A Study of National Stock Exchange

A Project Submitted to
University of Mumbai for partial completion of the degree of
Master in Commerce
Under the Faculty of Commerce

By
SANMESH SHIGVAN

Roll No.:- 46
Sem-VI

Under the Guidance of

Prof. VIVEK CHAUHAN

People’s Education Society’s

HAZARIMAL SOMANI COLLEGE OF ARTS AND

COMMERCE
KM MUNSHI MARG , GIRGAON
Mumbai- 400 007

MARCH - 2023

1
 People’s Education Society’s

Anand Bhavan,Dr. D.N. Road, Fort, Mumbai- 400 001

Certificate

This is to certify that Mr. Sanmesh Dipak Shigvan has worked and duly completed her

Project Work for the degree of Master in Commerce under the Faculty of Commerce in the

subject of Research Project and her project is entitled, “ A study on National Stock Exchange”
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 her/ his own work and facts reported by her/his personal findings and investigations.

Prof. Pankaj Sarawade Dr. U.M. Maske Dr. U.M. Maske

Guiding Teacher Co-ordinator Principal

University Examiner

Date of submission: 17-12-2022

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 Declaration by learner

I the undersigned Mr. Sanmesh Dipak Shigvan here by,Declare that the work
embodied in this project titled “A study on National Stock Exchange”forms my
own contribution to the research work carried out under the guidance of Prof.
Vivek Chauhan 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.

Name and Signature of the learner

Certified by

3
 Acknowledgment

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.U.M.Maske for providing the necessary facilities

required for completion of this project.

I take this opportunity to thank our Co-ordinator Dr.U.M.Maske, for his moral

support and guidance.

I would also like to express my sincere gratitude towards my project guide Prof. Pankaj

Sarawade 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.

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 INDEX

SR NO. Topic Page No.

1 Introduction 6-12

2 Rational for the Study 13-15

3 Statement of the Problem 16-18

4 Objectives of the Study 19-27

5 Hypotheses of the Study 28-29

6 Importance and Relevance of the Study 30-42

7 Scope of the Study 43-57

8 Limitation of the Study 58-61

9 Research Methodology 62-64

10 Review of the Literature 65-75

11 Scope for Further Study 76-79

12 Conclusion 80-81

13 References 82-82

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 Chapter : - 1. INTRODUCTION

 INTRODUCTION OF NATIONAL STOCK EXCHANGE

National Stock Exchange of India Limited (NSE) is the leading
government owned stock exchange of India, located in Mumbai, Maharashtra. NSE
was established in 1992 as the first dematerialized electronic exchange in the
country. NSE was the first exchange in the country to provide a modern, fully
automated screen-based electronic trading system that offered easy trading facilities
to investors spread across the length and breadth of the country. Vikram Limaye is
Managing Director & Chief Executive Officer of NSE.
National Stock Exchange has a total market capitalization of more than US$2.27
trillion, making it the world's 11th-largest stock exchange as of April 2018.[1]
NSE's flagship index, the NIFTY 50, a 50 stock index is used extensively by
investors in India and around the world as a barometer of the Indian capital
market. The NIFTY 50 index was launched in 1996 by NSE.[2] However,
Vaidyanathan (2016) estimates that only about 4% of the Indian economy / GDP is
actually derived from the stock exchanges in India.[3] Unlike countries like the
United States where nearly 70% of the country's GDP is derived from large
companies in the corporate sector, the corporate sector in India accounts for only
12-14% of the national GDP (as of October 2016). Of these only 7,800 companies
are listed of which only 4000 trade on the stock exchanges at BSE and NSE. Hence
the stocks trading at the BSE and NSE account for only around 4% of the Indian
economy, which derives most of its income-related activity from the so-called
unorganized sector and household spending.[3]
Economic Times estimates that as of April 2018, 6 crore (60 million) retail investors
had invested their savings in stocks in India, either through direct purchases of
equities or through mutual funds.[4] Earlier, the Bimal Jalan Committee report
estimated that barely 1.3% of India's population invested in the stock market, as

6
compared to 27% in the United States and 10% in China

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  What is the National Stock Exchange of India Limited (NSE)?

The National Stock Exchange of India Limited (NSE) is the largest financial exchange in the Indian market. It
was established in 1992 on the recommendation of the High-Powered Study Group, which was founded by
the Indian government to provide solutions to simplify participation in the stock market and make it more
accessible to all interested parties. In 1994, the NSE introduced electronic trading in the Indian stock
exchange market.

The National Stock Exchange of India Limited offers a platform to companies for raising capital. Investors
can access equities, currencies, debt, and mutual fund units on thE platform. In India, foreign companies can
raise capital using the NSE platform through , Indian Depository Receipts (IDRs), and debt issuances. The
NSE also offers clearing and settlement services.

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  National Stock Exchange of India

NSE, or the National Stock Exchange of India Limited, is India’s leading stock exchange.
Established in 1992 and located in Mumbai, this exchange brought a paradigm shift to the
Indian financial market right after it had suffered a setback due to an unprecedented scam
that hit the Bombay Stock Exchange. This article, divided into 4 major sections highlighted
below, will introduce you to the legacy of NSE

 History of National Stock Exchange of India

After the outbreak of 1992 security scam in which a BSE member, Harshad Mehta, was
exposed manipulating the market, the government of India decided to promote establishing
NSE based on recommendations made by High Powered Study Group on Establishment of
New Stock Exchanges. The immediate aim was to provide equal access to investors from all
across the nation and make participating in stock market easier. In November 1992, NSE was
established as a tax-paying company with key investors including Life Insurance Corporation
of India, State Bank of India, IFCI Limited, IDFC Limited and Stock Holding Corporation of
India Limited. It was recognized as a stock exchange under the Securities Contracts
(Regulation) Act, 1956 in April 1993 and commenced operations in the Wholesale Debt
Market (WDM) segment in June 1994. Operations in the equity segment were started
in November 1994 followed by Derivatives segment in June 2000. NSE was the first stock
exchange in India where ownership, management and trading were handled by three
independent set of people. While the ownership is with various financial institutions and
banks, the management is handled by independent professionals who are forbidden from
directly or indirectly trading on the exchange. This demutualization has eliminated the kind
of conflict of interest that was at the root of 1992 security scam.
Functions of NSE The NSE was set-up with an express objective to fulfil the following
functions:

1 establishing a nation-wide trading facility for equities, debt and other hybrid instruments
2 ensuring equal access to investors across the nation through an appropriate
9
 communication network
3 providing a fair, efficient and transparent securities market to investors using
electronic trading systems
4 enabling shorter settlement cycles and book entry settlements systems, and
5 meeting the current international standards of securities markets

NSE successfully fulfilled these functions by establishing the first electronic stock
market of the nation. NSE was instrumental in creating National Securities Depository
Limited (NSDL), the first depository in India, allowing investors to hold and trade
securities electronically. This not only made

10
available only to a handful of traders present at the exchange, was now widely
broadcasted and available to everyone at their own remote location. Before the system
introduced by NSE, an investor who wanted to trade a security not listed on the nearest
exchange had to route orders through a series of correspondent brokers to the appropriate
exchange. This resulted in increased uncertainty and high transaction costs. NSE made it
possible for an investor to access the same market and order book, irrespective of
location and at the same cost as every other investor. NSE trading terminals are now
present in 363 cities and towns across India and can be accessed through brokers from
anywhere on the globe.
Features of National Stock Exchange
NSE, like every other leading stock exchange today, runs an order-driven market as
opposed to quote- driven market. The fully automated screen based trading system that it
runs is called National Exchange for Automated Trading (NEAT).
The order management system under NEAT gives a unique number to each order
received and if a match is not found immediately, it is added to an order book where
the sequence of orders to be matched are determined based on price-time priority. That
is, if two orders are entered into the system, the order having the best price gets the
higher priority and within the orders of the same price priority is given to the older order.
Order matching is done by comparing the best buy order, the buy order with the highest
price, with the best sell order, the sell order with the lowest price. This is because a seller
would like to sell to the buyer offering the highest price and vice versa. While orders can
be partially matched till the complete order can be completed, the matches are always
made based on the passive price of the order and not the active price at which the match
is made. NEAT also allows members to specify conditional clauses on the submitted orders

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  MEANING AND DEFINITION

The National Stock Exchange (NSE) is a stock exchange in India.

Set up in November 1992, NSE was India's first fully automated electronic
exchange with a nationwide presence. The exchange, unlike Bombay Stock
Exchange (BSE), was the result of the recommendations of a high-powered group
set up to study the establishment of new stock exchanges, which would operate on a
pan-India basis. Its shareholders consist of 20 financial institutions including state-
owned banks and insurance companies.

Headquartered in Mumbai, NSE offers capital raising abilities for

corporations and a trading platform for equities, debt, and derivatives --
including currencies and mutual fund units. It allows for new listings,
initial public offers (IPOs), debt issuances and Indian Depository
Receipts (IDRs) by overseas companies raising capital in India.

S&P CNX Nifty is the benchmark index introduced by NSE. Some of its
other indices are CNX Nifty Junior, India VX, S&P CNX Defty, S&P
CNX 500, etc. The exchange offers clearing and settlement services
through its wholly-owned unit, the National Securities Clearing
Corporation set up in 1995. The other main subsidiaries/ associate
companies of NSE include the National Commodity Clearing, National
Securities Depository (which is the repository of all securities in
electronic form), and National Commodity and Derivatives Exchange.

Trading through this stock exchange in India is carried out through an

electronic limit order book where order matching takes place through a
trading computer. This entire process does not have the interference of
specialists or market makers and is driven entirely by orders; meaning that
when investors place a market order, it is automatically matched with a

12
limit order. Thus, in this market, sellers and buyers have the advantage of
remaining anonymous.

Additionally, an order-driven market also offers more transparency to

investors by displaying every buy and sell order in the trading system.
These orders in NSE are placed via brokers who often provide the facility of
online trading to customers. Few institutional investors can also avail this
facility of “direct market access” where they can place their orders directly
into the trading system.
NSE market trading on equities segment is carried on throughout the week,
except on Saturdays, Sundays and other holidays declared by the stock
exchange. 

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 CHAPTER 2 : - Rational for the Study

The Indian stock market regulator, Securities & Exchange Board of India
(SEBI) allowed the direct market access (DMA) facility to investors in India on
April 3, 2008. To begin with, DMA was extended to the institutional investors.
In addition to the DMA facility, SEBI also decided to permit all classes of
investors to short sell and the facility for securities lending and borrowing
scheme was operationalized on April 21, 2008.

This comprises of operational, legal and systemic risks. The operational risk
arises from possible operational failures such as errors, fraud, outages etc. The
legal risk arises if the laws or regulations do not support enforcement of
settlement obligations or are uncertain. Systemic risk arises when failure of one
of the parties to discharge his obligations leads to failure by other parties. The
domino effect of successive failures can cause a failure of the settle ment
system.

The psychological aspect of decision-making in the stock markets cannot be

overlooked, since many investors tend to bypass rationality and, at some point,
rely solely on intuition. These effects, which can also be referred to as fallacies,
are based on feelings, emotions, and intuition, rather than on rational
considerations, and they often result in inferior financial performance [27].
Additionally, cognitive biases can be understood as "hard wired" actions [37],
making us all liable to take shortcuts, oversimplify complex decisions and be
overconfident in our decision-making processes.

Our explanation is related to recent research on the economic sociology

of the financial markets. For example, Zajac and Westphal [1] document
that market reactions in financial markets, to a certain extent, are socially
constructed. They studied the Fortune 500 companies, which are so
large that the market may have excess information on them. Although
the market is, to a certain extent, capable of processing information and
inputting that information into the stock prices, the market is boundedly
rational. Thus, market reactions to shares repurchase plans are affected
by competing ideologies that either promote or discourage shares
repurchase plans. These ideologies are also known as institutional logics
– belief systems that shape behavior [8]. The institutional logic in an

14
earlier era was that managers can skillfully allocate internal capital to
generate superior returns whereas in the current era, another
institutional logic, also known as the shareholder logic, dominates [9].
The shareholder logic is a belief system buttressed by the agency theory
developed by Jensen and Meckling [10]. In particular, proponents of the
shareholder logic argue that the interests of managers are not fully
aligned with that of investors. It is better for the managers to disgorge
excess free cash flows, which can be more efficiently allocated by
investors in the financial markets. They also argued that firms that
engage in institutional decoupling by announcing repurchase plans but
did not implement the announced intent were nonetheless able to
experience increases in market value when an increasing number of
firms behave in this manner. This suggests that the stock markets are
not able to absorb all information.

People with knowledge of financial economics may be further surprised

that this year Eugene Fama and Robert Shiller are both recipients. Prof
Fama made his name by developing the efficient market hypothesis, long
the cornerstone of finance theory. Prof Shiller is the most prominent
critic of that hypothesis. It is like awarding the physics prize jointly to
Ptolemy for his theory that the Earth is the centre of the universe, and to
Copernicus for showing it is not.

To see why this is so, it is necessary to understand how and why

investors make decisions. An efficient and well-balanced market is
composed primarily of three types of investment strategies—
fundamental investment, relative value investment, and speculation—
each of which plays an important role in creating and fostering an
efficient market.

Global Depository Receipts (GDRs) may be defined as a global finance vehicle

that allows an issuer to raise capital simultaneously in two or more markets
through a global offering. GDRs may be used in either the public or private
markets inside or outside the US. GDR, a negotiable certificate usually
represents a company’s publicly traded equity or debt. ADRs and GDRs are
identical from a legal, operational, technical and administrative standpoint. The
word ‘global’ denotes receipts issued are on a global basis that is to investors
not restricted to US. The FCCBs/GDRs/ADRs issued by Indian companies to

15
non-residents have free convertibility outside India. In India, GDRs/ADRs are
reckoned as part of foreign direct investment and hence need to conform to
the existing FDI policy. Resource mobilisation by Indian corporates through
Euro issues by way of FCCBs, GDRs and ADRs has been significant in the 1990s.
As per current guidelines, the proceeds of ADRs/GDRs/FCCBs cannot be used
on investment in real estate and stock markets. This prohibition not only puts
restriction on Indian bidders in the first stage offer to the Government, but also
to fund second stage of mandatory public offer under SEBI Takeover Code. In
order to promote the disinvestment programme, it has been decided that
ADR/GDR/FCCB proceeds could be used in the first stage acquisition of shares
in the disinvestment process and also in the mandatory second stage offer to
the public, in view of their strategic importance. It has been clarified by SEBI
that the scheme of two-way fungibility of ADR/GDR issues will be only
operated for foreign investors other than OCBs.

investor for being sold by the non-resident or for being transferred in the
books of the issuing company in the name of the non-resident. In order to
improve liquidity in ADR/GDR market and eliminate arbitrage, RBI issued
guidelines in February 2002 to permit two-way fungibility for ADRs/GDRs
which means that investors (foreign institutional or domestic) in any company
that has issued ADRs/GDRs can freely convert the ADRs/GDRs into underlying
domestic shares. They can also reconvert the domestic shares into ADRs/
GDRs, depending on the direction of price change in the stock.

16
 CHAPTER 3 : - Statement of the Problem

Problems of Stock Exchange Listing

 Accountability and scrutiny. –

Public companies are public property. As such they are expected to
comply with the rules of the markets they populate. Companies on AIM
have to use the services of a nominated advisor (known as a Nomad), a
firm or company which has been approved by the London Stock
Exchange, who effectively acts as the regulator of the business,
managing its listing and ensuring its ongoing compliance.

 Undervaluation risk.-
 Issuing shares is not only dilutive but shares can also lack liquidity. This
can undermine fundraising and acquisition activity, because there is a
lack of demand for the shares. In addition, a lack of demand normally
translates into a low share price, so the use of shares as an acquisition
currency may also lose its appeal. On the public markets, companies”
share prices are not only affected by their own performance, but by the
performance of the market and the economy as a whole.

 Cost.-
The amount of management time and the significant costs associated
with a flotation and ongoing listing should never be underestimated.
From the process of flotation itself, which can take many months, to the
time-consuming administration of regular and constant announcements
(interim and final financial results, director dealings in shares, trading
updates etc.) there is a lot of activity to manage. It’s quite hands on,
labour intensive and time consuming,” says Dr Basirov. So it’s not
suitable for every business.

1. Lack of Professionalism:
The majority of stock brokers lack professionalism. They lack proper
education, business skills, infra-structural facilities etc. which
inhibits them to provide proper service to clients. They are not able
to guide and counsel their clients in the manner expected of them.

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2. Domination of Financial Institutions:
Indian stock markets are dominated by a few financial institutions. The
U.T.I., LIC, GIC are the main players in Indian stock markets. The
buying and selling by these institutions sets the tone in the market. The
market goes bullish if financial institutions start buying shares; on the
other hand, it becomes bearish on their selling spree. After the
liberalisation process set in motion since 1991 a number of foreign
financial institutions have also entered the market but their role has so
far been limited. Even though financial institutions deal in only selected
scrips but the whole market sentiment is influenced by their dealings.

Under SEBI guidelines, a member of mutual funds have been registered

but they are concentrating more on new issues (primary market)
Financial institutions in development economics to enter stock markets
but their number is large and few institutions cannot influence the whole
market as is done in India by three main institutions.

Moreover, Indian financial institutions indulge more in buying and less

in selling. With the entry of more and more Indian and foreign
institutions, their influence in stock markets will gradually decline.

 3. Poor Liquidity:

The Indian stock exchanges suffer from poor liquidity. A small number
of scrips are regularly traded on stock exchanges. Out of over 3,000
scrips less than 500 scrips are generally traded and even out of these 90
percent volume of trade confines to between 200-250 scrips. This means
that other scrips have very low liquidity. A recent survey into frequency
of trading showed that shares of 207 companies were traded every day,
shares of 538 Companies were traded once a week, shares of 396
Companies were traded once of fortnight, shares of 954 Companies were
traded once a month and shares of 959 companies were traded once a
year.

These statistics show the poor liquidity of most of the shares. A seller has
to wait for disposing off his holdings for a longtime. When an investor is
not sure of selling his shares whenever he needs money then he will be
discouraged to invest in shares.

18
There is huge backlog of pending deliveries also. This is due to the
practice of short selling. The scrips are not delivered for longer periods
which again creates liquidity problem. SEBI is trying to frame rules
where this malpractice will be curtailed.

4. Domination by Big Operators:

Some big operators influence the sentiment of stock exchanges in India.
In Bombay Stock Exchange 3-4 operators used to call the shots. The case
of Harshad Mehta is well known in India. He created bullish conditions
in Indian stock exchanges in the first quarter of 1992 and BSE sensex
nearly doubled in a very short period.

This artificial increase in prices of shares adversely affected the investing

public and people suffered huge losses. It is the weakness of stock
exchange’s working that some operators can create the sentiment as per
their liking.

5. Less Floating Stocks:

There is a scarcity of floating stock in Indian stock exchanges. The shares
and debentures offered for sale are a small portion of total stocks. The
financial institutions and joint stock companies which control over 75
percent of the scrips do not offer them for sale.

The U.T.I, G.I.C., L.I.C., etc. indulge more in purchasing than in selling.
It creates scarcity of stocks for trading. The markets tend to be violative
and amenable to manipulations in the absence of adequate floating
stocks for trading.

6. Speculative Trading:
The trading in stock exchanges is mainly speculative in nature. The
operators try to derive benefit out of short-term price fluctuations. At
Bombay Stock Exchange upto 5 percent and at other exchanges upto 10
percent transactions are genuine investment deals. The brokers try to
create a sentiment in the market which will be beneficial to them. The
genuine investors try to keep away from such markets.

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 Chapter : - 4. Objectives of the Study

NSE has successfully achieved its objectives for which it was

set within a period of ten years. It has successfully been able to
provide the following things to the traders or investors throughout
India. he stock market can be use to measure a nation’s economic
health. Here is where the market for financial capital is center. It is
frequently refer to as the “economic mirror” of a nation. Also
interchangeable are the words “stock market” and “share market”. When
a nation’s trade, commerce, and industries are still in their formative
stages, stock markets play a crucial role. 

To Supply Capital
The basic function of a stock exchange is to assist businesses in raising
capital. It was design with the intention of supplying enterprises with the
necessary capital. To achieve this, stock shares representing ownership
in a private company will be hand to the public. The financial benefits
derived from the sale of stock contribute to the company’s capital
formation.

To Promote Saving
As a result, growing incomes motivates individuals to increase their
savings. A stock exchange adds to the process of deciding the
purchasing prices of various securities. Continuous buying and selling of
securities on a stock exchange is the primary factor in determining their
pricing.

When routine transactions are done, price fluctuations are less likely to
be substantial. It increases people total income and channels monies
into industries that contribute to the growth of an economy.

20
The majority of the time, commercial banks provide the funding for short-
term loans. Consequently, one of the objectives of the stock market is to
provide long-term financing. If a corporation seeks to list its securities on
a stock exchange, it must adhere to the aforementioned laws and
regulations.

The research will be undertaken with the aim of the following objectives:

• To study the impact of selected company specific variables on the stock

returns of selected IT companies.

• To study the impact of selected macro economic variables on the stock

returns of selected IT companies.

NSE was set up with the objectives of:

(a) Establishing a nationwide trading facility for all types of securities;

(b) Ensuring equal access to investors all over the country through an
appropriate communication network;

(c) Providing a fair, efficient and transparent securities market using

electronic trading system;

(d) Enabling shorter settlement cycles and book entry settlements; and

(e) Meeting the international benchmarks and standards.

NSE has been able to take the stock market to the doorsteps of the
investors. The technology has been harnessed to deliver the services to the
investors across the country at the cheapest possible cost. It provides
nation-wide screen-based automated trading system with a high degree of
transparency and equal access to investors irrespective of geographical
location. The high level of information dissemination through on-line system
has helped in integrating retail investors on a nation-wide basis. The
standards set by the exchange in terms of market practices, products,
technology and service standards have become industry benchmarks and
are being replicated by other market participants. Within a very short span
of time, NSE has been able to achieve all the objectives for which it was set

21
up. It has been playing a leading role as a change agent in transforming the
Indian Capital Markets to its present form.

Within a very short span of time, NSE has been able to achieve all the
objectives for which it was set up. It has been playing a leading role as a
change agent in transforming the Indian Capital Markets to its present form.

Through the widespread publicity of stock exchange quotations the world

over, the holders of securities are given gratis the combined opinion of the
most competent finan- ciers as to the value of those securities at present
and their prospec- tive value in the future. Since these financiers always
have in mind the future, rather than the present, their initiative in making
pur- chases and sales will tend to discount the effects of coming events. The
holder of stocks and bonds, if he be a thinking and observing man, is free to
disregard these quotations if he chooses; but if their trend is pronounced
they may serve as a guide by which he may regulate his own action relative
to the holding or selling of his securities.

Sample size

I have selected fifty NSE Nifty companies and their names are:- ABB Ltd.
(Electrical equipment)
,ACC Ltd.(Cement and cement products) ,Ambuja Cements Ltd.(Cement and
Cement Products)
,Bajaj Auto Ltd.(Automobiles - 2 and 3 Wheelers) ,Bharat Heavy
Electricals Ltd.(Electrical Equipment) ,Bharat Petroleum Corporation
Ltd.(Refineries) ,Bharti Airtel Ltd.(Telecommunication – Services)
,Cipla Ltd.(Pharmaceuticals) ,Dr. Reddy's Laboratories Ltd.
(Pharmaceuticals) ,GAIL (India) Ltd. (Gas) ,Glaxosmithkline
Pharmaceuticals Ltd.(Pharmaceuticals) ,Grasim Industries Ltd. (Cement
and Cement Products) ,HCL Technologies Ltd.(Computers –
Software) ,HDFC Bank Ltd.(Banks) ,Hero Honda Motors Ltd.
(Automobiles - 2 and 3 Wheelers) ,Hindalco Industries Ltd.(Aluminium)
,Hindustan Petroleum Corporation Ltd.(Refineries) ,Hindustan Unilever
Ltd.(Diversified) ,Housing Development Finance Corporation Ltd.
(Finance – Housing) ,I T C Ltd.(Cigarettes) ,ICICI Bank Ltd.(Banks) ,
Infosys Technologies Ltd.(Computers – Software) ,Larsen & Toubro Ltd.

22
(Engineering) , Mahanagar Telephone Nigam Ltd.(Telecommunication –
Services) ,Mahindra & Mahindra Ltd.(Automobiles
- 4 wheelers) ,Maruti Udyog Ltd.(Automobiles - 4 wheelers) ,NTPC Ltd.
(Power) ,National Aluminium Co. Ltd.(Aluminium) ,Oil & Natural Gas
Corporation Ltd.(Oil Exploration/Production) ,Punjab National
Bank(Banks) ,Ranbaxy Laboratories Ltd.(Pharmaceuticals) ,Reliance
Communications Ltd.(Telecommunication – Services) ,Reliance Energy
Ltd.(Power) ,Reliance Industries Ltd.(Refineries) ,Reliance Petroleum
Ltd.(Refineries) , Satyam Computer Services Ltd.(Computers –
Software) ,Siemens Ltd.(Electrical Equipment) , State Bank of
India(Banks) ,Steel Authority of India Ltd.(Steel and Steel
Products) ,Sterlite Industries (India) Ltd.(Metals) ,Sun Pharmaceutical
Industries Ltd.(Pharmaceuticals) ,Suzlon Energy Ltd.(Electrical
Equipment) ,Tata Consultancy Services Ltd.(Computers –
Software) ,Tata Motors Ltd.(Automobiles - 4 Wheelers) ,Tata Power Co.
Ltd.(Power) ,Tata Steel Ltd.(Steel and Steel Products) ,Unitech Ltd.
(Construction) ,Videsh Sanchar Nigam Ltd.(Telecommunication –
Services) ,Wipro Ltd.(Computers – Software) ,Zee Entertainment
Enterprises Ltd.(Media & Entertainment)

ROLE OF NSE IN INDIAN SECURITIES MARKET

National Stock Exchange of India Limited (NSE) was given recognition as a stock
exchange in April 1993. NSE was set up with the objectives of (a) establishing a
nationwide trading facility for all types of securities,
(b) ensuring equal access to all investors all over the country through an
appropriate communication network, (c) providing a fair, efficient and transparent
securities market using electronic trading system, (d) enabling shorter settlement
cycles and book entry settlements, and (e) meeting the international benchmarks
and standards. Within a short span of life, above objectives have been realized and
the Exchange has played a leading role as a change agent in transforming the
Indian Capital Markets to its present form.
NSE has set up infrastructure that serves as a role model for the securities industry
in terms of trading systems, clearing and settlement practices and procedures. The
standards set by NSE in terms of market practices, products, technology and service
standards have become industry benchmarks and are being replicated by other

23
market participants. It provides screen-based automated trading system with a high
degree of transparency and equal access to investors irrespective of geographical
location. The high level of information dissemination through online system has
helped in integrating retail investors on a nation-wide basis. The Exchange
currently operates three market segments, namely Capital Market Segment,
Wholesale Debt Market Segment and Futures an Options segment. NSE has been
playing the role of a catalytic agent in reforming the market in terms of
microstructure and market practices. Right from its inception, the exchange has
adopted the purest form of demutualised set up whereby the ownership,
management and trading rights are in the hands of three different sets of people.
This has completely eliminated any conflict of interest and helped NSE to
aggressively pursue policies and practices within a public interest framework. It has
helped in shifting the trading platform from the trading hall in the premises of the
exchange to the computer terminals at the premises of the trading members located
country-wide and subsequently to the personal 32 computers in the homes of
investors and even to hand held portable devices for the mobile investors.
Settlement risks have been eliminated with NSE’s innovative endeavors in the area
of clearing and settlement viz., reduction of settlement cycle, professionalisation of
the trading members, fine-tuned risk management system, dematerialisation and
electronic transfer of securities and establishment of clearing corporation. As a
consequence, the market today uses the state-of-art information technology to
provide an efficient and transparent trading, clearing and settlement mechanism.
NSE provides a trading platform for of all types of securities-equity and debt,
corporate and government and derivatives. On its recognition as a stock exchange
under the Securities Contracts (Regulation) Act, 1956 in April 1993, it commenced
operations in the Wholesale Debt Market (WDM) segment in June 1994, in the
Capital Market (CM) segment in November 1994, and in Futures & Options (F&O)
segment in June 2000. The Exchange started providing trading in retail debt of
Government Securities in January 2003.
The Wholesale Debt Market segment provides the trading platform for trading of
a wide range of debt securities. Its product, which is now disseminated jointly with
FIMMDA, the FIMMDA NSE

24
MIBID/MIBOR is used as a benchmark rate for majority of deals struck for Interest Rate Swaps, Forwards
Rate Agreements, Floating Rate Debentures and Term Deposits in the country. Its ‘Zero Coupon Yield
Curve’ as well as NSE-VaR for Fixed Income Securities have also become very popular for valuation of
sovereign securities across all maturities irrespective of its liquidity and facilitated the pricing of corporate
papers and GOI Bond Index. NSEs Capital Market segment offers a fully automated screen based trading
system, known as the National Exchange for Automated Trading (NEAT) system, which operates on a strict
price/time priority. It enables members from across the country to trade simultaneously with enormous ease
and efficiency. Its Futures & Options segment provides trading of a wide range of derivatives like Index
Futures, Index Options, Stock Options and Stock Futures. NSEs Futures & Options segment provides trading
of a wide range of derivatives like Index Futures, Index Options, Stock Options and Stock Futures. NSEs
Currency Derivatives segment provides trading on currency futures contracts on the US $-INR which
commenced on August 29, 2008. In February 2009, trading on additional pairs such as GBP-INR, EUR-INR
and JPY-INR was allowed while trading in US $-INR currency options were allowed for trading on October
29, 2010. The interest rate futures trade on the currency derivatives segment of NSE and they were allowed
for trading segment on August 31, 2009

Technology and Application Systems in NSEIL

NSE is the first exchange in the world to use satellite communication technology for trading. Its trading
system, called National Exchange for Automated Trading (NEAT), is a state of-theart client server based
application. At the server end all trading information is stored in an in-memory database to achieve
minimum response time and maximum system availability for users. It has uptime record of 99.7%. The
system also ensures data integrity with past record of a single error in 10 million bits. NSE has been
continuously undertaking capacity 33 enhancement measures so as to effectively meet the requirements of
increased users and associated trading loads. NSE has also put in place NIBIS (NSE’s Internet Based
Information System) for on-line real-time dissemination of trading information over the Internet. As part of
its business continuity plan, NSE has established a disaster back-up site at Chennai along with its entire
infrastructure, including the satellite earth station and the high-speed optical fibre link with its main site at
Mumbai. This site at Chennai is a replica of the production environment at Mumbai. The transaction data is
backed up on near real time basis from the main site to the disaster back-up site through the high-speed
optical fibre to keep both the sites all the time synchronised with each other. NSEIL is a technology driven
exchange and since its inception it has been harnessing technology to provide the best possible and efficient
service to all market participants and stake holders. The various application systems that it uses for trading as
well clearing and settlement and other operations are the backbone of the Exchange. The application systems
used for the day-to-day functioning of the Exchange can be divided into (a) Front end applications and (b)
Back office applications.

25
In the front end, there are 6 applications:

(a) NEAT – CM system takes care of trading of securities in the Capital Market segment that includes
equities, debentures/notes as well as retail Gilts. The NEAT – CM application has a split architecture
wherein the split is on the securities and users. The application runs on three Stratus systems with Open
Strata Link (OSL). This application also provides data feed for processing to some other systems like
Index, OPMS through TCP/IP. This is a direct interface with the Trading members of the CM segment
of the Exchange for entering the orders into the main system. There is a two way communication
between the NSE main system and the front end terminal of the Trading Member.

(b) NEAT – WDM system takes care of trading of securities in the Wholesale Debt Market (WDM)
segment that includes Gilts, Corporate Bonds, CPs, T-Bills, etc. This is a direct interface with the Trading
members of the WDM segment of the Exchange for entering the orders/trades into the main system. There is
a two way communication between the NSE main system and the front end terminal of the Trading Member.

(c) NEAT – F&O system takes care of trading of securities in the Futures and Options (F&O) segment that
includes Futures on Index as well as individual stock and Options on Index as well as individual stocks. This
is a direct interface with the Trading members of the F&O segment of the Exchange for entering the orders
into the main system. There is a two way communication between the NSE main system and the front end
terminal of the Trading Member.

(d) NEAT – IPO system is an interface to help the initial public offering of companies which are issuing
the stocks to raise capital from the market. This is a direct interface with the Trading members of the CM
segment who are registered for undertaking 34 order entry on behalf of their clients for IPOs. NSE uses the
NEAT IPO system that allows bidding in several issues concurrently. There is a two way communication
between the NSE main system and the front end terminal of the Trading Member.

(e) NEAT – MF system is an interface with the Trading members of the CM segment for order collection
of designated Mutual Funds units.

(f) NEAT- CD system is trading system for currency derivatives. Currently, currency futures are trading in
the segment.

(g) Surveillance system offers the users a facility to comprehensively monitor the trading activity and
analyse the trade data online and offline. In the back office, the following important application systems are
operative:

26
(i) NCSS (Nationwide Clearing and Settlement System) is the clearing and settlement system of the
NSCCL for the trades executed in the CM segment of the Exchange. The system has 3 important interfaces –

a) OLTL (Online Trade loading) that takes each and every trade executed on real time basis and allocates
the same to the clearing members,

b) Depository Interface that connects the depositories for settlement of securities and Clearing Bank
Interface that connects the 13 clearing banks for settlement of funds. It also interfaces with the clearing
members for all required reports.

c) Through collateral management system it keeps an account of all available collaterals on behalf of all
trading/clearing members and integrates the same with the position monitoring of the trading/clearing
members. The system also generates base capital adequacy reports.

(ii) FOCASS is the clearing and settlement system of the NSCCL for the trades executed in the F&O
segment of the Exchange. It interfaces with the clearing members for all required reports. Through collateral
management system it keeps an account of all available collaterals on behalf of all trading/clearing members
and integrates the same with the position monitoring of the trading/ clearing members. The system also
generates base capital adequacy reports.

(iii) OPMS – the online position monitoring system that keeps track of all trades executed for a trading
member vis-à-vis its capital adequacy.

(iv) PRISM is the parallel risk management system for F&O trades using Standard Portfolio Analysis
(SPAN). It is a system for comprehensive monitoring and load balancing of an array of parallel processors
that provides complete fault tolerance. It provides real time information on initial margin value, mark to
market profit or loss, collateral amounts, contract-wise latest prices, contract-wise open interest and limits.

(v) Data warehousing that is the central repository of all data in CM as well as F&O segment of the
Exchange,

(vi) Listing system that captures the data from the companies which are listed in the Exchange for corporate
governance and integrates the same to the trading system for necessary broadcasts for data dissemination
process and

(vii) Membership system that keeps track of all required details of the Trading Members of the Exchange.

27
NSE provides a trading platform for of all types of securities-equity and debt, corporate and
government and derivatives. On its recognition as a stock exchange under the Securities Contracts
(Regulation) Act, 1956 in April 1993, it commenced operations in the Wholesale Debt Market
(WDM) segment in June 1994, in the Capital Market (CM) segment in November 1994, and in
Futures & Options (F&O) segment in June 2000. The Exchange started providing trading in retail
debt of Government Securities in January 2003.
The Wholesale Debt Market segment provides the trading platform for trading of a wide range of
debt securities. Its product, which is now disseminated jointly with FIMMDA, the FIMMDA NSE

28
 Chapter : - 5. Hypotheses of the Study

Hypothesis 1:

H01: There is no significant impact of Macroeconomic variables on stock returns.

Ha1: There is a significant impact of Macroeconomic variables on stock returns.

Hypothesis 2:

H02: There is no significant impact of Company specific variables on stock returns.

Ha2: There is a significant impact of Company specific variables on stock return.

Research is defined as human activity based on intellectual application in the investigation

of matter. The primary purpose for applied research is discovering, interpreting, and the
development of methods and systems for the advancement of human knowledge on a wide
variety of scientific matters of our world Research comprises defining and redefining
problems, formulating hypothesis or suggested solutions; collecting, organizing and
evaluating data; making deductions and reaching conclusions; and at last carefully testing
the conclusions to determine whether they fit the formulating hypothesis and the universe

y variables The study is modelled to identify the determinants of Indian sectoral indices. The
selection of the variables was based on the review of past literature Both Macro economic
variables, Index valuation ratios and sectoral indices were selected based on past studies and
subject to availability of data. Though many variables were selected in the initially phase we
have finalised on seven macro economic variables namely Money supply, Index of industrial
production, Exchange rate, inflation, interest rates, Gold prices and Crude oil prices based on
the importance given to these variables in the previous literature. We have assumed all the
three index valuation ratios published by National Stock exchange namely Dividend yield,
Price Earnings ratio and Book to profit ratio. Sector indices give summaries and
benchmarking of sectors.

It facilitates investors to track the performance of stocks against specific industries. National
stock exchange also has constituted sector wise indices wherein it groups stocks belonging to
particular sector which reflects the aggregate performance of companies in that particular
sector. As on October, 2021 NSE constitutes 15 different sectoral indices. However four
sectors are newly include in the list and are outside the study period hence we have ignore
29
the impact on such sector. Thus we have considered remaining all eleven sectors for the
study. The sectors considered for the study are Nifty Auto, Nifty Bank, Nifty Financial 10
Service, Nifty Metal, Nifty Media, Nifty FMCG, Nifty PSU Bank, Nifty Private Bank, Nifty
IT, Nifty Pharma and Nifty Realty Index

30
 Chapter : - 6. Importance and Relevance of the Study

The undertaken research will be helpful in the following areas:

• Facilitates professionals, investors and various other people in their investment decision making process.

• Many researches have been done by different researchers using either company specific or
macroeconomic variable. But present research will emphasize in establishing an important linkage between
stock returns & both company specific and macro economic variables.

• Assists the interested group to take managerial, operational decision efficiently.

Introduction

Derivative trading is essential tool for the health of markets as they enhance price discovery and
supplement liquidity. Although derivatives have been introduced very late in Indian equity
markets they picked up prominence very quickly. In June 2000, index futures were introduced as
the first exchange traded equity derivative product in the Indian markets. In a span of a year and a
half after that index options, stock options and lastly stock futures were introduced. Since then,
derivatives volumes have grown to multiples of cash market volumes and have been a mode of
speculation and hedging for market participants, not possible otherwise through cash markets.

In 2007, Statistics from the NSE show that retail investors have been the largest participants in the
derivatives markets in the past four-five years, accounting, on average, for around 60 per cent
of all Although derivatives are good instruments to expresses complex non linear views on markets,
lack of sophistication and understanding has given rise to investments into structured products, which
have derivative like payoffs but are bespoke and not exchange traded.

With the advent of structured products, many retail and HNI investors have been

able to invest for more exotic payoffs compared to linear payoff they used to realize from their
31
cash investments. In 2007, there were numerous institutions offering structured products to their
clients and that has lead to growth of the institutional presence in derivatives segment. While the
investor invests for a certain period, the issuer of the product constantly uses derivatives segment
to hedge his positions to create the desired payoff for its clients. Before the arrival of structured
products the main avenues of investment for individual investors have been either investing
directly in stocks or equity based mutual funds or in certain cases investing in fixed income
securities like corporate and government bonds. Structured products have been created as an
alternative to directly investing in underlying asset to give additional benefits to the investor.
The benefits of structured products include:

• diversification benefits (if the product is linked to an index or a basket of securities)

• tax-efficient access to fully taxable investments

• enhanced returns within an investment

• reduced volatility (or risk) within an investment

• express specific view of the investor

32
Unlike other exchange traded securities and derivatives, structured products are by nature not homogeneous
- as the variety of underlying, payoff structure and maturities can vary significantly. The underlying
instruments in structured products can however be broadly classified under the following categories

• Equity-linked Notes & Deposits

• Interest rate-linked Notes & Deposits

• FX and Commodity-linked Notes & Deposits

• Hybrid-linked Notes & Deposits

• Credit Linked Notes & Deposits

• Market Linked Notes & Deposits

Although structured products and OTC derivatives can be traded on a variety of asset classes the scope of
this paper is to study the structured products linked to Equities. Now on when we say “Structured Products”
it is to be assumed that we refer to the products linked to equity only.

33
 Composition of the Structured Product Market
Prudential ICICI introduced India's first capital-protected constant proportion portfolio insurance (CPPI)
product for Indian investors, dubbed the Principal Protected Portfolio (PPP). Developed with Deutsche Bank
in London, the product was one of the biggest innovations to hit the Indian market
Prudential ICICI's CPPI has since been copied by a host of other issuers keen to tap the demand for principal
protection. Typically, these products are issued within the portfolio management services (PMS) line offered
by banks to their high-net-worth clients, although the growing appeal of capital protection has also seen the
CPPI structure filtering into retail market. Subsequent to that another major development has been the
issuance of structured products in note format, created using 'synthetic' options. The first of these was issued
by Standard Chartered and structured by Merrill Lynch, offering investors an option-based payoff. The
synthetic options are hedged by dealers with international branches and issued in debenture format 1. As
demand for these products developed the market saw several issuers coming up with a range of products to
suit the needs of the investors. Currently the suite of products available for investors is very rich in variety
and innovation.
The existing structured products in the equity space can be broadly classified into the following categories:

• Equity linked notes (debentures) with capital protection

• CPPI and related structures

• Range accruals on Equity index/basket of stocks

• Autocallable notes and other exotic structures

• Structured on baskets of stocks

In this section we give a brief description of each of the products to enable the reader grasp the payoff of
these structures. We also discuss the motivation behind investing in each of the products.

Equity Linked Debentures

An Equity-Linked Note (ELN) is an instrument that provides investors fixed income like principal
protection together with equity market upside exposure. Capital protected equity linked notes are about the
most prevalent of the structured products and constitute about 90% of the market in Indian equity linked
structured products. Hence we devote significant part of this section and the future sections discussing

34
various aspects of these notes.
The investment structure generally provides 100% principal protection, which means the capital of the
investor is returned back at maturity. The coupon at maturity on the other hand is variable and is determined
by the appreciation of the underlying equity. The payoff of a simple structured product with capital
protection is juxtaposed with the payoff of investing in the underlying in the chart below. 2 By giving up part
of upside (participation in upside is typically less than 100%) the investor gets a protection against
downside. The instrument is appropriate for conservative equity investors or fixed income investors who
desire equity exposure with controlled risk.

As an example of an ELN, assume an investor buys a hypothetical five-year 100% principal protected
Equity-Linked Note with 80% participation in the upside of the S&P Nifty Index for Rs. 1,000. The starting
index level is 4000. At maturity, if the S&P Nifty Index level is above 4000, then the payoff of the note will
be Rs. 1,000 in principal plus an equity-linked coupon equivalent to any increase in the index. For example,
if the index level in five years is 5000 (an appreciation of 25%), then the coupon would be Rs. 200
(80%*25%*1,000) and the total payoff would be Rs. 1,200 (1,000 + 200).
If the index level is below 4000 at maturity, i.e., the underlying equity performance is negative, the final
payoff to the investor will be Rs. 1,000 in principal.
An ELN is structured by combining the economics of a long call option on equity with a long discount bond
position.
Bond + Call Option => Equity Linked Note => Principal Protection + Equity Participation

35
Participations of more than 100% can be achieved by capping the upside beyond a certain level. In this case
the payoff of the client linearly increases if at maturity the underlying is more than at the start of the product
but after certain level the profits become flat. The chart below illustrates the payoff of such a product.

In this case the ELN is equivalent to a zero coupon bond plus a long ATM call and short position in high
strike call.
Bond + Call Option – High strike call option => Principal Protection + Equity Participation with a cap

Opportunity Cost: Although ELN’s repay an investor their principal at maturity, there is an opportunity cost
even where an investor receives a return of principal in down markets; i.e., that investor has lost the use of
his/her invested principal for the term of the ELN (in an investment in a risk-free asset like bank fixed
deposit).
Call-trigger: The structures normally also have a call feature embedded within them which enables the issuer

36
to call back the note if the underlying sells of by more than a trigger amount (typically 50%) from the start

37
underlying behaves once the trigger level is breached.
Factors affecting Price of an ELN

• Increase in Equity Price (+)

• Increase in Volatility (+)

• Increase in Interest rates (-)

• Increase in Time to Expiration (+/-)

• Increase in Dividend Yield (-)

• Issuer’s Credit Rating (+)

CPPI/DPI
Equity linked debenture attains capital protection by replicating a call option pay off. The other way to
achieve capital protection is by dynamically managing a portfolio so that the investor always has the money
to buy a zero coupon bond, providing the money for capital payback at maturity. For example, say an
investor has a portfolio of Rs. 100, a floor of Rs. 90 (price of the bond to guarantee his RS. 100 at maturity)
and a multiplier of 5 (ensuring protection against a drop of at most 20% before rebalancing the portfolio).
Then on day 1, the writer will allocate (5 * (100 - 90)) = Rs. 50 to the risky asset and the remaining Rs. 50 to
the riskless asset (the bond). The exposure will be revised as the portfolio value changes, i.e. when the risky
asset performs or sells off. These rules are predefined and agreed once and for all during the life of the
product.3

A variant to CPPI is DPI (Dynamic Portfolio Insurance) where the multiplier is not specified upfront but
varies according to certain parameters like the volatility of the underlying.

The exposure to risky asset is completely unwound if the portfolio value falls below the bond floor. The
bond floor is the value below which the CPPI value should never fall in order to be able to ensure national’s
guarantee at maturity. Bond floor is a function of time to maturity and interest rates. As interest rates fall,
bond floor goes up because to ensure payment of principal at maturity one needs more cash upfront if
interest rates are lower than if they are higher. Executing a CPPI would involve buying when the underlying
rallies and selling when the underlying sells off. This process would further accentuate the market volatility
as the hedging goes in the same direction as the market movement.

Range Accruals
Range accrual security is a kind of structured product where the interest is accrued only on days when the
underlying equity/index is within a range. The capital is protected in most structures only the interest/coupon

38
value. In this case the investor gets back only his pr3i1ncipal at the end of maturity irrespective of how the
is variable. The coupon of the range accrual is paid according to a pre-agreed formula:

The fixed % and the range are agreed at the start of the investment. The observation days could be daily,
monthly, quarterly or even a single observation at the maturity of the product. Products with single
observation at the maturity have been the most popular amongst range accrual notes. In this case the coupon
is digital, as in if the underlying ends up within the range the investor gets a fixed coupon or else he just
gets his principal back. The chart below shows the payoff of range accrual note for various values of
underlying.

Auto-callable notes and other structures

The structures described above are aimed to get a capital protection plus some upside at the end of maturity
depending on the value of underlying at maturity. More exotic structures offer payoffs linked to the path
taken by underlying. Most typical of these are auto-callable notes. These notes are autocalled or redeemed
by paying principal and a coupon if the underlying appreciates beyond a certain level anytime during the
tenure of the note. If the underlying does not reach the auto-call level anytime before the maturity the
principal is returned back. Auto-callable notes are equivalent to knockout/knock-in barrier options in the
OTC derivatives space. Once the note is called the payoff does not depend on future price of the underlying.
Auto-callable notes can be used for positioning for an appreciation or a sell-off in the underlying, although
most of the structures prevalent in India position for a rally. Other exotic payoffs can also be structured like
for example structures paying out coupon linked to maximum value of the underlying during the tenure. For
more aggressive investors products have been offered where the investor takes downside risk if the
underlying sells of beyond a certain level.
hedging of such products becomes extremely cumbersome.
39
Though discussion on these products would be interesting and intellectually stimulating they do not matter
much in terms of market share effect on Indian equity markets.

Evolution of Structured Notes in India

Although there are no concrete numbers available, the structured product industry is estimated to house
products worth more than Rs 10,000 crore, with Citigroup, Merrill Lynch and Kotak accounting for a
sizeable chunk of the market4

Prior to May 2005, issuers had been prohibited from explicitly marketing capital-protected products to
investors. In August, however, partly as a result of the stock market falls SEBI relaxed these rules allowing
issuers to offer funds with a rating agency seal of approval 5
The CPPI structures executed in India are
mostly PMS based trading strategies without explicit guarantee of capital return. The capital is guaranteed
through dynamically managing the portfolio and when the bond-floor (the minimum amount required to
return capital at the maturity) is hit the strategy is liquidated and the proceeds are returned to the investor or
invested in risk-free securities. As volatility in the markets increased in 2007 some of the CPPI products
issued earlier got monetized in 2007. Most of the remaining structures got unwound in 2008 when markets
fell significantly and bond prices went up (because of fall in interest rates).
Next wave of structured products came in the form of simple capital guaranteed structures with participation
in the upside. These structures were very popular in the first half of 2007 when markets were exhibiting
volatility. Initially the participation was around 90% with no cap on upside or very high cap. But as the
markets sold off significantly in 2008 investors preferred more participation in the upside with a cap. Range
accruals were also prevalent around that time as investors did not see much upside or downside in equity
markets and as a result of high interest rates they preferred fixed coupon if the market remained in a range.
The table below shows typical characteristics of the popular structured products based on a survey we
conducted amongst the top issuers in this space6. Capital guaranteed participation notes and range accruals
command about 93% of market share. Although CPPI structures constituted 5% of the total trades, as
discussed earlier most of these structures have been unwound. More exotic structures are miniscule part of
the total market. Hence we will focus on the first two classes of products for further discussions.

40
 Framework for Analysis

In this section we establish the framework required to understand the effect of structured products on equity
markets. For the investor the payoff of a structured product is clear and he would be taking an outright view
on the underlying and use the product to either express the view or to try to enhance his yields or to reduce
his risks. An issuer of the product on the other hand does not desire to take outright view on the underlying.
He would try to hedge away most of his exposure through various tradable instruments. This process of
hedging transfers the risks he has to the broader equity market. We analyze this transfer mechanism to study
the effect of the issuance of these products on Indian equity markets. For this purpose we use the following
notations. These are the terminology that will help decipher the behavior of structured product issuers. These
indicators of risk are also called Greeks as Greek letters are used to represent them.
Delta: Delta is the rate of change in the price of structured product with respect to change in the underlying.
We further classify delta into initial delta and subsequent delta.
Initial Delta: Every product when issued creates an exposure to the underlying for the investor. For example
when a capital protected participation note is issued the issuer has a short exposure in the underlying. Thus
to hedge the position the issuer needs to create a long position in the underlying security (though not to the
same extent as the notional of the note) either through cash market or derivatives market (futures/calls). This
would create a demand for the underlying.
Dynamic Delta: Even after putting in place the initial hedge the issuer is not completely hedged from the
movements of underlying because of the non-linear nature of structured products. The delta of the structured
product changes as the underlying moves. These changes have to be constantly hedged using derivatives.
Once we model the structured note using a theoretical model we can come up with the exposure as the
underlying moves. For example the chart below shows the delta of capital guaranteed note for different
underlying movements. Change in delta would mean the dealer has to rehedge his exposure by
buying/selling the underlying.

41
 Delta for different underlying moves for principal protected note7

It is worthwhile to note that as market rallies the dealer is forced to buy more of the underlying to hedge his
exposure and as market sells off the dealer would sell some of his hedge. Thus hedging of principal
protected note would accentuate the market volatility as the dealer buys in a rally and sells in a selloff. The
profile of hedging would be different for range accruals. The graph below shows the delta for a range
accrual with a range of 80% - 125%.
Delta for different underlying moves for range accrual note

In the case of range accrual the dealer is forced to sell the hedge either in a huge rally or sell off, he would
hold to his initial hedge only if the underlying remained in the range. Thus hedging of a range accrual would
dampen volatility if the underlying is trading within the range and the hedging will accentuate volatility if
the underlying is trading outside the range.

42
Gamma: Gamma is the rate of change of delta with respect to change in underlying. Gamma of a product
can be hedged by taking opposite positions in options. Once the gamma is hedged frequent delta hedges are
not required as the changes in delta in structured products and the hedges cancel out each other. But gamma
hedging comes with a cost hence most players prefer dynamic delta hedging to gamma hedging. Gamma of
a capital protected structure is positive and is negative for a range accrual (within range).
Gamma of the structured product is very relevant to understand the effect of delta hedging. If the gamma of
a product is positive then the gamma of the dealer/issuer who has the opposite exposure of the structured
product is negative and vice versa. Thus positive gamma of the product implies that the hedging of the
product would accentuate the volatility of the underlying and negative gamma means that the hedging would
dampen the volatility of the market. Gamma of a simple capital protected structure is the gamma of the call
option embedded in the structure. This gamma can be theoretically calculated using Black-Scholes formula.
The gamma of the structured product under this assumption would be –

Where

And is the standard normal function

Because of the symmetry and the bell-like shape of the Gamma of a simple capital protected note with
equity participation would also be of the bell shape and the peak gamma is attained when the underlying is
close to the initial value as evident in the chart below:
Gamma for different underlying moves for a simple principal protected note8

43
 The range accrual note on the other hand behaves differently compared to a capital protected note.
The gamma of the note is negative when the underlying is within the range. Maximum negative
gamma is attained when underlying is close to the middle of the range. As we move out of the
range the gamma switches sign from –ve to +ve. Thus hedging of range accruals dampens
volatility when underlying is within the range and accentuates volatility when the underlying is
outside the range.
Gamma for different underlying moves for range accrual note

Vega: Price of a non-linear structure not only changes with the underlying but also with the
volatility of the underlying. This exposure is called Vega. Vega can be hedged by taking opposite
position in long dated options. Long dated options are typically used to hedge the capital
guarantee part of the structures.

As we have seen in this section a simple analysis also gives insights into the effect of structured products on market
volatility.

44
 CHAPTER 7 : - Scope of the Study

Eleven different sectors of National Stock Exchange are chosen for the study namely, Bank Nifty, FMCG
Index, Metal Index, Media Index, PSU Bank Nifty, Private Bank Index, Financial Service, Nifty Auto, IT index,
Realty and Pharma Index. The study ignores impact on the newly added sectors to the NSE sectoral indices
being Nifty consumer durable index and Nifty Oil and Gas Index. These two new sectors were added on Jan
15, 2020 and hence out of study period. The macroeconomic explanatory variables chosen for the study
are the Foreign exchange rates , Gross Domestic Product (GDP) , Crude Oil prices (OP), Money supply, ten-
year bond interest rate (ITR), inflation rate (IFR) and Gold rate.

The proxies used for inflation rate are the Wholesale Price Index (WPI). The impact of these macro
economic variables is studied on the sectoral stock returns to ascertain whether these indicators exert
same influence on all the sectors or the impact would vary between the sectors. Further the study also
encompasses the impact of index valuation ratios Price Earning, Price to Book ratio and Dividend Yield
ratios on the sectoral returns of NSE. The study is conducted by the taking the data for the period 1/1/2005
to 31/7/2019 and data is collected from the National Stock exchange.

It is evident from the previous studies fact that stock markets in developing nations are categorized by high
volatility (Abuzayed et al., 2018)19. Volatility in emerging markets are caused by irrational behaviour of the
investors. It is the inability of the of investors to predict market movements, which push them to make
irrational investment decisions (Stanovich & West, 2008) moreover Kahneman (1982). Hence there is need
to understand as what determines the stock market returns. Identifying factors influencing the stock
market changes would help policy makers and other market participants to reduce their risk. This would
also help in reducing irrational behaviour of investors and reduce volatility. . A stable stock market would
attract more investors to invest in stock markets.

Hence the study examines the role of macroeconomic variables and valuation ratios in the predictability of
sectoral returns Advocates of Efficient market hypothesis suggest markets follow random walk and are
efficient hence it is impossible to predict the markets. Hence before identifying factors influencing different
sectors the study intends to test the efficient market hypothesis to examine whether the sectors in markets
are efficient. However inefficient markets provide scope for predictability of the markets. A thorough
review of literature highlights that it is important to test the efficiency of the market hypothesis with
reference to sectoral indices. Efficient Market Hypothesis is the fundamental assumption which has a
greater influence on the other economic theories.

 PRIMARY MARKET

* INTRODUCTION

Primary market provides opportunity to issuers of securities, Government as well as corporates, to

45
raise resources to meet their requirements of investment and/or discharge some obligation. The
issuers create and issue fresh securities in exchange of funds through public issues and/or as
private placement. They may issue the securities at face value, or at a discount/ premium and these
securities may take a variety of forms such as equity, debt or some hybrid instrument. They may
issue the securities in domestic market and/or international market through ADR/GDR/ECB route.

*MARKET DESIGN The market design for primary market is provided in the provision of the
Companies Act, 1956, which deals with issues, listing and allotment of securities. In addition,
ICDR guidelines of SEBI prescribe a series of disclosures norms to be complied by issuer,
promoter, management, project, risk factors and eligibility norms for accessing the market. In this
section, the market design as provided in securities laws has been discussed.

* SEBI Issue of Capital and Disclosure Requirements (ICDR) Regulations 20092

The issue of capital in India is governed by the SEBI (Issue of Capital and Disclosure
Requirements) Regulation, 20093. ICDR regulations are applicable for public issue; rights
issue4, preferential issue; an issue of bonus shares by a listed issuer; qualified institutions
placement by a listed issuer and issue of Indian Depository Receipts.

General conditions for public issues and rights issues

An issuer cannot make a public issue or rights issue of equity shares and convertible securities5
under the following conditions:
a. If the issuer, any of its promoters, promoter group or directors or persons in control of the
issuer are debarred from accessing the capital market by SEBI or
b. 2 Only some provisions pertaining to ICDR Regulations 2009 are discussed here. For
greater details, it is recommended that original regulation may be referred to. The
regulations are updated as of
December 31, 2010.

46
c. 3 The ICDR Regulations 2009 have been made primarily by conversion of the SEBI (Disclosure and
Investor Protection) Guidelines, 2000 (rescinded). ICDR were notifi ed on August 26, 2009.While
incorporating the provisions of the rescinded Guidelines into the ICDR Regulations, certain changes
have been made by removing the redundant provisions, modifying certain provisions on account of
changes necessitated due to market design and bringing more clarity to the provisions of the
rescinded Guidelines. (sourced from SEBI circular (SEBI/CFD/ DIL/ICDRR/1/2009/03/09) dated
September 3, 2009)
d. 4 where the aggregate value of specified securities offered is Rs.50 lakh or more;
e. 5 Convertible security means a security which is convertible into or exchangeable with equity shares
at a later date with or without the option of the holder of the security and includes convertible debt
instrument and convertible preference shares. 38
f. . If any of the promoters, director or person in control of the issuer was or also is a promoter, director
or person in control of any other company which is debarred from accessing the capital market under
the order or directions made by SEBI.
g. . If the issuer of convertible debt instruments6 is in the list of willful defaulters published by the RBI
or it is in default of payment of interest or repayment of principal amount in respect of debt
instruments issued by it to the public, if any, for a period of more than 6 months.
h. Unless an application is made to one or more recognised stock exchanges for listing of equity shares
and convertible securities on such stock exchanges and has chosen one of them as a designated stock
exchange. However, in case of an initial public offer, the issuer should make an application for listing
of the equity shares and convertible securities in at least one recognised stock exchange having
nationwide trading terminals.
i. Unless it has entered into an agreement with a depository for dematerialisation of equity shares and
convertible securities already issued or proposed to be issued.
j. Unless all existing partly paid-up equity shares of the issuer have either been fully paid up or
forfeited.
k. Unless firm arrangements of finance through verifiable means towards 75% of the stated means of
finance, excluding the amount to be raised through the proposed public issue or rights issue or
through existing identifiable internal accruals, have been made.

Appointment of Merchant banker and other intermediaries

The issuer should appoint one or more merchant bankers, at least one of whom should be a lead
merchant banker. The issuer should also appoint other intermediaries, in consultation with the lead
merchant banker, to carry out the obligations relating to the issue. The issuer should in consultation with
the lead merchant banker, appoint only those intermediaries which are registered with SEBI. Where the
issue is managed by more than one merchant banker, the rights, obligations and responsibilities, relating

47
inter alia to disclosures, allotment, refund and underwriting obligations, if any, of each merchant
banker should be predetermined and disclosed in the offer document.

Conditions for Initial Public Offer

1) An issuer may make an initial public offer (an offer of equity shares and convertible debentures by an
unlisted issuer to the public for subscription and includes an offer for sale of specified securities to the
public by an existing holder of such securities in an unlisted issuer)

a. The issuer has net tangible assets of at least Rs.3 crores in each of the preceding 3 years (of 12 months
each) of which not more than 50% are held in monetary assets. If more than 50% of the net tangible
assets are held in monetary assets, then the issuer has to make firm commitment to utilize such excess
monetary assets in its business or project.

b. The issuer has a track of distributable profits7 in at least 3 out of the immediately preceding 5 years8.

c. The issuer company have a net worth of at least Rs.1 crores in each of the preceding 3 full years (of
12 months each).

d. The aggregate of the proposed issue and all previous issues made in the same financial year in terms of
issue size does not exceed 5 times its pre-issue net worth as per the audited balance sheet of the
preceding financial year.

e. In case of change of name by the issuer company within last one year, at least 50% of the revenue for
the preceding one year should have been earned by the company from the activity indicated by the new
name.

2) Any issuer not satisfying any of the conditions stipulated above may make an initial public offer if:

a. The issue is made through the book building process and the issuer undertakes to allot at least 50% of
the net offer to public to qualified institutional buyers and to refund full subscription monies if it fails to
make allotment to the qualified institutional buyers OR At least 15% of the cost of project is contributed
by scheduled commercial banks or public financial institutions, of which not less than 10% would come
from the appraisers and the issuer undertakes to allot at least 10% of the net offer to public to qualified
institutional buyers and to refund full subscription monies if it fails to make the allotment to the qualified
institutional buyers.
b. The minimum post-issue face value capital of the issuer should be Rs.10 crore; OR the issuer

48
 undertakes to provide compulsory market making for at least 2 years from the date of listing of the equity
shares and convertible securities subject to the conditions that a) the Market makers undertake to offer
buy and sell quotes for a minimum depth of 300 equity shares and convertible securities and ensure that
the bid-ask spread for their quotes should not at any time exceed 10 % b) the inventory of the market
makers, as on the date of allotment of the equity shares and convertible securities should be at least 5%
of the proposed issue.

3) An issuer may make an initial public offer of convertible debt instruments without making a prior
public issue of its equity shares and listing.

4) An issuer cannot make an allotment pursuant to a public issue if the number of prospective allottees is
less than one thousand.

5) No issuer can make an initial public offer if there are any outstanding convertible securities or any
other right which would entitle any person any option to receive equity shares after the initial public
offer. However, this is not applicable to:
• a public issue made during the currency of convertible debt instruments which were issued through an
earlier initial public offer, if the conversion price of such convertible debt instruments was determined
and disclosed in the prospectus of the earlier issue of convertible debt instruments;
• outstanding options granted to employees pursuant to an employee stock option scheme framed in
accordance with the relevant Guidance Note or Accounting Standards, if any, issued by the Institute of
Chartered Accountants of India in this regard.
• Fully paid-up outstanding securities which are required to be converted on or before the date of filing
of the red herring prospectus (in case of book built issues) or the prospectus (in case of fixed price
issues), as the case may be.

Conditions for further public offer

An issuer may make a further public offer (an offer of equity shares and convertible securities) if it
satisfies the following conditions:

a) the aggregate of the proposed issue and all previous issues made in the same financial year in terms of
issue size does not exceed 5 times its pre-issue net worth as per the audited balance sheet of the
preceding financial year;

(b) if it has changed its name within the last one year, at least 50% of the revenue for the preceding one full
year has been earned by it from the activity indicated by the new name.
49
(c) If the issuer does not satisfy the above conditions, it may make a further public offer if it satisfies the
following conditions:
(i) the issue is made through the book building process and the issuer undertakes to allot at least
50% of the net offer to public to qualified institutional buyers and to refund full subscription
monies if it fails to make allotment to the qualified institutional buyers ;or at least 15% of the
cost of the project is contributed by scheduled commercial banks or public financial institutions,
of which not less than 10% should come from the appraisers and the issuer undertakes to allot at
least 10% of the net offer to 41 public to qualified institutional buyers and to refund full
subscription monies if it fails to make the allotment to the qualified institutional buyers;
(ii) the minimum post-issue face value capital of the issuer is Rs.10 crore; or the issuer
undertakes to provide market-making for at least 2 years from the date of listing of the specified
securities, subject to the two conditions that
a) the market makers offer buy and sell quotes for a minimum depth of three hundred specified
securities and ensure that the bid-ask spread for their quotes does not, at any time, exceed
10%; b) the inventory of the market makers, as on the date of allotment of the specified
securities, should be at least 5% of the proposed issue.

Pricing in Public Issues

The issuer determines the price of the equity shares and convertible securities9 in consultation with the lead
merchant banker or through the book building process. In case of debt instruments, the issuer determines the
coupon rate and conversion price of the convertible debt instruments in consultation with the lead merchant
banker or through the book building process.

Differential Pricing

An issuer may offer equity shares and convertible securities at different prices; subject to the following
condition;
(a) the retail individual investors/shareholders or employees entitled for reservation10
making an application for equity shares and convertible securities of value not more than
Rs.2 lakh, may be offered equity shares and convertible securities at a price lower than the
price at which net offer is made to other categories of applicants provided that such
difference is not more than 10% of the price at which equity shares and convertible securities
are offered to other categories of applicants;
(b) in case of a book built issue, the price of the equity shares and convertible securities
offered to an anchor investor11 cannot be lower than the price offered to other applicants;
(c) in case of a composite issue12, the price of the equity shares and convertible securities
offered in the public issue may be different from the price offered in rights issue and
50
 justification for such price difference should be given in the offer document.
(d) in case the issuer opts for the alternate method of book building, the issuer may offer
specified securities to its employees at a price lower than the floor price. However, the 9
convertible security” means a security which is convertible into or exchangeable with equity
shares of the issuer at a later date, with or without the option of the holder of the security and
includes convertible debt instrument and convertible preference shares. 10 Made under
regulation 42 pertaining to Reservation on competitive basis. 11 Anchor investor” means a
qualifi ed institutional buyer who makes an application for a value of Rs.10 crores or more in
a public issue through the book building process in accordance with the ICDR regulations
2009. 12 “ Composite issue” means an issue of equity shares and convertible securities by a
listed issuer on public cumrights basis, wherein the allotment in both public issue and rights
issue is proposed to be made simultaneously. 42 difference between the floor price and the
price at which equity shares and convertible securities are offered to employees should not be
more than 10% of the floor price.

Promoters’ Contribution

The promoters’ minimum contribution varies from case to case. The promoters of the issuer are required to
contribute in the public issue as follows:
In case of an initial public offer, the minimum contribution should not be less than 20% of the post issue
capital;
In case of further public offer, it should be either to the extent of 20 % of the proposed issue size or to the
extent of 20% of the post-issue capital;
In case of a composite issue, either to the extent of 20% of the proposed issue size or to the extent of 20% of
the post-issue capital excluding the rights issue component.

Lock-in of specified securities held by promoters.

In a public issue, the equity shares and convertible debentures held by promoters are lockedin for the period
stipulated below:
(a) minimum promoters’ contribution is locked-in for a period of 3 years from the date of
commencement13 of commercial production or date of allotment in the public issue,
whichever is later;
(b) promoters’ holding in excess of minimum promoters’ contribution is locked-in for a
period of 1 year:

51
Book Building

Book Building means a process undertaken to elicit demand and to assess the price for determination of the
quantum or value of specified securities or Indian Depository Receipts, as the case may be in accordance
with the SEBI ICDR Regulations 2009.
In an issue made through the book building process, the allocation in the net offer to public
category is made as follows
i) Not less than 35 % to retail individual investors. 13 “date of commencement of
commercial production” means the last date of the month in which commercial
production in a manufacturing company is expected to commence as stated in the
offer document. 14 where the equity shares of the same class which are proposed to
be allotted pursuant to conversion or exchange of convertible securities offered
through the offer or are proposed to be allotted in the offer have been listed and are
not infrequently traded in a recognised stock exchange for a period of at least three
years and the issuer has a track record of dividend payment for at least immediately
preceding three years.Provided that where promoters propose to subscribe to the
specifi ed securities offered to the extent greater than higher of the two options
available in clause (b) of sub-regulation (1) of regulation 32, the subscription in
excess of such percentage shall be made at a price determined in terms of the
provisions of regulation 76 or the issue price, whichever is higher.shall not be subject
to lock-in.
ii) Not less than 15 % to non institutional investors i.e. investors other than retail
individual investors and qualified institutional buyers.
iii) Not more than 50% to Qualified Institutional Buyers; 5 % of which would be
allocated to mutual funds15.
However, if the issue is made through the book building process and the issuer
undertakes to allot at least 50% of the net offer to public to qualified institutional
buyers and to refund full subscription monies if it fails to make allotment to the
qualified institutional buyers then in that case at least 50% of the net offer to public
should be allotted to qualified institutional buyers.

Indian Depository Receipts

A foreign company can access Indian securities market for raising funds through issue of Indian Depository
52
 Receipts (IDRs). An IDR is an instrument denominated in Indian Rupees in the form of a depository receipt
created by a Domestic Depository (custodian of securities registered with the Securities and Exchange Board
of India) against the underlying equity of issuing company to enable foreign companies to raise funds from
the Indian securities markets.17 15 In addition to the 5% allocation, mutual funds are eligible for allocation
under the balance available for qualifi ed institutional buyers. 16 Conditions laid down in the Schedule XI of
ICDR regulations. 17 Sourced from SEBI FAQ on Primary issuance

An issuing company making an issue of IDR is required to satisfy the following:

(a) it should be listed in its home country18.

(b) it should not be prohibited to issue securities by any regulatory body.
(c) it should have a track record of compliance with securities market regulations in its home country.

* Repo and Reverse Repo

Repo or Repurchase Agreements are short-term money market instruments. Repo is nothing but
collateralized borrowing and lending through sale/purchase operations in debt instruments. Under a repo
transaction, a holder of securities sells them to an investor with an agreement to repurchase at a
predetermined date and rate. In a typical repo transaction, the counterparties agree to exchange securities and
cash, with a simultaneous agreement to reverse the transactions after a given period. To the lender of cash,
the securities lent by the borrower serves as the collateral; to the lender of securities, the cash borrowed by
the lender serves as the collateral. Repo thus represents a collateralized short term lending.
A reverse repo is the mirror image of a repo. When one is doing a repo, it is reverse repo for the other party.
For, in a reverse repo, securities are acquired with a simultaneous commitment to resell.
Hence, whether a transaction is a repo or a reverse repo is determined only in terms of who initiated the first
leg of the transaction. When the reverse repurchase transaction matures, the counter-party returns the
security to the entity concerned and receives its cash along with a profit spread.
In a repo transaction, the securities should be sold in the first leg at market related prices and repurchased in
second leg at derived price. The sale and repurchase should be accounted for in the repo account. On the
other hand, in a reverse repo transaction, the securities should be purchased in the first leg at market related
prices and sold in second leg at derived price. The purchase and sale should be accounted for in the reverse
repo account.

53
* Negotiated Dealing System
The first step towards electronic bond trading in India was the introduction of the RBIs Negotiated Dealing
System in February 2002.
NDS, interalia, facilitates screen based negotiated dealing for secondary market transactions in government
securities and money market instruments, online reporting of transactions in the instruments available on the
NDS and dissemination of trade information to the market. Government Securities (including T-bills), call
money, notice/term money, repos in eligible securities are available for negotiated dealing through NDS
among the members. NDS members concluding deals in the telephone market in instruments available on
NDS, are required to report the deal on NDS system within 15 minutes of concluding the deal. NDS
interfaces with CCIL for settlement of government securities transactions for both outright 141 and repo
trades done/reported by NDS members. Other instruments viz, call money, notice/ term money, commercial
paper and certificate of deposits settle as per existing settlement procedure.
With the objective of creating a broad-based and transparent market in government securities and thereby
enhancing liquidity in the system, the NDS is designed to provide:
• Electronic bidding in primary market auctions (T-Bills, dated securities, state government securities) by
members,
• Electronic bidding for OMO of RBI including repo auctions under LAF,
• Screen based negotiated dealing system for secondary market operations,
• Reporting of deals in government securities done among NDS members outside the system (over telephone
or using brokers of exchanges) for settlement,
• Dissemination of trade information to NDS members,
• Countrywide access of NDS through INFINET,
• Electronic connectivity for settlement of trades in secondary market both for outright and repos either
through CCIL or directly through RBI, and
• Creation and maintenance of basic data of instruments and members.
The functional scope of the NDS relating to trading includes:
• giving/receiving a Quote,
• placing a call and negotiation (with or without a reference to the quote),
• entering the deals successfully negotiated,
• setting up preferred counterparty list and exposure limits to the counterparties,
• dissemination of on-line market information such as the last traded prices of securities, volume of
transactions, yield curve and information on live quotes,
• interface with Securities Settlement System for facilitating settlement of deals done in government
securities and treasury bills.
• facility for reporting on trades executed through the exchanges for information dissemination and
settlement in addition to deals done through NDS.

54
 The system is designed to maintain anonymity of buyers and sellers from the market but only the vital
information of a transaction viz., ISIN of the security, nomenclature, amount (face value), price/rate and/ or
indicative yield, in case applicable, are disseminated to the market, through Market and Trade Watch.
The benefits of NDS include:
• Transparency of trades in money and government securities market,
• Electronic connectivity with securities settlement systems, thus, eliminating submission of physical SGL
form, 142
• Settlement through electronic SGL transfer,
• Elimination of errors and discrepancies and delay inherent in manual processing system, and
• Electronic audit trail for better monitoring and control.
NDS was intended to be used principally for bidding in the primary auctions of G-secs conducted by RBI,
and for trading and reporting of secondary market transactions. However, because of several technical
problems and system inefficiencies, NDS was being used as a reporting platform for secondary market
transactions and not as a dealing system. For actual transactions, its role was limited to placing bids in
primary market auctions. Much of secondary market in the bond market continued to be broker
intermediated.
It was therefore, decided to introduce a screen-based (i.e electronic) anonymous order matching system,
integrated with NDS. This system (NDS-OM) has become operational with effect from August 1, 2005.
While initially only banks and primary dealers could trade on it, NDS-OM has been gradually expanded to
cover other institutional players like insurance companies, mutual funds, etc. Further, NDS-OM has been
extended to cover all entities required by law or regulation to invest in Government securities such as deposit
taking NBFCs, Provident Funds, Pension Funds, Mutual Funds, Insurance Companies, Cooperative Banks,
Regional Rural Banks, Trusts, etc. The trades agreed on this system flow directly to CCIL for settlement.
The order matching system is a transparent, screen based and anonymous trading platform, Investors enter
purchase/sale (bid and offer) orders on the system for individual securities they wish to deal in. The system
ranks the orders in terms of prices and, for more than one order at the same price, in terms of timing of the
orders (the earlier order gets priority). It then tries to match the sale orders with the purchase orders available
on the system. When a match occurs, the trade is confirmed. The counterparties are not aware of each others
identities- hence the anonymous nature of the system.
The NDS-OM has several advantages over the erstwhile telephone based market. It is faster, transparent,
straight through processing, audits trails for transactions and cheaper. Straight through processing (STP) of
transactions means that, for participants using CCILs clearing and settlement system, once a deal has been
struck on NDS-OM, no further human intervention is necessary right upto settlement, thus eliminating
possibilities human errors.
* Wholesale Debt Market of NSE
The wholesale debt market (WDM) segment of NSE commenced operations on June 30, 1994 and provided
the first formal screen-based trading facility for the debt market in the country. Initially, government
82

55
securities, T-bills and bonds issued by PSUs were made available in this 143 segment. This range has been
widened to include non-traditional instruments like floating rate bonds, zero coupon bonds, index bonds,
CPs, CDs, corporate debentures, state government loans, SLR and non-SLR bonds issued by financial
institutions, units of mutual funds and securitised debt. The WDM trading system, known as NEAT
(National Exchange for Automated Trading), is a fully automated screen based trading system, which
enables members across the country to trade simultaneously with enormous ease and efficiency. The trading
system is an order driven system, which matches best buy and sell orders on a price/time priority.
Trading system provides two market sub-types: continuous market and negotiated market. In continuous
market, the buyer and seller do not know each other and they put their best buy/sell orders, which are stored
in order book with price/time priority. If orders match, it results into a trade. The trades in WDM segment
are settled directly between the participants, who take an exposure to the settlement risk attached to any
unknown counter-party. In the NEAT-WDM system, all participants can set up their counter-party exposure
limits against all probable counter-parties. This enables the trading member/participant to reduce/minimise
the counter-party risk associated with the counter-party to trade. A trade does not take place if both the
buy/sell participants do not invoke the counter-party exposure limit in the trading system.
In the negotiated market, the trades are normally decided by the seller and the buyer outside the exchange,
and reported to the Exchange through the broker. Thus, deals negotiated or structured outside the exchange
are disclosed to the market through NEAT-WDM system. In negotiated market, as buyers and sellers know
each other and have agreed to trade, no counter-party exposure limit needs to be invoked.
The trades on the WDM segment could be either outright trades or repo transactions with flexibility for
varying days of settlement (T+0 to T+2) and repo periods (1 to 14 days). For every trade, it is necessary to
specify the number of settlement days and the trade type (repo or non-repo), and in the event of a repo trade,
the repo term.
The Exchange facilitates trading members to report off-market deals in securities in cases where the repo
period is more than the permissible days in the trading system (14 days) or where the securities are not
available for trading on the Exchange as they do not meet the listing requirements. These trades are required
to be reported to the Exchange within 24 hours of the issuance of contract note.
Membership in NSE:
Membership of NSE-WDM segment is open to all persons desirous of becoming trading members, subject to
meeting requirements/criteria as laid down by SEBI and the Exchange – Please refer to the chapter 3 for
details.
Listing:
All Government securities and Treasury bills are deemed to be listed automatically as and when they are
issued. Other securities, issued publicly or placed privately, could be listed or admitted for trading, if eligible
as per rules of the Exchange by following prescribed procedure:
1. All Listing are subject to compliance with Byelaws, Rules and other requirements framed by the
Exchange from time to time in addition to the SEBI and other statutory requirements.

56
2. The Issuer of security proposed for listing has to forward an application in the prescribed format, which
forms a part of the Listing Booklet.
3. Every issuer, depending on the category and type of security has to submit along with application, such
supporting documents/information as stated in the Listing booklet and as prescribed by the Exchange from
time to time.
4. On getting an in-principal consent of the exchange the issuer has to enter into a listing agreement in the
prescribed format under its common seal.
5. Upon listing, the Issuer has to comply with all requirements of law, any guidelines/ directions of Central
Government, other Statutory or local authority.
6. The Issuer shall also comply with the post listing compliance as laid out in the listing agreement and shall
also comply with the rules, bye-laws, regulations and any other guidelines of the Exchange as amended from
time to time.
7. Listing on WDM segment does not imply a listing on CM segment also or vice versa.
8. If the equity shares of an issuer are listed on other stock exchanges but not listed on Capital Market
segment of the Exchange, though eligible, then the debt securities of the said issuer will not be permitted to
be listed on the WDM segment.
9. The Exchange reserves the right to change any of the requirements indicated in the Listing booklet
without prior notice.
Certain securities like Treasury Bills and other securities issued by Government of India available in demat
form are eligible for Repo. Every security in the trading system is given a symbol representative of the
security.
The market capitalisation of the securities on the WDM segment has been increasing steadily. The segment
has also seen a marked increase in the number of securities available for trading other than the traditional
instruments like Govt. securities and T-bills.
The listing requirements for securities on the WDM segment are presented in
Trading Mechanism:
The trades on the WDM segment can be executed in the Continuous or Negotiated market. In the continuous
market, orders entered by the trading members are matched by the trading system on time price priority. For
each order entering the trading system, the system scans for a probable match in the order books. On finding
a match, a trade takes place. In case the order does not find a suitable counter order in the order books, it is
stored in the order books as a passive order. This could later match with any future order entering the order
book and result into a trade. This future order, which results in matching of an existing order, is called the
active order. In the negotiated market, deals are negotiated outside the exchange between the two counter
parties and are reported on the trading system for approval.
The WDM trading system recognises three types of users-Trader, Privileged and Inquiry. Trading Members
can have all the three user types whereas Participants are allowed privileged and inquiry users only. The
user-id of a trader gives access for entering orders on the trading system. The privileged user has the

57
exclusive right to set up counter party exposure limits.
The Inquiry user can only view the market information and set up the market watch screen but cannot enter
orders or set up exposure limits.
An Issuer shall ensure compliance with SEBI circulars/guidelines and any other law, guidelines/ directions
of Central Government, other Statutory or local authority issued on regulating the listing of debt instruments
from time to time.
The WDM supports two kinds of trades:
• Repo trades (RE), which are reversed after a specific term, allowed only in specified securities, and
• Non-Repo (NR) trades, which are for outright sales and purchase, allowed in all securities. Trading in debt
as outright trades or as ‘repo’ transactions can be for varying days of settlement and repo periods. For every
security it is necessary to specify the number of settlement days (whether for same day settlement or T+1
etc. depending on what is permitted by the Exchange), the trade type (whether Repo or Non Repo), and in
the event of a Repo trade, the Repo term. Order matching is carried out only between securities which carry
the same conditions with respect to settlement days, trade type and repo period, if any.
The security itself is represented by three fields –
• Security Type (e.g. GS for Government Securities),
• Security (e.g. CG2010 - Central Government maturing in 2010) and
• Issue (e.g. 6.25%).
All order matching is on the basis of descriptors. All inquiries also require the selection of valid descriptors.
There are 6 fields, which together form an entity, which is called ‘Security Descriptor’ in the system:
Security Type Security Issue Settlement days Trade Type Repo Term GS CG2001 11.55% 1 Non Repo - TB
364D 060901 1 Repo 7 All trade matching is essentially on the basis of descriptor, its price (for non-repos)/
rate (for repos) volume and order conditions and types. All volumes, in order entry screens and display
screens, are in Rs. lakh unless informed to the trading members otherwise. All prices are in Rupees. Repo
rates are in percentages. A maximum of two decimal places are allowed for values and four decimal places
for prices. The Exchange sets the multiples (incremental value) in which orders can be entered for different
securities. The Exchange announces from time to time the minimum order size and increments thereof for
various securities traded on the Exchange. Maximum Brokerage & Transaction Charges in Government
Securities:
In light of the recent fraudulent transactions in the guise of government securities transactions in physical
format, RBI decided to accelerate the measures for further reducing the scope for trading in physical form.
The measures are as follows:
(i) For banks which do not have SGL account with RBI, only one CSGL account can be opened.
(ii) In case the CSGL accounts are opened with a scheduled commercial bank, the account holder has to
open a designated funds account (for all CSGL related transactions) with the same bank.
(iii) The entities maintaining the CSGL/designated funds accounts will be required to ensure availability of

58
clear funds in the designated funds accounts for purchases and of sufficient securities in the CSGL account

59
for sales before putting through the transactions.
(iv) No further transactions by the bank should be undertaken in physical form with any
broker with immediate effect.
(v) Banks should ensure that brokers approved for transacting in Government securities are
registered with the debt market segment of NSE/BSE/OTCEI.
(vi) It should also be ensured that users of NDS deal directly on the system and use the
system for transactions on behalf of their clients.

60
 CHAPTER 8 : - Limitation of the Study

Although the study has made every attempt to analyse the relationship between the variables and the
sectoral return in details there remains some limitations in the study. The study is conducted using the
seven selected macro economic variables. Sectoral returns could be affected by many other variables. It
is not feasible to consider all the macro economic variables due to the bivariate relationship between the
variables, lack of appropriate proxies’ 16 magnitude of the data and also the sheer volume of the data.
Further the data is taken till July 2019 and the study avoids the impact of Covid-19 on the market
returns. The study period could be extended for robust conclusion. Further structural breaks in the data
are not considered. And the study uses secondary data which suffers from the lack of preciseness. The
study is conducted by using basic econometric tools; the results could have been substantiated using
more robust and sophisticated econometric tools.

Volatile investments
The share market is extremely volatile as there are numerous factors affecting the value
of shares like government policies, budget, sectoral events, company disclosure, change
in management of the company etc. 

In addition to this, the market is also susceptible to rolling effect, i.e. when a famous
investor like Ketan Parekh or Rakesh Jhunjhunwala, invests of disinvests from a company
the effect is manifold and smaller investors follow them leading to either exponential rise
in its price or huge downfall in the prices.

High brokerage and low margin

Although the market has now become much more accessible the brokers are still needed
for the smooth functioning of the market. The brokerage charge by them is high leading
to lower profit margins for the investors making the investment option less attractive.

Impulsive investment
The impulsive investments like investments purely based on one’s impulses or hear-say
and not on research are likely to result in losses to the investors. With experience and
past losses, the investors learn the stock has to be analysed first and invested later.

61
 Lack of knowledge
One of the clear demerits of the stock exchange is the lack of knowledge the investors
have w.r.t. The investments they make and the companies they invest in. Most of the
issuers rely on the advice of their brokers or the general market trend which may not be
in their best interests. 

Although the SEBI and stock exchanges require issuer companies to disclose relevant
information for the benefit of the investors, the majority of investors are incapable of
analysing and utilising this information for their benefit. There is an acute requirement of
investor training and educational exercises by the regulator.

Time-consuming
By the introduction of online trading, the act of trading securities itself has become simple
and quick, but the process of registration like opening a Demat account is a little more
time-consuming. However, since it is a one time process it can be ignored but the
research and analysis that is required before making an informed investment is still
industrious.

Subject to higher risk

Apart from the volatility of the market as explained above, the equity investment carries
the highest amount of risk even in terms of corporate finance. According to Section 53 of
Insolvency and Bankruptcy Code, 2016– the waterfall section the shareholders are paid at
last after paying all other debts of the corporate debtor, even the debt instruments to
both secured and unsecured creditors.

Tips to minimise losses of the investors

Some common but indispensable tips to new investors are:

What is your goal

Stock market investments like every other investment should be made keeping a goal in
your mind in terms of the initial investment amount, the time of investment and the final
amount to reach. Unless you have high expertise in the capital market you should not be
looking to make money on short term investments, rather plan and invest according to
your personal requirements.

Relentless research 

62
There is nothing like too much research, especially when you are new to the market.
Read about the company you are investing in, read about the sector, the government
policies in that sector, its management and it’s past financial statements and compare its
position to its competitors as well. You can even read tips given by experts on stock
investments but make sure it is a trusted individual and not a sponsored person.

 Recognition from Central Government Stock exchange is an organized

market. It requires recognition from the Central Government.

 Working as per rules Buying and selling transactions in securities at the stock
exchange are governed by the rules and regulations of stock exchange as well
as the governing commissioned institute heading the stock exchanges in any
country.

 Specific location Stock exchange is a particular market place where authorized

brokers come together daily (i.e. on working days) 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.

 Financial Barometers Stock exchanges are the financial barometers and

development indicators of national economy of the country. Industrial growth
and stability is reflected in the index of stock This enables investors to know
the true worth of their holdings at any time. Comparison of companies in the
same industry is possible through stock exchange quotations (i.e. price list).

 Encourages capital formation Stock exchange accelerates the process of

capital formation. It creates the habit of saving, investing and risk taking
among the investing class and converts their savings into profitable
investment. It acts as an instrument of capital formation. In addition, it also
acts as a channel for right (safe and profitable) investment.

 Provides safety and security in dealings Stock exchange provides safety,

security and equity (justice) in dealings as transactions are conducted as per
well-defined rules and regulations. The managing body of the exchange keeps
control on the members. Fraudulent practices are also checked effectively.
Due to various rules and regulations, stock exchange functions as the
custodian of funds of genuine investors.
63
 Regulates company management Listed companies have to comply with rules
and regulations of concerned stock exchange and work under the vigilance
(i.e. supervision) of stock exchange

64
Limitations of the Study

The proposed Study Interim financial Reporting Practices in India (An Empirical
study of selected NSE NIFTY Companies) Suffers with a few draw backs like:

 The study could not cover all Companies due to shortage of resources and human
limitations.
 Most of the information so obtained is based of secondary data. Hence, the
limitation of reliability and short comings of Secondary data affects the result
of the study adversely.
 The Study also suffers with the General human limitation.
 There may be any sampling error because the sample if very small. So the
shortcomings of small samples may be affecting the conclusions. T
 here is also the limit of time that is 5 years commencing 1st April 2006.
 The study could not cover all Companies due to shortage of resources
and human limitations

65
CHAPTER 9 : - RESEARCH METHODOLOGY

 INTRODUCTION
MEANING OF RESEARCH

Research is defined as human activity based on intellectual application in the

investigation of matter. The primary purpose for applied research is discovering,
interpreting, and the development of methods and systems for the advancement of
human knowledge on a wide variety of scientific matters of our world Research
comprises defining and redefining problems, formulating hypothesis or suggested
solutions; collecting, organizing and evaluating data; making deductions and reaching
conclusions; and at last carefully testing the conclusions to determine whether they fit
the formulating hypothesis and the universe

Meaning of research methodology

Mean Research methodology simply refers to the practical “how” of any given piece of
research. More specifically, it’s about how a researcher systematically designs a study to
ensure valid and reliable results that address the research aims and objectives.

For example, how did the researcher go about deciding:

1 What data to collect (and what data to ignore)
2 Who to collect it from (in research, this is called “sampling design”)
3 How to collect it (this is called “data collection methods”)
4 How to analyse it (this is called “data analysis methods”)

Collection of Data: To accomplish the objectives of the proposed study, both primary and
secondary data will be collected.

 Primary data

This will be collected through questionnaire and personal interviews with the officers of the
selected companies and investors. The questionnaire will contain different questions on
interim reporting. It will also include the items of information which will be required to be
published in the annual report of a company. The main aim of questionnaire will be to know
the opinions of Indian investors and views of officers of companies about the disclosure of
item of interim reporting. Direct contact with the prospective and present investors will be

66
established for analysis of ‘perceptions of investors’. The questionnaire will printed and
distributed among different investors across the country to obtain ideal answer for the
research questions.

 Secondary data

This will be collected through published financial and annual reports of the selected
companies and from the web site of www.nseindia.com, www.sebi.com,
www.moneycontrol.com. The data thus collected will be tabulated, classified and grouped for
the purpose of interpretation, analysis and finding conclusions in order to analyze the data.
The various financial techniques such as common size analysis, comparative analysis and
trend analysis will be used in the proposed study. A number of statistical techniques such as
mean, standard deviation, co-efficient of variation, indices, chi-square, t- test, correlation,
regression etc. are to be used to compute the result of proposed study.

Research Design

It is an empirical study and will be an explorative research.

Period of Study: The time period of the proposed study is limited to 15 Days from 15 th
March to 8th April 2021

NSE and Nifty

The National Stock Exchange of India Ltd. (NSE), set up in the year 1993, is today the largest
stock exchange in India and a preferred exchange for trading in equity, debt and derivative
instruments by investors. NSE has set up a sophisticated electronic trading, clearing and
settlement platform and its infrastructure serves as a role model for the securities industry.
The standard set by NSE in terms of market practices; products and technology have become
industry benchmark and are being replicated by many other market participants. It provides a
screen-based automated trading system with a high degree of transparency and equal access to
investor irrespective of geographical location. The high level of information dissemination
through the on line system has helped in integrating retail investors across the nation. The
exchange has a network in more than 350 cities and its trading members are connected to
the central servers of the exchange in Mumbai through a sophisticated telecommunication
network comprising of over 2500 VSATs. NSE has around 850 trading members and
provides trading in over 1000 equity shares and 2500 debt securities. Besides this, NSE
67
provides trading in various derivative products such as index futures, index option, stock
futures, stock options and interest rate futures.

Research Area

My research area is INDIA.

Sampling Type

The sampling type is Convinion Sampling.

 Importance of the study

The study will help to know the real picture of the BSE Sensex Companies about interim
financial reporting. The importance of study is:-

The companies will know the requirements of the investors and they will try to satisfy them.
That will help to them.

In the aspect of investors the study is import and also. They will get awareness about the
matter and it will improve their ability.

For the view of management the study will help in

decisions making. The Study is also important for
creditors, government and public.

68
CHAPTER :- 10. REVIEW Of LITERATURE

1) Rakesh H.M (2014), A Study On Individual Investors Behavior In Stock Markets Of India,
IJMSS (Vol.02, Issue-02), ISSN:2321-1784:

The paper proposes to study the behavior of individual investors in the stock markets and the factors
that influence their investment decisions, which include awareness level, investment duration etc. The
research was based on the primary data collected from the city of Mysore of 150 respondents, being
stock market investors. The research paper observes that only 10 % of the respondents intended to stay
invested into the stock market for a period of more than 5 years. In other words, the research paper
observed that people do not want to stay committed for longer period of time into the stock market
despite it giving better returns. The paper analyses that annual income and annual savings are given
importance by investors, but the level of savings are decided by their level of income. He states that
“investors are fully aware about the stock market and they feel that market movements also affect the
investment pattern of investors in the stock market.” The paper however remains silent on its
observation about the uneducated investors who are not aware of the market conditions, with market
trends and the stock price movements. It focuses on the factors influencing savings and sources of
information for decision making. The income level of an individual, also decide the investment pattern
of the investor. The investor’s income level does determine the type of investment avenues the investor
prefers.

2) Reena Rai (2014), Factors Affecting Investors’ Decision Making Behavior In The Stock
Market: An Analytical Review, Indian Journal of Applied Research (Vol.4, Issue-9), ISSN -
2249- 555X:

The paper under study aims to study the factors influencing an investors decision making behavior on
basis of related studies. It states that the various factors that influence include various demographic
factors such as gender, age, education. It is known that men are more overconfident than women. Age
plays a role on the mindset of the individual and the propensity to take risk. It also explains sometimes,
the precautious attitude and conservatism. On the firm level the decision of the investors depend on
capital structure average pricing, political and media exposure, trend analysis, past performance of
company’s stocks, expected dividend and EPS etc. Finally, it concludes that out of the various factors
affecting behavior of investors some factors have a slight role while some majorly impact investor
behavior. The general factors being gender, age, confidence levels, cognitive bias, risk factors,

69
company’s performance.

70
 3) Bing Zhu (2012), The Effects Of Macroeconomic Factors On Stock Return Of Energy Sector
In Shanghai Stock Market, International Journal of Scientific and Research Publications (Vol.
2, Issue-11), ISSN 2250-3153:

The study aims at understanding the performance of arbitrage pricing theory (APT) in the Shanghai
Stock Exchange. In finance, arbitrage pricing theory (APT) is a general theory of asset pricing that
holds that the expected return of a financial asset. The research points out the fact that factors such as
foreign reserve, exports, exchange rates, and unemployment rate have an impact on the returns of
energy sector. As the foreign reserve increases by 1 point, the stock return of energy sector increases by
2.142004. This shows that foreign reserves have a positive direct impact on the returns of energy sector.

4) Domenico Celenza and Fabrizio Rossi (2012), The Relationship Between Intellectual Capital
And Stock Market Performance: Emprical Evidence From Italy, Journal of Modern
Accounting and Auditing (Vol. 8, Issue-11), ISSN 1548-6583:

.This study aims at providing a relation between the intellectual capital (IC) and returns of a company.
It also aims at evaluating the value of IC.

 The accounting records are still incomplete inspite of the regulatory accounting standard. It is limited
in transmitting information that is slowly reflected in the prices of securities of listed companies to the
stock market.

 As the information arrives into the market, it becomes old. Compared to the degree of circulation of
information in the market, the financial indicators appear to be static.

 The beta factor does not explain the market value of firms and changes in stock prices.

The conclusions stand true as, the financial statements, made at the end of the year; fail to inform the
value of the firm. The speculation in the market also affects the investor’s sentiment. The beta index
indicates the systematic risks associated with the stocks and fails to elaborate the reason for changes in
stock prices and market value of firms.

5) Kaushal A. Bhatt (2013), Investment and Trading Pattern of Individuals Dealing in Stock
Market, The SIJ Transactions on Industrial, Financial & Business Management (IFBM) (Vol.1,
Issue-02), ISSN: 2321 – 242X:

The paper aims at studying the literacy and awarenss of capital markets among investors regarding
various investment avenues. To find and identify segments preferred more by the people and the
influencing force behind the decision making, while investing in currently available options including

71
stock markets. It concludes that investors are moving to new investment avenues such as equity market,

72
mutual funds, bonds, and others like gold, land etc. This is due to the decreasing trend of bank rates.
This also increases the scope of business for the investment companies. The investors are also risk
sensitive. They want more safety and security. The stock markets have become very popular due to high
rate of return but due to uncertainty and risk many people do not invest in equity markets. This stands
true due to the lack of stability in the current market scenarios. The risk related to investment also
defines the amount invested by people in the particular stock. The factors like age, occupation and
income level are key factors in investment decision making of people. The other major factors being
considered were market scenario, risk involved and other investment opportunities.

6) Geetika Batra (2013), Study Of Investment Advice To Retirement Plan Partakers In India,
Journal of Business Management & Social Sciences Research (JBM&SSR) (Vol.2, Issue-
08), ISSN No: 2319-5614:

Investor need to think apart from public institution to private sector players. As they don’t have any
other source of income so if the investment plans fails, it would be disastrous on the savings front and
logically, on the financial planning front. However, if one starts investment early, then the risk to
reward ratio would be very high. Hence one should remain substantially committed to stock during this
earning period.

7) Daniel Agyapong, The Foreign Exchange Rate - Capital Market Returns Nexus, Asian
Journal of Business and Management Sciences (Vol.2, Issue-01), ISSN: 2047-2528:

This study paper aims at understanding the relationship between the stock markets and the foreign
exchange markets. The different methods adopted till date have produced varying results. The empirical
world, though, is able to explain the reasons for the differing results in the various methods. The various
results of empirical investigations have no relation, negative or positive relation and weak or strong
relations inter se. It also points that the degree of relation depends on the degree of globalization of the
country, economic stability, trade volumes, mobility etc.

8) Sanjeet Sharma (2011), Determinants Of Equity Share Prices In India, Journal of Arts,
Science & Commerce (Vol.1, Issue-4), ISSN 2231-4172:

This study aims at studying the relation between the equity share prices and related variables such as
book value of shares, earnings per share (EPS), dividend per share (DPS) and dividend payout etc.

The study reveals that EPS and DPS are the strongest determinants of market price, and therefore the

73
study suggests a liberal dividend policy as a good measure of attracting the investors, gaining their

confidence and thereby, increasing the valuations of the company. These factors possess a strong
explanation to provide future forecasts of stock prices. They also have suggested that the company data
and indices be taken care of. The conclusion is statistically explained but in the current scenario, where

74
basis of past data as the data for current years are received at the end. The dividend payout shall still be
a relevant factor. But in cases where there are sudden crisis and price shocks, this analysis fails to be
accurate. The paper also observes that in the case of a strong book value per share and a good dividend
declaration policy the investors perceive lesser risk and are more comfortably placed in investing into
the equity shares of those companies.

9) Nachiket Bhate and Alok Bansal, Personal Financial Planning: A Review, Altius Shodh
Journal of Management & Commerce, ISSN 2348 - 8891:

states that personal investing helps to achieve major emergency funds, buying a real estate later on and
better cash management, personal finance and investment alternatives and retirement plans. One needs
to appoint a better fund manager to ensure stability while managing risk. People don't consider
Insurance and other secured schemes as asset. Hence they end up investing into such products with are
not able to beat the inflation. It was concluded that disciplined way of investing and diversification of
funds including Insurance products boost their personal financial planning.

10) Gurinder Singh And Navleen Kaur (2015), Investigation of the Determinants to
Augment Investment in the Indian Stock Market, International Journal of Scientific and
Research Publications (Vol.5, Issue-03), ISSN 2250-3153:

states about the perception of investors and non investors towards Indian Stock Market. Those who are
non investors always calculate the insecurity of loss of money in the market and the risk of investing.
There are other categories of people who are ready to invest but they want investor friendly schemes,
which are not only simplified but also have an easy exit option. So government and fund houses need to
spread awareness about investor on a large scale. Initial tax incentive provided by government for first
time investor will also encourage many people to get invested roping in celebrity to advertise as it
affects the mass population. A proper clarity must be given to people through various means between
Trading and Investment. However a SIP (Systematic Investment Plan) thing would be a great option for
low income group.

11) Kajal Gandhi (2015), Retail Investors Participation in Indian Stock Market- A Survey, GJRA
- Global Journal For Research Analysis (Vol.4, Issue-02), ISSN No 2277 - 8160 :

paper findings were based on the survey which has beeen carried out among five cities-Mumbai, Delhi,
75
Kolkata, Chennai and Ahmedabad. The respondents of the metro cities are more inclined towards
investing in stock market as they consider it as financial tool but they don't have expertise knowledge or
don't prefer to hire a professional to manage their portfolio due to which they fall prey of losses.
However, people at Tier-II cities like Ahmedabad still consider the traditional investment like gold,
property, gold and bank deposits are their favorite option this is due to narrow minded as their is low
saving habits, low awareness of investment opportunities.

76
 12) Anju Bala (2013), Indian Stock Market - Review Of Literature, TRANS Asian
Journal of Marketing & Management Research (Vol.2, Issue-7), ISSN 2279-0667:

The paper has explained the logistics involved into the working of the stock market and the investors
preferences of selecting stock market as a tool of investment.

The paper studies the different asset class and other financial alternative available to investors covering
all age groups depending on their requirements such as :

- NON MARKETABLE FINANCIAL ASSETS (Bank Deposits, Company Deposits)

- EQUITY SHARES (Blue Chips shares, Growth shares)

- BONDS (Government Securities, PSU Bonds)

- MONEY MARKET INSTRUMENTS (Treasury Bills, Certificates of Deposit)

- MUTUAL FUNDS (Balanced Schemes, Debt Schemes)

- LIFE INSURANCE (Money back policy, Whole Back policy)

- REAL ESTATE (Agricultural Land, Commercial Property)

- PRECIOUS OBJECT (Gold & Silver)

- FINANCIAL DERIVATIVES (Future & Option warrants)

It has recommended a list of measures for the improvement of investor participation into the stock
market. It has recommended the listing of stock prices on multiple stock exchanges to improve liquidity
and gain investor confidence. It has also observed that speculation is widespread into the Indian stock
market system and thereby it cause volatility into the prices of shares. This volatility creates insecurity.
It has further observed that investors use technical analysis and fundamental analysis for selecting their
investment into the stock market and the low cost of operations into the derivatives market has made it
a preferred choice of investment

13)RAVI KANT (2011), Testing Of Relationship Between Stock Return And Trading Volume In
India, International Journal of Multidisciplinary Research (Vol.1, Issue-06), ISSN 2249- 2496 :

The paper draws attention towards the sensitive relationship that exist between stock returns and trading
volume in India. The paper observed that, at times the volumes do not play a crucial role. In case of
Futures & Options, the volumes matters during the short term news favouring a particular company.
However it is not easy to predict the behavior of trading volume and stock return.
77
 14) Krunal K Bhuva and Vijay H Vyas (2015), A review of Article on “Dividend Policy
and Stock Price Behaviour in Indian Corporate Sector: A panel data approach”, PARIPEX -
Indian Journal Of Research (Vol.4, Issue-2), ISSN - 2250-1991:

states that if long term investment are made into the market then the dividends on stock would be good
source of income. The relationship in terms of dividend varies with respect to return on market for
different industries. However there are some sectors which give a good or robust returns in terms of
growth and dividend. The result also shows that dividend paying companies are large but more debt in
such companies will affect to stock return. Similarly there are mutual funds houses which banks on
dividend oriented schemes which help an investor to re-invest their dividend into units thus strengthen
their holdings. A wise decision would help to earn a dual advantage of growth and dividend income.

15) Zhou, Peng (2003). Stochastic modeling of post-retirement financial planning,

ProQuest, UMI Dissertations Publishing 3095850, ISSN 1042-7279:

He conducted a study on Post- Retirement Financial Planning. The finding were optimal allocation
strategies vary in different situations and are not trivial or intuitive, The buy annuity- reinvest strategy
has potential to accumulate more estate than a pure investment strategy, catastrophic illness coverage is
a necessary piece of any optimal asset allocation strategy, a life annuity is always an important
component in optimal strategies. Berstein (2003) concluded three essays as many employees are
spending far more and saving far less than they should, while others are under-spending and over-
saving. Overton (2007) identified foundational theories of financial planning and the theories’
applications and disciplines of origin. In this sequential exploratory mixed methods were used.
Gounaris (2004) concludes with a model for a financial therapy seminar with couples. Outcomes were
Financial Planning services will be most effective if couples have a thorough understanding of their
psychological relationship with money, the role money plays in their marriage, and the psychological
forces that operate on actual financial decision making. He conducted a qualitative phenomenological
study using focus group interviews to explore the lived experiences of 61 baby boomers regarding their
financial planning for anticipated health needs in retirement. Findings include seven core themes:

(a) influence of family experiences,

(b) delayed retirement,

(c) influence of physical or cognitive health,

(d) uncertain future of government programs,

(e) procrastination of financial planning,

78
(f) uncertain future of health care, and

(g) distrust of government involvement.

Jagolinzer (Apr 1995) used a 3-fund approach is used. This approach of income allocation should assist
those entering into, or already committed to, a marriage or partnership-living arrangement, in thinking
about, discussing and planning for their financial priorities. The accountant can help by introducing the
system, assisting the partners in developing the fund categories, providing input to the necessary
allocation of monies to each, and possibly acting as an ongoing facilitator for the whole process. Cutler
(Mar 2003) dealt with the “traditional” image of retirement financial security as it is a three legged
stool: Social Security, employer pensions, and personal savings/investments. Some analysts have
identified a fourth leg, that of post-retirement wages. There is also discussion about a fifth leg: the costs
of health care and long-term care. Using reverse mortgages to take advantage of home equity is
discussed.

16) Potts, Tom L; Schoen, John E; Margery Engel Loeb; Hulme, Fred S. (Jul 2001).
Effective retirement for family business owner-managers: Perspectives of financial planners.
ProQuest, part II, Journal of Financial Planning, (ISSN: 1052-3073)

took the primary objective of this study as to gain useful insights about conditions that will lead to
successful retirement for family business owner-managers. The blend of financial and nonfinancial
issues suggests that financial planners have a real awareness of the unique context in which they are
operating. The unraveling of the complex issues surrounding the retirement of family business owner-
managers represents a real challenge for the CEOs, financial planners and academicians. Klapper and
Panos (2011), did the examination of the relationship between financial literacy and retirement planning
in Russia. It was found that only 36% of respondents in our sample understand interest compounding
and only half can answer a simple question about inflation. In a country with widespread public pension
provisions, findings were that financial literacy is significantly and positively related to retirement
planning involving private pension funds.

17)Todd, Kelly J; DeVaney, Sharon A. Financial Planning For Retirement by Parents of College
Students, (1997). ProQuest, Journal of Financial Counseling and Planning, (ISSN: 1052-3073)

concluded that Parents of college students that were surveyed about satisfaction with retirement
planning and the use of retirement savings for children’s college expenses. Parent with two children in
college were more likely to have used retirement savings to pay for college costs. When the first child
contributed less to college, parents were more likely to use retirement savings. Upper income parents
were less likely to use retirement savings for college expenses. Cutler (2001) found out the retirement
planning implications of an important study conducted by the National Council on the Aging. Details
concerning the following tends are supplied:

79
2. Retirement does not necessarily imply that clients stop working.

3. Accumulated savings and health concerns are the 2 major factors that consumers
consider when deciding when to retire.

4. Responsibility for wealth accumulation has moved away from the employer and the
government has begun to rest with the client.

5. Financial counseling for retirement is necessary now more than ever.

18) Lusardi and Mitchell (2011)

reports on a purpose-built survey module on plnning and Financial literacy for the Health
and Retirement Study which measures how people make financial plans, collect the
information needed to make these plans, and implement the plans. Results show that financial
illiteracy is widespread among older Americans, particularly women, minorities, and the least
educated. He also found that the financially savvy are more likely to plan and to succeed in
their planning, and they rely on formal methods such as retirement calculators, retirement
seminars, and financial experts, instead of family
/relatives or co-workers. These results have implications for targeted financial education efforts.

19)Owen, Ann L; Wu, Stephen. (2007). Financial shocks and worry about the future,
ProQuest, Empirical Economics, ISSN: 0377-7332

Used data from the Health and Retirement Study and the Survey of Consumer Finances. It
showed that households that experience adverse financial shocks, worry more about the
adequacy of their financial resources in retirement, even after controlling for the effects of
these shocks on overall wealth. The paper finds supporting evidences that suggests that at
least a part of the increased worry about retirement, is due to general pessimism rather than
changes in an individual’s own circumstances. Specifically, experiencing idiosyncratic
financial shocks is also associated with greater pessimism about the general future of the
economy. Bakshi and Chen (1994) tested the life cycle Risk aversion hypothesis that an
investors relative risk aversion increases with age. However, this analysis was based on the
assumption that aggregate changes in risk premium for equity assets were due to changes in
risk aversion. A paper about Personal Financial Planning using current income tax savings to
pay for Estate Planning emphasizes that in many situations good estate planning is also good
income tax planning. In such cases, an income tax benefit may be achieved which is
significant enough to encourage taxpayers to take current steps necessary to implement their
estate plan. Payne et al (2010) did a survey whose results suggest that getting personal with
80
 clients is unavoidable. The survey found that 25% of a financial planner’s time is spent on
clients’ nonfinancial issues, such as family strife, drugs, religion, mental health, physical
health, and even thoughts of suicide. The paper mainly discusses the importance of
counselling skills in advising clients.

20 Trahan, Emery A et al (2003). Corporate market for PFP services benefits. Financial
Services Review Journal, ISSN: 1363-0539

surveyed chief HR officers of Fortune 500 companies. They came to a conclusion that there is
a viable corporate market for PFP. Warschauer & Sciglimpaglia (2012) found out how the 20
component services a financial planner must provide which are actually relatively valued by
consumers. Results showed that potential planners do not understand all the benefits that
planning holds. With the help of this research PF planners can increase their client base

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 Chapter : - 11. Scope for Further Study

Through the widespread publicity of stock exchange quotations the world over, the
holders of securities are given gratis the combined opinion of the most competent finan-
ciers as to the value of those securities at present and their prospec- tive value in the
future. Since these financiers always have in mind the future, rather than the present, their
initiative in making pur- chases and sales will tend to discount the effects of coming events.
The holder of stocks and bonds, if he be a thinking and observing man, is free to disregard
these quotations if he chooses; but if their trend is pronounced they may serve as a guide
by which he may regulate his own action relative to the holding or selling of his securities.

Many exchanges stipulate that any broker employed for the purchase or sale of
securities must keep a record of every transac- tion showing the date, number of shares,
name of the security, price, the broker from whom bought or to whom sold, or for
whom bought, or for whom sold; and on the day of executing the order, must furnish
the customer with the name of the broker from whom the security was bought, or to
whom sold. Non-compliance with this rule makes the broker guilty of fraud or false
pretence, or of acts detrimental to the best interest of the exchange. Nor may any
member sell securities for his own account, thus nullifying the effect of his client's order.
Practically all exchanges provide that no member, under pain of suspension, shall be
guilty of any act which the governing committee shall deem "detrimental to the inter-
est or welfare of the exchange

The behavioural finance explicates the psychological and cognitive aspects of human
behaviour, which is extremely valuable in explaining many of the anomalies existed in
the market and for decision making. The research on herding behaviour can be extended
in the following ways:

1) The intensity of individual herding and Institutional herding are different and such an
analysis may provide better understanding about the herding behaviour in Indian stock
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market, since institutional investors are one of the major investors in Indian stock
market and they are considered to be better informed investors than the individual
investors.

2) One can check the bi-directional relationship between volatility and herding and the
effect of herding driven volatility in the market and the same effect on volume can also be
checked.

3) The role of Herding and Contagion effect on other market such as foreign exchange &
Bullion market can be studied.

4) Herding is more prevalent in short term and is able to catch up with intraday data and
thereby one can test the intraday level herding behaviour of investors in the market.

5) Study can be conducted to examine the Determinants of Herding Behaviour in Indian

Stock Market.

According to a recent ruling of the New York Exchange, in order to prevent manipulation,
and to protect the small investor or speculator, brokers offering to buy or sell more than Ioo
shares of stock, are compelled to accept any offering of Ioo shares, or multiples thereof,
and where an offer of a large block of stock is accepted, the buyer or seller must take care
of the smaller offerings. If guilty of fraud, or fraudulent acts, or of having made a misstate-
ment upon any material point in his application, either for mem- bership or reinstatement,
expulsion is the penalty. Here it should be said that the greatest care is taken by most
exchanges in admit- ting new members, and that in order to be admitted, one must exhibit
and prove his bank account and property holdings, and show that he has an adequate
financial equipment. The ex- changes also carefully regulate the branch offices of all
members, and provide that no member shall form a partnership with a sus- pended
member of the exchange, or with any insolvent person, or with anyone, formerly a member
of the exchange, against whom any member may hold a claim arising out of transaction

This is due to the decreasing trend of bank rates. This also increases the scope of
business for the investment companies. The investors are also risk sensitive. They want
more safety and security. The stock markets have become very popular due to high rate
of return but due to uncertainty and risk many people do not invest in equity markets.
This stands true due to the lack of stability in the current market scenarios. The risk
83
related to investment also defines the amount invested by people in the particular stock.
The factors like age, occupation and income level are key factors in investment decision
making of people. The other major factors being considered were market scenario, risk
involved and other investment opportunities.

Broadcast facility for corporate announcements: The NSE network is used to

disseminate information and company announcements across the country. Important
information regarding the company is announced to the market through the
Broadcast Mode on the NEAT system as well as disseminated through the NSE’s
website. Corporate developments such as financial results, book closure,
announcements of bonus, rights, takeover, mergers etc. are disseminated across the
country thus minimizing scope for price manipulation or misuse.

The National Stock Exchange of India Limited (NSE) is the largest financial

exchange in the Indian market. It was established in 1992 on the

recommendation of the High-Powered Study Group, which was founded by the

Indian government to provide solutions to simplify participation in the stock

market and make it more accessible to all interested parties. In 1994, the NSE

introduced electronic trading in the Indian stock exchange market.

The National Stock Exchange of India Limited is the country’s leading financial

exchange, with headquarters in Mumbai. It was incorporated in 1992 and, since then,
has evolved into an advanced, automated, electronic system offering trading facilities
to investor across the country. In 2015, this exchange system ranked in the fourth place
in the world according to the metric of its trading volume.

This stock exchange began its operations in 1994 at the behest of the Indian
government to bring a level of transparency to the country’s capital market. Set up by
an assembly of leading financial institutions and at the recommendations formulated
by Pherwani Committee, this stock exchange comprised of diverse shareholding assets
from both global and domestic investors.

84
It was also the first stock exchange in the country to introduce electronic trading
facilities, thus facilitating the integration of investors throughout the country into a
single base.

85
 Chapter : - 12. Conclusion

The NSE was established in order to break the monopoly of the BSE and bring in

more transparency system Into the trading system. This motive of the government

and the regulating agencies have been fairly Successful.

*Looking from the trading statistics, the establishment of screen based trading has

been hugely successful and NSE has positioned itself as a market leader

*Going by the economic indicator-PDI, we can say that there exist a strong

correlation between the Performance of the stock market or the stock price in dices

to be more specific. A rise in PDI will eventually Lead to rise in the Stock Price

index and vice versa.

A stock exchange is an exchange where traders and stock brokers buy and sell
shares of stock, bonds and Other securities . It also offers facilities for issue and
redemption of securities and other financial instrument. Stock issued by listed
companies and unit trusts, bonds and pooled investment products can be traded on a
Stock exchange. A stock exchange functions as a ‘continuous auction’ market where
transactions are conducted between the buyers and seller
A stock exchange plays an important role in the economy. It helps to raise capital
for business, mobilize Saving for investment, facilities the growth of companies,
and enables profit sharing. It assists in creating Investment opportunities for
small investor, and raising capital for development project taken up by the
Government. It acts as a barometer of the economy.

86
Behavioural finance became one of the most talked factors in the recent history of
finance. The importance of behavioural finance is increasingly growing in discussions
and many researchers are showing keen interest in this area of finance and discuss
many issues in the financial market, which arises due to different behaviour shown by
the investors.The analysis of different behaviour and its consequences helps the

investors, policy makers, wealth managers and other interested parties for a better
understanding of the market and the asset, for pricing the risk associated with the assets
and formulating and improving their decisions in the market. As discussed in the
previous chapters, examining herding behaviour in Indian stock market is important and
this study contributes to the herding literature in many aspects. The study analyzed the
existence of herding behaviour in one of the important emerging market, India (NSE).

The National Stock Exchange of India Limited (NSE) is the largest financial market in India
and the fourth largest in terms of the trading volume. The National Stock Exchange of India
Limited was the country's first completely automated electronic trading exchange.

87
 Chapter : - 13. References

Newspaper ( economic times , mint paper)

www.nseindia.com
https://blog.ipleaders.in/
national-stock- exchange
eajournals.com
www.research
gate.com
www.shodgang
a.com
www.researchs
cholar.com
www.wikipedia
.com
www.mospic.in
jagarhjosh.com
www.slideshar
e.com aacount
learning.com
Researchgate.c
om
Legal
dictiona
ry.in

Books

Special study in financial – Arvind

A. Dhond Special Study in
financial – Pawan Jhabak
Stock Market in India; Working And Reforms – Sabri Gupta

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89