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SUMMER TRAINING PROJECT REPORT

UNDER
PRABATH FINANCIAL SERVICES LIMITED
ON
Study of Fluctuations of Indian Stock
Market
SUBMITTED IN PARTIAL FULLFILMENT OF THE REQUIRMENT FOR THE AWARD
OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION OF THE RAJASTHAN
TECHNICAL UNIVERSITY, KOTA.
SUPERVISED BY:- SUBMITTED BY :-
Mr. S. P. Kabra Rahul Jajoo
FACITLITY SUPERVISOR:-
Ms. Shilpi Kuntal
SUBMITTED TO :-
DEPARTMENT OF MANAGENENT STUDIES, SWAMI KESHVANAND INSTITUTE OF
TECHNOLOGY, MANAGEMENT & GRAMOTHAN. JAIPUR
2008-2010
1
Certificate
2
Acknowledgement
The completion of any project depends upon the co-operation, coordination
and combined
efforts of several resources of knowledge, inspiration & energy.
Words fall short acknowledging immense support lent to me yet I will try to
give full credit to
the deserver's.
My sincere thanks goes to Mr. Vikas Shrotriya (HOD DMS) giving me an
opportunity to
discover more knowledge. I am also thankful to Mr. S. P. Kabra
(Director,Prabhat financial


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services) for his support, guidance and cooperation throughout to accomplish
this project also
expressing deep sense of gratitude to my Project guide, Ms. Shilpi Kuntal
(Lecturer) for her
valuable guidance, continuous encouragement and tremendous patience in
discussing my
problems, have been of the greatest help in bringing out my task in present
shape. I am equally
grateful to all my other teachers for their complete support.
It would be unfair on my part if I do not thank my colleagues for their
continuous help without
which this work could never have been accomplished. They made me realize the
importance of
teamwork and also the leadership skills. I am grateful to all of them standing
with me andsupporting me in this project.
( Rahul Jajoo )
Preface
3
In the present situation where stock market is going up and down, it is
necessary to invest
consciously in the market whatever it is, this is the study about the last two
year fluctuation in
stock market which enables the investor in taking decision regarding
investment. This study tells
the factor which directly or indirectly affects the market and some basic
information not only
share market but also other market such as derivatives or commodity market for
the new
investors or the students who have some interest in stock market. The
objective of selecting the
topic is to know about the market trends of the stock market and the
information related to the
investment for the future investor. The study of fluctuations of stock market
makes the investor
aquatinted with the factor affecting the investment and Stock prices can be
volatile and some
analysts argue that this volatility is excessive. This is not easy to prove,
since it is difficult to
assess certainty about future earnings and dividends. Companies tend to smooth
dividends, so


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they will be less volatile than stock prices. Volatile stock prices do not
have a major impact on
consumption and capital spending since there is a good chance that price
movements in one
direction may be reversed.
Contents
4
1. Abstract
2. Research Methodology
2.1 Title of the Study
2.2 Duration of the Project
2.3 Objective of Study
2.4 Type of Research
2.5 Scope of Study
2.6 Limitation of Study
3. Core Study
4. SWOT
5. Conclusion
6. Bibliography
Executive summary
5
A market is an environment that allows buyers and sellers to trade or exchange
goods, services,
and information. These interactions define demand and supply characteristics
and are therefore
fundamental to economies. A market can be defined as a place where any type of
trade takes
place. Markets are dependent on two major participants buyers and sellers.
Buyers and sellers
typically trade goods, services and/ or information. Historically, markets
were physical meeting
places where buyers and sellers gathered together to trade. Although physical
markets are still
vital, virtual marketplaces supported by IT networks such as the internet have
become the largest
and most liquid. Some markets are very competitive, with a number of vendors
selling the same
kinds of products or services. Conversely, some markets have low or no
competition,
particularly if the industry is protected by government legislation.


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The number of buyers and sellers involved will have a direct bearing on the
price of the good or
service to be sold, and has become known as the law of supply and demand.
Where there are
more sellers than buyers, the availability of supply will push down prices. If
there are more
buyers than sellers, the increased demand will push up prices.
Markets can appear spontaneously when there are goods or services to be
exchanged, or they can
be planned and regulated .Free markets operate under laissez-fare
conditions, in that the
government does not intervene in how the market operates. These markets may be
distorted if a
seller gains monopoly power by managing the majority of supply (or indeed if a
buyer develops
monophony power by managing demand). Governments or trade bodies often step in
when such
distortions undermine the smooth functioning of free markets. The currency
markets are the
largest continuously traded markets in the world. Twenty four hours a day,
seven days a week,
governments, banks, investors and consumers are buying and selling every
currency, leading to
massive money flows constantly changing hands. Stock markets have become
highly complex
markets that allow investors to buy shares in companies or in funds that
aggregate companies or
industries together. Most stock markets today are primarily electronic
networks, although they
often maintain a physical location for buyers, sellers and market makers to
interact directly.
Markets originally started as marketplaces usually in the center of villages
and towns, for the
sale or barter of farm produce, clothing and tools. These kinds of street
markets developed into a
whole variety of consumer-oriented markets, such as specialist markets,
shopping centers,
supermarkets, or even virtual markets such as eBay. With the rising price of
oil and food,
6


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commodity markets are once again under the spotlight. Commodities underpin
economic
activity. Commodity markets include: energy (oil, gas, coal and increasingly
renewable energy
sources such as biodiesel), soft commodities and grains (wheat, oat, corn,
rice, soya beans,
coffee, cocoa, sugar, cotton, frozen orange juice, etc), meat, and financial
commodities such as
bonds. Capital goods markets help businesses to buy durable goods to be used
in industrial and
manufacturing processes. A number of services can also be associated with
these goods.
Transactions tend to be wholesale with large quantities of goods being
transacted at low prices.
Everyone has seen it and everyone is wishing if he should have buy stocks
before this rally.
Albeit it could have been a gamble buying stocks before declaration of
election results, it paid
off for those who bought. Now that's history. Stock markets are going to be
volatile for next few
days. Today, i.e. on Tuesday, markets opened in red, went till 3oo points
down, then recovered
and went up to 500 points up and finally settled for flat closing. So what
should a small investor
do now? Should he buy stocks or should be selling stocks that he holds.This
article is a
COMPLETE guide to the basics of making money in the stock market! If you are
considering
investing in the stock market, you MUST read this article! We have explained
all the concepts
and talked about all the "myths" that people have about the stock market!
INTRODUCTION TO THE ORGANIZATION
7
RESEARCH METHODOLOGY
TITLE OF THE STUDY:-
8
Study of fluctuations of Indian stock market
DURATION OF THE PROJECT:- 45 days
OBJECTIVE OF STUDY
To know the basic terminology of stock market.


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To make the investor aware about the factors which may affect their
investment.
To get the knowledge of other markets such as commodity market and
derivatives.
To know the ups and downs of stock market of last two years.
To forecast or predict the future trend of stock market which helps in
investment.
To know the effect of these fluctuation on the Indian economy.
TYPE OF RESEARCH
Research
Research is defined as human activity based on intellectual application in the
investigation
of matter. The primary purpose for applied research is discovering,
interpreting, and
the development of methods and systems for the advancement of human knowledge
on a wide
variety of scientific matters of our world and the universe. Research can use
the scientific
method, but need not do so. Scientific research relies on the application of
the scientific method,
a harnessing of curiosity. This research provides scientific information and
theories for the
explanation of the nature and the properties of the world around us. It makes
practical
applications possible. Scientific research is funded by public authorities, by
charitable
organizations and by private groups, including many companies. Scientific
research can be
subdivided into different classifications according to their academic and
application disciplines.
9
In this project the research type used is descriptive because this research is
the most commonly
used and the basic reason for carrying out descriptive research is to identify
the cause of
something that is happening. For instance, this research could be used in
order to find out what
age group is buying a particular brand of cola, whether a companys market
share differs


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between geographical regions or to discover how many competitors a company has
in their
marketplace. However, if the research is to return useful results, whoever is
conducting the
research must comply with strict research requirements in order to obtain the
most accurate
figures/results possible.
DESCRIPTIVE RESEARCH
Descriptive research is used to obtain information concerning the current
status of the
phenomena to describe "what exists" with respect to variables or conditions in
a situation. The
methods involved range from the survey which describes the status quo, the
correlation study
which investigates the relationship between variables, to developmental
studies which seek to
determine changes over time.
Descriptive research can be of two types:
i. Quantitative descriptive research emphasizes on what is, and makes use of
quantitative
methods to describe, record, analyze and interpret the present conditions.
Qualitative descriptive research also emphasizes on what is, but makes use of
non-quantitative
research methods in describing the conditions of the present.
SCOPE OF STUDY
Derivatives
Sebi
Stock exchange
Commodity market
Stock market
10Securities
Day trading
Factor affecting Indian stock market
Effect on Indian economy
LIMITATIONS
Limitations are the limiting lines that restrict the work in some way or
other. In this research
study also their were some limiting factors, some of them are as under:
1. Data Collection:


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The most important constraint in this study was data collection as Secondary
data was
selected for study. Secondary data means data that are already available i.e.
they refer to
the data which have already been collected and analysed by someone else.
2. Time Period:
Time period was one of the main factor as only one month was allotted and the
topic
covered in research has a wide scope. So, it was not possible to cover it in a
short span of
time.
3. Reliability:
The data collected in research work was secondary data, So, this puts a
question mark on
the reliability of this data, which a very important factor of this study as
conclusion has
been derived from this secondary data only.
4. Accuracy:
The facts and findings of the data cannot be accepted as accurate to some
extent as
firstly, secondary data was collected. Secondly, for doing descriptive
research time
needed to be more, because in short period you cannot cover each point
accurately.
11
Core study
Stock market
A stock market is a public market for the trading of company stock and
derivatives at an agreed
price; these are securities listed on a stock exchange as well as those only
traded privately.
The size of the world stock market was estimated at about $36.6 trillion US at
the beginning of
October 2008 . The total world derivatives market has been estimated at about
$791 trillion face
or nominal value, 11 times the size of the entire world economy. The value of
the derivatives
market, because it is stated in terms of notional values, cannot be directly
compared to a stock or
a fixed income security, which traditionally refers to an actual value.
Moreover, the vast majority


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of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event
occurring is offset by a
comparable derivative 'bet' on the event not occurring.). Many such relatively
illiquid securities
are valued as marked to model, rather than an actual market price.)
The stocks are listed and traded on stock exchanges which are entities a
corporation or mutual
organization specialized in the business of bringing buyers and sellers of the
organizations to a
listing of stocks and securities together. The stock market in the United
States includes the
trading of all securities listed on the NYSE, the NASDAQ, the Amex, as well as
on the many
regional exchanges, e.g. OTCBB and Pink Sheets. European examples of stock
exchanges
include the London Stock Exchange, the Deutsche Borse and the Paris Bourse,
now part of
Euronext.
Function and purpose
The stock market is one of the most important sources for companies to raise
money. This
allows businesses to be publicly traded, or raise additional capital for
expansion by selling shares
of ownership of the company in a public market. The liquidity that an exchange
provides affords
investors the ability to quickly and easily sell securities. This is an
attractive feature of investing
in stocks, compared to other less liquid investments such as real estate.
12
History has shown that the price of shares and other assets is an important
part of the dynamics
of economic activity, and can influence or be an indicator of social mood. An
economy where
the stock market is on the rise is considered to be an up and coming economy.
In fact, the stock
market is often considered the primary indicator of a country's economic
strength and
development. Rising share prices, for instance, tend to be associated with
increased business
investment and vice versa. Share prices also affect the wealth of households
and their


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consumption. Therefore, central banks tend to keep an eye on the control and
behavior of the
stock market and, in general, on the smooth operation of financial system
functions. Financial
stability is the raison d'etre of central banks.
Exchanges also act as the clearinghouse for each transaction, meaning that
they collect and
deliver the shares, and guarantee payment to the seller of a security. This
eliminates the risk to
an individual buyer or seller that the counterparty could default on the
transaction.
The smooth functioning of all these activities facilitates economic growth in
that lower costs and
enterprise risks promote the production of goods and services as well as
employment. In this
way the financial system contributes to increased prosperity.
Relation of the stock market to the modern financial system
The financial system in most western countries has undergone a remarkable
transformation. One
feature of this development is disintermediation. A portion of the funds
involved in saving and
financing flows directly to the financial markets instead of being routed via
the traditional bank
lending and deposit operations. The general public's heightened interest in
investing in the stock
market, either directly or through mutual funds, has been an important
component of this
process. Statistics show that in recent decades shares have made up an
increasingly large
proportion of households' financial assets in many countries. In the 1970s, in
Sweden, deposit
accounts and other very liquid assets with little risk made up almost 60
percent of households'
financial wealth, compared to less than 20 percent in the 2000s. The major
part of this
adjustment in financial portfolios has gone directly to shares but a good deal
now takes the form
of various kinds of institutional investment for groups of individuals, e.g.,
pension funds, mutual
funds, hedge funds, insurance investment of premiums, etc. The trend towards
forms of saving


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with a higher risk has been accentuated by new rules for most funds and
insurance, permitting a
13
higher proportion of shares to bonds. Similar tendencies are to be found in
other industrialized
countries. In all developed economic systems, such as the European Union, the
United States,
Japan and other developed nations, the trend has been the same: saving has
moved away from
traditional (government insured) bank deposits to more risky securities of one
sort or another.
The stock market, individual investors, and financial risk
Riskier long-term saving requires that an individual possess the ability to
manage the associated
increased risks. Stock prices fluctuate widely, in marked contrast to the
stability of (government
insured) bank deposits or bonds. This is something that could affect not only
the individual
investor or household, but also the economy on a large scale. The following
deals with some of
the risks of the financial sector in general and the stock market in
particular. This is certainly
more important now that so many newcomers have entered the stock market, or
have acquired
other 'risky' investments (such as 'investment' property, i.e., real estate
and collectables).
With each passing year, the noise level in the stock market rises. Television
commentators,
financial writers, analysts, and market strategists are all overtaking each other to get
investors'
attention. At the same time, individual investors, immersed in chat rooms and message
boards,
are exchanging questionable and often misleading tips. Yet, despite all this available
information, investors find it increasingly difficult to profit. Stock prices skyrocket with
little
reason, then plummet just as quickly, and people who have turned to investing for their
children's education and their own retirement become frightened. Sometimes there
appears to be
no rhyme or reason to the market, only folly.
This is a quote from the preface to a published biography about the long-term
value-oriented
stock investor Warren Buffett.[4] Buffett began his career with $100, and
$105,000 from seven


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limited partners consisting of Buffett's family and friends. Over the years he
has built himself a
multi-billion-dollar fortune. The quote illustrates some of what has been
happening in the stock
market during the end of the 20th century and the beginning of the 21st
century.
14Securities and Exchange Board of India
SEBI Bhavan, Mumbai Headquarters of SEBI
Organization Details
Headquarters Mumbai, Maharashtra, India
Established 1992
Jurisdiction India
Head Chairman
Chairman C B Bhave
Term February 16, 2008 -
Total Staff[1] 525
Official Website
Website www.sebi.gov.in
SEBI is the Regulator for the Securities Market in India. Originally set up by
the Government of
India in 1988, it acquired statutory form in 1992 with SEBI Act 1992 being
passed by the Indian
Parliament.Chaired by C B Bhave, SEBI is headquartered in the popular business
district of
Bandra-Kurla complex in Mumbai, and has Northern, Eastern, Southern and
Western regional
offices in New Delhi, Kolkata, Chennai and Ahmedabad.
Organization Structure
Chandrasekhar Bhaskar Bhave is the sixth chairman of the Securities Market
Regulator. Prior to
taking charge as Chairman SEBI, he had been the chairman of NSDL (National
Securities
Depository Limited) ushering in paperless securities. Prior to his stint at
NSDL, he had served
SEBI as a Senior Executive Director. He is a former Indian Administrative
Service officer of the
1975 batch. The Board comprises[2]
Name Designation As per
Mr CB Bhave Chairman SEBI CHAIRMAN (S.4(1)(a) of the SEBI Act,
15
1992)
Mr KP Krishnan Joint Secretary, Ministry of Finance


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Member (S.4(1)(b) of the SEBI Act,
1992)
Mr Anurag Goel
Secretary, Ministry of Corporate
Affairs
Member (S.4(1)(b) of the SEBI Act,
1992)
Dr G Mohan
Gopal
Director, National Judicial Academy,
Bhopal
Member (S.4(1)(d) of the SEBI Act,
1992)
Mr MS Sahoo Whole Time Member, SEBI
Member (S.4(1)(d) of the SEBI Act,
1992)
Dr KM Abraham Whole Time Member, SEBI
Member (S.4(1)(d) of the SEBI Act,
1992)
Mr Mohandas Pai Director, Infosys
Member (S.4(1)(d) of the SEBI Act,
1992)
Functions and Responsibilities
SEBI has to be responsive to the needs of three groups, which constitute the
market:
the issuers of securities
the investors
the market intermediaries.
SEBI has three functions rolled into one body quasi-legislative, quasi-
judicial and quasiexecutive.
It drafts regulations in its legislative capacity, it conducts investigation
and
enforcement action in its executive function and it passes rulings and orders
in its judicial
capacity. Though this makes it very powerful, there is an appeals process to
create
accountability. There is a Securities Appellate Tribunal which is a three
member tribunal and is
presently headed by a former Chief Justice of a High court - Mr. Justice NK
Sodhi. A second
appeal lies directly to the Supreme Court.


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16
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.
Stock exchange
A stock exchange, (formerly a securities exchange) is a corporation or
mutual organization
which provides "trading" facilities for stock brokers and traders, to trade
stocks and other
securities. Stock exchanges also provide facilities for the issue and
redemption of securities as
well as other financial instruments and capital events including the payment
of income and
dividends. The securities traded on a stock exchange include: shares issued by
companies, unit
trusts, derivatives, pooled investment products and bonds. To be able to trade
a security on a
certain stock exchange, it has to be listed there. Usually there is a central
location at least for
recordkeeping, but trade is less and less linked to such a physical place, as
modern markets are
electronic networks, which gives them advantages of speed and cost of
transactions. Trade on an
exchange is by members only. The initial offering of stocks and bonds to
investors is by
definition done in the primary market and subsequent trading is done in the
secondary market. A
stock exchange is often the most important component of a stock market. Supply
and demand in
stock markets is driven by various factors which, as in all free markets,
affect the price of stocks
(see stock valuation).
There is usually no compulsion to issue stock via the stock exchange itself,
nor must stock be
subsequently traded on the exchange. Such trading is said to be off exchange
or over-the-counter.


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This is the usual way that derivatives and bonds are traded. Increasingly,
stock exchanges are
part of a global market for securities.
The role of stock exchanges
Stock exchanges have multiple roles in the economy, this may include the
following:
1. Raising capital for businesses
17
The Stock Exchange provide companies with the facility to raise capital for
expansion through
selling shares to the investing public.
2.Mobilizing savings for investment
When people draw their savings and invest in shares, it leads to a more
rational allocation of
resources because funds, which could have been consumed, or kept in idle
deposits with banks,
are mobilized and redirected to promote business activity with benefits for
several economic
sectors such as agriculture, commerce and industry, resulting in stronger
economic growth and
higher productivity levels and firms.
3.Facilitating company growth
Companies view acquisitions as an opportunity to expand product lines,
increase distribution
channels, hedge against volatility, increase its market share, or acquire
other necessary business
assets. A takeover bid or a merger agreement through the stock market is one
of the simplest and
most common ways for a company to grow by acquisition or fusion.
4.Redistribution of wealth
Stock exchanges do not exist to redistribute wealth. However, both casual and
professional stock
investors, through dividends and stock price increases that may result in
capital gains, will share
in the wealth of profitable businesses.
5.Corporate governance
By having a wide and varied scope of owners, companies generally tend to
improve on their
management standards and efficiency in order to satisfy the demands of these
shareholders and
the more stringent rules for public corporations imposed by public stock
exchanges and the


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government. Consequently, it is alleged that public companies (companies that
are owned by
shareholders who are members of the general public and trade shares on public
exchanges) tend
to have better management records than privately-held companies (those
companies where
shares are not publicly traded, often owned by the company founders and/or
their families and
18
heirs, or otherwise by a small group of investors). However, some well-
documented cases are
known where it is alleged that there has been considerable slippage in
corporate governance on
the part of some public companies. The dot-com bubble in the early 2000s, and
the subprime
mortgage crisis in 2007-08, are classical examples of corporate mismanagement.
Companies like
Pets.com (2000), Enron Corporation (2001), One.Tel (2001), Sunbeam (2001),
Webvan (2001),
Adelphia (2002), MCI WorldCom (2002), Parmalat (2003), American International
Group
(2008), Lehman Brothers (2008), and Satyam Computer Services (2009) were among
the most
widely scrutinized by the media.
7.Creating investment opportunities for small investors
As opposed to other businesses that require huge capital outlay, investing in
shares is open to
both the large and small stock investors because a person buys the number of
shares they can
afford. Therefore the Stock Exchange provides the opportunity for small
investors to own shares
of the same companies as large investors.
8.Government capital-raising for development projects
Governments at various levels may decide to borrow money in order to finance
infrastructure
projects such as sewage and water treatment works or housing estates by
selling another
category of securities known as bonds. These bonds can be raised through the
Stock Exchange
whereby members of the public buy them, thus loaning money to the government.
The issuance


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of such bonds can obviate the need to directly tax the citizens in order to
finance development,
although by securing such bonds with the full faith and credit of the
government instead of with
collateral, the result is that the government must tax the citizens or
otherwise raise additional
funds to make any regular coupon payments and refund the principal when the
bonds mature.
9.Barometer of the economy
At the stock exchange, share prices rise and fall depending, largely, on
market forces. Share
prices tend to rise or remain stable when companies and the economy in general
show signs of
stability and growth. An economic recession, depression, or financial crisis
could eventually lead
to a stock market crash. Therefore the movement of share prices and in general
of the stock
indexes can be an indicator of the general trend in the economy.
19Bombay Stock Exchange
Introduction
Bombay Stock Exchange is the oldest stock exchange in Asia with a rich
heritage, now spanning
three centuries in its 133 years of existence. What is now popularly known as
BSE was
established as "The Native Share & Stock Brokers' Association" in 1875.
BSE is the first stock exchange in the country which obtained permanent
recognition (in 1956)
from the Government of India under the Securities Contracts (Regulation) Act
1956. BSE's
pivotal and pre-eminent role in the development of the Indian capital market
is widely
recognized. It migrated from the open outcry system to an online screen-based
order driven
trading system in 1995. Earlier an Association Of Persons (AOP), BSE is now a
corporatised
and demutualised entity incorporated under the provisions of the Companies
Act, 1956, pursuant
to the BSE (Corporatisation and Demutualisation) Scheme, 2005 notified by the
Securities and
Exchange Board of India (SEBI). With demutualisation, BSE has two of world's
best exchanges,


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Deutsche Borse and Singapore Exchange, as its strategic partners.
Over the past 133 years, BSE has facilitated the growth of the Indian
corporate sector by
providing it with an efficient access to resources. There is perhaps no major
corporate in India
which has not sourced BSE's services in raising resources from the capital
market.
Today, BSE is the world's number 1 exchange in terms of the number of listed
companies and
the world's 5th in transaction numbers. The market capitalization as on
December 31, 2007 stood
at USD 1.79 trillion . An investor can choose from more than 4,700 listed
companies, which for
easy reference, are classified into A, B, S, T and Z groups.
The BSE Index, SENSEX, is India's first stock market index that enjoys an
iconic stature , and is
tracked worldwide. It is an index of 30 stocks representing 12 major sectors.
The SENSEX is
constructed on a 'free-float' methodology, and is sensitive to market
sentiments and market
realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral
indices. BSE has
entered into an index cooperation agreement with Deutsche Borse. This
agreement has made
20
SENSEX and other BSE indices available to investors in Europe and America.
Moreover,
Barclays Global Investors (BGI), the global leader in ETFs through its
iSharesAR brand, has
created the 'iSharesAR BSE SENSEX India Tracker' which tracks the SENSEX. The
ETF
enables investors in Hong Kong to take an exposure to the Indian equity
market.
The first Exchange Traded Fund (ETF) on SENSEX, called "SPIcE" is listed on
BSE. It brings
to the investors a trading tool that can be easily used for the purposes of
investment, trading,
hedging and arbitrage. SPIcE allows small investors to take a long-term view
of the market.
BSE provides an efficient and transparent market for trading in equity, debt
instruments and


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derivatives. It has a nation-wide reach with a presence in more than 359
cities and towns of
India. BSE has always been at par with the international standards. The
systems and processes
are designed to safeguard market integrity and enhance transparency in
operations. BSE is the
first exchange in India and the second in the world to obtain an ISO 9001:2000
certification. It is
also the first exchange in the country and second in the world to receive
Information Security
Management System Standard BS 7799-2-2002 certification for its BSE On-line
Trading System
(BOLT).
BSE continues to innovate. In recent times, it has become the first national
level stock exchange
to launch its website in Gujarati and Hindi to reach out to a larger number of
investors. It has
successfully launched a reporting platform for corporate bonds in India
christened the ICDM or
Indian Corporate Debt Market and a unique ticker-cum-screen aptly named 'BSE
Broadcast'
which enables information dissemination to the common man on the street.
In 2006, BSE launched the Directors Database and ICERS (Indian Corporate
Electronic
Reporting System) to facilitate information flow and increase transparency in
the Indian capital
market. While the Directors Database provides a single-point access to
information on the
boards of directors of listed companies, the ICERS facilitates the corporates
in sharing with BSE
their corporate announcements.
BSE also has a wide range of services to empower investors and facilitate
smooth transactions:
21Investor Services: The Department of Investor Services redresses grievances
of investors. BSE
was the first exchange in the country to provide an amount of Rs.1 million
towards the investor
protection fund; it is an amount higher than that of any exchange in the
country. BSE launched a
nationwide investor awareness programme- 'Safe Investing in the Stock Market'
under which


Page | 20
264 programmes were held in more than 200 cities.
The BSE On-line Trading (BOLT): BSE On-line Trading (BOLT) facilitates on-
line screen
based trading in securities. BOLT is currently operating in 25,000 Trader
Workstations located
across over 359 cities in India.
BSEWEBX.com: In February 2001, BSE introduced the world's first
centralized exchangebased
Internet trading system, BSEWEBX.com. This initiative enables investors
anywhere in
the world to trade on the BSE platform.
Surveillance: BSE's On-Line Surveillance System (BOSS) monitors on a real-time
basis the
price movements, volume positions and members' positions and real-time
measurement of
default risk, market reconstruction and generation of cross market alerts.
BSE Training Institute: BTI imparts capital market training and certification,
in collaboration
with reputed management institutes and universities. It offers over 40 courses
on various aspects
of the capital market and financial sector. More than 20,000 people have
attended the BTI
programmes
Awards
The World Council of Corporate Governance has awarded the Golden Peacock
Global CSR
Award for BSE's initiatives in Corporate Social Responsibility (CSR).
The Annual Reports and Accounts of BSE for the year ended March 31, 2006 and
March
31 2007 have been awarded the ICAI awards for excellence in financial
reporting.
22
The Human Resource Management at BSE has won the Asia - Pacific HRM awards
for
its efforts in employer branding through talent management at work, health
management
at work and excellence in HR through technology
Drawing from its rich past and its equally robust performance in the recent
times, BSE will
continue to remain an icon in the Indian capital market.
History


Page | 21
For the premier stock exchange that pioneered the securities transaction
business in India, over a
century of experience is a proud achievement. A lot has changed since 1875
when 318 persons
by paying a then princely amount of Re. 1, became members of what today is
called Bombay
Stock Exchange Limited (BSE).
Over the decades, the stock market in the country has passed through good and
bad periods. The
journey in the 20th century has not been an easy one. Till the decade of
eighties, there was no
measure or scale that could precisely measure the various ups and downs in the
Indian stock
market. BSE, in 1986, came out with a Stock Index-SENSEX- that subsequently
became the
barometer of the Indian stock market.
The launch of SENSEX in 1986 was later followed up in January 1989 by
introduction of BSE
National Index (Base: 1983-84 = 100). It comprised 100 stocks listed at five
major stock
exchanges in India - Mumbai, Calcutta, Delhi, Ahmedabad and Madras. The BSE
National Index
was renamed BSE-100 Index from October 14, 1996 and since then, it is being
calculated taking
into consideration only the prices of stocks listed at BSE. BSE launched the
dollar-linked version
of BSE-100 index on May 22, 2006.
With a view to provide a better representation of the increasing number of
listed companies,
larger market capitalization and the new industry sectors, BSE launched on
27th May, 1994 two
new index series viz., the 'BSE-200' and the 'DOLLEX-200'. Since then, BSE has
come a long
way in attuning itself to the varied needs of investors and market
participants. In order to fulfill
the need for still broader, segment-specific and sector-specific indices, BSE
has continuously
23
been increasing the range of its indices. BSE-500 Index and 5 sectoral indices
were launched in


Page | 22
1999. In 2001, BSE launched BSE-PSU Index, DOLLEX-30 and the country's first
free-float
based index - the BSE TECk Index. Over the years, BSE shifted all its indices
to the free-float
methodology
National Stock Exchange of India
National Stock Exchange Limited
Type Stock Exchange
Location Mumbai, India
Coordinates
19337N 725135E / 19.06028N
72.85972E / 19.06028; 72.85972
Owner National Stock Exchange of India Limited
Key people Mr. Ravi Narain (Managing Director & CEO)
Currency INR
No. of listings 1587
MarketCap US$ 1.46 trillion (2006)
Indexes
S&P CNX Nifty
CNX Nifty Junior
S&P CNX 500
Website http://www.nse-india.com/
24
NSE is mutually-owned by a set of leading financial institutions, banks,
insurance companies
and The National Stock Exchange of India Limited (NSE), is a Mumbai-based
stock
exchange. It is the largest stock exchange in India in terms of daily turnover
and number of
trades, for both equities and derivative trading.[1]. Though a number of other
exchanges exist,
NSE and the Bombay Stock Exchange are the two most significant stock exchanges
in India, and
between them are responsible for the vast majority of share transactions. The
NSE's key index is
the S&P CNX Nifty, known as the Nifty, an index of fifty major stocks weighted
by market
capitalisation.
other financial intermediaries in India but its ownership and management
operate as separate
entities. There are at least 2 foreign investors NYSE Euronext and Goldman
Sachs who have


Page | 23
taken a stake in the NSE. As of 2006[update], the NSE VSAT terminals, 2799 in
total, cover
more than 1500 cities across India . In October 2007, the equity market
capitalization of the
companies listed on the NSE was US$ 1.46 trillion, making it the second
largest stock exchange
in South Asia. NSE is the third largest Stock Exchange in the world in terms
of the number of
trades in equities. It is the second fastest growing stock exchange in the
world with a recorded
growth of 16.6%.
Origins
NSE building at BKC
The National Stock Exchange of India was promoted by leading
Financial institutions at the behest of the Government of India, and
was incorporated in November 1992 as a tax-paying company. In
April 1993, it was recognized as a stock exchange under the
Securities Contracts (Regulation) Act, 1956. NSE commenced operations in the
Wholesale Debt
Market (WDM) segment in June 1994. The Capital Market (Equities) segment of
the NSE
commenced operations in November 1994, while operations in the Derivatives
segment
commenced in June 2000.
Innovations
25
NSE has remained in the forefront of modernization of India's capital and
financial markets, and
its pioneering efforts include:
Being the first national, anonymous, electronic limit order book (LOB)
exchange to trade
securities in India. Since the success of the NSE, existent market and new
market
structures have followed the "NSE" model.
Setting up the first clearing corporation "National Securities Clearing
Corporation Ltd."
in India. NSCCL was a landmark in providing innovation on all spot equity
market (and
later, derivatives market) trades in India.
Co-promoting and setting up of National Securities Depository Limited, first
depository
in India[2].


Page | 24
Setting up of S&P CNX Nifty.
NSE pioneered commencement of Internet Trading in February 2000, which led
to the
wide popularization of the NSE in the broker community.
Being the first exchange that, in 1996, proposed exchange traded
derivatives, particularly
on an equity index, in India. After four years of policy and regulatory debate
and
formulation, the NSE was permitted to start trading equity derivatives
Being the first and the only exchange to trade GOLD ETFs (exchange traded
funds) in
India.
NSE has also launched the NSE-CNBC-TV18 media centre in association with
CNBCTV18,
it is the one of the most important stock exchange in the world.
S&P CNX Nifty
S&P CNX Nifty is a well diversified 50 stock index accounting for 21 sectors
of the economy. It
is used for a variety of purposes such as benchmarking fund portfolios, index
based derivatives
and index funds.
S&P CNX Nifty is owned and managed by India Index Services and Products Ltd.
(IISL), which
26
is a joint venture between NSE and CRISIL. IISL is India's first specialised
company focused
upon the index as a core product. IISL has a Marketing and licensing agreement
with Standard &
Poor's (S&P), who are world leaders in index services.
The total traded value for the last six months of all Nifty stocks is
approximately 65.68%
of the traded value of all stocks on the NSE
Nifty stocks represent about 65.34% of the total market capitalization as on
Mar 31,
2009.
Impact cost of the S&P CNX Nifty for a portfolio size of Rs.2 crore is 0.16%
S&P CNX Nifty is professionally maintained and is ideal for derivatives
trading
Sensex & the Nifty
The Sensex is an "index". What is an index? An index is basically an
indicator. It gives you a


Page | 25
general idea about whether most of the stocks have gone up or most of the
stocks have gone
down.
The Sensex is an indicator of all the major companies of the BSE.
The Nifty is an indicator of all the major companies of the NSE.
If the Sensex goes up, it means that the prices of the stocks of most of the
major companies on
the BSE have gone up. If the Sensex goes down, this tells you that the stock
price of most of the
major stocks on the BSE have gone down.
Just like the Sensex represents the top stocks of the BSE, the Nifty
represents the top stocks of
the NSE.
Just in case you are confused, the BSE, is the Bombay Stock Exchange and the
NSE is the
National Stock Exchange. The BSE is situated at Bombay and the NSE is situated
at Delhi.
These are the major stock exchanges in the country. There are other stock
exchanges like the
Calcutta Stock Exchange etc. but they are not as popular as the BSE and the
NSE.Most of the
stock trading in the country is done though the BSE & the NSE.
27
Besides Sensex and the Nifty there are many other indexes. There is an index
that gives you an
idea about whether the mid-cap stocks go up and down. This is called the BSE
Mid-cap Index.
The reasons for stock prices going "up" and "down"
Stock prices change every day because of market forces. By this we mean that
stock prices
change because of supply and demand. If more people want to buy a stock
(demand) than sell
it (supply), then the price moves up!
Conversely, if more people wanted to sell a stock than buy it, there would be
greater supply than
demand, and the price would fall. (Basics of economics!)
Understanding supply and demand is easy. What is difficult to understand is
what makes people
like a particular stock and dislike another stock. If you understand this, you
will know what


Page | 26
people are buying and what people are selling. If you know this you will know
what prices go up
and what prices go down!
To figure out the likes and dislikes of people, you have to figure out what
news is positive for a
company and what news is negative and how any news about a company will be
interpreted by
the people.
The most important factor that affects the value of a company is its earnings.
Earnings are the
profit a company makes, and in the long run no company can survive without
them. It makes
sense when you think about it. If a company never makes money, it isn't going
to stay in
business. Public companies are required to report their earnings four times a
year (once each
quarter).
Dalal Street watches with great attention at these times, which are referred
to as earnings
seasons. The reason behind this is that analysts base their future value of a
company on their
earnings projection.
If a company's results are better than expected, the price jumps up. If a
company's results
disappoint and are worse than expected, then the price will fall.
28Of course, it's not just earnings that can change the feeling people have
about a stock. It would
be a rather simple world if this were the case! During the dotcom bubble,
for example, the
stock price of dozens of internet companies rose without ever making even the
smallest profit.
As we all know, these high stock prices did not hold, and most internet
companies saw their
values shrink to a fraction of their highs. Still, this fact demonstrates that
there are factors other
than current earnings that influence stocks.
So, what are "all the factors" that affect the stocks price? The best answer
is that nobody really
knows for sure. Some believe that it isn't possible to predict how stock
prices will change, while


Page | 27
others think that by drawing charts and looking at past price movements, you
can determine
when to buy and sell. The only thing we do know is that stocks are volatile
and can change in
price very very rapidly.
The reasons for which companies 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 needs to "raise
money". 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 under "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 through
29
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 isn't 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 isn't
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 isn't successful.


Page | 28
Stock Picking Having understood all the basics of the stock market and the
risk involved, now
we will go into stock picking and how to pick the right stock. Before picking
the right stock
you need to do some analysis.
There are two major types of analysis:
1. Fundamental Analysis
2. Technical Analysis
Fundamental analysis is the analysis of a stock on the basis of core financial
and economic
analysis to predict the movement of stocks price.
On the other hand, technical analysis is the study of prices and volume, for
forecasting of future
stock price or financial price movements.
Simply put, fundamental analysis looks at the actual company and tries to
figure out what the
company price is going to be like in the future. On the other hand technical
analysis look at
the stocks chart, peoples buying behavior etc. to try and figure out what the
stock price is
going to be like in the future.
In this article we will go into the basics of fundamental analysis.
Technical analysis is a little
more complicated. It is much more of an "art" than a science. It depends more
on experience
and involves some statistics and mathematics, so explaining technical analysis
is out of the
scope of this article.
Calculation of BSE SENSEX
30
This article explains how the value of the BSE Sensex or sensitive
index is calculated. If you
are not sure what we mean by the Sensex or what the Sensex is all about, you
can find this
out by reading our How to make money in the stock market? article.
The Sensex has a very important function. The Sensex is supposed to be an
indicator of the
stocks in the BSE. It is supposed to show whether the stocks are generally
going up, or
generally going down.


Page | 29
To show this accurately, the Sensex is calculated taking into consideration
stock prices of 30
different BSE listed companies. It is calculated using the free-float market
capitalization
method. This is a world wide accepted method as one of the best methods for
calculating a
stock market index.
Please note: The method used for calculating the Sensex and the 30 companies
that are taken
into consideration are changed from time to time. This is done to make the
Sensex an
accurate index and so that it represents the BSE stocks properly.
3 important things you must know and follow as an new investor!
You need to KNOW some unforgettable basics before you enter the world of
investing in
stocks. The stock market is a field dominated by savvy investors who know the
ins-and-outs of
the market. For people who are not on the inside, the stock market can be
a VERY dangerous
place. :
Don't even consider "tips" that tell you about "hot stocks". Consider the
source: There are many
people in the market who put in all their time and effort in promoting certain
stocks. They do
this because they have their money invested in those stocks. If they can get
enough people to
buy the stock and they can get the stock price to rise, they will sell the
stock for a huge price,
the stock price will crash and they will walk off to promote another stock.
Always use your own brain: It's extremely important. You must always use your
own brain.
Relying on the advice of others, no matter how well intentioned it may be, is
almost always a
complete disaster. Make sure you dig in and really examine the "facts about
the companies"
31
before you invest. Ignore press releases which have very little substance, and
rely on "hype" to
tell the company's story.
And finally the most important tip!!!


Page | 30
Only invest money you can afford to lose!! Sure this is a basic point, but
many many people
miss it. You should only invest money that you can honestly afford to lose!!
Everyone enters
into investments with the idea of earning big profits, but in many cases, this
never works.
(Especially if you are new to investing in the stock market!)
Please understand that the above tips are tips for beginners. Once you really
get into the stock
market you do not need to follow these rules anymore. But if you are a new
investor, you MUST
follow these rules. They are for your own safety.
But then again, nothing comes free. Everything has a price. You will have to
loose some money,
make some bad decisions and then only will you really understand the market.
You cannot
understand the market by just looking at it from far. By following these
rules, you will basically
not loose too much!
Derivatives
Commodities whose value is derived from the price of some underlying asset
like securities,
commodities, bullion, currency, interest level, stock market index or anything
else are known as
Derivatives.
In more simpler form, derivatives are financial security such as an option or
future whose value
is derived in part from the value and characteristics of another security, the
underlying asset.
It is a generic term for a variety of financial instruments. Essentially, this
means you buy a
promise to convey ownership of the asset, rather than the asset itself. The
legal terms of a
contract are much more varied and flexible than the terms of property
ownership. In fact, its this
flexibility that appeals to investors
32
.
When a person invests in derivative, the underlying asset is usually a
commodity, bond, stock, or


Page | 31
currency. He bet that the value derived from the underlying asset will
increase or decrease by a
certain amount within a certain fixed period of time.
Futures and options are two commodity traded types of derivatives. An
options contract
gives the owner the right to buy or sell an asset at a set price on or before
a given date. On the
other hand, the owner of a futures contract is obligated to buy or sell
the asset.
The other examples of derivatives are warrants and convertible bonds (similar
to shares in that
they are assets). But derivatives are usually contracts. Beyond this, the
derivatives range is only
limited by the imagination of investment banks. It is likely that any person
who has funds
invested, an insurance policy or a pension fund, that they are investing in,
and exposed to,
derivatives wittingly or unwittingly.
Shares or bonds are financial assets where one can claim on another person or
corporation; they
will be usually be fairly standardised and governed by the property of
securities laws in an
appropriate country.
On the other hand, a contract is merely an agreement between two parties,
where the
contract details may not be standardized.
Derivatives securities or derivatives products are in real terms contracts
rather than solid as it
fairly sounds.
India Commodity Market
33
The vast geographical extent of India and her huge population is aptly
complemented by the size
of her market. The broadest classification of the Indian Market can be made in
terms of the
commodity market and the bond market. Here, we shall deal with the former in
a little detail.
The commodity market in India comprises of all palpable markets that we come
across in our
daily lives. Such markets are social institutions that facilitate exchange of
goods for money. The


Page | 32
cost of goods is estimated in terms of domestic currency . India Commodity
Market can be
subdivided into the following two categories:
Wholesale Market
Retail Market
Let us now take a look at what the present scenario of each of the above
markets is like.
The traditional wholesale market in India dealt with whole sellers who bought
goods from the
farmers and manufacturers and then sold them to the retailers after making a
profit in the
process. It was the retailers who finally sold the goods to the consumers.
With the passage of
time the importance of whole sellers began to fade out for the following
reasons:
The whole sellers in most situations, acted as mere parasites who did not
add any value to
the product but raised its price which was eventually faced by the consumers.
The improvement in transport facilities made the retailers directly interact
with the
producers and hence the need for whole sellers was not felt.
In recent years,the extent of the retail market (both organized and
unorganized) has evolved in
leaps and bounds. In fact, the success stories of the commodity market of
India in recent years
has mainly centered around the growth generated by the Retail Sector. Almost
every
commodity under the sun both agricultural and industrial are now being
provided at well
distributed retail outlets throughout the country.
Moreover, the retail outlets belong to both the organized as well as the
unorganized sector. The
unorganized retail outlets of the yesteryears consist of small shop owners who
are price takers
where consumers face a highly competitive price structure. The organized
sector on the other
hand are owned by various business houses like Pantaloons, Reliance, Tata and
others. Such
34
markets are usually sell a wide range of articles both agricultural and
manufactured, edible and


Page | 33
inedible, perishable and durable. Modern marketing strategies and other
techniques of sales
promotion enable such markets to draw customers from every section of the
society. However
the growth of such markets has still centered around the urban areas primarily
due to
infrastructural limitations.
Considering the present growth rate, the total valuation of the Indian Retail
Market is
estimated to cross Rs. 10,000 billion by the year 2010. Demand for commodities
is likely to
become four times by 2010 than what it presently is.
Money Market
When the stock prices show a downward trend , then it becomes risky to keep
savings there.
Although the stock market is associated with high risks and high returns , many
are risk averse
and prefer to invest in the more secure money market .
The money market deals with very short term debt securities that mature in less
than a year.
Since the money market is extremely safe, it yields very low returns unlike
the bond market.
The money market securities that are issued by the government or financial
institutions or large
corporations are very liquid. Since the money market securities trade at very
high denominations
it becomes very difficult for the individual investors to have access to it.
The money market is a type of a dealer market where firms purchase securities
in their own
account by assuming the risks themselves. Unlike the stock exchanges the money
market
securities do not operate in exchanges or through brokers. Transactions take
place over phone or
the electronic system.
One may browse through the following links to have a more detailed information
about money
market.
Money Market Definition
Money Market Definition is simply meant as the short-term debt market.
Treasury Bills and
35


Page | 34
certificate of deposits are regarded as the instruments in the money market.
World Money Market
World Money Market has been providing origination, trading and the
distribution of short-term
debt instruments across different regions over the world. Find detailed on the
world money
market.
Money Market Index Money Market Index is a true indicator of the prevailing
money market,
which renders a clear-cut idea on making investment.
Money Market Rates
Money Market Rates can be simply defined as the market rates including the
broker call loan rate,
federal funds rate, rates on bankers' acceptance etc. Get the method of
finding the money market
rates.
Major Factors That Affect Stock Price in stock market globally
When you wish to invest in the stock market, then you should always make a
good survey of the
whole market. As you know that you cannot predict the stock market, so in that
case you need to
know the functioning of the market. There are some major factors that affect
stock price. So
let us discuss about the different factors affecting the stock price in this
article.
Demand AND SUPPLY
One of the major factors affecting stock price is demand and supply. The trend
of the stock
market trading directly affects the price. When people are buying more stocks,
then the price of
that particular stock increases. On the other hand if people are selling more
stocks, then the price
of that stock falls. So, you should be very careful when you decide to invest
in the Indian stock
market.
Market Cap
36
Never try to guess the worth of a company simply by comparing the price of the
stock. You
should always keep in mind that it is not the stock but the market
capitalization of the company


Page | 35
that determines the worth of the company. So market cap is another factor that
affects stock
price.
"Market Capitalization"?
You probably think that you have never heard of the term market
capitalization before. You
have! When you are talking about mid-cap, small-cap and large-cap
stocks, you are
talking about market capitalization!
Market cap or market capitalization is simply the worth of a company in terms
of its shares! To
put it in a simple way, if you were to buy all the shares of a particular
company, what is the
amount you would have to pay? That amount is called the market
capitalization!
To calculate the market cap of a particular company, simply multiply the
current share price
by the number of shares issued by the company! Just to give you an idea,
ONGC, has a market
cap of Rs.170,705.21 Cr (when this article was written)
Depending on the value of the market cap, the company will either be a mid-
cap or largecap
or small-cap company! Now the question is, how do YOU calculate the market
cap of a
particular company? You dont! Just go to a website like MoneyControl.com and
look up the
company whose market cap you are interested in finding out! The figure in
front of Mkt. Cap
will be the market cap value.
News
When you get positive news about a company then it can increase the buying
interest in the
market. On the other hand, when there is a negative press release, it can ruin
the prospect of a
stock. In this case you should remember that news should not matter much but
the overall
performance of the company matters more. So, news is another factor affecting
stock price.
Earning/Price Ratio
37
Another important factor affecting stock price is the earning/price ratio.
This gives you a fair


Page | 36
idea of a companys share price when it is compared to its earnings. The
stock becomes
undervalued if the price of the share is much lower than the earnings of a
company. But if this is
the case, then it has the potential to rise in the near future. The stock
becomes overvalued if the
price is much higher than the actual earning.
So, these are the major factors that affect stock price.
Day Trading
Day trading (and trading in general) is the buying and selling of various
financial instruments,
such as futures, options, currencies, and stocks, with the goal of making a
profit from the
difference between the buying price and the selling price. Day trading differs
slightly from other
styles of trading in that positions are rarely (if ever) held overnight or
when the market being
traded is closed.
Day trading was originally only available to financial companies (such as
banks), because only
they had access to the exchanges and market data. But with recent technology
such as the
Internet, individual traders now have direct access to the same exchanges and
market data, and
can make the same trades at very low cost.
Trading Styles
There are several different styles of day trading, suited to different day
trader personalities. The
styles range from short term trading such as scalping where positions are only
held for a few
seconds or minutes, to longer term swing and position trading where a position
may be held
throughout the trading day. Most day trading systems have a lot of
flexibility, and can have open
positions for anywhere from a few minutes to a few hours, depending upon how
the trade is
doing (whether it is in profit). Some day traders will trade multiple styles,
but most traders will
choose a single style and only take that type of trade.
38


Page | 37
Day trading also has different types of trade, such as trend trades, counter-
trend trades, and
ranging trades. Trend trades are trades in the direction of the current price
movement (i.e. buying
if the price is moving up), and counter-trend trades are trades against the
direction of the current
price movement (i.e. selling if the price is moving up). Ranging trades are
trades that go back
and forth between two prices, and are used when the market is moving sideways.
Most day
traders will choose a single type of trade, but some traders will take
different types, and choose
which one to trade depending upon the current condition of the market.
In addition to the style and type of day trading, there are other variances
between day traders.
Some day traders like to make many trades throughout the trading day, while
others prefer to
wait for what they consider the best conditions for their trade, and perhaps
only make one trade
per day. However many trades are made, the trading process that is used, and
the desired goal of
making a profit, are the same.
Current State of the Indian Economy:
Capital Inflows
During the April-January period of 2008-09, India attracted total foreign
investments of US
$ 15,545 million. The foreign direct investment (FDI) stood at US $ 27,426
million, while
the portfolio investment stood at US $ -11,881 million.
Monthly trends in foreign investments
($ million)
Months
Foreign direct
investments
Portfolio investments
Total foreign
investments
2007-08(P) 2008-09(P) 2007-08(P) 2008-09(P)
2007-
08(P)
2008-09(P)
April 1643 3749 1974 -880 3617 2869


Page | 38
May 2120 3932 1852 -288 3972 3644
39
June 1238 2392 3664 -3010 4902 -618
July 705 2247 6713 -492 7418 1755
August 831 2328 -2875 593 -2044 2921
September 713 2562 7081 -1403 7794 1159
October 2027 1497 9564 -5243 11591 -3746
November 1864 1083 -107 -574 1757 509
December 1558 1362 5294 30 6852 1392
January 1767 2733 6739 -614 8506 2119
February 5670 - -8904 - -3234 -
March 4438 - -1600 - 2838 -
April-
January
- 27426 - -11881 - 15545
Source: Reserve Bank of India (RBI)
Stock Market Trends
* NSE - 50, i.e., Nifty has been rechristened as ' S & P CNX Nifty with effect
BSE Sensitive Index
(Base : 1978 - 79 = 100)
BSE - 100
(Base : 1983 - 84 = 100)
S & P CNX Nifty *
(Base : November 3, 1995
= 1000)
Averag
e
High Low Average High Low Average
High Low
1 2 3 4 5 6 7 8 9 10
40Jan-08 19325.6
5
20873.33 16729.94 10526.54 11509.96 8895.64 5756.35 6287.85 4899.30
Feb-08 17727.5
4
18663.16 16608.01 9435.60 9969.59 8785.88 5201.56 5483.90 4838.25
Mar-
08
15838.3
8
16677.88 14809.49 8363.58 8907.23 7828.01 4769.50 4953.00 4503.10
Apr-0816290.9
9


Page | 39
17378.46 15343.12 8627.59 9240.57 8095.02 4901.91 5195.50 4647.00
May-
08
16945.6
5
17600.12 16275.59 8982.20 9348.64 8621.84 5028.66 5228.20 4835.30
June-
08
14997.2
8
16063.18 13461.60 7909.28 8488.62 7029.74 4463.79 4739.60 4040.55
July-
08
13716.1
8
14942.28 12575.80 7143.71 7760.32 6580.67 4124.60 4476.80 3816.70
Aug-0814722.1
3
15503.92 14048.34 7704.75 8101.48 7362.49 4417.12 4620.40 4214.00
Sept-
08
13942.8
1
15049.86 12595.75 7276.35 7860.87 6564.06 4206.69 4504.00 3850.05
Oct-08 10549.6
5
13055.67 8509.56 5432.92 6776.87 4343.21 3210.22 3950.75 2524.20
Nov-089453.96 10631.12 8451.01 4823.36 5396.09 4332.17 2834.79 3148.25
2553.15
Dec-08 9513.58 10099.91 8739.24 4864.55 5181.94 4443.50 2895.80 3077.50
2656.45
Jan-09 9350.42 10335.93 8674.35 4802.01 5328.95 4441.84 2854.36 3121.45
2678.55
41
INDICES
52 Week
Full Market
Capitalisation
Turnover
Close High Low (Rs. crore)
% to
Total
Mkt Cap


Page | 40
(Rs. crore)
% to Total
Turnover
SENSEX 14,060.66 17,293.34 7,697.39 2,120,875.46 47.08 2,622.93 31.17
MIDCAP 4,673.77 7,162.60 2,547.91 623,990.54 13.85 2,638.65 31.36
SMLCAP 5,208.18 8,802.18 2,864.24 211,367.38 4.69 906.68 10.77
BSE-100 7,285.25 9,186.01 3,949.13 3,450,102.13 76.59 5,528.28 65.69
BSE-200 1,692.43 2,157.02 921.75 3,897,398.18 86.52 6,917.42 82.20
BSE-500 5,240.70 6,890.08 2,899.28 4,262,866.24 94.64 8,019.12 95.29
BSE Sectoral Indices
AUTO 4,516.63 4,888.65 2,127.86 137,683.58 3.06 184.56 2.19
BANKEX 7,919.53 8,688.54 3,598.92 407,161.95 9.04 663.40 7.88
CD 2,516.14 4,774.05 1,428.75 12,251.27 0.27 48.02 0.57
CG 11,411.90 13,744.98 5,393.91 284,809.36 6.32 735.60 8.74
FMCG 2,112.10 2,505.60 1,549.27 182,863.45 4.06 128.70 1.53
HC 3,330.60 4,602.15 2,490.86 123,485.99 2.74 202.39 2.41
IT 2,853.96 4,746.59 1,987.81 253,874.53 5.64 272.77 3.24
METAL 9,907.46 17,408.60 3,806.79 373,805.71 8.30 660.86 7.85
OIL&GAS 9,607.54 11,472.37 4,569.45 807,925.77 17.94 977.77 11.62
POWER 2,741.62 3,312.77 1,274.88 533,748.38 11.85 756.38 8.99
PSU 7,427.20 7,750.93 3,853.28 1,346,803.04 29.90 668.18 7.94
REALTY 3,361.43 8,001.23 1,297.82 104,081.66 2.31 1,042.16 12.38
42
TECk 2,472.72 3,664.41 1,618.77 570,638.99 12.67 750.15 8.91
BSE Dollex Indices
DOLLEX-30 2,423.64 3,328.13 0.00 -- -- -- --
DOLLEX-
100
1,582.32 2,227.59 0.00 -- -- -- --
DOLLEX-
200
591.58 841.82 0.00 -- -- -- --
Note : The market capitalisation of all the indices is free float market
capitalisation except for BSEPSU.
Trends in Inflation
43
(1) Index Numbers Of Wholesale Prices in India ( Monthly Averages)
(Base: 1993-94 = 100)
Year Month All
Commodities
Primary
Articles
Fuel, Power,
Light &


Page | 41
Lubricants
Manufactured
Products
2006 January 196.30 194.78 310.80 171.28
February 196.43 192.88 314.10 171.40
March 196.75 191.90 315.50 171.90
April 199.02 195.84 317.00 173.76
May 201.30 200.63 320.08 175.05
June 203.10 205.05 324.73 175.30
July 204.02 202.76 326.94 177.00
August 205.28 204.93 328.80 177.83
September 207.76 211.72 330.32 179.08
44
Forex
An overview of the Forex market
The Forex market is a non-stop cash market where currencies of nations are
traded, typically via
brokers. Foreign currencies are constantly and simultaneously bought and sold
across local and
global markets and traders' investments increase or decrease in value based
upon currency
movements. Foreign exchange market conditions can change at any time in
response to real-time
events.
The main enticements of currency dealing to private investors and attractions
for short-term
Forex trading are:
24-hour trading, 5 days a week with non-stop access to global Forex
dealers.
An enormous liquid market making it easy to trade most currencies.
Volatile markets offering profit opportunities.
Standard instruments for controlling risk exposure.
The ability to profit in rising or falling markets.
Leveraged trading with low margin requirements.
Many options for zero commission trading.
Forex trading
The investor's goal in Forex trading is to profit from foreign currency
movements. Forex trading
or currency trading is always done in currency pairs. For example, the
exchange rate of


Page | 42
EUR/USD on Aug 26th, 2003 was 1.0857. This number is also referred to as a
"Forex rate" or
just "rate" for short. If the investor had bought 1000 euros on that date, he
would have paid
1085.70 U.S. dollars. One year later, the Forex rate was 1.2083, which means
that the value of
the euro (the numerator of the EUR/USD ratio) increased in relation to the
U.S. dollar. The
45
investor could now sell the 1000 euros in order to receive 1208.30 dollars.
Therefore, the
investor would have USD 122.60 more than what he had started one year earlier.
However, to
know if the investor made a good investment, one needs to compare this
investment option to
alternative investments. At the very minimum, the return on investment (ROI)
should be
compared to the return on a "risk-free" investment. One example of a risk-free
investment is
long-term U.S. government bonds since there is practically no chance for a
default, i.e. the U.S.
government going bankrupt or being unable or unwilling to pay its debt
obligation.
When trading currencies, trade only when you expect the currency you are
buying to increase in
value relative to the currency you are selling. If the currency you are buying
does increase in
value, you must sell back the other currency in order to lock in a profit. An
open trade (also
called an open position) is a trade in which a trader has bought or sold a
particular currency pair
and has not yet sold or bought back the equivalent amount to close the
position.
However, it is estimated that anywhere from 70%-90% of the FX market is
speculative. In other
words, the person or institution that bought or sold the currency has no plan
to actually take
delivery of the currency in the end; rather, they were solely speculating on
the movement of that
particular currency.
Forex-Forecasting


Page | 43
This article provides insight into the two major methods of analysis used to
forecast the behavior
of the Forex market. Technical analysis and fundamental analysis differ
greatly, but both can
be useful forecast tools for the Forex trader. They have the same goal - to
predict a price or
movement. The technician studies the effect while the fundamentalist studies
the cause of
market movement. Many successful traders combine a mixture of both approaches
for
superior results.
Analysis
Technical analysis is a method of predicting price movements and future market
trends by
studying charts of past market action. Technical analysis is concerned with
what has actually
46
happened in the market, rather than what should happen and takes into account
the price of
instruments and the volume of trading, and creates charts from that data to
use as the primary
tool. One major advantage of technical analysis is that experienced analysts
can follow many
markets and market instruments simultaneously.
Technical analysis is built on three essential principles:
1. Market action discounts everything! This means that the actual price is a
reflection of
everything that is known to the market that could affect it, for example,
supply and demand,
political factors and market sentiment. However, the pure technical analyst is
only concerned
with price movements, not with the reasons for any changes.
2. Prices move in trends Technical analysis is used to identify patterns of
market behavior that
have long been recognized as significant. For many given patterns there is a
high probability that
they will produce the expected results. Also, there are recognized patterns
that repeat themselves
on a consistent basis.
3. History repeats itself Forex chart patterns have been recognized and
categorized for over 100


Page | 44
years and the manner in which many patterns are repeated leads to the
conclusion that human
psychology changes little over time.
Forex charts are based on market action involving price. There are five
categories in Forex
technical analysis theory:
Indicators (oscillators, e.g.: Relative Strength Index (RSI)
Number theory (Fibonacci numbers, Gann numbers)
Waves (Elliott wave theory)
Gaps (high-low, open-closing)
Trends (following moving average).
Some major technical analysis tools are described below:
Relateve Strength Index (RSI):
47
iThe RSI measures the ratio of up-moves to down-moves and normalizes the
calculation so that
the index is expressed in a range of 0-100. If the RSI is 70 or greater, then
the instrument is
assumed to be overbought (a situation in which prices have risen more than
market
expectations). An RSI of 30 or less is taken as a signal that the instrument
may be oversold (a
situation in which prices have fallen more than the market expectations).
Stochastic oscillator:
This is used to indicate overbought/oversold conditions on a scale of 0-100%.
The indicator is
based on the observation that in a strong up trend, period closing prices tend
to concentrate in the
higher part of the period's range. Conversely, as prices fall in a strong down
trend, closing prices
tend to be near to the extreme low of the period range. Stochastic
calculations produce two lines,
%K and %D that are used to indicate overbought/oversold areas of a chart.
Divergence between
the stochastic lines and the price action of the underlying instrument gives a
powerful trading
signal.
Moving Average Convergence Divergence (MACD):
This indicator involves plotting two momentum lines. The MACD line is the
difference between


Page | 45
two exponential moving averages and the signal or trigger line, which is an
exponential moving
average of the difference. If the MACD and trigger lines cross, then this is
taken as a signal that
a change in the trend is likely.
Number theory:
Fibonacci numbers: The Fibonacci number sequence (1,1,2,3,5,8,13,21,34...) is
constructed by
adding the first two numbers to arrive at the third. The ratio of any number
to the next larger
number is 62%, which is a popular Fibonacci retracement number. The inverse of
62%, which is
38%, is also used as a Fibonacci retracement number.
48
Gann numbers:
W.D. Gann was a stock and a commodity trader working in the '50s who reputedly
made over
million in the markets. He made his fortune using methods that he developed
for trading
instruments based on relationships between price movement and time, known as
time/price
equivalents. There is no easy explanation for Gann's methods, but in essence
he used angles in
charts to determine support and resistance areas and predict the times of
future trend changes. He
also used lines in charts to predict support and resistance areas.
Waves
Elliott wave theory: The Elliott wave theory is an approach to market analysis
that is based on
repetitive wave patterns and the Fibonacci number sequence. An ideal Elliott
wave patterns
shows a five-wave advance followed by a three-wave decline.
Gaps
Gaps are spaces left on the bar chart where no trading has taken place. An up
gap is formed
when the lowest price on a trading day is higher than the highest high of the
previous day. A
down gap is formed when the highest price of the day is lower than the lowest
price of the prior
day. An up gap is usually a sign of market strength, while a down gap is a
sign of market


Page | 46
weakness. A breakaway gap is a price gap that forms on the completion of an
important price
pattern. It usually signals the beginning of an important price move. A
runaway gap is a price
gap that usually occurs around the mid-point of an important market trend. For
that reason, it is
also called a measuring gap. An exhaustion gap is a price gap that occurs at
the end of an
important trend and signals that the trend is ending.
Trends
A trend refers to the direction of prices. Rising peaks and troughs constitute
an up trend; falling
peaks and troughs constitute a downtrend that determines the steepness of the
current trend. The
breaking of a trend line usually signals a trend reversal. Horizontal peaks
and troughs
characterize a trading range.
Moving averages are used to smooth price information in order to confirm
trends and support
and resistance levels. They are also useful in deciding on a trading strategy,
particularly in
futures trading or a market with a strong up or down trend.
49
The most common technical tools:
Coppock Curve is an investment tool used in technical analysis for
predicting bear market lows.
DMI (Directional Movement Indicator) is a popular technical indicator used to
determine
whether or not a currency pair is trending.
Unlike the fundamental analyst, the technical analyst is not much concerned
with any of the
"bigger picture" factors affecting the market, but concentrates on the
activity of that instrument's
market.
Fundamental analysis
Fundamental analysis is a method of forecasting the future price movements of
a financial
instrument based on economic, political, environmental and other relevant
factors and statistics
that will affect the basic supply and demand of whatever underlies the
financial instrument. In


Page | 47
practice, many market players use technical analysis in conjunction with
fundamental analysis to
determine their trading strategy. Fundamental analysis focuses on what ought
to happen in a
market. Factors involved in price analysis: Supply and demand, seasonal
cycles, weather and
government policy.
Fundamental analysis is a macro or strategic assessment of where a currency
should be trading
based on any criteria but the movement of the currency's price itself. These
criteria often include
the economic condition of the country that the currency represents, monetary
policy, and other
"fundamental" elements.
Many profitable trades are made moments prior to or shortly after major
economic
announcements.
50
What happened in 2008?
Sensex was crossed 21,000 levels in January and analysts predicted 25,000
levels but Sensex fell
to 7,800 in October. Experts are now talking about 7,000 targets in 2009. But
todays it has been
touch the point 14000 due to government stability.
2. Rupee strengthened to 39 against dollar and analysts like ICICI Kamat
predicted 35 levels but
rupee fell to 50 levels. Experts are now talking about 55 against dollar in
2009.
3. Crude Oil prices touched $147 per barrel and Goldman Sachs talked about
$200 per barrel
but crude oil in now trading around $45 levels. Experts are now talking about
$30 per barrel in
20094. Inflation moved to 13% and analysts talked about 15% but inflation fell
to 8% in
December. Experts are now talking about 4% levels in 2009. They are actually
now talking
about deflation.
5. Indian GDP grew at 9% in 2007-08 and analysts predicted about 10% growth
in 2009.
Experts are now talking about 7% GDP growth in 2008-09 and 5% GDP growth in
2009-10.


Page | 48
6. Commodities traded around all time high levels in June, 2008 but they
collapsed to 2003
levels in December, 2008. Companies are now shutting down plants and are
removing
employees due to lack of demand and piling up of inventories.
7. Investment banking is the most sought after industry in early 2008. They
are now either
disappeared or merged with banks.
51
8. Real Estate prices reached stratospheric levels in early 2008 but investors
bought them as if
there will be no land available for purchase in 2009. They are now announcing
bonuses and free
offers to attract buyers. Many real estate stocks were corrected by 70-90% in
this year alone. We
will hear some bankruptcies in 2009 in this sector. DLF and Unitech will cut
prices by 30% in
2009.
Investment lessons from 2008:
1. Unlike in past, stock markets now become more dynamic, more volatile and
more
unpredictable due to more global integration of economy and money flows.
2. Stock market investors will never react normally they will either
overreact or under react to
the economic or political events. One should take into consideration this
psychological aspect
along with business fundamentals in arriving at price target.
3. As I said in my previous posts, stock markets always move much ahead of
real economy. If
real economy will suffer in early 2009, stocks fell by October, 2008. If
economic conditions will
improve by early 2010, stocks will rise by late 2009.
4. Timing: It is very difficult to time the stock market investments. 80% of
price variations occur
in 20% of days time of maximum profits and losses. On 18 May we have been
seen more
variation in recession time market has been touched the level of 14000 with
growth of 2100
points
5. Significant falls or rises do not occur in slow motion. They are steep and
severe.


Page | 49
6. Never follow herds. Believe in your research and gut feeling. Just see what
happened to
investors in Reliance Power IPO.
7. Biggest investment lesson: When investors are in panic mood, even good
companies with
strong growth prospects also fall along with bad overvalued stocks.
Significant statements:
1. RBI Governor: The global economic crisis is turning out to be deeper
and longer than we
had earlier expected, the impact on India is also turning out to be stronger
than we had earlier
expected. This is the frank statement from Subbarao. How long Government
will deceive
people on this unmanageable issue? Biggest problem with this crisis is no one
in the world
52
knows about magnitude and duration of financial crisis. According to RBI
Governor, 2009-10
may be a more difficult year.
2. Commerce Minister: Government will announce second stimulus package in
the next week.
Textiles, Agriculture and Construction are the priority sectors for Government
in the next
package.
3. Jack Welch (former GE Chairman): The terror strike in Mumbai could well
tilt the focus
of foreign investors towards neighboring China. This is the perception of
foreigners about India.
Many investors will be thinking about tilting the balance to China. How
Indias leaders respond
to the Mumbai attacks will tell the business world what it wants and needs to
know. Not just
whether to pull back from India but how risky pushing forward will be.
4. Rakesh Jhunjhunwala: India will see the mother of all bull runs in the
next 4 or 5 years,
boosted by double-digit economic growth and increased investment by domestic
investors,
including pension and insurance funds.
5. World Bank: The financial crisis is now likely to result in the most
serious recession since
the 1930s.


Page | 50
6. International Energy Agency (IEA): for the first time in 25 years, demand
for crude falls.
This is the first drop for crude oil demand since 1983.
Significant statistics:
1.Reuters poll: India's economy is expected to grow at its slowest pace in six
years in the fiscal
year to March 2009. Indian GDP growth will be around 6.8% in 2008-09 and 6.2%
in 2009-10.
Indian economy never grew less than 7.5% in the last 5 years. According to
World Bank, India
will grow by 5.8% in 2009.
It estimates for Indian GDP: 6.2% in 2008-09, 5% in 2009-10 and will be around 7%
in
2010-11.
53
2. New claims for unemployment benefits reached their highest level
(5,73,000) in 26 years in
USA. These job losses will have cascading effect on real economy. More than 20
lakh
Americans will lose jobs in 2009 and unemployment rate will touch 9% level in
2009.
3. McKinsey report: United States credit losses may top $3 trillion. These
losses will increase if
another major asset class will collapse
4. Goldman Sachs: China GDP growth for 2009 is around 6%. Shocking! China
will grow at
9% in 2010 if Government takes proper simulative decisions. India will be in
election mood
when we need these measures.
5. World Bank: Global trade will fall for the first time since 1982. World
economy will grow
by 0.9% in 2009 and inflows to developing countries will fall by 50%.
6. Asian Development Bank (ADB): Growth rates of China and India will be at
8.2% and 6.5%
respectively in 2009. India needs particular attention, given its weaker
fiscal position.
7. China: Exports fell by 2.2% in November, the first decline since June 2001
- the largest yearover-
year monthly decline since April 1999.
8. DLF and Unitech may lower property prices by 30% in mid-2009 to stimulate
buyers.
Positive Stock market news:


Page | 51
1. Government stability is big positive reason for sensex.
2. Global Telecom Companies are planning to buy 20-25% stake in Reliance
Communications.
R-Com stock lost 70% of value in 2008. Anil Ambani family holds 67% stake in
the company.
This deal is beneficial for investors as only 12% of shares are available for
trading after this
purchase in the secondary market. Promoter will not reduce his holding.
3. Manpower survey: India is the second most optimistic employment market
in the world but
there will freezing in hiring in the next 3 months. IT and Hospitality sectors
are the worst
affected while Telecom is the most optimistic one.
54
FCCB shocks: Foreign currency convertible bonds (FCCBs?) of many companies
will be due
for repayment in the next 3 years. As stock markets are unlikely to recover in
the next 12-15
months, it is interesting to see how promoters will clear their dues. We may
hear some shocking
news on this front in the next 2 years.
NPA shocks:
Many people are underestimating the impact of Non Performing Assets (NPAs).
NPAs will
affect in 2 ways. NPAs will not only propel the negative sentiment but
increase the banks
reluctance to give loans which will once again destroy the positive aspects of
the bailout
packages. Only positive aspect is many PSU banks reported fall in NPAs in 2008
over 2007
except SBI and IOB.
NPA statistics:
NPAs of ICICI Bank in 2007: Rs 5,930 crore.
NPAs of ICICI Bank in 2008: Rs 9,500 crore..
Interesting statistics about Asian and World economies:
1. World Bank estimates:
A. November, 2008: World economy will grow by 2.2% in 2009.
B. December, 2008: World economy will grow by 0.9% in 2009.
2. ADB estimates about Asian economy in 2009:
A. September, 2008: Asian economy will grow by 7.2% in 2009.
B. December, 2008: Asian economy will grow by 5.8% in 2009.
3. ADB estimates about Asian economy in 2008:


Page | 52
A. September, 2008: Asian economy will grow by 7.5% in 2008.
B. December, 2008: Asian economy will grow by 6.9% in 2008.
55
4. Current P/E of Sensex: 10.
P/E of Sensex in 2008 economic slowdown: 9.5
This is a much severe crisis than 2001 slowdown.
Effect of fluctuation on Indian stock market
Nothing actually. The economy is as sound as it was in the boom time. The
companies are as
profitable as they were a few days ago. Yet, the market crashed because the
Government tried to
instill some sort of regulation in it.
Let me explain it a bit : As I wrote in my last article that a major portion
of the money being
invested into the share market is coming from FIIs (Foreign Institutional
Investors). The cause of
concern for the Government was that in this major share of FIIs, more than
half was in the form
of hot money being invested into the market by anonymous investors who pump
money into the
market by utilizing the Participatory Note (PN) facility. All those foreign
investors who are not
registered with the SEBI (Stock Exchange Board of India), the regulatory body
for stocks in
India, can not directly deal in buying/selling of sticks. So they took a sort
of permission from
registered FIIs by buying Participatory Notes (PN) from them in exchange of
dollars, which
ultimately allows them trade in the market.
Though, this concept of allowing anonymous investors in the market broaden the
reach of the
market, it also ensure free entry of dollars into Indian economy as well as
increase the
percentage of hot money in the market. The hot money is that kind of money
which is invested
only for a short time to make some quick buck. It is not invested with a long
term mindset. Since
the continuous inflow of dollar into Indian economy is making the Indian
currency (Rupee)
stronger and thus making the export costlier, the Government was looking for
someway to curb


Page | 53
this inflow of dollars. Making the availability of Participatory Notes some
difficult for foreign
investors was one step Government thought would help control the inflow of
dollars. So a few
days ago the SEBI contemplated on a draft policy to make the issuing of PN
difficult for FIIs.
56
This was the step which gave a jolt to the buying spree of FIIs. As people
found that it would be
difficult to trade in the market in future owing to non-availability of PN,
they started exiting
form the market by selling their stock.
Result- the market fell more than a 1000 point in a few hours and had to shut
down for some
time. Ultimately the Government had to rush in to alleviate the growing
concern of Investors by
stating that it would not control the issuing of PN to investors. This news
will from the Business
standard give you some detail of this exercise done by the Government.
As of now the market is still fluctuating and is yet to be stabilized.
However, I think that in all
probability, it will continue itas upward swing despite such momentary
crash. The main
reason of my belief is that the Indian economy as a whole is performing very
well Same is the
case with most Indian companies listed in the market.
With the above note, here are some of my observations on what can happen if
the stock market
boom continues for lone in India:
First some positive one
First of all if this boom continues for long, soon the richest person in the
world will be an Indian.
On the last count (as per a leading newspaper report) Mukesh Ambani, the
chairman of Reliance
group was earning Rs 40 Lakhs ($ 100000) per minute. Yes you read it write.
$100000 per
minute ! Though it has much to do with his huge and expanding empire of
Reliance industries, it
is also because of the appreciation in the price of the shares of Reliance
industries.


Page | 54
Secondly most investors, who are in the market for quite sometime, are going
to become really
rich. The word crorepati (multimillionaire) can soon become a common thing in
India all thanks
to share market.
However, there is a word of caution here. As this boom is being driven by FIIs
(Foreign
Institutional Investors), we must not forget that these people are here only
till they find a new
market more profitable than India. Once they find a place which offer better
return on their
investment than India, they will immediately shift there. Though, there is
only a remote
possibility of that as of now, you never know what can happen in future.
Thats why most expert
57
are advising people to stick to their long-term investment plan and dont
make any move in
haste.
Owing to stock market boom, there is another very interesting situation being
faced by
Reserve Bank of India(RBI) (the leading central bank which decides various
economic policies
here just like the Federal Reserve Bank of US.) The investment being made by
FIIs in Indian
share market has resulted in to a huge inflow of dollars into the economy. The
RBI is facing
difficultly in managing this continuous inflow of dollars as their huge supply
and easy
availability has resulted into dollaras depreciation vis-A -vis Rupee. The
Rupee is becoming
stronger to dollar thus making imports cheaper and export costlier. Some of
our major export
oriented industries such as Softwares and textiles are feeling the heat every
day. The profits
margin of these industries have reduced as it mostly depend on current value
of dollar. There is a
pressure on Government to mange the appreciation of rupee to favour exporters.
Ironically, this
can only be done if Government put some break on the inflow of dollars by FIIs
which will


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actually mean putting a break on stock market boom. (it actually happened some
days ago as I
described above) Government certainly donat want to spoil the party that is
going on in the
stock market. However, the continued depreciation of dollar is also a cause of
deep concern
which needs to be addressed.
The last but not the least is the overvaluation of many stocks in the market.
Some experts have
opined that market is trading at 22 to 23 times of actual earning and no one
can justify these
valuations.
In nutshell if I am to summarize this boom of stock market, I must say that
this boom is not
going to last forever as it is dependent on some very volatile factors that
may change in the times
to come. As I explained in my earlier article, a increase in interest rate in
US may reverse this
flow of FIIs. Or we may see emergence of a new market with great potential on
some other place
on earth. All these things, if happen, can put a break on this boom.
Recession
A recession is a decline in a country's gross domestic product (GDP) growth
for two or more
consecutive quarters of a year. A recession is also preceded by several
quarters of slowing down.
58
Causes of recession
An economy which grows over a period of time tends to slow down the growth as
a part of the
normal economic cycle. An economy typically expands for 6-10 years and tends
to go into a
recession for about six months to 2 years.
A recession normally takes place when consumers lose confidence in the growth
of the economy
and spend less.
This leads to a decreased demand for goods and services, which in turn leads
to a decrease in
production, lay-offs and a sharp rise in unemployment.
Investors spend less as they fear stocks values will fall and thus stock
markets fall on negative
sentiment.


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Stock markets & recession
The economy and the stock market are closely related. The stock markets
reflect the buoyancy of
the economy. In the US, a recession is yet to be declared by the Bureau of
Economic Analysis,
but investors are a worried lot. The Indian stock markets also crashed due to
a slowdown in the
US economy.
The Sensex crashed by nearly 13 per cent in just two trading sessions in
January. The markets
bounced back after the US Fed cut interest rates. However, stock prices are
now at a low ebb in
India with little cheer coming to investors.
When the global economy has been cooling down, and the financial sector in
particular has been
heading from one cold shower to the next, it was inevitable that stock markets
around the world
would start catching the chill.
The way in which Asian stock prices responded last week to the fall of the Dow
Jones and
Nasdaq indices by 4 per cent, hitting a 10-month low, has also punctured a
hole in the
decoupling argument (which said Asia would not be hit by an America-based
problem) that had
become fashionable in recent weeks.
Investors around the world have taken note of the fact that the broad-based
S&P 500 index is at a
16-month low, along with European stocks. And investors seem to have little
faith in the Bush
rescue plan's ability to ward off a recession in the US. The Fed will almost
certainly respond
with sharp cuts in interest rates towards the end of the month, but the market
has already
59
discounted for that.
Indian markets worst hit
It is interesting that Indian markets were hit the most, among all Asian
markets. This may have
been because the correction in the overheated Chinese stock market began some
weeks ago.
Investors will also have noticed that the third-quarter corporate numbers show
significant


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deceleration in both sales and profit growth, when compared to the same
quarter a year earlier.
When coupled with the data showing that the export target for the year will be
missed by a wide
margin, and that the industrial sector has suffered a sharp slowdown, it was
inevitable that stock
prices would have to come off their dizzy highs.
What began with profit-booking and unwinding of long positions cascaded on
Friday into a 3.5
per cent decline in the Sensex. Foreign institutional investors had moved to
the sidelines in the
secondary markets even earlier, and FIIs have been net sellers to the tune of
Rs 2,200 crore (Rs
22 billion) in January. Also relevant was the Reliance Power IPO, which pulled
in a record
amount of application money (Rs 1,15,000 crore (Rs 1,150 billion)). Even if a
third or a fourth
of that was being garnered by sale of stocks, it is a large enough sum for the
market to go into
correction mode.
There is no doubt that valuations had become expensive. Even after the 10 per
cent correction
from the market's peak, the Sensex trades at a trailing P/E multiple of 24.5,
which is not cheap in
anyone's book.
Yet, buying may soon begin
A global liquidity surplus had certainly contributed to momentum buying. The
question is
whether the correction that has occurred so far is enough for fresh buying to
emerge, or whether
a further fall is required before value-based buying starts.
On a forward basis, the Sensex trades at an FY09 estimated P/E of 18. The
floor therefore would
probably be a Sensex level of 17,000-odd -- which would mean wiping out the
gains of the past
three months, no more. Provided the general economic and corporate news does
not get worse
than has already been anticipated, fresh buyingcannot be very far away.
Impact of a US recession on India
A slowdown in the US economy is bad news for India.


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60Indian companies have major outsourcing deals from the US. India's exports
to the US have also
grown substantially over the years. The India economy is likely to lose
between 1 to 2
percentage points in GDP growth in the next fiscal year. Indian companies with
big tickets deals
in the US would see their profit margins shrinking.
The worries for exporters will grow as rupee strengthens further against the
dollar. But experts
note that the long-term prospects for India are stable. A weak dollar could
bring more foreign
money to Indian markets. Oil may get cheaper brining down inflation. A
recession could bring
down oil prices to $70.
Between January 2001 and December 2002, the Dow Jones Industrial Average went
down by
22.7 per cent, while the Sensex fell by 14.6 per cent. If the fall from the
record highs reached is
taken, the DJIA was down 30 per cent in December 2002 from the highs it hit in
January 2000.
In contrast, the Sensex was down 45 per cent.
The whole of Asia would be hit by a recession as it depends on the US economy.
Asia is yet to
totally decouple itself (or be independent) from the rest of the world, say
experts.
Black Monday saw bloodbath on Dalal Street as the Indian stock markets crashed
by over 1430
points in afternoon trade (the market has since then recovered somewhat),
reminding investors
that there is no one-way bet on the stock market.
factors.
One, there is a change in the global investment climate. One of the primary
triggers is the huge
fear of the United States' economy going into a recession with foreign
institutional investors
trying to reallocate their funds from risky emerging markets to stable
developed markets.
Analysts are now expecting a cut in US interest rates.
Hedge funds and FIIs could have been the biggest sellers in the Indian
markets, booking profits


Page | 59
and making the most of the unprecedented bull run that has dominated the
Indian stock market
for a long time now.
The current volatility is also linked to global bourses. There is a big
correlation among global
markets. The presence of hedge funds across asset classes, along with
increased global
movement of capital, has increased event-related volatility.
61
Volatility in commodities markets has also significantly affected equity
markets.
A combination of global and local factors is affecting this market, said Mihir
Vora of HSBC
Mutual Fund, on NDTV Profit. On the global front, other emerging markets were
down nearly
20% so India is playing catch-up, he said.
On the local front there has been a huge build-up in derivatives positions and
volatility led to
margin calls. Also many IPOs have sucked out liquidity from the primary market
into the
secondary market, said Vora. At current levels it would be a buy call and we
would not advise
investors to wait to catch the bottom, he added.
Analysts expect the markets to continue to be choppy for a while till global
liquidity and
commodity prices settle in. With the markets falling, a technical correction
in the derivatives
segment has perpetrated a larger fall.
The Sensex can fall another 10-15%, said Adrian Mowat of JP Morgan, on NDTV
Profit.
India is trading at 65% premium to emerging markets and India is playing
catchup with other
declining global markets, he added. There is no need to get very pessimistic
that this is the end
of equity investing in India, he said. This could be seen as a buying
opportunity and we will revisit
market valuations after the correction, he added.
62
63
Strength:
High return


Page | 60
Large investment
Acquire capital
for expanding the
business
Secure the future
losses
Weakness:
High risk
Based on the
fluctuation. It
becomes high
loss when market
goes down.
Cant predict
future
Opportunity:
Lot of people
wants to invest
but dont invest
due to insufficient
knowledge.
Market is
providing new
opportunities and
new options to
invest.
Threat :
Recession
New government
Bubble burst
Fluctuates dollar
prices
S
W
O


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T
a
n
al
y
si
s:
Conclusion:
Through this research we can conclude that:
Stock market fluctuates by the external environment.
Stock market is all about future prediction.
Stock market is very sensitive market.
It is based on high risk and high return.
Comparatively stock market is less risky than the other market and
generates more
money for the economy
One who have good knowledge in stock market, may survive in the market and
generates
profits or good return whether the market is down
Investors should not invest on the basis of rumors they must observe the
market
condition or trends Indian economy and than invest If they wanna generate good
return.
64
Bibliography
Text books
The Stock Market-The Stock Market - Rik W.Hafer, Scott E. Hein, R. W.Hafer work
package no. 6,7 & 8
Investment Analysis and portfolio management-M Raghunathan, Madhumati page
no. 23,24,26,28,200,209
Journals and magazines
JARN, Published Feb 2009


Page | 62
Business today
Business standard
Websites:
www.tdd.ltslnewsStock_ExchangesStock.htm
www.stockmarkets.com
www.bseindia.com
http://econ.worldbank.org
www.icai.org
http://en.wikipedia.org -
www.tradingstock.com
The economics times