: ALL 7 ABOUT STOCK MARKET* The emergence of securities market in Indi dates back to the eighteenth century, when the BSE was set up in 1887. « The securities market came to provides all the support needed for the growth and development of the corporate sector by facilitating the raising of long term capital fund.ce * A Stock Exchange “ has been defined as “ any body of individuals whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities Marketsxchange Board of India(SEBI) on April on the basis of the recommendation committee on Stock exchange reforms headed by G.S. patel. The members of the Board of Management of the SEBI Comprises those drawn from Professional brokers, > Financial Consultant, Merchant Bankers, Investors, Stock exchanges Authorities and Finance ministryCe e primary market provides the channel for creation new securities, >The securities issued in the primary market are issued by public limited companies or by government agencies. The resources in this kind of market are mobilized either through the public issue or through private placement route. It is a public issue if anybody and everybody can subscribe for > whereas if the issue is made available to a selected group of persons it is termed as private placement. >There are two major types of issuers of securities, the corporate entities who issue mainly Debt and Equity instruments and the government (central as well as state) who issue debt securities (dated securities and treasury bills).je secondary market deals in securi ies pi issued. The secondary market enables participants who hold securities to adjust their holdings in response to changes in their assessment of risks and returns. Once the new securities are issued in the primary market they are traded in the stock (secondary) market. The secondary market operates through two mediums, namely, the over-the-counter (OTC) market and the exchange-traded market. OTC markets are informal markets where trades are negotiated. Most of the trades in the government securities are in the OTC market.OTC market. The other option is to trade using the infrastructure provided by the stock exchanges. The exchanges in India follow a systematic settlement period. All the trades taking place over a trading cycle (day=T) are settled together after a certain time (T+2 day). The trades executed on exchanges are cleared and settled ¢ In Case of BSE “ trading system known as BOLT”A variant of the secondary market is the forward market, where securities are traded for future delivery and payment. A variant of the forward market is Futures and Options market. Presently only two exchanges viz., National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange (BSE) provides trading in the Futures & Options.No. of Listed 5,130 2,588 3,844 658 472 1,029 1,5304,887* Market 19,947 3,859 4,453, 2,106 353 1,163 6,226 1,819 Capitalisation (Us $ bn) Market 149.01 157.13 90.25, 69.43 274.41 583.89 23756 200.09 Capitalisation‘ey strengths of the Indian capital mar! >A fully automated trading system on all stock exchanges, >a wide range of products, an integrated platform for trading in both cash and derivatives, >and a nationwide network of trading through over 4,000 corporate brokers. >The securities markets in India have made enormous progress in developing sophisticated instruments and modern market mechanisms. >The real strength of the Indian securities market lies in the quality of regulation. The market regulator, Securities and Exchange Board of India (SEBI) is an independent and effective regulator.t has put in place sound regulations in respect of Ulntermediaries, trading mechanism, Settlement cycles, Risk management, Derivative trading and takeover of companies. There is a well designed disclosure based regulatory system. Information technology is extensively used in the securities market.ie NSE and BSE have most advanced and Ss risk management systems. The growing number of market participants, The growth in volume of securities transactions, The reduction in transaction costs, The significant improvements in efficiency, transparency and safety, and the level of compliance with international standards have earned for the Indian securities market a new respect in the world.viduals or institutions, are sur| called savers, while others are deficit- generating, called spenders. Households are surplus-generators and “Corporate and Government are deficit generators. * Through the platform of securities markets, The savings units place their surplus funds in financial claims or securities in turn get benefits like interest, dividend, capital appreciation, bonus etc. + These investors and issuers of financial securities constitute two important elements of the securities markets. * The third critical element of markets are the intermediaries who act as conduits between the investors and issuers.| Market Participants Regulatory bodies, which regulate the functioning of the securities markets, constitute another signifycant element o securities markets. The process of mobilization 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 quality securities and non- manipulated demand for them in the market. . Thus, the four important elements of securities markets are the Investors, the Issuers, the Intermediaries and Regulators. “IIR”gaat es BETWEEN PRIMARY AND SECONDARY MARKET In the primary market securities are issued to the public and the proceeds go to the iss. ing Company. Secondary market is a term used for stock exchanges. where stocks are bought and sold after they are issued to the public. trcsnetchents | we eee PRIMARY MARKET Individuals apply iopet shares oF the hmpanw, nd those who get Sepang. SECONDARY MARKET ext * a eee Companies get themselves listed on popular stock exchanges like BSE and NSEWORKING REGULATORY FRAMEWORK WHY DO PEOPLE BUY SHARES? WHY STOCK MARKET IS SO VOLATILE? HOW TO MAKE MONEY IN STOCK MARKET? ROLE OF STOCK MARKET IN ECONOMY+ At present, the Six main Acts governing the securitie: markets are (a) The SEBI Act, 1992; (b) The Companies Act, 1956, which sets out the code of conduct for the corporate sector in relation to issuance, allotment and transfer of securities, and disclosures to be made in public issues; (c) The Securities Contracts (Regulation) Act, 1956, which provides for + regulation of transactions in securities through control over stock exchanges (d) The Depositories Act, 1996 which provides for electronic maintenance and transfer of ownership of demat shares (NSDL) (e) Prevention of Money Laundering Act, 2002. (f) Capital Issues (Control) Act, 1947with statutory powers for (a) Protecting the interests of investors insecurities, (b) Promoting the development of the securities market, (c) Regulating the securities market. (d) It can conduct enquiries, audits and inspection of all concerned and adjudicate offences under the Act. (e) It has power to register and regulate all market intermediaries and also to penalize them in case of violations of the provisions of the Act, SEBI has full autonomy and authority to regulate and develop an orderly securities market.lati direct control securities trading an stock exchanges and aims to prevent undesirable transactions in securities. It gives Central Government regulatory jurisdiction over (a) stock exchanges through a process of recognition and continued supervision (b) Contracts in securities, and (c) Listing of securities on stock exchanges. (d) As a condition of recognition, a stock exchange complies with conditions prescribed by Central Government. (e) Organized trading activity in securities takes place on a specified recognized stock exchange.epositories Act, 1996 provides for the establis of depositories in securities with the objective of ensuring Free transferability of securities with speed, accuracy and security by (a)making securities of public limited companies freely transferable subject to certain exceptions; (b) Dematerializing the securities in the depository mode; and (c) Providing for maintenance of ownership records in a book entry form. (d) In order to streamline the settlement process, the Act envisages transfer of ownership of securities electronically by book entry without making the securities move from person to person.195 leals with issue, allotment and transfer of s and various aspects relating to company mgt. It provides for standard of disclosure in public issues of capital, particularly in the fields of company management and projects, 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.—_ eT, * Astock 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 behavior of the markets or sector over a period of time + The are maintained professionally to ensure that it continues to be a consistent benchmark of the equity markets, which involves |inclusion and exclusion of stocks in the index, iday-to-day tracking and giving effect to corporate actions on individual stocksa Blue chip index of NSE Most popular and widely used stock market indicator in the country. Diversified 50 stocks index accounting for 22 sectors of the economy Top 50 liquid stocks in India Accounts for 58.64 % of total market capitalization of CM For reflecting the stock market behavior accurately and also for modern applications such as index funds and index Derivatives. Base capital of Rs.2.06 trillion.—_ The next rung of liquid securities after Nifty 50 The maintenance of the Nifty 50 and the CNX Nifty Junior are synchronized so that the two indices will always be disjoint sets Accounts for 9.60 % of the market capitalization of CM segment of NSE as at end March 2008. Introduced on January 1, 1997, with a base capital of Rs.0.43 trillion. (Approx 1 Laks Crore Market Cap)+ Adiversified 100 stock index accounting for 35 sector of the economy + A combination of the Nifty 50 and CNX Nifty JuniorIndia’s first broad-based benchmark of the Indian capital market for comparing portfolio returns vis-a-vis market returns. Represents about 84.24 % of total market capitalization and about 78.00% of the total turnover on the NSE as on March 30 2008. The S&P CNX 500 companies are disaggregated into 72 industry indices viz. S&P CNX Industry Indices Industry weight ages in the index reflect the industry weight ages in the market. For e.g. if the banking sector has a 5% weight age in the universe of stocks traded on NSE, banking stocks in the index would also have an approximate representation of 5% in the index.— ew, Blue chip index of the Bombay Stock Exchange (BSE). first compiled in 1986 and was calculated on a “Market Capitalization-Weighted” Methodology of 30 component stocks representing a sample of large, well-established and financially sound companies. Consist of A basket of 30 constituent stocks representing a sample of large, liquid and representative companies Base index value is 100.comprises of 100 stocks listed at five n stock exchanges in India at Mumbai, Calcutta , Delhi, Ahmadabad and Madras. * Criteria for selection had been market activity, due representation to various industry groups and representation of trading activity on major stock exchanges. + BSE also calculates a dollar-linked version of BSE-100 Index. + Base index value is 100.Consists of 500 scripts in its basket The changing pattern of the economy and that of the market have been kept in mind while constructing this index. BSE-500 index . It represents nearly 93% of the total market capitalization on Bombay Stock Exchange Limited. Means BSE-500 index ideally represents total market. Represents all 20 major industries of the economy. Base index value is 1000.— eT, A futures contract is a forward contract, which is tra: Exchange. NSE commenced trading in index futures on June 12, 2000. NSE defines the characteristics of the futures contract such as the Underlying index, Market lot, and The maturity date of the contract. The futures contracts are available for trading from introduction to the expiry date. Trading cycle S&P CNX Nifty futures contracts have a maximum of 3-month trading cycle - the near month (one), the next month (two) and the far month (three). A new contract is introduced on the trading day following the expiry of the near month contract.An option gives a person the right but not the obligation to buy sell something. An option is a contract between two parties wherein the buyer receives a privilege for which he pays a fee (premium) and the seller accepts an obligation for which he receives a fee. The premium is the price negotiated and set when the option is bought or sold. A person who buys an option is said to be long in the option. A person who sells an option is said to be short in the option.First step'to Investing in S#ock marke FLITT;ECURITY BOND STOCK 1JCOMMON STOCKS 2)PREFERRED STOCKS SHARE MUTUAL FUNDS. PAR VALUE us. MARKET VALUE BULLISH vs. BEARISHi @ How does the stock market function? 47 Stoc exchanges ~ ¥ Brokers Y Registrars ¥ Depositories and their participants ¥ Securities and Exchange Board of India (SEBI)tock market indices are the barometer of the stoc >» BSE SENSEX,NSE-50 etc are some of the market indices. Their usefulness: v Indices help to recognize broad trends in the market. v The investor can use the indices to allocate the funds rationally among the stocks. ¥ Technical analysts use these indices to predict the future market. v Indices function as a status report on the general economy.These indices have just one job: 1. To capture the price movement. 2. Soa stock index will reflect the price movements of shares while a bond index captures the manner in which bond prices go up or down.The price of every stock increases or decreases for the following possible reasons: v News about company. v News about the country. v Exchange rate regime. v Depends on demand and supply for that stock.They are selected by the Index committee. Some of the criteria they follow include : 1)Market capitalization. 2)Liquic ity. 3)Continuity. 4)Industry representation. 5)Listed history.v Why need I invest? ¥So what are the various investment options? ¥ Why shares?Other benefits of investing in s| Because they can make big money on it. Compared to your investments in fixed deposits in banks it makes more profits ,but the bad news is that you are also expected to bear the losses ,if any. ¥ 1) Possibility of high returns ¥ 2) Easy liquidity ¥ 3) Unbeatable tax benefits Short Term Gain:15% Long Term Gain: 20% ¥ 4) Income from dividendsWhat ar od transaction? ‘expenses during a Y Capital gains tax Y Securities transaction tax Y Brokerage ¥ Depository feesshares: Y Purchase shares from —_ ane Manor e @ aim the primary market aaa @~ (i.e. IPO's) @ ‘ ~~ @— ===.) ~ cnet Cae ¥ Trade in the | Plots ” dedicated cal-center secondary @ @ share Shops Soros market, i.e. a @ Online Trading stock exchanges.A stock market may either be a price index or a wedi index. In India most of the indices are using wealth index for computation of stock market. No. of | Market | Market | Market | Market Compan Price | cap Price | cap y shares | on (Rs.) | on (Rs.) 09/02/0 18/02/0 6 6 TATA 40 20/- | 200/-| — 30/- 300/- INFOSY| 20 30- | 600 | 40/- 800/- s IBM 20 toor-| 2000/-|"150/- 3000/- TOTAL 2800/- 4100/- MARKE TCAP Base value= 100/- Index present value= (100*4100)/2800= 146.428nce of globalization, internationalization integration of the Indian market with the world markets. ¥ Introduction of flexible exchange rate regime. v Intro of new, innovative ,hybrid financial instruments. ¥ Human element (Brokers Activity) ¥ Political Factor ¥ Climatic Factor ¥ Demand Supply /Order Book / Growth Factor ¥ Market News For Stock for that sector ¥ Technological changes.¥ Patience, profound knowledge. ¥ Best guess. For Trader ¥ Diversification of Risk. ¥ Portfolio management. ¥ Clearly define entry and exist point ¥ Sector Watch ¥ Inside News of the company.In theory they are required to facilitate, support, ena healthy growth and functioning of primary markets but in practice they are not . ¥ The current focus of thinking on the SENSEX, market capitalization etc.reflects an excessive preoccupation with the secondary market activity. ¥ Beyond a point, the expansion of the secondary markets may reduce the volume of activity not only on the new issue market but also in the banks, other financial institutions, gold, real estate and commodities. ¥ The multiple serious problems visiting the stock market caution us against too much optimism and enthusiasm about the stock market.¥ Unethical practices. ¥ Big irrational greed, excessive speculation. ¥ Lack of protection to interests of the genuine and small investors . ¥ Trading is extremely thin and restricted. ¥ Structural and organisational imbalance in the growth of the stock market. ¥ Volatility of the market has increased over the years.a in order to make it flawless system authorities si certain measures such as v Single authority ¥ Demutualization. v Prescribing capital adequacy norms. v Stricter registeration of brokers v¥ Margin requirements .FUN Ta A mutual fund is a company that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, other securities or assets, or some combination of these investments. Mutual Funds are essentially investment vehicles where people with similar investment objective come together to pool their money and then invest accordingly. When you invest in a MF, you are buying shares (or portions) of the MF and become a shareholder of the fund. Mutual Funds (MEFs) are considered a good route to invest and earn returns with reasonable safety.le Optio! Gilt funds Diversification: Mutual funds diversify the risk of the investor by investing in a basket of various stocks. Managed by Skilled Professionals: Liquidity: When in need of liquidity, the money can be withdrawn or redeemed at the Net Asset Value (Only in Case of Open End Mutual Fund) Well Regulated: Transparency. Flexible, Affordable and a Low Cost affair. Tax benefits :TUA —_ &, * Fund Sponsor A ‘sponsor’ is a person who, acting alone or in combination with another corporate body, establishes a MF. + The sponsor should have a sound financial track record of over five years, + In case of an existing MF, such fund which is in the form of a trust and the trust deed has been approved by the Board; * The sponsor should contribute at least 40% of the net worth of the AMC * Criteria specified in the SEBI regulationscan either be managed by the Board of Trus which is a body of individuals, or by a Trust Company, whicl a corporate body. Most of the funds in India are managed by a Board of Trustees. The trustees are appointed with the approval of SEBI. Two thirds of trustees are independent persons and are not associated with sponsors or be associated with them in any manner whatsoever. The trustees, being the primary guardians of the unit holders’ funds and assets, have to be persons of high repute and integrity. It is managed by the AMC as per the defined objectives, in accordance with trust deed and SEBI (MF) Regulations.