Shares Stocks NSE BSE

7/22/2019 Shares Stocks NSE BSE

1/122

STOCK MARKET TRENDS IN INDIA

CHAPTER I SECURITIES MARKET IN INDIA AN OUTLINE

A.INTRODUCTION

fter the securities are issued in the primary market, they are traded in the

secondary market by the investors. The stock exchanges along with a host of

other intermediaries provide the necessary platform for trading in secondary

market and also for clearing and settlement. The securities are traded, cleared and settled

within the regulatory framework prescribed by the Exchanges and the SEBI. Till

recently, it was mandatory for the companies to list their securities on the regional stock

exchange nearest to their registered office, in order to provide an opportunity to

investors to investtrade in the securities of local companies. !owever, following the

withdrawal of this restriction, the companies have an option to choose from any one of

the existing stock exchanges in India to list their securities. "ue to the earlier regulation

re#uiring companies to get listed first at the regional stock exchange, there are in all $%

exchanges operating today in the country.

&

'ith the increased application of information technology, the trading platforms of all the

stock exchanges are accessible from anywhere in the country through their trading

terminals. !owever, the trading platform of (SE is also accessible through internet and

mobile devices. In a geographically widespread country like India, this has significantly

expanded the reach of the exchanges to the homes of ordinary investors and assuaged the

aspirations of people to have exchanges in their vicinity.

&s a result of the reformsinitiatives taken by the )overnment and the *egulators, the

market microstructure has been refined and moderni+ed. The investment choices for the

investors have also broadened. The securities market moved from T% settlement

periods to T$ rolling settlement with effect from &pril -, $%. /urther, straight

through processing has been made mandatory for all institutional trades executed on the

stock exchange. *eal time gross settlement has also been introduced by *BI to settle

inter0bank transactions online at real time mode. These developments in the securities

1


2/122


market provide the necessary impetus for growth and development, and thereby

strengthen the emerging market economy in India.

B.PRODUCTS AND PARTICIPANTS

obili+ation of savings from surplus savers to deficit savers is most

efficiently carried out by the securities market through a range of complex

products called 1securities2. The definition of securities as per the S3*&,

-456 includes shares, bonds, scrips, stocks or other marketable securities of like nature

in or of any incorporate company or body corporate, government securities, derivatives

of securities, units of collective investment scheme, interest and rights in securities,

security receipt or any other instruments so declared by the central government. The

securities market has essentially three categories of participants, viz., the issuer of

securities, investors in securities and the intermediaries. The issuers are the borrowers or

deficit savers, who issue securities to raise funds. The investors, who are surplus savers,

deploy their savings by subscribing to these securities. The intermediaries are the agents

who match the needs of users and suppliers of funds for a commission. These

intermediaries pack and unpack securities to help both the issuers and investors to

achieve their respective goals. There are a large variety and number of intermediaries

providing various services in the Indian securities market 7Table -0-8. This process of

mobili+ation of resources is carried out under the supervision and overview of the

regulators. The regulators develop fair market practices and regulate the conduct of

issuers of securities and the intermediaries. They are also in charge of protecting the

interests of the investors. The regulator ensures a high service standard from the

intermediaries and supply of #uality securities and non0manipulated demand for them in

the market.

9

2


3/122


C.MARKET SEGMENTS

he securities market has two interdependent segments: the primary and the

secondary market. The primary market is the channel for creation of new

securities. These securities are issued by public limited companies or by

government agencies. In the primary market the resources are mobili+ed either through

the public issue or through private placement route. It is a public issue if anybody and

everybody can subscribe for it, whereas if the issue is made available to a selected group

of persons it is termed as private placement. There are two ma;or types of issuers of

securities, the corporate entities who issue mainly debt and e#uity instruments and the

government 7central as well as state8 who issue debt securities. These new securities

issued in the primary market are traded in the secondary market. The secondary market

enables participants who hold securities to ad;ust their holdings in response to changes in

their assessment of risks and returns. The secondary market operates through two

T

3


4/122


mediums, namely, the over0the0counter 7


5/122


ratio defined as the value of listed stocks divided by )"? is used as a measure of stock

market si+e. It is of economic significance since market is positively correlated with the

ability to mobili+e capital and diversify risk. It increased sharply to 5$.%> in $%0C

against $.5> in the previous year. The trading volumes on exchanges have been

witnessing phenomenal growth over the past decade. The trading volume, which peaked

at *s. $,4,4 million in $0-, fell substantially to *s. 4,64,4% million in $$0

%. !owever, the year $%0C saw a turnaround in the total trading volumes on the

exchanges. It registered a volume of *s. -6,$C,4AA million. The turnover ratio, which

reflects the volume of trading in relation to the si+e of the market, has been increasing by

leaps and bounds after the advent of screen based trading system by the (SE. The

turnover ratio for the year $%0C accounted at -$$.4>. The relative importance of

various stock exchanges in the market has undergone dramatic change during this

decade. The increase in turnover took place mostly at the big exchanges. The (SE yet

again registered as the market leader with more 5> of total turnover 7volumes on all

segments8 in $%0C. Top 5 stock exchanges accounted for 44.> of turnover, while

the rest - exchange for less than .-$> during $%0C 7Table -0--8. &bout ten

exchanges reported nil trading volume during the year.

The movement of the SD? 3( (ifty, the most widely used indicator of the market, is

presented in 3hart -0-. The index movement has been responding to changes in the

5


6/122


governmentFs economic policies, the increase in /IIs inflows, etc. !owever, the year

$%0C witnessed a favorable movement in the (ifty, wherein it registered its all time

high in Ganuary $C of $-C.65. The point0to0point return of (ifty was .-C> for

$%0C.

o#er$%e$t Securte!0 The trading in government securities exceeded the

combined trading in e#uity segments of all the exchanges in the country

during $%0C. The aggregate trading in central and state government

dated securities, including treasury bills, increased by manifold over a period of time.

"uring $%0C it reached a level of *s. $6,A4$,4 million. The share of '"9

segment of (SE in total turnover for government securities decreased marginally from

5$> in $$0% to CA.6> in $%0C. !owever, the share of '"9 segment of (SE in

the total of (on0repo government securities increased marginally from AC.-> in $$0

% to AC.4> in $%0C 7Table -0-8.

G

END O& CHAPTER I

6


7/122


CHAPTER II0 REGULATORY &RAME'ORK

The four main legislations governing the securities market are

7a8 T(e SEBI Act) *++,7b8 T(e Co%pa$e! Act) *+-7c8 T(e Securte! Co$tract!

/Re0u1ato$2 Act) *+-, and 7d8 T(e Depo!tore! Act) *++

& brief about these legislations are as given below:

EBI Act) *++,3 The SEBI &ct, -44$ was enacted to empower SEBI with

statutory powers for /a2protecting the interests of investors in securities, /42

promoting the development of the securities market, and /c2 regulating the

securities market. Its regulatory ;urisdiction extends over corporates in the issuing

capital and all intermediaries and persons associated with securities market. It can

conduct en#uiries, audits and inspection of all concerned participants and ad;udicate

offences under this &ct. It has powers to register and regulate all the market

intermediaries. /urther it can also penali+e them in case of violations of the provisions of

the &ct, *ules and *egulations made there under. SEBI has full autonomy and authority

to regulate and develop an orderly securities market.

S

7


8/122


ecurte! Co$tract! /Re0u1ato$2 Act) *+-3It provides for direct and indirect

control of virtually all aspects of the securities trading including the running of

stock exchanges with an aim to prevent undesirable transactions in securities. It

gives the 3entral )overnment regulatory ;urisdiction over /a2stock exchanges through a

process of recognition and continued supervision, /42 contracts in securities, and /c2

listing of securities on stock exchanges. &s a condition of recognition, a stock exchange

complies with the re#uirements prescribed by the 3entral )overnment. The stock

exchanges frame their own listing regulations in consonance with the minimum listing

criteria set out in the *ules.

S

epo!tore! Act) *++3 The "epositories &ct, -446 provides for the

establishment of depositories for securities to ensure transferability of

securities with speed, accuracy and security. /or this, these provisions have

been made: /a2making securities of public limited companies freely transferable sub;ect

to certain exceptionsH /42demateriali+ing the securities in the depository modeH and /c2

providing for maintenance of ownership records in a book entry form. In order to

streamline the settlement process, the &ct envisages transfer of ownership of securities

electronically by book entry without moving the securities from persons to persons. The

&ct has made the securities of all public limited companies freely transferable,restricting the companyFs right to use discretion in effecting the transfer of securities,

and the transfer deed and other procedural re#uirements under the 3ompanies &ct have

been dispensed with.

D

o%pa$e! Act) *+-3It deals with issue, allotment and transfer of securities

and various aspects relating to company management. It provides for

standards of disclosure in the public issues, particularly in the fields of

company management and pro;ects, information about other listed companies under the

same management, and management perception of risk factors. It also regulates

underwriting, the use of premium and discounts on issues, rights and bonus issues,

payment of interest and dividends, supply of annual report and other information.

C

8


9/122


A. RULES) REGULATIONS 5 REGULATORS

he )overnment has framed rules under the S3*&, the SEBI &ct and the

"epositories &ct. The SEBI has framed regulations under these acts for

registration and regulation of the market intermediaries and for prevention of

unfair trade practices. nder these &cts, the )overnment and the SEBI issue

notifications, guidelines and circulars, which the market participants comply with. The

S*


10/122


ver the last decade the )overnment and the market regulators have taken

several policy measures to improve the operations of the stock exchanges

and market intermediaries. The measures are aimed at improving the market

infrastructure and upgradation of risk containment, so as to protect the interest of the

investors. The policy developments during &pril $% and Gune $C pertaining to

trading of securities are enumerated below: and for non0delivery transactions at the rate of .-5> for e#uities and .-> on

trades on the derivatives segment.

II. Pe$!o$ S6!te%9I$ter% Pe$!o$ &u$8 Re0u1ator

The )overnment has approved the basic features of the new pension system. & pension

fund regulatory and development authority 7?/*"&8 in the interim is to be set up with

the purpose to regulate and develop the pension market. In this system, there would be

three different choices for investments e.g.


11/122


e#uity.


12/122


7iv8 Guara$tee: Banks, /Is, (B/3s are not permitted to provide guaranteeletter of

comfort.

7v8Proce8ure: &ll E3Bs satisfying the above criteria will be under the auto route up to

SK $ million for E3Bs between %05 years of average maturity and up to SK 5million for E3Bs having average maturity of more than 5 years. &ll cases, which fall

outside the purview of the auto0route in the new liberali+ed E3B policy, should be

sub;ect to the approval by the Empowered 3ommittee of the *BI. of the total paid0up capital and free reserves of the company.

*edemptions are to be sub;ect to /E9& and other laws and cannot be made within one

year of their issue. In case of redemption, the underlying e#uity shares may be released

to the I"* holder or may be sold directly by him.

I$tat#e! 7ro% SEBI

12


13/122


I. SEBI /L!t$0 Aut(ort62 Re0u1ato$!) ,


14/122


SEBI advised the Stock Exchanges to initiate action against the listed companies, who

have not complied with the various re#uirements of the listing agreements. It has been

clarified that Section $%7$8 of the S37*8&, -456 prescribes punishment for violation and

non compliance of the provisions of listing agreement. /urther, in order to ensure that

listed companies do not in anyway violate or override or circumscribe the provisions of

securities laws or the stock exchange re#uirements, SEBI amended the clause $C of the

listing agreement. The amended clauses are as given below:

7a8 The company should file with the stock exchange for approval any schemepetition

proposed to be filed before any court or tribunal at least a month before it is presented to

the 3ourttribunal.

7b8 The company should ensure that any scheme of

arrangementamalgamationmergerreconstructionreduction of capital, etc., to be

presented to any 3ourt or Tribunal does not in any way violate, override or circumscribe

the provisions of securities laws or the stock exchange re#uirements. Securities law here

means the S3*& -456, the SEBI &ct, -44$, the "epositories &ct -446 and the

provisions of 3ompanies &ct -456 and the other rules, regulations, guidelines etc. made

under these &cts, and the Jisting &greement.

III. Mar0$ Tra8$0'ith a view to improve li#uidity in the e#uity market, SEBI initiated steps to introduce

margin trading w.e.f. &pril -, $C. The securities, eligible for margin trading, should

have an average impact cost of less than or e#ual to - and should be traded on at least

> 705>8 of the days for the previous eighteen months. and C>, respectively. 'hile providing the margin trading facility, the

broker should be prudent and ensure that there is no concentration on any single client.

The

arbitration mechanism of the exchange is not available for grievances arising out of this

facility.

14


15/122


I;. E1041t6 o7 a Su4"4ro?er to Tra8e t(rou0( t(e Su4!8ar6 Co%pa$6

The Stock Exchanges had been allowed to set up subsidiary company to ac#uire

membership rights of other stock exchanges sub;ect to certain conditions prescribed by

SEBI. &s per the conditions stated in the SEBI directive, the subsidiary company could

register only the members of the parent stock exchange as sub0brokers of the subsidiary

company. !owever, it was noticed that the necessary changes have not been made in the

rules, bye0laws and the regulations of all the stock exchanges which have set up

subsidiaries and 9emorandum&rticles of &ssociation of the subsidiary company.

Therefore, all the stock exchanges, which have set up subsidiaries were directed to make

the necessary provisions in their rules, regulations and the bye0laws as well as in the

9emoranda&rticles of &ssociations to this effect.

;. L!t$0 &ee!

It has been decided by SEBI, that the stock exchanges should have the freedom to charge

listing fees without seeking prior approval from the SEBI. &ccordingly, the exchanges

have been directed to make necessary amendments to the bye0laws, rules and

regulationslisting agreement.

;I. Mar?"up $ re!pect o7 8e4e$ture! a$8 4o$8! tra8e8 o$ t(e Stoc? E@c(a$0e

Through a circular issued by SEBI on "ecember 4, -446, it has been stipulated that the

mark0up for the close out should be $> above the official closing price for e#uities as

well as debentures and bonds. !owever, based on the recommendations of the &dvisory

3ommittee on "erivatives and 9arket *isk 9anagement it has now been decided that in

case of debentures and bonds with a credit rating &&& and above, close out mark0up of

5> should be applied. In cases where the credit rating is below &&&, then the existing

close out mark0up of $> should be applicable.

;II. &ar Practce! a$8 Co8e o7 Co$8uct

& code of conduct for public representativesSEBI nominee directors has been notified

to ensure that the affairs of the stock exchanges are conducted on the healthy lines with

15


16/122


the highest standards of professional conduct, business ethics and morality. &lso the

guidelines enumerating fair practices have been notified. The public

representativesSEBI nominee directors should:

endeavor to attend all the board meetings. They should be liable to vacate their

office if they remain absent for three consecutive meetings of the Board of

"irectors or do not attend A5> of the total meetings of the Board in a calendar

year.

not participate in the discussion on sub;ects, which may involve any conflict of

interest or give rise to. If in case it happens then the same should be disclosed

and recorded in the minutes of the meetingH however, during the meeting the

agenda papers should not be circulated, unless circumstances re#uires.

meet at least once in 6 months separately, if necessary, to exchange views on

critical issues.

offer their comments on the draft minutes and ensure that the same are

incorporated in the final minutes. It should be ensured that the minutes of the

previous meeting are placed for approval in the subse#uent meeting.

endeavor to have the date of next meeting fixed at each Board 9eeting itself in

consultation with other members of the )overning Board. In case, all the items of

the agenda of a meeting are not covered, then next meeting is to be held within

-5 days.

participate in the formulation and execution of various strategies by being pro0

active in decision making in the Board meetings, so that the exchanges benefits

from their experience and expertise.

endeavor to ensure that the Exchange abides by all the provisions of the SEBI

&ct, Securities 3ontracts 7*egulation8 &ct, *ules, *egulations framed there

under and the circulars, directions issued by the )overnmentSEBI.

endeavour to make the regulatory system foolproof by ensuring compliance at all

levels of hierarchy in the Exchange. They should also ensure that the Exchange

honors the time limit prescribed by SEBI for corrective actions.

16


17/122


not support any decision of the Board, which may adversely affect the interest of

investors. They should report forthwith any such decision to SEBI.

make sure that the arbitral award is given within the period stipulated in the Bye0

Jaws, *ules or *egulations of the Exchange and in any case, the award is to bedelivered within -5 days after the final meeting.

priorities redressing of investor grievances by encouraging fair trade practice.

They should also make use of every opportunity to enhance and improve their

level of knowledge, so that they are able to resolve various issues arising in the

operations of the exchange with professional competence, fairness, impartiality,

efficiency and effectiveness.

submit the necessary disclosuresstatement of holdingsdealings in securities as

re#uired by the Exchange as per their *ules or &rticles of &ssociation.

maintain confidentiality about any information obtained in the discharge of their

duty unless otherwise re#uired by law. /urther, they should not use the

confidential information for their personal gains.

avoid any interest or activity which is in conflict with the conduct of their official

duties.

not engage in any act involving moral turpitude, dishonesty, fraud, deceit, or

misrepresentation or any other act pre;udicial to the administration of the

exchange.

;III. Corporate Go#er$a$ce $ L!te8 Co%pa$e!

3lause C4 of the listing agreement has been amended to include the recommendations as

prescribed by the committee on corporate governance set up under the chairmanship of

Shri (. *. (arayana 9urthy:

Co%po!to$ o7 Boar8:The board of directors of a company should have an optimum

combination of executive and non0executive directors. !owever, the non0executive

directors should not be less than 5> of the directors. The number of independent

directors should be determined on the basis of the post held by the 3hairmanH in case of

a non0executive chairman, at least -%rd of board should comprise of independent

17


18/122


directors and if he is an executive chairman, then at least half of Board should comprise

of independent directors.

No$"E@ecut#e Drector! Co%pe$!ato$ a$8 D!c1o!ure!3&ll the compensation paid

to non0executive directors should be fixed by the Board and should be approved by

shareholders in general meeting. & limit should be placed for the maximum number of

stock options that can be granted to them in any financial year and in aggregate. In its

annual report, the company should publish its compensation philosophy, statement of

entitled compensation in respect of non0executive directors and the details of shares held

by non0executive directors.

I$8epe$8e$t Drector3Independent "irector should periodically review the companyFs

legal compliance reports as well as the steps taken by the company. In the event of any

legal proceedings against an independent director in connection with the affairs of the

company, the defence would not be permitted on the ground that he was unaware of his

responsibility.

Boar8 Proce8ure3The Board should meet at least four times a year, with a maximum

time gap of four months between any two meetings. & director should not be a member

in more than - committees or act as 3hairman of more than five

committees across all companies in which he is a director. /urthermore, it should be

mandatory for all the directors to inform the company about the positions they occupy inother companies every year and also notify changes as and when they take place.

Co8e o7 Co$8uct3It is obligatory for the Board to lay down the code of conduct for all

its members and the senior management of the company, which should be posted on the

companyFs website.


19/122


members should be independent directors. It is re#uired that all the members of audit

committee should be financially literate and at least one of them should have accounting

or related financial management expertise. The 3hairman should be present at &nnual

)eneral 9eeting to answer the #ueries of the shareholders. The audit committee should

invite executives, as it considers appropriate 7and particularly the head of the finance

function8 to be present at the meetings, but on occasions it may also meet without the

presence of any executives.

Au8t Co%%ttee3The audit committee should meet at least thrice a year, but once

every six monthsH at least one meeting should be held before finali+ation of annual

accounts. The #uorum for the meeting should be either two members or one third of the

total membersH whichever is higher and minimum of two independent directors. The

committee is empowered to 7i8 investigate any activity within its terms of reference 7ii8

seek information from any employee 7iii8 obtain outside legal or other professional

advice 7iv8 secure attendance of outsiders with relevant expertise, if it considers

necessary.

Ro1e o7 Au8t Co%%ttee3The role of the audit committee should be to 7a8 oversees

the companyFs financial reporting process and the disclosure made in the financial

statement and ascertains its accuracy, sufficiency and credibility

7b8 recommend the appointment and removal of external auditor, fixation of audit feeand also approve payment for any other services 7c8 review the ade#uacy of internal

audit function, including the structure of the internal audit department, its staff, officials

heading the department, reporting structure coverage and fre#uency of internal audit.

/urther, the committee should discuss with internal auditors any significant findings and

follow them up 7d8 review the findings of any internal investigations into matters of a

suspected fraud or irregularity or a failure of internal control systems of a material nature

and reporting the matter to the board. &lso, the committee should discuss with external

auditors before the audit commences about nature and scope of audit. ?ost0audit the

committee should ascertain any area of concern regarding companyFs financial and risk

management policies. The &udit 3ommittee should also compulsorily review

information related to 7i8 financial statements and draft audit report, including

#uarterlyhalf0yearly financial informationH 7ii8 management discussion and analysis of

19


20/122


financial condition and results of operationsH 7iii8 reports relating to compliance with

laws and to risk managementH and 7iv8 management lettersletters of internal control

weaknesses issued by statutoryinternal auditors.

I. L!t$0 o7 &urt(er I!!ue o7 Capta1

/ollowing the withdrawal of compulsory listing of companies on regional stock

exchange, it has been decided by the SEBI that a company should be listed on any of the

stock exchanges, which have a nationwide trading terminals. If the company is not listed

on any stock exchange having nationwide trading terminals, then it should continue to

obtain Min0principleF approval from all the exchanges where it is listed. The listing

agreement states: 1The 3ompany agrees to obtain Min0principleF approval for listing from

the exchanges having nationwide trading terminals where it is listed, before issuing

further shares or securities. 'here the company is not listed on any exchange having

nationwide trading terminals, it agrees to obtain such Min0principleF approval from all the

exchanges in which it is listed before issuing further shares or securities.2

. A%e$8%e$t to SEBI /Depo!tore! a$8 Partcpa$t!2 /Seco$8 A%e$8%e$t2Re0u1ato$! ,


21/122


basis, starting from September %, $% to the concerned stock exchanges audited by a

#ualified 3hartered &ccountant or a practicing 3ompany Secretary.

I. A%e$8%e$t to SEBI /&II2 /Seco$8 A%e$8%e$t2 Re0u1ato$! ,


22/122


II. SEBI /Ce$tra1 Data4a!e o7 Mar?et Partcpa$t!2 Re0u1ato$! ,


23/122


chooses to do so at a later date, he is re#uired to disclose this to his clients before

carrying out any proprietary trading.

I;. Tra8$0 46 Me%4er!9Su4"4ro?er!

Since certain memberssub0brokers deal through a large number of other stock

brokerssub0brokers on the same exchangeother exchanges for their proprietary trades

as well as trades on behalf of their clients, SEBI has prohibited these transactions, except

with the prior permission of the exchange. &fter the stock exchange considers the reason

stated by the broker0sub0broker for such transactions and carry out due diligence, it

should permit such deals with only one brokersub0broker registered with it. The stock

brokersub0broker of an exchange can deal with only one brokersub0broker of another

exchange for proprietary trading after intimating the names of such stock brokersub0

broker to his parent stock exchange

;. D!c1o!ure o7 Tra8e Deta1! o7 Bu1? Dea1!

SEBI has decided to bring about greater disclosure in the nature of the bulk deals.

&ll transactions in scrip where total #uantity of shares boughtsold is more than .5> of

the outstanding e#uity shares of that company are considered to be bulk deals. The

brokers should disclose to the stock exchange the name of the scrip, name of the client,#uantity of shares boughtsold and the traded price. Immediately after executing the

trade, the brokers should intimate the exchange and the stock exchange, in turn, should

disseminate the aforesaid information on the same day after the market hours to the

general public.

;I. C(a$0e! $ t(e Na%e o7 t(e L!te8 Co%pa$e!

&ll listed companies, which decide to change their names, are re#uired to comply with

certain provisions: 7i8 They have to maintain a time period of at least one year before the

last name change 7ii8 &t least 5> of its total revenue in the preceding one year period

should have been accounted for by the new activity suggested by the new name 7iii8 The

new name along with the old name should be disclosed through web sites of the

23


24/122


respective stock exchanges where the company is listed and also through E"I/&* web

site for a continuous period of one year from the date of last name change.

;II. Re8ucto$ $ Notce Pero8 7or &@$0 t(e Boo? C1o!ure9Recor8 Date


25/122


clearing corporationclearing house or else through clearing member custodians 7e8 at the

time of trade, securities should be available with the /Is either in their S)J account with

*BI or in demat account with depositories 7f8 the purchase transactions by the /Is should

be sub;ect to availability of clear funds in their settlement accounts at the time of pay0in,

7g8 all pay0out of funds should invariably be out of clear funds, i.e. the pay out must not

be contingent upon the outcome of any clearing to be conducted on that day.

C. &ny settlement failure on account of non0delivery of securitiesnon0availability of

clear funds should be treated as S)J bouncing and the penalties in respect of S)J

bouncing should be applicable.

5. &ll the details of transaction in )overnment securities, on aggregate basis, undertaken

on the stock exchanges and particulars of any 1closed out2 should be reported to the

audit committee of the Board.

In the mid0term review of the monetary and credit policy, *BI has permitted sale of

)overnment security already contracted for purchase sub;ect to two conditions: 7a8 the

purchase contract is confined prior to the sale, is guaranteed by 33IJ or the security is

contracted for purchase from the *BIH 7b8 the sale transaction settles either in the same

settlement cycle as the preceding purchase contract so that the delivery obligation under

the sale contract is met by the securities ac#uired under the purchase contract.

II. De"reco0$to$ o7 O#er!ea! Corporate Bo8e! a! a$ I$#e!tor C1a!!

*BI in consultation with the )overnment have de0recogni+ed


26/122


person resident outside India including


27/122


capital market operations. The existing advancesguarantees issued may continue at the

earlier margins until they come up for renewal.

END O& CHAPTER III

CHAPTER IV - STOCK MARKET DESIGN &ACTS AND &IGURES

t the end of 9arch $C, there were $% operative stock exchanges with 4,%6

registered brokers and -$,-5 registered sub0broker trading on them

7&nnexure C0-8. The stock exchanges need to be recogni+ed under the&

27


28/122


Securities 3ontracts 7*egulation8 &ct, -456.


29/122


funds. The #uoted companies with wide public interest have en;oyed some benefits and

asset valuation has become easier for tax and other purposes.

In line with the growth in the new issues market during the eighties, the secondary

market also expanded fast during this period. The number of stock exchanges has

increased from in -4 to a total $C in -446. The membership of the stock exchanges

has also increased substantially over the years. The number of listed companies has also

increased and the market capitali+ation has also shown a substantial increase. The

volume of daily turnover of trade and the number of dealings per day have gone up

sharply.

B. Me%4er!(p

he trading platform of a stock exchange is accessible only to brokers. They

play a significant role in the secondary market by bringing together the buyers

and sellers. The brokers input buysell orders either on his own account or on

behalf of clients. The clients may place their orders either with them directly or through

a sub0broker indirectly. Thus, as these buy and sell order matches, the trades are

executed. The exchange can admit a broker as its member only on the basis of the termsspecified in the Securities 3ontracts 7*egulation8 &ct, -456, the SEBI &ct -44$, the

rules, circulars, notifications, guidelines, and the byelaws, rules and regulations of the

concerned exchange. (o stock broker or sub0broker is allowed to buy, sell or deal in

securities, unless he or she holds a certificate of registration from the SEBI. The stock

exchanges, however, are free to stipulate stricter re#uirements than those stipulated by

the SEBI. The minimum standards stipulated by (SE are in excess of those laid down by

the SEBI. The (SE admits members based on factors, such as, corporate structure,

capital ade#uacy, track record, education, and experience 7Table C0$8. This reflects a

conscious decision of (SE to ensure #uality broking services. The authorities have been

encouraging corporatisation of the broking industry. &s a result, a number of brokers0

proprietor firms and partnership firms have converted themselves into corporates. &s at

end09arch $C, there were brokers 4,%6 7including multiple registrations8 registered

T

29


30/122


with SEBI as compared to 4,5-4 brokers as at end09arch $%. &s of end09arch $C,

%,AA brokers, accounting for nearly C> of total have become corporate entities.

&mongst those registered with (SE around .4A> of them were corporatised, followed

by corporate brokers. &s at end09arch $C, there were -$,-5

sub0brokers registered with SEBI, as compared with -%,$4- sub0brokers as at end of

previous year. There were a total of -C- additions of members during the year $%0C,

whereas $4$ were membership cases of reconciliation cancellationsurrender. (SE and

BSE together constituted .$4> of the total sub0brokers.

C. L!t$0 o7 Securte!

isting means formal admission of a security to the trading platform of a stock

exchange. Jisting of securities on the domestic stock exchanges is governed

by the provisions in the 3ompanies &ct, -456, the Securities 3ontracts

7*egulation8 &ct, -456 7S37*8&8, the Securities 3ontracts 7*egulation8 *ules 7S37*8*8,

-45A, the circularsguidelines issued by 3entral )overnment and SEBI. In addition, they

are also governed by the rules, bye0laws and regulations of the concerned stock

J

30


31/122


exchange and by the listing agreement entered into by the issuer and the stock exchange.

Some of the key provisions are enumerated below:

-. The 3ompanies &ct, -456 re#uires a company intending to issue securities to the

public should seek a permission from one or more recogni+ed stock exchanges for its

listing. If the permission is not granted by all the stock exchanges before the expiry of -

weeks from the closure of the issue, then the allotment of securities would be void. &lso,

a company may prefer to appeal against refusal of a stock exchange to list its securities

to the Securities &ppellate Tribunal 7S&T8. The prospectus should state the names of the

stock exchanges, where the securities are proposed to be listed.

$. The bye0laws of the exchanges stipulate norms for the listing of securities. &ll listed

companies are under obligation to comply with the conditions of listing agreement with

the stock exchange where their securities are listed. If they fail to comply with them,

then they are punishable with a fine up to *s. -,.

%. The S37*8* prescribe re#uirements with respect to the listing of securities on a

recogni+ed stock exchange and empowers SEBI to waive or relax the strict enforcement

of any or all of them.

C. The listing agreement states that the issuer should agree to adhere to the agreement of

listing, except for a written permission from the SEBI. &s a precondition for the security

to remain listed, an issuer should comply with the conditions as may be prescribed bythe Exchange. /urther, the securities are listed on the Exchange at its discretion, as the

Exchange has the right to suspend or remove from the list the said securities at any time

and for any reason, which it considers appropriate.

5. & SEBI circular asserts that the basic norms of listing on the stock exchanges should

be uniform across the exchanges. !owever, the stock exchanges can prescribe additional

norms over and above the minimum, which should be part of their bye0laws. SEBI has

been issuing guidelinescirculars prescribing certain norms to be included in the listing

agreement and to be complied by the companies.

6. The stock exchanges levy listing fees on the companies, whose securities are listed

with them. The listing fee has two components0initial fee and annual fee. 'hile, initial

fee is a fixed amount, the annual fee varies depending upon the si+e of the company.

(SE charges *s. A,5 as initial fees. /or companies with a paid0up share andor

31


32/122


debenture capital of less than or e#ual to *s. - crore annual listing fees is *s. C,$. /or

companies with a paid0up share andor debenture capital of more than *s. 5 crore, the

annual listing fees is *s. A, plus *s. -,C for every additional *s. 5 crore or part

thereof. & number of re#uirements, under the S37*8*, the bye0laws, the listingagreement have to be continuously complied with by the issuers to ensure continuous

listing of its securities. The listing agreement also stipulates the disclosures that have to

be made by the companies. In addition, the corporate governance practices enumerated

in the agreement have to be followed. The Exchange is re#uired to monitor the

compliance with re#uirements. In case a company fails to comply with the re#uirements,

then trading of its security would be suspended for a specified period, or

withdrawaldelisting, in addition to penalty as prescribed in the S37*8&.

D. Tra8$0 Mec(a$!%

SE was the first stock exchange in the country to provide nation0wide,

anonymous, order driven, screen0based trading system, known as the

(ational Exchange for &utomated Trading 7(E&T8 system. The member

inputs, in the (E&T system, the details of his order such as the #uantities and prices of

securities at which he desires to transact. The transaction is executed as soon as it finds a

matching sale or buys order from a counter party. &ll the orders are electronically

matched on a pricetime priority basis. This has resulted in a considerable reduction in

time spent, cost and risk of error, as well as frauds, resulting in improved operational

efficiency. It allows for faster incorporation of price sensitive information into prevailing

prices, as the market participants can see the full market on real time basis. This

increases informational efficiency and makes the market more transparent. /urther, the

system allows a large number of participants, irrespective of their geographical

locations, to trade with one another simultaneously, improving the depth and li#uidity of

the market. & single consolidated order book for each stock displays, on a real time

basis, buy and sell orders originating from all over the country. The book stores only

limit orders, which are orders to buy or sell shares at a stated #uantity and stated price,

are executed only if the price #uantity conditions match. Thus, the (E&T system

(

32


33/122


provides an


34/122


world to use satellite communication technology for trading and also has the largest

@S&T0based trading network in the world and largest @S&T network for any purpose in

the &sia ?acific region. It uses satellite communication technology to energi+e

participation from more than $, @S&Ts from approximately %65 cities spread all

over the country. It has been continuously undertaking capacity enhancement measures

so as to effectively meet the re#uirements of increased users and associated trading

loads. (SEFs trading system called the (ational Exchange for &utomated Trading

7(E&T8, is a state of0the0art client server based application. &t the serverFs end all the

trading information is stored in an in0memory database to achieve a minimum response

time and maximum systems availability for users. It has uptime records of 44.A>. The

system also ensures data integrity with past record of single error in - million bits. /or

all trades entered into the (E&T system, there is uniform response time of less than -.5

seconds. (SE has also put in place (IBIS 7(SEFs internet Based Information System8

for on0line real0time dissemination of trading information through its website. &s part of

its business continuity plan, (SE has established a disaster back0up site at 3hennai along

with its entire infrastructure, including the satellite earth station. This site at 3hennai is a

mirror replica of the complete production environment at 9umbai. The link between the

two is through a high0speed optical fiber and the transaction data is backed up on near

real time basis from the main site to the disaster back0up site to keep both the sitessynchroni+ed with each other all the time.

&. Tra8$0 Ru1e!

$!8er Tra8$03 Insider trading is considered an offence and is hence prohibited.

The SEBI 7?rohibition of Insider Trading8 *egulations, -44$ prohibits an insider

from dealing 7on his own behalf or on behalf of others8 in listed securities on the

basis of Munpublished price sensitive informationF. It also prohibits communicating,

counseling or procuring such information from any other person to deal in securities of

any company on the basis of such information. ?rice sensitive information for a security

is any information, which if published, is likely to affect its price. It includes information

regarding the financial results of the company, intended declaration ofdividends, issue

I

34


35/122


of securities or buy back of securities, amalgamation, mergers, takeovers, and any ma;or

policy changes. SEBI, on the basis of any complaint or otherwise, is empowered to

investigateinspect these allegation of insider trading. If a person is found prima facie

guilty of insider trading, then SEBI may prosecute persons in an appropriate court orpass such orders as it may deem fit. In order to strengthen insider trading regulations,

SEBI has mandated a code of conduct for listed companies, its employees, analysts,

market intermediaries and professional firms. The insider trading regulations re#uire

initial and continuous disclosure of shareholding by directors, officers and ma;or

shareholders 7holding more than 5> sharesvoting rights8. The companies are also

mandated to adopt a code of disclosure with regards to price sensitive information,

market rumors, reporting of shareholdingownership, etc.

$7ar Tra8e Practce!3 The SEBI 7?rohibition of /raudulent and nfairTrade ?ractices in relation to the Securities 9arket8 *egulations, -445

empowers SEBI to investigate into cases of market manipulation, fraudulent

and unfair trade practices. The regulations define frauds as acts committed by a party of

the contract or by his agent, with intent to deceive another party or his agent or to induce

him to enter into the contract. The regulations specifically prohibit market manipulation,

misleading statements to induce sale or purchase of securities, and unfair trade practices

relating to securities. nder these regulations, SEBI can investigate into violations

committed by any person, including an investor, issuer or an intermediary, suo moto or

upon information received by it. Based on the report of the investigating officer, SEBI

can initiate action for suspension or cancellation of registration of an intermediary.

U

a?eo#er!3 The restructuring of companies through takeover is governed by

the SEBI 7Substantial&c#uisition of Shares and Takeovers8 *egulations,

-44A. The *egulations were formulated so that the process of ac#uisitions

and takeovers is carried out in a well0defined and orderly manner following the

principles of fairness and transparency. &s per the regulations, the mandatory public

offer is triggered on:

T

35


36/122


crossing the threshold limit of -5>,

crossing the creeping ac#uisition limit of -5> or more but less than A5> of

shares or voting rights of a target company,

&ttempts by persons having A5> or more to ac#uire more shares.The regulations give enough scope for existing shareholders to consolidate and also

cover the scenario of indirect ac#uisition of control. The applications for takeovers are

scrutini+ed by the Takeover ?anel constituted by the SEBI.

u6 Bac?3 Buy back is done by the company with the purpose to improveli#uidity in its shares and enhance the shareholdersF wealth. nder the SEBI

7Buy Back of Securities8 *egulations, -44, a company is permitted to buy

back its shares from:

B7a8 existing shareholders on a proportionate basis through the offer documentH7b8 open market through stock exchanges using book building processH and7c8 shareholders holding odd lot shares.

The company has to disclose the pre and post0buy back holdings of the promoters. To

ensure completion of the buy back process speedily, the regulations have stipulated

time limit for each step. /or example, in the cases of purchases through stock exchanges,

an offer for buy back should not remain open for more than % days. The verification of

shares received in buy back has to be completed within -5 days of the closure of the

offer. The payments for accepted securities has to be made within A days of the

completion of verification and bought back shares have to be extinguished and

physically destroyed within A days of the date of the payment. /urther, the company

making an offer for buy back will have to open an escrow account on the same lines as

provided in takeover regulations.

rcut Brea?er!3@olatility in stock prices is a cause of concern for both thepolicy makers and the investors. To curb excessive volatility, SEBI has

prescribed a system of circuit breakers. The circuit breakers bring about a

nation0wide coordinated halt in trading on all the e#uity and e#uity derivatives markets.

&n index based market0wide circuit breaker system applies at three stages of the index

C

36


37/122


movement either way at ->, -5> and $>. The breakers are triggered by movement of

either SD? 3( (ifty or Sensex, whichever is breached earlier. /urther, the (SE views

entries of non0genuine orders with utmost seriousness as this has market0wide

repercussion. It may suo0moto cancel the orders in the absence of any immediate

confirmation from the members that these orders are genuine or for any other reason as it

may deem fit. &s an additional measure of safety, individual scrip0wise price bands have

been fixed as below:

"aily price bands of $> 7either way8 on a set of specified securities,

"aily price bands of 5> 7either way8 on a set of specified securities,

"aily price bands of -> 7either way8 on another set of specified securities,

?rice bands of $> 7either way8 on all remaining securities 7including

debentures, warrants, preference shares etc. which are traded on 39 segment of

(SE8,

(o price bands are applicable on scrips on which derivative products are

available or on scrips included in indices on which derivatives products are

available.

/or auction market the price bands of $> are applicable. In order to prevent members

from entering orders at non0genuine prices in these securities, the Exchange has fixed

operating range of $> for such securities.

e%at Tra8$03 & depository holds securities in dematerialised form. It

maintains ownership records of securities in a book entry form, and also

effects transfer of ownership through book entry. Though, the investors have

a right to hold securities in either physical or demat form, SEBI has made it compulsory

that trading in securities should be only in dematerialised form. This was initially

introduced for institutional investors and was later extended to all investors. The

companies, which fail to establish connectivity with both the depositories on the

scheduled date as announced by SEBI, their securities are traded on the Mtrade for tradeF

settlement window of the exchanges. &t the end of 9arch $C, the number of

companies connected to (S"J and 3"SJ were 5,$-$ and C,A$, respectively. The

D

37


38/122


number of dematerialised securities have increased from A6.4 billion at the end of 9arch

$% to 4A.A billion at the end of 9arch $C. "uring the same period the value of

dematerialised securities has increased from *s. 5,A5 billion to *s. -,A- billion.

Since the introduction of the depository system, demateriali+ation has progressed at a

fast pace and has gained acceptance amongst the market participants. &ll actively traded

scrips are held, traded and settled in demat form.

G. C(ar0e! 7or Ser#ce!

s per SEBI *egulations, every stockbroker, on the basis of his total turnover,

is re#uired to pay annual turnover charges, which are to be collected by the

stock exchanges. In order to share the benefits of efficiency, (SE has been

reducing the transaction charges over a period of time. &t present a trading member is

re#uired to pay the exchange transaction charges R.C> 7*s. C per *s.- lakh8 of the

turnover.&The maximum brokerage chargeable by a broker is fixed at $.5> of the contract price,

exclusive of statutory levies like, SEBI turnover fee, service tax, and stamp duty. This is

inclusive of the brokerage charged by the sub0broker, which should not exceed -.5> of

contract price. !owever, the brokerage charged varies from clients to clients. There areinstances wherein brokerage as low as .-5> has been charged.

Stamp duties are payable as per the rates prescribed by the relevant states. In

9aharashtra, it is charged R *e. - for every *s. -, or part thereof 7i.e. .->8 of

the value of security at the time of its purchasesale as the case may be. !owever, if the

securities are not delivered, it is levied R $ paise for every *s. -, or part there of

7.$>8. The depositories provide depository services to investors through depository

participants 7"?s8. They do not charge the investors directly, but charge their "?s who

are free to have their own free structure for their clients. The depositories, however, have

been reducing their charges from "?s over a period of time. The charges levied on "?s

by (S"J and 3"SJ are presented in Table C0Cb.

38


39/122


H. I$!ttuto$a1 Tra8e!

rades by 9utual /unds and /oreign Institutional Investors are termed as

Institutional trades, Transactions by 9/s in the secondary market are

governed by SEBI 79utual /unds8 *egulations, -446. & 9/ under all its

schemes is not allowed to own more than -> of any companyFs paid0up capital. They

are allowed to do only Mdelivery0basedF transactions. & 9/ cannot invest more than ->

of the (&@ of a particular scheme in the e#uity shares or e#uity related instruments of a

single company. The investments by /IIs are governed by the rules and regulations of

the *BI and the SEBI. &s per the *BI guidelines, each /II can invest up to -> of the

paid0up capital of a companyH however, the total /II investment should not exceed $C>.

This can, however, be increased up to the sectoral capstatutory ceiling, as applicable,

provided the Indian companyFs board of directors and also its general body approve it.

&s per the SEBI guidelines, all /II transactions are to be routed through a registered

member of a recogni+ed stock exchange in India. /IIs have to necessarily give and take

delivery of securities sold and bought.

T

I. I$8e@ Ser#ce!

39


40/122


stock index consists of a set of stocks that are representative of either the

whole market, or a specified sector. It helps to measure the change in overall

behaviour of the markets or sector over a period of time. (SE and 3*ISIJ,

in technical partnership with Standard D ?oorFs, have ;ointly promoted the India Index

Services D ?roducts Jimited 7IISJ8. The IISJ provides stock index services by

developing and maintaining an array of indices for stock prices. IISJ is the only

speciali+ed organi+ation of this type in the country. IISJ maintains a number of e#uity

indices comprising broad0based benchmark indices, sectoral indices and customi+ed

indices. The most popular index is the SD? 3( (ifty, followed by the 3( (ifty

Gunior, SD? 3( "efty, SD? 3( 5, 3( 9idcap $, SD? 3( Industry indices

7for A% industries8 and 3( IT Index. These indices are monitored and updated

dynamically and are reviewed regularly. These are maintained professionally to ensure

that it continues to be a consistent benchmark of the e#uity markets, which involves

inclusion and exclusion of stocks in the index, day0to0day tracking and giving effect to

corporate actions on individual stocks. SD? 3( (ifty is a well diversified 5 stock

index accounting for $C sectors of the economy. It accounted for 56.4A> of total market

capitali+ation of 39 segment of (SE as at end09arch $C. The total traded value of all

(ifty stocks is approximately AA> of the traded value of all the stocks on the (SE. 3(

(ifty Gunior accounts for --.6> of the market capitali+ation in (SE. &fter carrying out anumber of iterations, it was felt that Indian stock market had comfortable li#uidity at

around 5 stocks. Beyond 5, the li#uidity levels became increasingly lower. !ence the

index set si+e of 5 stocks was chosen. The stocks included in the (ifty index are

selected on the basis of their impact cost, li#uidity and market capitali+ation. The

composition of (ifty is reviewed at every #uarter. The index is calculated afresh every

time a trade takes place in any of the index stock. It is calculated on0line and

disseminated over trading terminals across the country. &nnexure C0$ to C05 present the

market capitali+ation, weightage, beta and monthly returns of the SD? 3( (ifty stocks

for the period &pril $%09arch $C. SD? 3( (ifty was introduced considering the

fact that it would not only be used for reflecting the stock market behavior accurately,

but also for modern applications such as index funds and index derivatives. It has

become the most popular and widely used stock market indicator in the country. Index

&40


41/122


futures and options have been launched based on SD? 3( (ifty index and on 3( IT

Index. /utures contracts based on SD? 3( (ifty have also been launched at the

derivative exchange at Singapore. It is the only Indian index0based derivative product

traded on a foreign exchange.

. Mar?et Outco%e

ur$o#er GroFt( a$8 D!tr4uto$3 Trading volumes in the e#uity

segments of the stock exchanges have witnessed phenomenal growth over the

last few years. 'hile it has increased from *s. -,$%%,$ million in -44044

to *s. $,4,4 million in $0-, it witnessed a slump during $-0$ registering

volumes of only *s. ,45,- million. The traits of recovery in the market are visibly

seen for the last two years. The volumes have risen to *s. 4,64,4% million in $$0%

and further to *s. -6,$C,4AA million in $%0C. In percentage terms there has been a

growth of 6A.$4> in $%0C over the previous

T

yearFs volume 7Table C058. The monthly trading value of the 39 segment on (SE

increased from *s. C4,A-% million in &pril $% to *s. -,C,A65 million in 9arch

$C 7Table C068. The daily turnover on (SE averaged around *s. C%,$4 million in this

year. 9ost of the exchanges saw large scale declines in their trading volumes in the year

$%0C with nine exchanges vi+., 3alcutta, ttar ?radesh, &hmedabad, "elhi, ?une,

I3SE, !yderabad, @adodara and 9agadh observing the highest decline. /ive exchanges

viz., (SE, BSE, Bangalore, 9adras and of the total turnover. Since its inception in -44C, (SE has

emerged as the favored exchange among trading members. The consistent increase in

popularity of (SE is clearly evident from &nnexure C06, which presents business growthof 39 segment of (SE. (SE now reports higher turnover

from its trading terminals in most of the cities than their corresponding regional

exchanges. The comparative picture of turnover of regional stock exchanges and

turnover of (SE terminals at different cities is presented in Table C0A. (ot only in the

national arena, but also in the international markets, (SE has been successful in creating

41


42/122


a niche for itself. &ccording to reports of /IB@, in the calendar year $%, in terms of

trading intensity (SE ranked %rd next only to (&S"& and (NSE.

ATTN3 TABLE ON NET PAGE

42


43/122

STOCK MARKET TRENDS IN INDIA 43


44/122


The sectoral distribution of turnover has undergone significant change over last few

years. Table C0 presents the share of top M5F companies at (SE, classified according to

different sectors, in turnover and market capitali+ation. The share of manufacturing

companies in trading volume of top M5F companies, which was nearly more than $%> in

-44044, witnessed a sharp decline to $.%> $$ 0%. /urther, in $% 0C, their share

has risen sharply to %A.66>. The share of information technology 7IT8 companies in

trading volume has fallen from AC.A-> in $$ 0 % to only %-.C> in $% 0 C.

ATTN3 TABLE ON NET PAGE

44


45/122


The share of top M5F securities in turnover has been on a declining trend since the

past few years from 5$.$> in $0- to %-.C> in $%0C 7Table C048. Trading in top

M-F securities also has witnessed a decline from 4A.5> to 4-.%> over the same

period. 9ember0wise distribution of turnover indicates increasing diffusion of trades

among a larger number of trading members over the years. "uring $%0C, top M5F

members accounted for only --.6> of turnover, while top M-F members accounted for

6-.C> of total turnover. Turnover in India seems to be more concentrated in comparison

to that in other comparable markets 7international8 as may be seen from Table C 0-. Ten

most active index securities accounted for CC.$> of turnover in India and top ten index

securities in terms of e#uity base accounted for %6.5> of market capitali+ation at the endof "ecember $%.

45


46/122


&t the end of 9arch $C, (SE has permitted A members on its 39 segment

the web based access to its trading system. These members in turn have registered

C-%,C5C clients for web based access. &bout $%5 lakh trades for *s. %A4,C5- million

constituting %.C5> of the total trading volume were routed and executed through the

internet. (E&TiXS a product of the (SE.IT helps brokerage firms to conduct internet

trading, which can be accessed easily using standard browsers. It provides real time

46


47/122


on0line market information including stock #uotes and order screens, allowing investors

to place orders from their personal computers. The success of internet trading in India,

however, will depend on expansion of internet bandwidth, which is necessary for faster

execution of trades.

K. Mar?et Capta1ato$

he market capitali+ation for securities available for trading on the e#uity

segment of (SE and BSE witnessed enormous growth over the previous years

7Table C068. The market capitali+ation of (SE and BSE as at end 9arch $C

amounted to *s. --,$4,A6 million and *s. -$,-$,6 million respectively. & sharp

change in the shares of different sectors in market capitali+ation is observed over the

years 7Table C08. Sectors like manufacturing, which used to dominate in terms of

market capitali+ation with more than %5> in the year -44044, have shown declines in

$-0$ and $$0%. !owever, they witnessed a turnaround in $%0C having

registered %-.-%> share in market capitali+ation of the top 5 companies.

T

L. Prce!

he year $%0C proved to be good for all the ma;or indices in the world. The

SD? 3( (ifty index, which remained subdued for the early part of $%,

rose sharply from &ugust $% onwards to reach a peak of $-C.65 in Ganuary

$C. The index rose by -.-C> in $%0C as compared to its previous years close

7Table C0--8. Similarly BSE also gave returns to the tune of %.%> in the said period.

T

47


48/122



49/122


50/122


K. Retur$! $ I$8a$ Mar?et

he performance of SD? 3( (ifty and various other indices over different

periods of last one month to -$ months is presented in Table C0-C. It reveals

that the indices have performed with varying degrees over varying periods. &

common phenomenon observed was that some of the indices provided substantial gains

in the longer period of 6 months and one year, but did not give encouraging returns for

the shorter periods of - month, % months. The investments made in SD? 3( (ifty

securities in /ebruary $C did not yield having positive returns, however the

T

50


51/122


investments in the same a year back 79arch $%8 gave out positive returns of -.-C>.

3( 9idcap $ and 3( IT index proved to follow the same trend as of (ifty. The

comparative performance of five ma;or sectoral indices, viz. SD? 3( ?etrochemicals

Index, SD? 3( /inance Index, 3( /93) Index, SD? 3( ?harma Index, and3( IT Index, with that of SD? 3( (ifty Index for the year $%0C is presented in

3hart C0%. It is observed that during the entire period, 3( /inance Index, SD? 3(

?etrochemicals Index and the SD? 3( ?harma Index out0performed the (ifty. The

3( IT Index, was the worst performer during the whole year. 3( /93) Index

though mirrored the movement of (ifty during the first half of the year. !owever, it

under performed the benchmark index M(iftyF during the later half. The monthly closing

prices of these sectoral indices are presented in Table C 0-%.

51


52/122


L. E@c(a$0e Tra8e8 &u$8!

he first ET/ in India, the 1(ifty BeES 7(ifty Benchmark Exchange Traded

Scheme8 is based on SD? 3( (ifty. It was launched in "ecember $- by

Benchmark 9utual /und. It is bought and sold like any other stock on (SE

and has all characteristics of an index fund. &s on 9arch end $%, there were five ET/s

launched on (ifty, Gunior (ifty, 3( Bank Index namely, the (ifty BeES, Gunior (ifty

BeES, Bank BeES, Ji#uid BeES and S("E* 7SD? 3( (ifty TI (otional

"epository *eceipts Scheme8. ?rudential I3I3I launched an ET/ based on BSE Sensex,

namely S?I3E 7Sensex ?rudential I3I3I Exchange Traded /und8. "uring the month of

9arch $C, 6%A trades involving .-% million (ifty BeES were transacted. The trading

value was *s. $$.C$ million.

T

M. Lu8t6

any listed securities on stock exchanges are not traded actively. The

percentage of companies traded on BSE was #uite low at %5.4%> as

compared with 4A.A-> on (SE in 9arch $C 7Table C0-58. of companies traded on BSE were traded for more than - days during $%0

C, while that on (SE, it has been 4$.-6> 7Table C0-68. Trading took place for less than9

52


53/122


- days in case of $C.4> of companies traded at BSE during the year, and for less than

- days in case of 5.6> of companies traded.

N. I$!ttuto$a1 Tra$!acto$!

53


54/122


hough the volume of trades done by /IIs is not very high as compared to other

market participants, they are the driving force in determination of market

sentiments and price trends. This is so because, they do only delivery0based

trades and they are perceived to be infallible in their assessment of the market. "uring

$%0C, the investments made by /IIs were a total turnaround compared to its

performances in the earlier years. The strong risk ad;usted returns of the Indian market

have led /IIs to make more allocations to India. The /IIs registered a net investment of

*s. C5A,6C5 million. The /IIs net investment was highest during the month of


55/122

STOCK MARKET TRENDS IN INDIA 55


56/122


O. ADR9GDR Prce!

comparison of the price of &"*)"* of a company with the domestic price

of its share gives an idea about the extent to which domestic price of the

security is at premiumdiscount to the international price. The extent of

divergence between the prices of &"*s)"*s and the domestic prices of the companies

constituting the Instanex Skindia index is presented in Table C0-4. *BI permitted two0

way fungibility for &"*s)"*s, which meant that the investors 7foreign institutional or

domestic8 in any company that has issued &"*s)"*s could freely convert the

&"*s)"*s into underlying domestic shares. They could also reconvert the domestic

shares into &"*s)"*s, depending on the direction of price change in the stock

&

P. Ta?eo#er!

56


57/122


n $%0C, there were 65 takeovers under open category involving *s. -5,4C

million as against *s. 6%,4- million during the preceding year 7Table C0$8.

!owever, there were -A- takeovers under exempted category involving *s. -C,%5A

million as against *s. $C,$C million in the previous year.

I

. Per7or%a$ce o7 Bro?er!

s mentioned earlier, there were 4,%6 trading members at the end of 9arch

$C, however, the details of their performance are not readily available. &

brief detail with respect to A44 members of (SE is presented in Table C0$-.It is observed that about 5A> of the members had deployed a capital of less than *s. $

million at the end of 9arch $%, while 5> have deployed more than *s. - million.

Similarly about 5$> of members had a turnover of less than *s. -, million during

$%0C, while about 6> had turnover of more than *s. -, crore.

&

57


58/122


END OF CHAPTER IV

CHAPTER ; TECHNICAL ANAYSIS IN THE STOCK MARKET

58


59/122


echnical analysis is simply the study of prices as reflected on price charts.

Technical analysis assumes that current prices should represent all known

information about the markets. ?rices not only reflect intrinsic facts, they also

represent human emotion and the pervasive mass psychology and mood of the moment.

?rices are, in the end, a function of supply and demand. !owever, on a moment to

moment basis, human emotionsfear, greed, panic, hysteria, elation, etc. also

dramatically effect prices. 9arkets may move based upon peopleFs expectations, not

necessarily facts. & market UtechnicianU attempts to disregard the emotional component

of trading by making his decisions based upon chart formations, assuming that prices

reflect both facts and emotion.

T

A. STOCK CHARTS

Stock charts gained popularity in the late -4th 3entury from the writings of 3harles !.

"ow in the 'all Street Gournal. !is comments, later known as U"ow TheoryU, alleged

that markets move in all kinds of measurable trends and that these trends could be

deciphered and predicted in the price movement seen on all charts.

/("&9E(T&J &(&JNSIS seeks to determine future stock price by understanding

and measuring the ob;ective UvalueU of an e#uity. The study of stock charts, known as

TE3!(I3&J &(&JNSIS, believes that the past action of the market itself will

determine the future course of prices.

& stock chart is a simple two0axis 7x0y8 plotted graph of price and time. Each individual

e#uity, market and index listed on a public exchange has a chart that illustrates this

movement of price over time. Individual data plots for charts can be made using the

3J


60/122


Stock charts can be created in many different time frames. 9utual fund holders use

monthly charts in which each individual data plot consists of a single month of activity.

"ay traders use - minute and 5 minute stock charts to make #uick buy and sell decisions.

The most common type of stock chart is the daily plot, showing a single complete

market session for each unit.

Stock charts can be drawn in two different ways. &n &*IT!9ETI3 chart has e#ual

vertical distances between each unit of price. & J move. & move from $

to C is also a -> move. /or this reason, the vertical distance from - to $ and the

vertical distance from $ to C will be identical on a logarithmic chart.

Stock chart analysis can be applied e#ually to individual stocks and ma;or indices.

&nalysts use their technical research on index charts to decide whether the current

market is a BJJ 9&*LET or a BE&* 9&*LET.


61/122


se the stock chart to identify the current trend. & trend reflects the average rate of

change in a stockVs price over time. Trends exist in all time frames and all markets. "ay

traders can establish the trend of their stocks to within minutes. Jong term investors

watch trends that persist for many years.

Trends can be classified in three ways: ?, "


62/122


change in value or conditions occurs. 3hart readers try to locate T


63/122


under "IST*IBTI


64/122


!ow can you organi+e the endless stream of stock chart data into a logical format that

doesnVt re#uire rocket science to interpretW 3harts allow investors and traders to look at

past and present price action in order to make reasonable predictions and wise choices. It

is a highly visual medium. This one fact separates it from the colder world of value0

based analysis.

The stock chart activates both left0brain and right0brain functions of logic and creativity.

So itVs no surprise that over the last century two forms of analysis have developed that

focus along these lines of critical examination.

The oldest form of interpreting charts is ?&TTE*( &(&JNSIS. This method gained

popularity through both the writings of 3harles "ow and Technical &nalysis of Stock

Trends, a classic book written on the sub;ect ;ust after 'orld 'ar II. The newer form of

interpretation is I("I3&T


65/122


B


66/122


The most popular technical indicator for studying stock charts is the 9


67/122


multiple moving averages that reflect these characteristics assist important decision

making. 3ommon moving average settings for daily stock charts are: $ days for short0

term, 5 days for intermediate and $ days for long0term.


68/122


The concept of S??


69/122


The ideas of 3harles "ow, the first editor of the 'all Street Gournal, form the basis of

technical analysis today. "ow created the Industrial &verage, of top blue chip stocks,

and a second average of top railroad stocks 7now the Transport &verage8. !e believed

that the behavior of the averages reflected the hopes and fears of the entire market. The

behavior patterns that he observed apply to markets throughout the world.

G. DoF T(eor6

I. T(ree Mo#e%e$t!

9arkets fluctuate in more than one time frame at the same time:

(othing is more certain than that the market has three well defined movements which fit

into each other.

The first is the daily variation due to local causes and the balance of buying and

selling at that particular time 7*ipple8.

The secondary movement covers a period ranging from days to weeks, averaging

probably between six to eight weeks 7'ave8.

The third move is the great swing covering anything from months to years,

averaging between 6 to C months. 7Tide8.

Bull markets are broad upward movements of the market that may last several

years, interrupted by secondary reactions. Bear markets are long declines

69


70/122


interrupted by secondary rallies. These movements are referred to as the primary

trend.

Secondary movements normally retrace from one third to two thirds of the

primary trend since the previous secondary movement.

"aily fluctuations are important for short0term trading, but are unimportant in

analysis of broad market movements.

H. DoF T(eor6

I. Pr%ar6 Mo#e%e$t! (a#e T(ree P(a!e!

Jook out for these general conditions in the market.

Bu11 %ar?et!

Bull markets commence with reviving confidence as business conditions

improve.

?rices rise as the market responds to improved earnings

*ampant speculation dominates the market and price advances are based on

hopes and expectations rather than actual results.

Bear %ar?et!

Bear markets start with abandonment of the hopes and expectations that

sustained inflated prices.

?rices decline in response to disappointing earnings.

"istress selling follows as speculators attempt to close out their positions and

securities are sold without regard to their true value.

Ra$0$0 Mar?et!

& secondary reaction may take the form of a MlineF which may endure for several

weeks.

70


71/122


?rice fluctuates within a narrow range of about five per cent.

Brea?out! 7ro% a ra$0e ca$ occur $ et(er 8recto$.

&dvances above the upper limit of the line signal accumulation and higher

pricesH

"eclines below the lower limit indicate distribution and lower pricesH

@olume is used to confirm price breakouts.

I. DoF T(eor6

I. Tre$8!

Bu11 Tre$80 & bull trend is identified by a series of rallies where each rally exceeds the

highest point of the previous rally. The decline, between rallies, ends above the lowest

point of the previous decline

71


72/122


Successive higher highs and higher lows.

The start of an up trend is signaled when price makes a higher low 7trough8, followed by

a rally above the previous high 7peak8:

Start (0(er LoF 4rea? a4o#e pre#ou! H0(.

The end is signaled by a lower high 7peak8, followed by a decline below the previous

low 7trough8:

E$8 1oFer H0( 4rea? 4e1oF pre#ou! LoF.

72


73/122


'hat if the series of higher !ighs and higher Jows is first broken by a lower JowW

There are two possible interpretations 0 see Jarge 3orrections.

Bear Tre$8! " Each successive rally fails to penetrate the high point of the previous

rally. Each decline terminates at a lower point than the preceding decline.

Succe!!#e 1oFer (0(! a$8 1oFer 1oF!.

73


74/122


& bear trend starts at the end of a bull trend: when a rally ends with a lower peak and

then retreats below the previous low. The end of a bear trend is identical to the start of a

bull trend. 'hat if the series of lower !ighs and lower Jows is first broken by a higher

!ighW This is a gray area 0 see Jarge 3orrections.

. DoF T(eor6

I. Lar0e Correcto$!

& large correction occurs when price falls below the previous low 7during a bull trend

where price rises above the previous high 7in a bear trend8.

74


75/122


Some purists argue that a trend ends if the se#uence of higher highs and higher lows is

broken.


76/122


Ca$81e!tc? C(art! E@p1a$e8

Nou may be asking yourself, UIf I can already use bar charts to view prices, then why doI need another type of chartWU

The answer to this #uestion may not seem obvious, but after going through the following

candlestick chart explanations and examples, you will surely see value in the different

perspective candlesticks bring to the table. In my opinion, they are much more visually

appealing, and convey the price information in a #uicker, easier manner.

H!tor6 o7 Ca$81e!tc? C(art!

3andlestick charts are on record as being the oldest type of charts used for price

prediction. They date back to the -AVs, when they were used for predicting rice prices.

In fact, during this era in Gapan, 9unehisa !omma become a legendary rice trader and

gained a huge fortune using candlestick analysis. !e is said to have executed over -

consecutive winning tradesX

The candlesticks themselves and the formations they shape were give colorful names bythe Gapanese traders. "ue in part to the military environment of the Gapanese feudal

system during this era, candlestick formations developed names such as Ucounter attack

linesU and the Uadvancing three soldiersU. Gust as skill, strategy, and psychology are

important in battle, so too are they important elements when in the midst of trading

battle.

3andlestick charts are much more visually appealing than a standard two0dimensional

bar chart. &s in a standard bar chart, there are four elements necessary to construct a

candlestick chart, the


77/122


The body of the candlestick is called the real body, and represents the

range between the open and closing prices.

& black or filled0in body represents that the close during that time period

was lower than the open, 7normally considered bearish8 and when the

body is open or white, that means the close was higher than the open

7normally bullish8.

The thin vertical line above andor below the real body is called the

upper/lowershadow,representing the highlow price extremes for the

period.

77


78/122


Bar Co%pare8 to Ca$81e!tc? C(art!

Below is an example of the same price data conveyed in a standard bar chart and acandlestick chartW (otice how the candlestick chart appears %0dimensional, as price data

almost ;umps out at you.

7 %a 8

7%b8

The long, dark, filled0in real bodiesrepresent a weak 7bearish8 close 7 %a 8, while a

long open, light0colored real body represents a strong 7bullish8 close 7 %b 8. It is

important to note that Gapanese candlestick analysts traditionally view the open and

closing prices as the most critical of the day. &t a glance, notice how much easier it is

w

Shares Stocks NSE BSE

Documents