Research Report ON

Security analysis & Investment decision

SUBMITTED TO:-

Guru Jambeshwar University, Hisar

In partial fulfillment of the requirement
For the degree of

MASTER OF BUSINESS ADMINISTRATION (M.B.A.)

(SESSION 2007-2009)

Under the Guidance of: SHAHSI (Faculty of MGT.)

Submitted By: PANKAJ M.B.A. 4th SEM Roll No-08061163028

Declaration

I Pankaj Kumar Roll No 09061114001 student of MBA Batch (2009-11 ) at ODM College, Hisar, hereby declare that the research report titled Security analysis & investment decision has been completed by me independently and the report has not been submitted for elsewhere for any purpose.

Signature

CONTENTS
Introduction Research Objective Research Methodology Limitations Conceptual framework Meaning of stock exchange Role and functions of stock exchange Organizational Structure of stock exchange Stock Exchanges Security Analysis Sector wise Analysis Banking Steel Software Types of speculators Causes of speculation Derivatives Stock exchange in India- A survey Summary Conclusion and Recommendations Annexure Questionnaire Bibliography 3

ACKNOWLEDGEMENT
In Indian culture, a task is said to be incomplete without the blessings of almighty and elders. Also acknowledging the work and help of all those who have guided me for the completion of our project on time, is indeed a duty of mine. Knowing the fact that no words can measure their guidance to any extent. I take this opportunity to express my profound sense of gratitude to all those, without whose encouragement, assistance and co-operation, successful completion of this research report would not have been possible. It provides me immense pleasure to extend my grateful thanks to Miss Harsha our finance faculty for her guidance, motivation, encouragement and able supervision. I express my deep sense of gratitude and reverence for my parents and my dear friends for their endless love, guidance, moral support, encouragement and untiring co-operation throughout my study and work, without which this work would never have been completed. It was learning and an enlightening experience for me and I therefore will remain indebted to all the people mentioned above as no words can thank them for their teaching and love shown towards me.

PANKAJ KUMAR MBA- 2 YEAR ROLL NO. 0906114001

INTRODUCTION
The stock exchanges in India came into existence in the early eighteenth century and since then they have traveled a long way. To analyze and understand its working, a need was felt to undergo a detailed study of the same and find out what do the investors feel and have to say about the stock exchanges. The stock market provides a place where securities are traded. *(1) Stock exchange is a market place where industrial securities like equity shares, preference share, debentures and bonds of listed public limited companies and the government securities are traded. *(2) The stock market is the backbone of the capital market. However, if it is not properly organized, regulated and controlled, it is liable to be misused by the vested investors because it is concerned with dealing in money titles.

RESEARCH OBJECTIVE
In todays globally competitive world, where investments play a vital role both for the investors as well as the economy, the financial markets should work to the best of its capacity. A detailed study on the working of stock exchange has been conducted keeping in mind a few objectives. Primary objectives To know the basic concept of the stock exchanges in India and its need in the development and growth of the economy. The stock exchanges incorporate growth for stocks, brokers, investors and the economy, yet the investors are unable to vest confidence in the same. In light of this, we wanted to glow a candle in the dark to have adequate reasons for the same. Our objective also was to grab the opinions of the investors about the working of the stock exchanges in India and suggestions for improving the same.

Secondary objectives To study the working of stock exchanges in India. (N.S.E., B.S.E.) To analyze the dealings, methodology, and code of conduct with stock brokers. To review the growth and performance of the stock exchanges. To recommend the methods for improvement to boost the confidence of the investors. Such a study would go a long way in identifying the key problem areas and would help us in giving our recommendations for improving the working of the same.

RESEARCH METHODOLOGY
Indian stock market is the research universe for this study. Nature of Research methodology tells about the nature of the study, sampling techniques used in conducting the research specifies the source of data collection; either primary or secondary or both and analysis pattern in finding out the conclusion .The researcher adopts a methodology keeping in mind the nature of the study.

Research Universe
This study will be descriptive in nature .It will be based on primary and secondary data. It will be aimed specially at analyzing the further estimate the role of securities in the Capital Market.

Research Design
A research design is the arrangement of conditions for collection and analysis of data in manner that aims to combine relevance to the research purpose with economy in procedure. In fact, the research design is the conceptual structure within which research is conducted; it constitutes the blueprint for the collection, measurement and analysis of the data. When we talk of research methodology , we not only talk of the research method but also the comparison of the logic behind the methods we use in this context of our research study and explain why we are using a particulars methods or technique and why using the others. Research Methodology is a way to systematically solve the research problem. The study is entirely based on the primary and secondary data. Primary Research Structured and disguised questionnaire was used to probe individuals for information to understand the mindset of the general public. These questionnaires have been analyzed through ratios, averages, graphs and other statistical tools.

Secondary Research:

Secondary data was also collected through various sources like newspapers, books, magazines, Internet, stock exchange guidelines, etc. and used for certain aspects of the research like customers perception, current working, pros and cons of the working and other information.

Research Audience
The target segment for this survey was the age group of 21-60 years, which included the general public, the stockbrokers, sub brokers, C.A.s, and Professors from good M.B.A. Institutes. Since the people consulted were those who had some knowledge about the working of stock exchanges in India and the study was done in such a manner so as to track and avail information to suit the best for our study, hence, the following research audience was targeted by us.

Sampling Method & Size

Non-probability (convenience) sampling method was used. The sample size for the primary research was 50 respondents.

Analysis Pattern
Since the data is more of a qualitative in nature, the data will be analyzed and interpretations will be made on the basis on certain parameters like through graphically representation .As the study will attempt the Trading and Settlement system of Depositories system in India.

Tools and Techniques

The facts will be represented using graphical representation techniques but no specific statistical techniques and tools will be used.

LIMITATIONS
No study or project is without certain limitations the same goes with our project. The limitations faced by us were as follows: 1. Due to limitation of time, it was difficult to go into the minute intricacies and details and grab information to the greatest levels of accuracy from the respondents. At the same time it was not possible to understand the mindset and psyche of the people. 2. As the sample size chosen was just 50 and that to from a particular city, it can result in wrong results as the sample does not represent the entire population. 3. The questionnaire was a bit technical and could be well understood only by people with good knowledge about the stock exchanges and therefore, people might not have come out with the accurate information as required. 4. As a result of the financial constraints, the research could not be carried on an extensive scale and the scope remained limited. 5. The stock brokers and other concerned people are indulged in the stock market operations during working hours of the day and our busy, therefore are hesitant to give time and information. 6. It was difficult to take in-depth interviews from everyone due to limitation of time from both ends.

CONCEPTUAL FRAMEWORK

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MEANING OF STOCK EXCHANGE

The stock exchange has been defined under Section 2(3) of the securities contract (Regulation) Act 1956 as any body of individuals whether incorporated or not, constituted for the purpose of assisting, regulation or controlling the business of buying, selling or dealing in securities. The securities, which are traded in the stock market, are defined under section 2(b) of the Act as: Shares, scrips, stock, bonds, debentures, debentures stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; Government securities; and Rights or interest in securities.

ROLE AND FUNCTIONS OF STOCK EXCHANGE

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The stock exchange provides a variety of facilities to joint stock companies for its growth. Her are some of the functions: It provides market place for purchase and sale of different types of securities like shares, bonds, etc. enabling free transferability of securities. It provides a linkage between the savings in the household sector and the investment in the corporate sector. It lays down a number of regulations to be complied by/with companies while mobilizing resources from the public, for safe guarding public interest. The stock exchange provides a market quotation of the prices of securities listed in the exchange that depicts the state of health of each companies and stock price index acts as the barometer of the state of stock market in the country. It encourages investment in the primary market by offering liquidity to investments by way of facility to buy and sell. It also enforces discipline among brokers to ensure investors protection.

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ORGANIZATIONAL STRUCTURE OF A STOCK EXCHANGE

Governing board Secretary/Treasurer Executive director

President, Vice-president

Secretary

Monitoring Department

PRO and library

Directory Work and Research publications

Listing

Operations Department

Computer Department

Inspection

Administration Audit

Settlement Clearance

EDP & M.I.S. Investors Service Cell

Arbitration and Complaints

TRENDS IN FINANCIAL MARKETS

13

The rapid growth and globalization of financial markets is one of the most significant developments in the world economy. This development has far reaching consequences, not only for financial markets per se but the growth and direction of world business. No other development has contributed so much to growth of interdependence among the nations. Also with the liberalization and supportive policies of the Government, industrialization has gained momentum in the last few years with major plans of diversification, expansion and modernization of industrial sector in the country. This has led to an increased demand for funds and encouraged authorities to find out alternative sources of finance for the industry. The public sector and private corporate sector were totally dependent on banks and financial institutions and find it difficult to meet the funds requirements for diversification, expansion as well as modernization of industrial sector, primarily due to scarcity of funds. Moreover, the budgetary support cannot be of any help to these sectors while they have started collecting funds from the capital market instead of depending upon the banks and financial institutions. The number of investors is increasing day by day and almost every wage earner is investing in the capital market directly or indirectly. Also in its bid to open up the countrys economy, the Government of India has geared up the financial sector to meet the challenges, which economy is likely to face. As such the Indian financial markets are undergoing a process of rapid change, which has transformed the entire complexion of the financial system.

Current Position of Financial Market

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Any investment strategy should stand up to the stress-test of the Great Depression. I studied the effect of dividends and the that of discipline during that dark period. Michael Zhuang Major falls of bse index January 21, 2008 --- 1,408.35 points March 17, 2008 --- 951.03 points January 22, 2008 --- 857 points February 11, 2008 --- 833.98 points May 18, 2006 --- 826 points October 10,2008 --- 800.10 points March 13, 2008 --- 770.63 points December 17, 2007 --- 769.48 points March 31, 2007 --- 726.85 points October 06, 2008 --- 724.62 points October 17, 2007 --- 717.43 points September 15, 2008 --- 710.00 points January 18, 2007 --- 687.82 points November 21, 2007 --- 678.18 points August 16, 2007 --- 642.70 points June 27, 2008 --- 620.00 points

Financial markets can be divided into following submarkets

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Financial Market

Money Market

capital Market

Primary Capital Market

Secondary Capital Market

Primary Money Market

Secondary Money Market

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NATIONAL STOCK EXCHANGE

With the liberalization of the Indian economy, it was found inevitable to lift the Indian stock market trading system on par with the international standards. On the basis of the recommendations of high-powered Pherwani Committee, Industrial Development Bank of India, Industrial Credit, and Investment Corporation of India, Industrial Finance Corporation of India, all Insurance Corporations, selected commercial banks and others incorporated the National Stock Exchange in 1992. NSE is one of the first de-mutualised stock exchanges in the country. NSE is owned by a set of leading financial institutions, banks, insurance companies and other financial intermediaries and is managed by professionals, who do not directly or indirectly trade on the Exchange.

Benefits of Listing on NSE

A premier market place Visibility Largest exchange Unprecedented reach Modern infrastructure Transaction speed Short settlement cycles Broadcast of corporate announcements Trade statistics for listed companies Investor service centers Nominal listing fees

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BOMBAY STOCK EXCHANGE

The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as "The Native Share and Stock Brokers Association" , as a voluntary non-profit making association. It has evolved over the years into its present status as the premier Stock Exchange in the country. It may be noted that the Stock Exchanges is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was founded in 1878. The Exchange, while providing an efficient and transparent market for trading in securities, upholds the interests of the investors and ensures redressal of their grievances, whether against the companies or its own member-brokers. It also strives to educate and enlighten the investors by making available necessary informative inputs and conducting investor education programmes. A Governing Board comprising of 9 elected directors (one third of them retire every year by rotation), two SEBI nominees, seven public representatives and an Executive Director is the apex body, which decides the policies and regulates the affairs of the Exchange.

OVER THE COUNTER EXCHANGE OF INDIA (OTCEI)

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The OTC provides a very important service to inactive issues, securities not eligible for listing in the stock exchanges, issues of small companies, actively traded issues listed on the OTC. The OTC market is not a central physical market place but a collection of brokers and dealers scattered across the country. This market is more a way of doing business than a place. To meet the different characteristics of the companies and objectives of the investors, the multi-tier structure exists in secondary market, which is as follows: First market: Trading in listed companies on the floor of stock exchange with the help of brokers and dealers. Second market: Trading over the counter for OTC issues. Third market: Trading in listed companies, not on the floor or stock exchange with the help of brokers and dealers. Fourth market: Trading in listed companies, not on the floor of stock exchange, without the help of broker and dealers. It is a direct deal in buyers and sellers. Buying and selling in unlisted stocks are matched not through the auction process on the floor of the stock exchange but through negotiated bidding over a massive network of telephone that link thousands of securities firms here and abroad. Over the counter market is a market where buyers seek out sellers and vice-versa and then attempt to arrange terms and conditions for purchase/sale acceptable to both parties. Thus, in the OTC, trading takes place by putting buy and sell orders on fax, telephone, telex, letter, oral message etc.

NEED FOR OTCEI

Our capital markets are one of the oldest but are providing unequal to the challenged posed by liberalization. Lack of transparency, inefficiencies in clearing/ 19

settlement and custodian mechanism are some of the glaring black spots on the operations of capital market. The market prices are highly speculative not related to the fundamentals of the scrips. It is with the view of tapping the potential to the maximum extent that the idea of an OTC Exchange was mooted first by the Abid Hussain Committee on stock market.

Main reasons for setting up OTCEI are as follows: a) There are large number of small companies in which public holding is small, for such companies, OTC can be expected to provide a market through an open sale to public. b) There is inadequate floating stock leading to imbalances in supply and demand. c) The existing mechanism does not permit the public to know the correct share values both in the primary and secondary markets due to manipulation of premium in the new issues market. Market makers in the OTC can ensure the correct share pricing if they are guided and regulated properly. d) There is a major complaint of neglect of genuine investors, small and less educated investors and rural and semi-urban public. This problem can be overcome to some extent if the cult of investment through OTC is spread to rural and semi-urban areas. e) Delivery of share to buyers and payment of money to sellers is at present taking an unduly long time on the major stock exchanges. 20

These problems can be reduced if trading is shifted to OTC where the methods of operations are such that the scope for manipulation, speculation and malpractices is less.

DIFFERENCE BETWEEN STOCK EXCHANGE AND OTCEI

Stock Exchange

OTC Exchange

1. Trading is done in a trading hall. 1. Screen based trading through a Stock exchanges are introducing screen hared trading. 2. Rampant speculation is permitted. system. 4. Jobbers may or may not offer 4. quotes. 5. Shares certificate is the transferable 5. document. in shares transfer. Market maker has to compulsorily offer two-way quotation. Counter receipt is the transferable document. percent of the equity capital. 2. Spot deals with fully transparency. 3. Weekly or fortnightly settlement 3. Settlement is on a daily basis. computer network.

6. Companys permission is required 6. Automatic transfer for upto 0.5

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SECURITY ANALYSIS

It is believed that every trader passes through three stages: 1. Every trader loses initially. We strongly believe that every investor who comes for trading initially gives losses as he/she is unable to have control over his greed and fear. At times with all the information and luck in his favour, he makes profit, and then because of his new over confidence, trades more which results in his profit gone and also sometimes a portion of his capital gone, This cycle of fear of the losses and greed to earn more makes him initially give losses 22

2. The trader begins to make no profit no loss Out of the total investors who enter the first stage, 80% of them finish off at the first stage only and after a year or two find that the stock market is not their cup of tea. So in the 2nd stage only the 20% investors try to break even in their trading and quite a lot of them are able to have control over their fear and greed with a result that they stop giving losses. Now these traders are ready for the 3rd stage 3. The trader starts to make profits This stage where a trader makes consistent profit i.e. he does not give loss cheque to the broker. In fact this is the stage, which everyone wishes to have in the stock market. But we strongly believe that anybody who wishes to come to the 3 rd Stage has to pass through the above 2 stages.

Market cycles may include:

Long-term (or primary) trends that are measured in years; Intermediate (or secondary) trends of 3 weeks up to 6 months; Short-term cycles of less than 3 weeks; and Intra-day cycles

Markets fluctuate in more than one time frame at the same time: 23

Nothing is more certain than that the market has three well-defined movements, which fit into each other.

The first is the daily variation due to local causes and the balance of buying and selling at that particular time.

The secondary movement covers a period ranging from ten days to sixty days, averaging probably between thirty and forty days.

The third move is the great swing covering from four to six years.

Bull markets are broad upward movements of the market that may last several years, interrupted by secondary reactions. Bear markets are long declines interrupted by secondary rallies. These movements are referred to as the primary trend.

Secondary movements normally retrace from one third to two thirds of the primary trend since the previous secondary movement.

Daily fluctuations are important for short-term trading, but are unimportant in analysis of broad market movements.

Primary Movements have two Phases

Bull markets

Bull markets commence with reviving confidence as business conditions improve.

Prices rise as the market responds to improved earnings Rampant speculation dominates the market and price advances are based on hopes and expectations rather than actual results. 24

Bear markets

Bear markets start with abandonment of the hopes and expectations that sustained inflated prices.

Prices decline in response to disappointing earnings. Distress selling follows as speculators attempt to close out their positions and securities are sold without regard to their true value .

Parameters to be considered before investing in stocks and the action to be taken

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Consistent strong sales O.K. to buy if Growth Grade = growth over extended A or B Why Action periods translates to longstock its inprice One-year Price Buying term a stock while a downtrend is O.K. to buy if stock appreciation. chart with 50-day dangerous, as it will likely move lower. A stock is price is above its 50Institutional Lack of institutional O.K. to buy if institutions own at moving average in a downtrend if its price is below its MA, and in day moving average. Ownership ownership means mutual least 30% of shares outstanding. an uptrend funds, if above. pension Use plans the 50-day and MA. other institutional buyers dont think they will make money owning the stock. Price/Sales ratio Valuation check. own it? A stock with a P/S above 10 is O.K. to buy if P/S is (P/S) momentum priced. less than 10, and Number of A companys performance O.K. to buy if a total of at least is best.as Analysts Making can go unrewarded four are5.0listed Buying momentum priced if stocks is analysts only below Buy/Hold/Sell nobody knows about it. currently making strong buy, buy, recommended in a strong market, such as 1998Recommendations hold, under perform, or sell Sufficient analyst recommendations. 1999. coverage is necessary to create investor interest, Look only at the total number of especially analysts Cash Flow per Companies with positive from operating cash flow are O.K. to buymaking if Cash institutions. recommendations, not whether share safer investments than cash burners (negative Flow per share is a there are more buys than holds, etc. cash flow). positive number. Gross Margin Changes inisgross margin Look at the in Gross Profit Institutional buying an important catalyst for trend Average Daily O.K. to buy if Trend percentages from quarter Margin percentages over the five stock price Volume (shares) Average Daily to growth. quarter point to quarters listed. changes in a companys O.K. to buy if the trend is flat or Institutions buy hundreds of thousands of shares Volume is 100,000 competitive position in its increasing. Ignore variations of and prefer stocks with large daily shares or higher marketplace. less trading than 1%, e.g. from 61% (0.1 to gross margins volumesIncreasing so they can easily move in60.5%. and out of indicate an improving positions. competitive position, and declining margins warn of increasing competition. One should invest and not gamble. One should stick with companies with solid financials. mil), and above one million best. O.K. to buy if shares is

Growth Grade What

Financial Health Grade

Financial Grade = A

Health

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Revenue Growth Rate Latest Quarter compared to year-ago quarter

Slowing revenue (sales) growth is an important red flag signaling danger ahead.

Use your calculator to compute the most recent quarters (MRQ) revenue growth rate percentage from the year-ago quarter, and compare to the 1 Year sales growth listed in the Growth Rate section. O.K. to buy if MRQ growth is at least 85 % of 1-Year growth.

Forecast Revenue Growth Rate

Look at consensus revenue forecasts to determine if historical growth rates are expected to continue.

Use your calculator to compute the forecast revenue growth percentage for the current quarter from the corresponding year-ago quarter. O.K. to buy if the forecast yearover-year revenue growth is at least 80% of the 1-Year growth found in the previous step.

Accounts Receivables Growth vs. Sales Growth

Accounts receivables are monies owed by a companys customers for goods received. The Accounts Receivables Ratio (ARR) is the Net Receivables divided by the Revenue for the same quarter (Rec/Rev). Increasing ARR over time is a red flag pointing to future problems.

Compute the ARR (Rec/Rev) for each of the five quarters listed. O.K. to buy if the ARR is the same or lower than earlier quarters. Ignore increases that are less than 5%, e.g. from 60% to 64%.

SOME TRADING TIPS

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One should never risk more than 10% of his trading capital in a single trade.

One should always use stop loss orders. One should never do overtrading. One should never let a profit run into a loss. One should never enter a trade if he is unsure of the trend. When in doubt, get out, and don't get in when in doubt. One should only trade active markets. One should always distribute his risks equally among different markets. One should always place extra monies from successful trades in a separate account.

One should never average a loss. One should never get out of the market because he has lost patience, or get in because he is anxiously waiting.

One should avoid taking small profits and large losses. One should avoid getting in and out of the market too soon. One should always be willing to make money from both sides of the market.

Never buy or sell just because the price is low or high. One should never hedge a losing position. One should never change his position without a good reason. One should avoid trading after long periods of success or failure. One should not try to guess tops or bottoms. One should not follow a blind man's advice.

SECTOR WISE ANALYSIS OF STOCKS 28

MAJOR SECTORS Stocks from different sectors need to be viewed differently. Each sector is unique in its own way and so are the companies operating in that sector.

Auto Components Automobiles Banking Capital goods Cement & Construction Consumer Goods Pharmaceuticals Power Refinery Software Steel Telecom

Bharat Forge, Reico Auto, Amtek Auto Mahindra & Mahindra, Punjab Tractors SBI, ICICI,HDFC L&T, Thermax, Siemens, ABB Birla Corp, Shree Cement, Grasim, Century Videocon International, MIRC, Hitachi Ranbaxy, Aventis, Nicholas Tata power, NTPC ONGC, BPCL Infosys, Satyam, TCS TISCO, Sesa Goa, Hindalco Bharti, VSNL

We, as a part of analysis did an analysis of some sectors by studying some financial ratios and came out with the best picks in every sector as mentioned above. Due to time constraints, we could not do a detailed analysis of any sectors but certain important sectors like steel, pharma, banking and software were analyzed by us and the results are mentioned here below.

BANKING SECTOR
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The Indian banking sector is currently in a transition phase. While public sector banks are in the process of restructuring, private sector banks are busy consolidating through mergers and acquisitions (the sector has been recently opened up for foreign investments). The sector, which was considered dry in the last several years, has caught the investor fancy in expectations of changing regulations and improving business conditions due to opening up of the economy. Entry of private and foreign banks in the segment has provided healthy competition and is likely to bring more operational efficiency into the sector. However, before investing in a banking stock an investor should look at certain key performance ratios. We have attempted to throw light on some of the key ratios, which are unique for banks and determine the financial stability of a bank.

The financial ratios that were considered while studying this sector are: Net interest margin (NIM) Operating profit margins (OPM) Cost to income ratio Credit to deposit ratio (CD ratio) Capital adequacy ratio (CAR) NPA ratio Provision coverage ratio

Valuations parameters
1. Price to book value: Unlike other manufacturing/services company, a banks market valuations cannot 30 be only measured from its price to

earnings ratio (P/E ratio). This is due to the reason that a banks net earnings are influenced by the amount of non-performing assets provision, which again depends on the banks internal policy. Consequently, the bank could make low provisions to show a better picture. Therefore its prudent to remove non-performing assets for which no provisions are made from the net worth of the bank to arrive at the adjusted book value. 2. Market cap to total income: This ratio helps in judging the market valuations of the banks total income. It is similar to the market cap to sales ratio for a manufacturing company. It indicates valuations accorded by the market to the total income of the bank.

Comparative valuations FY01 HDFC Bank ICICI Bank UTI Bank SBI Corporation Bank Oriental Commerce Bank BOI PBV 6.4 2.5 4.4 1.9 1.4 0.6 2.6 P/E Market cap/total income 27.4 4.0 17.7 2.0 6.2 0.5 7.7 0.4 6.3 0.8 3.8 0.3 5.6 0.2

Banking stocks have witnessed a sharp run up in prices in the last few days. Over the last nine months the fundamentals of the sector have been negatively impacted on account of a slowdown in the credit growth resulting in pressure on margins. Private sector banks have however managed to outperform on account of their aggressive retail lending which fueled their total income.

Comparative operating performance 31

FY01 HDFC Bank ICICI Bank UTI Bank SBI Corporation Bank Oriental Commerce Bank BOI

NIM 4.0% 2.7% 1.2% 3.1% 3.4% 3.2% 3.1%

OPM 15.6% 5.6% -3.4% 3.2% 13.3% 11.4% 4.5%

Cost to income Other 44.8% 53.5% 49.3% 60.5% 39.1% 45.0% 56.2%

income

to total income 12.8% 15.0% 15.5% 13.4% 13.9% 9.7% 13.9%

Thus, based on these ratios and above analysis, we came out with the conclusion that in the Banking Sector HDFC, ICICI and SBI banks might perform well in this financial year.

STEEL SECTOR
Steel stocks have been the objects of heavy reviews off late in discussions about the Indian equity markets. And this is not without reason. In recent times, steel stocks have gained tremendously on the bourses. Whether this is a factor of rising speculation or fundamentals of steel stocks, is a different story altogether. We have tried to elucidate factors one should keep in mind before investing in a steel sector company. Key parameters to be studied while investing in a steel stik are:

Cyclicality of the sector: This very factor can make or mar the fortunes of the sector and steel companies. Investments into a steel stock near the peak of its cycle could result in a huge chunk of the investment being wiped off. Integration advantage: Whether the company is backward integrated or 32 not, is a key factor for consideration.

Operating performance: The operating performance of a steel company is dependent to a large extent on the cyclicality factor. However, steel players with larger presence into contract sales and value added products are insulated, to a relatively greater extent, from the steel cycle. In this regards, operating profit margins (OPM) is one parameter to consider. Valuations: Two important ratios to look at in a steel company could be the Price to Earnings (P/E) ratio and the Price to Book Value (P/BV). Since steel is a core industry and its performance is linked to economic growth, the P/E multiple of steel stock should more or less hover around the countrys GDP growth.

Thus, according to the analysis done, we came to the conclusion that in the steel sector TISCO would perform well and would scale new heights.

SOFTWARE SECTOR
As global economies are getting more integrated, technology companies are finding it an onerous task to align to the changing realities. In such a scenario, analyzing stocks from the technology sector require utmost caution and understanding.

Key things to look at before investing in a software stock

Management: A management with vision is one of the major competitive advantages. Since the software sector is dynamic in nature, management 33 ability to foresee threats/opportunities quality has a high weightage. The

without diverting from the vision is important. Retail investor could gauge this from how the company has performed in a downturn/upturn compared to its peers in their respective competencies. Scanning the companies annual reports or the official web site also gives an indication of the managements future vision.

Employee productivity: Productivity (revenue per employee divided by cost per employee) indicates how much value a companys employees are adding relative to the costs that are incurred on them. These are relative terms and have to be compared with the peer group.

Revenue concentration: Since this industry has a high risk-profile, it becomes important to understand from where (geographical mix), from whom (client concentration) and how (industry verticals) is the company generating its revenues. Though few clients accounting for larger share of revenue is not necessarily a negative, diversification insulates a software company from volatility. Remember, earnings visibility in the sector is relatively poor.

Financial ratios: Some quantitative measures evaluating a software company stock are P/E (relative to the sector), Return on Equity, Return on Assets and Return on Capital (for profitability) and Operating margins (for efficiency). Some companies command a higher premium due to subjective factors like management quality and their position on the value chain. 34

TYPES OF SPECULATORS
1. Bull
Bull expects Rise in Price enter into Buy agreement or Buy forward or Buys long the price in a settlement period 35

Rises

Fall
But excepts in future the price will Earns profit by selling shares at a higher price.

Fall Rise Incur the losses Carry forward and pay Budla or contango Charges.

2. Bear
Bear Expects Fall in price Enters into Sale agreement or sales forward or short sales The price in settlement period

Rises 36

Fall

But expects in future the price will Square the deal by buying shares at lower rates and selling at higher.

Rise Fall Incure the losses Carry forward and pay Budla or backward action charges.

3. Stag
A stag is a speculator who applies for shares of new issues. He does not buy the securities in the stock exchange but applies for shares of new companies, which he expects to be sold at a premium. As compared to the bulls and bears, he is comparatively more cautious in his dealings. Sometimes, when the new issues are under subscribed or shares are available in the market at a discount, the stag incur a loss. They are bullish in nature.

4. Lame Duck
When a bear speculator is not able to meet his commitments, he is said to be struggling like a lame duck. For instance, when a bear agrees to sell a certain security on a fixed date and the same is not available in the market.

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CAUSES OF SPECULATION
The stock market cannot be made active without the speculators. The speculators play a significant role in providing: Ready market Price continuity Stability

Excessive and unchecked speculation is an evil while mild and controlled speculation is good for a healthy growth of the stock market. It is estimated that major proportion of the transactions which take place in stock exchange are in specified shares which take place in stock exchange and are in specified shares which are settled through payment of differences without taking actual delivery of shares.

The main factors for the speculative activities are: 1) Insider trading Insider trading refers to the trading in the shares by the persons who are in the management of the company or are close to the company or have full information regarding the company (which are generally 38 not available to the outsiders) like: -

 Working of the company Announcement of bonus Rights Dividends Important decisions taken by governing board Some persons connected with the company having confidential information about the company trade in share of their own company can influence the market price. (If they all start selling in a big way, then market price will decline to a great extent and vice-versa). The first legislative attempt was made to curb insider trading by incorporating section 307 and 308 in the companies Act, 1956, the provisions of these sections are inadequate and have little impact to curb insider trading. SEBI has promulgated the Securities and Exchange Board of India (Insider trading) Regulations, 1992 with a view to curb this unethical practice.

These regulations provide that: No insider will deal in securities of a company listed on any stock exchange. No insider shall communicate any unpublished price sensitive information to any person. No insider can counsel any other person to deal in securities of any company on the basis of unpublished price sensitive information. SEBI regulations are too weak to deter the unscrupulous persons from indulging in insider trading. 2) Kerb trading 39

Any trading activity, which is conducted outside official trading hours or on nonworking days or outside the offer of the brokers, is called Kerb trading. Kerb trading is a sort of parallel market to the official stock market. A major part of these transactions is not reported to the stock exchange. The big operators and manipulators use Kerb market. The prices of the active shares can be easily manipulated in this market with a small volume of business. The insiders can also use the Kerb market in a very effective manner to manipulate the pictures The trading hours in the stock exchange are very short and there are number of holidays and business being suspended for one or the other reason. This creates a lot of hardship in effectively handling the volume of trading in the stock exchanges, which encourages the trading in the Kerb market.

3) Rigging the market The rigging of the market means artificially forcing up the market price of a particular security. It is the result of a strong bull movement or pushing down the price by the bear operators. If adequate funds are not available some members often take finance from outside and take temporary deliveries of scrips and tend to push up the prices and try to take advantages of the artificial price fluctuations. For rigging up the market, the speculators form a syndicate and use the Kerb market also as an instrument to manipulate the market prices. Such practices create instability in the market prices of the stock exchange and should be discouraged. These swings in prices are artificially created or manipulated by the speculators; the performance of the company remains independent. This leads to variation between market prices and intrinsic value of the shares. 4) Cornering When an individual or group of individuals buy or hold the entire supply 40cornering. In such a situation, the of a particular security it is called

bears or short sellers, who have contracted to sell the security without possessing the same, would be unable to deliver it to the buyers who have cornered the security. The buyers in this situation can dictate terms to the short sellers. This way the short sellers are squeezed.

5) Wash sale transactions When a speculator enters in a fictitious transaction in which he sells a particular security through one broker and buys the same at a higher price through another broker it is called wash sale transaction. These transactions are called wash sale when the price rises in the market, the speculators off-load their holdings and earn good profits form the same. Sometimes the speculators give orders to different brokers for the sale and purchase of a particular security i.e. the number or sales and purchase are equal. This creates an impression in the market that the security is being actively traded and price starts rising upward. The speculators off-load their holding when they consider the price has achieved its maximum. 6) Inadequate floating stock The securities of the well-established companies are not available in the market and are in short supply. The equity market is very narrow and limited to a few scrips as is evident from the fact that shares of a few companies mostly from the specified list and a few non-specified list companies are active and form the bulk of the turnover in all the stock exchanges. Due to this, the market price reflects a scarcity price instead of intrinsic price based on earning capacity, dividend pay out ratio, growth potential and assets of the company. 41

7) Over trading The stockbrokers, while executing the orders of the speculators, indulge themselves also in over trading on their own account. Some of the big brokers operate through the small brokers. Thus the big brokers are able to avoid depositing margins. Over trading on their own account, or operating through the small brokers by the big brokers tends to create market crises or tends to influence the prices. 8) Carry over transactions Stock exchange is a place, which provides us an opportunity to buy what one does not want to own and to sell what one does not own.

42

DERIVATIVES OPTIONS AND FUTURES S&P CNX NIFTY FUTURES

A futures contract is a forward contract, which is traded on an Exchange. NSE commenced trading in index futures on June 12, 2000. The index futures contracts are based on the popular market benchmark S&P CNX Nifty index. NSE defines the characteristics of the futures contract such as the underlying index, market lot, and the maturity date of the contract. The futures contracts are available for trading from introduction to the expiry date.

S&P CNX NIFTY OPTIONS

An option gives a person the right but not the obligation to buy or sell something. An option is a contract between two parties wherein the buyer receives a privilege for which he pays a fee (premium) and the seller accepts an obligation for which he receives a fee. The premium is the price negotiated and set when the option is bought or sold. A person who buys an option is said to be long in the option. A person who sells (or writes) an option is said to be short in the option. NSE introduced trading in index options on June 4, 2001. The options contracts are European style and cash settled and are based on the popular market benchmark S&P CNX Nifty index.

43

FUTURES ON INDIVIDUAL SECURITIES

A futures contract is a forward contract, which is traded on an Exchange. NSE commenced trading in futures on individual securities on November 9, 2001. The futures contracts are available on 41 securities stipulated by the Securities &.Exchange Board of India (SEBI).NSE defines the characteristics of the futures contract such as the underlying security, market lot, and the maturity date of the contract. The futures contracts are available for trading from introduction to the expiry date

OPTIONS ON INDIVIDUAL SECURITIES

An option gives a person the right but not the obligation to buy or sell something. An option is a contract between two parties wherein the buyer receives a privilege for which he pays a fee (premium) and the seller accepts an obligation for which he receives a fee. The premium is the price negotiated and set when the option is bought or sold. A person who buys an option is said to be long in the option. A person who sells (or writes) an option is said to be short in the option. NSE became the first exchange to launch trading in options on individual securities. Option contracts are American style and cash settled and are available on 41 securities stipulated by the Securities & Exchange Board of India.

CLEARING & SETTLEMENT (DERIVATIVES)

National Securities Clearing Corporation Limited (NSCCL) is the clearing and settlement agency for all deals executed on the Derivatives (Futures & Options) segment. NSCCL acts as legal counter-party to all deals on NSE's F&O segment and guarantees settlement.

OPERATION OF A CALL OPTION

Writer sells the option 44 Holder buys it at a premium

Has a right but not an obligation to buy the share on a specified date at a predetermined price.

On the specified date Share price rises beyond the option exercise price. Falls below the option exercise price.

Option exercised

Not exercised

Premium Amount lost

Loss Difference between Market Prices and exercise price Premium.

Profit Difference between market price and exercise price Premium.

(eg) Price of ACC Today = Rs. 1000 Buy the call option to buy at a premium of Rs. 5 i.e. at Rs. 1005. After one Month Share price =Rs. 995 option not exercised Amount lost=Rs. 5(option premium) - Share price =1007. Option exercised Loss =[5 (1007 1005)] = Rs.3 - Share price = Rs. 1120 option exercised Profit = [(1120 1005) 5] = Rs. 10.

OPERATION OF A PUT OPTION

Writer sells the option at a premium. 45 Holder buys the put option

Has the right but no obligation to sell the shares at specified price on a specified date.

On the specified Date The share price rise above the Option exercise price. The share price fall below Option exercise price.

Option not exercised Premium amount lost

Option exercised

Profit Difference between market price and exercise price is More than the premium.

Loss Difference between the market price and the exercise price is Less than the premium.

(eg) Price of ACC Today = Rs. 1000 But a put option to sell the share at Rs. 1005 premium = Rs. 5 After one month Share price = Rs. 1008. Option not exercised Loss = Premium amount (Rs. 5) Share price = Rs. 1003 option exercised Loss = [5 (1005 1003)] = Rs. 3 Share price = Rs. 950 Profit = [(1005 950) 5] = Rs. 50

46

STOCK EXCHANGES IN INDIA A SURVEY

47

PROBLEMS OF SECONDARY MARKET IN INDIA

The secondary market as it functions through the stock exchanges is highly inefficient. This can be noted as large number of primary issues deviating to Euro/GDR market. The main reason of this is that Indian secondary markets do not have an efficient trading system and book entry transfer mechanism that ensures delivery-versus-payment. The country is divided into 23 geographical separate secondary markets and they hardly have any inter linkage among the stock exchanges. This keeps the market fragmented although some inter exchanges trades take place. The delivery in the stock exchanges continued to be in the physical form in regard to securities and this practice of relatively small marketable lots lead to large paper work /exchanges which discouraged inflow of foreign investment to some extent as custodians continue to groan under the mass of paper. A fear is rightly being expressed as to whether the Indian secondary market will move away to foreign countries where settlement of transactions can be expeditiously completed without much hassle.

The problems are as follows: -

48

1) Excessive speculation The deficiency of the carry forward system was that it mixed up cash transactions with speculative transactions. There are considerable resistance to the moves of SEBI for regulating the carry forward trade with reasonable levels of margins and mandatory delivery versus settlement. The unbridled speculative activity has not been controlled due to: Non-delivery of securities Settlements are being postponed Trades are not settled as per the pre determined time schedule. 2) Integration of market Secondary markets in the country are fragmented into distantly located monopolistic exchanges. Therefore, immediate task should be to encourage growth of large brokerage houses in India so as to spread equity market to all those areas where stock exchanges do not exist or cannot be made viable. Second major step should be to establish trading linkages between cities where stock exchanges exist. 3) Lack of control over the fair disclosure of financial Information The prospectus does not contain adequate relevant information and omit vital information, which may adversely affect the assessment of companys future prospects. Sometimes the information given is misleading, deceptive, biased and company tries to woo the investors in the market. 4) Non-development of secondary market 49

The Indian stock market is a peculiar amalgam of high volatility in respect of a few scrips and low liquidity in respect of a vast majority of them. Roughly about 25 per cent do not get traded at all in a year. There is a problem of odd-lot shares. Selling odd-lot shares is always a problem to the investors and they normally receive 15 to 20 per cent less than market price for their shares. 5) Prevalence of insider trading Whenever there is sudden lifting or unloading of big parcels of shares, it is generally presumed that insider trading is at work. Insiders not only cause fluctuations in the prices of the securities, but they also undermine the trust of the investors in the capital market. When the investors find that the stock market activity is rigged, they simply shy away from the market. 6) Manipulations of security prices Manipulation of security prices at the time of further issue has become a common problem to the investors in the stock market. This has led to the practice of fixing prices almost equal to stock exchange quotations ruling then, thus leaving the prospective customers in lurch.

50

EXPLANATION OF QUESTIONAIRE
The Questionnaire for the working of stock exchanges in India and its operations was designed keeping in mind that qualitative, in-depth, and quantitative data is required. Also the fact that the mindset of the investors was essential for the research; which was done using different questions to be rated on various scales. Though closed ended specific questions dominate the questionaire, some open ended ones have also been fitted to balance the questionnaire. So before looking and analyzing our findings let us see exactly why each of the questions taken

one by one
Note: Copy of the questionaire is attached in the Annexure. The first is a very basic question to differentiate between the investor and the general respondent. Though our study will have more of the former, but it is always better to make the respondent comfortable. Our very purpose of the study is to find the effectiveness of the working of the stock exchanges in India and the investors interest, so we need to first find out how many people actually invest in shares and in which stock exchange. Hence the relevance of the question is clear.

Question number 2 is of great importance, to know for how long the respondent has been investing in the stock market. This enables us to analyze his comments on the basis of his age in the field and his knowledge in the same. The older the player, more valuable is the information provided by him.

The next question gives an insight whether investing in the stock market is a regular affair for him or does he seldom deal in it. A person who is more close to the stock market would provide up to date information. 51

 To dig deeper into the rabbit hole, the next question reveals as to investors prefer investing in the primary or secondary market. Question 5 and 6 were placed to judge the awareness levels of the respondents about the majorly known stock exchanges and which are preferred by majority of the people. To judge the preference level of the respondents amongst the two methods of trading, this question was drafted. The question asks the respondent to rate his/her preference, whether the old system or De-materialization. The next question was framed to know the preference levels in terms of brokers and sub brokers. Question 9 & 10 were drafted to know whether the respondents are aware of the facts pertaining to the stock exchanges or whether they are just concerned with the investing part of it. It was important to know from where does the respondent gain information regarding stocks/shares, which he/she is transmitting to us. This also helps to know as to which is the most commonly used source for the investors. The best way to find the attitude level and the mindset of the respondents on a number of parameters is via rating on a five-point basis, a series of statements. The respondent will have to mark the importance level according to him with the given statement and according to the response we get; the average level could be calculated for the full sample. The

statements given are as follows

1. Goodwill of the company. 2. Age of the company. 52

3. Performance of the company. 4. Prices of the shares. 5. Influence from others. 6. Business of the company. 7. Liquidity of that stock. 8. Dividend yield. 9. Price earning ratio. Question number 13 throws light on the characteristics in which the NSE has improved over a period of time. This question was drafted to know the percentage of investors not happy with the current working of the stock exchanges and want it under corporate hands for better services. To make things go a little complex, this question was drafted to know as to whether people would invest more after the amendments in the tax policies or the effect would be null and void. The next two questions were put in place to know the mindset of the respondents with respect to the manipulation existing in the stock market, whether it has increased or decreased after the introduction of the online system. The last question is an open ended one which gives the respondents chance to express his/her views about the working of the stock exchange and what according to them should be the modifications in the same to improve the quality and quantity of work. Last but not the least personal details of the respondents were taken including the age group he/she falls in and the relevant telephone numbers.

53

SUMMARY CONCLUSION AND RECOMMENDATIONS

54

FINDINGS AND CONCLUSIONS

Now that we know exactly why each of the questions was taken it is time to enumerate and express the results that we got after a careful evaluation of the 50 questionnaires filed by the respondents. We would look at our findings according to the question order and illustrate the result with adequate graphs wherever necessary.

1. Out of the 50 respondents, 44 invested in shares and 6 did not do so. In a manner of speaking it means that a majority of the sample type were investors, so the remaining questions would be influenced by this factor.

Ratio of Investors to Non-Investors.

12% Yes No 88%

Among these 44 respondents, maximum transacted in either the NSE or the BSE.

55

2. As regards to authenticate the knowledge & the awareness levels of the respondents with the number of years they have spent in the stock market and trading, our analysis can be viewed with the help of the following graph.

80% 70% 60% 50% 40% 30% 20% 10% 0%

72%

12%

16%

Less than 2 years

5 years

More than 5 years

3. The study reveals the following result as far as the question of investing in the primary or secondary market is concerned. 4. We now come to the awareness levels of the respondent with regards to the terms BSE and NSE. 47 out of 50 respondents were aware of the terms whereas just a minority, (i.e. 3 people) were not aware and that too they belonged to the category which did not invest in shares. 5. Most of the respondents preferred investing in the NSE, whereas there were a few who also opted for BSE at the same time.

6. Seven people opted for the old system as they had to say that nothing has improved in terms of working and 56 what exists is no good than the old one,

whereas, on the other hand, 43 people were of the thought process that the existing system, i.e. De-materialization (online trading) is better than the physical transaction of shares. On taking In-depth interviews and probing into the matter, the reasons given in support of the argument were as follows: In the old system there were discrepancies in terms of mismatch of signatures and the investors had to unnecessarily go through stress and wastage of time. The new system is less complex and time consuming. It has improved the working in terms of faster delivery, transparency, etc. Manipulation has decreased on the end of the stockbrokers although it has not yet become extinct.

7. Out of the entire sample, 37 respondents preferred dealing with a broker, 4 with sub brokers, and 9 with both as it they said it does not make any substantial difference.

PREFERRENCE IN TERMS OF DEALINGS

18% 8%
Brokers Sub brokers

74%
57

8. Although the delivery of shares should not take more than T+3 days, still maximum respondents had a firm statement to make that it takes more than a weeks time. 9. The conclusion derived from this question is that maximum number of people are not aware of the number of listings in the stock exchange. The following pie chart represents the response as received.

10. The finding from this question was that maximum number of respondents accessed information regarding stocks /shares through newspapers, T.V., and Net. This question was evaluated on cumulative basis as one person voted for more than one option. The following graph gives us the number as were voted.

ACCESS TO INFORMATION
60.00 50.00 40.00 30.00 20.00 10.00 -

48.00 39.00

46.00

18.00 7.00 2.00

es

et

rs

s el at iv e

ap

az

sp

M ag

Br o

ew

St oc

Fr ie

58

nd

s/ R

T. V.

er

ke

in

11. The next question had 9 different statements, and asked the respondent to mark his / her agreement level to these. The 5-point average was taken and the results are summarized in the graph given in the next page. Each of the statement has a different average represented by the columns. A higher average indicates, that particular statement is of less importance to him, and an average like 1.5 shows that they agree with the statement made. The explanation, and conclusions that we draw from these results are explained after the graph.

4.20

4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 -

3.67 2.90 2.54 2.20 1.32 1.80 1.58

3.10

59

A. The goodwill o the company is an important factor for the respondents, although not the most important. Hence an average of 2.2. They consider this factor before the actual purchase. B. Age of the company plays a vital role in the purchase decision of the investors. They consider how old the company is in the market and have a bend towards this factor. Therefore, an average of 1.32. C. Although a little less than the last factor, but still performance of the company in its business and its profits are looked into by the investors and this affects their buying decision. Hence, an average of 1.8.

D. Maximum respondents look into the price factor seriously. The respondents do look for the prices, as it should suit their budgets. However, not that important but not on the lower side too. Therefore, an average of 2.54. E. Others do not influence people for their purchase decision. This factor is not of much importance to them and scored an average of 4.2. F. The respondents do consider the business of the company before buying its shares. However if the other factors are heavier in weight, then it does not play that important a role. Hence an average of 2.9. G. The liquidity factor was on a lower side in terms of importance to the investor for the buying decision. This could also be for a reason that many might not know the exact concept of this factor. Hence, an average of 3.67. H. Dividend yield that the investor is going to earn from the shares he possesses is one of the most important factors, which influences their buying decision. Therefore, it bagged an average of 1.58. 60

I. The average of 3.1 shows that the price earning ratio sticks somewhere around neutral.

12. This question was evaluated on cumulative basis as the respondents had opted for more than one option. The number of votes received by each characteristic is shown in the graph below.

30 25 20 15 10 5 -

26 16 8

23

ay m en t
61

Be tte rS

13. In a sample size of 50 people, 47 answered yes to the question that should
the stock exchanges in India are corporative. 7 out of the sample negated the

Pr om pt P

Fa s

Tr an sp ar en cy

er y

te r

De l iv

er vic

corporatisation factor and 3 said that they are indifferent. It did not make any difference to them whether the stock exchanges are corporative or not. 14. Out of the 50 respondents, 47 said that the manipulation by the stockbrokers has decreased in the past few years, whereas 3 said that it has increased. 15. 34 out of the 50 respondents said that it is not possible for the stockbrokers to manipulate the transactions in the online system as every transaction is computerized, whereas 16 people said that it is possible. On having discussions and In-depth interview the following arguments were given in support of the statement made by these 16 respondents: The stock brokers form a cartel, rig the price at a given time, then give a dip in the price and then again rig it upto 10%. Therefore, one can rig the price upto 25% without catching the filters. Manipulation is possible in the online system in case of distance orders, which are taken over the telephone. The stockbroker can benefit himself from the deals of the investors. Example: - If the price of a share is Rs. 40 and the investor asks the broker to buy a particular lot for him if the price falls to Rs. 36. Now, if the price falls to Rs. 34 all of a sudden then the broker can profit out of it and sell it to the investor at Rs. 36. Similarly, if the price is Rs.40 and a person asks the broker to sell his shares as soon as the price touches Rs. 42, then if the price reaches Rs. 43 the broker can make a profit of Rs. 1 per share and pay the seller as per asked. 16. We have taken the suggestions given by the respondents for the improvements in the working of stock exchanges in India into consideration 62 while drafting the recommendations.

63

RECOMMENDATIONS COME BACK FOR THE INVESTORS

These days the common man is thrown out of the stock market, especially in the secondary market. Therefore, for improvement of quality and volumes at the stock exchange, such a system should be developed where in the buyer can make transactions from his own P.C. through internet and save himself from the clutches of manipulation by the stock brokers. Though, such a system has no evolved but still suffers from some disadvantages which should be taken care of.

WAY TO PREVENT MANIPULATION BY THE STOCK BROKERS

As manipulation is possible in the online system in case of distance orders, which are taken on telephone, the stock exchange should provide a proof of the rates at which the deal is finalized to the buyer. This would hold the stockbroker to manipulate the rates. Example: - if the rate prevailing is Rs. 45 and the investor wants to put a bid for selling his shares at Rs. 48, then if the transaction is matured, the broker can without confirming the order to the investor put the transaction for himself.

REGAIN THE CONFIDENCE OF THE INVESTORS

The investors and general public have lost confidence and trust in the stock markets as a result of the scams, which has been seen by us. No strict actions have been taken so as to prevent such acts. Therefore, the government and the regulatory board should take the necessary steps to control such acts of distrust and betrayal and have severe punishments for the same.

64

Transparency
There should be more transparency in terms of clarity of deals, code of conduct by the stockbrokers and the transactions taking place in the stock exchanges. This would make the investors feel safe and secure in terms of the investments and this in turn, would raise the number of investors.

Trained and efficient staff

The staff at the stock exchanges should be trained, helpful and have immense knowledge about their work and operations, so as to provide better services and prompt delivery to the investors.

SEBI should act more than just watchdogs

The SEBI guidelines should be more strict in monitoring the working and operations of the stock exchanges and not act as mere watchdogs. They should pay utmost attention to the fact that investors do not loose their hard earned money.

Corporatisation of stock exchanges

Like other sectors, which have been corporatized, the stock exchanges should also be corporatized to increase the efficiency in working, reduce misconducts and provide the investors and the general public with quality services.

Adequate powers for 65the stock exchanges

The stock exchanges should be given adequate powers to look into the matters relating to the non-receipt of bid warrants and annual reports etc. this would bring the investors back into the market.

Less involvement of FIIs

95% of the stock broking is controlled by the FIIs and is manipulated. The common man should not be shunned out of the system and welcome of the FIIs should be reduced as the FIIs and other financial institutions majorly doctor the working of the stock exchanges.

Better regulatory framework

For the efficient and prompt services of the stock exchanges, a healthy regulatory framework is required. The framework should place things in order and control the operations in an effective manner.

66

ANNEXURE

67

QUETIONAIRE
I, Saurabh management student of AIM College is conducting a survey on awareness level and knowledge of people regarding the stock markets. Your views are valuable and would solicit us. Q.1 Do you invest in shares? Yes If yes, In which stock exchange do you transact? DSE NSE BSE Others (Pls. Specify) No

Q.2 Since how long have you been investing in shares? - Less then 2 years - 5 years - More than 5 years

Q.3 How frequently do you invest in shares? Every day (speculative) Once a month Any other Every week Twice a month

Q.4 Do you invest in PRIMARY MARKET or SECONDARY MARKET? 68

Yes

No

Q.5 Are you aware of the terms DSE, BSE and NSE? Yes No

Q.6 Amongst the following stock exchanges, in which do you prefer investing? DSE BSE NSE

Q.7 According to you, which is better. -Old system -Existing system Physical transaction of shares (title deed) De-materialization (online trading)

Q.8 Whom do you prefer to deal with? Brokers Sub brokers Both

Q.9 How much time does it take for the physical delivery of shares? 3 days One week 4 days More than a week

Q.10 Are you aware of the number of listing in the stock exchange? Less than 500 2000-4000 500-2000 5000 approx.

Q.11 How do you access information regarding stocks/shares? -Newspapers 69

-Magazines -Net (internet) -Stock Brokers -Friends/Relatives -T.V Q.12 Rate the following factors given below in order in which they effect your buying decision? 1-Most important 5-Least important -Goodwill of the company -Age of the company -Performance of the company -Prices of the shares -Influence from others -Business of the company -Liquidity of that stock -Dividend yield -Price earning ratio 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5

Q.13 In which of the following characteristics, has the working of NSE improved the maximum in the past few years? Faster delivery Quick services Prompt payment Transparency

Q.14 Should the stock exchanges in India be corporatized? Yes No Doesnt matter.

Q.15 In the past few years, has the manipulation increased or decreased by the stock brokers? Increased Decreased

Q.17 Is it possible for the stock broker to manipulate the transactions in the online system? Yes If Yes, how? 70 No

Q.18 Do you think there should be any changes in current working of stock exchange? Yes If yes, Give suggestions: No

Name Age Sex

: : :

Phone No :

71

BIBLIOGRAPHY
www.bseindia.com www.nseindia.com www.equityresearch.com www.incrediblecharts.com www.uniconindia.com www.indiainfoline.coms www.google.com www.investopedia.com www.sify.com www.valueresearch.com

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