CHAPTER I INTRODUCTION
INTRODUCTION 1
Preference :Preference (or “taste”) is a concept, used in the social sciences; it assumes a real or imagined “choice” between alternatives and the possibility of rank ordering of these alternatives, based on happiness, satisfaction, gratification, enjoyment, utility they provide. More generally, it can be seen as a source of motivation. In cognitive sciences, individual preferences enable choice of objectives/goals. Also more consumption of a normal good is a generally (but not always) assumed to be preferred to less consumption. Preferences of investor: How do you pick one portfolio out of all the rest as the perfect one for you? This turns out to be a big challenge, because it requires investors to express their preferences in risk-return space. Investors choose portfolios for a myriad of reasons, very few of which can be reduced to a twodimensional space.
In fact, investors are used to having the ability the CHANGE their
investment decision if it is not developing as planned. Investor Preference about Equities: The well-known tendency of investors to favor cash dividends emerges quite naturally in two new theories of choice behavior the theory of self-control due to Thaler and Shefrin (1981), and the version of prospect theory set out by Kahneman and Tversky (1979). Although our treatment is novel when viewed from the perspective of standard financial theory, it provides explanations for a phenomenon that has long been described as perplexing. Investor Preference based on wealth maximization: As wealth increases, preference of one fixed gamble over another typically changes once or not at all. A key question is whether certain assumptions on preferences guarantee such behavior. Bell has addressed this difficult question and characterized the specific functional form of utility functions, which allow a finite number of switches between two arbitrary gambles over the entire range of initial wealth. By extending this analyzes , and linking the discussion to more recent works, the authors characterize conditions under which a large set of utility functions with respect to their switching characteristics, and discuss the results in the context of the classical notion of decreasing absolute risk aversion. 2
Investor Preference based on time period: Estimate a set of ownership models that distinguish between long-and short-term investors and their largest components and which incorporate both aggregated and disaggregated measures of corporate social performance (CSP). The results suggest that long-term institutional investment is positively related to CSP providing further support for earlier studies of Desegregations of CSP into its constituent components suggests that the pattern of institutional investment is also related to the form which CSP takes. Investigation of the impact of investment screens on the selection of stocks suggests that long-term institutional investors select primarily through exclusion, rejecting those firms which have worst CSP.
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LITERATURE REVIEW
SECURITY ANALYSIS Investment success is pretty much a matter of careful selection and timing of stock purchases coupled with perfect matching to an individuals risk tolerance. In order to carry out selection, timing and matching actions an investor must conduct deep security analysis. Investors purchase equity shares with two basic objectives; 4
1.
To make capital profits by selling shares at higher prices.
2.
To earn dividend income.
These two factors are affected by a host of factors. An investor has to carefully understand and analyze all these factors. There are basically two approaches to study security prices and valuation i.e. fundamental analysis and technical analysis The value of common stock is determined in large measure by the performance of the firm that issued the stock. If the company is healthy and can demonstrate strength and growth, the value of the stock will increase. When values increase then prices follow and returns on an investment will increase. However, just to keep the savvy investor on their toes, the mix is complicated by the risk factors involved. Fundamental analysis examines all the dimensions of risk exposure and the probabilities of return, and merges them with broader economic analysis and greater industry analysis to formulate the valuation of a stock. FUNDAMENTAL ANALYSIS Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument. It is the study of economic, industry and company conditions in an effort to determine the value of a company’s stock. Fundamental analysis typically focuses on key statistics in company’s financial statements to determine if the stock price is correctly valued. The term simply refers to the analysis of the economic well-being of a financial entity as opposed to only its price movements.Fundamental analysis is the cornerstone of investing. The basic philosophy underlying the fundamental analysis is that if an investor invests re.1 in buying a share of a company, how much expected returns from this investment he has. The fundamental analysis is to appraise the intrinsic value of a security. It insists that no one should purchase or sell a share on the basis of tips and rumors. The fundamental approach calls upon the investors to make his buy or sell decision on the basis of a detailed analysis of the information about the company, about the industry, and the economy. It is also known as “topdown approach”. This approach attempts to study the economic scenario, industry position and
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the company expectations and is also known as “economic-industry-company approach (EIC approach)”. Thus the EIC approach involves three steps: 1.
Economic analysis
2.
Industry analysis
3.
Company analysis
1. ECONOMIC ANALYSIS The level of economic activity has an impact on investment in many ways. If the economy grows rapidly, the industry can also be expected to show rapid growth and vice versa. When the level of economic activity is low, stock prices are low, and when the level of economic activity is high, stock prices are high reflecting the prosperous outlook for sales and profits of the firms. The analysis of macro economic environment is essential to understand the behavior of the stock prices. The commonly analyzed macro economic factors are as follows: Gross Domestic Product (GDP): GDP indicates the rate of growth of the economy. It represents the aggregate value of the goods and services produced in the economy. It consists of personal consumption expenditure, gross private domestic investment and government expenditure on goods and services and net exports of goods and services. The growth rate of economy points out
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the prospects for the industrial sector and the return investors can expect from investment in shares. The higher growth rate is more favorable to the stock market. Savings and investment: It is obvious that growth requires investment which in turn requires substantial amount of domestic savings. Stock market is a channel through which the savings are made available to the corporate bodies. Savings are distributed over various assets like equity shares, deposits, mutual funds, real estate and bullion. The savings and investment patterns of the public affect the stock to a great extent. Inflation: Along with the growth of GDP, if the inflation rate also increases, then the real growth would be very little. The effects of inflation on capital markets are numerous. An increase in the expected rate of inflation is expected to cause a nominal rise in interest rates. Also, it increases uncertainty of future business and investment decisions. As inflation increases, it results in extra costs to businesses, thereby squeezing their profit margins and leading to real declines in profitability. Interest rates: The interest rate affects the cost of financing to the firms. A decrease in interest rate implies lower cost of finance for firms and more profitability. More money is available at a lower interest rate for the brokers who are doing business with borrowed money. Availability of cheap funds encourages speculation and rise in the price of shares. Tax structure: Every year in March, the business community eagerly awaits the Government’s announcement regarding the tax policy. Concessions and incentives given to a certain industry encourage investment in that particular industry. Tax relief’s given to savings encourage savings. The type of tax exemption has impact on the profitability of the industries. Infrastructure facilities: Infrastructure facilities are essential for the growth of industrial and agricultural sector. A wide network of communication system is a must for the growth of the economy. Regular supply of power without any power cut would boost the production. Banking and financial sectors also should be sound enough to provide adequate support to the industry. Good infrastructure facilities affect the stock market favorably. 2. INDUSTRY ANALYSIS
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An industry is a group of firms that have similar technological structure of production and produce similar products and Industry analysis is a type of business research that focuses on the status of an industry or an industrial sector (a broad industry classification, like "manufacturing"). Irrespective of specific economic situations, some industries might be expected to perform better, and share prices in these industries may not decline as much as in other industries. This identification of economic and industry specific factors influencing share prices will help investors to identify the shares that fit individual expectations Industry Life Cycle: The industry life cycle theory is generally attributed to Julius Grodensky. The life cycle of the industry is separated into four well defined stages.
Pioneering stage: The prospective demand for the product is promising in this stage and the technology of the product is low. The demand for the product attracts many producers to produce the particular product. There would be severe competition and only fittest companies survive this stage. The producers try to develop brand name, differentiate the product and create a product image. In this situation, it is difficult to select companies for investment because the survival rate is unknown.
Rapid growth stage: This stage starts with the appearance of surviving firms from the pioneering stage. The companies that have withstood the competition grow strongly in market share and financial performance. The technology of the production would have improved resulting in low cost of production and good quality products. The companies have stable growth rate in this stage and they declare dividend to the shareholders. It is advisable to invest in the shares of these companies.
Maturity and stabilization stage: the growth rate tends to moderate and the rate of growth would be more or less equal to the industrial growth rate or the gross domestic product growth rate. Symptoms of obsolescence may appear in the technology. To keep going, technological innovations in the production process and products should be introduced. The investors have to closely monitor the events that take place in the maturity stage of the industry.
Decline stage: demand for the particular product and the earnings of the companies in the industry decline. It is better to avoid investing in the shares of the low growth industry
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even in the boom period. Investment in the shares of these types of companies leads to erosion of capital. Growth of the industry: The historical performance of the industry in terms of growth and profitability should be analyzed. The past variability in return and growth in reaction to macro economic factors provide an insight into the future. Nature of competition: Nature of competition is an essential factor that determines the demand for the particular product, its profitability and the price of the concerned company scrips. The companies' ability to withstand the local as well as the multinational competition counts much. If too many firms are present in the organized sector, the competition would be severe. The competition would lead to a decline in the price of the product. The investor before investing in the scrip of a company should analyze the market share of the particular company's product and should compare it with the top five companies. SWOT analysis: SWOT analysis represents the strength, weakness, opportunity and threat for an industry. Every investor should carry out a SWOT analysis for the chosen industry. Take for instance, increase in demand for the industry’s product becomes its strength, presence of numerous players in the market, i.e. competition becomes the threat to a particular company. The progress in R & D in that industry is an opportunity and entry of multinationals in the industry is a threat. In this way the factors are to be arranged and analyzed. 3. COMPANY ANALYSIS In the company analysis the investor assimilates the several bits of information related to the company and evaluates the present and future values of the stock. The risk and return associated with the purchase of the stock is analyzed to take better investment decisions. The present and future values are affected by a number of factors. Competitive edge of the company: Major industries in India are composed of hundreds of individual companies. Though the number of companies is large, only few companies control the major market share. The competitiveness of the company can be studied with the help of the following;
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Market share: The market share of the annual sales helps to determine a company’s relative competitive position within the industry. If the market share is high, the company would be able to meet the competition successfully. The companies in the market should be compared with like product groups otherwise, the results will be misleading.
Growth of sales: The rapid growth in sales would keep the shareholder in a better position than one with stagnant growth rate. Investors generally prefer size and growth in sales because the larger size companies may be able to withstand the business cycle rather than the company of smaller size.
Stability of sales: If a firm has stable sales revenue, it will have more stable earnings. The fall in the market share indicates the declining trend of company, even if the sales are stable. Hence the stability of sales should be compared with its market share and the competitor’s market share.
Earnings of the company: Sales alone do not increase the earnings but the costs and expenses of the company also influence the earnings. Further, earnings do not always increase with increase in sales. The company’s sales might have increased but its earnings per share may decline due to rise in costs. Hence, the investor should not only depend on the sales, but should analyze the earnings of the company. Financial analysis: The best source of financial information about a company is its own financial statements. This is a primary source of information for evaluating the investment prospects in the particular company’s stock. Financial statement analysis is the study of a company’s financial statement from various viewpoints. The statement gives the historical and current information about the company’s operations. Historical financial statement helps to predict the future and the current information aids to analyze the present status of the company. The two main statements used in the analysis are Balance sheet and Profit and Loss Account. The balance sheet is one of the financial statements that companies prepare every year for their shareholders. It is like a financial snapshot, the company's financial situation at a moment in time. It is prepared at the year end, listing the company's current assets and liabilities. It helps to study the capital structure of the company. It is better for the investor to avoid a company with excessive debt component in its capital structure. From the balance sheet, liquidity position of the company can also be assessed with the information on current assets and current liabilities. 10
Ratio analysis: Ratio is a relationship between two figures expressed mathematically. Financial ratios provide numerical relationship between two relevant financial data. Financial ratios are calculated from the balance sheet and profit and loss account. The relationship can be either expressed as a percent or as a quotient. Ratios summarize the data for easy understanding, comparison and interpretations. Ratios for investment purposes can be classified into profitability ratios, turnover ratios, and leverage ratios. Profitability ratios are the most popular ratios since investors prefer to measure the present profit performance and use this information to forecast the future strength of the company. The most often used profitability ratios are return on assets, price earnings multiplier, price to book value, price to cash flow, and price to sales, dividend yield, return on equity, present value of cash flows, and profit margins. a) Return on Assets (ROA) ROA is computed as the product of the net profit margin and the total asset turnover ratios. ROA = (Net Profit/Total income) x (Total income/Total Assets) This ratio indicates the firm's strategic success. Companies can have one of two strategies: cost leadership, or product differentiation. ROA should be rising or keeping pace with the company's competitors if the company is successfully pursuing either of these strategies, but how ROA rises will depend on the company's strategy. ROA should rise with a successful cost leadership strategy because the company’s increasing operating efficiency. An example is an increasing, total asset, turnover ratio as the company expands into new markets, increasing its market share. The company may achieve leadership by using its assets more efficiently. With a successful product differentiation strategy, ROA will rise because of a rising profit margin. b) Return on Investment (ROI) ROI is the return on capital invested in business, i.e., if an investment Rs 1 crore in men, machines, land and material is made to generate Rs. 25 lakhs of net profit, then the ROI is 25%. The computation of return on investment is as follows: Return on Investment (ROI) = (Net profit/Equity investments) x 100 11
As this ratio reveals how well the resources of a firm are being used, higher the ratio, better are the results. The return on shareholder’s investment should be compared with the return of other similar firms in the same industry. The inert-firm comparison of this ratio determines whether the investments in the firm are attractive or not as the investors would like to invest only where the return is higher. c) Return on Equity Return on equity measures how much an equity shareholder's investment is actually earning. The return on equity tells the investor how much the invested rupee is earning from the company. The higher the number, the better is the performance of the company and suggests the usefulness of the projects the company has invested in. The computation of return on equity is as follows: Return on equity = (Net profit to owners/value of the specific owner's Contribution to the business) x 100 The ratio is more meaningful to the equity shareholders who are invested to know profits earned by the company and those profits which can be made available to pay dividend to them. d) Earnings per Share (EPS) This ratio determines what the company is earning for every share. For many investors, earnings are the most important tool. EPS is calculated by dividing the earnings (net profit) by the total number of equity shares. The computation of EPS is as follows: Earnings per share = Net profit/Number of shares outstanding The EPS is a good measure of profitability and when compared with EPS of similar other companies, it gives a view of the comparative earnings or earnings power of a firm. EPS calculated for a number of years indicates whether or not earning power of the company has increased. e) Dividend per Share (DPS) 12
The extent of payment of dividend to the shareholders is measured in the form of dividend per share. The dividend per share gives the amount of cash flow from the company to the owners and is calculated as follows: Dividend per share = Total dividend payment / Number of shares outstanding The payment of dividend can have several interpretations to the shareholder. The distribution of dividend could be thought of as the distribution of excess profits/abnormal profits by the company. On the other hand, it could also be negatively interpreted as lack of investment opportunities. In all, dividend payout gives the extent of inflows to the shareholders from the company. f) Dividend Payout Ratio From the profits of each company a cash flow called dividend is distributed among its shareholders. This is the continuous stream of cash flow to the owners of shares, apart from the price differentials (capital gains) in the market. The return to the shareholders, in the form of dividend, out of the company's profit is measured through the payout ratio. The payout ratio is computed as follows:
Payout Ratio = (Dividend per share / Earnings per share) * 100 The percentage of payout ratio can also be used to compute the percentage of retained earnings. The profits available for distribution are either paid as dividends or retained internally for business growth opportunities. Hence, when dividends are not declared, the entire profit is ploughed back into the business for its future investments. g) Dividend Yield Dividend yield is computed by relating the dividend per share to the market price of the share. The market place provides opportunities for the investor to buy the company's share at any point of time. The price at which the share has been bought from the market is the actual cost of the investment to the shareholder. The market price is to be taken as the cum-dividend price. 13
Dividend yield relates the actual cost to the cash flows received from the company. The computation of dividend yield is as follows Dividend yield = (Dividend per share / Market price per share) * 100 High dividend yield ratios are usually interpreted as undervalued companies in the market. The market price is a measure of future discounted values, while the dividend per share is the present return from the investment. Hence, a high dividend yield implies that the share has been under priced in the market. On the other hand a low dividend yield need not be interpreted as overvaluation of shares. A company that does not pay out dividends will not have a dividend yield and the real measure of the market price will be in terms of earnings per share and not through the dividend payments. h) Price/Earnings Ratio (P/E) The P/E multiplier or the price earnings ratio relates the current market price of the share to the earnings per share. This is computed as follows: Price/earnings ratio = Current market price / Earnings per share This ratio is calculated to make an estimate of appreciation in the value of a share of a company and is widely used by investors to decide whether or not to buy shares in a particular company. Many investors prefer to buy the company's shares at a low P/E ratio since the general interpretation is that the market is undervaluing the share and there will be a correction in the market price sooner or later. A very high P/E ratio on the other hand implies that the company's shares are overvalued and the investor can benefit by selling the shares at this high market price. i) Debt-to-Equity Ratio Debt-Equity ratio is used to measure the claims of outsiders and the owners against the firm’s assets. Debt-to-equity ratio = Outsiders Funds / Shareholders Funds The debt-equity ratio is calculated to measure the extent to which debt financing has been used in a business. It indicates the proportionate claims of owners and the outsiders against the firm’s 14
assets. The purpose is to get an idea of the cushion available to outsiders on the liquidation of the firm.
RESEARCH GAP The study is undertaken to understand Equity market and to find out the new opportunities to attract the investors towards the Equities according to their risk preferences. Before investing money in financial assets, investors should thoroughly know about the Economy, Industry, and Company. Along with measuring company’s financial performance investors should also need to analyze the stock’s price movements in secondary markets. Investment environment encompasses the kind of marketable securities that exist and where and how they are bought and sold. Investment process is concerned with how an investor should proceed in making decisions about what marketable securities to invest in, how extensive the investments should be and when investments should made. Investment management once seemed a imply process. Well-heeled investors world have portfolios composed of stocks and bonds of blue chip industrial companies, treasury bonds, notes 15
and bills. The choices available to less well-off investors were much more limited, confirmed primarily to passbook savings accounts.
OBJECTIVES OF THE STUDY:
Investor’s demographics influence choice of investment.
To study the impact of investors risk preferences.
To find out the reasons for investing in equities.
To examine the various investment options which are available in the market? 16
To study and analyze the performance of the company, share price fluctuations and comparing it with another company from same sector.
Hypothesis Hypothesis 1 H0 : There is no significant impact of Equity while investor investing in a security, H1: There is a significant impact of Equity while investor investing in a security,. Hypothesis 2 H0: The risk and return of the Equity will not have major impact on the investors H1: The risk and return of the Equity will have major impact on the investors Hypothesis 3 H0: The sample Equity may not influence the whole industry, 17
H1: The sample Equity will influence the whole industry Hypothesis 4 H0: The investment performance of Equity are not done by the hedging, H1: The investment performance of Equity are done by the hedging Hypothesis 5 H0: The risk and return of the Equity are not considered while investors making decisions on their investment security, H1: The risk and return of the Equity are considered while investors making decisions on their investment
SCOPE OF THE STUDY
The study is conducted to understand the functioning of Equities in India Equity market. The choice of location for the study is based on the responses given by the investors of who are operating the stock market in twin cities. This study will helpful in understanding the behavior and risk preferences of investors. The study is limited to Equity with special reference in the Indian context and the National Stock Exchange has been taken as a representative sample for the study. The study can't be said as totally perfect. Any alteration may come. The study has only made a humble attempt at evaluation Equity market only in India context. The study is not based on the international perspective of Equity markets. 18
PERIOD OF THE STUDY The duration of the study is 45days
REASEARCH METHODOLOGY Research methodology is a detailed study of the subject which uses a set of methods to perform the research methodology is a framework of the methods and procedures carried on for acquiring information needed. It is a blue print according to which research is conducted The data is of two types: 1) PRIMARY DATA 2) SECONDARY DATA
PRIMARY DATA: Primary data has been collected from the people of the organization which is also called first hand data. The data collected from primary source includes project guides, approaching the 19
financial department heads, the self help groups, the branch manager and few employees of the company Officers of accounts sections. Executives and staff of financial and accounts department. Meeting with concerned people. Personal observation. Primary data that will be the sample size of a 50 investors only.
SECONDARY DATA: The secondary data was collected from published and unpublished manuals, records, broachers, files etc., of the organization. The secondary information was collected from the company manuals and office records pertaining to production, financial position and welfare Activities of the Company
CHAPTER II 20
INDUSTRY PROFILE COMPANY PROFILE
INDUSTRY PROFILE INDIAN FINANCIAL MARKET Money always flows from surplus sector to deficit sector. That means persons having excess of money lend it to those who need money to fulfil their requirement. Similarly, in business sectors the surplus money flows from the investors or lenders to the businessmen for the purpose of production or sale of goods and services. So, we find two different groups, one who invest money or lend money and the others, who borrow or use the money. The financial markets act as a link between these two different groups. It facilitates this function by acting as an intermediary between the borrowers and lenders of money. So, financial market may be defined as ‘a transmission mechanism between investors (or lenders) and the borrowers (or users) through which transfer of funds is facilitated’. It consists of individual investors, financial institutions and other intermediaries who are linked by a formal trading rules and communication network for trading the various financial assets and credit instruments. Financial market talks about the primary market, FDIs, alternative investment options, banking and insurance and the pension sectors, asset management segment as well. India 21
Financial market happens to be one of the oldest across the globe and is the fastest growing and best among all the financial markets of the emerging economies. The history of Indian capital markets spans back 200 years, around the end of the 18th century. It was at this time that India was under the rule of the East India Company. The capital market of India initially developed around Mumbai; with around 200 to 250 securities brokers participating in active trade during the second half of the 19th century. Scope of Indian Financial Market The financial market in India at present is more advanced than many other sectors as it became organized as early as the 19th century with the securities exchanges in Mumbai, Ahmedabad and Kolkata. In the early 1960s, the number of securities exchanges in India became eight - including Mumbai, Ahmedabad and Kolkata. Apart from these three exchanges, there was the Madras, Kanpur, Delhi, Bangalore and Pune exchanges as well. Today there are 23 regional securities exchanges in India. The Indian stock markets till date have remained stagnant due to the rigid economic controls. It was only in 1991, after the liberalization process that the India securities market witnessed a flurry of IPOs serially. The market saw many new companies spanning across different industry segments and business began to flourish. The launch of the NSE (National Stock Exchange) and the OTCEI (Over the Counter Exchange of India) in the mid 1990s helped in regulating a smooth and transparent form of securities trading. The regulatory body for the Indian capital markets was the SEBI (Securities and Exchange Board of India). The capital markets in India experienced turbulence after which the SEBI came into prominence. The market loopholes had to be bridged by taking drastic measures. Potential of Indian Financial Market India Financial Market helps in promoting the savings of the economy - helping to adopt an effective channel to transmit various financial policies. The Indian financial sector is welldeveloped, competitive, efficient and integrated to face all shocks. In the India financial market there are various types of financial products whose prices are determined by the numerous buyers and sellers in the market. The other determinant factor of the prices of the financial
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products is the market forces of demand and supply. The various other types of Indian markets help in the functioning of the wide India financial sector. Features of Indian Financial Market
India Financial Indices - BSE 30 Index, various sector indexes, stock quotes, Sensex charts, bond
prices, foreign exchange, Rupee & Dollar Chart Indian Financial market news Stock News - Bombay Stock Exchange, BSE Sensex 30 index, S&P CNX-Nifty, company
information, issues on market capitalization, corporate earnings statements Fixed Income - Corporate Bond Prices, Corporate Debt details, Debt trading activities, Interest Rates, Money Market, Government Securities, Public Sector Debt, External Debt Service
Foreign Investment - Foreign Debt Database composed by BIS, IMF, OECD,& World Bank, Investments in India & Abroad
Global Equity Indexes - Dow Jones Global indexes, Morgan Stanley Equity Indexes
Currency Indexes - FX & Gold Chart Plotter, J. P. Morgan Currency Indexes
National and Global Market Relations
Mutual Funds
Insurance
Loans
Forex and Bullion The main functions of financial market are:
It provides facilities for interaction between the investors and the borrowers. It provides pricing information resulting from the interaction between buyers and sellers in the
market when they trade the financial assets. It provides security to dealings in financial assets. It ensures liquidity by providing a mechanism for an investor to sell the financial assets. It ensures low cost of transactions and information. 23
Figure 3.1: Classification of financial markets Source: Investment analysis and portfolio management Author: Prasanna Chandra Figure 3.1 shows the classification of financial markets. From this figure we can interpret that there are different ways of classifying financial market.
One is to classify financial market by the type of financial claim. The debt market is the financial market foe fixed claims (debt instrument) and the equity market is the financial market for
residual claims (equity instruments) The second way is to classify financial markets by the maturity of claims. The market for short term financial claims is referred to as the money market and the market for long term financial
claims is referred to as the capital market. The third way to classify financial markets is based on whether the claims represent new issues or outstanding issues. The market where issues sell new claims is referred as primary market and
the market where issues sell outstanding claims is referred as secondary market. The fourth way to classify financial markets is by the timing of delivery. A cash or spot market is one where the delivery occurs immediately and forward or futures markets are those markets
where the delivery occurs at a pre determined time in future. The fifth way to classify financial markets is by the nature of its organizational structure. An exchange traded market is characterized by a centralized organization with standardized procedures and an over the counter market is a decentralized market with customized procedures. These markets are further explained in detail. MONEY MARKET The money market is a market for short-term funds, which deals in financial assets whose period of maturity is up to one year. It should be noted that money market does not deal in cash or money as such but simply provides a market for credit instruments such as bills of exchange, promissory notes, commercial paper, treasury bills, etc. These financial instruments are close substitute of money. These instruments help the business units, other organizations and the Government to borrow the funds to meet their short-term requirement. Money market does not imply to any specific market place. Rather it refers to the whole networks of financial institutions dealing in short-term funds, which provides an outlet to lenders 24
and a source of supply for such funds to borrowers. Most of the money market transactions are taken place on telephone, fax or Internet. The Indian money market consists of Reserve Bank of India, Commercial banks, Co-operative banks, and other specialized financial institutions. The Reserve Bank of India is the leader of the money market in India. Some Non-Banking Financial Companies (NBFCs) and financial institutions like LIC, GIC, UTI, etc. also operate in the Indian money market. CAPITAL MARKET Capital Market may be defined as a market dealing in medium and long-term funds. It is an institutional arrangement for borrowing medium and long-term funds and which provides facilities for marketing and trading of securities. So it constitutes all long-term borrowings from banks and financial institutions, borrowings from foreign markets and raising of capital by issue various securities such as shares debentures, bonds, etc. The market where securities are traded known as Securities market. It consists of two different segments namely primary and secondary market. The primary market deals with new or fresh issue of securities and is, therefore, also known as new issue market; whereas the secondary market provides a place for purchase and sale of existing securities and is often termed as stock market or stock exchange. PRIMARY MARKET The Primary Market consists of arrangements, which facilitate the procurement of longterm funds by companies by making fresh issue of shares and debentures. You know that companies make fresh issue of shares and/or debentures at their formation stage and, if necessary, subsequently for the expansion of business. It is usually done through private placement to friends, relatives and financial institutions or by making public issue. In any case, the companies have to follow a well-established legal procedure and involve a number of intermediaries such as underwriters, brokers, etc. who form an integral part of the primary market. You must have learnt about many initial public offers (IPOs) made recently by a number of public sector undertakings such as ONGC, GAIL, NTPC and the private sector companies like Tata Consultancy Services (TCS), Biocon, Jet-Airways and so on.
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SECONDARY MARKET The secondary market known as stock market or stock exchange plays an equally important role in mobilizing long-term funds by providing the necessary liquidity to holdings in shares and debentures. It provides a place where these securities can be encashed without any difficulty and delay. It is an organized market where shares and debentures are traded regularly with high degree of transparency and security. In fact, an active secondary market facilitates the growth of primary market as the investors in the primary market are assured of a continuous market for liquidity of their holdings. The major players in the primary market are merchant bankers, mutual funds, financial institutions, and the individual investors; and in the secondary market you have all these and the stockbrokers who are members of the stock exchange who facilitate the trading. After having a brief idea about the primary market and secondary market let see the difference between them. DISTINCTION BETWEEN PRIMARY MARKET AND SECONDARY MARKET The main points of distinction between the primary market and secondary market are as follows: 1. Function: While the main function of primary market is to raise long-term funds through fresh issue of securities, the main function of secondary market is to provide continuous and ready market for the existing long-term securities. 2. Participants: While the major players in the primary market are financial institutions, mutual funds, underwriters and individual investors, the major players in secondary market are all of these and the stockbrokers who are members of the stock exchange. 3. Listing Requirement: While only those securities can be dealt with in the secondary market, which have been approved for the purpose (listed), there is no such requirement in case of primary market. 4. Determination of prices: In case of primary market, the prices are determined by the management with due compliance with SEBI requirement for new issue of securities. But in case of secondary market, the price of the securities is determined by forces of demand and supply of the market and keeps on fluctuating.
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DISTINCTION BETWEEN CAPITAL MARKET AND MONEY MARKET Capital Market differs from money market in many ways.
While money market is related to short-term funds, the capital market related to long term funds. While money market deals in securities like treasury bills, commercial paper, trade bills, deposit
certificates, etc., the capital market deals in shares, debentures, bonds and government securities. While the participants in money market are Reserve Bank of India, commercial banks, nonbanking financial companies, etc., the participants in capital market are stockbrokers,
underwriters, mutual funds, financial institutions, and individual investors. While the money market is regulated by Reserve Bank of India, the capital market is regulated by Securities Exchange Board of India (SEBI). STOCK EXCHANGE As indicated above, stock exchange is the term commonly used for a secondary market, which provide a place where different types of existing securities such as shares, debentures and bonds, government securities can be bought and sold on a regular basis. A stock exchange is generally organised as an association, a society or a company with a limited number of members. It is open only to these members who act as brokers for the buyers and sellers. The Securities Contract (Regulation) Act has defined stock exchange as an “ association, organisation or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business of buying, selling and dealing in securities”. The main characteristics of a stock exchange are:
It is an organized market. It provides a place where existing and approved securities can be bought and sold easily. In a stock exchange, transactions take place between its members or their authorized agents. All transactions are regulated by rules and by laws of the concerned stock exchange. It makes complete information available to public in regard to prices and volume of transactions
taking place every day. It may be noted that all securities are not permitted to be traded on a recognised stock exchange. It is allowed only in those securities (called listed securities) that have been duly approved for the purpose by the stock exchange authorities. The method of trading nowadays is quite simple on account of the availability of on-line trading facility with the help of computers.
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It is also quite fast as it takes just a few minutes to strike a deal through the brokers who may be available close by. Similarly, on account of the system of scrip-less trading and rolling settlement, the delivery of securities and the payment of amount involved also take very little time, say, 2 days. FUNCTIONS OF A STOCK EXCHANGE The functions of stock exchange can be enumerated as follows:
Provides ready and continuous market: By providing a place where listed securities can be bought and sold regularly and conveniently, a stock exchange ensures a ready and continuous market for various shares, debentures, bonds and government securities. This lends a high degree of liquidity to holdings in these securities as the investor can encash their holdings as and when
they want. Provides information about prices and sales: A stock exchange maintains complete record of all transactions taking place in different securities every day and supplies regular information on their prices and sales volumes to press and other media. In fact, now-a-days, you can get information about minute to minute movement in prices of selected shares on TV channels like CNBC, Zee News, NDTV and Headlines Today. This enables the investors in taking quick decisions on purchase and sale of securities in which they are interested. Not only that, such information helps them in ascertaining the trend in prices and the worth of their holdings. This
enables them to seek bank loans, if required. Provides safety to dealings and investment: Transactions on the stock exchange are conducted only amongst its members with adequate transparency and in strict conformity to its rules and regulations which include the procedure and timings of delivery and payment to be followed. This provides a high degree of safety to dealings at the stock exchange. There is little risk of loss
on account of non-payment or no delivery. Barometer of economic and business conditions: Stock exchanges reflect the changing conditions of economic health of a country, as the shares prices are highly sensitive to changing economic, social and political conditions. It is observed that during the periods of economic prosperity, the share prices tend to rise. Conversely, prices tend to fall when there is economic stagnation and the business activities slow down as a result of depressions. Thus, the intensity of trading at stock exchanges and the corresponding rise on fall in the prices of securities reflects 28
the investor’s assessment of the economic and business conditions in a country, and acts as the
barometer which indicates the general conditions of the atmosphere of business. Better Allocation of funds: As a result of stock market transactions, funds flow from the less profitable to more profitable enterprises and they avail of the greater potential for growth. Financial resources of the economy are thus better allocated. ADVANTAGES OF STOCK EXCHANGES Having discussed the functions of stock exchanges, let us look at the advantages which can be outlined from the point of view of (a) Companies, (b) Investors, and (c) the Society as a whole. a) To the Companies
The companies whose securities have been listed on a stock exchange enjoy a better goodwill
and credit-standing than other companies because they are supposed to be financially sound. The market for their securities is enlarged as the investors all over the world become aware of
such securities and have an opportunity to invest As a result of enhanced goodwill and higher demand, the value of their securities increases and
their bargaining power in collective ventures, mergers, etc. is enhanced. The companies have the convenience to decide upon the size, price and timing of the issue. (b) To the Investors:
The investors enjoy the ready availability of facility and convenience of buying and selling the
securities at will and at an opportune time. Because of the assured safety in dealings at the stock exchange the investors are free from any
anxiety about the delivery and payment problems. Availability of regular information on prices of securities traded at the stock exchanges helps
them in deciding on the timing of their purchase and sale. It becomes easier for them to raise loans from banks against their holdings in securities traded at the stock exchange because banks prefer them as collateral on account of their liquidity and convenient valuation. (c) To the Society
The availability of lucrative avenues of investment and the liquidity thereof induces people to
save and invest in long-term securities. This leads to increased capital formation in the country. The facility for convenient purchase and sale of securities at the stock exchange provides support to new issue market. This helps in promotion and expansion of industrial activity, which in turn contributes, to increase in the rate of industrial growth. 29
The Stock exchanges facilitate realisation of financial resources to more profitable and growing industrial units where investors can easily increase their investment substantially. Company Profile INDIABULLS the trade execution facilities for cash as well as derivatives, on BSE and NSE, depository services, commodities trading on the MCX(Multi Commodity Exchange of India Ltd) and NCDEX (National Commodity and Derivative Exc INDIABULLS, India’s leading stock broker is the retail arm of SSKI, an organization with over eighty years of experience in the stock market with more than 280 share shops in 120 cities and big towns, and premier online trading destination www.INDIABULLScom. INDIABULLS offers the trade execution facilities for cash as well as derivatives, on BSE and NSE, depository services, commodities trading on the MCX(Multi Commodity Exchange of India Ltd) and NCDEX (National hange) and most importantly, investment advice tempered by eighty years of broking experience. INDIABULLS provides the facility to trade in commodities through INDIABULLS Commodities Pvt.Ltd-a wholly owned subsidiary of its parent SSKI. INDIABULLS is the member of two major commodity exchanges MCX and NCDEX. SSKI Apart from INDIABULLS, the SSKI group also comprises of institutional broking and corporate finance. The institutional broking division caters to domestic and foreign institutional investors, while the corporate finance division focuses on niche areas such as infrastructure, telecom and media. SSKI owns 56% in INDIABULLS and the balance ownership is HSBC, First Caryl and Intel Pacific. SSKI has been voted as the top domestic brokerage house in the research category, twice by Euromoney survey and four times by Asia money survey. COMPANY PROFILE
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India Bulls Financial Services is one of India’s leading and fastest growing financial services firms. It is a major player in the capital markets dealing with securities broking, margin lending, depository services, equity research services, and commodities trading. It also provides credit services like loan against shares, mortgage and consumer finance. It is constantly tapping new business areas to drive growth. India Bulls Financial Services Ltd. (IBFSL) established one of the first in-house developed trading platforms in India. It expanded its service offerings to include Equity, F&O, wholesale Debt, Mutual fund, IPO distribution and Equity Research. It ventured into Insurance distribution and commodities trading. It has always focused on brand building and the franchise model for expanding its business. It came out with its Initial Public Offer (IPO) in September 2004 and it gradually emerged as a market leader in securities brokerage industry with 43% of online share trading. In the financial year 2006-07 it was included in the prestigious Morgan Stanley Capital International Index (MSCI). India Bulls Financial Services Ltd has given us an opportunity to do an internship project for the company. The goals of this project have been clearly defined. The various goals are as follows
nt acquisition
Revenue generation
Mapping the Risk Profile of Clients
Coordination with the back office
Client servicing and Retention
Understanding the Media Sector
Studying the patterns of the derivatives market
Change is occurring at an accelerating rate; today is not like yesterday, and tomorrow will be different from today. For Businesses, change is the only constant. Firms that do not change and adjust themselves to the market trends will go out of business in no time. Continuing today’s strategy is risky; so is turning to a new strategy. Therefore, tomorrow’s successful companies will have to heed three certainties:
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Global forces will continue to affect everyone’s business and personal life.
Technology will continue to advance and amaze us.
There will be a continuing push toward deregulation of the economic sector.
These three developments—globalization, technological advances, and deregulation —spell endless opportunities. Globalization is characterized by the increases in the flow of goods and services, capital, technology and information, as well as the mobility of individuals across borders. In simple terms it is the integration of one country with the rest of the world in all economic spheres. The process of globalization can be seen in terms of trade in goods and services, trade in finance and Foreign Direct Investment. Since 1990, India’s financial system has become more exposed to the global bonding of the financial, IT and telecommunications industries whose linkages keep widening, deepening and growing. India’s fitful, ambivalent attempts at privatization and opening to private participation in the provision of infrastructure services have also contributed to reciprocal intrusions with the global financial system impinging on India’s capital markets and vice-versa. The dotcom and telecom bubbles have burst, but the financial connections they created have remained intact. One outcome has been the creeping but relentless internationalization of India’s financial system, regardless of domestic popular or political preferences. The choice of a sheltered domestically protected alternative to a globally connected financial system no longer exists. India emerges from autarchic isolation into unwitting global prominence, its key ‘systems’ political, economic, social, financial, institutional and ‘markets’ consumer, producer, commodity, factor and financial are being exposed to the hot influences of globalization – some subtle, others quite rampantly ‘in-your-face’. Being perhaps the most tactile, open and nonphysical, India’s financial system and market have felt the earliest and greatest pressure to accommodate and adapt to globalization more quickly than other systems and markets. INTRODUCTION TO ONLINE TRADING Project Analysis 32
OUTCRY SYSTEM The broker has to buy or sell securities for which he has received the orders. For this, the broker or his authorized representatives goes to the stock exchange. This method is called the open outcry system. Basically the brokers shout while buying or selling the securities. The floor of the stock exchange is divided into a number of markets also known as ‘post pit’ or wing based on particular securities dealt there. In the post pit or wing, the broker using ‘open outcry’ method makes an offer or bid price. For making the necessary bargain, he quotes his purchase or sale price, also known as offer or bid price. The dealer, to whom the price is quoted, quotes his own price when the quotation of the dealer suits the broker, he may loose the bargain. If he is not satisfied with the quote price, he may turn to some other dealer. On the close of the bargain, the dealer as well as the broker makes a brief note of the particulars of the deal. Such notes are made on some pad and on it the number of shares, the price agreed upon, the name of the party, what membership number etc., are noted. DISADVANTAGES OF OUTCRY SYSTEM
It lacks transparency.
The scope of manipulation, speculation and mal practice is more.
Signal were more important in the outcry system any member who could not interpret the buy/sell signal correctly often landed himself in disaster situation.
In audibility was another disadvantage of the outcry system.
Due to the above disadvantages of the outcry system the INDIABULLS has shifted from outcry system to online trading from February 29th 1997.
MANUAL TRADING Trading procedure before introduction of online trading Trading on stock exchanges is officially done in the trading ring. In the trading ring the space is provided for specified and non-specified sections, the members and their authorized assistants have to wear a badge or carry with them an identity card given by the exchange to enter the trading ring. They carry a sauda book or confirmation memos, duly authorized by the 33
exchange and carry a pen with them. The stock exchanges operations are floor level are technical in nature .Non-members are not permitted to enter in to stock market. Hence various stages have to be completed in executing a transaction at a stock exchange .The steps involved in this method of trading have given below: Choice of broker: The prospective investor who wants to buy shares or the investors, who wants to sell shares and transact business, have to act through member brokers only. They can also appoint their bankers for this purpose as per the present regulations. Placement of order The next step is the placing order for the purchase or sale of securities with a broker. The order is usually placed by telegram, telephone, letter, fax etc or in person. To avoid delay, it is placed generally over the phone. The orders may take any one of the forms such as At Best Orders, Limit Order, Immediate or Cancel Order, Limited Discretionary Order, and Open Order, Stop Loss Order. Execution of order or contract Orders are executed in the trading ring of the BSE. This works from 11:30 to 2.30 P.M on all working days Monday to Friday, and a special one-hour session on Saturday. The members or the authorized assistants have to wear a badge given by the exchange to enter into the trading ring. They carry a sauda Block Book or conformation memos, which are duly authorized by the exchange when the deal is struck; both broker and jobber make a note in their sauda block books. From the sauda book, the contract notes are drawn up and posted to the client. A contract note is written agreement between the broker and his clients for the transaction executed. Drawing Up and Bills: Both sale and purchase bills are prepared along with the contract note and it is posted on the same day or the next day. This in a purchase transaction, once the shares are delivered to the client effects payment for the purchases and pays the stamp fees for transfer, a bill is made out
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giving the total cost of purchase, including other expenses incurred by the broker in the price itself. With this, the process ends. DEMATERLIZATION Dematerialization is the process by which physical certificates of an investor are converted to an equipment number of securities in electronic from and credited in the investor account with his DP. In order to dematerialize the certificates, an investor has to first open an account with a DP and then request for the Dematerialization Request Form, which is DP and submit the same along with the share certificates. The investor has to ensure that he marks “Submitted for Dematerialization” on the certificates before the shares are handed over to the DP for demat. Dematerialization can only be done to those certificates, which are already registered in your name and belong to the list of securities admitted for Dematerialization at NSDL. Most of the active scrip’s in the market including all the scrip’s of S&P CNX NIFTY and BSE SENSEX have already joined NSDL. This list is steadily increasing. Briefly, the process is as follows: after completion of transfer, the investor gets the option to dematerialize such shares. Investor’s willing to exercise this option sends a Demat request along with the option letter sent by the company to his DP. The company or its R&T agent would confirm the Demat request on its receipt from the DP to reduce risk of loss in transit. Dematerialized shares do not have any distinctive or certificate numbers. These shares are fungible-which means that 100 shares of a security are the same as any other 100 shares of the security. Odd lot shares certificates can also be dematerialized. Dematerialization normally takes about fifteen to thirty days. To get back dematerialized securities in the physical form, request DP for Rematerialization of the same is made. dematerialization is the process of converting electronic shares in to physical shares. Benefits of Demate
It reduces the risk of bad deliveries, in turn saving the cost and wastage of time associated with follow up for rectification. This has lead to reduction in brokerage to the extent of 0.5% by quite a few brokerage firms. 35
In case of transfer of electronic shares, you save 0.5% in stamp duty. You avoid the cost of courier / notarization.
You can receive your bonuses and rights issues into your DA as a direct credit, this eliminating risk of loss in transit.
You can also expect a lower interest charge for loans taken against Demat shares as compared to loans against physical shares.
There is no lost in transit, thus the overheads of getting a duplicate copy in such circumstances is reduced.
RBI has also reduced the minimum margin to 25% for loans against dematerialized securities as against 50% for loans against physical securities.
ONLINE TRADING Before getting in to the online trading we should know some things about the internet, ecommerce and etc. Internet Internet is a worldwide, self-governed network connecting several other smaller networks and millions of computers and persons, to mega sources of information. This technology shrinks vast distances, accelerating the pace of business reforms and revolutionizing the way companies are managed. It allows direct, ubiquitous links to anyone anywhere and anytime to build up interactive relationships. A combination of time and space, called the Internet promises to bring unprecedented changes in our lives and business. Internet or net is an inter-connection of computer communication networks spanning the entire globe, crossing all geographical boundaries. It has re-defined the methods of communication, work study, education, business, leisure, health, trade, banking, commerce and what not it is virtually changing every thing and we are living in dot.com age. Net being an interactive two way medium, through various websites, enables participation by individuals in business to business and business to consumer commerce, visit to shopping arcades, games, etc. in cyber space even the information can be copied, downloaded and retransmitted. 36
The use of Internet has grown 2000 percent in last decade and is currently growing at 10 percent per month. In India, growth of Internet is of recent times. It is expected to bring changes in every functional area of business activity including management and financial services. It offers stock trading at a lower cost. Internet can change the nature and capacity of stock broking business in India. E-commerce Electronic commerce is associated with buying and selling over computer communication networks. It helps conduct traditional commerce through new way of transferring and processing of information. Information is electronically transferred from computer to computer in an automated way. E-commerce refers to the paperless exchange of business information using electronic data inter change, electronic technologies. It not only reduces manual processes and paper transactions but also helps organization move to a fully electronic environment and change the way they operated. PC’s and networking attempts to introduce banks of the tools and technologies required for electronic commerce. The computers are either workstations of individual office works or serves where large databases and information reside. Network connects both categories of computers; the various operating systems are the most basis program within a computer. It manages the resources of the computer system in a fair and efficient manner. we can enter in to the concept known as online trading. BENFITS IN THE TRADING SYSTEM 1.Trading Members: they are member of NSE. They can trade either on their own account or on behalf of their clients including participants. The exchange assigns a trading members ID to each trading member who can have more than one use. But the maximum number of users allowed for each trading member is notified by the exchange from time to time. 2.Clearing members: They are members of NSCCL and carry out risk management activities and confirmation\ inquiry of trades through the trading system. 3.Participants: They are clients of trading members like the financial institutions. These clients may trade through multiple trading members but settle through a single clearing member. 37
Corporate Hierarchy: In F & I trading software, a trading member has the facility of defining a hierarchy amongst users of the system. 1) Corporate Manager: The term is assigned to a user placed at the highest level in a trading firm. Such a user can perform at the functions such as order and trade related activities, receiving report for all branches of the trading member firm and also dealers of the firm. He can only define exposure limits for the branches of the firm. 2) Branch Manager: The term is assigned to a user who is placed under the corporate manager. He can perform and view order and trade related activities for all dealers under that branch. EVOLUTION OF BROKING IN INDIA: The evolution of a broking in India can be categorized in three phases
Stockbrokers will offer on their sites features such as live portfolio manager, live quotes, market research and news, etc. to attract more investors.
Brokers will offer online broking and relationship management by providing and offering analysis and information to investors during broking and non-broking hours based on their profile and needs, i.e. customized services.
Brokers (now e-brokers) will offer value management or services like initial public offering online, on-line asset allocation, portfolio management, financial personally or telephonically).
In India: Internet trading started in India on 1st April 2000 with 79 members seeking permission for online trading. The SEBI committees on internet based securities trading services has allowed the net to be used as an Order Routing System (ORS) through registered stock brokers on behalf of their clients for execution of transaction. Under the ORS the client enters his requirements (security, quantity, price buy/sell) on broker’s site. Objectives: 38
Internet trading is expected to
Increase transparency in the markets,
Enhance market quality through improved liquidity, by increasing quote continuity and market depth,
Reduce settlement risks due to open trades, by elimination of mismatches,
Provide management information system,
Introduce flexibility in system, so as to handle growing volumes easily and to support nationwide expansion of market activity.
Besides, through internet trading three fundamental objectives of securities
regulation
can be easily achieved, these are:
Investor protection
Creation of a fair and efficient market, and
Reduction of the systematic risks.
Some of the brokers offering net trading include ICICI direct, kotakstreet, etc. Requirements for net trading For investors 1. Installation of a computer with required specification 2. Installation of a modem 3. Telephone connection 4. Registration for on-line trading with broker 5. A bank account 6. Depository account 7. Compliance with SEBI guidelines for net trading The following should be produced to get a demat account and online trading account 39
As identity proof & address proof any one of the following:
Voter ID card
Driving license
PAN card( in case of to trade more than 50000)
Ration card
Bank pass book
Telephone bill
ther requirements, which are necessary
First page of the bank pass book and last 6 months statement.
Bank manager’s signature along with bank’s seal, manager registration code on photograph.
For stock brokers 1. Permission from stock exchange for net trading 2. Net worth of Rs. 50 lac 3. Adequate back-up system 4. Secured and reliable software system 5. Adequate, experienced and trained staff 6. Communication of order (trade confirmation to investor by e-mail) 7. Use of authentication technologies 8. Issue of contract notes within 24 hours of the trade execution 9. Setting up a website. The net is used as a medium of trading in internet trading. Orders are communicated to the stock exchange through website. Internet trading started in India on 1st April 2000 with 79 members seeking permission for online trading. The SEBI committees on internet based 40
securities trading services has allowed the net to be used as an Order Routing System (ORS) through registered stock brokers on behalf of their clients for execution of transaction. Under the Order Routing System the client enters his requirements (security, quantity, price, and buy/sell) in broker's site. They are checked electronically against the clients account and routed electronically to the appropriate exchange for execution by the broker. The client receives a confirmation on execution of the order. The customer's portfolio and ledger accounts get updated to reflect the transaction. The user should have the user id and password to enter into the electronic ring. He should also have demat account and bank account. The system permits only a registered client to log in using user id and password. Order can be Procedure for net trading Step 1: Those investors, who are interested in doing the trading over internet system i.e. NEAT-IXS, should approach the brokers and get them self registered with the Stock Broker. Step 2: After registration, the broker will provide to them a Login name, Password and personal identification number (PIN). Step 3: Actual placement of an order. An order can then be placed by using the place order window as under: (a) First by entering the symbol and series of stock and other parameters like quantity and price of the scrip on the place order window. (b) Second, fill in the symbol, series and the default quantity. Step 4: It is the process of review. Thus, the investor has to review the order placed by clicking the review option. He may also re-set to clear the values. Step 5: After the review has been satisfactory, the order has to be sent by clicking on the send option. Step 6: The investor will receive an "Order Confirmation" message along with the order number and the value of the order. Step 7: In case the order is rejected by the Broker or the Stock Exchange for certain reasons 41
such as invalid price limit, an appropriate message will appear at the bottom of the screen. At present, a time lag of about 10 seconds is there in executing the trade. Step 8: It is regarding charging payment, for which there are different mode. Some brokers will take some advance payment from the investor and will fix their trading limits. When the trade is executed, the broker will ask the investor for transfer of funds to his account. Internet trading provides total transparency between a broker and an investor in the secondary market. In the open outcry system, only the broker knew the actually transacted price. Screen based trading provides more transparency. With online trading investors can see themselves the price at which the deal takes place. The time gap has narrowed in every stage of operation. Confirmation and execution of trade reaches the investor within the least possible time, mostly within 30 seconds. Instant feedback is available about the execution. Some of the websites also offer;
News and research report
BSE and NSE movements
Stock analysis
IPO and mutual fund centers
Step by step procedure in online trading: Following steps explain the step by step approach to on-line trading:
Log on to the stock broker's website
Register as client/investor
Fill the application form and client broker agreement form on the requisite value stamp paper
Obtain user ID and pass word
Log on to the broker's site using secure user ID and password
Market watch page will show real time on-line market data
Trade shares directly by entering the symbol or number of the security 42
Brokers server will check your limit in the on-line account and demat account for the number of shares and execute the trade
Order is executed instantly (10-30 seconds) and confirmation can be obtained.
Confirmation is e-mailed to investor by broker
Contract note is printed and mailed in 24 hours
Settlement will take place automatically on the settlement day
Demat account and the bank account will get debited and credited by electronic means.
ONLINE TRADING HAS LED TO ADDITIONAL FEATURES SUCH AS
Limit / stop orders: orders that can be go unfilled, but there is an extra Charge for this leeway facility since one need to hold a price.
Market orders: orders can be filled at unexpected prices, but this type is much more risky, since you have to buy stock at the given price.
Cash account: where funds have to be available prior to placing the order.
Margin account: where orders can be placed against stocks, to increase Purchasing power.
ADVANTAGES OF ONLINE TRADING
Online trading has made it possible for anyone to have easy and efficient access to more reports and charts than it was previously possible if one went to any brokers' office. Thus we have access to a lot more information online.
Online trading has let room for smaller organizations to compete with multinational organizations since it is no longer a leg it issue. Being online does not identify the size of any particular organization, therefore, this additional power to the underdogs.
Online trading has allowed companies to locate themselves where they want as physical location is not an issue anymore. Companies can establish themselves according to their gains and losses, for instance where tax (sales and value added taxes) is best suited to them.
Online trading gives control to individuals and they can exercise it over accounts thus comprehend what is going on when they trade. It is like going back to school and reeducating oneself on how to trade online. 43
Individuals’ benefit by saving comparatively a lot more when trading online as the cost per trade is less.
Individuals can invest in a variety of products, unlike earlier when people bought bonds, mutual funds, and stock for long-term basis and sat on them. Now they can invest in stocks, stock and index options mutual funds,
government, and even insurance.
INVESTORS REASONS TO TRADE ONLINE
They have control over their accounts, can make their own decisions and don’t have to give reasons for their actions. They are independent.
They have a reason to participate in the market and learn about it.
It is interesting, cheap, easy, fast, and convenient.
A lot of information is online so they can keep up-to-date with what is happening in the trading world.
It will give investors a greater choice and better realization.
The immediate impact will be competition and benefits will accrue to the investors.
It will lead to brokerage commissions going down and brokers striving to increase business afloat.
Investors will now go to place, which have better trading conditions and also members to offer them better facilities.
They have access to numerous tools to invest, and can create their own portfolio.
HERE ARE THE POSSIBLE DISADVANTAGES
When network crashes, there will be problems and delays due to a large influx of rapid online trading criteria.
Individuals are restricted to first-hand financial guidance. This simply means that the individual is himself / herself alone to.
A tax (sales tax and value added tax) evaluation becomes an issue, especially when you are trading internationally. 44
One has no idea with whom he is dealing with on the other end.
According to a study conducted by Mary Rowland, careful investor: is online trading bad for your portfolio, the more one trades the less returns one gets, meaning that an addicted trader gets, carried away online and begins to trade for too much which causes losses for him / her.
SETTLEMENT AT INDIABULLS The NSE first introduced online trading in India. The Online trading system imparted a greater level of transparency and investors preferred exchanges that offered Online trading because of the following factors:
The ease of operation from the view of the both members and the investors.
Increase in the confidence of the investors because of higher level of transparency.
Facilities better monitoring of the market by the exchange.
The best price achieved in buying and selling.
All these resulted in ever-increasing volumes on the exchanges offering the online trading. TRADING PROCEDURE AT INDIABULLS STOCK BROCKING IndiaBulls deals in buying and selling equity shares and debentures on the National Stock Exchange (NSE), the Bombay Stock Exchange (BSE) and the Over-The-Counter Exchange of India (OTCEI). India Bulls is provided with a computer and required software from their registered stock exchanges. These centers are called “Broker Work Stations”. These computers are connected to the server at the stock exchanges through cable. The member or broker sitting in his office can send the quotations, orders, negotiations, deals, in-house deals, auction orders etc., through the computer. The Central trading system (CTS) will accept these orders and send it for match. If there is any mistake in the order, CTS will reject the orders and send respective error message to the member concern. All these operations are in built. The main objective of CTS is to monitor the Stock Exchanges operations. 45
Trading timings are from 9:00 A.Mto 3:30 P.M. on all 5 days of the trading period. Monday to Friday is the trading period in all the stock exchanges. SEBI has stipulated that all the stock exchanges in India must have same trading period. BROKER WORK STATION At the broker workstation the BBO’s, the last traded price, the day‘s opening price, previous day’s closing price, highest and lowest prices, the weighted average price and total trade value will be available continuously, as the BBO for each scrip. Other information will be available on query from the BWS. These include top gainers /losers of the day. Trader-wise, scrip wise net position, client wise net position, top scrip by the volume/value, market summary etc. Brokers are also provided with information relating to the companies in the matter of Book closure, Dividend declarations, resolutions in board meeting, information about liquidated companies, company report etc. ORDERS Orders can be done one at a time or in a batch mode. The submitted order will be accepted at the CTS, after validation if it finds any invalid reason the order is return back to the BWS, with the appropriate error message. If Accepted at the CTS it will be added to the local pending order book. The order will then be taken up for matching, if it is a buy order the system tries to find a sell order, which fits the requirement of the buy order, when such match is found a trade gets executed. Each trade involves two brokers and respective traders who sent the order. Both these traders are informed of the trade being executed at their respective BWS. At the BWS the trade is added to the local trade book. Orders sent by the brokers are two types:
Good for the day (GFD) 46
Good till cancellation(GTC)
Good for the day This is also called as “market order”. For an order if the member selects the deal as good for the day, the order is treated as market order. If a “best bid” founds match with “best order” then the transaction gets executed. If the match is not found then after trade time the order gets cancelled that day. Next day he has to place a new order. For example if a member wants to purchase 1000 shares of satyam info @ 400 each through Good for Day order. If the correct match is not found, order gets cancelled automatically and new quotation has to be placed the next day. Good till cancellation This order is forwarded to the last trading day of that settlement period. This is also called as carry forward order like GFD; broker has to select the option of GTC for the order. If the order finds match with in the trading settlement period, the order is executed. If no match is found, the order is cancelled on the last day of settlement period. This order is not carried forward to the next settlement period. For example, if a member a place purchase order of 500 shares of SBI @ 690 per share and selects the order as GTC and place an order. If the match is not found on that day it will be forwarded to the next day until trading settlement period day. SETTLEMENT OF TRANSACTIONS Clearing of transaction in the form of shares and cash is called settlement. Buyers will take the delivery of shares through the depository participants like INDIABULLS and others. Finally, the settlement is made by means of delivering the share certificates along with the transfer deeds. The transferor (or the seller) duly signed transfer deed. It bears a stamp of the selling broker. The buyer then fills up the certificates fills up the particulars in the transfer deed. Settlement can be done in the following way.
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Spot settlement: under this method, the delivery of securities and payment for them are affected on the day of the contract itself. Rolling settlement: Under this rolling settlement the trading is on “T+2”,basis i.e. if Monday is trading day then Wednesday is the paying day . In case on non-delivery, the securities will go for auction. DETAILS OF PROCEDURES: Delivery in : The members who are in pay-out position delivers share certificates in to clearing house within the settlement period along with the delivery Chelan filled in with the details of share certificates which has folio numbers or distinctive numbers etc. Delivery out: The buyer of shares who made pay in position will take delivery of shares from the clearing house. Pay-in: The member who is in paying position shall pay for value of shares with in the trading settlement period (T+2). Payout: The cheques paid in the clearinghouse will be paid to members who are in paying position. All disputes arising between members regarding non-deliveries, non-payments, good and bad deliveries pertaining to the settlement will be settled by the settlement committee of the exchange. The given flow chart clearly explains the process of online trading:
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L o g in
S e ll t r a n s c a t io n
B u y t r a n s c a t io n
T h e s y s te m w ill c h e c k y o u r d p ac c o u n t q u an tity
T h e s y s te m w ill c h e c k b u y in g lim its
O rd e rs ac c e p te d
R e je c t e d o r d e r s w o u ld b e c o m m u n ic a t e d a lo n g w it h r e a s o n s
o rd e rs ac c e p te d
y o u r o r d e r is t r a n s m it t e d t o e x c h a n g e f o r e x e c u t io n
p e n d in g b u y o r d e r s w o u ld b e d is p la y e d o n y o u r s c reen
y o u m a y e d it y o u r p e n d in g o r d e r
o n e x e c u t io n o f y o u r o rd e rs
y o u m a y e d it y o u r p e n d in g o r d e r
y o u m a y d e le t e y o u r p e n d in g o r d e r
f la s h e d o n y o u r s c r e e n im m e d ia t e ly o n e x e c u t io n
c o n f o r m a t io n c o u l d b e s e n d to y o u r e - m a il a n d m o b ile
49
p e n d in g s e ll o r d e r s w o u ld b e d is p la y e d o n y o u r s c reen
y o u m a y d e le t e y o u r p e n d in g o r d e r
c o n t r a c t n o t e w o u ld b e s e n t t o b y m a il o r h a n d d e liv e r y
CHAPTER III DATA ANALYSIS & INTERPRETATION
DATA ANALYSIS 1. What is your age? TABLE 1: It shows the age group of respondents and percentage of each group 50
Type of respondents(in years)
No. of respondents
Percentage (%)
Below 25
7
14
25-35
27
54
35-50
11
22
50 and above
5
10
DATA ANALYSIS: The above table shows that 27 respondents that means the maximum no. of investor’s ages are in between 25 to 35 and 11 respondents of investor’s age is in between 35 to 50, 7 respondents age is below 25 and 5 respondents age is 50 and above. Chart I: It shows the age categories of respondents and percentage of each category
INTERPRETATION: From the above graph we can state that there are larger number of investors are in the age group of 25-30 Years only
2. What is your occupation? TABLE 2: This table shows the occupation of respondents and percentages of different types of respondents. 51
Occupation of respondents
No. of respondents
Percentage (%)
Business
23
46
Salaried
27
54
Honorarium basis
0
0
Others
0
0
DATA ANALYSIS:
The above table shows that 27 respondents occupation is salaried based
employees and rest of them are doing business no one is there in remaining two types of respondents CHART 2: This table shows the type of occupation of respondents and percentages of different types of respondents
INTERPRETATION: From the above graph we can state that there are large number of investors occupation is salaried employee only. 3. What are your educational qualifications? TABLE 3: The table shows the educational qualifications of respondents and its percentages of different types of respondents.
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Type of respondents
No. of respondents
Percentage
Inter and below
2
4
Degree
16
32
P.G
32
64
PhD
0
0
DATA ANALYSIS: The above table shows that 32 investors are post Graduates, 16 investors of them and 2 investors qualification is inter and below CHART 3: This table shows the type of educational qualifications of respondents and percentages of different types of respondents
DATA INTERPRETATION: The number of PG respondents is more than the other respondents so the percentage is more than the other respondents. 4. What is your monthly income? TABLE 4:This table shows monthly income of respondents and their percentages of different types of respondents. Monthly Income
No. of respondents
Percentage
20000and below
13
26
20
40
30000-40000
14
28
40000and above
3
6
20000 to 30000
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DATA ANALYSIS: The above tables show that 20 of the respondents monthly income is between 20,000 to 30,000, 14 of them income is between 30,000 to 40,000, 13 of investors monthly income is 20,000 and below and rest of them income is 40,000. CHART 4: This chart shows monthly income of respondents and percentages of different types of respondents.
DATA INTERPRETATION: The percentage of the respondents whose monthly incomes are moderate, in higher so the percentage of the respondents is higher. 5. Number of dependents? TABLE 5:The below table shows that number of respondents and different types of investment avenues. Type of Investment
No. of respondents
Percentage
3 and below
11
22
4
12
24
14
28
13
26
5 and above No dependents
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DATA ANALYSIS:
The above table shows 14 of respondents having five and above
dependents, 13 of them having no dependents, 12 of them having four dependents and rest of them having three and below dependents.
CHART 5: This chart shows no. of dependents of respondents and percentages of different types of respondents. DATA INTERPRETATION: The number of respondents in the five and above type of investment is more so their percentage is high compared to others 6.How often do you monitor your investments? TABLE 6:This table shows how often respondents monitor their investments. Type of respondents
No. of respondents
Percentage
Daily or weekly
14
28
Monthly
16
32
Yearly
6
12 55
Occasionally
14
28
DATA ANALYSIS: The above table shows that 16 of them monitor their investment monthly, 14 of the respondents monitor their investments occasionally and 14 of them monitor daily or weekly and 6 of them monitor their investments yearly. CHART 6:This table shows how often respondents monitor their investments and their percentages.
DATA INTERPRETATION: The 32% of them monitor their investments monthly, 28% of the respondents monitor their investments occasionally and 28% of them monitor daily or weekly and 12% of them monitor their investments yearly.
7. In which investment avenue have you invested? TABLE7:The table shows that no. of respondents and different types of investment avenues. Type of respondents
No. of respondents
Percentage
Equity
22
44
Debt instruments
06
12
Insurances
12
24
others
10
20
56
DATA ANALYSIS: The above chart denoting that investors giving most preference to equity i.e. 44%, 12% of them debt instruments apart from these 24% of them are preferring insurance, 78% of them prefer others. CHART 7:This chart shows no. of dependents of respondents and percentages of different types of respondents.
DATA INTERPRETATION: The above table shows denoting that investors are giving priority to investment in equity funds 22 followed by insurance, 12 and debt instruments them are preferring insurance .
8. Which type of stock have you invested in? TABLE8 :This table shows preferred stock of respondents and percentages of different types of respondents. Preferred stock of respondents
No. of respondents
Percentage
Speculative stocks
08
16
Blue chip stocks
14
28
Growth stocks
12
24
Income stocks
10
20
57
DATA ANALYSIS: The above chart reveals that 16% of them preferring speculative stocks,28% of the investors preferring blue chip stocks , 24% of them preferring growth stocks and 20% of them preferring income stocks. CHART 8:This chart shows preferred stock of respondents and percentages of different types of respondents.
INTERPRETATION: The above table shows that reveals that 08 respondents re preferring speculative stocks, 14 of the investors preferring blue chip stocks, 12 of them preferring growth stock and rest them preferring income stock. 9. Which statement best describes you approach as an investor? a) I am cautious about taking risks and I want to avoid losses. b) I am somewhat caution about taking risks, and I can handle relatively small losses. c) I can take some risk that is generally associated with greater account growth potential but I wish to minimize short term losses in my account. d) I am open to taking risk for growth potential. I am less concerned about short term losses or gains; I am more invested in long term growth.
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TABLE9: This table shows preferred rate of risk of respondents and percentages of different types of respondents. Type of preferred rate of
No .of respondents
Percentage
a
6
12
b
13
26
c
20
40
d
9
18
e
2
4
risk
DATA ANALYSIS: The above table revealing that 40%of the investors are taking moderate risk and they are also not ready to face short term losses and rest of them are expecting either short term or long term returns.
CHART 9.This chart shows preferred rate of risk of respondents and percentages of different types of respondents.
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DATA INTERPRETATION: The above table revealing that 40%of the investors are taking moderate risk and they are also not ready to face short term losses and rest of them are expecting either short term or long term returns.
10. When is your next big spending due/ expected?
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TABLE10: This table shows next big spending expected due of respondents and percentages of different types of respondents. Type of respondents
No. of respondents
Percentage
Less than 1 year
23
46
1-3 years
16
32
3-5 years
5
10
More than 5 years
6
12
DATA ANALYSIS: The 46% of the respondents are expecting their next big spending due/expected will be less than one year, 32% of them expecting it will be between 1-3 years , 10% of them expecting between 3-5 years and 12% of them are expecting more than 5 years expenditure. CHART 10:This charts shows next big spending due/ expected of respondents and percentages of different types of respondents.
INTERPRETAION: The above table shows 23 of the respondents are expecting their next big spending due/expected will be less than one year, 16 of them expecting it will be between 1-3 years , 05 of them expecting between 2-3 years and 06 of them are expecting more than 5 years expenditure. 11. Do you have an emergency fund set aside to meet any unexpected requirement?
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TABLE11:This table shows an emergency fund set of respondents and percentages of different types of respondents. Type of respondents
No. of dependents
Percentage
No
6
8
1 month’s expenses
10
20
2-3 month’s expenses
16
32
More than 6 months
18
36
DATA ANALYSIS: The above chart showing that 36% of the respondents are having emergency fund to meet above 6 months expenses, 32% of them having emergency fund to meet 3-5 years, 20% of them having 1 month’s expenses and remaining of them are not having any emergency fund. CHART 11:This chart shows an emergency fund set of respondents and percentages of different types of respondents.
INTERPRETATION: The above table shows that 18 of the respondents are having emergency fund to meet above six months expenses, 16 of them having emergency fund to meet 2-3 moths 10 expenses of them having one month expenses and remaining of them are not having any emergency fund. 12. If you receive an unexpected bonus equaling to 3 months salary, will you______________? TABLE12:This table shows choice of investment of respondents and percentages of different types of respondents. 62
Type of
No. of respondents
Percentage
Bank deposit
20
40
Instruments
11
22
Shares
10
20
Personal use
9
18
respondents
DATA ANALYSIS: The chart denoting that 40% of respondents prefer a bank deposit at 5% of guaranteed return, 22% of them are preferring instruments and 20% of them are interested to invest in shares. CHART 12:This chart shows choice of investment of respondents and percentages of different types of respondents.
INTERPRETATION : The above table denoting that 20 of respondents prefer a bank deposit at 5% of guaranteed returns, 11 of them are preferring instruments and 10 of them are interested to invest in shares. 13. When you made an investment decision, you____? TABLE13:This table shows how the respondents made investment decision and percentages of different types of respondents. Type of respondents
No. of respondents
Percentage
Decide on gut feel
4
8
63
Advice from well wishers
9
18
Rely on investment advisor
29
58
Analyzes all options thoroughly.
8
16
DATA ANALYSIS: The above chart showing that 60% of the respondents are taking decision by analyzing all the options thoroughly, 58% of them are taking the advices from the investment advisor, 18% of them taking advice from well wishers and 8% of them are taking decision on gut feel. CHART 13:This chart shows how the respondents made investment decision and percentages of different types of respondents.
INTERPRETATION : The above table shows that 08 of the respondents are taking decision by analyzing all the option thoroughly, 29 of them are taking the advises from the investment adviser, 9 of them taking advise from well wishers and 4 of them are taking decision on gut feel.
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14. Investments with higher short term volatility are more likely to have a greater chance are more likely to have a greater chance of meeting long term goals. Conversely, investments likely to provide stable returns and minimum short term losses are likely to meet long term investment goals with this mind, which of the following is most consistent with your investments attitude? TABLE14: This table shows type of goals of respondents and percentages of different types of respondents. Type of respondents No. of respondents Percentage Short term goals 9 18 Both 23 46 Long term goals 12 24 No one 6 12 DATA ANALYSIS: The 18% of respondents are equally concerned about avoiding short term losses as well as meeting long term goals and rest of them are expecting long term profits by either avoiding short term losses or bearing losses. CHART 14:This chart shows type of goals of respondents and percentages of different types of respondents.
INTERPRETATION: The above table shows that 9 of respondent are equally concerned about avoiding short term losses as well as meeting long term goals and rest of them are expecting long term profits by either avoiding short term losses or bearing losses
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15. The chart below shows possible growth of Rs 100 over a five year period for a series of different investment strategies which of the five scenario’s are you most comfortable with as investor? TABLE15:This table shows risk preferences of respondents and percentages of different types of respondents. Type of
No. of respondents
Percentage
130 to 160
11
22
110 to 176
18
36
90 to 200
14
28
77 to 250
7
14
respondents
DATA ANALYSIS: The 36% of the respondents are comfortable with 110 to 176, 28% of them are comfortable with90 to 200, 22% of them are comfortable with 130 to 160 and rests of them are comfortable with 77 to 250 CHART 15: This chart shows risk preferences of respondents and percentages of different types of respondents.
INTERPRETATION: The above table shows that 18 of the respondents are comfortable with 110 to 176, 14 of them are comfortable with 90 to 200, 11 of them are comfortable with 130 to 160 and rest of them comfortable with 77 to 250. 16. What percentage your portfolio is allocated to equity currently? 66
TABLE16:This table shows what percentage of respondent’s portfolio is allocated to equity and percentages of different types of respondents. Type of respondents
No. of respondents
Percentage
No investment in equity
2
4
Up to 10%
20
40
Between 10-30%
18
36
Between 30-60%
10
20
DATA ANALYSIS: The chart denoting that 40% of the respondents are allocated up to 10% of their portfolio to equity, 36% of them are allocated up to 10 to 30% of their portfolio , 20% of them are allocated to equity between 30 to 60% of their portfolio and rest of them not invested in equity CHART 16: This chart shows what percentage of respondent’s portfolio is allocated to equity and percentages of different types of respondents.
INTERPRETATION : The above table denoting that 20 of the respondents allocated up to 18 of them are allocate
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CHAPTER IV FINDINGS SUGGESTIONS
FINDINGS
The 46% of the respondents are expecting their next big spending due/expected will be less than one year, 32% of them expecting it will be between 1-3 years , 10% of them
68
expecting
between 3-5 years and 12% of them are expecting more than 5 years
expenditure. The above table revealing that 40%of the investors are taking moderate risk and they are also not ready to face short term losses and rest of them are expecting either short term or long term returns. The above chart reveals that 16% of them preferring speculative stocks,28% of the investors preferring blue chip stocks , 24% of them preferring growth stocks and 20% of them preferring income stocks. 16 of them monitor their investment monthly, 14 of the respondents monitor their investments occasionally and 14 of them monitor daily or weekly and 6 of them monitor their investments yearly 14 of respondents having five and above dependents, 13 of them having no dependents, 12 of them having four dependents and rest of them having three and below dependents. 20 of the respondents monthly income is between 20,000 to 30,000, 14 of them income is between 30,000 to 40,000, 13 of investors monthly income is 20,000 and below and rest of them income is 40,000
32 investors are post Graduates, 16 investors of them and 2 investors qualification is inter and below 27 respondents occupation is salaried based employees and rest of them are doing business no one is there in remaining two types of respondents
The 36% of the respondents are having emergency fund to meet above 6 months expenses, 32% of them having emergency fund to meet 3-5 years, 20% of them having 1 month’s expenses and remaining of them are not having any emergency fund. 40% of respondents prefer a bank deposit at 5% of guaranteed return, 22% of them are preferring instruments and 20% of them are interested to invest in shares. 60% of the respondents are taking decision by analyzing all the options thoroughly, 58% of them are taking the advices from the investment advisor, 18% of them taking advice from well wishers and 8% of them are taking decision on gut feel. The 18% of respondents are equally concerned about avoiding short term losses as well as meeting long term goals and rest of them are expecting long term profits by either avoiding short term losses or bearing losses
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The 36% of the respondents are comfortable with 110 to 176, 28% of them are comfortable with90 to 200, 22% of them are comfortable with 130 to 160 and rests of them are comfortable with 77 to 250
The chart denoting that 40% of the respondents are allocated up to 10% of their portfolio to equity, 36% of them are allocated up to 10 to 30% of their portfolio , 20% of them are allocated to equity between 30 to 60% of their portfolio and rest of them not invested in equity
SUGGESTIONS The study shows that most of the investor’s lies in moderate risk preferers. The study shows that investor’s demographics lies in moderate category. The highest number of investors who operate stock market preferred to invest in Equities because of early profits. 70
Investors utilizing the company brokers report & financial reports as their data source to invest in Equities. Investors are investing in booming sectors like I.T. Investors are investing in real-estate business also. The more number of investors who operate stock market preferred to invest in equity because of more risk and simultaneously returns also there. This is strongly recommended that the investor should have a proper guidance of well experienced Broker.
The investor also should have the knowledge of analyzing financial position of company in which he wants to invest.
The SEBI has to provide some tax benefits in order to attract investments in Equities.
CONCLUSION
The study and analysis of the report deals with the different investment decisions made by different people.
It explains about the investor preference towards Equities and their risk preferences. 71
It explains the trading mode utilized by the people, preferable investment time, preferable data source and category of investment to invest in different market of the Equities.
Economic liberalization has accelerated the pace of development in the securities market. In India, the role of securities market has undergone structural transformation with the introduction of computerized online trading and interconnected market system. Investment in securities such as shares, debentures and bonds is profitable, but also involves greater deal of risks. Even Indian government wants encourage equity investment.
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ANNEXURE
QUESTIONNAIRE NAME:_______________. 1. What is your age? a) Below 25
b) 25-35 c) 35-50 d) 50 and above
2. What is your occupation? a) Business
b) salaried c) honourium basis d) others
3. Educational qualifications? 73
a) Inter and below
b) degree c) p.g d) PhD
4. Monthly income ____? A) 20000 and below
b) 20000-30000
c) 30000-40000 d) above 40000\
5. Number of dependents____? a) 3 and below
b) 4
c) 5 and above
d) no dependents.
6. In which investment avenue have you invested___? a) equity shares b) debt instruments c) insurance d) others. 7. Which type of stock have you invested in? a) Speculative stocks b) Blue chip stocks c) Growth stocks d) Income stocks 8. Which statement best describes you approach as an investor? a) I am cautious about taking risks and I want to avoid losses. b) I am some what caution about taking risks, and I can handle relatively can handle relatively small losses. c) I can take some risk that is generally associated with greater account growth potential but I wish to minimize short term losses in my account. d) I am open to taking risk for growth potential. I am less concerned about short term (less than one year) losses or gains; I am more invested in long term growth. 9. When is your next big spending due / expected? a) Less than 1 year b) between 1-3years c) between 3-5 years d) More than 5 years. 10. Do you have an emergency fund set aside to meet any unexpected requirement? a) No, I don’t have any money for emergencies b) I have enough to meet one month’s expenses. c) I have enough to meet 2-3 month’s expenses. d) I have enough to meet more than 6 month’s expenses. 11. Your receive an unexpected bonus equilent to 3 month’s salary, will you__ a) put it in a bank deposit at 5% guaranteed return? b) Invest in an instrument which gives a return is arrange of 4-7%. c) Of around 15% p.a with a downside three risk of 10%. d) Asset for personal use. 12. How often do you monitor your investments? a) Daily or weekly. c) Yearly.
b) Monthly. d) Occasionally. 74
13. When you made an investment decision, you ______? a) Decide on gut feel. b) Seek advice from friends and well wishes. c) Rely on your investment advisor. d) Analyzes all options thoroughly. 14. Investments with higher short-term volatility are more likely to have a greater chance are more likely to have a greater chance of meeting long term goals. Conversely , investments likely to provides stable returns and minimum short term losses are likely to meet long term investment goals with this is mind , which of the following is most consistent with your investments attitude. a) Avoiding short-term losses is more important to me than meeting long term goals. b) I am equally concerned about avoiding short term losses as well as meeting long term goals. c) I am willing to bear short term fluctuations to maximize the chance of meeting my long term goals. d) I am equally concerned about maximizing the short term profits and long term goals. 15. the chart below shows possible growth of Rs 100 over a five yea period for a series of different investment strategies which of the five scenario’s are you most comfortable with as investor? a) 130 to 160.
b) 110 to 176.
c) 90 to 200.
d) 77 to 250.
16. What percentage your portfolio is allocated to equity currently? a) No investment in equity.
b) Up to10%.
c) Between 10 to 30%.
d) Between 30 to 60%.
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BIBLIOGRAPHY
Bibliography
Books referred: -
Security Analysis and Portfolio Management J.Jordan. 76
___
Donald E.Fischar and Ronald
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Capital Market Institutions & Instruments ____Frank J.Franco M.Gliani
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Financial Services____ M.Y.KHAN Search engines:
-
www.sagejournal.com Web sites:
-
www.sharekhan.com
-
www.moneypore.com
-
www.forex.com
-
www.nsbl.com Newspapers Magazines
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