HIGHLIGHTS OF NSE

NATIONAL STOCK EXCHANGE OF INDIA LIMITED NEWSLETTER

December 2009

ARTICLE
What moves stock prices and how?- by Anuradha Guru, NSE
The daily movement of stock prices is no less than a conundrum for a layman who is unable to comprehend the reasons behind these
gyrations. Apart from company specific factors, there are a number of macroeconomic and political factors affecting daily
movements of stock prices. This article attempts to demystify the links between stock market movements and these factors,
examining the channels through which they affect stock prices

SPOTLIGHT
Government has decided that all profitable listed CPSEs should meet the mandatory listing of 10% public ownership; and all
Þ
unlisted CPSEs having positive networth, no accumulated losses and having a net profit in the three preceding consecutive years
should get listed on the stock exchanges

R E G U L ATO RY C H A N G E S

Initiated by SEBI
Þ
Regulatory framework for trading on Small and Medium Enterprises (SME) exchange/platform laid down

Þ
Amendments to Issue of Capital and Disclosure Requirements, Regulations, 2009 (ICDR) inter-alia, requiring interim disclosure of
balance sheet items by listed entities and permitting pure auctions for qualified institutional investors (QIBs) in follow-on public
offerings

Þ
Permission given to transactions in Mutual Fund schemes through the stock exchange infrastructure

Þ
Debt Listing Agreement for debt securities further simplified

Initiated by RBI
Þ
Draft guidelines on Over the Counter (OTC) Foreign Exchange Derivatives and Hedging Commodity Price Risk and Freight Risk
Overseas, placed on RBI's website for public comments

NSE NEWS

Þ
Following SEBI initiative, NSE has introduced New Mutual Fund Service System (MFSS) for transaction in mutual fund schemes
through the stock exchange infrastructure

NCFM NEWS

Þ
Addition of three more modules in the list of modules qualifying for Fee Discount Scheme
Þ
Addition of two more modules in the list of modules qualifying for “NSE Certified Market Professional (NCMP)” certificates
Þ
Launch of “Equity Derivatives: A Beginner's Module”

I N T E R N AT I O N A L N E W S

Þ
Tokyo Stock Exchange's TOPIX Futures to trade on NYSE Liffe from summer 2010
Þ
Warsaw Stock Exchange introduces the Respect Index
Þ
London Stock Exchange to launch new retail bond market for the UK
 HIGHLIGHTS OF NSE NEWSLETTER
December 2009

MARKET REVIEW

Nifty Movements vis-a-vis other International Indices Performance of select sectors vis-a-vis Nifty
(Rebased to 100 for March 31, 2009) (Rebased to 100 for March 31, 2009)
250
170 230
155 210
190
140
170
125 150
110 130
110
95
90
80 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09
Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09
CNX IT CNX FMCG INDEX
Nifty Dow Jones NIKKIE Hang seng Nasdaq S&P CNX Finance S&P CNX Petrohemicals
S&P CNX Pharmaceuticals CNX Bank Nifty
CNX Infrastructure S&P CNX Nifty

Capital Market Segment F&O Segment

5000 300

Avg. Daily Trading Value

18000 1000
Avg. Daily Trading Value

250 15000
Trading Value
Trading Value

4000 800
200 12000
3000 600
150 9000
2000 400
100 6000

1000 50 3000 200

Jan-09
Feb-09
Mar-09
Apr-09
May-09

Jun-09
Jul-09
Aug-09
Sep-09

Oct-09
Nov-09
Dec-08

Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09

Oct-09
Nov-09
Dec-08

Currency Futures WDM Segment

1000 90 700 35

Avg. Daily Trading Value

33
Avg. Daily Trading Value

80 600
800 31
70
Trading Value
Trading Value

500 29
60 27
600 400
50 25
40 300 23
400
30 200 21
200 20 19
100 17
10
0 15
0 0
Jul-09
Jan-09
Feb-09
Mar-09
Apr-09
May-09

Jun-09

Aug-09
Sep-09
Oct-09
Nov-09
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09

Jun-09
Jul-09
Aug-09
Sep-09

Oct-09
Nov-09
Dec-08

Trading Value (Rs. hundred crore) Avg. Daily Trading Value (Rs. hundred crore)

NSE MARKET STATISTICS NSE's GLOBAL RANKINGS

Percentage Average daily Market Parameters Rank
Segments Turnover (Rs.crore) Change over turnover Capitalisation rd
Single Stock Futures 3
Oct-09 rd
Stock Index Options 3
Oct-09 Nov-09 (Rs. crore) rd
Stock Index Futures 3
CM 362,969 324,477 -10.60 16,224 5,430,088 th
No. of Trades 4
WDM 43,731 64,999 48.63 3,250 3,099,214 th
F&O 1,510,417 1,661,816 10.02 83,091 Market Capitalisation 12
CDS(Currency 150,843 157,554 4.45 7,878 Source : WFE (Rankings done for the period Jan- Jun 2009).Rankings
Futures) for single stock futures, stock index options and stock index futures
TOTAL 2,067,961 2,208,846 6.81 8,529,302 is based on number of contracts traded.

Prepared by SBU-EDUCATION
National Stock Exchange of India Ltd.
Exchange Plaza, Bandra Kurla Complex, Bandra (E) Mumbai - 400051. Tel No: 022-26598163
For detailed NSE Newsletter log on to www.nseindia.com>Press Room>NSE Newsletter.
For Market Data, refer to www.nseindia.com>Research>Datazone.
 Dec 2009 1
N S E N E W S L E T T E R

A R T I C L E S

WHAT MOVES STOCK PRICES AND HOW?

BY Anuradha Guru*

Introduction

The daily movement of stock prices is no less than a conundrum for a layman who is unable to comprehend the rea-
sons behind these gyrations. What most amateur market watchers/players understand is that the market price of a
particular share is dependent on the demand and supply for that particular scrip. If the market participants are con-
fident about the fundamental strengths of a company which has had a track record of good performance or has the
potential to do well in the future, the demand for the shares of the company increases and players are willing to
pay higher prices to buy the share. And since the number of shares issued by the company is constant at a given
point in time, any increase in demand would only increase the market price.
However, there are many other factors not directly related to the company or its sector that have their impact of
stock prices. Movements of stock prices are seen to depend on macroeconomic factors; domestic and international
economic, social or political events; market sentiments / expectations about future economic growth trajectory or
critical budgetary, monetary and fiscal policy announcements etc. The stock market capitalizes the present and
future values of growth opportunities while evaluating the growth of all sectors in the economy. In a sense stock
markets can really be regarded as the pulse of the economy as they reflect every action taken by the economic and
political agents almost instantly. A stock market transaction of buy or sell is actually a purchase or sale of expecta-
tions representing market players’ beliefs about the economy.
This article attempts to demystify the links between stock market movements and various other factors mentioned
above, examining the channels through which they affect stock prices. It also sites some important empirical stud-
ies which have tested these linkages and the direction of their effects on stock prices worldwide and in the Indian
context, wherever such studies are available.
The rest of the paper is organized as follows: section I deals with effects of macroeconomic variables on stock mar-
ket movements; section II examines the impact of macroeconomic policy announcements on stock market returns
and section III looks at the channels through which expectations, sentiments, political developments, international
events etc, transmit their impact to stock market volatility.

Section I:

Macro economic variables and stock market movements

The relationship between macro economic factors and stock market movements has dominated the academic and
practitioners’ literature since long. Some fundamental macroeconomic variables such as growth rate of the econ-
omy, exchange rate, interest rate, industrial output and inflation have been argued to be determinants of stock
prices. This has motivated many researchers to investigate the dynamic relationship between them. For example,
Fama (1981) documents a strong positive correlation between common stock returns and real economic variables
like capital expenditures, industrial production, real GNP, money supply, lagged inflation and interest rates. Chen,
Roll and Ross (1986) find that the changes in aggregate production, inflation, short-term interest rates, maturity
risk-premium and default risk-premium are the economic factors that explain the changes in stock prices.

Below we examine the impact of each of these individual macroeconomic factors on stock prices.

Economic growth
Stock markets aid economic growth and development through the mobilization and allocation of savings, risk diver-
sification, liquidity creating ability and corporate governance improvement, among others. Improving the efficiency
and effectiveness of these functions, through prompt delivery of their services can augment the rate of economic
growth. This relationship also works the other way round, viz. economic growth; implying increased economic activ-
ity, rising employment, industrial production, wholesale /retail sales and income levels; moves stock prices in the
upward direction.

*The author is with NSE. Views expressed in the article are that of the author alone.
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Sawhney, Emmanuel and Feridun (2006) examined the long run relationship between economic growth and stock
prices for Canada and the United States. Their results reveal that economic growth and stock prices share long run
equilibrium relationship for both Canada and the U.S. Further, for the U.S., causality runs from economic growth
to stock prices but not vice versa. However for Canada, the results reveal that there is a bi-directional causality
between economic growth and stock prices.
The effect of GDP releases on equity prices is difficult to predict in part because there are two potentially offset-
ting effects. Stronger than expected GDP growth implies potentially stronger dividend growth and higher equity
prices, however, the accompanying inflation and interest rate concerns tend to have a negative effect on equity
prices. Several studies in the macroeconomics and finance literature have examined this question with sufficiently
large datasets to allow for more rigorous methods. These studies test for the effect of the surprise component of
various macroeconomic releases (i.e. actual less consensus or survey estimates) on asset price movements on that
day, or intraday around the time of the release (for example see Bernanke and Kutter (2003), and Fair (2003)) . In
general, these studies tend not to find a significant effect of the GDP release news and equity price movements
due to the offsetting effects noted above and difficulty measuring the true “news” contained in the data release.
Rigobon and Sack (2006) using data from 1994 to 2006, find no significant effect of advance GDP release surprises
on equity prices. However, they do find a slightly positive effect that is statistically significant when they use a
more advanced econometric method which controls for censoring effects. The coefficient was tiny, so it would
take a large surprise to generate even a small movement in stock prices according to their findings.

Industrial production
The positive relation between industrial production and stock prices is quite apparent. Higher industrial production
numbers indicate a healthy economy and induce “feel good” sentiments among stock market investors. Current
period’s positive data also increases expectations of better future performance by the industry as well and drives
up stock prices in general and prices of stocks of the particular industrial sectors that have performed or are ex-
pected to perform better than the average.
Fama (1990) shows that monthly, quarterly and annual stock returns are highly correlated with future production
growth rates. He argues that the relation between current stock returns and future production growth reflects in-
formation about future cash flows that is impounded in stock prices. The same results are also found by Schwert
(1990) who uses a larger data period for his study.

In a study of Indian stock markets, Agrawalla  and Tuteja  (2008) examine the causal relationships between the
share price index and industrial production. The study reports causality running from economic growth proxied by
industrial production to share price index and not the other way round.

Interest rates
The basic functions of interest rates in an economy, in which individual economic agents take decisions as to
whether they should borrow, invest, save and/or consume, can be said to have three aspects, viz. interest rates as
return on financial assets serve as incentive to savers, making them defer present consumption to a future date;
interest rates being a component of cost of capital affect the demand for and allocation of loanable funds; and the
domestic interest rate in conjunction with the rate of return on foreign financial assets and goods are hedged
against inflation. These broad roles of interest rates emphasize their significance in the structure of asset prices,
stock prices being one such asset. It is the interplay between these three functions of interest rates that can be
said to determine the impact of interest rate changes on a company’s stock prices movements.
According to the Dividend Discount Model (a model used to determine the price at which a security should sell
based on the discounted value of estimated future dividend payments), required rate of return and the share price
are inversely related. Thus, returns on stocks would decrease with the increase in the interest rate. One argument
substantiating this is that an increase in interest rate will increase the opportunity cost of holding money and in-
vestors substitute holdings of fixed income interest bearing securities for shares, hence leading to falling stock
prices.
Another possible explanation is that interest rate changes can impact equity prices through two conduits: by af-
fecting the rate at which the firm’s expected future cash flows will be capitalized, and by altering expectations
about future cash flows. In particular, an increase in interest rates leads to a decrease in expected future cash
flows and hence a decline in demand for stocks and a fall in stock prices.
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Inflation
Irving Fisher, in his treatise, The Theory of Interest (1930), predicted a positive relationship between expected infla-
tion and nominal asset returns. Also, common wisdom indicates that stocks are hedges against inflation so that as
inflation increases, demand for stocks increases and so would the stock prices. However, the results of empirical
analysis by most researchers indicate a negative relationship between common stock returns and various measures of
expected and unexpected inflation appearing to contradict the above. These researchers have then tried to explain
the negative relation in various ways.

Based on the notion that money demand is procyclical, Fama (1981) theorizes that the inflation-stock return correla-
tion is essentially a proxy for the negative relationship between inflation and real activity. He contends that an in-
crease (decrease) in real activity is expected to coincide with a decrease (increase) in inflation and participants in
the stock market anticipate the changes in real activity, so that stock prices appear to move inversely with inflation.
Geske and Roll (1983) offer a “reverse causality” explanation to the inverse relation between inflation and stock re-
turns, arguing that a reduction in real activity leads to an increase in fiscal deficits. As the Central Bank monetizes a
portion of fiscal deficits the money supply increases, which in turn boosts inflation. Stock market returns reflect the
changes in these macroeconomic variables, resulting in an inverse relationship between stock returns and inflation.
Another explanation that is offered is that high rates of inflation increase the cost of living and a shift of resources
from investments to consumption. This leads to a fall in the demand for market instruments which lead to reduction
in the volume of stock traded. Also the monetary policy responds to the increase in the rate of inflation with eco-
nomic tightening policies, which in turn increases the nominal risk-free rate and hence raises the discount rate in the
valuation model and leads to decrease in stock prices.

Exchange rate
Exchange rate as an indicator of a currency movement is a monetary variable that affect prices of stock in a way
similar to the inflation variable. Depreciation of the local currency makes import expensive compared to export.
Thus, production costs of import companies increase and since all the cost cannot be passed on to the consumers
because of the competitiveness of the market, this reduces corporate earning and hence the stock prices. Even firms
whose entire operations are domestic may be affected by exchange rates, if their input and output prices are influ-
enced by currency movements. On the other hand, for exporting companies, depreciation of the local currency in-
creases export and hence increases in stock prices.

Money supply
Money supply in an economy is likely to influence share prices through at least three mechanisms. First, changes in
the money supply may be related to unanticipated increases in inflation and future inflation uncertainty and hence
negatively related to the share price; second, changes in the money supply may positively influence the share price
through its impact on economic activity; and finally, an increase in the money supply leads to a portfolio shift from
non-interest bearing money to financial assets including equities.
Humpe and Peter (2007) find that money supply, M1 ( a liquid measure of the money supply that contains cash and
assets that can quickly be converted to currency), does not contribute significantly to the stock price in the US. This
perhaps suggests that the various influences the money supply has on the stock price (discussed above) may ‘cancel’
each other out.

Overall importance of macroeconomic variables in explaining stock returns

It would be pertinent to see what the overall impact of certain important macroeconomic variable is on the stock
returns. Cutler, Porterba, and Summers (1989) estimate the fraction of the variation in aggregate stock returns that
can be attributed to various types of economic news. The economic variables considered by them are: real dividend
payments on value weighted NYSE portfolio; industrial production; real money supply; nominal long term interest
rate; nominal short term interest rate, monthly CPI inflation rate and stock market volatility. The results indicate
that macroeconomic news, as defined by variables above, explain only one-fifth of the movement in stock prices.
While increase in unexpected real dividend and industrial production led to increase in stock prices; inflation, unan-
ticipated volatility and market volatility had negative and significant impact on market returns. The other variables
had less significant impact on share prices. The same result was also found by Fama (1981), whose paper concluded
that a substantial fraction of return variation cannot be explained by macroeconomic news.
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Thus, let us now look at other factors that may affect stock prices
Section II
Macroeconomic policies and stock market movements
It is believed that government financial policy announcements and macroeconomic events have large influence
on general economic activities in an economy including the stock market.

Fiscal policy
Theoretically, fiscal policy actions (changes in expenditures or taxes resulting in budget deficits or surpluses)
play a significant role in the determination of asset prices. For example, increases in taxes, with government
spending unchanged, would lower (expected) asset returns (or prices) as they discourage investors from
(further) investing in the stock market. Also, increases in government borrowing raise the (short-term) interest
rate which, in turn, lowers the discounted cash flow value from an asset (like a share) and thus signals, among
other things, a reduction in stock market activity.
From the investors’ perspective large budgetary deficits adversely impact stock and bond prices because they
increase interest rates. That is because the government, being a large borrower, soaks up large amounts of
funds that otherwise would have been available for the private sector, and thus drives up interest rates (that is,
it ‘crowds out’ private spending/investment). The increase in interest rates, in turn, will reduce business capi-
tal spending as well as consumption expenditures and ultimately undermine real economic activity. These
events will affect the financial markets by reducing asset prices and household wealth [Laopodis(_)].
Thus, this conventional analysis suggests that sustained budget deficits have severe implications on interest
rates, national saving and the external account. It also entails additional risks to the economy which include a
loss in both domestic and foreign investors’ confidence and adverse effects on the exchange rate.
Laopodis (2009) examines the extent to which fiscal policy actions affect the stock market's behavior for the US
during 1968-2005. His findings are consistent with the hypothesis that past budget deficits negatively affect cur-
rent stock returns thus suggesting that the market is inefficient with respect to information about future fiscal
policy actions.

Monetary Policy
A change in one of the monetary policy instruments like the money supply or the RBI bank rate leads to changes
in market interest rates which compel investors to revalue their equity holdings. In other words, the value of an
investor’s wealth, given by the sum of the discounted future cash flows and/or dividends, is affected by an eas-
ing or tightening of monetary policy through either the discount rate or expected earnings (or both).
Thorbecke (1997) looked at the question whether monetary policy has real effects on stock returns. It measured
monetary policy by innovations in the Federal Fund’s rate and non-borrowed reserves and also by an event
study of Federal Reserve policy changes. In every case the evidence indicated that expansionary policy in-
creases ex-post stock returns.
Bernanke and Kuttner (2003) analyzed the impact of changes in monetary policy on equity prices, with the ob-
jectives both of measuring the average reaction of the stock market and also of understanding the economic
sources of that reaction. They found that on average, a hypothetical unanticipated 25-basis-point cut in the
federal funds rate target was associated with about a one percent increase in broad stock indexes. The results
further indicated that the effects of unanticipated monetary policy actions on expected excess returns account
for the largest part of the response of stock prices.

Section III

Expectations and other developments affecting stock prices

Not only the actual economic events, but also expectations about these events seem to affect investors’ senti-
ments and in turn have their impact on the stock markets. There are also quite a few non-economic events,
such as those political in nature or seasonal patterns that have a bearing on stock market returns. Some of
these are examined below.

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Expectations
In one way, it can be said that stock markets movements is interplay of “expectations” which are often self
fulfilling in nature. An investor buys stocks of a company expecting that the company would perform well in
the near or long term future (based on whether he is a short term or long term investor) so that he could sell
the stock at an appropriate time to reap a profit on his investments. Suppose this feeling about the particular
stock of a company prevails across the market then everyone would want to buy the company’s stock, leading
to rising demand and hence higher prices.
Expectations may be not only about a company or an industrial sector, but also about the economy as a whole.
These could be expectations about policy stance of the government on important issue such as listing of public
sector undertakings or direction of monetary policy, viz tight or liberal policy and expectations about an-
nouncements in the annual central budgets regarding direction of government policy on financial sector reform
agenda or taxation issues having a bearing on the stock markets etc. Each of these impact sentiments of inves-
tors and their take on whether to buy or sell in the stock markets.

Seasonal patterns/calendar anomalies

The weak form Efficient Market Hypothesis (EMH) states that if the market is efficient, then the current stock
prices reflect all the information contained in its past prices and thus, follows the random walk. The presence
of seasonality or calendar anomalies in stock returns violates the weak form of market efficiency because eq-
uity prices are no longer random and can be predicted based on past pattern.
Seasonality in stock returns is said to exist if the average returns were not same in all periods. The month-of-
the-year effect would be present when returns in some months are higher than other months. In the USA and
some other countries, the year-end month (December) is the tax month. Based on this fact, a number of em-
pirical studies have found the ‘year-end’ effect and the ‘January effect’ in stock returns consistent with the
‘tax-loss selling’ hypothesis. It is argued that investors, towards the end of the year, sell shares whose values
have declined to book losses in order to reduce their taxes. This lowers stock returns by putting a downward
pressure on the stock prices. As soon as the tax year ends, investors start buying shares and stock prices
bounce back. This causes higher returns in the beginning of the year, that is, in the month of January.
While some researchers on the Indian markets have found evidence of December effect, others upheld the tax-
loss-selling hypothesis in the Indian market explaining the presence of abnormal returns in April (India’s tax
year ends in March). Pandey (2002) reported the existence of seasonal effect in monthly stock returns of BSE
Sensex in India and confirmed the January effect. Kumari and Mahendra (2006) studied the day of the week
effect using data from 1979 to 1998 on BSE and NSE. They reported negative returns on Tuesday in the Indian
stock market. Moreover, they found returns on Monday were higher compared to the returns of other days in
BSE and NSE. A latest study by Chakrabathi and Sen (2007) found the November effect at the market level.
They explain this effect as happening in the month of November perhaps because during the festive season or
when the festive seasons are just over, people generally have access to more cash and/or better access to liq-
uid cash. The optimism regarding market behaviour along with availability of liquid cash in the hands of inves-
tors to take advantage of the opportunity of market movements have probably made November the month of
significant returns in India in recent years, according to them.

Political developments
Political instability generally propels investors into a selling spree. A fragmented election result usually indi-
cates the formation of an unstable coalition government. Investors perceive this as leading to uncertainty on
decisions for any major financial sector reform agenda or on the take of the government on fiscal or monetary
policy etc. On the other hand, if election results bring back a stable and strong government to power, both
domestic and foreign investors feel secure about investing in a stable financial sector policy regime.
Also, a political development – inside or outside the country - may have bearing on share price. Usually this
factor affects all the shares irrespective of the sector classification.
Beaulieu et al. (2003), in a study done on Canadian stock markets, defined political risk as “risks to a firm’s
profitability that are principally the results of forces external to the industry and which involve some sort of
government action or, occasionally, inaction”. These government actions which could change the business en-
vironment of firms are expropriation, policy shifts in taxation or regulation, imposition of capital and foreign
exchange controls. 5
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They affirmed that the impact of political risk on the volatility of stock returns could be explained by the fact
that value of a firm is equal to the present value of its expected cash flows, whereas the discount rate represents
investors’ required rate of return. If there is uncertainty, the range of realizations for expected cash flows and
discount rates should be wider and the variance of firms’ returns should grow accordingly.
In interesting paper on the Indian markets, Kakani and Ghalke (2006), using data of two market indices (BSE Sen-
sex and NSE Nifty) for a period of more than 14 years (1991 to 2005), found that the Parliament Sessions have a
significant relation to the stock market returns. Returns are lower and market volatility is higher when Parliament
is in-session. Further evidence indicated that the average market returns (for NSE) when the Parliament is in re-
cess is almost 10 times the average returns obtained when the Parliament is in-session. They also found that this
Parliament Session Effect was not related to two important influencers of Indian capital markets, namely, the
foreign institutional investments and the global equity markets (especially for new economy).

Integration of financial markets worldwide

Globalization has had a profound effect on financial market integration across the world financial markets, fol-
lowing which linkages between returns of various individual local markets have generally been observed. A num-
ber of empirical studies have documented transmission of volatility from one market to another and dynamics of
the linkages of these markets. For example, the effects of stock market crash of October 1987 and the Asian fi-
nancial crisis in 1997 were widely felt in the whole world. More recently ripples of the sub-prime crisis in the US
and Europe has been felt across the financial markets of various countries.
The effect of one market largely spreads to another through foreign institutional investors (FII) who simultane-
ously track different market indices and continuously move funds between markets. Their confidence levels in a
particular market and strategies have now become increasingly important. If they perceive the stock markets of a
particular country as a good bet for investment, they move their investments into that economy and move out in
case of negative sentiments. The gain of one market is generally loss of another, considering that the stock of FII
funds is constant in the short term. Thus, FII investments play a key role in synthesizing markets across a region.
Also, stocks of companies are listed on more than one exchange, spread across nations so that their movements in
one markets impact their prices in other markets where they are listed and traded. In the Indian context, the
linkages between Indian markets and international stock markets can also be explained by investments through
the ADR/GDR route, whereby Indian shares are listed and traded on the US and other international stock ex-
changes.
Bose and Mukherjee (2005) look at the integration of the Indian stock market with many of the Asian markets and
the US stock market for the period January, 1999 to June, 2004. They find that post-Asian crisis up to mid-2004
the Indian stock market did not function in relative isolation from the rest of Asia and the US. On a daily basis the
Indian index is most highly correlated with the Singapore STI index, and is also very highly correlated with the
stock indices of Malaysia, South Korea, Taiwan and Thailand, while, the least correlation is observed with the US
S&P500 index. More importantly, during the period of the study, returns on the Indian BSE Sensex, was also seen
to exert considerable influence on stock returns in Japan and Korea, along with Taiwan and to an extent Malaysia,
though with a low probability.
Mukherjee and Mishra (2008) examined the return and volatility spillover among Indian stock market and 12 other
developed and emerging Asian countries over a period from November 1997 to April 2008. They find that the con-
temporaneous intraday return spillover among India and almost all the sample countries are positively significant
and bi-directional. More specifically, Hong Kong, Korea, Singapore and Thailand are found to be the four Asian
markets from where there is a significant flow of information in India. Similarly, among others, stock markets in
Pakistan and Sri Lanka are found to be strongly influenced by movements in Indian market.

In conclusion
This paper has attempted to put at one place a set of important factors that are commonly seen to drive prices in
stock markets. However, a caveat is appropriate here. There are still random forces – “the Great Unknowns” –
combined with the known factors that transmit their impact to stock prices through the laws of supply and de-
mand. Thus, the above mentioned factors affecting stock market movements are, by no means, the only factors
that can influence stock returns.
It is interesting to note what John Maynard Keynes, British economist whose ideas have been a central influence
on modern macroeconomics, had to say about stock markets.
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In his treatise, “The General Theory”, he decried the failure of investors in stocks to consider long term values
and opined that stock market is a “casino” dominated by professionals “concerned not with what an investment
is really worth to a man who buys it “for keeps” but with what the market will value it at, under the influence of
mass psychology, three months or a year hence (The General Theory, Vol. 7, pp 154-55 ). Thus, he argued that
investors are guided by short-run speculative motives and are not interested in assessing the present value of
future cash flows from their investment. The individual investors tend to conform to the behavior of the majority
or the average. Stock markets, according to him, can be subject to positive and negative sentiment even though
no basis exists for such sentiments and hence movement of prices cannot be really understood.
These observations of Keynes, made in the 1930s seem to hold true even today when one finds that no amount of
fundamental of technical analysis is able to fully explain the movement of stock prices or determine its future
course.
References
1. Agrawalla  Raman K. and  Tuteja  S. K (2008), “Share Prices and Macroeconomic Variables in India: An Ap-
proach to Investigate the Relationship Between Stock Markets and Economic Growth”, Journal of Management
Research Volume : 8, Issue : 3.

2. Beaulieu, Marie-Claude, Jean-Claude Cosset and Naceur Essaddam (2002), “The Impact of Political Risk on
the Volatility of Stock Returns: The Case of Canada”, Cahiers de recherche 0208, CIRPEE.

3. Bernanke, B. and K. Kuttner (2003), “What Explains the Stock Market’s Reaction to Federal Reserve Pol-
icy?” Journal of Finance, 60. 1221-1257.

4. Bose, Suchismita and Mukherjee, Paramita (2005), “A Study of Interlingages Between the Indian Stock
Market and Some Other Emerging and Developed Markets”, Indian Institute of Capital Markets 9th Capital Mar-
kets Conference Paper. Available at SSRN: http://ssrn.com/abstract=876397

5. Cutler, David M.; Porterba, James M.; Summers Lawrence H. (1989), “What Moves Stock Prices?” Journal
of Portfolio Management; Spring 1989; 15, 3.

6. Chen, N.F., R. Roll, and S.A. Ross, (1986), “Economic forces and the stock market”, Journal of Business,
59, 383-403.

7. Chopin, Marc and Zhong, Maosen (2000), “Stock Returns, Inflation and Macroeconomy: The Long- and
Short-Run Dynamics “. Available at SSRN: http://ssrn.com/abstract=294500

8. Chakrabarti, G., and C. Sen (2007). "November Effect: An Example of Calender Anomaly in Indian Stock
Market." West Bengal University of Technology, Kolkata, India. Online at: http://ssrn.com/abstract=1121606

9. Das, Niladri and Pattanayak, J. K. (2007), Factors Affecting Market Price of Sensex Shares. Icfai Journal
of Applied Finance, Vol. 13, No. 8, pp. 33-51.

10. Daferighe. Emmanuel E and Aje. Samuel O (2009), “An Impact Analysis of Real Gross Domestic Product
Inflation and Interest Rates on Stock Prices of Quoted Companies in Nigeria”, International Research Journal of
Finance and Economics, Issue 25.

11. Fama, Eugene F, (1981), "Stock Returns, Real Activity, Inflation, and Money," American Economic Re-
view, American Economic Association, vol. 71(4), pages 545-65, September.

12. Fama Eugene F. (1990), Stock Returns, Expected Returns, and Real Activity , Journal of Finance, 1990,
45, (4), 1089-1108.
13. Geske Robert and Richard Roll, (1983), “The monetary and fiscal linkages between stock returns and in-
flation”, Journal of Finance, Vol 38, pp 1-33. 7
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14. Humpe, Andreas and Macmillan, Peter (2007), “Can Macroeconomic Variables Explain Long Term Stock Mar-
ket Movements? A Comparison of the US and Japan”, Centre For Dynamic Macroeconomic Analysis Working Paper
No. 07/20. Available at SSRN: http://ssrn.com/abstract=1026219

15. Irving Fisher, The Theory of Interest, 1930.

16. Kakani, Ram Kumar and Ghalke, Avinash S. (2006), “Parliament Session Effect on the Indian Stock Markets”,
XLRI Jamshedpur School of Business Working Paper No. 06-01. Available at SSRN: http://ssrn.com/abstract=889467
17. Kumari, D. and Mahendra, R. (2006) “Day-of-the-week and other market anomalies in the Indian stock mar-
ket”. International Journal of Emerging Markets, Vol.1, no.3, pp.235- 246.
18. Levine Ross (1991), “Stock Markets, Growth, and Tax Policy”, The Journal of Finance, Vol. 46, No. 4., pp.
1445-1465.
19. Mukherjee, Dr. Kedarnath and Mishra, Dr. R. K. (2008), “Stock Market Integration and Volatility Spillover:
India and its Major Asian Counterparts”, MPRA Paper No. 12788. Online at http://mpra.ub.uni-muenchen.de/12788/

20. Perotti, Enrico C. and Van Oijen, Pieter H. (1999), “Privatization, Political Risk and Stock Market Develop-
ment in Emerging Economies”. Available at SSRN:

http://ssrn.com/abstract=157797

21. Pandey I M (2002). "Is There Seasonality in the Sensex Monthly Returns," IIMA, Working Paper, IIM Ahmeda-
bad.

22. Ray Y. Chou, Victor K. Ng, and Lynn K. Pi (1994), “Cointegration of International Stock Market Indices”, IMF
Working Paper/94/94, August 1994.

23. Ross Levine; Sara Zervos (1998), “Stock Markets, Banks, and Economic Growth”, The American Economic
Review, Vol. 88, No. 3, pp. 537-558.

24. Rigobon, Roberto and Sack, Brian (2006)."Noisy Macroeconomic Announcements, Monetary Policy, and Asset
Prices," NBER Working Papers 12420, National Bureau of Economic Research, August.

25. Shanmugam, K.R. and Misra, Biswa Swarup, (2009), Stock Returns-Inflation Relation in India, 1980-2004,
Applied Econometrics and International Development, 9, no1.

26. Sawhney Bansi, Emmanuel Anoruo and Feridun, Mete (2006), “Long-Run Relationship between Economic
Growth and Stock Returns: An Empirical Investigation on Canada and the United States”. Ekonomicky Casopis, Jour-
nal of Economics, Vol. 54, No. 6, pp. 584-596.

27. Schwart William G. (1990), “Stock Returns and Real Activity: A Century of Evidence”, Journal of Finance,
Vol 45, No. 4.

28. Thorbecke, W., (1997), “On stock market returns and monetary policy”, Journal of Finance 52(2), 635-654.

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N S E N E W S L E T T E R

S P O T L I G H T

Government has decided that all profitable listed CPSEs should meet the mandatory listing of 10%
public ownership; and all unlisted CPSEs having positive networth, no accumulated losses and
having a net profit in the three preceding consecutive years should get listed on the stock ex-
changes

The President’s Address to Joint Session of Parliament on 4th June 2009 and Finance Minister’s Budget
Speech on 6th July, 2009, articulated the intention of the Government to encourage people participa-
tion in the disinvestment programme. It had been mentioned that public sector undertakings are the
wealth of the nation, and part of this wealth should rest in the hands of the people while retaining at
least 51% Government equity in our enterprises.

Now, Government, in a press release dated 5th November, 2009, decided: (i) all profitable listed
CPSEs should meet the mandatory listing of 10% public ownership; and (ii) all unlisted CPSEs having
positive networth, no accumulated losses and having a net profit in the three preceding consecutive
years should get listed on the stock exchanges.

The disinvestment proceeds would be channelized into the National Investment Fund (NIF). The cor-
pus comprising deposits from April 2009 till March 2012 would be available in full for investment as
capital expenditure in specific social sector schemes determined by Planning Commission and Depart-
ment of Expenditure. The status quo ante of NIF will be restored from April 2012.

9
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N S E N E W S L E T T E R

R E G U L A T O R Y C H A N G E S

Initiated by SEBI
1. Regulatory framework for trading on Small and Medium Enterprises (SME) exchange/platform laid
down
The SEBI Board, at its meeting held on 9th November 2009, decided on the following regulatory framework for
trading on SME exchange or platform:

⇒ Companies listed on the SME exchanges would be exempted from the eligibility norms applicable for IPOs
and FPOs prescribed in the Securities and Exchange Board of India (Issue of Capital and Disclosure Require-
ments) Regulations, 2009 (ICDR).

⇒ In order to have informed, financially sound and well-researched investors with a certain risk taking ability,
a minimum IPO application size of Rs. 1 lakh would be prescribed.

⇒ The minimum trading lot would be Rs. 1 lakh.

⇒ An upper limit of Rs. 25 crore paid up capital would be prescribed in order for a company to be listed on the
SME platform/exchange and a minimum paid up capital of Rs.10 crore would be prescribed for listing on
the main boards of NSE and BSE.

⇒ The offer document will have to be filed with SEBI and the exchange. No observations would be issued by
SEBI on the offer documents filed by the Merchant Bankers (MBs).

⇒ The MB to the issue will bear the responsibility for market making for a minimum period of three years. MBs
would be allowed to do market making along with a disclosed nominated investor (like PE, VC, HNI and
QIB). Under this arrangement, all the stock being bought and sold as part of market making will ultimately
get transferred to the disclosed nominated investor with whom the Merchant Banker has a contractual
agreement. Merchant Banker would have to disclose their intention of this arrangement and have it ap-
proved by stock exchanges where the issuer SME is listed.

⇒ Certain well capitalized registered entities like Venture Capitalists may be allowed to have a contractual
agreement with the Merchant Banker to share the burden of devolvement of underwriting obligation.

⇒ During the compulsory market making period, promoters/acquirers will be allowed to dilute their sharehold-
ing only through offer for sale or to an acquirer and not to a market maker.

⇒ SEBI regulations on Takeover (Substantial Acquisition of Shares and Takeovers Regulations) will not be appli-
cable to acquisition of shares through Merchant Banker /Market Maker provided that the Merchant Banker/
Market Maker does not have the intention of taking over the management and there is no change in control
(direct /indirect) of the company.

⇒ Merchant Bankers who have the responsibility of market making and have a firm allotment made in IPO for
purpose of market making may, at their option, be represented on the board of directors of the company in
view of the commitment of market making subject to agreement of the issuer. However this will not be
mandatory on the Merchant Banker.

⇒ No separate category of Merchant Bankers will be created.

⇒ Merchant Bankers will be required to ensure that the issue is 100% underwritten. However only a minimum
percentage (15%) of the issue size will be mandated to be compulsorily underwritten by the Merchant
Banker itself.

⇒ A minimum number of investors (say 50) shall be specified for the IPO only. There shall be no continuing
requirement of maintaining the minimum number of investors. However, compliance with the requirements
of Companies Act, 1956 needs to be ensured at all times.

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R E G U L A T O R Y C H A N G E S ( c o n t d … )

⇒ Companies listed on the SME exchange/ platform of an existing exchange may send to their shareholders
a statement containing the salient features of all the documents as prescribed in section 219 (1) (b) (iv)
of Companies Act, 1956. This information shall also be displayed on the website of the exchange. Fur-
ther the Company shall compulsorily maintain a website on which this information can be displayed.

⇒ Investors with holdings of value less than Rs. 1,00,000 (such reduction in the holding may have been due
to fall in prices or his having offloaded a part of the holdings previously), are allowed to off load their
holding to the Market Maker in that scrip. (provided that the investor sells his entire holding in that
scrip in one lot). Market Makers will be authorised to buy these shares from such investors.

⇒ Preparation and submission of financial results (as mandated in the listing agreement) on a “half yearly
basis” for SMEs, instead of “quarterly basis”.

⇒ All the provisions of clause 49 (corporate governance) need to be complied with.

2. Amendments to Issue of Capital and Disclosure Requirements, Regulations, 2009 (ICDR) inter-
alia, requiring interim disclosure of balance sheet items by listed entities and permitting pure auctions
for qualified institutional investors (QIBs) in follow-on public offerings
SEBI, at its Board meeting held on 9th November, 2009, decided to amend the ICDR Regulations/ Listing
Agreement, as follows:

⇒ QIB Status to insurance funds set up by armed forces: The Board decided to accord QIB status to insur-
ance funds set up by armed forces such as Army Group Insurance Fund.

⇒ Reservation to employees: The Board decided to put a ceiling of Rs.1 lakh on the value of allotment
that can be made to an employee under employee reservation category and to permit reservation upto
5% of the post issued capital instead of 10% of issue size. The Board also decided to extend reservation
to employees along with rights issue. The ICDR Regulations also provide for discount upto 10% of issue
price to retail individual investors and shareholders but not to employees. The Board decided to allow
discount of not more than 10 percent to employees also under the reserved category only in public is-
sues for application size upto Rs.1,00,000/-.

⇒ Voluntary adoption of IFRS by listed entities having subsidiaries: The Board, decided to provide an op-
tion to all listed entities with subsidiaries to submit their consolidated financial statements as per IFRS.
However, such entities shall continue to file their stand alone financials as per Indian GAAP in line with
the Companies Act requirements.

⇒ Interim disclosure of Balance Sheet items by listed entities: Taking note that internationally most ju-
risdictions require disclosure of Balance Sheet items on an interim basis whereas in India companies dis-
close only interim financial results, the Board decided to mandate half-yearly disclosure of Balance
Sheet items with audited figures or un-audited figures with limited review.

⇒ Timelines for submission of financial results by listed entities: The Board decided to make it mandatory
to disclose only limited review or audited results within 45 days of the end of the quarter. The Board
also decided to reduce timeline for disclosure of audited annual results from 90 days to 60 days to those
companies which opt to submit their annual audited results on a stand-alone basis in lieu of the last
quarter un-audited financial results.

⇒ Requirements for Fast Track Issues: SEBI Board on a review decided to relax certain requirements of
Fast Track Issues (FTIs_ such as reducing the average market capitalization of public shareholding of
the issuer to five thousand crore rupees from ten thousand crore rupees, pegging the annualized trading
turnover to free float for companies whose public shareholding is less than 15 percent of the issued
capital. The Board also decided that incase the clause relating to composition of Board of Directors has
not been complied with in one or more quarters, it need not be deemed as non compliance, provided
the company is in compliance in this regard at the time of filing the offer document with stock ex-
11
 Dec 2009 12
N S E N E W S L E T T E R

R E G U L A T O R Y C H A N G E S ( c o n t d . . )

⇒ Relaxation from restatement of financial statements: The Board decided that the requirement for disclo-
sure of financials in FPOs of identical instruments quoted on a stock exchange may be brought on par with
rights issues, to start with for companies that are eligible to make an issue under fast track, subject to
certain conditions.

⇒ Introduction of pure auction as an additional book building mechanism: The Board decided to introduce
an additional method of book building, to start with, for FPOs, in which the bidders would be free to bid
at any price above the floor price and allotment would be on price priority basis and at differential
prices. However, retail individual investors in such cases would be allotted shares at the floor price. The
Board further decided that if the issuer desires to place a cap either in terms of number of shares or per-
centage to issued capital of the company in order that a single bidder does not garner all shares on offer
and there is wider distribution, the same may be permitted.
3. Permission given to transactions in Mutual Fund schemes through the stock exchange infrastruc-
ture
SEBI, in a recent circular said that the need for enhancing the reach of mutual fund schemes to more towns
and cities has been aired through various forums/ channels. To address this issue, various models have been
debated and discussed.
The infrastructure that already exists for the secondary market transactions through the Stock exchanges with
its reach to over 1500 towns and cities, through over 200,000 Stock Exchange terminals can be used for facili-
tating transactions in mutual fund schemes. The Stock Exchange mechanism would also extend the present
convenience available to secondary market investors to mutual fund investors.
Hence, SEBI has decided that units of mutual fund schemes may be permitted to be transacted through regis-
tered stock brokers of recognized stock exchanges and such stock brokers will be eligible to be considered as
official points of acceptance as per SEBI Circular dated October 11, 2006.

4. Debt Listing Agreement for debt securities further simplified

SEBI had, vide its circular dated May 11, 2009 put in place the Simplified Listing Agreement for Debt Securi-
ties. Pursuant to suggestions from various market participants received subsequently, SEBI had amended the
said Listing Agreement vide its circular dated November 26, 2009.

The amendments are briefly summarized as under:

⇒ 100% Asset Cover: To align the Listing Agreement with the provisions of the Companies Act, 1956, the
amended Listing Agreement requires issuers to maintain 100% asset cover sufficient to discharge the prin-
cipal amount at all times for the debt securities issued. Further, to provide more information to investors,
the periodic disclosures to the stock exchange shall now require disclosure of the extent and nature of
security created and maintained.

⇒ Submission of certificate on maintenance of security: As against half-yearly certifications on security

cover in respect of listed secured debt securities, the amended Listing Agreement provides for submission
of such certificates regarding maintenance of 100% asset cover, and the time limit of submission in re-
spect of the last half year has been aligned with the option provided for submission of annual audited re-
sults at a later date. In addition to Banks and NBFCs being exempt from submitting such certificates, issu-
ers of Government guaranteed bonds shall also be exempt.

⇒ Statement on Use of Issue Proceeds: In order to enhance the quality of disclosures made to investors, is-
suers shall be required to furnish a statement of deviations in use of issue proceeds, if any, to the stock
exchange on a half yearly basis. Also, the same is required to be published in the newspapers simultane-
ously with the half-yearly financial results.

⇒ Deposit of 1% of issue proceeds: So as to ensure that the interest of investors investing in public issues of
debt securities is protected, the issuer shall be required to deposit an amount calculated at 1% of the
amount of debt securities offered for subscription to the public. It is refundable or forfeitable in the man-
12
ner stated in the Rules, Bye-laws and Regulations of the Exchange.
 Dec 2009 13
N S E N E W S L E T T E R

R E G U L A T O R Y C H A N G E S ( c o n t d . . )

⇒ Submission/ publication of Financial Statements: The time-lines for disclosure of financial statements
have been aligned with the proposed changes to the Equity Listing Agreement. Accordingly, issuers
would now have to publish/ furnish to the Exchange, either audited half yearly financial statements or
unaudited half yearly financial statements subject to a limited review within 45 days from the end of
the half year. In case of the last half year, issuers may opt to submit their annual audited results in lieu
of the unaudited financial results for the period, within 60 days from the end of the financial year.

Initiated by RBI
1. Draft guidelines on Over the Counter (OTC) Foreign Exchange Derivatives and Hedging
Commodity Price Risk and Freight Risk Overseas, placed on RBI’s website for public comments
The Reserve Bank of India has, on 12th November, 2009, placed on its website the draft guidelines on OTC
Foreign Exchange Derivatives and Hedging Commodity Price Risk and Freight Risk overseas for public com-
ments.

Presently, Foreign Exchange Derivative Contracts are governed by Regulations notified vide Notification No.
FEMA 25/2000-RB dated May 3, 2000 [viz. Foreign Exchange Management (Derivative Contracts) Regulations,
2000], directions issued by the Reserve Bank from time to time and the comprehensive guidelines on deriva-
tives issued by the Department of Banking Operations and Development vide their circular dated April 20,
2007.

In light of the developments in the domestic and international financial markets and based on the feedback
received from banks, market participants, industry associations and others, the existing guidelines on for-
eign exchange and commodity and freight derivatives overseas were reviewed by an Internal Group of the
RBI. Based on this review, the draft guidelines have been placed on the website for wider comments / views
from the market participants / users of foreign exchange derivatives.

The important changes proposed in the draft guidelines are as follows:

⇒ Importers and exporters having foreign currency exposures in trade transactions are being permitted to
write covered call and put options both in foreign currency-rupee and cross currency and also receive
premia.

⇒ AD Category I banks are being permitted to offer plain vanilla cross currency options to persons resi-
dents in India (other than AD Category- I banks), who transform their rupee liability to a foreign cur-
rency liability.

⇒ Since importers and exporters are being permitted to write covered call and put options both in foreign
currency- rupee and cross currency and also receive premia, the facility of zero cost structures/cost
reduction structures is being withdrawn.

NSE NEWS

1.Following SEBI initiative, NSE has introduced New Mutual Fund Service System (MFSS) for transaction
in mutual fund schemes through the stock exchange infrastructure
SEBI vide its circular dated November 13, 2009 issued guidelines for facilitating transaction in Mutual Fund
schemes through the Stock Exchange infrastructure. In view of the same the NSEIL introduced the new Mu-
tual Fund Service System (New MFSS). This system was operationalised on 30th November, 2009.
In order to participate in the New MFSS, NSE requires trading members to comply with the documentation
requirements as specified in its Circular dated 24th November, 2009. The circular provides:
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 Dec 2009 14
N S E N E W S L E T T E R

N S E N E W S ( c o n t d … )

⇒ All trading members of the Exchange who are registered with Association of Mutual Funds of
India (AMFI) as Mutual Fund Advisors and who have signed up with the specific Asset Manage-
ment Company (AMC) of a Mutual Fund are eligible to participate in the New MFSS. For this
purpose, trading members shall have to register with NSEIL as Participants by submitting an
Undertaking as per the specified format.

⇒ Participants shall abide by the operating guidelines and terms & conditions of this circular and
the circulars issued from time to time with regard to New MFSS by NSEIL and such other re-
quirements as prescribed by SEBI, Association of Mutual Funds in India (AMFI) or any other
regulatory authority for market intermediaries in the business of mutual fund units.

⇒ Further, the Participants shall ensure that the investors desirous of participating in the New
MFSS register with the Participant as a client have to submit the letter as per the format
specified in Annexure to this circular. All clients shall undertake to abide by the operating
guidelines and terms & conditions of this circular and the circulars issued from time to time
by NSEIL with regards to New MFSS.

⇒ The existing Mutual Fund Scheme (which was introduced vide NSE’s circular dated December
14, 2000) will be discontinued and substituted with the New MFSS.

NCFM News
1. Addition of three more modules in the list of modules qualifying for Fee Discount Scheme
NSE introduced a Fee Discount Scheme for candidates appearing for various NCFM modules’ tests, vide
its circular dated 29th September, 2009. Under the Scheme started for a period of one year (from Oc-
tober 01, 2009 to September 30, 2010), after taking two tests in specified modules between October
01, 2009 and March 31, 2010 (both days inclusive), a candidate would qualify for availing 50 percent
discount on all the subsequent tests provided such tests are: (a) for modules included in the scheme,
and (b) taken by September 30, 2010.
In continuation to the circular dated September 29, 2009, the following three modules have since
been added to the list of modules qualifying for fee discount:

1. NSDL - Depository Operations Module

2. Commodities Market Module
3. Information Security Auditor's Module Part-1
Information Security Auditor's Module Part-2
The updated list of Qualifying Modules for Fee Discount Scheme is given below:
Sr. No. Name of Module
1 Capital Market (Dealers) Module
2 Derivatives Market (Dealers) Module
3 FIMMDA-NSE Debt Market (Basic) Module
4 Securities Market (Basic) Module
5 Surveillance in Stock Exchanges Module
6 Compliance Officers (Brokers) Module
7 Compliance Officers (Corporates) Module
8 Options Trading Strategies Module
9 NSDL - Depository Operations Module
10 Commodities Market Module
11 Information Security Auditor's Module Part-1
Information Security Auditor's Module Part-2
Circulars regarding Fee discount Scheme NSE/NCFM/13146 dated September 29, 2009 and
NSE/NCFM/13457 dated November 13,2009
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N S E N E W S L E T T E R

NCFM News (condt..)

2. Addition of two more modules in the list of modules qualifying for “NSE Certified Market Pro-
fessional (NCMP) certificates
With effect from August 17, 2009, NSE started to offer “NSE Certified Market Professional (NCMP)” cer-
tificates to those who have cleared specified NCFM modules) as per the following eligibility criteria:
NCMP Level 1 : 3 – 4 modules
NCMP Level 2 : 5 – 6 modules
NCMP Level 3 : 7 – 8 modules
NCMP Level 4 : 9 or more modules
In continuation to the above, the following two modules have since been added to the list of modules
qualifying for NCMP certification:
1. Currency Derivatives: A Beginner’s Module
2. Equity Derivatives: A Beginner's Module
Updated list of modules qualifying for NCMP certification:

Sr. No. Name of Module

1 Capital Market (Dealers) Module
2 Commodities Market Module
3 Derivatives Market (Dealers) Module
4 FIMMDA-NSE Debt Market (Basic) Module
5 Financial Markets: A Beginners’ Module
6 Mutual Funds : A Beginners' Module
7 NSDL–Depository Operations Module
8 Options Trading Strategies Module
9 Securities Market (Basic) Module
10 Currency Derivatives: A Beginner’s Module
11 Equity Derivatives: A Beginner's Module
Circular regarding NCMP certification
NSE/NCFM/12900 dated August 17, 2009 Introduction of NCMP certificates.
3. 3. Launch of “Equity Derivatives: A Beginner’s Module”
“Equity Derivatives: A Beginner’s Module” has been launched under NCFM with a view to equip candidates
to obtain basic but essential information and concepts regarding the exchange traded Equity Derivatives
markets.
The “Equity Derivatives: A Beginner’s Module” test would contain 50 questions to be answered in 60 min-
utes. The passing percentage would be 50%. There would be no negative marking. The fees for the module
would be Rs. 750/- per test.
Further this module would be considered as one of the qualifying modules for NCMP certification (refer
NSE’s circular dated August 17, 2009).

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N S E N E W S L E T T E R

I N T E R N A T I O N A L N E W S

1. Tokyo Stock Exchange’s TOPIX Futures to trade on NYSE Liffe from summer 2010
Tokyo Stock Exchange, Inc ("TSE") and NYSE Liffe announced that TOPIX Futures will be listed on the NYSE
Liffe market from summer 2010. The TOPIX index futures contract is the benchmark Japanese stock price
index already traded on the TSE.
The Tokyo Stock Exchange's TOPIX Futures are already actively traded by investors worldwide, who use the
instrument as a way to invest in Japan's largest stocks. Listing the contracts on NYSE Liffe will increase the
number of customers who can trade the contract, and enable trading in the TOPIX Future while the Tokyo
market is closed. The contract specifications for TOPIX Futures traded on NYSE Liffe will be fundamentally
the same as those traded on TSE.
Both exchanges are currently working together to establish a position transfer scheme where all TOPIX open
positions in NYSE Liffe at the end of each day will be automatically transferred to TSE. This will allow inves-
tors to enjoy the convenience of simpler position management. Both exchanges are now discussing about the
details of this working scheme so that it can be applicable to other products in addition to TOPIX Futures. A
full scale outline will be announced as soon as plans are finalized.

2. Warsaw Stock Exchange introduces the Respect Index

On 19 November 2009, the Warsaw Stock Exchange announced the Respect Rating – a ranking of socially re-
sponsible WSE-listed companies – and started publishing the Respect Index. The Respect Index measures the
performance of companies that were classified as socially responsible in a survey conducting by the ex-
change. It is an income index, taking into account corporate actions such as dividends and rights issues. Six-
teen companies that received the highest rating in the survey were included in the composition of the Index.
Through this index, the exchange aims to promote responsible management in WSE-listed companies and
measuring it through a special-purpose index.

3. London Stock Exchange to launch new retail bond market for the UK

The London Stock Exchange announced that it will introduce a new order-driven trading service for bonds.
This new electronic order book will be available for a select number of gilts and UK corporate bonds and will
offer private investors with an on-screen secondary market in London-listed debt securities for the first time.
This new service is expected to go live in February next year.

The main characteristics of the new trading service are:

• An electronic order-driven model, with retail-friendly order sizes, and continuous two-way trading pro-
vided by market makers.

• Two new segments for electronically tradable gilt-edged securities (UK Gilts) and electronically tradable
UK fixed interest securities (UK Corporates) will be introduced on London Stock Exchange Group's TradElect
trading system.

• The trading day will be made up of an initial opening auction phase followed by continuous trading until
market close. There will be no closing auction.
The new trading service is not expected to impact existing wholesale bond or gilt trading and trade reporting
arrangements and does not aim to change established practices in the institutional fixed income markets.

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 Dec 2009 17
N S E N E W S L E T T E R

MANAGERIAL PERSONNEL OF NSEIL

NAME DESIGNATION DEPARTMENT

Mr. Ravi Narain Managing Director and CEO
Ms. Chitra Ramkrishna Jt. Managing Director
Mr. J Ravichandran Director Finance & Accounts, Legal & Secretarial
Mr . Ravi Apte Chief Technology Officer
Mr. R Sundararaman Sr. Vice President NSCCL
Mr. Yatrik R Vin Sr. Vice President Finance & Accounts
Ms . Kamala Vice President Compliance, Inspection, Membership,
Arbitration, Defaulters Section & Investor
Service Cell

Mr . Nirmal Mohanty Head - SBU EDU SBU - Education

Mr. R Nanda Kumar Vice President NSCCL - Development & NCCL, NOW,
Web Team
Mr. Ravi Varanasi Vice President Investigation, Surveillance & Inspection
Ms. T. S. Jagadharini Vice President Trade (Capital Market, Currency Deriva-
tives, F&O & WDM), Development & Mar-
keting

Mr . Vidhu Shekhar Vice President New Products & Six Sigma Inititiatives
Mr. Arup Mukherjee Asst. Vice President SBU - Education
Mr. C. N. Upadhyay Asst. Vice President Inspection & Compliance
Mr. Dhruvkumar Patil Asst. Vice President Investor Service Cell
Mr. Hari K Asst. Vice President Listing & Corporate Communications
Mr. Mahesh Haldipur Asst. Vice President Premises
Mr. Mayur Sindhwad Asst. Vice President NOW, Dotex International Ltd.
Mr . Nilesh Tinaikar Asst. Vice President Development
Ms. Nisha Subhash Asst. Vice President Investigation
Mr. R Jayakumar Asst. Vice President Secretarial
Ms . Rana Usman Asst. Vice President NSCCL - Securities & Data Supply
Mr. Ravindra Mohan Bathula Asst. Vice President Legal
Mr. Suprabhat Lala Asst. Vice President Trade - (Capital Market, F&O, Currency
Derivatives & WDM)

Mr. Suresh Narayan Asst. Vice President India Index Services & Products Ltd. &
Dotex Int'l

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 Dec 2009 18
N S E N E W S L E T T E R

MANAGERIAL PERSONNEL OF NSEIL

NAME DESIGNATION DEPARTMENT

Mr. T Venkat Rao Branch In-charge Regional Office - Delhi
Mr. Ajith Kumar V Manager Administration & Development
Ms. Aparna Bhat Manager NSCCL -Risk Management
Mr . Amit Bhobe Manager NCCL
Mr. Amol Mahajan Manager Finance & Accounts
Ms. Anuradha Guru Officer on Special Duty SBU - EDUCATION
Mr . Arvind Goyal Manager Currency Derivatives - Trade
Mr . Avinash Kharkar Manager Listing
Mr . Bireshwar Chatterjee Manager Investigation
Ms. Himabindu Vakkalanka Manager Development
Mr . Huzefa Mahuvawala Manager NSCCL -Risk Management
Mr . Janardhan Gujaran Manager F&O - Trade
Ms. Jayna Gandhi Manager Finance & Accounts
Mr . Johnson Joseph Chiriyath Manager Investor Service Cell
Mr . Kiran Dusane Manager Premises
Mr . Kiran Sawant Manager NSCCL - Collaterals
Ms. Pareezad Deboo Manager NSCCL - Currency Derivatives
Mr . Prashanto Banerjee Manager Marketing
Mr . Ram Surve Manager Human Resources
Ms . Rehana D'Souza Manager Membership
Mr . Sandeep Dandapat Branch In-charge Regional Office - Kolkata
Mr . Sandeep Manoharan Manager NSCCL - Development
Mr . Shekhar Rao Manager Finance & Accounts
Ms. Sonali Karnik Manager Surveillance
Mr . Sunil Gawde Manager Capital Market - Trade
Ms. Sunitha Anand Branch In-charge Regional Office - Chennai & Hyderabad
Ms . Sushama Bhagchandani Manager Finance & Accounts
Mr . Vinayak Shenoy Manager Finance & Accounts

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 Dec 2009 19
N S E N E W S L E T T E R

MANAGERIAL PERSONNEL OF NSE INFOTECH SERVICES LTD

NAME DESIGNATION DEPARTMENT

Mr.N Muralidaran CEO Projects
Mr.G. M. Shenoy Senior Vice President Projects
Mr.M. R. Krishnan Vice President Infrastructure
Ms.Hema Iyer Vice President Risk Management
Mr.Mahesh Soparkar Group Head Projects, DBA/SysAdmin
Mr.P. R. Visvas Assistant Vice President Internal Systems - Listing, DWH
Ms.Mamatha Rangaprasd Assistant Vice President Trade
Mr.Mahesh Basrur Assistant Vice President FOCASS, NCSS
Mr.Hemant Patade Assistant Vice President BCP
Mr.Deviprasad Singh Assistant Vice President Telecom
Ms.Smrati Kaushik Senior Manager Trade
Mr.Viral Mody Senior Manager Trade
Mr.Hitesh Shah Senior Manager DBA /Sys Admin
Mr.Sujoy Das Senior Manager PRISM / TAP
Mr.Sudhir Sawant Senior Manager Project Management Office
Mr.Pranav Gupta Senior Manager Risk Management
Mr.Rajanish Nagwekar Senior Manager Index / Neat Plus
Mr.Nipun Dave Senior Manager Architecture
Mr.Bineet Jha Senior Manager HWARE SUPPORT
Ms.Geeta Mathew Senior Manager ASG / Operations
Mr.Mathew Joseph K Senior Manager NCSS
Mr.Benny Sebastian Senior Manager Membership
Mr.Manoj Joshi Manager Projects
Ms.Anuja Joshi Manager BCP
Mr.Suresh Chandani Manager Trade
Mr.Shibu Tomy Manager NFA/FAMS
Ms.Pranali Taskar Manager Telecom
Mr.Umesh Agroya Manager Telecom
Mr.Joy John Manager BCP - Chennai
Mr.Narayan Neelakanthan Manager Telecom
Ms.Bernadine Swamy Manager HRD
Mr.Mahesh Dere Manager Membership
Mr.Anoop Kumar Rawat Consultant DBA
Mr.Nitin Gupte Manager Telecom
Mr.Sandeep Kumar Gupta Manager ASG
Mr.Tushar H. Kulkarni Manager C2N
Mr.Prasad Addagatla Manager SysAdmin

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 Dec 2009 20
N S E N E W S L E T T E R

MANAGERIAL PERSONNEL OF NSE INFOTECH SERVICES LTD

NAME DESIGNATION DEPARTMENT

Mr.Suraj P Bangera Manager Web
Mr.Manoj Kumar Singh Manager TECH - Delhi
Mr.Sagar Joshi Manager Project Management Office
Mr.Shreekantha Velankar Manager DWH
Mr. Balakrishnan M Manager FOCASS
Mr.Aditya Agarwal Manager Architecture
Ms.Meena Hajare Manager Listing
Mr.Nishant Jha Manager OPMS
Ms.Veena Khilnani Manager DBA
Mr.Vinit Naik Manager Survellience
Ms.Vishakha Shenoy Manager PRISM

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