Assignment

Indian Stock Market

Name: Registration No.:
Noora Zulfiqar L1F13BBAM0339
Ramsha Akhtar L1F13BBAM0411
Gohar Shabbir L1F13BBAM2358
Hafsa Azam L1F14BBAM7051
Talha Afzal L1F14BBAM0131
Subject:
Investment Analysis
Section:
A
Submitted To:
Mr. Usman Yusuf
Table of Contents
Introduction to the Indian Stock Market ....................................................................................................... 3
The BSE and NSE: ...................................................................................................................................... 3
Trading Mechanism: ................................................................................................................................. 4
Settlement Cycle and Trading Hours: ....................................................................................................... 4
Market Indexes: ........................................................................................................................................ 4
Market Regulation: ................................................................................................................................... 4
Who Can Invest In India? ...................................................................................................................... 5
Restrictions/Investment Ceilings: ............................................................................................................. 6
Dealers/Brokers in BSE & NSE of India: ..................................................................................................... 6
Role of Dealers in Primary Market: .......................................................................................................... 7
Role of Dealers in Secondary Market: ...................................................................................................... 8
Brokerage Charges:................................................................................................................................... 8
Registered Brokers:................................................................................................................................... 9
Authorized Person:.................................................................................................................................. 10
Underwriter: ............................................................................................................................................ 11
Merchant Bankers: .................................................................................................................................. 12
Stock Broker: .......................................................................................................................................... 13
Sub Broker: ............................................................................................................................................. 13
Remisier: ................................................................................................................................................. 14
Flat Fee or Discount Brokers: ................................................................................................................. 14
References:.................................................................................................................................................. 16
Introduction to the Indian Stock Market

The BSE and NSE:

Most of the trading in the Indian stock market takes place on its two stock exchanges:
the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE has been
in existence since 1875. The NSE, on the other hand, was founded in 1992 and started trading in
1994. However, both exchanges follow the same trading mechanism, trading hours, settlement
process, etc. At the last count, the BSE had about 4,700 listed firms, whereas the rival NSE had
about 1,200. Out of all the listed firms on the BSE, only about 500 firms constitute more than
90% of its market capitalization; the rest of the crowd consists of highly illiquid shares.

Almost all the significant firms of India are listed on both the exchanges. NSE enjoys a
dominant share in spot trading, with about 70% of the market share, as of 2009, and almost a
complete monopoly in derivatives trading, with about a 98% share in this market, also as of
2009. Both exchanges compete for the order flow that leads to reduced costs, market
efficiency and innovation. The presence of arbitrageurs keeps the prices on the two stock
exchanges within a very tight range.
Trading Mechanism:
Trading at both the exchanges takes place through an open electronic limit order book, in
which order matching is done by the trading computer. There are no market
makers or specialists and the entire process is order-driven, which means that market
orders placed by investors are automatically matched with the best limit orders. As a result,
buyers and sellers remain anonymous. The advantage of an order driven market is that it brings
more transparency, by displaying all buy and sell orders in the trading system. However, in the
absence of market makers, there is no guarantee that orders will be executed.

All orders in the trading system need to be placed through brokers, many of which
provide online trading facility to retail customers. Institutional investors can also take advantage
of the direct market access (DMA) option, in which they use trading terminals provided by
brokers for placing orders directly into the stock market trading system.

Settlement Cycle and Trading Hours:

Equity spot markets follow a T+2 rolling settlement. This means that any trade taking
place on Monday, gets settled by Wednesday. All trading on stock exchanges takes place
between 9:55 am and 3:30 pm, Indian Standard Time (+ 5.5 hours GMT), Monday through
Friday. Delivery of shares must be made in dematerialized form, and each exchange has its
own clearing house, which assumes all settlement risk, by serving as a central counterparty.

Market Indexes:
The two prominent Indian market indexes are Sensex and Nifty. Sensex is the
oldest market index for equities; it includes shares of 30 firms listed on the BSE, which represent
about 45% of the index's free-float market capitalization. It was created in 1986 and
provides time series data from April 1979, onward. Another index is the S&P CNX Nifty; it
includes 50 shares listed on the NSE, which represent about 62% of its free-float market
capitalization. It was created in 1996 and provides time series data from July 1990, onward.

Market Regulation:
The overall responsibility of development, regulation and supervision of the stock market rests
with the Securities & Exchange Board of India (SEBI), which was formed in 1992 as an
independent authority. Since then, SEBI has consistently tried to lay down market rules in line
with the best market practices. It enjoys vast powers of imposing penalties on market
participants, in case of a breach.

Who Can Invest In India?

India started permitting outside investments only in the 1990s. Foreign investments are
classified into two categories: foreign direct investment (FDI) and foreign portfolio investment
(FPI). All investments in which an investor takes part in the day-to-day management and
operations of the company, are treated as FDI, whereas investments in shares without any control
over management and operations, are treated as FPI.

For making portfolio investment in India, one should be registered either as a foreign
institutional investor (FII) or as one of the sub-accounts of one of the registered FIIs. Both
registrations are granted by the market regulator, SEBI. Foreign institutional investors mainly
consist of mutual funds, pension funds, endowments, sovereign wealth funds, insurance
companies, banks, asset management companies etc. At present, India does not allow foreign
individuals to invest directly into its stock market. However, high-net-worth individuals (those
with a net worth of at least $US50 million) can be registered as sub-accounts of an FII.

Foreign institutional investors and their sub accounts can invest directly into any of the
stocks listed on any of the stock exchanges. Most portfolio investments consist of investment in
securities in the primary and secondary markets, including shares, debentures and warrants of
companies listed or to be listed on a recognized stock exchange in India. FIIs can also invest
in unlisted securities outside stock exchanges, subject to approval of the price by the Reserve
Bank of India. Finally, they can invest in units of mutual funds and derivatives traded on any
stock exchange.

An FII registered as a debt-only FII can invest 100% of its investment into debt instruments.
Other FIIs must invest a minimum of 70% of their investments in equity. The balance of 30%
can be invested in debt. FIIs must use special non-resident rupee bank accounts, in order to move
money in and out of India. The balances held in such an account can be fully repatriated.
Restrictions/Investment Ceilings:
The government of India prescribes the FDI limit and different ceilings have been prescribed for
different sectors. Over a period of time, the government has been progressively increasing the
ceilings. FDI ceilings mostly fall in the range of 26-100%.

By default, the maximum limit for portfolio investment in a particular listed firm, is decided by
the FDI limit prescribed for the sector to which the firm belongs. However, there are two
additional restrictions on portfolio investment. First, the aggregate limit of investment by all FIIs,
inclusive of their sub-accounts in any particular firm, has been fixed at 24% of the paid-up
capital. However, the same can be raised up to the sector cap, with the approval of the company's
boards and shareholders.

Secondly, investment by any single FII in any particular firm should not exceed 10% of the paid-
up capital of the company. Regulations permit a separate 10% ceiling on investment for each of
the sub-accounts of an FII, in any particular firm. However, in case of foreign corporations or
individuals investing as a sub-account, the same ceiling is only 5%. Regulations also impose
limits for investment in equity-based derivatives trading on stock exchanges.

Dealers/Brokers in BSE & NSE of India:

There are a set of economic units who demand securities in lieu of funds and others who
supply securities for funds. These demand for and supply of securities and funds determine,
under competitive market conditions in both goods and securities market, the prices of securities
which reflect the present value of future prospects of the issuer, adjusted for risks and also prices
of funds. It is not that the users and suppliers of funds meet each other and exchange funds for
securities. It is difficult to accomplish such double coincidence of wants. The amount of funds
supplied by the supplier may not be the amount needed by the user. Similarly, the risk, liquidity
and maturity characteristics of the securities issued by the issuer may not match preference of the
supplier. In such cases, they incur substantial search costs to find each other. Search costs are
minimized by the intermediaries who match and bring the suppliers and users of funds together.
These intermediaries may act as agents to match the needs of users and suppliers of funds for a
commission, help suppliers and users in creation and sale of securities for a fee or buy the
securities issued by users and in turn, sell their own securities to suppliers to book profit. It is,
thus, a misnomer that securities market disintermediates by establishing a direct relationship
between the savers and the users of funds.

Market Participants Number as on March 31 2010

Brokers 9,772
Corporate Brokers 4,424
Sub-brokers 75,577
FIIs 1713
Portfolio Managers 243
Custodians 17
Primary Dealers 20
Merchant Bankers 164
Bankers to an Issue 48
Debenture Trustees 30

Role of Dealers in Primary Market:

Primary dealers (PDs) are important intermediaries in the government securities markets.
There are 19 PDs operating in the market. They act as underwriters in the primary market for
government securities, and as market makers in the secondary market. PDs underwrite a portion
of the issue of government security that is floated for a pre-determined amount. Normally, PDs
are collectively offered to underwrite up to 100% of the notified amount in respect of all issues
where amounts are notified. The underwriting commitment of each PD is broadly decided on the
basis of its size in terms of its net owned funds, its holding strength, and the committed amount
of bids and the volume of turnover in securities. Several facilities have been extended to PDs
given their special role in the government debt market. Reserve Bank of India (RBI) provides
liquidity support to the PDs through LAF (Liquidity Adjustment Facility) against collateral of
government securities and through repo operations/refinance. PDs are also given favored access
to the RBIs open market operations. PDs are permitted to borrow and lend in the money market,
including call money market. PDs can also raise funds through CPs and have access to finance
from commercial banks as any other corporate borrower.
 Satellite dealers (SDs) formed the second tier of trading and distribution of government
securities. They were expected to further strengthen the infrastructure of distribution, enhance
liquidity, provide a retail outlet and encourage holding among a wider investor base. They were
given the facility of SGL, CSGL, current accounts, liquidity support through reverse repo, issue
of CPs, etc. However, the Satellite Dealers Scheme was discontinued since December 2002.

Role of Dealers in Secondary Market:

Most of the secondary market trades in government securities are negotiated between
participants (Banks, FIs, PDs, MFs) having SGL (Constituent Subsidiary General Ledger)
accounts with RBI. These may be negotiated directly between counter parties or negotiated
through brokers. NDS (Negotiated Dealing System) of RBI provides an electronic platform for
negotiating trades in government securities. If a broker is involved, the trade is reported to the
concerned exchange. Trades are also executed on electronic platform of the WDM segment of
NSE. WDM (Wholesale Debt Market) segment of NSE provides trading and reporting facilities
for government securities

Brokerage Charges:
NSE has specified the maximum rates of brokerage that can be levied by trading
members for trades on WDM. The rate depends on the type of security and value of transactions.
The rate for central government securities ranges from 5 paise to 25 paise for every Rs. 100 of
transactions. Similarly, it ranges from 10 paise to 50 paise for state government securities. It is
1% of the order value for debentures, securitized debt and commercial paper. Details are as
under:

Government of India Securities and T-Bills

Order Value up to Rs.10 million 25 ps. per Rs.100
More than 10 million upto 50 million 15 ps. per Rs.100
More than 50 million upto 100 million 10 ps per Rs.100
More than 100 million 5 ps per Rs.100
State Govt. Securities & Institutional Bonds
Order Value upto Rs.2.5 million 50 ps. per Rs.100
More than 2.5 million upto 5 million 30 ps. per Rs.100
More than 5 million upto 10 million 25 ps per Rs.100
More than 10 million upto 50 million 15 ps per Rs.100
More than 50 million upto 100 million 10 ps per Rs.100
More than 100 million 5 ps per Rs.100
PSU & Floating Rate Bonds
Order Value upto Rs.10 million 50 ps. per Rs.100
More than 10 million upto 50 million 25 ps. per Rs.100
More than 50 million upto 100 million 15 ps per Rs.100
More than 100 million 10 ps per Rs.100
Commercial paper and Debentures 1% of the order value
A trading member is required to pay transaction charges @ Rs. 0.25 per lakh of turnover
subject to maximum of Rs. 1 lakh per year. However, this has been waived at present for
trading members.

Registered Brokers:
An investor or stake holder have to trade through registered brokers/ brokerage houses of
the stock exchanges and it doesnt require the direct involvement of the company. BSE (Bombay
stock exchange of India) has a number of registered brokers which are registered with the
commission.

Registered brokers are allowed to engage in execution of trade on others behalf as per the laws,
rules and regulations.

Role of brokers:

Buying and selling of share and other securities

Engage in execution of trade

Registration process in BSE:

Has to apply through the stock exchange of which he is a member

The application must be forward by the exchange to SEBI within 30 days from the date
of receipt
 The exchange also includes a statement to the effect that no complaints/ arbitration cases
are pending against the applicant.

For granting registration SEBI checks:

Whether or not he is eligible to be a member of the stock exchange

Has the necessary infrastructure including manpower to discharge his activities
Has past experience in the business of buying , selling or dealing in securities.
Whether there are any disciplinary proceedings against him by the stock exchange

Authorized Person:
AP means any person Individual, partnership firm, LLP (Limited Liability Partnership)
or body corporate who is appointed as such by a stock broker (including trading member) and
who provides access to trading platform of a stock exchange as an agent of the stock broker.

A stock broker may appoint one or more authorized person(s) after obtaining specific
prior approval from the stock exchange concerned for each such person. The approval as well as
the appointment shall be for specific segment of the exchange. All authorized persons are
required to obtain a Certificate of Registration from the Exchange without which they are not
permitted to deal in securities. SEBI has directed through circular no. MIRSD/DR-1/Cir-18/09
dated November 06, 2009, that no broker shall deal with a person who is acting as a authorized
person unless he is registered with Exchange and it shall be the responsibility of the member-
broker to ensure that his clients are not acting in the capacity of an Authorized person unless they
are registered with the Exchange as authorized person. It is mandatory for member-brokers to
enter into an agreement with the Authorized person. The agreement lays down the rights and
responsibilities of member-brokers as well as Authorized person.

Eligibility Criteria for Individuals:

Should be a citizen of India

Should not be less than 18 years of age.
Should not have been convicted of any offence involving fraud and dishonesty.
Should have good reputation and character.
 Should have passed at least 10th standard or equivalent examination from an institution
recognized by the Government.
The Authorized Person shall also have the necessary infrastructure like adequate office
space, equipment and manpower to effectively discharge the activities on behalf of the
Trading Member.

Eligibility Criteria for a Partnership Firm, LLP or Body Corporate:

All the partners and directors, as the case may be, must comply with the eligibility criteria for
individuals given above.
The Object Clause of the Partnership Deed and the Memorandum of Association must
contain a clause permitting the person to deal in securities business.
The Authorized Person shall also have the necessary infrastructure like adequate office
space, equipment and manpower to effectively discharge the activities on behalf of the
Trading Member.

Processing Fees:

1. For AP Registration Rs. 2000/- per segment (plus service Tax)

2. For AP Cancelation Rs. 1000/- per segment (plus service Tax)

Underwriter:
An underwriter is a company, usually investment bank that helps companies introduce
their new securities to the market. The firm charges a commission for providing this service.

A securities underwriter in BSE, is the entity that helps corporation raise money from
investors. Most companies just aren't set up to manage the sale and then disbursal of millions of
their investment securities. A securities underwriter relieves a client corporation of much of the
risk attached to selling its securities. Investment banks such as Kotak investment banking are
primarily in the business of securities underwriting. Securities underwriters work hard to sell
newly issued stocks or bonds to large numbers of investors. When investment banks buy clients'
securities to profit off underwriting spreads, they've made what's called a firm commitment
offering.
Merchant Bankers:
In NSE, Merchant Bankers play a very important role in the IPO process of EMERGES
and also have a role in Post listing phase. Their responsibilities are higher on the EMERGE
platform as in addition to the conventional role of managing and underwriting the IPO, they are
also responsible for ensuring market making for a period of three years from the IPO.

Role of Merchant Banker:

Educating the applicant company: To inform and educate the applicant about capital
market rules & regulations, the IPO process and post listing requirements.
Due diligence & DRHP Preparation: The merchant banker would be closely associated in
preparing the new applicant's prospectus and other related listing documents. The Merchant
Banker shall conduct a due diligence on the applicant and provide due diligence certificate as
per Form A of Schedule VI of the ICDR including additional confirmations as provided in
Form H of Schedule VI along with the offer document to the exchange. The other
certifications as mentioned in ICDR, Schedule VI will be provided, if applicable.
Display of offer-document on website: The merchant banker shall display the offer
document on its website after the final approval is obtained and the RHP is filed with RoC
and SEBI.
Market-Making arrangement: The Merchant banker shall ensure compulsory market
making through the stock brokers of SME exchange in the manner specified by the Board in
chapter XB, for a minimum period of three years from the date of listing of specified
securities on SME exchange.
Underwriting arrangement: The merchant banker shall ensure that the issue is 100%
underwritten and 15% of the underwriting should be by the merchant banker in own books.
Arrangement with nominated investors: In terms of provisions of Chapert XB of the
ICDR, merchant bankers could enter into arrangements with nominated investors (PE funds
& QIBs as defined therein) for facilitating market making and underwriting. The merchant
banker shall disclose their arrangements with Nominated investors to the exchange in the
Final Offer document.
Stock Broker:
The Indian law defines a stockbroker simply as a member of a recognized stock
exchange. Therefore, a registered stockbroker is a member of at least one of the recognized
Indian stock exchanges. Stockbrokers are not allowed to buy, sell, or deal in securities, unless
they hold a certificate granted by SEBI. At the end of March 2009, they numbered 8,652. Each
stockbroker is subject to capital adequacy requirements consisting of two components: basic
minimum capital and additional or optional capital related to volume of business. The basic
Indian Capital Market: Recent Developments and Policy issues 169 minimum capital
requirement specified by SEBI regulation is Rs. 10, 00,000/- . However the stock exchanges can
require their respective members to deposit with them larger amounts.

Sub Broker:
A Sub-broker means any person not being a member of a Stock Exchange who acts on
behalf of a Member as an agent or otherwise for assisting the investors in buying, selling or
dealing in securities through such Member.
All the sub-brokers are required to obtain a Certificate of Registration from SEBI without
which they are not permitted to deal in securities. SEBI has directed that no broker shall deal
with a person who is acting as a sub-broker unless he is registered with SEBI and it shall be the
responsibility of the member-broker to ensure that his clients are not acting in the capacity of a
sub-broker unless they are registered with SEBI as a sub-broker.
It is mandatory for Members to execute an agreement with all the sub-brokers. The
agreement specifies the rights and responsibilities of Members as well as sub-brokers. Most
stockbrokers in India are still relatively small. They cannot afford to directly cover every retail
investor in a geographically vast country and in such a complex society. Thus, they are permitted
to transact with sub brokers as the latter play an indispensable role in intermediating between
investors and the stock market. An applicant for a sub broker certificate must be affiliated with a
stockbroker of a recognized stock exchange. A sub broker application may take the form of sole
proprietorship, partnership, or corporation. A sub broker acts on behalf of the stock broker but
often in practice the broker treats his sub-broker as a counter party thus preventing the privity of
investors with the broker. To provide better clarity and transparency SEBI has initiated of
criminal actions on complaints received against unregistered sub-brokers in suitable cases.
Remisier:
A Remisier is a person who is engaged by a member-broker primarily to solicit business
in securities on a commission basis. Remisiers can operate BOLT (BSC Online Trading System)
terminals at members office only. However it is clarified that at present, BOLT terminals cannot
be installed at Remisiers Office in view of SEBI circular no SMDRP/Policy/Cir-49/2001 dated
October, 22, 2001 which states that BOLT terminals should be installed at Members Offices or
their associated Sub-Brokers offices only. The applications for remisiers are approved by the
exchange only SEBI approval is not required for remisiers application. The board has also
revived the institution of remisier. It has also prohibited dealing between unregistered sub
brokers or unregistered remisiers. With the advancement in internet technology, investors can
also obtain live updates on the current stock market and could now choose to invest via online
trading. Online trading is an electronic client ordering system which allows an investor, to place
orders electronically via the Internet to investment banks and stock brokerage companies.

Flat Fee or Discount Brokers:

With the increase in Internet penetration in India, more and more trading is being done
online. This has led to a new breed of brokers, which are also known as Discount brokers.
Compared to full service brokers, you can think discount broker as someone who provides very
competitive brokerage rates with a good customer services. Some of the additional services like
stock recommendations and portfolio management services are not provided by Discount brokers
which are provided by full service broker. Discount brokers are good for do-it-yourself kind of
investors. Lately they are becoming very popular in India as more and more people have access
to broadband and many people try to invest using their own knowledge.

While the services offered by them varies from broker to broker, many of the discount
stock brokers do not provide services like stock research, investment in IPOs, Mutual Funds,
FDs, Bonds and NCDs. They generally do not have their own research teams and thus do not
provide wealth management related services but they do provide a very competitive broking
structure.

Discount Brokerage is a new concept in India and its picking up very quickly. There are two sub
categories of discount brokers in India by the way they charge the brokerage:
 1. Brokers charging Fixed Price per Trade : These are the brokers who charges fixed price
brokerage per trade irrespective to the size of trade. The charges are also very low and
vary from Rs 9 per trade to Rs 20 per trade.
2. Brokers charging Fixed Monthly Fees for unlimited Trades: These are some discount
brokers who charge fixed monthly fees and offers unlimited trading in selected segments
and exchanges. The main discount brokers providing these services are RKSV and SAS
online. They have a very competitive unlimited trading plan from Rs 999 to Rs 3999
depending on the exchange and services you need. There broking charges compared to full
service brokers like ICICI direct or Share Khan are less by more than 90%. So you can end
up saving a lot of brokerage if you trade with these discount brokers.

List of Registered Companies in BSE:

Adani Ports (BSE: ADANIPORTS/ ADANIPORTS)
Asian Paints (BSE: ASIANPAINT/ ASIANPAINT)
Axis Bank (BSE: AXISBANK/ AXISBANK)12
Bajaj Auto Ltd (BSE: BAJAJ-AUTO/ BAJAJ-AUTO)
Bharti Airtel Ltd (BSE: BHARTIARTL/ BHARTIARTL)
Cipla Ltd (BSE: CIPLA/ CIPLA)
Coal India Ltd (BSE: COALINDIA/ COALINDIA)
Dr. Reddy's Laboratories Ltd (BSE: DRREDDY/ DRREDDY)
GAIL (BSE: GAIL/ GAIL)
HDFC (BSE: HDFC/ HDFC)
Hindustan Unilever Limited (BSE: HINDUNILVR/ HINDUNILVR)
ICICI Bank (BSE: ICICIBANK/ ICICIBANK)
Infosys (BSE: INFY/ INFY)
ITC (BSE: ITC/ ITC)
Larsen (BSE: LT/ LT)
M&M (BSE: M&/ M&)
Maruti Suzuki (BSE: MARUTI/ MARUTI)
NTPC Ltd (BSE: NTPC/ NTPC)
Oil and Natural Gas Corporation Ltd (BSE: ONGC/ ONGC)
Power Grid Corporation of India (BSE: POWERGRID/ POWERGRID)
Reliance Industries Ltd (BSE: RELIANCE/ RELIANCE)
State Bank of India (BSE: SBIN/ SBIN)
Sun Pharmaceutical Industries Ltd (BSE: SUNPHARMA/ SUNPHARMA)
Tata Motors Ltd (BSE: TATAMOTORS/ TATAMOTORS)
Tata Steel Ltd (BSE: TATASTEEL/ TATASTEEL)
References:
http://www.indiansharebroker.com/lowest-brokerage-charges-in-india/

https://www.nseindia.com/emerge/

http://www.indiansharebroker.com/discount-brokers/

http://www.marketcalls.in/trading-lessons/market-makers-india-brief-overview.html

https://www.nseindia.com/emerge/emerge_brochure.pdf

https://en.wikipedia.org/wiki/Bombay_Stock_Exchange

https://en.wikipedia.org/wiki/National_Stock_Exchange_of_India