STOCK MARKET

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HISTORY OF STOCK EXCHANGE

The first stock exchange in India, Bombay stock Exchange (BSE) was

established in 1875 as ‘The Native Share and Association’ and has evolved over the

years into its present status as the premier stock exchange in the country. It may be

noted that BSE is the oldest stock exchange in Asia, even older than the Tokyo stock

Exchange, which was founded in 1878. The country’s second stock exchange was

established in Ahmedabad in 1894, followed by the Calcutta stock Exchange (CSE).

CSE can also trace its origin back to 19th century. From a get together under a

‘NEEM TREE’ way back in the 1830s, the CSE was formally established in May

1908.

Traditionally In stock Market, the investors invest their money in shares

under the guidance of the Brokers of any stock broking company. This is convenient

to those investors who are not familiar with the computer and the use of internet. But

it requires more dealers to the share broking companies to give guidance related to

investment. There was a chance of inaccuracy of price because it is a time consuming

process. The cost of the company also increases due to more paperwork. The investor

point of view, there was a problem of privacy. The information of investor may leak

by the broker. So, to remove these limitations of traditional broking, there was an

emergence of new concept e-Broking.

Stock exchange is a place where securities are bought and sold. Stock

exchanges are exposed to high degree of volatility, price fluctuations and it is driven

by the demand supply of stocks. Stock Brokers are the authorized person who is

allowed to buy and sell stocks on behalf of individuals and institutions and the

authority is granted by SEBI.

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E-BROKING

Today is world of technology. So, the person who adopt it, get the success.

So, E-Broking means broking through electronic means. E-Broking is the broking in

which the investors who are familiar with the use of computer and Internet they

directly trade in stock market. They trade any time at any place when the stock

market is open. The cost of transaction is also reducing with time. The investors have

a large range of option for the trading. It is a paperless transaction so it reduces the

cost of company. There was a facility of live streaming quotes, which give exact price

of share which prevailing in the market at that time.

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 brokerage. These brokers allow their client to place online orders with the

option of talking/chatting to brokers if advice is needed. Brokerage rates here are

higher. Online trading is still in its infancy stage in India.

INTERNET TRADING IN INDIA

In the past, investors had no option but to contact their broker to get real time

access to market data. The Net brings data to the investor on line and net broking

enables him to trade on a click. Now information has become easily accessible to

both retail as well as big investors.

The development of broking in India can be categorized in 3 phases:

Stock brokers offering on their sites features such as live portfolio manager,

live quotes, market research and news to attract more investors.

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Brokers offering on line broking and relationship management by providing

and offering analysis and information to investors during broking and non-

broking hours based on their profile and needs, that is, customized services.

Brokers (now e-brokers) will offer value management or services such as

initial public offerings on line, asset allocation, portfolio management,

financial planning, and tax planning, insurance services and enable the

investors to take better and well-considered decisions.

OBJECTIVES OF INTERNET TRADING

Increase transparency in the markets.

Enhance market quality through improved liquidity, by increasing quote

continuity and market depth.

Reduce settlement risks due to open trades, by elimination of mismatches.

Provide management information system (MIS).

Introduce flexibility in system, to handle growing volumes easily and to support nationwide expansion of market activity.

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PROCEDURE FOR INTERNET TRADING

Step-1: Those investors interested in doing the trading over internet system,

that is, NEAT-ISX, should approach the brokers and register with the Stock

Broker.

Step-2: After registration, the broker will provide to them a login name,

password and a personal identification number (PIN).

Step-3: Actual placement of an order. An order can then be placed by using

the place order window as under:

o First by entering the symbol and series of stock and other parameters

such as quantity and price of the scrip on the place order window.

o Second, fill in the symbol, series and the default quantity.

Step-4: Thus, the investor has to review the order placed by clicking the

review option. He may also re-set to clear the values.

Step-5: After the review has been satisfactory; the order has to be sent by

clicking on the send option.

Step-6: The investor will receive an ``Order Confirmation'' message along

with the order number and the value of the order.

Step-7: In case the order is rejected by the Broker or the Stock Exchange for

certain reasons such as invalid price limit, an appropriate message will appear

at the bottom of the screen. At present, a time lag of about ten seconds is there

in executing the trade.

Step-8: It is regarding charging payment, for which there are different modes.

Some brokers will take some advance payment from the investors and will fix

their trading limits. When the trade is executed, the broker will ask the

investor for transfer of funds by the investor to his account.

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FACTORS TO KEEP IN MIND WHILE SELECTING ONLINE BROKERS

Brokerage cost:

It is important to weigh up the subscription and trading costs charged by an online

broker against benefits offered by the site. All online brokers display their charges on

their sites. Some make sure you find the charges easily, while with others you will

have to search a bit.

Safety:

Please make sure site has 128-bit encryption to ensure safety of transaction online.

ICICIDirect.com, 5paisa.com are few sites with 128-bit encryption. You normally get

a secured Login id and password. It is always advisable to frequently change trading

password. Ideally online trading site should be fully integrated. The greater the

backward integration, the better it is for the customer. Ideally broking account, demat

account and bank account should be linked electronically.

Rate refresh:

Rate refresh has to be real-time with no time lag. The speed and reliability comes

with huge investment in technology. It is always advisable to check rates of online

broking sites with BSE/ NSE terminal rates.

Speed of execution:

System has to be fast and reliable that does just one job- executes your trades. The

last thing you need is a site that is heavily congested with the users who are

downloading heavy jpeg graphs or pulling the latest story why market is moving. The

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site should be one click wonder where squaring off all your positions or canceling all

your pending orders takes one click and a confirmation of action.

Trading limit:

For trading, all sites provide 4 times buy and sell limit against margin money put in

by customer. For delivery of shares, buying limit is equal to margin money put in by

customer. Couple of sites also provides margin funding for buying of shares.

Free trial period:

Site should allow users free trial period to familiarize yourself with system before you

decide to become trading member of the site.

Intraday chart/ historical chart:

The site should provide intraday chart tick by tick time and price data / historical

chart for technical analysis by investors of particular scrip. Lot of people trade based

on charting packages.

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SUCCESS FACTORS FOR E-BROKING

There are three key success factors for e-broking,

(i) Scalability and robustness of the trading system:

The fundamental difference between the Internet as a transaction medium and the

conventional closed user group network is that the Net is a universal platform

providing concurrent access to infinite users at any given point in time.

Consequently, it becomes imperative for any Net-based application to have a proven

capability for scalability and robustness which ensures the ability to handle and

process requests from multiple users at any given point in time.

(ii) Bandwidth optimization:

In the Indian context where availability of a sufficient bandwidth is limited, the

application software should demonstrate intelligence in optimizing the available

bandwidth by deploying advanced technologies such as streaming.

(iii) Integration with third party systems:

On the Net, with information feeds available from multiple points, it is prudent to

deploy applications that are built on open architecture methodology for interfacing

with third party systems in the new Net age.

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CHALLENGES IN INTERNET TRADING

For Internet trading to succeed, it is imperative to have both –

1. A robust business model and

2. Comprehensive technology strategy.

Some of the challenges are discussed:

Transaction fulfillment--In the Net-based economy, it is both prudent and essential

for a broker/intermediary to offer total solution to the clients at a single point. Total

solutions would essentially mean offering interfaces with banks, depositories,

information feeds, etc. for efficiency in trade completion and reducing duplication of

client information. The service providers will have to go beyond the stage of mere

order execution and emerge as "informediaries" rather than "intermediaries". This

will not only ensure lower trading costs in terms of offering cross services but will

also help in maximizing ROIs.

A true Internet trading system should deliver cost effective transaction fulfillment at a

single point.

FUTURE OF INTERNET TRADING

International marketplaces are already witnessing re-alignments and changes with the

emergence of electronic communication networks (ECNs) such as INSTINET and

ISLAND, which are already contributing substantial business volumes to mainline

exchanges such as NASDAQ and the NYSE. Concurrently, exchanges worldwide are

looking at striking strategic alliances such as the Global Equity Market (GEM). With

Net trading in securities and rapid consolidation between multiple stock exchanges,

the international securities marketplace is fast becoming a "global village" through

the creation of a universal virtual equity market. Therefore the challenge for the

technology providers is to develop and deploy advanced e-trading tools and

applications using electronic straight through processing technologies.

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TRADING IN STOCK MARKET

TRANSACTION

CYCLE:

Placing Order

Settlement of trades

Decision to trade

Trade Execution

Clearing of Trades

Funds or Securities Transaction

Cycle

A person holding assets either to meet his liquidity needs or to reshuffle his holdings

in response to changes in his perception about risk and return of the assets decides to

buy or sell the securities. He selects a broker and instructs him to place buy/sell order

on an exchange. The order is converted to a trade as soon as it finds a matching

sell/buy order. At the end of the trade cycle, the trades are netted to determine the

obligations of the trading member’s securities/funds as per settlement cycle.

Buyer/seller delivers funds/ securities and receives securities/funds and acquires

ownership of the securities.

A securities transaction cycle is presented above. Just because of this Transaction

cycle, the whole business of Securities and Stock Broking has emerged. And as an

extension of stock broking, the business of Online Stock broking/ Online Trading/ E-

Broking has emerged.

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STOCK MARKET BASICS:

What are Corporations?

Companies are started by individuals or may be a small circle of people. They pool

their money or obtain loans, raising funds to launch the business. A choice is made to

organize the business as a sole proprietorship where one person or a married couple

owns everything, or as a partnership with others who may wish to invest money.

Later they may choose to "incorporate". As a corporation, the owners are not

personally responsible or liable for any debts of the company if the company doesn't

succeed.

Corporations issue official-looking sheets of paper that represent ownership of the

company. These are called stock certificates, and each certificate represents a set

number of shares. The total number of shares will vary from one company to another,

as each makes its own choice about how many pieces of ownership to divide the

corporation into. One corporation may have only 2,500 shares, while another, such as

IBM or the Ford Motor Company, may issue over a billion shares.

Companies sell stock (pieces of ownership) to raise money and provide funding for

the expansion and growth of the business. The business founders give up part of their

ownership in exchange for this needed cash. The expectation is that even though the

owners have surrendered a portion of the company to them public, their remaining

share of stock will become increasingly valuable as the business grows.

Corporations are not allowed to sell shares of stock on the open stock market without

the approval of the Securities and Exchange Commission (SEC). This transition from

a privately held corporation to a publicly traded one is called going public, and this

first sale of stock to the public is called an initial public offering, or IPO.

Why do people invest in the stock market?

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When you buy stock in a corporation, you own part of that company. This gives you a

vote at annual shareholder meetings, and a right to a share of future profits. When a

company pays out profits to the shareholder, the money received is called a

"Dividend". The corporation's board of directors choose when to declare a dividend

and how much to pay. Older and larger companies pay a regular dividend; newer and

smaller companies do not.

The average investor buys stock hoping that the stock's price will rise, so the shares

can be sold at a profit. This will happen if more investors want to buy stock in a

company than wish to sell. What is usually responsible for increased interest in a

company's stock is the prospect of the company's sales and profits going up. A

company who is a leader in a hot industry will usually see its share price rise

dramatically.

What is a stock market index?

In the stock market world, you need a way to compare the movement of the market,

up and down, from day to day, and from year to year. An index is just a benchmark or

yardstick expressed as a number that makes it possible to do this comparison. For e.g.

S&P CNX Nifty is

the index of NSE and SENSEX is the index of BSE.

Market Cap

As you become familiar with stock and mutual fund investing, you will encounter the

term "Cap", as in Small-Cap, Mid-Cap, and Large-Cap. Cap is short for

capitalization.

As a stock market term, the capitalization of a company is calculated by multiplying

the total number of shares by the current price per share. If a company has 500

million shares trading at Rs.20 a share, its market cap is Rs.10 billion (500,000,000 x

20). This is the total value of the company's stock, the value that the world of stock

market investors has placed on the company. Much of this perceived value is due to

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the expectations of a company's future prospects. Market cap is not dictated by how

"big" a company is.

Today, we define a large-cap company as one whose stock is valued at over $10

billion (some still say over $5 billion), a mid-cap from $1 to $10 billion, a small-cap

from $250 million to $1 billion, and a company whose stock value is under $250

million as a micro-cap. Depending on who you listen to or how old your reference

book is, these definitions will vary. A related point - don't think a company is big just

because it has a high stock price, or that it is small just because its stock price is low.

Supply and Demand

A stock's price movement, up and down until the end of the trading day is strictly the

result of supply and demand. SUPPLY is the no. of shares offered for sale at anyone

one moment.

The DEMAND is the number of shares investors wish to buy at exactly the same

time. What a share of a company is worth on anyone day or at any one minute, is

determined by all investors voting with their money. If investors want a stock and are

willing to pay more, the price will go up. If investors are selling a stock and there

aren't enough buyers, the price will go down.

How does one buy stocks?

Buying stocks is not as simple as walking into a stockbroker's office and buying

shares like you would a pair of shoes from a store. You are required to open an

account with the brokerage, like opening an account at a bank. Some brokers will

allow you to open an account with very little money. The firm will then hold this

money in an interest earning cash account, awaiting your orders to buy or sell stock,

or other securities such as bonds or mutual funds.

When you buy or sell, you pay a commission that is deducted from your account.

When a stock is purchased, the ownership of the shares may be listed in one of two

ways. "Listed" means how the corporation tracks the ownership of their stock. If you

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choose to have the stock listed in your name, you will receive the actual stock

certificates. Most investors choose to have the ownership listed in the broker's name,

called "held in street name", with the broker keeping track of whose trading account

the stock actually belongs to. The benefits are reduced paperwork, consolidated

portfolio statements, no concerns about storing and processing the paper certificates,

and the ability to instantly sell and transfer the shares.

Either way, any dividends are credited to your account. Stocks held in street name are

insured by the federal government against fraud or financial failure of the brokerage

company.

Why do people sell their stock?

The reasons people sell their stock are more complex. We can never say with full

surety why people sell their stock. It is very subjective and can not work for all. But

most probably the following are the reasons which play a great roll in case of selling

of the stock.

A person may just need the money.

He or she may have watched the price go up, and have a hunch this is a good

time to lock in their profit and sell some or all their shares.

Bad news concerning a company or its industry, or a disappointing earnings

report is sure to prompt heavy selling.

An investor may see better opportunities in another company, and so sell his

stocks that aren't moving up.

But usually, investors sell because they've watched the price fall, and just want to get

out before they lose even more.

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Ten Golden rules for Investing

Warren Buffet has suggested ten golden rules for investing which proves to be

immense use to the investors who want a better investment in stock markets,

Motilal Oswal follows these rules which are as described below:

Never invest in a business you cannot understand.

Concentrating on a few holdings can reduce risk.

Stop trying to predict the direction of the stock market, the economy, interest

rates, or elections.

Buy companies with strong histories of profitability and with a dominant

business franchisee.

Be fearful when others are greedy and greedy when others are fearful.

Unless you can watch your stock holding decline by 50% without becoming

panic-stricken, you should not be in the stock market.

Do not take yearly results too seriously. Instead, focus on four or five year

averages.

Focus on return on equity, not earnings per share (EPS).

Calculate “owner earnings” to get a true reflection of value. Look for

companies with high profit margins.

Always invest for the long term. Ask: Does the business have favorable long

term prospects?

The above mentioned ten principles provide a kind of guidance to the investors,

which prove to be helpful to give the investor maximum return for their investment.

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Company profile

The story of Motilal Oswal Securities Ltd (MOSt) goes back many years, when

Mr. Motilal Oswal and Mr. Raamdeo Agrawal met each other as students in a

Mumbai suburban hostel in the early eighties. Both the young chartered accountants

hailing from a rural & an unpretentious background had a common dream viz 'to

build a professional organization with strong value systems, to provide reliable

& honest investment advice to investors'. Thus was born their first enterprise called

"Prudential Portfolio Services" in 1987.

”Motilal Oswal” gets incorporated as Motilal Oswal Securities Ltd. in the year

1995.The institutional business unit has relationships with several leading foreign

institutional investors in the US, UK, Hong Kong and Singapore.

Motilal Oswal Financial Services is a well diversified financial services group having

businesses in securities, commodities, investment banking and venture capital.with

1160 Business locations and more than 2,00,000 investors in over 360 cities, Motilal

Oswal is well suited to handle all your wealth creation and wealth management needs.

The company has in the last year placed 9.48% with two leading private equity

investors - New Vernon Private Equity Limited and Bessemer Venture Partners at

post money company valuation of Rs. 1345 crore. (Rs. 13.45 billion).

Motilal Oswal Financial Services Ltd ties-up with State Bank of India to offer

online trading.

Motilal Oswal Financial Services Ltd was declared as the Best Research House

for Indian Stocks in 2006 as per AQ Research

Motilal Oswal Financial Services Ltd., consists of four companies.

(1) Motilal Oswal Investment Advisors Pvt. Ltd.

(2) Motilal Oswal Commodities Broker (P) Ltd.

(3) Motilal Oswal Venture Capital Advisors Private Limited

(4) Motilal Oswal Securities Ltd. (MOSt).

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Mission and Vision

Motilal oswal core objective is to position ourselves as globally respected investment

bank by assisting our clients in value creation.

Motilal oswal are on the correct roadmap to pursue our mission with our Team

inculcating the following values with utmost sincerity.

Integrity

Motilal oswal commitments and work on transactions keeping in mind long term

interests of the clients

Client Orientation

Motilal oswal come out with solutions keeping in mind priorities and needs of the

clients.

Knowledge based solution offering

Motilal oswal quest for solution offering supported by knowledge and research on

underlying business and products, results in high quality financial and strategic

advice.

Quality

Motilal oswal endeavor to follow the best of the global service standards and

processes results in outstanding execution support for transactions.

Passion

Motilal oswal are passionate about our transactions resulting in innovative solutions

and enhancing probability of transaction closures .

Motilal oswal Core Purpose

To be a well respected and preferred global financial services organization enabling

wealth creation for all our customers.

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STOCK CLUSTER

At Motilal Oswal, all the scripts are divided under six categories and on that basis

the company will give advice for the investment. Each cluster represents a certain

profile in terms of business fundamentals as well as the kind of returns you can

expect over a certain time horizons and return objectives.

Evergreen:

Dominant players with strong brands, robust management

credentials, supernormal shareholder returns. They will steadily

compound 18-20% per year for next five to ten years.

Appleegreen:

Potentially steady compound, but five to ten years graph bit unclear.

They could gallop at 25-30 per-years over the next two to three years.

Emerging Star:

Young companies, likely to rule chosen niches. Even better, the niches

could balloon into full-blow markets. Potentially ten-baggers if you’re

patient.

Ugly Duckling:

Trading below fair value or at huge discount to peer group. But

something’s cooking. Could double in two to three years time.

Vulture’s Pick:

Companies with valuable assets at throwaway prices. Buy & await

predators. Startlingly high returns possible.

Cannonball:

Season’s favourites. Typically fast gainers in rising markets, could

return 30-50% within six months. Get in, cash in, get out.

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PRODUCTS AT MOTILAL OSWAL

Other Services Online Offline

Motilal Oswal’s product

Freedom A/C Value Investing A/C Easy A/C

Offline:

⇒ Offline A/c is the A/c for the investors who are not familiar with the use of

computer.

⇒ The A/C opening charges Rs. 500 (One time)

⇒ For 1 Year Demat A/C is Free, On 2 Year AMC charge is applicable.st nd

Online

Types of Account

Freedom Account - High Volume Trader

Value Investing Account - High Value Investor

Easy Account - A combination of both

Freedom Account

If the ups and down of the stock market are simply irresistible for you to stay away

from action and you want to do it all by yourself, you have chosen one of the best E

broking trading platforms in the country. Having gone through rigorous testing in real

market conditions, we bring you a trading terminal that allows you to maintain pace

with complete market action.

Our high performance EXE based trading platform with advanced features like

integrated DP + bank account + trading account, single screen market watch for NSE

& BSE cash and derivatives, tick by tick charting with advanced tool, online technical

calls, real time reports makes it the most preferred product for active day traders,

jobbers What’s more, you also get the most competitive brokerage rates along with

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host of other benefits and the most trusted name making it the best proposition

available in the country.

Value Investing Account

If you believe in value investing and want to pick only the best stocks

amongst the 6000 listed on the stock exchanges, this is the right account for

you. We specialize in providing our customers with Solid Research and Solid

Advice.

What more, you also get access to our research reports and assistance in

evaluating and restructuring your portfolio continuously through a highly

qualified advisor.

This product is meant for our platinum customer who knows that money is

made by sitting.

Easy Account

If you like to go ‘easy’ with your equity investments explore the benefits of

having online terminal on your desktop. Watch the live price movements,

online fund transfer facility along with a trading account linked with your

demat and bank account giving you complete comfort while investing in

equities.

Other Services:

Dial-n-Trade

Depository Services

Commodity Trading

Derivative Trading

Mutual fund

Portfolio Management Services

Online IPO

Research Based Information Provided

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SERVICES AT MOTILAL OSWAL

Online BSE and NSE Trading:

Motilal Oswal is a registered Stock Broker with the Bombay Stock Exchange and

National Stock Exchange to trade on behalf of clients. The screen-based trading is

done on BOLT- BSE Online Trading and NEAT- National Exchange Automated

Trading, terminals. There are two types of transactions executed on these terminals

viz. intra-day and delivery based transactions. Intraday transactions are those, in

which the squaring up of deal is done on the same day, while in delivery based

transaction the squaring up is not done on the same day, but the stock is to be traded

on the basis of rolling settlement i.e. T+2. The Brokerage of Intraday transaction is

0.10% single side, while brokerage on delivery based transactions is 0.50% on both

side, i.e. while purchasing as well as selling.

Free Access to Investment Advice through R&D

The Research and Development at Motilal Oswal is done at its Head office Mumbai.

From there it forwards the relevant data and tips on particular shares and scripts at the

relevant time. The R&D department Head Mr. Hemang Jani forwards all the details

regarding all stocks and scripts to all the branches through Internet. At the end of each

trading day there is a Teleconference, through which the R&D department Head MR.

Hemang Jani talks with each Branch heads and discusses about each day’s closing

position and shows their predictions about next day’s opening position. The quarries

regarding stock positions and other relevant matter of the branch heads of each

branch is being solved through teleconference. The various publications of Motilal

Oswal viz. Derivatives Digest, Valueline, Eagle eye, High Noon, Investor’s Eye,

Commodities Beat, Commodity Trader’s corner, Motilal Oswal Xclusive, etc. are

being prepared by the research team of Motilal Oswal made up of highly experienced

people from diverse field.

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Depository Participation

Motilal Oswal is a registered Depository Participant (DP) with National Securities

Depository Ltd. (NSDL). The participants are required to enter into an agreement

with beneficial owners. It is required that separate accounts shall be opened by every

participant in the name of each of the beneficial owner and the securities of each

beneficial owner shall be segregated and shall not be mixed up with the securities of

other beneficial owners or with the participant’s own securities. The participants are

obliged to reconcile the records with every depository on a daily basis. Participants

are required to maintain the following records for a period of five years.

Records of all the transactions entered into with a depository and with a

beneficial owner:

ISSUER AGENT

CLEARING CORPORATION

CLEARING MEMBER

DEPOSITORY PARTICIPANT

STOCK EXCHANGE TRADING MEMBER

INVESTOR DEPOSITORY

Details of security dematerialized, rematerialized on behalf of beneficial

owners with whom it has entered into an agreement;

Records of instructions received from beneficial owners and statements of

account provided to beneficial owners; and Record of approval, notice, entry

and cancellation of pledge.

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Derivatives Trading

Motilal Oswal is a Trading Member registered with the Stock Exchange, according to

the norms and Guidelines given by the SEBI. Two types of users access the NEAT

F&O trading system: The Trading Members and the Clearing Members. The Trading

Members (TM) has access to functions such as, order matching, order and trade

management. The Clearing Member (CM) uses the trader workstation for the purpose

of monitoring the trading member(s) for whom he clears the trades. Additionally, he

can enter and set limits to position, which a trading member can take. Motilal Oswal

provides the service of derivatives trading on NEAT F&O to its clients.

Online IPO

Online IPO (Initial Public Offering) is a new service started by Motilal Oswal for

providing the application form of any company’s issues of shares just like the TCS

issue can be subscribed by filling an online form to reduce the paper work and the

fund transfer facility is also provided to the clients for transferring the funds online. It

is given on its web-site for helping the clients who are not able to collect the forms

manually and the speed of filling and reducing the risk of misplacing of forms, not

reaching in time, etc.

Internet Based Online Trading

The Online trading facilities provided by Motilal Oswal is basically divided into two

types of accounts, viz. Classic Account and Speedtrade and SpeedTradePlus

The online trading through Motilal Oswal website also comes with Dial-n-

Trade service that enables you to buy and sell shares by calling our dedicated

toll-free number.

Speedtrade and Speedtrade Plus: SPEEDTRADE is a next-generation online

trading product that brings the power of the broker’s terminal to the client’s

PC. Through SPEEDTRADE PLUS the client is also allowed to trade on

Derivatives.

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Streamer: Streamer account is just for the new learners of market and is a new

service offered by Motilal Oswal to give the view of the market online to the

customers who don’t have any experiences of the stock market and it is

software provided to see the ups and downs of market with the screen on your

PC. It costs Rs.2000 per quarter and there will not be any facility for trading

and just you can see how trading is done on the market.

The various benefits the client gets from the online trading are:

Freedom from Paperwork: Integrated trading, bank and Demat account (auto

pay-in and pay-out of securities) with digital contracts removes all paperwork.

Instant Credit And Transfer: Instant transfer of funds from bank accounts of

client’s choice to his/her Motilal Oswal trading account.

Trade Anywhere: Enjoy the ease of trading from any part of the world in a

completely secure environment.

Dial n Trade: Call Motilal Oswal on a toll free number to place orders through

Motilal Oswal’s telebrokers.

Timely Advice: Make informed decisions with expert advice, investment calls

and live market commentary.

Real-Time Portfolio Tracking: Benefit from real-time information of your

investment and current portfolio value.

After-Hour Orders: The Client can place orders after the market hours, which

get executed as soon as markets open.

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PORTER’S MODEL

SUPPLIERS

Web maintainers NSCL CSDL NSE BSE MCX

NCDEX

SUBSTITUTES

Mutual Funds

Insurance Bank FD

BUYERS

Small Investors Franchise/Business

Partners HNI’s

MF Companies HUF

Institutional Investors

POTENTIAL ENTERANT

Investmart

Various Banks Geojit Cipher

UTI Securities Ltd. Refco Group Ltd.

IDBI Capital Mkt. Services Ltd.

COMPETITORS

ICICI Web Trade Ltd

5paisa.com Kotak Securities Ltd

India Bulls Motilal Oswal Securities Ltd

HDFC Securities Ltd Marwadi Finance Ltd

25

COMPARISION OF ONLINE TRADING PRODUCTS

Cos. / Features Products Offered Online BSE/ NSE

Online F&O

Online IPO

A/c Opening Charges

Deposits

Share khan Ground A/c, E-

Broking, Commodity, DP, PMS

Yes Yes Yes Classic 750/-ST 1000/-

10000

Kotakstreet.com Ground A/c, Online A/c, Commodity, DP Yes Yes Yes 500 50000

ICICI Direct.com Online A/c,MF Yes Yes No 750 -----

HDFC E-Broking Yes Yes No 600 -----

Motilal Oswal Ground A/c, Online

A/c, Commodity, DP, PMS

Yes Yes Yes Up to 400 5000

Indiabulls Ground A/c, Online

A/c, Commodity, DP,MF

Yes Yes Yes 250 -----

5-Paisa.com E-Broking, Insurance Yes Yes No 500 5000

Angel Broking Ground A/c, E-Broking Yes No Yes 500 50000

IL&FS Insurance, MF,

E-Broking, Ground A/c

Yes Yes Yes 500 ------

If we check the above table, we can come to know that the rates of Motilal

Oswal is quite competitive than other brokerage houses.

One other best point of Motilal Oswal is –if a person is having a online/offline

trading account as well as Demat account with Motilal Oswal, they won’t be charged

any kind of Demat transfer charges, which are charged when the shares are sold from

the Demat account.

26

SUPPLIERS

NSDL & CSDL are the regulatory bodies for Depository Participants like

SSKI, SHCIL, ICICIdirect.com, etc. Also these regulatory bodies have got an

upper hand as the bargaining power stock broking houses like SSKI, etc.

would be less.

NSE & BSE are playgrounds where common an investor trade through stock

broking houses, for which they have to take permission from NSE/BSE.

NSE & BSE are under the purview of SEBI, that’s why stock broking houses

like SSKI, have low bargaining power. But here there is one advantage that

NSE/BSE have i.e. they cannot go for forward integration.

MCX & NCDEX are stock exchanges which trade in commodities and

derivatives. Here again stock broking houses have to follow rules and

regulation of the same.

Web maintainers are companies which maintain web sites & technical aspects

of the same. Here stock broking houses like SSKI can have more bargaining

power due to stiff competition among web maintaining companies.

Web maintainers are companies who make and maintain software’s for stock

broking houses. If say for example stock broking houses switches over to

other web maintainers then that company cannot understand the mechanisms

of software’s. So it is quite high switching cost.

BUYERS

There are various types of investors who trade through stock broking houses

like SSKI, which includes investors like small investors, medium net worth

investors, business partners, institutional investors and mutual fund

companies.

Here the bargaining power of stock broking houses depends on how big the

investor is.

So here we can say that bargaining power of stock broking houses is high in

case of small investors & HUF.

27

While the bargaining power is moderate in case of HNI (High New Worth

Investors)/ MNI’s (Medium Net Worth Investors) and business partners.

But the in case of mutual fund companies and institutional investors

bargaining power is less.

There is competitive buzz in stock broking industry; competitors are offering

low brokerage and best services with added feature. So switching cost is

pretty much less. So the buyer can easily switch over to competitors product.

ENTRY BARRIERS

Huge capital: - Capital is necessary not only for fixed facilities but also for

customer’s credit and absorbing start up losses. To start a stock broking house,

one needs huge capital for technology up gradation and skilled manpower.

Technology: - Stock broking requires huge capital to make their products user

friendly, which in turn requires capital to employ skilled manpower.

Regulatory Constraints: - Obtaining a license is a tedious job. It should

comply with the regulation of the governing bodies like SEBI, NSDL, etc. For

a stock broking houses to plunge into the stock broking industry, it needs to

have some kind of financial background and expertise. Thus, regulators

constraints could be an entry barrier.

Experience curve: - The core competency in this industry is the services

which are provided to the end-users and the research based activities which

includes “TIPS”, fundamental as well as technical script analysis. Also the

most important thing which helps already established firms is-“TRUST”

which people would be having on them.

Network: - The “Reach” to the customer is the key factor in the industry. The

network of the companies Motilal Oswal is very efficient and spreaded all

over India. It will take time for a new entrant to establish such a huge

network, which says that,” Network can come up as most difficult entry

barrier to overcome.”

28

Expected Retaliation: - Whenever a new player comes in the industry, the

old companies have an option to reduce the prices of their product. This kind

of practice is called expected Retaliation which is possible in this industry in

terms of less brokerage rates and reduced account opening charges. E.g.

Motilal Oswal was having two types of accounts viz. speed trade speed trade

plus, which were costing 1000 & 1500 account opening charges

respectively,But due to competition, they have come up with only one account

speed trade plus with the account charges of Rs.1000.

COMPETITORS

The company is facing the competition from local as well as national level

players. The local players provide facility for off-line trading while the

national players like ICICIdirect.com and Kotakstreet.com, HDFC Security

provide online trading services.

There are also other big names like Indiabulls, Motilal Oswal, 5paisa and

Marwadi encircles the company form both the sides by providing online and

off-line trading with competitive services.

POTENTIAL ENTRANTS

The potential entrants in like Investmart, Jeojit and Cipher which are coming

in near future to Gandhinagar City.

Nationalized banks are also thinking to enter in this field by tying up with

broking houses. E.g. Bank Of Baroda.

SUBSTITUTES

Here substitutes are such instruments which can be used instead of investing

in shares.

The instruments like Bank FD, insurance, mutual funds are the substitutes.

If the use of this instruments increase this may be disadvantage for the stock

broking houses.

The companies and banks which are having these instruments can plunge into

this industry.

29

COMPETITIVE ANALYSIS

Follower:

The followers are those who just blindly follow the other player which are

leader and challenges.

The players like 5 paisa, Motilal Oswal, HDFC Securities, Kotakstreet are the

followers.

LEADER:

ICICIdirect.com is a leader in the online account which is having 1,24,000

accounts in the country.

While in offline account Motilal Oswal is leading with 64,000 offline

accounts.

NICHER:

ICICIdirect.com and Kotakstreet.com are the two stock broking houses which

are focusing only on online investors.

CHALLENGER:

Motilal Oswal, Kotakstreet and Indiabulls come under this head.

Motilal Oswal challenges competitors by providing quality services and

research based advice.

Indiabulls is also challenging with low brokerage rates and class one service.

30

BACKOFFICE WORK AT MOTILAL OSWAL

Motilal Oswal is very efficient company and it handles the back office work

with great efforts. The company gives lots of attention to the handling of all the

details regarding the client and the information is provided by the staff members of

the company. So, the company also gives the guarantee for the privacy of the details

that are stored in the back office.

Back office is the main pool of information on which the company and the branch

works on to decide how much limit should be given to the client. The back office

work is generally carried out in the early morning and after the trading hours. So, the

trading hours would not get disturbed.

At Motilal Oswal, the back office is the main link and which is provided by the Head

Office through Net. The branch is required to maintain it and update it all the times to

get the data and other related information updated. So, early in the morning the Back

office is updated and the copy of the ledger balance of the client and the stock report

are printed out so that the clients’ limit or the decision of the selling of delivery can

be taken without disturbing the terminal and the working hours.

♦ Back office contains:

Client details

Collection Request

Ledger bal

Pay out request

Credit management

31

Client Details:

Motilal Oswal maintains all the details regarding the customer which include the

details of their address, their contact no, the copies of their required information such

as pan card photocopy and bank statement etc, if required. The other details of the

client such as the bank details, the DP holding statement, and other things are

maintained and updated at times.

Collection request:

This section handles the things like the collection and cheque request made by or to

the client. In this section the cheque information for Pay in and pay out are provided.

Here the entry would be made as soon as the client pay the amount through cheque

then the cheque is sent to the bank for clearing and if the amount is not transferred to

the company’s account within two days, the reversal entry is made and the extra

charge would be recovered for that from the account of the client. None can make the

payment in cash. Each and every client is required to make payment through cheque.

So, the money get easily tranfered to the Head Office.

Ledger Balance:

This section gives idea about the balance of the client in the account of Motilal

Oswal. Generally the company wants to have the positive balance of the client. But

the company also allows trading on five times on the stock value and ten times on the

balance in ledger. That amount is required to be collected from the client within two

days.

Payout Request:

The client who has the balance in his account can demand for the payment through

cheque. In Motilal Oswal, the pay out is given through Back office on which the

Ahmedabad branch will give the cheque in the name of the client within two days.

The client is given full authority to ask for pay out at any point of time if he has credit

balance in his accont.

32

Credit Management:

The credit management is done with great care to give the limit extension to the

client. For this calculation, the stock value of the client in his DP account is

calculated and the ledger balance of the client in his account is deducted from that

amount. The resulted amount will decide the limit that would be allowed to the client.

Eg. Suppose a client has following stock in the account of Motilal Oswal

Reliance: worth 56000

TCS: worth 41000

ITC: worth 36000

133000

Now if the client has only 10000 balances in the account then the request for payment

would be made. Generally the margin on credit is Rs. 100000 ie. The resulted amount

should be minimum one lack rupees. If the client is unable to make payment within

fifteen days then the his holding is sold in the market even at a loss to the client but

the amount is recovered so that the shortage of payment to the terminal or to the

branch does not occur. Sometimes the shortage of payment cause the terminal to be

Hanged. So, the branch is required to follow the credit management fully and strictly.

33

SWOT ANALYSIS

During this training at Motilal Oswal, we had come to know the Strengths –

Weaknesses – Opportunities – Threats for the company and it is very useful for a

company to analyze them. Therefore, the SWOT analysis is presented here and the

suggestions for maintaining strengths and removing weaknesses are explained in

detail.

Strengths: Well-maintained infrastructure. Infrastructure does not just include the

office area but also the facilities present there.

Lowest brokerage and other charges w.r.t. competitors. The brokerage is

not the minimum but the company does not collect the other charges

which do not exist like other competitors.

The best investment advice correct up to 70-90 % through dedicated

research and reports. The R&D department of the company is very

dedicated and the tips given by the company is on an average 97% right.

One of the best DPs in India. The company has the record top provide best

DP service and other facility.

Weaknesses:

The company is passing through the following weaknesses which can be the hurdle to

the success of the company.

Less awareness in the market. The Motilal Oswal is not having a good

reputation or recognition in the market. The more amd more awareness should

be created.

The marketing team is not much experienced and so the company can not

make its stand in the mind of the investors.

The company is following a rigid credit management system. So sometimes

the limit problem or the compulsory selling of the securities happens.

34

Opportunities:

Opportunities are something that the company should grab to make the stand in the

market against the competitors. The opportunities for the stock broking industry are

as follows:

Slope of stock market towards delivery based transaction. The company is

having advantage in this volatile market because the investors are having the

trading on the delivery basis.

Large potential market for delivery and intra-day transactions.

Attract the customers who are dissatisfied with other broker & DPs. For that

the company is preparing a list of customers.

Threats:

The company should take care of the following points as they play a big roll in the

success of the company.

Decreasing rates of brokerage in the market. The competitors are getting sharp

change on that.

Increasing competition against other brokers & DPs.

A threat of loosing clients for any kind of weakness of the company. Normally

the rigid credit policies of the company is playing a negative roll for the

market.

Loosing the untapped market with the entry of the competitors.

35

MAJOR PLAYERS IN THE INDUSTRY

INDIA BULLS

5PAISA.COM

ANGEL BROKING

ICICI DIRECT

IL&LS INVESTMENT

UTI SECURITIES

MOTILAL OSWAL

KARVY

KOTAK SECURITIES LIMITED

HDFC SECURITIES LTD

IDBI CAPITAL MARKET SERVICES LTD

NUMBER OF TERMINAL IN INDIA.

Broker Name No of Terminal

Angle broker 5081

Motilal oswal 4179

Indiabulls 3231

Icici securities 1051

India infoline 970

Anagram securities 999

S.M.C. Global 3231

36

NO OF SUB-BROKER IN INDIA

COMPANY NAME No of sub broker

Karvy stock broking 15000

Angle Broking 2408

S.M.C. Global 800

Motilal Oswal 638

I.C.I.C.I. 587

Ashit c. maheta 320

Anagram securities 964

37

CALCULATION OF SENSEX In 1875, in the period of its inception, there were 318 registered members in what we

call today “Bombay Stock Exchange”. Since that long period of time Indian stock

market has seen lots of changes comprising both kind of experience i.e. good and bad.

Up to the eighties there was no any barometer to set a standard for measuring the ups

and down in share market.

To formulate the measure rode for ups and downs BSE came with the stock index that

has subsequently become the barometer for Indian stock market. SENSEX is not only

scientifically designed but also based on globally accepted construction and review

methodology. . SENSEX is a basket of 30 constituent stocks representing a sample of

large, liquid and representative companies. The base year of SENSEX is 1978-79 and

the base value is 100. The index is widely reported in both domestic and international

markets through print as well as electronic media.

The index was initially calculated based on the “Full Market capitalization”

methodology but was shifted to the free-float methodology with effect from 1st

September 2003.The "Free-float Market Capitalization" methodology of index

construction is regarded as an industry best practice globally. All major index

providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float

methodology.

Due to is wide acceptance amongst the Indian investors; SENSEX is regarded to be

the pulse of the Indian stock market. As the oldest index in the country, it provides

the time series data over a fairly long period of time (From 1979 onwards). Small

wonder, the SENSEX has over the years become one of the most prominent brands in

the country.

38

SENSEX Calculation Methodology

SENSEX is calculated using the "Free-float Market Capitalization" methodology. As

per this methodology, the level of index at any point of time reflects the Free-float

market value of 30 component stocks relative to a base period. The market

capitalization of a company is determined by multiplying the price of its stock by the

number of shares issued by the company. This market capitalization is further

multiplied by the free-float factor to determine the free-float market capitalization

The calculation of SENSEX involves dividing the Free-float market capitalization of

30 companies in the Index by a number called the Index Divisor. The Divisor is the

only link to the original base period value. It keeps the Index comparable over time

and is the adjustment point for all Index adjustments arising out of corporate actions,

replacement of scripts etc. During market hours, prices of the index scripts are used

by the trading system to calculate SENSEX every 15 seconds.

Understanding Free-float Methodology

Concept:

Free-float Methodology refers to an index construction methodology that takes into

consideration only the free-float market capitalization of a company for the purpose

of index calculation and assigning weight to stocks in Index. Free-float market

capitalization is defined as that proportion of total shares issued by the company that

are readily available for trading in the market. It generally excludes promoters'

holding, government holding, strategic holding and other locked-in shares that will

not come to the market for trading in the normal course. In other words, the market

capitalization of each company in a Free-float index is reduced to the extent of its

readily available shares in the market.

39

Definition of Free-float:

Share holdings held by investors that would not, in the normal course come into the

open market for trading are treated as 'Controlling/ Strategic Holdings' and hence not

included in free-float. In specific, the following categories of holding are generally

excluded from the definition of Free-float:

Holdings by founders/directors/ acquirers which has control element

Holding through Route of Foreign Direct Investment

Holdings by persons/ bodies with "Controlling Interest"

Government holding as promoter/acquirer

Strategic stakes by private corporate bodies/ individuals

Equity held by associate/group companies (cross-holdings)

Equity held by Employee Welfare Trusts

Locked-in shares and shares which would not be sold in the open market in normal

course.

The remaining shareholders would fall under the Free-float category.

Major advantages of Free-float Methodology:

A Free-float index reflects the market trends more rationally as it takes

into consideration only those shares that are available for trading in the

market.

Free-float Methodology makes the index more broad-based by reducing

the concentration of top few companies in Index. For example, the

concentration of top five companies in SENSEX has fallen under the free-

40

float scenario thereby making the SENSEX more diversified and broad-

based.

A Free-float index aids both active and passive investing styles. It aids

active managers by enabling them to benchmark their fund returns vis-à-

vis an investable index. This enables an apple-to-apple comparison

thereby facilitating better evaluation of performance of active managers.

Being a perfectly replicable portfolio of stocks, a Free-float adjusted index

is best suited for the passive managers as it enables them to track the index

with the least tracking error.

Free-float Methodology improves index flexibility in terms of including

any stock from the universe of listed stocks. This improves market

coverage and sector coverage of the index. For example, under a Full-

market capitalization methodology, companies with large market

capitalization and low free-float cannot generally be included in the Index

because they tend to distort the index by having an undue influence on the

index movement. However, under the Free-float Methodology, since only

the free-float market capitalization of each company is considered for

index calculation, it becomes possible to include such closely held

companies in the index while at the same time preventing their undue

influence on the index movement.

Globally, the Free-float Methodology of index construction is considered

to be an industry best practice and all major index providers like MSCI,

FTSE, S&P and STOXX have adopted the same. MSCI, a leading global

index provider, shifted all its indices to the Free-float Methodology in

2002. The MSCI India Standard Index, which is followed by Foreign

Institutional Investors (FIIs) to track Indian equities, is also based on the

Free-float Methodology. NASDAQ-100, the underlying index to the

famous Exchange Traded Fund (ETF) - QQQ is based on the Free-float

Methodology.

41

Determining Free-float factors of companies:

BSE has designed a Free-float format, which is filled and submitted by all index

companies on a quarterly basis with the Exchange. The Exchange determines the

Free-float factor for each company based on the detailed information submitted

by the companies in the prescribed format. Free-float factor is a multiple with

which the total market capitalization of a company is adjusted to arrive at the Free-

float market capitalization. Once the Free-float of a company is determined, it is

rounded-off to the higher multiple of 5 and each company is categorized into one of

the 20 bands given below. A Free-float factor of say 0.55 means that only 55% of the

market capitalization of the company will be considered for index calculation.

Free-float Bands:

%Free-Float Free-Float

Factor

%Free-Float Free-Float

Factor

>0 – 5% 0.05 >50 – 55% 0.55

>5 – 10 % 0.10 >55 – 60% 0.60

>10 – 15% 0.15 >60 – 65% 0.65

>15 – 20% 0.20 >65 – 70% 0.70

>20 – 25% 0.25 >70 – 75% 0.75

>25 – 30% 0.30 >75 – 80% 0.80

>30 – 35% 0.35 >80 – 85% 0.85

>35 – 40% 0.40 >85 – 90% 0.90

>40 – 45% 0.45 >90 – 95% 0.95

>45 – 50% 0.50 >95 – 100% 1.00

Index Closure Algorithm

The closing SENSEX on any trading day is computed taking the weighted average of

all the trades on SENSEX constituents in the last 30 minutes of trading session. If a

SENSEX constituent has not traded in the last 30 minutes, the last traded price is

taken for computation of the Index closure. If a SENSEX constituent has not traded at

all in a day, then its last day's closing price is taken for computation of Index closure.

42

The use of Index Closure Algorithm prevents any intentional manipulation of the

closing index value.

Maintenance of SENSEX

One of the important aspects of maintaining continuity with the past is to update the

base year average. The base year value adjustment ensures that replacement of stocks

in Index, additional issue of capital and other corporate announcements like 'rights

issue' etc. do not destroy the historical value of the index. The beauty of maintenance

lies in the fact that adjustments for corporate actions in the Index should not per se

affect the index values.

The Index Cell of the exchange does the day-to-day maintenance of the index

within the broad index policy framework set by the Index Committee. The Index Cell

ensures that SENSEX and all the other BSE indices maintain their benchmark

properties by striking a delicate balance between frequent replacements in index and

maintaining its historical continuity. The Index Committee of the Exchange

comprises of experts on capital markets from all major market segments. They

include Academicians, Fund-managers from leading Mutual Funds, Finance-

Journalists, Market Participants, Independent Governing Board members, and

Exchange administration.

On-Line Computation of the Index:

During market hours, prices of the index scrips, at which trades are executed, are

automatically used by the trading computer to calculate the SENSEX every 15

seconds and continuously updated on all trading workstations connected to the BSE

trading computer in real time.

Adjustment for Bonus, Rights and Newly issued Capital:

The arithmetic calculation involved in calculating SENSEX is simple, but problem

arises when one of the component stocks pays a bonus or issues rights shares. If no

adjustments were made, a discontinuity would arise between the current value of the

index and its previous value despite the non-occurrence of any economic activity of

substance. At the Index Cell of the Exchange, the base value is adjusted, which is

used to alter market capitalization of the component stocks to arrive at the SENSEX

value.

43

The Index Cell of the Exchange keeps a close watch on the events that might affect

the index on a regular basis and carries out daily maintenance of all the 14 Indices

Adjustments for Right Issue

When a company, included in the compilation of the index, issues right shares, the

free-float market capitalization of that company is increased by the number of

additional shares issued based on the theoretical (ex-right) price. An offsetting or

proportionate adjustment is then made to the Base Market Capitalisation (see 'Base

Market Capitalization Adjustment' below).

Adjustments for Bonus Issue:

When a company, included in the compilation of the index, issues bonus shares, the

market capitalisation of that company does not undergo any change. Therefore, there

is no change in the Base Market Capitalisation, only the 'number of shares' in the

formula is updated.

Other Issues:

Base Market Capitalisation Adjustment is required when new shares are issued by

way of conversion of debentures, mergers, spin-offs etc. or when equity is reduced by

way of buy-back of shares, corporate restructuring etc.

Base Market Capitalisation Adjustment:

The formula for adjusting the Base Market Capitalisation is as follows:

New Base Market = Old Base Market x New Capitalisation

Capitalization Market Cap

Old Market Capitalisation

To illustrate, suppose a company issues right shares which increases the

market capitalisation of the shares of that company by say, Rs.100 crores. The

existing Base Market Capitalisation (Old Base Market Capitalisation), say, is

Rs.2450 crores and the aggregate market capitalisation of all the shares

included in the index before the right issue is made is, say Rs.4781 crores. The

"New Base Market Capitalisation” will then be:

44

2450 x (4781 + 100) / 4781 = Rs. 2501.24 crore

the index number from then onwards till the next base change becomes

necessary.

SENSEX - Scrip selection criteria:

The general guidelines for selection of constituents in SENSEX are as follows:

Listed History: The scrip should have a listing history of at least 3 months at

BSE. Exception may be considered if full market capitalisation of a newly

listed company ranks among top 10 in the list of BSE universe. In case, a

company is listed on account of merger/ demerger/ amalgamation, minimum

listing history would not be required.

Trading Frequency: The scrip should have been traded on each and every

trading day in the last three months. Exceptions can be made for extreme

reasons like scrip suspension etc.

Final Rank: The scrip should figure in the top 100 companies listed by final

rank. The final rank is arrived at by assigning 75% weightage to the rank on

the basis of three-month average full market capitalisation and 25% weightage

to the liquidity rank based on three-month average daily turnover & three-

month average impact cost.

Market Capitalization Weightage: The weightage of each scrip in SENSEX

based on three-month average free-float market capitalisation should be at

least 0.5% of the Index.

Industry Representation: Scrip selection would generally take into account a

balanced representation of the listed companies in the universe of BSE.

Track Record: In the opinion of the Committee, the company should have an

acceptable track record.

45

Index Review Frequency:

The Index Committee meets every quarter to review all BSE indices. In case of a

revision in the Index constituents, the announcement of the incoming and outgoing

scrips is made six weeks in advance of the actual implementation of the revision of

the Index.

Castle-in-the-Air Theory

The Castle-in-the-Air Theory ignores investment intrinsic values and looks to

the interpretation and prediction of investor sentiments and actions in order to make

their investment positions before the crowd. Lord Maynard Keynes, a respected

economist and successful investor, expounded on the theory in 1936. He reported on

how investors gravitated away from the hard work of determining intrinsic value to

discern how the investing public will act in the future as they build ‘castles in the sky’

based on their hopes and dreams.

Instead of using investment valuation techniques, followers of this theory tried

to divine the psychology of the market and where it was headed. It made no

difference if a stock currently priced at $25 per share possessed intrinsic value of $30

per share if investors had a negative opinion of the company and their declining

demand for the stock would drive its price down to the $20 per share level. Correctly

anticipating that market sentiment and shorting the stock would be the proper

investment move under the Castle-in-the-Air theory.

Understanding how the crowd thinks and reacts in both normal circumstances

and panic situations can deliver a big edge to investors willing to study individual and

crowd psychology in relation to the stock market. Market psychology and the herd

instinct often play a leading, if not major role in the determination of stock prices and

market direction.

Popular investment approaches that use investor psychology as a base include

odd-lot theory, contrarians investing, consensus indicators, etc.

46

Some strategists have even gone so far as to classify investors into specific

investment personalities. One such model considers investors falling into one of five

classifications ranging from straight arrow to careful to confident to anxious to

impetuous, based on personality characteristics such as exhibiting confidence,

anxiety, or caution

Knowing your own personality make-up and how it relates to the investment

markets can also help improve your chances of success. Dr. Sully Blotnick, a research

psychologist and author of business-related books, developed a profile of the

successful investor. According to his theory, the most successful investors tend to

concentrate their investments in a narrow range of investments or stocks. Contrary to

popular opinion, concentration, not diversification, provides the success edge. Of

course, you must balance the degree of risk you are willing to assume with the

opportunity for greater returns.

Another trait of the successful investor is the ability to stick with their

investment choices and let their profits run. On the other hand, unsuccessful investors

tend to follow fads and sell out too soon. Finally, successful investors tend to invest

in what they know industries and companies with which they are already familiar.

At Motilal Oswal:

Generally local traders are not well aware about the highly scientific

techniques that need depth of the knowledge about the method of that theory and a

particular script because all the data required about the company in research are not

easily available and if available it is to hard to collect it. So instead of using the

highly time consuming theories it is better to use castle in the air theory to take

immediate decision.

If we think more practically all the valuation theories are used to predict the

long term condition of a particular script but castle in the air theory is only theory

that helps investors to have decision immediately.

47

In Motilal Oswal we have observed that most of the client keeps continuous

watch over buying and selling pressure of selected scripts which they believes the

best among all others. Buying and selling pressure reveals the general tendency of all

over investors about the market. So it is totally psychological phenomenon that helps

the investors to predict about the next movement of the index.

Even the opinion of market researchers which are given on the basis of

technical analysis are many time proved to be in inverse direction to the market trend

so its more genuine to go with what we feel about the market based on personal

observation which are supported by the current buying and selling pressure.

It has also been observed that generally when a person is at profit poison it

does not wait for more high in scripts but when he or she is at loss waits with the hop

of increase in the share and unfortunately gets higher loss.

On the bases of all above observation it can be concluded that to be the land

mark in the field of share market you need to have immense passion and insight to

generate profit and more importantly to avert loss.

P/E Ratio and EPS

(P/E is a price earning multiple)

P/E = Market price of a share

EPS

The above formula shows that EPS has an inverse relation with P/E (i.e. if P/E

increases then EPS will decreases and vice versa.). But the market price of a share has

a direct relation with P/E (i.e. if P/E increases then the price of the shares also

increases and vice versa.).

The company with less P/E is more attractive in terms of valuation. So for the

investors who wants the regular income and also who can hold the scrip’s for long

term should go for that companies having less P/E.

P/E is one of the indicators, which helps to know the performance of the

company, but it is not the measure to know company fundamentals. There are many

other factors, which affects the company’s performance. Also the Sentiments of the

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market affect the market price of the company but they are the technical of the

company, which knows about the company for a short period of time.

For example, price/earnings (P/E) ratio shows how much investors are willing to pay

for a rupee of a company's earnings. A P/E of 15 indicates, for every Re.1 of per-

share earnings, investors are paying Rs.15. A company's P/E ratio should be

measured against those of its competitors. For high-growth stocks, the P/E is often

measured against the projected earnings growth rate, so a company with annual

earnings growth potential of 30% could warrant a P/E ratio of 30 or more. When its

P/E ratio falls below that of the market, its peers, or its growth rate, a stock may be

attractive for purchase.

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QUESTIONS OF THE INVESTORS Q. What is the function of the Capital Market?

A. Capital Market enhances capital formation in the economy and comprises of -

a) Primary Market is a place where new offerings by Companies are made either as

an Initial Public Offering (IPO) or Rights Issue.

b) Secondary Market is a market where securities are traded after being initially

offered to the public in the Primary Market and/or listed on the Stock Exchange.

Q. What returns can I expect from my investments in equity shares? What are

the risks?

A. Equity shares are “High-Risk High-Return Investments.” The major

distinction of Equity investment from all other investment avenues is that while the

return from many avenues such as Bank Deposits, Small Saving schemes,

Debentures, Bonds etc are fixed and certain, the earnings from equity investments are

highly uncertain and varied. A good scrip picked up at the right time could fetch

fairly good returns else the return may be meager or it may even turn negative.

Q. Whom should I contact for my Stock Market related transactions?

A. To be able to buy or sell shares in the stock markets a client would need to be

registered with a stock broker like MOTILAL OSWAL who holds membership in

stock exchanges and who is registered with SEBI.

Q. Am I required to sign any agreement with broker or sub-broker?

A. Yes, you have to sign the “Member-Client agreement” for the purpose of engaging

a broker to execute trades on your behalf from time to time and furnish details

relating to yourself to enable the member to maintain Client Registration Form.

Q. What is meant by bullish and bearish trend?

A. When the market goes up it is called a bullish trend and when the market goes

down it is called a bearish trend.

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Q. What is taking a position?

A. When you act upon a stock and buy into it, you are taking a position. A position is

an amount of money committed to an investment in anticipation of favorable price

movements.

There are two kinds of positions : -

a) Long positions are what most people do. When you buy long, that means you are

anticipating an upward movement in the price, and that is how you profit.

b) Short positions are the tricky ones. When you buy short, you are anticipating a fall

in the price and the fall is the source of your profits. The shares will be sold and when

the price falls they will be repurchased and given back and the difference is the where

the investor profits.

Q. What is an index?

A. An index is a stock-market indicator created as a statistical measure of the

performance of an entire market or segment of a market based on a sample of

securities from the market. An index is a means to evaluate the overall performance

of a market or of a segment of the market.

An index measures aggregate market movement.

Apart from being a general market indicator, indices are used as a benchmark to

evaluate individual portfolio performance. Professional money managers will always

try to outperform the market, i.e. they will always try to do better than the indices. For

example, if the value of a portfolio moves up by 10% while the index moved up by

only 5% then the portfolio is doing better than the market.

Q. What is a Contract Note?

A. Contract Note is a confirmation of trades done on a particular day on behalf of the

client. It establishes a legally enforceable relationship between the client and Motilal

Oswal with respect to the settlement of the trades. The Contract Note would show

settlement number, order number, trade number, time of trade, quantity and price of

the trades, brokerage charged, etc.

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Q. What do you mean by ‘Market Trades’ and ‘Off Market Trades’?

A. Any trade settled through a clearing corporation is termed as a ‘Market Trade’.

These trades are done through stock brokers on a stock exchange. ‘Off Market

Trade’ is one which is settled directly between two parties without the involvement

of a clearing corporation. The same delivery instruction slip can be used either for

market trade or off-market trade by ticking one of the two options.

Q. What is a Rolling Settlement?

A. In a Rolling Settlement trades executed during the day are settled based on the net

obligations for the day. Normally, the trades pertaining to the rolling settlement are

settled on a T+2 day basis.

Q. What is an Auction?

A. The securities are put up for auction by the Exchange on account of non-delivery

of securities by the selling trading member to ensure that the buying trading member

receives the securities due to him. The non-delivery by the trading member could

arise on account of short delivery. The Exchange purchases the requisite quantity in

the Auction Market and gives them to the buying trading member.

Q. What happens if I could not make the payment of money or deliver shares on

the pay-in day?

A. In case of purchase on your behalf, the member broker has the liberty to close out

transactions by selling securities in case you fail to make full payment to the broker

for the execution of contract before pay-in day as fixed by Stock Exchange for the

concerned settlement period unless you already have an equivalent credit with the

broker. The shortages in case of sales are met through auction process and the

difference in price indicated in Contract Note and price received through auction is

paid by member to the Exchange which is then liable to be recovered from the client.

In both the cases any loss in transactions will be deductible from the margin money

paid by you.

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Q. What happens if the shares are not bought in the auction?

A. If the shares could not be bought in the auction i.e. if shares are not offered for sale

in the auction, the transactions are closed out as per SEBI guidelines. The guidelines

stipulate that “the close out price will be the highest price recorded in that scrip in the

settlement in which the concerned contract was entered into and upto the date of

auction/close out OR 20% above the official closing price on the exchange.

Q. What happens if I do not get my money or share on the due date?

A. In case a broker fails to deliver to you in time and make the proper payment of

money/shares or you have a complaint against the conduct of the broker, you can file

a complaint with the respective stock exchange. The exchange is required to resolve

all complaints. To resolve the dispute the complainant can also resort to arbitration as

provided on the reverse of Contract Note /Purchase or Sale Note. However, if the

complaint is not addressed by the Stock Exchanges or is unduly delayed then the

complaints along with supporting documents may be forwarded to Secondary Market

Department of SEBI.

Q. What are the additional charges other than brokerage that can be levied on

the investor?

A. The trading member can charge:

1. Securities Transaction Tax.

2. Service tax as applicable.

3. Transaction charges levied by NSE, Stamp duty and other charges directly

attributable to the transaction.

The brokerage and service tax is indicated separately in the contract note.

Q. What are the tax implications of investing in Indian equities?

A. Tax rates on investments gains are categorized as long term & short term capital

gains.

(a) Long term capital gains Long Term investments that are held for more than 12

months are termed as long term capital assets. Profit on sale of such assets is termed

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as long term capital gain (LTCG) which as per the

latest Budget notification will attract nil tax.

(b) Short term capital gains Shares that are held for less than 12 months are classified

as short term capital assets which as per the latest Budget notification will attract 10%

tax.

Q. Who is a Portfolio Manager?

A. Any person who pursuant to a contract or arrangement with a client, advises or

directs or undertakes on behalf of the client (whether as a discretionary portfolio

manager or otherwise) the management or administration of a portfolio of securities

or the funds of the client, as the case may be is a Portfolio Manager.

Each and every Portfolio manager should have the registered no.

provided by SEBI to officially deal in portfolio.

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CONCLUSION

The research conducted by me is summarized as under:

From the research, it could be concluded that Motilal Oswal in all ways as

compared with the other stock broking houses has a good scope in the Rajkot city.

But since it has just finished few years of inception in Rajkot, it hasn’t gained much

popularity in comparison Marwadi, Karvy, Indiabulls etc.

Motilal Oswal in all ways is good, just that it needs to give more

advertisement and fast services to the customers. It also needs to educate the people

of Rajkot society, especially the once who could afford a high deposits and wants a

margin for his more trading. By this way company can get two folded benefits as it

can generate a good amount of brokerage by high volume of trading and also earn the

interest reate on the funding facilities given to the customers.

Still in Rajkot city the brand name (Motilal Oswal) needs to be emphasized

on, while marketing & selling the product. Still the market is not 100% fully aware

that what Motilal Oswal is.

It could come up with products which cater to all segments of the society after

a little cost cutting, than fixing up a standard service for all its customers, whose

needs vary diversely.

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RECOMMENDATION

Motilal Oswal needs to make its marketing team strong and also it should

increase marketing activities such as promotional campaigns.

Motilal Oswal should educate the investors about Derivatives by organizing

classes, corporate presentations, taking part in consumer fairs, organizing

events.

Company should show the benefits of trading on Derivatives & Commodities

Motilal Oswal should turn existing customers (who are trading in Equity only)

towards Derivatives.

Motilal Oswal can also use Newspapers and Local New Channels as a

medium of advertising.

Motilal Oswal may also use its helpline number for giving education on

Derivatives.

Company may appoint special team for giving education & attracting people

towards trading on Derivatives & Commodities.

The company should make the policies of credit not risky but to some extent

more friendly, so, it will at least not lose the existing clients.

° The infrastructure of the company should be given proper attention

because, now a days the clients want facilities but not at the cost of the

infrastructure.

The company is amongst the leading broking companies. And if the above

mentioned points are given proper attention, the company will have the good

image in the minds of the clients which will turn out to be in the form of the better

turnover and better holdings.

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Bibliography

Here is the list of sites through which I got the information related to my project. I

have used them as the primary information and has presented them in my own

language.

Websites:

1. www.Google.com

2. www.bseindia.com

3. www.nseindia.com

4. www.Motilal Oswal.com

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