Introduction

There are 22 stock exchanges in India, the first being the Bombay Stock Exchange (BSE), which began formal trading in 1875, making it one of the oldest in Asia. Over the last few years, there has been a rapid change in the Indian securities market, especially in the secondary market. Advanced technology and online-based transactions have modernized the stock exchanges. In terms of the number of companies listed and total market capitalization, the Indian equity market is considered large relative to the countrys stage of economic development.

Types of market
Primary market Secondary market

Types of securities
Shares Debentures Warrants Bonds

Types of interest rates

Fixed interest rate Floating interest rate

India is one of the great economic growth stories of the 21st century. The nation has undergone an astonishing transformation over the past 17 years, as the government has shifted away from socialism and opened and reformed its economy. Today, India (along with China) is one of the fastest-growing countries in the developing world. India's powerful economic growth, coming from expansion in both services and manufacturing, is a strong indicator of its burgeoning economic clout. According to the government, gross domestic product in India expanded by 9.6% in 2007 and 9.4% in 2006, helping to make the economy the world's 12th largest. Fueling the expansion has been rapid growth in services, including call centers, software design and back-office out-sourcing. The ability of Indian companies to design and produce well-made goods at a fraction of U.S. costs has also helped India become a major exporter. The booming economy, hefty corporate profits and an unprecedented flow of foreign investment have propelled a spectacular surge in Indian share prices. Over the past five years through February 20, the Bombay Stock Exchange's 30-stock Sensitive Index, or

Sensex, returned an annualized 40% (that return is in India's currency, the rupee). Real estate, banking and information-technology stocks have been at the forefront of the boom. The outlook for the Indian economy remains bright, but the picture for Indian stocks is murkier. Volatility has increased amid concerns about the global credit crunch and the rupee's strength against the dollar, which hurts Indian exporters.

Stock exchange in present scenario

The story is quite different today. The economy is slowing but to a much higher level of growth. The reasons for the slowdown are quite different today as well. In 1998 and 2001, for example, export growth fell heavily and was an important factor in India's widespread economic slowdown. Today, India is much better insulated from trade and hot money flows. The current issue for India is not one of too weak growth but of overheating. Mr. Rajendra Chitale, Managing Partner, M. P. Chitale and Company began by saying that the US bailout of $700 billion equaled 87% of Indias GDP and added that the present US government is basically revisiting Roosevelts policies during the Great Depression of the 1930s. He said that reckless lending in the US Mortgage Market without checking the creditworthiness of the recipients lay at the root of the present crisis. He pinpointed the problem area as lying with collateralized debt obligations, which distributes credit risk broadly to investors, with a series of consequential impacts. He said that large US banks like Bear Sterns and AIG had issues of excessive leverage. There were valuation challenges of derivative products and a combination of leverage and appreciating assets had compounded it. He said that things had now become very complex and interlinked and quoted a famous economist (Steven Levitt, author of Freakonomics) as saying that even he was unable to understand what exactly was going on. Mr. Chitale said that, thanks to RBI policies, India had only a modest exposure to the US toxic financial instruments. There may be a mild recession here but it is not likely to be too severe. Even though we are 3 to 4 times more globally integrated today with the international economy than in 1990-91, Indian corporates are at their lowest gearing ratios (0.6 times) since 1990, he added, and so, there was no need to get too worried.

The Reserve Bank of India has hiked interest rates to 9% following a series of increases in reserve requirements for banks to arrest rising inflation. Inflation spiked higher to more than 12% at an annualized rate , and the RBI needs to aggressively tackle this problem. This is a problem of overheating and too strong growth in India. Under the current scenario, the economy will slow to below its potential rate of output

in order for inflation to recede. The IMF is forecasting 8% growth for India's economy in 2008. This rate of growth is consistent with slowing but still positive rates of earnings growth. Consensus estimates are for 17% growth in Sensex earnings for fiscal year 2008 and 20.5% growth in fiscal year 2009.
The idea is that higher rates of earnings growth support higher market multiples. We use GDP growth as a proxy for earnings growth because GDP is more stable. This creates a conservative measure of market valuations The key stock market indices - the Sensex and the Nifty - dropped over 4% each during the week ended December 20 as foreign institutional investors (FIIs) sold heavily to meet their redemption pressure. FIIs pulled out over Rs 5,400 crore (including Thursday's provisional figures) from the cash market, and sold shares worth Rs 2,445 crore in the futures & options segment. The Sensex logged the second biggest fall of 769 points in absolute terms on Monday reacting negatively to the global meltdown. The Sensex finally ended the week at 19,162.57 - a net fall of 868.26 points (4.33%) from the last weekend close of 20,030.83. The Nifty dropped 281.20 points (4.65%) to close the week at 5,766.50 as against the previous weekend close of 6,047.70. All is well that ends well. All the investors and trader on Dalal street might be thinking this, after witnessing continues loss or downturns for six days from the last Friday (November 16).The BSE benchmark index, Sensex, carrying its bearish mode of last week opened at 19,895.49 and after trading for some time in positive terrain it shed most of its gains and slipped into the negative terrain. The downturn continued for the next three days of the week and it lost 1,172 points in the first four days of the week, wipping out all the gains it made in the recent past. On the last day of the week for the first time the 30-share BSE Sensex ended on a positive note, giving some relief to the bogged down investors. The market rebounded from its one month low on back of decline in inflation figures, recovery in Asian markets and most importantly due to the profit booking, as investors predicted that the recent fall is overdone. Finally after all the ups and downs, it ended on a positive note, giving some relief to the investors and creating a positive atmosphere for the next week. Sensex ended the week on Friday (Nov. 23, 2007) with weekly loss of 845 points, or 4.24%, at 18,852.87. On the other hand, NSE closed down 298.25 points, or 5.03%, at 5,608.60. The 30-share BSE Sensex opened positive at 19,895.49 and traded firm for some time however, later the index slipped into the negative due to profit booking. The index touched an intraday high of 19,971.44 and a low of 19,583.97 to close on a negative note.

BSE Sensex closed at 19,633.36, down 65 points, or 0.33%, while the broad-based NSE Nifty closed at 5,907.65, up 0.8 points. The 30-share BSE Sensex opened with a negative gap of 122 points at 19,510.94 on Tuesday and continued to trade in the negative in the initial half an hour of morning trade on the back of selling interest amongst frontliners. The index touched an intraday high of 19,714.22 NSE and Nifty a low of at 19,196.42 to close down on a weak note. points. BSE Sensex closed at 19,280.80, down 352.56 points, or 1.80%, while the broad-based closed 5,780.90, 126.75 On Wednesday, the 30-share BSE Sensex opened negative at 19,197.57 and proceeded to trade weak throughout the trading session. The index dropped more than 600 points. The fall was due to continuous profit booking witnessed in frontliners across board and weak global cues. The Sensex finally closed on a dull note by touching an intraday low of 18,515.30. It was the third biggest single day fall for the Sensex.BSE Sensex tumbled 678.18 points, or 3.52% to close at 18,602.62, while the broad-based NSE Nifty closed at 5,561.05, down 219.85 points. The 30-share BSE Sensex on Thursday opened positive at 18,724.11 and witnessed a volatile session on the back of selling pressure and global cues. The index traded in the negative terrain for most part of the day and later made a smart recovery in the late trade on the on a back negative NSE of note Nifty after buying touching at interest an intraday in low down heavyweights. of 41.7 18,182.83. points. However, the Sensex lost its strength and slipped into the negative. Finally the index closed BSE Sensex closed with a loss of 76.30 points, or 0.41%, to close at 18,526.32, while the broad-based closed 5,519.35, On Friday, the 30-share BSE Sensex ended on a positive note for the first time the week. After Thursday`s 678.18 points loss, the BSE Sensex opened on a strong note at 18,737.22 against the previous day`s close of 18,526.32. The optimistic momentum got more support from the decline in inflation figures and recovery in Asian markets. The Sensex touched a high of 18,910.46 during the day, raising the confidence of the bulls once again. BSE Sensex closed with a gain of 326.55 points, or 1.76%, at 18,852.87, while the broadbased NSE Nifty closed at 5,608.60, up 89.25 points. The annual rate of inflation, calculated on point-to-point basis, stood at 3.01% for the week ended Nov. 10, 2007, as against 3.11% for the previous week. The annual rate of inflation stood at 5.39% as on Nov. 11, 2006.

Reason for recession period

An eventful week of turmoil has begun in the global financial scenario as stock prices plunged across much of the globe on news that investment bankers, Lehman Brothers Holdings filed for bankruptcy and Merrill Lynch & Cos forced sale to Bank of America. To add to the worsening situation, American International Group (AIG), the worlds largest insurance company, asked the U.S. Federal Reserve for an emergency funding before announcing a major restructuring plan. Lehman Brothers Holding, with $60 billion in bad debts, is the fourth-largest investment bank. Merrill Lynch is the third biggest investment firm, which also stuck with toxic sub-prime (real estate) with $40 billion write-downs, now sold for $29 a share, less than half its 52week high but around $12 higher than its closing price. The investments in Indian firms by these U.S. investment bankers are a major worry for Indian investors. The 14-month-old credit crises that stem from sub-prime (real estate) mortgage debt is now left with two other big firms on the Wall Street, Goldman Sachs Group and Morgan Stanley Investor confidence is at its lowest ebb. Only few days ago, the U.S. Government bailed out two leading mortgage lenders Fannie Mae and Freddie Mac. The Federal Reserve is expected to make a decision on interest rates on Tuesday. Investors are worried that all these are likely to trigger another round of troubles for banks and financial institutions around the globe. Six months ago, in March, Bear Stearns, the fifth biggest U.S. investment bank, witnessed a full circle before its fall and sell-off to JP Morgan Chase & Co for a rock bottom price of $2 per share.

Crude oil price was a major issue in recent times. In the New York Mercantile Exchange, light, sweet crude oil dropped by $4.43 to $96.75 a barrel in pre-market electronic trading. Oil hit a record high of over $147 a barrel in mid-July this year. However, gold prices are on the rise. Post-Lehman, when the U.S. stock markets opened on Monday Dow Jones Industrial Average (DJIA) was down by around 300 points.

Major remedies before invest in this market Turbulent markets are always a matter of panic for retail investors. Continuing volatility
and short-term bearish outlook have led to severe bloodbath on Indian bourses in recent times. Due to the global crisis, it is difficult to take a short-term call on the Indian markets, but in the long-term, one remains positive. There is no significant change in the fundamentals of Indian economy. If the economy is believed to grow at 7.5-8%, then there is no reason why an investor should not enter the market below 16,000 at these levels.

The current valuation is an opportunity for long-term investors to park their money in equity-oriented mutual funds (MFs) at lower NAVs. Many investors who had bet their money directly in equities had suffered in the recent turmoil. Many stocks which were trading at alltime highs have now tumbled to their 52-week lows in the current collapse. During the time of such crisis, one often realises the advantage of investing in MFs over direct equity. Following are some reasons why one would want to invest in an MF in the current conditions. MFs invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because all the stocks do not decline at the same time and in the same proportion. This diversification through an MF is achieved with far less money than one can be on his own. Top-performing MF schemes have produced good returns, which a naive investor rarely achieves in course of direct stock-market trading. Not everyone has the skill, knowledge and time to plan his/her investments. The easier way out is to select the right MF and transfer the entire responsibility of managing the money to the fund manager. Thus they can avail of services of experienced and skilled professionals who are backed by a dedicated investment research team. Today, MFs provide an attractive and simple way of tapping the potential of various investment options like equity, debt and money market instruments. If you are unsure about the equity markets this year, you can simply move to a debt fund or an MIP.

Conclusion Finance Minister P Chidambaram today said that a weakness in Indian stock market
was a reflection of global developments, and the domestic economy continues to be strong. "The Indian market is only reacting to what is happening worldwide especially the US market and the East Asian markets," Chidambaram told newsmen after inaugurating the London branch of the General Insurance Corporation of India here this morning. He said, "There is nothing fundamentally wrong with the Indian economy. The results of major corporate houses coming in the third quarters show the profits are rising. That is reflected in an increase in corporate taxes and income taxes." Indian stock market has suffered an unprecedented loss in the last seven days. It has tumbled by 4,097.51 points since January 14 due to weak cues from the US and other global markets. However, today it gained 864.13 points to close at 17,594.07, boosted by a rate cut by the US Federal Reserve. Advising long-term investors to stay calm, Chidambaram said that, "It has happened in the

past

and

it

may

happen

in

the

future".

He said, "India continues to be a very attractive market in terms of high returns, and foreign direct investment would continue to come." When patience is indeed a virtue None of these factors point to disasters around the corner. Not yet. It is just that the dark clouds over the economy now appear darker then earlier and it may take longer for the sky to clear. At the same time, we are also reassured that the economy both domestic and global - is resilient enough to withstand even the worst shocks. Just a decade back, there is no way that the global economy would have survived the kind of credit crisis it is facing now. It should be a matter of great comfort for investors that 'the second worst financial crisis in history' has only shaved off barely a percentage point from global economic growth. Still, equity markets may face a period of consolidation or even an intermediate bear market as the economy settles down before accelerating again. As always, investors with longer horizons will find enough opportunities in this market. Last heard, Warren Buffet was on a tour of Europe in search of companies to invest in. Even in his '80s, he continues to search for businesses that can deliver long-term value. No investor will do any harm by following the likes of Mr Buffet in these uncertain times.