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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION

MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL


EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10
CONTENTS

Details of Content Page


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ACKNOWLEDGEMENT A

B
TRANSFORMATION MODEL

1-8
INPUTS OF SHARE TRADING

9-14
TRANSFORMATION PROCESS

15-20
OUTPUTS

FEEDBACKS 22-24

CONSTAIRNTS 25-26

MATRIX TABLE WITH CALCULATION 27-28

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10

INPUTS OF SHARE TRADING:

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10

1. POTENTIAL INVESTOR
Potential customers considered only those people who have the desire to invest in the

stock market.

Potential customers are of following types:-

(1) Domestic investors

(2) Institutional investors

(3) Foreign investors

DOMESTIC INVESTORS are those people who are come under the periphery of India

and have the desire, capacity, and capital to invest in the domestic share market.

FOREIGN INVESTORS are those who belong to any other nation outside india.They

may be of Indian origin (NRI or PIO) but living in abroad or purely of foreign origin.

INSTITUTIONAL INVESTOR Mutual funds, Unit Trust, Insurance Corporation of

India, banks, and other large institutions which invest their members’ money in shares

and bonds, reinstitution investors. Since they trade in large volumes, they may play a

supportive role when the share market is bearish. When ordinary investors, and even

speculators to a certain extent, shy away from the share market, it is the institutional

investor who often accounts for the bulk of the trade done on the stock exchange, over a

sustained period. The absence of institutional investors in a bear market can have

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10
damaging results. In view of their often substantial holdings they can play a major role in

influencing company policy and in takeover bids. They have professional analysts and

advisors, and can usually read stock market trends much better than individual investors.

With their larger holdings they are often represented on the board of directors, and can

influence company policy.

Tips for Indian stock investor


Indian Stocks market is showing strength from strength and is making steady gains over last

few years. SENSEX and NIFTY are less than 5% below the all time highs.

Advice on buying and selling of Indian stocks and indices. Indian stock market investing

made easy. Expert recommendations, mature tips, share market information at one place.

Portfolio advice for indian stock markets.

Making money from Indian stock market was never so easy. But although markets are in the

upswing we find more and more people exiting citing losses in stocks. A close analysis

shows non understanding of financial markets as the main reason for this.

Stock price movement is just more than a simple graph. Fundamental analysis helps you to

identify potential winners which can be multiage’s. Technical analysis helps you time the

markets. If you are a long term investor, Fundamentals play a more important tool. If you

are a short term trader, Technical analysis, news, rumors play a more important role.

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10

Indian corporate earnings are showing strong growth in last 4-5 years which is well

reflected in Indian stock market.

Stock market trading without proper research is bound to make you loose all your finance.

We recommend studying charts; avoid keeping a close eye on quotes / prices, day trading,

penny stocks. Finding a good stockbroker, Stock Market Guide , stock exchange like New

York stock exchange, Toronto exchange, NSE etc. Stock picks should be purely based on

research on fundamentals and technical analysis. Consider future trading and options.

Mumbaibull.com presents a set of stocks to buy based on these principles. Emphasizing

more on fundamental and a bit on technicals.

2. MONEY
• the most common medium of exchange; functions as legal tender; "we tried to

collect the money he owed us"

• wealth reckoned in terms of money; "all his money is in real estate"

• the official currency issued by a government or national bank; "he changed his

money into francs"

Money is essential part of the life of every individual. It is accepted everywhere in all the

transactions around the world. In the perspective of investment, it is essential for every

investment made anywhere around the world. It suits all the transactions because it

provides the proper value to every transaction made.

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10

3. EXISTENCE OF PROFITABLE
ORGANISATION’S OFFER (NEW ISSUE) AND
STOCK EXCHANGE:-
The industrial securities market is divided into two parts:-

1. New Issue market

2. Stock exchange

One aspect of their relationship is that they differ from each other organizationally as
well as in the nature of functions performed by them. They have some similarities also

New Issue Market:-NIM deals with the new securities, i.e. securities which were not
previously available and are, therefore, offered to investing public for the first time

(A). AN INITIAL PUBLIC OFFERING (IPO): BASIC


TERMINOLOGIES

What is IPO

It is the process of selling shares that were so far privately held to new investors for the

first time IPO. It is the process for an unlisted company (called issuer) to go public and

offer shares to general public investors. The main purpose of an IPO is to raise capital for

the company. The IPOs are very effective at raising capital.

Primary market

The market in which investors have the first opportunity to buy a newly issued security

like in an IPO.

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
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2009-10

Prospectus

A formal legal document describing the details of the company is created for a proposed

IPO. It is the document that makes investors aware of the risks of an investment.

Book Building

The process by which an the attempt is being made to determine at what price the

securities to be offered based on demand from investors. An electronic book is being

built by accepting orders from the investors who indicate the number of shares they

desire and the price they are willing to pay.

Book Building Process

Book building is a process of price discovery in case of IPOs. When Companies come

through the book building route, the price of the issue is not fixed beforehand. Rather the

issue document only gives a floor price or the price band within which investors can bid

for the shares. The IPO applicants bid for the shares being issued by the company quoting

the price of their bid and the quantity that they would like to bid at. Only the retail

investors have the option of bidding at ‘cut-off’. Cut off means that the investors are not

active bidders but they are willing to accept whatever price is getting arrived at based on

bidding done by other persons. After the bidding process is complete, the ‘cut-off’ price

is arrived and shares are issued to successful applicants

Over subscription

A situation in which the demand for shares offered in an IPO exceeds the number of

shares issued.

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2009-10

Procedure of IPO:

An IPO is usually underwritten by one or more underwriters called as a "syndicate" of

investment banks. The company offering its shares enters a contract with a lead

underwriter to sell its shares to the public by book building process. The underwriter then

approaches investors with offers to sell these shares. Upon selling the shares, the

underwriters keep a commission based on a percentage of the value of the shares sold.

RIGHT ISSUE:-In case of Companies whose shares are already listed and widely

held, shares can be offered to the existing share holders. This is called Right Issue.

In India, section81 of the Companies Act 1956 provides that where a company increase

its subscribe capital by the issue of new shares, either after two year of its formation or

after one year of first issue of shares whichever is earlier

(B). STOCK EXCHANGE (SECONDARY OR STOCK MARKET):-

Every transaction in the stock exchange is carried out through licensed members called

brokers.

To trade in shares, you have to approach a broker However, since most stock exchange

brokers deal in very high volumes, they generally do not entertain small investors. These

brokers have a network of sub-brokers who provide them with orders.

The general investors should identify a sub-broker for regular trading in shares and place

his order for purchase and sale through the sub-broker. The sub/broker will transmit the

order to his broker who will then execute it.

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10
The stock market system is an avenue of how to trade stock for listed corporations. As a

corporation is formed, its initial shareholders are able to acquire shares of stock from the

point of subscription when a company is created. When a company starts to be traded to

the public, the primary market comes in where those who subscribe to the initial public

offering (IPO) takes on the shares of stock sold from point of IPO. When those who

bought into a company at IPO point of view decides to sell their shares of stock to other

people, they can do so by going to the stock market.

The stock market is a secondary market for securities trading wherein original or

secondary holders of a company’s shares of stock can sell their stocks to other individuals

within the frame work of the stock market system.

The stock market has buyers of stocks or those who wants to own a part of the company

but wasn’t able to do so during the initial public offerings made by the company to the

public when it has decided to list itself as a publicly listed company. The secondary

market or the stock market allows other individuals to sell shares of the company when

the initial shareholders may have realized that they want to sell their shares after gaining

either significant profit or realized significant loss from point of acquiring a company

from its IPO price.

The Major Stock Exchange of India


1. NSE(National Stock Exchange)

2. BSE(Bombay Stock Exchange)

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
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2009-10

Functions of Stock Exchange (Secondary Market):-

Stock Exchanges discharge three vital functions in the orderly growth of capital formation

1. Nexus between savings and investments.

2. Market place

3. Continuous price formation

Nexus between savings and investments: - The savings of the community are mobilized

and channeled by stock exchanges for investment in to those sectors which are favoured

by the community at large, on the basis of such criteria as good return appreciation of

capital, and so on.

Market place: - the second important function discharged by stock exchanges is that they

provide a market place for the purchase and sell of securities, thereby enabling their free

transferability through several successive stages from the original subscriber to the never

ending stream of buyers.

Continuous price formation: - The third major function, closely related to the second

discharged by the stock exchanges is process of continuous price formation. The collective

judgment of many people operating simultaneously in the market, resulting in the

emergence of large no. of buyers and sellers at any point of time, has the effect of bringing

about changes in the levels of security prices in small graduations, there by evening out

wide swings in price.

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10

3. DEMAT ACCOUNT
Demat refers to a dematerialized 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 name of 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

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10
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.

Is a demat account a must? Nowadays, practically all trades have to be settled in

dematerialized form. Although the market regulator, the Securities and Exchange Board

of India (SEBI), has allowed trades of up to 500 shares to be settled in physical form,

nobody wants physical shares any more.

So a demat account is a must for trading and investing.

PAN CARD:-

Permanent Account Number (PAN) is a national identification number, issued to all

taxpayers of India whose income is taxable. This number is issued by the Income Tax

Office.

This number is required for many activities such as opening an account, getting a phone

line, receiving salary or professional fees. The primary purpose of PAN is to prevent tax

evasion by keeping a track of monetary transactions. The PAN is unique, national, and

permanent. It is unaffected by a change of address, even between states.

This number can be considered to be similar to Social security number issued in United

States to citizens and other legal residents.

Structure and validation

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10
• PAN structure is as follows: AAAAA9999A: First five characters are letters, next 4

numerals, last character letter

• Each deductee is uniquely identified by the PAN

• If the PAN does not follow the above structure, then the PAN will be shown invalid

• The fourth character of the PAN must be one of the following, depending on the type of

assessee:

C — Company

P — Person

H — Hindu Undivided Family (HUF)

F — Firm

A — Association of Persons (AOP)

T — AOP (Trust)

B — Body of Individuals (BOI)

L — Local Authority

J — Artificial Juridical Person

G — Government

• The fifth character of the PAN is the first character in the surname of the person to whom

the PAN belongs.

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
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2009-10
Permanent Account Number is an identity document/number which can also be issued to

non-taxpayers.

3. BROKER:-

Who is a Stock Broker?

A stock broker is a person or entity, which is a member of a stock exchange. A stock

broker acts as a facilitator to carry out transactions of investors on a stock exchange.

Thus if you want to buy say 100 shares of a company XYZ (which is listed on say

National Stock Exchange) in the secondary securities market, he would have to go

through a stock broker registered in NSE to carry out his transactions on National

Stock exchange.

Whether stock brokers are governed by any Rules and Regulations?

Stock brokers are governed by SEBI Act, 1992, Securities Contracts (Regulation) Act,

1956, Securities and Exchange Board of India [SEBI (Stock brokers and Sub brokers)

Rules and Regulations, 1992], Rules, Regulations and Bye laws of stock exchange of

which he is a member as well as various directives of SEBI and stock exchange issued

from time to time.

What are the documents to be signed with stock broker?

Before start of trading with a stock broker, you are required to furnish your details

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
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2009-10
such as name, address, proof of address, etc. and execute a broker client agreement.

You are also entitled to a document called Risk Disclosure Document, which would

give you a fair idea about the risks associated with securities market. Please go

through all these documents carefully.

What to check while registering with a stock broker?

Every stock broker is required to be a member of a stock exchange as well as

registered with SEBI. Examine the SEBI registration number and other relevant details

can be found out from the registration certificate issued by SEBI.

TRANSFORMATION PROCESS:-

Why should you invest?

Simply put, you should invest so that your money grows and shields you against rising

inflation. The rate of return on investments should be greater than the rate of inflation,

leaving you with a nice surplus over a period of time. Whether your money is invested in

stocks, bonds, mutual funds or certificates of deposit (CD), the end result is to create

wealth for retirement, marriage, college fees, vacations, better standard of living or to just

pass on the money to the next generation or maybe have some fun in your life and do

things you had always dreamed of doing with a little extra cash in your pocket. Also, it's

exciting to review your investment returns and to see how they are accumulating at a

faster rate than your salary.

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10
When to Invest?

The sooner the better. By investing into the market right away you allow your

investments more time to grow, whereby the concept of compounding interest swells

your income by accumulating your earnings and dividends. Considering the

unpredictability of the markets, research and history indicates these three golden rules for

all investors

1. Invest early

2. Invest regularly

3. Invest for long term and not short term.

While it’s tempting to wait for the “best time” to invest, especially in a rising market,

remember that the risk of waiting may be much greater than the potential rewards of

participating. Trust in the power of compounding. Compounding is growth via

reinvestment of returns earned on your savings. Compounding has a snowballing effect

because you earn income not only on the original investment but also on the reinvestment

of dividend/interest accumulated over the years. The power of compounding is one of the

most compelling reasons for investing as soon as possible. The earlier you start investing

and continue to do so consistently the more money you will make. The longer you leave

your money invested and the higher the interest rates, the faster your money will grow.

That's why stocks are the best long-term investment tool. The general upward

JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167


STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10
momentum of the economy mitigates the stock market volatility and the risk of losses.

That’s the reasoning behind investing for long term rather than short term.

How much to invest?

There is no statutory amount that an investor needs to invest in order to generate adequate

returns from his savings. The amount that you invest will eventually depend on factors such as:

1 Your risk profile 2. Your Time horizon 3. Savings made

Remember that no amount is too small to make a beginning. Whatever amount of money you

can spare to begin with is good enough. You can keep increasing the amount you invest over

a period of time as you keep growing in confidence and understanding of the investment

options available and So instead of just dreaming about those wads of money do something

concrete about it and start investing soon as you can with whatever amount of money you can

spare.

STEPS FOR INVESTMENT IN SHARE MARKET:-

1. Open a broking account with a registered stock broker. You can also open an internet

trading account and start trading by click of a mouse. A large number of brokers such as

ICICI Web-trade, Motilal Oswal Securities, and Geojit Securities etc. are offering e-

broking services.

2. Submit your details and sign the broker client agreement with your broker. This is

mandatory.

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10
3. Open a Demat account with any of the Depository participants registered with NSDL or

CDSL. If your broker is also a DP, you can open the DP account with him also. Sign the

relevant papers and execute agreement

4. Don't deal with unregistered intermediaries, as this would expose you to counter party

risk and may lead to losses without any stock exchange recourse for remedy.

5. Give clear and unambiguous instructions to your Broker / Sub-broker.

6. Keep a record of all instructions issued to the Broker / Sub-broker.

7. Insist on a contract note issued for each day of trading and confirm the details printed

therein about your transactions for the day.

8. Don't fall prey to promises of unrealistic high returns. It is easy to lose money that way.

Don't indulge in speculative trading, go by fundamentals of accompany and invest for

medium to long term.

9. Trade within your predetermined limits and financial capacity.

10. Promptly issue delivery instructions to your DP for transferring the shares sold by you to

your broker's account. Failure to do so may result in huge losses for you.

11. Use the Investors' Grievance Redressal system of the stock exchanges and Depository to

redress your grievances if any.

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
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How to invest in mutual funds?

Mutual funds normally come out with an advertisement in newspapers publishing the date

of launch of the new schemes. Investors can also contact the agents and distributors of

mutual funds who are spread all over the country for necessary information and application

forms. Forms can be deposited with mutual funds through the agents and distributors who

provide such services. Now a days, the post offices and banks also distribute the units of

mutual funds. However, the investors may please note that the mutual funds schemes being

marketed by banks and post offices should not be taken as their own schemes and no

assurance of returns is given by them. The only role of banks and post offices is to help in

distribution of mutual funds schemes to the investors.

Investors should not be carried away by commission/gifts given by agents/distributors for

investing in a particular scheme. On the other hand they must consider the track record of the

mutual fund and should take objective decisions.

Non-Resident Indians (NRI) can also invest in mutual funds. Normally, necessary details

in this respect are given in the offer documents of the schemes.

MUTUAL FUNDS PERFORMANCE

The performance of a Mutual Fund is reflected in its net asset value (NAV) which is

disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-

ended schemes. The NAVs of mutual funds are required to be published in newspapers.

The NAVs are also available on the web sites of mutual funds. All mutual funds are also

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
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2009-10
required to put their NAVs on the web site of Association of Mutual Funds in India

(AMFI) and thus the investors can access NAVs of all mutual funds at one place

Securities and Exchange Board Of India (SEBI):-

SEBI is the regulatory authority of Capital Market. It plays a vital role in the

Transformation process of Investment into various securities. It regulates the whole

Capital Market and directs the Companies as well as investors and brokers.

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, statutory and autonomous regulatory boards 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.

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
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Since its inception SEBI has been working targeting 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 sub-brokers,

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.

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.

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STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10

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.

Derivatives have been accorded the status of `Securities'. The ban imposed on trading in

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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.

Any company or a listed company making a public issue or a rights issue of value of

more than Rs 50 lakhs is required to file a draft offer document with SEBI for its

observations. The company can proceed further only after getting observations from

SEBI. The company has to open its issue within three months from the date of SEBI's

observation letter.

Through public issues, SEBI has laid down eligibility norms for entities accessing the

primary market. The entry norms are only for companies making a public issue (IPO or

FPO) and

12 Basic Stock Investing Rules Every Successful Investor Should Follow

There are many important things you need to know to trade and invest successfully in the

stock market or any other market. 12 of the most important things that I can share with

you based on many years of trading experience are enumerated below.

1. Buy low-sell high. As simple as this concept appears to be, the vast majority of

investors do the exact opposite. Your ability to consistently buy low and sell high, will

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determine the success, or failure, of your investments. Your rate of return is determined

100% by when you enter the stock market.

2. The stock market is always right and price is the only reality in trading. If you want to

make money in any market, you need to mirror what the market is doing. If the market is

going down and you are long, the market is right and you are wrong. If the stock market

is going up and you are short, the market is right and you are wrong.

Other things being equal, the longer you stay right with the stock market, the more

money you will make. The longer you stay wrong with the stock market, the more money

you will lose.

3. Every market or stock that goes up will go down and most markets or stocks that have

gone down will go up. The more extreme the move up or down, the more extreme the

movement in the opposite direction once the trend changes. This is also known as "the

trend always changes rule."

4. If you are looking for "reasons" that stocks or markets make large directional moves,

you will probably never know for certain. Since we are dealing with perception of

markets-not necessarily reality, you are wasting your time looking for the many reasons

markets move.

A huge mistake most investors make is assuming that stock markets are rational or that

they are capable of ascertaining why markets do anything. To make a profit trading, it is

only necessary to know that markets are moving - not why they are moving. Stock market

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winners only care about direction and duration, while market losers are obsessed with the

whys.

5. Stock markets generally move in advance of news or supportive fundamentals -

sometimes months in advance. If you wait to invest until it is totally clear to you why a

stock or a market is moving, you have to assume that others have done the same thing

and you may be too late.

You need to get positioned before the largest directional trend move takes place. The

market reaction to good or bad news in a bull market will be positive more often than not.

The market reaction to good or bad news in a bear market will be negative more often

than not.

6. The trend is your friend. Since the trend is the basis of all profit, we need long term

trends to make sizeable money. The key is to know when to get aboard a trend and stick

with it for a long period of time to maximize profits. Contrary to the short term

perspective of most investors today, all the big money is made by catching large market

moves - not by day trading or short term stock investing.

7. You must let your profits run and cut your losses quickly if you are to have any chance

of being successful. Trading discipline is not a sufficient condition to make money in the

markets, but it is a necessary condition. If you do not practice highly disciplined trading,

you will not make money over the long term. This is a stock trading “system” in itself.

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8. The Efficient Market Hypothesis is fallacious and is actually a derivative of the perfect

competition model of capitalism. The Efficient Market Hypothesis at root shares many of

the same false premises as the perfect competition paradigm as described by a well

known economist.

The perfect competition model is not based on anything that exists on this earth.

Consistently profitable professional traders simply have better information - and they act

on it. Most non-professionals trade strictly on emotion, and lose much more money than

they earn.

The combination of superior information for some investors and the usual panic as losses

mount caused by buying high and selling low for others, creates inefficient markets.

9. Traditional technical and fundamental analysis alone may not enable you to

consistently make money in the markets. Successful market timing is possible but not

with the tools of analysis that most people employ.

If you eliminate optimization, data mining, subjectivism, and other such statistical tricks

and data manipulation, most trading ideas are losers.

10. Never trust the advice and/or ideas of trading software vendors, stock trading system

sellers, market commentators, financial analysts, brokers, newsletter publishers, trading

authors, etc., unless they trade their own money and have traded successfully for years.

Note those that have traded successfully over very long periods of time are very few in

number. Keep in mind that Wall Street and other financial firms make money by selling

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you something - not instilling wisdom in you. You should make your own trading

decisions based on a rational analysis of all the facts.

11. The worst thing an investor can do is take a large loss on their position or portfolio.

Market timing can help avert this much too common experience.

You can avoid making that huge mistake by avoiding buying things when they are high.

It should be obvious that you should only buy when stocks are low and only sell when

stocks are high.

Since your starting point is critical in determining your total return, if you buy low, your

long term investment results are irrefutably better than someone that bought high.

12. The most successful investing methods should take most individuals no more than

four or five hours per week and, for the majority of us, only one or two hours per week

with little to no stress involved.

It is the total transformation process of share trading and the investors should follow all

these guidelines for better returns in share market.

OUTPUTS:-

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After the Transformation process of various inputs, we get the various type of securities

certificate. And funds. Through the proper investment we can get the profit. It is the

process of proper allocation of money according to investor’s point of view. According to

the point of view, it is the proper way of long term financing (fund raising).

There are following output which we can get after the transformation of various inputs.

1. Certificate of various securities:-


Shares:-

Shares represent ownership of a company. When an individual buys shares in your

company, they become one of the owners of the company. Shareholders choose who runs

a company and are involved in making key decisions, such as whether a business should

be sold.

While shares are most obviously associated with the stock market, the majority of small

businesses don't go near a stock market in their lifetime. They are more likely to issue

shares in their company in return for a lump sum investment. This may either be from

friends and family or, for businesses that are looking for capital to fund high growth,

through formal equity funding finance.

Formal equity finance is available through:

• Business Angel Investors

• Venture Capital Firms

• Stock Markets

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These investors are willing to put up capital for a share in a growth business. The

advantage of raising money in this way is that you don't have to pay the money back or

pay interest to the investors. Instead, shareholders are entitled to a share of the

distributable profits of the company, known as dividends.

Paying dividends and paying tax

At the end of a calendar year, a company's board decides whether the business has done

well enough to pay shareholders a dividend. A dividend is a part of the company's profits

that is given to shareholders. In larger companies, it is common for an interim dividend to

be paid at the half-year point. The dividend is calculated per share, so the more shares

you own, the more money you get. Dividends attract income tax, but not National

Insurance.

Many company share schemes allow employee shareholders to reinvest dividends in

further shares called dividend shares. A maximum of £1,500 in dividends can be

reinvested in this way each year. If an employee holds these shares for three years, they

pay no income tax on them. If not, the dividend used to pay for the shares becomes

taxable.

Debenture:-

A debenture is defined as a certificate of agreement of loans which is given under the

company's stamp and carries an undertaking that the debenture holder will get a fixed

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return (fixed on the basis of interest rates) and the principal amount whenever the

debenture matures.

In finance, a debenture is a long-term debt instrument used by governments and large

companies to obtain funds. It is defined as "a debt secured only by the debtor’s earning

power, not by a lien on any specific asset."[1] It is similar to a bond except the

securitization conditions are different. A debenture is usually unsecured in the sense that

there are no liens or pledges on specific assets. It is, however, secured by all properties

not otherwise pledged. In the case of bankruptcy, debenture holders are considered

general creditors. The advantage of debentures to the issuer is they leave specific assets

burden free, and thereby leave them open for subsequent financing. Debentures are

generally freely transferable by the debenture holder. Debenture holders have no voting

rights and the interest given to them is a charge against profit.

Types:-

There are two types of debentures:

1. Convertible Debentures, which can be converted into equity shares of the issuing

company after a predetermined period of time.

2. Non-Convertible Debentures, which cannot be converted into equity shares of the

liable company. They usually carry higher interest rates than the convertible ones.

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Shares of stock in the issuing company, usually at some pre-announced ratio. It is a

hybrid security with debt- and equity-like features. Although it typically has a low

coupon rate, the holder is compensated with the ability to convert the bond to common

stock, usually at a substantial discount to the stock's market value.

From the issuer's perspective, the key benefit of raising money by selling convertible

bonds is a reduced cash interest payment. However, in exchange for the benefit of

reduced interest payments, the value of shareholder's equity is reduced due to the stock

dilution expected when bondholders convert their bonds into new shares.

The convertible bond markets in the United States and Japan are of primary global

importance. These two domestic markets are the largest in terms of market capitalisation.

Other domestic convertible bond markets are often illiquid, and pricing is frequently non-

standardised.

Mutual Fund:-

Mutual Fund is a investment company that pools money from shareholders and invests in

a variety of securities, such as stocks, bonds and money market instruments. Most open-

end mutual funds stand ready to buy back (redeem) its shares at their current net asset

value, which depends on the total market value of the fund's investment portfolio at the

time of redemption. Most open-end mutual funds continuously offer new shares to

investors.

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In Simple Words, Mutual fund is a mechanism for pooling the resources by issuing units

to the investors and investing funds in securities in accordance with objectives as

disclosed in offer

Short, a mutual fund is a common pool of money in to which investors with common

investment objective place their contributions that are to be invested in accordance with

the stated investment objective of the scheme. The investment manager would invest the

money collected from the investor in to assets that are defined/ permitted by the stated

objective of the scheme. For example, an equity fund would invest equity and equity

related instruments and a debt fund would invest in bonds, debentures, gilts etc . Mutual

Fund is a suitable investment for the common man as it offers an opportunity to invest in

a diversified, professionally managed basket of securities at a relatively low cost.

Types of Mutual Funds:-

Schemes according to Maturity Period:

A mutual fund scheme can be classified into open-ended scheme or close-ended scheme

depending on its maturity period.

Open-ended Fund

An open-ended Mutual fund is one that is available for subscription and repurchase on a

continuous basis. These Funds do not have a fixed maturity period. Investors can

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conveniently buy and sell units at Net Asset Value (NAV) related prices which are

declared on a daily basis. The key feature of open-end schemes is liquidity.

Close-ended Fund

A close-ended Mutual fund has a stipulated maturity period e.g. 5-7 years. The fund is

open for subscription only during a specified period at the time of launch of the scheme.

Investors can invest in the scheme at the time of the initial public issue and thereafter

they can buy or sell the units of the scheme on the stock exchanges where the units are

listed.

Fund according to Investment Objective:

A scheme can also be classified as growth fund, income fund, or balanced fund

considering its investment objective. Such schemes may be open-ended or close-ended

schemes as described earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to long-

term. Such schemes normally invest a major part of their corpus in equities. Such funds

have comparatively high risks. These schemes provide different options to the investors

like dividend option, capital appreciation, etc

Income / Debt Oriented Scheme

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The aim of income funds is to provide regular and steady income to investors. Such

schemes generally invest in fixed income securities such as bonds, corporate debentures,

Government securities and money market instruments. Such funds are less risky

compared to equity schemes. These funds are not affected because of fluctuations in

equity markets.

Balanced Fund

The aim of balanced funds is to provide both growth and regular income as such schemes

invest both in equities and fixed income securities in the proportion indicated in their

offer documents. These are appropriate for investors looking for moderate growth. They

generally invest 40-60% in equity and debt instruments. These funds are also affected

because of fluctuations in share prices in the stock markets.

Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity, preservation

of capital and moderate income. These schemes invest exclusively in safer short-term

instruments such as treasury bills, certificates of deposit, commercial paper and inter-

bank call money, government securities, etc.

Gilt Fund

These funds invest exclusively in government securities. Government securities have no

default risk. NAVs of these schemes also fluctuate due to change in interest rates and

other economic factors as is the case with income or debt oriented schemes.

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Index Funds

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index,

S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same

weightage comprising of an index.

1. PROPER ALLOCATION OF MONEY:-


Investor’s point of view:-

It is the prerequisite of investment in the share market that the allocation of capital should

be proper and in the right areas so that the returns should be maximum and there should be

certainty of the returns to the investor .It is the basic function of the capital budgeting and

working capital management that there should be wise and proper allocation of the capital

in the right places and firm so that maximum return should be obtained…

4. FUNDS FOR ORGANISATION:-

Our range of loan facilities will help you finance the medium to long-term needs of your

business. We know how important it is to get the right type of loan and have the money in

place when you need it, and so we aim to be quick and flexible in turning round your

requests. Long term financing provide capital deficit businesses funds for the period over

1 year. It contrasts to short term financing because short term financing provides funds for

the period of 1 year or less

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Whether an established corporation or new business entity it is common that many small

and large companies have some kind of debt throughout the life of their business.

These businesses normally turn to lenders not only to expand their companies or to

purchase equipment, but also to finance operating capital to even out cash flow.

FEEDBACKS OF TRADING IN
CAPITAL MARKET:-
Investor’s point of view:-

(1).Return/Profit

(2).Tax Benefits

(3).Exclusive Right

(4) Ownership of the company/share in profits/interest

Company’s point of view:-

(5).Permanent/Long Term Capital

(6). Risk sharing

(7).commission for the Broker Registered

(8).Economic Growth

1. Return/profit:-

A investor can get a better return and huge profit after investing in capital market. it is

only the process through we get proper return. The main objective of an investor is to

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earn maximum profit from its investment, In economic terms excess of income over

investment is term as profit.

Profit can be earned by allocation of fund efficiently and in right areas. So that the

chances of return is more in investing in share market. And there should be certaininty

of getting return back. always invest in that firm which is well recognized and

established so there will be less risks and no chances of uncertaininty.The firm in

which investors is investing must have goodwill at present and the shares purchased

get the worth of the money invested.

Dividend

Dividends are payments made by companies to their stockholders in order to share a portion of

the profits from a particular quarter or year. The amount that any particular stockholder receives

is dependent upon how many shares of stock they own and how much the total amount being

divided up among the stockholders amounts to. This means that after a particularly profitable

quarter a company might set aside a lump sum to be divided up amongst all of their stockholders,

though each individual share might be worth only a very small amount potentially fractions of a

cent, depending upon the total number of shares issued and the total amount being divided.

Individuals who own large amounts of stock receive much more from the dividends than those

who own only a little, but the total per-share amount is usually the same.

Dividends are paid by companies as a method of sharing their profitable times with the

stockholders that have faith in the company, as well as a way of luring other investors into

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purchasing stock in the company that is paying the dividends. The more a particular company

pays in dividend payments, the more likely it is to sell additional common stock…

Interest:-Interest is paid to the existing debenture holders..There is legal obligation to the

company’s management to pay a certain percentage of interest to the debenture holder.

(2). Tax Benefits:-

The Government of India has introduced schemes for the benefit of tax saving for NRIs and PIOs

by the way of investments. Following are the tax exemptions that NRIs and PIOs can enjoy.

Tax Exemptions from Income Tax

Income from the investments cited below is totally exempted from tax:

• Units of Unit Trust of India (UTI), mutual funds, bonds, securities and saving certificates

(as per the conditions mentioned under the Income-tax laws and regulations).

• Dividends declared by Indian companies.

• Long term capital gains from transfer of equity shares in a company and/or equity

oriented schemes of Mutual funds that are subject to securities transaction tax.

(3).Exclusive Right:-

An equity share holder have the right to claim on the income of a company .they have a

claim on income left after paying dividend to preference share holders. The rate of dividend on

these shares is not fixed. It depends upon the earning available after paying dividend on

preference share holders.

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They also have residual claim on assets on ownership of companies assets in the event of

liquidation of a company the assets are utilized first to meet the claims of creditors and

preference share holders but everything left, there after ,belongs to the equity share holders.

An equity share holders have the voting right in the meetings of a company and have a

control over the working of the company

(4).Ownership of the company/share in profits/interest:-

To Safeguards the interests of equity share holders and enable them to maintain their

proportional ownership, Sec.81 of Companies Act, 1956 provides that whenever a public limited

company proposes to increase it’s subscribed capital by the allotment of further shares, after the

expiry of two years from the formation of the company or expiry of one year from the first

allotment if shares in the company, whichever is earlier, such shares must be offered to holders

of existing equity shares in proportion, as circumstances admit, to the capital paid-up on these

shares.

(5).Permanent/Long Term Capital:-

Through issue of equity shares, the company gets permanent capital which is not returned back

during its life time. Long term s a base for the financial structure of a firm.genreally financial

needs for more than five year are included in long term finance. Long term funds are required to

create production facilities through purchase of fixed assets such as Plant, Machinery, Land,

Building etc…….and for modernization and expansion of the existing facilities.

(6). Risk sharing:-

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Equity share holders bear the risk of company. So it is called risk capital. The equity share

capital is simple and economical source for the company. In the equity share the ownership is

divided in to various owners. so the risk is divided in to various people.

(7).commission for the Broker Registered:-

Brokers can boost their income with production bonuses, profit-sharing plans and trips to Europe

or Hawaii for beating sales goals. A broker who has a very large client list or who does a lot of

business can negotiate to keep a bigger percentage of commissions by switching--or threatening

to switch--firms.

When you buy or sell stocks, you will need a broker. A stock broker charges a fee called a

commission. Here are the equations to calculate the costs and profits or losses of buying and

selling stocks:

you'll pay a commission of 2% to 3%. Typically in the industry, brokers do have discretion to

give customers a break, depending on the size of the account. Of the amount you actually pay,

Edward Jones gives its brokers 40% and keeps 60%. The split is similar with bonds, load mutual

funds and annuities. On average, brokerage firms give their reps 37% of the commission paid by

investors.

Equation:-
Cost of purchase: (stock price)  (number of shares bought) + commissions

Proceeds from selling: (stock price)  (number of shares sold) - commissions

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The difference of the proceeds and costs will tell you if you made or lost money. The

commission can be a percentage of the purchase price or a fixed fee. A discount broker usually

charges $15 to 30 commission per transaction. A full- service broker usually charges $50 to 120

for buying or selling 100 shares of stock. You pay a commission when you buy or sell stocks.

(8).Economic Growth:-

The Economic growth of any nation depends upon the per capita income of the nation. In share

market the foreign investors also invest their money in various firms and organizations in the

form of securities which leads to huge turnover of foreign capital from a country to a country.

Which leads to developments and growth in various sectors? Example External sectors financial

sectors and in domestic capital market. These all investment are in the form of securities of a

country .therefore this cash inflow leads to increase in the foreign exchange treasure.

So the above explanation indicate that the growth of the nation increase with growth of a

company /organization.

Constraints of share trading:-

EFFECT OF INFLATION ON STOCK MARKET:

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Understanding inflation is crucial to investing because inflation can reduce the value of

investment returns. Inflation affects all aspects of the economy, from consumer spending,

business investment, and employment rates, to government programs, tax policies, and interest

rates.

It is because of the inflation that share market has collapsed, it is bound to affect the investors. In

fact, the way the share market was going up was itself creating doubts in the minds of the people

about its real growth. When the market crossed 10,000 points nobody was able to explain the

logic of it. So also when it reached 12,000 points, it remained unexplainable. The happenings in

the share market were certainly a cause of concern. The government ought to have looked into

the factors when the market started rising all of a sudden. However, stocks are still a good hedge

against inflation because, in theory, a company’s revenue and earnings should grow at the same

rate as inflation over the time.

EFFECT OF FLUCTUATIONS IN SHARE PRICE:-

1) Share prices are affected by forces of demand and supply. Demand and supply of stocks

depends on various factors like macroeconomic situation, profitability of the company and its

growth, Good & reputed management, size of the company, growth in particular sector,

Government policies etc

2)Sens*x means sensitivity index. It is index of Bombay stock exchange and is considered as

barometer of Indian economy.Sens*x moves because of movement in prices of its constituent 30

Shares which forms part of sens*x.It has a base year of 1979 with base value of 100. It is

JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167


STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10
calculated on the basis of free float market capitalization. It is the benchmark against which

movement in price of other securities are compared.

3)Majority of trading in stock exchange is done in India in two exchanges i.e. BSE & NSE.Both

these exchanges have there own indices which capture the movement in price of there constituent

securities. For eg Nifty for NSE (Comprises of 50 stocks) and Sens*x for BSE (Comprises of 30

Stocks).Derivative products are also available on these indices. These constituent stocks are

carefully selected to give true indication regarding growth. Factors considered are Market Cap,

Volume, free Float, Industry representation etc.

MARKET NEWS:-

News is a big factor affecting stock price. Negative news decreases the future prospects of the

company and a positive release increase people interest in buying the shares. Some time, there

might be a good news that company price might show small movement. So, the factor that

matters more is news. Always use wait and watch policy in the market, if there is no fixed

reaction about the stock in the market.

News from the side of finance minister also affects the share price as well as on whole stock

market. If the finance minister announces the bailout package or any relaxation to the any

company it leads to the rise in the share price. Same as if he announces any negative statement it

leads to the slowdown in share market.

EARNING PER SHARE:-

JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167


STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10
It is the profit made by the company. This identity is mentioned in every quarter report of the

company as it is most important factor affecting share price and helps in determining company’s

health. EPS affect buying tendency and causes increase in particular stock price. So for profitable

investment, it is always recommended to go through the quarterly reports of the company before

deciding to invest in it and short list the possibilities before actually buying the shares of a

particular company

Inputs:-
(1). Potential investor

(2) Money

(3)New Issue or Stock Constraints of trading:-


Feedbacks Of Trading In Exchange
Capital Market:- (4) Demat Account (1) Effect of inflation

investor’s view:
(2) Fluctuation in share price
(1)return/profit Transformati
(2)tax benefits on Process
(3) Exclusive right (3) Market news
(4) Ownership
Outputs:-
Company’s view: (4) Earning per share
(1) Certificate of Various
(1)permanent capital Securities

(2) Proper allocation of


money
JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167

(3) Funds for Company


STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10
(2)Risk sharing
(3) comm. Broker

National view:

(1)Economic growth

Transformation model

Matrix table

Technical Rating (0-10) Types of Availability Company’s Economic


Attribute securities of offer performance condition

Investor’s
Require-
-ment
Profit/Interest 10
Ownership 8
Security 6

JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167


STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10
Right to 7
income
Claim on 6
Assets

-10 -Most Important


-7 -Moderate Important
-4-Less important
-1-Least Important
MATRIX CALCULATION:-
Profit/interest= (10*10) + (10*7) + (10*10) + (10*4) =310

Ownership= (8*10) + (8*7) + (8*1) + (8*4) =176

Security= (6*7) + (6*1) + (6*10) + (6*10) =168

Right to income= (7*4) + (7*1) + (7*4) + (7*4) =91

Claim on assets= (6*7) + (6*1) + (6*4) + (6*1) = 78

Explanation: -
Profit/ interest: -
Matrix calculation indicates that investors are highly interested toward the profit and return in the

form of in terest.that’s why profit has highest marks.

Profit and interest highly depend upon the types of securities. Because different type of security

have different characteristics. In the equity share there are high risk and better return and in case

of debentures the investors get a certain amount of interest.

JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167


STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10
Avail. Of offer have less impact on the profit because investor can get profit through another

savings schemes.

Profit/interest is most affected by company’s performance. The investor gets the profit according

to the output of the organization.

Economic conditions also affect the profit and interest on an investor. Because at the time of

recession the investor get less return from the investment.

So, finally profit and interest are most important to every investor and it affected by various

factors.

Ownership: -
Ownership got 176 points, which indicate investors give priority to ownership less than profit.

Ownership of the company or any organization highly depends upon the type of securities.

Because only Equity shares provide the ownership of the company. And others have different

criteria.

Availability of offer is less important for the ownership of the company. Because can get through

the acquisition, merger and so on…

For getting the ownership of the company is not so important. Because a person can takeover a

company running in losses and other can takeover a company running in profit.

Company’s performance does not affect the ownership of the organization.

JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167


STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10
Economic condition affects the ownership of the organization. It has moderate effect on owned a

firm.

Security:-
Security has 168 point which indicate that security has moderate priority to the security because
in the investments are more risky.

Types of securities have moderate effect on the security of various securities. Because risk are as
follows:

Equitysahres > Preference Shares > Debentures

Availability of offer has less impact on security

Company’s performance has huge impact on security because it happened in” SATYAM’S
CASE”

Economic condition also affects the security. Because at the time of GLOBAL ECONOMIC
SLOWDOWN the company cannot perform better.

Right to income: -
Right to income has 91 point, which indicates less priority to right to income. Because they are

believe in better return.

Right to analyses the incomes of any company’s not highly depend upon the types of securities.

Because only Equity share holders have the right to income.

Availability of offer has least impact on right to income.

Company’s performance has minor role in right to income .If the company announces faulty

income statement at the time of good performance then shareholders can see the income.

JITENDRA SINGH (MBA-2008-10) BATCH PHONE-+919555229167


STUDY OF CAPITAL MARKET PROBLEMS AND CONSTRAINTS AND TRANSFORMATION
MODEL WITH SPECIAL REFERENCE TO EQUITY (INSTITUTE OF PROFESSIONAL
EXCELLENCE AND MANAGEMENT, GHAZIABAD)
2009-10
Economic condition has also moderate effect on right to income. Because a share holder can ask

for the income if the company try to get benefits of ECONOMIC SLOW DOWN and show a

faulty statement.

Claim on Assets: -
Claim on assets has 78 point, which indicates minimum priority to the Claim on assets because

they are only emphasis on company’s performance.

Types of security have moderate effect on claim on assets. Because the preference order of claim

on security as follows:

Equity shareholders<preference shareholders<debentures holders

Availability of offer has least impact on claim on assets.

Company’s performance also has impact on claim on assets because if the company has come at

the stage of insolvency then investor can claim on assets.

Economic condition has least impact on claim on assets.

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