CHAPTER TWO

INVESTMENTS IN SECURITIES MARKET- AN OVERVIEW

‘‘Investing is most intelligent when it is most businesslike.’’

- Benjamin Graham

2.1 INTRODUCTION

Investors buy and sell equities of massive amount of money in securities

market daily. The Indian economy is one of the attractive destinations for
business and investment opportunities due to huge manpower base, diversified
natural resources and strong macro-economic fundamentals. The global
economy is on a recovery path after the shocks of the severe financial and
economic crises of 2008 and 2009 and after the formation of stable government
in the year 2014. The Indian financial sector was able to withstand the global
shocks during this period and emerged stronger. The foreign capital inflows have
resumed and the securities markets have regained the dynamism

Recent financial developments critically claim that the financial markets

are becoming more volatile and unstable. The volatility and instability in the
stock markets increases the risk associated with investment. Stock market
fluctuation has always remained the area of concern of professionals,
academicians, and investors. Investors use all available information to make
rational investment decision. In reality, the investors do not behave rationally.
The perception of investors about the return and risk are linked with the
investment. Recent studies also support that investors deviate from rationality
and show repeated patterns of irrational behaviour and variation due to greed,
fear, emotions, speculation, and subjective thinking while making investment
decisions1.

1
Meditinos, D, I., Sevic, Z., & Theriou, N, G. (2007). Investors’ behaviour in the Athens Stock
Exchange. Studies in Economics and Finance, 24 (2): 32-50.

53
 The present chapter discusses the cumulative returns on investments,
Securities market and its regulatory reforms. This chapter vividly narrates a
theoretical perspective on investors in financial market and also evaluates the
performance of Indian Securities Market.

2.2 SECURITIES MARKET

Securities Market plays a dominant role in mobilizing the people’s

savings. Securities markets provide channels for reallocation of savings to
investments and entrepreneurship. The individual investors numbering millions
contribute the backbone of Indian Securities market. Shares provide exciting
opportunities for making big money. This is the reason why securities market
has become immensely popular with the investing public as a form of
investments.

The Securities market is a medium through which small and scattered

saving of investors are directed into productive activities of corporate enterprises.
Securities market instruments are diversified with shares, debentures and material
funds which are offered to investors. They can select the suitable mode
according to their desired level of risk, return and liquidity. There are several
parameters that an investor will think before investing like return, flexibility and
so on.

Investment in securities market can be made through primary or

secondary market. In the primary market corporate entities offer new
securities directly to the investors and mobilize the funds needed for their
continuous liquidity to the securities by trading them. But the secondary
market provides continuous liquidity to the securities by trading them in the
stock exchanges. The investors can buy or sell the existing securities at the
prevailing market prices in the stock exchange through stock brokers.

54
2.2.1 Role of Securities Market in the Economy

Securities market investment instruments are tradable and negotiable

and these would include equity shares, preference shares, convertible
debentures, non convertible debentures, public sector bonds, savings
certificates, gift-edged securities and money market securities. Securities
Market is a place where the buyers and sellers of securities can enter into
transactions to purchase and sell shares, bonds, debentures etc. It enables the
corporate and entrepreneurs to raise resources for their companies through
public issues. The securities market emerges out of the two characteristics of
financial instruments: (a) mobilizing primary savings from the public to serve
as sources of funds for the issuing authority and (b) providing liquidity to these
instruments through regular quotations in the financial markets and thus traded
and pave the path for wealth creation. A security is any financial instrument
that has an underlying value including equity, bonds, options, futures, credit
default swaps, derivatives, mortgage backed, etc. Hence a security market
consists of a marketplace where various instruments are traded. Stock
Exchanges or Securities market have multiple roles in the economy. This may
include the following:

Raising Capital for Business -The Stock Exchange provides companies with
the facility to raise capital for expansion through selling shares to the
investing public.

Mobilizing savings for investment - When people draw their savings and
invest in shares, it leads to a more rational allocation of resources because
funds which could have been consumed or kept in idle deposits with banks
are mobilized and redirected to promote business activity with benefits for
several economic sectors such as agriculture, commerce and industry,
resulting in stronger economic growth and higher productivity levels and
firms.

55

Facilitating Company Growth -Companies view acquisition as an
opportunity to expand product lines, increase distribution channels hedge
against volatility increase its market share or acquire other necessary
business assets. A take over bid or a merger agreement through the stock
market is one of the simplest and most common ways for a company to grow
by acquisition or fusion.

Redistribution of wealth - Stock Exchanges do not exist to redistribute

wealth. However, both casual and professional stock investors, through
dividends and stock price increases that may result in capital gains, will
share in the wealth of profitable business.

Corporate Governance - By having a wide and varied scope of owners,

companies generally tend to improve on their management standards and
efficiency in order to satisfy the demands of these share holders and the more
stringent rule for public corporation imposed by public exchange and the
government cooperators.

Creating investment opportunities for small investors - As opposed to other

business that requires huge capital outlay, investing in shares is open to both
the large and small stock investors because a person buys the number of
shares they can afford. Therefore the stock exchange provides the
opportunity for small investors to own shares of the same companies as large
investors.

2.2.2 Market Segments

The Securities market has two interdependent and inseparable segments,

namely, the new issues (primary) market and the stock (secondary) market. The
primary market provides the channel for the creation and sale of new securities,
while the secondary market deals in the securities that are issued previously. 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 a public issue or through a private placement route. If anybody

56
can subscribe for the issue, it is a public issue, if the issue is made available only
to a select group of people, it is known as private placement. There are two
major types of issuers of securities—corporate entities, who issue mainly debt
and equity instruments, and the government (central as well as state), which
issues debt securities (dated securities and treasury bills).

The secondary market enables participants who hold securities to adjust

their holdings in response to changes in their assessment of risks and returns.
Once 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.
The OTC markets are informal markets where trades are negotiated. Most of the
trades in government securities take place in the OTC market. All the spot
trades, where securities are traded for immediate delivery and payment, occur in
the 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 by a clearing corporation. The clearing corporation acts as a
counterparty and guarantees settlement. 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 the Futures and Options market. Presently,
only two exchanges in India—the National Stock Exchange of India Ltd. (NSE)
and the Bombay Stock Exchange (BSE)—provide trading in Futures and
Options2.

NSE and BSE have widened the investment horizon, enabling traders for
easy access to Stock market by providing options such as Dial and Trade, Online
Trading Software and Broker house. Moreover with the introduction of
Commodity trading, Gold ETF's that is investment on gold are various products
available for the investors.

2
www.nseindia.com

57
 The Bombay Stock Exchange (BSE) and National Stock Exchange (NSE)
are the leading stock exchanges in India. While BSE has the distinction of being
the oldest stock exchange in Asia, NSE is the largest in the country.3

TABLE 2.1
Comparison of BSE and NSE
Particulars BSE NSE
Established in 1875 1992
Main Index BSE Sensex S&P CNX Nifty
Location Mumbai, India Mumbai, India
Website www.bseindia.com www.nseindia.com
Largest stock exchange in
Oldest stock exchange in India in terms of daily
Claim to fame
Asia. turnover and number of
trades
Geographical spread 417 cities 1,486 cities
Number of members
951 1427
(March 2015)
Number of listed
companies (March 5,749 1733
2015)
Ranking with
reference to Market
5th largest in the world 12th largest in the world
capitalization(March
2015)
Reliance,TCS,TATA
Top trading TCS, TATA Motors,
Motors, Infosys, Sun
companies in ONGC, Infosys, Coal
Pharma, HUL, ONGC, SBI,
volumes in main India, HDFC bank,
ICICI Bank, Bharathi
index (March 2015) Dr.Reddy’s, SBI.WIPRO.
Airtel.
Index value as on
26002 7909
31st December 2015
Source: Compiled from BSE and NSE websites

Stock market has taken a new turn reaching the nook and corner of India.
The individual investors are the major driving force that can broad base the
ownership of a securities market in developing countries.

3
http://www.diffen.com/difference/

58
2.2.3 Regulation of Securities Market

The securities are traded through stock exchanges. Securities market is

regulated by Securities and Exchange Board of India (SEBI). There are 24 stock
exchanges in India. Among them two are national level stock exchanges namely
Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Most of
the trading in the Indian stock market takes place on its two stock exchanges
namely BSE and NSE. The other Regional Stock Exchanges (RSE) are
Ahmedabad, Bangalore, Bhuvaneswar, Calcutta, Cochin, Coimbatore, Delhi,
Guwahati, Hyderabad, Jaipur, Ludhiana, Madras, Magalore, Meerut, Pune,
Saurashtra Kutch, Uttarpradesh, Madhya Pradesh, OTC Exchange of India and
Vadodara.

2.2.3.1 Bombay Stock Exchange

Bombay Stock Exchange (BSE) is India’s Oldest Stock Exchange with

listing of over 6000 scripts with it. SENSEX is major index of BSE. It is located
at Dalal Street, Mumbai. The Bombay Stock Exchange was established in 1875
and became the first stock exchange in the country to be recognized by the
government. In 1956, BSE obtained a permanent recognition from the
Government of India under the Securities Contracts (Regulation) Act 1956. BSE
of India has emerged as one of the largest stock exchanges in the world in terms
of the number of listed companies, comprising many large, medium size and
small firms and in the year 2015 there are 5749 listed companies.

2.2.3.2 National Stock Exchange

National Stock Exchange (NSE) was incorporated in November 1992 as a

tax paying company unlike other stock exchanges in the country. NSE has been
playing the role of a catalytic agent in reforming the market in terms of
microstructure and market practices. It was in April 1993 that NSE was
recogonised as stock exchange under the Securities Contract Act 1956. It has
more than 2000 stocks from different sectors listed with it. It is fully automated
electronic order processing exchange. NSE provides a trading platform for of all

59
types of securities—equity, debt, and derivatives. Following its recognition as a
stock exchange under the Securities Contracts (Regulation) Act, 1956 in April
1993, it commenced operations in the Wholesale Debt Market (WDM) segment
in June 1994, in the Capital Market (CM) segment in November 1994, and in the
Equity Derivatives segment in June 2000. The Exchange started providing
trading in retail debt of government securities in January 2003, and trading in
currency futures in August 2008. NSE started providing trading in currency
option in October 2010. Derivatives on global indices such as S & P 500, Dow
Jones Industrial Average and FTSE 100 have been introduced for trading on the
NSE. The future contracts for trading on Dow Jones Industrial Average (DJIA)
and futures and options contracts on S & P 500 were introduced on August 29,
2011. The futures and options contracts on FTSE 100 were introduced on May 3,
2012. The WDM segment provides the trading platform for the trading. 4S & P
CNX Nifty is owned and managed by India Index Services and Products Ltd
(IISL), which is a joint venture between NSE and CRISIL. The objectives of
NSE are:

i) The establishment of a nationwide trading facility for equities, debt and

hybrids.

ii) Facilitates equal access to investors across the country.

iii) To ensure fairness and transparency of securities trading.

iv) To have shorter settlement cycles and book entry settlement.

v) To meet international securities market standards.

2.2.3.3 Control and Performance Mechanism

An important feature of the financial markets is the depth and breath of

public participation. Securities market provides an organized market place for
the investors to buy and sell securities freely and Indices are the parameters of the
Securities market. They mirror the stock market behaviour and the broad trends

4
“Indian Securities Market –A Review” 2014, ISMR Volume 17 accessed from
www.nseindia.com on 10.4.2015

60
in the markets. The SENSEX, in 1986 was calculated on “Market Capitalization-
Weighted Methodology” of 30 component stock representing large, well-
established and financially sound companies across key sectors.

Securities market is indeed a place to make huge profits, but one cannot
take the ' risk' tag away from it. When the prices of shares are high, the market is
referred to as being on a bull run, and investing becomes a dream for all the
investors and brokers. When the markets are down, the situation becomes vice-
versa and it is referred to as bearish. SENSEX, NIFTY are the parameters of the
Securities market. Millions of Investors are the backbone of Indian Securities
market. The Securities market is the market where shares of different kind and
characteristic are offered and traded. It needs to mention that government,
business, and individuals are the key participants in the investment process, and
each may act as a supplier or investor of funds. Depending upon personal
investment goals and objectives, individuals may place their savings in saving
accounts and place order to buy shares of a listed company or trade in the shares
of companies.

2.2.4 Securities Exchange Board of India (SEBI)

The Securities and Exchange Board of India, which was constituted as an

administrative body in April 1988, was given statutory status on January 30th
1992 by promulgation of SEBI Ordinance. It was later replaced by the Securities
and Exchange Board of India Act, 1992.According to the preamble to the SEBI
Act, the objectives of SEBI are:

i) To protect the interests of investors in Securities.

ii) To promote the development of Securities market.

iii) To regulate the Securities market.

The following powers have been given to SEBI under the Securities
Contracts Regulation Act 1956.

61
i) Power to call for periodical returns from recognized stock exchanges.

ii) Power to call for any information or explanation from recognized stock
exchanges or its members.

iii) Power to direct inquires to be made in relation to affairs of stock

exchanges or its members.

iv) Power to grant approval to byelaws of recogonised exchanges.

v) Power to make or amend byelaws of recogonised exchanges.

vi) Power to invoke Section 17 of the Securities Contracts Act in any state
and to grant licences to dealers in securities.

vii) Power to compel listing of securities by public companies.

viii) Power to control and regulate stock exchanges.

ix) Power to grant registration to market intermediaries.

x) Power to register and regulate working of collective investment schemes

including mutual funds.

xi) Power to promote and regulate self-regulatory bodies.

xii) Power to prohibit insider trading.

xiii) Power to prohibit fraudulent and unfair trade practices relating to

securities.

xiv) Power to promote investor’s education and training of intermediaries in

securities market.

xv) Power to regulate substantial acquisition of shares and takeover of

companies.

xvi) Power to conduct research and other functions.

xvii) Power to grant or withdraw the recognition of the stock exchanges.

xviii) Power to regulate and control the spot delivery contracts.

xix) Power to regulate matters relating to issue of capital, transfer of securities

and connected matters.

62
 xx) Power to make an enquiry in relation to the affairs of the Governing Body
of a stock exchange.

xxi) Power to direct the stock exchanges to submit their annual reports to
SEBI.

2.2.5 Trading Mechanism

The security markets are in the process of ongoing revolution, as

evidenced by the globalization of trading, introduction of variety of instruments
and improved communication abilities. There has been a remarkable expansion
and modernisation of infrastructure to support the rapid growth of the securities
market in India. The market has transited from scream-based trading to screen-
based trading.

In the early nineties, before the introduction of system it was electronic,

screen based, anonymous, order-driven trading system for dealing in securities.
Now the market can be accessed from anywhere in the country through the
Internet. In order to further expand the reach of the market, exchanges have
started enabling trading through mobile telephones. Securities are no longer dealt
in physical form – they are dematerialized and electronically recorded to facilitate
smooth trading and transfer of ownership. All trades on exchanges undergo the
regulated trading, clearing and settlement processes. The clearing house of the
exchange or its subsidiary clearing corporation undertake post-trading activities
like clearing and settlement of trades on exchanges. These clearing houses/
corporations act as the counterparty to trades on exchanges and guarantee finality
of settlement on the strength of the Settlement Guarantee Fund (SGF)/ Trade
Guarantee Fund (TGF). The settlement system has transited from accounting
period trading settlement to rolling settlement in a phased manner beginning on
January 10, 2000 in selected scrip to rolling settlement in all listed scrip with
effect from December 31, 2001. The settlement cycle was reduced from the
initial T+5 to T+2 rolling settlement by April 1, 2003. Apart from the
introduction of book building mechanisms for public issues in the late nineties,
several processes have been streamlined to enhance efficiency and reduce the

63
cost of the issue process in the primary market. One such measure introduced in
recent years is the process of subscription to initial public offering through the
Applications supported by Blocked Amount (ASBA) facility. The investor
grievance redressal mechanism has been overhauled by enabling online access to
the redressal system to encourage retail investors to participate in the market.

2.2.6 Adoption of Technology in Securities Market

The Indian securities markets have been at the forefront in embracing

modern technology and global best practices. The adoption of V-SAT
technology extended the reach of the stock exchanges from their trading halls to
every nook and corner of the country while screen-based trading brought in
transparency and fairness. India has no open outcry system, unlike some
developed countries where this system is still followed. The National Stock
Exchange of India Limited (NSEIL) was the first to use satellite-based
communication technology for establishing connectivity.

2.2.6.1 Dematerialisation

Gone are the days when investors had to maintain a plethora of

documents. With the introduction of dematerialization, which is automation of
share ownership records in a central database, the problems of delays, bad
deliveries and theft/forgery of share certificates vanished. The depositories have
set up a nation-wide network with proper infrastructure to handle the securities
deposited or settled in dematerialised mode in the Indian stock markets.

2.2.6.2 Online and Offline Trading

Traditionally stock trading was done through stock brokers personally or

through telephones. As number of people trading in securities market increased
enormously in last few years, some issues like location constraints, busy phone
lines and miss communication started growing in stock broker offices.
Information technology has helped online stock brokers to solve those problems
by Online Stock Trading method.

64
 Online stock trading is an internet based stock trading facility where
investor can trade shares through a website without any manual intervention from
the broker. It also provides investors with rich, interactive information in real
time including market updates, investment research and robust analysis. The
affect of the Internet on trade has been stronger for poor countries than for rich
countries, and that there is little evidence that the Internet has reduced the impact
of distance on trade. Offline Trading is the trading carried out by the broker on
behalf of the customer. The stock broker places buy or sell order as per the
advice of the client.

The following are the benefits of online trading:

a) Time: Customers can trade online in a real time basis as buying and selling
of shares happen with a press of button.

b) Flexibility: Customers can modify the placed orders according to the

market movements.

c) Standardized Procedure: Customer can easily expect the time when cash
will be credited to his account.

d) One stop shop: Bank statements and transaction statement can be viewed at
the click of a button.

e) Informed Research: Customers can directly see the stock analysis provided
by the broker. Research tips roll on to the clients mobile or customer alerts
are sent through internet.

f) Well- suited for Home Makers: Nowadays women have more knowledge
on the use of various information technology devices and it is a successful
tool in the hands of women to empower and enrich her family and the
future generations. Stock market trading is best suited for home makers
who have time to sit and watch the volatility in the stock market and
aware of the entry and exit level and trade as the market goes.

g) Transparency: The electronic trading ensures greater amount of

transparency and ensures that fly-by-night brokers could not cheat
individual investors.

65
 Moreover mobile penetration even among the lowest income group is
very high. The role of the securities market in connecting with the financially
excluded segment of population through the right technology is critical to the
encouragement and development of products in this area. Many mobile
applications are available at free of cost which can be downloaded in the smart
phone to track and analyse the market every moment. Investors before choosing a
stock, first of all look into the sector and the preference of the market participants
towards various sectors. A paradigm shift from the traditional techniques to
modern techniques enables high yields to the market participants. The trading
software and the various applications guide the investors by rolling in market
tips, tricks market alerts, impart the investors regarding the current position.

2.3 INVESTORS IN SECURITIES MARKET

“Investor” can be an individual, a government, a pension fund, or a

corporation. Similarly, this definition includes all types of investments, including
investments by corporations in plant and equipment and investments by
individuals in stocks, bonds, commodities, or real estate. In all cases, the investor
is trading a known rupee amount today for some expected future stream of
payments that will be greater than the current outlay. The number of stocks,
which has remained inactive, increased steadily over the past few years,
irrespective of the overall market levels. Price rigging, indifferent usage of funds,
vanishing companies, lack of transparency, the notion that equity is a cheap
source of fund and the permitted free pricing of the issuers are leading to the
prevailing primary market conditions. In this context, the investor has to be alert
and careful in his investment.

Securities market provides a common platform for transfer of funds from

the person who has excess funds to those who need them. The securities market
comprises players namely issuers, savers, investors, intermediaries etc.
Institutional investors and FII’s are also the key participants of the Securities
market. An important feature of the financial markets is the depth and breadth of
public participation called individual investors in the market. Millions of

66
households and individual investors provide a pool of capital and a diversity of
decision making that creates liquidity in markets and makes it dynamic. The
investors buy the securities with a view to invest their saving in profitable income
earning securities. They generally retain the securities for a considerable length
of time or they may trade the stocks with a view to get profit. Individual
Securities markets are therefore, markets for minting money if invested wisely.
In the present economic scenario, the options available to them are different and
the factors motivating the investors to invest are governed by their socio –
economic profile including expected return and risk tolerance.

2.3.1 Factors to be considered by Investors

An understanding of the core concepts and a thorough analysis of stocks

can help an investor to create a portfolio that maximizes returns with minimized
risk exposure. Factors to be considered before investing are listed below.

I Promoter’s Credibility: Promoter’s past performance with reference to the

companies promoted by them earlier. The integrity of the promoters should be
found out with enquiries and from financial magazines and newspapers. Their
knowledge and experience in the related field should also be considered.

II Efficiency of the Management: The managing director’s background and

experience in the field. The composition of the Board of Directors is to be studied
to find out whether it is broad based and professionals are included.

III Project Details: The credibility of the appraising institution or agency. The
stake of the appraising agency in the forthcoming issue.

IV Product: Reliability of the demand and supply projections of the product.

Competition faced in the market and the marketing strategy. If the product is
export oriented, the tie-up with the foreign collaborator or agency for the
purchase of products.

V Financial Data: Accounting policy. Revaluation of the assets, if any.

Analysis of the data related to capital, reserves, turnover, profit, and dividend
record and profitability ratio.

67
VI Litigation: Pending litigations and their effect on the profitability of the
company. Default in the payment of dues to the banks and financial institutions.

VII Risk Factors: A careful study of the general and specific risk factors should
be carried out.

VIII Auditor’s Report: A thorough reading of the auditor’s report is needed

especially with reference to significant notes to accounts, qualifying remarks and
changes in the accounting policy. In the case of letter of offer the investors have
to look for the recently audited working result at the end of letter of offer.

IX Statutory Clearance: Investor should find out whether all the required
statutory clearance has been obtained, if not, what the current status is. The
clearances used to have a bearing on the completion of the project.

X Investor Service: Promptness in replying to the enquiries of allocation of

shares, refund of money, annual reports, dividends and share transfer should be
assessed with the help of past record.

2.3.2 Investment Objectives

Investment is defined as the employment of funds on assets with the aim

of earning income or capital appreciation. Some plan to accrue short term profits,
some prefer long term profits. As the future is uncertain and the result of the
investment is unpredictable the investors invest or participate in the securities
market with the certain concepts.

The first step towards investing in Indian market is that the investor must
evaluate individual requirements for cash, competence to undertake involved
risks and the amount of returns that the investor is expecting. Investment has two
attributes namely time and risk. Present consumption is sacrificed to get a return
in the future. The sacrifice that has to be borne is certain but the return in the
future may be uncertain. This attribute of investment indicates the risk factor.
The risk is undertaken with a view to reap some return from the investment.

68
 The main investment objectives are increasing the rate of return and
reducing the risk. Maximum gain at a minimal risk is the mantra of every
investor in Securities market. Other objectives like safety, liquidity and hedge
against inflation can be considered as subsidiary objectives.

2.3.3 Investment Strategy

In order to achieve the investment objectives of the investors/ traders,

they will develop a variety of investment strategies. The development of a
strategy includes the study of financial, economic, political and social conditions
and aims to forecast future prices at a certain time-horizon. Fundamental and
Technical analysis must be done. Indicators are characterized as either technical
or fundamental. Fundamental indicators are related to the basic intrinsic value,
also referred to as fundamental value of a stock, and as such, depend mainly on
the underlying economic factors like the performance of the issuer. Technical
indicators refer to assumed statistical features of the historical data. Based on the
type of data that is used by traders for forecasting the investors are differentiated
as fundamentalists and technical analysts. High returns necessarily entail high
risk and low risk necessarily entails low returns, which is called the risk – reward
ratio. According to investopedia, asset allocation is “an investment strategy that
aims to balance risk and reward by apportioning a portfolio’s assets according to
an individual’s goals, risk tolerance and investment horizon”. 5 Moreover a
person’s current emotional state may influence financial decision making. For
example, an individual in a good mood because of recent experience or current
position in life brings this positive outlook to the task at hand.

2.3.4 Investment Information

For every investor of the securities market, instruments information about

the investment vehicles is an important factor to decide about the selection of the
investment vehicle. An investment practice is said to successful when the
expected investment objectives are fulfilled. This could be made possible with
the consolidation of all the information related to the investment opportunities.

5
http:/www.investopedia.com/ terms/a/assetallocation.asp

69
Information, related to the international affairs, national affairs, performance of
an industry, performance of a company and the stock market information, are
consolidated to decide about the investment. National stock exchange plays an
essential task in providing the valuable information which facilitates securities
market to decide about the liquidity, quality trading etc., Application of the
available information about the investment alternatives through different sources
facilitates the investor to construct a profitable portfolio.

2.3.5 Investment Analysis

Processing of raw data is called Investment analysis. Data is raw fact

which is available from various sources and as such the collected data cannot be
used to infer anything. Data collected should be processed to convert it into
valuable information which forms as the basis for decision making. It is the
process of checking, transforming and defining the data with the objective of
focusing valuable information and suggesting conclusion. In case of the
investment decision, the investor, who makes the best analysis of the factors
related to the investment instruments makes the best returns out of their
investments. Based on the policy, forecast, traders or advice of intermediaries, the
investment strategy must be put in action by analyzing the stock with the
information available and determine how to allocate available funds across
different markets, asset classes, and assets depending on the investor’s attitude to
risk.

2.3.6 Investment Decision

The question of investor decision making is in financial literature, often

conceptualized as a process consisting of different paradigms. A complete
knowledge about the various risk associated to an investment instrument will help
the investor towards making a profitable investment decision. The investor
decision is based on the following behavioural issues like (a) risk attitude,
b) portfolio allocation,(c) portfolio management, (d) information processing and
learning,(e) social interaction and (f) the role of emotions.

70
2.3.7 Portfolio Allocation

Portfolio is a combination of securities such as stocks, bonds and money

market instruments. The process of blending together the broad asset classes so
as to obtain optimum return with minimum risk is called portfolio construction.
In simple terms bucketing stocks of various companies is called portfolio
construction. The crucial concept for investments and decision making in general
is based on the investors risk taking attitude of the investors. A quantum of risk
is connected to all the investment alternatives available for the investors. Indian
Securities market offers a plethora of investment options and with a control free
economy, supported by experts, analysts media, banking facilities and so on, the
investment plan of an investor should be thoroughly and thoughtfully analyzed
and select the best option available in the securities market that meets his
requirements. To invest successfully over a lifetime does not require a
stratospheric IQ, unusual business insights, or inside information but what is
needed is a sound intellectual framework for making decisions and the ability to
keep emotions from corroding that framework. Risk-management technique is
the technique where various investments are combined in order to reduce the risk
of the portfolio.

Behavioural finance of individual investors is very important when they

actually allocate their portfolios. In portfolio theory, one of the crucial concepts
is diversification. However, many investors do not diversify their portfolios.
This may be due to beliefs that the risk is defined by them. Securities market
investments are all about profits and it can easily tempt investors to lose their
better senses. Young active investors are over focused and over confident, hence
driven by easy money option. But the investor must be patient and make sure
that they take sufficient time to check on economic rumors thoroughly before
buying or selling the stocks right away. As stock market is widely fluctuating,
heavy loss can be avoided by hedging techniques.

71
2.3.8 Portfolio Management

Securities Market is the best game in the town to create wealth within the
four walls of their home only with regular monitoring and diversification.
Putting all the eggs in a single basket is not advisable, hence monitoring of stocks
is essential to be conducted in combination with all the other processes of
portfolio management. Monitoring implies periodic reconsideration of the
various phases. Investors must monitor their needs and the market conditions,
and evaluate the portfolio performance from time to time, compare it to
expectations, and modify the policy statement and/or the investment strategy if
they think it is necessary. Monitoring includes thus, performance analysis, and
assimilation of new information. Modified statements and strategies reflect the
adaptive behaviour of the traders. Anutosh Bose, Chief operating officer of LIC
Nomura Mutual Fund to the Business line interview, suggests “Keep in mind
three time horizons- short term, medium term and long term based on the goals.
Long term investment should be around seven to 10 years. Investors should
monitor their portfolio at least once on a monthly basis and profit should be
booked as soon as the intended target performance is achieved. Similarly non-
performing investments also need corrective measures based on the risk appetite.
The portfolio is reviewed and adjusted from time-to-time in tune with the market
conditions. Generally a structured 20% saving over an average work life will help
in accumulating a decent corpus”.6 Timing the market is very important. Crucial
decisions has to be taken by the trades while doing futures and options. Investing
or quitting from a stock at the right time at the right rate is a great task put forth
in front of the investor and trader. Successful investors time the market through
their experience and experts advice.

6
Anutosh Bose,(2014), “It’s best to keep your bird in hand”, Business Line, 28th April,p3

72
2.4 PERFORMANCE OF INDIAN SECURITIES MARKET

2.4.1 History of Indian Securities Market

Indian Securities market is one of the oldest and the eighth largest in the
world. The first instance of organized trading of securities in India was started
with the trading of securities of East India Company in the 19th century. The
establishment of Bombay Stock Exchange was the first in India, which was
started early in 1875 gave momentum to the capital market operations in the
country. The rapid industrialization in the country since independence has given
vitality to the capital market. The market reforms initiated as part of liberalization
measures in the nineties like dematerialization of securities, screen based trading
and rolling settlement and establishment of Securities and Exchange Board of
India, National Stock Exchange and Depositories added vigor to the growth of
Indian securities market. There are 24 stock exchanges in the country. The
aggregate volume of trade, market capitalization and number of listed companies
of these stock exchanges are comparable to world standards. India’s population
is approximately 120 crores where in, the participants in securities market
contribute only 2.37 percent. There are 1400 registered intermediaries of
securities market in India.7 NSE is one of the few exchanges in the world trading
all types of securities on a single platform. Its operations are divided into three
segments:

Wholesale Debt Market (WDM),

Capital Market (CM)

Futures & Options (F&O) Market

The Wholesale Debt Market (WDM) segment of NSE deals in fixed

income securities. It commenced its operations on June 30th 1994.WDM
provides trading facilities for various debt instruments like Government
Securities, Treasury Bills and Bonds issued by Public Sector Undertakings/
Corporates/ Banks, like Floating Rate Bonds, Zero Coupon Bonds, Commercial

7
Motilal Oswal Investors Meet held on 23rd August 2015.

73
Papers, Certificate of Deposits, Corporate Debentures, State Government loans,
SLR and Non-SLR
SLR Bonds issued by Financial Institutions,
Institutions, Units of Mutual Funds
and Securitized debt by banks, financial institutions, corporate bodies, trusts and
others.

NSE started trading in the Capital Market segment or equities segment on

November 3, 1994 and within a short span of one year N
NSE
SE became the largest
exchange in India in terms of volumes transacted. Trading in derivatives was
started by the exchange with the launch of index futures on June 12, 2000. The
Exchange introduced trading in Index Options on June 4, 2001. NSE also
became
me the first exchange to launch trading in options on individual securities
from July 2, 2001. Futures on individual securities were introduced on
November 9, 2001. Futures and Options on individual securities are available on
190 securities stipulated by
b SEBI.

2.4.2 Milestones of Indian Securities Market

India has a highly diversified and well regulated financial sector. The
Indian securities market is considered as one of the most promising emerging
markets among the top eight markets of the world. Thee number of registered
investors in India with demat account is 2, 85, 03,497 as on July 2015.

The milestones of Indian securities market are NSDL cross 1 crore in

Demat accounts which hold 80% of market shares and CDSL having more than
ounts.8 The addition of new Demat accounts in India is about 2
75 lacs Demat accounts.
Lacs per month. The recent data of CARE Research and SEBI showcases the
revival of the IPO market, with 14 IPOs in 2011, which raise 40000 crore.9
The various commodities across the country record an annual turnover of
1,40,000 crore ( 1,400 billion).10 There are 4,365 mutual
utual fund schemes which
manage 00,537 crore under AUM. 11 15 million invest in the Indian stock
7,00,537

8
. http://www.cdslindia.com/abt_cdsl/cdsltoday.jsp 14/05/2011
9
http://www.deccanherald.com/content/103895/return
http://www.deccanherald.com/content/103895/return-ipo-rush.html 14/05/20
10
http://articles.economictimes.indiatimes.com/2010
http://articles.economictimes.indiatimes.com/2010-09-06/news/27585641_1_derivatives
06/news/27585641_1_derivatives-osaka-
securities-exchange- asia--pacific. 14/05/2011
11
http://www.mutualfundsindia.com/Assets%20_under%20_Management.asp 14/05/2011

74
market, which is one of the best in the world in terms of investment
opportunities. The total number of investor accounts was 139.5 lakh at NSDL
and 99.3 lakh at CDSL at the end of July 2015. In June 2015, the number of
investor accounts at NSDL and CDSL increased by 0.4 per cent and 0.9 per cent,
respectively, over the previous month. A comparison with June 2014 showed
there was an increase in the number of investor accounts to the extent of 5.4 per
cent at NSDL and 10.6 percent at CDSL. By the end of August 28th 2015 there
are 32 lakhs 64 thousand 132 registered members who carried out futures and
options whereas equity investments were carried out by 61 lakhs 28 thousand
12
185 registered investors . Net FII investment has increased which boosted
market sentiment in India.

India's GDP grew at 5.7 per cent in the first quarter of 2014-15 and
Mr.Adi Godrej, Chairman of Godrej Group too is confident about India's GDP
growth and expressed that the GDP growth will be much better than in the
previous years. Mr. Glenn Levine, Senior Economist of Moody's Analytics
predicts GDP growth to hit 7 per cent with some modest economic reforms.
Indian economy is now widely recognized as one of the fastest growing one in
the world. Sensex index has increased by 20 per cent so far in 2014 and has been
hovering around the 25000-level. Mr. Jayant Sinha, BJP Spokesperson has
expressed his view that Business confidence is back, investor confidence is back
and the capital markets are in a buoyant mood as one would expect them to be.13
Mobile penetration even among the lowest income group is very high. The role
of the securities market in connecting with the financially excluded segment of
population through the right technology is critical to the encouragement and
development of products in this area. The following table 2.2 depicts the picture
of securities market turnover from April 2015 to August 2015 which is in
uptrend.

12
www.nse.com and www.bse.com accessed on 15th Sep 2015.
13
Business Line, 2nd September, 2014.

75
 TABLE 2.2
Market capitilisation and Turnover of NSE and BSE
Percentage
Market
2014
2014-15 Jun-15 Jul-15 change over
Capitalisation
previous month

BSE 1,01,49,290 1,01,43,511 1,04,79,396 3.31

NSE 99,30,122 98,49,076 1,01,68,561 3.24
Gross Turnover
BSE 8,54,845 60,370 70,254 16.37
NSE 43,29,655 3,33,289 3,83,484 15.06

Source: SEBI Bulletin

In tandem with upside in the markets, the monthly turnover of BSE (cash
segment) has increased from 60,370 crore in June 2015 to 70,254 crore in
July 2015 (16.4
16.4 per cent).
cent The monthly turnover of NSE (cash segment)
increased from 3,33,289 crore in June 2015 to 3,83,484 crore in July 2015
(15.1 per cent).The
.The gross turnover at the cash market segments at BSE and NSE
during April-July
July 2015 was 2,58,650 crore and 14,58,057 crore respectively.

Following table elaborates the turnover of NSE and BSE for 5 months in
the year 2015.

TABLE 2.3
Turnover of NSE and BSE
April 2015 May 2015 June 2015 July 2015 August 2015
Turnover
in crores in crores in crores in crores in crores

BSE 67,421.28 60,604.61 60,370.22 70,254 73,821.68

NSE 3,79,349 3,61,935 3,33,289 3,83,484 4,19,932

Source: NSE & BSE website

The above table clearly shows an uptrend of turnover in the securities

market for the five months ranging from April 2015 to August 2015. BSE
turnover has increased from 67421.28 crores to 73,821.68 crores. NSE turnover
has increased from 3,79,349
9,349 crores to 4,19,932 crores. BSE and NSE too have
increased about 47 lakhs approximately compared with April 2015 to August
2015.

76
2.4.3 Trading Value
alue of Different Market Segments

Equity was and will be one of the most wealth generating investment tool
and a live example of India’s Warrant Buffet is Mr. Rakesh Jhunjunwala. It is
the big wealth generating opportunity14.

In order to study whether there is increased investors in equit

equity market,
derivatives or futures and options, the trading value of equity market and futures
and options for five years is given in table 2.4
2.4.

TABLE 2.4
Trading Value of Different Market Segments
2010-11
2010 2011-12 2012-13 2013-14 2014-15
Segment/Year
in crores in crores in crores in crores in crores

Equity Market 35,77, 410 28,10,893 27,08,279 28,08,488 43,29,655

Futures &
2,92,48,221 3,13,49,732 3,15,33,004 3,82,11,408 5,56,06,453
Options
Source: NSE Fact Book 2015

From the table 2.4,

2.4, it is clear that the trading value in equity futures and
options has increased from 2 crore 92 lakhs in the year 2010-11 to 5 crore 56
lakhs in the year 2014-2015
2015 which reveals that more and more investors/ traders
are attracted towards securities market
mar and their active participation.

Most of them are driven by the quick money option. The above table
gives us a clear picture that the market participants are increasing and the
pumping of money in to this money market is also in an increasing trend. It is
concluded that most of them prefer trading in comparison with investing in
equities.

2.4.4 Trends in Equity Derivatives

India is one of the vibrant markets for exchange traded equity derivatives
in the world. The trading volumes in the equity derivative market surpassed that
of the cash segment turnover by 15.5 times in July 2015. The monthly total
turnover in equity derivative market at NSE increased by 3.8 per cent to
57,05,573 crore in July2015 from 54,98,521 crore in June 2015. The index
14
www.apnapaisa.com

77
options segment has been the clear leader in the product
product-wise
wise turnover of the
futures and options segment in the NSE. In July 2015, the turnover in the index
options category was 74.8 percent of the total turnover in the F & O segment of
the NSE. During July 2015, except for index futures and call options on index,
remaining products witnessed and increase in turnover over the previous month.
The open interest in value terms in equity derivative segment of NSE incr
increased
by 3.0 per cent to 1,81,914 crore as on July 31, 2015 from 1,77,908 crore as
15
on June 30, 2015. The monthly total turnover in equity derivative segment of
BSE increased by 110.6 percent to 13,27,202 crore in July 2015 from
6,30,200 crore in June 2015. While index options comprised 98.6 per cent of
BSE’s equity derivative turnover, stock options constituted 1.3 percent. In July
2015, NSE had 81.1 per cent share in total equity derivatives turnover in India
while BSE’s share was 18.9 per cent.

2.4.5 Trends in Investment by Mutual Funds

The total net investment in the secondary market by mutual funds was
34,936 crore in July 2015 compared to 64,980 crore in the previous month.
They invested 5,442 crore in equity in July 2015 compared to 10,326 crore in
June 2015. In the debt segment, mutual funds invested 29,494 crore in July
2015 as against 54,655 crore in June 2015. During 2015-16
16 (April-July)
(April the
total net investment by mutual fund
funds was 1,53,375 crore of which 29,188
crore was in debt and 1,24,187 crore in equity.As on July 31, 2015 there were a
total of 2,158 mutual fund schemes.

2.4.6 Trends in Investment by Foreign Portfolio Investors (FPIs)

FPIs recorded net positive infl

inflows
ows in July 2015 in equity segment. Their
net investments in equity and debt segment was 5,319 crore and 4 crore
respectively, clocking the total net inflows at 5,323 crore. During 2015-16
2015
(April- July 2015), the total net investment by FPIs in the Indian stock market
was 4,776crore, comprising of a net inflow of 7,927crore in the equity
segment and outflow of 3,151crore from the debt segment.

15
NSE Fact Book 2015

78
2.4.7 Trends in Portfolio Management Services

Total assets under management (AUM) of portfolio management services

(PMS) industry has increased by 2.1 per cent to 9,77,363 crore in July 2015
from 9,57,309 crore in June 2015. As on July 31, 2015, AUM of discretionary
PMS constitute 75.6 per cent of the total AUM of PMS followed by advisory
PMS (19.1 per cent) and non
non-discretionary PMS (5.2 per cent).In terms of
number of clients, discretionary services category leads with total of 44,955
clients, out of 51,829 clients in PMS
PMS industry, followed by advisory services
category with 3,451 clients and non-discretionary
non discretionary category with 3,423 clients.

2.4.8 Paradigm Shift

hift from Scream Based to Screen Based

The Indian securities markets have been at the forefront in embracing

modern technology
echnology and global best practices. The adoption of V
V-SAT
SAT technology
extended the reach of the stock exchanges from their trading halls to every nook
and corner of the country while screen
screen-based
based trading brought in transparency and
fairness. India has no oopen
pen outcry system, unlike some developed countries
where this system is still followed. The National Stock Exchange of India
Limited (NSEIL) was the first to use satellite
satellite-based
based communication technology
for establishing connectivity. The trading software and the various applications
guide the investors by rolling in market tips, tricks market alerts, impart the
investors regarding the current position. Moreover many mobile applications are
available at free of cost which can be downloaded in the smart phon
phonee to track and
analyse the market every moment. The following table 2.5 depicts the picture of
Internet trading value in the cash market segment in comparison with total
trading volumes at NSE.
TABLE 2.5
Internet Trading
rading value in the Cash Market Segment in Comparison
omparison with
Total Trading Volumes at NSE
Enabled Registered Internet Trading Percentage of total
Year
Members* Clients* Value ( Crores) trading volume
2010-11 387 56,40,513 7,65,271 10.7
2011-12 428 61,48,447 5,97,430 10.63
2012-13 445 62,68,798 5,83,073 10.76
2013-14 459 68,74,574 6,27,478 10.99
2014-15 480 63,59,312 1,005,984 11.62
Source: NSE Fact Book
ook 2015 Note: * At the end of the financial year

79
 From the above table, it can be perceived that Registered clients number
had gone up to 68 lakhs in the year 2013
2013-14 . Internet trading value has increased
from 7 lakhs 65 thousands in the year 2010-11 to 1 crore and more in the year
2014-15. Hence it is implied that most of the participants of Indian securities
market are technologically driven updated and the youthful demography can be
termed as tech savvy.

2.4.9 City- wise Turnover

urnover

Securities market in India is very vibrant and the second largest in Asia.
With vast potential, it attracts huge investments from many individual investors,
traders, institutional investors, FDI and so on. A common perception is that
investment in the securities market, particularly equities is largely an urban
phenomenon, essentially a metro show.16 With the advancement of Information
& communication after 2005, stock market investment surges to new high. The
City -wise
wise turnover of NSE in the cash market segment is given in table 2.6
2.6.

TABLE 2.6
City -wise Turnover
urnover of NSE in the Cash Market Segment
egment (%)
City 2010-11 2011-12 2012-13 2013-14 2014-15

Ahmedabad 6.2 6.1 4.7 3.8 2.9

Bangalore 0.6 0.5 0.4 1.6 3.5

Baroda 0.5 0.4 0.4 0.4 0.4

Bhuvaneshwar 0.0 0.0 0.0 0.0 0.0

Chennai 1.6 1.4 1.4 1.3 1.3

Cochin 1.7 1.7 0.0 0.0 1.4

Coimbatore 0.3 0.2 0.2 0.2 0.2

Delhi 10.8 8.4 8.0 9.0 10.7

Guwahati 0.0 0.0 0.0 0.0 0.0

Hyderabad 1.6 1.4 3.0 4.2 4.2

16
” Business
.Yegya Narayanam R (2012)” Investment Style: Each City has its Own Preference”
Line, 20th May,p13

80
 City 2010-11 2011-12 2012-13 2013-14 2014-15

Indore 0.6 0.4 0.4 0.5 0.6

Jaipur 0.5 0.4 0.4 0.4 0.7

Kanpur 0.1 0.1 0.1 0.1 0.2

Kolkata/Howrah 7.5 8.6 7.7 7.4 6.5

Ludhiana 0.1 0.1 0.1 0.1 0.1

Mangalore 0.0 0.0 0.0 0.0 0.0

Mumbai/Thane 58.6 60.4 61.7 59.5 57.1

Patna 0.0 0.0 0.0 0.0 0.0

Pune 0.2 0.2 0.2 0.2 0.2

Rajkot 1.6 1.4 1.2 1.0 1.3

Others 7.5 8.2 10.0 10.2 9.0

Total 100 100 100 100 100

Source: NSE Fact Book 2015

In the table 2.6, the cites have been arranged in alphabetical order and it
depicts the fact that Mumbai occupies the top slot with 57.1 per cent of turnover
in the year 2014-2015 17 followed by Delhi with 10.7 per cent of turnover
respectively. Mumbai occupies the top slot and the people in metropolitan cities
are well versed in on line trading and the field of finance is a fascinating one for
them. Hence it can be concluded that the words of R. Yegya Narayanam comes
true as the above table reveals the fact that the investment in securities market is
pumped mainly by the participants from metropolitan cities.

The table 2.7 depicts the city- wise active demat account holders for the
years 2006, 2010 and 2014. The period 2006 is taken in to consideration marking
as before recession, the year 2010 is taken, considering it as post-recession period
and the year 2014 being the scenario of the new government taking charge.

17
NSE Fact Book 2015

81
 TABLE 2.7
City -wise Active Demat Account Holders
S.No City 2006 2010 2014
1. Mumbai 9,34,760 (12.11%) 11,13,927 (9.84%) 11,76,332(8.83%)
2. Ahmedabad 3,98,968 (5.17%) 4,88,087(4031%) 4,81,083 (3.61%)
3. Delhi 54,032 (0.70%) 85,631 (0.76%) 1,00,029 (0.75%)
4. Hyderabad 30,328 (0.39%) 45,187 (0.40%) 53,116 (0.40%)
5. Kolkata 12,978 (0.71%) 28,903 (0.26%) 39,802 (0.30%)
6. Bangalore 24,689 (0.32%) 32,298 (0.29% 35,369 (0.27%)
7. Chennai 11,093 (0.41%) 14,926 (0.13%) 18,159 (0.14%)
8. Pune 5,492 (0.07%) 9,414 (0.08%) 12,477 (0.09%)
9. Jaipur 5,687 (0.07%) 8,990 (0.08%) 9,783 (0.07%)
10. Kochi 3,349 (0.04%) 5,168 (0.05%) 6,810 (0.05%)
11. Lucknow 466 (0.01%) 707 (0.01%) 1,048 (0.01%)
12. Indore 692 (0.01%) 1,016 (0.01%) 1,032 (0.01 %)
Source: www.livemint.com/t/LiveMint/Period1/2014/09/11/web_graphic_city_turnover.jpg

From the table 2.7 it is evident that active demat account holders in all
cities have increased. In Mumbai, Kolkata, Chennai and Delhi, the active demat
account holders are increasing to large number when compared to other cities.
Overall it can be concluded that people of metropolitan cities are aware of
investing in securities market and they are active market participants.The
recession and government change has its impact on active demat account holders.

2.4.10 Sector - wise investment by the Market participants

The Securities market comprises players namely issuers, savers,

investors, intermediaries etc. Institutional investors and FII’s are also the key
participants of the Securities market. An important feature of the financial
markets is the depth and breadth of public participation securities market
provides an organized marketplace for the investors to buy and sell securities
freely. A well-developed securities market means a well-developed economy of
the country. The following table depicts the shareholding pattern of various
market participants at NSE as investors before choosing a stock, first of all look
into the sector and the preference of the market participants towards various
sector and this is given in table 2.8.

82
 TABLE 2.8
Shareholding pattern at the end of March 2015 for companies listed at NSE
PUBLIC

INSTITUTIONAL NON-INSTITUTIONAL

Institutions/Banks

Bodies Corporate
Foreign Venture
/ Central Govt /

Funds including
Venture Capital
Sectors

Capital Funds
Mutual Funds
Institutional
State Govt /

Individuals
Companies
Insurance

Any other
Investors
Financial

Foreign
Banks 10.9% 19.3% 5.1% 0.1% 3.0% 9.0% 1.5%

Engineering 8.4% 9.1% 9.4% 0.5% 8.3% 17.5% 5.6%

Financial Services 4.4% 23.6% 2.9% 0.0% 4.7% 13.4% 5.0%

FMCG 10.8% 15.4% 6.4% 0.1% 4.7% 14.8% 17.6%

Infrastructure 5.6% 8.7% 1.3% 0.8% 2.9% 7.8% 2.8%

IT 3.3% 11.4% 1.9% 1.0% 10.3% 20.7% 4.1%

Manufacturing 6.7% 10.1% 2.3% 0.0% 6.4% 14.4% 3.0%

Media and
0.3% 14.7% 2.8% 0.0% 6.6% 9.9% 6.1%
Entertainment

Miscellaneous 1.6% 13.2% 1.4% 0.1% 9.1% 12.2% 5.0%

Petrochemicals 6.7% 9.0% 2.0% 0.0% 8.3% 6.4% 2.8%

Pharmaceuticals 2.5% 14.7% 2.3% 0.1% 4.8% 17.1% 4.2%

Services 4.6% 11.1% 3.8% 0.1% 7.6% 9.9% 3.7%

Tele
8.8% 14.4% 1.3% 0.0% 3.4% 8.7% 8.6%
communication

Grand Total 6.5% 12.4% 2.7% 0.2% 5.7% 12.2% 4.1%

Source: NSE Fact Book 2015

From the table 2.8, it is found that 12.4 per cent of the shares are held by
foreign institutional investors followed by individuals contributing 12.2 per cent.
The individual investors prefer IT sector on the other hand Institutional investors
prefer banking sector. Foreign institutional investors prefer financial services
sector. Common perception among the Indian investors is that Bank,
Pharmaceuticals, FMCG are the safer sectors. In every bull market, a new set of

83
stocks performs well and comes on top. For example, around 2000, information
technology (IT) stocks were everyone's favourite. Between 1 February 1999 and
13 December 2000, the IT index rose 94 per cent on a yearly basis, as against 15
per cent returns given by the Sensex. This period was followed by the era of
infrastructure stocks in 2004-08. While in 2007-08 FMCG stocks did worse than
the market. It is noteworthy that only certain sectors are darling of investors for
the certain period of time.

2.4.11 Performance of Market Indicators

During July 2015, the benchmark indices, BSE Sensex and CNX Nifty
gained by 1.2 and 0.8 per cent to close at 28114.6 and 8532.9 respectively on July
31,2015. Sensex and Nifty touched their respective intraday highs of 28578.3
and 8654.8 on July23, 2015. S ensex touched intraday low of 27416.4 on July 28,
2015 and Nifty at 8315.4 on July 10, 2015.18 During the concerned period the
market has felt remarkable changes in total market capitalisation, turnover and
trading activities which resulted in market volatality and the movement of the
market indicators named Sensex and Nifty is illustrated in the figure 2.1

FIGURE 2.1
Movement of Sensex and Nifty
32000 9500

30000 9000
8500
28000
8000
26000
7500
24000
7000
22000 6500
20000 6000

Sensex (LHS) Nifty (RHS)

Source: SEBI Bulletin August 2015

18
SEBI Bulletin August 2015, Vol 13 (8)

84
 Reflecting the uptrend in market movements, the market capitalisation of BSE
and NSE increased by 3.3 per cent and 3.2 per cent on comparing July 2015 with June
2015 records. At the end of June 2015 market capitalization was recorded as
1,01,43,511 crore and 98,49,076 crore for BSE and NSE respectively, whereas it
has increased to 1,04,79,396 crore aand 1,01,68,561 crore, respectively at the end of
July 2015.

Many traders have taken the recent periods of low volatility and low volume to
believe that they could easily make money by trading straddles or strangles. The
volatility of individual stocks rremains
emains high. It could be because trading in options has
become a primary driver of the market, and therefore option players regulate large moves
to ensure sellers don’t lose too much. Again, that doesn’t make enough sense because
options have always been big
big in western markets, and they haven’t also seen large
volatility in 2008.

2.4.12 Performance of SENSEX

The stock market has shown number of times ups and downs. The bench
mark index of Indian Stock market is SENSEX. SENSEX comprises basket of
top company securities. The following table depicts the performance of SENSEX
over the past 35 years.

TABLE 2.9
Performance of SENSEX for the Past 35 Years (1979-2015)
2015)

Date SENSEX Date SENSEX

03-Apr-79 124.15 25-Jul-94 4106.65
06-Jan-84 255.56 25-Aug-94 4430.75
11-Dec-85 536.73 29-Jul-98 4603.75
21-Feb-86 633.15 11-Apr-00 5541.54
11-Apr-87 404.13 11-Oct-01 2959.3
13-Oct-88 656.12 30-Dec-03 5701.85
18-Sep-90 1314.56 04-Jan-08 20686.89
17-Feb-92 2437.3 20-Mar-09 8966.68
30-Apr-92 3887.72 14-Oct-13 20375
05-May-93 2168.7 04-Mar-15 30024.74

85
 FIGURE 2.2
Performance of SENSEX for the past 35 years (1979-2015)
(1979 2015)

35000

30000

25000

20000

15000

10000

5000

0
02-May-84

02-May-89

02-May-94

02-May-99

02-May-04

02-May-09

02-May-14
01-Apr-79
02-Jan-81
02-Sep-82

02-Jan-86
02-Sep-87

02-Jan-91
02-Sep-92

02-Jan-96
02-Sep-97

02-Jan-01
02-Sep-02

02-Jan-06
02-Sep-07

02-Jan-11
02-Sep-12
Source: Naanaya Vikadan, 6th September 2015

From the above chart, it is evident that

that the SENSEX is in uptrend. For
the past 35 years the stock market index named SENSEX started at 124.15 points
in the year 3rd April 1979. In the year March 2014 it is trading at 25000 points
and might have given profit up to 200 times.19

2.4.13 Performance of Nifty

Mr.C.K. Narayan, Financial adviser cum Managing director of Growth

Avenues in an interview to Nanaya Vikadan has conveyed that there are chances
of Nifty reaching 9500 by the end of December 2015 and he expects a favourable
boom in small
all and mid cap stocks in ee-Commerce sector ( 31,800 crores of
e-commerce
commerce retail sales in 2014) followed by logistics and pharma for the next 3
to 5 years. 20 Nifty chart since 1998 has grown 6 fold in the last 13 years.
Following figure 2.3 gives a good idea of how many times Nifty has touched new
high in the last two decades.
19
Mu.Sa. Gowthaman ,(2015), Thangam, Real estate: Ippodhu Lappam Kidaikathu” Naanaya
,(2015) “Thangam,
Vikadan, 6th September ,pp18.
pp18.
20
Saravanan.C, (2015),”
,” Meendum uyarum pangu sandhai Nifty 10000, Indha aandukul satyama?”
satyama?”,
Nanaya Vikadan, 5th July, pp8
pp8-12.

86
 FIGURE 2.3

No of Big Days for Nifty

104

72
64 65
56
44 44 45 44
40
35
27 24 28 30
20
16 14 14 11 9
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: Compiled from BSE website

Nifty has touched new high 72 times in the year 2000 and 104 times in the
year 2008. After the global financial crisis. Indian securities market has revived
slowly and there is an expectation among the investors that Nifty will touch a
new high in the year 2016. Because of the stable government and moreover FII’s
are attracted towards Indian Stock market. Investors can rely upon the stock
market indices, as these provide authentic and unbiased information on the
performance of the market.

2.4.14 Market Movements with Selected Global Indices

Modi’s digital India has given a new hope to Indian stock market.
Mr.Vaibhav Sanghvi, Managing director, Ambit Investment Advisors says
Europe and Japan are not doing well and China is slowing and the main
constituents of the present rally will be different from the current scenario. The
movement of a few of the selected world indices is presented in Table 2.10.

87
 TABLE 2.10
Movement of Select Indices on Indian and International Markets
Changes in Percentage
March March March Sep

2012-

2013-
Region Index

Sep -
2013

2014

Apr-
14-
2012

14
2013 2014 2014

Dow Jones 13212.04 14578.54 16457.66 17042.90 10.3% 12.9% 3.6%

America
Nasdaq 3091.57 3267.52 4198.99 4493.39 5.7% 28.5% 7.0%

UK FTSE 100 5768.45 6411.70 6598.40 6622.70 11.2% 2.9% 0.4%

France CAC 40 3423.81 3731.42 4391.50 4416.24 9.0% 17.7% 0.6%

Nifty 50- 5295.55 5682.55 6704.20 7964.80 7.3% 18.0% 18.8%

India
Sensex 17404.20 18835.77 22386.27 26630.51 8.2% 18.8% 19.0%

China Hang Seng 20555.58 22299.63 22151.06 22932.98 8.5% -0.7% 3.5%

Japan Nikkei 10083.56 12397.91 14827.83 16173.52 23.0% 19.6% 9.1%

South Korea Kospi 2014.04 2004.89 1985.61 2020.09 -0.5% -1.0% 1.7%

Source: NSE Fact Book 2015

The table 2.10, brings out the trends witnessed in the Indian and foreign
markets during 2012–13 and 2013–14. A global comparison of these selected
indices indicates that in 2012–13, these indices depicted varied kinds of
performance, with most of the indices (except Kospi) closing in green and
showing returns in the range of 5-12 percent (except Nikkei) which gave returns
of 23 percent. However, in 2013-14, in addition to Kospi, Hang Seng also closed
in red. Most of the indices recorded returns in the range of 2.5-20 percent,
barring Nasdaq which witnessed maximum returns of 28.5 percent.
Encouragingly, all the select indices managed to close in green during the period
April-September 2014. The CNX Nifty gained 18.8 percent, posting the second
highest returns during the aforementioned period.

It is evident that compared to other global indices India has shown a

tremendous change in growth percentage. Nifty and Sensex has recorded a18.8
per cent and 19 per cent respectively from April 2014 to September 2014 and
this may be due to Prime minister Modi’s clarion call to foreign countries to start
business in India and removal of red tapism to promote business.

88
 Moreover, BRIC countries which are a composition of Brazil, Russia,
India and China are considered as economically emerging countries. The
performance of the securities market among BRIC countires is also compared in
the figure 2.4.

FIGURE 2.4
Indices for BRIC Countries

5000 80000

4500 70000
4000
60000
3500
50000
3000
40000
2500
30000
2000

1500 20000

1000 10000
Mar-12

Jun-12

Sep-12

Mar-13

Jun-13

Sep-13

Mar-14

Jun-14

Sep-14

Mar-15

Jun-15
Jan-12
Feb-12
Apr-12
May-12
Jul-12
Aug-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Apr-13
May-13
Jul-13
Aug-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Apr-14
May-14
Jul-14
Aug-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Apr-15
May-15
Jul-15
BSE SENSEX (RHS)
Brazil Bovespa (RHS)
Source: https://www.msci.com/resources/factsheets/index_fact_sheet/msci-bric-index.pdf

From the figure 2.4 it can be proved that among the emerging market
indices for BRIC countries, CNX Nifty of India roused to higher per cent during
July 2015. On the other hand, Shanghai SE Composite IX of China continued to
decline and fell by 14.34 per cent, followed by Russia (7.95 per cent). As regards
the major emerging markets, market capitalisation of Shanghai Stock Exchange
plummeted by 18.6 per cent during July 2015 after declining by more than 8% in
previous month, followed by Brazil (-12.8 per cent) and Colombia (-10.0 per
cent). Among BRICS, only Indian market showed some resilience, closing in
positive in July 2015. Among the emerging market that attracts FII’s lot, it is
found that Indian stock market is promising.

89
2.5 PREDICTIONS ABOUT SECURITIES MARKET

Securities market resembles a roller coaster ride where in investors can

book profits during the Bullrun (ie) during the uptrend. Though Indian stock
market is widely fluctuating, total number of investors investing in Indian
securities market is increasing day by day. For the past 12 months nearly 16.5
lakh demat accounts have been opened and up to May 2015 the number of
demat accounts has risen to 2.36 crores. Barklays firm recently conducted a
survey among 900 international investors regarding their choice of investment
and reported that they have preferred Indian stock market and ranked it first as
it is in emerging grounds followed by China, Mexico,South Korea, Russia and
Brazil. Investors prefer to invest in India.

The study of stock market cycle will provide an opportunity for the
investors to allocate their savings with an intention of obtaining high rate of
return, hence the performance of SENSEX is presented in a table and it clearly
depicts the scenario that there will be a boom after every eight years.

TABLE 2.11
Performance of SENSEX
Year Open High Low Close
1992 4,546.58 2,615.37
1993 2,617.78 3,459.07 3,346.06
1994 3,436.87 4,643.31 3,926.90
1995 3,910.16 3,943.66 3,110.49
1996 3,114.08 4,131.22 2,713.12 3,085.20
1997 3,096.65 4,605.41 3,096.65 3,658.98
1998 3,658.34 4,322.00 2,741.22 3,055.41
1999 3,064.95 5,150.99 3,042.25 5,005.82
2000 5,209.54 6,150.69 3,491.55 3,972.12
2001 3,990.65 4,462.11 2,594.87 3,262.33
2002 3,262.01 3,758.27 2,828.48 3,377.28
2003 3,383.85 5,920.76 2,904.44 5,838.96
2004 5,872.48 6,617.15 4,227.50 6,602.69
2005 6,626.49 9,442.98 6,069.33 9,397.93

90
 Year Open High Low Close
2006 9,422.49 14,035.30 8,799.01 13,786.91
2007 13,827.77 20,498.11 12,316.10 20,286.99
2008 20,325.27 21,206.77 7,697.39 9,647.31
2009 9,720.55 17,530.94 8,047.17 17,464.81
2010 17,473.45 21,108.64 15,651.99 20,509.09
2011 20,621.61 20,664.80 15,135.86 15,454.92
2012 15,534.67 19,612.18 15,358.02 19,426.71
2013 19,513.45 21,483.74 17,448.71 21,170.68
2014 21,222.19 28,822.37 19,963.12 27,499.42
2015 27,485.77 30,024.74 24,833.54 25,530.11
Source: http://www.bseindia.com/indices/IndexArchiveData.aspx

TABLE 2.12
Stock Market Cycle
1992 2000 2008 2016
1993 2001 2009 2017
1994 2002 2010 2018
1995 2003 2011 2019
1996 2004 2012 2020
1997 2005 2013 2021
1998 2006 2014 2022
1999 2007 2015 2023
Source: Calculated Table

* Green indicates the years of Boom or Bull Run

** Red indicates the years of Bust or Bear Run

*** Blue indicates the years of revival

The bench mark index of Indian Stock market is SENSEX and it reached
a new high of 3887.72 points in the year 1992. After Harshad Mehta scam due to
unabated selling SENSEX, ended in red and touched a low of 2168.7 in 1993. In
the year 1997, the markets showed signs of revival and SENSEX rose to 4605.41
points. As the BJP Government came to power in the year 1999 SENSEX
crossed 5000 with all the indices closing in Green. In the year 2000 markets

91
touched a new high of 6150.69 points and it hovered around 6600 level only up
to the year 2004. SENSEX kissed 20000 levels and Nifty crossed 6000 level in
October 2007, a new high. The Bull market started from the year 2005 itself and
has reached a new high in 2007. After the global financial turmoil in 2008,
Indian stock markets too has been caught in the clutches of the Bear. In 2013, the
stock market again began to revive and it is expected to touch a new high in 2016
as the Bull Run has started from 2013 itself. There are bumpy rides that will burn
the hands of the investors but the majority of the retail investors did not conduct
any research before investing in the stock market. They simply follow the
institutional investors or the investment tips rolled in to them by the stock
brokers. So, it is better to invest in the stock market, after analysing sector wise
stocks, revise the portfolio and invest on stocks which will be fruitful. In Bear
market, intelligent investors will buy in dips where in, he is assured of profits in
the long run.

2.8 SUMMARY

The present chapter deals with the movement of securities market indices
namely Sensex and Nifty and the study reveals that Indian Securities market is
an emerging market, The upward revival of the Indian stock market indices after
the global financial turmoil ensures that Indian securities market is a promising
market with assured returns. Unlike most asset classes, like FDs or property,
income from dividends in equities are tax-free. Securities market are known for
tax-free returns, an effortless easy entry into the stock market, any time liquidity
and higher returns than any other investments and moreover, there is boom bust
cycle after every eight years and the next boom in the Indian Securities market is
expected in the current year 2016. No wonder investment in Indian Securities
market is wise when compared to other global markets as it attracts FII
investments. So 360o analysis of the Indian securities market by investors is
essential for assured returns.

92