A STUDY ON

CAPITAL MARKET AND BSE SENSEX

IN

RELIGARE SECURITIES LIMITED

Submitted
In the partial fulfillment for the Award of the Degree of

POST GRADUATE DIPLOMA IN BUSINESS ADMINISTRATION

(HR & FINANCE)
SYMBIOSIS CENTER FOR DISTANCE LEARNING (2006 - 2008)

By
PRASHANTH REDDY PATLOLLA
(200607814)

1
 DECLARATION BY THE LEARNER

I here by declare that the Project Report titled “A STUDY ON CAPITAL

MARKET & BSE SENSEX” is a bonafied work carried out by myself in partial fulfillment
of the POST GRADUATE DIPLOMA IN BUSINESS ADMINISTRATION (HR &
FINANCE) program for SCDL.

The work is original and has not been copied from anywhere else and has not been
submitted to any other University/Institute for an award of any degree/diploma.

2
 Date: _________

CERTIFICATE

This is to certify that the project titled “A STUDY ON CAPITAL MARKET & BSE
SENSEX” at RELIGARE SECURITIES LTD, is the bonofied work done by MR.
PRASHANTH REDDY PATLOLLA bearing a Reg No (200607814) submitted in partial
fulfillment of the requirement of POST GRADUATE DIPLOMA IN BUSINESS
ADMINISTRATION.

VISHNU VARDHAN
(Lecturer in Finance)

3
 CERTIFICATE OF SUERVISOR (GUIDE)

Mr.Y.Vishnuvardan,
M.com, MHRM, MBA.
Associate Professor,
Department of Business Administration
Noble PG. College,
Saroornagar, R.R.District.

Certified that the work incorporated in this Project Report “A STUDY ON CAPITAL
MARKET AND BSE SENSEX” submitted by PRASHANTH REDDY PATLOLLA is his
original work and completed under my supervision. Material or any data obtained from other
sources have been duly acknowledged in the Project Report.

I wish him all the best for future.

Date:
Place: Hyderabad
(Y.VISHNUVARDAN)

4
 ACKNOWLEDGEMENT

I take this opportunity to express my sincere and heart-full thanks to my project guide and Mr.
Y. VISHNUVARDAN who has been source of continuous guidance, support and
encouragement.

I am thankful to Mr.VENKATA BARLA, Investment center (Head) of Religare securities

Ltd., for kindly permitting me to carry out the project work in RELIGARE SECURITIES
LTD. and extending his continued support throughout the project.

I am thankful to Mr. VENKATESH PRASAD BABU, Investment Advisor, RELIGARE

SECURITIES LTD. for his valuable time and guidance, which enabled me to do this project.

I use this opportunity to thank my family & friends who also helped me in completing this
project successfully.

PRASHANTH REDDY PATLOLLA

5
 CONTENTS

S. NO CONTENTS PAGE NO
CHAPTER - I INTRODUCTION 8
RESEARCH METHODOLOGY 9
LIMITATIONS 10

CHAPTER - II COMPANY PROFILE 12-15

CHAPTER - III HISTORY OF CAPITAL MARKET

a) BSE 20-25
b) SEBI GUIDELINES 26-27
c) CAPITAL MARKET 28-49

CHAPTER - IV QUESTIONNAIRE 50-61

CHAPTER - V RECOMMENDATIONS 62-63
CHAPTER - VI SYNOPSIS 64

BIBLIOGRAPHY

6
CHAPTER – I

7
 INTRODUCTION

The aim and objective of the project is to explain the role of capital market and how far it is
useful to a common man in rural India. To achieve the goal of “India 2020”.

 The study is to serve as an educational material for first time investors entering into a
capital market.

 To understand stock market and security analysis and fundamentals.

 To review rise and fall of sensex and identify reasons.

 To forecast future position of capital market in India.

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 RESEARCH METHODOLOGY

Fundamental to the success of any research project is sound research design.

A research design is purely to simplify the work or plan of a study that guides the collection
and analysis of the data.

A good research design has the characteristics analysis, time required for research project and
estimate of expenses to be incurred.

The function of research design is to ensure that the required data are collected accurately and
economically.

The study is based on data collected from two important sources.

1. Primary sources.

2. Secondary sources.
Primary sources include data ascertained from financial expert’s opinions, Broking agent’s
opinions, investor’s opinions etc

Secondary sources basically comprise company’s manuals, Internet, etc…

After the fieldwork as a fore said the data collected from the primary and secondary
sources was consolidated, tabulated, analysis technically and analytically interpreted and
presented in the report.

For the purpose of analyzing the data statistical tools like graphs, tables, and percentage
methods have been adequately utilized.
On the basis of information generated from these historical trend analysis and statistical
projections, conclusions have been drawn and suitable suggestions / recommendations made.

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 LIMITATIONS

The title itself is a big ocean. One can’t forecast the measures of the capital market.

However it can give indicative conclusions, which can be taken for further research in future.

The study covers only fundamentals related to sensex operations. It does not cover the whole
of capital market.

It is possible that some errors might have crept in while collecting data in the preparations of
the report due to following reasons.

• Inadequate of time and Lack of experience in research.

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CHAPTER – II

11
ABOUT RELIGARE

Religare is driven by ethical and dynamic process for wealth creation. Based on this, the
company started its endeavour in the financial market

Religare Enterprises Limited (A Ranbaxy Promoter Group Company) through Religare

Securities Limited, Religare Finvest Limited, Religare Commodities Limited and Religare
Insurance Broking Limited provides integrated financial solutions to its corporate, retail and
wealth management clients. Today, they provide various financial services, which include
Investment Banking, Corporate Finance, Portfolio Management Services, Equity &
Commodity Broking, Insurance and Mutual Funds. Plus, there’s a lot more to come your way

Religare is proud of being a truly professional financial service provider managed by a highly
skilled team, who have proven track record in their respective domains. Religare operations
are managed by more than 3000 highly skilled professionals who subscribe to Religare
philosophy and are spread across its countrywide branches.
Today, they have a growing network of more than 300 branches and more than 580 business
partners spread across more than 300 cities/towns in India and a fully operational international
office at London.

Unlike a traditional broking firm, Religare group works on the philosophy of partnering for
wealth creation. We not only execute trades for our clients but also provide them critical and
timely investment advice. The growing list of financial institutions with which Religare is
empanelled as an approved broker is a reflection of the high-level service standard maintained
by the company.

GROUP COMPANIES

Religare Enterprises Limited group comprises of Religare Securities Limited, Religare

Commodities Limited, Religare Finvest Limited and Religare Insurance Broking Limited,
which deal in equity, commodity and financial services business.

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Religare Securities Limited

RSL is one of the leading broking houses of India and are dealing into Equity Broking,
Depository Services, Portfolio Management Services, Internet Trading, Institutional Equity
Brokerage & Research, Investment Banking, Merchant Banking and Corporate Finance.

To facilitate free and fare trading process Religare is a member of major financial institutions
like, National Stock Exchange of India, Bombay Stock Exchange of India, Depository
Participant with National Securities Depository Limited and Central Depository Services (I)
Limited, and a SEBI approved Portfolio Manager.

RSL serves a platform to all segments of investors to avail the opportunities offered by
investing in Indian equities either on their own or through managed funds in Portfolio
Management.

Religare Commodities Limited

Religare is a member of NCDEX and MCX and provides platform for trading in commodities,
which is an online facility also.

RCL provides platform to both agro and non-agro commodity traders to derive the actual price
of the commodity and also to trade and hedge actively in the growing commodity trading
market in India.

With this realization, Religare Commodities is coming up with its branches at mandi locations.
It is a flagship effort from our team, which would be helpful in facilitating trade and
speculating price of commodities in future.

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Religare Finvest

Religare Finvest Limited (RFL), a Non Banking Finance Company (NBFC) is aggressively
making a name in the financial services arena in India. In a fast paced, constantly changing
dynamic business environment, RFL has delivered the most competitive products and
services.

RFL is primarily engaged in the business of providing finance against securities in the
secondary market. It also provides finance for application in Initial Public Offers to non-retail
clients in the primary market.

RFL is also planning to initiate personal loan portfolio as fund based activity and mutual fund
distribution as fee based activities.

Along with this, the company also undertakes non-fund based advisory operations in the field
of Corporate Financing in the nature of Credit Syndication which includes inter alia, bills
discounting, inter corporate deposit, working capital loan syndication, placement of private
equity and other structured products.

Religare Insurance Broking Ltd.

Religare has been taking care of financial services for long but there was a missing link.
Financial planning is incomplete without protective measure i.e. structured products to take
care of event of things that may go wrong.

Religare Insurance Broking Limited. As composite insurance broker, deals in both insurance
and reinsurance, providing our clients risk transfer solutions on life and non-life sides.

This service will take benefit of Religare’s vast business empire spread throughout the country
providing our valued clients insurance services across India. We aim to have a wide reach
14
with our services – literally! That’s why we are catering the insurance requirements of both
retail and corporate segments with products of all the insurance companies on life and non-life
side.

Still, there is more in store. We also cater individuals with a complete suite of insurance
solutions, both life and general to mitigate risks to life and assets through our existing
network.

For corporate clients, we will be offering value based customized solutions to cover all risks,
which their business is exposed to. Our clients will be supported by an operations team
equipped with the best of technology support.

Religare Insurance Broking aims to provide neutral, transparent and professional risk transfer
advice to become the first choice of India.

MISSION & VISION

Vision
To be India's first Multinational providing complete financial services solution across the
globe.

Mission
Providing integrated financial care driven by the relationship of trust and confidence.

MANAGEMENT PROFILE

Religare team is led by a very eminent Board of Directors who provide policy guidance and
work under the active leadership of its CEO & Managing Director and support of its Central
Guidance Team.

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BOARD OF DIRECTORS

Following is the list of Directors of Religare Securities Limited

Chairman: Mr. Harpal Singh

Managing Director: Mr. Sunil Godwin

Director: Mr. Vinay Kumar Kaul

Director: Mr. Malvinder Mohan Singh

Director: Mr. Shivinder Mohan Singh

16
CHAPTER – III

17
HISTORY OF CAPITAL MARKET IN INDIA

Informal trading in Securities started in 1830 in Mumbai and Kolkata. Trading in the scripts of
East India Company and other 5 companies started in 1850.Bombay Stock Exchange was the
first stock exchange established in 1875. The Swadeshi movement led by Mahatma Gandhi
encouraged the indigenous trading and business class to start industrial enterprises. As a result,
Calcutta (Kolkata) became another major center of share trading in 1904--1908. Existing
enterprises in steel and cotton textiles, woolen textiles, tea and engineering goods expanded
and new ventures were floated. Yet another stock exchange was started at Madras (Chennai)
in 920.Two more Stock Exchanges were set up at Hyderabad in 1943 and at Delhi 1947.At the
time of independence seven stock exchanges were functioning located in the major cities of
the country. Between 1946—1990, 12 more exchanges were set up trading the shares of 4843
additional listed companies.

By 1992, the number of stock exchanges had increased to 21 and listed companies to over
6500. In the beginning of 21st century India have 23 stock exchanges. The Technology is
making the Regional Stock Exchanges irrelevant. Scope only for two Stock Exchanges, N S E
and B S E .In the year 2004 NSE, BSE, covered 99% of total trading –turnover of India.

Introduction to capital market:

“AN EDUCATED INVESTOR IS A SMART INVESTOR”

The concept of capital market is in a way 127 years old. Capital market was known as “share
bazaar” it was also treated as a “satta bazaar” starting of capital market concept in India took
place with the birth of Bombay Stock Exchange.
A securities contract (Regulation) Act of 1956 of India was first major step to recognize
capital market. Bombay Stock Exchange got first recognition in 1956 under this act.
Bombay Stock Exchange, which was the major stock Exchange, in way had monopoly in the
Indian capital market till the birth of National Stock Exchange. Bombay Stock Exchange
celebrated its 125th jubilee year in the year 2000. The capital market, the Stock Exchange, the

18
Equity concept was baby till 1960. And the concept of mutual fund was introduced by the
government with the formation of Unit Trust of India in 1963-64.
Capital market in India is a new development compared to the western world. India was
known as under developed country from the viewpoint of economic and industrial growth.
After getting freedom in 1947, India started thinking about planned development in 1948. The
first industrial policy development statement was made on April 6th 1948.

The concept of capital market is directly linked with industrial development of country. It is
also treated as barometer of economic growth. Industrial development started in India in 19th
century, there were very few entrepreneurs known as Tatas, Birlas, etc. who started industries
in their own country i.e. India. In the 20 th century first quarter, this group started big industries
in major metropolitan cities.

Stock exchanges have a very important function to fulfill in the county’s economy. Its main
function is to liquefy capital by enabling a person who has invested money in.
The stock exchange is really an essential pillar of the private sector corporate economy.
The stock exchange provides a market place for purchase and sale of securities i.e. shares,
bonds, debentures, etc.,

The stock exchange provides the linkage between the saving in the household sector and the
investment in corporate economy.

By providing a market quotation of the prices of shares and bonds a sort of collective
judgment simultaneously reached by many buyers and sellers in the market. The stock
exchanges serve the role of barometer, not only the state of health of individual companies,
but also of the nation’s economy as a whole.

Another important function that the stock exchanges in India discharge is of providing market
for gilt-edged securities i.e. securities issued by the government sectors, municipalities,
improvement trusts, and other public bodies.

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There are 23 stock exchanges in India, the first being the Bombay Stock Exchange (BSE),
which began formal trading in 1875, making it one of the oldest in Asia. Over the last few
years, there has been a rapid change in the Indian securities market, especially in the
secondary market. Advanced technology and online-based transactions have modernized the
stock exchanges. In terms of the number of companies listed and total market capitalization,
the Indian equity market is considered large relative to the country’s stage of economic
development. The number of listed companies increased from 5,968 in March 1990 to about
10,000 by May 1998 and market capitalization has grown almost 11 times during the same
period. The debt market, however, is almost nonexistent in India even though there has been a
large volume of Government bonds traded. Banks and financial institutions have been holding
a substantial part of these bonds as statutory liquidity requirement. The portfolio restrictions
on financial institutions’ statutory liquidity requirement are still in place. A primary auction
market for Government securities has been created and a primary dealer system was
introduced in 1995. There are six authorized primary dealers. Currently, there are 31 mutual
funds, out of which 21 are in the private sector. Mutual funds were opened to the private
sector in 1992. Earlier, in 1987, banks were allowed to enter this business, breaking the
monopoly of the Unit Trust of India (UTI), which maintains a dominant position. Before 1992,
many factors obstructed the expansion of equity trading. Fresh capital issues were controlled
through the Capital Issues Control Act. Trading practices were not transparent, and there was
a large amount of insider trading. Recognizing the importance of increasing investor
protection, several measures were enacted to improve the fairness of the capital market. The
Securities and Exchange Board of India (SEBI) was established in 1988. Despite the rules it
set, problems continued to exist, including those relating to disclosure criteria, lack of broker
capital adequacy, and poor regulation of merchant bankers and underwriters.

There have been significant reforms in the regulation of the securities market since 1992 in
conjunction with overall economic and financial reforms. In 1992, the SEBI Act was enacted
giving SEBI statutory status as an apex regulatory body. And a series of reforms was
introduced to improve investor protection, automation of stock trading, integration of national
markets, and efficiency of market operations. India has seen a tremendous change in the
secondary market for equity. Its equity market will most likely be comparable with the world’s
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most advanced secondary markets within a year or two. The key ingredients that underlie
market quality in India’s equity market are:
• Exchanges based on open electronic limit order book;
• Nationwide integrated market with a large number of informed Traders and fluency of
short or long positions; and
• No counter party risk.

Among the processes that have already started and are soon to be fully implemented are
electronic settlement trades and exchange-traded derivatives before 1995, markets in India
used open outcry, a trading process in which traders shouted and hand signaled from within a
pit. One major policy initiated by SEBI from 1993 involved the shift of all exchanges to
screen-based trading, motivated primarily by the need for greater transparency. The first
exchange to be based on an open electronic limit order book was the National Stock Exchange
(NSE), which started trading debt instruments in June 1994 and equity in November 1994. In
March 1995, BSE shifted from open outcry to a limit order book market. Currently, 17 of
India’s stock exchanges have adopted open electronic limit order. Before 1994, India’s stock
markets were dominated by BSE in other parts of the country.

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 BOMBAY STOCK EXCHANGE

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritage.
Popularly known as "BSE", it was established as "The Native Share & Stock Brokers
Association" in 1875. It is the first stock exchange in the country to obtain permanent
recognition in 1956 from the Government of India under the Securities Contracts (Regulation)
Act, 1956.The Exchange's pivotal and pre-eminent role in the development of the Indian
capital market is widely recognized and its index, SENSEX, is tracked worldwide. Earlier an
Association of Persons (AOP) The Exchange is professionally managed under the overall
direction of the Board of Directors. The Board comprises eminent professionals,
representatives of Trading Members and the Managing Director of the Exchange. The Board
is inclusive and is designed to benefit from the participation of market intermediaries. In terms
of organization structure, the Board formulates larger policy issues and exercises over-all
control. The committees constituted by the Board are broad-based. The day-to-day operations
of the Exchange are managed by the Managing Director and a management team of
professionals. The Exchange has a nation-wide reach with a presence in 417 cities and towns
of India. The systems and processes of the Exchange are designed to safeguard market
integrity and enhance transparency in operations. During the year 2004-2005, the trading
volumes on the Exchange showed robust growth. The Exchange provides an efficient and
22
transparent market for trading in equity, debt instruments and derivatives. The BSE's On Line
Trading System (BOLT) is a proprietary system of the Exchange and is BS 7799-2-2002
certified.

The Bombay Stock Exchange Limited (formerly, The Stock Exchange, Mumbai; popularly
called The Bombay Stock Exchange, or BSE) is located at Dalal Street, Mumbai. Established
in 1875, it is the oldest stock exchange in Asia. There are around 3,500 Indian companies
listed with the stock exchange, and has a significant trading volume. As of July 2005, the
market capitalization of the BSE was about Rs. 20 trillion (US $ 466 billion). The BSE
SENSEX (Sensitive index), also called the BSE 30, is a widely used market index in India and
Asia. As of 2005, it is among the 5 biggest stock exchanges in the world in terms of
transactions volume. Along with the NSE, the companies listed on the BSE have a combined
market capitalization of US$ 125.5 billion.

BASICS OF CAPITAL MARKET

Stocks are not only for the brilliant

Stocks are far from being rocket science. The strategies you need to know to maximize your
wealth and the pitfalls you need to avoid are not beyond comprehension. Even if you feel that
you don't have the time, and prefer to entrust your money to a portfolio manager or mutual
fund, the least you need to know is which funds are better, how to choose your fund manager,
and keep a tab on his performance .When you invest in stocks, you do not invest in the market.
You invest in the equity shares in a company. That makes you a shareholder or part owner in
the company. Since you own part of the assets of the company, you are entitled to the profits
those assets generate, or bear the loss. So, if you own 100 shares of Gujarat Ambuja Cement,
for example, you own a very small part -- since Gujarat Ambuja has millions of shares -- of
the company. You own a share of its assets, its liabilities, its profits, its losses, and so on.
Owning shares, therefore, means having a share of a business without the headache of
managing it.
Your Gujarat Ambuja shares, for instance, will rise in value if the company makes
good profits, or may do badly if people stop building houses and demand for cement falls.

23
Procedure of buying a share
Shares are bought and sold on the stock exchanges -- the two main ones in India are the
National Stock Exchange (NSE), and the Bombay Stock Exchange (BSE).
You can use three different routes to buy shares: Through your broker, trade directly online, or
buy shares when a company comes out with a fresh issue of shares. This is called an initial
public offering (IPO).

MEANING OF SENSEX

It is the benchmark index for the Indian stock market. It is the most frequently used indictor
while reporting on the state of the market.
The index has just one job: To capture the price movement. So a stock index will reflect the
price movements of shares while a bond index captures the manner in which bond prices go
up or down.
If the Sensex rises, it indicates the market is doing well. Since stocks are supposed to reflect
what companies expect to earn in the future, a rising index indicates investors expect better
earnings from companies.
It is, therefore, also a measure of the state of the Indian economy. If Indian companies are
expected to do well, obviously the economy should do well too.
In case you are wondering why a stock market index has a provocative term like Sensex, let
me tell you it stands for something quite mundane -- The Bombay Stock Exchange Sensitive
Index.

Sensex is made of

Thirty stocks, Just 30 stocks tell you how the market is faring.
Before you throw up your hands in protest, there is something you should know about these 30
stocks.

For one, they are the most actively traded stocks in the market. In fact, they account for half
the BSE's market capitalization
Besides, they represent 13 sectors of the economy and are leaders in their respective
industries.
24
 The 30 stocks and selection procedure

These 30 stocks are selected by the Index Committee.

This committee consists of all sorts of individuals including academicians, mutual fund
managers, finance journalists, independent governing board members and other participants in
the financial markets.
They don't do it on the basis of their individual whims and fancies. Some of the criteria they
follow include:
The stock should have been traded on each and every trading day (the days on which the stock
market works) for the past one year.
It should be among the top 150 companies listed by average number of trades (buying or
selling of shares) and the average value of the trades (in actual rupee terms) per day over the
past one year.

BSE 30 Scrips at BSE

25
 Scrip Name LTP L.T. Vol N. Chg % Chg P. Close
ACC 830.50 8 13.40 1.64 817.10
BHEL 2485.00 5 -8.90 -0.36 2493.90
BAJAJ AUTO 2436.50 0 -7.85 -0.32 2444.35
CASTROL INDI 261.50 0 16.50 6.73 245.00
CIPLA LTD 253.00 455 13.70 5.73 239.30
COLGATE 345.10 0 5.95 1.75 339.15
GUJ AMBU CEM 120.60 100 1.25 1.05 119.35
GLAXO 1224.95 0 46.10 3.91 1178.85
GRASIM IND 2500.00 0 119.70 5.03 2380.30
HIND ALUM 149.75 25 1.15 0.77 148.60
HCL TECHNOLOGIES 331.90 980 -3.25 -0.97 335.15
HDFC 1745.50 50 35.30 2.06 1710.20
HIND LEVER 211.90 0 4.75 2.29 207.15
HIND PETRO 261.95 0 1.90 0.73 260.05
HERO HONDA 687.05 0 26.00 3.93 661.05
ICICI BANK 966.00 5 15.75 1.66 950.25
INFOSYS TEC 2020.00 10 -38.15 -1.85 2058.15
ITC 161.50 151 5.05 3.23 156.45
MTNL 149.75 50 -2.60 -1.71 152.35
NESTLE INDIA 1001.20 0 15.40 1.56 985.80
RANBAXY LAB 369.85 100 20.70 5.93 349.15
DR REDDY 720.00 0 6.10 0.85 713.90
B S E S LTD 523.50 0 -1.65 -0.31 525.15
RELIANCE 1598.00 1 17.55 1.11 1580.45
SATYAM COMP 467.00 1 -7.95 -1.67 474.95
S B I(NEW) 1135.90 10 3.00 0.26 1132.90
TATA ENG 762.00 24 19.10 2.57 742.90
TATA STEEL 571.50 82 -7.60 -1.31 579.10
ZEE TELEFILM 286.60 2 -8.80 -2.98 295.40

THE NIFTY

26
The National Stock Exchange has an index called the Nifty (officially called S&P CNX
Nifty). This name can be credited to the 50 stocks that comprise its index. In case you are
shaking your head about 50 also being too small a number, these 50 stocks account for around
60 percent of the market capitalization. If these indices tell us about the market, why do
people talk about sectoral indices? The price of every stock price increases or decreases for
two possible reasons:

1) News about the company, like a product launch, closure of a factory, the government
providing tax or duty exemptions to the sector so more profits expected, a feud among
the company's top bosses, etc. This will be stock specific news.
2) News about the country, like testing a nuclear bomb, a terrorist attack, a budget
announcement, etc. This will be called index news.

The job of an index is mainly to capture the news about the country. This will reflect the
movement of the stock market as a whole. A good index will only capture news that is
common to all stocks in India. This is what the Sensex and the Nifty do.

Why do people buy shares?

The simple answer is because they can make big money out of it.

There's a huge difference between the gains and losses you can make by investing in the stock
market as compared to your returns from bank fixed deposits. In stocks, you can make
unbelievable money. It's not uncommon for people to have doubled their money in the last one
year. On the flip side (there is always one), when the markets crashed in May, many people
lost more than a quarter of their investment. Compare this with your bank fixed deposit. Your
FD will only fetch you around five to six percent per annum, but you can be sure of getting
your money back.

When you put your money in a bank deposit, you loan the money to a bank for a fixed return
(rate of interest) and a fixed tenure (number of months or years). At the end, you get back your
original amount and you are paid interest on the same.
27
When you invest in stocks, you do not invest in the market (despite what you think). You
invest in the equity shares of a company. That makes you a shareholder or part-owner in the
company. The good news is that since you own a part of the assets of the company, you are
entitled to a share in the profits those assets generate. The bad news in that you are also
expected to bear the losses, if any.

Now, if you are a shareholder, there are two ways you can benefit from the profits of the
company. Capital appreciation or dividends

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

The securities and Exchange Board of India was constituted in 1998 under a resolution of the
Government of India. It was later made a statutory body by the Securities and Exchange Board
Act, 1992. According to this Act, SEBI shall consist of a chairman and five other members
appointed by the Central Government.

With the Securities and Exchange Board of India Act coming into effect in1992 some of the
powers and functions exercised by the Central government, in respect of the regulation of the
Stock Exchange were transferred to the SEBI.

OBJECTIVES AND FUNCTIONS OF SEBI :-

1) To protect the interest of investors in securities.
2) Regulating the business in Stock Exchanges and any other securities market.
3) Registering and regulating the working of intermediaries associated with securities
marker as well as working of mutual funds.
4) Prompting and regulating self-regulatory organizations.
5) Prohibiting insider trading in securities.
6) Regulating substantial acquisition of shares and takeover of companies.
7) Performing such functions and exercising such powers under the provisions of Capital
Issues (Control) Act, 1947 and the securities to it by the Central
28
SEBI GUIDELINES FOR PRIMARY SECURITY MARKET
The issues of capital by companies no longer require any consent from any authority either for
making the issue or for pricing it. Efforts have been made to raise the standards of disclosure
in public issues and enhance their transparency. The SEBI has accepted and implemented
almost all the recommendation of male gum committees appointed by it 1994-95 in this
connection. The offer document is now a made public even at the draft stage. Companies
making their first public issue are eligible to do so only if they have three years of dividend
paying track record proceeding on an issue. Those not meeting this requirement can still make
an issue if their projects are opposed by the bankers of Fis with minimum 10% participation in
the equity capital of issue, or if their securities are listed on the OTCEI (over the counter
exchanges of India). For issues above Rs. 100 crores, book building requirement has been
introduced.

The pricing of preference share allotment has to be at market related levels, and there is a five
years locking period for such allotments.
Incase of proportionate allotment scheme, a minimum of 50% of the net offer to the public is
to be reserved to the individual investors applying for securities not exceeding 1000 securities,
and the remaining part can be allotted to application for more than 1000 securities.
Initially, the underwriting of issues to public was made mandatory, but now this stipulation
has been removed during 1995-96, the SEBI granted registration to four underwriters,
bringing their total number to 40.
Bankers to an issue and portfolio managers have to be registered with the SEBI. There were
77 bankers to issue over those registered as of 31, March 1996. Similarly, there were 13
registered and 100 permitted portfolio managers at the end of March 1996.

SEBI GUIDELINES TO SECONDARY MARKET : STOCK XCHANGE

29
1. Board of Directors of Stock Exchange has to be reconstituted so as include non-
members, public representatives, and government representatives to the extent of 50%
of total number of members.

2. Capital adequacy norms have been laid down for members of various stock exchanges
depending upon their turnover and other factors.

3. Working hours for all stock exchanges has been fixed to be from 10:00 to 3:30pm.

4. All recognized stock exchanges will have to inform about the transaction within 24
hours.

5. The governing boards and various committees of stock exchanges have been
recognized, restructured and board-based.

6 Inspection of all 22 SES has been carried out to determine, inter alia, the extent of
compliance with the directives of the SEBI.

7 The BSE has been asked to reduce trading period or settlement cycle from 14 to 7
days from B group shares.

8 All the recommendations of the Dave committee for improving the working of the
OTCEI have been accepted.

9 In accordance with the recommendations of G.S. Patel committee, BSE has been
allowed to introduce forward trading only with the prior permission of the SEBI.
Transactions are not allowed to be carried forward for more than 90 days now. The
shares received by financiers funding carry transactions have to be deposited and kept
in the safe custody of the clearing house of the SES OR ITS AUTHORISED AGENT.
10 The brokers are required to ensure segregation of client account and own
account.
30
 11 The capital adequacy norms of 3% for individual brokers and 6% for corporate
brokers introduced.

12 The Sensex has amended their listing agreements such that the issuers now would
require to provide shareholders with cash flow statements in a prescribed format,
along with the complete balance sheet and profit and loss statement.

CAPITAL MARKET
It is a market for long term funds. Its focus is on financing investments in contrast to money
market which is the institutional source of working capital finance. The main participants in
the capital market are mutual funds, insurance organizations, development / public financial
institutions, foreign institutional investors, corporate and individuals. It is regulated by the
SEBI. The capital market has two segments

> Primary market

> Secondary market

Capital Market

Primary Secondary
market market

NEW ISSUE MARKET / PRIMARY MARKET

31
The NIM deals in new securities i.e. securities which were not previously available and are
offered to the investments for the first time. Capital formation occurs in the NIM as it supplies
additional funds to the corporate directly. It does not have any organizational setup in any
particular place and is recognized only by the specialist institutional services that it renders to
the lenders borrowers of capital funds at the time of any particular operation. It performs triple
service function namely

Organization, that is, investigation and analysis and processing of new issue proposals:
1) Underwriting in terms of guarantee that the issue should be sold irrespective of public
response and
2) Distribution of securities to the investors.
PRIMARY MARKET
The companies and government undertakings for new projects and also for expansion,
modernization, addition, and diversification and up gradation, generally refer primary market
to the market of new issues or market for mobilization of resources, Primary market
operations include new issues by new and existing companies, further and right issues to
existing share holders. Public offerings and issue of debt instruments such as debentures,
bonds etc., there is no element of trading in primary market operations and investors apply
through applications and subscribe directly to equity / debt of a company.

The cost of debt being high in India more and more companies have restored to primary
market in order to mobilize resources in the last few years. Raising money from capital market
is cheap for the company and involves a low servicing cost. The investors are benefited by
way of dividends and as capital appreciation. All financial institutions which contribute
underwrite and directly subscribe to the securities, are part of new issue market.

Companies raise funds to finance their projects through various methods. The promoters bring
their own money or borrow from the financial institutions or mobilize capital by issuing
securities. The funds may be raised through issue: Fresh shares at par or premium, preference
shares, debentures or global depository receipts.
The main objectives of a capital issue are given below.
32
 • To promote a new company
• To expand an existing company
• To diversify the production
• To meet the regular working capital requirements
• To capitalize the reserves.

The issuing houses, investment bankers and brokers act as the channel of distribution for the
new issues. They take the responsibility of selling the stocks to the public.

Players in the primary market or new issue market

There are many players in the new issue market and the most important are listed below:

• Merchant bankers / book building lead manager

• Register and transfer agent
• Colleting and coordinating bankers
• Underwriters / broker to the issue
• Advisor to the issue
• Banker to the issue
• Depository
• Depositary participant
• Printers, advertising agencies, mailing agencies etc.
It is through these agencies that a company reaches its prospective investors and as a result of
teamwork, the issue is completed.

RECENT TRENDS
The primary market has witnessed a spectacular in growth in terms of volume over last 5
years. Economies say that liberalization, privatization, foreign private participation,

33
disinvestments in public sector and regulatory charges provided a new impetus to the capital
market.

With the abolition of control over capital issues in 1992 there is no need to take prior approval
of capital issue proposals. Companies are expected to fair, reasonable and honest to the
investing public by proper and adequate disclosures. SEBI has prescribed the prospectus
contents and abridged prospectus requirements, which should be accompanied by each
application form. For regulating the intermediaries, SEBI has registered brokers, merchant
bankers, registrars, underwriters, portfolio managers, bankers to the issues, foreign
institutional investor, mutual funds etc, SEBI introduces stock invest instrument has been
welcomed by investors at large.

ISSUE OF SECURITIES
The allotment of securities offered to the public is done with in 30 days of the closure of
public issue. Incase it is delayed, company is supposed to pay a Simple interest calculated @
15% per annum to the applicants. Any issue of shares or securities can take the following
form:
• Initial public offer-securities being offered for the first time
• Further issue of capital
• Right issue to existing shareholders
• Preferential issue of capital to the employees / directors / shareholders of group
companies.
• Offer under reservation / firm allotments for employees, non resident Indian and
overseas corporate bodies, banks / institutions, merchant bankers, mutual funds,
foreign partner / collaborator, etc

DEVELOPMENTS IN PRIMARY MARKETS

• Public Sector Bonds brought under SEBI preview. Any public sector undertakings
wishing to raise PSU bonds will have to seek the clearance of SEBI

34
• Merchant bankers made more responsible and accountable
• AMBI, RAIN, AMFI etc registered as self-regulatory bodies upon the insistence of
SEBI, association of merchant bankers of India (AMBI) has been registered as a self
regulatory body and is registered under section 25 of the Companies Act. Similarly
Register Association of India, Association Mutual Fund in India, Association of
depository Participant etc have been registered with SEBI as self regulatory
organization.

• SEBI asks merchant bankers and underwriters to honour their underwriting

commitments.

• Public representative / SEBI nominee ton be personally present at the time of

approving the basis of allotment of share or debentures

• Validity period of stock invest instrument has been reduced from 6 months to 4 months

• Number of mandatory collection centers reduced to metropolitan cities and regional

centers

• Proportion allotment allowed incase of over subscribed issues

• Code of conduct for advertisers made applicable

• Debentures trustees brought under SEBI purview

• Introduction of new capital market instrument

• Entry of private and foreign mutual funds

• Due diligence responsibility fixed in merchant bankers

• Book building concept introduced

• Appraisal of project / dividend track record made mandatory for new issues

• Allotment period reduced to 30 days

• Bank account details made compulsory in new issues

• Issues can be floated in demat segment

• Credit rating made compulsory for Debt issues

• Euro issues and GDR issues make attractive

35
 • Concept of sweat equity and employee stock opinion schemes introduced

• Issue if securities in electronic form

• Draft offer documents of public issues to be made public for everybody’s knowledge

RECENT CHANGES

1. Revision of entry for initial public offer

a. For unlisted company, requirement of actual payment of dividend changed to
ability to pay dividend in terms of section 205 of the companies act, 1956.
b. Pre-issue net worth (paid up capital and free reserves minus intangible assets
and revaluation reserves) of not less than Rs. 1crore in three out of the
preceding five years with a minimum net worth to be met during the
immediately two years made compulsory.
c. For infrastructure companies, minimum participation of appraising agency
reduced to 5%

2. Merchant bankers permitted to carry on activities of primary dealers-SEBI has

permitted merchant bankers who are registered with RBI as NFBC for primary and
satellite dealership of government securities.

3. Par value of shares –w.e.f.20th march 1999, companies are allowed to issue shares in
any denomination and not necessarily in Rs 10/- or 100/- denomination. Only
companies whose shares are dematerialized shall be eligible to alter the standard
denomination. The value of shares cannot be less than Rs 1/- or in decimal of Rs 1/- .
Earlier the companies were only permitted to issue the shares in the fixed
denomination of Rs10/- and Rs100/- . The existing companies that have issued shares
at Rs 10/- and Rs 100/- . Stock exchanges have been advised to reflect the
denomination value of the shares as fixed by the company along with the market
quotation.

36
 4. Existing companies can also avail this facility by splitting / consolidating the existing
shares. The current entry norms applicable for par issues will be applicable to all
issues.
5. Introduction of employee stock option / employee stock purchase plan.
6. Vanishing companies – SEBI has started taking action against the companies who
came out with their public offers during the period from 1992-1995 and are not
existence today. Such companies have been identified and SEBI has started initiating
action against its promoters / directors.

RELATIONSHIP BETWEEN NEW ISSUE MARKET AND STOCK EXCHANGE

The industrial securities market is divided into two parts namely

 NIM
 Stock Market
The relationship between these two parts of the market provides an insight into its
organization. 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.
Differences:
The differences between NIM and SE pertain to

 Type of security dealt.

 Nature of financing.
 Organization.

37
BROKARAGE SYSTEM
Stockbrokers

The Indian law defines a stockbroker simply as a member of a recognized stock exchange.
Therefore, a registered stockbroker is a member of at least one of the recognized Indian stock
exchanges.

Stockbrokers are not allowed to buy, sell, or deal in securities, unless they hold a certificate
granted by SEBI. At the end of March 1997, they numbered 8,867. Each stockbroker is subject
to capital adequacy requirements consisting of two components: basic minimum capital and
additional or optional capital related to volume of business.

The basic minimum capital requirement varies from one exchange to another. A SEBI
regulation requires stockbrokers of BSE or NSE to maintain a minimum of Rs500,000 (about
$14,000), which is the largest requirement among the stock exchanges. There is no mandatory
qualification test for stockbrokers and other market participants in India, unlike other countries
such as Japan, United Kingdom, and United States.

Sub brokers

Most stockbrokers in India are still relatively small. They cannot afford to directly cover every
retail investor in a geographically vast country and in such a complex society. Thus, they are
permitted to transact with sub brokers as the latter play an indispensable role in intermediating
between investors and the stock market.

An applicant for a sub broker certificate must be affiliated with a stockbroker of a recognized
stock exchange. A sub broker application may take the form of sole proprietorship,
partnership, or corporation. There are two major issues concerning sub brokers in the Indian
capital market:

38
 1. Majority of sub brokers are not registered with SEBI; and
2. The function of the sub broker is not clearly defined.
No sub broker is supposed to buy, sell, or deal in securities, without a certificate granted by
SEBI.

FOLLOWING ARE TYPES OF BROKERS EXIST IN INDIAN STOCK MARKET

1. Commission Brokers
2. Taravniwalla or Jobber
3. Dealers in non-cleared securities
4. Odd-lot dealers
5. Badliwalla
6. Arbitrageur
7. Security dealer.

DIFFERENCE BETWEEN MONEY MARKET & CAPITAL MARKET

MONEY MARKET

• Market for short term financial assets that are close substitutes of money.
• Maturity period of assets is normally less than a year.
• Market is not well organized.
• Deals are over the counter i.e. on telephone.
• Number of players is very small as accords to this market is regulated.
• Market is completely deregulated and price is fixed on the basis of demand and
supply.
• Central bank namely RBI exercises control on this market.

CAPITAL MARKET
• Market for long-term financial assets.

39
 • Maturity spans beyond one year.
• Matured and fully developed market as all secondary market business is transacted
at a formal place.
• Deals are transacted at stock exchanges or, at OTC`s.
• Number of players is large Almost everyone can be an investor in capital market.
• Price here also is determined on the principles of demand and supply.
• Market is regulated by SEBI.

TRADING SYSTEMS

NSE introduced for the first time in India, fully automated screen based trading. It uses a
modern, fully computerized trading system designed to offer investors across the length and
breadth of the country a safe and easy way to invest.

The NSE trading system called ‘ National Stock Exchange for Automated trading’ (NEAT) is
a fully automated screen based trading system, which adopts the principle of an order driven
market.

MARGIN TRADING

Most security purchases do not have to be made on a cash basis; borrowed funds can be used
instead. This activity is referred to as margin trading, and it is used for one basic reason: to
magnify returns. This is possible because the used of borrowed funds reduce the amount of
capital that must be put up by the investor. As peculiar as it may sound, the term margin itself
refers to the amount of equity in an investment, or the amount this is not borrowed. If an
investor used 75 percent margin, for example, it means that 75 percent of the investment
position is being financed with the person’s own capital and the balanced (25 percent) with
borrowed money.

40
INTERNET BASED TRADING

The Securities and Exchange Board of India (SEBI) approved the report on Internet Trading
brought out by the SEBI Committee on Internet Based Trading and Services in January 2000.
Internet trading can take place through order routing systems, which will route client orders to
exchange trading systems for execution. Thus a client sitting in any part of the country would
be able to trade using the Internet as a medium through brokers’ Internet trading systems.

SEBI-registered brokers can introduce Internet based trading after obtaining permission from
respective Stock Exchanges. SEBI has stipulated the minimum conditions to be fulfilled by
trading members to start Interned based trading and services, vide their circular no.
SMDRP/POLICY/CIR-06/2000 dated January 31,2000.

 Internet trading at NSE

 Empanelled Vendors / ASPs for Internet trading solutions
 Members who have been granted permission for Internet trading
 Internet Trading Statistics
 WAP Trading

Technical Analysis of Indian stock market BSE Sensex Index

The BSE SENSEX is not only scientifically designed but also based on globally accepted
construction and review methodology. First compiled in 1986, SENSEX is a basket of 30
constituent stocks representing a sample of large, liquid and representative companies. The
base year of SENSEX is 1978-79 and the base value is 100. The index is widely reported in
both domestic and international markets through print as well as electronic media.

Technical Analysis:

41
The Index was initially calculated based on the "Full Market Capitalization" methodology but
was shifted to the free-float methodology with effect from September 1, 2003. The "Free-float
Market Capitalization" methodology of index construction is regarded as an industry best
practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones
use the Free-Float methodology.

Due to is wide acceptance amongst the Indian investors; SENSEX is regarded to be the pulse
of the Indian stock market. As the oldest index in the country, it provides the time series data
over a fairly long period of time (From 1979 onwards). Small wonder, the SENSEX has over
the years

This approach is differs from fundamental approaches as much as it is based on the analysis of
movements of price and volume of stocks, The two approaches are , however , complementary
to each other rather than substitutes.

The Sensex journey: From 1,000 to 14218* | *April 25th, 2007

This is the fastest 1,000-point gain by the Sensex. It only took 15* *trading sessions for the
index to cross from 11,000 to 12,000. Interestingly, the Sensex has taken only 10 months to
gain 5,000 points!

The unprecedented Bull Run started on May 6, 2003 when the Sensex was at 3, 001.21 level.
It took just 67 trading sessions to cross the 4,000-mark and touch 4,026.27 points on August
19, 2003.

The rally continued and the index gained another 1,000 points in 54 trading sessions to post
5,068.66 points on November 3, 2003.

Thereafter, it pierced through the 6,000 mark on January 2, 2004 in another 43 trading
sessions. The market then seemed to pause for breath as it took a whopping 370 trading
sessions to cross the 7,000 mark, at 7001.55 on June 20, 2005.

42
From 7,000-mark, the sentiment turned distinctly firm following good liquidity that played a
significant role to determine the market direction and Sensex crossed 8,000-mark in just 55
trading sessions at 8,060.26 on September 8, 2005 and 54 trading days to cross 9,000-mark at
9,005.63 on November 28, 2005.

From 9K to 10K, it took just 48 trading sessions. The index crossed 10,000-mark on February
6, 2006 at 10,002.83.
From 10K to 11K, it only took 29 trading sessions.
Here's a timeline on the rise and rise of the Sensex through Indian stock market history.

*1000, July 25, 1990*

On July 25, 1990, the Sensex touched the magical four-digit figure for the first time and
closed at 1,001 in the wake of a good monsoon and excellent corporate results.

*2000, January 15, 1992*

On January 15, 1992, the Sensex crossed the 2,000-mark and closed at 2,020 followed by the
liberal economic policy initiatives undertaken by the then finance minister and current Prime
Minister Dr Manmohan Singh.

*3000, February 29, 1992*

On February 29, 1992, the Sensex surged past the 3000 mark in the wake of the market-
friendly Budget announced by the then Finance Minister, Dr Manmohan Singh.

*4000, March 30, 1992*

On March 30, 1992, the Sensex crossed the 4,000-mark and closed at 4,091 on the
expectations of a liberal export-import policy. It was then that the Harshad Mehta scam hit the
markets and Sensex witnessed unabated selling.

43
*5000, October 8, 1999*

On October 8, 1999, the Sensex crossed the 5,000-mark as the BJP-led coalition won the
majority in the 13th Lok Sabha election.

*6000, February 11, 2000*

On February 11, 2000, the InfoTech boom helped the Sensex to cross the 6,000-mark and hit
and all time high of 6,006.

*7000, June 20, 2005 *

On June 20, 2005, the news of the settlement between the Ambani brothers boosted investor
sentiments and the scrips of RIL, Reliance Energy, Reliance Capital and IPCL made huge
gains. This helped the Sensex crossed 7,000 points for the first time.

*8000, September 8, 2005*

On September 8, 2005, the Bombay Stock Exchange's benchmark 30-share index -- the Sensex
-- crossed the 8000 level following brisk buying by foreign and domestic funds in early
trading.

*9000, November 28, 2005*

The Sensex on November 28, 2005 crossed the magical figure of 9000 to touch 9000.32 points
during mid-session at the Bombay Stock Exchange on the back of frantic buying spree by
foreign institutional investors and well supported by local operators as well as retail investors.

44
*10,000, February 7, 2006*

The Sensex on February 6, 2006 touched 10,003 points during mid-session. The Sensex
finally closed above the 10K-mark on February 7, 2006.

*11,000, March 27, 2006*

The Sensex on March 21, 2006 crossed the magical figure of 11,000 and touched a life-time
peak of 11,001 points during mid-session at the Bombay Stock Exchange for the first time.
However, it was on March 27, 2006 that the Sensex first closed at over 11,000 points.

*12,000, April 20, 2006*

The Sensex on April 20, 2006 crossed the magical figure of 12,000 and closed at a life-time
peak of 12,040 points for the first time.

*12,600, MAY 10, 2006*

The Sensex on May 10, 2006 crossed the magical figure of 12,600and closed at a life time
peak of 12,612 points for the first time.

*14,218,April 25,2007*

The sensex on April 25, 2007 crossed the magical figure of 14,200 and closed at a life time
peak of 14,218 points.

SCAMS – PART OF CAPITAL MARKET

Sucheta Dalal and Debashis Basu in their Book the “Scam Who Won, Who Lost, Who Got
Away—From Harshad Mehta to Ketan Parekh” have observed that:

45
 The biggest function of the special court over the last seven years has been to decide
whether notified persons could leave Bombay for even short trips. What an excruciatingly
painful experience the scam investigation and trial have turned out to be. The court, CBI, RBI,
Income Tax department, the custodian, the enforcement Directortate,… all have ensured that
the wheels of justice move at as snail`s pace.

Remember under a hastily drafted ordinance, all cases relating to the scam were supposed to
be heard only by the Special court. There some 600-odd civil cases are pending.
Very few cases have been heard or have reached a conclusion. At the current pace, the trial
would carry on for the next two decades.

COMPARISION OF TWO MAJOR SCAMS

They compared two scams Harshad Metha of 1992 and Ketan Parekh of 2000-2001.
The modus operandi seems to be the same. Agencies, Institutions got changed.

S. NO HARSHAD MEHTA KETAN PAREKH

1 State Bank of India Bank of India
2 Unit Trust of Trust Unit Trust of India
3 Broker – Hiten Dalal Brokers – several Brokers
4 Fair Growth Financial Globle Trust Bank
5 Artificial Liqudity Artificial Liquidity
6 Banks – B R for liquidity FIIs like C S F B
7 Co- operative Banks Co-operative Banks
Madhavapura Co- operative
8 Karad Co- operative Bank Bank
9 Poor systems Poor systems
10 Default by the Regulator: R B I Default by the Regulator: SEBI
11 J P C –1 J P C -II
12 Corporate Nexus Corporate Nexus
13 Sufferer – Losser: Small investors Suffer- Looser: Small investors

Based on the study the following issues have been identified with best possible explanations.
This will serve as a basic guide for a new investor.

46
Definition of SENSEX

The SENSEX, short form of the BSE-Sensitive Index, is a "Market Capitalization-Weighted"

index of 30 stocks representing a sample of large, well-established and financially sound
companies. It is the oldest index in India and has acquired a unique place in the collective
consciousness of investors. The index is widely used to measure the performance of the Indian
stock markets. SENSEX is considered to be the pulse of the Indian stock markets as it
represents the underlying universe of listed stocks at The Stock Exchange, Mumbai. Further,
as the oldest index of the Indian Stock market, it provides time series data over a fairly long
period of time (since: 1978-79).

Objectives of SENSEX

The SENSEX is the benchmark index of the Indian Capital Markets with wide acceptance
among individual investors, institutional investors, foreign investors and fund managers. The
objectives of the index are:

To measure market movements given its long history and its wide acceptance, no other index
matches the SENSEX in reflecting market movements and sentiments. SENSEX is widely
used to describe the mood in the Indian Stock markets and benchmark for funds performance.
The inclusion of blue chip companies and the wide and balanced industry representation in the
SENSEX makes it the ideal benchmark for fund managers to compare the performance of
their funds.

For index based derivative products Institutional investors, money managers and small
investors all refer to the SENSEX for their specific purposes The SENSEX is in effect the
proxy for the Indian stock markets. The country's first derivative product i.e. Index-Futures
was launched on SENSEX.

Criteria for selection and review of scripts for the SENSEX

47
A. Quantitative Criteria:

1. Market capitalisation

The scrip should figure in the top 100 companies listed by market capitalization. Also market
capitalization of each script should be more than 0.5 % of the total market capitalization of the
Index i.e. the minimum weight should be 0.5 %. Since the SENSEX is a market capitalization
weighted index, this is one of the primary criteria for scrip selection. (Market Capitalization
would be averaged for last six months)

2. Liquidity

(i) Trading Frequency: The scrip should have been traded on each and every trading day for
the last one year. Exceptions can be made for extreme reasons like scrip suspension etc. (ii)
Number of Trades: Number of Trades: The scrip should be among the top 150 companies
listed by average number of trades per day for the last one year. (iii) Value of Shares Traded:
Value of Shares Traded: The scrip should be among the top 150 companies listed by average
value of shares traded per day for the last one year.

3. Continuity

Whenever the composition of the index is changed, the continuity of historical series of index
values is re-established by correlating the value of the revised index to the old index (index
before revision). The back calculation over the last one-year period is carried out and
correlation of the revised index to the old index should not be less than 0.98. This ensures that
the historical continuity of the index is maintained.

4. Industry Representation

Script selection would take into account a balanced representation of the listed companies in
the universe of BSE. The index companies should be leaders in their Industry groups.

5. Listed History

The scrip should have a listing history of at least one year on BSE.

48
B. Qualitative Criteria:

Track Record

In the opinion of the Index Committee, the company should have an acceptable track record.

Beta of BSE Sensex Scrip’s

Beta measures the sensitivity of a script movement relative to movement in the benchmark
index i.e. SENSEX. A Beta of one means that for every change of 1% in index, the script
moves by 1%. Statistically Beta is defined as: Covariance (SENSEX, Stock)/Variance
(SENSEX)

Note: Covariance and variance are calculated from the Daily Returns data of the SENSEX and
SENSEX scripts.

SENSEX Calculation method

SENSEX is calculated using a "Market Capitalization-Weighted" methodology. As per this

methodology, the level of index at any point of time reflects the total market value of 30
component stocks relative to a base period. (The market capitalization of a company is
determined by multiplying the price of its stock by the number of shares issued by the
company). An index of a set of combined variables (such as price and number of shares) is
commonly referred as a 'Composite Index' by statisticians. A single indexed number is used to
represent the results of this calculation in order to make the value easier to work with and
track over time. It is much easier to graph a chart based on indexed values than one based on
actual values.

The base period of SENSEX is 1978-79. The actual total market value of the stocks in the
Index during the base period has been set equal to an indexed value of 100. This is often
indicated by the notation 1978-79=100. The formula used to calculate the Index is fairly
straightforward. However, the calculation of the adjustments to the Index (commonly called
Index maintenance) is more complex.
The calculation of SENSEX involves dividing the total market capitalization of 30 companies

49
in the Index by a number called the Index Divisor. The Divisor is the only link to the original
base period value of the SENSEX. It keeps the Index comparable over time and is the
adjustment point for all Index maintenance adjustments. During market hours, prices of the
index scripts, at which latest trades are executed, are used by the trading system to calculate
SENSEX every 15 seconds and Disseminated in real time.

Closing Index Calculation

The closing SENSEX is computed taking the weighted average of all the trades on SENSEX
constituents in the last 15 minutes of trading session. If a SENSEX constituent has not traded
in the last 15 minutes, the last traded price is taken for computation of the Index closure. If a
SENSEX constituent has not traded at all in a day, then its last day's closing price is taken for
computation of Index closure. The use of Index Closure Algorithm prevents any intentional
manipulation of the closing index value.

Sensex Calculation Frequency

During market hours, prices of the index scripts, at which trades are executed, are
automatically used by the trading computer to calculate the SENSEX every 15 seconds and
continuously updated on all trading workstations connected to the BSE trading computer in
real time.

Technical Analysis, Trend Analysis, Support and Resistant levels of the Indian Stock
Market BSE Sensex Index.

Difference between Saving and Investing

Saving is a stage on the way to investing. You cannot be an investor without being a saver but
you can be a saver without being an investor. Savings are effectively cash or cash instruments,
such as deposit account, term bonds etc. Investing is what you do with the savings you have
created if you are looking to generate a return on your money that is greater than what is
already available to you through your savings instruments.

50
Is my money safe

There is really no such thing as 100% safe saving scheme or investment scheme. If anybody
tells you different, don’t believe them! Not even government-backed bonds are 100% safe. For
that matter, ask anybody who had money invested in various Latin America debt instruments
in the 1970s and 1980s. Even governments can go out of business!

Is investing all about my attitude to risk?

In large part, yes; the more attractive the potential rate of return on offers, the bigger the risk
to the capital that you invest. That applies across the whole spectrum of savings and investing
vehicles, from deposit accounts to shares. How much you should invest and what you invest it
in will depend on three key factors: your attitude to risk; the level of return you want to
achieve; and how long you are prepared to invest your money.

If you are, for example, close to retirement you won’t want to take too many risks with your
money. On the other hand, if you have few commitments and are several years away from
retiring, you may be prepared to take a punt and invest in something with a high risk in the
hope of getting a high return. If you want to aim for a higher level of return but still with a
relatively low risk element, then you should be prepared to tie your funds up for some time.
Most forms of investment offer greater potential returns for those prepared to invest for the
long- Term, although this isn’t guaranteed.

Broadly speaking, we may place most forms of savings and investments into a risk spectrum
with derivatives at the speculative end and Gilts and National Savings & Investments at the
very low risk end.

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 Degree of Risk
Speculative Penny Shares
High Risk Derivatives
Medium / High Risk Mid cap stock
Medium / Low Risk Blue Chip Shares
Low Risk Corporate Bond Funds
Guaranteed Income Bonds
PIBS/PSBs
Very Low Risk Bank/Building Society Accounts
Gilts/National Savings & Investments

Should I be investing in the stock market

The answer to this question is a definite yes. It has been seen that over the years there has been
no financial instrument which has given returns as high as the stock markets. The only
important factor to be kept in mind is that investment should always be made with an
objective in mind and we should not be too greedy while investing. On the other hand ,as
inflation has fallen over the last couple of decades so have the returns available from basic
savings accounts. In fact, many instant access accounts no longer keep pace with inflation at
all. Leaving your money in such an account now actually means it is falling in value!

Next step after Investment

Review your financial position fortnightly. Are you making the best of the money you save
and invest? Re-evaluate your portfolio. Are your short-term investment giving you the desired
rate of return or are you trapped by buying the stock at its peak? Book losses on these shares
and try to invest in shares where you can make up for the losses.

In case of long term investment, track news on the stocks regularly. If there is a change in
business environment, management or future profitability the valuation of stocks will change
accordingly, and hence the target price will also change. Take a long careful look at how your
existing savings and investments are performing. Are you happy that you are getting the best
possible return from them? Do they fit in with your current "risk profile" - should you, if you
are getting closer to retirement, be thinking about reducing the level of risk in your portfolio of

52
investments or should you actually be thinking about taking a few more risks if you have
plenty of time in which to build up an investment.

Do’s and Don’ts for new INVESTORS

The Stock Indices are touching new highs on the back of surging volumes. More and more
investors are investing / trading in the stock markets than ever before. It is therefore
imperative for the investors to follow the Dos and Don’ts in general while dealing in the stock
market. As there are attendant risks associated with it.

Given below are the Dos and Don'ts in general for investors who are dealing in Stock markets.

Do’s

1. Always deal with the market intermediaries registered with SEBI / Exchanges.
2. Give clear and unambiguous instructions to your broker / agent / depository
participant.
3. Always insist on contract notes from your Broker. In case of doubt of the transactions,
verify the genuineness of the same on the Exchange website.
4. Always settle the dues through the normal banking channels with the market
intermediaries.
5. Before placing an order with the market intermediaries please check about the
credentials of the companies, its management, its fundamentals and recent
announcements made by them and various other disclosures made under various
Regulations. The sources of information are the websites of Exchanges and companies,
databases of data vendor, business magazines etc.
6. Adopt trading / investment strategies commensurate with your Risk bearing capacity as
all investments carry risk, the degree of which varies according to the investment
strategy adopted.
7. Please carry out due-diligence before registering as client with any Intermediary.
Further, the investors are requested to carefully read and understand the contents stated
in the Risk Disclosure Document, which forms part of investor registration
requirement for dealing through brokers in Stock Market.
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 8. Be cautious about stocks, which show a sudden spurt in price or trading activity,
especially low price stocks.
9. Please be informed that there are no guaranteed returns on investment in stock
markets.

Don'ts

1. Don't deal with unregistered brokers / sub-brokers, intermediaries.

2. Don't deal based on rumors generally called ‘tips'.
3. Don't fall prey to promises of guaranteed returns.
4. Don't get misled by companies showing approvals / registrations from Government
agencies as the approvals could be for certain other purposes and not for the securities
you are buying.
5. Don't leave the custody of your Demat Transaction slip book in the hands of any
Intermediary.
6. Don't blindly imitate investment decisions of others who may have profited from their
investment decisions.

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 QUESTIONNAIRE

1. What is meant by Capital Markets?

a) Market where all securities are traded.
b) Place where capital is exchanged.
c) Place where only shares are traded.
d) All the above

Options A B C D

Percentage (%) 35% 0% 0% 65%

70%
60%
50%
40%
30% Percentage (%)

20%
10%
0%
A B C D

Comment:
According to Financial experts capital market means 65% viewed as all the above and
remaining people Viewed as market where all securities are traded.

55
2. What is Online Trading?
a) Trading in one line.
b) Trading on the internet.
c) Live trading facilitated by computers.
d) All the above

Options A B C D

Percentage (%) 0% 45% 50% 5%

50%
45%
40%
35%
30%
25%
Percentage (%)
20%
15%
10%
5%
0%
A B C D

Comment:
This graph indicates Online trading means 50% viewed as live trading facilitated by
computers and 45% viewed it as trading on the internet and 5% viewed as all the above.

56
3. What is commodity trading?
a) Trading of rice, wheat,gold,spices etc.
b) Trading of mass products.
c) Trading of bulk securities.
d) All the above.

Options A B C D

Percentage 100% 0% 0% 0%
(%)

100%

80%

60%
Percentage (%)
40%

20%

0%
A B C d

Comment:
This graph indicates commodity trading means trading of rice, wheat, gold, spices etc.

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4. Is trading investment or speculation?
a) Speculation.
b) Investment.
c) Both.
d) Cant’ say.

Options A B C D

Percentage 50% 45% 5% 0%

(%)

50%

40%

30%
Percentage(%)
20%

10%

0%
A B C D

Comment:
This graph indicates 50% viewed trading as speculation 45% viewed as investment and
remaning as both.

58
5. What is beta (β )?
a) Only risk.
b) Risk in a security vs. market risk.
c) A factor of market.
d) All the above

Options A B C D

Percentage 0% 100% 0% 0%
(%)

100%

80%

60%
Percentage (% )
40%

20%

0%
A B C D

Comment:
This graph indicates beta means risk in security vs market risk.

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6. What is alpha (α )?
a) Returns factor.
b) Risk factor.
c) Minimum risk when beta is zero.
d) All the above.

Options A B C D

Percentage 50% 0% 50% 0%

(%)

50%

40%

30%
Percentage (% )
20%

10%

0%
A B C D

Comment:
Above graph indicates 50% said alpha means returns factor remaining said it as minimum risk
when beta is zero.

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7. Why is BSE sensex fluctuating too much?
a) FII pushes and pulls.
b) Inflation.
c) High and low interest rates.
d) Scams.

Options A B C D

Percentage 100% 0% 0% 0%
(%)

100%

80%

60%
Percentage (% )
40%

20%

0%
A B C D

Comment:
All viewed BSE sensex is fluctuating too much because of FII pushs and pulls.

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8. What are the ideal spots to purchase on the BSE sensex?
a) Buy when resist trend appears.
b) Buy when price starts falling.
c) Buy when sensex is stagnant.
d) Observe EPS, P/E and buy.

Options A B C D

Percentage 0% 50% 0% 50%

(%)

50%

40%

30%
Percentage (% )
20%

10%

0%
A B C D

Comment:
It is clear from above graph that ideal spots to purchase 0n BSE sensex is 50% favoured to
buy when prices start falling and remaining 50% favoured to observe EPS, P/E and buy.

9. What are the ideal spots to sell on the BSE sensex?

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 a) Sell when sensex fall.
b) Sell when sensex rises.
c) Sell when sensex stagnant.
d) Sell by seeing EPS,P/E ratios.

Options A B C D

Percentage 0% 100% 0% 0%
(%)

100%

80%

60%
Percentage (% )
40%

20%

0%
A B C D

Comment:
From above graph it is clear that the ideal spots to sell on the BSE sensex is Sell when sensex
rises

10. What are the advantages in online trading?

a) Fast

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 b) Real
c) Accurate
d) All the above

Options A B C D

Percentage 30% 0% 20% 50%

(%)

50%

40%

30%
Percentage (% )
20%

10%

0%
A B C D

Comment:
In the above graph the advantages in online trading all viewed differently some said it as Fast,
some as Accurate some as All the above.

11. What is the future of BSE sensex in view of lower P/E, EPS than world avg?
a) 20,000 by 2010.
b) 25,000 by 2010.

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 c) 15,000 by 2010.
d) 30,000 by 2010.
Options A B C D

Percentage 0% 50% 0% 50%

(%)

50%
45%
40%
35%
30%
25%
Percentage (% )
20%
15%
10%
5%
0%
A B C D

Comments:
In above graph 50% said BSE sensex cross 25,000 by 2010, and remaining 50% said it cross
30,000 by 2010.

12. What is the role of SEBI in the stock markets?

a) Policy making.
b) Deciding share market investments.
c) Regulating the brokers.

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 d) Regulating the investors.
Options A B C D

Percentage 100% 0% 0% 0%
(%)

100%

80%

60%
Percentage (% )
40%

20%

0%
A B C D

Comments:
All of them viewed the role of SEBI in stock markets is to policy making.

RECOMMENDATIONS

1. SEBI must make a policy to give guidelines to companies that certain portion of their
capital must be from household sector/small investors. This will give perfection to
small investor because companies are issuing shares to private operators. For this SEBI

66
 can define small investors investment quantum as ≤ Rs 10,000 for e.g,reserve says
50% of the issue amount to small investors to attract funds from this sector. This is
good for the companies also, because small investors do not expect abnormal returns.
2. Guidelines should also be issued to advertise such a way that the issue details reach
general public.
3. Companies are getting the public issue and under written by banks and financial
institutions. so, companies are not keen to reach general public hence norms must be
fixed for under writing only a limited portion {say 50%} of the issue and balance 50%
from the public.
4. Public also invest in government securities and funds floated by government.
Companies are getting loan return because these companies are operating in low risk-
low return market. How every private companies are operating in high risk and return
markets because they can predict risk well. Hence government companies must change
over current out look of safe investments and operating high risk and high return
markets. So, they can give high returns to small investors.
5. SEBI must prepare norms and make it compulsory for companies to refund the
applicable money with in a few days {say 25 days} and pass certificate.
6. Investor must choose blue chip shares for investment.
7. Mutual funds are the best option for a rural investor.
8. A single window for grievances redressal system.
9. Punishment for the guilty.
10. Special court to take care of grievances of small investors.
11. Proper road map to attract and exploit the rural savings.
12. Easy, approachable judicial system.
13. Introduction of small investors, capital market, financial services sector in the
education system.
SYNOPSIS

The study has reflected following Conclusions:

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 1. BSE has to spread its operations to all areas of the country instead of concentrating
only at Bombay. It is leading to high concentration of money .Hence BSE should put
up centers all over India.
2. BSE is unknown to many people who can invest; particularly from small towns and
Villages. Hence BSE should make the trading popular by sensible advertising and
Promotional schemes.
3. Soaring of Sensex of beyond 10000 indicates that there are fluid factors which are
driving the index, instead of real wealth. Hence BSE should devise methods of
attracting investments on real grounds.
4. FII investments are flowing uncontrollably. Real FIIs need to be identified before
accepting investments and norms be setup for FII withdrawal so that capital drawn out
of India is stopped. Hence the need to make a legal framework for FII inflow and
outflow.
5. BSE should link itself with foreign exchange like Dowzone so that Indian markets are
not out of sync with work markets. If there is a sudden upsurge in sensex, than all
world investors gravitate to BSE and build fluidity in it. This is harmful to local
markets. Hence the need to keep it under check in alignment with world markets.

BIBILOGRAPHY

INVESTMENT MANAGEMENT : V.K.BHALLA

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WEBSITES
www.bseindia.com
www.sebi.gov.com
www.yahoofinance.com
www.google.com
www.religare.in

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