The capital market is the market for securities, where Companies and governments can raise
long-term funds. It is a market in which money is lent for periods longer than a year. A nation's
capital market includes such financial institutions as banks, insurance companies, and stock
exchanges that channel long-term investment funds to commercial and
industrial borrowers. Unlike the money market, on which lending is ordinarily short term, the
capital market typically finances fixed investments like those in buildings and machinery.
Nature and Constituents: The capital market consists of number of individuals and institutions
(including the government) that canalize the supply and demand for longterm capital and claims
on capital. The stock exchange, commercial banks, co-operative banks, saving banks,
development banks, insurance companies, investment trust or companies, etc., are important
constituents of the capital markets. The capital market has three important Components, namely
the suppliers of loanable funds, the borrowers and the Intermediaries who deal with the leaders
on the one hand and the Borrowers on the other.
Secondary Market: In the secondary market the investors buy / sell securities through stock
exchanges. Trading of securities on stock exchange results in exchange of money and securities
between the investors. Secondary market provides liquidity to the securities on the exchange(s)
and this activity commences subsequent to the original issue. For example, having subscribed to
the securities of a company, if one wishes to sell the same, it can be done through the secondary
market. Similarly one can also buy the securities of a company from the secondary market. A
stock exchange is the single most important institution in the secondary market for providing a
platform to the investors for buying and selling of securities through its members. In other
words, the stock exchange is the place where already issued securities of companies are bought
and sold by investors. Thus, secondary market activity is different from the primary market in
which the issuers issue securities directly to the investors. Traditionally, a stock exchange has
been an association of its members or stock brokers, formed for the purpose of facilitating the
buying and selling of securities by the public and institutions at large and regulating its day to
day operations. Of late however, stock exchanges in India now operate with due recognition
from Securities and Exchange Board of India (SEBI) / the Government of India under the
Securities Contracts (Regulation) Act, 1956. The stock exchanges are either association of
persons or are formed as companies. There are 24 recognized stock exchanges in India out of
which one has not commenced its operations.
Out of the 23 remaining stock exchanges, currently only on four stock exchanges, the trading
volumes are recorded. Most of regional stock exchanges have formed subsidiary companies and
obtained membership of Bombay Stock Exchange, (BSE) or National Stock Exchange (NSE) or
both. Members of these stock exchanges are now working as sub-brokers of BSE / NSE brokers.
Securities listed on the stock exchange(s) have the following advantages:
The stock exchange(s) provides a fair market place.
It enhances liquidity.
Their price is determined fairly.
There is continuous reporting of their prices.
Full information is available on the companies.
Rights of investors are protected.
Settlement cycles:
Settlement is the process whereby the trader who has made purchases of scrip makes payment
and the seller selling the scrip delivers the securities. This settlement process is carried out by
Clearing Houses for the stock exchanges. The Clearing House acts like an intermediary in every
transaction and acts as a seller to all buyers and buyer to all sellers.
IPO
Conditions for IPO: (all conditions listed below to be satisfied)
Net tangible assets of 3 crore in each of the preceding 3 full years, of which not more than 50%
are held in monetary assets:
Track record of distributable profits for 3 out of the immediately preceding 5 years:
Net worth of 1 crore in each of the preceding three full years;
Issue size of proposed issue + all previous issues made in the same financial year does not
exceed 5 times its pre-issue net worth as per the audited balance sheet of the preceding financial
year;
In case of change of name within the last one year, 50% of the revenue for the preceding 1 full
year earned by it from the activity indicated by the new name.
Derivatives
A derivative picks a risk or volatility in a financial asset, transaction, market rate, or contingency,
and creates a product the value of which will change as per changes in the underlying risk or
volatility. The idea is that someone may either try to safeguard against such risk (hedging), or
someone may take the risk, or may engage in a trade on the derivative, based on the view that
they want to execute. The risk that a derivative intends to trade is called underlying. A derivative
is a financial instrument, whose value depends on the values of basic
underlying variable. In the sense, derivatives is a financial instrument that offers return based on
the return of some other underlying asset, i.e the return is derived from another instrument.
The best way will be take examples of uncertainties and the derivatives that can be structured
around the same.
Stock prices are uncertain - Lot of forwards, options or futures contracts are based on
movements in prices of individual stocks or groups of stocks.
Prices of commodities are uncertain - There are forwards, futures and options on commodities.
Interest rates are uncertain - There are interest rate swaps and futures.
Foreign exchange rates are uncertain - There are exchange rate derivatives.
Weather is uncertain - There are weather derivatives, and so on.
DERIVATIVES PRODUCTS
Some significant derivatives that are of interest to us are depicted in the accompanying graph:
Major types of derivatives
FORWARDS
A forward contract is an agreement to buy or sell an asset on a specified date for a specified
price. One of the parties to the contract assumes a long position and agrees to buy the underlying
asset on a certain specified future date for a certain specified price. The other party assumes a
short position and agrees to sell the asset on the same date for
the same price, other contract details like delivery date, price and quantity are negotiated
bilaterally by the parties to the contract. The forward contracts are normally traded outside the
exchange.
FUTURES
Futures contract is a standardized transaction taking place on the futures
exchange. Futures market was designed to solve the problems that exist in forward market. 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, but unlike forward contracts, the futures contracts are standardized
and exchange traded To facilitate liquidity in the futures contracts, the exchange specifies certain
standard quantity and quality of the underlying instrument that can be delivered, and a standard
time for such a settlement. Futures exchange has a division or subsidiary called a clearing house
that performs the specific responsibilities of paying and collecting daily gains and losses as well
as guaranteeing performance of one party to other. A futures' contract can be offset prior to
maturity by entering into an equal and opposite transaction. The standardized items in a futures
contract are:
Quantity of the underlying
Quality of the underlying
The date and month of delivery
The units of price quotation and minimum price change
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OPTIONS
An option is a contract, or a provision of a contract, that gives one party (the option holder) the
right, but not the obligation, to perform a specified transaction with another party (the option
issuer or option writer) according to the specified terms. The owner of a property might sell
another party an option to purchase the property any time during the next three months at a
specified price. For every buyer of an option there must be a seller. The seller is often referred to
as the writer. As with futures, options are brought into existence by being traded, if none is
traded, none exists; conversely, there is no limit to the number of option contracts that can be in
existence at any time. As with futures, the process of closing out options positions will cause
contracts to cease to exist, diminishing the total number. Thus an option is the right to buy or sell
a specified amount of a financial instrument at a pre-arranged price on or before a particular date.
There are two options which can be exercised:
Call option, the right to buy is referred to as a call option.
Put option, the right to sell is referred as a put option.
D) Global Cues :In this world of globalization various economies are interdependent and interconnected. An event
in one part of the world is bound to affect other parts of the world , however the magnitude and
intensity of impact would vary. Thus capital market in India is also affected by developments in
other parts of the world i.e. U.S. , Europe, Japan , etc.
Global cues includes corporate earnings of MNCs, consumer confidence index in developed
countries, jobless claims in developed countries, global growth outlook given by various
agencies like IMF, economic growth of major economies, price of crude oil, credit rating of
various economies given by Moodys, S & P, etc.
E) Political stability and government policies:For any economy to achieve and sustain growth it has to have political stability and pro- growth
government policies. This is because when there is political stability there is stability and
consistency in governments attitude which is communicated through various government
policies. The vice- versa is the case when there is no political stability .So capital market also
reacts to the nature of government, attitude of government, and various policies of the
government.
F) Growth prospectus of an economy:When the national income of the country increases and per capita income of people increases it is
said that the economy is growing. Higher income also means higher expenditure and higher
savings. This augurs well for the economy as higher expenditure means higher demand and
higher savings means higher investment. Thus when an economy is growing at a good pace
capital market of the country attracts more money from investors, both from within and outside
the country and vice -versa. So we can say that growth prospects of an economy do have an
impact on capital markets.
G) Investor Sentiment and risk appetite :Another factor which influences capital market is investor sentiment and their risk appetite .Even
if the investors have the money to invest but if they are not confident about the returns from their
investment , they may stay away from investment for some time.At the same time the investors
have low risk appetite , which they were having in global and Indian capital market some four to
five months back due to global financial meltdown and recessionary situation in U.S. & some
parts of Europe , they may stay away from investment and wait for the right time to come.
What is Investment ?
Meaning
In simple terms, Investment refers to purchase of financial assets. While Investment Goods are
those goods, which are used for further production.
Investment implies the production of new capital goods, plants and equipments
Bank Deposits: Its simple and every one knows about it.
Provident Funds
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Chit Funds
Company Deposits
2. Bonds
Bonds are debt securities or long term debt instruments. An authorized issuer of bond promises
the person who hods the bond to pay interest on particular periods and to return the principal
after a fixed period (at the time of maturity of the bond). Different types of bonds are;
Government Securities
PSU Bonds
Preference Shares
3. Stocks
Stocks represent ownership. A person who holds stocks of a particular company is treated as one
of the many owners of the company and deserves a share of the net profit that company earns
after all expenses. Stocks is one of the best investment options available and at the same time it
demands knowledge about many fundamentals to make a decent return. Different types of stocks
(as classified by financial analysts)
Growth Stocks
Value Stocks
Income Stocks
4. Mutual Funds
Mutual Funds are a better investment option for those who cant find time to learn about stock
market and its trends or those who dont understand its working correctly.Mutual funds are
usually managed by a Private financial company or a Bank. Different types of mutual funds are;
Hybrid schemes
Balance schemes
Sector schemes
5. Insurance
Insurance is also a form of investment. Different types of insurance investments are;
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the investors
SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial and quasiexecutive. It drafts regulations in its legislative capacity, it conducts investigation and
enforcement action in its executive function and it passes rulings and orders in its judicial
capacity. Though this makes it very powerful, there is an appeals process to create accountability.
There is a Securities Appellate Tribunal which is a three-member tribunal. A second appeal lies
directly to the Supreme Court.
SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and
successively (e.g. the quick movement towards making the markets electronic and paperless
rolling settlement on T+2 basis). SEBI has been active in setting up the regulations as required
under law.
SEBI has also been instrumental in taking quick and effective steps in light of the global
meltdown and the Satyam fiasco. It had increased the extent and quantity of disclosures to be
made by Indian corporate promoters. More recently, in light of the global meltdown,it liberalised
the takeover code to facilitate investments by removing regulatory structures. In one such move,
SEBI has increased the application limit for retail investors to Rs 2 lakh, from Rs 1 lakh at
present.
POWERS
For the discharge of its functions efficiently, SEBI has been invested with the necessary powers
which are:
1. to approve bylaws of stock exchanges.
2. to require the stock exchange to amend their bylaws.
3. inspect the books of accounts and call for periodical returns from recognized stock
exchanges.
4. inspect the books of accounts of a financial intermediaries.
5. compel certain companies to list their shares in one or more stock exchanges.
SEBI Committees
1. Technical Advisory Committee
2. Committee for review of structure of market infrastructure institutions
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3. Members of the Advisory Committee for the SEBI Investor Protection and Education
Fund
4. Takeover Regulations Advisory Committee
5. Primary Market Advisory Committee (PMAC)
6. Secondary Market Advisory Committee (SMAC)
7. Mutual Fund Advisory Committee
8. Corporate Bonds & Securitization Advisory Committee
9. Takeover Panel
10. SEBI Committee on Disclosures and Accounting Standards (SCODA)
11. High Powered Advisory Committee on consent orders and compounding of offences
12. Derivatives Market Review Committee
13. Committee on Infrastructure Funds
STOCK EXCHANGE
Meaning
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Stock Exchange (also called Stock Market or Share Market) is one important constituent of
capital market. Stock Exchange is an organized market for the purchase and sale of industrial and
financial security. It is convenient place where trading in securities is conducted in systematic
manner i.e. as per certain rules and regulations.
It performs various functions and offers useful services to investors and borrowing companies. It
is an investment intermediary and facilitates economic and industrial development of a country.
Stock exchange is an organized market for buying and selling corporate and other securities.
Here, securities are purchased and sold out as per certain well-defined rules and regulations. It
provides a convenient and secured mechanism or platform for transactions in different securities.
Such securities include shares and debentures issued by public companies which are duly listed
at the stock exchange, and bonds and debentures issued by government, public corporations and
municipal and port trust bodies.
Stock exchanges are indispensable for the smooth and orderly functioning of corporate sector in
a free market economy. A stock exchange need not be treated as a place for speculation or a
gambling den. It should act as a place for safe and profitable investment, for this, effective
control on the working of stock exchange is necessary. This will avoid misuse of this platform
for excessive speculation, scams and other undesirable and anti-social activities.
Definitions of Stock Exchange
"Stock exchanges are privately organized markets which are used to facilitate trading in
securities."
The Indian Securities Contracts (Regulation) Act of 1956, defines Stock Exchange as,
"An association, organization or body of individuals, whether incorporated or not, established for
the purpose of assisting, regulating and controlling business in buying, selling and dealing in
securities."
1.
Market for securities : Stock exchange is a market, where securities of corporate bodies,
government and semi-government bodies are bought and sold.
2.
Deals in second hand securities : It deals with shares, debentures bonds and such
securities already issued by the companies. In short it deals with existing or second hand
securities and hence it is called secondary market.
3.
Regulates trade in securities : Stock exchange does not buy or sell any securities on its
own account. It merely provides the necessary infrastructure and facilities for trade in
securities to its members and brokers who trade in securities. It regulates the trade activities so
as to ensure free and fair trade
4.
Allows dealings only in listed securities : In fact, stock exchanges maintain an official
list of securities that could be purchased and sold on its floor. Securities which do not figure in
the official list of stock exchange are called unlisted securities. Such unlisted securities cannot
be traded in the stock exchange.
5.
Transactions effected only through members : All the transactions in securities at the
stock exchange are effected only through its authorised brokers and members. Outsiders or
direct investors are not allowed to enter in the trading circles of the stock exchange. Investors
have to buy or sell the securities at the stock exchange through the authorised brokers only.
6.
7.
8.
Working as per rules : Buying and selling transactions in securities at the stock
exchange are governed by the rules and regulations of stock exchange as well as SEBI
Guidelines. No deviation from the rules and guidelines is allowed in any case.
9.
Specific location : Stock exchange is a particular market place where authorised brokers
come together daily (i.e. on working days) on the floor of market called trading circles and
conduct trading activities. The prices of different securities traded are shown on electronic
boards. After the working hours market is closed. All the working of stock exchanges is
conducted and controlled through computers and electronic system.
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10.
Financial Barometers : Stock exchanges are the financial barometers and development
indicators of national economy of the country. Industrial growth and stability is reflected in
the index of stock exchange.
With demutualisation, the trading rights and ownership rights have been de-linked effectively addressing
concerns regarding perceived and real conflicts of interest. The Exchange is professionally managed
under the overall direction of the Board of Directors.The Board comprises eminent professionals,
representatives of Trading Members and the Managing Director of the Exchange. The Board is inclusive
and is designed to benefit from theparticipation of market intermediaries.
In terms of organisation structure, the Board formulates larger policy issues and exercises over-all
control. The committees constituted by the Board are broad-based.The day-to-dayoperations of the
Exchange are managed by the Managing Director and a management team of professionals.
The Exchange has a nation-wide reach with a presence in 417 cities and towns of India. The systems and
processes of the Exchange are designed to safeguard market integrity and enhance transparency in
operations. During the year 2004-2005, the trading volumes on the Exchange showed robust growth.
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The Exchange provides an efficient and transparent market for trading in equity, debt instruments and
derivatives. The BSE's On Line Trading System (BOLT) is a proprietory system of the Exchange and is
BS 7799-2-2002 certified. The surveillance and clearing & settlement functions of the Exchange are ISO
9001:2000 certified.
THE National Stock Exchange of India is a stock Exchange that is located in Mumbai,
Maharashtra. The National Stock Exchange basically function in three market sections, that
is, (CM) the Capital Market Section); F&Q (The Future and Options Market Sections) and
WDM (Wholesale Debt Market Segment). It is important place where the trading of shares,
debt etc takes place.
It was in year 1992 that the National stock Exchange was for the first time incorporated in
India. It was not regarded as a stock exchange at once. Rather, the national Stock exchange
was incorporated as a tax paying company and had got the recognition of a stock exchange
only in year 1993 the recognition was given under the provisions of the Securities Contracts
(Regulation) Act, 1956.
The National Stock exchange is highly active in the field of market capitalization and thus
aiming it the ninth largest stock exchange in the said field. Similarly, the trading of the stock
exchange in equities and derivatives is so high that it has resulted in high turnovers and thus
making it the largest stock exchange in India.
It is the stock exchange wherein there is the facility of electronic exchange offering
investors. This facility is available in almost types of equitable transactions such as equities,
debentures, etc. it is also the largest stock exchange if calculated in the terms of traded
values.
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OBJECTIVE OF RESEARCH:The main objective of the study or research is to know about the perception of investors about
Stock market.
1. To study the investors perception regarding stock market.
2. To identify the main reasons for investing in stock market.
3. To identify which type of groups and sector is preferred most by the investors.
RESEARCH METHODOLOGY:Research is totally based on primary data. Secondary data can be used only for the reference.
Research has been done by primary data collection, and primary data has been collected by
meeting with the investors. Data collection has been done through by giving structured
questionnaire. This study will be based on convenience sampling.
SAMPLING SIZE AND DESIGN:- Sample size has been taken by convenience sampling. This
research requires the survey of different investors. Sample size for this research is 30
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DATA COLLECTION:- Data will be collected through questionnaire. Research is totally based
on primary data. Secondary data can be used only for the reference. Research has been done by
primary data collection, and primary data has been collected by meeting with the investors. Data
collection has been done through by giving structured questionnaire.
Limitations:
1
2
3
4
Time limitation
Investors did not disclose their secrets data and strategies.
Possibility of Error in data collection.
Possibility of Error in analysis of data due to small sample size.
Hypothesis:
H1
(1) The Capital Markets play a significant role in any economy from allocation
of Capital and Risk to Policy Making.
(2) Capital market is the heart of any economy through which the savings are
channelized into effective long-term investments.
H0
Volatility is another issue - and with long-term investments.
May be high charges which reduce earnings from investment returns.
No guarantee of returns
Risk of losing your money.
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RESULTS
1. Mostly investors prefer to Equity share and Non Government sector for investment in
stock market.
2. Majority of the investors are satisfied with their investments.
3.
Investors are not forced by any other for investing in stock market, they take their
decisions by own.
4. Investors invest large amount of their income in stock market for earn more profit.
5. They thought that Demat form is better than physical form.
6. Investors are thought that investment in stock market is very risky.
7. Every investor want full information about the plans before investment
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REFERENCE:Siteshttp://en.wikipedia.org/wiki/Stock_market
http://www.nse-india.com/
http://www.capitalmarket.com/
http://www.investopedia.com/terms/c/capitalmarkets.asp
http://www.moneycontrol.com/sensex/bse/sensex-live
William ONeil
John J. Murphy
Benjamin Graham
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QUESTIONNAIRE
Q.1 Do you invest in stock market?
(A) Yes ___
(B) No ___
Q.2 If you want to invest or if you invest then In which of the following do you
(Tick more than one if applicable)
(A) Equity ___
___
(C) By own
___
Q.6 What Percentage amount of your income do you invest in Stock market
(A) 10-20%
___
Q.7 What do you consider the most important while investing in stock market?
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invest?
(A) Profit
___
___
(B) Child __
____
(B) No ____
Q.11 Do you think investment in stock market is more risky than others?
(A) Yes ___ (B) No ___
Q.12 Do you go through all the details before making a final choice?
(A) yes ___
(B) No ___
Q. 13 If you did not invest in stock market then what will be the other option?
(A) Insurance ___
(C) Property
___
Q.14 Do you want any improvement in the policies of stock market, Please give Suggestion.
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