Anda di halaman 1dari 33

CHAPTER-1 A STUDY OF INDIAN SHARE MARKET

1.1 INTRODUCTION TO SHARE MARKET:

There was a time when India was discussed as the land of snake chambers, black magic and epidemics but the revolutionary Indian growth story changed everything. Indian economy at its view point top wards India. Out of several factors which charged the face of modern India. We are going to discuss the most roaring of them that is our share market. The easier reforms produces adopted by India gave India the two most sought after world class brands that is SENSEX and NIFTY. The magical figure displayed by our market turned all the heads on India and India become one of the most favoured places for investment. Now we are going to deal with the UPS and DOWNS in the share market since last two years i.e. since years 2006.Our share market has went through many phases in there 2 years. We saw the investors getting overjoyed at 2k and we saw how the market rewarded the undervalued share and how the overvalued shares fell down demon strait the saying EVERYTHING WHICH RISE MORE THAN EXPECTED HAS TO FALL.

So to analyze the saga of Indian share market, we had two indices to follow i.e. BSE SENSEX and NSE NIFTY. Though NSE nifty is more advanced option and has left BSE sensex far behind still we call BSE sensex as the barometer of our economy. That is why we have followed the BSE sensex. It was not possible to track each and every day figure of the sensex since last two years. The performance of the sensex is analysed with help of data and graphs collected from various sources and some of the most talked about movement of sensex starting with secondary market summary of each year, firstly year 2006 and then years 2007.

Page | 1

1.2- INTRODUCTION TO EQUITIES:


ORIGIN OF EQUITIES:

Equity, quite simply means ownership equity, therefore are share that represent part ownership of a business enterprise. The idea of share ownership goes back to mechanical times. It becomes widespread during the renaissance, when groups of merchants joined to finance trading expenditure and early bankers tool part ownership of business to ensure repayment of loans. These early shareholders owned enterprises. However were usually temporarily ventures established for a limited purpose. Such as financing a single voyage by a ship were dissolved once their purpose was accomplished. The first share holder owned business may have been the Dutch East India Company which was founded by Dutch Merchants in 1602 and issued negotiable share certificate that were really traded in Amsterdam until the Company failed almost two centuries later. By the late 17th century traders in LONDON office hours earned their living dealing in the shares of joint stock companies but it was not until the necessary to raise large amount of capital to build factories and canals that share trading become widespread.

1.3-THE INDIAN CAPITAL MARKET AN OVER VIEW: The function of financial market is to felicitate the transfer of funds from surplus sectors (lenders) to deficit sectors (borrowers).Normally households have investable funds or savings, which they lend to borrowers in the corporate and public sectors whose requirement of funds far exceeds their savings. A financial market consists of investors or buyers of securities, borrower or sellers of securities, intermediaries and regulatory bodies. Financial market does not refer to a physical location. Formal trading rules, relationships and communication networks for originating and trading financial securities link the participants in the market.

Page | 2

1.3.1- ORGANIZED MONEY MARKET: India financial system consists of money market and capital market. The money market has two components the organized and the UN organized. The organized market is dominated by commercial banks. The other major participants are the Reserve Bank of India, Life Insurance Corporation, General Insurance Corporation, and unit Trust of India, Securities trading Corporation of India Ltd and Discount and Finance House of India, other primary dealers, commercial banks and mutual funds. The core of the money market is the interbank call money market whereby short term money borrowing\lending is affected to manage temporary liquidity mismatches. The Reserve bank of India occupies a strategic position of managing market liquidity through open market operations of government securities, access to its accommodation, cost (interest rates), availability of credit and other monetary management tools. Normally, monetary assets of short term nature, generally less than one year, are dealt in this market.

1.3.2 UN-ORGANIZED MONEY MARKET: Despite rapid expansion of organized money market through a large network of banking institutions that have extended their reach even to the rural areas, there is still an active unorganized market. It consists of indigenous bankers and moneylenders. In the unorganized market, there is no clear demarcation between short-term and long- term finance and even between the purposes of finance. The unorganized sector continues to provide finance for trade as well as personal consumption. The inability of poor to meet the creditworthiness requirements of the banking sector make them take recourse to the institutions that still remain outside the regulatory framework of banking. But this market is shrinking.

1.3.3- THE CAPITAL MARKETS: It consists of primary and secondary markets. The primary market deals with the issue of new instruments by the corporate sector such as equity shares, preference share and debt instruments. Central and state governments, various public sectors
Page | 3

Industrial units (PSUs), statutory and other authorities such as state electricity boards and port trusts also issue bond/debt instruments. The primary market in which public issue of securities is made through a prospectus is a retail market and there is no physical location. Offer for subscription to securities is made to investing community. The secondary market or stock exchange is a market for trading and settlement of securities that have already been issued. The investors holding securities sell securities through registered brokers/ sub-brokers of the stock exchange. Investors who are desirous of buying securities purchase securities through registered brokers/sub-brokers of the stock exchange. It may have a physical location like a stock exchange or a trading floor. Since 1995, trading in securities is securities are screen-based and internet-based trading has also made an appearance in India. The secondary market consists of 23 stock exchange including the national Stock Exchange, Over the Counter Exchange of India (OTCEI) and Inter Connected Stock Exchange of India Ltd. The secondary market provides a trading places for the securities already issued, to be bought and sold. It also provides liquidity to the initial buyers in the primary market to re-offer the securities to any interests buyer at any price, if mutually accepted. An active secondary market actually promotes the growth of the primary market and capital formation because investors in the primary market are assured of a continuous market and they can liquidate their investments. The securities market moved from T+3 settlement periods to T+2 rolling settlement with effect from April 1, 2003. 1.3.4- CAPITAL MARKET PARTICIPANTS: There are several major players in the primary market. These include the Merchants Bankers, Mutual Funds, financial institution, Foreign Institution Investors (FIIs) and Individual investors. In the secondary market, there are the stock brokers who are members of stock exchanges, the mutual funds, financial institutions, foreign institution investors (FIIs), and individual investors. Registrars and transfer Agents, Custodians and Depositories are capital market intermediaries that provide importance infrastructure services for both primary and secondary markets.

Page | 4

CHAPTER-2 SECURITIES MARKET


2.1 SECURITIES MARKET IN INDIA: The Indian securities market, considered one of the most promising emerging markets is one of the top eight markets of the world. At present 22 stock exchanges operate are recognized in India. The stock exchanges provide facilities for trading in securities. Securities markets of funds from those who have them excess to those in need of them securities markets in India is regulated by Securities Exchange Board of India (SEBI). 2.2- COMPONENTS OF SECURITIES MARKETS: The major components of the securities markets are listed below. Securities: Shares, Bonds, Debentures, Derivatives, Mutual Funds units. Intermediary: Brokers, Sub- brokers, Custodians, Share Transfer Agents, Depository Participant, Credit rating Agencies, Merchant Bankers. Issuers of Securities: Companies, Bodies corporate, Government, Financial Institutions, Mutual Funds, Banks. Investors in securities: individuals, Association of persons, Companies, Mutual funds, Financial Institution, foreign Investors. Regulators: SEBI, RBI (to certain extent), Department of Economic Affairs (DEA), Department of Company Affairs (DCA). Each component of the securities markets is discussed in later sections. 2.3- SECURITIES: The securities contracts (Regulation Act) 1956, defines Securities to include Share, Scripts, Stocks, Bonds, Debenture Stock or other marketable securities of like nature in or any in corporate company or body corporate, Derivative, Units or any instrument issued by any collective investment scheme to the investors i such schemes. Government Securities or any other instruments so declared by the central Government to be Securities, right and Interest in Securities and securities receipt.

Page | 5

In any economy, there are investors who have surplus funds and seek returns by investing these funds and there are issuers who needs funds and who seek to provide a profitable return on these funds to those investors. These issues of securities provide initial fuel to the economy and to securities markets. Having issued securities these are other players who seek to buy these securities from the original holder and generate a higher return on them by seeking to sell them later at a higher price. 2.4- INTERMEDIARIES: Intermediaries provide various services to investors and issuers and have grown to become among both powerful and knowledgeable due to substantial growth of securities markets over the last century. A large variety and number of intermediaries provide intermediations services in the Indian securities market. The major ones are listed below in table.

Table 1 participants and other details of capital markets Regulatory Authority


Number of stock exchanges Major stock exchanges Number of foreign Institutional Investors Number of Merchant bankers Number of portfolio managers Number of sub Brokers Number of Stock Brokers registered with SEBI Number of venture capital Funds Number of Depositories *as on 30 june, 2007 by SEBI bulletin july 2007

SEBI
22 2(BSE/NSE) 1.051 145 175 33,127 14,848 94 2

Page | 6

2.5- ISSUERS OF SECURITIES: Every organisation whether it is a company institution or a Government body need funds for various operation, organisation issues securities in the primary market depending their needs. The securities market in India is an important source for corporate sectored depends significantly on equity and debt markets for meeting its funding requirements and equity has become the preferred mode of financing for companies today. During the year 2006-07 total funds raised through capital issues were ` 33,508 crores approx. The share of the public sector was ` 1,779 crores and private sector `31,728 crores. The most of the fund Raising was done through equity Financing.

Table 2 Securities and Capital issues data Settlement cycle Number of listed Companies (BSE) Number of listed Sricps (BSE) Ratio of Traded Scrips/Listed Scrips(BSE) Share of TOP 5 Scrips to total Turnover(BSE) Share of TOP 10 Scrips to total Turnover(BSE) Delivery/Turnover Ratio(BSE) Capital Issues (Rs. Cr.) Public Sector (Rs. Cr.) Private Sector (Rs. Cr.) GDRs/ADRs Floatation(US$ million) Foreign Capital inflows(net) (US$ million) T+2 4,821 7,561 34.9% 15.3% 23.9% 31.1% 33,508 1,779 31,728 3,776 462

Page | 7

External Commercial Borrowings(US$ million) NRI Deposits (US $ million) FDI (US$ million) FII Investments (US $ million net) BSE Sensex(1979=100) march end 2007 PE Ratio PB Ratio Yield(% p.a) *sources: SEBI Bulletin 2007

16,084 3.895 19,531 3,225 13,072 20.3 5.1 1.3

2.6- INVESTORS: Investors are those who have excess funds with them and want to employ it for return Indian Securities market has more than 10 million securities comprising individuals association of person, companies mutual fund, Financial Institution , foreign institutions. 2.7- MARKET REGULATORS: Securities market is regulated by following governing bodies. Securities and Exchange Board of India (SEBI) Department of Economic Affairs (DEA) Reserve Bank of India Stock Exchange

Significant among the legislation for the Securities market are the following. The SEBI Act, 1992 which established SEBI to protect investors and development and regulate securities market all the power
Page | 8

Under this act are exercised by SEBI The companies Act 1956 which set out the codes of conduct for the corporate sector in relation to issue allotment and transfer of securities, disclosers to be made in public issues and nonpayment of dividend power under this act are exercised by SEBI in case of listed public companies proposing to get their securities listed. The securities contract (Regulation) Act 1956, which provided for regulation of transaction in securities through contract over stock exchanges. Most of the powers under this act are exercised by Department of Economic Affairs (DEA), some are concurrently exercised by DEA and SEBI and a few powers by SEBI. The Depository ACT, which provides for electric maintenance and transfer of ownership of decartelised securities SEBI administers rules and regulation under this ACT. 2.8- SECURITIES EXCHANGE BOARD OF INDIA (SEBI): The securities and Exchange Board of India was established 1988,as a Government Department. The passing of the SEBI Act in 1992 made SEBI the apex regulator of the Indian securities markets. It was established to regulate and developed the growth of the capital. SEBI regulates the working of stock exchange and intermediaries such as stock brokers and merchant bankers accords approval for mutual funds and registers foreign Institutional Investor who wish to trade in Indian scripts section II (1) of the SEBI Act provides that it shall be the duty of Board to protect the interest of Investors in securities and to promote the development and to regulate the securities market, by such measure as it think fit. SEBI has introduced various reforms includes improved transparency computerised enactments against insider tracking improved capital adequacy imposed restriction of forward trading and enacted provisions to encourage corporate membership in the stock exchanges. Stock exchange have also laid down strict compliance measures covering detection of irregular trading practices through sophisticated surveillance system managers trading volume control and set up investor protection funds. Stock exchanges ensure compliance of brokers on a continuous basis through inspection and other measures.
Page | 9

CHAPTER-3 TYPES OF SECURITIES MARKET


3.1- TYPES OF SECURITIES MARKET: In the context of equity products which this publication seeks to cover in depth the following markets could be defined. Primary Market Secondary Market Derivative Market Market can also be broadly classified into: Equity Market Debt Market Debt market are currently classified by a large institutional presence through attempts are being made to attract retail investors Debt market trade in Government Securities. Treasury bills corporate bonds and other Debt instrument while equity deals mainly in equity share and to a limited extent in preference shares and company debentures. Futures and Option in Indices and equity shares are of a relatively recent origin and form part of equity market. 3.2- PRIMARY MARKET: Fresh issues of share and other securities are affected through the primary market. It provides issues opportunity to issue securities to raise resources to meet their requirements of business. Equity issues can be affected at face value or at discount/premium issues at discount are rare and almost unheard of issuers can issue the securities in domestic market and or international market through ADR/GDR/ ECB route. Resources raised from domestic as well as international market by issuers have gone up significantly over the years during 2006-07 a total of `33,508 crore was mobilised by the government and corporate sector from the primary market through public issues. Capital raise from the primary market through public, rights & follows-on offering have aggregated ` 33508 crore during FY 2006-07 as compared to ` 27,382 crore during the previous fiscal year. The number of issuances from the primary
Page | 10

market in fact reduces from 139 to 124 over the same period because of a large per issue size. During 2006-07 the regulator introduced a new product called a Qualified Institution Placement QIP. QIP enables a listed company to offer shares to qualified institutional buyers through a private placement mechanism and is a landmark introduction in the Indian capital market. The banking, finance, construction, IT & Telecom sectors dominated the primary market issuances during 2006-07. Table: Capital Raise from the primary Market Year Month Total Public No 2004-05 2005-06 2006-07 60 139 124 Amount 28,256 27,382 33,508 Category-wise Rights No 34 103 85 Amount 24,640 23,294 29,796 Listed Issuer-type IPOs Amount No Amount 14,507 16,446 5,002 23 79 77 13,749 10,936 28,504

No Amount No 26 36 39 3,616 4,088 3,710 37 60 47

Source: SEBI Bulletin July 2007 Table: Industry wise classification of capital Raised Industry No. Banking/FIs Cement& construction Chemical Electronics Engineering Entertainment 12 11 2005-06 Amount(Rs. Crore) 12,439 1,020 No. 5 13 2006-07 Amount(Rs.Crore) 2,190 2,747

2 2 6 7

128 54 1,124 710

5 9 2 8

147 480 465 1,219

Page | 11

Finance Food processing Health care Information Technology Paper &Pulp Plastic Power Printing Telecommunication Textile Other TOTAL

7 9 10 15

824 427 651 902

9 9 2 12

2,765 634 208 2,077

4 0 6 1 0 13 34

182 0 2,164 43 0 771 5,994

1 3 1 2 3 15 25 124

15 106 30 121 2,994 1,064 16,246 33,508

139 27,382

Source : SEBI Bulletin 2007 3.3- SECONDARY MARKET: Investors can buy and sell securities in secondary market from/ to other investors. The securities are traded, cleared and settled through intermediaries as per prescribed regulatory framework under the supervision of the Exchanges and oversight of SEBI. The regulatory framework has prohibited trading of securities outside the exchanges. There are 22 exchanges today recognised over a period of time to enable investors across the length and breadth of the country to access the market.

Page | 12

The broad structure of the secondary market as on March 31, 2007 is presented below:

Stock Exchanges Exchanges National Stock Exchanges With Corporate Debt Market Segment With Derivative Trading With Clearing Corporation Registered Members (brokers) Registered Corporate Members Registered Sub-Brokers Registered FIIs Listed Companies Market Capitalisation of BSE Turnover on BSE during 2006-07 Source: SEBI Bulletin july 2007 3.3- DERIVATIVES MARKET:

22

2 2 2 2 14,778 4,076 27,894 996 4,821 ` 3,545,041 crore ` 956,185 crore

Derivatives are contracts that are based on or derived from some underlying asset, reference rate, or index. Most common financial derivatives are: forwards, futures, options and swaps, currently, the Indian Markets provide equity derivatives of the following types: Index Futures 3 indices Stock Futures 187 stocks Index Option 3 Indices Stock Option - 187 Stocks

Page | 13

Derivatives help to improve market efficiencies because risks can be isolated and sold to those who are willing to accept them at the least cost. Using derivatives breaks risk into pieces that can be managed independently. Corporation can keep the risks into pieces that can be managed independently. Corporation can keep the risks they are most comfortable managing and transfer those they do not want to other companies that are more willing to accept them. From a market- oriented perspective, derivatives offer the free trading of financial risks. Financial derivatives have changed the face of finance by creating new ways to understand, measure, and manage financial risks. Ultimately, derivatives offer organizations the opportunity to break financial risks into smaller components and then to buy and sell those components to best meet specific risk management objectives. Moreover, under a market- oriented philosophy, derivatives allow for the free trading of individual risk components, thereby improving market efficiency. Using financial derivatives should be considered a part any businesss riskmanagement strategy to ensure that value- enhancing investment opportunity can be pursued. Derivatives include: a. A security derived from a debt instrument, share, loan whether secured or unsecured, risk instrument or contract for differences or any other form of security, and b. A contract which derived its value from the prices, or index of prices, or underlying securities. The Act also made it clear that derivatives shall be legal and valid only if such contracts are traded on a recognised stock exchanged. The Government also rescinded in March 2000 an old notification, which had banned forward trading in securities in the 1960s. 3.4- EQUITY MARKET: Publicity traded equities from significant sources of capital for firm and equity Market are a key part of the process of allocating capital among competing uses in our company. Through issuance of equities, companies enable a board set of investors to share in the risk and reward of economic activities. A company is value is often measured by the price of its equity share. Equity offering could take the form of share, ADR, GDR & QIP, Equity share are traded on the secondary market through cash & derivative segment.
Page | 14

3.5- DEBT MARKET: The Indian debt market plays an important role in the capital formation process. It comprises of two main segments. The government securities market and the corporate securities markets besides a small emerging market for interest rate derivatives. The markets for government securities is the most dominant part of the debt in term of outstanding securities market capitalisation, trading volume and number of participant it sets bench mark for the rest of the market. Major investors in Debt market are shown in table participant and product in Debt Market. There are two broad method by which an Indian Corporate can raise from the capital market. The first is the private placement market where the issuer invites a select group of qualified Institution Investors to subscribe to bonds/debentures issued. The second method is a public offer where securities are offered to the public at large including retail Investors.

Table
Issuer Central Government

Participants and products in Debt Market

Instrument
Dated Securities

Maturity
2-25 years

Investors
RBI, Banks, Insurance Companies, Provident Funds, PDs, Mutual Funds, Individuals, FIIs RBI, Banks, Insurance Companies, Provident Fund, PDs, mutual Funds, individuals, FIIs

Central Government

T- Bills

91/364 days

State Government

State Development Loans

5-10 years

Banks, insurance Companies, loans Provident Funds, Individuals

Page | 15

Issuer PSUs

Instrument Bonds, Structured Obligations

Maturity 5-10 years

Investors Banks, Insurance Companies, Obligation Provident Funds, Mutual Funds, Individuals, Corporate, FIIs

Corporate

Debentures, Bonds

1-12 years

Banks, Mutual funds, corporate, individuals, FIIs

Corporate, PDs

Commercial Papers

15days to 1 year

Banks, Mutual Funds, Financial institution, corporate, Individuals, FIIs

Banks

Certificates of Deposits

3 months to 1 year

Banks, Corporate, individuals, FIIs

Sources: NSE website

The various segments in debt market in India are discussed below: The market for government securities comprises the securities issued by the central government, state governments and state-sponsored entities. The central government mobilises funds mainly through issue of dated securities and t-T-bills, while state Governments rely solely on state Development Loans. The major investors in sovereign papers are banks, insurances companies and financial institutions, which do so to meet statutory requirements. The Indian corporate sector relies, to a great extent, on raising capital through debt issues, which comprise of bond and CPs. Of late, most of the bond issues are being placed through the private placement route. These bonds are structured to suit the requirements of investors and the issuers, and include a variety of tailor-made features with respect to interest payments and redemption. Corporate bond market has been a lot of
Page | 16

innovations, including securitised products, corporate bond strips, and a variety of floating rate instruments with floors and caps. In the recent years, there has been an increase in insurance of corporate bonds with embedded put call options. While some of these securities are traded on the stock exchanges, the secondary market for corporate debt securities is yet to fully develop. Bonds issued by government-sponsored institutions like DFIs, infrastructure-related institutions and the PSUs, also constitute a major part of the debt market. The preferred mode of raising capital by these institutions has been private placement, barring an occasional public issue. Banks, financial institution and other corporate have been the major subscribers to these issues. In addition to above, there is another segment, which comprises of shortterm paper issued by banks, mostly in the form of certificates of deposit (CDs). This segment is however, comparatively less dominant. The Indian debt market also has a large non-securitised, transaction-based segment, where players are able to lend and borrow amongst themselves. This segment comprises of call and notice money markets, inter-bank market for term money, market for inter-bank market for term money, market for inter-corporate loans, and market for ready forward deals (repos). Typically, short term instruments are traded in this segment. The market for interest rate derivatives like FRAs, IRSs is emerging to enable banks, PDs and FIs to hedge interest rate risks.

Page | 17

CHAPTER-4 INDIAN STOCK EXCHANGE


The trading in securities in India was started in the early of 1973. The stock exchange operating in the 19th century was those of Bombay set up in 1875 and Ahmadabad set up in 1984. These were organized as voluntary non profit making association of brokers to regulate and protect their interest, before on securities trading becomes a contract subject under the constitution in 1950. It was a state subject and the Bombay securities contract control act1925 used to regulate trading under this act, Bombay Stock exchange in 1937, during the war boom a number of stock exchanges were organized at Bombay, Ahmadabad and other centres but they were not recognized. Soon after it becomes a central subject, central legislation was proposed and committee legislation was proposed and a committee headed by Mr. A.D GORWALA went into bill for securities regulation. On the basis of securities regulation securities control act become law in 1956, At present there are 23 recognized stock exchange in India. Number of investors is increasing day by day. The stock exchange is a double auction market. Quite distinct from the common market in which only one seller and many buyers in a stock exchange a number of potential seller co-exist all competing both among themselves and with one another in making bids, counter- offers.
DETAILS OF STOCK EXCHANGES IN INDIA:

Name of Stock exchange SL. NO

Years of establishment

Type of organization

Bombay Stock Exchange

1875

Voluntary non-profit organization

Ahmedabad stock exchange 2

1897

Voluntary non-profit organization

Page | 18

Calcutta stock exchange 3

1908

Public limited company

M.P. Stock exchange

1937

Voluntary non-profit organization

Madras stock exchange

1937

CO. Limited by guarantee

Hyderabad stock exchange

1943

Co. Limited by guarantee

Delhi stock exchange

1947

Public

Bangalore stock exchange

1957

Pvt. Converted into public limited

Cochin stock exchange

1978

Public limited co.

10

U.P. Stock exchange , Kanpur

1982

Public limited co.

11

Pune Stock exchange

1982

Co. Limited by guarantee

Page | 19

12

Ludhiana stock exchange

1983

Public limited co.

13

Jaipur stock Exchange

1983

Public limited co.

14

Guahati stock exchange

1984

Public limited co.

15

Kannar stock exchange

1985

Public limited co.

16

Megadh stock exchange

1986

Co. Limited by guarantee

17

Bhubaneswar stock exchange

1989

Co. Limited by guarantee

18

Saurashatra stock exchange, Kutch

1989

Co. Limited by guarantee

19

Vadora stock exchange

1990

N.D

20

Meerut stock exchange

1991

N.D

21

O.T.C.I (Over the counter exchange board of India) National stock exchange

1993

Pure demutualized

22

1995

Pure demutualized

Page | 20

23

Sikkim stock exchange

1997

N.D

4.1- NATIONAL STOCK EXCHANGE: The National Stock Exchange of India was promoted by leading financial institution at the behest of the Government of India and was incorporated in November 1992 as a tax paying company. In April 1993, it was recognized as a stock exchange under the securities contracts (Regulation) Act 1956. NSE commenced operations in the wholesale Debt market (WDM) segment in June 1994 and Derivatives 10June 2000. It was set up as a first step in reforming the securities market through improved technology and introduction of best practices in management. It started with the concept of an independent governing body without any broker representation thus ensuring that the operators interest was not allowed to dominate the government of exchange. It is the largest stock exchange in Indian and the third largest in the world in terms of volume of transaction. NSE is mutually- owned by a set of leading financial institutions, banks, and insurance companies and other financial intermediaries in India but its ownership and management operate as separate entities. As of 2006, the NSE VSAT terminals, 2799 in total cover more than 1500 cities across India. In july 2007 the NSE had a total market capitalization of 42, 74,500 crore INR making, it the second largest stock market in south Asia in terms of market capitalization. Before the NSE was set up, Trading on the 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. The practice of trading imposed limits on trading volumes and hence, the speed with which new information was incorporation into prices. To obviate this the NSE intrpduced screen- based heading system (SBTS) where a number can punch into the computer the quantities of shares and the prices at which he wants to transact. The transaction is executed as soon as the quote punched by a trading member finds a matching sale or buy quate from counter party. SBTS electronically matches the buyer and seller in an order-driven system or finds the customer the best price available in a quote- driven system and hence cuts down on time- cost and risk or error as well as on the chances of fraud. SBTS enables distant participants to trade with each other, improving the liquidity of the markets. The high speed with which trades are executed and the large number of participants who can trade simultaneously allows faster incorporation of price sensitive information into
Page | 21

prevailing prices. The increases the informational efficiency of markets with SBTS, it becomes possible for market participants to see the full market which helps to make the market more transparent, leading to increased investors confidence. The NSE started nation- wide SBTS, which have provided a completely transparent trading mechanism. Regional exchanges lost a lot of business of NSE, forcing them to introduced SBTS today. India can boast that almost 100% trading takes place through electronic order matching. Prior to the setting up of NSE, trading on stock exchanges in India took place without the use of information technology of immediate matching or recoding of trades. The practice of physical trading imposed limits on trading volumes as well as the speed with which the new information was incorporated into prices. The unscrupulous operators used this information asymmetry to manipulate the market. The information asymmetry helped brokers to perpetrate a manipulative practice known as gala,. Gala is practice of extracting highest price of the day for buy transaction irrespective of the actual price at which the purchases was actually done and give lowest price of the day for sell transactions irrespective of the prices at which sale was made. The clients did not have any method of verifying the actual price. The electronic and now fully online trading introduced by NSE has made such manipulation difficult, It has also improved liquidity and made the entire operation more transaction and efficient. 4.1.1-INNOVATIONS: NSE has remained in the forefront of modernization of Indias capital and financial markets, and its pioneering efforts include. (i) Buy the first national, anonymous, electronic limit order book (LOB) exchange to trade securities in India. Since the success of the NSE, existent market and new market structures have followed the NSE model. Setting up the first clearing corporation National Securities Clearing Corporation LTD. In India NSCCL was a landmark in providing innovation on all spot equity market and later, derivatives market trades in India. Co-promoting and setting up of National Securities Depository Limited, first depositor in India. Setting up of S&P CNX nifty. NSE pioneered commencement of internet trading in February 2000 Which led to the wide popularization of the NSE in the broker community.
Page | 22

(ii)

(iii) (iv) (v)

(vi)

(vii) (viii)

Being the first exchange that in 1996, proposed exchanged traded derivatives, particularly on an equity index in India, After four years of policy and regulatory debate and formation, the NSE was permitted to start trading equity derivatives three days after the BSE. Being the first exchange to trade ETFs (Exchange Traded Funds) in India. NSE has also lunched the NSE-CNBC TV 18, a leading business news channel in India.

4.1.2- MARKETS: Currently, NSE has the following major segment of the capital market. This includes: 4.1.3- NSE GROUPS: NATIONAL SECURITIES CORPORATION LTD(NSCCL): It is a wholly owned subsidiary which was incorporated in August 1995 and commenced clearing operations in April 1996. It was formed to build confidence in clearing and settlement of securities to promote and maintain the short and consists settlement cycles to provides a counter- party risk guarantee and to operate a tight risk containment system. NSE IT LTD: It is also a wholly owned subsidiary of NSE and is its IT arm. This arm of the NSE is uniquely positioned to provide products, services and solution for the securities industry. NSE IT primarily focus on in the area of trading, broker front- end and backoffice, clearing settlement, web- based insurance etc. Along with this it also provides consultancy and implementation services in Data warehousing, business continuously plans, site maintenance and Backups striates main frame facility management, real time market analysis & financial news. INDIA INDEX SERVICES & PRODUCTS LTD (IISL): It is a joint venture between NSE and CRISIL LTD to provide a variety of Indices and Index related services and products for the Indian capital markets. It was set up in may 1998. IISl has a consulting and licence sing agreement with the standard and
Page | 23

Equity Futures and Options Retail Debt Market Wholesale Debt market

poor (S&P) words leading provider of Investable equity indices for co-branding equity indices.

NATIONAL SECURITIES DEPOSITORY LTD(NSDL): NSE joined hands with IDBI and UTI (AXIS) to promote dematerialization of securities. This step was taken to solve problems related to trading in physical securities. It commenced operations in November 1996. INDICES: NSE also set up as index services firm known as India services & products Limited (IISL) and has launched several stock indices including, S&P CNX Nifty CNX Nifty Junior CNX =( S&P CNX Nifty+ CNX Nifty junior) S&P CNX 500= (CNX 100+ 400 Major players across 72 industries. CNX midcap (Introduced on 18 July 2005 replacing CNX Mid Cap 200).

4.2- BOMBAY STOCK EXCHANGE: The stock exchange, Mumbai, popularly known as BSE was established in 1875 as The Native Share and Stock Brokers Association. It is located at Dalal Street, Mumbai. It is the oldest one in Asia, even older than Tokyo Stock Exchange, which was established in 1878. It is a voluntary non-profit making Association of Person (AOP) and is currently engaged in the process of converting itself into demutualized and corporate entity. It has evolved over the years into its present status as the premier Stock Exchange in the country. It is the first Stock Exchange in the Country to have obtained permanent recognition in 1956 from the Govt. of India under Securities Contracts (Regulation) Act, 1956. There are around 4,800 Indian companies listed with the stock exchange, and has a significant trading volume. As of May 2007, the equity market capitalization of the companies listed on the BSE was about Rs. 40.7 trillion (US $ 999 billion). The BSE EXCHANGE SENSEX (SENSITIVE INDEX), also called the BSE 30, is a widely used index in India and Asia. As of 2005, it

Page | 24

is among the five biggest stock exchanges in the world in terms of transactions volume. In the past and even now, it plays a pivotal role in the development of the countrys capital market. This is recognized worldwide and its index, SENSEX, is also tracked worldwide. Earlier it was an Association of persons (AOP), but now it is a demutualized and corporatized entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatization and Demutualization) Scheme,2005 notified by the securities and Exchange Board of India (SEBI). The exchange, while providing an efficient and transparent market for trading in securities, debt and derivatives upholds the interests of the investors and ensures redressal of their grievances whether against the companies or its own memberbrokers. It also strives to educate and enlighten the investors by conducting investor education programmes and making available to them necessary informative inputs. A Governing Board having 20 directors is the apex body, which the polices and regulates the affairs of the exchange. The Governing Board consists of 9 elected directors, who are from the broking community (one third of them retire ever year by rotation), three SEBI nominees, six public representative and an Executive Director & chief Executive Officer and a chief Operating Officer. The Executive Director as the chief executive Officer is responsible for the day- to- day administration of the Exchange and he is assisted by the Chief Operating Officer and other heads of Departments. The Exchange has inserted new Rule No. 126 A in its Rules, Bye-laws & Regulations pertaining to constitute of the Executive Committee of the Exchange. Accordingly, an executive committee, consisting of three elected directors, three SEBI nominees or public representative, Executive Director & CEO and chief Operating has been constituted. The committee considers judicial & quasi matters in which the Governing Board has powers as an Appellate Authority, matters regarding annulment of transactions, admission, and continuance and suspension of member- brokers, declaration of a member- broker as defaulter, norms, procedures and other matters relating to arbitration, fees, deposits, margins and other monies payable by the member brokers to the Exchange, etc. 4.2.1- BSE INDICES: The BSE SENSEX (also known as the BSE 30index) is a value-weighted index composed of thirty scripts, with the base April 1979=100. The set of companies which make up the index has been changed only a few in the last twenty years.

Page | 25

These companies account for around one-fifth of the market capitalization of the BSE. Apart from BSE SENSEX, which is the most popular stock index in India, BSE uses other stock indices as well which are:

Indices as well which are: BSE Sensex BSE 100 Index BSE 200 Index BSE 500 Index BSE MIDCAP Index BSE SMLCAP Index BSE TECH Index BSE PSU Index BSE AUTO Index BSE BANKEX BSE CG Index BSE CD Index BSE FMCG Index BSE HC Index BSE IT Index BSE Metal Index BSE Oil& Gas Index

4.2.2- BSE Vision: The vision of the Bombay Stock Exchange is to Emerge as the premier Indian stock exchange by establishing global benchmarks. 4.2.3- BSE Management: Bombay Stock Exchange is managed professionally by Board of Directors. It comprises of eminent professionals, representatives of Trading Members and the Managing director. The Board is an inclusive one and is shaped to benefit from the market intermediaries participation.

Page | 26

The Board exercises complete control and formulates larger policy issues. The dayto-day operations of BSE are managed by the Managed by the Managing Director and its school of professionals as a management team. 4.2.4- BSE NETWORK: The Exchange reaches physically to 417 cities and towns in the country. The framework of it has been designed to safeguard market integrity and to operate with transparency. It provides an efficient market for the trading in equity, debt instruments and derivatives. Its online trading system, popularly known as BOLT, is a proprietary system and it is BS 7799-2-2002 certified. The BOLT network was expanded, nationwide, in 1997. The surveillance and clearing & settlement function of the exchange are ISO 9001:2000 certified. 4.2.5- BSES International Convention Hall: The Bombay Stock Exchange provides convention hall for listed companies and other Institutions to hold their Annual/ordinary General Meetings, Listing ceremonies, Analyst and any other important event. It is centrally located at which can be easily reached from Church gate or CST (VT) railway stations. It has a capacity of around 700 to 900 persons with state-of-the-art infrastructure. The hall has projection Equipment, web- cast facility and a Business room with facsimile, internet, Photocopier and telecom equipment.

Page | 27

CHAPTER-5 CAPITAL MARKET INTERMEDIARIES

There are several institutions, which facilitate the smooth functioning of the securities market. They enable the issuers of securities to interact with the investors in the primary as well as the secondary arena. 5.1- MERCHANT BANKERS: Among the important financial intermediaries are the merchant bankers. The services of merchant bankers have been identified in India with just issue management. It is quite common to come across reference to merchant banking and financial services as though they are distinct categories. The services provided by merchant banks depend on their inclination and resources technical and financial. Merchant bankers (category 1) are mandated by SEBI to manage public issues (as lead managers) and open offers in take- over. These two activities have major implications for the integrity of the market. They affect investors interest and therefore, transparency has to be ensured. These are also areas where compliance can be monitored and enforced. Merchant banks are rendering diverse services and functions. These include organizing and extending finance for investment in projects, assistance in financial management, acceptance house business, raising Euro- dollar loans and issue of foreign currency bonds. Different merchant bankers specialize in different services. However, since they are one of the major intermediaries between the issuers and the investors, their activities are regulated by: SEBI (Merchant Bankers) Regulations, 1992. Guidelines of SEBI and Ministry of Finance. Companies Act, 1956.
Page | 28

Securities Contract (Regulation) Act, 1956. 5.2- SECURITIES CONTRACTS (REGULATION) ACT, 1956: Merchant banking activities, especially those covering issue and underwriting of share and debentures, are regulated by the Merchant Bankers Regulations of Securities and Exchange Board of India (SEBI). SEBI has made the quality of manpower as one of the criteria for renewal of merchant banking registration. These skills should not be concentrated in issue management and underwriting alone. The criteria for authorization take into account several parameters. These include: (i) (ii) (iii) (iv) (v) Professional qualification in finance, law or business management. Infrastructure like adequate office space, equipment and manpower. Employment of two has the experience to conduct the business of merchant bankers. Capital adequacy. Past track record, experience, general reputation and fairness in all their transactions.

SEBI authorizes merchant bankers for an initial period of three years, if they have a minimum net worth of ` 5 crore. An initial authorization fee, an annual fee and renewal fee is collected by SEBI. According to SEBI, all issues should be managed by at least one authorized merchant banker functioning as the sole manager. The lead manager should not agree to manage any issue unless his responsibilities relating to the issue, mainly disclosures, allotment and refund, are clearly defined. A statement specifying such responsibilities has to complete before a prospectus is cleared. It also insist on submission of all the documents disclosing the details of account and the clearances obtained from the ROC and other government agencies for tapping peoples savings. The responsibilities of lead manager, underwriting obligations, capital adequacy, due diligence certification, etc., are laid down in detail by SEBI. The objective is to facilitate the investors to take an informed decision regarding their investments and hot expose them to unknown risks. 5.3- CREDIT RATING AGENCIES: The 1990s saw the emergence of number of rating agencies in the Indian market. These agencies appraise the performance of issuers of debt instrument like bond or fixed deposits. The rating of an instrument depends on parameters like business risk,

Page | 29

market deposits, operating efficiency, and adequacy of cash flows, financial risk, and financial flexibility, and management and industry environment. The objective and utility of this exercise is twofold. From the point of view of issuer, by assigning a particular grade to an instrument, the rating agencies enable the issuer to get the best price. Since all financial markets are based on the principle of risk/reward, the less risky the profile of the issuer of a debt security, the lower the price at which it can be issued. Thus, for issuer, a favourable rating can reduce the cost of borrowed capital. From the viewpoint of the investor, the grade assigned by the rating agencies depends on the capacity of the issuer to service the debt. It is based on the past performance as well as an analysis of the expected cash flows of a company when viewed on the industry parameters as well as company performance. Hence, the investor can judge for himself whether he wants to place his saving in a safe instrument and get a lower return or he wants to take a risk and get a higher return. The 1990s saw an increase in activity in the primary debt market. Under the SEBI guidelines all issuers of debt have to get the instruments rated. They also have to prominently display the ratings in all that marketing literature and advertisements. The rating agencies have thus become an important part of the institutional framework of the Indian securities market. 5.4- AGENTS- RESISTRARS TO ISSUE: R&T Agents form an important link between the investors and issuers in the securities market. A company, whose securities are issued and traded in the market, is known as the Issuer. The R&T Agent is appointed by the issuer to act on its behalf to service the investors in respect of all corporate actions like sending out notices and other communications to the investors as well as despatch of dividends and other non- cash benefits. R&T Agents perform n equally important role in the depository system as well. 5.5-STOCK BROKERS: Stockbrokers are the intermediaries who are allowed to trade in securities on the exchange of which they are members. They buy and sell on their own behalf as well as on behalf of their clients. Traditionally in India, individuals owned firms providing brokerage services of they were partnership firms with unlimited liabilities. There were, therefore, restrictions on the amount of funds they could raised by way of debt. With increasing volumes in trading as well as in the number of small investors,
Page | 30

lack of adequate capitalization of these firms exposed investors to the risks of these firms going bust and the investors would have no recourse to recovering their dues. With the legal changes being effected in the membership rules of stock exchanges as well as in the capital gains structure for stock-broking firms, a number of brokerage firms have converted themselves into corporate entities. In fact, NSE encouraged the setting up of corporate broking members and has today has only 10% of its members who are not corporate entities.

5.6- CUSTODIANS: In the earliest phase of capital market reforms, to get over the problems associated with paper-based securities, large holding by institutions and banks were sought to be immobilization of securities is done by storing or lodging the physical security certificates with an organization that acts as a custodian- a securities depository. All subsequently transactions in such immobilized securities take places though book entities. The actual owners have the right to withdraw the physical securities from the custodial agent whenever required by them. In the case of IPO, a jumbo certificate is issued in the name of the beneficiary owners based on which the depository gives credit to the account of

Page | 31

Page | 32

Page | 33

Anda mungkin juga menyukai