GRANDFIANLEinvestment in Equities

INVESTMENT IN EQUITIES ===============================================================
1. WHAT IS INVESTMENT
INTRODUCTION: In general sense, investment means saving. But it is not true, because saving means expending less than Income. & Investment means what one does with his savings. If one keeps his savings in the form of cash, it is certainly going to decrease in value because the value of money is constantly going down. Therefore, if one wants to maintain or increase the value of his saving then he has to keep savings in forms other than cash. That is what investment is all bout, development of saving with the intention of preserving or increasing their value. The primary objectives of an investment is: o To earn highest rate of return. o To ensure utmost safety of capital. The secondary objective maybe: o Growth of capital o Liquidity. o Tax savings.
In the search of higher return, the investor finds many methods or investment tools for making money. They may be shares, debentures, bonds, real estate, gold, precious stones, commodities, mutual funds etc. they offer different rates of returns but also at proportionate risk. We will now take a look at investment opportunities and some of their unique characteristics. This will be followed by a comparison of all of them on the basis criteria crucial for investor.
2. DFIFFERENT MODES OF INVESTMENT

1. SHARES: An investor may purchase share in a companys equity. He
calculates that the company is likely to make a profit in the future and thus he will receive a return on his investment by way of dividends and bonuses. But this is not usually the reason why most investors who are into shares have bought them. The stock prices of companies fluctuate over periods of time due to various intrinsic and extrinsic factors affecting it. Simply put, the investor buys the share when price is low and sells when it is high, and the difference is profit he makes.
2. FIXED DEPOSIT: FDs can be made into banks, private companies and other institutions. These have medium to high return depending upon the risk factor. The popularity of fixed deposits is fading out because of shutting down of many institutions, which were offering FDs. The main advantage of fixed deposits is it serves the purpose of middle class people who prefer limited return at minimum risk. 3. DEBENTURES & BONDS: Debentures are securities sold by government and industry that raise the funds for their capital and revenue expenditure. The rate of interest and time of maturity is prefixed. On the maturity of the debenture, the investor receives his return. They are long-term securities normally with a maturity period ranging from 5-20 years. They may even be listed in the stock exchange and can be traded. Bonds are securities similar to debentures but the difference is that the capital collected will be invested in projects for which the bond has been declared for e.g. government infrastructure bonds invest only in infrastructure development 2
INVESTMENT IN EQUITIES =============================================================== expenditures. Such securities and bonds usually offer a low return r5ate in exchange for safety and surety of return. Debentures may also be secured against the security of a particular asset, or unsecured if they are raised as a general loan. 4. GOLD, SILVER & PLATINUM: Gold is a universal investment tool. In the sense, it can be bought and sold anywhere in the world. The reason gold is considered a great investment is because it will never lose its value. Even during war and political turmoil, while all other investment tools lose valuation, golds value rises. This has led to many countries in the world storing much of their reserves in form of gold and silver bullion. It is such type of assets which can be liquidate anytime, anywhere, & in any currency. The gold market is very flexible and so one should liquidate the gold when rate is high and purchase when the rate drops down. But the major constraint in investment in gold, silver, & platinum is most of the people in India love to stock the gold in the form of ornaments & they do not want to part with it even they get huge return on their on their investment. It is very difficult to change the mentality of the common man to treat Gold or silver as trading asset and not as a status indicator. 5. MUTUAL FUNDS: Mutual funds have newly been cast into limelight with the booming economy. A mutual fund is a tool used by company or agency to collect investment from the public to reinvest it in any of the other investment instruments. The funds assure a certain minimum return and tempt you with the possibility of greater return if their investments prove fruitful. Since the mutual funds are managed by qualified professionals in the field and the returns are satisfactory, it attract high participation from public. 6. COMMODITIES; An upcoming investment avenue is the commodity market. Normally, it consists of huge quantities of commodities like rice,
INVESTMENT IN EQUITIES =============================================================== pulses, spices etc. being traded. The prices of commodities fluctuate depending on the commodity and market conditions. The investor trade in commodity market to take the advantage of the heavy price fluctuation and make his profit. . 7. DIAMONDS AND OTHER PRECIOUS STONES: The value of diamonds and other precious stones can be used as an investment. Like gold and silver, the value of precious stones is also very good tool of investment and gives a very reasonable return with utmost safety and is a very good hedge against inflation. Diamonds and precious stones, along with the precious metals are considered to be safest investment. 8. GOLD BONDS: Safeguarding gold is a very difficult task and is also against national economic interest. If gold has to be bought purely for investment purposes rather than for sentimental or esteem purpose, it is wiser to purchase a gold bond. By purchasing a gold bond, the government buys and stores gold against your payment. It may be converted into gold at the time of maturity of the bond or alternatively, the government may buy back the bond at the prevalent gold rate. It may also be traded in the stock exchange. It has good liquidity. 9. ART & ANTIQUES: Art and antiques are also considered tools of investment as their value may appreciate with time but it requires expertise in the field of valuation of the artwork or antique piece. 10. LAND & HOUSE PROPERTY: Land and house property value appreciates with time and development of the surrounding area or due to discovery of resources specified to that area. The advantages are that it can also be used for self-use, have moderate return, capital growth. This is one of the most preferred avenues. The major disadvantage of investing
INVESTMENT IN EQUITIES =============================================================== in house property is one time investment is huge & income starts after 2/3 years of investment due to time involved in completion of construction. 11. PRIVATE LENDING: In a situation of private lending, the lender gets to choose his own rate of interest. This goes on primarily in smaller towns and villages, or when the borrower is not able to get a loan from a bank. The lender has an advantage of being able to fix his own rate of interest but this factor is balanced out by the fact that risk is very high of borrower being able to repay the loan.
12. VENTURE CAPITAL: Capital may be invested into a project that seems feasible and profitable to the investor. It is similar to equity-to-equity but there are usually no other share holder expect for the promoters.
3. A COMPARATIVE ANALYSIS
The following table aims to display a comparative analysis of some of the tools considering some of the vital factors that have to be considered while making an investment. These factors are: 1. Risk factor: the assurance to the investor that his money and earnings are safe. 2. Return on investment (ROI) : The average range of rate of interest offered. 3. Length: The period of time for which the money is blocked. 4. Liquidity: How easily tool can be encashed. 5. Bonuses: The possibility of added earnings. Risk Factor Shares Debenture / Bonds Gold Mutual Fund Commodities Gold Bonds Precious Stones Art & Antique Land & Property Private Lending Venture Very High Low/Medium * Very Low High/Medium Very High Very Low Very Low High/Medium Low Very High Very High ROI Unpredictabl e Medium/Low* Predictable Unpredictabl e Unpredictabl e Predictable Predictable Unpredictabl e Reasonable Very High Unpredictabl Length None Long None Short None Medium None Long Long None Medium Liquidity** Bonuses Very High High High High Very High High Low Very Low Medium Very Low Very Low Yes Yes No Yes No No No No No No Yes
Capital e *where government securities are concerned, risk is considerably low. **Short Term 1-3 Yrs, Medium Term 3-5 Yrs, Long Term 5 Yrs & Above
INTRODUCTION TO EQUITY SHARES

Equity shares are those shares, which do not enjoy preferential rights in the matter of payment of dividend & repayment of capital. The dividend of equity shares is not fixed & may vary from year to year depending upon the amount of profits available. Equity shareholders gets much higher rate of dividend if there is huge profit for company, & equity shareholders are entitled to get bonus shares. Let us minutely understand the fundamentals of shares or equity. A share may be defined as: A certificate or book entry representing ownership in a corporation or firm. OR A document signifying part ownership in a company. A share or stock represents ownership in company. When you buy a share in a company you become a joint owner of the business and share in future of that business. It is also known as equity. A share is unlike debts given to the company. The Rights of Equity Shareholders : Bonus Shares : Bonus shares are those shares which are allotted to equity shareholders instead of dividend which is payable in the form of cash. Generally bonus shares issued when company earns tremendous profits. Right Shares :- Right shares are those shares which are new lot or issue of shares of company, these shares are offered to their existing shareholders. Voting Rights : Equity shareholders being owners of company, enjoy voting rights in general meetings of company. They can also appoint a proxy to vote all their behalf. They elect the directors & appoint auditors.
2. VARIOUS TYPES OF MARKETS.

The NEAT system supports an order driven market, wherein orders match on the basis of time & price priority. All quantity fields are in units & prices are quoted in Indian Rupees. We have discussed various types of trades or markets of Capital Market system: A. Normal Market: Normal market is ordinary market where securities or shares are procures & sold. This is a general meaning of normal market. The Normal market consists of Regular Lot orders & Stop Loss orders. These types are discussed in detail below: REGULAR LOT ORDERS: - An order which has no special condition associated with it is a Regular Lot order. When a dealer places the order, the system looks for a corresponding Regular Lot order existing in the market (Passive orders). If it does not find a match at the time it enters the system, the order is stacked in the Regular Lot book as a passive order. By default, the Regular Lot book appears in the order entry screen in the normal market. Order Matching Priority There are so many orders are executed in the exchanges. In NSE 124 orders are placed per second. So to manage such huge turnover without any partiality is not a simple thing. So all those orders are matched on the basis of preferences or priorities. The best sell order is the order with the lowest price & a best buy order is the order with the highest price. The unmatched orders are queued in the system by the following: (a) By Time (b) By Price. (a) By Price: - A buy order with higher price gets a higher priority & similarly , a sell order with a lower price gets a higher priority. E.g. Consider the following buy orders: 100 shares @ Rs. 35 at time 9.30 a.m. 500 shares @ Rs. 35.05 at time 9.43 a.m. 8
INVESTMENT IN EQUITIES =============================================================== The second order is greater than the first order price & therefore is the best buy order. On the basis of price offered by the investor, second order will get preference first & it will supercede the first order even though it entered first in the market. (b) By Time: If there is more than one order at the same price, the order entered earlier gets higher priority. e.g. consider the following sell orders : 200 shares @ Rs. 72.75 at time 9.30 a.m. 300 shares @ Rs. 72.75 at time 9.35 a.m. Both orders have the same price but they were entered in the system at different time. In this case first order will get the first priority because it was entered first in the market. So the first order will be the best sell order. As and when valid orders are entered or received by the system , they are first numbered, time stamped & then scanned for potential match. This means that each order has a distinctive order number & unique time stamp on it. If a match is not found then the orders re stored in the books as per the Price / Time priority. An active buy order matches with the best passive sell order if the price of the passive sell order is less than or equal to the price of the active buy order. Similarly, an active sell order matches with the best passive buy order if the price of the passive buy order is greater, then or equal to the price of the active sell order. STOP LOSS ORDERS: STOP Loss orders are considered as Safe-Bets in the stock market. Because stop loss orders stops the loss of the investor, if the investor is aware of the market movement. Stop loss orders are those orders, which are generally known for long-term perspective for general investor. HOW THESE ORDERS STOPS LOSS? If there is continuous fall down in prices of any particular shares, then nobody can predict at what point that downfall is going to stop. E.g. If shares value of X company is Rs. 150 per share. Then it started falling down from Rs.150 to Rs.140, nobody can say after touching figure of Rs.140 this downfall is going to stop or it wont fall further. But if Mr. A has shares of that same company, & still
INVESTMENT IN EQUITIES =============================================================== the Trigger price of that shares is Rs.143 then he can save his further loss by squaring off those shares. We have discussed terminology of Trigger price in next paragraph. HOW THE TRADE GOES ON: Entering the orders: Stop Loss orders are released into the market when the last traded price for that security in the normal market reaches or surpasses the trigger price. Trigger Price: It is the price at which the order gets triggered or squared off from the stop loss book. Limit Price: It is the price for orders after the orders get triggered or squared off from the stop loss book. Before triggering, the order does not participate in matching and the order cannot get traded. Untriggered stop loss orders are stacked in the stop loss book. The stop loss orders can be either a market order or a limit price order. For buy SL orders, the trigger price has to be less than or equal to the limit price. Similarly, for sell SL order, the trigger price has to be greater than or equal to limit price. Matching Orders: All stop loss orders entered into the system are stored in the stop loss book. These orders can contain two prices; they are Trigger Price & Limit Price, which we have discussed in earlier part. . If Limit price is not specified then trigger price is taken as the limit price for the order. The stop loss orders re prioritized in the stop loss book with the most likely order to trigger first & least likely to trigger last. The priority is same that of regular lot book. The stop loss condition is met under following circumstances: Sell order A sell order in the stop loss book gets triggered when the last traded price in the normal market reaches or falls below the trigger price. Buy Order A buy order in the stop loss book gets triggered when the last traded price in the normal market reaches or exceeds the trigger price. That is how the order matching process goes on in stop loss book. For those person who has patience & who dont want to take a high market risk as well as those who want to invest for long term in market , Stop Loss orders has proved a benediction for them.
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INVESTMENT IN EQUITIES =============================================================== B. Odd Lot Market.:The Odd Lot market facility is used for the Limited Physical Market. The main features of the market is that it deals in Physical form of shares. Today all the stock exchanges has made it mandatory to possess De-mat of securities for all investors. The SEBI has given directives to all exchanges regarding De-mat settlement of shares. Odd Lot market falls under Limited Physical Market, which is a different market segment referred to as Limited Physical Market. This market was introduced on June 1999 by NSE. We have discussed some of the salient features of this Limited Physical Market: Trading conducted in the Odd Lot market with Book Type OL & series BT. Order quantities should not exceed 500 shares. The base price & price bands applicable in the limited Physical Market are same as those applicable for the corresponding Normal Market on that day. Trading hours will also be the same as Normal market & holidays too. Trading members are required to ensure that shares are duly registered in the name of the investor before entering orders on their behalf on a trade date. Settlement for all trades are done on a trade-for trade basis and delivery obligations arise out of each trade. That means physical deliveries should made & recorded time to time. Its obligatory for all the parties. Orders gets matched when both the price & the quantity match in the buy & sell order. Orders with the same price & quantity match on the time priority i.e. orders which have entered into system will get matched first like first come first serve basis. The time priorities & price priorities are same, as we have discussed in the Normal Market.
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INVESTMENT IN EQUITIES =============================================================== The order matching takes place only for orders in Odd Lot book. There are no partial trades for an Odd Lot order i.e. each match is an exact match where the quantity of the passive order is equal to that of the active order. Even though turnover of this trade is low but this market has given a kind of assurance to those investors who hesitates to adopt this new technology i.e. De-mat facility, it has proved correct step to attract or to bring those investors into market. This market has also eradicated the problems of bad deliveries; it removes fear of loss of shares in the mind of investor. This market can be useful to those peoples, who live in rural area.
C. Auction Market: - Auctions are initiated by the exchange on behalf of trading members for settlement related reasons. The main reasons are shortages, Bad deliveries and Objections. These are three main causes & also problems for any trade procedure. Auction gives a fair chance to any member to get those shares which wants to get. It eradicates partiality & favoritism & brings a fair competitive atmosphere among investors. There are mainly three parties in Auction market: Initiator :- The party who initiates the auction process. Competitor :- The party who enters on the same side as initiator is called Competitor. Solicitor :- The party who enters on the opposite side as of the initiator is called Solicitor. HOW THE TRADE GOES ON : The trading members can enter in the exchange initiated auctions by entering orders as a Solicitor. Say for Example. If the exchange conducts a Buy-in action, the trading members shall enter sell orders, are called Solicitors. The Auction starts with the competition period. Competition period is the period during which
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INVESTMENT IN EQUITIES =============================================================== competitor order entries allowed. Competitors orders are the orders, which competes with Initiators order. If initiators order is buy order then all orders of competitors are Buy orders & vice-versa. After the competitors period the solicitors period for the auction starts. Solicitors period is period during which order entries are allowed. Solicitor orders opposites of initiators order. When the Solicitor period is over then order matching takes place for that auction. During this process the system calculates the trading price for the auction based on the initiator order & orders entered during the competitor period. At present for the Exchange initiated auctions, the matching takes place at the respective solicitor order prices. After matching of orders entitled person gets the stock of shares.
3. TRADE PROCEDURES / DEMAT ACCOUNTS .
Dematerialization and Electronic Transfer of Securities Traditionally, settlement system on Indian stock exchanges gave rise to settlement risk due to the time that elapsed before trades were settled by physical movement of certificates. There were two aspects: First relating to settlement of trade in stock exchanges by delivery of shares by the seller and payment by the buyer. The stock exchange aggregated trades over a period of time and carried out net settlement through the physical delivery of securities. The process of physically moving the securities from the seller to his broker to Clearing Corporation to the buyer's broker and finally to the buyer took time with the risk of delay somewhere along the chain. The second aspect related to transfer of shares in favor of the purchaser by the issuer. This system of transfer of ownership was grossly inefficient as every transfer involved the physical movement of paper securities to the issuer for registration, with the change of ownership being evidenced by an endorsement on the security certificate. In many cases the process of
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INVESTMENT IN EQUITIES =============================================================== transfer took much longer than the two months as stipulated in the Companies Act, and a significant proportion of transactions wound up as bad delivery due to faulty compliance of paper work.
Transaction Cycle :Transaction cycle
The above diagram explains the trade procedure in systematic manner: After completion of all the basic Legal, Financial formalities for commencement of trade, a trade can be fulfilled by following procedure :(a) Decision to Trade :This leads to beginning of trade. Every Investor has to take decision about trade, which may be procuring of shares or selling of securities. Because any Sub-Broker or Broker cant deal with the scrips of any of his client without his authorization. But he can guide to his client about selling & buying of shares, 14
INVESTMENT IN EQUITIES =============================================================== but ultimate decision has to be taken by the Investor. So decision making procedure of Investor is very crucial for any trade, without which any trade can not prevail. (b) Placing Order :- Placing an order means to execute the order. This actually begins the trade between the Broker & Client. In this procedure Investor has to give clear information about the name of company, number of shares, & at what rate these shares should be acquire to his broker. (c) Trade Execution :- Trade execution is step taken by Broker for his client. Broker executes the order on behalf of his client. The order executed by him gets matched on the basis time & price priority, that means if there is good demand for that security at very high rate, then it will take some time to matched that order. (d) Clearing of trades :- After execution of order clearing of trade takes place. This takes place after order matching process, when order gets matched both the parties should fulfill their obligations regarding procuring & selling of the security. (e) Settlement of Trade :- Settlement of trade refers to payment of trade should be made by buyer to his broker & broker should see to it that it will reached to seller of security. The securities obligations of members are downloaded to members/custodians by NSCCL after the end of the trading day. The members/custodians deliver the securities to the Clearing House on the pay-in day in case of physical settlement and make available the required securities in the pool accounts with the depository participants in case of dematerialized securities. Members are required to open accounts with depository participants of both the depositories, NSDL and CDSL. Delivering members are required to deliver all documents to the Clearing House (in case of physical settlement) between 9:30 a.m. and 10:30 a.m. on the settlement day.
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INVESTMENT IN EQUITIES =============================================================== Receiving members are required to collect the documents from the Clearing House between 2:00 p.m. and 2:30 p.m. In NSE we have T+2 Rolling settlement, which means within 2 days of Trade Day. & all the procedures should be completed within given 2 days, which is Obligatory for both parties. The settlement cycle for this segment is shown below: Activity Trading Clearing Settlement Rolling Settlement Trading Custodial Confirmation Delivery Generation Securities and Funds pay in Securities and Funds pay out Valuation Post Settlement Close out of based on closing prices Day T T+1 working days T+1 working days T+2 working days T+2 working days T+1 closing prices T+2 working days
shortages At
(f) Funds/ securities :- Funds & securities gets transferred on the name of new buyer of the security . It recorded in respective exchanges records. After that whole trade cycle get completed. Currently, NSCCL offers settlement of funds through 10 clearing banks namely Canara Bank, HDFC Bank, Global Trust Bank, Indus-ind Bank, ICICI Bank, UTI Bank, Centurion Bank, Bank of India and IDBI Bank, Standard Chartered Bank. Every Clearing Member is required to maintain and operate a clearing account with any one of the empanelled clearing banks at the designated clearing bank branches. The clearing account is to be used exclusively for clearing & settlement operations. The Clearing Bank will debit/ credit the clearing account of clearing members as per instructions received from the Clearing Corporation. A Clearing member can deposit funds into this account in any form, but can withdraw funds from this account only in self-name.
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Settlement Agencies The NSCCL, with the help of clearing members, custodians, clearing banks and depositories settles the trades executed on exchanges. The roles of each of these entities are explained below: (a) NSCCL: The NSCCL is responsible for post-trade activities of a stock exchange. Clearing and settlement of trades and risk management are its central functions. It clears all trades, determines obligations of members, arranges for pay-in of funds/securities, receives funds/securities, processes for shortages in funds/securities, arranges for pay-out of funds/securities to members, guarantees settlement, and collects and maintains margins/collateral/base capital/other funds. (b) Clearing Members: They are responsible for settling their obligations as determined by the NSCCL. They have to make available funds and/or securities in the designated accounts with clearing bank/depository participant, as the case may be, to meet their obligations on the settlement day. In the capital market segment, all trading members of the Exchange are required to become the Clearing Member of the Clearing Corporation. (c) Custodians: A custodian is a person who holds for safekeeping the documentary evidence of the title to property belonging like share certificates, etc. The title to the custodian's property remains vested with the original holder, or in their nominee(s), or custodian trustee, as the case may be. In NSCCL, custodian is a clearing member but not a trading member. He settles trades assigned to him by trading members. He is required to confirm whether he is going to settle a particular trade or not. If it is confirmed, the NSCCL assigns that obligation to that custodian and the custodian is required to settle
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INVESTMENT IN EQUITIES =============================================================== it on the settlement day. If the custodian rejects the trade, the obligation is assigned back to the trading / clearing member.
NSE
Depositor ies
NSCCL
Clearing Banks
Custodians / CMs
Explanations: (1) Trade details from Exchange to NSCCL (real-time and end of day trade file).NSCCL notifies the consummated trade details to CMs/custodians who affirm back. Based on the affirmation, NSCCL applies multilateral Netting and determines obligations.
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INVESTMENT IN EQUITIES =============================================================== (2) Download of obligation and pay-in advice of funds/securities. (3) Instructions to clearing banks to make funds available by pay-in time. (4) Instructions to depositories to make securities available by pay-in-time. (5) Pay-in of securities (NSCCL advises depository to debit pool account of custodians/CMs and credit its account and depository does it). (6) Pay-in of funds (NSCCL advises Clearing Banks to debit account of custodians/CMs and credit its account and clearing bank does it). (7) Pay-out of securities (NSCCL advises depository to credit pool account of custodians/CMs and debit its account and depository does it). (8) Pay-out of funds (NSCCL advises Clearing Banks to credit account of custodians/CMs and debit its account and clearing bank does it). (9) Depository informs custodians/CMs through DPs. (10) Clearing Banks inform custodians/CMs.
(d) Clearing Banks :- Clearing Banks are a key link between the clearing members & NSCCL for funds settlement. Every clearing member is required to open a dedicated settlement account with one of the clearing banks. Based on his obligation as determined pay-out. The Clearing banks are required to provide following services as a single window to all the members of National Securities Clearing Corporation Ltd. As also to the Clearing Corporation : Branch network in cities covers bulk of the trading cum clearing members. It should provide high speed automated Electronic Fund transfer facility. Stock lending facilities. Services as Depository / participants all other banking facilities like issuing bank guarantees/ credit facilities. through clearing member makes funds available in the clearing account for the pay-in & receives funds in case of a
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INVESTMENT IN EQUITIES =============================================================== Services as professional clearing member. Free-of-cost funds transfer across centers. A depository is an entity where the securities of an
(f) Depositories :-
investor are held in Electronic form. It provides De-mat account facility. It maintains precise record of an investors portfolio. Each custodian / clearing member is required to maintain a clearing pool account with the depositories .He is required to make available the required securities in the designated account on settlement day. The Depository runs a electronic file to transfer the securities from accounts of the custodians / clearing member to that of NSCCL.
4. PAYMENT OF BROKERAGE.
The maximum brokerage chargeable by Trading Member (Main Broker) in respect of trades affected in the securities admitted to dealings on the TM segment of exchange is fixed at 2.5% of the contract price, exclusive of statutory levies like, SEBI turnover fee, service tax & duty. This is the maximum brokerage is inclusive of the brokerage charged by the Sub-Broker. The Brokerage should be separately charged from the clients & shall be indicated separately from the price, in the contract note. That means the TM may not share brokerage with a person who is a TM or in employment of another TM. But he can share brokerage of his Sub-Broker.
5. TAX LIABIALITY ON CLIENT
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INVESTMENT IN EQUITIES =============================================================== The Investor has to pay some taxes on profit of selling & buying of shares. Out of those taxes main tax under Income Tax Act is Capital Gains Tax. The amount accrued from transactions of shares are treated under the head of capital gains, because Investment in Equities is also a type of investment & it is considered as a Asset for investor. That is why earnings accrue from turnover of this, is called as Capital Gain. The Capital Gains Tax is of two types i.e. Long Term Capital Gain & Short Term Capital Gain. Long term Capital gains tax this tax is levied upon selling or earning on those securities who had possession for one year or more by an investor. According to this budget this tax is exempt from tax. Short term Capital gains tax this tax is levied upon selling or earning on those securities who had possession less than one year or more by an investor. It is also countable for intra-day players. According to this budget this tax is not exempt from tax. So an investor has to prepare his calculations of paying this tax.
Securities Turnover Tax (STT) This tax is legible on the taxable securities transactions. This is legible separately on delivery & non-delivery based transactions including transactions entered into Derivative Segment. Presently, rate & payment structure of STT is given as under:
Nature
Rate
STT
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INVESTMENT IN EQUITIES =============================================================== Delivery based purchases on recognized 0.1 stock Exchange Delivery based sales on recognized stock Exchange Sales (without Delivery) on recognized stock Exchange Sale of Derivatives on recognized stock Exchange Sale of units of an equity oriented Fund to Mutual Fund. 0.1 0.025 Seller Seller Buyer
0.0133 Seller 0.02 Seller
These are some main tax liabilities on any investor, which any investor should pay to retain his account clear & he should not be penalize.
6. PRIMARY MARKET
Primary Market refers to that market where those securities dealt which are firstly introduced or new in the market. In past few months IPO has become a key word The reason was it was a safe deal with very low risk . IPO refers Initial Public Offer that means a Company is introducing a new securities in market . Primary Market means dealing in new securities or those securities which are introduced by existing company to raise funds from market to start new venture or to expand their business. In general sense it is also known as First Hand Shares Market. This market has a tremendous capacity of raising funds from market & it is very profitable when a market is in boom period.
TYPES OR MODES OF PRIMARY EQUITY MARKET
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INVESTMENT IN EQUITIES =============================================================== Public Issue: Public Issue means IPO Initial Public Offer, where new equity shares sold into Securities Market. This is very popular when Market is in boom period, it is quite safe bet in boom period. It is a general invitation to public to acquire the shares of company, by filling an application form for subscription of shares. Here the shares will be allocated on the basis of demand for shares. If there is good demand for shares like 100000 shares introduced & applications are 150000, then (over-subscription) shares will be allotted on the basis of policy of company. Several steps are to be taken to issue IPO : 1. Decision by the board & approval from shareholders is first obligation to issue IPO. 2. Appointment of Lead Manager & other parties connected with public issues. 3. Preparation of prospectus, the prospectus should not contain any wrong information in respect of Company. Otherwise it is called as Ultra-vires . 4. Filing prospectus with SEBI & taking approval for issue of prospectus. 5. Printing of prospectus & Share Application form. 6. Dispatch of application forms to brokers & prospective investors. 7. Deciding opening date of issue & Closing date of issue. 8. Receiving application forms. 9. Collecting Application money from banks. 10. Determining basis of allotment & Informing it to Stock exchange there are three conditions may occur If there is Over-subscription then deciding basis of allotment; If there is Under-subscription then informing to underwriters & selling their shares to underwriters. 11. After allotment finalization, giving De-Mat credit to allot tees or sending share certificates. 12. Listing of Shares on the Stock Exchange.
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INVESTMENT IN EQUITIES =============================================================== Right Issue: In Right issue Company offers shares to existing shareholders in proportion to their Paid-up capital. For example, Existing paid-up of company is 10 crores & company wants to issue shares on right basis for 5 crores. Then every shareholder, who possesses 2 shares of company will get 1 share(right share). This offer can be made by company, & it is not mandatory to shareholders to accept it. A shareholder holds following rights about right issue proposal : Shareholder can accept it; Shareholder can reject it ; or Shareholder can renounce it to someone else. That means he can transfer that claim to any of his concern person & that person can buy those shares instead of him. In Right issue of shares company sends letter of offer along with application form along with Composite application form contains of following 4 sections : a. it is for accepting right shares & applying for additional b. It is to renounce the share. Sec C it is to be filled by the Renounce. Sec D. It is for split forms. Some portion of shares can purchase by shareholder & some portion can be renounced. Private Issue: This is sale of securities or shares to Specified persons. Because of need of funds may be more & it may require at short period of time. So this allotment occurs within limited no. of parties like Financial Institutions, Venture Capitals Funds, Banks, High net worth Individuals etc. Private placement of Shares is generally made by unlisted Companies. So all the issues regarding allotment of shares will be decided by the company. It is just another like of over the counter exchange. The monitoring institutions will have less interference in issue of these shares.
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INVESTMENT IN EQUITIES =============================================================== Preference Allotment: Its issue of Equity shares by listed company to selected investors at predetermined price. Normally, Preference shares allotment is given to foreign collaborators or FII ( Foreign Institutional Investors ). In Preference shares allotment, issue price is to be determined with reference to quoted price of shares in the last six months. And rules of SEBI are to be followed regarding preference share allotment. RBI permission is also necessary when shares are to be allotted to Foreign Collaborators or FII.
7. SECONDARY MARKET
The Secondary Market means a market where all the existing securities particularly shares are sold & bought on continuous basis. This is huge market & many stock exchanges conducts crores of rupees from this market. This is the same market from where all the market participants like Brokers, Sub-brokers, Mutual Funds, FII ( we have discussed in above table 5.1) deals & invests their amounts into this market. There are many companies who are listed in any stock market can be dealt included in this market. This market is very sensitive market. And any trade or even a single ordinance passed by the directors of company can cause for deviation in price of shares. In general sense it is actual Stock market.
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We have discussed various indicators of Secondary Market in following table. 2000-01 9,782 9,954 1148.20 7,688,630 54.5 2001-02 9,687 9,644 1129.55 7,492,480 36.4 2002-03 9,519 9,413 978.20 6,319,212 28.5
Capital Market Segment of Stock Exchanges
No. of Brokers No. of Listed Companies S&P,CNX, Nifty Market Capitalisation Market Capitalisation Ratio ( % ) Turnover Turnover Ratio
28,809,900 374.7
8,958,260 119.6
9,689,541 153.3
(Rs. In mn.) Turnover Of Derivative segment of exchanges (Rs. In mn.) Turnover Of Government Securities (Rs. In mn.)
6,981,241
15,738,930 19,557,313
40,180
1,038,480
4,423,333
8. DERIVATIVE MARKET
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INVESTMENT IN EQUITIES =============================================================== Introduction to derivatives The emergence of the market for derivative products, most notably forwards, futures and options, can be traced back to the willingness of risk-averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. By their very nature, the financial markets are marked by a very high degree of volatility. Through the use of derivative products, it is possible to partially or fully transfer price risks by locking-in asset prices. As instruments of risk management, these generally do not influence the fluctuations in the underlying asset prices. However, by locking-in asset prices, derivative products minimize the impact of fluctuations in asset prices on the profitability and cash flow situation of risk-averse investors. Derivative products initially emerged, as hedging devices against fluctuations in commodity prices and commodity-linked derivatives remained the sole form of such products for almost three hundred years. The financial derivatives came into spotlight in post-1970 period due to growing instability in the financial markets. However, since their emergence, these products have become very popular and by 1990s, they accounted for about two-thirds of total transactions in derivative products. In recent years, the market for financial derivatives has grown tremendously both in terms of variety of instruments available, their complexity and also turnover. In the class of equity derivatives, futures and options on stock indices have gained more popularity than on individual stocks, especially among institutional investors, who are major users of index-linked derivatives. Even small investors find these useful due to high correlation of the popular indices with various portfolios and ease of use. The lower costs associated with index derivatives vis-vis derivative products based on individual securities is another reason for their growing use. The following factors have been driving the growth of financial derivatives: 1. Increased volatility in asset prices in financial markets,
27
INVESTMENT IN EQUITIES =============================================================== 2. Increased integration of national financial markets with the international markets, 3. Marked improvement in communication facilities and sharp decline in their costs, 4. Development of more sophisticated risk management tools, providing economic agents a wider choice of risk management strategies, and 5. Innovations in the derivatives markets, which optimally combine the risks and returns over a large number of financial assets, leading to higher returns, reduced risk as well as trans-actions costs as compared to individual financial assets. Types of derivatives The most commonly used derivatives contracts are forwards, futures and options which we shall discuss in detail later. Here we take a brief look at various derivatives contracts that have come to be used. Forwards: A forward contract is a customized contract between two entities, where settlement takes place on a specific date in the future at todays preagreed price. Futures: A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are standardized exchange-traded contracts. Futures markets were designed to solve the problems that exist in forward markets. A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. But unlike forward contracts, the futures contracts are standardized and exchange traded. To facilitate liquidity in the futures contracts, the exchange specifies certain standard features of the contract. It is a standardized contract with standard underlying instrument, a standard quantity and quality of the underlying instrument that can be delivered, (or which can be used for reference purposes in settlement) and a
28
INVESTMENT IN EQUITIES =============================================================== standard timing of such settlement. A futures contract may be offset prior to maturity by entering into an equal and opposite transaction. More than 99% of futures transactions are offset this way. The standardized items in a futures contract are: Quantity of the underlying Quality of the underlying The date and the month of delivery The units of price quotation and minimum price change Location of settlement
Distinction between futures and forwards contracts Forward contracts are often confused with futures contracts. The confusion is primarily because both serve essentially the same economic functions of allocating risk in the presence of future price uncertainty. However futures are a significant improvement over the forward contracts as they eliminate counter party risk and offer more liquidity. Distinction between futures and forward Futures Trade on Forwards organized OTC in nature Customized contract terms Hence less liquid No margin payment
an
exchange Standardized contract terms Hence more liquid Requires margin payments
Futures
Terminology
Spot price: The price at which an asset trades in the spot market. Futures price: The price at which the futures contract trades in the futures market. Contract cycle: The period over which a contract trades. The index futures contracts on the NSE have one-month, two-months and three-months expiry cycles, which expire on the last Thursday of the month. Thus a January 29
INVESTMENT IN EQUITIES =============================================================== expiration contract expires on the last Thursday of January and a February expiration contract ceases trading on the last Thursday of February. On the Friday following the last Thursday, a new contract having a three-month expiry is introduced for trading. Expiry date: It is the date specified in the futures contract. This is the last day on which the contract will be traded, at the end of which it will cease to exist. Contract size: The amount of asset that has to be delivered under one contract. For in-stance, the contract size on NSEs futures market is 200 Nifties. Basis: In the context of financial futures, basis can be defined as the futures price minus the spot price. There will be a different basis for each delivery month for each contract. In a normal market, basis will be positive. This reflects that futures prices normally exceed spot prices. Cost of carry: The relationship between futures prices and spot prices can be summarized in terms of what is known as the cost of carry. This measures the storage cost plus the interest that is paid to finance the asset less the income earned on the asset. Initial margin: The amount that must be deposited in the margin account at the time a futures contract is first entered into is known as initial margin. Marking-to-market: In the futures market, at the end of each trading day, the margin ac-count is adjusted to reflect the investors gain or loss depending upon the futures closing price. This is called markingtomarket. Maintenance margin: This is somewhat lower than the initial margin. This is set to ensure that the balance in the margin account never becomes negative. If the balance in the margin account falls below the maintenance margin, the investor receives a margin call and is expected to top up the margin account to the initial margin level before trading commences on the next day.
Options: Options are of two types - calls and puts. Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given 30
INVESTMENT IN EQUITIES =============================================================== price on or before a given future date. Puts give the buyer the right, but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date. In this section, we look at the next derivative product to be traded on the NSE, namely options. Options are fundamentally different from forward and futures contracts. An option gives the holder of the option the right to do something. The holder does not have to exercise this right. In contrast, in a forward or futures contract, the two parties have committed themselves to doing something. Whereas it costs nothing (except margin requirements) to enter into a futures contract, the purchase of an option requires an upfront payment.
Option Terminology Index options: These options have the index as the underlying. Some options are European while others are American. Like index futures contracts, index options contracts are also cash settled. Stock options: Stock options are options on individual stocks. Options currently trade on over 500 stocks in the United States. A contract gives the holder the right to buy or sell shares at the specified price. Buyer of an option: The buyer of an option is the one who by paying the option premium buys the right but not the obligation to exercise his option on the seller/writer. Writer of an option: The writer of a call/put option is the one who receives the option premium and is thereby obliged to sell/buy the asset if the buyer exercises on him. There are two basic types of options, call options and put options. Call option: A call option gives the holder the right but not the obligation to buy an asset by a certain date for a certain price. Put option: A put option gives the holder the right but not the obligation to sell an asset by a certain date for a certain price. Option price: Option price is the price, which the option buyer pays to the option seller.
31
INVESTMENT IN EQUITIES =============================================================== Expiration date: The date specified in the options contract is known as the expiration date, the exercise date, the strike date or the maturity. Strike price: The price specified in the options contract is known as the strike price or the exercise price. American options: American options are options that can be exercised at any time upto the expiration date. Most exchange-traded options are American. European options: European options are options that can be exercised only on the expiration date itself. European options are easier to analyze than American options, and properties of an American option are frequently deduced from those of its European counterpart. In-the-money option: An in-the-money (ITM) option is an option that would lead to a positive cash flow to the holder if it were exercised immediately. A call option on the index is said to be in the money when the current index stands at a level higher than the strike price (i.e. spot price > strike price). If the index is much higher than the strike price, the call is said to be deep ITM. In the case of a put, the put is ITM if the index is below the strike price. At-the-money option: An at-the-money (ATM) option is an option that would lead to zero cash flow if it were exercised immediately. An option on the index is at-the-money when the current index equals the strike price (i.e. spot price = strike price)._ Out-of-the-money option: An out-of-the-money (OTM) option is an option that would lead to a negative cashflow it it were exercised immediately. A call option on the index is out-of- the-money when the current index stands at a level which is less than the strike price (i.e. spot price < strike price). If the index is much lower than the strike price, the call is said to be deep OTM. In the case of a put, the put is OTM if the index is above the strike price. Intrinsic value of an option: The option premium can be broken down into two components - intrinsic value and time value. The intrinsic value of a call is the amount the option is ITM, if it is ITM. If the call is OTM, its intrinsic value is zero. Putting it another way, the intrinsic value of a call isNP which means 32
INVESTMENT IN EQUITIES =============================================================== the intrinsic value of a call is Max [0, (St K)] which means the intrinsic value of a call is the (St K). Similarly, the intrinsic value of a put is Max [0, (K -St )] ,i.e. the greater of 0 or (K - S t ). K is the strike price and S t is the spot price. Time value of an option: The time value of an option is the difference between its premium and its intrinsic value. A call that is OTM or ATM has only time value. Usually, the maximum time value exists when the option is ATM. The longer the time to expiration, the greater is a calls time value, all else equal. At expiration, a call should have no time value. Futures Exchange Options with Same as futures.
traded,
novation Exchange defines the product Same as futures. Price is zero, strike price Strike price is fixed, price moves Price is zero Linear payoff Both long and short at risk moves. Price is always positive. Nonlinear payoff. Only short at risk.
Swaps: Swaps are private agreements between two parties to exchange cash flows in the future according to a prearranged formula. They can be regarded as portfolios of forward contracts. The two commonly used swaps are: Interest rate swaps: These entail swapping only the interest related cash flows between the parties in the same currency. Currency swaps: These entail swapping both principal and interest between the parties, with the cash flows in one direction being in a different currency than those in the opposite direction. A contract between two parties, referred to as counter parties, to exchange two streams of payments for agreed period of time. The payments, commonly called legs or sides, are calculated based on the underlying notional using applicable
33
INVESTMENT IN EQUITIES =============================================================== rates. Swaps contracts also include other provisional specified by the counter parties. Swaps are not debt instrument to raise capital, but a tool used for financial management. Swaps are arranged in many different currencies and different periods of time. US$ swaps are most common followed by Japanese yen, sterling and Deutsche marks. The length of past swaps transacted has ranged from 2 to 25 years.
Why did swaps emerge? In the late 1970's, the first currency swap was engineered to circumvent the currency control imposed in the UK. A tax was levied on overseas investments to discourage capital outflows. Therefore, a British company could not transfer funds overseas in order to expand its foreign operations without paying sizeable penalty. Moreover, this British company had to take an additional currency risks arising from servicing a sterling debt with foreign currency cash flows. To overcome such a predicament, back-to-back loans were used to exchange debts in different currencies. For example, a British company wanting to raise capital in the France would raise the capital in the UK and exchange its obligations with a French company, which was in a reciprocal position. Though this type of arrangement was providing relief from existing protections, one could imagine, the task of locating companies with matching needs was quite difficult in as much as the cost of such transactions was high. In addition, back-to-back loans required drafting multiple loan agreements to state respective loan obligations with clarity. However this type of arrangement lead to development of more sophisticated swap market of today. Facilitators The problem of locating potential counter parties was solved through dealers and brokers. A swap dealer takes on one side of the transaction as counter party. Dealers work for investment, commercial or merchant banks. "By positioning the swap", dealers earn bid-ask spread for the service. In other words, the swap dealer earns the difference between the amount received from a party and the
34
INVESTMENT IN EQUITIES =============================================================== amount paid to the other party. In an ideal situation, the dealer would offset his risks by matching one step with another to streamline his payments. If the dealer is a counter party paying fixed rate payments and receiving floating rate payments, he would prefer to be a counter party receiving fixed payments and paying floating rate payments in another swap. A perfectly netted position as just described is not necessary. Dealers have the flexibility to cover their exposure by matching multiple parties and by using other tools such as futures to cover an exposed position until the book is complete. Swap brokers, unlike a dealer do not take on a swap position themselves but simply locate counter parties with matching needs. Therefore, brokers are free of any risks involved with the transactions. After the counter parties are located, the brokers negotiate on behalf of the counter parties to keep the anonymity of the parties involved. By doing so, if the swap transaction falls through, counter parties are free of any risks associated with releasing their financial information. Brokers receive commissions for their services. Swaps Pricing: There are four major components of a swap price. Benchmark price Liquidity (availability of counter parties to offset the swap). Transaction cost Credit risk 1
Swap rates are based on a series of benchmark instruments. They may be quoted as a spread over the yield on these benchmark instruments or on an absolute interest rate basis. In the Indian markets the common benchmarks are MIBOR, 14, 91, 182 & 364 day T-bills, CP rates and PLR rates. Liquidity, which is function of supply and demand, plays an important role in swaps pricing. This is also affected by the swap duration. It may be difficult to
1
35
INVESTMENT IN EQUITIES =============================================================== have counter parties for long duration swaps, specially so in India Transaction costs include the cost of hedging a swap. Say in case of a bank, which has a floating obligation of 91 day T. Bill. Now in order to hedge the bank would go long on a 91 day T. Bill. For doing so the bank must obtain funds. The transaction cost would thus involve such a difference. Yield on 91 day T. Bill - 9.5% Cost of fund (e.g.- Repo rate) 10% The transaction cost in this case would involve 0.5% Credit risk must also be built into the swap pricing. Based upon the credit rating of the counter party a spread would have to be incorporated. Say for e.g. it would be 0.5% for an AAA rating.
Indian Derivatives Market Starting from a controlled economy, India has moved towards a world where prices fluctuate every day. The introduction of risk management instruments in India gained momentum in the last few years due to liberalization process and Reserve Bank of Indias (RBI) efforts in creating currency forward market. Derivatives are an integral part of liberalization process to manage risk. NSE gauging the market requirements initiated the process of setting up derivative markets in India. In July 1999, derivatives trading commenced in India Chronology of instruments 1991 14December 1995 18November 1996 11 May 1998 7 July 1999 24 May 2000 Liberalization process initiated NSE asked SEBI for permission to trade index futures. SEBI setup L.C.Gupta Committee to draft a policy framework for index futures. L.C.Gupta Committee submitted report. RBI gave permission for OTC forward rate agreements (FRAs) and interest rate swaps. SIMEX chose Nifty for trading futures and options on an Indian index. 36
INVESTMENT IN EQUITIES =============================================================== 25 May 2000 SEBI gave permission to NSE and BSE to do index futures trading. 9 June 2000 Trading of BSE Sensex futures commenced at BSE. 12 June 2000 Trading of Nifty futures commenced at NSE. 25 September Nifty futures trading commenced at SGX. 2000 2 June 2001 Individual Stock Options & Derivatives Need for derivatives in India today In less than three decades of their coming into vogue, derivatives markets have become the most important markets in the world. Today, derivatives have become part and parcel of the day-to-day life for ordinary people in major part of the world. Until the advent of NSE, the Indian capital market had no access to the latest trading methods and was using traditional out-dated methods of trading. There was a huge gap between the investors aspirations of the markets and the available means of trading. The opening of Indian economy has precipitated the process of integration of Indias financial markets with the international financial markets. Introduction of risk management instruments in India has gained momentum in last few years thanks to Reserve Bank of Indias efforts in allowing forward contracts, cross currency options etc. which have developed into a very large market.
1. STOCK EXCHANGE & THEIR TRADING MECHANISM.

Stock exchange is trading house, which provides a platform for trading of securities. In a stock exchange stocks of various companies are listed for trading. The stock exchange is also a regulatory board to keep a watch against manipulation, insider trading, and other such frauds. It gets guidelines from SEBI, which is the regulating authority for financial securities. Trading in stock exchanges can be done through the registered brokers. There are many stock exchanges in the country such as: National stock exchange (NSE)
37
INVESTMENT IN EQUITIES =============================================================== Bombay stock exchange (BSE) Delhi stock exchange (DSE) Calcutta stock exchange (CSE) Madras stock exchange (MSE) Bangalore stock exchange (BGSE)
Of these, the NSE and the BSE are major stock exchanges of the country. The other exchanges have relatively negligible volumes and only certain stocks not found on other exchanges. The BSE & NSE have the maximum number of members with the largest volumes traded in the country and are considered be the most worthy of investors attention.
THE BOMBAY STOCK EXCHANGE (BSE) The stock exchange mumbai, popularly known as BSE was established in 1875 as the native share and stock broker association. It is the oldest one in Asia, even older than the Tokyo stock exchange, which was established in 1878. Some say it has it roots in the 16th century where trading would take place under a baniyan tree. Which still exists under Dalal Street. It has evolved over the years into its present status as the premier stock exchange in the country. It is the first stock exchange in the country to have obtained permanent recognition in 1956 from Government of India. Under Securities Contracts (regulation) Act, 1956. it is the world renowned for its transformation from a primitive market to a state ofthe art technological trading system. The settlement period has decreased from 3 weeks to 3 days in just past 4-5 years. 38
INVESTMENT IN EQUITIES =============================================================== The exchange, while providing an efficient and transparent market for trading in securities, debt and derivatives upholds the interests of the investor and ensures redressal of their grievances whether against the companies or its own memberbrokers. It also strives to educate and enlighten the investor by conducting investor education programmes & making available to them necessary informative inputs. A governing board having 20 directors is the apex body, which decides the policies and regulates affairs of exchange. The governing board consists of 9 elected directors, who are from broking community (one third of them retired every year by rotation). ,3 SEBI nominees, 6 public representative & an Executive Director and Chief Executive Officer and a Chief Operative Officer. BSE key statistics Market Capitalization Rs. 1797428.38 crores
Listed Companies Around 7400 Average Daily Rs. 2800 crores Turnover Average Daily No.Of. Trades 22,249,240
The Bombay Online Trading (BOLT)
The BOLT is online trading system in use at the stock exchange, mumbai (popularly known as BSE, from its original name Bombay Stock Exchange) since March,1995. it is one of the few stock trading system in the world that handles hybrid/ mixed modes of trading; both order-driven & code-driven. It supports the normal segment, the auction segment , Odd Lot segment & Continuous Net settlement. There are more than 6000 BSE trading terminals installed across the country. Brokers sent their quotes, orders , Negotiated deals & in-house deals from their offices to the Central trading engine (CTE) from their broker work stations. The top five best bids & their best offers (which is commonly known as Best Bid&
39
INVESTMENT IN EQUITIES =============================================================== offer BBO) are available to all broker workstations using a mechanism called Broadcast of Market Information . the buy & sell orders placed by the brokers / traders are matched with the best available price in the market for that scrip. After they are match & transaction concluded, a confirmation sent to broker, which can be printed out.
BOLT: Central Trading Engine
LAN of exchange premises ----------------------------------------------------------------------------
Market operations Workstation
Surveillance Workstation 40
Broker Workstations on LAN
INVESTMENT IN EQUITIES =============================================================== LAN at remote end ----------------------------------------------------
Broker Workstation connected through WAN
THE NATIONAL STOCK EXCHANGE (NSE) Based on recommendations of a Special Task Force made up of a panel of leading financial institutions , NSE was promoted by leading financial institutions at behest of Govt. of India and was incorporated in November,1992 as a tax paying company unlike other stock exchanges in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act,1956 in April,1993, NSE commenced operations in wholesale debt market (WDM) segment in June, 1994. the Capital market (Equities) segment commenced operations in November,1994 & operations in Derivatives Segments commenced in june,2000. The NSE operates through a network through a very small Aperture Terminals or VSATs. Its counterpart to BSEs BOLT trading system is the NSEs Internet Based Information System or NIBIS. NSE key statistics 41
INVESTMENT IN EQUITIES =============================================================== 2,289 Number of Cities covered 345 Market Capitalization (in Rs. crores) 17,42,748 Listed Securities 1,347 Average Daily Turnover (in Rs. 10,466,552
Number of VSATs
crores) Average Daily No. of Trades
28,50,998
2. LEGAL & REGULATORY & LEGAL FRAME WORK Capital Issues (Control) Act,1947:The act has its origin during the war of 1943 when the objective was to channel the resources to support the war effort. It was retained with some modifications as a means of controlling the raising of capital by companies and to ensure national resources were channeled into proper lines, i.e. for desirable purposes to serve goals 7 priorities of the government & to protect the interest of investors. Under the Act, any firm wishing to issue securities had to obtain approval from the Central Government, which also determined the amount, type & price of the issue. As a part of the Liberalization process, the act was repealed in 1992 paving way for market-determined allocation of resources.
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The Securities Contracts & Regulations Act, 1956

It provides direct & indirect control of virtually all aspects of securities trading & running stock exchanges and aims to prevent undesirable transactions in securities. It gives regulatory jurisdiction over (a) stock exchanges through a process of recognition & continued supervision, (b) contracts in securities, (c) listings of securities on stock exchanges. As a condition of recognition a stock exchange complies with the conditions prescribed by the Central government. The stock exchanges determine their own listing regulations on which have to confirm to minimum listing criteria set out in the rules.
The Companies Act, 1956 :This Act was passed to monitor the activities of companies. This Act is very important because it contains some crucial informations pertaining to Shares , which is key tool in stock market, application ,allotment & call procedures, types of shares, dividends, transfer of shares etc. It contains very crucial issues of company. In Concise, this act is Magna-Charta Companies activities. Following are some of the important sections of this act: Section 86 this section explains types of shares, i.e. Preference & Equity shares. Their dividends & voting rights. Section 85 states & explains about the preference shares, their status, voting & rate of dividend. Section 108 this section says that a company shall register transfer of shares in, debentures of, company if a proper instrument of transfer duly stamped & executed on behalf of transferor or on behalf of transferee , specifying name & address of the same party. Section 205 Dividend Section 205C Investor Education & Protection Section 159 &160 of
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INVESTMENT IN EQUITIES =============================================================== SEBI Act,1992 :Major part of liberalization process was the repeal of the Capital Issues (Control) Act, 1947., in May,1992. With this, Governments control over issues of capital, pricing of the issues, fixing of premium & rates of interests on debentures etc. ceased, & the office which administered the act was abolished: the market was allowed to allocate the resources to competing uses. However, to ensure effective regulation of the market, SEBI Act, 1992 was enacted to establish SEBI with statutory powers for: Protecting interests of investors in securities Promoting the development of securities market, and Regulating the securities market.
Constitution of SEBI: The Central Government has constituted a board by the name of SEBI under section 3 of SEBI Act. The head office of SEBI is in mumbai. SEBI consists of following members only; a) A chairman; b) Two members amongst the officials of ministries of central government dealing with finance & administration of companies act, 1956; c) One member amongst the officials of reserve bank of India; d) Five other members of whom at least three shall be whole time members to be appointed by central government. The general superintendence, direction and management of the affairs of SEBI vests in board of directors, which exercises all powers and all acts and things which may be exercised or done by SEBI. Functions of SEBI:
44
INVESTMENT IN EQUITIES =============================================================== SEBI has been obligated to protect the interest of investors in securities and to promote & development of, & to regulate securities market by such measures as it thinks fits. The measures referred to therein may provide for: A. Regulating the business in stock exchanges and any other regulated market; B. Registering and regulating the working of stock brokers, sub brokers, share transfer agent, bankers to an issue, trustees of trust deeds, underwriters, portfolio managers, merchant bankers, registrar to an issue, and such other intermediaries who may be associated with in securities market in any manner; C. Registering and regulating the working of depositories, participants, custodians of securities, foreign institutional investors, credit rating agencies and such other intermediaries as SEBI may, by notification, specify in this behalf; D. Registering and regulating the working of venture capital funds and collective investment schemes including mutual funds; E. Promoting and regulating self regulatory organizations; F. Prohibiting fraudulent trade practices in securities market; G. Promoting investors education and training of intermediaries of securities market; H. Prohibiting insider trading in securities. I. Regulating substantial acquisition of shares and take over of companies; J. Calling for information from undertaking inspection, conducting inquires and audits of stock exchange, mutual funds, other persons associated with securities markets, intermediaries, and self regulatory organization in securities market; K. Calling for information and record from any bank or any other authority or board or corporation established or constituted by or under any central, state or provincial act in respect of any transaction in securities which is under investigation or inquiry by the Board;
45
INVESTMENT IN EQUITIES =============================================================== L. Performing such functions and exercising according to securities contracts act, 1956, as may be delegated to it by central government; M. Levying fees or other charges for carrying out the purpose of this section; N. Conducting research for above purposes; O. Calling from or furnishing to any such agencies, as may be specified by SEBI, such information as may be considered necessary by it for efficient discharge of its functions; P. Performed such other functions as may be prescribed;
Registration of Intermediaries The intermediaries and the person associated with securities market shall buy, sell, ordeal in securities after obtaining a certificate of registration from SEBI, as required by section 12; 1. Stock-broker, 2. Sub-broker, 3. Share Transfer Agents, 4. Bankers To An Issue, 5. Trustee Of Trust Deed, 6. Registrar To An Issue, 7. Merchant Banker, 8. Underwriter, 9. Portfolio Manager, 10. Investment Advisor, 11. Depository, 12. Depositary Participant,
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INVESTMENT IN EQUITIES =============================================================== 13. Custodian Of Securities, 14. Foreign Institutional Investor, 15. Credit Rating Agencies, 16. Venture Capital Funds, 17. Mutual Funds, 18. Custodian Of Securities, 19. Any Other Intermediary Associated With Securities Market. The Depositories Act,1996 :The Depositories Act 1996 was enacted to provide for regulation of Depositories in the securities & for matters connected therewith or incidental thereto. It came into force from 20th September 1995. The following terms are defined under this law: Beneficial owner means a person whose name is recorded as such with a Depository. Depository means a company, formed & registered under the Companies Act, 1956 & which has been granted a certificate of registration under sub-section (1A) of section 12 of SEBI Act, 1992. Issuer means any person making an issue of securities. Participant means a person registered as such under sub-section (1A) of section 12 of SEBI Act, 1992. Registered owner means a depository whose name is entered as such in the name of register of the issuer. This law also consists of following vital issues: 1. Agreement between depository & participant: A Depository shall enter in the specified format with one or more participants as its agents. 2. Services of Depository: - Any person, through a participant, may enter into agreement, in such form as may be specified by the bye-laws, with any depository for availing its services.
47
INVESTMENT IN EQUITIES =============================================================== Surrender of certificates: - Any person who has entered into agreement with a depository shall surrender the certificate of Security, for which he seeks to avail the services of depository, to the issuer in such manner as may be specified by the regulation. Registration of transfer of securities with depository: - Every depository shall, on receipt of intimation from a participant, register the transfer of security in the name of transferee. If the beneficial owner or a transferee of any security seeks to have custody of such security, the depository shall inform the issuer accordingly.
Securities in Depositories to be in fungible form: - All securities held by depository shall be kept in fungible & dematerialized form. Rights of Depositories & beneficial owner: - A Depository shall deemed to be registered owner for the purposes of effecting transfer of ownership of security on behalf of beneficial owner. The beneficial owner shall be entitled to all the rights & benefits & subjected all the liabilities in respect of his securities held by depository. Furnishing of information & records by depository: - Every depository shall furnish to the issuer information about the transfer of securities in the name of beneficial owners at such intervals & in such manner as specified by byelaws. Depository to indemnify loss in certain cases.:- Any loss caused due to the negligence of the depository or the participant , indemnify such beneficial owner. the depository shall
48
49
INVESTMENT IN EQUITIES =============================================================== Acts Sections Powers Exercisable By

Securities Contracts (Regulation) Act, 1956. 9 10 13A 17 16 6 Call for periodical return or direct SEBI 1.BROKER-CLIENT RELATIONSHIP. enquiries to be made. Approval of byelaws of recognized stock exchanges. Make or amend bye-laws of recognized stock exchanges. Additional trading floor. Licensing of Dealers in securities. To prohibit contracts in certain cases. Central government & concurrently exercised by SEBI and RBI. 22A Appeal against refusal by stock SAT Central government (DEA) SEBI Stock exchanges. Central government (DEA)
SEBI Act, 1992
exchanges. All other powers under the act Securities contracts rules,1992 Rules regulation and by laws. 3,4,5 & 6 15K to Establishment of SEBI 15Q 16 17 18 29 15T All other powers. 24 23 26 All other powers. 55 to 58, 59 to 84, 108 to 110, 112, 113, 116 to 122, 206, 206A, 207. Establishment of sat To issue directors To supersede SEBI SEBI to submit returns & reports, to make rules. Appellate powers To makes rules Appellate powers To make bylaws Issue of securities, transfers of securities, and nonpayment of dividend in case of listed public companies in case of those public companies which intend to get their securities listed on any recognized stock exchange in India.
Depository Act,1996 Companies Act,1956
SAT SEBI Central government (DEA) SAT Depositories. SEBI SEBI
50
Know Your Client

The TM shall enter into an agreement in the specified format provided by NSE with the client before accepting orders on letters behalf. The said agreement shall be executed on non-judicial stamp paper of adequate value, duly signed by both the parties on all the pages. Copy of the said agreement is to be kept with the TM permanently. In addition to the agreement, the TM shall seek information from the client in the 'Client Registration Application Form' obtaining information like: investor risk profile, financial profile, social profile, investor identification details, family, income, PAN number, employment, age, investments, other assets, financial liabilities, other responsibilities, social standing, investments horizon, risk taking ability etc. The TM shall all obtain recent passport size photographs of each of their clients in case of individual clients and of partners in case of partnership firms and of the dominant promoter in case of corporate clients. The TM shall also take proof of identification of the client.( Income Tax PAN) A stock-broker shall not deal knowingly, directly or indirectly, with a client who defaults to another stock-broker. There is no limit on the number of clients for a TM. Unique Client Code SEBI made it mandatory for all brokers to use unique client codes for all clients. Brokers shall collect and maintain in their back office the Permanent Account Number (PAN) allotted by Income Tax Department for all their clients. Subbrokers will similarly maintain the same for their clients. Where an individual client does not have PAN, such a client shall be required to give a declaration to that effect and until the PAN is allotted, such client shall furnish passport number and place and date of issue. Where the client does not have a PAN or a passport, such client shall furnish driving license number, place and date of issue. If none of the above is available, the client shall give his voter ID number. Until the PAN is allotted, SEBI registration number for FIIs and sub-
51
INVESTMENT IN EQUITIES =============================================================== account shall be used for FII s (where FII itself is the investing entity) and their sub-accounts, and the unique registration number issued by the relevant regulatory authority shall be used for tax paying body corporate and non-tax paying entities. SEBI registration number followed by any number given by mutual fund to denote Scheme/Plan shall be used for mutual funds. Brokers shall verify the documents with respect to the unique code and retain a copy of the document. They shall also be required to furnish the above particulars of their clients to the stock exchanges/clearing corporations and the same would be updated every quarter. The stock exchanges shall be required to maintain a database of client details submitted by brokers. Historical records of all quarterly submissions shall be maintained for a period of seven years by the exchanges. The above requirement shall be applicable for clients having order value of Rs.1 lakh or more and shall be enforced with effect from August 01, 2001 (SEBI Circular SMDEP/Policy/Cir-39/2001 Dated July 18, 2001 and MFD/Or No. 8/290/01 Dated June 30, 2001).
Margins from the Clients

It shall be mandatory for the TM to collect upfront margins from clients whose trades would result in a margin of Rs. 50,000/- or more, ( refer to SEBI circular no. SMD/POlJCY/Or-12/2002 dated 17 May 2002 ). The margin so collected shall be kept separately in the client bank account and utilized for making payment to the clearinghouse for margin and settlement with respect to that client.
Execution of Orders
The TM shall ensure that appropriate confirmed order instructions are obtained from the clients before placement of an order on the system. In order to execute a trade for a client, a broker must have specific customer instructions as to name of the company, the precise number of shares and limit/market price condition. Where the client requires an order to be placed after the order has been entered in the or any of his orders to be modified
52
INVESTMENT IN EQUITIES =============================================================== system but has not been traded, the TM shall ensure that he obtains order the client. The TM shall make of the order confirmation trade confirmation of the trade. placement/modification details in writing from
available to his client the order number and copies
slip/modification slip/cancellation slip and a copy of the
slip as generated on the trading system, forthwith on execution
The TM shall maintain copies of all instructions in writing from clients including participants for an order placement, order modification, order cancellation, trade cancellation etc.
Accumulation of orders
The TM shall not accumulate client's order/unexecuted balances of order where such aggregate orders/aggregate of unexecuted balance is greater than the regular lot size, specified for that security by the Exchange. The TM shall place forthwith all the accumulated orders where they exceed the regular lot size. Where the TM has accumulated the orders of several clients to meet the requirement of the regular lot quantity, he may give his own order number referred to as the Reference Number, together with a reference number to the NEAT Order Number, to the client.
Contract Note
Contract note is a confirmation of trade(s) done on a particular day for and on behalf of a client. A stock-broker shall issue a contract note to his clients for trades (purchase/sale of securities) executed with all relevant details as required therein to be filled in (refer to SEBI circular no. SMD/SED/CIR/23321 dated November 18, 1993). A contract note shall be issued to a client within 24 hours of the execution of the contract duly signed by the TM or his Attorney. The contract note should contain name Authorized Signatory or Client
& address (registered office address as well as dealing office address) of the TM, The SEBI registration number of the TM , details of trade viz. order number, trade number, security name, trade time, brokerage, settlement number & details of other levies. The Contract note must contain the clause Client will hold the security blank at its own risk. The TM shall ensure that 53
INVESTMENT IN EQUITIES =============================================================== i. ii. iii. iv. v. Contracts notes are in prescribed format, Maintain details in the counterfoils of contract notes, Stamp duty is paid The service tax charged in bill is shown separately and An authorized signatory TM signs by the TM or contract notes. The Contract note should be issued by broker/ TM within 24 hours of trade conducted within parties.
Segregation of Bank accounts The trading member should maintain separate bank accounts for clients funds & own funds. It shall be compulsory for all TM to keep money of their clients in separate accounts & their own money in separate accounts. Funds shall transferred from the client account to the clearing account for the purpose of funds pay-in obligations on behalf of the clients and vice-versa in case of funds pay-out. No payment for transaction in which the TM is taking position as a principal will be allowed to be made from the client's account. Sub-Broker - Client Relations
Know Your Client

The sub-broker shall enter into an agreement with the client before placing orders. Such agreement shall include provisions specified by the exchange in this behalf. The said agreement shall be executed on non-judicial stamp paper. The client should provide information to the sub-broker in the 'Client Registration Application Form'.
54
INVESTMENT IN EQUITIES =============================================================== Orders The sub-broker shall ensure that appropriate confirmed order instructions are obtained from the clients before placement of an order on the system and shall keep relevant records or documents of the same and of the completion or otherwise of these orders thereof.
Purchase/Sale Note
The purchase/sale note shall include the TM's name, address, identity number, contract note number, date and other details contained in the format prescribed by the Exchange. The purchase/sale note issued by the sub-broker shall bear a unique purchase/sale note number & date, place of issue which shall be the place of business of the sub-broker, and shall be stamped by the sub-broker as required under the relevant central/state stamp legislations. The purchase/sale note shall specify the break-up of the brokerage payable to the TM and to the sub-broker. The Sub-broker shall provide a purchase/sale note for all transactions made within 24 hours of the execution of the contract. The sub-broker shall ensure that The sub-broker pays stamp duty. The service tax charged in the bill is shown in the purchase/sale note. Purchase/sale note is signed by the authorized signatory. The purchase/sale note should contain name, address and SEBI registration number of the sub-broker, name, address and SEBI registration number of the affiliated TM, and details of trade viz. order number, trade number, trade time, security name, quantity, rate, brokerage, settlement number and details of other levies. Payment / Delivery of Securities The Sub-broker shall make payment to his clients or deliver the securities purchased within 48 hours of pay-out unless the client requested otherwise.
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INVESTMENT IN EQUITIES =============================================================== Sub- Brokerage The Sub-Brokerage shall charge his brokerage at rates not exceeding than the rate prescribed by SEBI i.e., 1.5%. the brokerage charged by TM & sub-broker shall be indicated separately from the clients & shall be indicated separately from price, in the purchase/sale note. The total brokerage that can be charged to a client is (max. 1.5% of traded value + 1.00% or more by TM) subject to an over all 2.5%.
2. DISPUTE, APPEAL & ARBITRATION.

Investors complaints received against the trading members in respect of claims/disputes for transactions executed on the NSE are handled by the Investor Grievance Cell (IGC). The complaints are forwarded to the trading members for resolution and seeking clarifications. The IGC follows-up with the trading members and makes efforts to resolve the complaint expeditiously. However, in certain cases, on account of conflicting claims made by the investor and the trading member, when it is not possible to administratively resolve the complaint, investors are advised to take recourse to the arbitration mechanism prescribed by the Exchange. Arbitration, which is a quasi-judicial process, is an alternate dispute resolution mechanism prescribed under the Arbitration and Conciliation Act, 1996. NSE Bye Laws prescribe the provisions in respect of Arbitration and the procedure therein has been prescribed in the Regulations. The claim, difference or dispute between the trading members, trading members and constituents/registered sub-brokers arising out of transactions executed on the Exchange can be referred to arbitration in accordance with the provisions prescribed under the Byelaws and Regulations of NSE. To establish that the disputes have arisen out of trades done on the Exchange, it is essential that the parties produce adequate documents viz. contract notes, bills, ledger accounts, etc. The aggrieved parties can file for arbitration at the
56
INVESTMENT IN EQUITIES =============================================================== regional centers viz. Mumbai, Delhi, Chennai and Calcutta based on the region where the transactions have been executed. The reference for arbitration should be filed within six months from the date when the dispute arose between the parties in the prescribed form along with a list of arbitrators (selected from the names of persons who are eligible to act as arbitrators provided by the Exchange). The arbitration application received from the applicant (aggrieved party) is forwarded to the other party i.e. the respondent. The respondent is called upon to file his reply along with his list of arbitrators within the specified time. The parties (applicant and respondent) have to select 7 names in the descending order of preference from the eligible list of arbitrators if arbitration reference is filed at Mumbai and 5 names in the descending order of preference from the eligible list of arbitrators if arbitration reference is filed at Delhi, Chennai or Kolkata. The first common arbitrator or panel of arbitrators (three arbitrators) to whom the highest preference has been given by both the parties is/are appointed as Arbitrator/s in the matter. If no common persons are identifiable from the list submitted by the two parties, the sole arbitrator or panel of arbitrators is/are appointed by NSE from the list of persons eligible to act as arbitrators after excluding the names of arbitrators given by the parties. A sole arbitrator is appointed if the claim amount is up to Rs. 25 lakh and panel of arbitrators consisting of three persons is appointed if the claim amount is more than Rs. 25 lakh based on the list of arbitrators submitted by the parties. The sole arbitrator/panel of arbitrators would fix a hearing in the matter unless both parties waive their right for such hearing in writing. In cases the claim amount is Rs. 25,000/- or less, it is not mandatory to hold a hearing of the parties and the matter is decided based on the documents and submissions made by the parties. In case, either of the parties fails to make submissions/be present for the hearing repeatedly, even though notices have been issued, the arbitrator may proceed to decide the matter ex-parte.
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INVESTMENT IN EQUITIES =============================================================== Based on the submissions made by the parties and the documentary evidence produced before the arbitrator, an award is passed by the arbitrator. The award is pronounced in writing and signed by the sole arbitrator or in case of a panel of arbitrators by all the three arbitrators. The arbitrator may include an interest component on the amount awarded, at such rate and for such period, as the arbitrator deems reasonable. The party not satisfied with the arbitration award can initiate appropriate steps for setting aside .the arbitration by filing a petition in the appropriate court under section 34 of the Arbitration and Conciliation Act, 1996, under certain conditions mentioned therein. The petition under section 34 has to be filed normally within a period 90 days. Under section 36 of the Arbitration and Conciliation Act, 1996, where the time for making an application to set aside the award has expired or such application for setting aside has been refused by the Court, the award can be enforced under the Code of Civil Procedure, 1908 in the same manner as if it were a decree of the Court.
3. PRECAUTIONS FOR INVESTORS.

Protecting the interest of investors dealing in securities is one of the main objectives of the exchange. In pursuit of this objective, Department Of Investor Services (DIS) was set up in 1986. the grievances of investors against listed companies and members of exchange are redressed by the exchange. The exchange also assist in arbitration process both between members & investors. The capital market can grow only when investor find it safe for them to invest in capital market and they are assured that the rules governing the market are fair and just to all players in market. With a view to ensure speedy and effective resolution of claims, differences and disputes between non-members, the exchange has laid down a set of procedures for arbitration thereof. These procedures are duly embodied in rules, by laws and regulations of exchanges, which have been duly approved by the government of India / securities and exchange board of India (SEBI).
58
INVESTMENT IN EQUITIES =============================================================== Safeguards for investors: These are some of safeguards that needs to be adhered to by the investors before trading in securities market. 1. While selecting broker / sub-broker Deal with only sebi registered broker / sub-broker after due diligence. Details of lists of brokers can be procured from the members list published by exchange and from the website www.bseindia.com.
2. Enter into an agreement Fill a client registration form with broker / sub-broker Each and every prospective client should read and understand the risk disclosure document specified by exchange and before entering into trading in the equities or derivatives segment and the member should be obtain signed copy of the from the clients Enter into broker / sub-broker-client agreement. This agreement is mandatory for all investors for registering as a client of BSE trading member. The client should ensure following before entering into an agreement :Carefully read and understand the terms and conditions of the agreement, before executing the same on valid stamp paper of requisite value. Agreement has to be signed on all pages by the client and the member or their representatives who has the authority to sign the agreement. Agreement has also signed by the witness by giving their names an address.
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INVESTMENT IN EQUITIES =============================================================== 3. While transacting Specify to broker the exchange the exchange through which your trade is to be executed and maintain separate account per exchange. Obtain a valid contract note (from broker) / confirmation memo (from sub-broker) within 24 hours of the execution of trade. Contract note is a confirmation of trade(s) done on a particular day for establishes a legally enforceable re4lationship between the members and client in respect of settlement of trades executed on the exchange as stated in contract note. Contract notes are made in duplicate, and the member and client both keep one copy of each. The client are expected to sign on the duplicate copy of contract note for having received the original Ensure that the contract note / confirmation memo contains :SEBI registration number of the member / sub-broker. Details of trade such as order no, trade no, trade time, quantity, price, brokerage; settlement number, details of other levies. The trade price should be shown separately from brokerage charged. The maximum brokerage that cab be charged is Rs.0.25 per share / debenture or 2.5% of the contract price per share / debenture whichever is higher. The maximum brokerage is inclusive of the brokerage charged by the sub-broker (sub-broker cannot exceed 1.5% of the trade value.) any additional charges that the member can charge are securities transaction tax, service tax on brokerage, stamp duty, etc as may be applicable from time to time. The brokerage and service tax are required to be indicated separately in the contract note. Signature of authorized representatives. Arbitration clause
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INVESTMENT IN EQUITIES =============================================================== stating that the trade is subject to the jurisdiction of mumbai must be present on the face of the contract note. 4. Ensuring settlement. Ensuring delivery of securities / payment of money to the broker immediately upon getting the contract note for sale / purchase but in any case, before prescribed pay-in-day. The member should pay the money or securities to the investors within 24 hours of the payouts. Open de-mat account. Preferably opt for buying and selling de-mat shares. For delivery of shares from De-mat a/c give the depository participant (DP) delivery out instructions to transfer the same from the beneficiary account to the pool account of broker through whom shares and securities have been sold. The following details to be given to the DP: Details of pool a/c of broker to whom the shares are to be transferred, details of scrip, quantity etc. as per the requirements of depositories the delivery out instruction should be given at least 48 hours prior to the cut-off time for the prescribed securities pay in. For receiving shares in your De-mat a/c, give the depository participant (DP) delivery out instructions to transfer the same from the beneficiary account to the pool account of broker through whom shares and securities have been purchased. If physical delivery are received check the deliveries received as per good / bad delivery guidelines issued by SEBI. Bad delivery cases should be sorted out through exchange machinery immediately. The investor should tally the accounts with the member at least once in a six months.
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INVESTMENT IN EQUITIES =============================================================== The investor may verify their trades done on BSE through trade confirmation system at www.bseindia.com if they have contract note for the concern trade. All registration of shares for ownership of physical shares should be executed by a valid, duly completed and stamped transfer deed. RIGHTS OF INVESTORS:1. To receive all benefits / material information declared for the investors by the company. 2. Prompt services from the company such as transfers, sub-divisions and consolidation of holdings in the company. 3. Equity holders have a right to subscribe to further issue of capital by the company. 4. Receipt of the contract note from the broker in the specified format showing transaction price and brokerage separately. 5. Investors can expect delivery of shares purchase / value of shares sold within one working day (excluding Saturday, Sunday, and bank holiday) after the pay out of settlement, unless a client has required otherwise. 6. Access to the exchange arbitration facilities in case of disputes with brokers, contact ; the department of investors services, the stock exchange, 1st floor, rotunda bldg, mumbai- 400 001.
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1. TECHNICAL ANALYSIS
TECHNICAL ANALYSIS
IS BASED ALMOST ENTIRELY ON THE ANALYSIS OF PRICE AND VOLUME.
ALL
THE
ELEMENTS LISTED BELOW ARE AVAILABLE ON A DAILY BASIS IN ANY LEADING BUSINESS NEWSPAPER.
THE FORMATION AND RELEVANCE OF A SECURITYS PRICE AND VOLUME IS EXPLAINED BELOW:
Price
As defined earlier, price in terms of Technical Analysis is an interaction of demand and supply. The price of a security depends on the expectations of the buyer and the seller. If the investor expects the price to rise, he will buy the security and if he expects it to fall, he will sell it. Opening Price This is the price of the first trade for the period (e.g. The first trade of the day). When analyzing daily data, the Open is especially important, as it is the consensus price after all interested parties were able to sleep on it.
High This is the highest price that the security traded during the period. It is the point at which there were more buyers (i.e. There are always sellers willing to sell at higher prices, but the high price represents the highest price that buyers are willing to pay).
Low This is the lowest price that the security traded during the period. It is the point at which there are more buyers than sellers (i.e. There are always buyers willing to buy at lower prices, but the low represents the lowest price sellers were willing to accept).
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INVESTMENT IN EQUITIES =============================================================== Close This is the last price that the security traded during the period. Due to its availability, the close is the most often used price for analysis. The relationship between the first price (open) and the last price (close) is considered significant by most technicians. This relationship is emphasized in candlestick charts.
Volume THIS
IS THE NUMBER OF SHARES THAT WERE TRADED DURING THE PERIOD.
THE
RELATIONSHIP
BETWEEN THE PRICE AND VOLUME IS VERY IMPORTANT. CONFIRMS THE ACCURACY OF PREDICTIONS MADE.
THE
BEHAVIOR OF VOLUME IN SOME CASES
Time BOTH,
PRICE AND VOLUME ARE RELATIVE TO THE TIME FRAME TAKEN.
THUS,
THE TIME FRAME
BECOMES ONE MORE COMPONENT OF
TECHNICAL
ANALYSIS.
AFTER
ALL, TRADING IN THE STOCK AND SUPPLY ARE NEVER
MARKET BASED ON HOW WELL YOU TIME YOUR TRANSACTIONS.
DEMAND
CONSTANT IN THE STOCK MARKET AND THUS, A HIGHLY PRICED STOCK TODAY MAY NOT BE SO HIGH SOME OTHER DAY. COMES INTO PLAY.
WHETHER SINCE,
YOU ARE AN INVESTOR, OR A SPECULATOR, RELATIVE WORTH OF TIME
TIME ASSUMES SO MUCH IMPORTANCE IN
TECHNICAL ANALYSIS,
CHARTS
ARE REQUIRED TO GIVE US A PICTORIAL PRESENTATION OF THE TIME FRAME AND PRICE MOVEMENT.
EXAMPLE IN
THIS EXAMPLE OF
WIPRO, I
HAVE PRESENTED A BAR CHART WITH THE VOLUME INDICATED AT THE ALL CHARTS SHOW VOLUME AT THE BOTTOM SINCE, AS
BOTTOM OF THE CHART.
TYPICALLY
MENTIONED ABOVE, THE BEHAVIOR OF VOLUME IS VERY IMPORTANT IN MANY SITUATIONS.
AS YOU CAN
SEE, THIS CHART SHOWS THE OPENING, CLOSING, HIGH AND LOW PRICES TOGETHER WITH THE VOLUME AT THE BOTTOM OF THE CHART FROM LAST
NOVEMBER
TO DATE.
FROM
THE CHART ITSELF
ONE CAN SEE HAW THE PRICES HAVE FALLEN IN THE LAST NINE MONTHS.
WHAT IS A TREND LINE & MOVING AVERAGE?
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INVESTMENT IN EQUITIES =============================================================== TECHNICAL ANALYSIS

IS BUILT ON THE ASSUMPTION THAT PRICES TREND.
A TRENDLINE
IS A STRAIGHT
LINE THAT CONNECTS TWO OR MORE PRICE POINTS AND THEN EXTENDS INTO THE FUTURE TO ACT AS A LINE OF SUPPORT OR RESISTANCE.
TREND
LINES ARE AN IMPORTANT TOOL IN TECHNICAL ANALYSIS
FOR BOTH TREND IDENTIFICATION AND CONFIRMATION.
Up Trend line An Up Trend line has a positive slope and is formed by connecting two of more low points. The second low must be higher than the first for the line to have a positive slope. Up trend lines act as support and indicate that net-demand (demand less supply) is increasing even as the price rises. A rising price combined with increasing demand is very bullish and shows a strong determination on the part of the buyers. As long as prices remain above the trend line, the up trend is considered solid and intact. A break below the up trend line indicates that net-demand has weakened and a change in trend could be imminent. Example: The example of an up trend is given in the chart of Dr. Reddys Laboratories above. Down Trend line A Down Trend line has a negative slope and is formed by connecting two or more high points. The second high must be lower than the first for the line to have a negative slope. Down trend lines act as resistance and indicate that netsupply (supply less demand) is increasing even as the price declines. A declining price combined with increasing supply is very bearish and shows the strong resolve of the sellers. As long as prices remain below the down trend line, the downtrend is considered solid and intact. A break above the down trend line indicates that net-supply is decreasing and a change of trend could be imminent. Example: The example given below is of Wipro where a downtrend was formed in the beginning of March and come to an end in the first week of April.
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INVESTMENT IN EQUITIES =============================================================== Importance of a Trend Line A

TREND LINE IS SAID TO BE MORE SIGNIFICANT IF THE NUMBER OF TIMES THE PRICES SUCCESSFULLY TOUCHES THE TRENDS LINE AND REVERSES, I.E.
EACH
TIME THE PRICES MOVE BACK TO THE TREND
LINE AND RENEW THE DIRECTION IN WHICH IT IS MOVING.
AN
IMPORTANT POINT TO UNDERSTAND IS THE LENGTH OF TIME PRICES HAVE PERSISTED IN THE
DIRECTION OF THE TREND OR DECLINE AS THE CASE MAYBE WITHOUT PENETRATING THE TREND LINE.
THE LONGER THE PERIOD THE PRICES HAVE PERSISTED IN ONE DIRECTION OF THE TREND ADVANCE OR
DECLINE STRONGER IS THE TREND.
THE
ANGLE OF THE TREND LINE I.E. THE STEEPNESS OF THE TREND LINE IS IMPORTANT.
WORE
STEEPER THE ANGLES OF THE TREND LINE, GREATER ARE THE CHANCES OF THE TREND LINE BEING BROKEN, I.E. MOVES.
VERY
STEEP TREND LINE CAN EASILY BE BROKEN BY SOME SIDEWAYS CONSOLIDATION
TREND
LINES THAT ARE LESS STEEP ARE NOT SUBJECT TO MANY SHORT-TERM PRICE MOVEMENTS
THAT ARE OFTEN INCONSISTENT WITH THE CURRENT TREND.
Moving averages Moving averages are one of the most popular and easy to use tools available to the technical analyst. By using an average of prices, moving averages smooth a data series and make it easier to spot trends. This can be especially helpful in volatile markets. Moving average is a Trend-Following Indicator Moving averages smooth out a data series and make it easier to identify the direction of the trend. Because past price data is used to form moving averages, they are considered lagging, or trend following, indicators. Moving averages will not predict a change in trend, but rather follow behind the current trend. Therefore, they are best suited for trend identification and trend following purposes, not for prediction.
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INVESTMENT IN EQUITIES =============================================================== When do we use moving averages? Because moving averages follow the trend, they work best when a security is trending and are ineffective when a security moves in a trading range. With this in mind, investors and traders should first identify securities that display some trending characteristics before attempting to analyze with moving averages. This process does not have to be a scientific examination. Usually, a simple visual assessment of the price chart can determine if a security exhibits characteristics of trend. In its simplest form, a security's price can be doing only one of three things: trending up, trending down or trading in a range. An uptrend is established when a security forms a series of higher highs and higher lows. A downtrend is established when a security forms a series of lower lows and lower highs. A trading range is established if a security cannot establish an up trend or downtrend. If a security is in a trading range, an up trend is started when the upper boundary of the range is broken and a downtrend begins when the lower boundary is broken. Moving Average Settings Once a security has been deemed to have enough characteristics of trend, the next task will be to select the number of moving average periods and type of moving average. The number of periods used in a moving average will vary according to the security's volatility, trendiness and personal preferences. The more volatility there is, the more smoothing that will be required and hence the longer the moving average. Stocks that do not exhibit strong characteristics of trend may also require longer moving averages. There is no one set length, but some of the more popular lengths include 21, 50, 89, 150 and 200 days as well as 10, 30 and 40 weeks. Short-term traders may look for evidence of 2-3 week trends with a 21-day moving average, while longer-term investors may look for evidence of 3-4 month trends with a 40-week moving average.
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INVESTMENT IN EQUITIES =============================================================== Trial and error is usually the best means for finding the best length. Examine how the moving average fits with the price data. If there are too many breaks, lengthen the moving average to decrease its sensitivity. If the moving average is slow to react, shorten the moving average to increase its sensitivity. HOW TO USE AVERAGES FOR TRADING? THE
SIMPLE RULE OF USING AVERAGES IS THAT WHEN THE PRICE CUTS THE AVERAGE LINE FROM THE BOTTOM, A BUY SIGNAL IS GENERATED AND WHEN THE PRICE CUTS THE AVERAGE LINE FROM THE TOP, A SELL SIGNAL IS GENERATED.
THERE
IS HOWEVER, ONE SHORTCOMING WHILE FOLLOWING AVERAGES FOR THE TRADING OR
INVESTMENT DECISIONS.
WHEN
THE MARKET IS CHOPPY OR MOVING IN A CLOSE RANGE THEN THERE
WILL BE FREQUENT CROSSOVERS AND ONE MAY NOT BE IN A POSITION TO TAKE A DECISION.
HENCE,
TO OVERCOME THIS SITUATION, IT IS ADVISABLE TO USE TWO DIFFERENT TYPES OF MOVING
AVERAGES.
ONE WILL BE OF A SHORT-TERM MOVING AVERAGE AND THE OTHER WILL BE A LONG TERM AS THE
SHORTER TERM MOVING AVERAGE IS OF A SHORT-TERM DURATION, IT WILL
MOVING AVERAGE.
REACT FASTER TO THE CHANGES IN PRICE TRENDS THAN THE LONGER TERM MOVING AVERAGE.
THE
LONG TERM MOVING AVERAGE WILL BE SLOW AND LATE TO REACT TO ANY PRICE FLUCTUATION THAN THE SHORTER TERM MOVING AVERAGE.
THUS,
WHEN THERE IS AN INTERSECTION OF THE TWO
AVERAGES, THE BUY AND THE SELL SIGNALS ARE GENERATED.
WHEN
THE SHORTER-TERM AVERAGE IS CUTTING THE LONGER-TERM AVERAGE FROM THE BOTTOM A
BUY SIGNAL IS GENERATED AND IF THE SHORT-TERM AVERAGE CUTS THE LONGER TERN AVERAGE FROM THE TOP A SELL SIGNAL IS GENERATED.
TYPES OF MOVING AVERAGES Simple Moving Average A simple moving average is formed by finding the average price of a security over a set number of periods. Most often, the closing price is used to compute
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INVESTMENT IN EQUITIES =============================================================== the moving average. For example: a 5-day moving average would be calculated by adding the closing prices for the last 5 days and dividing the total by 5. 10 + 11 + 12 + 13 + 14 = 60 60 / 5 = 12 A moving average moves because as the newest period is added, the oldest period is dropped. If the next closing price in the average is 15, then this new period would be added and the oldest day, which is 10, would be dropped. The new 5-day moving average would be calculated as follows: 11 + 12 + 13 + 14 + 15 = 65 65 / 5 = 13 Over the last 2 days, the moving average moved from 12 to 13. As new days are added, the old days will be subtracted and the moving average will continue to move over time. Example: Given below is an example of Simple Moving Averages of 5 days and 21 days constructed on B.S.E. Sensex chart. averages generated buy and sell signals. Exponential moving average In order to reduce the lag in simple moving averages, technicians sometimes use exponential moving averages, or exponentially weighted moving averages. Exponential moving averages reduce the lag by applying more weight to recent prices relative to older prices. The weighting applied to the most recent price depends on the length of the moving average. The shorter the exponential moving average is, the more weight that will be applied to the most recent price. For example: a 10-period exponential moving average weighs the most recent price 18.18% and a 20-period exponential moving average weighs the most recent price 9.52%. The method for calculating the exponential moving average is fairly complicated. The important thing to remember is that the exponential moving average puts more weight on recent prices. As such, it will react quicker to recent price changes than a simple moving average. Exponential Moving Average Calculation The formula for an exponential moving average is: The crossover of the moving
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INVESTMENT IN EQUITIES =============================================================== X = (K x (C - P)) + P Where: C P K = = X = Previous = Current Current period's Smoothing EMA Price EMA* constant
(*A SMA is used for first period's calculation) The smoothing constant applies the appropriate weighting to the most recent price relative to the previous exponential moving average. The formula for the smoothing constant is: K = 2/(1+N) N = Number of periods for EMA For a 10-period EMA, the smoothing constant would be .1818.
The EMA formula works by weighting the difference between the current period's price and the previous period's EMA and adding the result to the previous period's EMA. There are two possible outcomes: the weighted difference is either positive or negative. 1. IF
THE CURRENT PRICE
IS HIGHER THAN THE PREVIOUS PERIOD'S
EMA (P),
THE
DIFFERENCE WILL BE POSITIVE
(C-P). THE
POSITIVE DIFFERENCE IS WEIGHTED BY AND THE ANSWER IS ADDED TO THE
MULTIPLYING IT BY THE CONSTANT PREVIOUS PERIOD'S
((C-P) XK)
EMA, RESULTING IN A NEW EMA THAT IS HIGHER, EMA, THE
((C-P) X K) + P. 2. IF THE
CURRENT PRICE IS LOWER THAN THE PREVIOUS PERIOD'S DIFFERENCE
WILL BE NEGATIVE BY THE CONSTANT PERIOD'S
(C - P). THE ((C - P)

X
NEGATIVE DIFFERENCE IS WEIGHTED BY MULTIPLYING IT AND THE FINAL RESULT IS ADDED TO THE PREVIOUS
K)
EMA, RESULTING IN A NEW EMA THAT IS LOWER ((C - P) X K) + P.
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INVESTMENT IN EQUITIES =============================================================== Example: Example given below is an example of Exponential Moving Averages of 5 days and 21 days constructed on B.S.E. Sensex chart. The crossover of the moving averages generated buy and sell signals.
3. ELEMENTARY STATISTIC CONCEPTS

Mean Mean is the arithmetic average of all the values in a data set. If there are 'N' Elements of data (Xi) in the data set, then the mean (X} is given by ~X = L Xi/N, where i = 1,2, 3,......, n Example 1: What is the average rate of return of XYZ if the returns during the previous three years are 10%, 15% and 20%? Average Return = (10% + 15% + 20%)/3 = 15% Therefore, average rate of return during previous three years of XYZ is 15%. If there is a weight age/probability T ; ' associated with an element 'X/, then the weight ~X -- I age
PI
mean/expected
value
(X)
is
given
by
the
equation
*XX, where i = 1,2,3,.................., n
Example 2: What is the expected return of XYZ if it has the probability of earning returns as given below? Probability (%) 20 30 50 = 13.10% Return (%) 10 12 15
Expected value = (20%*10%) + (30%*12%) + (50%*15%)
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INVESTMENT IN EQUITIES =============================================================== 6.1.2 Geometric Mean Geometric Mean (GM) is theoretically considered to be the best average in measuring returns from securities. It is also considered more appropriate in averaging ratios and percentages. It is defined as the n th root of the product of 'N' items. If there are two items, square root is taken; if there are three items, then cube root and so on. Symbolically, ____________________
GM = nV(X1)*(X2)*(Xa)*........(Xn) where X, X2 X3 EXAMPLE What is average percentage rate of increase in security prices. If it increased @ 14% in 1999, 5% in 2000 and 2% in 2001? ANNUAL RATE OF INCREASE = TIME VALUE OF MONEY Money has a time value. A rupee is less valuable in the future than it is today. Time value of money could be studied under following heads. a) Future value of single cash flow. b) Future Value Of Annuity. a) Future Value Of Single Cash Flow. For given present value (PV) of money, future value of money (FV) after a period t for which compounding is done at an interest rate of r is given by the equation FV = PV (1+ r)t This assumes that compounding is done at discrete intervals. However, in case of continuous compounding, the future value is determined using formula FV = PV * e
refer to the various items of the series.
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INVESTMENT IN EQUITIES =============================================================== Where the compounding factor is calculated by taking natural logarithm ( log to base). Example: calculate the value 5 years hence of a deposit of Rs 1,000 made today if the interest rate is 10%. By discrete compounding FV = 1,000 *(1+0.10)5 = 1000*(1.1)5 = 1000*1.61051= Rs 1610.51. By continuous compounding FV= 1000*e (0.010*5) = 1000*1.648721= Rs 1648.72. b) Future Value Of Annuity. The future value (FV) of a uniform cash flow (CF) made at the end of each period till the time of maturity t foe which compounding is done at the rate r is given by FV= CF*(1+r)t-1 + CF (1+r)t-2 + +CF*(1+r)1+CF
4. UNDERSTANDING FINANCIAL STATEMENTS. & RATIO

ANALYSIS
There are some very important documents, statements of company which determines efficiency of that company. Companys Financial Statements are also among those documents, which determine life of company & creates goodwill among its shareholders. Now for every investor it mandatory to know these statements, financial statements popularly known as Financial Results of Company. So some crucial documents are specified below: Balance sheet analysis Balance Sheet is very important tool of measuring the performance of the company. Every Investor should know about Balance Sheet & its important components, even he may not belong Finance or Commerce background. It is
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INVESTMENT IN EQUITIES =============================================================== obligatory for every investor. With this idea, specimen of balance sheet & its contents are discussed below along with some ratios. The key ratios affecting the performance of the company's financial condition are discussed below: earning per share (eps) This ratio is very crucial from investors point of view. Because it measures profit available to the equity shareholders on a per share basis, that is the amount that they can get on every share held. It is calculated by dividing the profits available to the shareholders by the number of outstanding shares. The profits available to the ordinary shareholders are arrived at by net profits after taxes & preference dividend. EPS = Net Profit After Tax / Number of ordinary shares outstanding. Debt-equity ratio. It is also known as Leverage ratio. It is ratio of Debt (Liabilities) to the Net worth (share capital + reserves). The higher ratio implies greater financial risk (on account of interest payment). Ideal Debt-Equity ratio is 0.25. Debt-Equity ratio= Debt / Equity Dividend yield ratio. Dividend yield ratio is closely related to EP. While EPS is based on book value per share, the yield is expressed in terms of the market value per share. It is very crucial tool for any investor to know the exact position of any company & it is very vital in decision making of procurement of shares. The dividend yield is calculated by dividing the cash dividends per share by the market value per share. Dividend yield = Dividend per share / Market Price per share * 100. Price to Earning ratio It is popularly known as P/E ratio. This ratio reflects the price currently being paid by the market for each rupee of the currently reported EPS. It measures
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INVESTMENT IN EQUITIES =============================================================== investors expectations & each market appraisal of the performance of a firm. It is defined as: Price to Earning ratio = Market Price if share / EPS
Income Statement (Profit & loss account)

Income statement shows the exact profit of the company. It gives a clear view of effects of all economic activities of company like its Sales, Purchases, Taxes, dividends, materials, administration etc.. Every Investor should know about Income Statement & its important components, even he may not be able to understand it. It is mandatory for every investor. With this idea, specimen of balance sheet & its contents are discussed below along with some ratios.
The key ratios affecting the performance of the company's Income Statement Are discussed below: Inventory Turnover Ratio: It measures how many times companys inventory has been sold during the year. Where the cost of goods sold means sales minus gross profit implies Stock of goods at the end of the year. Inventory turnover ratio = Cost of Goods sold / Inventory. & Inventory
Fixed Asset turnover Ratio: This ratio is used to measure the efficiency with which fixed assets are employed. A high ratio indicates an efficient use of fixed assets and it also implies that Company has potential to expand. 75
INVESTMENT IN EQUITIES =============================================================== Fixed Asset turnover ratio = Net Sales / Average Net Fixed Asset. Gross Profit ratio: This ratio implies the relationship Net Sales & Gross profit of the company. Gross Profit ratio = Gross Profit / Net Sales. Net Profit Ratio: This ratio implies the relationship Net Sales & Net profit of the company. This ratio shows the profits left for shareholders as a percentage of net sales. It measures overall efficiency of production. Administration, selling, finance pricing & tax management. Net Profit ratio = Net Profit / Net Sales. Current Ratio: Current Ratio means Liquid ratio. It represents liquid position of the company. That means hows companys position in short time? Whether its having Liquid assets or not ? The standard Current Ratio is 2.5:1. Current Ratio = Current assets / Current Liabilities. Acid Test Ratio: It explains companys position with current assets at very short period. It is like a current ratio but it excludes stock & Prepaid Expenses that is why it shows companys Liquid position at very short period. The standard Acid-Test Ratio is 1:1. Acid-Test Ratio = Current assets - (stock + prepaid expenses)/ Current Liabilities.
Cash flow statement

A cash flow statement gives details about the actual movement of cash during a particular period for a given company. This is different from the profit/loss earned by the company during that period. An annual statement is a must for any
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INVESTMENT IN EQUITIES =============================================================== business. For a small business, a cash flow statement should probably be prepared as frequently as possible, either monthly or quarterly. The cash flow statement deals with the provision of information about historical changes in cash and cash equivalents of an enterprise, classifying the activities as operating, investing and financing activities. The cash flow statement became a requirement for publicly traded companies in 1987. There are various rules governing how information is reported on cash flow statements, as determined by generally accepted accounting principles (GAAP). OBJECTIVES OF A CASH FLOW STATEMENT The cash flows of an enterprise provide users information about the financial statements with a basis to assess the ability of the enterprise to generate cash and cash equivalents and the needs of the enterprise to utilize those cash flows. A cash flow statement can be used to assess the timing, amount and predictability of future cash flows and it can be used as the basis for budgeting. The economic decisions taken by users depend on the ability of an enterprise to generate cash and cash equivalents and the timing and certainty of their generation. A cash flow statement is also a key to understanding the investment and financing philosophy of a borrower. A loan officer/banker will use cash flow analysis techniques to evaluate the firm's ability to generate cash to repay a loan. It examines the relationship between profitability and net cash flow and the impact of changing prices. It is useful in checking the accuracy of past assumptions. DEFINITIONS During a given period, cash could flow from three distinct activities i.e. operating activities, investing activities and financing activities. 77
INVESTMENT IN EQUITIES =============================================================== Operating activities are the principal revenue-producing activities of the enterprise and other activities that are not investing or financing activities. Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. Financing activities are activities that result in changes in the size and composition of the owners capital (including preference share capital in the case of a company) and borrowings of the enterprise. Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short term, highly liquid investments that are readily convertible into known amounts of cash and are subject to an insignificant risk of changes in value. Cash flows are inflows and outflows of cash and cash equivalents. Cash comprises cash on hand and demand deposits with banks. FUND FLOW ANALYSIS Introduction The statement of changes in financial position is a statement of flows, i.e. it measures changes that have taken place in the financial position of a firm between two balance sheet dates. It summarizes the sources from which funds have been obtained and the uses to which they have been applied. Funds mean working capital. Working capital is the amount by which current assets exceed current liabilities.
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Working Capital
Current Assets
Minus
Current Liabilities
Current assets are those, which are either in the form of cash or can be converted into cash in the short run. Similarly, current liabilities are those, which are to be paid in the short run. 'Short run' time frame may be taken as one year. Generally, no provision (including proposed dividend and tax provision) is considered as current liability.
Uses of Funds Flow Analysis Funds flow analysis helps in understanding the level of working capital and its movement. Every increase or decrease of working capital is caused by funds movement from sources and applications thereof. Funds flow analysis helps to identify the various sources and applications. Balance sheet is a position statement. It simply indicates the level of various assets and liabilities. It does not explain the underlying funds movement. Understanding funds movement helps in working capital management. Funds
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INVESTMENT IN EQUITIES =============================================================== flow analysis reveals how additional funds are created or how funds have been released. Indiscriminate release of funds for investments in fixed assets or outside business may affect normal functioning. On the other hand, unnecessary increase of funds may cause idle funds. Idle funds carry opportunity cost. Both increase and decrease should be supported by proper funds requirement analysis. Funds analysis aids working capital management. Earlier it was believed that funds flow analysis explains liquidity position too. A funds flow statement should be an integral part of the financial statements. This should be released to the external users also. However, this notion has now changed. Presently common perception is that cash flow analysis is a better indicator of liquidity. Funds mean working capital. It may be compared with liquid put in a tub. Let us compare the funds as on a day with a water level. The water level decreases if there is more outflows than inflow. Similarly, funds decrease if funds inflows between two dates are less than funds outflows. To the contrary, funds will increase if the funds inflow between two dates is more than funds outflow.
5. COMPANY ANALYSIS: Company analysis is nothing but analysis of two thrusts: How has company performed vis--vis other similar companies; and How has the company performed in the comparison to earlier years?
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INVESTMENT IN EQUITIES =============================================================== It is imperative that one is so much aware of his companys performance & future of that company. Then only any investor should invest his wealth into those stocks of Company. As the billionaire Mr. Jean Paul Getty, one of the most successful operators of all time, said, Do not buy a stock until you dont know all about it. We can test the Companys overall performance & its growth potential by knowing some important things about company. But before that we must know what we exactly want ? this is very important question to cogitate upon, because your whole selection (of a company) policy is depending upon this factor: A. Basic Investment Strategy: Any Investor must have to decide first that what will be his investing strategy , depending upon their Risk appetite, & patience. There are only two factors that determine the variation in the stock market. 1. Greed. 2. Fear of Loss. All the market variation arises due to these 2 factors because these two factors exists in the mind of every investor, that is why we can observe even a normal news or activity can bring a great variation into the prices of stock in the market. So , every investor has to think or decide for what period he is going to invest his amount into any particular company. Any investor has liberty to invest into any company either for Long-Term period or Short-term period. These two are not just two types but they are tendencies of human being: a. Long-term Investors: These are those investors who but shares based either on scientific analysis or other information & retain them over a long period of time. Long -term investors rely on their analysis & their company, & they generally prefer to invest in those securities whose complete information they have or they were never suffered loss or less loss, while investing in those securities. It always happens that these kind of investors prefers to invest in a good volume securities or more popular companies,
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INVESTMENT IN EQUITIES =============================================================== who possess goodwill in the stock market. There are low chances of huge losses for these investors. b. Short-term Investors: These investors prefer speculation. They make money early part of boom. But it will be injustice to say that it is just a speculation & there is no logic in it. Generally these short-term investors are those investors, who have good market sense along with good knowledge of companies. They have a good power of gazing the investment scenario of the stock market. Based on their experiences & sometimes on intuitions they makes money in the stock market, even by investing into new securities or new companies. Say for example, few months back in March, April, May 2006, there were so many IPOs were coming into market; so many peoples were making money by investing in it blindly, without thinking so much about the nature of Company. But despite of that they were making money in short span of time. Because market was going through a Boom period at that time & so many investors just utilizing benefit of that market boom without any calculations. But it contains a high risk too. But it is a rule of any market High Risks high profits, Low risks low profits . These were some types of investors in the stock market. But we cant deny that fact every investor should think about nature of his investment into any company. That is a main determinant of investment & whole investment strategy is drawn upon the period of investment & risk bearing capacity of the investor.
B. Calculative Investment Strategy: All the investor has to think & to decide following points regarding calculations of investment in any company. Most of investors wait for price to peak before selling. But the difficulty lies in judging when a particular share has actually 82
INVESTMENT IN EQUITIES =============================================================== reached its peak. Because everyday & after every hour we find some deviation in prices of shares. So every investor has to prepare his calculation in following way: Knowing the 52 week High index & 52 week Low index of that company. It is nothing but highest & lowest share price per share during the year. Taking average price of that security & procure it when current market price reaches near or equal to average price. Recording the variation in the security on a daily basis. Keeping eye on news related to company (like dividends, new projects, new contracts etc.). And preparing a calculation of profit, by reaching to which price you should square off those securities in the market. Setting the target of selling. Not only the index wise target investor should fix but also period wise target should be fixed. That means at what price per share securities should be squared off & at what period the securities should be sold. (After declaring dividend, bonuses etc.) .This calculation facilitates you to know the exact amount of profit within a specific period of time. Deciding what to sell & how much to sell & at what price. Investor should always keep in mind that he has to exclude all the expenses paid to his broker along with his tax liability, so that he will earn the exact profit on his investment & it will facilitate him in making a rough calculation & it will also induce investor to invest into the market in regular intervals.
CURRENT SCENERIO OF THE INDIAN EQUITY MARKET : This year has become milestone year in the history of the BSE, because this year BSEs SENSEX not only cross the magical figure of 10000 but also it crossed 12000. today it is above 12000. On the other side we can see that NSEs 83
INVESTMENT IN EQUITIES =============================================================== NIFTY has also crossed 3500 points. So history has been created by both the exchanges this year. This caused for a huge number Initial public Offers of many companies. PAST & FUTURE WHO BELIEVED THIS COULD HAPPEN Total number of wireless connections crossing the figure of 20 miliion across the country. 29 flat screen TVs will be available at the price of 21 CTVs. Airline competing with Railways. Laptops will be available at computers prices & computers will be available at prices of Refrigerator. DRIVERS OF FUTURE GROWTH Fast & sustainable economic growth driven by Indian Economy. Demographic changes & income growth of middle class which is target consumer of MNCs. Emphasis on infrastructure of the Nation. Steady improvement in the health of Corporate India.
1. MARKET PERFORMANCE OF EQUITY IN INDIA
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Sensex Returns (%)

160 140 120 100 80 60 40 20 0 24 1 Year 2 Year 3 Year 5 Year 49 78 150
No. of periods with Total no. of periods positive returns 3 months 198 6 months 203 1 years 222 2 years 240 3 years 247 5 years 242 326 323 317 305 293 269
Probability positive return 61 % 64 % 70 % 79 % 84% 90 %
of
ECONOMY OF INDIA & EVALUATION

GDP Growth (%) 2004 8.4 Earnings Growth (%) 34 Sensex Appreciation (%) 83
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INVESTMENT IN EQUITIES =============================================================== 2005 2006 2006-11 7.5 8.4 7.5 20 18 ? 16 74 ?
STOCK EXCHANGE MOVEMENT

Trading volumes in the equity segment have grown rapidly with average daily turnover increasing from Rs.17 crores during 1994-95 to Rs.6,253 crores during 2005-06. During the year 2005-06, NSE reported a turnover of Rs.1,569,556 crores in the equities segment.
The Equities section provides you with an insight into the equities segment of NSE and also provides real-time quotes and statistics of the equities market. Indepth information regarding listing of securities, trading systems & processes, clearing and settlement, risk management, trading statistics etc are available here. Now we are going to analyze the market movement of NSE at different point of time . this is mandatory for every investor to take a periodically view of exchange movement so that any investor can take a review of his investment & can predict future market scenario & investment pattern. Being a cautious investor, every investor should refer the market movement to earn handsome amount of profit in dealings of stocks 7 shares. Generally, investment pattern of stock market follows same pattern like Market index will get high during festivals like Diwali, Dassera, Eid etc. it is very obvious reaction of market. Many times knowing the past market trends acts as a guide for investor.
We have shown NSEs market movement of last 6 months (week to week) in much easier & deeper manner.
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Series EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ Date 01-Apr-2005 04-Apr-2005 05-Apr-2005 06-Apr-2005 07-Apr-2005 08-Apr-2005 11-Apr-2005 12-Apr-2005 13-Apr-2005 15-Apr-2005 18-Apr-2005 19-Apr-2005 20-Apr-2005 21-Apr-2005 22-Apr-2005 25-Apr-2005 26-Apr-2005 27-Apr-2005 28-Apr-2005 29-Apr-2005 02-May-2005 03-May-2005 04-May-2005 05-May-2005 06-May-2005 09-May-2005 10-May-2005 11-May-2005 12-May-2005 13-May-2005 16-May-2005 17-May-2005 18-May-2005 19-May-2005 20-May-2005 23-May-2005 24-May-2005 25-May-2005 26-May-2005 27-May-2005 Prev Close 1,432.05 1,450.95 1,427.75 1,425.45 1,441.35 1,425.20 1,393.55 1,363.60 1,382.00 1,401.60 1,319.00 1,318.65 1,208.70 1,116.20 1,142.40 1,166.75 1,156.95 1,136.70 1,115.65 1,114.80 1,131.10 1,128.90 1,108.60 1,120.85 1,136.85 1,167.50 1,175.25 1,152.50 1,149.10 1,146.75 1,148.60 1,154.30 1,150.55 1,142.70 1,162.50 1,169.65 1,223.80 1,234.85 1,260.55 1,290.05 Open 1,433.00 1,452.00 1,429.00 1,427.00 1,441.00 1,430.70 1,397.00 1,399.00 1,394.00 1,395.00 1,300.00 1,330.00 1,200.00 1,125.00 1,160.00 1,164.80 1,157.00 1,141.10 1,115.10 1,128.80 1,150.00 1,130.00 1,106.50 1,149.95 1,140.00 1,170.00 1,178.00 1,148.00 1,159.00 1,149.00 1,145.00 1,161.10 1,154.00 1,153.45 1,165.00 1,170.00 1,244.70 1,229.70 1,258.00 1,283.00 High 1,457.00 1,456.80 1,442.50 1,448.00 1,450.00 1,434.90 1,400.00 1,399.00 1,407.00 1,395.00 1,348.70 1,348.90 1,200.00 1,148.00 1,171.65 1,167.90 1,163.80 1,141.10 1,130.00 1,144.70 1,178.00 1,135.00 1,124.50 1,150.00 1,171.70 1,182.25 1,178.00 1,152.60 1,161.70 1,151.00 1,158.90 1,164.70 1,154.00 1,172.00 1,174.70 1,234.90 1,244.70 1,269.40 1,296.00 1,299.00 Low 1,414.00 1,423.30 1,416.10 1,427.00 1,422.00 1,390.05 1,360.10 1,365.00 1,385.55 1,315.00 1,291.00 1,178.10 1,093.30 1,110.00 1,140.25 1,148.00 1,134.10 1,111.00 1,097.15 1,117.05 1,118.10 1,105.35 1,106.50 1,125.55 1,132.15 1,166.25 1,146.25 1,137.95 1,143.15 1,140.15 1,142.25 1,144.40 1,123.00 1,153.20 1,147.20 1,170.00 1,205.25 1,215.00 1,251.15 1,255.25 Close 1,450.95 1,427.75 1,425.45 1,441.35 1,425.20 1,393.55 1,363.60 1,382.00 1,401.60 1,319.00 1,318.65 1,208.70 1,116.20 1,142.40 1,166.75 1,156.95 1,136.70 1,115.65 1,114.80 1,131.10 1,128.90 1,108.60 1,120.85 1,136.85 1,167.50 1,175.25 1,152.50 1,149.10 1,146.75 1,148.60 1,154.30 1,150.55 1,142.70 1,162.50 1,169.65 1,223.80 1,234.85 1,260.55 1,290.05 1,269.20 Total Trd Qty 695334 657170 420979 244176 310402 506535 352874 514087 579825 1232810 753038 3404394 5937282 1656542 1619834 860073 692375 817171 1091109 1383213 641200 687881 599018 811883 1023583 592380 884494 401661 451118 298594 721900 583322 573528 457431 408202 1295252 766107 986809 1222762 920435 Turnover in Lacs 9,988.16 9,451.67 6,022.36 3,509.37 4,453.50 7,117.82 4,834.16 7,086.75 8,093.36 16,392.74 10,023.72 42,749.19 66,498.78 18,799.10 18,782.02 9,948.84 7,934.44 9,151.80 12,097.71 15,661.71 7,226.16 7,679.13 6,700.29 9,264.49 11,827.91 6,964.32 10,241.73 4,601.06 5,193.41 3,428.01 8,302.92 6,750.21 6,532.98 5,309.78 4,739.15 15,605.40 9,374.69 12,317.04 15,595.24 11,827.10
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EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ 30-May-2005 31-May-2005 01-Jun-2005 02-Jun-2005 03-Jun-2005 04-Jun-2005 06-Jun-2005 07-Jun-2005 08-Jun-2005 09-Jun-2005 10-Jun-2005 13-Jun-2005 14-Jun-2005 15-Jun-2005 16-Jun-2005 17-Jun-2005 20-Jun-2005 21-Jun-2005 22-Jun-2005 23-Jun-2005 24-Jun-2005 27-Jun-2005 28-Jun-2005 29-Jun-2005 30-Jun-2005 01-Jul-2005 04-Jul-2005 05-Jul-2005 06-Jul-2005 07-Jul-2005 08-Jul-2005 11-Jul-2005 12-Jul-2005 13-Jul-2005 14-Jul-2005 15-Jul-2005 18-Jul-2005 19-Jul-2005 20-Jul-2005 21-Jul-2005 22-Jul-2005 25-Jul-2005 1,269.20 1,319.10 1,334.25 1,304.50 1,268.55 1,293.15 1,281.60 1,280.40 1,277.65 1,292.10 1,277.30 1,266.15 1,271.65 1,266.05 1,272.15 1,277.70 1,267.65 1,295.90 1,305.10 1,333.35 1,307.40 1,325.75 1,316.45 1,323.55 1,332.55 1,358.10 1,352.40 1,359.05 1,320.20 1,323.10 1,309.65 1,311.10 1,326.05 1,285.90 1,270.75 1,225.00 1,248.45 1,322.20 1,319.15 1,308.25 1,290.30 1,293.95 1,269.20 1,320.00 1,330.00 1,308.00 1,268.55 1,290.00 1,295.00 1,288.80 1,280.00 1,294.00 1,280.00 1,275.00 1,277.00 1,269.75 1,277.80 1,282.70 1,275.00 1,300.00 1,309.00 1,330.00 1,300.00 1,319.70 1,318.00 1,325.00 1,338.80 1,350.00 1,358.80 1,369.75 1,326.00 1,323.10 1,310.60 1,311.10 1,318.60 1,285.00 1,278.65 1,231.00 1,252.00 1,348.40 1,335.00 1,321.00 1,285.00 1,296.60 1,333.05 1,342.90 1,330.00 1,309.00 1,296.70 1,293.85 1,301.70 1,288.80 1,296.00 1,299.00 1,300.00 1,283.00 1,279.90 1,277.90 1,287.90 1,286.45 1,301.95 1,312.40 1,339.00 1,337.75 1,338.30 1,333.00 1,328.00 1,357.95 1,365.00 1,356.70 1,371.90 1,369.75 1,332.60 1,340.00 1,329.40 1,330.00 1,321.00 1,300.00 1,287.70 1,261.90 1,479.00 1,358.00 1,335.00 1,321.00 1,297.85 1,302.35 1,264.00 1,305.55 1,297.55 1,265.10 1,261.05 1,278.00 1,270.30 1,269.05 1,276.10 1,271.35 1,261.10 1,260.20 1,260.20 1,266.30 1,264.85 1,263.10 1,270.30 1,283.30 1,309.00 1,305.00 1,295.00 1,308.00 1,314.05 1,322.15 1,338.80 1,340.35 1,331.00 1,312.60 1,316.15 1,303.25 1,293.55 1,311.10 1,272.30 1,267.00 1,216.35 1,215.05 1,252.00 1,260.00 1,305.15 1,280.00 1,270.40 1,275.20 1,319.10 1,334.25 1,304.50 1,268.55 1,293.15 1,281.60 1,280.40 1,277.65 1,292.10 1,277.30 1,266.15 1,271.65 1,266.05 1,272.15 1,277.70 1,267.65 1,295.90 1,305.10 1,333.35 1,307.40 1,325.75 1,316.45 1,323.55 1,332.55 1,358.10 1,352.40 1,359.05 1,320.20 1,323.10 1,309.65 1,311.10 1,326.05 1,285.90 1,270.75 1,225.00 1,248.45 1,322.20 1,319.15 1,308.25 1,290.30 1,293.95 1,284.35 2236648 1295696 941261 1384578 818566 169770 724064 462274 604064 449792 830328 323754 431548 348884 574194 383499 801584 1307943 1442172 459618 752665 443516 722014 805830 898625 602571 493956 648422 382152 436111 761000 473908 768825 808730 1107551 1167715 1809451 584718 436788 524873 647412 679128 29,476.04 17,171.16 12,322.84 17,726.39 10,510.33 2,181.65 9,335.60 5,908.98 7,775.93 5,777.13 10,638.31 4,113.93 5,468.45 4,439.69 7,332.59 4,888.66 10,337.77 17,049.95 19,141.84 6,043.83 9,952.96 5,873.18 9,535.76 10,779.99 12,144.33 8,137.00 6,659.88 8,663.58 5,059.49 5,766.05 9,977.91 6,265.69 9,927.48 10,327.79 13,700.92 14,528.97 24,011.90 7,728.08 5,748.61 6,808.73 8,345.25 8,717.48
88

EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ 26-Jul-2005 27-Jul-2005 29-Jul-2005 01-Aug-2005 02-Aug-2005 03-Aug-2005 04-Aug-2005 05-Aug-2005 08-Aug-2005 09-Aug-2005 10-Aug-2005 11-Aug-2005 12-Aug-2005 16-Aug-2005 17-Aug-2005 18-Aug-2005 19-Aug-2005 22-Aug-2005 1,284.35 1,265.25 1,284.50 1,268.80 1,252.20 1,290.30 1,300.75 1,295.25 1,285.40 1,283.05 1,284.40 1,313.05 1,312.85 1,282.85 1,269.05 1,299.15 1,313.70 1,325.35 1,285.85 1,265.00 1,275.00 1,267.00 1,292.00 1,297.50 1,305.00 1,300.00 1,290.00 1,275.00 1,285.65 1,316.65 1,328.40 1,290.00 1,280.00 1,307.00 1,315.00 1,325.00 1,292.00 1,288.00 1,290.00 1,275.00 1,298.00 1,307.40 1,319.80 1,308.00 1,290.00 1,287.00 1,316.65 1,329.00 1,328.40 1,290.00 1,302.00 1,325.00 1,332.00 1,348.40 1,260.00 1,265.00 1,262.00 1,242.65 1,258.00 1,283.00 1,288.00 1,277.20 1,267.25 1,264.00 1,285.65 1,306.60 1,275.60 1,265.00 1,261.30 1,305.30 1,311.10 1,245.00 1,265.25 1,284.50 1,268.80 1,252.20 1,290.30 1,300.75 1,295.25 1,285.40 1,283.05 1,284.40 1,313.05 1,312.85 1,282.85 1,269.05 1,299.15 1,313.70 1,325.35 1,317.85 653710 324676 1044819 678849 602690 909290 793367 395356 513670 592969 869760 455664 477729 456676 704686 976707 620784 561502 8,323.08 4,152.18 13,305.42 8,512.02 7,743.83 11,797.38 10,340.06 5,082.24 6,580.85 7,590.55 11,337.78 6,010.45 6,202.60 5,803.03 9,058.87 12,851.04 8,218.84 7,474.81
TATA CONSULTANCY SERVICES : When we commenced operations in 1968, we pioneered the offshore delivery model for IT services. Today, with a presence in 34 countries across 6 continents, & a comprehensive range of services across diverse industries, we are one of the world's leading Information Technology companies. Seven of the Fortune Top 10 companies are among our valued customers.
89
INVESTMENT IN EQUITIES =============================================================== We are part of one of Asia's largest conglomerates - the TATA Group - which, with its interests in Energy, Telecommunications, Financial Services, Chemicals, Engineering & Materials, provides us with a grounded understanding of specific business challenges facing global companies. Mission, Vision & Values While the reason for our existence is articulated by our Mission, our vision reflects an aspiration to continually improve, to excel & be the best. Our values characterize us as an organization & guide our every action. Mission Vision Values To help customers achieve To be among the global Integrity Leading Change their business objectives by top 10 by 2010 Excellence providing innovative, best-inRespect for class consulting, IT solutions Individual and services. Make it a joy for all stakeholders work with us. Areas Of Operations Consulting One of the first companies to set up an independent consulting division, TCS today includes consulting as an integrated part of any assignment to its customers in different industry segments. IT Services Application development and maintenance services over the entire IT application life cycle including migration and re-engineering, e-commerce and internet services, testing services, architecture and technology consulting, systems
the
Learning and Sharing
90
INVESTMENT IN EQUITIES =============================================================== integration, as well as packaged software implementation across multiple industry and technology domains. Asset Based Solutions Utilizing its proprietary software assets to deliver solutions to clients in specific industries and licensing several software intellectual property rights. Besides providing IT solutions to its clients, we develop and market a variety of products across diverse industries including products such as the Hospital Management System, eIBS, NCS, FIG and QuartzTM for the banking and financial services industry, CemPac for the cement industry and also software development tools such as MasterCraftTM, Assent, Data Clean and Infrex. IT Infrastructure Offer services including complete outsourcing of IT networks, consulting and integration, hardware support and installation, and infrastructure management.
Engineering and Industrial Services Offer a range of engineering services, embedded software and R&D services to diverse clients, assisting in new product development and product lifecycle management through services in the areas of product design, simulation, engineering drafting, computer-aided engineering design and manufacturing, product data management and customization of engineering software. BPO We offer a variety of transaction based IT enabled services. These include inbound call centers, back office support, engineering services and database
91
INVESTMENT IN EQUITIES =============================================================== services. TCS's focus in this space is on transactional services, 24x7 for client needs from various geographies, ensuring business continuity and disaster recovery.
Capital Structure of TCS:As on August 9, 2006 Share Capital Particulars Value in Rs. A. Authorized Capital B. Issued, subscribed and Paid-up Capital C. Fresh Issue of shares 1,200,000,000 Equity Shares of Re. 1 each 978,610,498 Equity Shares of Re. 1 each Fully paid-up 22,775,000 Equity Shares of Re. 1 each at a Premium of Rs. 849/- per share resulting in Additional paid up capital of Rs. 22,775,000 And a share premium of Rs. 19,335,975 Issued under the IPO on August 19, 2004. 1,827,400 & 12,380 Equity Shares of Re. 1 Each were issued pursuant to the Employee Share Purchase Scheme (ESPS 2004) on September 29, 2004 & October 21, 2004. 9,190,440 Equity Shares of Re. 1 each were Issued to the shareholders of the erstwhile Tata InfoTech Limited (TIL) pursuant to the Order dated January 27, 2006, passed by the High Court of Judicature at Bombay, Approving the Scheme of Amalgamation of TIL with the Company. Pursuant to the resolution passed by the
92
INVESTMENT IN EQUITIES =============================================================== Shareholders at the Annual General Meeting Held on June 29, 2006, the Company has Allotted 48,93,05,249 equity shares of Re. 1/Each as fully paid Bonus Shares in the ratio Of 1:1. 1,200,000,000 978,610,498.
BSE
Currency : Rupees Price Bid Offer Change On Day Percentage Change Last Trade Daily Volume Code : 532540 1,021.60 0.00 0.00 2.70 0.26% 29-09-2006 199,121 View Chart Day High 1,034.00 Day Low 1,020.00 52 Week High 1,058.00 52 Week Low 675.50 Opening Price 1,022.00 Prev. Closing 1,018.90
93
BSE
94
INVESTMENT IN EQUITIES =============================================================== NSE Currency : Rupees Price Bid Offer Change On Day Percentage Change Last Trade Daily Volume NSE
INR
Code : TCSEQ 1,022.05 0.00 0.00 1.60 0.16% 29-09-2006 438,201
Day High Day Low 52 Week High 52 Week Low
View Chart 1,035.10 1,020.00 1,057.90 677.50
Opening Price 1,022.10 Prev. Closing 1,020.45
1. Conclusion :Equity market is unpredictable & it is simply hazardous to invest blindly on the basis of beliefs & intuitions. Without planning investing in securities is very risky & we simply cant afford to do take such risk because it may cause a huge financial crisis.
95
INVESTMENT IN EQUITIES =============================================================== To invest in equity any investor should identify his strength to bear loss & his financial capacity to invest in securities. For that a systematic planning is required a financial strategy is required . every investor should know that if he is investing in any security then, why he is investing in it ? for what period ? How much amount he is going to invest ? & why he is investing into a particular company. We have mentioned so many aspects of investment in Equity shares along with guidelines for investors. Now we are enclosing the factors, which induces any investor to invest in equity shares. INDUCING FACTORS OF INVESTING IN EQUITY. There are many types of investments, all investments have limitations in one or the other parameter. We are accounting here crucial factors which induces any person to invest in Equities. The following may be taken as the distinct qualities of equity investment: Investments in equity attract the maximum attention because of their high rewards. Equity investment in many cases is highly liquid. With the highly regulated and organized stock exchanges today, the investment in shares can be encashed in about 3 days.
There is limited fear of loss due to theft and fire since the investment can be maintained in a dematerialized format and transfer procedures are well organized. Another advantage is that equity investment are easily acquirable, liquefiable, and transferable and can be maintained in any number of names.
96
INVESTMENT IN EQUITIES =============================================================== Certain types of equity investment like infrastructure companies equity shares can give high tax benefits to shareholder along with a good return on investment. Equity shares can be pledged to raise immediate cash for any emergencies as all banks provide loans/overdrafts at attractive interest rates. RISKS INVOLVED IN INVESTMENT IN EQUITY : 1. DEFAULT RISK :It is a risk by issuer of security making default in payment of interest or in principle amount of security. 2.BUSINESS RISK :it means risk of a particular business failing in operations & thereby loosing investment. These risks can be divided in two parts : a. INTERNAL RISK :- This risk is related with the inefficiency of the company in its operations. b. EXTERNAL RISK: - external risk is result of operating conditions impose upon company by circumstances beyond its control. Like depression in business, competitions, & sect oral changes. 3.MARKET RISK :- This risk is caused by variability in rates of return due to market going up or market going down, in short market fluctuations. this risk is depend upon many factors which are cyclopean in nature because no one can predict the market movement correctly. Market is very sensitive it reacts upon any event very quickly. Many events like Social, Financial, Political & so on can affect the market index. This risk is always very crucial for every investor, because it affects his financial position. 4. LIQUIDITY RISK :- This risk arises from inability to convert investment into cash, it blocks the funds of investor for indefinite period that it is very dangerous, because it may turn into a huge loss to investor. General Dos and Donts for investors 97
Dos
1. Always deal with the intermediaries registered with SEBI. 2. Always keep copies of all investment documentation (e.g. application forms, acknowledgement slips, contract notes) 3. Always keep copies of documents you are sending to companies etc. 4. Send important documents by a reliable mode / registered post to ensure delivery. 5. Ensure that you receive contract note at the end of the day / account statements for every transaction. 6. Ensure that you have money before you buy. 7. Ensure that you are holding securities before you sell. 8. Follow up diligently and promptly e.g. if you do not receive the required documentation within a reasonable time contact the concerned persons i.e. the broker, company etc. immediately. 9. Give clear and unambiguous instructions to your broker / agent / depository participant. 10. Mention clearly whether you want to transact in physical mode or demat.
Donts
1. Dont deal with unregistered brokers / sub brokers, intermediaries. 2. Dont forgo taking due documents of transactions, in good faith even from people whom you know. 3. Dont fall prey to promises of unrealistic high returns. 4. Dont get misled by companies showing approvals / registrations from government agencies as the approvals could be for certain other purposes and not for the securities you are buying. 5. Dont transact based on rumors generally called tips. 6. Dont forget to take note of risks involved in the investment. 7. Dont get misled by guarantees of repayment of your investment through post-dated cheques. 98
INVESTMENT IN EQUITIES =============================================================== 8. Dont hesitate to approach concerned persons and then the appropriate authorities. So we can conclude that, only a proper analysis can give you a better returns On investments in equities. Otherwise there will be great losses like 1999 IT depression, many will become bankrupt. So to enhance our financial status & to live a prosperous every investor should prepare his own investment strategy according to his financial condition & invest cautiously with utmost care this is the only way to survive in the stock market.
1. WEBLIOGRAPHY www.Investopedia.com www.BSEindia.com. www.NSEindia.com.
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www.SEBI.gov.in. BIBLIOGRAPHY
Study material of NCFM ( NSEs certification in financial markets). Magazine: capital market. Investor.
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INVESTMENT IN EQUITIES ===============================================================

INVESTMENT IN EQUITIES ===============================================================

2. DFIFFERENT MODES OF INVESTMENT

INVESTMENT IN EQUITIES ===============================================================

INVESTMENT IN EQUITIES ===============================================================

INTRODUCTION TO EQUITY SHARES

INVESTMENT IN EQUITIES ===============================================================

2. VARIOUS TYPES OF MARKETS.

3. TRADE PROCEDURES / DEMAT ACCOUNTS .

Transaction Cycle :Transaction cycle

INVESTMENT IN EQUITIES ===============================================================

5. TAX LIABIALITY ON CLIENT

0.0133 Seller 0.02 Seller

TYPES OR MODES OF PRIMARY EQUITY MARKET

INVESTMENT IN EQUITIES ===============================================================

Capital Market Segment of Stock Exchanges

1. STOCK EXCHANGE & THEIR TRADING MECHANISM.

The Bombay Online Trading (BOLT)

BOLT: Central Trading Engine

LAN of exchange premises ----------------------------------------------------------------------------

Market operations Workstation

Broker Workstations on LAN

INVESTMENT IN EQUITIES =============================================================== LAN at remote end ----------------------------------------------------

Broker Workstation connected through WAN

crores) Average Daily No. of Trades

INVESTMENT IN EQUITIES ===============================================================

The Securities Contracts & Regulations Act, 1956

INVESTMENT IN EQUITIES ===============================================================

INVESTMENT IN EQUITIES =============================================================== Acts Sections Powers Exercisable By

SEBI Act, 1992

Depository Act,1996 Companies Act,1956

SAT SEBI Central government (DEA) SAT Depositories. SEBI SEBI

INVESTMENT IN EQUITIES ===============================================================

Know Your Client

Margins from the Clients

available to his client the order number and copies

slip/modification slip/cancellation slip and a copy of the

slip as generated on the trading system, forthwith on execution

Know Your Client

2. DISPUTE, APPEAL & ARBITRATION.

3. PRECAUTIONS FOR INVESTORS.

INVESTMENT IN EQUITIES ===============================================================

BEHAVIOR OF VOLUME IN SOME CASES

THE TIME FRAME

BECOMES ONE MORE COMPONENT OF

ALL, TRADING IN THE STOCK AND SUPPLY ARE NEVER

MARKET BASED ON HOW WELL YOU TIME YOUR TRANSACTIONS.

YOU ARE AN INVESTOR, OR A SPECULATOR, RELATIVE WORTH OF TIME

TIME ASSUMES SO MUCH IMPORTANCE IN

BOTTOM OF THE CHART.

MENTIONED ABOVE, THE BEHAVIOR OF VOLUME IS VERY IMPORTANT IN MANY SITUATIONS.

THE CHART ITSELF

WHAT IS A TREND LINE & MOVING AVERAGE?

INVESTMENT IN EQUITIES =============================================================== TECHNICAL ANALYSIS

LINES ARE AN IMPORTANT TOOL IN TECHNICAL ANALYSIS

FOR BOTH TREND IDENTIFICATION AND CONFIRMATION.

INVESTMENT IN EQUITIES =============================================================== Importance of a Trend Line A

TIME THE PRICES MOVE BACK TO THE TREND

LINE AND RENEW THE DIRECTION IN WHICH IT IS MOVING.

STEEP TREND LINE CAN EASILY BE BROKEN BY SOME SIDEWAYS CONSOLIDATION

THAT ARE OFTEN INCONSISTENT WITH THE CURRENT TREND.

IS HOWEVER, ONE SHORTCOMING WHILE FOLLOWING AVERAGES FOR THE TRADING OR

Expected value = (20%10%) + (30%12%) + (50%*15%)