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SECURITIES MARKET IN INDIAAN OVERVIEW

The stock market can be a great source of confusion for many people. The average person generally falls into one of two categories. The first believe investing is a form of gambling; they are certain that if you invest, you will more than likely end up losing your money. Often these fears are driven by the personal experiences of family members and friends who suffered similar fates or lived through the Great Depression. These feelings are not ground in facts and are the result of personal experience. Someone who believes along this line of thinking simply does not understand what the stock market is or why it exists. The second category consists of those who know they should invest for the long-run, but dont know where to begin. Many feel like investing is some sort of black-magic that only a few people hold the key to. More often than not, they leave their financial decisions up to professionals, and cannot tell you why they own a particular stock or mutual fund. Their investment style is blind faith or limited to this stock is going up. We should buy it. Business is the cornerstone of every economy. Almost every large corporation started out as a small, mom-and-pop operation and through growth, became financial giants. WalMart, Dell Computer, and McDonalds had combined profits of $10.34 billion this year. Wal-Mart was originally a single-store business in Arkansas. Dell computer began with Michael Dell selling computers out of his college dorm room. McDonalds was once a small restaurant no one had heard of. How did these small companies grow from tiny, hometown enterprises to three of the largest businesses in the American economy? They raised capital by selling stock in themselves.

When a company is growing, the biggest hurdle is often raising enough money to expand. Owners generally have two options to overcome this: They can either borrow the money from a bank or venture capitalist, or sell part of the business to investors and use the money to fund growth.

Taking out a loan is common, and very useful to a point. Banks will not always lend money to companies, and over-eager managers may try to borrow too much initially,

wrecking the balance sheet. Factors such as these often provoke owners of small businesses to issue stock. In exchange for giving up a tiny fraction of control, they are given cash to expand the business. In addition to money that doesnt have to be paid back, going public [as its called when a company sells stock in itself for the first time], gives the business managers and owners a new tool: instead of paying cash for an acquisition, they can use their own stock. To better understand how issuing stock works, lets look at a fictional company ABC Furniture, Inc.. After getting married, a young couple decided to start a business. It would allow them to work for themselves, as well as arrange their hours around their family. Both husband and wife have always had a strong interest in furniture, so they decide to open a store in their hometown. After borrowing money from the bank, they name their company ABC Furniture and go into business. The first few years, the company makes little profit because the earnings are plowed back into the store, buying additional inventory and adding onto the building to accommodate the increasing level of merchandise. Ten years later, the business has grown rapidly. The couple has managed to pay off the companys debt, and profits are over $500,000 per year. Convinced that ABC Furniture could do as well in several larger, neighboring cities, the couple decides they want to open two new branches. They research their options and find out it is going to cost over $4 million dollars to expand. Not wanting to borrow money and be strapped with interest payments again, they decide to sell stock in the company. The company approaches an underwriter, such as Goldman Sachs or JP Morgan, who determines the value of the business. As mentioned before, ABC Furniture earns $500,000 after-tax profit each year. It also has a book value of $3 million [the value of the land, building, inventory, etc. subtracted by the companys debt] The underwriter researches and discovers the average furniture stock is trading at 20 times earnings [a concept we will discuss more in-depth later]. What does this mean? Simply, you would multiply the earnings of $500,000 by 20. In ABCs case, the answer is $10 million. Add book value, and you arrive at $13 million. This means, in the underwriters opinion, ABC Furniture, is worth thirteen million dollars. Our young couple, now in their 30s, must decide how much of the company they are willing to sell. Right now, they own 100% of the business. The more they sell, the more cash theyll raise, but they will also be giving up a larger part of their ownership. As the company grows, that ownership will be worth more, so a wise entrepreneur would not sell more than he or she had to.

After discussing it, the couple decides to keep 60% of the company and sell the other 40% to the public as stock. [This means that they will keep $7.8 million worth of the business. Because they own a majority of the stock, they will still be in control of the store.] The other 40% they sold to the public is worth $5.2 million. The underwriters find investors who are willing to buy the stock, and give a check for $5.2 million to the couple. Although they own less of the company, their stake will hopefully grow faster now that they have the means to expand rapidly. Using the money from their public offering, ABC Furniture successfully opens the two new stores and have $1.2 million in cash left over [remember it was going to cost $4 million for the new stores]. Business is even better in the new branches, which are in more populated cities. The two new stores both make around $800,000 a year in profit each, with the old store still making the same $500,000. Between the three stores, ABC now makes an annual profit of $2.1 million dollars. This is great news because, although they dont have the freedom to simply close shop anymore, the business is now valued at $51 million dollars [multiply the new earnings of $2.1 million per year by 20 and add the book value of $9 million; there are three stores now, instead of one]. The couples 60% stake is worth $30.6 million dollars. With this example, its easy to see how small businesses seem to explode in value when they go public. The original owners of the company are, in a sense, wealthier overnight. Before, the amount they could take out of the business was limited to the profit. Now, they are free to sell their shares in the company at any time, raising cash quickly. This process is the basis of Wall Street. The stock market is, at its core, a large auction where ownership in companies just like ABC Furniture is sold to the highest bidder each day. Because of human nature the emotions of fear and greed a company can sell for far more or less than its intrinsic value. The good investors job is to identify those companies that are selling below their true worth and buy as much as they can.

HISTORY OF INDIAN STOCK MARKET

There are 21 stock exchanges conducting business across that country. However, the Bombay Stock Exchange is the oldest exchange in the country and the National Stock Exchange is the largest stock exchange in India. The two exchanges also account for the majority of traded shares in India.

Bombay Stock Exchange

In 1875, 318 people formed the Native Share and Stock Brokers Association in India. This was eventually renamed the Bombay Stock Exchange as the number of stock exchanges in the country grew. The Bombay Stock Exchange was the first exchange to receive official recognition from the Indian Government in 1956.

National Stock Exchange The National Stock Exchange is also located in Bombay. It was created based on a report of the High Powered Study Group on Establishment of New Stock Exchanges. The report recommended a national stock exchange that would give all investors across India equal access. With the encouragement of the Indian Government, the National Stock Exchange was incorporated in November 1992, and recognized as a stock exchange in April 1993. Sensex The Indian Stock Index is called the Sensex. It is comprised of 30 stock-sensitive companies and was first compiled in 1986 by the Bombay Stock Exchange. The companies come from 13 industries and are chosen to be representative of the businesses in India. It serves much like the Dow Jones Industrial Index or the S&P 500 Index in America. The Sensex crossed 1000 for the first time in 1990. Two years later, the index nearly quadrupled because of Financial Minister Man Mohan Singh's financial policies. The index passed the 8000 mark in 2005. It peaked at 20,000 in January 2008. The Market's Volatility

The Indian Stock Market has been a volatile one, subject to large swings for a large variety of factors. Monsoons, political power shifts and even the winner of a cricket match have all been reasons for the market to jump or drop over the years. In 1992, it was discovered the Harshad Mehta, a huge player in the Indian Stock Markets, had fraudulently diverted bank funds into 270 million shares of 90 companies. It is estimated that around 12 million investors went bankrupt because of this fraud and the Sensex lost 570 points.

Harshad Mehta Scam

This situation led to the creation of the Securities and Exchanges Board of India, which enforced regulations and guidelines. This helped the Indian stock market regain its footing and move forward. The Market Today India has the second largest number of companies being traded on its stock exchanges, second only to the United States. The Bombay Stock Exchange has more companies listed than any other exchange in the world (4700 companies in 2007). The growing popularity of investing in the stock market in India has also led to more middle-class investors and on-line trading of Indian stocks. The number of Indians invested in the stock market is around 30 million.

Earnings per Share: The amount of profit to which each share is entitled. Going Public: Slang for when a company is planning an IPO. IPO: Short for Initial Public Offering. An IPO is when a company sells stock in itself for the first time. Market Cap: The amount of money you would have to pay if you bought ever share of stock in a company. (To calculate market cap, multiply the number of shares by the price per share.) Short for Market Capitalization. Share: A share represents an investor's ownership in a "share" of the profits, losses, and assets of a company. It is created when a business carves itself into pieces and sells them to investors in exchange for cash. Ticker Symbol: A short group of letters that represents a particular stock (e.g., "Coca Cola" is referred to as "KO".) Underwriter: The financial institution or investment bank that is doing all of the paperwork and orchestrating a company's IPO.

Bombay Stock Exchange (BSE)

History of the Bombay Stock Exchange : The Bombay Stock Exchange is known as the oldest exchange in Asia. It traces its history to the 1850s, when stockbrokers would gather under banyan trees in front of Mumbai's Town Hall. The location of these meetings changed many times, as the number of brokers constantly increased. The group eventually moved to Dalal Street in 1874 and in 1875 became an official organization known as 'The Native Share & Stock Brokers Association'. In 1956, the BSE became the first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act. The Bombay Stock Exchange developed the BSE Sensex in 1986, giving the BSE a means to measure overall performance of the exchange. In 2000 the BSE used this index to open its derivatives market, trading Sensex futures contracts. The development of Sensex options along with equity derivatives followed in 2001 and 2002, expanding the BSE's trading platform. Historically an open-cry floor trading exchange, the Bombay Stock Exchange switched to an electronic trading system in 1995. It took the exchange only fifty days to make this transition. About the Bombay Stock Exchange : As the first stock exchange in India, the Bombay Stock Exchange is considered to have played a very important role in the development of the country's capital markets. The Bombay Stock Exchange is the largest of 22 exchanges in India, with over 6,000 listed companies. It is also the fifth largest exchange in the world, with market capitalization of $466 billion. The Bombay Stock Exchange uses the BSE Sensex, an index of 30 large, developed BSE stocks. This index gives a measure of the overall performance of the Bombay Stock Exchange, and is closely followed around the world. Based on the Sensex, the BSE equity market has grown significantly since 1990. In addition to individual stocks, the BSE also has a market in derivatives, which was the first to be established in India. Listed derivatives on the exchange include stock futures and options, index futures and options, and weekly option

Bombay Stock Exchange Profile : Address Telephone Web Site Trading Hours Holidays Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai 400001 91-22-22721233/4 Bseindia.com Monday - Friday, 9:55 am - 3:30 pm IST Bakri-Id, Republic Day, Good Friday, Ambedkar Jayanti, Independence Day, Ganesh Chaturthi, Dasera, Diwali (Laxmi Poojan), Diwali (Bhaubeej), Ramzan Id, Guru Nanak Jayanti. Stocks, bonds, derivatives Chairman - Jagdish Capoor. CEO - Rajnikant Patel

Securities Key Staff

Trading System Electronic

National Stock Exchange of India (NSE)

History of the National Stock Exchange of India : Capital market reforms in India and the launch of the Securities and Exchange Board of India (SEBI) accelerated the incorporation of the second Indian stock exchange called the National Stock Exchange (NSE) in 1992. After a few years of operations, the NSE has become the largest stock exchange in India. Three segments of the NSE trading platform were established one after another. The Wholesale Debt Market (WDM) commenced operations in June 1994 and the Capital Market (CM) segment was opened at the end of 1994. Finally, the Futures and Options segment began operating in 2000. Today the NSE takes the 14th position in the top 40 futures exchanges in the world. In 1996, the National Stock Exchange of India launched S&P CNX Nifty and CNX Junior Indices that make up 100 most liquid stocks in India. CNX Nifty is a diversified index of 50 stocks from 25 different economy sectors. The Indices are owned and managed by India Index Services and Products Ltd (IISL) that has a consulting and licensing agreement with Standard & Poor's. In 1998, the National Stock Exchange of India launched its web-site and was the first exchange in India that started trading stock on the Internet in 2000. The NSE has also proved its leadership in the Indian financial market by gaining many awards such as 'Best

IT Usage Award' by Computer Society in India (in 1996 and 1997) and CHIP Web Award by CHIP magazine (1999). About the National Stock Exchange of India : In the fast growing Indian financial market, there are 23 stock exchanges trading securities. The National Stock Exchange of India (NSE) situated in Mumbai - is the largest and most advanced exchange with 1016 companies listed and 726 trading members. The NSE is owned by the group of leading financial institutions such as Indian Bank or Life Insurance Corporation of India. However, in the totally de-mutualised Exchange, the ownership as well as the management does not have a right to trade on the Exchange. Only qualified traders can be involved in the securities trading. The NSE is one of the few exchanges in the world trading all types of securities on a single platform, which is divided into three segments: Wholesale Debt Market (WDM), Capital Market (CM), and Futures & Options (F&O) Market. Each segment has experienced a significant growth throughout a few years of their launch. While the WDM segment has accumulated the annual growth of over 36% since its opening in 1994, the CM segment has increased by even 61% during the same period. National Stock Exchange of India Profile : National Stock Exchange of India Ltd. Exchange Plaza, Plot no. C/1, G Block, Bandra-Kurla Complex Bandra (E) Mumbai - 400 051 (022) 26598100 - 8114 Click here for the National Stock Exchange of India web site 9.30 am - 4.30 pm. Bakri Id (11 Jan), Republic Day (26 Jan), Moharram (9 Feb), Holi (15 Mar), Ram Navami (6 Apr), Mahavir Jayanti (11 Apr), Ambedkar Jayanti (14 Apr), Maharashtra Day (1 May), Independence Day (15 Aug), Gandhi Jayanti (2 Oct), Laxmi Puja (21 Oct), Bhaubeej (24 Oct), Ramzan Id (25 Oct), Christmas (25 Dec) Equities, bonds, CPs, CDs, warrants, mutual funds units, ETFs, derivatives.

Address

Telephone Web Site Trading Hours Holidays

Securities

Trading System Fully automated screen based trading platform NEAT

Key Staff

S.B. Mathur Ravi Narain - Managing Director and CEO

Chairman