1. OBJECTIVE OF STUDY:
 To know the basic terminology of stock market.
 To make the investor aware about the factors which may affect their investment?
SCOPE OF STUDY:
 Derivatives
 Sebi
 Stock exchange
 Commodity market.
 Stock market
 Securities
 Day trading
 Factor affecting Indian stock market
 Effect on Indian economy
LIMITATIONS:
Limitations are the limiting lines that restrict the work in some way or other. In this
research study also their were some limiting factors, some of them are as under:
1. Data Collection:
The most important constraint in this study was data collection as Secondary data
was
selected for study. Secondary data means data that are already available i.e. they refer to
the data which have already been collected and analysed by someone else.
2. Time Period:
Time period was one of the main factor as only one month was allotted and the
topic
covered in research has a wide scope. So, it was not possible to cover it in a short span of
time.
3. Reliability:
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2. The data collected in research work was secondary data. So, this puts a question
mark on the reliability of this data, which a very important factor of this study as
conclusion has been derived from this secondary data only.
4. Accuracy:
The facts and findings of the data cannot be accepted as accurate to some extent as
firstly, secondary data was collected. Secondly, for doing descriptive research time needed
to be more, because in short period you cannot cover each point accurately.
CORE STUDY:
Stock market:
A stock market is a public market for the 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 the
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 an 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 a corporation
or mutual organization specialized in the business of bringing buyers and sellers of the
organizations to alisting of stocks and securities together. The stock market in the United
States includes the trading of all securities listed on the NYSE, the NASDAQ, the Amex, as
well as on the many regional exchanges, e.g. OTCBB and Pink Sheets. European examples
of stock exchanges include the London Stock Exchange, the Deutsche Borse and the Paris
Bourse, now part of Euronext.
The Securities Contract (Regulation) Act, 1956 [SCRA] defines ‘StockExchange’
as anybody of individuals, whether incorporated or not, constituted for the purpose of
assisting, regulating or controlling thebusiness of buying, selling or dealing in securities.
Stock exchange could be a regional stock exchange whose area of operation/jurisdiction is
specified at the time of its recognition or national exchanges, which are permitted to have
nationwide trading since inception. NSE was incorporated as a national stock exchange.
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3. A clear starting point for any would-be trader, most people have a rough idea or
preconception of what they think a stock market is and how it works. Unfortunately, the
answer to this simple question is rather complicated, and can't readily be summed up in one
sentence. Indeed, many traders may be hard pushed to articulate exactly what a stock
market is and the purpose it serves, even after years of serious trading. In this article, we're
going to attempt to clear up the ambiguity, and offer a direct and succinct answer to this
most foundational of trading questions
Most people understand that a stock market is a place where shares are bought and
sold, and in essence this is true. Most people understand a stock market is dominated by
traders who speculate on the price of shares to make a profit on the difference between the
buying and selling price, and in essence this is true. But a stock is so much more in-depth
than these two basic propositions would suggest, and requires some deeper analysis to get
to the bottom of what's really going on
A stock market is a primarily a virtual exchange of securities (that is, shares and
debentures, which companies use as a means of raising finance) and derivatives (i.e. virtual
instruments such as contracts that relate to assets and securities and can be traded). It is
virtual in the sense that the market is an intangible concept, rather than a physical place,
and as a result of advancing technologies traders can now get involved with little more than
a laptop or mobile phone. The market brings together a range of traders of all shapes and
sizes - from small, one-man bands trading for their own personal gains through to hedge
funds managing billions in assets, and everything in between.
Stock markets list the securities of publicly traded companies, identified in the UK
by the appendage 'plc'. As distinct from a regular limited company ('Ltd.'), plc's offer their
shares to the public at large, who are generally concerned with trading on the price point of
a given share rather than its yield. Shares can change hands several times on a daily basis,
and at insignificant levels the company is unconcerned with who owns those shares.
Shares themselves are intangible assets, entitling the bearer to an annual payment
known as a 'dividend', paid out of distributable profits, and often corresponding voting
rights in proportion to the size of the share held at the AGM, where major strategic
decisions such as electing the board are put to the vote. The bearer of a share at any given
point is in effect a part owner of the business to which those shares pertain, and it is this
aspect that gives a share any underlying value
The price of a share at any given stage is dictated by supply and demand within the
market, and rises or falls every time a share is bought or sold. This effectively means that
shares are priced by the collective will and attitudes of the market, comprised of all the
traders and investment houses that actively trade in those securities.
The price of a share at any given stage is dictated by supply and demand within the
market, announcement rises or falls every time a share is bought or sold. This effectively
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4. means that shares are priced by the collective will and attitudes of the market, comprised of
all the traders and investment houses that actively trade in those securities.
Stock markets generally trade over a set duration of hours, usually reflecting the
working day in their particular region, allowing the zealous trader to trade different markets
round the clock - from London to New York to Tokyo - while affording those companies so
listed to raise capital in the form of initial share issues to the market. As a result, the
markets operate on a slick basis almost around the clock, bringing together buyers and
sellers of securities and giving businesses and governments a free, unadulterated bellwether
for the economic and commercial outlook of a given sector, industry or economy.
In essence, that's the foundation of what a stock market is, and it's by no means a
comprehensive study. Getting to know the markets requires lengthy research and an
understanding of business, economics, law and politics. Yet for those that do get to grips
with how the markets operate, the allure of trading profits is sufficient rewards for all their
hard work.
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. 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. Financial stability is the raison d'etre of central banks.
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 transaction. The smooth functioning of all these activities facilitates
economic growth in that lower costs and enterprise risks promote the production of goods
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5. and services as well as employment. In this way the financial system contributes to
increased prosperity.
RELATION OF THE STOCK MARKET TO THE MODERN
FINANCIAL SYSTEM:
The financial system in most western countries has undergone a remarkable
transformation. One feature of this development is disintermediation. A portion of the
funds involved in saving and financing flows directly to the financial markets instead of
being routed via the traditional bank lending and deposit operations. The general public's
heightened interest in investing in the stock market, either directly or through mutual funds,
has been an important component of this process. Statistics show that in recent decades
shares have made up an increasingly large proportion of households' financial assets in
many countries.
In the 1970s, in Sweden, deposit accounts and other very liquid assets with little
risk made up almost 60 percent of households' financial wealth, compared to less than 20
percent in the 2000s. The major part of this adjustment in financial portfolios has gone
directly to shares but a good deal now takes the form of various kinds of institutional
investment for groups of individuals, e.g., pension funds, mutual funds, hedge funds,
insurance investment of premiums, etc. The trend towards forms of saving with a higher
risk has been accentuated by new rules for most funds and insurance, permitting ahigher
proportion of shares to bonds. Similar tendencies are to be found in other industrialized
countries. In all developed economic systems, such as the European Union, the United
States, Japan and other developed nations, the trend has been the same: saving has moved
away from traditional (government insured) bank deposits to more risky securities of one
sort or another.
THE STOCK MARKET, INDIVIDUAL INVESTORS, AND
FINANCIAL RISK:
Riskier long-term saving requires that an individual possess the ability to manage
the associated increased risks. Stock prices fluctuate widely, in marked contrast to the
stability of (government insured) bank deposits or bonds. This is something that could
affect not only the individual investor or household, but also the economy on a large scale.
The following deals with some of the risks of the financial sector in general and the stock
market in particular. This is certainly more important now that so many newcomers have
entered the stock market, or have acquired other 'risky' investments (such as 'investment'
property, i.e., real estate and collectables).
With each passing year, the noise level in the stock market rises. Television
commentators, financial writers, analysts, and market strategists are all overtaking each
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6. other to get investors' attention. At the same time, individual investors, immersed in chat
rooms and message boards, are exchanging questionable and often misleading tips. Yet,
despite all this available information, investors find it increasingly difficult to profit. Stock
prices skyrocket with little reason, then plummet just as quickly, and people who have
turned to investing for their children's education and their own retirement become
frightened. Sometimes there appears to be no rhyme or reason to the market, only folly.
This is a quote from the preface to a published biography about the long-term value-
oriented stock investor Warren Buffett. Buffett began his career with $100, and $105,000
from seven limited partners consisting of Buffett's family and friends. Over the years he has
built himself a multi-billion-dollar fortune. The quote illustrates some of what has been
happening in the stock market during the end of the 20th century and the beginning of the
21st century.
SECURITIES AND EXCHANGE BOARD OF INDIA
SEBI Bhavan, Mumbai Headquarters of SEBI
ORGANIZATION DETAILS:
Headquarters Mumbai, Maharashtra, India
Established 1992
Jurisdiction India
Head Chairman - U.K. SINHA
Term FEBURARY 2011 – 5 YEARS
OFFICIAL WEBSITE:
Website www.sebi.gov.in
SEBI is the Regulator for the Securities Market in India. Originally set up by the
Government of India in 1988, it acquired statutory form in 1992 with SEBI Act 1992 being
passed by the Indian Parliament.Chaired by U.K.Sinha, SEBI is headquartered in the
popular business district of Bandra-Kurla complex in Mumbai, and has Northern, Eastern,
Southern and Western regional offices in New Delhi, Kolkata, Chennai and Ahmedabad.
ORGANIZATION STRUCTURE:
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7. U. K. Sinha, 1976 batch IAS officer of Bihar cadre was on 3 February 2011
appointed as the eighth Chairman of the market regulator, Securities and Exchange Board
of India (SEBI). Sinha had opted for voluntary retirement from service in 2008. U. K. Sinha
succeeded outgoing chairman C. B. Bhave who retires on 17 February 2011. He has been
appointed for a period of three years with effect from the date he assumes charge of the
post on or after 18 February 2011 or till he attains the age of 65 years or until further
orders, whichever is earlier. U. K. Sinha prior to being appointed as SEBI Chairman
worked as UTI AMC Chairman and Managing Director.
FUNCTIONS AND RESPONSIBILITIES:
SEBI has to be responsive to the needs of three groups, which constitute the market:
· the issuers of securities
· the investors
· the market intermediaries.
SEBI has three functions rolled into one body quasi-legislative, quasi-judicial and
quasiexecutive. It drafts regulations in its legislative capacity, it conducts investigation and
enforcement action in its executive function and it passes rulings and orders in its judicial
capacity. Though this makes it very powerful, there is an appeals process to create
accountability. There is a Securities Appellate Tribunal which is a three member tribunal
and is presently headed by a former Chief Justice of a High court - Mr. Justice NK Sodhi.
A second appeal lies directly to the Supreme Court. SEBI has enjoyed success as a
regulator by pushing systemic reforms aggressively and successively (e.g. the quick
movement towards making the markets electronic and paperless rolling settlement on T+2
basis). SEBI has been active in setting up the regulations as required under law.
Market Regulators include the Securities and Exchange Board of India (SEBI), the
Reserve Bank of India (RBI), and the Department of Company Affairs (DCA).
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8. Appellate Authority: The Securities Appellate Tribunal (SAT)
WHAT IS AN ‘EQUITY’/SHARE?
Total equity capital of a company is divided into equal units of small
denominations, each called a share. For example, in a company the total equity capital of
Rs 2,00,00,000 is divided into 20,00,000 units of Rs 10 each. Each such unit of Rs 10 is
called a Share. Thus, the company then is 12 said to have 20,00,000 equity shares of Rs 10
each. The holders of such shares are members of the company and have voting rights.
WHAT IS A ‘DEBT INSTRUMENT’?
Debt instrument represents a contract whereby one party lends money to another on
pre-determined terms with regards to rate and periodicity of interest, repayment of principal
amount by the borrower to the lender.
In the Indian securities markets, the term ‘bond’ is used for debt instruments issued
by the Central and State governments and public sector organizations and the term
‘debenture’ is used for instruments issued by private corporate sector.
WHAT IS A DERIVATIVE?
Derivative is a product whose value is derived from the value of one or more basic
variables, called underlying. The underlying asset can be equity, index, foreign exchange
(forex), commodity or any other asset.
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9. Derivative products initially emerged as hedging devices against fluctuations in
commodity prices and commodity-linked derivatives remained the sole form of such
products for almost three hundred years. The financial derivatives came into spotlight in
post-1970 period due to growing instability in the financial markets. However, since their
emergence, these products have become very popular and by 1990s, they accounted for
about twothirds of total transactions in derivative products.
WHAT IS A MUTUAL FUND?
A Mutual Fund is a body corporate registered with SEBI (Securities Exchange
Board of India) that pools money from individuals/corporate investors and invests the same
in a variety of different financial instruments or securities such as equity shares,
Government securities, Bonds, debentures etc.
Mutual funds can thus be considered as financial intermediaries in the investment
business that collect funds from the public and invest on behalf of the investors. Mutual
funds issue units to the investors. The appreciation of the portfolio or securities in which
the mutual fund has invested the money leads to an appreciation in the value of the units
held by investors. The investment objectives outlined by a Mutual Fund in its prospectus
are binding on the Mutual Fund scheme. The investment objectives specify the class of
securities a Mutual Fund can invest in. Mutual Funds invest in 13 various asset classes like
equity, bonds, debentures, commercial paper and government securities.
The schemes offered by mutual funds vary from fund to fund. Some are pure equity
schemes; others are a mix of equity and bonds. Investors are also given the option of
getting dividends, which are declared periodically by the mutual fund, or to participate only
in the capital appreciation of the scheme.
WHAT IS AN INDEX?
An Index shows how a specified portfolio of share prices are moving in order to
give an indication of market trends. It is a basket of securities and the average price
movement of the basket of securities indicates the index movement, whether upwards or
downwards.
WHAT IS INVESTMENT?
The money you earn is partly spent and the rest saved for meeting future expenses.
Instead of keeping the savings idle you may like to use savings in order to get return on it in
the future. This is called Investment.
WHY SHOULD ONE INVEST?
One needs to invest to:
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10.  Earn return on your idle resources.
 Generate a specified sum of money for a specific goal in life.
 Make a provision for an uncertain future
One of the important reasons why one needs to invest wisely is to meet the cost of
Inflation. Inflation is the rate at which the cost of living increases. The cost of living is
simply what it costs to buy the goods and services you need to live. Inflation causes money
to lose value because it will not buy the same amount of a good or a service in the future as
it does now or did in the past. For example, if there was a 6% inflation rate for the next 20
years, a Rs. 100 purchase today would cost Rs. 321 in 20 years. This is why it is important
to consider inflation as a factor in any long-term investment strategy.
WHEN TO START INVESTING?
The sooner one starts investing the better. By investing early you allow your
investments more time to grow, whereby the concept of compounding (as we shall see
later) increases your income, by accumulating the principal and the interest or dividend
earned on it, year after year. The three golden rules for all investors are:
 Invest early
 Invest regularly
 Invest for long term and not short term
WHAT CARE SHOULD ONE TAKE WHILE INVESTING?
Before making any investment, one must ensure to:
1. obtain written documents explaining the investment
2. read and understand such documents
3. verify the legitimacy of the investment
4. find out the costs and benefits associated with the investment
5. assess the risk-return profile of the investment
6. know the liquidity and safety aspects of the investment
7. ascertain if it is appropriate for your specific goals
8. compare these details with other investment opportunities available
9. examine if it fits in with other investments you are considering or you have already made
10. deal only through an authorised intermediary
11. seek all clarifications about the intermediary and the investment
12. explore the options available to you if something were to go wrong, and then, if
satisfied, make the investment.
WHAT IS THE FUNCTION OF SECURITIES MARKET?
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11. Securities Markets is a place where buyers and sellers of securities can enter into
transactions to purchase and sell shares, bonds, debentures etc. Further, it performs an
important role of enabling corporates, entrepreneurs to raise resources for their companies
and business ventures through public issues. Transfer of resources from those having idle
resources (investors) to others who have a need for them (corporates) is most efficiently
achieved through the securities market. Stated formally, securities markets provide
channels for reallocation of savings to investments and entrepreneurship. Savings are
linked to investments by a variety of intermediaries, through a range of financial products,
called ‘Securities’.
WHICH ARE THE SECURITIES ONE CAN INVEST IN?
 Shares
 Government Securities
 Derivative products
 Units of Mutual Funds etc., are some of the securities investors in the securities market
can invest in.
WHO REGULATES THE SECURITIES MARKET?
The responsibility for regulating the securities market is shared by Department of
Economic Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of India
(RBI) and Securities and Exchange Board of India (SEBI).
WHAT IS SEBI AND WHAT IS ITS ROLE?
The Securities and Exchange Board of India (SEBI) is the regulatory authority in
India established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for
establishment of Securities and Exchange Board of India (SEBI) with statutory powers for
(a) protecting the interests of investors in securities (b) promoting the development of the
securities market and (c) regulating the securities market. Its regulatory jurisdiction extends
over corporates in the issuance of capital and transfer of securities, in addition to all
intermediaries and persons associated with securities market. SEBI has been obligated to
perform the aforesaid functions by such measures as it thinks fit. In particular, it has powers
for:
 Regulating the business in stock exchanges and any other securities
Markets.
 Registering and regulating the working of stock brokers, sub–brokers
etc.
 Promoting and regulating self-regulatory organizations
 Prohibiting fraudulent and unfair trade practices
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12.  Calling for information from, undertaking inspection, conducting inquiries and audits
of the stock exchanges, intermediaries, self – regulatory organizations, mutual funds
and other persons associated with the securities market.
WHAT IS THE ROLE OF A STOCK EXCHANGE IN BUYING AND
SELLING SHARES?
The stock exchanges in India, under the overall supervision of the regulatory
authority, the Securities and Exchange Board of India (SEBI), provide a trading platform,
where buyers and sellers can meet to transact in securities. The trading platform provided
by NSE is an electronic one and there is no need for buyers and sellers to meet at a physical
location to trade. They can trade through the computerized trading screens available
with the NSE trading members or the internet based trading facility provided by the trading
members of NSE.
WHAT IS DEMUTUALISATION OF STOCK EXCHANGES?
Demutualisation refers to the legal structure of an exchange whereby the ownership,
the management and the trading rights at the exchange are segregated from one another.
HOW IS A DEMUTUALISED EXCHANGE DIFFERENT FROM A
MUTUAL EXCHANGE?
In a mutual exchange, the three functions of ownership, management and trading
are concentrated into a single Group. Here, the broker members of the exchange are both
the owners and the traders on the exchange and they further manage the exchange as well.
This at times can lead to conflicts of interest in decision making. A demutualised exchange,
on the other hand, has all these three functions clearly segregated, i.e. the ownership,
management and trading are in separate hands.
STOCK TRADING:
WHAT IS SCREEN BASED TRADING?
The trading on stock exchanges in India used to take place through open outcry
without use of information technology for immediate matching or recording of trades. This
was time consuming and inefficient. This imposed limits on trading volumes and
efficiency. In order to provide efficiency, liquidity and transparency, NSE introduced a
nationwide, on-line, fullyautomated screen based trading system (SBTS) where a member
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13. can punch into the computer the quantities of a security and the price at which he would
like to transact, and the transaction is executed as soon as a matching sale or buy order
from a counter party is found.
WHAT IS NEAT?
NSE is the first exchange in the world to use satellite communication technology for
trading. Its trading system, called National Exchange for Automated Trading (NEAT), is a
state of-the-art client server based application. At the server end all trading information is
stored in an inmemory database to achieve minimum response time and maximum system
availability for users. It has uptime record of 99.7%. For all trades entered into NEAT
system, there is uniform response time of less than one second.
HOW TO PLACE ORDERS WITH THE BROKER?
You may go to the broker’s office or place an order on the phone/internet or as
defined in the Model Agreement, which every client needs to enter into with his or her
broker.
HOW DOES AN INVESTOR GET ACCESS TO INTERNET BASED
TRADING FACILITY?
There are many brokers of the NSE who provide internet based trading facility to
their clients. Internet based trading enables an investor to buy/sell securities through
internet which can be accessed from a computer at the investor’s residence or anywhere
else where the client can access the internet. Investors need to get in touch with an NSE
broker providing this service to avail of internet based trading facility.
WHAT IS A CONTRACT NOTE?
Contract Note is a confirmation of trades done on a particular day on behalf of the
client by a trading member. It imposes a legally enforceable relationship between the client
and the trading member with respect to purchase/sale and settlement of trades. It also helps
to settle disputes/claims between the investor and the trading member. It is a prerequisite
for filing a complaint or arbitration proceeding against the trading member in case of a
dispute. A valid contract note should be in the prescribed form, contain the details of trades,
stamped with requisite value and duly signed by the authorized signatory. Contract notes
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