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. rnAbout Sharesrn• 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. rnCapital of a Companyrn1. 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. rn2. To deal with the internal issues of the company, another document is prepared called Articles of Association (AOA). rn3. 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. rn1. Issued Capital – It is that part of Authorized Capital for which shares are issued. rn1. It is either equal to or less than authorized capital. rn2. Subscribed Capital – It is that part of issued Capital which is subscribed by the public. rn1. Oversubscription: Number of shares is 100 crores and demand is high. i.e., demand for the shares is more than number of shares. rn2. 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. rn4. Paid-Up Capital: it is that capital which is acquired by the Company at the end of the process. rn5. Dividend is the profit distributed on the basis of face value of the company. Types of Sharesrn• Public Issue or Equity Share rno Issued for all. • Preference Share rno The holders of such shares get the dividend first. • Bonus Share rno When dividend is given in the form of shares instead of cash. • Sweat Equity Share rno 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 rno 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 rno Largely transacted shares are called Alpha Shares. • Right Issue rno It is issued only for old and existing shareholders. rno It is one of the ways to raise funds. rnIndian Stock ExchangesrnAt national level there are 4 important stock exchanges rn1. Bombay Stock Exchange (BSE) rno It was established in 1875 rno At present 7,300 companies are listed with it. rn2. National Stock Exchange (NSE) rno It was established in 1992, on the recommendation of Pherwani Committee. rno At present 2,300 Companies are listed with it. rn3. Over the Counter Stock Exchange of India (OTCEI) rno 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. rn4. Multi Commodity Exchange (MCX-SX) rno It has got permission to function in share and securities in 2017. rnCommodity Exchange in IndiarnUnder Commodity Exchange, more than 90 primary products like – Gold, Silver, Metals, Food Grains, Pulses etc are transacted through Electronic mode of delivery. rnThere are 4 important Commodity Exchanges in India: rn1. MCX rno It is the largest commodity exchange in the country. rno It is in Mumbai rn2. NCDX rno National Commodity and Derivative Exchange rno It is in Mumbai rn3. NMCE rno National Multi Commodity Exchange rno It is in Ahmedabad rn4. ICEX rno Indian Commodity Exchange rno It is in Gurgaon. rnStock Exchange for Crude Oil • NYMEX • Brent rnRegulators of Commodity ExchangernForward Market Commission (FMC) • It is regulator of Commodity Exchange. rnOther Regulators: • IRDA – Insurance Regulator Development Authority • TRAI - Telecom Sectorrn• PFRDA – Provident Fund rnShare IndexrnThese 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: rn1. SENSEX – belongs to BSE rn2. NIFTY – belongs to NSE rnSENSEX rnIt 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. rnNIFTY • There are 50 companies listed in NIFTY rnImportant Miscellaneousrn1. SEBI rn2. Bull/Bear rn3. Credit Ratings rn4. Depository rn5. ADR/GDR rn6. VCF rn7. Zero Coupon Bonds rn8. Merchant Banks rn9. Mutual Funds rnSEBI rnSecurity 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 rnBull/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. rnTheir activities are also termed as Liwali/Bikwali (in Hindi) Credit Ratings rnIt’s a mechanism to evaluate the financial position and credit worthiness of an individual, company or of a country. rnIn India following agencies are involved: • CRISIL • ICRA • CARE • ONCRA • CIBIL rnInternational credit rating companies: • S & P (Standard and Poors) • Moody • Fitch Rating rnDepository rnIt is a kind of database where shares and securities are maintained in electronic format or D-mat form. rnIn India there are 2 depositories: rn1. NSDL – National Stock Depository Limited rn2. CDSL – Central Depository Securities Limited rnShares of all the listed companies are handled or stored by these two. ADR/GDR • ADR – American Depository Receipt • GDR – Global Depository Receipt rnADR are issued by American Depositories to allow any foreign company to function in American Capital market. rnGDR is used for the same purpose by the countries other than America. rnVCF – Venture Capital Fund rnIt 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 rnThese 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 rnThese 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. rnIt 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. rnMutual 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. rnIn 1987, the entry of non-UTI public sector mutual funds was set up by public sector banks. rnSBI Mutual Fund was the first non-UTI mutual fund. rnNet 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. rnNew Fund Offer (NFO) rnNet Asset Value (NAV) rnEconomics holds special importance in civil services exam be it UPSC and other State PSC exams. 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