A Research
On
THE IMPACT OF MONETARY POLICY ON BALANCE OF PAYMENT IN INDIA
Submitted in the partial fulfilment of the requirements for
the Three Year Full Time Bachelor of Commerce
(2018-2021)
Under the
Guidance of : Submitted By:
School of commerce and
management
[collage name]
CERTIFICATE OF ORIGINALITY
We hereby declare that this
Summer Internship Project is my own work and that, to the best of my knowledge
and belief, it reproduces no material previously published or written that has
been accepted for the award of any other degree of master, except where due
acknowledgement has been made in the text.
Name of Student :-
Roll no:-
CERTIFICATE
This is to certify that name
of Student B.Com (2017-2020
Batch) a student of UNIVERSITY has undertaken the project on “THE IMPACT OF MONETARY POLICY ON
BALANCE OF PAYMENT IN INDIA”. To the best of my knowledge, the survey,
data collection, & analysis work for preparing the project has been carried
out by the student in partial fulfilment of the requirements for the award of
B.Com, under my guidance and supervision.
I am satisfied with the work of Mr /Ms …………………………..
Date:
Faculty Mentor’s Name:
(Signature)
EXECUTIVE SUMMARY
This project is all about the stock market and their features. It
presents the stock market indices, trading technology and term of trade in
stock market.
In this research project showing the various indices and stock exchange
work in stock market.
The project is being done about the whole procedure essential to open
an online trading account couple with demat account.
The project will help in exploring the area where there is the
feasibility of acquiring more new investors.
It would also help in knowing the various perception of client that how
much they satisfied with the services of sharekhan and their brokerage.
The Indian scenario has been evaluated
considering the facts like, players in the market, advantages, draw-backs,
connectivity hazards. Still, in due course of time, Indian online share trading
will be able to find it’s hold; there is no doubt about that.
Beside this we all got the chance to trap
the derivative market in Indian share market, through which we got to know how
the margins are booked in real terms in the share market.
We also got the chance to get familiar
with. how the d/p account of a customer’s maintained by company in which we got the knowledge of
calculation of brokerages, maintenance charges of that d/p account as well as the
working of NSDL,CDSL,NSCCL etc
The report is divided into various
sections……..
CONTENT
|
Sr
No. |
Chapter |
|
Chapter
1 |
Introduction |
|
Chapter
2 |
Conceptual
Framework |
|
Chapter
3 |
Research
Methodology |
|
Chapter
4 |
Data
Analysis |
|
Chapter
5 |
Findings |
|
Chapter
6 |
Recommendation |
|
Chapter
7 |
Conclusion |
|
Chapter
8 |
Bibliography |
Overview of the Indian Retail Brokerage Industry
Industry Definition and Segmentation
The Indian Retail Brokerage Industry consists of companies that
primarily act as agents for the buying and selling of securities (e.g. stocks,
shares, and similar financial instruments) on a commission or transaction fee
basis.
Hence, to understand this industry we have to study Security Market:
Security Market
Which is the most televised structure in India? A study has revealed
that it is not the Rastrapati Bhawan or Parliament House; it is not the Taj
Mahal; it is not even the abode of Lord Tirupati; it is the Pheroze Jeejeebhoy Towers which houses
the oldest securities market participant in India, i.e. The Stock Exchange,
Mumbai. This indicates our intimate relationship with the securities market. In
today’s rational world, it really means the immense contribution of the
securities market to our life and economy.
Which are the most reformed sector / segment / market in the Indian
economy? Which sector / segment / market of the economy has witnessed as much
as nine special legislative interventions during the last decade? Which market
/ segment / sector acquired the first ever autonomous regulator (which in
course time became the model regulator) in India? Which sector / segment /
market of the economy consumes 3/4th space of the pink newspapers
everyday? Which sector / segment / market of the economy most promptly reflects
the feel good factor? The answer to all these questions is the securities
market. It expresses the significance of the securities market in our life.
Two years down the line, there are few questions to ask-Which is the
securities market first to set up demutualised stock exchanges in the World?
Which is the securities market first to use satellite communication technology
for securities transactions? Which is the securities market first to introduce
the straight through processing in securities transactions? Which major
securities market has implemented T+2 rolling settlement? Which is the largest
market for stock futures? Which securities market started real time on line
position monitoring of brokers? Which is the securities market where trading
terminals go off automatically when the margins are exhausted? Probably answer
to all of these is the Indian securities market. This has earned a place of
respect amongst the comity of securities markets in the World.
Segmentation Of Security Market :
It has two main
interdependent segments: Primary
market and the Secondary market.
The new issue market can not function without the secondary market.
The secondary market or the stock market provides liquidity for the issued
securities. The issued securities are traded in the secondary market offering
liquidity to the stocks at a fair price.
The stock exchanges through their listing requirements, exercise
control over the primary market. The company seeking for listing on the
respective stock exchange has to comply with all the rules and regulation given
by the stock exchange.
The primary market provides a direct link between the prospective
investor and the company. By providing liquidity and safety, the stock markets
encourage the public to subscribe to the new issues. The marketability and the
capital appreciation provided in the stock market are the major factors that
attract the investing public towards the stock market. Thus, it provides an
indirect link between the savers and the company.
The primary is that part of the capital
markets that deals with the issuing of new securities.
Companies, governments or public sector institutions can obtain funding
through the sale of a new stock or bond issue. This is typically done through a
syndicate of securities dealers. The process of selling new issues to investors
is called underwriting. In the case of a new stock issue,
this sale is an initial public offering (IPO). Dealers earn a
commission that is built into the price of the security offering, though it can
be found in the prospectus.
In primary market certain companies issue their shares directly to
the public, collect applications and after sorting out the good issues, they
put in their applications. The share brokers get their brokerage on the
transactions made.
The secondary market is the financial market for
trading of securities
that have already been issued in an initial private or public offering.
The secondary market comprises of brokerage that a broker earns in
the buying and selling of companies that are listed in the stock exchange.
These people are in charge of the conformation and carrying out of
transactions. Orders are taken and deliveries are made in the latter half of
the day. The erratic fluctuation of rates in the share market makes the
activity in a trade market a dynamic process. It is necessary for a broker to have
adequate knowledge about the economic and political factors as they affect the
share market.
Even
though they are complementary to each other, their functions and the
organizational set up are different from each other. The health of the primary
markets depends on the secondary market and vice.
Evolution of the Retail Brokerage Market
A Brief History:
1. Pre 1990
Though the historical records relating to securities market in India
is meager and obscure, there is evidence to indicate that the loan securities
of the East Indian Company used to be traded towards close of the 18th
century. By 1830’s, the trading in shares of banks started. The trader by the
name of broker emerged in 1830 when 6 persons called themselves as share
brokers. This number grew gradually. Till 1850, they traded in shares of banks
and securities of the East India Company in Mumbai under a sprawling Banyan
Tree in front of the Town Hall, which is now in the Horniman Circle Park. It is
no surprise that the majestic Phiroze Jeejeebhoy Towers is located at the
Horniman Circle. In 1850, the Companies Act introducing limited liability was
enacted heralding the era of modern joint stock company which propelled trading
volumes.
The American Civil War broke out in 1861 which cut off supply of
cotton from the USA to Europe. This heightened the demand for cotton from
India. Cotton prices increased. Exports of cotton grew, payments were received
in bullion. The great and sudden spurt in wealth produced by cotton price
propelled setting up companies for every conceivable purpose. Between 1863 and
1865, the new ventures raised nearly Rs.30 crore in the form of paid up capital
and nearly Rs. 38 crore of the premia. Rarely was a share which did not command
a premium between 1861 and 1865. The Back Bay Reclamation share with Rs.5,000
paid up was at Rs.50,000 premium, the Port Canning share with Rs. 1,000 paid up
was at Rs.11,000 premium, etc. There was a share mania and every body was after
a piece of paper, variously called ‘allotments’, ‘scrips’ and ‘shares’. The
people woke up only when the American Civil war ended. Then all rushed to sell
their securities but there were no buyers. They were left with huge mass of
unsaleable paper. This occurred then. This also occurs today at regular
intervals. There is, little seems to have changed since then; the bubbles and
burst continue to be a perennial feature of the securities market world over.
The depression was so severe that it paved way for setting up of a
formal market. The number of brokers, which had increased during the civil war
to about 250, declined. During the civil war, they had become so influential
and powerful that even the police had only slams
for them. But after the end of the civil war, they were driven from pillar to
post by the police. They moved from place to place till 1874 when they found a
convenient place, which is now appropriately called Dalal Street after
their name. They organized an informal association on or about 9th
July 1875 for protecting their interests. On 3rd December 1887, they
established a stock exchange called ‘Native Share and Stock Brokers’
Association’. This laid the foundation of the oldest stock exchange
in India. The word ‘native’ indicated that only natives of India could be
brokers of the Exchange.
In 1880s a number textile mills came up in Ahmedabad. This created a
need for trading of shares of these mills. In 1894, the brokers of Ahmedabad
formed "The Ahmedabad Share and Stock Brokers' Association".
The 1870s saw a boom in jute prices, 1880s and 1890s saw boom in tea
prices, then followed coal boom. When the booms ended, there were endless
differences and disputes among brokers in eastern India which was home to
production of jute, tea and coal. This provoked the establishment of "The
Calcutta Stock Exchange Association" on June 15, 1908.
Then followed the proliferation of exchanges, many of them even do
not exist today. The rest is history.
2. Fast Forward to 1990s
In 1980s and
1990s, it was increasingly realized that an efficient and well developed
securities market is essential for sustained economic growth. Without venturing
into a detailed discussion, it would suffice if I just say that the securities
market fosters economic growth to the extent it augments the quantities of real
savings and capital formation from a given level of national income and it
raises productivity of investment by improving allocation of investible funds.
The extent depends on the quality of the securities market. In order to improve
the quality of the market, that is, to improve market efficiency enhance
transparency, prevent
unfair trade practices and bring the Indian market up to international
standards, a package of reforms consisting of measures to liberalize, regulate
and develop the securities market is being implemented since early 1990s.
Legal
Developments:
Control of capital issues was introduced through the Defence of India Rules in 1943 under the Defence
of India Act, 1939 to channel resources to support the war effort. The
control was retained after the war with some modifications as a means of
controlling the raising of capital by companies and to ensure that national
resources were channeled to serve the goals and priorities of the government,
and to protect the interests of investors. The relevant provisions in the
Defence of India Rules were replaced by the Capital Issues (Continuance of Control)
Act in April 1947.
Though the stock exchanges were in operation, there was no
legislation for their regulation till the Bombay Securities Contracts Control Act
was enacted in 1925. This was, however, deficient in many respects. Under the
constitution which came into force on January 26, 1950, stock exchanges and
forward markets came under the exclusive authority of the central government.
Following the recommendations of the A. D. Gunwale Committee in 1951, the Securities
Contracts (Regulation) Act, 1956 was enacted to provide for direct and
indirect control of virtually all aspects of securities trading and the running
of stock exchanges and to prevent undesirable transactions in securities.
3. Post 2015
Gone are the days when you left orders with your broker, received
conformations on the price and quality of the shares at the end of the day and
the payment made upfront or received after delays. Your securities settlement
took days to reflect in your account. Internet has changed the way you do
trading. The entire process is speedy with limited to zero paper work. NSE
launched internet trading in early February 2010. It is the first stock
exchange in the country to provide a web-based access to investors to trade
directly on the exchange.
The process : Log on to the brokers site of your choice where you get real time quotes,
place a buy or sell order on the spot, and direct the site to debit the
requisite amount. In some time you get confirmation and after the trade
settlement your bank and depository account will reflect the changes which you
can view anywhere, anytime. Online trading has become seamless. All that you
need is a PC, a modem, subscription to an Internet
Service Provider (ISP), a saving and a depository account with any bank
providing online trading facility. Along with stocks one can trade in mutual
funds and investment instruments. The advantage with online trading that you
can operate in both BSE and NSE depending on the broking firm.
NSE introduced for the first time in India a fully automated screen
based trading. It uses a modern fully computerized trading system designed to
offer investor across the length and breadth of country a safe and easy way to
invest. The NSE trading system called “National Exchange for Automated Trading”
(NEAT) is a fully automated screen-based trading system which adopts
the principle of an order driven market.
Stock Exchanges and Stock Brokers
BOMBAY STOCK EXCHANGE
Background: The BSE Sensitive Index (1978-79=100) has, to a considerable
extent, been serving the purpose of quantifying the price movements as also
reflecting the sensitivity of the market in an effective manner.
The number of companies listed on the Bombay Stock Exchange has
registered a phenomenal increase from 992 in the year 1980 to about 4800
companies by the end of July 2015 and their combined market capitalization rose
from Rs. 5,421 crores to around Rs. 18, 00,000crores at end of July 2015.
These factors necessitated compilation of a new broad-based index
series reflecting the present market trends in a more effective manner and
providing a better representation of the increased equity stocks, market
capitalization as also the newly emerged industry groups. Towards this end, the
Exchange constructed and launched on 27th May 1994,
two index series viz. the BSE-200 and the DOLLEX.
Coverage: The equity shares of 200 selected companies from the specified and
non-specified lists of this Exchange have been considered for inclusion in the
sample for `BSE-200'. The selection of companies has primarily been done on the
basis of current market capitalization of the listed scrips on the exchange.
Besides market capitalization, the market activity of the companies as
reflected by the volumes of turnover and certain fundamental factors were
considered for the final selection of the 200 companies.
Choice of
Base Year: The financial year 1989-90 has been chosen as the base year for the
price stability exhibited during that year and due to its proximity to the
current period.
NATIONAL STOCK EXCHANGE
The 13-year-old National Stock Exchange (NSE) has outshined the 130
years old Bombay Stock Exchange (BSE) in terms of turnover and volumes. The BSE
has lost its market share in these segments from 36 per cent to 31 percent in
last three years. The turnover in BSE stood at around Rs 2,950 crore as on
August 17, 2015 while the turnover in NSE was Rs 3,926 crore. The volumes
(numbers of shares traded) of NSE at 2.94 crore was also much higher than the
volumes of BSE. The NSE has rewritten a number of rules and upset many
traditions. As the derivatives segment has immense effect on the cash market,
the movement in this segment mostly determines the trend in the market.
Against nearly 1,400 companies listed on the NSE, the BSE has nearly
4,800 listed companies. Despite such a huge number of listed companies, the total
market capitalization of BSE is around Rs 20 lakh crore while on the other hand
NSE has a total market capitalization of Rs 19.7 lakh crore.
The most tracked index on NSE, CNX Nifty also has more number of
stocks than the BSE Sensex. Nifty represents 50 stocks while the Sensex
represents only 30 stocks. The presence of more stocks on Nifty gives a better
valuation than Sensex.
NSE building at
BKC, Mumbai
The National Stock Exchange (NSE) (Hindi: राष्ट्रीय शेअर बाज़ार Rashtriya Śhare
Bāzaār) is a stock
exchange located at Mumbai, India. It is the 9th largest stock exchange in the world by market capitalization
and largest in India by daily turnover and number of trades, for both equities
and derivative trading.[2] NSE has a
market capitalization of around US$1.59 trillion and over 1,552
listings as of December 2010.[3] Though a
number of other exchanges exist, NSE and the Bombay Stock Exchange
are the two most significant stock exchanges in India, and between them are
responsible for the vast majority of share transactions. The NSE's key index is
the S&P CNX Nifty,
known as the NSE NIFTY (National
Stock Exchange Fifty), an index of fifty major stocks weighted by market
capitalisation.
NSE is
mutually-owned by a set of leading financial institutions, banks, insurance
companies and other financial intermediaries in India but its ownership and
management operate as separate entities.[4] There are at
least 2 foreign investors NYSE Euronext and Goldman Sachs who have taken a
stake in the NSE.[5] As of 2006,
the NSE VSAT terminals, 2799 in
total, cover more than 1500 cities across India.[6] NSE is the
third largest Stock Exchange in the world in terms of the number of trades in
equities.[7] It is the
second fastest growing stock
exchange in the world with a recorded
growth of 16.6%.[8]
Origins
The National Stock
Exchange of India was promoted by leading Financial institutions
at the behest of the Government of India, and was
incorporated in November 1992 as a tax-paying company. In April 1993, it was
recognized as a stock exchange under
the Securities Contracts (Regulation) Act, 1956. NSE commenced operations in the Wholesale Debt Market (WDM)
segment in June 1994. The Capital
market (Equities) segment of the NSE commenced operations in November 1994,
while operations in the Derivatives segment
commenced in June 2010.
Innovations
NSE pioneering
efforts include:
●
Being the first national,
anonymous, electronic limit order book (LOB) exchange to trade securities in
India. Since the success of the NSE, existent market and new market structures
have followed the "NSE" model.
●
Setting up the first clearing
corporation "National Securities Clearing Corporation Ltd." in India.
NSCCL was a landmark in providing innovation on all spot equity market (and
later, derivatives market) trades in India.
●
Co-promoting and setting up of
National Securities Depository Limited, first depository in India [9]
●
Setting up of S&P
CNX Nifty.
●
NSE pioneered commencement of
Internet Trading in February 2010, which led to the wide popularization of the
NSE in the broker community.
●
Being the first exchange that,
in 1996, proposed exchange traded derivatives, particularly on an equity index,
in India. After four years of policy and regulatory debate and formulation, the
NSE was permitted to start trading equity derivatives
●
Being the first and the only
exchange to trade GOLD ETFs (exchange traded funds) in India.
●
NSE has also launched the
NSE-CNBC-TV18 media centre in association with CNBC-TV18.
●
NSE.IT Limited, setup in 1999 ,
is a 100% subsidiary of the National Stock Exchange of India. A Vertical
Specialist Enterprise, NSE.IT offers end-to-end Information Technology (IT)
products, solutions and services.
●
NSE (National Stock Exchange)
was the first exchange in the world to use satellite communication technology
for trading, using a client server based system called National Exchange for
Automated Trading (NEAT). For all trades entered into NEAT system, there is
uniform response time of less than one second.
Markets
Currently, NSE has
the following major segments of the capital market:
●
Equity
●
Futures and Options
●
Retail Debt Market
●
Wholesale Debt Market
●
Currency futures
●
MUTUAL FUND
●
STOCKS LENDING & BORROWING
August 2008
Currency derivatives were introduced in India with the launch of Currency
Futures in USD INR by NSE. Currently it has also launched currency futures in
EURO, POUND & YEN. Interest Rate Futures was introduced for the first time
in India by NSE on 31 August 2016, exactly after one year of the launch of
Currency Futures.
NSE became the
first stock exchange to get approval for Interest rate futures as recommended
by SEBI-RBI committee, on 31 August 2016, a futures contract based on 7% 10
Year GOI bond (NOTIONAL) was launched with quarterly maturities. [10]
Hours
NSE's normal
trading sessions are conducted from 9:15 am India Time to 3:30 pm India Time on
all days of the week except Saturdays, Sundays and Official Holidays declared
by the Exchange (or by the Government of India) in advance.[11] The
exchange, in association with BSE (Bombay Stock Exchange Ltd.), is thinking of
revising its timings from 9.00 am India Time to 5.00 pm India Time.
There were System
Testing going on and opinions, suggestions or feedback on the New Proposed
Timings are being invited from the brokers across India. And finally on 18
November 2016 regulator decided to drop their ambitious goal of longest Asia
Trading Hours due to strong opposition from its members.
On 16 December
2016, NSE announced that it would advance the market opening to 9:00 am from 18
December 2016. So NSE trading hours will be from 9.00 am till 3:30 pm India
Time.
However, on 17
December 2016, after strong protests from brokers, the Exchange decided to
postpone the change in trading hours till 4 Jan 2010.
NSE new market
timing from 4 Jan 2010 is 9:00 am till 3:30 pm India Time.
Milestones
●
November 1992 Incorporation
●
April 1993 Recognition as a
stock exchange
●
May 1993 Formulation of
business plan
●
June 1994 Wholesale Debt Market
segment goes live
●
November 1994 Capital Market
(Equities) segment goes live
●
March 1995 Establishment of
Investor Grievance Cell
●
April 1995 Establishment of
NSCCL, the first Clearing Corporation
●
June 1995 Introduction of
centralised insurance cover for all trading members
●
July 1995 Establishment of
Investor Protection Fund
●
October 1995 Became largest
stock exchange in the country
●
April 1996 Commencement of
clearing and settlement by NSCCL
●
April 1996 Launch of S&P
CNX Nifty
●
June 1996 Establishment of
Settlement Guarantee Fund
●
November 1996 Setting up of
National Securities Depository Limited, first depository in India, co-promoted
by NSE
●
November 1996 Best IT Usage
award by Computer Society of India
●
December 1996 Commencement of
trading/settlement in dematerialised securities
●
December 1996 Dataquest award
for Top IT User
●
December 1996 Launch of CNX
Nifty Junior
●
February 1997 Regional clearing
facility goes live
●
November 1997 Best IT Usage
award by Computer Society of India
●
May 1998 Promotion of joint
venture, India Index Services & Products Limited (IISL)
●
May 1998 Launch of NSE's
Web-site: www.nse.co.in
●
July 1998 Launch of NSE's
Certification Programme in Financial Market
●
August 1998 CYBER CORPORATE OF
THE YEAR 1998 award
●
February 1999 Launch of
Automated Lending and Borrowing Mechanism
●
April 1999 CHIP Web Award by CHIP
magazine
●
October 1999 Setting up of
NSE.IT
●
January 2010 Launch of NSE
Research Initiative
●
February 2010 Commencement of
Internet Trading
●
June 2010 Commencement of
Derivatives Trading (Index Futures)
●
September 2010 Launch of 'Zero
Coupon Yield Curve'
●
November 2010 Launch of Broker
Plaza by Dotex International, a joint venture between NSE.IT Ltd. and i-flex
Solutions Ltd.
●
December 2010 Commencement of
WAP trading
●
June 2011 Commencement of
trading in Index Options
●
July 2011 Commencement of
trading in Options on Individual Securities
●
November 2011 Commencement of
trading in Futures on Individual Securities
●
December 2011 Launch of NSE VaR
for Government Securities
●
January 2012 Launch of Exchange
Traded Funds (ETFs)
●
May 2012 NSE wins the
Wharton-Infosys Business Transformation Award in the Organization-wide
Transformation category
●
October 2012 Launch of NSE
Government Securities Index
●
January 2013 Commencement of
trading in Retail Debt Market
●
June 2013 Launch of Interest
Rate Futures
●
August 2013 Launch of Futures
& options in CNXIT Index
●
June 2014 Launch of STP
Interoperability
●
August 2014 Launch of NSE’s
electronic interface for listed companies
●
March 2015 ‘India Innovation
Award’ by EMPI Business School, New Delhi
●
June 2015 Launch of Futures
& options in BANK Nifty Index
●
December 2006 'Derivative
Exchange of the Year', by Asia Risk magazine
●
January 2007 Launch of NSE –
CNBC TV 18 media centre
●
March 2007 NSE, CRISIL announce
launch of IndiaBondWatch.com
●
June 2007 NSE launches
derivatives on Nifty Junior & CNX 100
●
October 2007 NSE launches
derivatives on Nifty Midcap 50
●
January 2008 Introduction of
Mini Nifty derivative contracts on 1 January 2008
●
March 2008 Introduction of long
term option contracts on S&P CNX Nifty Index
●
April 2008 Launch of India VIX
●
April 2008 Launch of Securities
Lending & Borrowing Scheme
●
August 2008 Launch of Currency
Derivatives
●
August 2016 Launch of Interest
Rate Futures
●
November 2016 Launch of Mutual
Fund Service System
●
December 2016 Commencement of
settlement of corporate bonds
●
February 2010 Launch of
Currency Futures on additional currency pairs
●
October 2010 Launch of
15-minute special pre-open trading session, a mechanism under which investors
can bid for stocks before the market opens. [12]
Indices
NSE also set up as
index services firm known as India Index Services & Products Limited (IISL)
and has launched several stock indices, including:[13]
●
S&P CNX Nifty(Standard
& Poor's CRISIL NSE Index)
●
CNX 100 (= S&P CNX Nifty + CNX Nifty
Junior)
●
S&P CNX 500 (= CNX 100 + 400 major players across 72
industries)
●
CNX Midcap (introduced on 18 July 2015
replacing CNX Midcap 200)
Exchange Traded Funds on NSE
NSE has a number of
exchange . These are typically index funds and GOLD ETFs. Some of the popular
ETF's available for trading on NSE are:
●
NIFTYBEES - ETF based on NIFTY
index Nifty
BEES Live quote
●
GoldBees - ETF based on Gold
prices. Tracks the price of Gold. Each unit is equivalent to 1 gm of gold and
bears the price of 1gm of gold.
●
BankBees - ETF that tracks the
CNX Bank Index.
Certifications
NSE also conducts
online examination and awards certification, under its programmes of NSE's
Certification in Financial Markets (NCFM)[1]. Currently, certifications are available in 19 modules,
covering different sectors of financial and capital markets. Branches of the
NSE are located throughout India.
STOCK BROKERS
A stockbroker is a person who buys and sells stocks on behalf of
another person (or company). Stockbrokers also sometimes or exclusively trade
on their own behalf, as a principal,
speculating that a share
or other financial
instrument will increase or decline in price. In such cases the term
broker makes little sense and the
individuals or firms trading in a principal capacity sometimes call themselves
dealers, stock traders
or simply traders.
In the US: When acting as an agent, the stockbroker typically charges the
client a flat fee and/or a percentage-based commission for undertaking
the trade, and the price quoted the client must be the best price available in
the market. When acting as a principal, the trade could be with another market
participant or one of the stockbroker's clients. When trading in a principal
capacity with a client, the broker informs the client and charges the client a
markup or markdown from the prevailing market price.
In the UK: When acting as an agent, the stockbroker charges the client a flat
fee and/or a percentage-based commission
for undertaking the trade, and the price quoted the client must be the best
price available in the market. When acting as a principal, the trade could be
with another market participant or one of the stockbroker's clients. When
trading in a principal capacity with a client, the broker is obliged to inform
the client and no commission is charged
Roles similar to that of a stock broker include investment advisor, financial advisor, and
probably many others. A stockbroker may or may not be also an investment
advisor. Similarly, investment advisor may or may not be a stockbroker.
The Certified
Financial Planner designation initially offered by the American
College in Pennsylvania is considered by many to be the next educational step a
stock broker can take in order to be considering a legitimate and ethical
financial consultant.
The stock market will have either one or a number of stock
exchanges.
In India, the most famous are the Bombay Stock Exchange and the
National Stock Exchange.
Then there are regional exchanges like the Ahmedabad Stock
Exchange, Calcutta Stock Exchange and the Cochin Stock Exchange.
The two most prominent ones are the BSE and NSE. Together, they
account for most of the stock trades in the country. This means that if they
catch a cold, exchanges all over the country will sneeze
People like you and me just cannot go to a stock exchange and buy
and sell shares. If we want to do so, we have to get in touch with someone
who is a member of the stock exchange. This means we need to talk to a
stockbroker.
Stockbrokers buy and sell shares for them to make a profit.
They also buy and sell shares on behalf of people like you and me and
take a commission for doing so (more on this on another day).
Every stockbroker has to be registered with the Securities and
Exchange Board of India, which is the stock market regulator. SEBI's main
function is to make sure those who invest in the stock market follow
the rules and no scams take place. It is supposed to act as a watchdog on
behalf of the investors.
Readers from Mumbai may have seen the imposing stock exchange
building called Jeejeebhoy Towers.
That's the home of the BSE.
But you would be disappointed if you think you can step inside
the building and watch the market excitement firsthand as brokers frenziedly
trade stocks. That's because all stock markets in India are now electronic.
Brokers have BSE computer terminals in their offices, from which
they trade. They also have BSE terminals in other cities and don't have to
be physically present in Mumbai to trade on the BSE. This means that even if
you stay outside Mumbai, you can contact a BSE broker and buy or sell stocks on
the BSE.
Years ago, the BSE was a place where brokers physically bought
and sold stocks and shares through a system known as 'open outcry'. As a result, the market then resembled a fish or
vegetable market.
If you watch CNBC, you'll find that the New York Stock
Exchange still follows that system, with traders rushing around on the
trading floor, scribbling trades on little slips of paper.
Actually, the improvements in the BSE came about when the government
promoted the NSE. The NSE was an electronic exchange from the beginning and it
started competing with the BSE, which in turn forced the BSE to tone up its
act.
Recent Developments
Online Trading
Online Trading is a service offered on the internet for purchase and
sale of shares. In the real world, you place orders on your stockbroker either
verbally (personally or telephonically) or in a written form (fax). In Online
Trading, you will stockbroker's website through your internet-enabled PC and
place orders through the broker's internet-based trading engine. These orders are routed to the
Stock Exchange without manual intervention and executed thereon in a matter of
a few seconds. .
There are 2 types of online trading service: discount brokers and full
service online broker. Discount online brokers allow you to trade via
Internet at reduced rates. Some provide quality research, other don't. Full
service online brokerage is linked to existing brokerages. These brokers allow
their clients to place online orders with the Option of talking/ chatting to
brokers if advice is needed. Brokerage rates here are higher. K&A Securities Pvt. Ltd., 5Paisa.com, ICICIDirect.com,
IndiaBulls.com, Religare.in, Geojitsecurities.com, HDFCsec.com, Tatatdw.com,
Kotakstreet.com are some of the online broking sites in India.
The various transactions involved in online trading can be shown
from the point of view of the
● Client
● Broker
● Stock Exchange
The client places an order via the net by logging on to his broker’s
site. The broker accepts and executes the order, and places it with the
exchanges.
The exchange accepts the order after checking the share limit for
the day.
The brokers makes the payment either directly via the client’s
bank account or pays through his own
account and recovers it later from the client.
The exchange receives money and completes the settlement.
The client is intimated about the settlement either through the
demat account or via E-mail.
HURDLES FOR ONLINE SHARE TRADING
1. Internet fraud
In India, we see this kind of frauds happening in different way due
to nature of our society. Here when you talk to broker's staff while buying or
selling, he will usually advise you to buy share which he has bought and plans
to dump when price goes up.
We have seen enough of PUMP and DUMP even without help of internet
in cases of Harshad Mehta boom of 1992 and Ketan Parekh boom of 2015 (he even
had cult following with Index of 10 shares called K-10).
Today lot of investor’s depending on TV channel for recommendation
about stocks to sell, or buy or hold. Channels like CNBS offer array of experts
from economist to brokers to analyst. Most of these people have vested interest
in stocks they recommend and promote.
One of the most common forms of securities fraud on the Internet
involves an imposter who attempts to manipulate the price of a stock by
disseminating phony press releases or information, or creating phony websites.
A recent example of this scheme is the hoax perpetrated against US based,
PairGain Technologies.
2. Volatility of India’s Stock Markets
Recent market developments have once more focused attention on the
volatility that has come to characterise India’s stock markets.
Movements in the Sensex during the two years have clearly been
driven by the behaviour of foreign institutional investors (FIIs), who were
responsible for net equity purchases of as much as $6.6 and $8.5 billion
respectively in 2013 and 2014. These figures compare with a peak level of net
purchases of $3.1 billion as far back as 1996 and net investments by FIIs of
just $753 million in 2012. In sum, the sudden FII interest in Indian markets in
the last two years account for the two bouts of medium-term buoyancy that the
Sensex recently displayed.
Given the presence of foreign institutional investors in Sensex
companies and their active trading behaviour, their role in determining share
price movements must be considerable. Indian stock markets are known to be
narrow and shallow in the sense that there are few companies whose shares are
actively traded. Thus, although there are more than 4700 companies listed on
the stock exchange, the BSE Sensex incorporates just 30 companies, trading in
whose shares is seen as indicative of market activity. This shallowness would
also mean that the effects of FII activity would be exaggerated by the
influence their behaviour has on other retail investors, who, in herd-like
fashion tend to follow the FIIs when making their investment decisions.
3. Rampant Speculation
The Indian stock markets are perhaps the only place in the world
where you can buy shares without having to put money on the table and sell
shares you do not own. This extraordinary situation has facilitated rampant
speculation by all sorts of operators – the indigenous variety, FIIs and even
our own native financial institutions (FIs) as the massive UTI scandal of
recent years has demonstrated. So, when the stock markets were made to collapse
by a record 800-plus points on May 17 under the pretext that the Left is
opposed to divestment, the profits reaped by short sellers were astronomical
and incalculable.
Could this situation have been avoided? As aforesaid, the answer is
yes. The electronic monitoring system in both the Bombay Stock Exchange and the
bigger National Stock Exchange automatically stopped trading for half-an-hour
when the two markets respectively collapsed by 10 percentage points. Thereafter
when trading resumed and the markets fell further to another stipulated lower
level, the electronic system automatically stopped all trading again for
another two hours.
A similar situation had occurred on Tuesday, September 11, 2011, the
day of the terrorist attacks in New York City. At the end of the day the stock
exchange authorities of both the New York Stock Exchange and the
heavily-weighted software exchange called NASDAQ suspended all trading for the
remainder three working days during that fateful week to safeguard investor
interests.
T+2 Rolling Settlement
As per the directive by SEBI, all transactions in all groups of
securities in the Equity Segment and Fixed Income securities listed on the
Exchange are required to be settled on T+2 basis w.e.f. from April 1, 2014. The
settlement calendar, which indicates the dates of the various settlement related
activities, is drawn by the Exchange in advance and is circulated among the
market participants.
Under rolling settlements, the trades done on a particular day are
settled after a given number of business days. A T+2 settlement cycle means
that the final settlement of transactions done on T, i.e., trade day by
exchange of monies and securities between the buyers and sellers respectively
takes place on second business day (excluding Saturdays, Sundays, bank and
Exchange trading holidays) after the trade day.
The transactions in securities of companies which have made
arrangements for dematerialization of their securities are settled only in
demat mode on T+2 on net basis, i.e., buy and sell positions of a member-broker
in the same scrip are netted and the net quantity and value is required to be
settled. However, transactions in securities of companies, which are in
"Z" group or have been placed under "trade to trade" by the
Exchange as a surveillance measure (“T” and “TS” group) , are settled only on a
gross basis and the facility of netting of buy and sell transactions in such
scrips is not available.
The Exchange has introduced a new segment named “BSE Indonext”
w.e.f. January 7, 2015. “S” group consists of scrips from “B1” & “B2” group
on BSE and companies exclusively listed on regional stock exchanges having
capital of 3 crores to 30 crores. All trades in this segment are done through
BOLT system under S group.
The transactions in 'F' group securities representing "Fixed
Income Securities" and "G" group representing Govt. Securities
for retail investors are also settled at the Exchange on T+2 basis.
In case of Rolling Settlements, pay-in and pay-out of both funds and
securities is completed on the same day.
The members are required to make payment for securities sold and/ or
deliver securities purchased to their clients within one working day (excluding
Saturday, Sunday, bank & Exchange trading holidays) after the pay-out of
the funds and securities for the concerned settlement is completed by the Exchange.
This is the timeframe permitted to the members of the Exchange to settle their
funds/ securities obligations with their clients as per the Byelaws of the
Exchange.
The following table summarizes the steps in the trading and settlement cycle
for scrips under CRS:
|
DAY |
ACTIVITY |
||||||
|
T |
|
||||||
|
T+1 |
|
||||||
|
T+2 |
|
||||||
|
T+3 |
|
||||||
|
T+4 |
|
Thus, the pay-in and pay-out of funds and securities takes places on
the second business day (i.e., excluding Saturday, Sundays and bank &
Exchange trading holidays) of the day of the execution of the trade.
* 6A/7A : A mechanism
whereby the obligation of settling the transactions done by a member-broker on
behalf of a client is passed on to a custodian based on confirmation of latter.
The custodian can confirm the trades done by the members on-line and up to 11
a.m. on the next trading day. The late confirmation of transactions by the
custodian after 11:00 a.m. up to 12:15 p.m., on the next trading day is,
however, permitted subject to payment of charges for late confirmation @ 0.01%
of the value of trades confirmed or Rs. 10,000/-, whichever is less.
Growing Derivative Market
One look at the accompanying derivatives ‘report card’ and you will
probably conclude that these instruments are a roaring success in India. Six
years after its debut, the derivatives market is flourishing, riding largely on
the ongoing bull Run. It has filled the void left by the old badla system of
trading, increasing the liquidity in the underlying cash market and providing
both traders and investors with new opportunities. But that is only one part of
the story. Dig beneath all the optimism and you will find that the derivatives
market is in desperate need for more products, more initiatives and a lot more
innovation.
Are Markets Mature Enough?
Individual stock futures were launched in November 2011. Since then,
not a single product has been introduced in the equity derivatives space. This
has left market participants crying for more.” There is a need for long-dated
options — which could have an expiry date 1-3 years in the future — as there is
a high cost involved with rolling-over one-month futures,” says Sanjeev Shah,
executive director, Benchmark AMC. There is also need for a roll-market that
simplifies the rollover process, feels C.K. Narayan, vice–president, ICICI
Securities.
|
Further, most of the trading happens in the near-month series
(contracts that expire in the same month as the day of trade), stock options
are very illiquid, and India’s ranking is relatively low among world exchanges
in value terms, even though the volumes are high.
But the high volumes needn’t necessarily mean that the markets are
mature. Much of the volume comes from arbitrage, where traders merely exploit
risk-less spreads. Only 20 per cent of the trades take a directional view on
the market estimates Narayan.
Near-month contracts are more liquid than the rest, the world over.
But in India’s case, the disparity is rather extreme. On a typical trading day
in the middle of the month, about 98 per cent of the turnover comes from
near-month contracts, while less than 0.5 per cent comes from the far-month
series. Of the 124 symbols available for futures trading, far-month contracts
of only about 10 per cent are traded. The concentration of volumes in the
near-month series means that this is a speculator’s market, points out Susan
Thomas, assistant professor, Indira Gandhi Institute of Development Research
(IGIDR). (She had earlier worked on the project that led to the construction of
NSE’s Nifty index.) In 2015, non-institutional trade accounted for over 93 per
cent of total trade in the derivatives segment, much higher than their 83 per
cent share in the cash market.
Despite its strong growth in the last six years, NSE has lagged
behind global peers in value terms. The Korea Stock Exchange — the country’s financial
reforms began in the early 1990s along with India’s — is 32 times the size of
NSE (across all segments). NSE ranks No. 1 in the world in the stock futures
segment, but that’s only because the top exchanges do not trade that product.
In index futures, NSE ranked 15th with a turnover of $38.7 billion in
September. But this is less than 1 per cent of Chicago Mercantile Exchange’s
(CME) turnover of $4,431 billion.
The futures market — accounting for 87 per cent — has been the main
growth driver of the Indian derivatives market. But stock options are
pathetically illiquid, accounting for just 3 per cent of total turnover. On the
positive side, the share of index derivatives has steadily increased to 44 per
cent from about 11 per cent four years ago. That’s close to global norms of
about 60 per cent, implying that some amount of hedging, not mere speculation
is being done.
Fall In Brokerage Rates:
Depository participants (DPs) impose various charges on the
institutional as well as on individual clients under various heads for
providing services. The services available in dematerialized environment that
are extended to the clients are as follows:
⮚ Dematerialization
⮚ Rematerialization
⮚ Custodial services
⮚ Debit or Credit facility
⮚ Hypothecation
⮚ Speed-e along with smart card
⮚ Corporate benefits like bonus, stock split, dividend payment, etc.
This is an illustrative list of services available. The system of
charging a fee for the services extended to an investor is in two-layers. The
Depository charges the DPs and DPs in turn collect fee/charges from the
investor. Each DP uses different norms to classify charges depending on the
extent of services rendered.
NSDL has a provision for collecting a one-time fee of 0.05 percent
of market capitalization of the company, as custody fees for life. For these
companies, no custody charge is supposed to be charged from the investors for
life.
However, it is not clear whether DPs are passing this benefit to
investors.
Since 2-3 years with changing trends of industry and increased
competition, broking houses reduce brokerage rates to very much extent.
Advanced technology:
The growth in technology and communications has impacted every
aspect of business in some or the other form. These effects are enduring and have
changed the very way in which business is carried out.
The stock market is one such institution whose very existence has
been challenged by the growth in information technology. IT has turned the very
idea of a stock market on its head.
Technology has impacted the working of stock markets in every sense.
However, a useful starting point for this study would be the study of
dematerialization, or demat as it is popularly known as. This is simply because
demat has changed the way stocks are held and traded and therefore has effect
on every other function of the market.
Dematerialization in simple terms means the conversion of shares from physical to
electronic form.
Demat, enabled by the use of technology is probably is single most
important factor which has repercussions on every aspect of the stock markets.
Demat in India started with the creation of NSDL (National stock
depository limited) in 1996. UTI, was one of the first institutions to use
demat when it decided to dematerialize 50% of its holdings in 1997. SEBI gave a
boost to demat, with compulsory trading on shares in demat form in specified
scrips by institutional investors from Jan 15, 1998.
Market Size : Growth of Online
Brokerage market
In five years of its existence in India, online broking has grown to
account for a tenth of the total trading volumes. If the numbers are considered
for only the retail segments, the growth is starker. Almost half of the Rs
5,000 crore-6,000 crore daily market volumes on the NSE are accounted for by
non-retail entities such as foreign institutional investorsdomestic
institutions, mutual funds and arbitrage traders. Institutions aren't online
customers anyway. Of the rest of the retail segment, current estimates suggest
that online broking's reach is close to 30 per cent.
As of September this year, there were 11.7 lakh Internet trading
accounts registered with the NSE, of which roughly 9.5 lakh are unique users.
It's still a small proportion of the estimated 3 crore Internet users in the
country. As more surfers take to trading online, analysts expect their number
to keep doubling every year until 30-40 per cent of India's overall trades are
done online, as is the case in some mature Internet markets like South Korea's.
The Internet's effect here has more to do with the bandwidth it has
created for both brokers and clients. Banga, director of indiabulls offers an
example. "Traders from Ajmer use our online platform. It would otherwise
have been prohibitively loss-making to open a branch there." Thanks to the
new channel, volumes are growing faster in the non-metros, where transparency
is low in offline trading. "These customers were made to pay higher
charges by small brokers, since they weren't aware of the market rates,"
says Prasanth Prabhakaran, head of Kotaksecurities.com. That is one of the
reasons why more than 60 per cent of Kotak's daily online trading turnover
comes from non-metros.
NSE’s
growth story can be depicted by these figures:
Position of
cash market (online):
|
Month/Year |
No Of
Companies |
No of
Trades(lakh) |
Turnover(Rs
cr) |
Avg daily
turnover(Rs cr) |
|
Mar 2016 |
1089 |
344 |
1,53,344 |
5306 |
|
2007-08 |
1095 |
775 |
2,23,834 |
9913 |
|
Mar 2007 |
1084 |
710 |
167,954 |
7,998 |
|
April 2006 |
944 |
567 |
177,372 |
9,854 |
|
2015-06 |
929 |
6,088 |
1,569,556 |
6,253 |
|
2014-05 |
839 |
4,510 |
1,140,071 |
4,056 |
|
2013-04 |
787 |
3,780 |
1,099,535 |
4,328 |
|
2012-03 |
788 |
2,398 |
617,989 |
2,462 |
Porter's Five Forces Analysis
Of Online Brokerage Industry
Buyer
Power:
Awareness
of investing knowledge :
Earlier retail investors often lack the knowledge and expertise in
the financial sector that called them to approach the broking houses.
But now a days TV channels (like- CNBC) and financial magazines
(like- Business India), newspapers (like- financial express) are giving a brief
knowledge and updates of financial sector to retail investors, also they
provide investors tips to invest their money in stock market.
Hence it increases the power of buyer and reduces his dependence.
Low Product and Service
Differentiation Proves Beneficial :
The
retail broking services provided by the various companies are homogeneous with
very low product differentiation. This allows customers to enjoy a greater
bargaining power.
Supplier Power:
Increased
Dependence on IPOs
There is a growing dependence of corporate on broking houses with
the rising number of IPO's coming to the market.
We see traction when initial public offers (IPOs) are announced.
People find the online platform a very convenient way to enter the market.
In 2014-05, Rs 25,526 crore
was raised in the markets, almost 450 per cent more than the amount raised in
2012-03. For instance, in the month that the Maruti IPO was announced, 300,000
demat accounts were opened. In an average month, the figure is about 100,000.
Since 2012, the number of demat accounts has doubled to 7.1 million,
many of them belonging to new investors applying for IPOs.
Threat of Competitors:
Move
towards consolidation:
The bigger trend in the industry is consolidation, just like it happened
in the US and South Korea, where 90 per cent of online trades are with the top
10 players.
Says Banga: "As the industry grows, people prefer going to
solid brands that have strong balance sheets. The big guys can invest in
infrastructure, technology and risk management systems." As a result,
several sub-brokers have been pushed by client demand to take up franchises of
the bigger brokers.
The consolidation in the broking industry should see more and more
businesses shifting from small, hole-in-the-wall brokerages to big players.
Lot of brokerage companies is moving towards consolidation with the
smaller ones becoming either franchisees for the larger brokers or closing
operations.
Increased Focus of Banks in Retail Broking
Many
leading banks are coming into retail broking field like ICICI, HDFC, and UTI
etc.
Actually
as online trading has come into feature; it would be easy for banks to give
online trading platform with depositary services. Although they are into only
online trading, they are not dealing with proper services of RM (Risk manager).
Entry Of foreign Players
Even
the foreign players are seeing opportunities in the Indian markets. Various
foreign banks like ABN Amro and others are planning to enter the Indian retail
brokerage industry.
US-based
E*Trade took a 34 per cent stake in IL&FS Invest smart (along with
Softbank) in March 2014
Online Trading Competes
with Traditional Brokerage
There
is an increasing demand for online trading due to consumer's growing preference
for internet as compared to approaching the brokers.
In India, the economics don't allow it to be a
cost game. Says Bagchi: "Brokerage costs are already so low (0.1-0.5 per
cent for delivery) that the online medium doesn't really offer any significant
price advantages."
Traditional brokers are now scrambling to scale up their online
operations. Meanwhile, ICICI Direct & Indiabulls have raced ahead of the
others. The other online players that make up the top six - Sharekhan (owned by
SSKI), Religar(earlier fortis securities), Kotak Securities, HDFC Securities
and 5paisa (owned by Indiainfoline) - all have hybrid models. Collectively,
these players have 75-80 per cent of the market.
The remaining 130 players, who were given licenses to open online
trading platforms by the NSE, can be divided into three categories - those that
are active businesses but have less than 5 per cent of the online market
(Motilal Oswal among them); those that invested in the technology but weren't
able to get their projects off the ground (the Lalbhai Group's Anagram
Securities), and those that simply bid for the licence but didn't pursue
business. Most players fall in the last category.
Threat of New Entrants:
Entry of Foreign Players
As it is already
discussed above, many foreign players like ABN Amro and US-based E*Trade are
taking place in Indian retail brokerage industry.
New forms
of trading
New forms of trading including T+2 settlement system,
dematerialization etc are strengthening the retail brokerage market and
attracting foreign companies to enter the Indian industry
Threat of
Substitutes:
Alternative Investment
Options
Various alternative forms of investment including fixed deposits
with banks and post offices etc act as substitutes to retail broking products
and services.
The most important alternative investment form is Mutual Fund
investment in which gain is as higher as in shares investment but risk is too
low.
Role
of Stock Exchange in the Development of Indian Capital Market: A Study of
National Stock Exchange
Capital
occupies a position so dominant to the economic theory of production and
distribution that it is natural to assume that it should occupy at least an
equally important place in the theory and practice of economic growth. The
subject whether approached historically or analytically or from the standpoint
of policy, it is the process of capital accumulation that occupies the front of
the stage. It is usually implied that economic growth and capital accumulation
with a high positive and significant correlation and additions to the stock of
capital can provoke and facilitate faster rate of growth even under the
circumstances which can be described as shortage of capital.
The
aforesaid correlation between the process of economic growth and capital
accumulation inspired the earlier theorists of economic development and even in
the works of modern economists output is still assumed to be limited by capital
whether there is abundant labour or not. A high rate of capital formation
usually results in rapid growth in the production and income, but more capital
formation by itself will not bring a corresponding acceleration in the growth
of production. It also depends to a large extent on the manner in which the
capital is utilized.
Capital
market means the market for all the financial instruments, short term and long
term as also commercial, industrial and government paper. The capital
market deals with capital. The capital market is a market where borrowing and
lending of long term funds takes place. Capital markets deal in both debt and
equity. The governments both central and state raise money in the capital
market, through the issue of government securities. Capital markets refer to
all the institutes and mechanisms of raising medium and long-term funds,
through various instruments available like shares, debentures, bonds etc.
Corporate
both in the private sector as well as in the public sector raise thousands of
crores of rupees in these markets. The government, through Reserve Bank of
India, as well as financial institutions also raise a lot of money from these
markets. Example of a well-developed markets are – The Global depository
and American depository.
There
are two important operation carried on in these markets:
1. The raising the new capital
2. Trading in securities already issued by the companies.
The
important constituents of the capital market are:
1. The stock exchanges
2. Banks
3. The investment trusts and companies
4. Specialised financial institutions or development banks.
5. Mutual funds
6. Post office saving banks
7. Non banking financial institutions
8. International financial investors and institutions.
The
supply in this market comes from saving from different sectors of the economy.
These come from the following sources:
1. Individuals
2. Corporates
3. Governments
4. Foreign countries
5. Banks
6. Provident funds
7. Financial institutions.
Moreover
the establishment of National Stock Exchange and Bombay Stock Exchange has been
turning point in the working of capital markets. Recently the RBI has allowed
participation of individuals in the government securities markets. This move is
likely to open new avenues for investment to individuals. Moreover the Finance
Ministry has announced the removal of income tax on dividend in the hands of
the receiver and no capital gains tax on investments made in equity after
1.3.03 and held for one year.
HISTORY OF THE INDIAN CAPITAL MARKET
The
history of the capital market in India dates back to the eighteenth century
when East India Company securities were traded in the country. Until the end of
the nineteenth century, securities trading was unorganized and the main trading
centres were Bombay (now Mumbai) and Calcutta (now Kolkata). Of the two, Bombay
was the chief trading centre wherein bank shares were the major trading stock.
During the American Civil War (1860-61), Bombay was an important source of
supply for cotton. Hence, trading activities flourished during the
period, resulting in a boom in share prices. This boom, the first in the
history of the Indian capital market, lasted for a half a decade. The bubble
burst on July 1, 1865, when there was tremendous slump in share prices.
Trading
was at that time limited to a dozen brokers: their trading place was under a
banyan tree in front of the Town Hall in Bombay. These stockbrokers organized
an informal association in 1875-Native Shares and Stock Brokers Association,
Bombay. The stock exchanges in Calcutta and Ahmedabad, also industrial and
trading centres, came up later. The Bombay Stock Exchange was recognized in May
1927 under the Bombay Securities Contracts Control Act, 1925.
The
capital market was not well organized and developed during the British rule
because the British government was not interested in the economic growth of the
country. As a result, many foreign companies depended on the London capital
market for funds rather than on the Indian capital market.
In
the post-independence period also, the size of the capital market remained
small. During the first and second five-year plans, the government's emphasis
was on the development of the agricultural sector and public sector
undertakings. The public sector undertakings were healthier than the private
undertakings in terms of paid-up capital but their shares were not listed on
the stock exchanges. Moreover, the Controller of Capital Issues (CCI) closely
supervised and controlled the timing, composition, interest rates, pricing,
allotment, and floatation costs of new issues. These strict regulations
demotivated many companies from going public for almost four and a half
decades.
In
the 1950s, Century Textiles, Tata Steel, Bombay Dyeing, National Rayon, and
Kohinoor Mills were the favorite scrips of speculators. As speculation became
rempant, the stock market came to be known as 'Satta Bazaar'. Despite
speculation, non-payment or defaults were not very frequent. The government
enacted the Securities Contracts (Regulation) Act in 1956s was also characterized
by the establishment of a network for the development of financial institutions
and state financial corporations.
The
1960s was characterized by wars and droughts in the country which led to
bearish trends. These trends were aggravated by the ban in 1969 on forward
trading and 'badla', technically called 'contracts for clearing.' 'Badla'
provided a mechanism for carrying forward positions as well as borrowing funds.
Financial institutions such as LIC and GIC helped to revive the sentiment by emerging
as the most important group of investors. The first mutual fund of India, the
Unit Trust of India (UTI) came into existence in 1964.
In
the 1970s, badla trading was resumed under the disguised form of 'hand-delivery
contracts-A group.' This revived the market. However, the capital market
received another severe setback on July 6, 1974, when the government
promulgated the Dividend Restriction Ordinance, restricting the payment of
dividend by companies to 12 per cent of the face value or one-third of the
profits of the companies that can be distributed as computed under section 369
of the Companies Act, whichever was lower. This led to a slump in market
capitalization at the BSE by about 20 per cent overnight and the stock market
did not open for nearly a fortnight. Later came a buoyancy in the stock markets
when the multinational companies (MNCs) were forced to dilute their majority
stocks in their Indian ventures in favour of the Indian public under FERA,
1973. Several MNCs
the
form of financial assets. It also helps the segments of the savers who put
their savings in commercial firms and non-banking financial intermediaries
because these institutions avail themselves of the services of Stock Exchange
to invest the money thus collected.
The
Stock Exchange comes close enough to a perfectly competitive market allowing
the forces of demand and supply a reasonable degree of freedom to operate as
compared to other markets specially the commodity markets. This segment of the
factor market can be considered as a perfect or a nearly perfect market. Apart
from providing a mechanism for transacting business in stock and shares it
generates genuine potential for a new entrepreneur to take up initiative in the
private sector enterprises and allows the expansion of investing community by
offering gainful development of their otherwise sluggish or shy capital. The
Stock Exchange must assume the responsibility of protecting the rights of
investors specially the small investors in the Joint Stock Companies.
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EVOLUTION OF STOCK EXCHANGES IN INDIA
Any
attempt at raising the standard of living of the masses must address itself to
the task of producing the right quantity of the right types of goods and have
them available for consumption at the right time. This requires large-scale
production through coordination of activities of hundreds of people under the
same roof even when the product is the simplest to make.
This,
however, calls for raising vast amounts of financial resources for the purpose
of acquiring land, buildings and equipments, besides purchasing raw materials
and employing labour. No one individual or a small group of individuals is rich
enough to provide all the capital required by modern business enterprise and
savings of hundreds, if not thousands, of people must be mobilized.
The
corporate form of organization is well adapted to the task of raising capital
from many people. This is done by issuing or offering for sale at cash,
different types of securities, that is, shares and bonds, which offer to
individual investors a means of productively employing capital/savings suited
to his/her needs and temperament.
The
need for offering for sale different types of securities is obvious. Some
people may desire safety of the amount they have invested and a regular income
from their investment. To them the corporation or company may offer debenture
bonds- a certificate issued under the seal of the company promising a refund of
the loan on a specified date and payment of interest at prescribed intervals.
Other
investors may be willing to commit their savings for an indefinite period of
time and to assume greater risk while still desiring safety of capital and
stability of income. To them the corporation will sell preference shares. Still
other investors may be willing to shoulder the business risk that goes along
with the ownership of the business in the hope that the profit realized would
be large enough to compensate the greater risk they are assuming.
But
no one will buy these securities unless there exists an organized market where
the holders can dispose of them, should the need arise, and new investors can
purchase them. Over the years, such organized markets have come into existence
in all democratic and capitalistic countries including India. Such a market is
called stock market or a stock exchange in English speaking countries and a
'brouse' in continental Europe. There is, obviously, no need for stock
exchange in Communist countries since in such countries all the productive
organizations are owned by the government.
Organised
stock exchange in India are of recent origin. As late as 1933 there were only
three stock exchanges – one each at Ahmedabad,
Bombay and Calcutta, but trading in securities was in vogue much prior to that
year. Of course, no one can tell when the first transaction took place,
however, it is generally agreed that business in securities had begun as early
as the concluding years of the 18th century, that is, between the
years 1790 and 1800 A.D.
Existing structure of the stock exchanges in
India
The
Act recognizes stock exchanges with different legal structure. Presently the
stock exchanges which are recognised under the Securities Contracts
(Regulation) Act in India, could be segregated into two broad groups – 20 stock
exchanges which were set up as companies, either limited by guarantees or by
shares, and the 3 stock exchanges which are functioning as associations of
persons (AOP) viz. BSE, Ahmedabad Stock Exchange and Indore Stock Exchange. The
20 stock exchanges which are companies are: the stock exchanges of Bangalore,
Bhubaneswar, Calcutta, Cochin, Coimbatore, Delhi, Gauhati, Hyderabad,
Interconnected SE, Jaipur, Ludhiana, Madras, Magadh, Managalore, NSE, Pune,
OTCEI, Saurashtra-Kutch, Uttar Pradesh, and Vadodara. Of these, the stock
exchanges of Ahmedabad, Bangalore, BSE, Calcutta, Delhi, Hyderabad, Madhya
Pradesh, Madras and Gauhati were given permanent recognition by the Central
Government at the time of setting up of these stock exchanges. Apart from NSE,
all stock exchanges whether established as corporate bodies or Association of
Persons (AOPs), are non-profit making organizations.
Powers that may be exercised by the Stock
Exchange
The
powers of the stock exchange are to be exercised as per provisions in its
bye-law. As per SCRA Act any recognised stock exchange may, subject to the
previous approval of the[Securities and Exchange Board of India make bye-laws
for the regulation and control of contracts. The bye-laws can provide for the
exercise of following powers by the stock exchange
a. The opening and closing of markets and the regulation of the hours of trade;
b. Set up a clearing house for the periodical settlement of contracts and
differences thereunder, the delivery of and payment for securities, the passing
on of delivery orders and the regulation and maintenance of such clearing
house;
c. The regulation or prohibition of blank transfers;
d. The regulation, or prohibition of badlas or carry-over facilities;
e. The fixing, altering or postponing of days for settlements;
f. The determination and declaration of market rates, including the opening,
closing, highest and lowest rates for securities;
g. The terms, conditions and incidents of contracts, including the prescription
of margin requirements, if any, and conditions relating thereto, and the forms
of contracts in writing;
h. The regulation of the entering into, making, performance, rescission and
termination, of contracts, including contracts between members or between a
member and his constituent or between a member and a person who is not a
member, and the consequences of default or insolvency on the part of a seller
or buyer or intermediary, the consequences of a breach or omission by a seller
or buyer, and the responsibility of
Role of Stock Exchanges In Capital Market of
India
Stock Exchanges
play a crucial role in the consolidation of a national economy in general and
in the development of industrial sector in particular. It is the most dynamic
and organised component of capital market. Especially, in developing countries
like India, the stock exchanges play a cardinal role in promoting the level of
capital formation through effective mobilisation of savings and ensuring
investment safety.
Lets study the role
of stock exchanges in capital market of India :-
1. Effective Mobilisation of savings
Stock exchanges
provide organised market for an individual as well as institutional investors.
They regulate the trading transactions with proper rules and regulations in
order to ensure investor's protection. This helps to consolidate the confidence
of investors and small savers. Thus, stock exchanges attract small savings
especially of large number of investors in the capital market.
2. Promoting Capital formation
The funds mobilised
through capital market are provided to the industries engaged in the production
of various goods and services useful for the society. This leads to capital
formation and development of national assets. The savings mobilised are
channelised into appropriate avenues of investment.
3. Wider Avenues of investment
Stock exchanges
provide a wider avenue for the investment to the people and organisations with
investible surplus. Companies from diverse industries like Information
Technology, Steel, Chemicals, Fuels and Petroleum, Cement, Fertilizers, etc.
offer various kinds of equity and debt securities to the investors. Online
trading facility has brought the stock exchange at the doorsteps of investors
through computer network. Diverse type of securities is made available in the
stock exchanges to suit the varying objectives and notions of different classes
of investor. Necessary information from stock exchanges available from
different sources guides the investors in the effective management of their
investment portfolios.
4. Liquidity of investment
Stock exchanges
provide liquidity of investment to the investors. Investors can sell out any of
their investments in securities at any time during trading days and trading
hours on stock exchanges. Thus, stock exchanges provide liquidity of
investment. The on-line trading and online settlement of demat securities
facilitates the investors to sellout their investments and realise the proceeds
within a day or two. Even investors can switch over their investment from one
security to another according to the changing scenario of capital market.
5. Investment priorities
Stock exchanges
facilitate the investors to decide his investment priorities by providing him
the basket of different kinds of securities of different industries and
companies. He can sell stock of one company and buy a stock of another company
through stock exchange whenever he wants. He can manage his investment
portfolio to maximise his wealth.
6. Investment safety
Stock exchanges
through their by-laws, Securities and Exchange Board of India (SEBI) guidelines,
transparent procedures try to provide safety to the investment in industrial
securities. Government has established the National Stock Exchange (NSE) and
Over The Counter Exchange of India (OTCEI) for investors' safety. Exchange
authorities try to curb speculative practices and minimise the risk for common
investor to preserve his confidence.
7. Wide Marketability to Securities
Online price
quoting system and online buying and selling facility have changed the nature
and working of stock exchanges. Formerly, the dealings on stock exchanges were
restricted to its head quarters. The investors across the country were
absolutely in dark about the price fluctuations on stock exchanges due to the
lack of information. But today due to Internet, on line quoting facility is
available at the computers of investors. As a result, they can keep track of
price fluctuations taking place on stock exchange every second during the
working hours. Certain T.V. Channels like CNBC are fully devoted to stock
market information and corporate news. Even other channels display the on line
quoting of stocks. Thus, modern stock exchanges backed up by internet and
information technology provide wide marketability to securities of the
industries. Demat facility has revolutionised the procedure of transfer of
securities and facilitated marketing.
8. Financial resources for public and private sectors
Stock Exchanges
make available the financial resources available to the industries in public
and private sector through various kinds of securities. Due to the assurance of
liquidity, marketing support, investment safety assured through stock
exchanges, the public issues of securities by these industries receive strong
public response (resulting in oversubscription of issue).
9. Funds for Development Purpose
Stock exchanges
enable the government to mobilise the funds for public utilities and public
undertakings which take up the developmental activities like power projects,
shipping, railways, telecommunication, dams & roads constructions, etc.
Stock exchanges provide liquidity, marketability, price continuity and constant
evaluation of government securities.
10. Indicator of Industrial Development
Stock exchanges are
the symbolic indicators of industrial development of a nation. Productivity,
efficiency, economic-status, prospects of each industry and every unit in an
industry is reflected through the price fluctuation of industrial securities on
stock exchanges. Stock exchange sensex and price fluctuations of securities of
various companies tell the entire story of changes in industrial sector.
11. Barometer of National Economy
Stock exchange is
taken as a Barometer of the economy of a country. Each economy is economically
symbolized (indicators) by its most significant stock exchange. New York Stock
Exchange, London Stock Exchange, Tokyo Stock Exchange and Bombay Stock Exchange
are considered as barometers of U.S.A, United Kingdom, Japan and India
respectively. At both national and international level these stock exchanges
represent the progress and conditions of their economies.
Thus, stock
exchange serves the nation in several ways through its diversified economic
services which include imparting liquidity to investments, providing
marketability, enabling evaluation and ensuring price continuity of securities.
The National Stock Exchange was a fitting
response to the Wild West that was the 1990s' BSE.
The National Stock Exchange [NSE]
is today a nation wide, wireless stock trading system that has earned the trust
and respect of all Indians. It is one of the largest systems of its kind in the
world: with a satellite hub and over 3000 --going on 4000-- VSAT spokes. Since
it went online on Nov 4,1994 -- amidst fond predictions by vested interests of
its early demise-- NSE has grown unstoppably.
The
pace maker:
In about a year,its volume exceeded
that of the shark infested Bombay Stock Exchange [BSE]. Today, --after about
eight years-- it serves 400 cities and offers over 700 companies to trade in.
Small town Indian has --because of the NSE-- imbibed the equity cult. The slimy
jobber-broker cabal of old has been shoved aside by the wysiwyg screen based
system. The forgers and system cloggers pushing papers around have been edged
out by dematerialsed [Dmat] shares. The poker players with little in their
pockets who created huge payment crises have been stymied by an emerging
rolling system of payments. And wonder of wonders, the foggy 'badla' system --that
no one understood or benefited by, except the legatees of its ancient
creators-- has been replaced by a state of the art futures and options
facility.
The effect of NSE on India's
economic regeneration is also significant. The transparency it has come to
stand for has brought in foreign investors. It has made companies and broking
firms behave -- or else. It is the platform on which every modern feature of
world's financial markets is becoming available. The credibility it has
developed by smoothly carrying out over 300 settlements, by rarely failing
either because of hardware or software, by attracting steely professionals to
its corporate employ is beginning to pay off: NSE is in demand to set up
similar systems in many countries.
Ashes
of greed:
Just ten years ago Indian stock
markets were a mine field. The individual investor was routinely being ripped
off. He would give his buy/sell order to his broker whose jobber would then
disappear into a sweaty, shouting ring called the stock exchange. Throughout
the trading hours he would be inaccessible. When he finally emerged it would
turn out that he either sold for you at the lowest price or bought at the
highest. Then began the share transfer dance, with excursions into mismatched
signatures, forged certificates, simple bankruptcies and crawling share
registries. Finally, about a month after the deal began you could entertain
thoughts of payments from your broker.
The stock exchanges were a haven
for the crooked. Big players operated in collusion with banks, institutions,
listed companies and toothless boards of the exchanges. Harshad Mehta that
media darling was not the only greed merchant. [This epitaph to him
summarises his notoriety forever.] There were many others but it was his
outrageous daring what in the end provoked corrective measures.
Harshad Mehta may even be
considered the great motivator for the reforms that followed. In the early
1990s India had begun to take the first steps towards adopting best practices
of the world. India found the men equal to the task. S S Nadkarni at IDBI was
an enthusiastic champion of an open, online stock trading system. A consortium
of IDBI and several financial institutions promoted and registered NSE as a
corporate body in 1992. As well meaning foreign friends watched and
condescended that it would take about 8 to 10 years for the system become
mature, NSE raced to go online in 2 years and go rapidly up to the maturity
plateau. Its software was entirely Indian. The infrastructure was modern but
made fail safe in Indian conditions. Dr. R H Patil, the first Managing Director
of NSE with a brilliant deputy in Ravi Narain mid-wifed and nursed the new
baby. G V Ramakrishna heading the SEBI [Securities and Exchanges Board of
India] held the success of the emerging NSE as a model and rammed home many
reforms on the BSE. He was a rare man for the sharks to contend with: he was
beyond greed. Foreign investors began to switch their patronage to the NSE.
And, finally when scare mongering would not work any more, the BSE paid the
ultimate tribute to the NSE: it too went online!
The lady who first blew the whistle
on Harshad Mehta's machinations was journalist Sucheta Dalal. This, when
mainstream media was in his thrall, publishing his self-serving theories
without any analysis. She is fearless. Almost exactly 10 year after the Harshad
Mehta saga, another scam -- this time with Ketan Parikh in starring role --
exploded. But the fall-out was far less, despite much foot dragging and fuzzy
thinking by regulators. This scam also set in motion another round of reforms
and fine tuning.
In an online chat Sucheta
criticised the management of the Parikh crisis, but she also averred: "In
real terms the system has indeed changed a lot." There is room for hope
now that the NSE --with an activist SEBI in concert-- will emerge as a reliable
crook buster.
Sucheta Dalal paid a handsome tribute to the NSE on
its 5th birthday. It is a gripping read -- indeed, much of this article is
based on it. It was originally published in the Economic and Political Weekly.
While Sucheta has given her consent for its reproduction at GoodNewsIndia, the
Weekly has not responded to requests. You can read it -- off site -- in a
separate window by clicking the button below. Remember also, that the NSE has
since gone on to fulfil much of her wish-list.
OBJECTIVE OF RESERCH
PRIMARY OBJECTIVE: - How K & A Securities is best services
providers as a stock broker in the Tri-city region.
SECONDARY OBJECTIVE: -
1.
To know about the awareness towards stock brokers
and share market.
2.
To study about the economic growth of national
stock exchange.
3.
To study about the role of NSE in economic growth
of india.
4.
To study about the need of improvement in
existing Trading system.
METHODOLOGY
Methodology for Sampling
The team divided the entire city into zones and drew out samples out
of each zone. The size of samples drawn from each zone depended on the prospective
ness of the particular area. For e.g., if a particular research area consisted
of Offices then the sample size would obviously be higher than an area like
Shopping mall or PVR. This is because Office employees constitute the service
sectors who are the active investors of today. Also, the office areas consist
of people from the business class who have always been in the hunt for quick
money, not to forget that smart and timely investment in the share market can
yield to enormous returns.
After dividing the city into zones, the Target audience was probed
using Interviews and questionnaires. These were later analyzed to draw out
conclusive results.
Methodology for Customer Acquisition
The leads for customer acquisition primarily came from the questionnaires
filled up by prospective customers. Apart from these customers were also
pitched through personal references and contacts. Moreover the organization
takes every possible effort in order to spread mass awareness. As a result of
this publicity campaign, influenced prospective customers approach the
organization. There are various ways to make people aware about the
organization as such Marketing Research, Canopy, Personal References, Pop-up
windows having collaboration with various portals e.g. Rediffmail.com etc.
Person with adequate interest leaves his contact information. Later on these
leads are contacted personally for further development. The organization has
efficient sales stuff that excels
In this job Part time trainees are also appointed for the same. This
work force been perfectly supervised by the Managers. Thus all these factors
sum up into a result oriented work force. These leads were the contacted
through tale-calling and after developing a relationship, they were pitched in
at the addresses provided by them. After giving them a presentation about the
product and its advantages over its competitors, they were promised of a Demo
by company sales force in case a sale had resulted. Also references were
collected from such people and the same methodology was repeated. For each and every customer personal quarries
have been entertained after the sale is done.
Data Source
Data used for the research work was primary and secondary in nature. Secondary data is the data that was collected from another purpose
and already exists somewhere. Primary data
is gathered for a specific purpose and is collected by the researcher from mapping
or cold calls methods. The data used in this project is primary data collected
from the various categories of investors from different areas. Secondary data
was collected using various journals and publications like:
● NSE’s module on Capital Market, October ‘03
● Business Today, Feb’05 edition
● Report on internet based securities trading and services by a
committee chaired by Shri O P Gahrotra, Sr. Exec Director, SEBI.
● Share investor’s list of broking houses
Sample Size:
Sample size for the questionnaire prepared for Investors was 150.
Process of conversion of
securities into the demat form
Securities specified as being eligible for dematerialization by the
depository in its bye laws and as under the SEBI (Depositories and
Participants) Regulations, 1996 (the Regulations) can be converted or issued in
a dematerialized form. The process of conversion of securities into a
dematerialized form or the issuance of the same in a dematerialized form can be
explained thus:
● Firstly, the issuer company, whose securities are eligible for
dematerialization, has to enter into an agreement with a depository for
dematerialization of securities already issued, or proposed to be issued to the
public or existing shareholders.
● The investor is given an option to hold the securities in a
dematerialized form and it is his prerogative to exercise the option to hold
the securities in that manner.
● The depository enters into an agreement with the participants who
are the agents of the depository and co-functionaries in the process of
dematerialization of securities.
● Any person can then enter into an agreement, through the
participant, with the depository for availing the services provided by the
depository.
● Upon the entering into such agreement with the depository, the
person has to surrender the certificate pertaining to the securities sought to
be dematerialized to the issuer. This surrender is affected in the following
manner:
● The person (beneficial
owner) who has entered into an agreement with the participant for
dematerialization of the securities has to inform the participant about the
details of the certificate of such securities.
● The beneficial owner has to then surrender the said certificate to
the participant.
● The participant informs the depository about the particulars of the
securities to be dematerialized and the agreement entered into between him and
the beneficial owner.
● The participant then transfers the certificate pertaining to the
said securities to the issuer along with the details and particulars of the
securities.
● These certificates are mutilated upon receipt by the issuer and
substituted in the records against the name of the depository, who is the
registered owner of the said securities. A certificate to this effect is sent
to the depository and all stock exchanges where the security is listed.
● Subsequent to this, the depository enters the name of the person who
has surrendered the certificate of security as the beneficial owner of the
dematerialized securities.
● The depository also enters the name of the participant through whom
the process has been carried out and sends an intimation of the same to the
said participant.
Depository System (working model)
NSDL carries out its activities through various functionaries called
business partners who include Depository Participants (DPs), Issuing companies
and their Registrars and Share Transfer Agents, Clearing corporations/ Clearing
Houses of Stock Exchanges. NSDL is electronically linked to each of these
business partners via a satellite link through Very Small Aperture Terminals
(VSATs) or through Leased landlines. The entire integrated system (including
the electronic links and the software at NSDL and each business partner's end)
is called the "NEST"
[National Electronic Settlement & Transfer] system.
Benefits of Depository System
In the depository
system, the ownership and transfer of securities takes place by means of
electronic book entries. At the outset, this system rids the capital market of
the dangers related to handling of paper. NSDL provides numerous direct and
indirect benefits, like:
● Elimination
of bad deliveries: In the depository
environment, once holdings of an investor are dematerialized, the question of
bad delivery does not arise i.e. they cannot be held "under
objection". In the physical environment, buyer was required to take the
risk of transfer and face uncertainty of the quality of assets purchased. In a
depository environment good money certainly begets good quality of assets.
● Elimination
of all risks associated with physical certificates: Dealing in physical securities have associated security risks of
theft of stocks, mutilation of certificates, loss of certificates during
movements through and from the registrars, thus exposing the investor to the
cost of obtaining duplicate certificates and advertisements, etc. This problem
does not arise in the depository environment.
●
Immediate transfer and registration of
securities: In the depository
environment, once the securities are credited to the investors account on pay
out, he becomes the legal owner of the securities. There is no further need to
send it to the company's registrar for registration. Having purchased
securities in the physical environment, the investor has to send it to the
company's registrar so that the change of ownership can be registered. This
process usually takes around three to four months and is rarely completed
within the statutory framework of two months thus exposing the investor to
opportunity cost of delay in transfer and to risk of loss in transit. To
overcome this, the normally accepted practice is to hold the securities in
street names i.e. not to register the change of ownership. However, if the
investors miss a book closure the securities are not good for delivery and the
investor would also stand to loose his corporate entitlements.
●
No stamp duty: For transfer of any kind of securities in the depository.
This waiver extends to equity shares, debt instruments and units of mutual
funds.
●
Faster settlement cycle: The exclusive demat segments follow rolling
settlement cycle of T+2 i.e. the settlement of trades will be on the 2nd
working day from the trade day. This will enable faster turnover of stock and
more liquidity with the investor.
●
Faster disbursement of non cash corporate
benefits like rights, bonus, etc.
NSDL provides direct credit of non cash corporate entitlements to an investors
account, thereby ensuring faster disbursement and avoiding risk of loss of
certificates in transit.
●
Reduction in brokerage by many brokers for
trading in dematerialized Securities: Brokers provide this benefit to investors as dealing in
dematerialized securities reduces their back office cost of handling paper and
also eliminates the risk of being the introducing broker.
●
Reduction in handling of huge volumes of paper
●
Periodic status reports to investors on their holdings and
transactions, leading to better
controls
●
Elimination of problems related to change of
address of investor, transmission, etc In case of change of address or transmission of demat
shares, investors are saved from undergoing the entire change procedure with
each company or registrar. Investors have to only inform their DP with all
relevant documents and the required changes are effected in the database of all
the companies, where the investor is a registered holder of securities.
●
Elimination of problems related to selling
securities on behalf of a minor: A
natural guardian is not required to take court approval for selling demat
securities on behalf of a minor.
●
Ease in portfolio monitoring: Since statement of account gives a consolidated
position of investments in all instruments.
Disadvantages of Dematerialization
The disadvantages of dematerialization of securities can be
summarized as follows:
⮚ Trading in securities may become uncontrolled in case of
dematerialized securities.
⮚ It is incumbent upon the capital market regulator to keep a close
watch on the trading in dematerialized securities and see to it that trading
does not act as a detriment to investors. The role of key market players in
case of dematerialized securities, such as stock-brokers, needs to be
supervised as they have the capability of manipulating the market.
⮚ Multiple regulatory frameworks have to be confirmed to, including
the Depositories Act, Regulations and the various Bye Laws of various
depositories. Additionally, agreements are entered at various levels in the
process of dematerialization. These may cause anxiety to the investor desirous
of simplicity in terms of transactions in dematerialized securities. However,
the advantages of dematerialization outweigh its disadvantages and the changes
ushered in by SEBI and the Central Government in terms of compulsory
dematerialization of securities is important for developing the securities
market to a degree of advancement. Freely traded securities are an essential
component of such an advanced market and dematerialization addresses such
issues and is a step towards the advancement of the market.
Dematerialization with K&A Securities
Dematerialization is the process by which a client can get physical
certificates converted into electronic balances maintained in his account with
the DP.
Features:
⮚ Holdings in only those securities that are admitted for
dematerialization by National Securities Depository Ltd (NSDL) can be
dematerialized.
⮚ Structure of holding in the securities should match with the account
structure of the depository account. Now shares in different order of names can
also be demat-ted.
Example:
If the shares are in the name of X and Y, the same cannot be
dematerialized into the account of either X or Y alone. However if the shares
are in the name of X first and Y second, and the account is in the name of Y
first and X second, then these shares can be dematerialized in this account.
Only those holdings that are registered in the name of the account
holder can be dematerialized. Physical shares which have not been transferred
and are still there with a transfer deed cannot be dematted. Only a few
companies have been given the permission to offer Transfer-cum-Demat. The list
of these companies can be viewed here.
Rematerialization:
Rematerialization is the process by which a client can get his
electronic holdings converted into physical certificates. The client has to
submit the rematerialization request to the DP with whom he has an account
along with a Demat request form. The physical shares will be posted by the
company directly to the clients.
Trades
For all sales made by clients, the shares will have to be given to
the broker, so that the Pay In can be made by the broker to the stock exchange
concerned. For that it's essential that the shares be transferred to the
account of the broker well before the deadline date.
You must confirm with your broker the settlement date and settlement
number and then submit your instructions to your DP. Also it's important to
give the instructions to your DP as early as possible.
Pledge
Pledge enables you to obtain loans against your dematerialized
shares. So you get liquidity without having to sell your shares. A highly
simplified procedure may be availed of for pledging of securities in the
electronic mode. The pledged securities continue to be reflected in the DP
account of the clients (pledge) but the concerned securities are
"blocked" and cannot be used for any transactions. As and when the
pledge is to be removed, based on confirmations received from both the pledgor
and the pledged, the blocked securities will be released to "Free
Balance" of the account holder.
KEY FINDINGS AND OBSERVATIONS
Interpretation: This shows that although the
mutual funds market is on the rise yet, the most favored investment continues
to be in the Share Market. So, with a more transparent system, investment in
the Stock Market can definitely be increased.
Interpretation: With the increase in cyber
education, the awareness towards online share trading has increased by leaps
and bounds. This awareness is expected to increase further with the increase in
Internet education.
Interpretation: This shows that even with
sufficiently high Brand Equity, K&A Security’s
ranks only 4th amongst the Demat account providers. This is probably
because of two main reasons:
1.
Lack of promotion and
unfocussed approach towards Product awareness
2.
Non – transparent marketing
policies of the company
Hence, the company should crystallize its products and should
indulge in aggressive marketing and promotion.
Interpretation: This pie chart accentuates
the fact that Strategic marketing, today, has gone beyond only meeting Sales
targets and generating profit volumes. It shows that all the competitors are
striving hard not only to woo the customers but also to make them Brand loyal
by generating customer satisfaction.
Interpretation: In spite of the huge returns
that the share market promises, we see that there is still a dearth of active
traders and investors. This is because of the non – transparent structure of
the Indian share market and the skepticism of the target audience that is
generated by the volatility of the stock market. It requires efficient
bureaucratic intervention on the part of the Government.
CONCLUSION
Capital
occupies a position so dominant to the economic theory of production and
distribution that it is natural to assume that it should occupy at least an
equally important place in the theory and practice of economic growth. The
subject whether approached historically or analytically or from the standpoint
of policy, it is the process of capital accumulation that occupies the front of
the stage. It is usually implied that economic growth and capital accumulation
with a high positive and significant correlation and additions to the stock of
capital can provoke and facilitate faster rate of growth even under the
circumstances which can be described as shortage of capital.
The
aforesaid correlation between the process of economic growth and capital
accumulation inspired the earlier theorists of economic development and even in
the works of modern economists output is still assumed to be limited by capital
whether there is abundant labour or not. A high rate of capital formation
usually results in rapid growth in the production and income, but more capital
formation by itself will not bring a corresponding acceleration in the growth
of production. It also depends to a large extent on the manner in which the
capital is utilized.
Capital
market means the market for all the financial instruments, short term and long
term as also commercial, industrial and government paper. The capital
market deals with capital. The capital market is a market where borrowing and
lending of long term funds takes place. Capital markets deal in both debt and
equity. The governments both central and state raise money in the capital
market, through the issue of government securities. Capital markets refer to
all the institutes and mechanisms of raising medium and long-term funds,
through various instruments available like shares, debentures, bonds etc.
Corporate
both in the private sector as well as in the public sector raise thousands of
crores of rupees in these markets. The government, through Reserve Bank of
India, as well as financial institutions also raise a lot of money from these
markets. Example of a well-developed markets are – The Global depository
and American depository.
BIBLIOGRAPHY
Books:
KOTHARI, RESEARCH METHODOLOGY, NEW
DELHI, VIKAS PUBLISHING HOUSE PVT.LTD.1978.
GOYAL, DR.ALOK, FINANCIAL MARKET
OPERATION NEW DELHI, V.K. (INDIA) ENTERPRISES .
Magazines:
BUSINESS INDIA
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