RISK ASSOCIATED WITH EQUITY MARKET

A Project Submitted to
University of Mumbai for partial completion of the Degree of
Bachelor of Management Studies
Under the Faculty of Commerce

By,
Keswani Nikita Chandru
(Roll No. 23)

Under the Guidance of

Mr. Sunil Lalchandani

Smt. Chandibai Himathmal Mansukhani College,

Ulhasnagar

April, 2021.

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 Smt. Chandibai Himathmal Mansukhani College
P.B. No 17, Opp. Railway Station, Smt Chandibai Himathmal Mansukhani Road, Ulhasnagar-
421003 Dist. Thane, (MAHARASHTRA)

Tel. : +91 251 273 4940 • Telefax + 91 251 273 1869 • E-mail: principal.chmc@gmail.com •
Website: www.chm.edu

Certificate

This is to certify that Keswani Nikita Chandruhas worked and duly completed his Project

Work for the degree of Bachelor of Management Studies under the Faculty of Commerce in the

subject of Finance and his project is entitled, “A Study on Risk Associated with Equity Market”

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 any University. It is

his own work and facts reported by her/his personal findings and investigations.

Mr. Sunil Lalchandani.

Guiding Teacher.

Date of submission:

11 April, 2021.

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 Declaration by Leaner

I, the undersigned Ms Keswani Nikita Chandruhere by, declare that the work embodied in this
Project work titled “Risk Associated with Equity Market” on my own Contribution to the
research work carried out under the guidance of Mr. Sunil Lalchandani , is A 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.

Ms Keswani Nikita Chandru.

(Roll no : 23)

Certified by,

Mr. Sunil Lalchandani.

Guiding Teacher.

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 Evaluation
This Research Project on “A Study on Risk Associated with Equity market submitted by Ms.
Keswani Nikita Chandru of TYBMS (Semester – VI) is evaluated as per guidelines of University
of Mumbai, via Circular No. UG/89 of 2020-21 on Revised Syllabus - CBCS for the TYBMS
(Semester – V and VI) w.e.f. academic year 2020-21.

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 Acknowledgement

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. Manju Pathak for
providing the necessary facilities required for completion of this project. I would also like to
express my sincere gratitude towards my project guide Mr. Sunil Lalchandani whose guidance
and care made the project successful. I would also like to thank librarian Mr. Subhash Athavale
for providing the necessary resources for the completion of the 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 and helped me
to complete the project within the time frame.

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 Executive Summary

An investor is any person or other entity (such as a firm or mutual fund) who commits capital
With the expectation of receiving financial returns. Investors utilize investments in order to
Grow their money and/or provide an income during retirement, such as with an annuity. A wide
Variety of investment vehicles exist including (but not limited to) stocks, bonds, commodities,
Mutual funds, exchange-traded funds (ETFs), options, futures, foreign exchange, gold, silver,
Retirement plans and real estate. Investors typically perform technical and/or fundamental
Analysis to determine favorable investment opportunities, and generally prefer to minimize risk
While maximizing returns. Thus to keep investors interest in the market necessary rules,
Regulations and laws are to be made and executed for the Protection of Investors. Investment
Protection is a broad economic term referring to any form of guarantee or insurance That
investments made will not be lost, which may be through fraud or otherwise.

• Chapter 1 covers the Meaning of investment, Reasons to invest your money, Investment
Avenues available, Advantages and Disadvantages of Investment in Stock Market,Scams in
Indian Stock Market, Guidelines issued by SEBI for Investors’ Protection, Role Of SEBI In
Investor’s Protection, Investor’s Rights, SEBI’s Grievance Redressal System.

• Chapter 2 covers the Objectives, Methods of Data Collection, Sample Design and Area Of
Study.

• Chapter 3 covers the Review of Literature and Gap Analysis of the study.

• Chapter 4 covers the Findings, Analysis and Interpretation of the study.

• Lastly, Chapter 5 includes the Conclusions drawn from the study and Recommendations
derived from the study.

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 Chapter 1 : Introduction

Synopsis:

1.1What is an Equity Investment?

1.2Definition.

1.3 Some Reasons to Invest your Money in Equity Market.

1.4Difference between Ownership and Management in Companies

1.5 Features.

1.6 History of Indian Equity market.

1.7 Advantages and Disadvantages of Investment in Equity Market

1.8 Need for Strengthening in Equity Market

1.9 Need for Strengthening Equity Market

1.10 IMPORTANCE OF EQUITY MARKETS IN DEVELOPING COUNTRY LIKE INDIA

1.11 NEED FOR STRENGTHENING EQUITY MARKETS

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 CHAPTER 1: INTRODUCTION:

1.1 What is Equity Investment?

Equity shares are the main source of finance of a firm. It is issued to the general public. Equity
shareholders do not enjoy any preferential rights with regard to repayment of capital and
dividend. They are entitled to residual income of the company, but they enjoy the right to control
the affairs of the business and all the shareholders collectively are the owners of the company.

1.2 DEFINITION:

Stock exchange is an organization which facilitates this process of buying and selling existing
securities by providing a medium for buyers and sellers to interact with each other. As there
could be a large number of buyers and sellers who want to trade in a particular security, stock
exchanges facilitates arriving at trading price based on supply and demand by providing a
medium. They help both buyers and sellers arrive at a mutually satisfactory price.

1.3 Definition of Equity Market or Stock market:

The word “Equity Market” is made from two words 'Stock' and Exchange. Stock means part or
fraction of the capital of a company, and Exchange means a transferring the ownership;
representing a market for purchasing and selling. Thus, we can describe the stock exchange as a
market or a place where different types of securities are bought and sold. Securities traded on a
stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment
products and bonds. As the stock exchange deals in all types of securities, it is known as
'securities market' or 'securities exchange' also. A stock exchange is a secondary market of
securities because the trading happens only for the securities that have already been issues to the
public and now being allowed to be traded on the floor of a stock exchange after getting listed
with the stock exchange. 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.

The Securities Contracts (Regulation) Act, 1956 has defined stock exchange as an “association,
organization or body of individuals, whether incorporated or not, established for the purpose of
assisting, regulating and controlling business of buying, selling and dealing in Securities.”

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According to Pyle, “security exchanges are market places where securities that have been listed
thereon may be bought and sold for either investment or speculation”.

K.L. Garg has described the stock exchange as “an association of persons engaged in the buying
and selling of stocks, bonds and shares for the public on commission and guided by certain rules
and conditions.”

Growth of corporate sector and the simultaneous growth of equity shareholders:

It is well known that many large private sector companies were being controlled by the industrial
Houses in spite of having small shareholdings due to the support extended 5 public financial
institutions. These managements faced a severe threat of losing control, especially to foreigz1
companies, following liberalisation ' of the economy. In a tacit recognition of this fact, promoters
have been allowed to increase their stakes" gradually without the obligation of making an open
offer to the other shareholders. 

Companies have been allowed to buy back their shares in the process of which the controlling
interests increase their stakes without putting their own money. 

In a case of takeover open offer is been made from the existing promoters to the new promoters
and to the remaining shareholders.  Listed affiliates of foreign companies have obtained
subsidiary status, due to relaxation of limits on foreign direct investment (FDI) in individual
enterprises. While some of them have either got already delisted or are on the verge of delisting.

It was initially felt that the foreign institutional investors (FIIs) could connive with foreign
companies in taking over Indian companies. Possibly due to such a perception, ceilings were
introduced on overall and individual FII shareholdings. The limits have been, however, increased
progressively. While there is a general ceiling of 24 per cent, in individual cases companies can
decide to raise the limit up to 49 per cent. Early this year, sectoral caps for FDI have been made
the limits for FII investments as well.

Limits on inter-corporate investments have been liberalised thereby enabling companies engage
in a variety of intercorporate relationships, the simplest being cross-holding of shares. 

A conscious effort also has been made to promote mutual funds, where by Expert analysts are
expected to take informed investment decisions in consultation with investors.

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In India, the SEBI has framed a Code of Corporate Governance. which is being implemented
through stock exchange listing rules (Clause 49) since February 2000 thus attracting more
investors.

With over 20 million shareholders, India also has one of the largest investor bases in. the world.
Overall the capital market infrastructure in India is now world class and on par with the best
available worldwide. The stock market is massive -as of 2016, there are over 23000 companies,
the world’s largest for «number of listed companies, on the two main exchanges! ‘Whilst
approximately 2000 of these companies are traded daily. there! are several companies «across
multiple sectors to choose for investors. India is young, with more than half the population
younger than 25, who are regarded as more ambitious, technology savvy and educated than
previous generations thus encouraging equity investments.

1.3 Some reasons to invest your money in Equity market:

Grow your money :

Investing your money can allow you to grow it. Most investment

vehicles, such as stocks, certificates of deposit, or bonds, offer returns on your money over the
long term. This return allows your money to build, creating wealth over time.

Save for retirement :

As you are working, you should be saving money for retirement. Put your retirement savings into
a portfolio of investments, such as stocks, bonds, mutual funds, real estate, businesses, or
precious metals. Then, at retirement age, you can live off funds earned from these investments.

Based on your personal tolerance of risk, you may want to consider being riskier at a younger
age with your investments. Greater risk increases your chances of earning greater wealth.
Becoming more conservative with your investments as you grow older can be wise, especially as
you near retirement age.

Earn higher returns:

In order to grow your money, you need to put it in a place where it can earn a high rate of return.
The higher the rate of return, the more money you will earn. Investment vehicles tend to offer the
opportunity to earn higher rates of return than savings accounts. Therefore, if you want the
chance to earn a higher return on your money, you will need to explore investing your money.
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Reach financial goals:
Investing can help you reach big financial goals. If your money is earning a higher rate of return
than a savings account, you will be earning more money both over the long term and within a
faster period. This return on your investments can be used toward major financial goals, such as
buying a home, buying a card and starting your own business or putting your children through
college.

Build on pre-tax dollars:

Some investment vehicles, like employer-sponsored 401(k)s, allow you to invest your pre-tax
dollars. This option allows you to save more money than if you could only invest your post-tax
dollars.

. Qualify for employer-matching programs:

Some employers offer to match the money you invest in your 401(k) plan up to a certain amount.
Of course, the only way you can qualify and earn these matching funds is if you are actively
investing in your 401(k) plan. Thus, many people invest in their 401(k)s to gain the matching
employer funds.

Start and expand a business:

Investing is an important part of business creation and expansion. Many investors like to
support entrepreneur and contribute to the creation of new jobs and new products. They enjoy the
process of creating and establishing new businesses and building them into successful entities
that can provide them with a strong return on their investment.

Support others:
Many investors like investing in people, whether they are business owners, artists, or
manufacturers. These investors feel good helping others achieve their goals.

Reduce taxable income:

As an investor, you may be able to reduce your taxable income by investing pre-tax dollars into a
retirement fund, like a 401(k). If you generate a loss from an investment, you may be able to
apply that loss against any gains from other investments, which lowers the amount of your
taxable income.

Be part of a new venture:

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New ventures need the backing of money, and they look to investors for that backing. Some
investors may like the excitement of investing in a new, cutting-edge product or service, or being
part of something like a business or film that introduces them to a glamorous world.

1.4 Difference between ownership and management in companies:

Corporations allow for the separation of ownership and management. That means that owners do
not need to be managers and managers do not need to be owners. It is often the case that
someone is both, like the case of Mark Zuckerberg at Facebook. In most small corporations, the
owners typically manage the company but it is not necessary that owners run the company or are
even involved in the day-to-day operations of the company.

The benefits of separating ownership and control come from the interaction of three ' factors.
First, under certain conditions and for certain types of decisions, hierarchical decision making
may be more efficient than market allocation. Second, due to economies of scale in both
production and decision making, optimal firm size can be quite large. Third, optimal investment
strategy requires investors to be able to diversify and pool and to income.

The separation of ownership and control refers to the phenomenon associated with publicly held
business corporations in which the shareholders possess little or no direct control over
management decisions This separation is generally attributed ‘to collective action problems
associated with dispersed share ownership. The separation of ownership and control permits
hierarchical decision making which, to: some types of decisions, is superior to the market.  The
lack of control by shareholders is generally attributed to what is variously called free-rider,
collective action or coordination problems. Shareholders in a publicly held corporation typically
have limited legal rights to control the corporation Shareholders do not have the right to engage
in any day-to-day management of the corporation nor are they able to direct policy or to set
compensation. And although shareholders have the right to elect directors, the management
controls the voting machinery. 

Adam. Smith considered the separation of ownership and control to be problematic in that
managers of such companies would lack the incentives to operate the corporation in the same
manner as owner-managers and would thus operate the business in an inefficient manner. a. The
costs of the separation of ownership and control are thus the usual principal-agent costs; the

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monitoring expenditures by shareholders, the bonding expenditures by managers and the residual
loss item the divergence of behaviour.

1.5 Features:

 Equity shareholders have the right to vote on various matters of the company.
 The management of the company is elected by equity shareholders.
 The equity share capital is held permanently by the company and returned only upon
winding up.
 Equity shares give the right to the holders to claim dividend on the surplus profits of the
company. The rate of dividend on the equity capital is determined by the management of
the company.
 Equity shares are transferable in nature. They can be transferred from one person to
another with or without consideration

1.6 History of Indian Equity Market:

 The history of the Indian equity market goes back to the 18th century when securities of the East
India Company were traded. Till the end of the 19th century, the trading of securities was
unorganized and the main trading centres were Calcutta (now Kolkata) and Bombay (now
Mumbai). 

Trade activities prospered with an increase in share price in India with Bombay becoming the
main source of cotton supply during the American Civil War (1860-61). In 1865, there was drop
in share prices. The stockbroker association established the Native Shares and Stock Brokers
Association in 1875 to organize their activities. In 1927, the BSE recognized this association,
under the Bombay Securities Contracts Control Act, 1925. 

The Indian Equity Market was not well organized or developed before independence. After
independence, new issues were supervised. The timing, floatation costs, pricing, interest rates
were strictly controlled by the Controller of Capital Issue (CII). For four and half decades,
companies were demoralized and not motivated from going public due to the rigid rules of the
Government. 

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In the 1950s, there was uncontrollable speculation and the market was known as 'Satta Bazaar'.
Speculators aimed at companies like Tata Steel, Kohinoor Mills, Century Textiles, Bombay
Dyeing and National Rayon. The Securities Contracts (Regulation) Act, 1956 was enacted by the
Government of India. Financial institutions and state financial corporation were developed
through an established network. 

In the 60s, the market was bearish due to massive wars and drought. Forward trading
transactions and 'Contracts for Clearing' or 'badla' were banned by the Government. With
financial institutions such as LIC, GIC, some revival in the markets could be seen. Then in 1964,
UTI, the first mutual fund of India was formed.

In the 70's, the trading of 'badla' resumed in a different form of 'hand delivery contract'. But the
Government of India passed the Dividend Restriction Ordinance on 6th July, 1974. According to
the ordinance, the dividend was fixed to 12% of Face Value or 1/3rd of the profit under Section
369 of The Companies Act, 1956 whichever is lower.  This resulted in a drop by 20% in market
capitalization at BSE (Bombay Stock Exchange) overnight. The stock market was closed for
nearly a fortnight. Numerous multinational companies were pulled out of India as they had to
dissolve their majority stocks in India ventures for the Indian public under FERA, 1973. 

The 80's saw a growth in the Indian Equity Market. With liberalized policies of the government,
it became lucrative for investors. The market saw an increase of stock exchanges, there was a
surge in market capitalization rate and the paid up capital of the listed companies. 

The 90s was the most crucial in the stock market’s history. Indians became aware of
‘liberalization’ and ‘globalization’. In May 1992, the Capital Issues (Control) Act, 1947 was
abolished. SEBI which was the Indian Capital Market’s regulator was given the power and
overlook new trading policies, entry of private sector mutual funds and private sector banks, free
prices, new stock exchanges, foreign institutional investors, and market boom and bust. 

In 1990, there was a major capital market scam where bankers and brokers were involved. With
this, many investors left the market. Later there was a securities scam in 1991-92 which revealed
the inefficiencies and inadequacies of the Indian financial system and called for reforms in
the Indian Equity Market.

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Two new stock exchanges, NSE (National Stock Exchange of India) established in 1994 and
OTCEI (Over the Counter Exchange of India) established in 1992 gave BSE a nationwide
competition. In 1995-96, an amendment was made to the Securities Contracts (Regulation) Act,
1956 for introducing options trading. In April 1995, the National Securities Clearing Corporation
(NSCC) and in November 1996, the National Securities Depository Limited (NSDL) were set up
for demutualised trading, clearing and settlement. Information Technology scrips were the major
players in the late 90s with companies like Wipro, Satyam, and Infosys. In the 21 st century, there
was the Ketan Parekh Scam. From 1st July 2001, ‘Badla’ was discontinued and there was
introduction of rolling settlement in all scrips. In February 2000, permission was given for
internet trading and from June, 2000, futures trading started.

1.7 Advantages and Disadvantages of Investment in Equity market:

Equity share is looked at from different perspectives by different stakeholders. Broadly, there are
two major angles of looking at it – Company and Investor Angle. So, any statement about equity
capital would have a different meaning for a company and an investor. We will look at the
investor angle of equity share investment.

Advantages and Disadvantages of Equity Share Investment

➢Advantages

 Dividend
 Capital gain
 Limited liability
 Exercise control
 Right shares
 Bonus shares
 Liquidity

➢Disadvantage

• Dividend.
• High Risk.
• Fluctuation In Market Price
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 • Limited control.
• Residual Claim

Advantages:

1. Dividend

An investor is entitled to receive a dividend from the company. It is one of the two main sources
of return on his investment.

2. Capital Gain

The other source of return on investment apart from dividend is the capital gains. Gains which
arise due to rise in market price of the share.

3. Limited liability

Liability of shareholder or investor is limited to the extent of the investment made. If the
company goes into losses, the share of loss over and above the capital investment would not be
borne by the investor.

4. Exercise control

By investing in the company, the shareholder gets ownership in the company and thereby he can
exercise control. In official terms, he gets voting rights in the company.

5. Rights Shares

Whenever companies require further capital for expansion etc, they tend to issue ‘rights shares’.
By issuing such shares, ownership and control of existing shareholders are preserved and the
investor receives investment priority overother general investors. Right Shares are issued at a
price lower than current market price of the equity share. So, existing investor can take that
advantage or otherwise can renounce right in some one’s favour to get value of right.

6. Bonus Shares

At times, companies decide to issue bonus shares to its shareholders. It is also a type of dividend.
Bonus shares are free shares given to existing shareholders and many times they are given in lieu
of dividends.

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 7. Liquidity

The shares of the company which is listed on stock exchanges have the benefit of any time
liquidity. The shares can very easily transfer Ownership.

Disadvantages

1. Dividend

The dividend which a shareholder receives is neither fixed nor controllable by investor. The
management of the company decides how much dividend should be given. If there is a loss, there
is no question of dividend. If there is a profit, unless Board of Directors propose dividend,
investors will not receive dividend.

2. High Risk

Equity share investment is a risky investment as compared to any other investment like debts etc.
The money is invested based on the faith an investor has in the company. There is no collateral
security attached with it

3. Fluctuation in Market Price

The market price of any equity share has a wide variation. It is always very difficult to book
profits from the market. On the contrary, there are equal chances of losses.

4. Limited Control

An equity investor is a small investor in the company, therefore, it is hardly possible to impact
the decision of the company using the voting rights.

5. Residual Claim

An equity shareholder has a residual claim over both the assets and the income. Income which is
available to equity shareholders is after the payment of all other stakeholders’.

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1.9 Need for Strengthening Equity Market:

•Equity Market is a link between investment &savings:

The Securities Market allows people to do more with their savings than they would otherwise
could. It also provides financing that enables pe0ple to do more with their ideas and talents than
would otherwise be possible. The people’s Savings are matched with the best ideas and talents in
the economy. Stated formally, the Securities Market provides a linkage between. the savings and
the investment across the entities, time and space.

•Mobilizes & channelizes savings:

It mobilizes savings and channelizes them through securities into preferred enterprises. The
Securities Market also provides a market place for purchase and sale of securities and thereby
ensures transferability of securities, which is the basis for the joint stock enterprise system.

•Provides Liquidity to investors:

The existence of the Securities Market makes it possible to satisfy simultaneously the needs of
the enterprises for capital and the need of investors for liquidity. The liquidity, the market
confers and the yield promised or anticipated on security ownership may be sufficiently great to
attract net savings of income Which would otherwise have been consumed. Net savings may also
occur because of other attractive features of security ownership, e. g. the possibility of capital
gain or protection of savings against inflation.

•Equity Market Is a market place for purchase and sale of securities:

A developed Securities Market enables all individuals, no matter how limited their means, to
share the increased wealth provided by competitive private enterprises. The Securities Market
allows individuals who cannot carry an activity in its entirety within their resources to invest
Whatever is individually possible and preferred in that ' activity carried on by an enterprise.
Conversely, individuals who cannot begin an enterprise, they can attract enough investment from
others to make a start. In both cases individuals who contribute to the investment made in the
enterprise share the fruits. The Securities Market, by allowing an individual to diversify risk.
among many ventures to offset gains and losses, increases the likelihood of long-term, overall
success.

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•International Linkage:

The securities market facilitates the internationalization of an economy by linking it with the rest
of the world. This linkage assists through the inflow of capital in the form of portfolio
investment. Moreover, a strong domestic stock market performance forms the basis for well
performing domestic corporate to raise capital in the international market. -This implies that the
domestic economy is opened up to international competitive pressures, which help to raise
efficiency.

•Standardization:

The securities market enlarges the financial sector, promoting additional and more sophisticated
financing; it increases opportunities for specialization, division of labour and reductions in costs
in financial activities. The securities market and its institutions.

1.10 IMPORTANCE OF EQUITY MARKETS IN DEVELOPING COUNTRY LIKE

INDIA

Need for attracting more investors towards equity

A strong financial market with broad participation is essential for a developed economy. With
India’s growth story unfolding, there is a need to raise resources for companies to fuel the capital
need of the economy and also ensure that the benefits of growth percolate to bottom of the socio-
economic pyramid. India’s household savings, one of the highest in the world at 30 per cent, can
be channelized through equities, bonds and other instruments to achieve greater financial
inclusion and improve the financial markets in India.

•There are various reasons for majority of the investors quitting the market such as:

1) Equities are Risk aversive.

(2) They are not sure about safety of investment inadequate information and the lack of
awareness about investment and stock market.

(3) Preference to invest risk-free avenues like bank deposits, gold and high-yield debt
instruments than doing stock picking and investing themselves directly

(4) Low investment and expect high returns.

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(5) Irrational trading approach.

(6) Over dependency on brokers.

(7) Barrier of Online dealing.

(8) Dissatisfied with the role of the regulators.

(9) Large scale scams in the recent past is disturbed them to freely trade 1n the market.

1.11 NEED FOR STRENGTHENING EQUITY MARKETS

•Equity Market is a link between investment &savings:

The Securities Market allows people to do more with their savings than they would otherwise
could. It also provides financing that enables pe0ple to do more with their ideas and talents than
would otherwise be possible. The people’s Savings are matched with the best ideas and talents in
the economy. Stated formally, the Securities Market provides a linkage between. the savings and
the investment across the entities, time and space.

•Mobilizes & channelizes savings: It mobilizes savings and channelizes them through securities
into preferred enterprises. The Securities Market also provides a market place for purchase and
sale of securities and thereby ensures transferability of securities, which is the basis for the joint
stock enterprise system.

•Provides Liquidity to investors: The existence of the Securities Market makes it possible to
satisfy simultaneously the needs of the enterprises for capital and the need of investors for
liquidity. The liquidity, the market confers and the yield promised or anticipated on security
ownership may be sufficiently great to attract net savings of income Which would otherwise
have been consumed. Net savings may also occur because of other attractive features of security
ownership, e. g. the possibility of capital gain or protection of savings against inflation.
•Equity Market Is a market place for purchase and sale of securities: A developed Securities
Market enables all individuals, no matter how limited their means, to share the increased wealth
provided by competitive private enterprises. The Securities Market allows individuals who
cannot carry an activity in its entirety within their resources to invest Whatever is individually
possible and preferred in that ' activity carried on by an enterprise. Conversely, individuals who
cannot begin an enterprise, they can attract enough investment from others to make a start. In

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both cases individuals who contribute to the investment made in the enterprise share the fruits.
The Securities Market, by allowing an individual to diversify risk. among many ventures to
offset gains and losses, increases the likelihood of long-term, overall success.

•International Linkage: The securities market facilitates the internationalization of an economy

by linking it with the rest of the world. This linkage assists through the inflow of capital in the
form of portfolio investment. Moreover, a strong domestic stock market performance forms the
basis for well performing domestic corporate to raise capital in the international market. -This
implies that the domestic economy is opened up to international competitive pressures, which
help to raise efficiency.

•Standardization: The securities market enlarges the financial sector, promoting additional and
more sophisticated financing, it increases opportunities for specialization, division of labour and
reductions in costs in financial activities. The securities market and its institutions.

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 Chapter II : Research Methodology

2.1 Research Methodology

2.2 Research Design

2.3 Source of Data

2.4 Sample Selection

2.5 Need of Study

2.6 Scope of Study

2.7 Limitation

2.8 Obectives

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 CHAPTER II

2.1 RESEARCH METHODOLOGY

Research Methodology is a way to systematically solve the research problem. The research
begins its formation when the problem or objective of the research is identified for which a
research report is conduced. The main objective for which this report is carried out is to make an
analytical study of Working of Sock Exchange.

2.2 RESEARCH DESIGN

There are various methods of research design like Exploratory Research Design, Descriptive
Research Design, Diagnostic Research Design, Deign and Hypothesis Testing Research Design.

In this report, Descriptive Research Design and Exploratory Research Design has been used.

2.3 SOURCES OF DATA:

Basically two types of data are available to the researcher namely:

1. Primary data
2. Secondary data
In the present study, secondary as well as primary data has been used. I have collected Primary
data from stockbrokers and clients with the help of questionnaire and Secondary data
from the different books and magazines on stock exchange and websites of stock exchange.

2.4 SAMPLE SELECTION

The method of data collection is enumerated as follows:

 Questionnaire filled by general public.

SAMPLE AREA
The data has been collected from Ulhasnagar

SAMPLE SIZE

Sample has been taken from 100 respondents (in form of 100%).

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2.5 NEED OF THE STUDY
To start any business capital plays major role. Capital can be acquired in two ways by issuing
shares or by taking debt from financial institutions or borrowing money from financial
institutions. The owners of the company have to pay regular interest and principal amount at the
end. Stock is ownership in a company, with each share of stock representing a tiny piece of
ownership. The more shares you own, the more of the company you own. The more shares you
own, the more dividends you earn when the company makes a profit. In the financial world,
ownership is called “Equity”.

Advantages of selling stock:

 A company can raise more capital than it could borrow.

 A company does not have to make periodic interest payments to creditors.
 A company does not have to make principal payments
Stock/shares play a major role in acquiring capital to the business in return investors are paid
dividends to the shares they own. The more shares you own the more dividends you receive.The
role of equity analysis is to provide information to the market. An efficient market relies on
information: a lack of information creates inefficiencies that result in stocks being
misrepresented (over or under valued). This is valuable because it fills information gaps so that
each individual investor does not need to analyze every stock thereby making the markets more
efficient.

2.6 SCOPE OF THE STUDY

The scope of the study is identified after and during the study is conductedThe scope of the study

is limited for a period of five years.

2.7 LIMITATIONS

 This study has been conducted purely to understand Equity analysis for investors.

 The study is restricted to three companies based on Fundamental analysis.

 The study is limited to the companies having equities.

 Detailed study of the topic was not possible due to limited size of the project.
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 2.8 Objectives: 
 To understand the concept of risk associated with equity market.
 To understand the benefits of investing in equity market.
 To understand the challenges and difficulties faced by the Equity Shareholders in
investing it in Equity market.
 To suggest the measures to mitigate or minimize the risk.


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 CHAPTER III

3.1 REVIEW OF LITERATURE

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 CHAPTER III

REVIEW OF LITERATURE

1) Yoon Je Cho (1998) showed in his study that increasing turnover figures in the
Indian stock exchanges from 1994-95 to 1996-97, implying that they are
dominated by speculative investments, which is not unusual in emerging markets.
However, trading volumes in the Indian capital market are fairly large compared
to those in other emerging markets. The substantial increase in turnover may be
attributed primarily to the expansion of the NSE‟s trading network. But this also
reflects the fact that the Indian stock market is dominated by speculative
investments for short-term capital gains, rather than long-term investment.

2) Abdulla Yameen (2001) delivered massage, investors will need to be alert to any
new development in capital market and take advantage of the Investor Education
and Awareness Campaign program which to be undertaken by the Capital Market
Section to acquaint of the risks and rewards of investing on the Capital market.
Speech was also focused on to create a new breed of financial intermediaries,
which will deal on the market for their clients. These intermediaries have to be
professionals with quite advanced knowledge on stock exchange operations,
techniques, law and companies valuation. Investors depend to a large extent on
their professional advice when investing on the market. Furthermore, these
intermediaries must be men of integrity and honesty as they would deal with
clients‟ money Confidence of investors in these professionals is a key to the
success of the capital market.

3) P. M. Deleep Kumar and G. Raju (2001) showed that the capital market is
becoming more and more risky and complex in nature so that ordinary investors
are unable to keep track of its movement and direction. The study revealed that
the Indian market is probably more volatile than developed country markets,

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 which is probably why a much higher proportion of savings in developed
countries go into equities.

4) S. M. Imamual Haque and Khan Ashfaq Ahmad (2002) argued that the sluggish
trends in primary equity markets need to be reverse by restoring investors‟
confidence in market. Savings for retirement essential seek long term growth and
for that investment in equity is desirable. It is a well-established fact that
investments in equities give higher returns than debt and it would, therefore, be in
the interest of the banks to invest in equities.

5) Swarup K. S. (2003) empirically found that equity investors first enter capital
market though investment in primary market. The main reason for slump in equity
offering is lack of investor confidence in the primary market. It appeared from the
analysis that the investors give importance to own analysis as compared to
brokers‟ advice. They also consider market price as a better indicator than analyst
recommendations. Accordingly number of suggestive measures in terms of
regulatory, policy level and market oriented were suggested to improve the
investor confidence in equity primary markets.

6) Leyla Şenturk Ozer, Azize Ergeneli and Mehmet Baha Karan (2004) studied that
the risk factor is one of the main determinants of investment decisions. Market
participants that are rational investors ultimately should receive greater returns
from more risky investments. They also concluded that the crisis and resulting
deep recession in 2002 changed many things, including market confidence of
investors and financial analysts. In addition to decreasing trading volume of
Istanbul Stock Exchange (ISE), the number of individual investors reduced and
investment horizon of investors shortened and liquid instruments.

7) Rajeswari, T. R. and Moorthy, V. E. R. (2005) said that expectations of the

investors influenced by their perception and human generally relate perception to
action. The study revealed that the most preferred vehicle is bank deposit with

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 mutual funds and equity on fourth and sixth respectively. The survey also revealed
that the investment decision is made by investors on their own, and other sources
influencing their selection decision are newspapers, magazine, brokers, television
and friends or relatives.

8) J. K. Nayak (2006) interpreted the preferred mode of investment is first equity,

banks, mutual fund and then any other in a descending order. It means Investor’s
faith has increased and their risk taking ability has also increased. One thing that
could be drawn from this study is that problems are mostly broker related and
therefore that is one area where reforms are required. The investors feel that the
amount of knowledge available on the equity market is not satisfactory. Investors,
it appears, need to be educated more. Investors still considered the capital market
as highly risky. But from the investment pattern from the descriptive statistics it
seems that the number of people willing to invest in capital market has increased.

9) Philipp Schmitz and Martin Weber (2007) exposed that the trading behavior is
also influenced if the underlying reaches some exceptional prices. The probability
to buy calls is positively related to the holding of the underlying in the portfolio,
meaning that investors tend to leverage their stock positions, while the relation
between put purchases and portfolio holdings of the underlying is negative. They
also showed higher option market trading activity is positively correlated with
past returns and volatility, and negatively correlated with book-to-market ratios.
In addition they report that investors open and close long and short call positions
if past week's return is positive and write puts as well as close bought and written
put positions if the past returns are negative.

10) B. Das, Ms. S. Mohanty and N. Chandra Shil (2008) studied the behavior of the
investors in the selection of investment vehicles. Retail investors face a lot of
problem in the stock market. Empirically they found and concluded which are
valuable for both the investors and the companies having such investment

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 opportunities. First, different investment avenues do not provide the same level of
satisfaction. And majority of investors are from younger group.

11) Prasanna P. K. (2008) empirically fond that foreign investors invested more in
companies with a higher volume of shares owned by general public. Foreign
investors choose the companies where family shareholding of promoters is not
essential. The study concluded that corporate performance is the major
influencing factor for investment decision for any investor. As far as financial
performance is concerned the share return and earnings per share are significant
factors influencing investment decision.

12) Gaurav Kabra, Prashant Mishra and Manoj Dash (2010) studied key factors
influencing investment behaviour and ways these factors impacts investment risk
tolerance and decision making process among men and women and those different
age groups. They said that not all investments will be profitable, as investor will
not always make the correct investment decisions over the period of years.
Through evidence they proved that security as the most important criterion; there
is no significant difference of security, opinion, hedging in all age group. But
there is significant difference of awareness, benefits and duration in all age group.
From the empirical results they concluded the modern investor is a mature and
adequately groomed person.

13) R R Rajamohan (2010) analyzed the role of the financial knowledge is important
in decision making in information intensive assets like stocks and other risky
securities. Hence, reading habit, as a proxy for financial knowledge. Younger
people have greater labor flexibility than older people; if the returns on their
investments turn out to be low, they could work more or retire later. Hence age an
important factor to be considered in household portfolio analysis.

14) M. Sathish, K. J. Naveen and V. Jeevanantham (2011) studied in the options

available to investors are different and the factors motivating the investors to

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 invest are governed by their socio-economic. They argued that instead of
investing directly, the investors particularly, small investors may go for indirect
investment because they may not be in a position to undertake fundamental and
technical analysis before they decide about their investment options. Their
empirical study showed that majority of the investors of mutual funds is also
belongs to equities who give the first preference to that avenue which gives good
return. From the study, concluded that lack of knowledge as the primary reason
for not investing in investment vehicle.

15) S. Gupta, P. Chawla and S. Harkant (2011) stated financial markets are constantly
becoming more efficient providing more promising solutions to the investors.
Study also proved that occupation of the investor is not affected in investment
decision. The most preferred investment avenue is insurance with least equity
market. The study also argued that return on investment and safeties are the most
preferred attributes for the investment decision instead of liquidity.

16) S. Saravanakumar, S. Gunasekaran and R. Aarthy (2011) showed the upswing in

capital market allows the investors to harvest handsome return in their
investments, but day-trader in stock market hard to take advantage in bullish and
bearish market conditions by holding long or short positions. Now the derivative
instruments offer them to hedge against the adverse conditions in the stock
market. They argued that secondary market is the most preferred than primary
market and cash market is the most preferred market than derivatives market
because of high risk when derivatives market is preferred than cash market for
higher return.

17) Bhat Abass Mohd, Dar Ahmad Fayaz (2013) studied the role of emotions in
individual investment behavior describe and conduct a research on what factors,
investing characteristics, and decision-making processes affected individual
investors and analyzed the emotional factors that are in the back of an investor
when he makes an investment decision

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 18) It is said that people save for future contingencies and would like to see their
savings grow. In order to fulfill the objective people look forward for different
investment avenues. ‘A behavioral finance perspective or school, which is made
from psychological and financial integration, believes that psychology plays an
important role in financial decision. Since cognitive errors and distortions impact
investments' theories, therefore, they will also influence financial options.’
(Kumaran Sunitha 2013) ‘Investors do not act wisely in taking decisions relating
to investment. They have certain weaknesses like cognitive and emotional which
take a predominating role in taking investment decision of individuals. They have
behavioral biases in the event of taking investment decision.’(Harikant Dr. D &
Pragathi B) It is seemingly necessary for the market makers to understand the
behavior of such investors in selecting an investment option.

19) Panda (1980) has studied the role of stock exchanges in India before and after
independence. The study reveals that listed stocks covered four-fifths of the joint
stock sector companies. Investment in securities was no longer the monopoly of
any particular class or of a small group of people. It attracted the attention of a
large number of 24 small and middle class individuals. It was observed that a
large proportion of savings went in the first instance into purchase of securities
already issued.

20) The financing choice (equity vs. debt) model (Hart and Moore, 1998) relies on
asymmetries information and believes that it is the result of the inability of
investors to verify certain actions or outcomes. Investors cannot earn higher
returns without taking on greater risk and the greater the risk, the greater the
possibility of loss. (Harry M. Markowitz, 1952).

21) Patnaik and shah (2008) has analysed on the preferences of foreign and domestic
institutional investors in Indian stock markets. Foreign and domestic institutional
investors both prefer larger, widely dispersed firms and do not chase returns.

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 However, we and evidence of strong differences in the behavior of foreign and
domestic institutional investors.

22) Shrotriya (2003) conducted a survey on investor preferences in which he depicted

the linkage of investment with the factor so considered while making investment.
He says “There are various factors and their linkage also. These factors help us
how to ensure safety, liquidity, capital appreciation and tax benefits along with
returns.”

Concluding Remarks:

Most of the studies related to the present topic have been conducted by various researchers at
national and international levels. But hardly, there exist studies which focus on study of
investment avenues of equity and debt at local level. Thus there exists a gap and the need for
present study is felt

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