(j.ganesh and ankit mour sec-f grp-b) potential of indian stock market to be on the top among the...

8/7/2019 (J.Ganesh and Ankit Mour Sec-F Grp-B) POTENTIAL OF INDIAN STOCK MARKET TO BE ON THE TOP AMONG THE GLOB

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POTENTIAL OF INDIAN STOCKMARKET TO BE ON THE TOP AMONG

THE GLOBAL STOCK MARKET

Submitted to:Submitted By:Ms. Navleen Kaur

J. GANESH(A1802009041)

ANKIT MOUR

(A1802009618)

Section F


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Group- B

WHY PEOPLE CHOOSE THE NYSE AND

NASDAQ AND HOW THEY WORK

Whenever someone talks about the stock market as a place

where equities are exchanged between buyers and sellers, the first thing

that comes to mind is either the New York Stock Exchange (NYSE)

or Nasdaq, and there's no debate over why. These two exchanges account

for the trading of a major portion of equities in North America and

worldwide. At the same time, however, the NYSE and Nasdaq are very

different in the way they operate and in the types of equities traded

therein. Knowing these differences will help you better understand the

function of a stock exchange and the mechanics behind the buying and

selling of stocks.

Location, Location, Location

The location of an exchange refers not so much to its street address but

the "place" where its transactions take place. On the NYSE, all trades

occur in a physical place, on the trading floor in New York City. So, when

you see those guys waving their hands on TV or ringing a bell before

opening the exchange, you are seeing the people through whom stocksare transacted on the NYSE.

The Nasdaq, on the other hand, is located not on a physical trading floor

but on a telecommunications network. People are not on a floor of the

exchange matching buy and sell orders on behalf of investors. Instead,

trading takes place directly between investors and their buyers or sellers,

who are the market makers (whose role we discuss below in the next

section), through an elaborate system of companies electronically

connected to one another.

Dealer vs. Auction Market

The fundamental difference between the NYSE and Nasdaq is in the way

securities on the exchanges are transacted between buyers and sellers.

The Nasdaq is a dealer's market, wherein market participants are not

buying from and selling to one another directly but through a dealer,

which, in the case of the Nasdaq, is a market maker. The NYSE is

anauction market, wherein individuals are typically buying and selling

between one another and there is an auction occurring; that is, thehighest bidding price will be matched with the lowest asking price.
http://www.investopedia.com/terms/e/equity.asphttp://www.investopedia.com/terms/n/nyse.asphttp://www.investopedia.com/terms/n/nasdaq.asphttp://www.investopedia.com/terms/e/exchange.asphttp://www.investopedia.com/terms/m/marketmaker.asphttp://www.investopedia.com/terms/d/dealersmarket.asphttp://www.investopedia.com/terms/a/auctionmarket.asphttp://www.investopedia.com/terms/e/equity.asphttp://www.investopedia.com/terms/n/nyse.asphttp://www.investopedia.com/terms/n/nasdaq.asphttp://www.investopedia.com/terms/e/exchange.asphttp://www.investopedia.com/terms/m/marketmaker.asphttp://www.investopedia.com/terms/d/dealersmarket.asphttp://www.investopedia.com/terms/a/auctionmarket.asp


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Traffic Control

Each stock market has its own traffic control police officer. Yup, that's

right, just as a broken traffic light needs a person to control the flow of

cars, each exchange requires people who are at the "intersection" wherebuyers and sellers "meet", or place their orders. The traffic controllers of

both exchanges deal with specific traffic problems and, in turn, make it

possible for their markets to work. On the Nasdaq, the traffic controller is

known as the market maker, who, we already mentioned, transacts with

buyers and sellers to keep the flow of trading going. On the NYSE, the

exchange traffic controller is known as the specialist, who is in charge of

matching up buyers and sellers.

The definitions of the role of the market maker and that of the specialist

are technically different; a market maker creates a market for a security,

whereas a specialist merely facilitates it. However, the duty of both the

market maker and specialist is to ensure smooth and orderly markets for

clients. If too many orders get backed up, the traffic controllers of the

exchanges will work to match the bidders with the askers to ensure the

completion of as many orders as possible. If there is nobody willing to buy

or sell, the market makers of the Nasdaq and the specialists of the NYSE

will try to see if they can find buyers and sellers and even buy and sell

from their own inventories

Perception and Cost

One thing that we can't quantify but must acknowledge is the way in

which the companies on each of these exchanges are generally perceived

by investors. The Nasdaq is typically known as a high-tech market,

attracting many of the firms dealing with the internet or electronics.

Accordingly, the stocks on this exchange are considered to be

more volatile and growth oriented. On the other hand, the companies on

NYSE are perceived to be more well established. Its listings include many

of the blue chip firms and industrials that were around before our parents,and its stocks are considered to be more stable and established.

Whether a stock trades on the Nasdaq or the NYSE is not necessarily a

critical factor for investors when they are deciding on stocks to invest in.

However, because both exchanges are perceived differently, the decision

to list on a particular exchange is an important one for many companies.

A company's decision to list on a particular exchange is affected also by

the listing costs and requirements set by each individual exchange.

The entry fee a company can expect to pay on the NYSE is up to $250,000while on the Nasdaq, it is only $50,000-$75,000. Yearly listing fees are
http://www.investopedia.com/terms/v/volatility.asphttp://www.investopedia.com/terms/g/growthstock.asphttp://www.investopedia.com/terms/v/volatility.asphttp://www.investopedia.com/terms/g/growthstock.asp


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also a big factor: on the NYSE, they based on the number of shares of a

listed security, and are capped at $500,000, while the Nasdaq fees come

in at around $27,500. So we can understand why the growth-type stocks

(companies with less initial capital) would be found on the Nasdaq

exchange.

Public vs. Private

Prior to March 8, 2006, the final major difference between these two

exchanges was their type of ownership: the Nasdaq exchange was listed

as a publicly-traded corporation, while the NYSE was private. This all

changed in March 2006 when the NYSE went public after being a not-for-

proft exchange for nearly 214 years. Most of the time, we think of the

Nasdaq and NYSE as markets or exchanges, but these entities are both

actual businesses providing a service to earn a profit for shareholders. The

shares of these exchanges, like those of any public company, can be

bought and sold by investors on an exchange. (Incidentally, both the

Nasdaq and the NYSE trade on themselves.) As publicly

traded companies, the Nasdaq and the NYSE must follow the standard

filing requirements set out by the Securities and Exchange

Commission. Now that the NYSE has become a publicly traded

corporation, the differences between these two exchanges are starting to

decrease, but the remaining differences should not affect how they

function as marketplaces for equity traders and investors.

Conclusion

Both the NYSE and the Nasdaq markets accommodate the major portion

of all equities trading in North America, but these exchanges are by no

means the same. Although their differences may not affect your stock

picks, your understanding of how these exchanges work will give you

some insight into how trades are executed and how a market works.

(Source:- Investopedia.com)
http://www.investopedia.com/terms/s/sec.asphttp://www.investopedia.com/terms/s/sec.asphttp://www.investopedia.com/terms/s/sec.asphttp://www.investopedia.com/terms/s/sec.asp


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INTRODUCTION OF INDIAN STOCKEXCHANGE

The Indian stock exchanges hold a place of prominence not only in Asiabut also at the global stage. The Bombay Stock Exchange (BSE) is one ofthe oldest exchanges across the world, while the National Stock Exchange(NSE) is among the best in terms of sophistication and advancement oftechnology.The Indian stock market scene really picked up after the opening up of theeconomy in the early nineties. The whole of nineties were used toexperiment and fine tune an efficient and effective system. The badlasystem was stopped to control unnecessary volatility while the derivatives

segment started as late as 2000. The corporate governance rules weregradually put in place which initiated the process of bringing the listedcompanies at a uniform level.On the global scale, the economic environment started taking paradigmshift with the dot com bubble burst, 9/11, and soaring oil prices. Theslowdown in the US economy and interest rate tightening made theequation more complex. However after 2000 riding on a robust growthand a maturing economy and relaxed regulations, outside investors-institutional and others got more scope to operate. This opening up of thesystem led to increased integration with heightened cross-border flow ofcapital, with India emerging as an investment hot spot resulting in our

stock exchanges being impacted by global cues like never before.The study pertains to comparative analysis of the Indian Stock Marketwith respect to various international counterparts. Exchanges are nowcrossing national boundaries to extend their service areas and this has ledto cross-border integration. Also, exchanges have begun to offer cross-border trading to facilitate overseas investment options for investors. Thisnot only increased the appeal of the exchange for investors but alsoattracts more volume.Exchanges regularly solicit companies outside their home territory andencourage them to list on their exchange and global competition has put

pressure on corporations to seek capital outside their home country. TheIndian stock market is the world third largest stock market on the basis ofinvestor base and has a collective pool of about 20 million investors.There are over 9,000 companies listed on the stock exchanges of thecountry. The Bombay Stock Exchange, established in 1875, is the oldest inAsia. National Stock Exchange, a more recent establishment which cameinto existence in 1992, is the largest and most advanced stock market inIndia is also the third biggest stock exchange in Asia in terms oftransactions. It is among the 5 biggest stock exchanges in the world interms of transactions volume.

ORIGIN OF VARIOUS STOCK EXCHANGES:


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The origin of the New York Stock Exchange (NYSE) is dated back toMay 17, 1792, when the Buttonwood Agreement was signed bytwenty-four stock brokers outside of 68 Wall Street in New Yorkunder a buttonwood tree. Also called the Big Board, it is the

largest stock exchange in the world in terms of dollar volume andsecond largest in terms of number of companies listed.

The Tokyo stock exchange was established on May 15, 1878 andtrading began on June 1, 1878. In 1943, the exchange wascombined with ten other stock exchanges in major Japanese cities toform a single Japanese Stock Exchange. It is the second largeststock exchange market in terms of monetary volume and currentlyhas 2302 listed companies.

The Hong Kong stock exchange is the 8th largest stock exchange inthe world in terms of Market capitalization. The Hang Sang Index

(HIS), was started on November 24, 1969. The Russian stock exchange was established in 1995 by

consolidating the separate regional stock exchanges into oneuniformly regulated trading floor.

The Korea stock exchange was created by the integration of thethree existing of the Korean Spots and Futures exchanges (Koreanstock exchange, Korean futures exchange & KOSDAQ) under theKorea Stock and Futures Exchange Act.3.5. In this paper, the namesof the countries and the names of the indices of those countrieshave been used interchangeably.

Thus, the names of the countries represent the indices for the

purpose of analysis and they need to be interpreted that way.Again, all the analyses have been done with the closing prices.


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TOP REASONS TO PREFER INVESTING ININDIA

Invest in India the fastest growing economy in the world

Indian stock market is rapidly going higher and higher and increasinglybecoming popular among the foreign investors. There are so manyreasons that investors from all around the world are showing interest inthe Indian stock market. Here we are presenting some of the factors thathave made the Indian stock market a preferred choice to invest over otherinternational stock markets.

1. Largest Democracy - India is the largest democracy in the world.

With the solid foundation of the constitution and parliamentarydemocracy India is surely a place where trade and commerce isnatured by the government with carefully framed rules andregulations.

2. Steady government - For years India has seen democraticallyelected steady governments that ensure political stability in thecountry that is a primary requisite for the economic advancementand industrial development in the country. A politically stablesituation in the country guarantees steady growth of the industrialsector and rise in the stock market.

3. The 2nd largest market - India is the 2nd largest country in theworld in terms of population and hence the country is the 2ndlargest consumer market in the world as well. So there is no doubtthe businesses will flourish in the country with a steady rise.

4. Economic growth - For the last few years India has seen steady

economic growth. The parameters that are used to measure theoverall economic standard of the country are on the rise. The higherGDP, rate of annual growth, foreign currency reserve, Humandevelopment index - all these factors are at a satisfactory level andshowing steady rise.

5. Infrastructure - Indian has posted a great development in theinfrastructure development. Be it power, roads, transportation,telecommunication India has progressed in every field. Thesefactors have definitely helped the industry and business grow in the

country at a rapid pace.


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6. Booming industrial sector - The industry sectors in the countryare showing phenomenal growth since the last few years that haveactually added a boost to the economy of the country. With some ofthe Indian companies taking over large foreign companies and the

IT sector showing great potentials - Indian industries are making itbig at the international level.

7. SEBI - The Securities and Exchange Board of India is the authoritythat oversees the activities of the stock exchanges in India. Thestrict monitoring of the SEBI and carefully laid down acts and ruleshave made the Indian stock markets more efficient, trustworthy andtransparent.

8. Online Trading - The online trading facility have surely made theIndian stock markets more accessible to foreign investors and NRIs.The online trading facility lets you invest in the Indian stock marketfrom anywhere in the world and at any time of the day.

9. FDI- According to the recent decisions of the government of India100% FDI is allowed for most of the sectors in India.

10.BSE - Bombay stock exchange has the most number of companieslisted among all the stock exchanges in the world. In terms ofmarket capitalization of the listed companies it is the largest inSouth Asia and the 12th largest in the world.

11.NSE - This is the largest stock exchange in India in terms of tradingvolume.

12.Higher GDP - For the last few years India is posting higher GDPrates that is the proof of growing industrial sectors and boomingmarket. The higher GDP and lower import and export India is able toreduce the effect of recession as well.

13.Biggest enterprises - Indian industry boasts of some of thebiggest enterprises in the world.


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14.Least affected by recession - When other countries in the westhave worst hit with the recession of the economy and industry, Indiais among some of the least affected countries. It is the bindings ofthe regulations and control of the government on some sectors thathave made it possible to withstand the global recession that is being

described as the worst economical depression of all times.

15.A happening market - With acquisitions, mergers, takeovers -Indian industry is seeing it all. As an investor you can always takethe advantage of these events and make huge profit from the Indianstock market.

Article Source: http://www.saching.com
http://www.saching.com/http://www.saching.com/


10/23

WHAT'S WRONG WITH INDIA'S STOCK

MARKET?

India remains one of my favorite markets, even after the Reserve Bank of India

(RBI) raised the reverse repo and repo rates by 25 basis points. These moves

were overdue, as rates were low for an extended period even

though India doesnt have the deflation and debt issues facing Western

economies.

-- Yiannis Mostrous, Silk Road Investor

Quick quiz: which BRIC (Brazil, Russia, India, China) stock market

has performed worse so far in 2011?Answer: India by a wide margin. In fact, on January 7th Indias stock

market suffered its worst one-day point decline since October 2009 and its

worst percentage decline since May 2010. Take a look at the numbers:

BRIC Country Stock Market Return in 2011

China 0.5%

Russia -0.1%

Brazil -2.7%

India -8.0%

Source: Bloomberg

Don't Panic!

Before you panic, lets put things in perspective. India is notthe worst

performing stock market in the world this year. That dubious honor goes

to Bangladesh, which is down an astounding 22.2% in 2011! On January

10th, the Bangladesh stock market was halted after falling 9.3% in less

than an hour, the worst one-day decline in its 55-year history. Things are

so bad in Bangladesh that police needed to use tear gas and water

cannon against angry investors.

Feel better now?
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Other poor performing stock markets this year include Vietnam (-

8.3%), Chile (-7.1%), and Indonesia (-6.4%). So India is not alone in its

misery. Still, investors wish they'd invested in Mongolia (+7.5%) or Sri

Lanka (+5.7%) since the beginning of January.

INDIA IS A LONG-TERM WINNER

And long-term investors in India have nothing to complain about. Since

the market bottom in March 2009, Indian stocks have appreciated 195%,

second only to Russia among BRIC companies:

BRIC Country Stock Market Return Since March

2009

Russia 218%

India 195%

Brazil 146%

China 88%

Source: Bloomberg

INDIA'S FOOD INFLATION IS A PROBLEM

Still, nobody likes to lose money even in the short term so its reasonable

to ask what is causing the Indian market to go down? The answers are

inflation and interest-rate hikes. For the week ending December 25th,

the price of food in India shot up for the fifth straight week to an

annualized 18.32%, the highest rate in more than a year. For a country

where millions of people pay more than 50% of their disposable income

on food, this is very bad news. Indian Prime Minister Manmohan Singh has

convened an emergency meeting of his cabinet to deal with the inflation

situation.

The United Nations Food and Agriculture Organization issued a warning

last week that the entire developing world faces a food price shock this

year as its benchmark food price index (grains, rice, vegetable oils, dairy

products, sugar and meat) has reached record highs, surpassing itsprevious June 2008 peak.
http://www.washingtonpost.com/wp-dyn/content/article/2011/01/06/AR2011010603757.htmlhttp://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a9KVMV07GEL8http://www.fao.org/worldfoodsituation/wfs-home/en/http://www.washingtonpost.com/wp-dyn/content/article/2011/01/05/AR2011010506732.htmlhttp://www.washingtonpost.com/wp-dyn/content/article/2011/01/06/AR2011010603757.htmlhttp://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a9KVMV07GEL8http://www.fao.org/worldfoodsituation/wfs-home/en/http://www.washingtonpost.com/wp-dyn/content/article/2011/01/05/AR2011010506732.html


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INDIA'S INTEREST RATES HAVE BEEN RISING

When inflation accelerates, a countrys central bank springs into action to

stop it and Indias central bank is no exception. During 2010, Reserve

Bank of India Governor Duwuri Subbarao hiked reverse repo interest

rates six times, from 3.25% to 5.25%. After the last raise on November

2nd, Subbarao stated that there was a low likelihood for further rate

actions in the immediate future.

But that statement was made before the December food inflation data

came out. On January 7th, Subbarao reversed course, stating that the

recent pause in rate hikes since November should be viewed as a

"comma, not a full stop." This statement was unexpected and shocked

investors, sending the Indian stock market tumbling. Indian bankers are

warning that further rate hikes could overshoot and cause a slowdown in

credit growth.

Economists now believe that Indias Reserve Bank will hike interest

rates at leastan additional 25 basis points to 5.5% at its next meeting on

January 25th. Higher interest rates make stocks less attractive compared

to bonds, raise business costs, reduce profits, and increase the rate at

which future cash flows are discounted, which lowers a stocks calculated

valuation.

YIANNIS MOSTROUS REMAINS BULLISH ON INDIA

Although Yiannis Mostrous, editor ofSilk Road Investor, wrote back in late

October that the Indian market looks a little overextended, he still is

very bullish on the Indian market long term. He is not overly concerned

with Indias interest rate hikes because:

Interest rates in India play a secondary role when it comes to potential

economic impact, a product of the low levels of debt in the private sector

and the relative underdevelopment of the nations financial markets.

More important than interest rate hikes is the Indian governments

commitment to infrastructure spending, which will act as a

counterbalance and keep the Indian economy humming along:
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Emerging economies are expected to spend around USD6 trillion in both

government and private sector funds over the next three years on

infrastructure-related projects. India is in the sweet spot of this

investment cycle, with poor infrastructure and strong economic growth.

While bank lending growth has also slowed, it has stabilized at around 20

percent, which is still very healthy. The Indian government remains

committed to building the countrys infrastructure and is expected to

increase its contribution to infrastructure projects by 1 to 2 percent of

GDP.

India remains among his top five favorite emerging markets in which to

invest. (its not No. 1, however). For fund investors, Yiannis likes

the Emerging Global Shares India Infrastructure Fund(NYSE: INXX),

but he believes you can earn higher returns investing in carefully-selectedindividual stocks. He recommends his two favorite Indian stocks in the Silk

Road InvestorLong-Term Holdings Portfolio.

Profit from Indian Stocks with the Help of Silk RoadInvestor !

Take advantage of the temporary market selloff in Bombay to buy Indian

stocks at a discount. The First Five Days of January Indicator is deeply

flawed and is not statistically significant, so dont worry about the Indian

stock market's early January decline.

To find out the names of the two Indian stocks Yiannis is recommending

now, give Silk Road Investora try today!

CONCLUSION

The Indian stock markets have come very close to the danger

zone in terms of P/E values. The daily uncertainty facing the global

markets with respect to sovereign debt, bank exposure, and slow

economic growth make this a particularly dangerous time for

investors. The Indian stock market is vulnerable to any sudden
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14/23

degradation in investor sentiment that could be brought on by events

foreseen or unforeseen.

In my opinion the P/E ratios and world market conditions point to

a high possibility that the market is due for a correction. Investors

in the Indian market might want to take shelter in the few undervalued

blue chips that still exist, or even avoid expanding their exposure to this

market for a while until there is greater clarity on the direction of the US

and EU economies. The upward (and downward) movements are far more

extreme than movements in the more mature markets of the US and

Europe.

Source: - http://www.investingdaily.com/categories/stocks-

to-watch.html
http://www.investingdaily.com/categories/stocks-to-watch.htmlhttp://www.investingdaily.com/categories/stocks-to-watch.htmlhttp://www.investingdaily.com/categories/stocks-to-watch.htmlhttp://www.investingdaily.com/categories/stocks-to-watch.html


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COMPARATIVE

ANALYSIS OF STOCK

MARKET BETWEEN

NSE AND NYSE


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PROBLEM OF OUR STUDY

Presently, the fluctuations in the Indian market are attributed heavily tocross border capital flows in the form of FDI, FII and to reaction of Indian

market to global market cues. In this context, understanding the

relationship and influence of various exchanges on each other is very

important. This study that compares global exchanges which are from

different geo politico-socio-economic areas. With the cross border

movements of capital like never before in the form of FDI and FII, coupled

with the easing of restrictions bringing various stock exchanges at par interms of system and regulations, it can be assumed reasonably that a

particular stock exchange will have some impact on other exchanges.

OBJECTIVES OF THE STUDY

The main objective of this study is to capture the trends, similarities and

patterns in the activities and movements of the Indian Stock Market in

comparison to its international counterparts.

The aim is to help the investors (current and potential) understand the

impact of important happenings on the Indian Stock exchange.

PARAMETERS USED TO DO THE COMPARISON

This is the main part of the study wherein the various stock exchanges of

the sample have been compared on certain parameters. The Various

Parameters are as follows:

1. Market Capitalization

2. Number of listed securities

3. Listing agreements

4. Circuit filters


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5. Settlement

These parameters are used to look at selected important aspects of any

stock exchange, viz., the market capitalization gives an idea about the

size of the respective exchanges; whereas the number of listed securities

acts as an indicator for the volume and liquidity of any exchange. The

listing agreements take care of the governance issue, while circuit filters

give an insight into the risk management framework of the said exchange.

Finally, the efficiency of a stock exchange has been measured in terms of

its settlement process.

1.MARKET CAPITALIZATION:

Market capitalization is the measure of corporate size of a country. It

shows the current stock price multiplied by the number of outstanding

shares. It is commonly referred to as market cap. It is calculated by

multiplying the number of common shares with the current price of those

shares. This term is often confused with capitalization, which is the total

amount of funds used to finance a firm's balance sheet and is calculated

as market capitalization plus debt (book or market value) plus preferred

stock. While there are no strong definitions for market cap

categorizations, a few terms are frequently used to group companiesbased on its capitalization. The table below shows the market

capitalization of various stock markets in the world. The total market cap

of NSE is 75,60,607 crores as on 5th. Nov. 2010.

Source: NSEindia.com


18/23

Market capitalization graph of NYSE and NASDAQ

2. LISTED SECURITIES:

Listing in a stock exchange refers to the admission of the securities of the

company for trade dealings in a recognized stock exchange. The

securities may be of any public limited company, Central or State

Government, quasi-governmental and other financial

institutions/corporations, municipalities, etc. Securities of any company

are listed in a stock exchange to provide liquidity to the securities, to

mobilize savings and to protect the interests of the investors.

India has the highest number of companies listed (2476 securities

available for trade) in the stock market. Out of this, about 75 % of the

companies are listed with the Bombay Stock Exchange. After India, United

States has the highest number of companies listed.


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3. INDICES:

4. CIRCUIT FILTER

Stock Markets have the dubious reputation of crashing without a warning

taking with the savings of numerous investors. A stock market crash is a

sudden dramatic decline of stock prices across a significant cross-section

of a market. Crashes are driven by panic as much as by underlying


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economic factors. They often follow speculative stock market bubbles

such as the dot-com bubble.

5. TRADING AND SETTLEMENT CYCLE

This segment takes care of the efficiency issue of the said stockexchange. It basically looks into the speed at which any of the numerous

transactions affected in the market gets settled. This is especially crucial

given the volume. We see that Indian exchanges are at par with the best

in the world when it comes to efficient settlement. It can even go one up if

the proposed T+1system is put in place.

Below are the various settlement cycles for the stock exchanges.


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CONCLUSIONS OF THE STUDY ON THE BASIS OFDIFFERENT PARAMETERS

The study brings forth some distinct conclusions many of which validatepopular beliefs.

The objective of the whole research was to try and compare thevarious stock exchanges based on certain parameters in order tounderstand the impact of integration of the financial world on thevarious entities within it especially in the context of globalization

and increased interest in the capital markets fuelled by surginggrowth.

The comparison showed that Indian stock exchange has thegovernance system and an efficient mechanism in place to be aworld class institute, specially the requirements of Clause 49promulgated by SEBI and the advanced trading and settlementmechanism of NSE, respectively.

However, unfortunately our implementation of the same remains aproblem area with almost 15-20% of the listed companies yet to

align their operations as required under the law.

Moreover, there are also issues regarding the extent to which thesophisticated systems of the stock exchanges (NSE, BSE) areutilized in terms of the volume and frequency of transactions andthe range of instruments traded. The commodity segment,derivatives and such other segments are yet to see activities likethe equity segment of the market.

The reasons that can be attributed to this is the fact that it has beenonly 5 years (derivatives started in 2000) that the various segments,


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apart from equity and debt, have started operating and hence it isreasonably nascent compared to its global counterparts.

It would, therefore, not be unjustified to say that the system is stillevolving and it would take some time not only to attain efficiency of

operation, but also to generate increased interest and awarenessabout the various other segments of the market.

Then only can we expect the operations to match its globalcounterparts in terms of volumes, frequency and variety ofinstruments traded.

One more reason that can be attributed for the lag between a globalbenchmark like NYSE and BSE or NSE can be the fact that, in ourcountry, listing of foreign companies are still not allowed on the

lines of ADRs or GDRs. This can be due to lack of depth and breadthof the market. Again, as this study points out, the listing criteriadiffer in terms of size as well as their disclosure norms. This impliesthat the depth of the market judged by the total capitalization is lessfor the Indian markets compared to its counterparts. Moreover, thedisclosure norms affect the governance aspect as also theinformation availability.

Again the risk management system in our country is very elaborateand the mechanism in place is very efficient as also effective. Itactually matches the level of a well established benchmark like

NYSE. However, the only difference is in terms of risk appetite of theinvestors which causes the level and operation of circuit breakersto vary. However, Indian stock market is very much at the samepedestal and, in fact, better than most of its Asian counterpartsespecially the emerging economies. Indian system enjoyscreditability even when compared with a stock exchange like Nikkei(Japan).

If we look at the efficiency of trading captured by the trading andsettlement mechanism, then we have found that the Indian

mechanism is faster than the NYSE and at par with the best in theworld. In fact, it is one of the fastest.

One problem area that came out as a possible barrier in the path ofIndian stock exchanges attaining global level is the fact that Indiahas a very low rank in terms of market capitalization (ranked 14th).All other stock exchanges that we used in our study rank aboveIndian stock exchange. This is in spite of the fact that Indian stockexchanges have the highest number of companies listed (around9000) and BSE accounting for almost 75%. Therefore, volume-wise,Indian market is still pretty small.


23/23

(j.ganesh and ankit mour sec-f grp-b) potential of indian stock market to be on the top among the...

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