Stock exchanges in India

Stock markets refer to a market place where investors can buy and sell stocks. The price at which each buying and selling transaction takes is determined by the market forces (i.e. demand and supply for a particular stock).

In earlier times, buyers and sellers used to assemble at stock exchanges to make a transaction but now with the dawn of IT, most of the operations are done electronically and the stock markets have become almost paperless. Now investors don't have to gather at the Exchanges, and can trade freely from their home or office over the phone or through Internet.

History of the Indian stock market

18th Century

East India Company was the dominant institution and by end of the century, business in

its loan securities gained full momentum

1830's

Business on corporate stocks and shares in Bank and Cotton presses started in Bombay.

Trading list by the end of 1839 got broader

1840's

Recognition from banks and merchants to about half a dozen brokers

1850's

Rapid development of commercial enterprise saw brokerage business attracting more people into the business

1860's

The number of brokers increased to 60

1860-61

The American Civil War broke out which caused a stoppage of cotton supply from United

States of America, marking the beginning of the "Share Mania" in India

1862-63

The number of brokers increased to about 200 to 250

1865

A disastrous slump began at the end of the American Civil War (as an example, Bank of  

Bombay Share which had touched Rs. 2850 could only be sold at Rs. 87)

BSE

The Bombay Stock Exchange (BSE) (Hindi or Marathi: Bombay Śhare Bazaar) (formerly, The Stock Exchange, Bombay) is the oldest stock exchange in Asia and largest number of listed companies in the world, with 4990 listed as of August 2010It is located at Dalal Street, Mumbai, India. On Aug, 2010, the equity market capitalization of the companies listed on the BSE was US$1.39 trillion, making it the 4th largest stock exchange in Asia and the 11th largest in the world.

BSE Office

Bombay Stock Exchange Limited

Phiroze jeejeebhoy towers

Dalal Street , Mumbai- 400001,

India

Vision

The vision of the Bombay Stock Exchange is to "Emerge as the premier Indian stock exchange by establishing global benchmarks.

With over 4,990 Indian companies listed & over 7700 scrips on the stock exchange,it has a significant trading volume. The BSE SENSEX (Sensitive index), also called the "BSE 30", is a widely used market index in India and Asia. Though many other exchanges exist, BSE and the National Stock Exchange of India account for most of the trading in shares in India.

BSE Management

Bombay Stock Exchange is managed professionally by Board of Directors. It comprises of eminent professionals, representatives of Trading Members and the Managing Director. The Board is an inclusive one and is shaped to benefit from the market intermediaries participation.

The Board exercises complete control and formulates larger policy issues. The day-to-day operations of BSE is managed by the Managing Director and its school of professional as a management team.

Network

The Exchange reaches physically to 417 cities and towns in the country. The framework of it has been designed to safeguard market integrity and to operate with transparency. It provides an efficient market for the trading in equity, debt instruments and derivatives. Its online trading system, popularly known as BOLT, is a proprietary system and it is BS 7799-2-2002 certified. The BOLT network was expanded, nationwide, in 1997. The surveillance and clearing & settlement functions of the Exchange are ISO 9001:2000 certified.

Facts

First in India to introduce Equity Derivatives

First in India to launch a Free Float Index

First in India to launch US$ version of BSE Sensex

First in India to launch Exchange Enabled Internet Trading Platform

First in India to obtain ISO certification for Surveillance, Clearing & Settlement

BSE On-Line Trading System (BOLT) has been awarded the globally recognized the Information Security Management System standard BS7799-2:2002.

First to have an exclusive facility for financial training

NSE

The National Stock Exchange (NSE) is a stock exchange located at Mumbai, India. It is the largest stock exchange in India in terms of daily turnover and number of trades, for both equities and derivative trading.[2] NSE has a market capitalization of around Rs 47,01,923 core (7 August 2009) and is expected to become the biggest stock exchange in India in terms of market capitalization by 2009 end.[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. 

Mutual Company

A mutual company is a privately held company owned by its policyholders, depositors, or other customers. A share of the profits is distributed as dividends, allocated in proportion to the amount of business each customer does with the company.

Insurance companies, federal savings and loan associations, and savings banks are examples of mutual companies, although each type operates somewhat differently.

Moral Suasion

It takes the form of writing letters and holding discussions between the RBI and the banks about trends in the economy in  general and in money, credit and finance in particular.

It also includes the measures which ought to be taken from time to time in the light of national objectives

Hire Purchase - A Method of Purchase

Hire puchase system is a special system of purchase and sale of goods. Under this system purchaser pays the price of the goods in installments. The installments may be annual, six monthly, quarterly, monthly fortnightly etc. Under this system the goods are delivered to the purchaser at the time of agreement before the payment of installments but the title on the goods is transferred after the payment of all installments as per the hire-purchase agreement.

The special feature of a hire-purchase transaction is that the payment of every installment is treated as the payment of hire charges by the purchaser to the hire vendor till the payment of the last installment.. After the payment of the last installment, the amount of various installments paid is appropriated towards the payment of the price of the goods sold and the ownership or the goods is transferred to the purchaser. Thus hire-purchase means a transaction where the goods are sold by vendor to the purchaser under the following conditions

1.   the goods will be delivered to the purchaser at the time of agreement.

2.   the purchaser has a right to use the goods delivered.

3.   the price of the goods will be paid in installments.

4.   every installment will be treated to be the hire charges of the goods which is being used by the purchaser.

5.   if all installments are paid as per the terms of agreement , the title of the goods is transferred by vendor to the purchaser.

6.   if there is a default in the payment of any of the installments, the vendor will take away the goods from the possession of the purchaser without refunding him any amount received earlier in the form of various installments.

Real Time Gross Settlement (RTGS)

RTGS

1)   Funds transfer mechanism

2)   Real time-no waiting period

3)   Gross settlement-one to one basis

4)   ‘electronic payment system’-controlled by the central bank

RTGS in India

1)   Service charges vary from bank to bank

2)   No processing charges till March 2009

3)   Must have core banking

4)   Minimum value of transaction-Rs. 1,00,000

5)   No upper ceiling

6)   More than 44,000 bank branches

Required Information

1)   Amount to be remitted

2)   His account number which is to be debited

3)   Name of the beneficiary bank

4)   Name of the beneficiary customer

5)   Account number of the beneficiary customer

6)   Sender to receiver information, if any

7)   The IFSC code of the receiving branch

Advantages

1)   Suited for low volume high value transactions

2)   Lowers settlement risk

3)   Gives an accurate picture

4)   Elimination of credit risks

5)   In case of non-credit or delay in credit

6)   Contact your bank / branch

Futures and Options

Futures and options represent two of the most common form of "Derivatives". Derivatives are financial instruments that derive their value from an 'underlying'. The underlying can be a stock issued by a company, a currency, Gold etc., The derivative instrument can be traded independently of the underlying asset.

The value of the derivative instrument changes according to the changes in the value of the underlying.

Derivatives are of two types -- exchange traded and over the counter.

Exchange traded derivatives, as the name signifies are traded through organized exchanges around the world. These instruments can be bought and sold through these exchanges, just like the stock market. Some of the common exchange traded derivative instruments are futures and options.

Over the counter (popularly known as OTC) derivatives are not traded through the exchanges. They are not standardized and have varied features. Some of the popular OTC instruments are forwards, swaps etc.

Futures 

A 'Future' is a contract to buy or sell the underlying asset for a specific price at a pre-determined time. If you buy a futures contract, it means that you promise to pay the price of the asset at a specified time. If you sell a future, you effectively make a promise to transfer the asset to the buyer of the future at a specified price at a particular time. Every futures contract has the following features:

Buyer

Seller

Price

Expiry

Some of the most popular assets on which futures contracts are available are equity stocks, indices, commodities and currency.

Options 

Options contracts are instruments that give the holder of the instrument the right to buy or sell the underlying asset at a predetermined price. An option can be a 'call' option or a 'put' option.

A call option gives the buyer, the right to buy the asset at a given price. This 'given price' is called 'strike price'. It should be noted that while the holder of the call option has a right to demand sale of asset from the seller, the seller has only the obligation and not the right. For eg: if the buyer wants to buy the asset, the seller has to sell it. He does not have a right.

Similarly a 'put' option gives the buyer a right to sell the asset at the 'strike price' to the buyer. Here the buyer has the right to sell and the seller has the obligation to buy.

So in any options contract, the right to exercise the option is vested with the buyer of the contract. The seller of the contract has only the obligation and no right. As the seller of the contract bears the obligation, he is paid a price called as 'premium'. Therefore the price that is paid for buying an option contract is called as premium. 

Over The Counter Exchange (OTE)

Over The Counter Exchange (OTE) is a market where buyers seek out sellers and vice versa and then attempt to arrange terms and condition for purchase/sale acceptable to both parties.

There is no market place in the geographical sense but it is carried on by phone, messages, telex etc.

Advantages

1)   Smaller companies can easily be listed.

2)   Lower cost of new issue

3)   Family concerns can go public

4)   Regulatory measures are stringent.

Monetary Policy

Use of the techniques of monetary control to achieve the broad objectives of Maintaining price stability and Ensuring adequate flow of credit to productive sectors so as to assist growth

Techniques of monetary control

1)   Open market operations (OMO)

2)   Bank Rate

3)   Discretionary control of refinance and re discounting

4)   Direct regulation of interest rates on CP, deposits and loans

5)   Cash reserve ratio (CRR)

6)   Statutory liquidity ratio (SLR)

7)   Direct credit allocation and credit rationing

8)   Selective credit controls

9)   Credit authorization scheme

10)   Fixation of inventory and credit norms

11)    Credit Planning

12)   Moral Suasion

13)    Liquidity Adjustment facility (LAF)

Credit Planning

It is a tool for Macro Management of Credit

To regulate the Expansion in the overall quantum of funds to a desired level

To direct flows of funds to desired Sectors

Process

At the bank level

1.   The bank is required to prepare realistic annual credit budget incorporating estimates of volume and growth

2.   Then it is submitted to RBI between May/June every year

3.   The budget is revised every year based on credit policy banking trends and so on

4.   There is Monitoring and implementation of the budget.

5.   Direct credit allocation, credit rationing , credit authorization and fixation of inventory,credit norms and credit planning have been diminished after the introduction of this policy of liberalization and de regulation

Liquidity Adjustment Facility

 It is an important innovation in the Indian Money Market

Related concepts

Autonomous liquidity .AL comprises

Central Bank Balance Sheet flows that stem from regular Central Banking functions has currency Authority and Banker to Government Banks.

Discretionary Liquidity –Sum of Central Bank balance sheet flows that arise out of its money market operations.

Discretionary Liquidity represents a change in the total liquidity in the system which occurs due to monetary policy action

Venture Capital

Venture capital (also known as VC or Venture) is a type of private equity capital typically provided to early-stage, high-potential, growth companies in the interest of generating a return through an eventual realization event such as an IPO or trade sale of the company. Venture capital investments are generally made as cash in exchange for shares in the invested company. It is typical for venture capital investors to identify and back companies in high technology industries such as biotechnology and ICT.

Venture capital typically comes from institutional investors and high net worth individuals and is pooled together by dedicated investment firms.

Venture capital firms typically comprise small teams with technology backgrounds (scientists, researchers) or those with business training or deep industry experience. VC has a reputation of being a particularly impenetrable career path, employing only those who bring expert value.

A core skill within VC is the ability to identify novel technologies that have the potential to generate high commercial returns at an early stage. By definition, VCs also take a role in managing entrepreneurial companies at an early stage, thus adding skills as well as capital (thereby differentiating VC from buy out private equity which typically invest in companies with proven revenue), and thereby potentially realizing much higher rates of returns.

A venture capitalist (also known as a VC) is a person or investment firm that makes venture investments, and these venture capitalists are expected to bring managerial and technical expertise as well as capital to their investments. A venture capital fund refers to a pooled investment vehicle (often an LP or LLC) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans.

Venture capital is also associated with job creation, the knowledge economy and used as a proxy measure of innovation within an economic sector or geography.

Venture capital is most attractive for new companies with limited operating history that are too small to raise capital in the public markets and are too immature to secure a bank loan or complete a debt offering. In exchange for the high risk that venture capitalists assume by investing in smaller and less mature companies, venture capitalists usually get significant control over company decisions, in addition to a significant portion of the company's ownership (and consequently value).

Young companies wishing to raise venture capital require a combination of extremely rare yet sought after qualities, such as innovative technology, potential for rapid growth, well thought through business model and impressive management team. VCs typically reject 98% of opportunities presented to them, reflecting the rarity of this combination.

Chit Funds

A Chit Fund is a kind of savings scheme practiced in India. In a chit scheme, a specific number of individuals come together to pool a specific amount of money at periodic intervals. Usually the number of individuals and the number of periods will be the same. At the end of each period, there will be an auction of the money.[ citation needed ] Members of the chit will participate in this auction for the pooled money during that interval. The money will be given to the highest bidder. The bid amount will be divided by number of members, and thus determining per head contribution during that period. Usually the discount will continue to decrease over periods. The person getting money in the last period will receive the full scheme amount.

Such chit fund schemes may be conducted by organized financial institutions or may be unorganized schemes conducted between friends or relatives. There are also variations of chits where the savings are done for a specific purpose. Chit funds also played an important role in the financial development of people of south India

National Bank for Agricultural and Rural Development

NABARD is a central or apex institution for financing agricultural and rural sectors

It was set up on July 12,1982 under an act of parliament.

Objectives 

1) Long-term finance for minor irrigation, plantation, horticulture, land development, farm mechanism, animal husbandry, fisheries etc.

2) Short-term loan assistance for financing of seasonal agricultural operations, marketing of crops, purchase/procurement/distribution of agricultural inputs etc.

3)   Medium-term loan facilities for approved agricultural purposes.

4)   Working capital finance for handloom Weavers.

5)   Refinance for financing government-sponsored Programmes such as Rojgar Yojana,etc

6)   NABARD provides financial assistance, especially, to co-operative credit, in the field of agriculture, small-scale industries, cottage and village industries handicrafts and allied economic activities in rural areas.

Electronic Clearing System (ECS)

A mode of electronic funds transfer from one bank account to another bank account using the services of a Clearing House set up by Reserve Bank of India

Normally for bulk transfers from one account to many accounts or vice-versa

Types

1)   ECS (Credit):-used for affording credit to a large number of beneficiaries by raising a single debit to an account, such as dividend, interest or salary payment.

2)  ECS (Debit):-used for raising debits to a number of accounts of consumers/ account holders for crediting a particular institution.

Advantages

1)   Banks handling ECS get freed of paper handling. 

2) In ECS banks simply get the payment particulars relating to their customers. All they need to do is to match the account particulars like name, a/c number and credit the proceeds 

3)   Wherever the details do not match, they have to return it back, as per the procedure

ECS in India

1)   RBI has deregulated the service charges that could be levied by sponsor banks

2)   RBI has waived the processing charges levied by RBI and other banks managing the clearing houses till March 2008.

3)   operational at 15 RBI centers and at 45 other centers