BASIC OF CAPITAL
BEGINNING OF INDIAN CAPITAL MARKET
The origination of the Indian securities market may
be traced back to 1875, when 22 enterprising brokers
under a Banyan tree established the “Native shares
and stock broker’s Association” which later became
the “ Bombay Stock Exchange” (BSE). Over the last
125 years, the Indian securities market has evolved
continuously to become one of the most dynamic,
modern and efficient securities markets in Asia.
Today, Indian markets conform to international
standards both in terms of structure and in terms of
The Seed were probably first sown by the
“East India Company” in 18th
Promissory Notes & Debt Instruments.
19the centaury saw Indian Enterprises flourish
and merchants and speculators of western
India trading on loan securities and shares of
THE FIRST BIG BULL
1860-61, demand for cotton increased due to
civil war in America and price was pushed up
1865: 31 banks, 8 land reclamation
companies, 20 insurance companies, 62 joint
FIRST BIG BULL
In speculative trading
Known as the Cotton king and the Bullion king.-
Floated Bank of Bombay.
Back Bay Reclamation shares prices pushed up
1865: American Civil war ended, cotton prices
collapsed, companies collapsed and market
crashed. For the first time in India Broker
became a dirty word. Roychand lost all his
FIRST FIVE STOCK EXCHANGES
1875: “ The Native Share and Stock broker’s
Association” formed with 318 members and
with a fee of Rs.1.
In 1928 present plot acquired and building
constructed in 1930.
1894: Second Stock Exchange at Ahmedabad.
1908 : Third, Calcutta Stock Exchange.
1937 : Madras Stock Exchange.
1947 : Delhi Stock Exchange.
SOME BIG NAMES
Top speculators: Hathibhai, favourite was
TISCO, Mahindra Mansukh in 1960s, his
favourite was Standard Mill etc. The other
names to reckon with were, Subhash Chand
and Manik Chunni Lal.
1970: Nationalization of banks and industries.
and enactment of Foreign Exchange Regulation
1980: Retail interest in capital market boosted
through Dhirubhai Ambani’s Reliance Industries
1991: Priminister Narasimha Rao and Finance
Minister, Manmohan Singh started
to unshack le the I ndian Economy.
I n a near r eplica of Pr emchand
Roychand, hundr ed year s ago, H ar shad
M ehta and his associates bor r owed
money fr om bank and used it to push up
the shar e pr ices.
I n June 1991 Sensex was 1170 and in
Apr il 1992 it was at 4467.
The Sensex fell to 2800 in one week
after the scam br ok e.
SBTS in NSE
National Stock Exchange star ted the
scr een based tr ading in Capital M ar k et
(Equities) segment in November 1994
and oper ations in Der ivatives segment
commenced in June 2000. This has
br ought about a r evolution to the I ndian
stock mar k et scenar io.
2001: Over the years, also, the direction of
equity investment has changed so radically as to
be unrecognisable. Old blue chips- Telco, Tisco,
ITC, HLL all- have been discarded for scrips in
the ICE (Infotech, Communications,
Entertainment) sectors. Infosys, Zee, Wipro and
Satyam have become the new touchstones of
punters everywhere. The circular trading of KP
and his associates had taken the prices of K-10
shares to dizzying hights and than came the DOT
COM bust and the crash. Shares traded at
Rs.3000/4000 now trades at Rs. 12/20 etc.
HFCL, Global Telesystem, Pentafour, DSQ etc.
Bull Run since April, 2003
Transparency, competitiveness and equal opportunity .
to all market participants has been the driving philosophy
behind all the development and regulatory initiatives of SEBI
today. The robust economy, ever increasing FII investment,
bright economic future have taken the market to a robust
Today Sensex is above 9000 mark and there is no relenting in
the fund flow.
There are 498 Foreign Institutional Investors with a net
investment of approximately $15bn.
There are now 34 mutual funds offering close to 380 different
types of schemes, which are as diversified and up to date as in
any other part of the world.
During the year2005, the sensex surged 42% to end at a new
high of 9398, while the Nifty jumped 36% to end at 2837.
SENSEX MOVEMENT SINCE 1998 AND THE PRESENT BULL RUN
World Capital Market Development
In Antwerp, Belgium, traders gathered together
in 1531 to speculate in shares and
commodities. This was the world's first Stock
Exchange and it was born in a city that was
known for shipping and trading. Hamburg, in
Germany, followed in 1558. Amsterdam came
next, in 1619. London and Paris also set up
Exchanges sometime near the end of the 17th
That all changed on May 17, 1792 when two dozen Wall
Street brokers signed an agreement to trade only with one
Another. Known as the Buttonwood Agreement, this two
sentence document was signed under a Buttonwood tree at
68 Wall Street where the brokers met informally. This
agreement would evolve into today’s New York Stock
The NYSE is today one of the most powerful exchanges in
The Roaring Twenties and the Great Fall.
After the First World War (1914-1919), there was a period
of great economic prosperity. In the 1920s, many of the
Dow Jones Industrial Average (DJIA) stocks rose more
than five-fold in value.
All this came to a spectacular end. The crash of 1929 in
New York, brought misery to one and all. It is said that
brokers and bankers jumping out of skyscrapers was a
common sight. On October 24, 1929, (Black Thursday) the
Dow lost 30 per cent in value,
The mayhem ended in mid-1932, with the Dow down a
whopping 90 per cent in value from its peak in 1929. The
drop in stocks was worth $30 billion, which was about 30
per cent of the GDP!
Rise, fall and rise again.
In the 20th century, a continuing surge in volume has
required Exchanges to embrace more sophisticated
technology. Screen-based trading has become the order of
the day though, of course, the NYSE still follows a
variation on the open outcry system with specialists.
The capital markets have mirrored the shifts in the world
eeconomy. Thus the Far East and Japan now boast some
of the leading Exchanges. Emerging market investing has
become a field for specialists.
And some investors such as Warren Buffet, Peter Lynch,
Mark Mobius- have even become cult figures.
Definition of Stock & Shares
Share or Equity represents part of an
ownership of a business. So as a
shareholder you own a piece of the
action that happens in that business.
Why would you want a piece of the
action? For the rewards of course. As a
shareholder you have a right over
Bull & Bear Market
When economic indicators point to a healthy and
growing economy, companies are making money, the
future looks good, and people have more money to
invest. When this happens, stock prices on the whole
generally rise, which is called a bull market. In
contrast, when the economy is shrinking, businesses
are not making as much money, and people are losing
their jobs and have less money left over after buying
necessities, stock prices on the whole will be falling.
This is known as a bear market.
What determines Stock Price?
In the short run, the market is a voting machine--
reflecting a voter-registration test that requires
only money, not intelligence or emotional stability.
The buyer and seller determines the price in short
run, big buyers push up the price and big sellers
bring down the price. But in the long run, the
market is a weighing machine. The good
performance of the company continuously attract
more and more buyers and that takes the price to
higher and higher level, setting a trend.
Initial Public Offerings
A company's first sale of stock to the public. Securities
offered in an IPO are often, but not always, those of
young, small companies seeking outside equity capital and
a public market for their stock. Investors purchasing stock
in IPOs generally must be prepared to accept very large
risks for the possibility of large gains.
In an IPO, the issuer obtains the assistance of an
underwriting firm, which helps it determine what type of
security to issue (common or preferred), best offering
price and time to bring it to market.
Also referred to as a "public offering".
The Book Building Process
The Issuer who is planning an IPO nominates a lead merchant
banker as a 'book runner'.
The Issuer specifies the number of securities to be issued and
the price band for orders.
The Issuer also appoints syndicate members with whom
orders can be placed by the investors.
Investors place their order with a syndicate member who
inputs the orders into the 'electronic book'. This process is
called 'bidding' and is similar to open auction.
A Book should remain open for a minimum of 5 days.
Bids cannot be entered less than the floor price.
Bids can be revised by the bidder before the issue closes.
which is in the process of maturing.
Determination of Price
On the close of the book building period the 'book runner
evaluates the bids on the basis of the evaluation criteria
which may include -
Earliness of bids, etc.
The book runner and the company conclude the final price
at which it is willing to issue the stock and allocation of
Generally, the number of shares are fixed, the issue size
gets frozen based on the price per share discovered
through the book building process.
Allocation of securities is made to the successful bidders.
Book Building is a good concept and represents a capital
Difference between shares offered through book building and offer
of shares through normal public issue.
Price at which the
offered/allotted is known
in advance to the investor.
Demand for the securities
offered is known only after
the closure of the issue.
Payment if made at the
time of subscription
wherein refund is given
Price at which securities
will be offered/allotted is
not known in advance to
the investor. Only an
indicative price range is
Demand for the securities
offered can be known
everyday as the book is
Payment only after
WE HAVE TWO PRIME INDEXES- SENSEX FOR BSE
AND S&P CNX NIFTY FOR NSE.
NIFTY HAS 50 shares that basically represent the broader
market across sectors. The base value of NIFTY was 1000 on
the start year of Nov.3, 1995.
First compiled in 1986, SENSEX is a basket of 30 constituent
stocks representing a sample of large, liquid and representative
companies. The base year of SENSEX is 1978-79 and the base
value is 100. The Index was initially calculated based on the
"Full Market Capitalization" methodology but was shifted to
the free-float methodology with effect from September 1, 2003.
First compiled in 1986, SENSEX is a basket of
30 constituent stocks representing a sample of
large, liquid and representative companies. The
base year of SENSEX is 1978-79 and the base
value is 100. The Index was initially calculated
based on the "Full Market Capitalization"
methodology but was shifted to the free-float
methodology with effect from September 1,
Associated Cement Company
Bajaj Auto Ltd.
Bharat Heavy Electricals Ltd.
Bharti Tele Ventures Ltd.
Dr Reddy's Laboratories Ltd.
Grasim Industries Ltd.
Gujarat Ambuja Cements Ltd.
HDFC Bank Ltd.
Hero Honda Motors Ltd
Hindustan Lever Ltd
Larsen & Toubro Limited
Maruti Udyog Ltd.
National Thermal Power
ONGC Ltd. Ranbaxy
Reliance Energy Ltd.
Reliance Industries Ltd.
Satyam Computer Services Ltd.
State Bank of India
Tata Consultancy Services
Tata Motors Ltd.
Tata Power Co. Ltd.
Wipro Ltd. Information
S&P CNX Nifty – Constituents’ List
Bharat Heavy Electricals Limited
Bharat Petroleum Corporation
Dr. Reddy's Laboratories
Glaxo Smith Kline Pharmaceuticals
Gujarat Ambuja Cements
Hero Honda Motors
Hindustan Petroleum Corporation
Indian Petrochemicals Corporation
I T C
Larsen & Toubro
Mahindra & Mahindra
Punjab National Bank
Reliance Industries Ltd.
Steel Authority of India Ltd.
State Bank of India
Videsh Sanchar Nigam Limited
Zee Telefilms Ltd.
S&P CNX Nifty HISTORY
S&P CNX Nifty is a well diversified 50 stock index
accounting for 23 sectors of the economy.
CNX ensures common branding of indices, to reflect
the identities of both the promoters, i.e. NSE and
CRISIL. Thus, 'C' stands for CRISIL, 'N' stands for
NSE . The S&P prefix belongs to the US-based
Standard & Poor's Financial Information Services.
The base value of S&P CNX Nifty was set to 1000 on the
start date of November 3, 1995.
Major indices in NSE
S&P CNX Nifty
CNX Nifty Junior
CNX 100 CNX
S&P CNX Defty
CNX Midcap 200
CNX IT Sector Index
CNX Bank Index
CNX FMCG Index
CNX PSE Index
CNX MNC Index
CNX Service Sector Index
S&P CNX Industry indices
CNX Energy Index
CNX Pharma Index
Major indices of BSE
Financial Planning and Investment Strategy
When you invest any money, you need to assess
your financial situation and goals, then develop an
investment plan. The first step is to carefully onsider
your present financial situation. How much money
do you need for routine expenses, such as food,
housing, clothing, health care, transportation, and
entertainment? How much have you set aside for
emergencies, such as accidents, illness, and
unemployment? And how much do you need to save
for big items such as a house, college expenses, and
With investing, typically the less risk you take, the less money
you make, but the more certain it is. For example, a savings
account in a bank earns a very low return but is very safe.
These types of low-risk, low-return investments are especially
appropriate for short-term or medium-term investments, for
when you are going to need the money anytime from this week
to several years from now. For longer-term investments,
several years or more, the stock market as a whole has
historically given the best rates of return. There are two ways
to make money from stocks: dividends and capital gain.
Dividends are checks that shareholders get, usually every
quarter, as their share of the company’s profits. Capital gain is
when you sell your shares at a higher price than what you paid
Types of Stock
INCOME STOCKS pay unusually large dividends that
can be used as a means of generating income without
selling the stock, but the price of the stock generally
does not rise very quickly.
BLUE-CHIP STOCKS are issued by very solid and reliable
companies with long histories of consistent growth and
stability. Blue-chip stocks usually pay small but regular
dividends and maintain a fairly steady price throughout
market ups and downs.
GROWTH STOCKS are issued by young, entrepreneurial
companies that are experiencing a faster rate of growth than
their general industries. These stocks normally pay little or no
dividend because the company needs all of its earnings to
finance expansion. Since they are issued by companies with no
proven track record, growth stocks are riskier than other types
of stocks but also offer more appreciation potential.
CYCLICAL STOCKS are issued by companies that are
affected by general economic trends. The prices of these stocks
tend to go down during recessionary periods and increase
during economic booms. Examples of cyclical stock companies
include automobile, heavy machinery, and home building.
DEFENSIVE STOCKS are the opposite of cyclical stocks.
Defensive stocks, issued by companies producing staples such as
food, beverages, drugs, and insurance, typically maintain their
value during recessionary periods.
FACTS ABOUT NSE & BSE
No of Cos. Listed :1025
No of trading Cos. : 886
Daily turnover : 7000 cr.
Market Cap : 23 lacs. cr.
Established in April 1993.
F&O started in June, 2000.
Daily F&O T/o :17,500 cr.
Mr. Ravi Narian, MD, CFO.
Mr. S. B. Mathur, Chairman.
No of Cos. Listed :7199
No of tradingCos. : 2552
Daily turnover : 4000 cr.
Market Cap : 25 lacs. cr.
Established in 1875.
Mr. Rajnikant Patel,
Mr. Jagdisk Capoor,
DEPARTMENTS OF A BROKING HOUSE.
Dealing or Trading Department.
Introduction to Cash Market.
Terminologies of the Cash Market: What is EQUITY/ STOCK,
Settlement, Face Value, Dividends, Bonus Shares, Book Closures, Ex-
Dividend, Splitting of stock.
Non Delivery Period, intraday exposure, turnover, client wise, scrip wise
Brokerage- What is brokerage.
*Types of brokerage, speculative and delivery.
*Brokerage for HNI’s and retail clients.
*Brokerage for Sub-brokers.
NATURE OF PARTICIPATION
Day Trading- Short Selling, Long Buying etc.
Investments- Long Term and Short Term investments.
Participants- Day Traders, Investors, HNIs, Mutual Funds,
FIIs, Banks etc.
Their role in the market as a whole.
WHAT IS DERIVATIVES?
TYPES OF DERIVATIVES, OPTIONS AND
USAGES: FOR HEDGING, SPECULATING,
RISK AND RETURN IN DERIVATIVES.
INDEX CALL OPTION
PARAMETERS OF OPTIONS
1) WHAT IS FUTURES?
2) RISK AND REWARD DYNAMICS OF
3) DIFFERENCE FROM OPTIONS &
SIMLIARITY WITH STOCKS.
4) FACTORS AFFECTING FUTURE PRICES.
5) STRATEGIES COMBINED WITH OPTIONS.
6) WHO SHOULD USE IT AND HOW?
* MINISTRY OF FINANCE SEBI EXCHANGE
BROKERS SUB BROKERS CLIENTS.
* ECONOMY INDUSTRY COMPANY
ROLE OF BROKER
EFFICIENT CUSTOMER SERVICE IS THE
ULTIMATE MANTRA IN THIS BUSINESS.