THE BEHAVIOUR OF INDIAN STOCK MARKET

Summer project report

Submitted in partial fulfilment of the requirements for the
award of the diploma of

POST GRADUATE DIPLOMA IN MANAGEMENT

By
SANDEEP GARG
(Enrolment No. 1093068)

PGDM Services

Indian Institute of Tourism & Travel Management

INDIAN INSTITUTE OF TOURISM & TRAVEL MANAGEMENT

(An Autonomous Institute Of Ministry Of Tourism, Govt. Of India)

GOVINDPURI, GWALIOR (M.P.)

 DECLARATION

I hereby declare that his project report entitled THE BEHAVIOUR OF

INDIAN STOCK MARKET, is the result of Original work Carried out
by me during 8 weeks (20 may-15 July) in intensive study of the field, for
the award of the Degree of POST GRADUATE DEPLOMA IN
MANAGEMENT.

This Report has not been copied from anywhere, up to the best of my

belief and knowledge. It has not been submitted anywhere else for
Award of any other Degree/diploma.

………………
 DECLARATION CERTIFICATE

This is to certify that the work presented in the project entitled

“THE BEHAVIOUR OF INDIAN STOCK MARKET” in partial
fulfilment of the requirement for the award of ‘Post Graduate
Diploma in Management’ Indian Institute of Tourism & Travel
Management, Gwalior, is an authentic work carried out under
my supervision and guidance.

To the best of my knowledge, the content of this project

does not form a basis for the award of any previous diploma to
anyone else.

Date: MENTOR
Dr Satish Kumar Mittal
lacturer, IITTM, Gwalior
 CERTIFICATE OF APPROVAL

The foregoing thesis entitled “To planning, projection and study on

feasibility of Sarthak microfinance in the foothills of Uttarakhand”, is
hereby approved as a creditable study of research topic and has been
presented in satisfactory manner to warrant its acceptance as
prerequisite to the diploma for which it has been submitted.

It is understood that by its approval, the undersigned do not necessarily

endorse any conclusion drawn or opinion expressed therein, but approve
the project for the purpose for which it is submitted.

Chairperson-Services

Dr Monika Prakash
 ACKNOWLEDGEMNT

The entire project from the very idea of it to reality would not have been possible without
the guidance and support of many people. I would therefore like to take the golden
opportunity of expressing my sincere and profound gratitude to all those people who helped
me throughout the project

It is my proud privilege to express my sincere gratitude to all those who helped me

directly or indirectly in completion of this project report.

So with reverence, veneration and honor, I acknowledge my “Chairperson” Dr Monika

Prakash for her guidance and encouragement has made successful completion of my project
and I would like to thank my “Project guide” Dr. Satish kumar mittal for his humble support
and guidance

I am greatly indebted to Mrs. Swati kumawat (Branch manager) for their support,
guidance and valuable suggestions by which this work has been completed effectively and
efficiently. These all contributions are of immense value.

Last but not least we are indebted to those entire people who indirectly contributed
and whom this work should not have been possible. Endeavour has been made to make the
project error free yet I apologies for the mistakes.

Sandeep Garg
PGDM 2009-2011

IITTM, Gwalior
EXECUTIVE SUMMARY
 EXECUTIVE SUMMARY

Stock prices change everyday in the market. Buyers and sellers cause prices to change
as they decide how valuable each stock is. Basically, share prices change because of
supply and demand. If more people want to buy a stock, then the price of that stock
moves up. Conversely, if more people want to sell a stock, there would be more supply
(sellers) than demand (buyers), the price would start to fall. In financial term, this is
called as Volatility. Volatility is a symptom of a highly liquid stock market. Pricing of
securities depends on volatility of each asset. Investors interpret a raise in stock
market volatility as an increase in the risk of equity investment and consequently they
shift their funds to less risky assets. Technically, volatility is found by calculating the
"standard deviation" of the daily change in price. If the price of an investment moves
up and down by large percentage amounts, and in short periods of time, it has high
volatility.

It has an impact on business investment spending and economic growth through a

number of channels. Changes in local or global economic and political environment
influence the share price movements and show the state of stock market to the general
public.

Sometimes the Stock Market behavior is affected by rumors and mass panic. The
prices of the stocks fluctuate tremendously by the economic use even if it has nothing
to done with values of stocks and securities.

So, it is extremely difficult to make predictions about the Stock Market and the
inexperienced investors who are not that much interested in financial analysis of
stocks. rarely get the financial assistance from the Stock Market at the time of need.
 CHAPTER 1
OBJECTIVE
 Objective
Share in the market offer a high capital appreciation but the movement of the share
price is always like a wave and tide motion of the sea. Volatility in the stock return is
an integral part of stock market with the alternating bull and bear phases. In the bullish
market, the share prices soar high and in the bearish market share prices fall down and
these ups and downs determine the return and volatility of the stock market. Volatility
is a symptom of a highly liquid stock market. Pricing of securities depends on
volatility of each asset. It has an impact on business investment spending and
economic growth through a number of channels. Changes in local or global economic
and political environment influence the share price movements and show the state of
stock market to the general public. The issues of return and volatility have become
increasingly important in recent times to the Indian investors, regulators, brokers,
policy makers, dealers and researchers with the increase in the FIIs investment. Hence
an analysis has been made to know the volatility trend in the Indian stock market and
the reasons for the bear and bull trend in the market. Nifty and Sensex are taken as
representative of Indian markets.

This project gave me opportunity to have an idea about volatility in stock market. This
gave me idea about and fundamental analysis in stock market and how trading is being
done in stock market.

The objectives of the project can be mentioned as below:

 To study volatility in Indian stock market while taking SENSEX of Bombay stock
exchange as a source of secondary data which broadly represent Indian stock market
along with NIFTY of National Stock Exchange.
 To study the factors which are making Indian stock market volatile.
 Build understanding of central ideas of stock market.
 Develop familiarity with the analysis of stock market.
 Furnish institutional material relevant for understanding the environment in which
trading decisions are taken.
 Understanding of Bull Market and Bear Market.
 CHAPTER 2
COMPANY PROFILE

COMPANY PROFILE

KARVY STOCK BROKING LTD

 KARVY is one of the premier integrated financial intermediaries in the country, which
is into businesses such as Merchant Banking, Stock Broking, Depository Participant
Services, Financial Products Distribution, Mutual Fund Servicing and Registrar and
Transfer Agents. It’s a premier integrated financial services provider, and ranked
among the top five in the country in all its business segments, services over 16 million
individual investors in various capacities, and provides investor services to over 300
corporate. Karvy covers the entire spectrum of financial services such as Stock
broking, Depository Participants, Distribution of financial products – mutual funds,
bonds, fixed deposit, equities, Insurance Broking, Commodities Broking, Personal
Finance Advisory Services, Merchant Banking & Corporate Finance, placement of
equity and IPOs.

BACKGROUND

In 1982, a group of Hyderabad-based practicing Chartered Accountants started Karvy

Consultants Limited with a capital of Rs.1,50,000 offering auditing and taxation
services initially. Later, it forayed into the Registrar and Share Transfer activities and
subsequently into financial services. All along, Karvy’s strong work ethic and
professional background leveraged with Information Technology enabled it to deliver
quality to the individual. It started with consulting and financial accounting
automation, and carved inroads into the field of registry and share accounting by 1985.
Since then, it has utilized its experience and superlative expertise to go from strength
to strength, to better its services, to provide new ones, to innovate, diversify and in the
process, evolved Karvy as one of India’s premier integrated financial service
enterprise. Thus over the last 20 years Karvy has traveled the success route, towards
building a reputation as an integrated financial services provider, offering a wide
spectrum of services.

The business of KCL includes:

 Equity services.
 Mutual Funds Services.
 Insurance advisory.
 Tax Advisory.
 Home Loans.

THE KARVY CREDO

 “Our Clients. Our Focus

Clients are the reason for our being.”

 Respect for the individual Each and every individual is an essential building
block of the organization.

 Teamwork

None of us is more important than all of us

 Responsible Citizenship

A social balance sheet is as rewarding as a business one.

KARVY STOCK BROKING PRIVATE LIMITED

Member- Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and
Hyderabad Stock Exchange (HSE).

Karvy Stock Broking Limited, one of the cornerstones of the Karvy edifice, flows
freely towards attaining diverse goals of the customer through varied services, creating
a plethora of opportunities for the customer by opening up investment vistas backed
 by research based advisory services. Here, growth knows no limits and success
recognizes no boundaries.

Stock broking services

It is an undisputed fact that the stock market is unpredictable and yet enjoys a high
success rate as a wealth management and wealth accumulation option. The difference
between unpredictability and a safety anchor in the market is provided by in-depth
knowledge of market functioning and changing trends, planning with foresight and
choosing one option with care. This is what it provides in the Stock Broking services.
It offers services that are beyond just a medium for buying and selling stocks and
shares, rather services which are multi dimensional and multi-focused in their scope.
There are several advantages in utilizing its Stock Broking services, which are the
reasons why it is one of the best in the country. Karvy offers trading on a vast
platform; National Stock Exchange, Bombay Stock Exchange and Hyderabad Stock
Exchange. More importantly, it makes trading safe to the maximum possible extent,
by accounting for several risk factors and planning accordingly. This crucial
information is given as a constant feedback to the customers, through daily reports
delivered thrice daily-

 The Pre-session Report, where market scenario for the day is predicted.
 The Mid-session Report, timed to arrive during lunch break, where the market forecast
for the rest of the day is given and
 The Post-session Report, the final report for the day, where the market and the report
itself is reviewed.

To add to this repository of information, it publish a monthly magazine; Karvy, The

Finapolis, which analyzes the latest stock market trends and takes a close look at the
various investment options, and products available in the market, while a weekly
report, called; Karvy Bazaar Baatein, keeps the investors more informed on the
immediate trends in the stock market. In addition, the specific industry reports give
comprehensive information on various industries. Besides this, it also offer special
portfolio analysis packages that provide daily technical advice on scrip for successful
portfolio management and provide customized advisory services helping to make the
right financial moves that are specifically suited to the concern portfolio.

Depository participants

The onset of the technology revolution in financial services Industry saw the
emergence of Karvy as an electronic custodian registered with National Securities
Depository Ltd (NSDL) and Central Securities Depository Ltd (CSDL) in 1998.
Karvy set standards enabling further comfort to the investor by promoting paperless
trading across the country and emerged as the top 3 Depository Participants in the
country in terms of customer service. Offering a wide trading platform with a dual
membership at NSDL and CDSL, Karvy is a powerful medium for trading and
settlement of dematerialized shares.

Distribution of Financial Product

The paradigm shift from pure selling to knowledge based selling drives the business
today. With the wide portfolio offerings, it occupies all segments in the retail financial
services industry. A 1600 team of highly qualified and dedicated professionals drawn
from the best of academic and professional backgrounds are

committed to maintaining high levels of client service delivery. This has propelled to a
position among the top distributors for equity and debt issues with an estimated market
share of 15% in terms of applications mobilized, besides being established as the
leading procurer in all public issues. To further tap the immense growth potential in
the capital markets we enhanced the scope of the retail brand, Karvy – the Finapolis,
thereby providing planning and advisory services to the mass affluent.

http://mfportfolio.karvy.com/

Advisory Services
 Under the retail brand ‘Karvy – the Finapolis', it deliver advisory services to a cross-
section of customers. The service is backed by a team of dedicated and expert
professionals with varied experience and background in handling investment
portfolios. They are continually engaged in designing the right investment portfolio for
each customer according to individual needs and budget considerations with a
comprehensive support system that focuses on trading customers' portfolios and
providing valuable inputs, monitoring and managing the portfolio through varied
technological initiatives.

Private client group

This specialized division was set up to cater to the high net worth individuals and
institutional clients keeping in mind that they require a different kind of financial
planning and management that will augment not just existing finances but their life-
style as well. For this purpose it offer a comprehensive and personalized service that
encompasses planning and protection of finances, planning of business needs and
retirement needs and a host of other services, all provided on a one-to-one basis.

Quality Policy

To achieve and retain leadership, Karvy shall aim for complete customer satisfaction,
by combining its human and technological resources, to provide superior quality
financial services. In the process, Karvy will strive to exceed Customer's expectations.

Quality Objectives

As per the Quality Policy, Karvy will:

 Build in-house processes that will ensure transparent and harmonious relationships
with its clients and investors to provide high quality of services.
 Establish a partner relationship with its investor service agents and vendors that will
help in keeping up its commitments to the customers.
 Provide high quality of work life for all its employees and equip them with adequate
knowledge & skills so as to respond to customer's needs.
 Continue to uphold the values of honesty & integrity and strive to establish
 Strive to be a reliable source of value-added financial products and services and
constantly guide the individuals and institutions in making a judicious choice of it.
 Strive to keep all stake-holders (shareholders, clients, investors, employees, Suppliers
and regulatory authorities) proud and satisfied.
 CHAPTER 3
RESEARCH METHODOLGY
Methodology:

Methodology means the methods, processes or tools used in driving the project. At the
very beginning, an overview of the stock market is given. The level of SENSEX at
various points of time and causes for the same is given. Some graphs and tables also
used here. Bull market and Bear market have been broadly described in the report.
Volatility of Indian stock market is analysed through graph and table. The returns in
bull and bear phase are also given. Hence an analysis has been made to know the
volatility trend in the Indian stock market and the reasons for the bear and bull trend in
the market.

Data Collection:

All the data are collected from secondary source, i.e, magazines, newspapers, websites
etc. Data were collected from BSE Sensex and NSE Nifty. Sensex is a basket of 30
constituent stocks representing a sample of large, liquid and representative companies.
Due to its wide acceptance amongst the Indian investors, sensex is regarded the pulse
of the Indian stock market. Nifty is a well diversified 50 stock index accounting for 24
sectors of the economy. Hence these two indices were taken for the study.
 CHAPTER 4
Data Projection and Analysis
 STOCK MARKET:

The Stock Market is a market for the trading of company stocks. In other words, Stock
Market refers to the business of buying and selling shares in companies and the place
where this happens is known as stock exchange.

The Stock Market is distinct from a stock exchange, which can be said to be an entity,
say a corporation or a mutual organization countenance within the business of bringing
people and sellers of stocks and securities together.

Function and purpose

The stock market is one of the most important sources for companies to raise money.
This allows businesses to be publicly traded, or raise additional capital for expansion
by selling shares of ownership of the company in a public market. The liquidity that an
exchange provides affords investors the ability to quickly and easily sell securities.
This is an attractive feature of investing in stocks, compared to other less liquid
investments such as real estate.

History has shown that the price of shares and other assets is an important part of the
dynamics of economic activity, and can influence or be an indicator of social mood.
An economy where the stock market is on the rise is considered to be an up and
coming economy. In fact, the stock market is often considered the primary indicator of
a country's economic strength and development. Rising share prices, for instance, tend
to be associated with increased business investment and vice versa. Share prices also
affect the wealth of households and their consumption.

The Financial System of the Market Performs Three Main tasks:

 It handles transfer of payments in the markets.

 It channels savings to investments with a good return for future consumption in the
Stock Market.
 It spreads and reduces the economic risks in relation to the players' targeted returns.

The smooth functioning of all these activities and facilitates in the Stock Market give
economic growth and the lower costs and enterprise risks promote the production of
goods and services as well as employment.
The stock market is one of the primary most important sources for companies to raise
money. The continuously rising share prices tend to be associated with increased
business investment and vice versa in the Stock Market.

Stock market investment:

Stock Market Investment refers to the investment in the market; where exchange of
company stocks or collective shares of the companies and other kinds of securities and
derivatives takes place. Stocks are traded in Stock Market by the help of Stock
Exchange.

The Stock Exchange brings the sellers and buyers of stocks and securities under same
roof. The available stocks are listed and traded in the Stock Exchange among the
buyers and the sellers. Proper investment in Stock Market essentially requires detailed
knowledge of Stock Market, its’ participants, knowledge about the functioning,
behavior and contribution of the stock market.

Main Participants of the Stock market

The main participants of Stock Market are the individual investors, banks, insurance
companies, mutual funds and pension funds. Since, markets of today have turned more
“institutionalized”, the largest share of the market participation comes from the large
institutions rather than individual rich investors.

Functioning of the Stock Market

The stock market functions through the Stock Exchanges. Stock Exchanges can be a
physical entity and sometimes a virtual entity. In physical stock exchanges,
transactions are made by auctioning. In this case, a buyer offers a specific price for a
stock by verbal bid and the seller asks a specific price for the stock. When the buyer’s
bid price and seller’s price match, exchange of stock takes place. In the presence of
multiple buyers and sellers market operations are carried on a first come first served
basis.

Contribution of Stock Market

Stock Market is the best medium of raising funds. Businesses which need financing
for expansion or improvement can easily raise required capital by participating in
Stock Market. On the other hand, for the investors; investing in stocks is a better
option than investing in property or real estate as the stocks contain more liquidity
than any other property. This means, stocks can be sold more easily and quickly than
any other property and so, the investors can get their money back by selling the stocks
anytime they need.

The prices of stocks or shares in the Stock Market have strong effects on the economy
in various ways. Prices of stock influence business investment, individual household
consumption and wealth of individual households. For this deepening effect, Central
banks of each country keep a track of the Stock Market activities. A proper
functioning of Stock Market in a country can result in low costs, increased production
of goods and services and increased level of employment. In this way, an efficient
Stock Market can contribute to economic growth of the country.

Stock Market and Economic Growth:

A country’s economic growth is largely associated with the changing dynamics of its
stock market. Since Independence, Indian stock market has been incessantly growing.
Many government norms and regulations have been formulated so as to keep the
market free from trickery and deception. In spite of all these norms and regulations,
Indian Stock market could not be totally sterilized from scams; even through the
performance was quite noticeable. But the market got a boost after the financial
reforms which opened the doorway for FII inflow.

Economic growth of the nations is closely linked with the liquidity of the stock market
existing in the country. The concept of liquidity that is dealt here is market liquidity,
which stands in sharp contrast to the definition of liquidity from the point of view of a
firm. The stock markets around the globe contribute to the economic development by
imparting liquidity to the capital investments. It is this market that allows entry even to
the small savers, who invests their savings for short peroids. The liquidity of the stock
market enables them to sell off their shares easily within a short span of time, which
has undoubtedly attracted investments in shares.
However, the most profitable business requires long-term investments. When the small
potential investors reach the comfort zone in terms –term of investing in long-term
equities, they balance their portfolios more towards long-term investments. This
balancing mechanism forces the financial units to shift towards more profitable,
productive and long-term products, resulting in higher capital productivity. The
higher-productivity capital boosts economic growth and raises the returns on equity
investment, which further increases the incentives to save and invest and hence,
furthers economic growth.

So, we have to focus on the linkage between the stock market and economic growth.
On the positive side, a well-functioning stock market helps in developing the economy
through the growth of savings, efficient allocation of investment resources and better
utilization of the existing resources. However, on the otherhand, the analysts view
stock market as a place, where the owners buy and sell stocks according to their
convenience. This often affects the profitability of the firms by affecting the funds
available to them. In this processs, economic growth gets hampered due to the volatile
nature of the stock market. Hence, the aspect of volatity needs to be addressed.

Stock Market in India:

The origin of the stock market in India dates back to the end of the eighteenth century
when long-term negotiable securities were first issued. The real beginning, however,
occurred in the middle of the eighteenth century, after the enactment of the companies
Act in 1850 which introduced the feature of limited liability, and generated investor
interest in corporate securities.

The stock market is also known as secondary market. In India, the secondary market
consists of recognized stock exchanges operating under rules, by-laws and regulations
duly approved by government. These stock exchanges constitute an organized market
where securities issued by the central and state governments, public bodies, and joint
stock companies are traded. A stock exchange is defined under Section 2(3) of the
Securities Contracts (Regulation) Act, 1956, “as any body of individual whether
incorporated or not, constituted for the purpose of assisting, regulating or controlling
the business of buying, selling or dealing in securities.”

Thus, a stock exchange, (formerly a securities exchange) is a corporation or mutual

organization which provides "trading" facilities for stock brokers and traders, to trade
stocks and other securities. Stock exchanges also provide facilities for the issue and
redemption of securities as well as other financial instruments and capital events
including the payment of income and dividends.

The securities traded on a stock exchange include: shares issued by companies, unit
trusts, derivatives, pooled investment products and bonds. Everyday, stocks are
exchanged and traded in numerous stock markets around the world. The liquidity they
bring a vital component of economic growth.

Stock exchanges are open markets that trade financial assets. Whether associated with
a company or acting as an individual, a stock exchange is the place where stocks are
bought and sold. There are a number of major stock exchanges around the world and
each of these plays a part in determining the overall financial and economic condition
of any economy.

Stock exchanges deal with a number of financial instruments such as stocks, bonds
and equities. Both corporate and government bonds are traded in stock exchanges.
Equities include popular investment options, rights issues, bonus issues, and all other
forms of shares and stocks. The actual trading of stocks takes place through mediators
such as financial advisors, brokerage houses, and stockbrokers.

POST-REFORMS STOCK MARKET SCENARIO:

 After the initiation of reforms in 1991, the Indian stock market now has a three-tier
form:

 Regional stock exchanges.

 The National Stock exchange (NSE).
 The Over the counter exchange of India (OTCEI).

The NSE was set up in 1994. It was the first modern stock exchange to bring in new
technology, new trading practices, new institutions, and new products. The OTCEI
was set up in 1992 as a stock exchange providing small and medium-sized companies
the means to generate capital.

Functions of Stock Exchanges: An Overview

The main function of a stock exchange is to facilitate the transactions associated with
both the buying and selling of securities. Buyers and sellers of shares and stocks can
track the price changes of securities from the stock markets in which they operate. The
ups and downs of stock indexes help the investors to speculate on the return on
investment (ROI) of various investment options.

Stock exchanges also serve as a source of capital formation for listed companies.
Business entities that are listed in a particular stock exchange can issue shares to the
public and sell those shares in that market.

To take part in these transactions, listed companies need to abide by the rules and
requirements of that market. The stock exchanges protect the interests of both buyers
and sellers by assuring a timely transfer of money. The participants of a stock market
are required to operate within the specified transaction limits fixed by the regulatory
authority of that stock market.

Speed and transparency are vital for all stock market transactions. The companies
listed in a stock exchange need to provide proper guidance regarding business
 performance and prospects, mergers and acquisitions, stock prices, dividends and other
information at all times. Investors make their investment decisions based on the
information obtained from these companies.

How Stock Exchanges Operate:

With the help of stockbrokers, the buyers and sellers participating in a stock market
carry out their transactions. The brokers representing selling parties take their orders to
the stock exchange floor and then find brokers representing parties willing to invest in
similar stocks. If both parties agree to trade at the fixed price, the transaction takes
place.

The role of stock exchanges:

Stock exchanges have multiple roles in the economy, this may include the following:-

 Raising capital for businesses.

 Mobilizing savings for investment.
 Facilitating company growth.
 Redistribution of wealth.
 Corporate governance.
 Creating investment opportunities for small investors.
 Barometer of the economy.

Pattern of Growth of Stock Exchange:

In the figure, we can see the growth of

No. of Stock Exchange
22 23 23 Indian Stock Exchanges. After
No. of Stock Exchange 19 independence, we had only 7 stock
14 exchanges. The Calcutta Stock Exchange
9 (CSE) was the largest stock exchange in
7 8

1961 1971 1980 1985 1990 1991 2000 2008

India till 1960s. In order to promote the oderly development of the stock market,
number of stock exchanges has been increased. Again, after the announcement of new
economic policy in 1991, the number increase to 22.

And, at present, there are 23 stock exchanges in India – 19 regional Stock Exchanges,
BSE, NSE, OCTEI and the Interconnected Stock Exchange of India (ICSE).

How to find a good stock?

There are some factors that can help predict whether a stock is good or questionable,
and these can help one to determine the best stocks for his portfolio and needs. Some
of ways to identify a good stock are mentioned below:

CAPEX or Capital Expenditure:

One way to identify a good stock is by looking at the CAPEX, or capital expenditure,
compared to other similar stocks in the same industry. Make sure that the stocks being
compared are from the same industry and that the companies are similar, otherwise the
stock analysis will be inaccurate and the stock may not be such a good deal. Consumer
stocks, such as Coca Cola and Nestle, usually have a minimum or low capital
expenditure. Having a low capital expenditure means that the company uses their
operating profits for investment funding instead of taking out loans that can have
fluctuating interest rates and cost money. During an economic recession, low CAPEX
stocks are a better bet than many from heavy industries because of the fluctuation of
interest rates when the economy falls.

Reliability:

Finding a good stock also means looking at other factors; one of which is reliability.
Choose stock in a company that has been shown to be reliable and that has a high
potential for growth. Look at the price the stock is currently listed at and evaluate this
price against the current company condition and the potential for future growth. This
evaluation will help you determine whether the stock price is reasonable, which makes
it a good stock, or if it is inflated compared to the current situation and conditions.

Risk and the level of reward:

 The higher the risk, the better a reward is going to be if the stock performs well. One
should determine what level of risk he is willing and can afford to take, and only
choose stocks that reflect this risk level. There are many different formulas that can be
used to try and place value on a stock, and each investor will be able to tell what
formula they are most comfortable with in determining whether a stock is good or bad.

High profit margin:

A good stock should have a high profit margin. The profit margin of a company will
alert you to vital information concerning the effectiveness of the current company
management. A good management team will be able to reduce the operating costs of a
company and at the same time increase revenue and possibly growth as well. When
comparing and evaluating stocks, one should look at those with the highest profit
margins.

Any investment carries some risk, but choosing a good stock can minimize the risks of
the investment and maximize the gains one will see. One should look for stocks that
have gone down in price simply because of market conditions and not because of
problems with the management or company. With the way the stock prices have
dropped in the last six months, there are plenty of excellent stock choices available,
and the prices are low simply because almost all stock prices have fallen and many
investors wanted out of the market before it could crash. Some of these stocks
represent a great investment opportunity because the price is good and the company is
solid.

Bombay Stock Exchange (BSE):

Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now
spanning three centuries in its 133 years of existence. What is now popularly known as
BSE was established as "The Native Share & Stock Brokers' Association" in 1875.

BSE is the first stock exchange in the country which obtained permanent recognition (in
1956) from the Government of India under the Securities Contracts (Regulation) Act
1956. BSE's pivotal and pre-eminent role in the development of the Indian capital
market is widely recognized. It migrated from the open outcry system to an online
screen-based order driven trading system in 1995. Earlier an Association of Persons
(AOP), BSE is now a corporatised and demutualised entity incorporated under the
provisions of the Companies Act, 1956, pursuant to the BSE (Corporatisation and
Demutualisation) Scheme, 2005 notified by the Securities and Exchange Board of
India (SEBI). With demutualisation, BSE has two of world's best exchanges, Deutsche
Börse and Singapore Exchange, as its strategic partners.

Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector
by providing it with an efficient access to resources. There is perhaps no major
corporate in India which has not sourced BSE's services in raising resources from the
capital market.

Today, BSE is the world's number 1 exchange in terms of the number of listed
companies and the world's 5th in transaction numbers. The market capitalization as on
December 31, 2007 stood at USD 1.79 trillion. An investor can choose from more than
4,700 listed companies, which for easy reference, are classified into A, B, S, T and Z
groups.

The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic
stature, and is tracked worldwide. It is an index of 30 stocks representing 12 major
sectors. The SENSEX is constructed on a 'free-float' methodology, and is sensitive to
market sentiments and market realities. Apart from the SENSEX, BSE offers 21
indices, including 12 sectoral indices.

The first Exchange Traded Fund (ETF) on SENSEX, called "SPIcE" is listed on BSE.
It brings to the investors a trading tool that can be easily used for the purposes of
investment, trading, hedging and arbitrage. SPIcE allows small investors to take a
long-term view of the market.

SENSEX - The Barometer of Indian Capital Markets

BSE Sensex or Bombay Stock Exchange Sensitive Index is a value-weighted index

composed of 30 stocks started in 01 of Jan, 1986. It consists of the 30 largest and most
actively traded stocks, representative of various sectors, on the Bombay Stock
Exchange. These companies account for around one-fifth of the market capitalization
of the BSE. The base value of the sensex is 100 on April 1, 1979, and the base year of
BSE-SENSEX is 1978-79.

At irregular intervals, the Bombay Stock Exchange (BSE) authorities review and
modify its composition to make sure it reflects current market conditions. The index is
calculated based on a free-float capitalization method; a variation of the market cap
method. Instead of using a company's outstanding shares it uses its float, or shares that
are readily available for trading. The free-float method, therefore, does not include
restricted stocks, such as those held by company insiders.

The index has increased by over ten times from June 1990 to the present. Using
information from April 1979 onwards, the long-run rate of return on the BSE Sensex
works out to be 18.6% per annum, which translates to roughly 9% per annum after
compensating for inflation.

Index Specification:

 Base Year :1978-79

 Base Index Value :100

 Date of Launch : 01-01-1986

 Method of : Launched on full market capitalization method and effective

calculation September 01, 2003, calculation method shifted to free-float
market capitalization.
 Number of scrips : 30

 Index calculation : 15 seconds

frequency

Sensex milestones:

Here is a timeline on the rise and rise of the Sensex through Indian stock market
history.
 1000, July 25, 1990 - On July 25, 1990, the Sensex touched the four-digit figure
for the first time and closed at 1,001 in the wake of a good monsoon and excellent
corporate results.

 2000, January 15, 1992 - On January 15, 1992, the Sensex crossed the 2,000-
mark and closed at 2,020 followed by the liberal economic policy initiatives
undertaken by the then finance minister and current Prime Minister Dr Manmohan
Singh.

 3000, February 29, 1992 - On February 29, 1992, the Sensex surged past the 3000
mark in the wake of the market-friendly Budget announced by Manmohan Singh.

 4000, March 30, 1992 - On March 30, 1992, the Sensex crossed the 4,000-mark
and closed at 4,091 on the expectations of a liberal export-import policy. It was then
that the Harshad Mehta scam hit the markets and Sensex witnessed unabated selling.

 5000, October 11, 1999 - On October 8, 1999, the Sensex crossed the 5,000-mark
as the Bharatiya Janata Party-led coalition won the majority in the 13th Lok Sabha
election.

 6000, February 11, 2000 - On February 11, 2000, the information technology
boom helped the Sensex to cross the 6,000-mark and hit and all time high of 6,006.

 7000, June 21, 2005 - On June 20, 2005, the news of the settlement between the
Ambani brothers boosted investor sentiments and the scrips of RIL, Reliance Energy,
Reliance Capital and IPCL made huge gains. This helped the Sensex crossed 7,000
points for the first time.

 8000, September 8, 2005 - On September 8, 2005, the Bombay Stock Exchange's

benchmark 30-share index – the Sensex - crossed the 8000 level following brisk
buying by foreign and domestic funds in early trading.

 9000, December 9, 2005 - The Sensex on November 28, 2005 crossed 9000 to
touch 9000.32 points during mid-session at the Bombay Stock Exchange on the back
of frantic buying spree by foreign institutional investors and well supported by local
operators as well as retail investors.

 10,000, February 7, 2006 - The Sensex on February 6, 2006 touched 10,003

points during mid-session. The Sensex finally closed above the 10,000-mark on
February 7, 2006.
 11,000, March 27, 2006 - The Sensex on March 21, 2006 crossed 11,000 and
touched a peak of 11,001 points during mid-session at the Bombay Stock Exchange
for the first time. However, it was on March 27, 2006 that the Sensex first closed at
over 11,000 points as robust foreign fund inflows and a move by government towards
greater capital account convertibility.

 12,000, April 20, 2006 - The Sensex on April 20, 2006 crossed 12,000 and
touched a peak of 12,004 points during mid-session at the Bombay Stock Exchange
for the first time in the wake of massive buying from mutual funds around Rs. 3400 cr.
in just 19 trading sessions, favourable credit policy.

 13,000, October 30, 2006 - The Sensex on October 30, 2006 crossed 13,000 for
the first time. It touched a peak of 13,039.36 and finally closed at 13,024.26. Sensex
drivers were fund infusion from market players, falling oil prices, strong second
quarter results from technology and banking companies, robust growth in
infrastructure sector.

 14,000, December 5, 2006 - The Sensex on December 5, 2006 crossed 14,000 in

the wake of strong FII inflow and healthy corporate earnings.

 15,000, July 6, 2007 - The Sensex on July 6, 2007 crossed 15,000 mark.

 16,000, September 19, 2007 - The Sensex on September 19, 2007 crossed the
16,000 mark.

 17,000, September 26, 2007 - The Sensex on September 26, 2007 crossed the
17,000 mark for the first time.

 18,000, October 9, 2007 - The Sensex on October 09, 2007 crossed the 18,000
mark for the first time.

 19,000, October 15, 2007 - The Sensex on October 15, 2007 crossed the 19,000
mark for the first time.

 20,000, October 29, 2007 - The Sensex on October 29, 2007 crossed the 20,000
mark for the first time. The main drivers were strong FII buying coupled with short
covering led to sharp up move. Registration of FIIs and Participatory Note issue
clarification has put momemtum into sensex.
 21,000, Jan 08, 2008 - The Sensex on January 08, 2008 touched all time peaks of
21078 before closing at 20873 due to expectation of excellent quaterly result and
strong forward momemtum.

Graphical Presentation:

Sensex level
21000
20000
17605
15000 14284 15010

8700

1 2 3 4 5 6 7

6-Jul-07 29-Oct-07 8-Jan-08 21-Jan-08 24-Oct-08 18-May-09 10-Aug-09

May 2009

On May 18, 2009, the sensex surged 2110.79 points from the previous closing of
12174.42 this leading to the suspension of trade for the whole day. This event created
history in Dalal Street, by being the first ever time that trade had been suspended for
an increase in value. This rally is primarily due to the victory of the UPA in the 15th
General elections.

Major crashes since 2000:

May 2006

On May 22, 2006, the Sensex plunged by 1100 points during intra-day trading, leading
to the suspension of trading for the first time since May 17, 2004. The volatility of the
Sensex had caused investors to lose Rs 6 lakh crore ($131 billion) within seven trading
sessions. The Finance Minister of India, P. Chidambaram, made an unscheduled press
statement when trading was suspended to assure investors that nothing was wrong
with the fundamentals of the economy, and advised retail investors to stay invested.
When trading resumed after the reassurances of the Reserve Bank of India and the
Securities and Exchange Board of India (SEBI), the Sensex managed to move up 700
points, still 450 points in the red.

The Sensex eventually recovered from the volatility, and on October 16, 2006, the
Sensex closed at an all-time high of 12,928.18 with an intra-day high of 12,953.76.
This was a result of increased confidence in the economy and reports that India's
manufacturing sector grew by 11.1% in August 2006.

Effects of the subprime crisis in the U.S. :

On July 23, 2007, the Sensex touched a new high of 15,733 points. On July 27, 2007
the Sensex witnessed a huge correction because of selling by Foreign Institutional
Investors and global cues to come back to 15,160 points by noon. Following global
cues and heavy selling in the international markets, the BSE Sensex fell by 615 points
in a single day on August 1, 2007.

January 2008

In the third week of January 2008, the Sensex experienced huge falls along with other
markets around the world. On January 21, 2008, the Sensex saw it’s highest ever loss
of 1,408 points at the end of the session. The Sensex recovered to close at 17,605.40
after it tumbled to the day's low of 16,963.96, on high volatility as investors panicked
following weak global cues amid fears of a recession in the US.

The next day, the BSE Sensex index went into a free fall. The index hit the lower
circuit breaker in barely a minute after the markets opened at 10 AM. Trading was
suspended for an hour. On reopening at 10.55 AM IST, the market saw its biggest
intra-day fall when it hit a low of 15,332, down 2,273 points. However, after
reassurance from the Finance Minister of India, the market bounced back to close at
16,730 with a loss of 875 points.
Major Indian Stock Market Reforms:

Securities and Exchange Board of India (SEBI):

On 31st March 1992, the SEBI was established as an autonomous and statutory body.
The SEBI is the regulatory authority to oversee the new issues, protect the interests of
investors, promote the development of the capital market and regulate the working of
stock exchanges. It has initiated a number of measures in these directions such as
registration of intermediaries, strict disclosure norms, regulations on insider trading
and inspection of the functioning of the stock exchanges and mutual funds, etc.

Over-the-Counter Exchange of India (OTCEI):

Over the Counter Exchange of India has been promoted jointly by ICICI, UTI, IDBI,
IFCI, GIC, LIC, SBI, Capital Markets, and Canbank Financial Servics. It has been
registered as a stock exchange with the SEBI and has commenced its operations from
6th October 1992. Its main aim is to provide small and medium companies an access to
capital market in order to raise capital in a cost-effective manner. It is a regulatory
body which supervises monitors and controls the trading activity at OTC (over the
counter). The OTCEI operates at Mumbai with regional windows at other metrpolitan
cities and representative offices in a few major cities.

National Stock Exchange (NSE):

With the liberalization of the Indian economy, it was found inevitable to lift the Indian
stock market trading system on par with the international standards. On the basis of
the recommendations of high powered Pherwani Committee, the National Stock
Exchange was incorporated in 1992 as a tax-paying company unlike other stock
exchanges in the country by Industrial Development Bank of India, Industrial Credit
 and Investment Corporation of India, Industrial Finance Corporation of India, all
Insurance Corporations, selected commercial banks and others.

On its recognition as a stock exchange under the Securities Contracts (Regulation)

Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market
(WDM) segment in June 1994. The Capital Market (Equities) segment commenced
operations in November 1994 and operations in Derivatives segment commenced in
June 2000.

The NSE was incorporated with the following objectives:-

 To establish a nationwide trading facility for equities, debt intruments and hybrids.
 To ensure all investor all over the country equal access through an appropiate
communication network.
 To provide a fair, efficient, and transparent securities market to investors through an
electronic trading system.
 To enable shorter settlement cycles and book entry settlement system.
 To meet the current international standards of securities markets.

The exchange is professionally managed in that the ownership and managemet of the
NSE are completely separated from the rightto trade on the exchange. In order to
upgrade the professional standards of the market intermediaries, the exchange lays
stress on factors such as capital adequacy, corporate structure, track record, and
educational experience.

Trading at NSE can be classified under two broad categories:

 Wholesale debt market and

 Capital market.

Wholesale debt market operations are similar to money market operations - institutions
and corporate bodies enter into high value transactions in financial instruments such as
government securities, treasury bills, public sector unit bonds, commercial paper,
certificate of deposit, etc.

There are two kinds of players in NSE:

 Trading members and

 Participants.
 Recognized members of NSE are called trading members who trade on behalf of
themselves and their clients. Participants include trading members and large players
like banks who take direct settlement responsibility.

Trading at NSE takes place through a fully automated screen-based trading mechanism
which adopts the principle of an order-driven market. Trading members can stay at
their offices and execute the trading, since they are linked through a communication
network. The prices at which the buyer and seller are willing to transact will appear on
the screen. When the prices match the transaction will be completed and a
confirmation slip will be printed at the office of the trading member.

NSE has several advantages over the traditional trading exchanges. They are as
follows:

 NSE brings an integrated stock market trading network across the nation.

 Investors can trade at the same price from anywhere in the country since inter-market
operations are streamlined coupled with the countrywide access to the securities.

 Delays in communication, late payments and the malpractice’s prevailing in the

traditional trading mechanism can be done away with greater operational efficiency
and informational transparency in the stock market operations, with the support of
total computerized network.

Unless stock markets provide professionalised service, small investors and foreign
investors will not be interested in capital market operations. And capital market being
one of the major sources of long-term finance for industrial projects, India cannot
afford to damage the capital market path. In this regard NSE gains vital importance in
the Indian capital market system.

Index-based Market-wide Circuit Breakers:

An index based market-wide circuit breaker system applies at three stages of the index
movement either way at 10%, 15% and 20%. These circuit breakers bring about a
coordinated trading halt in trading on all equity and equity derivatives markets across
the country. The breakers are triggered by movements in either Nifty 50 or Sensex,
whichever is breached earlier.
 In case of a 10% movement in either of these indices, there would be a one-hour
market halt if the movement takes place before 1:00 p.m. In case the movement takes
place at or after 1:00 p.m. but before 2:30 p.m. there would be trading halt for ½ hour.
In case movement takes place at or after 2:30 p.m. there will be no trading halt at the
10% level and market would continue trading.
 In case of a 15% movement of either index, there should be a two-hour halt if the
movement takes place before 1 p.m. If the 15% trigger is reached on or after 1:00 p.m.
but before 2:00 p.m., there should be a one-hour halt. If the 15% trigger is reached on
or after 2:00 p.m. the trading should halt for remainder of the day.
 In case of a 20% movement of the index, trading should be halted for the remainder of
the day.

FOREIGN INSTITUTIONAL INVESTMENTS AND THE INDIAN STOCK

MARKET:

An important feature of the 1990s was the participation of FIIs in the stock
market.FIIs was allowed to participate in the Indian stock Market in September 1992.
They have become active investors since August 1993. As of 31 st July, 2009, there are
1,679 FIIs registered with SEBI.

FIIs Flows:

From the graph, we can see the

substantial increase in FIIs
71486
investment during the years
between 2000 and 2006. FII
52998

4166340589
investment in India has come in
37183 36169
30893 waves. The first wave of FII came
in 1993-94 when the stock
markets were opened up for
foreign investors. FII net flow
2003 2004 2005 2006 2007 2008 39995 touched Rs. 6,791 crore in 2000.
Then a large number of FIIs
arrived with ‘emerging market’
funds in 2000-01 wherein the FII net investment touched a high of Rs. 13,084 crore.
However, the FII fund flow declined tremendously in the year 2002. It came down to
Rs. 3,555 crore. The major reasons for the decline in their investment were the dismal
performance of the Indian stock market and the slow pace of reforms.The third wave
which came in 2003 brought in new FIIs such as Hedge funds, university funds and
development market funds to encash India’s growth story. The net FII inflow touched
a record Rs. 30,893 crore in 2003 and Rs. 37,183 crore in 2004 with most of the
investment in promising mid-cap stocks. Since 2004, a rally in mid-cap shares raised
the market capitalisation ratio thereby benefitting FIIs and increasing their interest in
Indian stock. This increased investment was on the account of strong macro-economic
fundamentals, abolition of long-term capital gains tax, etc.

Most FIIs took advantage of depressed prices increased their stakes in frontline Sensex
stocks such as Infosys, HLL, Reliance, ITC, etc. FIIs increase their activity whenever
there is downturn in the stock market. They identified and picked up the old economy
Indian companies which were being traded at a discount and actively bought those
shares.

Sectoral Holding of FIIs:

3% 2%
6% Financial Services
21% IT
6%
Energy
7% Consumer Goods
Health Care
8% Materials Structural
21% FMCG
8% Industrials Reforms
Utilities
Telecom and
20%
Impact of
FIIs on the
Capital Market:
 India has been in the forefront of utilizing technology to enhance its stock market
performance. Both the stock exchanges’ (BSE and NSE) web sites provide a real-time
update of various indices, streaming quotes of stocks, the news updates, screen-based
order matching system. Further reforms on practices like rolling settlements, trade
guarantee, demat settlement and derivative trading have certainly added depth (volume
of a particular stock) and breadth (number of stocks traded) to the market.

Market Trend:

Almost every day in the investing world, we used to hear the terms "bull" and "bear" to
describe market conditions. As common as these terms are, however, defining and
understanding what they mean is not so easy. Because the direction of the market is a
major force affecting one’s portfolio, it's important to know exactly what the terms bull and
bear market actually signify, how they are characterized and how each affects.

Bull and Bear- these two terms are constantly buzzing around the investing world. At the
same time, because the market is determined by investors' attitudes, these terms also denote
how investors feel about the market and the ensuing trend.

Simply put, a bull market refers to a market that is on the rise. It is typified by a sustained
increase in market share prices. In such times, investors have faith that the uptrend will
continue in the long term. Typically, the country's economy is strong and employment
levels are high.

On the other hand, a bear market is one that is in decline. Share prices are continuously
dropping, resulting in a downward trend that investors believe will continue in the long
run, which, in turn, perpetuates the spiral. During a bear market, the economy will typically
slow down and unemployment will rise as companies begin lying off workers.

Where Did the Terms Come from?

The origins of the terms "bull" and "bear" are unclear, but here are two of the most
common explanations:

1. The bear and bull markets are named after the way in which each animal attacks its
victims. It is characteristic of the bull to drive its horns up into the air, while a bear, on the
other hand, like the market that bears its name, will swipe its paws downward upon its
 unfortunate prey. Furthermore, bears and bulls were literally once fierce opponents when it
was popular to put bulls and bears into the arena for a fight match. Matches using bulls and
bears (whether together or gains other animals) took place in the Elizabethan era in London
and were also a popular spectator sport in ancient Rome.

2. Historically, the middlemen who were involved in the sale of bearskins would sell
skins that they had not yet received and, as such, these middlemen were the first short
sellers. After promising their customers to deliver the paid-for bearskins, these middlemen
would hope that the near-future purchase price of the skins from the trappers would
decrease from the current market price. If the decrease occurred, the middlemen would
make a personal profit from the spread between the price for which they had sold the skins
and the price at which they later bought the skins from the trappers. These middlemen
became known as bears, short for "bearskin jobbers", and the term stuck for describing a
person who expects or hopes for a decrease in the market.

Characteristics of a Bull and Bear Market:

Although we know that a bull or bear market condition is marked by the direction of stock
prices, there are some accompanying characteristics of the bull and bear markets that
investors should be aware of. These can be mentioned as below:

 Supply and Demand for Securities- In a bull market, we see strong demand and weak supply
for securities. In other words, many investors are wishing to buy securities while few are
willing to sell. As a result, share prices will rise as investors compete to obtain available
equity. In a bear market, the opposite is true as more people are looking to sell than buy.
The demand is significantly lower than supply and, as a result, share prices drop.

 Investor Psychology - Because the market's behavior is impacted and determined by

how individuals perceive that behavior, investor psychology and sentiment are
fundamental to whether the market will rise or fall. Stock market performance and investor
psychology are mutually dependent. In a bull market, most everyone is interested in the
market, willingly participating in the hope of obtaining a profit. During a bear market, on
the other hand, market sentiment is negative as investors are beginning to move their
money out of equities and into fixed-income securities until there is a positive move. In
sum, the decline in stock market prices shakes investor confidence, which causes investors
to keep their money out of the market - which, in turn, causes the decline in the stock
market.
 Change in Economic Activity - Because the businesses whose stocks are trading on
the exchanges are the participants of the greater economy, the stock market and the
economy are strongly connected. A bear market is associated with a weak economy as
most businesses are unable to record huge profits because consumers are not spending
nearly enough. This decline in profits, of course, directly affects the way the market values
stocks. In a bull market, the reverse occurs as people have more money to spend and are
willing to spend it, which, in turn, drives and strengthens the economy.

BULL MARKET:

A bull market refers to when the prices of stocks have gone up steadily over an extended
time period. A bull market means a market that is going up instead of down. Normally
during a bull market, the economy of the country is stable and strong, and unemployment
is low. The assumption by the investors is usually that the market will continue the upward
swing. The opposite of a bull market is a bear market. A bull market can be described by
some characteristics that occur, and investors should watch these characteristics closely to
determine what trades to make. It is a financial market of a group of securities in which
prices are rising or are expected to rise. The term "bull market" is most often used to refer
to the stock market, but can be applied to anything that is traded, such as bonds, currencies
and commodities.

A bull market tends to be associated with increasing investor confidence, motivating

investors to buy in anticipation of future price increases and future capital gains. In
describing financial market behavior, the largest group of market participants is often
referred to, metaphorically, as a herd. This is especially relevant to participants in bull
markets since bulls are herding animals. A bull market is also sometimes described as a
bull run.
Factor responsible for Bull Market:

There has been a sharp rise in the index in the last year as the sensex moved from a level of
15000 to 20000 in just four months. Again SENSEX, was in a bull run for almost five
years from April 2003 to January 2008 as it increased from 2,900 points to 21,000 points.
Another notable and recent bull market was in the 1990s when the U.S. and many other
global financial markets rose rapidly.

The following were the main reasons for this sudden rise of sensex.

Higher GDP Growth: The Indian economy is rising in full swing. The Gross Domestic
Product (GDP) growth for last two years was over 8% and 9% respectively. It was
expected to rise at the rate of 8.5% over next couple of years. Corporate revenues had
notched a 30-plus % rise in revenues for nearly last five years. The domestic retail demand
continued to be robust. All these led to firm belief of investors in the Indian growth story.

Continuous Fund flows: Foreign funds have bought a net 16.2 billlion dollars into the
bourses till October 10, 2007. This is on the back of investment of over $10 billion for
2005 and over $14 billion for 2007. Over the last few years, Foreign Institutional Investors
(FIIs) have been investing into India very heavily.

Strong Book orders: The order books of Indian companies especially the infrastructure
and related industries have been very strong. The companies like Larsen & Turbo, Punj
Loyd, Simplex Infra, Patel Engineering, etc, have the orders worth up to four times their
current annual sales. This has led to higher confidence of investors into these industries.

Commitment to reform: Despite the pressures from its Left allies, the UPA Government
at the centre has shown its commitment towards reforms. Steps taken to stick to fiscal
targets, opening up of the retails sector and aviation sectors to foreign investment, etc. have
boosted the confidence of foreign investors in the Indian economy. The government has
also stepped up its efforts in the direction of divestment and privatisation.

Stable Government: The determinant of growth for an economy is to have an efficient

and stable government that really works. There should be continuity in political sphere
because if public policies go on changing more frequently, economic progress cannot
continue, rather private and public investment will be discouraged. So, the existence of
UPA government for second consecutive time is creating favourable condition for the
Indian Stock market.
Other factors: Apart from the above-noted factors, there are some important factors.
These may include high GDP growth rate, Good crops, Good rainfall, Better demand,
Stability in International market, higher cash flow, etc.

Bull Market Strategy:

In a bull market, the ideal thing for an investor to do is take advantage of rising prices by
buying early in the trend and then selling them when they have reached their peak. (Of
course, determining exactly when the bottom and the peak will occur is impossible.) On the
whole, when investors have a tendency to believe that the market will rise (thus being
bullish), they are more likely to make profits in a bull market. As prices are on the rise, any
losses should be minor and temporary. During the bull market, an investor can actively and
confidently invest in more equity with a higher probability of making a return.

So, to gain highest level of profits an investor in the bull market should buy early in the
upward trend of prices and should sell when the price level reaches the peak. But, it is
really tough to guess the peak of price level, after which the prices will fall. Though, it is
more likely for the investors to earn more profits rather than suffering from loss in a Bull
market as are on the rise. Even if there are losses they are oviously negligible and
temporary. In a Bull Market, more volume of investment raises the chances of good
returns. And, a good understnding of long-term market trend can take the level of returns to
a new high.

There is no sure way to predict market trends, so investors should invest their money based
on the quality of the investments. At the same time, however, one should have an
understanding of long-term market trends from a historical perspective. Because, both bear
and bull markets will have a large influence over investments. So, one should take time to
determine what the market is doing when making an investment decision. However, in the
long term, the market has posted a positive return.

BEAR MARKET:
 Bear market refers to a prolonged period in which investment prices fall, accompanied by
widespread pessimism. If the period of falling stock prices is short and immediately
follows a period of rising stock prices, it is instead called a correction. Bear markets
usually occur when the economy is in a recession and unemployment is high, or when
inflation is rising quickly. The most famous bear market in U.S. history was the Great
Depression of the 1930s.

The term Bear Market refers to a declining or poor state of the market or trading group,
usually a stock market, in which consumer confidence and financial expectations are on a
decline and the market continues to lose value, usually at an average loss of 15% to 20% in
one or more index over a 12 month period.

Bear Markets get their name from the fighting techniques of bears. When in danger, bears
will stand on the hind legs and swipe down with their front paws. This downward
movement is used as a metaphor for the market trends. In addition, like the fast pace of the
bear's swing, bear markets traditionally define periods of time in which there is a
substantial decline in stock values. Unlike Corrections that occur over short periods of
time, however, bear markets are longer-lived with a greater loss.

Investors usually sell large quantities of shares during bear markets, contributing to the
rising pessimism and fear that accompanies large downturns in the stock indexes. These
types of scenarios usually perpetuate the decreasing value of stocks, causing more fear and
even more sales. Historically, bear markets have been the cause of major economic
problems such as the 1929 Wall Street Crash and the energy crisisin the 1970s.

Some Bear Market Investing Strategies:

It goes without saying that the skills required to make money in the stock market are very
different depending upon whether the market is rising or falling.

These strategies include:-

 Flight to safety. If markets are choppy and volatile and the general trend is downwards, why
be in the market? Why not, instead, sell a worthwhile percentage of holdings and move the
money into either cash or bonds (medium and long term government or corporate debt). As
and when the market seems to have settled, and hopefully, there is some value to be found,
assets can be repurchased.
 Buy defensive assets. In every phase of the business cycle, there are some assets which rise
in price whilst others are falling. This is also the case in the stock market. Some sectors
will rise whilst the market generally is falling. It is therefore possible to stay in the market
and make returns.

 Buy units in a 'bear fund'. Some mutual funds are designed with downward market
movements in mind. These funds often show very poor returns as the stock market rises. In
long bull runs, ownership of these funds can be justified as portfolio diversification, but is
more likely to be very costly!

 Trade in the market. An agressive bear market investing strategy is to actively profit from
the price falls. Historically, this is known as "short selling" or "going short". The process
essentially involves the trader selling shares which they do not actually own. The hope is
that when settlement day comes, the shares can be bought back in the market at a lower
price and the trader will make a profit from the difference in prices.

In a bear market, however, the chance of losses is greater because prices are continually
losing value and the end is not often in sight. Even if you do decide to invest with the hope
of an upturn, you are likely to take a loss before any turnaround occurs. Thus, most of the
profitability will be found in short selling or safer investments such as fixed-income
securities. An investor may also turn to defensive stocks, whose performances are only
minimally affected by changing trends in the market and are therefore stable in both
economic gloom and boom. These are industries such as utilities, which are often owned
by the government and are necessities that people buy regardless of the economic
condition.

Factors Responsible For Bear Market:

The bear market is the interval in the capital market characterized by falling prices for
securities. It is a period when most of the prognosis of stockbrokers and experts are thrown
into winds and are torn into shreds. We should remember that there will always be a bull
and bear market as long as the forces of demand and supply continue in the capital market.
Some major factors responsible for Bear market are explained below:

 Massive profit taking:

Profit taking is the name of the game; stock traders generally look forward to selling off
their stocks once their objective for buying into a stock is achieved, but when this action is
 carried out en masse it can trigger off a bearish session. During the bull market stock
traders take advantage to sell of their stocks, the massive shedding will eventually have its
toll, so watch out when you observe there is massive effort by stock traders to sell their
stocks, know the bear market will come knocking.

 Active and prolong primarymarket activities:

The primary market is the other half of the secondary market, both markets function in
diverse ways. The primary market is where the vast majority of investors do business, the
reason is not farfetched; it is an all comers market. For this reason whenever there is
prolong activities in the primary market, in other word, if there are so many initial public
offerings and private offerings, investors will channel their funds to the primary,
sometimes they may even withdraw their funds, the effect there will be more sellers in the
secondary in the secondary market than buyers, supply will outperform demand thereby
driving down the prices of shares.

 Massive panic selling by emotion driven investors:

One of the feature of a bearish a bearish market, is the reaction of emotion and sentiment
driven investors. The bearish season over the years from my experience analyzing and
trading stocks have always beaten uninformed investors who have not imbibe the entry and
exit strategy that I know has most of the time protected wise and seasoned stock traders.
When the vast majority observes that the prices of stocks are rallying down they react by
selling off their which affects the stability of the secondary market.

Volatility:

Volatility of a stock measures the frequency with which changes in its market price take
place over a period of time. Again, volatility in the market is a function of information,
misinformation and sometimes lack of information. In other words, Stock market volatility
indicates the degree of price variation between the share prices during a particular period.
A certain degree of market volatility is unavoidable, even desirable, as the stock price
fluctuation indicates changing values across economic activities and it facilitates better
resource allocation. But frequent and wide stock market variations cause uncertainty about
the value of an asset and affect the confidence of the investor. The risk averse and the risk
neutral investors may withdraw from a market at sharp price movements. Extreme
volatility disrupts the smooth functioning of the stock market.

Inter–day Volatility: The variation in share price return between the two trading days is
called inter–day volatility. Standard deviation is used to calculate inter–day volatility.

Intra–day Volatility: The variation in share price return within the trading day is called
intra–day volatility. It indicates how the indices and shares behave in a particular day.
 Chapter-5
Findings, recommendation,
conclusion and limitation

Findings
 Factors responsible for Volatility:

Indian stocks are found to be highly volatile. Volatility is caused by a number of factors
such as speculation, the trading and settlement system, the government, inflation, interest
rates, announcement of corporate results, etc. All these factors directly or indirectly
influence movement in share prices. Apart from these, the factors responsible for high
volatility can be explained as follows:

 Inclusion of the new economy stocks, most of which were over-valued in the BSE index.
 Increased influence of international stock indices, espicially the NASDAQ.
 High speculation when the badla system was prevelent led to large fluctuations in prices.
 Day trading increased which led to wild fluctuations in intra-day prices.
 Foreign Institutional Investors (FIIs), exit the markets at the slightest whiff of trouble. This
increases volatility in the stock markets. Domestic investors follow FIIs and emaluate their
investment pattern. If, FIIs buy, everyone buys and if FIIs sell, everyone sells.
 Indian markets have high volume but they lack depth as the volums are contributed by few
institutional participants. Indian markets lack hedge funds and pension funds, whch can
take a long-term view of the markets.
 External factors such as world politics and disturbances, the IT revolution, the information
boom by the business news channels, rising oil prices and apprehensions of rise in
international rates contributed to high volatiliy.
 The announcement in the Union Budget 2004-05 regarding imposition of the Securities
Transaction Tax (STT) affected the market sentiments adversely.

These factors, in turn, are responsible for the development of the stock market in our
country and making it comparable with the global markets.

Recommendtions:

This kind of volatility and sudden crash of the market is not a good indicator of sound
financial markets. It may affect the confidence of the retail as well as the foreign investors
in the Indian markets. Therefore, the government needs to look into the situation and take
 some steps to strenghten the markets. The following measures are suggested to remove the
structual deficiencies of the market and improve the market mechanism:

 There is lack of depth in the market. The fear of FIIs pulling their money out of the market is
always seen as a big threat. To avoid this, more institutional players such as pension funds
are required to invest in the market and provide it the required depth.
 There is a need for a robust securities lending and short selling infrastructure. It will help the
long term investors to earn on their investments and provide heterogenerity in the market.
 Securities and Exchange Board of India (SEBI) needs to keep a vigil on the sharp rise in any
stock without a reasonable cause. It needs to keep track of the investors in such companies
and trace the source of investment to avoid any type malpractices.
 There is inability of the banking system to turn around the funds quickly. When the Sensex
was falling, the banking could not divert the funds to rescue the investors quickly which
led to margin calls and sudden crash of the market.
 To control insider trading and manipulation of prices, strict regulatory and punitive measures
should be adopted by the SEBI and stock exchanges.
 To stop operations in the unofficial and unregulated grey market, the publication of
unofficial quotation in newspaers and magazines should be declared illegal and sale of
shares before acquisition by buyers should be banned.
 To avoid confusion among the investors, there should be proper coordination among the
stock exchanges in India. There should not be any overlapping in their areas of operations.
 Investors should take into consideration various things before investing into scripts such as:
Financial position of the company.
Liquidity position.
Past performance of company.
 Brokers should not exceed their trading limit in terms of upper and lower limit.

Conclusion:

The behavior of Stock Market and the prices of stocks depend greatly on the speculation of
the investors. So, over- reactions and wrong speculation can give rise to irrational behavior
of the Stock Market. Excessive optimistic speculation of future prospects can raise the
 prices of stocks to an extreme high and excessive pessimism on the part of the investors
can result in extremely low prices.

So, it is extremely difficult to make predictions about the Stock Market and the
inexperienced investors who are not that much interested in financial analysis of stocks;
rarely get the financial assistance from the Stock Market at the time of need.

The factors influencing the stock market affect the volatility of the market in which they
are traded. These factors, in turn, are responsible for the development of the stock market
in any country and making it compareable with the global markets. So, stock market
development is a multi-dimensional concept.

Though many of the investors have lost life saving in the recent correction, there is life
after the crash. The Indian growth story is intact with a forecast of over 9% growth for
2009-2010. The investment pipeline is estimated to be Rs.5, 00,000 crores. The
government continues to spend heavilty on the infrastructure projects. Domestic demand is
still robust. Nevertheless, the Indian stocks will continue to be attractive. Moreover, the
fear of recession in the US will force the global investors to look for alternative investment
destinations and India will be the biggest beneficiary. The only thing to be kept in mind is
that greed always leads to devastations. The investors should not aim for very high returns
as the level of returns is always positively correlated to the level of risk.

Limitations:

 A period of 45 days was a very short period to understand the stock market.
 The project is based on secondary data collected from other souces magazines, newspaper
and websites etc.
 Reliability of the sources could also be limitation for the project.
 Possibility of error in analysis of data.
 The analysis is based on the past performance and does not confirm the future performance.

Annexure
 References:

Books:

 “Indian Financial System”, Second Edition ----- Bharati V. Pathak.

 “Capital Markets in the BRIC Economies” ------ Rituparna Bhattacharya, Anuradha Sen and
Sandip Lahiri Anand.
 “Money, Banking & International Trade” ------- M.L. Jhingan.

Magazines:

 Cometition Refresher.

Websites:

 www.karvy.com
 www.bseindia.com
 www.nseindia.com
 www.investopedia.com
 www.sebi.com
 www.google.com
 www.wikipedia.com