Capital Market Hardcopy

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DEFINITIONS OF F INANCIAL MARKET In economics, a financial market is a mechanism that allows people to easily buy and sell

(trade) financial securities (such as stocks and bonds Attributive form of financial market, noun

A generic term for the markets in which financial securities are traded eg. stock exchanges,futures exchanges, currency markets.

A market for a financial instrument, in which buyers and sellers find each other and create orexchange financial assets. ..

In economics, a financial market is a mechanism that allows people to easily buy and sell (trade)financial securities (such as stocks and bonds), commodities (such as precious metals oragricultural goods), and other fungible items of value at low transaction costs and at prices thatreflect the efficient-market hypothesis.

Financial markets have evolved significantly over several hundred years and are undergoingconstant innovation to improve liquidity.

Both general markets (where many commodities are traded) and specialized markets (where onlyone commodity is traded) exist. Markets work by placing many interested buyers and sellers inone "place", thus making it easier for them to find each other. An economy which relies primarilyon interactions between buyers and sellers to allocate resources is known as a market economy incontrast either to a command economy or to a non-market economy such as a gift economy.

In finance, financial markets facilitate The raising of capital (in the capital markets); The transfer of risk (in the derivatives markets); International trade (in the currency markets)

Typically a borrower issues a receipt to the lender promising to pay back the capital. Thesereceipts are securities which may be freely bought or sold. In return for lending money to theborrower, the lender will expect some compensation in the form of interest or dividends.

The term "market" is sometimes used for what are more strictly exchanges , organizations thatfacilitate the trade in financial securities, e.g., a stock exchange or commodity exchange. This maybe a physical location (like the NYSE) or an electronic system (like NASDAQ). Much trading of stocks takes place on an exchange; still, corporate actions (merger, spinoff) are outside anexchange, while any two companies or people, for whatever reason, may agree to sell stock fromthe one to the other without using an exchange.

Trading of currencies and bonds is largely on a bilateral basis, although some bonds trade on astock exchange, and people are building electronic systems for these as well, similar to stockexchanges.

Financial markets can be domestic or they can be international.


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Types of financial markets

The financial markets can be divided into different subtypes:

Capital markets which consist of: Stock markets, which provide financing through the issuance of shares or common stock,

and enable the subsequent trading thereof. Bond markets, which provide financing through the issuance of bonds, and enable the

subsequent trading thereof.

Commodity markets, which facilitate the trading of commodities. Money markets, which provide short term debt financing and investment. Derivatives markets, which provide instruments for the management of financial risk.

Futures markets, which provide standardized forward contracts for trading products at

some future date; see also forward market.Insurance markets, which facilitate the redistribution of various risks.

Foreign exchange markets, which facilitate the trading of foreign exchange

The capital markets consist of primary markets and secondary markets. Newly formed (issued)securities are bought or sold in primary markets. Secondary markets allow investors to sellsecurities that they hold or buy existing securities.

Individuals

Many individuals are not aware that they are lenders, but almost everybody does lend money inmany ways. A person lends money when he or she:

Puts money in a savings account at a bank; Contributes to a pension plan; Pays premiums to an insurance company; Invests in government bonds; or Invests in company shares.

Companies

Companies tend to be borrowers of capital. When companies have surplus cash that is not neededfor a short period of time, they may seek to make money from their cash surplus by lending it viashort term markets called money markets.

There are a few companies that have very strong cash flows. These companies tend to be lendersrather than borrowers. Such companies may decide to return cash to lenders (e.g. via a sharebuyback.) Alternatively, they may seek to make more money on their cash by lending it (e.g.investing in bonds and stocks.)


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Borrowers

Individuals borrow money via bankers' loans for short term needs or longer term mortgages tohelp finance a house purchase.

Companies borrow money to aid short term or long term cash flows. They also borrow to fundmodernization or future business expansion.

Governments often find their spending requirements exceed their tax revenues. To make up thisdifference, they need to borrow. Governments also borrow on behalf of nationalized industries,municipalities, local authorities and other public sector bodies. In the UK, the total borrowingrequirement is often referred to as the Public sector net cash requirement (PSNCR).

Governments borrow by issuing bonds. In the UK, the government also borrows from individualsby offering bank accounts and Premium Bonds. Government debt seems to be permanent. Indeedthe debt seemingly expands rather than being paid off. One strategy used by governments toreduce the value of the debt is to influence inflation .

Municipalities and local authorities may borrow in their own name as well as receiving funding fromnational governments. In the UK, this would cover an authority like Hampshire County Council.

Public Corporations typically include nationalized industries. These may include the postal services,railway companies and utility companies.

Many borrowers have difficulty raising money locally. They need to borrow internationally withthe aid of Foreign exchange markets


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D EFINITIONS OF C APITAL MARKET The capital market is the market for securities, where companies and governments can raise

long-term fund The market in which corporate equity and longer-term debt securities (those maturing in

more than one year) are issued and traded. Includes all financial transactions between users of funds and suppliers of funds. The market for long- and medium-term financing, ie more than a year. The market from which companies raise capital by selling medium and long-term financial

instruments including bonds, notes, swaps and equities Debt and equity securities with maturities greater than one year. A financial market in which long-term debt obligations and equity securities are bought and

sold.

There are two broad types of securities traded in the capital market: debt and equity. Buyingstock allows investors to gain an equity interest in the company and become part owner. ...

Is a market for long-term debt and equity shares? In this market, the capital funds comprisingof both equity and debt are issued and traded. This also includes private placement sources of debt and equity as well as organized markets like stock exchanges. ...

The supply and demand for resources to invest in real estate and other investments.

The capital market is the market for securities, where companies and governments can raiselong term funds. It is a market in which money is lent for periods longer than a year. The capitalmarket includes the stock market and the bond market. Financial regulators, such as the U.S.Securities and Exchange Commission, oversee the capital markets in their designated countries toensure that investors are protected against fraud.

The capital markets consist of the primary market and the secondary market. The primary marketis where new stock and bonds issues are sold (underwriting) to investors. The secondary marketsare where existing securities are sold and bought from one investor or speculator to another,usually on an exchange (e.g.- New York Stock Exchange).


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INDIAN C APITAL M ARKET : A N O VERVIEW

Evolution

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years ago.The earliest records of security dealings in India are meagre and obscure. The East IndiaCompany was the dominant institution in those days and business in its loan securities used to betransacted towards the close of the eighteenth century.

By 1830's business on corporate stocks and shares in Bank and Cotton presses took place inBombay. Though the trading list was broader in 1839, there were only half a dozen brokersrecognized by banks and merchants during 1840 and 1850.

The 1850's witnessed a rapid development of commercial enterprise and brokerage businessattracted many men into the field and by 1860 the number of brokers increased into 60.

In 1860-61 the American Civil War broke out and cotton supply from United States of Europewas stopped; thus, the 'Share Mania' in India begun. The number of brokers increased to about

200 to 250. However, at the end of the American Civil War, in 1865, a disastrous slump began(for example, Bank of Bombay Share which had touched Rs 2850 could only be sold at Rs. 87).

At the end of the American Civil War, the brokers who thrived out of Civil War in 1874, found aplace in a street (now appropriately called as Dalal Street) where they would convenientlyassemble and transact business. In 1887, they formally established in Bombay, the "Native Shareand Stock Brokers' Association" (which is alternatively known as The Stock Exchange "). In1895, the Stock Exchange acquired a premise in the same street and it was inaugurated in 1899.Thus, the Stock Exchange at Bombay was consolidated.


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T RADING P ATTERN OF THE INDIAN S TOCK M ARKET

Trading in Indian stock exchanges are limited to listed securities of public limited companies.They are broadly divided into two categories, namely, specified securities (forward list) and non-specified securities (cash list). Equity shares of dividend paying, growth-oriented companies witha paid-up capital of atleast Rs.50 million and a market capitalization of atleast Rs.100 million and

having more than 20,000 shareholders are, normally, put in the specified group and the balance innon-specified group.

Two types of transactions can be carried out on the Indian stock exchanges: (a) spot deliverytransactions "for delivery and payment within the time or on the date stipulated when enteringinto the contract which shall not be more than 14 days following the date of the contract" : and (b)forward transactions "delivery and payment can be extended by further period of 14 days each sothat the overall period does not exceed 90 days from the date of the contract". The latter ispermitted only in the case of specified shares. The brokers who carry over the outstandings paycarry over charges (cantango or backwardation) which are usually determined by the rates of

interest prevailing.A member broker in an Indian stock exchange can act as an agent, buy and sell securities for hisclients on a commission basis and also can act as a trader or dealer as a principal, buy and sellsecurities on his own account and risk, in contrast with the practice prevailing on New York andLondon Stock Exchanges, where a member can act as a jobber or a broker only.

The nature of trading on Indian Stock Exchanges are that of age old conventional style of face-to-face trading with bids and offers being made by open outcry. However, there is a great amount of effort to modernize the Indian stock exchanges in the very recent times.


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N EED FOR R EGULATORS

The absence of conditions of perfect competition in the securities market makes the role of theRegulator extremely important. The regulator ensures that the market participants behave in adesired manner so that securities market continues to be a major source of finance for corporateand government and the interest of investors are protected.

WHO REGULATES THE SECURITIES M ARKET ?

The responsibility for regulating the securities market is shared by Department of EconomicAffairs (DEA), Department of Company Affairs (DCA), Reserve Bank of India (RBI) andSecurities and Exchange Board of India (SEBI).

R OLE OF SEBI

The Securities and Exchange Board of India (SEBI) is the regulatory authority in Indiaestablished under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for establishment of Securities and Exchange Board of India (SEBI) with statutory powers for (a) protecting theinterests of investors in securities (b) promoting the development of the securities market and (c)regulating the securities market. Its regulatory jurisdiction extends over corporates in theissuance of capital and transfer of securities, in addition to all intermediaries and personsassociated with securities market. SEBI has been obligated to perform the aforesaid functions bysuch measures as it thinks fit. In particular, it has powers for:

Regulating the business in stock exchanges and any other securities markets.

Registering and regulating the working of stock brokers, subbrokers etc. Promoting and regulating self-regulatory organizations Prohibiting fraudulent and unfair trade practices Calling for information from, undertaking inspection, conducting inquiries and audits of the

stock exchanges, intermediaries, selfregulatory organizations, mutual funds and otherpersons associated with the securities market.

OBJECTIVES

1) Conducive Environment

SEBI aims at creating a proper and conducive environment required for raising money fromthe capital market through the rules, regulations, trade practices, customs and relationsamong institutions, brokers, Investors and companies. It also aims at endeavoring to restoreand safeguard the trust of investors, especially the interest of the small investors. SEBI worksfor creating proper investment climate to enable corporate sector to float industrial securitieseasily, efficiently and at affordable minimum cost.

2) Investor Education

SEBI aims at educating investors so as to make them aware of their rights in clear and specific

terms by providing them with information. This way, SEBI aims at maintaining liquidity,safety and profitability of the securities in the market that are crucial for any investment. A


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high degree of protection of investor rights and interest is made possible by providingadequate, accurate and authentic information on a continuous basis.

3) Infrastructure

SEBI aims at developing a proper infrastructure for facilitating automatic expansion andgrowth of business of middlemen like brokers, jobbers, commercial banks, merchant bankers,mutual funds, etc.

4) Others

In addition to the above mentioned objectives, SEBI would also make efforts to bring aboutnecessary enactments for regulating business of intermediaries such as mutual funds, NBFCsand chit funds, etc. SEBI would also work towards creating a Framework for more open,orderly and unprejudiced conduct in relation to takeover and mergers in the corporate sectorso as to ensure fair and equal treatment to all the security holders.

F UNCTIONS O F SEBI

1. Prohibition of Fraudulent and Unfair Trade Practices :

SEBI notified regulations on Prohibitions of fraudulent and Unfair Trade Practices whichhave imposed prohibition against market manipulators and unfair practices relating tosecurities.

2. Penal Margins :

SEBI introduced imposition of penal margin on net undelivered portion at the end of thesettlement, special margin on buyers in case of rise in share prices.

3. Entry Norms :

It issued various guidelines for tightening the entry norms for companies accessing capitalmarket.

4. Screen-Based Trading :

SEBI decided to allow stock exchanges to expand their online screen based trading terminalsto locations outside their jurisdiction subject to certain conditions and to reduce the minimumapplication size for subscribing to a public issue of Rs.2000 from Rs.5000 to encourage smallinvestors and to boost activity in the capital market.

5. Risk Management :

SEBI Group on risk management for equity market discussed the issues, concerning riskmanagement in rolling settlement and took following decisions:

For newly added 266 scrips the stock exchange will calculate scrips-wise variance and indexbased variance and will apply the higher of the two as the margin percentage.

For 148 scrips already rolling in settlement, the margin is three times the daily indexvariance.

The minimum daily index variance has been fixed at 5 percent as in the index futures market.


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6. Investor Protection :

Mitra Committee on investor protection submitted its report to SEBI and its mainrecommendations are as follows:

Provisions relating to Investors Education and Protection Fund (IEPF) are removed from theCompanies Act and included in the SEBI Act, 1992; IEPF should be administered by SEBI.

SEBI should be the only regulator of capital market; it should be given powers forinvestigation; it must also have powers to attach public funds and all converted assets toprevent misappropriation; but it cannot have powers to award compensation, which is the jobof the judicial forum.

SEBI Act be amended to provide for statutory standing committees on investors protection,market operation and standard setting.

7. Prevention of Insider Trading :

To prevent price manipulation, SEBI issued Insider Trading Regulations in 1992 prohibitinginsider trading. For ensuring greater market transparency, negotiated and cross deals (where

Both the seller and the buyer operate through the same broker), which are allowed earlier,have also been banned.

8. Stricter Norms for Share Transfer :

SEBI has appointed Bhagwati Panel on SEBI takeover code to suggest a set of changeincluding tightening of the norms for transfer of shares among group companies and stiff action against violation of takeover code. The panel has suggested the following:

i. NRIs and foreigners will have to take prior approval from company board for acquiring morethan 5 percent through creeping acquisition.

ii. Companies may transfer shares between themselves if they can prove that they belong to thesame group.

iii. Under takeover code, it will be made mandatory to inform the company if any one pledges thecompany shares. The panel will formulate disclosure rules in the code under which acquireswill have to inform the company and stock exchanges when they reach 5, 10, 14 percent stakein the company.

9. Online Real time Information System :

SEBI has been planning to launch an online real time information system which wouldimprove the information flow into the market in a more orderly manner. The system would besimilar to Edgar online, US based provider of information services.

10. Raising Funds from Abroad :

The Indian companies were allowed to raise funds from abroad, through American / GlobalDepository Receipts (ADRs/GDRs), Foreign Currency Convertible Bonds (FCCBs) andexternal Commercial Borrowings (ECBs). The Reserve Bank allowed two way fungibility of ADRs /GDRs in February 2002. Foreign institutional investors are allowed to participate inthe capital market.


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T HE C OMPANIES A CT , 1956

PPPPUBLICUBLICUBLICUBLICCCCCOMPANY OMPANY OMPANY OMPANY Minimum Paid-up Capital : Rs. 5,00,000 Minimum number of members : 7 members Transfer of shares : Easily transferable IPO: It invites public to subscribe shares in

the company. Special privileges: Enjoy no such privileges. Restriction on appointment of directors :

Directors must file with the registrarconsent to act as directors

PPPPRIVATERIVATERIVATERIVATECCCCOMPANY OMPANY OMPANY OMPANY Minimum Paid-up Capital: Rs. 1,00,000 Minimum number of members 2 members Transfer of shares : Restricts the right to

transfer its shares IPO : prohibits any invitation to the public

to subscribe for any shares in or debenturesof the company

Special privileges: Enjoys some specialprivileges.

Restriction on appointment of directors:The directors of private company need notdo so.


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P RIMARY M ARKET

The primary market provides the channel for sale of new securities. Primary market providesopportunity to issuers of securities; Government as well as corporates, to raise resources to meettheir requirements of investment and/or discharge some obligation.

They may issue the securities at face value, or at a discount/premium and these securities maytake a variety of forms such as equity, debt etc. They may issue the securities in domestic marketand/or international market.

F ACE V ALUE , P REMIUM AND D ISCOUNT OF SHARES IN A SECURITY M ARKET

Face Value is the nominal or stated amount (in Rs.) assigned to a security by the issuer. For anequity share, the face value is usually a very small amount (Rs. 5, Rs. 10) and does not have muchbearing on the price of the share, which may quote higher in the market, at Rs. 100 or Rs. 1000 orany other price. For a debt security, face value is the amount repaid to the investor when the bond

matures (usually, Government securities and corporate bonds have a face value of Rs. 100).When a security is sold above its face value, it is said to be issued at a Premium and if it is sold atless than its face value, then it is said to be issued at a Discount.

F EATURES OF P RIMARY M ARKET

This is the market for new long term capital. The primary market is the market where thesecurities are sold for the first time. Therefore it is also called New Issue Market (NIM).

In a primary issue, the securities are issued by the company directly to investors. The company receives the money and issues new security certificates to the investors. Primary issues are used by companies for the purpose of setting up new business or for

expanding or modernizing the existing business. The primary market performs the crucial function of facilitating capital formation in the

economy. The new issue market does not include certain other sources of new long term external

finance, such as loans from financial institutions. Borrowers in the new issue market may beraising capital for converting private capital into public capital; this is known as going public.

The financial assets sold can only be redeemed by the original holder.

Methods of issuing securities in the primary market Initial public offering, Rights issue (for existing companies), and Preferential issue.


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INITIAL P UBLIC O FFER (IPO)

An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It iswhen an unlisted company makes either a fresh issue of securities or an offer for sale of itsexisting securities or both for the first time to the public. This paves way for listing and trading of the issuers securities.

What is the difference between public issue and private placement?

When an issue is not made to only a select set of people but is open to the general public and anyother investor at large, it is a public issue. But if the issue is made to a select set of people, it iscalled private placement. As per Companies Act, 1956, an issue becomes public if it results inallotment to 50 persons or more. This means an issue can be privately placed where an allotmentis made to less than 50 persons.

Why do companies need to issue shares to the public?

Most companies are usually started privately by their promoter(s). However, the promoterscapital and the borrowings from banks and financial institutions may not be sufficient for settingup or running the business over a long term. So companies invite the public to contribute towardsthe equity and issue shares to individual investors. The way to invite share capital from the publicis through a Public Issue. Simply stated, a public issue is an offer to the public to subscribe to theshare capital of a company. Once this is done, the company allots shares to the applicants as perthe prescribed rules and regulations laid down by SEBI.

What are the Benefits of IPOs?

For businesses, stocks and shares are a fast way to raise revenue for business expansion andgrowth. They also can take a business to the next level. By becoming a publicly traded company abusiness can take advantage of new, larger opportunities and can start working towardsincorporation and even worldwide expansion. IPO gives a company fast access to public capital.Even though public offering can be costly and time consuming, the tradeoffs are very appealing tocompanies. IPOs are also a relatively low risk for businesses and have the potential for huge gainsand for huge opportunities. The more investors wish to invest in a company, the more thecompany stands to or from IPOs and other stock offerings.For the investor, IPOs are attractive mainly because they may be undervalued. Initially, to makeIPOs more attractive, many companies will offer their initial public offering at a low rate. Thishelps to encourage investors, and investors will often buy IPOs, thinking that the new companyor the newly public company will be the next big thing with a huge profit margin. As prices growand demand for the IPOs grows, early investors stand to make a lot of profit -- and very quickly.


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ROLE OF SEBI IN ISSUE OF SHARES

Any company making a public issue or a listed company making a rights issue of value of morethan Rs 50 lakh is required to file a draft offer document with SEBI for its observations. Thecompany can proceed further on the issue only after getting observations from SEBI. The validityperiod of SEBIs observation letter is three months only i.e. the company has to open its issuewithin three months period.SEBI does not recommend any issue nor does take any responsibility either for the financialsoundness of any scheme or the project for which the issue is proposed to be made or for thecorrectness of the statements made or opinions expressed in the offer document. SEBI mainlyscrutinizes the issue for seeing that adequate disclosures are made by the issuing company in theprospectus or offer document.

The investors should make an informed decision purely by themselves based on the contentsdisclosed in the offer documents. SEBI does not associate itself with any issue/issuer and shouldin no way be construed as a guarantee for the funds that the investor proposes to invest throughthe issue. However, the investors are generally advised to study all the material facts pertainingto the issue including the risk factors before considering any investment. They are stronglywarned against relying on any tips or news through unofficial means.

Who decides the price of an issue?

Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelineshave provided that the issuer in consultation with Merchant Banker shall decide the price. Thereis no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The

company and merchant banker are however required to give full disclosures of the parameterswhich they had considered while deciding the issue price. There are two types of issues, one wherecompany and Lead Merchant Banker fix a price (called fixed price) and other, where the companyand the Lead Manager (LM) stipulate a floor price or a price band and leave it to market forces todetermine the final price (price discovery through book building process).

What does price discovery through Book Building Process mean?

Book Building is basically a process used in IPOs for efficient price discovery. It is a mechanism

where, during the period for which the IPO is open, bids are collected from investors at variousprices, which are above or equal to the floor price. The offer price is determined after the bidclosing date.

Floor price is the minimum price at which bids can be made.

What is a Price Band in a book built IPO?

The prospectus may contain either the floor price for the securities or a price band within whichthe investors can bid. The spread between the floor and the cap of the price band shall not be

more than 20%. In other words, it means that the cap should not be more than 120% of the floorprice. The price band can have a revision and such a revision in the price band shall be widelydisseminated by informing the stock exchanges, by issuing a press release and also indicating the


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change on the relevant website and the terminals of the trading members participating in thebook building process. In case the price band is revised, the bidding period shall be extended for afurther period of three days, subject to the total bidding period not exceeding ten days.

Who decides the Price Band?

It may be understood that the regulatory mechanism does not play a role in setting the price forissues. It is up to the company to decide on the price or the price band, in consultation withMerchant Bankers.

Prospectus

A large number of new companies float public issues. While a large number of these companiesare genuine, quite a few may want to exploit the investors. Therefore, it is very important that aninvestor before applying for any issue identifies future potential of a company. A part of theguidelines issued by SEBI (Securities and Exchange Board of India) is the disclosure of information to the public. This disclosure includes information like the reason for raising themoney, the way money is proposed to be spent, the return expected on the money etc. Thisinformation is in the form of Prospectus which also includes information regarding the size of the issue, the current status of the company, its equity capital, its current and past performance,the promoters, the project, cost of the project, means of financing, product and capacity etc. It alsocontains lot of mandatory information regarding underwriting and statutory compliances. Thishelps investors to evaluate short term and long term prospects of the company.

What does Draft Offer document mean?

Offer document means Prospectus in case of a public issue or offer for sale and Letter of Offer incase of a rights issue which is filed with the Registrar of Companies (ROC) and Stock Exchanges(SEs). An offer document covers all the relevant information to help an investor to make his/herinvestment decision.

Draft Offer document means the offer document in draft stage. The draft offer documents arefiled with SEBI, atleast 21 days prior to the filing of the Offer Document with ROC/SEs. SEBImay specify changes, if any, in the draft Offer Document and the issuer or the lead merchant

banker shall carry out such changes in the draft offer document before filing the Offer Documentwith ROC/SEs. The Draft Offer Document is available on the SEBI website for public commentsfor a period of 21 days from the filing of the Draft Offer Document with SEBI.

What is an Abridged Prospectus?

Abridged Prospectus is a shorter version of the Prospectus and contains all the salient features of a Prospectus. It accompanies the application form of public issues.


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Who prepares the Prospectus/Offer Documents?

Generally, the public issues of companies are handled by Merchant Bankers who are responsiblefor getting the project appraised, finalizing the cost of the project, profitability estimates and forpreparing of Prospectus. The Prospectus is submitted to SEBI for its approval.

Parties to the issue Registrar to the issueRegistration with SEBI is mandatory for acting as Registrar & Share Transfer Agent. Acategory I Registrar can act as both Registrar to the Issue & as a Share Transfer Agent. Acategory II Registrar can act as either as Registrar to the Issue or as a Share Transfer Agent.Functions:

1) Assist the Lead Manger in selection of Bankers & Collection Centres.2) Data entry of the contents of all the application forms.3) Assist the Lead Manager in obtaining stock exchange approval for the basis of allotment.4) Send stock invests of successful applicants for collection.

BankersThere are no restrictions on the number of banks that can be associated with an issue. EachBanker to the issue designated one particular branch as the Controlling Branch. The otherbranches which act as collection centres are called as Collecting Branches.Functions:

1) Open Share Application Money Account of company. All the issue proceeds are transferredonly to this account. The company cant withdraw the money from this account till theentire process of allotment & listing is completed.

2) Refund of application money to unsuccessful applicants.3) Acceptance of money payable on allotment & on calls.

Debenture trusteesDebenture trustees are required to obtain a certificate of Registration from SEBI.Functions:

1) Take possession of trust property in accordance to the provisions of trust deed.2) Resolve grievances of debenture holders.3) Ensure that refund orders & debentures certificates are despatched on time.4) To ensure continuous listing of debentures.

UnderwritersWhen an existing shareholder of body corporate/public dont subscribe to the securitiesoffered to them, then the underwriter agrees to subscribe a specified number of securities in anissue. An underwriter should have minimum net worth of Rs. 20 lakhs & total outstandingunderwriting obligation at any point of time cant exceed 20 times of underwriters net worth.The underwriter exposed to the risk of under subscription & for assuming the risk they areremunerated by underwriting commission which comprise of the face value + premium of theissue.


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BrokersAny member of any recognised stock exchanges can be appointed as Broker to the issue. Theinformation regarding the brokers to the issue & the rate of brokerage payable is to bementioned in the prospectus.Functions:

1)

Offer marketing support for the issue.2) Disseminate information to the investors about the issue.3) Extend underwriting support to the issue.

Advertising agenciesThe success of many public issues can be attributed to savvy advertising campaign. The roleof advertising agency is of crucial importance in determining the fate of the issue.Functions:

1) Devising of advertising & publicity strategy.2) Designing the corporate brochure & publicity material.3) Arranging press conferences & road shows.4) Drafting & distribution of press releases.

PrintersThe printers are involved in the process of printing & distribution of issue related stationery.The primary criteria in selection of printers are the cost factor & the quality of service.Functions:

1) Layout & designing of offer document.2) Designing of Form 2A (application form).

3)

Printing of offer documents, application forms, posters, brochures, etc. AuditorThe regular auditor of the company acts as the auditor for the purpose of public offer. Theauditor is has to prepare the reports for the company.Functions:

1) Tax benefits report.2) Certificate stating the entire amount of reservation.3) Certificate stating the promoters contribution.

Legal AdvisorLegal Advisors are generally appointed to ensure compliance of all legal & regulatoryprovisions related to the public offering.Functions:

1) Scrutinize the offer document to ensure that there is no legally incorrect statement.2) Provide legal advice to the company on other legal matters related to public offering.3) Ensure that the offer document is drawn up in accordance with the provisions of the

Companies Act, 1956, SEBI guidelines & the other statutory provisions related to publicoffering.


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PRE ISSUE ACTIVITIES Registration of the offer document10 copies of the draft prospectus have to be filed with SEBI accompanied by the documentslike MOU, Undertaking, Due Diligence & Inter se Allocation of Responsibilities. SEBIcharges registration fees for the same.

Mandatory Collection CentresThe minimum number of collection centres for an issue of capital shall be four metropolitancities. At all such places where stock exchange is located & in the region where the registeredoffice of company is situated. For this purpose, the country has been divided into four regionsi.e. Eastern, Western, Southern, Northern.

POST ISSUE ACTIVITIES Post issue activities commence with the collection of subscription figures & go on till thesecurities are listed on the stock exchange.

What is the role of a Registrar to an issue?

The Registrar finalizes the list of eligible allottees after deleting the invalid applications andensures that the corporate action for crediting of shares to the demat accounts of the applicants isdone and the dispatch of refund orders to those applicable are sent. The Lead Managercoordinates with the Registrar to ensure follow up so that that the flow of applications fromcollecting bank branches, processing of the applications and other matters till the basis of

allotment is finalized, dispatch security certificates and refund orders completed and securitieslisted.

How does one know if shares are allotted in an IPO/offer for sale? What is the timeframe forgetting refund if shares not allotted?

As per SEBI guidelines, the Basis of Allotment should be completed with 15 days from the issueclose date. As soon as the basis of allotment is completed, within 2 working days the details of credit to demat account / allotment advice and dispatch of refund order needs to be completed. Soan investor should know in about 15 days time from the closure of issue, whether shares areallotted to him or not.

How long does it take to get the shares listed after issue?

It would take around 3 weeks after the closure of the book built issue.

What is meant by Listing of Securities?

Listing means admission of securities of an issuer to trading privileges (dealings) on a stockexchange through a formal agreement. The prime objective of admission to dealings on the


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exchange is to provide liquidity and marketability to securities, as also to provide a mechanism foreffective control and supervision of trading.

What is a Listing Agreement?

At the time of listing securities of a company on a stock exchange, the company is required toenter into a listing agreement with the exchange. The listing agreement specifies the terms andconditions of listing and the disclosures that shall be made by a company on a continuous basis tothe exchange.

What does Delisting of securities mean?

The term Delisting of securities means permanent removal of securities of a listed company froma stock exchange. As a consequence of delisting, the securities of that company would no longerbe traded at that stock exchange.


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SECONDARY M ARKET

DEFINITION O F SECONDARY M ARKET

Secondary market refers to a market where securities are traded after being initially offered to thepublic in the primary market and/or listed on the Stock Exchange. Majority of the trading is done

in the secondary market. Secondary market comprises of equity markets and the debt markets.

R OLE O F SECONDARY M ARKET

For the general investor, the secondary market provides an efficient platform for trading of hissecurities. For the management of the company, Secondary equity markets serve as a monitoringand control conduitby facilitating value-enhancing control activities, enabling implementationof incentive-based management contracts, and aggregating information (via price discovery) thatguides management decisions.

D IFFERENCE BETWEEN P RIMARY M ARKET & SECONDARY M ARKET

In the primary market, securities are offered to public for subscription for the purpose of raisingcapital or fund. Secondary market is an equity trading venue in which already existing/pre-issuedsecurities are traded among investors. Secondary market could be either auction or dealer market.While stock exchange is the part of an auction market, Over-the-Counter (OTC) is a part of thedealer market.

E QUITY INVESTMENT

Reason one should invest in equities in particular:

When you buy a share of a company you become a shareholder in that company. Shares are alsoknown as Equities. Equities have the potential to increase in value over time. It also provides yourportfolio with the growth necessary to reach your long term investment goals. Research studieshave proved that the equities have outperformed most other forms of investments in the longterm. This may be illustrated with the help of following examples:

a) Over a 15 year period between 1990 to 2005, Nifty has given an annualized return of 17%.

b) Mr. Raju invests in Nifty on January 1, 2000 (index value 1592.90).The Nifty value as of end December 2005 was 2836.55. Holding this investment over this periodJan 2000 to Dec 2005 he gets a return of 78.07%. Investment in shares of ONGC Ltd for the sameperiod gave a return of 465.86%, SBI 301.17% and Reliance 281.42%.

Therefore, Equities are considered the most challenging and the rewarding, when compared to other

investment options. Research studies have proved that investments in some shares with a longer tenure of

investment have yielded far superior returns than any other investment.


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However, this does not mean all equity investments would guarantee similar high returns.Equities are high risk investments. One needs to study them carefully before investing.

A VERAGE R ETURN ON E QUITIES IN INDIA

Since 1990 till date, Indian stock market has returned about 17% to investors on an average interms of increase in share prices or capital appreciation annually. Besides that on average stockshave paid 1.5% dividend annually. Dividend is a percentage of the face value of a share that acompany returns to its shareholders from its annual profits. Compared to most other forms of investments, investing in equity shares offers the highest rate of return, if invested over a longerduration.

F ACTORS INFLUENCING THE P RICE OF S TOCK

Broadly there are two factors: (1) stock specific and (2) market specific. The stock-specific factor isrelated to peoples expectations about the company, its future earnings capacity, financial healthand management, level of technology and marketing skills. The market specific factor isinfluenced by the investors sentiment towards the stock market as a whole. This factor dependson the environment rather than the performance of any particular company. Events favorable toan economy, political or regulatory environment like high economic growth, friendly budget,stable government etc. can fuel euphoria in the investors, resulting in a boom in the market. Onthe other hand, unfavorable events like war, economic crisis, communal riots, minoritygovernment etc. depress the market irrespective of certain companies performing well. However,the effect of market-specific factor is generally short-term. Despite ups and downs, price of a stock

in the long run gets stabilized based on the stock specific factors. Therefore, a prudent advice toall investors is to analyze and invest and not speculate in shares.


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T ERMS

G ROWTH S TOCK

In the investment world we come across terms such as Growth stocks, Value stocks etc.Companies, whose potential for growth in sales and earnings are excellent, are growing faster

than other companies in the market or other stocks in the same industry are called the GrowthStocks. These companies usually pay little or no dividends and instead prefer to reinvest theirprofits in their business for further expansions.

V ALUE S TOCK

The task here is to look for stocks that have been overlooked by other investors and which mayhave a hidden value. These companies may have been beaten down in price because of some badevent, or may be in an industry that's not fancied by most investors. However, even a companythat has seen its stock price decline still has assets to its name - buildings, real estate, inventories,subsidiaries, and so on. Many of these assets still have value, yet that value may not be reflected inthe stock's price. Value 38 investors look to buy stocks that are undervalued, and then hold thosestocks until the rest of the market realizes the real value of the company's assets. The valueinvestors tend to purchase a company's stock usually based on relationships between the currentmarket price of the company and certain business fundamentals. They like P/E ratio being belowa certain absolute limit; dividend yields above a certain absolute limit; Total sales at a certain levelrelative to the company's market capitalization, or market value etc.

A CQUISITION OF E QUITY SHARES

You may subscribe to issues made by corporates in the primary market. In the primary market,resources are mobilized by the corporates through fresh public issues (IPOs) or through privateplacements. Alternately, you may purchase shares from the secondary market. To buy and sellsecurities you should approach a SEBI registered trading member (broker) of a recognized stockexchange.


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DEBT INSTRUMENT

DEFINITION

Debt instrument represents a contract whereby one party lends money to another on pre-determined terms with regards to rate and periodicity of interest, repayment of principal amount

by the borrower to the lender. In Indian securities markets, the term bond is used for debtinstruments issued by the Central and State governments and public sector organizations and theterm debenture is used for instruments issued by private corporate sector.

F EATURES

Each debt instrument has three features: Maturity, coupon and principal.

Maturity: Maturity of a bond refers to the date, on which the bond matures, which is the date onwhich the borrower has agreed to repay the principal. Term-to-Maturity refers to the number of

years remaining for the bond to mature. The Term-to-Maturity changes everyday, from date of issue of the bond until its maturity. The term to maturity of a bond can be calculated on any date,as the distance between such a date and the date of maturity. It is also called the term or thetenure of the bond.

Coupon: Coupon refers to the periodic interest payments that are made by the borrower (who isalso the issuer of the bond) to the lender (the subscriber of the bond). Coupon rate is the rate atwhich interest is paid, and is usually represented as a percentage of the par value of a bond.

Principal: Principal is the amount that has been borrowed, and is also called the par value or facevalue of the bond. The coupon is the product of the principal and the coupon rate. The name of the bond itself conveys the key features of a bond. For example, a GS CG2008 11.40% bond refersto a Central Government bond maturing in the year 2008 and paying a coupon of 11.40%. SinceCentral Government bonds have a face value of Rs.100 and normally pay coupon semi-annually,this bond will pay Rs. 5.70 as six- monthly coupon, until maturity.

SEGMENTS IN THE DEBT M ARKET IN INDIA

There are three main segments in the debt markets in India, viz., (1) Government Securities,

(2) Public Sector Units (PSU) bonds, and (3) Corporate securities.

The market for Government Securities comprises the Centre, State a State-sponsored securities.In the recent past, local bodies such as municipalities have also begun to tap the debt markets forfunds. Some of the PSU bonds are tax free, while most bonds including government securities arenot tax-free. Corporate bond markets comprise of commercial paper and bonds. These bondstypically are structured to suit the requirements of investors and the issuing corporate, andinclude a variety of tailor- made features with respect to interest payments and redemption.


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P ARTICIPANTS IN THE D EBT M ARKET

Given the large size of the trades, Debt market is predominantly a wholesale market, withdominant institutional investor participation. The investors in the debt markets are mainly banks,financial institutions, mutual funds, provident funds, insurance companies and corporates.

A CQUIRING SECURITIES IN THE DEBT M ARKET

You may subscribe to issues made by the government/corporates in the primary market.Alternatively, you may purchase the same from the secondary market through the stockexchanges.


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S TOCK E XCHANGE

A STOCK EXCHANGE is a marketplace where brokers and dealers meet to buy and sell stocksof publicly traded companies on behalf of investors. It is an organized market place, eithercorporation or mutual organization, where members of the organization gather to trade companystocks or other securities. Stock Exchange also facilitates for the issue and redemption of securities and other financial instruments including the payment of income and dividends. Thetrade on an exchange is only by members and stock broker who have a seat on the exchange.

S TOCK E XCHANGES IN INDIA

There are twenty three stock exchanges in India

Bombay Stock Exchange (BSE) National Stock Exchange (NSE) Regional Stock Exchanges

Ahmedabad Stock Exchange Bangalore Stock Exchange Bhubaneswar Stock Exchange Calcutta Stock Exchange (Kolkata) Cochin Stock Exchange Coimbatore Stock Exchange Delhi Stock Exchange

Guwahati Stock Exchange Hyderabad Stock Exchange Jaipur Stock Exchange Ludhina Stock Exchange Madhya Pradesh Stock Exchange (Indore) Madras Stock Exchange Magadh Stock Exchange (Patna) Mangalore Stock Exchange Meerut Stock Exchange OTC Exchange of India Pune Stock Exchange Saurashtra Kutch Stock Exchange Uttar Pradesh Stock Exchange (Kanpur)

Vadodara Stock Exchange (Baroda)


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BOMBAY S TOCK E XCHANGE

Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now spanningthree centuries in its 133 years of existence. What is now popularly known as BSE wasestablished as "The Native Share & Stock Brokers' Association" in 1875. BSE is the first stockexchange in the country which obtained permanent recognition (in 1956) from the Government of

India under the Securities Contracts (Regulation) Act 1956. BSE's pivotal and pre-eminent role inthe development of the Indian capital market is widely recognized. It migrated from the openoutcry system to an online screen based order driven trading system in 1995.

Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector byproviding it with an efficient access to resources. There is perhaps no major corporate in Indiawhich has not sourced BSE's services in raising resources from the capital market. Today, BSE isthe world's number 1 exchange in terms of the number of listed companies and the world's 5th intransaction numbers. The market capitalization as on December 31, 2007 stood at USD 1.79trillion . An investor can choose from more than 4,700 listed companies, which for easy reference,

are classified into A, B, S, T and Z groups.The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic stature, and istracked worldwide. It is an index of 30 stocks representing 12 major sectors. The SENSEX isconstructed on a 'free-float' methodology, and is sensitive to market sentiments and marketrealities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral indices. BSE hasentered into an index cooperation agreement with Deutsche Brse. This agreement has madeSENSEX and other BSE indices available to investors in Europe and America.

BSE provides an efficient and transparent market for trading in equity, debt instruments andderivatives. It has a nation-wide reach with a presence in more than 450 cities and towns of India.

BSE has always been at par with the international standards. The systems and processes aredesigned to safeguard market integrity and enhance transparency in operations. BSE is the firstexchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is alsothe first exchange in the country and second in the world to receive Information SecurityManagement System Standard BS 7799-2-2002 certification for its BSE On-line Trading System(BOLT).

BSE continues to innovate. In recent times, it has become the first national level stock exchangeto launch its website in Gujarati and Hindi to reach out to a larger number of investors.

In 2006, BSE launched the Directors Database and ICERS (Indian Corporate Electronic

Reporting System) to facilitate information flow and increase transparency in the Indian capitalmarket. While the Directors Database provides a single-point access to information on the boardsof directors of listed companies, the ICERS facilitates the corporates in sharing with BSE theircorporate announcements.

Awards The World Council of Corporate Governance has awarded the Golden Peacock Global CSR

Award for BSE's initiatives in Corporate Social Responsibility (CSR). The Annual Reports and Accounts of BSE for the year ended March 31, 2006 and March 31

2007 have been awarded the ICAI awards for excellence in financial reporting.


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The Human Resource Management at BSE has won the Asia - Pacific HRM awards for itsefforts in employer branding through talent management at work, health management atwork and excellence in HR through technology

Functions of BSE

The Stock Market is a pivotal institution in the financial system. A well-ordered stock marketperforms several economic functions:

It ensures the measure of safety and fair dealing It performs an act of magic by translating short-term investments into long-term funds for

companies.

It directs the flow of capital in the most profitable channels. It induces companies to raise their standard of performance. It offers guidance to management about the cost of capital.

Listing of the companies on Stock Exchange

Listed Company means a public ltd Co which is

Listed on any one or more recognized stock exchanges in India. Securities (shares: debentures) of such company are traded on such stock exchanges.

Unlisted company therefore means a company whose securities are not listed on any of recognized stock exchanges in India.

Why Companies get listed with Stock Exchange?

Companies get listed with Stock Exchange for following reasons:

Securities are freely transferable. Easy liquidity of securities. Easy availability of prices of securities. Reputation, Image, Goodwill. Public awareness. More transparency. Helps in obtaining loans from Banks/Institutions. Helps in marketing its Products.


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In order to list securities of a company & get its shares traded on any recognized stock exchanges,the Public Ltd Company may either come out wit ha public issue (i.e. to offer further securities topublic) or make an offer for sale of existing securities to public. This can be done by issuing of Prospectus & Complying with all The Provinces of Company Act 1956.

Each stock exchange has its own criteria for listing securities which should also be met.

E.g.: If company intends to get listed its securities in Bombay Stock Exchange, Mumbai post issuecapital (paid up capital after proposed public issue) of such companies should be Rs. 10 Croresatleast.

The Company enters into a listing agreement with concerned stock exchange & on receipt of permission from concerned Stock Exchange, company is listed and securities are thereafter tradedon such stock exchange.

Index

Basically an indicator Measures the change in the prices of the underlying asset with respect to the prices in the base

year

The Sensex is an indicator of all the major companies of the BSE. The Nifty is an indicator of all the major companies of the NSE. If the Sensex goes up, it means that the prices of the stocks of most of the major companies on

the BSE have gone up. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE have gone down.

Sensex "Sensitive Index" and is generally associated with the stock market indices. The oldest stock index in India Index of 30 stocks representing 12 major sectors During trading hours, value of the Index is calculated and disseminated every 15 seconds.

This is done automatically on the basis of prices at which trades in Index constituents areexecuted.

The base value of the Sensex is 100 on April 1, 1979 and the base year of BSE-SENSEX is1978-79.

As the oldest index in the country, it provides the time series data over a fairly long period of time(From 1979 onwards). Small wonder, the Sensex has over the years become one of the mostprominent brands in the country.

The growth of equity markets in India has been phenomenal in the decade gone by. Right fromearly nineties the stock market witnessed heightened activity in terms of various bull and bear

runs.


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The Sensex captured all these events in the most judicial manner. One can identify the booms andbusts of the Indian stock market through Sensex.

Selection of 30 stocks for SENSEX

The index committee selects the list of 30 stocks which should be be included in SENSEX. IndexCommittee consists of academicians, mutual fund managers, finance journalists, independentgoverning board members and other participants in the financial markets.

Criteria to selects 30 stocks for SENSEX To be selected the stock should have been traded on each and every trading day for the past

one year.

The stock should be among the top 150 companies listed by average number of trades and the

average value of the trades per day over the past one year. The stock must have been listed on the BSE (Bombay stock exchange) for at least one year.

SENSEX C ALCULATION M ETHODOLOGY

SENSEX, first compiled in 1986, was calculated on a "Market Capitalization-Weighted"methodology of 30 component stocks representing large, well-established and financially soundcompanies across key sectors. The base year of SENSEX was taken as 1978-79. SENSEX today iswidely reported in both domestic and international markets through print as well as electronic

media. It is scientifically designed and is based on globally accepted construction and reviewmethodology. Since September 1, 2003, SENSEX is being calculated on a free-float marketcapitalization methodology.

SENSEX is calculated using the "Free-float Market Capitalization" methodology, wherein, thelevel of index at any point of time reflects the free-float market value of 30 component stocksrelative to a base period. The market capitalization of a company is determined by multiplying theprice of its stock by the number of shares issued by the company. This market capitalization isfurther multiplied by the free-float factor to determine the free-float market capitalization.

Free-float methodology refers to an index construction methodology that takes into consideration

only the free-float market capitalization of a company for the purpose of index calculation andassigning weight to stocks in the index. Free-float market capitalization takes into considerationonly those shares issued by the company that are readily available for trading in the market. Itgenerally excludes promoters' holding, government holding, strategic holding and other locked-inshares that will not come to the market for trading in the normal course. In other words, themarket capitalization of each company in a free-float index is reduced to the extent of its readilyavailable shares in the market.

Subsequently all BSE indices with the exception of BSE-PSU index have adopted the free-floatmethodology.


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O BJECTIVES OF SENSEX

The SENSEX is the benchmark index of the Indian Capital Markets with wide acceptance amongindividual investors, institutional investors, foreign investors and fund managers. The objectivesof the index are:

To measure market movements

Given its long history and its wide acceptance, no other index matches the SENSEX in reflectingmarket movements and sentiments. SENSEX is widely used to describe the mood in the IndianStock markets.

Benchmark for funds performance

The inclusion of blue chip companies and the wide and balanced industry representation in theSENSEX makes it the ideal benchmark for fund managers to compare the performance of theirfunds.

For index based derivative products

Institutional investors, money managers and small investors all refer to the SENSEX for theirspecific purposes The SENSEX is in effect the proxy for the Indian stock markets. The country'sfirst derivative product i.e. Index-Futures was launched on SENSEX.


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D IFFERENT T YPES OF INDICES

BSE 100

BSE 100 index is called as BSE National Index as it works as broad-based index reflecting the

stock market at national level. Initially Sense was compiled of only 30 most effective stocks of themarket. Due to its limited effect, in 1989 BSE started BSE 100 index, compiled of 100 companiesfrom "Specified" and the "Non-Specified" list of the five major stock exchanges, viz. Mumbai,Calcutta, Delhi, Ahmedabad and Madras.

Year 1983-1984 was chosen as the base year due to the market stability that year.

BSE 200

Launched in 1994, BSE 200 index comprises of the 200 selected companies and their equity shares

from the specified and non specified lists of the major exchanges. Companies are short listed onthe basis of their current market capitalization and certain fundamental factors like the marketperformance of the company, volumes of the company turnover etc.

Year 1989-90 was chosen as the base year due to its price stability during the year.

BSE 500

Due to the changing pattern of the economy, Bombay Stock Exchange coined a new index as, BSE500 comprising 500 scrips. The index represents about 93% of the total market capitalizations,

ideally said to represent the total market. Initially calculated on the basis of full marketcapitalization methodology, later on free float methodology replaced the full marketcapitalization. BSE 500 was launched on August 16 2005.

Year 1999 is selected as the base year because of its proximity to the current period and the basevalue is 1000.

BSE MIDCAP

BSE midcap index was introduced by BSE to make sure the unbiased movement of the market.

Midcap index track the performance of the companies with relatively small market capitalization.As the companies listed in BSE 500 index represents the 93% of total market capitalization.WithMid- Cap index it was easy to represent the mid cap companies listed on the stock exchange. Itwas also based on the free float methodology. Base year chosen is 2002-2003 and the base indexvalue is 1000 for each indices.

BSE SMALL CAP

BSE Small Cap Index was introduced to track the performance of the small cap companies listed

on the stock exchange. Bse Small indices truly helped the investing community as they capture


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the movement of the mid and small segments of the market. Base year is 2002-2003 and the baseindex value is 1000.

BSE TECK

As Information Technology, Media, & Telecom sectors are emerging as the major dominatingsectors of the economy, BSE introduced the TECk index. It serves as a quality benchmark for theinvestment community in these knowledge based sectors. BSE TECk index is composed of 21quality stocks from the IT, Media and Telecom sectors. The base date chosen is April 2, 2001 andthe base value for BSE TECk Index is 1000 points.

BSE PSU

Launched in June 2001 OR 2004, BSE PSU Index is composed of all Public Sector Undertakingsstocks in BSE 500 Index. The objective behind the launch of this Index was to track theperformance of listed equity of PSU companies. PSU Index is displayed on-line on the BOLTtrading terminals nationwide. Base value has been set at 1000 and the base date is 1st February1999.

BSE BANKEX

BankEx was launched by BSE to track the performance of the leading banking sectors as bankstocks are emerging as a major segment of the stock market. The base date for BANKEX is 1stJanuary 2002 and base value for BANKEX is 1000 points. BankEx Index includes 12 selectedmajor stocks which represent total 90% market capitalization of all the banking sector stockslisted on the BSE.

BSE AUTO

In August 2004 BSE launched a new Sector Series (90/FF) indices comprising BSE Auto Index,BSE BANKEX, BSE Capital Goods Index, BSE Consumer Durables Index, BSE FMCG Index,BSE Health care Index, BSE IT Index, BSE Metal Index, BSE Oil & Gas Index, BSE Mid CapIndex, BSE Small Cap Index. BSE Auto Index comprises all the major auto stocks in the BSE 500Index.

BSE CONSUMER GOODS

Consumer goods index is a part of the BSE sectoral Indices. To track the performance of companies dealing with the consumer goods it was necessary to list them in a new index namedCG Index. CG Index comprises the companies occupying 90% market capitalization in the field of consumer goods.

BSE FMCG INDEX

Products that shows a sudden shelf turnover, at comparatively low cost are classified as FastMoving Consumer Goods. Eatables, soft drinks, and cleaning materials fall in FMCG category.


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Examples of FMCG brands are Coca-Cola, Kleenex and Mars. FMCG Index monitors theperformance of the major brands in the FMCG category. Scrips having a minimum of 90%trading frequency in preceding six months are eligible to be included in the FMCG Index.

BSE HEALTH CARE

Health Care and Pharma sector are emerging as strong effectors on the economy of India. BSElaunched a new Health Care Index, monitoring the health care sector performance individually.On August 23, 2004 five sectoral Indices viz. BSE IT, BSE FMCG, BSE Capital Goods, BSEConsumer Durables and BSE Health care were shifted to Free-Float methodology and joined theSector Series (90/FF). 90% coverage in health care sector is given from the universe of BSE-500index constituents. Top stock performers in the health care sector are listed in the BSE HealthCare Index.

BSE METAL INDEX BSE Metal Index was launched on August 23, 2004. Metal stocks performing well in the economyare indexed in the BSE metal index.

BSE OIL & GAS INDEX

Oil and Gas sector is gaining its own weight-age in the economy. The stocks from oil and gassectors have lot to effect on the stock market movement. Oil and Gas index was launched effectiveAugust 23, 2004 as part of the new series "90/FF". The index covers 90% of the sectoral marketcapitalization and is based on the Free-Float methodology


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N ATIONAL S TOCK E XCHANGE

The National Stock Exchange (NSE) is India's leading stock exchange covering various cities andtowns across the country. NSE was set up by leading institutions to provide a modern, fullyautomated screen-based trading system with national reach. The Exchange has brought aboutunparalleled transparency, speed & efficiency, safety and market integrity. It has set up facilitiesthat serve as a model for the securities industry in terms of systems, practices and procedures.

NSE has played a catalytic role in reforming the Indian securities market in terms of microstructure, market practices and trading volumes. The market today uses state-of-artinformation technology to provide an efficient and transparent trading, clearing and settlementmechanism, and has witnessed several innovations in products & services viz. demutualization of stock exchange governance, screen based trading, compression of settlement cycles,dematerialization and electronic transfer of securities, securities lending and borrowing,professionalization of trading members, fine-tuned risk management systems, emergence of clearing corporations to assume counterparty risks, market of debt and derivative instrumentsand intensive use of information technology.

C APITAL M ARKET SEGMENT

The Trading on NSEs capital market segment which commenced on November 04, 1995 hasbeen witnessing a substantial growth over the years. The trading volumes jumped by 82.55 %during the fiscal 2007-08 as compared to 2006-07. With the increase in volumes, efficient andtransparent trading platform, a wide range of securities like equity, preference shares, debtwarrants, exchange traded funds as well as retail government securities, NSE upholds its positionas the largest stock exchange in the country.


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NSE F AMILY

NSCCL

National Securities Clearing Corporation Ltd. (NSCCL), a wholly-owned subsidiary of NSE, was

set up in August 1995. It was the first clearing corporation in the country to provide settlementguarantee that revolutionized the entire concept of settlement system in India. It commencedclearing operations in April 1996. It has been set up to bring and sustain confidence in clearingand settlement of securities; to promote and maintain short and consistent settlement cycles; toprovide counter-party risk guarantee, and to operate a tight risk containment system. It carriesout the clearing and settlement of the trades executed in the equities and derivatives segments of the NSE. NSCCL currently settles trades under T+2 rolling settlement. It has the credit of continuously upgrading the clearing and settlement procedures and has also brought Indianfinancial markets in line with international markets. It has put in place online real-timemonitoring and surveillance system to keep track of the trading and clearing membersoutstanding positions and each member is allowed to trade/operate within the pre-set limits fixedaccording to the funds available with the Exchange on behalf of the member. The onlinesurveillance mechanism also generates various alerts/reports on any price/volume movements of securities not in line with the trends/patterns.

NSDL

Prior to trading in a dematerialized environment, settlement of trades required moving thesecurities physically from the seller to the ultimate buyer, through the sellers broker and buyers

broker, which involved lot of time and the risk of delay somewhere along the chain. Further, thesystem of transfer of ownership was grossly inefficient as every transfer involved physicalmovement of paper to the issuer for registration, with the change of ownership being evidencedby an endorsement on the security certificate. In many cases, the process of transfer took muchlonger than stipulated in the then regulations. Theft, forgery, mutilation of certificates and otherirregularities were rampant. All these added to the costs and delays in settlement, restrictedliquidity. To obviate these problems, NSE to promote dematerialization of securities joined handswith UTI and IDBI to set up the first depository in India called the National SecuritiesDepository Limited (NSDL).

The depository system gained quick acceptance and in a very short span of time it was able toachieve the objective of eradicating the paper from the trading and settlement of securities, andwas also able to get rid of the risks associated with fake/forged/stolen/bad paper. Dematerializeddelivery today constitutes almost 100% of total of the total delivery based settlement.


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NSE INFOTECH SERVICES L TD

NSE Infotech Services Ltd Information Technology has been the back bone of conceptualization,formation, running and the success of National Stock Exchange of India Limited (NSE). NSE hasbeen at the forefront in spearheading technology changes in the securities market. It wasimportant to give a special thrust and focus on Information Technology to retain the primacy in

the market. Towards this a wholly owned subsidiary M/s. NSE Infotech Services Limited(NSETECH) was incorporated to cater to the needs of NSE and all its group companiesexclusively.

NSE.IT

NSE.IT Limited, a 100% technology subsidiary of NSE, was incorporated in October 1999 toprovide thrust to NSEs technology edge, concomitant with its overall goal of harnessing latesttechnology for optimum business use. It provides the securities industry with technology thatensures transparency and efficiency in the trading, clearing and risk management systems.Additionally, NSE.IT provides consultancy services in the areas of data warehousing, internet andbusiness continuity plans. Amongst various products launched by NSE.IT are NEAT XS, aComputer-To-Computer Link (CTCL) order routing system, NEAT iXS, an internet tradingsystem and Probos, professional brokers back office system.

IISL

India Index Services and Products Limited (IISL), a joint venture of CRISIL and NSE, was set upin May 1998 to provide indices and index services. It has a licensing and marketing agreementwith Standard and Poors (S&P), the worlds leading provider of investible equity indices, for co-

branding equity indices. IISL is Indias first specialized company focusing upon the index as a coreproduct. It provides a broad range of services, products and professional index services. Itmaintains over 96 equity indices comprising broad-based benchmark indices, sectoral indices andcustomized indices. Many investment and risk management products based on IISL indices havedeveloped in the recent past, within India and abroad. These include index based derivatives onNSE and on Singapore Exchange, Indias first exchange traded fund, a number of index funds, andLicensing of the Index for various structured products

NCCL

National Commodity Clearing Limited (NCCL) is a company promoted by National StockExchange of India Limited (NSEIL). It was incorporated in the year 2006. One of the objectives of NCCL is to provide and manage clearing and settlement, risk management and collateralmanagement services to commodity exchanges. NCCL is having the requisite experience andexposure in providing clearing and settlement facility, risk and collateral management services inthe commodities market including funds settlement with multiple clearing banks. CurrentlyNCCL is providing clearing and settlement services to NCDEX.


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NSE INDICES

S&P CNX N IFTY

S&P CNX Nifty is a well diversified 50 stock index accounting for 22 sectors of the economy. It isused for a variety of purposes such as benchmarking fund portfolios, index based derivatives and

index funds.

S&P CNX Nifty is owned and managed by India Index Services and Products Ltd. (IISL), whichis a joint venture between NSE and CRISIL. IISL is India's first specialised company focusedupon the index as a core product. IISL has a marketing and licensing agreement with Standard &Poor's (S&P), who are world leaders in index services.

The average total traded value for the last six months of all Nifty stocks is approximately62.45% of the traded value of all stocks on the NSE

Nifty stocks represent about 63.98% of the total market capitalization as on Jan. 30, 2009.

Impact cost of the S&P CNX Nifty for a portfolio size of Rs.2 crore is 0.16% S&P CNX Nifty is professionally maintained and is ideal for derivatives trading


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C OMPANY N AME

CNX N IFTY JUNIOR

The next rung of liquid securities after S&P CNX Nifty is the CNX Nifty Junior. It may be usefulto think of the S&P CNX Nifty and the CNX Nifty Junior as making up the 100 most liquidstocks in India.

As with the S&P CNX Nifty, stocks in the CNX Nifty Junior are filtered for liquidity, so they are

the most liquid of the stocks excluded from the S&P CNX Nifty. The maintenance of the S&PCNX Nifty and the CNX Nifty Junior are synchronised so that the two indices will always bedisjoint sets; i.e. a stock will never appear in both indices at the same time. Hence it is alwaysmeaningful to pool the S&P CNX Nifty and the CNX Nifty Junior into a composite 100 stockindex or portfolio.

CNX Nifty Junior represents about 9.62 % of the total market capitalization as on Jan 30,2009.

The average traded value for the last six months of all Junior Nifty stocks is approximately16.86% of the traded value of all stocks on the NSE

Impact cost for CNX Nifty Junior for a portfolio size of Rs.50 lakhs is 0.23%

ABB Ltd. National Aluminium Co. Ltd.ACC Ltd. Oil & Natural Gas Corporation Ltd.Ambuja Cements Ltd. Power Grid Corporation of India Ltd.Bharat Heavy Electricals Ltd. Punjab National BankBharat Petroleum Corporation Ltd. Ranbaxy Laboratories Ltd.Bharti Airtel Ltd. Reliance Capital Ltd.Cairn India Ltd. Reliance Communications Ltd.Cipla Ltd. Reliance Industries Ltd.DLF Ltd.kn Reliance Infrastructure Ltd.GAIL (India) Ltd. Reliance Petroleum Ltd.Grasim Industries Ltd. Reliance Power Ltd.HCL Technologies Ltd. Siemens Ltd.HDFC Bank Ltd. State Bank of IndiaHero Honda Motors Ltd. Steel Authority of India Ltd.Hindalco Industries Ltd. Sterlite Industries (India) Ltd.Hindustan Unilever Ltd. Sun Pharmaceutical Industries Ltd.Housing Development Finance Corporation Ltd. Suzlon Energy Ltd.I T C Ltd. Tata Communications Ltd.ICICI Bank Ltd. Tata Consultancy Services Ltd.Idea Cellular Ltd. Tata Motors Ltd.Infosys Technologies Ltd. Tata Power Co. Ltd.Larsen & Toubro Ltd. Tata Steel Ltd.Mahindra & Mahindra Ltd. Unitech Ltd.Maruti Suzuki India Ltd. Wipro Ltd.

NTPC Ltd. Zee Entertainment Enterprises Ltd.


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CNX IT INDEX

Information Technology (IT) industry has played a major role in the Indian economy during thelast few years. A number of large, profitable Indian companies today belong to the IT sector and agreat deal of investment interest is now focused on the IT sector. In order to have a goodbenchmark of the Indian IT sector, IISL has developed the CNX IT sector index. CNX IT

provides investors and market intermediaries with an appropriate benchmark that captures theperformance of the IT segment of the market.

Companies in this index are those that have more than 50% of their turnover from IT relatedactivities like IT Infrastructure , IT Education and Software Training , TelecommunicationServices and Networking Infrastructure, Software Development, Hardware Manufacturers,Vending, Support and Maintenance.

The average total traded value for the last six months of CNX IT Index stocks is approximately84.54% of the traded value of the IT sector. CNX IT Index stocks represent about 91.92% of thetotal market capitalization of the IT sector as on January 30, 2009.

The average total traded value for the last six months of all CNX IT Index constituents isapproximately 7.90% of the traded value of all stocks on the NSE. CNX IT Index constituentsrepresent about 6.92% of the total market capitalization as on January 30, 2009.

CNX 100

CNX 100 is a diversified 100 stock index accounting for 35 sector of the economy.

CNX 100 is owned and managed by India Index Services & Products Ltd. (IISL). Which is a jointventure between CRISIL & NSE. IISL is Indias first specialized company focused upon the indexas a core products. IISL has a licensing & marketing agreement with Standard & Poors (S&P),who are leaders in index services.

CNX 100 represents about 73.60% of the total market capitalization as on Jan 30, 2009 The average traded value for the last six months of all CNX100 stocks is approximately

79.31 % of the traded value of all stocks on the NSE Impact cost for CNX 100 for a portfolio size of Rs. 3 crore is 0.18%.

S&P CNX DEFTY

Almost every institutional investor and off-shore fund enterprise with an equity exposure in Indiawould like to have an instrument for measuring returns on their equity investment in dollarterms. To facilitate this, a new index the S&P CNX Defty-Dollar Denominated S&P CNX Niftyhas been developed. S&P CNX Defty is S&P CNX Nifty, measured in dollars.


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S ALIENT F EATURES

Performance indicator to foreign institutional investors, off-shore funds, etc. Provides an effective tool for hedging Indian equity exposure. Impact cost of the S&P CNX Nifty for a portfolio size of Rs.2 crore is 0.16% Provides fund managers an instrument for measuring returns on their equity investment

in dollar terms.

C ALCULATION OF S&P CNX DEFTY Computations are done using the S&P CNX Nifty index calculated on the NEAT trading systemof NSE and INR-USD exchange rate that is based on the real time polled data feed.

S&P CNX Defty = S&P CNX Nifty at time t * Exchange rate as on base dateExchange rate at time t

C ALCULATION OF CLOSING VALUE OF S&P CNX DEFTY

Closing value of S&P CNX Defty is computed by considering average of INR-USD polled datavalues (exchange rate) of last 30 minutes of the market.

Closing value of = Closing value of S&P CNX Nifty * Exchange rate as on base dateS&P CNX Defty Average of exchange rate of last 30 minutes of the market

S&P CNX 500

The S&P CNX 500 is Indias first broadbased benchmark of the Indian capital market. The S&PCNX 500 represents about 93.95% of total market capitalisation and about 93.20% of the totalturnover on the NSE as on January 30,2009.

The S&P CNX 500 companies are disaggregated into 72 industry indices viz. S&P CNX IndustryIndices. Industry weightages in the index reflect the industry weightages in the market. For e.g. if the banking sector has a 5% weightage in the universe of stocks traded on NSE, banking stocks in

the index would also have an approx. representation of 5% in the index.

N IFTY M IDCAP 50

The medium capitalized segment of the stock market is being increasingly perceived as anattractive investment segment with high growth potential. The primary objective of the NiftyMidcap 50 Index is to capture the movement of the midcap segment of the market. It can also beused for index-based derivatives trading.


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Method of computation

Nifty Midcap 50 is computed using market capitalisation weighted method, wherein the level of the index reflects the total market value of all the stocks in the index relative to a particular baseperiod. The method also takes into account constituent changes in the index and importantly

corporate actions such as stock splits, rights, etc without affecting the index value.

Base Date and Value

The Nifty Midcap 50 Index has a base date of Jan 1, 2004 and a base value of 1000.

Criteria for Selection of Constituent Stocks

The constituents and the criteria for the selection judge the effectiveness of the index. Selection of the index set is, inter alia, based on the following criteria:

Stocks with average market capitalization ranging from Rs.1000 Crore to Rs.5000 Crore atthe time of selection.

Stocks which are not part of the derivatives segment are excluded. Stocks which are forming part of the S&P CNX NIFTY index are excluded.

Other statistics: Nifty Midcap 50 stocks represent about 3.78 % of the total market capitalization as on January

30, 2009. The average traded volume for the last six months of all Nifty Midcap 50 stocks is

approximately 6.27 % of the traded volume of all stocks on the NSE.

CNX M IDCAP

The medium capitalised segment of the stock market is being increasingly perceived as anattractive investment segment with high growth potential. The primary objective of the CNXMidcap Index is to capture the movement and be a benchmark of the midcap segment of the

market.

Method of Computation

CNX Midcap is computed using market capitalisation weighted method, wherein the level of theindex reflects the total market value of all the stocks in the index relative to a particular baseperiod. The method also takes into account constituent changes in the index and importantlycorporate actions such as stock splits, rights, etc without affecting the index value.


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Base Date and Value

The CNX Midcap Index has a base date of Jan 1, 2003 and a base value of 1000

Criteria for Selection of Constituent Stocks

The constituents and the criteria for the selection judge the effectiveness of the index. Selection of the index set is based on the following criteria : All the stocks, which constitute more than 5% market capitalization of the universe (after

sorting the securities in descending order of market capitalization), shall be excluded in orderto reduce the skewness in the weightages of the st