SYNOPSIS ON PRESENT SCENARIO OF INDIAN CAPITAL MARKET WITH RELETION TO CURRENT GLOBAL RECESSION

BY

DIBYA RANJAN MALLICK

PRESENT SCENARIO OF INDIAN CAPITAL MARKET WITH RELETION TO CURRENT GLOBAL RECESSION

I have chosen this topic to know about the market situation & problem of the country, & how we can overcome this kind of problem, by which the global recession cant affect us.

INTRODUCTIONBefore going for the present scenario of India Capital market, we have to know what capital market is & what present scenario of capital market is. Capital MarketA capital market is simply any market where a government or a company (usually a corporation) can raise money (capital) to fund their operations and long term investment. Selling bonds and selling stock are two ways to generate capital, thus bond markets and stock markets are considered capital markets. Capital markets provide the lifeblood of capitalism. Companies turn to them to raise funds needed to finance the building of factories, office buildings, airplanes, trains, ships, telephone lines, and other assets; to conduct research and development; and to support a host of other essential corporate activities. Much of the money comes from such major institutions as pension funds, insurance companies, banks, foundations, and colleges and universities. Increasingly, it comes from individuals as well. Present Scenario of Indian Capital Market Indian capital market including both NSE-National Stock Exchange and the BSE-Bombay Stock Exchange has certainly taken a tremendous beating in the past few weeks. We are sure most of us here knew that the correction in the trading curve was round the corner which would be healthy, and the markets would bounce back from 18k levels with the help of mutual fund

investments & buying of Indian stocks again. However the anticipation went wrong, and the US recession story along with global and Indian Commodity prices have added fuel to the global equity market turmoil on a whole.

OBJECTIVES
My objective of doing this paper is to study the market, their situation and the problems & to give possible solution to this scenario.

RESEARCH METHODOLOGY SECONDARY RESEARCH

y y y y y Wikipedia Proquest Cityman Network Google Market Line

CONCLUSION
To analyze capital market keeping in mind the present recession period and impart appropriate solutions when necessary.

A PROJECT REPORT ON

PRESENT SCENARIO OF INDIAN CAPITAL MARKET WITH RELETION TO CURRENT GLOBAL RECESSION

SUBMITTED TO ANNAMALAI UNIVERSITY MASTERS OF BUSINESS ADMINISTRATION

SUBMITTED BY DIBYA RANJAN MALLICK

INTERNATIONAL SCHOOL OF BUSINESS AND RESEARCH BANGALORE -100

GUIDED BY PROF KISHAN K P

CERTIFICATE

CERTIFICATE

PRESENT SCENARIO OF INDIAN CAPITAL MARKET WITH RELETION TO CURRENT GLOBAL RECESSION SUBMITTED TO THE INTERNATIONAL
THIS IS TO CERTIFY THAT THE RESEARCH ENTITLED SCHOOL OF BUSINESS & RESEARCH(ANNAMALAI UNIVERSITY IN COLLABORATION WITH BHARTI RESOURCES) FOR THE DEGREE OF M.B.A (BUSINESS APPLICATIONS) IS A RECORD OF ORIGINAL PROJECT WORK DONE BY DIBYA RANJAN MALLICK. DURING THE PERIOD OF STUDY HIS CONDUCT WAS GOOD.

FACULTY GUIDE

DIRECTOR

PLACE: DATE :

ACKNOWLEDGEMENT

ACKNOWLEDGEMENT

I HAVE PLEASURE IN SUCCESSFUL COMPLETION OF THIS WORK TITLED.

PRESENT SCENARIO OF INDIAN CAPITAL RELETION TO CURRENT GLOBAL RECESSION

MARKET

WITH

THE SPECIAL ENVIRONMENT AT ISBR BANGALORE, THAT ALWAYS SUPPORTS EDUCATIONAL ACTIVITIES, FACILITATED MY WORK ON THIS PROJECT. I ACKNOWLEDGE THE SUPPORT AND ENCOURAGEMENT EXTENDED FOR THIS STUDY BY DIRECTOR AMIT GUPTA. I AM VERY MUCH THANKFUL TO PROF. KISHAN K P, FOR HIS ENCOURAGEMENT AND GUIDANCE FOR THIS PROJECT WORK. IT WOULD NOT HAVE BEEN POSSIBLE FOR ME TO COMPLETE THIS WORK WITHOUT HIS SUGGESTIONS ON EVERY PART OF THIS WORK. I ACKNOWLEDGE THE AUTHORS, WHOS WORKS GAVE ME INSIGHT AND INFORMATION RELATED TO THIS SUBJECT. I AM THANKFUL TO LIBRARY STAFF AND ADMINISTRATIVE STAFF OF ISBR BANGALORE WHO, DIRECTLY OR INDIRECTLY, HAVE ALL BEEN HELPFUL IN ONE WAY OR ANOTHER.

DATE: DIBYA RANJAN MALLICK

INDEX
CHAPTER NO. CONTENT

CERTIFICATE ACKNOWLEDGEMENT 1. 2. 3. 4. 5. 6. 7. CONCLUSION

8.

ANNEXURE

References and suggested readings

The readings suggested here are supplementary in nature and would prove to be helpful for those interested in acquiring advanced knowledge about Capital Markets.

1. Indian Securities Market: A Review - NSEIL publication 2. NSE Newsletters 3. SC(R) A, 1956 & Rules 4. SEBI Act, 1992, Rules & Regulations 5. Depository Act, 1996 & Rules 6. Rules, Regulations and Byelaws of NSEIL & NSCCL 7. www.nseindia.com 8. www.sebi.gov.in 9. www.rbi.org.in 10. www.finmin.nic.in

HISTORY OF INDIAN CAPITAL MARKET

The history of the capital market in India dates back to the eighteenth century when East India Company securities were traded in the country. Until the end of the nineteenth century securities trading was unorganized and the main trading centers were Bombay (now Mumbai) and Calcutta (now Kolkata). Of the two, Bombay was the chief trading center wherein bank shares were the major trading stock During the American Civil War (1860-61). Bombay was an important source of supply for cotton. Hence, trading activities flourished during the period, resulting in a boom in share prices. This boom, the first in the history of the Indian capital market lasted for a half a decade. The bubble burst on July 1, 1865 when there was tremendous slump in share prices. Trading was at that time limited to a dozen brokers; their trading place was under a banyan tree in front of the Town hall in Bombay. These stock brokers organized informal association in 1897 Native Shares and Stock Brokers Association, Bombay. The Stock exchanges in Calcutta ad Ahmadabad also industrial and trading centers came up later. The Bombay Stock Exchange was recognized in May 1927 under the Bombay Securities Contracts Control Act, 1925. The capital market was not well organized and developed during the British rule because the British government was not interested in the economic growth of the country. As a result many foreign companies depended on the London capital market for funds rather than in the Indian capital market. In the post independence period also, the size the capital market remained small. During the first and second five year plans, the governments emphasis was on the development of the agricultural sector and public sector undertakings. The public sector undertakings were healthier than the private undertakings in terms of paid up capital but shares were not listed on the stock exchanges. Moreover, the Controller of Capital Issues (CI) closely supervised and controlled the timing, composition; interest rates pricing allotment and floatation consist of new issues. These strict regulations de-motivated many companies from going public for almost four and a half decades. In the 1950s, Century textiles, Tata Steel, Bombay Dyeing, National Rayon, Kohinoor mills were the favorite scripts of speculators. As speculation became rampant, the stock market came to be known as Satta Bazaar. Despite speculation non-payment or defaults were very frequent. The government enacted the Securities Contracts (regulation) Act in 1956 to regulate stock markets. The Companies Act, 1956 was also enacted. The decade of the 1950s was also characterized by the establishment of a network for the development of financial institutions and state financial corporations. The 1960s was characterized by the wars and droughts in the country which led bearish trends. These trends were aggravated by the ban in 1969 on forward trading and Badla technically called contracts for clearing Badla provided a mechanism for carrying forward positions as well as for borrowing funds. Financial institutions such as LIC and GIC helped to revive the sentiment by

emerging as the most important group of investors. The first mutual fund of India, the Unit Trust of India (UTI) came into existence in 1964. In the 1970s Badla trading was resumed under the disguised forms of hand delivery contracts A group. This revived the market. However, the capital market received another severe setback on July 6, 1974, when the government promulgated the Dividend Restriction ordinance, restricting the payment of dividend by companies to 12 per cent of the face value or one-third of the profit of the companies that can be distributed as computed under section 369 of the Companies Act, whichever was lower. This lead to a slump in market capitalism at the BSE by about 20 per cent overnight and the stock market did not open for nearly a fortnight. Later came buoyancy in the stock markets when the multinational companies (MNCs) were forced to dilute their majority stocks in their Indian ventures in favor of the Indian public under FERA 1973. Several MNCs opted out of India. One hundred and twenty three MNCs offered shares worth Rs 150 crore, creating 1.8 million shareholders within four years. The offer prices of FERA shares were lower than their intrinsic worth. Hence, for the first the FERA dilution created an equity cult in India. It was the spate of FERA issues that gave a real fillip to the Indian stock markets. For the first time, many investors got an opportunity to invest in the stocks of such MNCs as Colgate and Hindustan Liver Limited. Then in 1977, a little known entrepreneur, Dhirubhai Ambani tapped the capital market. The scrip Reliance Textiles is still a hot favorite and dominates trading at all stock exchanges.

The Significance & History of Capital Market

The capital market is a place where the suppliers and users of capital meet to share one anothers views, and where a balance is sought to be achieved among diverse market participants. The securities decouple individual acts of saving and investment over time, space and entities and thus allow savings to occur without concomitant investment. Moreover, yield- bearing securities makes present consumption more expensive relative to future consumption, inducing people to save. The composition of savings changes with less of it being held in the form of idle money or unproductive assets, primarily because more divisible and liquid assets are available. The capital market acts as a brake on channeling savings to low- yielding enterprises and impels enterprises to focus on performance. It continuously monitors performance through movements of share prices in the market and the threats of takeover. This improves efficiency of resource utilization and thereby significantly Increases returns on investment. As a result, savers and investors are not constrained by their individual abilities, but facilitied by the economys capability to invest and save, which inevitably enhances savings and investment in the economy. Thus, the capital market converts a given stock of investible resources into a larger flow of goods and services and augments economic growth. In fact, the literature is full of theoretical and

empirical studies that have established causal robust (statistically significant) two-way relation between the developments in the securities market and economic growth. The Indian capital markets dates back to the 18th century when the securities of the East India Company were traded in Mumbai and Kolkata. However, the orderly growth of the capital market began with the setting up of The Stock Exchange, Bombay in July 1875 and Ahmadabad Stock Exchange in 1894. Eventually, 22 other Exchanges in various cities sprang up. Given the significance of capital market and the need for the economy to grow at the projected over 8 per cent per annum, the managers of the Indian economy have been assiduously promoting the capital market as an engine of growth to provide an alternative yet efficient means of resource mobilization and allocation. Further, the global financial environment is undergoing unremitting transformation. Geographical boundaries have disappeared. The days of insulated and isolated financial markets are history. The success of any capital market largely depends on its ability to align itself with the global order. To realize national aspirations and keep pace with the changing times, the capital markets in India have gone through various stages of liberalization, bringing about fundamental and structural changes in the market design and operation, resulting in broader investment choices, drastic reduction in transaction costs, and efficiency, transparency and safety as also increased integration with the global markets. The opening up of the economy for investment and trade, the dismantling of administered interest and exchange rates regimes and setting up of sound regulatory institutions have enabled this.

Primary Market
The primary market, which at one time was flooded with a number of issues floated by dubious promoters, depriving gullible investors of their life-time savings has since been transformed. The changes in this area have been epoch-making and include detailing of complete profile of promoters, comprehensive disclosures, the existence of tangible assets and a track record of profit as also reporting end uses of funds to the Company Board as a part of corporate governance, etc.

Secondary Market
The secondary market, also known as the aftermarket, is the financial market where previously issued securities and financial instruments such as stocks, bonds, options, and futures are bought and sold. The term "secondary market" is also used refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market (for example, corn has been traditionally used primarily for

food production and feedstock, but a second- or third- market has developed for use in ethanol production). With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from issuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the case of treasuries. After the initial issuance, investors can purchase from other investors in the secondary market. The secondary market for a variety of assets can vary from fragmented to centralized, and from illiquid to very liquid. The major stock exchanges are the most visible example of liquid secondary markets - in this case, for stocks of publicly traded companies. Exchanges such as the New York Stock Exchange, NASDAQ and the American Stock Exchange provide a centralized, liquid secondary market for the investors who own stocks that trade on those exchanges. Most bonds and structured products trade over the counter, or by phoning the bond desk of ones broker-dealer.

Trading

INTRODUCTION

The trading on stock exchanges in India used to take place through open outcry without use of information technology for immediate matching or recording of trades. This was time consuming and inefficient. This imposed limits on trading volumes and efficiency. In order to provide efficiency, liquidity and transparency, NSE introduced a nation-wide 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 sale or buy 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, 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. This sucked liquidity from other exchanges and in the very first year of its operation, NSE became the leading stock exchange in the country, impacting the fortunes of other exchanges and forcing them to adopt SBTS also. Today India can boast that almost 100% trading take place through electronic order matching. Technology was used to carry the trading platform from the trading hall of stock exchanges to the premises of brokers. NSE carried the trading platform further to the PCs at the residence of investors through the Internet and to handheld devices through WAP for convenience of mobile investors. This made a huge difference in terms of equal access to investors in a geographically vast country like India.

NEAT SYSTEM

The NEAT system supports an order driven market, wherein orders match on the basis of time and price priority. All quantity fields are in units and prices are quoted in Indian Rupees. The regular lot size and tick size for various securities traded is notified by the Exchange from time to time.

MARKET TYPES The Capital Market system has four types of market.

NORMAL MARKET
Normal market consists of various book types wherein orders are segregated as Regular Lot Orders, Special Term Orders, Negotiated Trade Orders and Stop Loss Orders depending on their order attributes.

ODD LOT MARKET

The odd lot market facility is used for the Limited Physical Market. The main features of the Limited Physical Market are detailed in a separate section.

RETDEBT MARKET
The RETDEBT market facility on the NEAT system of capital market segment is used for transactions in Retail Debt Market session. Trading in Retail Detail Market takes place in the same manner as in equities (capital market) segment. The main features of this market are detailed in a separate section on RETDEBT market.

AUCTION MARKET
In the Auction market, auctions are initiated by the Exchange on behalf of trading members for settlement related reasons. The main features of this market are detailed in a separate section on auction.

CORPORATE HIERARCHY
The trading member has the facility of defining a hierarchy amongst its users of the NEAT system. This hierarchy comprises:

Corporate Manager

Branch 1

Branch 2

Dealer 11

Dealer 12

Dealer 21

Dealer 22

The users of the trading system can logon as either of the user type. The significance of each type is explained below: Corporate Manager: The corporate manager is a term assigned to a user placed at the highest level in a trading firm. Such a user receives the End of Day reports for all

branches of the trading member. The facility to set Branch Order Value Limits and User Order Value Limits is available to the corporate manager. Branch Manager: The branch manager is a term assigned to a user who is placed under the corporate manager. The branch manager receives End of Day reports for all the dealers under that branch. The branch manager can set user order value limit for each of his branch. Dealer: Dealers are users at the lower most level of the hierarchy. A dealer can view and perform order and trade related activities only for one and does not have access to information on other dealers under either the same branch or other branches.

LOCAL DATABASE
The Local Database provides faster response time to users. All inquiries made by a user for own orders/trades are serviced through the local database. If however, a corporate manager/branch manager makes inquiries for orders of any dealer/branch manager of the trading firm, then the inquiry is serviced by the host. The data stored in the local database include system messages, security related information and order/trade related data of the user.

MARKET PHASES
The system is normally made available for trading on all days except Saturdays, Sundays and other holidays. Holidays are declared by the exchange from time to time. A trading day typically consists of a number of discrete stages as explained in the subsequent section.

OPENING
The trading member can carry out the following activities after login to the NEAT system and before the market opens for trading. Set up Market Watch (the securities which the user would like to view on the screen) Viewing Inquiry screens. At the point of time when the market is opening for trading, the trading member cannot login to the system. A message "Market status is changing. Cannot logon for some time." is displayed. If the member is already logged in, he cannot perform trading activities till market is opened.

OPEN PHASE
The open period indicates the commencement of trading activity. To signify the start of trading, a message is sent to all the trader workstations. The market open time for different markets is notified by the Exchange to all the trading members. Order entry is allowed when all the securities have been opened. During this phase, orders are matched on a continuous basis. Trading in all the instruments is allowed unless they are specifically prohibited by the exchange. The activities that are allowed at this stage are Inquiry, Order Entry, Order Modification, Order Cancellation (including quick order cancellation) and Order Matching.

MARKET CLOSE
When the market closes, trading in all instruments for that market comes to an end. A message to this effect is sent to all trading members. No further orders are accepted, but the user is permitted to perform activities like inquiries.

SURCON
Surveillance and Control (SURCON) is that period after market close during which, the users have inquiry access only. After the end of SURCON period, the system processes the data for making the system available for the next trading day. When the system starts processing data, the interactive connection with the NEAT system is lost and the message to that effect is displayed at the trader workstation.

BASKET TRADING
The purpose of Basket Trading is to provide NEAT users with a facility to create offline order entry file for a selected portfolio. On inputting the value, the orders are created for the selected portfolio of securities according to the ratios of their market capitalizations.

BUY BACK TRADES

As per SEBI Notification, dated 14 November, 1998, buyback of securities is permitted in the Secondary Market. This is termed as Buy-Back from the Open Market. In the open market,

buyback of shares is permitted through Stock Exchanges having electronic trading facility and such buyback orders are required to be identified upfront in the electronic trading screen as buyback orders. The purpose of Buy Back Trade functionality is to give information to the market about the buyback trades executed from the start of the buyback period till current trading date in the securities whose buyback period is currently on. It provides information about Symbol, Series, Day's high price, Day's Low Price, Days Weighted Average Price, Days Volume, Total Volume, Highest/Lowest/Weighted Average Prices till previous day; Buy Back Start & End date. The Buyback Trade functionality provides users with the information about the buyback trades going in various securities. The front screen shows Symbol, Series, Low price (Today), High price (Today), Weight age. Average price, Volume (Today), and Previous day Volume. The user after selecting a particular row from the buyback list box can view further information viz. Symbol, Series, Start date, End date, Total Traded Qty (Till date), Previous High price, Previous Low price and Wt avg. Price till date of buyback scheme. The Buyback broadcast updates the information.

AN OVERVIEW OF THE INDIAN SECURITIES MARKET

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 notation 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 183also 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 coupon bond and 6% notional 10 year bond. 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. 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.

IMPACT OF GLOBAL RECESSION ON INDIAN MARKET

The recession in the US market and the global meltdown termed as Global recession have engulfed complete world economy with a varying degree of recessional impact. World over the impact has diversified and its impact can be observed from the very fact of falling Stock market, recession in jobs availability and companies following downsizing in the existing available staff and cutting down of the perks and salary corrections. Globally the financial sector sacking the existing base of employees in high numbers in US the major example being CITI Group same still followed by others in hospitality industry Jet and Kingfisher Airlines too. The cut in salary for the pilots being 90 % can anyone imagine such a huge cut in salary. In the globalized market scenario, the impact of recession at one place/ industry/ sector peculate down to all the linked industry and this can be truly interpreted from the current market situation which is faced by the world since approx 2 month and still the situation is not in control in spite of various measures taken to fight back the recession in the market. The badly hit sector at present is being the financial sector, and major issue being the "LIQUIDITY Crises" in the market. In-spite of the various measures to subsidize the impact of the recession and cut down the inflation present nothing really sound has been done. Various steps taken by RBI to curb the present recession in the economy and counter act the prevailing situation. The sudden drying-up of capital inflows from the FDI which were invested in Indian stock markets for greater returns visualizing the Potential Higher Returns flying back is continuing to challenge liquidity management. At the heart of the current liquidity tightening is the balance of payments deficit, and this NRI deposit move should help in some small way. In total the recession have turned down the growth process and have set the minds of economists and others for finding out the real solution to sustain the economic growth and stability of the market which is desired for the smooth running of the economy. Complete business/industry is in dolled rum situation and this situation persist for a longer duration will create the small business to vanish as they have lower stability and to run smoothly require continuous flow of liquidity which is derived from the market. In present situation down fall in one sector one day leads to a negative impact on the other sector thus altogether everyone feel the impact of the Financial crises with the result of the current recession which started in US and slowly and gradually due to linked global world have impacted everyone.

Solution for the problem still remain at the top of the mind of every one, still everyone facing the impact of recession but how long is the major question which is of great importance.

PRESENT SCINARIO OF INDIAN CAPITAL MARKET VS US RECESSION

1. Federal Reserve (US head banking institution, like RBI in India) is looking forward to make more rate cuts (interest rate cuts) in the coming future to ease out the credit crunch that has evoked since this subprime crisis. Its effect would take 6-8 months to reflect in the global economies including markets of India: Derivatives Trading Market, Futures Trading Market, and Commodities Trading Market of India. This reflection in trading and investment sentiment could take some time to happen, but it would be definitely witnessed with an increment in local business, FII investment in India and NRI Investment Services in India.

2. Indian Shares/Stocks market are not performing great in the gone weeks, but institutions still have abundant money on the table to invest; but with the coming rate cuts, the debt market would not look any good to them either (in the US). Commodity prices have risen up real fast, not giving many investors the room or time to switch from equities or debt market into commodities market. All this brings the investors, institutions, banks & hedge funds in the land of uncertainty. They have to rethink their strategy and that is where the emerging markets look attractive to these investors (because these investors would still want to invest their money. US recession doesn't mean people would stop investing for their future, or hedge funds/banks would stop investing/speculating money). Thus bringing such investors to look for good valuations and a very positive side for the Asian stock markets.

3. Nothing bad is happening in the Asian markets. We look pretty strong, and all this major blood is on the street is a result of short-term panic we are witnessing. The momentum would soon pick up once the US recession worries ease a little with fed pumping in more money (bailout) into the subprime cycle. Thus we would see lot more buy orders coming into demat accounts to buy the Indian stocks.

4. India story has not changed at all. We still believe that our economy has lot of potential with great fuel to shoot up. However we still believe that this is not going to happen in short-term and we might not see too much purchase orders coming into the Online Demat Accounts of Indians

as well as NRI, PIO or OCIs (non resident Indians). There is a lot of room for expansion in India, and there is huge demand for credit consumption. We are just waiting for the liquidity to pour-in. That liquidity is definitely on the table, but all big institutions are looking for some good indicators, and when this happens we would be crawling back on the curve. 5. We all believe that the markets are majorly falling due to the US worries that are coming in and not because of the performances exhibited by the Indian corporate. Earning results of the company are expected to be out in April (when companies declare their quarterly/annual performances to the public). Everyone out here expects these numbers to be good, which could thus decide the turn of the market sentiments

Important: This idea is not to put a very rosy picture in front of you, but to ease out some tension by highlighting certain macro & micro economic points that are still in our favor. We know investors not only with us, but also with other brokers are losing their portfolio strength in terms of capital and valuations. However, keeping all the above notes in mind along with strong/stable Indian fundamentals that are still pretty attractive we advise our clients to stay strong and very importantly increase their time frame from 2 years to a minimum of 3-4 years now. This advice for clients to INVEST IN INDIAN STOCK MARKET with caution and with a long term view with a portfolio diversification view across various financial products like: stocks, mutual funds, commodities and futures.

What Is Recession?
For this reason, the official designation of recession may not come until after we are in a recession for six months or longer. They define recession as: significant decline in economic activity lasting more than a few months, which is normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. National Bureau of Economic Research (NBER) is the official agency in charge of declaring that the economy is in a state of recession. A Recession is a contraction phase of the business cycle.

What Causes Recession?

Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment. 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. A recession normally takes place when consumers lose confidence in the growth of the economy and spend less. An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years. US Crisis Hits India US faced major crisis because of Subprime mortgage crisis (home loan defaults) Rising oil prices at $100 a barrel Global Inflation High unemployment rates A declining dollar value All this slowed down the growth of the economy and as the GDP growth rate fell to 2%, recession set in.

Low GDP growth indicating Recession in US Impact on India A slowdown in the US economy is bad news for India because: Indian companies have major outsourcing deals from the US India's exports to the US have also grown substantially over the years. Indian companies with big tickets deals in the US are seeing their profit margins shrinking. Anatomy of the economic depression in India Share Market More people have sold the shares in the Indian share market than they bought in the recent weeks. This has added to the fall of Sensex & Nifty to lower points. Foreign investors have pulled out from stock markets leading to heavy losses in stocks and mutual funds Stock broking houses are laying-off people Because of such uncertainty many people have started saving money in banks rather than investing. IT and Real Estate Sector the key challenges faced by the industry now are inflation and the psychological impact of the US crisis, leading the companies to hit the panic button. Bonuses, perks, lavish parties, and many other benefits are missing as companies look to cut cost. India's IT export growth is also showering down One of the casualties this time are real estate, where building projects are half-done all over the country and in this tight liquidity situation developers find it difficult to raise finances. Layoffs and Unemployment Hundreds of workers have lost jobs in diamond jewellery, textiles and leather industry. Companies in IT industry have stopped hiring and projected lower manpower need. Firms attached to the capital market are lying off people and large companies are putting their future expansion plans on hold. Industrial sector Government and other private companies are reluctant in starting new ventures and starting new projects. Projects that are halfway to completion, or companies that are stuck with cash flow issues on businesses that are yet to reach breakeven, will run out of cash. Car, bike & truck sales down Steel plants are cutting production Hospitality and airlines are hit by poor demand On the issue Mr. Manmohan Singh suggested A coordinated fiscal stimulus by countries that are in a position to do so would help to mitigate the severity and duration of the recession It would also send a strong signal to investors around the world. Resort to fiscal stimulus may be viewed as risky in some situations, but if we are indeed on the brink of the worst downturn since the Great Depression, the risk may be worth taking, he added. Corrective Steps to Check Recession RBI needs to neutralize the outflow of FII money by unwinding the market stabilization securities that it had used to sterilize the inflows when they happened. This will mean drawing down the dollar reserves which is important at this hour. In the IT sector, there should be correction in salary offerings rather than job cutting Public should spend wisely and save more Taxes including excise duty and custom duty should be reduced to lighten the adverse effect of economic crunch on various industries In real estate the builders should drop prices, so as to bring buyers back into the market. Also, the government should try and improve liquidity, while CRR and SLR must be cut further Indian Companies have to adopt a multi-pronged strategy, which includes diversification of the export

markets, improving internal efficiencies to maintain cost competitiveness in a tight export market situation. Opportunities in India due to US recession US recession may be a boon for Indian offshore software companies the impact of recession is higher to small and medium sized (SMEs) enterprises whose bottom lines get squeezed due to lack of spending by consumers SMEs in the US are under severe pressure to increase profitability and business margins to survive. This will force them to outsource and even have M&A arrangements with Indian firms. India is going to be a great beneficiary of this trend which will minimize the impact of the US recession on Indian industry By March 2008, India had received SME outsourcing deals worth $7 billion from the US as against $6.2 billion in the previous year

STRATEGY TO OVERCOME FROM THIS SITUATION Cost cutting, cost reduction, consolidation or cost management has become central planning topics in all competitive markets to avoid recession. In far too many cases, cost cutting is a panic knee-jerk reaction to a situation that only arose because of an abject failure to plan ahead. This economic slowdown or any slowdown that might occur in a business sector or individual company even in more-stable economic times is a purely cyclical event, albeit exacerbated by the derivative crisis. As such, it should have been on the radar of any alert company, which should have prepared itself in more prudent fashion. Even a derivative meltdown was always in the cards and would inevitably happen, simply because it is a lunatic scheme that was bound to implode. Cost cutting is very common word in the current market scenario. Refinancing risk is also a current hot topic: If a company can borrow long term to replace in advance debt that matures in 2009, its liquidity position is significantly improved, even if the amount of leverage remains the same. Rights offerings, which historically have been used mainly in international contexts, have recently achieved greater interest among US companies as an effective way of raising equity in a tight market. These offerings require consideration of SEC issues and entail compliance with stock exchange re-quirements, negotiation of standby purchase arrangements and a variety of other issues. Similarly, new techniques of equity lines of credit, registered-direct offerings and at-the-market offerings are being used to take advantage of windows of opportunity in volatile equity capital markets to deliver and strengthen a companys balance sheet.