ANALYSIS OF INDIAN STOCK MARKET 2009-10

A Report On Management Issues 2009-10 “ANALYSIS OF INDIAN STOCK MARKET FOR LAST TWO YEARS”

by:

Shubh Sannit

TABLE OF CONTENTS 1. Abstract 2. Executive summary 3. Introduction 4. Research methodology o

Title

o

Introduction

o Duration of study

5. Core Study o Stock market o sensex o quick look at year 2006 o an overview of year 2006 o quick look at year 2007 o quick look at year 2007 o sensex during 2008 o reasons of sowdown o currnet scenario Shubh Sannit/2

o Scope of the study o Limitation of the study o conclusion

6. References 7. SWOT analysis 8. Conclusion 9. Appendix 10.

Bibliography

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ABSTRACT [

The project emphasizes mainly on stock market and major fluctuations related to it from time period of 2006 to 2007. The project put the light on how various factors such as inflation, investments made through participatory notes, rising crude oil prices, the sub-prime mortgage woes in US, concerns over a slowing down US economy and big role of Foreign Institutional Investors (FIIs) determines market’s situation and operate SENSEX. SENSEX is regarded to be the pulse of the Indian stock market. As the oldest index in the country, the SENSEX has over the years become one of the most prominent brands in the country. Hence aim of study is to analyze the SENSEX fluctuations during two year period. The performance of the SENSEX is analyzed with the help of data and graphs collected from various sources (books, journals, websites etc.) and some of the most talked about movements of SENSEX starting with the secondary market summary of each year, firstly year 2007 and then year 2008 i.e. in chronological order.

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EXECUTIVE SUMMARY Today, BSE is the world’s number 1 exchange in terms of the number of listed companies and the world’s 5th in transaction number. Of the 23 stock exchanges in the India, Bombay Stock Exchange is the largest, with over 6,000 stocks listed. The BSE accounts for over two thirds of the total trading volume in the country. Established in 1875, the exchange is also the oldest in Asia. Among the twenty-two Stock Exchanges recognized by the Government of India under the Securities Contracts (Regulation) Act, 1956, it was the first one to be recognized and it is the only one that had the privilege of getting permanent recognition ab-initio. Moreover, The BSE SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. The index is widely reported in both domestic and international markets through print as well as electronic media. The "Free-float Market Capitalization" methodology of BSE index construction is regarded as an industry’s best practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float methodology. Due to its wide acceptance amongst the Indian investors; SENSEX is regarded to be the pulse of the Indian stock market. As the oldest index in the country, the SENSEX has over the years become one of the most prominent brands in the country. The paper therefore emphasizes mainly on BSE sensex and major fluctuations related to it from time period of 2006 to 2008. The paper also put the light on how various factors such as inflation, investments made through participatory notes, rising crude oil prices, the sub-prime mortgage woes in US, concerns over a slowing down US economy and big role of Foreign Institutional Investors (FIIs) determines market’s situation and operate SENSEX.

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INTRODUCTION There was a time when India was discussed as the land of snake charmers, black magic and epidemics but the revolutionary Indian growth story changed everything. Indian economy at its height compelled the world to change its viewpoint towards India. Out of the several factors which changed the face of modern India, we are going to discuss the most roaring of them i.e. our share market. The earlier reform procedures adopted by India gave India the two most sought after world-class brands i.e. SENSEX and NIFTY. The magical figures displayed by our market turned all the heads on India. And India became one of the most favoured places for investment. Indian Stock Market Analysis is about the correct measurement of the trends of various stocks of the leading companies topping the BSE and NSE stock charts. Indian stock market is a volatile market where the shares of the companies are subjected to changes at any point of time. The major stock indices used in the Indian Stock Market Analysis are NSE S&P CNX Nifty 50 index , BSE SENSEX, and others. From an analysis of the share market of India, investors and traders can decide whether the market is a Bull Market or a Bear Market before investing on the shares of their desired companies. There are about 22 stock exchanges in India which regulates the market trends of different stocks. Generally the bigger companies are listed with the NSE and the BSE, but there is the OTCEI or the Over the Counter Exchange of India, which lists the medium and small sized companies. There is the SEBI or the Securities and Exchange Board of India which supervises the functioning of the stock markets in India. Other than some restricted industries, foreign investment in general enjoys a majority share in the Indian stock market. Foreign Institutional Investors (FII) need to register themselves with the SEBI and the RBI for operating in Indian stock exchanges. In the Asset Management Companies and Merchant Banking Companies also foreign

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investments are welcomed. In fact from the Indian Stock Market Analysis it is known that in some specific industries foreigners can have even 100% shares. They can invest in Euro issues of the Indian companies and also in the Indian funds that is floated abroad. In the last few years with the facility of the Online Stock Market Trading in India, it has been very convenient for the FIIs to trade in the Indian stock market. Reliance Money, Geojit, Sharekhan, Kotak Securities, ICICI Direct are some of them. From an Indian Stock Market Analysis it can be said that the increase in the foreign investments over the years no doubt have accentuated the dynamism of the Indian

stock

market.

The Indian Stock Market Analysis reports the most heavyweight company to be the Reliance Industries, followed by, the IT majors like Wipro, Infosys Technologies, Tata Consultancy Services and Satyam, ICICI Bank, Bharat Heavy Electricals Ltd., Dr. Reddy's and others Now we are going to deal with the ups and downs in the share market since last two years i.e. since year 2006.our share market has went through many. We saw the investors getting overjoyed at 21K and we saw them crying too when it crashed. We saw how the market rewarded the undervalued shares and how the overvalued shares fell down to demonstrate the saying “everything which rise more than expected, has to fall.” So to analyze the saga of Indian share market, we had two indices to follow: BSE sensex and NSE nifty. Though NSE nifty is a more advanced option and has left BSE sensex far behind, still we call BSE sensex as the barometer of our economy. That’s why we have followed the BSE sensex. It was not possible to track each and everyday figure of the sensex since last two years. The performance of the sensex is analyzed with the help of data and graphs collected from various sources and some of the most talked about movements of sensex starting with the secondary market summary of each year, firstly year 2006 and then year 2007. . Shubh Sannit/7

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INDIAN STOCK MARKET Introduction:Under the structural adjustment programmed many developing countries made substantial Policy changes to pull down the administrative barriers to free flow of foreign capital and International trade. In the same vein, restrictions and regulations on new investments In reserved areas for public sector witnessed radical change. Strengthening of capital markets was advocated for successful implementation of the privatization programmes and attracting external capital flows [World Bank, 1996, p.106; UN, 1996, p. 4]. The main attraction of the Capital markets is that they provide for entrepreneurs and governments a means of mobilizing resources directly from the investors, and to the investors they offer liquidity [India, 1986, p. 6]. It has also been suggested that liquid markets improve the allocation of resources and enhance prospects of long term economic growth [Demirguc-Kunt and Levine, 1996, Pp. 291-321]. Stock markets are also expected to play a major role in disciplining company managements. In India, stock market development received emphasis since the very first phase of liberalization in the early 'eighties. Additional emphasis followed after the liberalization process got deepened and widened in 1991as development of capital markets was made an integral part of the restructuring strategy. After1991, as a part of the deregulation measures, the Capital Issues Control Act, 1947 that required all corporate proposals for going public to be examined and approved by the Government, was dispensed with [Narasimham Committee Report, 1991, p. 120].

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The Securities and Exchange Board of India (SEBI) which was set up in early 1988 was given statutory recognition in January 1992 to frame rules and guidelines for various operations of the Stock Exchanges in India. The Over the Counter Exchange of India (OTCEI) established earlier for serving the smaller companies became operational in September1992 and the National Stock Exchange was set up in Mumbai in 1994.

India's official Economic Survey 1992-93, observed that the process of reforms in the capital market... needs to be deepened to bring about speedier conclusion of transactions, greater transparency in operations, and improved services to investors, and greater investor protection while at the same time encouraging corporate sector to raise resources directly from the market on an increasing scale. Major modernization of the stock exchanges to bring them in line with world standards in terms of transparency and reliability is also necessary if foreign capital is to be attracted on any significant scale [Economic Survey, 1992, p.67].

I.

Title of Study:“Analysis of the Indian Stock Market with special reference of share, securities fund, debenture and mutual funds and commodity market, Commercial Bills, and T-Bonds. The study is emphasized on the current Capital market and its services and also about the investment in the Capital market. Study focuses to the interest of investors towards the Investment in Stock market. This research is done at Jaipur.

II.

Duration of the Study:In May 2009, I have been assigned a project on the money market as a part of our course curriculum. The duration of the research is approx 35 days. Shubh Sannit/11

III.

Research:Research can be defined as scientific and systematic search for pertinent information on a specific topic. It is careful investigation or inquiry through search for new facts of any branch of knowledge. Research plays an important role in the project work. The results of the project are completely based upon the research of the facts and figures collected through the different ways of research.

IV.

Research Design: A research design is a framework or blueprint for conducting the marketing research project. It details the procedures necessary for obtaining the required information, and its purpose is to design a study that will test the hypotheses of interest, determine possible answers to the research questions, and provide the information needed for decision making. Conducting exploratory research, precisely defining the variables, and designing appropriate scales to measure them are also a part of the research design. The issue of how the data should be obtained from the respondents (for example, by conducting a survey or an experiment) must be addressed. It is also necessary to design a questionnaire and a sampling plan to select respondents for the study.

 Research can classify in two categories: 1. Exploratory Research Shubh Sannit/12

2. Descriptive Research

Exploratory Research

1.

It has the goal of formulating problems more precisely, clarifying concepts, gathering

explanations, gaining insight, eliminating impractical ideas,

and forming hypotheses.

Exploratory research can be performed using a

literature search, surveying certain

people about their experiences, focus groups,

and case studies. When surveying

people, exploratory research studies would not

try to acquire a representative sample, but rather, seek to interview those who are knowledgeable and who might be able to provide insight concerning the relationship among variables. 2.

Descriptive Research It is more rigid than exploratory research and seeks to describe

users of a product, determine the proportion of the population that uses a product, or predict future demand for a product. As opposed to exploratory research, descriptive research should define questions, people surveyed, and the method of analysis prior to beginning data collection. These classifications are made according to the objective of the research. In some cases the research will fall into one of these categories, but in other cases different phases of the same research project will fall into different categories.

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Analysis of Indian stock market Shubh Sannit/14

For last two years 1. STOCK MARKET The Stock Market is either a private or public market where stock shares of the companies are sold or traded to potential investors A stock share, a legal document from the company or simply referred as 'stock certificates', will entitleyou to be a co-owner of that company. It is considered as a very important sector in the market economy. One of the highlighted features in investing in Stock Market is the concept of unlimited liability. The Stock Market indeed offers a profound opportunity to be a shareholder for certain companies which in return escalates your investments provided you have opted for a reputable income generating companies. In caseyou don’t know some companies allow you to buy part of the company and these pieces of the companyare called shares of stock. The stock market takes place on various stock exchanges the two larges exchanges are the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotation System (NASDAQ). The stock market is nothing new though, in fact in 1602 Dutch East India Company listed the first share of stock on the Amsterdam Stock Exchange.

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The term stock market is used for the overall stocks sold and bought at stock exchanges. A group of organizations can constitute a stock exchange to perform share dealings. For example, USA, NASDAQ and NYSE are stock exchanges. The price of a stock depends on the demand and supply of that particular stock. In stock markets, the share dealing is done by a middleman. The person is known as a share broker. The seller and buyer mutuallydecide the price of the trade.

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2. SENSEX

The Sensex is an "index". An index is basically an indicator. It gives you a general idea about whether most of the stocks have gone up or most of the stocks have gone down. Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now spanning three centuries in its 133 years of existence. What is now popularly known as BSE was established as "The Native Share & Stock Brokers' Association" in 1875. BSE is the first stock exchange in the country which obtained permanent recognition (in 1956) from the Government of India under the Securities Contracts (Regulation) Act 1956. BSE's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized. It migrated from the open outcry system to an online screen-based order driven trading system in 1995. Earlier an Association Of Persons (AOP), BSE is now a corporatised and demutualised entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualisation) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). With demutualisation, BSE has two of world's best exchanges, Deutsche Börse and Singapore Exchange, as its strategic partners. Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient access to resources. There is perhaps no major corporate in India which has not sourced BSE's services in raising resources from the capital market. Today, BSE is the world's number 1 exchange in terms of the number of listed companies and the world's 5th in transaction numbers. The market capitalization as on Shubh Sannit/17

December 31, 2007 stood at USD 1.79 trillion . An investor can choose from more than 4,700 listed companies, which for easy reference, are classified into A, B, S, T and Z groups. The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic stature , and is tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The SENSEX is constructed on a 'free-float' methodology, and is sensitive to market sentiments and market realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral indices. BSE has entered into an index cooperation agreement with Deutsche Börse. This agreement has made SENSEX and other BSE indices available to investors in Europe and America. Moreover, Barclays Global Investors (BGI), the global leader in ETFs through its iShares® brand, has created the 'iShares® BSE SENSEX India Tracker' which tracks the SENSEX. The ETF enables investors in Hong Kong to take an exposure to the Indian equity market. The first Exchange Traded Fund (ETF) on SENSEX, called "SPIcE" is listed on BSE. It brings to the investors a trading tool that can be easily used for the purposes of investment, trading, hedging and arbitrage. SPIcE allows small investors to take a longterm view of the market. BSE provides an efficient and transparent market for trading in equity, debt instruments and derivatives. It has a nation-wide reach with a presence in more than 359 cities and towns of India. BSE has always been at par with the international standards. The systems and processes are designed to safeguard market integrity and enhance transparency in operations. BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is also the first exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE On-line Trading System (BOLT). BSE continues to innovate. In recent times, it has become the first national level stock exchange to launch its website in Gujarati and Hindi to reach out to a larger number of investors. It has successfully launched a reporting platform for corporate Shubh Sannit/18

bonds in India christened the ICDM or Indian Corporate Debt Market and a unique ticker-cum-screen aptly named 'BSE Broadcast' which enables information dissemination to the common man on the street. In 2006, BSE launched the Directors Database and ICERS (Indian Corporate Electronic Reporting System) to facilitate information flow and increase transparency in the Indian capital market. While the Directors Database provides a single-point access to information on the boards of directors of listed companies, the ICERS facilitates the corporates in sharing with BSE their corporate announcements. BSE also has a wide range of services to empower investors and facilitate smooth transactions:  Investor Services: The Department of Investor Services redresses grievances of investors. BSE was the first exchange in the country to provide an amount of Rs.1 million towards the investor protection fund; it is an amount higher than that of any exchange in the country. BSE launched a nationwide investor awareness programme- 'Safe Investing in the Stock Market' under which 264 programmes were held in more than 200 cities.  The BSE On-line Trading (BOLT): BSE On-line Trading (BOLT) facilitates online screen based trading in securities. BOLT is currently operating in 25,000 Trader Workstations located across over 359 cities in India.  BSEWEBX.com: In February 2001, BSE introduced the world's first centralized exchange-based Internet trading system, BSEWEBX.com. This initiative enables investors anywhere in the world to trade on the BSE platform.  Surveillance: BSE's On-Line Surveillance System (BOSS) monitors on a realtime basis the price movements, volume positions and members' positions and real-time measurement of default risk, market reconstruction and generation of cross market alerts. Shubh Sannit/19

 BSE Training Institute: BTI imparts capital market training and certification, in collaboration with reputed management institutes and universities. It offers over 40 courses on various aspects of the capital market and financial sector. More than 20,000 people have attended the BTI programmes The SENSEX, short form of the BSE-Sensitive Index, is a "Market CapitalizationWeighted" index of 30 stocks representing a sample of large, well-established and financially sound companies. The BSE SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. First compiled in 1986, SENSEX is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies. The base year of SENSEX is 1978-79 and the base value is 100. The index is widely reported in both domestic and international markets through print as well as electronic media.

2.1 Bombay Stock Exchange Profile :

Address

Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai 400001

Telephone

91-22-22721233/4

Web Site

www.bseindia.com

Trading Hours

Monday - Friday, 9:55 am - 3:30 pm IST

Holidays

Bakri-Id, Republic Day, Good Friday, Ambedkar Jayanti, Independence Day, Ganesh Chaturthi, Dasera, Diwali (Laxmi Poojan), Diwali (Bhaubeej), Ramzan Id, Guru Nanak Jayanti.

Securities

Stocks, bonds, derivatives

Trading System Electronic Key Staff

Chairman – Jagdish Capoor. CEO - Rajnikant Patel Shubh Sannit/20

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2.2

Objectives of SENSEX •

To measure market movements Given its long history and its wide acceptance, no other index matches the SENSEX in reflecting market movements and sentiments. SENSEX is widely used to describe the mood in the Indian Stock markets

•

Benchmark for funds performance The inclusion of blue chip companies and the wide and balanced industry representation in the SENSEX makes it the ideal benchmark for fund managers to compare the performance of their funds.

•

For index based derivative products Institutional investors, money managers and small investors all refer to the SENSEX for their specific purposes The SENSEX is in effect the proxy for the Indian stock markets. The country's first derivative product i.e. Index-Futures was launched on SENSEX

2.3 Calculation of SENSEX SENSEX, first compiled in 1986, was calculated on a "Market Capitalization-Weighted" methodology of 30 component stocks representing large, well-established and financially sound companies across key sectors. The base year of SENSEX was taken as 1978-79. SENSEX today is widely reported in both domestic and international markets through print as well as electronic media. It is scientifically designed and is based on globally accepted construction and review methodology. Since September 1, 2003, SENSEX is being calculated on a freefloat market capitalization methodology. The "free-float market capitalizationShubh Sannit/22

weighted" methodology is a widely followed index construction methodology on which majority of global equity indices are based; all major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the free-float methodology. The growth of the equity market in India has been phenomenal in the present decade. Right from early nineties, the stock market witnessed heightened activity in terms of various bull and bear runs. In the late nineties, the Indian market witnessed a huge frenzy in the 'TMT' sectors. More recently, real estate caught the fancy of the investors. SENSEX has captured all these happenings in the most judicious manner. One can identify the booms and busts of the Indian equity market through SENSEX. As the oldest index in the country, it provides the time series data over a fairly long period of time (from 1979 onwards). Small wonder, the SENSEX has become one of the most prominent brands in the country.

2.4Index Specification: Base Year Base Index

1978-79 100

Value Date of Launch Method of

01-01-1986 Launched on full market capitalization method and effective

calculation

September 01, 2003, calculation method shifted to free-float

Number of

market capitalization. 30

scrips Index

15 seconds

calculation frequency Historical

Index, Price Earnings, Price to Book Value ratio and Dividend

Values for

Yield % Shubh Sannit/23

SENSEX

2.5 SENSEX Calculation Methodology SENSEX is calculated using the "Free-float Market Capitalization" methodology, wherein, the level of index at any point of time reflects the free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization. The base period of SENSEX is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of SENSEX involves dividing the free-float market capitalization of 30 companies in the Index by a number called the Index Divisor. The Divisor is the only link to the original base period value of the SENSEX. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate SENSEX every 15 seconds. The value of SENSEX is disseminated in real time.

2.3

Understanding Free-float Methodology Concept

 Definition of Free-float Shareholding of investors that would not, in the normal course come into the open market for trading are treated as 'Controlling/ Strategic Holdings' and hence not included in free-float. Specifically, the following categories of holding are generally excluded from the definition of Free-float: Shubh Sannit/24

•

Shares held by founders/directors/ acquirers which has control element

•

Shares held by persons/ bodies with "Controlling Interest"

•

Shares held by Government as promoter/acquirer

•

Holdings through the FDI Route

•

Strategic stakes by private corporate bodies/ individuals

•

Equity held by associate/group companies (cross-holdings)

•

Equity held by Employee Welfare Trusts

•

Locked-in shares and shares which would not be sold in the open market in normal course. Free-float methodology refers to an index construction methodology that

takes into consideration only the free-float market capitalization of a company for the purpose of index calculation and assigning weight to stocks in the index. Freefloat market capitalization takes into consideration only those shares issued by the company that are readily available for trading in the market. It generally excludes promoters' holding, government holding, strategic holding and other locked-in shares that will not come to the market for trading in the normal course. In other words, the market capitalization of each company in a free-float index is reduced to the extent of its readily available shares in the market. Subsequently all BSE indices with the exception of BSE-PSU index have adopted the free-float methodology.

 Major advantages of Free-float Methodology •

A Free-float index reflects the market trends more rationally as it takes into consideration only those shares that are available for trading in the market.

•

Free-float Methodology makes the index more broad-based by reducing the concentration of top few companies in Index.

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•

A Free-float index aids both active and passive investing styles. It aids active managers by enabling them to benchmark their fund returns vis-Ã -vis an investible index. This enables an apple-to-apple comparison thereby facilitating better evaluation of performance of active managers. Being a perfectly replicable portfolio of stocks, a Free-float adjusted index is best suited for the passive managers as it enables them to track the index with the least tracking error.

•

Free-float Methodology improves index flexibility in terms of including any stock from the universe of listed stocks. This improves market coverage and sector coverage of the index. For example, under a Full-market capitalization methodology, companies with large market capitalization and low free-float cannot generally be included in the Index because they tend to distort the index by having an undue influence on the index movement. However, under the Free-float Methodology, since only the free-float market capitalization of each company is considered for index calculation, it becomes possible to include such closely-held companies in the index while at the same time preventing their undue influence on the index movement.

•

Globally, the Free-float Methodology of index construction is considered to be an industry best practice and all major index providers like MSCI, FTSE, S&P and STOXX have adopted the same. MSCI, a leading global index provider, shifted all its indices to the Free-float Methodology in 2002. The MSCI India Standard Index, which is followed by Foreign Institutional Investors (FIIs) to track Indian equities, is also based on the Free-float Methodology. NASDAQ100, the underlying index to the famous Exchange Traded Fund (ETF) - QQQ is based on the Free-float Methodology.

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 Determining Free-float Factors of Companies BSE has designed a Free-float format, which is filled and submitted by all index companies on a quarterly basis. (Format available on www.bseindia.com). BSE determines the Free-float factor for each company based on the detailed information submitted by the companies in the prescribed format. Free-float factor is a multiple with which the total market capitalization of a company is adjusted to arrive at the Free-float market capitalization. Once the Free-float of a company is determined, it is rounded-off to the higher multiple of 5 and each company is categorized into one of the 20 bands given below. A Free-float factor of say 0.55 means that only 55% of the market capitalization of the company will be considered for index calculation.

 Free-float Bands: % Free-Float >0 - 5% >5 - 10% >10 - 15% >15 - 20% >20 - 25% >25 - 30% >30 - 35% >35 - 40% >40 - 45% >45 - 50%

Free-Float Factor 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50

% Free-Float >50 - 55% >55 - 60% >60 - 65% >65 - 70% >70 - 75% >75 - 80% >80 - 85% >85 - 90% >90 - 95% >95 - 100%

Free-Float Factor 0.55 0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00

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 Index Closure Algorithm The closing SENSEX on any trading day is computed taking the weighted average of all the trades on SENSEX constituents in the last 30 minutes of trading session. If a SENSEX constituent has not traded in the last 30 minutes, the last traded price is taken for computation of the Index closure. If a SENSEX constituent has not traded at all in a day, then its last day's closing price is taken for computation of Index closure. The use of Index Closure Algorithm prevents any intentional manipulation of the closing index value.

 Maintenance of SENSEX One of the important aspects of maintaining continuity with the past is to update the base year average. The base year value adjustment ensures that replacement of stocks in Index, additional issue of capital and other corporate announcements like 'rights issue' etc. do not destroy the historical value of the index. The beauty of maintenance lies in the fact that adjustments for corporate actions in the Index should not per se affect the index values. The BSE Index Cell does the day-to-day maintenance of the index within the broad index policy framework set by the BSE Index Committee. The BSE Index Cell ensures that SENSEX and all the other BSE indices maintain their benchmark properties by striking a delicate balance between frequent replacements in index and maintaining its historical continuity. The BSE Index Committee comprises of capital market expert, fund managers, market participants and members of the BSE Governing Board.

 On-Line Computation of the Index During trading hours, value of the Index is calculated and disseminated every 15 seconds. This is done automatically on the basis of prices at which trades in Index constituents are executed. Shubh Sannit/28

3

QUICK LOOK AT YEAR 2006 In the secondary market, the uptrend continued in 2006-07 with BSE indices

closing above 14000(14,015) for the first time on January 3, 2007. After a somewhat dull firsthalf conditions on the bourses turned buoyant during the later part of the year with large inflows from Foreign Institutional Investors (FIIs) and larger participation of domestic investors. During 2006, on a point-to-point basis, Sensex rose by 46.7%. The pickup in the stock indices could be attributed to impressive growth in the profitability of Indian corporate, overall higher growth in the economy, and other global factors such as continuation of relatively soft interest rates and fall in the international crude prices. BSE Sensex (top 30stocks) which was 9,398 at end-December 2005 and 10,399 at end-May 2006, after dropping to 8,929 on June 14, 2006, recovered soon thereafter to rise steadily to 13787 by end-December 2006. According to the number of transactions, NSE continued to occupy the third position among the world’s biggest exchanges in 2006, as in the previous three years. BSE occupied the sixth position in 2006, slipping one position from 2005. In terms of listed companies, the BSE ranks first in the world. In terms of volatility of weekly returns, uncertainties as depicted by Indian indices were higher than those in outside India such as S&P 500 of United States of America and Kospi of South Korea. The Indian indices recorded higher volatility on weekly returns during the two-year period. January 2005 to December 2006 as compared to January 2004 to December 2005 The market valuation of Indian stocks at the end of December 2006, with the Sensex trading at a P/E multiple of 22.76 and S&P CNX Nifty at 21.26, was higher than those in most emerging markets of Asia, e.g. South Korea, Thailand, Malaysia and Taiwan; and Shubh Sannit/29

was the second highest among emerging markets. The better valuation could be on account of the good fundamentals and expected future growth in earnings of Indian corporate Liquidity, which serves as a fuel for the price discovery process, is one of the main criteria sought by the investor while investing in the stock market. Market forces of demand and supply determine the price of any security at any point of time. Impact cost quantifies the impact of a small change in such forces on prices. Higher the liquidity, lower the impact cost.

The fig. showing monthly mutual fund investments, FII investments & Change in SENSEX in May 2006

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2006

BSE

Jan

9920

Feb.

10370

Mar

11280

Apr

12043

May

10399

Jun

10609

Jul

10744

Aug

11699

Sep

12454

Oct

12962

Nov

13696

Dec

13787

Monthly SENSEX changes in 2006 Shubh Sannit/31

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4 AN OVERVIEW OF YEAR 2006 During December 2005, the greatest demerger of Indian history between the Ambanis paved the way for 9000. And the sensex entered the year 2006 with a 9000 + figure. on Feb. 10th 2006, we saw two roaring figures, both sensex and sachin tendulkar crossing 10000 mark. But the reason behind roaring sensex was not sachin’s records rather it was rallied by strong FII inflows and robust data. The government forecasted a GDP growth of 8.1% in current year, with manufacturing and the agriculture sectors estimated to grow at 9.4% and 2.3% respectively. The 238-point rally was contrary to expectations as it came despite negative news flow about a fresh tussle between Ambani brothers over transfer of ownership of the four companies demerged from erstwhile RIL. Sensex’s surge to 11000 points on 21st march 2006 was prompted by PM Manmohan Singh’s announcements on Capital Account Convertibility. On Saturday, Prime Minister Manmohan Singh hinted at moving toward a free float of the rupee and on Tuesday, the BSE responded by crossing the 11,000 mark in a lifetime intraday high. The new trading high was reached 29 days after Sensex entered the elite 10,000 club on February 6. Only Nikkei, Hang Seng and Dow Jones could boast of being above 10,000 at that time. Since full convertibility was expected to attract more foreign money and also allow local companies to tap foreign debt markets more easily, it was evident that the move will encourage investors and boost the confidence of the markets. RBI said it was constituting a panel to thrash out the contours for full convertibility. Although the index later ended lower with investors wanting to book gains, participants said it was evident the markets had sent out a message - that the growth story of Asia’s third largest economy is intact and that liquidity flows into the bourses would continue to remain firm. After hitting a high of 11,017.25 points in mid-afternoon trade, Sensex lost 35.91 points to close at 10,905.20, fluctuating 153 points, with most of the volatility coming in the last hour of trading. The rise in share prices was partly attributed to a fall in oil price. Shubh Sannit/33

The US April crude oil prices plunged 3.7% or $2.35, to settle at $60.42 a barrel, on the New York Mercantile Exchange due to ample US inventories. After falling by 307 points on 12th April 2006 on account of Heavy selling by FIIs in both cash and futures markets and a move by stock exchanges to raise margins on share transactions by about 250 basis points, the 131-year-old BSE on Thursday, April 20, 2006 crossed yet another milestone when it breached the 12,000-point mark, backed by strong corporate earnings, higher liquidity and robust economic growth. The index was being driven by the strong flow of liquidity. Earlier, it was based on the expectations that (corporate) results would be great...and by the first few companies were more than matching those expectations. Although, Sensex was beaten to the 12,000 mark by various global indices, the time it took to breach this milestone has been one of the fastest. Traders point to the fact that foreign investors, buoyed by a booming economy, have chosen India as one of their top investment destinations. Now, everything was going fine….perhaps it was the lull before the storm. Suddenly the Dalal street experienced its worst single day crash on Thursday, 18th may 2006 as an ambiguous Government circular on taxing investment gains prompted foreign funds to book profits, knocking the bottom off the jittery stock market. Opening amidst weak global markets and reports of rising US interest rates, the BSE-30 Sensex went on to close 826.38. However the Dealers said the fall was accentuated by largescale selling of client positions by broking firms due to margin calls or the lack of margins. The May crash saw the Sensex shedding its market capitalization by as much as 14% in just one month.

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Benchmark stock indices vaulted to new highs on Monday, oct 30 th 2006 driven by a heady cocktail of strong corporate earnings, a rapidly growing economy and relatively stable crude oil prices. Sensex ended at its highest closing level of 13024.26 , a gain of 117.45 points or .9% Marauding bulls defied the weak trend globally, which was sparked off by weak US GDP growth figure, pointing to a slowdown. Back home, the mood was upbeat even as some expect that the RBI may raise interest rates by 25 basis points in its mid-term credit policy on Tuesday. Market watchers said sentiment could be affected only if the hike is more than 25 basis points, which is unlikely. Higher interest rates drive up borrowing costs for corporate as well as the retail consumer, who could then cut back on their investments and spending, in turn causing a slack in domestic demand. The benchmark 30-share sensex briefly crossed the psychological 14,000-mark on Tuesday, December 5, 2006. While foreign institutional investors have been aggressive buying stocks over the past few months, the response of domestic mutual funds has been guarded. In the last two months alone, FIIs bought net stocks worth Rs 17,001 crore while local mutual funds have pumped in a net Rs 638.07 crore.

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5. QUICK LOOK AT YEAR 2007 In the secondary market segment, the market activity expanded further during 2007-08 with BSE and NSE indices scaling new peaks of 21,000 and 6,300, respectively, in January 2008. Although the indices showed some intermittent fluctuations, reflecting change in the market sentiments, the indices maintained their north-bound trend during the year. This could be attributed to the larger inflows from Foreign Institutional Investors (FIIs) and wider participation of domestic investors, particularly the institutional investors. During 2007, on a point-to-point basis, Sensex and Nifty Indices rose by 47.1 and 54.8 per cent, respectively.

2007

BSE

Jan

14091

Feb

12938

Mar

13072

Apr

13872

May

14544

Jun

14651

Jul

15551

Aug

15319

Sep

17251

Oct

19838

Nov

19363

Dec

20287 Monthly SENSEX changes in 2007 Shubh Sannit/37

The buoyant conditions in the Indian bourses were aided by, among other things, India posting a relatively higher GDP growth amongst the emerging economies, continued uptrend in the profitability of Indian corporate, persistence of difference in domestic and international levels of interest rates, impressive returns on equities and a strong Indian rupee on the back of larger capital inflows. The BSE Sensex (top 30 stocks) too echoed a similar trend to NSE nifty. The sell-off in Indian bourses in August 2007 could partly be attributed to the concerns on the possible fallout of the sub-prime crisis in the West. While the climb of BSE Sensex during 2007-08 so far was the fastest ever, the journey of BSE Sensex from 18,000 to 19,000 mark was achieved in just four trading sessions during October 2007. It further crossed the 20,000 mark in December 2007 and 21,000 in an intra-day trading in January 2008. However, BSE and NSE indices declined subsequently reflecting concerns on global developments. BSE Sensex yielded a Compounded return of 36.5 per cent per year between 2003 and 2007. In terms of simple average, BSE Sensex has given an annual return of more than 40 per cent during the last three years.

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6. AN OVERVIEW OF YEAR 2006 After touching 14K mark on December

5th

2006, sensex entered into 2007 with a

promising figure of 14000+, though the year started on a rather tentative note with a marked slowdown being observed in the FII inflows into the country. The inflows received from FIIs in January and February 2007 was 48 per cent less than what was received during the same period in 2006. The return provided by the BSE Sensex for 2007 turned into negative territory following the 389-point tumble on Friday, February 23rd; the year-to-date return generated by the Sensex was negative 0.97 per cent. FIIs have pressed substantial sales over those days in contrast to an intermittent surge in inflow in February 2007. As a result, the sensex which closed at 14091 on January 31st, closed at 12938 on February 28th. As per provisional data FIIs were net sellers to the tune of Rs 613 crore on Friday 2 March, the day when Sensex had lost 273 points. Their net outflow was worth Rs 3080.80 crore in four trading sessions from 26 February to 1 March 2007. Market continued to reel under selling pressure on 5th march 2007 taking cue from weak global markets and heavy FII sales as a result of fall over 400 points, all the indices were in red. On April 24th, The Sensex again crossed the 14K mark and was trading at 14,150.18 having gained 221.85 points or 1.59%. The midcap and smallcap indices were rather moving slow indicating that the actual movers are the large cap stocks but at the month end it finally closed at 13872. Further we can see May and June having month end figures at 14544 and 14651 respectively. The benchmark BSE 30-Share Sensitive Index (Sensex) breached the 15,000mark, to reach a record high of 15007.22, for the first time intra-day on Friday, July 06 2007 before closing at 14964.12. Despite weak global cues, Indian stocks were in great demand, especially auto, pharma, IT and metals stocks. On Friday, this lifted the Shubh Sannit/40

Bombay Stock Exchange's benchmark 30-share Sensex past the magical 15,000-mark. The Sensex took 146 sessions to cover the 1,000 point distance from 14,000 till 15,000. This is the highest since the index took 371 trading sessions to move up from 6,000 to 7,000. The sensex experienced its second bigger ever fall on 2nd august 2007. The fall came in after the Fed Reserve cut its discount interest rate at an emergency meeting and JPMorgan Chase agreed to buy Bear Stearns for USD 2 a share. Sensex closed down 951.03 points or 6.03% at 14809.49, When FIIs were pumping money in stock market and were Net Buyers of Equity worth Crores; the Sensex was moving Up , Up and Up on weekly basis. Many thought that FIIs were playing blind in Indian stock market. But when FIIs have turned Net Sellers of Equity and have started booking profit backed by massive sell off of shares in global markets; Sensex has to go down. As expected; the Sensex plunged by 600 Points in early trading on 16th August and most of the shares were down by 4 to 5 per cent. But very soon the sensex surpassed the gloomy days and Stock markets on Wednesday, September 19th, 2007 gave thumbs up to the decision of the U.S. Fed Reserve to reduce the rates by 50 basis points, as the benchmark 30-share BSE Sensex moved up sharply by 653.63 points or 4.17 per cent at 16322.75. By staying well above the 16000-mark, it outperformed most Asian peers and it was the biggest single day gain. This trend shows that global cues had an influential effect on our market. On the auspicious occasion of Ganesh chaturathi, India experienced a flow of good news. The festive spirit did not end with the immersion of Ganapati. On Wednesday, it boiled over to the streets of Mumbai and its financial district, the Sensex touched the magical 17,000 number. It took Dalal Street just 5 days to travel 1,000 points. Suddenly, tech stocks, which were the whipping boys till Tuesday, became hot favourites. Why? Hopes that the rupee will soften as a result of RBI's latest Shubh Sannit/41

announcements to allow more outflow sparked a rally in tech stocks, pushing the Sensex to a new high of 17,073.87 during the day. At the end of the day, RBI's measures may not be enough to rein in the rupee. But there were no takers for this. The bellwether index finally settled at 16,921.39.

On October 9th, 2007, Sensex hits a record high of 18,280 on the back of eyepopping rallies in Reliance & Reliance. At the height of the dotcom mania in 1999-00, the easiest way to maximize returns was to buy into any stock with the suffix ‘Software’ or ‘Technologies’. Eight years on, the same seems to hold true for any stock with the prefix ‘Reliance’, given their baffling run-up over the past one month. Eye-popping rallies in Reliance Industries, Reliance Energy and Reliance Communications lifted the 30-share Sensex to a record high of 18,327.42 intra-days. On October 15th 2007, amidst heavy buying by investors, the bull roared to breach the 19000 mark in just 4 sessions Sensex was up by 639.63 points or 3.47 per cent at 19058.67. This rise came on the back of some strong sectors for which the macro picture is quite bright — power, capital goods, infrastructure and telecom. Foreign Institutional Investors were pumping in huge money in the equity market and this too was pushing up the index. Since September, they nearly pumped in more Shubh Sannit/42

than Rs. 30,000 crore in the cash market. After the U.S. Federal Reserve cut interest rates by 50 basis points, a re-rating of the emerging markets had been seen wherein liquidity flows were quite robust. Then suddenly happened the second biggest crash the sensex ever experienced when the sensex crashed by 1743 points on 17th October 2007 within minutes of opening, prompting suspension of trade for hour fallout of regulator Sebi's move to curb Foreign Institutional Investors. In a knee-jerk reaction to the cap proposed by the market regulator for the Participatory Notes, an overseas derivative instrument (ODI), used by foreign institutional investors (FIIs), the stock market crashed by 1743 points in intra-day, but recovered substantially later to close with a loss of 336.04 points or 1.76 per cent at 18715.82. but it was followed by a huge one-day gain as on October 23 when the BSE barometer rose 878.85 points after market regulator SEBI allowed sub-accounts of Foreign Institutional Investors (FIIS) to trade It took the index a little over 20 years to reach the first 10,000 mark, but just a little over 20 months to double that score and the sensex made history with touching the 20000 mark on October 29 2007. Significantly, it was the local institutions that were in the driver’s seat. As per BSE data, foreign funds have net sold over Rs 1,100 crore worth of shares over the last three trading sessions while local funds have net bought over Rs 2,300 crore worth of shares. Sceptics point to the fact that there were only a handful of stocks that was driving the market higher. On 13th November, BSE Sensex registered its biggest ever gain in a single of 893.58 points to settle at the third-highest level ever on buying by investors in bank counters and blue chip companies such as Reliance Industries. The market gain was because of global cues. Besides, the political development also gelled well with the sentiment. The rally was driven by short covering, strong buying by domestic investors. However, there was not much involvement of foreign investors. But in December 2007, sensex again experienced a black Monday on 17th December. The market succumbed to profit booking, that came in due to weak global Shubh Sannit/43

cues as well as profit booking by FIIs in the holiday season. The Sensex ended losing 769 points from the previous close, at 19,261.

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7. SENSEX DURING YEAR 2008: After scaling new heights of 20000+, sensex entered year 2008 with rosy pictures. The trade pundits, brokers and even investors predicted new heights for the year. And they felt their predictions coming true when sensex touched the 21000 mark on 8th January 2008. It’s interesting if one sees in terms of flows; the journey from 20,000 to 21,000 is dominated by domestic institutional investors; FIIs were negative sellers, they sold in the cash market to the tune of USD 45 billion. So if one has to take out some pointers from this journey from 20,000 to 21,000, it is the longest journey which we have seen in the last 5,000 marks, the midcaps and smallcaps have been outperformers and in terms of flows, it has been domestic institutional investors which have been really putting the money. But the rosy picture soon turned gloomy. The skyrocketing sensex suddenly started heading south and Sensex saw the biggest absolute fall in history, shedding 2062 points intra-day. It closed at 17,605.35, down 1408.35 points or 7.4 per cent. It fell to a low of 16,951.50. The fall was triggered as a result of weakness in global markets, but the impact of the global rout was the biggest in India. The market tumbled on account of a broad based sell-off that emerged in global equity markets. Fears over the solvency of major Western banks rattled stocks in Asia and Europe. After the worst January in the last 20 years for Indian equities, February turned out to be a flat month with the BSE sensex down 0.4%. India finished the month as the second worst emerging market. The underperformance can partly be attributed to the fact that Indian markets outperformed global markets in the last two months of 2007and hence we were seeing the lagged impact of that outperformance. In the shorter term, developments in the US economy and US markets continued to dominate investor sentiments globally and we saw volatility move up sharply across most markets. The Bombay Stock Exchange (BSE) Sensex fell 4.44 percent on Monday, 31 st march the last day of the financial quarter, to end the quarter of March down 22.9 Shubh Sannit/45

percent, its biggest quarterly fall since the June 1992 quarter, as reports of rising inflation and global economic slowdown dampened market sentiments. Financial stocks led the Sensex slide along with IT. According to market analysts, IT stocks fell on worries about the health of the US economy. Indian IT firms depend on the US clients for a major share of their revenues.

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8. REASONS OF THE SLOWDOWN (FY 08-09) The first month of the financial year 08-09 proved to be a good one for investors with the month ending on a positive note. The BSE sensex showed a gain of 10.5% to close at 17287 points. A combination of firming global markets and technical factors like short covering were the main reasons for the up move in the markets. Though inflation touched a high of 7.57% against 6.68% in march 2008 as a result RBI hiked CRR by 50 bps to take the figure to 8%, still emergence of retail investors was also seen; a fact reinforced by the strong movement in the mid-cap and small- cap index that rose 16% and 18% respectively. So April was the last month to close positive. Then after nobody saw a stable sensex even. Sometimes it surged by 600+ points, but very next day it plunged by some 800 odd points and this story is still continuing. Every prediction, every forecasting has failed. The sensex is dancing on the music of lifetime high inflation rates, historic crude prices, tightening RBI policies, weak industrial production data, political uncertainties and obviously the sentiments of domestic as well as FIIs. The only relief came in the form of weakening Indian rupees which enlightened the IT sector and most recently the UPA gaining vote of confidence. Presently it is revolving around the figures of 14000 and no one knows what next? The 30-share BSE Sensex fell 117.89 points or 0.67% at 17,373.01 on Tuesday, 6 May 2008. The key benchmark indices ended lower as investors resorted to profit booking due to lack of positive triggers in the market. On 30 th May an imminent hike in domestic retail fuel prices due to soaring crude oil prices weighed on the market last week. Foreign institutional investors sold close to Rs 2204 crore in the first three trading sessions of the week which accentuated the downfall. However better than expected Q4 gross domestic product figures provided some relief to the bourses on Friday. IT stocks gained on slipping rupee. BSE Sensex rose in two out of five trading sessions. In May, Indian inflation stood at 8.2%. Shubh Sannit/47

The market declined sharply as a hike in fuel prices by about 10% announced by the Union government on Wednesday, 4 June 2008, triggered possibility of a surge in inflation to double digit level. The BSE Sensex declined 843.39 points or 5.14% to 15,572.18 in the week ended 6 June 2008. The S&P CNX Nifty fell 242.3 points or 4.97% to 4627.80 in the week. On 6 June 2008, local benchmark indices underperformed their global peers, hit by rumours that the Reserve Bank of India (RBI) may hike cash reserve ratio (CRR) or interest rate later in the day to tame runaway inflation. The 30-share BSE Sensex declined 197.54 points or 1.25% to settle at 15,572.18. On 9th June 2008, Bombay’s Sensex index closed 506.08 points down at 15,066.10, having earlier fallen 4.4% and slipped below 15,000 for the first time since March. Oil prices surged to record levels, fanning fears that they will keep climbing and hurt world growth. Central banks across the globe warned that interest rates may have to rise as they look to keep inflation under control, despite the fact that economic growth is slowing in key nations such as the US and UK.

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On the week ending 27th June 2008 Sensex declined 769.07 points or 5.28% to 13,802.22. The S&P CNX Nifty lost 210.90 points or 4.85% to 4136.65 in the week. Equities extended losses for the fifth straight day on 24 June 2008 with the barometer index BSE Sensex falling below the psychologically important 14,000 mark for the first time in 10 months since late August 2007. On 25 June 2008, equities staged a solid rebound after touching fresh calendar 2008 lows in early trade. The initial jolt was caused by the Reserve Bank of India's move to hike the key lending rate. A setback to stocks in Asia and US, sharp spurt in crude oil prices and political uncertainty due to Indo-US nuclear deal rattled bourses on 27 June 2008. On July 15th 2008, Indian shares fell 4.9 per cent to their lowest close in 15 months, joining a world equities rout as investors dumped financials on concerns about the fallout from worsening global credit turmoil. Although Indian banks have no direct exposure to the US subprime mortgage sector, the global financial sector turmoil impacts sentiment in the local market and raises worries of more withdrawals by foreign funds. An 800+ point surge was experienced in the market on the day following UPA gaining vote of confidence but the very next day market couldn’t maintain the momentum and since then its in a doldrums’ position. Presently, we can saw market plunging after the RBI announced further hikes in Repo rate as well as CRR both increased to 9%. Also, the serial blasts at Ahmadabad and Bangalore adding to the worries and enhancing the negative sentiments. And above all we can't see any positive trigger that can dilute the flow of negative news.

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9. CURRENT SITUATION With major financial crisis erupting in the U.S., Indian Stock Market benchmark index (Sensex) fell by 469.54 points or 3.35 per cent on Monday to close at 13531.27. Realty stocks led the fall with a loss of 7.65 per cent. The National stock exchange, the NSE Nifty lost 155.55 points or 3.68 per cent. All sectoral indices closed in the negative territory. An eventful week of turmoil has begun in the global financial scenario as stock prices plunged across much of the globe on news that investment bankers, Lehman Brothers Holdings filed for bankruptcy and Merrill Lynch & Co’s forced sale to Bank of America. Even American International Group (AIG), the world’s largest insurance company, asked the U.S. Federal Reserve for an emergency funding before announcing a major restructuring plan. The investments in Indian firms by these U.S. investment bankers are a major worry for Indian investors. Investor confidence is at its lowest ebb. Investors are worried that all these are likely to trigger another round of troubles for banks and financial institutions around the globe. Six months ago, in March, Bear Stearns, the fifth biggest U.S. investment bank, witnessed a full circle before its fall and sell-off to JP Morgan Chase & Co for a rock bottom price of $2 per share. After a strong rally in March 2009, Indian markets extended their gains into April, as global markets recovered after being battered for most of last year. The large cap indices, the Nifty and the Sensex, were up by 16.33% and 18.81% respectively and the CNX Midcap index was up by 14.61% in April (in USD terms). Encouraging US banking results as well as some positive news on the domestic front – expectation of a normal monsoon, rate cuts and resolution of the Satyam scandal - cheered the market in April. Strong buying from Foreign Institutional Investors also provided support to the rally. Shubh Sannit/50

I.

The Sensex has outperformed both developed market indices like the Dow Jones and the FTSE and the MSCI Emerging Markets Index in the last two months

II.

Elections – no major policy reversal expected The next government will most likely be a coalition with either the incumbent

Congress party or the main opposition party, the BJP being in the lead, though the outside chance of the Third Front, a combination of left and regional parties coming to power cannot be ruled out. A genuine worry of investors has been, whether post elections, India would have continuity of reform policies and whether the focus on infrastructure spending would wane off. If one looks at infrastructure spending in particular, should the Congress led government come back to power it is likely to continue its focus on infrastructure spending which is essential for India to maintain the high growth rates that we have witnessed over the last 5 years. However the main opposition party the BJP, in its manifesto has indicated that it will increase infrastructure spending beyond what the current government is spending; which provides comfort. However we feel that even if a third front comes into power; any drastic change in policy might be unlikely. We may see some minor changes, but in our opinion, the broader direction would remain the same. Shubh Sannit/51

III.

Satyam saga draws to a close with sale to Tech Mahindra

The Satyam scandal which unfolded in January 2009 with the promoter admitting to manipulating accounts has now reached a conclusion. The government appointed board which has been running the company since January sold the company in an auction to another Indian IT company Tech Mahindra for close to USD 600mn. The government and the board did a commendable job to ensure that the sale happened within a short span of just 3 months. IV.

Monetary Loosening continues

In its last credit policy review, the Reserve Bank of India (RBI) continued with its policy of facilitating liquidity. While it left the CRR and SLR unchanged, it cut the repo and reverse repo rates by 25bps each to 4.75% and 3.25% respectively. RBI also asked banks to cut both deposit and lending rates and also indicated lower issuance of G-Sec in the near term. A key outcome of this has been that the 10 yr G-sec yields have fallen by almost 75 bps. Spreads on AAA rated 10yr Indian papers have also come off significantly from levels witnessed in October 2008. The spread is now around 170bps down from around 420bps in October, indicating a slow come back of risk appetite. A collapse of bond spreads bodes well for the infrastructure and real estate sectors in particular. V.

Spreads of AAA paper over Sovereign paper

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VI.

Normal monsoon expected – crucial for agriculture

The Indian Meteorological Department has predicted that this year’s monsoon would be near normal; welcome news given that agriculture is still significantly dependant on the monsoon. A good monsoon this year will further help boost rural consumption. In fact, strong demand from rural consumers in goods like cement, autos and consumer products has helped offset the fall in demand from urban consumers in recent times. VII.

Gas – New finds could result in significant savings for the economy

Gas from one of India’s newly discovered gas fields; Reliance Industry’s KGD6 has now started reaching customers (under utilized fertilizer units, idle power plants). Apart from KG-D6, Indian companies such as ONGC, GSPC and Reliance Industries (in other blocks) have also struck gas recently and commercial production of these fields is expected to start from FY10 onwards. This would bring a steep increase in the supply of domestic gas and mark an important change in India’s energy mix. As highlighted in our previous communiqué, this gas find will have significant positive impact on India’s balance of payment and fiscal deficit. Just gas from Reliance KG D6 field, at full production of 85-90 mcm/d, will account for 13.3% of India’s oil and gas FY2012E demand and 5.5% of its overall energy demand and will result in savings of USD 6 bn Shubh Sannit/53

per year. In addition, power generation plants with a capacity of 6,858 MW that are currently idle or operating at low rates will now have a steady fuel supply (Source Kotak Institutional Equities).

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10.

SCOPE OF STUDY The scope of the project during the research and study will be focused on the

following parameters: •

To know the customer prefrence towards the Investment Alternatives in money market.

•

How the market climate could impair money market fund shareholders.

•

To find mechanisms to restore liquidity and orderly functioning to the money market.

•

To help with the nature and details of the U.S. Department of the Treasury’s Temporary Guarantee Program for Money Market Funds.

•

To develop recommendations to improve the functioning of the money market and the operation and regulation of funds investing in that market.

Shubh Sannit/55

11. LIMITATION OF STUDY:Every research study has its limitations likewise this research has some limitation. These are:•

Author’s and economist’s perception is not always static. They frequently change their attitude.

•

This research is based on current economic condition which is not seems to be good.

•

No field study and no making questionnaire.

•

No sufficient time to collect actual data and analysis it.

•

Lack of magazine, journals and primary source of data.

•

No available of current data, charts, graph and comparative analysis data on the websites.

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12. SWOT ANALYSIS  Strengths:•

All the branches are interconnected which give the unique facility of

anywhere investment. •

All operations of the tradind are carried on with the help of computers

thus transaction are carried with greater efficiency. •

High number of executives which make the work of customers very

convenient. •

Share market funds provide “same-day” liquidity, allowing investors to

redeem their shares. •

At a price per share of $1.00 and generally to receive the proceeds that

day. Retail investors value this feature because it allows them to manage cash both for daily needs and to buy or sell securities through brokers. •

Corporate cash managers must have daily liquidity in order to manage

accounts payable and payrolls. •

Share market funds offer investors market-based yields.

•

Share market funds provide a low-cost cash management vehicle for

retail and institutional investors. In part, stock market funds achieve low cost through economies of scale—pooling the investments of hundreds to thousands of retail investors, sometimes with the large balances of institutional investors.

 Weakness:•

No guarantee of and investors are explicitly warned that money market

funds seek to offer investors return of principal may not always be possible. •

Less awareness among general masses about the different services

provided by agencies. Shubh Sannit/57

•

Dissatisfaction among customers due to improper and lack of after

investing in stock market services. •

Inflation and Deflation rate is high.

•

Lot of black money deposit in foreign banks.

•

India too much depend on foreign direct investment (FDI).

•

India is facing financial pain despite healthy banks.

 Opportunities:•

Opportunity to remind funds that purchases of illiquid securities.

•

This could give the Board the opportunity to question the most

knowledgeable people directly and to confirm that the Adviser is dedicating sufficient resources to credit analysis. •

We probably would change the way we manage our short-term portfolio if

NAV was allowed to fluctuate, but I guess it would depend on the degree of fluctuation. •

The recent market events, although painful, afford the money market fund

industry the opportunity to assess the regulations that govern its operations, and the more stringent practices adopted by some money market funds that go beyond those regulations.

 Threats:•

Reorganization of agencies of stock market structure. The all agency

have started to redefine their objective to attract customer’s attention. •

A few stock markets have been permitted to increase their number of

branches and its entry has taken directly solve out the problems of investors.

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CONCLUSION After going through all the analysis regarding the stock market in last 2 years, we can say that stock market touched its peak at 21000 but then crashed badly. Now it is revolving around a 14000-16000 figure. Though the sensex is a barometer and after seeing such fluctuations one could be afraid of investing. Still we can say that people can play safe by investing the blue-chips and undervalued shares. During year 2006, if we keep aside that brief period of loss that the market witnessed from may 10, 2006 to June 14, 2006, investors’ wealth seem to have grown double fold with the Sensex touching the 10000, 11000, 12000, 13000 and 14000 levels in the same calendar year. Investor wealth in terms of market capitalization has been growing in the range of 6.84-12.41% And talking about year 2007, we can summarize the happenings of year 2007 as a year which redefined the resistance levels at sensex. Strong economic data, heavy inflow of funds from FIIs towards the close of previous calendar year and decent to highly encouraging surge in earnings of top notch companies all pointed to a rosy 2007. The rupee's rise against the US dollar the regulator's decision to restrict investments made through participatory notes, rising crude oil prices, the sub-prime mortgage woes in US, concerns over a slowing down US economy and The Left parties' opposition to the Indo-US nuclear pact, did halt the market's progress at times. But the inherent strength of the Indian economy, fairly buoyant results quarter after quarter, the various chops and subsidies announced by the government and sustained efforts made by the market regulator to keep investor confidence in the system alive kept the momentum going. Presently the hike and seek being played by crude prices, inflation and RBI is affecting our market to a great extent. And adding to the worries are global slowdown, political instability, serial bomb blasts, negative public sentiments etc. It is indeed surprising that though the epicenter of the sub-prime crisis is the US, the tremors are Shubh Sannit/59

being felt in India. The loss of market cap in the US is only 14 per cent vis-À-vis 38 per cent in India. But even after analyzing the causes for downturn, we can say that India story has not ended; else $200 billion with institutional investors would have fled for safer waters. Exports being 14 per cent of GDP, India is less vulnerable to external shocks than many other Asian nations. Political uncertainties too have narrowed down. Savings in India have risen at a historic rate of 35 per cent on the growing GDP base; 17 per cent of this is in gold, commodities and real-estate while financial savings represent 18 per cent of GDP. Even this is skewed towards deposits both banking and non-banking, while the percentage of savings in shares and debentures is a mere 6.3 per cent. If this percentage goes to 25 per cent, it would amount to $40 billion of incremental money being diverted to capital markets. Indian markets today are facing extremely negative sentiments on the back of financial crises across the globe. US red ink led bloody session on market. Indian markets bounced back after the mid sessions to recover smartly from the dip fall on the back of Finance Minister’s strong statement about India’s financial health led to sustained buying across the sectors. Also the bounce back in Asian markets from days low on relaxation in policies in China for second time this week and along with further pump of $28 billion money into the markets by Japan, Australia and India, also added to positive sentiment. Now the stock market is recovering from slowdown. I would like to bring a couple of things into picture: 1. Federal Reserve (US head banking institution, like RBI in India) is looking forward to make more rate cuts (interest rate cuts) in the coming future to ease out the credit crunch that has evoked since this subprime crisis. Its effect would take 6-8 months to reflect in the global economies including markets of India: Derivatives Trading Market, Futures Trading Market, and Commodities Trading Market of India. This reflection in trading and investment sentiment could take some time to happen, but it would be definitely witnessed with an increment in local business, FII investment in India and NRI Investment Services in India. Shubh Sannit/60

2. Indian Shares/Stocks market are not performing great in the gone weeks, but institutions still have abundant money on the table to invest; but with the coming rate cuts, the debt market would not look any good to them either (in the US). Commodity prices have risen up real fast, not giving many investors the room or time to switch from equities or debt market into commodities market. All this brings the investors, institutions, banks & hedge funds in the land of uncertainty. They have to rethink their strategy and that is where the emerging markets look attractive to these investors (because these investors would still want to invest their money. US recession doesn’t mean people would stop investing for their future, or hedge funds/banks would stop investing/speculating money). Thus bringing such investors to look for good valuations and a very positive side for the Asian stock markets. . 3. Nothing bad is happening in the Asian markets. We look pretty strong, and all this major blood is on the street is a result of short-term panic we are witnessing. The momentum would soon pick up once the US recession worries ease a little with fed pumping in more money (bailout) into the subprime cycle. Thus we would see lot more buy orders coming into demat accounts to buy the Indian stocks. 4. India story has not changed at all. We still believe that our economy has lot of potential with great fuel to shoot up. However we still believe that this is not going to happen in short-term, and we might not see too much purchase orders coming into the Online Dmat Accounts of Indians as well as NRI, PIO or OCIs (non resident Indians). There is a lot of room for expansion in India, and there is huge demand for credit consumption. We are just waiting for the liquidity to pour-in. That liquidity is definitely on the table, but all big institutions are looking for some good indicators, and when this happens we would be crawling back on the curve. 5. We all believe that the markets are majorly falling due to the US worries that are coming in and not because of the performances exhibited by the Indian corporates. Earning results of the company are expected to be out in April (when companies

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declare their quarterly/annual performances to the public). Everyone out here expects these numbers to be good, which could thus decide the turn of the market sentiments. Global sentiment is changing from what it was 3-4 months back. With EMBI bond spreads coming off, investor risk appetite is returning. However any further bad news from the US banking sector as well as the swine flu developing into a pandemic could spoil the global equity rally. Despite fears of slowdown and leverage, corporate balance sheets remain healthy. Results for Q4FY09 (Jan - Mar 09) have started off on a good note with private sector banks standing out. Against the backdrop of fears of massive deterioration in asset quality, private sector banks have had a very marginal increase in non performing assets. We continue to see some signs of resilience as auto, cement and FMCG sales continue to show strong growth. Order inflow in the infrastructure sector continues to be robust. Despite fears of a credit crunch, in April, one of the largest power projects, the $ 4 bn, 4000 MW coal fired Sasan Power plant achieved financial closure. The heartening feature of the financial closure was that this was done entirely by local lenders and at SPV levels without any recourse to the parent company clearly indicating the willingness of lenders to fund large scale infrastructure projects. After large outflows last year ($11.97 bn) and in the first two months of 2009 ($1.36 bn), we have seen good FII inflows in March and April (approximately US$1.4bn). In the recent months, domestic insurance companies have become meaningful equity buyers and have provided support when the markets witnessed large scale selling. While the current momentum may extend the rally, we believe with elections results just a couple of weeks away, markets are likely to take a breather. We would recommend that investors should continue to add to their India exposure and use the knee jerk reaction on the election outcome, if any. If performance of emerging equity markets against developed markets in recent times is any indicator, we are already seeing signs of decoupling. Shubh Sannit/62

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BIBLIOGRAPHY  Websites:  www.en.wikipedia.org  www.stockinfo.com  www.scribd.com  www.bseindia.com  www.nseindia.com  www.ccsindia.com

 Search Engines:  www.google.com  www.yahoo.com  www.rediff.com

 Magazines: •

Technical analysis of stock & commodities

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Trader’s resources

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Trader’s tips

 Books: •

Fundamental Analysis: A Back-To-The Basics Investment Guide to Selecting Quality Stocks; John C. Ritchie Jr.; Published by Irwin Professional Pub.

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Mastering Fundamental Analysis; Michael C. Thomsett; Published by Dearborn Trade. Shubh Sannit/64

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Technical Analysis of Stock Trends - by Robert Davis Edwards, John Magee, WHC Bassetti

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The New Science of Technical Analysis; Thomas R. Demark; Published by John Wiley & Sons.

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The Handbook of Technical Analysis; Darrel R. Jobman (Editor); Published by Probus Pub Co.

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