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Introduction

Indian Stock Market-An Introduction

The Indian Equity market is divided in to two parts Primary market - where the share is

first issued in the form of IPO(Intial Public Offering) and after issuing the share it is listed

on exchange and share is traded on exchange where shares can be bought and sold

this is secondary market.In India mainly there are two exchange -NSE(National Stock

Exchange) BSE-Bombay Stock Exchange.The BSE is the oldest exchange in

India(started in 1875).NSE started operation on 1994.Before 2000 shares was held in

Physical form But the main difficulty with Physical shares is meathod of transaction

which is open out cry system and process is not transparent to investor also Physicalshares were prone to duplication and fraud.So in 2000 NSE intoduced the electronic

screen based trading system further the introduction of Dematerilization(Conversion of

physical share in to electronic form) and depository(where the electronic form of share

is kept) revelutionized the Indian Stock market.Currently there are mainly two

Depository(DP) -NSDL and CDSL and these DP are like bank of share.Individual/Firm

can deal through Broker(who is registered and having membership in Exchanges and

Depository) for buying and selling securities.Today NSE outpaced BSE in volume of

trade.Then what is the purpose of stock market? Stock market serves the company by

providing company the finance for long term needs and for investor an opportunity to

park there savings in corporate world and in turn give their hand in Nation's

development so stock exchage have a very vital role in country's economic

development.

.To buy the shares investor has to open a trading and demat account.So investor has

to approach a broker/sub broker who has memeber ship in Exchange(where the share

is listed mainly NSE and BSE) and depository(where share is kept in Demat form-

Electronic form[mainly CDSL and NSDL).Then Investor has to give necessary identity

proof,Adress proof,Bank proof and fill the KYC form afetr reading it carefully.broker will

ask for power of attorney for smooth transaction but this is not mandatory and if POA is

not given investor had to fill the delivery instruction slip after selling the share.After

opening the account the investor can do trading/investing Directly,Through Phone

Internet form broking office and he will contract note(similar to bill that we got when we

purchase something and contract note include all minute detail of transaction including

brokerage[commision of briking house] STT and Ohter taxes) for the transaction done

by him within 24 hr of transaction and he has to give cheque to Broker in the name of

broking office(no cash transaction is permitted) and current settlement is rolling



settlement (The rolling settlement ensures that each day's trade is settled by keeping a

fixed gap of a specified number of working days between a trade and its settlement. At

present, this gap is 3 working days after the trading day. So transaction entered into on

Day 1 has to be settled on the Day 1 + 3 working days, when funds pay in or securities

pay out takes place.If investor is selling the security he will get money in 3 workingdays.If investor failed to deliver the security within time his share will get auctioned and

investor has to borne the penalty.If the investor has old physical share he can fill the

dematerialization form and send it for converting it to demat form.The reverse can also

be done.

.Now hope investor had learned about the exchages and demat.Every one had heard

about SENSEX and NIFTY what is this? SENSEX and NIFTY are Index of BSE and

NSE Blue chip share.SENSEX consist of 30 share and NIFTY 50 share(of top most

comapnies) what is the purpose of INDEX? Index is the barometer of stock exchage for

ex in NSE there are about 1350 listed comapnies listed and we cannot say in general

form market was up or down without fully looking all companies.INDEX serve this

purpose.INDEX is constructed by taking top companies across different sector in

different weightage and INDEX movement will reflect the overall movement of

market.So if NIFTY or SENSEX is up we can generally assume market was up(does not

mean all shares was up) and vice versa.Now there are index in some sectors which can

catch the movement of that sector like CNXIT-IT sector,BANKNIFTY-Banking sector

etc. Generall purpose of Stock Market is for Investment but bulk of activities done in

market is day trading.Day trading means BUYING/SELLING of shares and offsetting the

position on same day.Day traders serves the purpose of bringing the liquidity to market

and they help the market movement and more than 80% of the volume from market iscoming from day trading.Introduction of derivative market had made the day trading to

grow more and introduction of advanced day trading technique.The main tool for Stock

market investment/trading are Fundamental analysis -which studies about the

fundamental of companies and economy and Technical Analysis-which studies the

market by analysing the past movement of share and market.

The investment scenario in India is now is at par with global Market.The intoduction of

Derivative,Currency,Commodity market now helped the Indian Investor to Invest in

almost anything like Share,Commodity,Currency,Bonds and complex thing like Interest

rate future,Weather Derivative,Volatality Index and more and Stock market are givingvarious product to invest in with various amount of risk like bonds,Gold ETF,Equty and

Prefernce Share,Commodities(metal and Agriculture) Currency to high risk Derivative

product.

India's biggest scams



The Satyam Computer Services fraud is neither the first nor will it be the last

corporate scam to have hit India, so investors must be on guard and ask for more

information before making any investment decision, says former Sebi chairman M

Damodaran.

Sound advice. But with corporates, brokers, banks, politicians, regulatorscolluding at times, many a multi-crore scam has hit India. And the saga is likely to

go on. India has seen some of the most high-profile scandals where investors have lost

billions of rupees just because a few people in high places could not control their

greed.The Satyam Computer Services fraud is neither the first nor will it be the

last corporate scam to have hit India, so investors must be on guard and ask for

more information before making any investment decision, says former Sebi

chairman M Damodaran. Sound advice. But with corporates, brokers, banks, politicians, regulators

colluding at times, many a multi-crore scam has hit India. And the saga is likely to

go on. India has seen some of the most high-profile scandals where investors have lost

billions of rupees just because a few people in high places could not control their

greed.

Here's more about India's biggest scams...

1. Ramalinga Raju The biggest corporate scam in India has come from one of the most respected

businessmen.

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Satyam founder Byrraju Ramalinga Raju resigned as its chairman after admitting

to cooking up the account books. His efforts to fill the "fictitious assets with real ones" through Maytas acquisition

failed, after which he decided to confess the crime.

With a fraud involving about Rs 8,000 crore (Rs 80 billion), Satyam is heading formore trouble in the days ahead. On Wednesday, India's fourth largest IT company lost a staggering Rs 10,000

crore (Rs 100 billion) in market capitalisation as investors reacted sharply and

dumped shares, pushing down the scrip by 78 per cent to Rs 39.95 on the

Bombay Stock Exchange. The NYSE-listed firm could also face regulator action in the US. "I am now prepared to subject myself to the laws of the land and face

consequences thereof," Raju said in a letter to SEBI and the Board of Directors,

while giving details of how the profits were inflated over the years and his failed

attempts to "fill the fictitious assets with real ones." Raju said the company's balance sheet as of September 30 carries "inflated (non-

existent) cash and bank balances of Rs 5,040 crore (Rs 50.40 billion) as against

Rs 5,361 crore (Rs 53.61 billion) reflected in the books."

2. Harshad Mehta He was known as the 'Big Bull'. However, his bull run did not last too long. He triggered a rise in the Bombay Stock Exchange in the year 1992 by trading in

shares at a premium across many segments. Taking advantages of the loopholes in the banking system, Harshad and his

associates triggered a securities scam diverting funds to the tune of Rs 4000

crore (Rs 40 billion) from the banks to stockbrokers between April 1991 to May

1992. Harshad Mehta worked with the New India Assurance Company before he moved

ahead to try his luck in the stock markets. Mehta soon mastered the tricks of the

trade and set out on dangerous game plan. Mehta has siphoned off huge sums of money from several banks and millions of

investors were conned in the process. His scam was exposed, the markets

crashed and he was arrested and banned for life from trading in the stock

markets. He was later charged with 72 criminal offences.



A Special Court also sentenced Sudhir Mehta, Harshad Mehta's brother, and six

others, including four bank officials, to rigorous imprisonment (RI) ranging from 1

year to 10 years on the charge of duping State Bank of India to the tune of Rs 600

crore (Rs 6 billion) in connection with the securities scam that rocked the

financial markets in 1992. He died in 2002 with many litigations still pendingagainst him.

3. Ketan Parekh Ketan Parekh followed Harshad Mehta's footsteps to swindle crores of rupees

from banks. A chartered accountant he used to run a family business, NH

Securities.Ketan however had bigger plans in mind. He targetted smaller

exchanges like the Allahabad Stock Exchange and the Calcutta Stock Exchange,

and bought shares in fictitious names. His dealings revolved around shares of ten companies like Himachal Futuristic,

Global Tele-Systems, SSI Ltd, DSQ Software, Zee Telefilms, Silverline,

Pentamedia Graphics and Satyam Computer (K-10 scrips). Ketan borrowed Rs 250 crore from Global Trust Bank to fuel his ambitions. Ketan

alongwith his associates also managed to get Rs 1,000 crore from the

Madhavpura Mercantile Co-operative Bank. According to RBI regulations, a broker is allowed a loan of only Rs 15 crore (Rs

150 million). There was evidence of price rigging in the scrips of Global Trust

Bank, Zee Telefilms, HFCL, Lupin Laboratories, Aftek Infosys and Padmini

Polymer.

4. C R Bhansali The Bhansali scam resulted in a loss of over Rs 1,200 crore (Rs 12 billion). He first launched the finance company CRB Capital Markets, followed by CRB

Mutual Fund and CRB Share Custodial Services. He ruled like a financial wizard

1992 to 1996 collecting money from the public through fixed deposits, bonds and

debentures. The money was transferred to companies that never existed. CRB Capital Markets raised a whopping Rs 176 crore in three years. In 1994 CRB

Mutual Funds raised Rs 230 crore and Rs 180 crore came via fixed deposits.

Bhansali also succeeded to to raise about Rs 900 crore from the markets. However, his good days did not last long, after 1995 he received several jolts.

Bhansali tried borrowing more money from the market. This led to a financial

crisis.



It became difficult for Bhansali to sustain himself. The Reserve Bank of India

(RBI) refused banking status to CRB and he was in the dock. SBI was one of the

banks to be hit by his huge defaults

5. Cobbler scam Sohin Daya, son of a former Sheriff of Mumbai, was the main accused in the

multi-crore shoes scam. Daya of Dawood Shoes, Rafique Tejani of Metro Shoes,

and Kishore Signapurkar of Milano Shoes were arrested for creating several

leather co-operative societies which did not exist. They availed loans of crores of rupees on behalf of these fictitious societies. Thescam was exposed in 1995. The accused created a fictitious cooperative society

of cobblers to take advantage of government loans through various schemes. Officials of the Maharashtra State Finance Corporation, Citibank, Bank of Oman,

Dena Bank, Development Credit Bank, Saraswat Co-operative Bank, and Bank of

Bahrain and Kuwait were also charge sheeted.

6.IPO Scam The Securities and Exchange Board of India barred 24 key operators, including

Indiabulls and Karvy Stock Broking, from operating in the stock market and

banned 12 depository participants from opening fresh accounts for their

involvement in the Initial Public Offer scam. It also banned 85 financiers from capital market activities. Suzlon Energy Ltd's Rs 1,496.34 crore (Rs 14.963 billion) public issue (September

23-29, 2005). The retail portion was oversubscribed 6.04 times and the non-

institutional portion was oversubscribed 40.27 times. Key operators used 21,692

fictitious accounts to corner 323,023 shares representing 3.74 per cent of the totalnumber of shares allotted to retail individual investors. Jet Airways's Rs 1,899.3 crore (Rs 18.993 billion) public offer (Feb 18-24, 2005).

The retail portion was subscribed 2.99 times and the non-institutional portion by

12.5 times. Key operators used 1186 fake accounts for cornering 20,901 shares

repersenting 0.52 per cent of the total number of shares allotted to retail

investors.



National Thermal Power Corporation Ltd's Rs 5,368.14 crore (Rs 53.681 billion)

IPO (Oct 7-14, 2004). The retail portion was oversubscribed 3.73 times and the

non-institutional portion by 11.93 times. Key operators used a total of 12,853

afferent accounts for cornering 2,750,730 shares representing 1.3 per cent of the

total number of shares allotted to retail investors. Tata Consultancy Services's Rs 4,713.47 crore (Rs 47.134 billion) public offer

(Aug 19-23, 2004). The retail portion was oversubscribed 2.86 times and the non-

institutional portion by 19.15 times. Key operators used 14,619 'benami' accounts

to corner 261,294 shares representing 2.09 per cent of the total shares allotted to

retail individual investors. Patni Computer System Ltd's Rs 430.65 crore (Rs 4.306 billion) public issue (Jan

27-Feb 5 2004). The retail portion was oversubscribed 9.36 times and the non-

institutional portion by 39.22 times. A lone key operator used 2541 afferent

account for cornering 127,050 shares representing 2.71 per cent of the total

number of shares allotted to retail investors.

7. Dinesh Dalmia Dinesh Dalmia was the managing director of DSQ Software Limited when the

Central Bureau of Investigation arrested him for his involvement in a stocks scam

of Rs 595 crore (Rs 5.95 billion). Dalmia's group included DSQ Holdings Ltd, Hulda Properties and Trades Ltd, and

Powerflow Holding and Trading Pvt Ltd. Dalmia resorted to illegal ways to make money through the partly paid shares of

DSQ Software Ltd, in the name of New Vision Investment Ltd, UK, and unallotted

shares in the name of Dinesh Dalmia Technology Trust. Investigation showed that 1.30 crore (13 million) shares of DSQ Software Ltd had

not been listed on any stock exchange.

8. Abdul Karim Telgi He paid for his own education at Sarvodaya Vidyalaya by selling fruits and

vegetables on trains. He is today famous (or infamous) for being he man behind one of India's biggest

scams. The Telgi case is another big scam that rocked India. The fake stamp racket

involving Abdul Karim Telgi was exposed in 2000. The loss is estimated to be Rs

171.33 crore (Rs 1.71 billion), it was initially pegged to be Rs 30,000 crore (Rs 300

bilion), which was later clarified by the CBI as an exaggerated figure.



In 1994, Abdul Karim Telgi acquired a stamp paper license from the Indian

government and began printing fake stamp papers. Telgi bribed to get into the government security press in Nashik and bought

special machines to print fake stamp papers.

Telgi's networked spread across 13 states involving 176 offices, 1,000 employeesand 123 bank accounts in 18 cities.

9.Virendra Rastogi Virendra Rastogi chief executive of RBG Resources was charged with for

deceiving banks worldwide of an estimated $1 billion. He was also involved in the duty-drawback scam to the tune of Rs 43 crore (Rs

430 milion) in India.

The CBI said that five companies, whose directors were the four Rastogi brothers-- Subash, Virender, Ravinde and Narinder -- exported bicycle parts during 1995-

96 to Russia and Hong Kong by heavily over invoicing the value of goods for

claiming excess duty draw back from customs.

10. The UTI Scam Former UTI chairman P S Subramanyam and two executive directors -- M M Kapur

and S K Basu -- and a stockbroker Rakesh G Mehta, were arrested in connection

with the 'UTI scam'. UTI had purchased 40,000 shares of Cyberspace between September 25, 2000,

and September 25, 2000 for about Rs 3.33 crore (Rs 33.3 million) from Rakesh

Mehta when there were no buyers for the scrip. The market price was around Rs

830. The CBI said it was the conspiracy of these four people which resulted in the loss

of Rs 32 crore (Rs 320 million). Subramanyam, Kapur and Basu had changed their

stance on an investment advice of the equities research cell of UTI. The promoter of Cyberspace Infosys, Arvind Johari was arrested in connection

with the case. The officals were paid Rs 50 lakh (Rs 5 million) by Cyberspace topromote its shares. He also received Rs 1.18 crore (Rs 11.8 million) from the company through a

circuitous route for possible rigging the Cyberspace counter.

11. Uday Goyal



Uday Goyal, managing director of Arrow Global Agrotech Ltd, was yet another

fraudster who cheated investors promising high returns through plantations.

Goyal conned investors to the tune of over Rs 210 crore (Rs 2.10 billion). He was

finally arrested.

The plantation scam was exposed when two investors filed a complaint whenthey failed to get the promised returns. Over 43,300 persons had fallen into Goyal's trap. Several criminal complaints

were filed with the Economic Offences Wing. The company's directors and their relatives had misused the investors' money to

buy properties. The High Court asked the company to sell its properties and

repay its investors.

12. Sanjay Agarwal Home Trade had created waves with celebrity endorsements.

But Sanjay Agarwal's finance portal was just a veil to cover up his shady deals.

He swindled a whopping Rs 600 crore (Rs 6 billion) from more than 25

cooperative banks. The government securities (gilt) scam of 2001 was exposed when the Reserve

Bank of India checked the acounts of some cooperative banks following unusual

activities in the gilt market. Co-operative banks and brokers acted in collusion in abid to make easy money at

the cost of the hard earned savings of millions of Indians. In this case, even the

Public Provident Fund (PPF) was affected. A sum of about Rs 92 crore (Rs 920 million) was missing from the Seamen's

Provident Fund. Sanjay Agarwal, Ketan Sheth (a broker), Nandkishore Trivedi and

Baluchan Rai (a Hong Kong-based Non-Resident Indian) were behind the Home

Trade scam



Types of stock market Primarily there are two types of stock markets – theprimary market and the secondary market. This is true for

the Indian stock markets as well. Basically the primarymarket is the place where the shares are issued for thefirst time. So when a company is getting listed for the firsttime at the stock exchange and issuing shares – thisprocess is undertaken at the primary market. That meansthe process of the Initial Public Offering or IPO and thedebentures are controlled at the primary stock market. Onthe other hand the secondary market is the stock marketwhere existing stocks are brought and sold by the retailinvestors through the brokers. It is the secondary marketthat controls the price of the stocks. Generally when wespeak about investing or trading at the stock market wemean trading at the secondary stock market. It is thesecondary market where we can invest and trade in thestocks to get the profit from our stock market investment.

Now these are the broadest classification of the stockmarkets that is true for any country as well as India. Butthe Indian stock markets can be divided into furthercategories depending on various aspects like the mode ofoperation and the diversification in services. First of thetwo largest stock exchanges in India can be divided on thebasis of operation. While the Bombay stock exchange

or BSE is a conventional stock exchange with a tradingfloor and operating through mostly offline trades, theNational Stock Exchange or NSE is a completely onlinestock exchange and the first of its kind in the country. Thetrading is carried out at the National Stock Exchangethrough the electronic limit order book or the LOB. With

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the immense popularity of the process and online tradingfacility other exchanges started to take up the online routeincluding the BSE where you can trade online as well. But

the BSE is still having the offline trading facility that iscarried out at the trading floor of the exchange at its DalalStreet facility.Apart from these classifications there are also differenttypes of stock market in India and the classification ismade on the type of instrument that is being traded at themarket. Both the Bombay Stock Exchange andthe National Stock Exchange have these types of stock

markets.Equity market or the cash segment – The first type ofmarket is the equity market or the cash segment wherestocks are traded. In this type of trading the buyers of thestocks book a buying order with a bid price and the orderis executed through the broker at a negotiated ask priceoffered by the sellers at the market. In most cases the deal

is closed or the stocks are brought at the best availableask price. In this type of trading the buyer pays the entireamount of the value of the stocks that is determined bymultiplying the number stocks with the current price of thestock. Once the buyer pays the entire amount along withthe brokerage and taxes of the transaction the stocks aredeposited to the DP account of the buyer.Derivative Market – In the derivative market trading isdone mainly through two instruments – the Future contractand the Option contract. In both these types of contractsthe stocks are bought and sold in lot. The number ofstocks for each lot depends on the valuation of the stockand the valuation of the lot is determined by the number of

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the stocks in a lot multiplied with the current market priceof the stock. For trading in derivative market you have tobuy either the future contract or the option contract. In a

future contract you are bound to close the deal within aspecific time and at a fixed arte. While in case of optioncontract you can also choose to ignore the contract.

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