A

SUMMER PROJECT REPORT

ON

“STUDY ON TRANSACTIONS OF STOCK

MARKET IN INDIA WITH SPECIAL REFERENCE
TO SHAREKHAN Ltd.”

IN PARTIAL FULFILLMENT OF THE

REQUIREMENTS FOR
MASTER IN MANAGEMENT STUDIES (MMS)
2009-2011

SUBMITTED BY:
ROLL NO. P 12

SUBMITTED TO:
Dr V.N. BEDEKAR INSTITUTE OF
MANAGEMENT STUDIES THANE

1
 Table of Contents

Chapter No. Title Page No.

Declaration from student
Certificate from Guide
Acknowledgement
1. Executive Summary 5
2. Company Profile 8
3. Scope of Project 16
4. Nature of Project 17
5. Introduction 20
6. The Stock Exchange 27
7. The Stock Exchanges in 30
India
8. Evolution of stock 42
trading in India
9. Types of transactions in 52
stock trading
10. Transaction Settlement 59
System
11. Factors affecting Indian 63
stock market
12. India in Global Markets 67
13. Conclusion 72
14. Recommendations 74
15. Learning experience 75
from the project
16. Bibliography 76

2
 DECLARATION
I wish to state that the work embodied in this Project titled “STUDY ON
TRANSACTIONS OF STOCK MARKET IN INDIA WITH SPECIAL
REFERENCE TO SHAREKHAN” forms my own contribution to Management.
Wherever references have been made to intellectual properties of any
individual / Institution / Government / Private / Public Bodies /
Universities, research paper, text books, reference books, research
monographs, archives of newspapers, corporates, individuals, business /
Government and any other source of intellectual properties viz., speeches,
quotations, conference proceedings, extracts from the website, working paper,
seminal work et al, they have been clearly indicated, duly acknowledged and
included in the Bibliography.

_________________________

Signature of Candidate

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 EXECUTIVE SUMMARY
The capital market is important to a country’s economic and social system. It plays
the crucial roles of capital raising for both public and private sectors, promoting
balance and stability in the financial system, decreasing dependency on the banking
sector, driving the economy forward and creating jobs, as well as being an alternative
method for savings. A strong capital market will lessen the impact of economic
fluctuations which can be compounded by the fast-flowing nature of capital.
Since the early 1990s, India has gradually opened up its markets through economic
reforms by reducing government controls on foreign trade and investment.
A Share market/stock markets is an open market for fiscal operations such as trading
of a firm's share and derivatives at a fixed cost. These securities are further listed on a
stock exchange. A Share market does not offer any corporeal service and is not a
separately owned business entity.

It was in 1875 that the Indian Share Market first started functioning. The first share
trading association in India was known as the Native Share and Stock Broker's
Association, only to become the Bombay Stock Exchange (BSE) later on. This
trading association started off its operations with around 318 members.

The Stock Exchanges have become a prominent player in this economic reform and
has now become a key driver of India’s Economy.
With this, Indian stock broking firms are on an expansion drive. One Such firm is
Sharekhan Ltd.

Main components of Indian Share Market

Bombay Stock Exchange (BSE)

Bombay Stock Exchange is known to be the oldest stock exchange in the entire Asian
region. If someone wants to know about the history of the India share market, it
becomes synonymous with the history of the Bombay Stock Exchange. It started
functioning in 1875 with the name 'The Native Share and Stock Broker's
Association'. Under the Securities Contracts (Regulation) Act, 1956, the association
got its recognition as a stock exchange in 1956. When it started, it was just an
association of persons but with the recognition it got transferred to a corporate and
demutualised entity.

Trading items in Bombay Stock Exchange -

• Equity or Shares
• Derivatives (Futures and Options)
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 • Debt Instruments

The main index of BSE is known as the BSE SENSEX or simply SENSEX
(Sensitivity Index). It is an index which comprises of 30 financially sound company
scrips, with an option to be reviewed and modified from time-to-time. The index
calculation is based on the 'Free-float Market Capitalization' methodology. Leading
bourses like the Dow-Jones also follow this methodology. Currently the Sensex is
hovering around the 17,000 mark, all expected to touch 20K by 2011.But then
volatility has its important role to spoil the entire game.

National Stock Exchange (NSE)

National Stock Exchange (NSE) is considered to be the leader in the stock exchange
scenario in terms of the total volume traded. The market capitalisation the National
Stock Exchange touched about $921.31 billion at the end of May 2009. The National
Stock Exchange received the recognition of a stock exchange in July 1993 under
Securities Contracts (Regulation) Act, 1956. The products that are traded in the
National Stock Exchange are:-

• Equity or Share
• Futures (both index and stock)
• Options (Call and Put)
• Wholesale Debt Market
• Retail Debt Market

NSE has a fully automated screen based trading system which is known as the NEAT
system. The transactions are carried on with speed, efficiency, and are all transparent.
The risk management system of the National Stock Exchange is world class and can
be considered as the benchmark for other bourses.

The leading index of NSE is known as Nifty 50 or just Nifty. It comprises of 50

diversified benchmark Indian company scrips and is constructed on the basis of
weighted average market capitalization method.

Regulatory Authority of Indian Share Market

SEBI or Securities and Exchange Board of India is the market watchdog and has the
responsibility of protecting the investors' interests, develops regulatory norms and
helps in the development of the securities market in India.

Why to invest in Indian share market ?

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 • An investor does not require a lot of money to start investing in India share
market unlike buying property and paying off a monthly mortgage.
• Time of trading involved spans from small to big. One can trade for a short
period of time or even a lengthy span.
• It helps you to see 'fast' cash if the market is in robust mood and helps in fast
liquidation.

Essential rules of Indian Share Market

• Whenever share market is at its crest it is bound to dip at some point of time.
• If the share market is down, it will only increase if there are no external
aspects influencing it.
• Unlike the common belief of investing in booming share market, it is
advisable not to block your hard earned money in already flourishing Sensex
and NIFTY. It is better to wait for market bottom trend and then purchase shares
at lower cost in order to trade it later.
• The excellent time for investment is when the market is low keeping the
basics in consideration.
• Seek the advice of professionals who will not only provide you tips on best
investment options but also on favorable market conditions.
• Update yourself on the prevailing market conditions
• Whenever market witness an upward trend always purchase first and then
sell the securities, and when the market dips always buy later and sell first.

Tips on investing intelligently in Indian Share Market

• Consider selling the shares which you have bought long time back and are
indicating gains. Even if they are not willing to offer you considerable gains
then its time to get rid of them are invest your money in productive schemes.
• Diversify your shares buy investing in different sectors. Also consider
investing in equity funds and to stabilize your equity investments invest a part in
fixed income options like the bonds, Public Provident Fund, National Savings
Certificates and post office deposits. You can also consider a balanced or debt
fund if you have restrained budget.
• Do not consider the shares based on layman's advice. Stride carefully and
invest in shares that you are comfortable investing in. Judge the firm by its past
records and assess it personally. Take the advice of the fund manager who
manages that specific fund.
• If you have allocated more than half of your investments in equity, then
stick to your plan. Do not surpass that pre-decided perimeter and believe in the
performance of the market.

6
 COMPANY PROFILE
Introduction to Sharekhan Ltd.

Sharekhan Ltd. is one of the leading retail stock broking house of SSKI Group
which is running successfully since 1922 in the country. It is the retail broking arm of
the Mumbai-based SSKI Group, which has over eight decades of experience in the
stock broking business. Sharekhan offers its customers a wide range of equity related
services including trade execution on BSE, NSE, Derivatives, depository services,
online trading, investment advice etc.
The firm’s online trading and investment site - www.sharekhan.com - was launched
on Feb 8, 2000. The site gives access to superior content and transaction facility to
retail customers across the country. Known for its jargon-free, investor friendly
language and high quality research, the site has a registered base of over one lakh
customers. The content-rich and research oriented portal has stood out among its
contemporaries because of its steadfast dedication to offering customers best-of-
breed technology and superior market information. The objective has been to let
customers make informed decisions and to simplify the process of investing in
stocks.

On April 17, 2002 Sharekhan launched Speed Trade, a net-based executable

application that emulates the broker terminals along with host of other information
relevant to the Day Traders. This was for the first time that a net-based trading station
of this caliber was offered to the traders. In the last six months Speed Trade has
become a de facto standard for the Day Trading community over the net. Share
khan’s ground network includes over 1288 centers in 325 cities in India which
provide a host of trading related services.
Sharekhan has always believed in investing in technology to build its business. The
company has used some of the best-known names in the IT industry, like Sun
Microsystems, Oracle, Microsoft, Cambridge Technologies, Nexgenix, Vignette,
Verisign Financial Technologies India Ltd, Spider Software Pvt Ltd. to build its
trading engine and content. The Morakhiya family holds a majority stake in the
company. HSBC, Intel & Carlyle are the other investors.

With a legacy of more than 80 years in the stock markets, the SSKI group ventured
into institutional broking and corporate finance 18 years ago. Presently SSKI is one
of the leading players in institutional broking and corporate finance activities. SSKI
holds a sizeable portion of the market in each of these segments. SSKI’s institutional
broking arm accounts for 7% of the market for Foreign Institutional portfolio
investment and 5% of all Domestic Institutional portfolio investment in the country.

7
It has 60 institutional clients spread over India, Far East, UK and US. Foreign
Institutional Investors generate about 65% of the organization’s revenue, with a daily
turnover of over US$ 2 million.
The Corporate Finance section has a list of very prestigious clients and has many
‘firsts’ to its credit, in terms of the size of deal, sector tapped etc. The group has
placed over US$ 1 billion in private equity deals. Some of the clients include BPL
Cellular Holding, Gujarat Pipavav, Essar, Hutchison, Planetasia, and Shopper’s Stop.

PROFILE OF THE COMPANY

Name of the company: Sharekhan ltd.
Year of Establishment: 1925
Headquarter : Sharekhan SSKI
A-206 Phoenix House
Phoenix Mills Compound
Lower Parel
Mumbai - Maharashtra, INDIA- 400013
Nature of Business : Service Provider
Services : Depository Services, Online Services and
Technical Research.
Number of Employees : Over 3500
Revenue : Data Not Available
Website : www.sharekhan.com
Slogan : Your Guide to The Financial Jungle.

VISION
To empower the investor with quality advice and superior service to help him take
better investment decisions. We believe that our growth depends on client
satisfaction.

MISSION
 To provide the best customer service and product innovation tuned to diverse
needs of clientele.
 Continuous up-gradation with changing technology, while maintaining human
values.
 Respond to progressive globalization and achieving international standard.
 Efficiency and effectiveness built on ethical practices.

CORE VALUE
 Customer satisfaction through
 Providing quality service effectively and efficiently
 “Smile, it enhances your face value ” is a service quality stressed on
periodic customer service Audits
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 Maximization of stakeholder value
 Success through Teamwork, integrity and People

SHAREKHAN LIMITED’S MANAGEMENT TEAM

 Dinesh Murikya : Owner of the company
 Tarun Shah : CEO of the company
 Shankar Vailaya : Director (Operations)
 Jaideep Arora : Director (Products & Technology)
 Pathik Gandotra : Head of Research
 Rishi Kohli : Vice President of Equity Derivatives
 Nikhil Vora : Vice President of Research

About Sharekhan
· SSKI named its online division as SHARE KHAN and it is into retail Broking
· The business of the company overhauled 4 years ago on February 8, 2000.
· It acts as a discount brokerage house to a full service investment solutions
provider
· It has a 150 member strong team.
· It has specialized research product for the small investors and day traders
· Largest chain of share shops, 103 Franchisees & 17 Branches across India.
· It has $25m/trades every day.
· Leading player today with 20% market share
· Over 8000 online clients
· The site was also launched on February 8, 2000 and named it as
www.sharekhan.com
· The SpeedTrade account of share khan is the next generation technology
product launched on April 17, 2002
· SpeedTradePlus was launched on October 28, 2002 for trading in Derivatives
· It offers its customers with the trade execution facilities on the NSE, for cash
as well as derivatives, depository services
· Ensures convenience in trading experience:
Share Khan’s trading services are designed to offer an easy, hassle free
trading experience, whether trading is done daily or occasionally. The
customer will be entitled to a host of value added services, in the investment
process depending on his investing style and frequency. and offers a suite of
products and services, providing the customer with a multi-channel access to
the stock markets.
· It gives advice based on extensive research to its customers and provides
them with relevant and updated information to help him make informed about
his investment decisions.
· Share khan offers its customers the convenience of a broker-DP.
· It helps the customer meet his pay-in obligations on time thereby reducing the

9
possibility of auctions. The company believes in flexibility and therefore allows
accepting late instructions without any extra charge. And execute the
instruction immediately on receiving it and thereafter the customer can view
his updated account statement on Internet.
· Sharekhan Depository Services offers demat services to individual and
corporate investors. It has a team of professionals and the latest
technological expertise dedicated exclusively to their demat department. A
customer can avail of Demat \ Remat, Repurchase, Pledge, Transmission
facilities at any of the Share khan branches and business partners outlets.

Sharekhan is infact-
• Among the top 3 branded retail service providers
• No. 1 player in online business
• Largest network of branded broking outlets in the country serving more than
7, 00,000 clients.

PRODUCT OFFERING OF SHAREKHAN LTD.

Product Variety
Share khan offers 3 types of online trading accounts for its customers specially
designed according to their volume in share trading. Those 3 varieties are:
· Classic- for retail investors
· Speed Trade: for high net worth investors with large and active equity
portfolio who need to monitor and action swiftly
· Speed trade Plus- for high net worth investors dealing in derivative market.

Quality
User Friendly, attractive & colorful Website.

Design
The website of Share khan namely www.sharekhan.com has been specially
designed to facilitate its users to buy and sell shares in an instant at anytime and
from anywhere they like. The site is user friendly allowing even a layman to easily
operate without any hassles.

Features:
Share khan’s product comes with the following features:
Trade execution in a fraction of a second!
Single Screen Trading Terminal
Real time streaming quotes. Price watch on any number of scripts.
Hot keys similar to Brokers Terminal.
Customized Alerts based on Multiple Parameters.
Back up Facility to place trades on Direct Phone Lines.
Intra day charts, updated live, tick-by-tick.

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Instant Order\ Trade Confirmation in the same window
Live margin, position, marked to market profit & loss report.
Competitive Brokerage.
Flexibility to customize screen layout and setting.
Facility to customize any number of portfolios & watch lists.
Facility to cancel all pending orders at one click.
Facility to square off all transactions at one click.
Top Gainers, Top Losers, and Most Active, updated live.
Index information; index chart, index stock information live.
Market depth, i.e. Best 5 bids and offers, updated live for all scripts
Online access to both accounts and DP.
Live updated Order and Trade Book.
Details of pending, executed and rejected orders.
Online access to Customer Service.
128 - bit super safe encryption.
Facility to place after market orders
Online fund transfer facility from leading Banks
Online intra-day technical calls.
Exhaustive database of over 2000 companies
Historical charts and technical analysis tools.
Last but not the least, ideas that help you to make money!!!

Brand Name
The company as a whole in its offline business has named itself as SSKI Securities
Pvt. Ltd -Sevaklal Sevantilal Kantilal and Ishwarlal Securities Pvt. Ltd. The company
has preferred to name themselves under a Blanket Family Name. But in its online
division started since 1997, the company preferred to name itself as“SHARE
KHAN”. The Brand Name “SHARE KHAN” itself suggests the business in which
the company is dealing so that the consumer could easily identify the product or
service category.

Services
Share khan offers its customers, depository services and trade execution facilities for
equities, derivatives and commodities backed with investment advice tempered by
decades of broking experience. The teams of its dedicated analysts are constantly at
work to track performance and trends. Dial-n-trade is also an exclusive service
available to all Sharekhan customers for trading in shares via the telephone. On
dialing the toll free number 1600-22-7050 and on entering the customers TPIN
number, the customer will be directed to a telebroker who will buy or sell shares for
him.

 PRICE
Annual Maintainence Plans*

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AMC Brokerage
Rs. 750 0.5 delivery 0.1 intraday
Rs. 2000 0.4 delivery 0.07 intraday

Rs. 6000 0.25 delivery 0.05 intraday

*These AMC plans are subject to change

· Brokerage
Share khan in its online business charges brokerage as follows:
- In equity Market:
On Trading: 0.1% On Delivery: 0.5%
- In Derivative Market
On Trading: 0.12% (Total brokerage) On Delivery: 0.1%

· Service Tax
-10.30% on Brokerage.
· Turnover tax + Stamp duty
-0.015% (Rs. 15 on every turnover of Rs. 100000)
· Custody Charge
Re. 1 per script held per month.
· Discounts
For investors with High Net worth, there are slabs in brokerage rates.
· Payment Period
The transaction settlement date in the securities market is T+ 5days i.e. the
payment of the transaction taken place has to be made within five days of its
occurrence.
· Credit terms
Share khan allows its customers to trade up to 4 times i.e. by keeping 1/4th
margin with them.

SHAREKHAN’S STOCK CLUSTER

Sharekhan categorize all the scrip’s that are under coverage into six clusters. Each
cluster represents a certain profile in terms of business fundamentals as well as the
kind of returns you can expect over a certain time horizons and return objectives best.
Evergreen
Dominant players with strong brands, robust management credentials, supernormal
shareholder returns. Will steadily compound 18-20% per year for next five to ten
years.
Applegreen
Potentially steady compounders, but five to ten years graph bit unclear.
Could gallop at 25-30 per year over the next two to three years.
Emerging Star

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Young companies likely to rule chosen niches. Even better, the niches
could balloon into full-blow markets. Potentially ten-baggers if you’re
patient.
Ugly Duckling
Trading below fair value or at huge discount to peer group. But
somtehing’s cooking.Could double in two to three years time.
Vulture’s Pick
Companies with valueable assets at throwaway prices. Buy & await
predators. Startlingly high returns possible.
Cannonball
Season’s favourites. Typically fast gainers in rising markets, could return 30-50%
within six months. Get in, cash in, get out.

Publications of Sharekhan
Sharekhan’s Valueline
Derivatives Digest
Eagle Eye
High Noon
Investor’s Eye
Commodities Buzz
Commodities Beat
Commodity Trader’s Corner
Sharekhan Xclusive

RESEARCH SECTION IN SHAREKHAN LIMITED

Sharekhan Limited has its own in-house Research Organisation which is known as
Valueline. It comprises a team of experts who constantly keep an eye on the share
market and do research on the various aspects of the share market. Generally the
research is based on the Fundamentals and Technical analysis of different companies
and also taking into account various factors relating to the economy. Sharekhan
Limited’s research on the volatile market has been found accurate most of the time.
Sharekhan's trading calls in the month of November 2007 has given 89% strike rate.
Fundamental Research:
Stock Ideas
Aimed at investors. Presents our stock pick and discusses reasons for the same. It
comes with a price target and a time frame over which gains can be materialised.

Investors' Eye
A daily fundamental newsletter to help you take right decisions.

 Contents Views on most important news reports of the day

 Stock Update reports

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  Special reports
 Other reports

Sharekhan Top Picks

A model portfolio comprising of 12 stocks for investors with a horizon of more than
a year. Portfolio is updated with new stocks replacing existing stocks as and when
required to optimize performance

View Point
Views on companies we don't track. Views on economy, policy changes and
government initiatives

Special Reports
Specialised reports on unique market opportunities.
Reports like - Selectivity pays, Monetary policy review, Hurricane gains, Dividend
yield stocks, etc.

IPO Flash
Report on forthcoming IPOs - only those IPOs which are covered by our research
team

Sector Reports
View on various sectors and its constituents (eg sugar and Balrampur Chini, KCP
Sugar Industries, Upper Ganges)

Market Outlook
Bi-monthly Fundamental view on the market.

Technical Research:

Punter Calls

A daily view on how the market and major indices are expected to trade for the day
The closest support and resistance levels are provided to help traders take decisions.

Calls created for tomorrow

These calls are for a one-day period and are created today to buy in cash or futures
for selling tomorrow at the target price. Buy with a stop loss or square off by
3.30pm the day after.

Smart Chart

14
It presents the best positional trading calls in the market.

Derivatives Calls
It is toolkit for derivative traders.

Day Traders Hit List

It captures the trading ranges of all the stocks that are currently the market's flavour.
It is meant for day trading. All positions need to be squared off by 3.30. The list
contains 20 liquid stocks.

Pivot Tables
Pivot Table is an intra-day product and it covers mainly mid-cap and small-cap
companies. The Buy and Sell targets are given for each stock in this list.

Momentum Swing
Momentum Swing tries to capture the dynamic picture of price movements in stocks.
This product can be used to gauge the sentiments in stocks at a future date as
reflected in the charts.
Eagle Eye
Eagle Eye is a daily newsletter based on technical research.

High Noon
Toolkit for derivative traders

Scope Of The Project

Indian Financial Market
Introduction Of Capital Market
Introduction Of Stock Exchange
Stock exchanges in India
Evolution Of stock trading in India
Types of Transactions or orders in stock market
Transaction Settlement System
Factors Affecting Indian Stock market
The current Stock market scenario in India

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NATURE OF THE PROJECT
SIGNIFICANCE TO THE INDUSTRY:
This data can be explored to take in the trends across the industry. The significance
for the industry lies in studying these trends that emerge from the study. It is a
rapidly changing and evolving sector. People are only beginning to wake up to it’s
vast possibilities. A study like this can attempt to guide the
future of the industry based on current trends.

SIGNIFICANE FOR THE RESEARCHER :

To facilitate and provide all the useful information of the study, which can be helpful
to make decision for investing money in right shares which is profitable to investors
as well as brokers.

RESEARCH DESIGN :
 Source of Data.
 Method of Data collection.
 Types of research.
 Tools of analysis

Source of Data:
There are many sources which provide information regarding the research. The data
may be of two types
1) Primary Data.
2) Secondary Data
1) Primary Data :
Primary data is data which is not already available. Primary data is found in its
original form. Primary data are those which are collected afresh and for the first time,
and thus happen to be original in character.
Methods for collecting primary data are:
Questionnaires
Interviews
Schedules etc.
In this study the interview method have been used.

2) Secondary Data :

16
Secondary data means data that are already available i.e. they refer to the data which
have already been collected and analyzed by others. Secondary data may
be published or unpublished.
The sources of secondary data are:
Bulletin, books and magazines organized by organizations.
Web Sites, Official records.
Case studies.

DISCRIPTIVE AS WELL AS ANALYTICAL

RESEARCH
The research is primarily descriptive as well as analytical in nature. The sources of
information are both primary & secondary.

Descriptive research is used to obtain information concerning the current status of the
phenomena to describe "what exists" with respect to variables or conditions in a
situation. The methods involved range from the survey which describes the status
quo, the correlation study which investigates the relationship between variables, to
developmental studies which seek to
determine changes over time.

Descriptive research can be of two types:

i. Quantitative descriptive research emphasizes on what is, and makes use of
quantitative methods to describe, record, analyze and interpret the present conditions.
ii. Qualitative descriptive research also emphasizes on what is, but makes use of non-
quantitative research methods in describing the conditions of the present.

Tool of Analysis:

Qualitative:
It is concerned with the qualitative phenomenon i.e. phenomenon related to or
involves quality. For instance, when we are interested in investigating the reason for
human behavior i.e. why people think or do certain thing.
We quite often talk of “Motivation Research” an important type of qualitative
research. This type of research aims at discovering the underlying motives and
desires, using the depth interview for the purpose.

 Observation:-
Observation includes minute observation of activities take place in the field of
research. For observation in this study secondary data has been used.

LIMITATIONS OF THE RESEARCH

1. Data Collection:

17
The most important constraint in this study was data collection as Secondary data
was selected for study. Secondary data means data that are already available i.e. they
refer to the data which have already been collected and analysed by someone else.

2. Time Period:
Time period was one of the main factor as only two month was allotted and the topic
covered in research has a wide scope. So, it was not possible to cover it in a short
span of time.

3. Reliability:
The data collected in research work was secondary data, So, this puts a question mark
on the reliability of this data, which a very important factor of this study as
conclusion has been derived from this secondary data only.

4. Accuracy:
The facts and findings of the data cannot be accepted as accurate to some extent as
firstly, secondary data was collected. In a rapidly changing industry, analysis on one
day or in one segment can change very quickly. The environmental changes are vital
to be considered in order to assimilate the findings.

OBJECTIVE OF STUDY

• To know the basic terminology of stock market.

• To make the investor aware about the factors which may affect their
investment
• It is to analyze the changes in trading after the exchange shifted from outcry to
online trading system.
• To know about the latest and future development in the stock exchange
trading system.

18
INTRODUCTION

19
 Scope of Indian Financial Market1

The financial market in India at present is more advanced than many other sectors as
it became organized as early as the 19th century with the securities exchanges in
Mumbai, Ahmedabad and Kolkata. In the early 1960s, the number of securities
exchanges in India became eight - including Mumbai, Ahmedabad and Kolkata.
Apart from these three exchanges, there was the Madras, Kanpur, Delhi, Bangalore
and Pune exchanges as well. Today there are 23 regional securities exchanges in
India.

The Indian stock markets till date have remained stagnant due to the rigid economic
controls. It was only in 1991, after the liberalization process that the India securities
market witnessed a flurry of IPOs serially. The market saw many new companies
spanning across different industry segments and business began to flourish.

The launch of the NSE (National Stock Exchange) and the OTCEI (Over the Counter
Exchange of India) in the mid 1990s helped in regulating a smooth and transparent
form of securities trading.

The regulatory body for the Indian capital markets was the SEBI (Securities and
Exchange Board of India). The capital markets in India experienced turbulence after
which the SEBI came into prominence. The market loopholes had to be bridged by
taking drastic measures.

Potential Of Indian Financial Market

India Financial Market helps in promoting the savings of the economy - helping to
adopt an effective channel to transmit various financial policies. The Indian financial
sector is well-developed, competitive, efficient and integrated to face all shocks. In
the India financial market there are various types of financial products whose prices
are determined by the numerous buyers and sellers in the market. The other

1
http://business.mapsofindia.com/india-market/financial.html

20
 determinant factor of the prices of the financial products is the market forces of
demand and supply. The various other types of Indian markets help in the functioning
of the wide India financial sector.

Features Of Financial Market in India

• India Financial Indices - BSE 30 Index, various sector indexes, stock
quotes, Sensex charts, bond prices, foreign exchange, Rupee & Dollar Chart
• Indian Financial market news
• Stock News - Bombay Stock Exchange, BSE Sensex 30 index, S&P CNX-
Nifty, company information, issues on market capitalization, corporate earning
statements
• Fixed Income - Corporate Bond Prices, Corporate Debt details, Debt trading
activities, Interest Rates, Money Market, Government Securities, Public Sector
Debt, External Debt Service
• Foreign Investment - Foreign Debt Database composed by BIS, IMF,
OECD,& World Bank, Investments in India & Abroad
• Global Equity Indexes - Dow Jones Global indexes, Morgan Stanley Equity
Indexes
• Currency Indexes - FX & Gold Chart Plotter, J. P. Morgan Currency
Indexes
• National and Global Market Relations
• Mutual Funds
• Insurance
• Loans
• Forex and Bullion

A well-developed financial sector performs the following functions:

• It promotes overall savings of the economy by providing alternative
instruments;
• It allocates resources efficiently among the sectors; and
• It provides an effective channel for the transmission of policy
impulses provided the financial markets are competitive, efficient
& integrated.
A typical competitive financial market has the following characteristics:
• There should be large numbers of buyers and sellers of the financial
product;

21
• The price of the product is determined by the market forces of
demand and supply;
• There should be a secondary market for the instrument;
• Turnover of instruments in both primary and secondary markets
should be fairly large; and
• Agencies involved in the process of intermediation between buyers
and sellers should provide intermediation services at a minimum
spread.

A market is said to be efficient if the rate prevailing at any point of time

contains all existing information in the market. If the realized rate contains all
information, then the future rate cannot be appropriately predicted. In fact, the
future rate reacts differently depending on the information that would be available at
that point of time. In other words the future rates can adopt a path of random walk.

According to functional basis financial markets are classified into two types.
They are:
 Money markets (short-term)
 Capital markets (long-term)

MONEY MARKET
Money market is a place where we can raise short-term capital.
The money market is further classified into:
 Inter bank call money market
 Bill market and
 Bank loan market Etc.
 Treasury bills, commercial papers, CD's etc.

CAPITAL MARKET
Capital Market may be defined as a market dealing in medium and long-term funds.
It is an institutional arrangement for borrowing medium and long-term funds and
which provides facilities for marketing and trading of securities. So it constitutes all
long-term borrowings from banks and financial institutions, borrowings from foreign
markets and raising of capital by issue various securities such as shares debentures,
bonds, etc.
The market where securities are traded known as Securities market. It consists of two
different segments namely primary and secondary market. The primary market deals
with new or fresh issue of securities and is, therefore, also known as new issue

22
market; whereas the secondary market provides a place for purchase and sale of
existing securities and is often termed as stock market or stock exchange.

The Primary Market

The Primary Market consists of arrangements, which facilitate the procurement of
long term funds by companies by making fresh issue of shares and debentures. The
companies make fresh issue of shares and/or debentures at their formation stage and,
if necessary, subsequently for the expansion of business. The fresh issue of shares by
the companies is called as Intial Public Offer. Primary market is also referred to as
New Issue Market.The companies have to follow a well-established legal procedure
and involve a number of intermediaries such as underwriters, brokers, etc. who form
an integral part of the primary market.
The primary market is regulated by the Securities and Exchange Board of India
(SEBI a government regulated authority).

Function:
The main services of the primary market are origination, underwriting, and
distribution. Origination deals with the origin of the new issue. Underwriting contract
make the shares predictable and remove the element of uncertainty in the
subscription. Distribution refers to the sale of securities to the investors.
The following are the market intermediaries associated with the market:
1. Merchant banker/book building lead manager
2. Registrar and transfer agent
3. Underwriter/broker to the issue
4. Adviser to the issue
5. Banker to the issue
6. Depository
7. Depository participant

Investors’ protection in the primary market:

To ensure healthy growth of primary market, the investing public should be
protected. The term investor protection has a wider meaning in the primary market.
The principal ingredients of investors’ protection are:
 Provision of all the relevant information
 Provision of accurate information and
 Transparent allotment procedures without any bias.

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 The Secondary Market
Secondary Market refers to a market where securities are traded after being
initially offered to the public in the primary market and/or listed on the Stock
Exchange. Majority of the trading is done in the secondary market. Secondary
market comprises of equity markets and the debt markets. Secondary market is
an equity trading avenue in which already existing/pre- issued securities are
traded amongst investors.
Secondary Market is the market where, unlike the primary market, an investor
can buy a security directly from another investor in lieu of the issuer. It is
also referred as "after market". The securities initially are issued in the
primary market, then they enter into the secondary market.
In the secondary market shares are maneuvered from one investor to other,
that is, one investor buys an asset from another investor instead of an
issuing corporation. So, the secondary market should be liquid.

Function:
Secondary marketing is vital to an efficient and modern capital market. 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

24
 price aids the efficient allocation of debt finance whether debt offerings or
institutional borrowing.

For the general investor, the secondary market provides an efficient platform for
trading of his securities. For the management of the company, Secondary equity
markets serve as a monitoring and control conduit-by facilitating value-enhancing
control activities, enabling implementation of incentive-based management contracts,
and aggregating information (via price discovery) that guides management
decisions.
In the primary market, securities are offered to public for subscription for the purpose
of raising capital or fund. Secondary market is an equity trading venue in which
already existing/pre-issued securities are traded among investors. Secondary market
could be either auction or dealer market. While stock exchange is the part of an
auction market, Over-the-Counter (OTC) is a part of the dealer market.

The following are the intermediaries in the secondary market:

1. Broker/member of stock exchange – buyers broker and sellers broker
2. Portfolio Manager
3. Investment advisor
4. Share transfer agent
5. Depository
6. Depository participants.

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 THE STOCK EXCHANGE
Organized and regulated financial market where securities (bonds, notes, shares)
are bought and sold at prices governed by the forces of demand and supply.
Stock exchanges basically serve as (1) primary
markets where corporations, governments, municipalities, and
other incorporated bodies can raise capital by channeling savings of
the investors into productive ventures; and (2) secondary markets where investors
can sell their securities to other investors for cash, thus reducing
the risk of investment and maintaining liquidity in the system. Stock
exchanges impose stringent rules, listing requirements, and statutory requirements
that are binding on all listed and trading parties. Trades in the older exchanges are
conducted on the floor (called the 'trading floor') of the exchange itself, by
shouting orders and instructions(called open outcry system). On modern exchanges,
trades are conducted over telephone or online. Almost all exchanges are 'auction
exchanges' where buyers enter competitive bids and sellers enter competitive orders
through a trading day. Some European exchanges, however, use
'periodic auction' method in which round-robin calls are made once a trading day.
The first stock exchange was opened in Amsterdam in 1602; the three largest
exchanges in the world are (in the descending order) New York Stock Exchange
(NYSE), London Stock Exchange (LSE), and the Tokyo Stock Exchange (TSE).2
A stock exchange is an entity which provides "trading" facilities for stock
brokers and traders, to trade stocks and other securities. Stock exchanges also provide
facilities for the issue and redemption of securities as well as other financial
instruments and capital events including the payment of income and dividends. The

2
http://www.businessdictionary.com/definition/stock-exchange.html

26
securities traded on a stock exchange include shares issued by companies, unit
trusts, derivatives, pooled investment products and bonds.
To be able to trade a security on a certain stock exchange, it has to be listed there.
Usually there is a central location at least for recordkeeping, but trade is less and less
linked to such a physical place, as modern markets are electronic networks, which
gives them advantages of speed and cost of transactions. Trade on an exchange is by
members only.
The initial offering of stocks and bonds to investors is by definition done in
the primary market and subsequent trading is done in the secondary market. A stock
exchange is often the most important component of a stock market. Supply and
demand in stock markets are driven by various factors which, as in all free markets,
affect the price of stocks.
There is usually no compulsion to issue stock via the stock exchange itself, nor must
stock be subsequently traded on the exchange. Such trading is said to be off
exchange or over-the-counter. This is the usual way that derivatives and bonds are
traded. Increasingly, stock exchanges are part of a global market for securities.

27
 The Stock Exchanges in India
The equity brokerage industry in India is one of the oldest in the Asia region. India
had an active stock market for about 150 years that played a significant role in
developing risk markets as also promoting enterprise and supporting the growth of
industry.

The roots of a stock market in India began in the 1860s during the American Civil
War that led to a sudden surge in the demand for cotton from India resulting in
setting up of a number of joint stock companies that issued securities to raise
finance. This trend was akin to the rapid growth of securities markets in Europe and
the North America in the background of expansion of railroads and exploration of
natural resources and land development.

Historical records show that as early as 1864, there were about 1,000 brokers with
the stock markets functioning from three places in Mumbai; between 9 am to 7 pm
at the junction of Meadows Street and Rampart Row, from day break till 9 am and
from 7 pm to early hours of next morning at Bazargate.

Share prices rose sharply even at that time. A share of Colaba Land Company during
the boom period of the 1860s rose from Rs 10,000 at par to Rs 120,000 and that of
Backbay Shares went up from Rs 2,000 to Rs 54,000. Bombay, at that time, was a
major financial centre having housed 31 banks, 20 insurance companies and 62 joint
stock companies.

Reports on stock markets around that time indicate that an ordinary broker in 1864
earned about Rs 200 per day, a huge sum in those days. The boom period came to an
abrupt end in 1865. In Jul 1865, what was then used to be called the share mania

28
ended with burst of the stock market bubble. “Never I witnessed in any place a run
so widely distributed nor such distress followed so quickly on the heels of such
prosperity” thus wrote Richard Temple, who served as the Governor of Bombay at
that time. An interesting aspect is that despite the collapse of the stock market, most
of the brokers met their payment commitments.

In the aftermath of the crash, banks, on whose building steps share brokers used to
gather to seek stock tips and share news, disallowed them to gather there, thus
forcing them to find a place of their own, which later turned into the Dalal Street. A
group of about 300 brokers formed the stock exchange in Jul 1875, which led to the
formation of a trust in 1887 known as the “Native Share and Stock Brokers
Association”.

A unique feature of the stock market development in India was that that it was
entirely driven by local enterprise, unlike the banks which during the pre-
independence period were owned and run by the British. Following the
establishment of the first stock exchange in Mumbai, other stock exchanges came
into being in major cities in India, namely Ahmedabad (1894), Calcutta (1908),
Madras (1937), Uttar Pradesh and Nagpur (1940) and Hyderabad (1944). The stock
markets gained from surge and boom in several industries such as jute (1870s), tea
(1880s and 1890s), coal (1904 and 1908) etc, at different points of time.

Beginning of a new equity culture

A new phase in the Indian stock markets began in the 1970s, with the introduction of
Foreign Exchange Regulation Act (FERA) that led to divestment of foreign equity
by the multinational companies, which created a surge in retail investing. The early
1980s witnessed another surge in stock markets when major companies such as
Reliance accessed equity markets for resource mobilisation that evinced huge
interest from retail investors.

A new set of economic and financial sector reforms that began in the early 1990s
gave further impetus to the growth of the stock markets in India. As a part of the
reform process, it became imperative to strengthen the role of the capital markets
that could play an important role in efficient mobilisation and allocation of financial
resources to the real economy. Towards this end, several measures were taken to
streamline the processes and systems including setting up an efficient market
infrastructure to enable Indian finance to grow further and mature. The importance
of an efficient micro market infrastructure came into focus following the incidence
of market abuses in securities and banking markets in 1991 and 2001 that led to
extensive investigations by two respective Joint Parliamentary Committees.

29
The Securities and Exchange Board of India (SEBI), which was set up in 1988 as an
administrative arrangement, was given statutory powers with the enactment of the
SEBI Act, 1992.

The broad objectives of the SEBI include

• to protect the interests of the investors in securities

• to promote the development of securities markets and to regulate the
securities markets

The scope and functioning of the SEBI has greatly expanded with the rapid growth
of securities markets in India in the last fifteen years.

Rapid Growth

The last decade has been exceptionally good for the stock markets in India. In the
back of wide ranging reforms in regulation and market practice as also the growing
participation of foreign institutional investment, stock markets in India have showed
phenomenal growth in the early 1990s. Stock markets became intensely technology
and process driven, giving little scope for manual intervention that has been the
source of market abuse in the past. Electronic trading, digital certification, straight
through processing, electronic contract notes, online broking have emerged as major
trends in technology. Risk management became robust reducing the recurrence of
payment defaults. Product expansion took place in a speedy manner. Indian equity
markets now offer, in addition to trading in equities, opportunities in trading of
derivatives in futures and options in index and stocks. Within five years of
introduction of derivatives, Indian stock markets now are ranked first in stock
futures and fourth in index futures. Indian stock markets are transaction intensive
and thus rank among the top five markets in this regard. Stock exchange reforms
brought in professional management separating conflicts of interest between brokers
as owners of the exchanges and traders/dealers. The demutualisation and
corporatisation of all stock exchanges is nearing completion and the boards of the
stock exchanges now have majority of independent directors. Foreign institutions
took stake in India’s two leading domestic stock exchanges.

Capital market reforms are a major constituent of the overall economic reforms in
India. A series of measures announced in Union Budgets beginning FY92 laid the
road map for the growth and resurgence of securities markets in India. These
included -

• improving the investment climate by allowing foreign institutional investors to

invest in equity and debt markets
• expanding the product range offered by the stock exchanges
• strengthening the role and scope of capital markets regulation

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 • revival of commodities futures markets
• allowing Indian companies to issues ADRs and GDRs in international
exchanges and enable them to raise resources through Euro Commercial
Borrowings
• divestment of government ownership in state owned companies and financial
institutions
• tax reforms in the form of introduction of transaction tax that streamlined the
tax mobilisation from securities markets operations and also facilitated
investors, a choice of tax options in the form of choosing either long term
gains tax or short term tax which ever they prefer and subscribe to
• strengthening of institutional framework in primary and secondary markets
• reform and restructuring of the state owned assets management companies
• allowing Indian companies and individuals to invest abroad
• allowing stronger banks to assume greater exposure in the securities markets
• Setting up a mechanism for promoting corporate bond trading in stock
exchanges etc.

Regulation

A new phase of securities market regulation in India began with the setting up of
Securities and Exchange Board of India in 1992. Over the period, the Board has
brought in several changes in the way securities markets are organized and
conducted in India.

The securities and exchange board of India was constituted in 1988 under a
resolution of government of India. It was later made statutory body by the SEBI act
1992.according to this act, the SEBI shall constitute of a chairman and four other
members appointed by the central government.

OBJECTIVES AND FUNCTIONS OF SEBI

 To protect the interest of investors in securities.
 Regulating the business in stock exchanges and any other securities market.
 Registering and regulating the working of intermediaries associated with
securities market as well as working of mutual funds.
 Promoting and regulating self-regulatory organizations.
 Prohibiting insider trading in securities.
 Regulating substantial acquisition of shares and take over of companies.
 Performing such functions and exercising such powers under the provisions
of capital issues (control) act, 1947and the securities to it by the central
government.

SEBI GUIDELINES TO SECONDARY MARKETS

31
 • Board of Directors of Stock Exchange has to be reconstituted so as to include
non-members, public representatives and government representatives to the
extent of 50% of total number of members.
• Capital adequacy norms have been laid down for the members of various stock
exchanges depending upon their turnover of trade and other factors.
• All recognized stock exchanges will have to inform about transactions within
24hrs.

Major reforms that were brought in the Indian securities markets since 1992 are
summarized below:

• Nation wide network of trading terminals

• Electronic Trading and abolition of Open Outcry systems
• Dematerialisation of Shares
• Foreign Participation in Domestic Brokerage Business
• Foreign Institutional Investment in Indian stocks
• Venture capital
• Book Building Process for IPOs
• Investor protection guidelines
• Dual Fungibility of ADRs/GDRs
• Delisting Guidelines
• Corporate Governance and Disclosure Standards
• Take Over Code
• Insider Trading
• VAR based margining
• T+2 Securities Settlement
• Straight Through Processing
• Screen based trading of Government Securities
• Introduction of Equity Derivatives
• Exchange Traded Market for Corporate Bonds
• Central Listing Authority
• Mutual Funds in the private sector
• Mutual Fund Investments Abroad
• Demutualization and Corporatisation of Stock Exchanges
• Margin Trading
• Exchange Traded Funds
• Anti-Money Laundering Guidelines
• Electronic Data Information Filing and Retrieval (EDIFAR)
• Integrated market surveillance
• Rating of IPOs
• Unique Client Identification

The Stock Market Structure in India

32
Indian securities market is fairly large as compared to several other emerging
markets. There are 22 stock exchanges in the country, though the entire liquidity is
shared between the country’s two national level exchanges namely, the National
Stock Exchange of India and the Bombay Stock Exchange Ltd. The regional stock
exchanges are in pursuit of business models that make them viable and vibrant.
Meanwhile, these exchanges have become members of the national level exchanges
through formation of subsidiaries whose business is showing continuous growth and
progress.

There are 22 stock exchanges in India, the first being the Bombay Stock Exchange
(BSE), which began formal trading in 1875, making it one of the oldest in Asia. Over
the last few years, there has been a rapid change in the Indian securities market,
especially in the secondary market. Advanced technology and online-based
transactions have modernized the stock exchanges. In terms of the number of
companies listed and total market capitalization, the Indian equity market is
considered large relative to the country’s stage of economic development. The
number of listed companies increased from 5,968 in March 1990 to about 10,000 by
May 1998 and market capitalization has grown almost 11 times during the same
period.

The India stock market is steered on by the two exchanges viz, Bombay Stock
Exchanges (BSE) and National Stock Exchange (NSE). The trade and business of the
entire country is dependant on the performance of these two main stock exchanges.
Any minor developments in the economy might push the indexes on these exchanges
down or vice versa.

The India stock market boasts of a fully automated trading system on all stock
exchanges, provides a wide range of products. It is an integrated platform to trade in
both cash and derivatives and has a host of around 4,000 corporate brokers all across
India. The stock market of India has made considerable progress following its
international peers and the modern market mechanisms have helped them create a
niche for themselves.

The market regular, Securities and Exchange Board of India (SEBI) plays an
important role in the management of the stock exchanges in India. The regulatory
methods are sound - in terms of intermediaries, trading mechanism, settlement
cycles, risk management, derivative trading. The usage of Information technology is
to a large extent responsible for the outstanding performance of the stock markets in
India.

The two main players of the India stock market - NSE and BSE have outshone all the
other exchanges and majority of the stocks are listed on these two exchanges. The
market participants are ever increasing, the volume of securities has been growing,

33
transaction costs are getting reduced, and there is significant improvement in
efficiency, transparency and safety. The international standards are well complied
with to maintain global standard of performance.

Membership

The trading platform of a stock exchange is accessible only to brokers. The broker
enters into trades in exchanges either on his own account or on behalf of clients. The
clients may place their order with them directly or a sub-broker indirectly. A broker
is admitted to the membership of an exchange in terms of the provisions of the
SCRA, the SEBI act 1992, the rules, circulars, notifications, guidelines, etc.
prescribed there under and the byelaws, rules and regulations of the concerned
exchange. No stockbroker or sub-broker is allowed to buy, sell or deal in securities,
unless he or she holds a certificate of registration granted by SEBI. A broker/sub-
broker compiles with the code of conduct prescribed by SEBI.

The stock exchanges are free to stipulate stricter requirements for its members than
those stipulated by SEBI. The minimum standards stipulated by NSE for membership
are in excess of the minimum norms laid down by SEBI. The standards for admission
of members laid down by NSE stress on factors, such as, corporate structure, capital
adequacy, track record, education, experience, etc. and reflect the conscious
endeavors to ensure quality broking services.

Indian Brokerage Industry

The Indian broking industry has come a long way in the last decade and has also
undergone a significant paradigm shift. The industry has shed most of its negative
trappings of the past and is now being considered a preferred sector for building long
term careers by professionals from all disciplines. Unprecedented growth of market
volumes and growing participation by investors spread beyond the traditional
geographical pockets, coupled with professionalization of work cultures and demand
for value-added services like investment advisory and portfolio management, has
created a huge demand for talent at all levels.

34
This growth story is expected to be sustained for at least a decade or even more
because of the steady increase in the investor penetration and wider acceptance of
stock investments as a reliable option for long term wealth creation. Robust all round
economic growth and favourable demographics are other important factors which are
transforming India from a nation of savers to investors. Improved quality of the
Indian regulatory framework and high compliance standards, have led to greater
transparency in all transactions and minimized the systemic risks.

Historically, the Indian financial services industry has been dominated by the
banking sector. However, globalization & liberalization of Indian Equity Markets has
led to rapid modernization and the professionalization of the financial sector. This
has led to the emergence of the broking industry, as an important part of the financial
services sector, competing for talent with banks, insurance companies, NBFCs etc.
The Indian Broking industry has indeed come of age & is attracting huge investments
from large domestic corporate houses as well as from international players. The
Indian Broking industry is now in a most exciting phase and is likely to grow at a
much faster rate compared with many other sectors. High quality Research & Advice,
State-of-the-art Technology & Business Analytics, Progressive HR Practices and
CRM/Quality Management systems, have emerged as the new drivers of competitive
advantage in this business. The scope of services provided by domestic brokerages
has also moved up the value chain from mere Execution & Settlement to cover the
full range of financial products to meet the diverse needs of customers, who are
better educated and aware about Personal Financial Planning.

Listing

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

exchange, invariably evidenced by a listing agreement between the issuer of the
security and the stock exchange. Listing of securities on Indian Stock Exchanges is
essentially governed by the provisions in the companies act, 1956, SCRA, SCRR,
rules, bye-laws and regulations of the concerned stock exchange, the listing

35
agreement entered into by the issuer and the stock exchange and the circulars/
guidelines issued by central government and SEBI.

Index services

Stock index uses a set of stocks that are representative of the whole market, or a
specified sector to measure the change in overall behavior of the markets or sector
over a period of time. India Index Services & Products Limited (IISL), promoted by
NSE and CRISIL, is the only specialized organization in the country to provide stock
index services.

36
 Evolution Of Stock Trading In India
OUTCRY SYSTEM
The broker has to buy or sell securities for which he has received the orders. For
this, the broker or his authorized representatives goes to the stock exchange. This
method is called the open outcry system. Basically the brokers shout while buying or
selling the securities. The floor of the stock exchange is divided into a number of
markets also known as ‘post pit’ or wing based on particular securities dealt there. In
the post pit or wing, the broker using ‘open outcry’ method makes an offer or bid
price. For making the necessary bargain, he quotes his purchase or sale price, also
known as offer or bid price. The dealer, to whom the price is quoted, quotes his own
price when the quotation of the dealer suits the broker, he may loose the bargain. If
he is not satisfied with the quote price, he may turn to some other dealer. On the
close of the bargain, the dealer as well as the broker makes a brief note of the
particulars of the deal. Such notes are made on some pad and on it the number of
shares, the price agreed upon, the name of the party, what membership number etc.,
are noted.

DISADVANTAGES OF OUTCRY SYSTEM:

 It lacks transparency.
 The scope of manipulation, speculation and mal practice is more.
 Signal were more important in the outcry system any member who could not
interpret the buy/sell signal correctly often landed himself in disaster situation.
 In audibility was another disadvantage of the outcry system.

MANUAL TRADING
Trading procedure before introduction of online trading:
Trading on stock exchanges is officially done in the trading ring. In the trading ring
the space is provided for specified and non-specified sections, the members and their
authorized assistants have to wear a badge or carry with them an identity card given
by the exchange to enter the trading ring. They carry a sauda book or confirmation
memos, duly authorized by the exchange and carry a pen with them. The stock
exchanges operations are floor level are technical in nature .Non members are not
permitted to enter in to stock market. Hence various stages have to be completed in
executing a transaction at a stock exchange .The steps involved in this method of
trading have given below:
Choice of broker:

37
sell shares and transact business, have to act through member brokers only. They can
also appoint their bankers for this purpose as per the present regulations.
Placement of order:
The next step is the prospective investor who wants to buy shares or the
investors, who wants to placing order for the purchase or sale of securities with a
broker. The order is usually placed by telegram, telephone, letter, fax etc or in
person. To avoid delay, it is placed generally over the phone. The orders may take
any one of the forms such as At Best Orders, Limit Order, Immediate or Cancel
Order, Limited Discretionary Order, and Open Order, Stop Loss Order.
Execution of order or contract:
Orders are executed in the trading ring of the BSE. This works from 11:30 to 2.30
P.M on all working days Monday to Friday, and a special one-hour session on
Saturday. The members or the authorized assistants have to wear a badge given by
the exchange to enter into the trading ring. They carry a sauda Block Book or
conformation memos, which are duly authorized by the exchange when the deal is
struck; both broker and jobber make a note in their sauda block books. From the
sauda book, the contract notes are drawn up and posted to the client. A contract note
is written agreement between the broker and his clients for the transaction executed.
Drawing Up and Bills:
Both sale and purchase bills are prepared along with the contract note and it is
posted on the same day or the next day. This in a purchase transaction, once the
shares are delivered to the client effects payment for the purchases and pays the
stamp fees for transfer, a bill is made out giving the total cost of purchase, including
other expenses incurred by the broker in the price itself. With this, the process ends.

DEMATERLIZATION:
Dematerialization is the process by which physical certificates of an investor are
converted to an equipment number of securities in electronic from and credited in the
investor account with his DP. In order to dematerialize the certificates, an
investor has to first open an account with a DP and then request for the
Dematerialization Request Form, which is DP and submit the same along with the
share certificates. The investor has to ensure that he marks “Submitted for
Dematerialization” on the certificates before the shares are handed over to the DP for
demat. Dematerialization can only be done to those certificates, which are already
registered in your name and belong to the list of securities admitted for
Dematerialization at NSDL. Most of the active scrip’s in the market including all the
scrip’s of S&P CNX NIFTY and BSE SENSEX have already joined NSDL. This list
is steadily increasing.
Briefly, the process is as follows: after completion of transfer, the investor gets the
option to dematerialize such shares. Investor’s willing to exercise this option sends a
Demat request along with the option letter sent by the company to his DP. The
company or its R&T agent would confirm the Demat request on its receipt from the
DP to reduce risk of loss in transit.

38
Dematerialized shares do not have any distinctive or certificate numbers. These
shares are fungible-which means that 100 shares of a security are the same as any
other 100 shares of the security. Odd lot shares certificates can also be
dematerialized.
Dematerialization normally takes about fifteen to thirty days. To get back
dematerialized securities in the physical form, request DP for Rematerialization of
the same is made.
Rematerialization is the process of converting electronic shares in to physical
shares.

Benefits of Demat:
 It reduces the risk of bad deliveries, in turn saving the cost and wastage of time
associated with follow up for rectification. This has lead to reduction in brokerage to
the extent of 0.5% by quite a few brokerage firms.
 In case of transfer of electronic shares, you save 0.5% in stamp duty. You avoid
the cost of courier / notarization.
 You can receive your bonuses and rights issues into your DA as a direct credit,
this eliminating risk of loss in transit.
 You can also expect a lower interest charge for loans taken against Demat
shares as compared to loans against physical shares.
 There is no lost in transit, thus the overheads of getting a duplicate copy in such
circumstances is reduced.
 RBI has also reduced the minimum margin to 25% for loans against
dematerialized securities as against 50% for loans against physical securities.

ONLINE TRADING
Before getting in to the online trading we should know some things about the
internet, e-commerce and etc.

1) What is Internet?
Internet is a worldwide, self-governed network connecting several other smaller
networks and millions of computers and persons, to mega sources of information.
This technology shrinks vast distances, accelerating the pace of business reforms and
revolutionizing the way companies are managed. It allows direct, ubiquitous links to
anyone anywhere and anytime to build up interactive relationships. A combination of
time and space, called the Internet promises to bring unprecedented changes in our
lives and business. Internet or net is an interconnection of computer communication
networks spanning the entire globe, crossing all geographical boundaries. It has re-
defined the methods of communication, work study, education, business, leisure,
health, trade, banking, commerce and what not it is virtually changing every thing
and we are living in dot.com age. Net being an interactive two way medium, through
various websites, enables participation by individuals in business to business and

39
business to consumer commerce, visit to shopping arcades, games, etc. in cyber space
even the information can be copied, downloaded and retransmitted.
The use of Internet has grown 2000 percent in last decade and is currently growing at
10 percent per month. In India, growth of Internet is of recent times. It is expected to
bring changes in every functional area of business activity including management
and financial services. It offers stock trading at a lower cost. Internet can change the
nature and capacity of stock broking business in India.

2. E-commerce
Electronic commerce is associated with buying and selling over computer
communication networks. It helps conduct traditional commerce through new way of
transferring and processing of information. Information is electronically transferred
from computer to computer in an automated way. E-commerce refers to the paperless
exchange of business information using electronic data inter change, electronic
technologies. It not only reduces manual processes and paper transactions but also
helps organization move to a fully electronic environment and change the way they
operated. PC’s and networking attempts to introduce banks of the tools and
technologies required for electronic commerce. The computers are either
workstations of individual office works or serves where large databases and
information reside. Network connects both categories of computers; the various
operating systems are the most basis program within a computer. It manages the
resources of the computer system in a fair and efficient manner. Now we can enter in
to the concept known as online trading. In the past, investors had no option but to
contact their broker to get real time access to market data. The net brings data to the
investor on-line and net broking enables him to trade on a click of mouse. Now
information has become easily accessible to both retail as well as big investor.

EVOLUTION OF BROKING IN INDIA:

The evolution of a broking in India can be categorized in three phases -
 Stockbrokers will offer on their sites features such as live portfolio manager,
live quotes, market research and news, etc. to attract more investors.
 Brokers will offer online broking and relationship management by providing
and offering analysis and information to investors during broking and non broking
hours based on their profile and needs, i.e. customized services.

 Brokers (now e-brokers) will offer value management or services like initial
public offering online, on-line asset allocation, portfolio management, financial
planning, tax planning, insurance services, etc. and enables the investors to
take better and well considered decisions.
The actual definition of “Online Trading” is as explained below:
“Online trading is a service offered on the internet for purchase and sale of shares. In
the real world you place orders on your stockbroker either verbally (personally or
telephonically) or in a written form (fax).” In online trading, you will access a

40
stockbroker’s website through your internet enabled PC and place orders through the
broker’s internet based trading engine. These orders are routed to the stock exchange
without manual intervention and executed thereon in a matter of a few seconds. The
net is used as a mode of trading in internet trading. Orders are communicated to the
stock exchange through website.
In India:
Internet trading started in India on 1st April 2000 with 79 members seeking
permission for online trading. The SEBI committees on internet based securities
trading services has allowed the net to be used as an Order Routing System (ORS)
through registered stock brokers on behalf of their clients for execution of
transaction. Under the ORS the client enters his requirements (security, quantity,
price buy/sell) on broker’s site.

Objectives:
Internet trading is expected to
 Increase transparency in the markets,
 Enhance market quality through improved liquidity, by increasing quote
continuity and market depth,
 Reduce settlement risks due to open trades, by elimination of mismatches,
 Provide management information system,
 Introduce flexibility in system, so as to handle growing volumes easily and to
support nationwide expansion of market activity.
Besides, through internet trading three fundamental objectives of securities
regulation can be easily achieved, these are:
 Investor protection
 Creation of a fair and efficient market, and
 Reduction of the systematic risks.

Requirements for net trading:

For investors:
1. Installation of a computer with required specification
2. Installation of a modem
3. Telephone connection
4. Registration for on-line trading with broker
5. A bank account
6. Depository account
7. Compliance with SEBI guidelines for net trading

The following should be produced to get a demat account and online trading
account:
As identity proof & address proof any one of the following:
1) Voter ID card
2) Driving license

41
3) PAN card( compulsory)
4) Ration card
5) Bank pass book
6) Telephone bill
Other requirements, which are necessary
 First page of the bank pass book and last 6 months statement.
 Bank manager’s signature along with bank’s seal, manager registration code on
photograph.

For stock brokers:

1. Permission from stock exchange for net trading
2. Net worth of Rs. 50 lac
3. Adequate back-up system
4. Secured and reliable software system
5. Adequate, experienced and trained staff
6. Communication of order (trade confirmation to investor by e-mail)
7. Use of authentication technologies
8. Issue of contract notes within 24 hours of the trade execution
9. Setting up a website.
The net is used as a medium of trading in internet trading. Orders are communicated
to the stock exchange through website. Internet trading started in India on 1st April
2000 with 79 members seeking permission for online trading. The SEBI committees
on internet based securities trading services has allowed the net to be used as an
Order Routing System (ORS) through registered stock brokers on behalf of their
clients for execution of transaction.
Under the Order Routing System the client enters his requirements (security,
quantity, price, and buy/sell) in broker's site. They are checked electronically against
the clients account and routed electronically to the appropriate exchange for
execution by the broker. The client receives a confirmation on execution of the order.
The customer's portfolio and ledger accounts get updated to reflect the transaction.
The user should have the user id and password to enter into the electronic ring. He
should also have demat account and bank account. The system permits only a
registered client to log in using user id and password. Order can be placed using
place order window of the website.

Procedure for net trading

Step 1: Those investors, who are interested in doing the trading over internet
system i.e. NEAT-IXS, should approach the brokers and get them self registered
with the Stock Broker.
Step 2: After registration, the broker will provide to them a Login name, Password
and personal identification number (PIN).
Step 3: Actual placement of an order. An order can then be placed by using the
place order window as under:

42
(a) First by entering the symbol and series of stock and other parameters like
quantity and price of the scrip on the place order window.
(b) Second, fill in the symbol, series and the default quantity.
Step 4: It is the process of review. Thus, the investor has to review the order placed
by clicking the review option. He may also re-set to clear the values.
Step 5: After the review has been satisfactory, the order has to be sent by clicking on
the send option.
Step 6: The investor will receive an "Order Confirmation" message along with the
order number and the value of the order.
Step 7: In case the order is rejected by the Broker or the Stock Exchange for certain
reasons such as invalid price limit, an appropriate message will appear at the bottom
of the screen. At present, a time lag of about 10 seconds is there in executing the
trade.
Step 8: It is regarding charging payment, for which there are different mode. Some
brokers will take some advance payment from the investor and will fix their trading
limits. When the trade is executed, the broker will ask the investor for transfer of
funds to his account.
Internet trading provides total transparency between a broker and an investor in the
secondary market. In the open outcry system, only the broker knew the actually
transacted price. Screen based trading provides more transparency. With online
trading investors can see themselves the price at which the deal takes place. The time
gap has narrowed in every stage of operation. Confirmation and execution of trade
reaches the investor within the least possible time, mostly within 30 seconds. Instant
feedback is available about the execution. Some of the websites also offer;
News and research report
BSE and NSE movements
Stock analysis
IPO and mutual fund centers

Step by step procedure in online trading:

Following steps explain the step by step approach to on-line trading:
1) Log on to the stock broker's website
2) Register as client/investor
3) Fill the application form and client broker agreement form on the requisite value
stamp paper
4) Obtain user ID and pass word
5) Log on to the broker's site using secure user ID and password
6) Market watch page will show real time on-line market data
7) Trade shares directly by entering the symbol or number of the security
8) Brokers server will check your limit in the on-line account and Demat account for
the number of shares and execute the trade
9) Order is executed instantly (10-30 seconds) and confirmation can be obtained.
10) Confirmation is e-mailed to investor by broker

43
11) Contract note is printed and mailed in 24 hours
12) Settlement will take place automatically on the settlement day
13) Demat account and the bank account will get debited and credited by electronic
means.

ONLINE TRADING HAS LED TO ADDITIONAL FEATURES SUCH AS:

1) Limit / stop orders: orders that can be go unfilled, but there is an extra Charge for
this leeway facility since one need to hold a price.
2) Market orders: orders can be filled at unexpected prices, but this type is much
more risky, since you have to buy stock at the given price.
3) Cash account: where funds have to be available prior to placing the order.
4) Margin account: where orders can be placed against stocks, to increase
Purchasing power.

ADVANTAGES OF ONLINE TRADING:

1) Online trading has made it possible for anyone to have easy and efficient access to
more reports and charts than it was previously possible if one went to any brokers'
office. Thus we have access to a lot more information online.
2) Online trading has let room for smaller organizations to compete with
multinational organizations since it is no longer a leg it issue. Being online does
not identify the size of any particular organization, therefore, this additional power to
the underdogs.
3) Online trading has allowed companies to locate themselves where they want as
physical location is not an issue anymore. Companies can establish themselves
according to their gains and losses, for instance where tax (sales and value added
taxes) is best suited to them.
4) Online trading gives control to individuals and they can exercise it over accounts
thus comprehend what is going on when they trade. It is like going back to school
and re-educating oneself on how to trade online.
5) Individuals’ benefit by saving comparatively a lot more when trading online as the
cost per trade is less.
6) Individuals can invest in a variety of products, unlike earlier when people bought
bonds, mutual funds, and stock for long-term basis and sat on them. Now they can
invest in stocks, stock and index options mutual funds, government, and even
insurance.

INVESTORS REASONS TO TRADE ONLINE:

1) They have control over their accounts, can make their own decisions and don’t
have to give reasons for their actions. They are independent.
2) They have a reason to participate in the market and learn about it.

44
3) It is interesting, cheap, easy, fast, and convenient.
4) A lot of information is online so they can keep up-to-date with what is happening
in the trading world.
5) It will give investors a greater choice and better realization.
6) The immediate impact will be competition and benefits will accrue to the
investors.
7) It will lead to brokerage commissions going down and brokers striving to increase
business afloat.
8) Investors will now go to place, which have better trading conditions and also
members to offer them better facilities.
9) They have access to numerous tools to invest, and can create their own portfolio.

SOME SHORTCOMINGS OF ONLINE TRADING:

1) When network crashes, there will be problems and delays due to a large influx of
rapid online trading criteria.
2) Individuals are restricted to first-hand financial guidance. This simply means that
the individual is himself / herself alone to.
3) A tax (sales tax and value added tax) evaluation becomes an issue, especially
when you are trading internationally.
4) One has no idea with whom he is dealing with on the other end.
5) According to a study conducted by Mary Rowland, careful investor: is online
trading bad for your portfolio, the more one trades the less returns one gets,
meaning that an addicted trader gets, carried away online and begins to trade for
too much which causes losses for him / her.
6) Individuals think that they are trading with the market directly and know what they
are doing, but the truth is that even though technology has taken over, the basic rules
of trading are the same. It seems that the middleman has been removed, but that is
not so. When the individuals click on the mouse, his trade goes through a broker. The
commissions online pertain to the intermediary.
7) There is a need for more effective communication links over the Internet and the
ability of the server to deal with a large volume of visitors.

Classification Of Financial Markets

The financial markets have been classified as cash market, derivatives market, debt
market and commodities market. Cash market, also known as spot market, is the
most sought after amongst investors. Majority of the sample broking firms are
dealing in the cash market, followed by derivative and commodities. 27% firms are
dealing only in the cash market, whereas 35% are into cash and derivatives. Almost
20% firms trade in cash, derivatives and commodities market. Firms that are into
cash, derivatives and debt are 7%. On the other hand, firms into cash and
commodities are 3%, cash & debt market and commodities alone are 2%. 4% firms
trade in all the markets.

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Products

In the past couple of years, apart from trading, the firms have started offering various
investment related value added services. The sustained growth of the economy in the
past couple of years has resulted in broking firms offering many diversified services
related to IPOs, mutual funds, company research etc. However, the core trading
activity is still the predominant form of business, forming 90% of the firms in the
sample. 67% firms are engaged in offering IPO related services. The broking
industry seems to have capitalised on the growth of the mutual fund industry, which
was pegged at 40% in 2006. More than 50% of the sample broking houses deal in
mutual fund investment services. The average growth in assets under management in
the last two years is almost 48%. Company research is another lucrative area where
the broking firms offer their services; more than 33% of the firms are engaged in
providing company research services. Additionally, a host of other value added
services such as fundamental and technical analysis, investment banking, arbitrage
etc are offered by the firms at different levels.

Concept Of Margin Trading:

Normally to buy and sell shares, you need to have the money to pay for your
purchase and shares in your demat account to deliver for your sale. However as you
do not have the full amount to make good for your purchases or shares to deliver for
your sale you have to cover (square) your purchase/sale transaction by a
sale/purchase transaction before the close of the settlement cycle. In case the price
during the course of the settlement cycle moves in your favor (risen in case of
purchase done earlier and fallen in case of a sale done earlier) you will make a profit
and you receive the payment from the exchange. In case the price movement is
adverse, you will make a loss and you will have to make the payment to the
exchange. Margins are thus collected to safeguard against any adverse price
movement. Margins are quoted as a percentage of the value of the transaction.

46
 About Bid and Ask Prices
The Bid Price is the highest price anyone is willing to pay for a particular stock at
the moment. The Ask Price is the lowest price anyone is willing to sell a particular
stock for at the moment.

If you enter a Market Order to buy a stock you will pay the Ask Price when your
order reaches the trading floor. This could be a good bit different from the Ask
Price when you placed the order. On a fast moving, thinly traded, or volatile stock
these prices can and will change very rapidly. You could pay substantially more than
you expected! If this is a major concern, you may want to place a Limit
Order instead.

Why do stock prices go up and down?

Fluctuations in a stock’s price occur partly because companies make or lose
money. But that is not the only reason. There are many other factors not directly
related to the company or its sector. Interest rates, for instance. When interest
rates on deposits or bonds are high, stock prices generally go down. In such a
situation, investors can make a decent amount of money by keeping their money
in banks or in bonds. Why should they face the extra risks of the stock market?

Money supply may also affect stock prices. If there is more money floating
around, some of it may flow into stocks, pushing up their prices. Other factors
that cause price fluctuations are the time of year, and publicity. Some stocks are
seasonal; they do well only during certain parts of the year and worse during
other parts. Publicity affects stock prices. If a newspaper story reports that Zee
Television has bought a stake in Asianet, odds are that the price of Zee’s stock
will rise if the market thinks it’s a good decision. Otherwise it will fall. The price
of Asianet stocks may also go up because investors may feel that it is now in
better hands. Conversely, if an article says that a company's president is a crook
and has used the money raised to build a palatial bungalow for himself, then it is
a good bet that the price of that company’s stock will fall.

Thus, many factors affect the price of a stock. The behaviour of the price

47
movement of a stock is said to predict its future movement. The behaviour is
analysed by plotting on a graph the price movement against any standard index.
This is called technical analysis. It tells you when to buy a stock. Analysis of the
fundamentals of a company, on the other hand, tells you which stock to buy.

Stocks also go for splits. One fine day if the company whose 50 stocks you own
and having a current market price of Rs 40, declares a 2-for-1 split, you will now
own 100 stocks of the company. The market will then halve the price, unless it
has reasons to be more bullish, to around Rs 20. Stock splits should not normally
raise the value of your stocks, since the prices fall to compensate for the larger
number of shares held. The main advantage of a stock split is that it improves
liquidity. You can sell 50 shares and retain the other 50.

Usually companies go for stock splits when the stock's price zooms up to some
phenomenal level and hence, becomes out of reach of many investors. Splits in
such cases make stocks affordable and usually lead to increased buying and,
hence, also increase liquidity. Naturally, it is expected that the stock's value will
make an upward ascent soon after the split and investors will stand to gain.

Companies sometimes declare to retire their stocks in a certain proportion of

their outstanding stocks. Hence, a 1-for-2 reverse split would mean that any
shareholder will now own half the number of shares with the price of each being
double as before the reverse split. However, the total value of the holding will
remain the same on the day of the split. Reverse splits are currently not allowed in
India though companies can buy back their shares upto a certain percentage of the
outstanding number of shares.

Companies usually go for reverse splits to boost up the stock's price, which might
be performing badly for a long time. A hiked price might invite more investors.

TRANSACTION SETTLEMENT SYSTEM:

Settlement period is the duration between a transaction date and a settlement

date, during which all obligations for the transaction are fulfilled by the involved
parties. This period is characterized by the buyer making the required payment to
the seller, who in turn delivers the purchased security.

Settlement cycle

48
The accounting period for the securities traded on the Exchange. On the NSE, the
cycle begins on Wednesday and ends on the following Tuesday, and on the BSE
the cycle commences on Monday and ends on Friday. At the end of this period,
the obligations of each broker are calculated and the brokers settle their respective
obligations as per the rules, bye-laws and regulations of the Clearing Corporation.
If a transaction is entered on the first day of the settlement, the same will be
settled on the eighth working day excluding the day of transaction. However, if
the same is done on the last day of the settlement, it will be settled on the fourth
working day excluding the day of transaction.

Length of Settlement period

The settlement period is cited as T+1, T+2 or T+3, where T stands for the
transaction date. The length of this period varies with the type of transactions. For
instance, the settlement period for stocks in the U.S. exchange is three days after
the trade (T + 3). On the other hand, mutual funds have a settlement period of one
day (T+1) and Forex transactions in the U.S. Treasury are settled two days after
the trade (T+2). Foreign shares may have a settlement period that spans months.

However, the settlement period for certain securities can be extended or stretched.
This is referred to as extended settlement. For example, the standard T + 3
settlement period for shares may be stretched to a week or more. There are
several companies that provide such services online (T + 10, T + 20) or through
telephone (T + 25).

Settlement risk

Settlement risk refers to the risk of default by any of the parties involved in a
transaction, when the other parties have already made their payments or delivered
securities as per the trade agreement.

Rolling Settlement System:

Rolling settlement is the trading system of securities in which the transaction

(buying or selling of securities) can be squirred up by a counter-transaction on the
same day only. If the transaction is not squirred up on the same day, then the
delivery will take place as per the prevailing rules. For example, if an investor
purchases a security on Monday and the transaction is not squirred up by a
counter-sale transaction, then this buying transaction must be completed. He will
get the delivery and he will have to make the payment for the purchase.

49
The Rolling settlement system was introduced in India on Jan. 10, 2000 when 10
scrip’s were put in the compulsory rolling settlement. Initially, the settlement
period was T+5 but it has been gradually reduced toT+2 with effect from April 1,
2003. Since 2000, all other shares have been brought gradually in the compulsory
rolling settlement system. It may be noted that there are some shares put in the T-
Category. The transactions cannot be squirred up even on the same day in these
shares. These are known as “Trade to Trade Shares” and the transaction must end
with a delivery and payment.

Before the Rolling Settlement was introduced in year 2000, the normal settlement
period was 5 days and it used to take about 15-20 days to get the sale proceeds of
the shares. The transaction could be squirred up within the same settlement period
also, and in that case, the investor/speculator had to pay or receive the difference
only. In order to lessen the period of recovery of sale proceeds from 15-20 days,
SEBI formulated the system of Rolling Settlement, or the daily settlement system.

The Rolling settlement system reduces the market risk to a considerable extent.
The investors get their money/securities much faster, thus enhancing their
liquidity. The wait for the money and the securities is lesser, reducing the cost of
funds and the credit risk of the investors. The mutual funds rotate their funds
faster and need to keep lesser cash aside, and can manage their cash flows better.
In a way, rolling settlement system is a step closer to an efficient delivery and
payment system at the stock exchanges.

Advantages of Rolling Settlement

Rolling settlement offers several advantages over account period settlement:
 The account period settlement does not discriminate between an investor
transacting on the first day and an investor transacting on the last day of the

50
trading period, as trades are clubbed together for the purposes of settlement and
all investors realize the securities and/or funds together. Hence some investors
have to wait longer for settlement of their transactions. Under rolling settlement,
the investors trading on a particular day are treated differently from the investors
trading on the preceding or succeeding day. All of them wait for “X” days from
the trade date for settlement. Further, the gap between the trade date and the
settlement date is less under rolling settlement making both securities and funds
easily convertible.
 The account period settlement combines the features of cash as well as futures
markets and hence distorts price discovery process. In contrast, rolling settlement,
which segregates cash and futures markets and thereby removes excessive
speculation, helps in better price discovery.
 Account period settlement allows build up of large positions over a trading
period of five days and consequently, there is a pressure to close them out on the
last trading day, leading to significant market volatility. This does not happen
under rolling settlement, where positions can be built during a day only.
 There is scope for both intra-settlement and intra-day speculation under
account period settlement, which allows large outstanding positions and hence
poses greater settlement risks. In contrast, since all open positions under rolling
settlement at the end of a date ‘T’ are necessarily settled ‘X’ working days later, it
limits the outstanding positions and reduces settlement risk.
 Till recently, it was possible to shift positions from one exchange to another
under account period as they follow different trading cycles. Rolling settlement
took care of this by making trading cycle uniform.

51
 India in Global Markets
Macro-Economic Scenario
The Indian economy, which witnessed robust growth up to the second quarter of
FY09, recorded sharp deceleration thereafter in the wake of persistent global
economic slowdown. India's real GDP grew 6.7% during Financial Year (FY) 09
as compared with 9% during the corresponding period of FY08. Though India's
growth trajectory has been impacted both by the financial crisis and the global
economic downturn, the structural drivers of the Indian economy continue to be
intact, sustaining overall growth at a level much higher than most other
economies in the world.
The Indian economy exhibited clear momentum in recovery, and despite the
impact of a deficient monsoon on agricultural production, GDP growth for 2009-
10 has been estimated at 7.2 per cent, up from 6.7 per cent recorded in 2008-09.
Concerns about domestic output growth are now subdued as the recovery is
getting more broad-based. This is the result of a rebound in industrial output,
better prospects for the Rabi crop and continuing resilience of the services sector.
Output growth in 2010-11 is expected to be higher than in 2009-10, assuming a
normal monsoon. Support for sustained momentum in growth can be expected
52
from all three major components, viz., agriculture, industry and services.

Conclusion
The Current Stock market Scenario In India
In the current lifestyle, financial stability holds great importance. Lavish living
and availing all the conveniences of life may not be possible with a single salary,
especially if you stay in the city where cost of living is very high. This is the
reason why both partners in a household (nuclear family) work to meet both ends
meet satisfactorily or even beyond expectations. Many people have started
investing in the stock market as an additional source of income to be able to meet
lifestyle changes.
In sync with the changing career trends and with the share markets platform
gaining grounds, financial institutes have introduced short term as well as long
term courses on finance, insurance, stock broking, and related subjects, helping
aspirants build careers or professionals enhancing their qualification tags with
additional degrees. And a particular section of ambitious people undertake short
term courses on stock market trading to be able to manage their own stock
portfolios thus having an influence on their financial futures.
Share markets across the world are recuperating with traces of recession still
visible in few nations. The Indian stock market is fast recovering and the
emerging opportunities have led to the steady inflows of foreign investments.
Investing in India has thus become a trend which is likely to gain more impetus in
the near future. It is the promotion oriented user friendly policies of the Indian
government that have led to this sudden surge. And owing to the increased
quantum of foreign investment inflows, India is emerging as one of the best
performing markets.

INDIAN STOCK MARKET IN 2010

The prevailing economic conditions, both domestic and global, suggest the Indian
stock market is poised to continue to rally in 2010 even though US and European
Markets have yet to recover from recession effect. Key factor remains the impact
of Q4 results and strong GDP growth of around 8%. However point of caution
needs to be the phase wise withdrawal of financial support given by Indian
government to the market. So far, the recovery in India has been driven by
domestic consumption and government expenditure. However, corporate
investment is expected to surge in 2010 due to the strong GDP growth which will
53
increase capacity utilisation.
Stocks in the infrastructure and power sectors may be the front runners in 2010
as they receive strong policy support from the Indian government. But one must
be cautious that the interest rate cycle might start moving up with the strong GDP
performance and relatively high inflation. If it does, banking stocks will be
affected severely as was seen in the past. We have witnessed a global financial
crisis in 2008-09 which is still very much an unforgettable incident and taught us
good lessons.
During the bull rally (2003-2007) there was considerable exuberance. This was
the time when interest rates were low. Credit was available and that too cheaply.
Not just that, corporate profits were growing at a healthy rate. Stock markets were
notching strong gains. But the global credit crisis changed all that. The abundant
liquidity, not surprisingly, led to asset bubbles that finally burst. So if one learned
a good lesson should go for companies with less debt, enough cash and strong
return ratios. These are the ones who will be able to tide over the crisis and
generate strong returns to shareholders in the long term beyond 2010.

54
 RECOMMENDATIONS

Improvement in the opening of De-mat procedure is required.

The facility of free demonstrations should be provided for all.

There should be a limited number of clients under the relationship manger, so

that he can handle new as well as old customer properly.

Some promotional activities are required for the awareness of the customer,
seminars should be held for providing information to prospective and present
customers.

People at young age should be encouraged to invest in stock market.

There is high potential market for mutual fund in Mumbai city, but this market needs
to be explored as investors are still hesitated to invest their money in mutual funds.

Investors have inadequate knowledge about mutual funds, so proper marketing

of various schemes is required; company should arrange more and more
seminars on mutual funds.

The concept of business has changed today, this is a service oriented industry
hence the survival would require brokers to provide the best possible service to the
clients.

The exchange authorities to take steps to educate Investors about

their rights and duties. I suggest to the exchange authorities to increase the
investors’ confidences.

The exchange authorities should be more vigilant to curb wide fluctuations of

prices.

Necessary steps should be taken by the exchange to deal with the situations
arising due to break down in online trading.

55
 Learnings experience from the Project

Everyday of the office was a learning experience to me because various things I

have learnt during my project work.

The summer internship project helped me in gaining in depth knowledge about the
stock market and brokers operations.

During the summer internship, I learnt a lot about equity or cash market trading and
derivative trading.

Sharekhan Ltd. gave us two weeks training about their various product offerings and
how to market those products.

Knowledge is the key to success so the knowledge about the trading of shares gave
me confidence about trading in share market.

During the summer internship, I was required to market and sell online trading and
demat account of Sharekhan Ltd. and for that purpose I was given database from the
organization and I acquired seven such clients for Sharekhan.

Summer internship project gave me the required exposure to improve my

communication and convincing skills.

Summer internship project gave me the opportunity to develop good contacts with
experienced, wise and knowledgeable people from industry.

Summer internship project helped me to gain more confidence.

Summer internship project help me realize that dedication, determination and

hardwork are key to success.

BIBLIOGRAPHY

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Khan, Y.M.” Indian Financial System”

National Stock Exchange Of India Ltd. “Indian Securities Market-A Review”

Mishra, Bishnupriya and Debasish, S. S. “ Indian stock Market”

www.moneycontrol.com
www.bseindia.com
www.nseindia.com
www.sebi.gov.in
www.capitalmarket.com

www. Sharekhan.com
www.trendwatch.com
http://en.wikipedia.org/wiki/Primary_market
http://www.investopedia.com/terms/s/shortselling.asp

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