OVERVIEW OF STOCK EXCHANGE

PRIMARY MARKET:
The primary market is an intermittent and discrete market where the initially listed shares are traded first time, changing hands from the listed company to the investors. It refers to the process through which the companies, the issuers of stocks, acquire capital by offering their stocks to investors who supply the capital. In other words primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is called an initial public offering (IPO).

SECONDARY MARKET:
The secondary market is an on-going market, which is equipped and organized with a place, facilities and other resources required for trading securities after their initial offering. It refers to a specific place where securities transaction among many and unspecified persons is carried out through intermediation of the securities firms, i.e., a licensed broker, and the exchanges, a specialized trading organization, in accordance with the rules and regulations established by the exchanges. A bit about history of stock exchange they say it was under a tree that it all started in 1875.Bombay Stock Exchange (BSE) was the major exchange in India till 1994.National Stock Exchange (NSE) started operations in 1994. Major banks and financial institutions floated NSE. It came as a result of Harshad Mehta scam of 1992. Contrary to popular belief the scam was more of a banking scam than a stock market scam. The old methods of trading in BSE were people assembling on what as called a ring in the BSE building. They had a unique sign language to communicate apart from all the shouting. Investors weren't allowed access and the system was opaque and misused by brokers. The shares were in physical form and prone to duplication and fraud.

ORIGIN OF INDIAN STOCK MARKET

The origin of the stock market in India goes back to the end of the eighteenth century when long-term negotiable securities were first issued. However, for all practical purposes, the real beginning occurred in the middle of the nineteenth century after the enactment of the companies Act in 1850, which introduced the features of limited liability and generated investor interest in corporate securities. Stock exchange means any body of individuals, whether incorporated or not, constituted for the purpose of regulating or controlling the business of buying, selling or dealing in securities. These securities include: (i) Shares, scrip, stocks, bonds, debentures stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; (ii) Government securities; and (iii) Rights or interest in securities. The Bombay Stock Exchange (BSE) and the National Stock Exchange of India Ltd (NSE) are the two primary exchanges in India. In addition, there are 22 Regional Stock Exchanges. However, the BSE and NSE have established themselves as the two leading exchanges and account for about 80 per cent of the equity volume traded in India. The NSE and BSE are equal in size in terms of daily traded volume. The average daily turnover at the exchanges has increased from Rs 851 crore in 1997-98 to Rs 1,284 crore in 1998-99 and further to Rs 2,273 crore in 1999-2000 (April - August 1999). NSE has around 1500 shares listed with a total market capitalization of around Rs 9, 21,500 crore. The BSE has over 6000 stocks listed and has a market capitalization of around Rs 9, 68,000 crore. Most key stocks are traded on both the exchanges and hence the investor could buy them on either exchange. Both exchanges have a different settlement cycle, which allows investors to shift their positions on the bourses. The primary index of BSE is BSE Sensex comprising 30 stocks. NSE has the S&P NSE 50 Index (Nifty) which

consists of fifty stocks. The BSE Sensex is the older and more widely followed index.

Market Basics: Electronic trading:

Electronic trading eliminates the need for physical trading floors. Brokers can trade from their offices, using fully automated screen-based processes. Their workstations are connected to a Stock Exchange's central computer via satellite using Very Small Aperture Terminus (VSATs). The orders placed by brokers reach the Exchange's central computer and are matched electronically.

Contract note:
A contract note describes the rate, date, time at which the trade was transacted and the brokerage rate. A contract note issued in the prescribed format establishes a legally enforceable relationship between the client and the member in respect of trades stated in the contract note. These are made in duplicate and the member and the client both keep a copy each. A client should receive the contract note within 24 hours of the executed trade.

Split:
A Split is book entry wherein the face value of the share is altered to create a greater number of shares outstanding without calling for fresh capital or altering the share capital account. For example, if a company announces a two-way split, it means that a share of the face value of Rs 10 is split into two shares of face value of Rs 5 each and a person holding one share now holds two shares.

Overview of Indian Economy

The Indian economy had moved to a high growth phase during 2003 to 2008, but suffered a major decline in 2008-09 on account of the global financial crisis. The factors responsible for rapid expansion of the economy from 2003-2008: robust investment growth, high rate of domestic savings, strong corporate performance and good tax buoyancy were largely undone by the global financial and economic crisis in the second half of 2008-09. The impact of the slowdown has been broad-based in nature. Growth in Industrial and Agricultural sectors moderated significantly during the year. The services sector managed to minimize the effects of the slowdown with a 9.5% growth (compared to 10.9% last year). Merchandise exports grew by a mere 5.7% during 2008-09 as compared to a 26% growth during last year. The outlook for the Indian economy continues to be subdued with recovery expected only in the second half of 2009-10.

Gross Domestic Product (GDP)

Gross Domestic Product (GDP) at current market prices is estimated at USD1 1.18 trillion in 2008-09 by the Central Statistical Organisation (CSO) in its advance estimates (AE) of Gross Domestic Product. GDP at factor cost at constant 1999-2000 prices is estimated by the CSO to grow at 7.1% in 2008-09. This represents a deceleration from the high growth rates of 9.7% and 9.0%, respectively, in the previous two years.

Rate of Growth of GDP at factor cost at 1999-2000 prices

Particulars GDP Manufacturing Sector Mining and Quarrying Finance, Insurance and real estate Construction Agriculture and allied activities

2006-07 2007-08 9.70% 9.00% 11.80% 8.20% 8.80% 3.30% 13.80% 11.70% 11.80% 10.10% 4.00% 4.90%

2008- 2009 7.10% 4.10% 4.70% 8.60% 6.50% 2.60%

1.Agricultural growth decelerated to 2.6% in 2008-09. 2.Manufacturing which grew at 8.2% in 2007-08, decelerated by about 4.1 percentage points in 2008-09. 3.The Construction sector also slipped by about 3.6 percentage points to a 6.5% growth rate in 2008-09. 4. The Index of Industrial Production suffered its worst year in 2008-09. After having grown between 8-11% in the preceding 4 years, it witnessed a growth of only 3.4% in 2008-09.

Inflation
The Wholesale Price Index (WPI) touched double digit growth rate in the month of June 2008 and peaked to 12.8% during August 2008. This prompted the Government to take action on the monetary policy to curb rising prices. Within a span of seven months, the WPI came down from the high of August 2008 (12.8%) to 0.27% during the week ending March 14, 2009. The crash in commodity prices (especially crude oil, metals and agricultural commodities) in the international markets has been largely responsible for such a steep fall in inflation in the domestic economy.

WHOLE SALE PRICE INDEX

YEARS 2006 2007 2007 2008 2008 2009 Primary Articles Manufacturing products

Fuel and lubricants 324 327 357

Overall 206 216 234

Inflation 5.42% 4.70% 8.40%

209 225 248

179 188 203

The Consumer Price Index (CPI-IW) has been relatively rigid as compared to the WPI. After a slight moderation in December 2008, it went back to its previous level (10.4 % in October November 2008) in January 2009. The relative rigidity is on account of the higher weight of food items (46%) in the index whose prices have remained relatively high.

Foreign investment Inflows

During the year 2008 - 2009 (April 2008 January 2009), inflows under Foreign Investment were USD 15.55 billion as compared to USD 63.76 billion in the previous financial year (April 2007 March 2008).

Particulars
Direct investment (FDI) Equity Reinvested earnings Other capital Portfolio investment GDRs / ADRs FIIs Offshore funds and others

2006 2007*
22.08 16.48 5.09 0.51 7 3.78 3.22 0

2007 2008*
34.36 26.87 7.17 0.32 29.4 8.77 20.33 0.3

2008 2009**
27.43 24.22 3.01 0.2 -11.88 1.14 -13.02 0

Total

29.08

63.76

15.55

The sharp fall has been on account of withdrawal of more than USD 13 billion from the Indian markets by the Foreign Institutional Investors (FII) during the period April 2008 January 2009. It needs to be highlighted that most of the FDI is routed through Mauritius on account of tax exemptions. Singapore, USA, UK, Netherlands and Japan are the other key contributors of FDI inflows in India.

Country

2007 2008*

2008 2009**

Cumulative FDI equity inflows

% of total cumulative FDIequity

inflows
Mauritius Singapore USA UK Netherlands Japan Other countries 11.096 3.073 1.089 1.176 0.695 0.815 6.635 9.545 3.237 1.639 0.791 0.826 0.264 7.583 35.18 7.594 6.172 5.154 3.531 2.39 26.375 41% 9% 7% 6% 4% 3% 30%

Total FDI Equity Inflows

24.579

23.885

86.396

100%