8/8/2019 neelesh pachauri 1
1/108
Summer training Project
Report
On
ANALYSIS OF SHARE MARKET OF
NSE/BSE
For Submitted for Partial Fulfillment Of
Masters of Business Administration
(MBA -2009-2010)
Under The Guidance of:- Under The
Supervision of:-
Dr. K.G.CHOBEY B.K.Nathani
( Executive Director, UPSE)
Submitted By:-
Neelesh Pachauri
Roll No. 0944070029
Naraina Vidya Peeth Management Institute
Panki, Kanpur-208020
8/8/2019 neelesh pachauri 1
2/108
STUDENT DECLARATION
I, Neelesh Pachauri student of M.B.A at Naraina Vidya Peeth Management
Institute, Kanpur of hereby declare that the Project work entitled Analysis of
Share Market of NSE/BSE is compiled and submitted under the guidance of
Swati Singh This is my original work.
Whatever information furnished in this project report is true to the
best of my knowledge.
Neelesh Pachauri
MBA IInd Year
Roll No: - 0944070029
8/8/2019 neelesh pachauri 1
3/108
Naraina Vidya Peeth Management Institute
Gangaganj,Panki, Kanpur-208020
DATE. . . . . . .
To Whom It may Concern
This is to certify that Mr./Ms. Neelesh Pachauri student of
M.B.A Course (2008-10) at Naraina Vidya Peeth Management Institute with dual
Specialization in Marketing & Finance has satisfactorily completed the
summer research project on ANALYSIS OF SHARE MARKET OF
NSE/BSE .
study is done under the guidance of the undersigned by partil fulfillment for theaward of M.B.A .I wish him /her all the best for bright future ahead.
Suervisor Head of Department Director
8/8/2019 neelesh pachauri 1
4/108
ACKNOWLEDGEMENT
I would like to express my Acknowledgement to those people, without whose
contribution, Support and guidance this Report would not have seen the light of the
day. Notable among them are Mr. B.K.Nathani who was my Project Guide and
who helped me in a lot.
I am also thankful to all other employees of Religare who guide me during myProject.
I am also thankful and would like to express my Gratitude to the Honorable Head
of Department Dr. K.G. Chobey and the entire Institute for giving me a Platform
to have this wonderful opportunity and being able to get a glimpse of the Corporate
World
8/8/2019 neelesh pachauri 1
5/108
PREFACE
In this study behaviour of the share market has been analysed, and changing trends
which comes in last ten years. For which I surveyed the market and interviewed
registered brokers, sub- brokers and investors through which I analyze the
customer behaviour, how the share market affect. The study is all about capital
market .The capital market is the market for securities, where companies and
governments can raise long term funds. It is a market in which money is lent for
periods longer than a year. The capital market includes the stock market and the
bond market. Financial regulators, such as the U.S. Securities and Exchange
Commission (SEC), oversee the capital markets in their designated countries to
ensure that investors are protected against fraud.
The capital markets consist of the primary market and the secondary market. The
primary markets are where new stock and bonds issues are sold (underwriting) to
investors. The secondary markets are where existing securities are sold and bought
from one investor or speculator to another, usually on an exchange (e.g. the New
York Stock Exchange).
Share market is the part of secondary market. Here are a lot of changes in todays
share market in comparison to last ten years. With the perception in mind that
initially, before ten years back investors were only from big cities but now thescenario has been changed with the retailing in this industry. Today small investors
concept is in trend that show now cities like, Bhopal, where financial market is not
enough smart but a good number of customers and investors have started
investing this study is all about this changing scenario.
8/8/2019 neelesh pachauri 1
6/108
CONTENTS
Certificate____________________________________6
Declaration___________________________________7
Acknowledgement______________________________8
The Indian Capital Market_______________________9-31
An Overview
Other leading cities in stock market operation
Growth of Indian Stock Exchanges
Sensex and Nifty
History
Key Milestones
Myths of Stock Market
How Stock Market Works
Initial Public Offering__________________________32-35
Introduction
How to apply Public issue
How to make Payment for IPOs Role of SEBI in process of IPO
DEMAT account______________________________36-38
Introduction
How to open Demat account
8/8/2019 neelesh pachauri 1
7/108
Document required
SEBI (Securities and Exchange Board of India)_____39-45
Introduction
The Board Comprises
Functions and Responsibilities
BSE (Bombay Stock Exchange) Introduction_______46-49
NSE (National Stock Exchange)_________________50-52
Introduction
NSE group
SENSEX____________________________________53-58
Introduction
SENSEX calculation Methodology
Concept of Free Float
Definition of Free Float
Function and Purpose of Stock Market
Depository__________________________________59-64
CDSL NSDL
CSD
FII(Foreign Institutional Investor)________________65-72
Introduction
8/8/2019 neelesh pachauri 1
8/108
FII mean
Regulations
Participatory Notes___________________________73-77
Scams of Share Market________________________78-94
Harshad Mehta Scam
Ketan Parekhs Scam
Satyam Scam
Karvy IPO scam
List of registered Share Brokers and Sub- Brokers__95-109
Research Methodology_______________________
Result analysis &Interpretation________________
Suggestions_______________________________
Conclusion_________________________________
Questions for interview_______________________
Biblography________________________________
8/8/2019 neelesh pachauri 1
9/108
ACKNOWLEDGEMENT
I would like to thank my project guide Dr. K.G.Chaubey for guiding me through
my summer internship and research project. His encouragement, time and effort
are greatly appreciated.
I would like to thank Ms. B.K.Nathani, for supporting me during this project and providing me an opportunity to learn outside the class room. It was a truly
wonderful learning experience.
I would like to dedicate this project to my parents. Without their help and constant
support this project would not have been possible.
Lastly I would like to thank all the respondents who offered their opinions and
suggestions through the survey that was conducted by me in Bhopal.
Once again my gratitude to the Brokers, Sub-Brokers and Investors of share
market. For their kind co-operation.
8/8/2019 neelesh pachauri 1
10/108
THE INDIAN CAPITAL MARKET
AN OVERVIEW
The Indian capital market is more than a century old. Its history goes back to 1875,
when 22 brokers formed the Bombay Stock Exchange (BSE). Over the period, the
Indian securities market has evolved continuously to become one of the most
dynamic, modern, and efficient securities markets in Asia. Today,
Indian market confirms to best international practices and standards both in termsof structure and in terms of operating efficiency .Indian securities markets are
mainly governed by a) The Companys Act1956, b) the Securities Contracts
(Regulation) Act 1956 (SCRA Act), and c) the Securities and Exchange Board of
India (SEBI) Act, 1992. A brief background of these above regulations are given
below
a) The Companies Act 1956 deals with issue, allotment and transfer of securities
and various aspects relating to company management. It provides norms for
disclosures in the public issues, regulations for underwriting, and the issues
pertaining to use of premium and discount on various issues.
b) SCRA provides regulations for direct and indirect control of stock exchanges
with an aim to prevent undesirable transactions in securities. It provides regulatory
jurisdiction to Central Government over stock exchanges, contracts in securities
and listing of securities on stock exchanges.
8/8/2019 neelesh pachauri 1
11/108
c) The SEBI Act empowers SEBI to protect the interest of investors in the
securities market, to promote the development of securities market and to regulate
the security market.
The Indian securities market consists of primary (new issues) as well as secondary
(stock) market in both equity and debt. The primary market provides the channel
for sale of new securities, while the secondary market deals in trading of securities
previously issued. The issuers of securities issue (create and sell) new securities in
the primary market to raise funds for investment. They do so either through public
issues or private placement. There are two major types of issuers who issue
securities. The corporate entities issue mainly debt and equity instruments (shares,
debentures, etc.), while the governments (central and state governments) issue debt
securities (dated securities, treasury bills). The secondary market enables
participants who hold securities to adjust their holdings in response to changes in
their assessment of risk and return. A variant of secondary market is the forward
market, where securities are traded for future delivery and payment in the form of
futures and options. The futures and options can be on individual stocks or basketof stocks like index. Two exchanges, namely National Stock Exchange (NSE) and
the Stock Exchange, Mumbai (BSE) provide trading of derivatives in single stock
futures, index futures, single stock options and index options. Derivatives trading
commenced in India in June 2000
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
8/8/2019 neelesh pachauri 1
12/108
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 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 wayin 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 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 companieswere 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).
8/8/2019 neelesh pachauri 1
13/108
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.
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 othercommodities, 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.
There are two major indicators of Indian capital market- SENSEX & NIFTY:
What are the Sensex & the Nifty?
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
8/8/2019 neelesh pachauri 1
14/108
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 thatthe 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. Just in case you are confused, 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 index. Unless stock markets provide professionalized service, small
investors and foreign investors will not be interested in capital market operations.
And capital market being one of the major source of long-term finance for
industrial projects, India cannot afford to damage the capital market path. In this
regard NSE gains vital importance in the Indian capital market but if we see the
sensex & nifty graph there is a great variation.
8/8/2019 neelesh pachauri 1
15/108
8/8/2019 neelesh pachauri 1
16/108
The Big Picture of share market
As investors, most of us tend to forget about all of the good years and only focus
on the bad. The broad markets have been heading up for about four years, so the
thoughts of what happened in 1999-2002 are well behind us. But now that the
markets are volatile, there is a lot of talk about the subprime mortgage industry, a
weak dollar, and everyone begins to completely forget about how well the pastfour years have been and only focus on the last few months or weeks complaining
how bad it is. Things can certainly continue to get worse, but you have to look at
things in context.
Remember, what goes up, must come down. Not only does the stock market cycle,
but there is a business cycle as well. We will always have various times that are
great, and those that arent as great, but you cant lose sight of the big picture.
Take a look at the following 12 years in a colorized format. Green identifies
periods of strong growth. Yellow indicates a period of volatility or no real
direction, and red shows a period of a downward trend. Based on this, is it any
surprise that markets are becoming volatile and possibly trending downward?
8/8/2019 neelesh pachauri 1
17/108
For even more similarities, scroll back up and look at the first chart from 1996-
1999. Now, scroll down and look at the 2005-Present image. Notice how similar
they are? The markets went up for completely different reasons, yet are behaving
almost the same. All you have to do is look at the following few years to see what
might be in store for us over the coming year or two. Will history repeat itself?
There is no way to tell, and anything could happen to make all of this information
worthless, but you do have to at least consider the past trends and understand that
there is a chance the market will behave similarly and well enter a period of
significant decline.
Keep Doing What Youre Doing
Sure, the market may be a bit unstable right now, and we may certainly be headed
for a time where the market falls further, but that shouldnt be of much concern to
you if youre investing for the next 10, 20, 30 or more years. If you want to try and
time the market or predict what the next hot sector is, thats fine, but the best thing
most people can do is to just continuously invest in a diversified portfolio. If you
8/8/2019 neelesh pachauri 1
18/108
keep buying even as the market falls, youre just adding more shares at a lower
price.
Could you make more money if you only invested at the low points and sold at the
high points compared to dollar cost averaging? Sure, but the likelihood ofsucceeding on a regular basis is low. For most people, the best thing to do is to just
continue investing bi-weekly, monthly, or quarterly into the same diversified
portfolio regardless of market conditions. When markets are choppy or headed
down, youre just buying stocks or funds on sale. All you have to do is look back a
few years to see that even though the market might go down, it will eventually
come back up again.
KEY MILESTONES
Following is the timeline on the rise and rise of the Sensex through Indian stock
market history.
1830's Business on corporate stocks and shares in Bank and Cotton presses started
in Bombay.
1860-1865 Cotton price bubble as a result of the American Civil War
1870 - 90's Sharp increase in share prices of jute industries followed by a boom in
tea stocks and coal
1900s
1978-79 Base year of Sensex, defined to be 100.
8/8/2019 neelesh pachauri 1
19/108
1986 Sensex first compiled. Using a market Capitalization Weighted methodology
for 30 component stocks representing well-established companies across key
sectors.
Since 1990
1000, July 25, 1990 On July 25, 1990, the Sensex touched the magical four-digit
figure for the first time and closed at 1,001 in the wake of a good monsoon season
and excellent corporate results.
July 1991 Rupee devalued by 18-19 %
2000, January 15, 1992 On January 15, 1992, the Sensex crossed the 2,000-mark
and closed at 2,020 followed by the liberal economic policy initiatives undertaken
by the then prime minister P.V.Narasimha rao.
3000, February 29, 1992 On February 29, 1992, the Sensex surged past the 3000
mark in the wake of the market-friendly Budget announced by the then Finance
Minister, Dr Manmohan Singh.
4000, March 30, 1992 On March 30, 1992, the Sensex crossed the 4,000-mark and
closed at 4,091 on the expectations of a liberal export-import policy. It was then
that the Harshad Mehta scam hit the markets and Sensex witnessed unabated
selling.
5000, October 8, 1999 On October 8, 1999, the Sensex crossed the 5,000-mark asthe BJP-led coalition won the majority in the 13th Lok Sabha election.
6000, February 11, 2000 On February 11, 2000, the infotech boom helped the
Sensex to cross the 6,000-mark and hit and all time high of 6,006.
8/8/2019 neelesh pachauri 1
20/108
6151, Feb 14, 2000 Tops. Index declines until Sept 2001 and loses half the value.
Coincides with dot-com bubble burst.
2595, Sept 21, 2001 Bottoms.
7000, June 20, 2005 On June 20, 2005, the news of the settlement between the
Ambani brothers boosted investor sentiments and the scrips of RIL, Reliance
Energy, Reliance Capital, and IPCL made huge gains. This helped the Sensex
crossed 7,000 points for the first time.
8000, September 8, 2005 On September 8, 2005, the Bombay Stock Exchange's
benchmark 30-share index -- the Sensex -- crossed the 8000 level following brisk
buying by foreign and domestic funds in early trading.
9000, November 28, 2005 The Sensex on November 28, 2005 crossed the magical
figure of 9000 to touch 9000.32 points during mid-session at the Bombay Stock
Exchange on the back of frantic buying spree by foreign institutional investors and
well supported by local operators as well as retail investors.
10,000, February 6, 2006 The Sensex on February 6, 2006 touched 10,003 points
during mid-session. The Sensex finally closed above the 10K-mark on February 7,
2006.
11,000, March 21, 2006 The Sensex on March 21, 2006 crossed the magical figure
of 11,000 and touched a life-time peak of 11,001 points during mid-session at the
Bombay Stock Exchange for the first time. However, it was on March 27, 2006
that the Sensex first closed at over 11,000 points.
12,000, April 20, 2006 The Sensex on April 20, 2006 crossed the 12,000-mark and
closed at a peak of 12,040 points for the first time.
8/8/2019 neelesh pachauri 1
21/108
8/8/2019 neelesh pachauri 1
22/108
index zoomed to a new all-time intra-day high of 18,327. It finally gained 789
points to close at an all-time high of 18,280. The market set several new records
including the biggest single day gain of 789 points at close, as well as the largest
intra-day gains of 993 points in absolute term backed by frenzied buying after thenews of the UPA and Left meeting on October 22 put an end to the worries of an
impending election.
19,000, October 15, 2007 The Sensex crossed the 19,000-mark backed by revival
of funds-based buying in blue chip stocks in metal, capital goods and refinery
sectors. The index gained the last 1,000 points in just four trading days. The index
touched a fresh all-time intra-day high of 19,096, and finally ended with a smart
gain of 640 points at 19,059.The Nifty gained 242 points to close at 5,670.
20,000, October 29, 2007 The Sensex crossed the 20,000 mark on the back of
aggressive buying by funds ahead of the US Federal Reserve meeting. The index
took only 10 trading days to gain 1,000 points after the index crossed the 19,000-
mark on October 15. The major drivers of today's rally were index heavyweights
Larsen and Toubro, Reliance Industries, ICICI Bank, HDFC Bank and SBI among
others. The 30-share index spurted in the last five minutes of trade to fly-past the
crucial level and scaled a new intra-day peak at 20,024.87 points before ending at
its fresh closing high of 19,977.67, a gain of 734.50 points. The NSE Nifty rose to
a record high 5,922.50 points before ending at 5,905.90, showing a hefty gain of
203.60 points.
21,000, January 8, 2008 The sensex peaks. It crossed the 21,000 mark in intra-day
trading after 49 trading sessions. This was backed by high market confidence of
increased FII investment and strong corporate results for the third quarter.
However, it later fell back due to profit booking.
8/8/2019 neelesh pachauri 1
23/108
15,200, June 13, 2008 The sensex closed below 15,200 mark, Indian market suffer
with major downfall from January 21,2008
14,220, June 25, 2008 The sensex touched an intra day low of 13,731 during the
early trades, then pulled back and ended up at 14,220 amidst a negative sentiment
generated on the Reserve Bank of India hiking CRR by 50 bps. FII outflow
continued in this week.
12,822, July 2, 2008 The sensex hit an intra day low of 12,822.70 on July 2nd,
2008. This is the lowest that it has ever been in the past year. Six months ago, on
January 10th, 2008, the market had hit an all time high of 21206.70. This is a badtime for the Indian markets, although Reliance and Infosys continue to lead the
way with mostly positive results. Bloomberg lists them as the top two gainers for
the Sensex, closely followed by ICICI Bank and ITC Ltd.
11801.70, Oct 6, 2008 The sensex closed at 11801.70 hitting the lowest in the past
2 years.
10527, Oct 10, 2008 The Sensex today closed at 10527,800.51 points down from
the previous day having seen an intraday fall of as large as 1063 points. Thus,this
week turned out to be the week with largest percentage fall in the Sensex.
14284.21, May 18, 2009 After the result of 15th indian general election Sensex
gained 2110.79 points form the previous close of 12173.42 these creates a new
histroy in Indian Market. In the Opening Trade itself sensex gain 15% from theprevious day close this leads to the suspension of 2 hours trade. After 2 hours
sensex again surged this leads to the suspension of full day trading. 14200
8/8/2019 neelesh pachauri 1
24/108
Myths of stock market
1. You can tell if a Stock is cheap or expensive by the Price to Earnings Ratio.
False: PE ratios are easy to calculate, that is why they are listed in newspapers etc.
But you cannot compare PEs on companies from different industries, as the
variables those companies and industries have are different. Even comparing
within an industry, PEs dont tell you about many financial fundamentals and
nothing about a stocks value.
2. To make Money in the Stock Market, you must assume High Risks.
False: Tips to Lower your Risk:
Do not put more than 10% of your money into any one stock
Do not own more than 2-3 stocks in any industry
Buy your stocks over time, not all at once
Buy stocks with consistent and predictable earnings growth
Buy stocks with growth rates greater than the total of inflation and
interest rates
Use stop-loss orders to limit your risk
8/8/2019 neelesh pachauri 1
25/108
3. Buy Stocks on the Way Down and Sell on the Way Up.
False: People believe that a falling stock is cheap and a rising stock is too
expensive. But on the way down, you have no idea how much further it may fall. If
a stock is rising, especially if it has broken previous highs, there are no unhappy
owners who want to dump it. If the stock is fairly valued, it should continue to rise.
4. You can Hedge Inflation with Stocks.
False: When interest rates rise, people start to pull money out of the market andinto bonds, so that pushes prices down. Plus the cost of business goes up, so
corporate earnings go down, along with the stock prices.
5. Young People can afford to take High Risk.
False: The only thing true about this is that young people have time on their side if
they lose all their money. But young people have little disposable income to risklosing. If they follow the tips above, they can make money over many years.
Young people have the time to be patient.
How stock market works
In order to understand what stocks are and how stock markets work, we need to
dive into history--specifically, the history of what has come to be known as the
corporation, or sometimes the limited liability company (LLC). Corporations in
one form or another have been around ever since one guy convinced a few others
to pool their resources for mutual benefit.
8/8/2019 neelesh pachauri 1
26/108
The first corporate charters were created in Britain as early as the sixteenth
century, but these were generally what we might think of today as a public
corporation owned by the government, like the postal service.
Privately owned corporations came into being gradually during the early 19th
century in the United States , United Kingdom and western Europe as the
governments of those countries started allowing anyone to create corporations.
In order for a corporation to do business, it needs to get money from somewhere.
Typically, one or more people contribute an initial investment to get the company
off the ground. These entrepreneurs may commit some of their own money, but if
they don't have enough, they will need to persuade other people, such as venture
capital investors or banks, to invest in their business.
They can do this in two ways: by issuing bonds, which are basically a way of
selling debt (or taking out a loan, depending on your perspective), or by issuing
stock, that is, shares in the ownership of the company.
Long ago stock owners realized that it would be convenient if there were a central
place they could go to trade stock with one another, and the public stock exchange
was born. Eventually, today's stock markets grew out of these public places.
IPO Initial Public Offering
Public issues can be classified into Initial Public offerings and further public
offerings. In a public offering, the issuer makes an offer for new investors to enter
its shareholding family. The issuer company makes detailed disclosures as per the
8/8/2019 neelesh pachauri 1
27/108
DIP guidelines in its offer document and offers it for subscription. Initial Public
Offering (IPO ) is when an unlisted company makes either a fresh issue of
securities or an offer for sale of its existing securities or both for the first time to
the public. This paves way for listing and trading of the issuers securities.
IPO is New shares Offered to the public in the Primary Market .The first time the
company is traded on the stock exchange. A prospectus is issued to read about its
risk before investing. IPO is a company's first sale of stock to the public. Securities
offered in an IPO are often, but not always, those of young, small companies
seeking outside equity capital and a public market for their stock. Investors
purchasing stock in IPOs generally must be prepared to accept very large risks for
the possibility of large gains. Sometimes, Just before the IPO is launched, Existing
share Holders get a very liberal bonus issues as a reward for their faith in risking
money when the project was new
How to apply to a public issue ?
When a company floats a public issue orIPO, it prints forms for application to befilled by the investors. Public issues are open for a few days only. As per law, any
public issue should be kept open for a minimum of 3days and a maximum of 21
days. For issues, which are underwritten by financial institutions, the offer should
be kept open for a minimum of 3 days and a maximum of 21 days. For issues,
which are underwritten by all India financial institutions, the offer should be kept
open for a maximum of 10 days. Generally, issues are kept open for only 3 to 4days. The duly complete application from, accompanied by cash, cheque, DD or
stock invest should be deposited before the closing date as per the instruction on
the from. IPO's by investment companies (closed end funds) usually contain
underwriting fees which represent a load to buyers.
http://www.sharemarketbasics.com/IPO-Initial-Public-Offering.htmhttp://www.sharemarketbasics.com/IPO-Initial-Public-Offering.htmhttp://www.sharemarketbasics.com/IPO-Initial-Public-Offering.htmhttp://www.sharemarketbasics.com/IPO-Initial-Public-Offering.htm8/8/2019 neelesh pachauri 1
28/108
Before applying for any IPO , analyse the following factors:
1. Who are the Promoters ? What is their credibility and track record ?
2. What is the company manufacturing or providing services - Product, its potential
3. Does the Company have any Technology tie-up ? if yes , What is the reputation
of the collaborators
4. What has been the past performance of the Company offering the IPO?
5. What is the Project cost, What are the means of financing and profitability
projections?
6. What are the Risk factors involved ?
7. Who has appraised the Project ? In India Projects apprised by IDBI and ICICI
have more credibility than small Merchant Bankers
How to make payments for IPOs:
The payment terms of any IPO or Public issue is fixed by the company keeping in
view its fund requirements and the statutory regulations. In general, companies
stipulate that either the entire money should be paid along with the application or
50 percent of the entire amount be paid along with the application and rest onallotment. However, if the funds requirements is staggered, the company may ask
for the money in calls, that is, the company demands for the money after allotment
as and when the cash flow demands. As per the statutory requirements, for public
issue large than Rs. 250 crore, the money is to be collected as under:
8/8/2019 neelesh pachauri 1
29/108
25 per cent on application
25 per cent on allotment
50 per cent in two or more calls
The role of SEBI in the process of IPO
SEBI regulates the IPO process and issued detailed Guidelines under section 11 of
the SEBI Act, 1992 in the name of SEBI (Disclosure and Investors Protection)
Guidelines, 2002 generally known as DIP Guidelines. It is also noted that under the
provisions sections 55 of the Companies Act, 1956. the matters pertaining to issue
and transfer of securities and non payment of dividend in case of listed companies,
the companies intend to get listed are being administered by SEBI.
DEMAT ACCOUNT
Demat refers to a dematerialised account.
Though the company is under obligation to offer the securities in both physical and
demat mode, you have the choice to receive the securities in either mode.
If you wish to have securities in demat mode, you need to indicate the depository
and also of the depository participant with whom you have depository account in
your application.
8/8/2019 neelesh pachauri 1
30/108
It is, however desirable that you hold securities in demat form as physical
securities carry the risk of being fake, forged or stolen.
Just as you have to open an account with a bank if you want to save your money,
make cheque payments etc, Nowadays, you need to open a demat account if you
want to buy or sell stocks.
So it is just like a bank account where actual money is replaced by shares. You
have to approach the DPs (remember, they are like bank branches), to open your
demat account. Let's say your portfolio of shares looks like this: 150 of Infosys,
50 of Wipro, 200 of HLL and 100 of ACC. All these will show in your demataccount. So you don't have to possess any physical certificates showing that you
own these shares. They are all held electronically in your account. As you buy
and sell the shares, they are adjusted in your account. Just like a bank passbook
or statement, the DP will provide you with periodic statements of holdings and
transactions.
The most important thing required to trade in share market is Demat account.Demat or Dematerialized account is to store stocks in electronics form. It is just
like opening a bank account to store your money. Now nobody is interested to keep
shares in physical forms and going for electronic based filing of shares. This has
changed the style of operation in main Indian stock markets like BSE Sensex
( Bombay Stock Exchange Sensitive Index) and Nifty (National Stock Exchange of
India) and its brokers.
How to Open a Demat Account
It is like opening a bank account. You have to approach a depository participants to
open an online trading or demat account. Most of the banks are DPs too.
8/8/2019 neelesh pachauri 1
31/108
Documents Required
You will have to submit few documents with the application form to open a demat
account. As per latest Govt of India rule PAN (Personal Account Number) card is
must for opening a demat account. These are the documents required to open a
demat account
1. Photo Copy of PAN Card (Mandatory)
2. Two Passport size photos
3. Address Proof Ration Card/Passport/Driving License/Voters IDCard/BSNL Telephone/LIC Policy
4. Latest Bank Statement and photocopy of Bank Passbook.
SEBI Introduction
In 1988 the Securities and Exchange Board of India (SEBI) was established by the
Government of India through an executive resolution, and was subsequently
upgraded as a fully autonomous body (a statutory Board) in the year 1992 with the
passing of the Securities and Exchange Board of India Act (SEBI Act) on 30th
January 1992. In place of Government Control, a statutory and autonomous
regulatory board with defined responsibilities, to cover both development &
regulation of the market, and independent powers have been set up. Paradoxically
this is a positive outcome of the Securities Scam of 1990-91.
The basic objectives of the Board were identified as:
8/8/2019 neelesh pachauri 1
32/108
to protect the interests of investors in securities;
to promote the development of Securities Market;
to regulate the securities market and
for matters connected therewith or incidental thereto.
Since its inception SEBI has been working targetting the securities and is attending
to the fulfillment of its objectives with commendable zeal and dexterity. The
improvements in the securities markets like capitalization requirements, margining,
establishment of clearing corporations etc. reduced the risk of credit and also
reduced the market.
SEBI has introduced the comprehensive regulatory measures, prescribed
registration norms, the eligibility criteria, the code of obligations and the code of
conduct for different intermediaries like, bankers to issue, merchant bankers,
brokers and sub-brokers, registrars, portfolio managers, credit rating agencies,
underwriters and others. It has framed bye-laws, risk identification and risk
management systems for Clearing houses of stock exchanges, surveillance system
etc. which has made dealing in securities both safe and transparent to the end
investor.
Another significant event is the approval of trading in stock indices (like S&P
CNX Nifty & Sensex) in 2000. A market Index is a convenient and effective
product because of the following reasons:
It acts as a barometer for market behavior;
It is used to benchmark portfolio performance;
8/8/2019 neelesh pachauri 1
33/108
It is used in derivative instruments like index futures and index options;
It can be used for passive fund management as in case of Index Funds.
Two broad approaches of SEBI is to integrate the securities market at the national
level, and also to diversify the trading products, so that there is an increase in
number of traders including banks, financial institutions,insurance companies,
mutual funds, primary dealers etc. to transact through the Exchanges. In this
context the introduction of derivatives trading through Indian Stock Exchanges
permitted by SEBI in 2000 AD is a real landmark.
SEBI appointed the L. C. Gupta Committee in 1998 to recommend the regulatory
framework for derivatives trading and suggest bye-laws for Regulation and Control
of Trading and Settlement of Derivatives Contracts. The Board of SEBI in its
meeting held on May 11, 1998 accepted the recommendations of the committee
and approved the phased introduction of derivatives trading in India beginning
with Stock Index Futures. The Board also approved the "Suggestive Bye-laws" as
recommended by the Dr LC Gupta Committee for Regulation and Control of
Trading and Settlement of Derivatives Contracts.
SEBI then appointed the J. R. Verma Committee to recommend Risk
Containment Measures (RCM) in the Indian Stock Index Futures Market. The
report was submitted in November 1998.
However the Securities Contracts (Regulation) Act, 1956 (SCRA) required
amendment to include "derivatives" in the definition of securities to enable SEBI to
introduce trading in derivatives. The necessary amendment was then carried out by
the Government in 1999. The Securities Laws (Amendment) Bill, 1999 was
introduced. In December 1999 the new framework was approved.
8/8/2019 neelesh pachauri 1
34/108
Derivatives have been accorded the status of `Securities'. The ban imposed on
trading in derivatives in 1969 under a notification issued by the Central
Government was revoked. Thereafter SEBI formulated the necessaryregulations/bye-laws and intimated the Stock Exchanges in the year 2000. The
derivative trading started in India at NSE in 2000 and BSE started trading in the
year 2001.
SEBI is the Regulator for the Securities Market in India. Originally set up by
the Government of India in 1988, it acquired statutory form in 1992 with SEBI Act
1992 being passed by the Indian Parliament.Chaired by C B Bhave, SEBI is
headquartered in the popular business district of Bandra-Kurla
complex in Mumbai, and has Northern, Eastern, Southern and Western regional
offices in New Delhi, Kolkata, Chennai and Ahmedabad.
Organisation Structure
Chandrasekhar Bhaskar Bhave is the sixth chairman of the Securities Market
Regulator. Prior to taking charge as Chairman SEBI, he had been the chairman of
NSDL (National Securities Depository Limited) ushering in paperless securities.
Prior to his stint at NSDL, he had served SEBI as a Senior Executive Director. He
is a former Indian Administrative Service officer of the 1975 batch.
The Board comprises
Name Designation As per
Mr CB Bhave Chairman SEBI CHAIRMAN (S.4(1)(a)
8/8/2019 neelesh pachauri 1
35/108
of the SEBI Act, 1992)
Mr KP Krishnan
Joint Secretary,
Ministry of Finance
Member (S.4(1)(b) of the
SEBI Act, 1992)
Mr Anurag GoelSecretary, Ministry ofCorporate Affairs
Member (S.4(1)(b) of theSEBI Act, 1992)
Dr G Mohan GopalDirector, NationalJudicial Academy,
Bhopal
Member (S.4(1)(d) of theSEBI Act, 1992)
Mr MS SahooWhole Time Member,SEBI
Member (S.4(1)(d) of theSEBI Act, 1992)
Dr KM AbrahamWhole Time Member,SEBI
Member (S.4(1)(d) of theSEBI Act, 1992)
Mr Mohandas Pai Director, InfosysMember (S.4(1)(d) of theSEBI Act, 1992)
Functions and Responsibilities
SEBI has to be responsive to the needs of three groups, which constitute the
market:
the issuers of securities
the investors
the market intermediaries.
8/8/2019 neelesh pachauri 1
36/108
SEBI has three functions rolled into one body quasi-legislative, quasi-judicial and
quasi-executive. It drafts regulations in its legislative capacity, it conducts
investigation and enforcement action in its executive function and it passes rulings
and orders in its judicial capacity. Though this makes it very powerful, there is anappeals process to create accountability. There is a Securities Appellate Tribunal
which is a three member tribunal and is presently headed by a former Chief Justice
of a High court - Mr. Justice NK Sodhi. A second appeal lies directly to
the Supreme Court.
SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively
and successively (e.g. the quick movement towards making the markets electronicand paperless rolling settlement on T+2 basis). SEBI has been active in setting up
the regulations as required under law. It is regulating body.
8/8/2019 neelesh pachauri 1
37/108
8/8/2019 neelesh pachauri 1
38/108
more than 4,700 listed companies, which for easy reference, are classified into A,
B, S, T and Z groups.
The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic
stature , and is tracked worldwide. It is an index of 30 stocks representing 12 major
sectors. The SENSEX is constructed on a 'free-float' methodology, and is sensitive
to market sentiments and market realities. Apart from the SENSEX, BSE offers 21
indices, including 12 sectoral indices. BSE has entered into an index cooperation
agreement with Deutsche Brse. This agreement has made SENSEX and other
BSE indices available to investors in Europe and America. Moreover, Barclays
Global Investors (BGI), the global leader in ETFs through its iShares brand,
has created the '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 first Exchange Traded Fund (ETF) on SENSEX, called "SPIcE" is listed on
BSE. It brings to the investors a trading tool that can be easily used for the
purposes of investment, trading, hedging and arbitrage. SPIcE allows 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 a nation-wide reach with a presence in more
than 359 cities and towns of India. BSE has always been at par with the
international standards. The systems and processes are designed to safeguardmarket 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
8/8/2019 neelesh pachauri 1
39/108
Information Security Management System Standard BS 7799-2-2002 certification
for its BSE On-line Trading System (BOLT).
BSE continues to innovate. In recent times, it has become the first national level
stock exchange to launch its website in Gujarati and Hindi to reach out to a larger
number of investors. It has successfully launched a reporting platform for
corporate bonds in India christened the ICDM or Indian Corporate Debt Market
and a unique ticker-cum-screen aptly named 'BSE Broadcast' which enables
information dissemination to the common man on the street.
In 2006, BSE launched the Directors Database and ICERS (Indian Corporate
Electronic Reporting System) to facilitate information flow and increase
transparency in the Indian capital market. While the Directors Database provides a
single-point access to information on the boards of directors of listed companies,
the ICERS facilitates the corporate in sharing with BSE their corporate
announcements.
8/8/2019 neelesh pachauri 1
40/108
8/8/2019 neelesh pachauri 1
41/108
Our Group
NSCCL
NCCL NSETECH
IISL
NSE NSE.IT
DotExIntl. Ltd.
NSDL
Listing
http://www.nseindia.com/content/us/us_nsdl.htmhttp://www.nseindia.com/content/us/us_dotex.htmhttp://www.nseindia.com/content/us/us_nseit.htmhttp://www.nseindia.com/content/us/us_organisation.htmhttp://www.nseindia.com/content/us/us_iisl.htmhttp://www.nseindia.com/content/us/us_nsetech.htmhttp://www.nseindia.com/content/us/us_nccl.htmhttp://www.nseindia.com/content/us/us_nsccl.htm8/8/2019 neelesh pachauri 1
42/108
NSE plays an important role in helping an Indian companies access equity capital,
by providing a liquid and well-regulated market. NSE has about 1319 companies
listed representing the length, breadth and diversity of the Indian economy which
includes from hi-tech to heavy industry, software, refinery, public sector units,infrastructure, and financial services. Listing on NSE raises a companys profile
among investors in India and abroad. Trade data is distributed worldwide through
various news-vending agencies. More importantly, each and every NSE listed
company is required to satisfy stringent financial, public distribution and
management requirements. High listing standards foster investor confidence and
also bring credibility into the markets.
NSE lists securities in its Capital Market (Equities) segment and its Wholesale
Debt Market segment
Introduction of SENSEX
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.
8/8/2019 neelesh pachauri 1
43/108
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 thefancy 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.
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 scrips etc. During market hours, prices of the index scrips, at which
latest trades are executed, are used by the trading system to calculate SENSEX
every 15 seconds. The value of SENSEX is disseminated in real time.
8/8/2019 neelesh pachauri 1
44/108
Concept of FREE FLOAT
Free-float methodology refers to an index construction methodology that takes intoconsideration only the free-float market capitalization of a company for the
purpose of index calculation and assigning weight to stocks in the index. Free-float
market capitalization takes into consideration only those shares issued by the
company that are readily available for trading in the market. It generally excludes
promoters' holding, government holding, strategic holding and other locked-in
shares that will not come to the market for trading in the normal course. In otherwords, the market capitalization of each company in a free-float index is reduced
to the extent of its readily available shares in the market.
Definition of Free-float
Shareholding of investors that would not, in the normal course come into the open
market for trading are treated as 'Controlling/ Strategic Holdings' and hence not
included in free-float. Specifically, the following categories of holding are
generally excluded from the definition of Free-float:
Shares held by founders/directors/ acquirers which has control element
Shares held by persons/ bodies with "Controlling Interest"
Shares held by Government 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
8/8/2019 neelesh pachauri 1
45/108
Locked-in shares and shares which would not be sold in the open market in
normal course.
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.
TheBSE Index Celldoes the day-to-day maintenance of the index within the broad
index policy framework set by the BSE Index Committee. The BSE Index
Cellensures 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.
Function and purpose of stock market
The stock market is one of the most important sources for companies to raise
money. This allows businesses to be publicly traded, or raise additional capital for
expansion by selling shares of ownership of the company in a public market. The
liquidity that an exchange provides affords investors the ability to quickly and
8/8/2019 neelesh pachauri 1
46/108
easily sell securities. This is an attractive feature of investing in stocks, compared
to other less liquid investments such as real estate.
History has shown that the price of shares and other assets is an important part of
the dynamics of economic activity, and can influence or be an indicator of social
mood. An economy where the stock market is on the rise is considered to be an up
and coming economy. In fact, the stock market is often considered the primary
indicator of a country's economic strength and development. Rising share prices,
for instance, tend to be associated with increased business investment and vice
versa. Share prices also affect the wealth of households and their consumption.
Therefore, central banks tend to keep an eye on the control and behavior of the
stock market and, in general, on the smooth operation of financial system
functions. Financial stability is the raison d'tre of central banks.
Exchanges also act as the clearinghouse for each transaction, meaning that they
collect and deliver the shares, and guarantee payment to the seller of a security.
This eliminates the risk to an individual buyer or seller that the counterparty could
default on the transaction.
The smooth functioning of all these activities facilitates economic growth in that
lower costs and enterprise risks promote the production of goods and services as
well as employment. In this way the financial system contributes to increased
prosperity.
8/8/2019 neelesh pachauri 1
47/108
8/8/2019 neelesh pachauri 1
48/108
CDSL was set up with the objective of providing convenient, dependable and
secure depository services at affordable cost to all market participants. Some of the
important milestones of CDSL system are:
CDSL received the certificate of commencement of business from SEBI in
February, 1999.
Honourable Union Finance Minister, Shri Yashwant Sinha flagged off the
operations of CDSL on July 15, 1999.
Settlement of trades in the demat mode through BOI Shareholding Limited, the
clearing house of BSE, started in July 1999.
All leading stock exchanges like the National Stock Exchange, Calcutta Stock
Exchange, Delhi Stock Exchange, The Stock Exchange, Ahmedabad, etc have
established connectivity with CDSL.
As at the end of Dec 2007, over 5000 issuers have admitted their securities
(equities, bonds, debentures, commercial papers), units of mutual funds, certificate
of deposits etc. into the CDSL system.
About NSDL
Although India had a vibrant capital market which is more than a century old, the
paper-based settlement of trades caused substantial problems like bad delivery and
delayed transfer of title till recently. The enactment of Depositories Act in August
1996 paved the way for establishment ofNational Securities Depository Limited
(NSDL), the first depository in India. This depository promoted by institutions of
8/8/2019 neelesh pachauri 1
49/108
national stature responsible for economic development of the country has since
established a national infrastructure of international standards that handles most of
the securities held and settled in dematerialised form in the Indian capital market.
Using innovative and flexible technology systems, NSDL works to support the
investors and brokers in the capital market of the country. NSDL aims at ensuring
the safety and soundness of Indian marketplaces by developing settlement
solutions that increase efficiency, minimise risk and reduce costs. At NSDL, we
play a quiet but central role in developing products and services that will continue
to nurture the growing needs of the financial services industry.
In the depository system, securities are held in depository accounts, which is more
or less similar to holding funds in bank accounts. Transfer of ownership of
securities is done through simple account transfers. This method does away with
all the risks and hassles normally associated with paperwork. Consequently, the
cost of transacting in a depository environment is considerably lower as compared
to transacting in certificates Promoters / Shareholders
NSDL is promoted by Industrial Development Bank of India Limited (IDBI) - the
largest development bank of India, Unit Trust of India (UTI) - the largest mutual
fund in India and National Stock Exchange of India Limited (NSE) - the largest
stock exchange in India. Some of the prominent banks in the country have taken a
stake in NSDL.
NSDL Facts & Figures
As on December 31, 2008
Number of certificates eliminated (Approx.) : 550 Crore
Number of companies in which more than 75% shares are dematted : 2282
8/8/2019 neelesh pachauri 1
50/108
Average number of accounts opened per day since November 1996 : 3636
Presence of demat account holders in the country : 78% of all pincodes in
the country.
Central Securities Depository (CSD)
A Central Securities Depository (CSD) is an organization holding securities
either in certificated or uncertificated (dematerialized) form, to enable book entry
transfer of securities. In some cases these organizations also carry out centralized
comparison, and transaction processing such as clearing and settlement of
securities. The physical securities may be immobilised by the depository, orsecurities may be dematerialised (so that they exist only as electronic records).
International Central Securities Depository (ICSD) is a central securities
depository that settles trades in international securities and in various domestic
securities, usually through direct or indirect (through local agents) links to local
CSDs. ClearStream International (earlier Cedel), Euro clear and SIX SIS are
considered ICSDs. While some view The Depository Trust Company (DTC) as anational CSD rather than an ICSD, in fact DTC -- the largest depository in the
world -- holds over $2 trillion in non-US securities and in American Depository
Receipts from over 100 nations.
Functions
Safekeeping Securities may be in dematerialized form, book-entry onlyform (with one or more "global" certificates), or in physical form
immobilized within the CSD.
Deposit and Withdrawal Supporting deposits and withdrawals involves the
relationship between the transfer agent and/or issuers and the CSD. It also
8/8/2019 neelesh pachauri 1
51/108
covers the CSD's role within the underwriting process or listing of new
issues in a market.
Dividend, interest, and principal processing, as well as corporate actions
including proxy voting Paying and transfer agents, as well as issuers areinvolved in these processes, depending on the level of services provided by
the CSD and its relationship with these entities.
Other services CSDs offer additional services aside from those considered
core services. These services include Securities Lending and Borrowing,
Matching, and Repo Settlement
Pledge - Central depositories provide pledging of share and securities. Every
country require to provide legal framework to protect the interest of the
pledgor and pledgee.
However, there are risks and responsibilities regarding these services that must be
taken into consideration in analyzing and evaluating each market on a case-by-case
basis.
FII (Foreign Institutional Investors) in Indian Stock Market
Foreign Institutional Investor (FII) is used to denote an investor - mostly of the
form of an institution or entity, which invests money in the financial markets of acountry different from the one where in the institution or entity was originally
incorporated.
FII investment is frequently referred to as hot money for the reason that it can leave
the country at the same speed at which it comes in.
8/8/2019 neelesh pachauri 1
52/108
In countries like India, statutory agencies like SEBI have prescribed norms to
register FIIs and also to regulate such investments flowing in through FIIs. In
2008, FIIs represented the largest institution investment category, with an
estimated US$ 751.14 billion.
Since 1990-91, the Government of India embarked on liberalisation and economic
reforms with a view of bringing about rapid and substantial economic growth and
move towards globalisation of the economy. As a part of the reforms process, the
Government under its New Industrial Policy, revamped its foreign investment
policy recognising the growing importance of foreign direct investment as an
instrument of technology transfer, augmentation of foreign exchange reserves and
globalisation of the Indian economy. Simultaneously, the Government, for the first
time, permitted portfolio investments from abroad by foreign institutional investors
in the Indian capital market. The entry of FIIs seems to be a follow up of the
recommendation of the Narsimhan Committee Report on Financial System. While
recommending their entry, the Committee, however did not elaborate on the
objectives of the suggested policy. The committee only suggested that the capital
market should be gradually opened up to foreign portfolio investments.
From September 14, 1992 with suitable restrictions, FIIs were permitted to invest
in all the securities traded on the primary and secondary markets, including shares,
debentures and warrants issued by companies which were listed or were to be
listed on the Stock Exchanges in India.
While presenting the Budget for 1992-93, the then Finance Minister Dr.
Manmohan Singh had announced a proposal to allow reputed foreign investors,
such as Pension Funds etc., to invest in Indian capital market. To operationalise
this policy announcement, it had become necessary to evolve guidelines for such
8/8/2019 neelesh pachauri 1
53/108
investments by Foreign Institutional Investors (FIIs). The policy framework for
permitting FII investment was provided under the Government of India guidelines
vide Press Note date September 14, 1992. The guidelines formulated in this regard
were as follows:
1. Foreign Institutional Investors (FIIs) including institutions such as Pension
Funds, Mutual Funds, Investment Trusts, Asset Management Companies,
Nominee Companies and Incorporated/Institutional Portfolio Managers or
their power of attorney holders (providing discretionary and non-
discretionary portfolio management services) would be welcome to make
investments under these guidelines.
2. FIIs would be welcome to invest in all the securities traded on the Primary
and Secondary markets, including the equity and other
securities/instruments of companies which are listed/to be listed on the
Stock Exchanges in India including the OTC Exchange of India. These
would include shares, debentures, warrants, and the schemes floated by
domestic Mutual Funds. Government would even like to add further
categories of securities later from time to time.
3. FIIs would be required to obtain an initial registration with Securities and
Exchange Board of India (SEBI), the nodal regulatory agency for securities
markets, before any investment is made by them in the Securities of
companies listed on the Stock Exchanges in India, in accordance with these
guidelines. Nominee companies, affiliates and subsidiary companies of a
FII would be treated as separate FIIs for registration, and may seek separate
registration with SEBI.
8/8/2019 neelesh pachauri 1
54/108
4. Since there were foreign exchange controls in force, for various
permissions under exchange control, along with their application for initial
registration, FIIs were also supposed to file with SEBI another application
addressed to RBI for seeking various permissions under FERA, in a format
that would be specified by RBI for the purpose. RBI's general permission
would be obtained by SEBI before granting initial registration and RBI's
FERA permission together by SEBI, under a single window approach.
5. For granting registration to the FII, SEBI should take into account the track
record of the FII, its professional competence, financial soundness,
experience and such other criteria that may be considered by SEBI to be
relevant. Besides, FII seeking initial registration with SEBI were be
required to hold a registration from the Securities Commission, or the
regulatory organisation for the stock market in the country of
domicile/incorporation of the FII.
6. SEBI's initial registration would be valid for five years. RBI's general
permission under FERA to the FII would also hold good for five years.
Both would be renewable for similar five year periods later on.
7. RBI's general permission under FERA would enable the registered FII to
buy, sell and realize capital gains on investments made through initial
corpus remitted to India, subscribe/renounce rights offerings of shares,
8/8/2019 neelesh pachauri 1
55/108
8/8/2019 neelesh pachauri 1
56/108
What Does Foreign Institutional Investor - FIIMean?
An investor or investment fund that is from or registered in a country outside of the
one in which it is currently investing. Institutional investors include hedge funds,
insurance companies, pension funds and mutual funds.
Regulation imposed by SEBI on FII
(a) "Act" means the Securities and Exchange Board of India Act, 1992 (15 of
1992);
(b) "certificate" means a certificate of registration granted by the Board under
these regulations;
(c) "designated bank" means any bank in India, which has been authorised by
the Reserve Bank of India to act as a banker to Foreign Institutional Investors;
(d) "domestic custodian" includes any person carrying on the activity of
providing custodial services in respect of securities;
(e) "Enquiry officer" means any officer of the Board, or any other person
appointed by the Board under Chapter V of these regulations;
(f) "Foreign Institutional Investor" means an institution established or
incorporated outside India which proposes to make investment in India in
securities;
8/8/2019 neelesh pachauri 1
57/108
(g) "Form" means a form specified in the First Schedule to these regulations;
(h) "Government of India Guidelines" means the guidelines dated September
14, 1992 issued by the Government of India for Foreign Institutional Investors,
as amended from time to time;
(i) "institution" includes every artificial juridical person;
(j) "schedule" means a schedule to these regulations;
(k) "sub-account" includes those institutions, established or incorporated
outside India and those funds, or portfolios, established outside India, whether
incorporated or not, on whose behalf investments are proposed to be made in
India by a Foreign Institutional Investor.
8/8/2019 neelesh pachauri 1
58/108
Participatory notes (P- Notes)
Participatory notes (PNs / P-Notes) are instruments used by investors or hedgefunds that are not registered with the SEBI (Securities & Exchange Board of India)
to invest in Indian securities. Participatory notes are instruments that derive their
value from an underlying financial instrument such as an equity share and, hence,
the word, 'derivative instruments'. SEBI permitted FIIs to register and participate in
the indian stock market in 1992.
Indian based brokerages buy Indian-based securities and then issue PNs to foreigninvestors.
Any dividends or capital gains collected from the underlying securities go back to
the investors.
Participatory notes are instruments used for making investments in the stock
markets. However, they are not used within the country. They are used outside
India for making investments in shares listed in that country. That is why they arealso called offshore derivative instruments.
In the Indian context, foreign institutional investors (FIIs) and their sub-accounts
mostly use these instruments for facilitating the participation of their overseas
clients, who are not interested in participating directly in the Indian stock market.
For example, Indian-based brokerages buy India-based securities and then issue
participatory notes to foreign investors. Any dividends or capital gains collectedfrom the underlying securities go back to the investors. According to an expert
group constituted by the finance ministry in India, in August 2004, participatory
notes constituted about 46 per cent of the cumulative net investments in equities by
FIIs.
8/8/2019 neelesh pachauri 1
59/108
Any entity investing in participatory notes is not required to register with SEBI
(Securities and Exchange Board of India), whereas all FIIs have to compulsorily
get registered. Trading through participatory notes is easy because participatory
notes are like contract notes transferable by endorsement and delivery. Secondly,some of the entities route their investment through participatory notes to take
advantage of the tax laws of certain preferred countries. Thirdly, participatory
notes are popular because they provide a high degree of anonymity, which enables
large hedge funds to carry out their operations without disclosing their identity.
Participatory notes in brief is as follows :
What are participatory notes or PNs? Participatory notes are instruments used by
foreign funds which are not registered to trade in domestic Indian Capital Markets.
PNs are derivative instruments issued against an underlying security permitting
holders to get a share in the income from the security.
How does it work? Investors who buy PNs deposit their funds in US or European
operations of Foreign Institutional Investors (FII) operating in India . The FII uses
its proprietary account to buy stocks.
Why do investors use PNs? Reason for using PNs is to keep investor name
anonymous, some investors have used them to save transaction and overhead costs.
Tax officials fear that PNs are becoming a favourite with a host of Indian money
launderers who use them to first take funds out of country through hawala and then
get it back using PNs.
Participatory Notes Crisis of 2007
On the 16th of October, 2007, SEBI (Securities & Exchange Board of India)
proposed curbs on participatory notes which accounted for roughly 50% of FII
8/8/2019 neelesh pachauri 1
60/108
investment in 2007. SEBI was not happy with P-Notes because it is not possible to
know who owns the underlying securities and hedge funds acting through PNs
might therefore cause volatility in the Indian markets.
However the proposals of SEBI were not clear and this led to a knee-jerk crash
when the markets opened on the following day (October 17, 2007). Within a
minute of opening trade, the Sensex crashed by 1744 points or about 9% of its
value - the biggest intra-day fall in Indian stock-markets in absolute terms. This led
to automatic suspension of trade for 1 hour. Finance Minister P.Chidambaram
issued clarifications, in the meantime, that the government was not against FIIs and
was not immediately banning PNs. After the markets opened at 10:55 am, theystaged a remarkable comeback and ended the day at 18715.82, down just 336.04
from Tuesdays close after tumbling to a days low of 17307.90.
This was, however not the end of the volatility. The next day (October 18, 2007),
the Sensex tumbled by 717.43 points 3.83 per cent to 17998.39, its second
biggest fall. The slide continued the next day when the Sensex fell 438.41 points to
settle at 17559.98 at the end of the week, after touching the lowest level of thatweek at 17226.18 during the day.
The SEBI chief, M.Damodaran held an hour long conference on the 22nd of
October to clear the air on the proposals to curb PNs where he announced that
funds investing through PNs were most welcome to register as FIIs, whose
registration process would be made faster and more steamlined. The markets
welcomed the clarifications with an 879-point gain its biggest single-day surge on October23, thus signalling the end of the PN crisis. SEBI issued the fresh
rules regarding PNs on the 25th of October, 2007 which said that FIIs cannot issue
fresh P-Notes and existing exposures were to be wound up within 18 months.
8/8/2019 neelesh pachauri 1
61/108
UPSE
U.P. Stock Exchange Association Ltd.
The UP Stock Exchange association limited, Kanpur is situated at avery important place. It holds a very important position among otherexisting stock exchanges in India. The exchange was inaugurated on 27th
august 1982 by the then finance minister Shri Pranab Mukherjee. Fromthe very first day it has been playing role in the development of thecapital market of north India.
Incorporation in 15th NOV 1979 and Commencement of business on5th May 1982 has made a long way through the time.
The UP Stock Exchange association limited, Kanpur occupies a very prominent place among the existing Stock Exchanges in India. Theexchange was inaugurated on 27th august 1982 by the then finance
minister Shri Pranab Mukherjee. Right from its inception it has beenplaying a very prominent role in the development of capital market ofnorthern India. UPSE is the only. Initially it had 350 members whichhave now increased to 540 members belonging to almost all importantcities of the country. Members living outside Kanpur have contributed alot by creating the equity cult in whole of the Uttar Pradesh. Not onlythese members are highly qualified and professional and devoted to thecause of capital formulation in the country.
The Exchange was initially started in the rented building but with theefforts of our members, a new complex was constructed and wasinaugurated by his Excellency Shri R Venkatraman the then President ofIndia on 8th February, 1989.
8/8/2019 neelesh pachauri 1
62/108
At present we have 843 companies listed with the total capitalizationof Rs. 81184 Crores. The annual turnovers of this Exchange for the lastthree years are : 1998-99: 18429 Crores, 1999-2000: 23876 Crores and2000-01: 25112 Crores. Thus every year we have increased our turnover
creating more and more awareness among the people of Northern India.
This stock Exchange is wedded to the investors protection andinvestors education as we have firm conviction that any investor
protection cannot be achieved without proper awareness and education ofinvestors. Thus the Exchange has a very active investor service Cell andalso a very equipped Research and Development Wing is functioning.
We have also a very effective system of readdressing the investorscomplaints.
The Exchange has one of the best developed Exchanges of the countryso far its infrastructure is concerned. The Ex-Finance Minister Dr.Manmohan Singh, Ex-Commerce Minister Shri Pranab Mukherjee, othercentral Ministers and Chief Ministers Uttar Pradesh have visited thisExchange and appreciated its efforts in maintaining the transparency andthe integrity of the market. To keep pace of changing technology the
Exchange has embarked upon the Project of Screen Based Trading. TheOn-Line Trading based on VECTOR Software supplied by CMC hascommenced on UPSE from 11th November 1997.
To increase the further business and to facilitate the On-Line tradingfacility to about 22 members at Lucknow an additional trading Floor has
been established at Lucknow. At present at the additional trading at
Lucknow 22 Lucknow based members have been allotted ComputerTerminals which have been connected with UPSE main server viaVSAT.
8/8/2019 neelesh pachauri 1
63/108
As per recent decision of SEBI for the revival of the smaller StockExchanges in the country, they can obtain the membership of big StockExchanges like, BSE, NSE, CSE etc. through forming a subsidiarycompany of the Exchange and in turn the members of the Exchange can
trade through the said subsidiary as sub-broker(s).
Accordingly we have incorporated a wholly owned subsidiary namelyUPSE Securities Ltd. and obtained the membership of BSE to enable themembers of UPSE on BOLT.
Main objective of UPSE
1. To organize and carry on the stock exchange andregulate the business of exchange and stock and share, debenturesand debenture stocks. Government securities, bonds and equities ofany description and with a view to establish and conduct stockexchange in Kanpur.2. To acquire the membership of any other recognized
exchange in India and abroad including membership of OCTEL,broad base the operations of the stock exchange for the benefit ofthe general public and investor.3. To promote one or more subsidiary whether wholly or
partly owned, with object to promote the trade in share and stocks,debenture bond and other securities of any description issued bycompanies statutory corporation, government of state or uniongovernment, financial institution.4. Provides quotation for shares/stock for fascinating and
marketability.5. Extends liquidity (conversion in to cash) to such stockas they are easily marketable and traded.6. Provides an orderly regulated market for securitieswhose prices are determined by the free market forces of supplyand demand.7. Promotes savings and investments in the economy byattracting funds for investment in corporate share and securities.
8/8/2019 neelesh pachauri 1
64/108
Location and other communication details:
THE UTTAR PRADESH STOCK EXCHANGE ASSOCIATION LTD.
Padam Towers, 14/113, Civil Lines, Kanpur-208001
Telephone No: 2338115, 2338074
Fax No: 0512-2338175/2338220
Email Address: [email protected],
Website: upse-india.com
LIST OF DIRECTORS IN THE BOARD (UPSE) FOR THE YEAR
2009-2010
(Constituted on 29-03-10)
SL. No. Name of Director Particulars Telephone/ Fax Nos.
1. Shri K. D. Gupta Public Interest Director
Telephone No: 0512-2556585/2535356
Address: Flat No. 104, Ratan Bhawan 9336453452
7/108A, Swaroop Nagar, [email protected]
mailto:[email protected]:[email protected]:[email protected]:[email protected]8/8/2019 neelesh pachauri 1
65/108
2. Shri A. K. Shah Public Interest Director
Telephone No: 0512-2550688/2540383
Address: Registrar of U.P. & Uttarakhand 0512-2540423 (Fax)
10/499-B, Allenganj, 9935606399Kanpur-208002
3. Shri T. K. Das Public Interest Director Telephone No: 011-22756035
Address: Flat No. A-201, 9910518074
Anand Lok Society (purvasha),Mayur Vihar, Phase-1 Delhi-110091
4. Shri B. K. NadhaniExecutive Director
Telephone No: 0512-2338288, 2338153, 9793035588
Address: The U.P. Stock Exchange Assn. Ltd.
Padam Towers, 14/113, Civil Lines, Kanpur
Kanpur-208002
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]8/8/2019 neelesh pachauri 1
66/108
5. Shri S. K. KanodiaTrading Member Director
Telephone No: 0512-2305958, 0512-2305883 (Fax), 9839035346
Address: Director
Kanodia Shares & Securities (P) Ltd.
407, Padam Towers, 14/113 Civil Lines,Kanpur
6. Shri Rajesh Agrawal Trading Member Director Telephone No: 9336332505
Address: C/o. Haryana Securities
407, Padam Towers, 14/113 Civil Lines,
Kanpur
7. Shri G. S. Diwedi Trading Member Director
Telephone No: 0512-2338192, 193, 0512-264381 (R), 9415074767
Address: 49/62, Nayaganj,
Kanpur
8. Shri Ashok Sharma Shareholder Director
Telephone No: 0512-2366629, 0512-2363726, 0512-3042039 (R)
Address: Chartered Accountant
58/4, Birhana Road, 9839068023
8/8/2019 neelesh pachauri 1
67/108
Post Box No. 389, Kanpur-01
9. Shri Mukul Tandon Shareholder Director
Telephone No: 0512-2373680, 2393970, 9336114347, 9935568890
Address: 413, Plaza Kalpana
24/14-A, Birhana Road
Kanpur-01
10. Shri R. K. Agrawal Sahreholder Director
Telephone No: 9336117324, 9336222842
Address: 3/109, VishnupuriKanpur-208001
11. Shri S. K. Jain FCA Sahreholder Director
Telephone No: 0512-2531195/2532110, 9871055255,9839032305
Address: 113/233, Swaroop NagarKanpur-208001
12. Shri S. K. Gupta Sahreholder Director
Telephone No: 0512-2302737, 9839084094, 9336103555
Address: 51/40, Goldiee House, NayaGanjKanpur-208001
8/8/2019 neelesh pachauri 1
68/108
13. Shri Vinod Kumar Sahreholder Director
Telephone No: 0522-2208030, 9415012598
Address: FF-2, Rajnigandha-2
Gulmohar Avenue3-C, Gokhla Marg, Lucknow-226001
8/8/2019 neelesh pachauri 1
69/108
DEPARTMENTS
1. R & D department
2. Membership Inspection / Grievances / Complain / Audit
3. Listing
4. Market operation department (Margin)
5. Secretarial Department
6. Surveillance Department
7. EDP (Computer)
8. Accounts
9. Legal
10. UPSE securities (Subsidiary Company)
11. Clearing House (Trade and Operation)
8/8/2019 neelesh pachauri 1
70/108
1. R & D, Library and Investor service department
Research and development wing of the Uttar Pradesh Stock ExchangeAssociation Limited has been functioning eve since 1992 under SEBIdirection and providing valuable services to the investors. The wing
presently names investor service center has a well maintained, librarycomprising of books, journals, periodicals, and newspapers on financialmarket, annual reports of companies, prime directory etc.
They maintain the records of day to day quotations of major
exchanges, the annual reports of companies, PRIME directory, completeset of volumes of the Stock Exchange, Mumbai Directories. Along withthis it also maintains the news letters, daily bulletin, books on CapitalMarkets, Investor awareness, Budget Taxation with other relevant books.
The UPSE has been organizing summer camps to give trainings toCompany Securities and MBAs different institutes giving those completedata and helping the student to know the practical day-to-day working ofthe exchanges. Along with this it also organizes Investor AwarenessShows.
The changing technology has helped the exchange to install acorporate database of over 7000 companies. The rates of UPSE, BSE,and NSE are displayed live for the benefit of investors.
There are three main function of this department
To render investor services To maintain library To conduct research a