This document provides an overview of Indian financial markets. It discusses the rationale and structure of financial markets, including their role in channeling funds from surplus units to deficit units. It then covers the history and growth of the Indian capital markets, highlighting the development of key exchanges like BSE and NSE. Performance metrics on market capitalization and listed companies are presented. The document also briefly introduces other derivatives available in Indian financial markets, such as commodity futures and currency futures.

1. Way2Wealth
making investing simpler, more understandable and profitable.
Financial Markets & Investing
July 2010

2. Agenda

 Why and How to Invest in equity
 Indian Capita Markets - History, Exchanges & Performance
 Other Derivatives
 Regulator
 Research
 Outlook
Indian Financial Markets
Financial Markets – Rationale, Players & Structure

3. Financial Markets – Rationale & Players
Economic System
Surplus Money Generators
 Households
Deficit Money Holders
 Corporate
 Government
Financial Markets
 Savings Function - Channelize funds from -those who save to -those who needed -for productive purpose
 Liquidity Function
 Payment Function –
 Risk Mitigations - Provides opportunities to various class of individuals and entities
 Policy

4. Financial Markets – Broad Structure
Financial Assets represent a claim to the payment of a
sum of money sometime in the future and/or periodic
payment in the form of interest or dividend.
Provided resources needed by medium and large scale
industries/individuals
Purpose for these resources
 Establishment of New Business
 Expansion
 Investments
 Mergers and Acquisitions
Deals in both short term & long term instruments &
funds

5. 5
 Firm commodities and return of the financials led FTSE score among the matured economies, closely followed
by Dowjones
 Hit by exports, firm currency and weaker domestic demand leave Nikkei 225 remain under performer among
matured economies
 Buoyed commodities Brazil tops the performers list among emerging economies, followed by domestic demand
driven India
 Though rest of Asia perform well, remain laggard in the latest months as exports remain moderate with signs
of asset price inflation
 Late reaction on both fiscal and other policy let Russian equity to be the under performer among the emerging
economies
Equity Indices - Matured Economies
30
60
90
120
7/11/07 3/11/08 11/11/08 7/11/09 3/11/10
Dow
FTSE100
CAC
DAX
Nikkei 225
Source:Bloomberg
Equity Markets - Emerging Economies
0
20
40
60
80
100
120
140
160
180
7/9/07 3/9/08 11/9/08 7/9/09 3/9/10
Sensex Kospi
Shanghai Hangseng
Bovespa Russia
Source:Bloomberg
Financial Markets – Global Snapshot

6. Financial Markets – Global Snapshot
Equity Market Capitalization (bln USD)
Exchange 2009 2008 % Change Key Indice
NYSE Euro next (US) 11 838 9 209 28.5%
Tokyo Stock Exchange Group 3 306 3 116 6.1% Nikkei
NASDAQ OMX (US) 3 239 2 249 44.0% Nasdaq Composite
NYSE Euro next (Europe) 2 869 2 102 36.5% NASDAQ
London Stock Exchange 2 796 1 868 49.7% FTSE
Shanghai Stock Exchange 2 705 1 425 89.8% Shanghai Composite
Hong Kong Exchanges 2 305 1 329 73.5% Hangseng
TMX Group 1 608 1 033 55.6%
BM&FBOVESPA 1 337 592 125.9% Bovespa
Bombay SE 1 306 647 101.9% Sensex
Source: WFE
 Exchange at US and Europe continue top the total market capitalization
 But the growth in capitalization is higher among Asian and Latin American countries
 Key global indices are DJIA, Nasdaq Composite, FTSE, Nikkei, Hangseng, Sensex etc

7. Indian Financial Markets – Derivatives Performance
Top exchanges by number of stock index futures contracts traded
Exchange 2009 2008 % Change
1. CME Group 703 072 175 882 432 628 -20.3%
2. Eurex 367 546 179 511 748 879 -28.2%
3. National Stock Exchange India 195 759 414 202 390 223 -3.3%
4. Osaka Securities Exchange 130 107 633 131 028 334 -0.7%
5. Korea Exchange 83 117 062 66 436 912 25.1%
Source: WFE
Top exchanges by number of stock index options contracts traded
Exchange 2009 2008
%
change
1. Korea Exchange 2 920 990 655 2 766 474 406 5.6%
2. Eurex 364 953 360 514 894 678 -29.1%
3. National Stock Exchange India 321 265 217 150 916 778 112.9%
4. Chicago Board Options Exchange 222 781 717 259 496 193 -14.1%
5. Taifex 76 177 097 98 122 308 -22.4%
Source: WFE

8. Indian Financial Markets – Derivatives Performance
Top exchanges by number of single stock futures contracts traded
Exchange 2009 2008 % change
1. NYSE Liffe Europe 165 796 059 124 468 809 33.2%
2. National Stock Exchange India 161 053 345 225 777 205 -28.7%
3. Eurex 113 751 549 130 210 348 -12.6%
4. Johannesburg Stock Exchange 88 866 925 420 344 791 -78.8%
5. BME Spanish Exchanges 37 509 467 46 237 747 -18.9%
Source: WFE
Largest growth by total value of bond trading in 2009
Exchange % change
1. Amman Stock Exchange 316.4%
2. Irish Stock Exchange 252.2%
3. Colombia Stock Exchange 105.0%
4. Egyptian Exchange 98.0%
5. Bombay Stock Exchange 86.6%
6. Oslo Bors 82.8%
7. Tokyo Stock Exchange 73.2%
8. National Stock Exchange India 69.9%
9. Shenzhen Stock Exchange 53.4%
10. TMX Group 52.5%

9. Agenda
 Financial Markets – Rationale, Players and Structure

 Indian Capital Markets - History, Exchanges & Performance
 Other Derivatives
 Regulator
 Research
 Opportunities & Challenges
 Outlook
What and How to Invest in Equity
Indian Financial Markets

10. 10
Financial Markets – Concept Of Equity
Equity Claim on the (profits) company
Why Company issue Shares
 To rise capital
 Equity Vs. Debt and Equity comes with less cost
 To enhance the current business activity, acquire new or venture into a new area of business
 To manage working capital
 To gain the market share and increase the presence
 Increase the visibility of the company

11. 11
Financial Markets – Concept Investing
What is Investing?
Identifying and translating all the financial needs of an individual to monetarily
measurable goals.
Why do we need to Invest
 To fund our future needs
 To protect our future from unforeseen contingencies
 To maintain the same standard of living even after retirement
 To mitigate risk through diversification
 To choose assets commensurate with the investors’ life and wealth stages
 To beat the ravages of inflation

12. 12
Financial Markets – Concept Of Investing
Objectives Of Investing
 Identify requirement for money for different purposes and prioritise the same
 Converting requirements into need & in terms of money and time
 Take stock of current financial position to ascertain, net worth & income/expenses
 Plan savings and investments in a manner that enable one achieve the pre-determined goals
 Optimise returns through adequate diversification in sync with the ones’ risk–return
Can one individually chart Investment Plan?
 Are you & your family are financially secure with the investments you have made
 Do the cash flows arising from your investments be sufficient to match the expected
expenses & are tax efficient?
 Have you made adequate provisions for special purposes (Children’s education & marriage)
If your answer is NO to any one or all of the above questions, you need a specialist to
handle your finances and that is where the W2W helps your investments to grow

13. 13
Financial Markets – Concept Of Investing
Systematic Investing
Equity markets are synonymous with uncertainty and volatility. The average investor
invariably suffers from such market gyrations. Systematic investing is a strategy of not
only preserving capital but also translating into substantial creation of wealth in long
run
 It simply means investing ‘Fixed Amount’ every month
 A method of investing regularly to benefit from the stock market volatility
 The first step towards achieving financial goals and objectives.
 To imbibe financial discipline
 To eliminate the need to time the markets
 To successfully achieve the financial goals and objectives
 To harness the power of compounding by investing with a long term perspective

14. 14
Financial Markets – Concept Of Investing
Rupee Cost Averaging
4772.50500
205100
1010100
812.5100
520100
425100
Units
bought
Purchase
Price
Systematic
Investing
5065500
520100
1010100
205100
1010100
520100
Units
bought
Purchase
Price
Systematic
Investing
4480500
425100
520100
520100
1010100
205100
Units
bought
Purchase
Price
Systematic
Investing
Fluctuating Markets Declining Markets Rising Markets
Avg NAV : Rs 13.00 (65/5)
Avg. Unit Cost : Rs 10.00
(Rs 500/50)
Avg. NAV : Rs 14.50 (72.50/5)
Avg. Unit Cost : Rs 10.64
(Rs 500/47)
Avg. NAV : Rs 16.00 (80/5)
Avg. Unit Cost : Rs 11.36
(Rs 500/44)

15. 15
Financial Markets – Concept Of Investing
Power Of Compounding - Rs 5000 invested per month
33,42,53413,76,0854,42,8732,25,57815%
24,97,90111,50,1934,08,3482,15,38412%
20,72,35210,24,2253,87,1852,08,90910%
Value at the end
of 15 yrs
Value at the end
of 10 yrs
Value at the end
of 5 yrs
Value at the end
of 3 yrs
Rate of Return
Golden Rules Of Investing
 Invest early, regularly and systematically for a longer period
 Ensure adequate liquidity for contingencies of life
 Ensure adequate diversification by investing across asset classes and time horizons
 Do not attempt to time the market. Patience is the key
 Be realistic in expectations of returns
 Balance investments in accordance with your risk-return framework

16. Agenda
 Financial Markets – Rationale, Players and Structure
 Why and How to Invest in Equity

 Other Derivatives
 Regulator
 Research
 Opportunities & Challenges
 Outlook
Indian Capital Markets - History, Exchanges & Performance
Indian Financial Markets

17. Indian Financial Markets – History
History of Indian Stock Market
 From Scattered and small beginning in the 19th Century, India’s stock market has risen to great heights
 By 1990, we had 19 stock exchanges (national + regional) in the country
 As a move towards integrated national level exchanges BSE & NSE became prominent by late 1990’s
 BSE has the roots at Native shares and stock brokers association established in 1875, later recognized by GoI
in 1956
 The launch of SENSEX in 1986 was later followed by BSE National Index (Base: 1983-84 = 100) Jan – 1989
 BSE National Index was renamed as BSE-100 Index from Oct- 1996 (taking into consideration only the prices
of stocks listed at BSE)
 The BSE has deployed an Online Trading system (BOLT) on March 14, 1995
 National Stock Exchange (NSE) got its recognition as a stock exchange in July 1993 under Securities Contracts
(Regulation) Act, 1956
 NSE's leading index is Nifty 50 or popularly Nifty and is composed of 50 diversified benchmark Indian
company stocks
 Although late than BSE, National Stocks Exchange is currently the leading stock exchange in India in terms of
total volume traded
 Further liberalization India expected to see another one or two equity exchanges in the neat future

18.  Indian market capitalization has registered a CAGR
of 39.7 percent during 2002-2009
 Total listed companies in domestic exchanges
registered a CAGR of 2.4 percent during 2002-2009
 Total New companies listed each year on exchanges
registered a CAGR of 6.3 percent during 2002-2009
 Globalization, increased domestic retail &
institutional participation resulted this phenomenal
growth
Indian Financial Markets – Growth
Indian Market Capitalization (mln USD)
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
4000000
2002 2003 2004 2005 2006 2007 2008 2009
Market Cap (mln USD)
Source: WFE
New Companies Listed on Indian Exchanges
36
77
50
79
337
0
50
100
150
200
250
300
350
400
2002 2003 2004 2005 2006 2007 2008 2009
New Companies Listed
Source: WFE
Total No.of listed compnaies on Indian Exchanges
6408
5687
5200
5400
5600
5800
6000
6200
6400
6600
2004 2005 2006 2007 2008 2009
Total No.Of Listed Companies
Source: WFE

19. 19
Financial Markets – Performance
Investing in the BSE Sensex – 25 years
Data source: ICRA MFIE
16.02%02%
Fixed investment on
1st day of every month
16.90%
15.07%
Fixed investment at
highest sensex value
every year
Fixed investment at
lowest sensex value
every year
0
5000
10000
15000
20000
25000
9/15/1996 9/15/1998 9/15/2000 9/15/2002 9/15/2004 9/15/2006 9/15/2008

20. Agenda
 Financial Markets – Rationale, Players and Structure
 Why and How to Invest in Equity
 Indian Capital Markets – History, Exchanges & Performance

 Regulator
 Research
 Opportunities & Challenges
 Outlook
Indian Financial Markets
Other Derivatives

21. Indian Financial Markets – Other Derivatives
Commodity Futures
 After much debate, commodity futures trading was permitted & exchanges were launched during 2003 -04
 Begin with precious metals the domestic commodity exchange offerings extended to all possible commodity
segments a la BM’s, Softs, Cash crops, Edible Oils, Pulses and Spices
 Despite various regulatory hurdles the average volumes in the commodity exchanges continued to grow very
strongly - CAGR of 73.7 percent (INR 67.7 lakh crores) during 2004-2009
 Indian commodity exchanges are monitored and controlled by FMC, Ministry of Consumer Affairs &
Agriculture ministry
Currency Futures
 After commodity futures, regulatory authorities have launched currency futures during 2008-09
 Started with single USD/INR pair now the currency futures are available in all major trading pairs like
INR/GBP, INR/EUR & INR/JPY
 Unlike the commodity futures, that showed a steady participation Despite various regulatory hurdles the
average volumes in the commodity exchanges continued to grow very strongly
 Indian currency futures are monitored by RBI & SEBI

22. Agenda
 Financial Markets – Rationale, Players and Structure
 Why and How to Invest in Equity
 Indian Capital Markets – History, Exchanges & Performance
 Other Derivatives

 Research
 Opportunities & Challenges
Indian Financial Markets
Regulator

23. Indian Financial Markets – Regulatory
SEBI – Securities and Exchange Board Of India
 Set up by Government of India in 1988, it acquired statutory form in 1992 with SEBI Act 1992
Functions and Responsibilities
Broadly, SEBI has to be responsive to the needs of various groups that are part of the financial market namely,
 The issuers of securities – Companies
 The investors – Retail, FII & Institutional
 The market intermediaries – Brokerage Houses
SEBI has three functions rolled into one body quasi-legislative, quasi-judicial and quasi-executive
Legislative - Drafts regulations
Executive - Investigation and Enforcement of Action
Judicial – Pass various rulings and orders
SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and successively (e.g. the
quick movement towards making the markets electronic and paperless rolling settlement on T+2 basis). SEBI
has been active in setting up the regulations as required under law

24. Agenda
 Financial Markets – Rationale, Players and Structure
 Why and How to Invest in Equity
 Indian Capital Markets – History, Exchanges & Performance
 Other Derivatives
 Regulator

 Opportunities & Challenges
 Outlook
Indian Financial Markets
Research

25. Indian Financial Markets – Research
 Other’s include derivative analysis (volume, OI and Put/Call ratio)
 Top down approach – tracking economy, sector and company – long term investing
 Bottom up approach – company, balance sheet, peer group comparison and industry – short term

26. Agenda
 Financial Markets – Rationale, Players and Structure
 Indian Capital Markets – History, Exchanges & Performance
 Other Derivatives
 Regulator
 Research
 Opportunities & Challenges

Indian Financial Markets
Outlook

27. 27
Indian Financial Markets – Funds Flow
 As indicated earlier the capital flows remained
stronger with FDI, FII and ECB turning positive
since Q1 - FY09-10
 Though FDI and ECB remained below the
previous peaks the hot money FII scaled close
to the Sep’07 highs
 Until the matured economies signal rate hike
the capital flow remain intact thereby pushing
the benchmark indices higher
Foreign Direct Investments - Monthly
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Mar-06 Jan-07 Nov-07 Sep-08 Jul-09 May-10
FDI (M ln USD)
Source:RBI
Net Foreign Insti Investments Monthly
2000
1500
1000
500
0
500
1000
1500
2000
2500
3000
Mar-06 Jan-07 Nov-07 Sep-08 Jul-09 May-10
Net FII (M ln USD)
Source:RBI
External Commercial Barrowings - Monthly
0
1000
2000
3000
4000
Mar-06 Jan-07 Nov-07 Sep-08 Jul-09 May-10
ECB (M ln USD)
Source:RBI

28. 28
Indian economy – GDP & Other Estimates
2008-09 2009-10 2010-11 F
Real GDP 6.70 7.40 8.30
IIP 2.75 10.3 10.8
WPI 8.46 3.17 6.50
CPI 8.93 11.9 10.0
PLR 12.8 11.8 13.0
91-181 TB Yield 7.09 - 7.15 3.53 - 4.33 4.5 - 5.5
10 Yr G Sec Yield 7.6 7.2 8
Source: RBI, W2W Estimates
 Generous rise in investments and emphasis on infrastructure led IIP growth bode well for the Indian growth
momentum move from cyclical to structural
 However, normalizing GoI incentives, monetary policy amid muted private consumption expenditure may call
for moderation in the Q2 & Q3 of FY 2010-11
 Steady progress of monsoon, revival in the job market amid steady up tick in interest rates are expected to
drive the private consumption to pick up as the FY 2010-11 progress
 Despite ease in Food inflation (largely statistical) pick up in demand, limited capacity in short term, firm
commodity prices globally expected to keep the inflation higher in the current cycle
 Contagion of European crisis and untimely policy/inability to balance inflation/growth momentum are the
key risk to the above outlook
Indian GDP
9.6
9.0
6.7
7.4
8.3
2
4
6
8
10
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 E 2010-11 F
Source:RBI, W2W Estimates

29. Thank you
Research Department
Premise A, 15th Floor, Chandramukhi Building, Backbay Reclamation,
Nariman Point (near Inox Theatre), MUMBAI : 400021
Phone: 022 4019 2900, Fax: 022 40192939