SUMMER PROJECT REPORT ON

INVESTMENT IN INDIAN STOCK MARKET

In Partial Fulfillment of Award of Post Graduate Diploma in Business Management

By ARUP KALITA Under the guidance of Prof. A V K Murthy

PGDM (BM) Entrepreneurship and Management Processes International New Delhi 74 July 2011

ENTREPRENEURSHIP AND MANAGEMENT PROCESSES

ACKNOWLEDGEMENT

It gives me immense pleasure for an opportunity to have undergone my Summer Internship at Indiainfoline Limited. There is always a sense of gratitude which one expresses to other people for their helpful and needy service they render during phases of life. I too would like to do the same as I really wish to express my gratitude to those who have been helpful to me in getting this project completed. In representing this report, I would like to express my gratitude to Mr. Atul Yadav, Indiainfoline Limited for giving me this wonderful opportunity and providing me with his able guidance and inspiration for completing this report. I am also indebted to all the internal employees of Indiainfoline for providing consistent encouragement and congenial atmosphere to complete the project. Last but not the least I express my sincere thanks to Prof. A V K Murthy and EMPI Business School for providing me with support and necessary guidance for completion of this report.

INTRODUCTION Indiainfoline Limited

The IIFL (India Infoline) group, comprising the holding company, India Infoline Ltd and its subsidiaries, is one of the leading players in the Indian financial services space. IIFL offers advice and execution platform for the entire range of financial services covering products ranging from Equities and derivatives, Commodities, Wealth management, Asset management, Insurance, Fixed deposits, Loans, Investment Banking, GoI bonds and other small savings instruments. IIFL recently received an inprinciple approval for Securities Trading and Clearing memberships from Singapore Exchange (SGX) paving the way for IIFL to become the first Indian brokerage to get a membership of the SGX. IIFL also received membership of the Colombo Stock Exchange becoming the first foreign broker to enter Sri Lanka. IIFL owns and manages the website, www.indiainfoline.com, which is one of Indias leading online destinations for personal finance, stock markets, economy and business. IIFL has been awarded the Best Broker, India by FinanceAsia and the Most improved brokerage, India in the AsiaMoney polls. India Infoline was also adjudged as Fastest Growing Equity Broking House - Large firms by Dun & Bradstreet. A forerunner in the field of equity research, IIFLs research is acknowledged by none other than Forbes as Best of the Web and a must read for investors in Asia. Its research is available not just over the Internet but also on international wire services like Bloomberg, Thomson First Call and Internet Securities where it is amongst one of the most read Indian brokers. A network of over 2,500 business locations spread over more than 500 cities and towns across India facilitates the smooth acquisition and servicing of a large customer base. All our offices are connected with the corporate office in Mumbai with cutting edge networking technology. The group caters to a customer base of about a million customers, over a variety of mediums viz. online, over the phone and at our branches.

History & Milestones

1995 Commenced operations as an Equity Research firm 1997 Launched research products of leading Indian companies, key sectors and the economy Client included leading FIIs, banks and companies. 1999 Launched www.indiainfoline.com 2000 Launched online trading through www.5paisa.com Started distribution of life insurance and mutual fund 2003 Launched proprietary trading platform Trader Terminal for retail customers 2004 Acquired commodities broking license Launched Portfolio Management Service 2005 Maiden IPO and listed on NSE, BSE 2006 Acquired membership of DGCX Commenced the lending business 2007 Commenced institutional equities business under IIFL Formed Singapore subsidiary, IIFL (Asia) Pte Ltd

2008 Launched IIFL Wealth Transitioned to insurance broking model 2009 Acquired registration for Housing Finance SEBI in-principle approval for Mutual Fund Obtained Venture Capital license 2010 Received in-principle approval for membership of the Singapore Stock Exchange Received membership of the Colombo Stock Exchange

PRODUCTS AND SERVICES:

Indian Infoline Ltd. is a one-stop financial services shop, most respected for quality of its advice, personalized service and cutting-edge technology. Equities IIFL is a member of BSE and NSE registered with NSDL and CDSL as a depository participant and provides broking services in the cash, derivatives and currency segments, online and offline. IIFL is a dominant player in the retail as well as institutional segments of the market. It recently became the first Indian broker to get a membership of the Colombo Stock Exchange and is also the first Indian broker to have received an in-principle approval for membership of the Singapore Stock Exchange. IIFLs Trader Terminal, its proprietary trading platform, is widely acknowledged as one of the best available for retail investors. Investors opt for IIFL given its unique combination of superior Service, cutting-edge proprietary Technology, Advice powered by worldacclaimed research and its unparalleled Reach owing to its over 2500 business locations across over 500 cities in India. IIFL received the BQ1 broker grading (highest grading) from CRISIL. The assigned grading reflects an effective external interface, robust systems framework and strong risk management. The grading also reflects IIFLs healthy regulatory compliance track record and adequate credit risk profile.

IIFLs analyst team won Zee Business Indias best market analysts awards 2009 for being the best in the Oil and Gas and Commodities sectors and a finalist in the Banking and IT sectors. IIFL has rapidly emerged as one of the premier institutional equities houses in India with a team of over 25 research analysts, a full-fledged sales and trading team coupled with an experienced investment banking team. The Institutional equities business conducted a very successful Enterprising India global investors conference in Mumbai in March 2010, which was attended by funds with aggregate AUM over 222.58 trillion and CEOs and other executives representing Discover Sri Lanka global investors conference, held in Colombo in July 2010, was attended by more than 50 leading global and major local investors and 25 Sri Lankan corporates, along with senior Government officials.

corporates with a combined market capitalization of over 22,257.53 billion. The

Commodities IIFL offers commodities trading to its customers vide its membership of the MCX and the NCDEX. Our domain knowledge and data based on in depth research of complex paradigms of commodity kinetics, offers our customers a unique insight into behavioral patterns of these markets. Our customers are ideally positioned to make informed investment decisions with a high probability of success.

Credit and finance IIFL offers a wide array of secured loan products. Currently, secured loans (mortgage loans, margin funding, loans against shares) comprise 94% of the loan book. The Company has discontinued its unsecured products. It has robust credit processes and collections mechanism resulting in overall NPAs of less than 1%. The Company has deployed proprietary loan-processing software to enable stringent credit checks while ensuring fast application processing. Recently the company has also launched Loans against Gold.

Insurance IIFL entered the insurance distribution business in 2000 as ICICI Prudential Life Insurance Co. Ltds corporate agent. Later, it became an Insurance broker in October 2008 in line with its strategy to have an open architecture model. The Company now distributes products of major insurance companies through its subsidiary India Infoline Insurance Brokers Ltd. Customers can choose from a wide bouquet of products from several insurance companies including Max New York Life Insurance, MetLife,

Reliance Life Insurance, Bajaj Allianz Life, Birla Sunlife, Life Insurance Corporation, Kotak Life Insurance and others.

Wealth Management Service IIFL offers private wealth advisory services to high-net-worth individuals (HNI) and corporate clients under the IIFL Private Wealth brand. IIFL Private Wealth is managed by a qualified team of MBAs from IIMs and premier institutes with relevant industry experience. The team advises clients across asset classes like sovereign and quasisovereign debt, corporate and collateralized debt, direct equity, ETFs and mutual funds, third party PMS, derivative strategies, real estate and private equity. It has developed innovative products structured on the fixed income side. It also has tied up with Interactive Brokers LLC to strengthen its execution platform and provide investors with a global investment platform. Investment Banking IIFLs investment banking division was launched in 2006. The business leverages upon its strength of research and placement capabilities of the institutional and retail sales teams. Our experienced investment banking team possesses the skill-set to manage all kinds of investment banking transactions. Our close interaction with investors as well as corporates helps us understand and offer tailor-made solutions to fulfill requirements. The Company possesses strong placement capabilities across institutional, HNI and retail investors. This makes it possible for the team to place large issues with marquee investors. In FY10, the team advised and managed more than 10 transactions including four IPOs and four Qualified Institutions Placements

INVESTMENT SCENARIO IN INDIAN STOCK MARKET Introduction of study

The project on Stock market is an attempt to study an overall primary market and secondary market of India. It helped to know and study the parameters opted by all the Capital market and the companies who are operating themselves under the rules and regulation of Capital Market. The performance of Capital Market has registered a significant upward in recent times. Objective: To analyze the Indian capital markets and the genesis of investment in capital market and the reason behind its popularity. To study the constituents and participants of the Indian capital market. The proposed study will define the following market segments like Primary markey Secondary market Derivative Market

CONCEPT OF CAPITAL MARKET

The past decade in many ways has been remarkable for securities market in India. It has grown exponentially as measured in terms of amount raised from the market, number of stock exchanges and other intermediaries, the number of listed stocks, market capitalization, trading volumes and turnover on stock exchanges, and investor population. Along with this growth, the profiles of the investors, issuers and intermediaries have changed significantly. The market has witnessed several institutional changes resulting in drastic reduction in transaction costs and significant improvements in efficiency, transparency, liquidity and safety. In a short span of time, Indian derivatives market has got a place in list of top global exchanges. In single stock futures category, the Futures Industry Association (FIA) placed NSE in second position in the year 2000.

Introduction
The market for long-term securities like bonds, equity stocks and preferred stocks is divided into primary market and secondary market. The primary market deals with the new issues of securities. Outstanding securities are traded in the secondary market, which is commonly known as stock market or stock exchange. In the secondary market, the investors can sell and buy securities. Stock markets predominantly deal in the equity shares. Debt instruments like bonds and debentures are also traded in the stock market. Well-regulated and active stock market promotes capital formation. Growth of the primary market depends on the secondary market. The health of the economy is reflected by the growth of the stock market. Companies raise funds to finance their projects through various methods. The promoters can bring their own money or borrow from the financial institutions or mobilize capital by issuing securities. The funds may be raised through issue of fresh shares at par or premium, preference shares, debentures or global depository receipts. The main objectives of a capital issue are given below: To promote a new company To expand an existing company To diversify the production To meet the regular working capital requirements To capitalize the reverses Securities markets provide a channel for allocation of savings to those who have a productive need for them. As a result, the savers and investors are not constrained by their individual abilities, but by the economys abilities to invest and save respectively, which inevitably enhances savings and investment in the economy.

Market Segments
The securities market has two interdependent and inseparable segments: the primary and the secondary market. The primary market provides the channel for creation of new securities through issuance of financial instruments by public companies as well as Governments and Government agencies and bodies whereas the secondary market helps the holders of these financial instruments to sale for exiting from the investment. The price signals, which subsume all information about the issuer and his business including associated risk, generated in the secondary market, help the primary market in allocation of funds. The primary market issuance is done either through public issues or private placement. A public issue does not limit any entity in investing while in private placement, the issuance is done to select people. In terms of the Companies Act, 1956, an issue becomes public if it results in allotment to more than 50 persons. This means an issue resulting in allotment to less than 50 persons is private placement. There are two major types of issuers who issue securities. The corporate entities issue mainly debt and equity instruments (shares, debentures, etc.), while the governments (central and state governments) issue debt securities (dated securities, treasury bills). The secondary market enables participants who hold securities to adjust their holdings in response to changes in their assessment of risk and return. They also sell securities for cash to meet their liquidity needs. The exchanges do not provide facility for spot trades in a strict sense. Closest to spot market is the cash market in exchanges where settlement takes place after some time. Trades taking place over a trading cycle (one day under rolling settlement) are settled together after a certain time. All the 23 stock exchanges in the country provide facilities for trading of corporate securities. Trades executed on NSE only are cleared and settled by a clearing corporation which provides novation and settlement guarantee. Nearly 100% of the trades in capital market segment are settled through demat delivery. NSE also provides a formal trading platform for trading of a wide range of debt securities including government securities in both retail and wholesale mode. NSE also provides trading in derivatives of equities, interest rate as well indices. In derivatives market (F&O market segment of NSE), standardized contracts are traded for future settlement. These futures can be on a basket of securities like an index or an individual security. In case of options, securities are traded for conditional future delivery. There are two types of options a put option permits the owner to sell a security to the writer of options at a predetermined price while a call option permits the owner to purchase a security from the writer of the option at a predetermined price. These options can also be on individual stocks or basket of stocks like index. Two exchanges, namely NSE and the Stock Exchange, Mumbai (BSE) provide trading of derivatives of securities. Today the market participants have the flexibility of choosing from a basket of products like: Equities Bonds issued by both Government and Companies

 Futures on benchmark indices as well as stocks Options on benchmark indices as well as stocks Futures on interest rate products like Notional 91-day T-Bills, 10 year notional zero

Reforms in the securities market, particularly the establishment and empowerment of SEBI, market determined allocation of resources, screen based nation-wide trading, dematerialization and electronic transfer of securities, rolling settlement and ban on deferral products, sophisticated risk management and derivatives trading, have greatly improved the regulatory framework and efficiency of trading and settlement. Indian market is now comparable to many developed markets in terms of a number of qualitative parameters.

Products and Participants

Financial markets facilitate the reallocation of savings from savers to entrepreneurs. Savings are linked to investments by a variety of intermediaries through a range of complex financial products called securities which is defined in the Securities Contracts (Regulation) Act, 1956 to include shares, bonds, scripts, stocks or other marketable securities of like nature in or of any incorporate company or body corporate, government securities, derivatives of securities, units of collective investment scheme, interest and rights in securities, security receipt or any other instruments so declared by the central government. The past decade in many ways has been remarkable for securities market in India. It has grown exponentially as measured in terms of amount raised from the market, number of stock exchanges and other intermediaries, the number of listed stocks, market capitalization, trading volumes and turnover on stock exchanges, and investor population. Along with this growth, the profiles of the investors, issuers and intermediaries have changed significantly. The market has witnessed fundamental institutional changes resulting in drastic reduction in transaction costs and significant improvements in efficiency, transparency and safety.

CAPITAL MARKET AT A GLANCE

Primary market
Stocks available for the first time are offered through new issue market. The issuer may be a new company. These issues may be of new type or the security used in the past. In the new issue market the issuer can be considered as a manufacturer. The issuing houses, investment bankers and brokers act as the channel of distribution for the new issues. They take the responsibility of selling the stocks to the public. A total of Rs. 2,520,179 million were raised by the government and corporate sector during 2002-03 as against Rs. 2,269,110 million during the preceding year. Government raised about two third of the total resources, with central government

alone raising nearly Rs. 1,511,260 million. Corporate Securities Average annual capital mobilization from the primary market, which used to be about Rs.70 crore in the 1960s and about Rs.90 crore in the 1970s, increased manifold during the 1980s, with the amount raised in 1990-91 being Rs. 4,312 crore. It received a further boost during the 1990s with the capital raised by non-government public companies rising sharply to Rs. 26,417 crore in 1994-95. The capital raised which used to be less than 1% of gross domestic saving (GDS) in the 1970s increased to about 13% in 1992-93. In real terms, the capital raised increased 4 times between 1990-91 and 1994-95. During 1994-95, the amount raised through new issues of securities from the securities market accounted for about four-fifth of the disbursements by FIs. Issuers have shifted focus to other avenues for raising resources like private placement. There is a preference for raising resources in the primary market through private placement of debt instruments. Private placements accounted for about 93% of total resources mobilized through domestic issues by the corporate sector during 2002-03. Rapid dismantling of shackles on institutional investments and deregulation of the economy are driving growth of this segment. There are several inherent advantages of relying on private placement route for raising resources. While it is cost and time effective method of raising funds and can be structured to meet the needs of the entrepreneurs, it does not require detailed compliance with formalities as required in public or rights issues. It is believed in some circles that private placement has crowded out public issues. However, to prevent public issues from being passed on as private placement, the Companies (Amendment) Act, 2001 considers offer of securities to more than 50 persons as made to public.

Functions of Primary Market

The main service functions of the primary market are organization, underwriting and distribution. Origination deals with the origin of the new issue. The proposal is analyzed in terms of the nature of the security, the size of the issue, and timing of the issue and floatation method of the issue. Underwriting contract makes the share predictable and removes the element of uncertainty in the subscription. Distribution refers to the lead managers and brokers to the issue. In the new issue market stocks are offered for the first time. The functions and the organization of the new issue market is different from the secondary market. In the new issue the lead mangers manage the issue, the underwriters assure to take up the unsubscribed portion according to his commitment for a commission and the bankers take up the responsibility of the collecting the application form and the money. Advertising agencies promote the new issue through advertising. Financial institutions and underwriter lend term loans to the company. Government agencies regulate the issue. The new issues are offered through prospectus. The prospectus is drafted according to SEBI guidelines disclosing the needed information to the investing public. In the bought out deal banks or a company buys the promoters shares and they offer them to the public at a later date. This reduces the cost of raising the fund. Private placement means placing of the issue with financial institutions. They sell shares to the investors at a suitable price. Right issue means the allotment of shares to the previous shareholders at a pro-ratio basis. Book building involves firm allotment of the instrument to a syndicate created by the lead managers. The book runner manages the issue. Norms are given by the SEBI to price the issue. Proportionate allotment method is adopted in the allocation of shares. Project appraisal, disclosure in the prospectus and clearance of the prospectus by the stock

exchanges protect the investors in the primary market along with the active role played by the SEBI.

SECONDARY MARKET:
Outstanding securities are traded in the secondary market, which is commonly known as stock market or stock exchange. In the secondary market, the investors can sell and buy securities. Stock markets predominantly deal in the equity shares. Debt instruments like bonds and debentures are also traded in the stock market. Current scenario of Capital Market in India. The primary market for equity, which consists of both the initial public offering (IPO) market and the seasoned equity offering (SEO) markets, experienced considerable activity in 2005 and 2006 (Table 4.1). In 2006,Rs.30,325 crore of resources were raised on this market, of which Rs.9,918 crore were made up by 55 companies which were listed for the first time (IPOs). The number of IPOs per year has risen steadily from 2002 onwards. A level of 55 IPOs in the year translates to roughly 4 IPOs every month. The mean IPO size, which was elevated in 2005, returned to Rs.180 crore, which is similar to the value prevalent in 2003.The primary issuance of debt securities, as per SEBI, fell to a low of around Rs. 66 crore in 2006, which is one facet of the far-reaching difficulties of the debt market. Unlike equity securities, debt securities issued at previous dates are redeemed by companies every year. Hence, a year with a low issuance of fresh debt securities is a year in which the stock of outstanding debt securities drops. In addition to resource mobilization by the issuance of debt and equity securities, one of the most important mechanisms of financing that has been used by Indian firms is retained earnings, which are also a part of equity financing.

Functions of Stock Exchange

Maintains active trading: shares are traded on the stock exchanges, enabling the investors to buy and sell securities. The prices may vary from transactions to transaction. A continuous trading increases the liquidity or marketability of the shares traded on the stock exchanges. Fixation of prices: Price is determined by the transactions that flow from investors demand and suppliers preferences. Usually the traded prices are made known to the public. This helps the investors to make better decisions. Ensures safe and fair dealing: The rules, regulations and by-laws of the stock exchanges provide a measure of safety to the investors. Transactions are conducted under competitive conditions enabling the investors to get a fair deal. Aids in financing the industry: A continuous market for shares provides a favorable climate for raising capital. The negotiability and transferability of the securities helps the companies to raise long-term funds. When it is easy to trade the securities, investors are willing to subscribe to the initial public offerings. This stimulates the capital formation.

 Dissemination of information: Stock exchanges provide information through their various publications. They publish the share prices traded on daily basis along with the volume traded. Directory of Corporate Information is useful for the investors assessment regarding the corporate. Handouts, handbooks and pamphlets provide information regarding the functioning of the stock exchanges. Performance inducer: The prices of stocks reflect the performance of the traded companies. This makes the corporate more concerned with its public image and tries to maintain good performance. Self-regulating organization: The stock exchanges monitor the integrity of the members, brokers, listed companies and clients. Continuous internal audit safeguards the investors against unfair trade practices. It settles the dispute between member brokers, investors and brokers.

Secondary Market
(a) Corporate Securities: The stock exchanges are the exclusive centres for trading of securities. Though the area of operation/jurisdiction of an exchange is specified at the time of its recognition, they have been allowed recently to set up trading terminals anywhere in the country. The three newly set up exchanges (OTCEI, NSE and ICSE) were permitted since their inception to have nation wide trading. The trading platforms of a few exchanges are now accessible from many locations. Further, with extensive use of information technology, the trading platforms of a few exchanges are also accessible from anywhere through the Internet and mobile devices. This made a huge difference in a geographically vast country like India. (b) Exchange Management: Most of the stock exchanges in the country are organized as mutuals which was considered beneficial in terms of tax benefits and matters of compliance. The trading members, who provide brokering services, also own, control and manage the exchanges. This is not an effective model for selfregulatory organisations as the regulatory and public interest of the exchange conflicts with private interests. Efforts are on to demutualise the exchanges whereby ownership, management and trading membership would be segregated from one another. Two exchanges viz. OTCEI and NSE are demutualised from inception, where ownership, management and trading are in the hands of three different sets of people. This model eliminates conflict of interest and helps the exchange to pursue market efficiency and investor interest aggressively. (c) Membership: The trading platform of an exchange is accessible only to brokers. The broker enters into trades in exchanges either on his own account or on behalf of clients. No stock broker or sub-broker is allowed to buy, sell or deal in securities, unless he or she holds a certificate of registration granted by SEBI. A broker/subbroker complies with the code of conduct prescribed by SEBI. Over time, a number of brokers - proprietor firms and partnership firms have converted themselves into corporates. The standards for admission of members stress on factors, such as corporate structure, capital adequacy, track record, education, experience, etc. and reflect a conscious endeavor to ensure quality broking services.

(d) Listing: A company seeking listing satisfies the exchange that at least 10% of the securities, subject to a minimum of 20 lakh securities, were offered to public for subscription, and the size of the net offer to the public (i.e. the offer price multiplied by the number of securities offered to the public, excluding reservations, firm allotment and promoters contribution) was not less than Rs.100 crore, and the issue is made only through book building method with allocation of 60% of the issue size to the qualified institutional buyers. In the alternative, it is required to offer at least 25% of the securities to public. The company is also required to maintain the minimum level of non-promoter holding on a continuous basis. In order to provide an opportunity to investors to invest/trade in the securities of local companies, it is mandatory for the companies, wishing to list their securities, to list on the regional stock exchange nearest to their registered office. If they so wish, they can seek listing on other exchanges as well. Monopoly of the exchanges within their allocated area, regional aspirations of the people and mandatory listing on the regional stock exchange resulted in multiplicity of exchanges. The basic norms for listing of securities on the stock exchanges are uniform for all the exchanges. These norms are specified in the listing agreement entered into between the company and the concerned exchange. The listing agreement prescribes a number of requirements to be continuously complied with by the issuers for continued listing and such compliance is monitored by the exchanges. It also stipulates the disclosures to be made by the companies and the corporate governance practices to be followed by them. SEBI has been issuing guidelines/circulars prescribing certain norms to be included in the listing agreement and to be complied with by the companies. A listed security is available for trading on the exchange. The stock exchanges levy listing fees - initial fees and annual fees - from the listed companies. It is a major source of income for many exchanges. A security listed on other exchanges is also permitted for trading. A listed company can voluntary delist its securities from non-regional stock exchanges after providing an exit opportunity to holders of securities in the region where the concerned exchange is located. An exchange can, however, delist the securities compulsorily following a very stringent procedure. (e) Trading Mechanism: The exchanges provide an on-line fully-automated screen based trading system (SBTS) where a member can punch into the computer quantities of securities and the prices at which he likes to transact and the transaction is executed as soon as it finds a matching order from a counter party. SBTS electronically matches orders on a strict price/time priority and hence cuts down on time, cost and risk of error, as well as on fraud resulting in improved operational efficiency. It allows faster incorporation of price sensitive information into prevailing prices, thus increasing the informational efficiency of markets. It enables market participants to see the full market on real-time, making the market transparent. It allows a large number of participants, irrespective of their geographical locations, to trade with one another simultaneously, improving the depth and liquidity of the market. It provides full anonymity by accepting orders, big or small, from members without revealing their identity, thus providing equal access to everybody. It also provides a perfect audit trail, which helps to resolve disputes by logging in the trade execution process in entirety. (f) Trading Rules: Regulations have been framed to prevent insider trading as well as unfair trade practices. The acquisitions and takeovers are permitted in a well defined and orderly manner. The companies are permitted to buy back their securities to

improve liquidity and enhance the shareholders wealth. (g) Price Bands: Stock market volatility is generally a cause of concern for both policy makers as well as investors. To curb excessive volatility, SEBI has prescribed a system of price bands. The price bands or circuit breakers bring about a coordinated trading halt in all equity and equity derivatives markets nation-wide. An index-based market-wide circuit breaker system at three stages of the index movement either way at 10%, 15% and 20% has been prescribed. The movement of either S&P CNX Nifty or Sensex, whichever is breached earlier, triggers the breakers. As an additional measure of safety, individual scrip-wise price bands of 20% either way have been imposed for all securities except those available for stock options. (h) Demat Trading: The Depositories Act, 1996 was passed to proved for the establishment of depositories in securities with the objective of ensuring free transferability of securities with speed, accuracy and security by (a) making securities of public limited companies freely transferable subject to certain exceptions; (b) dematerialising the securities in the depository mode; and (c) providing for maintenance of ownership records in a book entry form. In order to streamline both the stages of settlement process, the Act envisages transfer of ownership of securities electronically by book entry without making the securities move from person to person. Two depositories, viz. NSDL and CDSL, have come up to provide instantaneous electronic transfer of securities. At the end of March 2002, 4,172 and 4,284 companies were connected to NSDL and CDSL respectively. The number of dematerialised securities increased to 56.5 billion at the end of March 2002. As on the same date, the value of dematerialsied securities was Rs. 4,669 billion and the number of investor accounts was 4,605,588. All actively traded scrips are held, traded and settled in demat form. Demat settlement accounts for over 99% of turnover settled by delivery. This has almost eliminated the bad deliveries and associated problems. To prevent physical certificates from sneaking into circulation, it has been mandatory for all new IPOs to be compulsorily traded in dematerialized form. The admission to a depository for dematerialisation of securities has been made a prerequisite for making a public or rights issue or an offer for sale. It has also been made compulsory for public listed companies making IPO of any security for Rs. 10 crore or more to do the same only in dematerialised form. (i) Charges: A stock broker is required to pay a registration fee of Rs.5,000 every financial year, if his annual turnover does not exceed Rs. 1 crore. If the turnover exceeds Rs. 1 crore during any financial year, he has to pay Rs. 5,000 plus onehundredth of 1% of the turnover in excess of Rs.1 crore. After the expiry of five years from the date of initial registration as a broker, he has to pay Rs. 5,000 for a block of five financial years. Besides, the exchanges collect transaction charges from its trading members. NSE levies Rs. 4 per lakh of turnover. The maximum brokerage a trading member can levy in respect of securities transactions is 2.5% of the contract price, exclusive of statutory levies like SEBI turnover fee, service tax and stamp duty. However, brokerage charges as low as 0.15% are also observed in the market. (j) Trading Cycle: Rolling settlement on T+3 basis gave way to T+2 from April 2003. The market has moved close to spot/cash market.

(k) Risk Management: To pre-empt market failures and protect investors, the regulator/exchanges have developed a comprehensive risk management system, which is constantly monitored and upgraded. It encompasses capital adequacy of members, adequate margin requirements, limits on exposure and turnover, indemnity insurance, on-line position monitoring and automatic disablement, etc. They also administer an efficient market surveillance system to curb excessive volatility, detect and prevent price manipulations. Exchanges have set up trade/settlement guarantee funds for meeting shortages arising out of nonfulfillment/partial fulfillment of funds obligations by the members in a settlement. A clearing corporation assures the counterparty risk of each member and guarantees financial settlement in respect of trades executed on NSE. (l) Government Securities: The reforms in the secondary market include Delivery versus Payment system for settling scripless SGL transactions to reduce settlement risks, SGL Account II with RBI to enable financial intermediaries to open custody (Constituent SGL) accounts and facilitate retail transactions in scripless mode, enforcement of a trade-for-trade regime, settlement period of T+0 or T+1 for all transactions undertaken directly between SGL participants and up to T+5 days for transactions routed through NSE brokers, routing transactions through brokers of NSE, OTCEI and BSE, repos in all government securities with settlement through SGL, liquidity support to PDs to enable them to support primary market and undertake market making, special fund facility for security settlement, etc. As part of the ongoing efforts to build debt market infrastructure, two new systems, the Negotiated Dealing System (NDS) and the Clearing Corporation of India Limited (CCIL) commenced operations on February 15, 2002. NDS, interalia, facilitates screen based negotiated dealing for secondary market transactions in government securities and money market instruments, online reporting of transactions in the instruments available on the NDS and dissemination of trade information to the market. Government Securities (including T-bills), call money, notice/term money, repos in eligible securities, Commercial Papers and Certificate of Deposits are available for negotiated dealing through NDS among the members. The CCIL facilitates settlement of transactions in government securities (both outright and repo) on Delivery versus Payment (DvP-II) basis which provides for settlement of securities on gross basis and settlement of funds on net basis simultaneously. It acts as a central counterparty for clearing and settlement of government securities transactions done on NDS. Derivatives Market Trading in derivatives of securities commenced in June 2000 with the enactment of enabling legislation in early 2000. Derivatives are formally defined to include: (a) a security derived from a debt instrument, share, loan whether secured or unsecured, risk instrument or contract for differences or any other form of security, and (b) a contract which derives its value from the prices, or index of prices, or underlying securities. Derivatives are legal and valid only if such contracts are traded on a recognized stock exchange, thus precluding OTC derivatives. Derivatives trading commenced in India in June 2000 after SEBI granted the approval to this effect in May 2000. SEBI permitted the derivative segment of two stock exchanges, i.e. NSE and BSE, and their clearing house/corporation to commence trading and settlement in approved derivative contracts. To begin with, SEBI approved trading in index futures contracts based on S&P CNX Nifty Index and BSE-30 (Sensex) Index. This was

followed by approval for trading in options based on these two indices and options on individual securities. The trading in index options commenced in June 2001 and trading in options on individual securities would commence in July 2001 while trading in futures of individual stocks started from November 2001. In June 2003, SEBI/RBI approved the trading on interest rate derivative instruments. The total exchange traded derivatives witnessed a volume of Rs.4,423,333 million during 2002- 03 as against Rs. 1,038,480 million during the preceding year. While NSE accounted for about 99.5% of total turnover, BSE accounted for less than 1% in 2002-03. The market witnessed higher volumes from June 2001 with introduction of index options, and still higher volumes with the introduction of stock options in July 2001. There was a spurt in volumes in November 2001 when stock futures were introduced. It is believed that India is the largest market in the world for stock futures.

METHODOLOGY

Data collection methods and instrument

The leads for customer acquisition primarily came from the questionnaires filled up by prospective customers. Apart from these customers were also pitched through personal references and contacts. Moreover the organization takes every possible effort in order to spread mass awareness. As a result of this publicity campaign, influenced prospective customers approach the organization. Initial leads generated are contacted personally for further development. These leads were then contacted through tele calling and after developing a relationship, they were pitched in at the addresses provided by them. After giving them a presentation about the product and its advantages over its competitors, pitch for the product is done. Also references were collected from such people and the same methodology was repeated. Sample size: Sample size for the questionnaire prepared for Investor was 100. Area covered in survey is Delhi and Noida region.

FINDINGS AND ANALYSIS

Profile of Respondents Participated in Survey: Sex:

Male Female

Age group the respondents belong (in Yrs):

Percentage
<25 25-35 35-60 >60

Education Qualification:

12th Standard Graduate Post Graduate

Occupation:

Student Govt. Sector Pvt. Sector Own Business Others

Category in which respondents income fall ( in ` /month):

percentage
60 50 40 30 20 10 0 0-15,000 15,000-35,000 35,000-60,000 > 60,000

QUESTIONNAIRE AND FINDINGS:

Majority of the respondents agreed that investment in stock markets is profitable. Around 30 % of the respondents are not sure about it. This percentage of respondents are not aware of different aspects of investments in stock market. Of those who invest in Stock markets, majority expects long term profitability.

this shows that the sentiment of the stock market is Bearish.

Majority of the respondents surveyed invest in Mutual funds and stocks alike. Only a minority ( 8%) invest in derivatives. This is due to low level of knowledge about derivatives. Risk avoiders also refrain from investing in derivatives ( futures and option).

What percentage of your annual income do you invest in Share market ?

Around 55% percentage of investors invest 0 to a maximum of 10% of their income in stock markets. And 15 % of investors put a max 15% of their income in stock market.

Majority of the investors consider good return on investment from the market. Also a majority respondents want at least safety of their Principal.

Most of the customers rate Customer service, Trustworthiness and Proper guidance on higher side than Brokerage charges ( though it matters) which influence their decision in choosing a Broking house.

Do you have a Demat Account?

Percentage
Yes No

Majority of the respondents dont have a demat A/c , though most of them has at least some knowledge about the Stock market. It can be interpreted as low level of overall public participation in Indian stock market.

If yes,
Kindly mention the broking house (optional)

If you dont have one

Survey Analysis

The survey was conducted in parts of Delhi and Noida. The respondents belonged to different age groups and professions. It was gathered from the survey that there is a very little awareness about investing in share markets and very few people were fully conversant with the technicalities of the stock markets. Moreover people were aversive taking risks in their investments and were mostly looking for safer investment avenues. It was found that very few people were aware of the capital appreciation of their principal investment money and they just wanted to invest in secured security for the purpose of saving only rather than increasing the money value of their capital or capital gain.

CONCLUSION
Investing in various types of assets is an interesting activity that attracts people from all walks of life irrespective of their occupation, economic status, education and family background. When a person has more money than he requires for current consumption, he would be coined as a potential investor. The problem of surplus gives rise to the question of where to invest. For an investor the main investment objectives are increasing the rate of return and reducing the risk other objectives like safety, liquidity and hedge against inflation can be considered as subsidiary objectives.

My two months of Summer Internship at Indiainfoline Ltd. was a great experience as it gave the scope of adding knowledge by interacting with different people of different level as well as building up relation with them.

BIBLIOGRAPHY
Websites: www.sebi.gov.in www.nseindia.com www.bseindia.com www.mcxindia.com www.ncdex.com www.destimoney.com www.dawnaydayavsecurities.com www.moneycontrol.com www.wikipedia.org BOOKS: Research Methodology By Kothari C. R.

APPENDIX:

SURVEY QUESTIONNAIRE
(Please tick the appropriate) 1. Personal Information Name: _________________________ Contact no: _____________________ Age (in Yrs): Occupation:. In which category does your income fall (in ` per month) 0-15,000 15,000-35,000 35,000-60,000 Cant say Long term profitability Others . > 60,000 Sex: Male Female

email ID (if any):.. Education:..

2. Do you think investment in equity market is profitable ? Yes No a) If yes, what is the reason for the same ? Market volatility Huge returns in less time

b) Do you believe that SENSEX will touch 25000 this year ? Yes No 3. 4. In which segment do you invest? Equity Derivatives Mutual funds

What percentage of your annual income do you invest in Share market 0-10 10-15 15-20 >20

5.

Which factors do you consider before investing in share market ? Capital appreciation Safety of principal Return on investment Liquidity

6. 7.

Have you heard about India Infoline Ltd.? Yes No Rate the following Share trading Companies according to the quality of service they provide in the scale of 1 to 5. [ 1 poor 5 excellent ] Indiainfoline Indiabulls Religare Sharekhan ICICI Direct Others: ..

8.

Rate the following attributes which influence your decision in choosing a Broking House, in the scale of 1 to 5. [1- Low 3 Average 5 High] Customer Service Trustworthiness Proper Guidance Brokerage Charges Regular Updates Others: ..

9.

Do you have a Demat A/c ? If Yes, (i) Then kindly mention the Broking House ? Indiainfoline ICICI Direct Indiabulls Others: ..

Yes

No

Religare

Sharekhan

(ii) Since how long you have been carrying this A/c < 6 months 6 months 1 yr 1yr 2 yrs > 2yrs

(iii) Are you satisfied with the services of your Broking house ? Yes No If No, Do you wish to open one (Demat A/c) in near future ? Yes No