THE STUDY OF INDIAN STOCK MARKET

A project Submitted to
University of Mumbai for partial completion of the degree of
Bachelor in Commerce (Accounting and Finance)
Under the Faculty of Commerce
By
MISS. MAMATA GANPAT NARKAR
ROLL NO: - 862
Under the Guidance of Ms. DEEPIKA ARORA

Chikitsak Samuha’s
S.S. & L.S. PATKAR College OF Arts & Science, and
V.P. Varde College of Commerce & Economics
S.V. Road, Goregaon (west), Mumbai – 400104
February 2022.

I
THE STUDY OF INDIAN STOCK MARKET
A project Submitted to
University of Mumbai for partial completion of the degree of
Bachelor in Commerce (Accounting and Finance)
Under the Faculty of Commerce
By
MISS. MAMATA GANPAT NARKAR
ROLL NO: - 862
Under the Guidance of Ms. DEEPIKA ARORA

Chikitsak Samuha’s
S.S. & L.S. PATKAR College OF Arts & Science, and
V.P. Varde College of Commerce & Economics
S.V. Road, Goregaon (west), Mumbai – 400104
February 2022.

II
 INDEX
CHP. CHPTER SCHEME PAGE
NO.
NO

1 INTRODUCTION 1-41

1.1 Concept OF STOCK MARKET 1-5

1.2 History Of Indian Stock Market 6

1.3 Current Status of Stock Market 7

1.4 Introduction To the Different Segments in 8-10

Stock Market

1.5 Introduction To the Different Sectors in 11-12

Stock Market

1.6 Different Types of Stock in Stock Market 13-16

1.7 How is Stock Price is Determined? 17-18

1.8 Bull and Bear Market 19-20

1.9 What are the two types of Stock Market 21-28

1.10 Regulator of the Indian Stock Market 29-32

1.11 Trading in Stock Market 33-34

1.12 Role and Importance of Stock Market 35-36

1.13 Function of Stock Market 37-38

1.14 Characteristics of Stock Market 39

1.15 Advantages and Disadvantages Stock 40-41

Market

2 RESEARCH METHODOLOGY 45-48

2.1 Research Design 42

 2.2 Objectives 42

2.3 Hypothesis 42

2.4 Scope Of Study 43

2.5 Limitations of the study 43

2.6 Data Collection 44

2.7 Tools of Presentation and Analysis 44

3 REVIEW AND LITERATURE 45-48

4 DATA ANALYSIS AND 49-54

INTERPRETATION

5 CONCLUSION AND SUGGESTION 55

6 BIBLOGRAPHY 56

APPENDIX

IV
 CHIKITSAK SAMUHA’S

S.S. & L.S. PATKAR COLLEGE OF ARTS & SCIENCE

AND V.P. VARDE COLLEGE OF COMMERCE & ECONOMICS, S.V. ROAD,

GOREGAON (WEST), MUMBAI – 400104.

CERTIFICATE

This is to certify that Miss. MAMATA GANPAT NARKAR has worked and duly
completed his Project Work for the degree of Bachelor in Commerce (Accounting &
Finance) under the Faculty of Commerce and his project is entitled, “THE STUDY OF
INDIAN STOCK MARKET” under my supervision.

I further certify that the entire work has been done by the learner under my guidance and
that no part of it has been submitted previously for any Degree or Diploma of any
University.

It is his own work and facts reported by his personal findings and investigations.

_____________________________
Ms. Zeba Khan
(Course Coordinator)

____________________________
Ms. Deepika Arora (Project
Guide)

Signature of External Guide

Date of Submission:
V
 DECLARATION BY LEARNER

I, MAMATA GANPAT NARKAR, hereby declare that the work embodied in this
project work titled “THE STUDY OF INDIAN STOCK MARKET” forms my own
contribution to the research work carried out under the guidance of Ms. DEEPIKA
ARORA is a result of my own research work and has not been previously submitted to
any other University for any other Degree/ Diploma to this or any other University.

Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.

I, here by further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.

__________________

(Mamata G. Narkar)

(Roll No. 862)

_________________

(Certified by Ms. Deepika Arora)

VI
 ACKNOWLEDGEMENT

To list who all have helped me is difficult because they are so numerous and the depth
is so enormous.

I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to do
this project.

I would like to thank my Principal, Dr. Shrikant B. Sawant, for providing the
necessary facilities required for completion of this project

I take this opportunity to thank our Coordinator Ms. Zeba Khan, for her moral support
and guidance.

I would also like to express my sincere gratitude towards my project guide, Ms. Deepika
Arora whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference books
and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped me
in the completion of the project especially my Parents and Peers who supported me
throughout my project.

(Mamata G. Narkar)

Roll No.862

VII
 EXECUTIVE SUMMARY

Stock Market is one of the most vibrant sectors in the financial system, marking an
important contribution to economic development. Stock Market is a place where buyers
and sellers of securities can enter into transactions to purchase and sell shares, bonds,
debentures etc. In other word Stock Market is a plate form for trading various securities
and derivatives. Further, it performs an important role of enabling corporate,
entrepreneurs to raise resources for their companies and business ventures through public
issues. Today long terms investors are interested to invest in the Stock market rather than
invest anywhere. The Bombay Stock Exchange (BSE), the National Stock Exchange
(NSE) and the Calcutta Stock Exchange (CSE) are the three large stock exchanges of
Indian Stock Market. The main objective of present study is to present review of literature
related to Indian Stock Market to study the Indian Stock Market in depth. The study
would facilitate the reader to know the past, current and future trend or prospects of
Indian Stock market. This study would provide guidelines to investor to maximise profit
with minimize risks. High degree of volatility in the recent times in the Indian market
has led to more development in the future.

VIII
 CHAPTER 1 INTRODUCTION

1.1 CONCEPT OF STOCK MARKET

Indian Stock Markets is one of the oldest in Asia. Its history dates back to nearly 200 years ago. The
earliest records of security dealings in India are meager and obscure. The East India Company was
the dominant institution in those days and business in its loan securities used to be transacted towards
the close of the eighteenth century. By 1830's business on corporate stocks and shares in Bank and
Cotton presses took place in Bombay. Though the trading list was broader in 1839, there were only
half a dozen brokers recognized by banks and merchants during 1840 and 1850. The 1850's witnessed
a rapid development of commercial enterprise and brokerage business attracted many men into the
field and by 1860 the number of brokers increased into 60. In 1860-61 the American Civil War broke
out and cotton supply from United States to Europe was stopped; thus, the 'Share Mania' in India
began. The number of brokers increased to about 200 to 250. At the end of the American Civil War,
the brokers who thrived out of Civil War in 1874, found a place in a street (now appropriately called
as Dalal Street) where they would conveniently assemble and transact business. In 1887, they
formally established in Bombay, the "Native Share and Stock Brokers' Association”, which is
alternatively known as “The Stock Exchange". In 1895, the Stock Exchange acquired a premise in
the same street and it was inaugurated in 1899. Thus, the Stock Exchange at Bombay was
consolidated. The Indian stock market has been assigned an important place in financing the Indian
corporate sector.

The principal functions of the stock markets are:

• enabling mobilizing resources for investment directly from the investors

• providing liquidity for the investors and monitoring.
• Disciplining company management.

Stocks are bought and sold predominantly on stock exchanges (though there can be private sales as
well) and are the foundation of many individual investors' portfolios. These transactions have to
conform to government regulations that are meant to protect investors from fraudulent practices.
Historically, they have outperformed most other investments over the long run. These investments
can be purchased from most online stockbrokers.

Mark Twain once divided the world into two kinds of people: those who have seen the famous Indian
monument, the Taj Mahal, and those who haven't. The same could be said about investors. There are
two kinds of investors: those who know about the investment opportunities in India and those who
don't. Although India's exchanges equate to less than 3% of the total global market capitalization as

1
of 2020, upon closer inspection, you will find the same things you would expect from any promising
market.

If the thought of investing in the stock market scares you, you are not alone. Individuals with very
limited experience in stock investing are either terrified by horror stories of the average investor losing
50% of their portfolio value—for example, in the two bear markets that have already occurred in this
millenni beguiled by "hot tips" that bear the promise of huge rewards but seldom pay off. It is not
surprising, then, that the pendulum of investment sentiment is said to swing between fear and greed.
The reality is that investing in the stock market carries risk, but when approached in a disciplined
manner, it is one of the most efficient ways to build up one's net worth. While the value of one's home
typically accounts for most of the net worth of the average individual, most of the affluent and very
rich generally have the majority of their wealth invested in stocks.1 In order to understand the
mechanics of the stock market, let's begin by delving into the definition of a stock and its different
types.

• Stocks represent ownership equity in the firm and give shareholders voting rights as
well as a residual claim on corporate earnings in the form of capital gains and dividends.
• Individual and institutional investors come together on stock exchanges to buy and sell
shares in a public venue.
• Share prices are set by supply and demand as buyers and sellers place orders.
• Order flow and bid-ask spreads are often maintained by specialists or market makers
to ensure an orderly and fair market.
• Listing on exchanges may provide companies with liquidity and the ability to raise
capital but it can also mean higher costs and increased regulation.

2
1.1.1 Definition Of Stock Market

The Market in which shares of publicly held companies are issued and traded either through
exchanges or over-the -counter markets. Also known as the equity market, the stock market which is
one most vital component of free market economy, as it provides companies with access to capital in
exchange for giving investors a slice of ownership in the company. The stock market makes it possible
to grow small initial sums of money into large ones, and to become wealthy without taking the risk
of starting a business or making the sacrifices that often accompany a high-paying career.

The stock market lets investors participate in the financial achievements of the companies whose
share they hold. When companies are profitable, stock market investors make money through the
dividends the companies pay out and by selling appreciated stocks at stocks at a profit called a capital
gain. The downside is that investors can lose money inf the companies whose stock they hold lose
money, the stock price goes down and the investor sell the stocks at a loss.

1.1.2 Major Stock Exchange In India

There are two main stock exchanges in India where majority of the trades take place - Bombay Stock
Exchange (BSE) and the National Stock Exchange (NSE). Apart from these two exchanges, there are
some other regional stock exchanges like Bangalore Stock Exchange, Madras Stock Exchange etc but
these exchanges do not play a meaningful role anymore. Sensex and Nifty are market indices that
represent the market. They are the benchmarks for the country’s stock market trend, development in
the industry, and individual investor’s portfolios.

1) National Stock Exchange (NSE)

2) Bombay Stock Exchange (BSE)

1) National Stock Exchange (NSE)

With the liberalization of the Indian economy, it was found inevitable to lift the Indian stock market
trading system on par with the international standards. On the basis of the recommendations of high
powered Pherwani Committee. The National Stock Exchange was incorporated in 1992 by Industrial
Development Bank of India, Industrial Credit and Investment Corporation of India, Industrial Finance
Corporation of India, all Insurance Corporations, selected commercial banks and others.

NSE is the leading stock exchange in India where one can buy/sell shares of publicly listed companies.
NSE has a flagship index named as NIFTY50. The index comprises of the top 50

3
companies based on its trading volume and market capitalisation. This index is widely used by
investors in India as well as globally as the barometer of the Indian capital markets.

➢ NIFTY 50: Similar to the Sensex, Nifty is also an index. The National Stock Exchange is
represented by Nifty. Nifty is a variation of the terms National and Fifty. The Nifty 50 is also
benchmark index, consisting of the top 50 stocks listed on the National Stock Exchange. The
top 50 stocks that comprise the Nifty 50 are from 12 different sectors. Some of these include
information technology, consumer goods, financial services, automobiles,
telecommunications, etc.

The companies to meet the following parameters and criteria to be part of the Nifty 50:

1) Liquidity: The stock should have been traded at an average cost of 0.50% or less in the last six
months.

2) Float Adjustment: The float-adjusted market capitalisation of the company must be at least twice
that of the current smallest index composition.

3) Domicile: The company must be listed on the National Stock Exchange NSE and be an Indian
company.

2) Bombay Stock Exchange (BSE)

BSE Limited, also known as the Bombay Stock Exchange (BSE), is an Indian stock exchange located
on Dalal Street in Mumbai. Established in 1875 by cotton merchant Premchand Roychand, a
Rajasthani Jain businessman, it is the oldest stock exchange in Asia, and also the tenth oldest in the
world. The BSE is the 9th largest stock exchange with an overall market capitalisation of more than
₹276.713 lakh crore, as of January 2022. The BSE lists close to 6,000 companies and is one of the
largest exchanges in the world.

The BSE has been instrumental in developing India's capital markets by providing an efficient
platform for the Indian corporate sector to raise investment capital. The BSE is known for its
electronic trading system that provides fast and efficient trade execution. The BSE enables investors
to trade in equities, currencies, debt instruments, derivatives, and mutual funds. The BSE also
provides other important capital market trading services such as risk management, clearing,
settlement, and investor education. The Exchange's pivotal and pre-eminent role in the development
of the Indian capital market is widely recognized and its index, SENSEX is tracked worldwide.

➢ SENSEX

SENSEX is derived from Sensitive and Index and is coined by Mr. Deepak Mohoni a stock market
analyst. It is an index on the Bombay Stock Exchange or BSE. Sensex comprises 30 companies, and
4
these are chosen based on the liquidity, market capitalisation, revenue, and diversification of the
company. Also, for a company to be on Sensex, has to be listed on BSE. It is one of India’s oldest
indices, and people consider it a measure of market performance and reflection of the Indian economy.
It is used as a benchmark to gauge growth and development in the Indian economy and industry and
understand the stock market trend. Sensex comprises the top 30 stocks. The value of the index depends
on the price movement of the underlying securities. An increase in the value of Sensex is due to an
increase in the price of most of the securities. While a decrease in the value of the index is due to the
fall in the price of most of the underlying securities.

❖ Difference between Sensex and Nifty

Parameters Nifty Sensex

Full-Form National and Fifty Sensitive and Index

Ownership NSE subsidiary, IISL Bombay Stock

Exchange (BSE)

Base Number 1000 100

Base Period November 3rd 1995 1978-79

Base Capital INR 2.06Trillion NA

Number of Top 50 Companies Top 30 Companies

stocks

Number of 24 sectors 13 sectors

sectors

Foreign Singapore stock EUREX and stock

Exchanges Exchange (SGX) and exchanges of BRCS
Chicago Mercantile nations
Exchange (SME)

5
1.2 HISTORY OF INDIAN STOCK MARKET

In India, the share market is a term used to refer to the two major stock exchanges in the country—
Bombay Stock Exchange (BSE), and the National Stock Exchange of India (NSE). There are also 22
regional stock exchanges.

The Indian stock market traces its history back to the late 18th century when the trading floor was
under the shade of a sprawling banyan tree opposite the Town Hall in Mumbai. A few people would
meet under this tree to informally trade in cotton. This was mainly due to the fact that Mumbai was a
busy trading port and essential commodities were traded here often.

The Company Act was introduced in 1850 following which investors started showing an interest in
corporate securities. The concept of limited liability also put in an appearance around this time. By
1875, an organization known as ‘The Native Share and Stock Broker’s Association’ came into being.
This was the predecessor of the BSE.

In 1894, the Ahmedabad Stock Exchange came into being primarily with the objective of enabling
dealing in the shares of textile mills in the city.

The Calcutta Stock Exchange was formed in 1908 with the intention of facilitating a market for shares
of plantations and jute mills.

It was in 1920 that the Madras Stock Exchange took shape. In 1957, the BSE was the first stock
exchange to be recognized by the Government of India under the Securities Contracts Regulation Act.

The SENSEX was launched in 1986 followed by the BSE National Index in 1989.

The Securities and Exchange Board of India (SEBI) was constituted in 1988 to monitor and regulate
the securities industry and stock exchanges.

In 1992 it became an autonomous body with completely independent powers. In 1992, the NSE was
formed as the first demutualised electronic exchange in the country with the intention of ensuring
transparency in the markets.

NSE began operations in the Wholesale Debt Market (WDM) segment in 1994, the equities segment
in 1994, and the derivatives segment in 2000.

It was in 1995 that the BSE made the switch to an electronic system of trading from the open-floor
system. In 2015, SEBI was merged with the Forward Markets Commission (FMC) with the aim of
strengthening regulation of the commodities market, facilitating domestic and foreign institutional
participation, and launch of new products.

6
1.3 CURRENT STATUS OF INDIAN STOCK MARKET

Today, the BSE is measured as the world’s 9th largest stock exchange and the market capitalization
is likely to be around $3.7 trillion. The market capitalization of the NSE is estimated to be over $3.4
trillion.

Over 5,244 companies are listed on the BSE and 1,500 figures on the NSE. In terms of share trading
volumes, still, both the exchanges are on parity. Nowadays people are able to conduct online trading
sitting in the comfort of their home. Facilities such as zero brokerage Demat and live updates are all
available with the help of internet.

India's stock market now 6th biggest in the world as BSE m-cap surges to $2.7 trill India’s stock
market is now the sixth biggest, up three spots, in the world as total market capitalisation increased
to $3.4 trillion. The BSE Sensex index reached an all time high of 62245.43 mark in October of
2021.The 62245.43 mark in while the NSE benchmark Nifty crossed the 18,000 level for the first
time.

India's stock market is now bigger than Canada, Germany and Saudi Arabia, the Economic Times
mentioned in a report. Worth mentioning here is that India's stock market is the second-best performer
among the top 15 countries in 2021 and soon it may overtake France to become the sixth biggest in
the world. Total market capitalisation of France now stands at $3.4023 trillion. India's stock market
edged past Canada, which is now the 8th biggest on the basis of market capitalisation. Europe’s largest
economy Germany has a market value of $3.1 trillion. Only two European countries — France and
the United Kingdom — are among the top seven markets, the business daily mentioned.

The MSCI India index has gained 21% in the last three months compared to 19% by MSCI Emerging
Market and 12% by MSCI World indices

Analysts say India has been among the better performers also because of a faster recovery in domestic
demand after the Covid-19-led disruptions and the government's focus on reviving the economy.
Based on the latest IMF projections, India’s growth will rebound sharply to 11.5% in FY22 and 6.8%
in FY23

7
1.4 INTRODUCTION TO DIFFERENT SEGMENTS IN STOCK MARKET

BSE’s market structure consists of four sections where each section represents a separate market
with different trading rules. The following types of financial instruments are traded in different
sections:

• securities, which represent ownership right (cash market),

• debt securities (cash market),
• futures and options (derivatives market),
• commodities (cash and derivatives market).

Trading rights are obtained by the brokerage firms separately in each section, therefore the list of
brokerage firms who are active in the different section may differ in each section.

1) Equities Section:

This is where shares of various stocks are traded through exchanges. They are accounted as the most
essential part of the market economy as companies are exposed to capital and investors. In equity
platform, buyers and sellers trade securities which are either public stock or private stock that are
traded through dealers.

Equity markets function well in coordination with both the seller and the buyer. Usually, the investors
offer a specific price and the sellers want another certain price. When these prices match a sale occurs.
Sometimes there could be many investors offering the same price, in that case, the investor who first
bid the price will get the stock. Here both buying and selling are taking place at the market value. Just
like why common people take stock market for an extra source of income and companies invest in
stocks to improve their revenue. Also, all companies listed in the stock market are represented as
publicly traded stocks. The risk factor is when the company is not performing well, the prices fall
indirectly or directly affecting the investors. The price fluctuations occur usually due to the demand
balance of the share. As the demand increases so do the price for that particular share.

Exchanges are where the stocks are traded. In India, the two main exchanges are namely NSE
(National Stock Exchange) and BSE (Bombay Stock Exchange). Pro traders tend to trade mostly in
NSE as the volume is seen to be much higher than in BSE stocks. Equities are less prone to volatile
swings than futures. Securities, which represent ownership right (equities, investment fund shares)
are traded in the equities section. Besides these instruments also the structured products (certificates,
ETFs) and special securities (compensation notes) are represented in this section.

8
 2) Debt Securities Section:

Debt securities are represented in the Debt Securities Section, such as government debt securities
(treasury bills and government bonds), corporate bonds and mortgage bonds.

3) Derivatives Section:

Derivative trading is a contract based trading between two or more parties and its price is formed
from variations in the underlying asset. Some of the common assets in derivative trading are bonds,
commodities, currencies etc. where all these are purchased through brokerages. Traders usually use
futures contracts to hedge their risks. The parties involved in the futures transaction are obligated to
fulfill a commitment to buy or sell the underlying asset.

The major factor that distinguishes futures from option trading is that the buyer is not forced to
exercise their agreement to buy or sell. It’s just considered as an opportunity rather than an
obligation. Derivative trading is a beneficial tool for investors as they provide a way to lock in
prices and hedge risks of the trader. On the contrary, delivery trading can be difficult to value since
they are based on the price of another set.

4) Commodities Section:

Unlike in Equity trading, in Commodity Markets, physical substances like gold, copper, crude, etc.
are traded on a contract basis. Commodities can be an important way to diversify the trader’s portfolio
beyond traditional securities, either for the long term or as a place to park cash during unusually
volatile or bearish stock markets, as commodities traditionally move in opposition to stocks. Here
too the supply-demand balance lays out the principles as with lower supply, demand rises. If there are
strong imbalances in the supply it might lead to the generally unstable demand. There are different
types of investments in commodity markets such as metals, energy, livestock, and meat. Stock options
are one way to trade in commodities with smaller investments. The stocks are usually highly liquid.
Trading is easier with stock options in commodities as investors already have a brokerage account.
One factor traders need to look into is that the price may be influenced by certain factors of the market
conditions. Another way of investing in commodities is via futures. This is an agreement to buy and
sell a commodity quantity at a fixed price at a later time. High leverage is provided with such type of
trading in commodities. The trader can go long term or short term easily. On the other hand, futures
can be highly volatile and investing in such market conditions can be risky. With high leverage comes
risk as well because it can magnify both profit and losses. As a result of the BSE and BCE merge
dated November 2005, there is commodity

9
trading also on BSE, principally with grain products. Contrary to other sections spot and derivative
commodity instruments are traded in one single section

5) Foreign exchange:

Foreign Exchange is where one currency is changed into another for commercial reasons, especially
for foreign trades across the world. There is no central market place for foreign exchange as the
currency is traded electronically, known as OTC (Over the Counter). The foreign exchange market is
open 24/7 and currencies are traded worldwide. Since most currency traders are multinational
companies or high net worth individuals it will be difficult for individual investors in Forex markets.
Most online brokers or dealers offer very high leverage to individual traders who can control a large
trade with a small account balance. Definitely, the currency being the asset traded there are high risks
tagged along with Forex trading. Rules and regulations are imposed by the industry particularly for
the sole protection of each and every participating bank. The Forex markets are big when it comes to
daily trade volumes offering the most liquidity.

10
1.5 INTRODUCTION TO DIFFERENT SECTORS IN STOCK MARKET

The growing popularity of the stock market is out of no one’s notice. With the immense popularity,
various sectors have emerged in the arena of the stock market. If you are looking to gain an insight
into the multiple sectors in stock market, you are at the right place.

The growth is immense and has given rise to sectors ranging from healthcare, communication,
technologies, and even real estate.

1.5.1 SECTORS IN STOCK MARKET INDIA

The world of the stock market fascinates everyone, and maybe that is a reason you are here. The
article here talks about the sectors in the stock market in India. Like every other country, India has
also carved a niche in the stock market

With the growing popularity, there are now different stock market sectors that can cater to all the
investors’ needs and make it easier for them to manage their portfolios.

Before discussing which sectors to invest in, it is essential to know about the types of sectors in stock
market.

The Indian stock market is divided into various sectors that serve as the broad category for the
different public trading companies.

Sectors make it convenient for the investors and portfolio managers to efficiently allocate the funds
in the respective portfolios. Let us now look at the number of sectors in the stock market and the role
they play.

1.5.2 HOW MANY SECTORS IN STOCK MARKET?

The stock market is growing at a tremendous rate and thus has been classified into various sectors.
But the question here remains how many sectors in the stock market?

The stock market is categorized into 12 major sectors. The broad categories help the portfolio
managers to make their work easier. The traders can choose according to their needs and then
customize their portfolio by selecting multiple sectors.

Each sector of the stock market has different publicly traded companies.

Each of the companies in the sector has unique dynamics that in turn affect profitability.

There are different ETF i.e., Exchange Traded Fund that further helps one to achieve the asset
allocation goals. 11 One can make use of different parameters that eventually help one in doing a
proper analysis of stocks and hence taking investment in the right direction.

11
Now that we know the sectors and why they are essential, let us look at the different sectors in the
Indian stock market and their use. The 12 diverse sectors in stock market are as follows.

1. Financials

2. Customer Discretionary

3. Utilities

4. Informational technologies

5. Healthcare

6. Industries

7. Communication

8. Energy

9. Real estate

10. Materials

11. Consumer staples

12. FMCG

12
1.6 DIFFERENT TYPES OF STOCKS IN INDIAN STOCK MARKET
1.6.1 What is a stock?
A stock (also known as equity) is a security that represents the ownership of a fraction of
a corporation. This entitles the owner of the stock to a proportion of the corporation's assets and
profits equal to how much stock they own. Units of stock are called "shares."

Stocks are bought and sold predominantly on stock exchanges (though there can be private sales as
well) and are the foundation of many individual investors' portfolios. These transactions have to
conform to government regulations that are meant to protect investors from fraudulent practices.
Historically, they have outperformed most other investments over the long run. These investments
can be purchased from most online stockbrokers.

1.6.2 Types of stocks

Stocks can be classified into multiple categories on various parameters – size of the company, market
capitalization, ownership, price trends, dividend payment, industry, risk, volatility, as well as
fundamentals.

1) Stocks on the basis of ownership

This is the most basic parameter for classifying stocks. In this case, the issuing company decides
whether it will issue common, preferred or hybrid stocks.

a. Preferred & common stocks

Preferred stocks offer investors a fixed amount of dividend every year unlike common stocks. The
price of preferred stocks is not as volatile as a common stock but it is common stock that gets the
benefit of priority when the company has surplus money to distribute. At the time of company
liquidation, it is the company’s creditors, its bond holders, debenture holders who get priority over
the preferred shareholders. Common stockholders have voting rights, a privilege preferred
shareholders do not enjoy.

b. Hybrid Stocks

There are companies that offer preferred shares with the option of converting them to common shares,
with conditions, at a certain point in time. These are known as hybrid stocks or convertible preferred
shares and may or may not have voting rights. Stock with embedded derivative options Stocks that
come with the embedded derivative option means that they can be ‘callable’ or ‘putable’ and are not
as commonly available. A ‘callable’ stock has the option of being bought back by the company for a
13
certain price at a certain point in time. Similarly, a ‘putable’ stock offers its holder to sell it to the
company at a certain price and time.

2) Stocks on the basis of market capitalization:

Stocks can be classified on the basis of the market capitalization of the company, which is the total
shareholding of a company. This is calculated by multiplying the current price of the company stock
with the total number of shares outstanding in the market. Listed below are the types of stocks based
on market capitalization.

a. Large Cap Stocks

These are often stocks of Blue-chip companies which are established enterprises with large reserves
of cash at their disposal. It is interesting to note that the larger size of the large cap companies does
not mean that they grow more rapidly. In fact it is the small stock companies that tend to outperform
them over the longer time frame. But large cap stocks do come with the benefit of allowing the
investors to reap higher dividends in comparison to the smaller and mid cap company stocks,
ensuring that the capital is preserved over the long, term period.

b. Mid Cap Stocks

These are the stocks of medium sized companies that have a market capitalization of INR 250 Crore
to about INR 4000 crore. These companies have a well recognize name in the market which brings
along the benefit of potential for growth, as well as the stability that is usually accompanied with
being a seasoned player in the market. Mid cap companies have a good track record of steady
growth and are very similar to blue chip stocks barring their size. In the long term these stocks do
and grow well.

c. Small Cap Stocks

As is suggestive of the name, small cap stocks have the smallest value in the market as compared to
its counterparts. These are small sized companies that have a market capitalization of upto INR 250
and have the potential to grow at a good pace in the future. Investors who are willing to commit to a
long term and are not very particular about the current dividends, and are willing to stand their
ground during price volatility, can make significant gains in the future.As an investor you can buy
these stocks when they are available at a cheap price during the initial stage of the company. There
is no surety about the how the company will perform in the market since they are relatively new.

14
Because these small cap companies are new they are highly volatile and their growth impacts the
value and revenue of the company to a huge extent.

3) Stocks on the basis of dividend payments:

Dividends are the primary source of income until the shares are sold for a profit. Stocks can be
classified on the basis of how much dividend the company pays.

a. Growth Stocks

These stocks do not pay high dividends as the company prefers to reinvest the earnings to enable it to
grow faster, hence, the name growth stocks. The value of the shares of the company rise with the fast
growth rate which in turn allows investors to profit through higher returns. It is best suited for those
investors who seek long term growth potential and not an immediate second source of income. Growth
stocks carry higher risk than their counterpart.

b. Income Stocks

In comparison to growth stocks, income stocks hand out a higher dividend in relation to the price of
the share. Higher dividends translate to higher income, hence, the name Income Stocks. Income stocks
are indicative of a stable company that can afford consistent dividends but these are also companies
that do not promise very high growth. This means that the stock price of such companies may not rise
much. Income stocks also includes preferred stocks.IT is a good investment for those investors who
seek a secondary source of income through relatively low risk stocks. The dividend income in income
stocks is not taxed and thus is great for investors of low risk profile who want long term investment.
You may want to use the dividend yield measure to find such stocks that offer high dividends.
Dividends yield is a measure of your earning as an investor (earning per share) from your investment,
by means of the total dividends earned. This figure can be derived by dividing the dividend by the
share price that was announced. It is then written in the form of a percentage. For instance, if the stock
price is INR 100 and it offers a dividend of INR 5 per share, its yield will be 5 percent.

4) Stocks on the basis of fundamentals:

Investors who believe that a share price must equal the intrinsic value of the company’s share, the
value investing investors, compare the share prices with components like per share earnings, profits,
etc to reach at an intrinsic value per share.

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Overvalued Share: - These are shares with prices that exceed the intrinsic value and are considered
overvalued.

Undervalued Shares: - These types of shares are popular amongst the value investors as they
believe that the price of the share would rise in the future.

5) Stocks on the basis of Risk:

The risk level of stocks different depending on the share price fluctuations. Stocks with higher risk
reward the investor with higher returns, while low risk stocks generate low returns.

a. Beta Stocks

The beta or the measure of risk is derived by calculating the price volatility of the stock. Beta can be
positive or negative which denotes whether it moves in sync with the market or against it. The higher
the beta, higher is the risk quotient of the stock. If the beta value is more than 1 it means that the stock
is more volatile than the market. A lot of investors with knowledge of this measure use it to make
their investment decisions.

b. Blue Chip Stocks

Blue chip stocks are stocks of those companies that have lower liabilities and stable earnings and
which pay regular dividends. These very large and well-recognised companies that have a long history
of sound financial performance are a good bet for Investors who seek safer avenues of investment.

6) Stock on the basis of Price trends:

This classification is based on the movement of stock prices in tandem with or against the company
earnings.

a. Defensive Stocks

These are stocks that are somewhat unfazed by economic conditions and are preferred when the
market conditions are poor. Food and beverage companies are a common example.

b. Cyclical Stocks

Stocks of companies that are greatly affected by economic conditions and see high price fluctuations
with market changes are cyclical stocks. These types of stocks grow rapidly during the boom cycle
but the growth is slowed down in the slow economy. Automobile stocks fall in this category.

16
1.7 HOW IS STOCK PRICE DETERMINED?

The supply and demand determine a share price. If the demand is high, it will increase, and if the demand is
low, it decreases. Stock prices depend on the bid and ask of the stock. A bid is an offer to buy a certain
number of shares for a specific price. An ask is an offer to sell a certain number of shares at a particular
price. Exchanges calculate a stock's price instantly by finding the price at which the maximum number of
shares are transacted at the moment. The price changes if there is a change in the buy or sell offer of the
shares.

1.7.1 How to calculate the market price of a share?

To determine the market cap of a share, you need to estimate the market price of the share. To figure out
how valuable the shares are for traders, take the last updated value of the company share and multiply it by
outstanding shares.

Another method to calculate the price of the share is the price to earnings ratio. You can calculate the P/E
ratio by dividing the stock price by its earnings in the last 12 months.

The intrinsic value of stock = P/E ratio X Earning per share

Growing companies generally have a higher P/E ratio while established business have slower P/E growth
rates.

1.7.2 How is the initial value of shares determined?

Company shares are issued first in the primary market; Initial Public Offer (IPO) for the general public
to raise funds for meeting capital requirements. The initial price of the share is determined in IPO,
considering the performance and net present value of the firm.

Once the trading starts, the share price will begin fluctuating based on demand and supply of the
shares in the secondary market. The prices may increase if there are more buyers for the stock and
decrease if there are more sellers.

1.7.3 Which factors affect share prices directly?

1. Supply and demand are the most critical factors that affect the share price directly. If a share is
bought more than it is sold, the price will rise because the stake is sought after the demand is more
than the supply.

2. A company's earnings and profitability from producing and selling goods and services can also
affect its share prices.

3. Behavioural factors of traders and investors in the market can change the price of stocks.

17
4. If supply and demand are equal, the share prices remain stable with very little increase and decrease
in the price. If one of the factors outweighs the other, an abrupt change can be expected.

5. When a company issues new shares for purchase in the market, the number is limited. If a lot of
investors are trying to buy these shares, and the supply is low, the shares price will increase.

6. If a company buys back its share from the market, it reduces the number of shares in circulation.
Due to the reduced supply, the prices can increase.

1.7.4 Which factors affect the share prices indirectly?

1. Interest rates

2. Changes in economic policies

3. Inflation

4. Deflation

5. Market sentiment

6. Industry trades

7. Global fluctuations

8. Natural disasters

A good broker can help you determine the price of shares more accurately and trade effectively.

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1.8 BULL AND BEAR MARKET

1.8.1 What is a bull market?

The financial markets for stocks, bonds, and commodities are greatly impacted by consumer
confidence. And in bull markets, which occur when investment prices are on the rise for sustained
periods, confidence is soaring. Propelled by the thriving economies and low unemployment that
usually accompany bull markets, investors are eager to buy or hold onto securities, thus creating a
buyer’s market.

Throughout history, the bulls in U.S. markets have had some great runs, starting with the boom after
World War II that exceeded the market’s peak before The Great Depression. Since that time, the
market has experienced a series of bull markets, including the longest one from 2009 to 2019, which
was on the heels of the collapse in the U.S. housing market.

But, as history has shown, bulls don’t run forever.

1.8.2 What is a bear market?

While bull markets are fuel by optimism, bear markets — which occur when stock prices fall 20% or
more for a sustained period of time — are just the opposite. Bulls are generally powered by economic
strength, whereas bear markets often occur in periods of economic slowdown and higher
unemployment. Instead of wanting to buy into the market, investors want to sell, often fleeing for the
safety of cash or fixed-income securities. The result is a seller’s market.

Bear markets can last from a few weeks to several years. The first and most famous bear market was
The Great Depression. The dot com bubble in 2000 and the housing crisis of 2007–2008 are other
examples.

1.8.3 Bear versus bull market?

As any experienced investor knows, markets are constantly in flux — and many times, it’s not due to
bear or bull markets. Often, small gains and losses offset each other, leading to flattened markets.
Additionally, markets may experience more significant changes due to short-term trends or market
corrections that may cause downward movements. Bull and bear markets occur over a sustained
period; over time, the bulls have prevailed as the stock market has posted positive results.

1.8.4 Investing in bull and bear markets

Because there are many differences between bull and bear markets, the way you make investment
decisions varies greatly. Having a higher allocation of stocks is optimal in a bull market, where there's
more potential for higher returns. One way to capitalize on the rising prices of a bull market is to buy
19
stocks early on and sell them before they reach their peak. In a bear market, where there is more loss
potential, investing in equities should be done with great prudence, since you are likely to incur a loss
— at least initially. In preparation for a bear market, it may be wise to direct your money toward
fixed-income securities.

Another way to prepare for bull and bear markets is through financial planning. Creating a sound plan
with a financial advisor will help you avoid one of the biggest traps investors fall into: making
financial decisions based on emotion. For example, in bull markets, you may have recency bias that
the market will continue to rise, and thus be willing to take more risk than is prudent. In contrast, in
a down market, you may act on fear and make rash decisions, such as leaving the market.

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1.9 WHAT ARE THE TWO TYPES OF STOCK ANALYSIS?

Two ways of analysis stock prices namely fundamental analysis and technical analysis

1.9.1 Fundamental Analysis

Fundamental analysis involves analysis of a company’s performance and profitability to determine

its share price. By studying the overall economic conditions, the company’s competition, and other
factors, it is possible to determine expected returns and the intrinsic value of shares. This type of
analysis assumes that a share’s current (and future) price depend on its intrinsic value and anticipated
return on investment. As new information is released pertaining to the company’s status, the expected
return on the company’s shares will change, which affects the stock price. So the advantages of
fundamental analysis are its ability to predict changes before they show up on the charts. Growth
prospects are related to the current economic environment.

There are two main types of fundamental analysis –

Qualitative: a study that involves brand value, management decisions, the financial performance of
the company over a given period, and other similar factors.

Quantitative: an analysis that is purely number-based and considers the company’s financial
statements and concludes the share price from the observations.

❖ 10 Steps of Fundamental Analysis

Step 1: Company Capitalization

The first step is for you to form a mental picture or diagram of the company you're researching. This
is why you'll want to look at the company's Market capitalization which shows you just how big the
company is by calculating the total dollar market value of its outstanding shares.

The market capitalization says a lot about how volatile the stock is likely to be, how broad the
ownership might be, and the potential size of the company's end markets. For example, large-cap
and mega -cap companies tend to have more stable revenue streams and less volatility. Mid-cap and
small-cap companies, meanwhile, may only serve single areas of the market and may have more
fluctuations in their stock price and earnings.

At this step in performing your stock due diligence, you're not making any judgments pro or con
regarding the stock. You should focus your efforts on accumulating information that will set the stage
for everything to come. When you start to examine revenue and profit figures, the information you've
gathered about the company's market capitalization will give you some perspective.

21
You should also confirm one other vital fact on this first check: What stock exchange do the shares
trade on? Are they based in the United States (such as the New York Stock Exchange, Nasdaq, or

over the counter)? Or, are they American Depository Receipts (ADRs) with another listing on a
foreign exchange?1 ADRs will typically have the letters "ADR" written somewhere in the reported
title of the share listing. This information along with market cap should help answer basic questions,
such as whether you can own the shares in your current investment accounts.

Step 2: Revenue, Margin Trends

When you begin looking at the financial numbers related to the company you're researching, it may
be best to start with the revenue, profit, and margin trends. Look up the revenue and net income trends
for the past two years at a financial news site that allows you to easily search for detailed company
information using the company name or ticker symbol.

These sites provide historical charts showing a company's price fluctuations over time, plus they'll
give you the price to sales (P/S) and the Price to earnings (P/E) ratio. Look at the recent trends in both
sets of figures, noting whether growth is choppy or consistent, or if there are any major swings (such
as more than 50% in one year) in either direction.

You should also review Profit Margins to see if they are generally rising, falling, or remaining the
same. You can find specific information regarding profit margins by going directly to the company's
website and searching their investor relations section for their quarterly and annual Financial
statements. This information will come into play more during the next step.

Step 3: Competitors and Industries

Now that you have a feel for how big the company is and how much money it earns, it's time to size
up the industries it operates in and with whom it competes. Compare the margins of two or three
competitors. Every company is partially defined by its competitors. Just by looking at the major
competitors in each line of the company's business (if there is more than one), you may be able to
determine how big the end markets are for its products.

You can find information about the company's competitors on most major stock research sites. You'll
usually find the ticker symbols of your company's competitors along with direct comparisons of
certain metrics for both the company you're researching and its competitors. If you're still uncertain
about how the company's business model works, you should look to fill in any gaps here before
moving forward. Sometimes just reading about competitors may help you understand what your target
company actually does.

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Step 4: Valuation Multiples

Now it's time to get to the nitty-gritty of performing due diligence on a stock. You'll want to review
the Price Earning to Growth for both the company you're researching and its competitors. Make a
note of any large discrepancies in valuations between the company and its

competitors. It's not uncommon to become more interested in a competitor stock during this step,
which is perfectly fine. However, follow through with the original due diligence while noting the
other company for further review down the road. P/E ratios can form the initial basis for looking at
valuations. While earnings can and will have some volatility (even at the most stable companies),
valuations based on Trailing earning or current estimates are a yardstick that allows instant
comparison to broad market multiples or direct competitors.

At this point, you'll probably begin to get an idea if the company is a "growth stock" versus "value
stock." Along with these distinctions, you should have a general sense of how profitable the company
is. It's generally a good idea to examine a few years' worth of net earnings figures to make sure the
most recent earnings figure (and the one used to calculate the P/E) is normalized, and not being thrown
off by a large one-time adjustment or charge.

Not to be used in isolation, the P/E should be looked at in conjunction with the ratio, the Enterprise
multiple, and the price-to-sales (or revenue) ratio. These multiples highlight the valuation of the
company as it relates to its debt, annual revenues, and the balance sheet. Because ranges in these
values differ from industry to industry, reviewing the same figures for some competitors or peers is a
key step. Finally, the PEG ratio brings into account the expectations for future earnings growth and
how it compares to the current earnings multiple.

Step 5: Management and Ownership

As part of performing due diligence on a stock, you'll want to answer some key questions regarding
the company's management and ownership. Is the company still run by its founders? Or has
management and the board shuffled in a lot of new faces? The age of the company is a big factor
here, as younger companies tend to have more of the founding members still around. Look at
consolidated bios of top managers to see what kind of broad experiences they have. You can find this
information on the company's website or in its Securities and Exchange commission (SEC) filings.

Also look to see if founders and managers hold a high proportion of shares, and what amount of
the floal is held by institutions. Institutional ownership percentages indicate how much analyst
coverage the company is getting as well as factors influencing trade volumes. Consider high personal

23
ownership by top managers as a plus, and low ownership a potential red flag. Shareholders tend to be
best served when the people running the company have a stake in the performance of the stock.

Step 6: Balance Sheet Exam

Many articles could easily be devoted to how to do a balance sheet review, but for our initial due
diligence purposes, a cursory exam will do. Review your company's consolidated balance sheet to
see the overall level of assets and liabilities, paying special attention to cash levels (the ability to
pay short-term liabilities) and the amount of long-term debt held by the company. A lot of debt is
not necessarily a bad thing and depends more on the company's business model than anything else.

Some companies (and industries as a whole) are very capital intensive, while others require little
more than the basics of employees, equipment, and a novel idea to get up and running. Look at
the debt-to-equity ratio to see how much positive equity the company has. You can then compare
this with the competitors' debt-to-equity ratios to put the metric into a better perspective.

If the "top line" balance sheet figures of total assets, total liabilities, and stockholders' equity change
substantially from one year to the next, try to determine why. Reading the footnote that accompany
the financial statements and the management's discussion in the quarterly/annual report can shed
some light on the situation. The company could be preparing for a new product launch,
accumulating retained earnings, or simply whittling away at precious capital resources. What you
see should start to have some deeper perspective after having reviewed the recent profit trends.

Step 7: Stock Price History

At this point, you'll want to nail down just how long all classes of shares have been trading, as well
as both short-term and long-term price movement. Has the stock price been choppy and volatile, or
smooth and steady? This outlines what kind of profit experience the average owner of the stock has
seen, which can influence future stock movement. Stocks that are continuously volatile tend to have
short-term shareholders, which can add extra risk factors to certain investors.

Step 8: Stock Options and Dilution

Next, you'll need to dig into the 10-Q and 10-K reports. Quarterly SEC filings are required to show
all outstanding stock options as well as the conversion expectations given a range of future stock
prices. Use this to help understand how the share count could change under different price
scenarios. While stock options are potentially a powerful motivator for retaining employees, watch
out for shady practices like re-issuing of "underwater" options or any formal investigations that
have been made into illegal practices like options backdating.

24
Step 9: Expectations

This due diligence step is a sort of "catch-all," and requires some extra digging. You'll want to find
out what the consensus revenue and profit estimates are for the next two to three years, long-term
trends affecting the industry, and company-specific details about partnerships join
venture, intellectual property and new products and services. News about a product or service on the
horizon may be what initially interested you in the stock. Now is the time to examine it more fully
with the help of everything you've accumulated thus far.

Step 10: Risks

Setting this vital piece aside for the end makes sure that we're always emphasizing the risks inherent
with investing. Make sure to understand both industry-wide risks and company-specific ones. Are
there outstanding legal or regulatory matters? Is management making decisions that lead to an
increase in the company's revenues? Is the company eco-friendly? What kind of long-term risks
could result from it embracing/not embracing green initiatives? Investors should keep a healthy
devil's advocate mindset at all times, picturing worst-case scenarios and their potential outcomes on
the stock.

The Bottom Line

Once you've completed these steps you should be able to evaluate the company's future profit
potential and how the stock might fit into your portfolio or investment strategy. Inevitably, you'll
have specifics that you will want to research further. However, following these guidelines should
save you from missing something that could be vital to your decision.

Veteran investors will throw many more investment ideas (and cocktail napkins) into the trash bin
than they will keep for further review, so never be afraid to start over with a fresh idea and a new
company. There are literally tens of thousands of companies out there to choose from.

Importance and Benefits of Fundamental Analysis

Fundamental analysis of a company helps you get to its stock’s fair price, which may not always be
trading at its fair value. Often it is overpriced or underrated.

Fundamental analysis helps in predicting the long-term trends in the market. It is generally used for
long-term investments as it enables you to understand the price that the stock should reach. It also
allows you to find good companies for investment, such as those with strong growth potential.

Additionally, the analysis helps with one of the most critical but intangible factors – business
acumen, which is highly beneficial in investment analysis as it can tell you about the future of the
business.
25
1.9.2 Technical Analysis

Technical analysis is a method of evaluating securities by analysis the statistics generated by market
activity, such as past prices and volume. To predict the future movement and identify patterns of a
stock, technical analysts use tools and charts ignoring the fundamental value. Few analysts rely on
chart patterns and while others use technical indicators like moving average (MA), relative strength
index (RSI), on balance volume (OBV) and moving average convergence-divergence (MACD) as
their benchmark. In any case, technical analyst’s exclusive use of historical price and volume data is
what separates them from their fundamental counterparts. Unlike fundamental analysts, technical
analysts don't care whether a stock is undervalued - the only thing that matters is a security's past
trading data and what information this data can provide about where the security might move in the
future. Technical analysis really just studies supply and demand in a market in an attempt to determine
what direction, or trend, will continue in the future. Technical analysis studies the historical data
relevant to price and volume movements of the stock by using charts as a primary tool to forecast
possible price movements. According to early research, future and past stock prices were deemed as
irrelevant. As a result, it was believed that using past data to predict the future stock price was
impossible, and that it would only have abnormal profits. However, recent findings have proven that
there was, indeed, a relationship between the past and future return rates. Furthermore, arguments
have been made that by using past return rates, future return rates could also be forecasted. There are
various kinds of technical indicators used in futures market as well. There are 26 technical indicators
which can be primarily used to analysis the stock prices. Based upon the analysis, stock trend either
up or down can be predicted by the investor.

Types of Technical Analysis

Technical Analysis Types can be segregated into two which are –

1. Top-Down Approach

When the analyst looks at the economy first and then his analysis boils down to specific Technical
Analysis Stocks, then it is known as the Top-down approach.

To put in simpler words, the person who analyses a stock using this approach first checks the
macroeconomic factors – the overall economy then comes to the industry in which the stock falls and
finally to the individual stock.

26
The traders who use this approach for technical analysis may look for the fifty day moving averages
and the stocks which broke those average of the market and the industry and accordingly place a
buying order.

2. Bottom-Up Approach

This approach deals with individual stock. The analyst or the trader looks stocks that have potential
growth in the future.

Then they use their technical analysis tools to check the entry and the exit points. It is like the stock
is undervalued and the price is decreasing.

So, the trade will use the technical analysis tools – charts or indicators to find the price where he can
buy the stock for long term profit.

1.9.3 Difference between Fundamental Analysis and Technical Analysis.

Fundamental Analysis Technical Analysis.

Meaning Fundamental analysis is Technical analysis in

concerned with determining concerned with
intrinsic value of share using determining future share
EIC model: Economic Analysis. price based on past
Industry Analysis. Company performance.
Analysis.

Vision Fundamental analysis tools Technical analysis tools

backward as well as forward. backward.
Tools used: Tools used in fundamental Tools used in technical
analysis are: Ratio analysis. analysis are: Graphs.
Common size statement. Fund Charts. Figures etc.
flow statement. Conducting
research on market, economy,
industry and company etc.

Time Fundamental analysis provides Technical analysis

long term view of security provides short term view
pricing of security pricing

Investor In fundamental analysis In technical analysis

Thinking investors think that stock market investors think that stock
market behaviour is 10%
27
 behaviour is 90% logical and
10% physiological.
Purpose Fundamental analysis is done for
investment purpose.
Goal Main goal of fundamental
analysis is to find the intrinsic
value of stock
Buy/Sell Buy: Intrinsic value is less than
Decisions: market value. Sell: Intrinsic
value is more than market value.
28
logical and 90%
physiological.
Technical analysis is
done for trading purpose.
Main goal of technical
analysis is to find the
right time to enter or exit
based on past trend.
Buy: When stock price
shows an upward trend.
Sell: When stock price
shows a downward trend.
1.10 REGULATOR OF THE INDIAN STOCK MARKET

❖ Securities Exchange Board of India Securities

Exchange Board of India (SEBI) is the regulatory body of the Indian Stock Markets. The main
objective of SEBI is to safeguard the interest of retail investors, promote the development of stock
exchanges, and regulate the activities of financial intermediaries and investors in the market. SEBI
ensures the following:

• The stock exchanges (BSE and NSE), brokers and sub-brokers conduct their business fairly.

• Corporate houses should not use markets as a mean to unfairly benefit themselves

• Small retail investors’ interest is protected.

• Large investors with huge cash should not manipulate markets.

1.10.1 Investor Protection Measures By Sebi:

Section 11(2) of the SEBI Act contains measures available with SEBI to implement the legislated
desire of investor protection. The measures available with SEBI include the following:

• regulating the business in Stock Exchanges (SEs) and any other securities markets.

• registering and regulating the working of intermediaries like stock brokers, sub-brokers,share
transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers,
underwriters, portfolio managers, investment advisers etc. associated with securities markets.

• registering and regulating the working of the depositories, participants, custodians of securities,
foreign institutional investors, credit rating agencies and other intermediaries.

• registering and regulating the working of venture capital funds and collective investment schemes,
including mutual funds.

• promoting and regulating self-regulatory organizations.

• prohibiting fraudulent and unfair trade practices relating to securities markets.

• prohibiting insider trading in securities.

29
• regulating substantial acquisition of shares and takeover of companies.

• promoting investors’ education and training of intermediaries of securities markets.

• Carry out inspection/ audits of the SEs / intermediaries etc.

• call for information from any bank /any authority / corporation / agencies in respect of any
transaction in securities which is under investigation or inquiry by SEBI.

• performing such functions and exercising such powers under the Securities Contracts (Regulation)
Act, 1956 (SCRA).

• levying fees or other charges.

• conducting research.

• performing such other functions as may be prescribed.

1.10.2 Sebi Reforms on Stock Exchanges:

The reforms are briefly summarized below:

1. Compulsory audit and inspection of stock exchanges and their member brokers and their accounts.

2. Transparency in the prices and brokerage charged by brokers by showing them in their contract
notes.

3. Board of Directors of stock exchanges has to be reconstituted so as to include non-brokers, public

representative, and Govt. representatives to the extent of 50% of the total number of members.
financial institutions only if the purpose of the loan is to finance one or more objects specified in the
issue thereby preventing misapplication of pledging for any other purposes.

4. Regulation of Portfolio management Schemes (PMS1): SEBI has already tightened PMS norms by
making it mandatory for portfolio managers to keep separate accounts of clients rather than keeping
their investments in pool account. Earlier, PMS providers used to open 'pool PMS' as a common
account under one head, put money received from a set of clients in it and then invest the same on

30
behalf of the whole group. This move is aimed at ensuring that portfolio managers handled clients’
money in a transparent manner.

5. Capital adequacy norms have been laid down for members of various stock exchanges separately
and depending on their turnover of trade and other factors.

6. Applications Supported by Blocked Amount (ASBA) in case of IPO: SEBI has introduced a
supplementary process of applying in public issues, viz. ASBA process. ASBA is an application for
subscribing to an issue, containing an authorisation to block the application money in a bank account
with a bank which offers the facility of applying through the ASBA process. The bank shall then
block the application money in the bank account specified in the ASBA, on the basis of an
authorization given by the account holder. The application money shall remain blocked in the bank
account till finalisation of the basis of allotment in the issue or till withdrawal / failure of the issue or
till withdrawal / rejection of the application.

7. Contents of Offer Document: In addition to the disclosures specified in Schedule II of the

Companies Act, 1956, the prospectus shall also contain all material information which shall be true
and adequate so as to enable the investors to make informed decision on the investments in the issue.

8. IPO grading/credit rating2: Grading of all IPO of equity shares or other securities convertible into
equity shares is mandatory. Grading shall be obtained from at least one credit rating agency registered
with SEBI and shall be disclosed in the Prospectus or Red Herring Prospectus.

9. Promoters' contribution and the lock in requirements: SEBI has also plugged loop holes in the
computation of promoters' contribution and the lock in requirements thereof. Henceforth, securities
pledged by the promoters with banks and financial institutions as collaterals, will not be eligible in
the computation of promoters' contribution, thus upholding the spirit of the legislation. Further, the
promoters' locked in securities can now be pledged with banks or financial institutions only if the
purpose of the loan is to finance one or more objects specified in the issue thereby preventing
misapplication of pledging for any other purposes.

10. Prohibition of Insider3 Trading: SEBI (Prohibition of Insider Trading) Regulations, 1992 [Insider
Trading Regulations] deals with prohibition on dealing, communicating or counselling on matters
relating to insider trading based on unpublished Price sensitive information4 etc. The following shall
be deemed to be price sensitive information o periodical financial results of the company; o intended

31
declaration of dividends (both interim and final); o issue of securities or buy-back of securities; o any
major expansion plans or execution of new projects; o amalgamation, mergers or takeovers; o disposal
of the whole or substantial part of the undertaking; and o significant changes in policies, plans or
operations of the company

1.10.3 SEBI Code of Ethics for Directors:

The securities and Exchange Board of India (SEBI) has formulated a code of ethics for directors and
functionaries of stock exchanges aimed at establishing professional and ethical standards for creating
a fair and transparent market place. The silent features of this code of ethics includes Fair ness and
transparency in dealing with the matters relating to the exchange and investors

• Prohibition on dealing in securities in proprietary accounts by elected off ice bearers such as
President, Vice President, Treasurer etc.

• Disclosure of dealing in securities by functionaries and directors of exchange,

• Avoidance of conflict of interest in decision-making

• Compliance with the regulatory laws exercising due diligence in the performance of duties.

32
1.11 TRADING IN INDIAN STOCK MARKET

Firstly, we all need a broker to start trading in Indian stock market. As per SEBI (Securities and
Exchange Board of India) regulations, only registered members can operate in the stock market. One
can trade by executing a deal only through a registered broker of a recognized stock exchange or
through a SEBI registered sub broker. As the name states, A broker is nothing but an intermediary
between traders or retailer & exchange. A broker does all the processing required for our share trading.
Broker opens up necessary account for share trading. There are two accounts required for share
trading purpose:

• Trading Account

• Demat Account

Trading account is an account where one can trade or buy/sell shares. Once the trading account is
opened, that person will receive his/her personal id & password to access that account. One can login
to the trading account and can see the share price movement only after depositing the funds that he
wants to invest.

Demat account (dematerialization account) is an account where the bought shares will be deposited
in electronic format like money is kept in the savings account as electronic format after deposit. There
is a term called DP (depository participant) who has a right to open up Demat accounts & most of the
brokers have got this DP license to open up a demat account.

❖ Following are the documents required to open an account:

1) Proof of Identity (POI): Driving licence, Voter’s ID, UID or Unique Identification Number etc
will be accepted as proof of identity.

2) Proof of Address (POA): Passport, Voter’s ID, Aadhaar, ration card etc can be provided as
document proof for address to open a Demat account.

3) Proof of Income: This is required for trading in derivatives such as F&O. Copy of ITR
Acknowledgement etc can be furnished.

4) Proof of Bank Account: Cancelled cheque leaf can be provided for this purpose.

33
5) PAN Card: A PAN card is mandatory for opening a Demat account with any bank or broker (except
those who are specifically exempt from obtaining PAN; as listed in ‘Exemptions/Clarifications’ to PAN
section)

6) Photographs: Keep in handy three copies of passport size photographs while visiting your
broker /bank for opening a Demat account.

While doing a transaction in shares, following are the types of cost you will have to bear whether
you make profits or loss. Below are the types of costs:

Trading or investment cost = Brokerage + STT + Stamp duty + service tax + other charges. Here are
some operational features of the stock market: -

❖ Market Timings:

Trading on the equities segment takes place on all days of the week (except Saturdays and Sundays
and holidays declared by the Exchange in advance). The market timings of the equities segment
are:

Normal Market Open: 09:55 hours

Normal Market Close: 15:30 hours

The Post Closing Session is held between 15.50 to 16.00 hour

34
1.12 ROLE AND IMPORTANCE OF STOCK MARKET

1. Mobilization of Savings and Acceleration of Capital Formation

In developing countries like India. The importance of stock market is self-evident. In this market,
various types of securities help to mobilize savings from various sectors of population. The twin
features of reasonable return and liquidity in stock exchange are definite incentives to the people to
invest in securities. This accelerates the capital formation in the country.

2.Raising Long - Term Capital

The existence of a stock exchange enables companies to raise permanent capital. The investors cannot
commit their funds for a permanent period but companies require funds permanently. The stock
exchange resolves this dash of interests by offering an opportunity to investors to buy or sell their
securities, while permanent capital with the company remains unaffected.

3. Promotion of Industrial Growth

The stock exchange is a central market through which resources are transferred to the industrial
sector of the economy. The existence of such an institution encourages people to invest in
productive channels. Thus it stimulates industrial growth and economic development of the country
by mobilizing funds for investment in the corporate securities.

4. Ready and Continuous Market

The stock exchange provides a central convenient place where buyers and sellers can easily purchase
and sell securities. Easy marketability makes investment in securities more liquid as compared to
other assets.

5. Technical Assistance

An important shortage faced by entrepreneurs in developing countries is technical assistance. By

offering advisory services relating to preparation of feasibility reports, identifying growth potential
and training entrepreneurs in project management, the financial intermediaries in capital market play
an important role.

6. Reliable Guide to Performance

The stock market serves as a reliable guide to the performance and financial position of corporate,
and thereby promotes efficiency.

35
7. Proper Channelization of Funds

The prevailing market price of a security and relative yield are the guiding factors for the people to
channelize their funds in a particular company. This ensures effective utilization of funds in the
public interest.

8. Provision of Variety of Services

The financial institutions functioning in the capital market provide a variety of services such as grant
of long term and medium term loans to entrepreneurs, provision of underwriting facilities, assistance
in promotion of companies, participation in equity capital, giving expert advice etc.

9. Development of Backward Areas

Capital Markets provide funds for projects in backward areas. This facilitates economic development
of backward areas. Long term funds are also provided for development projects in backward areas.

10. Foreign Capital

Capital markets makes possible to generate foreign capital. Indian firms are able to generate capital
funds from overseas markets by way of bonds and other securities. Government has liberalized
Foreign Direct Investment (FDI) in the country. This not only brings in foreign capital but also foreign
technology which is important for economic development of the country.

11. Easy Liquidity

With the help of secondary market investors can sell off their holdings and convert them into liquid
cash. Commercial banks also allow investors to withdraw their deposits, as and when they are in need
of funds.

12. Revival of Sick Units

The Commercial and Financial Institutions provide timely financial assistance to viable sick units to
overcome their industrial sickness. To help the weak units to overcome their financial industrial
sickness banks and FIs may write off a part of their loan rural areas.

36
1.13 FUNCTIONS OF STOCK MARKET

This market has some of the important functions of stock market / secondary market are following:

1) Pricing of Securities

The stock market helps to value the securities on the basis of demand and supply factors. The
securities of profitable and growth oriented companies are valued higher as there is more demand for
such securities. The valuation of securities is useful for investors, government and creditors. The
investors can know the value of their investment, the creditors can value the credit worthiness and
government can impose taxes on value of securities.

2) Economic Barometer:

Any stock exchange in the world is a reliable barometer to measure the economic condition of any
country like India. Every major change in country and economic is reflected in the boom or recession
cycle of the economy. Stock market is also known as a pulse of economic mirror reflects the economic
conditions of a country.

3) Contributes to Economic Growth:

In stock market Securities of various companies are bought and sold and this of disinvestment and
reinvestment helps to invest in most productive investment proposal and this leads to capital formation
and economic growth.

4) Safety in Stock Exchange:

In stock exchange only the listed securities are traded and stock market authorities include the
company names in the trade list only after verifying the soundness of company. The companies which
are listed they also have to operate within the strict rules and regulations. This ensures safety of
dealing through stock market.

5) Scope for Speculation and Spreading of Equity Cult:

This market encourge people to invest in ownership securities by regulating new issues, better trading
practices and by educating public about investment. To ensure liquidity and demand of supply of
securities the stock market permits healthy speculation of securities.

37
6) Better Allocation of Capital:

The share of profitmaking companies are quoted at higher prices and are actively traded so much
companies can easily raise fresh capital from Stock exchange. The general public hesitates to invest
in securities of lossmaking companies. So, Stock market facilitates allocation of investor's fund to
profitable channels.

7) Liquidity and Stock Market:

The main function of stock market is to provide ready market for sale and purchase of securities. The
presence of stock market gives assurance to investors that their investment can be converted into cash
whenever they want. The investors can invest in long term investment projects without any hesitation,
as because of Stock market they can convert long term investment into short term and medium term.

8) Saving and Investment:

The Stock market promotes or offers attractive opportunities of saving and investment in various
securities. These opportunities encourage people to save more and invest in Securities of corporate
sector rather than investing in unproductive assets such as gold, silver, etc.

38
1.14 CHARACTERISTICS OF STOCK MARKET

There are some most important characteristics of Stock market which are as below:

i. Stock Market is a market, where securities of corporate bodies, government and semi-
government bodies are bought and sold.
ii. This market deals with shares, debentures bonds and such securities already issued by the
companies. It also deals with existing or second hand securities and hence it is called
secondary market.
iii. Stock Exchange does not buy or sell any securities on its own account. It merely provided
the necessary infrastructure and facilities for trade in securities to its members and brokers
who trade in securities. It also regulates the trade activities so as to ensure free and fair trade.
iv. NSE maintain an official list of securities that could be purchased and sold on its floor.
Securities which do not figure in the official list of stock market or exchange are called
unlisted securities. Such unlisted securities cannot be traded in the stock exchange.
v. All the transactions in securities at the stock exchange are affected only through its authorised
brokers and members. Outsiders or direct investors are not allowed to enter in the leading
circles of the stock exchange. Investors have to buy or sell the securities at the stock exchange
through the authorised brokers only.
vi. A stock exchange is an association of persons or body of individuals which may be registered
or unregistered.
vii. Stock Market is an organised market and requires recognition from the Central Government.
viii. Buying and selling transactions in securities at the stock market are governed by the rules and
regulations of stock market as well as SEBI Guidelines. No deviation from the rules and
guidelines is allowed in any case.
ix. This market is a particular market place where authorised brokers come together daily on the
floor of market called trading circles and conduct trading activities. The prices of different
securities traded are shown on electronic boards. After the working hours market is closed.
All the working of stock exchanges is conducted and controlled through computers and
electronic system.
x. NSEs are the financial barometer and development indicators of national economy of the
country. Industrial growth and stability is reflected in the Index of Stock Exchange (ISE).

39
1.15 ADVANTAGES AND DISADVANTAGES STOCK MARKET

➢ Advantages:

1) Chances of Exceedingly Good Returns in Short Time

Even in the past people have gained exceedingly good returns on their stock market investments, and
you always stand a good chance to earn huge profits when you decide upon stock market investing.
So, when you invest in stock market India, although you put yourself at a lot of risks, you are also in
a position to earn good returns in a very short time.

2) Minority Ownership

Well, it does sound like an exaggeration, but when you put your money in a reputed company’s stocks,
you become a part-owner of the company, irrespective of however smaller your share may be. You
can improve your standing in the market by sagaciously putting your money in different companies.
Moreover, you can exit whenever you want.

3) Right to Vote

Minority ownership gives you the right to vote and voice your opinions at the corporate level.

4) Easy to buy and sell

The stock market makes it easy to buy shares of companies. You can purchase them through a broker
or a financial planner, or online. Once you've set up an account, you can buy stocks in minutes. Some
online brokers, such as Robinhood, let you buy and sell stocks commission-free.

The stock market allows you to sell your stock at any time. Economists use the term "liquid" to mean
that you can turn your shares into cash quickly and with low transaction costs. That's important if you
suddenly need your money. Since prices are volatile, you run the risk of being forced to take a loss.

5) Grow with economy

As the economy grows, so do corporate earnings. That's because economic growth creates jobs, which
creates income, which creates sales. The fatter the pay check, the greater the boost to consumer
demand, which drives more revenues into companies' cash registers. It helps to understand the phases
of the business cycle—expansion, peak, contraction, and trough.

Best way to stay ahead of inflation: Historically, stocks have averaged an annualized return of 10%.1
That's better than the average annualized inflation rate. It does mean you must have a longer time
horizon, however. That way, you can buy and hold even if the value temporarily drops.

40
 ➢ Disadvantages:

1) Volatile Investments

Investment in BSE is subjected to many risks since the market is volatile. The shares of a company
go up and come down so many times in just a single day. These price fluctuations are unpredictable
most of the times and the investor sometimes have to face severe loss due to such uncertainty.

2) Brokerage Commissions Kill Profit Margin

Every time an investor buys or sells his shares, he has to pay some amount as a brokerage commission
to the broker, which kills the profit margin.

3) A constant fear of crashes

Your heart races every time the market falls? Stock market crashes can give you sleepless nights if
you didn’t do your research before choosing your stocks. The stock market is a result of investors
expectations. The onus lies on yo to check whether those expectations are reasonable or not. You
need to analyse (or take the help of an expert) whether the stock prices actually reflect the performance
of the firm. Once you know you have done your bit, market crashes shouldn’t bother you and you are
sure to reap rich returns in the long run.

4) Never completely risk free

Stock markets will never be completely risk free. The word in the market is that “the value of your
investment can go down as well as up”. While this is especially true for stock markets, it holds true
for any kind of investment you make. Stock trading involves risk, just like investing in corporate
Fixed Deposits or bonds. But, if you do your homework and are capable of thinking on your feet, you
have more chances of winning in the long run.

5)Impacted by the global economy

Though the Indian economy has been able to hold its own even in the face of the global economic
meltdown, it’s not reasonable to think that India will remain completely unaffected. Investors become
wary and pull out from investing in stocks. However, unlike other countries India is quite insulated
from the global growth story. The proof? Global growth has slowed down to about 2% while India’s
growth is galloping at over 6%. These factors do get reflected in stock market prices.

41
 CHAPTER 2

RESEARCH METHODOLOGY

2.1 RESEARCH DESIGN

➢ The proposed study is Empirical Research.

➢ Research is based on Observation of Stock Market.

2.2 OBJECTIVES

➢ To get a basic understanding of the products, principles investment, players and functioning
of the stock market.
➢ To know the regulatory framework for Indian Stock market.
➢ To understand the concept of Stocks and Stock market.
➢ To learn about trading of stocks in the stock exchange.
➢ To also get important lessons about the economy and financial responsibility.
➢ To get in depth study of India and other global stock market.
➢ To learn about how stock price determined.

2.3 HYPOTHESIS

H0-All stock prices represent their fundamental value at each point in time.

H1-If stock prices follow a random walk, stock price changes should be random and unpredictable.

H3- An efficient market is one where the market price is an unbiased estimate of the true value of the
investment.

H4- Market value does not equal true value.

H5- If is impossible to consistently predict which way a stock price will move in the future and to
consistently ‘beat the market.’

42
2.4 SCOPE OF STUDY

A number of fundamental factors affect the stock market which has been proved by various
researchers but the lacking areas that was found in the above given research papers are

Most of the researchers have focused on either macro-economic variables or company specific
variables. Very few have worked on both the variables.

Majority of the research work has been conducted on the top players of stock exchange. Very few
researchers have worked on specific industry.

Not more than 6-7 variables have been studied in the research papers reviewed.

As per the reviewed papers the study on factors affecting stock market has been mainly conducted at
International level.

2.5 LIMITATION OF THE STUDY

Due to financial and time constraint it was not possible to include more factors and collect the
responses from large number of people. However, as time passes perception of the people may
change. Therefore, more numbers of subsequent studies are required. Future research should conduct
with more numbers of factors and large number of responses. Further, this study is conducted in only
one city of small part of India i.e. Mumbai suburban. Therefore, findings of this study have to be used
cautiously and may not be generalized the other limitations of the study are:

• Geographical limitation is the main limitation of this study as people residing Mumbai suburban
are taken as universe.
• The study is restricted to the selected sample of Mumbai suburban and hence the result of the
study of cannot be generalized.
• The statistical and questionnaire methods used to analysis the data have their own limitation.
• All the limitations of primary data are applicable to this study.
• The scope of study is limited and micro basis.

43
2.6 DATA COLLECTION

1. Primary Data is being collected through Observations.

2. Primary Data scrutinized is been collected through testing different types of strategies on
different types of stock in live market.

3. Data have been collected through secondary sources like blog posts, journals, periodicals,
annual reports, newspapers, internet and articles.

Research undertakes both type of Data PRIMARY and SECONDARY for study.

2.7 TOOLS OF PRESENTATION & ANALYSIS

To analysis the data obtained with the help of questionnaire, following tools were used.

1. Likert scale: These consist of a number of statements which express either a favourable or
unfavourable attitude towards the given object to which the respondents are asked to react.
The respondent responds to in terms of several degrees of satisfaction or dissatisfaction.
2. Percentage, Bar Graphs and Pie Charts: These tools were used for analysis of data.

44
 CHAPTER 3

REVIEW OF LITERATURE

Ranganathan (2003), has stated the investor behavioural from the marketing world and financial
economics has brought together to the surface an exciting area for study and research: behavioural
finance. The realization that this is a serious subject is, however, barely dawning. Analysts seem to
treat financial markets as an aggregate of statistical observations, technical and fundamental analysis.
A rich view of research waits this sophisticated understanding of how financial markets are also
affected by the ‘financial behaviour’ of investors. With the reforms of industrial policy, public sector,
financial sector and the many developments in the Indian money market and capital market, mutual
funds that has become an important portal for the small investors, is also influenced by their financial
behaviour. Hence, this study has made an attempt to examine the related aspects of the fund selection
behaviour of individual investors towards Mutual funds, in the city of Mumbai. From the researchers
and academician point of view, such a study will help in developing and expanding knowledge in this
field.

Juhi Ahuja (2012) presents a review of Indian Capital Market & its structure. In last decade or so, it
has been observed that there has been a paradigm shift in Indian capital market. The application of
many reforms & developments in Indian capital market has made the Indian capital market
comparable with the international capital markets. Now, the market features a developed regulatory
mechanism and a modern market infrastructure with growing market capitalization, market liquidity,
and mobilization of resources. The emergence of Private Corporate Debt market is also a good
innovation replacing the banking mode of corporate finance. However, the market has witnessed its
worst time with the recent global financial crisis that originated from the US sub-prime mortgage
market and spread over to the entire world as a contagion. The capital market of India delivered a
sluggish performance. Conclusion- Stock Market is the mitigation of risk through the spreading of
investment.

Naik & Padhi (2012) studied the relationship between Indian stock Market Index (BSE Sensex) and
five macroeconomic variables and results reveal that there exists co integration between BSE Index
& macroeconomic variables which proves that there is a 18 long term relationship between them.

Olweny, T. Omondi, K. (2011) aims at describing the influence of three macroeconomic variables
on the stock return volatility in the Nairobi Stock Exchange, Kenya i.e. NSE 20 share index. As a
result, it can be concluded that selected macroeconomic variables i.e Foreign Exchange Rate, Interest
Rate and Inflation Rate have significant impact on the prices of stocks listed in Nairobi Stock
Exchange.
45
Amanulla & Kamaiah (1995) conducted a study to examine the Indian stock market efficiency by
using Ravallion co integration and error correction market integration approaches. The data used are
the RBI monthly aggregate share indices relating five regional stock exchanges in India, viz Bombay,
Calcutta, Madras, Delhi, Ahmedabad during 1980-1983. According to the authors, the cointegration
results exhibited a long-run equilibrium relation between the price indices of five stock exchanges
and error correction models indicated short run deviation between the five regional stock exchanges.
The study found that there is no evidence in favour of market efficiency of Bombay, Madras, and
Calcutta stock exchanges while contrary evidence is found in case of Delhi and Ahmedabad.

Nath and Verma (2003) examine the interdependence of the three major stock markets in south Asia
stock market indices namely India (NSE-Nifty) Taiwan (Taiex) and Singapore (STI) by employing
bivariate and multivariate co integration analysis to model the linkages among the stock markets, No
co -integration was found for the entire period (daily data from January 1994 to November 2002).They
concluded that there is no long run equilibrium.

Debjiban Mukherjee (2007) made a comparative Analysis of Indian stock market with International
markets. His study covers New York Stock Exchange (NYSE), Hong Kong Stock exchange (HSE),
Tokyo Stock exchange (TSE), Russian Stock exchange (RSE), Korean Stock exchange (KSE) from
various socio- politico-economic backgrounds. Both the Bombay Stock exchange (BSE) and the
National Stock Exchange of Indian Limited (NSE) have been used in the study as a part of Indian
Stock Market. The main objective of this study is to capture the trends, similarities and patterns in the
activities and movements of the Indian Stock Market in comparison to its international counterparts.
The time period has been divided into various eras to test the correlation between the various
exchanges to prove that the Indian markets have become more integrated with its global counterparts
and its reaction are in tandem with that are seen globally. The various stock exchanges have been
compared on the basis of Market Capitalization, number of listed securities, listing agreements, circuit
filters, and settlement. It can safely be said that the markets do react to global cues and any happening
in the global scenario be it macroeconomic or country specific (foreign trade channel) affect the
various markets.

Rajesh & Bhaskar (2015) try to explore the variation in share prices of selected Indian
manufacturing firms listed at Bombay Stock Exchange and it is concluded that Market Return,
Growth in market & Industrial Production positively influences the stock returns at firm and industry
level whereas rising inflation adversely affect the stock returns and GDP is insignificant but positively
related to stock returns of the firm.

46
Joshi (2013) indentified the major factors held responsible to create movement in stock market. He
found from the study that the factors like growth of Gross Domestic Product, flow of FIIs, Inflation,
Political Stability, Liquidity and Different interest rate are the major factors accountable for up and
down movement in Indian stock market.

Shah (2014) examined the trend and pattern of Foreign Institutional Investments flow in India and
also describes the relationship between between FII and Nifty. From the research evidence, it has
been observed that there is a moderate positive correlation between Foreign Institutional Investment
and CNX Nifty stock market. 19 A study of interquartile behaviour of stock returns of selected 19
companies listed at BSE has been conducted by Kothari & Kothari (2015) which reveals that stock
betas are not symmetric they differ significantly over the bullish & bearish market state.

Bhatnagar (2009) has analysed of Corporate Governance and external finance in transition
economies like India. The problem in the Indian corporate sector is that of disciplining the dominant
shareholder and protecting the minority shareholders. Clearly, the problem of corporate governance
abuses by the dominant shareholder can be solved only by forces outside the company itself
particularly that of multilateral financial institutions in the economic development. India has relied
heavily on external finance as their domestic saving rates have been much lower than their investment
rates. The less promising prospects for the global supply of external finance the need for an increase
in the multilateral financial institutions. India being a transition economy is changing from a centrally
planned economy to a free market. It is undergoing economic liberalization, macroeconomic
stabilization where immediate high inflation is brought under control, and restructuring and
privatization in order to create a 33 financial sector and move from public to private ownership of
resources. These changes often may lead to increased inequality of incomes and wealth, dramatic
inflation and a fall of GDP.

Vasudev (2007) analysed the developments in the capital markets and corporate governance in India
since the early 1990s when the government of India adopted the economic liberalization programme.
The legislative changes significantly altered the theme of Indian Companies Act 1956, which is based
on the Companies Act 1948 (UK). The amendments, such as the permission for nonvoting shares
and buybacks, carried the statute away from the earlier “business model” and towards the 'financial
model' of the Delaware variety. Simultaneously, the government established the Securities Exchange
Board of India (SEBI), patterned on the Securities and Exchange Commission of US. Through a
number of other policy measures, the government steered greater investments in the stock market and
promoted the stock market as a central institution in the society. The article points out that the reform
effort was inspired, at least in part, by the government’s reliance on foreign portfolio inflows into the
Indian stock market to fund the country’s trade and current account deficits.
47
Avijit Banerjee (1998) reviewed Fundamental Analysis and Technical Analysis to analyse the
worthiness of the individual securities needed to be acquired for portfolio construction. The
Fundamental Analysis aims to compare the Intrinsic Value (I.V.) with the prevailing market price
(M.P) and to take decisions whether to buy, sell or hold the investments. The fundamentals of the
economy, industry and company determine the value of a security. If the 1.V is greater than the M.P.
the stock is under price and should be purchased. He observed that the Fundamental Analysis could
never forecast the M.P. of a stock at any particular point of time. Technical Analysis removes this
weakness. Technical Analysis detects the most appropriate time to buy or sell the stock. It aims to
avoid the pitfalls of wrong timing in the investment decisions. He also stated that the modern portfolio
literature suggests 'beta' value p as the most acceptable measure of risk of scrip. The securities having
low P should be selected for constructing a portfolio in order to minimise the risks.

Arun Jethmalani (1999) reviewed the existence and measurement of risk involved in investing in
corporate securities of shares and debentures. He commended that risk is usually determined, based
on the likely variance of returns. It is more difficult to compare 80 risks within the same class of
investments. He is of the opinion that the investors accept the risk measurement made by the credit
rating agencies, but it was questioned after the Asian crisis. Historically, stocks have been considered
the most risky of financial instruments. He revealed that the stocks have always outperformed bonds
over the long term. He also commented on the 'diversification theory' concluding that holding a small
number of non-correlated stocks can provide adequate risk reduction. A debt-oriented portfolio may
reduce short term uncertainty, but will definitely reduce long-term returns. He argued that the 'safe
debt related investments' would never make an investor rich. He also revealed that too many
diversifications tend to reduce the chances of big gains, while doing little to reduce risk. Equity
investing is risky, if the money will be needed a few months down the line. He concluded his article
by commenting that risk is not measurable or quantifiable. But risk is calculated on the basis of
historic volatility. Returns are proportional to the risks, and investments should be based on the
investors' ability to bear the risks, he advised.

48
 CHAPTER 4

DATA ANALYSIS & INTERPRETATION

4.1 Demographic Profile of respondents

Table No 4.1: Demographic Profile of respondents

Demographics No. of Percentage of

respondents respondents (%)

Age
Below 18 2 3.35

18-25 41 68.30

25-35 15 25

35-50 2 3.35

Above 50 0 0

TOTAL 60 100

OCCUPATION

Student 27 45

Service 32 53.3

Business 1 1.7

TOTAL 60 100

Analysis & Interpretation: It was found that the major population of respondents i.e. 68.30% are
between 18-25 and 25% are of 25-35 yrs. And 3.35% respondents were below 18yrs and 35-50. 53.3%
of respondents were doing service. And majority of respondents i. e 45% were students and 1.7% of
respondents were doing business.

49
Statement 1. To know whether respondents invest.

Table 4.2: To know whether respondents invest.

Investment No. of Percentage of

Decision Respondents Respondents (%)

Yes 22 36.7

No 34 56.7

Maybe 4 6.6

TOTAL 60 100

Analysis & Interpretation:

From the survey it was found that 36.7% respondents invest in the stock market and 56.7% who were
non-investors.

Statement 2. Type of investment option the person has been invest

Table 4.3: Type of investment option the person has been invest future

50
Analysis & Interpretation:

From the survey it was found that 67.4% respondents invest in Mutual funds, 45.7% invest in equities
and 17.4% invest in Debentures. Thus, it can be stated that maximum people invest in Mutual Funds
whereas Equities are having 2nd importance.

Statement 3. To know whether respondents want to invest in future.

Table 4.4: To know whether respondents want to invest in future.

Analysis & Interpretation:

From the survey it found that 68.4% respondents want to invest in future and 15.8% respondents don’t
want invest in future and remaining 15.8% still confused.

Statement 4. To find out if respondents think the stock market is a gamble.

Table 4.5: To find out if respondents think the stock market is a gamble.

Analysis & Interpretation:

The survey found that 52.5% of respondents said the stock market is not a gamble and 47.5% of
respondents said the stock market is a gamble.

51
Statement 5. To find out why people are scared to invest in the stock market.

Table 4.6: To find out why people are scared to invest in the stock market.

Analysis & Interpretation:

From surveys found that high risk, lack of knowledge and fear of loss are the main reasons why people
are afraid to invest in stocks. Fear of loss is one of the main reasons. Most people are afraid of losing
so they don’t invest in the stock market.

Statement 6: Does Stock Market really help the Economy?

Analysis & Interpretation:

From survey found that 96.6% of respondents said the stock market helps the economy.
52
Statement 7: -Is it safe to invest in Stock Market?

Analysis & Interpretation: To survey found that 44.8% of respondents said it was safe to invest in
stock market and 37.9% of respondents said it was not safe.

Statement 8: Do you heard about online Stock Brokers?

Analysis & Interpretation: From survey found that 73% of respondents know about stock brokers
online brokers and online stock broking apps. The rest of respondents does not know about the online
brokers.

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Statement 9: Is it safe to invest through online Stock Brokers?

Statement 10: Which is better?

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 CHAPTER 5

CONCLUSION AND SUGGESTION

This paper examined the role of the Indian stock market and its operations which is always a matter
of study and has created an interest in researchers to explore more and more affecting areas towards
it. From above study it reveals that the stock market is one of the most important ways for companies
to raise money for expansion by selling shares of ownership of the company in a public market. It is
found that the stock market has been assigned an important place in financing the Indian corporate
sector. History has shown that the price of stocks and other assets is an important part of the dynamics
of economic activity, and can influence or be an indicator of social mood. In fact, the stock market is
often considered the primary indicator of a country's economic strength and development. Mainly
companies‟ issue stock to finance their business operations and People buy stock as an investment
into the company. When people purchase stock, they are looking to get a return on their investment.
This return could be in the form of income via dividends or appreciation of the value of the stock or
both. Thus it is concluded that Stock Market is one of the suitable investment mode for the common
man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a
relatively low cost. But it is also important that when people invest in the stock market they should
be aware of the facts and details about the stock market.

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 CHAPTER 6

BIBLIOGRAPHY AND APPENDIX

• Securities Analysis and Portfolio Management TYBAF semester 6th Vipul’s

• Financial Market Operations SYBAF semester 3rd Manan Prakashan.
• Innovative Financial Services FYBAF semester 2nd Manan Prakashan
• International Finance TYBAF semester 5th Vipul’s
• qdoc.tips_indian-stock-market.pdf
• https://en.m.wikipedia.org/wiki/Stock_market
• https://www.investopedia.com/terms/s/stockmarket.asp
• https://www.slideshare.net/PaaPpUU/the-study-of-stock-market
• https://www.kotaksecurities.com/ksweb/share-market/what-are-different-types-of-stocks
• https://www.citizensbank.com/learning/bull-market-vs-bear-market.aspx
• https://www.angelone.in/amp/knowledge-center/share-market/how-share-price-is-calculated
• https://www.winvesta.in/blog/fundamental-analysis-a-complete-guide/
• https://www.investopedia.com/articles/stocks/08/due-diligence.asp
• https://www.investopedia.com/articles/stocks/08/due-diligence.asp
• https://top10stockbroker.com/share-market-education/fundamental-analysis/

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 APPENDIX

NAME: -

AGE: -

OCCUPATION: -

Q1. Do you invest in Stock market?

• Yes
• No
• Maybe

Q2. If yes, which would be your preference from below?

• Equities
• Mutual Funds
• Bonds

Q3. If No, would you like to invest in Stock market in future?

• Yes
• No
• Maybe

Q4. Do you think the Stock market is like a gambling?

• Yes
• No

Q5. Does the Stock market really help the economy?

• Yes
• No

Q6. Why people scared to invest in Stock market?

• High risk
• Lack of knowledge
• Fear of loss
• Scams
• Lack of capital

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Q7. Is it safe to invest in Stock market?

• Yes
• No
• Maybe

Q8. Do you heard about online stock brokers?

• Yes
• No

Q9. Is it safe to invest through online brokers?

• Yes
• No
• Maybe

Q10. Which is better?

• Intraday Trading
• Delivery Trading

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