You are on page 1of 87

A Project Study report ON DETAIL STUDY OF INDIAN CAPITAL MARKET Submitted in partial fulfillment for the Award of degree

of Bachelor of Business Administration

SUBMITTED To: Mr. MANOJ SHARMA Department of management study

SUBMITTED BY: AKANKSHA SONI BBA 2nd Year

GOVERNMENT ENGINEERING COLLEGE, JHALAWAR 2011-2012

DECLARATION

I hereby declare that this project work entitled A STUDY ON INDIAN CAPITAL MARKET. is my work, carried out under the guidance of my faculty guide Mr. Manoj Sharma faculty of GECJ Jhalawar.This report neither full nor in part has ever been submitted for award of any other degree of either this university or any other university.

Acknowledgement

We know that the success is backed up by the helping hands of many people. The same is the case with my project. Even my project wouldnt have been possible without the eminent guidance of my teachers, suggestion of my fellows, and all those sources which I used for preparation of this project.

I am thankful to Mr. MANOJ SHARMA SIR , Lecture, GECJ Jhalawar for giving me continuous help and guidance for the project. I also want to give him thanks for his vital suggestions and recommendations in preparation of the report.

I am grateful to Mr.Manoj Sharma sir for his valuable guidance and necessary encouragement in this project.

I am in an extreme dilemma as to how I can appropriately acknowledge my deep gratitude and thanks to Mr. Raj sir for giving there valuable time and suggestion for this work. .

I express my heart full gratitude to family, who assisted and supported to accomplish my goal. Above all, I am thankful to the almighty that blossomed me with his blessings for the completion of the project.

TABAL CONTENT S.NO. CONTENTS


3

PAGE

1 2 3 4 5 6 7 8 9 10 11 12

INTRODUCTION CAPITAL MARKET REGULATORS PRIMARY MARKET SECONDARY MARKET SENSEX AND NIFTY STOCK BROKER PROBLEM FORMULATION RESEARCH METHODOLOGY COLLECTION OF DATA QUESTIONARRIER BIBLOGRAPHY CHAPTER 1.
INTRODUCTION

5-8 9-12 13-15 16-22 23-40 41-47 48-52 53 54-55 56

1. History of Capital Market in India


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 eighteenth 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 Rs. 2850 could only be sold at Rs. 87). At the end of the American Civil War, the brokers who thrived out of Civil War in 1874, found a place in a street (now appropriately called as Dalal Street) where they would conveniently assemble and transact business. In 1887, they formally established in Bombay, the "Native Share and Stock Brokers' Association" (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.

2.Cities in Stock Market Operations


Ahmadabad gained importance next to Bombay with respect to cotton textile industry. After 1880, many mills originated from Ahmadabad and rapidly forged ahead. As new mills were floated, the need for a Stock Exchange at Ahmadabad was realized and in 1894 the brokers formed "The Ahmadabad Share and Stock Brokers' Association". What the cotton textile industry was to Bombay and Ahmadabad, 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 a boom in tea shares in the 1880's and 1890's; and a coal boom between 1904 and 1908. On June 1908, some leading brokers formed "The Calcutta Stock Exchange Association". In the beginning of the twentieth century, the industrial revolution was on the way in India with the Swedishi 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 1920, the then demure city of Madras had the maiden thrill of a stock exchange functioning in its midst, under the name and style of "The Madras Stock Exchange" with 100 members. However, when boom faded, the number of members stood reduced from 100 to 3, by 1923, and so it went out of existence. In 1935, the stock market activity improved, especially in South India where there was a rapid increase in the number of textile mills and many plantation companies were floated. In 1937, a stock exchange was once again organized in Madras - Madras Stock Exchange Association (Pvt) Limited. (In 1957 the name was changed to Madras Stock Exchange Limited). Lahore Stock Exchange was formed in 1934 and it had a brief life. It was merged with the Punjab Stock Exchange Limited, which was incorporated in 1936.

3. Indian Stock Exchanges - An Umbrella Growth

The Second World War broke out in 1939. It gave a sharp boom which was followed by a slump. But, in 1943, the situation changed radically, when India was fully mobilized as a supply base. On account of the restrictive controls 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 of the country were floated. The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited (1940) and Hyderabad Stock Exchange Limited (1944) were incorporated. In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited and the Delhi Stocks and Shares Exchange Limited - were floated and later in June 1947, amalgamated into the Delhi Stock Exchange Association Limited.

4. Post-independence Scenario
Most of the exchanges suffered almost a total eclipse during depression. Lahore Exchange was closed during partition of the country and later migrated to Delhi and merged with Delhi Stock Exchange. Bangalore Stock Exchange Limited was registered in 1957 and recognized in 1963. Most of the other exchanges languished till 1957 when they applied to the Central Government for recognition under the Securities Contracts (Regulation) Act, 1956. Only Bombay, Calcutta, Madras, Ahmadabad, Delhi, Hyderabad and Indore, the well established exchanges, were recognized under the Act. Some of 7

the members of the other Associations were required to be admitted by the recognized stock exchanges on a confessionals basis, but acting on the principle of unitary control, all these pseudo stock exchanges were refused recognition by the Government of India and they thereupon ceased to function. Thus, during early sixties there were eight recognized stock exchanges in India (mentioned above). The number virtually remained unchanged, for nearly two decades. During eighties, however, many stock exchanges were established: Cochin Stock Exchange (1980), Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982), and Pune Stock Exchange Limited (1982), Ludhiana Stock Exchange Association Limited (1983), Gauhati Stock Exchange Limited (1984), Kanara Stock Exchange Limited (at Mangalore, 1985), Magadh Stock Exchange Association (at Patna, 1986), Jaipur Stock Exchange Limited (1989), Bhubaneswar Stock Exchange Association Limited (1989), Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989), Vadodara Stock Exchange Limited (at Baroda, 1990) and recently established exchanges - Coimbatore and Meerut. Thus, at present, there are totally twenty one recognized stock exchanges in India excluding the Over the Counter Exchange of India Limited (OTCEI) and the National Stock Exchange of India Limited (NSEIL).

CHAPTER 2. CAPITAL MARKET


Markets exist to facilitate the purchase and sale of goods and services. The Financial market exists to facilitate sale and purchase of financial instruments and comprises of two major markets, namely the capital market and the money market. The distinction between capital market and money market is that capital market mainly deals in medium and long-term investments (maturity more than a year) while the money market deals in short term investments (maturity up to a year).

The capital market (securities markets) is the market for securities, where companies and the government can raise long-term funds. The capital market includes the stock market and the bond market. Financial regulators, such as the U.S. Securities and Exchange Commission, Financial Services Authority in the UK, Financial Supervision Authority in Finland, and Securities and Exchange Board of India, oversee the markets to ensure that investors are protected. The capital markets consist of the primary market, where new issues are distributed to investors, and the secondary market, where existing securities are traded. Capital market can be divided into two segments viz. Primary and Secondary. The primary market is mainly used by issuers for raising fresh capital from the investors by making initial public offers or rights issues or offers for sale of equity or debt. The secondary market provides liquidity to these instruments, through trading and settlement on the stock exchanges. Capital market is, thus, important for raising funds for capital formation and investments and forms a very vital link for economic development of any country. The capital market provides a means for issuers to raise capital from investors (who have surplus money available from saving for investment). Thus, the savings normally flow from household sector to business or Government sector, who normally invests more than they save. A vibrant and efficient capital market, which ensures an orderly development and contains measures for protection of interest of the investors, is the most important parameter for evaluating health of any economy. The major objectives of capital market are: To mobilize resources for investments. To facilitate efficient use of capital. To facilitate buying and selling of securities. To facilitate the process of efficient price discovery. To facilitate settlement of transactions in accordance with the predetermined time schedules.

1. Investment Instruments
Investment is a deployment of funds to one or more types of assets that will be held for over a period of time. Various forms of investment are available to an investor. They cover bank deposits, term deposits, recurring deposits, company deposits, postal savings schemes, deposits with non-bank financial intermediaries, Government and corporate bonds, life insurance and provident funds, equity shares, mutual funds, tangible assets like gold, silver and jewellery, real estate and work of Arts etc. Capital market instruments can be broadly divided into two categories namely Debt, Equity and Hybrid instruments. Derivative Products like Futures, Options, Forward rate agreements and Swaps. A. Debt: Instruments that are issued by the issuers for borrowing monies from the investors with a defined tenor and mutually agreed terms and conditions for payment of interest and repayment of principal. Debt instruments are basically obligations undertaken by the issuer of the instrument as regards certain future cash flows representing interest and principal, which the issuer would pay to the. The shares could generally be either ordinary shares or preference shares. legal owner of the instrument. Debt instruments are of various types. The key terms that distinguish one debt instrument from another are as follows: Issuer of the instrument Face value of the instrument Interest rate and payment terms

10

Repayment terms (and therefore maturity period / tenor) Security or collateral provided by the issuer Different kinds of money market instruments which represent debt are commercial papers (CP), certificates of deposit (CD), and treasury bills (T-Bills), Govt. of India dated securities (GOISECs), etc. B. EQUITY: Instruments that grant the investor a specified share of ownership of assets of a company and right to proportionate part of any dividend declared. The equity is represented by shares issued by a company

2. Major Difference between Equity and Debt


Share represents the smallest unit of ownership of a company. If a company has issued 1, 00,000 shares, and a person owns 10 of them, he owns 0.01% of the company. A debenture or a bond represents the smallest unit of lending. The bond or debenture holder gets an assured interest only for the period of holding and repayment of principal at the expiry thereof, while the shareholder is partowner of the issuer company and has invested in its future, with a corresponding share in its profit or loss. The loss is, however, limited to the face value of the shares owned by him. 1) HYBRIDS: Instruments that include features of both debt and equity, such as bonds with equity warrants e.g. convertible debentures and bonds. 2) DERIVATIVES: Derivative is defined as a contract or instrument, whose value is derived from the underlying asset, as it has no independent value. Underlying asset can be securities, commodities, bullion, currency, etc. The

11

two derivative products traded on the Indian stock exchanges are Futures and Options. 3) FUTURES (INDEX AND STOCK): Futures are the standardized contracts in terms of quantity, delivery time and place for settlement on any date in future. It is a legally binding agreement between a seller and a buyer, which requires the seller to deliver to the buyer, a specified quantity of security at a fixed time in the future, at a specified price. Such contracts are traded on the exchanges. 4) OPTIONS (INDEX AND STOCK): These are deferred delivery contracts that give the buyer the right, but not the obligation to buy or sell a specified security at a specified price on or before a specified future date. At present in India, both Futures and Options are cash settled.

Chapter 3. REGULATORS
1. Why does Securities Market need Regulators?
The absence of conditions of perfect competition in the securities market makes the role of the Regulator extremely important. The regulator ensures that the market participants behave in a desired manner so that securities market

12

continues to be a major source of finance for corporate and government and the interest of investors are protected.

2. Regulators of Stock Market


The responsibility for regulating the securities market is shared by

Department of Economic Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI).

3. SEBI and its role


The Securities and Exchange Board of India (SEBI) is the regulatory authority in India established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for establishment of Securities and Exchange Board of India (SEBI) with statutory powers for (a) protecting the interests of investors in securities (b) promoting the development of the securities market and (c) regulating the securities market. Its regulatory jurisdiction extends over corporates in the issuance of capital and transfer of securities, in addition to all intermediaries and persons associated with securities market. SEBI has been obligated to perform the aforesaid functions by such measures as it thinks fit. In particular, it has powers for: Regulating the business in stock exchanges and any other securities markets Registering and regulating the working of stock brokers, subbrokers etc.

13

Promoting and regulating self-regulatory organizations Prohibiting fraudulent and unfair trade practices Calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, intermediaries, self regulatory organizations, mutual funds and other persons associated with the securities market.

4. ACTS governing Securities Market

Securities Contracts (Regulation) Act, 1956 Securities Contracts (Regulation) Rules, 1957 Securities and Exchange Board of India Act, 1992 SEBI (Stock Brokers & Sub-Brokers) Rules, 1992 SEBI (Stock Brokers & Sub-Brokers) Regulations, 1992 SEBI (Prohibition of Insider Trading) Regulations, 1992 SEBI (Prohibition if Fraudulent and unfair Trade Practices relating to Securities Markets) Regulations, 1995 The Depositories Act, 1996 Indian Contract Act, 1872 The Companies Act, 1956 Public Debt Act, 1944 Income Tax Act, 1961

Chapter 4. Primary Market

14

Primary market provides the channel for sale of new securities. Primary market helps the company the raise funds from public through issue of securities to meet the long term capital requirements of corporate business & industry in the form of equity/debt capital. Primary Market is the medium for floating pubic issues. Public issue means an invitation by a company to the public to subscribe to the securities offered through a prospectus. Primary market is the centre stage of capital market bringing together the two segments of market that is investors and seekers of capital. Primary market helps the company to list new securities in the market through new public issues. They may issue the securities at face value or at a discount/premium .They may issue securities in domestic market and or international market.

1. Benefits of Primary Market


Resources mobilsed are not repayable except in the case of winding up or buy back of shares. Payment of dividend is optional and depends upon companys profit after meeting all other overheads. The shareholders enjoy the benefit of liquidity of their investment, when the shares are listed and traded in the stock-exchange.

2. Disadvantages/Problems Faced by Corporate


Raising capital/funds through the primary market is time consuming, expensive. The Issuer has to engage the services of a number of intermediaries and undergo with number of legal formalities which is again time consuming.

15

Listing SEBI.

burdens the company to regularly disclose information to public and

3. Different kinds of issue


Issues can be classified as public, Rights or Preferential issues. The procedure for Preferential issue is simple than Public issue. 1) Initial Public Offer (IPO) This is when an unlisted company makes either a fresh issue or offers sale of its existing securities or both for the first time to public. In other words it is the first sale of a corporation's common shares to investors on a public stock exchange. This Initial Public Offering can be made through the fixed price method, book building d or a combination of both.

16

In case the issuer chooses to issue securities through the book building route then as per SEBI guidelines, an issuer company can issue securities in the following manner: a) 100% of the net offer to the public through the book building route. b) 75% of the net offer to the public through the book building process and 25% through the fixed price portion 2) Rights Issue This is when listed company offers fresh issue to existing shareholders on a record date. Rights issue are offered in particular ratio to the number of securities held prior by the shareholder before the issue.

4. Reasons for issue of shares through IPOs To raise extra capital by the company for its further expansion or to set up business for long term. Once a company is listed it will be able to issue further shares via a rights issue, thereby again providing itself with capital for expansion without incurring any debt.

5. Price Discovery through Book Building


Book Building is basically a process used in Initial Public Offer (IPO) which helps to determine price and demand discovery. It is a process used for marketing a public offer of equity shares of a company. It is a process where, during the period for which the book for the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. The offer/issue price is then determined after the last date of IPO based on certain evaluation criteria.

17

An issuer company proposing to issue capital through book building has two options i.e. 70% book building and 100% book building. In case of 100 %, not more than 60% of net offer to public can be allotted to QIBs, not less than 15% of the net offer to public can be allotted to non-institutional investors applying for more than 1000 shares, and not less than 25% of the net offer to public can be allotted to retail investors applying for more than 1000 shares. In case of 75% book building, not more than 60% of net offer to QIBs, not less than 15% of net offer to non-institutional investors. The balance 25% to public offered at a price determined through book building.

6. The Process:

The Issuer who is planning an IPO nominates a lead merchant banker as a 'book runner'. The Issuer specifies the number of securities to be issued and the price band for orders. The Issuer also appoints syndicate members with whom orders can be placed by the investors. Investors place their order with a syndicate member who inputs the orders into the 'electronic book'. This process is called 'bidding' and is similar to open auction.

A Book should remain open for a minimum of 5 days. Bids cannot be entered less than the floor price. Bids can be revised by the bidder before the issue closes. On the close of the book building period the 'book runner evaluates the bids on the basis of the evaluation criteria which may include -

18

o o o

Price Aggression Investor quality Earliness of bids, etc.

The book runner and the company conclude the final price at which it is willing to issue the stock and allocation of securities. Generally, the numbers of shares are fixed; the issue size gets frozen based on the price per share discovered through the book building process.

Allocation of securities is made to the successful bidders. Book Building is a good concept and represents a capital market which is in the process of maturing.

7. Premium and Discount in Security Market


When a security is sold above its face value it is issued at Premium and if security is issued below its face value it is said it is issued at Discount .

1) Issue Price
The price at which a companys shares are offered initially in primary market is called Issue Price.

2) cut-off Price
19

In a book building issue, the issuer is required to indicate either the price band or a floor price in the prospectus .The actual discovered price can be any price in price band; this issue price is called Cut-off Price .

3) Who decides the price of an issue


As per the guideline the issuer in consultation with Merchant banker decides the price of the issue. There are no guidelines stipulated by the Sebi, so Sebi does not have any role to play in determining the price of the issue. The book should remain open for a minimum of 3 days. As per SEBI guidelines, the basis of allotment should be completed within 15 days from the issue close date. As soon as the basis of allotment is completed, within 2 working days the details of credit of demat account or dispatch of refund order needs to be completed. So an investor should know in about 15 days from the closure of issue, whether shares are allotted to him or not. It would take around 3 weeks after the closure of the book built issue, shares to get listed.

4) Role of SEBI in an issue


Any company making a public issue or a listed company making a right issue of value more than 50 lakh is required to file a draft offer document with Sebi for its observations. The company can proceed further after getting observations from sebi. The validity period of Sebi observations letter is 3 months.

8.Difference between public issue and private placement

20

When an issue is made to general public and investors at large it is a public issue. But if the issue is made to selected people it is called private placement, as per Companies Act, 1956 an issue becomes public if it is allotted to more than 50 people.

1) Prospectus
Prospectus is a very important document, which helps the investor to know about the company, what is the purpose for raising money, the return expected on money, company equity capital, its current and past performance and other information which helps the investor in deciding whether to invest in company or not. One of the guidelines issued by Sebi is disclosure of information to public.

2) Draft Offer Document


Offer document means prospectus in case of public issue and letter of Offer in case of rights issue which is filed with Registrar of Companies and Stock Exchanges. Draft Offer document are filed with SEBI, at least 21 days prior to the filing offer document with Registrar of Companies. SEBI may specify some changes in the offer document and the issuer or merchant banker should carry the changes specified by the SEBI. Abridged Prospectus is a shorter version of the prospectus and contains all features of a prospectus.

3) Book building through National Stock Exchange (NSE)


NSE offers book building process through online IPOs. NSE operates fully automated screen based bidding system called National Exchange for Automated Trading (NEAT) IPO that allows trading members to enter bid online from anywhere through a sophisticated telecommunication network .

21

4) Merchant Banking
Merchant banking activity in India is governed by SEBI. All merchant bankers have to register with SEBI. The person registering for merchant banking has to be a body corporate other than non banking financial company should have necessary infrastructure and at-least two people in his employment to conduct business of merchant banker.

22

CHAPTER-5 SECONDARY MARKET


1. Introduction
Secondary Market is a place for sale and purchase of existing securities. Majority of trading is done in the secondary market. It enables the investors of securities market to sell their securities for cash to meet his liquidity. The securities are traded in the stock exchanges.

2. Meaning
Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and listed on the Stock Exchange. The secondary market is the financial market for trading of securities.

3. Role of the Secondary Market


a) Investors The primary role of Secondary Market is to help investors in trading of their securities. b) Management It also monitors and controls conduit of the management by facilitating value enhancing decisions. control activities, enabling implantation of incentive based management contracts and provides information that guides management

23

4. Products in the Secondary Markets


There are various products that are dealt with in a secondary market. This can be broadly classified in two:a) Shares b) Bonds

1) Shares

Equity Shares:

An equity share, commonly referred to as ordinary share, represents the form of fractional ownership in a business venture. The holders of such shares are members of the company and have voting rights. A company may issue such shares with differential rights as to voting, payment of dividend, etc.

Bonus Shares:

Shares issued by the companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years.

Rights Issue/ Rights Shares:

The issue of new securities to existing shareholders at a ratio to those already held, at a price.

Preference shares:

Owners of these kinds of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in

24

respect of equity share. They also enjoy priority over the equity shareholders in payment of surplus.

Cumulative Convertible Preference Shares:

A type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company.

Cumulative Preference Shares:

A type of preference shares on which dividend accumulates if remained unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares.

Participating Preference Share:

The right of certain preference shareholders to participate in profits after a specified fixed dividend contracted for is paid. Participation right is linked with the quantum of dividend paid on the equity shares over and above a particular specified level.

2) Bond:
Bond is a negotiable certificate evidencing indebtedness. It is normally unsecured. A debt security is generally issued by a company, municipality or government agency. A bond investor lends money to the issuer and in exchange, the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bond holder periodic interest payments over the life of the loan. The various types of Bonds are as follows:

Zero Coupon Bond:

25

Bond issued at a discount and repaid at a face value. No periodic interest is paid. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only one payment, at the maturity of the bond.

Convertible Bond:

A bond giving the investor the option to convert the bond into equity at a fixed conversion price.

3) Debenture:
Bonds issued by a company bearing a fixed rate of interest usually payable half yearly on specific dates and principal amount repayable on particular date on redemption of the debentures. Debentures are normally secured/ charged against the asset of the company in favour of debenture holder.

4) Security Receipts:
Security receipt means a receipt or other security, issued by a securitisation company or reconstruction company to any qualified institutional buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided right, title or interest in the financial asset involved in securitisation.

5) Government Securities (G-Secs):


These are sovereign (credit risk-free) coupon bearing instruments which are issued by the Reserve Bank of India on behalf of Government of India, in lieu of

26

the Central Government's market borrowing programme. These securities have a fixed coupon that is paid on specific dates on half-yearly basis. These securities are available in wide range of maturity dates, from short dated (less than one year) to long dated (up to twenty years).

6) Commercial Paper:
A short term promise to repay a fixed amount that is placed on the market either directly or through a specialized intermediary. It is usually issued by companies with a high credit standing in the form of a promissory note redeemable at par to the holder on maturity and therefore, doesnt require any guarantee . Commercial paper is a money market instrument issued normally for tenure of 90 days .

7) Treasury Bills:
Short-term (up to 91 days) bearer discount security issued by the Government as a means of financing its cash requirements.

5. Dematerialization of Shares
Dematerialization is the process by which an Investor can get his physical securities converted into electronic form. Pre-requisites for dematerialization are:

Investor should have a demat account with any DP of CDSL.

27

Securities to be dematerialized must have been admitted in CDSL i.e. ISIN for the securities should be available in CDSL. Investor should be the registered holder for the securities in the books of the company. Demat of shares has been introduced in all the shares traded on the

secondary stock markets as well as those issued to the public in the primary markets. Even bonds and debentures are allowed in demat form.

Advantages of Dematerialization:
It involves paperless trading

Time, money and efforts required earlier regarding transfer of shares is minimized through electronic transfer of shares.

However, if the investor prefers to hold the securities in physical form, they are allowed to do so.

6. Rematerialization of Shares
Rematerialization is the process of converting securities, held in a Demat account (i.e. electronic form) to physical form. An investor intending to convert the securities into physical form submits a remat request to the DP in a Rematerialization Request Form (RRF). DP verifies the information on the RRF and enters the details in the system to setup a request electronically. The system generates a unique serial number called as Rematerialization Request Number (RRN), which can be used for future reference. The DP sends

28

the RRF to the concerned Issuer/ RTA. If the remat request is in order, the Issuer/ RTA approves the same and confirms the RRN electronically to CDSL. On receiving such confirmation, CDSL debits the investor account. Physical certificates are sent by the Issuer / RTA directly to the investor.

7. MUTUAL FUNDS
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:

8. Derivatives
Derivatives is a product whose value is derived from the value of one or more basic variable, called bases (underlying asset, index or reference rate), in a

29

contractual manner. The underlying asset can be equity, forex, commodity or any other asset. The International Monetary Fund defines derivatives as financial instruments that are linked to a specific financial instrument or indicator or commodity and through which specific financial risk can be traded in financial markets in their own right. The value of a financial derivative derives from the price of an underlying item, such as an asset or index. Unlike debt securities, no principal is advanced to be repaid and no investment income accrues. For example, wheat farmers may wish to sell their harvest at a future date to eliminate the risk of a change in prices by that date. Such a transaction is an example of a derivative. The price of this derivative is driven by the spot price of wheat which is the underlying.

9. Stock Exchange and Stock Trading


1). Stock Exchange
Stock Exchange provide a trading platform, where buyers and sellers can meet to transact in securities. All the securities which need to be traded should be listed on the Stock Exchange therefore stock exchange is an integral part of the secondary market. In India there are 23 recognized Stock Exchanges. Out of which only two are very important: National Stock Exchange (NSE) Bombay Stock Exchange (BSE)

The India stock exchanges are under overall supervision of regulatory authority, the Securities and Exchange Board of India (SEBI).

30

Technology
1

31

2). Stock Trading Systems


i. Screen Based Trading

Initially trading of securities on stock exchange in India took place through open outcry. This lead to delay in matching or recording of trades and also was time consuming and inefficient. In order to over come this problem NSE introduced a nationwide, online, fully automated screen based trading system (SBTS). In this system a member punches into computer the quantities of a security and the price at which he would like to transact, and the transaction gets over as soon as a matching sale or buy order from other member/party is found.

ii.

National Exchange for Automated Trading (NEAT)

NEAT is a client server based application and is a satellite communication technology for trading. At the server end all trading information is stored in an inmemory database to achieve minimum response time and maximum system availability for users. Its uptime record is 99.7%. NSE is the first stock exchange in the world to use satellite communication technology for trading i.e. NEAT. The NEAT system supports an order driven market, wherein orders match on the basis of time and price priority. All quantity fields are in units and prices are quoted in Indian Rupees.

iii.

BOMBAY ON-LINE TRADING SYSTEM (BOLT)

The Bombay On-line Trading System (BOLT) is CMC's on-line Trading System for trading in Stocks. The System is operational at Bombay Stock Exchange - the premier Stock Exchange in the South East Asian region since March 1995. It is one of the few Stock Trading systems around the globe, which handles hybrid/mixed mode of trading i.e. Order driven as well as quote driven. BSE had replaced its open outcry system with Bombay On-line Trading (BOLT) facility in

32

1995. This totally automated screen based trading in securities was put into practice nation-wide within a record time of just 50 days. The BOLT platform capacity has been enhanced to 40 lakh orders per day by upgrading the hardware. BOLT has been certified by DNV for conforming to BS7799 security standards. The initiative enables investors anywhere in the world to trade on the BSE platform. BSE has also been successful in maintaining systems and processes uptime of 99.99%.

iv.

LISTING OF SECURITIES
Listing means admission of the securities to dealings on a recognized stock exchange. The securities may be of any public limited company, Central or State Government, quasi governmental and other financial institutions/corporations, municipalities, etc. A company intending to have its securities listed on the Exchange has to comply with the listing requirements prescribed by the Exchange. Some of the requirements are as under :-

[I] Minimum Listing Requirements for new companies


The following revised eligibility criteria for listing of companies on the Exchange, through Initial Public Offerings (IPOs) & Follow-on Public Offerings (FPOs), effective August 1, 2006.

ELIGIBILITY CRITERIA FOR IPOs/FPOs A. Companies have been classified as large cap companies and small cap companies. A large cap company is a company with a minimum issue size of Rs. 10 crores and market capitalization of not less than Rs. 25 crores. A small cap company is a company other than a large cap company. a) In respect of Large Cap Companies 33

1) The minimum post-issue paid-up capital of the applicant company (hereinafter referred to as "the Company") shall be Rs. 3 crores; and 2) The minimum issue size shall be Rs. 10 crores; and 3) The minimum market capitalization of the Company shall be Rs. 25 crores (market capitalization shall be calculated by multiplying the post-issue paid-up number of equity shares with the issue price). b) In respect of Small Cap Companies 1) The minimum post-issue paid-up capital of the Company shall be Rs. 3 crores; and 2) The minimum issue size shall be Rs. 3 crores; and 3) The minimum market capitalization of the Company shall be Rs. 5 crores (market capitalization shall be calculated by multiplying the post-issue paid-up number of equity shares with the issue price); and 4) The minimum income/turnover of the Company should be Rs.3 Crores in each of the preceding three 12-months period; and 5) The minimum number of public shareholders after the issue shall be 1000. 6) A due diligence study may be conducted by an independent team of Chartered Accountants or Merchant Bankers appointed by the Exchange, the cost of which will be borne by the company. The requirement of a due diligence study may be waived if a financial institution or a scheduled commercial bank has appraised the project in the preceding 12 months.

34

B. For all companies: 1) In respect of the requirement of paid-up capital and market capitalization, the issuers shall be required to include in the disclaimer clause forming a part of the offer document that in the event of the market capitalization (product of issue price and the post issue number of shares) requirement of the Exchange not being met, the securities of the issuer would not be listed on the Exchange. 2) The applicant, promoters and/or group companies, should not be in default in compliance of the listing agreement. 3) The above eligibility criteria would be in addition to the conditions prescribed under SEBI (Disclosure and Investor Protection) Guidelines, 2000.

[II] Minimum Listing Requirements for companies listed on other stock exchanges
The Governing Board of the Exchange at its meeting held on 6th August, 2002 amended the direct listing norms for companies listed on other Stock Exchange(s) and seeking listing at BSE. These norms are applicable with immediate effect. 1. The company should have minimum issued and paid up equity capital of Rs. 3 crores. 2. The Company should have profit making track record for last three years. The revenues/profits arising out of extra ordinary items or income from any source of non-recurring nature should be excluded while calculating distributable profits. 3. Minimum net worth of Rs. 20 crores (net-worth includes Equity capital and free reserves excluding revaluation reserves).

35

4. Minimum market capitalisation of the listed capital should be at least two times of the paid up capital. 5. The company should have a dividend paying track record for the last 3 consecutive years and the minimum dividend should be at least 10%. 6. Minimum 25% of the company's issued capital should be with Non-Promoters shareholders as per Clause 35 of the Listing Agreement. Out of above Non Promoter holding no single shareholder should hold more than 0.5% of the paidup capital of the company individually or jointly with others except in case of Banks/Financial Institutions/Foreign Institutional Investors/Overseas Corporate Bodies and Non-Resident Indians. 7. The company should have at least two years listing record with any of the Regional Stock Exchange. 8. The company should sign an agreement with CDSL & NSDL for demat trading.

[III] Minimum Requirements for companies delisted by this Exchange seeking relisting of this Exchange
The companies delisted by this Exchange and seeking relisting are required to make a fresh public offer and comply with the prevailing SEBI's and BSE's guidelines regarding initial public offerings.

36

[IV] Permission to use the name of the Exchange in an Issuer Company's prospectus
The Exchange follows a procedure in terms of which companies desiring to list their securities offered through public issues are required to obtain its prior permission to use the name of the Exchange in their prospectus or offer for sale documents before filing the same with the concerned office of the Registrar of Companies. The Exchange has since last three years formed a "Listing Committee" to analyse draft prospectus/offer documents of the companies in respect of their forthcoming public issues of securities and decide upon the matter of granting them permission to use the name of "Bombay Stock Exchange Limited" in their prospectus/offer documents. The committee evaluates the promoters, company, project and several other factors before taking decision in this regard.

[V] Submission of Letter of Application


As per Section 73 of the Companies Act, 1956, a company seeking listing of its securities on the Exchange is required to submit a Letter of Application to all the Stock Exchanges where it proposes to have its securities listed before filing the prospectus with the Registrar of Companies.

[VI] Allotment of Securities


As per Listing Agreement, a company is required to complete allotment of securities offered to the public within 30 days of the date of closure of the subscription list and approach the Regional Stock Exchange, i.e. Stock Exchange nearest to its Registered Office for approval of the basis of allotment.

37

In case of Book Building issue, Allotment shall be made not later than 15 days from the closure of the issue failing which interest at the rate of 15% shall be paid to the investors.

[VII] Trading Permission


As per Securities and Exchange Board of India Guidelines, the issuer company should complete the formalities for trading at all the Stock Exchanges where the securities are to be listed within 7 working days of finalization of Basis of Allotment. A company should scrupulously adhere to the time limit for allotment of all securities and dispatch of Allotment Letters/Share Certificates and Refund Orders and for obtaining the listing permissions of all the Exchanges whose names are stated in its prospectus or offer documents. In the event of listing permission to a company being denied by any Stock Exchange where it had applied for listing of its securities, it cannot proceed with the allotment of shares. However, the company may file an appeal before the Securities and Exchange Board of India under Section 22 of the Securities Contracts (Regulation) Act, 1956.

[VIII] Requirement of 1% Security


The companies making public/rights issues are required to deposit 1% of issue amount with the Regional Stock Exchange before the issue opens. This amount is liable to be forfeited in the event of the company not resolving the complaints of investors regarding delay in sending refund orders/share certificates, nonpayment of commission to underwriters, brokers, etc.

38

IX] Payment of Listing Fees


All companies listed on the Exchange have to pay Annual Listing Fees by the 30th April of every financial year to the Exchange as per the Schedule of Listing Fees prescribed from time to time. The schedule of listing fees for the year 20062007, prescribed by the Governing Board of the Exchange is given hereunder:

SCHEDULE OF LISTING FEES FOR THE YEAR 2006-2007 Sr. No. 1 2 Particulars Initial Listing Fees Annual Listing Fees (i) Companies with paid-up capital* up to Rs. 5 Crores 10,000 (ii) Above Rs. 5 Crores and up to Rs. 10 Crores 15,000 (iii) Above Rs. 10 crores and up to Rs. 20 crores 3 Companies which have a paid-up capital* of more than Rs. 20 crores will pay additional fee of Rs. 750/- for every increase of Rs. 1 crores or part thereof. 4 In case of debenture capital (not convertible into equity shares) of companies, the fees will be charged @ 25% of the fees payable as per the above mentioned scales. *includes equity shares, preference shares, fully convertible debentures, partly convertible debenture capital and any other security which will be converted into equity shares. 30,000 Amount (Rs.) 20,000

10. DELISTING OF SECURITITES

39

The term "delisting" of securities means permanent removal of securities of a listed company from a stock exchange. As a consequence of delisting, the securities of that company would no longer be traded at that stock exchange . There are 2 types of Delisting: a) Compulsory Delisting: Compulsory delisting refers to permanent removal of securities of a listed company from a stock exchange as a penalizing measure at the behest of the stock exchange for not making submissions/comply with various requirements set out in the Listing agreement within the time frames prescribed. b) Volunteer Delisting: In voluntary delisting, a listed company decides on its own to permanently remove its securities from a stock exchange. The SEBI Guidelines, 2003 for Delisting of Securities provides the full information of delisting procedure which can be seen on the website of SEBI.

11. EQUITY INVESTMENT


Investing in Equity market is at present at its peak. Investing in Equity provides the investors portfolio with the highest growth as equity has potential to increase in value over time. Equity is also known as shares. In some cases it has been seen that equities have outperformed most of the other forms of investment in long term. Over a 15 year period between 1990 to 2005, Nifty has given annualized return of 17%. Therefore equities are considered the most challenging and the rewarding when compared to other investment options.

40

Average Return on Equities in Indian


Equity in India has returned about 7% on average in terms of increase in share price and 1.5% dividends are paid on an average annually .

Mode of investing in the Equities


There are 2 ways by which an investor can invest in the equities. 1) By subscribing the IPOs of the companies in the Primary Market. 2) Trading of shares in the Secondary Market by opening an a/c in a recognized Broking Firm.

Bid and Ask price


The Bid is the buyers price. Bid is the rate/price at which there is a ready buyer for the stock, which you intend to sell. The Ask is the rate/ price at which there is seller ready to sell his stock. The seller will sell his stock if he gets the quoted Ask price.

12. DEBT INVESTMENT

41

Debt Investment means investing in debt instruments. These instruments are contract of one party lending money to another on pre-determined terms with regards to rate and periodicity of interest, repayment of principal amount by the borrower to the lender. In Indian securities markets, the term bond is used for debt instruments issued by the Central and State governments and public sector organizations and the term debenture is used for instruments issued by private corporate sector. Most Bond/Debenture issues are rated by specialized credit rating agencies. Credit rating agencies in India are CRISIL, CARE, ICRA and Fitch. The yield on a bond varies inversely with its credit (safety) rating. The safer the instrument, the lower is the rate of interest offered. The investors in the debt markets are mainly banks, financial institutions, mutual funds, provident funds, insurance companies and corporate.

Debt Instruments
Normally the name of the bond such the feature of the instrument Debt instrument has three features:

Maturity:

Maturity of a bond/debentures refers to the date, on which the bond/debenture matures, which is the date on which the borrower has agreed to repay the principal.

Coupon:

Coupon refers to the periodic interest payments that are made by the issuer of the bond/debentures to the subscriber of the bond/debentures .Coupon rate is the rate at which interest is paid, and is usually represented as a percentage of the par value of a bond.

42

Principal:

Principal is the amount that has been borrowed, and is also called the par value or face value of the bond.

Debt Market in India


In Indian debt market there are 3 main segments. (1) Government Securities (2) Public Sector Units (PSU) bonds, and (3) Corporate securities.

Mode of investing in Debt Market


There are two ways of investing in Debt Market. 1. The investors may subscribe to issues made by the government/corporates in the primary market. 2. He may purchase the same from the secondary market through the stock exchanges.

Chapter 6. Sensex and Nifty


43

The Sensex is an "index". What is an index? An index is basically an indicator. It gives you a general idea about whether most of the stocks have gone up or most of the stocks have gone down. The Sensex is an indicator of all the major companies of the BSE. The Nifty is an indicator of all the major companies of the NSE. If the Sensex goes up, it means that the prices of the stocks of most of the major companies on the BSE have gone up. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE have gone down. Just like the Sensex represents the top stocks of the BSE, the Nifty represents the top stocks of the NSE. The BSE is the Bombay Stock Exchange and the NSE is the National Stock Exchange. The BSE is situated at Bombay and the NSE is situated at Delhi. These are the major stock exchanges in the country. There are other stock exchanges like the Calcutta Stock Exchange etc. but they are not as popular as the BSE and the NSE. Most of the stock trading in the country is done though the BSE & the NSE. Besides Sensex and the Nifty there are many other indexes. There is an index that gives you an idea about whether the mid-cap stocks go up and down. This is called the BSE Mid-cap Index. There are many other types of indexes. There is an index for the metal stocks. There is an index for the FMCG stocks. Similarly there is an index for the automobile stocks etc.

How the Sensex is calculated?

44

The Sensex is calculated taking into consideration stock prices of 30 different BSE listed companies. It is calculated using the free-float market capitalization method. This is a world wide accepted method as one of the best methods for calculating a stock market index. The method used for calculating the Sensex and the 30 companies that are taken into consideration are changed from time to time. This is done to make the Sensex an accurate index and so that it represents the BSE stocks properly.

In order to understand how the Sensex is calculated, first we should know what the term free-float market capitalization means. But, before we understand what free-float market capitalization means, we need to understand what market capitalization means.

What is Market Capitalization?


Market cap or market capitalization is simply the worth of a company in terms of its shares, if you are suppose to buy all shares of the company ,the amount you have to pay is market capitalization. To calculate the market cap of a particular company, multiply the current share price by the number of shares issued by the Company. Depending on the value of the market cap, the company will either be a mid-cap or large-cap or small-cap company.

What is free-float market capitalization?


45

Many different types of investors hold the shares of a company The Govt. may hold some of the shares. Some of the shares may be held by the founders or directors of the company. Some of the shares may be held by the FDIs etc. Only the open market shares that are free for trading by anyone are called the free-float shares. A particular company may have certain shares in the open market and certain shares that are not available for trading in the open market. According the BSE, any shares that DO NOT fall under the following criteria, can be considered to be open market shares: Holdings by founders/directors/ acquirers which has control element Holdings by persons/ bodies with "controlling interest" Government holding as promoter/acquirer Holdings through the FDI Route Strategic stakes by private corporate bodies/ individuals Equity held by associate/group companies (cross-holdings) Equity held by employee welfare trusts . A company has to submit a complete report about who has how many of the companys shares to the BSE. On the basis of this, the BSE will decide the free-float factor of the company. If you multiply the free-float factor with the market cap of that company, you will get the Free-float market cap that is the value of the shares of the company in the open market

46

Why 30 companies and how are they selected?


The 30 companies that make up the Sensex are selected and reviewed from time to time by an index committee. This index committee is made up of academicians, mutual fund managers, finance journalists, independent governing board members and other participants in the financial markets .

The main criterion for selecting the 30 stocks is as follows: Market capitalization: The Company should have a market capitalization in the Top 100 market capitalizations of the BSE. Also the market capitalization of each company should be more than 0.5% of the total market capitalization of the Index. Trading frequency: The Company to be included should have been traded on each and every trading day for the last one year. Number of trades: The scrip should be among the top 150 companies listed by average number of trades per day for the last one year. Industry representation: The companies should be leaders in their industry group. Listed history: The companies should have a listing history of at least one year on BSE. Track record: In the opinion of the index committee, the company should have an acceptable track record.

47

SMALL-CAP STOCKS
The stocks of small 2companies that have the potential to grow rapidly are classified as small-cap stocks. These stocks are the best option for an investor who wishes to generate significant gains in the long run; as long he does not require current dividends and can withstand price volatility. Generally companies that have a market Capitalization in the range of up to 250 Crores are small cap stocks As many of these companies are relatively new, it is difficult to predict how they will perform in the market. Being small enterprises, growth spurts dramatically affect their values and revenues, sending prices soaring. On the other hand, the stocks of these companies tend to be volatile and may decline dramatically. Most Initial Public Offerings are for small-cap companies, although these days large companies do tend to source the capital markets for expansion plans. Aggressive mutual funds are also enthusiastic about adding small-cap stocks in their portfolios. Because they have the advantage of being highly growth oriented, small-cap stocks can forego paying dividends to investors, which enables the profits earned to be reinvested for future growth.

MID-CAP STOCKS
Mid-cap stocks are typically stocks of medium-sized companies. These are stocks of well-known companies, recognized as seasoned layers in the market.
2

48

They offer you the twin advantages of acquiring stocks with good growth potential as well as the stability of a larger company. Generally companies that have a market Capitalization in the range of 250-400 Crores are mid cap stocks Mid-cap stocks also include baby blue chips; companies that show steady growth backed by a good track record. They are like blue-chip stocks (which are largecap stocks) but lack their size. These stocks tend to grow well over the long term.

LARGE-CAP STOCKS
Stocks of the largest companies (many being blue chip firms) in the market such as Tata, Reliance, ICICI are classified as large-cap stocks. Being established enterprises, they have at their disposal large reserves of cash to exploit new business opportunities. The sheer volume of large-cap stocks does not let them grow as rapidly as smaller capitalized companies and the smaller stocks tend to outperform them over time. Investors, however gain the advantages of reaping relatively higher dividends compared to small- and mid-cap stocks while also ensuring the longterm preservation of their capital

BSE INDICES

SENSEX MIDCAP SMALLCAP BSE-100 BSE-200 49

BSE-500

BSE Sectoral Indices

BSE Auto Index BSE BANKEX BSE Capital Goods Index BSE Consumer Durables Index BSE FMCG Index BSE Healthcare Index BSE IT Index BSE Metal Index BSE Oil & Gas Index BSE Mid Cap Index BSE Small Cap Index

NSE INCIDES

NIFTY S&P CNX NIFTY CNX NIFTY JUNIOR CNX IT BANK NIFTY CNX 100

50

Chapter 7. STOCK BROKER


A broker is a person who buys and sells securities on behalf of its client. In order to carry out these transactions the broker has to be a registered member of Securities and Exchange Board of India (SEBI). The broker gets commission/brokerage for every transaction he does, the maximum brokerage that can be charged by broker from his clients cannot be more than 2.5% of the value mentioned in the purchase or sale note. In order to confirm whether the broker is registered with SEBI or not, one can check his registration certificate issued by SEBI. A brokers registration number begins with Letters INB and that of sub broker with Letters INS.

1. ELIGIBILITY
Tradership / Dealership of the Exchange is available to following persons:

Individuals Partnerships Firms registered under the Indian Partnership Act, 1932 Corporations, Corporations, services. 51 Companies or Institutions or subsidiaries of such

Companies or Institutions set up for providing financial

Such other persons or entities as may be permitted form time to time by RBI/SEBI under the Securities Contracts (Regulations) Rules, 1957.

2. Eligibility Criteria: 1) Individuals


Age: Minimum age 21 years and Maximum age 60 years Status: Indian Citizen Educational Qualification: Graduate or equivalent qualification Experience: Should have a minimum of 2 years experience in an activity related to dealing in securities or as portfolio manager or as investment consultant or as a merchant banker or in financial services or treasury broker, sub-broker, authorized agent or authorized clerk or authorized representative or remisier or apprentice to a member of a recognized stock exchange, jobber, market maker, or in any other manner in dealing in securities or clearing and settlement thereof. Net-worth: Rs.4 lakh in case the applicant is a member of any other Stock Exchange(s), it should satisfy the combined minimum net-worth requirements of all these Stock Exchange(s) including ISE.

2) Firms
Age: Minimum age 21 years and Maximum age 60 years (applicable to all partners)

52

Status: Partnership Firm registered under Indian Partnership Act, 1932 Educational Qualification: Two designated partners should be at least graduate or equivalent qualification Experience: Minimum two designated partners of the Registered Partnership firm should have a minimum of 2 years experience in an activity related to dealing in securities or as portfolio manager or as investment consultant or as merchant banker or in financial services or treasury broker, sub-broker, authorized agent or authorized clerk or authorized representative or remisier or apprentice to a member of a recognized stock exchange, jobber, market maker, or in any other manner in dealing in securities or clearing and settlement thereof. Net-worth: Rs.8 lakh in case the applicant partnership firm is a member of any other Stock Exchange(s), it should satisfy the combined minimum net-worth requirements of all these Stock Exchange(s) including ISE. Shareholding: The registered firms shall identify a dominant partner who shall be an individual holding at-least 51% of the Capital of the firm. For arriving at the capital holding of a dominant partner, the capital of his/her spouse only will be considered, provided the spouse gives a written irrevocable and unconditional support in the prescribed format in respect of such capital holding. Others: Number of Partners - Minimum two and maximum as permitted under the applicable laws Provided further that partnership of two Traders / Dealers or a Trader and a Dealer of the Exchange is not permissible.

3) Corporate
Age: Minimum age 21 years and Maximum age 60 years (applicable to directors) Status: Corporate registered under Indian Companies Act, 1956. 53

Educational Qualification: Two designated directors should be at least graduate or equivalent qualification Experience: Minimum two designated directors of the corporate should have a minimum of 2 years experience in an activity related to dealing in securities or as portfolio manager or as investment consultant or as a merchant banker or in financial services or treasury broker, sub-broker, authorized agent or authorized clerk or authorized representative or remisier or apprentice to a member of a recognized stock exchange, jobber, market maker, or in any other manner in dealing in securities or clearing and settlement thereof. Net worth: Rs.10 lakh in case the applicant corporate is a member of any other Stock Exchange(s), it should satisfy the combined minimum net worth requirements of all these Stock Exchange(s) including ISE. Shareholding: The applicant shall identify a dominant promoter who shall be an individual holding at least 51% of the paid up equity capital of the applicant company directly and not through any firm or HUF. For arriving at the capital holding of the dominant promoter, the shareholding of his/her spouse only will be considered, provided the spouse gives a written irrevocable and unconditional support in the prescribed format in respect of such shareholdings

54

Problem Formulation:Indian capital market is one of the oldest market in Asia. During last 15 years or so, Indian capital market has witnessed growth in volume of fund rised as well as of transactions. Despite these investors are warred to invest in Indian capital market due to presence of huge instability in stock prices. Speculative activities are increasing here. Regulatory bodies have not full control over the market activities. Indian capital market is lagging behind other Asian market, like Tokyo capital market and Singapore capital market. This is perhaps the reason why I am interested to go in for further research to see why the Indian stock market is lagging behind other Asian Market & what stapes should be taken to improve upon the same.

55

OBJECVTIVE OF THE STUDEY

56

OBJECTIVES OF THE STUDY


To study the sales strategy of field force of SBI To study the process of selling of Insurance policies by Advisors.

57

RESERCH
METHODOLOGY

58

RESEARCH METHODOLOGY
Research methodology is a way to systemaztically solve the research problem. Research methodology constitutes of research methods, selection criterion of research methods, used in context of research study and explanation of using of a particular method or technique so that research results are capable of being evaluated either by researcher himself or by others. Why a research study has been undertaken. How the research problem has been formulated, why data have been collected and what particular technique of analyzing data has been used and a best of similar other question are usually answered when we talk of research methodology concerning a research problem of study. The main aim of research is to find out the truth which is hidden and which has not been discovered as yet.

59

AREA OF STUDY
The area of the study related with getting correct information of life insurance policies of different peoples in the region of Jhalawar.

SAMPLE DESIGN
A sample design is a definite plan for obtaining a sample from a given population. It refers to the techniques or the procedure the researcher would adopt in selecting items for the sample. Sample design may as well be drawn from the population to be included in the sample i.e. the size of the sample. Sample design is determined before data are collected.

During my study I have taken 50 Insurance care consultants as the size of Sample.

60

TOOLS USED
To know the response. I have used the questionnaire method. If one wish to find what insurance care consultants think or know, the logical procedure is to ask them. This has led marketing researchers to use the questionnaire technique for collecting data more than any other method. In this method questionnaire were distributed to the respondents and they were asked to answer the questions in the questionnaire. The questionnaire were structured non disguised questionnaire because the question which the questionnaire contained, were arranged in a specific order besides every question asked were logical for the study, no question can be termed as irrelevant. The questionnaire was non-disguised because the questionnaire was

constructed so that the objective is clear to the respondent. The respondents were aware of the objective. They knew why the were asked to fill the questionnaire. With the help of following techniques, which are using by SBI I analyse that the how techniques of sales promotion are useful.

61

DATA COLLECTION PRIMARY DATA SOURCES


Through interaction with insurance care consultant Through questionnaires filled form the insurance care consultant.

SECONDARY DATA SOURCES :


Through internet, various official sites of the companies. Through Pamphlets and brochures of the companies. Journals & Magazine

62

LIMITATIONS OF THE STUDY


Following limitations were faced during the study: 1. While designing the questionnaire it was kept in mind to gather more and more information from each target person. For the neither present nor descriptive questions could have served the purpose. Therefore the questionnaire contained in the open-ended questions. 2. The study was conducted in SBI In Jhalawar City, Which has 127 to 170 insurance care consultants only. The sample size was of 50 insurance care consultants only so that accuracy of date so collected could be absurd covered by circulation of questionnaire.

3. The accuracy of indications given by the respondents may not be consider adequate as whether the language used in the questionnaire is understood by the respondent cannot be taken for granted. 4. The study is based on the information gathered from the insurance care consultants. Therefore in such case it is possible that the information supplied might be biased because the insurance care consultant might have shown partiality towards their insurance policies.

5. Since the survey was limited to 50 insurance care consultants it is rather difficult to give a precise conclusion But I have tried to the best of my capability to give the conclusion on a comprehensive manner.

63

DATA ANALYSIS & INTERPRETATION

64

DATE ANALYSIS AND INTERPRETATION


(Based on survey conducted for 50 insurance care consultants) Q.1 Which technique of sales promotion you prefer ? Response in % 40% 14% 16% 20% 10%

Options Display Door to Door Demo Exhibition Catalogue Price off

40%

35%

30%

25%

20%

Series1

15%

10%

5%

0% Display Door to Door Demo Exhibition Catalogue Price Off

Interpretation : According to the study 40% insurance care consultants prefer display technique 20% insurance care consultants prefer catalogues, 16% to the exhibition, 14% to the door to door demo and 10% insurance care consultants prefer price off technique. Q.2 Which technique is giving good response from customers ?

65

Options Display Door to Door Demo Exhibition Catalogue Price off

Response in % 18% 36% 18% 16% 12%

40%

35%

30%

25%

20%

Series1

15%

10%

5%

0% Display Door to Door Demo Exhibition Catalogue Price Off

Interpretation : According to the study 36% insurance care consultants say door to door demo techniques giving good response, 18% insurance care consultants say to the display & exhibition, 16% to the catalogues & 12% say to the price off technique. Q.3 Which technique is economically bebficial ? Response in % 10% 66

Options Display

Door to Door Demo Exhibition Catalogue Price off

22% 10% 46% 12%

50%

45%

40%

35%

30% Series1

25%

20%

15%

10%

5%

0% Display Door to Door Demo Exhibition Catalogue Price Off

Interpretation : According to the 46% insurance care consultants, Catalogue technique is economically beneficial. 22% to the door to door demo and 12% insurance care consultants prefer price off technique. 10% to the exhibition & display technique. Q.4 Which technique requires less time in sales promotion ? Response in % 22% 38% 10%

Options Display Door to Door Demo Exhibition

67

Catalogue Price off

16% 14%

40%

35%

30%

25%

20%

Series1

15%

10%

5%

0% Display Door to Door Demo Exhibition Catalogue Price Off

Interpretation : According to the study 38% insurance care consultants say display technique requires less time in sales promotion. 22% to the display technique, 16% insurance care consultants vate to the catalogues, 14% insurance care consultants vate to the 10% to the exhibition. Q.5 Which technique is easily manageable? Response in % 18% 30% 10% 34% 8% 68

Options Display Door to Door Demo Exhibition Catalogue Price off

35%

30%

25%

20% Series1 15%

10%

5%

0% Display Door to Door Demo Exhibition Catalogue Price Off

Interpretation : According to the study 34% insurance care consultants say that the catalogues is easily manageable, 30% to the door to door demo, 18% insurance care consultants prefer display technique 10% to the exhibition, and 8% insurance care consultants say to the price off technique. Q.6 Which technique requires less knowledge to execute ? Response in % 14% 12% 12% 22% 40%

Options Display Door to Door Demo Exhibition Catalogue Price off

69

40%

35%

30%

25%

20%

Series1

15%

10%

5%

0% Display Door to Door Demo Exhibition Catalogue Price Off

Interpretaion : According to the study 40% insurance care consultants vote to the price off technique is require less knowledge to execute 22% insurance care consultants prefer catalogues, 14% to the display and 12% to the exhibition & door to door.

Q.7

Which technique requires more knowledge to execute ? Response in % 20% 42% 24% 10% 4%

Options Display Door to Door Demo Exhibition Catalogue Price off

70

45%

40%

35%

30%

25% Series1 20%

15%

10%

5%

0% Display Door to Door Demo Exhibition Catalogue Price Off

Interpretation : According to the study 42% insurance care consultants vote to the door-to-door technique that it requires more knowledge to execute than others. 24% to the exhibition that it requires more knowledge to execute than others. 24% to the exhibition, 20% to the display technique, 10% insurance care consultants give vote to the catalogues and 4% insurance care consultants prefer price off technique. Q.8 Price off are necessary for sales promotion ? Response in % 46% 40% 14%

Options Yes No Cant say

71

50%

45%

40%

35%

30% Series1

25%

20%

15%

10%

5%

0% Yes No Can't say

Interpretation : According to the study 46% insurance care consultants say yes that the price off are necessary for sales promotion. 40% say no and 14% say cant say.

Q.9 Do you think that sales promotion program that is presently undertaken by SBI are satisfactory ?

Options Yes No Cant say

Response in % 34% 46% 20%

72

50%

45%

40%

35%

30% Series1

25%

20%

15%

10%

5%

0% Yes No Can't say

Interpretation : According to the study 46% insurance care consultants say no that the sales promotion program that is presently undertaken by SBI are satisfactorily 36% say Yes and 20% say cant say.

Q.10 Should Bajaj Allianz take up new sales promotion program ? Options Yes No Cant say Response in % 72% 22% 6%

73

80%

70%

60%

50%

40%

Series1

30%

20%

10%

0% Yes No Can't say

Interpretation : According to the study 72% insurance care consultants say yes installment offers are 22% say no and 6% say cant say.

74

OBSERVATIONS & FINDINGS

OBSERVATIONS & FINDINGS


This sales promotion process was very much satisfying for me not only practically and academically but it also helped me in developing my communication skill and enriched my knowledge also. I have come to know about the importance of marketing especially with regard to sales promotion on the most renowned organization like SBI especially because of emergence of many competitors with excellence in 75

services & competitive product. The base of this chapter conclusion is on the data analysis or what we say findings. I have finding from the insurance care consultants of the SBI and their insurance policies on my topic. When the insurance care consultant is asked why they are dealing in this particular insurance policies (Product) they mostly stressed on companys image. They also said that all income and age group of customers are attracted towards their product but buyers are mainly from higher and middle-income group. Insurance care consultants said that their sale is very much increased in the last year because of an excellent performance of the product. Insurance care consultants said that the customer are very much satisfied after getting insurance policies because of its features related with risks of life and also because of quality of service provide by their company is very good.

QUESTIONNAIRE
Name Address : ... : .. Q.1 To which technique of sales promotion your prefer ? (a) Display (b) Door to door demonstration

76

(c) (e) Q.2

Exhibition Price-off

(d)

Catalogue

Which technique is giving good response from customers ? (a) (c) (e) Display Exhibition Price-off (b) (d) Door to door demonstration Catalogue

Q.3

Which Technique is economically beneficial ? (a) (c) (e) Display Exhibition Price-off (b) (d) Door to door demonstration Catalogue

Q.4

Which Techique requires less time in sales promotion ? (a) (c) (e) Display Exhibition Price-off (b) (d) Door to door demonstration Catalogue

Q.5

Which Technique is easily manageable ? (a) (c) (e) Display Exhibition Price-off Display Exhibition Price-off (b) (d) Door to door demonstration Catalogue (b) (d) Door to door demonstration Catalogue

Q. 6

Which technique requires less knowledge to execute ? (a) (c) (e)

Q.7.

Which technique requires more Knowledge to execute ? (a) Display (b) Door to door demonstration

77

(c) (e) Q. 8

Exhibition Price-off

(d)

Catalogue

Price off and installment offers are necessary for sales promotion ? (a) (c) Yes Cant say (b) No

Q.9

Do you think that sales promotion program that is presently undertaken by SBI are satisfactory ? (a) (c) Yes Cant say (b) No

Q. 10 Should SBI take up new sales promotion program ? (a) (c) Yes Cant say (b) No

78

SUGGESTIONS

SUGGESTIONS
Here are some suggestions, which may help to strengthen the firm further Many of the insurance care consultants of the SBI has the lack of good communication skills and training. So Training should be easy. SBI Should use new techniques of sales promotion.

79

Customer services should be more comfortable then others. People must be made aware of the benefits of the policies of SBI. The company should give personal attention to each customer. Proper assistance should be provided to the customer at the time of claim settlement. All the details about the company should be given to the customers. Regular advertisement of the company should be given TV and Newspaper. The Company must try to find new markets especially in the rural areas. The Company should do frequent analysis of the competitors.

Objective of the study: To have an insight about the Indian Capital Market in the light of comparison with other Asian Markets & the various investment instruments provided by the Capital Market. To understand the reasons behind huge fluctuations in stock price indexes in India. 80

To analyze the psychology of market players in Indian capital market. To know the role of broker in stock exchange in India. To study the role of regulatory bodies. To understand the clearing and settlement process at stock exchange in Indian. To analyze risk management system in Indian capital marker. To analyze how stock price indexes are calculated.

Hypothesis generation:-

In this research study it is assumed: Investors are rational. They want to earn more and more profit through investment in capital market.

81

Most of investor are not able to beet the market, only the corporate investors, who have access to inside information may be Regulative bodies are not so stringent in Indian capital market comparison with other countries like, Tokyo and Singapore. Investors invest in shares not because of their economic valve but because they expected to go up in the prices.

Research Methodology:Type of Research:There are basically three types of found: Exploratory research: - It is conducted to clarify ambiguous problems. It is needed to gain better understanding of the dimensions of the problems. Descriptive research: - It seeks to determine the answers to who, what, when, where, and how questions.

82

Causal research: - It is used to identification of cause and effect relationship between variables.

In my research study I have applied Descriptive research to describe the description of state of affairs as it exists at present . The main characteristic of this research is that researcher has no control over the variables; he can only report what has happened or what is happening.

Database:Both primary and secondary data are used for the research. Newspapers Generals Books Internet Old records Magazines Offices Television

In this research I have used both primary and secondary data. To analyze psychology of investors and brokers primary data will be collected by conducting sample survey through questionnaire. And secondary data will be collected mainly from newspaper, book, magazine and periodicals and various website.

Sampling:-: Method
Simple random sampling is used for purpose of research This type of sampling is also known as chance sampling or probability sampling where each and every item in the population has an equal chance of inclusion in the sample and each one of the possible samples, in case of finite universe, has the same probability of being selected. 83

Size
For investors 100per 100 sampling size and for brokers 100per 10 size is used.

Contact method: Direct contact Questionnaire

Presentation of data
Data Charts graphs Tables Maps

Collection of data
In this research I have used both primary and secondary data. To analyze psychology of investors and brokers primary data will be collected by conducting sample survey through questionnaire. And secondary data will be collected mainly from newspaper, book, magazine and periodicals and various website.

Methods of data collection:Primary data

84

Primary data is collected from Questionnaire Interview Secondary data Secondary data is collected from various sources. Books Newspapers Internet Old records Magazines Television

BIBLOGRAPHY
o Economic survey 1991-1992. o Kothari,C.R.(2005_ RESEARCH METHODOLOGY New age international (P) LTD. Publishers. o Wu,Henry T.C., Misunderstood derivatives: the causes of falior and promise of reguletory o http://finmin.nic.in/the_ministry/dept_eco_affairs/index.html o http://finmin.nic.in/the_ministry/dept_eco_affairs/capital_market_div /Organisational%20Structure%20and%20Functions.pdf 85

o http://www.geocities.com/kstability/content/stock2/index.html o http://www.bseindia.com/bookbuilding/about.asp o http://en.wikipedia.org/wiki/Secondary_market o http://www.clubelders.com/money&law/stockexchange.htm#4 o http://www.mapsofworld.com/india/stock-exchange-india.html o http://www.kotaksecurities.com/university/Equity2.html o http://www.thehindubusinessline.com/iw/2003/02/09/stories/200302 0900221300.htm o http://in.advfn.com/StockExchanges/about/BSE/BombayStockExch ange.html o www.tse.or.jp o www.yeahindia.com/c-india1.html o www.ses.com.sg o www.sebi.gov.in o www.nseindia.com

86

87

You might also like