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A LECTURE ON SECURITIES

MARKET

Presented By:
Mr. Suman Kumar
Company Secretary
OBJECTIVE

Awareness about
Securities Market
Topic For Discussion
 1. Genesis of Corporation sole and shares.
 2. Overview of the Indian Securities
Market.
 3. Categories of Listed Companies w.r.t.
Market Capitalisation
 4. Types of Securities
 5. Market Sensitivity Index
 6. Capital Market Operation (Movement of
Funds & Securities from one hand to another)
1. Auction & Defaults
2. Derivatives Market Operation (F&O)
3. Investment Strategies (Arbitrage,
Hedging etc.)
4. Other Important Imformation
11. Mutual Funds
12. Current Thoughts.
Individual
GENESIS:

Partnership

CO RP ORA TE

Corporates

Individual Partnership
Firms
Overview of
the
Securities
Market
Equities Market Overview
 With over a billion people in India, less than 3% invest in
equities .
 One of the highest savings rate of 29.1% in the world.
 California Public Employees' Retirement System
(CalPERS), the largest pension fund in the US,with
retirement savings of more than one million Americans has
recognised India as one of the best performers among all
the emerging markets in its investment policy report for
2007.
 The Bombay Stock Exchange is the largest stock
exchange in terms of the number of listed companies
 Indian equity markets are the third best performer in
Asia and the eight best in the world.
 India has one of the world’s lowest transaction cost
based on screen based transaction, paperless
trading and T+2 settlement cycle.
 Currently over 1029 FIIs have been registered with
SEBI.
 Rapidly increasing demand: Trading volumes
expected to double each year for the next two to
three years (Wall Street Journal).
 NSE is ranked second in the world in terms of the
number of transactions conducted after New York
Stock Exchange (NYSE).
 The National Stock Exchange has emerged as the
third largest stock market in the world, just behind
the top-ranked NYSE followed by the NASDAQ.
 Market capitalization of all listed companies 2006-07 has
crossed $1trillion which is almost equal to the GDP of the
country.
 About 20% of the retail turnover in India is being transacted
through internet trading. This is a very low number compared
to markets like South Korea, Japan & USA where more than
75% of the total retail turnover is transacted through internet.
 Market share of online trading is expected to rise in India
given growing retail investor participation, growing internet
usage, faster telecom connectivity and increasing
comfortable levels with internet trading.
 Population of more than 20 million NRI’s with a combined
wealth of more than $1 trillion, i.e. more than India’s GDP.
 India has the 3rd largest investor base in the world with more
than 20 million shareholders.
Categories of Listed
Companies

1. Small Cap Companies


(upto 100 Crores)
2. Mid Cap Companies
(100 Crores-500 Crores)
3. Large Cap Companies
(500 Crores plus)
SOME IMPORTANT STATISTICS
•No. of Companies in India – Approx. 6,50,000
•No. of listed Co.s in India- Approx. 10,000
•No. of Co.s listed on NSE – Approx. 1200
•No. of Co.s listed on BSE - Approx. 5000
•No. of Securities available for trading on NSE-
Approx. 1549 (as on 31.07.07)
•No. of Co.s with CDSL- 5726
•No. of Co.s with NSDL- 6810
•There are total 22 Stock Exchanges.
•No. of Co.s on CDSL- 383
•No. of Co.s on NSDL- 248
Perticulars 00 01 02 03 04 05 06

Brokers 9192 9782 9687 9519 9368 9128 9335

Sub- 5675 9957 12208 13291 12815 13684 23479


brokers
Broker ---- 519 705 795 829 994 1120
(Der.)
FII 506 527 490 502 540 685 882

DP 191 335 380 438 431 477 526

Merch. 186 233 145 124 123 128 130


Bank.
Port. 23 39 47 54 60 84 132
Mngr.
M. F. 38 39 38 38 37 39 38

Source: Dun & Bradstreet


RESOUCES RAISED THROUGH PUBLIC & RIGHT ISSUES;
PRIVATE PLACEMENTS AND MUTUAL FUNDS

Particulars 2006-07 2005-06 % change


(April- March) (April- March)

No. Amount No. Amount


(Rs. Crore) (Rs. Crore)

Public and 124 33,508 139 27,382 122.37


Right Issues

Private 588 1,04,974 667 83,827 125.23


Placements
Types of Securities as per
BSE
S. No. Categories Details
1. A Scrips most liquid and with
(200) credible track records
2. B1 Scrips relatively liquid and with
(800) good track records
3. B2 Scrips with comparatively low
(1830) liquidity
More Info……
S.No. Categories Details

5. F Group represent the Corporate


(735) Debt Segment(fixed income
securities)
6. G Group represent the Central
Government Securities, which
are listed and traded on the
Retail Debt Segment at the
Exchange
More Info…..
S.No. Categories Details

6 S Scrips in this group are called BSE


Indonext, which provides a Nation
wide Trading Platform for enterprises
listed with BSE and regional Stock
Exchanges.
7. TS It is trade to trade segment of BSE
INDONEXT
More Info…..
S.No. Categories Details
9. Z a) Scrips which have to failed to
(3500) comply with the listing
Agreement.
b) Non- redressal of Grievances
of Investors.
c) Lacking in demat on both
depository.
d) As a part of Surveillance
action.
e) Any other reason in public
interest.
Market Sensitivity Indices (Main)

 NSE INDICES  BSE INDICES

S&P CNX Nifty SENSEX


CNX Nifty Junior Dollex 30
S&P CNX 500 BSE MIDCAP
CNX Midcap BSE SMLCAP
S&P CNX Defty BSE 100
BRIEF OVERVIEW
INDICES No. of Co.s Traded Market
No. of Sect. Value Capitalization
(%) (%)
S&P CNX Nifty 50 Co. 43.72 55.78
22 Sectors
CNX Nifty 2nd Top 50 Co.s 10.82 8.69
Junior
Not Specific
S&P CNX 100 Top 100 Co.s 56.02 66.61
35 Sectors
CNX 500 Top 500 Co.s 80.02 90.30
72 Industries
S&P CNX Defty CNX Nifty at time t * 34.65 / Exchange Rate at time t (Dollar
denominated S&P CNX Nifty)
OTHER INDICES
•IT SECTOR INDEX ET MINDEX

•BANK INDEX ET BANKEX

•FMCG INDEX ET BRANDEX

• PHARMA INDEX ET LIFEX


MARKET AND INVESTMENT
TREND

 Marketindex during 1984 is about 400 but


now a days it crossed the 10000 level
– i.e. 16% rate of appreciation each year over the
past 22 year.
{400(1.16)22}= 10474
 butif same formula applied then the Index
will appreciate by 14% then the Index level
in next 20 years.
{10000(1.14)20}=1,37,434
Percentage change in Indian as well International Indices

Indices As on 31.03.06 As on 31.03.07 Change in %

BSE Sensex 11280 13072 15.89


S&P CNX Nifty 3403 3822 12.31
S&P CNX 500 2910 3145 8.08
USA DOW JONES 11109 12354 11.21
USA NASDAQ Composite 2340 2422 3.50
UK FTSE 100 5965 6308 5.75
Hong Kong HSI 15805 19801 25.28
Japan NKY 17060 17288 1.34
Singapore STI 2533 3231 27.56
Taiwan TWSE 6614 7884 19.20
China SHCOMP 1298 3184 145.30
South Africa JALSH 20352 26267 29.06
Argentina IBG 81683 106276 30.11
Brazil IBOV 37952 45805 20.69

Egypt HERMES 57774 63382 9.71


MIS-CONCEPTIONS ABOUT
SECURITIES MARKET.
1. There is complete un-certainty in the Securities Market.

3. Securities Market is nothing but mere Speculation or Gambling.

5. Stock Market leads to huge losses and bankruptcy..

7. There is no safety and security in the securities market.

5. Fundamental or Technical research is worthless in stock market.


Capital
Market
operations
2:30 Wed.
NSCCL

Data transfer
after 3:30 P. M.

SMC
NSEIL
9:55 TO 3:30 P. M.

SMC KOTAK
Bank
A/c
upto
Pool
10.30 A/c
A.M.
(Wed.)
Ankit–Mumbai
sold 1000 Rel.
RAVI DELHI shares
purchased 1000
Rel. shares on
Monday
Auction
&
Default
NSE - DEFAULT & AUCTION

M T 1000 W 1100 T 1200 F S S M


900 800 A (T+1) A (T+2)
Pay in
9:30 A.M.

T T+1 T+2
AUCTION
(T)
Pay in 10:30 - Default 1000 Rel. - Auction - Penalty (0.20 % * t+1 price * No. of
shares) + Value = 1000 * 1200
If the auction takes place on the price less than the trading price then value= t+1 price *
1000 and penalty = (0.20 % * t+1 price * No. of shares

In the Case of Major Defaults:


•Penalty
•Suspension of Brokership
•Invoke the Bank Guarantee/ Counter Guarantee
•Premature F. D.
BSE - DEFAULT & AUCTION

M 900 T 1000 W 1100 T 1200 F S S M


800 A (T+1) A (T+2)
Pay in
12:30 P.M.

T T+1 T+2 AUCTION


(T)

Pay in 10:30 A.M. - Default 1000 Rel. - Auction - Penalty (1 % * t+1 price * No. of
shares) + Value = 1000 * 1200
If the auction takes place on the price less than the trading price then value= t+1
price * 1000 and penalty = (1 % * t+1 price * No. of shares)

In the Case of Major Defaults:


Penalty
Suspension of Brokership
Invoke the Bank Guarantee/ Counter Guarantee
Premature F. D.
Derivatives
Market
Operation
(F&O)
Participants
 Hedgers
 Speculators
 Arbitrageurs
Derivative Market

FUTURES OPTIONS

Put Call
DERIVATIVES

FUTURE OPTION

Index Stock Put Option Call


Future future Option

•Nifty Future Index Stock


Put Put
•CNX IT Future option Option
In
•CNX Bank Future Approx.
•Nifty Junior Future 125 Scrips
Futures Index Stock
•CNX 100 Future are Call Call
available Option Option
D I
E N
S S
1050 C C 1050
T R R T
1040 R E E R 1040
I A A I
1030 1030
C S S C
1020 K E E K
1020
1010 1010
1000
Premium Premium
1000
990 P
R 990
I
980 I N D P 980
C C E
970 R 970
E R C
R I
960 E
E C 960
A
950 S A E
950
S
Reliance E
E Reliance
Call Put
Option Option
GENERATION OF STRIKES FOR NIFTY OPTIONS

Nifty Index Level Strike interval Scheme of strikes to


be introduced
(ITM-ATM-OTM)
Upto 1500 10 3–1–3

> 1500 upto 2000 10 5–1–5

> 2000 upto 2500 10 7–1–7

> 2500 10 9–1–9


GENERATION OF STRIKES FOR STOCK OPTIONS

Pricing of underlaying Strike price Scheme of strikes to


interval be introduced
(ITM-ATM-OTM)
Less than or equal to 2.5 3–1–3
Rs. 50
> Rs. 50 – Rs. 250 5 3–1–3

> Rs. 250 – Rs. 550 10 3–1–3

> Rs. 500 – Rs. 1000 20 3–1–3

> Rs. 1000 –Rs. 2500 30 3–1–3

>Rs. 2500 50 3–1–3


HEDGING & THE BLACK MONDAY (17TH MAY 2004)
NIFTY Down by 377.75 Points (during 03/05/04 to 17/05/04)

UN-HEGED POSITON HEDGED POSITON

REL (03-05-2004) REL FUTURE (03-05-2004)


600*528.45=3,17,070 SOLD 600*526.75=3,16,050
REL (17-05-2004) PUR REL FUTURE(17-05-
600*404.30=2,42,580 2004) = 600*398.20=2,38,920
Total loss from Equity Mkt. Profit = 77,130
= 74,490 Less loss from Eq 74,490
Net Profit = 2,640
HEDGING (03-10-2005 to 28-10-2005)
NIFTY Down by 314 Points

UN-HEGED POSITON HEDGED POSITON

RANBAXY (03-10-2005) RANBAXY FUTURE


400*500.45= 2,00,180 (03-10-2005)
SOLD 400*502.35= 2,00,940
RANBAXY (28-10-2005) PUR RANBAXY (28-10-2005)
400*350.85= 1,40,340 = 400*364.70 = 1,45,880

Total loss from Equity Mkt. Profit = 55,060


= 59,840 Less loss from Eq 59,840
Net Loss = 4,780
(i.e.7.98 %)
Arbitrage: Buying in one market and selling in another Market.

Concept of Fund based Arbitrage :


1. If Spot Price > Future Price
Sell Spot Buy Future
2. If Spot < Future
Buy Spot Sell Future
Example : Wipro Spot Future
( 3rd March) (1 – Month)
529.70 525.15
diff 4.55 * 365 = 12.54 p.a.
-------
25
Sell Buy
529.70 525.15
On 30th of March Let Price is 550, Hence
550-529.70 550.00-525.15
= 20.30 (Loss in Equity) = 24.85 (Profit in
Net Profit = 24.85- 20.30 =4.55 Future)
OTHER
IMPORTANT
INFORMATION
IMPORTANT TERMINOLOGY

•American options – all stock options


•European options – all index options
•In - the – money option – positive cash flow
•At - the – money option – zero cash flow
•Out - of - the – money option – -ve cash flow
•Intrinsic value of an option – for call (spot- strike) & for
put (strike-spot)
•Time value of an option – premium–intrinsic value
•Open Interest – total no. of outstanding longs or shorts
in the market
•BOLT, NEAT
TRANSACTION CHARGES

Derivatives - Rs. 2
TM Exchange
per lac of turnover
(0.002%) subject to
minimum of Rs. 1
Rs. 10 per lac per annum
crore (F&O)
(0.0001%) Cash - Rs. 3.50
IPF per lac of turnover
Rs. 1 per 100 (0. 0035 %)
crore (CM)
(0.0000001%)
SECURITIES TRANSACTION TAX (STT)

Delivery Base – 0.125 % (Both Sides)

CASH
SEGMENT
Jobbing – 0.025 % (Seller Only)

Future – 0.0167 % of Future Value


DERIVATIVE
(seller only)
SEGMENT

Option – 0.0133 % of Strike Price +


Premium
BROKERAGE

INB Broker – 2.5%


(Max.)
Cash Segment
INS Sub- Broker – 1.5 % (Max.)

Index Future

Derivatives INF Broker – 2.5% of


Segment Stock Future

Premium *
Sub- Broker - N. A. Quantity
NSE MILESTONES
•November 1992 Incorporation
•April 1993 Recognition as a stock exchange
•November 1994 Capital Market (Equities) segment goes live
•April 1995 Establishment of NSCCL, the first Clearing Corporation
•October 1995 Became largest stock exchange in the country
•April 1996 Commencement of clearing and settlement by NSCCL
•April 1996 Launch of S&P CNX Nifty
•November 1996 Setting up of National Securities Depository Limited, first depository
in India, co-promoted by NSE
•June 2000 Commencement of Derivatives Trading (Index Futures)
•June 2001 Commencement of trading in Index Options
•July 2001 Commencement of trading in Options on Individual Securities
•November 2001 Commencement of trading in Futures on Individual Securities
•August 2003 Launch of Futures & options in CNXIT Index
•June 2005 Launch of Futures & options in BANK Nifty Index
•December 2006 'Derivative Exchange of the Year', by Asia Risk magazine
•June 2007 NSE launches derivatives on Nifty Junior & CNX 100
Bombay Stock

Exchange.

Bombay Stock Exchange (BSE) was


incorporated in 1875 with the name Native
Share & Stock Brokers Association.
MUTUAL
FUNDS
Mutual Fund
 What is Mutual Fund?
 How many companies(AMC) are there in
the MF Industries?
 Type of product w.r.t. liquidity?
 Who are the regulatory authorities to
monitor & control MF Industries?
More Info………..
What is NAV?
• Please visit
www.amfiindia.com
• It can provide you complete
understanding of MF
• You can watch NAV of any scheme
any time.
Source: www.rbi.org.in