INTRODUCTION

1. Continuous and ready market for securities

Stock exchange provides a ready and continuous market for purchase and sale of securities. It
provides ready outlet for buying and selling of securities. Stock exchange also acts as an
outlet/counter for the sale of listed securities.

2. Facilitates evaluation of securities

Stock exchange is useful for the evaluation of industrial securities. This enables investors to
know the true worth of their holdings at any time. Comparison of companies in the same industry
is possible through stock exchange quotations (i.e price list).

3. Encourages capital formation

Stock exchange accelerates the process of capital formation. It creates the habit of saving,
investing and risk taking among the investing class and converts their savings into profitable
investment. It acts as an instrument of capital formation. In addition, it also acts as a channel for
right (safe and profitable) investment.

4. Provides safety and security in dealings

Stock exchange provides safety, security and equity (justice) in dealings as transactions are
conducted as per well defined rules and regulations. The managing body of the exchange keeps
control on the members. Fraudulent practices are also checked effectively. Due to various rules
and regulations, stock exchange functions as the custodian of funds of genuine investors.

5. Regulates company management

Listed companies have to comply with rules and regulations of concerned stock exchange and
work under the vigilance (i.e supervision) of stock exchange authorities.

6. Facilitates public borrowing

Stock exchange serves as a platform for marketing Government securities. It enables government
to raise public debt easily and quickly.

7. Provides clearing house facility

Stock exchange provides a clearing house facility to members. It settles the transactions among
the members quickly and with ease. The members have to pay or receive only the net dues
(balance amounts) because of the clearing house facility.

8. Facilitates healthy speculation

Healthy speculation, keeps the exchange active. Normal speculation is not dangerous but
provides more business to the exchange. However, excessive speculation is undesirable as it is
dangerous to investors & the growth of corporate sector.

9. Serves as Economic Barometer

Stock exchange indicates the state of health of companies and the national economy. It acts as a
barometer of the economic situation / conditions.

10. Facilitates Bank Lending

Banks easily know the prices of quoted securities. They offer loans to customers against
corporate securities. This gives convenience to the owners of securities.

A Stock Exchange, share market is a corporation or mutual organization which

provides facilities for stock brokers & traders to trade company stock & other
securities stock exchange also provide facilities for the issue & redemption of
securities as well as other financial instrument and capital events including the
payment of income & dividends. The securities trade on a stock exchange include.
1
2
3
4

Shares issued by companies

Unit trusts
Other pooled investment product
Bonds

To be able to trade a security on a certain stock exchange, it has to be listed there.

Usually there is central location at least for record keeping, but trade is less & less
linked to such a physical place, as modern market are electronic network, which
gives them advantages of speed & cost f transaction.
Trade on an exchange is by members only. The initial offering of stocks & bonds to
investors is by definition done in the primary market & subsequent trading is done
in the secondary market.
A stock exchange is often the most important component of stock market supply &
demand in stock market is driven by various factors which, as in all free market
affects the price of stocks.

Share BrokerA broker is member of recognized stock exchange, who is permitted to do trade on
the floor of the exchange. He is enrolled as a member with the concerned exchange
& is registered with SEBI.
Sub-Broker
A sub-broker is person who is registered with SEBI as such & is affiliated to a
member recognized stock exchange.
Registration of Broker and Sub-Broker
A Brokers registration no. beginning with the letters INS
Charging of Brokerage
The maximum brokerage that can be charge by a broker is decided by stock
exchange as per the exchange resolution. The SEBI 1992 stipulates that Subbrokers cannot charge from his client a commission which is more than 1.5% of
the value mentioned in the respective purchase or sale note.
Brokerage
Brokerage is commission charged on transaction of purchasing or selling of shares
by Broker.
Pay-in-day
Pay-in-day is the day when the brokers shall make payment or securities to the
exchange.
Pay-out-day
Pay-out-day is the day when the exchange makes payment or securities to the
brokers.
Since settlement cycle has been reduced from T+3 rolling settlement to T+2 from
01st April 2015, the exchange have to ensure that the pay out of fund and securities
to client is done by the broker within 24 hrs. of the payout. The exchange will have
to issue press release immediately after payout.

METHODOLOGY
To assess the impact of FIIs flows into Indian stock market on the return offered by
the market is one of the primary objectives of the present study. As mentioned
previously in this chapter, Bombay Stock Exchange Ltd. has been taken to
represent the Indian stock market. Established in 1875, BSE is not only the oldest
stock exchange in India, but us also the oldest in Asia. It accounts for over one
third of the total trading volume in the country. National Stock Exchange (NSE),
located in Bombay was set up in 1993 to encourage modernization and
competition. National Stock Exchange, which was open for trading in mid 1994,
has trading volume substantially larger than BSE Ltd. Despite the NSE being the a
prominent stock exchange in the India, its most popular index S&P CNX Nifty is
not considered to compute the return and to find impact of FII flows on them. The
reason being the non-existence of return data prior to 1992 when foreign investors
were permitted to trade at Indian bourses. Hence, the return at BSE SENSEX
forms the basis for the analysis of impact of FII flows. The stocks in BSE SENSEX
are the ones in which the FIIs are most likely to invest in. Figure 3.1 shows the
movement of BSE SENSEX with FII flows starting January 1993.

For analyzing the return on the Bombay Stock Exchange, Autoregressive Moving
Average (ARMA) model has been used. ARMA (p, q) is a commonly used
econometric technique for forecasting of interrelated time series. The emphasis of
this model is not on constructing a single equation or simultaneous equation
models but on analyzing probabilistic or stochastic properties of economic time
series on their own under the philosophy let the data speak for themselves. Unlike
the other regression models in which Yt is explained by the k regressors X1, X2,
X3.Xk, the ARMA model allows Yt to be explained not only by the
external variables but by the past or lagged values of Y itself and stochastic error
terms also. In order to determine the regression equation used under the ARMA
Model, it is essential to determine the regressors and AR and MA terms. To find
the impact of foreign institutional investment on Indian share market return, it is
important to remove market wide influence in India (i.e. information related to
inflation, growth forecast, interest rate etc. Therefore, following factors have been
taken to specify the regression equation.
Risk in the Return of Domestic Market
Return of the US Market (S & P 500)
Risk in Return of US Market
Exchange Rate US $ v/s Indian Rupee
Growth Rate of the Economy Represented by Index of Industrial Production
Indian Interest Rate (3months Treasury Bill Rate)
Federal Bank Interest Rate (3 months Treasury Bill Rate)

As the main motive was to determine the impact of the foreign institutional
investment on the Indias stock market return, FIIs net investment was also taken
as a explanatory variable. To determine the impact of FIIs investment on Indian
market daily data was taken from 1st January 1986 to 31 December 2007. FIIs
were introduced in India in September 1992, the data of FIIs investment is not
available prior to 1992 so foreign institutional investment was taken as a dummy
variable which takes zero and one value for pre and post liberalization period
(September 1992) respectively. The results of a recent study conducted by Bodla B.
S. & Kiran Jindal (2006) indicate that there is no day of the week effect in Indian
as well as US stock market. Therefore, we have not taken day of the week
dummies into consideration while analyzing the data. As it is specified that we will
use ARMA model to find out the impact of FII flows on stock market return so
thats the time to determine the order of Autoregressive (AR) and Moving Average
(MA) term of ARMA model. The autoregressive (AR) term refers to the lagged
value of time series involved in the regression equation while the Moving average
(MA) term is moving average of current and past error terms. In order to identify
the degree of AR and MA terms, autocorrelation function (ACF) and partial
autocorrelation function (PACF) were plotted by calculating and graphing the
residuals calculated from the following equation.

OBJECTIVES
To get a basic understanding of the products, players and functioning of
financial markets, particularly the capital market.
To understand the terms and jargons used in the financial newspapers and
periodicals.
To understand the various products, participants and the functions of the
securities market.
To know the regulatory framework for the Indian securities market.
To understand the concept of mutual funds.
To know about the roles of different players viz., custodians, asset
management companies, sponsor etc. in the mutual fund industry.
To learn about the tax and regulatory issues related to mutual funds.
To understand the fundamentals of Net Asset Value (NAV) computation and
various investment plans.
To understand the concept of derivative.
To learn the types of derivative products and their application.
To learn about the the trading of derivatives on the stock exchanges.
To understand the capital market trading operations.
To learn the other important regulatory aspects.
To learn the basics of the derivatives market

 To understand the use of derivative products in speculating, hedging and

arbitraging
To learn the trading, clearing, settlement and risk management in equity
derivatives
To have a practical orientation towards the principles of investment, pricing
and valuation.

To learn the various methodologies of financial analysis.

Analysis
STOCK ANALYSIS
Stock analysis is a term that refers to the evaluation of a particular trading instrument, an
investment sector or the market as a whole. Stock analysts attempt to determine the future
activity of an instrument, sector or market. There are two basic types of stock analysis:
fundamental analysis and technical analysis. Fundamental analysis concentrates on data from
sources including financial records, economic reports, company assets and market share.
Technical analysis focuses on the study of past market action to predict future price movement.
Stock analysis is a method for investors and traders to make buying and selling decisions. By
studying and evaluating past and current data, investors and traders attempts to gain an edge in
the markets by making informed decisions. Many people who subscribe to fundamental analysis
don't hold much faith in technical analysis, and vice versa.
Fundamental Analysis
Fundamental analysis is a method of evaluating a security in an attempt to measure its intrinsic
value, by examining related economic, financial and other qualitative and quantitative factors.
Fundamental analysts study anything that can affect the security's value, including
macroeconomic factors such as the overall economy and industry conditions, and microeconomic
factors such as financial conditions and company management. The end goal of fundamental
analysis is to produce a quantitative value that an investor can compare with a security's current
price, thus indicating whether the security is undervalued or overvalued.
Fundamental analysis determines the health and performance of an underlying company by
looking at key numbers and economic indicators. The purpose is to identify fundamentally strong
companies or industries and fundamentally weak companies or industries. Investors go long on
the companies that are strong, and short the companies that are weak. This method of security
analysis is considered to be the opposite of technical analysis.
The Basics of Fundamental Analysis
Fundamental analysis uses real, public data in the evaluation a security's value. Although most
analysts use fundamental analysis to value stocks, this method of valuation can be used for just
about any type of security. For example, an investor can perform fundamental analysis on a
bond's value by looking at economic factors such as interest rates and the overall state of the
economy. He can also look at information about the bond issuer, such as potential changes in
credit ratings.
For stocks and equity instruments, this method uses revenues, earnings, future growth, return on
equity, profit margins and other data to determine a company's underlying value and potential for
future growth. In terms of stocks, fundamental analysis focuses on the financial statements of the
company being evaluated. One of the most famous and successful fundamental analysts is the socalled "Oracle of Omaha", Warren Buffett, who is well known for successfully employing
fundamental analysis to pick securities. His abilities have turned him into a billionaire.
Even the market as a whole can be evaluated using fundamental analysis. For example, analysts
looked at fundamental indicators of the S&P 500 for the week of July 4 to July 8, 2016. During
this time period, the S&P rose to 2129.90 after the release of a positive jobs report in the United

States. In fact, the market just missed a new record high, coming in just under the May 2015 high
of 2132.80. The economic surprise of an additional 287,000 jobs for the month of June
specifically increased the value of the stock market on July 8, 2016.
However, there are differing views on the market's true value. Some analysts believe the
economy is heading for a bear market, while other analysts believe it will continue as a bull
market.
Investment Analysis
Investment analysis is a broad term that encompasses many different aspects of investing. It can
include analyzing past returns to make predictions about future returns, selecting the type of
investment vehicle that is best for an investor's needs or evaluating securities such as stocks and
bonds for valuation and investor specificity.
Investment analysis can help determine how an investment is likely to perform and how suitable
it is for a given investor. It is key to any sound portfolio management strategy. Investors who are
not comfortable doing their own investment analysis can seek professional advice from a
financial advisor or other financial professional. Investment analysis can also involve evaluating
past investment decisions in terms of the thought process that went into making them, how the
decision affected a portfolio's performance and how mistakes can be regarded and corrected. Key
factors in investment analysis include entry price, expected time horizon and reasons for making
the decision at the time.
In conducting an investment analysis of a mutual fund, an investor looks at factors such as how
the fund has performed compared to its benchmark. The investor can also compare the fund's
performance, expense ratio, management stability, sector weighting, style and asset allocation to
similar funds. Investment goals should always be considered when analyzing an investment; one
size does not always fit all, and highest returns regardless of risk are not always the goal.
When making investment decisions, investors can use a bottom-up investment analysis approach
or top-down approach. Bottom-up investment analysis entails analyzing individual stocks for
their merits, such as valuation, management competence, pricing power and other unique
characteristics of the stock and company. Bottom-up investment analysis does not focus on
economic cycles or market cycles firsthand for capital allocation decisions but instead aims to
find the best companies and stocks regardless of economic, market or particular industry macro
trends. In essence, bottom-up investing takes more of a microeconomic approach to investing
rather than a macroeconomic one, which is a hallmark of top-down investment analysis.
Top-down investment analysis emphasizes economic, market and industrial trends before making
a more granular investment decision to allocate capital to specific companies. An example of a
top-down approach is an investor evaluating industries and finding that financials will likely
perform better than industrials; as a result, the investor decides his investment portfolio will be
overweight financials and underweight industrials. The investor then proceeds to find the best
stocks in each sector. On the contrary, a bottom-up investor may have found that an industrial
company made for a compelling investment and allocated a significant amount of capital to it
even though the outlook for its broader industry was negative.

Other investment analyses include fundamental analysis and technical analysis. Fundamental
analysis stresses evaluating the financial health of companies as well as economic outlooks.
Technical analysis stresses evaluating patterns of stock prices and statistical parameters.
Trend Analysis
A trend analysis is an aspect of technical analysis that tries to predict the future movement of a
stock based on past data. Trend analysis is based on the idea that what has happened in the past
gives traders an idea of what will happen in the future. There are three main types of trends:
short-, intermediate- and long-term.
Trend analysis tries to predict a trend such as a bull market run, and ride that trend until data
suggests a trend reversal, such as a bull-to-bear market. Trend analysis is helpful because moving
with trends, and not against them, will lead to profit for an investor.
A trend is the general direction the market is taking during a specified period of time. Trends can
be both upward and downward, relating to bullish and bearish markets, respectively. While there
is no specified minimum amount of time required for a direction to be considered a trend, the
longer the direction is maintained, the more notable the trend.
Trend analysis is the process of trying to look at current trends in order to predict future ones and
is considered a form of comparative analysis. This can include attempting to determine whether a
current market trend, such as gains in a particular market sector, is likely to continue, as well as
whether a trend in one market area could result in a trend in another. Though an analysis may
involve a large amount of data, there is no guarantee that the results will be correct.
Using Trend Analysis
In order to begin analyzing applicable data, it is necessary to first determine which market
segment will be analyzed. An example of sectors can include a focus on a particular industry,
such as the automotive or pharmaceuticals sector, as well as a particular type of investment, such
as the bond market. Once the sector has been selected, it is possible to examine the general
performance of the sector. This can include how the sector was affected by internal and external
forces. For example changes in a similar industry or the creation of a new governmental
regulation would qualify as forces impacting the market. Analysts then take this data and attempt
to predict the direction the market will take moving forward.

Conclusion
Today BSE India has the maximum number of stocks listed in it comparatively to any other exchange
in the world. BSE Index also known as sensex is the most popular exchange or stock in India. BSE
Index consist of 30 stocks which involves 12 major sector .BSE India provides a great platform for
trading in equity, derivative and debt instruments. BSE India live has become the major part of
Indian Capital Market. BSE index provide BSE live prices of stocks from morning 9.00AM to 3.30
PM. Today with the modernization of electronic media like television, computers, internet BSE India

has reached to a new high. People find trading in BSE India live is more easy and fast with the help
of these media. Through BSE Live tracking an investor can track the current price of the market and
can make strategies accordingly. Through BSE India Live a trader can make certain strategies on how
to invest, when to invest, in which scrip to invest and what is going to be the future of the market.
The Bombay Stock Exchange (BSE) regularly reviews and modifies its composition to be sure it
reflects current market conditions. The index is calculated based on a free float capitalization method
a variation of the market capitalisation method. Instead of using a company's outstanding shares it
uses its float, or shares that are readily available for trading. The free-float method, therefore, does
not include restricted stocks, such as those held by promoters, government and strategic investors.
Initially, the index was calculated based on the full market capitalization method. However this was
shifted to the free float method with effect from September 1, 2003. Globally, the free float market
capitalization is regarded as the industry best practice. As per free float capitalization methodology,
the level of index at any point of time reflects the free float market value of 30 component stocks
relative to a base period. The market capitalization of a company is determined by multiplying the
price of its stock by the number of shares issued by the company. This market capitalization is
multiplied by a free float factor to determine the free float market capitalization. Free float factor is
also referred as adjustment factor. Free float factor represents the percentage of shares that are readily
available for trading. It is also the fifth largest exchange in the world, with market capitalization of
$466 billion.

Let's recap what we've learned in this tutorial:

Stock means ownership. As an owner, you have a claim on the assets and earnings of a
company as well as voting rights with your shares.

Stock is equity, bonds are debt. Bondholders are guaranteed a return on their investment
and have a higher claim than shareholders. This is generally why stocks are considered
riskier investments and require a higher rate of return.

You can lose all of your investment with stocks. The flip-side of this is you can make a
lot of money if you invest in the right company.

The two main types of stock are common and preferred. It is also possible for a company
to create different classes of stock.

Stock markets are places where buyers and sellers of stock meet to trade. The NYSE and
the Nasdaq are the most important exchanges in the United States.

Stock prices change according to supply and demand. There are many factors influencing
prices, the most important of which is earnings.

There is no consensus as to why stock prices move the way they do.

To buy stocks you can either use a brokerage or a dividend reinvestment plan (DRIP).

Stock tables/quotes actually aren't that hard to read once you know what everything
stands for!

Bulls make money, bears make money, but pigs get slaughtered!

Relevance
1. Economic Barometer:
A stock exchange is a reliable barometer to measure the economic condition of a country.
Every major change in country and economy is reflected in the prices of shares. The rise or fall
in the share prices indicates the boom or recession cycle of the economy. Stock exchange is also
known as a pulse of economy or economic mirror which reflects the economic conditions of a
country.
2. Pricing of Securities:
The stock market helps to value the securities on the basis of demand and supply factors. The
securities of profitable and growth oriented companies are valued higher as there is more demand
for such securities. The valuation of securities is useful for investors, government and creditors.
The investors can know the value of their investment, the creditors can value the
creditworthiness and government can impose taxes on value of securities.
3. Safety of Transactions:
In stock market only the listed securities are traded and stock exchange authorities include the
companies names in the trade list only after verifying the soundness of company. The companies
which are listed they also have to operate within the strict rules and regulations. This ensures
safety of dealing through stock exchange.
4. Contributes to Economic Growth:
In stock exchange securities of various companies are bought and sold. This process of
disinvestment and reinvestment helps to invest in most productive investment proposal and this
leads to capital formation and economic growth.
5. Spreading of Equity Cult:
Stock exchange encourages people to invest in ownership securities by regulating new issues,
better trading practices and by educating public about investment.
6. Providing Scope for Speculation:
To ensure liquidity and demand of supply of securities the stock exchange permits healthy
speculation of securities.
7. Liquidity:
The main function of stock market is to provide ready market for sale and purchase of securities.
The presence of stock exchange market gives assurance to investors that their investment can be
converted into cash whenever they want. The investors can invest in long term investment
projects without any hesitation, as because of stock exchange they can convert long term
investment into short term and medium term.
8. Better Allocation of Capital:
The shares of profit making companies are quoted at higher prices and are actively traded so
such companies can easily raise fresh capital from stock market. The general public hesitates to

invest in securities of loss making companies. So stock exchange facilitates allocation of

investors fund to profitable channels.
9. Promotes the Habits of Savings and Investment:
The stock market offers attractive opportunities of investment in various securities. These
attractive opportunities encourage people to save more and invest in securities of corporate
sector rather than investing in unproductive assets such as gold, silver, etc.