Indian Equity Market

The Indian Equity Market is more popularly known as the Indian Stock Market. The Indian equity market has become the third biggest after China and Hong Kong in the Asian region. According to the latest report by ADB, it has a market capitalization of nearly $600 billion. As of March 2009, the market capitalization was around $598.3 billion (Rs 30.13 lakh crore) which is onetenth of the combined valuation of the Asia region. The market was slow since early 2007 and continued till the first quarter of 2009. A stock exchange has been defined by the Securities Contract (Regulation) Act, 1956 as an organization, association or body of individuals established for regulating, and controlling of securities. The Indian equity market depends on three factors -

Funding into equity from all over the world Corporate houses performance Monsoons

The stock market in India does business with two types of fund namely private equity fund and venture capital fund. It also deals in transactions which are based on the two major indices Bombay Stock Exchange (BSE) and National Stock Exchange of India Ltd. (NSE). The market also includes the debt market which is controlled by wholesale dealers, primary dealers and banks. The equity indexes are allied to countries beyond the border as common calamities affect markets. E.g. Indian and Bangladesh stock markets are affected by monsoons. The equity market is also affected through trade integration policy. The country has advanced both in foreign institutional investment (FII) and trade integration since 1995. This is a very attractive field for making profit for medium and long term investors, short-term swing and position traders and very intra day traders. The Indian market has 22 stock exchanges. The larger companies are enlisted with BSE and NSE. The smaller and medium companies are listed with OTCEI (Over The counter Exchange of India). The functions of the Equity Market in India are supervised by SEBI (Securities Exchange Board of India). History of Indian Equity Market The history of the Indian equity market goes back to the 18th century when securities of the East India Company were traded. Till the end of the 19th century, the trading of securities was unorganized and the main trading centers were Calcutta (now Kolkata) and Bombay (now Mumbai). Trade activities prospered with an increase in share price in India with Bombay becoming the main source of cotton supply during the American Civil War (1860-61). In 1865, there was drop in share prices. The stockbroker association established the Native Shares and Stock Brokers Association in 1875 to organize their activities. In 1927, the BSE recognized this association, under the Bombay Securities Contracts Control Act, 1925. The Indian Equity Market was not well organized or developed before independence. After

independence, new issues were supervised. The timing, floatation costs, pricing, interest rates were strictly controlled by the Controller of Capital Issue (CII). For four and half decades, companies were demoralized and not motivated from going public due to the rigid rules of the Government. In the 1950s, there was uncontrollable speculation and the market was known as 'Satta Bazaar'. Speculators aimed at companies like Tata Steel, Kohinoor Mills, Century Textiles, Bombay Dyeing and National Rayon. The Securities Contracts (Regulation) Act, 1956 was enacted by the Government of India. Financial institutions and state financial corporation were developed through an established network. In the 60s, the market was bearish due to massive wars and drought. Forward trading transactions and 'Contracts for Clearing' or 'badla' were banned by the Government. With financial institutions such as LIC, GIC, some revival in the markets could be seen. Then in 1964, UTI, the first mutual fund of India was formed. In the 70's, the trading of 'badla' resumed in a different form of 'hand delivery contract'. But the Government of India passed the Dividend Restriction Ordinance on 6th July, 1974. According to the ordinance, the dividend was fixed to 12% of Face Value or 1/3 rd of the profit under Section 369 of The Companies Act, 1956 whichever is lower. This resulted in a drop by 20% in market capitalization at BSE (Bombay Stock Exchange) overnight. The stock market was closed for nearly a fortnight. Numerous multinational companies were pulled out of India as they had to dissolve their majority stocks in India ventures for the Indian public under FERA, 1973. The 80's saw a growth in the Indian Equity Market. With liberalized policies of the government, it became lucrative for investors. The market saw an increase of stock exchanges, there was a surge in market capitalization rate and the paid up capital of the listed companies. The 90s was the most crucial in the stock market's history. Indians became aware of 'liberalization' and 'globalization'. In May 1992, the Capital Issues (Control) Act, 1947 was abolished. SEBI which was the Indian Capital Market's regulator was given the power and overlook new trading policies, entry of private sector mutual funds and private sector banks, free prices, new stock exchanges, foreign institutional investors, and market boom and bust. In 1990, there was a major capital market scam where bankers and brokers were involved. With this, many investors left the market. Later there was a securities scam in 1991-92 which revealed the inefficiencies and inadequacies of the Indian financial system and called for reforms in the Indian Equity Market. Two new stock exchanges, NSE (National Stock Exchange of India) established in 1994 and OTCEI (Over the Counter Exchange of India) established in 1992 gave BSE a nationwide competition. In 1995-96, an amendment was made to the Securities Contracts (Regulation) Act, 1956 for introducing options trading. In April 1995, the National Securities Clearing Corporation (NSCC) and in November 1996, the National Securities Depository Limited (NSDL) were set up for demutualised trading, clearing and settlement. Information Technology scrips were the major players in the late 90s with companies like Wipro, Satyam, and Infosys. In the 21st century, there was the Ketan Parekh Scam. From 1st July 2001, 'Badla' was

discontinued and there was introduction of rolling settlement in all scrips. In February 2000, permission was given for internet trading and from June, 2000, futures trading started.

Indian Share Market

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.

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) 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 2010.

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 ?

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.