FACTORS AFFECTING CAPITAL MARKET

Project Report Submitted : In partial fullfilment of the degree in Master of Business Administration
Session (2011-2013)

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submitted to: Mrs. J.J Mani (H.O.D of Management dept.) Submitted By: Nancy Bansal MBA 3rd semester Roll no:1174481

Malout Institute of Management and Information Technology, Malout.

ACKNOWLEGEMENT
This humble endeavor bears the imprint of many persons who were in one way or the other helpful in the completion of my summer training. I would like to take this opportunity to present my vote of thanks to my guides who acted as lighting pillars to enlighten my way through out this project. This project would not have been possible without the kind assistance and guidance of many people who indeed were helpful, cooperative and kind during the entire course of our project.

The acknowledgment would not be complete without expressing my indebtedness to Mrs.Pooja Kohli(E.D of LSE), Mr. Sadhu Ram, who guided me in this project and was the constant source of reference for me and showed full interest at each and every step of my project. I would like to thank my project supervisor Mrs.J.J. Mani (H.O.D of Management Department), who guided me throughout the project.

Nancy Bansal

TABLE OF CONTENTS
SR.NO

1.
2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

PARTICULARS INTRODUCTION TO LSE CAPITAL MARKET TYPES OF CAPITAL MARKET HISTORY OF INDIAN CAPITAL MARKET WHAT IS INDIAN STOCK MARKET TRADING PROCEDURE OF BUYING AND SELLING OF SHARES FACTORS AFFECTING CAPITAL MARKET RESEARCH METHODOLOGY DATA ANALYSIS AND INTERPRETATION FINDINGS CONCLUSION BIBLIOGRAPHY QUESTIONNAIRE

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4 8 14 17 21 23 24 30 33 35 41 47 48 49

INTRODUCTION TO LSE
The Ludhiana Stock Exchange Limited (LSE was established in 1981, by Sh. S.P. Oswal of Vardhman Group and Sh. B.M. Munjal of Hero Group, leading industrial luminaries, to fulfill a vital need of having a Stock Exchange in the region of Punjab Himachal Pradesh Jammu & Kashmir and Union territory of Chandigarh. Since its inception, the stock exchange has grown phenomenally. The stock Exchange has played an important role in channelising savings into capital for the various industrial and commercial units of the state of Punjab and other parts of the company. The Exchange has facilitated the mobilization of funds by entrepreneurs from the public and thereby contributed in the overall, economic, industrial and social development of the state under its jurisdiction. Ludhiana Stock Exchange is one of the leading Regional Stock Exchange and has been in the forefront of other stock exchange in every spheres, whether it is formation of subsidiary for providing the platform of trading to investors, for brokers etc. in the era of Screen based trading introduced by national Stock exchange and Bombay stock Exchange, entering into the filed of Commodities trading or imparting education to the Public at large by way of starting Certificate Programmes in Capital Market.

. The vision and mission of stock Exchange is: Reaching small investors by providing services relating to Capital market including Trading Depository operations etc and creating Mass Awareness by way of education and training in the field of Capital market.To create educated investors and fulfilling the gap of skilled work force in the domain in Capital Market. Further, the exchange has 295 members out of which 171 are registered with national Stock exchange as Sub- broker and 124 with Bombay Stock exchange as sub- brokers through our

DETAILS OF PRESIDENTS AND VICE PRESIDENTS subsidiary. OF LSE

PRESIDENTS/ CHAIRMEN Sr. No. 1 2 3 4 5 6 7 8 9 10 11 Name of the person Sh. S.P. Oswal Sh. B.M. Lal Munjal Sh. V.N. Dhiri Sh. G.S. Dhodi Sh. Jaspal Singh Sh. M.S. Gandhi Sh. R.C. Singal Dr. B. B. Tandon, Chairman Sh. S.P. Sharma, Chairman Sh. Jagmohan Krishan Prof Padam Parkash Kansal Tenure 16.08.1983 to 27.07.1986 28.07.1986 to 15.10.1989 16.10.1989 to 30.10.1992 30.09.1998 to 04.10.2000 31.10.1992 to 22.12.1993 23.12.1993 to 05.10.1995 01.10.1996 to 29.09.1998 06.10.2001 to 01.07.2002 06.10.1995 to 30.09.1996 05.10.2000 to 05.10.2001 25.06.2007 to 10.12.2007 15.07.2007 to 23.09.2008 23.09.2008 to 29.09.2009 30.09.2009 to till date

VICE PRESIDENTS/ VICE CHAIRMEN Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Name of the person Sh. Rajinder Verma Sh. B.K. Arora Sh. G.S. Dhodi Sh. B.S. Sidhu Sh. D.P. Gandhi Sh. M. S. Sarna Sh. T.S. Thapar Sh. Tarvinder Dhingra Dr. Rajiv Kalra Sh. D.K. Malhotra, Vice Chairman Sh. Jagmohan Krishan, Vice Chairman Sh. Ravinder Nath Sethi Prof Padam Parkash Kansal Sh. Joginder Kumar Tenure 14.07.1984 to 08.08.1987 09.08.1987 to 15.10.1989 31.10.1992 to 22.12.1993 28.10.1991 to 30.10.1992 16.10.1989 to 27.10.1991 23.12.1993 to 05.10.1995 06.10.1995 to 26.09.1997 27.09.1997 to 29.09.1998 30.09.1998 to 04.10.2000 05.10.2000 to 05.10.2001 06.10.2001 to 01.07.2002 25.06.2007 to 10.12.2007 15.07.2007 to 23.09.2008 23.09.2008 to 08.10.2008 09.10.2008 to 29.09.2009 30.09.2009 to till date

GOVERNANCE AND MANAGEMENT IN LSE

Ludhiana Stock Exchange has a strong governance and administration, which encompasses a right balance of industry experts with highest level educational background, practicing professional and independent experts in various filed of Financial Sector. The administration is presently headed by Sr. General Manager-cum-company Secretary (holding additional charge of Executive Director (Offtg.) and team of persons having in-depth knowledge of secretarial, legal and Educational Training. The Governing Board of our Exchange comprises of twelve members, out of which three are Public Interest Directors, who are eminent persons in the fields of Finance and Accounts, Education, Law, Capital Markets and other related fields, Six are Shareholder Directors, and three are Broker Member Director and the Exchange has four Statutory Committees namely Disciplinary Committee, Arbitration Committee, Defaults Committee and Investor Services Committee. In addition, it has advisory and standing committees to assist the administration. LSE has a Code of Conduct in place that governs the elected Board Members and the Senior Management Team. The same is monitored through periodic disclosure procedures. The Exchange has an Ethics Committee, which looks into any issue of conflict of interest and has in place general code of conduct for the Senior Officials.

CAPITAL MARKET
A capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets (e.g., the money market). The capital market includes the stock market (equity securities) and the bond market (debt). Money markets and capital markets are parts of financial markets. Financial regulators, such as the UK's Financial Services Authority (FSA) or the U.S. Securities and Exchange Commission (SEC), oversee the capital markets in their designated jurisdictions to ensure that investors are protected against fraud, among other duties.

STOCK MARKET (EQUITY SECURITIES)

BOND MARKET (DEBT) CAPITAL

MARKET

The Capital market consists of number of individuals and institutions (including the government) that canalize the supply and demand for longterm capital and claims on capital. The stock exchange, commercial banks, co-operative banks, saving banks, development banks, insurance companies, investment trust or companies, etc., are important constituents of the capital markets. The capital market, like the money market, has three important Components, namely the suppliers of loanable funds, the borrowers and the Intermediaries who deal with the leaders on the one hand and the Borrowers on the other.

BOND MARKET
The bond market (also known as the credit, or fixed income market) is a financial market where participants can issue new debt, known as the primary market, or buy and sell debt securities, known as the Secondary market, usually in the form of bonds. The primary goal of the bond market is to provide a mechanism for long term funding of public and private expenditures. Traditionally, the bond market was largely dominated by the United States, but today the US is about 44% of the market. As of 2009, the size of the worldwide bond market (total debt outstanding) is an estimated $82.2 trillion, of which the size of the outstanding U.S. bond market debt was $31.2 trillion according to Bank for International Settlements (BIS), or alternatively $35.2 trillion as of Q2 2011 according to Securities Industry and Financial Markets Association (SIFMA). Nearly all of the $822 billion average daily trading volume in the U.S. bond market takes place between broker-dealers and large institutions in a decentralized, over-the-counter (OTC) market. However, a small number of bonds, primarily corporate, are listed on exchanges. References to the "bond market" usually refer to the government bond market, because of its size, liquidity, relative lack of credit risk and, therefore, sensitivity to interest rates. Because of the inverse relationship between bond valuation and interest rates, the bond market is often used to indicate changes in interest rates or the shape of the yield curve. The yield curve is the measure of "cost of funding".

TYPES OF BOND MARKET

The Securities Industry and Financial Markets Association (SIFMA) classifies the broader bond market into five specific bond markets.

Corporate Government & agency Municipal Mortgage backed, asset backed, and collateralized debt obligation Funding

BOND MARKET PARTICIPANTS

Bond market participants are similar to participants in most financial markets and are essentially either buyers (debt issuer) of funds or sellers (institution) of funds and often both. Participants include:
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Institutional investors Governments Traders Individuals

Because of the specificity of individual bond issues, and the lack of liquidity in many smaller issues, the majority of outstanding bonds are held by institutions like pension funds, banks and mutual funds. In the United States, approximately 10% of the market is currently held by private individuals.

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STOCK OR EQUITY MARKET

A stock market or equity market is a public entity (a loose network of economic transactions, not a physical facility or discrete entity) for the trading of company stock (shares) and derivatives at an agreed price; 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 at the beginning of October 2008. The total world derivatives market has been estimated at about $791 trillion face or nominal value, 11 times the size of the entire world economy. The value of the derivatives market, because it is stated in terms of notional values, cannot be directly compared to a stock or a fixed income security, which traditionally refers to an actual value. Moreover, the vast majority of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is offset by a comparable derivative 'bet' on the event notoccurring). Many such relatively illiquid securities are valued as marked to model, rather than an actual market price. The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. The largest stock market in the United States, by market capitalization, is the New York Stock Exchange (NYSE). In Canada, the largest stock market is the Toronto Stock Exchange. Major European examples of stock exchanges include the Amsterdam Stock Exchange, London Stock Exchange, Paris Bourse, and the Deutsche Brse (Frankfurt Stock Exchange). In Africa, examples include Nigerian Stock Exchange, JSE Limited, etc. Asian examples include the Singapore Exchange, the Tokyo Stock Exchange, the Hong Kong Stock Exchange, the Shanghai Stock Exchange, and the Bombay Stock Exchange. In Latin America, there are such exchanges as the BM&F Bovespa and the BMV. Market participants include individual retail investors, institutional investors such as mutual funds, banks, insurance companies and hedge funds, and also publicly traded corporations trading in their own shares. Some studies have suggested that institutional investors and corporations trading in their own shares generally receive higher risk-adjusted returns than retail investors.

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BROAD CONSTITUENTS MARKETS:

IN

THE

INDIAN

CAPITAL

Fund Raisers are companies that raise funds from domestic and foreign sources, both public and private. The following sources help companies raise funds: Fund Providers are the entities that invest in the capital markets. These can be categorized as domestic and foreign investors, institutional and retail investors. The list includes subscribers to primary market issues, investors who buy in the secondary market, traders, speculators, FIIs/ sub accounts, mutual funds, venture capital funds, NRIs, ADR/GDR investors, etc. Intermediaries are service providers in the market, including stock brokers, sub-brokers, financiers, merchant bankers, underwriters, depository participants, registrar and transfer agents, FIIs/ sub accounts, mutual Funds, venture capital funds, portfolio managers, custodians, etc. Organizations include various entities such as BSE, NSE, other regional stock exchanges, and the two depositories National Securities Depository Limited (NSDL) and Central Securities Depository Limited (CSDL). Market Regulators include the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), and the Department of Company Affairs

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PARTICIPANTS IN THE CAPITAL MARKET:

SAT, regulators (SEBI, RBI, DCA, DEA), depositories, stock exchanges (with equity trading, debt market segment, derivative trading), brokers, corporate brokers, sub-brokers, FIIs, portfolio managers, custodians, share transfer agents, primary dealers, merchant bankers, bankers to an issue, debenture trustees, underwriters, venture capital funds, foreign venture capital investors, mutual funds, collective investment schemes.

1.Stock exchanges 2. Brokers 3. Sub brokers 4. Custodians 5. Depositories, depository participants 6. Merchant bankers 7. Bankers to the issue 8. Underwriters 9. Registrars to the issue 10. Portfolio managers 11. Mutual funds 12. FIIs 13. Debentures trustees 14. Credit rating agencies 15. Collective investment schemes 16. Venture capital funds

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TYPES OF CAPITAL MARKET

TYPES OF CAPITAL MARKET

PRIMARY MARKET

SECONDARY MARKET

PRIMARY MARKET: The primary market is that part of the capital markets that deals
with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Primary markets create long term instruments through which corporate entities borrow from capital market.

FEATURES OF PRIMARY MARKET:

This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM). In a primary issue, the securities are issued by the company directly to investors. The company receives the money and issues new security certificates to the investors. Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.
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The primary market performs the crucial function of facilitating capital formation in the economy. The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public." The financial assets sold can only be redeemed by the original holder.

METHODS OF ISSUING SECURITIES IN THE PRIMARY MARKET :

Public issuance, including initial public offering; Rights issue (for existing companies); Preferential issue.

SECONDARY MARKET:

The secondary market, also called aftermarket, is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold. Another frequent usage of "secondary market" is to refer to loans which are sold by a mortgage bank to investors such as Fannie Mae and Freddie Mac.

The term "secondary market" is also used to refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market (for example, corn has been traditionally used primarily for food production and feedstock, but a "second" or "third" market has developed for use in ethanol production). With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from issuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the case of treasuries. After the initial issuance, investors can purchase from other investors in the secondary market. The secondary market for a variety of assets can vary from loans to stocks, from fragmented to centralized, and from illiquid to very liquid. The major stock exchanges are the most visible example of liquid secondary markets - in this case, for stocks of publicly traded companies. Exchanges such as the New York Stock Exchange, Nasdaq and the American Stock Exchange provide a centralized, liquid secondary market for the investors who own stocks that trade on those exchanges. Most bonds and structured products trade over the counter, or by phoning the bond desk of ones broker-dealer. Loans sometimes trade online using a Loan Exchange.

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FUNCTION
In the secondary market, securities are sold by and transferred from one investor or speculator to another. It is therefore important that the secondary market be highly liquid (originally, the only way to create this liquidity was for investors and speculators to meet at a fixed place regularly; this is how stock exchanges originated. As a general rule, the greater the number of investors that participate in a given marketplace, and the greater the centralization of that marketplace, the more liquid the market. Fundamentally, secondary markets mesh the investor's preference for liquidity (i.e., the investor's desire not to tie up his or her money for a long period of time, in case the investor needs it to deal with unforeseen circumstances) with the capital user's preference to be able to use the capital for an extended period of time. Accurate share price allocates scarce capital more efficiently when new projects are financed through a new primary market offering, but accuracy may also matter in the secondary market because: 1) price accuracy can reduce the agency costs of management, and make hostile takeover a less risky proposition and thus move capital into the hands of better managers, and 2) accurate share price aids the efficient allocation of debt finance whether debt offerings or institutional borrowing.

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HISTORY OF INDIAN CAPITAL MARKET

Controller of Capital Issues Act (CCI) was passed in 1947. The stock markets have had many turbulent times in the last 140 years of their existence. The imposition of wealth and expenditure tax in 1957 by Mr. T.T. Krishnamachari, the then finance minister, led to a huge fall in the markets. The dividend freeze and tax on bonus issues in 1958-59 also had a negative impact. War with China in 1962 was another memorably bad year, with the resultant shortages increasing prices all round. This led to a ban on forward trading in commodity markets in 1966, which was again a very bad period, together with the introduction of the Gold Control Act in 1963. and this led to a resurgence of interest in the capital markets, only to be punctured by the Harshad Mehta scam in 1992. The mid-1990s saw a rise in leasing company shares, and hundreds of companies, mainly listed in Gujarat, and got listed in the BSE. The end-1990s saw the emergence of Ketan Parekh and the information, communication and entertainment companies came into the limelight. This period also coincided with the dotcom bubble in the US, with software companies being the most favoured stocks.There was a melt down in software stock in early 2000. Mr. P Chidambaram continued the liberalization and reform process, opening up of the companies, lifting taxes on long-term gains and introducing short-term turnover tax. The markets have recovered since then and we have witnessed a sustained rally that has taken the index over 13000. Several systemic changes have taken place during the short history of modern capital markets. The setting up of the Securities and Exchange Board (SEBI) in 1992. The history of the Indian capital markets and the stock market, in particular can be traced back to 1861 when the American Civil War began. The opening of the Suez Canal during the 1860s led to a tremendous increase in exports to the United Kingdom and United States. Several companies were formed during this period and many banks came to the fore to handle the finances relating to these trades. With many of these registered under the British Companies Act, the Stock Exchange,Mumbai, came into existence in 1875. It was an unincorporated body of stockbrokers, which started doing business in the city under a banyan tree. Business was essentially confined to company owners and brokers, with very little interest evinced by the general public. There had been much fluctuation in the stock market on account of the American war and the battles in Europe. Sir Premchand Roychand remained a kingpin for many years. Sir Phiroze Jeejeebhoy was another who dominated the stock market scene from 1946 to 1980. His word was law and he had a great deal of influence over both brokers and the government. He was a good regulator and many crises were averted due to his wisdom and practicality. The BSE building, icon of the Indian capital markets, is called P.J. Tower in his memory. The planning process started in India in 1951, with importance being given to the formation of institutions and markets The Securities Contract Regulation Act 1956 became the parent regulation after the Indian Contract Act 1872, a basic law to be followed by security markets in India. The markets have witnessed several golden times too. Retail investors began participating in the stock markets in a small way with the dilution of the FERA in 1978. Multinational companies, with operations in India, were forced to reduce foreign share holding to below a certain percentage, which led to a compulsory sale of shares or issuance of fresh stock. Indian investors,
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who applied for these shares, encountered a real lottery because those were the days when the CCI decided the price at which the shares could be issued. There was no free pricing and their formula was very conservative. The next big boom and mass participation by retail investors happened in 1980, with the entry of Mr. Dhirubhai Ambani. Dhirubhai can be said to be the father of modern capital markets. The Reliance public issue and subsequent issues on various Reliance companies generated huge interest. The general public was so unfamiliar with share certificates that Dhirubhai is rumoured to have distributed them to educate people. Mr. V.P. Singhs fiscal budget in 1984 was pathbreaking for it started the era of liberalization. The removal of estate duty and reduction of taxes led to a swell in the new issue market and there was a deluge of companies in 1985. Mr. Manmohan Singh as Finance Minister came with a reform agenda in 1991 and this led to a resurgence of interest in the capital markets, only to be punctured by the Harshad Mehta scam in 1992.

BSE(BOMBAY STOCK EXCHANGE):

The Bombay Stock Exchange Limited (Hindi: Mumba eyar Bjr) (formerly, The Stock Exchange, Mumbai; popularly called The Bombay Stock Exchange, or BSE) is the oldest stock exchange in Asia. It is located at Dalal Street, Mumbai, India. In October 2007, the equity market capitalization of the companies listed on the BSE was US$ 1.61 trillion, making it the largest stock exchange in South Asia and the tenth largest in the world.

The Bombay Stock Exchange was established in 1875. There are around 4,800 Indian companies listed with the stock exchange, and has a significant trading volume. The BSE SENSEX (SENSitive indEX), also called the "BSE 30", is a widely used market index in India and Asia. Though many other exchanges exist, BSE and the National Stock Exchange of India account for most of the trading in shares in India. The BSE SENSEX (also known as the BSE 30 index) is a value-weighted index composed of thirty scrips, with the base April 1979 = 100. The set of companies which make up the index has
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been changed only a few times in the last twenty years. These companies account for around one-fifth of the market capitalization of the BSE.

1956 1988 1992 1993 2000 2002 2003

S.C.R SEBI SEBI gives statutory powers under SEBI Act National Stock Exchange formed Depositories came into existence Start of rolling settlement and banning of badla trading Introduction of T+2 settlement

NSE(NATIONAL STOCK EXCHANGE):

The National Stock Exchange of India Limited (NSE), is a Mumbai-based stock exchange. It is the largest stock exchange in India and the third largest in the world in terms of volume of transactions. Though a number of other exchanges exist, NSE and the Bombay Stock Exchange are the two most significant stock exchanges in India, and between them are responsible for the vast majority of share transactions.

Origins:
The National Stock Exchange of India was promoted by leading Financial institutions at the behest of the Government of India, and was incorporated in November 1992 as a tax-paying company. In April 1993, it was recognized as a stock exchange under the Securities Contracts (Regulation) Act, 1956. NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment of the NSE commenced operations in November 1994, while operations in the Derivatives segment commenced in June 2000.

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INNOVATIONS:
NSE has remained in the forefront of modernization of India's capital and financial markets, and its pioneering efforts include: Being the first national, anonymous, electronic limit order book (LOB) exchange to trade securities in India. Since the success of the NSE, existent market and new market structures 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 (and later, derivatives market) trades in India. Co-promoting and setting up of National Securities Depository Limited, first depository in India. NSE pioneered commencement of Internet Trading in February 2000, which led to the wide popularization of the NSE in the broker community. Being the first exchange that, in 1996, proposed exchange traded derivatives, particularly on an equity index, in India. After four years of policy and regulatory debate and formulation, the NSE was permitted to start trading equity derivatives. Being the first and the only exchange to trade GOLD ETFs (exchange traded funds) in India. It is the one of the most important stock exchange in the world. Type :Stock Exchange Location Owner Key people Currency :Mumbai, India :National Stock Exchange of India Limited :Mr. Ravi Narain (Managing Director & CEO) :INR

No. of listings:1587 MarketCap Indexes :US$ 1.46 trillion (2006) :S&P CNX Nifty CNX Nifty Junior S&P CNX 500 :http://www.nse-india.com/24
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Website

WHAT IS INDIAN STOCK MARKET?????

Indian Stock Market contains more then 20 Stock Exchanges, some of which are popular nationally as well as regionally. The first stock market started in the country was the Bombay Stock Exchange (BSE). Its the oldest stock market in Asia and was established as the Native Share and Stock Broker's Association in the year 1875.It has around 5000 listings and a volume of more than US$ 1 Trillion. The other most popular Stock Exchange is the National Stock Exchange (NSE). Its also the largest Stock Exchange in the country and third in the world. These two exchanges constitute a major part of the Indian Capital Market.

WHAT IS THEIR PURPOSE ?

Stock markets basic role is to provide a platform for the masses of the country to invest their savings and also as a source of funds for various organizations and institutions. It provides an opportunity for any person to become a part-owner of the company by buying the companies shares. These shares can be sold and exchanged as well as used as collateral in certain cases. One can deal in a variety of financial instruments in a stock market such as Equity which has already been explained, Future's, Retail Debt, Wholesale Debt, Currency Future's, Derivatives, Bonds etc. Trading can only be performed by a registered broker of the respective stock one wants to deal in or through a broker.

IMPACT ON ECONOMY:
The stock market has both positive and negative effects on the Indian Economy. Some of which are listed below 1.Provides a source of funding for organizations. 2.An investment avenue. 3.A source of income for investors 4.A source of revenue for the government in the form of taxes 5.A source of employment opportunities 6.Meeting place for investors and organizations 7.Idle funds of common investors can be used for profitable purposes

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PRESENT SCENARIO:
The current condition of Indian markets have drastically improved. There is absolute transparency and instant transactions. All Indian Stock markets are now computerized and Internet Trading has become a common phenomenon. Indian stock markets have also developed a dynamic nature and can change from a bullish temperament to a bearish slide. Any small bit of information or even a rumor from any part of the country can affect the market and is a fairly accurate indicator of the prevalent atmosphere in the region or country. People from across the country and globe get in touch with minute wise readings on the stock market and gain a lot of trading aptitude after daily seeing BSE Stock Gainers or BSE top losers list which does a world of good to their investment portfolio. The Indian Stock Markets can be a very rewarding avenue of investment but the constant changes and the inherent dynamic nature of the markets can wipe out your funds or savings within a minute. Thus, the key words for every retail investor is to be constantly alert and very observant. Don't always rely on the daily list of BSE top gainers or BSE top losers as it only takes a minute to get the things changed here. Keeping ones eyes and ears open can the insure the investor against any major losses. Following such rules and with some experience and practice, one can emerge victorious and can churn out a fortune for himself as well. Hence, it is a way to turn your savings into a fortune.

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TRADING
Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. Their orders usually end up with a professional at a stock exchange, who executes the order. Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This type of auction is used in stock exchanges and commodity exchanges where traders may enter "verbal" bids and offers simultaneously. The other type of stock exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders. Actual trades are based on an auction market model where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. (Buying or selling at market means you will accept any ask price or bid price for the stock, respectively.) When the bid and ask prices match, a sale takes place, on a first-come-first-served basis if there are multiple bidders or askers at a given price. The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery. The New York Stock Exchange is a physical exchange, also referred to as a listed exchange only stocks listed with the exchange may be traded. Orders enter by way of exchange members and flow down to a floor broker, who goes to the floor trading post specialist for that stock to trade the order. The specialist's job is to match buy and sell orders using open outcry. If a spread exists, no trade immediately takes place--in this case the specialist should use his/her own resources (money or stock) to close the difference after his/her judged time. Once a trade has been made the details are reported on the "tape" and sent back to the brokerage firm, which then notifies the investor who placed the order. Although there is a significant amount of human contact in this process, computers play an important role, especially for so-called "program trading". The NASDAQ is a virtual listed exchange, where all of the trading is done over a computer network. The process is similar to the New York Stock Exchange. However, buyers and sellers are electronically matched. One or more NASDAQ market makers will always provide a bid and ask price at which they will always purchase or sell 'their' stock. The Paris Bourse, now part of Euronext, is an order-driven, electronic stock exchange. It was automated in the late 1980s. Prior to the 1980s, it consisted of an open outcry exchange. Stockbrokers met on the trading floor or the Palais Brongniart. In 1986, the CATS trading system was introduced, and the order matching process was fully automated.

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PROCEDURE OF BUYING AND SELLING OF SHARES:

There are following three steps of buying and selling of shares in the stock exchange: 1. 2. 3. 1. Inquiry about the prices. Preparation of contract note. Settlement of transaction. Inquiry about the prices

Stock exchange is the market where shares, debentures or securities are brought for dealing. This place appears in no way to be different from the Bazar. The person who wants to buy or sell at the stock exchange must approach to a broker who is one of members of the exchange. When a broker receives an order from a client, be enters the Hall. It should be noted that non-member is not allowed to go to the Hall of the exchange and transact business on his own behalf. He then approaches one or more Jobbers dealing in particular shares. He enquires him about the prices without letting him know whether he is to buy or sell. The jobbers state two prices the higher one (OFFER PRICE) at which he can dispose of his shares, the lower one (BID PRICE) at which he can purchase. The difference between two prices is called jobber's term. 2. Contract note

The broker then prepares contract note on the prescribed form and signs it himself. This note is also known as bought note or sold note. Contents of the contract note: The contract note includes the following information: (i) (ii) (iii) (iv) (v) The name and address of the jobber. The prices and particulars of shares or stock. The name and address of client. The date of settlement. The amount of brokerage.

Generally three copies of contract note are prepared. One copy is sent to the client, second is forwarded to the selling dealer and third he retains himself for record. On the following day, both the parties compare their contract notes. If, on comparison, the contract notes are found to be corrected, each checking clerk will sign to it. The specimen signature of the checking clerks are noted on the cards which they must carry with them when they enter the contract hall All errors in the contract notes are naturally settled by both the parties and thus client does not suffer. 3. Settlement of transaction

There are two following basis of dealing in every stock exchange:

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(a) (b) (a)

Cash Basis; Account Basis; Cash basis

This is also known as Ready Delivery basis. Under this method, the parties intend to take delivery of the securities and pay for them. Contracts are to be settled either on the same day or within a short period of time. Usually, period, allowed for its settlement is three days or five days but not more than seven days. In such cases each day is called a settlement day. (b) Accounts basis

On this basis, contracts are settled on fixed settlement days occurring at fortnight intervals. Such contracts can be settled in the next settlement period if both parties agree between themselves. In other words, there can be a postponement of the date of settlement of such contracts. In some stock exchanges settlements are made through the stock exchange clearing house.

25

SETTLEMENT AND CLEARING

Any purchase of shares through a stock exchange needs to be routed through brokers registered with the exchange. Hence, for buying and selling shares on a regular basis, you need to register with a broker. This can be done by approaching a broker and signing up a client agreement form. It is also essential for a person to open a demat account through which securities are delivered and received. This demat account can be opened with a depository participant which again is a Sebi-registered intermediary. A broker asks his client to deposit money with them and then buys shares for you. The shares you buy from the broker will be transferred to your demat account after which you own the shares. Similarly, when a person sells shares, he has to transfer shares to the broker's account through his demat account.

SETTLEMENT CYCLE:
Whatever shares you buy, you need to get delivery of those shares. While if you sell shares, you need to get payment or cash for the same. The time taken to conclude both legs of the transaction is called a settlement cycle. In India, stock exchanges follow a T+2 days settlement cycle. Trading of securities happen on the first day while the settlement of the same happens in two working days after that. This means that a security bought on Monday will be received by the client earliest on Wednesday, which is called a payout day by the exchange. If a person has bought security, he is supposed to pay money to the broker before paying on deadline, which is two days after the trading day, but the second day is considered till 10:30 a.m.

HOW DOES A BROKER IDENTIFY WHICH SHARES ARE TO BE TRANSFERRED TO HIS CLIENT?
Brokers identify their clients by a unique code assigned to a client. After the transaction is done by a client, the broker issues him a contract note which provides details of transaction such as time and date of the trade. Apart from the purchase price of security, a client is also supposed to pay brokerage, stamp duty and securities transaction tax. In case of a sale transaction, these costs are reduced from the sale proceeds and then the remaining amount is paid to the client. Settlement of securities is done by the clearing corporation of the exchange. Settlement of funds is done by a panel of banks registered with the exchange. Clearing corporation identifies payable/receivable position of brokers based on which the obligation report for brokers is created. On T+2 days, all the brokers who have transacted two days before receive or give shares to the clearing corporation of exchange. This is an automated process undertaken by the depository which is either the NSDL and CDSL.

26

IS

TRADE

GUARANTEED

BY

THE

EXCHANGE?

If you deal through a stock exchange, this risk is reduced due to trade/settlement guarantee offered by the stock exchange mechanism. Further, you also have certain protections against defaults by your broker.

HOW MANY TIMES CAN ONE BUY AND SELL WITHIN A SETTLEMENT CYCLE?
It's possible to buy and sell the same stock several times within a day, unless the stock is in the trade-to-trade category. Hence, you can settle only your net outstanding positions at the end of the day. If you buy 200 Reliance shares and sell 100 shares, you will have to pay only for 100 shares at the end of the settlement. Clearing Agencies ensure trading members meet their fund/security obligations. It acts as a legal counter party to all trades and guarantees settlement for all members. The original trade between the two parties is cancelled and clearing corporation acts as counter party to both the parties, thus manages risk and guarantees settlement to both the parties. This process is called novation. It determines fund/security obligations and arranges for pay-in of the same. It collects and maintains margins, processes for shortages in funds and securities. It takes help of clearing members, clearing banks, custodians and depositories to settle the trades. The settlement cycle in India is T+2 days i.e. Trade + 2 days. T+2 means the transactions done on the Trade day, will be settled by exchange of money and securities on the second business day (excluding Saturday, Sundays, Bank and Exchange Trading Holidays). Pay-in and Pay-out for securities settlement is done on a T+2 basis. The following is the summary of trading and settlement process in India. Investors place orders from their trading terminals. Broker houses validate the orders and routes them to the exchange (BSE or NSE depending on the clients choice) Order matching at the exchange. Trade confirmation to the investors through the brokers. Trade details are sent to Clearing Corporation from the Exchange. Clearing Corporation notifies the trade details to clearing Members/Custodians who confirm back. Based on the confirmation, Clearing Corporation determines obligations. Download of obligation and pay-in advice of funds/securities by Clearing Corporation. Clearing Corporation gives instructions to clearing banks to make funds available by pay-in time. Clearing Corporation gives instructions to depositories to make securities available by payin-time.
27

Pay-in of securities: Clearing Corporation advises depository to debit pool account of custodians/Clearing members and credit its (Clearing Corporations) account and depository does the same. Pay-in of funds: Clearing Corporation advises Clearing Banks to debit account of Custodians/Clearing members and credit its account and clearing bank does the same. Payout of securities: Clearing Corporation advises depository to credit pool accounts of custodians/Clearing members and debit its account and depository does the same. Payout of funds: Clearing Corporation advises Clearing Banks to credit account of custodians/ Clearing members and debit its account and clearing bank does the same. Note: Clearing members for buy order and sell order are different and Clearing Corporation acts as a link here. Depository informs custodians/Clearing members through Depository Participants about pay-in and pay-out of securities. Clearing Banks inform custodians/Clearing members about pay-in and pay-out of funds. In case of buy order by normal investors Clearing members instruct his DP to credit the clients account and debit its account. The money will be debited (Total settled amount margins paid at the time of trade) from the clients account. In case of sell order by normal investors Clearing members instruct his DP to debit the clients account and credit its account. The money will be credited to the clients account.

AUCTION(CLOSING OUT OF CONTRACTS):

A list of members who have not delivered or short delivered scrips as per their delivery Statement is obtained by the Exchange Authorities. Accordingly a debit advice is sent to the Clearing Bank requesting to debit the Settlement Accounts of the members who have failed to deliver shares to the Exchange and details of shares are sent to the system for Auction of the same. The Exchange fixes a date and time for Auction and all members except the defaulting members can participate in the Auction Session and can offer the scrips under auction with their offering price. The best offer (lowest bid) is accepted. At present Auction is held every day due to rolling settlement. Three rates are relevant :

Auction Rate : This is the weighted average rate of all the selected offers based on the lowest price. Only the selected quantity from the offers is considered for this purpose. This has relation to defaulter debit note. Cut-off Rate : This is the maximum rate and minimum rate at which an offer is accepted. This rate will be closing rate of the scrip on the Auction Day plus a cut-off percentage as decided by the Exchange. At present this percentage is 20%. Closeout Rate : This rate is used to compute the amount to be given to the Buyer in case there is no offer or partial offer in the Auction. This rate is the highest rate on the trade date plus 20% OR the highest rate from the trade date to the auction date, whichever is higher.

28

After the Auction Session the System accepts the lowest offers and if there are no offers for the scrip the same will be closed out at close-out rate. Accordingly the members have to download their Auction Reports and deliver the shares to the Exchange 2 working days after the auction. The Exchange then delivers the same to the Members who are to receive the shares. The process for the securities pay in and pay out for Auction is the same as that of the settlement process. Thereafter the exchange advises the Clearing Bank to debit the accounts of defaulters with the difference of Auction rate and Original Delivery rate and credit the accounts of Auction Sellers. In case of default in Odd Lot trades, no auction takes place for any short or non delivery of shares. Instead, the shares are directly closed out against the defaulting member.

29

FACTORS AFFECTING CAPITAL MARKET

The capital market is affected by a range of factors . Some of the factors which influence capital market are as follows:-

A) PERFORMANCE OF DOMESTIC COMPANIES:

The performance of the companies or rather corporate earnings is one of the factors which has direct impact or effect on capital market in a country. Weak corporate earnings indicate that the demand for goods and services in the economy is less due to slow growth in per capita income of people . Because of slow growth in demand there is slow growth in employment which means slow growth in demand in the near future. Thus weak corporate earnings indicate average or not so good prospects for the economy as a whole in the near term. In such a scenario the investors ( both domestic as well as foreign ) would be wary to invest in the capital market and thus there is bear market like situation. The opposite case of it would be robust corporate earnings and its positive impact on the capital market. The corporate earnings for the April June quarter for the current fiscal has been good. The companies like TCS, Infosys,Maruti Suzuki, Bharti Airtel, ACC, ITC, Wipro,HDFC,Binani cement, IDEA, Marico Canara Bank, Piramal Health, India cements , Ultra Tech, L&T, CocaCola, Yes Bank, Dr. Reddys Laboratories, Oriental Bank of Commerce, Ranbaxy, Fortis, Shree Cement ,etc have registered growth in net profit compared to the corresponding quarter a year ago. Thus we see companies from Infrastructure sector, Financial Services, Pharmaceutical sector, IT Sector, Automobile sector, etc. doing well . This across the sector growth indicates that the Indian economy is on the path of recovery which has been positively reflected in the stock market( rise in sensex & nifty) in the last two weeks. (July 13-July 24).

B) ENVIRONMENTAL FACTORS:
Environmental Factor in Indias context primarily means- Monsoon . In India around 60 % of agricultural production is dependent on monsoon. Thus there is heavy dependence on monsoon. The major chunk of agricultural production comes from the states of Punjab , Haryana & Uttar Pradesh. Thus deficient or delayed monsoon in this part of the country would directly affect the agricultural output in the country. Apart from monsoon other natural calamities like Floods, tsunami, drought, earthquake, etc. also have an impact on the capital market of a country. The Indian Met Department (IMD) on 24th June stated that India would receive only 93 % rainfall of Long Period Average (LPA). This piece of news directly had an impact on Indian capital market with BSE Sensex falling by 0.5 % on the 25th June . The major losers were automakers and consumer goods firms since the below normal monsoon forecast triggered concerns that demand in the crucial rural heartland would take a hit. This is because a deficient monsoon could seriously squeeze rural incomes, reduce the demand for everything from motorbikes to soaps and worsen a slowing economy.
30

C) MACRO ECONOMIC NUMBERS:

The macro economic numbers also influence the capital market. It includes Index of Industrial Production (IIP) which is released every month, annual Inflation number indicated by Wholesale Price Index (WPI) which is released every week, Export Import numbers which are declared every month, Core Industries growth rate ( It includes Six Core infrastructure industries Coal, Crude oil, refining, power, cement and finished steel) which comes out every month, etc. This macro economic indicators indicate the state of the economy and the direction in which the economy is headed and therefore impacts the capital market in India. A case in the point was declaration of core industries growth figure. The six Core Infrastructure Industries Coal, Crude oil, refining, finished steel, power & cement grew 6.5% in June , the figure came on the 23 rd of July and had a positive impact on the capital market with the Sensex and nifty rising by 388 points & 125 points respectively.

D) GLOBAL CUES:
In this world of globalization various economies are interdependent and interconnected. An event in one part of the world is bound to affect other parts of the world , however the magnitude and intensity of impact would vary. Thus capital market in India is also affected by developments in other parts of the world i.e. U.S. , Europe, Japan , etc. Global cues includes corporate earnings of MNCs, consumer confidence index in developed countries, jobless claims in developed countries, global growth outlook given by various agencies like IMF, economic growth of major economies, price of crude oil, credit rating of various economies given by Moodys, S & P, etc. An obvious example at this point in time would be that of subprime crisis & recession. Recession started in U.S. and some parts of the Europe in early 2008 .Since then it has impacted all the countries of the world- developed, developing, less- developed and even emerging economies.

E) POLITICAL STABILITY AND GOVERNMENT POLICIES:

For any economy to achieve and sustain growth it has to have political stability and pro- growth government policies. This is because when there is political stability there is stability and consistency in governments attitude which is communicated through various government policies. The vice- versa is the case when there is no political stability .So capital market also reacts to the nature of government, attitude of government, and various policies of the government. The above statement can be substantiated by the fact the when the mandate came in UPA governments favor ( Without the baggage of left party) on May 16 2009, the stock markets on Monday , 18th May had a bullish rally with Sensex closing 800 point higher over the previous days close. The reason was political stability. Also without the baggage of left party government can go ahead with reforms.
31

F) GROWTH PROSPECTUS OF AN ECONOMY:

When the national income of the country increases and per capita income of people increases it is said that the economy is growing. Higher income also means higher expenditure and higher savings. This augurs well for the economy as higher expenditure means higher demand and higher savings means higher investment. Thus when an economy is growing at a good pace capital market of the country attracts more money from investors, both from within and outside the country and vice -versa. So we can say that growth prospects of an economy do have an impact on capital markets.

G) INVESTOR SENTIMENT AND RISK APPETITE:

Another factor which influences capital market is investor sentiment and their risk appetite .Even if the investors have the money to invest but if they are not confident about the returns from their investment , they may stay away from investment for some time.At the same time if the investors have low risk appetite , which they were having in global and Indian capital market some four to five months back due to global financial meltdown and recessionary situation in U.S. & some parts of Europe , they may stay away from investment and wait for the right time to come.

PERFORMANCE OF DOMESTIC COMPANIES INVESTOR SENTIMENT AND RISK APPETITE ENVIRONMENTAL FACTORS

CAPITAL
GROWTH PROSPECTUS OF AN ECONOMY

MARKET

MACRO ECONOMIC NUMBERS

POLITICAL STABILITY AND GOVERNMENT POLICIES

GLOBAL CUES 32

RESEARCH METHODOLOGY
OBJECTIVE OF STUDY:
To know the investor views regarding different factors which affect the capital market. To make the investor aware about the factors which may affect their investment. To know the effect fluctuations in capital market on the Indian economy.

RESEARCH:
Research is defined as human activity based on intellectual application in the investigation of matter. This project report is based on primary as well secondary data, however primary data collection was given more importance since it is overhearing factor in attitude studies. Secondary data is used to identify the cause of something that is happening.

DATA SOURCES:
Research is totally based on primary data. Secondary data can be used only for the reference. Research has been done by primary data collection, and primary data has been collected by interacting with various people. The secondary data has been collected through various journals and websites.

SAMPLING PROCEDURE:
The persons selected for the conduct of study are the clients of sub brokers in Ludhiana stock exchange. They were selected through convenience sampling methed It was also collected through personal visits to persons, through formal and informal talks and through filling up the questionnaire prepared. The data has been analyzed by using mathematical/Statistical tool.

SAMPLE SIZE:
The sample size of my project is limited to 100 people only.

DATA INTERPRETATION:
Data has been presented with the help of bar graph, pie charts,etc.

33

LIMITATIONS:
Limitations are the limiting lines that restrict the work in some way or other. In this research study also their were some limiting factors, some of them are as under:

1. Data Collection:
a) The research is confined to a certain part of Ludhiana. Size may not adequately represent the whole market. b) Some of the persons were not so responsive.

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.

34

DATA ANALYSIS AND INTERPRETATION

1. (A) AGE DISTRIBUTION OF THE INVESTORS OF LUDHIANA STOCK EXCHANGE.
AGE GROUP <=30 8 35
30 25 20 15 10 5 0 <=30 31-40 41-50 50-60 >60

31-40 25

41-50 35

50-60 15

ABOVE 60 17

AGE GROUP OF INVESTORS

INTERPRETATION : According to this data, out of 100 investors of LSE the most
are in the age group of 41-50yrs. i.e. 35%, the second most investors are in the age group of 31-40yrs i.e. 25% and the least investors are in the age group of below 30yrs.

(b). EDUCATION QUALIFICATION OF INVESTORS IN LSE.

GRADUATE/POST GRADUATE 71 UNDER GRADUATE 22 OTHERS 6
35

Education Qualification
6% 22% graduate/post graduate 72% under graduate others

INTERPRETATION: Out of 100 investors 72% of the investors in LSE are

Graduate/Post Graduate, 22% are Under Graduate and 6% are others.

c). OCCUPATION OF THE INVESTORS.

GOVT. SERVICE 15 50 40 30 20 10 0 Govt. Pvt. Business Agri others
15% 10% 32% 41%

PVT. SERVICE 32

BUSINESS 41

AGRICULTURE OTHERS 10 2

2%

INTERPRETATION: In Occupation group out of 100 investors, 32% are Pvt.

Employees, 41% are Businessman, 15% are Govt. Employees, 10% are in Agriculture and 2% are in others.

36

2). INVESTORS INVESTED IN DIFFERENT KIND OF INVESTMENTS.

MUTUAL FUNDS 54% GOVT. SECURITIES 62% DERIVATIVES 70% GOLD/SILVER 30% SHARES 95% REAL ESTATE 50% BONDS 25%

INTERPRETATION: From above data it can be inferred that out of 100clients 95%
invest in shares, 70% in derivatives, 62% in govt. securities, 54% in mutual funds, 50%in real estate, 20% in gold/silver, 25% in bonds.

3).PREFERENCE OF FACTORS WHILE INVESTING.

LIQUIDITY 12 LOW RISK 28 HIGH RETURN 52 TRUST 8

8%

12% LIQUIDITY 28% LOW RISK HIGH RETURN TRUST

52%

INTERPRETATION: Maximum investors prefer high return and low risk.

37

4) FACTORS CONSIDER BY INVESTOR BEFORE MAKING INVESTMENT.

FACTORS PERFORMANCE OF DOMESTIC COMPANIES. ENVIRONMENTAL FACTORS MACRO ECONOMIC NUMBERS GLOBAL CUES POLITICAL STABILITY AND GOVT. POLICIES GROWTH PROSPECTUS OF AN ECONOMY

%AGE OF INVESTOR 89% 52% 56% 87% 78% 90%

INTERPRETATION: From above data it is inferred that out of 100clients 90%

investors consider Growth prospectus of economy (GDP), 89% performance of domestic companies, 87% global cues, 78% political stability and govt. polices,52% environmental factors..

5) HOW MUCH PERFORMANCE OF DOMESTIC COMPANIES AFFECT THE CAPITAL MARKET?

LOW 20 AVERAGE 58 HIGHLY 22

22%

20% LOW AVERAGE 58% HIGHLY

38

INTERPRETATION:

From above data it is inferred that out of 100clients think that performance of domestic companies affect the capital market averagely.

6) HOW MUCH ENVIRONMENTAL FACTORS PUT AFFECT ON CAPITAL MARKET?

LOW 11 AVERAGE 57 HIGHLY 32

11% 32% LOW AVERAGE HIGHLY 57%

INTERPRETATION:

From above data it is inferred that out of 100clients think that environmental factors put average affect on capital market.

7) HOW MUCH MACRO ECONOMIC NUMBERS PUT AFFECT ON CAPITAL MARKET?

LOW 3 AVERAGE 26
3% 26% 71% LOW AVERAGE HIGHLY

HIGHLY 71

39

INTERPRETATION:

From above data it is inferred that out of 100clients think that macro economic numbers highly affect the capital market.

8) HOW MUCH GLOBAL CUES AFFECT THE CAPITAL MARKET?

LOW 22 AVERAGE 44 HIGHLY 34

34%

22% LOW AVERAGE 44% HIGHLY

INTERPRETATION:

From above data it is inferred that out of 100clients think that global clues affect the capital market averagely.

9) HOW MUCH GOVT. POLICIES PUT AFFECT ON CAPITAL MARKET?

LOW 6 AVERAGE 26 HIGHLY 68

8% 25% 67% LOW AVERAGE HIGHLY

40

INTERPRETATION:

From above data it is inferred that out of 100clients think that govt. policies highly affect the capital market.

10) HOW MUCH GROWTH PROSPECTUS (GDP) AFFECT THE CAPITAL MARKET?
LOW 22 AVERAGE 23 HIGHLY 55

22% LOW AVERAGE 55% 23% HIGHLY

INTERPRETATION:

From above data it is inferred that out of 100clients think that GDP highly affect the capital market.

11). INVESTOR GET INFORMATION REGARDING THESE FACTORS BEFORE MAKING INVESTMENT.
NEWSPAPER 46% SHARE BROKER 69% NEWS CHANNEL(CNBC) 65% INTERNET 41%

NEWSPAPER

SHARE BROKER

NEWS CHANNEL(CNBC)

INTERNET

INTERPRETATION: Maximum investors get information from share broker i.e.

69%.
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FINDINGS
IMPACT OF GLOBAL RECESSION ON INDIAN CAPITAL MARKET:
The global financial crisis has had a deep impact on Indian stock market: within one year (2008), there occurred a more than 50 percent fall in the SENSEX of Bombay stock exchange, the Bombay stock exchange benchmark index, which touched a high of 21,206 in January 2008, fell down to less than 10,000 during December 2008, shows the clear picture of the down fall off the stock market in India. The impact of recession of global economy was very severe that it lowered the global economic confidence of almost all the nations reeling under the storms of economic recession. India also felt the waves of economic recession. Though, many academicians and economic experts have been advocating the impact of recession on Indian economy as minimal, the situation that prevailed in some sectors like capital inflows and exports, proved otherwise.

CONCLUSION:
The recent recession has affected all countries around the world in an almost synchronous way. Interestingly, not only has it hit countries with bad macroeconomic fundamentals, but also those with AAA rating. The degree to which countries have been affected by the crisis, on the other hand, has differed and, quite surprisingly, countries with a higher income per capita have experienced the most severe output loss.

INFLATION AND CAPITAL MARKET:

Inflation is a state in the economy of a country, where there is a price rise of goods as well as services. To meet the required price rise, individuals have to shell out more than is presumed. With increase in inflation, every sector of the economy is affected. Ranging from unemployment, interest rates, exchange rates, investment, stock markets, there is an aftermath of inflation in every sector. Inflation is bound to impact all sectors, either directly or indirectly. Inflation and stock market have a very close association. If there is inflation, stock markets are the worst affected.

INFLATION AND CAPITAL MARKET- LOGISTIC:

Prices of stocks are determined by the net earnings of a company. It depends on how much profits the company is likely to make in the long run or the near future. If it is reckoned that a company is likely to do well in the years to come, the stock prices of the company will escalate. On the other hand, if it is observed from trends that the company may not do well in the long run,
42

the stock prices will not be high. In other words, the prices of stocks are directly proportional to the performance of the company. In the event when inflation increases, the company earnings( worth ) will also subside. This will adversely affect the stock prices and eventually the returns. Effect of inflation on stock market is also evident from the fact that it increases the rates if interest. If the inflation rate ia high, the interest rate is also high. In the wake of both(inflation and interest rates) being high, the creditor will have a tendency to compensate for the rise in interest rates. Therefore, the debtor has to avail of a loan at a higher rate. This plays a significant role in prohibiting funds from being invested in stock market.

RECENT HIKE IN PETROL PRICES:

Hike in petrol prices leads to increase in share prices of oil companies but decrease in share prices of auto companies like Maruti suziki Due to this petrol price hike oil major like IOC,BPCL,HPCL and other related oil and gas co's Reliance petrol, Essar oil, RNRL stocks went up by around 10%.major contributors(IOC,BPCL,HPCL) will get Rs 500 to 800 crore. so oil sectors having good substantial growth. Fuel price hike will lead to negative sentiment for auto industry for a few weeks. As a net result sales of big cars is bound to get effected. Governments decision to allow the oil marketing companies to raise petrol price by Rs 7.5 per litre or 11.5% has raised anxiety in the market about any effect of the hikes on the expanding fiscal deficit and rising inflation. Considering the rupees slide to its new low in the last few days, the market expects strong reforms by the government to tame the deteriorating economic indicators. In the equity market, the shares of the oil & gas companies soared after the government allowed them to raise the prices of petrol. In todays trading session, ONGC jumped 5.6%, Bharat Petroleum Corporation Limited (BPCL) gained 3%, Hindustan Petroleum Corporation Limited (HPCL) surged 2.3%, while Indian Oil Corp advanced 2.7%. The steep rise in the petrol prices will help the oil marketing companies to mitigate the losses by around Rs. 11,000 crores. The companies would benefit from the hikes as their profitability was affected by rising crude prices together with depreciating rupee. On the other hand, the impact on auto stocks was mixed as the proportion of petrol and diesel vehicle sales vary among different manufacturers. Maruti Suzuki shares fell 2.6% as the auto maker derives its revenues primarily from petrol vehicles. Same happened with two wheeler maker Hero MotoCorp which lost 1.4%. On the other hand, shares of Tata Motors and Mahindra & Mahindra surged 2.04% and 1.12% respectively as they focus on diesel vehicles.

43

EFFECT OF FLUCTUATION ON INDIAN STOCK MARKET:

Nothing actually. The economy is as sound as it was in the boom time. The companies are as profitable as they were a few days ago. Yet, the market crashed because the Government tried to instill some sort of regulation in it. Let me explain it a bit : As I wrote above that a major portion of the money being invested into the share market is coming from FIIs (Foreign Institutional Investors). The cause of concern for the Government was that in this major share of FIIs, more than half was in the form of hot money being invested into the market by anonymous investors who pump money into the market by utilizing the Participatory Note (PN) facility. All those foreign investors who are not registered with the SEBI (Stock Exchange Board of India), the regulatory body for stocks in India, can not directly deal in buying/selling of sticks. So they took a sort of permission from registered FIIs by buying Participatory Notes (PN) from them in exchange of dollars, which ultimately allows them trade in the market. Though, this concept of allowing anonymous investors in the market broaden the reach of the market, it also ensure free entry of dollars into Indian economy as well as increase the percentage of hot money in the market. The hot money is that kind of money which is invested only for a short time to make some quick buck. It is not invested with a long term mindset. Since the 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 some way to curb this inflow of dollars. Making the availability of Participatory Notes some difficult for foreign investors was one step Government thought would help control the inflow of dollars. So a few days ago the SEBI contemplated on a draft policy to make the issuing of PN difficult for FIIs. This was the step which gave a jolt to the buying spree of FIIs. As people found that it would be difficult to trade in the market in future owing to non-availability of PN, they started exiting form 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 some time. Ultimately the Government had to rush in to alleviate the growing concern of Investors by stating that it would not control the issuing of PN to investors. This news will from the Business standard 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 all probability, it will continue its upward swing despite such momentary crash. The main reason of my belief is that the Indian economy as a whole is performing very well . Same is the case 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 market boom continues for lone in India:

44

SOME POSITIVE POINT:

First 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 Reliance group was earning Rs 40 Lakhs ($ 100000) per minute. Yes you read it write. $100000 per minute ! Though it has much to do with his huge and expanding empire of Reliance industries, it is 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 really rich. The word crorepati (multimillionaire) can soon become a common thing in India all thanks to share market. However, there is a word of caution here. As this boom is being driven by FIIs (Foreign Institutional Investors), we must not forget that these people are here only till they find a new market more profitable than India. Once they find a place which offer better return on their investment than India, they will immediately shift there. Though, there is only a remote possibility of that as of now, you never know what can happen in future. Thats why most expert are advising people to stick to their long-term investment plan and dont make any move in haste. Owing to stock market boom, there is another very interesting situation being faced by Reserve Bank of India(RBI) (the leading central bank which decides various economic policies here just like the Federal Reserve Bank of US.) The investment being made by FIIs in Indian share market has resulted in to a huge inflow of dollars into the economy. The RBI is facing difficultly in managing this continuous inflow of dollars as their huge supply and easy availability has resulted into dollar depreciation than Rupee. The Rupee is becoming stronger to dollar thus making imports cheaper and export costlier. Some of our major export oriented industries such as Softwares and textiles are feeling the heat every day. The profits margin of these industries have reduced as it mostly depend on current value of dollar. There is a pressure on Government to mange the appreciation of rupee to favour exporters. Ironically, this can only be done if Government put some break on the inflow of dollars by FIIs which will actually mean putting a break on stock market boom. (it actually happened some days ago as I described above) Government certainly dont want to spoil the party that is going on in the stock market. However, the continued depreciation of dollar is also a cause of deep concern which needs to be addressed. The last but not the least is the overvaluation of many stocks in the market. Some experts have opined that market is trading at 22 to 23 times of actual earning and no one can justify these valuations. In nutshell if I am to summarize this boom of stock market, I must say that this boom is not going to last forever as it is dependent on some very volatile factors that may change in the times to come. As I explained in my earlier, a increase in interest rate in US may reverse this flow of FIIs. Or we may see emergence of a new market with great potential on some other place on earth. All these things, if happen, can put a break on this boom.

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RECESSION
A recession is a decline in a country's gross domestic product (GDP) growth for two or more consecutive quarters of a year. A recession is also preceded by several quarters of slowing down.

CAUSES OF RECESSION:
An economy which grows over a period of time tends to slow down the growth as a part of the normal economic cycle. An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years. A recession normally takes place when consumers lose confidence in the growth of the economy and spend less. This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment. Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment.

STOCK MARKET AND RECESSION:

The economy and the stock market are closely related. The stock markets reflect the buoyancy of the economy. In the US, a recession is yet to be declared by the Bureau of Economic Analysis, but investors are a worried lot. The Indian stock markets also crashed due to a slowdown in the US economy. The Sensex crashed by nearly 13 per cent in just two trading sessions in January. The markets bounced back after the US Fed cut interest rates. However, stock prices are now at a low ebb in India with little cheer coming to investors. When the global economy has been cooling down, and the financial sector in particular has been heading from one cold shower to the next, it was inevitable that stock markets around the world would start catching the chill. The way in which Asian stock prices responded last week to the fall of the Dow Jones and Nasdaq indices by 4 per cent, hitting a 10-month low, has also punctured a hole in the decoupling argument (which said Asia would not be hit by an America-based problem) that had become fashionable in recent weeks. Investors around the world have taken note of the fact that the broad-based S&P 500 index is at a 16-month low, along with European stocks. And investors seem to have little faith in the Bush rescue plan's ability to ward off a recession in the US. The Fed will almost certainly respond with sharp cuts in interest rates towards the end of the month, but the market has already discounted for that.

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CONCLUSION
THROUGH THIS RESEARCH I CONCLUDE THAT:
Capital market fluctuates by the external environment and GDP. Capital market is all about future prediction. Capital market is very sensitive market. It is based on high risk and high return. Comparatively Capital market is less risky than the other market and generates more money for the economy. One who have good knowledge in capital market, may survive in the market and generates profits or good return whether the market is down. Investors should not invest on the basis of rumors they must observe the market condition or trends Indian economy and than invest If they want to generate good return.

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BIBLIOGRAPHY
Journals and magazines
JARN, Published Feb 2012

Business today Business standard

Websites:
www.tdd.ltslnewsStock_ExchangesStock.htm www. lse.co.in www.bseindia.com http://en.wikipedia.org www.economictimes.indiatimes.com http://nilum.hubpages.com/hub/Process-of-Buying-Selling-Shares

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QUESTIONNAIRE
THE INVESTOR VIEWS REGARDING FACTORS AFFECTING CAPITAL MARKET. 1) PERSONAL DETAILS: a) NAME: b) ADDRESS: c) PHONE NO: d) AGE: e) QUALIFICATION. PLEASE TICK() GRADUATE/POST UNDER GRADUATE GRADUATE f) OCCUPATION. PLEASE TICK() GOVT. PVT. BUSINESS SERVICE SERVICE

OTHERS

AGRICULTURE OTHERS

2) HAVE YOU MADE ANY INVESTMENT? PLEASE TICK() .YES / NO 3) WHAT KIND OF INVESTMENTS YOU HAVE MADE SO FOR? PLEASE TICK() MUTUAL FUNDS DERIVATIVES SHARES BONDS GOVT. GOLD/SILVER REAL ESTATE SECURITIES 4) WHILE INVESTING YOUR MONEY, WHICH FACTOR WILL YOU PREFER? PLEASE TICK() LIQUIDITY LOW RISK HIGH RETURN TRUST 5) ARE YOU AWAR ABOUT FACTORS WHICH AFFECT CAPITAL MARKET? PLEASE TICK(). YES / NO 6) BEFORE MAKING INVESTMENT, WHETHER YOU CHECK THE FACTORS? PLEASE TICK(). YES / NO 7) IF YES, WHICH FACTOR YOU CONSIDER BEFORE MAKING INVESTMENT? (YOU CAN TICK() MORE THAN ONE OPTION) a) PERFORMANCE OF DOMASTIC COMPANIES. b) ENVIRONMENTAL FACTORS
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c) d) e) f)

MACRO ECONOMIC NUMBERS GLOBAL CUES POLITICAL STABILITY AND GOVT. POLICIES GROWTH PROSPECTUS OF AN ECONOMY

8) HOW MUCH PERFORMANCE OF DOMESTIC COMPANIES AFFECT THE CAPITAL MARKET? LOW AVERAGE HIGHLY 9) HOW MUCH ENVIRONMENTAL FACTORS PUT AFFECT ON CAPITAL MARKET? LOW AVERAGE HIGHLY 10) HOW MUCH MACRO ECONOMIC NUMBERS PUT AFFECT ON CAPITAL MARKET? LOW AVERAGE HIGHLY 11) HOW MUCH GLOBAL CUES AFFECT THE CAPITAL MARKET? LOW AVERAGE HIGHLY 12) HOW MUCH GOVT. POLICIES PUT AFFECT ON CAPITAL MARKET? LOW AVERAGE HIGHLY 13) HOW MUCH GROWTH PROSPECTUS AFFECT THE CAPITAL MARKET? LOW AVERAGE HIGHLY 14) FROM WHERE YOU GET INFORMATION REGARDING THESE FACTORS BEFORE MAKING INVESTMENT? PLEASE TICK() NEWSPAPER STOCK BROKER NEWS INTERNET CHANNEL(CNBC)

ANY SUGGESTIONS ........................................................................................................

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