working of stock market in india
TRANSCRIPT
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CERTIFICATE
This is to certify that the project entitled WORKING OF STOCK MARKET IN INDIA
submitted to partial fulfillment of the requirements for the award of the degree of Master of
Business Administration of VIMT (Rohtak), is a record of research work carried out by SUNIT
GARGunder my supervision and guidance.
Mr. NITIN GOYAL
Lecturer,
VAISH INSTITUTE OF MANAGEMENT & TECHNOLOGY,
MDU, (Rohtak)
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DECLARATION
I, SUNIT GARG student of M.B.A. in VIMT, Rohtak here by declare that the Project Report
entitled Working of Stock Market-In India is an original work and the same has not been
submitted to any other Institute for award of any degree.
Project In charge Signature of candidate
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ACKNOWLEDGEMENT
Heart full thanks to the following people.
I express my sincere and deep sense of gratitude to my esteemed guide Mr. NITIN GOYAL
lectuere in M.B.A Deptt., VAISH INSTITUTE OF MANAGEMENT & TECHNOLOGY,
ROHTAK for his continued support and supervision. I am highly obliged to him for providing me
the opportunity to work under his guidance. It was his scholarly suggestions, immense interest and
moral support that helped in competing the work confidently and successfully.
I would also place on record my gratitude to all teachers of VAISH INSTITUTE OF
MANAGEMENT & TECHNOLOGY, ROHTAK for their constant encouragement.
(SUNIT GARG)
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PREFACE
We cannot achieve any thing on the basis of theoretical knowledge only as provided by
books, in order achieve positive and successful results the classroom learnings are not sufficient
the practical knowledge is also necessary with theoretical knowledge. To develop healthy skills in
management theoretical knowledge must be supplemented with the real practical environment.
In production labors play his part one side and management plays his part on the other side.
In management the practical training gives us a great opportunity to stand in this competitive
world.
The main advantage of Project Training is to make the familiar to a student of any particular
organization environment, norms, culture, along with formal teaching. It is very different kind of
experience for any student.
I select Stock Market to analyze for my Project Training Purpose which is an integral part
of two years Master Degree in Management in M. D. University, Rohtak. This training is
undergone after the completion of the third semester of the course. After analyzing stock market, I
had the opportunity of getting practical with business world which enhanced my practical
knowledge
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CONTENTS
Sr. No. Title
Declaration
Acknowledgement
Preface
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1. Introduction
About Stock Exchange
Brief History of Stock Exchanges in India
The Stock Exchanges
Function of Stock Exchange
2. Stock Market Profile
Most Commonly used Stock Exchanges
Bombay Stock Exchange(BSE)
National Stock Exchange(NSE)
Invest Analysis
Fundamental Analysis
Technical Analysis
3. Objective of study
4. Scope of the Study
5. Research Methodology
Meaning of research
Research Design
Sampling Technique
Data Source
Research Instrument
6. Limitations
7. Suggestions and Conclusions
8. Annexure
9. Bibliography
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ABOUT STOCK EXCHANGE
Stock Exchange is an institution evolved in industrially developed capitalist economics with free
market mechanism. In typical free market, the individual investor would ideally choose to make
money available to those new or existing enterprises which offer the best prospect of immediate
and continuing profit. And since he is entitled to withdraw money from a less profitable enterprise
by selling his shares, as long as he can find a buyer and to reinvest it, he will be continually
looking for new and more profitable outlets for his money. Therefore, in theory, stock exchange
was termed as institution allocator of resources par excellence.
The stock exchange an institution broadly fulfilling the following objectives:
Making funds available to entrepreneurs for business activity ;
Ensuring maximum return on the investment made by the investors;
Providing platform for saving, investment and reinvestment activity.
In India, however, the institution of stock exchange evolved and developed as an
organization offering place for speculative activity, which had little to do with industrial financing
and investment activity. After 1865, a number of financial failures and problems in speculative
activity led brokers to form an association in 1875. It was only the disaster that followed the
boom, which brought the brokers together in July, 1875 to form an association that is today called
the Stock Exchange, Bombay.
Stock exchange remain absolutely on the borders of industrial financing and investment
activity in pre-independence economy, the primary reason being the general distrust by the public
of private business. With the absence of any meaningful role in industrial financing and investment
activity, the functioning, organization and management of the institution of stock exchange tended
to develop as that of an organization primarily concerned with speculative activity. The
organization and management of major stock exchanges formed during this period did not prove to
be positive to the developments and desirable changes later, more particularly during the period of
1980s.
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The recent reforms in stock markets were triggered by issues of surveillance and any
developments that will have a bearing on the quality and effectiveness of the surveillance and
implications on the quality of growth. This is an important aspect that should be seriously
addressed to the stock markets and the regulators. While government and regulatory authorities
will have a greater role to play in promoting competition, the stock exchanges at their individual
level have to take keen interest and initiate measures that would promote greater inter-exchange
cooperation helping each other on overcoming shortfalls and setbacks. A fair degree of cooperation
is required with in the stock exchanges in the country to avoid imprudent practices and
inducements that will be harmful to the health of the markets,
The term Stock Market' is a concept for the mechanism that enables the trading of
company stocks (collective shares), other securities and derivatives. The stock market is one of the
most important sources for companies to raise money. This allows businesses to go public, or raise
additional capital for expansion. The liquidity that an exchange provides affords investors the
ability to quickly and easily sell securities. This is an attractive feature of investing in stocks,
compared to other less liquid investments such as real estate.
History has shown that the price of shares and other assets is an important part of the
dynamics of economic activity, and can influence or be an indicator of social mood. Rising share
prices, for instance, tend to be associated with increased business investment and vice versa. Share
prices also affect the wealth of households and their consumption. Therefore, central banks tend to
keep an eye on the control and behavior of the stock market and, in general, on the smooth
operation of financial system functions. .
Exchanges also act as the clearinghouse for each transaction, meaning that they collect and
deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an
individual buyer or seller that the counterparty could default on the transaction.
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The smooth functioning of all these activities facilitates economic growth in that lower
costs and enterprise risks promote the production of goods and services as well as employment. In
this way the financial system contributes to increased prosperity.
Despite its expansion a very small percentage of households savings is channelised into the
securities market. What worries further is the intention revealed that the majority of existing
shareholders are unlikely to invest in the securties market in the coming years. It indicates lack of
condidence by the existing investors in the securties market. The recent crises on the equity market
has highlighted the deficiencies of governance with broker-run exchanges. While there is a broad
agreement that the governance structures of the broker-run exchanges need to be transformed.
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HISTORY OF STOCK EXCHANGES IN INDIA
The origin of stock exchanges in India can be traced back to the later half of 19th
century. After theAmerican Civil War (1860-61) due to the share mania of the public, the number of brokers dealing
on shares increased. The brokers organised an informal association in Mumbai named The Native
Stock And Share Brokers Association in 1875.
Increased activity in trade and commerce during the First World War and Second World
War resulted in an increase in stock trading. Stock exchanges were established in different centres
like Chennai, Delhi, Nagpur, Kanpur, Hyderabad and Banglore. The growth of stock exchanges
suffered a set back after the end of World War. Worldwide depression affected them. Most of the
stock exchanges in the early stages had a speculative nature of working without technical stregth.
Securties and Contract Regulation Act, 1956 gave powers to the central government to regulate the
stock exchanges. The stock exchanges in Mumbai, Calcutta, Chennai, Ahmedabad, Delhi,
Hyderabad and Indore were recognised by the SCR Act.
Till recent past, floor trading took places in all stock exchanges. In the flooe trading
system, the trade takes place through open outcry system during the official trading hours. Trading
posts are assigned for different securties were buy and sell activities of securties took place. This
system needs a face to face contact among the traders and restict the trading volume. The speed of
new information reflected on the prices was rather slow. The deals were also not transparent and
the system favoured the brokers rather than the investors.
The setting up of NSE and OTCEI with the screen based trading facility resulted in more
and more stock exchanges turning towards the computer based trading. Bombay stock exchange
introduced the screen based trading system in 1995.
Madras stock exchange introdued Automated Network Trading System(MANTRA) on Oct 7 th
1996. Apart from Bombay stock exchange, Vadodara, Delhi, Pune, Banglore, Calcutta abd
Ahmedabad stock exchanges have introduced screen based trading. Other exchanges are also
planning to shift to the scren based trading.
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One of the oldest stock markets in Asia, the Indian Stock Markets have a 200 years old history.
18th Century East India Company was the dominant institution and by end of the century,
busuness in its loan securities gained full momentum
1830's Business on corporate stocks and shares in Bank and Cotton presses started in
Bombay. Trading list by the end of 1839 got broader1840's Recognition from banks and merchants to about half a dozen brokers
1850's Rapid development of commercial enterprise saw brokerage business attracting
more people into the business
1860's The number of brokers increased to 60
1860-61 The American Civil War broke out which caused a stoppage of cotton supply from
United States of America; marking the beginning of the "Share Mania" in India
1862-63 The number of brokers increased to about 200 to 250
1865 A disastrous slump began at the end of the American Civil War (as an example,Bank of Bombay Share which had touched Rs. 2850 could only be sold at Rs. 87)
Pre-Independance Scenario - Establishment of Different Stock Exchanges
1874 With the rapidly developing share trading business, brokers used to gather at a street(now well known as "Dalal Street") for the purpose of transacting business.
1875 "The Native Share and Stock Brokers' Association" (also known as "The Bombay
Stock Exchange") was established in Bombay
1880's Development of cotton mills industry and set up of many others
1894 Establishment of "The Ahmedabad Share and Stock Brokers' Association"
1880 - 90's Sharp increase in share prices of jute industries in 1870's was followed by a boom intea stocks and coal
1908 "The Calcutta Stock Exchange Association" was formed
1920 Madras witnessed boom and business at "The Madras Stock Exchange" wastransacted with 100 brokers.
1923 When recession followed, number of brokers came down to 3 and the Exchange was
closed down
1934 Establishment of the Lahore Stock Exchange
1936 Merger of the Lahoe Stock Exchange with the Punjab Stock Exchange
1937 Re-organisation and set up of the Madras Stock Exchange Limited (Pvt.) Limited
led by improvement in stock market activities in South India with establishment ofnew textile mills and plantation companies
1940 Uttar Pradesh Stock Exchange Limited and Nagpur Stock Exchange Limited wasestablished
1944 Establishment of "The Hyderabad Stock Exchange Limited"
1947 "Delhi Stock and Share Brokers' Association Limited" and "The Delhi Stocks and
Shares Exchange Limited" were established and later on merged into "The Delhi
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Stock Exchange Association Limited"
Post Independance Scenario
The depression witnessed after the Independance led to closure of a lot of exchanges in the
country. Lahore Estock Exchange was closed down after the partition of India, and later on mergedwith the Delhi Stock Exchange. Bnagalore Stock Exchange Limited was registered in 1957 and got
recognition only by 1963. Most of the other Exchanges were in a miserable state till 1957 when
they applied for recognition under Securities Contracts (Regulations) Act, 1956. The Exchanges
that were recognized under the Act were:
1. Bombay
2. Calcutta
3. Madras
4. Ahmedabad5. Delhi
6. Hyderabad7. Bangalore8. Indore
Many more stock exchanges were established during 1980's, namely:
1. Cochin Stock Exchange (1980)
2. Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982)3. Pune Stock Exchange Limited (1982)
4. Ludhiana Stock Exchange Association Limited (1983)
5. Gauhati Stock Exchange Limited (1984)
6. Kanara Stock Exchange Limited (at Mangalore, 1985)7. Magadh Stock Exchange Association (at Patna, 1986)
8. Jaipur Stock Exchange Limited (1989)
9. Bhubaneswar Stock Exchange Association Limited (1989)10. Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989)
11. Vadodara Stock Exchange Limited (at Baroda, 1990)
12. Coimbatore Stock Exchange13. Meerut Stock Exchange
At present, there are twenty one recognized stock exchanges in India which does not include theOver The Counter Exchange of India Limited (OTCEI) and the National Stock Exchange of India
Limited (NSEIL).
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Government policies during 1980's also played a vital role in the development of the Indian Stock
Markets. There was a sharp increase in number of Exchanges, listed companies as well as theircapital, which is visible from the following table:
S.No.
As on 31st December 1946 1961 1971 1975 1980 1985 1991 1995
1 No. of Stock Exchanges 7 7 8 8 9 14 20 22
2 No. of Listed Cos. 1125 1203 1599 1552 2265 4344 6229 8593
3No. of Stock Issues of Listed
Cos.1506 2111 2838 3230 3697 6174 8967 11784
4 Capital of Listed Cos. (Cr. Rs.) 270 753 1812 2614 3973 9723 32041 59583
5Market value of Capital of Listed
Cos. (Cr. Rs.)971 1292 2675 3273 6750 25302 110279 478121
6Capital per Listed Cos. (4/2)(Lakh Rs.)
24 63 113 168 175 224 514 693
7Market Value of Capital per
Listed Cos. (Lakh Rs.) (5/2)86 107 167 211 298 582 1770 5564
8Appreciated value of Capital per
Listed Cos. (Lak Rs.)358 170 148 126 170 260 344 803
THE STOCK EXCHANGES
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The names of the stock exchanges are given below:
Ahmedabad Stock Exchange
Banglore Stock Exchange
Bhubaneswar Stock Exchange
Bombay Stock Exchange
Calcutta Stock Exchange
Cochin Stock Exchange
Coimbatore Stock Exchange
Delhi Stock Exchange
Guwahati Stock Exchange
Hyderabad Stock Exchange
Indore Stock Exchange
Jaipur Stock Exchange
Kanpur Stock Exchange
Ludhiana Stock Exchange
Madras Stock Exchange
Magadh Stock Exchange
Mangalore Stock Exchange
Pune Stock Exchange
Saurashtra Stock Exchange
NSE
OTCEI
Inter Connected Stock Exchange
Stock exchanges normally function between 10:00 a.m. and 3:30 p.m. on the working days.
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FUNCTIONS OF STOCK EXCHANGE
The functions of Stock Exchanges are as followed:
Maintains Active Trading: Shares are traded on the stock exchanges, enabling theinvestors to buy and sell securties. The prices may vary from transaction to transaction. A
continuous trading increses the liquidity or marketability of the shares traded on the stock
exchanges.
Aids In Financing The Industry: A continuous market for shares provides a faourable
climate for raising capital. The negotiability and transferability pf the securties helps the
companies to raise long-term funds.
Fixation Of Prices: Price is determined by the transactions that flow from investors
demand and suppliers preferences. Usually the traded prices are made known to the
public. This helps the investors to make better decisions.
Ensures Safe And Fair Dealings: The rules, regulations and by-laws of the stock
exchanges provide a measure of safety to thr invesors. Transactions are conducted under
competitive conditions enabling the investors to get a fair deal.
Performance Inducer: The prices of stocks reflect the performance of the traded
companies. This makes the corporate more concerned with its public image and tries to
maintain good performance.
Dissemination Of Information: Stock exchanges provide information through their various
publications. They publish the share prices traded on daily basis along with the volume
traded. Handouts, Handbooks and Pamphlets provide information regarding the functioning
of the stock exchanges.
Self Regulating Organisation: The stock exchanges monitor the integrity of the members,
brokers, listed companies and clients. Continuous internal audit safeguards the investors
against unfair trade practices. It settles the disputes between member brokers, investors and
brokers.
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Trading Pattern of the Indian Stock Market
Indian Stock Exchanges allow trading of securities of only those public limited companies that are
listed on the Exchange(s). They are divided into two categories:
Types of Transactions
The flowchart below describes the types of transactions that can be carried out on the Indian stockexchanges:
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Indian stock exchange allows a member broker to perform following activities:
1. Act as an agent,
2. Buy and sell securities for his clients and charge commission for the same,3. Act as a trader or dealer as a principal,
4. Buy and sell securities on his own account and risk.
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MOST COMMONLY USED STOCK EXCHANGES-IN INDIA
THE BONBAY STOCK EXCHANGE (BSE)
(Established in 1875, the Bombay Stock Exchange is Asia's first stock exchange)
The Indian stock market is one of the oldest markets in Asia. Its history dates back to
nearly two centuries. The earlier records of security dealings in India are meager and obscure. The
East India Company was the dominant institution in those days and business in its loans securities
was transacted towards the close of the eighteen century.
By the 1830s business in corporate stocks and shares in bank and cotton presses took placein Bombay. Through the trading list was broader in 1839, there were only a half a dozen brokers
recognized by the banks and merchants.
In 1860-61, the American Civil War broke out and Cotton supply from the United States of
America and Europe was stopped. This resulted in the Share Mania for cotton trading in India.
The number of brokers increased to between 200 and 250. However, at the end of the American
Civil War, 1865 a disastrous slump began- for example, a bank of Bombay share that had touched
Rs. 2850 could only be sold at Rs. 87.
At the same time, brokers found a place in Dalal Street, Bombay where they could
conveniently assemble and transact business. In 1887, they formally established the Native Share
and Stock Brokers Association. In 1895 the association acquired premises in the same street; it
was inaugurated in 1899 as the Bombay Stock Exchange.
http://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/Bombay_Stock_Exchange -
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The Bombay Stock Exchange is governed by a board, chaired by a non-executive
chairman. The executive director is in charge of the administration of the exchange and is
supported by elected directors, Securities Exchange Board of India (SEBI) nominees, and public
representatives.
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THE NATIONAL STOCK EXCHANGE(NSE)
The National Stock Exchange of India Limited was set up to provide access to investors
from across the country on an equal footing. NSE was promoted by leading financial institutions at
the behest of the Government of India and was incorporated in November 1992 as a tax-paying
company, unlike other stock exchanges in the country.
On its recognition as a stock exchange under the Securities Contracts (Regulation) Act,
1956 in April 1993, NSE commenced operations in the wholesale debt market (WDM) segment in
June 1994. The capital market (equities) segment commenced operations in November 1994, and
operations in the derivatives segment commenced in June 2000. The organizational structure of
NSE is through the link between National Securities Clearing Corporation Ltd. (NSCCL), India
Index Services and Products Ltd. (IISL), National Securities Depositary Limited (NSDL), DotEx
International Limited (DotEx) and MSEIT Ltd.
Trading at NSE
1. Fully automated screen-based trading mechanism
2. Strictly follows the principle of an order-driven market
3. Trading members are linked through a communication network4. This network allows them to execute trade from their offices
5. The prices at which the buyer and seller are willing to transact will appear on the screen
6. When the prices match the transaction will be completed7. A confirmation slip will be printed at the office of the trading member
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Advantages of trading at NSE
1. Integrated network for trading in stock market of India
2. Fully automated screen based system that provides higher degree of transparency3. Investors can transact from any part of the country at uniform prices
4. Greater functional efficiency supported by totally computerized network
Technical Support
NSEIT/DotEx
Depository
NSDL
NSE
Index Services
IISL
Clearing House
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Over The Counter Exchange of India (OTCEI)
Traditionally, trading in Stock Exchanges in India followed a conventional style where people used
to gather at the Exchange and bids and offers were made by open outcry.
This age-old trading mechanism in the Indian stock markets used to create many functional
inefficiencies. Lack of liquidity and transparency, long settlement periods and benami transactionsare a few examples that adversely affected investors. In order to overcome these inefficiencies,
OTCEI was incorporated in 1990 under the Companies Act 1956. OTCEI is the first screen based
nationwide stock exchange in India created by Unit Trust of India, Industrial Credit andInvestment Corporation of India, Industrial Development Bank of India, SBI Capital Markets,
Industrial Finance Corporation of India, General Insurance Corporation and its subsidiaries and
CanBank Financial Services.
Advantages of OTCEI
1. Greater liquidity and lesser risk of intermediary charges due to widely spread tradingmechanism across India
2. The screen-based scripless trading ensures transparency and accuracy of prices
3. Faster settlement and transfer process as compared to other exchanges
4. Shorter allotment procedure (in case of a new issue) than other exchanges
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INVESTMENT ANALYSIS
This study told that when an investor decides to invest in stock market and when he decides to
leave i.e. the decisions regarding buying and selling are based on some analysis. What are that
factors, on the basis of which he decides to, make investment in stock market? Investors take
several precautions before investing. They analyze various factors in terms of fundamental analysis
as well as technical analysis. After analyzing all the factors they decided whether it is the right
time to invest in market or whether it is the right time to invest in any particular company. All of
their decisions are based on their analysis.
FUMDAMENTAL ANALYSIS
The Intrinsic value of an equity share depends on multitude factors. The fundamental school of
thought appraised the intrinsic value of shares through:
1. Economic Analysis
2. Industry Analysis
3. Company Analysis
Economic Analysis
The level of economic activity has an impact on investment in many ways. If the economy
grows rapidly, the industry can also be show rapid growth and vice versa. When the level of
economic activity is low, stock prices are low, and when the level of economic activity is high,
stock prices are high reflecting the prosperous outlook for sales and profits of the firms. The
analysis of macro economic environment is essential to understand the behavior of the stock
prices. The commonly analyzed macro factors are as follows:
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1. Gross Domestic Product (GDP)
2. Savings and Investments
3. Inflation
4. Interest Rates
5. Budget
6. The Tax Structure
7. The Balance of Payment (BOP)
8. Monsoon and Agriculture
9. Infrastructure Facilities
10. Demographic Factors
11. Economic Forecasting
12. Economic Indicators
13. Diffusion Index
Industry Analysis
An Industry is a group of firms that have similar technological structure of production and
produce similar products. For the convenience of investors, the broad classification of the
industry is given in financial dailies and magazines. Companies are distinctly classified to give
a clear picture about their manufacturing process and products. Factors that are consideredunder Industry Analysis are:
1. Industry Life Cycle Analysis
2. Growth of the Industry
3. Cost structure and profitability
4. Nature of the product
5. Nature of the competition
6. Government policy
7. Labour
8. Research and Development
9. Pollution standards
10. SWOT Analysis
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Company Analysis
In the company analysis the investor assimilates the several bits of information related to the
company and evaluates the present and future values of the stock. The risk and return
associated with the purchase of the stock is analyzed to take better investment decisions. The
valuation process depends upon the investors ability to elicit information from the relationship
and inter- relationship among the company related variables. The present and future values are
affected a number of factors and they are as follows:
1. The competitive edge of the company
2. Earnings of the company
3. Capital Structure of the company
4. Management of the company
5. Operating efficiency of the company
6. Financial Performance of the company
7. Historical price of stock8. P/E ratio
9. Economic condition
10. Stock market condition
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TECHNICAL ANALYSIS
The share price movement is analyzed broadly with two approaches. One is Fundamental
Approach and other is Technical Approach. Technical Analysis is a process of identifying
trend reversals at an earlier stage to formulate the buying and selling strategy. With the help of
several indicators they analyze the relationship between price - volume and supply demand
for the overall market and the individual stock. Volume is favorable on the upswing i.e. the
number of shares traded is greater than before and on the downside the number of shares traded
dwindles. If it is the other way round, trend reversals can be expected. Generally used technical
tools are:
1. Dow Theory
2. Volume of Trading
3. Short Selling
4. Odd Lot Trading
5. Bars and Line Charts
6. Moving Averages
7. Oscillators
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The behavior of the stock market
From experience we know that investors may 'temporarily' move financial prices away from theirlong term aggregate price 'trends'. (Positive or up trends are referred to asbull markets; negative or
down trends are referred to as bear markets.) Over-reactions may occurso that excessive
optimism (euphoria) may drive prices unduly high or excessive pessimism may drive prices undulylow. Economists continue to debate whether financial markets are 'generally' efficient.
According to one interpretation of the efficient-market hypothesis (EMH), only changes in
fundamental factors, such as the outlook for margins, profits or dividends, ought to affect share
prices beyond the short term, whererandom 'noise' in the system may prevail. (But this largelytheoretic academic viewpointknown as 'hard' EMHalso predicts that little or no trading should
take place, contrary to fact, since prices are already at or near equilibrium, having priced in all
public knowledge.) The 'hard' efficient-market hypothesis is sorely tested by such events as thestock market crash in 1987, when the Dow Jones indexplummeted 22.6 percentthe largest-ever
one-day fall in the United States.[10]
This event demonstrated that share prices can fall dramatically even though, to this day, it is
impossible to fix a generally agreed upon definite cause: a thorough search failed to detect any'reasonable' development that might have accounted for the crash. (But note that such events are
predicted to occur strictly by chance, although very rarely.) It seems also to be the case more
generally that many price movements (beyond that which are predicted to occur 'randomly') arenotoccasioned by new information; a study of the fifty largest one-day share price movements in
the United States in the post-war period seems to confirm this.[10]
However, a 'soft' EMH has emerged which does not require that prices remain at or near
equilibrium, but only that market participants not be able to systematically profit from anymomentary market 'inefficiencies'. Moreover, while EMH predicts that all price movement (in the
absence of change in fundamental information) is random (i.e., non-trending), many studies have
shown a marked tendency for the stock market to trend over time periods of weeks or longer.Various explanations for such large and apparently non-random price movements have been
promulgated. For instance, some research has shown that changes in estimated risk, and the use of
certain strategies, such as stop-loss limits and Value at Risk limits, theoretically could cause
financial markets to overreact. But the best explanation seems to be that the distribution of stockmarket prices is non-Gaussian (in which case EMH, in any of its current forms, would not be
strictly applicable).[11][12]
Other research has shown that psychological factors may result in exaggerated (statistically
anomalous) stock price movements (contrary to EMH which assumes such behaviors 'cancel out').Psychological research has demonstrated that people are predisposed to 'seeing' patterns, and often
will perceive a pattern in what is, in fact, just noise. (Something like seeing familiar shapes in
clouds orink blots.) In the present context this means that a succession of good news items about acompany may lead investors to overreact positively (unjustifiably driving the price up). A period of
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good returns also boosts the investor's self-confidence, reducing his (psychological) risk threshold.[13]
Another phenomenonalso from psychologythat works against an objective assessment isgroup thinking. As social animals, it is not easy to stick to an opinion that differs markedly from
that of a majority of the group. An example with which one may be familiar is the reluctance toenter a restaurant that is empty; people generally prefer to have their opinion validated by those of
others in the group.
In one paper the authors draw an analogy with gambling.[14] In normal times the market behaves
like a game ofroulette; the probabilities are known and largely independent of the investment
decisions of the different players. In times of market stress, however, the game becomes more likepoker (herding behavior takes over). The players now must give heavy weight to the psychology of
other investors and how they are likely to react psychologically.
The stock market, as with any other business, is quite unforgiving of amateurs. Inexperienced
investors rarely get the assistance and support they need. In the period running up to the 1987crash, less than 1 percent of the analyst's recommendations had been to sell (and even during the
20002002 bear market, the average did not rise above 5 %%). In the run up to 2000, the media
amplified the general euphoria, with reports of rapidly rising share prices and the notion that large
sums of money could be quickly earned in the so-called new economy stock market. (And lateramplified the gloom which descended during the 20002002 bear market, so that by summer of
2002, predictions of a DOW average below 5000 were quite common.)
Irrational behavior
Sometimes the market seems to react irrationally to economic or financial news, even if that news
is likely to have no real effect on the fundamental value of securities itself. But this may be more
apparent than real, since often such news has been anticipated, and a counterreaction may occur ifthe news is better (or worse) than expected. Therefore, the stock market may be swayed in either
direction by press releases, rumors, euphoria and mass panic; but generally only briefly, as more
experienced investors (especially the hedge funds) quickly rally to take advantage of even the
slightest, momentary hysteria.
Over the short-term, stocks and other securities can be battered or buoyed by any number of fastmarket-changing events, making the stock market behavior difficult to predict. Emotions can drive
prices up and down, people are generally not as rational as they think, and the reasons for buying
and selling are generally obscure. Behaviorists argue that investors often behave 'irrationally' whenmaking investment decisions thereby incorrectly pricing securities, which causes market
inefficiencies, which, in turn, are opportunities to make money.[15] However, the whole notion of
EMH is that these non-rational reactions to information cancel out, leaving the prices of stocksrationally determined.
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The Dow Jones Industrial Average biggest gain in one day was 936.42 points or 11 percent, this
occurred on October 13, 2008.[16]
Crashes
Robert Shiller's plot of the S&P Composite Real Price Index, Earnings, Dividends, and Interest
Rates, from Irrational Exuberance, 2d ed.[17] In the preface to this edition, Shiller warns, "The
stock market has not come down to historical levels: the price-earnings ratio as I define it in this
book is still, at this writing [2005], in the mid-20s, far higher than the historical average... Peoplestill place too much confidence in the markets and have too strong a belief that paying attention to
the gyrations in their investments will someday make them rich, and so they do not make
conservative preparations for possible bad outcomes."
Price-Earnings ratios as a predictor of twenty-year returns based upon the plot by Robert Shiller
(Figure 10.1,[17] source). The horizontal axis shows the real price-earnings ratio of the S&PComposite Stock Price Index as computed in Irrational Exuberance (inflation adjusted price
divided by the prior ten-year mean of inflation-adjusted earnings). The vertical axis shows the
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geometric average real annual return on investing in the S&P Composite Stock Price Index,
reinvesting dividends, and selling twenty years later. Data from different twenty year periods is
color-coded as shown in the key. See alsoten-year returns. Shiller states that this plot "confirmsthat long-term investorsinvestors who commit their money to an investment for ten full years
did do well when prices were low relative to earnings at the beginning of the ten years. Long-term
investors would be well advised, individually, to lower their exposure to the stock market when itis high, as it has been recently, and get into the market when it is low." [17]
Main article: Stock market crash
A stock market crash is often defined as a sharp dip inshare prices ofequities listed on the stock
exchanges. In parallel with various economic factors, a reason for stock market crashes is also dueto panic and investing public's loss of confidence. Often, stock market crashes end speculative
economic bubbles.
There have been famousstock market crashesthat have ended in the loss of billions of dollars and
wealth destruction on a massive scale. An increasing number of people are involved in the stock
market, especially since the social security and retirement plansare being increasingly privatizedand linked to stocks and bonds and other elements of the market. There have been a number of
famous stock market crashes like the Wall Street Crash of 1929, the stock market crash of 19734,the Black Monday of 1987, the Dot-com bubble of 2000, and the Stock Market Crash of 2008.
One of the most famous stock market crashes started October 24, 1929 on Black Thursday. The
Dow Jones Industrial lost 50 % during this stock market crash. It was the beginning of the Great
Depression. Another famous crash took place on October 19, 1987 Black Monday. The crashbegan in Hong Kong and quickly spread around the world.
By the end of October, stock markets in Hong Kong had fallen 45.5 %%, Australia 41.8 %%,
Spain 31 %%, the United Kingdom 26.4 %%, the United States 22.68 %%, and Canada 22.5 %%.Black Monday itself was the largest one-day percentage decline in stock market history the DowJones fell by 22.6 %% in a day. The names Black Monday and Black Tuesday are also used
for October 2829, 1929, which followed Terrible Thursdaythe starting day of the stock market
crash in 1929.
The crash in 1987 raised some puzzles-main news and events did not predict the catastrophe andvisible reasons for the collapse were not identified. This event raised questions about many
important assumptions of modern economics, namely, the theory of rational human conduct, the
theory of market equilibrium and the hypothesis of market efficiency. For some time after thecrash, trading in stock exchanges worldwide was halted, since the exchange computers did not
perform well owing to enormous quantity of trades being received at one time. This halt in trading
allowed the Federal Reserve system and central banks of other countries to take measures tocontrol the spreading of worldwide financial crisis. In the United States the SEC introduced several
new measures of control into the stock market in an attempt to prevent a re-occurrence of the
events of Black Monday.
Computer systems were upgraded in the stock exchanges to handle larger trading volumes in amore accurate and controlled manner. The SEC modified the margin requirements in an attempt to
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lower the volatility of common stocks, stock options and the futures market. The New York Stock
Exchange and theChicago Mercantile Exchange introduced the concept of a circuit breaker. The
circuit breaker halts trading if the Dow declines a prescribed number of points for a prescribedamount of time.
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Objectives of Study
If one person has to do anything he has specific objective behind his working i.e. there is always an
objective behind any action or event and without that you can not know for what you are striving.
The objective of my study is related with analysis of stock market in India covers the following
areas:
1. The objective of the study is to know investors investment decisions in stock market.
2. To understand the perceptions of investors towards Indian Stock Market.
3. To know about fundamental factors like economic factors, industry analysis, company
analysis which affects investment decisions.
4. To know about technical factors like chats, trend lines, P/E ratio, moving average,
oscillators etc. which affects investment decisions.
5. To identify the problems in the working of stock exchanges.
6. To evaluate various legal aspects pertaining to stock markets in India.
7. Identifying small investors problems with the brokers.
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Scope of the Study
Along with the objective the scope of study is also plays an important role in analysis the project it
makes the study more meaningful and relevant. Seems my study is related with analyzing the
Indian stock market, therefore my scope of study is limited to Indian stock market only. In Stock
Market different types of markets are available like INDIAN STOCK MARKET, DOW JONES,
NASDAQ and others, I have selected Indian Stock Market.
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Research Methodology
A research design in simply a plan or framework for a study that is used as a guide in collecting &
analyzing the data. It helps the researcher to conduct the study by ensuring that economical
procedures are employed & probing is relevant to the problem.
Research methodology is a way to systematically solve the research problem. It may be
understood as a science of studying how research is done scientifically. Every researcher has to
design methodology for his problem. To understand the system better and to make practical
suggestions for improvement, it is imperative to think in an innovative manner and within the
constraints imposed by the system. To affect this plan and to get deeper into the system, the
following methodology was adopted.
Research Design: - A research design is an arrangement of conditions for collection and
analysis of data in a manner that aims to combine relevance to the research purpose with economy
in procedure. The Descriptive or Diagnostic Research Design is used here it is that research which
has not been done earlier in-fact it is based on the new generalizations of the facts. It includes the
finding of new enquires. The research design implemented in this research is Descriptive and
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Diagnostic. The descriptive research studies are those studies which are concerned with describing
the characteristics of a particular individual, or of a group, whereas diagnostic research studies
determine the frequency with which something occur or its association with something else.
Sampling Technique: - Every research is based on some facts and findings and these
are found or calculated through sample, so sample selection and technique used plays very
vital role in any research methodology. It is of two types:
a) Non-Probabilistic Sampling : - It is that type of sampling which is according to the
convenience of researcher therefore it is called convenience research also.
b) Probabilistic Sampling : - Probabilistic sampling is characterized by the fact thateach element of the population is known & non-zero chance of being included in
the sample.
The non probabilistic sampling technique is used here
because the findings are based on: -
1. Selected Brokers Interviews
2. Selected Investors Interviews
Data Source: - This project requires data that have already
been collected by someone else or newer one. Here the newer data has been analyzed there
for primary data source is used.
ResearchInstrument: - Research instrument is used for
collecting the data. This relates to the tools used for collection of data and other
information required for the purpose of the project. Research Instrument used in the
project is questionnaire.
Sample Size: - For the purpose of analysis the project has
been taken with 10 brokers and with 50 Investors as samples.
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Sampling Unit: - It covers Brokers and Investors as measuring
unit.
Sampling Area: - Rohtak City
Research Methodology at a Glance
Research Problem: - An Analysis of Stock Market- In India
Research Design: - Descriptive or Diagnostic
Data Collection:-
Data Type: - Primary
Data Collection Tools: - Questionnaire
Sampling:-
Sampling Unit: - Brokers/ Investors
Sampling Area: - Rohtak City
Sample Size: - 10Brokers/ 50 Investors
Research Approach: - Survey
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LIMITATIONS OF STUDY
Working on An analysis of stock market-In India itself is a great experience and regarding my
project I faced certain limitations during my survey for the project are as follows:
On-site observation and direct interviews was a tedious job and took a lot of time.
The sample size was small.
The results may not be very accurate, as I did not interact with each and every employee.
I could not get exact information, as I was not given the opportunity to have more exposure
of different parts of India as I was only taking care of Rohtak City.
While conducting the project, I faced time constraint problem.
Some times the brokers/investors not respond proper cooperation with my questionnaire,
they take it as formality.
The cost occurred during survey was also a problem.
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SUGGESTIONS AND CONLUSIONS
There are some suggestions which may be helpful for brokers and Investors regarding analyzing
stock market which increased confidence among investors regarding stock market. These are:
1. A uniform organizational structure among all the stock exchanges having democratic
representation of different interest groups would be proposed. It would facilitate in dealing
with crises situation promptly, firmly and impartially.
2. Steps to be taken towards improvement of operational efficiency includes enhancement of
trading hours, strict vigilance on the price manipulation, advancement of computerized
trading and development of communication system in the remote areas of the country.
3. Prudent use of available mechanism like imposition of margin money, volume restrictions,and circuit breakers to control the temporal disequilibrium of the market.
4. To increase investors confidence in stock market must be regained in order to encourage
capital mobilization through primary market issues.
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5. The investor forum as well other authorities should have power to dispose off the cases
summarily and to award compensation to the investors.
6. The detail information regarding investments which investors wants may include the form
of organization, management, capital adequacy, liabilities, defaults and penal actions taken
by the regulator and self regulatory organizations against the broker in the past and other
relevant information, must provides them.
7. The stock market is integrated with banking sector so that the effective and efficient
payment, settlement and clearing systems are developed.
8. Further expansion of banking activities in conjunction with further efforts to liberalize the
banking system.
9. The culprit needs to be punished in an exemplary manner so that it becomes a lesson for
others. The investors should have means to recover their loss caused by the culprit.
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ANALYSIS OF DATA COLLECTED FROM BROKERS
1. Views On Stock Exchanges Management Design Mechanism
Option A: Demutualisation
Option B: Establishment of statutory committee in each stockexchange
Option C: Complete removal of brokers from the governing body
Option D: Staff selection should be through public service commission
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50%
30%
10%10%
Option A
Option B
Option C
Option D
2. Views On Dominance of brokers in governing body of Indian stock exchanges
Option A: No firewall between brokers and management of stock exchanges
Option B: Staffing and Management structure of stock exchanges below the board
level
Option C: Brokers dominance in governing body
Option D: Laxity of implementation in disciplnary action of members
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30%
10%40%
20%Option A
Option B
Option C
Option D
3. Views On Organizational structural changes for bringing efficiency in stock
exchanges
Option A: National Clearing System
Option B: National Depositary System
Option C: National Trade Comparison and Reporting System
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60%
10%
30%
Option A
Option B
Option C
4. Do we need operational change in indian stock exchanges for the purpose of
safeguard small investors?
Option A: Compulsory participation of Market maker in the trading shares whichare related to ex-company
Option B: Control on violent price swings between trading and settlement
Option C: Special 48 hours window between delivery of securties and payment
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30%
20%
50%
Option A
Option B
Option C
5. Views on smooth functioning matter in stock exchanges
Option A: Through government elected members
Option B: Through eminent economic journalist representation in the governing board
Option C: Through stock exchanges brokers representation on a rotation basis
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30%
10%60%
Option A
Option B
Option C
6. Views on stock market scam by brokers
Option A: Recovering the money
Option B: Reforming the system
Option C: Strict vigilence on banking operations
Option D: Stern action against the brokers
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20%
10%
40%
30% Option A
Option B
Option C
Option D
7. Views on Protection of small investors from the price rigging
Option A: Concentration ratio system
Option B: Circuit breaker system
Option C: Daily and weekly transaction price limit
Option D: Margin system
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20%
10%
30%
40%Option A
Option B
Option C
Option D
ANALYSIS OF DATA COLLECTED FROM CLIENTS/INVESTORS
1. Views regarding general investment period
Option A: Long Term
Option B: Medium Term
Option C: Short Term
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10
22
18
0
5
10
15
20
25
Option A Option B Option C
2. Views on stock investment experience with Primary Market
Option A: Very Satisfactory and Rewarding
Option B: Reasonably Unsatisfactory
Option C: Unsatisfactory
Option D: Very Unsatisfactory
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3
38
7
2
0
5
10
15
20
25
30
35
40
Option A Option B Option C Option D
3. Views on satisfaction level with brokers
Option A: Very satisfied
Option B: Somewhat satisfied
Option C: Somewhat dissatisfied
Option D: Very dissatisfied
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5
36
6
3
0
5
10
15
20
25
30
35
40
Option A Option B Option C Option D
4. Views on deficiencies in brokers services
Option A: Bad execution
Option B: High cost
Option C: Accounting Snaufs
Option D: Any other
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10
22
14
4
0
5
10
15
20
25
Option A Option B Option C Option D
5. Clients opinion regarding what should be ideal brokerage?
Option A: 0.25%
Option B: 0.35%
Option C: 0.50%
Option D: 0.65%
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22
16
8
4
0
5
10
15
20
25
Option A Option B Option C Option D
6. Reason behind dealing with sub-brokers
Option A: Sub-broker provide services at your doorstep
Option b: You dont know about any stock
Option C: Not the stock exchange members
Option D: Any other reason
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24
18
6
2
0
5
10
15
20
25
30
Option A Option B Option C Option D
7. Views on confident level of investors on the fair dealing with their brokersOption A: Very confident
Option B: Somewhat confident
Option C: Somewhat doubtful
Option D: Very doubtful
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12
25
8
5
0
5
10
15
20
25
30
Option A Option B Option C Option D
8. Which one of your most favourite Stock Exchange?
Option A: NSE
Option B: BSE
Option C: Any other
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36
10
4
0
5
10
15
20
25
30
35
40
Option A Option B Option C
9. On what Basis you invests in stock market?
Option A: On Fundamental Analysis
Option B: On Technical Analysis
Option C: Both
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15
13
22
0
5
10
15
20
25
Option A Option B Option C
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QUESTIONNAIRE FOR BROKERS
1. Views On Stock Exchanges Management Design Mechanism
Option A: Demutualisation
Option B: Establishment of statutory committee in each stock
exchange
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Option C: Complete removal of brokers from the governing body
Option D: Staff selection should be through public service commission
2. Views On Dominance of brokers in governing body of Indian stock exchanges
Option A: No firewall between brokers and management of stock exchanges
Option B: Staffing and Management structure of stock exchanges below the boardlevel
Option C: Brokers dominance in governing body
Option D: Laxity of implementation in disciplnary action of members
3. Views On Organizational structural changes for bringing efficiency in stock
exchanges
Option A: National Clearing System
Option B: National Depositary System
Option C: National Trade Comparison and Reporting System
4. Do we need operational change in indian stock exchanges for the purpose of
safeguard small investors?
Option A: Compulsory participation of Market maker in the trading shares which
are related to ex-company
Option B: Control on violent price swings between trading and settlement
Option C: Special 48 hours window between delivery of securties and payment
5. Views on smooth functioning matter in stock exchanges
Option A: Through government elected members
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Option B: Through eminent economic journalist representation in the governing board
Option C: Through stock exchanges brokers representation on a rotation basis
6. Views on stock market scam by brokers
Option A: Recovering the money
Option B: Reforming the system
Option C: Strict vigilence on banking operations
Option D: Stern action against the brokers
7. Views on Protection of small investors from the price rigging
Option A: Concentration ratio system
Option B: Circuit breaker system
Option C: Daily and weekly transaction price limi
Option D: Margin system
QUESTIONNAIRE FOR CLIENTS/ INVESTORS
1. Views regarding general investment period
Option A: Long Term
Option B: Medium Term
Option C: Short Term
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2. Views on stock investment experience with Primary Market
Option A: Very Satisfactory and Rewarding
Option B: Reasonably Unsatisfactory
Option C: Unsatisfactory
Option D: Very Unsatisfactory
3. Views on satisfaction level with brokers
Option A: Very satisfied
Option B: Somewhat satisfied
Option C: Somewhat dissatisfied
Option D: Very dissatisfied
4. Views on deficiencies in brokers services
Option A: Bad execution
Option B: High cost
Option C: Accounting Snaufs
Option D: Any other
5. Clients opinion regarding what should be ideal brokerage?
Option A: 0.25%
Option B: 0.35%
Option C: 0.50%
Option D: 0.65%
6. Reason behind dealing with sub-brokers
Option A: Sub-broker provide services at your doorstep
Option b: You dont know about any stock
Option C: Not the stock exchange members
Option D: Any other reason
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7. Views on confident level of investors on the fair dealing with their brokers
Option A: Very confident
Option B: Somewhat confident
Option C: Somewhat doubtful
Option D: Very doubtful
8. Which one of your most favourite Stock Exchange?
Option A: NSE
Option B: BSE
Option C: Any other
9. On what Basis you invests in stock market?
Option A: On Fundamental Analysis
Option B: On Technical Analysis
Option C: Both
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BIBLIOGRAPHY
1. Avadhani V A (1992), Investment and Securities Market in India: Investment
Management, Himalaya Publishing, Bombay.
2. Bhole L M (1982), Financial Markets and Institutions: Growth Structure and Innovations,
Tat MacGraw Hill, New Delhi 1st edition.
3. Achils, Steven B. Technical Analysis from A to Z, McGraw-Hill, 2000.
4. Engerman, M. Using Fundamental and Economic Factors to Explain Stock Returns, Barra
Newsletter, Fall 2005.
5. Greig, A.C. Fundamental Analysis and Subsequent Stock Returns, Journal of Accounting
and Economics, 15, 2004, pp.413-442.
6. M. Ranganatham and R. Madhumathi. Investment Analysis and Portfolio Management,
Pearson Education, 2005, pp. 206-410.
7. Punithavathy Pandian. Security Analysis and Portfolio Management, Vikas Publishing
House Pvt. Ltd., 2001, pp. 215-278.
8. Khan Javaid (2005), Operating of stock exchange in India, Vista International Publishing
House, Delhi.