being cited as the world's best performing shares market. The stature of the bourses has elevated the position
of the Indian stock market in the world map.

1.3.1 Methods of Trading in Stock Exchange

Trading in Stock Market took place by 2 Methods:

i. Floor Trading

10
 ii. Online Trading

Before the technology was introduced in India, Stock Market Operations used to take place at floor level also
known as Offline Trading. There were dealings in Paper Shares and Exchange of Shares and Securities took
place physically. But after the technology was introduced, modern methods of trading were applied and
trading began online.

Floor Trading:

The stock exchange operations at floor level are highly technical in nature. Non-members are not permitted
to enter into the stock market. Hence, various stages have to be completed in executing a transaction at a
stock exchange.

The steps involved in the methods of trading are given below:

a) Choice of a Broker: The prospective investor who wants to buy shares or the investor, who
wants to sell his shares, cannot enter into the hall of the exchange and transact business. They have to
act through only member brokers. They can also appoint their bankers for this purpose. Bankers can

become members of the stock exchange as per the present regulations. So, the first task in transacting
business on a stock exchange is to choose a broker of repute or a banker. Such person alone can
ensure prompt and quick execution of a transaction at the best possible and profitable price. After
choosing the broker, one has to find out whether the broker is willing to transact business on his
behalf. Generally, the brokers demand a letter of introduction or a reference from a respectable party
like Notary Public. Only when he is satisfied with the financial position of the party; he will be
willing to act on behalf of him.

b) Placement of Order: The next step is the placing of order for the purchase or sale of securities
with the brokers. The order is usually placed by telegram, telephone, letter, fax etc. or in person. To
avoid delay, it is placed general over the phone.

c) Execution of Orders: Big brokers transact their business through their authorized clerks. Small
one carries out their business personally. Orders are executed in the Trading Ring of stock exchange
which works from 12 noon to 2 p.m. on all working days from Monday to Friday and a special one

hour session on Saturday. Trading outside the trading hours is called 'Kerb dealings'.

d) Preparation of Contract Notes: Usually, the authorized clerks enter the particulars of the
business transacting during a particular day in the 'Kacha Sauda Book' from the rough note-books at
the close of that working day. From Kacha Sauda Book, they are transferred to 'Pakka Sauda Books'
which are maintained separately for the ready delivery contracts and forward delivery contracts. Then

11
 the broker/authorized clerk prepares a contract note. A contract note is a written agreement between
the broker and his client for the transactions executed. It contains the details of the contract made for
the purchase/sale of securities, the brokerage chargeable, name of the company, number of shares

bought/sold, net rate etc. It is prepared in a prescribed form and a copy of it is also sent to the client.

e) Settlement of Transactions: Finally, the settlement is made by means of delivering the share
certificates along with the transfer deed. The transfer deed is duly signed by the transferor, i.e. the
seller. It bears the stamp of the selling broker. The buyer then fills-up the particulars in the transfer

deed. The settlement can be made by any one of the followings methods:

i. Spot Delivery Settlement: Under this method, the delivery of securities and payment for
them
are effected on the date of the contract itself or on the next day.

ii. Hand Delivery Settlement: Under this method, the delivery of securities and payments are
effected within the time stipulated in the agreement or within 14 days from the date of the

contract which ever is earlier. Most of the transactions are conducted on this basis.

iii. Clearing Settlement: Under this method, the transactions are cleared and settled through the
clearing house. Usually those securities which are frequently traded and are usually in demand are

cleared through the clearing house. These transactions are also referred to as the transactions for
'the account'.
iv. Special Delivery Settlement: Under this method, delivery of securities and payment may
take place at any time exceeding 14 days following the date of the contract as specified in the
contract and permitted by the governing board.

Online Trading:

Internet trading started in India on 1st April 2000 with as many as 79 members seeking permission to do so.
Geojit Securities was the first to go online. On February 1, 2000, the National Stock Exchange (NSE)
opened up the internet-based trading system for its members, the first stock exchange in India to do so.
However, Internet-based trading was first founded outside of the mainstream discount brokerage firms. E-
Trade was launched in 1992 as a pioneering online brokerage service provider. Online share trading involves
buying and selling stocks through an online platform. Using the online share trading account, you can easily
buy or sell share stocks, mutual funds, bonds, and other securities without the need for an intermediate
broker or agent.
12
The information technology has brought out revolutionary changes in the operations of stock exchanges in
India. The traditional method of trading without the use of technology was time consuming and inefficient.
Further, it imposed limits on trading volumes and efficiency. To overcome those defects and to provide
efficient and transparent services, the NSE has introduced a nation-wide on-line fully automated Screen
Based Trading System (SETS). Now, other stock exchanges have been forced to adopt SETS and today,
India can boast that almost 100 percent trading takes place through electronic order matching.

Under SETS, a member can punch into the computers, quantities of securities and the prices at which he
likes to transact the transaction. It is executed as soon as it finds a matching sale or buy order from a counter
party.

Thus, technology is used to carry the trading platform from the trading hall of the exchanges to the premises
of the brokers. NSE has carried the trading platform further to the PCs at the residence of the investors
through the internet.

When investors inform their brokers to place orders either for purchase or sales, the brokers enter the orders
through their PCs which run under Windows NT and send signal to the satellite via VSAT/Leased Line/
modem. The signal is then directed to mainframe computer kept at NSE via VSAT. A message relating to
order activity is broadcast to the respective member. The older confirmation message is immediately
displayed on the PC of the brokers. This order is executed if it matches with the existing passive orders.
Otherwise, it waits for the active orders to enter the system till it is matched.

On order matching, a message is broad cast to the respective member. The trading system operates on a
Strict Price/Time Priority. AH orders received on the system are sorted with the best priced order getting the
first priority for matching. In other words, the best buy order orders are sorted on time priority basis, i.e., the
first come gets the top priority.

All dealings are transparent, objective and fair since all orders are matched automatically by the computer.
This trading system provides greater flexibility to the investors since various kinds of orders with quantity or
price condition can be placed according to the discretion of investors. Similarly, several times related
conditions can be easily built into an order.

The steps involved in the methods of trading are given below:

1. Selection of a broker: The buying and selling of securities can only be done through SEBI
registered brokers who are members of the Stock Exchange. The broker can be an individual, partnership
firms or corporate bodies. So the first step is to select a broker who will buy/sell securities on behalf of the

investor or speculator.

13
2. Opening Demat Account with Depository: Demat (Dematerialized) account refer to an
account which an Indian citizen must open with the depository participant (banks or stock brokers) to trade
in listed securities in electronic form. Second step in trading procedure is to open a Demat account. The
securities are held in the electronic form by a depository. Depository is an institution or an organization
which holds securities (e.g. Shares, Debentures, Bonds, Mutual (Funds, etc.) At present in India there are
two depositories: NSDL (National Securities Depository Ltd.) and CDSL (Central Depository Services Ltd.)
There is no direct contact between depository and investor. Depository interacts with investors through
depository participants only. Depository participant will maintain securities account balances of investor and
intimate investor about the status of their holdings from time to time.

3. Placing the Order: After opening the Demat Account, the investor can place the order. The order
can be placed to the broker either (DP) personally or through phone, email, etc. Investor must place the order
very clearly specifying the range of price at which securities can be bought or sold. e.g. “Buy 100 equity

shares of Reliance for not more than Rs 500 per share.”

4. Executing the Order: As per the Instructions of the investor, the broker executes the order i.e.
he buys or sells the securities. Broker prepares a contract note for the order executed. The contract note
contains the name and the price of securities, name of parties and brokerage (commission) charged by him.

Contract note is signed by the broker.

5. Settlement: This means actual transfer of securities. This is the last stage in the trading of
securities done by the broker on behalf of their clients. There can be two types of settlement.

(a) On the spot settlement:

It means settlement is done immediately and on spot settlement follows. T + 2 rolling settlement. This means
any trade taking place on Monday gets settled by Wednesday.

(b) Forward settlement:

It means settlement will take place on some future date. It can be T + 5 or T + 7, etc. All trading in stock
exchanges takes place between 9.55 am and 3.30 pm. Monday to Friday.

1.3.2 Current Settlement Procedure of Trading

In case any investor purchases shares, it is required to be done prior to the pay-in date for the relevant
settlements. Of course it is subject to the rules and regulations of the exchange also. Similarly, in the case of
14
sale of shares, the delivery of shares has to be made prior to the pay-in date for the relevant settlement or as
otherwise, provided in the rules and regulations of the exchange.

On the other hand, brokers are required to make payment or give delivery of securities with in 24 hours of
the pay-out day since T +2 rolling settlement it being followed w.e.f. April 1, 2003.

There is a provision to get direct delivery of shares in investors/clients beneficiary accounts instead of
getting them through their brokers. In such a case, the investor has to give details of his beneficiary account
and his depository participants' identity number to his broker along with the standing instructions for
"Delivery-In" to his depository participant for accepting shares in his beneficiary account. The Clearing
Corporation/Houses in such a case will send the pay-out instructions directly to the depositors so that the
securities may be credited directly to the beneficiary account when the exchange makes payment or delivers
the securities to the broker. Since the settlement cycle is on T +2 basis, the exchangers have to ensure that
the pay-out of funds and securities to the clients is done by brokers within 24 hours of the pay-out.

Generally, the pay-in and pay-out days for funds and securities have been prescribed as per the settlement
cycle. Following terms are used in settlement procedure.

i) Settlement and Payment

Till January 1, 2002, aft Account Period Settlement (APS) was in vogue. It has been discontinued since
January 1, 2002 pursuant to SEBI directives. An account period settlement is a settlement where the
trades pertaining to a period stretching over more than one day, are settled on a net basis. For example,

trades for the period Monday to Friday, are settled together on a net basis.

ii) Rolling Settlement

In the place of account period settlement, rolling settlement has been introduced. In a rolling settlement,
trades executed during the day are settled based on the net obligations for that day. At present the trades
pertaining to the rolling settlement are settled on T +2 day basis where T stands for the trade day. It
means that trades executed on Monday have to be settled on the following Wednesday provided there are

no intervening holidays. The settlement cycle is on T +2 rolling settlement basis w.e.f. April 1, 2003. iii)

Pay-in Day and Pay-out Day

15
 As far as the payment is concerned, pay-in and pay-out days are involved. Pay-in day is the day when
the brokers make payment or make delivery of securities to the exchange on the other hand, pay-out day
is the day, when the exchange makes payment or delivery of securities to the broker.

iv) 'Market Trade' and 'Off Market Trade'

Any trade settled through a clearing corporation is called 'market trade*. These trades are carried out
through stock brokers on a stock exchange. On the other hand, if a trade is settled directly between two
parties without the involvement of Clearing Corporation, it is termed as 'off market trade'. The same
delivery instruction slip can be used for both by specifying one of the two options.

v) Good Delivery and Bad Delivery

A share certificate together with its transfer deed, which means all the requirements of title transfer from
the transferor (seller) to the transferee (buyer) is called good delivery in the market. For examine, if share
certificate is genuine and the transferor has good title to it, the delivery of such document together with
transfer deed will be called a good delivery. On the other hand, delivery of share certificate together with
a deed of transfer which does not meet the requirements of title transfer from the seller to the buyer is
called a bad delivery in the market. For example delivery of a fake or stolen share certificate together
with a deed of transfer is a clear case of bad delivery.

vi) Lodging for Transfer and Return of Certificates

Finally, the shares have to be registered in the name of the buyer. For this purpose, the share certificate
along with the duly filed transfer deed must be sent to the company. The transfer deed should bear
adequate share transfer stamp. After verifying the bonafide of the transfer, the company has to transfer
the shares in the name of buyer and send them back within 2 months. The share certificates should bear a
new ledger folio number, transfer number, buyers, name etc. on the reverse side of it. This completes the

legal formalities for transfer of shares from the seller to the buyer.

Trading on the equities segment takes place on all days of the week (except Saturdays and Sundays and
holidays declared by the Exchange in advance). The market timings of the equities segment are:

(1) Pre-open session:

Order entry & modification Open: 09:00 hrs Order entry & modification Close: 09:08 hrs with random

closure in last one minute. Pre-open order matching starts immediately after the close of preopen order entry.

16
(2) Regular trading session

Normal/Retail Debt/Limited Physical Market Open: 09.15 hrs

Normal/Retail Debt/Limited Physical Market Close: 15:30 hrs.

Aftermarket hours: 16:00 - 09:00 hrs

The following products are trading on the NIFTY 50 Index in the Indian and international Market:

7 Asset Management Companies have launched exchange-traded funds on NIFTY 50 Index which is listed
on NSE

15 index funds have been launched on NIFTY 50 Index

Unit-linked products have been launched on the NIFTY 50 Index by several insurance companies in India.

1.3.3 Speculative Trading Transactions

Investors can deal with stock exchange securities either for a genuine trading purpose or for the purpose of
speculative trading. Genuine investors generally give/take delivery of shares with no intention to postpone
the settlement to the next period. Their primary motive is to get long-term gains. On the other hand,
speculators do not take/give delivery of shares. They deal in differences in the purchase and sale prices.
Their main intention is to carry forward the transactions and get short-term gains to price differences.

Speculation is deeply rooted in the trading mechanism of securities. There are four types of speculators i.e.
bull, bear, stag and lame duck. The main factor for the speculative activities are option dealings, curb market
operations, insider trading, rigging up the market, carry over transaction and no check on the activities of the
members etc.

Under the Securities Contract (Regulation) Act, 1956, the option trading has been banned and made a
cognizable offence. Despite this fact, option dealings are still practiced in major stock exchanges in India.
The insider trading involves misuse of confidential information, which is unethical and it leads to betrayal of
fiduciary position of trust and confidence.

17
The kerb trading also encourages the members and speculators to indulge in speculative activities. The short
trading hours in the stock exchanges also stimulate the kerb trading in the market. Similarly, the rigging also
creates instability in the market prices of the stock exchange.

1.4 Demutualization of Stock Exchanges

The transition process of an exchange from a "mutually-owned" association of company "owned by
shareholders" is called demutualization.6 In other words, transforming the legal structure, of an exchange
from a mutual form to a business corporation form is referred to as demutualization. The stock exchanges are
Self Regulatory Organizations, owned and regulated by the member brokers themselves. Traditionally, the
control and ownership rested with the same member brokers. But in India, the first attempt of
demutualization was made by OTCEI set-up in 1992 and NSE in 1994. Both are owned by banks, FIs and
their agencies other than member brokers. BSE has now become a corporate unit and its shares can be listed
for trading on an exchange. The SEBI now desires to have all stock exchanges to be demutualised.

All the stock exchanges in India except the NSE and the OTCEI, are broker-owned and broker-controlled. In
other words, the brokers who trade, collectively own and run these exchanges. The ownership and
management right of the brokers often led to a conflict of interest where in the interest of brokers was
preserved over those of investors. Instances of price rigging, recurring payment crisis on stock exchanges,
and misuse of official position by office bearers have been unearthed in the last few years. As a result, both
rolling settlement and demutualization of stock exchanges was announced to preserve their integrity.

Demutualization is the process by which any member-owned organization can become a shareholder-owned
company. Such a company could either be listed on a stock exchange or be closely held by its shareholders.

Stock exchanges in India can be formed under Section 25 of companies under the Companies Act, 1956 or as
an Association of Persons. Hence, stock exchanges are exempt from all taxes. Through demutualization, a
stock exchange becomes a corporate entity, changing from a non-profit making company to a profit making
and tax paying company. Demutualization separates the ownership and control of stock exchange from the
trading rights of its members. This reduces the conflict of interest between the exchanges and the brokers
and the chances of brokers using stock exchanges for personal gains. With demutualization, stock exchanges
have access to more funds for investment in technology, mergers with and acquisition of other exchanges,
and for strategic alliances with other exchanges. The members of the stock exchanges also get benefit by
demutualization as their assets become liquid and they get a share of the profits made by the exchange
through dividends. Demutualization makes operations of the stock exchanges transparent which facilitates
better governance.

18
Demutualization process is similar to a company going to public ownership. The exchange offers equity
capital, either through the dilution of existing promoters' stake or by the fresh issue of capital. The process
seeks to give majority control (51%) of the exchange to investors who do not have trading rights. This is to
allow better regulation of the exchange. Once listed as a public company, the exchange will be governed by
the corporate governance codes to ensure transparency.

There has been a global trend towards demutualization, where in 17 stock exchanges including NASDAQ,
and those of Australia, Singapore, Hong Kong. London and Tokyo have already been demutualised, and
another 15 are in the process of demutualization. The Amsterdam and Australian stock exchanges have
become publicly listed companies. In Asia, the Stock Exchanges of Singapore and the Singapore Monetary
Exchange have emerged.

The NSE, the OTCEI and ICSE are demutualised stock exchanges. The NSE was set-up as a demutualised
entity and is owned by financial institutions. Although the ICSE is demutualised, it is not a profit making
organization which means that even if, profits gets generated, it cannot be distributed among owners, like in
the NSE. However, it plans to convert itself into a profit-making organization. Like the ICSE, the OTCEI has
been set-up with a not-for-profit motive. It was the first demutualised exchange in the country set-up with a
share capital of Rs. 10 crores and promoted by prominent Indian financial institutions.

In November, 2002, the SEBI approved the uniform model of corporatisation and demutualization of stock
exchanges recommended by the Kania Committee. The committee recommended that stock exchanges in
India, which are set-up as associations of persons, should be converted into companies limited by shares. The
three stockholders of the exchange the shareholders, brokers and investing public-should equally represent
the board.

The Securities Contracts (Regulation) Act was amended on 12th October, 2004 through an ordinance, making
it compulsory for the exchanges to convert into corporate entities and delink their broker members from the
management.

The SEBI has made it mandatory for stock exchanges to dilute 51 percent ownership in favour of public. The
Bombay Stock Exchange (BSE) completed the process of demutualization in June, 2007. Other stock
exchanges are in the process of corporatisation and demutualization. The government has permitted 49
percent (26 percent by FDIs and 23 percent by FIIs) foreign investment in stock exchanges. The compulsory
corporatisation and demutualization of stock exchanges are expected to strengthen their governance, avoid
conflict of interest, and protect investors.

19
1.5 REGULATORY FRAMEWORK OF INDIAN STOCK MARKET

The growth of security market of a country is influenced by the legislative measures taken by that country
from time to time. The policy change has great impact on the minds of public which ultimately affects their
saving habits. For effective mobilization of funds, it is necessary that the interest of the potential investors

should be protected adequately.

In the pre-independence, the earliest legislation relating to stock market was introduced in the 19 th Century.
This legislation was passed in 1865 but it lost its impact due to outbreak of the American Civil War.
Thereafter, the Atly Stock Exchange Enquiry Committee was set-up in 1923. This committee in its report,
emphasized on necessity of the Stock Exchanges' framing and maintaining a systematic set of rules and
regulations in the interest of the general investing public and of the trade itself. The next step towards special
legislation for controlling stock markets was Bombay Securities Contracts Control Act, 1925. This Act gave
certain powers to government in regard to recognition of Stock exchanges etc. but this act proved
ineffective-in regulating security trading and government control there under was nominal, practically. The
Bombay Security Contracts Control Act remained in force till the Securities Contract (Regulation) Act, 1956
enacted by the Central Government. The main Acts which effect the Securities markets are Companies Act,
1956, Capital Issues Control Act, 1947, Securities Contract (Regulation) Act, 1956, Securities Contract
(Regulation) Rules 1957 and Securities and Exchange Board of India Act, 1992, which was set up as a
Securities and Exchange Board of India (SEBI) on April 1988. It took almost four years for the government
to bring about a separate legislation in the name of Securities and Exchange Board of India Act, 1992
conferring statutory powers. The Act charged to SEBI with comprehensive powers over practically all
aspects of capital market operations. The Securities and Exchange Board of India (SEBI), has emerged as an
important constituent of the system that now exists to regulate, control and monitor the Indian Financial
System (IFS) as certain powers of some other constituents of this system have been delegated to the SEBI.

1.5.1 Companies Act, 1956

After Independence, the Government of India passed various legislations so that investors can have
confidence while investing their savings. With a view to protect the interest of a large number of
shareholders and creditors on healthy lines and to help the attainment of the ultimate ends of social and
economic policy of the Government, the Companies Act, 1956 was passed. It was not enacted purely from

legalistic point of view but it was also passed on the changing social needs of the country.

The Companies Act, 1956 which together with its amendments, is the substantive law in our country today
and contains a large number of new and startling provisions for public control over the functioning of joint
stock companies. The following are the basic objectives of the Companies Act, 1956:

20
(a) Minimum assured standard of business integrity and conduct in the promotion and management of
companies;

(b) Full and fair disclosure of all reasonable information relating to the affairs of the company;

(c) Effective participation and control by shareholders and the protection of their legitimate interests;

(d) Enforcement of proper performance of their duties by the company management; and

(e) Power of intervention and investigation into the affairs of companies when they are managed in a manner
prejudicial to the interest of the shareholders or to the public interest.

A company has to operate within the legal framework prevailing in the country. The Companies Act deals
with the formation and management of new companies. With the growth of joint stock companies, the
capital market has taken a new turn in the development of the country.

1.5.2 The Capital Issues (Control) Act, 1947

Another ingredient of regulatory legislation is the Capital Issues (Control) Act, 1947, which prescribes the
approval of the Controller of Capital Issues for all issues of capital. It is one of the major instruments
through which the Government regulates the working of capital market particularly the new issues. Capital
issues control was first introduced under the Defence of India Rule 94-A which was promulgated on 17 th
May, 1943 under the Defence of India Act, 1939, Capital Issue Control was retained after the War and
Defence Rule 94A was replaced by the Capital Issues (Continuance of Control) Act, in April, 1947. The
main objective of this pragmatic step was to ensure those investments in the country in the various sectors of
economy which takes place in a planned manner and in accordance with the priorities laid down in the plans.
Despite of it, this legislation had the following objectives:

a) To protect the investing public;

b) To ensure that investments by the corporate sector were in accordance with the plans and that they were
not wasteful and in non-essential channels;

c) To ensure that the capital structure of companies was sound and in the public interest;

d) To ensure that there was no undue congestion of public issues in any part of the year; and

e) To regulate the volume, terms and conditions for foreign investment.

For the purpose of achieving the above objectives, an office of the Controller of Capital Issues (CCI) was
setup. It was entrusted with the responsibility of regulating the capital issues in the Country. The CCI was
vested with the powers to approve the kinds of instruments, size, timing and premium of issues.
21
The Capital Issues (Control) Act, (CICA) is only of historical interest now as it was repealed by the Capital
Issues (Control) Repeal Act 1992. It played an important part in the functioning of the Indian capital market
for as many as 45 years since 1947, and its provisions have now become the powers and functions of the
SEBI. It was administered by the Controller of Capital Issues (CCI) in the Ministry of Finance, Department
of Economic Affairs, Government of India. While the Securities (Control) Repeal Act, (SCRA) mainly
regulates the secondary market. The CICA mostly regulates the primary or new issue market for securities.

The Act required companies to obtain prior approval or consent for issues of capital to the public, and for
pricing of public and right issues. It empowered the Government of India (GOI) to regulate the timing of
new issues by private sector companies, the composition of securities to be issued, interest (dividend) rates,
which can be offered on debentures and preference shares, the timing and frequency of bonus issues, the
amount of prior allotment to promoters, floatation costs, and the premium to be charged on securities.

1.5.3 The Securities Contract (Regulation) Act, 1956

It was proved over time that the provision in Capital Issues (Control) Act were totally inadequate to regulate
the growing dimensions of capital market activity. The government realized the necessity of creating a broad
based and a more secure environment for the business to grow. This led to the enactment of Companies Act
and Securities Contracts (Regulation) Act in 1956. These legislations contained several provisions relating to
the issue of prospectus, disclosure of accounting and financial information and listing of securities etc.

The Securities Control (Regulation) Act, 1956 came into force throughout India on 20*^ Feb, 1957. This Act
permits only those exchanges which have been recognized by the Central Government to function in any
notified state or area. It prescribes the requirements which a company must comply with before its shares can
be listed on any recognized stock exchange in the country.

There is no statutory obligation that every public limited company should get its shares listed on a
recognized stock exchange. However, a company declaring in the prospectus, its intention of applying for
enlistment, is bound Under Section 73 of the Companies Act, to make a listing application to the stock
exchange concerned. It is also bound to abide by the prescribed requirements in order to have its shares
admitted to dealings failing which; it has to refund the application money to those who have subscribed for
the share capital. Further, the Government reserves the powers under section 21 of the Securities Contracts
(Regulation) Act, 1956 to compel a Public Limited Company when it is so necessary or expedient, in the
interest of the trade or of the public to comply with the prescribed requirements and list its shares on a
recognized stock exchange.

The objective of the Securities Contracts (Regulation) Act (SCRA) is to regulate the working of stock
exchanges or secondary market with a view to prevent undesirable transactions or speculation in securities,
22
and thereby, to build up a healthy and strong investment market in which the public could invest with
confidence. It empowers the GOI to recognize and derecognize the stock exchanges, to stipulate laws and
bylaws for their functioning, and to make the listing of securities mandatory on stock exchanges by Public
Limited Companies (PULCOs). It prohibits securities transactions outside the recognized stock exchanges. It
lays down that all contracts in securities except short delivery contracts, can be entered only between and
through the members of recognized stock exchanges. It prescribes conditions or requirements for listing of
securities on recognized stock exchanges. It empowers the GOI to supersede the governing bodies of stock
exchanges, to suspend business on recognized stock exchanges, to declare certain contracts illegal and void
under certain circumstances, to prohibit contracts in certain cases, to license the security dealers, and to lay
down penalties for contravention of the provision of the Act. It is administrated by the Ministry of Finance,
Department of Economic Affairs, GOI.

This Act aims at having a strong and healthy investment market so that members of the public may invest
their savings with full confidence.

1.6 Advantages and Disadvantages of Online Trading:

1.6.1 Advantages

Online trading is a very popular tool for buying and selling of financial products. There are so many
advantages of online trading and below we mention some benefits of online trading.

i. Elimination of Physical Broker

Online trading frees you from the hassle of going to the broker’s office or calling him to buy / sell. Most of
the time the phone in the broker’s office is busy and it takes a long time to match your call. It may also be a
mistake to listen to the shares you mentioned and their number. All this can be avoided by this.

ii. Multiple Option for Trading in one place

The investor can invest or trade in all types of options. Can invest in new IPOs, Bonds, Mutual funds, Gold,
Commodities. iii. Real Time Price

You can immediately see the fluctuations in the market price or index, the chart of any stock and its

historical price level.

23
iv. Trading Control In Your hand

You can register in advance as well as set stop loss (this facility is only available on certain terminals) and
set time alerts. You can keep a list of shares.

v. Easy Deposit & Withdrawal

You can immediately deposit the amount from the bank account linked to the account for shares. Or you can
deposit the after-sales profit in your bank account immediately. When to check the details of transactions on
the account. Experience secure transactions on all fronts can be gained through this.

vi. Global Market Update

It is a wonderful experience to trade in the world’s top stock market.

vii. Easy Market Access

You can buy/sell shares at any platform. Get real time market information about companies and stocks.
Trades can send order from web, Desktop, Mobile App. Expert recommendation and investment advice easy
available.

viii. Flexibility of Time

You can place orders before start of a trading session. order can be placed offline during non-market hours.

ix. Paperless Transaction

Your share certificate get deposited in electronic forms (Demat) in your trading account.

x. Records & Reports

Records and reports of all transaction available at clicks.

1.6.2 Disadvantages:

The coin has two sides. Just as there are advantages to online trading, there are also some disadvantages to
online trading.

i. Hidden Cost & Taxes

Although the brokerage fee is lower, other facilities have to pay more. It seems like a lot of rounding up.

24
Brokerage charges for online trading is very low but if you need call to broker for order placement they
charges 2 or 3 times higher fees for that. The ease of trading stocks online can result in owing high taxes on
investments. When you sell a stock at a price that is higher than the price you paid, you make a profit called
a capital gain. You have to pay taxes on capital gains at a maximum rate of 15 percent for investments you
hold longer than a year, but you pay your normal income tax rate on gains associated with investments you
hold a year or less. Your normal income tax rate could be as high as 35 percent, so holding stocks long-term

is preferable to frequent trading from a tax standpoint. ii. Technical Knowledge

Since the trading terminal runs on a computer system, those who do not have knowledge of computer
internet have to spend a lot of time learning it.

iii. System Error

Sometimes the website may run slow, the internet may not be up to speed, the computer may not respond,
the server may go down, and the trading terminus may not be convenient to use. The mechanism or systems
fails due to the less speed of internet connections, its cause huge loss in trading. The interface of an online
stock trading website can make it seem like you have a direct connection to stock markets, but online trades
do not execute instantaneously. When you place a trade on a stock trading website, the actual transaction
price might be different than the stock price the moment you click to make the transaction due to delays in
the transaction process. Technological problems can also cause transactions to fail or create duplicate

transactions. iv. No Control Over Decision.

Greed, Fear and Patients are the main factors for stock market success. It is very difficult to control your
emotions at the time of heavy market fluctuations. Online investing can be dangerous for undisciplined
investors, because it makes it easy to act on emotion and make spontaneous investment decisions. True stock
investing requires holding stocks for long periods of time to take advantage of the gradual upward trend of
the stock market. When an investor trades stocks frequently in reaction to current events and economic
conditions, he may miss out on gains from long-term economic trends. In addition, online trading makes it
easy to treat the stock investing as a game, where you attempt to profit from short-term stock price
fluctuations. According to the Securities and Exchange Commission, this practice is called "day trading" and
most novice day traders suffer large financial losses when they first try day trading and many never reach
profit-making status.

v. Limited Knowledge

Elimination of a broker could be mean trouble. Without proper investment advice could cause big loss. In
bull market every decision of yours earns good profit but once market change the gears then it is very hard to
survive in stock market. When you open an online stock brokerage account, you are responsible for
managing your own stock portfolio. Online brokerages may provide you with investment research tools, but
25
it is up to you to research and choose investments, which can be a time-consuming process. Investors that
use traditional stock brokerages can typically get investment advice from live financial professionals.
Professional advice and research can clear up sources of confusion and help investors avoid making novice

mistakes.

Chapter 2: Research Methodology

2.1 Objectives of Stock Market

The stock exchange is the index of the economy of a country. It is the centre of the capital market. It is called
the economic mirror of a country. It is called share market interchangeably. In developing trade, commerce
and industries in a country stock exchange play an important role. The objectives of establishing a stock
exchange are mentioned below:

A) To supply capital : The main function of a stock exchange is to help companies elevate money.
It is established to supply the required capital for companies of a country. To achieve this task,
ownership in a private corporation is sold to the public in the form of shares of stock. Funds received

from the sale of stock contribute to the firm’s capital formation.

B) To trade financial instruments: It is established to trade the financial instruments for

individual investment and company collect capital. It provides a regular meeting place where people
can convert their money into securities and securities into money. Buying and selling of securities
are confined to one particular place and the investors are saved the trouble of going to different

places to buy or sell securities.

26
 C) To develop economy: It helps economic development by supplying the capital to the industries.
Unregulated markets can have an unenthusiastic impact on capital formation. Close regulation of
stock exchanges allows strangers from all parts of the world to honour contracts executed in the

daily trading of shares. It is an important objective of the stock exchange.

D) To present information: Another objective of the stock exchange is to present information

about transactions and financial conditions of the companies. It reflects changes taking place in the
country’s economy. Price trends on stock exchange indicate trade cycles i.e. boom, recession,

depression, recovery, etc.

E) To do long-term financing: Commercial banks generally disburse the short-term loan. So,
supplying long-term finance is an objective of the stock exchange. Any company which wants to get
its securities listed has to submit to these rules and regulations.

F) To raise awareness: It raises awareness among the general people by giving information than to
invest and gain profit from the market. Thus, stock exchanges exercise a healthy influence on the

working and management of companies.

G) To have a fair operation: To transact the financial instruments easily and fairly stock exchange
is established. A stock exchange channelizes the investible funds in more productive industries. A
company with better performance and prospects has no difficulty in raising its capital. So, it is a duty

of stock exchange to secure both investors and borrower.

H) To protect fraudulently: It is also to ensure that no fraudulence occurs in a transaction. A stock

exchange functions exactingly according to established rules and regulations. These rules and
regulations provide a check on overtrading in securities and manipulation of prices. The
Government, too; exercises supervision and control over a stock exchange. By this means the evils

can deceit the tender investors and the stock are liable for protecting that.

2.2 Functions of Stock Market: A)

Pricing of Securities :

The stock market helps to value the securities on the basis of demand and supply factors. The securities of
profitable and growth oriented companies are valued higher as there is more demand for such securities. The
valuation of securities is useful for investors, government and creditors. The investors can know the value of
their investment, the creditors can value the creditworthiness and government can impose taxes on value of
securities.

27
B) Economic Barometer :

Any stock exchange in the world is a reliable barometer to measure the economic condition of any country
like India. Every major change in country and economic is reflected in the boom or recession cycle of the
economy. Stock market is also known as a pulse of economic mirror reflects the economic conditions of a
country. Stock exchange serves as an economic barometer that is indicative of the state of the economy. It
records all the major and minor changes in the share prices. It is rightly said to be the pulse of the economy,
which reflects the state of the economy.

C) Contributes to Economic Growth :

In stock market Securities of various companies are bought and sold and this process of disinvestment and
reinvestment helps to invest in most productive investment proposal and this leads to capital formation and
economic growth.

D) Safety in Stock Exchange :

In stock exchange only the listed securities are traded and stock market authorities include the companies
names in the trade list only after verifying the soundness of company. The companies which are listed they
also have to operate within the strict rules and regulations. This ensures safety of dealing through stock

market.

E) Scope for Speculation and Spreading of Equity Cult :

This market encourages people to invest in ownership securities by regulating new issues, better trading
practices and by educating public about investment. To ensure liquidity and demand of supply of securities

the stock market permits healthy speculation of securities. F) Better Allocation of Capital :

The share of profit making companies are quoted at higher prices and are actively traded so much companies
can easily raise fresh capital from Stock exchange. The general public hesitates to invest in securities of loss
making companies. So, Stock market facilitates allocation of investor's fund to profitable channels.
Profitmaking companies will have their shares traded actively, and so such companies are able to raise fresh
capital from the equity market. Stock market helps in better allocation of capital for the investors so that
maximum profit can be earned.

G) Liquidity of Stock Market :

28
The main function of stock market is to provide ready market for sale and purchase of securities. The
presence of stock market gives assurance to investors that their investment can be converted into cash
whenever they want. The investors can invest in long term investment projects without any hesitation, as
because of Stock market they can convert long term investment into short term and medium term. The most
important role of the stock exchange is in ensuring a ready platform for the sale and purchase of securities.

H) Saving and Investment :

The Stock market promotes or offers attractive opportunities of saving and investment in various securities.
These opportunities encourage people to save more and invest in Securities of corporate sector rather than
investing in unproductive assets such as gold, silver, etc. This inspires people to save their income by
making a profit. A stock exchange helps in determining the prices for various securities. Continuous
purchase and sale of securities on a stock exchange lead to the evaluation of their prices. Regular dealings
reduce wide fluctuations in prices. It accumulates the individual income and yet they go to the industries to
the economic development of a country.

2.3 Characteristics of Stock Market:

There are some most important characteristics of Stock market which are as below:

i) Stock Market is a market, where securities of corporate bodies, government and semi-government bodies
are bought and sold.

ii) This market deals with shares, debentures bonds and such securities already issued by the companies. It
also deals with existing or second hand securities and hence it is called secondary market.

iii) Stock Exchange does not buy or sell any securities on its own account. It merely provided the necessary
infrastructure and facilities for trade in securities to its members and brokers who trade in securities. It
also regulates the trade activities so as to ensure free and fair trade.

iv) NSE maintain an official list of securities that could be purchased and sold on its floor. Securities which
do not figure in the official list of stock market or exchange are called unlisted securities. Such unlisted
securities cannot be traded in the stock exchange.

v) All the transactions in securities at the stock exchange are affected only through its authorised brokers
and members. Outsiders or direct investors are not allowed to enter in the leading circles of the stock
exchange. Investors have to buy or sell the securities at the stock exchange through the authorised
brokers only.

29
vi) A stock exchange is an association of persons or body of individuals which maybe registered or
unregistered.

vii) Stock Market is an organised market and requires recognition from the Central Government.

viii) Buying and selling transactions in securities at the stock market are governed by the rules and
regulations of stock market as well as SEBI Guidelines. No deviation from the rules and guidelines is
allowed in any case.

ix) This market is a particular market place where authorised brokers come together daily on the floor of
market called trading circles and conduct trading activities. The prices of different securities traded are
shown on electronic boards. After the working hours market is closed. All the working of stock
exchanges is conducted and controlled through computers and electronic system.

2.4 The Reserve Bank of India (RBI)

The financial system deals in other people's money and, therefore, their confidence, trust and faith in it is
crucially important for its smooth functioning. Financial regulation is necessary to generate, maintain and
promote this trust. One reason why the public trust may be lost is that some of the savers or investors or
intermediaries may imprudently take too much risk, which could engender defaults, bankruptcies, and
insolvencies. A regulation is needed to check prudence in the system.

Fig. 2.1 RBI: The Regulator of Indian Financial System

The modern trading technology and the possibility of high leveraging enable market participants to take
large stake which are disproportionate with their own investments. There are frequent instances of dishonest,
unfair, fraudulent, and unethical practices or activities of the market intermediaries or agencies such as
brokers, merchant bankers, custodians, trustees, etc. The regulation becomes necessary to ensure that the
investors are protected; that disclosure and access to information are adequate, timely, and equal; that the

30
participants measure upto the rules of the market place; and that the markets are both fair and efficient. To

regulate financial system, RBI has special role and responsibility.

The RBI, as the central bank of the Country, is the centre of Indian financial and monetary system. As the
apex institution, it has been guiding, monitoring, regulating, controlling, and promoting the destiny of the
Indian Financial System (IFS) since its inception. It started functioning from April 1, 1935 on the terms of
the Reserve Bank of India Act, 1934. It was a private shareholders' institution till January, 1949, after which,
it became a State-owned institution under the Reserve Bank (Transfer to Public Ownership) of India Act,
1948. This Act empowers the Central Government, in consultation with the Governor of the Bank, to issue
such directions to it as they might consider necessary in the public interest. Further, the Governor and all the
Deputy
Governors of the Bank are appointed by the Central Government. The Bank is managed by a Central Board
of Directors; four Local Boards are to advise the Central Board on matters referred to them. They are also
required to perform duties as are delegated to them. The final control of the Bank vests in the Central Board
which comprises the Governor, four Deputy Governors, and fifteen Directors nominated by the Central
Government. The committee of the Central Board consists of the Governor, the Deputy Governor and such

other Directors as may be present at a given meeting.

2.4.1 Functions of RBI

The RBI functions within the framework of mixed economic system. With regard to framing various
policies, it is necessary to maintain close and continuous collaboration between the government and the RBI.
The main functions of the Reserve Bank are as follows;

i) To maintain monetary satiability so that the business and economic life can deliver welfare gains of a
properly functioning mixed economy; ii) To maintain financial stability and ensure sound financial
institutions so that monetary stability can be safely pursued and economic units can conduct their business
with confidence; iii) To maintain stable payments system so that financial transactions can be safely and
efficiently executed; iv) To promote the development of financial infrastructure of markets and systems, and
to enable it to operate efficiently i.e., to play a leading role in developing a sound financial system so that it
can discharge its regulatory function efficiently;

v) To ensure that credit allocation by the financial system broadly reflects the national economic priorities
and social concerns; vi) To regulate the overall volume of money and credit in the economy with a view to

ensure a reasonable degree of price stability.

31
The Reserve Bank is entrusted with the function of the development and regulation of money, foreign
exchange, and government securities markets. The RBI undertakes this function as it is a monetary authority
as well as debt manager to the government and is responsible for the stability of the financial system. To
preserve and enhance the stability of the banking and financial system, there is an important part of the
"promotional" role of the RBI. In fact, financial stability has now assumed relatively greater importance as
one of the tasks of the RBI. This is evident in its work to formulate prudential norms for banks and financial
institutions, its intervention in the foreign exchange market, and its participation in the operation of "safety
nets" i.e., the legal and organizational structure for overseeing the safety and soundness of the banking and
financial system. It plays an important role in building-up and maintaining confidence in the underlying
stability of the IPS. In short, the RBI helps to create and maintain a stable, efficient, and well functioning
financial system in India.

2.5 Stock Exchange Board of India (SEBI)

The year 1991 witnessed a big push being given to liberalization and reforms in the Indian financial sector.
For sometime thereafter, the volume of business in the primary and secondary securities markets increased
significantly. As part of the same reform process, the globalization or internationalization of the Indian
financial system made it valunerable to external shocks. The multi-crore securities scam rocked the IFS in
1992. All these developments impressed on the authorities the need to have in place a vigilant regulatory
body or an effective and efficient watchdog. It was felt that the then existing regulatory framework was
fragmented, ill-coordinated, and inadequate and that there was a need for an autonomous, statutory,
integrated organization to ensure the smooth functioning of the IFS. The SEBI came into being as a response
to these requirements.

The SEBI was established on April 12, 1988 through an administrative order, but it became a statutory and
really powerful organization only since 1992. The CICA was repealed and the office of the CCl was
abolished in 1992, and SEBI was set-up on 21 February, 1992 through an ordinance issued on 30 January,
1992. The ordinance was replaced by the SEBI Act on 4 April, 1992. Certain powers under certain sections
of SCRA and CA have been delegated to the SEBI. The regulatory powers of the SEBI were increased
through the Securities Laws (Amendment) Ordinance of January, 1995 which were subsequently replaced by
an Act of Parliament. The SEBI is under the overall control of the Ministry of Finance, and has its head
office at Mumbai. It has become now a very important constituent of the financial regulatory framework in

32
India. The philosophy underlying the creation of the SEBI is that multiple regulatory bodies for securities
industry i.e. the regulatory systems get divided, causing confusion among market participants as to who is
really in command. In a multiple regulatory structure, there is also an overlap of functions of different
regulatory bodies. Through the SEBI, the regulation model which is sought to be put in place in India, is one
in which every aspect of securities market regulation is entrusted to a single highly visible and independent
organization, which is backed by a statute, and which is accountable to the Parliament and in which investors
can have trust.

2.5.1 Constitution and Organization

Chapter II of the SEBI Act deals with establishment, incorporation, administration and management of the
Board of Directors etc. The SEBI is a body of six members comprising the Chairman, two members from
amongst the officials of the ministers of the Central Government dealing with finance and law, two members
who are professionals and have experience or special knowledge relating to security market, and one

member from the RBI. All members, except the RBI members, are appointed by the government, who also
lay down their terms of office, tenure, and conditions of service, and who can also remove any member from
office under certain circumstances. The Central Government is empowered to supersede the SEBI in public
interest, on account of grave emergency when it is unable to discharge its functions or duties, or if its
financial position and administration deteriorates. The work of the SEBI has been organized into five
operational departments each of which is headed by an executive director who reports to the chairman.
Besides, there is a legal department and the investigation department.

The departments have been divided into divisions. The various departments and scope of their activities are
as follows:

•The Primary Market Policy, Intermediaries, Self-Regulatory Organization (SROs),

and Investor Grievance and Guidance Department

It looks after all policy matters and regulatory issues in respect of primary market, registration, merchant
bankers, portfolio management services, investment advisers, debenture trustees, underwriters, SROs and

investor grievance, guidance, education and association.

33
• The Issue Management and Intermediaries Department

It is responsible for vetting of all prospectuses and letters of offer for public and right issues, for co-
ordinating with the primary market policy, for registration and regulating and monitoring of issues related
intermediaries.

• The Secondary Market Policy, Operations and Exchange Administration, New

Investment Products and Insider Trading Department
It is responsible for all policy and regulatory issues for secondary market and new investment products,
registration and monitoring of members of stock exchanges, administration of some of the stock exchanges,
market surveillance and monitoring of price movements and insider trading, and Electronic Data Processing
(EDP) and SEBI's data base.

The Secondary Market Exchange Administration, Inspection and Non-member

Intermediaries Department

It looks after the smaller stock exchanges of Guwahati, Magadh, Indore, Mangalore, Hyderabad,
Bhubaneshwar, Kanpur, Ludhiana and Kochi. It is responsible for inspection of all stock exchanges, and
registration, regulation and monitoring of non-member intermediaries such as sub-brokers.

• Institutional Investment (Mutual Funds and Foreign Institutional Investment),

Mergers and Acquisition, Research and Publications, and International Relations and
IOSCO Department.
It looks after policy, registration, regulation and monitoring of foreign Institutional Investors (FIIs), domestic
mutual funds, mergers and substantial acquisition of shares, and IOSCO (International Organization of
Securities Commissions) membership, international relations, and research, publication and Annual Report
of SEBI.

• Legal Department

This department looks after all legal matters under the supervision of General Counsel.

34
• Investigation Department

This department carries out inspection and investigation under the supervision of Chief Investigator. The
SEBI has regional offices at Calcutta, Chennai and Delhi. It has also formed two non-statutory advisory
committees namely-the Primary Market Advisory Committee and Secondary Market Advisory Committee
with members from market players, recognized investors associations, and other eminent persons.

SEBI is a member of IOSCO, an international body comprising of security regulators from over 100
countries. It participates in the Development Committee of IOSCO which provides a platform for regulators
from emerging markets to share their views and experience.

2.5.2 Objective and Regulatory Approach of SEBI

The overall objective of the SEBI, as enshrined in the Preamble of the SEBI Act 1992 is "to protect the
interests of investors in securities and to promote the development of, and to regulate the securities market
and for matters connected there with or incidental thereto".

The objectives of SEBI are as follows:

• To protect the interest of investors so that there is a steady flow of savings into the capital market.

• To regulate the securities market and ensue fair practices by the issuers of securities so that they can raise
resources at minimum cost.

• To promote efficient services by brokers, merchant bankers and other intermediaries so that they become

competitive and professional.

Having regard to the emerging nature of the securities markets in India, the SEBI necessarily has the twin
task of regulation and development. Its regulatory measures are always meant to be subservient to the needs
of the market development. Underlying those measures is the logic that rapid and healthy market

development is the outcome of well regulated structures. In this spirit, the SEBI endeavours to create an
effective surveillance mechanism and encourages responsible and accountable autonomy on the part of all
players in the market, who are expected and required to discipline themselves and observe the rules of the
market. The self-regulation and regulation by exception are thus the coroner stones of its regulatory
framework. The SEBI believes that self regulation can work only if there is an effective regulatory body
overseeing the activities of self-regulatory organizations. The SEBI also aims at facilitating an efficient
mobilization and allocation of resources through the securities markets, stimulating competition, and
35
encouraging innovations. Its regulation is expected to be flexible, cost-effective and confidence-inspiring. To
investors, the SEBI provides a high degree of protection of their rights and interests through adequate,
accurate, and authentic information and disclosure of such information on a continuous basis. To issuers, it
provides a market place in which they can confidently raise all the finance they need in an easy, fair, and
efficient manner. To the market intermediaries, it offers a competitive, professionalized and expanding
market with adequate and efficient infrastructure so that they can render batter and more responsible service
to the investors and issuers.

2.5.3 Powers, Scope, and Functions of SEBI

The scope of operations of the SEBI is very wide. It can frame or issue rules, regulations, directives,
guidelines, norms in respect of both the primary and secondary markets, intermediaries operating in these
markets, and certain financial institutions.

A) SEBI has been vested with the following powers:

1) Power to call periodical return from recognized stock exchanges.

2) Power to call any information or explanation from recognized stock exchanges or their members.

3) Power to direct enquiries to be made in relation to affairs of stock exchanges or their members.

4) Power to grant approval to bye-laws of recognized stock exchanges.

5) Power to make or amend bye-laws of recognized stock exchanges.

6) Power to control listing of securities by public companies.

7) Power to control and regulate stock exchanges.

8) Power to grant registration to market intermediaries.

9) Power to levy fees or other charges for carrying-out the purpose of regulation.

10) Power to declare applicability of Section 17 of Securities Contract (Regulation) Act in any state or
area to grant licenses to dealers in securities.

B) Functions

Section 11 of the SEBI Act specifies the functions as follows:

36
1. Regulatory Functions The regulatory functions are as under:

a) Regulation of stock exchanges and self-regulatory organizations.

b) Registration and regulation of stock brokers, sub-brokers, Registrars to all issues, merchant bankers,
underwriters, portfolio managers and such other intermediaries who are associated with securities market.

c) Registration and regulation of the working of collective investment schemes including mutual funds.

d) Prohibition of fraudulent and unfair trade practices relating to securities market.

e) Prohibition of insider trading in securities.

f) Regulating substantial acquisitions of shares and takeover of companies.

2. Development Functions

a) Promoting investor's education

b) Training of intermediaries

c) Conducting research and published information useful to all market participations.

d) Promotion of fair practices. Code of Conduct for self-regulatory organizations.

e) Promoting self-regulatory organizations.

2.6 SEBI Guidelines for Primary Market and Secondary Market

A) Guidelines for Primary Market

New Company:

A new company is one (a) which has not completed 12 months of commercial production and does not have
audited results and (b) where the promoters do not have a track record. These companies have to issue shares
only at par.

New Company Set-up by Existing Company:

When a new company is being set-up by existing companies with a five year track record of consistent
profitability and a contribution of at least 50 percent in the equity of new company, it is free to price its
issues, i.e., it can issue its shares at premium.

37
Private and Closely Held Companies:

The private and closely held companies having a track record of consistent profitability for at least three
years, are permitted to price their issues freely. The issue price is determined only by the issue in
consultation with lead managers to the issue.

Existing Listed Companies:

The exiting listed companies are allowed to raise fresh capital by freely pricing expanded capital provided
the promoters' contribution is 50 percent first Rs. 100 crores of issue, 40 percent on next Rs. 200 crores, 30
percent on the next Rs. 300 crores and 15 percent on balance issue amount.

B) Guidelines for Secondary Market

Stock Exchange

1. Board of Directors of stock exchange has to be reconstituted so as to include non-members, public

representatives, government representatives to the extent of 50 percent of total number of members.

2. Capital adequacy norms have been laid down for members of various stock exchanges depending upon
their turnover of trade and other factors.

3. Working hours of all stock exchanges have been fixed uniformly.

4. All the recognized stock exchanges have to inform about the transaction with in 24 hour.

5. Guidelines have been issued for introducing the system of market making in less liquid scrips in a phased
manner in all stock exchanges.

Brokers

1. Registration of brokers and sub-brokers is made compulsory.

2. In order to ensure that brokers are professionally qualified and financially solvent, capital adequacy norms
for registration of brokers have been evolved.

3. Compulsory audit of broker's book and filing of audit report with SEBI have been tnade mandatory.

4. To bring about greater transparency and accountability in the broker-client relationship, SEBI has made it
mandatory for brokers to disclose transaction price and brokerage separately in the contract notes issued to
the client.

38
5. No broker is allowed to underwrite more than 5 percent of public issue.

2.7 Recent Developments in Indian Stock Market

Steps have been taken in recent years to reform the secondary market so that it may function efficiently and
effectively. Steps are also being taken to broaden the market and make it functional with greater degree of
transparency and in the best interest of investors. Some of the developments in this direction are the

following: i) Regulation of Intermediaries

To improve the functioning of intermediaries in the capital market, strict control is being exercised on them
by SEBI. The intermediaries such as merchant bankers, underwriters, brokers, sub-brokers, bankers to the
issue etc. are now mandatorily required to be registered with the SEBI. It is proposed that the registration
should be subject to renewal from time to time instead of making it a permanent one. SEBI has powers to
suspend them after conducting an enquiry.

(ii) Changes Made in the Management Structure

In the early periods, the boards of stock exchanges were dominated by brokers whose decisions were not fair
and transparent. The SEBI now requires that 50 percent of the directors must be non-broker directors or they
are required to be Government Representatives. Further, it is obligatory that a non-broker professional shall
be appointed as the Executive Director.

(iii) Insistence Quality Securities

For efficient and active functioning of a stock exchange, quality securities are absolutely essential. Realizing
this fact, the SEBI has announced recently revised norms for companies accessing the capital market so that
only quality securities are listed and traded in stock exchanges. For instance, dividend payment condition
(dividend payment for at least 3 years out of the immediately preceding 5 years of issue) has been laid down
for companies to go for public issue. Again, participation of financial institutions in the capital is essential
for entry into the capital market. These measures ensure that only quality securities enter into the market.

(iv) Prohibition of Insider Trading

Insiders can easily enter into manipulative dealings against the interest of the public on the basis of any
unpublished price sensitive information available to them because of their position in the company. Now,
there is a ban on insider trading and hence, an insider is prevented from dealing in securities of any listed
company on the basis of any unpublished price sensitive information.

39
(v) Transparency of Accounting Practices

To ensure correct price mechanism and wider participation, all attempts are being taken to achieve
transparency in trading and accounting procedures. Brokers are asked to show their prices, brokerage,
service tax etc., separately in the contract notes and their accounts. Of course the service tax is collected
from the clients and paid to the Government.

(vi) Strict Supervision of Stock Market Operations

The Ministry of Finance and the SEBI supervise the operations in stock exchanges very strictly. The SEBI
monitors the operations of stock exchanges very closely with a view to ensure that the dealings are
conducted in the best interest of the overall financial environment in the country in general and the investors
in particular. Strict rules have been framed with regard to recognition of stock exchanges, membership,
management, maintenance of accounts etc. Further stock exchanges have been asked to subject the brokers'
accounts to better inspection and audit. Sometimes, the SEBI itself organizes such inspection of broker firms
and their accounts.

(vii) Prevention of Price Rigging

Greater powers have been given to SEBI under SEBI (Prohibition of Fraudulent and Unfair Trade Practices
relating to Securities Markets) Regulations, 1995 to curb price rigging. In fact the SEBI exercised its powers
time to time by issuing show-cause notices to the various parties-promoters, brokers and clients involved in
price rigging. Further, certain procedural changes have been planned in the auction route to curb price
rigging.

(viii) Encouragement of Market Making

There is greater transparency in the dealings of market makers and their securities command higher level of
liquidity. Market makers offer two-way quotations; one for purchase price and the other for sale price in
respect of the same security. They have to comply with rules and regulations strictly with regard to minimum
number of scrips for market making, timely payment of margins, adequate financial strength and adequate
turnover etc. Hence,' market making has been made compulsory on OTCEI at least for a period of 18 months
from the date of opening of the offer by the sponsors or designated member. Again, there is a provision for
voluntary market making on OTCEI, Market making is also encouraged in other stock exchanges as well in
order to develop healthy practices in the market.

(ix) Discouragement of Price Manipulation

The SEBI is taking all steps to prevent price manipulation in all stock exchanges. It has instructed all stock
exchanges to keep special margins in addition to the normal ones on the scrips which are subject to wide
price fluctuations. The SEBI itself, insists upon a special margin of 25 percent or more (in addition to the
40
regular margin) on purchases of scrips which are subject to sharp rise in price. This margin money should be
retained by the stock exchange concerned for a period of one to three months. All stock exchanges have been
directed to suspend trading in scrip in case any one of the stock exchange suspends trading in that scrip for
more than a day due to price manipulation or fluctuation.

(x) Protection of Investors

Interest Much importance is given to protect the interest of investors by instructing the exchanges to take
timely action for the redressal of their grievances. For this purpose, the SEBI issues "Investors Guidance
Services", to guide and educate the investors about grievances and remedies available apart from giving
information about various investment avenues, their merits, tax benefits available and illegal transactions etc.
Disciplinary Action Committees have been set up in each stock exchange to take up complaints against
companies, brokers, etc. Stock exchanges have been instructed to enlarge their panel of arbitrators so as to
dispose off all the pending arbitration cases very speedily.

(xi) Free Pricing of Securities

A new era in the capital market has begun with the process of liberalization started from June 1991 onwards.
In May 1992, the Capital Issues Contract Act was abolished and the functions of the Controller of Capital
Issues were entrusted to SEBI. Now, any company is free to enter the capital market to raise the necessary
capital at any price that it wants. Thus, a new era of free capital market has ushered in.

(xii) Freeing Interest Rates

Interest rates on debentures and on PSU bonds were freed in August 1991 with a view to raise funds from the
capital market at attractive rates depending on the credit rating. Companies can now offer any rate to the
public and mobilize the savings.

(xiii) Setting up of Credit Rating Agencies

Credit rating agencies have been set-up for awarding credit rating to the money market instruments, debt
instrument deposits and even to equity shares also. Now, all debt instruments must be compulsorily credit
rated by a credit rating agency so that the investing public may not be deceived by financially unsound
companies. It is a healthy trend towards a developed capital market.

(xiv) Introduction of Electronic Trading

The OTCEI has started its operations through the electronic media. Similarly, BSE switched over to
electronic trading system in January 1995, called BOLT. Again, NSE went over to screen based trading with
a national network under this system, investment counters can be spread throughout the country under the

41
electronic network. The buyers and sellers living apart from each other, can trade in corporate securities
through electronic media and through telephone/teller/computer in the case of OTC. Hence, there is a
national market with no physical location, no trading ring, no stock exchange building, no hustle and bustle
sense etc. which are commonly found in conventional stock exchanges. So, the defects and deficiencies
found in the present stock exchanges market are tried to be rectified through this electronic trading.

(xv) Establishment of OTC/OTCEI/NSE

Investors have to face many ordeals in the conventional stock exchanges. Delays in refunding application
money, issuing of allotment letters and posting of share certificates are quite common. Trading in new issues
prior to formal listing of such issues is also prevalent. Rigging up of prices before the flotation of new issues,
manipulation of high premium on new issues are also rampant. To overcome many of such defects,
OTC/OTCEI and NSE have been established. The scope for manipulations, speculations and malpractices is
very less if trading is shifted to OTC/OTCEI etc. The OTC markets are fully automated exchanges where
trading could be carried out through a network of telephone/computers/tellers spread throughout the country.

(xvi) Introduction of Depository System

To avoid bad delivery, forgery, theft, delay in settlement and to speed-up the transfer of securities, the
depositary system has been approved by the Parliament on July 23, 1996. A depository is an organization
where the securities of shareholders are held in the electronic form through a process of dematerialization.
The investor has to simply open an account with the depository through a depository participant. The
account is credited with the purchase of securities and debited with the sale of securities. There is no
physical transfer of shares. Everything is done through electronic media. The depository system facilitates
investors to hold securities in the electronic form rather than in physical form. Since the operations are
computer linked, they are transparent, speedier, less speculative and cost effective.

(xvii) Buy-back of Shares

With a view to arrest heavy fluctuations in the prices of shares and to adjust the demand and supply of shares
in the market, companies have been permitted to buy -back their own shares.

(xviii) Disinvestment of Shares of Public Sector Units To bring down the Government holding
and to push up the privatization process, the disinvestment programme has been implemented. This also
activates the capital market by increasing the availability of number of shares in market for trading. A
disinvestment commission has been established for this purpose.

42
(xix) Starting of Self Regulatory Organizations (SROs)

The SEBI is encouraging the starting of SROs for the purpose of implementing the SCRA, SEBI Act, Rules,
Regulations and Guidelines issued by the Government from time to time. This reduced the work of
regulatory authorities. With the increasing SROs, the stock exchange can emerge as Public Service
Institutions catering to the increasing demand of investors in the country. SROs can be a valuable component
to a market regulator in achieving the objectives of securities regulation.

(xx) Stock Watch System

The SEBI is contemplating to introduce a New Stock Watch System to trace out the source of undesirable
trading if any, in the market. The stock watch system simply works as a mathematical model which keeps a
constant watch on the market movement. When the model is activated, certain parameters are put to work at
once to bring into light automatically the scrips which are under alert. This alert list divides the scrips into
three categories such as least bothersome, bothersome most indicating blue, yellow and red signals
respectively to facilitate an immediate audit, undesirable trading and to trace out the players who do it. This
goes a long way in developing a healthy capital market.

(xxi) Setting up of National Market System (NMS)

On the recommendation of the Pherwani Committee, the Government has initiated steps for setting up of
NMS to facilitate electronic trading and settlement throughout the country on the basis of standard prices and
a fixed margin of service charges/commission for the broker. The NMS envisages as separate set of licensed
brokers in the country and registered sub-brokers for retail broking. The Government has recognized the
NSE in 1993 it self for setting up of the NMS.

(xxii) Trading in Derivatives

L. C. Gupta Committee which had gone into the question of introduction of derivative trading, has
recommended to introduce trading in Index Futures to start with the then trading in options. By-Laws have
already been framed by the NSE and BSE based on the recommendation of the Committee. Trading in
derivatives has been introduced by bringing necessary amendment to the Securities Contract Regulation Act
Recently, Mutual Funds have all been permitted to trade in derivatives to make the capital market active.

(xxiii) Stock Lending Mechanism

To make the capital market active by putting idle stocks to work, another innovative mechanism viz., Stock
Lending Scheme has been introduced by the SEBI. Though the scheme was approved in 1997, it was put into
action only on February 10, 1999. The National Securities Clearing Corporation Limited (NSCCL) is the
first Approved Intermediary (lA) to implement the scheme. The scheme introduced by the NSCCL is known
as 'Automated Lending and Borrowing Mechanism (ALBM).
43
(xxiv) International Listing

The big event in the history of Indian capital market is the listing of an Indian Company's share in American
Stock Exchange. Such a listing has helped the Indian companies to access to US capital market and extend
their shareholders base so as to achieve a dispersal of shareholders. It also increases the 'image' of the
company and the investors to get a greater degree of comfort and confidence in the company.

(xxv) Rolling Settlement

In July 2001, SEBI made rolling settlement on a T+5 (Trading day plus five days) cycles compulsory in 414
stocks and the rest of the stocks were required to be follow it from January 2002. But now T+ 2 rolling
settlements has been introduced for all securities. It means that transaction on a stock exchange have to be
settled in 2 days after the trade day. The time gap between trading and settlement has given rise to settlement
risk. To overcome this risk, risk management practices are being adopted by Stock Exchange and Clearing
Corporation. Exchanges provide counterparty guarantee and exchange not providing the above guarantee,
must set-up guarantee funds as per the advice of the SEBI. The trades are now settled irrespective of any
default by a member and the exchanges follow up the defaulting member subsequently for the recovery of
his dues.

These measures are expected to restore confidence in the minds of investors and reverse the present
sluggishness in the capital market. All these present developments in the secondary market and are expected
to contribute towards the development of a vibrant capital market.

44
 Chapter 3: Review of Literature

Indian stock market has observed a sea change in the post liberalization period although] in
the pre-liberalization period also, it has grown-up in a fast pace particularly, since 1980s. The
stock market has emerged as the key financial instrument through which companies and
investors have gained through trading of the securities. This is the reason that it has gained
popularity and researchers have concentrated upon analysis of its different roles. In this
chapter an attempt has been made to summaries the results of the studies undertaken by the
various researchers during pre and post liberalization period on various aspects of Indian
stock market. This chapter has been divided into two sections. Section-I has been devoted to
review of literature on stock market in the pre-liberalization period, while Section-II deals
with its review of literature in the post -liberalization period.

Mekinnon and Shaw (1973)1 in their study. Money and Capital in Economic
Development, examined the relationship between financial development and economic
growth without giving much analytical perspective to capital market development. They study
that in an equity market, an asset can be sold/purchased at any moment during the working
hours of the stock market. Thus, equity markets make investment less risky and more
attractive. Such investments help in the capital formation and growth of firms.
45
Reserve Bank of India (1982)2 in its report, Trends in Consents for Issue of Capital and
Public Response to Capital Issue, during 1976- 1980 and analyzed that the public response to
capital issues was encouraging as number of over subscribed/fully subscribed issues was
showing a continuous rise during the years under reference. The percentage of underwritten
amount to total amount offered for public subscription, which ranged between 76.5 percent
and 92.4 percent during 1976 to 1979, came down to 415 percent in 1980 and financial
institutions continued to be the major underwriters. The analysis reveals that the average cost
of issue during the five years period was between 6.9 percent of issue ranging between Rs. 25
lakhs and Rs.50 lakhs, while for issues of bigger amount, (over Rs. 2.5 crore) it worked out
lower. As between the new and existing issues, the proportion of cost was higher in the latter
case.

The Rangarajan Committee Set-up by the Reserve Bank of India (1983)3 in

its report, Financing of Private Corporate Sector in Sixth Five Year Plan, recommended that
the banks while taking up underwriting activities, should carefully evaluate the proposals, so
as to ensure that the issues have an adequate public response and that the prospects of
devolution of shares and debentures on the underwriting banks is minimal. It felt that banks
should make necessary enquiries regarding the underwriters and their capacities to fulfil the
obligations; also the banks should consider sub-underwriting for over-underwritten issues so
as to minimize chances of devolution on their own account. The committee concluded that the
major failure had been that the banks did not faithfully follow the prescribed procedures.

The Tata Consultancy Services (1984)4 in its report, Stock Exchange Reforms,
reviewed the stock exchanges of Delhi, Bombay and Bangalore for automation of the
operations on stock exchanges in India. The Tata Consultancy Services (TCS) recommended
instantaneous deal data collection by stock exchange personnel for immediate data entry into
the computersystem thr(!)Ugh the terminals stationed in the trading ring in addition to the use
of screen projection of Visual Display Unit (VDU) contents for continuous display of security
price and volume information in the trending ring and to improve the communication between
exchanges; and use of star network of communication lines. This communication system was
to be used for exchange of information on price fluctuations, company news and
announcements, for the benefit of brokers as well as the Stock Exchange Authorities. In the

46
long- run, the network was also suggested to be used for recording inter exchange deals by the
brokers.

Richard, Carter and Manaster (1986)5 in their article. Initial Public Offering and
Underwriters Reputation, examined the return earned by subscribing to initial public offering
of equity (IPO's). They suggested that IPOs' returns were required by uniformed investors as
compensation for the risk of trading against superior information. The study shows that initial
public offering with more underwriters' reputation reveals the expected level of informed
activity. The study highlights that prestigious underwriters are associated with lower risk
offering and with less risk, there is less incentive to acquire information and fewer informed
investors. It concludes that prestigious underwriters are associated with initial public offerings
that have lower returns.

Kunt and Maksimovic (1996) their paper, Stock Market Development and Financing
Choice of Firms, investigate empirically the effect of stock market development on the
financing choice of firms and find that firms in countries with an undeveloped stock market,
first increase their debt-equity ratio as their stock markets develop and that the debt and
equity finance are complementary. Giving the reference of existing studies, they reveal that
the first comprehensive study on the relationship between stock market development and
economic growth was made by the World Bank Research Group by, R. Levine and others
who investigated the compatibility of stock market development with financial intermediaries
and economic growth. Their general conclusion is that stock market development is positively
correlated with the development of financial intermediaries and long-term economic growth.

Seshaiah and Tomer's (1997)7 paper, Stock Volatility, Inflation and Exchange Rates: An
Econometric Approach, studies that the recent liberalization policies and the budgets of Indian
government since 1992 turned in favour of the corporate sector and have boosted up new
investments in equity shares and stock markets in India and have shown an unprecedented
boom. This paper is devoted to examine the relationship between stock returns and inflation
rate, relationship between stock returns with inflation rates and exchange rates giving fruitful
results to know the volatility of stock markets. During analysis, both inflation rates and
exchange rates were considered separately, as they have dependency on each other.

47
Sehgal and Garhyam (2002)8 in their paper. Abnormal Returns Using Technical
Analysis: The Indian Experience, evaluated abnormality of returns in the Indian capital
market as regards whether share recommendations based on technical analysis. Several return
measures have been employed by them including those adjusted for market trends, risk and
transaction costs. The study involves 21645 recommendations for 21 companies using 13
technical indicators. The mean return was found statistically significant for the total period.
But the gains disapprove in the case of market-adjusted measures. The returns were found
significant for the risk-adjusted measures, and also after the adjustment for transaction costs.

Mathew's (2000)9 study, Economic Evidence on the Internationalization of Indian Capital

Market, examined the internationalization of Indian capital market in the context of the
ongoing liberalization process. An attempt has been made to see as to what extent, the Indian
stock prices and interest rates are related to that of the selected sample countries such as U.K.,
USA, Japan and Germany. The different economic tests such as correlation analysis,
regression tests and cont. integration tests have been administered on the data pertaining to
these sample countries in order to quantify the possible relation that might exist. He
concluded that the financial environment has undergone spectacular change over the last three
decades. The volatility of rates of inflation, nominal interest rates, stock prices, exchange
rates, the process of deregulation and financial disintermediation and the technological break-
through in the processing and dissemination of information have contributed to this global
financial resolution. An important feature of this financial revolution is the international
capital mobility.

Karmakar and Chakrabarty (2000)10 their paper entitled, study entitle, Holiday
Effect in the Indian Stock Market, study that one of the most puzzling anomalies reported in
financial literature is the holiday effect which implies that stock shows abnormally high return
on the day prior to holidays. The authors investigate the holiday effect in Indian stock market
by comparing the mean return of pre-holiday, post-holiday and weekday. The results show
that the average pre-holiday, return is significantly higher than the mean return of other days.
This preholiday effect is also corroborated by another measure which suggests the
substantially good performance of stock prior to eight public holidays.

48
Tripathy and Saho's (2000)11 paper, Behaviour Dynamics of Indian IPO Market: An
Empirical Analysis, reveals that pricing of capital is important in capital market to allocate
resources for the productive needs of the society. Also, under pricing is a well documented
phenomenon in the stock market. The authors indicate that the under pricing in the Indian
IPOs in the short- run is higher than the experience of other countries. They emphasize that
IPOs are composed of premium or for issues that performed in the market and market price is
found to be higher than the intrinsic value.

Bhole and Pattanaik's (2002)12 paper, The State of Indian Capital Market Under
Liberalization, discusses the working of Indian stock market (ISM) from both quantitative and
qualitative perspectives so as to find out how far the goal of liberalization policy has been
achieved. In particular, it studies whether and how far the ISM is characterized by volatility.
Among the things it finds are; (a) the ISM is still speculative, volatile, and riddled with
certain drawbacks, (b) the share price behaviour in India, particularly short-term one, cannot
be explained in term of economic fundamentals, (c) the state of ISM can hardly be said to be a
barometer of the state of the Indian economy, (d) hyper liquidity on the secondary market
does not necessarily ensure a vibrant new issue market, and (e) a significant negative
relationship between the rate of interest and stock market variable is absent.

Wong, Agarwal and Due (2004)13 in a paper, Financial Integration of India Stock
Market: A Fractional Co-integration Approach, investigate the long-run equilibrium
relationship and short-run dynamic linkage between the Indian stock market and the stock
markets in major developed countries after 1990 by examining the Granger causality
relationship and the pair wise, multiple and fractional co-integrations between the Indian
stock market and stock markets from three developed countries viz. US, UK and Japan. The
authors concluded that Indian stock market is integrated with mature markets and is sensitive
to the dynamics in these markets in a long- run. In a short -run, both US & Japan causes the
Indian stock market but not vice-versa. Further, it is found by him that Indian stock index &
mature stock indices form fractionally co-integrated relationship in the long -run with a
common fractional, non-stationary component find that the Johansen method is the best to

reveal their co-integration relationship.

49
Sehgal and Gupta (2005)14 in their paper, Technological Analysis in Indian Capital
Market- A Survey, make a study which covered institutional and individual respondents who
have long record of trading in the stock market and in the use of technical trading system for
securities analysis. The sample respondents believe that technical analysis could generate
superior profits. They tend to apply these tools predominantly to the equity (and to some
extend financial derivatives) segment of the market. A majority of them use Technical
Analysis (TA) along with the Financial Analysis (FA). Further, they tend to use technical
analysis more frequently in the Bull phase of market. They were surprised to note that the
respondents revealed a greater preference for classical technical indicators such as, trend
analysis, gap analysis, candlestick charts, ratio and simple moving average, while more
sophisticated tools of TA seem to take a back seat.

Memcha and Jibon, (2006)15 in their paper entitled. Stock Price Changes and Trading in
Context of India's Economic Liberalization and its Emergent Impact, study that the
relationship between stock price changes and trading volume in the context of India's
economic liberalization, provides a insight into the mechanism and characteristics of the stock
market besides drawing significant implication for different. groups of people associated with
the stock market. The purpose of the study is to investigate the relationship between price
changes and trading volume in the Indian stock market in the context of India's economic
liberalization and its emerging impact. The findings of the study show that there is no
significant overall relationship between the variables under study.

Banerjee and Sankar (2006)16 in their paper, Measuring Market Integration in Indian
Stock Market, study how Indian stock market has been integrated with the global market by
observing the mis-pricing of assets in asset pricing model of portfolio theory. According to
them, the Indian stock markets appear to be more integrated since late 1990s, perhaps due to
lower barriers, for foreign portfolio investment funds and easier access for Indian firms to
international markets. The authors find that as the level of integration increases, there is an
argument for bringing down the barriers further.

Mohanty and Mishra (2007)17 in a paper, Micro Structure Innovations and Efficiency in
50
Indian Stock Market, studied two major structural changes viz. the introduction of electronic
trading on Bombay Stock Exchange and the Compulsory Rolling Settlement (CRS) in the
T+5 format. Accordingly they had categorized their time series data of 10 years into 3
different phases like phase-I,-the phase before introduction of electronic trading and phase-II,
-the time after introduction of electronic trading and phase-Ill, the time after introduction of
rolling settlement. The result of their analysis clearly shows that efficiency improvement was
not visible after the first change. But it introduces very strong efficiency improvement from
second to third phase. So they concluded that the introduction of CRS had a bigger impact on
the market efficiency as compared to electronic trading.

The paper of Srivastava, Yadav and Jain (2007)18 Effect of Derivative Securities on
Volatility-A Study in Context of Indian Stock Market, examine the impact of introduction of
derivative securities on volatility of underlying stocks and index. The results of this study
support the declining volatility hypothesis in context to the Indian stock market. It also
indicates that derivatives have stabilizing effect and their introduction has led to decline in
volatility of underlying assets. The findings have largely remained the same when volatility
has been examined with different diagnostic tools or for different sample periods. Finally,
these findings provide rationale for introduction of future and option contracts on more stocks
as they contribute to enhance the efficiency of underlying stock market. The study has
important policy

implication on the derivatives markets. The study is making a favourable case of empirical evidence
for deepening the derivatives in India.

Chander, Mehta and Sharma (2008) 19 in their paper. Empirical Evidence on Week
form Stock Market Efficiency: The Indian Experience, concluded that stock returns behaviour
documented in their study, depicted independent behaviour and supported the notion of weak
form market efficiency. However, certain drifts were also noticed that more visible when
autocorrelation matrices were scanned through Q-statistics and Jung-Box Statistics.
Nevertheless, such drifts were not strong enough to impair the efficiency notion of stock
returns/price behaviour. Furthermore, the random behaviour of stock prices was quite visible,
but could not undermine the noted drifts because randomness alone does not signify weak
form market efficiency and vice-versa. Similarly, the presence of statistically significant auto
correlation matrices in the absence of normally distributed stock return does not signify

51
predictability of stock returns. An obvious implication of the results reported is that trading
strategies based on historic prices cannot be relied for abnormal returns except for these that
coincided with underline drifts. In competitive stock markets characterized fast dissemination
of information, rigorous research and analysis, and perfectly vibrant trading mechanism
consideration of transaction costs are expected to make results more robust and pervasive for
weak market efficiency.

Mahajan and Singh (2008)20 in a paper, An Empirical Analysis of Stock Price Volume
Relationship in Indian Stock Market, examine the empirical relationship (contemporaneous
and causal) between volume and return, and volume and volatility in the light of competing
hypothesis about market structure by using daily data of Sensitive Index of Bombay Stock
Exchange. Consistent with mixture of distribution hypothesis, positive contemporaneous
relationship between volume and volatility is observed. Causality test further supports the
sequentially arrival of information hypothesis, which implies that new information is not
simultaneously available to all traders and it takes time to absorb, which hampers the price
discovery efficiency of the market. The empirical relationship between return, volume and
volatility has been examined using GARCH technique and Granger causality test. The study
provides evidence of positive impact of volume on return and volatility using GARCH (1,1)
model. The author furthers stated that volume is found to be an important information
provider about return and volatility both in the contemporaneous and causal (dynamic)
relationship. They also conclude that new information is absorbed sequentially and the
intermediate information equilibrium is reached before the final equilibrium found in the
Indian stock market.

Kumar and Gupta's (2009)21 paper, Behaviour of Stock Prices in Indian Stock Market:
Understanding Distribution Pattern and Parameter Estimation, investigate and identify the
adequate densities for fitting distribution of first difference of change in log prices of stocks.
Four different ways are adopted to test whether the first differences of log of daily closing
prices follow normal or Gaussian distribution. These provide strong evidence against
Gaussian hypothesis for return distributions and fat tails are observed. A further investigation

was undertaken to check whether observed departure from normality in data is due to some

52
aberrations to otherwise Gaussian distributions. Results reveal that daily return data of
majority of shares are inherently non Gaussian in nature; therefore, observed departures from
normality in the data cannot be attributed to any kind of aberrations. In the subsequent
section, an attempt is made by them to model the daily returns as stable distributions.

In the paper. Stock Market Behaviour: Evidence from Indian Market, Mittal and Jain

(2009)22 find that market efficiency has always been the concern of market regulators, investors,
and researchers. Market efficiency tests showed different and mixed evidences in the developing
markets. The study deals with the testing of weak form of efficiency and the efficient market
hypothesis on Indian stock market in the form of random walk, during the period of 2007-2008
based on closing prices and daily returns on Indian stock market three representative indices S86P
CNIX 500, CNX 100, and BSE 200. The paper discussed and examined three types of anomalies,
namely; Monday Effect, Friday Effect and Day of the Week Effect. The findings of this study bring
out that none of the above anomalies exist in the Indian stock market as informationally efficient.
Serial correlation and run test also support the Random Walk Theory and market efficiency
hypothesis.

Sharma and Sarbar (1993)23 their paper, Globalization of Indian Capital Market,
highlights that the process of globalization of Indian Capital Market starts in 1986 with the
introduction of Indian funds. However, the authors apprehend that initially there is a less
likelihood of pouring investments from foreign investors. International investors are venture
some and they will invest after careful analysis of situation. According to authors, estimated
total global funds available for investments are around $25 billion and India may expect to get
one twelfth of this kitty based on its share of market capitalization. Initially, it is expected that
there may be an inflow of $200 millions to $300 millions and it will increase gradually in the
coming years as every FIIs required to register itself with the Securities and Exchange Board
of India before entering any investment activity in Indian capital market.

Levine, Ross and Zerovs (1991)24 their paper, Stock Market Development and Long-run
Growth, confirm that stock market can boost-up economic activity through the creation of
liquidity. They realize that risk diversification, through internationally integrated stock

53
markets, is another vehicle through which stock markets can raise resources and affect
growth. By facilitating longer-term and more profitable investments, liquid markets generally
improve the allocation of capital and enhance prospects for long-term economic growth.
Study reveals that by increasing return to investment, greater stock market liquidity may
reduce the savings rate through income and substitution effects. It also concludes that greater
stock market liquidity may adversely affect corporate governance and hence economic
growth.

The Working Group of Capital Markets headed by Hussain (1989)25 gave

recommendations to provide a long-term thrust to the capital markets. It recommended certain
technical changes in the existing rules and regulations to ensure adequate protection of
investors' interest. The findings of Abid Hussain working Group revealed that the present
listing rules do not provide liquidity to the series and an investor was unable to take decision.
According to his report, out of 5000 companies listed on the Stock Exchanges in the country,
hardly a few hundred were actively traded. Thus, the group recommended a 'Multi-tier' listing
system and the responsibility was bestowed upon SEBI to prepare such model. It has been
revealed that the investors would be able to judge, the marketability easily and new
companies will also mobilize their resources effectively and would not have to compete with
the larger companies in the security market. The study further revealed that the securities
offered through prospectus do not disclose adequate information to enable investors for taking
investment decisions and hence suggested that merchant bankers should be allowed to play
vital role in this regard. To ensure that better disclosure standards were adopted, it had been
proposed by the group to make mandatory for all companies proposing to raise capital from
the public to go through a merchant banker registered with the SEBI. The group also
recommended that mutual funds may also be allowed to float in the private sector. Regarding
procedural delays in effecting transfer of shares, it was proposed that the share transfer
services may be institutionalized. Several measures to offer new instruments and to make the
existing ones more attractive, had been recommended by the group. It was suggested that
about V4th of the equity of well managed companies may be offered for public subscription.
The group had suggested the restructuring of interest rates taking into liquidity, maturity and
risk features of the instruments. Apart from this, certain incentives like tax benefits were
recommended to mobilize the savings from rural sector. Thus, the recommendations given by

54
the Abid Russian Group were mainly towards investor protection and to strengthen the capital
market to encourage resource mobilization.

Kian-Phing Lim & Robert Brooks (2011) 26 provides a systematic review of the
weakform market efficiency literature that examines return predictability from past price
changes, with an exclusive focus on the stock markets. Our survey shows that the bulk of the
empirical studies examine whether the stock market under study is or is not weak‐form
efficient in the absolute sense, assuming that the level of market efficiency remains
unchanged throughout the estimation period. However, the possibility of time‐varying week‐
form market efficiency has received increasing attention in recent years. We categorize these
emerging studies based on the research framework adopted, namely non‐ overlapping sub‐
period analysis, time‐varying parameter model and rolling estimation window.

Anju Bala (2013)27 evaluated that stock market is one of the most vibrant sectors in the
financial system, marketing an important contribution to economic development. Stock
market is a place where buyers and sellers of securities can enter into transaction to purchase
and sell shares, bonds, debentures etc. In other words, stock market is a platform for trading
various securities and derivatives. Further, it preforms an important role of enabling
corporate, entrepreneurs to raise resource for their companies and business venture through
public issues. Today long-term investors are interested to invest in the stock market rather
than invest anywhere.

Aman Srivastava (2010)28 evaluated that Stock market is an important segment of the
financial system of any country as it plays an important role in channelizing savings from
deficit sector to surplus sector. These stock markets have always been an area of serious
concern for policy makers, economists and researchers. They are often defined as the
barometer of any economy because they reflect the change and direction of pressure on the
economy. The movement and volatility in stock markets often reflect the direction of any
economy. The available literature suggests that since the inception of stock markets
researchers are making attempts to establish relationship between change in macroeconomic
factors and stock market returns.

55
Charles K.D, Adjasi, Nicholas B. Biekpe (2006) 29 studies the effect of stock market
development on economic growth in 14 African countries in a dynamic panel data modelling
setting. Results largely show a positive relationship between stock market development and
economic growth. Further analyses, based on the level of economic development and stock
market capitalization, are also conducted. The results reveal that the positive influence of
stock market development on economic growth is significant for countries classified as upper
middleincome economies. On the basis of market capitalization groupings, stock market
developments play a significant role in growth only for moderately capitalized markets. The
general trend in results shows that low-income African countries and less developed stock
markets need to grow more and develop their markets to elicit economic gains from stock
markets.

L.M.C.S. (2006)30 study investigates the effects of macroeconomic variables on stock

prices in emerging Sri Lankan stock market using monthly data for the period from
September 1991 to December 2002. The multivariate regression was run using eight
macroeconomic variables for each individual stock. The null hypothesis which states that
money supply, exchange rate, inflation rate and interest rate variables collectively do not
accord any impact on equity prices is rejected at 0.05 level of significance in all stocks. The
results indicate that most of the companies report a higher R2 which justifies higher
explanatory power of macroeconomic variables in explaining stock prices.

Roman Horvath& Dargan Petrovski (2012)31 examine the international stock

market co-movements between Western Europe vis-à-vis Central (Czech Republic, Hungary
and Poland) and South Eastern Europe (Croatia, Macedonia and Serbia) using multivariate
GARCH models in the period 2006–2011. Comparing these two groups, we find that the
degree of comovements is much higher for Central Europe. The correlation of South Eastern
European stock markets with developed markets is essentially zero. An exemption to this
regularity is Croatia, with its stock market displaying a greater degree of integration toward

Western Europe recently, but still below the levels typical for Central Europe.

Najeb M.H. Masoud (2013)32 tries to explore the causal link between stock market
performance and economic growth in terms of a simple theoretical and empirical literature 16
56
framework. Researchers hold diverse opinions regarding the importance of stock markets
playing a significant role in economic growth processes by performing the following
functions: improving liquidity, aggregating and mobilising capital, observing managers and
exerting corporate control, providing risk-pooling and sharing services including investment
levels. The growing theoretical literature argues that stock markets are crucially linked to
economic growth. The findings suggest a positive relationship between efficient stock
markets and economic growth, both in short run and long run and there is evidence of an
indirect transmission mechanism through the effect of stock market development on
investment. They are seen as providing a service that boosts economic growth.

Rafaqat Ali and Muhammad Afzal (2012)33 devastating global financial crisis
started from United States, spread all over the world and adversely affected real and financial
sectors of developed as well as developing countries. This crisis is called the first largest
crisis after the recession of 1930s. The prime aim of this study is to envisage the impact of
recent global financial crisis on stock markets of Pakistan and India. For this purpose, daily
data from 1st January 2003 to 31st August 2010 of KSE-100 and BSE-100 indices,
representing stock markets’ indices of Pakistan and India respectively, are used.

Avijan Dutta, Gautam Bandopadhyay & Suchismita Sengupta (2012)34 use

logistic regression (LR) and various financial ratios as independent variables to investigate
indicators that significantly affect the performance of stocks actively traded on the Indian
stock market. The study sample consists of the ratios of 30 large market capitalization
companies over a four-year period. The study identifies and examines eight financial ratios
that can classify the companies up to a 74.6% level of accuracy into two categories – “good”
or “poor” – based on their rate of return.

Gagan Deep Sharma & B.S Bodla (2010)35 states that financial markets of the world
for foreign capital has led to the increased financial integration among different countries.
This paper reviews and summarizes the research on the subject of integration and dynamic
linkages between stock markets in different parts of the world. Majority of the studies
suggested that market integration has increased significantly over the years, within an
international context. We find that not many studies have concentrated on the interaction of
Indian markets with the foreign markets, and most of the studies concerning Indian have
57
concentrated at the interrelationship of Indian stock market with those of the Developed
nations. Therefore, there is a scope to study the inter-linkages between Indian stock markets
and those of the other SAARC nations.

Peter Sellin (2002)36 gives a comprehensive view on the interaction between real stock
returns, inflation, and money growth, with a special emphasis on the role of monetary policy.
This is an area of research that has interested monetary and financial economists for a long
time. Monetary economists have been interested in the question whether money has any effect
on real stock prices, while financial economists have investigated whether equity is a good
hedge against inflation. Empirical studies show that money can be helpful in predicting future
stock returns. Empirical evidence also suggest that equity is not a good hedge against inflation
in the short run but may be so in the long run.

Alok Kumar Mishra (2004)37 attempts to examine whether stock market and foreign
exchange markets are related to each other or not. The study uses Granger’s Causality test and
Vector Auto Regression technique on monthly stock return, exchange rate, interest rate and
demand for money for the period April 1992 to March 2002. The major findings of the study
are (a) there exists a unidirectional causality between the exchange rate and interest rate and
between the exchange rate return and demand for money; (b) there is no Granger’s causality
between the exchange rate return and stock return.

Vivek Rajput & Sarika Bobde (2016)38 study different techniques to predict stock
price movement using the sentiment analysis from social media, data mining. In this paper we
will find efficient method which can predict stock movement more accurately. Social media
offers a powerful outlet for people’s thoughts and feelings it is an enormous ever-growing
source of texts ranging from everyday observations to involved discussions. This paper
contributes to the field of sentiment analysis, which aims to extract emotions and opinions
from text. A basic goal is to classify text as expressing either positive or negative emotion.
Sentiment classifiers have been built for social media text such as product reviews, blog
posts, and even twitter messages. With increasing complexity of text sources and topics, it is

58
time to re-examine the standard sentiment extraction approaches, and possibly to redefine and
enrich the definition of sentiment.

Vanita Tripathi & Shruthi Sethi (2010) 39 evaluated the Financial integration is one
of the buzz words in financial world. The co movement of share prices across the stock
markets in the world is a frequently experienced phenomenon. Especially during the times of
crisis, it is observed that the stock markets crash together. The oil crisis of 1973, the October
1987 crash, the South East Asian crisis of 1997 and the present financial crisis evidence the
same.

59
 Chapter 4: Data Analysis

4.1 YEAR EFFECT OF STOCK MARKETS

4.1.1 YEAR EFFECT OF NSE (NIFTY)

Indian benchmark indices posted their biggest daily percentage decline in 10 months on Friday, as a North
Korean threat to carry out a hydrogen bomb test in the Pacific Ocean rattled global markets. The Indian
government’s stimulus spending plan and jitters that it would widen the fiscal deficit also contributed to the
decline, which was led by bank stocks. The National Stock Exchange’s 50-share Nifty index dipped 1.56%
to close below the psychological 10,000-point mark at 9,964.40 points. The BSE Sensex tumbled 1.38% to
end at 31,922.44 points. North Korea struck back at US President Donald Trump’s threats to destroy it, with
Kim Jong Un warning of the “highest level of hard-line countermeasure in history” and his foreign minister
suggesting that could include testing a hydrogen bomb in the Pacific Ocean.

Indian stocks are the most expensive among peers, prompting concerns about valuations overshooting
fundamentals amid slow economic growth and an elusive corporate earnings recovery. “Impact of good and
services tax (GST) could be more prolonged and earnings recovery could be delayed by a quarter or two. As
a result, a market correction at this juncture should not come as a surprise,” said Ravi Gopala Krishnan, head
of equities at Canara Robeco Mutual Fund. The price-to-earnings ratio for FY19 is 18.48 and 18.18 for the
Sensex and Nifty respectively, whereas that for MSCI Emerging Markets is 12.76 and MSCI World 16.50.
Analysts described the correction in the Indian markets as healthy and long overdue.

Most stocks in the capital goods, healthcare and metals sectors were under pressure on Friday. Among
sectoral indices, the BSE Metal index fell 3.9%, reacting to China’s credit downgrade by S&P Global
Ratings, triggering concerns that demand from the world’s second-biggest economy may decline. So far this

60
year, FIIs have bought a net $6.4 billion worth of stocks, but sold $761.55 million worth of Indian equities in
September.

Even as the Nifty surged to fresh record high on April 3 2019, it’s intriguing to note that the index has grown
by a whopping 11.70 times in the last 25 years. Notably, the Nifty surged past its earlier high of 11,760.20 in
the morning trade on Tuesday, on the back of sustained FII flows ahead of the general elections due to fresh
optimism that PM Narendra Modi will return to power in 2019, say experts. Investors are convinced that
Modi will retain power in the upcoming election 2019, veteran investor Raamdeo Agrawal said in an
interview to ET Now.

Journey to 10,000: After the Narendra Modi-led government rose to power, the Nifty scaled the 7,000-mark
on 12 May 2014. On the back of a euphoria, it soon surged past the 8000- mark on 01 September 2014. The
next 1,000 took a while, as the Nifty breached 9,000 on 14 March 2017. “In 2017, Nifty spurred too the
9,000mark backed by strong buying from foreign investors,” noted a Kotak report. The Nifty finally crossed
the much awaited 5- figure mark of 10,000 on 25 th July 2017, amid good monsoons, strong corporate
earnings and the rollout of Goods and Services Tax (GST).

Gain to 11,000: Nifty crossed the 11,000-mark on January 23 rd 2018, on the back of fall in US crude oil
prices and the World Bank’s positive update on Indian economy. The move was significant. As it came
ahead of Union Budget 2018 presented on February 1 later that year. Record high of 11,761, the Nifty hit a
fresh record high of 11,761 on Monday. The index gained nearly 17% from record lows hit on October 26,
2018. In the near-term, the Nifty could top the crucial 12,000-mark. “We remain positive on markets in long-
term, but one can expect some profit booking from 12,000 levels, and near-term volatility from events like
credit policy, election results etc. cannot be ruled out. Any decline to around the 11,200 levels would be a
good opportunity to create long positions,” B Gopkumar, ED & CEO, Reliance Securities said as it came
ahead of Union Budget 2018 presented on February 1 later that year.

Record high of 11,761 This morning, the Nifty hit a fresh record high of 11,761 on Monday. The index
gained nearly 17% from record lows hit on October 26, 2018. In the near-term, the Nifty could top the
crucial 12,000mark. “We remain positive on markets in long-term, but one can expect some profit booking
from 12,000 levels, and near-term volatility from events like credit policy, election results etc. cannot be
ruled out. Any decline to around the 11,200 levels would be a good opportunity to create long positions,” B
Gopkumar, ED & CEO, Reliance Securities said. The S&P BSE Sensex and NSE Nifty 50 indices ended on
a flat note on last session of 2020 as losses in FMCG, IT and state-run banking offset gains in metal, pharma
and media shares. Both benchmarks traded on a choppy note for the most part of the day, as derivatives

61
(futures and options) contracts for the month of December expired at the end of the session. The Nifty
touched a record high of 14,024.85 during the session and the Sensex touched an all-time high of 47,896.97.

The Sensex ended 5 points higher at 47,751 and Nifty 50 index closed unchanged at 13,982. In the calendar
year 2020, the Sensex rallied 15.75 per cent and the Nifty climbed 14.90 per cent, making it the best year for
the indices since 2017, news agency Reuters reported. For the decade ended 2020, the Sensex has gained a
whopping 173 per cent and Nifty surged 169 per cent. A gush of liquidity by foreign investors has lifted the
benchmarks to new highs, according to analysts. On Wednesday, foreign institutional investors (FIIs) had net
bought Indian shares worth ₹ 1,824 crore. So far this calendar year, FIIs have net purchased domestic
equities worth $22.44 billion but net sold assets worth $14 billion in the debt markets, NSDL data showed.

Six of 11 sector gauges compiled by the National Stock Exchange ended higher, led by the Nifty Metal and
Pharma indices, which rose 0.7 per cent each. Auto, financial services, media and realty shares also
witnessed buying interest. On the other hand, PSU banking, FMCG, IT and private banking shares witnessed
mild selling pressure. Mid- and small-cap shares witnessed buying interest, with the Nifty Midcap 100 index
rising 0.5 per cent and the Nifty Small cap 100 index gaining 0.3 per cent. HDFC was the top Nifty gainer,
rising 1 per cent to close at ₹ 2,550 apiece on the BSE. Sun Pharma, Divi’s Labs, ICICI Bank, Asian Paints,
Dr Reddy’s Labs, Hindalco and HCL Technologies were also among the gainers. NSE believes that Small
and Medium Enterprises (SME) are crucial not only for economic growth, but also critical for employment
and inclusive growth. As of March 31, 2019, there are 189 SME companies listed on NSE Emerge (SME
Platform), of which 62 were listed during 2018-19 raising more than H1,048 crores. During fiscal 2019, the
aggregate value of Initial Public Offerings (IPOs) and Offer for Sale (OFS) was around H208.33 billion.
During FY2019, the number of listed companies available for trading on NSE was 1,884 compared to 1,758
at the end of March 31, 2018. The market capitalisation of securities available for trading on the Capital
Market segment has increased by 6.34% during 2018-19.

Table 4.1 Year effects of NSE (Nifty)

Year Effect

2000 1264
2001 1059
2002 1094
2003 1880
2004 2081
2005 2837
2006 3966
2007 6139
2008 2959

62
 2009 5201
2010 6185
2011 4624
2012 5905
2013 6304
2014 8283
2015 7946
2016 8786
2017 10531
2018 10863
2019 12168
2020 13982
Source: www.nseindia.com

Fig 4.1 Trend of Year effect of NSE (Nifty)

4.1.2 Year Effect of BSE (Sensex)

Ariel (1987) found that, on an average, rates of return were significantly lower during the
second half of the month as compared to the first half. This research found that month of the
year effect occurred in USA as well as few other developed countries. The research revealed
that the return was higher in January month and in December was generally lower in
comparison to returns in other months. Similar results were found by Jeffrey Jaffe and
Randolph Westfield (1988) in their investigation of stock markets of Australia, UK, Japan, and
Canada. This research found that returns over the second half of the month were lower than the
63
returns over the first half for Australia, UK and Canada. Wachtel (1942) was the first researcher
to investigate the January Effect. Haugen and Lakonishok (1988) studied the January Effect in
detail and has authored a book on this well-known calendar effect. Kok Kim Lian (2002)
studied the Year of Month Effect and Half Month Effect in the Asia Pacific stock markets.

The government had proposed to increase the surcharge levied on top of the applicable income
tax rate from 15 per cent to 25 per cent for those with taxable incomes between Rs 2 crore and
Rs 5 crore, and to 37 per cent for those earning over Rs 5 crore, taking the effective tax rate for
them to 39 per cent and 42.74 per cent, respectively. The Sensex rallied 1,922 points, or 5.3 per
cent, to end at 38,015, while the Nifty surged 569 points, or 5.3 per cent, to close at
11,274.2.That apart, the government announced a slew of policy reforms, which included
strategic sales of select public sector enterprises (PSEs) merger of select public sector banks
(PSBs), and an alternative investment fund of Rs 25,000 crore for the realty sector among
others. US-China trade talks: At the global level, flip-flop by the United States (US) on trade
related issues, especially with China, kept market participants on tenterhooks throughout the
year.
In November, market scaled fresh peaks one after another on the optimism around trade talks
between the two largest economies. In the latest development, both the countries have agreed on
the terms of a “phase one” trade deal that reduces some US tariffs on Chinese goods while
boosting Chinese purchases of American farm, energy and manufactured goods. Pre COVID-
19, market capitalization on each major exchange in India was about $2.16 trillion. The 2019
stock market rally was limited to 8-10 stocks within the large caps. The Sensex returned around
14% (excluding dividends) for the year 2019 but prominently featured blue-chip companies
such as HDFC Bank, HDFC, TCS, Infosys, Reliance, Hindustan Unilever, ICICI Bank and
Kotak Bank, without which Sensex returns would have been negative? However, in the start of
2020, there was overall recovery which led to both NSE and BSE traded at their highest levels
ever, hitting peaks of 12,362 and 42,273 respectively. At the beginning of the year, there were
close to 30 companies that were expected to file IPO’s. The market conditions were generally
favorable as they witnessed record highs in mid-January.
Ever since COVID 19 strike, markets loom under fear as uncertainty prevails. lt has sent
markets around the world crashing to levels not witnessed since the Global Financial Crisis of
2008. Following the strong correlation with the trends and indices of the global market as BSE
Sensex and Nifty 50 fell by 38 per cent. The total market cap lost a staggering 27.31% from the
start of the year. The stock market has reflected the sentiments this pandemic unleashed upon
investors, foreign and domestic alike. Companies have scaled back; layoffs have multiplied and
employee compensations have been affected resulting in negligible growth in the last couple of

64
months. Certain sector such as hospitality, tourism and entertainment have been impacted
adversely and stocks of such companies have plummeted by more than 40%. While the world
has witnessed many financial crises in the past, the last one being the global recession of 2008,
the current coronavirus crisis is different from the past fallouts. In response to current turmoil,
RBI and the Government of India has come up with a slew of reforms such as reductions of
repo rate, regulatory relaxation by extending moratorium and several measures to boost
liquidity in the system howsoever the pandemic has impacted the premise of the corporate
sector. Payment’s deferrals, subdued loan growth, rising cases of bad loans and sluggish
business conditions have impaired the growth and the health of the economic activity.
Deceleration of GDP growth, demand-supply chain, cut in discretionary expenses and CAPEX
has been the observed during the lockdown, which has led to falling in household incomes,
marketing spends, reduced travel cost and hiring freeze. Companies with innovative products,
increasing distribution reach, technology-driven processes and healthy balance sheet would
revive the growth momentum post lockdown. Lower oil prices and high capital expenditure by
the government in turn creating capital which will provide a platform to flourish when we
overcome COVID 19 pandemic.

Table 4.2 Year Effects of BSE (Sensex)

65
Source: www.bseindia.com

Fig 4.2 Trend of Year effect of BSE (Sensex)

4.2 Market Capitalization of Stock Markets (2000-2020)

Market capitalization Market capitalization is one of the most effective ways of evaluating the
value of a company. The evaluation of a company’s value is done based on a company’s stocks.
Essentially, this is defined by the total market value of the outstanding shares of a company.
This simple fact also means that publicly owned companies are the only ones which can be
66
evaluated by this method of evaluation. Fluctuating market conditions and stock prices also
impact the evaluation of a company when this method of evaluation is being used.

Large-cap: These are some of the most stable groups of companies in the market.
Consequently, investing in these companies is the least risky option.

Mid-cap: Companies which have had a certain growth and are somewhat stable; and yet have
immense potential of growth, come under this group of evaluation by market capitalization .

Small-cap: Constituting companies which have the least market cap are the riskiest of all
stocks.

Table 4.3 Top 10 Indian companies based on market cap

67
 Source: www.businessinsider.in

India's stock market is now the seventh biggest, up three spots, in the world as total market
capitalization increased to $2.7 trillion. The BSE Sensex crossed the 51,000, while the NSE
benchmark Nifty crossed the 15,000 level for the first time on February 2021. The
benchmark Nifty has gained 6.9% so far in 2021. India's stock market is now bigger than
Canada, Germany and Saudi Arabia. India's stock market is the second-best performer
among the top 15 countries in 2021 and soon it may overtake France to become the sixth
biggest in the world.

4.2.1 Market Capitalization of NSE (Nifty)

NIFTY 50 is NSE's diversified index comprising stocks from top 50 Indian companies across 14 sectors. It
tracks the market performance of the largest cap companies & hence, broadly reflects the Indian economy.
The NIFTY 50 index is India’s premier stock index. Launched on April 1, 1996, it's computed using the free
float market capitalization method.

Table 4.4 NIFTY 50 Companies

SYMBOL OPEN HIGH LOW PREV. LTP CH %CH VOLUME( VALUE( 52W 52W L
CLOS NG NG shares) H
₹ Lakhs)
E
NIFTY 16,48 16,81 16,35 16,65 16,79 135 0.81 40,42,14, 33,83,1 18,60 14,15
50 1.60 5.90 6.30 8.40 3.90 .5 666 35.64 4.45 1.40

HINDAL 537 580.0 531.8 533.9 572.1 38. 7.16 3,52,12,8 1,98,59 580.0 305.4
CO 5 5 25 27 3.30 5
TATAST 1,134. 1,225. 1,129. 1,145. 1,217. 72. 6.33 1,76,05,4 2,10,70 1,534. 681.2
EEL 00 00 20 35 90 55 46 7.26 50 5
POWER 197.4 210.2 196.0 197.3 208.3 11 5.58 2,39,53,7 49,215. 220.2 148.8
GRID 5 5 5 89 45 8
JSWSTE 591.5 629.8 590.2 598.6 626 27. 4.58 71,42,843 44,169. 776.5 392.0
EL 4 20 5

68
 BPCL 335.3 351.3 332 336.3 349.5 13. 3.91 95,73,141 33,124. 503 331.1
5 5 15 03
TITAN 2,430. 2,563. 2,430. 2,468. 2,556. 87. 3.55 23,55,891 58,965. 2,687. 1,400.
00 65 00 45 00 55 83 25 05
COALIN 162.4 169.9 160.5 163.4 169.2 5.7 3.52 2,08,72,2 34,796. 203.8 123.4
DIA 5 5 5 5 5 39 11
RELIAN 2,243. 2,367. 2,243. 2,283. 2,355. 71. 3.11 98,28,768 2,28,87 2,751. 1,876.
CE 00 35 00 95 00 05 6.62 35 70
DIVISL 4,120. 4,284. 4,078. 4,138. 4,262. 123 2.99 6,11,670 25,769. 5,425. 3,153.
AB 00 40 70 35 00 .65 05 10 30

NTPC 128.9 133.9 128.8 130.3 133.5 3.2 2. 1,32,62 17,582. 152.1 97.05
5 5 5 5 45 ,687 34
IOC 112.8 116.2 110.6 112.3 115.0 2.7 2. 1,65,21 18,728. 141.5 86.75
5 5 4 ,199 43
LT 1,764. 1,822. 1,752. 1,777. 1,815. 38.4 2. 25,53,6 45,925. 2,078. 1,306.
90 25 80 05 50 5 16 62 06 55 00
SHREECE 23,87 24,49 23,56 23,98 24,49 512. 2. 39,994 9,645.2 32,04 22,83
M 0.00 6.00 0.30 3.45 6.00 55 14 5 8.00 2.00

GRASIM 1,552. 1,604. 1,538. 1,567. 1,600. 32.1 2. 12,12,2 19,169. 1,929. 1,190.
50 40 45 85 00 5 05 86 51 80 85
ADANIPO 690 709.6 684.5 695.1 707.2 12.0 1. 42,88,1 30,021. 901 638.1
RTS 5 5 5 73 86 16
ASIANPAI 3,090. 3,190. 3,015. 3,119. 3,172. 52.8 1. 16,78,3 52,356. 3,590. 2,260.
NT 00 50 00 20 00 69 48 74 00 00
UPL 651 668.9 644.1 654.7 665.6 10.9 1. 30,60,9 20,120. 864.7 555.4
5 66 15 92 5
ICICIBAN 722.9 744.7 715.4 730.0 741.7 11.6 1. 2,05,47 1,50,95 867 531.1
K 5 5 5 5 6 ,432 1.71 5
SUNPHAR 821 847 821 831.5 844.2 12.6 1. 41,23,1 34,442. 902.8 562.1
MA 5 5 52 39 23 5

69
BAJAJFIN 15,70 16,08 15,36 15,77 16,00 227. 1. 3,73,25 58,750. 19,32 8,960.
SV 0.00 4.85 5.00 2.15 0.00 85 44 7 54 5.00 05
INFY 1,682. 1,728. 1,665. 1,694. 1,719. 24.4 1. 1,50,76 2,57,72 1,953. 1,244.
20 05 00 60 00 44 ,542 2.93 90 75
TECHM 1,380. 1,419. 1,363. 1,389. 1,409. 19.3 1. 49,83,1 70,097. 1,838. 915
00 85 25 70 00 39 40 33 00
TATACO 699.5 720.8 694.5 709.5 716 6.5 0. 19,35,3 13,768. 889 577.0
NSUM 5 92 44 04 5
ITC 213.2 216.4 210.8 213.9 215.9 1.95 0. 2,00,34 42,958. 265.3 199.1
5 5 91 ,633 26
TCS 3,490. 3,563. 3,455. 3,520. 3,550. 29.4 0. 32,88,9 1,16,09 4,043. 2,880.
00 75 90 75 15 84 42 4.72 00 00
BAJAJ- 3,497. 3,561. 3,448. 3,508. 3,530. 22 0. 3,87,04 13,614. 4,347. 3,027.
AUTO 70 00 05 40 40 63 0 48 00 05

ONGC 160.5 161.8 155.8 159.5 160.4 0.9 0. 2,02,10 32,235. 176.3 97.45
5 56 ,070 06 5
SBILIFE 1,049. 1,062. 1,016. 1,055. 1,060. 5.35 0. 15,66,1 16,398. 1,293. 852.2
00 80 85 60 95 51 46 33 25
BAJFINA 6,860. 7,025. 6,806. 6,969. 6,995. 25.6 0. 15,80,8 1,09,88 8,050. 4,362.
NCE 00 00 60 40 00 37 91 2.36 00 00
CIPLA 920.0 929.9 911 923.6 926.7 3.05 0. 15,34,0 14,171. 1,005. 738.1
5 5 5 33 18 72 00
HINDUNI 2,164. 2,179. 2,120. 2,170. 2,175. 4.85 0. 23,34,0 50,305. 2,859. 2,120.
LVR 00 90 00 70 55 22 36 48 30 00
WIPRO 551 560.1 544.1 555.2 556.3 1.05 0. 91,58,4 50,786. 739.8 397.7
5 19 37 28 5 5
SBIN 476.9 485.3 473.1 482.9 483.7 0.75 0. 1,80,69 86,685. 549 321.3
5 16 ,367 98
ULTRACE 6,538. 6,602. 6,440. 6,570. 6,570. - 0 5,57,28 36,563. 8,269. 5,970.
MCO 00 00 15 25 00 0.25 9 51 00 20
BRITANN 3,405. 3,440. 3,327. 3,422. 3,418. - 0. 4,26,92 14,469. 4,153. 3,327.
IA 00 00 35 75 00 4.75 14 9 61 00 35

70
HCLTEC 1,119. 1,133. 1,107. 1,129. 1,126. -3.7 0. 45,71,8 51,394. 1,377. 891
H 60 30 00 70 00 33 84 83 75

BHARTIA 681 690 666.4 688.6 686 - 0. 83,01,5 56,540. 781.8 494.6
RTL 5 5 2.65 38 23 01

MARUTI 8,300. 8,339. 8,114. 8,356. 8,304. - 0. 9,61,30 79,226. 9,050. 6,400.
00 95 10 10 90 51.2 61 3 65 00 00

NESTLEI 17,70 17,76 17,33 17,71 17,58 133. 0. 1,57,87 27,600. 20,60 16,00
ND 0.00 9.30 0.00 5.10 2.05 05 75 3 04 9.15 3.90

KOTAKB 1,837. 1,852. 1,814. 1,856. 1,841. - 0. 27,12,5 49,848. 2,253. 1,626.
ANK 00 00 70 70 00 15.7 85 62 75 00 00

INDUSIN 916 924.8 903 927.0 918.5 - 0. 32,99,9 30,234. 1,242. 811
DBK 5 8.55 92 12 78 00

TATAMOT 445 457.3 440.4 459.7 453.9 -5.8 1. 3,44,75, 1,55,96 536.7 268.4
ORS 5 5 5 5 26 468 3.57 5

HEROMOT 2,527 2,546 2,489 2,558 2,523 - 1. 10,08,6 25,481. 3,510 2,310
OCO .00 .95 .05 .40 .50 34.9 36 20 27 .90 .00

EICHERM 2,600 2,614 2,542 2,628 2,586 - 1. 8,15,19 21,015. 2,994 2,303
OT .00 .95 .75 .40 .00 42.4 61 1 95 .00 .70

HDFC 2,375 2,402 2,333 2,401 2,361 - 1. 83,66,6 1,97,77 3,021 2,286
.00 .80 .00 .35 .85 39.5 64 30 4.58 .10 .85

HDFCBAN 1,426 1,438 1,414 1,456 1,428 - 1. 1,24,40, 1,77,26 1,725 1,353
K .00 .55 .05 .10 .80 27.3 87 416 9.71 .00 .00

71
 M&M 807 807 786.7 807.6 791.1 - 2. 50,26,9 39,869. 979 724.6
5 16.5 04 13 45 5

AXISBANK 749.9 749.9 736.2 758.0 741.7 - 2. 1,44,63, 1,07,35 866.9 626.6
5 16.3 16 418 0.38 5
5
DRREDDY 4,150 4,150 4,052 4,176 4,064 111. 2. 9,82,85 40,026. 5,614 4,049
.00 .00 .50 .60 .95 65 67 0 47 .60 .95

HDFCLIFE 532 532.5 520.2 538.9 523 - 2. 1,06,69, 55,874. 775.6 520.2
5 15.9 95 560 35 5 5

Source: www.nseindia.com

4.2.2 Benefits of Investing in NIFTY50 Index

Diversification – It deploys the investment in multiple companies and sectors thereby

reducing risk compared to investing in a single or small set of companies. Over time Nifty 50
replaces the underperforming companies at a market level with performing one.

Wide market presence – Nifty 50 Index funds are quite popular in India and have a substantial
market presence.

Low cost - These funds have lower operating expenses as fund managers simply need to replicate the
index.

Inflation + returns - Index funds have consistently generated inflation beating returns over the
long term. Coupled with low costs it becomes excellent value for investors.

4.2.3 Market Capitalization of BSE (SENSEX)

The sum of the market value of BSE-listed companies crossed Rs 200 trillion for the first time,
on February 2021. The Sensex, ended at 50,614.29, up 358.54 points. In dollar terms, the
market cap figure of BSE-listed firms is $2.75 trillion -- the seventh highest globally. The

72
 country’s market cap-to-GDP ratio is now more than 100 per cent. Its nominal GDP (revised
estimate for
FY21) at current prices is around Rs 195 trillion. The combined market cap of BSE-listed
companies had topped the Rs 100 trillion-mark in December 2014. Back then, the market cap-
toGDP ratio was at 80 per cent. In September 2007, when the market cap crossed Rs 50 trillion,
the ratio was similar to the current level. The markets had come off more than 50 per cent in the
following year due to the global financial crisis. In less the one year, India’s market cap (based
on BSE-listed companies) has nearly doubled. At the peak of the coronavirus-induced sell-off in
March 2020, the market cap had plunged to Rs 102 trillion.

BSE MD and CEO, Ashishkumar Chauhan said, "It is heartening to note BSE continues to
remain the primary wealth creator of the nation. It is also good to note that no other developing
country at the stage of India’s development has a thriving capital market as compared to India.
BSE has also become the world's 9th largest exchange in terms of listed companies market
capitalization, as on date." The four recently listed companies which include Antony Waste
Handling, Indian Railway Financing Corporation, Indigo Paints, and Home First Finance
Company, added
₹52562.21 crore in total m-cap. The table below is an important data on BSE 30 Companies Share
prices, 52-week High and Low, PE ratio etc.

Table 4.5 Sensex 30 Companies

INDUSTRY MARKET CHANGE(%) NO OF MARKET
COMPANY PRICE(Rs) CAP.**(Rs
m)

SHARES(m)

ASIAN PAINTS PAINTS 3,172.70 1.70% 959.2 30,43,199

AXIS BANK BANKING 742.6 -2.10% 3,061.50 22,73,444

BAJAJ FINANCE FINANCE 7,001.90 0.50% 602.6 42,19,226

73
BAJAJ FINSERV FINANCE 16,007.40 1.50% 159.1 25,47,369

BHARTI AIRTEL TELECOM 686.3 -0.30% 5,455.60 37,43,876

DR. REDDYS PHARMA 4,063.00 -2.80% 166.3 6,75,661

LAB

HCL SOFTWARE 1,126.70 -0.30% 2,713.70 30,57,351

TECHNOLOGIES

HDFC FIN. 2,365.00 -1.60% 1,800.20 42,57,463

INSTITUTIONS

HDFC BANK BANKING 1,426.70 -2.00% 5,507.70 78,57,774

HUL FMCG 2,169.40 -0.10% 2,349.60 50,97,010

ICICI BANK BANKING 742.5 1.60% 6,903.70 51,25,647

INDUSIND BANK BANKING 921 -0.60% 757.1 6,97,294

INFOSYS SOFTWARE 1,717.30 1.40% 4,259.60 73,14,990

ITC FMCG 215.8 0.80% 12,305.10 26,54,828

KOTAK BANKING 1,842.70 -0.80% 1,980.50 36,49,329

MAHINDRA
BANK
L&T ENGINEERING 1,816.90 2.20% 1,404.30 25,51,394

M&M AUTO 791 -2.10% 1,243.20 9,83,303

MARUTI AUTO 8,312.40 -0.50% 302.1 25,10,995
SUZUKI

NESTLE FOOD 17,603.10 -0.60% 96.4 16,97,211

BEVERAGES

NTPC POWER 133.5 2.50% 9,696.70 12,94,505

74
POWER GRID POWER 209.2 6.00% 5,231.60 10,94,449

RELIANCE IND. ENERGY 2,359.10 3.30% 6,762.10 1,59,52,394

SBI BANKING 483.3 0.10% 8,924.60 43,13,265

SUN PHARMA PHARMA 843.4 1.50% 2,399.30 20,23,479

TATA STEEL STEEL 1,220.90 6.60% 1,204.10 14,70,119

TCS SOFTWARE 3,554.60 1.00% 3,752.40 1,33,38,039

TECH SOFTWARE 1,411.00 1.60% 967.4 13,65,034

MAHINDRA

TITAN CONSUMER 2,544.70 3.10% 887.8 22,59,105

DURABLES

ULTRATECH CEMENT 6,569.80 0.00% 288.6 18,96,272

CEMENT

WIPRO SOFTWARE 555.9 0.10% 5,715.30 31,76,871

Source: www.bseindia.com

4.2.4 Benefits of Investing in BSE (SENSEX)

• 1. Better returns – A historical back test on the top indices in India viz. the Nifty 50 and BSE
Sensex, reveals that investing in the Sensex can return slightly higher returns than the Nifty 50. Keep
in mind to choose a Sensex based index fund with high liquidity.

• 2. Diversification – Investing in an index fund automatically extends you the benefit of portfolio
diversification, thereby reducing portfolio risk.

• 3. Less expensive - Being a passively managed fund you are required to pay minimal fees. This
essentially means lesser expenses to eat into your returns.

75
4.3 Risk and Returns of Indian Stock Market (2000-2020)

One of the major objectives of investment is to earn and maximize the return. Return on
investment may be because of income, capital appreciation or a positive hedge against inflation.
The expected return may differ from realized return. In security analysis, we are primarily
concerned with returns from the investor perspective. Our main concern is to compute or
estimate the returns for an investor on a particular investment.
According to the dictionary, Risk means existence of volatility in the occurrence of an expected
incident. Higher the unpredictability greater is the risk. According to this definition risk may or
may not involve money. All investments involve risk of one type or the other. Risk and return
are of two sides of the investment coin. Risk is associated with the possibility of not realizing
return or realizing less return than expected. The degree of risk varies on the basis of features of
the assets, investment instruments, the mode of investment, the issuer of the securities etc.
Thus, risk of an investment is the variance associated with its returns. The chance that an
investment's actual return will be different than expected. Risk includes the possibility of losing
some or all of the original investment. Different versions of risk are usually measured by
calculating the standard deviation of the historical returns or average returns of a specific
investment. A high standard deviation indicates a high degree of risk. We can distinguish
between expected return and realized return from an investment. The expected return is
uncertain future return that an investor expects to get from his investment. The realized return,
on contrary, is the certain return that an investor makes the investment decision based on
expected returns from the investment. The actual return realized from an investment may not
correspond to expected return. This possibility of variation of the actual return from the
expected return is termed as risk. Where realization corresponds to expectations exactly, there
would be no risk. The empirical evidence against the CAPM by Fama and French (1992) has
generated a lot of debate in the west and has called for major re-examination of the CAPM
model. While many studies have been conducted on CAPM in the capital markets of the
western countries, there are few studies in the Indian context. Studies by Varma (1988), Yalwar
(1988), Srinivasan (1988) have generally supported the CAPM theory. Sudies by Basu (1977),
Gupta and Sehgal (1993), Vaidyanathan (1995), Madhusudhan (1997), Sehgal (1997), Ansari
(2000), Rao (2004), Manjunatha and Mallikarjunappa (2006,2007) have questioned the validity
of CAPM in Indian markets. But Ansari (2000) has opined that the studies of CAPM on the
Indian markets are scanty and no robust conclusions exist on this model.

76
4.3.1 Risk and Returns of NSE

Nifty50 is a broader index compared to Sensex, consisting of 50 large companies listed on

National Stock Exchange of India (NSE). Over the years, Nifty50 has be-come the most widely
used benchmark for exchange traded products in Indian equity market. Growth rate of India’s
GDP is fairly captured in the growth story of Nifty50. Over the years, India has been one of the
fastest growing large economies of the world which is also reflected in the rise of Nifty50
Index.

Nifty 50 returns and Nifty 50 Total Returns Index

The dividends of the stocks in the Nifty 50 are assumed to be reinvested in the index after the
close of the ex-date. Such an index is called the Total Returns index. The Nifty 50 has a TRI
version also available and the same is used as a benchmark for several mutual funds. The total
returns index therefore has a higher return than the Nifty 50 when considered for any period of
time.

Table 4.6: Annual returns of Nifty

77
Source: www.nseindia.com

78
 Fig 4.3

Nifty has a CAGR of 11.1% in the last 20 years (since 1999) and 8.87% in the last 10 years (since 2009 –
this is an aberration as it came on back of monster recovery from the lows of March 2009 to Dec 2009 and
thereby depressing the returns from Dec 2009 to Dec 2019 period). s at 1205 on February 27, 2002, just
before a lacklustre budget dashed investors’ hope. The annual low came in late October with Nifty at 920.
With an average value of 1056 for Nifty and a standard deviation of 68 points, this is a very narrow range.
But the returns were a lot better than in calendar year 2001 (minus 20 per cent) and 2000 (minus 23 per
cent). That’s too bad years, followed by a marginal recovery. The market pulled above it.

The annual high of Nifty was own 200 DMA in the last quarter and has stayed above that benchmark. This is
a reliable signal of a new bull market. The moving average signal is reinforced by the breach of a falling
minus 40-degree trend line that connected successively lower tops between February and November. The
recovery has come on decent volumes, which suggests that it's based on rising demand and, hence,
sustainable. "Oil is a big question mark -- there will be volatility here but we don't know the direction. The
Iraq situation will affect global prices and the speed of divestment of public sector units will affect domestic
sentiments. If India's economy does show strong overall recovery, there will be turnarounds in many other
sectors". Devangshu Datta, independent analyst. Nifty has shed over 29 per cent since May 11, 2006. The
mid-cap and small-cap stocks continue to be the worst affected in this market. The CNX mid-cap index is
lighter by 35 per cent since May. The market saw the beginning of a bullish formation, an Ascending
Triangle, on the monthly chart at the beginning 2007. This formation took seven years to complete. In 2014,
the Nifty50 achieved a positive breakout. This Ascending Triangle formation was between 3,818 on the
lower side and 6,350 on the higher side.

79
4.3.2 Risk and Return of BSE

The 2+ decades-long journey has been a volatile one. In the last 20 years, we have had:

• 15 years with positive returns

• 5 years with negative returns

In 2002-2003, the annual index returns after that have been 3.5%, 72.9%, 13.1%, 42.3%, 46.7%, 47.1%.
And this is not normal. This was unprecedented and chances are high that such a sequence of high positive
returns, might not get repeated again for many years if not decades. So do not have such expectations of
multi-year high returns from stock markets. In fact, we should be ready to face ugly years like 2008-2009 –
when index itself fell by more than 50% and individual stocks crashed by 80-90%. I have said countless
times that one should invest more in market crashes or when everyone else is giving your reasons to not
invest. But that is easier said than done. When a crisis like the one in 2008-2009 comes, it is not easy to
combine your cash with courage. Intense selling today brought the BSE Sensex to its lowest closing of 2006.
Weak global markets and worries over inflation and higher interest rates continued to drag stock prices down
to sharply lower levels on the major Indian bourses. During the financial crisis of 2007–2008, the stock
markets in India fell on several occasions in 2007 as well as 2008. In 2007, there were five sharp falls in the
stock markets. On 2 April 2007, The Sensex fell by 617 points to 12,455 though during the course of the
day, it fell further. As per the analysts at rediff, "The Sensex opened with a huge negative gap of 260 points
at 12,812 following the Reserve Bank of India [Get Quote] decision to hike the cash reserve ratio and repo
rate. Unabated selling, mainly in auto and banking stocks, saw the index drift to lower levels as the day
progressed. The index tumbled to a low of 12,426 before finally settling with a hefty loss of 617 points
(4.7%) at 12,455. On 21 November 2007, trying to explain the fall, rediff recounted that "Mirroring
weakness in other Asian markets, the Sensex saw relentless selling." The index tumbled to a new low of
18,515 - down 766 points from the previous day's close. It finally ended with a loss of 678 points at 18,603. "
On 21 Jan 2008, the BSE fell by 1408 points to 17,605 leading to one of the largest erosions in investor
wealth. The BSE stopped trading for a while at 2:30 pm due to a technical snag although its circuit filter
allows swings of up to 15% before stopping trading for an hour. Referred to in the media as "Black
Monday", the fall was blamed by analysts at HSBC mutual fund and JP Morgan on a large variety of reasons
including change in the global investment climate, fears of United States' economy going into a recession,
FIIs and foreign hedge funds selling in order to reallocate their funds from risky emerging markets to stable
developed markets, a cut in US interest rates, global bourses (often referred to as event related volatility),
volatility in commodities markets, a combination of global and local factors ("...other emerging markets
were down nearly 20% so India is playing catch-up..."), huge build-ups in derivatives positions leading to
margin calls and that many IPOs had sucked out liquidity from the primary market into the secondary
80
market. HSBC mutual funds analysts predicted further falls in the stock market, and the analysts at JP
Morgan were of the opinion that market would fall a further 10-15%. On the next day on 22 January 2008,
the Sensex again fell by 875 points to 16,729. Jan 22, 2008: The Sensex saw its biggest intra-day fall on
Tuesday when it hit a low of 15,332, down 2,273 points. However, it recovered losses and closed at a loss of
875 points at 16,730. The Nifty closed at 4,899 at a loss of 310 points. Trading was suspended for one hour
at the Bombay Stock Exchange after the benchmark Sensex crashed to a low of 15,576.30 within minutes of
opening, crossing the circuit limit of 10 per cent. On 24 August 2015, the BSE Sensex crashed by 1,624
points. Finally, the indices closed at 25,741 points and the Nifty to 7,809 points. The reason given for this
crash was given as a ripple effect due to fears over a slowdown in China, as the Yuan had been devalued two
weeks ago leading to a fall in the currency rates of other currencies and the rapid selling of stocks in China
and India. The Shanghai stock exchange too fell by 8.5%. A variety of other reasons too were given for this
fall by analysts including disappointing earnings in the first quarter for many Indian companies, somber
commentaries by their management leading to doubts regarding their recovery and a below average monsoon
for that year.

Table 4.7: Annual returns of Sensex

81
 Fig 4.4

The stock markets in India continued to fall in 2016. By 16 February 2016, the BSE had seen a fall of 26%
over the past eleven months, losing 1607 points in four consecutive days of February. The reasons given for
this included NPAs of Indian banks, "global weaknesses" and "global factors". In the four months from
November 2015 to February 2016, FIIs were reported to have sold equities worth Rs 17,318 crore as, in the
opinion of analysts, concerns grew over growth in China and as crude oil prices tumbled below $30 per
barrel. On 9 November 2016, crashed by 1689 points, believed by analysts to be due to the crack down on
black money by the Indian government, resulting in frantic selling. The Sensex nosedived by 6% to 26,902
and the Nifty dropped by 541 points to 8002. These were said to be due to the demonetization drive by the
Modi government. The Hindu was of the opinion that the weakening rupee and the US presidential election
too had some bearing on the behavior of investors. The S&P had also fallen by 4.45%. Although not
classified as a crash, the BSE and NSE fell sharply on 2 and 5 February 2018, sparked by the comments of
the Finance minister's proposal in the budget speech to introduce a 10% long term capital gains tax (LTCG)
on equity shares sold after 12 months. The BSE Sensex fell by 600 points in two days, and the Nifty 50 fell
by about 400 points to 10,676 on 5th. Earlier, the BSE Sensex had fallen by 570 points to 35,328 on 2
February and the NSE Nifty by 190 points to a low of 10,826. On 1 February 2020, as the FY 2020-21
Union budget was presented in the lower house of the Indian parliament, Nifty fell by over 3% (373.95
points) while Sensex fell by more than 2% (987.96 points). The fall was also weighed by the global
breakdown amid coronavirus pandemic centered in China. On 28 February 2020, Sensex lost 1448 points
and Nifty fell by 432 points due to growing global tension caused by coronavirus, which W.H.O said has a
pandemic potential. Both BSE and NSE fell for the entire five days of the week ending with the worst
weekly fall since 2009.On March 4 and 6, markets fell by around 1000 points and several crores of wealth

82
was wiped out. On 6 March 2020, Yes Bank was taken over by RBI under its management for reconstruction
and will be merged with SBI. This was done to ensure smooth functioning of the bank as it was struggling
for couple of years to cope up with heavy pressure due to cleaning of bad loans. On 9 March 2020, the
Sensex fell by 1,941.67 points, while Nifty-50 broke down by 538 points. The fear of COVID-19 outbreak
has created havoc all over the globe and India is no exception. Further, the recent Yes Bank crisis also made
the markets fell. The markets ended in red with Sensex closing on 35,634.95 and Nifty-50 on 10,451.45. On
12 March 2020, the Sensex fell by 2919.26 points (-8.18%), the worst continuation of the week in the history
while Nifty-50 broke down by 868.25 points (-8.30%) amid World Health Organization (WHO) declaring
Coronavirus outbreak as "pandemic”. Sensex ended to 33-month low of 32778.14. On 16 March 2020,
Sensex plunged by 2,713.41 points (around 8%), the second worst fall in its history. On the other hand, Nifty
ended below 9200–mark at 9,197.40 due to global economic recession. However, the Sensex continued to
fall straight for 4–continuous days till 19 March 2020, losing 5815 points during the period. On 23 March
2020, Sensex lost 3,934.72 points (13.15%) and Nifty plunges 1,135 points (12.98%) at 7610.25 as
coronavirus-led lockdowns across the world triggered fears of a recession. These are now the lowest levels
since 2016. It's witnessing the biggest weekly loss since October 2008, as the increasing number of
coronavirus cases in India as well as globally.

Chapter 5: CONCLUSION, FINDINGS AND SUGGESTIONS

During the course of present study, a larger numbers of observations have come to light, which have been
thoroughly reviewed, examined and explored in depth on various aspects of capital market in India in
general, and secondary or stock market in particular. The present chapter is aimed at presenting such major
findings eliminated from the study to offer some useful suggestions which have been incorporated in two

83
sections viz. section first contains major conclusions and findings and section second deals with useful
suggestions.

5.1 Conclusion

Indian stock market now grown into a great material with a lot of qualitative inputs and emphasis on investor
protection and disclosure norms. The market has become automated, transparent and self-driven. It has
integrated with global markets, with Indian companies seeking listing on foreign capital markets exchange,
off shore investments coming to India and foreign funds floating their schemes and thus bringing expertise in
to our markets. India has achieved the distinction of possessing the largest population of investors next to the
U.K., perhaps ours is the country to have the largest number of listed companies with around several equity
fund management avenues and National Fund managers most of them automated. India now has world class
regulatory system in place. Thus, at the dawn of the new millennium, the equity funds market has increased
the wealth of Indian companies and investors. No doubt strong economic recovery, upturn in demand,
improved market structure, and other measures have also been the contributory driving forces. Even though
Covid pandemic has fall in India stock market, it recovered with huge hikes along with the economic

recovery of the nation.

The growth of industry and economy of a country is closely related to the well organized and regulated
capital market. The savings of the community are mobilized into investments through a variety of financial
institutions and markets. A well organized capital market provides essential attributes, liquidity,
marketability, safety and price continuity to long-term securities. The borrowings by Government and local
bodies and operations of the various financial institutions, make the capital market a complex organizational
entity susceptible to pushes and pulls from several directions. In India, the capital market is not organized to
that extent as in the developed counties like U.S.A, U.K and Japan etc. But after independence of India,
stock market made tremendous progress in this field and a large number of financial institutions like IDBI,
IFCI, ICICI, SFCs, SIDCs, LIC, UTI and GIC etc. came into existence to fill-up the structural gaps. These
various corporate sector. Commercial banks, issue houses, leasing companies, venture funds mutual funds
etc also play a significant role in development of the capital market. s types of public financial institutions
provide long-term funds, to public as well as private corporate sector. Commercial banks, issue houses,
leasing companies, venture funds mutual funds etc also play a significant role in development of the capital
market.

Financial market is a place or mechanism where funds and savings are transferred from surplus units to
deficit units. These markets can be broadly classified into money market and capital market. Money market
deals with short-term claims of financial assets, whereas capital market deals with those financial assets
which have maturity period of more than a year. Financial market can also be classified into primary market
84
and secondary market. Primary market deals with securities which are already issued and are available in the
market. A Primary market by issuing new securities, mobilizes the savings, directly whereas, the secondary
markets provide liquidity to the securities and thereby indirectly help in mobilizing the savings. The History
of the Indian Capital Market and the Stock Market in particular, can be traced back to 1861 when the
American Civil
War began. Stock Exchange Mumbai came into existence in 1875 but was recognized as Bombay Stock
Exchange in May 1927 under the Bombay Securities Contract (Control) Act, 1925. To regulate security
Market, Securities Contracts (Regulation) Act 1956 was passed by the Government of India. To regulate the
issue of share prices, the Controller of Capital Issues Act (CCI) was passed in 1947.

The 1990s can be described as the most important decade in the history of Indian Stock Market. Everyone
was talking about liberalization 1 and globalization. These initiatives opened the gates to Domestic Capital
Market, International Capital Market and Foreign Direct Investment in India. But 1990s was known for big
scam history of Indian Stock Market. The scam, known as the 1992 securities scam, was master minded by
Harshad Mehta. The impact of such incidence was very deep and investors drove their money out of the
market for some years. Positive side of this event was that it opened the eyes of Indian Government. Due to
such scam, Government introduced Securities and Exchange Board of India Act, 1992 to regulate and
monitor Indian securities market. The National Stock Exchange was set-up in 1994 and Over the Counter
Exchange of India, was set-up in 1992. The Indian Capital Market entered the twenty-first century with the
Ketan Parekh scam. As a result of this scam, badla was discontinued from July 2001 and rolling settlement
was introduced in all scrips.

Big Satyam scam was exposed in 2008 when founder CEO Ramalinga Raju admitted that for seven long
years, he inflated income, profits and cash reserves. The fraud amounted to Rs.7,281 crore in this scam. On
10th January, 2008, BSE Sensex crossed the Stock Indices by 21,000 points in the history of Indian Stock
Market for the first time and reached to 21,206.77 points. In the year 2008, an eventful week of great
turbulence has begun in the global financial scenario as stock prices dipped across much of the globe on
news that investment bankers, Lehman Brothers' holdings filed for bankruptcy. Such global financial crisis
hit Indian Stock Market badly.

The organizations of stock exchanges in India constitute; Limited Companies by Shares, Companies Limited
by Guarantee and Associations of Individuals. In India, demutualization of stock exchanges has been started
with some of the regional stock exchanges which are in the process of corporatisation and demutualization.
To faster the process of demutualization, the Securities Contracts (Regulation) Act was amended on 12
October, 2004 through an ordinance making it compulsory for the exchange to convert into corporate entities
and delink their broker-members from the management. The rules and regulations of membership in the
stock exchanges are governed by the Securities Contracts (Regulation) Rules 1957.

85
The lack of qualified and professionalized members, inactive members, improper maintenance system, lack
of infrastructure facilities, inadequate financial strength and trading in own account by the brokers have
inhibited the growth of stock exchanges in India. Various undesirable activities like option dealings, insider
trading, kerb trading, wash sale etc. have inhibited the growth of industrial mechanism of securities in the
stock exchanges. As a result of introduction of on-line trading, it ensures transparency, increases information
efficiency by allowing faster incorporation of price sensitive information into prevailing prices and results in
operational efficiency as there is reduction in time, cost, risk of error, and fraud and eliminates the chain of
brokers and jobbers, which results in low transaction costs.

The stock exchange benefits the entire community in variety of way. It enables the producer to raise capital
which directly or indirectly gives gainful employment to millions of people on the one hand and helps
consumers to get the variety of goods needed by them on other. It provides opportunities to savers to store
the value either as temporary or as a permanent abode of purchasing power in the form of financial assets. It
also helps the segments of the savers who put their savings in commercial firm and non-banking financial
intermediaries because these institutions avail themselves of the services of stock exchanges to invest the
money thus collected. The stock exchanges in India as elsewhere, have a vital role to play in the
development of the country in general and industrial growth of companies in the private sector in particular
and helps the Government to raise internal resources for the implementation of various development
programmes in the public sector.

A well developed and healthy stock exchange can be and should be an important institution in building up a
property base along with a socialist concept in India with broader distribution of wealth and income. Thus
stock exchange is a vital organ in a modern society. Without a stock exchange, a modern democratic
economy cannot exist. The trading of securities through stock exchanges is playing a vital role in mobilizing
the savings into effective investment.

For protecting the interest of investors, the Government of India passed various legislations like Companies
Act, 1956, Capital Issues (Control) Act, 1947 and Securities Contracts (Regulation) Act, 1956. These
legislations have brought many changes in the working of stock market in India till 1991. The year 1991,
witnessed a big push being given to liberalization and reforms in the Indian financial sector.

As a part of the same reform process, the globalization or internationalization of Indian financial system
made it vulnerable to external shocks. The multi-crore securities scam rocked the IFS in 1992. It was felt that
the then existing regulatory framework was fragmented, ill-coordinated, and inadequate and that there was a
need for an autonomous, statutory, integrated organization to ensure the smooth functioning of the IFS. The
SEBI came into being as a response to these requirements. The SEBI was established on April 12. 1988
through an administrative order, but it become a statutory and really powerful organization only since 1992.
The CICA was repealed and the office of the CCI was abolished in 1992, and the SEBI was set-up on 21

86
February 1992 through an ordinance issued on 30 January, 1992. Certain powers under certain sections of
SCRA and Companies Act, 1956 have been delegated to the SEBI.

The SEBI introduced an array of reforms in the primary and secondary markets and catalyzed modernization
of the market infrastructure to prepare the market for the twenty first century. SEBI has wide powers to issue
rules, regulations and guidelines in respect of both primary and secondary securities markets. A wide variety
of intermediaries are operating in these, markets, viz. brokers, merchant bankers, underwriters, bankers to
issues and certain financial institutions such as mutual funds etc. It is empowered to summon all categories
of market intermediaries, to investigate their working, to impose penalty, and to initiate prosecution against
them. But the GOI can supersede the SEBI under certain circumstances, and in respect of all policy mattes,
the GOI can give directions to the SEBI. The GOI's decision is final in every case.

Significant changes have acquired in the Indian Stock Market during last some years. The origin of these
changes can be traced to introduction of screen based trading system. Securities are fast loosing their
physical form with the scrips of a large number of leading companies going for compulsory demating.
Trading is now done through the medium of brokers and sub-brokers, though with the aid of computer
screen.

It is concluded that there has been significant growth in the number, as well as qualitative changes in the
constitution of market intermediaries, stock exchanges, brokers, sub-brokers, FIIs, merchant bankers,
bankers to an issue, underwriters, registrar to issue and share transfer agents, portfolio managers and mutual
funds, etc.

In respect of BSE, the annual turnover, market capitalization and the BSE Sensex increased sharply. The
NSE which was granted recognition as a stock exchange in April 1993, started operations with the wholesale
debt market segment in June 1994. It started equity trading in November 1994 and, in a short span of one
year, surpassed the volume of the BSE which was formed in 1875. The NSE is the only stock exchange in
world to get the first place in the Country in the first year of its operations. The NSE was also the first
exchange to grant permission to brokers for internet trading.

Indian Stock Market has registered various developments in last few years. Many steps have been taken in
recent years to reform the secondary market so that it may function efficiently and effectively. But the Indian
Stock Market is suffering from many limitations, viz., price rigging, absence of genuine investors, lack of
liquidity, lack of transparency, insider trading, high volatility, and lacking professionals, etc.

The securities of the companies which are listed on a recognized stock exchange, have better credit standing
and have helped in widening the market. Investors also prefer to make investment in listed securities. The
stock exchanges have helped in improving the public response in security market. They have provided
liquidity and marketability to the listed securities, as the trading is stock market in subject to bye-laws, rules

87
and regulations with ensuring safety and fair dealings in security. The securities dealt in on the stock
exchange are negotiable. They can be pledged as collateral securities for raising funds. The stock exchanges
furnish the information to the investors and price quotations from time to time and this way, they have
helped in widening the share ownership base by giving preference to the small investors while making
allotments as the companies have to decide the allotment procedure in consultation with the recognized stock
exchange where the shares are listed.

Stock market renders valuable services to the country, corporate sectors and investing community. The stock
exchanges have helped in rapid economic development and economic growth and have served as agencies of
capital formation. It is concluded that stock markets induce the masses to save and invest in industries and
facilitate in more productive channels thereby help in proper utilization of scarce financial resources of the
country. Stock engages help in the promotion of business enterprises and raising funds for pubic enterprises.
The price movements in the stock market reflect the state industrial development.

The study concludes that Indian Stock Market in the pre and post liberalization era was embedded with
numerous systematic changes which have taken place during the short history of Indian Stock Market (ISM).
However, it is also concluded that retail investors are yet to play a substantial role in the stock market just
like the long-term investors as retail participation in India is very limited, considering the overall savings of
households.

For comparative analysis of Indian Stock Market in pre and post liberalization period, performance of Indian
Stock Market has been evaluated in terms of growth of stock exchanges, number of listed companies, market
capitalization per listed company, annual average share price of BSE Sensex, and BSE National Index 100,
market capitalization and turnover as a percentage to GDP, ranking of Indian Stock Market in the world top
stock markets and percentage share of Indian Stock Market in world market in respect of market
capitalization and turnover and has been concluded that Indian Securities markets displayed downward trend
from 2007 to March 2009. The down swing in the domestic equity markets was in consonance with the
downward spiral in global equity markets triggered by international financial crisis. It is analyzed that
during global financial meltdown, market capitalization, turnover and average price indices of BSE and NSE
reduced.

Finally, it has been concluded that drastic changes have taken place in the functioning and performance of
stock market during the pre and post liberalization period and that economic slow down has hit the Indian
Stock Market badly which has reduced turnover, market capitalization and average share price indices of
BSE Sensex and NSE S& P CNX Nifty.

88
5.2 Findings and Suggestions

Stock market is the physically existing institutionalised set up where instruments of security stock market
like shares, debentures, bonds, securities are traded. Stock market makes a floor available to the buyers and
sellers of stocks and liquidity comes to the stocks. At this scenario the importance of investing in stock
market is getting higher. The number of investors and the number of stock market out of which a majority
are online markets , are increasing day to day. Currently investing in stock market and having an intraday
trading is considered as the best way to earn money. Considering its importance the present study
concentrate on ‘A Study on Indian Stock Market: NSE and BSE’. The objectives of the study are to study
about the emerging stock markets in India such as NSE and BSE, to study about the trend of year effect of
the Indian stock market (BSE and NSE) from 2000 to 2020, to examine the market capitalisation of Indian
stock market (NSE and
BSE) from 2000 to 2020, to examine the trend of risk and return of Indian stock market (NSE and BSE)
from 2000 to 2020 and to study about the type of trading preferred by the investors in stock market. In order
to assess the objective both primary data and secondary data were used. The primary data were collected
from 75 respondents from Mumbai by using google form. The secondary data was collected from various
journals, articles, publications and online websites.

5.2.1 Findings of the study

• Due to covid-19 pandemic, Sensex lost 3,934.72 points (13.15%) to 25, 981.24 and Nifty lost 1,135 points
(12.98%) to 7610.25.

• The biggest stock market crashes in India were caused mainly due to covid19 pandemic, 2008 financial
crisis, Harshad Mehta scam.

• Nifty has less risk and higher liquidity than Sensex. Nifty suffer lower market impact cost than Sensex.

• Covid-19, strong correlation with the trends and indices of the global market as BSE Sensex and Nifty 50
fell by 38%. The total market cap lost a staggering 27.3% from the start of the year. 75

• Pre covid-19, market capitalisation on each major exchange in India was about $2.6 trillion. The Sensex
returned around 14% for the year 2019 prominently featured blue chip companies such as HDTV bank,
TCS, Infosys, Reliance, ICICI, without which Sensex return would have been negative.

• Despite a population of over 1.2 billon, there exist only 20 million active trading accounts in India.

89
• Among all the investment avenues in the stock market banking is considered as the most sensitive
investment avenue the fine stocks of banking sectors shows Arch effect which means period of high vitality
is followed by similar high volatility and low is followed by low volatility.

• All the stockholders prefer to have online mode of trading. As the advancement of technology and the
pandemic scenario have made stock market into an online mode of trading. But there are few people who
still thinks that the old traditional method of trading should be followed i.e Floor Trading.

5.2.2 Suggestions

1. Financial literacy programmes should be provided to answer all these questions such as what is the
concept of shares? What are the rights of minority shareholders? What is the risk of buying equity? The
government along with Reserve Bank of India and Securities and Exchange Board of India should decide to
embark upon a massive campaign to increase awareness among retail investors. At present, only 1.6 present
of total household savings is directed towards the market. These programmes should be held in all major and
mini metres to encourage small investors residing in towns and villages.

2. There should be necessary amendments in Companies Act, 1956 by containing a specific clause
allowing shareholders' democracy with protection of the rights of minority stakeholders and responsible
selfregulation with disclosure and accountability.
3. The development of suitable media is a must to educate the people to invest in securities, based on
their merits and demerits and functioning of stock exchanges. So Indian Institute of Chartered Accountants
and Indian Institutes of management should actively participate in investors awareness programme. Industry
bodies like the CII and FICCI should also be roped in for the awareness programme.
4. The fate of primary market is closely linked to secondary market. So it is important to make the later
a fraud free, transparent and investor friendly place. The very first step is to identify and punish the
companies who are floating there vanished funds with the issued funds in the market. To avoid recurrence of
this, a proper system is required to be put in place and for this, the very critical need is to disclose relevant
information with due emphasis on quantity, and format of delivery, and ensure that investors of all classes
get information at the same time.
5. Besides the regulatory measured, the following suggestions are made for better performance of New
Issue Market.
i) The merchant bankers or the lead managers should own full responsibility for disclosures and
projections about the company. The certificate from them should not be considered as the last document at
any stage.

90
ii) Setting up of merchant bankers developed on the pattern of issue houses in UK would be advisable.
Their main advantage would be skill and expertise which would have a statutory effect on the quality of new
issues as well as standard and efficiency of the market itself.
6. Preferential allotments, especially to promoters need to be controlled by making strict regulations.
Stringent regulations and punishments are an essential part of a regulator's role. Despite the huge number of
scams and frauds over the years, there have hardly been any convictions and punishments.
7. The task of capital market regulation is a complex one as the sector involves large number of players
and intermediaries and also varying interest. SEBI's empowerment is long overdue. There is a need for laws
for search and seizure, for enforcing personal liabilities. Equally important is the need to improve SEBI's
skill sets.
8. The functioning of security market should be reviewed frequently. It will be helpful to the
Government for better control and also to the potential investors i.e. individuals and institutional investors
for taking prudent investment decisions. Therefore, it is suggested that the functioning of security market
should be reviewed at least once in a decade at national level by Government of India.
9. The efforts should also be made to reduce the underwriting commission and brokerage charges which
are the major constitutes of cost of public issues. The expenditure like fees managers to the issue, listing
fees, printing and distribution cost and expenses of registrar to the issue etc. should also be controlled and
regulated. Thus, unnecessary expenditure can be curtailed which would elicit positive response from
potential investors in the securities market.
10. A balanced growth of listed companies and listed stocks in all the stock exchanges is the immediate
requirement. The big companies should also quote their shares in the stock exchanges other than stock
exchanges of metropolitan cities. This will attract savings of the investors from rural and semi-urban areas
more and smaller size companies should be encouraged to enlist their securities in the stock exchanges.
11. There is need to raise the minimum basic educational standard for members, brokers and sub-brokers
and with a view to professionalize the members, the stock exchanges must conduct part time refresher
courses to them from time to time.

12. The stock market need to maintain a minimum liquidity level in the market and for this purpose, the
regulatory authorities need to take appropriate measures particularly, the Reserve Bank of India needs to
frame rules so as to ensure that the major commercial banks have adequacy of funds for the use of stock
markets. The minimum liquidity margin should be increased from present level to ensure smooth and
healthy functioning of the stock exchanges and to prevent excessive speculation.
13. Volatility in the Capital Market of India is a welcome step though, it is resulting to deviation of funds
which reflects a negative impact due to the reason that there is inadequacy of funds in terms of such a high
volatility. Hence, in lien with the trends of volatility in the capital markets of other countries, either it should
91
be reduced or provision needs to be made to provide funds to meet the demand. Moreover, the present
scenario of less interest of investors toward capital market due to high volatility and risk, is required to be
changed by introducing " Investors' Fund" by making due provision for protection of their interest.
So, appropriate measures should be taken to restore confidence in the minds of investors so that Indian Stock
Market can go through the path of growth. If drawbacks in the Indian stock market are resolved, the day may
not be far away when the Indian economy begins influencing global markets.
Although, the general as well as specific suggestions shall definitely prove to be constructive, if
implemented with suitable modifications in the area of stock market as well as capital market. More in-depth
study in various aspects of stock market would be required to be done on continuous basis.

BIBLIOGRAPHY

BOOKS/JOURNALS

• Anju Balan (2013), Indian stock market- review of literature, TRANS Asian journal of marketing and
management research

• Avijan Datta, Gautham Bandopadhyay, prediction of stock performance in the Indian stock market using
logistic regression, international journal of business and information.
92
• Gagandeep Sharma &B. S Bodla, Inter linkages among stock market of south Asia, Asia Pacific journal
of business administration

• Peter Sellin, monetary policy and stock market: theory and empirical evidence svneriges risk-bank
working paper series.

• Alok Kumar Mishra, stock market and foreign exchange market in India: are they related? South Asia
economic journal

• Mara Madalino & Carlo Pinto, time frequency effects on market indices: world co-movements Paris,
2009 finance international meeting AFFI -EUROFIDAI

• Vivek Rajput & Sarika Bobde, stock market predictions using hybrid approach, international journal of
computer science and mobile computing.

• Vanita Tripathi & Shruthi Sethi, integration of Indian stock market with world stock markets, Asian
journal of business and accounting.

• Marcia Oli Sigao, effects of temperature on stock market indices: a study on BSE & NSE in India,
international journal of economic research.

Web links:

• https://www.nseindia.com
• https://www.bseindia.com
• https://www.investopedia.com/articles/stocks/09/indian-stock-market.asp
• https://www.financialexpress.com/money/stock-market-investment-how-to-mitigate-market-risksand-
make-money/2322500/

93
94