THE INDIAN CAPITAL MARKET AN OVERVIEW

The Indian capital market is more than a century old. Its history goes back to 1875, when 22 brokers formed the Bombay Stock Exchange (BSE). Over the period, the Indian securities market has evolved continuously to become one of the most dynamic, modern, and efficient securities markets in Asia. Today, Indian market confirms to best international practices and standards both in terms of structure and in terms of operating efficiency .Indian securities markets are mainly governed by a) The Companys Act1956, b) the Securities Contracts (Regulation) Act 1956 (SCRA Act), and c) the Securities and Exchange Board of India (SEBI) Act, 1992. A brief background of these above regulations are given below a) The Companies Act 1956 deals with issue, allotment and transfer of securities and various aspects relating to company management. It provides norms for disclosures in the public issues, regulations for underwriting, and the issues pertaining to use of premium and discount on various issues. b) SCRA provides regulations for direct and indirect control of stock exchanges with an aim to prevent undesirable transactions in securities. It provides regulatory jurisdiction to Central Government over stock exchanges, contracts in securities and listing of securities on stock exchanges. c) The SEBI Act empowers SEBI to protect the interest of investors in the securities market, to promote the development of securities market and to regulate the security market. The Indian securities market consists of primary (new issues) as well as secondary (stock) market in both equity and debt. The primary market provides the channel for sale of new securities, while the secondary market deals in trading of securities 1

previously issued. The issuers of securities issue (create and sell) new securities in the primary market to raise funds for investment. They do so either through public issues or private placement. There are two major types of issuers who issue securities. The corporate entities issue mainly debt and equity instruments (shares, debentures, etc.), while the governments (central and state governments) issue debt securities (dated securities, treasury bills). The secondary market enables participants who hold securities to adjust their holdings in response to changes in their assessment of risk and return. A variant of secondary market is the forward market, where securities are traded for future delivery and payment in the form of futures and options. The futures and options can be on individual stocks or basket of stocks like index. Two exchanges, namely National Stock Exchange (NSE) and the Stock Exchange, Mumbai (BSE) provide trading of derivatives in single stock futures, index futures, single stock options and index options. Derivatives trading commenced in India in June 2000 Other leading cities in stock market operations Ahmedabad gained importance next to Bombay with respect to cotton textile industry. After 1880, many mills originated from Ahmedabad and rapidly forged ahead. As new mills were floated, the need for a Stock Exchange at Ahmedabad was realized and in 1894 the brokers formed "The Ahmedabad Share and Stock Brokers' Association". What the cotton textile industry was to Bombay and Ahmedabad, the jute industry was to Calcutta. Also tea and coal industries were the other major industrial groups in Calcutta. After the Share Mania in 1861-65, in the 1870's there was a sharp boom in jute shares, which was followed by a boom in tea shares in the 1880's and 1890's; and a coal boom between 1904 and 1908. On June 1908, some leading brokers formed "The Calcutta Stock Exchange Association". In the beginning of the twentieth century, the industrial revolution was on the way in India with the Swadeshi Movement; and with the inauguration of the Tata Iron and Steel Company Limited in 1907, an important stage in industrial advancement under Indian enterprise was reached.

Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies generally enjoyed phenomenal prosperity, due to the First World War. In 1920, the then demure city of Madras had the maiden thrill of a stock exchange functioning in its midst, under the name and style of "The Madras Stock Exchange" with 100 members. However, when boom faded, the number of members stood reduced from 100 to 3, by 1923, and so it went out of existence. In 1935, the stock market activity improved, especially in South India where there was a rapid increase in the number of textile mills and many plantation companies were floated. In 1937, a stock exchange was once again organized in Madras - Madras Stock Exchange Association (Pvt) Limited. (In 1957 the name was changed to Madras Stock Exchange Limited). Lahore Stock Exchange was formed in 1934 and it had a brief life. It was merged with the Punjab Stock Exchange Limited, which was incorporated in 1936. Indian Stock Exchanges - An Umbrella Growth The Second World War broke out in 1939. It gave a sharp boom which was followed by a slump. But, in 1943, the situation changed radically, when India was fully mobilized as a supply base. On account of the restrictive controls on cotton, bullion, seeds and other commodities, those dealing in them found in the stock market as the only outlet for their activities. They were anxious to join the trade and their number was swelled by numerous others. Many new associations were constituted for the purpose and Stock Exchanges in all parts of the country were floated. The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited (1940) and Hyderabad Stock Exchange Limited (1944) were incorporated. In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited and the Delhi Stocks and Shares Exchange Limited - were floated and later in June 1947, amalgamated into the Delhi Stock Exchange Association Limited.There are two major indicators of Indian capital market- SENSEX & NIFTY: 3

SENSEX &NIFTY
What are the Sensex & the Nifty? The Sensex is an "index". What is an index? An index is basically an indicator. It gives you a general idea about whether most of the stocks have gone up or most of the stocks have gone down. The Sensex is an indicator of all the major companies of the BSE. The Nifty is an indicator of all the major companies of the NSE. If the Sensex goes up, it means that the prices of the stocks of most of the major companies on the BSE have gone up. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE have gone down. Just like the Sensex represents the top stocks of the BSE, the Nifty represents the top stocks of the NSE. Just in case you are confused, the BSE, is the Bombay Stock Exchange and the NSE is the National Stock Exchange. The BSE is situated at Bombay and the NSE is situated at Delhi. These are the major stock exchanges in the country. There are other stock exchanges like the Calcutta Stock Exchange etc. but they are not as popular as the BSE and the NSE. Most of the stock trading in the country is done though the BSE & the NSE . Besides Sensex and the Nifty there are many other indexes. There is an index that gives you an idea about whether the mid-cap stocks go up and down. This is called the BSE Mid-cap Index. There are many other types of index. Unless stock markets provide professionalized service, small investors and foreign investors will not be interested in capital market operations. And capital market being one of the major source of long-term finance for industrial projects, India cannot afford to damage the capital market path. In this regard NSE gains vital importance in the Indian capital market but if we see the sensex & nifty graph there is a great variation.

HISTORICAL PERSPECTIVE

The history of Indian stock market is about 200 years old. Prior to this the hundis and bills of exchange were in use, specially in the medieval period, which can be considered as a form of virtual stock trading but it was certainly not an organized stock trading. The recorded stock trading can be traced only after the arrival of East India Company. The first organized stock market that was governed by the rules and regulations came into the existence in the form of The Native Share and Stock Brokers' Association in 1875. After gone through numerous changes this association is today better as Bombay Stock Exchange, which remains the premier stock exchange since its inception. During this period several other exchanges were launched and some of which were closed also. Presently, there are 19 recognized stock exchanges out of which four are national level exchanges and the remaining are regional exchanges. National Stock Exchange, established in 1992, was the last exchange. Although the regional level exchanges are in existence the volume of trading in these exchanges is negligible. National Stock Exchange and Bombay Stock Exchange are the leaders of Indian Securities Market in terms of listing, trading and volumes. The last 15 years of the Indian securities market can be considered as the most important part of the history where the market gone through the post liberalization era of Indian economy and witnessed the formation of Securities and Exchange Board of India (SEBI) which brought substantial transparency in share market practices and thus managed to bring in trust of not only domestic investors but also the international ones.

The Big Picture of share market As investors, most of us tend to forget about all of the good years and only focus on the bad. The broad markets have been heading up for about four years, so the thoughts of what happened in 1999-2002 are well behind us. But now that the markets are volatile, there is a lot of talk about the subprime mortgage industry, a weak dollar, and 5

everyone begins to completely forget about how well the past four years have been and only focus on the last few months or weeks complaining how bad it is. Things can certainly continue to get worse, but you have to look at things in context. Remember, what goes up, must come down. Not only does the stock market cycle, but there is a business cycle as well. We will always have various times that are great, and those that arent as great, but you cant lose sight of the big picture. Take a look at the following 12 years in a colorized format. Green identifies periods of strong growth. Yellow indicates a period of volatility or no real direction, and red shows a period of a downward trend. Based on this, is it any surprise that markets are becoming volatile and possibly trending downward?

For even more similarities, scroll back up and look at the first chart from 1996-1999. Now, scroll down and look at the 2005-Present image. Notice how similar they are? The markets went up for completely different reasons, yet are behaving almost the same. All you have to do is look at the following few years to see what might be in store for us over the coming year or two. Will history repeat itself? There is no way to tell, and anything could happen to make all of this information worthless, but you do have to at least consider the past trends and understand that there is a chance the market will behave similarly and well enter a period of significant decline.

Keep Doing What Youre Doing Sure, the market may be a bit unstable right now, and we may certainly be headed for a time where the market falls further, but that shouldnt be of much concern to you if youre investing for the next 10, 20, 30 or more years. If you want to try and time the market or predict what the next hot sector is, thats fine, but the best thing most people can do is to just continuously invest in a diversified portfolio. If you keep buying even as the market falls, youre just adding more shares at a lower price. Could you make more money if you only invested at the low points and sold at the high points compared to dollar cost averaging? Sure, but the likelihood of succeeding on a regular basis is low. For most people, the best thing to do is to just continue investing bi-weekly, monthly, or quarterly into the same diversified portfolio regardless of market conditions. When markets are choppy or headed down, youre just buying stocks or funds on sale. All you have to do is look back a few years to see that even though the market might go down, it will eventually come back up again. KEY MILESTONES Following is the timeline on the rise and rise of the Sensex through Indian stock market history. 1830's Business on corporate stocks and shares in Bank and Cotton presses started in Bombay. 1860-1865 Cotton price bubble as a result of the American Civil War 1870 - 90's Sharp increase in share prices of jute industries followed by a boom in tea stocks and coal 1900s 1978-79 Base year of Sensex, defined to be 100. 1986 Sensex first compiled. Using a market Capitalization Weighted methodology for 30 component stocks representing well-established companies across key sectors.

Since 1990 1000, July 25, 1990 On July 25, 1990, the Sensex touched the magical four-digit figure for the first time and closed at 1,001 in the wake of a good monsoon season and excellent corporate results. July 1991 Rupee devalued by 18-19 % 2000, January 15, 1992 On January 15, 1992, the Sensex crossed the 2,000-mark and closed at 2,020 followed by the liberal economic policy initiatives undertaken by the then prime minister P.V.Narasimha rao. 3000, February 29, 1992 On February 29, 1992, the Sensex surged past the 3000 mark in the wake of the market-friendly Budget announced by the then Finance Minister, Dr Manmohan Singh. 4000, March 30, 1992 On March 30, 1992, the Sensex crossed the 4,000-mark and closed at 4,091 on the expectations of a liberal export-import policy. It was then that the Harshad Mehta scam hit the markets and Sensex witnessed unabated selling. 5000, October 8, 1999 On October 8, 1999, the Sensex crossed the 5,000-mark as the BJP-led coalition won the majority in the 13th Lok Sabha election. 6000, February 11, 2000 On February 11, 2000, the infotech boom helped the Sensex to cross the 6,000-mark and hit and all time high of 6,006. 6151, Feb 14, 2000 Tops. Index declines until Sept 2001 and loses half the value. Coincides with dot-com bubble burst. 2595, Sept 21, 2001 Bottoms. 7000, June 20, 2005 On June 20, 2005, the news of the settlement between the Ambani brothers boosted investor sentiments and the scrips of RIL, Reliance Energy, Reliance Capital, and IPCL made huge gains. This helped the Sensex crossed 7,000 points for the first time.

8000, September 8, 2005 On September 8, 2005, the Bombay Stock Exchange's benchmark 30-share index -- the Sensex -- crossed the 8000 level following brisk buying by foreign and domestic funds in early trading. 9000, November 28, 2005 The Sensex on November 28, 2005 crossed the magical figure of 9000 to touch 9000.32 points during mid-session at the Bombay Stock Exchange on the back of frantic buying spree by foreign institutional investors and well supported by local operators as well as retail investors. 10,000, February 6, 2006 The Sensex on February 6, 2006 touched 10,003 points during mid-session. The Sensex finally closed above the 10K-mark on February 7, 2006. 11,000, March 21, 2006 The Sensex on March 21, 2006 crossed the magical figure of 11,000 and touched a life-time peak of 11,001 points during mid-session at the Bombay Stock Exchange for the first time. However, it was on March 27, 2006 that the Sensex first closed at over 11,000 points. 12,000, April 20, 2006 The Sensex on April 20, 2006 crossed the 12,000-mark and closed at a peak of 12,040 points for the first time. 13,000, October 30, 2006 The Sensex on October 30, 2006 crossed the magical figure of 13,000 and closed at 13,024.26 points, up 117.45 points or 0.9%. It took 135 days for the Sensex to move from 12,000 to 13,000 and 123 days to move from 12,500 to 13,000. 14,000, December 5, 2006 The Sensex on December 5, 2006 crossed the 14,000mark to touch 14,028 points. It took 36 days for the Sensex to move from 13,000 to the 14,000 mark. 15,000, July 6, 2007 The Sensex on July 6, 2007 crossed the magical figure of 15,000 to touch 15,005 points in afternoon trade. It took seven months for the Sensex to move from 14,000 to 15,000 points. 16,000, September 19, 2007 The Sensex scaled yet another milestone during early morning trade on September 19, 2007. Within minutes after trading began, the Sensex 9

crossed 16,000, rising by 450 points from the previous close. The 30-share Bombay Stock Exchange's sensitive index took 53 days to reach 16,000 from 15,000. Nifty also touched a new high at 4659, up 113 points. The Sensex finally ended with a gain of 654 points at 16,323. The NSE Nifty gained 186 points to close at 4,732. 17,000, September 26, 2007 The Sensex scaled yet another height during early morning trade on September 26, 2007. Within minutes after trading began, the Sensex crossed the 17,000-mark. Some profit taking towards the end, saw the index slip into red to 16,887 - down 187 points from the day's high. The Sensex ended with a gain of 22 points at 16,921. 18,000, October 09, 2007 The BSE Sensex crossed the 18,000-mark on October 09, 2007. It took just 8 days to cross 18,000 points from the 17,000 mark. The index zoomed to a new all-time intra-day high of 18,327. It finally gained 789 points to close at an all-time high of 18,280. The market set several new records including the biggest single day gain of 789 points at close, as well as the largest intra-day gains of 993 points in absolute term backed by frenzied buying after the news of the UPA and Left meeting on October 22 put an end to the worries of an impending election. 19,000, October 15, 2007 The Sensex crossed the 19,000-mark backed by revival of funds-based buying in blue chip stocks in metal, capital goods and refinery sectors. The index gained the last 1,000 points in just four trading days. The index touched a fresh all-time intra-day high of 19,096, and finally ended with a smart gain of 640 points at 19,059.The Nifty gained 242 points to close at 5,670. 20,000, October 29, 2007 The Sensex crossed the 20,000 mark on the back of aggressive buying by funds ahead of the US Federal Reserve meeting. The index took only 10 trading days to gain 1,000 points after the index crossed the 19,000-mark on October 15. The major drivers of today's rally were index heavyweights Larsen and Toubro, Reliance Industries, ICICI Bank, HDFC Bank and SBI among others. The 30-share index spurted in the last five minutes of trade to fly-past the crucial level and scaled a new intra-day peak at 20,024.87 points before ending at its fresh closing high

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of 19,977.67, a gain of 734.50 points. The NSE Nifty rose to a record high 5,922.50 points before ending at 5,905.90, showing a hefty gain of 203.60 points. 21,000, January 8, 2008 The sensex peaks. It crossed the 21,000 mark in intra-day trading after 49 trading sessions. This was backed by high market confidence of increased FII investment and strong corporate results for the third quarter. However, it later fell back due to profit booking. 15,200, June 13, 2008 The sensex closed below 15,200 mark, Indian market suffer with major downfall from January 21,2008 14,220, June 25, 2008 The sensex touched an intra day low of 13,731 during the early trades, then pulled back and ended up at 14,220 amidst a negative sentiment generated on the Reserve Bank of India hiking CRR by 50 bps. FII outflow continued in this week. 12,822, July 2, 2008 The sensex hit an intra day low of 12,822.70 on July 2nd, 2008. This is the lowest that it has ever been in the past year. Six months ago, on January 10th, 2008, the market had hit an all time high of 21206.70. This is a bad time for the Indian markets, although Reliance and Infosys continue to lead the way with mostly positive results. Bloomberg lists them as the top two gainers for the Sensex, closely followed by ICICI Bank and ITC Ltd. 11801.70, Oct 6, 2008 The sensex closed at 11801.70 hitting the lowest in the past 2 years. 10527, Oct 10, 2008 The Sensex today closed at 10527,800.51 points down from the previous day having seen an intraday fall of as large as 1063 points. Thus,this week turned out to be the week with largest percentage fall in the Sensex. 14284.21, May 18, 2009 After the result of 15th indian general election Sensex gained 2110.79 points form the previous close of 12173.42 these creates a new histroy in Indian Market. In the Opening Trade itself sensex gain 15% from the previous day close this leads to the suspension of 2 hours trade. After 2 hours sensex again surged this leads to the suspension of full day trading. 1420

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Myths of stock market 1. You can tell if a Stock is cheap or expensive by the Price to Earnings Ratio. False: PE ratios are easy to calculate, that is why they are listed in newspapers etc. But you cannot compare PEs on companies from different industries, as the variables those companies and industries have are different. Even comparing within an industry, PEs dont tell you about many financial fundamentals and nothing about a stocks value. 2. To make Money in the Stock Market, you must assume High Risks. False: Tips to Lower your Risk: Do not put more than 10% of your money into any one stock Do not own more than 2-3 stocks in any industry Buy your stocks over time, not all at once Buy stocks with consistent and predictable earnings growth Buy stocks with growth rates greater than the total of inflation and interest rates Use stop-loss orders to limit your risk

3. Buy Stocks on the Way Down and Sell on the Way Up. False: People believe that a falling stock is cheap and a rising stock is too expensive. But on the way down, you have no idea how much further it may fall. If a stock is rising, especially if it has broken previous highs, there are no unhappy owners who want to dump it. If the stock is fairly valued, it should continue to rise. 4. You can Hedge Inflation with Stocks. False: When interest rates rise, people start to pull money out of the market and into bonds, so that pushes prices down. Plus the cost of business goes up, so corporate earnings go down, along with the stock prices. 5. Young People can afford to take High Risk.

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False: The only thing true about this is that young people have time on their side if they lose all their money. But young people have little disposable income to risk losing. If they follow the tips above, they can make money over many years. Young people have the time to be patient. How stock market works In order to understand what stocks are and how stock markets work, we need to dive into history--specifically, the history of what has come to be known as the corporation, or sometimes the limited liability company (LLC). Corporations in one form or another have been around ever since one guy convinced a few others to pool their resources for mutual benefit. The first corporate charters were created in Britain as early as the sixteenth century, but these were generally what we might think of today as a public corporation owned by the government, like the postal service.

Privately owned corporations came into being gradually during the early 19th century in the United States , United Kingdom and western Europe as the governments of those countries started allowing anyone to create corporations. In order for a corporation to do business, it needs to get money from somewhere. Typically, one or more people contribute an initial investment to get the company off the ground. These entrepreneurs may commit some of their own money, but if they don't have enough, they will need to persuade other people, such as venture capital investors or banks, to invest in their business. They can do this in two ways: by issuing bonds, which are basically a way of selling debt (or taking out a loan, depending on your perspective), or by issuing stock, that is, shares in the ownership of the company. Long ago stock owners realized that it would be convenient if there were a central place they could go to trade stock with one another, and the public stock exchange was born. Eventually, today's stock markets grew out of these public places.

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IPO INITIAL PUBLIC OFFERING

Public issues can be classified into Initial Public offerings and further public offerings. In a public offering, the issuer makes an offer for new investors to enter its shareholding family. The issuer company makes detailed disclosures as per the DIP guidelines in its offer document and offers it for subscription. Initial Public Offering (IPO ) is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. This paves way for listing and trading of the issuers securities. IPO is New shares Offered to the public in the Primary Market .The first time the company is traded on the stock exchange. A prospectus is issued to read about its risk before investing. IPO is a company's first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept very large risks for the possibility of large gains. Sometimes, Just before the IPO is launched, Existing share Holders get a very liberal bonus issues as a reward for their faith in risking money when the project was new How to apply to a public issue ? When a company floats a public issue or IPO, it prints forms for application to be filled by the investors. Public issues are open for a few days only. As per law, any public issue should be kept open for a minimum of 3days and a maximum of 21 days. For issues, which are underwritten by financial institutions, the offer should be kept open for a minimum of 3 days and a maximum of 21 days. For issues, which are underwritten by all India financial institutions, the offer should be kept open for a maximum of 10 days. Generally, issues are kept open for only 3 to 4 days. The duly complete application from, accompanied by cash, cheque, DD or stock invest should be deposited before the closing date as per the instruction on the from. IPO's by investment companies (closed end funds) usually contain underwriting fees which represent a load to buyers.

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Before applying for any IPO , analyse the following factors: 1. Who are the Promoters ? What is their credibility and track record ? 2. What is the company manufacturing or providing services - Product, its potential 3. Does the Company have any Technology tie-up ? if yes , What is the reputation of the collaborators 4. What has been the past performance of the Company offering the IPO? 5. What is the Project cost, What are the means of financing and profitability projections? 6. What are the Risk factors involved ? 7. Who has appraised the Project ? In India Projects apprised by IDBI and ICICI have more credibility than small Merchant Bankers

How to make payments for IPOs: The payment terms of any IPO or Public issue is fixed by the company keeping in view its fund requirements and the statutory regulations. In general, companies stipulate that either the entire money should be paid along with the application or 50 percent of the entire amount be paid along with the application and rest on allotment. However, if the funds requirements is staggered, the company may ask for the money in calls, that is, the company demands for the money after allotment as and when the cash flow demands. As per the statutory requirements, for public issue large than Rs. 250 crore, the money is to be collected as under: 25 per cent on application 25 per cent on allotment 50 per cent in two or more calls

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The role of SEBI in the process of IPO

SEBI regulates the IPO process and issued detailed Guidelines under section 11 of the SEBI Act, 1992 in the name of SEBI (Disclosure and Investors Protection) Guidelines, 2002 generally known as DIP Guidelines. It is also noted that under the provisions sections 55 of the Companies Act, 1956. the matters pertaining to issue and transfer of securities and non payment of dividend in case of listed companies, the companies intend to get listed are being administered by SEBI.

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DEMAT ACCOUNT

Demat refers to a dematerialised account. Though the company is under obligation to offer the securities in both physical and demat mode, you have the choice to receive the securities in either mode. If you wish to have securities in demat mode, you need to indicate the depository and also of the depository participant with whom you have depository account in your application. It is, however desirable that you hold securities in demat form as physical securities carry the risk of being fake, forged or stolen. Just as you have to open an account with a bank if you want to save your money, make cheque payments etc, Nowadays, you need to open a demat account if you want to buy or sell stocks. So it is just like a bank account where actual money is replaced by shares. You have to approach the DPs (remember, they are like bank branches), to open your demat account. Let's say your portfolio of shares looks like this: 150 of Infosys, 50 of Wipro, 200 of HLL and 100 of ACC. All these will show in your demat account. So you don't have to possess any physical certificates showing that you own these shares. They are all held electronically in your account. As you buy and sell the shares, they are adjusted in your account. Just like a bank passbook or statement, the DP will provide you with periodic statements of holdings and transactions. The most important thing required to trade in share market is Demat account. Demat or Dematerialized account is to store stocks in electronics form. It is just like opening a bank account to store your money. Now nobody is interested to keep shares in physical forms and going for electronic based filing of shares. This has changed the style of operation in main Indian stock markets like BSE Sensex ( Bombay Stock Exchange Sensitive Index) and Nifty (National Stock Exchange of India) and its brokers. 17

How to Open a Demat Account It is like opening a bank account. You have to approach a depository participants to open an online trading or demat account. Most of the banks are DPs too. Documents Required You will have to submit few documents with the application form to open a demat account. As per latest Govt of India rule PAN (Personal Account Number) card is must for opening a demat account. These are the documents required to open a demat account 1. Photo Copy of PAN Card (Mandatory) 2. Two Passport size photos 3. Address Proof Ration Card/Passport/Driving License/Voters ID Card/BSNL Telephone/LIC Policy 4. Latest Bank Statement and photocopy of Bank Passbook.

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SEBI INTRODUCTION

In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India through an executive resolution, and was subsequently upgraded as a fully autonomous body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. In place of Government Control, a statutory and autonomous regulatory board with defined responsibilities, to cover both development & regulation of the market, and independent powers have been set up. Paradoxically this is a positive outcome of the Securities Scam of 1990-91.

The basic objectives of the Board were identified as:

to protect the interests of investors in securities; to promote the development of Securities Market; to regulate the securities market and for matters connected therewith or incidental thereto.

Since its inception SEBI has been working targetting the securities and is attending to the fulfillment of its objectives with commendable zeal and dexterity. The improvements in the securities markets like capitalization requirements, margining, establishment of clearing corporations etc. reduced the risk of credit and also reduced the market.

SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the eligibility criteria, the code of obligations and the code of conduct for different intermediaries like, bankers to issue, merchant bankers, brokers and subbrokers, registrars, portfolio managers, credit rating agencies, underwriters and others. It has framed bye-laws, risk identification and risk management systems for Clearing houses of stock exchanges, surveillance system etc. which has made dealing in securities both safe and transparent to the end investor.

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Another significant event is the approval of trading in stock indices (like S&P CNX Nifty & Sensex) in 2000. A market Index is a convenient and effective product because of the following reasons: It acts as a barometer for market behavior; It is used to benchmark portfolio performance; It is used in derivative instruments like index futures and index options; It can be used for passive fund management as in case of Index Funds.

Two broad approaches of SEBI is to integrate the securities market at the national level, and also to diversify the trading products, so that there is an increase in number of traders including banks, financial institutions,insurance companies, mutual funds, primary dealers etc. to transact through the Exchanges. In this context the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD is a real landmark. SEBI appointed the L. C. Gupta Committee in 1998 to recommend the regulatory framework for derivatives trading and suggest bye-laws for Regulation and Control of Trading and Settlement of Derivatives Contracts. The Board of SEBI in its meeting held on May 11, 1998 accepted the recommendations of the committee and approved the phased introduction of derivatives trading in India beginning with Stock Index Futures. The Board also approved the "Suggestive Bye-laws" as recommended by the Dr LC Gupta Committee for Regulation and Control of Trading and Settlement of Derivatives Contracts.

SEBI then appointed the J. R. Verma Committee to recommend Risk Containment Measures (RCM) in the Indian Stock Index Futures Market. The report was submitted in November 1998. However the Securities Contracts (Regulation) Act, 1956 (SCRA) required amendment to include "derivatives" in the definition of securities to enable SEBI to introduce trading in derivatives. The necessary amendment was then carried out by the Government in 1999. The Securities Laws (Amendment) Bill, 1999 was introduced. In December 1999 the new framework was approved.

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Derivatives have been accorded the status of `Securities'. The ban imposed on trading in derivatives in 1969 under a notification issued by the Central Government was revoked. Thereafter SEBI formulated the necessary regulations/bye-laws and intimated the Stock Exchanges in the year 2000. The derivative trading started in India at NSE in 2000 and BSE started trading in the year 2001. SEBI is the Regulator for the Securities Market in India. Originally set up by the Government of India in 1988, it acquired statutory form in 1992 with SEBI Act 1992 being passed by the Indian Parliament.Chaired by C B Bhave, SEBI is headquartered in the popular business district of Bandra-Kurla complex in Mumbai, and has Northern, Eastern, Southern and Western regional offices in New Delhi, Kolkata, Chennai and Ahmedabad. Organisation Structure Chandrasekhar Bhaskar Bhave is the sixth chairman of the Securities Market Regulator. Prior to taking charge as Chairman SEBI, he had been the chairman of NSDL (National Securities Depository Limited) ushering in paperless securities. Prior to his stint at NSDL, he had served SEBI as a Senior Executive Director. He is a former Indian Administrative Service officer of the 1975 batch.

The Board comprises

Name

Designation

As per

Mr CB Bhave

Chairman SEBI

CHAIRMAN (S.4(1)(a) of the SEBI Act, 1992)

Mr KP Krishnan

Joint Secretary, Ministry of Finance

Member (S.4(1)(b) of the SEBI Act, 1992)

Mr Anurag Goel

Secretary, Ministry of Corporate Affairs

Member (S.4(1)(b) of the SEBI Act, 1992)

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Dr G Mohan Gopal

Director, National Judicial Member (S.4(1)(d) of the Academy, Bhopal SEBI Act, 1992)

Mr MS Sahoo

Whole Time Member, SEBI

Member (S.4(1)(d) of the SEBI Act, 1992)

Dr KM Abraham

Whole Time Member, SEBI

Member (S.4(1)(d) of the SEBI Act, 1992)

Mr Mohandas Pai

Director, Infosys

Member (S.4(1)(d) of the SEBI Act, 1992)

Functions and Responsibilities SEBI has to be responsive to the needs of three groups, which constitute the market:

the issuers of securities the investors the market intermediaries.

SEBI has three functions rolled into one body quasi-legislative, quasi-judicial and quasi-executive. It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity. Though this makes it very powerful, there is an appeals process to create accountability. There is a Securities Appellate Tribunal which is a three member tribunal and is presently headed by a former Chief Justice of a High court - Mr. Justice NK Sodhi. A second appeal lies directly to the Supreme Court. SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and successively (e.g. the quick movement towards making the markets electronic and paperless rolling settlement on T+2 basis). SEBI has been active in setting up the regulations as required under law. It is regulating body.

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INTRODUCTION BOMBAY STOCK EXCHANGE

Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now spanning three centuries in its 133 years of existence. What is now popularly known as BSE was established as "The Native Share & Stock Brokers' Association" in 1875. BSE is the first stock exchange in the country which obtained permanent recognition (in 1956) from the Government of India under the Securities Contracts (Regulation) Act 1956. BSE's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized. It migrated from the open outcry system to an online screen-based order driven trading system in 1995. Earlier an Association Of Persons (AOP), BSE is now a corporatised and demutualised entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualisation) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). With demutualisation, BSE has two of world's best exchanges, Deutsche Brse and Singapore Exchange, as its strategic partners. Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient access to resources. There is perhaps no major corporate in India which has not sourced BSE's services in raising resources from the capital market. Today, BSE is the world's number 1 exchange in terms of the number of listed companies and the world's 5th in transaction numbers. The market capitalization as on December 31, 2007 stood at USD 1.79 trillion . An investor can choose from more than 4,700 listed companies, which for easy reference, are classified into A, B, S, T and Z groups. The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic stature , and is tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The SENSEX is constructed on a 'free-float' methodology, and is sensitive to market sentiments and market realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral indices. BSE has entered into an index cooperation 23

agreement with Deutsche Brse. This agreement has made SENSEX and other BSE indices available to investors in Europe and America. Moreover, Barclays Global Investors (BGI), the global leader in ETFs through its iShares brand, has created the 'iShares BSE SENSEX India Tracker' which tracks the SENSEX. The ETF enables investors in Hong Kong to take an exposure to the Indian equity market. The first Exchange Traded Fund (ETF) on SENSEX, called "SPIcE" is listed on BSE. It brings to the investors a trading tool that can be easily used for the purposes of investment, trading, hedging and arbitrage. SPIcE allows small investors to take a long-term view of the market.

BSE provides an efficient and transparent market for trading in equity, debt instruments and derivatives. It has a nation-wide reach with a presence in more than 359 cities and towns of India. BSE has always been at par with the international standards. The systems and processes are designed to safeguard market integrity and enhance transparency in operations. BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is also the first exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE On-line Trading System (BOLT).

BSE continues to innovate. In recent times, it has become the first national level stock exchange to launch its website in Gujarati and Hindi to reach out to a larger number of investors. It has successfully launched a reporting platform for corporate bonds in India christened the ICDM or Indian Corporate Debt Market and a unique ticker-cumscreen aptly named 'BSE Broadcast' which enables information dissemination to the common man on the street. In 2006, BSE launched the Directors Database and ICERS (Indian Corporate Electronic Reporting System) to facilitate information flow and increase transparency in the Indian capital market. While the Directors Database provides a single-point access to information on the boards of directors of listed companies, the ICERS facilitates the corporate in sharing with BSE their corporate announcement.

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INTRODUCTION NATIONAL STOCK EXCHANG

The National Stock Exchange (NSE), located in Bombay, is India's first debt market. It was set up in 1993 to encouragestock exchange reform through system modernization and competition. It opened for trading in mid-1994. It was recently accorded recognition as a stock exchange by the Department of Company Affairs. The instruments traded are, treasury bills, government security and bonds issued by public sector companies.

The Organisation The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a taxpaying company unlike other stock exchanges in the country.

On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000.

Our Group

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NSCCL

NCCL

NSETECH

IISL

NSE

NSE.IT

DotExIntl. Ltd. NSDL

Listing NSE plays an important role in helping an Indian companies access equity capital, by providing a liquid and well-regulated market. NSE has about 1319 companies listed representing the length, breadth and diversity of the Indian economy which includes from hi-tech to heavy industry, software, refinery, public sector units, infrastructure, and financial services. Listing on NSE raises a companys profile among investors in India and abroad. Trade data is distributed worldwide through various news-vending agencies. More importantly, each and every NSE listed company is required to satisfy stringent financial, public distribution and management requirements. High listing standards foster investor confidence and also bring credibility into the markets 26

INTRODUCTION OF SENSEX
SENSEX, first compiled in 1986, was calculated on a "Market CapitalizationWeighted" methodology of 30 component stocks representing large, well-established and financially sound companies across key sectors. The base year of SENSEX was taken as 1978-79. SENSEX today is widely reported in both domestic and international markets through print as well as electronic media. It is scientifically designed and is based on globally accepted construction and review methodology. Since September 1, 2003, SENSEX is being calculated on a free-float market capitalization methodology. The "free-float market capitalization-weighted"

methodology is a widely followed index construction methodology on which majority of global equity indices are based; all major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the free-float methodology. The growth of the equity market in India has been phenomenal in the present decade. Right from early nineties, the stock market witnessed heightened activity in terms of various bull and bear runs. In the late nineties, the Indian market witnessed a huge frenzy in the 'TMT' sectors. More recently, real estate caught the fancy of the investors. SENSEX has captured all these happenings in the most judicious manner. One can identify the booms and busts of the Indian equity market through SENSEX. As the oldest index in the country, it provides the time series data over a fairly long period of time (from 1979 onwards). Small wonder, the SENSEX has become one of the most prominent brands in the country. SENSEX Calculation Methodology SENSEX is calculated using the "Free-float Market Capitalization" methodology, wherein, the level of index at any point of time reflects the free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the freefloat factor to determine the free-float market capitalization. The base period of SENSEX is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of SENSEX involves 27

dividing the free-float market capitalization of 30 companies in the Index by a number called the Index Divisor. The Divisor is the only link to the original base period value of the SENSEX. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate SENSEX every 15 seconds. The value of SENSEX is disseminated in real time.

Concept of FREE FLOAT Free-float methodology refers to an index construction methodology that takes into consideration only the free-float market capitalization of a company for the purpose of index calculation and assigning weight to stocks in the index. Free-float market capitalization takes into consideration only those shares issued by the company that are readily available for trading in the market. It generally excludes promoters' holding, government holding, strategic holding and other locked-in shares that will not come to the market for trading in the normal course. In other words, the market capitalization of each company in a free-float index is reduced to the extent of its readily available shares in the market. Definition of Free-float Shareholding of investors that would not, in the normal course come into the open market for trading are treated as 'Controlling/ Strategic Holdings' and hence not included in free-float. Specifically, the following categories of holding are generally excluded from the definition of Free-float:

Shares held by founders/directors/ acquirers which has control element Shares held by persons/ bodies with "Controlling Interest" Shares held by Government as promoter/acquirer Holdings through the FDI Route Strategic stakes by private corporate bodies/ individuals Equity held by associate/group companies (cross-holdings) Equity held by Employee Welfare Trusts 28

Locked-in shares and shares which would not be sold in the open market in normal course.

Maintenance of SENSEX One of the important aspects of maintaining continuity with the past is to update the base year average. The base year value adjustment ensures that replacement of stocks in Index, additional issue of capital and other corporate announcements like 'rights issue' etc. do not destroy the historical value of the index. The beauty of maintenance lies in the fact that adjustments for corporate actions in the Index should not per se affect the index values. The BSE Index Cell does the day-to-day maintenance of the index within the broad index policy framework set by the BSE Index Committee. The BSE Index Cell ensures that SENSEX and all the other BSE indices maintain their benchmark properties by striking a delicate balance between frequent replacements in index and maintaining its historical continuity. The BSE Index Committee comprises of capital market expert, fund managers, market participants and members of the BSE Governing Board.

Function and purpose of stock market The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate. History has shown that the price of shares and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. An economy where the stock market is on the rise is considered to be an up and coming economy. In fact, the stock market is often considered the primary indicator 29

of a country's economic strength and development. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. Therefore, central banks tend to keep an eye on the control and behavior of the stock market and, in general, on the smooth operation of financial system functions. Financial stability is the raison d'tre of central banks. Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that the counterparty could default on the transaction. The smooth functioning of all these activities facilitates economic growth in that lower costs and enterprise risks promote the production of goods and services as well as employment. In this way the financial system contributes to increased prosperity.

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DEPOSITORY
What is a Depository? A depository holds shares and other securities of investors in electronic form. Through Depository Participants (DPs), it also provides services related to transactions in securities. Its structure and functioning are similar to the Bank. Presently in India, there are two depository viz. National Securities Depository Limited (NSDL) and Central Depository Services (I) Limited (CDSL). Both of them are registered with SEBI.

What is a DP? DP is a member of a Depository who offers its services to hold securities of Investors (Beneficial Owners) in dematerialized form. DP is like a Bank branch. It is an agent of the depository. DP works as an interface between Depository and Investors. DPs are required to be registered with SEBI. If an investor wants to avail the services offered by Depository, he has to open a Demat account with DP similar to opening of a bank account with a branch of the bank. Depository is responsible for keeping stocks of investors in electronics form. There are two depositories in India, NSDL (National Securities Depository Ltd) and CDSL (Central Depository Services Ltd). CDSL (Central Depository Services Ltd.) CDSL was promoted by Bombay Stock Exchange Limited (BSE) jointly with leading banks such as State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank, Union Bank of India and Centurion Bank. CDSL was set up with the objective of providing convenient, dependable and secure depository services at affordable cost to all market participants. Some of the important milestones of CDSL system are: CDSL received the certificate of commencement of business from SEBI in February, 1999.

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Honourable Union Finance Minister, Shri Yashwant Sinha flagged off the operations of CDSL on July 15, 1999. Settlement of trades in the demat mode through BOI Shareholding Limited, the clearing house of BSE, started in July 1999. All leading stock exchanges like the National Stock Exchange, Calcutta Stock Exchange, Delhi Stock Exchange, The Stock Exchange, Ahmedabad, etc have established connectivity with CDSL. As at the end of Dec 2007, over 5000 issuers have admitted their securities (equities, bonds, debentures, commercial papers), units of mutual funds, certificate of deposits etc. into the CDSL system.

About NSDL Although India had a vibrant capital market which is more than a century old, the paper-based settlement of trades caused substantial problems like bad delivery and delayed transfer of title till recently. The enactment of Depositories Act in August 1996 paved the way for establishment of National Securities Depository Limited (NSDL), the first depository in India. This depository promoted by institutions of national stature responsible for economic development of the country has since established a national infrastructure of international standards that handles most of the securities held and settled in dematerialised form in the Indian capital market. Using innovative and flexible technology systems, NSDL works to support the investors and brokers in the capital market of the country. NSDL aims at ensuring the safety and soundness of Indian marketplaces by developing settlement solutions that increase efficiency, minimise risk and reduce costs. At NSDL, we play a quiet but central role in developing products and services that will continue to nurture the growing needs of the financial services industry. In the depository system, securities are held in depository accounts, which is more or less similar to holding funds in bank accounts. Transfer of ownership of securities is 32

done through simple account transfers. This method does away with all the risks and hassles normally associated with paperwork. Consequently, the cost of transacting in a depository environment is considerably lower as compared to transacting in certificates Promoters / Shareholders NSDL is promoted by Industrial Development Bank of India Limited (IDBI) - the largest development bank of India, Unit Trust of India (UTI) - the largest mutual fund in India and National Stock Exchange of India Limited (NSE) - the largest stock exchange in India. Some of the prominent banks in the country have taken a stake in NSDL. NSDL Facts & Figures As on December 31, 2008

Number of certificates eliminated (Approx.) : 550 Crore Number of companies in which more than 75% shares are dematted : 2282 Average number of accounts opened per day since November 1996 : 3636 Presence of demat account holders in the country : 78% of all pincodes in the country.

Central Securities Depository (CSD) A Central Securities Depository (CSD) is an organization holding securities either in certificated or uncertificated (dematerialized) form, to enable book entry transfer of securities. In some cases these organizations also carry out centralized comparison, and transaction processing such as clearing and settlement of securities. The physical securities may be immobilised by the depository, or securities may be dematerialised (so that they exist only as electronic records). International Central Securities Depository (ICSD) is a central securities depository that settles trades in international securities and in various domestic securities, usually through direct or indirect (through local agents) links to local CSDs. ClearStream International (earlier Cedel), Euro clear and SIX SIS are considered ICSDs. While some view The Depository Trust Company (DTC) as a national CSD rather than an ICSD, in fact DTC -- the largest depository in the world 33

- holds over $2 trillion in non-US securities and in American Depository Receipts from over 100 nations. Functions

Safekeeping Securities may be in dematerialized form, book-entry only form (with one or more "global" certificates), or in physical form immobilized within the CSD.

Deposit and Withdrawal Supporting deposits and withdrawals involves the relationship between the transfer agent and/or issuers and the CSD. It also covers the CSD's role within the underwriting process or listing of new issues in a market.

Dividend, interest, and principal processing, as well as corporate actions including proxy voting Paying and transfer agents, as well as issuers are involved in these processes, depending on the level of services provided by the CSD and its relationship with these entities.

Other services CSDs offer additional services aside from those considered core services. These services include Securities Lending and Borrowing, Matching, and Repo Settlement

Pledge - Central depositories provide pledging of share and securities. Every country require to provide legal framework to protect the interest of the pledgor and pledgee.

However, there are risks and responsibilities regarding these services that must be taken into consideration in analyzing and evaluating each market on a case-by-case basis.

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FII (Foreign Institutional Investors) in Indian Stock Market

Foreign Institutional Investor (FII) is used to denote an investor - mostly of the form of an institution or entity, which invests money in the financial markets of a country different from the one where in the institution or entity was originally incorporated. FII investment is frequently referred to as hot money for the reason that it can leave the country at the same speed at which it comes in. In countries like India, statutory agencies like SEBI have prescribed norms to register FIIs and also to regulate such investments flowing in through FIIs. In 2008, FIIs represented the largest institution investment category, with an estimated US$ 751.14 billion. Since 1990-91, the Government of India embarked on liberalisation and economic reforms with a view of bringing about rapid and substantial economic growth and move towards globalisation of the economy. As a part of the reforms process, the Government under its New Industrial Policy, revamped its foreign investment policy recognising the growing importance of foreign direct investment as an instrument of technology transfer, augmentation of foreign exchange reserves and globalisation of the Indian economy. Simultaneously, the Government, for the first time, permitted portfolio investments from abroad by foreign institutional investors in the Indian capital market. The entry of FIIs seems to be a follow up of the recommendation of the Narsimhan Committee Report on Financial System. While recommending their entry, the Committee, however did not elaborate on the objectives of the suggested policy. The committee only suggested that the capital market should be gradually opened up to foreign portfolio investments. From September 14, 1992 with suitable restrictions, FIIs were permitted to invest in all the securities traded on the primary and secondary markets, including shares, debentures and warrants issued by companies which were listed or were to be listed on the Stock Exchanges in India. While presenting the Budget for 1992-93, the then Finance Minister Dr. Manmohan Singh had announced a proposal to allow reputed foreign investors, such as Pension Funds etc., to invest in Indian capital market. To operationalise this policy 35

announcement, it had become necessary to evolve guidelines for such investments by Foreign Institutional Investors (FIIs). The policy framework for permitting FII investment was provided under the Government of India guidelines vide Press Note date September 14, 1992. The guidelines formulated in this regard were as follows: 1. Foreign Institutional Investors (FIIs) including institutions such as Pension Funds, Mutual Funds, Investment Trusts, Asset Management Companies, Nominee Companies and Incorporated/Institutional Portfolio Managers or their power of attorney holders (providing discretionary and nondiscretionary portfolio management services) would be welcome to make investments under these guidelines.

2. FIIs would be welcome to invest in all the securities traded on the Primary and Secondary markets, including the equity and other securities/instruments of companies which are listed/to be listed on the Stock Exchanges in India including the OTC Exchange of India. These would include shares, debentures, warrants, and the schemes floated by domestic Mutual Funds. Government would even like to add further categories of securities later from time to time.

3. FIIs would be required to obtain an initial registration with Securities and Exchange Board of India (SEBI), the nodal regulatory agency for securities markets, before any investment is made by them in the Securities of companies listed on the Stock Exchanges in India, in accordance with these guidelines. Nominee companies, affiliates and subsidiary companies of a FII would be treated as separate FIIs for registration, and may seek separate registration with SEBI.

4. Since there were foreign exchange controls in force, for various permissions under exchange control, along with their application for initial registration, FIIs were also supposed to file with SEBI another application addressed to RBI for seeking various permissions under FERA, in a format that would be specified by RBI for the purpose. RBI's general permission would be obtained by SEBI before granting initial registration and RBI's FERA permission together by SEBI, under a single window approach. 36

5. For granting registration to the FII, SEBI should take into account the track record of the FII, its professional competence, financial soundness, experience and such other criteria that may be considered by SEBI to be relevant. Besides, FII seeking initial registration with SEBI were be required to hold a registration from the Securities Commission, or the regulatory organisation for the stock market in the country of domicile/incorporation of the FII.

6. SEBI's initial registration would be valid for five years. RBI's general permission under FERA to the FII would also hold good for five years. Both would be renewable for similar five year periods later on. 7. RBI's general permission under FERA would enable the registered FII to buy, sell and realize capital gains on investments made through initial corpus remitted to India, subscribe/renounce rights offerings of shares, invest on all recognized stock exchanges through a designated bank branch, and to appoint a domestic Custodian for custody of investments held

8. This General Permission from RBI would also enable the FII to: Open foreign currency denominated accounts in a designated bank. (There could even be more than one account in the same bank branch each designated in different foreign currencies, if it is so required by FII for its operational purposes); Open a special non-resident rupee account to which could be credited all receipts from the capital inflows, sale proceeds of shares, dividends and interests; Transfer sums from the foreign currency accounts to the rupee account and vice versa, at the market rate of exchange; Make investments in the securities in India out of the balances in the rupee account; Transfer repatriable (after tax) proceeds from the rupee account to the foreign currency account(s);

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f. Repatriate the capital, capital gains, dividends, incomes received by way of interest, etc. and any compensation received towards sale/renouncement of rights offerings of shares subject to the designated branch of a bank/the custodian being authorized to deduct with holding tax on capital gains and arranging to pay such tax and remitting the net proceeds at market rates of exchange;

What

Register FII's holdings without any further clearance under FERA. Foreign Institutional Investor FII Mean?

Does

An investor or investment fund that is from or registered in a country outside of the one in which it is currently investing. Institutional investors include hedge funds, insurance companies, pension funds and mutual funds. Regulation imposed by SEBI on FII (a) "Act" means the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(b) "certificate" means a certificate of registration granted by the Board under these regulations;

(c) "designated bank" means any bank in India, which has been authorised by the Reserve Bank of India to act as a banker to Foreign Institutional Investors;

(d) "domestic custodian" includes any person carrying on the activity of providing custodial services in respect of securities;

(e) "Enquiry officer" means any officer of the Board, or any other person appointed by the Board under Chapter V of these regulations; (f) "Foreign Institutional Investor" means an institution established or incorporated outside India which proposes to make investment in India in securities;

(g) "Form" means a form specified in the First Schedule to these regulations;

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(h) "Government of India Guidelines" means the guidelines dated September 14, 1992 issued by the Government of India for Foreign Institutional Investors, as amended from time to time;

(i) "institution" includes every artificial juridical person;

(j) "schedule" means a schedule to these regulations;

(k) "sub-account" includes those institutions, established or incorporated outside India and those funds, or portfolios, established outside India, whether incorporated or not, on whose behalf investments are proposed to be made in India by a Foreign Institutional Investor.

Participatory notes (P- Notes)

Participatory notes (PNs / P-Notes) are instruments used by investors or hedge funds that are not registered with the SEBI (Securities & Exchange Board of India) to invest in Indian securities. Participatory notes are instruments that derive their value from an underlying financial instrument such as an equity share and, hence, the word, 'derivative instruments'. SEBI permitted FIIs to register and participate in the indian stock market in 1992. Indian based brokerages buy Indian-based securities and then issue PNs to foreign investors. Any dividends or capital gains collected from the underlying securities go back to the investors. Participatory notes are instruments used for making investments in the stock markets. However, they are not used within the country. They are used outside India for making investments in shares listed in that country. That is why they are also called offshore derivative instruments. In the Indian context, foreign institutional investors (FIIs) and their sub-accounts mostly use these instruments for facilitating the participation of their overseas clients, 39

who are not interested in participating directly in the Indian stock market. For example, Indian-based brokerages buy India-based securities and then issue participatory notes to foreign investors. Any dividends or capital gains collected from the underlying securities go back to the investors. According to an expert group constituted by the finance ministry in India, in August 2004, participatory notes constituted about 46 per cent of the cumulative net investments in equities by FIIs. Any entity investing in participatory notes is not required to register with SEBI (Securities and Exchange Board of India), whereas all FIIs have to compulsorily get registered. Trading through participatory notes is easy because participatory notes are like contract notes transferable by endorsement and delivery. Secondly, some of the entities route their investment through participatory notes to take advantage of the tax laws of certain preferred countries. Thirdly, participatory notes are popular because they provide a high degree of anonymity, which enables large hedge funds to carry out their operations without disclosing their identity. Participatory notes in brief is as follows : What are participatory notes or PNs? Participatory notes are instruments used by foreign funds which are not registered to trade in domestic Indian Capital Markets. PNs are derivative instruments issued against an underlying security permitting holders to get a share in the income from the security. How does it work? Investors who buy PNs deposit their funds in US or European operations of Foreign Institutional Investors (FII) operating in India . The FII uses its proprietary account to buy stocks. Why do investors use PNs? Reason for using PNs is to keep investor name anonymous, some investors have used them to save transaction and overhead costs. Tax officials fear that PNs are becoming a favourite with a host of Indian money launderers who use them to first take funds out of country through hawala and then get it back using PNs.

Participatory Notes Crisis of 2007 On the 16th of October, 2007, SEBI (Securities & Exchange Board of India) proposed curbs on participatory notes which accounted for roughly 50% of FII investment in 40

2007. SEBI was not happy with P-Notes because it is not possible to know who owns the underlying securities and hedge funds acting through PNs might therefore cause volatility in the Indian markets. However the proposals of SEBI were not clear and this led to a knee-jerk crash when the markets opened on the following day (October 17, 2007). Within a minute of opening trade, the Sensex crashed by 1744 points or about 9% of its value - the biggest intra-day fall in Indian stock-markets in absolute terms. This led to automatic suspension of trade for 1 hour. Finance Minister P.Chidambaram issued clarifications, in the meantime, that the government was not against FIIs and was not immediately banning PNs. After the markets opened at 10:55 am, they staged a remarkable comeback and ended the day at 18715.82, down just 336.04 from Tuesdays close after tumbling to a days low of 17307.90. This was, however not the end of the volatility. The next day (October 18, 2007), the Sensex tumbled by 717.43 points 3.83 per cent to 17998.39, its second biggest fall. The slide continued the next day when the Sensex fell 438.41 points to settle at 17559.98 at the end of the week, after touching the lowest level of that week at 17226.18 during the day. The SEBI chief, M.Damodaran held an hour long conference on the 22nd of October to clear the air on the proposals to curb PNs where he announced that funds investing through PNs were most welcome to register as FIIs, whose registration process would be made faster and more steamlined. The markets welcomed the clarifications with an 879-point gain its biggest single-day surge on October23, thus signalling the end of the PN crisis. SEBI issued the fresh rules regarding PNs on the 25th of October, 2007 which said that FIIs cannot issue fresh P-Notes and existing exposures were to be wound up within 18 months. The Sensex gave a thumbs up the next day Friday, 26 October by re-crossing the 19,000 barrier with a 428 point surge. The coming Monday (October 29, 2007) history was created when the Sensex leaped 734.5 points to cross the hallowed 20,000 mark.

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SCAMS OF SHARE MARKET

HARSHAD MEHTA SCAM Harshad Mehta was an Indian stockbroker and is alleged to have engineered the rise in the BSE stock exchange in the year 1992. Exploiting several loopholes in the banking system, Mehta and his associates siphoned off funds from inter-bank transactions and bought shares heavily at a premium across many segments, triggering a rise in the Sensex. When the scheme was exposed, the banks started demanding the money back, causing the collapse. He was later charged with 72 criminal offenses and more than 600 civil action suits were filed against him. He died in 2002 with many litigations still pending against him. Early Life Harshad Shantilal Mehta was born in a Gujarati Jain family of modest means. His early childhood was spent in Mumbai where his father was a small-time businessman. Later, the family moved to Raipur in Madhya Pradesh after doctors advised his father to move to a drier place on account of his indifferent health. But Raipur could not hold back Mehta for long and he was back in the city after completing his schooling,

Mehta gradually rose to become a stock broker on the Bombay Stock Exchange and lived almost like a movie star in a 15,000 square feet apartment, which had a swimming pool as well as a golf patch. He also had a taste for flashy cars, which ultimately led to his downfall. The year was 1990. Years had gone by and the driving ambitions of a young man in the faceless crowd had been realised. Harshad Mehta was making waves in the stock market. He had been buying shares heavily since the beginning of 1990. The shares which attracted attention were those of Associated Cement Company (ACC),. The price of ACC was bid up to Rs 10,000. For those who asked, Mehta had the replacement cost theory as an explanation. The theory basically argues that old companies should be valued on the basis of the amount of money which would be required to create another such company.

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Through the second half of 1991, Mehta was the darling of the business media and earned the sobriquet of the Big Bull, who was said to have started the bull run. But, where was Mehta getting his endless supply of money from? Nobody had a clue. On April 23, 1992, journalist Sucheta Dalal in a column in The Times of India, exposed the dubious ways of Harshad Metha. The broker was dipping illegally into the banking system to finance his buying. In 1992, when I broke the story about the Rs 600 crore that he had swiped from the State Bank of India, it was his visits to the banks headquarters in a flashy Toyota Lexus that was the tip-off. Those days, the Lexus had just been launched in the international market and importing it cost a neat package, Dalal wrote in one of her columns later. The authors explain: The crucial mechanism through which the scam was effected was the ready forward (RF) deal. The RF is in essence a secured short-term (typically 15-day) loan from one bank to another. Crudely put, the bank lends against government securities just as a pawnbroker lends against jewellery. The borrowing bank actually sells the securities to the lending bank and buys them back at the end of the period of the loan, typically at a slightly higher price. It was this ready forward deal that Harshad Mehta and his cronies used with great success to channel money from the banking system. A typical ready forward deal involved two banks brought together by a broker in lieu of a commission. The broker handles neither the cash nor the securities, though that wasnt the case in the lead-up to the scam. In this settlement process, deliveries of securities and payments w ere made through the broker. That is, the seller handed over the securities to the broker, who passed them to the buyer, while the buyer gave the cheque to the broker, who then made the payment to the seller. In this settlement process, the buyer and the seller might not even know whom they had traded with, either being know only to the broker.

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This the brokers could manage primarily because by now they had become market makers and had started trading on their account. To keep up a semblance of legality, they pretended to be undertaking the transactions on behalf of a bank. Another instrument used in a big way was the bank receipt (BR). In a ready forward deal, securities were not moved back and forth in actuality. Instead, the borrower, i.e. the seller of securities, gave the buyer of the securities a BR. As the authors write, a BR confirms the sale of securities. It acts as a receipt for the money received by the selling bank. Hence the name - bank receipt. It promises to deliver the securities to the buyer. It also states that in the mean time, the seller holds the securities in trust of the buyer. Having figured this out, Mehta needed banks, which could issue fake BRs, or BRs not backed by any government securities. Two small and little known banks - the Bank of Karad (BOK) and the Metorpolitan Co-operative Bank (MCB) - came in handy for this purpose. These banks were willing to issue BRs as and when required, for a fee, the authors point out. Once these fake BRs were issued, they were passed on to other banks and the banks in turn gave money to Mehta, obviously assuming that they were lending against government securities when this was not really the case. This money was used to drive up the prices of stocks in the stock market. When time came to return the money, the shares were sold for a profit and the BR was retired. The money due to the bank was returned. The game went on as long as the stock prices kept going up, and no one had a clue about Mehtas modus operandi. Once the scam was exposed, though, a lot of banks were left holding BRs which did not have any value - the banking system had been swindled of a whopping Rs 4,000 crore. Mehta made a brief comeback as a stock market guru, giving tips on his own website as well as a weekly newspaper column. This time around, he was in cahoots with owners of a few companies and recommended only those shares. This game, too, did not last long.

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Interestingly, by the time he died, Mehta had been convicted in only one of the many cases filed against him. Till now, it is still unknown what was the real story behind the entire scam. The recent Hindi movie 'Gafla' showed this scam in a different perspective. and is 45 years old.

KETAN PAREKH SCAM Ketan Parekh was a Mumbai-based stock broker. He hails from a well-to-do Gujarati family involved in share trading, and Ketan was involved in the shares scam of 20002001 on the Indian Stock Market. Shares scam Companies, when raising money from the stock market, rope in brokers to back them in raising the share price. Ketan formed a network of brokers from smaller exchanges like the Allahabad Stock Exchange and the Calcutta Stock Exchange, and used benami, or share purchases, in the name of poor people living in the shanty towns of Mumbai. Ketan rose to fame at the same time as the worldwide dot-com boom (19992000) and he relied primarily on the shares of ten companies for his dealings (now known infamously as the K-10 scrips). Ketan had large borrowings from Global Trust Bank, whose shares he was ramping up so that he could get a good deal at the time of its merger with UTI Bank. He got a Rs 250 crore loan from Global Trust Bank, although Global Trusts chairman Ramesh Gelli, who was later asked to resign, repeatedly asserted that the amount was less than Rs 100 crore, which was in keeping with the Reserve Bank of India's normal amount. Ketan and his associates obtained another Rs 1,000 crore from the Madhavpura Mercantile Co-operative Bank despite the fact that RBI regulations ruled that the maximum loan a broker could obtain was Rs 15 crore. In addition, Mr Mehta's was involved with Ketan's Business in 1996. Ketan's modus operandi was to ramp up the shares of select firms in collusion with promoters. Interestingly, around the time when Ketan started taking long positions in 45

his favorite K-10 scrips, the Securities and Exchange Board of India (SEBI) concluded a 3-year old case against Harshad Mehta, who had colluded with the managements of BPL, Sterlite and Videocon to ramp up their shares. In Ketan's case, SEBI found prima facie evidence of price rigging in the scrips of Global Trust Bank, Zee Telefilms, HFCL, Lupin Laboratories, Aftek Infosys and Padmini Polymer. Discovery and arrest With the prices of selective shares constantly going up due to his rigging, innocent investors who had bought the shares at high prices, thinking the market as genuine, lost heavily. Soon after the discovery of the scam, the prices of these stocks came down to a fraction of the values at which they were bought, causing even banks to lose large sums of money. At the time, a group of traders known as the "Bear Cartel" (Shankar Sharma, Anand Rathi, Nirmal Bang) were making money from falling stock prices. Bears sell stocks at high prices and buy back at low prices. Around February end in 2000, this cartel placed sell orders on the K-10 stocks and crushed their inflated prices. All of Ketan's borrowings could not rescue his scrips. The Global Trust Bank and the Madhavpura Cooperative went bust when the money they had lent to Ketan sunk with his K-10 stocks. The information furnished by the Reserve Bank of India to the Joint Parliamentary Committee (JPC) during the investigation of the scam revealed that financial institutions like Industrial Development Bank of India (IDBI Bank) and Industrial Finance Corporation of India (IFCI) had extended loans of Rs 1,400-odd crore to companies known to be close to Ketan Parekh. Ketan Parekh was arrested on December 2, 2002 in Kolkata.

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SATYAM SCAMS Byrraju Ramalinga Raju (born September 16, 1954) is the founder of Satyam Computers and was its Chairman until January 7, 2009 when he resigned from the Satyam board after admitting to corporate fraud. Satyam was created by Ramalinga Raju and others and was until recently perceived to be amongst the top Indian IT vendors. Raju has allegedly admitted overstating its cash reserves by USD$ 1.5 billion. Later, allegations have been made that the company's assets were not inflated, but instead siphoned off by Ramalinga Raju. Raju is currently held in Hyderabad's Chanchalguda jail on criminal charges including fraud, forgery, cheating, embezzlement and insider trading. A botched acquisition attempt involving Maytas (a company owned by his own family) in December 2008 led to a plunge in the share price of Satyam. In January 2009, Raju indicated that Satyam's accounts had been falsified over a number of years. He admitted to an accounting fraud to the tune of 7000 crore rupees or 1.5 Billion US Dollars and resigned from the Satyam board on January 7, 2009. In his letter of resignation, Raju described how an initial cover-up for a poor quarterly performance escalated: "It was like riding a tiger, not knowing how to get off without being eaten." Raju and his brother, B Rama Raju, were then arrested by Andhra Pradesh police on charges of criminal breach of trust, criminal conspiracy, cheating, falsification of records and forgery. Raju may face lifetime imprisonment if convicted of misleading investors. Raju had also opened multiple benami (dummy) accounts through relatives and friends and used them to trade in Satyam's shares, violating the insider trading norm. It has now been alleged that these accounts may have been the means of siphoning off the missing funds.

KARVY IPO SCAMS The Karvy Group, one of the top brokerages banned by Sebi from operating in the market for handling almost 95 per cent of the fake accounts used to engineer the demat scam, in a statement on Friday claimed: "We were victims of a fraud purported by individuals who projected themselves as sub brokers in the primary market with a large customer base." 47

J Ramaswamy, vice president, corporate affairs, Karvy Group, commenting on the Sebi ban order stated, "The Sebi order issued on the 27th of April is very harsh. We wish to take this opportunity to state the following: "Karvy Stock Broking Ltd has been named as one of the 85 entities, which has acted as a financer of the master accountholders, who appear to be the ultimate beneficiaries. Karvy Stock Broking Ltd has never financed any IPO customer till date. "The Sebi order refers to KSBL as financer to one Shri D B Mehta in the NTPC issue. Neither Karvy Stock Broking nor any of its associate companies financed the said investor for the said issue. This investor has a secondary market trading account with Karvy Stock Broking Ltd, Mumbai branch and he had transferred shares into our pool account on the day the securities were listed and sold the shares in the market. "Sebi appears to have mistaken the transfer of securities in, to our pool account by a customer, who was subsequently paid the proceeds, as a wrongful act of Karvy.

IPO scam: 24 operators banned Sensex recovers after losing 490 points Scam: Investors need not worry, says Sebi Bull Run? Beware of being scammed

"Sebi order has once again come down heavily on Karvy-DP on account of a few of its sub-brokers having been involved in opening fictitious/benami accounts. In this connection we wish to state as under: "Sebi has alluded in the report that the certificates of introduction issued by the bankers are forged and that they have been issued with the connivance of Karvy. This is baseless and simply based on the concerned bank along with the said individuals, who seemed to have acted in collusion and now shifting the blame. "The fact that the collusion of the banks with these individuals can be borne out of the fact that all these fictitious individuals were given loans and the refunds credited to the said accounts. If these bank certificates were issued without the knowledge of the concerned bank, then how did these banks issue loans to such applicants without a

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bank account and how did they credit the refunds, either given piecemeal or in a consolidated form to the respective loan accounts. "Sebi has not provided an opportunity to Karvy to clarify its role vis--vis the allegations made by the perpetrators and the bankers. "Should Karvy have acted with a malafide intent or they have been benefited unduly, then they should have received the benefit either by way of shares or funds by way of profit realised on these shares. "Sebi has all means to verify whether such benefits have been received and had not identified even a single case of such benefits being accrued. Karvy has not received any undue benefits whatsoever. "There are certain portions of Sebi order, which have been highlighted, which seem to suggest that Karvy has orchestrated the entire scheme of defrauding investors. This is untrue and Karvy-DP has been misused by some of these individuals. "We maintain that we have collected all the relevant documents, established proof of identity and address. The KYC (know your customer) norms, prima-facie, were fulfilled. "We were victims of a fraud purported by these individuals, who projected themselves as sub brokers in the primary market with a large customer base. "Out of a total of approximately 800,000 accounts, approximately 65,000 accounts aggregating to 8% of the total accounts opened by these sub-brokers were of suspicious nature and these have since been closed. Karvy still has over 7,00,000 DP accounts and is amongst the largest DP in terms of number of accounts. "Karvy has over 500 branches and over 15,000 primary market sub brokers. These accounts were opened by a handful of sub-brokers in two branches at Ahmedabad and Mumbai. "There is a reference in this order with respect to Karvy RTI. The main allegation in this order is that single refund orders were issued by Karvy to various institutions that

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have financed the IPOs. This is a process that has been adopted based on the requests received from various banks/finance companies purely for the sake of administrative convenience. "In all such cases, we believe that the methodology adopted is akin to the ECS/direct credit system proposed to be encouraged by RBI and SEBI. It is incorrect to allege that Karvy RTI had any malafide intents because most of the refunds so issued do not pertain to their associate companies DP clients or broking clients. "It is also submitted that the process of issuing a single cheque upon a request received from the financer, had also been adopted, till recently by other registrars." The statement further adds: "We also wish to state that with over 7,00,000 DP accounts, Karvy is the largest DP in the country. Our customers are all retail and on a daily basis we process over 25,000 delivery instruction slips received from all parts of the country. "Karvy Computershare Pvt Ltd is India's largest registrar and transfer agent servicing over 22 million investors for the best of the corporates in the country and mutual funds. We have had an unblemished record so far and have taken up special assignments at the behest of the regulator in the past. Our JV partner Computershare is considered to be the largest registrar in the world with operations in about 15 countries. "Karvy is also one of India's largest stock brokers with approximately 290,000 customers. Over 35,000 individual customers trade with Karvy on a daily basis. Karvy Stock Broking Ltd is also among the leading distributors for IPOs and mutual funds. "The Karvy group employs over 7,000 people and has over 500 branches spread across the country. This is a retail company with focus on servicing individual investors. There will be approximately about 50,000 to 60,000 investors, who get in touch with Karvy on a daily basis for servicing their needs. "Karvy has always believed in the highest standards of compliance and integrity. This is the hallmark of the management. The entire incident took place in two branches of 50

Karvy and with a handful sub-brokers as against 15,000 primary market sub-brokers, who work under the Karvy banner. "We only wish that Sebi had given us an opportunity of being heard before passing such a harsh order. Our commitment to the Indian capital market is total and we will continue to strive to service retail investors to the best of our abilities. We will appeal to Sebi to consider our representation favourably. "We respect the Sebi order and we will certify the position by filing our objections within the time stipulated from the date of this order. We believe that the inspection of our operations undertaken by the depositories or SEBI did not reveal any serious violation, especially those with a malafide intent. "As responsible intermediaries, we have, however, strengthened our process and systems in the DP area. We are also thankful to Sebi for allowing us to continue service to our customers in the secondary market. "Karvy Group's robust practices protect and service over 10 lakh investors. Its level of automation and transparency is unparalleled resulting in the Group enjoying a leadership position in several categories of the business. "Karvy's management of the rectification of the ONGC Issue allotment process in 2004 was appreciated by the Government of India. "Subsequent to this Karvy handled the NTPC order which received over 15 lakh (1.5 million) applications and had received accolades from various quarters of the capital market including a few officials of the regulator. "Karvy Computershare Private Ltd is currently processing the recent public offer of Reliance Petroleum Ltd which has received 21 lakh (2.1 million) application forms, thereby creating a record in the Indian capital markets."

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RESEARCH METHODOLOGY

RESEARCH METHODOLOGY TITLE: To analyse the changing trends of the share market, in last ten years share market faces so many ups and down. And also anlayse that how the investor invest their money with what perception.

TITLE JUSTIFICATION: The above title is self explanatory. In this study it is tried to find out that why share market faces so many changes in last ten years what are the things which affect the market most. And how the investor decide their shares to buy or sell.

OBJECTIVE

Objective One Analysis of changing trends in Indian stock market in last ten years. To determine reasons for so many ups and down. To determine the procedures of investors to opting companies for share. To determine the reasons of increasing the number of investors. To determine the effect of all scams in the share market. To determine the use of Internet for valuable information and decisionmaking process.

Objective Two To determine that how the Indian economy affected through the changing trends in share market. To determine that how the changing trends affect investors behaviour.

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Objective Three To study of milestones came across the journey. To determine the reasons for affect Sensex

SIGNIFICANCE OF THE STUDY

SIGNIFICANCE TO THE INDUSTRY: This is a limited study which takes into consideration the responses of 30-40 people. This data can be explored to take in the trends across the industry. The significance for the industry lies in studying these trends that emerge from the study. It is a rapidly changing and evolving sector. People are only beginning to wake up to its vast possibilities. A study like this can attempt to guide the future of the industry based on current trends.

SIGNIFICANE FOR THE RESEARCHER : To facilitate and provide all the useful information of the study, which can be helpful to make decision for investing money in right shares which is profitable to investors as well as brokers.

RESEARCH DESIGN : Source of Data. Method of Data collection. Types of research. Sampling Tools of analysis

Source of Data: There are many sources which provide information regarding the research. The data may be of two types

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1) Primary Data. 2) Secondary Data 1) Primary Data:

Primary data is data which is not already available. Primary data is found in its original form. Primary data are those which are collected afresh and for the first time, and thus happen to be original in character. Methods for collecting primary data are: Questionnaires Interviews Schedules etc.

In this study the interview method have been used

2) Secondary Data:

Secondary data means data that are already available i.e. they refer to the data which have already been collected and analyzed by others. Secondary data may be published or unpublished. The sources of secondary data are: Bulletin, books and magazines organized by organizations. Web Sites, Official records. Case studies.

DISCRIPTIVE AS WELL AS ANALYTICAL RESEARCH

The research is primarily descriptive as well as analytical in nature. The sources of information are both primary & secondary. Well-structured interviews were conducted to collect the customers perception and buying behavior, through this interview.

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SAMPLING METHODOLOGY Sampling Technique: Initially, a rough draft was prepared keeping in mind the objective of the research. A pilot study was done in order to know the accuracy of the interview. The final interview was arrived only after certain important changes were done. Thus my sampling came out to be judemental and convinent. Random Sampling:-

It is also known as random sampling or chance sampling. Under this every item of the universe has an equal chance of inclusion in the sample. In brief, the implications of random sampling are: It gives each element in the population an equal probability of getting into the sample and all choice is independent of one another number. It gives each possible sample combination an equal probability of being chosen. Why random sampling has been chosen: Sampling can save time and money: - Sample study is usually less expensive than a census study and produces results faster.

Sampling may enable more accurate measurements foe a sample study.

Sampling usually enables to estimate the sampling errors and thus assists in obtaining information concerning some characteristics of the population

Sampling Unit: The respondents who were interviewed to analyse the subject are the sampling units. These comprise of registered brokers and sub-brokers and the regular investors. Sample size: The sample size was restricted to only 30-40, which comprised of mainly peoples from different regions of cuttack due to time constraints.

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Sampling Universe: The area of the research is cuttack, India. Tool of Analysis: Qualitative.

i. ii.

Observation Case Study

Qualitative: It is concerned with the qualitative phenomenon i.e. phenomenon related to or involves quality. For instance, when we are interested in investigating the reason for human behavior i.e. why people think or do certain thing. We quite often talk of Motivation Research an important type of qualitative research. This type of research aims at discovering the underlying motives and desires, using the depth interview for the purpose. Observation:Observation includes minute observation of activities take place in the field of research. For observation in this study secondary data has been used. Case Study: It includes the systematic study of cases related to research as well as it includes the in-depth study of the literature which is already available. In this study qualitative technique of analysis has been chosen. LIMITATIONS OF THE RESEARCH 1. The research is confined to a certain parts of Bhopal and does not necessarily shows a pattern applicable to all of Country. 2. Some respondents were reluctant to divulge personal information which can affect the validity of all responses. 3. In a rapidly changing industry, analysis on one day or in one segment can change very quickly. The environmental changes are vital to be considered in order to assimilate the findings 56

RESULT ANALYSIS AND INTERPRETATION

Analysis of changing trends in Indian stock market in last ten years. The trend in last ten years in share market has been changed like the way selling and buying initially, bidding form was there to sell or buy. Share price in that time could change suddenly according to bidding. Investors had more risk in investing because everything was hidden even share price also was hidden. So that investors have to do believe on brokers. The availability of brokers was also less. Today everything we can watch on screen investors can know their share price anytime and investors can buy easily share online through internet by which investors belief have been increased. SEBI playing an important role in motivating the investors to invest in share market. SEBI makes a regulation to protect the interests of investors in securities, to promote the development of Securities Market, to regulate the securities market through which interest of investors is increased . To determine reasons for so many ups and down There are so many reason which affect the share market for example elections, FIIs sale and purchase, the world economy, future projects of different companies, scams are also affect the share market for e.g. the Harshad Mehta scam affect so much on the market as well as investors behaviour. And the last downfalls reason was recession and FII that downfall broke the belief of investors because the investors bear huge losses in a that single day. The day was black Monday. Black Monday saw bloodbath on Dalal Street as the Indian stock markets crashed by over 1430 points in afternoon trade (the market has since then recovered somewhat), reminding investors. Why Did the Markets Crash?? I am listing below some of the reason that I understand 1. Relent less selling by the FII's. 2. Lot of Investors turning into traders and taking long positions in the futures Market.

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3. Overall Change in the Global Investment Climate 4. Fear of the US Economy headed towards a recession. 5. Commodities Market Being Very Volatile. 6. Increasing Presence of Hedge funds across all asset classes increases chances of volatility. To determine the procedures of investors to opting Companies for share. It is very difficult to determine the good share for investment but investors can use some ways to play a safe game. Share market is like speculation but It is most important thing to analyse the market before investing in it. It is generally very difficult for new investors because they are unable to decide or select a good share which will profitable for them Many investor new to share trading overcomplicate the whole process. Investors load their charts with lots of fancy technical indicators and are constantly testing out new systems in order to try and find that holy grail trading system thats going to make them rich. However it should be pointed out that the most basic systems are often the most profitable. If you look at the price patterns of various different companies you will generally see that when a stock is trending upwards it will never go up in a straight line. Even when there is a very long-term upwards trend there will always be pull-backs along the way. So therefore if you are looking to trade these long-term trends then a very simple but effective trading strategy would be to wait for one of these pull-backs and then enter a long position as soon as the price moves back up again. So you can see that this very simple trading strategy can produce some excellent results and its a lot more effective than most of the overcomplicated systems that a lot of traders use. Successful share trading isnt really that difficult. You simply need to look for shares that are trending either upwards or downwards and then find a way of profiting from this trend. To determine the reasons of increasing the number of investors The lowering of interest rates on all major saving schemes is forcing small investors to look at the stock markets. This has resulted in a sharp jump in liquidity in the 58

market. Investors are growing more enthusiastic about shares every day highlighted by sharply higher fund inflows in the market that propelled the benchmark market index. There are many factors that have boosted the sentiment of not only domestic investors but also foreign institutional investors who had lately adopted an indifferent approach towards Indian market. According to analysts, include sharp increase in foreign fund inflows in the market, a smart pick up in industrial growth, and a downward trend in the overall interest rate regime. To determine the effect of all scams in the share market. All the scams affect the share market every scams make the drastic change in share market. In Harshad Mehta scams share market raise 1000 points in just 16 days When his scam was opened share market falls down suddenly through which investor belief was broken. And they were avoiding the investment in share market. When the investors are interested to invest the next scam was held Ketan Parekh scam. In this the share prices of Zee telefilm raised from Rs.476 to Rs.1555 and it falls down to Rs.121 in a year. And Satyam scam plays a major role in the downfall of Indian market. It is because of only one member our market has decreased a lot. Lot of shareholders suffers because of him as the share price comes down like a rocket. Will the market come up and when it would happen will be a big question. To determine that how the Indian economy affected through the changing trends in share market. Indian market is presently down due to various reasons. The effect of recession has just now crossed Indian banks. The main thing for recession is bank rupturing and it should be stopped and it should not happen hereafter. But the effect is increasing day by day and this results in unemployment. Before Recession the unemployment is some what controlled but after recession it is a growing concern. The recession affect most in the Indian Economy. The sensex climbed at a rapid rate, touching record heights in 2007 -2008. The average Indian investor who traditionally has been a very conservative investor 59

became more confident and started investing heavily in the stock market. The stock market grew in leaps and bounds and its growth in the last five years itself has been a phenomenal twenty five per cent. All the economists and statisticians of the world started making predictions about India becoming the next economic superpower of Asia or perhaps the world. All this sounded very good to be true and the whole countrys attitude seemed to be a vibrant one. Against this backdrop the unthinkable happened, the stock market Of the United

states of America or Wall street stock exchange crashed due to a crisis in the housing finance sector of its leading banks, caused due to delinquency and non-repayment of housing loans. This resulted in a panic in the world market including India. The sensex dropped more than nine thousand points in the Exchange. The Bombay Stock

Foreign Investment also came down heavily due to a

liquidity crunch in the major companies. The banks stopped lending to the bankers and in effect the market came to a sudden stop. The Indian investor

panicked again and started selling like crazy. Major companies started making announcements like job layoffs to minimize their losses. Large domestic market will keep fuelling growth of the Indian economy, though at a lower pace, despite financial crisis leaving the US and Europe reeling under recession, experts have said. While the Reserve Bank and stock regulator SEBI have announced measures to improve liquidity in the system, the equity market has suffered painful bruises in India in sync with the global bourses.

SUGGESTION

1. Brokers should improve their services. 2. SEBI should imply some mere regulations. So that investors can feel more secure

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3. Small investors cannot afford daily trading so script call updating facilities should be improved. 4. Brokerage slabs should be flexible. 5. Compliance department should be more active in companies.

CONCLUSION

CONCLUSION

After going through all the analysis regarding the stock market in last ten years, we can say that stock market faces so many ups and down during this time it comes from its lowest point to its peak at 21000 but then crashed badly. During its skimming point some scams were held by which it forms its new peak falls down suddenly and so badly by which investors are afraid to invest in this market. Now it is revolving around a 14000-15500 figure. Though the sensex is a barometer and after seeing such fluctuations one could be afraid of investing. Still we can say that people can play safe by investing the blue-chips and undervalued shares. During year 2006, if we keep aside that brief period of loss that the market witnessed from may 10 2006 to June 14 2006, investors wealth seem to have grown double fold with the Sensex touching the 10000, 11000, 12000, 13000 and 14000 levels in the same calendar year. Investor wealth in terms of market capitalization has been growing in the range of 6.84-12.41% And talking about year 2007, we can summarize the happenings of year 2007 as a year which redefined the resistance levels at sensex. Strong economic data, heavy inflow of funds from FIIs towards the close of previous calendar year and decent to highly encouraging surge in earnings of top notch companies all pointed to a rosy 2007. The rupee's rise against the US dollar the regulator's decision to restrict investments made through participatory notes, rising crude oil prices, the sub-prime mortgage woes in US, concerns over a slowing down US economy and The Left parties' opposition to the Indo-US nuclear pact, did halt the market's progress at times. But the inherent strength of the Indian economy, fairly buoyant results quarter after 61

quarter, the various chops and subsidies announced by the government and sustained efforts made by the market regulator to keep investor confidence in the system alive kept the momentum going. Presently the hike and seek being played by crude prices, inflation and RBI is affecting our market to a great extent. And adding to the worries are global slowdown, political instability, serial bomb blasts, negative public sentiments etc. It is indeed surprising that though the epicenter of the sub-prime crisis is the US, the tremors are being felt in India. The loss of market cap in the US is only 14 per cent vis--vis 38 per cent in India. But even after analyzing the causes for downturn, we can say that India story has not ended; else $200 billion with institutional investors would have fled for safer waters. Exports being 14 per cent of GDP, India is less vulnerable to external shocks than many other Asian nations. Political uncertainties too have narrowed down. Savings in India have risen at a historic rate of 35 per cent on the growing GDP base; 17 per cent of this is in gold, commodities and real-estate while financial savings represent 18 per cent of GDP. Even this is skewed towards deposits both banking and non-banking, while the percentage of savings in shares and debentures is a mere 6.3 per cent. If this percentage goes to 25 per cent, it would amount to $40 billion of incremental money being diverted to capital markets. So even after such downturns, we can be hopeful for a positive market.

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QUESTION FOR INTERVIEW

For Investors:-

1. How do you select the share to invest? 2. How do you perceive that share trading is a good mode of investment? 3. Which kind of brokers do you prefer?

For Brokers & sub brokers.:-

1. How the trends affect your business? 2. What are the reasons for increment of investors? 3. How much the scams effect investors behaviour? 4. What is the main reason which provoked investors form small cities?

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BIBLIOGRAPHY

1.

BOOKS/MAGAZINES REFFERED: DALAAL STREET INDIA TODAY BUSINESS TIMES

2.

WEBSITES REFFERED: www.bseindia.com www.nseindia.com www.sebi.gov.in www.moneycontrol.com

3.

SEARCH ENGINES: www.google.co.in www.wikipedia.org.in

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THE END ***

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