FINAL Cap MRKT

- BY PROF PANDEY
CAPITAL MARKET – BASIC CONCEPTS & VOLATILITY
PRESENTED BY:
KOMAL CHANDNANI (7)
SUNNY CHHANGANI (8)
HIREN JASOLIA (18)
NAITIK MODI (25)
DARSHIT SHAH (37)
VIDHI VARMA (57)
CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 1

INTRODUCTION:
In economics, a financial market is a mechanism that allows people to easily buy and sell (trade)
financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural
goods), and as well as equities.
The financial markets can be divided into different subtypes:
A. Commodity markets, which facilitate the trading of commodities.

B. Capital markets which consist of:
1) Stock markets, which provide financing through the issuance of shares or common
stock, and enable the subsequent trading thereof.
2) Bond markets, which provide financing through the issuance of bonds, and enable
the subsequent trading thereof.
A. COMMODITY MARKET
Commodity market includes trade contracts for which the underlying asset is commodity.
Commodity markets are markets where raw or primary products are exchanged. It can be an
agricultural commodity like wheat, soybeans, cotton, etc or precious metals like gold, silver, etc.
These commodities are traded on regulated commodities exchanges, in which they are bought and
sold in standardized contracts.
A Commodity Exchange is an association, or a company of any other body corporate
organizing futures trading in commodities. In a wider sense, it is taken to include any organized
market place where trade is routed through one mechanism, allowing effective competition among
buyers and among sellers
Most commodity markets across the world trade in agricultural products and other raw
materials (like wheat, barley, sugar, maize, cotton, cocoa, coffee, milk products, pork bellies, oil,
metals, etc.) and contracts based on them. These contracts can include spot prices, forwards, futures
and options on futures. Commodities exchanges usually trade futures contracts on commodities,
such as trading contracts to receive something, say corn, in a certain month. A farmer raising corn
can sell a future contract on his corn, which will not be harvested for several months, and guarantee
the price he will be paid when he delivers; a breakfast cereal producer buys the contract now and
guarantees the price will not go up when it is delivered. This protects the farmer from price drops
and the buyer from price rises. Speculators and investors also buy and sell the futures contracts to
make a profit.
Multi Commodity Exchange (MCX) is an independent commodity exchange based in India.
It was established in 2003 and is based in Mumbai. MCX is India's No. 1 commodity exchange with
84% Market share in 2008.
National Commodity & Derivatives Exchange Limited (NCDEX) is an online commodity
exchange based in India. It was incorporated as a private limited company incorporated on April 23,
2003

B. WHAT IS CAPITAL MARKET?
A capital market is a market for securities (both debt and equity), where business
enterprises (companies) and governments can raise long-term funds. It is defined as a market in
which money is lent for periods longer than a year, as the raising of short-term funds takes place on
other markets (e.g., the money market). The capital market includes the stock market (equity
securities) and the bond market (debt). Financial regulators, such as the UK's Financial Services
Authority (FSA) or the U.S. Securities and Exchange Commission (SEC), oversee the capital
markets in their designated jurisdictions to ensure that investors are protected against fraud, among
other duties.
HISTORY OF THE INDIAN STOCK MARKET - THE ORIGIN

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years
ago. The earliest records of security dealings in India are meager and obscure. The East India
Company was the dominant institution in those days and business in its loan securities used to be
transacted towards the close of the eighteenth century. By 1830's business on corporate stocks and
shares in Bank and Cotton presses took place in Bombay. Though the trading list was broader in
1839, there were only half a dozen brokers recognized by banks and merchants during 1840 and
1850.The 1850's witnessed a rapid development of commercial enterprise and brokerage business
attracted many men into the field and by 1860 the number of brokers increased into 60.
In 1860-61 the American Civil War broke out and cotton supply from United States of
Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers increased to
about 200 to 250. However, at the end of the American Civil War, in 1865, a disastrous slump
began (for example, Bank of Bombay Share, which had touched Rs2850/-, could only be sold at
Rs.87/-).
At the end of the American Civil War, the brokers who thrived out of Civil War in 1874,
found a place in a street (now appropriately called as Dalal Street) where they would conveniently
assemble and transact business. In 1887, they formally established in Bombay, the "Native Share
and Stock Brokers' Association" (which is alternatively known as “The Stock Exchange"). In 1895,
the Stock Exchange acquired a premise in the same street and it was inaugurated in 1899. Thus, the
Stock Exchange at Bombay was consolidated.
FOLLOWING IS THE SNAP SHOT OF HISTORY OF INDIAN STOCK MARKET

18th East India Company was the dominant institution and by end of the century,
Century busuness in its loan securities gained full momentum
1830's Business on corporate stocks and shares in Bank and Cotton presses started in
Bombay. Trading list by the end of 1839 got broader
1840's Recognition from banks and merchants to about half a dozen brokers

1850's Rapid development of commercial enterprise saw brokerage business attracting
more people into the business
1860's The number of brokers increased to 60
1860-61 The American Civil War broke out which caused a stoppage of cotton supply from
United States of America; marking the beginning of the "Share Mania" in India
1862-63 The number of brokers increased to about 200 to 250
A disastrous slump began at the end of the American Civil War (as an example,
Bank of Bombay Share which had touched Rs. 2850 could only be sold at Rs. 87)
PRE-INDEPENDANCE SCENARIO - ESTABLISHMENT OF DIFFERENT STOCK

EXCHANGES
1874 With the rapidly developing share trading business, brokers used to gather at
a street (now well known as "Dalal Street") for the purpose of transacting
business.
1875 "The Native Share and Stock Brokers' Association" (also known as "The
Bombay Stock Exchange") was established in Bombay
1880's Development of cotton mills industry and set up of many others
1894 Establishment of "The Ahmedabad Share and Stock Brokers' Association"
1880 - Sharp increase in share prices of jute industries in 1870's was followed by a
90's boom in tea stocks and coal
1908 "The Calcutta Stock Exchange Association" was formed
1920 Madras witnessed boom and business at "The Madras Stock Exchange" was
transacted with 100 brokers.
1923 When recession followed, number of brokers came down to 3 and the
Exchange was closed down

1934 Establishment of the Lahore Stock Exchange
1936 Merger of the Lahore Stock Exchange with the Punjab Stock Exchange
1937 Re-organization and set up of the Madras Stock Exchange Limited (Pvt.)
Limited led by improvement in stock market activities in South India with
establishment of new textile mills and plantation companies
1940 Uttar Pradesh Stock Exchange Limited and Nagpur Stock Exchange Limited
was established
1944 Establishment of "The Hyderabad Stock Exchange Limited"
1947 "Delhi Stock and Share Brokers' Association Limited" and "The Delhi Stocks
and Shares Exchange Limited" were established and later on merged into
"The Delhi Stock Exchange Association Limited". And also government
POST - INDEPENDENCE
1970 The only biggest names available in the market were TATA, Birlas, Bombay Dyeing,
ONGC, ACC, etc.
1980’s RIL entered the market and slowly and gradually companies developed.
Trading Cycle
In 1980’s there were no computers therefore the trading use to take place In “Ring System”.
BSE
Broker M Market

1980 STOCK MARKET
This process use to take long time as it required physical transfer of shares.
1990’s In 1992 SEBI (Security Exchange Board Of India) was formed. In 1994 SEBI
came into power and in the same year NSE National Stock Exchange of India
was formed.

BASIC CONCEPTS
1) STOCK EXCHANGE
A stock exchange is a corporation or mutual organization which provides "trading"
facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also
provide facilities for the issue and redemption of securities as well as other financial instruments
and capital events including the payment of income and dividends. The securities traded on a stock
exchange include: shares issued by companies, unit trusts, derivatives, pooled investment products
and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there.
Usually there is a central location at least for recordkeeping, but trade is less and less linked to such
a physical place, as modern markets are electronic networks, which gives them advantages of speed
and cost of transactions. Trade on an exchange is by members only. The initial offering of stocks
and bonds to investors is by definition done in the primary market and subsequent trading is done in
the secondary market. A stock exchange is often the most important component of a stock market.
2) WHAT ARE AN ‘EQUITY’/SHARE?

Total equity capital of a company is divided into equal units of small denominations, each
called a share. For example, in a company the total equity capital of Rs 20,000,000 is divided into
2,000,000 units of Rs 10 each. Each such unit of Rs 10 is called a Share. Thus, the company then is
11 said to have 2,000,000 equity shares of Rs 10 each. The holders of such shares are members of
the company and have voting rights.
3) WHAT IS A ‘DEBT INSTRUMENT’?

Debt instrument represents a contract whereby one party lends money to another on pre-
determined terms with regards to rate and periodicity of interest, repayment of principal amount by
the borrower to the lender.
In the Indian securities markets, the term ‘bond’ is used for debt instruments issued by the
Central and State governments and public sector organizations and the term ‘debenture’ is used for
instruments issued by private corporate sector.
4) WHAT IS A DERIVATIVE?
Derivative is a product whose value is derived from the value of one or more basic
variables, called underlying. The underlying asset can be equity, index, foreign exchange (forex),
commodity or any other asset.
Derivative products initially emerged as hedging devices against fluctuations in commodity
prices and commodity-linked derivatives remained the sole form of such products for almost three
hundred years. The financial derivatives came into spotlight in post-1970 period due to growing

instability in the financial markets. However, since their emergence, these products have become
very popular and by 1990s, they accounted for about two thirds of total transactions in derivative
products.
5) WHAT IS A MUTUAL FUND?

A Mutual Fund is a body corporate registered with SEBI (Securities Exchange
Board of India) that pools money from individuals/corporate investors and invests the same in a
variety of different financial instruments or securities such as equity shares, Government securities,
Bonds, debentures etc. Mutual funds can thus be considered as financial intermediaries in the
investment business that collect funds from the public and invest on behalf of the investors. Mutual
funds issue units to the investors. The appreciation of the portfolio or securities in which the mutual
fund has invested the money leads to an appreciation in the value of the units held by investors. The
investment objectives outlined by a Mutual Fund in its prospectus are binding on the Mutual Fund
scheme. The investment objectives specify the class of securities a Mutual Fund can invest in.
Mutual Funds invest in 12 various asset classes like equity, bonds, debentures, and commercial
paper and government securities. The schemes offered by mutual funds vary from fund to fund.
Some are pure equity schemes; others are a mix of equity and bonds. Investors are also given the
option of getting dividends, which are declared periodically by the mutual fund, or to participate
only in the capital appreciation of the scheme.
6) WHAT IS AN INDEX?
An Index shows how a specified portfolio of share prices is moving in order to give an
indication of market trends. It is a basket of securities and the average price movement of the basket
of securities indicates the index movement, whether upwards or downwards.
7) WHAT IS A DEPOSITORY?
A depository is like a bank wherein the deposits are securities (viz. shares, debentures,
bonds, government securities, units etc.) in electronic form.
8) WHAT IS DEMATERIALIZATION?
Dematerialization is the process by which physical certificates of an investor are converted
to an equivalent number of securities in electronic form and credited to the investor’s account with
his Depository Participant (DP).

TYPES OF CAPITAL MARKETS:
Capital markets consist of the primary market and the secondary market. The primary
markets are where new stock and bonds issues are sold (via underwriting) to investors. The
secondary markets are where existing securities are sold and bought from one investor or trader to
another, usually on a securities exchange, over the counter, or elsewhere.
1) PRIMARY MARKET:
The primary market provides the channel for sale of new securities. Primary market
provides opportunity to issuers of securities; Government as well as corporate, to raise resources to
meet their requirements of investment and/or discharge some obligation.
They may issue the securities at face value, or at a discount/premium and these securities
may take a variety of forms such as equity, debt etc. They may issue the securities in domestic
market and/or international market.
The primary market issuance is done either through public issues or private placement. A
public issue does not limit any entity in investing while in private placement, the issuance is done to
select people. In terms of the Companies Act, 1956, an issue becomes public if it results in
allotment to more than 50 persons. This means an issue resulting in allotment to less than 50
persons is private placement. There are two major types of issuers who issue securities. The
corporate entities issue mainly debt and equity instruments (shares, debentures, etc.), while the
governments (central and state governments) issue debt securities (dated securities, treasury bills).
The price signals, which subsume all information about the issuer and his business including
associated risk, generated in the secondary market, help the primary market in allocation of funds.
1.1. Issue of Shares

Most companies are usually started privately by their promoter(s). However, the promoters’
capital and the borrowings from banks and financial institutions may not be sufficient for setting up
or running the business over a long term. So companies invite the public to contribute towards the
equity and issue shares to individual investors. The way to invite share capital from the public is
through a ‘Public Issue’. Simply stated, a public issue is an offer to the public to subscribe to the
share capital of a company. Once this is done, the company allots shares to the applicants as per the
prescribed rules and regulations laid down by SEBI.
1.2. What are the different kinds of issues?

Primarily, issues can be classified as a Public, Rights or Preferential issues. While public
and rights issues involve a detailed procedure, private placements or preferential issues are
relatively simpler. The classification of issues is illustrated below:

Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of
securities or an offer for sale of its existing securities or both for the first time to the public.
This paves way for listing and trading of the issuer’s securities.
A follow on public offering (FPO) is when an already listed company makes either a fresh
issue of securities to the public or an offer for sale to the public, through an offer document.
An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous
listing obligations.
Rights Issue whenever, an existing company wants to issue new series of equity shares to
finance its additional activities, it is required to offer these shares to the existing shareholders
at a specified price during a particular period.
It is called a 'right' or Pre-emptive right'. It may simply be defined as an option to buy a
security at a specified price, generally at par or at premium but much below the market price.
The shares offered are called Right Shares and financing the projects of a company by the
issue of such right shares is 'right financing'.
A Preferential issue is an issue of shares or of convertible securities by listed companies to

a select group of persons under Section 81 of the Companies Act, 1956 which is neither a
rights issue nor a public issue. This is a faster way for a company to raise equity capital. The
issuer company has to comply with the Companies Act and the requirements contained in 18
the Chapter pertaining to preferential allotment in SEBI guidelines which inter-alia includes
pricing, disclosures in notice etc.
1.3. INITIAL PUBLIC OFFERING (IPO):
TERMINOLOGIES USED:
Book Building is basically a capital issuance process used in Initial Public Offer (IPO)
which aids price and demand discovery. It is a process used for marketing a public offer of
equity shares of a company. It is a mechanism where, during the period for which the book
for the IPO is open, bids are collected from investors at various prices, which are above or
equal to the floor price. The process aims at tapping both wholesale and retail investors. The
offer/issue price is then determined after the bid closing date based on certain evaluation
criteria.

A Bid is the demand for a security that can be entered by the syndicate/sub-syndicate
members in the system. The two main components of a bid are the price and the quantity.
Bidder is the person who has placed a bid in the Book Building process.
Book Running Lead Manager is a Lead Merchant Banker who has been appointed by the
Issuer Company as the Book Runner Lead Manager. The name of the Book Runner Lead
Manager is mentioned in the offer document of the Issuer Company.
Floor Price is the minimum offer price below which bids cannot be entered. The Issuer
Company in consultation with the Book Running Lead Manager fixes the floor price.
Merchant Banker is an entity registered under the Securities and Exchange Board of India
(Merchant Bankers) Regulations, 1999.
Syndicate Members are the intermediaries registered with the Board and permitted to carry
on activity as underwriters. The Book Running Lead Managers to the issue appoints the
Syndicate Members.
Order Book is an 'electronic book' that shows the demand for the shares of the company at
various prices.
Offer document means Prospectus in case of a public issue or offer for sale and Letter of
Offer in case of a rights issue, which is filed Registrar of Companies (ROC) and Stock
Exchanges. An offer document covers all the relevant information to help an investor to
make his/her investment decision. Draft Offer document means the offer document in draft
stage. The draft offer documents are filed with SEBI, at least 21 days prior to the filing of
the Offer Document with ROC/ SEs. SEBI may specifies changes, if any, in the draft Offer
Document and the issuer or the Lead Merchant banker shall carry out such changes in the
draft offer document before filing the Offer Document with ROC/ SEs. The Draft Offer
document is available on the SEBI website for public comments for a period of 21 days
from the filing of the Draft Offer Document with SEBI.
Red Herring Prospectus (RHP) is a prospectus, which does not have details of either price
or number of shares being offered, or the amount of issue. This means that incase price is
not disclosed, the number of shares and the upper and lower price bands are disclosed. On
the other hand, an issuer can state the issue size and the number of shares are determined
later. An RHP for and FPO can be filed with the ROC without the price band and the issuer,
in such a case will notify the floor price or a price band by way of an advertisement one day
prior to the opening of the issue. In the case of book-built issues, it is a process of price
discovery and the price cannot be determined until the bidding process is completed. Hence,
such details are not shown in the Red Herring prospectus filed with ROC in terms of the

provisions of the Companies Act. Only on completion of the bidding process, the details of
the final price are included in the offer document. The offer document filed thereafter with
ROC is called a prospectus.
Abridged Prospectus contains all the salient features of a prospectus. It accompanies the
application form of public issues.
Lock-in indicates a freeze on the shares. SEBI (DIP) Guidelines have stipulated lock-in
requirements on shares of promoters mainly to ensure that the promoters or main persons,
who are controlling the company, shall continue to hold some minimum percentage in the
company after the public issue.
The promoter has been defined as a person or persons who are in over-all control of the
company, who are instrumental in the formulation of a plan or program pursuant to which
the securities are offered to the public and those named in the prospectus as promoters(s). It
may be noted that a director / officer of the issuer company or person, if they are acting as
such merely in their professional capacity are not be included in the definition of a
promoter.
'Promoter Group' includes the promoter, an immediate relative of the promoter (i.e. any
spouse of that person, or any parent, brother, sister or child of the person or of the spouse).
In case promoter is a company, a subsidiary or holding company of that company; any
company in which the promoter holds 10% or more of the equity capital or which holds
10% or more of the equity capital of the Promoter
Issue Price is the price at which a company's shares are offered initially in the primary
market. When they begin to be traded, the market price may be above or below the issue
price. Indian primary market ushered in an era of free pricing in 1992. Following this, the
guidelines have provided that the issuer in consultation with Merchant Banker shall decide
the price. There is no price formula stipulated by SEBI. SEBI does not play any role in price
fixation. The company and merchant banker are however required to give full disclosures of
the parameters which they had considered while deciding the issue price. There are two
types of issues one where company and LM fix a price (called fixed price) and other, where
the company and LM stipulate a floor price or a price band and leave it to market forces to
determine the final price (price discovery through book building process).
Price Band: The red herring prospectus may contain either the floor price for the securities
or a price band within which the investors can bid. The spread between the floor and the cap
of the price band shall not be more than 20%. In other words, it means that the cap should
not be more than 120% of the floor price. The price band can have a revision and such a
revision in the price band shall be widely disseminated by informing the stock exchanges,
by issuing press release and also indicating the change on the relevant website and the

terminals of the syndicate members. In case the price band is revised, the bidding period
shall be extended for a further period of three days, subject to the total bidding period not
exceeding thirteen days. It may be understood that the regulatory mechanism does not play a
role in setting the price for issues. It is up to the company to decide on the price or the price
band, in consultation with Merchant Bankers. The basis of issue price is disclosed in the
offer document. The issuer is required to disclose in detail about the qualitative and
quantitative factors justifying the issue price.
‘Retail individual investor’ (RII) means an investor who applies or bids for securities of or
for a value of not more than Rs.1, 00,000. Any bid made in excess of this will be considered
in the High Net worth Individuals (HNI) category.
Qualified Institutional Buyers (QIBs) are those institutional investors who are generally
perceived to possess expertise and the financial muscle to evaluate and invest in the capital
markets.
Allotment: In a book built issue allocation to Retail Individual Investors (RIIs), Non
Institutional Investors (NIIs) and Qualified Institutional Buyers (QIBs) is in the ratio of 35:
15: 50 respectively. In case the book built issues are made pursuant to the requirement of
mandatory allocation of 60% to QIBs in terms of Rule 19(2) (b) of SCRR, the respective
figures are 30% for RIIs and 10% for NIIs. This is a transitory provision pending
harmonization of the QIB allocation in terms of the aforesaid Rule with that specified in the
guidelines.
Green Shoe option means an option of allocating shares in excess of the shares included in
the public issue and operating a post-listing price stabilizing mechanism for a period not
exceeding 30 days in accordance with the provisions of Chapter VIIIA of DIP Guidelines,
which is granted to a company to be exercised through a Stabilizing Agent. This is an
arrangement wherein the issue would be over allotted to the extent of a maximum of 15% of
the issue size. From an investor’s perspective, an issue with green shoe option provides
more probability of getting shares and also that post listing price may show relatively more
stability as compared to market.
Cut off price: In Book building issue, the issuer is required to indicate either the price band
or a floor price in the red herring prospectus. The actual discovered issue price can be any
price in the price band or any price above the floor price. This issue price is called “Cut off
price”.
THE PROCESS:
1. The Issuer who is planning an IPO nominates a lead merchant banker as a 'book runner'.
2. The Issuer specifies the number of securities to be issued and the price band for orders.

3. The Issuer also appoints syndicate members with whom orders can be placed by the investors.
4. Investors place their order with a syndicate member who inputs the orders into the 'electronic
book'. This process is called 'bidding' and is similar to open auction.
5. A Book should remain open for a minimum of 5 days.
6. Bids cannot be entered less than the floor price.
7. Bids can be revised by the bidder before the issue closes.
8. On the close of the book building period the 'book runner evaluates the bids on the basis of the
evaluation criteria which may include -
 Price Aggression
 Investor quality
 Earliness of bids, etc.
9. The book runner and the company conclude the final price at which it is willing to issue the
stock and allocation of securities.
10. Generally, the number of shares is fixed; the issue size gets frozen based on the price per share
discovered through the book building process.
11. Allocation of securities is made to the successful bidders.
12. Book Building is a good concept and represents a capital market which is in the process of
maturing.
EXAMPLES:
1) INDIABULLS POWER IPO
Objects of the Issue:
The objects of the Issue are to achieve the benefits of listing on the Stock Exchanges & to
raise capital:
1. To part finance the construction and development of the 1,320 MW Amravati Power
Project Phase – I
2. Funding equity contribution in the Company’s wholly owned subsidiary, IRL, to part
finance the construction and development of the 1,335 MW Nashik Power Project
3. General corporate purposes.
Issue Detail:
1. Issue Open: Oct 12, 2009 - Oct 15, 2009
2. Issue Type: 100% Book Built Issue IPO
3. Issue Size: 339,800,000 Equity Shares of Rs. 10
4. Issue Size: Rs. 1,529.10 Crore
5. Face Value: Rs. 10 Per Equity Share
6. Issue Price: Rs. 40 - Rs. 45 Per Equity Share
7. Market Lot: 150 Shares

8. Minimum Order Quantity: 150 Shares
9. Listing At: BSE, NSE
2) ADANI POWER LIMITED

Objects of the Issue:
The objects of the Issue are to achieve the benefits of listing on the Stock Exchanges & to
raise capital:
1. To part finance the construction and development of Mundra Phase IV Power
Project, for 1,980 MW
2. Funding equity contribution in our subsidiary Adani Power Maharashtra Limited to
part finance the construction and development cost of power project for 1,980 MW at
Tiroda, Maharashtra
3. General corporate purposes.
Issue Detail:
1) Issue Open: Jul 28, 2009 - Jul 31, 2009
2) Issue Type: 100% Book Built Issue IPO
3) Issue Size: 301,652,031 Equity Shares of Rs. 10
4) Issue Size: Rs. 3,016.52 Crore
5) Face Value: Rs. 10 Per Equity Share
6) Issue Price: Rs. 90 - Rs. 100 Per Equity Share
7) Market Lot: 65 Shares
8) Minimum Order Quantity: 65 Shares
9) Listing At: BSE, NSE
1.4. RIGHTS ISSUE:
The procedure of right issue as given in the Companies Act may be followed as follows:
First, the offer must be made by giving a notice to the existing shareholders, mentioning
therein the number of shares offered and the time within which the offer must be accepted. Such
period shall not be less than 15 days from the date of offer, however it may be more than 15 days
keeping in mind that shareholders must have sufficient time to make up their mind judiciously. The
notice must also indicate that if the offer is not accepted within the specified period, it shall be
deemed to have been declined. Again the notice must also state that they have the right to renounce
all or any of the shares offered to them in favour of their nominee(s).

Shareholders shall inform the company within stipulated period, of other acceptance of right
or the name of the nominee to whom he wants to renounce his right. An existing shareholder may
also apply for the additional shares but a shareholder who has renounced his right in favour of any
person is not entitled to apply for additional shares.
The Controller of Capital Issues takes decision an application for right issue in concurrence
with the company. Certain conditions are imposed by him on the company making an offer of right.
If the right shares are not fully taken up, the balance left over shall be distributed equally among the
applicants for additional shares with reference to the shares held by them in the company. Subject to
stock exchange on which the company's shares are listed. Any balance left after making allotment
of additional shares, the company may deal with in any manner it likes.
Example:
Tata comes out with Rs10,000 cr rights issue to repay Corus debt. The issue will include
12.18 crore shares of Rs. 300 each to be issued on rights basis in the ratio 1:5 and CCPS of Rs100
to be converted into equity on 1 September, 2009.
Tata group company Tata Steel is coming out with a mega rights issue of about Rs10,000
crore to repay the ‘bridge loans’ raised for funding acquisition of British steel behemoth Corus.
The proceeds will be used to repay bridge loans taken for acquisition of Corus. Tata Steel
UK has raised 3.15 million pounds of debt for financing the acquisition.
The issue, opening on 22 November, will include 12.18 crore shares of Rs300 each to be
issued on rights basis in the ratio 1:5 and Cumulative Compulsory Preference Shares (CCPS) of
Rs100 to be converted into equity on 1 September, 2009, he said.
According to the Draft Letter of Offer filed with the Securities Exchange Board of India
(Sebi), the rights issue will fetch Rs3,654 crore while CCPS will bring in Rs6,000 crore.
The company’s overall borrowings during 2006-07 increased by over 600% from Rs3,377
crore to Rs24,926 crore “principally in connection with its acquisition of Corus and expenditure in
connection with other acquisitions and expansions,” said the document.
Tata’s decision to raise funds from rights issue will result in enlargement of its equity by
20% after the rights issue and 35% after conversion of CCPS into equity.The enlargement of equity
base may impair Tata Steel’s ability to maintain a high rate of dividend to its shareholders.

2) SECONDARY MARKET:
2.1. What is meant by Secondary market?

Secondary market refers to a market where securities are traded after being initially offered
to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is
done in the secondary market. Secondary market comprises of equity markets and the debt markets.
The secondary market enables participants who hold securities to adjust their holdings in
response to changes in their assessment of risk and return. They also sell securities for cash to meet
their liquidity needs. Once the new securities are issued in the primary market they are traded in the
stock (secondary) market. The secondary market is operated through two mediums, namely, the
Over-the-Counter (OTC) market and the Exchange- Traded market. OTC markets are informal
markets where trades are negotiated. Most of the trades in the government securities are in the OTC
market. All the spot trades where securities are traded for immediate delivery and payment take
place in the OTC market. The exchanges do not provide facility for spot trades in a strict sense.
Closest to spot market is the cash market in exchanges where settlement takes place after some
time. All the stock exchanges follow a systematic settlement period. All the trades taking place over
a trading cycle (day=T) are settled together after a certain time (T+2 day). Trades executed on NSE
only are cleared and settled by a clearing corporation which provides novation and settlement
guarantee. Nearly 100% of the trades in capital market segment are settled through demat delivery.
NSE also provides a formal trading platform for trading of a wide range of debt securities including
government securities in both retail and wholesale mode. NSE also provides trading in derivatives
of equities, interest rate as well indices. In derivatives market (F&O market segment of NSE),
standardized contracts are traded for future settlement. These futures can be on a basket of
securities like an index or an individual security. In case of options, securities are traded for
conditional future delivery. There are two types of options – a put option permits the owner to sell a
security to the writer of options at a predetermined price while a call option permits the owner to
purchase a security from the writer of the option at a predetermined price. These options can also be
on individual stocks or basket of stocks like index. Two exchanges, namely NSE and the Stock
Exchange, Mumbai (BSE) provide trading of derivatives of securities. Today the market
participants have the flexibility of choosing from a basket of products like:
 Equities
 Bonds issued by both Government and Companies
 Futures on benchmark indices as well as stocks
 Options on benchmark indices as well as stocks
 Futures on interest rate products like Notional 91-day T-Bills, 10 year notional zero coupon
bond and 6% notional 10 year bond.
The past decade in many ways has been remarkable for securities market in
India. It has grown exponentially as measured in terms of amount raised from the market, number
of stock exchanges and other intermediaries, the number of listed stocks, market capitalization,

trading volumes and turnover on stock exchanges, and investor population. Along with this growth,
the profiles of the investors, issuers and intermediaries have changed significantly. The market has
witnessed several institutional changes resulting in drastic reduction in transaction costs and
significant improvements in efficiency, transparency, liquidity and safety. In a short span of time,
Indian derivatives market has got a place in list of top global exchanges.
The market capitalization has grown over the period indicating more companies using the
trading platform of the stock exchange. As of March 2008, the market capitalization of NSE was
Rs. 48,581,217 million. The market capitalization ratio is defined as market capitalization of stocks
divided by GDP. It is used as a measure of stock market size. It is of economic significance since
market is positively correlated with the ability to mobilize capital and diversify risk.
The trading volumes on exchanges have been witnessing phenomenal growth over the past
few years. During 2007-08, the capital market segment of NSE reported a trading volume of Rs.
35,510,382 million. The turnover ratio, which reflects the volume of trading in relation to the size
of the market, stood at 73.09% in the year 2007-08. The turnover ratio is defined as the total value
of shares traded on a country’s stock exchange divided by market capitalization. It is used as a
measure of trading activity or liquidity in the stock markets. The top 2 stock exchanges accounted
for nearly 99% of turnover, while the rest of the exchanges had negligible volumes during 2007-08.
The movement of the NIFTY50, the most widely used indicator of the market, has been
responding to changes in the government’s economic policies, the increase in FIIs inflows, etc.
Reforms in the securities market, particularly the establishment and empowerment of SEBI,
market determined allocation of resources, screen based nation-wide trading, dematerialization and
electronic transfer of securities, rolling settlement and ban on deferral products, sophisticated risk
management and derivatives trading, have greatly improved the regulatory framework and
efficiency of trading and settlement. Indian market is now comparable to many developed markets
in terms of a number of qualitative parameters.
2.2. What is the role of the Secondary Market?

For the general investor, the secondary market provides an efficient platform for trading of
his securities. For the management of the company, Secondary equity markets serve as a monitoring
and control conduit—by facilitating value-enhancing control activities, enabling implementation of
incentive-based management contracts, and aggregating information (via price discovery) that
guides management decisions.
2.3. What is the difference between the Primary Market and the Secondary Market?
In the primary market, securities are offered to public for subscription for the purpose of
raising capital or fund. Secondary market is an equity trading venue in which already existing/pre-
issued securities are traded among investors. Secondary market could be either auction or dealer
market. While stock exchange is the part of an auction market, Over-the-Counter (OTC) is a part of
the dealer market.

STOCK MARKETS
Stock Markets are a common platform where buyers and sellers come together to transact in
stocks and shares. It may be a physical entity where brokers trade on a physical trading floor via an
"open outcry" system or a virtual environment. It is a place where equity, commodities and other
investments can be bought and sold.
A stock market refers to an individual stock exchange, although the term is often used for all
stock exchanges within a country. For instance, the U.S. has the New York stock exchange and the
NASDAQ, among many other smaller exchanges. Similarly, India's major exchanges are the
Bombay stock exchange, or BSE, and the National Stock Exchange of India, which is NSE.
These markets account for the majority of stock market activity in India and operate
similarly to any other modern stock market, where buyers place orders of stock through brokers,
who carry out the transactions. Demand for stocks and commodities constantly shift, causing prices
to fluctuate and the assets to gain or lose value.
HOW MANY EXCHANGES ARE THERE IN INDIA?

The Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) are the
country's two leading Exchanges. There are 20 other regional Exchanges, connected via the Inter-
Connected Stock Exchange (ICSE). The BSE and NSE allow nationwide trading via their VSAT
systems.
NATIONAL STOCK EXCHANGE (NSE)

The National Stock Exchange of India Limited (NSE), is a Mumbai-based stock exchange.
The National Stock Exchange or NSE was incorporated in November 1992 as a tax-paying
company unlike other stock exchanges in the country.
The NSE’s index is known as S&P CNX Nifty which is a 50 stock index, weighted by
market capitalization, which covers almost 25 sectors of the economy.It is the largest stock
exchange in India in terms of daily turnover and number of trades, for both equities and derivative
trading. NSE is the third largest Stock Exchange in the world in terms of the number of trades in
equities.
Though a number of other exchanges exist, NSE and the Bombay Stock Exchange are the
two most significant stock exchanges in India and between them are responsible for the vast
majority of share transactions.

NIFTY
NIFTY is an index or an indicator of the performance of the companies listed in
NATIONAL STOCK EXCHANGE situated in Mumbai. Nifty constitutes of 50 companies and
the change in the Nifty index (Up or down) indicates the trend in the majority of the stocks.
1. ABB Ltd 26. Maruti Suzuki India Ltd

2. ACC Ltd 27. NTPC Ltd
3. Ambuja Cements Ltd 28. National Aluminium Co. Ltd
4. Axis Bank Ltd 29. Oil & Natural Gas Corporation Ltd
5. Bharat Heavy Electricals Ltd 30. Power Grid Corporation of India Ltd
6. Bharat Petroleum Corporation Ltd 31. Punjab National Bank
7. Bharti Airtel Ltd 32. Ranbaxy Laboratories Ltd
8. Cairn India Ltd 33. Reliance Capital Ltd
9. Cipla Ltd 34. Reliance Communications Ltd
10. DLF Ltd 35. Reliance Industries Ltd
11. GAIL (India) Ltd 36. Reliance Infrastructure Ltd
12. Grasim Industries Ltd 37. Reliance Power Ltd
13. HCL Technologies Ltd 38. Siemens Ltd
14. HDFC Bank Ltd 39. State Bank of India
15. Hero Honda Motors Ltd 40. Steel Authority of India Ltd
16. Hindalco Industries Ltd 41. Sterlite Industries (India) Ltd
17. Hindustan Unilever Ltd 42. Sun Pharmaceutical Industries Ltd
18. H.D.F.C 43. Suzlon Energy Ltd
19. I T C Ltd 44. Tata Communications Ltd
20. ICICI Bank Ltd 45. Tata Consultancy Services Ltd
21. Idea Cellular Ltd 46. Tata Motors Ltd
22. Infosys Technologies Ltd 47. Tata Power Co. Ltd
23. Jindal Steel & Power Ltd 48. Tata Steel Ltd
24. Larsen & Toubro Ltd 49. Unitech Ltd
25. Mahindra & Mahindra Ltd 50. Wipro Ltd
BOMBAY STOCK EXCHANGE (BSE)

The Bombay Stock Exchange Limited is the oldest stock exchange in Asia and has the
greatest number of listed companies in the world, currently 4696.It is located at Dalal Street,
Mumbai. It is the first stock exchange in India to obtain permanent recognition infrom the
Government of India under the Securities Contracts (Regulation) Act, 1956.

The Exchange has a nation-wide reach with a presence in 417 cities and towns of India.
BSE provides an efficient and transparent market for trading in equity, debt instruments and
derivatives
The BSE SENSEX (SENSitive indEX) is a widely used market index in India and Asia.
BSE has played a pivotal role in the development of the Indian capital market and its index,
SENSEX, is tracked worldwide. The BSE SENSEX also called the "BSE 30”, is made of thirty
scripts. The index is followed extensively in Indian capital market and it is regarded as the index of
the Indian capital market.. The exchange has played a pivotal role in shaping the capital market in
India.
Though the SENSEX is the primary and the most widely accept index of BSE there are few
indices as well, including BSE 500, BSE 100, BSE 200, BSE PSU, BSE MIDCAP, BSE SMLCAP,
BSE BANKEX, BSE Tech, BSE Auto, BSE Pharma, BSE FMCG, BSE Consumer Durables and
BSE Metal.
SENSEX
SENSEX is the short term for the words "Sensitive Index" and is associated with the
Bombay (Mumbai) Stock Exchage (BSE).
The SENSEX was first formed on 1-1-1986 and used the market capitalization of the 30
most traded stocks of BSE. The base was 1979 and taken as 100. The 30 scrips of 1986 and no
more the same - some have been removed while some have been added. At irregular intervals, the
Bombay Stock Exchange (BSE) authorities review and modify its composition to make sure it
reflects current market conditions.
Today the Sensex constitutes of the following companies:
1. ACC 16. Mahindra & Mahindra Limited

2. Bharti Airtel 17. Maruti Udyog
3. BHEL 18. NTPC
4. DLF Universal Limited 19. ONGC
5. Grasim Industries 20. Reliance Communications
6. HDFC 21. Reliance Industries
7. HDFC Bank 22. Reliance Infrastructure
8. Hero Honda Motors Ltd. 23. State Bank of India
9. Hindalco Industries Ltd. 24. Sterlite Industries
10. Hindustan Lever Limited 25. Sun Pharmaceutical Industries
11. ICICI Bank 26. Tata Consultancy Services
12. Infosys 27. Tata Motors
13. ITC Limited 28. Tata Power
14. Jaiprakash Associates 29. Tata Steel
15. Larsen & Toubro 30. Wipro

TRADING ON STOCK EXCHANGE
The trading on stock exchanges in India used to take place through open outcry without use
of information technology for immediate matching or recording of trades. This was time consuming
and inefficient. This imposed limits on trading volumes and efficiency.
In order to provide efficiency, liquidity and transparency, NSE introduced a nation-wide on-
line fully automated screen based trading system (SBTS) where a member can punch into the
computer quantities of securities and the prices at which he likes to transact and the transaction is
executed as soon as it finds a matching sale or buy order from a counter party.
SBTS electronically matches orders on a strict price/time priority and hence cuts down on
time, cost and risk of error, as well as on fraud resulting in improved operational efficiency. It
allows faster incorporation of price sensitive information into prevailing prices, thus increasing the
informational efficiency of markets. It enables market participants, irrespective of their
geographical locations, to trade with one another simultaneously, improving the depth and liquidity
of the market. It provides full anonymity by accepting orders, big or small, from members without

revealing their identity, thus providing equal access to everybody. It also provides a perfect audit
trail, which helps to resolve disputes by logging in the trade execution process in entirety.
This sucked liquidity from other exchanges and in the very first year of its operation, NSE
became the leading stock exchange in the country, impacting the fortunes of other exchanges and
forcing them to adopt SBTS also. Today India can boast that almost 100% trading take place
through electronic order matching.
Technology was used to carry the trading platform from the trading hall of stock exchanges
to the premises of brokers. NSE carried the trading platform further to the PCs at the residence of
investors through the Internet and to handheld devices through WAP for convenience of mobile
investors. This made a huge difference in terms of equal access to investors in a geographically vast
country like India.
NSE has main computer which is connected through Very Small Aperture Terminal (VSAT)
installed at its office. The main computer runs on a fault tolerant STRATUS mainframe computer at
the Exchange. Brokers have terminals (PCs) installed at their premises which are connected through
VSATs/leased lines/modems. 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.
An investor informs a broker to place an order on his behalf. The broker enters the order
through his PC, which runs under Windows NT and sends signal to the Satellite via VSAT/leased
line/modem. The signal is directed to mainframe computer at NSE via VSAT at NSE's office. A
message relating to the order activity is broadcast to the respective member. The order confirmation
message is immediately displayed on the PC of the broker. This order matches with the existing
passive order(s), otherwise it waits for the active orders to enter the system. On order matching, a
message is broadcast to the respective member.
The trading system operates on a strict price time priority. All orders received on the system
are sorted with the best priced order getting the first priority for matching i.e., the best buy orders
match with the best sell order. Similar priced orders are sorted on time priority basis, i.e. the one
that came in early gets priority over the later one.
Orders are matched automatically by the computer keeping the system transparent, objective
and fair. Where an order does not find a match, it remains in the system and is displayed to the
whole market, till a fresh order comes in or the earlier order is cancelled or modified.
The trading system provides tremendous flexibility to the users in terms of kinds of orders
that can be placed on the system. Several time - related (immediate or cancel), price-related
(buy/sell limit and stop loss orders) or volume related (Disclosed Quantity) conditions can be easily
built into an order. The trading system also provides complete market information on-line. The
market screens at any point of time provide complete information on total order depth in a security,
the five best buys and sells available in the market, the quantity traded during the day in that
security, the high and the low, the last traded price, etc. Investors can also know the fate of the
orders almost as soon as they are placed with the trading members.

For example: Investors place the order with investor’s broker to buy 100 shares of the
Reliance Company. The broker sends the order to the firm's order department. The order
department sends the order to the firm's clerk who works on the floor of the exchange where shares
of Reliance are traded (stock exchange). The clerk gives the order to the firm's floor trader, who
also works on the exchange floor. The floor trader goes to the specialist's post for Reliance and
finds another floor trader who is willing to sell shares of Reliance. The traders agree on a price. The
order is executed. The floor trader reports the trade to the clerk and the order department. The order
department confirms the order with the broker. The broker confirms the trade with investor.
Thus the NEAT system provides an Open Electronic Consolidated Limit Order Book
(OECLOB). Limit orders are orders to buy or sell shares at a stated quantity and stated price. If the
price quantity conditions do not match, the limit order will not be executed. The term ‘limit order
book’ refers to the fact that only limit orders are stored in the book and all market orders are
crossed against the limit orders sitting in the book. Since the order book is visible to all market
participants, it is termed as an ‘Open Book’.
HOW TO BUY SHARES?

To buy shares one needs to contact a broker. One can't deal directly with the stock
exchange, so one has to use the services of a broker who is registered with the exchange.
One has to enter into a broker-client agreement and fill in the client registration form. One
has to then place the order with the broker, preferably in writing & get a trade confirmation slip on
the day the trade is executed and ask for the contract note at the end of the trade date
The broker will place an order on your behalf and the shares will be moved once the order is
complete One never comes to know from whom to buy or sell to - the stock exchange takes care of
those details. What one does is place an "order" to buy or sell shares, and the exchange looks for
people on the opposite side willing to deal at that price. The order is automatically affected if the
prices match.
WHY DOES ONE NEED A BROKER?

Share broker is a person or group of persons that buys and sells shares and other securities
through market makers on the behalf of investors. Investors employ a full-time broker. The investor
needs to contact the broker over the phone or personally to place an order for a certain number of
shares of a particular organization if investor or trader is not doing online trading.
As per SEBI regulations, only registered members can operate in the stock market. One can
trade by executing a deal only through a registered broker of a recognized Stock Exchange or
through a SEBI- registered sub-broker (people licensed by brokers to work under them)
One needs to open 3 Accounts to buy / sell Equity shares from the Indian Stock Market.
 Savings Bank Account

 Demat Account
 Share Trading Account.
SAVINGS BANK ACCOUNT:

A Savings Bank account is required for carrying out various financial transactions
associated with trading of shares. This is where the money on sale of shares is credited or money
for buying shares will be debited from. Savings Bank accounts are accounts maintained by banks
that pay interest but cannot be used directly as money (by, for example, writing a cheque). These
accounts let customers set aside a portion of their liquid assets that could be used to make purchases
while earning a monetary return. All savings accounts offer itemized lists of all financial
transactions, traditionally through a bank passbook, but also through a bank statement.
DEMAT ACCOUNT:
Demat account allows you to buy, sell and transact shares without the endless paperwork
and delays. It is also safe, secure and convenient.
What is demat account?

Demat refers to a dematerialised account.
Just as you have to open an account with a bank if you want to save your money, make
cheque payments etc, you need to open a demat account if you want to buy or sell stocks. So it is
just like a bank account where actual money is replaced by shares. You have to approach the DPs
(remember, they are like bank branches), to open your demat account.
Let’s say your portfolio has 100 of Satyam, 200 of IBM and 120 of TCS shares. All these
will show in your demat account. So you don’t have to possess any physical certificates showing
that you own these shares. They are all held electronically in your account. As you buy and sell the
shares, they are adjusted in your account. Just like a bank passbook or statement, the DP will
provide you with periodic statements of holdings and transactions.
Is a demat account a must?

Nowadays, practically all trades have to be settled in dematerialised form. Although the
market regulator, the Securities and Exchange Board of India (SEBI), has allowed trades of upto
500 shares to be settled in physical form, nobody wants physical shares any more. So a demat
account is a must for trading and investing.
Why demat?

The demat account reduces brokerage charges, makes pledging/hypothecation of shares
easier, enables quick ownership of securities on settlement resulting in increased liquidity, avoids
confusion in the ownership title of securities, and provides easy receipt of public issue allotments.
It also helps you avoid bad deliveries caused by signature mismatch, postal delays and loss
of certificates in transit. Further, it eliminates risks associated with forgery, counterfeiting and loss
due to fire, theft or mutilation. Demat account holders can also avoid stamp duty (as against 0.5 per
cent payable on physical shares), avoid filling up of transfer deeds, and obtain quick receipt of such
benefits as stock splits and bonuses.
How to get a Demat account?

To get a demat account, one needs to to approach a Depository Participant. A depository is a
place where an investor's stocks are held in electronic form.
There are only two depositories in India -- the National Securities Depository Ltd
(NSDL) and the Central Depository Services Ltd (CSDL).
The depository has agents who are called Depository Participants. In India, there are over a
hundred DPs. Banks like HDFC, ICICI, SBI etc. are Depository Participants.
For dematerialization of physical share certificate(s) you have to first fill the demat request
form (DRF). The form can be obtained from the DP with whom your demat account is opened.
Deface the share certificate(s) by writing across Surrendered for dematerialization. Submit the DRF
& share certificate(s) to DP. DP would forward them to the issuer. After dematerialization, your
depository account would be credited with the dematerialized securities
It is to be noted that a broker is not similar to a DP. A broker is a member of the stock
exchange and he buys and sells shares for his clients and for himself. A DP, on the other
hand, gives you an account where you can hold those shares.
The Benefits
 A safe and convenient way to hold securities;
 Immediate transfer of securities;
 No stamp duty on transfer of securities;
 Elimination of risks associated with physical certificates such as bad delivery, fake
securities, delays, thefts etc.;
 Reduction in paperwork involved in transfer of securities;
 Reduction in transaction cost;
 No odd lot problem, even one share can be sold;

 Nomination facility;
 Change in address recorded with DP gets registered with all companies in which investor
holds securities electronically eliminating the need to correspond with each of them
separately;
 Transmission of securities is done by DP eliminating correspondence with companies;
 Automatic credit into demat account of shares, arising out of

bonus/split/consolidation/merger etc.
 Holding investments in equity and debt instruments in a single account.
Required Documents
The extent of documentation required to open a demat account may vary according to your
relationship with the institution. If you plan to open a demat account with a bank, a savings, current
and, or other account for which the holder have been issued a check book, such holder has an edge
over the non-account holder. In fact, banks usually offer additional incentives to customers who
open a demat account with them. Along with the application form, your photographs (with co-
applicants) and proof of identity/residence/date of birth have to be submitted. The DPs also ask for
a DP-client agreement to be executed on non-judicial stamp paper. Here is a broad list:
 A cancelled check, preferably MICR
 Proof of Identification
 Proof of Address
 Proof of PAN card (mandatory)
 Recent photographs, one and/or more
For proof of identification and, or address self-attested facsimile copies of PAN card, Voter’s
ID, Passport, Ration card, Driver’s license, Photo credit card, Employee ID card, Bank attestation,
latest IT returns and, or latest Electricity/Landline phone bill are sufficient. While they only ask for
photocopies of the documents, they will need the originals for verification
Statement of Account:
A periodical statement of holdings and transactions is provided by DP. This can also be asked for
from the DP.

DEPOSITORY SYSTEM
In the depository system, securities are held in depository accounts, which is more or less
similar to holding funds in bank accounts. Transfer of ownership of securities is done through
simple account transfers. This method does away with all the risks and hassles normally associated
with paperwork. Consequently, the cost of transacting in a depository environment is considerably
lower as compared to transacting in certificates
A Depository facilitates holding of securities in the electronic form and enables securities
transactions to be processed by book entry by a Depository Participant (DP), who as an agent of the
depository, offers depository services to investors. According to SEBI guidelines, financial
institutions, banks, custodians, stockbrokers, etc. are eligible to act as DPs. The investor who is
known as beneficial owner (BO) has to open a demat account through any DP for dematerialization
of his holdings and transferring securities
1) NSDL
NSDL is promoted by Industrial Development Bank of India Limited (IDBI) - the largest
development bank of India, Unit Trust of India (UTI) - the largest mutual fund in India and
National Stock Exchange of India Limited (NSE) - the largest stock exchange in India... NSDL
aims at ensuring the safety and soundness of Indian marketplaces by developing settlement
solutions that increase efficiency, minimise risk and reduce costs.
2) CDSL
CDSL was set up with the objective of providing convenient, dependable and secure
depository services at affordable cost to all market participants .CDSL was promoted by Bombay
Stock Exchange Limited (BSE) jointly with leading banks such as State Bank of India, Bank of
India, Bank of Baroda, HDFC Bank, Standard Chartered Bank, Union Bank of India and Centurion
Bank.
TRADING ACCOUNT
The Securities and Exchange Board of India (SEBI) mandates a demat account for equity
share trading even One equity share. A Trading account can also be opened with most banks and
financial institutions, after filling up the required forms and providing identity and address proofs.
The actual trading can be done by phone, internet or using transaction slips that are provided at the
time of opening the account.
There is a brokerage charge that is incurred for both buying and selling of shares. This
charge varies across different trading houses. Also, government levies like the Securities
Transaction Tax (STT) will be incurred on such transactions.

TRADING PROCEDURE
The following are the steps involved in the trading of securities at a stock exchange:
1. PLACING ORDER
An order is to be placed by an investor with the broker either to buy or sale of certain
number of securities at a certain specified price. An order can be placed by telegram, telephone,
telex/ fax, and letter or in person. There are different types of orders. When in the order the client
places a limit on the price of the security it is called limit order. Where the order is to be executed
by the broker at the best price, such an order is called 'Best Rate Order'. When the client does not
fix any price limit or time limit on the execution of the order and relies on the judgement of the
broker is called 'Open Order'.
2. TRADE EXECUTION
The broker has to execute the order placed by his client during the trading hours. The order
is executed as per requirements of the client. The broker may negotiate with other parties in order to
execute the orders.
3. CONTRACT NOTE
When the order is executed, the broker prepares a contract note. It is the basis of the
transaction. Particulars such as price, quantity of securities, date of transaction, names of the parties,
brokerage etc. are entered in the contract note.
4. DELIVERY AND CLEARING

Delivery of shares takes place through the instrument known as transfer deed. The transfer
deed is signed by the transferor (seller) and is authenticated by a witness. It contains the details of
the transferee, stamp of the selling broker, etc. Delivery and payment may be completed after 14
days as specified at the time of negotiation. Delivery and clearing of security takes place through a
clearance house.
5. SETTLEMENT
The procedure adopted for the settlement of transactions varies depending upon the kind of
securities. On the date of settlement cheques/ drafts and securities are exchanged as per the delivery
order. The clearinghouse makes the payment and delivers the security certificates to the members
on the payout day. Each broker settles the account with every client by taking delivery or giving
delivery of securities certificates and receipts or payment of cheques.

ONLINE TRADING PROCESS
Once the Demat account, Trading account and Bank account are in place, an individual is
ready to start trading. While it is not necessary to have the Dmat account, Trading account and
Bank account with the same organization, having it with the same organization offers additional
convenience, especially for individuals trading using the internet.
The following example of buying and selling using a Trading account on the internet
illustrates the convenience of having the Dmat account, Trading account and Bank account with the
same organization.
Buying shares: When an individual wants to buy a share, he/she logs into the Trading
account and specifies the details like the Company name, no. of shares to buy and the price at which
to buy. Depending on this information, the required amount from the Bank account is set aside for
this trade. When the desired price is reached, this trade is executed and the amount (after adjusting
for charges) is debited from the Bank account and the shares are credited into the Dmat account.
If the Bank account had been with a different organization, then for carrying out this trade, it would
have been necessary to move the amount into the Trading account.
Selling shares: When an individual wants to sell a share, he/she logs into the Trading
account and specifies the details like the Company name, no. of shares to sell and the price at which
to sell. Depending on this information, the required no of shares from the Demat account is set
aside for this trade. When the desired price is reached, this trade is executed and the shares are
debited from the Dmat account and the amount (after adjusting for charges) is credited to the Bank
account.
If the Bank account had been with a different organization, then after this trade, it would have been
necessary to move the amount from the Trading account into the Bank account.
VARIOUS SECTORS
The companies listed in BSE and NSE are divided into various sectors depending upon
company’s profile
The various sectors are as follows:

Aluminum Domestic Pharma Power
Automobiles Engineering Refinery
Auto Ancillaries Fin. Institutions Retailing
Banking FMCG Shipping
Cement Hotels Software
Construction MNC Pharma Steel
Telecom Paint Sugar
Textiles Realty Consumer Durables
Capital Goods IT Healthcare
MID CAP:
The National Stock Exchange manages an index called CNX Midcap 200. The objective of
such an index is to capture the movement in the mid-cap shares segment. According to the NSE,
CNX Midcap 200 represents about 77% of the total market capitalization of the mid-cap universe
and 75% of the total traded value. This index provides investors a broad-based benchmark for
comparing portfolio returns in the mid-cap segment.
e.g.: Midcap companies like Jain Irrigation Systems, Bajaj Hindustan, IVRCL
Infrastructures and Nagarjuna Construction have recorded impressive performances with a sharp
growth in their sales and earnings.
There is no classical definition of mid-cap shares. The name ‘mid-cap’ originates from the
term medium capitalized. It is based on the market capitalization of the stock. Market capitalization
is calculated by multiplying the current stock price with the number of shares outstanding or issued
by the company. The definition of mid-cap shares can vary from market to market and from country
to country.
In case of India, the National Stock Exchange (NSE) defines the mid-cap universe as stocks
whose average six months’ market capitalization is between Rs 75 crore and Rs 750 crore. In the
US, mid-cap shares are those stocks that have a market capitalization ranging from Rs 9,000 crore
to Rs 45,000 crore. In India, these shares would be classified as large-cap shares.
SMALL CAP:
Small cap are generally small companies that have just incorporated. They have a market
capitalization of less than $1 or $2 billion. These companies do well early in an economic recovery,
when interest rates are low and they have easy access to funds to invest into their growth. However,
they are the riskiest stocks because smaller companies are more likely to fail.
Small-cap stocks are stocks with a relatively small market capitalization. Classifications
such as 'large cap' or 'small cap' are only approximations that change over time. In fact, the
definition of 'small cap' can vary among brokerages, but generally it involves a company with a
market capitalization of between $300 million and $2 billion.
Below this, companies having a market capitalization between $50 million and $300 million
are called 'micro cap' stocks. Even these aren't the smallest breeds. Nano-cap stocks are even
smaller, and involve small public companies having a market capitalization of below $50 million.

You may start with these also. But they escape the state regulatory oversight and there is no point in
sticking to them.
LARGE CAP:
Large cap refers to companies that have a market capitalization of over $5 billion or even
$10 billion. These are large, relatively stable companies whose stock prices may not grow as fast as
a smaller company. That is because it is difficult to grow quickly when you are already the market
leader, which most of these companies are. However, their large size makes them less likely to go
out of business, so they are a safer investment than small cap companies.
OTHER IMPORTANT CONCEPTS
BONUS SHARES
Bonus share is a free share of stock given to current shareholders in a company, based upon
the number of shares that the shareholder already owns. While the issue of bonus shares increases
the total number of shares issued and owned, it does not increase the value of the company.
Although the total number of issued shares increases, the ratio of number of shares held by each
shareholder remains constant. An issue of bonus shares is referred to as a bonus issue. Depending
upon the constitutional documents of the company, only certain classes of shares may be entitled to
bonus issues, or may be entitled to bonus issues in preference to other classes.Generally, for the
bonus only equity shareholders are entitled & the preference shareholders only if they are
participating.
Bonus shares are issued by cashing in on the free reserves of the company. The assets of a
company also consist of cash reserves. A company builds up its reserves by retaining part of its
profit over the years (the part that is not paid out as dividend). After a while, these free reserves
increase, and the company wanting to issue bonus shares converts part of the reserves into capital.
There are two ways of giving bonus to shareholders:
1) By making partly paid shares as fully paid
2) By issuing fully paid bonus shares.
If you hold 100 shares of Rs. 10 each of a company, partly paid at Rs. 6 per share & the co.
issues bonus by making the shares fully paid. Thus, you are not required to pay the balance of Rs. 4
per share. Without any cost to you, the partly paid shares are converted into fully paid shares by the
company.
If you hold 100 fully paid shares of a company and a 2:1 bonus offer is declared, you get 200
shares free. That means your total holding of shares in that company will now be 300 instead of 100
at no cost to you.
A bonus issue is a signal that the company is in a position to service its larger equity. What
it means is that the management would not have given these shares if it was not confident of being
able to increase its profits and distribute dividends on all these shares in the future.
When a company declares bonus issues, there has to be a cut-off date for such benefits to be
transferred to the shareholders. This date is termed as "Book Closure" date or "Record Date". It is

the date after which the company will not handle any transfer of shares requests until the benefits
are transferred. Only shareholders marked in the company's register at the Book Closure Date or the
Record Date would be entitled to receive these benefits. If a company announces book closure as 1
January, shareholders who as on that day own the stock will be entitled to the bonus issue. e.g. If
Mr. Y buys this stock from Mr. X on 2 January, the benefit of bonus issue will still be transferred to
Mr. X by the company. A company generally announces such a date along with the announcement
of the bonus issue.
After the announcement of the bonus but before the record date, the shares are referred to as
cum-bonus. After the record date, when the bonus has been given effect, the shares become ex-
bonus.
In Oct. 09, Mukesh Ambani led RIL declared a bonus share for every share owned in the
company
BUYBACK OF SHARES
A Share buyback occurs when a company repurchases some of its own stock either through
purchasing shares on the open market or by buying shares directly from shareholders through a
tender offer at a premium to current market price.
The rationale behind buyback is to boost demand by reducing supply of shares, which
should shoot up the price. The repurchase of shares reduces the number of shareholders, which in
turn enhances the Earning Per Share (EPS) ratio. EPS is Net Profit after payment of tax & pref.
dividend divided by the total no. of equity shares.The share buyback may increase the share price of
a company by reducing the supply of shares available for purchase.
The investor can benefit from this in two ways:

1. The stock price of said company may go up
2. Buying back stock means that the company earnings are now split among fewer shares,
meaning higher earnings per share (EPS). Theoretically, higher earnings per share should
command a higher stock price. Investor's percentage share of the company's earnings is now
perceived to be greater by other investors.
3. Buying back stock uses up excess cash. Cash rich companies are also very attractive
takeover targets. Buying back stock allows the company to earn a better return on excess
cash and keep itself from becoming a takeover target.
WHY COMPANIES BUYBACK?
Unused Cash: If they have huge cash reserves with not many new profitable projects to
invest in and if the company thinks the market price of its share is undervalued. Eg. Bajaj
Auto went on a massive buy back in 2000 and Reliance's recent buyback.

Market perception By buying their shares at a price higher than prevailing market price
company signals that its share valuation should be higher.
Recently the prices of RIL and REL have not fallen, as expected, despite the spat between
the promoters. This is mainly attributed to the buyback offer made at higher prices.
Exit option If a company wants to exit a particular country or wants to close the company.
Escape monitoring of accounts and legal controls If a company wants to avoid the
regulations of the market regulator by delisting. They avoid any public scrutiny of its books
of accounts.
Show better financial ratios Companies try to use buyback method to show better financial
ratios. For e.g. when a company uses its cash to buy stock, it reduces outstanding shares and
also the assets on the balance sheet (because cash is an asset). Thus, return on assets (ROA)
actually increases with reduction in assets, and return on equity (ROE) increases as there is
less outstanding equity. If the company earnings are identical before and after the buyback
earnings per share (EPS) and the P/E ratio would look better even though earnings did not
improve. Since investors carefully scrutinize only EPS and P/E figures, an improvement
could jump-start the stock
Increase promoter's stake A company may also buy its shares back to increase the stake of
promoters and to help fend off hostile takeover bids. By reducing the number of shares
available and driving up the share price, the company using a buyback strategy makes it
more difficult for an investor to gain a controlling stake in the company.
In Feb 09, the Anil Ambani promoted Reliance Infrastructure (R-Infra) announced buy back
of shares worth Rs 700 crore. In Oct 09, the country’s biggest real estate developer, DLF
Ltd, began Rs 1,100 Cr stock buy-back program.
STOCK SPLIT
An increase in the number of outstanding shares of a company's stock, such that
proportionate equity of each shareholder remains the same. This requires approval from the board
of directors and shareholders. A corporation whose stock is performing well may choose to split its
shares, distributing additional shares to existing shareholders. The most common stock split is two-
for-one, in which each share becomes two shares. The price per share immediately adjusts to reflect
the stock split, since buyers and sellers of the stock all know about the stock split (in this example,
the share price would be cut in half). Some companies decide to split their stock if the price of the
stock rises significantly and is perceived to be too expensive for small investors to afford also
called split.

All publicly-traded companies have a set number of shares that are outstanding on the stock
market. A stock split is a decision by the company's board of directors to increase the number of
shares that are outstanding by issuing more shares to current shareholders. For example, in a 2-for-1
stock split, every shareholder with one stock is given an additional share. So, if a company had 10
million shares outstanding before the split, it will have 20 million shares outstanding after a 2-for-1
split.
A stock's price is also affected by a stock split. After a split, the stock price will be reduced
since the number of shares outstanding has increased. In the example of a 2-for-1 split, the share
price will be halved. Thus, although the number of outstanding shares and the stock price change,
the market capitalization remains constant.
A stock split is usually done by companies that have seen their share price increase to levels
that are either too high or are beyond the price levels of similar companies in their sector. The
primary motive is to make shares seem more affordable to small investors even though the
underlying value of the company has not changed.
A stock split can also result in a stock price increase following the decrease immediately
after the split. Since many small investors think the stock is now more affordable and buy the stock,
they end up boosting demand and drive up prices. Another reason for the price increase is that a
stock split provides a signal to the market that the company's share price has been increasing and
people assume this growth will continue in the future, and again, lift demand and prices.
Another version of a stock split is the reverse split. This procedure is typically used by
companies with low share prices that would like to increase these prices to either gain more
respectability in the market or to prevent the company from being delisted (many stock exchanges
will delist stocks if they fall below a certain price per share). For example, in a reverse 5-for-1 split,
10 million outstanding shares at 50 cents each would now become two million shares outstanding at
$2.50 per share. In both cases, the company is worth $50 million.
The bottom line is a stock split is used primarily by companies that have seen their share
prices increase substantially and although the number of outstanding shares increases and price per
share decreases, the market capitalization (and the value of the company) does not change. As a
result, stock splits help make shares more affordable to small investors and
provide greater marketability and liquidity in the market.
DIVIDENDS
Dividends are payments made by a corporation to its shareholder members. It is the portion
of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that
money can be put to two uses: it can either be re-invested in the business (called retained earnings),
or it can be paid to the shareholders as a dividend. Many corporations retain a portion of their
earnings and pay the remainder as a dividend.
For a joint stock company, a dividend is allocated as a fixed amount per share. Therefore, a
shareholder receives a dividend in proportion to their shareholding. For the joint stock company,

paying dividends is not an expense; rather, it is the division of an asset among shareholders. Public
companies usually pay dividends on a fixed schedule, but may declare a dividend at any time,
sometimes called a special dividend to distinguish it from a regular one.
Cooperatives, on the other hand, allocate dividends according to members' activity, so their
dividends are often considered to be a pre-tax expense.
Dividends are usually settled on a cash basis, as a payment from the company to the
shareholder. They can take other forms, such as store credits (common among retail consumers'
cooperatives) and shares in the company (either newly-created shares or existing shares bought in
the market.) Further, many public companies offer dividend reinvestment plans, which
automatically use the cash dividend to purchase additional shares for the shareholder.
AUCTION
On account of non-delivery of securities by the trading member on the pay-in day, the
securities are put up for auction by the Exchange. This ensures that the buying trading member
receives the securities. The Exchange purchases the requisite quantity in auction market and gives
them to the buying trading member.
Auctions are initiated by the Exchange on behalf of trading members for settlement related
reasons. The main reasons are Shortages, Bad Deliveries and Objections. In the Auction market,
auctions are initiated by the Exchange on behalf of trading members for settlement related reasons.
For e.g. If you are a buyer in XYZ Company for say 3000 shares @ Rs. 140 each. The
delivery of the same shares would be available to you in your Demat Account at T+2days. If there
is an availability shortage, the shares are then auctioned by the exchange.
There are three types of participants in the auction market.
 Initiator: The party who initiates the auction process is called an initiator.
 Competitor: The party who enters on the same side as of the initiator is called a competitor.
 Solicitor: The party who enters on the opposite side as of the initiator is called a solicitor.
The trading members can participate in the Exchange initiated auctions by entering orders as a
solicitor. E.g. If the Exchange conducts a Buy-In auction, the trading members entering sell orders
are called solicitors. When the auction starts, the competitor period for that auction also starts.
Competitor period is the period during which competitor order entries are allowed. Competitor
orders are the orders which compete with the initiator’s order i.e. if the initiator’s order is a buy
order, then all the buy orders for that auction other than the initiator’s order are competitor orders.
And if the initiator order is a sell order then all the sell orders for that auction other than the
initiators order are competitor orders.
After the competitor period ends, the solicitor period for that auction starts. Solicitor period
is the period during which solicitor order entries are allowed. Solicitor orders are the orders which
are opposite to the initiator order i.e. if the initiator order is a buy order, then all the sell orders for
that auction are solicitor orders and if the initiator order is a sell order, then all the buy orders for
that auction are solicitor orders.

After the solicitor period, order matching takes place. During this process, the system
calculates the trading price for the auction based on the initiator order and the orders entered during
the competitor and the solicitor period.. After this the auction is said to be complete.
At present for Exchange initiated auctions, the matching takes place at the respective
solicitor order prices Competitor period and solicitor period for any auction are set by the
Exchange.
REGULATORS
Why does Securities Market need Regulators?
The absence of conditions of perfect competition in the securities market makes the role of
the Regulator extremely important. The regulator ensures that the market participants behave in a
desired manner so that securities market continues to be a major source of finance for corporate and
government and the interest of investors are protected.
Who regulates the Securities Market?

The responsibility for regulating the securities market is shared by Department of Economic
Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of India (RBI) and
Securities and Exchange Board of India (SEBI).
What is SEBI and what is its role?

The Securities and Exchange Board of India (SEBI) is the regulatory authority in India
established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for establishment of
Securities and Exchange Board of India (SEBI) with statutory powers for (a) protecting the interests
of investors in securities (b) promoting the development of the securities market and (c) regulating
the securities market. Its regulatory jurisdiction extends over corporates in the issuance of capital
and transfer of securities, in addition to all intermedia ries and persons associated with securities
market. SEBI has been obligated to perform the aforesaid functions by such measures as it thinks
fit. In particular, it has powers for:
 Regulating the business in stock exchanges and any other securities markets
 Registering and regulating the working of stock brokers, sub–brokers etc.
 Promoting and regulating self-regulatory organizations
 Prohibiting fraudulent and unfair trade practices
 Calling for information from, undertaking inspection, conducting inquiries and audits of the
stock exchanges, intermediaries, self – regulatory organizations, mutual funds and other
persons associated with the securities market.

DERIVATIVES
Trading in derivatives commenced in the Indian market in June 2000. The number of
instruments available in derivatives has been expanded in phases. To begin with, SEBI only
approved trading in index futures contracts based on NIFTY50 Index and BSE-30 (Sensex) Index.
This was followed by approval for trading in options based on these indices and options on
individual securities and also futures on interest rates derivative instruments (91-day Notional
Tbills and 10-year Notional 6% coupon bearing as well as zero coupon bonds).
Now, there are futures and options based on benchmark index NIFTY50, CNX IT Index, Bank
Nifty Index, CNX Nifty Junior, CNX 100, Nifty Midcap 50 as well as options and futures on single
stocks (228 stocks as on May 2008). The Mini NIFTY50 Futures & Options contract was
introduced for trading on January 1, 2008. Index options on NSE follow European style of
settlement, whereas stock options follow an American style of settlement.
During 2007-08, the derivatives market segment of NSE witnessed a trading value of Rs.
130,904,779 million. NSE accounts for nearly 98% of the derivatives turnover in India.
Futures: A futures contract is an agreement between two parties to buy or sell an asset at a certain
time in the future at a certain price. Futures contracts are special types of forward contracts in the
sense that the former are standardized exchange-traded contracts, such as futures of the Nifty index.
Options: An Option is a contract which gives the right, but not an obligation, to buy or sell the
underlying at a stated date and at a stated price. While a buyer of an option pays the premium and
buys the right to exercise his option, the writer of an option is the one who receives the option
premium and therefore obliged to sell/buy the asset if the buyer exercises it on him.
Options are of two types - Calls and Puts options:

‘Calls’ give the buyer the right but not the obligation to buy a given quantity of the underlying
asset, at a given price on or before a given future dates.
‘Puts’ give the buyer the right, but not the obligation to sell a given quantity of underlying asset at a
given price on or before a given future date.
Presently, at NSE futures and options are traded on the Nifty, CNX IT, BANK Nifty and 116 single
stocks.

CIRCUIT BREAKERS
The Exchange has implemented index-based market-wide circuit breakers in compulsory
rolling settlement with effect from July 02, 2001. In addition to the circuit breakers, price bands are
also applicable on individual securities.
Index-based Market-wide Circuit Breakers: The index-based market-wide circuit breaker system
applies at 3 stages of the index movement, either way viz. at 10%, 15% and 20%. These circuit
breakers when triggered bring about a coordinated trading halt in all equity and equity derivative
markets nationwide. The market-wide circuit breakers are triggered by movement of either the BSE
Sensex or the NSE S&P CNX Nifty, whichever is breached earlier.
In case of a 10% movement of either of these indices, there would be a one-hour market halt if the
movement takes place before 1:00 p.m.
In case the movement takes place at or after 1:00 p.m. but before 2:30 p.m. there would be trading
halt for ½ hour. In case movement takes place at or after 2:30 p.m. there will be no trading halt at
the 10% level and market shall continue trading.
In case of a 15% movement of either index, there shall be a two-hour halt if the movement takes
place before 1 p.m. If the 15% trigger is reached on or after 1:00 p.m., but before 2:00 p.m., there
shall be a one-hour halt. If the 15% trigger is reached on or after 2:00 p.m. the trading shall halt for
remainder of the day.
In case of a 20% movement of the index, trading shall be halted for the remainder of the day.
These percentages are translated into absolute points of index variations on a quarterly basis. At the
end of each quarter, these absolute points of index variations are revised for the applicability for the
next quarter. The absolute points are calculated based on closing level of index on the last day of
the trading in a quarter and rounded off to the nearest 10 points in case of S&P CNX Nifty.
PRICE BANDS
Daily price bands are applicable on securities as below:
 Daily price bands of 5% (either way) on securities as specified by the Exchange.
 Daily price bands of 10% (either way) on securities as specified by the Exchange.
 Price bands of 20% (either way) on all remaining scrips (including debentures, warrants,
preference shares etc).
 No price bands are applicable on: scrips on which derivative products are available or scrips
included in indices on which derivative products are available. In order to prevent members
from entering orders at non-genuine prices in such securities, the Exchange has fixed
operating range of 20% for such securities.
The price bands for the securities in the Limited Physical Market are the same as those applicable
for the securities in the Normal Market. For auction market the price bands of 20% are applicable.
There are no price bands for those securities which are available for trading in the Futures and
Options segment and securities which form part of the indices on which trading is available in the
Futures and Options segment.

VOLATILITY IN INDIAN STOCK MARKET
Historically, FIIs have been the major movers and shakers of the BSE Sensex. In most cases, the
domestic Mutual Funds have taken the opposite approach, SELL when FIIs Buy and vice-versa.
However, due to smaller participation by domestic funds [1/3rd of FIIs], FIIs tend to be the
momentum movers. An efficient market is one which responds to news rapidly. Prices that adjust
are of essence to the efficient functioning of a market economy. The job of financial markets is to
hold a mirror up to the real economy. So therefore volatility in Indian stock market is not bad.
SOME ARE THE REASONS FOR THE VOLATILITY IN THE INDIAN STOCK
MARKET:
 Inflation rate
 FII’s
 Policy Changes
 Results of Companies
 International Markets
 Global Atmosphere
 Government Change
 Climatic Factors, etc.
Following is the detail analysis of the Indian stock market volatility from 15k to 21k:
On July 23, 2007, the Sensex touched a new high of 15,733 points. On July 27, 2007 the Sensex
witnessed a huge correction because of selling by Foreign Institutional Investors and global cues to
come back to 15,160 points by noon. Following global cues and heavy selling in the international
markets, the BSE Sensex fell by 615 points in a single day on August 1, 2007.
• 16,000, September 19, 2007- The Sensex on September 19, 2007 crossed the 16,000 mark
and reached a historic peak of 16322 while closing. The bull hits because of the rate cut of
50 bit/s in the discount rate by the Fed chief Ben Bernanke in US.

• 17,000, September 26, 2007- The Sensex on September 26, 2007 crossed the 17,000 mark
for the first time, creating a record for the second fastest 1000 point gain in just 5 trading
sessions. It failed however to sustain the momentum and closed below 17000. The Sensex
closed above 17000 for the first time on the following day. Reliance group has been the
main contributor in this bull run, contributing 256 points. This also helped Mukesh
Ambani's net worth to grow to over $50 billion or Rs.2 trillion. It was also during this record
bull run that the Sensex for the first time zoomed ahead of the Nikkei of Japan.
• 18,000, October 9, 2007- The Sensex crossed the 18k mark for the first time on October 9,
2007. The journey from 17k to 18k took just 8 trading sessions which is the third fastest
1000 point rise in the history of the sensex. The sensex closed at 18,280 at the end of day.
This 788 point gain on October 9 was the second biggest single day absolute gains.
• 19,000, October 15, 2007- The Sensex crossed the 19k mark for the first time on October
15, 2007. It took just 4 days to reach from 18k to 19k. This is the fastest 1000 points rally
ever and also the 640 point rally was the second highest single day rally in absolute terms.
This made it a record 3000 point rally in 17 trading sessions overall.
Participatory Notes :
On October 16, 2007, SEBI (Securities & Exchange Board of India) proposed curbs on
participatory notes which accounted for roughly 50% of FII investment in 2007. SEBI was not
happy with P-notes because it was not possible to know who owned the underlying securities, and
hedge funds acting through P-notes might therefore cause volatility in the Indian markets.
However the proposals of SEBI were not clear and this led to a knee-jerk crash when the markets
opened on the following day (October 17, 2007). Within a minute of opening trade, the Sensex
crashed by 1744 points or about 9% of its value - the biggest intra-day fall in Indian stock markets
in absolute terms till then. This led to automatic suspension of trade for 1 hour. Finance Minister P.
Chidambaram issued clarifications, in the meantime, that the government was not against FIIs and
was not immediately banning PNs. After the market opened at 10:55 AM, the index staged a
comeback and ended the day at 18715.82, down 336.04 from the last day's close.
This was, however not the end of the volatility. The next day (October 18, 2007), the Sensex
tumbled by 717.43 points — 3.83 per cent — to 17998.39. The slide continued the next day when
the Sensex fell 438.41 points to settle at 17559.98 at the end of the week, after touching the lowest
level of that week at 17226.18 during the day.
After detailed clarifications from the SEBI chief M. Damodaran regarding the new rules, the market
made a 879-point gain on October 23, thus signalling the end of the PN crisis.

• 20,000, October 29, 2007- The Sensex crossed the 20k mark for the first time with a
massive 734.5 point gain but closed below the 20k mark. It took 11 days to reach from 19k
to 20k. The journey of the last 10,000 points was covered in just 869 sessions as against
7,297 sessions taken to touch the 10,000 mark from 1,000 levels. In 2007 alone, there were
six 1,000-point rallies for the Sensex.
• 21,000, January 8, 2008 - A life time high.
Table showing the movements and reasons in Indian stock market from 15k to 21k:
The softening trend in inflation below the five per

cent level, indications of interest rates having peaked,
15,000 July 6, 2007
strong FII inflows and expectations of good quarterly
results.
US fed rate cut by 50 basis point, strong foreign fund
16,000 September 19, 2007 inflows, softening trend in inflation below the four
per cent level and Good Kharif crop.
Robust FII inflows and positive sentiments across the
17,000 September 26, 2007
boards.
Strong FII Inflows and short covering due to easing of
18,000 October 09, 2007 political tension between LEFT and UPA over the
Nuclear Deal.
Strong fund flow and expectation of good quarterly
19,000 October 15, 2007
result from companies has fuelled this leg of rally.
Strong FII buying coupled with short covering led to
20,000 October 29, 2007 sharp up move. Registering of FII and P notes issue
clarification has put momentum into Sensex.
Expectation of excellent quarterly result and strong
21,000 January 08, 2008
forward momentum has played major role.
Following is the detail analysis of the Indian stock market volatility In year 2008:
 Jan 22, 2008 - It was a Terrible Tuesday for the bourses. The Sensex saw its biggest intra-
day fall when it hit a low of 15332, down 2273 points. However, it recovered losses to some
extent and closed at a loss of 875 points at 16730. Trading was suspended for one hour at
the Bombay Stock Exchange.
 Mar 25, 2008 - The Sensex opened with a positive gap of 324 points at 15613 on the back
of firm trend in the global markets. Aggressive buying in financial, realty and technology

stocks saw the index surge to higher levels as the day progressed. The index touched a high
of 16262, and finally settled.
 Apr 2, 2008 - As front line stocks vaulted to higher levels, the Sensex flared up by over 600
points to 16236.70 within minutes of commencement of trade today.
 Sep 18, 2008 - MUMBAI: For the fist time in its history, the Sensex ended positively after
losing over 705 points during the intraday session while the turnover on the BSE was Rs
7376 crore, the highest in last two months after a series of bulk deals. The Sensex ended at
13315.60 up 52.7 points.
 Oct 24, 2008 - We take you through the BIGGEST falls in the Indian stock market history.
October 24, 2008: The Sensex plunged by 1070.63 points (10.96 per cent) to close at
8701.07. The National Stock Exchange's Nifty ended at 2557.25, down 13.11 per cent or
386 points.
 Nov 12, 2008 - Mumbai: The benchmark index of the Bombay Stock Exchange, the Sensex,
fell below the 10000 level on Tuesday, mirroring the decline in other key ... correction in
stocks in September and October, triggered by what equity strategists are now terming “the
biggest margin call in history”.
 Dec 20, 2008 - While the Sensex ended the week with a gain of 409.84 points or 4.23% at
10099.91, the Nifty settled at 3077.50 with a gain of 156.15 points or ... As oil, pharma,
information technology, realty and bank stocks vaulted higher, the Sensex recorded a sharp
gain of 145 points in that


FINAL Cap MRKT

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

FINAL Cap MRKT

Uploaded by

Copyright:

Available Formats

- BY PROF PANDEY

CAPITAL MARKET – BASIC CONCEPTS & VOLATILITY

KOMAL CHANDNANI (7)

SUNNY CHHANGANI (8)

HIREN JASOLIA (18)

NAITIK MODI (25)

DARSHIT SHAH (37)

VIDHI VARMA (57)

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 1

A. Commodity markets, which facilitate the trading of commodities.

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 2

HISTORY OF THE INDIAN STOCK MARKET - THE ORIGIN

FOLLOWING IS THE SNAP SHOT OF HISTORY OF INDIAN STOCK MARKET

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 3

1860's The number of brokers increased to 60

1862-63 The number of brokers increased to about 200 to 250

PRE-INDEPENDANCE SCENARIO - ESTABLISHMENT OF DIFFERENT STOCK

1880's Development of cotton mills industry and set up of many others

1894 Establishment of "The Ahmedabad Share and Stock Brokers' Association"

1908 "The Calcutta Stock Exchange Association" was formed

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 4

1944 Establishment of "The Hyderabad Stock Exchange Limited"

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 5

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 6

2) WHAT ARE AN ‘EQUITY’/SHARE?

3) WHAT IS A ‘DEBT INSTRUMENT’?

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 7

5) WHAT IS A MUTUAL FUND?

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 8

1.1. Issue of Shares

1.2. What are the different kinds of issues?

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 9

A Preferential issue is an issue of shares or of convertible securities by listed companies to

1.3. INITIAL PUBLIC OFFERING (IPO):

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 10

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 11

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 12

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 13

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 14

2) ADANI POWER LIMITED

1.4. RIGHTS ISSUE:

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 15

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 16

2.1. What is meant by Secondary market?

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 17

2.2. What is the role of the Secondary Market?

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 18

HOW MANY EXCHANGES ARE THERE IN INDIA?

NATIONAL STOCK EXCHANGE (NSE)

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 19

1. ABB Ltd 26. Maruti Suzuki India Ltd

BOMBAY STOCK EXCHANGE (BSE)

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 20

1. ACC 16. Mahindra & Mahindra Limited

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 21

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 22

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 23

HOW TO BUY SHARES?

WHY DOES ONE NEED A BROKER?

 Savings Bank Account

CAPITAL MARKET MANAGERIAL ECONOMICS, MMS – I, DIV A 24

SAVINGS BANK ACCOUNT: