DIRECTORATE OF DISTANCE EDUCATION

SWAMI VIVEKANAND SUBHARTI UNIVERSITY

Fundamental Analysis of Equity Market &

Understanding Investors Psychology

A PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR

THE AWARD OF THE DEGREE OF
MASTER OF BUSINESS ADMINISTRATION

CANDIDATE NAME: SUPERVISOR/GUIDE:

RAHUL NEGI MR. P.S.BISHT
Enrolment No: C1620999612824
Roll No.: B17644140
MBA – Financial Management + HRM
 Directorate of Distance Education
Swami Vivekanand Subharti University

CERTIFICATE

Date---------------

It give me pleasure to certify that the project report entitled “Fundamental Analysis of Equity Market
& Understanding Investors Psychology” is an authentic work which is being submitted by Rahul Negi
for project report to the Directorate of distance education, SVSU Meerut fulfilled of the requirement for
the award of the degree of Master of Business Administration in Finance & Marketing. The record
submitted is his own work done under my supervision and guidance. It is fit for submission and
publication.

DATE- Signature of the Supervisor

PLACE –

P.S. Bisht

Designation --- Lecturer

New Delhi
 Table of Contents

S No. Particulars Page No.

1. Chapter 1
1.1 Industry Profile
1.2 Company Profile
1.3 Background and Inception of the Company
1.4 Nature of Business Carried
1.5 Vision, Mission and Quality Policy
1.6 Product/Services Profile
1.7 Area of Operations
1.8 Ownership Pattern
1.9 Competitors Information
1.10 Infrastructural Facilities
1.11 Achievements/Awards
1.12 Future Growth and Prospectus
1.13 Topic Details
2. Chapter 2
Literature Review
3. Chapter 3
3.1 Research Methodology
3.2 Research Design
3.3 Need of the study
3.4 Objectives of the Study
3.5 Data Collection
3.6 Variable Studied
3.7 Sampling Plan
3.8 Limitations of the Study
4. Chapter 4
Data Analysis and Interpretation
5. Chapter 5
5.1 Conclusions
5.2 Recommendations
 4.3 My Experience
6. References
7. Annexure
 List of Tables & Graphs

S no. Name of Graph Page No.

1. Customer doing Trade
2. Type of Trade customer do
3. Reason for no-trade
4. Customer heard about IIFL Flame
5. Segment that customer prefer to trade
6. Risk of Investment in Share Market than other schemes
7. Currency market is much safer than equity market
8. Customer’s preference for long term to invest
9. Customer heard about NSEL Gold or E-Gold Trading
10. Customer awareness about SEBI Guidelines
11. Market stand at the end of this year

Executive Summary

The India Infoline group, comprising the holding company, India Infoline Limited and its

wholly-owned subsidiaries, straddle the entire financial services space with offerings ranging
from Equity research, Equities and derivatives trading, commodities trading, Portfolio

management Services, Mutual Funds, Life Insurance, Fixed deposits, Govt. bonds and other

small savings instruments to loan products and Investment banking. India Infoline also owns and

manages the websites www.indiainfoline.com and www.5paisa.com. The company has a

network of 1341 business locations (branches and sub-brokers) spread across 365 cities and

towns. It has more than 800,000 customers.

In today’s competitive world there are many goods chasing few customers some are trying it

expands their size and share of existing market. As a result there are loser and winners. Winners

are those who carefully analyze needs identify opportunities and create aloe rich offers for target

customer.

The objective of the market research to determine the demand and supply and use of the product

and competitors study so as to get the total market scenario of the product for analyzing market

problem research is needed. A firm can obtained market research in a number of ways. It can

hire market research firm or it can ask student to design and carry out market research project.

These marketing problems and opportunities if entrust to the student of marketing. Especially

when they seek the same during the project gives opportunities to apply their theoretical

knowledge and managerial knowledge.

India infoline.com/5paisa.com is related to share market; it is equity to caused organization

tracing its lineage to SSKL, a veteran solution company with over 8 decades of experience in the

lead in stock market.

Chapter 1:

Introduction
1.1 INDUSTRY PROFILE

The Indian broking industry is one of the oldest trading industries that have been around even

before the establishment of the BSE in 1875. Despite passing through number of changes in the

post liberalization period, the industry has found its way onwards sustainable growth. With the

purpose of gaining a deeper understanding about the role of the Indian stock broking industry in

the country’s economy, we present in this section some of the industry insights gleaned from

analysis of data received through primary research.

The Indian Stock Market in India comprises of two stock exchanges:

● Bombay Stock Exchange (BSE)

● National Stock Exchange (NSE)

BOMBAY STOCK EXCHANGE (BSE)

The Bombay Stock Exchange (BSE) was

established in 1875.The BSE India Stock

Exchange serves as the most important for

companies to raise money. The chief function of

the Stock Market of India is to help raise money

as capital for the growth and expansion of

various private and public sector enterprises.

Besides, the Stock Market of India provides able assistance to the individual investors through
daily updates on current position of the stocks of the respective companies that are enlisted in the

Stock Index in which the movement of prices in a section of the market are captured in price

indices. The popular acronym for Stock Index is Sensitive index or sensex. Moreover, the

liquidity provided by the exchange enables the investors to sell securities owned by them easily

and quickly.

Hence a person, who is subjected to sudden dearth of funds, can immediately sell his shares for

cash in India Stock Market. The BSE Sensex, also known as “BSE 30” is a widely used market

index not only in India but across Asia. In terms of volume of transactions, it is ranked among

the top five stock exchanges in the world.

NATIONAL STOCK EXCHANGE (NSE)

The National Stock Exchange of India Ltd.

(NSE), set up in the year 1993, is today the

largest stock exchange in India and a preferred

exchange for trading in equity, debt and

derivatives instruments by investors. NSE has

set up a sophisticated electronic trading, clearing

and settlement platform and its infrastructure serves as a role model for the securities industry.

The standards set by NSE in terms of market practices; products and technology have become

industry benchmarks and are being replicated by many other market participants.
NSE provides a screen-based automated trading system with a high degree of transparency and

equal access to investors irrespective of geographical location. The high level of information

dissemination through the on-line system has helped in integrating retail investors across the

nation. The exchange has a network in more than 350 cities and its trading members are

connected to the central servers of the exchange in Mumbai through a sophisticated

telecommunication network comprising of over 2500 VSATs.

NSE has around 850 trading members and provides trading in equity shares and debt securities.

Besides this, NSE provides trading in various derivative products such as index futures, index

options, stock futures, stock options and interest rate futures.

In addition to these organizations there are other organizations highlighting on the share trading

in the Indian Stock Market are:

● Securities and Exchange Board of India (SEBI)

● NSDL

● CDSL

Every modern economy is based on a sound financial system .A financial system is a set

of institutional arrangements through which financial surpluses are mobilized from the units

generating surplus income and transferring them to the others in need of them. The activities

include production, distribution, exchange and holding of financial assets/instruments of

different kinds by financial institutions, banks and other intermediaries of the market.

The financial markets have two major components; they are money market and capital market.
 Financial Markets

Money Market Capital Market

Securities Market other forms of lending

And borrowing

New issue (Primary) Stock (Secondary)

Market
MONEY MARKET:

The Money Market refers to the market where borrowers and lenders exchange short-term

funds to solve their liquidity needs.

CAPITAL MARKET:

The Capital Market is a market for financial investments that are direct or indirect claims

to capital (Gart, 1988).

SECURITIES MARKET:

It refers to the markets for those financial instruments/claims/obligations that are

commonly and readily transferable by sale. It has two inter-dependent and inseparable segments,

the new issues (primary) market and the stock (secondary) market.

SECONDARY MARKET:

The secondary market enables those who hold securities to adjust their holdings in response

to changes in their assessment of risk and return.

PRIMARY MARKET:

The Primary Markets provides the channel of sale of new securities.

1.2 COMPANY PROFILE

The IIFL (India Infoline) group, comprising

the holding company, India Infoline Ltd

(NSE: INDIAINFO, BSE: 532636) and its

subsidiaries, is one of India’s premier

providers of financial services.

IIFL offers advice and execution platform

for the entire range of financial services

covering products ranging from Equities and derivatives, Commodities, Wealth management,

Asset management, Insurance, Fixed deposits, Loans, Investment Banking, Gold bonds and other

small savings instruments.

We have a presence in:

Equities our core offering, gives us a leading market share in both retail and institutional

segments. Over a million retail customers rely on our research, as do leading FIIs and MFs that

invest billions.

Private Wealth Management services cater to over 2500 families who have trusted us with close

to Rs 25,000 crores ($ 5bn) of assets for advice.

Investment Banking services are for corporates looking to raise capital. Our forte is Equity

Capital Markets, where we have executed several marquee transactions.

Credit & Finance focuses on secured mortgages and consumer loans. Our high quality loan book

of over Rs. 6,200 crores ($ 1.2bn) is backed by strong capital adequacy of approximately 20%.

IIFL Mutual Fund made an impressive beginning in FY12, with lowest charge Nifty ETF. Other

products include Fixed Maturity Plans.

Life Insurance, Pension and other Financial Products, on open architecture complete our product

suite to help customers build a balanced portfolio.

IIFL has received membership of the Colombo Stock Exchange becoming the first foreign

broker to enter Sri Lanka. IIFL owns and manages the website, www.indiainfoline.com, which is

one of India’s leading online destinations for personal finance, stock markets, economy and

business. IIFL has been awarded the ‘Best Broker, India’ by Finance Asia and the ‘Most

improved brokerage, India’ in the Asia Money polls. India Infoline was also adjudged as ‘Fastest

Growing Equity Broking House - Large firms’ by Dun & Bradstreet. A forerunner in the field of

equity research, IIFL’s research is acknowledged by none other than Forbes as ‘Best of the Web’

and ‘a must read for investors in Asia’.

Our research is available not just over the Internet but also on international wire services like

Bloomberg, Thomson First Call and Internet Securities besides others where it is amongst one of

the most read Indian brokers.

IIFL is a listed company with a consolidated group net worth of about Rs 1,800 Cr. The income

and net profit during FY2010-11 were Rs. 14.7 Bn and Rs. 2.1 Bn respectively.
The Group has a consistent and uninterrupted track record of profits and dividends since its

listing in 2005. The company is listed on both Exchanges and also trades in the derivatives

segment.

IIFL’s Crisil and ICRA Rating for short term is top rated as CRISIL A1+ and ICRA (A1+)

respectively. For long term, IIFL has been rated ICRA (AA-) by ICRA and CRISIL AA-/Stable

by CRISIL indicating high degree of safety for timely servicing of financial obligations.

IIFL is near you physically: we are present in every nook and cranny of the country, with over

3,000 business locations across 500 cities in India. You can reach us in a variety of ways, online,

over the phone and through our branches. All our offices are connected with the corporate office

in Mumbai with cutting edge networking technology. The group caters to a customer base of

about a million customers.

Our physical presence in key global markets includes subsidiaries in Colombo, Dubai, New

York, Mauritius, London, Singapore and Hong Kong.

IIFL/India Infoline refer to India Infoline Ltd and its subsidiaries/ group companies.
1.3 Background and Inception of the Company

India Infoline founded in 1995 by Mr. Nirmal Jain (Chairman and Managing Director) as an

independent business research and information provider. We gradually evolved into a one-stop

financial services solutions provider. Our strong management team comprises competent and

dedicated professionals.

It is a pan-India financial services organization across 1,361 business locations and a presence in

428 cities. Our global footprint extends across geographies with offices in New York, Singapore

and Dubai. We are listed on the Bombay Stock Exchange (BSE) and the National Stock

Exchange (NSE).

It offer a wide range of services and products comprising broking (retail and institutional equities

and commodities), wealth management, credit and finance, insurance, asset management and

investment banking.
We are registered with the BSE and the NSE for securities trading, MCX, NCDEX and DGCX

for commodities trading, CDSL and NSDL as depository participants. We are registered as a

Category I merchant banker and are a SEBI registered portfolio manager. We also received the

FII license in IIFL Inc. IIFL Securities Pvt. Ltd received approval from the Monetary Authority

of Singapore to carry out corporate advisory and dealing in securities operations. Two

subsidiaries – India Infoline Investment Services and Moneyline Credit Limited – are registered

with RBI as non-deposit taking non-banking financial services companies. India Infoline

Housing Finance Ltd, the housing finance arm, is registered with the National Housing Bank.

In the year 2000, India Infoline leveraged its position as a provider of financial information and

analysis by diversifying into transactional services, primarily for online trading in shares and

securities and online as well as offline distribution of personal financial products, like mutual

funds and RBI Bonds. These activities were carried on by our wholly owned subsidiaries.

India Infoline broking services were launched under the brand name of 5paisa.com through our

subsidiary. India Infoline Securities Private Limited and www.5paisa.com, the e-broking portal

was launched for online trading in July 2000. It combined competitive brokerage rates and

research, supported by Internet technology besides investment advice from an experienced team

of research analysts. India Infoline also offer real time stock quotes, market news and price

charts with multiple tools for technical analysis.

Milestones

1995

Incorporated as an equity research and consulting firm with a client base that included leading

FIIs, banks, consulting firms and corporates.

1997

Launched research products of leading Indian companies, key sectors and the economy client

included leading FII’s, banks and companies.

1999

Restructured the business model to embrace the internet; launched archives.indiainfoline.com

mobilized capital from reputed private equity investors.

2000

Commenced the distribution of personal financial products; launched online equity trading

through www.5paisa.com; entered life insurance distribution as a corporate agent.

Acknowledged by Forbes as ‘Best of the Web’ and ‘must read for investors’.

2003

Launched proprietary trading platform Trader Terminal for retail customers.

2004

Acquired commodities broking license launched Portfolio Management Service.

2005
Listed on the Indian stock markets.

2006

Acquired membership of DGCX launched investment banking services.

2007

Launched a proprietary trading platform; inducted an institutional equities team; formed a

Singapore subsidiary raised over USD 300 million in the group, launched consumer finance

business under the ‘Money line’ brand.

2008

Launched wealth management services under the ‘IIFL Wealth’ brand set up India Infoline

Private Equity fund, received the Insurance broking license from IRDA, received the venture

capital license, received in principle approval to sponsor a mutual fund, received ‘Best broker-

India’ award from Finance Asia, ‘Most Improved Brokerage- India’ award from Asia money.

2009

Received registration for a housing finance company from the National Housing Bank; received

‘Fastest growing Equity Broking House - Large firms’ in India by Dun &Bradstreet.

2010

IIFL Securities Pvt. Ltd. (Singapore), received in-principle approval from the Singapore Stock

Exchange, IIFL Securities Ceylon (Pvt.) Ltd. (Sri Lanka), received in-principle approval for

membership of the Colombo Stock Exchange for Stock broking.

2011
Launched IIFL Mutual Fund.

1.4 Nature of the business carried

India Infoline Limited is listed on both the leading stock exchanges in India, viz. The

Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) and is also a member

of both the exchanges. It combined competitive brokerage rates and research, supported by

Internet technology besides investment advice from an experienced team of research analysts.

India Infoline also offer real time stock quotes, market news and price charts with

multiple tools for technical analysis. The India Infoline group comprises of the holding company.

India Infoline Ltd and its wholly subsidiaries, straddle the entire financial services space with

offerings ranging from Equity research, Equities and Derivatives trading, Commodities trading,

Portfolio Management Services, Mutual Funds, Life Insurance, Fixed deposits, Govt. of India

bonds and other small savings instruments to loan products and Investment banking.

India Infoline also owns and manages the websites www.indiainfoline.com and

www.5paisa.com. The company has a network of 976 business locations (branches and sub-

brokers) spread across 365 cities and towns. It has more than 800,000 customers.
India Infoline Limited

Content related services – Equity research and online media property

India Infoline Securities Pvt. Ltd.

Equities & Derivatives Broking

Depository Services

Portfolio Management Services(PMS)

India Infoline.com Distribution Company Ltd.
Wholly owned Subsidiaries

Mobilization of personal investment products like

Mutual Funds

RBI Bonds

Fixed Deposits etc.

India Infoline Insurance Services Ltd.

Corporate agents for ICICI Prudential

Life Insurance Company Limited

India Infoline Commodities Private Ltd.

Commodities Broking

India Infoline Investment Services Private Ltd.

Margin funding & Financing

 1.5 Vision, Mission and Quality Policy

What distinguishes India Infoline from other organizations is the fact that all employees are

driven by Owner Mindset. This is a privilege as well as a responsibility. They think and behave

like one. While there is no ‘the way’ of doing things, there are millions of things which an owner

would do differently as compared to a typical person with an employee mindset.

We believe in the Olympic motto and have made it our principle for the coming year. We have

been preparing to move into a new orbit of growth for several years now. We believe that the

real growth has yet not happened.

Each member of Team India Infoline has been putting up an Olympian fight and is capable,

confident, and certain and ready to deliver faster, higher and stronger performance. So these are

the things which help the owner of the company to set his Vision, Mission and Quality Policy.

VISION STATEMENT:

India Infoline vision is to be the most respected company in the financial services space.

MISSION STATEMENT:

To become a full-fledged financial services Company known for its

quality of advice, personalized service and cutting-edge technology.

In order to fulfill their mission India Infoline introduce new scheme

name as “FLAME”.

FLAME (Financial Literacy Agenda for Mass

Empowerment) is an IIFL initiative to promote financial

literacy amongst the masses in order to make them an

integral part of India's spectacular growth story.

In an era of accelerating GDP and rising per capita

growth, financial literacy has become more critical than

ever before such that we all reap the tangible benefits of the nation's economic prosperity.

Financial inclusion has been quite high on the governmental agenda, given its emphasis on

widening the Banking & Financial services network across the country. IIFL's FLAME initiative

stands committed to complement this effort by helping common people gain financial growth

and security though better awareness and education on the variety of financial products while

avoiding the lure of and loss from unrealistic claims made by unscrupulous agents and Ponzi

schemes.

Our objective is to light a FLAME, as the name suggests, which will set ablaze a chain of

FLAMEs across the country. The new-found light of knowledge will undoubtedly dispel the dark

clouds of financial illiteracy and ensure the bright sunshine of financial growth and prosperity.

QUALITY POLICY:

To become a full-fledged financial services Company known for its quality of advice,

personalized service and cutting-edge technology.

1.6 Product/Services Profile

The survey also revealed that 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 capitalized 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.
These are the following products/services in which India Infoline deals:

Equities:

India Infoline provided the prospect of researched investing to its clients, which was hitherto

restricted only to the institutions. Research for their tail investors did not exist prior to India

Infoline leveraged technology to bring the convenience of trading to the investor’s location of

preference (residence or office) through computerized access. India Infoline made it possible for

clients to view transaction costs and ledger updates in real time.

PMS (Portfolio Management Services):

It is a product wherein an equity investment portfolio is created to suit the investment objectives

of a client. India Infoline invests customer resources into stocks from different sectors, depending

on customer risk-return profile. This service is particularly advisable for investors who cannot

afford to give time or don’t have that expertise for day-to-day management of their equity

portfolio.

Research:

Sound investment decisions depend up on reliable fundamental data and stock selection

techniques. India Infoline Equity Research is proud of its reputation. Equity investment

professionals routinely use their research and models as integral tools in their network.

Commodities:

India Infoline extension into commodities trading reconciles its strategic intent to emerge as a
one stop solutions financial intermediary. Its experience in securities broking has empowered it

with requisite skills and technologies. Increased offering: The Companies commodities business

provides a contra-cyclical alternative to equities broking. The Company was among the first to

offer the facility of commodities trading in India’s young commodities market (the MCX

commenced operations only in 2003). Average monthly turnover on the commodity exchanges

increased from Rs 0.34 Bn to Rs20.02 billion. The commodities market has several products

with different and non-correlated cycles. On the whole, the business is fairly insulated against

cyclical gyrations in the business.

Insurance:

An entry to this segment helped complete the client’s product basket; concurrently, it graduated

the company into a one stop retail financial solutions provider. To ensure maximum reach to

customers across India, they have employed a multi prolonged approach and reach out to

customers via their Network, Direct and Affiliate channels. The Company’s entry into the

insurance sector de-risked the Company from a predominant dependence on broking and equity-

linked revenues. The annuity based income generated from insurance intermediation result in

solid core revenues across the tenure of the policy.

Mortgages:

During the year under review, India Infoline acquired a 75% stake in Mind tree Consultancy

Services to mark its foray into the business of mortgages and other loan products distribution.

The business is still in the investing phase and at the time of the acquisition was present only in
the cities of Mumbai and Pune. The Company brings on board expertise in the loans business

coupled with existing relationships across a number of principles in the mortgage and personal

loans businesses. India Infoline now has plans to roll the business out across its pan-Indian

network to provide it with a truly national scale in operations.

Mutual Funds:

India Infoline offers customer a host of mutual fund choices under one roof, backed by in-depth

research and advice from research house and tools configured as investor friendly.

Wealth Management Service:

Imagine a financial firm with the heart and soul of a two-person organization. A world-leading

wealth management company that sits down with customer to understand their needs and goals.

They offer customer a dedicated group for giving them the most personal attention at every level.

Newsletters:

The Daily Market Strategy is the morning dose on the health of the markets. Five intra-day ideas,

unless the markets are really choppy coupled with a brief on the global markets and any other

cues, which could impact the market. Occasionally an investment idea from the research team

and a crisp round up of the previous day’s top stories. That's not all. As a subscriber to the Daily

Market Strategy, the customer even gets research reports of India Infoline research team on a

priority basis.

1.7 Area of Operations

  GLOBAL: China, Brazil, Dubai, Russia, Singapore, UK, and USA.

 NATIONAL: Delhi, Andhra Pradesh, Karnataka, Assam, Gujarat, Tamil Nadu.

 REGIONAL: Bangalore – head office:#31/9, “Krimson Square”, 2nd floor, Hosur Main

Road, Bangalore – 560068.

The India Infoline group, comprising the holding company, India Infoline Limited and its

wholly-owned subsidiaries, straddle the entire financial services space with offerings ranging

from Equity research, Equities and derivatives trading, Commodities trading, Portfolio

Management Services, Mutual Funds, Life Insurance, Fixed deposits, GOI bonds and other small

savings instruments to loan products and Investment banking. India Infoline also owns and

manages the websiteswww.indiainfoline.com and www.5paisa.com The company has a network

of 976 business locations (branches and sub-brokers) spread across 365cities and towns. It has

more than 800,000 customers.

1.8 OWNERSHIP PATTERN:

 Promoter’s Share
 Institutional Investor’s Share
 Foreign Institutional Investor Share
 Share of Retail Investor
 Government’s Share
 Others

Share Holding Pattern

Particulars No. of %Holdings

Shares(Mn)
Total Promoter Holdings 91.36 31.6
Total Govt. Holding (Promoter + Non-Promoter) 0.00 0.0
Total Domestic Institutions (Banks/FI + MF/UTI) 12.48 4.3
Total Foreign Holdings (FII+NRI holdings) 144.77 50.1
Total Non-Promoter Corporate Holding 5.9 2.1
Total Public & Others (Individuals + HUF + Clearing 34.51 11.9
members)
Total 289.02 100

Our promoters and promoter group together holds 33.73% of post issue Equity Shares.
As a result of their shareholding they will have the ability to influence most matters, which
require the approval of our shareholders. In addition, the collectively have the ability to broke
any special resolution by a shareholders.
1.9 Competitors Information

A/C opening charge- Rs. 750/-

Name of the software used- Trader Terminal.

Software installation charge- Nil.

No. of scripts provided by the software- Unlimited.

Maintenance charge- Nil.

Exposure- 10 times (Intraday), 3 times (delivery).

Name of the bank with the help of which customer get the facility of net banking- HDFC
Bank, Axis Bank, ICICI Bank, Yes Bank, Citi Bank

Services provided- Equity, IPO, MF, PMS, Commodities, Insurance, Wealth Management
Services, Mortgages.

DP sells charge- 15 per instruction + service tax.

Brokerage - 0.03% intraday, 0.30% deliveries.

Transaction Report- SMS, mail, daily courier,

Prepaid Scheme – Available (Depends on Customer’s need).

Types of trading accounts provided- De-Mat a/c, Trading a/c , Margin a/c.

Network- 1341 branches and 800000 customers.

Margin money- Rs. 10000

Secrecy - Telephone logger with recorder.

A/C opening charge- 500/-

Name of the software used- Not available one can access through net.

Maintenance charge - Rs.450/- from 2nd year.

Exposure- 5 times for margin and 25 times for margin plus.

Name of the bank with the help of which customer get the facility of net banking- ICICI
(providing zero balance in saving account)

Services provided- Equity, IPO, Commodities, Insurance, Mutual Funds, GOI bonds,
Derivatives, Postal Savings.

Brokerage –Intra-day -0.10%-0.15%

Delivery- 0 .4%-0.85%

Transaction Report- Through Courier (free of cost)

Prepaid Scheme - Not available.

Types of trading accounts provided- De-Mat a/c, Trading a/c , Saving a/c.

Network - 2124 branches across the countries and 19 foreign branches.

Margin money- Rs.975/-

Secrecy- Password provided to the customers and it can be changed by the customer only.
A/C opening charge- 900/-

Name of the software used- PIB (Power India Bulls)

Software installation charge- 750/-

No. of scripts provided by the software- unlimited

Maintenance charge- nil

Exposure- 20 times intraday and 8 times’ delivery.

Name of the bank with the help of which customer get the facility of net banking- HDFC,
IDBI, ICICI and Axis Bank.

Services provided- Equity, Housing Loan, Personnel Loan, and Insurance.

DP sell charge - 10/-

Brokerage- Intraday.03% & Delivery-.50%

Transaction Report- Through mail & courier (Free of cost)

Prepaid Scheme- not available.

Types of trading accounts provided- Cash a/c, Intra a/c, and Margin a/c.

Network- 718 branches and 4500000 customers across the country.

Margin money- NIL

Secrecy- use logger phone so that the broker cannot go beyond their word.

A/C opening charge-750/-

Name of the software used- Keat

Software installation charge- NIL

Maintainance charge- Rs.360/-

Exposure- 4 times of intraday.

Name of the bank with the help of which customer get the facility of net banking- HDFC,
AXIS Bank, ICICI Bank, SBI, Citi Bank, KOTAK.
Services provided- Equity, IPO, and MF.

DP sell charge- 23/-

Brokerage- Intraday- .03%-.06% & Delivery-.59%-.98%

Transaction Report- Through mail (free of cost)

Prepaid Scheme- Not Available.

Types of trading accounts provide - De-Mat a/c, Trading /c, Margin a/c.

Network - 890 branches and 63500 customers across the country.

Margin money- Rs.10000

Secrecy- Log in password changes after 14 days.

A/C opening charge- 415/-

Name of the software used- Java

Software installation charge- 500/-

Maintenance charge- 300/-

Exposure- 4 times ( For Intraday)

Name of the bank with the help of which customer get the facility of net banking- HDFC,
ICICI , AXIS Bank, City Bank, Standard Chartered Bank.

Services provided- Equities, Derivatives, E-broking, PMS, IPO, Commodities, Depository

Services.

DP sell charge- Included in the a/c opening.

Brokerage- Intraday-0 .03% & Delivery-0.30%

Transaction Report- Through Courier (Free of Cost)

Prepaid Scheme- Not Available.

Types of trading accounts provided- De-Mat a/c, Trading a/c, Bank a/c.

Network - 5,30,234 customers in over 377 cities and 1200 business locations

Margin money- It is not restricted.

Secrecy - 128-bit SSL technology to ensure the highest security on online transactions.

A/C opening charge- 750/-

Name of the software used- Java

Software installation charge-NIL

Maintenance charge-Nil

Exposure- 5 times (For Intraday)

Name of the bank with the help of which customer get the facility of net banking- ICICI
bank, AXIS bank, HDFC bank, IDBI.

Services provided- Equity Trading, Derivatives, Forex, Commodity, IPO, MF & Insurance.

DP sell charge- 12/-

Brokerage- Intraday-0.05%-0.07% & Delivery-0.25%-0.40%

Transaction Report- By mail (Free of Cost)

Prepaid Scheme- Not Available.

Types of trading accounts provided- De-Mat a/c, Trading a/c, Commodity a/c.

Network - 10000 outlets in 5000 different cities and 22 lakh customers.

Margin money- It is not restricted.

Secrecy- Extra Security Features with “Security Token” which is the most secure and tested
technology in the computer world. Customer’s account is safeguarded with a unique security
number that changes every 32 seconds.

A/C opening charge- Nil

Name of the software used- Trade Tiger 2.2.0.0

Software installation charge- Nil

Maintenance charge- Nil

Exposure- 10 times for intraday and 4 times on delivery.

Name of the bank with the help of which customer get the facility of net banking- AXIS
bank, HDFC bank, UBI, IDBI, City Bank.
Services provided- Equity, IPO, MF, Derivatives, Commodities.

DP sell charge- NIL

Brokerage- Intraday-0.02%-.05% & Delivery-.20%-.50%

Transaction Report- Through mail (Free of Cost)

Prepaid Scheme- yes

Types of trading accounts provided- Classic a/c (for sudden user)

Spend Trade a/c(for frequent user)

Network- 510 centers across 170 cities 2,18,000 customers.

Margin money- Not Restricted

Secrecy- Security Socket Layer (SSL), a security that the information transmitted between
customer and agent, given by Versign, universally accepted World Wide Web. The security
encryption level in Sharekhan is 128 bit.
A/C opening charge- 731/-

Name of the software used- Odin.

Software installation charge- NIL

Maintenances charge- 300/-

Exposure- 4 times, and if the person can’t return money within 5 days then extra 15 days he will
get and 16% charge will be taken for that.

Name of the bank with the help of which customer get the facility of net banking- AXIS
bank, ICICI bank, HDFC bank, and SBI.

Services provided- E-broking, PMS, Investment advisory, Wealth Management Services,

Commodity Trading.

DP sells charge- 12/-

Brokerage- Intraday-.03% & Delivery- .3%

Transaction Report- Through courier (Free of Cost)

Prepaid Scheme - Not available.

Types of trading accounts provided- De-Mat a/c, Trading a/c, Margin a/c.
Network- 120 branches across 120 cities and 31 regional offices.

Margin money- 5000/-

Secrecy- Log in ID and Password change on a regular basis and telephone with recorder.

Comparative Analysis of charges and facilities provided by different companies

Company Account Margin Brokerage AMC Exposure branches

Opening Money Intra- (for intra)
Delivery (%)

India Infoline 750/- 10000/- 0.03-0.30 555 10 times 1341

Kotak Securities 750/- 10000/- 0.03- 0.50 360/- 4 times 890

ICICI direct 500/- 975/- 0.10- 0.40 450/- 5 times 2124

Motilal Oswal 415/- Not 0.03- 0.30 300/- 4 times 430

Restricted
Religare 750/- Not 0.05-0.40 Nil 5 times 10000
Restricted
Angel broking 731/- 5000/- 0.03- 0.30 300/- 4 times 120

India bulls 900/- Nil 0.03- 0.50 Nil 20 times 718

Reliance Money 750/- Not 0.05- 0.25 Nil 5 times 10000

Restricted
 Share khan Nil Not 0.02- 0.20 Nil 10 times 510
Restricted

1.10 INFRASTRUCTURAL FACILITIES:

Our main offices are located approximately 4,000 square feet of office space located in Mumbai,

India. India Infoline braches collectively occupy an additional 10,000square feet of office space

located throughout India. The company has a network of 976business locations (branches and

sub-brokers) spread across 365 cities and towns. It has more than 800,000 customers.

The Table below shows the changes in the Registered Office of the Company since

Incorporation:
1.11 ACHIEVEMENTS/ AWARDS

Achievements

 Incorporated on October 18, 1995 as Probity Research & Services.

 Launched Internet portal www.indiainfoline.com in May 1999.

 Commenced distribution of personal financial products like Mutual Funds and RBI
Bonds in April 2000.

 Launched online trading in shares and securities branded as www.5paisa.com in July

2000.

 Standard life insurance agency business in December 2000 as a Corporate Agent of ICICI
Prudential Life Insurance.

 Became depository participants of NSDL in September 2001.

 Launched stock messaging service in May 2003.

 Acquired commodities broking license in March 2004.

 Launched portfolio management services in August 2004.

 Listed on NSE and BSE on May 17, 2005.

 Acquired NBFC license in May 2005.

 Acquired 75% stake holding in Money tree Consultancy Services, which is a distribution
of Mortgages and other Loan products, in October 2005.

 Acquired 100% equity of Marchmont Capital Advisors Pvt. Ltd. in December 2005
through which we have ventured in to Merchant Banking.

 DSP Merrill Lynch Capital subscribed to convertible bonds aggregating Rs. 80crores in
December 2005.

 Bennett Coleman & Co Ltd. (BCCL) invested Rs. 20 crores in India Infoline byway of
preferential allotment in December 2005.

 Became a depository participant of CDSL in June 2006.

 Merger of India Infoline Securities Private Limited with India Infoline in January2007.

 Entered into an alliance with Bank of Baroda for Baroda e-trading in February2007.

 CLSA Institutional equities team joined us in 2007.

 Formed Singapore subsidiary IIFL (Asia) Pvt. Ltd. in 2007.

 Mr. Arun K. Purvar joined as independent director in March 2008.

 Received ‘Best Broker of India’ award by Finance Asia in June 2008.

 Received Venture Capital license from SEBI in September 2008.

 Received in-principle approval from SEBI for sponsoring Mutual Funds in November
2008.

 Received Insurance broking license from IRDA in December 2008.

 Received registration for Housing Finance Company from NHB in February 2009.

 Entered into a strategic agreement with Interactive Brokers, LLC (USA) to provide our
client direct market access to over 80 global exchanges in 18countries in July 2009.
Awards given to India Infoline
1.12 FUTURE GROWTH AND PROSPECTUS

The asset base will continue to grow at an annual rate of about 30 to 35%over

the next few years as investor’s shift their assets from banks and other traditional avenues. Some

of the older public and private sector players will either close shop or be taken over. Out of ten

public sector players five will sell out, close down or with stronger players in three to four years.

In private sector this trend has already started with two mergers and one takeover. Here too some

of them will down their shutters in the near future to come.

But this does not mean there is no room for other players. The market will

witness a flurry of new players entering the arena. There will be a large number of offers from

various asset management companies in the time to come. Some big names like Fidelity,

Principal and Old Mutual etc. are looking at Indian market seriously. One important reason for it

is that most major players already have presence here and hence these big names would hardly

like to get left behind.

The mutual fund industry is awaiting the introduction of derivatives in India as

this would enable it to hedge risk and this in turn would be reflected in its Net Asset Value

(NAV).

SEBI is working out the norms for enabling the existing mutual fund schemes to

trade in derivatives. Importantly, many market players have called on the regulator to initiate the
process immediately, so that the mutual funds can implement the changes that are required to

trade in Derivatives.

Reforms have marked the entry of many of the global insurance measures into

the Indian market in the form of joint ventures with Indian companies. Some of the key names

are: AIG, New York Life, Alliance, Prudential, Standard Life, Sun Life Canada and Old Mutual.

The entry of new player has rejuvenated and monopoly player LIC, which has responded to the

competition in an admirable fashion by launching new product and improving service standard.

 The ability to successfully implement our growth strategy and expansion plan.

 The ability to respond to technological changes.

 Changes in laws and regulations relating to the industry in which we operate.

 Changes in political and social condition in India.

 The ability to successful launches the new products.

 Fundamental Analysis

of

Equity Market

&

Understanding Investor’s
Psychology
Introduction

Everyone in Stock Market has his own approach. In Fundamental Analysis, I used to look at

companies with two simple parameters, which gave good results. This is our ‘simple and happy’

way but giving good results!

The two parameters are:

1. Sales to equity at least 10 times. This is because the more the number of times the

turnover to equity, the better it is for the company and the shareholders. You can list such

companies and choose the best among them.

2. Gross Profit ratio> 40%. Obviously without profitability, turnover has no meaning. The

reason for choosing gross profit ratio is it shows the operational efficiency. You can list

such companies and choose the best amongst them.

If you are a beginner to Fundamental Analysis of the Stock Market, using our ‘simple and

happy’ way, learn more about the above ratios from books and other sources. There are a lot of

other parameters such as ROI, Net profit Ratio, Inventory turnover ratio and so on. If you try to

learn everything, you will get confused.

After learning these ratios, you can shortlist a few companies by combining the above two

parameters. After this, you may get the list of companies vetted by an expert for industry

prospects, competition, quality of management and past track record and choose, may be the best

ten shares. You can do this step in a matter of an hour provided you are able to meet the right

expert. You can choose the expert with the help of your Financial Mentor.
Another Risk Management you can bring in is to buy the short listed shares based weekly

charts. Weekly charts are safer as compared to daily charts, though at times give late signals, but

that is alright for a person with a time horizon of three years or more. As you gain more

experience and simultaneously keep studying the market, you will develop your own propriety

system and that will be the best for you.

In conclusion, turn over to Equity ratio and Gross Profit ratios are good starting points for

beginners in Fundamental Analysis. 

The equity market is a market where people buy and sell parts of companies. The parts being

bought and sold are a financial interest in the company called Equity. The companies involved

must be publicly held companies, which mean that they have to be companies that sell stocks to

public investors on an open market.

Companies that sell stocks to investors usually do so in order to raise capital. The capital is then

used for things such as financing current operations and paying for expansion plans. If the

company is able to turn the capital into profits, a share of the profits is passed on to investors.

Similarly, if the company loses money, investors share the loss.

The equity market is simply a central place where people come together to buy and sell equities.

However, the equity market is not a store or a single building. It doesn't really have a physical

location. However, when people think of the equity market they typically think of Dalal Street

or the Bombay Stock Exchange, also known as the BSE. These places do not encompass the
entire equity market, but they are locations where much of the activity in the equity market

occurs.

The NYSE is perhaps the principal stock exchange in the world. Not all companies’ stocks are

traded in the NYSE, but it is the trading home of some of the most impressive and well-respected

companies in the world. To purchase stocks of these companies on the floor of the NYSE,

investors need a substantial amount of assets to invest. Nevertheless, the small investor can

obtain less expensive investing through brokers, including online companies. With a small

balance, online brokers allow investors to bypass the trader on the NYSE floor, and make

electronic purchases and sales on their own.

An important aspect of the equity market is that it is made up of a primary market and a

secondary market. The primary market is where securities are sold for a company’s initial public

offering, known as the IPO. The IPO is the base price used when a private company makes the

first sale of its stock to the public. After doing so, it becomes a publicly held company. It is a

much less active market than the secondary market, which is where investors trade in companies

that are already publicly held. The stock market primarily deals with the secondary market.

In order to start trading in stock market, you must have an account named as “De-mat

Account”.
De-mat account

Definition:

De-mat account is a safe and convenient means of holding securities just like a bank account is

for funds. Today, practically 99.9% settlement (of shares) takes place on De-mat mode only.

Thus, it is advisable to have a Beneficiary Owner (BO) account to trade at the exchanges.

Benefits Of De-mat Account:

1. A safe and convenient way of holding securities (equity and debt instruments both).

2. Transactions involving physical securities are costlier than those involving dematerialized

securities (just like the transactions through a bank teller are costlier than ATM

transactions). Therefore, charges applicable to an investor are lesser for each transaction.

3. Securities can be transferred at an instruction immediately.

4. Increased liquidity, as securities can be sold at any time during the trading hours (between

9:55 AM to 3:30 PM on all working days), and payment can be received in a very short

period of time.

5. No stamp duty charges.

6. Risks like forgery, thefts, bad delivery, delays in transfer etc, associated with physical

certificates, are eliminated.

7. Pledging of securities in a short period of time.

 8. Reduced paper work and transaction cost.

9. Odd-lot shares can also be traded (can be even 1 share).

10. Nomination facility available.

11. Any change in address or bank account details can be electronically intimated to all

companies in which investor holds any securities, without having to inform each of them

separately.

12. Securities are transferred by the DP itself, so no need to correspond with the companies.

13. Shares arising out of bonus, split, consolidation, merger etc. are automatically credited

into the De-mat account of the investor.

14. Shares allotted in public issues are directly credited into De-mat account of the applicants

in quick time.
Opening a De-mat Account

To start dealing in securities in electronic form, one needs to open a De-mat account with a DP

of his choice. An investor already having shares in physical form should ensure that he gets the

account opened in the same set of names as appearing on the share certificate; otherwise a new

account can be opened in any desired pattern by the investor.

Note:

 The agreement required to be signed by the investor details the rights and duties of the

investor and DP.

  DP may revise the charges by giving a 30 days prior notice. SEBI has rationalized the cost

structure for inaction by removing account opening charges, transaction charges for credit

of securities and custody charges, effective from January 28, 2005.

Maximum Number of holders in a De-mat Account

A maximum of three persons are allowed to open a joint De-mat account in their names.

DEMATERIALISATION

Definition:

Dematerialization is the process of converting physical shares (share certificates) into an

electronic form. Shares once converted into dematerialized form are held in a De-mat account.

Dematerialization Process:

An investor having securities in physical form must get them dematerialized, if he intends to sell

them. This requires the investor to fill a De-mat Request Form (DRF) which is available with

every DP and submit the same along with the physical certificates. Every security has an ISIN

(International Securities Identification Number). If there is more than one security than the equal

number of DRFs has to be filled in.

The whole process goes on in the following manner:--

THINGS INVESTORS SHOULD KNOW ABOUT ACCOUNT OPENING AND
DEMATERIALISATION

Providing the bank account details at the time of account opening

It is mandatory for an investor to provide his bank account details at the time of opening a De-

mat account. This is done to safeguard investor's own interests. There are two major reasons for

this:

1. The interest and dividend warrants can't be en-cashed by any unauthorized person, as the

bank account number is mentioned on it.

2. It is convenient and time saving, as dividends and interests given by the companies can be

directly credited to the investor's bank account (through ECS facility, wherever available).
Change in bank account details

It is possible for an investor to make changes to the details of his bank account. The investor

must inform any change in his bank account details to his DP. This enables him to receive the

cash corporate benefits (such as dividends, interests) directly into his account in time and

discourages any unauthorized use by any second party.

Change in the address of investor as provided to the DP

Any change in your address should be immediately informed to DP. This enables DP to make

necessary changes in the records and informing the concerned companies about the same.

Opening multiple accounts

An investor is allowed to open more than one account with existing DP or with different DPs.

Minimum balance of securities required in De-mat account

There is no stipulated minimum balance of securities to be kept in a De-mat account.

Account opening and ownership pattern of securities

One must make sure to open a De-mat account in the same ownership pattern in which the

physical securities are held. For example: If you have two share certificates, one in your

individual name (say 'X') and the other held jointly with some other individual (say 'XY'), then in

such a case you will have to open two different accounts in respective ownership patterns (one in

your name i.e. 'X' and the other account in the name of 'XY').

Same combination of names on certificates but different sequence of names on the

certificates or De-mat account

Regulations provide that the client receives a contract note indicating details like order number,

trade number, time, price, brokerage, etc. within 24 hour of the trade. In case of any doubts about

the details of the contract note, you (investor) can avail the facility provided by NSE, wherein

you can verify the trades on your website www.nseindia.com/content/equities/eq_trdverify.htm.

The Exchange generates and maintains an audit trail of orders/trades for a number of years, and

you can counter check details of order/trade with the Exchange.

Holding a joint account on "Either or Survivor" basis like a bank account

No investor can open a De-mat account on "E or S" basis like a bank account.
Allowing somebody else to operate your De-mat account

It is possible for an account holder (Beneficiary Owner) to authorize some other person to

operate the De-mat account on his behalf by executing a power of attorney. After submitting the

power of attorney to the DP, that person can operate the account on behalf of the beneficiary

owner (BO).

Addition/deletion of the names of the account holders after opening the account

It is not possible to make changes in the names of the account holders of a BO account. A new

account has to be opened in a desired holding/ownership pattern.

Closing a demat account and transfer of securities to another account with same or

different DP

An investor, if he wants, can also close his demat account with one DP and transfer all the

securities to another account with existing or a different DP. As per a SEBI circular issued on

November 09, 2005, there are no charges for account closure or transfer of securities by an

investor from one DP to another

Freezing/Locking a demat account

The account holder can freeze his demat account for a desired time period. A frozen account
prevents securities to be transferred out of (Debit) and transferred into (Credit) the account.

Dematerialized shares do not have any distinctive number

Dematerialised securities are fungible assets. Therefore they are interchangeable and identical.

Formalities required for opening of De-Mat and Trading a/c in India Infoline Ltd.

For Individual

 PAN Card(compulsory for all joint holders)

 Address proof of all joint holders

 Specimen copy of cheque

For NRI

 Foreign and Indian Address proof

 PAN Card(compulsory)

 Bank a/c indicating type of a/c as NRE/NRO

 Specimen copy of cheque

For HUF

 Address proof and identity proof of karta

 PAN Card of HUF(compulsory)

 Specimen copy of cheque

 Declaration giving details of the family members of the HUF with their names, date of
birth & relationship with the karta.

India Infoline offer three types of De-Mat a/c and Trading a/c these are as follows:-

Individual Account

Account opening charge – 750/-

Margin Money- 10000/- (minimum)

Exposure – 10 times for intraday & 3 times for delivery.

Software installation charge- NIL

Annual Maintenance Charge- NIL

Brokerage- Intraday-.03% & Delivery-.30%

Joint Holder’s Account

Account opening charge- 750/-

Margin money- 10000/-(minimum)

Exposure- 10 times for intraday & 3 times for delivery

Software installation charge- NIL

Annual Maintenance Charge- NIL

Brokerage- Intraday-.03% & Dilivery-.30%

India Infoline outlet offers the following services:-

 Online BSE and NSE executions.

 Free access to invest advice from India Infoline’s Research team.

 Daily Research Reports and Market Review (Market Mantra).

 Pre Market Report (Market Mantra by inserting proper dates).

 Daily trading calls based on Technical Analysis.

 Personalized Advice

 Live Market Information.

  Depository Services: De-mat and Re-mat Transactions.

 Derivatives Trading.

 Commodities Trading.

 IPO’S & Mutual Funds Distribution

 Internet- based Online Trading (TT-Manager).

Functions of stock exchanges:

• Most important source for companies to raise money

• Provides liquidity to the investors

• Acts as clearing house for transactions

• Provides realistic value of companies

India has 22 stock exchanges and the important stock exchanges are Bombay Stock Exchange

and National Stock exchange at Mumbai. Established in 1875 BSE is one of the oldest stock

exchanges in Asia and has seen significant development ever since.

The regulatory agency which oversees the functioning of stock markets is the Securities and

Exchange Board of India (SEBI), which is also located in Bombay.

Classification of financial markets

i) Unorganized Markets
In these markets there a number of money lenders, indigenous bankers, traders etc. who lend

money to the public.

ii) Organized Market

In organized markets, there are standardized rules and regulations governing their financial

dealings. There is also a high degree of institutionalization and instrumentalization. These

markets are subject to strict supervision and control by the RBI or other regulatory bodies.

Organized markets can be further divided into Capital market and Money market.

Capital market

Capital market is a market for financial assets which have a long or definite maturity.

Which can be further divided into

• Industrial Securities Market

• Government Securities Market

• ·Long Term Loans Market

Industrial Securities Market

It is a market where industrial concerns raise their capital or debt by issuing appropriate
Instruments. It can be subdivided into two. They are:

 Primary Market or New Issues Market

Primary market is a market for new issues or new financial claims. Hence, it is also called as

New Issues Market. The primary market deals with those sec8urities which are issued to the

public for the first time.

 Secondary Market or Stock Exchange

Secondary market is a market for secondary sale of securities. In other words, securities which

have already passed through the new issues market are traded in this market.

Such securities are listed in stock exchange and it provides a continuous and regular market for

buying and selling of securities. This market consists of all stock exchanges recognized by the

government of India.

Importance of Capital Market

Absence of capital market serves as a deterrent factor to capital formation and economic growth.

Resources would remain idle if finances are not funneled through capital market.

• It provides incentives to saving and facilitates capital formation by offering suitable rates

of interest as the price of the capital

• It serves as an important source for the productive use of the economy’s savings.

• It provides avenue for investors to invest in financial assets.

• It facilitates increase in production and productivity in the economy and thus enhances

the economic welfare of the society.

 • A healthy market consisting of expert intermediaries promotes stability in the value of

securities representing capital funds.

• It serves as an important source for technological up gradation in the industrial sector by

utilizing the funds invested by the public.

The major stock indices also have a correlation with the currency rates. Three major forces affect

the indices:

1) Corporate earnings, forecast and actual;

2) Interest rate expectations and

3) Global considerations.

Consequently, these factors channel their way through the local currency.

In an increasingly complex scenario of the financial world, it is of paramount importance for the

researchers, practitioners, market players and policy makers to understand the working of the

economic and the financial system and assimilate the mutual interlink ages between the stock

and foreign exchange markets in forming their expectations about the future policy and financial

variables. The analysis of dynamic and strategic interactions between stock and foreign exchange

market came to the forefront because these two markets are the most sensitive segments of the

financial system and are considered as the barometers of the economic growth through which the

country’s exposure towards the outer world is most readily felt.

The present study is an endeavor in this direction. Before going to discuss further about the

interlink ages between the stock and foreign exchange market, it is better to highlight the
evolutions and perspectives that are associated with both the markets since liberalization in the

Indian context.

In the literature, there is theoretical consensus neither on the existence of relationship between

stock prices and exchange rates nor on the direction of relationship. In theory there are two

approaches to exchange rate determination. They are-

Flow oriented - are considered as the traditional approach and assume that the exchange rate is

determined largely by country’s current account or trade balance performance. The model posits

that changes in exchange rates affect international competitiveness and trade balance, thereby

influencing real economic variables such as real income and output (Dornbusch and Fisher,

1980). This model represents a positive relationship between stock prices and exchange rates

with direction of causation running from exchange rates to stock prices.

Stock-oriented - models put much emphasis on the role of financial (formerly capital) account in

the exchange rate determination. These Models can be distinguished as portfolio balance models

and monetary models (Branson and Frankel, 1983). They postulate a negative relationship

between stock prices and exchange rates and come to the conclusion that stock prices have an

impact on exchange rates.

Trading Pattern of the Indian Equity Market

Trading in Indian stock exchanges is limited to listed securities of public limited companies.

They are broadly divided into two categories, namely, specified securities (forward list) and non-

specified securities (cash list). Equity shares of dividend paying, growth-oriented companies
with a paid-up capital of at least 50 million and a market capitalization of at least 100 million and

having more than 20,000 shareholders are, normally, put in the specified group and the balance

in non-specified group. Two types of transactions can be carried out on the Indian stock

exchanges:

(a) Spot delivery transactions "for delivery and payment within the time or on the date

stipulated when entering into the contract which shall not be more than 14 days following the

date of the contract”

(b) Forward transactions "delivery and payment can be extended by further period of 14 days

each so that the overall period does not exceed 90 days from the date of the contract". The latter

is permitted only in the case of specified shares. The brokers who carry over the outstanding pay

carry over charges (can tango or backwardation), which are usually determined by the rates of

interest prevailing. A member broker in an Indian stock exchange can act as an agent, buy and

sell securities for his clients on a commission basis and also can act as a trader or dealer as a

principal, buy and sell securities on his own account and risk, in contrast with the practice

prevailing on New York and London Stock Exchanges, where a member can act as a jobber or a

broker only. The nature of trading on Indian Stock Exchanges are that of age old conventional

style of face-to-face trading with bids and offers being made by open outcry. However, there is a

great amount of effort to modernize the Indian stock exchanges in the very recent times
Money Market: Money market means market where money or its equivalent can be traded.

Money is synonym of liquidity. Money market consists of financial institutions and dealers in

money or credit who wish to generate liquidity. It is better known as a place where large

institutions and government manage their short term cash needs. For generation of liquidity,

short term borrowing and lending is done by these financial institutions and dealers. Money

Market is part of financial market where instruments with high liquidity and very short term

maturities are traded. Due to highly liquid nature of securities and their short term maturities,

money market is treated as a safe place. Hence, money market is a market where short term

obligations such as treasury bills, commercial papers and banker’s acceptances are bought and

sold.

Benefits and functions of Money Market: Money markets exist to facilitate efficient transfer of

short-term funds between holders and borrowers of cash assets. For the lender/investor, it

provides a good return on their funds. For the borrower, it enables rapid and relatively

inexpensive acquisition of cash to cover short-term liabilities. One of the primary functions of

money market is to provide focal point for RBI’s intervention for influencing liquidity and

general levels of interest rates in the economy. RBI being the main constituent in the money

market aims at ensuring that liquidity and short term interest rates are consistent with the

monetary policy objectives.

Money Market & Capital Market: Money Market is a place for short term lending and

borrowing, typically within a year. It deals in short term debt financing and investments. On the
other hand, Capital Market refers to stock market, which refers to trading in shares and bonds of

companies on recognized stock exchanges. Individual players cannot invest in money market as

the value of investments is large, on the other hand, in capital market, anybody can make

investments through a broker. Stock Market is associated with high risk and high return as

against money market which is more secure. Further, in case of money market, deals are

transacted on phone or through electronic systems as against capital market where trading is

through recognized stock exchanges.

Money Market Futures and Options: Active trading in money market futures and options

occurs on number of commodity exchanges. They function in the similar manner like any other

futures and options.

An individual player cannot invest in majority of the Money Market Instruments, hence

for retail market, money market instruments are repackaged into Money Market Funds.

A money market fund is an investment fund that invests in low risk and low return bucket of

securities viz money market instruments. It is like a mutual fund, except the fact mutual funds

cater to capital market and money market funds cater to money market. Money Market funds can

be categorized as taxable funds or non-taxable funds.

Having understood, two modes of investment in money market viz Direct Investment in Money

Market Instruments & Investment in Money Market Funds, let’s move forward to understand

functioning of money market account.

Money Market Account: It can be opened at any bank in the similar fashion as a savings

account. However, it is less liquid as compared to regular savings account. It is a low risk

account where the money parked by the investor is used by the bank for investing in money

market instruments and interest is earned by the account holder for allowing bank to make such

investment. Interest is usually compounded daily and paid monthly. There are two types of

money market accounts:

 Money Market Transactional Account: By opening such type of account, the account

holder can enter into transactions also besides investments, although the numbers of

transactions are limited.

 Money Market Investor Account: By opening such type of account, the account holder

can only do the investments with no transactions.

Money Market Index: To decide how much and where to invest in money market an investor

will refer to the Money Market Index. It provides information about the prevailing market rates.

There are various methods of identifying Money Market Index like:

  Smart Money Market Index- It is a composite index based on intra day price pattern of the

money market instruments.

 Salomon Smith Barney’s World Money Market Index- Money market instruments are

evaluated in various world currencies and a weighted average is calculated. This helps in

determining the index.

 Banker’s Acceptance Rate- As discussed above, Banker’s Acceptance is a money market

instrument. The prevailing market rate of this instrument i.e. the rate at which the

banker’s acceptance is traded in secondary market, is also used as a money market index.

 LIBOR/MIBOR- London Inter-Bank Offered Rate/ Mumbai Inter Bank Offered Rate also

serves as good money market index. This is the interest rate at which banks borrow funds

from other banks.

BSE - SENSEX

Introduction

Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage of over 133

years of existence. What is now popularly known as BSE was established as “The Native Share

& Stock Brokers’ Association” in 1875.

BSE is the first stock exchange in the country which obtained permanent recognition (in 1956)

from the Government of India under the Securities Contracts (Regulation) Act (SCRA) 1956.
BSE’s pivotal and pre-eminent role in the development of the Indian capital market is widely

recognized. It migrated from the open out-cry system to an online screen-based order driven

trading system in 1995. Earlier an Association of Persons (AOP), BSE is now a corporatized and

demutualized entity incorporated under the provisions of the Companies Act, 1956, pursuant to

the BSE (Corporatization and Demutualization) Scheme, 2005 notified by the Securities and

Exchange Board of India (SEBI). With demutualization, BSE has two of world’s prominent

exchanges, Deutsche Börse and Singapore Exchange, as its strategic partners.

Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector by

providing it with cost and time efficient access to resources. There is perhaps no major corporate

in India which has not sourced BSE’s services in raising resources from the capital market.

Today, BSE is the world’s number 1 exchange in terms of the number of listed companies and

the world’s 5th in handling of transactions through its electronic trading system. The companies

listed on BSE command a total market capitalization of USD Trillion 1.06 as of July, 2009.  BSE

reaches to over 400 cities and town nation-wide and has around 4,937 listed companies, with

over 7745 scripts being traded as on 31st July 09.

The BSE Index, SENSEX, is India’s first and most popular stock market benchmark index.

Sensex is tracked worldwide. It constitutes 30 stocks representing 12 major sectors. The

SENSEX is constructed on a ‘free-float’ methodology, and is sensitive to market movements and

market realities. Apart from the SENSEX, BSE offers 23 indices, including 13 sectorial indices.

It has entered into an index cooperation agreement with Deutsche Börse and Singapore Stock

Exchange. These agreements have made SENSEX and other BSE indices available to investors

across the globe. Moreover, Barclays Global Investors (BGI), at Hong Kong, the global leader in
ETFs through its iShares® brand, has created the exchange traded fund (ETF) called

‘iShares®BSE SENSEX India Tracker’ which tracks the SENSEX. The ETF enables investors

in Hong Kong to take an exposure to the Indian equity market.

The exchange traded funds (ETF) on SENSEX, called “SPIcE” and Kotak SENSEX ETF are

listed on BSE. They bring to the investors a trading tool that can be easily used for the purposes

of investment, trading, hedging and arbitrage. These ETFs allow small investors to take a long-

term view of the market.

 BSE provides an efficient and transparent market for trading in equity, debt instruments and

derivatives. It has always been at par with the international standards. The systems and processes

are designed to safeguard market integrity and enhance transparency in operations. BSE is the

first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is

also the first exchange in the country and second in the world to receive Information Security

Management System Standard BS 7799-2-2002 certification for its BSE On-line Trading System

(BOLT).

Recently, BSE launched the BSE IPO index that will track the value of companies for two years

after listing. Also, as an investor friendly gesture, Bombay Stock Exchange has commenced a

facility of sending trade details to investors. Moving a step further a new transaction fee structure

for cash equity segment has also been introduced. BSE also launched ‘BSE STAR MF’ Mutual

fund trading platform, would enable exchange’s members to use its existing infrastructure for

transaction in MF schemes. It is an inclusive model with two depositories and industry wide

participation. BSE also revamped its website; the new website presents a wide range of  new
features like ‘Live streaming quotes for SENSEX companies’, ‘Advanced Stock Reach’, ‘Sensex

View’, ‘Market Galaxy’, and ‘Members’.

SENSEX - The Barometer of Indian Stock Markets

Introduction

SENSEX, first compiled in 1986, was calculated on a “Market Capitalization-Weighted”

methodology of 30 component stocks representing large, well-established and financially sound

companies across key sectors. The base year of SENSEX was taken as 1978-79. SENSEX today

is widely reported in both domestic and international markets through print as well as electronic

media. It is scientifically designed and is based on globally accepted construction and review

methodology. Since September 1, 2003, SENSEX is being calculated on a free-float market

capitalization methodology. The “free-float market capitalization-weighted” methodology is a

widely followed index construction methodology on which majority of global equity indices are

based; all major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the free-

float methodology.

The growth of the equity market in India has been phenomenal in the present decade. Right from

early nineties, the stock market witnessed heightened activity in terms of various bull and bear

runs. In the late nineties, the Indian market witnessed a huge frenzy in the ‘TMT’ sectors. More

recently, real estate caught the fancy of the investors. SENSEX has captured all these happenings

in the most judicious manner. One can identify the booms and busts of the Indian equity market

through SENSEX. As the oldest index in the country, it provides the time series data over a fairly
long period of time (from 1979 onwards). Small wonder, the SENSEX has become one of the

most prominent brands in the country.

Index Specification:

Base Year 1978-79

Base Index Value 100

Date of Launch 01-01-1986

Method of calculation Launched on full market capitalization method and effective

September 01, 2003, calculation method shifted to free-float market

capitalization.

Number of scripts 30

Index calculation Real Time

frequency
SENSEX Calculation Methodology

SENSEX is calculated using the “Free-float Market Capitalization” methodology, wherein, the

level of index at any point of time reflects the free-float market value of 30 component stocks

relative to a base period. The market capitalization of a company is determined by multiplying

the price of its stock by the number of shares issued by the company. This market capitalization

is further multiplied by the free-float factor to determine the free-float market capitalization.

The base period of SENSEX is 1978-79 and the base value is 100 index points. This is often

indicated by the notation 1978-79=100. The calculation of SENSEX involves dividing the free-

float market capitalization of 30 companies in the Index by a number called the Index Divisor.
The Divisor is the only link to the original base period value of the SENSEX. It keeps the Index

comparable over time and is the adjustment point for all Index adjustments arising out of

corporate actions, replacement of scripts etc. During market hours, prices of the index scripts, at

which latest trades are executed, are used by the trading system to calculate SENSEX on a

continuous basis.

SENSEX - Scrip Selection Criteria

The general guidelines for selection of constituents in SENSEX are as follows:  

Listed History: The scrip should have a listing history of at least 3 months at BSE. Exception

may be considered if full market capitalization of a newly listed company ranks among top 10 in

the list of BSE universe. In case, a company is listed on account of merger/ demerger/

amalgamation, minimum listing history would not be required.

Trading Frequency: The scrip should have been traded on each and every trading day in the last

three months at BSE. Exceptions can be made for extreme reasons like scrip suspension etc.

 Final Rank: The scrip should figure in the top 100 companies listed by final rank. The final

rank is arrived at by assigning 75% weight age to the rank on the basis of three-month average

full market capitalization and 25% weight age to the liquidity rank based on three-month average

daily turnover & three-month average impact cost. 

Market Capitalization Weightage: The weight age of each script in SENSEX based on three-

month average free-float market capitalization should be at least 0.5% of the Index. 
Industry/Sector Representation: Scrip selection would generally take into account a balanced

representation of the listed companies in the universe of BSE.

Track Record: In the opinion of the BSE Index Committee, the company should have an

acceptable track record.

BSE has designed a Free-float format, which is filled and submitted by all index companies on a

quarterly basis. BSE determines the Free-float factor for each company based on the detailed

information submitted by the companies in the prescribed format. Free-float factor is a multiple

with which the total market capitalization of a company is adjusted to arrive at the Free-float

market capitalization. Once the Free-float of a company is determined, it is rounded-off to the

higher multiple of 5 and each company is categorized into one of the 20 bands given below. A

Free-float factor of say 0.55 means that only 55% of the market capitalization of the company

will be considered for index calculation.

Index Closure Algorithm

The closing SENSEX on any trading day is computed taking the weighted average of all the

trades on SENSEX constituents in the last 30 minutes of trading session. If a SENSEX

constituent has not traded in the last 30 minutes, the last traded price is taken for computation of

the Index closure. If a SENSEX constituent has not traded at all in a day, then its last day’s

closing price is taken for computation of Index closure. The use of Index Closure Algorithm

prevents any intentional manipulation of the closing index value.

Maintenance of SENSEX

One of the important aspects of maintaining continuity with the past is to update the base year

average. The base year value adjustment ensures that replacement of stocks in Index, additional

issue of capital and other corporate announcements like ‘rights issue’ etc. do not destroy the

historical value of the index. The beauty of maintenance lies in the fact that adjustments for

corporate actions in the Index should not per se affect the index values.

The BSE Index Cell does the day-to-day maintenance of the index within the broad index policy

framework set by the BSE Index Committee. The BSE Index Cell ensures that SENSEX and all

the other BSE indices maintain their benchmark properties by striking a delicate balance between

frequent replacements in index and maintaining its historical continuity. The BSE Index

Committee comprises of capital market expert, fund managers, market participants and members

of the BSE Governing Board.

On-Line Computation of the Index

During trading hours, value of the Index is calculated and disseminated on real time basis. This is

done automatically on the basis of prices at which trades in Index constituents are executed.

Index Review Frequency

The BSE Index Committee meets every quarter to discuss index related issues. In case of a

revision in the Index constituents, the announcement of the incoming and outgoing scripts is

made six weeks in advance of the actual implementation of the revision of the Index.
Constituents of BSE Sensex -

1 Reliance Industries 16 DLF

2 ONGC 17 Hero Honda

3 Bharti Airtel 18 Dr Reddys

4 Tata Consultancy 19 Tata motors

5 Infosys tech 20 Tata steel

6 Reliance Communication 21 Bajaj auto

7 Wipro 22 GAIL

8 ICICI Bank 23 Maruti udyog

9 ACC 24 Sun pharma

10 BHEL 25 Grasim industries

11 SBI 26 Gujarat Ambuja

12 Hindalco 27 Cipla

13 HLL 28 Siemens

14 L&T 29 Ranbaxy

15 HDFC 30 NTPC

NSE - NIFTY

The Organization
The National Stock Exchange of India Limited has genesis in the report of the High Powered

Study Group on Establishment of New Stock Exchanges. It recommended promotion of a

National Stock Exchange by financial institutions (FIs) to provide access to investors from all

across the country on an equal footing. Based on the recommendations, NSE was promoted by

leading Financial Institutions at the behest of the Government of India and was incorporated in

November 1992 as a tax-paying company unlike other stock exchanges in the country.

The following years witnessed rapid development of Indian capital market with introduction of

internet trading, Exchange traded funds (ETF), stock derivatives and the first volatility index –

India VIX in April 2008, by NSE.

August 2008 saw introduction of Currency derivatives in India with the launch of Currency

Futures in USD INR by NSE. Interest Rate Futures was introduced for the first time in India by

NSE on 31st August 2009, exactly after one year of the launch of Currency Futures.

With this, now both the retail and institutional investors can participate in equities, equity

derivatives, currency and interest rate derivatives, giving them wide range of products to take

care of their evolving needs.

NSE’s mission is setting the agenda for change in the securities markets in India. The NSE was

set-up with the main objectives of:

• Establishing a nation-wide trading facility for equities, debt instruments and hybrids,

• Ensuring equal access to investors all over the country through an appropriate communication

network,
• Providing a fair, efficient and transparent securities market to investors using electronic trading

systems,

• Enabling shorter settlement cycles and book entry settlements systems, and

• Meeting the current international standards of securities markets.

The standards set by NSE in terms of market practices and technology has became industry

benchmarks and are being emulated by other market participants. NSE is more than a mere

market facilitator. It’s that force which is guiding the industry towards new horizons and greater

opportunities.

NSE Milestones

November 1992 Incorporation

April 1993 Recognition as a stock exchange

April 1996 Launch of S&P CNX Nifty

June 1996 Establishment of Settlement Guarantee Fund

Setting up of National Securities Depository Limited, first depository in

November 1996
India, co-promoted by NSE

February 2000 Commencement of Internet Trading

June 2000 Commencement of Derivatives Trading (Index Futures)

June 2001 Commencement of trading in Index Options

July 2001 Commencement of trading in Options on Individual Securities

November 2001 Commencement of trading in Futures on Individual Securities

August 2008 Launch of Currency Derivatives

August 2009 Launch of Interest Rate Futures

November 2009 Launch of Mutual Fund Service System

S&P CNX Nifty

S&P CNX Nifty is a well diversified 50 stock index accounting for 22 sectors of the economy. It

is used for a variety of purposes such as benchmarking fund portfolios, index based

derivatives and index funds.

S&P CNX Nifty is owned and managed by India Index Services and Products Ltd. (IISL), which

is a joint venture between NSE and CRISIL. IISL is India’s first specialized company focused

upon the index as a core product. IISL has a marketing and licensing agreement with Standard &

Poor’s (S&P), who are world leaders in index services.

The total traded value for the last six months of all Nifty stocks is approximately 52% of the

traded value of all stocks on the NSE

Nifty stocks represent about 63% of the Free Float Market Capitalization as on Dec 31, 2009.

Impact cost of the S&P CNX Nifty for a portfolio size of Rs.2 Cr is 0.10%

S&P CNX Nifty is professionally maintained and is ideal for derivatives trading

From June 26, 2009, S&P CNX Nifty is computed based on free float methodology.

Constituents of Nifty-

1 Reliance Industries 26 Gujarat Ambuja

2 ONGC 27 Cipla

3 Bharti Airtel 28 Siemens

4 Tata Consultancy 29 Ranbaxy

5 Infosys tech 30 NTPC

6 Reliance Communication 31 ITC

7 Wipro 32 VSNL
8 ICICI Bank 33 Zee Entertainment

9 ACC 34 MTNL

10 BHEL 35 HPCL

11 SBI 36 Dabur

12 Hindalco 37 IPCL

13 HLL 38 Jet Airways

14 L&T 39 Oriental Bank

15 HDFC 40 Glaxo Smith

16 Satyam computers 41 Tata power

17 Hero Honda 42 BPCL

18 Dr Reddys 43 Reliance energy

19 Tata motors 44 Punjab National Bank

20 Tata steel 45 ABB

21 Bajaj auto 46 Hindalco

22 GAIL 47 National Alu

23 Maruti udyog 48 M&M

24 Sun pharma 49 Seagrams

25 Grasim industries 50 HCL tech

Understanding Investor’s psychology

After go through all the research we found that common investment mistakes caused by an

investor’s cognitive and emotional weaknesses and it group these mistakes into 2 categories:
 A) How investors think

B) How investors feel

Although most recent research deals with these psychological influences in investor’s decision

making. We suggest 5 steps that investors can take to help overcome common investors

mistakes.

How Investors think

In this section, we focus on various rules of thumb that can lead to psychological biases and

systematic errors involving how investors think. To decrease the amount and complexity of

information requiring analysis, the brain filters out some information and uses shortcuts to

decrease the complexity of other information. In addition, they seek information that confirms

this belief. Individuals become too confident that their opinions are correct and thus place too

much value on their previous decisions.

1. Representativeness bias: The brain makes the assumption that things sharing similar

qualities are alike. Representativeness is judgment based on stereotypes. The

representativeness bias causes investors to buy stocks that represent desirable qualities.

For example, investors confuse a good company with a good investment. Firms that

generate strong earnings, have high sales growth, and quality management represent good

companies. Good investments are stocks that increase in price more than other stocks.
2. Cognitive dissonance: Cognitive dissonance is the inconsistent mental state that precedes

the adjustment process. That is, people tend to ignore, reject, or minimize any

information that conflicts with the particular belief. Cognitive dissonance results in

investors attempting to avoid or discount & conflicting belief and seeking out support for

the preferred belief.

3. Familiarity bias: People often prefer things that have some familiarity to them.

Consequently, investors lend to put too much faith in familiar stocks. Because those

stocks are familiar, investors tend to believe that they are less risky than other companies

or even safer than a diversified portfolio.

4. Mood and Optimism: Mood affects the way investors analyze and make judgments.

People in a good mood make more optimistic judgments than people in a bad mood.

Being in a bad mood makes investors more critical. This, in turn, helps them to engage in

more detailed analytical activity. If a good mood causes an investor to buy a stock

without conducting a proper analysis, the investor may regret this decision in the future.

5. Overconfidence: Investors are usually overconfident about their abilities to complete

difficult tasks successfully, such as picking winning stocks. They believe their knowledge

is more accurate than it really is and that their forecasts are more precise than their

experience should validate. Several factors contribute to overconfidence. One of these

 factors, called the illusion of knowledge, is having more information available. Also,

investors tend to interpret new information as confirmation of their prior beliefs.

How Investors Feel

A common adage on wall street is that markets are motivated by two emotions:

Greed and Fear. Although these emotions affect investors, other strong emotions such as hope,

pride and regret also influence decisions. Emotions can hamper making good investment

decisions.

1. Disposition effect: People want to feel good about themselves. Two strong emotions-

pride and regret-play a role. People seek actions that will give them pride and avoid

taking actions that will make feel regret. It shows that avoiding regret and seeking pride

also have an effect on investor’s decisions. Specifically, they show that fearing regret and

seeking pride cause investors to be predisposed to selling winners too early and riding

losers too long. They call this Disposition effect.

2. Attachment bias: It causes investors to become emotionally attached to a security. People

get emotionally attached to their parents, children and close friends. This attachment

causes them to focus on good traits and deeds and to discount or ignore bad traits or

deeds. Investors frequently get attached to a stock. Attachment bias has the potentially

positive effect of discouraging trading with its tax and transaction cost effects, this bias

can also have negative effects. When investors become emotionally attached to a stock,
 they also fail to recognize bad news about the company and consequently hold the stock

too long.

3. Changing risk preferences: Emotions are particularly strong after large gains and losses.

When an investor is on a winning streak, greed affects ensuing decisions. Large losses

cause the investor emotional pain. After an investor feels the pain of a large loss, he/she

may react in either on two extreme ways. In one case, the investor experiences a

heightened sense of fear of more losses. This feeling may cause the investor to avoid

taking risk entirely by not owning any stocks.

Factors affecting movement of Equity Market and Investor’s Psychology:

As we know that Forex Market for Indian currency is highly volatile where one cannot forecast

exchange rate easily, there is a mechanism which works behind the determination of exchange

rate. One of the most important factors, which affect exchange rate, is demand and supply of

domestic and foreign currency. There are some other factors also, which are having major impact

on the exchange rate determination. After studying research reports on relationship between

Rupee and Dollar of last four years we identified some factors, which have been segregated

under two heads. These are:

1. International Factors

2. Domestic Factors

1. International Factors: These factors includes the following:

 Movement of Currency: The

movement of currency is one of the

important factor that affects the

movement of equity market and

investor’s psychology. The inflow and

outflow of the currency is having the

major impact on the currency. E.g.

U.S. based company is investing their money through the Stock markets BSE or NSE so

her inflows of the Dollars is increasing and when it is selling out their investments

through these Stock markets then outflows of the Dollars are increasing.

However if the FIIs inflowing the capital in the country then there will be the supply of

the foreign currency increases and Demand for the Rupee will increases and that will

resulted appreciation in the rupee and vice versa. Importer and Exporter’s trading is also

affecting to the currency movement. Like if an Indian exported material to U.S. so he will

get his payments in Dollars and that will increase the supply of Dollars and increase of

demand of rupee and that will appreciate the rupee and vice versa.

 Crude Oil Price: The movement in the price of crude oil is also one important factor that

affects equity market movement and investors psychology. Disruption in supplies from

Iran continue to nudge crude prices higher, and signs of the global economy stabilising

means that oil prices could stay firm or even climb further. Crude oil prices have already

risen around 15% so far this calendar, with the benchmark Brent ruling around USD

124.54 per barrel. International Monetary Fund (IMF) chief Christine Lagarde cautioned
 that supply disruptions from Iran could push global crude prices by up to 30% from these

levels.

India will be among the countries that feel the pinch of rising oil prices, given its high

dependence on imports. For this financial year till April, India's oil import bill has risen

41% to over USD 132 billion, and accounts for nearly one-third of all imports. From

India's perspective, rising crude oil prices has implication on the trade deficit, and thereby

the currency, and also on inflation.

India's trade deficit has widened to USD 166.8 billion till February, and in the absence of

consistent foreign capital flows, the rupee has been under pressure. The Reserve Bank of

India is dithering from cutting interest rates because it is worried that inflation would

worsen further in the coming months if crude prices continue to rise. So with the high rise

in prices of crude oil the fuel prices rise and thus it has a negative impact on our equity

market.

 Foreign Institutional Investment (FII’s): Foreign Investment refers to investments made

by residents of a country in financial assets and production process of another country.

FIIs can invest their own funds as well

as invest on behalf of their overseas

clients registered as such with SEBI.

These client accounts that the FII

manages are known as ‘sub-accounts’.

The term is used most commonly in

India to refer to outside companies

investing in the financial markets of India. International institutional investors must

register with Securities & Exchange Board of India (SEBI) to participate in the market.

One of the major market regulations pertaining to FII involves placing limits on FII

ownership in Indian companies. They actually evaluate the shares and deposits in a

portfolio.
Positive fundamentals combined with fast growing markets have made India an attractive

destination for foreign institutional investors (FIIs). Portfolio investments brought in by

FIIs have been the most dynamic source of capital to emerging markets in 1990s. At the

same time there is unease over the volatility in foreign institutional investment flows and

its impact on the stock market and the Indian economy.

Apart from the impact they create on the market, their holdings will influence firm

performance. For instance, when foreign institutional investors reduced their holdings in

Dr.Reddy’s Lab by 7% to less than 18%, the company dropped from a high of around

US$30 to the current level of below US$15. This 50% drop is apparently because of

concerns about shrinking profit margins and financial performance. These instances made

analysts to generally claim that foreign portfolio investment has a short term investment

horizon. Growth is the only inclination for their investment.

Some major impact of FII on stock market:

• They increased depth and breadth of the market.

• They played major role in expanding securities business.

• Their policy on focusing on fundamentals of share had caused efficient pricing of share.
2. Domestic Factor: These factor includes the following:

 CRR and Repo Rate: CRR is Cash

Reserve Ratio. It refers to keeping

a portion of net demand and time

liabilities (NDTL) of banks with

the central banks (In India it’s

Reserve Bank of India, RBI).

Central bank fixes this percentage

of NDTL. Central bank can

change this percentage as a monetary measure to control the availability of funds in the

economy i.e. to inject liquidity or to suck liquidity. RBI doesn’t pay any interest on such

funds held with it.

When a central bank increases CRR, the banks need to reduce the outflow of money by

reducing the loans to customers and keep additional amount with the central bank. This

usually sucks liquidity in the markets. Let’s examine one by one:

Stock Market: Some traders take leveraged positions (usually 4 – 5 times their funds) in stock

markets by taking additional funds from their brokers at an interest rate. This interest rate goes

up as the funds won’t be available easily. When the interest rate goes up they reduce the amount

of leverage or they take the same leverage positions but expect more returns from Stock market

which is possible only when the prices go down. So the overall effect is prices will go down.
Bond Market:  The banks need to increase interest rates to attract more deposits. The prices of

the existing bonds will go down because bonds of same profile will be available with higher

interest rates.

Over all Economy:  Companies find it difficult to raise funds by issuing debentures/bonds

because they need to pay more interest. This may cause them to delay the implementation of

their expansion plans and the economy slows down.

Repo is a collateralized lending i.e. the banks which borrow money from Reserve Bank to

meet short term needs have to sell securities, usually bonds to Reserve Bank with an

agreement to repurchase the same at a predetermined rate and date. In this way for the

lender of the cash (usually Reserve Bank) the securities sold by the borrower are the

collateral against default risk and for the borrower of cash (usually commercial banks)

cash received from the lender is the collateral.

Reserve bank charges some interest rate on the cash borrowed by banks. This rate is

usually less than the interest rate on bonds as the borrowing is collateral. This interest rate

is called ‘repo rate’. The lender of securities is said to be doing repo whereas the lender

of cash is said to be doing ‘reverse repo’.

If RBI increases this reverse repo rate, it means RBI wants to contraction of credit. How

is it possible with reverse repo rate. When RBI gets loan from banks at high rate of

interest, more and more banks will supply to central bank because it is safe and earning is

more. Effect of this will on financial market. Supply of money in financial market will
 decrease. In economics, it is simple rule, if supply is limited and demand increases, price

of product will increase. Bank has lots of demand but due to limitation of supply, bank

increases interest rate. That is the reason. But its positive effect will on credit. Due to

decrease in the supply of credit in the market, inflation rate will decrease.

Example: The live example of

movement in equity market with

the change in CRR ratio and repo

rate is shown in this graph. As

shown in the graph on 18-Jun-2012

the S&P CNX Nifty ups 50 points

at 10.30 a.m. but when the CRR

ratio and Repo rate announced then

S&P CNX Nifty downs to 110 points. The main reason behind that is there is no change

in the CRR ratio and repo rate announced on that day as compare to previous ratio’s.

 IIP Data: IIP- index of industrial

production is a measurement which

represents the status of production in the

industrial sector for a given period of

time compared to a reference period of

time. IIP number is one of the best

statistical data, which helps us to

measure the level of industrial activity in Indian economy. It is a short term indicator. It is

useful to gauge the rate of industrial growth until the actual results from the annual
 survey of industries are published. IIP data is broadly divided into three segments –

manufacturing (79.36%), mining & quarrying (10.47%) and electricity (10.17%).

Usually IIP number of a particular month would be published after two months. The date

of publishing IIP numbers are usually between 11 to 14th of a month.  As IIP shows the

status of industrial activity, you can find out if the industrial activity has increased,

decreased or remained same.

A continuous fall in overall IIP data may lead to many fundamentally strong stocks being

undervalued. This gives you the perfect opportunity to invest in fundamentally strong

companies at discount price. Growth in IIP numbers are good signs for cement and steel

industries. Mining Sector contributes approx. 10% to the IIP. Growth figures can tell us

in advance about how mining and steel companies are going to fare in coming quarters.

The IIP data is purely industrial data. Banking sector is not included in it. But, increase in

production & investment activity is usually financed through borrowings from banks. So,

if industrial production & capital spending is increasing then it is likely to have a positive

impact on the banking sector. A lower IIP data can affect banking industry adversely.

 Inflation: Understanding inflation is

crucial to investing because inflation

can reduce the value of investment

returns. Inflation affects all aspects of

the economy, from consumer

spending, business investment, and employment rates, to government programs, tax

policies, and interest rates. It is because of the inflation that share market has collapsed, it

is bound to affect the investors. In fact, the way the share market was going up was itself

creating doubts in the minds of the people about its real growth.

When the market crossed 10,000 points nobody was able to explain the logic of it. So

when it reached 12,000 points, it remained unexplainable. The happenings in the share

market were certainly a cause of concern. The government ought to have looked into the

factors when the market started rising all of a sudden.  However, stocks are still a good

hedge against inflation because, in theory, a company’s revenue and earnings should

grow at the same rate as inflation over the time.

                                

More importantly, inflation robs investors (and everyone else) by raising prices with no

corresponding increase in value.

                                                    You pay more for less.

A rise in prices of several items means that the input prices for production of various

goods and services are rising. In these cases market analysts and fund managers will

always consider the net impact on the margin of the entity that they are tracking.

While there might be an increase in the input prices, it has to be considered in the

backdrop of the company's ability to pass on the price hike to the end-user. If a company

is able to sustain its profit margin despite high inflation, the stock price is likely to hold.

If the high inflation sustains, at some stage it will lead to a chain reaction across the

economy, pushing up interest rates and even affecting demand. An increase in interest
 rates will push up borrowing costs for corporates while lower demand will hurt growth in

revenues. This is likely to impact sentiment for the stock market as a whole.

 Gross Domestic Product (GDP):

The gross domestic product (GDP) is

one the primary indicators used to gauge

the health of a country’s economy. It

represents the total dollar value of all

goods and services produced over a

specific time period – you can think of it

as the size of the economy. Usually, GDP is expressed as a comparison to the previous

quarter or year. For example, if the year-to-year GDP is up 3%, this is thought to mean

that the economy has grown by 3% over the last year. Measuring GDP is complicated

(which is why we leave it to the economists), but at its most basic, the calculation can be

done in one of two ways: either by adding up what everyone earned in a year (income

approach), or by adding up what everyone spent (expenditure method). Logically, both

measures should arrive at roughly the same total.

A significant change in GDP, whether up or down, usually has a significant effect on the

stock market. It’s not hard to understand why: a bad economy usually means lower

profits for companies, which in turn means lower stock prices. Investors really worry

about negative GDP growth, which is one of the factors economists use to

determine whether an economy is in a recession.

  Trade Deficit: A trade deficit, which is

also referred to as net exports, is an

economic condition that occurs when a

country is importing more goods than it

is exporting. The deficit equals the value

of goods being imported minus the value

of goods being exported, and it is given

in the currency of the country in question. For example, assume that the United Kingdom

imports 800 billion British pounds worth of goods, while exporting only 750 billion

pounds. In this example, the trade deficit, or net exports, would be 50 million pounds.

Measuring a country's net imports or net exports is a difficult task, which involves

different accounts that measure different flows of investment. These accounts are the

current account and the financial account, which are then totaled to help form the balance

of payments figure. The current account is used as a measure for all of the amounts

involved in importing and exporting goods and services, any interest earned from foreign

sources, and any money transfers between countries. The financial account is made up of

the total changes in foreign and domestic property ownership. The net amounts of these

two accounts are then entered into the balance of payments.

3. Other Factors: Some other factors that affects the equity market movement and investors

psychology are as under:

A. Economic Factors: In the Forex Market Economic factors of the country is playing the

pivot role. Every country is depending on its prospect economy. If there will be change in
 any economy factors, which will directly or indirectly affected to Forex market. Here

there are two types of economic factors. These are as follows:

1. Internal Factors.

2. External Factors.

Internal Factors includes:

 Industrial Deficit of the country.

 Fiscal Deficit of the country.

 GDP and GNP of the country.

 Foreign Exchange Reserves.

 Inflation Rate of the Country.

 Agricultural growth and production.

 Different types of policies like EXIM Policy, Credit Policy of the country as well reforms

undertaken in the yearly Budget.

 Infrastructure of the Country

External Factors includes:

 Export trade and Import trade with the foreign country.

 Loan sanction by World Bank and IMF

 Relationship with the foreign country.

 Internationally OIL Price and Gold Price.

 Foreign Direct Investment, Portfolio Investment by the country.

B. Political Factors: In India election held every five years mean thereby one party has rule

for the five years. But from the 1996 India was facing political instability and this type of

political instability has created hefty problem in the different market especially in Forex

market, which is highly volatile. In fact in the year 1999 due to political uncertainty in the

BJP Government the rupee has depreciated by 30 paise in the month of April. So we can

say that political can become important factor to determine foreign exchange in India.

Due to political instability there can be possibility of de possibility delaying

implementation of all policies and sanction of budget. So that will create also major

impact on trade.
Chapter 2:

Review
Of
Literature
Literature Review

Indian stock markets are one of the oldest in Asia. Its history dates back to nearly 200 years ago.

The earliest records of security dealings in India are meager and obscure. The east India

Company was the dominant institution in those days and business in its loan securities used to be

transacted towards the close of the 18th century.

By 1830’s business on corporate stocks and shares in bank and cotton presses took place in

Bombay. Though the trading list was broader in 1839, there were only half a dozen brokers

recognized by banks and merchants during 1840 and 1850.

The 1850’s witnessed a rapid development of commercial enterprise and brokerage business

attracted many men into the field and by 1860 the number of brokers increased into 60.

In 1860-61 the American civil war broke out and cotton supply from United States of Europe

was stopped; thus, the ‘share mania’ in India begun. The number of brokers increased to about

200 to 250. However, at the end of the American civil war, in 1865, a disastrous slump began

(for example, bank of Bombay share which had touched Rs2850 could only be sold at Rs.87.)

At the end of the American civil war, the brokers who thrived out civil war in 1874, found a

place in a street (now appropriately called Dalal street) where they would conveniently

assemble and transact business, In 1887, they formally established in Bombay, the “Native share

and stock brokers” (which is alternatively known as “the stock exchange”) in 1895, the stock
exchange acquired a premise in the same street and it was inaugurated in 1899. thus, the stock

exchange at Bombay was consolidated.

OTHER LEADING CITIES IN STOCK MARKET OPERATIONS

Ahmedabad gained importance next to Bombay with respect to cotton textile industry. After

1880, many mills originated from Ahmedabad and rapidly forged ahead. As new mills were

floated, the need for a stock exchange at Ahmedabad was realized and in 1894 the brokers

formed “The Ahmedabad share and stock Brokers Association”.

What the cotton textile industry was to Bombay and Ahmedabad, the jute industry was to

Calcutta. Also tea and coal industries were the other major industrial groups in Calcutta. After

the share mania in 1861-65, in the 1870’s there was a sharp boom in jute shares, which was

followed by boom in tea shares in the 1880’s and 1890’s; and coal boom between 1904 and

1908. On June 1908, some leading brokers formed “The Calcutta Stock Exchange

Association”.

In the beginning of the 20th century, the industrial revolution was on the way in India with the

Swadeshi movement; and with the inauguration of the Tata Iron and steel company limited in

1907, an important stage in industrial advancement under Indian enterprise was reached.

Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies generally

enjoyed phenomenal prosperity, due to the First World War.

In 1935, the stock market activity improved, especially win south India where there was a rapid

increase in the number of textile mills an many plantation companies were floated. In 1937, a

stock exchange was once again organized in madras – “Madras Stock Exchange Association

(Pvt.) Limited”.

Lahore stock exchange was formed in 1934 and it had a brief life. It way merged with the

Punjab stock exchange limited, which was incorporated in 1936.

INDIAN STOCK EXCHANGES- AN UMBRELLA GROWTH

The Second World War broke out in 1939. It gave a sharp boom which was followed by slump.

But, in 1943, the situation changed radically, when India was fully mobilized as a supply base.

On account of the restrictive control on cotton, bullion, seeds and other commodities, those

dealing in them found in the stock market as the only outlet for their activities. They were

anxious to join the trade and their number was swelled by numerous others. Many new

associations were constituted for the purpose and stock exchanges in all parts f the country were

floated.

The Uttar Pradesh stock exchange limited (1940), Nagpur stock exchanged limited (1940)

and Hyderabad stock exchange limited (1944) were incorporated.

In Delhi two stock exchanges-Delhi stocks and share brokers association limited and the Delhi

stock and stock exchange limited were floated and later in June 1947, amalgamated into the

Delhi stock exchange association limited.

Concept of  Fundamental analysis of equity market

Fundamental analysis is a broad subject; it’s tough to know where to start from. There is no end

of the strategies being used and which are quite different from each other, almost all use the

fundamentals. Fundamental analysis involves digging into financial statements. It is also known

as quantitative analysis. This involves looking at revenues, expenses, assets, liabilities and other

financial aspects of a company. Fundamental analysts look at this information to gain insight on

a company's future performance. Basically it’s a cornerstone of investing. There is a myth that if

you are not performing Fundamental analysis that means you are not really investing.

The fundamental analysis is a tool that attempts to determine a security’s value by focusing on

quantitative and quality factors that affect a company's business and its future prospects. You can

perform fundamental analysis on economy.

Factors of fundamental analysis:

 Quantitative factor is capable of being measured or expressed in numerical terms.

Quantitative fundamentals are numeric, measurable characteristics about a business.

Quantitative factor represent aspects of a company's business that are difficult or

impossible to quantify, incorporating that kind of information into a pricing evaluation

 can be quite difficult. You should be aware of Business Model, competitive advantage,

management, corporate governance etc.

 Qualitative factor is related to or based on the quality or character of something, often as

opposed to its size or quantity. They are the less tangible factors surrounding a business.

You should be aware of market share, industry growth, competition, regulation etc.

Neither qualitative nor quantitative analysis is inherently better than the other.

Goal of fundamental analysis is to make financial forecasts and the fundamental analysis is done

on the historical and present data. Let’s discuss some highly important objectives of

Fundamental analysis. It is done to calculate credit risks. It also make internal business decisions,

it is also used to make projection on its business performance. It is also used to conduct a

company stock valuation and predict the price evaluation. One of the primary assumptions of

fundamental analysis is that the price on the equity market does not fully reflect a stock’s “real”

value. 

Concept of intrinsic value takes place in fundamental analysis. It is important to address the

subject of intrinsic value. In the long run, the equity market will reflect the fundamentals. There

is no point in buying a stock based on intrinsic value if the price never reflected that value.

Nobody knows how long “the long run” really is. An investor can estimate the intrinsic value of

a firm from where they can buy at discount. Basic thing is that you don’t know whether your

estimate of intrinsic value is correct and even you don’t know how long it will take for the

intrinsic value to be reflected in the marketplace.

When we talk about fundamental analysis it is quite necessary to know what exactly financial

statements are. Financial statements are the medium by which a company discloses information

concerning its financial performance. The fundamental analyst use the quantitative information

gleaned from financial statements to make investments decisions.

Three most important financial statements are:

 Income statements

 Balance sheets

 Cash flow statements

The income statement measures a company's performance over a specific time frame.

Technically, you could have a balance sheet for a month or even a day, but you'll only see public

companies report quarterly and annually. The balance sheet represents a record of a company's

assets, liabilities and equity at a particular point in time. The statement of cash flows represents a

record of a business' cash inflows and outflows over a period of time. The cash flow statement is

important because it's very difficult for a business to manipulate its cash situation.
Reviews by the Different Researchers

There have been published a significant number of studies, which discovered the value of

fundamental research on the developed equity markets: F. Shostak , Moube A. and Jannach M..

But similar studies when fundamental analysis is applied to emerging market equities question

the time and effort invested to carry out analysis prior to buying the companies, especially if

there is a limited investing time frame of less than 1 year.

Croatian researchers Tihomir Hunjak and Marijan Cingula argue that neither technical nor

fundamental analysis can be used on the Croatian stock market due to low trading volumes and

high volatility. The researchers have developed their model, which according to their opinion,

should suit during the investment process on the Croatian stock market. Fundamental analysis

was assigned the weight of 8.1%, technical analysis – 18.8% and the rest was dedicated to

other factors: risk (market, political and development) – 34.1%, insider trading – 31.6% and

subjective estimation – 7.3%.

A group of researchers of Texas A&M University examined developing Mexican equity

market and found out that the value of fundamental analysis could contribute to generate

higher returns. The findings were that though fine fundamental analysis could help to enrich

investors, the earnings of the companies were not the primary factor that determines the share

movement.
 In a study of the Czech market conducted by Anderson et al. It is shown that foreign

investors are focusing on profitable firms, which deliver safe returns, which can be also

reinforced by their unchallenged influence on corporate governance.

Turkish equity market was also examined by a number of researchers to find out the ultimate

reason which influences investment decisions. The results of Şamiloğlu’s study indicate that

there was a weak relationship between share returns and operating income, operating income

momentum, operating cash flows, operating cash flow momentum, annual growth and change

in the annual growth of companies. On the other hand, the results of this research indicated a

meaningful relationship between share prices, earnings per share and nominal values of shares.

Another Turkish group of researchers, Kalaycı et al analyzed the relationship between stock

returns and financial ratios using a sample of manufacturing industries. They found out that

stock returns were explained by profitability, stock market performance, and productivity

ratios.

The Indian capital market has changed dramatically over the last few years, especially since

1990. Changes have also been taking place in government regulations and technology. The

expectations of the investors are also changing. The only inherent feature of the capital market,

which has not changed is the 'risk' involved in investing corporate securities. Managing the risk

is emerging as an important function of both large scale and small-scale investors.

Risk management of investing in corporate securities is under active and extensive

discussion among academicians and capital market operators. Surveys and research analyses
have been conducted by institutions and academicians on risk management. The mutual fund

companies in India have conducted specific studies on the 'risk element' of investing in corporate

securities.

Grewal S.S and Navjot Grewall (1984) revealed some basic investment rules and rules for

selling shares. They warned the investors not to buy unlisted shares, as Stock Exchanges do not

permit trading in unlisted shares. Another rule that they specify is not to buy inactive shares, ie,

shares in which transactions take place rarely. The main reason why shares are inactive is

because there are no buyers for them. They are mostly shares of companies, which are not doing

well. A third rule according to them is not to buy shares in closely-held companies because these

shares tend to be less active than those of widely held ones since they have a fewer number of

shareholders. They caution not to hold the shares for a long period, expecting a high price, but to

sell whenever one earns a reasonable reward.

Preethi Singh(1986) disclosed the basic rules for selecting the company to invest in. She opined

that understanding and measuring return md risk is fundamental to the investment process.

According to her, most investors are 'risk averse'. To have a higher return the investor has to face

greater risks.

She concludes that risk is fundamental to the process of investment. Every investor should have

an understanding of the various pitfalls of investments. The investor should carefully analyse the

financial statements with special reference to solvency,

profitability, EPS, and efficiency of the company.

Nabhi Kumar Jain (1992) specified certain tips for buying shares for holding and also for

selling shares. He advised the investors to buy shares of a growing company of a growing

industry. Buy shares by diversifying in a number of growth companies operating in a different

but equally fast growing sector of the economy.

He suggested selling the shares the moment company has or almost reached the peak of its

growth. Also, sell the shares the moment you realize you have made a mistake in the initial

selection of the shares. The only option to decide when to buy and sell high priced shares is to

identify the individual merit or demerit of each of the shares in the portfolio and arrive at a

decision.

Sunil Damodar (1993) evaluated the 'Derivatives' especially the 'futures' as a tool for short-term

risk control. He opined that derivatives have become an indispensable tool for finance managers

whose prime objective is to manage or reduce the risk inherent in their portfolios.

He disclosed that the over-riding feature of 'financial futures' in risk management is that these

instruments tend to be most valuable when risk control is needed for a short- term, ie, for a year

or less. They tend to be cheapest and easily available for protecting against or benefiting from

short term price. Their low execution costs also make them very suitable for frequent and short

term trading to manage risk, more effectively.

R.Venkataramani (l994) disclosed the uses and dangers of derivatives. The derivative products

can lead us to a dangerous position if its full implications are not clearly understood. Being off

balance sheet in nature, more and more derivative products are traded than the cash market

products and they suffer heavily due to their sensitive nature.

He brought to the notice of the investors the 'Over the counter product' (OTC) which are traded

across the counters of a bank. OTC products (eg. Options and futures) are tailor made for the

particular need of a customer and serve as a perfect hedge. He emphasised the use of futures as

an instrument of hedge, for it is of low cost.

Pattabhi Ram.V (1995) emphasized the need for doing fundamental analysis and doing Equity

Research (ER) before selecting shares for investment. He opined that the investor should look for

value with a margin of safety in relation to price. The margin of safety is the gap between price

and value. He revealed that the Indian stock market is an inefficient market because of the

absence of good communication network, rampant price rigging, the absence of free and

instantaneous flow of information, professional broking and so on. He concluded that in such

inefficient market, equity research will produce better results as there will be frequent mismatch

between price and value that provides opportunities to the long-term value oriented investor. He

added that in the Indian stock market investment returns would improve only through quality

equity research.
V.T.Godse (1996) revealed the two separate but simultaneous processes involved in risk

management. The first process is determining risk profile and the second relates to the risk

management process itself. Deciding risk profile is synonymous with drawing a risk picture and

involves the following steps.

1. Identifying and prioritizing the inherent risks

2. Measuring and scoring inherent risks.

3. Establishing standards for each risk component

4. Evaluating and controlling the quality of managerial controls.

5. Developing risk tolerance levels.

He opined that such an elaborate risk management process is relevant in the Indian context. The

process would facilitate better understanding of risks and their management.

Basudev Sen (1997) disclosed the implications of risk management in the hanged environment

and the factors constraining the speed of risk management technology up-gradation. He opined

that the perception and management of risk is crucial for players and regulators in a market

oriented economy. Investment managers have started upgrading their risk management practices

and systems. They have strengthened the internal control systems including internal audit and

they are increasingly using equity research of better quality.

He observed that risk measurement and estimation problems constrain the speed of up-gradation.

Also, inadequate availability of skills in using quantitative risk management models and lack of

risk hedging investments for the domestic investors are major constraints. He concluded that
with the beginning of a derivative market, new instruments of risk hedging would become

available.

Ghosh T.P(1998) reviewed the various types of risks in relation to the different institutions. He

opined that 'Managing risk has different meanings for banks, financial institutions, and

nonbanking financial companies and manufacturing companies. In the case of manufacturing

companies, the risk is traditionally classified as business risk and financial risk. Banks, financial

institutions and nonbanking financial companies are prone to various types of risks important of

which are interest rate risk, market risk, foreign exchange risk, liquidity risk, country and

sovereign risk and insolvency risk.

Gere1a.S.T. and Balsara.K.A. (2001) reviewed the risk management system at the Bombay

Stock Exchange. They reported that the BSE has strengthened the risk management measures to

maintain the market integrity. The introduction of the modified carry forward system, coupled

with the BOLT (Bombay Online Trade) expansion to cities all over India has led to a significant

increase in the liquidity and volumes at the exchange. As a consequence, the risk management

function at the BSE has assumed greater importance. In order to maintain the market integrity

and to avert payment defaults by the members, the exchange has strengthened its risk

management system by taking the following measures:

1. All members are required to maintain the base minimum capital of Rs.10 lakh with the

exchange.
2. As a risk management measure the exchange places trading restrictions on the members.

3. The exchange has prescribed a ceiling on the gross exposure of the members.

4. The exchange collects from the members, daily margin, additional volatility margin,

incremental carry forward margin, etc.

5. The exchange has constituted a risk management committee to put in place a long-term risk

management policy.

Rukmani Viswanath (2001) reported that the Primary Dealers in Govt.

securities are working on a new internal risk management model suited for the Indian market

conditions. The attempt is to lay down general parameters for risk perception. The Primary

Dealers Association of India (PDAI) is formulating a set of prudential norms for 'risk

management practices'. While internationally the principles of risk management may be the same

everywhere, the Association is of the view that they have to identify the relevant issues and

apply those principles in the Indian context. It strongly argues that it must work on a model that

can help to manage liquidity and interest rate risk. While the existing RBI guidelines on risk

management cover mainly statutory risk, the PDAI hopes that its new risk management model

will be able to perceive 'real risk'. These new norms are expected to help gauge several issues

like, whether a fall in the prices of securities or yields is a temporary or permanent situation etc.

The areas the new norms are likely to address are the assessment of the liquidity situation and

envisaging investor appetite for a specific instrument and their appetite for risk. According to the
govt. securities dealers, these norms are expected to help them hedge their risks better. The

primary dealers are looking forward to these norms to help them manage their internal risks.
FINDINGS

1. The review of literature reveals that recently no study has been undertaken in Kerala on

risk management in investment in corporate securities.

2. Scholars have contributed much to the theories related to risks like risk return

relationship, expected value, risk and uncertainty, attitude towards risk, EVA (Economic

Value Added) etc.

3. There is lack of studies on the objectives behind investment in corporate securities, the

types of shares that the investors like to invest in, the precautions they take against risks,

how they manage a crisis while operating in securities market, the gender differences in

handling risks, etc.

4. They also came to know that emotions rule the market, but whether emotional buying and

selling are influenced by factors like experience in the stock market operations remains to

be answered.

5. Though it is generally accepted that fund is diverted from the stock market to other

avenues of investment, studies are to be conducted to reveal whether funds are diverted

or not.
 6. The reasons for diverting the funds are diverted both from the primary market and

secondary market etc. The effect of volatility on diversion of funds is also to be enquired

into.

CONCLUSION

Investors select a particular type of share like growth share, income share

etc. according to their preferences, but the question whether experience in stock market

operations has any influence on the type of share they select is to be explored.

The review of literature has brought to light that there exists wild

speculation in Indian stock markets. But whether speculation leads to diverting funds from the

stock market or not raises a big question mark.

There are theories like the Fundamental analysis, Technical analysis etc. to

evaluate the securities. To what extent these theories are applied is another question to be

resolved.

Keeping in mind, these unresolved, inadequately explained and insufficiently

explored issues, the present study has been undertaken.

Chapter 3:

Research
Methodology
3.1 Research Methodology

Research in common parlance refers to a search for knowledge. Once can also define research as

a scientific and systematic search for pertinent information on a specific topic. In fact, research is

an art of scientific investigation.

Research is an academic activity and as such the term should be used in a technical sense.

According to Clifford Woody research comprises defining and redefining problems, formulating

hypothesis or suggested solutions; collecting, organizing and evaluating data; making deductions

and reaching conclusions; and at last carefully testing the conclusions to determine whether they

fit the formulating hypothesis.

Research methodology is a way to systematically solve the research problem. It may be

understood as a science of studying how research is done scientifically. In it we study the various

steps that are generally adopted by a researcher in studying his research problem along with the

logic behind them.

Marketing research is the process of collecting and analyzing marketing information and

ultimately arrived at certain conclusion management in any organization needs information about

potential marketing plans and to change in the market place. Marketing Research includes all the

activities that enable an organization to obtain the information. This research is very important in

strategy formulation and feedback of any organizational plan.

3.2 Research Design

The research design which has been used in the project report is descriptive research. This is

right in nature and focuses attention on the following:

 Formulating the objective of the study.

 Designing the method of data collection.

 Selecting the data.

 Collecting the data.

 Processing and analyzing the data.

 Reporting the findings.

 Suggestion, if any.

 Conclusion.

3.3 Need of the Study

 The main need that occurs behind the study is to know the factor that generally affects the

investors mind and stop them to do trading.

  Another reason behind the study is to know the factors that affect the movement of equity

market.

 To know that why people are more interested to invest in government securities, and

other government offerings.

 To know the scope of growth in currency market, commodity market and equity market.

 To find out which market is more beneficial in future for investment that gives good

return to investors.

 To find out that how much people are aware about the guidelines of SEBI to stop

unauthorized practices.

 To find out that how much people have knowledge related to investment in E- Gold.

3.4 Objectives of the Study

 To Study the adequacy of the various measures for the protection of the investors.

 To Study the level of awareness of investors, about guidelines issued by SEBI in relation

to investors protection.

 To Study the factors this motivates the investors and influence their investment decisions.

 To Study the problems faced by investors while investing.

 To Study that which factors contributes more to the fluctuations of equity market.
3.5 Data Collection

Research is totally based on Primary data. Secondary data can be used only for the reference.

Research has been done by primary data collection, and primary data has been collected by

interacting with various people. The secondary data has been collected through various journals

and websites.

3.6 Variable Studied

In order to get the proper knowledge that what are the factors that mainly affects the movement

of equity market and investors psychology we studied the different mantras published by the

India Infoline.

The various mantras’ are as under:

A. Market Mantra

B. Commodity Mantra

C. Forex Mantra

Market Mantra

Under market mantra we studied various factors that affect the movement of equity market and

investors psychology. These factors are Cash Reserve Ratio (CRR), Gross Domestic Product

(GDP), Inflation, Fiscal Deficit, Trade Deficit, Repo Rate etc. We also get to know that how

industrial data affect the movement of market.

Commodity Mantra

Under commodity mantra we studied the movement of various commodities which are mainly

categorized in 2 different ways:

1. Metal

2. Non-metal

In metal we mainly study the movement of different metals such as gold, silver, zinc,

aluminum, lead, copper etc. In this we also studied that how movement of one metal affects the

movement of other metal.

In non-metal we mainly study the movement of various agricultural products such as onion,

potato, tomato, garlic etc.

Forex Mantra

Under Forex mantra we studied that how the little bit of movement in dollar, yen, pound, euro

affects our whole Indian market. We found that mainly our Indian market is affected by the

movement of dollar, if dollar rises than there is a decrease in our market and if dollar downs

than there will be increase our market.

3.6 Sampling Plan

Sample Unit: Delhi City

Sample Size: 50 Persons

Sample Selection: Convenient

3.7 Limitations of the Study

 Some of the people were not responsive.

 Possibility of error in data collection because many of investors may have not given
actual answers of my questionnaire.

 Most of the people are not aware about their rights that are provided by SEBI for
investor’s protection.

 Some respondents were reluctant to divulge personal information which can affect the
validity of all responses.

 The research is confined to a certain part of Delhi.

 The time period for research is shorter.

Chapter 4:

Data Analysis
&
Interpretation
Q1. Do you Trade?

Ans. The response to this was:

Options No. of Respondents %age

Yes 12 24%
No 38 76%
Total 50 100%

No. of Respondents

40
35
30
25
No. of Respondents
20
15
10
5
0
Yes No

Interpretation:

This graph shows that respondents have not been actively involved with the investments and they
are not aware of the up and down in the market. The result has been tabulated above in the table.
The research is made on 50 persons which shows that only 24% of the people trade in the shares
and 76% are not trading in the stock market. It shows that how many people are not aware
towards stock market.
Q2. Which type of trade you do?

Ans. The response to this was:

Options No. of Respondents %age

Online 8 66.67%
Offline 4 33.33%
Total 12 100%

No. of Respondents

8
7
6
5
No. of Respondents
4
3
2
1
0
Online Offline

Interpretation:

This question is based on how many people using which type of trade. This question is based on
12 persons out of the 50 who trade in the Stock market. The response of the investors shows that
most of them using online trading and only few are still using offline trading. In these there are
also some persons who are using online and offline mode both.

Q3. What is the reason for no trading in the stock market?

Ans. The response to this was:

Options No. of Respondents %age

Improper Knowledge 28 56%
Insufficient Time 5 10%
Risk Factor 10 20%
Other 7 14%
Total 50 100%

No. of Respondents

30
25
20
15 No. of Respondents
10
5
0
Improper Insufficient Risk factor Other
Knowledge Time

Interpretation:

The respondents were asked that what is the reason that they did not do trade in the stock market.
The main reason of the respondents for no trade in the stock market was that, they have Improper
Knowledge about share market. This answer is given by 56% of the respondents. The 20% of the
respondents said that they have Risk factor in investment in stock market. The 10% says that
they didn’t have sufficient time to watch the share market and 14% says that they have some
other problems for no trading in the stock market.
Q4. Do you heard about IIFL Flame?

Ans. The response to this was:

Options No. of Respondents %age

Yes 8 16%
No 42 84%
Total 50 100%

No. of Respondents

50

40

30 No. of Respondents

20

10

0
Yes No

Interpretation:

In response to our above asked question that how many of the respondents have ever heard about
IIFL FLAME. Then 16% of respondents said that they read an article related to IIFL FLAME in
the newspaper and magazines and remaining 84% of the respondents did not know and heard
about the IIFL FLAME.
Q5. In which segment do you want to trade?

Ans. The response to this was:

Options No. of Respondents %age

Equity 24 48%
Commodity 18 36%
Currency 8 16%
Total 50 100%

No. of Respondents

25

20

15
No. of Respondents
10

0
Equity Commodity Currency

Interpretation:

The respondents when asked about in which segment they prefer to invest, the response was 48%
of the respondents prefer Equity, 36% says Commodity, 16% says Currency. It shows that the
respondents does not have proper knowledge about Commodity and Currency segment, so they
mostly prefer the equity segment which contains high risk of money.

Q6. Are investing in share market is more risky than other investment schemes?

Ans. The response to this was:

Options No. of Respondents %age
Yes 39 78%
No 11 22%
Total 50 100%

No. of Respondents

40
35
30
25
No. of Respondents
20
15
10
5
0
Yes No

Interpretation:

The respondents were asked that the investment in share market is more risky than the other
investment schemes. The response was 78% of the respondents say YES and 22% NO. This
mainly shows that still today the people are not interested to invest their money in stock market
because of its uneven move.
Q7. Is currency market is much safer than equity market?

Ans. The response to this was:

Options No. of Respondents %age

Yes 42 84%
No 8 16%
Total 50 100%

No. of Respondents

50

40

30 No. of Respondents

20

10

0
Yes No

Interpretation:

In response to our above asked question the 84% of respondents said that the currency market is
safer than the equity market because the movement of equity market is not understandable easily
and rest of the 16% said that currency market is more risky than equity market.
Q8. For a long term concern, in which securities do you prefer to invest?

Ans. The response given by investors was:

Options No. of Respondents %age

Govt. Securities 12 24%
Mutual Funds 24 48%
Bank Deposits 8 16%
Other 6 12%
Total 12 100%

No. of Respondents

25

20

15
No. of Respondents
10

0
Govt. Mutual Bank Other
Securities Funds Deposits

Interpretation:

In response to the above asked question 24% of the respondents said that the government
securities are good to invest for long run, 48% of the respondents said that the mutual funds are
better one for investing, 16% of the respondents said that bank deposits are good to invest and
rest 12% said that they prefer other schemes for investing for long term concern.
Q9. Have you heard about NSEL Gold or E-Gold Trading?

Ans. The response to this was:

Options No. of Respondents %age

Yes 12 24%
No 38 76%
Total 50 100%

No. of Respondents

40
35
30
25
No. of Respondents
20
15
10
5
0
Yes No

Interpretation:

In response to this question 24% of the respondents said that they heard about the E-Gold and
rest of the 76% of respondents said that they are not aware about any of this type of Gold. This
shows that the people are not much aware about commodity market so some steps should be
taken in order to move the people preference from equity market to commodity market.
Q10. Are you aware about SEBI guidelines for un-authorized trading?

Ans. The response to this was:

Options No. of Respondents %age

Yes 15 30%
No 35 70%
Total 50 100%

No. of Respondents

40
35
30
25
No. of Respondents
20
15
10
5
0
Yes No

Interpretation:

In response to this question the most number of the persons said that they are not aware about the
SEBI guidelines for an unauthorized trading the ratio was 70% and rest 30% are aware about the
guidelines issued by the SEBI but not so much aware about that. Thus this shows that the firm
should take some step to aware people about the SEBI guidelines related to unauthorized trade
practices.
Q11. Where should market stand at the end of this year?

Ans. The response was:

Options No. of Respondents %age

Above 21000 2 4%
Between 16000 to 20000 34 68%
Below 14000 4 8%
Can’t Say 10 20%
Total 50 100%

No. of Respondents

40

30

20
No. of Respondents
10

0
Above Between Below
21000 16000 to 14000
20000

Interpretation:

In response to this question the 4% of the respondents said that the market will cross 21000 mark
at the end of this year, 68% of the respondents said that market will move in between 16000 to
20000 mark, 8% of the respondents said that the market will remain below 14000 mark and
remaining 20% said that they can’t predict anything related to market movement.
Chapter 5:

Conclusion
&
Recommendations
Conclusion:

I am much thankful to India Infoline for providing me the opportunity for doing training

programme in the organization as management trainee. While doing my SIP in the reputed

broking firm India Infoline I had got a chance to know and analyze the share market. I was also

able to know about the business environment and business ethics of the business world.

I also came to know about what does a firm or an organization require or wants from an

employee or a trainee. From the survey, I found that India Infoline is in the top three positions in

the share market. Thus on the basis of the study it is found that India Infoline Ltd is better

services provider than the other stockbrokers because of their timely research and personalized

advice on what stocks to buy and sell.

Infoline Ltd. provides the facility of Trade Terminal (TT) as well as relationship manager facility

for encouragement and protects the interest of the investors. It also provides the information

through the internet and mobile alerts that what IPO’s are coming in the market and it also

provides its research on the future prospect of the IPO. Study also concludes that people are not

much aware of Commodity Market and while it’s going to be biggest market in India.

The company should also organize seminars and similar activities to enhance the knowledge of

prospective and existing customers, so that they feel more comfortable while investing in the

stock market. Thus by this way the India Infoline works in the way to change the investors’

psychology so that they move forward and start investing in stock market. The regular investors
should also take step and diversified to the other markets such as Currency Market,

Commodity Market.

This will help in many ways that it will give stability to equity market and raise the confidence of

investors in investing in share market.

RECOMMENDATIONS

 To increase awareness about Share Market and the name India Infoline itself, the

company should organize campaign. The campaign can be weekly, monthly, yearly, it

will give a good result to the company to capture market in the competitive position.

 The company should reduce the margin money. It can help to acquire more customers, if

the firms bring plans for no boundation of margin money.

 The Company should increase their focus on the less margin money customers also .It

can help to make more customers of low margin money which can increase the revenue

of the firm. The Relationship managers focus only to the high margin money customer

because from them they will get high brokerage that should not be happened from the

less margin money customer.

 Transaction error should be avoided .Transaction should be done properly, taking in

consideration that it is one of the most required quality of a firm. Wrong transaction or

default transaction may lead the prestige of the company to be down.

 Brokerage rate should be reduced. Religare, Motilal Oswal, are charging as 0 .03% for

Intraday and 0 .30% for Delivery where as India Infoline is charging 0 .05% for Intraday

and 0 .50% for Delivery. Though it is negotiable but for high margin money customer not

for less margin money customer.

 The Company should increase Exposure. It is the good tool to capture the market.

Some mistakes that must be avoided in investing in Equity Market

Investing is not just about picking winners, but also about avoiding mistakes. At a time
like today, when the stock market is down more than 50% from its peak, it’s important
to review some basic ideas about how to invest. You can be better off if you avoid
making the following mistakes.
 
Mistake 1: Over enthusiasm to trade - not every ball should be hit
Good batsmen realize that some balls outside the off-stump should just be left alone.
Similarly, professional investors realize that sometimes it’s better to just stand still than
to rush into a stock. Retail investors often make the mistake of "flashing outside the off-
stump" because they cannot resist the temptation to trade in every opportunity. And,
like an inexperienced batsman, they suffer the same fate.
 
Too much trading will to lead to a lot of churn, extra commissions to your broker and
huge tax implications for you. Some of the world's best investors follow a buy and hold
strategy - you should too.
 
Mistake 2: Overconfidence - don't be unrealistically optimistic
A bull market makes retail investors believe that they are geniuses - after all, anything
they put money into goes up. This overconfidence in their own abilities leads to a
complete disregard of the risks involved. Every new generation that invests in the
market ignores the lessons of history. These new investors wrongly believe that stock
prices only go up.
 
As we are painfully experiencing today, markets do come crashing down.
 
Mistake 3: Missing the benefits of compounding of capital - learn from Einstein
Albert Einstein is reputed to have said that compounding of capital is the 8th wonder of
the world because it allows for the systematic accumulation of wealth.
 
Compounding of capital can benefit you only if you leave your money uninterrupted for
a long period of time. Unfortunately, most of us interrupt this process of compounding
by buying and selling too frequently.
 
Mistake 4: Worrying about the market - but there is no answer to your favorite
question
Retail investors are obsessed with the question "where do you think the market will
go?" This is the wrong question to ask. In fact, no one knows the answer.
 
The right question to ask is whether the company whose stock you are buying is going
to be a much bigger business 10 years from now or not.
 
Mistake 5: Timing the market - 99% of investors will fail in this strategy
It’s very difficult to time the market, i.e., be smart enough to buy at the absolute bottom
and sell at the absolute top. Professionals understand that timing the market is a wasted
exercise.
 
Retail investors always wait for that elusive best opportunity to get in or to get out. But
by waiting they let great investment opportunities go by. Use systematic or regular
investment plans to make investments.
 
Mistake 6: Selling in times of panic - you should be doing the opposite
The best opportunity to buy is when the markets are falling and there is fear in the
minds of investors. Yet, many retail investors do exactly the opposite. They sell when
the markets are falling and buy only when the markets are high. This way they end up
losing twice - by selling low and buying high, when they should be doing exactly the
opposite.
 
Use the current weakness in the markets to buy good strong businesses that have
survived previous recessions successfully. Some of the world's biggest fortunes were
made by buying when others were selling in panic.
 
Mistake 7: Focusing on past performance - it’s like driving forward while looking
backwards
It is a very common perception that because a stock has done well in the past 1 year, it's
the best stock to invest in. Retail investors do not realize that often the best performers
will underperform the market in the future because their optimistic outlook has already
been priced into the stock.
 
Don't go after hot sectors that are currently producing high returns. Look forward to see
whether the gains produced in the past can get repeated or not. Short-term trends of the
past might not get repeated in the future.
 
References
References

I had collected the data from various resources from Internet, Company itself. The sources are
given below:

1. www.indiainfoline.com
2. www.traderji.com
3. www.indiabulls.com
4. www.icicidirect.com
5. www.sharekhan.com
6. www.tradersedgeindia.com
7. www.tradingpicks.com
8. www.masteroftrading.com
9. www.kotaksecurities.com
10. www.religareonline.com
11. www.angeltrade.com
12. www.google.com
13. www.scribd.com
14. www.MoneyControl.com
15. www.YahooFinance.com
16. www.investopedia.com
17. www.moneybhai.com
Annexure
Annexure

Questionnaire For Customers

1. Do you trade?

A. Yes

B. No

2. Which type of trade you do?

A. Online

B. Offline

3. What is the reason for no trading in the stock market?

A. Improper Knowledge

B. Insufficient Time

C. Risk factor

D. Other (Please Specify),__________

4. Do you heard about IIFL Flame?

A. Yes

B. No

5. In which segment do you want to trade?

A. Equity
 B. Commodity

C. Currency

6. Are investing in share market is more risky than other investment schemes?

A. Yes

B. No

7. Is currency market is much safer than equity market?

A. Yes

B. No

8. For a long term concerns in which securities do you prefer to invest?

A. Govt. Securities

B. Mutual funds

C. Bank deposits

D. Other (Please specify),____________

9. Have you heard about NSEL Gold or E-Gold Trading?

A. Yes

B. No

10. Are you aware about the SEBI guidelines for un-authorized trading?
 A. Yes

B. No

11. Where should market stand at the end of this year?

A. Above 21000

B. Between 16000 to 20000

C. Below 14000

D. Can’t Say

General Information:

Name: _____________________

Contact No._________________

Designation _________________