INDIAN STOCK MARKETS

INDIAN STOCK MARKETS


The Bombay stock exchanges (BSE) and the National Stock Exchange of India Ltd (NSE) are the two primary exchange in India. In addition, there are 28 Regional Stock Exchanges However, the BSE and NSE have established themselves as the two leading exchanges and account for about 80% of the equity volume traded in India.

The average daily turnover at the exchanges has increased from Rs. 851 crore in 1997-98 to Rs. 1,284 crore in 1998-99 and further to Re. 2273 crore in 1999-2000 (April- August 1999). NSE has around 1500 shares listed with a total market capitalization of around Rs. 921500 crore (Rs. 9215 Bln). The BSE has over 6000 stocks listed and has a market capitalization of around Rs. 968000 crore (9680 Bln). Most key stocks are traded on both the exchanges and hence the investor could buy them on either exchange. Both exchanges have a different settlement cycle, which allows investors to shift their positions on the bourse. The primary index of BSE is BSE Sensex comprising 30 stocks. NSE has the S&P NSE 50 index (Nifty) which consists of fifty stocks.

The BSE Sensex is the older and more widely followed index. Both these indices are calculated on the basis of market capitalization and contain the heavily traded shares from key sectors. The markets are closed on Saturdays and Sundays. Both the exchanges have switched over from the open outcry trading system to a fully automated computerized mode of trading known as BOLT (BSE On Line Trading) and NEAT (National Exchange Automated Trading) System. It facilitates more efficient processing, automatic order matching, faster execution of trades and transparency.

The Scripts traded on the BSE have been classified into ‘A’, ‘B1’, ‘B2’, ‘C’, ‘F’ and ‘Z’ groups. The ‘A’ group shares represent those, which are in the carry forward system (Badla). The ‘F’ group represents the debt market (fixed income securities) segment. The ‘Z’ group scripts are the blacklisted companies. The ‘C’ group covers the odd lot secutities in ‘A’, ‘B1’& ‘B2’ groups and Rights renunciations. The key regulator governing Stock Exchanges, Brokers, Depositories, Depository participants, Mutual Funds, FIIs and other participants in Indian secondary and primary market is the Securities and Exchange Board of India (SEBI) Ltd.

About NSE

The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE 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 unlike other stock exchanges in the country.

On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000















NSCCL



IISL



NSE.IT



NSDL
DotEx Intl. Ltd.


ABOUT BSE
The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as "The Native Share and Stock Brokers Association". It is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was established in 1878. It is a voluntary non-profit making Association of Persons (AOP) and is currently engaged in the process of converting itself into demutualised and corporate entity. It has evolved over the years into its present status as the premier Stock Exchange in the country. It is the first Stock Exchange in the Country to have obtained permanent recognition in 1956 from the Govt. of India under the Securities Contracts (Regulation) Act, 1956.

The Exchange, while providing an efficient and transparent market for trading in securities, debt and derivatives upholds the interests of the investors and ensures redressal of their grievances whether against the companies or its own member-brokers. It also strives to educate and enlighten the investors by conducting investor education programs and making available to them necessary informative inputs.

A Governing Board having 20 directors is the apex body, which decides the policies and regulates the affairs of the Exchange. The Governing Board consists of 9 elected directors, who are from the broking community (one third of them retire ever year by rotation), three SEBI nominees, six public representatives and an Executive Director & Chief Executive Officer and a Chief Operating Officer.

The Executive Director as the Chief Executive Officer is responsible for the day-to-day administration of the Exchange and he is assisted by the Chief Operating Officer and other Heads of Departments.

The Exchange has inserted new Rule No.126 A in its Rules, Bye-laws & Regulations pertaining to constitution of the Executive Committee of the Exchange. Accordingly, an Executive Committee, consisting of three elected directors, three SEBI nominees or public representatives, Executive Director & CEO and Chief Operating Officer has been constituted. The Committee considers judicial & quasi matters in which the Governing Board has powers as an Appellate Authority, matters regarding annulment of transactions, admission, continuance and suspension of member-brokers, declaration of a member-broker as defaulter, norms, procedures and other matters relating to arbitration, fees, deposits, margins and other monies payable by the member brokers to the Exchange, etc.




INDIAN SCENARIO

Strengths
The `do-it-yourself' framework of online share trading offers retail investors the three benefits of transparency, access and efficiency. Paperwork diminishes significantly, and no more painful trips to your broker to check if everything's in order. Online trading has made it possible to universalize access to retail investors. This was earlier very difficult, as the cost of servicing often-outweighed transaction volumes. Online brokerage ranges between 0.05-0.20 per cent of the value of transactions for non-delivery-based trades, and between 0.25-0.95 per cent for delivery-based trades. Once major investments in online infrastructure are over and done with - and with the economies of scale coming into play - it is expected that brokerage rates would head further downwards.
Access to online trading and latest financial happenings, apart from quotes and unbiased investment analyses, all consolidate into a value-added product mix in tandem with evolving markets that are freer and fairer. The Net result: An inquisitive, informed and demanding investor. Today's investor is more involved in managing his or her assets and analyzing a vast array of investment options. Technology and today's enabled investor have, in turn, driven competition, resulting in reduced costs of trading, transparency in dealings, and pricing info that is accurate and real-time. More and more investors now want to know how their trades are executed, and whether they have received the best possible price. Critical components of execution quality include the prices at which orders were executed as well as the speed of execution. The quality of execution, in turn, hinges on efficient order routing. We owe this to our investor fraternity.

Weaknesses
Every thing in the world has a flip side to it - Transaction velocity is crucial. And more often than not, connections are lousy. There's also a degree of investor skepticism about online payment and settlement mechanisms in spite of all the encryption and fire walling brought into play. Time and technology will soon assuage these concerns, which hark back to the `physical' days.
“The three main technology obstacles which have prevented Internet broking from taking off are:
1 Lack of Internet penetration
2 Bandwidth infrastructure
3 Poor quality of ISP infrastructure.”

Opportunities
You have some money to dabble with. Trading shares on BSE/NSE has always been your dream. When will you ever find the time? And besides, the hassle of finding a broker is not easy. This is your main opportunity.
Realizing there is untapped market of investors who want to be able to execute their own trades when it suits them, brokers have taken their trading rooms to the Internet. Known as online brokers, they allow you to buy and sell shares via Internet.
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. 5Paisa.com, ICICIDirect.com, IndiaBulls.com, Sharekhan.com, Geojit securities.com, HDFCsec.com, Tatatdw.com, Kotakstreet.com are some of the online broking sites in India.
And daily trading turnover is estimated in the vicinity of 0.75 per cent of the combined BSE and NSE daily turnover of about RS 11,000 crore!!! The point is, there's tremendous scope for growth. Especially when you consider the US, where trading over the Net accounts for about 55 per cent of the total volumes. And, I believe, in some Asian markets the figures as high as 70 per cent.


Threats
On to some threat perception - Domestic funds, foreign institutional investors and operators comprise the three main market constituents. And all three include term investors as well as opportunists in their pecking order. Some, for instance, hitch their fate with what the FIIs are up to. All this spells spurting volumes. But nobody gives a damn about the resultant volatility. And some, not all, offer free investment advice over the Net to lure rookie investors with misleading information. Prices of scripts can also be influenced to the advantage of vested interests, courtesy the Net. Unlike in the US, stockbrokers out here willingly (or under the force of circumstance) assume the role of `advisors', sans the neutral, non-vested stance.


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 2000 (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 2003 and 2004. 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 2002. 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.