Summertrainingprojectreportonfluctuationofindianstockmarketprabathfinancialserviceslimited 100704130842-phpapp01

• 1. SUMMER TRAINING PROJECT REPORT UNDERPRABATH FINANCIAL SERVICES LIMITED ON Study of Fluctuations of Indian Stock Market SUBMITTED IN PARTIAL FULLFILMENT OF THE REQUIRMENT FOR THE AWARDOF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION OF THE RAJASTHANTECHNICAL UNIVERSITY, KOTA.SUPERVISED BY:- SUBMITTED BY :-Mr. S. P. Kabra Rahul JajooFACITLITY SUPERVISOR:-Ms. Shilpi Kuntal SUBMITTED TO :-DEPARTMENT OF MANAGENENT STUDIES, SWAMI KESHVANAND INSTITUTE OF TECHNOLOGY, MANAGEMENT & GRAMOTHAN. JAIPUR 2008-20101

2. Certificate 2 3. AcknowledgementThe completion of any project depends upon the co-operation, coordination and combinedefforts of several resources of knowledge, inspiration & energy.Words fall short acknowledging immense support lent to me yet I will try to give full credit tothe deservers.My sincere thanks goes to Mr. Vikas Shrotriya (HOD DMS) giving me an opportunity todiscover more knowledge. I am also thankful to Mr. S. P. Kabra (Director,Prabhat financialservices) for his support, guidance and cooperation throughout to accomplish this project alsoexpressing deep sense of gratitude to my Project guide, Ms. Shilpi Kuntal (Lecturer) for hervaluable guidance, continuous encouragement and tremendous patience in discussing myproblems, have been of the greatest help in bringing out my task in present shape. I am equallygrateful to all my other teachers for their complete support.It would be unfair on my part if I do not thank my colleagues for their continuous help withoutwhich this work could never have been accomplished. They made me realize the importance ofteamwork and also the leadership skills. I am grateful to all of them standing with me andsupporting me in this project.( Rahul Jajoo )Preface 3 4. In the present situation where stock market is going up and down, it is necessary to investconsciously in the market whatever it is, this is the study about the last two year fluctuation instock market which enables the investor in taking decision regarding investment. This study tellsthe factor which directly or indirectly affects the market and some basic information not onlyshare market but also other market such as derivatives or commodity market for the newinvestors or the students who have some interest in stock market. The objective of selecting thetopic is to know about the market trends of the stock market and the information related to theinvestment for the future investor. The study of fluctuations of stock market makes the investoraquatinted with the factor affecting the investment and Stock prices can be volatile and someanalysts argue that this volatility is excessive. This is not easy to prove, since it is difficult toassess certainty about future earnings and dividends. Companies tend to smooth dividends, sothey will be less volatile than stock prices. Volatile stock prices do not have a major impact onconsumption and capital spending since there is a good chance that price movements in onedirection may be reversed.Contents 4 5. 1. Abstract2. Research Methodology2.1 Title of the Study2.2 Duration of the Project2.3 Objective of Study2.4 Type of Research2.5 Scope of Study2.6 Limitation of Study3. Core Study4. SWOT5. Conclusion6. BibliographyExecutive summary5 6. A market is an environment that allows buyers and sellers to trade or exchange goods, services,and information. These interactions define demand and supply characteristics and are thereforefundamental to economies. A market can be defined as a place where any type of trade takesplace. Markets are dependent on two major participants buyers and sellers. Buyers and sellerstypically trade goods, services and/ or information. Historically, markets were physical meetingplaces where buyers and sellers gathered together to trade. Although physical markets are stillvital, virtual marketplaces supported by IT networks such as the internet have become the largestand most liquid. Some markets are very competitive, with a number of vendors selling the samekinds of products or services. Conversely, some markets have low or no competition,particularlyif theindustry isprotectedbygovernmentlegislation.The number of buyers and sellers involved will have a direct bearing on the price of the good orservice to be sold, and has become known as the law of supply and demand. Where there aremore sellers than buyers, the availability of supply will push down prices. If there are morebuyers thansellers, theincreased demandwill push up prices.Markets can appear spontaneously when there are goods or services to be exchanged, or they canbe planned and regulated .Free markets operate under laissez-fare conditions, in that thegovernment does not intervene in how the market operates. These markets may be distorted if aseller gains monopoly power by managing the majority of supply (or indeed if a buyer developsmonophony power by managing demand). Governments or trade bodies often step in when suchdistortions undermine the smooth functioning of free markets. The currency markets are thelargest continuously traded markets in the world. Twenty four hours a day, seven days a week,governments, banks, investors and consumers are buying and selling every currency, leading tomassive money flows constantly changing hands. Stock markets have become highly complexmarkets that allow investors to buy shares in companies or in funds that aggregate companies orindustries together. Most stock markets today are primarily electronic networks, although theyoften maintain a physical location for buyers, sellers and market makers to interact directly.Markets originally started as marketplaces usually in the center of villages and towns, for thesale or barter of farm produce, clothing and tools. These kinds of street markets developed into awhole variety of consumer-oriented markets, such as specialist markets, shopping centers,supermarkets, or even virtual markets such as eBay. With the rising price of oil and food, 6 7. commodity markets are once again under the spotlight. Commodities underpin economicactivity. Commodity markets include: energy (oil, gas, coal and increasingly renewable energysources such as biodiesel), soft commodities and grains (wheat, oat, corn, rice, soya beans,coffee, cocoa, sugar, cotton, frozen orange juice, etc), meat, and financial commodities such asbonds. Capital goods markets help businesses to buy durable goods to be used in industrial andmanufacturing processes. A number of services can also be associated with these goods.Transactions tend to be wholesale with large quantities of goods being transacted at low prices.Everyone has seen it and everyone is wishing if he should have buy stocks before this rally.Albeit it could have been a gamble buying stocks before declaration of election results, it paidoff for those who bought. Now thats history. Stock markets are going to be volatile for next fewdays. Today, i.e. on Tuesday, markets opened in red, went till 3oo points down, then recoveredand went up to 500 points up and finally settled for flat closing. So what should a small investordo now? Should he buy stocks or should be selling stocks that he holds.This article is aCOMPLETE guide to the basics of making money in the stock market! If you are consideringinvesting in the stock market, you MUST read this article! We have explained all the conceptsand talked about all the "myths" that people have about the stock market!INTRODUCTION TO THE ORGANIZATION7 8. RESEARCH METHODOLOGYTITLE OF THE STUDY:-8 9. Study of fluctuations of Indian stock marketDURATION OF THE PROJECT:- 45 daysOBJECTIVE OF STUDY To know the basic terminology of stock market. To make the investor aware about the factors which may affect their investment. To get the knowledge of other markets such as commodity market and derivatives. To know the ups and downs of stock market of last two years. To forecast or predict the future trend of stock market which helps in investment. To know the effect of these fluctuation on the Indian economy.TYPE OF RESEARCHResearchResearch is defined as human activity based on intellectual application in the investigationof matter. The primary purposefor applied research is discovering, interpreting, andthe development of methods and systems for the advancement of human knowledge on a widevariety of scientific matters of our world and the universe. Research can use the scientificmethod, but need not do so. Scientific research relies on the application of the scientific method,a harnessing of curiosity. This research provides scientific information and theories for theexplanation of the nature and the properties of the world around us. It makes practicalapplications possible. Scientific research is funded by public authorities, by charitableorganizations and by private groups, including many companies. Scientific research can besubdivided into different classifications according to their academic and application disciplines. 9 10. In this project the research type used is descriptive because this research is the most commonlyused and the basic reason for carrying out descriptive research is to identify the cause ofsomething that is happening. For instance, this research could be used in order to find out whatage group is buying a particular brand of cola, whether a companys market share differsbetween geographical regions or to discover how many competitors a company has in theirmarketplace. However, if the research is to return useful results, whoever is conducting theresearch must comply with strict research requirements in order to obtain the most accuratefigures/results possible.DESCRIPTIVE RESEARCHDescriptive research is used to obtain information concerning the current status of thephenomena to describe "what exists" with respect to variables or conditions in a situation. Themethods involved range from the survey which describes the status quo, the correlation studywhich investigates the relationship between variables, to developmental studies which seek todetermine changes over time.Descriptive research can be of two types:i.Quantitative descriptive research emphasizes on what is, and makes use of quantitativemethods to describe, record, analyze and interpret the present conditions.Qualitative descriptive research also emphasizes on what is, but makes use of non-quantitativeresearch methods in describing the conditions of the present.SCOPE OF STUDY Derivatives Sebi Stock exchange Commodity market Stock market10 11. Securities Day trading Factor affecting Indian stock market Effect on Indian economyLIMITATIONSLimitations are the limiting lines that restrict the work in some way or other. In this researchstudy also their were some limiting factors, some of them are as under: 1. Data Collection: The most important constraint in this study was data collection as Secondary data was selected for study. Secondary data means data that are already available i.e. they refer to the data which have already been collected and analysed by someone else. 2. Time Period: Time period was one of the main factor as only one month was allotted and the topic covered in research has a wide scope. So, it was not possible to cover it in a short span of time. 3. Reliability: The data collected in research work was secondary data, So, this puts a question mark on the reliability of this data, which a very important factor of this study as conclusion has been derived from this secondary data only. 4. Accuracy: The facts and findings of the data cannot be accepted as accurate to some extent as firstly, secondary data was collected. Secondly, for doing descriptive research time needed to be more, because in short period you cannot cover each point accurately. 11 12. Core studyStock marketA stock market is a public market for the trading of company stock and derivatives at an agreedprice; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion US at the beginning ofOctober 2008 . The total world derivatives market has been estimated at about $791 trillion faceor nominal value, 11 times the size of the entire world economy. The value of the derivativesmarket, because it is stated in terms of notional values, cannot be directly compared to a stock ora fixed income security, which traditionally refers to an actual value. Moreover, the vast majorityof derivatives cancel each other out (i.e., a derivative bet on an event occurring is offset by acomparable derivative bet on the event not occurring.). Many such relatively illiquid securitiesare valued as marked to model, rather than an actual market price.)The stocks are listed and traded on stock exchanges which are entities a corporation or mutualorganization specialized in the business of bringing buyers and sellers of the organizations to alisting of stocks and securities together. The stock market in the United States includes thetrading of all securities listed on the NYSE, the NASDAQ, the Amex, as well as on the manyregional exchanges, e.g. OTCBB and Pink Sheets. European examples of stock exchangesinclude the London Stock Exchange, the Deutsche Brse and the Paris Bourse, now part ofEuronext.Function and purposeThe stock market is one of the most important sources for companies to raise money. Thisallows businesses to be publicly traded, or raise additional capital for expansion by selling sharesof ownership of the company in a public market. The liquidity that an exchange provides affordsinvestors the ability to quickly and easily sell securities. This is an attractive feature of investingin stocks, compared to other less liquid investments such as real estate.12 13. History has shown that the price of shares and other assets is an important part of the dynamicsof economic activity, and can influence or be an indicator of social mood. An economy wherethe stock market is on the rise is considered to be an up and coming economy. In fact, the stockmarket is often considered the primary indicator of a countrys economic strength anddevelopment. Rising share prices, for instance, tend to be associated with increased businessinvestment and vice versa. Share prices also affect the wealth of households and theirconsumption. Therefore, central banks tend to keep an eye on the control and behavior of thestock market and, in general, on the smooth operation of financial system functions. Financialstability is the raison dtre of central banks.Exchanges also act as the clearinghouse for each transaction, meaning that they collect anddeliver the shares, and guarantee payment to the seller of a security. This eliminates the risk toan individual buyer or seller that the counterparty could default on the transaction.The smooth functioning of all these activities facilitates economic growth in that lower costs andenterprise risks promote the production of goods and services as well as employment. In thisway the financial system contributes to increased prosperity.Relation of the stock market to the modern financial systemThe financial system in most western countries has undergone a remarkable transformation. Onefeature of this development is disintermediation. A portion of the funds involved in saving andfinancing flows directly to the financial markets instead of being routed via the traditional banklending and deposit operations. The general publics heightened interest in investing in the stockmarket, either directly or through mutual funds, has been an important component of thisprocess. Statistics show that in recent decades shares have made up an increasingly largeproportion of households financial assets in many countries. In the 1970s, in Sweden, depositaccounts and other very liquid assets with little risk made up almost 60 percent of householdsfinancial wealth, compared to less than 20 percent in the 2000s. The major part of thisadjustment in financial portfolios has gone directly to shares but a good deal now takes the formof various kinds of institutional investment for groups of individuals, e.g., pension funds, mutualfunds, hedge funds, insurance investment of premiums, etc. The trend towards forms of savingwith a higher risk has been accentuated by new rules for most funds and insurance, permitting a 13 14. higher proportion of shares to bonds. Similar tendencies are to be found in other industrializedcountries. In all developed economic systems, such as the European Union, the United States,Japan and other developed nations, the trend has been the same: saving has moved away fromtraditional (government insured) bank deposits to more risky securities of one sort or another.The stock market, individual investors, and financial riskRiskier long-term saving requires that an individual possess the ability to manage the associatedincreased risks. Stock prices fluctuate widely, in marked contrast to the stability of (governmentinsured) bank deposits or bonds. This is something that could affect not only the individualinvestor or household, but also the economy on a large scale. The following deals with some ofthe risks of the financial sector in general and the stock market in particular. This is certainlymore important now that so many newcomers have entered the stock market, or have acquiredother risky investments (such as investment property, i.e., real estate and collectables).With each passing year, the noise level in the stock market rises. Television commentators,financial writers, analysts, and market strategists are all overtaking each other to get investorsattention. At the same time, individual investors, immersed in chat rooms and message boards,are exchanging questionable and often misleading tips. Yet, despite all this availableinformation, investors find it increasingly difficult to profit. Stock prices skyrocket with littlereason, then plummet just as quickly, and people who have turned to investing for theirchildrens education and their own retirement become frightened. Sometimes there appears to beno rhyme or reason to the market, only folly.This is a quote from the preface to a published biography about the long-term value-orientedstock investor Warren Buffett.[4] Buffett began his career with $100, and $105,000 from sevenlimited partners consisting of Buffetts family and friends. Over the years he has built himself amulti-billion-dollar fortune. The quote illustrates some of what has been happening in the stockmarket during the end of the 20th century and the beginning of the 21st century.14 15. Securities and Exchange Board of IndiaSEBI Bhavan, Mumbai Headquarters of SEBIOrganization DetailsHeadquarters Mumbai, Maharashtra, IndiaEstablished1992Jurisdiction IndiaHead ChairmanChairman C B BhaveTerm February 16, 2008 -Total Staff[1] 525Official WebsiteWebsitewww.sebi.gov.inSEBI is the Regulator for the Securities Market in India. Originally set up by the Government ofIndia in 1988, it acquired statutory form in 1992 with SEBI Act 1992 being passed by the IndianParliament.Chaired by C B Bhave, SEBI is headquartered in the popular business district ofBandra-Kurla complex in Mumbai, and has Northern, Eastern, Southern and Western regionaloffices in New Delhi, Kolkata, Chennai and Ahmedabad.Organization StructureChandrasekhar Bhaskar Bhave is the sixth chairman of the Securities Market Regulator. Prior totaking charge as Chairman SEBI, he had been the chairman of NSDL (National SecuritiesDepository Limited) ushering in paperless securities. Prior to his stint at NSDL, he had servedSEBI as a Senior Executive Director. He is a former Indian Administrative Service officer of the1975 batch. The Board comprises[2]Name Designation As perMr CB BhaveChairman SEBI CHAIRMAN (S.4(1)(a) of the SEBI Act,15 16. 1992)Member (S.4(1)(b) of the SEBI Act,Mr KP Krishnan Joint Secretary, Ministry of Finance1992) Secretary, Ministry of Corporate Member (S.4(1)(b) of the SEBI Act,Mr Anurag Goel Affairs1992)Dr G Mohan Director, National Judicial Academy, Member (S.4(1)(d) of the SEBI Act,GopalBhopal 1992)Member (S.4(1)(d) of the SEBI Act,Mr MS SahooWhole Time Member, SEBI1992)Member (S.4(1)(d) of the SEBI Act,Dr KM Abraham Whole Time Member, SEBI1992)Member (S.4(1)(d) of the SEBI Act,Mr Mohandas Pai Director, Infosys1992)Functions and ResponsibilitiesSEBI has to be responsive to the needs of three groups, which constitute the market: the issuers of securities the investors the market intermediaries.SEBI has three functions rolled into one body quasi-legislative, quasi-judicial and quasi-executive. It drafts regulations in its legislative capacity, it conducts investigation andenforcement action in its executive function and it passes rulings and orders in its judicialcapacity. Though this makes it very powerful, there is an appeals process to createaccountability. There is a Securities Appellate Tribunal which is a three member tribunal and ispresently headed by a former Chief Justice of a High court - Mr. Justice NK Sodhi. A secondappeal lies directly to the Supreme Court. 16 17. SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively andsuccessively (e.g. the quick movement towards making the markets electronic and paperlessrolling settlement on T+2 basis). SEBI has been active in setting up the regulations as requiredunder law.Stock exchangeA stock exchange, (formerly a securities exchange) is a corporation or mutual organizationwhich provides "trading" facilities for stock brokers and traders, to trade stocks and othersecurities. Stock exchanges also provide facilities for the issue and redemption of securities aswell as other financial instruments and capital events including the payment of income anddividends. The securities traded on a stock exchange include: shares issued by companies, unittrusts, derivatives, pooled investment products and bonds. To be able to trade a security on acertain stock exchange, it has to be listed there. Usually there is a central location at least forrecordkeeping, but trade is less and less linked to such a physical place, as modern markets areelectronic networks, which gives them advantages of speed and cost of transactions. Trade on anexchange is by members only. The initial offering of stocks and bonds to investors is bydefinition done in the primary market and subsequent trading is done in the secondary market. Astock exchange is often the most important component of a stock market. Supply and demand instock markets is driven by various factors which, as in all free markets, affect the price of stocks(see stock valuation).There is usually no compulsion to issue stock via the stock exchange itself, nor must stock besubsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter.This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges arepart of a global market for securities.The role of stock exchangesStock exchanges have multiple roles in the economy, this may include the following:1. Raising capital for businesses17 18. The Stock Exchange provide companies with the facility to raise capital for expansion throughselling shares to the investing public.2.Mobilizing savings for investmentWhen people draw their savings and invest in shares, it leads to a more rational allocation ofresources because funds, which could have been consumed, or kept in idle deposits with banks,are mobilized and redirected to promote business activity with benefits for several economicsectors such as agriculture, commerce and industry, resulting in stronger economic growth andhigher productivity levels and firms.3.Facilitating company growthCompanies view acquisitions as an opportunity to expand product lines, increase distributionchannels, hedge against volatility, increase its market share, or acquire other necessary businessassets. A takeover bid or a merger agreement through the stock market is one of the simplest andmost common ways for a company to grow by acquisition or fusion.4.Redistribution of wealthStock exchanges do not exist to redistribute wealth. However, both casual and professional stockinvestors, through dividends and stock price increases that may result in capital gains, will sharein the wealth of profitable businesses.5.Corporate governanceBy having a wide and varied scope of owners, companies generally tend to improve on theirmanagement standards and efficiency in order to satisfy the demands of these shareholders andthe more stringent rules for public corporations imposed by public stock exchanges and thegovernment. Consequently, it is alleged that public companies (companies that are owned byshareholders who are members of the general public and trade shares on public exchanges) tendto have better management records than privately-held companies (those companies whereshares are not publicly traded, often owned by the company founders and/or their families and18 19. heirs, or otherwise by a small group of investors). However, some well-documented cases areknown where it is alleged that there has been considerable slippage in corporate governance onthe part of some public companies. The dot-com bubble in the early 2000s, and the subprimemortgage crisis in 2007-08, are classical examples of corporate mismanagement. Companies likePets.com (2000), Enron Corporation (2001), One.Tel (2001), Sunbeam (2001), Webvan (2001),Adelphia (2002), MCI WorldCom (2002), Parmalat (2003), American International Group(2008), Lehman Brothers (2008), and Satyam Computer Services (2009) were among the mostwidely scrutinized by the media.7.Creating investment opportunities for small investorsAs opposed to other businesses that require huge capital outlay, investing in shares is open toboth the large and small stock investors because a person buys the number of shares they canafford. Therefore the Stock Exchange provides the opportunity for small investors to own sharesof the same companies as large investors.8.Government capital-raising for development projectsGovernments at various levels may decide to borrow money in order to finance infrastructureprojects such as sewage and water treatment works or housing estates by selling anothercategory of securities known as bonds. These bonds can be raised through the Stock Exchangewhereby members of the public buy them, thus loaning money to the government. The issuanceof such bonds can obviate the need to directly tax the citizens in order to finance development,although by securing such bonds with the full faith and credit of the government instead of withcollateral, the result is that the government must tax the citizens or otherwise raise additionalfunds to make any regular coupon payments and refund the principal when the bonds mature.9.Barometer of the economyAt the stock exchange, share prices rise and fall depending, largely, on market forces. Shareprices tend to rise or remain stable when companies and the economy in general show signs ofstability and growth. An economic recession, depression, or financial crisis could eventually leadto a stock market crash. Therefore the movement of share prices and in general of the stockindexes can be an indicator of the general trend in the economy. 19 20. Bombay Stock ExchangeIntroductionBombay 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 wasestablishedas"The Native Share & StockBrokersAssociation"in1875.BSE is the first stock exchange in the country which obtained permanent recognition (in 1956)from the Government of India under the Securities Contracts (Regulation) Act 1956. BSEspivotal and pre-eminent role in the development of the Indian capital market is widelyrecognized. It migrated from the open outcry system to an online screen-based order driventrading system in 1995. Earlier an Association Of Persons (AOP), BSE is now a corporatisedand demutualised entity incorporated under the provisions of the Companies Act, 1956, pursuantto the BSE (Corporatisation and Demutualisation) Scheme, 2005 notified by the Securities andExchange Board of India (SEBI). With demutualisation, BSE has two of worlds best exchanges,Deutsche Brseand Singapore Exchange, asits strategicpartners.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 BSEs services in raising resources from the capital market.Today, BSE is the worlds number 1 exchange in terms of the number of listed companies andthe worlds 5th in transaction numbers. The market capitalization as on December 31, 2007 stoodat USD 1.79 trillion . An investor can choose from more than 4,700 listed companies, which foreasyreference, areclassified intoA,B,S, TandZ groups.The BSE Index, SENSEX, is Indias 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 made20 21. SENSEX and other BSE indices available to investors in Europe and America. Moreover,Barclays Global Investors (BGI), the global leader in ETFs through its iShares brand, hascreated the iShares BSE SENSEX India Tracker which tracks the SENSEX. The ETFenables investors in Hong Kong to take an exposure to the Indian equity market.The first Exchange Traded Fund (ETF) on SENSEX, called "SPIcE" is listed on BSE. It bringsto the investors a trading tool that can be easily used for the purposes of investment, trading,hedging and arbitrage. SPIcE allows small investors to take a long-term view of the market.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 359 cities and towns ofIndia. BSE has always been at par with the international standards. The systems and processesare designed to safeguard market integrity and enhance transparency in operations. BSE is thefirst exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It isalso the 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. It hassuccessfully launched a reporting platform for corporate bonds in India christened the ICDM orIndian Corporate Debt Market and a unique ticker-cum-screen aptly named BSE Broadcastwhich enables information disseminationto the commonmanonthe street.In 2006, BSE launched the Directors Database and ICERS (Indian Corporate ElectronicReporting System) to facilitate information flow and increase transparency in the Indian capitalmarket. While the Directors Database provides a single-point access to information on theboards of directors of listed companies, the ICERS facilitates the corporates in sharing with BSEtheir corporate announcements.BSE also has a wide range of services to empower investors and facilitate smooth transactions:21 22. Investor Services: The Department of Investor Services redresses grievances of investors. BSE was the first exchange in the country to provide an amount of Rs.1 million towards the investor protection fund; it is an amount higher than that of any exchange in the country. BSE launched a nationwide investor awareness programme- Safe Investing in the Stock Market under which 264 programmeswere held inmore than200 cities. The BSE On-line Trading (BOLT): BSE On-line Trading (BOLT) facilitates on-line screen based trading in securities. BOLT is currently operating in 25,000 Trader Workstations located acrossover 359 cities in India. BSEWEBX.com: In February 2001, BSE introduced the worlds first centralized exchange- based Internet trading system, BSEWEBX.com. This initiative enables investors anywhere in the worldtotradeontheBSEplatform. Surveillance: BSEs On-Line Surveillance System (BOSS) monitors on a real-time basis the price movements, volume positions and members positions and real-time measurement of default risk, marketreconstructionandgeneration ofcrossmarketalerts. BSE Training Institute: BTI imparts capital market training and certification, in collaboration with reputed management institutes and universities. It offers over 40 courses on various aspects of the capital market and financial sector. More than 20,000 people have attended the BTI programmesAwardsThe World Council of Corporate Governance has awarded the Golden Peacock Global CSRAward for BSEs initiatives in Corporate Social Responsibility (CSR). The Annual Reports and Accounts of BSE for the year ended March 31, 2006 and March31 2007 have been awarded the ICAI awards for excellence in financial reporting. 22 23. The Human Resource Management at BSE has won the Asia - Pacific HRM awards for its efforts in employer branding through talent management at work, health management at work and excellence in HR through technologyDrawing from its rich past and its equally robust performance in the recent times, BSE willcontinue to remain an icon in the Indian capital market.HistoryFor the premier stock exchange that pioneered the securities transaction business in India, over acentury of experience is a proud achievement. A lot has changed since 1875 when 318 personsby paying a then princely amount of Re. 1, became members of what today is called BombayStockExchange Limited(BSE).Over the decades, the stock market in the country has passed through good and bad periods. Thejourney in the 20th century has not been an easy one. Till the decade of eighties, there was nomeasure or scale that could precisely measure the various ups and downs in the Indian stockmarket. BSE, in 1986, came out with a Stock Index-SENSEX- that subsequently became thebarometer oftheIndian stock market.The launch of SENSEX in 1986 was later followed up in January 1989 by introduction of BSENational Index (Base: 1983-84 = 100). It comprised 100 stocks listed at five major stockexchanges in India - Mumbai, Calcutta, Delhi, Ahmedabad and Madras. The BSE National Indexwas renamed BSE-100 Index from October 14, 1996 and since then, it is being calculated takinginto consideration only the prices of stocks listed at BSE. BSE launched the dollar-linked versionofBSE-100indexon May22, 2006.With a view to provide a better representation of the increasing number of listed companies,larger market capitalization and the new industry sectors, BSE launched on 27th May, 1994 twonew index series viz., the BSE-200 and the DOLLEX-200. Since then, BSE has come a longway in attuning itself to the varied needs of investors and market participants. In order to fulfillthe need for still broader, segment-specific and sector-specific indices, BSE has continuously23 24. been increasing the range of its indices. BSE-500 Index and 5 sectoral indices were launched in1999. In 2001, BSE launched BSE-PSU Index, DOLLEX-30 and the countrys first free-floatbased index - the BSE TECk Index. Over the years, BSE shifted all its indices to the free-floatmethodologyNational Stock Exchange of IndiaNational Stock Exchange LimitedTypeStock ExchangeLocationMumbai, India19337N 725135E/19.06028NCoordinates72.85972E/19.06028; 72.85972Owner National Stock Exchange of India LimitedKey peopleMr. Ravi Narain (Managing Director & CEO)CurrencyINRNo. of listings 1587MarketCap US$ 1.46 trillion (2006)S&P CNX NiftyIndexes CNX Nifty JuniorS&P CNX 500Website http://www.nse-india.com/24 25. NSE is mutually-owned by a set of leading financial institutions, banks, insurance companiesand The National Stock Exchange of India Limited (NSE), is a Mumbai-based stockexchange. It is the largest stock exchange in India in terms of daily turnover and number oftrades, for both equities and derivative trading.[1]. Though a number of other exchanges exist,NSE and the Bombay Stock Exchange are the two most significant stock exchanges in India, andbetween them are responsible for the vast majority of share transactions. The NSEs key index isthe S&P CNX Nifty, known as the Nifty, an index of fifty major stocks weighted by marketcapitalisation.other financial intermediaries in India but its ownership and management operate as separateentities. There are at least 2 foreign investors NYSE Euronext and Goldman Sachs who havetaken a stake in the NSE. As of 2006[update], the NSE VSAT terminals, 2799 in total, covermore than 1500 cities across India . In October 2007, the equity market capitalization of thecompanies listed on the NSE was US$ 1.46 trillion, making it the second largest stock exchangein South Asia. NSE is the third largest Stock Exchange in the world in terms of the number oftrades in equities. It is the second fastest growing stock exchange in the world with a recordedgrowth of 16.6%.OriginsNSE building at BKCThe National Stock Exchange of India was promoted by leadingFinancial institutions at the behest of the Government of India, andwas incorporated in November 1992 as a tax-paying company. InApril 1993, it was recognized as a stock exchange under theSecurities Contracts (Regulation) Act, 1956. NSE commenced operations in the Wholesale DebtMarket (WDM) segment in June 1994. The Capital Market (Equities) segment of the NSEcommenced operations in November 1994, while operations in the Derivatives segmentcommenced in June 2000.Innovations 25 26. NSE has remained in the forefront of modernization of Indias capital and financial markets, andits pioneering efforts include: Being the first national, anonymous, electronic limit order book (LOB) exchange to tradesecurities in India. Since the success of the NSE, existent market and new marketstructures have followed the "NSE" model. Setting up the first clearing corporation "National Securities Clearing Corporation Ltd."in India. NSCCL was a landmark in providing innovation on all spot equity market (andlater, derivatives market) trades in India. Co-promoting and setting up of National Securities Depository Limited, first depositoryin India[2]. Setting up of S&P CNX Nifty. NSE pioneered commencement of Internet Trading in February 2000, which led to thewide popularization of the NSE in the broker community. Being the first exchange that, in 1996, proposed exchange traded derivatives, particularlyon an equity index, in India. After four years of policy and regulatory debate andformulation, the NSE was permitted to start trading equity derivatives Being the first and the only exchange to trade GOLD ETFs (exchange traded funds) inIndia. NSE has also launched the NSE-CNBC-TV18 media centre in association with CNBC-TV18, it is the one of the most important stock exchange in the world.S&P CNX NiftyS&P CNX Nifty is a well diversified 50 stock index accounting for 21 sectors of the economy. Itis used for a variety of purposes such as benchmarking fund portfolios, index based derivativesandindex funds.S&P CNX Nifty is owned and managed by India Index Services and Products Ltd. (IISL), which26 27. is a joint venture between NSE and CRISIL. IISL is Indias first specialised company focusedupon the index as a core product. IISL has a Marketing and licensing agreement with Standard &Poors (S&P), who are world leaders in index services. The total traded value for the last six months of all Nifty stocks is approximately 65.68%of the traded value of all stocks on the NSE Nifty stocks represent about 65.34% of the total market capitalization as on Mar 31,2009. 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 tradingSensex & the NiftyThe Sensex is an "index". What is an index? An index is basically an indicator. It gives you ageneral idea about whether most of the stocks have gone up or most of the stocks have gonedown.The Sensex isan indicatorof all themajorcompanies of the BSE.The Niftyisan indicator of all themajorcompanies ofthe NSE.If the Sensex goes up, it means that the prices of the stocks of most of the major companies onthe BSE have gone up. If the Sensex goes down, this tells you that the stock price of most of themajor stocksonthe BSEhave gonedown.Just like the Sensex represents the top stocks of the BSE, the Nifty represents the top stocks ofthe NSE.Just in case you are confused, the BSE, is the Bombay Stock Exchange and the NSE is theNational Stock Exchange. The BSE is situated at Bombay and the NSE is situated at Delhi.These are the major stock exchanges in the country. There are other stock exchanges like theCalcutta Stock Exchange etc. but they are not as popular as the BSE and the NSE.Most of thestocktradinginthecountryis done though theBSE& the NSE.27 28. Besides Sensex and the Nifty there are many other indexes. There is an index that gives you anidea about whether the mid-cap stocks go up and down. This is called the BSE Mid-cap Index.The reasons for stock prices going "up" and "down"Stock prices change every day because of market forces. By this we mean that stock priceschange because of supply and demand. If more people want to buy a stock (demand) than sellit (supply),then thepricemoves up!Conversely, if more people wanted to sell a stock than buy it, there would be greater supply thandemand,andthepricewouldfall.(Basicsofeconomics!)Understanding supply and demand is easy. What is difficult to understand is what makes peoplelike a particular stock and dislike another stock. If you understand this, you will know whatpeople are buying and what people are selling. If you know this you will know what prices go upandwhatpricesgo down!To figure out the likes and dislikes of people, you have to figure out what news is positive for acompany and what news is negative and how any news about a company will be interpreted bythepeople.The most important factor that affects the value of a company is its earnings. Earnings are theprofit a company makes, and in the long run no company can survive without them. It makessense when you think about it. If a company never makes money, it isnt going to stay inbusiness. Public companies are required to report their earnings four times a year (once eachquarter).Dalal Street watches with great attention at these times, which are referred to as earningsseasons. The reason behind this is that analysts base their future value of a company on theirearnings projection.If a companys results are better than expected, the price jumps up. If a companys resultsdisappoint and areworsethan expected,then the price will fall. 28 29. Of course, its not just earnings that can change the feeling people have about a stock. It wouldbe a rather simple world if this were the case! During the dotcom bubble, for example, thestock price of dozens of internet companies rose without ever making even the smallest profit.As we all know, these high stock prices did not hold, and most internet companies saw theirvalues shrink to a fraction of their highs. Still, this fact demonstrates that there are factors otherthancurrent earningsthat influence stocks.So, what are "all the factors" that affect the stocks price? The best answer is that nobody reallyknows for sure. Some believe that it isnt possible to predict how stock prices will change, whileothers think that by drawing charts and looking at past price movements, you can determinewhen to buy and sell. The only thing we do know is that stocks are volatile and can change inprice very very rapidly.The reasons for which companies issue stocksWhy would the founders share the profits with thousands of people when they could keep profits to themselves? The reason is that at some point every company needs to "raise money". To do this, companies can either borrow it from somebody or raise it by selling part of the company, which is knownas issuing stock. A company can borrow by taking a loan from a bank or by issuing bonds. Both methods come under "debt financing". On the other hand, issuing stock is called equity financing. Issuing stock is advantageous for the company because it does not require the company to pay backthe money ormakeinterestpaymentsalong the way. All that the shareholders get in return for their money is the hope that the shares will someday be worth more than what they paid for them. The first sale of a stock, which is issued by the private company itself, is called the initial public offering (IPO). It is important that you understand the distinction between a company financing through29 30. debt and financing through equity. When you buy a debt investment such as a bond, you areguaranteed the return of your money (the principal) along with promised interest payments.This isnt the case with an equity investment. By becoming an owner, you assume the risk ofthe company not being successful - just as a small business owner isnt guaranteed a return,neither is a shareholder. Shareholders earn a lot if a company is successful, but they alsostand to lose their entire investment if the company isnt successful.Stock Picking Having understood all the basics of the stock market and the risk involved, nowwe will go into stock picking and how to pick the right stock. Before picking the right stockyou need to do some analysis.There are two major types of analysis:1. Fundamental Analysis2. Technical AnalysisFundamental analysis is the analysis of a stock on the basis of core financial and economicanalysis to predict the movement of stocks price.On the other hand, technical analysis is the study of prices and volume, for forecasting of futurestock price or financial price movements.Simply put, fundamental analysis looks at the actual company and tries to figure out what thecompany price is going to be like in the future. On the other hand technical analysis look atthe stocks chart, peoples buying behavior etc. to try and figure out what the stock price isgoing to be like in the future.In this article we will go into the basics of fundamental analysis. Technical analysis is a littlemore complicated. It is much more of an "art" than a science. It depends more on experienceand involves some statistics and mathematics, so explaining technical analysis is out of thescope of this article.Calculation of BSE SENSEX30 31. This article explains how the value of the BSE Sensex or sensitive index is calculated. If youare not sure what we mean by the Sensex or what the Sensex is all about, you can find thisout by reading our How to make money in the stock market? article.The Sensex has a very important function. The Sensex is supposed to be an indicator of thestocks in the BSE. It is supposed to show whether the stocks are generally going up, orgenerally going down.To show this accurately, the Sensex is calculated taking into consideration stock prices of 30different BSE listed companies. It is calculated using the free-float market capitalizationmethod. This is a world wide accepted method as one of the best methods for calculating astockmarketindex.Please note: The method used for calculating the Sensex and the 30 companies that are takeninto consideration are changed from time to time. This is done to make the Sensex anaccurate index and so that it represents the BSE stocks properly.3 important things you must know and follow as an new investor!You need to KNOW some unforgettable basics before you enter the world of investing instocks. The stock market is a field dominated by savvy investors who know the ins-and-outs ofthe market. For people who are not on the inside, the stock market can be a VERY dangerousplace. :Dont even consider "tips" that tell you about "hot stocks". Consider the source: There are manypeople in the market who put in all their time and effort in promoting certain stocks. They dothis because they have their money invested in those stocks. If they can get enough people tobuy the stock and they can get the stock price to rise, they will sell the stock for a huge price,the stock price will crash and they will walk off to promote another stock.Always use your own brain: Its extremely important. You must always use your own brain.Relying on the advice of others, no matter how well intentioned it may be, is almost always acomplete disaster. Make sure you dig in and really examine the "facts about the companies"31 32. before you invest. Ignore press releases which have very little substance, and rely on "hype" totell the companys story.And finally the most important tip!!!Only invest money you can afford to lose!! Sure this is a basic point, but many many peoplemiss it. You should only invest money that you can honestly afford to lose!! Everyone entersinto investments with the idea of earning big profits, but in many cases, this never works.(Especially if you are new to investing in the stock market!)Please understand that the above tips are tips for beginners. Once you really get into the stockmarket you do not need to follow these rules anymore. But if you are a new investor, you MUSTfollow these rules. They are for your own safety.But then again, nothing comes free. Everything has a price. You will have to loose some money,make some bad decisions and then only will you really understand the market. You cannotunderstand the market by just looking at it from far. By following these rules, you will basicallynot loose too much!DerivativesCommodities whose value is derived from the price of some underlying asset like securities,commodities, bullion, currency, interest level, stock market index or anything else are known asDerivatives.In more simpler form, derivatives are financial security such as an option or future whose valueis derived in part from the value and characteristics of another security, the underlying asset.It is a generic term for a variety of financial instruments. Essentially, this means you buy apromise to convey ownership of the asset, rather than the asset itself. The legal terms of acontract are much more varied and flexible than the terms of property ownership. In fact, its thisflexibility that appeals to investors32 33. .When a person invests in derivative, the underlying asset is usually a commodity, bond, stock, orcurrency. He bet that the value derived from the underlying asset will increase or decrease by acertain amountwithin acertainfixedperiod of time.Futures and options are two commodity traded types of derivatives. An options contractgives the owner the right to buy or sell an asset at a set price on or before a given date. On theother hand, the owner of a futures contract is obligated to buy or sell the asset.The other examples of derivatives are warrants and convertible bonds (similar to shares in thatthey are assets). But derivatives are usually contracts. Beyond this, the derivatives range is onlylimited by the imagination of investment banks. It is likely that any person who has fundsinvested, an insurance policy or a pension fund, that they are investing in, and exposed to,derivatives wittingly or unwittingly.Shares or bonds are financial assets where one can claim on another person or corporation; theywill be usually be fairly standardised and governed by the property of securities laws in anappropriate country.On the other hand, a contract is merely an agreement between two parties, where thecontract details may not be standardized.Derivatives securities or derivatives products are in real terms contracts rather than solid as itfairly sounds. India Commodity Market 33 34. The vast geographical extent of India and her huge population is aptly complemented by the sizeof her market. The broadest classification of the Indian Market can be made in terms of thecommodity market and the bond market. Here, we shall deal with the former in a little detail.The commodity market in India comprises of all palpable markets that we come across in ourdaily lives. Such markets are social institutions that facilitate exchange of goods for money. Thecost of goods is estimated in terms of domestic currency . India Commodity Market can besubdivided into the following two categories: Wholesale Market Retail MarketLet us now take a look at what the present scenario of each of the above markets is like.The traditional wholesale market in India dealt with whole sellers who bought goods from thefarmers and manufacturers and then sold them to the retailers after making a profit in theprocess. It was the retailers who finally sold the goods to the consumers. With the passage oftime the importance of whole sellers began to fade out for the following reasons: The whole sellers in most situations, acted as mere parasites who did not add any value to the product but raised its price which was eventually faced by the consumers. The improvement in transport facilities made the retailers directly interact with the producers and hence the need for whole sellers was not felt.In recent years,the extent of the retail market (both organized and unorganized) has evolved inleaps and bounds. In fact, the success stories of the commodity market of India in recent yearshas mainly centered around the growth generated by the Retail Sector. Almost everycommodity under the sun both agricultural and industrial are now being provided at welldistributed retail outlets throughout the country.Moreover, the retail outlets belong to both the organized as well as the unorganized sector. Theunorganized retail outlets of the yesteryears consist of small shop owners who are price takerswhere consumers face a highly competitive price structure. The organized sector on the otherhand are owned by various business houses like Pantaloons, Reliance, Tata and others. Such 34 35. markets are usually sell a wide range of articles both agricultural and manufactured, edible andinedible, perishable and durable. Modern marketing strategies and other techniques of salespromotion enable such markets to draw customers from every section of the society. Howeverthe growth of such markets has still centered around the urban areas primarily due toinfrastructural limitations.Considering the present growth rate, the total valuation of the Indian Retail Market isestimated to cross Rs. 10,000 billion by the year 2010. Demand for commodities is likely tobecome four times by 2010 than what it presently is. Money MarketWhen the stock prices show a downward trend , then it becomes risky to keep savings there.Although the stock market is associated with high risks and high returns , many are risk averseand prefer to invest in the more secure money market .The money market deals with very short term debt securities that mature in less than a year.Since the money market is extremely safe, it yields very low returns unlike the bond market.The money market securities that are issued by the government or financial institutions or largecorporations are very liquid. Since the money market securities trade at very high denominationsit becomes very difficult for the individual investors to have access to it.The money market is a type of a dealer market where firms purchase securities in their ownaccount by assuming the risks themselves. Unlike the stock exchanges the money marketsecurities do not operate in exchanges or through brokers. Transactions take place over phone orthe electronic system.One may browse through the following links to have a more detailed information about moneymarket.Money Market DefinitionMoney Market Definition is simply meant as the short-term debt market. Treasury Bills and 35 36. certificate of deposits are regarded as the instruments in the money market.World Money MarketWorld Money Market has been providing origination, trading and the distribution of short-termdebt instruments across different regions over the world. Find detailed on the world moneymarket.Money Market Index Money Market Index is a true indicator of the prevailing money market,which renders a clear-cut idea on making investment.Money Market RatesMoney Market Rates can be simply defined as the market rates including the broker call loan rate,federal funds rate, rates on bankers acceptance etc. Get the method of finding the money marketrates.Major Factors That Affect Stock Price in stock market globallyWhen you wish to invest in the stock market, then you should always make a good survey of thewhole market. As you know that you cannot predict the stock market, so in that case you need toknow the functioning of the market. There are some major factors that affect stock price. Solet us discuss about the different factors affecting the stock price in this article.Demand AND SUPPLYOne of the major factors affecting stock price is demand and supply. The trend of the stockmarket trading directly affects the price. When people are buying more stocks, then the price ofthat particular stock increases. On the other hand if people are selling more stocks, then the priceof that stock falls. So, you should be very careful when you decide to invest in the Indian stockmarket.Market Cap36 37. Never try to guess the worth of a company simply by comparing the price of the stock. Youshould always keep in mind that it is not the stock but the market capitalization of the companythat determines the worth of the company. So market cap is another factor that affects stockprice."Market Capitalization"?You probably think that you have never heard of the term market capitalization before. Youhave! When you are talking about mid-cap, small-cap and large-cap stocks, you aretalking about market capitalization!Market cap or market capitalization is simply the worth of a company in terms of its shares! Toput it in a simple way, if you were to buy all the shares of a particular company, what is theamount you would have to pay? That amount is called the market capitalization!To calculate the market cap of a particular company, simply multiply the current share priceby the number of shares issued by the company! Just to give you an idea, ONGC, has a marketcapof Rs.170,705.21 Cr(when this articlewas written)Depending on the value of the market cap, the company will either be a mid-cap or large-cap or small-cap company! Now the question is, how do YOU calculate the market cap of aparticular company? You dont! Just go to a website like MoneyControl.com and look up thecompany whose market cap you are interested in finding out! The figure in front of Mkt. Capwill be the market cap value.NewsWhen you get positive news about a company then it can increase the buying interest in themarket. On the other hand, when there is a negative press release, it can ruin the prospect of astock. In this case you should remember that news should not matter much but the overallperformance of the company matters more. So, news is another factor affecting stock price.Earning/Price Ratio37 38. Another important factor affecting stock price is the earning/price ratio. This gives you a fairidea of a companys share price when it is compared to its earnings. The stock becomesundervalued if the price of the share is much lower than the earnings of a company. But if this isthe case, then it has the potential to rise in the near future. The stock becomes overvalued if theprice is much higher than the actual earning.So, these are the major factors that affect stock price.Day TradingDay trading (and trading in general) is the buying and selling of various financial instruments,such as futures, options, currencies, and stocks, with the goal of making a profit from thedifference between the buying price and the selling price. Day trading differs slightly from otherstyles of trading in that positions are rarely (if ever) held overnight or when the market beingtraded is closed.Day trading was originally only available to financial companies (such as banks), because onlythey had access to the exchanges and market data. But with recent technology such as theInternet, individual traders now have direct access to the same exchanges and market data, andcan make the same trades at very low cost.Trading StylesThere are several different styles of day trading, suited to different day trader personalities. Thestyles range from short term trading such as scalping where positions are only held for a fewseconds or minutes, to longer term swing and position trading where a position may be heldthroughout the trading day. Most day trading systems have a lot of flexibility, and can have openpositions for anywhere from a few minutes to a few hours, depending upon how the trade isdoing (whether it is in profit). Some day traders will trade multiple styles, but most traders willchoose a single style and only take that type of trade.38 39. Day trading also has different types of trade, such as trend trades, counter-trend trades, andranging trades. Trend trades are trades in the direction of the current price movement (i.e. buyingif the price is moving up), and counter-trend trades are trades against the direction of the currentprice movement (i.e. selling if the price is moving up). Ranging trades are trades that go backand forth between two prices, and are used when the market is moving sideways. Most daytraders will choose a single type of trade, but some traders will take different types, and choosewhich one to trade depending upon the current condition of the market.In addition to the style and type of day trading, there are other variances between day traders.Some day traders like to make many trades throughout the trading day, while others prefer towait for what they consider the best conditions for their trade, and perhaps only make one tradeper day. However many trades are made, the trading process that is used, and the desired goal ofmaking a profit, are the same. Current State of the Indian Economy: Capital Inflows During the April-January period of 2008-09, India attracted total foreign investments of US $ 15,545 million. The foreign direct investment (FDI) stood at US $ 27,426 million, while the portfolio investment stood at US $ -11,881 million. Monthly trends in foreign investments ($ million) Foreign directTotal foreignMonths Portfolio investmentsinvestmentsinvestments 2007-2007-08(P) 2008-09(P) 2007-08(P) 2008-09(P) 2008-09(P) 08(P)April164337491974-880 3617 2869May 2120 39321852-288 3972 364439 40. June1238 23923664 -30104902-618July7052247 6713-492 74181755August8312328-2875 593-20442921September 71325627081 -140377941159October 2027 14979564-524311591-3746November1864 1083 -107-574 1757509December1558 13625294 30 68521392January 1767 27336739 -614 85062119February5670 - -8904- -3234-March 4438 - -1600-2838-April- - 27426 - -11881- 15545January Source: Reserve Bank of India (RBI)Stock Market Trends* NSE - 50, i.e., Nifty has been rechristened asS & P CNX Nifty with effectBSE Sensitive Index BSE - 100 S & P CNX Nifty *(Base : 1978 - 79 = 100) (Base : 1983 - 84 = 100)(Base : November 3, 1995 = 1000)AveragHighLowAverage HighLow Aver- HighLoweage1234 5 6 7891040 41. Jan-08 19325.6 20873.33 16729.94 10526.54 11509.96 8895.64 5756.35 6287.85 4899.305Feb-08 17727.5 18663.16 16608.01 9435.60 9969.59 8785.88 5201.56 5483.90 4838.254Mar- 15838.3 16677.88 14809.49 8363.58 8907.23 7828.01 4769.50 4953.00 4503.10088Apr-0816290.9 17378.46 15343.12 8627.59 9240.57 8095.02 4901.91 5195.50 4647.009May- 16945.6 17600.12 16275.59 8982.20 9348.64 8621.84 5028.66 5228.20 4835.30085June- 14997.2 16063.18 13461.60 7909.28 8488.62 7029.74 4463.79 4739.60 4040.55088July- 13716.1 14942.28 12575.80 7143.71 7760.32 6580.67 4124.60 4476.80 3816.70088Aug-0814722.1 15503.92 14048.34 7704.75 8101.48 7362.49 4417.12 4620.40 4214.003Sept- 13942.8 15049.86 12595.75 7276.35 7860.87 6564.06 4206.69 4504.00 3850.05081Oct-08 10549.6 13055.67 8509.56 5432.92 6776.87 4343.21 3210.22 3950.75 2524.205Nov-089453.96 10631.12 8451.01 4823.36 5396.09 4332.17 2834.79 3148.25 2553.15Dec-08 9513.58 10099.91 8739.24 4864.55 5181.94 4443.50 2895.80 3077.50 2656.45Jan-09 9350.42 10335.93 8674.35 4802.01 5328.95 4441.84 2854.36 3121.45 2678.5541 42. Full Market52 Week TurnoverCapitalisation INDICES% to % to Total CloseHigh Low (Rs. crore)Total(Rs. crore) TurnoverMkt CapSENSEX 14,060.66 17,293.34 7,697.392,120,875.4647.082,622.9331.17MIDCAP4,673.777,162.60 2,547.91 623,990.54 13.852,638.6531.36SMLCAP5,208.188,802.18 2,864.24 211,367.384.69906.6810.77BSE-100 7,285.259,186.01 3,949.133,450,102.1376.595,528.2865.69BSE-200 1,692.432,157.02921.75 3,897,398.1886.526,917.4282.20BSE-500 5,240.706,890.08 2,899.284,262,866.2494.648,019.1295.29BSE Sectoral IndicesAUTO4,516.634,888.65 2,127.86 137,683.583.06184.56 2.19BANKEX7,919.538,688.54 3,598.92 407,161.959.04663.40 7.88CD2,516.144,774.05 1,428.75 12,251.27 0.27 48.02 0.57CG 11,411.90 13,744.98 5,393.91 284,809.366.32735.60 8.74FMCG2,112.102,505.60 1,549.27 182,863.454.06128.70 1.53HC3,330.604,602.15 2,490.86 123,485.992.74202.39 2.41IT2,853.964,746.59 1,987.81 253,874.535.64272.77 3.24METAL 9,907.46 17,408.60 3,806.79 373,805.718.30660.86 7.85OIL&GAS 9,607.54 11,472.37 4,569.45 807,925.77 17.94977.7711.62POWER 2,741.623,312.77 1,274.88 533,748.38 11.85756.38 8.99PSU 7,427.207,750.93 3,853.281,346,803.0429.90668.18 7.94REALTY3,361.438,001.23 1,297.82 104,081.662.311,042.1612.3842 43. TECk 2,472.723,664.41 1,618.77570,638.9912.67750.158.91BSE Dollex IndicesDOLLEX-302,423.643,328.130.00 -- -- -- --DOLLEX- 1,582.322,227.590.00 -- -- -- --100DOLLEX- 591.58841.820.00 -- -- -- --200Note : The market capitalisation of all the indices is free float market capitalisation except for BSEPSU.Trends in Inflation 43 44. (1) Index Numbers Of Wholesale Prices in India ( Monthly Averages) (Base: 1993-94 = 100) Year MonthAllPrimary Fuel, Power, Manufactured CommoditiesArticlesLight &ProductsLubricants 2006 January196.30 194.78310.80 171.28 February196.43 192.88314.10 171.40 March 196.75 191.90315.50 171.90 April 199.02 195.84317.00 173.76 May 201.30 200.63320.08 175.05 June203.10 205.05324.73 175.30 July204.02 202.76326.94 177.00 August205.28 204.93328.80 177.83 September 207.76 211.72330.32 179.08 44 45. ForexAn overview of the Forex marketThe Forex market is a non-stop cash market where currencies of nations are traded, typically viabrokers. Foreign currencies are constantly and simultaneously bought and sold across local andglobal markets and traders investments increase or decrease in value based upon currencymovements. Foreign exchange market conditions can change at any time in response to real-timeevents.The main enticements of currency dealing to private investors and attractions for short-termForex trading are: 24-hour trading, 5 days a week with non-stop access to global Forex dealers. An enormous liquid market making it easy to trade most currencies. Volatile markets offering profit opportunities. Standard instruments for controlling risk exposure. The ability to profit in rising or falling markets. Leveraged trading with low margin requirements. Many options for zero commission trading.Forex tradingThe investors goal in Forex trading is to profit from foreign currency movements. Forex tradingor currency trading is always done in currency pairs. For example, the exchange rate ofEUR/USD on Aug 26th, 2003 was 1.0857. This number is also referred to as a "Forex rate" orjust "rate" for short. If the investor had bought 1000 euros on that date, he would have paid1085.70 U.S. dollars. One year later, the Forex rate was 1.2083, which means that the value ofthe euro (the numerator of the EUR/USD ratio) increased in relation to the U.S. dollar. The45 46. investor could now sell the 1000 euros in order to receive 1208.30 dollars. Therefore, theinvestor would have USD 122.60 more than what he had started one year earlier. However, toknow if the investor made a good investment, one needs to compare this investment option toalternative investments. At the very minimum, the return on investment (ROI) should becompared to the return on a "risk-free" investment. One example of a risk-free investment islong-term U.S. government bonds since there is practically no chance for a default, i.e. the U.S.government going bankrupt or being unable or unwilling to pay its debt obligation.When trading currencies, trade only when you expect the currency you are buying to increase invalue relative to the currency you are selling. If the currency you are buying does increase invalue, you must sell back the other currency in order to lock in a profit. An open trade (alsocalled an open position) is a trade in which a trader has bought or sold a particular currency pairand has not yet sold or bought back the equivalent amount to close the position.However, it is estimated that anywhere from 70%-90% of the FX market is speculative. In otherwords, the person or institution that bought or sold the currency has no plan to actually takedelivery of the currency in the end; rather, they were solely speculating on the movement of thatparticular currency.Forex-ForecastingThis article provides insight into the two major methods of analysis used to forecast the behaviorof the Forex market. Technical analysis and fundamental analysis differ greatly, but both canbe useful forecast tools for the Forex trader. They have the same goal - to predict a price ormovement. The technician studies the effect while the fundamentalist studies the cause ofmarket movement. Many successful traders combine a mixture of both approaches forsuperior results.AnalysisTechnical analysis is a method of predicting price movements and future market trends bystudying charts of past market action. Technical analysis is concerned with what has actually46 47. happened in the market, rather than what should happen and takes into account the price ofinstruments and the volume of trading, and creates charts from that data to use as the primarytool. One major advantage of technical analysis is that experienced analysts can follow manymarkets and market instruments simultaneously.Technical analysis is built on three essential principles:1. Market action discounts everything! This means that the actual price is a reflection ofeverything that is known to the market that could affect it, for example, supply and demand,political factors and market sentiment. However, the pure technical analyst is only concernedwith price movements, not with the reasons for any changes.2. Prices move in trends Technical analysis is used to identify patterns of market behavior thathave long been recognized as significant. For many given patterns there is a high probability thatthey will produce the expected results. Also, there are recognized patterns that repeat themselveson a consistent basis.3. History repeats itself Forex chart patterns have been recognized and categorized for over 100years and the manner in which many patterns are repeated leads to the conclusion that humanpsychology changes little over time.Forex charts are based on market action involving price. There are five categories in Forextechnical analysis theory:Indicators (oscillators, e.g.: Relative Strength Index (RSI)Number theory (Fibonacci numbers, Gann numbers)Waves (Elliott wave theory)Gaps (high-low, open-closing)Trends (following moving average).Some major technical analysis tools are described below:Relative Strength Index (RSI): 47 48. The RSI measures the ratio of up-moves to down-moves and normalizes the calculation so thatthe index is expressed in a range of 0-100. If the RSI is 70 or greater, then the instrument isassumed to be overbought (a situation in which prices have risen more than marketexpectations). An RSI of 30 or less is taken as a signal that the instrument may be oversold (asituation in which prices have fallen more than the market expectations).Stochastic oscillator:This is used to indicate overbought/oversold conditions on a scale of 0-100%. The indicator isbased on the observation that in a strong up trend, period closing prices tend to concentrate in thehigher part of the periods range. Conversely, as prices fall in a strong down trend, closing pricestend to be near to the extreme low of the period range. Stochastic calculations produce two lines,%K and %D that are used to indicate overbought/oversold areas of a chart. Divergence betweenthe stochastic lines and the price action of the underlying instrument gives a powerful tradingsignal.Moving Average Convergence Divergence (MACD):This indicator involves plotting two momentum lines. The MACD line is the difference betweentwo exponential moving averages and the signal or trigger line, which is an exponential movingaverage of the difference. If the MACD and trigger lines cross, then this is taken as a signal thata change in the trend is likely.Number theory:Fibonacci numbers: The Fibonacci number sequence (1,1,2,3,5,8,13,21,34...) is constructed byadding the first two numbers to arrive at the third. The ratio of any number to the next largernumber is 62%, which is a popular Fibonacci retracement number. The inverse of 62%, which is38%, is also used as a Fibonacci retracement number.48 49. Gann numbers:W.D. Gann was a stock and a commodity trader working in the 50s who reputedly made overmillion in the markets. He made his fortune using methods that he developed for tradinginstruments based on relationships between price movement and time, known as time/priceequivalents. There is no easy explanation for Ganns methods, but in essence he used angles incharts to determine support and resistance areas and predict the times of future trend changes. Healso used lines in charts to predict support and resistance areas.WavesElliott wave theory: The Elliott wave theory is an approach to market analysis that is based onrepetitive wave patterns and the Fibonacci number sequence. An ideal Elliott wave patternsshows a five-wave advance followed by a three-wave decline.GapsGaps are spaces left on the bar chart where no trading has taken place. An up gap is formedwhen the lowest price on a trading day is higher than the highest high of the previous day. Adown gap is formed when the highest price of the day is lower than the lowest price of the priorday. An up gap is usually a sign of market strength, while a down gap is a sign of marketweakness. A breakaway gap is a price gap that forms on the completion of an important pricepattern. It usually signals the beginning of an important price move. A runaway gap is a pricegap that usually occurs around the mid-point of an important market trend. For that reason, it isalso called a measuring gap. An exhaustion gap is a price gap that occurs at the end of animportant trend and signals that the trend is ending.TrendsA trend refers to the direction of prices. Rising peaks and troughs constitute an up trend; fallingpeaks and troughs constitute a downtrend that determines the steepness of the current trend. Thebreaking of a trend line usually signals a trend reversal. Horizontal peaks and troughscharacterize a trading range.Moving averages are used to smooth price information in order to confirm trends and supportand resistance levels. They are also useful in deciding on a trading strategy, particularly infutures trading or a market with a strong up or down trend. 49 50. The most common technical tools:Coppock Curve is an investment tool used in technical analysis for predicting bear market lows.DMI (Directional Movement Indicator) is a popular technical indicator used to determinewhether or not a currency pair is trending.Unlike the fundamental analyst, the technical analyst is not much concerned with any of the"bigger picture" factors affecting the market, but concentrates on the activity of that instrumentsmarket.Fundamental analysisFundamental analysis is a method of forecasting the future price movements of a financialinstrument based on economic, political, environmental and other relevant factors and statisticsthat will affect the basic supply and demand of whatever underlies the financial instrument. Inpractice, many market players use technical analysis in conjunction with fundamental analysis todetermine their trading strategy. Fundamental analysis focuses on what ought to happen in amarket. Factors involved in price analysis: Supply and demand, seasonal cycles, weather andgovernment policy.Fundamental analysis is a macro or strategic assessment of where a currency should be tradingbased on any criteria but the movement of the currencys price itself. These criteria often includethe economic condition of the country that the currency represents, monetary policy, and other"fundamental" elements.Many profitable trades are made moments prior to or shortly after major economicannouncements.50 51. What happened in 2008?Sensex was crossed 21,000 levels in January and analysts predicted 25,000 levels but Sensex fellto 7,800 in October. Experts are now talking about 7,000 targets in 2009. But todays it has beentouch the point 14000 due to government stability.2. Rupee strengthened to 39 against dollar and analysts like ICICI Kamat predicted 35 levels butrupee fell to 50 levels. Experts are now talking about 55 against dollar in 2009.3. Crude Oil prices touched $147 per barrel and Goldman Sachs talked about $200 per barrelbut crude oil in now trading around $45 levels. Experts are now talking about $30 per barrel in20094. Inflation moved to 13% and analysts talked about 15% but inflation fell to 8% inDecember. Experts are now talking about 4% levels in 2009. They are actually now talkingabout deflation.5. Indian GDP grew at 9% in 2007-08 and analysts predicted about 10% growth in 2009.Experts are now talking about 7% GDP growth in 2008-09 and 5% GDP growth in 2009-10.6. Commodities traded around all time high levels in June, 2008 but they collapsed to 2003levels in December, 2008. Companies are now shutting down plants and are removingemployees due to lack of demand and piling up of inventories.7. Investment banking is the most sought after industry in early 2008. They are now eitherdisappeared or merged with banks.51 52. 8. Real Estate prices reached stratospheric levels in early 2008 but investors bought them as ifthere will be no land available for purchase in 2009. They are now announcing bonuses and freeoffers to attract buyers. Many real estate stocks were corrected by 70-90% in this year alone. Wewill hear some bankruptcies in 2009 in this sector. DLF and Unitech will cut prices by 30% in2009.Investment lessons from 2008:1. Unlike in past, stock markets now become more dynamic, more volatile and moreunpredictable due to more global integration of economy and money flows.2. Stock market investors will never react normally they will either overreact or under react tothe economic or political events. One should take into consideration this psychological aspectalong with business fundamentals in arriving at price target.3. As I said in my previous posts, stock markets always move much ahead of real economy. Ifreal economy will suffer in early 2009, stocks fell by October, 2008. If economic conditions willimprove by early 2010, stocks will rise by late 2009.4. Timing: It is very difficult to time the stock market investments. 80% of price variations occurin 20% of days time of maximum profits and losses. On 18 May we have been seen morevariation in recession time market has been touched the level of 14000 with growth of 2100points5. Significant falls or rises do not occur in slow motion. They are steep and severe.6. Never follow herds. Believe in your research and gut feeling. Just see what happened toinvestors in Reliance Power IPO.7. Biggest investment lesson: When investors are in panic mood, even good companies withstrong growth prospects also fall along with bad overvalued stocks.Significant statements:1. RBI Governor: The global economic crisis is turning out to be deeper and longer than wehad earlier expected, the impact on India is also turning out to be stronger than we had earlierexpected. This is the frank statement from Subbarao. How long Government will deceivepeople on this unmanageable issue? Biggest problem with this crisis is no one in the world52 53. knows about magnitude and duration of financial crisis. According to RBI Governor, 2009-10may be a more difficult year.2. Commerce Minister: Government will announce second stimulus package in the next week.Textiles, Agriculture and Construction are the priority sectors for Government in the nextpackage.3. Jack Welch (former GE Chairman): The terror strike in Mumbai could well tilt the focusof foreign investors towards neighboring China. This is the perception of foreigners about India.Many investors will be thinking about tilting the balance to China. How Indias leaders respondto the Mumbai attacks will tell the business world what it wants and needs to know. Not justwhether to pull back from India but how risky pushing forward will be.4. Rakesh Jhunjhunwala: India will see the mother of all bull runs in the next 4 or 5 years,boosted by double-digit economic growth and increased investment by domestic investors,including pension and insurance funds.5. World Bank: The financial crisis is now likely to result in the most serious recession sincethe 1930s.6. International Energy Agency (IEA): for the first time in 25 years, demand for crude falls.This is the first drop for crude oil demand since 1983.Significant statistics:1.Reuters poll: Indias economy is expected to grow at its slowest pace in six years in the fiscalyear to March 2009. Indian GDP growth will be around 6.8% in 2008-09 and 6.2% in 2009-10.Indian economy never grew less than 7.5% in the last 5 years. According to World Bank, Indiawill grow by 5.8% in 2009.It estimates for Indian GDP: 6.2% in 2008-09, 5% in 2009-10 and will be around 7% in2010-11.53 54. 2. New claims for unemployment benefits reached their highest level (5,73,000) in 26 years inUSA. These job losses will have cascading effect on real economy. More than 20 lakhAmericans will lose jobs in 2009 and unemployment rate will touch 9% level in 2009.3. McKinsey report: United States credit losses may top $3 trillion. These losses will increase ifanother major asset class will collapse4. Goldman Sachs: China GDP growth for 2009 is around 6%. Shocking! China will grow at9% in 2010 if Government takes proper simulative decisions. India will be in election moodwhen we need these measures.5. World Bank: Global trade will fall for the first time since 1982. World economy will growby 0.9% in 2009 and inflows to developing countries will fall by 50%.6. Asian Development Bank (ADB): Growth rates of China and India will be at 8.2% and 6.5%respectively in 2009. India needs particular attention, given its weaker fiscal position.7. China: Exports fell by 2.2% in November, the first decline since June 2001 - the largest year-over-year monthly decline since April 1999.8. DLF and Unitech may lower property prices by 30% in mid-2009 to stimulate buyers.Positive Stock market news:1. Government stability is big positive reason for sensex.2. Global Telecom Companies are planning to buy 20-25% stake in Reliance Communications.R-Com stock lost 70% of value in 2008. Anil Ambani family holds 67% stake in the company.This deal is beneficial for investors as only 12% of shares are available for trading after thispurchase in the secondary market. Promoter will not reduce his holding.3. Manpower survey: India is the second most optimistic employment market in the world butthere will freezing in hiring in the next 3 months. IT and Hospitality sectors are the worstaffected while Telecom is the most optimistic one.54 55. FCCB shocks: Foreign currency convertible bonds (FCCBs?) of many companies will be duefor repayment in the next 3 years. As stock markets are unlikely to recover in the next 12-15months, it is interesting to see how promoters will clear their dues. We may hear some shockingnews on this front in the next 2 years.NPA shocks:Many people are underestimating the impact of Non Performing Assets (NPAs). NPAs willaffect in 2 ways. NPAs will not only propel the negative sentiment but increase the banksreluctance to give loans which will once again destroy the positive aspects of the bailoutpackages. Only positive aspect is many PSU banks reported fall in NPAs in 2008 over 2007except SBI and IOB.NPA statistics: NPAs of ICICI Bank in 2007: Rs 5,930 crore. NPAs of ICICI Bank in 2008: Rs 9,500 crore..Interesting statistics about Asian and World economies:1. World Bank estimates: A. November, 2008: World economy will grow by 2.2% in 2009. B. December, 2008: World economy will grow by 0.9% in 2009.2. ADB estimates about Asian economy in 2009: A. September, 2008: Asian economy will grow by 7.2% in 2009. B. December, 2008: Asian economy will grow by 5.8% in 2009.3. ADB estimates about Asian economy in 2008: A. September, 2008: Asian economy will grow by 7.5% in 2008. B. December, 2008: Asian economy will grow by 6.9% in 2008.55 56. 4. Current P/E of Sensex: 10.P/E of Sensex in 2008 economic slowdown: 9.5This is a much severe crisis than 2001 slowdown. Effect of fluctuation on Indian stock marketNothing actually. The economy is as sound as it was in the boom time. The companies are asprofitable as they were a few days ago. Yet, the market crashed because the Government tried toinstill some sort of regulation in it.Let me explain it a bit : As I wrote in my last article that a major portion of the money beinginvested into the share market is coming from FIIs (Foreign Institutional Investors). The cause ofconcern for the Government was that in this major share of FIIs, more than half was in the formof hot money being invested into the market by anonymous investors who pump money into themarket by utilizing the Participatory Note (PN) facility. All those foreign investors who are notregistered with the SEBI (Stock Exchange Board of India), the regulatory body for stocks inIndia, can not directly deal in buying/selling of sticks. So they took a sort of permission fromregistered FIIs by buying Participatory Notes (PN) from them in exchange of dollars, whichultimately allows them trade in the market.Though, this concept of allowing anonymous investors in the market broaden the reach of themarket, it also ensure free entry of dollars into Indian economy as well as increase thepercentage of hot money in the market. The hot money is that kind of money which is investedonly for a short time to make some quick buck. It is not invested with a long term mindset. Sincethe continuous inflow of dollar into Indian economy is making the Indian currency (Rupee)stronger and thus making the export costlier, the Government was looking for someway to curbthis inflow of dollars. Making the availability of Participatory Notes some difficult for foreigninvestors was one step Government thought would help control the inflow of dollars. So a fewdays ago the SEBI contemplated on a draft policy to make the issuing of PN difficult for FIIs. 56 57. This was the step which gave a jolt to the buying spree of FIIs. As people found that it would bedifficult to trade in the market in future owing to non-availability of PN, they started exitingform the market by selling their stock.Result- the market fell more than a 1000 point in a few hours and had to shut down for sometime. Ultimately the Government had to rush in to alleviate the growing concern of Investors bystating that it would not control the issuing of PN to investors. This news will from the Businessstandard give you some detail of this exercise done by the Government.As of now the market is still fluctuating and is yet to be stabilized. However, I think that in allprobability, it will continue its upward swing despite such momentary crash. The mainreason of my belief is that the Indian economy as a whole is performing very well Same is thecase with most Indian companies listed in the market.With the above note, here are some of my observations on what can happen if the stock marketboom continues for lone in India:First some positive oneFirst of all if this boom continues for long, soon the richest person in the world will be an Indian.On the last count (as per a leading newspaper report) Mukesh Ambani, the chairman of Reliancegroup was earning Rs 40 Lakhs ($ 100000) per minute. Yes you read it write. $100000 perminute ! Though it has much to do with his huge and expanding empire of Reliance industries, itis also because of the appreciation in the price of the shares of Reliance industries.Secondly most investors, who are in the market for quite sometime, are going to become reallyrich. The word crorepati (multimillionaire) can soon become a common thing in India all thanksto share market.However, there is a word of caution here. As this boom is being driven by FIIs (ForeignInstitutional Investors), we must not forget that these people are here only till they find a newmarket more profitable than India. Once they find a place which offer better return on theirinvestment than India, they will immediately shift there. Though, there is only a remotepossibility of that as of now, you never know what can happen in future. Thats why most expert 57 58. are advising people to stick to their long-term investment plan and dont make any move inhaste.Owing to stock market boom, there is another very interesting situation being faced byReserve Bank of India(RBI) (the leading central bank which decides various economic policieshere just like