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Study of indian stock market


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  • 2. DECLARATIONI Mayank Pandey, student of Devprayag Institute ofManagement and Technical Studies of M.B.A. hereby declarethat I have completed project on “Study of Indian StockMarket” at BANK OF BARODA in the academic year 2011-2012. The information submitted is true and original to the bestof my knowledge.Date-__/__/____ Mayank PandeyPlace-_________ (Roll No.1068870011) (Student Of M.B.A IInd year) 2
  • 3. PrefaceIn the present situation where stock market is going up and down, it isnecessary to invest consciously in the market whatever it is, this is the study aboutthe last two year fluctuation in stock market which enables the investor in takingdecision regarding investment. This study tells the factor which directly or indirectlyaffects the market and some basic information not only share market but alsoother market such as derivatives or commodity market for the new investorsor the students who have some interest in stock market. The objective of selecting thetopic is to know about the market trends of the stock market and the informationrelated to the investment for the future investor. The study of fluctuations of stockmarket makes the investor aquatinted with the factor affecting the investment andStock prices can be volatile and some analysts argue that this volatility is excessive.This is not easy to prove, since it is difficult to assess certainty about future earningsand dividends. Companies tend to smooth dividends, so they will be less volatile thanstock prices. Volatile stock prices do not have a major impact on consumption andcapital spending since there is a good chance that price movements in one directionmay be reversed. 3
  • 4. Acknowledgement“The completion of any project depends upon the co-operation, coordination andcombined efforts of several resources of knowledge, inspiration & energy.”Words fall short acknowledging immense support lent to me yet I will try to give fullcredit to the deservers.My sincere thanks goes to Mr. S. Srivastava (Finance Manager of Bank of Baroda)giving me an opportunity to discover more knowledge. I am also thankful to Mr.Prabhat Tandan (Addi.Director,Devprayag Institute of Management) for his support,guidance and cooperation throughout to accomplish this project also expressing deepsense of gratitude to my Project guide, Ms. Swati goel (Lecturer) for her valuableguidance, continuous encouragement and tremendous patience in discussing myproblems, have been of the greatest help in bringing out my task in present shape. Iam equally grateful to all my other teachers for their complete support.It would be unfair on my part if I do not thank my colleagues for their continuous helpwithout which this work could never have been accomplished. They made me realizethe importance of teamwork and also the leadership skills. I am grateful to all of themstanding with me and supporting me in this project. 4
  • 5. TABLE OF CONTENTS  Student’s Declaration…………………………………………...…..…….…2  Preface………………………………………………………………………..3  Acknowledgement……………………………………………………..….…4  Table of contents………………………………………………………..…...5  Executive Summary……………………………………………………...….8  Abbreviation……………………………………………………………...….9  Introduction …………………..………………………………………..…..10  Organization Climate and Culture……………..………….……...11  Mission and Vision of BOB…………………………….………..…14  About the Organization………………….………………..........….15  International presence………………………………………….…..16  History……………………………………………………………….17  Financial Result………………………………………………..…...23  Research Methodology..…………………………………………..…….….24  Core Study……….………………………………………………….…...….28  SEBI………..………………………..……………………………..…..…....32  Stock Exchange...…………………………...…………………………....…34  Bombay Stock Exchange.……………...…………………………………...37  NSE……………………….………………………………………………….42  S&P CNX Nifty………………………………………………………...…...45 5
  • 6.  Derivatives…………….……………...……………………………………..52 India Commodity Market………………….……………………...……….54  Money Market……………………………………………………...55 Day Trading…………………………………………………………….…..59 Current State of Indian Economy……………………………………...….61  Monthly trends in foreign investments…………………………….61  Stock Market Trends……………………………………………….62  Trends in Inflation………………………………………………….63  Index of Stock Market...…………………………………………....66  Position of Bank of Baroda in Stock Market……………..……....68 Forex…………..…………………………………………………................71 Recession…………………………………………………………….………86  Impact US Recession on India……………………………..…...….88 SWOT Analysis……………………………………………………….…….90 Data Analysis And Interpretation……………………………………..…..91 Conclusion……………………………………………………………….…100 Suggestion…………………………………………………………………..101 Bibliography……….……………………………………………………….104 Annexure…………………………………………………………………...105 6
  • 7. Executive summary A market is an environment that allows buyers and sellers to trade orexchange goods, services, and information. These interactions define demand andsupply characteristics and are therefore fundamental to economies. A market can bedefined as a place where any type of trade takes place. Markets are dependent ontwo major participants – buyers and sellers. Buyers and sellers typically trade goods,services and/ or information. Historically, markets were physical meeting placeswhere buyers and sellers gathered together to trade. Although physical markets arestill vital, virtual marketplaces supported by IT networks such as the internet havebecome the largest and most liquid. Some markets are very competitive, with anumber of vendors selling the same kinds of products or cervices. Conversely, somemarkets have low or no competition, particularly if the industry is protected bygovernment legislation. The number of buyers and sellers involved will have a directbearing on the price of the good or service to be sold, and has become known as thelaw of supply and demand. Where there are more sellers than buyers, the availabilityof supply will push down prices. If there are more buyers than sellers, the increaseddemand will push up prices. Markets can appear spontaneously when there aregoods or services to be exchanged, or they can be planned and regulated. Freemarkets operate under „laissez-fare‟ conditions, in that the government does notintervene in how the market operates. These markets may be distorted if a sellergains monopoly power by managing the majority of supply (or indeed if a buyerdevelops monophony power by managing demand). Governments or trade bodiesoften step in when such distortions undermine the smooth functioning of free markets.The currency markets are the largest continuously traded markets in the world.Twenty four hours a day, seven days a week, governments, banks, investors andconsumers are buying and selling every currency, leading to massive money flowsconstantly changing hands. Stock markets have become highly complex markets thatallow investors to buy shares in companies or in funds that aggregate companies orindustries together. Most stock markets today are primarily electronic networks,although they often maintain a physical location for buyers, sellers and marketmakers to interact directly. Markets originally started as market places usually in thecenter of villages and towns, for the sale or barter of farm produce, clothing and tools.These kinds of street markets developed into a whole variety of consumer-oriented 7
  • 8. markets, such as specialist markets, shopping centers, supermarkets, or evenvirtual markets such as eBay. With the rising price of oil and food, commoditymarkets are once again under the spotlight. Commodities underpineconomic activity. Commodity markets include: energy (oil, gas, coal and increasinglyrenewable energy sources such as biodiesel), soft commodities and grains (wheat,oat, corn, rice, soya beans, coffee, cocoa, sugar, cotton, frozen orange juice, etc),meat, and financial commodities such as bonds. Capital goods markets helpbusinesses to buy durable goods to be used in industrial and manufacturingprocesses. A number of services can also be associated with these goods.Transactions tend to be wholesale with large quantities of goods being transacted atlow prices. Everyone has seen it and everyone is wishing if he should have buystocks before this rally.Albeit it could have been a gamble buying stocks before declaration of electionresults, it paid off for those who bought. Now thats history. Stock markets are goingto be volatile for next few days. Today, i.e. on Tuesday, markets opened in red, wenttill 3oo points down, then recovered and went up to 500 points up and finally settledfor flat closing. So what should a small investor do now? Should he buy stocks orshould be selling stocks that he holds. This article is a COMPLETE guide to thebasics of making money in the stock market! If you are considering investing in thestock market, you MUST read this article! We have explained all the concepts andtalked about all the "myths" that people have about the stock market! 8
  • 9. ABBRIVIATION :-Q1 ---------------------------------------------- 1ST QUARTERQ2 ---------------------------------------------- 2ND QUARTERFY --------------------------------------------- FINANCIAL YEARBOB ---------------------------------------- BANK OF BARODADC ---------------------------------------- DATA CENTERCBS ------------------------------- CORE BANKING SOLUTIONSY-O-Y ---------------------------- YEAR OVER YEARNYSE ----------------------- NEW YORK STOCK EXCHANGE 9
  • 11. Organizational Climate and cultureClimate and culture are both important aspects of the overall context,environment or situation. Organizational culture tends to be shared by all ormost members of some social group; is something that older members usuallytry to pass on to younger members; shapes behavior and structuresperceptions of the world. Cultures are often studied and understood at anational level, such as the American or French culture. Culture includes deeplyheld values, beliefs and assumptions, symbols, heroes, and rituals. Culturecan be examined at an organizational level as well. The main distinctionbetween organizational and national culture is that people can choose to joina place of work, but are usually born into a national culture.Organizational climate, on the other hand, is often defined as the recurringpatterns of behavior, attitudes and feelings that characterize life in theorganization, while an organization culture tends to be deep and stable.Although culture and climate are related, climate often proves easier to assessand change. At an individual level of analysis the concept is called individualpsychological climate. These individual perceptions are often aggregated orcollected for analysis and understanding at the team or group level, or thedivisional, functional, or overall organizational level.Approaches to defining organization climateThere are two related difficulties in defining organization climate: how to defineclimate , and how to measure it effectively on different levels of analysis. Further more,there are several approaches to the concept of climate. Two in particular havereceived substantial patronage: the cognitive schema approach and the sharedperception approach.The cognitive schema approach regards the concept of climate as an individualperception and cognitive representation of the work environment. From this perspectiveclimate assessments should be conducted at an individual level. 11
  • 12. The shared perception approach emphasizes the importance of shared perceptions asunderpinning the notion of climate. Organisational climate has also been defined as"the shared perception of the way things are around here". There is great deal ofoverlap in the two approaches..Cognitive schema approachCognitive representations of social objects are referred to as schemas. Theseschemas are a mental structure that represents some aspect of the world.They are organized in memory in an associative network. In these associativenetworks, similar schemas are clustered together. When a particular schema isactivated related schemas may be activated as well . Schema activation mayalso increase the accessibility of related schemas in the associative network.When a schema is more accessible this means it can more quickly beactivated and used in a particular situation. When related schemas areactivated, inferences beyond the information given in a particular socialsituation may Influence thinking and social behavior, regardless of whetherthose inferences are accurate or not. Lastly, when a schema is activated aperson may or may not be aware of it.Two processes that increase the accessibility of schemas are salience andpriming. Salience is the degree to which a particular social object stands outrelative to other social objects in a situation. The higher the salience of anobject the more likely that schemas for that object will be made accessible.For example, if there is one female in a group of seven males, femalegender schemas may be more accessible and influence the group‟s thinkingand behavior toward the female group member. Priming refers to anyexperiences immediately prior to a situation that caused a schema to be moreaccessible. For example watching a scary movie at a theatre late at nightmight increase the accessibility of frightening schemas that affect a person‟sperception of shadows and background noises as potential threats. 12
  • 13. Shared perception approachSome researchers have pursued the shared perception model of organizationalclimate. Their model identifies the variables which moderate an organisation‟sability to mobilise its workforce in order to achieve business goals andmaximise performance.One of the major users of this model are departments of the QueenslandState Government Australia. These departments use this model of climate tosurvey staff in order to identify and measure those aspects of a workplacewhich impact on: stress, morale, quality of work life, wellbeing , employeeengagement , absenteeism/presenteeism, turnover and performance.While an organisation and its leaders cannot remove every stressor in thedaily life of its employees, Organisational Climate studies have identified anumber of behaviours of leaders which have a significant impact on stressand morale. For instance, one Queensland state government employer,Queensland Transport, has found that increasing managers‟ awareness of thesebehaviours has improved quality of work life employees and the ability of QT‟sto deliver its organisational goals. Climate surveysTheories of Cognitive and Neuropsychology and Emotional Intelligence provideadditional scientific rationale for why leaders should improve stress and moralein the workplace to achieve maximum performance. Climate surveys canprovide concrete evidence of how this works in action. Organisational climate surveying enables th e impact of Human Resource (HR)strategies to be evaluated to create HR Return on Investment (HRROI) calculations.This data has been found to be highly effective in changing the perspective ofpeople-based initiatives as being an “investment” rather than a “cost” and transformingHR into a “mission-critical strategic partner” from its perception of “personneladministration”. 13
  • 14. MISSION OF BANK OF BARODA“To be a top ranking National Bank of International Standards committed toaugmenting stake holders’ value through concern , care & Competence.”VISION OF BANK OF BARODA It has been a long and eventful journey of almost a century across 25countries. Starting in 1908 from a small building in Baroda to its new hi-riseand hi-tech Baroda Corporate Centre in Mumbai, is a saga of vision, enterprise,financial prudence and corporate governance.It is a story scripted in corporate wisdom and social pride. It is a story craftedin private capital, princely patronage and state ownership. It is a story ofordinary bankers and their extraordinary contribution in the ascent of Bank ofBaroda to the formidable heights of corporate glory. It is a story that needs tobe shared with all those millions of people - customers, stakeholders, employees& the public at large - who in ample measure, have contributed to the makingof an institution. 14
  • 15. ABOUT THE ORGANIZATION Bank of Baroda (BoB) is the third largest bank in India, after the State Bank of India and the Punjab National Bank and ahead of ICICI Bank. BoB has total assets in excess of Rs. 3.58 lakh crores, or Rs. 3,583 billion, a network of over 3,409 branches and offices, and about 1,657 ATMs. It plans to open 400 new branches in the coming year. It offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, credit cards and asset management. Its total business was Rs. 5,452 billion as of June. As of August 2010, the bank has 78 branches abroad and by the end of FY11 this number should climb to 90. In 2010 , BOB opened a branch in Auckland, New Zealand, and its tenth branch in the United Kingdom. The bank also plans to open five branches in Africa. Besides branches, BoB plans to open three outlets in the Persian Gulf region that will consist of ATMs with a couple of people The Maharajah of Baroda, Sir Sayajirao Gaekwad III, founded the bank on 20 July 1908 in the princely state of Baroda, in Gujarat. 15
  • 16. The bank, along with 13 other major commercial banks of India, was nationalised on 19 July 1969, by the government of India.International presence :-  Among the Bank of Baroda‟s 85 overseas branches are ones in the world‟s major financial centers (e.g., New York, London, Dubai, Hong Kong (which it has upgraded recently), Brussels and Singapore), as well as a number in other countries. The bank is engaged in retail banking via 17 branches of subsidiaries in Botswana, Guyana, Kenya, Tanzania, and Uganda. The Bank of Baroda also has a joint-venture bank in Zambia with nine branches. The Bank of Baroda maintains representative offices in Malaysia, China, Thailand , and Australia. It plans to upgrade its offices in China and Malaysia shortly to a branch and joint-venture, respectively.  The Bank of Baroda has received permission or in principle approval from host country regulators to open new offices in Trinidad and Tobago and Ghana, where it seeks to establish joint ventures or subsidiaries. The bank has received Reserve Bank of India approval to open offices in The Maldives, and New- Zealand. It is seeking approval for operations in Bahrain, South Africa , Kuwait , Mozambique , and Qatar and is establishing offices in Canada, New Zealand, Sri Lanka, Bahrain, Saudi Arabia, and Russia. It also has plans to extend its existing operations in the United Kingdom, the United Arab Emirates, and Botswana.  The slogan of Bank of Baroda is "Indias International Bank". . 16
  • 17. HISTORY {SAYAJI RAO GAEKWARD III} {Founder of Bank Of Baroda} History Of Bank Of Baroda:- 1908-1959 1908: Maharaja Sayajirao Gaekwad III set up Bank of Baroda 1910: BoB established its first branch in Ahmedabad 1953: BoB established a branch in Mombasa and another in Kampala 1954: BoB opened a branch in Nairobi. 1956: BoB opened a branch in Dar-es-Salaam. 1957: BoB established a branch in London. 1959: BoB acquired Hind Bank 1960s 1961: BoB merged in New Citizen Bank of India. This merger helped It increase its branch network in Maharashtra. BOB also opened a branch in Fiji. 1962: BoB opened a branch in Mauritius. 1963: BoB acquired Surat Banking Corporation in Surat, Gujarat. 1964: BoB acquired two banks, Umbergaon People‟s Bank in southern Gujarat and Tamil Nadu Central Bank in Tamil Nadu state. 17
  • 18.  1964: BoB lost its branch in Narayanjanj (East Pakistan) due to the Indo-Pakistan war. It is unclear when BOB had opened the branch.  1967: The Tanzanian government nationalized BoB‟s three branches there and transferred their operations to the Tanzanian government- owned National Banking Corporation.  1969: The Government of India nationalized 14 top banks, including BoB.  BoB incorporated its operations in Uganda as a 51% subsidiary, with the government owning the rest 1970s  1972: BoB acquired The Bank of India‟s operations in Uganda.  1974: BoB opened a branch each in Dubai and Abu Dhabi.  1975: BoB acquired the majority shareholding and management control of Bareilly Corporation Bank (est. 1928) and Nainital Bank (est. in 1954), both in Uttar Pradesh. Since then, Nainital Bank has expanded to Uttarakhand State.  1976: BoB opened a branch in Oman and another in Brussels. The Brussels branch was aimed at Indian firms from Mumbai (Bombay) engaged in diamond cutting and jewellery having business in Antwerp, a major center for diamond cutting.  1978: BoB opened a branch in New York and another in the Seychelles. 18
  • 19.  1979: BoB opened a branch in Nassau, the Bahamas. 1977: BoB Opened a branch in Imphal BoB opened a branch in Bahrain and a representative office in Sydney, Australia. 1980s BoB, Union Bank of India and Indian Bank established IUB International Finance, a licensed deposit taker, in Hong Kong. Each of the three banks took an equal share. 1985: BoB (20%), Bank of India (20%), Central Bank of India (20%) and ZIMCO (Zambian government; 40%) established Indo-Zambia Bank (Lusaka). BoB also opened an Offshore Banking Unit (OBU) in Bahrain. 1988: BoB acquired Traders Bank, which had a branch network in Delhi. 1990s 1990: BoB opened an OBU in Mauritius, but closed its representative office in Sydney. 1991: BoB took over the London branches of Union Bank of India and Punjab & Sind Bank (P&S). P&S‟s branch had been established before 1970 and Union Bank‟s after 1980. The Reserve Bank of India ordered the takeover of the two following the banks involvement in the Sethia fraud in 1987 and subsequent losses. 19
  • 20.  1992 BoB incorporated its operations in Kenya into a local subsidiary with a small tranche of shares quoted on the Nairobi Stock Exchange. 1993: BoB closed its OBU in Bahrain. 1996: BoB Bank entered the capital market in December with an Initial Public Offering (IPO). The Government of India is still the largest shareholder, owning 66% of the banks equity. 1997: BoB opened a branch in Durban. 1998: BoB bought out its partners in IUB International Finance in Hong Kong. Apparently this was a response to regulatory changes following Hong Kong‟s reversion to the People‟s Republic of China. They now wholly owned subsidiary became Bank of Baroda (Hong Kong), a restricted license bank. BoB also acquired Punjab Cooperative Bank In a rescue. BoB also incorporate wholly owned subsidiary BOB Capital Markets Ltd. for Broking Business. 1999: BoB merged in Bareilly Corporation Bank in another rescue. At the time, Bareilly had 64 branches, including four in Delhi. 20
  • 21.  In Guyana, BoB incorporated its branch as a subsidiary, Bank of Baroda Guyana. BoB added a branch in Mauritius, but closed its Harrow Branch in London. 2000:- 2000: BoB established Bank of Baroda (Botswana). 2002: BoB acquired Benares State Bank (BSB) at the Reserve Bank of India‟s request. BSB was established in 1946 but traced its origins back to 1871 and its function as the treasury office of the Benares state. In 1964, BSB had acquired Bareilly Bank (est. 1934), with seven branches; it also had taken over Lucknow Bank in 1968. The acquisition of BSB brought BOB 105 new branches. 2002: Bank of Baroda (Uganda) was listed on the Uganda Securities Exchange (USE). 2003: BoB opened an OBU in Mumbai. 2004: BoB acquired the failed Gujarat Local Area Bank, and returned to Tanzania by establishing a subsidiary in Dar-es-Salaam. BoB also opened a representative office each in Kuala Lumpur, Malaysia, and Guangdong , China. 21
  • 22.  2005: BoB built a Global Data Centre (DC) in Mumbai for running its centralized banking solution (CBS) and other applications in more than 1,900 branches across India and 20 other countries where the bank operates. BoB also opened a representative office in Thailand. 2006: BoB established an Offshrore Banking Unit (OBU) in Singapore. 2007: In its centenary year, BoB‟s total business crossed 2.09 lakh crores, its branches crossed 1000, and its global customer base 29 million people . 2008: BoB opened a branch in Guangzhou, China (02/08/2008) and in Kenton, Harrow United Kingdom. 2008: BoB opened a joint venture life insurance company with Andhra Bank and Legal and General (UK) called IndiaFirst Life Insurance Company 2009: The Bank of Baroda registered with the Reserve Bank of New Zealand, enabling it to trade as a bank in New Zealand (2009/09/01) 2010: Malaysia awarded a commercial banking license to a locally incorporated bank to be jointly owned by Bank of Baroda, Indian Overseas Bank and Andhra Bank. The new bank, India BIA Bank 22
  • 23. (Malaysia), will reside in Kuala Lumpur, which has a large population of Indians. Andhra Bank will hold a 25% stake in the joint-venture, BoB will own 40% and IOB the remaining 35%.Bank of Baroda Financial ResultsQ1, 2011-12 or Q1, FY12July 27, 2011  Net Profit up 20.2%(y-o-y) to Rs 1,033 crore  Operating Profit up 19.9% (y-o-y) to Rs 1,831 crore  Net Interest Income up 23.6% (y-o-y) to Rs 2,297 crore  Total Business up 23.9% (y-o-y) to Rs 5,45,283 crore  Total Advances up 25.2% (y-o-y)  Total Deposits up 22.9% (y-o-y)  Net NPAs (%) at 0.44%  Capital Adequacy Ratio at 13.10%  NIM at 2.87% in Global & at 3.39% in Domestic operations  ROAA (annualized) at 1.13%  ROE (annualized) at 19.88% Bank of Baroda has announced its reviewed results for the first quarter of 2011-12 (April-June,2011-12) following the approval of Its Board of Directors on July 27, 2011. 23
  • 24. RESEARCH METHODOLOGYTitle of The Study:- “Study of Indian stock market”Duration of The Project:- 45 daysObjective Study:- To know the basic terminology of stock market. To make the investor aware about the factors which may affect their investment. To get the knowledge of other markets such as commodity market and derivatives. To know the ups and downs of stock market of last two years. To forecast or predict the future trend of stock market which helps in investment. To know the effect of these fluctuation on the Indian economy.Research type: - Descriptive Research 24
  • 25. Data Source: -Research data is collected through two main data sources.PRIMARY DATA:For primary data collection I will personally met the head of financedepartment & other persons related with my project. Supervisor:Mrs. S. Srivastava Guider :Miss. Swati Goel.SECONDARY DATA: For collecting additional data I will take help of internet.I will search all important websites related to my topic. After that I would deeply study of collected data .and Iwill personally visit the organization & met with financehead of that organization. I will also refer all books will available, magazines, andeconomical news papers for update knowledge about mytopic. In these steps I will collect all required information formy project report to make my project good one. 25
  • 26. Research Instrument:- Questionnaire Type of questionnaire- StructuredSample: - A sample is a subset of actual observations taken from any larger set ofpossible observations. The larger set of observations is known as a population. Sample Unit- People Sample Method- Survey Sample Size- 100 Area of Study- AllahabadSCOPE OF STUDY: -  Core Study  SEBI  Stock exchange  Derivatives  Commodity market  Stock market  Securities  Day trading  Factor affecting Indian stock market  Effect on Indian economy 26
  • 27. LIMITATIONS:- Limitations are the limiting lines that restrict the work in some way or other. Inthis research study also their were some limiting factors, some of them are as under: 1. Data Collection: The most important constraint in this study was data collection as Secondary data was selected for study. Secondary data means data that are already available i.e. they refer to the data which have already been collected and analyzed by someone else. 2. Time Period: Time period was one of the main factor as only one month was allotted and the topic covered in research has a wide scope. So, it was not possible to cover it in a short span of time. 3. Reliability: The data collected in research work was secondary data, So, this puts a question mark on the reliability of this data, which a very important factor of this study as conclusion has been derived from this secondary data only. 4. Accuracy: The facts and findings of the data cannot be accepted as accurate to some extent as firstly, secondary data was collected. Secondly, for doing descriptive research time needed to be more, because in short period you cannot cover each point accurately. 27
  • 28. Core studyStock market A stock market is a public market for the trading of company stock andderivatives at an agreed price; these are securities listed on a stock exchange as wellas those only traded privately. The size of the world stock market was estimated at about $36.6 trillion US atthe beginning of October 2008. The total world derivatives market has beenestimated at about $791 trillion face or nominal value, 11 times the size of the entireworld economy. The value of the derivatives market, because it is stated in terms ofnotional values, cannot be directly compared to a stock or a fixed income security,which traditionally refers to an actual value. Moreover, the vast majority of derivativescancel each other out (i.e., a derivative bet on an event occurring is offset by acomparable derivative bet on the event not occurring.). Many such relatively illiquidsecurities are valued as marked to model, rather than an actual market price.)The stocks are listed and traded on stock exchanges which are entities a corporationor mutual organization specialized in the business of bringing buyers and sellers ofthe organizations to a listing of stocks and securities together. The stock market in theUnited States includes the trading of all securities listed on the NYSE, the NASDAQ,the Amex, as well as on the many regional exchanges, e.g. OTCBB and PinkSheets. European examples of stock exchanges include the London StockExchange, the Deutsche Börse and the Paris Bourse, now part of Euronext.Function and purpose The stock market is one of the most important sources for companies toraise money. This allows businesses to be publicly traded, or raise additional capitalfor expansion by selling shares of ownership of the company in a public market. Theliquidity that an exchange provides affords investors the ability to quickly and easily 28
  • 29. sell securities. This is an attractive feature of investing in stocks, compared to otherless liquid investments such as real estate. History has shown that the price of shares and other assets is an importantpart of the dynamics of economic activity, and can influence or be an indicator ofsocial mood. An economy where the stock market is on the rise is considered to bean up and coming economy. In fact, the stock market is often considered the primaryindicator of a countrys economic strength and development. Rising share prices, forinstance, tend to be associated with increased business investment and vice versa.Share prices also affect the wealth of households and their consumption. Therefore,central banks tend to keep an eye on the control and behavior of the stock marketand, in general, on the smooth operation of financial system functions. Financialstability is the raison dêtre of central banks. Exchanges also act as the clearinghouse for each transaction, meaning thatthey collect and deliver the shares, and guarantee payment to the seller of a security.This eliminates the risk to an individual buyer or seller that the counterparty coulddefault on the transaction. The smooth functioning of all these activities facilitates economic growth in thatlower costs and enterprise risks promote the production of goods and services as wellas employment. In this way the financial system contributes to increased prosperity.Relation of the stock market to the modern financial system The financial system in most western countries has undergone a remarkabletransformation. One feature of this development is disintermediation. A portion of thefunds involved in saving and financing flows directly to the financial markets insteadof being routed via the traditional bank lending and deposit operations. The generalpublics heightened interest in investing in the stock market, either directly or through 29
  • 30. mutual funds, has been an important component of this process. Statistics show thatin recent decades shares have made up an increasingly large proportion ofhouseholds financial assets in many countries. In the 1970s, in Sweden, depositaccounts and other very liquid assets with little risk made up almost 60 percent ofhouseholds financial wealth, compared to less than 20 percent in the 2000s. Themajor part of this adjustment in financial portfolios has gone directly to shares but agood deal now takes the form of various kinds of institutional investment for groups ofindividuals, e.g., pension funds, mutual funds, hedge funds, insurance investment ofpremiums, etc. The trend towards forms of saving with a higher risk has beenaccentuated by new rules for most funds and insurance, permitting a higherproportion of shares to bonds. Similar tendencies are to be found in otherindustrialized countries. In all developed economic systems, such as the EuropeanUnion, the United States, Japan and other developed nations, the trend has been thesame: saving has moved away from traditional (government insured) bank deposits tomore risky securities of one sort or another.The stock market, individual investors, and financial riskRiskier long-term saving requires that an individual possess the ability to manage theassociated increased risks. Stock prices fluctuate widely, in marked contrast to thestability of (government insured) bank deposits or bonds. This is something that couldaffect not only the individual investor or household, but also the economy on a largescale. The following deals with some of the risks of the financial sector in general andthe stock market in particular. This is certainly more important now that so manynewcomers have entered the stock market, or have acquired other risky investments(such as investment property, i.e., real estate and collectables).With each passing year, the noise level in the stock market rises. Televisioncommentators, financial writers, analysts, and market strategists are all overtakingeach other to get investors attention. At the same time, individual investors, 30
  • 31. immersed in chat rooms and message boards, are exchanging questionable andoften misleading tips. Yet, despite all this available information, investors findit increasingly difficult to profit. Stock prices skyrocket with little reason, thenplummet just as quickly, and people who have turned to investing for theirchildrens education and their own retirement become frightened. Sometimes thereappears to be no rhyme or reason to the market, only folly.This is a quote from the preface to a published biography about the long-termvalue-oriented stock investor Warren Buffett.[4] Buffett began his career with $100,and $105,000 from seven limited partners consisting of Buffetts family and friends.Over the years he has built himself a multi-billion-dollar fortune. The quote illustratessome of what has been happening in the stock market during the end of the 20thcentury and the beginning of the 21st century. 31
  • 32. Securities and Exchange Board of IndiaSEBI Bhavan, Mumbai Headquarters of SEBIOrganization DetailsHeadquarters Mumbai, Maharashtra, IndiaEstablished 1992Jurisdiction IndiaHead ChairmanChairman C B BhaveTerm February 16, 2008 -Total Staff [1] 525Official WebsiteWebsite SEBI is the Regulator for the Securities Market in India. Originally set up by theGovernment of India in 1988, it acquired statutory form in 1992 with SEBI Act 1992being passed by the Indian Parliament.Chaired by C B Bhave, SEBI isheadquartered in the popular business district ofBandra-Kurla complex in Mumbai, and has Northern, Eastern, Southern and Westernregional offices in New Delhi, Kolkata, Chennai and Ahmedabad.Organization StructureChandrasekhar Bhaskar Bhave is the sixth chairman of the Securities MarketRegulator. Prior to taking charge as Chairman SEBI, he had been the chairmanof NSDL (National Securities Depository Limited) ushering in paperless securities.Prior to his stint at NSDL, he had servedSEBI as a Senior Executive Director. He is a former Indian Administrative Serviceofficer of the 1975 batch. The Board comprises [2] 32
  • 33. Name Designation As perMr CB Bhave Chairman SEBI CHAIRMAN (S.4(1)(a) of the SEBI Act, 1992)Mr KP Krishnan Joint Secretary, Ministry of Member (S.4(1)(b) of the SEBI Act, Finance 1992)Mr Anurag Goel Secretary, Ministry of Member (S.4(1)(b) of the SEBI Act, Corporate Affairs 1992)Dr G Mohan Director, National Judicial Member (S.4(1)(d) of the SEBI Act,Gopal Academy, Bhopal 1992)Mr MS Sahoo Whole Time Member, SEBI Member (S.4(1)(d) of the SEBI Act,1992)Dr KM Abraham Whole Time Member, SEBI Member (S.4(1)(d) of the SEBI Act,1992)Mr Mohandas Pai Director, Infosys Member (S.4(1)(d) of the SEBI Act,1992) Functions and Responsibilities SEBI has to be responsive to the needs of three groups, which constitute the market:  the issuers of securities  the investors  the market intermediaries. SEBI has three functions rolled into one body quasi-legislative, quasi- judicial and quasi-executive. 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 and is presently headed by a former Chief Justice of a High court - Mr. Justice NK Sodhi. 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. 33
  • 34. Stock exchangeA stock exchange , (formerly a securities exchange ) is a corporation ormutual organization which provides "trading" facilities for stock brokers andtraders, to trade stocks and other securities. Stock exchanges also providefacilities for the issue and redemption of securities as well as other financialinstruments and capital events including the payment of income and dividends. Thesecurities traded on a stock exchange include: shares issued by companies, unittrusts, derivatives, pooled investment products and bonds. To be able to trade asecurity on a certain stock exchange, it has to be listed there. Usually there is acentral location at least for recordkeeping, but trade is less and less linked to such aphysical place, as modern markets are electronic networks, which gives themadvantages of speed and cost of transactions. Trade on an exchange is bymembers only. The initial offering of stocks and bonds to investors is bydefinition done in the primary market and subsequent trading is done in thesecondary market. A stock exchange is often the most important component of astock market. Supply and demand in stock market is driven by various factors which,as in all free markets, affect the price of stocks (see stock valuation).There is usually no compulsion to issue stock via the stock exchange itself, nor muststock be subsequently traded on the exchange. Such trading is said to be offexchange or over-the- counter. This is the usual way that derivatives and bonds aretraded. Increasingly, stock exchanges are part of a global market for securities.The role of stock exchanges Stock exchanges have multiple roles in the economy, this may include thefollowing:1. Raising capital for businesses The Stock Exchange provide companies with the facility to raise capital forexpansion through selling shares to the investing public. 34
  • 35. 2. Mobilizing savings for investment When people draw their savings and invest in shares, it leads to a morerational allocation of resources because funds, which could have been consumed, orkept in idle deposits with banks, are mobilized and redirected to promote businessactivity with benefits for several economic sectors such as agriculture, commerceand industry, resulting in stronger economic growth and higher productivity levelsand firms.3. Facilitating company growth Companies view acquisitions as an opportunity to expand product lines,increase distribution channels, hedge against volatility, increase its market share, oracquire other necessary business assets. A takeover bid or a merger agreementthrough the stock market is one of the simplest and most common ways for acompany to grow by acquisition or fusion.4. Redistribution of wealth Stock exchanges do not exist to redistribute wealth. However, both casual andprofessional stock investors, through dividends and stock price increases that mayresult in capital gains, will share in the wealth of profitable businesses.5. Corporate governance By having a wide and varied scope of owners, companies generally tend toimprove on their management standards and efficiency in order to satisfy thedemands of these shareholders and the more stringent rules for publiccorporations imposed by public stock exchanges and the government.Consequently, it is alleged that public companies (companies that are owned byshareholders who are members of the general public and trade shares on publicexchanges) tend to have better management records than privately-heldcompanies (those companies where shares are not publicly traded, often owned bythe company founders and/or their families and heirs, or otherwise by a smallgroup of investors). However, some well-documented cases are known where it isalleged that there has been considerable slippage in corporate governance on thepart of some public companies. The dot-com bubble in the early 2000s, and thesubprime mortgage crisis in 2007-08, is classical examples of corporatemismanagement. Companies like (2000), Enron Corporation (2001), 35
  • 36. One.Tel (2001), Sunbeam (2001), Webvan (2001), Adelphia (2002), MCIWorldCom (2002), Parmalat (2003), American International Group (2008),Lehman Brothers (2008), and Satyam Computer Services (2009) were among themost widely scrutinized by the media.7. Creating investment opportunities for small investors As opposed to other businesses that require huge capital outlay, investing inshares is open to both the large and small stock investors because a person buys thenumber of shares they can afford. Therefore the Stock Exchange provides theopportunity for small investors to own shares of the same companies as largeinvestors.8. Government capital-raising for development projects Governments at various levels may decide to borrow money in order tofinance infrastructure projects such as sewage and water treatment works orhousing estates by selling another category of securities known as bonds. Thesebonds can be raised through the Stock Exchange whereby members of the public buythem, thus loaning money to the government. The issuance of such bonds canobviate the need to directly tax the citizens in order to finance development, althoughby securing such bonds with the full faith and credit of the government instead of withcollateral, the result is that the government must tax the citizens or otherwise raiseadditional funds to make any regular coupon payments and refund the principal whenthe bonds mature.9. Barometer of the economy At the stock exchange, share prices rise and fall depending, largely, on marketforces. Share prices tend to rise or remain stable when companies and the economyin general show signs of stability and growth. An economic recession, depression, orfinancial crisis could eventually leadto a stock market crash. Therefore the movement of share prices and in general ofthe stock indexes can be an indicator of the general trend in the economy. 36
  • 37. Bombay Stock ExchangeIntroductionBombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage,now spanning three centuries in its 133 years of existence. What is now popularlyknown as BSE was established as "The Native Share & Stock Brokers Association"in 1875.BSE is the first stock exchange in the country which obtained permanent recognition(in 1956) from the Government of India under the Securities Contracts (Regulation)Act 1956. BSEs pivotal and pre-eminent role in the development of the Indiancapital market is widely recognized. It migrated from the open outcry system to anonline screen-based order driven trading system in 1995. Earlier an Association OfPersons (AOP), BSE is now a corporatised and demutualised entity incorporatedunder the provisions of the Companies Act1956, pursuant to the BSE(Corporatisation and Demutualisation) Scheme, 2005 notified by the Securities andExchange Board of India (SEBI). With demutualisation, BSE has two of worlds bestexchanges, Deutsche Börse and Singapore Exchange, as its strategic partners.Over the past 133 years, BSE has facilitated the growth of the Indian corporate sectorby providing it with an efficient access to resources. There is perhaps no majorcorporate in India which has not sourced BSEs services in raising resources from thecapital market.Today, BSE is the worlds number1exchange in terms of the number of listedcompanies and the worlds 5th in transaction numbers. The market capitalization ason December 31, 2007 stood at USD 1.79 trillion. An investor can choose from morethan 4,700 listed companies, which for easy reference, are classified into A, B, S, Tand Z groups.The BSE Index, SENSEX, is Indias first stock market index that enjoys an iconicstature, and is tracked worldwide. It is an index of 30 stocks representing 12 major 37
  • 38. sectors. The SENSEX is constructed on a free-float methodology, and is sensitive tomarket sentiments and market realities. Apart from the SENSEX, BSE offers 21indices, including 12 sectoral indices. BSE has entered into an index cooperationagreement with Deutsche Börse. This agreement has madeSENSEX and other BSE indices available to investors in Europe and America.Moreover, Barclays Global Investors (BGI), the global leader in ETFs through itsiShares® brand, has created the iShares® BSE SENSEX India Tracker whichtracks the SENSEX. The ETF enables investors in Hong Kong to take anexposure to the Indian equity market.The first Exchange Traded Fund (ETF) on SENSEX, called "SPICE" is listed on BSE.It brings to the investors a trading tool that can be easily used for the purposes ofinvestment, trading, hedging and arbitrage. SPICE allows small investors to take along-term view of the market.BSE provides an efficient and transparent market for trading in equity, debtinstruments and derivatives. It has a nation-wide reach with a presence in more than359 cities and towns of India. BSE has always been at par with the internationalstandards. The systems and processes are designed to safeguard market integrityand enhance transparency in operations. BSE is the first exchange in India and thesecond in the world to obtain an ISO 9001:2000 certification. It is also the firstexchange in the country and second in the world to receive Information SecurityManagement System Standard BS 7799-2-2002 certification for its BSE On-lineTrading System (BOLT).BSE continues to innovate. In recent times, it has become the first national level stockexchange to launch its website in Gujarati and Hindi to reach out to a larger numberof investors. It has successfully launched a reporting platform for corporate bonds inIndia christened the ICDM or Indian Corporate Debt Market and a unique ticker-cum-screen aptly named BSE Broadcast which enables informationdissemination to the common man on the street. 38
  • 39. In 2006, BSE launched the Directors Database and ICERS (IndianCorporate Electronic Reporting System) to facilitate information flow and increasetransparency in the Indian capital market. While the Directors Database provides asingle-point access to information on the boards of directors of listed companies, theICERS facilitates the corporate in sharing with BSE their corporateannouncements.BSE also has a wide range of services to empower investors and facilitate smoothtransactions:Investor Services: The Department of Investor Services redresses grievances ofinvestors. BSE was the first exchange in the country to provide an amount of Rs.1million towards the investor protection fund; it is an amount higher than that of anyexchange in the country. BSE launched a nationwide investor awareness programme- Safe Investing in the Stock Market under which 264 programmes were held in morethan 200 cities.The BSE On-line Trading (BOLT): B SE On-line Trading (BOLT) facilitates on-linescreen based trading in securities. BOLT is currently operating in 25,000 TraderWorkstations located across over 359 cities in In February 2001, BSE introduced the worlds first centralizedexchange-based Internet trading system, This initiative enablesinvestors anywhere in the world to trade on the BSE platform.Surveillance: BSEs On-Line Surveillance System (BOSS) monitors on a real-timebasis the price movements, volume positions and members positions and real- timemeasurement of default risk, market reconstruction and generation of cross marketalerts.BSE Training Institute: BTI imparts capital market training and certification, incollaboration with reputed management institutes and universities. It offers over 40courses on various aspects of the capital market and financial sector. More than20,000 people have attended the BTI programmes 39
  • 40. AwardsThe World Council of Corporate Governance has awarded the Golden PeacockGlobal CSR Award for BSEs initiatives in Corporate Social Responsibility (CSR).  The Annual Reports and Accounts of BSE for the year ended March 31, 2006 and March 31 2007 have been awarded the ICAI awards for excellence in financial reporting.  The Human Resource Management at BSE has won the Asia- Pacific HRM awards for its efforts in employer branding through talent management at work, health management at work and excellence in HR through technologyDrawing from its rich past and its equally robust performance in the recent times, BSEwill continue to remain an icon in the Indian capital market.HistoryFor the premier stock exchange that pioneered the securities transaction business inIndia, over a century of experience is a proud achievement. A lot has changed since1875 when 318 persons by paying a then princely amount of Re. 1, becamemembers of what today is called BombayStock Exchange Limited (BSE).Over the decades, the stock market in the country has passed through good and badperiods. The journey in the 20th century has not been an easy one. Till the decade ofeighties, there was no measure or scale that could precisely measure the variousups and downs in the Indian stock market. BSE, in 1986, came out with a StockIndex-SENSEX- that subsequently became the barometer of the Indian stockmarket.The launch of SENSEX in 1986 was later followed up in January 1989 by introductionof BSE National Index (Base: 1983-84 = 100). It comprised 100 stocks listed atfive major stock exchanges in India - Mumbai, Calcutta, Delhi, Ahmadabad and 40
  • 41. Madras. The BSE National Index was renamed BSE-100 Index from October 14,1996 and since then, it is being calculated taking into consideration only the prices ofstocks listed at BSE. BSE launched the dollar-linked version of BSE-100 index onMay 22, 2006.With a view to provide a better representation of the increasing number of listedcompanies, larger market capitalization and the new industry sectors, BSE launchedon 27th May, 1994 two new index series viz., the BSE-200 and the DOLLEX-200.Since then, BSE has come a long way in attuning itself to the varied needs ofinvestors and market participants. In order to fulfill the need for still broader, segment-specific and sector-specific indices, BSE has continuously been increasing the rangeof its indices. BSE-500 Index and 5 sectoral indices were launched in 1999. In 2001,BSE launched BSE-PSU Index, DOLLEX-30 and the countrys first free-float basedindex - the BSE TEC k Index. Over the years, BSE shifted all its indices to the free-float methodology. 41
  • 42. National Stock Exchange of IndiaType Stock ExchangeLocation Mumbai, IndiaCoordinates 19°337”N 72°51‟35”E/19.06028°N 72.85972°E /19.06028;72.85972Owner National Stock Exchange of India LimitedKey people Mr. Ravi Narain (Managing Director & CEO)Currency INRNo. of listings 1587MarketCap US$ 1.46 trillion (2006) S&P CNX NiftyIndexes CNX Nifty Junior S&P CNX 500Website 42
  • 43. NSE is mutually-owned by a set of leading financial institutions, banks,insurance companies and The National Stock Exchange of India Limited (NSE), isa Mumbai-based stock exchange. It is the largest stock exchange in India in terms ofdaily turnover and number of trades, for both equities and derivative trading.[1].Though a number of other exchanges exist, NSE and the Bombay Stock Exchangeare the two most significant stock exchanges in India, and between them areresponsible for the vast majority of share transactions. The NSEs key index is theS&P CNX Nifty, known as the Nifty, an index of fifty major stocks weighted by marketcapitalization. Other financial intermediaries in India but its ownership and managementoperate as separate entities. There are at least 2 foreign investors NYSE Euronextand Goldman Sachs who have taken a stake in the NSE. As of 2006 [update], theNSE VSAT terminals, 2799 in total, cover more than 1500 cities across India. InOctober 2007, the equity market capitalization of the companies listed on the NSEwas US$ 1.46 trillion, making it the second largest stock exchange in South Asia.NSE is the third largest Stock Exchange in the world in terms of the number of tradesin equities. It is the second fastest growing stock exchange in the world with arecorded growth of 16.6%.OriginsNSE building at BKCThe National Stock Exchange of India was promoted byleading financial institutions at the behest of theGovernment of India, and was incorporated in November1992 as a tax-paying company. In April 1993, it wasrecognized as a stock exchange under the SecuritiesContracts (Regulation) Act, 1956. NSE commenced operations in the Wholesale DebtMarket (WDM) segment in June 1994. The Capital Market (Equities) segment of theNSE commenced operations in November 1994, while operations in theDerivatives segment commenced in June 2000. 43
  • 44. InnovationsNSE has remained in the forefront of modernization of Indias capital and financialmarkets, and its pioneering efforts include:  Being the first national, anonymous, electronic limit order book (LOB) exchange to trade securities in India. Since the 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 depository in India [2].  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.  Being the first exchange that, in 1996, proposed exchange traded derivatives, particularly on an equity index, in India. After four years of policy and regulatory debate and formulation, the NSE was permitted to start trading equity derivatives  Being the first and the only exchange to trade GOLD ETFs (exchange traded funds) in India.  NSE has also launched the NSE-CNBC-TV18 media centre in association with CNBC- TV18, it is the one of the most important stock exchange in the world. 44
  • 45. S&P CNX Nifty S&P CNX Nifty is a well diversified 50 stock index accounting for 21 sectors ofthe economy. It is used for a variety of purposes such as benchmarking fundportfolios, index based derivatives and index funds.S&P CNX Nifty is owned and managed by India Index Services and Products Ltd.(IISL), which is a joint venture between NSE and CRISIL. IISL is Indias firstspecialized company focused upon the index as a core product. IISL has a Marketingand licensing agreement with Standard & Poors (S&P), who are world leaders inindex services.  The total traded value for the last six months of all Nifty stocks is approximately 65.68% of the traded value of all stocks on the NSE  Nifty stocks represent about 65.34% of the total market capitalization as on Mar 31, 2009.  Impact cost of the S&P CNX Nifty for a portfolio size of Rs.2 crore is 0.16%  S&P CNX Nifty is professionally maintained and is ideal for derivatives tradingSensex & the Nifty The Sensex is an "index". What is an index? An index is basically an indicator.It gives you a general idea about whether most of the stocks have gone up or most ofthe stocks have gone down.The Sensex is an indicator of all the major companies of the BSE.The Nifty is an indicator of all the major companies of the NSE.If the Sensex goes up, it means that the prices of the stocks of most of the major 45
  • 46. companies on the BSE have gone up. If the Sensex goes down, this tells you that thestock price of most of the major stocks on the B SE have gone down.Just like the Sensex represents the top stocks of the BSE, the Nifty represents the topstocks of the NSE.Just in case you are confused, the BSE is the Bombay Stock Exchange and the NSEis the National Stock Exchange. The BSE is situated at Bombay and the NSE issituated at Delhi. These are the major stock exchanges in the country. There areother stock exchanges like the Calcutta Stock Exchange etc. but they are not aspopular as the BSE and the NSE.Most of the stock trading in the country isdone though the BSE & the NSE.Besides Sensex and the Nifty there are many other indexes. There is an index thatgives you an idea about whether the mid-cap stocks go up and down. This is calledthe “BSE Mid-cap Index”.The reasons for stock prices going "up" and "down"Stock prices change every day because of market forces. By this we mean that stockprices change because of “supply and demand”. If more people want to buy a stock(demand) than sell it (supply), then the price moves up!Conversely, if more people wanted to sell a stock than buy it, there would be greatersupply than demand, and the price would fall. (Basics ofeconomics!)Understanding supply and demand is easy. What is difficult tounderstand is what makes people like a particular stock and dislike another stock. Ifyou understand this, you will know what people are buying and what people areselling. If you know this you will know what prices go up and what prices godown! 46
  • 47. To figure out the likes and dislikes of people, you have to figure out what news ispositive for a company and what news is negative and how any news about acompany will be interpreted by the people.The most important factor that affects the value of a company is its earnings.Earnings are the profit a company makes, and in the long run no company cansurvive without them. It makes sense when you think about it. If a company nevermakes money, it isnt going to stay in business. Public companies are required toreport their earnings four times a year (once each quarter).Dalal Street watches with great attention at these times, which are referredto as earnings seasons. The reason behind this is that analysts base their futurevalue of a company on their earnings projection.If a companys results are better than expected, the price jumps up. If a companysresults disappoint and are worse than expected, then the price will fall.Of course, its not just earnings that can change the feeling people have about astock. It would be a rather simple world if this were the case! During the “dotcombubble”, for example, the stock price of dozens of internet companies rose withoutever making even the smallest profit. As we all know, these high stock prices did nothold, and most internet companies saw their values shrink to a fraction of their highs.Still, this fact demonstrates that there are factors other than current earnings thatinfluence stocks.So, what are "all the factors" that affect the stocks price? The best answer is thatnobody really knows for sure. Some believe that it isnt possible to predict how stockprices will change, while others think that by drawing charts and looking at past pricemovements, you can determine when to buy and sell. The only thing we do know isthat stocks are volatile and can change in price very very rapidly. 47
  • 48. The reasons for which companies issue stocksWhy would the founders share the profits with thousands of people when they couldkeep profits to themselves? The reason is that at some point every company needs to"raise money". To do this, companies can either borrow it from somebody or raise itby selling part of the company, which is known as issuing stock.A company can borrow by taking a loan from a bank or by issuing bonds. Bothmethods come under "debt financing". On the other hand, issuing stock is called“equity financing”. Issuing stock is advantageous for the company because it does notrequire the company to pay back the money or make interest paymentsalong the way.All that the shareholders get in return for their money is the hope that theshares will someday be worth more than what they paid for them. The first sale of astock, which is issued by the private company itself, is called the initialpublic offering (IPO).It is important that you understand the distinction between a companies financingthroughdebt and financing through equity. When you buy a debt investment such as a bond,you are guaranteed the return of your money (the principal) along with promisedinterest payments.This isnt the case with an equity investment. By becoming an owner, you assume therisk of the company not being successful - just as a small business owner isntguaranteed a return, neither is a shareholder. Shareholders earn a lot if a companyis successful, but they also stand to lose their entire investment if the company isntsuccessful. 48
  • 49. Stock Picking – Having understood all the basics of the stock market and the riskinvolved, now we will go into stock picking and how to pick the right stock. Beforepicking the right stock you need to do some analysis.There are two major types of analysis: 1. Fundamental Analysis 2. Technical AnalysisFundamental analysis is the analysis of a stock on the basis of core financial andeconomic analysis to predict the movement of stocks price.On the other hand, technical analysis is the study of prices and volume, forforecasting of future stock price or financial price movements.Simply put, fundamental analysis looks at the actual company and tries to figure outwhat the company price is going to be like in the future. On the other hand technicalanalysis look at the stocks chart, peoples buying behavior etc. to try and figure outwhat the stock price is going to be like in the future.In this article we will go into the basics of “fundamental analysis”. Technical analysisis a little more complicated. It is much more of an "art" than a science. It dependsmore on experience and involves some statistics and mathematics, so explainingtechnical analysis is out of the scope of this article.Calculation of BSE SENSEX… This article explains how the value of the “BSE Sensex” or “sensitive index” iscalculated. If you are not sure what we mean by the Sensex or what the Sensex is allabout, you can find this out by reading our “How to make money in the stockmarket?” article.The Sensex has a very important function. The Sensex is supposed to be an indicator 49
  • 50. of the stocks in the BSE. It is supposed to show whether the stocks are generallygoing up, or generally going down.To show this accurately, the Sensex is calculated taking into consideration stockprices of 30 different BSE listed companies. It is calculated using the “free-floatmarket capitalization” method. This is a world wide accepted method as one of thebest methods for calculating a stock market index.Please note: The method used for calculating the Sensex and the 30 companies thatare taken into consideration are changed from time to time. This is done to makethe Sensex an accurate index and so that it represents the BSE stocks properly.3 important things you must know and follow as an new investor!You need to KNOW some “unforgettable basics” before you enter the world ofinvesting in stocks. The stock market is a field dominated by savvy investors whoknow the ins-and-outs of the market. For people who are not “on the inside”, the stockmarket can be a VERY dangerous place.Dont even consider "tips" that tell you about "hot stocks". Consider the source: Thereare many people in the market who put in all their time and effort in promoting certainstocks. They do this because they have their money invested in those stocks. If theycan get enough people to buy the stock and they can get the stock price to rise, theywill sell the stock for a huge price, the stock price will crash and they willwalk off to promote another stock.Always use your own brain: Its extremely important. You must always use your ownbrain. Relying on the advice of others, no matter how well intentioned it may be, isalmost always a complete disaster. Make sure you dig in and really examine the"facts about the companies"before you invest. Ignore press releases which have very little substance, and rely on"hype" to tell the companys story. 50
  • 51. And finally the most important tip!!!Only invest money you can afford to lose!! Sure this is a basic point, but many manypeople miss it. You should only invest money that you can honestly afford to lose!!Everyone enters into investments with the idea of earning big profits, but inmany cases, this never works. (Especially if you are new to investing in the stockmarket!)Please understand that the above tips are tips for beginners. Once you really get intothe stock market you do not need to follow these rules anymore. But if you are a newinvestor, you MUST follow these rules. They are for your own safety.But then again, nothing comes free. Everything has a price. You will have to loosesome money, make some bad decisions and then only will you really understandthe market. You cannot understand the market by just looking at it from far. Byfollowing these rules, you will basicallynot loose too much! 51
  • 52. Derivatives Commodities whose value is derived from the price of some underlying assetlike securities, commodities, bullion, currency, interest level, stock market index oranything else are known as “Derivatives”.In more simpler form, derivatives are financial security such as an option or futurewhose value is derived in part from the value and characteristics of another security,the underlying asset.It is a generic term for a variety of financial instruments. Essentially, this meansyou buy a promise to convey ownership of the asset, rather than the asset itself.The legal terms of a contract are much more varied and flexible than the terms ofproperty ownership. In fact, it‟s thisflexibility that appeals to investors.When a person invests in derivative, the underlying asset is usually a commodity,bond, stock, or currency. He bet that the value derived from the underlying asset willincrease or decrease by a certain amount within a certain fixed period oftime.„Futures‟ and „options‟ are two commodity traded types of derivatives. An „options‟contract gives the owner the right to buy or sell an asset at a set price on or before agiven date. On the other hand, the owner of a „futures‟ contract is obligated to buy orsell the asset.The other examples of derivatives are warrants and convertible bonds (similar toshares in that they are assets). But derivatives are usually contracts. Beyond this, thederivatives range is only limited by the imagination of investment banks. It is likelythat any person who has funds invested, an insurance policy or a pension fund,that they are investing in, and exposed to, derivatives – wittingly or unwittingly. 52
  • 53. Shares or bonds are financial assets where one can claim on another person orcorporation; they will be usually be fairly standardised and governed by the propertyof securities laws in an appropriate country.On the other hand, a contract is merely an agreement between twoparties, where the contract details may not be standardized.Derivatives securities or derivatives products are in real terms contracts ratherthan solid as it fairly sounds. 53
  • 54. India Commodity Market The vast geographical extent of India and her huge population is aptlycomplemented by the size of her market. The broadest classification of the IndianMarket can be made in terms of the commodity market and the bond market.Here, we shall deal with the former in a little detail.The commodity market in India comprises of all palpable markets that we comeacross in our daily lives. Such markets are social institutions that facilitate exchangeof goods for money. The cost of goods is estimated in terms of domestic currency.India Commodity Market can be subdivided into the following two categories:  Wholesale Market  Retail MarketLet us now take a look at what the present scenario of each of the above markets islike.The traditional wholesale market in India dealt with whole sellers who boughtgoods from the farmers and manufacturers and then sold them to the retailersafter making a profit in the process. It was the retailers who finally sold the goodsto the consumers. With the passage of time the importance of whole sellers began tofade out for the following reasons:  The whole sellers in most situations, acted as mere parasites who did not add any value to the product but raised its price which was eventually faced by the consumers.  The improvement in transport facilities made the retailers directly interact with the producers and hence the need for whole sellers was not felt.In recent years,the extent of the retail market (both organized and unorganized)has evolved in leaps and bounds. In fact, the success stories of the commoditymarket of India in recent years has mainly centered around the growthgenerated by the Retail Sector. Almost every commodity under the 54
  • 55. sun both agricultural and industrial are now being provided at well distributedretail outlets throughout the countryMoreover, the retail outlets belong to both the organized as well as the unorganizedsector. The unorganized retail outlets of the yesteryears consist of small shopowners who are price takers where consumers face a highly competitive pricestructure. The organized sector on the other hand are owned by various businesshouses like Pantaloons, Reliance, Tata and others. Such markets are usually sellinga wide range of articles both agricultural and manufactured, edible and inedible,perishable and durable. Modern marketing strategies and other techniques of salespromotion enable such markets to draw customers from every section of the society.However the growth of such markets has still centered around the urban areasprimarily due to infrastructural limitations.Considering the present growth rate, the total valuation of the Indian Retail Market isestimated to cross Rs 10,000 billion by the year 2010. Demand for commodities islikely to become four times by 2010 than what it presently is. Money Market When the stock prices show a downward trend , then it becomes risky tokeep savings there. Although the stock market is associated with high risks andhigh returns, many are risk averse and prefer to invest in the more secure moneymarket.The money market deals with very short term debt securities that mature in lessthan a year. Since the money market is extremely safe, it yields very low returnsunlike the bond market. The money market securities that are issued by thegovernment or financial institutions or large corporations are very liquid. Since themoney market securities trade at very high denominations it becomes very difficultfor the individual investors to have access to it. 55
  • 56. The money market is a type of a dealer market where firms purchase securitiesin their own account by assuming the risks themselves. Unlike the stockexchanges the money market securities do not operate in exchanges or throughbrokers. Transactions take place over phone or the electronic system.One may browse through the following links to have a more detailed informationabout money market. Money Market Definition Money Market Definition is simply meant as the short-term debt market.Treasury Bills and certificate of deposits are regarded as the instruments in themoney market.World Money Market World Money Market has been providing origination, trading and thedistribution of short-term debt instruments across different regions over the world.Find detailed on the world money market.Money Market Index Money Market Index is a true indicator of the prevailing money market, whichrenders a clear- cut idea on making investment.Money Market Rates Money Market Rates can be simply defined as the market rates including thebroker call loan rate, federal funds rate, rates on bankers acceptance etc. Get themethod of finding the money market rates.Major Factors That Affect Stock Price in stock market globally When you wish to invest in the stock market, then you should always make agood survey of the whole market. As you know that you cannot predict the stockmarket, so in that case you need to know the functioning of the market. There aresome major factors that affect stock price . So let us discuss about the differentfactors affecting the stock price in this article. 56
  • 57. Demand AND SUPPLY One of the major factors affecting stock price is demand and supply. Thetrend of the stock market trading directly affects the price. When people are buyingmore stocks, then the price of that particular stock increases. On the other hand ifpeople are selling more stocks, then the price of that stock falls. So, you should bevery careful when you decide to invest in the Indian stock market .Market Cap Never try to guess the worth of a company simply by comparing the price ofthe stock. You should always keep in mind that it is not the stock but the marketcapitalization of the company that determines the worth of the company. Somarket cap is another factor that affects stock price."Market Capitalization"?You probably think that you have never heard of the term “market capitalization”before. You have! When you are talking about “mid-cap”, “small-cap” and“large-cap” stocks, you are talking about market capitalization!Market cap or market capitalization is simply the worth of a company in terms of it‟sshares! To put it in a simple way, if you were to buy all the shares of a particularcompany, what is the amount you would have to pay? That amount iscalled the “market capitalization”!To calculate the market cap of a particular company, simply multiply the “currentshare price” by the “number of shares issued by the company”! Just to give you anidea, ONGC, has a market cap of “Rs.170,705.21 Cr” (when this article waswritten)Depending on the value of the market cap, the company will either be a“mid-cap” or “large-cap” or “small-cap” company! Now the question is, how do YOUcalculate the market cap of a particular company? You don‟t! Just go to a websitelike and look up the company whose market cap you areinterested in finding out! The figure in front of “Mkt. Cap” will be the market cap value. 57
  • 58. NewsWhen you get positive news about a company then it can increase the buyinginterest in the market. On the other hand, when there is a negative press release, itcan ruin the prospect of a stock. In this case you should remember that newsshould not matter much but the overall performance of the company matters more.So, news is another factor affecting stock price.Earning/Price Ratio Another important factor affecting stock price is the earning/price ratio. Thisgives you a fair idea of a company‟s share price when it is compared to itsearnings. The stock becomes undervalued if the price of the share is much lowerthan the earnings of a company. But if this is the case, then it has the potential to risein the near future. The stock becomes overvalued if the price is much higher than theactual earning. So, these are the major factors that affect stock price . 58
  • 59. Day Trading Day trading (and trading in general) is the buying and selling of variousfinancial instruments, such as futures, options, currencies, and stocks, with thegoal of making a profit from the difference between the buying price and the sellingprice. Day trading differs slightly from otherstyles of trading in that positions are rarely (if ever) held overnight or when themarket being traded is closed.Day trading was originally only available to financial companies (such as banks),because only they had access to the exchanges and market data. But withrecent technology such as the Internet, individual traders now have direct access tothe same exchanges and market data, and can make the same trades at very lowcost.Trading Styles There are several different styles of day trading, suited to different day traderpersonalities. The styles range from short term trading such as scalping wherepositions are only held for a few seconds or minutes, to longer term swing andposition trading where a position may be held throughout the trading day. Most daytrading systems have a lot of flexibility, and can have open positions for anywherefrom a few minutes to a few hours, depending upon how the trade is doing(whether it is in profit). Some day traders will trade multiple styles, but most traderswillchoose a single style and only take that type of trade.Day trading also has different types of trade, such as trend trades, counter-trendtrades, and ranging trades. Trend trades are trades in the direction of the currentprice movement (i.e. buying if the price is moving up), and counter-trend trades are 59
  • 60. trades against the direction of the current price movement (i.e. selling if the price ismoving up). Ranging trades are trades that go back and forth between two prices,and are used when the market is moving sideways. Most day traders will choose asingle type of trade, but some traders will take different types, and choose which oneto trade depending upon the current condition of the market.In addition to the style and type of day trading, there are other variances betweenday traders. Some day traders like to make many trades throughout the trading day,while others prefer to wait for what they consider the best conditions for their trade,and perhaps only make one trade per day. However many trades are made, thetrading process that is used, and the desired goal of making a profit, are the same. 60
  • 61. Current State of the Indian Economy: During the April-January period of 2008-09, India attracted total foreigninvestments of US $ 15,545 million. The foreign direct investment (FDI) stood at US $27,426 million, while the portfolio investment stood at US $ -11,881 million.Monthly trends in foreign investments: ($ million) Foreign direct Total foreignMonths investments Portfolio investments investments 2007- 2008- 2007- 2007- 2008- 2008-09(P) 08(P) 09(P) 08(P) 08(P) 09(P) April 1643 3749 1974 -880 3617 2869 May 2120 3932 1852 -288 3972 3644 June 1238 2392 3664 -3010 4902 -618 July 705 2247 6713 -492 7418 1755 Aug 831 2328 -2875 593 -2044 2921 Sept 713 2562 7081 -1403 7794 1159 Oct 2027 1497 9564 -5243 11591 -3746 Nov 1864 1083 -107 -574 1757 509 Dec 1558 1362 5294 30 6852 1392 Jan 1767 2733 7639 -614 8506 2119 Feb 5670 - -8904 - -3234 - March 4438 - -1600 - 2838 - 61
  • 62. April - - 27426 - -11881 - 15545 Jan Source: Reserve Bank of India (RBI) Stock Market Trends: * NSE-50,i.e., Nifty has been rechristened as S & P CNX Nifty with effect BSE Sensitive Index BSE - 100 S & P CNX Nifty * (Base : November 3, (Base : 1978 - 79 = 100) (Base : 1983 - 84 = 100) 1995= 1000) Avg. High Low Avg. High Low Avg. High Low 1 2 3 1 2 3 1 2 3 19325.6 20873.3 16729.9 10526.5 11509.9 8895.6 5756.3 6287.8 4899.3Jan-08 5 3 4 4 6 4 5 5 0 17727.5 18663.1 16608.0 8785.8 5201.5 5483.9 4838.2Feb-08 9435.06 9969.59 4 6 1 8 6 0 5 15838.3 16677.8 14809.4 7828.0 4769.5 4953.0 4503.1Mar-08 8363.58 8907.23 8 8 9 1 0 0 0 16290.9 17378.4 15343.1 8095.0 4901.9 5195.5 4647.0Apr-08 8627.59 9240.57 9 6 2 2 1 0 0 16945.6 17600.1 16275.5 8621.8 5028.6 5228.2 4835.3May-08 8982.20 9348.64 5 2 9 4 6 0 0June- 14997.2 16063.1 13461.6 7029.7 4463.7 4739.6 4040.5 7909.28 8488.62 08 8 8 0 4 9 0 5 13716.1 14942.2 12575.8 6580.6 4124.6 4476.8 3816.7July-08 7143.71 7760.32 8 8 0 7 0 0 0 14722.1 15503.9 14048.3 7362.4 4417.1 4620.4 4214.0Aug-08 7704.75 8101.48 3 2 4 9 2 0 0 13942.8 15049.8 12595.7 6564.0 4206.6 4504.0 3850.0Sep-08 7276.35 7860.87 1 6 5 6 9 0 5 62
  • 63. 10549.6 13055.6 4343.2 3210.2 3950.7 2524.2Oct-08 8509.56 5432.92 6776.87 5 7 1 2 5 0 10631.1 4332.1 2834.7 3148.2 2553.1Nov-08 9453.96 8491.01 4823.36 5396.09 2 7 9 5 5 10099.9 48064.5 4443.5 2895.8 3077.5 2656.4Dec-08 9513.58 8739.24 5181.94 1 5 0 0 0 5 10335.9 4441.8 2854.3 3121.4 2678.5Jan-09 9350.42 8674.35 4802.01 5328.95 3 4 6 5 5Trends in Inflation(1) Index Numbers Of Wholesale Prices in India ( Monthly Averages)(Base: 1993-94 = 100) Year Month All Commodities Primary Fuel, Power, Manu- Articles Light & factured Lubricants Products2006 Jan. 196.30 194.78 310.80 171.28 Feb. 196.43 192.88 314.10 171.40 Mar. 196.75 191.90 315.50 171.90 Apr. 199.02 195.84 317.00 173.76 May 201.30 200.63 320.08 175.05 Jun. 203.10 205.05 324.73 175.30 July 204.02 202.76 326.94 177.00 Aug. 205.28 204.93 328.80 177.83 Sep. 207.76 211.72 330.32 179.08 Oct. 208.65 213.35 328.93 180.20 Nov. 209.08 213.95 326.70 181.13 Dec. 208.44 212.98 322.34 181.46 63
  • 64. 2007 Jan. 208.83 214.23 322.05 181.70 Feb. 208.88 214.95 319.80 182.00 Mar. 209.76 214.64 319.84 183.52 Apr. 211.50 219.18 320.35 184.55 May 212.28 220.93 322.05 184.83 Jun. 212.28 220.60 321.98 184.88 July 213.63 224.50 321.85 185.73 Aug 213.78 223.75 322.35 186.08 Sep. 215.06 225.98 321.86 187.46 Oct. 215.05 224.08 323.70 187.68 Nov. 215.53 223.63 325.90 188.10 Dec. 216.42 222.50 331.70 188.582008 Jan. 218.15 224.58 334.50 189.95 Feb. 219.88 230.55 335.25 190.43 Mar. 225.54 235.86 341.52 196.10 Apr. 228.50 238.63 342.85 199.48 May 231.08 241.94 346.96 201.50 Jun. 237.38 243.95 376.43 204.50 July 240.00 248.68 377.20 206.35 Aug. 241.24 249.28 377.94 207.94 Sep. 241.13 251.50 375.30 207.63 Oct. 239.03 251.45 369.15 205.73 Nov. 234.18 250.94 348.00 203.00 Dec. 229.75 247.33 331.00 201.08 64
  • 65. 2009 Jan. 229.64 248.98 328.62 200.86 Feb. 227.78 247.93 323.50 199.43Source: Reserve Bank of India (RBI)(2) Monthly All-India Consumer Price Index (General) for Industrial Workers (Base: 1982=100) Year Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec 2004 504 504 504 504 508 512 517 522 523 526 525 521 2005 526 525 525 529 527 529 538 540 542 548 553 550 (Base: 2001=100) Year Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec 2006 119 119 119 120 121 123 124 124 125 127 127 127 2007 127 128 127 128 129 130 132 133 133 134 134 134 2008 134 135 137 138 139 140 143 145 146 148 148 147 2009 148 - - - - - - - - - - -( Linking Factor between 1982 and 2001 Series for the All-India is 4.63 )(3) Consumer Price Index for Agricultural Labourers (Base: 1986-87=100) Year Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec 2004 332 332 332 331 333 336 338 341 343 345 344 342 2005 341 340 340 341 343 345 350 352 354 356 360 358 2006 357 357 358 360 365 370 372 375 380 386 390 390 2007 391 392 392 394 395 399 404 408 410 413 414 413 2008 413 417 423 429 431 434 442 450 455 459 460 459 2009 461 - - - - - - - - - - - 65
  • 66. (4) Consumer Price Index For Rural Labourers(Base: 1986-87=100) Year Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec 2004 334 335 334 334 335 338 340 343 345 347 346 344 2005 343 343 342 344 345 347 353 354 356 358 362 361 2006 359 359 360 362 367 372 374 376 381 387 391 391 2007 391 393 393 395 396 400 404 408 410 413 414 413 2008 414 417 423 429 431 435 442 450 455 459 460 459 2009 461 - - - - - - - - - - -Source: Labour Bureau , Ministry of LabourIndex of Stock Market: Full Market 52 Week Turnover Capitalisation Category/ Close % to % to Index Total (Rs. Total High Low (Rs. crore) Mkt crore) Turn- Cap over Broad SENSEX 16,162.06 21,108.64 15,765.53 2,707,288.31 45.33 956.03 36.15 MIDCAP 6,222.80 8,791.10 6,014.18 917,310.43 15.36 632.42 23.92 SMLCAP 7,041.12 11,366.68 6,892.98 279,804.96 4.68 327.76 12.39 BSE-100 8,529.43 11,192.91 8,270.95 4,206,058.00 70.42 1,392.76 52.67 BSE-200 2,014.80 2,671.95 1,955.28 4,966,864.24 83.16 1,652.14 62.48 BSE-500 6,356.36 8,434.05 6,165.06 5,589,173.40 93.58 2,172.49 82.15 66
  • 67. Thematic 1,721,070.SHARIAH 50 1,073.57 1,258.88 1,047.04 28.82 381.46 14.42 58Investment Strategy or BSE Dollex IndicesBSE IPO 1,599.35 2,293.02 1,536.87 390,134.83 6.53 208.45 7.88DOLLEX-30 2,689.85 3,918.30 2,647.81 -- -- -- --DOLLEX-100 1,788.70 2,618.66 1,758.78 -- -- -- --DOLLEX-200 680.0 1,006.05 668.58 -- -- -- --BSE Sectoral IndicesAUTO 8,419.51 10,536.92 7,972.17 243,217.00 4.07 97.92 3.70BANKEX 10,760.73 15,108.27 10,196.90 553,860.77 9.27 345.87 13.08CD 6,648.37 7,369.77 5,239.21 45,986.81 0.77 83.97 3.18CG 11,164.28 16,860.58 11,059.60 280,044.59 4.69 172.37 6.52FMCG 3,831.31 4,137.07 3,171.61 340,714.62 5.70 27.02 1.02HC 5,871.81 6,871.32 5,683.12 230,496.54 3.86 53.55 2.03IT 4,985.55 6,921.41 4,638.80 480,432.83 8.04 99.36 3.76METAL 11,513.80 18,129.92 11,077.76 630,713.51 10.56 187.89 7.11OIL&GAS 8,263.34 11,270.27 7,983.66 747,232.47 12.51 220.05 8.32POWER 2,138.09 3,393.32 2,109.88 471,893.09 7.90 97.43 3.68 1,642,112.PSU 7,485.25 10,708.33 7,423.00 27.49 340.44 12.87 93REALTY 1,723.43 4,034.35 1,602.40 76,986.82 1.29 63.32 2.39TECk 3,122.60 4,072.58 2,982.32 732,841.41 12.27 177.86 6.73 67
  • 68. Position of Bank Boroda in Stock MarketStock Market of Bank BarodaShare Price, Volume of Shares Traded in Stock Exchanges (From 01.04.2010 to31.03.2011)Month National Stock Exchange of India Bombay Stock Exchange Ltd. Limited (NSE) (BSE) Volume Volume Highest Highest Lowest Low Traded Traded (Rs.) (Rs.) (Rs.) (Nos.) (Nos.)APR 2010 702.00 615.85 14914982 701.95 616.00 2603626MAY 2010 726.00 653.60 12861573 722.70 655.20 2146775JUN 2010 754.50 678.25 12603181 753.35 678.50 1836906JUL 2010 764.00 690.80 9042643 762.40 695.50 2320588AUG 2010 848.00 750.20 8555922 848.00 750.30 1985239SEP 2010 906.00 802.30 5982809 905.30 803.95 1126910OCT 2010 1049.00 872.60 10923826 1048.65 875.30 1991143NOV 2010 1051.90 836.25 6881088 1050.00 835.00 1586167DEC 2010 999.50 862.00 6704981 999.95 860.00 1500897JAN 2011 906.95 805.25 9929651 906.50 783.50 2592608FEB 2011 969.00 795.25 6603376 932.00 798.00 1383035MAR 2011 974.00 860.40 8446660 973.00 869.00 1145024 68
  • 69. Market Share of Bank Of Baroda Balance Sheet of Bank Of Baroda:Balance Sheet of Bank Of ------------------- in Rs. Cr. -------------------Baroda Mar 11 Mar 10 Mar 09 Mar 08 12 mths 12 mths 12 mths 12 mthsCapital and Liabilities:Total Share Capital 392.81 365.53 365.53 365.53Equity Share Capital 392.81 365.53 365.53 365.53Share Application Money 0.00 0.00 0.00 0.00 69
  • 70. Preference Share Capital 0.00 0.00 0.00 0.00Reserves 20,600.30 14,740.86 12,470.01 10,678.40Revaluation Reserves 0.00 0.00 0.00 0.00Net Worth 20,993.11 15,106.39 12,835.54 11,043.93Deposits 305,439.48 241,044.26 192,396.95 152,034.13Borrowings 22,307.85 13,350.09 5,636.09 3,927.05Total Debt 327,747.33 254,394.35 198,033.04 155,961.18Other Liabilities & 9,656.73 8,815.97 16,538.15 12,594.41ProvisionsTotal Liabilities 358,397.17 278,316.71 227,406.73 179,599.52 Mar 11 Mar 10 Mar 09 Mar 08 12 month‟s 12 month‟s 12 month‟s 12 month‟sAssetsCash & Balances with 19,868.18 13,539.97 10,596.34 9,369.72RBIBalance with Banks, 30,065.89 21,927.09 13,490.77 12,929.56Money at CallAdvances 228,676.36 175,035.29 143,985.90 106,701.32Investments 71,260.63 61,182.38 52,445.88 43,870.07Gross Block 4,548.16 4,266.60 3,954.13 3,787.14Accumulated 2,248.44 1,981.84 1,644.41 1,360.14DepreciationNet Block 2,299.72 2,284.76 2,309.72 2,427.00Capital Work In Progress 0.00 0.00 0.00 0.00Other Assets 6,226.40 4,347.22 4,578.12 4,301.83Total Assets 358,397.18 278,316.71 227,406.73 179,599.50Contingent Liabilities 112,272.64 77,997.01 64,745.82 75,364.33Bills for collection 33,735.67 27,949.60 22,584.64 15,105.51Book Value (Rs) 536.16 414.71 352.37 303.18Source : Dion Global Solutions Limited 70
  • 71. ForexAn overview of the Forex marketThe Forex market is a non-stop cash market where currencies of nations are traded,typically via brokers. Foreign currencies are constantly and simultaneously boughtand sold across local and global markets and traders investments increase ordecrease in value based upon currency movements. Foreign exchange marketconditions can change at any time in response to real-time events.The main enticements of currency dealing to private investors and attractions forshort-term Forex trading are:  24-hour trading, 5 days a week with non-stop access to global Forex dealers.  An enormous liquid market making it easy to trade most currencies.  Volatile markets offering profit opportunities.  Standard instruments for controlling risk exposure.  The ability to profit in rising or falling markets.  Leveraged trading with low margin requirements.  Many options for zero commission trading.Forex tradingThe investors goal in Forex trading is to profit from foreign currency movements.Forex trading or currency trading is always done in currency pairs. Forexample, the exchange rate of EUR/USD on Aug 26th, 2003 was 1.0857. Thisnumber is also referred to as a "Forex rate" or just "rate" for short. If the investor hadbought 1000 euros on that date, he would have paid 1085.70 U.S. dollars. One yearlater, the Forex rate was 1.2083, which means that the value of the euro (thenumerator of the EUR/USD ratio) increased in relation to the U.S. dollar. 71
  • 72. The investor could now sell the 1000 euros in order to receive 1208.30 dollars.Therefore, the investor would have USD 122.60 more than what he had started oneyear earlier. However, to know if the investor made a good investment, one needs tocompare this investment option to alternative investments. At the very minimum, thereturn on investment (ROI) should be compared to the return on a "risk-free"investment. One example of a risk-free investment is long-term U.S. governmentbonds since there is practically no chance for a default, i.e. the U.S. governmentgoing bankrupt or being unable or unwilling to pay its debt obligation.When trading currencies, trade only when you expect the currency you are buying toincrease in value relative to the currency you are selling. If the currency you arebuying does increase in value, you must sell back the other currency in order to lockin a profit. An open trade (also called an open position) is a trade in which a traderhas bought or sold a particular currency pair and has not yet sold or bought back theequivalent amount to close the position.However, it is estimated that anywhere from 70%-90% of the FX market isspeculative. In other words, the person or institution that bought or sold the currencyhas no plan to actually take delivery of the currency in the end; rather, they weresolely speculating on the movement of that particular currency.Forex-ForecastingThis article provides insight into the two major methods of analysis used to forecastthe behavior of the Forex market. Technical analysis and fundamental analysis differgreatly, but both can be useful forecast tools for the Forex trader. They have thesame goal - to predict a price or movement. The technician studies the effect whilethe fundamentalist studies the cause of market movement. Many successful traderscombine a mixture of both approaches for superior results. 72
  • 73. Analysis Technical analysis is a method of predicting price movements and futuremarket trends by studying charts of past market action. Technical analysis isconcerned with what has actually happened in the market, rather than what shouldhappen and takes into account the price of instruments and the volume of trading,and creates charts from that data to use as the primary tool. One major advantage oftechnical analysis is that experienced analysts can follow many markets and marketinstruments simultaneously.Technical analysis is built on three essential principles:1. Market action discounts everything! This means that the actual price is areflection of everything that is known to the market that could affect it, for example,supply and demand, political factors and market sentiment. However, the puretechnical analyst is only concerned with price movements, not with the reasons forany changes.2. Prices move in trends - Technical analysis is used to identify patterns of marketbehavior that have long been recognized as significant. For many given patternsthere is a high probability that they will produce the expected results. Also, there arerecognized patterns that repeat themselves on a consistent basis.3. History repeats itself - Forex chart patterns have been recognized andcategorized for over 100 years and the manner in which many patterns are repeatedleads to the conclusion that human psychology changes little over time.Forex charts are based on market action involving price. There are five categories inForex technical analysis theory:Indicators (oscillators, e.g.: Relative Strength Index (RSI)Number theory (Fibonacci numbers, Gann numbers)Waves (Elliott wave theory) 73
  • 74. Gaps (high-low, open-closing)Trends (following moving average)Some major technical analysis tools are described below:Relative Strength Index (RSI):The RSI measures the ratio of up-moves to down-moves and normalizes thecalculation so that the index is expressed in a range of 0-100. If the RSI is 70 orgreater, then the instrument is assumed to be overbought (a situation in whichprices have risen more than market expectations). An RSI of 30 or less is takenas a signal that the instrument may be oversold (a situation in which prices havefallen more than the market expectations).Stochastic oscillator:This is used to indicate overbought/oversold conditions on a scale of 0-100%. Theindicator is based on the observation that in a strong up trend, period closing pricestend to concentrate in the higher part of the periods range. Conversely, as prices fallin a strong down trend, closing prices tend to be near to the extreme low of the periodrange. Stochastic calculations produce two lines, %K and %D that are used toindicate overbought/oversold areas of a chart. Divergence between the stochasticlines and the price action of the underlying instrument gives a powerful trading signal.Moving Average Convergence Divergence (MACD):This indicator involves plotting two momentum lines. The MACD line is the differencebetween two exponential moving averages and the signal or trigger line, which is anexponential moving average of the difference. If the MACD and trigger lines cross,then this is taken as a signal thata change in the trend is likely. 74
  • 75. Number theoryFibonacci numbers: The Fibonacci number sequence (1, 1, 2,3,5,8,13,21,34...) is constructed byadding the first two numbers to arrive at the third. The ratio of any number to the nextlarger number is 62%, which is a popular Fibonacci retracement number. The inverseof 62%, which is 38%, is also used as a Fibonacci retracement number.Gann numbers: W.D. Gann was a stock and a commodity trader working in the 50s whoreputedly made over million in the markets. He made his fortune using methods thathe developed for trading instruments based on relationships between pricemovement and time, known as time/price equivalents. There is no easy explanationfor Ganns methods, but in essence he used angles in charts to determine supportand resistance areas and predict the times of future trend changes. He also usedlines in charts to predict support and resistance areas.Waves Elliott wave theory: The Elliott wave theory is an approach to market analysisthat is based on repetitive wave patterns and the Fibonacci number sequence. Anideal Elliott wave patterns shows a five-wave advance followed by a three-wavedecline.Gaps Gaps are spaces left on the bar chart where no trading has taken place. An upgap is formed when the lowest price on a trading day is higher than the highest highof the previous day. A down gap is formed when the highest price of the day is lowerthan the lowest price of the prior day. An up gap is usually a sign of market strength,while a down gap is a sign of market weakness. A breakaway gap is a price gap thatforms on the completion of an important price pattern. It usually signals the beginningof an important price move. A runaway gap is a price gap that usually occurs aroundthe mid-point of an important market trend. For that reason, it is also called ameasuring gap. An exhaustion gap is a price gap that occurs at the end of an 75
  • 76. important trend and signals that the trend is ending.Trends A trend refers to the direction of prices. Rising peaks and troughs constitute anup trend; falling peaks and troughs constitute a downtrend that determines thesteepness of the current trend. The breaking of a trend line usually signals atrend reversal. Horizontal peaks and troughs characterize a trading range.Moving averages are used to smooth price information in order to confirm trendsand support and resistance levels. They are also useful in deciding on a tradingstrategy, particularly in futures trading or a market with a strong up or down trend. The most common technical tools:Coppock Curve is an investment tool used in technical analysis for predicting bearmarket lows. DMI (Directional Movement Indicator) is a popular technicalindicator used to determine whether or not a currency pair is trending.Unlike the fundamental analyst, the technical analyst is not much concerned with anyof the "bigger picture" factors affecting the market, but concentrates on the activity ofthat instruments market.Fundamental analysis Fundamental analysis is a method of forecasting the future pricemovements of a financial instrument based on economic, political, environmentaland other relevant factors and statistics that will affect the basic supply and demandof whatever underlies the financial instrument. In practice, many market players usetechnical analysis in conjunction with fundamental analysis to determine their tradingstrategy. Fundamental analysis focuses on what ought to happen in a market.Factors involved in price analysis: Supply and demand, seasonal cycles, weather andgovernment policy.Fundamental analysis is a macro or strategic assessment of where a currency shouldbe trading based on any criteria but the movement of the currencys price itself. 76
  • 77. These criteria often include the economic condition of the country that the currencyrepresents, monetary policy, and other "fundamental" elements. Many profitable trades are made moments prior to or shortly aftermajor economic announcements. What happened in 2008?Sensex was crossed 21,000 levels in January and analysts predicted 25,000 levelsbut Sensex fell to 7,800 in October. Experts are now talking about 7,000 targets in2009. But todays it has beentouch the point 14000 due to government stability.2. Rupee strengthened to 39 against dollar and analysts like ICICI Kamat predicted35 levels but rupee fell to 50 levels. Experts are now talking about 55 against dollar in2009.3. Crude Oil prices touched $147 per barrel and Goldman Sachs talked about $200per barrel but crude oil in now trading around $45 levels. Experts are now talking 77
  • 78. about $30 per barrel in 20094. Inflation moved to 13% and analysts talkedabout 15% but inflation fell to 8% in December. Experts are now talking about4% levels in 2009. They are actually now talking about deflation.5. Indian GDP grew at 9% in 2007-08 and analysts predicted about 10% growthin 2009. Experts are now talking about 7% GDP growth in 2008-09 and 5% GDPgrowth in 2009-10.6. Commodities traded around all time high levels in June, 2008 but they collapsedto 2003 levels in December, 2008. Companies are now shutting downplants and are removing employees due to lack of demand and piling up ofinventories.7. Investment banking is the most sought after industry in early 2008. They are noweither disappeared or merged with banks.8. Real Estate prices reached stratospheric levels in early 2008 but investorsbought them as if there will be no land available fo purchase in 2009. They are nowannouncing bonuses and free offers to attract buyers. Many real estate stocks werecorrected by 70-90% in this year alone. We will hear some bankruptcies in 2009 inthis sector. DLF and Unitech will cut prices by 30% in 2009.Investment lessons from 2008:1. Unlike in past, stock markets now become more dynamic, morevolatile and more unpredictable due to more global integration of economy andmoney flows.2. Stock market investors will never react normally – they will either overreact orunder react to the economic or political events. One should take into considerationthis psychological aspect along with business fundamentals in arriving at price target. 78
  • 79. 3. As I said in my previous posts, stock markets always move much ahead of realeconomy. If real economy will suffer in early 2009, stocks fell by October, 2008. Ifeconomic conditions will improve by early 2010, stocks will rise by late 2009.4. Timing: It is very difficult to time the stock market investments. 80% of pricevariations occur in 20% of days – time of maximum profits and losses. On 18 May wehave been seen more variation in recession time market has been touched the levelof 14000 with growth of 2100 points5. Significant falls or rises do not occur in slow motion. They aresteep and severe.6. Never follow herds. Believe in your research and gut feeling. Just see whathappened to investors in Reliance Power IPO .7. Biggest investment lesson: When investors are in panic mood, even goodcompanies with strong growth prospects also fall along with bad overvalued stocks.Significant statements:1. RBI Governor: “The global economic crisis is turning out to be deeper and longerthan we had earlier expected, the impact on India is also turning out to be strongerthan we had earlier expected.” This is the frank statement from Subbarao. Howlong Government will deceive people on this unmanageable issue? Biggest problemwith this crisis is no one in the world knows about magnitude and duration of financialcrisis. According to RBI Governor, 2009-10 may be a more difficult year.2. Commerce Minister: “Government will announce second stimulus package in thenext week. Textiles, Agriculture and Construction are the priority sectors forGovernment in the next package.”3. Jack Welch (former GE Chairman): “The terror strike in Mumbai could well tiltthe focus of foreign investors towards neighboring China. This is the perception of 79
  • 80. foreigners about India. Many investors will be thinking about tilting the balance toChina. How India‟s leaders respond to the Mumbai attacks will tell the business worldwhat it wants and needs to know. Not just whether to pull back from India but howrisky pushing forward will be.”4. Rakesh Jhunjhunwala: “India will see the mother of all bull runs in the next 4 or5 years, boosted by double-digit economic growth and increased investment bydomestic investors, including pension and insurance funds.”5. World Bank: “The financial crisis is now likely to result in the most seriousrecession since the 1930s.”6. International Energy Agency (IEA): for the first time in 25 years, demand forcrude falls. This is the first drop for crude oil demand since 1983.Significant statistics:1. Reuters poll: Indias economy is expected to grow at its slowest pace in six yearsin the fiscal year to March 2009. Indian GDP growth will be around 6.8% in 2008-09and 6.2% in 2009-10. Indian economy never grew less than 7.5% in the last 5 years.According to World Bank, India will grow by 5.8% in 2009.It estimates for Indian GDP: 6.2% in 2008-09, 5% in 2009-10 and will be around7% in 2010-11.2. New claims for unemployment benefits reached their highest level (5, 73,000) in 26years in USA. These job losses will have cascading effect on realeconomy. More than 20 lakh Americans will lose jobs in 2009 andunemployment rate will touch 9% level in 2009.3. McKinsey report: United States credit losses may top $3 trillion. These losses willincrease if another major asset class will collapse 80
  • 81. 4. Goldman Sachs: China GDP growth for 2009 is around 6%. Shocking! Chinawill grow at 9% in 2010 if Government takes proper simulative decisions. India will bein election mood when we need these measures.5. World Bank: Global trade will fall for the first time since 1982. World economy willgrow by 0.9% in 2009 and inflows to developing countries will fall by 50%.6. Asian Development Bank (ADB): Growth rates of China and India will be at8.2% and 6.5% respectively in 2009. India needs particular attention, givenits weaker fiscal position.7. China: Exports fell by 2.2% in November, the first decline since June 2001 - thelargest year-over-year monthly decline since April 1999.8. DLF and Unitech may lower property prices by 30% in mid-2009 to stimulatebuyers.Positive Stock market news:1. Government stability is big positive reason for sensex.2. Global Telecom Companies are planning to buy 20-25% stake in RelianceCommunications. R-Com stock lost 70% of value in 2008. Anil Ambani family holds67% stake in the company. This deal is beneficial for investors as only 12% of sharesare available for trading after this purchase in the secondary market. Promoter will notreduce his holding.3. Manpower survey: India is the second most optimistic employment market in theworld but there will freezing in hiring in the next 3 months. IT and Hospitality sectorsare the worst affected while Telecom is the most optimistic one.FCCB shocks: Foreign currency convertible bonds (FCCBs?) of many companieswill be due for repayment in the next 3 years. As stock markets are unlikely to recover 81
  • 82. in the next 12-15 months, it is interesting to see how promoters will clear their dues.We may hear some shocking news on this front in the next 2 years.NPA shocks:Many people are underestimating the impact of Non PerformingAssets (NPAs). NPAs will affect in 2 ways. NPAs will not only propel thenegative sentiment but increase the banks reluctance to give loans which willonce again destroy the positive aspects of the bailout packages. Only positiveaspect is many PSU banks reported fall in NPAs in 2008 over 2007 except SBI andIOB.NPA statistics:NPAs of ICICI Bank in 2007: Rs 5,930 crore.NPAs of ICICI Bank in 2008: Rs 9,500 crore..Interesting statistics about Asian and World economies:1. World Bank estimates: A. November, 2008: World economy will grow by 2.2% in 2009. B. December, 2008: World economy will grow by 0.9% in 2009.2. ADB estimates about Asian economy in 2009: A. September, 2008: Asian economy will grow by 7.2% in 2009. B. December, 2008: Asian economy will grow by 5.8% in 2009.3. ADB estimates about Asian economy in 2008: A. September, 2008: Asian economy will grow by 7.5% in 2008. B. December, 2008: Asian economy will grow by 6.9% in 2008. 82
  • 83. 4. Current P/E of Sensex: 10. A. P/E of Sensex in 2008 economic slowdown: 9.5 B. This is a much severe crisis than 2001 slowdown.Effect of fluctuation on Indian stock marketNothing actually, the economy is as sound as it was in the boom time. Thecompanies are as profitable as they were a few days ago. Yet, the market crashedbecause the Government tried to instill some sort of regulation in it.Let me explain it a bit: As I wrote in my last article that a major portion of the moneybeing invested into the share market is coming from FIIs (Foreign InstitutionalInvestors). The cause of concern for the Government was that in this major share ofFIIs, more than half was in the form of hot money being invested into the market byanonymous investors who pump money into the market by utilizing the ParticipatoryNote (PN) facility. All those foreign investors who are not registered with the SEBI(Stock Exchange Board of India), the regulatory body for stocks in India, can notdirectly deal in buying/selling of sticks. So they took a sort of permission fromregistered FIIs by buying Participatory Notes (PN) from them in exchange of dollars,which ultimately allows them trade in the market.Though, this concept of allowing anonymous investors in the market broaden thereach of the market, it also ensure free entry of dollars into Indianeconomy as well as increase the percentage of hot money in the market. Thehot money is that kind of money which is invested only for a short time to make somequick buck. It is not invested with a long term mindset. Since the continuous inflow ofdollar into Indian economy is making the Indian currency (Rupee) stronger and thusmaking the export costlier, the Government was looking for someway to curb thisinflow of dollars. Making the availability of Participatory Notes some difficult for foreigninvestors was one step Government thought would help control the inflow of dollars.So a few days ago the SEBI contemplated on a draft policy to make the issuing of PNdifficult for FIIs. This was the step which gave a jolt to the buying spree of FIIs. As 83
  • 84. people found that it would be difficult to trade in the market in future owing to non-availability of PN, they started exiting form the market by selling their stock.Result- the market fell more than a 1000 point in a few hours and had to shut downfor some time. Ultimately the Government had to rush in to alleviate the growingconcern of Investors by stating that it would not control the issuing of PN to investors.This news will from the Business standard give you some detail of this exercise doneby the Government.As of now the market is still fluctuating and is yet to be stabilized. However, I thinkthat in all probability, it will continue it’s upward swing despite such momentarycrash. The main reason of my belief is that the Indian economy as a whole isperforming very well same is the case with most Indian companies listed in themarket.With the above note, here are some of my observations on what can happen if thestock market boom continues for lone in India:First some positive oneFirst of all if this boom continues for long, soon the richest person in the world will bean Indian. On the last count (as per a leading newspaper report) Mukesh Ambani,the chairman of Reliance group was earning Rs 40 Lakhs ($ 100000) per minute.Yes you read it write. $100000 per minute! Though it has much to do with his hugeand expanding empire of Reliance industries, it is also because of the appreciation inthe price of the shares of Reliance industries.Secondly most investors, who are in the market for quite sometime, are going tobecome really rich. The word crorepati (multimillionaire) can soon become a commonthing in India all thanks to share market.However, there is a word of caution here. As this boom is being driven by FIIs(Foreign Institutional Investors), we must not forget that these people are here only till 84
  • 85. they find a new market more profitable than India. Once they find a place which offerbetter return on their investment than India, they will immediately shift there.Though, there is only a remote possibility of that as of now, you never know whatcan happen in future. That‟s why most expert are advising people to stick to theirlong-term investment plan and don‟t make any move in haste.Owing to stock market boom, there is another very interesting situationbeing faced by Reserve Bank of India (RBI) (the leading central bank whichdecides various economic policies here just like the Federal Reserve Bank of US.)The investment being made by FIIs in Indian share market has resulted in to a hugeinflow of dollars into the economy. The RBI is facing difficultly in managing thiscontinuous inflow of dollars as their huge supply and easy availability hasresulted into dollar’s depreciation vis-à -vis Rupee. The Rupee is becomingstronger to dollar thus making imports cheaper and export costlier. Some of our majorexport oriented industries such as Softwares and textiles are feeling the heat everyday. The profits margin of these industries have reduced as it mostly depend oncurrent value of dollar. There is a pressure on Government to mange the appreciationof rupee to favour exporters. Ironically, this can only be done if Government put somebreak on the inflow of dollars by FIIs which will actually mean putting a break on stockmarket boom. (it actually happened some days ago as I described above)Government certainly don’t want to spoil the party that is going on in the stockmarket. However, the continued depreciation of dollar is also a cause of deepconcern which needs to be addressed.The last but not the least is the overvaluation of many stocks in the market. Someexperts have opined that market is trading at 22 to 23 times of actual earning and noone can justify these valuations.In nutshell if I am to summarize this boom of stock market, I must say that thisboom is not going to last forever as it is dependent on some very volatile factors thatmay change in the times to come. As I explained in my earlier article, a increase ininterest rate in US may reverse this flow of FIIs. Or we may see emergence of a newmarket with great potential on some other place on earth. All these things, if happen,can put a break on this boom. 85
  • 86. Recession A recession is a decline in a countrys gross domestic product (GDP) growthfor two or more consecutive quarters of a year. A recession is also preceded byseveral quarters of slowing down Causes of recession an economy which growsover a period of time tends to slow down the growth as a part of the normal economiccycle. An economy typically expands for 6-10 years and tends to go into a recessionfor about six months to 2 years. A recession normally takes place when consumerslose confidence in the growth of the economy and spend less. This leads to adecreased demand for goods and services, which in turn leads to a decrease inproduction, lay-offs and a sharp rise in unemployment. Investors spend less as theyfear stocks values will fall and thus stock markets fall on negative sentiment.Stock markets & recession The economy and the stock market are closely related. The stock marketsreflect the buoyancy of the economy. In the US, a recession is yet to be declared bythe Bureau of Economic Analysis, but investors are a worried lot. The Indian stockmarkets also crashed due to a slowdown in the US economy. The Sensex crashed bynearly 13 per cent in just two trading sessions in January. The markets bounced backafter the US Fed cut interest rates. However, stock prices are now at low ebb in Indiawith little cheer coming to investors. When the global economy has been coolingdown, and the financial sector in particular has been heading from one cold shower tothe next, it was inevitable that stock markets around the world would start catchingthe chill. The way in which Asian stock prices responded last week to the fall of theDow Jones and Nasdaq indices by 4 per cent, hitting a 10-month low, hasalso punctured a hole in the decoupling argument (which said Asia would not behit by an America-based problem) that had become fashionable in recent weeks.Investors around the world have taken note of the fact that the broad-based S&P 500index is at a 16-month low, along with European stocks. And investors seem to havelittle faith in the Bush rescue plans ability to ward off a recession in the US. The Fedwill almost certainly respond with sharp cuts in interest rates towards the end of 86
  • 87. the month, but the market has already discounted for that. Indian markets worsthit It is interesting that Indian markets were hit the most, among all Asian markets.This may have been because the correction in the overheated Chinese stock marketbegan some weeks ago. Investors will also have noticed that the third-quartercorporate numbers show significant deceleration in both sales and profit growth,when compared to the same quarter a year earlier. When coupled with the datashowing that the export target for the year will be missed by a wide margin, and thatthe industrial sector has suffered a sharp slowdown, it was inevitable that stock priceswould have to come off their dizzy highs. What began with profit-booking andunwinding of long positions cascaded on Friday into a 3.5 per cent decline in theSensex? Foreign institutional investors had moved to the sidelines in the secondarymarkets even earlier, and FIIs have been net sellers to the tune of Rs 2,200 crore (Rs22 billion) in January. Also relevant was the Reliance Power IPO, which pulled in arecord amount of application money (Rs 1,15,000 crore (Rs 1,150 billion)). Even if athird or a fourth of that was being garnered by sale of stocks, it is a large enough sumfor the market to go into correction mode. There is no doubt that valuations hadbecome expensive. Even after the 10 per cent correction from the markets peak, theSensex trades at a trailing P/E multiple of 24.5, which is not cheap in anyones book.Yet, buying may soon begin A global liquidity surplus had certainly contributed tomomentum buying. The question is whether the correction that has occurred so faris enough for fresh buying to emerge, or whether a further fall is required beforevalue-based buying starts. On a forward basis, the Sensex trades at an FY09estimated P/E of 18. The floor therefore would probably be a Sensex level of 17,000-odd -- which would mean wiping out the gains of the past three months, no mor e.Provided the general economic and corporate news does not get worse than hasalready been anticipated, fresh buying cannot be very far away. 87
  • 88. Impact of a US recession on IndiaA slowdown in the US economy is bad news for India.Indian companies have major outsourcing deals from the US. Indias exports to theUS have also grown substantially over the years. The India economy is likelyto lose between 1 to 2 percentage points in GDP growth in the next fiscal year.Indian companies with big tickets deals in the US would see their profit marginsshrinking. The worries for exporters will grow as rupee strengthens further against thedollar. But experts note that the long-term prospects for India are stable. A weakdollar could bring more foreign money to Indian markets. Oil may get cheaper briningdown inflation. A recession could bring down oil prices to $70. Between January 2001and December 2002, the Dow Jones Industrial Average went down by 22.7 per cent,while the Sensex fell by 14.6 per cent. If the fall from the record highs reached istaken, the DJIA was down 30 per cent in December 2002 from the highs it hit inJanuary 2000. In contrast, the Sensex was down 45 per cent. The whole of Asiawould be hit by a recession as it depends on the US economy. Asia is yet to totallydecouple itself (or be independent) from the rest of the world, say experts.BlackMonday saw bloodbath on Dalal Street as the Indian stock markets crashed by over1430 points in afternoon trade (the market has since then recovered somewhat),reminding investors that there is no one-way bet on the stock market.Factors. One, there is a change in the global investment climate. One of the primarytriggers is the huge fear of the United States economy going into a recession withforeign institutional investors trying to reallocate their funds from risky emergingmarkets to stable developed markets. Analysts are now expecting a cut in USinterest rates. Hedge funds and FIIs could have been the biggest sellers in the Indianmarkets, booking profits and making the most of the unprecedented Bull Run that has 88
  • 89. dominated the Indian stock market for a long time now. The current volatility is alsolinked to global bourses. There is a big correlation among global markets. Thepresence of hedge funds across asset classes, along with increasedglobal movement of capital, has increased event-related volatility.Volatility in commodities markets has also significantly affected equity markets. Acombination of global and local factors is affecting this market, said Mihir Vora ofHSBC Mutual Fund, on NDTV Profit. On the global front, other emerging marketswere down nearly 20% so India is playing catch-up, he said. On the local front therehas been a huge build-up in derivatives positions and volatility led to margin calls.Also many IPOs have sucked out liquidity from the primary market into thesecondary market, said Vora. At current levels it would be a buy call and we wouldnot advise investors to wait to catch the bottom, he added. Analysts expect themarkets to continue to be choppy for a while till global liquidity andcommodity prices settle in. With the markets falling, a technical correction in thederivatives segment has perpetrated a larger fall. The Sensex can fall another 10-15%, said Adrian Mowat of JP Morgan, on NDTV Profit. India is trading at 65%premium to emerging markets and India is playing catchup with other declining globalmarkets, he added. There is no need to get very pessimistic that this is the end ofequity investing in India, he said. This could be seen as a buying opportunity and wewill re-visit market valuations after the correction, he added. 89
  • 90. Weakness: Strength:  High risk High return Large investment  Based on the Acquire capital for fluctuation. It becomes high expanding the loss when market business goes down. Secure the future losses  Can’t predict future Opportunity: Threat: Lot of people wants to invest but  Recession don’t invest due to insufficient  New government knowledge.  Bubble burst Market is providing new opportunities and  Fluctuates dollar new options to prices invest. 90
  • 91. Data Analysis and InterpretationData Interpretation- A questionnaire was prepared for the purpose of gettingfeedback from participators Trader of Stock or Derivatives Instruments regarding“Stock Market”. 100 people (trader of stock and derivatives instrument) are selectedfrom different area and were distributing the questionnaire from the purpose of study.Data Analysis- Data analysis of the data is done as per the survey finding. The datais representing graphically in percentage.The percentage of the people opinion were analyzed and expressed in the form ofchart and have been placed in the next few pages.Analysed and Interpreted the Data.Q1. Tell us something about your overall stocked market research experience?Chosen in best Ive been trading for 2 decades and the markets are a lot more complex nowthan they were just even 3 years ago. I would not advise trading if you dont have fulltime attention, the right technology, understand the basics of fundamental andtechnical analysis, a basic education in market history, market psychology, a ton ofexperience with depth of understanding on how markets really work, and the capitalto play in this big game. 91
  • 92. Q2. Do you think stock market research is essential for investing your money to earnhigh returns?S. No Opinion No. of Respondent Percentage 1 Yes 75% 75 2 No 25% 25 Thinker 25 Yes No 7575% people said that stock market research is essential for investing your money toearn high returns and 25% people said in against 92
  • 93. Q3. How long have you been indulged into the stock market research and thisbusiness?S. No Opinion No. of Respondent Percentage 1 More than a year 60 60% 2 More than three year 20 20% 3 More than five years 10 10% 4 More than seven years 05 05% 5 More than this 05 05% Indulged in Stock Market 5 5 10 More than a year More than three year 20 60 More than five years More than seven years More than this60% people indulged into the stock market research and this business more than ayear,20% people indulged into the stock market research and this business more thanThree year,10% people indulged into the stock market research and this business more thanfive year,5% people indulged into the stock market research and this business more thanSever year,5% people indulged into the stock market research and this business more than this, 93
  • 94. Q4. Which of the following mentioned factors play an important role while you finalizea stock company?S. No Opinion No. of Respondent Percentage 1 Overall reputation 45 45% 2 Offered stock market term & conditions 25 25% 3 Capability of affecting investments 20 20% 4 Current stock quotes 05 05% 5 Other factor 05 05% Factors play an important role Overall reputation 5 5 20 Offered stock market term & 45 conditions Capability of affecting investments 25 Current stock quotes Other factor45% people said Overall reputation play in important role while you finalize a stockcompany,25% people said Offered stock market term & conditions play in important role whileyou finalize a stock company,20% people said Capability of affecting investments play in important role while youfinalize a stock company,5% people said Current stock quotes play in important role while you finalize a stockcompany,5% people said mentioned Other factor 94
  • 95. Q5. You purchase the shares to:S. No Opinion No. of Respondent Percentage 1 Invest your money wisely 20 20% 2 For long term money investment 23 23% 3 For high end returns 44 44% 4 To invest money regularly 13 13% 13 20 Invest your money wisely For long term money investment 23 44 For high end returns To invest money regularly20% people said purchase the shares for Invest your money wisely23% people said purchase the shares for long term money investment44% people said purchase the shares for high end returns13% people said purchase the shares for To invest money regularly 95
  • 96. Q6. Which of the following risk factors disturb the stock market continuously?S. No Opinion No. of Respondent Percentage 1 Corporate drawn 25 25% 2 Market value fluctuations 40 40% 3 Economic breakdown 35 35% Factors disturb the stock market continuously 25 35 Corporate drawn Market value fluctuations Economic breakdown 4025% people said Corporate drawn factors disturb the stock market continuously40% people said Market value fluctuations factors disturb the stock marketcontinuously35% people said Economic breakdown factors disturb the stock market continuously 96
  • 97. Q7. Which of the methods do you use to conduct a stock market research beforeinvesting money into shares?S. No Opinion No. of Respondent Percentage 1 Internet 30 30% 2 Friend‟s advice 35 35% 3 News paper 15 15% 4 Television 15 15% 5 Other 10 10% 10 30 15 Internet Friend’s advice 15 News paper Television 35 Other30% people use the Internet to conduct a stock market research before investingmoney into shares, 35% people use the Friend‟s advice to conduct a stock marketresearch before investing money into shares, 15% people use the News paper toconduct a stock market research before investing money into shares, 15% peopleuse Television to conduct a stock market research before investing money intoshares, 10% people use other elements to conduct a stock market research beforeinvesting money into shares 97
  • 98. Q8. Do you deal in Derivative instruments?S. No Opinion No. of Respondent Percentage 1 Yes 80 80% 2 No 20% 20% 20 Yes No 8080% people deal in Derivatives instruments20% people not deal in Derivatives instruments 98
  • 99. Q9.Would you like to give any suggestions regarding improvement of trading inStock Market?Suggestion Chosen in best  Do not overtrade.  Do not trade on rumors.  Do not trade in all stocks of one sector.  Its better to buy the wrong stocks at the right time than to buy the right stocks at the wrong time.  Trade with the trends rather than trying to pick tops and bottoms.  As long as a market is acting right, dont rush to take profits.  Dont buy something because it is low priced.Money cannot be made everyday from the markets 99
  • 100. Conclusion:Through this research we can conclude that:  Stock market fluctuates by the external environment.  Stock market is all about future prediction.  Stock market is very sensitive market.  It is based on “high risk and high return.”  Comparatively stock market is less risky than the other market and generates more money for the economy  One who have good knowledge in stock market, may survive in the market and generates profits or good return whether the market is down  Investors should not invest on the basis of rumors they must observe the market condition or trends Indian economy and than invest If they wanna generate good return. 100
  • 101. SuggestionStock Investing Tips & Ideas Learn how to invest in the Stock market. If you are a beginner or an expert,you can find basic and advanced trading tips and ideas on stock investing in this site.Before investing in the stock market, youd better learn some tips about how to investin the market. In other words understanding of the market is required.Beginner Investing Tips and Ideas(How to Begin):Do you know? Many people trade in the stock market with the same chance, butfew percent of them make money in stocks. Many of these people, who dont earnenough return, have enough information about investing in the stock market. Theymake common mistakes and you should avoid them by having a high level of marketunderstanding.There are two analytic methods for investing in the stock market, technical andfundamental analysis.Technical analysis is based on prices and volume. Technical investors believe priceand volume interpret everything in the market. They study charts for forecasting offuture stock price or financial price movements.For learning technical analysis academic knowledge isnt required, with every level ofknowledge you can learn it.Fundamental analysis is a stock valuation method that uses financial and economicanalysis to predict the movement of stock prices. 101
  • 102. To begin investing in the stock market, you must choose a stock broker. A stockbroker performs transactions in financial instruments on a stock market as an agentof their clients.If you are a beginner see: Beginners GuideAdvanced Investing Tips and Ideas:Learn more Technical Tips:you can learn about Fibonacci Sequences, Elliott Wave Theory, Dow Theory andother stock trading strategies.Stock Market Risk:Whats your understanding and Perception of risk? How do you recognize risk? Isrisk Quantifiable? How to manage risk?The concept of risk and managing it is a complicated part in investing money.Automate your Trading:You can learn and use trading software to automate your stock investing strategy.Many investors use stock trading software to control their emotions and to enablethem to focus on their stock trading strategy.There are many other advantages of using trading software and systems, such assaving time and managing your risk.Enjoy making money in stocks. We hope you improve your understanding of thestock market by reading and learning these Tips and Ideas. 102
  • 103. Four steps to richesWe wanna know that something we require for achieving to rich:1. A profit-optimizing investment philosophy is the first step for reaching to rich, theelements of which include:a) Trading- as opposed to investing is the first part toward richb) Maximization of percent per year yield on each trade is the second part to richc) Maximization of percent of time invested is the third part to richd) Minimization of the trading interval is the fourth part to riche) Optimization of transaction timing is the fifth part to rich2. Fast and simple issue selection for getting to rich3. Fast and simple transaction-timing analysis is the other steps to rich4. Accurate and timely stock price tracking is the last steps to rich 103
  • 104. BibliographyText books  The Stock Market-The Stock Market - Rik W.Hafer, Scott E. Hein, R. W.Hafer work package no. 6,7 & 8  Investment Analysis and portfolio management-M Raghunathan, Madhumati page no. 23,24,26,28,200,209Journals and magazines o JARN, Published Feb 2009  Business today 2008-09  Business standard 2008-09Websites: o www.tdd.ltslnewsStock_ExchangesStock.htm o     -   The economics times   104
  • 105. AnnexureQuestionnaireSample Stock Market Research Questionnaire:Name of the participant: ________________Age: ___________Gender: _____________Occupation: ______________Contact number: _____________________Date: ____/____/____Survey on the Study of Indian Stock MarketDear Respondent,We are conducting a survey on The Indian Stock Market. Your free and frank opinionwould we very valuable in the conducting the survey. Pleas answer the followingquestion with a sign of right in the appropriate boxes:Q1. Tell us something about your overall stocked market research experience?______________Q2. Do you think stock market research is essential for investing your money to earn highreturns?  Yes ( )  No ( ) 105
  • 106. Q3. How long have you been indulged into the stock market research and this business?  More than a year ( )  More than three year ( )  More than five years ( )  More than seven years ( )  More than this ( )Q4. Which of the following mentioned factors play an important role while you finalize astock company?  Overall reputation ( )  Offered stock market term & conditions ( )  Capability of affecting investments ( )  Current stock quotes ( )  Other, please write: ________________Q5. You purchase the shares to:  Invest your money wisely ( )  For long term money investment ( )  For high end returns ( )  To invest money regularly ( )Q6. Which of the following risk factors disturb the stock market continuously?  Corporate drawn ( )  Market value fluctuations ( )  Economic breakdown ( )Q7. Which of the methods do you use to conduct a stock market research before investingmoney into shares?  Internet ( )  Friend’s advice ( )  News paper ( )  Television ( )  Other, please mention: __________________Q8. Do you deal in Derivative instruments?Yes - ( ) No - ( )Q9.Would you like to give any suggestions regarding improvement of trading inStock Market? 106
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