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A summer training project report on
A study on Capital market and guide to
Make safe investment decision
at
Odisha capital market and enterprises ltd.
(Formerly known as Bhubaneswar stock exchange)
The essential requirement of MFC 3rd^ semester for the partial fulfilment of award of degree of MASTER OF FINANCE AND CONTROL.
Submitted by Nazia Parveen MFC (3 rd^. Semester) Roll no: MF1115, Regd.no: 222/ Department of commerce Berhampur University
Under the supervision of
Company guide : Faculty guide:
Name: Mr. BIPIN BIHARI DUTTA Name: Prof PRAKASH CH. MISHRA (Assistance manager) (HEAD OF THE DEPT. OFCOMMERCE) BhSE BERHAMPUR UNIVERSITY
PREFACE
The successful completion of this project was a unique experience for us because by visiting many place and interacting various person, I achieved a better knowledge about this project. The experience which I gained by doing this project was essential at this turning point of my carrier this project is being submitted which content detailed analysis of the research under taken by me. The research provides an opportunity to the student to devote her skills knowledge and competencies required during the technical session. The research is on the topic “Capital market”.
Acknowledgement
With all humility I would like to express that I was very lucky to undergo summer training at Bhubaneswar Stock Exchange. It was a golden opportunity for gaining practical experience and self development. Further, I am honoured to have so many wonderful people who helped me insistently in several ways for the completion of this project report.
9 Trading pattern of Indian stock market 35
10 Capital market efficiency 35
11 Mutual funds (as a part of capital market) 38
12 Investment strategies 44
13 Fundamental analysis 45
14 Technical analysis 55
15 Current stock market scenario 70
16 Investment lesson in stock market 71
17 Ten things to consider for investment 75
18 Where not to invest in dubious scheme 79
19 20 mantras for wise investment 80
20 Bibliography 81
Bhubaneswar Stock Exchange
Bhubaneswar Stock Exchange Ltd. (BhSE) has been functioning as a recognized Stock Exchange in India spreading the culture of equity in the State of Orissa for more than 20 years. It was initially incorporated on 17th Aprial,1989 as a public company, limited by guarantee with an objective facilitate, assist regulate or control the business of buying, selling or dealing in stock, shares and like securities within the meaning of securities Contracts (Regulation) Act,1956. Ministry of Finance, Govt. of India granted recognition to the BhSE on 5th June, 1989 under the provisions of securities contracts (Regulation) Act, 1956 for initial period of five years. Thereafter, the recognition of the BhSE is being renewed from time to time by Securities and Exchange Board of India ( SEBI ). Subsequently, pursuant to the amendment to the Securities Contracts (regulation) Act, 1956during the year 2004 by the Govt. of India in order to provide for corporatisation and demutualization of the stock exchange in the country, BhSE in compliance with the requirement of corporatisation first in order to get itself a corporatized entity was converted from company limited by guarantee to a company limited by share on 9th Desember,2005 by way of fresh incorporation under the companies Act,1956.Further, during the year 2007 BhSE successfully diluted its share capital to public in compliance with requirement of demutualization in order to
ensure at least 51% of paid up share capital are held by the persons other than the stock-broker shareholder.
Management
The affairs of BhSE are controlled and supervised by Board of Directors under the provision of its Memorandum and articles of Association, Rules, Regulation and By laws of the stock exchange framed in line with companies Act, 1956, securities contracts (Regulation) Act,1956 SEBI Act,1992. The day to day affairs are managed by chief Executive officer of the stock exchange. The Board of Directors of the stock Exchange comprises of 8 Directors such as 2 (Two) Public Interest Director who are appointed out of SEBI constituted panel, 3 (Three) Shareholder Directors and 2 (Tow) Trading Member Directors who are appointed by the shareholder of the BhSE and a Whole Time Chief Executive who is the ex-officio Director of the board. The Present status of the Board of Directors of BhSE is as under:
Public Interest Directors
- Shri Vivekananda Pattanayak, IAE (Retd.)(Appointed as chairman of the BhSE)
- (Vacant at present) Shareholder Director
- Shri K.N. Ravindra, Representative of shareholder of the BhSE, National Aluminum Company Ltd. (NALCO)
- Shri Deelip Kumar choudhury, Shareholder of the BhSE
- Shri Anil Kumar Patro, Shareholder of the BhSE
- Shri Tarum Kumar Agrawalla, Shareholder of the BhSE Trading Member Director
- Shri Thomas Mathew, Trading Member of the BhSE
- Shri Raj Kumar Khemka, Trading Member of the BhSE Ex-officio Director
- Shri Debaraj Biswal, Chief Executive officer of the BhSE The duties and responsibilities of day to day management and affairs of the BhSE are vested with the Chief Executive Officer (CEO) of the Exchange in terms of provisions of its Articles of Association. Shri Debaraj Biswal, CEO is discharging his power, duties and responsibilities of day to day management of the BhSE under the control and supervision of the Board of Directors. Shri Biswal is supported by 3 (Three) Managers, 4 (Four) Asst. Managers and 4 (Four) Sr. Executives Trading Operation The trading and settlement operation of the BhSE was computerized since inception. The Exchange switched over from “out-cry system” of trading to “Screen Based Trading” with effect from 20th May, 1997. However, the trading
BhSE has been playing an active role for the growth of primary market activities with the support of its trading members. The Stock Exchange ensures promotional steps for participation of investing public at a large scale in the Initial Public Offers (IPOs)/Public Issues of several companies. Customers’ Protection Fund Investors’ protection is the cornerstone of a vibrant market. BhSE has established a Statutory Fund namely, “Bhubaneswar Stock Exchange Customers’ Protection Fund” with an object to protect the customers from the risk of defaulting trading members. As per the Rules of the said Fund, presently a customer is entitled to be indemnified to a maximum of Rs.50, 000/- towards his legitimate claim against a defaulter trading member of the Stock Exchange. Investors’ service cell BhSE has an “Investors’ Service Cell” which also ensures protection of the investors. It promptly attends the complaints of various nature lodged by the investors against companies as well as the trading members of the Stock Exchange. It plays an important role in a friendly approach to redress the investors’ grievances The Investors’ Service Cell undertakes due care to build up confidence of the common investors in the securities market. Library Bhubaneswar Stock Exchange has a good library. It is enriched with several books and guidelines relating to capital market. It also subscribes Periodicals and Financial News Dailies for readers. In addition, prime magazines for new issues, annual reports of several listed companies are available with it. The library of the Stock Exchange is, thus playing a promotional role for enrichment of knowledge of the staff, trading members, investors, students and research scholars at large. Employment Bhubaneswar Stock Exchange has also been instrumental in generating various nature of employment, both directly and indirectly, in the State of Orissa. As a result, apart from direct employment for its own purpose, it has created opportunity for generation of a number of indirect appointments in various capacities such as sub-brokers, authorized assistants, authorized representatives and other staff in the stock-broking firms. Current Activities other than trading operation Apart from trading operation, BhSE is engaged in promotion and development of securities market in the interest of the investing public in a big way such as – Investors’ Awareness Programme BhSE is conducting investors’ awareness programmes by way of seminars/ workshop from time to time for education and awareness of investing public in securities. The aim of the BhSE is to have at least 5-6 awareness programmes in a year at different location of the State of Orissa. During the current financial year, BhSE has already organized three such programmes, two in Bhubaneswar and one in Berhampur and it has proposal to
organize two more seminars one in Sambalpur and the other in Angul by the end of this financial year. Securities Market Training Programme BhSE is providing a Certificate Course, namely, “Basics of Capital Market. With the expansion of capital market which includes the reach of its activities in the form of course contents at various B-Schools and +2 Commerce level schools, practical oriented education programme in securities market activities is in increasing demand now days as it promises youth to make career in the field of securities market. BhSE aims at undertaking practical oriented training programmes for the students of + Commerce and B-Schools in a big way as well as for the youths who want to make their career in securities market. At present, BhSE is engaged in imparting training to the students of few management institutes. During this year, BhSE has already undertaken training programmes for the students of Institute of Mathematics and Application, Bhubaneswar and Inter Science Institute of Management and Technology, Bhubaneswar for a period of 10 days each. A number of Institutes have also approached BhSE to undertake similar training programmes for their students. Students Assistance Programme The students of various Institutes and B-Schools require preparing project papers on different topics including the topics related to activities in Stock Exchange and securities market. The students of a number of Institutes and B- Schools visit BhSE either directly or sponsored by their Institutes every year for assistance in preparation of their project papers. BhSE assists and supports those students in their project work by providing necessary guidance and securities market information. Future Plan of Action BhSE has worked out a number of measures to furtherance its activities in securities market and promotional activities in spreading equity cult and investors awareness. Such measures include - A. To explore and participate in the SME Stock Exchange to encourage SME entrepreneurs in the State of Orissa to raise capital under securities market mechanism and to provide a platform of trading in SME securities. B. To commence certificate course and diploma course in capital market. C. To reach sub-urban areas of the State to spread the culture of equities and awareness. D. To upgrade the infrastructural facilities to facilitate expansion of trading activities.
the size of the outstanding U.S. bond market debt was $31.2 trillion according to BIS (or alternatively $34.3 trillion according to SIFMA). Nearly all of the $822 billion average daily trading volume in the U.S. bond market takes place between broker-dealers and large institutions in a decentralized, over-the-counter (OTC) market. However, a small number of bonds, primarily corporate, are listed on exchanges. References to the "bond market" usually refer to the government bond market, because of its size, liquidity, lack of credit risk and, therefore, sensitivity to interest rates. Because of the inverse relationship between bond valuation and interest rates, the bond market is often used to indicate changes in interest rates or the shape of the yield curve.
Contents
- Market structure
- Types of bond markets
- Bond market participants
- Bond market size
- Bond market volatility
- (^) Bond market influence
- Bond investments
- Bond indices
1. Market structure
Bond markets in most countries remain decentralized and lack common exchanges like stock, future and commodity markets. This has occurred, in part, because no two bond issues are exactly alike, and the variety of bond securities outstanding greatly exceeds that of stocks. However, the New York Stock Exchange (NYSE) is the largest centralized bond market, Representing mostly corporate bonds..
2. Types of bond markets
The Securities Industry and Financial Markets Association (SIFMA) classifies the broader bond Market into five specific bond markets.
- Corporate
- Government & agency
- (^) Municipal
- Mortgage backed, asset backed, and collateralized debt obligation
- Funding
3. Bond market participants
Bond market participants are similar to participants in most financial markets and are essentially either buyers (debt issuer) of funds or sellers (institution) of funds or often both. Participants include:
- Institutional investors
- Governments
- (^) Traders
- Individuals
4. Bond market size
Amounts outstanding on the global bond market increased 10% in 2009 to a record $91 trillion. Domestic bonds accounted for 70% of the total and international bonds for the remainder. The US was the largest market with 39% of the total followed by Japan (18%). Mortgage-backed bonds accounted for around a quarter of outstanding bonds in the US in 2009 or some $9.2 trillion. The sub-prime portion of this market is variously estimated at between $500bn and $1.4 trillion. Treasury bonds and corporate bonds each accounted for a fifth of US domestic bonds. In Europe, public sector debt is substantial in Italy (93% of GDP), Belgium (63%) and France (63%). Concerns about the ability of some countries to continue to finance their debt came to the forefront in late 2009. This was partly a result of large debt taken on by some governments to reverse
8. Bond indices
Main article: Bond market index A number of bond indices exist for the purposes of managing portfolios and measuring performance, similar to the S&P 500 or Russell Indexes for stocks. The most common American benchmarks are the Barclays Aggregate, Citigroup BIG and Merrill Lynch Domestic Master. Most indices are parts of families of broader indices that can be used to measure global bond portfolios, or may be further subdivided by maturity and/or sector for managing specialized portfolios.
STOCK OR EQUITY MARKET
A stock market or equity market is a public market (a loose network of economic transactions, not a physical facility or discrete entity) for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. The size of the world stock market was estimated at about $36.6 trillion US at the beginning of October 2008. The total world derivatives market has been estimated at about $791 trillion face or nominal value, 11 times the size of the entire world economy. The value of the derivatives market, because it is stated in terms of notional values , cannot be directly compared to a stock or a fixed income security, which traditionally refers to an actual value. Moreover, the vast majority of derivatives 'cancel' each other out(i.e., a derivative 'bet' on an event occurring is offset by a comparable derivative 'bet' on the event not occurring). Many such relatively illiquid securities are valued as marked to model, rather than an actual market price. The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. The largest stock market in the United States, by market cap is the New York Stock Exchange, NYSE, while in Canada, it is the Toronto Stock Exchange. Major European examples of stock exchanges include the London Stock Exchange, Paris Bourse, and the Deutsche Borse. Asian examples include the Tokyo Stock Exchange, the Hong Kong Stock Exchange, the Shanghai Stock Exchange, and the Bombay Stock Exchange. In Latin America, there are such exchanges as the BM&F Bovespa and the BMV.
Contents
- Trading
- Market participants
- History
- Importance of stock market
- Function and purpose
- Relation of the stock market to the modern financial system
- The stock market, individual investors, and financial risk
1.Trading
Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. Their orders usually end up with a professional at a stock exchange, who executes the order. Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This type of auction is used in stock exchanges and commodityexchanges where traders may enter "verbal" bids and offers simultaneously. The other type of stock exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders. Actual trades are based on an auction market model where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. (Buying or selling at market means you will accept any ask price or bid price for the stock, respectively.) When the bid and ask prices match, a sale takes place, on a first-come-first-served basis if there are multiple bidders or askers at a given price. The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery. The New York Stock Exchange is a physical exchange, also referred to as a listed exchange —only stocks listed with the exchange may be traded. Orders enter by way of exchange members and flow down to a floor broker, who goes to the floor trading post specialist for that stock to trade the order. The specialist's job is to match buy and sell orders using open outcry. If a spread exists, no trade immediately takes place--in this case the specialist should use his/her own resources (money or stock) to close the difference after his/her judged time. Once a trade has been made the details are reported on the "tape" and sent back to the brokerage firm, which then notifies the investor who placed the order. Although there is a significant amount of human contact in this process, computers play an important role, especially for so-called "program trading".
The NASDAQ is a virtual listed exchange, where all of the trading is done over a computer network. The process is similar to the New York Stock Exchange. However, buyers and sellers are electronically matched. One or more NASDAQ
they became the "Brugse Beurse", institutionalizing what had been, until then, an informal meeting, but actually, the family Van der Beurze had a building in Antwerp where those gatherings occurred; the Van der Beurze had Antwerp, as most of the merchants of that period, as their primary place for trading. The idea quickly spread around Flanders and neighboring counties and "Beurzen" soon opened in Ghent and Amsterdam. In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351 the Venetian government outlawed spreading rumors intended to lower the price of government funds. Bankers in Pisa, Verona, Genoa and Florence also began trading in government securities during the 14th century. This was only possible because these were independent city states not ruled by a duke but a council of influential citizens. The Dutch later started joint stock companies, which let shareholders invest in business ventures and get a share of their profits - or losses. In 1602, the Dutch East India Company issued the first share on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds. The Amsterdam Stock Exchange (or Amsterdam Beurs) is also said to have been the first stock exchange to introduce continuous trade in the early 17th century. The Dutch "pioneered short selling, option trading, debt-equity swaps, merchant banking, unit trusts and other speculative instruments, much as we know them" There are now stock markets in virtually every developed and most developing economies, with the world's biggest markets being in the United States, United Kingdom, Japan, India, China, Canada, Germany, France, South Korea and the Netherlands.
4. IMPORTANCE OF STOCK MARKET
5. Function and purpose:
The main trading room of the Tokyo Stock Exchange, where trading is currently completed through computers. The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional capital for expansion by selling shares of ownership of the company in a public market. 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. An economy where the stock market is on the rise is considered to be an up-and-coming economy. In fact, the stock market is often considered the primary indicator of a country's economic strength and development. 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. Financial stability is the raison d'etre of central banks. 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. The smooth functioning of all these activities facilitates economic growth in that lower costs and enterprise risks promote the production of goods
Riskier long-term saving requires that an individual possess the ability to manage the associated increased risks. Stock prices fluctuate widely, in marked contrast to the stability of (government insured) bank deposits or bonds. This is something that could affect not only the individual investor or household, but also the economy on a large scale. The following deals with some of the risks of the financial sector in general and the stock market in particular. This is certainly more important now that so many newcomers have entered the stock market, or have acquired other 'risky' investments (such as 'investment' property, i.e., real estate and collectables). With each passing year, the noise level in the stock market rises. Television commentators, financial writers, analysts, and market strategists are all overtaking each other to get investors' attention. At the same time, individual investors, immersed in chat rooms and message boards, are exchanging questionable and often misleading tips. Yet, despite all this available information, investors find it increasingly difficult to profit. Stock prices skyrocket with little reason, then plummet just as quickly, and people who have turned to investing for their children's education and their own retirement become frightened. Sometimes there appears to be no rhyme or reason to the market, only folly_._ This is a quote from the preface to a published biography about the long-term value-oriented stock investor Warren Buffett.[9] Buffett began his career with $100, and $100,000 from seven limited partners consisting of Buffett's family and friends. Over the years he has built himself a multi-billion-dollar fortune. The quote illustrates some of what has been happening in the stock market during the end of the 20th century and the beginning of the 21st century.
A.Primary Market , also called the new issue market, is the market for issuing new securities. Many companies, especially small and medium scale, enter the primary market to raise money from the public to expand their businesses. They sell their securities to the public through an initial public offering. The securities can be directly bought from the shareholders, which is not the case for the secondary market. The primary market is a market for new capitals that will be traded over a longer period. In the primary market, securities are issued on an exchange basis. The underwriters, that is, the investment banks, play an important role in this market: they set the initial price range for a particular share and then supervise the selling of that share. Investors can obtain news of upcoming shares only on the primary market. The issuing firm collects money, which is then used to finance its operations or expand business, by selling its Shares. Before selling a security on the primary market, the firm must fulfill all the requirements regarding the exchange. After trading in the primary market the security will then enter the secondary market, where numerous trades happen every day. The primary market accelerates the process of capital formation in a country's economy. The primary market categorically excludes several other new long-term finance sources, such as loans from financial institutions. Many companies have entered the primary market to earn profit by
converting its capital, which is basically a private capital, into a public one, releasing securities to the public. This phenomena is known as "public issue" or "going public." There are three methods though which securities can be issued on the primary market: rights issue, Initial Public Offer (IPO), and preferential issue. A company's new offering is placed on the primary market through an initial public offer. *Functioning of Primary Market
The main function of primary market is to facilitate transfer of recourses from the savers to the users. The saver is individuals, commercial banks and insurance companies etc. The users are public limited companies and government. It plays important role in mobilising the funds from savers and transferring them to borrowers for productive purposes. It’s not only a platform for raising finance to establish new enterprise but also for expansion / diversification/modernisation of existing units. Classification of issue of share :
