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Transcript of Sneha Project
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Introduction
Indian Stock Market-An Introduction
The Indian Equity market is divided in to two parts Primary market - where the share is
first issued in the form of IPO(Intial Public Offering) and after issuing the share it is listed
on exchange and share is traded on exchange where shares can be bought and sold
this is secondary market.In India mainly there are two exchange -NSE(National Stock
Exchange) BSE-Bombay Stock Exchange.The BSE is the oldest exchange in
India(started in 1875).NSE started operation on 1994.Before 2000 shares was held in
Physical form But the main difficulty with Physical shares is meathod of transaction
which is open out cry system and process is not transparent to investor also Physicalshares were prone to duplication and fraud.So in 2000 NSE intoduced the electronic
screen based trading system further the introduction of Dematerilization(Conversion of
physical share in to electronic form) and depository(where the electronic form of share
is kept) revelutionized the Indian Stock market.Currently there are mainly two
Depository(DP) -NSDL and CDSL and these DP are like bank of share.Individual/Firm
can deal through Broker(who is registered and having membership in Exchanges and
Depository) for buying and selling securities.Today NSE outpaced BSE in volume of
trade.Then what is the purpose of stock market? Stock market serves the company by
providing company the finance for long term needs and for investor an opportunity to
park there savings in corporate world and in turn give their hand in Nation's
development so stock exchage have a very vital role in country's economic
development.
.To buy the shares investor has to open a trading and demat account.So investor has
to approach a broker/sub broker who has memeber ship in Exchange(where the share
is listed mainly NSE and BSE) and depository(where share is kept in Demat form-
Electronic form[mainly CDSL and NSDL).Then Investor has to give necessary identity
proof,Adress proof,Bank proof and fill the KYC form afetr reading it carefully.broker will
ask for power of attorney for smooth transaction but this is not mandatory and if POA is
not given investor had to fill the delivery instruction slip after selling the share.After
opening the account the investor can do trading/investing Directly,Through Phone
Internet form broking office and he will contract note(similar to bill that we got when we
purchase something and contract note include all minute detail of transaction including
brokerage[commision of briking house] STT and Ohter taxes) for the transaction done
by him within 24 hr of transaction and he has to give cheque to Broker in the name of
broking office(no cash transaction is permitted) and current settlement is rolling
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settlement (The rolling settlement ensures that each day's trade is settled by keeping a
fixed gap of a specified number of working days between a trade and its settlement. At
present, this gap is 3 working days after the trading day. So transaction entered into on
Day 1 has to be settled on the Day 1 + 3 working days, when funds pay in or securities
pay out takes place.If investor is selling the security he will get money in 3 workingdays.If investor failed to deliver the security within time his share will get auctioned and
investor has to borne the penalty.If the investor has old physical share he can fill the
dematerialization form and send it for converting it to demat form.The reverse can also
be done.
.Now hope investor had learned about the exchages and demat.Every one had heard
about SENSEX and NIFTY what is this? SENSEX and NIFTY are Index of BSE and
NSE Blue chip share.SENSEX consist of 30 share and NIFTY 50 share(of top most
comapnies) what is the purpose of INDEX? Index is the barometer of stock exchage for
ex in NSE there are about 1350 listed comapnies listed and we cannot say in general
form market was up or down without fully looking all companies.INDEX serve this
purpose.INDEX is constructed by taking top companies across different sector in
different weightage and INDEX movement will reflect the overall movement of
market.So if NIFTY or SENSEX is up we can generally assume market was up(does not
mean all shares was up) and vice versa.Now there are index in some sectors which can
catch the movement of that sector like CNXIT-IT sector,BANKNIFTY-Banking sector
etc. Generall purpose of Stock Market is for Investment but bulk of activities done in
market is day trading.Day trading means BUYING/SELLING of shares and offsetting the
position on same day.Day traders serves the purpose of bringing the liquidity to market
and they help the market movement and more than 80% of the volume from market iscoming from day trading.Introduction of derivative market had made the day trading to
grow more and introduction of advanced day trading technique.The main tool for Stock
market investment/trading are Fundamental analysis -which studies about the
fundamental of companies and economy and Technical Analysis-which studies the
market by analysing the past movement of share and market.
The investment scenario in India is now is at par with global Market.The intoduction of
Derivative,Currency,Commodity market now helped the Indian Investor to Invest in
almost anything like Share,Commodity,Currency,Bonds and complex thing like Interest
rate future,Weather Derivative,Volatality Index and more and Stock market are givingvarious product to invest in with various amount of risk like bonds,Gold ETF,Equty and
Prefernce Share,Commodities(metal and Agriculture) Currency to high risk Derivative
product.
India's biggest scams
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The Satyam Computer Services fraud is neither the first nor will it be the last
corporate scam to have hit India, so investors must be on guard and ask for more
information before making any investment decision, says former Sebi chairman M
Damodaran.
Sound advice. But with corporates, brokers, banks, politicians, regulatorscolluding at times, many a multi-crore scam has hit India. And the saga is likely to
go on. India has seen some of the most high-profile scandals where investors have lost
billions of rupees just because a few people in high places could not control their
greed.The Satyam Computer Services fraud is neither the first nor will it be the
last corporate scam to have hit India, so investors must be on guard and ask for
more information before making any investment decision, says former Sebi
chairman M Damodaran. Sound advice. But with corporates, brokers, banks, politicians, regulators
colluding at times, many a multi-crore scam has hit India. And the saga is likely to
go on. India has seen some of the most high-profile scandals where investors have lost
billions of rupees just because a few people in high places could not control their
greed.
Here's more about India's biggest scams...
1. Ramalinga Raju The biggest corporate scam in India has come from one of the most respected
businessmen.
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Satyam founder Byrraju Ramalinga Raju resigned as its chairman after admitting
to cooking up the account books. His efforts to fill the "fictitious assets with real ones" through Maytas acquisition
failed, after which he decided to confess the crime.
With a fraud involving about Rs 8,000 crore (Rs 80 billion), Satyam is heading formore trouble in the days ahead. On Wednesday, India's fourth largest IT company lost a staggering Rs 10,000
crore (Rs 100 billion) in market capitalisation as investors reacted sharply and
dumped shares, pushing down the scrip by 78 per cent to Rs 39.95 on the
Bombay Stock Exchange. The NYSE-listed firm could also face regulator action in the US. "I am now prepared to subject myself to the laws of the land and face
consequences thereof," Raju said in a letter to SEBI and the Board of Directors,
while giving details of how the profits were inflated over the years and his failed
attempts to "fill the fictitious assets with real ones." Raju said the company's balance sheet as of September 30 carries "inflated (non-
existent) cash and bank balances of Rs 5,040 crore (Rs 50.40 billion) as against
Rs 5,361 crore (Rs 53.61 billion) reflected in the books."
2. Harshad Mehta He was known as the 'Big Bull'. However, his bull run did not last too long. He triggered a rise in the Bombay Stock Exchange in the year 1992 by trading in
shares at a premium across many segments. Taking advantages of the loopholes in the banking system, Harshad and his
associates triggered a securities scam diverting funds to the tune of Rs 4000
crore (Rs 40 billion) from the banks to stockbrokers between April 1991 to May
1992. Harshad Mehta worked with the New India Assurance Company before he moved
ahead to try his luck in the stock markets. Mehta soon mastered the tricks of the
trade and set out on dangerous game plan. Mehta has siphoned off huge sums of money from several banks and millions of
investors were conned in the process. His scam was exposed, the markets
crashed and he was arrested and banned for life from trading in the stock
markets. He was later charged with 72 criminal offences.
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A Special Court also sentenced Sudhir Mehta, Harshad Mehta's brother, and six
others, including four bank officials, to rigorous imprisonment (RI) ranging from 1
year to 10 years on the charge of duping State Bank of India to the tune of Rs 600
crore (Rs 6 billion) in connection with the securities scam that rocked the
financial markets in 1992. He died in 2002 with many litigations still pendingagainst him.
3. Ketan Parekh Ketan Parekh followed Harshad Mehta's footsteps to swindle crores of rupees
from banks. A chartered accountant he used to run a family business, NH
Securities.Ketan however had bigger plans in mind. He targetted smaller
exchanges like the Allahabad Stock Exchange and the Calcutta Stock Exchange,
and bought shares in fictitious names. His dealings revolved around shares of ten companies like Himachal Futuristic,
Global Tele-Systems, SSI Ltd, DSQ Software, Zee Telefilms, Silverline,
Pentamedia Graphics and Satyam Computer (K-10 scrips). Ketan borrowed Rs 250 crore from Global Trust Bank to fuel his ambitions. Ketan
alongwith his associates also managed to get Rs 1,000 crore from the
Madhavpura Mercantile Co-operative Bank. According to RBI regulations, a broker is allowed a loan of only Rs 15 crore (Rs
150 million). There was evidence of price rigging in the scrips of Global Trust
Bank, Zee Telefilms, HFCL, Lupin Laboratories, Aftek Infosys and Padmini
Polymer.
4. C R Bhansali The Bhansali scam resulted in a loss of over Rs 1,200 crore (Rs 12 billion). He first launched the finance company CRB Capital Markets, followed by CRB
Mutual Fund and CRB Share Custodial Services. He ruled like a financial wizard
1992 to 1996 collecting money from the public through fixed deposits, bonds and
debentures. The money was transferred to companies that never existed. CRB Capital Markets raised a whopping Rs 176 crore in three years. In 1994 CRB
Mutual Funds raised Rs 230 crore and Rs 180 crore came via fixed deposits.
Bhansali also succeeded to to raise about Rs 900 crore from the markets. However, his good days did not last long, after 1995 he received several jolts.
Bhansali tried borrowing more money from the market. This led to a financial
crisis.
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It became difficult for Bhansali to sustain himself. The Reserve Bank of India
(RBI) refused banking status to CRB and he was in the dock. SBI was one of the
banks to be hit by his huge defaults
5. Cobbler scam Sohin Daya, son of a former Sheriff of Mumbai, was the main accused in the
multi-crore shoes scam. Daya of Dawood Shoes, Rafique Tejani of Metro Shoes,
and Kishore Signapurkar of Milano Shoes were arrested for creating several
leather co-operative societies which did not exist. They availed loans of crores of rupees on behalf of these fictitious societies. Thescam was exposed in 1995. The accused created a fictitious cooperative society
of cobblers to take advantage of government loans through various schemes. Officials of the Maharashtra State Finance Corporation, Citibank, Bank of Oman,
Dena Bank, Development Credit Bank, Saraswat Co-operative Bank, and Bank of
Bahrain and Kuwait were also charge sheeted.
6.IPO Scam The Securities and Exchange Board of India barred 24 key operators, including
Indiabulls and Karvy Stock Broking, from operating in the stock market and
banned 12 depository participants from opening fresh accounts for their
involvement in the Initial Public Offer scam. It also banned 85 financiers from capital market activities. Suzlon Energy Ltd's Rs 1,496.34 crore (Rs 14.963 billion) public issue (September
23-29, 2005). The retail portion was oversubscribed 6.04 times and the non-
institutional portion was oversubscribed 40.27 times. Key operators used 21,692
fictitious accounts to corner 323,023 shares representing 3.74 per cent of the totalnumber of shares allotted to retail individual investors. Jet Airways's Rs 1,899.3 crore (Rs 18.993 billion) public offer (Feb 18-24, 2005).
The retail portion was subscribed 2.99 times and the non-institutional portion by
12.5 times. Key operators used 1186 fake accounts for cornering 20,901 shares
repersenting 0.52 per cent of the total number of shares allotted to retail
investors.
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National Thermal Power Corporation Ltd's Rs 5,368.14 crore (Rs 53.681 billion)
IPO (Oct 7-14, 2004). The retail portion was oversubscribed 3.73 times and the
non-institutional portion by 11.93 times. Key operators used a total of 12,853
afferent accounts for cornering 2,750,730 shares representing 1.3 per cent of the
total number of shares allotted to retail investors. Tata Consultancy Services's Rs 4,713.47 crore (Rs 47.134 billion) public offer
(Aug 19-23, 2004). The retail portion was oversubscribed 2.86 times and the non-
institutional portion by 19.15 times. Key operators used 14,619 'benami' accounts
to corner 261,294 shares representing 2.09 per cent of the total shares allotted to
retail individual investors. Patni Computer System Ltd's Rs 430.65 crore (Rs 4.306 billion) public issue (Jan
27-Feb 5 2004). The retail portion was oversubscribed 9.36 times and the non-
institutional portion by 39.22 times. A lone key operator used 2541 afferent
account for cornering 127,050 shares representing 2.71 per cent of the total
number of shares allotted to retail investors.
7. Dinesh Dalmia Dinesh Dalmia was the managing director of DSQ Software Limited when the
Central Bureau of Investigation arrested him for his involvement in a stocks scam
of Rs 595 crore (Rs 5.95 billion). Dalmia's group included DSQ Holdings Ltd, Hulda Properties and Trades Ltd, and
Powerflow Holding and Trading Pvt Ltd. Dalmia resorted to illegal ways to make money through the partly paid shares of
DSQ Software Ltd, in the name of New Vision Investment Ltd, UK, and unallotted
shares in the name of Dinesh Dalmia Technology Trust. Investigation showed that 1.30 crore (13 million) shares of DSQ Software Ltd had
not been listed on any stock exchange.
8. Abdul Karim Telgi He paid for his own education at Sarvodaya Vidyalaya by selling fruits and
vegetables on trains. He is today famous (or infamous) for being he man behind one of India's biggest
scams. The Telgi case is another big scam that rocked India. The fake stamp racket
involving Abdul Karim Telgi was exposed in 2000. The loss is estimated to be Rs
171.33 crore (Rs 1.71 billion), it was initially pegged to be Rs 30,000 crore (Rs 300
bilion), which was later clarified by the CBI as an exaggerated figure.
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In 1994, Abdul Karim Telgi acquired a stamp paper license from the Indian
government and began printing fake stamp papers. Telgi bribed to get into the government security press in Nashik and bought
special machines to print fake stamp papers.
Telgi's networked spread across 13 states involving 176 offices, 1,000 employeesand 123 bank accounts in 18 cities.
9.Virendra Rastogi Virendra Rastogi chief executive of RBG Resources was charged with for
deceiving banks worldwide of an estimated $1 billion. He was also involved in the duty-drawback scam to the tune of Rs 43 crore (Rs
430 milion) in India.
The CBI said that five companies, whose directors were the four Rastogi brothers-- Subash, Virender, Ravinde and Narinder -- exported bicycle parts during 1995-
96 to Russia and Hong Kong by heavily over invoicing the value of goods for
claiming excess duty draw back from customs.
10. The UTI Scam Former UTI chairman P S Subramanyam and two executive directors -- M M Kapur
and S K Basu -- and a stockbroker Rakesh G Mehta, were arrested in connection
with the 'UTI scam'. UTI had purchased 40,000 shares of Cyberspace between September 25, 2000,
and September 25, 2000 for about Rs 3.33 crore (Rs 33.3 million) from Rakesh
Mehta when there were no buyers for the scrip. The market price was around Rs
830. The CBI said it was the conspiracy of these four people which resulted in the loss
of Rs 32 crore (Rs 320 million). Subramanyam, Kapur and Basu had changed their
stance on an investment advice of the equities research cell of UTI. The promoter of Cyberspace Infosys, Arvind Johari was arrested in connection
with the case. The officals were paid Rs 50 lakh (Rs 5 million) by Cyberspace topromote its shares. He also received Rs 1.18 crore (Rs 11.8 million) from the company through a
circuitous route for possible rigging the Cyberspace counter.
11. Uday Goyal
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Uday Goyal, managing director of Arrow Global Agrotech Ltd, was yet another
fraudster who cheated investors promising high returns through plantations.
Goyal conned investors to the tune of over Rs 210 crore (Rs 2.10 billion). He was
finally arrested.
The plantation scam was exposed when two investors filed a complaint whenthey failed to get the promised returns. Over 43,300 persons had fallen into Goyal's trap. Several criminal complaints
were filed with the Economic Offences Wing. The company's directors and their relatives had misused the investors' money to
buy properties. The High Court asked the company to sell its properties and
repay its investors.
12. Sanjay Agarwal Home Trade had created waves with celebrity endorsements.
But Sanjay Agarwal's finance portal was just a veil to cover up his shady deals.
He swindled a whopping Rs 600 crore (Rs 6 billion) from more than 25
cooperative banks. The government securities (gilt) scam of 2001 was exposed when the Reserve
Bank of India checked the acounts of some cooperative banks following unusual
activities in the gilt market. Co-operative banks and brokers acted in collusion in abid to make easy money at
the cost of the hard earned savings of millions of Indians. In this case, even the
Public Provident Fund (PPF) was affected. A sum of about Rs 92 crore (Rs 920 million) was missing from the Seamen's
Provident Fund. Sanjay Agarwal, Ketan Sheth (a broker), Nandkishore Trivedi and
Baluchan Rai (a Hong Kong-based Non-Resident Indian) were behind the Home
Trade scam
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Types of stock market Primarily there are two types of stock markets – theprimary market and the secondary market. This is true for
the Indian stock markets as well. Basically the primarymarket is the place where the shares are issued for thefirst time. So when a company is getting listed for the firsttime at the stock exchange and issuing shares – thisprocess is undertaken at the primary market. That meansthe process of the Initial Public Offering or IPO and thedebentures are controlled at the primary stock market. Onthe other hand the secondary market is the stock marketwhere existing stocks are brought and sold by the retailinvestors through the brokers. It is the secondary marketthat controls the price of the stocks. Generally when wespeak about investing or trading at the stock market wemean trading at the secondary stock market. It is thesecondary market where we can invest and trade in thestocks to get the profit from our stock market investment.
Now these are the broadest classification of the stockmarkets that is true for any country as well as India. Butthe Indian stock markets can be divided into furthercategories depending on various aspects like the mode ofoperation and the diversification in services. First of thetwo largest stock exchanges in India can be divided on thebasis of operation. While the Bombay stock exchange
or BSE is a conventional stock exchange with a tradingfloor and operating through mostly offline trades, theNational Stock Exchange or NSE is a completely onlinestock exchange and the first of its kind in the country. Thetrading is carried out at the National Stock Exchangethrough the electronic limit order book or the LOB. With
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the immense popularity of the process and online tradingfacility other exchanges started to take up the online routeincluding the BSE where you can trade online as well. But
the BSE is still having the offline trading facility that iscarried out at the trading floor of the exchange at its DalalStreet facility.Apart from these classifications there are also differenttypes of stock market in India and the classification ismade on the type of instrument that is being traded at themarket. Both the Bombay Stock Exchange andthe National Stock Exchange have these types of stock
markets.Equity market or the cash segment – The first type ofmarket is the equity market or the cash segment wherestocks are traded. In this type of trading the buyers of thestocks book a buying order with a bid price and the orderis executed through the broker at a negotiated ask priceoffered by the sellers at the market. In most cases the deal
is closed or the stocks are brought at the best availableask price. In this type of trading the buyer pays the entireamount of the value of the stocks that is determined bymultiplying the number stocks with the current price of thestock. Once the buyer pays the entire amount along withthe brokerage and taxes of the transaction the stocks aredeposited to the DP account of the buyer.Derivative Market – In the derivative market trading isdone mainly through two instruments – the Future contractand the Option contract. In both these types of contractsthe stocks are bought and sold in lot. The number ofstocks for each lot depends on the valuation of the stockand the valuation of the lot is determined by the number of
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the stocks in a lot multiplied with the current market priceof the stock. For trading in derivative market you have tobuy either the future contract or the option contract. In a
future contract you are bound to close the deal within aspecific time and at a fixed arte. While in case of optioncontract you can also choose to ignore the contract.