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Introduction

Indian Stock Market-An Introduction


The Indian Equity market is divided in to two parts Primary market - where the share is first issued in the form of IPO(Intial Public Offering) and after issuing the share it is listed on exchange and share is traded on exchange where shares can be bought and sold this is secondary market.In India mainly there are two exchange -NSE(National Stock Exchange) BSE-Bombay Stock Exchange.The BSE is the oldest exchange in India(started in 1875).NSE started operation on 1994.Before 2000 shares was held in Physical form But the main difficulty with Physical shares is meathod of transaction which is open out cry system and process is not transparent to investor also Physical shares were prone to duplication and fraud.So in 2000 NSE intoduced the electronic screen based trading system further the introduction of Dematerilization(Conversion of physical share in to electronic form) and depository(where the electronic form of share is kept) revelutionized the Indian Stock market.Currently there are mainly two Depository(DP) -NSDL and CDSL and these DP are like bank of share.Individual/Firm can deal through Broker(who is registered and having membership in Exchanges and Depository) for buying and selling securities.Today NSE outpaced BSE in volume of trade.Then what is the purpose of stock market? Stock market serves the company by providing company the finance for long term needs and for investor an opportunity to park there savings in corporate world and in turn give their hand in Nation's development so stock exchage have a very vital role in country's economic development. .To buy the shares investor has to open a trading and demat account.So investor has to approach a broker/sub broker who has memeber ship in Exchange(where the share is listed mainly NSE and BSE) and depository(where share is kept in Demat formElectronic form[mainly CDSL and NSDL).Then Investor has to give necessary identity proof,Adress proof,Bank proof and fill the KYC form afetr reading it carefully.broker will ask for power of attorney for smooth transaction but this is not mandatory and if POA is not given investor had to fill the delivery instruction slip after selling the share.After opening the account the investor can do trading/investing Directly,Through Phone Internet form broking office and he will contract note(similar to bill that we got when we purchase something and contract note include all minute detail of transaction including brokerage[commision of briking house] STT and Ohter taxes) for the transaction done by him within 24 hr of transaction and he has to give cheque to Broker in the name of broking office(no cash transaction is permitted) and current settlement is rolling

settlement (The rolling settlement ensures that each day's trade is settled by keeping a fixed gap of a specified number of working days between a trade and its settlement. At present, this gap is 3 working days after the trading day. So transaction entered into on Day 1 has to be settled on the Day 1 + 3 working days, when funds pay in or securities pay out takes place.If investor is selling the security he will get money in 3 working days.If investor failed to deliver the security within time his share will get auctioned and investor has to borne the penalty.If the investor has old physical share he can fill the dematerialization form and send it for converting it to demat form.The reverse can also be done. .Now hope investor had learned about the exchages and demat.Every one had heard about SENSEX and NIFTY what is this? SENSEX and NIFTY are Index of BSE and NSE Blue chip share.SENSEX consist of 30 share and NIFTY 50 share(of top most comapnies) what is the purpose of INDEX? Index is the barometer of stock exchage for ex in NSE there are about 1350 listed comapnies listed and we cannot say in general form market was up or down without fully looking all companies.INDEX serve this purpose.INDEX is constructed by taking top companies across different sector in different weightage and INDEX movement will reflect the overall movement of market.So if NIFTY or SENSEX is up we can generally assume market was up(does not mean all shares was up) and vice versa.Now there are index in some sectors which can catch the movement of that sector like CNXIT-IT sector,BANKNIFTY-Banking sector etc. Generall purpose of Stock Market is for Investment but bulk of activities done in market is day trading.Day trading means BUYING/SELLING of shares and offsetting the position on same day.Day traders serves the purpose of bringing the liquidity to market and they help the market movement and more than 80% of the volume from market is coming from day trading.Introduction of derivative market had made the day trading to grow more and introduction of advanced day trading technique.The main tool for Stock market investment/trading are Fundamental analysis -which studies about the fundamental of companies and economy and Technical Analysis-which studies the market by analysing the past movement of share and market. The investment scenario in India is now is at par with global Market.The intoduction of Derivative,Currency,Commodity market now helped the Indian Investor to Invest in almost anything like Share,Commodity,Currency,Bonds and complex thing like Interest rate future,Weather Derivative,Volatality Index and more and Stock market are giving various product to invest in with various amount of risk like bonds,Gold ETF,Equty and Prefernce Share,Commodities(metal and Agriculture) Currency to high risk Derivative product.

India's biggest scams

The Satyam Computer Services fraud is neither the first nor will it be the last corporate scam to have hit India, so investors must be on guard and ask for more information before making any investment decision, says former Sebi chairman M Damodaran. Sound advice. But with corporates, brokers, banks, politicians, regulators colluding at times, many a multi-crore scam has hit India. And the saga is likely to go on. India has seen some of the most high-profile scandals where investors have lost billions of rupees just because a few people in high places could not control their greed.The Satyam Computer Services fraud is neither the first nor will it be the last corporate scam to have hit India, so investors must be on guard and ask for more information before making any investment decision, says former Sebi chairman M Damodaran. Sound advice. But with corporates, brokers, banks, politicians, regulators colluding at times, many a multi-crore scam has hit India. And the saga is likely to go on. India has seen some of the most high-profile scandals where investors have lost billions of rupees just because a few people in high places could not control their greed.

Here's more about India's biggest scams... 1. Ramalinga Raju


The biggest corporate scam in India has come from one of the most respected businessmen.

Satyam founder Byrraju Ramalinga Raju resigned as its chairman after admitting to cooking up the account books. His efforts to fill the "fictitious assets with real ones" through Maytas acquisition failed, after which he decided to confess the crime. With a fraud involving about Rs 8,000 crore (Rs 80 billion), Satyam is heading for more trouble in the days ahead. On Wednesday, India's fourth largest IT company lost a staggering Rs 10,000 crore (Rs 100 billion) in market capitalisation as investors reacted sharply and dumped shares, pushing down the scrip by 78 per cent to Rs 39.95 on the Bombay Stock Exchange. The NYSE-listed firm could also face regulator action in the US. "I am now prepared to subject myself to the laws of the land and face consequences thereof," Raju said in a letter to SEBI and the Board of Directors, while giving details of how the profits were inflated over the years and his failed attempts to "fill the fictitious assets with real ones." Raju said the company's balance sheet as of September 30 carries "inflated (nonexistent) cash and bank balances of Rs 5,040 crore (Rs 50.40 billion) as against Rs 5,361 crore (Rs 53.61 billion) reflected in the books."

2. Harshad Mehta
He was known as the 'Big Bull'. However, his bull run did not last too long. He triggered a rise in the Bombay Stock Exchange in the year 1992 by trading in shares at a premium across many segments. Taking advantages of the loopholes in the banking system, Harshad and his associates triggered a securities scam diverting funds to the tune of Rs 4000 crore (Rs 40 billion) from the banks to stockbrokers between April 1991 to May 1992. Harshad Mehta worked with the New India Assurance Company before he moved ahead to try his luck in the stock markets. Mehta soon mastered the tricks of the trade and set out on dangerous game plan. Mehta has siphoned off huge sums of money from several banks and millions of investors were conned in the process. His scam was exposed, the markets crashed and he was arrested and banned for life from trading in the stock markets. He was later charged with 72 criminal offences.

A Special Court also sentenced Sudhir Mehta, Harshad Mehta's brother, and six others, including four bank officials, to rigorous imprisonment (RI) ranging from 1 year to 10 years on the charge of duping State Bank of India to the tune of Rs 600 crore (Rs 6 billion) in connection with the securities scam that rocked the financial markets in 1992. He died in 2002 with many litigations still pending against him.

3. Ketan Parekh
Ketan Parekh followed Harshad Mehta's footsteps to swindle crores of rupees from banks. A chartered accountant he used to run a family business, NH Securities.Ketan however had bigger plans in mind. He targetted smaller exchanges like the Allahabad Stock Exchange and the Calcutta Stock Exchange, and bought shares in fictitious names. His dealings revolved around shares of ten companies like Himachal Futuristic, Global Tele-Systems, SSI Ltd, DSQ Software, Zee Telefilms, Silverline, Pentamedia Graphics and Satyam Computer (K-10 scrips). Ketan borrowed Rs 250 crore from Global Trust Bank to fuel his ambitions. Ketan alongwith his associates also managed to get Rs 1,000 crore from the Madhavpura Mercantile Co-operative Bank. According to RBI regulations, a broker is allowed a loan of only Rs 15 crore (Rs 150 million). There was evidence of price rigging in the scrips of Global Trust Bank, Zee Telefilms, HFCL, Lupin Laboratories, Aftek Infosys and Padmini Polymer.

4. C R Bhansali
The Bhansali scam resulted in a loss of over Rs 1,200 crore (Rs 12 billion). He first launched the finance company CRB Capital Markets, followed by CRB Mutual Fund and CRB Share Custodial Services. He ruled like a financial wizard 1992 to 1996 collecting money from the public through fixed deposits, bonds and debentures. The money was transferred to companies that never existed. CRB Capital Markets raised a whopping Rs 176 crore in three years. In 1994 CRB Mutual Funds raised Rs 230 crore and Rs 180 crore came via fixed deposits. Bhansali also succeeded to to raise about Rs 900 crore from the markets. However, his good days did not last long, after 1995 he received several jolts. Bhansali tried borrowing more money from the market. This led to a financial crisis.

It became difficult for Bhansali to sustain himself. The Reserve Bank of India (RBI) refused banking status to CRB and he was in the dock. SBI was one of the banks to be hit by his huge defaults

5. Cobbler scam
Sohin Daya, son of a former Sheriff of Mumbai, was the main accused in the multi-crore shoes scam. Daya of Dawood Shoes, Rafique Tejani of Metro Shoes, and Kishore Signapurkar of Milano Shoes were arrested for creating several leather co-operative societies which did not exist. They availed loans of crores of rupees on behalf of these fictitious societies. The scam was exposed in 1995. The accused created a fictitious cooperative society of cobblers to take advantage of government loans through various schemes. Officials of the Maharashtra State Finance Corporation, Citibank, Bank of Oman, Dena Bank, Development Credit Bank, Saraswat Co-operative Bank, and Bank of Bahrain and Kuwait were also charge sheeted.

6.IPO Scam
The Securities and Exchange Board of India barred 24 key operators, including Indiabulls and Karvy Stock Broking, from operating in the stock market and banned 12 depository participants from opening fresh accounts for their involvement in the Initial Public Offer scam. It also banned 85 financiers from capital market activities. Suzlon Energy Ltd's Rs 1,496.34 crore (Rs 14.963 billion) public issue (September 23-29, 2005). The retail portion was oversubscribed 6.04 times and the noninstitutional portion was oversubscribed 40.27 times. Key operators used 21,692 fictitious accounts to corner 323,023 shares representing 3.74 per cent of the total number of shares allotted to retail individual investors. Jet Airways's Rs 1,899.3 crore (Rs 18.993 billion) public offer (Feb 18-24, 2005). The retail portion was subscribed 2.99 times and the non-institutional portion by 12.5 times. Key operators used 1186 fake accounts for cornering 20,901 shares repersenting 0.52 per cent of the total number of shares allotted to retail investors.

National Thermal Power Corporation Ltd's Rs 5,368.14 crore (Rs 53.681 billion) IPO (Oct 7-14, 2004). The retail portion was oversubscribed 3.73 times and the non-institutional portion by 11.93 times. Key operators used a total of 12,853 afferent accounts for cornering 2,750,730 shares representing 1.3 per cent of the total number of shares allotted to retail investors. Tata Consultancy Services's Rs 4,713.47 crore (Rs 47.134 billion) public offer (Aug 19-23, 2004). The retail portion was oversubscribed 2.86 times and the noninstitutional portion by 19.15 times. Key operators used 14,619 'benami' accounts to corner 261,294 shares representing 2.09 per cent of the total shares allotted to retail individual investors. Patni Computer System Ltd's Rs 430.65 crore (Rs 4.306 billion) public issue (Jan 27-Feb 5 2004). The retail portion was oversubscribed 9.36 times and the noninstitutional portion by 39.22 times. A lone key operator used 2541 afferent account for cornering 127,050 shares representing 2.71 per cent of the total number of shares allotted to retail investors.

7. Dinesh Dalmia
Dinesh Dalmia was the managing director of DSQ Software Limited when the Central Bureau of Investigation arrested him for his involvement in a stocks scam of Rs 595 crore (Rs 5.95 billion). Dalmia's group included DSQ Holdings Ltd, Hulda Properties and Trades Ltd, and Powerflow Holding and Trading Pvt Ltd. Dalmia resorted to illegal ways to make money through the partly paid shares of DSQ Software Ltd, in the name of New Vision Investment Ltd, UK, and unallotted shares in the name of Dinesh Dalmia Technology Trust. Investigation showed that 1.30 crore (13 million) shares of DSQ Software Ltd had not been listed on any stock exchange.

8. Abdul Karim Telgi


He paid for his own education at Sarvodaya Vidyalaya by selling fruits and vegetables on trains. He is today famous (or infamous) for being he man behind one of India's biggest scams. The Telgi case is another big scam that rocked India. The fake stamp racket involving Abdul Karim Telgi was exposed in 2000. The loss is estimated to be Rs 171.33 crore (Rs 1.71 billion), it was initially pegged to be Rs 30,000 crore (Rs 300 bilion), which was later clarified by the CBI as an exaggerated figure.

In 1994, Abdul Karim Telgi acquired a stamp paper license from the Indian government and began printing fake stamp papers. Telgi bribed to get into the government security press in Nashik and bought special machines to print fake stamp papers. Telgi's networked spread across 13 states involving 176 offices, 1,000 employees and 123 bank accounts in 18 cities.

9.Virendra Rastogi
Virendra Rastogi chief executive of RBG Resources was charged with for deceiving banks worldwide of an estimated $1 billion. He was also involved in the duty-drawback scam to the tune of Rs 43 crore (Rs 430 milion) in India. The CBI said that five companies, whose directors were the four Rastogi brothers -- Subash, Virender, Ravinde and Narinder -- exported bicycle parts during 199596 to Russia and Hong Kong by heavily over invoicing the value of goods for claiming excess duty draw back from customs.

10. The UTI Scam


Former UTI chairman P S Subramanyam and two executive directors -- M M Kapur and S K Basu -- and a stockbroker Rakesh G Mehta, were arrested in connection with the 'UTI scam'. UTI had purchased 40,000 shares of Cyberspace between September 25, 2000, and September 25, 2000 for about Rs 3.33 crore (Rs 33.3 million) from Rakesh Mehta when there were no buyers for the scrip. The market price was around Rs 830. The CBI said it was the conspiracy of these four people which resulted in the loss of Rs 32 crore (Rs 320 million). Subramanyam, Kapur and Basu had changed their stance on an investment advice of the equities research cell of UTI. The promoter of Cyberspace Infosys, Arvind Johari was arrested in connection with the case. The officals were paid Rs 50 lakh (Rs 5 million) by Cyberspace to promote its shares. He also received Rs 1.18 crore (Rs 11.8 million) from the company through a circuitous route for possible rigging the Cyberspace counter.

11. Uday Goyal

Uday Goyal, managing director of Arrow Global Agrotech Ltd, was yet another fraudster who cheated investors promising high returns through plantations. Goyal conned investors to the tune of over Rs 210 crore (Rs 2.10 billion). He was finally arrested. The plantation scam was exposed when two investors filed a complaint when they failed to get the promised returns. Over 43,300 persons had fallen into Goyal's trap. Several criminal complaints were filed with the Economic Offences Wing. The company's directors and their relatives had misused the investors' money to buy properties. The High Court asked the company to sell its properties and repay its investors.

12. Sanjay Agarwal


Home Trade had created waves with celebrity endorsements. But Sanjay Agarwal's finance portal was just a veil to cover up his shady deals. He swindled a whopping Rs 600 crore (Rs 6 billion) from more than 25 cooperative banks. The government securities (gilt) scam of 2001 was exposed when the Reserve Bank of India checked the acounts of some cooperative banks following unusual activities in the gilt market. Co-operative banks and brokers acted in collusion in abid to make easy money at the cost of the hard earned savings of millions of Indians. In this case, even the Public Provident Fund (PPF) was affected. A sum of about Rs 92 crore (Rs 920 million) was missing from the Seamen's Provident Fund. Sanjay Agarwal, Ketan Sheth (a broker), Nandkishore Trivedi and Baluchan Rai (a Hong Kong-based Non-Resident Indian) were behind the Home Trade scam

Types of stock market


Primarily there are two types of stock markets the primary market and the secondary market. This is true for the Indian stock markets as well. Basically the primary market is the place where the shares are issued for the first time. So when a company is getting listed for the first time at the stock exchange and issuing shares this process is undertaken at the primary market. That means the process of the Initial Public Offering or IPO and the debentures are controlled at the primary stock market. On the other hand the secondary market is the stock market where existing stocks are brought and sold by the retail investors through the brokers. It is the secondary market that controls the price of the stocks. Generally when we speak about investing or trading at the stock market we mean trading at the secondary stock market. It is the secondary market where we can invest and trade in the stocks to get the profit from our stock market investment. Now these are the broadest classification of the stock markets that is true for any country as well as India. But the Indian stock markets can be divided into further categories depending on various aspects like the mode of operation and the diversification in services. First of the two largest stock exchanges in India can be divided on the basis of operation. While the Bombay stock exchange or BSE is a conventional stock exchange with a trading floor and operating through mostly offline trades, the National Stock Exchange or NSE is a completely online stock exchange and the first of its kind in the country. The trading is carried out at the National Stock Exchange through the electronic limit order book or the LOB. With

the immense popularity of the process and online trading facility other exchanges started to take up the online route including the BSE where you can trade online as well. But the BSE is still having the offline trading facility that is carried out at the trading floor of the exchange at its Dalal Street facility. Apart from these classifications there are also different types of stock market in India and the classification is made on the type of instrument that is being traded at the market. Both the Bombay Stock Exchange and the National Stock Exchange have these types of stock markets. Equity market or the cash segment The first type of market is the equity market or the cash segment where stocks are traded. In this type of trading the buyers of the stocks book a buying order with a bid price and the order is executed through the broker at a negotiated ask price offered by the sellers at the market. In most cases the deal is closed or the stocks are brought at the best available ask price. In this type of trading the buyer pays the entire amount of the value of the stocks that is determined by multiplying the number stocks with the current price of the stock. Once the buyer pays the entire amount along with the brokerage and taxes of the transaction the stocks are deposited to the DP account of the buyer. Derivative Market In the derivative market trading is done mainly through two instruments the Future contract and the Option contract. In both these types of contracts the stocks are bought and sold in lot. The number of stocks for each lot depends on the valuation of the stock and the valuation of the lot is determined by the number of

the stocks in a lot multiplied with the current market price of the stock. For trading in derivative market you have to buy either the future contract or the option contract. In a future contract you are bound to close the deal within a specific time and at a fixed arte. While in case of option contract you can also choose to ignore the contract.