Notes for UPSC Exam about Stock Exchanges of India- Indian Economy
Introduction
Stock market is a type of secondary market where the transactions of old and existing shares and securities are made.
About Shares
• Shares refer to the shared capital of the company.
• It represents the portion of the ownership of the shareholder in the company and also describes the right of the holder to the specified amount of the share capital of the company.
Capital of a Company
1. To be established under Company Act, every company has to prepare a detailed document, which is called MOA (Memorandum of Association). All the external affairs of the Company are regulated according to the MOA. Therefore, it is regarded as Constitution of the Company.
2. To deal with the internal issues of the company, another document is prepared called Articles of Association (AOA).
3. Under MOA apart from other information, company also declares its maximum capital and on behalf of this capital it raises more funds in Capital Market. Declared capital is known as Authorize Capital.
1. Issued Capital – It is that part of Authorized Capital for which shares are issued.
1. It is either equal to or less than authorized capital.
2. Subscribed Capital – It is that part of issued Capital which is subscribed by the public.
1. Oversubscription: Number of shares is 100 crores and demand is high. i.e., demand for the shares is more than number of shares.
2. Undersubscription – Demand of share is less than the number of shares. If the subscript is less than 90% of the total share, Company is not allowed to launch its IPO.
4. Paid-Up Capital: it is that capital which is acquired by the Company at the end of the process.
5. Dividend is the profit distributed on the basis of face value of the company.
Types of Shares
• Public Issue or Equity Share
o Issued for all.
• Preference Share
o The holders of such shares get the dividend first.
• Bonus Share
o When dividend is given in the form of shares instead of cash.
• Sweat Equity Share
o These are specific type of shares issued only for the employees of the company on behalf of their Extra-Ordinary achievements on behalf of Company.
• Blue – Chip Shares
o Those companies that have strong fundamentals and business models as well as profit making are known as blue-chip companies and their shares blue chip shares.
• Alpha – Shares
o Largely transacted shares are called Alpha Shares.
• Right Issue
o It is issued only for old and existing shareholders.
o It is one of the ways to raise funds.
Indian Stock Exchanges
At national level there are 4 important stock exchanges
1. Bombay Stock Exchange (BSE)
o It was established in 1875
o At present 7,300 companies are listed with it.
2. National Stock Exchange (NSE)
o It was established in 1992, on the recommendation of Pherwani Committee.
o At present 2,300 Companies are listed with it.
3. Over the Counter Stock Exchange of India (OTCEI)
o It is the Stock Exchange of Small Companies which are not established on the pattern of NASDAQ (National Association of Securities Dealors Automated Quotations). NASDAQ is in USA.
4. Multi Commodity Exchange (MCX-SX)
o It has got permission to function in share and securities in 2017.
Commodity Exchange in India
Under Commodity Exchange, more than 90 primary products like – Gold, Silver, Metals, Food Grains, Pulses etc are transacted through Electronic mode of delivery.
There are 4 important Commodity Exchanges in India:
1. MCX
o It is the largest commodity exchange in the country.
o It is in Mumbai
2. NCDX
o National Commodity and Derivative Exchange
o It is in Mumbai
3. NMCE
o National Multi Commodity Exchange
o It is in Ahmedabad
4. ICEX
o Indian Commodity Exchange
o It is in Gurgaon.
Stock Exchange for Crude Oil
• NYMEX
• Brent
Regulators of Commodity Exchange
Forward Market Commission (FMC)
• It is regulator of Commodity Exchange.
Other Regulators:
• IRDA – Insurance Regulator Development Authority
• TRAI - Telecom Sector
• PFRDA – Provident Fund
Share Index
These are prepared to track the fluctuations in the prices of shares and for the purpose various types of indices are prepared, but some of them are very sensitive, like in India sensitive indices are:
1. SENSEX – belongs to BSE
2. NIFTY – belongs to NSE
SENSEX
It is based upon the value of 30 blue chip companies listed under BSE.
• It was started in 1986 with base 100
• At present its value is around 49,398.29 (19th Jan, 2020)
• 250 to 3 Lakh crore transactions per day.
NIFTY
• There are 50 companies listed in NIFTY
Important Miscellaneous
1. SEBI
2. Bull/Bear
3. Credit Ratings
4. Depository
5. ADR/GDR
6. VCF
7. Zero Coupon Bonds
8. Merchant Banks
9. Mutual Funds
SEBI
Security and Exchange Board of India
• It is an Autonomous body, was established in 1988 but got statutory status in 1992.
• Headquarter is at Mumbai.
• Chairman – Ajay Tyagi (Jan, 2020)
• Its main function is to regulate capital market, control the activities of share brokers, stock exchanges and to protect the interests of investors.
Bull/Bear/Stag
Bull/Bear – these are share market speculators, those who think stock will go up and start purchasing stock called Bull, and the trend of market is called Bullish, the reverse is called Bearish.
Their activities are also termed as Liwali/Bikwali (in Hindi)
Credit Ratings
It’s a mechanism to evaluate the financial position and credit worthiness of an individual, company or of a country.
In India following agencies are involved:
• CRISIL
• ICRA
• CARE
• ONCRA
• CIBIL
International credit rating companies:
• S & P (Standard and Poors)
• Moody
• Fitch Rating
Depository
It is a kind of database where shares and securities are maintained in electronic format or D-mat form.
In India there are 2 depositories:
1. NSDL – National Stock Depository Limited
2. CDSL – Central Depository Securities Limited
Shares of all the listed companies are handled or stored by these two.
ADR/GDR
• ADR – American Depository Receipt
• GDR – Global Depository Receipt
ADR are issued by American Depositories to allow any foreign company to function in American Capital market.
GDR is used for the same purpose by the countries other than America.
VCF – Venture Capital Fund
It is a kind of specific fund which is available for those entrepreneurs, those who have much experience, ideas and capacity to earn profit but lack of capital.
Merchant Banks
These are Capital market intermediaries and arrange funds for other companies, also functions like under-writers. (If shares not purchased by Public, these companies will buy it).
Mutual Funds
These are professionally-managed trust that pools the savings of many investors and invests them in securities like stocks, bonds, short-term money market instruments and commodities.
It is the most suitable investment for the cautious investor as it offers an opportunity to invest in a diversified professionally managed basket of securities at a relatively low cost.
Mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of Government of India and Reserve Bank of India.
In 1987, the entry of non-UTI public sector mutual funds was set up by public sector banks.
SBI Mutual Fund was the first non-UTI mutual fund.
Net Asset Value: It is the amount which a unit holder would receive if the mutual fund is wound up. It is the value of all assets less liabilities.
New Fund Offer (NFO)
Net Asset Value (NAV)
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