1. Summer training project report on fluctuation of indianstock market @ prabath financial services limited -Document Transcript1. SUMMER TRAINING PROJECT REPORT UNDER PRABATH FINANCIAL SERVICES LIMITED ON Study of Fluctuations of Indian Stock Market SUBMITTED IN PARTIAL FULLFILMENT OF THE REQUIRMENT FOR THE AWARD OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION OF THE RAJASTHAN TECHNICAL UNIVERSITY, KOTA. SUPERVISED BY:- SUBMITTED BY :- Mr. S. P. Kabra Rahul Jajoo FACITLITY SUPERVISOR:- Ms. Shilpi Kuntal SUBMITTED TO :- DEPARTMENT OF MANAGENENT STUDIES, SWAMI KESHVANAND INSTITUTE OF TECHNOLOGY, MANAGEMENT & GRAMOTHAN. JAIPUR 2008-2010 12. Certificate 23. Acknowledgement The completion of any project depends upon the co-operation, coordination and combined efforts of several resources of knowledge, inspiration & energy. Words fall short acknowledging immense support lent to me yet I will try to give full credit to the deservers. My sincere thanks goes to Mr. Vikas Shrotriya (HOD DMS) giving me an opportunity to discover more knowledge. I am also thankful to Mr. S. P. Kabra (Director,Prabhat financial services) for his support, guidance and cooperation throughout to accomplish this project also expressing deep sense of gratitude to my Project guide, Ms. Shilpi Kuntal (Lecturer) for her valuable guidance, continuous encouragement and tremendous patience in discussing my problems, have been of the greatest help in bringing out my task in present shape. I am equally grateful to all my other teachers for their complete support. It would be unfair on my part if I do not thank my colleagues for their continuous help without which this work could never have been accomplished. They made me realize the importance of teamwork and also the leadership skills. I am grateful to all of them standing with me and supporting me in this project. ( Rahul Jajoo ) Preface 34. In the present situation where stock market is going up and down, it is necessary to invest consciously in the market whatever it is, this is the study about the last two year fluctuation in stock market which enables the investor in taking decision regarding investment. This study tells the factor which directly or indirectly affects the market and some basic information not only share market but also other market such as derivatives or commodity market for the new investors or the students who have some interest in stock market. The objective of selecting the topic is to know about the market trends of the stock market and the information related to the investment for the future investor. The study of fluctuations of stock market makes the investor aquatinted with the factor affecting the investment and Stock prices can be volatile and some analysts argue that this volatility is excessive. This is not easy to prove, since it is difficult to assess certainty about future earnings and dividends. Companies tend to smooth dividends, so they will be less volatile than stock prices. Volatile stock prices do not have a major impact on consumption and capital spending since there is a good chance that price movements in one direction may be reversed. Contents 4

2. 5. 1. Abstract 2. Research Methodology 2.1 Title of the Study 2.2 Duration of the Project 2.3 Objective of Study 2.4 Type of Research 2.5 Scope of Study 2.6 Limitation of Study 3. Core Study 4. SWOT 5. Conclusion 6. Bibliography Executive summary 56. A market is an environment that allows buyers and sellers to trade or exchange goods, services, and information. These interactions define demand and supply characteristics and are therefore fundamental to economies. A market can be defined as a place where any type of trade takes place. Markets are dependent on two major participants buyers and sellers. Buyers and sellers typically trade goods, services and/ or information. Historically, markets were physical meeting places where buyers and sellers gathered together to trade. Although physical markets are still vital, virtual marketplaces supported by IT networks such as the internet have become the largest and most liquid. Some markets are very competitive, with a number of vendors selling the same kinds of products or services. Conversely, some markets have low or no competition, particularly if the industry is protected by government legislation. The number of buyers and sellers involved will have a direct bearing on the price of the good or service to be sold, and has become known as the law of supply and demand. Where there are more sellers than buyers, the availability of supply will push down prices. If there are more buyers than sellers, the increased demand will push up prices. Markets can appear spontaneously when there are goods or services to be exchanged, or they can be planned and regulated .Free markets operate under laissez-fare conditions, in that the government does not intervene in how the market operates. These markets may be distorted if a seller gains monopoly power by managing the majority of supply (or indeed if a buyer develops monophony power by managing demand). Governments or trade bodies often step in when such distortions undermine the smooth functioning of free markets. The currency markets are the largest continuously traded markets in the world. Twenty four hours a day, seven days a week, governments, banks, investors and consumers are buying and selling every currency, leading to massive money flows constantly changing hands. Stock markets have become highly complex markets that allow investors to buy shares in companies or in funds that aggregate companies or industries together. Most stock markets today are primarily electronic networks, although they often maintain a physical location for buyers, sellers and market makers to interact directly. Markets originally started as marketplaces usually in the center of villages and towns, for the sale or barter of farm produce, clothing and tools. These kinds of street markets developed into a whole variety of consumer-oriented markets, such as specialist markets, shopping centers, supermarkets, or even virtual markets such as eBay. With the rising price of oil and food, 67. commodity markets are once again under the spotlight. Commodities underpin economic activity. Commodity markets include: energy (oil, gas, coal and increasingly renewable energy sources such as biodiesel), soft commodities and grains (wheat, oat, corn, rice, soya beans, coffee, cocoa, sugar, cotton, frozen orange juice, etc), meat, and financial commodities such as bonds. Capital goods markets help businesses to buy durable goods to be used in industrial and manufacturing processes. A number of services can also be associated with these goods. Transactions tend to be wholesale with large quantities of goods being transacted at low prices. Everyone has seen it and everyone is wishing if he should have buy stocks before this rally. Albeit it could have been a gamble buying stocks before declaration of election results, it paid off for those who bought. Now thats 3. history. Stock markets are going to be volatile for next few days. Today, i.e. on Tuesday,markets opened in red, went till 3oo points down, then recovered and went up to 500points up and finally settled for flat closing. So what should a small investor do now?Should he buy stocks or should be selling stocks that he holds.This article is aCOMPLETE guide to the basics of making money in the stock market! If you areconsidering investing in the stock market, you MUST read this article! We haveexplained all the concepts and talked about all the "myths" that people have about thestock market! INTRODUCTION TO THE ORGANIZATION 78. RESEARCH METHODOLOGY TITLE OF THE STUDY:- 89. Study of fluctuations of Indian stock market DURATION OF THE PROJECT:- 45days OBJECTIVE OF STUDY To know the basic terminology of stock market. Tomake the investor aware about the factors which may affect their investment. To getthe knowledge of other markets such as commodity market and derivatives. To knowthe ups and downs of stock market of last two years. To forecast or predict the futuretrend of stock market which helps in investment. To know the effect of thesefluctuation on the Indian economy. TYPE OF RESEARCH Research Research isdefined as human activity based on intellectual application in the investigation of matter.The primary purpose for applied research is discovering, interpreting, and thedevelopment of methods and systems for the advancement of human knowledge on awide variety of scientific matters of our world and the universe. Research can use thescientific method, but need not do so. Scientific research relies on the application of thescientific method, a harnessing of curiosity. This research provides scientific informationand theories for the explanation of the nature and the properties of the world around us. Itmakes practical applications possible. Scientific research is funded by public authorities,by charitable organizations and by private groups, including many companies. Scientificresearch can be subdivided into different classifications according to their academic andapplication disciplines. 910. In this project the research type used is descriptive because this research is the mostcommonly used and the basic reason for carrying out descriptive research is to identifythe cause of something that is happening. For instance, this research could be used inorder to find out what age group is buying a particular brand of cola, whether acompanys market share differs between geographical regions or to discover how manycompetitors a company has in their marketplace. However, if the research is to returnuseful results, whoever is conducting the research must comply with strict researchrequirements in order to obtain the most accurate figures/results possible. DESCRIPTIVERESEARCH Descriptive research is used to obtain information concerning the currentstatus of the phenomena to describe "what exists" with respect to variables or conditionsin a situation. The methods involved range from the survey which describes the statusquo, the correlation study which investigates the relationship between variables, todevelopmental studies which seek to determine changes over time. Descriptive researchcan be of two types: i. Quantitative descriptive research emphasizes on what is, andmakes use of quantitative methods to describe, record, analyze and interpret the presentconditions. Qualitative descriptive research also emphasizes on what is, but makes use ofnon-quantitative research methods in describing the conditions of the present. SCOPE OFSTUDY Derivatives Sebi Stock exchange Commodity market Stock market10 4. 11. Securities Day trading Factor affecting Indian stock market Effect on Indianeconomy LIMITATIONS Limitations are the limiting lines that restrict the work insome way or other. In this research study also their were some limiting factors, some ofthem are as under: 1. Data Collection: The most important constraint in this study wasdata collection as Secondary data was selected for study. Secondary data means data thatare already available i.e. they refer to the data which have already been collected andanalysed by someone else. 2. Time Period: Time period was one of the main factor asonly one month was allotted and the topic covered in research has a wide scope. So, itwas not possible to cover it in a short span of time. 3. Reliability: The data collected inresearch work was secondary data, So, this puts a question mark on the reliability of thisdata, which a very important factor of this study as conclusion has been derived from thissecondary data only. 4. Accuracy: The facts and findings of the data cannot be acceptedas accurate to some extent as firstly, secondary data was collected. Secondly, for doingdescriptive research time needed to be more, because in short period you cannot covereach point accurately. 1112. Core study Stock market A stock market is a public market for the trading of companystock and derivatives at an agreed price; these are securities listed on a stock exchange aswell as those only traded privately. The size of the world stock market was estimated atabout $36.6 trillion US at the beginning of October 2008 . The total world derivativesmarket has been estimated at about $791 trillion face or nominal value, 11 times the sizeof the entire world economy. The value of the derivatives market, because it is stated interms of notional values, cannot be directly compared to a stock or a fixed incomesecurity, which traditionally refers to an actual value. Moreover, the vast majority ofderivatives cancel each other out (i.e., a derivative bet on an event occurring is offset bya comparable derivative bet on the event not occurring.). Many such relatively illiquidsecurities are valued as marked to model, rather than an actual market price.) The stocksare listed and traded on stock exchanges which are entities a corporation or mutualorganization specialized in the business of bringing buyers and sellers of theorganizations to a listing of stocks and securities together. The stock market in the UnitedStates includes the trading of all securities listed on the NYSE, the NASDAQ, the Amex,as well as on the many regional exchanges, e.g. OTCBB and Pink Sheets. Europeanexamples of stock exchanges include the London Stock Exchange, the Deutsche Brseand the Paris Bourse, now part of Euronext. Function and purpose The stock market isone of the most important sources for companies to raise money. This allows businessesto be publicly traded, or raise additional capital for expansion by selling shares ofownership of the company in a public market. The liquidity that an exchange providesaffords investors the ability to quickly and easily sell securities. This is an attractivefeature of investing in stocks, compared to other less liquid investments such as realestate. 1213. History has shown that the price of shares and other assets is an important part of thedynamics of economic activity, and can influence or be an indicator of social mood. Aneconomy where the stock market is on the rise is considered to be an up and comingeconomy. In fact, the stock market is often considered the primary indicator of acountrys economic strength and development. Rising share prices, for instance, tend tobe associated with increased business investment and vice versa. Share prices also affectthe wealth of households and their consumption. Therefore, central banks tend to keep an 5. eye on the control and behavior of the stock market and, in general, on the smoothoperation of financial system functions. Financial stability is the raison dtre of centralbanks. Exchanges also act as the clearinghouse for each transaction, meaning that theycollect and deliver the shares, and guarantee payment to the seller of a security. Thiseliminates the risk to an individual buyer or seller that the counterparty could default onthe transaction. The smooth functioning of all these activities facilitates economic growthin that lower costs and enterprise risks promote the production of goods and services aswell as employment. In this way the financial system contributes to increased prosperity.Relation of the stock market to the modern financial system The financial system in mostwestern countries has undergone a remarkable transformation. One feature of thisdevelopment is disintermediation. A portion of the funds involved in saving andfinancing flows directly to the financial markets instead of being routed via the traditionalbank lending and deposit operations. The general publics heightened interest in investingin the stock market, either directly or through mutual funds, has been an importantcomponent of this process. Statistics show that in recent decades shares have made up anincreasingly large proportion of households financial assets in many countries. In the1970s, in Sweden, deposit accounts and other very liquid assets with little risk made upalmost 60 percent of households financial wealth, compared to less than 20 percent in the2000s. The major part of this adjustment in financial portfolios has gone directly toshares but a good deal now takes the form of various kinds of institutional investment forgroups of individuals, e.g., pension funds, mutual funds, hedge funds, insuranceinvestment of premiums, etc. The trend towards forms of saving with a higher risk hasbeen accentuated by new rules for most funds and insurance, permitting a 1314. higher proportion of shares to bonds. Similar tendencies are to be found in otherindustrialized countries. In all developed economic systems, such as the European Union,the United States, Japan and other developed nations, the trend has been the same: savinghas moved away from traditional (government insured) bank deposits to more riskysecurities of one sort or another. The stock market, individual investors, and financial riskRiskier long-term saving requires that an individual possess the ability to manage theassociated increased risks. Stock prices fluctuate widely, in marked contrast to thestability of (government insured) bank deposits or bonds. This is something that couldaffect not only the individual investor or household, but also the economy on a largescale. The following deals with some of the risks of the financial sector in general and thestock market in particular. This is certainly more important now that so many newcomershave entered the stock market, or have acquired other risky investments (such asinvestment property, i.e., real estate and collectables). With each passing year, the noiselevel in the stock market rises. Television commentators, financial writers, analysts, andmarket strategists are all overtaking each other to get investors attention. At the sametime, individual investors, immersed in chat rooms and message boards, are exchangingquestionable and often misleading tips. Yet, despite all this available information,investors find it increasingly difficult to profit. Stock prices skyrocket with little reason,then plummet just as quickly, and people who have turned to investing for their childrenseducation and their own retirement become frightened. Sometimes there appears to be norhyme or reason to the market, only folly. This is a quote from the preface to a publishedbiography about the long-term value-oriented stock investor Warren Buffett.[4] Buffettbegan his career with $100, and $105,000 from seven limited partners consisting of 6. Buffetts family and friends. Over the years he has built himself a multi-billion-dollarfortune. The quote illustrates some of what has been happening in the stock marketduring the end of the 20th century and the beginning of the 21st century. 1415. Securities and Exchange Board of India SEBI Bhavan, Mumbai Headquarters of SEBIOrganization Details Headquarters Mumbai, Maharashtra, India Established 1992Jurisdiction India Head Chairman Chairman C B Bhave Term February 16, 2008 - TotalStaff[1] 525 Official Website Website www.sebi.gov.in SEBI is the Regulator for theSecurities Market in India. Originally set up by the Government of India in 1988, itacquired statutory form in 1992 with SEBI Act 1992 being passed by the IndianParliament.Chaired by C B Bhave, SEBI is headquartered in the popular business districtof Bandra-Kurla complex in Mumbai, and has Northern, Eastern, Southern and Westernregional offices in New Delhi, Kolkata, Chennai and Ahmedabad. Organization StructureChandrasekhar Bhaskar Bhave is the sixth chairman of the Securities Market Regulator.Prior to taking charge as Chairman SEBI, he had been the chairman of NSDL (NationalSecurities Depository Limited) ushering in paperless securities. Prior to his stint atNSDL, he had served SEBI as a Senior Executive Director. He is a former IndianAdministrative Service officer of the 1975 batch. The Board comprises[2] NameDesignation As per Mr CB Bhave Chairman SEBI CHAIRMAN (S.4(1)(a) of the SEBIAct, 1516. 1992) Member (S.4(1)(b) of the SEBI Act, Mr KP Krishnan Joint Secretary, Ministry ofFinance 1992) Secretary, Ministry of Corporate Member (S.4(1)(b) of the SEBI Act, MrAnurag Goel Affairs 1992) Dr G Mohan Director, National Judicial Academy, Member(S.4(1)(d) of the SEBI Act, Gopal Bhopal 1992) Member (S.4(1)(d) of the SEBI Act, MrMS Sahoo Whole Time Member, SEBI 1992) Member (S.4(1)(d) of the SEBI Act, DrKM Abraham Whole Time Member, SEBI 1992) Member (S.4(1)(d) of the SEBI Act, MrMohandas Pai Director, Infosys 1992) Functions and Responsibilities SEBI has to beresponsive to the needs of three groups, which constitute the market: the issuers ofsecurities the investors the market intermediaries. SEBI has three functions rolled intoone body quasi-legislative, quasi-judicial and quasi- executive. It drafts regulations in itslegislative capacity, it conducts investigation and enforcement action in its executivefunction and it passes rulings and orders in its judicial capacity. Though this makes itvery powerful, there is an appeals process to create accountability. There is a SecuritiesAppellate Tribunal which is a three member tribunal and is presently headed by a formerChief Justice of a High court - Mr. Justice NK Sodhi. A second appeal lies directly to theSupreme Court. 1617. SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively andsuccessively (e.g. the quick movement towards making the markets electronic andpaperless rolling settlement on T+2 basis). SEBI has been active in setting up theregulations as required under law. Stock exchange A stock exchange, (formerly asecurities exchange) is a corporation or mutual organization which provides "trading"facilities for stock brokers and traders, to trade stocks and other securities. Stockexchanges also provide facilities for the issue and redemption of securities as well asother financial instruments and capital events including the payment of income anddividends. The securities traded on a stock exchange include: shares issued bycompanies, unit trusts, derivatives, pooled investment products and bonds. To be able totrade a security on a certain stock exchange, it has to be listed there. Usually there is a 7. central location at least for recordkeeping, but trade is less and less linked to such aphysical place, as modern markets are electronic networks, which gives them advantagesof speed and cost of transactions. Trade on an exchange is by members only. The initialoffering of stocks and bonds to investors is by definition done in the primary market andsubsequent trading is done in the secondary market. A stock exchange is often the mostimportant component of a stock market. Supply and demand in stock markets is driven byvarious factors which, as in all free markets, affect the price of stocks (see stockvaluation). There is usually no compulsion to issue stock via the stock exchange itself,nor must stock be subsequently traded on the exchange. Such trading is said to be offexchange or over-the-counter. This is the usual way that derivatives and bonds are traded.Increasingly, stock exchanges are part of a global market for securities. The role of stockexchanges Stock exchanges have multiple roles in the economy, this may include thefollowing: 1. Raising capital for businesses 1718. The Stock Exchange provide companies with the facility to raise capital for expansionthrough selling shares to the investing public. 2.Mobilizing savings for investment Whenpeople draw their savings and invest in shares, it leads to a more rational allocation ofresources because funds, which could have been consumed, or kept in idle deposits withbanks, are mobilized and redirected to promote business activity with benefits for severaleconomic sectors such as agriculture, commerce and industry, resulting in strongereconomic growth and higher productivity levels and firms. 3.Facilitating companygrowth Companies view acquisitions as an opportunity to expand product lines, increasedistribution channels, hedge against volatility, increase its market share, or acquire othernecessary business assets. A takeover bid or a merger agreement through the stockmarket is one of the simplest and most common ways for a company to grow byacquisition or fusion. 4.Redistribution of wealth Stock exchanges do not exist toredistribute wealth. However, both casual and professional stock investors, throughdividends and stock price increases that may result in capital gains, will share in thewealth of profitable businesses. 5.Corporate governance By having a wide and variedscope of owners, companies generally tend to improve on their management standardsand efficiency in order to satisfy the demands of these shareholders and the morestringent rules for public corporations imposed by public stock exchanges and thegovernment. Consequently, it is alleged that public companies (companies that are ownedby shareholders who are members of the general public and trade shares on publicexchanges) tend to have better management records than privately-held companies (thosecompanies where shares are not publicly traded, often owned by the company foundersand/or their families and 1819. heirs, or otherwise by a small group of investors). However, some well-documented casesare known where it is alleged that there has been considerable slippage in corporategovernance on the part of some public companies. The dot-com bubble in the early2000s, and the subprime mortgage crisis in 2007-08, are classical examples of corporatemismanagement. Companies like Pets.com (2000), Enron Corporation (2001), One.Tel(2001), Sunbeam (2001), Webvan (2001), Adelphia (2002), MCI WorldCom (2002),Parmalat (2003), American International Group (2008), Lehman Brothers (2008), andSatyam Computer Services (2009) were among the most widely scrutinized by the media.7.Creating investment opportunities for small investors As opposed to other businessesthat require huge capital outlay, investing in shares is open to both the large and small 8. stock investors because a person buys the number of shares they can afford. Therefore theStock Exchange provides the opportunity for small investors to own shares of the samecompanies as large investors. 8.Government capital-raising for development projectsGovernments at various levels may decide to borrow money in order to financeinfrastructure projects such as sewage and water treatment works or housing estates byselling another category of securities known as bonds. These bonds can be raised throughthe Stock Exchange whereby members of the public buy them, thus loaning money to thegovernment. The issuance of such bonds can obviate the need to directly tax the citizensin order to finance development, although by securing such bonds with the full faith andcredit of the government instead of with collateral, the result is that the government musttax the citizens or otherwise raise additional funds to make any regular coupon paymentsand refund the principal when the bonds mature. 9.Barometer of the economy At thestock exchange, share prices rise and fall depending, largely, on market forces. Shareprices tend to rise or remain stable when companies and the economy in general showsigns of stability and growth. An economic recession, depression, or financial crisis couldeventually lead to a stock market crash. Therefore the movement of share prices and ingeneral of the stock indexes can be an indicator of the general trend in the economy. 1920. Bombay Stock Exchange Introduction Bombay Stock Exchange is the oldest stockexchange in Asia with a rich heritage, now spanning three centuries in its 133 years ofexistence. What is now popularly known as BSE was established as "The Native Share &Stock Brokers Association" in 1875. BSE is the first stock exchange in the country whichobtained permanent recognition (in 1956) from the Government of India under theSecurities Contracts (Regulation) Act 1956. BSEs pivotal and pre-eminent role in thedevelopment of the Indian capital market is widely recognized. It migrated from the openoutcry system to an online screen-based order driven trading system in 1995. Earlier anAssociation Of Persons (AOP), BSE is now a corporatised and demutualised entityincorporated under the provisions of the Companies Act, 1956, pursuant to the BSE(Corporatisation and Demutualisation) Scheme, 2005 notified by the Securities andExchange Board of India (SEBI). With demutualisation, BSE has two of worlds bestexchanges, Deutsche Brse and Singapore Exchange, as its strategic partners. Over thepast 133 years, BSE has facilitated the growth of the Indian corporate sector by providingit with an efficient access to resources. There is perhaps no major corporate in Indiawhich has not sourced BSEs services in raising resources from the capital market. Today,BSE is the worlds number 1 exchange in terms of the number of listed companies andthe worlds 5th in transaction numbers. The market capitalization as on December 31,2007 stood at USD 1.79 trillion . An investor can choose from more than 4,700 listedcompanies, which for easy reference, are classified into A, B, S, T and Z groups. TheBSE Index, SENSEX, is Indias first stock market index that enjoys an iconic stature ,and is tracked worldwide. It is an index of 30 stocks representing 12 major sectors. TheSENSEX is constructed on a free-float methodology, and is sensitive to marketsentiments and market realities. Apart from the SENSEX, BSE offers 21 indices,including 12 sectoral indices. BSE has entered into an index cooperation agreement withDeutsche Brse. This agreement has made 2021. SENSEX and other BSE indices available to investors in Europe and America. Moreover,Barclays Global Investors (BGI), the global leader in ETFs through its iShares brand,has created the iShares BSE SENSEX India Tracker which tracks the SENSEX. The 9. ETF enables investors in Hong Kong to take an exposure to the Indian equity market. Thefirst Exchange Traded Fund (ETF) on SENSEX, called "SPIcE" is listed on BSE. Itbrings to the investors a trading tool that can be easily used for the purposes ofinvestment, trading, hedging and arbitrage. SPIcE allows small investors to take a long-term view of the market. BSE provides an efficient and transparent market for trading inequity, debt instruments and derivatives. It has a nation-wide reach with a presence inmore than 359 cities and towns of India. BSE has always been at par with theinternational standards. The systems and processes are designed to safeguard marketintegrity and enhance transparency in operations. BSE is the first exchange in India andthe second in the world to obtain an ISO 9001:2000 certification. It is also the firstexchange in the country and second in the world to receive Information SecurityManagement System Standard BS 7799-2-2002 certification for its BSE On-line TradingSystem (BOLT). BSE continues to innovate. In recent times, it has become the firstnational level stock exchange to launch its website in Gujarati and Hindi to reach out to alarger number of investors. It has successfully launched a reporting platform forcorporate bonds in India christened the ICDM or Indian Corporate Debt Market and aunique ticker-cum-screen aptly named BSE Broadcast which enables informationdissemination to the common man on the street. In 2006, BSE launched the DirectorsDatabase and ICERS (Indian Corporate Electronic Reporting System) to facilitateinformation flow and increase transparency in the Indian capital market. While theDirectors Database provides a single-point access to information on the boards ofdirectors of listed companies, the ICERS facilitates the corporates in sharing with BSEtheir corporate announcements. BSE also has a wide range of services to empowerinvestors and facilitate smooth transactions: 2122. Investor Services: The Department of Investor Services redresses grievances of investors.BSE was the first exchange in the country to provide an amount of Rs.1 million towardsthe investor protection fund; it is an amount higher than that of any exchange in thecountry. BSE launched a nationwide investor awareness programme- Safe Investing inthe Stock Market under which 264 programmes were held in more than 200 cities. TheBSE On-line Trading (BOLT): BSE On-line Trading (BOLT) facilitates on-line screenbased trading in securities. BOLT is currently operating in 25,000 Trader Workstationslocated across over 359 cities in India. BSEWEBX.com: In February 2001, BSEintroduced the worlds first centralized exchange- based Internet trading system,BSEWEBX.com. This initiative enables investors anywhere in the world to trade on theBSE platform. Surveillance: BSEs On-Line Surveillance System (BOSS) monitors on areal-time basis the price movements, volume positions and members positions and real-time measurement of default risk, market reconstruction and generation of cross marketalerts. BSE Training Institute: BTI imparts capital market training and certification, incollaboration with reputed management institutes and universities. It offers over 40courses on various aspects of the capital market and financial sector. More than 20,000people have attended the BTI programmes Awards The World Council of CorporateGovernance has awarded the Golden Peacock Global CSR Award for BSEs initiatives inCorporate Social Responsibility (CSR). The Annual Reports and Accounts of BSE forthe year ended March 31, 2006 and March 31 2007 have been awarded the ICAI awardsfor excellence in financial reporting. 22 10. 23. The Human Resource Management at BSE has won the Asia - Pacific HRM awards forits efforts in employer branding through talent management at work, health managementat work and excellence in HR through technology Drawing from its rich past and itsequally robust performance in the recent times, BSE will continue to remain an icon inthe Indian capital market. History For the premier stock exchange that pioneered thesecurities transaction business in India, over a century of experience is a proudachievement. A lot has changed since 1875 when 318 persons by paying a then princelyamount of Re. 1, became members of what today is called Bombay Stock ExchangeLimited (BSE). Over the decades, the stock market in the country has passed throughgood and bad periods. The journey in the 20th century has not been an easy one. Till thedecade of eighties, there was no measure or scale that could precisely measure thevarious ups and downs in the Indian stock market. BSE, in 1986, came out with a StockIndex-SENSEX- that subsequently became the barometer of the Indian stock market. Thelaunch of SENSEX in 1986 was later followed up in January 1989 by introduction ofBSE National Index (Base: 1983-84 = 100). It comprised 100 stocks listed at five majorstock exchanges in India - Mumbai, Calcutta, Delhi, Ahmedabad and Madras. The BSENational Index was renamed BSE-100 Index from October 14, 1996 and since then, it isbeing calculated taking into consideration only the prices of stocks listed at BSE. BSElaunched the dollar-linked version of BSE-100 index on May 22, 2006. With a view toprovide a better representation of the increasing number of listed companies, largermarket capitalization and the new industry sectors, BSE launched on 27th May, 1994 twonew index series viz., the BSE-200 and the DOLLEX-200. Since then, BSE has come along way in attuning itself to the varied needs of investors and market participants. Inorder to fulfill the need for still broader, segment-specific and sector-specific indices,BSE has continuously 2324. been increasing the range of its indices. BSE-500 Index and 5 sectoral indices werelaunched in 1999. In 2001, BSE launched BSE-PSU Index, DOLLEX-30 and thecountrys first free-float based index - the BSE TECk Index. Over the years, BSE shiftedall its indices to the free-float methodology National Stock Exchange of India NationalStock Exchange Limited Type Stock Exchange Location Mumbai, India 19337N725135E/19.06028N Coordinates 72.85972E/19.06028;72.85972 Owner National Stock Exchange of India Limited Key people Mr. Ravi Narain(Managing Director & CEO) Currency INR No. of listings 1587 MarketCap US$ 1.46trillion (2006) S&P CNX Nifty Indexes CNX Nifty Junior S&P CNX 500 Websitehttp://www.nse-india.com/ 2425. NSE is mutually-owned by a set of leading financial institutions, banks, insurancecompanies and The National Stock Exchange of India Limited (NSE), is a Mumbai-basedstock exchange. It is the largest stock exchange in India in terms of daily turnover andnumber of trades, for both equities and derivative trading.[1]. Though a number of otherexchanges exist, NSE and the Bombay Stock Exchange are the two most significant stockexchanges in India, and between them are responsible for the vast majority of sharetransactions. The NSEs key index is the S&P CNX Nifty, known as the Nifty, an indexof fifty major stocks weighted by market capitalisation. other financial intermediaries inIndia but its ownership and management operate as separate entities. There are at least 2foreign investors NYSE Euronext and Goldman Sachs who have taken a stake in theNSE. As of 2006[update], the NSE VSAT terminals, 2799 in total, cover more than 1500 11. cities across India . In October 2007, the equity market capitalization of the companieslisted on the NSE was US$ 1.46 trillion, making it the second largest stock exchange inSouth Asia. NSE is the third largest Stock Exchange in the world in terms of the numberof trades in equities. It is the second fastest growing stock exchange in the world with arecorded growth of 16.6%. Origins NSE building at BKC The National Stock Exchangeof India was promoted by leading Financial institutions at the behest of the Governmentof India, and was incorporated in November 1992 as a tax-paying company. In April1993, it was recognized as a stock exchange under the Securities Contracts (Regulation)Act, 1956. NSE commenced operations in the Wholesale Debt Market (WDM) segmentin June 1994. The Capital Market (Equities) segment of the NSE commenced operationsin November 1994, while operations in the Derivatives segment commenced in June2000. Innovations 2526. NSE has remained in the forefront of modernization of Indias capital and financialmarkets, and its pioneering efforts include: Being the first national, anonymous,electronic limit order book (LOB) exchange to trade securities in India. Since the successof the NSE, existent market and new market structures have followed the "NSE" model. Setting up the first clearing corporation "National Securities Clearing Corporation Ltd."in India. NSCCL was a landmark in providing innovation on all spot equity market (andlater, derivatives market) trades in India. Co-promoting and setting up of NationalSecurities Depository Limited, first depository in India[2]. Setting up of S&P CNXNifty. NSE pioneered commencement of Internet Trading in February 2000, which ledto the wide popularization of the NSE in the broker community. Being the firstexchange that, in 1996, proposed exchange traded derivatives, particularly on an equityindex, in India. After four years of policy and regulatory debate and formulation, the NSEwas permitted to start trading equity derivatives Being the first and the only exchange totrade GOLD ETFs (exchange traded funds) in India. NSE has also launched the NSE-CNBC-TV18 media centre in association with CNBC- TV18, it is the one of the mostimportant stock exchange in the world. S&P CNX Nifty S&P CNX Nifty is a welldiversified 50 stock index accounting for 21 sectors of the economy. It is used for avariety of purposes such as benchmarking fund portfolios, index based derivatives andindex funds. S&P CNX Nifty is owned and managed by India Index Services andProducts Ltd. (IISL), which 2627. is a joint venture between NSE and CRISIL. IISL is Indias first specialised companyfocused upon the index as a core product. IISL has a Marketing and licensing agreementwith Standard & Poors (S&P), who are world leaders in index services. The total tradedvalue for the last six months of all Nifty stocks is approximately 65.68% of the tradedvalue of all stocks on the NSE Nifty stocks represent about 65.34% of the total marketcapitalization as on Mar 31, 2009. Impact cost of the S&P CNX Nifty for a portfoliosize of Rs.2 crore is 0.16% S&P CNX Nifty is professionally maintained and is ideal forderivatives trading Sensex & the Nifty The Sensex is an "index". What is an index? Anindex is basically an indicator. It gives you a general idea about whether most of thestocks have gone up or most of the stocks have gone down. The Sensex is an indicator ofall the major companies of the BSE. The Nifty is an indicator of all the major companiesof the NSE. If the Sensex goes up, it means that the prices of the stocks of most of themajor companies on the BSE have gone up. If the Sensex goes down, this tells you thatthe stock price of most of the major stocks on the BSE have gone down. Just like the 12. Sensex represents the top stocks of the BSE, the Nifty represents the top stocks of theNSE. Just in case you are confused, the BSE, is the Bombay Stock Exchange and theNSE is the National Stock Exchange. The BSE is situated at Bombay and the NSE issituated at Delhi. These are the major stock exchanges in the country. There are otherstock exchanges like the Calcutta Stock Exchange etc. but they are not as popular as theBSE and the NSE.Most of the stock trading in the country is done though the BSE & theNSE. 2728. Besides Sensex and the Nifty there are many other indexes. There is an index that givesyou an idea about whether the mid-cap stocks go up and down. This is called the BSEMid-cap Index. The reasons for stock prices going "up" and "down" Stock prices changeevery day because of market forces. By this we mean that stock prices change because ofsupply and demand. If more people want to buy a stock (demand) than sell it (supply),then the price moves up! Conversely, if more people wanted to sell a stock than buy it,there would be greater supply than demand, and the price would fall. (Basics ofeconomics!) Understanding supply and demand is easy. What is difficult to understand iswhat makes people like a particular stock and dislike another stock. If you understandthis, you will know what people are buying and what people are selling. If you know thisyou will know what prices go up and what prices go down! To figure out the likes anddislikes of people, you have to figure out what news is positive for a company and whatnews is negative and how any news about a company will be interpreted by the people.The most important factor that affects the value of a company is its earnings. Earnings arethe profit a company makes, and in the long run no company can survive without them. Itmakes sense when you think about it. If a company never makes money, it isnt going tostay in business. Public companies are required to report their earnings four times a year(once each quarter). Dalal Street watches with great attention at these times, which arereferred to as earnings seasons. The reason behind this is that analysts base their futurevalue of a company on their earnings projection. If a companys results are better thanexpected, the price jumps up. If a companys results disappoint and are worse thanexpected, then the price will fall. 2829. Of course, its not just earnings that can change the feeling people have about a stock. Itwould be a rather simple world if this were the case! During the dotcom bubble, forexample, the stock price of dozens of internet companies rose without ever making eventhe smallest profit. As we all know, these high stock prices did not hold, and mostinternet companies saw their values shrink to a fraction of their highs. Still, this factdemonstrates that there are factors other than current earnings that influence stocks. So,what are "all the factors" that affect the stocks price? The best answer is that nobodyreally knows for sure. Some believe that it isnt possible to predict how stock prices willchange, while others think that by drawing charts and looking at past price movements,you can determine when to buy and sell. The only thing we do know is that stocks arevolatile and can change in price very very rapidly. The reasons for which companiesissue stocks Why would the founders share the profits with thousands of people whenthey could keep profits to themselves? The reason is that at some point every companyneeds to "raise money". To do this, companies can either borrow it from somebody orraise it by selling part of the company, which is known as issuing stock. A company canborrow by taking a loan from a bank or by issuing bonds. Both methods come under"debt financing". On the other hand, issuing stock is called equity financing. Issuing 13. stock is advantageous for the company because it does not require the company to payback the money or make interest payments along the way. All that the shareholders get inreturn for their money is the hope that the shares will someday be worth more than whatthey paid for them. The first sale of a stock, which is issued by the private company itself,is called the initial public offering (IPO). It is important that you understand thedistinction between a company financing through 2930. debt and financing through equity. When you buy a debt investment such as a bond, youare guaranteed the return of your money (the principal) along with promised interestpayments. This isnt the case with an equity investment. By becoming an owner, youassume the risk of the company not being successful - just as a small business owner isntguaranteed a return, neither is a shareholder. Shareholders earn a lot if a company issuccessful, but they also stand to lose their entire investment if the company isntsuccessful. Stock Picking Having understood all the basics of the stock market and therisk involved, now we will go into stock picking and how to pick the right stock. Beforepicking the right stock you need to do some analysis. There are two major types ofanalysis: 1. Fundamental Analysis 2. Technical Analysis Fundamental analysis is theanalysis of a stock on the basis of core financial and economic analysis to predict themovement of stocks price. On the other hand, technical analysis is the study of prices andvolume, for forecasting of future stock price or financial price movements. Simply put,fundamental analysis looks at the actual company and tries to figure out what thecompany price is going to be like in the future. On the other hand technical analysis lookat the stocks chart, peoples buying behavior etc. to try and figure out what the stock priceis going to be like in the future. In this article we will go into the basics of fundamentalanalysis. Technical analysis is a little more complicated. It is much more of an "art" thana science. It depends more on experience and involves some statistics and mathematics,so explaining technical analysis is out of the scope of this article. Calculation of BSESENSEX 3031. This article explains how the value of the BSE Sensex or sensitive index iscalculated. If you are not sure what we mean by the Sensex or what the Sensex is allabout, you can find this out by reading our How to make money in the stock market?article. The Sensex has a very important function. The Sensex is supposed to be anindicator of the stocks in the BSE. It is supposed to show whether the stocks are generallygoing up, or generally going down. To show this accurately, the Sensex is calculatedtaking into consideration stock prices of 30 different BSE listed companies. It iscalculated using the free-float market capitalization method. This is a world wideaccepted method as one of the best methods for calculating a stock market index. Pleasenote: The method used for calculating the Sensex and the 30 companies that are takeninto consideration are changed from time to time. This is done to make the Sensex anaccurate index and so that it represents the BSE stocks properly. 3 important things youmust know and follow as an new investor! You need to KNOW some unforgettablebasics before you enter the world of investing in stocks. The stock market is a fielddominated by savvy investors who know the ins-and-outs of the market. For people whoare not on the inside, the stock market can be a VERY dangerous place. : Dont evenconsider "tips" that tell you about "hot stocks". Consider the source: There are manypeople in the market who put in all their time and effort in promoting certain stocks. Theydo this because they have their money invested in those stocks. If they can get enough 14. people to buy the stock and they can get the stock price to rise, they will sell the stock fora huge price, the stock price will crash and they will walk off to promote another stock.Always use your own brain: Its extremely important. You must always use your ownbrain. Relying on the advice of others, no matter how well intentioned it may be, isalmost always a complete disaster. Make sure you dig in and really examine the "factsabout the companies" 3132. before you invest. Ignore press releases which have very little substance, and rely on"hype" to tell the companys story. And finally the most important tip!!! Only investmoney you can afford to lose!! Sure this is a basic point, but many many people miss it.You should only invest money that you can honestly afford to lose!! Everyone enters intoinvestments with the idea of earning big profits, but in many cases, this never works.(Especially if you are new to investing in the stock market!) Please understand that theabove tips are tips for beginners. Once you really get into the stock market you do notneed to follow these rules anymore. But if you are a new investor, you MUST followthese rules. They are for your own safety. But then again, nothing comes free. Everythinghas a price. You will have to loose some money, make some bad decisions and then onlywill you really understand the market. You cannot understand the market by just lookingat it from far. By following these rules, you will basically not loose too much!Derivatives Commodities whose value is derived from the price of some underlying assetlike securities, commodities, bullion, currency, interest level, stock market index oranything else are known as Derivatives. In more simpler form, derivatives are financialsecurity such as an option or future whose value is derived in part from the value andcharacteristics of another security, the underlying asset. It is a generic term for a varietyof financial instruments. Essentially, this means you buy a promise to convey ownershipof the asset, rather than the asset itself. The legal terms of a contract are much morevaried and flexible than the terms of property ownership. In fact, its this flexibility thatappeals to investors 3233. . When a person invests in derivative, the underlying asset is usually a commodity, bond,stock, or currency. He bet that the value derived from the underlying asset will increaseor decrease by a certain amount within a certain fixed period of time. Futures andoptions are two commodity traded types of derivatives. An options contract gives theowner the right to buy or sell an asset at a set price on or before a given date. On the otherhand, the owner of a futures contract is obligated to buy or sell the asset. The otherexamples of derivatives are warrants and convertible bonds (similar to shares in that theyare assets). But derivatives are usually contracts. Beyond this, the derivatives range isonly limited by the imagination of investment banks. It is likely that any person who hasfunds invested, an insurance policy or a pension fund, that they are investing in, andexposed to, derivatives wittingly or unwittingly. Shares or bonds are financial assetswhere one can claim on another person or corporation; they will be usually be fairlystandardised and governed by the property of securities laws in an appropriate country.On the other hand, a contract is merely an agreement between two parties, where thecontract details may not be standardized. Derivatives securities or derivatives productsare in real terms contracts rather than solid as it fairly sounds. India Commodity Market3334. The vast geographical extent of India and her huge population is aptly complemented bythe size of her market. The broadest classification of the Indian Market can be made in 15. terms of the commodity market and the bond market. Here, we shall deal with the formerin a little detail. The commodity market in India comprises of all palpable markets thatwe come across in our daily lives. Such markets are social institutions that facilitateexchange of goods for money. The cost of goods is estimated in terms of domesticcurrency . India Commodity Market can be subdivided into the following two categories: Wholesale Market Retail Market Let us now take a look at what the present scenarioof each of the above markets is like. The traditional wholesale market in India dealt withwhole sellers who bought goods from the farmers and manufacturers and then sold themto the retailers after making a profit in the process. It was the retailers who finally soldthe goods to the consumers. With the passage of time the importance of whole sellersbegan to fade out for the following reasons: The whole sellers in most situations, actedas mere parasites who did not add any value to the product but raised its price which waseventually faced by the consumers. The improvement in transport facilities made theretailers directly interact with the producers and hence the need for whole sellers was notfelt. In recent years,the extent of the retail market (both organized and unorganized) hasevolved in leaps and bounds. In fact, the success stories of the commodity market ofIndia in recent years has mainly centered around the growth generated by the RetailSector. Almost every commodity under the sun both agricultural and industrial are nowbeing provided at well distributed retail outlets throughout the country. Moreover, theretail outlets belong to both the organized as well as the unorganized sector. Theunorganized retail outlets of the yesteryears consist of small shop owners who are pricetakers where consumers face a highly competitive price structure. The organized sectoron the other hand are owned by various business houses like Pantaloons, Reliance, Tataand others. Such 3435. markets are usually sell a wide range of articles both agricultural and manufactured,edible and inedible, perishable and durable. Modern marketing strategies and othertechniques of sales promotion enable such markets to draw customers from every sectionof the society. However the growth of such markets has still centered around the urbanareas primarily due to infrastructural limitations. Considering the present growth rate, thetotal valuation of the Indian Retail Market is estimated to cross Rs. 10,000 billion by theyear 2010. Demand for commodities is likely to become four times by 2010 than what itpresently is. Money Market When the stock prices show a downward trend , then itbecomes risky to keep savings there. Although the stock market is associated with highrisks and high returns , many are risk averse and prefer to invest in the more securemoney market . The money market deals with very short term debt securities that maturein less than a year. Since the money market is extremely safe, it yields very low returnsunlike the bond market. The money market securities that are issued by the governmentor financial institutions or large corporations are very liquid. Since the money marketsecurities trade at very high denominations it becomes very difficult for the individualinvestors to have access to it. The money market is a type of a dealer market where firmspurchase securities in their own account by assuming the risks themselves. Unlike thestock exchanges the money market securities do not operate in exchanges or throughbrokers. Transactions take place over phone or the electronic system. One may browsethrough the following links to have a more detailed information about money market.Money Market Definition Money Market Definition is simply meant as the short-termdebt market. Treasury Bills and 35 16. 36. certificate of deposits are regarded as the instruments in the money market. World MoneyMarket World Money Market has been providing origination, trading and the distributionof short-term debt instruments across different regions over the world. Find detailed onthe world money market. Money Market Index Money Market Index is a true indicator ofthe prevailing money market, which renders a clear-cut idea on making investment.Money Market Rates Money Market Rates can be simply defined as the market ratesincluding the broker call loan rate, federal funds rate, rates on bankers acceptance etc.Get the method of finding the money market rates. Major Factors That Affect Stock Pricein stock market globally When you wish to invest in the stock market, then you shouldalways make a good survey of the whole market. As you know that you cannot predictthe stock market, so in that case you need to know the functioning of the market. Thereare some major factors that affect stock price. So let us discuss about the different factorsaffecting the stock price in this article. Demand AND SUPPLY One of the major factorsaffecting stock price is demand and supply. The trend of the stock market trading directlyaffects the price. When people are buying more stocks, then the price of that particularstock increases. On the other hand if people are selling more stocks, then the price of thatstock falls. So, you should be very careful when you decide to invest in the Indian stockmarket. Market Cap 3637. Never try to guess the worth of a company simply by comparing the price of the stock.You should always keep in mind that it is not the stock but the market capitalization ofthe company that determines the worth of the company. So market cap is another factorthat affects stock price. "Market Capitalization"? You probably think that you have neverheard of the term market capitalization before. You have! When you are talking aboutmid-cap, small-cap and large-cap stocks, you are talking about marketcapitalization! Market cap or market capitalization is simply the worth of a company interms of its shares! To put it in a simple way, if you were to buy all the shares of aparticular company, what is the amount you would have to pay? That amount is called themarket capitalization! To calculate the market cap of a particular company, simplymultiply the current share price by the number of shares issued by the company! Justto give you an idea, ONGC, has a market cap of Rs.170,705.21 Cr (when this articlewas written) Depending on the value of the market cap, the company will either be amid-cap or large- cap or small-cap company! Now the question is, how do YOUcalculate the market cap of a particular company? You dont! Just go to a website likeMoneyControl.com and look up the company whose market cap you are interested infinding out! The figure in front of Mkt. Cap will be the market cap value. News Whenyou get positive news about a company then it can increase the buying interest in themarket. On the other hand, when there is a negative press release, it can ruin the prospectof a stock. In this case you should remember that news should not matter much but theoverall performance of the company matters more. So, news is another factor affectingstock price. Earning/Price Ratio 3738. Another important factor affecting stock price is the earning/price ratio. This gives you afair idea of a companys share price when it is compared to its earnings. The stockbecomes undervalued if the price of the share is much lower than the earnings of acompany. But if this is the case, then it has the potential to rise in the near future. Thestock becomes overvalued if the price is much higher than the actual earning. So, theseare the major factors that affect stock price. Day Trading Day trading (and trading in 17. general) is the buying and selling of various financial instruments, such as futures,options, currencies, and stocks, with the goal of making a profit from the differencebetween the buying price and the selling price. Day trading differs slightly from otherstyles of trading in that positions are rarely (if ever) held overnight or when the marketbeing traded is closed. Day trading was originally only available to financial companies(such as banks), because only they had access to the exchanges and market data. But withrecent technology such as the Internet, individual traders now have direct access to thesame exchanges and market data, and can make the same trades at very low cost. TradingStyles There are several different styles of day trading, suited to different day traderpersonalities. The styles range from short term trading such as scalping where positionsare only held for a few seconds or minutes, to longer term swing and position tradingwhere a position may be held throughout the trading day. Most day trading systems havea lot of flexibility, and can have open positions for anywhere from a few minutes to a fewhours, depending upon how the trade is doing (whether it is in profit). Some day traderswill trade multiple styles, but most traders will choose a single style and only take thattype of trade. 3839. Day trading also has different types of trade, such as trend trades, counter-trend trades,and ranging trades. Trend trades are trades in the direction of the current price movement(i.e. buying if the price is moving up), and counter-trend trades are trades against thedirection of the current price movement (i.e. selling if the price is moving up). Rangingtrades are trades that go back and forth between two prices, and are used when the marketis moving sideways. Most day traders will choose a single type of trade, but some traderswill take different types, and choose which one to trade depending upon the currentcondition of the market. In addition to the style and type of day trading, there are othervariances between day traders. Some day traders like to make many trades throughout thetrading day, while others prefer to wait for what they consider the best conditions fortheir trade, and perhaps only make one trade per day. However many trades are made, thetrading process that is used, and the desired goal of making a profit, are the same. CurrentState of the Indian Economy: Capital Inflows During the April-January period of 2008-09, India attracted total foreign investments of US $ 15,545 million. The foreign directinvestment (FDI) stood at US $ 27,426 million, while the portfolio investment stood atUS $ -11,881 million. Monthly trends in foreign investments ($ million) Foreign directTotal foreign Months Portfolio investments investments investments 2007- 2007-08(P)2008-09(P) 2007-08(P) 2008-09(P) 2008-09(P) 08(P) April 1643 3749 1974 -880 36172869 May 2120 3932 1852 -288 3972 3644 3940. June 1238 2392 3664 -3010 4902 -618 July 705 2247 6713 -492 7418 1755 August 8312328 -2875 593 -2044 2921 September 713 2562 7081 -1403 7794 1159 October 20271497 9564 -5243 11591 -3746 November 1864 1083 -107 -574 1757 509 December 15581362 5294 30 6852 1392 January 1767 2733 6739 -614 8506 2119 February 5670 - -8904- -3234 - March 4438 - -1600 - 2838 - April- - 27426 - -11881 - 15545 January Source:Reserve Bank of India (RBI) Stock Market Trends * NSE - 50, i.e., Nifty has beenrechristened asS & P CNX Nifty with effect BSE Sensitive Index BSE - 100 S & PCNX Nifty * (Base : 1978 - 79 = 100) (Base : 1983 - 84 = 100) (Base : November 3,1995 = 1000) AveragHigh Low Average High Low Aver- High Low e age 1 2 3 4 5 6 7 89 10 40 18. 41. Jan-08 19325.6 20873.33 16729.94 10526.54 11509.96 8895.64 5756.35 6287.854899.30 5 Feb-08 17727.5 18663.16 16608.01 9435.60 9969.59 8785.88 5201.565483.90 4838.25 4 Mar- 15838.3 16677.88 14809.49 8363.58 8907.23 7828.01 4769.504953.00 4503.10 08 8 Apr-0816290.9 17378.46 15343.12 8627.59 9240.57 8095.024901.91 5195.50 4647.00 9 May- 16945.6 17600.12 16275.59 8982.20 9348.64 8621.845028.66 5228.20 4835.30 08 5 June- 14997.2 16063.18 13461.60 7909.28 8488.627029.74 4463.79 4739.60 4040.55 08 8 July- 13716.1 14942.28 12575.80 7143.717760.32 6580.67 4124.60 4476.80 3816.70 08 8 Aug-0814722.1 15503.92 14048.347704.75 8101.48 7362.49 4417.12 4620.40 4214.00 3 Sept- 13942.8 15049.86 12595.757276.35 7860.87 6564.06 4206.69 4504.00 3850.05 08 1 Oct-08 10549.6 13055.678509.56 5432.92 6776.87 4343.21 3210.22 3950.75 2524.20 5 Nov-089453.96 10631.128451.01 4823.36 5396.09 4332.17 2834.79 3148.25 2553.15 Dec-08 9513.58 10099.918739.24 4864.55 5181.94 4443.50 2895.80 3077.50 2656.45 Jan-09 9350.42 10335.938674.35 4802.01 5328.95 4441.84 2854.36 3121.45 2678.55 4142. Full Market 52 Week Turnover Capitalisation INDICES % to % to Total Close High Low(Rs. crore) Total (Rs. crore) Turnover Mkt Cap SENSEX 14,060.66 17,293.34 7,697.392,120,875.46 47.08 2,622.93 31.17 MIDCAP 4,673.77 7,162.60 2,547.91 623,990.5413.85 2,638.65 31.36 SMLCAP 5,208.18 8,802.18 2,864.24 211,367.38 4.69 906.6810.77 BSE-100 7,285.25 9,186.01 3,949.13 3,450,102.13 76.59 5,528.28 65.69 BSE-2001,692.43 2,157.02 921.75 3,897,398.18 86.52 6,917.42 82.20 BSE-500 5,240.70 6,890.082,899.28 4,262,866.24 94.64 8,019.12 95.29 BSE Sectoral Indices AUTO 4,516.634,888.65 2,127.86 137,683.58 3.06 184.56 2.19 BANKEX 7,919.53 8,688.54 3,598.92407,161.95 9.04 663.40 7.88 CD 2,516.14 4,774.05 1,428.75 12,251.27 0.27 48.02 0.57CG 11,411.90 13,744.98 5,393.91 284,809.36 6.32 735.60 8.74 FMCG 2,112.10 2,505.601,549.27 182,863.45 4.06 128.70 1.53 HC 3,330.60 4,602.15 2,490.86 123,485.99 2.74202.39 2.41 IT 2,853.96 4,746.59 1,987.81 253,874.53 5.64 272.77 3.24 METAL9,907.46 17,408.60 3,806.79 373,805.71 8.30 660.86 7.85 OIL&GAS 9,607.54 11,472.374,569.45 807,925.77 17.94 977.77 11.62 POWER 2,741.62 3,312.77 1,274.88 533,748.3811.85 756.38 8.99 PSU 7,427.20 7,750.93 3,853.28 1,346,803.04 29.90 668.18 7.94REALTY 3,361.43 8,001.23 1,297.82 104,081.66 2.31 1,042.16 12.38 4243. TECk 2,472.72 3,664.41 1,618.77 570,638.99 12.67 750.15 8.91 BSE Dollex IndicesDOLLEX-30 2,423.64 3,328.13 0.00 -- -- -- -- DOLLEX- 1,582.32 2,227.59 0.00 -- -- -- -- 100 DOLLEX- 591.58 841.82 0.00 -- -- -- -- 200 Note : The market capitalisation of allthe indices is free float market capitalisation except for BSEPSU. Trends in Inflation 4344. (1) Index Numbers Of Wholesale Prices in India ( Monthly Averages) (Base: 1993-94 =100) Year Month All Primary Fuel, Power, Manufactured Commodities Articles Light &Products Lubricants 2006 January 196.30 194.78 310.80 171.28 February 196.43 192.88314.10 171.40 March 196.75 191.90 315.50 171.90 April 199.02 195.84 317.00 173.76May 201.30 200.63 320.08 175.05 June 203.10 205.05 324.73 175.30 July 204.02 202.76326.94 177.00 August 205.28 204.93 328.80 177.83 September 207.76 211.72 330.32179.08 4445. Forex An overview of the Forex market The Forex market is a non-stop cash marketwhere currencies of nations are traded, typically via brokers. Foreign currencies areconstantly and simultaneously bought and sold across local and global markets andtraders investments increase or decrease in value based upon currency movements.Foreign exchange market conditions can change at any time in response to real-time 19. events. The main enticements of currency dealing to private investors and attractions forshort-term Forex trading are: 24-hour trading, 5 days a week with non-stop access toglobal Forex dealers. An enormous liquid market making it easy to trade mostcurrencies. Volatile markets offering profit opportunities. Standard instruments forcontrolling risk exposure. The ability to profit in rising or falling markets. Leveragedtrading with low margin requirements. Many options for zero commission trading.Forex trading The investors goal in Forex trading is to profit from foreign currencymovements. Forex trading or currency trading is always done in currency pairs. Forexample, the exchange rate of EUR/USD on Aug 26th, 2003 was 1.0857. This number isalso referred to as a "Forex rate" or just "rate" for short. If the investor had bought 1000euros on that date, he would have paid 1085.70 U.S. dollars. One year later, the Forexrate was 1.2083, which means that the value of the euro (the numerator of the EUR/USDratio) increased in relation to the U.S. dollar. The 4546. investor could now sell the 1000 euros in order to receive 1208.30 dollars. Therefore, theinvestor would have USD 122.60 more than what he had started one year earlier.However, to know if the investor made a good investment, one needs to compare thisinvestment option to alternative investments. At the very minimum, the return oninvestment (ROI) should be compared to the return on a "risk-free" investment. Oneexample of a risk-free investment is long-term U.S. government bonds since there ispractically no chance for a default, i.e. the U.S. government going bankrupt or beingunable or unwilling to pay its debt obligation. When trading currencies, trade only whenyou expect the currency you are buying to increase in value relative to the currency youare selling. If the currency you are buying does increase in value, you must sell back theother currency in order to lock in a profit. An open trade (also called an open position) isa trade in which a trader has bought or sold a particular currency pair and has not yet soldor bought back the equivalent amount to close the position. However, it is estimated thatanywhere from 70%-90% of the FX market is speculative. In other words, the person orinstitution that bought or sold the currency has no plan to actually take delivery of thecurrency in the end; rather, they were solely speculating on the movement of thatparticular currency. Forex-Forecasting This article provides insight into the two majormethods of analysis used to forecast the behavior of the Forex market. Technical analysisand fundamental analysis differ greatly, but both can be useful forecast tools for theForex trader. They have the same goal - to predict a price or movement. The technicianstudies the effect while the fundamentalist studies the cause of market movement. Manysuccessful traders combine a mixture of both approaches for superior results. AnalysisTechnical analysis is a method of predicting price movements and future market trendsby studying charts of past market action. Technical analysis is concerned with what hasactually 4647. happened in the market, rather than what should happen and takes into account the priceof instruments and the volume of trading, and creates charts from that data to use as theprimary tool. One major advantage of technical analysis is that experienced analysts canfollow many markets and market instruments simultaneously. Technical analysis is builton three essential principles: 1. Market action discounts everything! This means that theactual price is a reflection of everything that is known to the market that could affect it,for example, supply and demand, political factors and market sentiment. However, thepure technical analyst is only concerned with price movements, not with the reasons for 20. any changes. 2. Prices move in trends Technical analysis is used to identify patterns ofmarket behavior that have long been recognized as significant. For many given patternsthere is a high probability that they will produce the expected results. Also, there arerecognized patterns that repeat themselves on a consistent basis. 3. History repeats itselfForex chart patterns have been recognized and categorized for over 100 years and themanner in which many patterns are repeated leads to the conclusion that humanpsychology changes little over time. Forex charts are based on market action involvingprice. There are five categories in Forex technical analysis theory: Indicators(oscillators, e.g.: Relative Strength Index (RSI) Number theory (Fibonacci numbers,Gann numbers) Waves (Elliott wave theory) Gaps (high-low, open-closing)Trends (following moving average). Some major technical analysis tools are describedbelow: Relative Strength Index (RSI): 4748. The RSI measures the ratio of up-moves to down-moves and normalizes the calculationso that the index is expressed in a range of 0-100. If the RSI is 70 or greater, then theinstrument is assumed to be overbought (a situation in which prices have risen more thanmarket expectations). An RSI of 30 or less is taken as a signal that the instrument may beoversold (a situation in which prices have fallen more than the market expectations).Stochastic oscillator: This is used to indicate overbought/oversold conditions on a scaleof 0-100%. The indicator is based on the observation that in a strong up trend, periodclosing prices tend to concentrate in the higher part of the periods range. Conversely, asprices fall in a strong down trend, closing prices tend to be near to the extreme low of theperiod range. Stochastic calculations produce two lines, %K and %D that are used toindicate overbought/oversold areas of a chart. Divergence between the stochastic linesand the price action of the underlying instrument gives a powerful trading signal. MovingAverage Convergence Divergence (MACD): This indicator involves plotting twomomentum lines. The MACD line is the difference between two exponential movingaverages and the signal or trigger line, which is an exponential moving average of thedifference. If the MACD and trigger lines cross, then this is taken as a signal that achange in the trend is likely. Number theory: Fibonacci numbers: The Fibonacci numbersequence (1,1,2,3,5,8,13,21,34...) is constructed by adding the first two numbers to arriveat the third. The ratio of any number to the next larger number is 62%, which is a popularFibonacci retracement number. The inverse of 62%, which is 38%, is also used as aFibonacci retracement number. 4849. Gann numbers: W.D. Gann was a stock and a commodity trader working in the 50s whoreputedly made over million in the markets. He made his fortune using methods that hedeveloped for trading instruments based on relationships between price movement andtime, known as time/price equivalents. There is no easy explanation for Ganns methods,but in essence he used angles in charts to determine support and resistance areas andpredict the times of future trend changes. He also used lines in charts to predict supportand resistance areas. Waves Elliott wave theory: The Elliott wave theory is an approachto market analysis that is based on repetitive wave patterns and the Fibonacci numbersequence. An ideal Elliott wave patterns shows a five-wave advance followed by a three-wave decline. Gaps Gaps are spaces left on the bar chart where no trading has takenplace. An up gap is formed when the lowest price on a trading day is higher than thehighest high of the previous day. A down gap is formed when the highest price of the dayis lower than the lowest price of the prior day. An up gap is usually a sign of market 21. strength, while a down gap is a sign of market weakness. A breakaway gap is a price gapthat forms on the completion of an important price pattern. It usually signals thebeginning of an important price move. A runaway gap is a price gap that usually occursaround the mid-point of an important market trend. For that reason, it is also called ameasuring gap. An exhaustion gap is a price gap that occurs at the end of an importanttrend and signals that the trend is ending. Trends A trend refers to the direction of prices.Rising peaks and troughs constitute an up trend; falling peaks and troughs constitute adowntrend that determines the steepness of the current trend. The breaking of a trend lineusually signals a trend reversal. Horizontal peaks and troughs characterize a tradingrange. Moving averages are used to smooth price information in order to confirm trendsand support and resistance levels. They are also useful in deciding on a trading strategy,particularly in futures trading or a market with a strong up or down trend. 4950. The most common technical tools: Coppock Curve is an investment tool used in technicalanalysis for predicting bear market lows. DMI (Directional Movement Indicator) is apopular technical indicator used to determine whether or not a currency pair is trending.Unlike the fundamental analyst, the technical analyst is not much concerned with any ofthe "bigger picture" factors affecting the market, but concentrates on the activity of thatinstruments market. Fundamental analysis Fundamental analysis is a method offorecasting the future price movements of a financial instrument based on economic,political, environmental and other relevant factors and statistics that will affect the basicsupply and demand of whatever underlies the financial instrument. In practice, manymarket players use technical analysis in conjunction with fundamental analysis todetermine their trading strategy. Fundamental analysis focuses on what ought to happenin a market. Factors involved in price analysis: Supply and demand, seasonal cycles,weather and government policy. Fundamental analysis is a macro or strategic assessmentof where a currency should be trading based on any criteria but the movement of thecurrencys price itself. These criteria often include the economic condition of the countrythat the currency represents, monetary policy, and other "fundamental" elements. Manyprofitable trades are made moments prior to or shortly after major economicannouncements. 5051. What happened in 2008? Sensex was crossed 21,000 levels in January and analystspredicted 25,000 levels but Sensex fell to 7,800 in October. Experts are now talkingabout 7,000 targets in 2009. But todays it has been touch the point 14000 due togovernment stability. 2. Rupee strengthened to 39 against dollar and analysts like ICICIKamat predicted 35 levels but rupee fell to 50 levels. Experts are now talking about 55against dollar in 2009. 3. Crude Oil prices touched $147 per barrel and Goldman Sachstalked about $200 per barrel but crude oil in now trading around $45 levels. Experts arenow talking about $30 per barrel in 20094. Inflation moved to 13% and analysts talkedabout 15% but inflation fell to 8% in December. Experts are now talking about 4% levelsin 2009. They are actually now talking about deflation. 5. Indian GDP grew at 9% in2007-08 and analysts predicted about 10% growth in 2009. Experts are now talking about7% GDP growth in 2008-09 and 5% GDP growth in 2009-10. 6. Commodities tradedaround all time high levels in June, 2008 but they collapsed to 2003 levels in December,2008. Companies are now shutting down plants and are removing employees due to lackof demand and piling up of inventories. 7. Investment banking is the most sought afterindustry in early 2008. They are now either disappeared or merged with banks. 51 22. 52. 8. Real Estate prices reached stratospheric levels in early 2008 but investors bought themas if there will be no land available for purchase in 2009. They are now announcingbonuses and free offers to attract buyers. Many real estate stocks were corrected by 70-90% in this year alone. We will hear some bankruptcies in 2009 in this sector. DLF andUnitech will cut prices by 30% in 2009. Investment lessons from 2008: 1. Unlike in past,stock markets now become more dynamic, more volatile and more unpredictable due tomore global integration of economy and money flows. 2. Stock market investors willnever react normally they will either overreact or under react to the economic orpolitical events. One should take into consideration this psychological aspect along withbusiness fundamentals in arriving at price target. 3. As I said in my previous posts, stockmarkets always move much ahead of real economy. If real economy will suffer in early2009, stocks fell by October, 2008. If economic conditions will improve by early 2010,stocks will rise by late 2009. 4. Timing: It is very difficult to time the stock marketinvestments. 80% of price variations occur in 20% of days time of maximum profitsand losses. On 18 May we have been seen more variation in recession time market hasbeen touched the level of 14000 with growth of 2100 points 5. Significant falls or rises donot occur in slow motion. They are steep and severe. 6. Never follow herds. Believe inyour research and gut feeling. Just see what happened to investors in Reliance PowerIPO. 7. Biggest investment lesson: When investors are in panic mood, even goodcompanies with strong growth prospects also fall along with bad overvalued stocks.Significant statements: 1. RBI Governor: The global economic crisis is turning out to bedeeper and longer than we had earlier expected, the impact on India is also turning out tobe stronger than we had earlier expected. This is the frank statement from Subbarao.How long Government will deceive people on this unmanageable issue? Biggest problemwith this crisis is no one in the world 5253. knows about magnitude and duration of financial crisis. According to RBI Governor,2009-10 may be a more difficult year. 2. Commerce Minister: Government willannounce second stimulus package in the next week. Textiles, Agriculture andConstruction are the priority sectors for Government in the next package. 3. Jack Welch(former GE Chairman): The terror strike in Mumbai could well tilt the focus of foreigninvestors towards neighboring China. This is the perception of foreigners about India.Many investors will be thinking about tilting the balance to China. How Indias leadersrespond to the Mumbai attacks will tell the business world what it wants and needs toknow. Not just whether to pull back from India but how risky pushing forward will be.4. Rakesh Jhunjhunwala: India will see the mother of all bull runs in the next 4 or 5years, boosted by double-digit economic growth and increased investment by domesticinvestors, including pension and insurance funds. 5. World Bank: The financial crisis isnow likely to result in the most serious recession since the 1930s. 6. InternationalEnergy Agency (IEA): for the first time in 25 years, demand for crude falls. This is thefirst drop for crude oil demand since 1983. Significant statistics: 1.Reuters poll: Indiaseconomy is expected to grow at its slowest pace in six years in the fiscal year to March2009. Indian GDP growth will be around 6.8% in 2008-09 and 6.2% in 2009-10. Indianeconomy never grew less than 7.5% in the last 5 years. According to World Bank, Indiawill grow by 5.8% in 2009. It estimates for Indian GDP: 6.2% in 2008-09, 5% in 2009-10and will be around 7% in 2010-11. 53 23. 54. 2. New claims for unemployment benefits reached their highest level (5,73,000) in 26years in USA. These job losses will have cascading effect on real economy. More than 20lakh Americans will lose jobs in 2009 and unemployment rate will touch 9% level in2009. 3. McKinsey report: United States credit losses may top $3 trillion. These losseswill increase if another major asset class will collapse 4. Goldman Sachs: China GDPgrowth for 2009 is around 6%. Shocking! China will grow at 9% in 2010 if Governmenttakes proper simulative decisions. India will be in election mood when we need thesemeasures. 5. World Bank: Global trade will fall for the first time since 1982. Worldeconomy will grow by 0.9% in 2009 and inflows to developing countries will fall by50%. 6. Asian Development Bank (ADB): Growth rates of China and India will be at8.2% and 6.5% respectively in 2009. India needs particular attention, given its weakerfiscal position. 7. China: Exports fell by 2.2% in November, the first decline since June2001 - the largest year- over-year monthly decline since April 1999. 8. DLF and Unitechmay lower property prices by 30% in mid-2009 to stimulate buyers. Positive Stockmarket news: 1. Government stability is big positive reason for sensex. 2. GlobalTelecom Companies are planning to buy 20-25% stake in Reliance Communications. R-Com stock lost 70% of value in 2008. Anil Ambani family holds 67% stake in thecompany. This deal is beneficial for investors as only 12% of shares are available fortrading after this purchase in the secondary market. Promoter will not reduce his holding.3. Manpower survey: India is the second most optimistic employment market in theworld but there will freezing in hiring in the next 3 months. IT and Hospitality sectors arethe worst affected while Telecom is the most optimistic one. 5455. FCCB shocks: Foreign currency convertible bonds (FCCBs?) of many companies will bedue for repayment in the next 3 years. As stock markets are unlikely to recover in thenext 12-15 months, it is interesting to see how promoters will clear their dues. We mayhear some shocking news on this front in the next 2 years. NPA shocks: Many people areunderestimating the impact of Non Performing Assets (NPAs). NPAs will affect in 2ways. NPAs will not only propel the negative sentiment but increase the banks reluctanceto give loans which will once again destroy the positive aspects of the bailout packages.Only positive aspect is many PSU banks reported fall in NPAs in 2008 over 2007 exceptSBI and IOB. NPA statistics: NPAs of ICICI Bank in 2007: Rs 5,930 crore. NPAs ofICICI Bank in 2008: Rs 9,500 crore.. Interesting statistics about Asian and Worldeconomies: 1. World Bank estimates: A. November, 2008: World economy will grow by2.2% in 2009. B. December, 2008: World economy will grow by 0.9% in 2009. 2. ADBestimates about Asian economy in 2009: A. September, 2008: Asian economy will growby 7.2% in 2009. B. December, 2008: Asian economy will grow by 5.8% in 2009. 3.ADB estimates about Asian economy in 2008: A. September, 2008: Asian economy willgrow by 7.5% in 2008. B. December, 2008: Asian economy will grow by 6.9% in 2008.5556. 4. Current P/E of Sensex: 10. P/E of Sensex in 2008 economic slowdown: 9.5 This is amuch severe crisis than 2001 slowdown. Effect of fluctuation on Indian stock marketNothing actually. The economy is as sound as it was in the boom time. The companiesare as profitable as they were a few days ago. Yet, the market crashed because theGovernment tried to instill some sort of regulation in it. Let me explain it a bit : As Iwrote in my last article that a major portion of the money being invested into the sharemarket is coming from FIIs (Foreign Institutional Investors). The cause of concern for the 24. Government was that in this major share of FIIs, more than half was in the form of hotmoney being invested into the market by anonymous investors who pump money into themarket by utilizing the Participatory Note (PN) facility. All those foreign investors whoare not registered with the SEBI (Stock Exchange Board of India), the regulatory bodyfor stocks in India, can not directly deal in buying/selling of sticks. So they took a sort ofpermission from registered FIIs by buying Participatory Notes (PN) from them inexchange of dollars, which ultimately allows them trade in the market. Though, thisconcept of allowing anonymous investors in the market broaden the reach of the market,it also ensure free entry of dollars into Indian economy as well as increase the percentageof hot money in the market. The hot money is that kind of money which is invested onlyfor a short time to make some quick buck. It is not invested with a long term mindset.Since the continuous inflow of dollar into Indian economy is making the Indian currency(Rupee) stronger and thus making the export costlier, the Government was looking forsomeway to curb this inflow of dollars. Making the availability of Participatory Notessome difficult for foreign investors was one step Government thought would help controlthe inflow of dollars. So a few days ago the SEBI contemplated on a draft policy to makethe issuing of PN difficult for FIIs. 5657. This was the step which gave a jolt to the buying spree of FIIs. As people found that itwould be difficult to trade in the market in future owing to non-availability of PN, theystarted exiting form the market by selling their stock. Result- the market fell more than a1000 point in a few hours and had to shut down for some time. Ultimately theGovernment had to rush in to alleviate the growing concern of Investors by stating that itwould not control the issuing of PN to investors. This news will from the Businessstandard give you some detail of this exercise done by the Government. As of now themarket is still fluctuating and is yet to be stabilized. However, I think that in allprobability, it will continue its upward swing despite such momentary crash. Themain reason of my belief is that the Indian economy as a whole is performing very wellSame is the case with most Indian companies listed in the market. With the above note,here are some of my observations on what can happen if the stock market boomcontinues for lone in India: First some positive one First of all if this boom continues forlong, soon the richest person in the world will be an Indian. On the last count (as per aleading newspaper report) Mukesh Ambani, the chairman of Reliance group was earningRs 40 Lakhs ($ 100000) per minute. Yes you read it write. $100000 per minute ! Thoughit has much to do with his huge and expanding empire of Reliance industries, it is alsobecause of the appreciation in the price of the shares of Reliance industries. Secondlymost investors, who are in the market for quite sometime, are going to become reallyrich. The word crorepati (multimillionaire) can soon become a common thing in India allthanks to share market. However, there is a word of caution here. As this boom is beingdriven by FIIs (Foreign Institutional Investors), we must not forget that these people arehere only til