Fundamentals

National Stock Exchange of India

Of

Capital Markets

NCFM 2009/10
 CHAPTER – 1

FINANCIAL MARKETS – INSTITUTIONS

2
Financial System

Indian
Financial
System

Organised Unorganised

Regulators Money
Lenders
Financial
Institutions Indigenous
Bankers
Financial
Markets

Financial
Services
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Types of Financial Markets (On the basis of)

Type of financial claim

Debt Market – is the financial market for fixed claims (Debt Instruments)
Equity Market – is the financial market for residual claims (Equity Shares)

Maturity of financial claim

Money Market – The market for short term financial claim (usually one year or less)
Capital Market – The market for long term financial claim (more than a year)

Time of issue of financial claim

Primary Market : the sale of securities for the first time by the issuers. Here the money
from investors go directly to the issuers.
Secondary Market – is the market for securities that are already issued

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Types of Financial Markets (On the basis of)

Timing of delivery of financial claim

Cash or Spot Market – is a market where the delivery of financial instrument and payment
of cash occurs immediately. ie. settlement is completed soon.
Forward or Futures Market – is a market where the delivery of asset and payment of cash
takes place at a pre-determined time in future.

Organizational structure of the financial market

Exchange Traded Market – is a market characterized by a centralized organization with
standardized procedures
Over – the –counter market – is a decentralized market with customized procedures.

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Equity Markets
Scenario prior to 1990’s in India

 Trading was carried out through open outcry method

 Floor trading
 Uncertainty of Execution Price
 Uncertain Delivery and Settlement Periods
 Lack of Transparency
 Absence of Risk Management
 Low volumes

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 Equity Market
Reforms taken place in the Indian Securities Market early 1990’s

 Abolition of the office of Controller of Capital Issues and repeal of the Capital Issues
(Control) Act 1947.
 Establishment of SEBI (Securities and Exchange Board of India) in 1992 to regulate
and promote the development of Securities market.
 Setting up of NSE in 1993, by financial institutions and introduction of nationwide
screen based trading.
 Enactment of Depositories Act, 1996 to provide for the holding and transfer of
securities in electronic form.
 Introduction of book building method in public issue of shares for better price
discovery.
 Permission given to FIIs (Foreign Institutional Investors) to operate in the Indian
capital market.
 Establishment of private sector mutual funds.

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Debt Market
Government Securities
Central government – such as T-bills
State government – state development loans

Bonds of government-sponsored institutions

Bonds issued by government-sponsored institutions like Discount & Finance House of
India (DFHI), infrastructure-related institutions and the PSUs

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Derivatives Market
Derivative: product whose value is derived from the value of one or more underlying
assets such as equity, forex, commodity etc…
Options
 Forwards
 Futures
 Options
 Warrants

Participants in derivatives market

 Hedgers
 Speculators
 Arbitrageurs

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Companies – Private Company

An important institution in the financial markets is company form of organization

TYPES OF
COMPANY

PRIVATE PUBLIC FOREIGN

Private Company:
A private company incorporated under the Act has the following characteristics:
 Its share holders can be only up to 50 (excluding employees)
 The right to transfer shares is restricted
 It cannot invite public to subscribe in its shares
 Private companies are relatively less regulated than public companies

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Companies – Private Company

Private company is deemed to be a public company in the following

situations:

 When 25 percent or more of the private company‘s paid-up capital is held by one or
more public company.

 Theprivate company holds 25 percent or more of the paid-up share capital of a public
company.

 The private company accepts or renews deposits from the public.

 The private company`s average annual turnover exceeds Rs. 250 million during a
period of 3 consecutive financial years.

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 Companies - Public Companies

Public Companies
A public company is defined as one, which is not a private company

Restrictions on commencement of business by Public companies

The company shall not commence any business or exercise any borrowing powers,
unless.

 It received the minimum subscription.

 Directors contribution is made.
 Arrangements to deal the securities in a stock exchange is made, and
 An undertaking to the effect is filed with the Registrar of Companies.

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Companies - Foreign Companies

Joint Ventures
As Indian Companies
Wholly Owned Subsidiary

Foreign
Companies
Liaison /Representative
Office

As Foreign Companies Project Office

Branch Office

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As an Indian Company
Joint Venture
 Foreign Companies can set up their operations in India by forging strategic
alliances with Indian partners.

Wholly Owned Subsidiary

Foreign companies can also to set up wholly-owned subsidiary in sectors where
100% foreign direct investment is permitted under the FDI policy.

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As a Foreign Company
Liaison Office/Representative Office

 Liaison office acts as a channel of communication between the principal place

of business or head office and entities in India.
 Liaison office can not undertake any commercial activity directly or indirectly.
And it cannot therefore, earn any income in India.
 Approval for establishing a liaison office in India is granted by Reserve Bank of
India (RBI).

Liaison/ Representative
Head Office Office Entities/Customers
(Outside India) in India
in India

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As a Foreign Company

Project Office

 Foreign Companies planning to execute specific projects in India can set up

temporary project/site offices in India.

 RBI has now granted general permission to foreign entities to establish

Project Offices subject to specified conditions.

 Such offices can not undertake or carry on any activity other than the activity
relating to the execution of the project.

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As a Foreign Company
Branch Office
Foreign companies are allowed to set up Branch Offices in India for the
following purposes:

 Export/Import of goods,
 Rendering professional or consultancy services,
 Carrying out research work, in which the parent company is engaged.
 Promoting technical or financial collaborations between Indian companies and parent
or overseas group company.
 Representing the parent company in India and acting as buying/selling agents in India.
 Rendering services in Information Technology and development of software in India.
 Rendering technical support to the products supplied by the parent/ group companies.
 Foreign airline/shipping company

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 CHAPTER – 2

FINANCIAL MARKETS – INSTRUMENTS

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Financial Instruments
Investments:
An investment is a sacrifice of current wealth for future benefits (like Annual
Income and Capital gains)

Non Marketable Financial Assets:

These are called non-marketable, since that cannot be normally transferred to
others through sale

 Bank Deposits
 Post office deposits
 Company deposits
 Provident Fund Deposits
 Life Insurance Policies

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Financial Instruments

Non-Marketable
Financial Assets

Post Office Company Provident Life Insurance

Bank Deposits
deposits Deposits Funds Policies

- Savings A/c - Endowment policy

- Current A/c
- RD Schemes - EPF - Money back policy
- Savings deposits
- Time deposits (Employee) - Wholelife policy
- Fixed deposits
- Monthly income Schems - PPF (Public) - Term assurance
policy
- PPF schemes
- KVP, NSC
- Senior Citizens Savings

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Non - Marketable Financial Assets
Bank Deposits
 Current Account
 Savings Deposits
 Fixed Deposits

Post Office Deposits ( The Post Office Savings Bank)

 Savings Account Schemes,
 Recurring Deposit Schemes,
 Time Deposit Schemes,
 Monthly Income Schemes,
 Public Provident Fund Schemes,
 Kisan Vikas Patra (KVP)
 National Savings Certificates and
 Senior Citizens‘ Savings Scheme
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Post Office Deposits ( The Post Office Savings Bank)

SCHEME Interest Payable, Rates, Periodicity etc.

1. Post Office Savings Account 3.5% per annum on individual/ joint accounts.
2. 5-Year Post Office Recurring Rate of interest 7.5% (quarterly compounded)
Deposit Account
3. Post Office Time Deposit Interest payable annually but calculated quarterly. Period Rate
Account
1 yr. 6.25%, 2 yr. 6.50%, 3 yr. 7.25%, 5 yr. 7.50%
4. Post Office Monthly Income 8% per annum payable
Account
5. 15 year Public Provident Fund 8% per annum (compounded yearly).
Account
6.Kisan Vikas Patra Money doubles in 8 years & 7 months.

Rate of interest 8.4% (compounded yearly)

7. National Savings Certificate 8% Interest compounded six monthly but payable at maturity.
(VIII issue)
8.Senior Citizens Savings Scheme 9% per annum, payable from the date of deposit of 31st
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Non - Marketable Financial Assets
Company Deposits
 Limited companies accept fixed deposits from investors
 Interest on these deposits are normally higher than the bank deposits
 These deposits are governed by Indian Companies Act 1956

Provident Fund Deposits

 Employee Provident Fund Scheme

 Public Provident Fund Scheme (PPF)

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Non - Marketable Financial Assets
Life Insurance Policies
A life insurance is a contract between an individual (called insured) and an insurance
company (called insurer) to pay the insured or his heirs, a specified sum of money on the
happening of an event
 regarded as a protection for life rather than a source of savings and investment
 It offers a security in life and at the same time a good investment avenue

Variants in the Life Insurance Policies

 Endowment Policy
 Money back Policy
 Whole Life Policy
 Term assurance Policy

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Marketable Financial Assets
Money Market
Investments Mutual Funds
Bonds
- Treasury Bills
- Government Securities - Equity Schemes
- Commercial Paper - Debt Schemes
- Savings Bonds - Certificate of Deposit - Balanced Schemes
- PSU Bonds (CD)
- Corporate Bonds
Real Estates
- Agricultural land
Financial - Semi-Urban land
Derivatives - Urban land
- Futures - Commercial land
- Options - Residential building
- Holiday resort

Marketable Precious Objects

- Gold Etc.
Equity Shares Financial - Precious Stones
Assets - Art Objects
- Antiques

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Marketable Financial Assets

Equity Shares

 Equity shares indicate fractional ownership in a company.

 Benefits such as dividends, bonus shares and rights shares.
 The price of their shares also increase (Capital appreciation).

Bonds

 Government Securities
 Savings Bonds
 PSU Bonds
 Debentures

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Marketable Financial Assets
Money Market Instruments
 Treasury Bills
 Commercial Paper
 Certificate of Deposit (CD)

Mutual Funds
It is a collective investment scheme and have the following variants

 Equity Schemes
 Debt Schemes
 Balanced (Hybrid) Schemes

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Marketable Financial Assets
Real Estates
 Agricultural Land
 Semi-urban Land
 Urban Land
 Commercial Buildings
 Residential Buildings/Apartments
 Time Share in a holiday resort

Precious Objects
 Gold/Silver/Other Metals

 Precious stones
 Art Objects
 Antiques

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Marketable Financial Assets
Financial Derivatives
Instrument whose value depends on the value of an underlying asset
 Futures
 Options
Attributes to evaluate an Investment

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 CHAPTER – 3

PRIMARY MARKET – 1

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PRIMARY MARKET
Function of primary market is to transfer the money from savers to the users
Savers include households, institutions, mutual funds, FIIs and government
Users of funds includes corporate, governments etc.

The users (mostly corporate houses) need funds in order to

 Promote a new company
 Expand an existing company
 Meet increased working capital requirement

The new issue market (NIM) performs the following functions. They are
 Organization (Time of floatation of a new issue, Type of issue, Price)
 Underwriting and
 Distribution

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 Types of Markets
- Market for ‘old’ securities
- Deals with ‘new’ securities
- Buy/sell of existing shares takes
- Provides fresh capital to the place
company
- Stock Exchanges play major
- Lead Managers, Banks and role
Underwriters etc…participate

- Both trade in Stock Exchange

- To comply with Rules and regulations of
the Stock Exchanges before and after the
issue
- Both are influenced by the same market
dynamics
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PRIMARY MARKET
Factors to be considered by investors before investing in
shares

 Promoter ‘s credibility
 Efficiency of the management
 Project details
 Product
 Ranking of the security.
 Financial data
 Litigation
 Risk factors
 Auditor‘s report
 Statutory clearance

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CONTENTS OF OFFER DOCUMENT
Guide to understand an Offer Document

Cover Page

Risk Factors

Introduction

About us

Financial Statements

Legal and other information

Other regulatory and statutory disclosures

Offering information

Other Information

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Credit Ratings
Rating of Debt instruments for existing companies
Each rating is an alphanumeric representation of the relative degree of risk associated
with debt instruments based on the expected likelihood of their timely payment.

Each rating agency uses different rating scales for different kinds of ratings. CRISIL
assigns ratings to debt instrument on three basic scales
 The long-term scale,
 The short-term scale and Description(with regard to the likelihood of
Symbol(Rating category)
 The fixed deposit scale. meeting the debt obligations on time)
AAA Highest Safety
AA High Safety
A Adequate Safety
BBB Moderate Safety
BB Inadequate Safety
B High Risk
C Substantial Risk
D Default
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Credit Ratings
 A speculative grade rating on a debt instrument does not mean that it is
certainly going to default
 The ratings assigned are also subject to change

The rating by the rating agencies helps all the people concerned as
follows
 Investors
 Issuers
 Intermediaries
 Regulators

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IPO Grading
 The Grade assigned to any individual IPO is a symbolic representation of Credit Rating
Agency (CRA‘s) assessment of the ―fundamentals‖ of the issuer concerned relative to
other listed securities
 IPO Grades are assigned on a five-point point scale
 An IPO Grade is not an opinion on the price of the issue, pre- or post-listing.

CRA’s IPO Grading methodology examines the following key variables:

 Business and Competitive Position
 New Projects—Risks and Prospects
 Financial Position and Prospects
 Management Quality
 Corporate Governance practices
 Compliance and Litigation History

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IPO Grading process

Issuer
CRA collects Site visits, CRA's analyst
company
information discussions with team presents CRA's rating
requests
on the existing key persons, grading report committee
Credit Rating
operations & bankers, auditors to CRA's assigns the
Agency
proposed and merchant rating Grade
(CRA) for
projects bankers by CRA committee
IPO grading

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 CHAPTER – 4

PRIMARY MARKET – 2

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 Methods of raising capital in the primary market

There are four methods by which a company can raise capital in the primary market :
1. Public issue
2. Rights issue
3. Private placement
4. Preferential allotment

Public issue
- sale of securities to the investing public
Public issues of shares by companies in India can be made as per the provisions of
 Companies Act 1956
 SEBI Guidelines, Rules and Regulations
 Norms in the listing agreement with stock exchanges.

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 Public Issue
 Corporates may raise capital in the primary market by way of an initial public offer
 Initial Public Offer (IPO) is the selling of securities to the public in the primary market
 Initial Public Offering can be made through
i. fixed price method,
ii. book building method or
iii. a combination of both.

Fixed Price Issues

 Allotment price is made known in advance to the investors

Book Building Issues

 Investors are allowed to bid with in a price band of 20%
 Demand for the securities offered, at various prices, is available on a real time basis
during the bidding period
 Final price is determined by the issuer only after closure of the bidding

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 The Process of Book Building
• Issuer Company will appoint lead merchant banker as "Book Running Lead Managers
(BRLM)
Issuer • The Company will specify the number of securities that he wanted to offer and price
Company band.

• Act as intermediaries between the company seeking to raise money and the investors
• BRLM's prepares Draft Prospectus and file with SEBI, expenses budget, appointing
other intermediaries, promoting the public issue and finalizing the allotment
BLRM

• Underwriters gives an assurance to the "issuer of securities" that he would subscribe to

the securities in the event of non subscription by individual or institutional investors.
Underwriters

• Bankers to the issue collects application money along with the application form.
Bankers • Branches of the bank at various places through out India act as collection branches

• Receives share application form from various collection centers

• Basis of allotment is decided in consultation with stock exchanges and shares will be
Registrars credited to demat account of applicants after finalising allotment.

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Agencies involved in the IPO process
Book Running Lead Mangers (BRLM)
Merchant bankers of repute with an expertise in handling IPOs.

The Duties of BLRM:

Preparation of a draft prospectus (also Red Herring Prospectus (RHP) in case of book building
method)
 Preparing the expenses budget
 Suggesting a suitable time for the issue
 Appointment of other intermediaries like co-managers, registrars, underwriters, advisor, banker,
broker etc.
 Promoting the public issue
 Collection and processing of the applications
 Determining the liability of the underwriters
 Finalize the allotment

SBI capital markets ltd, India infoline ltd, ICICI Securities ltd, Enam securities (P) ltd, JM financial
Consultants (P) ltd, IDFC capital ltd, IDBI Capital Market Services ltd are some of the lead managers

43
 Agencies involved in the IPO process
Registrar to the issue:
 Registrars normally receive the share application form from various collection centers, established by
syndicate members.
 Basis of allotment is decided in consultation with the stock exchange with which listing agreement is
entered
 Shares are credited to the demat account of applicants once the allotment is finalized

Underwriters:
 Underwriter gives an assurance to the ‗issuer of securities‘ that the underwriter would subscribe to the
securities in the event of non-subscription by individual and institutional investor
 They provide a guarantee that there is no possibility of inadequate subscription
 If syndicate members fail to fulfill their underwriting obligations, the lead book runner shall fulfill the
underwriting obligations

Bankers to the issue: collection of application money along with the application form lies with the
bankers to the issue

Credit Rating Agencies: Credit Rating Agencies assign ratings to securities of companies, especially
debt securities
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 Other activities connected with the IPO
Advertisement of the issue:
 Bid/Issue opening date and the bid/issue closing date should be published in three
widely circulated newspapers (one each in English, Hindi and local language) at the time
of filing of the Red Hearing prospectus with Registrar of Companies
 The price band and the minimum bid lot size for the issue should also be published at
least two working days prior to the bid /issue opening date

Escrow account:
 Company and the syndicate members may open escrow accounts with escrow
collection banks for the collection of the bid amount payable upon submission of the bid
cum application form

ASBA – “Application Supported by Blocked Amount”.

 It is an application containing an authorization to block the application money in the
bank account, for subscribing to an issue.
 The application money shall be debited from the bank account only if his/her
application is selected for allotment after the basis of allotment is finalized

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Contents of Prospectus (or Offer document)
The companies which go for a public issue should issue a Prospectus with
should contain

 General Information
 Details of the present issue
 Issue procedure
 Escrow mechanism
 Method of proportionate basis of allotment
 Mechanism for redressal of investor grievances
 Risk factor
 IPO grading
 Expert opinion
 Capital structure
 Promoters‘ contribution and lock-in
 Object of the issue
 Key industrial policies
 The management
 Financial information
 Disclaimer clause

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Methods of raising capital in the primary market (Cont..)

Rights issue:
selling of the securities to the existing shareholders by issuing rights to them to
buy the securities.

Private placement:
securities to a limited number of sophisticated investors such as financial
institution, banks, mutual funds, venture capitalists etc.

The private placement is very effective as follows:

 Cost effective
 Time effective
 Structural effectiveness
 Access effective

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Methods of raising capital in the primary market (Cont..)

Preferential Allotment
Issue of shares or convertible securities by a company to a select group of persons.

- The preferential issue of equity shares/ Fully Convertible Debentures (FCDs) / Partly Convertible
Debentures (PCDs) or any other financial instruments which would be converted into or
exchanged with equity shares at a later date.

Pricing of the issue

The issue of shares on a preferential basis can be made at a price not less than the higher of the
following

i) The average of the weekly high and low of the closing prices of the shares quoted on the stock
exchange during the six months preceding the relevant date; OR
ii) The average of the weekly high and low of the closing prices of the shares quoted on a stock
exchange during the two weeks preceding the relevant date.

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 CHAPTER – 5

SECONDARY MARKET –
Participants And Procedures

49
Secondary Market - Participants and Procedures

Stock exchanges -provide liquidity – a facility to convert their investments into

cash at any time.

Relationship between secondary market and primary market:

1. The new issues market (NIM) cannot function without the stock
exchanges, since the stock exchanges provide liquidity for the security
issued.
2. Through the listing requirements, the stock exchanges excise control over
the companies making them to comply with the various rules and
regulations.
3. The primary market provide direct link between the investors and the
company. By providing liquidity to the investors, the stock exchanges
provide an indirect link between investors and the company.

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History
 1850-Enactment of companies act
 1875-Establishment of Bombay stock exchange
 1908-3 exchanges in India
 1956-In order to check proliferation of exchanges-the central government
introduced a legislation called the Securities Contracts (Regulation) Act,1956.
Under this legislation, it is mandatory on the part of a stock exchange to seek
governmental recognition .

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Functions of stock exchanges

 Provision of marketability of shares.

 Price discovery
 Safe and fair dealing
 Helps in the capital formation
 Dissemination of information
 Improve corporate performance
 Safeguarding interest of participants.

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The Regulators
 The Company Law Board (CLB) which is responsible for the administration of the
Indian Companies Act, 1956.

 The Reserve Bank Of India (RBI) which is primary responsible, inter alia, for the
supervision of banks, money market and government securities market.

 The Securities and Exchange Board of India (SEBI) which is responsible for the
regulation of capital market

 The Department of Economic Affairs (DEA), an arm of the Ministry of Finance,

Government of India, which inter alia, is concerned with the orderly functioning of
the financial markets as a whole.

 The Department of Company Affairs (DCA) an arm of the government, which is

responsible for the administration of corporate bodies.

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 Participant in the securities market

 Stock exchanges
 Listed securities
 Depositories
 Depository participants
 Brokers
 Foreign Institutional Investor (FII)
 Mutual Funds
 Registrars

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PAN

 PAN (Permanent Account Number) is made as the compulsory identification

document.

55
 CHAPTER – 6

STOCK EXCHANGES

56
Stock Exchanges
Meaning: Stock exchange means any body or individuals whether incorporated
or not constituted for the purpose of assisting, regulating and the controlling
the business of buying, selling and dealing in securities.

Basic Functions of Stock Exchanges

 To facilitate resource raising from investors for financing the needs of the
corporate sector and the government.
 To provide an organised market place for the investors to buy and sell
securities

Recognized Stock Exchanges

Regional - Delhi Stock Exchange, Kolkata Stock Exchange etc..
National – National Stock Exchange (NSE)

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 The National Stock Exchange (NSE)
 Genesis in the report of the High Powered Study Group on Establishment of New Stock
Exchanges.
 It recommended promotion of a National Stock Exchange by financial institutions (FIs).
 NSE was promoted by leading Financial Institutions at the behest of the Government of India.
 NSE was incorporated in November 1992 as a tax-paying company unlike other stock
exchanges in the country.
 NSE was recognized as a stock exchange under the Securities Contracts (Regulation) Act,
1956 in April 1993.
 It commenced operations in the Wholesale Debt Market (WDM) segment in June 1994.
 The Capital Market (Equities) segment commenced operations in November 1994.
 Operations in Derivatives segment commenced in June 2000.
 The first volatility index – India VIX was introduced by NSE in April 2008.
 August 2008 saw introduction of Currency derivatives in India with the launch of Currency
Futures in USD, INR by NSE.
 Interest Rate Futures was introduced for the first time in India by NSE on 31st August 2009

58
Market Segments and Products (NSE)

59
NSE Statistics

(Rs.crore)

Segment/Year 2005-06 2006-07 2007-08 2008-09 2009-10

CM 1,569,558 1,945,287 3,551,038 2,752,023 4,138,023

F&O 4,824,250 7,356,271 13,090,478 11,010,482 17,663,665

WDM 475,523 219,106 282,317 335,952 563,816

Currency Futures * 0 0 0 162,272 1,782,608

Interest Rate Futures ** 0 0 0 0 2,975

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The NSE Technology
 Stock exchanges all over the world have realized the potential of IT and have
moved over to electronic trading systems. They are cheaper, have wider
reach and provide a better mechanism for trade and post trade execution.

 NSE's IT set-up is the largest by any company in India.

 It uses satellite communication technology to enable participation from

around 200 cities spread all over the country.

 NSE today can handle up to 15 million trades per day in Capital Market
segment.

 NSE set up a separate company, NSE Technology Services Ltd. which is

expected to provide a platform for taking up all IT related assignments of
NSE

61
The NSE Technology

62
 NEAT
 NSE introduced for the first time in India, fully automated screen
based trading. It uses a modern, fully computerized trading
system designed to offer investors safe and easy way to investing
across the length and breadth of the country.

 'National Exchange for Automated Trading‗

 NEAT is a state-of-the-art client server based application

 All trading information is stored in an in-memory database to

achieve minimum response time and maximum system availability
for users.

63
NEAT Screen

64
 Telecommunication Solution
 X.25 protocol and is the backbone of the automated trading system is being upgraded
to use the more popular and modern IP Protocol.
 Extended C-Band VSAT Network
 Today it supports more than 2000 VSATs and 3000 leased lines across the country. The
NSE- network is the largest private wide area network in India .
 There are over 15 large computer systems which include non-stop fault-tolerant
computers and high end UNIX servers, operational under one roof to support the
NSE applications. This coupled with the nationwide VSAT network makes NSE the
country's largest Information Technology user.
 A corporate network has been implemented. It connects all the offices at Mumbai,
Delhi, Calcutta and Chennai..

 NSE is displaying its live stock quotes on the web site (www.nseindia.com) which are
updated online.

 NSE today allows members to provide internet trading facility to their clients through
the use of NOW (NEAT on web), a shared web infrastructure.


65
NOW
 NOW -‗NEAT on Web‘.

 The various features provided by NOW are:

(a) Comprehensive Administration features
(b) Flexible Risk Management System
(c) High speed dealer terminals
(d) Online trading facility for investors

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NSE Group
Exchanges Depository / C&S
National Stock Exchange NSCCL
NCDEX NSDL
Power Exchange (PXIL) NCCL

NSE Family

Technology services Index & info vending services

NSE.IT IISL
DOTEX Ltd.
NSE Tech. Ltd.

67
 Listing
 Admission of securities of an issuer to trading privileges on a stock
exchange through a formal agreement.

 Listing on NSE provides qualifying companies with the broadest access to

investors, the greatest market depth and liquidity, cost-effective access to
capital, the highest visibility, the fairest pricing, and investor benefits.

 Securities listed on the Exchange are required to fulfill the eligibility

criteria for listing.

 There are 1872 securities in the Equity segment and 4157 securities in
the Debt segment are traded in NSE

68
 India Index Services & Products Ltd. (IISL)

 The IISL is a joint venture between the National Stock Exchange

of India Ltd. (NSE) and CRISIL Ltd. (formerly the Credit Rating
Information Services of India Limited).

 IISL has been formed with the objective of providing a variety of

indices and index related services and products for the capital
markets.

 IISL has a licensing and marketing agreement with Standard and

Poor's (), the world's leading provider of investible equity indices,
for co-branding IISL's equity indices

69
IISL Indices
Major Indices Other Indices
CNX Nifty CNX IT Index
CNX Nifty Junior CNX Bank Index
CNX 100 CNX FMCG Index
CNX 500 CNX PSE Index
CNX Midcap CNX MNC Index
Nifty Midcap 50 CNX Service Sector Index
CNX Defty CNX Industry Indices
Customised Indices
CNX Energy Index
CNX Pharma Index
CNX Infrastructure Index
CNX PSU Bank Index
CNX Realty Index
CNX Nifty Shariah/ CNX 500 Shariah

ESG India Index

70
CNX Nifty
 Well diversified 50 stock index accounting for 22 sectors of the economy.
 S & P indicates Standard & Poor's, C indicates CRISIL and NX indicates National
Stock Exchange and Nifty tell us that the index consist of 50 shares.
 The total traded value for the last six months of all Nifty stocks is approximately
52% of the traded value of all stocks on the NSE (As of May 2010)
 Nifty stocks represent about 63% of the Free Float Market Capitalization as on Dec
31, 2009.
 Impact cost of the CNX Nifty for a portfolio size of Rs.2 crore is 0.10%
 CNX Nifty is professionally maintained and is ideal for derivatives.
 June 26, 2009, CNX Nifty is computed based on free float methodology

71
 CHAPTER – 7

SECONDARY MARKET – OTHER

INSTITUTIONS

72
Secondary Market – Other Institutions

 Brokers - A stock broker means a member of a recognized stock

exchange. No stock broker is allowed to buy, sell or deal in
securities, unless he or she holds a certificate of registration
granted by SEBI.

 Sub-brokers-A sub-broker is a person who intermediates

between investors and stock brokers . A Sub-broker also requires
a certificate of registration from SEBI.

 Depositories-A depository holds securities (like shares,

debentures, bonds, Government Securities, units etc.) of investors
in electronic form. Prior to the establishment of depositories, the
certificates were held in physical form.

73
Secondary Market – Other Institutions
 NSDL-The enactment of Depositories Act in August 1996 paved
the way for the establishment of NSDL, the first depository in
India. The investor can obtain depository services through a
depository participant of NSDL.

 CDSL- CDSL received the certificate of commencement of

business from SEBI in Feb 1999. All leading stock exchanges have
established connectivity with CDSL.

74
Facilities offered by depositories
 Dematerialization i.e., converting physical certificates to electronic form;

 Rematerialisation i.e., conversion of securities in demat form into physical

certificates;

 Facilitating repurchase / redemption of units of mutual funds;

 Electronic settlement of trades in stock exchanges

 Pledging/hypothecation of dematerialized securities against loan;

 Electronic credit of securities allotted in public issues, rights issue;

75
Physical Certificate Vs Demat
Disadvantages of holding Physical Advantages of holding certificate in
Certificate electronic form (Demat)
 It may be lost or damaged or stolen  Immediate transfer of securities;

 It takes time to get shares transferred to the  No stamp duty on transfer of securities;
purchaser since the shares have to be sent to
 Elimination of risks associated with physical
the company who would update the records
certificates such as bad delivery, fake securities
in their books.
etc.
 A physical transfer deed is required to be
 Reduction in paperwork involved in transfer of
signed by the transferor.
securities;
 Transfer may be rejected on the ground that
 Reduction in transaction cost;
the signature of the transferor differs.
 Nomination facility is available.
 Stamp duty is to be paid for transfer.
 Change in address recorded with DP gets
registered electronically with all companies in
which investor holds securities eliminating the
need to correspond with each of them
separately;

 Purchase/ sale of even one single share of a

company

76
Secondary Market – Other Institutions
Depository Participants- A Depository Participant (DP) is an agent of the depository
through which it interfaces with the investor and provides depository services.

 Open a Beneficial Owner (BO) account

 ISIN system is followed. ISIN (International Securities Identification Number) is a unique 12

digit alpha-numeric identification number allotted for a security.

 To give delivery of shares, the account holder i.e. BO, should give Delivery Instruction Slip
(DIS) to the DP.

 Transaction Statement, provided periodically, gives details of current balances and various
transactions made through the depository account.

 Nomination can be made only by individuals holding beneficial accounts either singly or
jointly.

77
Delivery Instruction Slip (DIS)

78
Other Institutions – NSCCL
 The National Securities Clearing Corporation Ltd. (NSCCL), is a
wholly owned subsidiary of NSE. It was incorporated in August 1995.
 It was the first clearing corporation to be established in the country
and also the first clearing corporation in the country to introduce
settlement guarantee.
 Settlement is a two way process which involves transfer of funds and
securities on the settlement date.

It was set up with the following objectives:

 To bring and sustain confidence in clearing and settlement of

securities;
 To promote and maintain, short and consistent settlement cycles;
 To provide counter-party risk guarantee, and
 To operate a tight risk containment system.

79
 Other Institutions – NSCCL
 CRISIL has assigned its highest corporate credit rating of ‗AAA‘ to the National
Securities Clearing Corporation Ltd (NSCCL). 'AAA' rating indicates highest
degree of strength with regard to honoring debt obligations. NSCCL is the first
Indian Clearing Corporation to get this rating.

 NSCCL carries out clearing and settlement functions as per the settlement
cycles provided in the settlement schedule.

The clearing function of the clearing corporation is designed to work

out
 what members are due to deliver and
 what members are due to receive on the settlement date
 NSCCL acts as legal counter-party to all deals on NSE's Equity, F&O segment
and currency derivative segments and guarantees settlement.

80
Other Institutions – NSCCL
Clearing & Settlement
Bank
Exchange

Tra
de Clearing Corporation -o ut
s Pay

Trades -in
Pa y

Order
m ent
tle
Set igation ion
Ob
l v i s
s sP ro
eport Fu nd
R

Member Order request

Client

81
 Secondary Market – Other Institutions
 Clearing Members
a member of the Clearing Corporation who clears and settles deals through the
Clearing Corporation.

 Clearing Banks
NSCCL offers settlement of funds through 13 clearing banks.
The clearing banks are required to provide the following minimum services as a single
window to all clearing members of National Securities Clearing Corporation Ltd.

 Professional Clearing Members (PCM)

Clearing members who are not trading members. They are typically banks, custodians
etc. who clear and settle trades executed for their clients.

• Custodians clearing members

A trading member may assign a particular trade to a custodian for settlement. The
custodian is required to confirm whether he is going to settle that trade or not

82
 CHAPTER – 8

FINANCIAL STATEMENTS
ANALYSIS

83
 Financial statement analysis
 Balance Sheet or position statement
The Balance sheet shows the state of affairs of a company at the end of the financial year. They show
how the company got money (Liability side) and how the money is used by the business (Asset side)

 Profit and Loss account and Income statement

A profit made by a business during an accounting year is known from this statement. Unless the
business makes profit, it cannot survive in the long run.

 Statement of retained earnings or Profit and loss appropriation

account
The Statement show how the profit of a business is appropriated towards reserves, dividend and
retained earnings.
 Statement of changes in financial position or Cash Flow Statement
This statement show the cash inflows (Sources of cash) and cash outflows (application of cash)

84
 Types of Financial Statement Analysis

According to Nature of the analyst

 External analysis
 Internal Analysis

According to modus Operandi of Analysis

 Horizontal Analysis
 Vertical Analysis

85
Methods of Analyzing Financial Statements

Types of Ratios:

1) Liquidity Ratios
2) Leverage Ratios
3) Activity Ratios
4) Profitability Ratios

86
 Investing in shares
How to buy a share ?
 Buy low and sell high

Stock price changes can be attributed to the following factors.

 Economy-wide factors: 30 -35 %
 Industry factors: 15 – 20%
 Company factors: 30 – 35%
 Other factors: 15 – 25%

Fundamental Analysis(Macro level):

1. Economic Analysis
2. Industry Analysis
3. Company Analysis
87
Internet Trading
NOW

www.now-online.in
Login Screen
Go to www.now-online.in
Enter Login Id and Password in login Page

TM Code – Trading Member Code

User Id – As provided by your broker

Login Password – Alfa numeric between 6-12 Characters

Click on Submit to login

First Time Login

For the first time login or on resting the password the system
will ask for changing the Login Password as well as Transaction
password.
Password Policy

Password Length min 6 max 12 characters

Password has to be alphanumeric

Password will be expired after 14days if not changed.

For the first order of the session Transaction password has to

be entered.

Last 3 Old passwords can not be used.

Password will be blocked on 3 wrong attempts

Password Policy (Contd..)

On changing the password following confirmation would be

shown to the client.
Landing Page

On successful Login following window will open

Market Watch – To Monitor Prices

The Investor client can opt Market watch or Express from trade menu
depending upon the Internet connectivity speed and the user
requirement. On clicking Market Watch following screen will open
How to Add Contract in Market Watch
To Create the New Market watch - click on “set MW”
How to Add Contract in Market Watch (contd..)
Click on create market watch
Give the market watch name and click on create
How to Add Contract in Market Watch (contd..)
To add the contracts click on add scrip - Select from the drop down
menu
How to View Quotes

On clicking Get Quotes the best buy rate and sell rate with quantity
will be displayed for the selected contract
How to View Quotes (contd..)

On clicking MBP it will give the market depth with best 5 rates
How to View Contract Details

Click on Sec Info which will display the contact information

How to View Graph
Click on Graph it will display the intraday charts for the selected scrip
How to Place Buy or Sell Orders
Order Placement-Buy/Sell select the order type, fill qty and price
and click on submit
How to Place Buy or Sell Orders (contd..)
On clicking submit the system will ask for Transaction password if the order
is first order of the session
After Placing- View Order Book

Order book-click on order book

After placing order- view order book (contd..)

Order book

Order book will show both Rejected order as well as

open orders

To modify pending order Select the order and click on

modify order.

To cancel pending order select the order and click on

cancel order.

You can see the order history of the order on clicking on

order history.
For Matched Orders- View Trade Book

Trade Book- This report will display all the executed trade
View Net Position

This report display the net position of the client

Day wise report will show the positions created on the same day
Net wise report will show all the position created till the expiry
Set Alerts
For alerts and getting trade confirmation on mobile, email and on
web
View Limits
Cash margin uploaded, margin used, collateral given, margin used
etc can be seen in this report
NOW Auto refresh Market Watch- NOW Express
NOW Auto refresh Market Watch- NOW Express (contd..)

All the shortcuts available in the now express are seen in the drop
down as follows
Order Placement from NOW Express
Order Placement-Buy(+,F1)/Sell(-,F2) select the order type ,fill qty
and price and click on submit
Order Placement from NOW Express
Order Placement from NOW Express (contd..)

For the first order of the session put the transaction

password. And click on confirm to place the order

Transaction password is required to be entered only once

for the session
Order Placement from NOW Express (contd..)

Order Confirmation-order confirmation will be given as pop up as

well as in message window
Invoke Order Book, Trade Book and Net Position

Order book(F3),Trade Book(F8),Positions(F12)

Payment Gateway

Real time margin updation by online fund transfer

Invoke Limit View

RMS Limit-F11 Limits related details can be viewed in this report

Customize - NOW Express

Settings
Settings

Color settings

Column repositioning

Font color and font size

After changing the parameters click on save

TAME (Technical Analysis Made Easy) Access

Facility for technical analysis and charting

 THANK YOU

For any queries

Please contact us at

E-mail: helpdesk_sfl@nse.co.in
Board line: 044-28332535/36
Fax: 044-28332521