PROJECT REPORT ON

INDIAN CAPITAL MARKET

A Major project report submitted in partial fulfillment of the requirement for the degree of

INTEGRATED MASTERS

OF

BUSINESS ADMINISTRATION (IMBA)

(2013-2018)

Submitted by: Submitted to:

Younis Jabbar Bhat MS. Kiran Jeet Kaur

Roll No.: 3803 Asst. professor (CIBM)

IMBA 10th SEM

DEPARTMENT OF BUSINESS MANAGEMENT

(SANGHOL, PUNJAB)
 TABLE OF CONTENTS
DECLARATION ............................................................................................................................ 3

GUIDE CERTIFICATE.................................................................................................................. 4

CHAPTER.1 ................................................................................................................................... 5

INTRODUCTION TO THE TOPIC ............................................................................................... 5

CHAPTER.2 ................................................................................................................................. 32

OBJECTIVES OF THE STUDY .................................................................................................. 32

CHAPTER.3 ................................................................................................................................. 34

RESEARCH METHODOLOGY.................................................................................................. 34

CHAPTER.4 ................................................................................................................................. 37

ANALYSIS AND INTERPRETATION ...................................................................................... 37

CHAPTER.5 ................................................................................................................................. 70

FINDINGS AND RECOMMENDATIONS................................................................................. 70

BIBLIOGRAPHY ......................................................................................................................... 73
 DECLARATION
I do hereby declare that the Project entitled “INDIAN CAPITAL MARKET” is an authentic
work developed by me Under the guidance of MS. Kiran Jeet Kaur submitted in partial
fulfillment of the requirements for the award of the degree of Integrated Master of Business
Administration (IMBA) to the CORDIA INSTITUTE OF BUSINESS MANAGEMENT,
SANGHOL (Punjab).

I also declare that, any or all contents incorporated in this Project have not been submitted in any
form for the award of any degree or diploma of any other institution or university.

Dated:

(YOUNIS JABBAR BHAT)

 GUIDE CERTIFICATE

This is certify that this report titled “INDIAN CAPITAL MARKET” submitted to cordia
institute of business management in partial fulfillment of integrated masters in business
administration(IMBA) course is based on an independent work carried out by YOUNIS
JABBAR BHAT under the guidance and supervision of MS. Kiran Jeet Kaur
(PROFFESSOR OF CIBM).

PROJECT GUIDE: MS. Kiran Jeet Kaur

( PROF. OF CIBM)

(YOUNIS JABBAR BHAT)

 CHAPTER.1

INTRODUCTION TO THE TOPIC

 CAPITAL MARKET

The term capital market refers to the institutional arrangements for facilitating the
borrowing and lending of long term funds. In the widest sense it consists of a series of channels
through which the savings of the community are made available for industrial and commercial
enterprises and public authorities. It is concerned with those private savings, individuals as well
as corporate those are turned in to investments through new capital issues and also new public
loans floated by government and semi government bodies.
A capital market may be defined as an organized mechanism for effective and efficient transfer
of money capital or financial resources from the investing parties i,e. individuals or institutional
savers to the entrepreneurs engaged in the industry or commerce in the business either be in the
private or public sectors of an economy.

OBJECTIVE & IMPORTANCE OF CAPITAL MARKET

An efficient capital market is a pre requisite of economic development. A capital market strives
for-

 The mobilization or concentration of national savings for economic development

 The mobilization and import of foreign capital and investment to augment the deficit in
the required financial resources so as maintain the expected rate of economic growth.
 Effective allocation of the mobilized financial resources by directing the same to projects
yielding highest yield or to the projects needed to promote balanced economic
development.
INDIAN CAPITAL MARKET

The Indian Capital Market may be classified into two categories.

 Organized
 Unorganized

In the organized sector, the demand for long term capital comes from corporate enterprises,
public sector enterprises, and government and semi government institutions. The sources of
supply of funds comprise individual investors, corporate and institutional investors, investment
intermediaries, financial institutions, commercial banks and government. In India, even the
organized sector for capital market was ill developed till recently because of the following
reasons:

1. Agriculture was the main occupation which did not lend itself to the floatation of
securities.
2. The foreign business houses hampered the growth of securities market.
3. Managing agency system also accounted for ill development of capital market as
managing agents performed both activities of promotion and marketing of securities.
4. The investment habit of individuals.
5. Restrictions imposed on the investment pattern of various financial institutions.

The unorganized sector of the capital market consists of indigenous bankers and private
money lenders. The main demand in the unorganized capital market comes from the
agriculturists, private individuals for consumption rather than production and even small traders.
The supply of money capital comers usually from won resources of money lenders and falls
short of the requirements made on them.
COMPONENTS OF CAPTIAL MARKET

The following are the three main components of a capital market:

1. New Issue Market / Primary Market
2. Stock Market / Secondary Market
3. Financial Institutions

NEW ISSUE MARKET

The new issue market represents the primary market where new securities i.e. shares or
bonds that have never been previously issued are offered. Both the new companies and the
existing ones can raise capital on the new issue market. The prime function of the new issue
market is to facilitate the transfer of funds form the willing investor to the entrepreneurs setting
up new corporate enterprises or going in for expansion, diversification, growth or modernization.

STOCK MARKET

Stock market represents the secondary market where existing securities are traded; stock
exchange provides an organized mechanism for purchase and sale of existing securities. By now,
we have 24 stock exchanges in our country.

FINANCIAL INSTITUTIONS

Financial institutions are the most active constituent of the Indian capital market. Such
organizations provide medium and long term loans on easy installments to beg business houses.
Such institutions help in promoting new companies; expansion and development of existing
companies and meeting the financial requirement of companies during economic depression.
 INDAIN CAPTIAL MARKET MECHANISM

Supply of Components
Money of Capital
Capital Market
Individuals 1. New Issue Individuals

Corporations Market Corporations

Institutions 2. Stock Institutions

Banks Exchange Entrepreneurs

Investors
Clearing House Borrowers
Government 3. Financial Banks
Lenders for Long Term
Buyers of
capital
Institutions Government
Seller of Money Money Capital
Indian Capital Market Mechanism
Capital

EVOLUTION OF INDIAN CAPITAL MARKET

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200
years ago. The earliest records of security dealings in India are meager and obscure. The East
India Company was the dominant institution in those days and business in its loan securities used
to be transacted towards the close of the eighteenth century.

By 1830's business on corporate stocks and shares in Bank and Cotton presses took place
in Bombay. Though the trading list was broader in 1839, there were only half a dozen brokers
recognized by banks and merchants during 1840 and 1850.
The 1850's witnessed a rapid development of commercial enterprise and brokerage
business attracted many men into the field and by 1860 the number of brokers increased into 60.
In 1860-61 the American Civil War broke out and cotton supply from United States of Europe
was stopped; thus, the 'Share Mania' in India begun. The number of brokers increased to about
200 to 250. However, at the end of the American Civil War, in 1865, a disastrous slump began
(for example, Bank of Bombay Share which had touched Rs 2850 could only be sold at Rs. 87).

At the end of the American Civil War, the brokers who thrived out of Civil War in 1874,
found a place in a street (now appropriately called as Dalal Street) where they would
conveniently assemble and transact business. In 1887, they formally established in Bombay, the
"Native Share and Stock Brokers' Association" (which is alternatively known as “The Stock
Exchange "). In 1895, the Stock Exchange acquired a premise in the same street and it was
inaugurated in 1899. Thus, the Stock Exchange at Bombay was consolidated.

Ahmadabad gained importance next to Bombay with respect to cotton textile industry.
After 1880, many mills originated from Ahmadabad and rapidly forged ahead. As new mills
were floated, the need for a Stock Exchange at Ahmadabad was realized and in 1894 the brokers
formed "The Ahmadabad Share and Stock Brokers' Association".

What the cotton textile industry was to Bombay and Ahmadabad, the jute industry was to
Calcutta. Also tea and coal industries were the other major industrial groups in Calcutta. After
the Share Mania in 1861-65, in the 1870's there was a sharp boom in jute shares, which was
followed by a boom in tea shares in the 1880's and 1890's; and a coal boom between 1904 and
1908. On June 1908, some leading brokers formed "The Calcutta Stock Exchange Association".

In 1920, the then demure city of Madras had the maiden thrill of a stock exchange
functioning in its midst, under the name and style of "The Madras Stock Exchange" with 100
members. However, when boom faded, the number of members stood reduced from 100 to 3, by
1923, and so it went out of existence.
In 1935, the stock market activity improved, especially in South India where there was a rapid
increase in the number of textile mills and many plantation companies were floated. In 1937, a
stock exchange was once again organized in Madras - Madras Stock Exchange Association (Pvt)
Limited. (In 1957 the name was changed to Madras Stock Exchange Limited)
POST-INDEPENDENCE SCENARIO

Bangalore Stock Exchange Limited was registered in 1957 and recognized in 1963.

During early sixties there were eight recognized stock exchanges in India (mentioned
above). The number virtually remained unchanged, for nearly two decades. During eighties,
however, many stock exchanges were established: Cochin Stock Exchange (1980), Uttar Pradesh
Stock Exchange Association Limited (at Kanpur, 1982), and Pune Stock Exchange Limited
(1982), Ludhiana Stock Exchange Association Limited (1983), Gauhati Stock Exchange Limited
(1984), Kanara Stock Exchange Limited (at Mangalore, 1985), Magadh Stock Exchange
Association (at Patna, 1986), Jaipur Stock Exchange Limited (1989), Bhubaneswar Stock
Exchange Association Limited (1989), Saurashtra Kutch Stock Exchange Limited (at Rajkot,
1989), Vadodara Stock Exchange Limited (at Baroda, 1990) and recently established exchanges -
Coimbatore and Meerut. Thus, at present, there are totally twenty one recognized stock
exchanges in India excluding the Over The Counter Exchange of India Limited (OTCEI) and the
National Stock Exchange of India Limited (NSEIL).
The Table given below portrays the overall growth pattern of Indian stock markets since
independence. It is quite evident from the Table that Indian stock markets have not only grown
just in number of exchanges, but also in number of listed companies and in capital of listed
companies. The remarkable growth after 1985 can be clearly seen from the Table, and this was
due to the favoring government policies towards security market industry.
 Growth Pattern of the Indian Stock Market:

As on 31st 1946 1961 1971 1975 1980 1985 1991 2003 2017
Sr. No.
December

No. of 24
1 7 7 8 8 9 14 20 24
Stock Exchanges
No. of 11098
2 1125 1203 1599 1552 2265 4344 6229 9871
Listed Cos.
No. of Stock
3 Issues of 1506 2111 2838 3230 3697 6174 8967 11784 16372
Listed Cos.
Capital of Listed 17956
4 270 753 1812 2614 3973 9723 32041 10984
Cos. (Cr. Rs.)

Market value of
5 Capital of Listed 971 1292 2675 3273 6750 25302 110279 1192630 4670227
Cos. (Cr. Rs.)
Capital per
6 Listed Cos. (4/2) 24 63 113 168 175 224 514 1112 1309
(Lakh Rs.)
Market Value of
Capital per Listed
7 86 107 167 211 298 582 1770 12082
Cos. (Lakh Rs.) 18976
(5/2)
CONCEPTS OF INDIAN CAPITAL MARKET

TERMS OF PRIMARY MARKET

 CCI: CCI is an acronym for Controller of Capital Issue. It is a office of Ministry of Finance
and the main objective of it was the fostering of a rational and health growth of corporate
sector by ensuring:

a) That investment does not go into wasteful channels which are not in accordance with the
objectives of the plan;
b) That companies have capital statute which is sound and conducive to the public interest;
and
c) That there is no undue congestion of offers for public subscription during a part of the
year.

In spite of the above mentioned objectives, the Capital Issue Control Act was found
insufficient to monitor or check malpractices of the stock markets. On May 29, 1992 the
Government issued an ordinance abolishing the Capital Issue Control Act, 1947 and giving
the statutory powers to SEBI.

 SEBI: SEBI is an acronym for Security Exchange Board of India. The main purposes of
SEBI are as follows:

a) To protect the interests of investors in securities;

b) To promote the development of the securities market;
c) To regulate the securities market; and
d) For matters connected therewith or incidental thereto.

 Qualified institutional investors (QIBs):Primarily referring to institutions that manage

at least $100 million in securities including banks, savings and loans institutions, insurance
 companies, investment companies, employee benefit plans, or an entity owned entirely by
qualified investors. Also included are registered broker-dealers owning and investing, on a
discretionary basis, $10 million in securities of non-affiliates.

 Market Consolidation: A term used mainly by technical analysts to refer to the movement
of a stock's price within a well-defined pattern or barrier of trading levels.

 ISSUES: There are different kind of issues that are as follows:

DIFFERENT KINDS OF ISSUES IN PRIMARY MARKET

Primarily issues can be classified as a Public, Rights or Preferential issues (also known as
Private Placements). While Public and Right issues involve a detailed procedure; Private
Placements or Preferential Issues are relatively simpler. The classification of issues is illustrated
below:

Public issue can be further 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 DIP guidelines in
its offer document and offers it for subscription.
The significant features are illustrated below:
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 issuer’s securities.

Further Public Offering (FPO) is when an already listed company makes either a fresh issue
of securities to the public or an offer for sale to the public, through an offer document. An offer
for sale in such scenario is allowed only if it is made to satisfy listing or continuous listing
obligations.

Rights Issue (RI)is when a listed company which proposes to issue fresh securities to its
existing shareholders as on a record date. The rights are normally offered in a particular ratio to
the number of securities held prior to the issue. This route is best suited for companies who
would like to raise capital without diluting stake of its existing shareholders unless they do not
intend to subscribe to their entitlements.
Preferential Issues an issue of shares or of convertible securities by listed companies to a
select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights
issue nor a public issue. This is a faster way for a company to raise equity capital. The issuer
company has to comply with the Companies Act and the requirements contained in Chapter
pertaining to preferential allotment in SEBI (DIP) guidelines which inter-alia include pricing,
disclosures in notice etc.

Overseas Issues is a method of raising funds required by a company in foreign exchange. It

provides greater flexibility to the issuer for raising finance and allows room for controlling their
cost of capital. In simple words, overseas issue is an issue made under abroad through
instruments denominated in foreign currency and listed on foreign stock exchange, the
subscription for which may come from any part of the world. Overseas issues mainly include
Global Depository Receipts (GDRs), American Depository Receipts (ADRs), Foreign Currency
Convertible Bonds (FCCBs) and External Commercial Borrowings (ECBs).
GDR is an instrument, denominated in freely convertible foreign currency other than dollar,
which is traded in Stock Exchanges of foreign countries other than United State (US). When a
company issues equity outside its domestic market and equity is subsequently traded in the
foreign market, is usually in the form of Global Depository Receipt. The equity shares of bonds
representing the GDRs are registered in the name of the overseas depository bank and the
share/bond certificate are delivered to another intermediary called the “Domestic Custodian
Bank”. A holder of a GDR is given an option to convert it into equity shares or bonds. However
till conversion, the GDR does not carry any voting rights.

ADRs are the US version of GDRs. American Depository Receipts have almost the same
features as of GDRs with a special feature that ADRs are necessarily denominated in US dollars
and pay dividend in US dollars.

FCCBs are bonds issued to and subscribed by a non-resident in foreign currency which are
convertible into certain number of ordinary shares at a pre-fixed price. They are like convertible
debentures, have a fixed interest rate and a definite maturity period. These bonds are listed on
one or more overseas stock exchanges. The issuer company has to pay interest on FCCBs in
foreign currency till the conversion takes place and if the conversion option is not exercised by
the investor, the redemption of bond is also to be made in foreign currency.
ECBs refer to External Commercial Borrowings is one of the way of obtaining foreign capital
from agencies like US EXIM Bank, Japanese EXIM Bank, ECCG of UK etc. ECBs primarily
include:
(a) Commercial Bank Loans
(b) Securitized borrowings(c) Loans / securitized borrowings with multilateral/bilateral
guarantee (d) Self Liquidating Loans.

 Book Building: Book Building is basically a capital issuance process used in Initial Public
Offer (IPO) which aids price and demand discovery. It is a process used for marketing a
public offer of equity shares of a company. It is a mechanism where, during the period for
 which the book for the IPO is open, bids are collected from investors at various prices, which
are above or equal to the floor price. The process aims at tapping both wholesale and retail
investors. The offer/issue price is then determined after the bid closing date based on certain
evaluation criteria.
The Process:
 The Issuer who is planning an IPO nominates a lead merchant banker as a 'book runner'.
 The Issuer specifies the number of securities to be issued and the price band for orders.
 The Issuer also appoints syndicate members with whom orders can be placed by the
investors.
 Investors place their order with a syndicate member who inputs the orders into the 'electronic
book'. This process is called 'bidding' and is similar to open auction.
 A Book should remain open for a minimum of 5 days.
 Bids cannot be entered less than the floor price.
 Bids can be revised by the bidder before the issue closes.
 On the close of the book building period the 'book runner evaluates the bids on the basis of
the evaluation criteria which may include -
o Price Aggression
o Investor quality
o Earliness of bids, etc.
 The book runner and the company conclude the final price at which it is willing to issue the
stock and allocation of securities.
 Generally, the numbers of shares are fixed; the issue size gets frozen based on the price per
share discovered through the book building process.
 Allocation of securities is made to the successful bidders.
 Book Building is a good concept and represents a capital market which is in the process of
maturing
 TERMS OF SECONDARY MARKET

Terms Of Popular Indices And Stock Exchanges

 NSE: NSE is an acronym for “National Stock Exchange” of India.

 BSE:BSE is an acronym for “Bombay Stock Exchange” of India.

 NIFTY: The National Stock Exchange has an index called the Nifty (officially called S&P
CNX Nifty). This name can be credited to the 50 stocks that comprise its index. The Nifty has 50
stocks covering 24 sectors of the economy.
For one, they are the most actively traded stocks in the market. In fact, they account around 60%
NSE's market capitalization.

 NIFTY JUNIOR: The next rung of liquid securities after S&P CNX Nifty is the CNX Nifty
Junior. It may be useful to think of the S&P CNX Nifty and the CNX Nifty Junior as making up
the 100 most liquid stocks in India.
As with the S&P CNX Nifty, stocks in the CNX Nifty Junior are filtered for liquidity, so they are
the most liquid of the stocks excluded from the S&P CNX Nifty. The maintenance of the S&P
CNX Nifty and the CNX Nifty Junior are synchronized so that the two indices will always be
disjoint sets; i.e. a stock will never appear in both indices at the same time. Hence it is always
meaningful to pool the S&P CNX Nifty and the CNX Nifty Junior into a composite 100 Stock
Index or portfolio.

 CNX Nifty Junior represents about 10% of the total market capitalization as on March
31, 2015.
 The average traded value for the last six months of all Junior Nifty stocks is
approximately 9% of the traded value of all stocks on the NSE
 Impact cost for CNX Nifty Junior for a portfolio size of Rs.2.50 million is 0.15%
 BSE SENSEX Sensex is the most frequently used indictor while reporting on the state of the
market. The Sensex is the oldest index in the country. It was born in 1986. The Sensex has 30
stocks covering 13 sectors.
 The index has just one job: To capture the price movement. So a stock index will reflect the price
movements of shares while a bond index captures the manner in which bond prices go up or
down.
If the Sensex rises, it indicates the market is doing well. Since stocks are supposed to reflect
what companies expect to earn in the future, a rising index indicates investors expect better
earnings from companies.
It is, therefore, also a measure of the state of the Indian economy. If Indian companies are
expected to do well, obviously the economy should do well too.

 NASDAQ:NASDAQ stands for National Association of Securities Dealers Automated

Quotations. NASDAQ is the world's largest electronic stock market, listing approximately 3,600
of the world's most innovative companies. More companies now list on NASDAQ than all other
major US stock markets. NASDAQ trades more shares per day than any other US equities
market.

 NYSE:NYSE is an acronym for New York Stock Exchange of United State of America

Terms Of Equity Returns, Volatility, Market Capitalization & Price Earnings

(P/E) Ratio With Respect To Nifty, Nifty Junior & BSE Sensex

 EQUITY RETURN:
It is a measure of a corporation's profitability, calculated as:

The ROE is useful in comparing the profitability of a company to other firms in the same
industry.

There are several variations on the formula that investors may use:

1. Investors wishing to decipher the return on common equity may modify the formula above by
 subtracting preferred dividends from net income and subtracting preferred equity from
shareholder's equity, so that ROCE = (Net Income - Preferred Dividends)/Common Equity.

2. Return on equity may also be calculated by dividing net income by average shareholder's
equity, (rather than shareholder's equity), over the period. Average shareholder's equity
calculated by adding beginning shareholders equity to ending shareholder's equity and dividing
the result by 2.

3. Investors may also calculate ROE using either beginning shareholder's equity or ending
shareholder's equity as the denominator. Calculating both beginning and ending shareholder's
equity allows an investor to determine the change in profitability over the period.

 VOLATILITY:

Volatility is a statistical measure of the tendency of a market or security to rise or fall sharply
within a period of time.
Volatility is a variable in option pricing formulas that denotes the extent to which the return of
the underlying asset will fluctuate between now and the expiration of the option.

Volatility is typically calculated by using variance or annualized standard deviation of the price
or return. A measure of the relative volatility of a stock to the market is its beta. A highly volatile
market means that prices have huge swings in very short periods of time.

 MARKET CAPITALISATION

The total market value of all outstanding shares. It's calculated by multiplying the number
of shares times the current market price. This term is often referred to as Market Cap.
Market Cap is a measure of a company's size. Brokerages vary on their exact definitions, but the
current approximate classes of market capitalization are:
 Mega Cap : Market cap of $200 billion and greater
Big/Large Cap : $10-$200 billion
Mid Cap : $2 billion to $10 billion
Small Cap : $300 million to $2 billion
Micro Cap : $50 million to $300 million
Nano Cap : Under $50 million

In some parts of the world this can be spelt as market capitalization

 PRICE EARNING RATIO (P/E RATIO):

P/E is short for the ratio of a company's share price to its per-share earnings. As the name
implies, to calculate the P/E you simply take the current stock price of a company and divide by
its earnings per share (EPS):

Market Value per Share

P/E Ratio = -----------------------------
Earnings per Share (EPS)

 The P/E Ratio: Problems with the P/E

So far we've learned that, in the right circumstances, the P/E ratio can help us determine whether
a company is over- or under-valued. But P/E analysis is only valid in certain circumstances and it
has its pitfalls. Some factors that can undermine the usefulness of the P/E ratio include:
  Accounting:

An Earning is an accounting figure that includes non-cash items. Furthermore, the guidelines
for determining earnings are governed by accounting rules (GAAP) that change over time and
are different in each country. To complicate matters, EPS can be twisted, prodded and squeezed
into various numbers depending on how you do the books. The result is that we often don't know
whether we are comparing the same figures, or apples to oranges.

 Inflation:

In times of high inflation, inventory and depreciation costs tend to be understated because the
replacement costs of goods and equipment rises with the general level of prices. Thus, P/E ratios
tend to be lower during times of high inflation because the market sees earnings as artificially
distorted upwards. As with all ratios, it's more valuable to look at the P/E over time in order to
determine the trend. Inflation makes this difficult, as past information is less useful today.

 Many Interpretations:

A low P/E ratio does not necessarily mean that a company is undervalued. Rather, it could
mean that the market believes the company is headed for trouble in the near future. Stocks that
go down usually do so for a reason. It may be that a company has warned that earnings will come
in lower than expected. This wouldn't be reflected in a trailing P/E ratio until earnings are
actually released, during which time the company might look undervalued.

The P/E Ratio: Conclusion

What have we learned about the P/E ratio? Although the P/E often doesn't tell us much, it
can be useful to compare the P/E of one company to another in the same industry, to the market
in general, or to the company's own historical P/E ratios.
Some points to remember:

 The P/E ratio is the current stock price of a company divided by its earnings per share
(EPS).
 Variations exist using trailing EPS, forward EPS, or an average of the two.
  Historically, the average P/E ratio in the market has been around 15-25.
 Theoretically, a stock's P/E tells us how much investors are willing to pay per dollar of
earnings.
 A better interpretation of the P/E ratio is to see it as a reflection of the market's optimism
concerning a firm's growth prospects.
 The P/E ratio is a much better indicator of a stock's value than the market price alone.
 In general, it's difficult to say whether a particular P/E is high or low without taking into
account growth rates and the industry.
 Changes in accounting rules as well as differing EPS calculations can make analysis
difficult.
 P/E ratios are generally lower during times of high inflation.
 There are many explanations as to why a company has a low P/E.
 Don't base any buy or sell decision on the multiple alone.

Terms Of Turnover, Spot Market & Derivative Market

 Turnover:

Turnover means the volume of business over a period of time. Turnover in Stock Market
means volume of equity shares and other instruments traded over a period of time.

 Spot market:

1. A commodities market in which goods are sold for cash and delivered immediately.

2. A futures transaction which will expire in one month or less.

Also called the cash market or physical market.
 Derivative market: A derivative is an instrument whose value is derived from the value of one
or more underlying, which can be commodities, precious metals, currency, bonds, stocks, stocks
indices, etc. Four most common examples of derivative instruments are Forwards, Futures,
Options and Swaps. The market in which they are traded called Derivative Market.
 Terms Of Retail Market

 Retail Market: Retail Investors are the Individual investors who buy and sell securities for
their personal account, and not for another company or organization. Retail investors buy in
much smaller quantities than larger institutional investors.
Retail Investors are also known as an Individual Investor or Small Investor. The Retail Investors
are apart from Institutional Investors.
Market constitutes with Retail Investors called Retail Market.

 NSDL A/Cs: NSDL means National Security Depository Limited. It refers to the accounts
where the securities of the investors are held in electronic form and where transactions of the
securities are carried by means of Book Entry. The investor has to open this account to hold
shares in demat form and undertake scripless trading. As SEBI ha made compulsory trading of
shares of all the companies listed in Stock Exchanges in Demat Form with effect from 2 January,
2002.
 Average Trade Size: average trade size is positively related to return volatility, the standard
deviation of trading volume, and the proportion of shares held by institutional investors.

 Terms Of Mutual Fund

 MUTUAL FUND
Mutual fund is a mechanism for pooling the resources by issuing units to the investors
and investing funds in securities in accordance with objectives as disclosed in offer document.
Investments in securities are spread across a wide cross-section of industries and sectors
and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in
 the same direction in the same proportion at the same time. Mutual fund issues units to the
investors in accordance with quantum of money invested by them. Investors of mutual funds are
known as unit holders.
The profits or losses are shared by the investors in proportion to their investments. The
mutual funds normally come out with a number of schemes with different investment objectives
which are launched from time to time. A mutual fund is required to be registered with Securities
and Exchange Board of India (SEBI) which regulates securities markets before it can collect
funds from the public
 TYPES OF MUTUAL FUNDS:

 Money Market or Liquid Fund:

These funds are also income funds and their aim is to provide easy liquidity, preservation of
capital and moderate income. These schemes invest exclusively in safer short-term instruments
such as treasury bills, certificates of deposit, commercial paper and inter-bank call money,
government securities, etc. Returns on these schemes fluctuate much less compared to other
funds. These funds are appropriate for corporate and individual investors as a means to park their
surplus funds for short periods.

 Gilt Fund:
These funds invest exclusively in government securities. Government securities have no
default risk. NAVs of these schemes also fluctuate due to change in interest rates and other
economic factors as is the case with income or debt oriented schemes.
Income / Debt Oriented Scheme:
The aim of income funds is to provide regular and steady income to investors. Such schemes
generally invest in fixed income securities such as bonds, corporate debentures, Government
securities and money market instruments. Such funds are less risky compared to equity schemes.
These funds are not affected because of fluctuations in equity markets. However, opportunities
of capital appreciation are also limited in such funds. The NAVs of such funds are affected
because of change in interest rates in the country. If the interest rates fall, NAVs of such funds
 are likely to increase in the short run and vice versa. However, long term investors may not
bother about these fluctuations.
 Growth / Equity Oriented Scheme:
The aim of growth funds is to provide capital appreciation over the medium to long- term.
Such schemes normally invest a major part of their corpus in equities. Such funds have
comparatively high risks. These schemes provide different options to the investors like dividend
option, capital appreciation, etc. and the investors may choose an option depending on their
preferences. The investors must indicate the option in the application form. The mutual funds
also allow the investors to change the options at a later date. Growth schemes are good for
investors having a long-term outlook seeking appreciation over a period of time.
 Balanced Fund:
The aim of balanced funds is to provide both growth and regular income as such schemes
invest both in equities and fixed income securities in the proportion indicated in their offer
documents. These are appropriate for investors looking for moderate growth. They generally
invest 40-60% in equity and debt instruments. These funds are also affected because of
fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be
less volatile compared to pure equity funds.

 ELSS (Equity Linked Savings Schemes):

These schemes offer tax rebates to the investors under specific provisions of the Income Tax
Act, 1961 as the Government offers tax incentives for investment in specified avenues. These
schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities
and risks associated are like any equity-oriented scheme.
Terms Of Foreign Institutional Investors
 Foreign Institutional Investors: SEBI Regulations, 1995 define Foreign Institutional
Investors as an institution established or incorporated outside India which proposes to make
investment in India in securities. Investment made by Foreign Institutional Investors called
Foreign Portfolio Investment. Foreign Portfolio Investment refers to a stake taken in an overseas
 business without operational control, but with the view to acquiring an investment income stream
through dividends, capital gains or may be through enhanced business links.

 Gross Turnover: Gross Turnover constitutes with combined turnover of BSE and NSE.
Terms Of Derivative Market

 Derivative market: A derivative is an instrument whose value is derived from the value of one
or more underlying, which can be commodities, precious metals, currency, bonds, stocks, stocks
indices, etc. Four most common examples of derivative instruments are Forwards, Futures,
Options and Swaps. The market in which they are traded called Derivative Market.

 Index Derivatives: Index Derivatives are made up of Index Future and Index Option. That are
described as below:
 Index Futures:
A futures contract is a standardized contract to buy or sell a specific security at a future date
at an agreed price. An index future is, as the name suggests, a future on the index i.e. the
underlying is the index itself. There is no underlying security or a stock, which is to be delivered
to fulfill the obligations as index futures are cash settled. As other derivatives, the contract
derives its value from the underlying index. The underlying indices in this case will be the
various eligible indices and as permitted by the Regulator from time to time. Currently, Index
Futures Contract are available on the flagship Index - SENSEX.

 Index Options:
Options contract give its holder the right, but not the obligation, to buy or sell something on
or before a specified date at a stated price. Generally index options are European Style. European
Style options are those option contracts that can be exercised only on the expiration date. The
underlying indices for index options are the various eligible indices and as permitted by the
Regulator from time to time. Currently, Index Option Contracts are available on the flagship
Index - SENSEX.
 Stock Derivatives: Stock Derivatives are made up of Stock Future and Stock Option. That are
described as below:
 Stock Futures:
Sock futures contract is a standardized contract to buy or sell a specific stock at a future date
at an agreed price. A stock future is, as the name suggests, a future on a stock i.e. the underlying
is a stock. The contract derives its value from the underlying stock. Single stock futures are cash
settled.
 Stock Options:
Options on Individual Stocks are options contracts where the underlying are individual
stocks. Based on eligibility criteria and subject to the approval from the regulator, stocks are
selected on which options are introduced. These contracts are cash settled and are American
style. American Style options are those option contracts that can be exercised on or before the
expiration date.
Terms Of Debt Market

Debt Market: The Debt Market is the market where fixed income securities of various types
and features are issued and traded. Debt Markets are therefore, markets for fixed income
securities issued by Central and State Governments, Municipal Corporations, Govt. bodies and
commercial entities like Financial Institutions, Banks, Public Sector Units, Public Ltd.
companies and also structured finance instruments.

Fixed Income Securities: Fixed Income securities offer a predictable stream of payments by
way of interest and repayment of principal at the maturity of the instrument. The debt securities
are issued by the eligible entities against the moneys borrowed by them from the investors in
these instruments. Therefore, most debt securities carry a fixed charge on the assets of the entity
and generally enjoy a reasonable degree of safety by way of the security of the fixed and/or
movable assets of the company.
Issuance of Fixed Income Securities: Fixed income securities can be issued by almost any
legal entity like Central and State Government, Public Bodies, Banks and Institutions, statutory
corporations and other corporate bodies. There may be legal and regulatory restrictions on each
of these bodies on the type of securities that can be issued by each of them.
 Different Types Of Instruments

Market Issuer Instruments

Segment
Government Central Government Zero Coupon Bonds, Coupon Bearing Bonds, Treasury
Securities Bills, STRIPS

State Governments Coupon Bearing Bonds.

Public Sector Government Agencies / Govt. Guaranteed Bonds, Debentures

Bonds Statutory Bodies

Public Sector Units PSU Bonds, Debentures, Commercial Paper

Private Sector Corporates Debentures, Bonds, Commercial Paper, Floating Rate

Bonds Bonds, Zero Coupon Bonds, Inter-Corporate Deposits

 Determinants of Liquidity

 Turnover Ratio:

A measure of the number of times a company's inventory is replaced during a given time
period. Turnover ratio is calculated as cost of goods sold divided by average inventory during the
time period. A high turnover ratio is a sign that the company is producing and selling its goods or
services very quickly.
In the case of Government Bonds, the percentage of a Government's assets that have changed
over the course of a given time period, usually a year. Turnover ratio for a Government Bonds is
calculated by dividing the average assets during the period by the lesser of the value of purchases
and the value of sales during the same period.
  Impact cost

Suppose a stock trades at bid 99 and ask 101. We say the "ideal" price is Rs. 100. Now,
suppose a buy order for 1000 shares goes through at Rs.102. Then we say the market impact cost
at 1000 shares is 2%. If a buy order for 2000 shares goes through at Rs.104, we say the market
impact cost at 2000 shares is 4%. Market impact cost is the best measure of the liquidity of a
stock. It accurately reflects the costs faced when actually trading an index. For a stock to qualify
for possible inclusion into the S&P CNX Nifty, it has to reliably have market impact cost of
below 0.75 % when doing S&P CNX Nifty trades of half a crore rupees.
Terms Of Commodity Future Market
 Commodity Future Contracts: An agreement to buy or sell a set amount of a commodity at a
predetermined price and date called Commodity Future Contracts. Buyers use these to avoid the
risks associated with the price fluctuations of the product or raw material, while sellers try to
lock in a price for their products. Like in all financial markets, others use such contracts to
gamble on price movements.
Trading in commodity futures contracts can be very risky for the inexperienced. One cause of
this risk is the high amount of leverage generally involved in holding futures contracts. For
example, for an initial margin of $5,000, an investor can enter into a futures contract for 1,000
barrels of oil valued at $50,000. Given this large amount of leverage, even a very small move in
the price of a commodity could result in large gains or losses compared to the initial
margin. Unlike options, futures are the obligation of the purchase or sale of the underlying asset.
Simply not closing an existing position could result in an inexperienced investor taking delivery
of a large quantity of an unwanted commodity
 Commodity Future Market: The market where the commodity future contracts are traded
called Commodity Future Market.
 Commodity Future Exchanges: There are many exchanges where the Commodity Future
Market contracts are traded. Some of them are as follows:
 National Commodity and Derivatives Exchange (NCDEX)
 the National Board of Trade (NBOT)
 Multi Commodity Exchange (MCX)
 National Multi-Commodity Exchange (NMCE)
 CHAPTER.2

OBJECTIVES OF THE STUDY

 OBJECTIVES OF THE PROJECT

The main objectives of my study are as follows:

1. To find out the trend of Indian Capital Market

2. To find and analyze the trends of Primary Market including Private Placements, Public
issues, Right Issues and Overseas issues.

3. To find and analyze the trend of Secondary Market includes Spot Market, Derivatives
and Commodity Trading.

4. To find out the trend in Retail Market.

5. To find out the trend of Debt Market including Government and Corporate bonds.

6. To find out the trend of Foreign Institutional Investors in Spot & Derivative Market
Segment.

7. To make an attempt to understand the various insight stories in the Indian Capital Market.
 CHAPTER.3

RESEARCH METHODOLOGY
 DATA TO BE COLLECTED

 PRIMARY DATA:
The primary data are those which are collected afresh and for the first time and thus happen
to be original in character.
I have collected the primary data through some face to face formal talks with the staff members
of Ludhiana Stock Exchange, Faculty Member and some Stock Market Experts (including
Brokers) in order to understand the various Jargons and inside stories of Indian Capital Market

 SECONDAY DATA :
The secondary data are those which have already collected by someone else and which have
already been passed through the statistical process.
I have also collected secondary data for my project report. The secondary data for conducting the
study has been taken from, “The Stock Exchange Directory” (includes the information regarding
performance of Bombay Stock Exchange for last few years), Project Reports, various internet
sites (Like www.bseindia.com, www.nseindia.com, www.investopedia.com,
www.investorword.com, www.equitymaster.com, www.google.com etc.), Magazines (Dalal
Street, Indian Capital Market etc.) and newspapers (Money Market, Economic Times, Business
Standard etc.).
 LIMITATIONS OF STUDY

The study doesn’t cover all the issues involved in the Indian capital market because of
time constraint but an attempt is made to cover all the important issues in the study.

1. The analysis is based upon only quantitative information and non-quantitative factors are
ignored like the sentiments of the market etc.

2. In Some cases, Data of every year is not available on a particular date. Therefore the
data is manipulated in this project so that it can be easily comparable with the other data.

3. The studies don’t cover all the issues involved in the Indian capital market because of
time constraint but an attempt is made to cover all the important issues in the study.

4. Interpretation is subjective. As different people may interpret the same analysis in

different ways.

5. The study based on Secondary Data available in the market, internet sites, Ludhiana
Stock Exchange, books etc. However an attempt is made to verify the Collected
Secondary Data by matching it with the various other sources but if some data have
mistaken, the same will pass on to my study.
 CHAPTER.4

ANALYSIS AND INTERPRETATION

 ANALYSIS AND INTERPRETATION
The Primary Market during 2016-2017

FY14* FY15* % Change

Public issues 19,715 1,443 -92.7%

Rights issues 499 493 -1.2%

Overseas Issues 701 - -100.0%

Private Placement 29,495 16,940 -42.6%

Total 50,410 18,876 -62.3%

* Represents February year ending

Financial Year 2016 Financial Year 2017

Public Rights
issues issues
Public 8% 3%
Private
issues
Placeme
39% Rights Oversea
nt
issues Private s Issues
59%
1% Placeme 0%
nt
Oversea 89%
s Issues
1%

The sad story of the Indian primary and secondary markets continues. Unprecedented
events have taken a toll on sentiment towards the equity markets and consequently, IPOs have
dried up. The financial year 2016 & 2017 (February year ending) have seen a significant fall in
the funds raised from capital markets through public issues, rights issue, domestic and overseas
issues. In FY15 (Feb 2016 – Feb 2017) total funds raised from the capital markets (in form of
Public, Right, Overseas Issues & Private Placements) stood at Rs 50410 m. However, this figure
dwindled to Rs 18876 m FY07 (Feb 2016 – Feb 2017), a sharp 62% fall. If one were to further
break it up, then public issues have actually dipped by 92% YOY, Overseas Issues by 100%, and
Private Placements by 42% and Right Issues by 1.2% respectively.
 (Figures in RsCrores) 2013 2014 2015 2016 2017
Debt 3,790 2,383 66 389 594
Equity(IPos& Right Issues) 2,892 33,475 30325 32672 58722
Of which, IPOs 1,940 22,611 9,918 24779 33912
Of Which, Right issues 952 10864 11054 12123 15478

Total 6,682 35,859 73975 69963 108706

The volume of public issues rose by roughly five times to a level of Rs.35,859crore in
2014. Beyond this, a considerable volume of issuance also takes place through private
placements. The bulk ofthis was made up of equity issuance, which amounted to Rs.33,475crore
in 2014. The public debt market continued to languish at low levels, and the bulk of primary
issuance of debt securities took place through private placement.

Volume in Rs Crores

Trend of Debt Market

6,000
5,000 4,916
4,000 3,790
3,451
3,000
2,383
2,000
1,000
0
2014 2015 2016 2017
Year
 IPOs & Right Issues

Trend of Equity Market

25000
20000
15000 IPOs
Right issues
10000
5000
0
2014 2015 2016 2017
Year

The growing sophistication of the market was visible in a slew of very large issues. The
mean IPO size rose from Rs.31 crore in 2014 to Rs.870 crore in 2017. The success of these large
issues has dispelled earlier doubts about the feasibility of billion-dollar offerings in the Indian
market. A major development in the Indian primary market has been the introduction of “screen
based book building”, where securities are auctioned through an anonymous screen based
system, and the price at which securities are sold is discovered on the screen. This eliminates the
delays, risks and implementation difficulties associated with traditional procedures. Despite
considerable skepticism about the extent to which computers could replace the services of highly
skilled investment bankers, it is reported that resource mobilization through book building rose
steadily from 25 per cent of public equity offerings in 2014 to 53 per cent in 2015, 64 per cent in
2016 and 99 per cent in 2017. In this process, the primary market has matched the secondary
market in terms of using technology to achieve an impersonal system of price discovery with
widespread retail participation that spans the country.
 Early indications suggest that a considerable volume of issuance may take place through
the public equity issues market in 2016 also. It is reported that fresh issuance of securitization
paper grew sharply over this period, to a level of Rs.14,694 crore in 2017. However, this value
continued to be much behind those found in developed countries, both in absolute terms and
when viewed in comparison against the overall debt market. Early indications suggest that a
considerable volume of issuance may take place through the public equity issues market in 2016
also. It is reported that fresh issuance of securitization paper grew sharply over this period, to a
level of Rs.14, 694crore in 2017. However, this value continued to be much behind those found
in developed countries, both in absolute terms and when viewed in comparison against the
overall debt market.

THE SECONDARY MARKET

The secondary market of any country judged by the performance of ‘Stock Exchanges’ in
that country. One international ranking in the area of finance, where India figures, is the size of
securities exchanges, as measured by the number of transactions. While the average value of
transaction in India is small by world standards, India has a very large number of transactions,
which are required to be implemented by commensurately large and yet low-cost IT systems. In
2010, NSE displaced Shanghai to take 3rd place, and BSE moved up from 8th rank in 2009 to 5th
rank in 2011. NSE and BSE were stable at rank 3 and 5 respectively in 2011 and 2014.

TREND OF TURNOVER IN SPOT (CASH) & DERRIVATIVES

SEGMANTS

Between 2014 and 2017, turnover on the NSE equity spot market grew by 69 per cent.
Over this same period, the NSE equity derivatives market came of age, with turnover growing
dramatically to reach a level which was 2.2 times (i,e. 25,86,738 : 11,75,159) bigger than equity
spot trading at NSE in 2017 as compared to 2014. At the same time, the equity derivatives
market in the National Stock Exchange (NSE) has yet to attain the multiples of spot market
turnover which are prevalent in successful derivatives exchanges internationally. There is
considerable headroom for growth, in response to growing knowledge in the country, and
improvements in regulation.

Growth of turnover in Spot (Cash) & Derivative Segment

(Turnover in Rs. crore)
For calendar year

2014 2015 2016 2017

NSE spot 5,610 4,322 9, 07,882 11, 75,159
BSE spot 4, 75,201 3, 32,814 4, 09,161 5, 33,253

NSE derivatives 39,848 3, 45,443 14, 31,142 25, 86,738

BSE derivatives 2,076 928 9,103 19,173

Total Indian Equity 12,12,735 13,03,508 27,57,287 43,14,322

Turnover

BSE BSE
derivatives NSE spot, derivatives NSE spot,
NSE , 2076, 0% 5610, 1% , 928, 4322,
derivatives 0.14% 0.63%
, 39848,
8%

NSE BSE spot ,

derivatives 332814,
, 345443, 48.69%
50.54%
BSE spot ,
475201,
91%

Calender Year 2014 Calender Year 2015

 BSE BSE
derivatives derivatives
, 9103, , 19173,
0.33% 0.44%

NSE spot,
NSE spot, 1175159,
NSE 907882, 27.24%
NSE
derivatives 32.93%
derivatives
, 1431142, , 2586738, BSE spot ,
51.90% 59.96% 533253,
BSE spot ,
12.36%
409161,
14.84%

Calendar Year 2016 Calendar Year 2017

From the above four pie charts, we can derive that the BSE Spot market loosing its share in
the total Indian Equity Market continuously from 2014 to 2017 that is it decline from 91% to
48.69% to 14.84% to 12.36% respectively.

The NSE Spot market shows a mix trend in the last four years. In 2015, the share of NSE
spot market in the total Indian Equity Turnover is only about 0.63% but in 2016, it registered its
turnover of 32.93% in the Total Indian Equity Market. In 2017, it declined to 27.24% of Total
Indian Equity Market.

The NSE Derivative market makes its presence stronger with the passage of each year. It
shows continuously upward trend from 2014 to 2017 that is it increases from 8% to 50.54% to
51.90% to 59.96% respectively.

Though BSE Derivatives have a very less Turnover in the Total Indian Equity Turnover
(Spot + Derivatives of NSE & BSE), the trend shows an upward movement in BSE Derivatives.
 Trend of NSE Spot Market
1400000
1200000 1175159
1000000
907882
800000
600000
400000
200000
0 5610 4322
2014 2015 2016 2017
Year

The above line chart shows the increasing trend in the turnover of NSE Spot market. The
NSE Spot market makes a remarkable achievement in the year 2016 as in this year NSE Spot market
is not able to increase its share in the total Indian Equity Market only (32.93%), rather it is also able
to achieve a very sharp increase in Turnover.
In the year 2017, though the NSE Spot market shows an increase in turnover but it lost some
share in the total Indian Equity Market and its share in the total Indian Equity Market comes down
to 27.24%.
 Turnover of BSE
Spot Market
Trend of BSE Spot Market
600000
533253
500000 475201
400000 409161
332814
300000
200000
100000
0
2014 2015 2016 2017
Year

Though the above line chart shows that the turnover in BSE Spot market has increased
over a period of time, but from the above discussions in the pie charts, it is also truth that BSE
Spot market is loosing its share in the Total Indian Equity Market continuously from 2014 to
2017.

Turnover
of NSE
Trend of NSE Derrivative Market
Derrivativ
es 3000000
2500000 2586738

2000000
1500000 1431142
1000000
500000
345443
0 39848
2014 2015 2016 2017
Year
 The above line chart shows an sharp increasing trend in the Turnover of NSE Derivative
Market from 2014 to 2017. Even the above pie chart discussions also shows the increasing share of
NSE Derivative Market in the total Indian Equity Market from 2014 to 2017i,e. 8% to 59.96%
respectively.

Turnover
of BSE
Trend of BSE Derrivative Market
Derrivati
ves25000

20000 19173
15000

10000 9103
5000
2076
0 928
2014 2015 2016 2017
Year

No doubt the trend of BSE Derivative market is upward and it shows an increase in the
turnover over a period of time, but the scenario is different in case of BSE Derivative market as
compared to BSE Spot Market. BSE spot market is way ahead than BSE Derivative market that is
27.81 times (i,e. 5,33,253 : 19,173). In the Derivative segment, NSE derivative market is dominating
the BSE derivative market. The volume of the NSE derivative market is 13391 times (i,e. (2586738-
19173)/19173*100) more than the NSE derivative market in 2017. The NSE derivative market grew
much faster than BSE derivative market as BSE derivative market increased by 823 times and NSE
derivative market increased by 6391 times during last four years.

NSE spot market is increased substantially as compared to BSE spot market during last 4
years. If you see the turnover of NSE Spot market in 2016 as compared to the 2015, NSE was able
to register its turnover with Rs. 9,07,882 in 2016 which was Rs. 9,035,60 crore more than 2015.
TREND IN RETAIL MARKET

Trend in Retail Market

As of year-end
2014 2015 2016 2017
Number of NSDL A/c’s 3,658,098 3,813,336 4,612,884 5,969,095

Average trade size (rupees):

NSE spot 40,509 26,703 26,993 27,715

BSE spot 35,783 22,485 22,782 23,984
NSE derivatives 2, 85,983 3, 00,334 4, 25,077 4, 88,790

Number of NSDL Accounts

5969095
6000000
5000000 4612884
4000000 3658098 3813336
Number of
3000000
NSDL A/Cs
2000000
1000000
0
2012 2013 2014 2015
Year

There is growing evidence about increasing participation in the securities markets. The
number of accounts at NSDL, which is the best measure of the number of participants in the
market, had stagnated in 2014 and 2015 at roughly 3.7 to 3.8 million. This grew by 21 per cent
and then 29 per cent in the following two years, to reach roughly 6 million as of end-2017. The
evidence for 2017 corresponds to 5,400 new depository accounts being opened per weekday.

Average Trade Size of NSE Spot Market

2017 27715

2016 26993
Year
2015 26703

2014 40509

0 10000 20000 30000 40000 50000

Average Trade Size

Average Trade Size of BSE Spot Market

2017 23984

2016 22782
Year
2015 22485

2014 35783

0 10000 20000 30000 40000

Average Trade Size

The average trade size on the NSE and BSE spot markets in 2017 was Rs.27,715 and
Rs.23,984 respectively. This highlights the domination of individual investors in price discovery.
The Average Trade size has been decreased continuously both in case of NSE and BSE during
last 4 years. But in case of NSE Derivative market, the Average Size of Trade has been increased
continuously during last 4 years. It means that the retail investors are taking much interest in
Derivative market than Spot market. If institutional investors (domestic or foreign) had been
major players in this market, the average trade size would have been much bigger in Spot
market.

The average trade size at the NSE derivatives segment rose significantly from 2014 to
2017. In 2014&2017, the Average Size of Trade in NSE derivative was Rs. 2,85,983 and Rs.
4,88,790 respectively. During these last four years, the Average Size of Trade has been increased
by 70 times (i,e. (488790-285983)/285983*100). However, the value as of 2017 - of roughly
Rs.5 lakh - remained accessible to a large number of households, given that this trade size
requires collateral of roughly Rs.1 lakh. The domination of individual investors in the derivatives
market is even more complete than that found on the spot market.

TREND OF ASSETS UNDER MANAGEMENT OF

MUTUAL FUNDS

The mutual fund industry has experienced slow growth in recent years, with assets under
management nearly stagnant at Rs.1, 50,537 crore. The bulk of mutual fund assets continue to be
in debt securities. However, assets in growth funds rose sharply in 2014 to reach Rs.31,
551crore. These small magnitudes, compared with overall market size, are consistent with the
picture of India being a highly retail market, where households directly own the bulk of
securities.
Assets under management of mutual funds
(Rs. crore)
At end of year
2015 2016 2017
Money market 10,801 32,424 59,447
Gilt 4,316 6,917 4,876
Income 77,469 71,258 47,451
Growth 14,371 22,938 31,551
Balanced 14,164 4,663 5,472
ELSS 1,479 1,893 1,740

Total 1, 22,600 1, 40,093 1, 50,537

Balanced , ELSS ,
14164, 1479, 1% Money
12% market ,
10801, 9%
Growth , Gilt , 4316,
14371, 4%
12%

Income ,
77469,
62%

Assets under Management of Mutual

Funds in Year 2015
 Balanced , ELSS ,
4663, 1893,
3.33% 1.35%
Money
Growth , market ,
22938, 32424,
16.37% 23.14%

Income , Gilt , 6917,

71258, 4.94%
50.86%

Assets under Management of Mutual

Funds in Year 2016

Balanced , ELSS ,
5472, 1740,
3.63% 1.16%

Growth ,
Money
31551,
market ,
20.96%
59447,
39.49%
Income ,
47451,
Gilt , 4876,
31.52%
3.24%

Assets under Management of Mutual

Funds in Year 2017

From the above pie charts, we can derive that the assets in Income Fund continuously losing
their share in the total assets under management of mutual funds from 2015 to 2017i,e. from 62% to
50.86% to 31.52% respectively.
 The assets in the Money Market funds continuously strengthen their share in the total assets
under the management of mutual funds from 2015 to 2017 i ,e. from 9% to 23.14% to 39.49%
respectively. It shows that the people believe in the liquidity of their investments.
The assets in growth funds also increased and continuously strengthen their share in the total assets
under the management of mutual funds from 2015 to 2017i,e. from 12% to 16.37% to 20.96%
respectively.

The ELSS Funds, Gilt Funds does not show any growth over a period of time from 2015 to 2017.

TREND OF FOREIGN INSTITUTIONAL INVESTORS IN SPOT AND

DERIVATIVE SEGMENT

There has been a considerable focus upon the net purchases of FIIs on the equity spot
market, which amounted to Rs.38, 965 crore in 2017. On a typical day, of the 637 registered FIIs
and 1,785 sub accounts, some buy while others sell securities. Thus, putting the spot and
derivatives markets together, in 2014, FIIs purchased Rs.2, 69,877crore (i,e. 1,85,672 + 84,205)
and sold Rs.2,32,840 crore (i,e. 146707 + 86133). This reflects the diverse range of FIIs, with a
diversity of views and portfolio strategies. India’s equity market has always been strong in terms
of attracting a diverse array of participants, with heterogeneous views and compulsions. The
entry of FIIs has further strengthened the diversity of views and compulsions, and helped fuel
market liquidity.

Foreign Institutional Investors

(Rs. crore)
For calendar year
2014 2015 2016 2017
End-year number of FIIs 527* 490* 502* 637
End-year number
of sub-accounts — 1,372* 1,361* 1,785

Spot market activity:

Gross buy: 51,779 28,759 94,412 1,85,672
Gross sell: 38,651 25,257 63,954 1,46,707
Net: 13,128 3,502 30,458 38,965

Derivatives activity:
Gross buy 84,205
Gross sell 86,133
Net -1,928
Note : Data on derivatives transactions by FIIs were not separately reported prior to 2017.
*As on 31st March.

End-year number of Sub-Accounts

2015 1785

Year
2014 1361

2013 1372

0 500 1000 1500 2000

Number of Sub-Accounts
 Over the past four years, the number of registered FIIs has risen from 490 to 637, and the
number of sub-accounts has risen from 1,372 to 1,785. Growth of these two measures is
desirable insofar as it indicates a more diverse, and hence more stable, pool of foreign investors.

Gross Turnover from Institutional Investors

(Rs. crore)
For calendar year
2014 2015 2016 2017
Spot market:
NSE+BSE
Gross turnover: 23, 41,622 19, 14,273 26, 34,085 34, 16,824
All institutions
(Including FIIs): 1, 05,581 1, 13,374 2, 04,745 3, 70,609
FIIs 90,430 54,016 1, 58,366 3, 32,379

Derivatives:

NSE+BSE
Gross turnover 83,848 6, 92,742 28, 80,489 52, 11,820
All institutions
(Including FIIs) 51,397 1, 76,940
FIIs 1, 70,338

Equity spot + derivatives

NSE+BSE
Gross turnover 24, 25,470 26, 07,015 55, 14,574 86, 28,645
All institutions
(Including FIIs) 1, 05,581 1, 13,374 2, 56,142 5, 47,449
FIIs 90,430 54,016 1, 58,366 5, 02,717
Institutional investors (including most domestic and foreign) account for roughly 10.8 per cent of
spot market turnover i,e. (3,70,609/34,16,824*100)

%age of Institutional Investors in Spot Market

Turnover in 2015
370609,
10.8%

NSE+BSE Gross Turnover

Total Institutional Investors

(Domestic & Foreign)
3416824,
100%

and just 3.3 per cent of derivatives turnover i,e. (1,76,940/52,11,820*100) in 2017.
 %age of Institutional Investors in Derivative Market
Turnover in 2015
176940, 3.3%

NSE+BSE Gross Turnover

Total Institutional Investors

5211820, 100%

Since price discovery primarily takes place on the derivatives market, this suggests that
individual investors and not institutional investors dominate price discovery.
Almost all derivatives turnover by institutions - of Rs.1,76,940crore - in 2017 came from
FIIs, who accounted for Rs.1,70,338 crore of derivatives turnover. Conversely, it appears that
domestic institutions have a negligible presence on the equity derivatives market i.e. Rs 6,602
crore (1,76,940-1,70,338).
 Type of Institutional

Derivative Turnover by Institutional Investors in

2015

Investors
Domestic
6602
Institutions

FIIs 170338

0 50000 100000 150000 200000

Amount of Turnover in Crore

This may reflect superior human resources, systems, firm-level policies, risk management
systems, and regulatory constraints operative upon FIIs relative to domestic institutions.

Derivatives transactions by FIIs were not separately tracked prior to 2017. The inclusion
of derivatives data from 2017 onwards overstates the increase in FII turnover for 2017,717 crore
in 2017. While Rs.5, 02,717 crore of one-way FII turnover - summing across spot and
derivatives markets - appears to be a large number, it now makes up 5.83 per cent of the overall
Indian equity market.
 % of FIIs in Overall Indian Capital Market (Spot &
Derivatives) in 2015
5,02,717, 5%

Overall Indian Equity

Market
FIIs

86,28,645,
95%

TREND OF STOCK AND INDEX DERIVATIVE MARKET IN NSE AND

BSE

Index derivatives turnover

(Rs. crore)
For calendar year
2014 2015 2016 2017

NSE stock derivatives 21,944 3, 04,487 10, 99,263 16, 74,224

BSE stock derivatives 256 715 3,826 2,091

NSE index derivatives 17,903 40,956 3, 31,676 9, 12,514

BSE index derivatives 1,821 213 5,277 17,081

NSE derivatives 38,848 3, 45,443 14, 31,142 25, 86,738

BSE derivatives 2,076 928 9,103 19,173
Data for “Stock derivatives” in the above table sums up all futures and options on all individual
stocks.

Index derivatives essentially show the turnover for futures and options on Nifty on NSE, and
futures and options on the BSE Sensex on the BSE.

Index derivatives have been extremely successful in India than Stock derivatives as
shown below. In 2017, on all days, Nifty was the largest single underlying on the equity
derivatives market. The trading of Index derivatives is much higher in NSE as compared to BSE.

Comparison between NSE & BSE Index Derivative

Turnover

1000000
900000
800000
700000
Amount of 600000
Turnover in 500000
Crore 400000 2014
300000
200000 2015
Year
100000 2016
0
2017
NSE Index BSE Index
derivatives derivatives

If you see carefully the Total derivative market, NSE is dominating the market in derivative
segment.
 Comparison Between NSE & BSE Total Derivative
Turnover

3000000

2500000

2000000
Amount of
Turnover in1500000
Crore
2014
1000000
2015
500000 Year
2016
0
2017
NSE derivatives BSE derivatives

Index derivatives were weak in 2015 and 2016, where the takeoff of derivatives trading in India
largely appears to have involved trading in derivatives on individual stocks. However, index
derivatives went up from 12 per cent of NSE derivatives turnover (i,e. 40,956/3,45,443*100) in
2015 to 35 per cent (i.e. 9,12,514/25,86,738*100) in 2017, and Nifty is now clearly the most
important underlying on the market.
 Trend of NSE Index Derivatives in comparison with
Total NSE Derivative Turnover

46
50
45 35
40
%age of NSE 35
Index Turnover 23
30
in Comparison
25
with Total NSE
Derivative 20 12
Turnover 15
10
5
0
2014 2015 2016 2017
Year

But the Stock derivatives declined from 88% of NSE derivatives turnover
(3,04,487/3,45,443*100) to 65% i,e. (16,74,224/25,86,738*100) in 2017.

Trend of NSE Stock Derivatives in comparison with Total

NSE Derivative Turnover

88
77
90
80 65
%age of NSE
56
Stock 70
Derivative 60
Turnover in
50
Comparison
40
with Total
NSE 30
Derivative 20
Turnover 10
0
2014 2015 2016 2016
Year
It shows the growing knowledge about Index market in the country and the trend is shifting
towards Index derivatives from Stock derivatives.
Turnover in index derivatives in 2017 was roughly three times larger than that of 2016,
showing growth well in excess of the growth rates seen on either the Equity spot market or the
individual stock derivatives market. This reflects growing knowledge in the market, and a shift to
more sophisticated trading strategies.

While BSE commands little market share in derivatives trading that is Rs. 19,173 crores
as compared to Rs 25, 86,738 crores in case of NSE, it is interesting to note that the dominant
product at BSE is the BSE Sensex as an underlying for futures and options as BSE index
derivative have a share of 89% approximately (i,e. 17,081/19,173*100) in the Total BSE
derivative market.

Comparison Between BSE Stock &

Index Derivatives
2091, 11%

BS E stock derivatives
BS E Index derivatives

17081, 89%

TREND IN DEBT MARKET

The Indian debt market, while composed of government bonds and corporate bonds, is
dominated by government bonds. Bonds issued by the Government of India (GOI), i.e. the
Central Government, are the predominant and most liquid component of the bond market. Since
government bonds have much lower volatility than equities, and all bonds are priced based on
 the same macroeconomic information, bond market liquidity is normally much higher than stock
market liquidity in in most countries.

 Owing to fiscal deficits, supplemented by issuance under the Market Stabilization Scheme, a
high volume of issuance took place on the GOI bond market for all the four years. In
comparison, the volume of issuance of corporate securities was smaller which is shown below:

Government of India (GOI) bond & Corporate Securities market size

(Rs. crore)
For calendar year
2014 2015 2016 2017
Gross issuance:
-- GOI bond Market 1,11,000 1,20,213 1,13,000 1,19,500
-- Corporate Securities 5,643 5,825 6,682 35,859

Gross Issuance of GOI Bonds & Corporate

Securities

140000
120000
100000
GOI bond Market
Amount in Rs 80000 Corporate Securities
Crore 60000
40000
20000
0
2014 2015 2016 2017
Year

Government of India (GOI) bond market size

(Rs. crore)
For calendar year
2014 2015 2016 2017
End-year market cap. 5,14,171 6,55,148 9,59,903 9,96,341
SGL turnover 10,36,951 12,93,814 15,98,052 10,70,896
Turnover ratio (per cent) 201.67 197.48 166.48 107.48
Number of bonds
with TR > 75 per cent: 36 33 40 28

The market capitalization of the stock of outstanding GOI bondsrosesharply in 2016,

reflecting a combination of fresh issuance and lower interest rates. Because with the decrease in
the interest rates, the demand of the outstanding bonds having high interest rates will grow up

End-Year Market Capitalisation of GOI

Bonds
959903 996341
1000000
900000
800000
Market 700000 655148
Capitalization 600000 514171
500000
inRs 400000
Crore 300000
200000
100000
0
2014 2015 2016 2017
Year

The market capitalization in 2017 did not rise significantly, reflecting fresh issuance with
an increase in interest rates. Because with the increase in the interest rates, the demand of the
outstanding bonds having lower interest rates will decline.
 On the bond market, it is difficult to compute impact cost, which is the best measure of
liquidity. Turnover ratio (TR), which is a proxy for liquidity, declined from roughly 200 per cent
in 2014 and 2015 to a level of roughly 100 per cent in 2017.

Turnover Ratio (%) of GOI Bonds

250

200 202
197
Turnover 150 166
Ratio in
%age 100
107
50

0
2014
2015
2016
2017
Year

Even though bond market capitalization doubled i,e. from Rs 5,14,171 Crore to Rs
9,96,341 Crore, fueled by a high volume of issuance, bond market turnover in 2017 was at the
levels seen in 2017i,e. from Rs 10,36,951 Crore to Rs 10,70,896 Crore.
 Turnover of Bond Market

2017 1070896

1598052
Year 2016

2015 1293814

2014 1036951

0 500000 1000000 1500000 2000000

Turnover in RsCrore

The bond market has not yet obtained exchange-traded futures and options, which can
play a major role in price discovery, risk management and liquidity.
In 2017, only 28 bonds had a turnover ratio of above 75 per cent. The number of bonds with
plausible liquidity has dropped over this period.

Number of Bonds with >75% Turnover Ratio

40
36 40
35
33
30
25 28
Number of
20
Bonds
15
10
5
0
2014
2015
2016
2017
Year
 The short end of the yield curve, as measured by the interest rate on the notional one year
zero-coupon bond, dropped from 6.75 per cent in December 2014 to 4.75 per cent in December
2015 which is shown below in the table. It rose sharply to 6.09 per cent in December 2017.
When interest rates go up, prices of bonds issued earlier with lesser rate of interest rate go down,
and negative returns are obtained. Hence, after a three-year period of positive returns on the
notional one-year zero-coupon bond, negative returns were experienced in 2017. Return
volatility has been also increased.

GOI bond market outcomes

Calendar year
2014 2015 2016 2017
Notional GOI
ZC 1-year bond:
Interest rate 6.75 5.44 4. 75 6.09
Returns (per cent) 3.06 1.37 0.73 -1.24
Returns volatility 0.25 0.15 0.27 0.36
Notional GOI
ZC 10-year bond:
Interest rate 8.16 6.12 5.38 6.78
Returns (per cent) 28.11 20.28 6.83 -12.66
Returns volatility 0.65 0.58 0.59 0.71
NSE GOI bond index:
Returns (per cent) 23.23 15.95 10.03 -3.75
Returns volatility 0.34 0.43 0.39 0.59

A similar pattern was observed for the long end of the yield curve, proxies by the
notional 10-year zero-coupon bond. This interest rate fell from 8.16 per cent in December 2014
to 5.38 in December 2015, and rose to 6.78 per cent in 2017, inducing returns of -12.66 per cent
in this period. These negative returns were in sharp contrast to the strong returns which had been
obtained on long bonds in 2016 and particularly in 2014 and 2015.
 The NSE GOI bond index shows the performance of all outstanding GOI bonds,
reflecting a mix of short-dated and long-dated bonds. The index had generated handsome returns
in 2014 and 2015. It delivered negative returns in 2017, because of the increase in the interest
rates in 2017 on the GOI bonds, and experienced heightened returns volatility.

TREND IN COMMODITY FUTURES

The third component of organized trading of standardized products in the countries in the
commodity futures markets. In recent years, these markets have drawn upon the success of
nationwide electronic trading on the equity market, and three new exchanges have come about:
National Commodity Derivatives Exchange (NCDEX), Multi Commodity Exchange (MCX) and
National Multi Commodity Exchange (NMCE).

Turnover on Commodity Future Markets

(Rs. Crore)
2013-14 2014-15 2015-16 2016-17

NCDEX 0 0 1,490 54,011

14,278 34,376 53,014 51,038

NBOT
MCX 0 0 2,456 30,695
NMCE 0 4,572 23,842 7,943
Including 4,495 66,530 1, 29,364 1, 70,720
Above
 Turnover in Commodity Futures Market

200000

150000 170720
Turnover in 129364
100000
Rs Crore
50000 66530

0 4495
2014 2015
2016
2017
Year

trend of commodity future market is increasing year by year with a rapid pace. From
2014 onwards, the growth in Commodity Futures is tremendous as compared to other years.
 CHAPTER.5

FINDINGS AND RECOMMENDATIONS

 FINDINGS

1. Through deep study of the primary market during 2016-2017 I found that the share of
public issues declined from 39 % in 2016 to 8% in 2017, and overseas issues fell
completely.
2. A major development in the Indian primary market has been introduced with the Screen
based Book Building system, where securities are auctioned on anonymous screen and
their price is displayed at the screen.
3. From 2014-2017 turnovers on the NSE equity spot market grew by 69 % and the
derivatives market reached a level which was 2.2 times higher than the spot trading in
NSE.
4. The BSE spot market lost its share in the total Indian equity Market continuously from
2014-2017 that is a decline from 91% to 48.69 to 14.84 to 12.36 respectively
5. The NSE shows a mix trend in the last years. In 2015 its share in total Indian Equity
turnover was only 0.63% which increased in 2016 to 32.93 and then declined in 2017 to
27.24.
 CONCLUSION

The Equity market (IPOs and Right issues) after Financial Year 1991 shown a
considerable positive trend because of Liberalization of Indian Economy. This trend continued to
1995 backed by robust industrial production and higher gross domestic product growth. Funds
mobilized via overseas issues witnessed a substantial jump since Indian companies went for
American Depository Receipts (ADR) issues.
But due to the major development of “Screen Based Book Building” and other considerable steps
taken by the SEBI in the Indian Primary Market, equity market depicts the unbelievable change
and equity market was able to reach its ever highest peak point in 2017.

In the Secondary Market, the upward movement of Major Indicators of Capital Market i.e.
(Nifty, Sensex, Nifty Junior) also showed a rising trend of capital market. It has been seen that
the Equity spot market is very large but it loses its share year by year with the increasing
awareness of Equity Derivative market among the people of the country.

In the Retail Market, It has been also seen that the Retail investors also taken a keen interest in
the Equity derivative market rather than Equity Spot Market. Increasing number of accounts at
NSDL is growing evidence about increasing participation of Retail Investors in the securities
markets.

The commodity future market is a relatively new concept in the Indian Capital Market. The trend
of commodity future market is increasing year by year with a rapid pace. From Financial Year
2015 onwards, the growth in Commodity Futures is tremendous. Present Commodity future
market is roughly one sixth of the GOI bond market and one-tenth of exchange trading on the
equity spot market.
 BIBLIOGRAPHY

For the purpose of study, I go through many internet sites, magazines, books and reports related
to Indian Capital Market. Some of these are as follows:
a. For Books:
1. PunithavathyPandian (2008); Security Analysis & Portfolio Management,
Vikas Publishing House Pvt. Ltd., pp – (New Issue Market, The
Secondary Market, BSE, NSE, ISE, OTCEI & NSDL, Stock Market
Indices, Options and Futures
2. SharanVyuptakesh,2011 , International Financial Management, Prentice
Hall of India Pvt. Ltd., pp (Foreign Direct Investment, International
Portfolio Investment
b. Web Pages:
1. http://www.equitymaster.com/detail.asp?date=08/03/00&story=8
2. http://www.sebi.gov.in/commreport/delistreport.pdf.