A

STUDY
ON
‘FOREIGN INSTITUTIONAL INVESTMENT
AND
IMPACT ON SENSEX’
(Conducted on behalf of ‘India Info line Ltd.’)
[From 15th January, 2008 to 15th March, 2008)
A Project Report submitted in partial fulfillment of the
requirements
For the award of the degree of
BACHELOR OF BUSINESS ADMINISTRATION
TO
SOUTH GUJARAT UNIVERSITY, SURAT

Submitted By:
RAMANI VIPUL K
T.Y.B.B.A. (Sem. – VI) Roll No: 27

Under the guidance of

Mrs. Daisy Sheby Thekkanal

Submitted TO
The Surat People’s Co-op. Bank College
Of
Business Administration
 DECLARATION

My Self Ramani Vipul K , here by declare that the

project report entitled “Foreign Institutional Investment and
Impact on SENSEX” under the guidance of Mrs. Daisy
Sheby Thekkanal submitted in partial fulfillment of the
requirements for the award of the degree of Bachelor of
Business Administration to South Gujarat University,
Surat is my original work – research study – carried out
during 15th January, 2008 to 15th March, 2008 and not
submitted for the award of any other
degree/diploma/fellowship or other similar titles or prizes to
any other institution/organization or university by any other
person.

S
ignat
ure
Place:
Date:
(Ramani Vipul K)
(T.Y.B.B.A.,
Roll No: 27)
 THE SURAT PEOPLE’S CO-OPERATIVE
BANK
OF
BUSINESS ADMINISTRATION.
(Near to harinager opp. To swaminaranyn
temple)

CERTIFICATE OF THE FACULTY GUIDE

This is to certify that the Project Report entitled ‘Non

performing Asset (NPA) (Conducted on behalf of The Surat
people’s Co-operative Bank Ltd. , Surat) submitted in partial
fulfillment of the requirements for the award of the degree of
BACHELOR OF BUSINESS ADMINISTRATION to
SOUTH GUJARAT UNIVERSITY, SURAT is a record of
bonafide research work carried out by Ramani Vipul K.
under my supervision and guidance.

Signature
Signature

Principal,
Mrs. Daisy Sheby T.
coordinator
(Project Guide)
 ACKNOWLEDGEMENT

This project report is written in accordance with the

bachelor of business administration course prescribed
by veer narmad south Gujarat University for two month
industrial training
With great pleasure I acknowledgement, India info
line ltd. for their valuable assistance and excellent co-
ordination by allowing me to receiving And let me now
the things practically which I always learning
theoretically
I am greatly thankful to India Info line limited Anad
Gohil(Branch manager of varachha ,surat) Who help
give all information which I needed I am also thankful to
all member who directly or indirectly helped me to
prepare this project report.
I would like to thank our co-coordinator Daisy Sheby T,
Prof. the Surat People’s Co-op. Bank College of Business
Administration (Surat) for making available the
requirement for the research work

I am thankful to Prof. Daisy Sheby T who provides

available guidance through out the preparation of this
project report I would like to express my fearful gratitude
for their suggestion, views& ideas on my project work.
Finally, I would like to acknowledge my friends &
my family who have directly or indirectly helped me.

Ramani Vipul K
SENSEX - THE BAROMETER OF INDIAN CAPITAL
MARKET

Introduction

For the premier Stock Exchange that pioneered the

stock broking activity in India, 128 years of experience
seems to be a proud milestone. A lot has changed since
1875 when 318 persons became members of what today
is called "The Stock Exchange, Mumbai" by paying a
princely amount of Re1.

Since then, the country's capital markets have

passed through both good and bad periods. The journey
in the 20th century has not been an easy one. Till the
decade of eighties, there was no scale to measure the
ups and downs in the Indian stock market. The Stock
Exchange, Mumbai (BSE) in 1986 came out with a stock
index that subsequently became the barometer of the
Indian stock market.’

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.

The Index was initially calculated based on the "Full

Market Capitalization" methodology but was shifted to
the free-float methodology with effect from September 1,
2003. The "Free-float Market Capitalization"
methodology of index construction is regarded as an
industry best practice globally. All major index providers
like MSCI, FTSE, STOXX, S&P and Dow Jones use the
Free-float methodology.

Due to is 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, it provides the
time series data over a fairly long period of time (From
1979 onwards). Small wonder, the SENSEX has over
the years become one of the most prominent brands in
the country.

The growth of equity markets in India has been

phenomenal in the decade gone by. Right from early
nineties the stock market witnessed heightened activity
in terms of various bull and bear runs. The SENSEX
captured all these events in the most judicial manner.
One can identify the booms and busts of the Indian stock
market through SENSEX.
SENSEX Calculation Methodology

SENSEX is calculated using the "Free-float Market Capitalization"

methodology. As per this methodology, 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 and disseminated in real
time.

Understanding Free-float Methodology

Concept:

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 Index. Free-float market capitalization is defined as that
proportion of total 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.

In India, BSE pioneered the concept of Free-float by launching BSE

TECk in July 2001 and BANKEX in June 2003. While BSE TECk Index
is a TMT benchmark, BANKEX is positioned as a benchmark for the
banking sector stocks. SENSEX becomes the third index in India to be
based on the globally accepted 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. For
example, the concentration of top five companies in SENSEX has
fallen under the free-float scenario thereby making the SENSEX
more diversified and broad-based.

•A Free-float index aids both active and passive investing styles. It

aids active managers by enabling them to benchmark their fund
returns vis-à-vis an investable 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.

Definition of Free-float:

Share holdings held by 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. In specific, the
following categories of holding are generally excluded from the definition
of Free-float:

•Holdings by founders/directors/ acquirers which has control

element

•Holdings by persons/ bodies with "Controlling Interest"

•Government holding 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.

The remaining shareholders would fall under the Free-float

category.

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 with the Exchange. (Format
available on www.bseindia.com) The Exchange 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 Factor % Free-Float Free-Float 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

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 Index Cell of the exchange does the day-to-day maintenance of the
index within the broad index policy framework set by the Index
Committee. The 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 Index Committee of the Exchange comprises of
experts on capital markets from all major market segments. They
include Academicians, Fund-managers from leading Mutual Funds,
Finance-Journalists, Market Participants, Independent Governing Board
members, and Exchange administration.

On-Line Computation of the Index:

During market hours, prices of the index scrip, at which trades are
executed, are automatically used by the trading computer to calculate
the SENSEX every 15 seconds and continuously updated on all trading
workstations connected to the BSE trading computer in real time.

Adjustment for Bonus, Rights and Newly issued Capital:

The arithmetic calculation involved in calculating SENSEX is simple, but

problem arises when one of the component stocks pays a bonus or
issues rights shares. If no adjustments were made, a discontinuity would
arise between the current value of the index and its previous value
despite the non-occurrence of any economic activity of substance. At the
Index Cell of the Exchange, the base value is adjusted, which is used to
alter market capitalization of the component stocks to arrive at the
SENSEX value.

The Index Cell of the Exchange keeps a close watch on the events that
might affect the index on a regular basis and carries out daily
maintenance of all the 14 Indices.

•Adjustments for Rights Issues:

When a company, included in the compilation of the index, issues
right shares, the free-float market capitalisation of that company is
increased by the number of additional shares issued based on the
theoretical (ex-right) price. An offsetting or proportionate adjustment
is then made to the Base Market Capitalisation (see 'Base Market
Capitalisation Adjustment' below).

•Adjustments for Bonus Issue:

When a company, included in the compilation of the index, issues
 bonus shares, the market capitalisation of that company does not
undergo any change. Therefore, there is no change in the Base
Market Capitalisation, only the 'number of shares' in the formula is
updated.

•Other Issues:
Base Market Capitalisation Adjustment is required when new shares
are issued by way of conversion of debentures, mergers, spin-offs
etc. or when equity is reduced by way of buy-back of shares,
corporate restructuring etc.

•Base Market Capitalisation Adjustment:

New Market Capitalisation

New Base Market Old Base Market

= x ---------------------------------------
Capitalisation Capitalisation

Old Market Capitalisation

The formula for adjusting the Base Market Capitalisation is as

follows:

To illustrate, suppose a company issues right shares which

increases the market capitalisation of the shares of that company
by say, Rs.100 cores. The existing Base Market Capitalisation
(Old Base Market Capitalisation), say, is Rs.2450 cores and the
aggregate market capitalisation of all the shares included in the
index before the right issue is made is, say Rs.4781 cores. The
"New Base Market Capitalisation” will then be:

2450 x (4781+100)

-------------------------- =Rs.2501.24 crores

4781

This figure of 2501.24 will be used as the Base Market

Capitalisation for calculating the index number from then onwards till
the next base change becomes necessary.
SENSEX - Scrip selection criteria:

The general guidelines for selection of constituents in SENSEX are as

follows:

•Listed History: The scrip should have a listing history of at least 3

months at BSE. Exception may be considered if full market
capitalisation of a newly listed company ranks among top 10 in the
list of BSE universe. In case, a company is listed on account of
merger/ demerger/ amalgamation, minimum listing history would not
be required.

•Trading Frequency: The scrip should have been traded on each

and every trading day in the last three months. Exceptions can be
made for extreme reasons like scrip suspension etc.

•Final Rank: The scrip should figure in the top 100 companies listed
by final rank. The final rank is arrived at by assigning 75% weight
age to the rank on the basis of three-month average full market
capitalisation and 25% weight age to the liquidity rank based on
three-month average daily turnover & three-month average impact
cost.

•Market Capitalization Weightage:The weightage of each scrip in

SENSEX based on three-month average free-float market
capitalisation should be at least 0.5% of the Index.

•Industry Representation: Scrip selection would generally take into

account a balanced representation of the listed companies in the
universe of BSE.
Track Record: In the opinion of the Committee, the company should
have an acceptable track record.

Index Review Frequency:

The Index Committee meets every quarter to discuss index related

issues. In case of a revision in the Index constituents, the
announcement of the incoming and outgoing scrips is made six weeks in
advance of the actual implementation of the revision of the Index.
Here is a timeline on the rise and rise of the Sensex through
Indian stock market history.

1000, July 25, 1990 - On July 25, 1990, the Sensex touched the four-
digit figure for the first time and closed at 1,001 in the wake of a good
monsoon and excellent corporate results.

2000, January 15, 1992 - On January 15, 1992, the Sensex

crossed the 2,000-mark and closed at 2,020 followed by the liberal
economic policy initiatives undertaken by the then finance minister
and current Prime Minister Dr Manmohan Singh.

3000, February 29, 1992 - On February 29, 1992, the Sensex

surged past the 3000 mark in the wake of the market-friendly
Budget announced by the then Finance Minister, Dr Manmohan
Singh.

4000, March 30, 1992 - On March 30, 1992, the Sensex crossed
the 4,000-mark and closed at 4,091 on the expectations of a
liberal export-import policy. It was then that the Harshad Mehta
scam hit the markets and Sensex witnessed unabated selling.

5000, October 11, 1999 - On October 8, 1999, the Sensex

crossed the 5,000-mark as the BJP-led coalition won the majority
in the 13th Lok Sabha election.

6000, February 11, 2000 - On February 11, 2000, the infotech

boom helped the Sensex to cross the 6,000-mark and hit and all
time high of 6,006.

7000, June 21, 2005 - On June 20, 2005, the news of the
settlement between the Ambani brothers boosted investor
sentiments and the scrips of RIL, Reliance Energy, Reliance
Capital and IPCL made huge gains. This helped the Sensex
crossed 7,000 points for the first time.

8000, September 8, 2005 - On September 8, 2005, the Bombay

Stock Exchange's benchmark 30-share index -- the Sensex --
crossed the 8000 level following brisk buying by foreign and
domestic funds in early trading.

9000, December 09, 2005 - The Sensex on November 28, 2005

crossed 9000 to touch 9000.32 points during mid-session at the
Bombay Stock Exchange on the back of frantic buying spree by
foreign institutional investors and well supported by local
operators as well as retail investors.

10,000, February 7, 2006 - The Sensex on February 6, 2006

touched 10,003 points during mid-session. The Sensex finally
closed above the 10K-mark on February 7, 2006.

11,000, March 27, 2006 - The Sensex on March 21, 2006 crossed
11,000 and touched a peak of 11,001 points during mid-session at
the Bombay Stock Exchange for the first time. However, it was on
March 27, 2006 that the Sensex first closed at over 11,000 points.

12,000, April 20, 2006 - The Sensex on April 20, 2006 crossed
12,000 and touched a peak of 12,004 points during mid-session at
the Bombay Stock Exchange for the first time.

13,000, October 30, 2006 - The Sensex on October 30, 2006

crossed 13,000 and still riding high at the Bombay Stock
Exchange for the first time. It took 135 days to reach 13,000 from
12,000. And 124 days to reach 13,000 from 12,500. On 30th
October 2006 it touched a peak of 13,039.36 & closed at
13,024.26.

14,000, December 5, 2006 - The Sensex on December 5, 2006

crossed 14,000 and touched a peak of 14028 at 9.58AM(IST)
while opening for the day December 5, 2006.

15,000, July 6, 2007- The Sensex on July 6, 2007 crossed

another milestone and reached a magic figure of 15,000. it took
almost 7 month and 1 day to touch such a historic milestone.

16,000, September 19, 2007- The Sensex on September 19,

2007 crossed the 16,000 mark and reached a historic peak of
16322 while closing. The bull hits because of the rate cut of 50
bps in the discount rate by the Fed chief Ben Bernanke in US.

17,000, September 26, 2007- The Sensex on September 26,

2007 crossed the 17,000 mark for the first time, creating a record
for the second fastest 1000 point gain in just 5 trading sessions. It
failed however to sustain the momentum and closed below 17000.
The Sensex closed above 17000 for the first time on the following
day. Reliance group has been the main contributor in this bull run,
contributing 256 points. This also helped Mukesh Ambani's net
worth to grow to over $50 billion or Rs.2 trillion. It was also during
this record bull run that the Sensex for the first time zoomed
ahead of the Nikkei of Japan.

18,000, October 9, 2007- The Sensex crossed the 18k mark for
the first time on October 9, 2007. The journey from 17k to 18k
took just 8 trading sessions which is the third fastest 1000 point
rise in the history of the sensex. The sensex closed at 18,280 at
the end of day. This 788 point gain on 9th October was the second
biggest single day absolute gains.

19,000, October 15, 2007- The Sensex crossed the 19k mark for
the first time on October 15th 2007. It took just 4 days to reach
from 18k to 19k. This is the fastest 1000 points rally ever and also
the 640 point rally was the second highest single day rally in
absolute terms. This made it a record 3000 point rally in 17 trading
sessions overall.

20,000, October 29, 2007- The Sensex crossed the 20k mark for
the first time with a massive 734.5 point gain but closed below the
20k mark. It took 11 days to reach from 19k to 20k. The journey of
the last 10,000 points was covered in just 869 sessions as against
7,297 sessions taken to touch the 10,000 mark from 1,000 levels.
In 2007 alone, there were six 1,000-point rallies for the Sensex.

21,000, January 8, 2008

History of replacement of scrips in SENSEX

Date Outgoing Scrips Replaced by

01.01.1986 Bombay Burmah Voltas
Asian Cables Peico
Crompton Greaves Premier Auto.
Scinda G.E.Shipping

03.08.1992 Zenith Ltd. Bharat Forge

19.08.1996 Ballarpur Inds. Arvind Mills

Bharat Forge Bajaj Auto
Bombay Dyeing BHEL
Ceat Tyres BSES
Century Text. Colgate
GSFC Guj. Amb. Cement
Hind. Motors HPCL
Indian Organic ICICI
Indian Rayon IDBI
Kirloskar Cummins IPCL
 Mukand Iron MTNL
Phlips Ranbaxy Lab.
Premier Auto State Bank of India
Siemens Steel Authority of India
Voltas Tata Chem

16.11.1998 Arvind Mills Castrol

G. E. Shipping Infosys Technologies
IPCL NIIT Ltd.
Steel Authority of India Novartis

10.04.2000 I.D.B.I Dr. Reddy’s Laboratories

Indian Hotels Reliance Petroleum
Tata Chem Satyam Computers
Tata Power Zee Telefilms

08.01.2001 Novartis Cipla Ltd.

07.01.2002 NIIT Ltd. HCL Technologies

Mahindra & Mahindra Hero Honda Motors Ltd.

31.05.2002 ICICI Ltd. ICICI Bank Ltd.

10.10.2002 Reliance Petroleum Ltd. HDFC Ltd.

10.11.2003 Castrol India Ltd. Bharti-Tele-Ventures Ltd.

Colgate Palomive (India) Ltd. HDFC Bank Ltd.
Glico Smith line Parma. Ltd. ONGC Ltd.
HCL Technologies Ltd. Tata Power Company Ltd.
Nestle (India) Ltd. Wipro Ltd.

19.05.2004 Larsen & Toubro Ltd. Marti Dog Ltd.

27.09.2004 Mahan agar Telephone Nigam Ltd. Larsen & Toubro Ltd.

National Thermal Power

06.06.2005 Hindustan Petroleum Corp Ltd.
Corn. Ltd.
Tata Consultancy Services
Zee Telefilms Ltd.
Ltd.

Reliance Communication
12.06.2006 Tata Power Ltd.
Ventures Ltd.

09.07.2007 Hero Honda Motors Ltd. Mahindra & Mahindra Ltd.

19.11.2007 Dr. Reddy's Laboratories Ltd. DLF Ltd.

 ABOUT COM PANY

The India Info line Group comprises the holding company, India Info
line Ltd, which has 4 wholly-owned subsidiaries engaged in distinct yet
complementary businesses which together offer a whole bouquet of
products and services to make your money grow. As on date, the Group
employs 4000 plus employees, in over 60 locations, across India. The
corporate structure has evolved to comply with oddities of the regulatory
framework but still beautifully help attain synergy and allow flexibility
to adapt to dynamics of different businesses.

The parent company, India Info line Ltd owns and manages the
web properties www.indiainfoline.com and www.5paisa.com. It
also undertakes research, customized and off-the-shelf. Launched
on 11 May 1999, www.indiainfoline.com is India’s leading and
most comprehensive business and financial information website.
The site provides quality information and analysis - earlier
restricted to a few people - to the common man, absolutely free!
The site has met with an overwhelming response and has been
reviewed as the most comprehensive financial content website in
India by BBC World - Money Watch, Business World, Business
Line and others. The company also won the Golden Mouse Award
in India Internet World 2000 for the "Best Finance" site. In May
2001, our website was included in the Top 200 Best of the Web list
by Forbes Global under the Asia Investing category. We were the
only website from India to be featured in any category. Since then
it has been nominated twice to this list. In its last review, Forbes
editors have said, www.indiainfoline.com is a must read for the
investors in South Asia...

Our research is also disseminated electronically through

Bloomberg, Investment, First Call/Thomson Financial and Internet
Securities. On First Call/Thomson Financial, we have been one of
the largest read research houses from Asia, which is a testimony
to the quality and timeliness of our reports.

India Info line Securities Pvt. Ltd.

We have seats on India's premier stock exchanges - The National
Stock Exchange (NSE) and The Stock Exchange, Mumbai (BSE)
and offer online trading facilities. Tapping and servicing retail
customers is our key focus, and in a short span of time have
emerged as one of the leading players in the online trading space.
We offer online trading facilities under the 5paisa brand name.
India Infoline.com Distribution Services Ltd.

We have developed a retail distribution infrastructure (Investor

Points) to support our online presence. This network, spread over
60 locations, is engaged in the distribution of financial products
including fixed deposits, Goo Relief bonds, insurance, mutual
funds and IPO's. These Investor Points help us service our
broking customers also.

India Info line Insurance Services Pvt. Ltd.

We have tied up with ICICI Prudential Life Insurance Company Ltd

to become their corporate agent. Under the new IRDA regulations,
we were one of the first corporate agents. ICICI Prudential Life
Insurance Company Ltd. is the leading private sector insurance
player, and we are their leading corporate agent.

India Info line Commodities Pvt. Ltd.

We are a registered commodities broker with MCX and offers
futures trading in commodities.

Here’s a look at the rocketing list of what’s on offer from The

India Info line Group:

Equity Trading and Stock Broking: Cash and Derivatives

segments. Member BSE and NSE, DP with NSDL.
Portfolio Management: SEBI-registered, backed by a pool of
analysts with over
200 man-years in managing portfolios.
Research & Analysis: Exhaustive information and data mining,
covering the spectrum of Indian business, industry and financial
markets.
Mutual Funds: Primary agent for the entire phalanx of leading
funds. Something to suit every risk profile.
Life Insurance: Leading corporate agent of ICICI Prudential Life
Insurance Company, miles ahead of the runner-up!
Commodities Broking: Member of the Multi- Commodities
Exchange (MCX). Again, rock-bottom brokerage and quality
research support. Fixed Income Instruments: From Fixed
Deposits, Post Office Saving schemes to RBI Tax Saving and
Infrastructure Bonds
Money Tree Consultancy Services

(MTCS) Is a group company of India Info line Ltd., focusing

distribution on Home Loans, Personal Loans, Credit Cards and
Non – Life Insurance? MTCS turns the table from a supplier
oriented market place to a demand oriented market place. Taking
requirements from the customer, MTCS would provide a complete
basket of products across the entire retail asset portfolio. MTCS
extends the distribution reach of financial services providers by
using alternate channels like the Internet, telephone, wireless,
sales force and events. The Uniqueness of this model is being a
financier neutral loan marketplace, the sole objective being
providing the end customer the product of his choice based on his
requirements irrespective of which bank it is from.

CORPORATE PHILOSOPHY PEOPLE ORGANIZATION

It is rightly said about the services sector that our most prized
assets go down the elevator at the end of every day. Being in the
services industry, people are our biggest and most important
assets. We believe that people make all the difference.

OWNER MINDSET
What distinguishes India Info line from other organizations is the
fact that all employees are driven by Owner Mindset. This is a
privilege as well as a responsibility. The environment will provide
tremendous autonomy to operate, be creative and make mistakes.
Each employee who is part of India Info line is expected to have
an owner’s mindset and think and behave like one. While there is
no ‘the way’ of doing things, there are millions of things which an
owner would do differently as compared to a typical person with
an employee mindset. For instance, if work requires, sitting late or
carrying the work home and completing it to meet the exigencies
of deadlines. Taking complete care of the office property and
material like his/her own. Suggestion and action on saving costs
many times for activities not pertaining to his/her own department.
Helping team members from his/her own functional areas as well
as others. Ensuring that she/he projects the best image of the
organization outside, have positive influence on colleagues and
other team members, help seniors take corrective action against
any possible damage, sabotage or negative activity that comes to
his/her knowledge. Generate ideas, which may be related to the
area of work, or may be general in nature for the benefit of
organization and all the people in the organization. Many of these
may be obvious and some of them would be intuitive. But we are
trying to make it a part and parcel of our organization building
efforts.

We believe in the Olympic motto and have made it our principle

for the coming year. We aim to progress faster, soar higher and
grow stronger. We have been preparing to move into a new orbit
of growth for several years now. Our core businesses have grown
strongly for the past few years. We believe that the real growth
has yet not happened.

We are better prepared than ever before. We look set to break all
record. Each member of Team India Info line has been putting up
an Olympian fight and is capable, confident, and certain and ready
to deliver faster, higher and stronger performance.

Contact Details

India Info line Ltd

Building No 75, Nirlon Complex,
Off Western Express Highway,
Goregaon (East),
Mumbai - 400063
Tel: +91-22-66489000
Fax: +91-22-26850451
E Mail: apply@indiainfoline.com
Website: www.indiainfoline.com

Company History
We were originally incorporated on October 18, 1995 as Probity
Research and Services Private Limited at Mumbai under the
Companies Act, 1956 with Registration No. 11 93797.

We commenced our operations as an independent provider of

information, analysis and research covering Indian businesses, financial
markets and economy, to institutional customers. We became a public
limited company on April 28, 2000 and the
 Name of the Company was changed to Probity Research and Services
Limited. The name of the Company was changed to India Infoline.com
Limited on May 23, 2000 and later to India Info line Limited on March 23,
2001.

In 1999, we identified the potential of the Internet to cater to a Mass

retail segment and transformed our business model from providing
information services to institutional customers to retail customers. Hence
we launched our Internet portal, www.indiainfoline.com in May1999 and
started providing news and market information, independent research,
interviews with business leaders and other specialized features.

In May 2000, the name of our Company was changed to India

Infoline.com Limited to reflect the transformation of our business. Over a
period of time, we have emerged as one of the leading business and
financial information services provider in India.
In the year 2000, we leveraged our position as a provider of financial
information and analysis by diversifying into transactional
Services, primarily for online trading in shares and securities and online
as well as offline distribution of personal financial products, like
Mutual funds and RBI Bonds. These activities were carried on by our
Wholly owned subsidiaries.

Our broking services was launched under the brand name of

5paisa.com through our subsidiary, India Info line Securities Private
Limited and www.5paisa.com, the e-broking portal, was launched for
online trading in July 2000. It combined competitive brokerage rates and
research, supported by Internet technology besides investment advice
from an experienced team of research analysts, we also offer real time
stock quotes, market news and price charts with multiple tools for
technical analysis.

Acqui sition of Ag ri Mar keting Ser vice s Limited

(Ag ri)

In March 2000, we acquired 100% of the equity shares of Agri

Marketing Services Limited, from their owners in exchange for the
issuance of 508,482 of our equity shares. Agri was a direct Selling agent
of personal financial products including mutual funds, fixed deposits,
corporate bonds and post-office instruments. At the time of our
acquisition, Agri operated 32 branches in South and West India serving
more than 30,000 customers with a staff of, approximately
180employees. After the acquisition, we changed the company name to
India Infoline.com Distribution Company Limited.

F acilities

Our main offices are located in approximately 4,000 square feet of

Office space located in Mumbai, India. Our India Info line Branches
Collectively occupy an additional 10,000 square feet of office space
located throughout India, As on March 31, 2005, we have 73 branches
across 36 locations in India.
Previous Address New Address Date of Change

208-C, Agarwal Market, 1, Snehdeep, Gokhale August 6,1999

Vile Pane (EAST), road,
Mumbai-400 057. Vile Pane (EAST),
Mumbai-400 057.

Products and Services

Equities

Indiainfoline provided the prospect of researched investing to its clients, which was
hitherto restricted only to the institutions. Research for the retail investor did not exist
prior to Indiainfoline. Indiainfoline leveraged technology to bring the convenience of
trading to the investor’s location of preference (residence or office) through computerised
access. Indiainfoline made it possible for clients to view transaction costs and ledger
updates in real time.

PMS

Our Portfolio Management Service is a product wherein an equity investment

portfolio is created to suit the investment objectives of a client. We at Indiainfoline
invest your resources into stocks from different sectors, depending on your risk-
return profile. This service is particularly advisable for investors who cannot afford to
give time or don't have that expertise for day-to-day management of their equity
portfolio.

Research

Sound investment decisions depend upon reliable fundamental data and stock
selection techniques. Indiainfoline Equity Research is proud of its reputation for, and
we want you to find the facts that you need. Equity investment professionals
routinely use our research and models as integral tools in their work.
They choose Ford Equity Research when they can clear your doubts.

Commodities

Indiainfoline’s extension into commodities trading reconciles its strategic intent to

emerge as a one-stop solutions financial intermediary. Its experience in securities
broking has empowered it with requisite skills and technologies. The Company’s
commodities business provides a contra-cyclical alternative to equities broking. The
Company was among the first to offer the facility of commodities trading in India’s
young commodities market (the MCX commenced operations only in 2003). Average
monthly turnover on the commodity exchanges increased from Rs 0.34 bn to Rs
20.02 bn. The commodities market has several products with different and non-
correlated cycles. On the whole, the business is fairly insulated against cyclical
gyrations in the business.

Mortgages

During the year under review, Indiainfoline acquired a 75% stake in Moneytree
Consultancy Services to mark its foray into the business of mortgages and other loan
products distribution. The business is still in the investing phase and at the time of
the acquisition was present only in the cities of Mumbai and Pune. The Company
brings on board expertise in the loans business coupled with existing relationships
across a number of principals in the mortgage and personal loans businesses.
Indiainfoline now has plans to roll the business out across its pan-Indian network to
provide it with a truly national scale in operations.

Invest Online

Indiainfoline has made investing in Mutual funds and primary market so effortless. All
you have to do is register with us and that’s all. No paperwork no queues and No
registration charges.
INVEST IN MF
Indiainfoline offers you a host of mutual fund choices under one roof, backed by in-
depth research and advice from research house and tools configured as investor
friendly.
APPLY IN IPOs
You could also invest in Initial Public Offers (IPO’s) online without going through the
hassles of filling ANY application form/ paperwork.

SMS

Stay connected to the market

The trader of today, you are constantly on the move. But how do you stay connected
to the market while on the move? Simple, subscribe to India Infoline's Stock
Messaging Service and get Market on your Mobile!

There are three products under SMS Service:

Market on the move.
Best of the lot.
 VAS (Value Added Service .

Insurance

An entry into this segment helped complete the client’s product basket; concurrently,
it graduated the Company into a one-stop retail financial solutions provider. To
ensure maximum reach to customers across India, we have employed a multi
pronged approach and reach out to customers via our Network, Direct and Affiliate
channels. Following the opening of the sector in 1999-2000, a number of private
sector insurance service providers commenced operations aggressively and helped
grow the market.

The Company’s entry into the insurance sector derisked the Company from a
predominant dependence on broking and equity-linked revenues. The annuity based
income generated from insurance intermediation result in solid core revenues across
the tenure of the policy.

Wealth Management Service

Imagine a financial firm with the heart and soul of a two-person organization. A
world-leading wealth management company that sits down with you to understand
your needs and goals. We offer you a dedicated group for giving you the most
personal attention at every level.

Newsletters

The Daily Market Strategy is your morning dose on the health of the markets. Five
intra-day ideas, unless the markets are really choppy coupled with a brief on the
global markets and any other cues, which could impact the market. Ocassionally an
investment idea from the research team and a crisp round up of the previous day's
top stories. That's not all. As a subscriber to the Daily Market Strategy, you even get
research reports of India Infoline research team on a priority basis.

The Indiainfoline Weekly Newsletter is your flashback for the week gone by. A weekly
outlook coupled with the best of the web stories from Indiainfoline and links to
important investment ideas, Leader Speak and features is delivered in your inbox
every Friday evening.
Research methodology

Problem Statement

 To analyze the impact of foreign institutional

investment on India stock market

Research objectives

 To analyze the movement of sensex due to foreign

institutional investment flow to stock market.

 To find out the dominance of FII in shareholding of

sensex companies through analyzing the shareholding
pattern of sensex companies.

 To find out the correlation between FIIs and sensex.

 To analyze the role of FII on major falls and gains of
sensex in Indian stock market.
 To find out the impact of FII flows on stock market
volatility

Research Design

Research Design is the plan structure and strategy of

investigation conceived so as to obtain answers to research
problems. It is the specification of methods and procedure for
acquiring the information needed.

Causal Research Design has been used here to analyze the

cause effect relationship between the variables.

Causal research design is applied to find out the impact of

independent variable foreign institutional on various
dependent variables related to stock market.

These dependent variables include

(i) Intraday volatility
 (ii) Standard Deviation of Daily returns
(iii) Daily closing of sensex

[ 1 ] Data collection

Secondary sources have used for the collection of the data

used in the research.

Various sources use for the data collections are

 Internet (NSE , BSE ,SEBI )

 ICRA Bulletin
 Journals
 Literature review

[2] Sample Size

 Annual closing of sensex (2005-07)

 Daily closing of sensex for 3 years
 Daily Net FII for 3 years (2005-07)
 Quarterly shareholding pattern of sensex companies for
3 years.
 Data of FII and total BSE Turnover for 7 years (2000-
07)

Research Tools

 Comparing the movement of Net FII and closing of

sensex for 3 years using line charts.
 Measuring the volatility of stock market through.
 Standard Deviation of daily returns.
 Intraday High –Low Volatility.
 Ratio FII trade turnover to Total BSE Turnover.
 Correlation between FII and Sensex.

Limitation of the study

The project has been prepared in two months, so due to

time limitation depth analysis of such a wide concept
may contain some lacuna.
In this report impact of FII on the stock market has been
analyzed considering sensex. But sensex is only a
barometer of Indian stock market consisting of 30
companies so; it may not depict exact picture of the
entire stock market.
The project is based on assumption of cetris peribus ,
that is all other factors having impact on stock market
and sensex are constant.
FINDINGS

• In India, there is a continuous increase in the number of

registered FIIs and with that increase in the FII flows.

• FIIs and the movements of sensex are quite closely correlated

in India. The movement of FIIs and sensex follows almost
significant influence on the movement of sensex when there is
a downward trend in FIIs due to huge selling, there is decline
in sensex also on the other hund if there is an upward trend in
FII due to greater buying, sensex also rises.

• The ratio FII trade to BSE total turnovers is .................Which is

very high Thus it suggests that FIIs are becoming more
important at the margin as an increasingly higher share of
stock market turnover is accounted for by FII trading.
• The high degree of volatility in stock market can be attributed
to the FIIs

a) The increase in investment by FIIs increases stock indices in

turn increases the price and encourages further investments.In
this event when any correction takes place the stock price
decline and there will be pull out by the FII in a large number
as earning per shares declines.
b) The FIIs manipulate the situation of boom in such a manner
that they will wait till the index rises up to a certain height and
exit at an appropriate time. This tendency increases the
volatility further.
c) Data on shareholding pattern show that the FIIs are currently
the most dominant non-promoter shareholder in most of the
sensex companies and they also control more tradable shares
of sensex companies then any other investment groups. In
most of the sensex companies ,FII holding is more then the
 RBI prescribed ceiling limit of 24 percent according to
shareholding data of this year, more then 40 % of non
promoters, tradable shares in sensex companies are owned by
FIIs.
d) The correlation of closing of sensex with gross parches and
gross sales are statistically significant, thus, FII flows and
sensex are closely correlated.
CONCLUSION

IN the Indian stock market FIIs have a disproportionately high

level of influence on the market sentiments and price trends.

Results of the study shows that not only the FIIs are the
major players in the domestic stock market in India, but their
influence on the domestic market is also growing, FII trading is
having a higher percentage in the total BSE turnover, from which it
can be said that FIIs presence can significantly impact the BSE
trading.

FIIs have significant impact on the share prices of the sensex

30 companies and their active trading behaviour, small and
periodic shifts in their behavior load to market volatility is on in
inevitable result of the structure of Indian’s financial markets
coupled with presence of FII markets in developing countries like
India are thin or shallow in at last three senses.

First, only stock of a few companies are actively traded in the

market thus, although there are more then 8000 companies listed
on the stock exchange, the BSE sensex incorporates just 30
companies, trading in whose shares is seen as indicative of
market activity.

Second, of this stock there is only a small proportion that is

routinely available for trading, with the rest being held by
promoters?

The financial institutions and others interested in corporate

control or influence
Third, the number of players trading this stock is also small.
Thus, in india sensex is the barometer of the entire Indian stock
market, which shows direction of share price of all the listed
companies along with 30 companies, FIIs have considerable
impact on the sensex ,which highlights the power of FII to
influence the Indian stock market and one of the most important
impacts is the volatility FII have contributed significantly towards
increase in the market volatility.