Market trend analysis of national stock exchange of india

_______________________________________________________Introduction to the Topic

INTRODUCTION TO THE TOPIC

Market Trend Analysis of a Company:
Analysis in terms of finance helps to find out the basic and critical factors affecting
the economy of company, market and nation. It can be practiced at major through two
methods: Fundamental and Technical.

1. Fundamental Analysis: Fundamental analysis is the examination of the
underlying forces that affect the interests of the economy, industry, and
company. It tries to forecast the future movement of the capital market using
signals from the economy, industry, and company. The presumption behind
fundamental analysis is that a thriving economy fosters industrial growth
which leads to development of companies. Fundamental analysis can be done
by studying three prospects of capital market:

a. Economic Analysis

b. Industry Analysis

c. Company Analysis

Fundamental analysis is influenced by the other psychological factors such as
perception, sentiment and so on, of investors. The proxy for the measure of
this psychological factor is the past share price of company itself. Thus, an
investor can not fully depend upon fundamental analysis for the decision of
money investment and hence technical tools are used for better information
and assurance of type of investment.

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_______________________________________________________Introduction to the Topic
2. Technical Analysis: A study of past share price behavior to predict the future
trend is termed as technical analysis. Technical analysis is frequently used as a
supplement to fundamental analysis. Technical analysis is based on the
economic premise that forces of demand and supply determine the pattern of
market price and the volume of trading in a share. Tools for technical analysis
are listed here below:

a. Charts [Line, Bar, Candlestick, Point and figure chart]

b. Dow Theory

c. Elliot Wave Theory

d. Flow of Funds

e. Market Structure

f. Market Indicators

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_____________________________________________________Rationale behind the Topic

RaTIONalE bEHIND THE TOPIC

As the tremendous growth of Indian economy continues in the world, capital market
comes into limelight. All the major and minor companies are thriving to get into
Indian markets.

The stock market plays an important role in defining the Indian economy. With the
tremendous boom in stocks from past few years, there has been much hype about the
stock exchange in country. I came across some of the stock exchanges but as NSE
being the largest in country in terms of volume of transactions encouraged me to get a
profound knowledge of its history, records, trading and working with due respect to
the Indian Capital Market.

The method of analysis used in this project is based on previous data available using
technical tools and fundamental interpretation.

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__________________________________________________Objective, Scope & Limitations

ObjECTIvE, SCOPE & lIMITaTIONS

Objective and Scope of the study
The objective of the study is to aget in-depth knowledge of National Stock Exchange
with reference to Indian Capital Market by using Technical analysis method and tools
using data and findings available.

Following points have been covered in the project:

• History of Stock Market & NSE

• NSE Indices

• Overview of capital markets in India

• Findings & Analysis of growth in NSE on various grounds

• Listing Procedures

• Conclusion & Suggestions

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__________________________________________________Objective, Scope & Limitations

Limitations in the topic
Following limitations were encountered while preparing this project:

1. Limited Data: - This project is done based on the data collected by the source
of secondary medium. This method is however not much helpful as it fails to
provide the essential facts and findings necessary for exact interpretation and
analysis. There were limitations for primary data collection because of
inaccesibility and confidentiality of documents of company.

2. Limited period: - This project is based on the data available of limited period
of time e.g. not more than that of one financial period of company. Which is
certainly not helpful to make this project report accurate in terms of various
comaprisions and growth analysis.

3. Limited area: - Also it was difficult to collect the data regarding the
competitors and their financial information. Moreover, the topic chosen is very
wide in terms of actual completion as there are various methods available for
carrying out the analysis of a company. Whereas, data and area for the project
are avaliable which make the situation contradictionary and limits the scope.

4. Type of data used: - This project is completely based on secondary data
collected from various sources like internet, magazines, newpapers and books
etc.

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_________________________________________________________Research Methodology

RESEaRCH METHODOlOGY

Research
Research in common parlance refers to a search for knowledge. One can also define
research as scientific and systematic search for pertinent information on a specific
topic.

In fact, a research is an art of scientific investigation. Some people consider research
as a movement from the known to the unknown. It is actually a voyage of discovery.
We all possess the vita confronts us, we wonder and our inquisitiveness makes probe
and attend full and fuller understanding of the unknown.

This inquisitiveness is the mother of all knowledge and the method which may
employed for obtaining the knowledge of whatever the unknown can be termed as
“Research”.

Meaning of Research
Research in common parlance refers to a search for knowledge. Research can also be
defined as scientific and system search for pertinent information on specific topic. We
can also say research as an art of scientific investigation.

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Research
Methodology
1. Descriptive Vs Analytical
2. Applied Vs Analytical
3. Applied Vs Fundamental
4. Quantitative Vs Qualitative
5. Conceptual Vs Empirical

(a) Descriptive Vs Analytical: Descriptive Research includes surveys and facts
finding enquiries of different kinds. The major purpose of Descriptive
Research is description of the state of affairs, as it exists at present. In
Analytical Research the researcher has to use facts or information already
available, and analyze these to make a critical evolution of the material.

(b) Applied Vs Analytical: Applied Research aims at finding a solution for an
immediate problem facing society or an industrial/business organization. In
analytical research, on the other hand, the researcher has to use facts or
information already available and analyze these to make a critical evaluation
of the material.

(c) Applied Vs. Fundamental: Applied Research aims at finding a solution for
an immediate problem facing society or an industrial/business organization
whereas a fundamental research is mainly concerned with generalization and
with the formation of the theory.

(d) Quantitative Vs Qualitative: Quantitative Research is bases on the
measurement of quantity or amount. It is applicable to the phenomenon that
can be expressed in terms of the quantity. Qualitative Research is especially
important in the behavioral sciences where the aim is to discover the underline
motives of human behaviors.

(e) Conceptual Vs Empirical: Conceptual Research is related to some abstract
idea(s). It is generally used by philosophers and thinkers to develop new
concept or to interpret existing ones. Empirical Research relies on experience
or observation alone often without due regard for system and theory. It is a

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data based research, coming up with conclusions, which are capable of being
verified, by observation or experiment.

Some Other Types of Research
There may be other types of research such as Time Research or Congitudinal
Research from the point of time. Laboratory Research or Simulation Research,
Historical Research, Exploratory Researches are some of the other types of research.

Tools Used For Data Collection
The tools used for this project is secondary data collection which involves information
from the internet, magazines, newspapers and various media sources etc.

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___________________________________________________Historical & Informative Data

HISTORICal & INFORMaTIvE DaTa

The Stock Market
“A stock market is a public market for trading of company stock and derivatives at an
agreed price; these are securities listed on a stock exchange as well as those only
traded privately.”

The size of the world stock market was estimated at about $36.6 trillion US at
beginning of October 2008. The total world derivatives market has been estimated at
about $791 trillion face or nominal value, 11 times the size of the entire world
economy. The value of the derivatives market, because it is stated in terms of notional
values, cannot be directly compared to a stock or a fixed income security, which
traditionally refers to an actual value. Moreover, the vast majority of derivatives
‘cancel’ each other out (i.e. a derivative ‘bet on the event occurring is offset by a
comparable derivative ‘bet’ on the event not occurring.). Many such relatively illiquid
securities are valued as marked to model, rather than an actual market price.

The stocks are listed and traded on stock exchanges which are entities of a corporation
or mutual organization specialized in the business of bringing buyers and sellers of
the organizations to a listing of stocks and securities together. The stock market in the
United States is NYSE while in Canada; it is the Toronto Stock Exchange. Major
European examples of stock exchanges include the London Stock Exchange, Paris
Bourse, and the Deutsche Borse. Asian examples include the Tokyo Stock Exchange,
the Hong Kong Stock Exchange, and Bombay Stock Exchange. In Latin America,
there are such exchanges as the BM&F Bovespa and the BMV.

Participants in the stock market range from small individual stock investors to large

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hedge fund traders, who can be based anywhere. Their orders usually end up with a
professional at a stock exchange, who executes the order.

Some exchanges are physical locations where transactions are carried out on a trading
floor, by a method known as open outcry. This type of auction is used in stock
exchanges and commodity exchanges where traders may enter “verbal” bids and offer
simultaneously. The other type pf stock exchange is a virtual kind, composed of a
network of computers where trades are made electronically via traders.

Actual traders are based on an auction market model where a potential buyer bids a
specific price for a stock and a potential seller asks a specific price for the stock.
(Buying or selling at market means you will accept any ask price or bid price for the
stock, respectively.) When the bid and ask prices match, a sale takes place, on a first-
come-first-served basis if there are multiple bidders or askers at a given price.

The purpose of a stock exchange is to facilitate the exchange of securities between
buyers and sellers, thus providing a marketplace (virtual or real). The exchange
provide real-time trading information on the listed securities, facilitating price
discovery.

History of Stock Markets
Historian Fernand Braudel suggests that in Cairo in the 11th century Muslim and
Jewish merchants had already set up ever form of trade association and had
knowledge of every method of credit and payment, disproving the belief that these
were invented later by Italians. In the 12th century in France the courratiers de change
were concerned with managing and regulating the debts of agricultural communities
on behalf of the banks. In the late 13 th century Bruges commodity traders gathered
inside the house of a man called van der beruse, and in 1309 they became the “Brugse
Beruse”, institutionalizing what had been, until then an informal meeting. The idea
quickly spread around Flanders and neighboring countries and “Beurzen” soon
opened in Ghent and Amsterdam.

In the middle of the 13th century Venetian bankers began to trading government

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securities. In1351, the Venetian government outlawed spreading rumors intended to
lower the price of government funds, bankers in Pisa, Verona, Genoa, and Florence
also began trading in government securities during the 14th century. This was only
possible because these were independent city states not ruled by a duke but a council
of influential citizens. The Dutch later started joint stock companies, which let
shareholders invest in business ventures and get a share of their profits – or losses. In
1602, the Dutch East India Company issued shares on the Amsterdam Stock
Exchange. It was the first company to issue stocks and bonds.

Stock Market in India
The first organized stock market in India was started in Bombay when the Native
Share Stock Brokers’ Association known as Bombay Stock Exchange (BSE) was
formed by the brokers in Bombay. BSE was Asia’s oldest stock exchange. In 1894,
the Ahemdabad Stock Exchange was started to facilitate dealings in shares of textile
mills there. The Calcultta Stock Exchange was started in 1908 to provide a market for
shares of plantations and jute mills. The Second World War saw great speculative
activity in the country and the number of stock exchange rose from 7 in 1939 to 21 in
1945. Besides, these organized exchanges, there were a number of unorganized and
unrecognized exchanges known as Kerb markets which functioned under a set of
usages and conventions and did not have any set of rules which could enforced in
courts of law. There were also illegal “Dabba” markets in which stocks and shares
were also bought and sold.

Under the Securities Contracts (Regulation) Act of 1956, the Government of India has
so far recognized 23 stock exchanges. Bombay is the premier exchange in the
country. With the setting up of National Stock Exchange, all regional stock exchanges
have lost relevance.

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Importance of Stock Market
The stock market is one of the most important sources for companies to raise money.
This allows businesses to be publicly traded, or raise additional capital for expansion
by selling shares of ownership of the company in a public market. The liquidity that
an exchange provides affords investors the ability to quickly and easily sell securities.
This ia 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 considered to be an up and coming
economy. Rising share prices, for instance, tend to be associated with increased
business investment and vice versa. Share prices also affect the wealth of households
and their consumption. Therefore, central banks tend to keep an eye on the control
and behavior of the stock market and, in general, on the smooth operation of financial
system functions.

Exchanges also act as the clearinghouse for each transaction, meaning that they
collect and deliver the shares, and guarantee payment to the seller of a security. This
eliminates the risk to an individual buyer or seller that the counterparty could default
on the transactions.

The smooth functioning of all these activities facilitates economic growth in that
lower costs and enterprise risks promote the production of goods and services as well
as employment. In this way the financial system contributes to increased prosperity.
An important aspect of modern financial markets, however, including the stock
markets, is absolute discretion.

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Business Transaction in Stock Market
A typical investment transaction in a stock exchange will consist of four stages:

# Placing an order with a broker: A client places his order with a stock broker who
alone is entitled to transact business in a stock exchange either to buy or to sell the
shares of a company at fixed prices or at best market prices.

# Execution of the order: The broker or his authorized clerk will execute the order
and the same will appear in the Stock Exchange Daily Official List which will include
the number and price of shares which exchanged hands.

# Reporting the deal to the client: As soon as the deal is transacted, the brokers
send a contract note to the client giving details of the security bought or sold, the
price, the broker’s commission, etc.

# Settlement of transaction: there are two methods of settlement of transactions. In
the case of ready delivery (or cash) transactions, payment has to be made immediately
on the transfer of the securities for within a period of one to seven days. In the case of
forward delivery, there is a system of carry-over i.e. post-ponement of delivery or
payment involving a payment by one to another. This system of carry-over provides
great scope for speculation in the forward market.

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Functions of Stock Market
Stock market plays a very important role in developing the economy of a country.
Some of the major functions are discussed here below:
• Measure of Safety and Fair Dealing: The stock exchanges operate under a
regulatory framework which are approved by the central government, and
meant to ensure that a reasonable measure of safety is provided to investors
and transactions take place in competitive conditions which are fair to all
concerned.
• Act of Magic: Most of the investors are interested in short-term to medium –
term investments. The requirements of companies are, however, long-term in
nature – they require equity capital on a more or less permanent basis and
debenture capital for 3 to 15 years. Thanks to the negotiability and
transferability of securities through the stock market it is possible for
companies to obtain their long-term requirements from investors with short-
term and medium-term horizons. While one investor is substituted by another
when a security is transacted, the company is assured of availability of funds.
• Flow of Capital to the Most Profitable Channels: Companies which have
more profitable investment opportunities are normally able to raise substantial
funds through the stock market, whereas companies which do not have such
opportunities are normally not able to do so. As a result, the stock market
facilitates the direction of the flow of the capital to the most profitable
channels.
• Inducement to Companies to Raise their Standard of Performance: When
the equity capital of a company is listed on a stock exchange, the performance
of the company is reflected in the market price of the equity stock, which is
readily available for public consumption. Put differently, the company’s
performance is more ‘visible’ in the eyes of the public. Such a public exposure
normally induces companies to raise their standard of performance.
• Guidance on Cost of Capital: The market values of the securities of
company sre required for computing its cost of capital. Such values can be
obtained from stock market quotations. Hence the stock market offers

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guidance on cost of capital.

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______________________________________________Overview of Capital Market in India

OVERVIEW OF CapItal MaRKEt IN INDIa:

Capital market is the market for long-term funds, just as the money market is the
market for short-term funds. It refers to all facilities and the institutional arrangements
for borrowing and lending term funds (medium-term and long-term funds).The supply
of funds for the capital market comes largely from individual savers, corporate
savings, banks, insurance companies, specialized financing agencies and the
government.

The Indian Capital Market is broadly divided into the Gilt-edged Market and the
Industrial Securities Market. The Gilt-edged market refers to the market for
government and semi-government securities, backed by Reserve Bank of India. The
Industrial Securities Market refers to the market for shares and debentures of old and
new companies. Two other segments : DFIs (Development Financial Institutions) and
FIs (Financial Intermediaries) also compose the capital market of India.

Further categorization is pictured here below:

CAPITAL MARKET IN
INDIA
Government Development
Industrial
Securities Financial Financial
Securities
(Gill-edged Institutions Intermediaries
Market
market) (DFIs)

Old Issues Market
New Issue Market
[Stock Exchange]

IFCI ICICI SFCs IDBI IIBI UTI

Merchant Mutual Leasing Venture Capital
Others
Banks Funds Companies Companies

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Capital Markets of India –Stock Exchanges in India
“In terms of the legal structure, the stock exchange which are recognized under the
securities contracts (regulation) Act in India, could be separated into two broad
groups- 20 stock exchanges which are set up as companies, either limited by
guarantees or by shares, and 3 stock exchanges which are functioning as Associations
of persons (AOP) viz. BSE, ASE and Indore stock exchange. The 20 stock exchange
which are available in India are as follows:

Banglore, Bhubhaneshwar, Kolkata, Cochin, Delhi, Hyderabad, Coimbatore, Uttar
Pradesh, Ludhiana, Madras, Magadha, Vadodra, Guwahati, Pune, OTCEI,
Ahmedabad, Bse, Madhya Pradesh. Of these, the stock exchanges of Ahmedabad,
Banglore, Kolkata, Delhi, Hyderabad, Madhya Pradesh, Madras, Guwahati were
given permanent recognition by central government of India at the time of setting up
these stock exchanges. Apart from the NSE, all stock exchanges whether established
as corporate bodies or Association of Persons (AOP’s) are non-profit organizations.”
(report of committee on corporatization and demutualization of stock exchanges.)

Of these 23 stock exchanges in the country, 20 are regional stock exchanges and the
remaining three with All India jurisdiction are NSE, BSE and OTCEI. Separate
modules are covered with regards to the structure and functioning and
systems/procedure followed in NSE and BSE.

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Security and Exchange Board of India (SEBI)
It is a board (autonomous body) created by the government of India in 1988 and given
statutory form in 1992 with SEBI acts 1992. Its head office is in Mumbai, and other
offices in Chennai, Kolkata and Delhi. SEBI is the regulator of securities markets in
India.

In 1998, the Securities and Exchange Board of India (SEBI) was established by the
government of India throught an executive resolution, and subsequently upgraded as a
fully autonomous body (a statutory board) in the year 1992 with the passing of the
Securities and Exchange Board of India act (SEBI Act) on 30 th January 1992. In place
of government control, a statutory and autonomous regulatory board with defined
responsibilities, to cover both development and regulation of market, independent
powers has been set up. Paradoxically this is a positive outcome of the securities scam
of 1990-91.

The basic objectives of the board were defined as:

• To protect the interests of investors in securities;

• To promote the development of securities market;

• To regulate the securities market and;

• For matters connected therewith or incidental thereto.

SEBI has introduced:

• Comprehensive regulatory measures

• Prescribed registration norms

• Eligibility criteria

• The code obligations

• Code of conduct for different intermediaries like, bankers to issue, merchant
bankers, brokers and sub-brokers, registrars, portfolio managers, credit rating

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agencies, underwriters and others

• It had frames bye-laws

• Risk identification and risk management systems for clearing houses of stock
exchanges, surveillance system etc.

All this has made dealing in securities both safe and transparent to the end investor.

Another significant event is the approval of trading in stock indices (like S&P CNX
Nifty & SENSEX) in 2000 a market index is a convenient and effective product
because of the following reasons:

• It acts as a barometer for market behavior

• It is used to benchmark portfolio performance

• It is used in benchmark instruments like index futures and index options

• It can be used for passive fund management as in case of index funds.

Over the Counter Exchange of India (OCTEI)
OTCEI was incorporated in October 1990 as a section 25 company under the
companies Act 1956 and is recognized as a stock exchange under section 4 of the
securities contracts regulation act,1956. The object of the OCTEI is “ To provide an
alternate market for the securities of smaller companies, public-sector companies,
closely-held companies desirous listing etc. It has been promoted jointly by UTI,
ICICI, IDBI,SBI Capital Markets Ltd, IFCI, GIC and Canbank Financial Services
Ltd.

The exchange was set up with a multi-tier securities exchange model to aid
enterprising promoters in raising finance for new project in cost effective manner to
provide investors with a transparent and efficient mode of trading. OTCEI is intended
to provide easy marketability and better liquidity of securities to an investor. Besides,
it also facilitate transfer of shares listed here.

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Modeled along the lines of NASDAQ market, OTCEI introduces many novel
concepts to the Indian Capital Market such as screen based nation wide trading,
sponsorship of companies, markets making and scrip less trading. As a measure of
success of these efforts , the exchange today has 115 listings and has assisted in
providing capital for enterprises that has gone to build successful brand for
themselves like VIP, Sonara tiles & Brilliant mineral water etc.

Bombay Stock Exchange (BSE)
The BSE is the oldest stock exchange in Asia with rich heritage. Popularly known as
BSE, it was established as “The native share and stock brokers’ association” in1875.
It is the first stock exchange in country to obtain permanent recognition in 1956 from
the government of India under the securities contracts (regulation) act, 1956. the
exchanges pivotal and pre-eminent role in the development of Indian capital market is
widely recognized and its index, SENSEX, is tracked worldwide. Earlier an
association of persons (AOP), the exchange is now a demutualized and corporatized
entity incorporated under the provisions of the companies act, 1956, pursuant to BSE
(corporatization and demutualization) scheme, 2005notified by Securities and
Exchange Board of India, SEBI. Bombay stock exchange limited received its
Certificate of Incorporation on 8th August, 2005 and Certificate of Commencement on
12th August, 2005. The “DUE DATE” for taking over the business and operations of
the BSE was fixed for 19th August, 2005, under the scheme. The exchange has
succeeded the business and operations of BSE ongoing concern basis and its
recognition as an exchange has been continued by SEBI.

The exchange has a nation-wide reach with the presence of 417 cities and town of
India. The systems and processes of the exchange are designed to safeguard the
market integrity and enhance transparency in operations. During the year 2004-2005,
the trading volumes on the exchange showed robust growth.

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Regional Stock Exchanges
With the automation of all stock exchanges and the expansion of trading terminals of
BSE and NSE across the country, investors have an easy access to the securities
market. The nationwide reach of two stock exchange has affected the market structure
in two ways:

First, the business of other stock exchanges has declines significantly, as investors
have preferred to trade in BSE and NSE as they provide deeper marketsa.

Secondly, with the declining of trading volumes in other stock exchanges, the issuers
feel that hardly any purpose is served by remaining listed in the regional stock
exchange, which was introduced in the days of manual trading and open octroi system
to encourage mobilization of resources and development of equity cult across the
country, has thus lost its relevance in the days of automated trading. It is therefore
widely felt that the concept of regional stock exchange needs to be abolished, similar
recommendations have been made the committee on delisting of shares and the
committee on demutualization of stock exchanges set up by SEBI.

Interconnected Stock Exchange of India (ICSE)
Inter-connected stock exchanges of India limited (ICSE) has been promoted by 14
regional stock exchanges to provide cost-effective trading linkage/connectivity to all
members of the participating exchanges, with the objective of widening the market for
the securities listed on these exchanges, inter-connectivity of stock exchanges is a
mechanism to enable a trader or dealer (trading member directly enrolled by ICSE) to
deal with another trader or dealer through his own local trader work station located in
his office. ICSE is a national-level stock exchange and provides trading, clearing,
settlement, risk management and surveillance support to its traders and dealers. ICSE
aims to address the needs of small companies and retail investors with the guiding
principle of optimizing the existing infrastructure and harnessing the potential of
regional markets, so as to transform these into a liquid and vibrant market through the
use of state-of-the-art technology and networking.

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The mission of ICSE is to Endeavor to consolidate the small, fragmented and less
liquid markets into a national-level, liquid market by using the state-of-the-art
infrastructure and support systems. Their objective is to create a single trading
national level solution with access to multiple markets for providing high cost-
effective service to millions of investors across the country. To create a liquid and
vibrant national market for all listed companies in general and small capital
companies in particular. Optimally utilize the existing infrastructure and other
resources of participating stock exchanges, which are under-utilized now. Provide a
level playing field to small traders and dealers by offering an opportunity to
participate in a national market having investment-oriented business. Reduce
transaction cost; provide clearing and settlement facilities to the traders and dealers
across the country at their doorstep in a decentralized mode. Spreads demat trading
across the country.

The participating exchanges of ICSE have in all about 45oo stockbrokers, out of
which more than 200 have been currently registered as traders on ICSE. In order to
leverage its infrastructure and to expand it nationwide reach, ICSE has also appointed
around 450 dealers across 70 cities other than the participating exchange centers.
These dealers are administratively supported through the regional officers of ISE at
Delhi(North), Kolkata(East), Coimbatore (South) and Nagpur (Central), besides
Mumbai(West).

The ICSE has also floated a wholly-owned subsidery, ISE securities & Services
Limited (ISS), which has taken up corporate membership of the national stock
exchange of India lt. (NSE) in both capital market and futures & options segments
and stock exchange, Mumbai in the equities segment, so that traders and dealers of
ICSE can access other markets in addition to the ICSE market and their local market.
ICSE thus provides the investors in smaller cities a one-step solution for cost-effective
trading and settlement in securities.

# Thus, the above was the review of other capital markets in INDIA.

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_______________________________________________National Stock Exchange of India

NatIONal StOCK EXCHaNGE OF INDIa

The National Stock Exchange of India Limited (NSE) is a Mumbai-based stock
exchange. It is largest stock exchange in India in terms of daily turnover and number
of trades, both for equities and derivatives trading. NSE has a market capitalization of
around Rs. 47.01.923 crore(7 August 2009) and is expected to become the biggest
stock exchange in India in terms of market capitalization by 2009 end. Though a
number of other exchanges exist, NSE and the Bombay Stock Exchange are the two
most significant stock exchanges in India and between them are responsible for the
vast majority of share transactions. The NSE’s key index is the S&P CNX Nifty,
known as the Nifty, an index of fifty major stocks weighted by market capitalization.

NSE us mutually-owned by a set of leading financial institutions, banks, insurance
companies and other financial intermediaries in India but its ownership and
management operate as separate entities. There are at least 2 foreign investors NYSE
Euronext and Goldman Sachs who have taken a stake in the NSE. As of 2006, the
NSE VSAT terminals, 2799 in total, cover more than 1500 cities across India.

In October 2007, the equity market capitalization of the companies listed on the NSE
was US$ 1.46 trillion, making it the second largest stock exchange in South Asia.
NSE is the third largest stock exchange in terms of the number of trades in equities. It
is the second fastest growing stock exchange in the world with a recorded growth of
16.6%.

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Origins
The National Stock Exchange of India was promoted by leading financial institutions
at the behest of the Government of India, and was incorporated in November 1992 as
a tax=paying company. In April 1993, it was recognized as a stock exchange under
the Securities Contracts (Regulation) Act, 1956. NSE commenced operations in the
Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities)
segment of the NSE commenced operations in November 1994, while operations in
the Derivatives segment commenced in June 2000.

Innovations
NSE has remained in the forefront of modernization of India’s capital and financial
markets, and its pioneering efforts include:
• Being the first national, anonymous, electronic limit order book (LOB)
exchange to trade securities in India. Since the success of the NSE, existent
market and new market structures have followed the NSE model.
• Setting up the first clearing Corporation “National Securities Clearing
Corporation Ltd.” in India. NSCCL was a landmark in providing innovation
on all spot equity market (and later, derivative market) trades in India.
• Co-promoting and setting up of National Securities Depository Limited, first
depository in India.
• Setting up of S&P CNX Nifty.
• NSE pioneered commencement of Internet Trading in February 2000, which
led to the wide popularization of the NSE in the broker community.
• Being th first exchange that, in 1996, proposed exchange traded derivatives,
particularly on an equity index, in India. After four years of policy and
regulatory debate and formulation, the NSE was permitted to start trading
equity derivatives.
• Being the first and the only exchange to trade GOLD ETFs (exchange traded
funds) in India.
• NSE has also launched the NSE-CNBC-TV18 media centre in association
with CNBC-TV18.

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It is the one of the most important stock exchanges in the world.

Markets
Currently, NSE has the following major segments of the capital market:

• Equity

• Futures and Options

• Retail Debt Market

• Wholesale Debt Market

1. Equities: NSE started trading in the equities segment (capital market segment)
on November 3, 1994 and within a short span of 1 year became the largest
exchange in India in terms of volumes transacted. Trading volumes in the
equity segment have grown rapidly with average daily turnover increasing
from Rs. 17 crores during 1994-95 to Rs. ,253 crores during 2005-2005.
During the year 2008-2009, NSE reported a turnover of Rs. 1,569,556 crores
in the equities segment.During the year 2009-10, NSE reported a turnover of
Rs.3,812,032 crores in the equities segment.The equity segment provides you
with an insight into the equities segment of NSE and also provides real-time
quotes and statistics of the equities market.

2. Futures and Options: The derivatives trading on NSE commenced on June
12, 2000 with futures trading on S&P CNX Nifty index. Subsequently, the
product base has been increased to include trading in futures and options on
S&P CNX Nifty index, CNX IT index, Bank Nifty index and single securities
(188 stocks as stipulated bySEBI) and futures on interest rate. This segment
has been considerable growth since inception.In the global market, NSE ranks
first(1st) in the world in terms of number of contracts traded in the single stock
futures, second (2nd) in Asia in terms of number of contracts in the single stock
futures, second (2nd) in Asia in terms of number of contracts traded in equity
derivatives instrument.

3. Retail Debt Market: With the view to encourage wider participation of all
classes of investors across the country (including retail investors) in

...25...

government securites, the government, RBI and SEBI have introduced trading
in government securities for retail investors. Trading in this retail debt market
segment (RDM) on NSE has been introduced w.e.f. January 16, 2003. Trading
shall take place in the existing capital market segment of the exchange.

4. Wholesale Debt Market: The wholesale market segment deals in fixed
income securities and is fast gaining ground in an environment that has largely
focused on equities. The wholesale debt market (WDM) segment of the
exchange commenced operations on June 30, 1994. This provided the first
formal screen-based trading facilities for a variety of debt instruments
including government securities, treasury bills and bonds issued by public
sector undertakings/corporate/banks like floating rate bonds state government
loans units of mutual funds and securitized debt by banks, financial institution,
corporate bodies, trusts and others.

NSE became the first stock exchange to get approval for interest rate futures as
recommended by SEBI-RBI committee, on 31st August 2009. a future contract based
on 7% 10 year GOI bond (NOTIONAL) was launched with quarterly maturities.

...26...


The Organisation
The National Stock Exchange of India Limited has genesis in the report of the High
Powered Study Group on Establishment of New Stock Exchanges. It recommended
promotion of a National Stock Exchange by financial institutions (FIs) to provide
access to investors from all across the country on an equal footing. Based on the
recommendations, NSE was promoted by leading Financial Institutions at the behest
of the Government of India and was incorporated in November 1992 as a tax-paying
company unlike other stock exchanges in the country.

The National Stock Exchange (NSE) operates a nation-wide, electronic market,
offering trading in Capital Market, Derivatives Market and Currency Derivatives
segments including equities, equities based derivatives, Currency futures and options,
equity based ETFs, Gold ETF and Retail Government Securities. Today NSE network
stretches to more than 1,500 locations in the country and supports more than 2, 30,000
terminals.

With more than 10 asset classes in offering, NSE has taken many initiatives to
strengthen the securities industry and provides several new products like Mini Nifty,
Long Dated Options and Mutual Fund Service System. Responding to market needs,
NSE has introduced services like DMA, FIX capabilities, co-location facility and
mobile trading to cater to the evolving need of the market and various categories of
market participants.

NSE has made its global presence felt with cross-listing arrangements, including
license agreements covering benchmark indexes for U.S. and Indian equities with
CME Group and has also signed a Memorandum of Understanding (MOU) with
Singapore Exchange (SGX) to cooperate in the development of a market for India-
linked products and services to be listed on SGX. The two exchanges also will look
into a bilateral securities trading link to enable investors in one country to seamlessly
trade on the other country’s exchange.

NSE is committed to operate a market ecosystem which is transparent and at the same
time offers high levels of safety, integrity and corporate governance, providing ever
growing trading & investment opportunities for investors.

...27...

Indices
NSE has also set up an index services firm known as India index services and
products limited (IISL) and has launched several stock indices including the
following:

An Index is used to give information about the price movements of products in the
financial, commodities or any other markets. Financial indexes are constructed to
measure price movements of stocks, bonds, T-bills and other forms of investments.
Stock market indexes are meant to capture the overall behaviour of equity markets. A
stock market index is created by selecting a group of stocks that are representative of
the whole market or a specified sector or segment of the market. An Index is
calculated with reference to a base period and a base index value.

Stock market indexes are useful for a variety of reasons. Some of them are:

• They provide a historical comparison of returns on money invested in the
stock market against other forms of investments such as gold or debt.

• They can be used as a standard against which to compare the performance of
an equity fund.

• It is a lead indicator of the performance of the overall economy or a sector of
the economy

• Stock indexes reflect highly up to date information

• Modern financial applications such as Index Funds, Index Futures, Index

Options play an important role in financial investments and risk management

Major Indices of NSE

...28...

• S&P CNX NIFTY
• CNX NIFTY JUNIOR
• CNX 100(=S&P CNX NIFTY +CNX NIFTY JUNIOR)
• CNX IT
• BANK NIFTY
• S&P CNX DEFTY
• CNX MIDCAP
• NIFTY MIDCAP 50

CNX midcap introduced on 18 July 2005 replacing CNX midcap 200.

S&P CNX NIFTY
S&P CNX Nifty is a well diversified 50 stock index accounting for 23 sectors of the
economy. It is used for a variety of purposes such as benchmarking fund portfolios,
index based derivatives and index funds.

S&P CNX Nifty is owned and managed by India Index Services and Products

Ltd. (IISL), which is a joint venture between NSE and CRISIL. IISL is India's first
specialized company focused upon the index as a core product. IISL has Marketing
and licensing agreement with Standard & Poor's (S&P), who are world leaders in
index services.

• The total traded value for the last six months of all Nifty stocks is
approximately 48% of the traded value of all stocks on the NSE

• Nifty stocks represent about 56% of the Free Float Market Capitalization as on
Sep 30, 2010.

• Impact cost of the S&P CNX Nifty for a portfolio size of Rs.50 lakhs is
0.06%.

• S&P CNX Nifty is professionally maintained and is ideal for derivatives
trading

CNX NIFTY JUNIOR

...29...

The next rung of liquid securities after S&P CNX Nifty is the CNX Nifty Junior. It
may be useful to think of the S&P CNX Nifty and the CNX Nifty Junior as making up
the 100 most liquid stocks in India.

As with the S&P CNX Nifty, stocks in the CNX Nifty Junior are filtered for liquidity,
so they are the most liquid of the stocks excluded from the S&P CNX Nifty. The
maintenance of the S&P CNX Nifty and the CNX Nifty Junior are synchronized so
that the two indices will always be disjoint sets; i.e. a stock will never appear in both
indices at the same time. Hence it is always meaningful to pool the S&P CNX Nifty
and the CNX Nifty Junior into a composite 100 stock index or portfolio.

• CNX Nifty Junior represents about 11 % of the Free Float Market
Capitalization as on Sep 30, 2010.

• The traded value for the last six months of all Junior Nifty stocks is
approximately 14% of the traded value of all stocks on the NSE

• Impact cost for CNX Nifty Junior for a portfolio size of Rs.25 lakhs is 0.09%.

CNX 100
CNX 100 is a diversified 100 stock index accounting for 35 sector of the economy.

CNX 100 is owned and managed by India Index Services & Products Ltd. (IISL).
Which is a joint venture between CRISIL & NSE. IISL is India’s first specialized
company focused upon the index as a core products. IISL has a licensing & marketing
agreement with Standard & Poor’s (S&P), who are leader’s in index services.

• CNX 100 represents about 67% of the Free Float market capitalization as on
Sep 30, 2010.

• The average traded value for the last six months of all CNX100 stocks is
approximately 61 % of the traded value of all stocks on the NSE.

S&P CNX 500
The S&P CNX 500 is India’s first broad based benchmark of the Indian capital

...30...

market. The S&P CNX 500 represents about 90% of the Free Float Market
Capitalization and about 87% of the total turnover on the NSE as on Sept 30, 2010.

The S&P CNX 500 companies are disaggregated into 72 industry indices viz. S&P
CNX Industry Indices. Industry weightages in the index reflect the industry
weightages in the market. For e.g. if the banking sector has a 5% weightage in the
universe of stocks traded on NSE, banking stocks in the index would also have an
approx. representation of 5% in the index.

S&P CNX DEFTY
Almost every institutional investor and off-shore fund enterprise with an equity
exposure in India would like to have an instrument for measuring returns on their
equity investment in dollar terms. To facilitate this, a new index the S&P CNX Defty-
Dollar Denominated S&P CNX Nifty has been developed. S&P CNX Defty is S&P
CNX Nifty, measured in dollars.

Salient Features
• Performance indicator to foreign institutional investors, off-shore funds, etc.

• Provides an effective tool for hedging Indian equity exposure.

• Impact cost of the S&P CNX Nifty for a portfolio size of Rs.50 Lakhs is
0.06%

• Provides fund managers an instrument for measuring returns on their equity
investment in dollar terms.

...31...


Calculation of S&P CNX Defty
Computations are done using the S&P CNX Nifty index calculated on the NEAT
trading system of NSE and INR-USD exchange rate that is based on the real time
polled data feed.

S & P CNX Nifty at time t * Exchange rate as on base date
S & P CNX Defty =
Exchange rate at time t

Calculation of closing value of S&P CNX Defty
Closing value of S&P CNX Defty is computed by considering average of INR-USD
polled data values (exchange rate) of last 30 minutes of the market.

Closing value of S & P CNX Defty

Closing value of S & P CNX Nifty * Exchange rate as on base date
=
Average of exchange rate of last 30 minutes of the market

Specifications of S&P CNX Defty
Base date: 03 November 1995

Base S&P CNX Defty Index Value: 1000

S&P CNX Nifty Value as on Base date: 1000

Exchange rate as on base date: 34.65

Adjustment factor as on Base date:1.00

CNX MIDCAP
The medium capitalised segment of the stock market is being increasingly perceived
as an attractive investment segment with high growth potential. The primary objective
of the CNX Midcap Index is to capture the movement and be a benchmark of the
midcap segment of the market.

Method of Computation

...32...

CNX Midcap is computed using free float market capitalization* weighted method
w.e.f. February 26, 2010, wherein the level of the index reflects the free float market
value of all the stocks in the index relative to a particular base period. The method
also takes into account constituent changes in the index and importantly corporate
actions such as stock splits, rights, etc without affecting the index value.

Base Date and Value
The CNX Midcap Index has a base date of Jan 1, 2003 and a base value of 1000

Criteria for Selection of Constituent Stocks

The constituents and the criteria for the selection judge the effectiveness of the index.
Selection of the index set is based on the following criteria :

• All the stocks, which constitute more than 5% market capitalization of the
universe (after sorting the securities in descending order of market
capitalization), shall be excluded in order to reduce the skewness in the
weightages of the stocks in the universe.

• After step (a), the weightages of the remaining stocks in the universe is
determined again.

• After step (b), the cumulative weightage is calculated.

• After step (c) companies which form part of the cumulative percentage in
ascending order unto first 75 percent (i.e. upto to 74.99 percent) of the revised
universe shall be ignored.

• After, step (d), all the constituents of S&P CNX Nifty shall be ignored.

• From the universe of companies remaining after step (e) i.e. 75th percent and
above, first 100 companies in terms of highest market capitalization, shall
constitute the CNX Midcap Index subject to fulfillment of the criteria
mentioned below.

 Trading Interest

...33...

All constituents of the CNX Midcap Index must have a minimum listing
record of 6 months. In addition, all candidates for the Index are also evaluated
for trading interest, in terms of volumes and trading frequency.

 Financial Performance
All companies in the CNX Midcap Index have a minimum track record of
three years of operations with a positive net worth.

 Others
A company which comes out with a IPO will be eligible for inclusion in the
index, if it fulfills the normal eligibility criteria for the index for a 3 month
period instead of a 6 month period.

*CNX Midcap Index was computed using market capitalization weighted
method from the launch date till February 25, 2010.

NIFTY MIDCAP 50
The medium capitalized segment of the stock market is being increasingly perceived
as an attractive investment segment with high growth potential. The primary objective
of the Nifty Midcap 50 Index is to capture the movement of the midcap segment of
the market. It can also be used for index-based derivatives trading.

Method of computation
Nifty Midcap 50 is computed using free float market capitalisation weighted method,
wherein the level of the index reflects the total market value of all the stocks in the
index relative to a particular base period. The method also takes into account
constituent changes in the index and importantly corporate actions such as stock
splits, rights, etc without affecting the index value.

Base Date and Value
The Nifty Midcap 50 Index has a base date of Jan 1, 2004 and a base value of 1000.

Criteria for Selection of Constituent Stocks
The constituents and the criteria for the selection judge the effectiveness of the index.

...34...

Selection of the index set is, inter alia, based on the following criteria:

• Stocks with average market capitalization ranging from Rs.1000 Crore to
Rs.5000 Crore at the time of selection.

• Stocks which are not part of the derivatives segment are excluded.

• Stocks which are forming part of the S&P CNX NIFTY index are excluded.

Other statistics
• Nifty Midcap 50 stocks represent about 6 % of the free float market
capitalization as on September 30, 2010.

• The traded volume for the last six months of all Nifty Midcap 50 stocks is
approximately 10% of the traded volume of all stocks on the NSE.

# Nifty Midcap 50 Index was computed using market capitalization weighted method
from the launch date till February 25, 2010

...35...


Other Indices
• CNX IT Index

• CNX Bank Index

• CNX FMCG Index

• CNX PSE Index

• CNX MNC Index

• CNX Service Sector Index

• S&P CNX Industry Indices

• Customised Indices

• CNX Energy Index

• CNX Pharma Index

• CNX Infrastructure Index

• CNX PSU BANK Index

• CNX Realty Index

• S&P CNX Nifty Shariah / S&P CNX 500 Shariah

• S&P ESG India Index

...36...


Listing
Listing means admission of securities of an issuer to trading privileges on a stock
exchange through a formal agreement. The prime objective of admission to dealings
on the exchange is to provide liquidity and marketability to securities, as also to
provide a mechanism for effective management of trading.

Listing on NSE provides qualifying companies with the broadest access to investors,
to greatest market depth and liquidity, cost-effective access to capital, the highest
visibility, the fairest pricing and investor benefits. NSE trading terminals are now
situated in various cities and towns across the length and breadth of India.

Securities listed on the exchanges are required to fulfill the eligibility criteria for
listing. Various types of securities of a company are traded under a unique symbol
and different series.

NSE plays an important role in helping an Indian economy’s access equity capital, by
providing a liquid and well-regulated market. NSE had about 1319 companies listed
presenting the length, breadth and diversity of the Indian economy which includes
from hi-tech to heavy industry, software, refinery, public sector units, infrastructure,
and financial services. Listing on NSE raises a company’s profile among investors in
India and abroad. Trade data is distributed worldwide through various news-vending
agencies. More importantly, each and every NSE listed company is required to satisfy
stringent financial, public distribution and management requirements. High listing
standards foster investor confidence and also bring credibility into the markets.

NSE lists securities in its capital market (equities) segment and its wholesale debt
market segment.

...37...


Listing Criteria
The exchange has laid down criteria for listing of new issues by companies. IPO’s by
knowledge based issuers, companies listed on other exchanges, and companies
formed by amalgamation/ restructuring, etc. in conformity with the securities
contracts(regulation) rules, 1957 and directions of the central government and the
securities and exchange board of India (SEBI).

Following are the certain listing criteria in NSE:

• The company should have the minimum paid-up capital and market
capitalization.

• Project appraisal by the concerned authority.

• Company/Promoter’s track record, etc.

• The issuers of securities are requires to adhere to provisions of the securities
contracts (regulation) Act, 1956, the securities and exchange board of India
Act, 1992.

• They are also required to follow rules, circulars, notifications, guideline, etc.
prescribed there under.

Listing Procedure and Documentation
An issuer has to take various steps prior to making an application for listing its
securities on the NSE. These steps are essential to ensure the compliance of certain
requirements by the issuer before listing its securities on the NSE. The various steps
to be taken include:

• Initial discussions

• Approval of Memorandum and Articles of Association

• Approval of draft prospectus

• Submission of application

• Fulfilling listing conditions and requirements

...38...

In case the company fulfills the criteria, the following information and
documentations are required for further processing:

1. A brief note on the promoters and management

2. Company profile

3. Copies of annual report for last 3 years

4. Copies of the draft offer document

5. Memorandum & Articles of Association

The main entry norms for companies making a public issue (IPO or FPO) are
summarized as under following norms:

Entry Form I (EN I)
The company shall meet the following requirements:
• Net tangible assets of atleast Rs.3 crores for full 3 years.

• Distributable profits in atleast three years.

• Net worth of atleast Rs. 1 Crore in three years.

• If change in name, atleast 50% revenue for proceeding 1 year should be from
the new activity.

• The issue size does not exceed 5 times the pre-issue worth

• To provide sufficient flexibility and also to ensure that genuine companies do
not suffer on account of rigidity of the parameters.

SEBI has provided two other alternative routes to company not satisfying any of the
above conditions, for accessing the primary market, as under:

Entry Norm II (EN II)
• Issue shall be through book building issue route, with atleast 50% to be
mandatory allotted to the qualified institutional buyers (QIBs).

• The minimum post-issue face value capital shall beRs. 10 crore or there shall
be a compulsory market-making for atleast 2 years.

...39...

Entry Norm III(EN III):
• The “project” is appraised and participated to the extent of 15% by FII’s/
scheduled commercial banks of which atleast 10% comes from the
appraiser(s).

• The minimum post-issue face value capital shall be Rs. 10 crore or there shall
be a compulsory market-making for atleast 2 years.

• In addition to satisfying the aforesaid eligibility norms, the company shall also
satisfy the criteria of having atleast 1000 prospective allotees in its issue.

Benefits of Listing on NSE
The benefits of listing on NSE are enumerated as below:

• NSE provides a trading platform that extends across the length and breadth of
the country listing on NSE thus, enables to reach and service investors across
the country.

• NSE being the largest stock exchange in terms of trading volumes, the
securities trade at low impact cost and are highly liquid. This in turn reduces
the cost of cost of trading to the investor.

• The trading system of the NSE provides un-parallel level of trade and post-
trade information. The best 5 buy and sell orders are displayed on the trading
system and the total number of securities available for buying and selling is
also displayed/this helps the investors to know the depth of the market.
Further, corporate announcements, results, corporate actions etc. Are also on
the trading system. Thus, reducing the scope for price manipulation or misuse.

• The facility of making initial public offers (IPO’s), using NSE’s network and
software, results in significant reduction in cost and time of issues.

• NSE’s website www.nseindia.com provides a link to the web-sites of the
companies that are listed on the NSE, so that visitors interested in any
company can visit that company’s web-site from the NSE site.Listed
companies are provided with monthly trade statistics for the securities of the
company listed on the exchange.

...40...

___________________________________________________________Findings & Analysis

FINDINGS & ANALYSIS

NSE MILESTONES
NSE Milestones
November 1992 Incorporation
April 1993 Recognition as a stock exchange
May 1993 Formulation of business plan
June 1994 Wholesale Debt Market segment goes live
November 1994 Capital Market (Equities) segment goes live
March 1995 Establishment of Investor Grievance Cell
April 1995 Establishment of NSCCL, the first Clearing Corporation
June 1995 Introduction of centralised insurance cover for all trading
members
July 1995 Establishment of Investor Protection Fund
October 1995 Became largest stock exchange in the country
April 1996 Commencement of clearing and settlement by NSCCL
April 1996 Launch of S&P CNX Nifty
June 1996 Establishment of Settlement Guarantee Fund
November 1996 Setting up of National Securities Depository Limited, first
depository in India, co-promoted by NSE
November 1996 Best IT Usage award by Computer Society of India
December 1996 Commencement of trading/settlement in dematerialised securities
December 1996 Dataquest award for Top IT User
December 1996 Launch of CNX Nifty Junior
February 1997 Regional clearing facility goes live
November 1997 Best IT Usage award by Computer Society of India
May 1998 Promotion of joint venture, India Index Services & Products
Limited (IISL)
May 1998 Launch of NSE's Web-site: www.nse.co.in
July 1998 Launch of NSE's Certification Programme in Financial Market
August 1998 CYBER CORPORATE OF THE YEAR 1998 award
February 1999 Launch of Automated Lending and Borrowing Mechanism
April 1999 CHIP Web Award by CHIP magazine
October 1999 Setting up of NSE.IT
January 2000 Launch of NSE Research Initiative
February 2000 Commencement of Internet Trading
June 2000 Commencement of Derivatives Trading (Index Futures)
September 2000 Launch of 'Zero Coupon Yield Curve'

...41...

November 2000 Launch of Broker Plaza by Dotex International, a joint venture
between NSE.IT Ltd. and i-flex Solutions Ltd.
December 2000 Commencement of WAP trading
June 2001 Commencement of trading in Index Options
July 2001 Commencement of trading in Options on Individual Securities
November 2001 Commencement of trading in Futures on Individual Securities
December 2001 Launch of NSE VaR for Government Securities
January 2002 Launch of Exchange Traded Funds (ETFs)
May 2002 NSE wins the Wharton-Infosys Business Transformation Award
in the Organization-wide Transformation category
October 2002 Launch of NSE Government Securities Index
January 2003 Commencement of trading in Retail Debt Market
June 2003 Launch of Interest Rate Futures
August 2003 Launch of Futures & options in CNXIT Index
June 2004 Launch of STP Interoperability
August 2004 Launch of NSE’s electronic interface for listed companies
March 2005 ‘India Innovation Award’ by EMPI Business School, New Delhi
June 2005 Launch of Futures & options in BANK Nifty Index
December 2006 'Derivative Exchange of the Year', by Asia Risk magazine
January 2007 Launch of NSE – CNBC TV 18 media centre
March 2007 NSE, CRISIL announce launch of IndiaBondWatch.com
June 2007 NSE launches derivatives on Nifty Junior & CNX 100
October 2007 NSE launches derivatives on Nifty Midcap 50
January 2008 Introduction of Mini Nifty derivative contracts on 1st January
2008
March 2008 Introduction of long term option contracts on S&P CNX Nifty
Index
April 2008 Launch of India VIX
April 2008 Launch of Securities Lending & Borrowing Scheme
August 2008 Launch of Currency Derivatives
August 2009 Launch of Interest Rate Futures
November 2009 Launch of Mutual Fund Service System
December 2009 Commencement of settlement of corporate bonds
February 2010 Launch of Currency Futures on additional currency pairs
March 2010 NSE- CME Group & NSE - SGX product cross listing agreement
April 2010 Financial Derivative Exchange of the Year Award' by Asian
Banker
July 19, 2010 Commencement of trading of S&P CNX Nifty Futures on CME
July 19, 2010 Real Time dissemination of India VIX.
July 28, 2010 LOI signed with London Stock Exchange Group
October 12, 2010 Introduction of Call auction in Pre-open session
October 28, 2010 Introduction of European Style Stock Options
October 29, 2010 Introduction of Currency Options on USD INR

...42...


Market Trend and Analysis
Business Growth in Capital Market Segment

Month/ No. of No. of No. of No. of Turnover Average Market
Year Co. trading Securities trades (crores) Daily Capitalisation
Listed days traded (lakhs Turnover (crores)
) (crores)

2009-10 1,470 244 1,968 16,816 4,138,024 16,959 6,009,173

2008-09 1,432 243 1,327 13,651 2,752,023 11,325 2,896,194

2007-08 1,381 251 1,264 11,727 3,551,038 14,148 4,858,122

2006-07 1,228 249 1,191 7,846 1,945,285 7,812 3,367,350

Analysis
• Companies Listed: As compared to previous years, there is significant
growth in number of companies listed in the capital market segment of NSE.

• No. of Securities Traded: With the increase, in companies listed, despite
other factors influencing the market transactions, number of securities traded
in also have increased with the time.

• No. of Trades: From the financial year 2006-2007 to that of 2009-2010
number of trades have increased the double in amount signaling a positive
growth.

• Total Turnover: Total turnover have increased four times from FY 2006-07
to FY 2009-10.

• Market Capitalization: The amount of market capitalization has doubled in
FY 2009-10 as compared to that of FY 2006-2007.

...43...


Business Growth in Derivatives Segment

Month/Yea Index Stock Index Stock Total Average
r Futures Futures Options Options Turnover Daily
Turnover Turnover Turnover Turnover (crores) Turnover
(crores) (crores) (crores) (crores) (crores)

2010-2011 3554400.0 4731045.5 14272415.1 883165.6 23441026.3 110570.8
3 0 4 8 2 8

2009-2010 3934388.6 5195246.6 8027964.20 506065.1 17663664.5 72392.07
7 4 8 7

2008-2009 3570111.4 3479642.1 3731501.84 229226.8 11010482.2 45310.63
0 2 1 0

2007-2008 3820667.2 7548563.2 1362110.88 359136.5 13090477.7 52153.30
7 3 5 5

2006-2007 2539574 3830967 791906 193795 7356242 29543

Analysis
• Index Future Turnover: The amount in crores on the Index Future Options
of Derivative segment of NSE has shown significant growth of 1.39 times
from FY 2006-07 to that of FY 2010-11.

• Stock Futures Turnover: Whereas, the Stock Future Turnover has shown
growth of 1.23 times from FY 2006-07 to that of FY 2010-11.

• Index Options Turnover: The Index Options Turnover has shown 17.89
times growth from FY 2006-07 to FY 2010-11.

• Stock Options Turnover: Whereas, Stock Options Turnover ahs shown
growth of 4.56 times from FY 2006-07 to FY 2010-11.

• Total Turnover: The growth rate when evaluated from FY 2006-07 to FY
2010-11 shows a positive growth of 3.18 times.

• Average Daily Turnover: The Average Daily Turnover on Derivative
Segment of NSE has shown growth of 3.75 times from FY 2006-07 to 2010-
11.

...44...


Business Growth in Retail Debt Segment

Month/Year No. of Trades Traded Quantity Traded Value
(Lakhs)

2010-2011 2 20 0.02

2009-2010 5 50 0.06

2008-2009 0 0 0.00

2007-2008 0 0 0.00

2006-2007 4 12,120 13.69

Analysis
• No. of Trades: Retail Debt Segment of NSE has seen many ups and down in
its history. By analyzing the available record, we can clearly see that FY 2006-
07 has been proven best trading year. However, apart from this data, FY 2003-
04 involved greatest number of trades i.e. 912. Whereas, in FY 2007-08 and
FY 2008-09 there is not even a single trade shown. In FY 2009-10 it has again
recovered its position and maintained to perform 5 no. of trades.

• Traded Quantity: Again, FY 2006-2007 involves higher amount of traded
quantity. While FY 2010-11 again show some declination in trade number and
quantity as well.

• Traded Value: In FY 2003-04 the Traded Value was 464.41 lakhs which was
highest amount till date. In FY 2005-06, FY 2007-08 and FY 2008-08 Retail
Debt Segment has seen no trade and hence zero traded value. However, In FY
2006-07, it has recovered its position by 13.69 lakhs. In FY 2009-2010, it
again seem to recover back from zero to 0.06 lakhs but showed declination in
FY 2010-2011 by showing only two trades and 0.02 lakhs traded value.

...45...


Business Growth in Wholesale Debt Segment

Month/Year Market Trading No. of Net Traded Average Average
Capitalisation days Trades Value Daily Trade
(crores) (crores) Value Size
(crores) (crores)

2010-2011 3543592 207 17625 480186.55 2319.74 27.24

2009-2010 3165929 239 24069 563815.95 2359.06 23.42

2008-2009 2848315 238 16129 335951.52 1411.56 20.83

2007-2008 2123346 248 16179 282317.02 1138.38 17.45

2006-2007 1784801 244 19575 219106.47 897.98 11.19

Analysis
• No. of Trades: Wholesale Debt segment has seen declination in number of
trades from FY 2006-07 to that of FY 2010-2011. However, it had regained its
amount in FY 2009-2010 by 4,494 new entries as compared to 3,446
declination in FY 2008-09.

• Net Traded Value: In FY 2009-2010, Whole Debt Segment of NSE has
shown highest Net Traded value with significant increase in number of trades.

• Average Daily Value: Despite declination in number of trades from FY 2006-
07 to FY 2008-09, the Average Daily Value has increased on opposite for
positive factor. And is highest in FY 2009-2010.

• Average Trade Size: Average Trade Size has increased with consistent rate
from FY 2006-07 to that of FY 2010-11.

• Market Capitalization: Despite less number of trades and lesser Net Traded
value from FY 2009-10, the FY 2010-11 has shown highest Market
capitalization over the period.

...46...


PROMOTERS
NSE has been promoted by leading financial instituitions, baks, insurance companies
and other financial intermediaries as follows:

• Industrial Development Bank of India Limited

• Industrial Finance Corporation of India Limited

• Life Insurance Corporation of India

• State Bank of India

• ICICI Bank Limited

• IL & FS Trust Company Limited

• Stock Holding Corporation of India Limited

• SBI Capital Markets Limited

• Bank of Baroda

• Canara Bank

• General Insurance Corporation of India

• National Insurance Company Limited

• The New India Assurance Company Limited

• The Oriental Insurance Company Limited

• United India Insurance Company Limited

• Punjab National Bank

• Oriental Bank of Commerce

• Indian Bank

• Union Bank of India

• Infrastructure Development Finance Company Limited

...47...

__________________________________________________________________Conclusion

CONCLUSION

The National Stock Exchange (NSE) is India’s leading stock exchange covering
various cities and towns across the country. NSE provides a modern, fully automated
screen-based trading system with national reach. The exchange has bought about un-
parallel transparency, speed and efficiency, safety and market integrity. NSE’s trading
volumes in the equity segment have grown rapidly with the average daily turnover
increasing from Rs. 17 crores during 1994-1995 to Rs. 6,523 crores during 2005-06.
During the year 2005-06, NSE reported a turnover of Rs. 1,569,556 crores in the
equities segment.

NSE has played a catalytic role in reforming the Indian securities market in terms of
microstructure, market practices and trading volumes. The market today uses state-of-
the-art information technology to provide an efficient and transparent trading, clearing
and settlement mechanism, and had witnessed several innovations in products and
services via demutualization of stock exchange governance; screen based trading,
compression of settlement cycles, dematerialization and electronic transfer of
securities, lending and borrowing securities, professionalizing of trading members
fine-tuned risk management systems, emergence of clearing corporations to assume
counterparty risks, market debt and derivative instruments and intensive use of
information technology.

In Conclusion, NSE successfully utilized technology as a tool for obtaining complete
transformation of India’s security industry. As of today, around a decade after
inception, every aspect of the equity spot and derivatives market India is now up to
‘International Standards’ or ahead of them.

...48...

__________________________________________________________________Conclusion
NSE has completed 16 years of its operations on 30 June 2010. The exchange is
credited with technology innovation, speeding up of the process for dematerialization,
introduction of effective risk containment measures and the introduction of
derivatives trading. It is a dominant stock exchange accounting for 66 per cent of the
traded volume in the cash segment and 99 per cent of the traded volume in the
derivatives segment. The NSE has emerged as a technology-driven stock exchange. It
has rightly positioned itself as “the exchange with difference”. In order to maintain its
leading position among exchanges, it increases the number of users by trying to meet
their growing and ever-changing needs through innovative efforts. Its aim is to
continuously upgrade technology systems and trading practices.

...49...

__________________________________________________________________Conclusion

Major Defects in Trading in Indian Stock Exchanges
There are certain serious defects while working of our stock exchanges, particularly
the major exchanges such as Bombay Stock Exchange (BSE):

1. Lack of Integration: There are a large number of stock exchanges in the
country, though BSE dominates them with over 70 per cent of all transactions
in the country. There is nothing wrong in this, because in other countries too
there are small exchanges, with one dominating (New York SE in USA and
London SE in England). But the real problem in India is that there is no proper
integration between all the stock exchanges with too much variation in prices
of shares in different markets.

2. Specified and Non-specified shares: Indian stock exchanges follow the
peculiar practice of classifying listed shares into ‘specified’ group and
‘unspecified’ group. The shares in the specified group are provided certain
special facilities like settlement period, carry forward and clearing to promote
speculation. At present, market liquidity is limited to thee speculative shares
only, whereas investors would prefer liquidity for all shares, across a broad
front. The only advantage of this artificial classification is that it is highly
profitable to the stock exchange brokers through brokerage fees on the high
volume of speculative business generated in these shares.

3. Margins: The margins levied by Indian SEs on speculative transactions are
wholly of discretionary character, varying from share to share and from day to
day, ranging from zero to 40 per cent. Despite a whole array of daily, carry
forward and ad hoc margins, numerous defaults take place in several SEss
whenever the market crashed. In other words, the imposition of margins has
failed to curb excessive speculation in SEs.

4. The system of settlement and carry forward: It is responsible for high price
fluctuations and high risk exposure to market participants. It is often
responsible for excessive speculation.

The carry forward system is unjustifiable and unhealthy. It is exclusively
aimed at helping the spurious speculators. The liquidity provided by

...50...

__________________________________________________________________Conclusion
speculators who are not interested in paying or taking delivery on the
settlement day cannot be genuine liquidity. Above all, the carry forward
system is a powerful factor behind absurdly high levels of speculation in our
stock exchanges and is of no help to genuine investors who are always
interested in the earliest possible settlement of transactions.

5. Investors’ interest: The trading activity in our exchanges has been designed
and evolved to benefit only the brokers and the intersects of the genuine
investors are generally ignored. The investors’ confidence in the market
machinery is weak, as most of them have a suspicion that they are always
cheated on price by the brokers.

6. Weakness of SE management: The management organization and structure
of Indian SEs, in general, is weak and deficient. The Government Body of a
stock exchange does not have either the concern or the will to introduce
necessary reforms in trading.

...51...

__________________________________________________________________Suggestions

SUGGESTIONS

Merging OTCEI and ICSE
Creating an effective trading platform
Both the inter-connected stock exchange and the OTCEI with their vast network can
merge into a single platform for trading in the securities of SME’s (Small and
Medium Enterprises) as also in the tradable securities of RSE’s and the BSE.

It is interesting to note that the Securities and Exchange Board of India (SEBI) has
invited for expressions of interest for the creation of a separate platform for trading in
the securities of small and medium enterprises (SME’s).

Most of the advanced markets of the world set up trading platform for SME’s in the
early 1980’s. In fact, in NASDAQ, which has emerged as the second biggest stock
market of the US, was established in 1971. At present, more than 50 alternate
markets, stock exchanges, boards of trade and lower tier exchanges are thriving across
the world for SME’s.

For India, it is all the more necessary to set up a trading platform, as bank finance is
not easily available for SME’s, despite exhortations by the government and the
reserve bank of India to augment the credit flow to this sector.

Development of SME’s is important, particularly because liberalization and
globalization have, within a short period of a decade-and-a-half, resulted in
tremendous concentration of wealth in the hands of MNC’s, both foreign and home
grown.

...52...

__________________________________________________________________Suggestions
Indonext; a pet project of finance minister P. Chidambaram, which was inaugurated
by him in January 2005, has not lived up to the expectations, of the 535 securities
listed on the BSE as well; only the remaining 25 are listed exclusively on RSE’s. And
the turnover on Indonext, at about Rs. crore has not been significant.

Limited Trading
Despite the tremendous progress Indian stock exchanges have made in the last 12
years, major problem that still needs to be tackled is ill-liquidity of several listed
scripts in which there is no trading happening at all. There are about 4,000 exclusively
listed companies on RSE’s, only scripts of 500 companies, fully comply by all the
amadatory requirements and are tradable.

Even on the BSE, of the 7,753 listed scripts only about 2,700 are traded. Investors in
all these scripts have no exit route, because of which they can not even book losses:
under the Income-tax Act, losses can be booked only if there is a transfer.

The OCTEI exchange of India which was set up in 1992 exclusively for small cap
companies could not succeed because of the introduction of rolling settlements
screen-based trading, and so on without adequate technology support.

Ready-made Platform
There is no need whatsoever for setting up a separate trading platform. There is
already a ready platform created by the 13 RSE’s, providing for trading in all the
securities listed on the RSE’s as also in the securities listed on the NSE and the BSE
as permitted.

This platform has not been successful thus far mainly because of the lack of
exclusivity of trading and as the major RSE operators were un-willing to shift even
apart of their trading volumes to the ICSE trading platform.

Moreover, although the ICSE was declared as regional stock exchange for the state of
Maharastra by SEBI, it could not succeed in getting listing of any worthwhile
companies due to the lack of regulatory support.

...53...

__________________________________________________________________Suggestions
As a result, the ICSE has been reduced to the position of an RSE, trading though
subsidiary on the NSE and the BSE with a network of 801 traders and dealers spread
across 146 centers in 18 states and two union territories. Both the ICSE and the
OTCEI with their vast network can merge into a single platform for trading in the
securities of SME’s as also in the tradable securities of RSE’s and the BSE. Besides
about350 active members of the RSE can also operate on this platform. Hundreds of
crores of rupees spent by the ICSE, OTCEI and their members, which otherwise
would get wasted, can be utilized fruitfully.

Market Makers
Mere creation of a trading platform will not solve the problem. Incentives must be
offered to traders on this platform. Atleast two market makers should be appointed for
each script and the responsibility for the appointment should rest to the issuers.

The issuers should supply each of the market makers with atleast 2% of the issued
capital at the same price at which it is offered to the public. Market must also be given
adequate credit facilities from banks, preferably at a concession rate. Fiscal
concessions must also be offered to market makers in respect of the profit arising out
of the market making functions.

Above all, the spreads between bids and offers that would be given by the market
makers should not be subjected to any limits.

Competition among market makers will ensure that the spreads narrow down to
reasonable levels.

Appointment of market makers has therefore failed, basically because of the
regulatory restrictions on the spreads between bids and offers.

But market making alone will not generate liquidity in all the tradable securities. This
needs to be supplemented by the call auction system. Under this system, all investors
and brokers have the facility to upload their buy and sell orders.

At the closing time of a trading session, bids and offers which match will be executed.

...54...

__________________________________________________________________Suggestions
A few of the developed markets of the world have already introduced the call auction
system in respect of thinly traded securities.

Abolish the system of carry forward:

The system of carry forward has been the most important factor for over-speculation
in India and it has to be done away with. In fact, with one week settlement and with
the adoption of system of marking to the market, the rationale of the carry forward
system disappears automatically. If the stock exchanges were to accept only the two
suggestions of one week settlement and the abolition of the carry forward system,
many of the problems of stock exchanges would be over.

Management Information System
It is essential that information should be available for each stock exchange about
trading volume and prices, about trading concentration in individual securities, trading
concentration by stock exchange members etc. In other words, every stock exchange
should introduce a well-designed management information system (MIS) capable of
producing relevant information which could be used by the stock exchange authorities
for restricting and regulating market on proper lines.

Government Body and Management of Stock Exchanges
Two other changes should be immediately adopted. First, the Executive Director of a
stock exchange should be appointed by the Government or by SEBI on the advice of a
panel of independent experts, so as to make him independent o the control of stock
brokers.

The composition of GB of stock exchanges should be changed to 50 : 50, between
broker-directors and non-broker independent brokers. This is necessary to make the
governing body to be objective and direct and control the stock exchange trading from
the point of the country as a whole and not exclusively for the benefit of member-
brokers.

...55...

_________________________________________________________________Bibliography

BIBLIOGraphy

Data is gathered from
• http://www.nseindia.com/

• http://www.google.com/

• http://en.wikipedia.org

Magazines, Newspapers and Other Secondary data resources.

Books referred
• Indian Economy: S. Chand Publications [Ruddar Datt & K.P.M.
Sundharam]

• The Indian Financial System: Pearson education [Bharti V. Pathak]

• Financial Management: McGraw Hill Companies [M.Y. Khan & P.K. Jain]

• Investment Analysis and Portfolio Management: Pearson education [M.
Rangnathan and R. Madhumathi]

...56...

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