What is Sensex?

Sensex..

An abbreviation of the Bombay Exchange Sensitive Index (Sensex) - the benchmark index of the Bombay Stock Exchange (BSE). It is composed of 30 of the largest and most actively-traded stocks on the BSE. Initially compiled in 1986, the Sensex is the oldest stock index in India.

The SENSEX captured all highs and lows of Indian equity markets in the most judicial manner. One can identify the booms and bust of the Indian equity market through SENSEX.

More

What is FDI?

An investment abroad, usually where the company being invested in is controlled by the foreign corporation.An example of FDI is an Indian company taking a majority stake in a company in China.

What are stocks?

stock:

is Equity capital raised through sale of shares!!But it is more generally known to be A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.It is also known as "shares" or "equity".

There are two main types of stock: common and preferred. Common stock usually entitles the owner to vote at shareholders' meetings and to receive dividends. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. For example, owners of preferred stock receive dividends before common shareholders and have priority in the event that a company goes bankrupt and is liquidated.

Active stocks(shares) are those which are heavily traded on a stock exchange.based on various features stocks are clasified into various categories.

share of stock:

Corporations sell shares of stock to raise cash to fund their operations. The first time that a company sells its shares is termed its initial public offering (IPO). Most companies make additional stock offerings from time to time to raise additional funds.

When person A buys stock, He is buying ownership in the underlying corporation. For instance, if XYZ Corporation has issued 100 shares, and 'A' buys one share, 'A' have purchased a 1% ownership stake in XYZ.

Once a corporation sells its shares, it doesn't receive any direct benefit if its share price goes up further (although its executives may hold shares and thus be motivated to try and increase the share price — hopefully by making the company more profitable).

Brief introduction of BSE NSE

BSE

is the first stock exchange in the country to obtain permanent recognition in 1956 from the Government of India.The Exchange has a nation-wide reach with a presence in 417 cities and towns of India.The Exchange's role in the development of the Indian capital market is widely recognized and its index, SENSEX, is tracked worldwide.

Earlier an Association of Persons (AOP), the Exchange is now a demutualised and corporatised entity.The Exchange is professionally managed under the overall direction of the Board of Directors.The Board comprises eminent professionals, representatives of Trading Members and the Managing Director of the Exchange.In terms of organisation structure, the Board formulates larger policy issues and exercises over-all control. The committees constituted by the Board are broad-based.The day-to-dayoperations of the Exchange are managed by the Managing Director and a management team of professionals.

NSE

NSE was promoted by leading Financial Institutions(fis) at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company.The National Stock Exchange of India Ltd. is the largest stock exchange of the country.NSE's 50 share index nifty and other indices are scientifically designed and professionally managed and they are recognised world wide.

Its wholly-owned subsidiaries, National Securities Clearing Corporation Ltd. (NSCCL) provides clearing and settlement of securities, India Index Services and Products Ltd. (IISL) provides indices and index services with a consulting and licensing agreement with Standard & Poor's (S&P), and NSE.IT Ltd. forms the technology strength that NSE works on.

How is sensex index calculated ?

SENSEX, first compiled in 1986 was calculated on a "Market Capitalization-Weighted" methodology of 30 component stocks representing a sample of large, well-established and financially sound companies.These companies account for around one-fifth of the market capitalization of the BSE(indices). The base year of SENSEX is 1978-79(April.1 1979 = 100). The index is widely reported in both domestic and international markets through print as well as electronic media. SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. From September 2003, the SENSEX is calculated on a free-float marke capitalization methodology. The "free-float Market Capitalization-Weighted" methodology is a widely followed index construction methodology on which majority of global equity benchmarks are based.

Market cap or market capitalization is simply the worth of a company in terms of it’s shares! To put it in a simple way, if you were to buy all the shares of a particular company, what is the amount you would have to pay? That amount is called the “market capitalization”!so it's expressn can b..
Market cap = (current share price)X(number of shares issued by the company)
Now, only the “open market” shares that are free for trading by anyone, are called the “free-float” shares.A simple way to understand the “free-float market cap” would be, the total cost of buying all the shares in the open market!BSE determines a free-float factor depending on how many shares are open in the total,then free-float market capitalization can be expressed as
free-float Market cap= (free float factor)X(Market cap of the company)

Now by adding free-float market cap of all the 30 companies listed and making it relative to sensex base,
i.e,
Sensex = 100X(free-float market cap1)/(free-float market cap of base year-1978-79)

How is relative weight of industry determined ?

How do Indian stock market is being regulated?

The SEBI and the RBI work in co-ordination to regulate the securities market.
The amended Securities Contract Regulation Act (SCRA) has conferred on the RBI the responsibility of regulation of Government securities and money markets.With respect to banks, the RBI has statutory powers of inspection, investigation, surveillance and enforcement under Banking Regulation Act, 1949. As regards financial institutions, the regulatory powers are available to the RBI under the RBI Act 1934.
Securities and Exchange Board of India (SEBI) established under the Securities and Exchange aboard of India Act, 1992 is the regulatory authority for capital markets in India. India has 23 recognized stock exchanges that operate under government approved rules, bylaws and regulations. These exchanges constitute an organized market for securities issued by the central and state governments, public sector companies and public limited companies. The Stock Exchange, Mumbai and National Stock Exchange are the premier stock exchanges. Under the process of de-mutualization, these stock exchanges have been converted into companies now, in which brokers only hold minority share holding. In addition to the SEBI Act, the Securities Contracts (Regulation) Act, 1956 and the Companies Act, 1956 regulates the stock markets.

What are prerequisites for a company to be listed ?

Some of the requirements are as under :-

[I] Minimum Listing Requirements for new companies

The following revised eligibility criteria for listing of companies on the Exchange, through Initial Public Offerings (IPOs) & Follow-on Public Offerings (FPOs), effective August 1, 2006.

ELIGIBILITY CRITERIA FOR IPOs/FPOs

1. Companies have been classified as large cap companies and small cap companies. A large cap company is a company with a minimum issue size of Rs. 10 crores and market capitalization of not less than Rs. 25 crores. A small cap company is a company other than a large cap company.

1. In respect of Large Cap Companies

1. The minimum post-issue paid-up capital of the applicant company (hereinafter referred to as "the Company") shall be Rs. 3 crores; and
2. The minimum issue size shall be Rs. 10 crores; and
3. The minimum market capitalization of the Company shall be Rs. 25 crores (market capitalization shall be calculated by multiplying the post-issue paid-up number of equity shares with the issue price).

2. In respect of Small Cap Companies

1. The minimum post-issue paid-up capital of the Company shall be Rs. 3 crores; and
2. The minimum issue size shall be Rs. 3 crores; and
3. The minimum market capitalization of the Company shall be Rs. 5 crores (market capitalization shall be calculated by multiplying the post-issue paid-up number of equity shares with the issue price); and
4. The minimum income/turnover of the Company should be Rs. 3 crores in each of the preceding three 12-months period; and
5. The minimum number of public shareholders after the issue shall be 1000.
6. A due diligence study may be conducted by an independent team of Chartered Accountants or Merchant Bankers appointed by the Exchange, the cost of which will be borne by the company. The requirement of a due diligence study may be waived if a financial institution or a scheduled commercial bank has appraised the project in the preceding 12 months.

2. For all companies :

1. In respect of the requirement of paid-up capital and market capitalisation, the issuers shall be required to include in the disclaimer clause forming a part of the offer document that in the event of the market capitalisation (product of issue price and the post issue number of shares) requirement of the Exchange not being met, the securities of the issuer would not be listed on the Exchange.
2. The applicant, promoters and/or group companies, should not be in default in compliance of the listing agreement.
3. The above eligibility criteria would be in addition to the conditions prescribed under SEBI (Disclosure and Investor Protection) Guidelines, 2000.

[II] Minimum Listing Requirements for companies listed on other stock exchanges

The Governing Board of the Exchange at its meeting held on 6th August, 2002 amended the direct listing norms for companies listed on other Stock Exchange(s) and seeking listing at BSE. These norms are applicable with immediate effect.

1. The company should have minimum issued and paid up equity capital of Rs. 3 crores.
2. The Company should have profit making track record for last three years. The revenues/profits arising out of extra ordinary items or income from any source of non-recurring nature should be excluded while calculating distributable profits.
3. Minimum networth of Rs. 20 crores (networth includes Equity capital and free reserves excluding revaluation reserves).
4. Minimum market capitalisation of the listed capital should be at least two times of the paid up capital.
5. The company should have a dividend paying track record for the last 3 consecutive years and the minimum dividend should be at least 10%.
6. Minimum 25% of the company's issued capital should be with Non-Promoters shareholders as per Clause 35 of the Listing Agreement. Out of above Non Promoter holding no single shareholder should hold more than 0.5% of the paid-up capital of the company individually or jointly with others except in case of Banks/Financial Institutions/Foreign Institutional Investors/Overseas Corporate Bodies and Non-Resident Indians.
7. The company should have at least two years listing record with any of the Regional Stock Exchange.
8. The company should sign an agreement with CDSL & NSDL for demat trading.

[III] Minimum Requirements for companies delisted by BSE seeking relisting of the Exchange

The companies delisted by the Exchange and seeking relisting are required to make a fresh public offer and comply with the prevailing SEBI's and BSE's guidelines regarding initial public offerings.

How do companies get listed on the stock market ?

Here is how BSE lists companies which satisfy criterion,more or less same procedure is fallowed by other stock exchanges.
Bombay Exchange has a separate Listing Department to grant approval for listing of securities of companies in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956, Securities Contracts (Regulation) Rules, 1957, Companies Act, 1956, Guidelines issued by SEBI and Rules, Bye-laws and Regulations of the Exchange.

A company intending to have its securities listed on any Exchange has to comply with the listing requirements prescribed by the Exchange and regulating bodies.

IV Permission to use the name of the Exchange in an Issuer Company's prospectus
V Submission of Letter of Application
VI Allotment of Securities
VII Trading Permission
VIII Requirement of 1% Security
IX Payment of Listing Fees
X Compliance with Listing Agreement
XI Cash Management Services (CMS) - Collection of Listing Fees


[IV] Permission to use the name of the Exchange(for BSE) in an Issuer Company's prospectus

The Exchange follows a procedure in terms of which companies desiring to list their securities offered through public issues are required to obtain its prior permission to use the name of the Exchange in their prospectus or offer for sale documents before filing the same with the concerned office of the Registrar of Companies. The Exchange has since last three years formed a "Listing Committee" to analyse draft prospectus/offer documents of the companies in respect of their forthcoming public issues of securities and decide upon the matter of granting them permission to use the name of "Bombay Stock Exchange Limited" in their prospectus/offer documents. The committee evaluates the promoters, company, project and several other factors before taking decision in this regard.

List

[V] Submission of Letter of Application

As per Section 73 of the Companies Act, 1956, a company seeking listing of its securities on the Exchange is required to submit a Letter of Application to all the Stock Exchanges where it proposes to have its securities listed before filing the prospectus with the Registrar of Companies.

List

[VI] Allotment of Securities

As per Listing Agreement, a company is required to complete allotment of securities offered to the public within 30 days of the date of closure of the subscription list and approach the Regional Stock Exchange, i.e. Stock Exchange nearest to its Registered Office for approval of the basis of allotment.

In case of Book Building issue, Allotment shall be made not later than 15 days from the closure of the issue failing which interest at the rate of 15% shall be paid to the investors.

List

[VII] Trading Permission

As per Securities and Exchange Board of India Guidelines, the issuer company should complete the formalities for trading at all the Stock Exchanges where the securities are to be listed within 7 working days of finalisation of Basis of Allotment.

A company should scrupulously adhere to the time limit for allotment of all securities and dispatch of Allotment Letters/Share Certificates and Refund Orders and for obtaining the listing permissions of all the Exchanges whose names are stated in its prospectus or offer documents. In the event of listing permission to a company being denied by any Stock Exchange where it had applied for listing of its securities, it cannot proceed with the allotment of shares. However, the company may file an appeal before the Securities and Exchange Board of India under Section 22 of the Securities Contracts (Regulation) Act, 1956.

List

[VIII] Requirement of 1% Security

The companies making public/rights issues are required to deposit 1% of issue amount with the Regional Stock Exchange before the issue opens. This amount is liable to be forfeited in the event of the company not resolving the complaints of investors regarding delay in sending refund orders/share certificates, non-payment of commission to underwriters, brokers, etc.

List

[IX] Payment of Listing Fees

All companies listed on the Exchange have to pay Annual Listing Fees by the 30th April of every financial year to the Exchange as per the Schedule of Listing Fees prescribed from time to time.

The schedule of listing fees for the year 2007-2008, prescribed by the Governing Board of the Exchange is given hereunder :

SCHEDULE OF LISTING FEES FOR THE YEAR 2007-2008
Sr. No. Particulars Amount (Rs.)
1 Initial Listing Fees 20,000
2 Annual Listing Fees
(i) Companies with paid-up capital* upto Rs. 5 crores—10,000

(ii) AboveRs. 5 crores and upto Rs. 10 crores—15,000

(iii) Above Rs. 10 crores and upto Rs. 20 crores—30,000

3 Companies which have a listed capital* of more than Rs. 20 crores will pay additional fee of Rs. 750/- for every increase of Rs. 1 crores or part thereof.
4 In case of debenture capital (not convertible into equity shares) of companies, the fees will be charged @ 25% of the fees payable as per the above mentioned scales.
*includes equity shares, preference shares, fully convertible debentures, partly convertible debenture capital and any other security which will be converted into equity shares.
Kindly Note the last date for payment of listing fee for the year 2007-2008 is April 30, 2007. Failure to pay the listing fee(for the equity and/or debt segment) before the due date i.e. April 30, 2007 will attract imposition of interest @ 12% per annum w.e.f. May 1, 2007.

List

[X] Compliance with Listing Agreement

The companies desirous of getting their securities listed are required to enter into an agreement with the Exchange called the Listing Agreement and they are required to make certain disclosures and perform certain acts. As such, the agreement is of great importance and is executed under the common seal of a company. Under the Listing Agreement, a company undertakes, amongst other things, to provide facilities for prompt transfer, registration, sub-division and consolidation of securities; to give proper notice of closure of transfer books and record dates, to forward copies of unabridged Annual Reports and Balance Sheets to the shareholders, to file Distribution Schedule with the Exchange annually; to furnish financial results on a quarterly basis; intimate promptly to the Exchange the happenings which are likely to materially affect the financial performance of the Company and its stock prices, to comply with the conditions of Corporate Governance, etc.

The Listing Department of the Exchange monitors the compliance of the companies with the provisions of the Listing Agreement, especially with regard to timely payment of annual listing fees, submission of quarterly results, requirement of minimum number of shareholders, etc. and takes penal action against the defaulting companies.

List

[XI] Cash Management Services (CMS) - Collection of Listing Fees

As a further step towards simplifying the system of payment of listing fees, the Exchange has entered into an arrangement with HDFC Bank for collection of listing fees, from 141 locations, situated all over India.Details of the HDFC Bank branches, are available on our website site www.bseindia.com as well as on the HDFC Bank website www.hdfcbank.com The above facility is being provided free of cost to the Companies.

Companies intending to utilise the above facility for payment of listing fee would be required to furnish the information, (mentioned below) in the Cash Management Cash Deposit Slip. These slips would be available at all the HDFC Bank centres.

S.No HEAD INFORMATION TO BE PROVIDED
1. Client Name Bombay Stock Exchange Limited
2. Client Code BSELIST
3. Cheque No. mention the cheque No & date
4. Date date on which payment is being deposited with the bank.
5. Drawer state the name of the company and the company code No.The last digits mentioned in the Ref. No. on the Bill is the company code No.e.g If the Ref. No in the Bill is mentioned as : Listing/Alf-Bill/2004-2005/4488, then the code No of that company is 4488
6. Drawee Bank state the bank on which cheque is drawn
7. Drawn on Location Mention the location of the drawee bank.
8. Pickup Location Not applicable
9. No. of Insts Not applicable

The Cheque should be drawn in favour of Bombay Stock Exchange Limited , and should be payable, locally.Companies are requested to mention in the deposit slip, the financial year(s) for which listing fee is being paid. Payment made through any other slips would not be considered. The above slips will have to be filled in quadruplicate. One acknowledged copy would be provided to the depositor by the HDFC Bank.

How Harshad Mehta and Ketan Parekh manipulated the stock markets ?

A company's capital raises if it's share price increases.Companies when raising money from the stock market rope in brokers to back them in raising the share price.Mehta and Parekh both fallowed similar strategy.They colluded with some company's managament to profit them selves and the company looting innocent investors.

“Big Bull” Harshad Mehta, rose from an insurance clerk to become one of the high profile share brokers till 1992, when the multi-crore securities scam rocked stock exchanges in the country with a number of banks and financial institutions facing the heat.
Following public outcry, the government set up the Janakiraman Committee to probe the scam, which broke out between April, 1991, and June, 1992. At least 10 commercial banks, including Standard Chartered Bank, the SBI and National Housing Bank, an RBI subsidiary, were hit by the scam.

According to the CBI, he exploited bank receipt2 instruments to the maximum and used the money derived to speculate the share prices of several blue chip companies.Harshad perfected the art of diverting money to the stock market from bank’s security portfolio by exploiting the loopholes in the system, trade circles say.He took over closed companies, pumped in cash and boosted their shares on the stock market.After the scam, Harshad was arrested by the CBI in several cases registered against him for allegedly cheating the banks and financial institutions to the tune of several crores of rupees.Harshad had secured bail in all cases registered against him. However, he was arrested on fresh charge of misappropriating Rs 250 crore from 27 lakh “missing” shares of 90 blue chip companies.

Shares belonging to the Harshad Mehta group had been attached by a special court. However, Harshad and his brothers claimed that 27 lakh shares held by them were “missing” or “stolen” and could not be located. The court ordered a CBI enquiry into the missing shares.The CBI held Harshad and his two brothers responsible for introducing these “missing” shares in the market surreptitiously in benami names to rig share prices.SEBI concluded the case saying that Harshad Mehta colluded with the managements of BPL, Sterlite and Videocon to ramp up their shares with money provided by these managements – and to get funding from them to do this.

The 1991-92 scam had sent shock waves all over the country and saw many heads rolling. In the wake of the scam, Chairman of Uco Bank K.M. Margbandhu was sacked and arrested. Planning Commission member V. Krishnamurthy and SBI Managing Director V. Mahadevan were forced to quit their offices.


Ketan Parekh's(scam yr2000/01) modus operandi was to ramp up shares of select firms in collusion with the promoters.He formed a network of brokers from smaller exchanges like the Allahabad Stock Exchange and the Calcutta Stock Exchange.Ketan also used binami share purchase for this.He relied primarily on the shares of ten companies for his dealings (now known infamously as the K-103 scrips).

There is evidence of a nexus between Ketan,promoters of some of the companies(K-10 etc ) and certain FII sub-accounts and OCBs that provided large funding aggregating to around Rs 800 crore in January to March. He also dealt extensively through CSFB Broking4 and also CSL Securities.Ketan Parekh and his entities have received substantial funds through the misuse of banking systems.

He built large concentrated positions in select scrips. He could create and sustain such large positions by operating through a large number of entities across the exchanges and the huge amount of funding he obtained illeagally.The pattern and the manner of these transactions indicate the cornering of shares, circular trading, parking arrangements and structured arrangements leading to market manipulation,creating an artificial market in certain scrips.

At this time a group of traders (known as the bear cartel-Shankar Sharma, Anand Rathi, Nirmal Bang) relied on the global meltdown of stocks to make their profits. At the time of the year 2000 Financial Budget this cartel placed sell orders on the K-10 stocks and crushed their inflated prices.Innosent investors who bought shares(K10) thinking market as genuine lost their savings as share price reduced to fractions of their earlier price. All the borrowing of Ketan’s could not rescue his scrips. The Global Trust Bank and the Madhavpura Cooperative went bust because the money they had lent to Ketan had sunk with his K-10 stocks.

more abt Parekh from THE HINDU

Exercise

infosys

It was year 1993, when NR Narayana Murthy, then the CEO and chairman of Infosys, decided to list his 12-year company on the Indian bourses.From a price of around Rs. 100 to touching Rs. 3400 on April 7, 2006 (not discounting a few bonus issues, etc.), Infosys has seen it all from the Harshad Mehta's bull run to the Ketan Parekh's scam or the recent IPO scam.Infosys has always managed to outperform the market. The company always gives conservative projections and tends to beat the guidance by 20 per cent or so.

Historic Price Information of Infosys Stock on the Bombay Stock Exchange:

Date Price (Rs.) Market Cap. (Rs. million)
June 14, 1993 160 536
March 31, 1994 600 2,011
August 12, 1994 (bonus 2 for 1 announced) 1,250 4,190
March 31, 1995 (ex-bonus) 475 3,488
March 31, 1996 495 3,593
March 31, 1997 1,007 7,308
August 14, 1997 (bonus 2 for 1 announced) 2,193 15,918
March 31, 1998 (ex-bonus) 1,828 29, 275
December 12, 1998 (bonus 2 for 1 announced) 2915 46,694
March 31, 1999 (ex-bonus) 2925 93,701

Source: Infosys Technologies Limited

I couldn't find any abnormal reason for infosys achieving new highs at regular intervals
It's success lies on fallowing reasons…One of the biggest achievements of Infosys has been its high corporate governance standards and an unflinching adherence to performance improvement. The other significant one has been the way the company has enriched its employees and the whole economy at large. “It is an excellent story about capitalism with compassion,” .In Sep 2003 The share price of Infosys shot up by about 5.6 per cent to Rs 4,487.25. The report that the company has bagged an order worth $50 million from Australia-based Telstra Corporation appears to have imparted positive market sentiment.
Unfortunately there are reasons like in Sep 2002 Some brokers believe that Mr Parekh was also active in stocks of Infosys Technologies .Then BSE IT index, increased from 1216 to 1384.76, up 168.76 (or 13.87 per cent).

Inspite of such a good record,at times Infosys had seen crashing of it's share values.Here is my analysis about it.

  • Y2K:The market's nervousness in the year 1999 is reasoned to the software stocks, which had dominated the rally, were not looking so hot anymore.One reason is that software contracts were put on hold by international companies until the Y2K threat had passed.
  • foreign market influence:The 357-point (9.70 per cent) drop in Nasdaq on April 14 2000 resulted in the Bombay Stock Exchange Sensex losing 291 points on April 17.This is despite the fact that the indicators of economic conditions varied widely among the countries.The contagion effect has become more pronounced in recent years because of the rapid global economic integration.
  • US dependence:Infosys announced that after five years of sizzling 100% annual growth, its earnings will rise just 30% in the fiscal year of 2001. That's still respectable but a shock to spoiled investors. They hammered Infosys' stock down 26% over two days, to $60, its lowest level in two years. That prompted India's information-technology industry stock index to fall 40%, dragging down such bellwether players as Wipro, Satyam Computer, and Hughes Software Systems.Clearly, the U.S. slowdown is taking a toll on the Indian high-tech sector as American companies begin canceling contracts. The U.S. clients that are pulling back on their Indian software orders are mostly technology or financial- services firms.
  • Iraq War,SARS:Then all along next quaters the stock were increasing and the company profits were rising.But why did the company's 42nd(apr,2003) quarter had a sudden sharp fall which was totally unexpected..Even the market experts were stunned by Infy's result. The scrip fall has jolted the market and plummented many IT firms a lot.As the Infosys 4th quarter hype among the investors, experts, stock holders and many continued, there were lots of expectations among them too. Finally, the company indicated 12% growth in its 4th quarter of the current financial year which was much below the market expectations.The other reasons quoted by the company are the slow down in US economy which is a potential in long term impact, Iraq War, SARS infection.

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-Share Alike 2.5 License.