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

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 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.

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Shubh Sannit/8
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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 de-
regulation 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.

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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

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 2. Descriptive Research

1. Exploratory Research

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
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 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
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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 long-
term 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
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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 on-
line 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 real-

time basis the price movements, volume positions and members' positions and
real-time measurement of default risk, market reconstruction and generation of
cross market alerts.

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  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 Capitalization-

Weighted" 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 :

Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai

Address
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

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Shubh Sannit/21
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 free-
float market capitalization methodology. The "free-float market capitalization-
Shubh 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 1978-79

Base Index 100
Value
Date of Launch 01-01-1986
Method of Launched on full market capitalization method and effective
calculation September 01, 2003, calculation method shifted to free-float
market capitalization.
Number of 30
scrips
Index 15 seconds
calculation
frequency
Historical Index, Price Earnings, Price to Book Value ratio and Dividend
Values for Yield %
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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:

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• 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. Free-
float 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. NASDAQ-
100, 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 Free-Float
% Free-Float % Free-Float
Factor Factor
>0 - 5% 0.05 >50 - 55% 0.55
>5 - 10% 0.10 >55 - 60% 0.60
>10 - 15% 0.15 >60 - 65% 0.65
>15 - 20% 0.20 >65 - 70% 0.70
>20 - 25% 0.25 >70 - 75% 0.75
>25 - 30% 0.30 >75 - 80% 0.80
>30 - 35% 0.35 >80 - 85% 0.85
>35 - 40% 0.40 >85 - 90% 0.90
>40 - 45% 0.45 >90 - 95% 0.95
>45 - 50% 0.50 >95 - 100% 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

Shubh Sannit/30
 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
Shubh Sannit/32
 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 large-
scale 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.

Shubh Sannit/34
 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.

Shubh Sannit/35
Shubh Sannit/36
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.

Shubh Sannit/38
Shubh Sannit/39
6. AN OVERVIEW OF YEAR 2006

5th
After touching 14K mark on December 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 15,000-
mark, 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 eye-
popping 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.

Shubh Sannit/44
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.

Shubh Sannit/46
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.

Shubh Sannit/48
 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.

Shubh Sannit/49
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

Shubh Sannit/52
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.

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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.

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 • 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

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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.
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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.

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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

• Trader’s resources

• 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.

• Mastering Fundamental Analysis; Michael C. Thomsett; Published by Dearborn Trade.

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• Technical Analysis of Stock Trends - by Robert Davis Edwards, John Magee, WHC
Bassetti
• The New Science of Technical Analysis; Thomas R. Demark; Published by John Wiley
& Sons.
• The Handbook of Technical Analysis; Darrel R. Jobman (Editor); Published by Probus
Pub Co.

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