A STUDY ON STOCK MARKET.pdf

A Study on Stock Marketing
A Project Submitted to
University of Mumbai for partial completion of the degree of
Master in Commerce
Under the Faculty of Commerce
By
Khedekar Kushal Pratap Nanda
Roll No - 23
Sem - III
Under the Guidance of
Prof. PANKAJ SARAWADE
People’s Education Society’s
Siddharth College of Commerce & Economics
Anand Bhavan, Dr. D.N.Road, Fort,
Mumbai- 400 001
December- 2022

People’s Education Society’s
SIDDHARTH COLLEGE OF COMMERCE & ECONOMICS
Anand Bhavan,Dr. D.N. Road, Fort, Mumbai- 400 001
Certificate
This is to certify that Mr.Khedekar Kushal Pratap Nanda has worked and duly
completed his Project Work for the degree of Master in Commerce under the
Faculty of Commerce in the subject of Research Project and her/his project is
entitled,
“A Study on Stock Marketing” under my supervision
I further certify that the entire work has been done by the learner under my
guidance and that no part of it has been submitted previously for any Degree or
Diploma of any University.
It is her/ his own work and facts reported by her/his personal findings and
investigations.
Prof. Pankaj Sarawade Dr .U.M.Maske Dr.U.M.Maske
Guiding Teacher Co-ordinator Principal
University Examiner
Date of submission:

Declaration by learner
I the undersigned Mr..Khedekar Kushal Pratap Nanda here by,
Declare that the work embodied in this project titled “A Study on Stock Marketing”
forms my own contribution to the research work carried out under the guidance of
Prof. Pankaj Sarawade is a result of my own research work and has not been
previously submitted to any other University for any other Degree/ Diploma to this or
any other University.
Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.
I, here by further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.
Name and Signature of the learner
Certified by

To list who all have helped me is difficult because they are so numerous and the depth
is so enormous.
I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.
I take this opportunity to thank the University of Mumbai for giving me chance to do
this project.
I would like to thank my Principal, Dr.U.M.Maske for providing the necessary
facilities required for completion of this project.
I take this opportunity to thank our Co-ordinator Dr.U.M.Maske, for his moral
support and guidance.
I would also like to express my sincere gratitude towards my project guide
Prof. Pankaj Sarawade Whose guidance and care made the project successful.
I would like to thank my College Library, for having provided various reference
books and magazines related to my project.
Lastly, I would like to thank each and every person who directly or indirectly helped
me in the completion of the project especially my Parents and Peers who supported
me throughout my project.
Acknowledgment

INDEX
SR. NO. CONTENTS PAGE NO.
1 INTRODUCTION 1 to 9
2 RATIONAL FOR THE STUDY 10 to 12
3 STATEMENT OF THE PROBLEM 13 to 15
4 OBJECTIVES OF THE STUDY 16 to 18
5 HYPOTHESES OF THE STUDY 19 to 23
6 IMPORTANCE AND RELEVANCE OF THE STUDY 24 to 46
7 SCOPE OF THE STUDY 47 to 49
8 LIMITATION OF THE STUDY 50 to 51
9 RESEARCH METHODOLOGY 52 to 53
10 REVIEW OF THE LITERATURE 54 to 63
11 SCOPE FOR THE STUDY 64 to 66
12 CONCLUSION 67 to 69
13 REFERENCES 70 to 71

1
INTRODUCTION
WHAT IS STOCK MARKET?
Definition of ‘Stock Market’
The market in which shares of publicly held companies are issued and traded
through either exchanges or over-the-counter markets. Also known as, the equity
market, the stock market is one of the most vital components of a free-market
economy, as it provides companies with access to capital in exchange for giving
investors a slice of ownership in the company. The stock market makes it
possible to grow small initial sums of money into large ones, and to become
wealthy without taking the risk of starting a business or making the
sacrifices that often accompany a high-paying career.
The stock market lets investors participate in the financial achievements of the
companies whose shares they hold. When companies are profitable, stock market
investors make money through the dividends the companies pay out and by
selling appreciated stocks at a profit called a capital gain. The downside is that
investors can lose money if the companies whose stocks they hold lose
money, the stocks' prices goes down and the investor sells the stocks at a loss

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CAPITAL MARKET
Definition 'Capital Markets'
"Markets for buying and selling equity and debt instruments. Capital markets
channel savings and investment between suppliers of capital such as retail
investors and institutional investors, and users of capital like businesses,
government and individuals. Capital markets are vital to the functioning of an
economy, since capital is a critical component for generating economic output.
Capital markets include primary markets, where new stock and bond issues are
sold to investors and secondary markets, which trade existing securities."
Capital markets typically involve issuing instruments such as stocks and bonds
for the medium-term and long-term. In this respect, capital markets are distinct
from money markets, which refer to markets for financial instruments with
maturities not exceeding one year.
Capital markets have numerous participants including individual investors,
institutional investors such as pension fund and mutual funds, municipalities and
governments, companies and organizations and banks and financial institutions.
Suppliers of capital generally want the maximum possible return at the lowest
possible risk, while users of capital want to raise capital at the lowest possible
cost. The stock market falls under the Capital Market Structure.
'The capital market is divided further into two markets:
• Primary market
• Secondary market
Capital Market
Primary Market Secondary Market

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PRIMARY MARKET
Definition of 'Primary Market'
"A market that issues new securities on an exchange. Companies, governments
and other groups obtain financing through debt or equity based securities.
Primary markets are facilitated by underwriting groups, which consist of
investment banks that will set a beginning price range for a given security and
then oversee is sale directly to investors."
Also known as "New Issue Market" (N1M).
The primary markets are where investors can get first crack at a new security
issuance. The issuing company or group receives cash proceeds from the sale,
which is then used to fund operations or expand the business. Exchanges have
varying levels of requirements, which must be met before a security can be sold.
One the initial sale is complete, further trading is said to conduct on the
secondary market, which is where the bulk of exchange trading occurs each day.
Primary markets can see increased volatility over secondary markets because it is
difficult to accurately gauge investor demand for a new security until several days
of trading have occurred.
There are three ways, which a company may, raise equity capital in the primary
market:
 PUBLIC ISSUE:
Issue of stock on a public market rather than being privately funded by the
companies own promoter(s), which may not be enough capital for the business to
start up, produce or continue running. By issuing stock publically, this allows the
public to own a part of the company, though not be a controlling factor.
 IPO: Initial Public Offering:
Initial public offering (IPO) or stock market launch is a type of public offering
where shares of stock in a company are sold to the public, on a securities
exchange, for the first time. An initial public offering or IP0 is the first sale of
stock by a company to the public. A company can raise money by issuing either
debt or equity. If the company has never issued equity to the public, it is known as
an IPO.

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Companies fall into two broad categories: Private and Public.
A privately held company has fewer shareholders and its owners do not have to
disclose much information about the company. Anybody can go out and
incorporate a company: just put in some money, file the right legal documents and
follow the reporting rules of your jurisdiction. Most small businesses are privately
held. However, large companies can be private too. Did you know that IKEA,
Domino's Pizza and Hallmark Cards are all privately held?
It usually is not possible to buy shares in a private company. You can approach
the owners about investing, but they are not obligated to sell you anything. Public
companies, on the other hand, have sold at least a portion of themselves to the
public and trade on a stock exchange. This is why doing an IPO is also referred to
as "going public.”
Pubic companies have thousands of shareholders and are subject to strict rules and
regulations. They must have a board of directors and they must report financial
information every quarter. In the United States, public companies report to the
Securities and Exchange Commission (SEC). In otter countries, governing bodies
similar to the SEC. oversee public companies. From an investor's standpoint, the most
exciting thing about a public company is that the stock is traded in the open market, like
any other commodity. If you have the cash, you can invest. The CEO could hate your
guts, but there is nothing he or she could do to stop you from buying stock.
 RIGHTS ISSUES:
An issue of rights to a company's existing shareholders that entitles them to buy
additional shares directly from the company in proportion to their existing holdings,
within a fixed time. In a rights offering, the subscription price at which each share
may be purchased in generally at a discount to the current market price. Rights are
often transferable, allowing the holder to sell them on the open market. A rights issue
is when a company issues its existing shareholders right to buy additional shares in
the company. The company will offer the shareholder a specific number of shares at a
specific price. The company will also set a time limit for the shareholder to buy the
shares. The shares are often offered at a discoursed price to encourage
Existing shareholders to take the company up on their offer.
If a shareholder does not take the company up on their rights issue then they have the
option to sell their rights on the stock market just as they would sell ordinary shares,
however their shareholding in the company will weaken.

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Companies with a poor cash flow will often use a rights issue to increase cash flow
and pay off existing debts. Rights issues however are sometimes issued by companies
with healthy balance sheets n order to find research and development projects or to
purchase new companies. Discounted shares issued by a company can be tempting but it
is important to find out first the reason for the rights issue of shares. A company, for
example, may be using the rights issue as a quick cash fix to pay off' debts masking
the real reason for the company's cash flow failing such as bad leadership. Caution is
advised when offered with a rights issue.
 PREFERENTIAL ISSUE:
A preferential issue is an issue of shares or of convertible securities by listed companies
to a select group of persons under Section 81 of the Companies Act, 1956 that is neither a
rights issue nor a public issue. This is a faster way for a company to raise equity capital.
The issuer company his to comply with the Companies Act and the requirements
contained in Chapter pertaining to preferential allotment n SEBI (DIP) guidelines which
inter-alia include pricing, disclosures in notice etc.
Preferred stock is a different class than the better-known common Stock with different
characteristics. Thus, companies have reasons for issuing preferred stock that may differ
from the masons they "go public" by issuing common stock to everyday investors.
Preferred stock is still considered equity -- an ownership stake, rather than debt -- but it
often functions more like a bond than a share. Preferred stock is so named because, on a
company's hierarchy of debts, it is favored over common stock -- that is, its owners are
paid before owners of common shares. However, preferred stock normally does not
convey voting rights to owners as common shares do.
Preferred stocks attract investors looking for dividends. Which provide owners with a
fixed rate of return rather than returns that rise and fall with the stock market. Thus, it
acts more eke a bond with its -- usually -- fixed payout. Preferred shares also provide the
company with flexibility for other no dividend-related reasons. For instance, they
provide issuers with an extra ownership option n addition to common stock and bonds. In
addition, because these shares are a cut above common stock, they can be used as
incentives during transactions because they offer more security to the buyer and fiscal
guarantees to the seller.

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SECONDARY MARKET
Definition of 'Secondary Market'
"A market where investors purchase securities or assets from other investors, rather than
from issuing companies themselves. The national exchanges - such as the NATIONAL
STOCK EXCHANGE and the BOMBAY STOCK EXCHANGE are secondary markets,"
Secondary markets exist for other securities as well, such as when funds, investment
banks or entities such as Fannie Mae purchase mortgages from issuing lenders. In any
secondary market trade, the cash proceeds go to an investor rather than to the underlying
company/entity directly. A newly issued IPO will be considered a primary market trade
when investors directly from the underwriting investment bank; after that any shares
traded will be on the secondary market, between investors themselves, first purchase the
shares. In the primary market prices are often set beforehand, whereas in the secondary
market only basic forces like supply and demand determine the price of the security.
In the secondary market, securities are sold by and transferred from one investor or
speculator to another. It is therefore important that the secondary market highly liquid
(originally, the only way to create this liquidity was for investors and speculators to net
at a fixed place regularly; this is haw stock exchanges originated. As a rule, the greater
the number of investors that participate in a given marketplace, and the greater the
centralization of that marketplace, the more liquid the market.

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TYPES OF STOCKS
There are two main types of stocks: Common stock and Preferred stock.
 Common Stock:
Common stock is. Well, common. When people talk about stocks, they are usually
referring to this type. In Fact. The majority of stock is issued is in this form. We went
over features of common stock in the last section. Common shares represent ownership
in a company and a claim (dividends) on a portion of profits. Investors get one state per
share to elect the board members, who oversee the major decisions made by
management.
Over the long term, common stock, by means of capital growth, yields higher returns
than almost every other investment. This higher return comes at a cost since common
stocks entail the most risk. If a company goes bankrupt and liquidates, the common
shareholders will not receive money until the creditors, bondholders and preferred
shareholders arc paid.
 Preferred Stock:
Preferred stock represents some degree of ownership it a company but usually does not
come with the same voting rights. (This may vary depending on the company.) With
preferred shares, investors are usually guaranteed fixed dividers forever. This is different
from common stock, which has variable dividends that arc never guaranteed. Another
advantage is that in the event of liquidation, preferred shareholders are paid off before the
common shareholder (but still after debt holders). Preferred stock may also be callable,
meaning that the company has the option to purchase the shares from shareholders at
anytime for any reason (usually for a premium).
Some people consider preferred stock to be more like debt than equity. A good way to think
of these kinds of shares is to see them as being in between bonds and common shares.
Common and preferred are the two main forms of stock; however, it is also possible for
companies to customize different classes of stock in any way they want. The most common
reason for this is the company wanting the voting power to remain with a certain group;
therefore, different classes of shares are given different voting rights.

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SHAREHOLDERS
Definition of 'Shareholder'
"Any person, company or other institution that owns at least one share of a company's
stock. Shareholders are a company's owners. They haw the potential to profit if the
company does well. However, that comes with the potential to lose if the company does
poorly. A shareholder may also be referred to as a "stockholder".
Unlike the owners of sole proprietorships or partnerships, corporate shareholders are not
personally liable for the company's debts and other obligations. In addition, corporate
shareholders do not play a major role n running the company. The board of directors and
executive management perform that function. Common stockholders are, however, able to
vote on corporate matters, such as who sits on the board of directors and whether a
proposed merger should go through (preferred stockholders usually do not have voting
rights). They also benefit when the company performs well and its share price increases,
and they have the right to trade their shares on a stock exchange, which makes stock a
liquid investment.
Shareholders do have rights, which are defiled in the corporation's charter and bylaws.
They can inspect the company's books and records, sue the corporation for misdeeds of the
directors and offers and if the company liquidates, they have a right to a share of the
proceeds. However, creditors, bondholders and preferred stockholders have precedence
over common stockholders in a liquidation. Shareholders also have a right to receive a
portion of any dividends the company declares.
Shareholders can attend the corporation's annual meeting to learn about the company's
performance, vote on who sits on the board of directors and other matters. They can also
listen to the meeting via conference call and vote by proxy through the mail or online. To
learn pure about a company's policies toward shareholders, consult the company’s
corporate governance policies.

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WHY DOES COMPANY ISSUE STOCKS?
Why would the founders share the profits with thousands of people when they could keep
profits to themselves? The reason is that at some point every company reeds to 'raise
them". To do this, companies can either borrow it from somebody or raise it by 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. Both methods
come wider "Debt Financing". On the other hand, issuing stock is called "Equity
Financing". Issuing stock is advantageous for the company because it does not require the
company to pay back the money or make interest payments along the way.
All that the shareholders get in return for their money is the hope that the shares will
someday be worth more than what they paid for them. The first sale of a stock, which is
issued by the private company itself, is called the initial public offering (IPO).
It is important that you understand the distinction between a company financing though
debt 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 promised interest
payments.
This is not the case with an equity investment. By becoming an owner, you assume the
risk of the company not being successful - just as a small business owner is not guaranteed
a return neither is a shareholder. Shareholders earn a lot if a company is successful, but
they also stand to lose their entire investment if the company is not successful.

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RATIONAL FOR THE STUDY
In India, investing or trading in the stock market is perceived as gambling. Many people do
not want to invest in the stock market due to social and psychological factors. Normal
Indians keep themselves away from the equity market mainly because of the trust factor and
prefer traditional methods of investment like gold or fixed deposits, which are considered
safer in the longer run.
After independence in the last 75 years, only 3 percent of the population have joined the
stock market and distribution of trading volume is largely in cities or in a certain state like
Gujarat and Maharashtra only also a large portion of this figure have joined only after the
opening of the Indian economy in 1991. The stock market participation inequity is higher
in developed economies like the US (55%), China (13%), etc. There is a mismatch between
equity pricing and the economy.
Located in Mumbai, the National Stock Exchange (NSE) established in India in 1992 is
the largest stock exchange in the country and has more than 1641 listed companies
whereas BSE established in 1875 has more than 5246 companies. NSE has rapidly
developed to become one of the top three stock exchanges by transaction volume in the
world. Around the same time [in 1992], the Securities and Exchange Board of India
(SEBI) came into the picture.
The evolution of the regulatory climate was central to the progress of the NSE. Markets
will only expand if the economy is growing, and LPG Liberalization, Privatization and
Globalization model [introduced in 1991] has helped grow the Indian economy, as well as
companies that have gone public in order to raise money. In addition, liberalization
allowed international flows.
WHAT ARE THE ADVANTAGES OF INVESTING IN STOCK
MARKET?
The primary objective of investing is to ensure that every person is able to meet his or her
future financial objectives. Rise in inflation makes it inadequate for individuals to simply
earn and save some part of their incomes. To meet the price increases due to
inflation, investments become important. The stock market is one of the oldest and most
popular investment avenues due to several benefits of investing in stocks.
 Higher Liquidity:
In the Indian stock market, two exchanges, the Bombay Stock Exchange (BSE)
and National Stock Exchange (NSE) play important roles. Most companies trade their
shares on either or both of these exchanges. This provides higher liquidity to investors

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because average daily volumes are high. Therefore, if an investor wants to buy or sell any
product on the stock exchanges, this liquidity makes it easy.
 Versatility:
The stock market offers different financial instruments, such as shares, bonds, mutual
funds, and derivatives. This provides investors a wide choice of products in which to
invest their money. In addition to providing investment choices, this flexibility is
beneficial in mitigating the risks inherent to stock investing by enabling diversification of
investment portfolios.
 Higher Returns in Shorter Periods of Time:
Compared to other investment products like bonds and fixed deposits, stock investing
provide investors an excellent possibility of making greater returns in comparatively
shorter time periods. Adhering to the stock market basics, such as planning the trade, using
stop-loss and take-profit triggers, doing the research and due diligence, and being patient
can significantly mitigate the risks inherent to stock investing and maximize the returns
on share market investments.
 Acquire Ownership and Right to Vote:
Even if an investor acquires a single share in a company, he acquires a portion of
ownership in the company. This ownership, in turn, provides investors the right to vote
and offer his contribution in the strategic movement of the business. Although this may
seem like an exaggeration, it is true and there are several instances when shareholders have
prevented company management from making unreasonable decisions that are detrimental
to their interests.
 Regulatory Environment and Framework:
The Stock Exchange Board of India (SEBI) regulates the Indian stock market.
The SEBI has the responsibility of regulating the stock exchanges, its development, and
protecting the rights of the investors. This means when investors invest in financial
products on the stock market, their interests are well protected by a regulatory framework.
This significantly helps in reducing risks due to fraudulent activities of companies.
 Convenience:
Technical development has influenced every aspect of modern living. The stock exchanges
are also using various technical advancements to provide greater convenience to the
investors. The trades are all executed on an electronic platform to ensure the best
investment opportunities to investors in an open environment. In addition, broking service
providers offer online share trading facilities that make investing convenient, because
investors can place their orders through a computer from the comfort of their homes or

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offices. The demat account makes it easier for investors to hold all the products within
their investment portfolio electronically in a single location, which makes it easier to track
and monitor the performance.
Although stock investing has several benefits, investors must also be cautious while
making their decisions. Understanding the stock market basics and doing their research
before investing is advisable to mitigate risks and maximize returns
DISADVANTAGES OF INVESTING IN STOCK MARKET?
 Risk:
You could lose your entire investment. If a company does poorly, investors will sell,
sending the stock price plummeting. When you sell, you will lose your initial investment.
If you cannot afford to lose your initial investment, then you should buy bonds.
 Common stockholders paid last:
Preferred stockholders and bondholders or creditors are paid first if a company goes broke.
However, that happens only if a company goes bankrupt. A well-diversified portfolio
should keep you safe if any company goes under.
 Time:
If you are buying stocks on your own, you must research each company to determine how
profitable you think it will be before you buy its stock. You must learn how to read
financial statements and annual reports and follow your company's developments in the
news. You also have to monitor the stock market itself, as even the best company's price
will fall in a market correction, a market crash, or bear market.
 Taxes:
If you sell your stock for a loss, you may be able to get a tax break. However, if you sell
your stock for a profit, you would be liable to to pay capital gains taxes.
 Emotional roller coaster:
Stock prices rise and fall second by second. Individuals tend to buy high out of greed, and
sell low out of fear. The best thing to do is not constantly, look at the price fluctuations of
stocks, and just check in on a regular basis.
 Professional competition:
Institutional investors and professional traders have more time and knowledge to invest.
They also have sophisticated trading tools, financial models, and computer systems at their
disposal.

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STATEMENT OF THE PROBLEM
In India, around 97% population has nothing invested in the stock market. Hardly 3% population
of Indians invests in the market with the majority of only two states: Gujarat & Maharashtra, out
of 29 states.
If we compare the participation of the common people in the stock market around the world, we
can find that India’s participation percentage is even below the average. In China, around 13%
population of the common people participates in the stock market. Further, in the USA, this
percentage is as high as 55%.
Nevertheless, what really worries about the participation of Indian investors in the market is its
minimal growth. The percentage of investors participating in the market currently is the same as
3 decades earlier (in the 1990s). The governing bodies have not been able to attract more retail
investors to invest in the equity market.
What percent of a nation’s population invests in stocks?
33%
55%
13%
2% 1%
3%

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REASONS WHY MOST INDIANS DO NOT INVEST IN STOCKS?
 Lack of awareness:
Many people are unaware of stock investing. They do not know how much returns they can get
by investing in the stock market. A common villager does not know how to earn from stocks and
does not understand the power of compounding. A local retail shop owner does not know what a
Demat and trading account is. An old small town electrician has not ever met an investor or
trader in his entire life.
This is all because of a lack of awareness. In short, unawareness is one of the biggest reasons
why most Indians do not invest in stocks.
 Common Investing myths in India:
Since childhood, everyone hears about how his uncle/cousin/neighbour etc. who has lost his
entire fortune in the stock market. Stock market investing is considered gambling in India. Many
people do not invest in the market because they follow the famous investing myths prevailing in
society.
A few of the famous stock market myths, which stops a common person from investing in
stocks, are:
 Investors who invest on their own are intelligently gifted.
 Paying a profession is better than making your own investing decisions
 Investing on your own is very risky etc.
These myths are the biggest barrier to common people and the stock market and a reason why
most Indians do not invest in stocks.
 Not willing to take the risk
The risk is always involved in the stock market no matter how many studies you have done and
how fundamentally strong the company is. Most of the conservative Indians are not willing to
take a risk on their hard-earned money and consider a 4% return from the savings account as
safe.
They will only invest if they are assured that their investment is 100% risk-free, which the stock
market never is. The risks involved in the market stop these people from investing in stocks.
However, one always has to take some risks in order to get some reward. Remember- ‘No Risk,
no reward’. Further, there is a famous quote by Warren Buffett that I would like to quote here:
‘Stock market investing is about minimising risks, not avoiding it.’

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 Lack of knowledge/guidance
There is also a segment of people who are willing to invest in the stock market but are unable to
invest because of a lack of knowledge or proper guidance.
They do not know where to start. There is no proper platform for these people to learn about
stock market investing. Lack of knowledge stops these segments of people from investing in the
Indian stock market.
 Lack of capital
In 2012, the Indian government stated that 22% of the Indian population is below its official
poverty limit. The latest poverty line is targeted at Rs.32 in villages, Rs.47 in cities. When a
majority of the population are struggling to meet even the basic needs of life, there it is logical
that the percentage of people with surplus cash to invest will be very less. Lack of capital is a
major reason why most Indians do not invest in stocks.
 Preference towards physical assets like land, gold etc.
People still have a love for gold, lands, FDs etc. Many people consider investing in Real Estate,
gold etc. easier in India compared to paper assets, as this has been traditionally followed.
Investing in land in your village, or buying gold jewellery from your local jeweller shop seems
simple compared to opening a trading account which will further require the access to internet,
computers etc. The natural tendency of Indians towards physical assets is a big rationale for poor
participation in the stock market.
 Unwillingness
“I don’t have time” – a common statement among the 9-to-5 working people in India, unwilling
to take charge of their financial future.
A majority of the population are either too busy in their day job or are ignorant towards
investing. They always delay investing in the market, considering they will do so in future. This
unwillingness or laziness among the people is a big reason for the less participation of Indians in
the stock market.

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OBJECTIVE OF THE STUDY
Stock market is known as a pulse of economy or economic mirror, which reflects the economic
conditions of a country. Investors are believed to be the backbone of the securities market. Their
education and awareness, therefore, hold the key to reviving and sustaining their interests in the
securities market. Stock market awareness comes under the broader concept of financial literacy.
This study is an attempt to assess the awareness of youth about various aspects of stock market
including concepts, products, processes, institutions etc. The results of the study reveal that the
sample youth possess low to moderate level of stock market knowledge and the awareness level
is not significantly different among different sample groups based on the discipline they are
studying.
DO’S AND DON’TS FOR RETAIL INVESTORS
1. Deal only with registered intermediaries - check the registration certificate of the
intermediary you are dealing with. It allows recourse to regulatory action.
2. Beware of fixed/guaranteed/regular returns/ capital protection schemes. Brokers or their
authorized persons or any of their associates are not authorized to offer
fixed/guaranteed/regular returns/ capital protection on your investment or authorized to
enter into any loan agreement with you to pay interest on the funds offered by you. Please
note that the Exchange in case of default by your broker will not accept claims for funds
or securities given to the broker under any arrangement / agreement of indicative return.
3. Please ensure that you fill all the required details in ‘KYC’ document by yourself and
receive duly signed copy of your ‘KYC’ documents from your broker. Check for all
conditions that have been agreed and accepted by you.

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4. Always keep your contact details viz. Mobile number/Email ID updated with the
stockbroker. Email and mobile number is mandatory and you must provide the same to
your broker for updating in Exchange records. You must immediately take up the matter
with Stock Broker/Exchange if you are not receiving the messages from
Exchange/Depositories regularly.
5. Opt for electronic (e-mail) contract notes/financial statements only if you are computer
savvy and have your own e-mail account.
6. Do not ignore any emails/SMSs received from the Exchange for trades done by you.
Verify the same with the Contract notes/Statement of accounts received from your broker
and report discrepancy, if any, to your broker in writing immediately and if the Stock
Broker does not respond, please take this up with the Exchange/Depositories forthwith.
7. Check the frequency of accounts settlement opted for. If you have opted for running
account, please ensure that your broker settles your account and sends statement of
accounts regularly and in any case not later than once in 90 days (or 30 days if you have
opted for 30 days settlement). Please note that the Exchange in case of default by your
broker will not accept claims for a period longer than 90 days.
8. Regularly verify Consolidated Accounts Statement (CAS) received from Depositories
and reconcile with your trades / transactions.
9. Ensure that pay-out of funds/securities is received in your account within 1 working day
from the date of payout. Ensure that you receive Contract Notes within 24 hours of your
trades.
10. Trade verification facility is also available on NSE website, which you can use to verify
your trades executed.
11. Do not keep funds idle with the Stock Broker. Please note that the Exchange in case of
default by your broker will not accept claims for funds, without transactions on the
exchange.
12. Do not fall prey to fraudsters sending emails and SMSs luring to trade in stocks/
Securities promising huge profits.
13. Be careful while executing the PoA (Power of Attorney) - specify all the rights that the
stockbroker can exercise and timeframe for which PoA is valid. It may be noted that Pota
is not a mandatory requirement as per SEBI / Exchanges.
14. Check messages sent by Exchanges on a weekly basis regarding funds and securities
balances reported by the trading member and immediately raise a concern to the
exchange if you notice a discrepancy.
15. Do not share password (internet account) with anyone. It is like sharing your safe key.

18
FUNCTIONS OF STOCK EXCHANGE
 Role of an Economic Barometer:
Stock exchange serves as an economic barometer that is indicative of the state of the economy. It
records all the major and minor changes in the share prices. It is rightly said to be the pulse of the
economy, which reflects the state of the economy.
 Valuation of Securities:
Stock market helps in the valuation of securities based on the factors of supply and demand. The
securities offered by companies that are profitable and growth-oriented tend to be valued higher.
Valuation of securities helps creditors, investors and government in performing their respective
functions.
 Contributor to Economic Growth:
Stock exchange offers a platform for trading of securities of the various companies. This process
of trading involves continuous disinvestment and reinvestment, which offers opportunities for
capital formation and subsequently, growth of the economy.
 Making the public aware of equity investment:
Stock exchange helps in providing information about investing in equity markets and by rolling
out new issues to encourage people to invest in securities.
 Facilitates liquidity:
The most important role of the stock exchange is in ensuring a ready platform for the sale and
purchase of securities. This gives investors the confidence that the existing investments can be
converted into cash, or in other words, stock exchange offers liquidity in terms of investment.
 Better Capital Allocation:
Profit-making companies will have their shares traded actively, and so such companies are able
to raise fresh capital from the equity market. Stock market helps in better allocation of capital for
the investors so that maximum profit can be earned.
 Encourages investment and savings:
Stock market serves as an important source of investment in various securities, which offer
greater returns. Investing in the stock market makes for a better investment option than gold and
silver.

19
HYPOTHESES OF THE STUDY
In recent years, emerging market nations like India have attracted the attention of the researchers,
policy makers, academicians and the investors. Emerging markets have received huge inflows of
capital in the recent past and became viable alternative for investors seeking international
diversification. In addition, such international diversification of portfolios calls for the existence
of efficient equity markets in the emerging market economies. If equity markets are not efficient,
the task of constructing an internationally diversified portfolio for an investor will become
arduous. Thus, this paper proceeds to examine the efficiency of India's equity market.
The equity market of India has witnessed a radical transformation in the last decade or so owing
to the judicious policy measures implemented through the financial sector reforms of 1990s. The
adoption of international quality trading and settlement mechanisms and reduction of
transactions costs have made the investors, domestic and foreign, more optimistic which in turn
evidenced a considerable growth in market volume and liquidity. The market features a
developed regulatory framework, a modern market infrastructure, removal of barriers to the
international equity investment, better allocation and mobilization of resources and increased
transparency.
The term 'market efficiency' is used to explain the relationship between information and security
prices in the capital market literature. It examines the degree, the pace, and the accuracy of the
available information being incorporated into security prices. An efficient stock market is
commonly thought of as market in which security prices fully reflect all relevant information that
is available about the true value of the securities. Reilly and Brown (1997) define an efficient
market as one in which stock prices adjust rapidly when new information arrives and, therefore,
the current prices of stocks have already reflected all information about the stock. Thus, the
market leaves no pattern to exploit the trading opportunities and to make excess economic gains.
The concept of EMH is based on the arguments put forward by Samuelson (1965) that
anticipated price of an asset fluctuate randomly around its expected value.
Fama (1970) states that there exist three different degrees of market efficiency based on what is
meant as 'available information'--the weak, semi-strong, and strong forms. Weak form efficiency
exists when security prices reflect all the information contained in the history of past prices and
returns. If stock markets are weak form efficient, then investors cannot earn super-normal profits
(excess profits) from trading strategies based on past prices or returns. Therefore, stock returns
are not predictable, and hence follow a random walk. Under semi-strong form efficiency,
security prices reflect all publicly available information. Investors, who base all their decisions
on the information that becomes public, cannot gain above average returns. Under strong form
efficiency, all information even apparent company secrets--is incorporated in security prices and
thus, no investor can earn excess profit by trading on public or non-public information.
It was the strong belief of the traditional financial analysts that stock markets are efficient
because stock prices reflect the true market value of future dividends. In recent years, however,
many market analysts have started arguing for market inefficiency, at least in its weak form.

20
They claim that the traders are now paying more attention to information related to recent trends
in returns instead of putting emphasis on the information related to future dividends. Quite a
good number of traders are buying the stocks only because past returns were high. These traders,
often called feedback traders, believe that if stock returns have been high in the recent past, they
are likely to be high in the future. Such behavior causes stock prices to go beyond the true values
of stocks in the short run. Similarly, the feedback traders are selling the stocks when the stock
returns have been low in the recent past. Large selling drives the stock prices to fall below the
true values. This feedback trading makes the market more volatile in the short run because in the
end the stock prices tend to return to their true values. This is called mean reversion.
Equity market efficiency has important implications for the investment policy of investors
because if the equity market in which they are investing is efficient, researching to find
underpriced or overpriced assets will be a futile exercise. In an efficient market, prices of the
assets will reflect markets' best estimate for the risk and expected return of the asset, taking into
account the available information at the time. Therefore, there will be no undervalued assets with
an expectation of higher than expected risk adjusted return or overvalued assets offering lower
than the expected return. All assets will be fairly priced in the market offering optimal reward to
risk. In an efficient market, an optimal investment decision will be to look at risk and return
characteristics of the asset and/or portfolio. On the contrary, if the markets were not efficient, an
investor will be better off trying to identify miss-priced assets as correct identification of such
assets can enhance the overall performance of the portfolio Rutherford (1993). EMH has two
important functions--as a theoretical and predictive model about how financial markets operate;
and as a tool in an impression management campaign to influence more people to invest, their
savings in the stock market (Will, 2006).
At present, India has become the fastest growing emerging market economies in the world. The
strong fundamentals of Indian economy have increased the demand for investment funds
significantly, and thus, the capital market growth is expected to play an increasingly important
role in the process. Now, it is quite imperative to assess the level of efficiency of the equity
market in India.
It is with this backdrop, this paper is an attempt to investigate the level of market efficiency of
India's equity market for the period 1997 to 2011. The rest of the paper is organized as follows:
Section II reviews the literature; Section III discusses the data and methodology; Section IV
makes the analysis; and Section V concludes
This 4-sided negation creates four distinct zones in the universe Ω. With increasing knowledge,
our understanding of all these four zones increases, but the zone of “Neither A nor Not A” may
remain forever. This is because we may predict that we do not know something about the
universe, but we may not be able to express exactly what it is that we do not know. Please note
that this limitation is due to two things: (1) our understanding of the world and (2) the limited
expressibility of language. Even if we allow humans to be omniscient (in whatever finite context
for Ω specified by our problem), the ambiguity in the language may never be resolved."

21
If we apply Chatuskoti and use the data already available, we will conclude that the market is
thus both inefficient and efficient at the same time. Let me explain.
The market is inefficient for two categories of people – those who can identify reasons why some
stocks are seriously wrongly valued – arising from industrial, economic , behavioural, legal or
policy reasons and find ways of making super normal returns from it, in a fully legal manner.
Not surprisingly, it is largely the collective effect of the actions of these people that make the
market efficient.
Another is of those who can access such people and retain their services at such a fee that a
portion of the returns arising from market inefficiency is still left for them after paying their fees.
It should be kept in mind that in any society, such people are a very small minority and not too
many people can indeed beat the market because as the number of active investors who set out to
reduce the inefficacy increases the inefficacy reduces drastically.
For rest of the market participants who fall in neither of these categories, the market is efficient
and they are better off not trying to beat it.
So if someone asks you "Is the market efficient?” It really depends on the person asking. For
example, if you are a John Doe or the Common Man from R K Laxman cartoon, it is efficient.
However, if you are a student of value investing and possibly were lucky enough to study in
Heilbrunn Center or under Prof Sanjay Bakshi and can put to practice what you learnt, it
definitely is not!
Thus, the stated position should be that EMH is both true and untrue. It is inefficient for some
kind of players with the requisite skills/competencies or for people with access to such
skills/competencies at a right price and highly efficient for the rest of those who are really in a
way outsiders to the game. The highest value to society from this nuanced understanding is that
EMH should neither be discarded nor taken blindly and players should take actions appropriate
to their circumstances.
It should not be discarded, as discarding it will mean you are giving very wrong ideas to a
numeric majority that has no access to those who can beat the market up a garden path.
It should not be accepted blindly, as that will mean you are dissuading people with real skills
whose work can go a long way in actually reducing the inefficiency in markets on a continuous
basis and keeping it efficient by telling them it cannot be done.
This nuanced understanding will also help us understand the role of active and passive investing
in markets. Paradoxically, the parts of the active investing universe that make supra-market
returns by constantly exploiting inefficiencies go towards making the markets more and more
efficient and make passive investing work!
In my opinion, it is not ‘either/or’ but a right combination of active and passive investing that
will make markets efficient.
In one way, it can be said that sensible active investors are really the ones keeping the stock in
check by constantly following the process of selling overvalued assets and buying undervalued

22
ones and ensuring that bubbles don't build in pockets of stock markets and ‘may-allocation’ of
capital doesn't occur.
Lastly, the role of such active investors and their social relevance is probably in making it more
and more efficient. This can go a long way in ensuring that people without requisite skills do not
waste their talent and time seeking their fortune in the stock market. They should actually spend
the time producing the things of value in society instead of speculating without any understating
of the social, economic, or business rationale and relevance of what they are doing in the hope of
getting rich quick.
The strong form of efficiency additionally claims that prices instantly reflect even secret
information, which is not available to all market participants
The paper attempts to investigate the validity of the Efficient Market Hypothesis on the Indian
Securities Market. Initially, the paper discusses the definitions and types of the EMH, as the
literature available on the same. Taking a sample of eleven securities listed on the Bombay Stock
Exchange (BSE), the oldest stock exchange of Asia, we apply runs tests and the autocorrelation
tests in order to judge the efficiency of the Stock Markets. The Autocorrelation test when directly
applied to share prices gives conflicting results with Runs test and thus, making it difficult to
reach a definite conclusion. Then, the autocorrelation test is applied to first differenced series,
which gives satisfactory results.
In a nutshell, it is observed that the effect of stock prices for the sample companies on future
prices is very meager and an investor cannot reap profits by using the share price data as the
current share prices already reflect the effect of past share prices.
The paper attempts to investigate the validity of the Efficient Market Hypothesis on the Indian
Securities Market. Initially, the paper discusses the definitions and types of the EMH, as the
literature available on the same. Taking a sample of eleven securities listed on the Bombay Stock
Exchange (BSE), the oldest stock exchange of Asia, we apply the runs tests and the
autocorrelation tests in order to judge the efficiency of the Stock Markets. The Autocorrelation
test when directly applied to share prices gives conflicting results with Runs test and thus,
making it difficult to reach a definite conclusion. Then, the autocorrelation test is applied to first
differenced series, which gives satisfactory results. In a nutshell, it is observed that the effect of
stock prices for the sample companies on future prices is very meager and an investor cannot
reap profits by using the share price data as the current share prices already reflect the effect of
past share prices.
Keywords: Efficient Market Hypothesis (EMH), Indian securities market, Bombay Stock
Exchange (BSE), Autocorrelation test, Runs test 1. Introduction In the course of studying the
Fundamental analysis, the investment projects are ranked by comparing factors like economic
influences, industry factors and pertinent company information such as product demand,
earnings, dividends, etc. Considering these factors, investors reach upon an intrinsic value for the
firm’s securities. By comparing these values with current prices of the security, the investment
decisions are taken. The Fundamental analysis, however, is criticized on the ground that all
financial data and information of a given security is already reflected in the market price of that

23
security. Therefore, we cannot rely much on the Fundamental analysis. The Technical analysis,
on the other hand, implies that by observing and studying the historical information about the
behavior of a given stock, one can predict the future price movements of the security. However,
the Technical analysis, too, is not free from criticism. It is not by itself the road to the riches. The
tool should be used along with the Fundamental analysis. Despite the assertions of Technicians,
Technical Analysis is still an art. Its successful use shall require talent, intuition, common sense,
experience and most importantly – the luck. All this calls for a theory that can assist a potential
investor in managing his portfolio. Efficient Market Theory is one such theory that aims to
explain the behavior of stock markets. The efficient market hypothesis (EMH) is a backbreaker
for forecasters. In its crudest form, it effectively says that the returns from speculative assets are
unforecastable. This is a venerable thesis, its earliest form appearing a century ago as the random
walk theory (Bachelor, 1964). This paper is divided under eight parts. The first part introduces
the paper.

24
IMPORTANCE AND RELEVANCE OF THE STUDY
Stock exchanges (also called stock markets) are places that provides facilities and a
regulatory environment that enables governments, industries and businesses to raise long
term capital and investors can buy and sell various types of financial instruments (i.e.
shares, bonds, etc.).
Stock exchanges grow (as it has been all through history) in response to the demand for
funds to finance investments, development projects and business ventures. From early
days, capital markets were pre-eminent, raising funds for investments and loans for
governments and businesses, and developing thriving secondary markets in which
investors could sell their financial instruments to other investors.
Much early industrialisation was financed by individuals and partnerships through their
savings, but as business required more expansion and capital requirements became larger,
it was clear that companies’ formation were necessary, where numerous number of people
could jointly finance enterprises for an exchange to owning a piece of that company by
way of owning shares of the company and a promise (an agreement) of profit sharing
among shareholders. Under such arrangements manufacturing enterprises, mining,
brewing, insurance, railways, ports construction enterprises were financed by way of
issuing shares or bonds, which would then trade in stock markets. This was, and has been,
the case in Europe, America and in recent days, Asia.
As for us in Africa, especially in the Sub-Saharan, excluding South Africa and Kenya this
phenomenon has been introduced in even more recent times two or three decades ago, in
response to requirements for economic liberalisation and therefore the need to accelerate
the wave of privatisation of state-owned-entities. Under this system and structure, it was
envisaged that stock markets would be the forefront of tool of, not only privatisation but
also, economic progress. Just as it was in Moscow, Warsaw, Sofia, etc. we were to replace
our strong opposition to capitalism with stock markets that were to facilitate privatisation
and to be a platform for capital raising by the private sector, as the engine of economic
growth.
Apart from the examples of Russia, Poland, and Bulgaria mentioned above even countries,
which still espouses communism, such as China and Vietnam, now have thriving and
increasingly influential stock exchanges designed to facilitate the mobilisation of capital
and its employment in productive endeavour of their economies. In the case of China, it
has two thriving stock exchanges; in Shanghai and Shenzhen, with over 2,500 companies
listed. The Shanghai Stock Exchange is the undisputed large China equity market, which
is vitalised by a steady stream of initial public offerings (IPOs) from the country’s biggest
and best state-owned-entities; so it has been a popular tool for privatisation in China.
There is also the Shenzhen Stock Exchange, which mainly provides a platform for capital
raising and listing of small and medium-sized companies owned by private entrepreneurs.

25
There are now tens of millions of Chinese investors who puts their savings in the stock
market on the expectations of rewards on their capital.
There are now over 100 countries with exchanges and some of these countries have more
than one stock exchange. Africa has 25 stock exchanges.
What is a well-run stock exchange? What are its characteristics? In addition, what are the
main benefits of such an exchange?
A well-run stock exchange is the one that is fair i.e. a market where it is not possible for
investors and capital raising enterprises to benefit at the expense of other participants all
players should be on the level playing field. A well-run stock market is a market, which is
well regulated to avoid abuses, negligence and fraud in order to reassure investors who put
their savings at risk. It is also one in which it is reasonably less costly and efficient to carry
out transactions. In addition, large number of buyers and sellers are likely to be needed for
the efficiency price setting of listed securities and to provide sufficient liquidity, allowing
the investors to liquidate their investment at any time without significantly changing the
market price.
How can a country/society achieve such a market by proactive policies towards this
direction, a well-articulated regulatory framework and when many within the society
participate in the stock market, as investors or businesses with the need to raise a well-
priced capital for their growth and expansion? In addition, how do you motivate many
people within the society to participate in the stock market? Through public awareness and
education as to the role and benefits of the stock markets to them as individuals, and the
society.

26
 So, what are the benefits of a stock exchange?
 It facilitates funding growth and expansion of businesses.
 the stock markets facilitates allocation of capital within the economy through the
powers of market forces, an efficiently functioning stock market is able to assist the
country in deciding what will be produced and which firms will produce it. By way
of accessing the capital that can rarely be miss-priced, funds (or scarce resources
within the economy) will be allocated to projects and enterprises that maximises the
economic well-being of a society.
 Shareholders of a company listed in the stock market benefits from the availability
of a speedy and less costly secondary market if they want to sell their shares, bonds
or such other financial instruments in addition shareholders have access to
information about the value of their wealth holdings.
 A public profile of a company is enhanced by the company being listed in the stock
exchange; banks, government and regulatory entities, suppliers, as well as the
public have more confidence in listed companies and are therefore more likely to be
funded by banks at a relatively lower cost and can be trusted as it attracts more
confidence from the society and
 it encourages good corporate governance behaviours — directors of listed
companies are encouraged to behave in a manner conducive to shareholders’
interest; this is achieved through a number of pressure points i.e. the need for
transparency, continuous listing obligation, the need for periodical reporting, etc.
 So, what exact tasks that does stock markets perform to ensure the
above benefits accrue to its listed companies and their investors?
 The stock market supervises trading activities to ensure there is fairness and
efficiency.
 It authorises market participants (such as brokers, dealers, custodian banks to
become its members.
 It creates a regulatory environment in which prices of listed securities are formed
without distortions.
 Stock exchanges organises for the settlement and delivery of transaction;
 It regulates admission of companies to the exchange and its continuous listing
obligations.
 It disseminates information to various stakeholders (investors, government
agencies, regulatory authorities, news media, etc.) for understanding and for
decision-making.
In conclusion, stock markets continues to gain relevance in the current economic set-ups,
both domestically and globally. Therefore, the more the society embraces this fact the
better it is for its economic progress, especially as a resource mobilisation tool for the
country to finance its own economic progress. As it is we are not yet there our market

27
capitalisation to Gross Domestic Product (GDP) is about 30 percent (if we exclude cross-
listed companies, this level is a mere 10 percent); we have only 23 listed companies (only
7 companies have been listed as a result of privatisation of state-owned-entities, out of
more than 300 privatised entities) and our investor base is 450,000 out of more than 45
million people. More public awareness and education on the role of stock exchange needs
to be pursued.
NEED OF STOCK MARKET
Stock market is an important part of the economy of a country. The stock market plays
a play a pivotal role in the growth of the industry and commerce of the country that
eventually affects the economy of the country largely. That is reason that the
government, industry and even the central banks of the country keep a close watch on
the happenings of the stock market. The stock market is important from both the
industry's point of view as well as the investor's point of view.
THE STUDY OF STOCK EXCHANGE
Whenever a company wants to raise funds kw farther expansion or settling up a new
business venture, they have to either take a loan from a financial organization or they
have to issue shares through the stock market. In fact, the stock market is the primary
source for any company to raise Ends for business expansions. If a company wants to
raise some, capital for the business it can issue shares of the company that is part
ownership of the company. To issue shares for the investors to invest in the stocks a
company needs to be listed to a stocks exchange and through the primary market of
the stock exchange they can issue the shares and get the ends for business
requirements. There are certain rules and regulations for being listed at a stock
exchange and they need to fulfill some criteria to issue stocks and go public. The stock
market is primarily the place where these companies are listed to issue the shares and
raise the fiord. In case of an already listed public company, they issue more shares to
the market for collecting more ends for business expansion. For the companies, which
are going public for the first time, they need to start with the Initial Public Offering or
the IPO. In both the cases, these companies have to go through the stock market.
This is the primary function of the stock exchange and thus they play the most
important role of supporting the growth of the industry and commerce in the country.
That is the reason that a rising stock market is the sign of a developing industrial
sector and a growing economy of the country. Of course, this is just the primary
function of the stock market and just an half of the role that the stock market plays.
The secondary function of the stock market is that the market plays the role of a
common platform for the buyers and sellers of these stocks that are listed at the stock
market. It is the secondary market of the stock exchange where retail investors and
institutional investors buy and sell the stocks. In fact, these stock market traders raise
the fund for the businesses by investing in the stocks.

28
For investing in the stocks or to trade in the stock, the investors have to go through the
brokers of the stock market. Brokers actually execute the buy, sell orders of the
investors, and settle the deals to keep the stock trading alive. The brokers act as an
intermediary between the buyers and sellers. Once the buyer places a buy order in the
stock market the brokers finds a seller of the stock and thus the deal is closed. All
these take place at the stock market and it is the demand and supply of the stock of a
company that determines the price of the stock of that particular company.
Therefore, the stock market is not only providing the much-required funds for
boosting the business, but also providing a common place for stock trading. The stock
market makes the stocks a liquid asset unlike the real estate investment. The stock
market makes it possible to sell the stocks at any point of film and get back the
investment along with the profit. This makes the stocks liquid in nature and thereby
attracting investors to invest in the stock market
Stock exchanges play a vital role in the functioning of the economy by providing the
backbone to a modem nation’s economic infrastructure. Stock exchanges help
companies raise money to expand. They also provide individuals the ability to invest
in companies. Stock exchanges provide order and impose regulations for the trading of
stocks. Finally, stock exchanges and all of the companies that are associated with the
stock exchanges provide hundreds of thousands of jobs.
 Business Expansion Stock exchanges provide companies the ability to raise
capital to expand their businesses. When a company needs to raise money, they
can sell shares of the company to the public. They accomplish this by listing
their shares on a stock exchange. Investors are able to buy shares of public
offerings and the company to expand operations, buy another company or hire
additional workers uses the money that is raised from the investors. All of this
leads to increased economic activity, which helps drive the economy.
 Widespread Investing Stock exchanges allow any person to invest in the
greatest companies in the world. Investors, both large and small, use the stock
exchanges to buy into a company's future. Investing would not be possible for
the average person if there were not a centralized place to trade stocks. The
ability for the average person to invest in these companies leads to increased
wealth for the investors. This increased wealth then leads to additional
economic activity when the investors spend their money.
 Direct Jobs The stock exchanges and all of the companies that serve the stock
exchanges such a brokerage firms, investment banks and financial news
organizations employ hundreds of thousands of people. Most of the jobs related
to stock exchanges are well paying and career orientated jobs. As a result, the
employees of these firms are able to help spur economic activity.
 Warning If the stock exchanges do not fully carry out their duty of overseeing
the stock trading process the investing public will lose faith in the fairness and
scatty of the stock market. If this happens then all of the economic activity that

29
the stock exchanges create will decrease and this will lead to an overall drop in
economic activity. The stock exchanges must be sure that investors are not
taken advantage of and that investors continue to have confidence in the system
the stock exchanges created.
 Profit sharing they help both casual and professional stock investors, to get their
share in the wealth of profitable businesses.
 Corporate governance Stock exchanges impose stringent rules to get listed in
them So listed public companies have better management records than privately
held companies.
 Creating investment opportunities for small investor.
 Government capital raising for development projects. They help government to
rise fund for developmental activities through the issue of bonds. An investor
who buys them will be lending money to the government, which is more secure,
and sometimes enjoys tax benefits.
 Barometer of the economy. They maintain the stock indexes, which are the
indicators of the general trend in the economy. They also regulate the stock
price fluctuations.
 Mobilizing savings for investment. They help public to mobilize their savings to
invest in high yielding economic sectors, which results in higher yield, both to
the individual and to the national economy.
MERITS OF OWNING STOCKS
 Earn dividends:
Dividends are nothing but a part of company's profits distributed to its shareholders. The
company's management may declare dividends either in between a financial year (called interim
dividends) or at the end of the financial year (called final dividends).However, it is not
mandatory for the companies to pay dividends. It can use the profits for alternative uses like
expansion. The decision to pay or not to pay dividends is taken at the annual meeting by the
majority voting of the shareholders. Blue-chip companies (large companies) generally are
consistent dividend payers.
 Capital appreciation:
As the company expands and grows, it acquires more assets and makes more profit. As a result.
The value of its business increases. This, in turn, drives up the value of the stock. Therefore,
when you sell, you will receive a premium over what you paid. This is known as capital gain and
this is the main reason why people invest in stocks. They aim capital appreciation. Receive
bonus shares For the time being, let us understand that bonus shares are — Free shares are given
to you later on we will discuss about bonus shares in detail.

30
 Rights issue:
A company may require more fluids to expand its business and for that, it may need more fluids.
I such cases, the company can issue further shares to the public. However, before approaching
the public, the existing shareholders will be given a chance to subscribe to more shares if they
want. That has called a rights issue. This is done in order to ensure that the existing shareholders
the public, the existing shareholders will be given a chance to subscribe to more shares if they
want.
 Stocks can be pledged:
Stocks are considered as assets and hence, banks accept shares as security for raising loans.
Should there be and an emergency, shares can quickly pledged to raise kids. Apart from that,
Brokerage from allow you to borrow money from their account based on the current share
holding you have in your demat account maintained with them If you want to utilize a sudden
surprise opportunity in markets, but if you don't have the cash right now, you can adopt this
route.
 High liquidity:
The above-mentioned income sources may not be present in every company you buy. For may
happen. So depending upon your investment strategy, you will have to choose what you want.
Stocks are liquid. It can be converted into cash in no time. With online trading, all it takes is the
click of button to sell you holdings. You can receive your cash in two days. Example- if you are
buying company that has a huge potential to grow, it may not pay its surplus as dividends.
Instead, it will be used for further growth. In such cases, huge capital appreciation it is always
wise to go for capital appreciation rather than dividends. • Capital appreciation or dividends?
 Better Long-term Returns:
Historically, the stock market (both Indian and international) has produced generous returns for
investors over time. One of the key benefits of investing in stocks is the opportunity to be
patient, and watch your money compound and grow. However, the prices of individual stocks
ebb and flow daily, the overall stock market tends to grow in value.
An examination of several asset classes shows that the stock market is the source of the greatest
historical returns for investors, outperforming all other types of financial securities and the
housing market for several decades.
Looking back at the Indian stock market returns since the 1980s, the SENSEX and the NIFTY
indices have rarely disappointed investors. Even considering setbacks like the 2008 recession
and the 2020 pandemic, these stock indices have continued to grow exponentially, reaching an
all-time high this year in October.
While past returns are no guarantee of future outcomes, the data does suggest that investing in
stocks long term generally yields positive results if given enough time.

31
 Dividend Income:
Dividends distributed by the company are a part of their profits that are a source of income for
many shareholders. Typically, dividends are paid every quarter, but not all companies pay
dividends. They may decide to reinvest this profit back into the company. Dividends are a way
for companies to distribute a portion of their profits to shareholders, even if the stock has fallen
in value.
Dividends received from the ownership of stocks can offer investors several benefits. Dividend
payments can increase the total return on your investment in the stock. They also help lower
volatility in the stock prices by helping support the stock price.
Consistent and growing dividend payments are generally an indicator of business stability and a
growth in earnings. It is common for people to fund their retirement or augment their portfolio
values through these dividend payouts.
 Diversification Benefits & Liquidity:
The stock market offers different financial instruments, such as shares, bonds, mutual funds, and
derivatives that offer investors a wide range of securities to invest in, as per their risk appetite
and financial goals.
Investment in varied stocks also offers great diversification as it reduces your portfolio
concentration. This flexibility is beneficial in mitigating the risks inherent to stock investing by
enabling diversification of investment portfolios and offsetting market risks. A well-diversified
portfolio helps build your wealth by leveraging growth in different sectors of the economy,
resulting in a profit even if some individual stocks lose value.
Another benefit of investing in stocks is that they are liquid assets. They allow you to buy or sell
stocks immediately without having to forage for buyers or sellers for your securities. The same
cannot be said for other assets like real estate or long term debt instruments. Economists use the
term "liquid" to mean that you can turn your shares into cash quickly and with low transaction
costs.
 Ownership:
Purchasing a stock essentially represents owning a stake in a company. A shareholder usually
has the power to vote in the company's decisions. This ownership in the company ensures that
the shareholders can drive the management's decisions that are beneficial to their interests.
 Hedge Against Inflation:
They say that if your money is not moving forward, it is falling back. This is what inflation does
to the purchasing power of money. To hedge against rising inflation in this economy, investment
in stocks can be advantageous.
Historically, it has been seen that the returns on stock beat inflation rates. Rising prices can lead
to more profit for companies, which in turn can boost share prices. It has been seen that growth
stocks such as technology, FMCG etc. outperform the overall market and provide a solid hedge
against inflation.

32
 Transparency:
The Indian stock market is overseen and regulated by the Stock Exchange Board of India (SEBI).
Investing in the stock market is safer and more transparent with the establishment of such an
agency. The protection of the interest of investors is considered a priority by SEBI. This
significantly helps in reducing risks due to fraudulent activities of companies.
Today, investing in stocks can be considered as one of the best ways to generate long-term
wealth. With a strategic investment plan, any investor can achieve their long-term financial goals
with the help of the stock market. However, stock investment does. The majority of people turn
to the performance of a country’s stock market as the best indicator of how well that economy is
doing. Stock markets cover all industries across all sectors of the economy. This means they
serve as a barometer of what cycle the economy is in and the hopes and fears of the population
who generate growth and wealth.
Stock markets have existed for centuries and will no doubt go on being the main public,
regulated marketplaces where people can buy and sell shares of different companies. Of course,
today’s markets are very different from share trading in the Dutch East India Company back in
1602, but stocks still remain the most popular investment choice thanks to their potential for
returns and their opportunity to invest directly in individual companies.
Stocks can be a valuable part of your investment portfolio. Owning stocks in different companies
can help you build your savings, protect your money from inflation and taxes, and maximize
income from your investments. It is important to know that there are risks when investing in the
stock market. Like any investment, it helps to understand the risk/return relationship and your
own tolerance for risk.
Why are stock markets essential?
 Stock markets enable companies to be traded publicly and raise capital. The transfer of
capital and ownership is traded in a regulated, secure environment.
 Stock markets promote investment. The raising of capital allows companies to grow their
businesses, expand operations and create jobs in the economy. This investment is a key
driver for economic trade, growth and prosperity.
 For investors, stock markets provide a way to invest money in order to potentially earn a
share of the company’s profits (knowing that the risk of losses exists too).

33
Different Stocks, Different Benefits
The two main types of equity investments below can each offer investors different benefits.
 Common shares:
Common shares are the most (you guessed it!) common type of equity investment for Canadian
investors. They can offer:
 Capital growth: The price of a stock will go up or down over time. When it goes up,
shareholders can choose to sell their shares at a profit.
 Dividend income: Many companies pay dividends to their shareholders, which can be a
source of tax-efficient income for investors.
 Voting privileges: The ability to vote means shareholders have some measure of control
over who runs the company and how.
 Liquidity: Typically, common shares can be bought and sold more quickly and easily
than other investments, such as real estate, art or jewellery. This means investors can buy
or sell their investment for cash with relative ease.
 Advantageous tax treatment: Dividend income and capital gains are taxed at a lower
rate than employment income and interest income from bonds or GICs.
 Preferred shares:
Preferred shares can offer investors the following benefits:
 Reliable income stream: Generally, preferred shares come with a fixed dividend amount
that must be paid before any dividends are paid to common shareholders.
 Higher income: Compared to common shares, preferred shares tend to pay higher
dividends. (Note: preferred-share dividends come with the same advantageous tax
treatment as dividends on common shares.)
 Variety: There are many types of preferred shares, each with different features. For
example, some allow unpaid dividends to accumulate, while others can be converted into
common shares.

34
The importance of a stock exchange from the viewpoint of society:
1. Rapid capital formation:
Many people save their money and are ready to invest where they can get high rate
of returns when they check with the good companies with high premium amount
they tempted to invest in securities. This habit leads to investment of savings in
corporate and government securities. The high returns of dividend from these
securities may further be invested in buying more securities. This flow of funds
leads to rapid and continuous capital formation.
2. Economic development:
An It is the market in which existing securities are purchased and sold. This
process is called as disinvestment and reinvestment. Through easy funds
mobilisation this leads to more capital enhancing economic development of the
country.
3. National projects:
As stock exchange promotes the capital formation by rating and approving the
projects, which brings national prosperity can be easily undertaken.
Value Points: 1. National prosperity. 2. This habit leads to investment of savings in
corporate and government securities. 3. Easy funds mobilizing. 4. Enhancing
economic development.5. Promoting the people to come with the projects.6. Helping
and providing the people a platform to buy and sell the securities.7. Readiness to
cooperate.

35
The following are the most important functions of stock exchanges:
 Determining the fair price:
The stock exchanges facilitate in discovering fair prices of the publicly listed
securities. Relentless trading of securities helps in determining the price of the listed
securities.
 Facilitating industrial advancement:
The industrialisation of a nation is reliant on capital availability. This is ensured by the
stock exchanges as the public can invest directly in the companies through stock
exchanges.
 Protecting investors’ interest:
The stock exchanges lay down guidelines for the operation of the listed entities.
These norms have to be strictly followed by the companies, thereby protecting
investors’ interest, as they would have financed the operations.
 Act as secondary markets:
Stock exchanges will help investors of certain bonds, such as sovereign gold bonds
(SGBs), to sell their holdings within the lock-in period or maturity.
 Reduce the dependency on loan for corporates:
The existence of stock exchanges has helped listed companies avoid availing a loan as
they could raise capital by issuing securities. This has helped them save a significant
amount in the form of regular interest outgo.
MARKET TREND
A market trend is a tendency of a financial market to move in a particular direction
over time. These trends are classified as secular for long periods, primary for medium
periods, and secondary for short time frames. Traders identify market trends using
technical analysis a framework which characterizes market trends as predictable price
tendencies within the market when price reaches support and resistance levels, varying
over time.
The terms bull market and bear market describe upward and downward market trends,
respectively and can be used to describe either the market as a whole or specific
sectors and securities.
There are three types of market trends in stock market.
1. Secular market trend
2. Primary market trend
3. Secondary market trend

36
 Secular market trend:
A secular market trend is a long-term trend that lasts 5 to 25 years and consists of a
series of primary trends. A secular bear market consists of smaller bull markets and
larger bear markets; a secular bull market consists of larger bull markets and smaller
bear markets.
 Primary market trend:
A primary trend has broad support throughout the entire market (most sectors) and
lasts for a year or more.
• Bull market: A bull market is a period of generally rising prices. The start of a
bull market is marked by widespread pessimism
• Bear market: A bear market is a general decline in the stock market over a
period. It is a transition from high investor optimism to widespread investor fear
and pessimism
• Market top: A market top (or market high) is usually not a dramatic event. The
market has simply reached the highest point that it will, for some time (usually
a few years). It is retroactively defined, as market participants are not aware of
it as it happens. A decline then follows, usually gradually at first and later with
more rapidity
• Market bottom: A market bottom is a trend reversal, the end of a market
downtime, and precedes the beginning of an upward moving trend (bull
market). It is very difficult to identify a bottom (referred to by investors as
'bottom picking") while it is occurring. The upturn following a decline is often
short-lived and prices might resume their decline. This would bring a loss for
the investor who purchased stock(s) during a misperceived or "false" market
bottom.
 Secondary market trend:
Secondary trends are short-term changes in price direction within a primary trend. The
duration is a few weeks or a few months. One type of secondary market trend is called
a market correction. A correction is a short-term price decline of 5% to 20% or so. A
correction is a downward movement that is not large enough to be a bear market (ex
post). Another type of secondary trend is called a bear market rally (sometimes called
"sucker's rally" or "dead cat bounce") which consist of a market price increase of only
10% or 20% and then the prevailing, bear market trend resumes. Bear market rallies
occurred in the Dow Jones index after the 1929 stock market crash leading down to
the market bottom in 1932, and throughout the late 1960s and early 1970s.

37
BULLS AND BEARS
The two most commonly used terms in stock markets. A common story is that the
terms Bull market' and Tear market' are derived from the way those animals attack.
Bulls are supposed to be aggressive and attacking while bears would wait for the new
to not-re down customer's sovereignty has profound implications for their savings and
investment. Investment means person's commitments towards his future.

38
INVESTMENT
The word "investment" can be defined in many ways according to different theories
and principles. It is a term that can be used in a number of contexts. However, the
different meanings of "investment" are more alike than dissimilar. Generally,
investment is the application of money for earning more money. Investment also
means savings or savings made through delayed consumption. According to
economics, investment is the utilization of resources in order to increase income or
production output in the future.
An amount deposited into a bank or machinery that is purchased in anticipation of
earning income in the end are both examples of investments. Although there is a
general broad definition to the term investment, it carries slightly different meanings
to different industrial sectors.
According to economists, investment refers to any physical or tangible asset, for
example, a building or machinery and equipment. On the other hand, finance
professionals define an investment as money utilized for buying financial assets, for
example stocks, bonds, bullion, real properties, and precious items
According to finance, the practice of investment refers to the buying of a financial
product or any valued item with an anticipation that positive returns will be received in
the future. The most important feature of financial investments is that they carry high
market liquidity. The method used for evaluating the value of a financial investment is
known as valuation. According to business theories, investment is that activity in
which a manufacturer buys a physical asset, for example, stock or production
equipment, in expectation that this will help the business to prosper in the end.
Characteristics of an investment decision:
1. It involves the commitment of funds available with you or that you would be getting
in the future.
2. The investment leads to acquisition of a plot, house, or shares and debentures.
3. The physical or financial assets you have acquired are expected to give certain
benefits in the future periods. The benefits may be in the form of regular revenue over
a period like interest or dividend or sales or appreciation after some point of time as
normally happens in the case of investment in land or precious metals. Essentials of
investment refer to why investment, or the need for investment, is required. The
investment strategy is a plan, which is created to guide an investor to choose the most
appropriate investment portfolio that will help him achieve his financial goals within a
particular period.
An investment strategy usually involves a set of methods, rules, and regulations, and is
designed according to the exchange or compromise of the investor's risks and returns.
A number of investors like to increase their earnings through high-risk investments,

39
whilst others prefer investing in assets with minimum risk involved. However, the
majority of investors choose an investment strategy that lies in the middle.
Investment strategies can be broadly categorized into the following types:
Active strategies: One of the principal active strategies is market timing (an investor
is able to move into the market when it is on the low and sell the stocks when the
market is on the high), which is applied for maximizing yields.
Passive strategies: Frequently implemented for reducing transaction costs. One of the
most popular strategies is the buy and hold, which is a long-term investment plan. The
idea behind this is that stock markets yield a commendable rate of return in spite of
stages of fluctuation or downfall. Indexing is a strictly passive variable of the buy and
hold strategy and, in this case, an investor purchases a limited number of every share
existing in the stock market index, for example the Standard and Poor 500 Index, or
more probably in an index fund, which is a form of a mutual fund.
Additionally, as the market timing strategy is not applicable for small-scale investors,
it is advisable to apply the buy and hold strategy. In case of real estate investment, the
retail and small-scale investors apply the buy and hold strategy, because the holding
period is normally equal to the total span of the mortgage loan.
PRINCIPLES OF INVESTMENT
Five basic principles serve as the foundation for the investment approach. They are as
follows:
 Focus on the long term:
There is substantive empirical evidence to suggest that equities provide the maximum
risk adjusted returns over the long term. In an attempt to take full advantage of this
phenomenon, investments would be made with a long-term perspective.
 Investments confer proportionate ownership:
The approach to valuing a company is similar to making an investment in a business.
Therefore, there is a need to have a comprehensive understanding of how the business
operates.
 Maintain a margin of safety:
The benchmark for determining relative attractiveness of stocks would be the intrinsic
value of the business. The Investment Manager would endeavor to purchase stocks
that represent a discount to this value, in an effort to preserve capital and generate
superior growth.

40
 Maintain a balanced outlook on the market :
The investment portfolio would be regularly monitored to understand the impact of
changes in business and economic trend as well as investor sentiment. While short-
term market volatility would affect valuations of the portfolio, this is not expected to
influence the decision to own fundamentally strong companies.
 Disciplined approach to selling:
The decision to sell a holding would be based on either the anticipated price
appreciation being achieved or being no longer possible due to a change in
fundamental factors affecting the company or the market in which it competes, or due
to the availability of an alternative that, in the view of the Investment Manager, offers
superior returns. Affecting the company or the market in which it competes, or due to
the availability of an alternative, that, in the view of the Investment Manager, offers
superior returns.
In order to implement the investment approach effectively, it would be important to
periodically meet the management face to face. This would provide an understanding
of their broad vision and commitment to the long-term business objectives. These
meetings would also be useful in assessing key determinants of management quality
such as orientation to minority shareholders, ability to cope with adversity and
approach to allocating surplus cash flows.
INVESTMENT TYPES
A particular investor normally determines the investment types after having
formulated the investment decision, which is termed as capital budgeting in financial
lexicon. With the proliferation of financial markets, there are more options for
investment types. According to the financial terminology, investment means the
following: 1.purchasing securities in money or capital market 2.buying monetary or
paper financial assets in money or capital markets 3.investing in liquid assets like
gold, real estate and collectibles.
Investors assume that these forms of investment would furnish them with some
revenue.
Investors assume that these forms of investment would furnish them with some
revenue by way of positive cash flow. These assets can also affect the particular
investor positively or negatively depending on the alterations in their respective
values.
Investments are often made through the intermediaries who use money taken from
individuals to invest. Consequently, the individuals are regarded as having claims on
the particular intermediary.
It is common practice for the particular intermediaries to have separate legal
procedures of their own.

41
Following are some intermediaries:
 Banks
 Mutual Funds
 Pension Funds
 Insurance Companies
 Collective Investment Schemes
 Investment Clubs
Investment in the domain of personal finance signifies funds employed in the
purchasing
Investment in the domain of personal finance signifies funds employed in the
purchasing of shares, investing in collective investment plans or even purchasing an
asset with an element of capital risk. In the field of real estate, investments imply
buying of property with the sole purpose of generating income. Investment in
residential real estate could be made in the form of buying housing property, while
investments in commercial real estate is made by owning commercial property for
corporate purposes that are geared to generate some amount of revenue.
Investment: The money you earn is partly spent and the rest saved for meeting future
expenses. Instead of keeping the savings idle, you may like to use savings in order to
get return on it in the future. This is called Investment.
Why should one invest?
One needs to invest to:
 Earn return on your idle resources.
 Generate a specified sum of money for a specific goal in life.
 Make a provision for an uncertain future.
VARIOUS OPTIONS AVAILABLE FOR INVESTMENT
One may invest in
 Physical assets like real estate, gold/jewellery, commodities etc.
 Financial assets such as fixed deposits with banks, small saving instruments
with post offices, insurance/ provident/.
 Pension fund etc. or securities market related instruments like shares, bonds,
debentures etc.
Various Short-term financial options available for investment
Broadly speaking, savings bank account, money market/liquid funds and fixed
deposits with banks may be considered as short-term financial investment options.

42
Savings Bank Account is often the first banking product people use, which offers low
interest (4%-5% p.a.), making them only marginally better than fixed deposits.
Fixed Deposits with Banks are also referred to as term deposits and minimum
investment period for bank FDs is 30 days. Fixed Deposits with banks are for
investors with low risk appetite, and may be considered for 6-12 months investment
period, as normally interest on less than 6 months bank FDs is likely to be lower than
money market fund returns.
Various Long-term financial options available for investment
Post Office Savings: Post Office Monthly Income Scheme is a low risk saving
instrument, which can be availed through any post office. It provides an interest rate of
8% per annum, which is paid monthly.
Minimum amount, which can be invested, is Rs. 1,000/- and additional investment in
multiples of 1,000/-. Maximum amount is Rs. 3, 00,000/-
A bonus of 10% is paid at the time of maturity. Premature withdrawal is permitted if
deposit is more than one year old. A deduction of 5% is levied from the principal
amount if withdrawn prematurely; the 10% bonus is also denied.
Public Provident Fund: A long-term savings instrument with a maturity of 15 years
and interest payable at 8% per annum compounded annually. A PPF account can be
opened through a nationalized bank at anytime during the year and is open all through
the year for depositing money. Tax benefits can be availed for the amount invested
and interest accrued is tax-free. A withdrawal is permissible every year from the
seventh financial year of the date of opening of the account and the amount of
withdrawal will be limited to 50% of the balance at credit at the end of the 4th year
immediately preceding the year in which the amount is withdrawn or at the end of the
preceding year whichever is lower the amount of loan if any.
Company Fixed Deposits: These are short-term (six months) to medium-term (three
to five years) borrowings by companies at a fixed rate of interest, which is payable
monthly, quarterly, semi-annually or annually.
They can also be cumulative fixed deposits where the entire principal along with the
interest is paid at the end of the loan period. The rate of interest varies between 6-9%
per annum for company FDs. The interest received is after deduction of taxes.
Bonds: It is a fixed income (debt) instrument issued for a period of more than one year
with the purpose of raising capital. The central or state government, corporations and
similar institutions sell bonds. A bond is generally a promise to repay the principal
along with a fixed rate of interest on a specified date, called the Maturity Date.

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