Indian Stock Marke4.docx

INDIAN STOCK MARKET ACKNOWLEDGEMENT

I am highly indebted to T.H.K. JAIN COLLEGE for their guidance and constant supervision as well as for providing necessary information regarding the project & also for their support in completing the project.

I would like to express my special thanks of gratitude to my supervisor , our HOD and our principal who gave me the golden opportunity to do this wonderful project, which also helped me in doing a lot of research and I came to know about so many new things I am really thankful to them. Lastly I would also like to thank my parents and friends who helped me a lot in finalizing this project within the limited time frame and provided me constant encouragement without which this project report would not have been possible.

PUJA MALL

INDIAN STOCK MARKET

PREFACE The stock market is one of the most important ways for companies to raise money, along with debt markets which are generally more imposing but do not trade publicly. This allows businesses to be publicly traded, and raise additional financial capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange affords the investors enables their holders to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as property and other immoveableassets. Some companies actively increase liquidity by trading in their own shares. History has shown that the price of stocks and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. An economy where the stock market is on the rise is considered to be an up-and-coming economy. In fact, the stock market is often considered the primary indicator of a country's economic strength and development. On the other hand Insider trading is something which directly affects the share prices of the companies and also provides various confidential information to some people who use it to gain from it. This project focuses on an overview of the Indian stock market, its history, development, current scenario and its importance to Indian economy and also the impact of Insider Trading into the Stock market.

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INDIAN STOCK MARKET TABLE OF CONTENTS:

SL. NO.

TOPIC

PAGE NO.

INTRODUCTION 1.1 Background 1.

1.2 Objectives

5-8

1.3 Literature Review 1.4 Research Methodology 1.5 Limitations

CONCEPTUAL FRAMEWORK 2.1 Concept Overview 2.

9-15 2.2 Functions of Stock exchanges 2.3 Bombay stock exchange(BSE) 2.4 National Stock exchange( NSE)

ANALYSIS & PRESENTATION 3.

3.1 Definition 3.2 Why to invest in index? 3.3 BSE_SENSEX 3.4 CNX_NIFTY

3

16-33

INDIAN STOCK MARKET SL. NO.

TOPIC

PAGE NO.

3.5 DEFINITION 3.6 THE MEANING OF INSIDER 3.7 PRICE-SENSITIVE INFORMATION 3.8 RELATION BETEWN STOCK MARKET AND INSIDER TRADING 3.9 INSIDER TRADING IN INDIA 3.10 CASE STUDY ON INSIDER TRADING

4

CONCLUSION

34-35

5

BIBLIOGRAPHY

36

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INDIAN STOCK MARKET CHAPTER – 1 INTRODUCTION

In the words of Warren Buffett: “The Stock Market is a device for transferring money from the impatient to the patient.” A Stock Market is the aggregation of buyers and sellers (a loose network of economic transactions, not a physical facility or discrete entity) of stocks; these may include securities listed on a stock exchange as well as those only traded privately. In simple words, Stock Market is a market where the trading of company stock, both listed securities and unlisted takes place.

1.1 BACKGROUND : In the present era of globalisation where India is becoming a developed country from developing country, the importance of its stock market is growing day by day. If we want to understand the present situation of the Indian stock market, we need to know the history of it. The history of Indian stock market is about 200 years old. Prior to this the hundies and bills of exchange were in use, especially in the medieval period, which can be considered as a form of virtual stock trading but it was certainly not an organized stock trading. The recorded stock trading can be traced only after the arrival of East India Company. An informal group of 22 stockbrokers began trading under a banyan tree opposite the Town Hall of Bombay from the mid-1850s, each investing a (then) princely amount of Rupee 1. This banyan tree still stands in the Horniman Circle Park, Mumbai. In 1860, the exchange flourished with 60 brokers. In fact the 'Share Mania' in India began with the American Civil War broke and the cotton supply from the US to Europe stopped. Further the brokers increased to 250. The informal group of stockbrokers organized themselves as 5

INDIAN STOCK MARKET The Native Share and Stockbrokers Association which, in 1875, was formally organized as the Bombay Stock Exchange which remains the premier stock exchange since its inception. During this period several other exchanges were launched and some of which were closed also. Presently, there are 23 recognized stock exchanges out of which four are national level exchanges and the remaining are regional exchanges. National Stock Exchange, established in 1992, was the last exchange. Although the regional level exchanges are in existence the volume of trading in these exchanges is negligible. National Stock Exchange and Bombay Stock Exchange are the leaders of Indian Securities Market in terms of listing, trading and volumes. The last 15 years of the Indian securities market can be considered as the most important part of the history where the market gone through the post liberalization era of Indian economy and witnessed the formation of Securities and Exchange Board of India (SEBI) which brought substantial transparency in share market practices and thus managed to bring in trust of not only domestic investors but also the international ones.

1.2: OBJECTIVES : As globalization makes it possible to open up Indian market to the World market, the stock market in India may be considered as aindicator of a country's economic strength and development. As the activities on a stock market tend to be specialized and not understood by common people, this project will give some basic definitions and review of Indian stock market history, operations and importance so as to serve as a basis for understanding how the Indian stock market can help promote investment and trade in a monetary zone. This project will also help to understand how insider trading happens and what is the real impact of insider trading on the stock market. Basically this project will help to develop an overall concept of Indian stock market and the overall impact of Insider Trading in this market and what are procedures that have been adopted to stop the Insider Trading and to make the Indian market more efficient. Moreover we will try to understand with the help of a case study that how the insider trading is done in an emerging market like India and what are steps taken to stop this illegal means.

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INDIAN STOCK MARKET

1.3 LITERATURE REVIEW :

Grewal S.S and Navjot Grewall, JULY 2015 : Recent data indicates that India has joined the league of the world’s ten largest economies, as measured by 2014 gross domestic product (GDP) (World Bank, July 15, 2014). Additionally, another study reports that state investment in stock market to India have grown dramatically in recent years. Stock markets in India are performing well after foreign direct investment (FDI) is showing an increasing trend. India is the world’s largest recipient of foreign direct investment. Money invested to Indian stock market by non-resident Indians has raised from an average of approximately two billion U.S. dollars per year in the late 1980’s to seventeen billion U.S. dollars in 2013. Apart from investment, SEBI and Government are coming up with stringent laws to protect the investor’s money and also to stop insider trading. L.C.Gupta8 (2008) : revealed the findings of his study that there is existence of wild speculation in the Indian stock market and there is effect of Insider trading as well. The over speculative character of the Indian stock market is reflected in extremely high concentration of the market activity in a handful of shares to the neglect of the remaining shares and absolutely high trading velocities of the speculative counters. He opined that, short- term speculation and Insider Trading could lead to "artificial price". An artificial price is one which is not justified by prospective earnings, dividends, financial strength and assets or which is brought about by speculators through rumours, manipulations, etc. He concluded that such artificial prices are bound to crash sometime or other as history has repeated and proved. G. Gupta (1992) : In his book has studied the working of stock exchanges in India and has given a number of suggestions to improve its working. The study highlights the' need to regulate the volume of speculation so as to serve the needs of liquidity and price continuity. It suggests the enlistment of corporate securities in more than one stock exchange at the same time to improve liquidity. The study also wishes the cost of issues to be low, in order to protect small investors. M. Panda (1980) : He has studied the role of stock exchanges in India before and after independence. The study reveals that listed stocks covered four-fifths of the joint stock sector companies. Investment in securities was no longer the monopoly of any particular class or of 7

INDIAN STOCK MARKET a small group of people. It attracted the attention of a large number of small and middle class individuals. It was observed that a large proportion of savings went in the first instance into purchase of securities already issued.

Suresh G Lalwani (1999) : It emphasised the need for risk management in the securities market with particular emphasis on the price risk. He commented that the securities market is a 'vicious animal' and there is more than a fair chance that far from improving, the situation could deteriorate.

1.4 RESEARCHMETHODOLOGY : The method that has been adopted to complete the project is secondary data type.  Secondary data has been extracted from various books, journals and well known websites.



Various graphs and diagrams have been provided in order to explain the data so that it becomes easier for everybody to understand the depth of the topic.

1.5LIMITATIONS OF THE STUDY : Every research project carries some limitations as the work is based upon either secondary or primary data. In the course of finding of the study, there are lots of limitations. These limitations are as follows: 



   

DATA COLLECTION: The most important constraint in this study was data collection as Secondary data was selected for the study. It’s very hard to collect data from the various sources and to verify it. TIME PERIOD: Time period was one of the main factor as the preparation time was less while data collection covered a wide scope. On the other hand data of more than 20 years have been shown which keep changing due to change in several factors. ACCURACY: The facts and figures may not be showing accurate result as secondary data is collected and there was a shortage of time. LIMITED AREA:The topic could cover much more details analysis and various other things which require time to be spent as the topic is wide in its scope. No Technical Analysis: No models for technical analysis were used. However, technical analysis is of huge importance for decision making. DATA MINING: In the study only some concepts of stock exchanges like BSE or NSE and stock index like NIFTY and SENSEX have been defined. But in reality there are other exchanges and indexes which also play a significant role while making policy decision. 8

INDIAN STOCK MARKET CHAPTER – 2 CONCEPTUAL FRAMEWORK 2.1STOCK EXCHANGE : As per Section 4 of Securities contract act 1956, “Stock Exchange means an association, organization or body of individuals whether incorporated or not, established for the purpose of assisting and controlling the business of buying, selling and dealing in securities”. Stock Exchanges are an organized marketplace, either corporation or mutual organization, where members of the organization gather to trade company stocks or other securities. The members may act either as agents for their customers, or as principals for their own accounts. Stock exchanges also facilitates for the issue and redemption of securities and other financial instruments including the payment of income and dividends. The record keeping is central but trade is linked to such physical place because modern markets are computerized. The trade on an exchange is only by members and stock broker do have a seat on the exchange.

2.2FUNCTIONS OF STOCK MARKET : Just as it is important that networks of transportations, electricity and telecommunications function properly, so it is also essential that payments can be transacted, capital can be saved and channelled to the most profitable investment projects and that both households and firms get help in handling financial uncertainty and risk as well as possibilities of spreading consumption over time. Financial markets constitute an important part of the total infrastructure for every society that has passed the stage of largely domestic economies. Stock market which is the part of the financial markets performs following functions in an economy :

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INDIAN STOCK MARKET 1. Raising Capital for Business : The Stock exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public. 2. Mobilizing Savings for Investment : When people draw their savings and invest in shares, it lead to more rational allocation of resources because funds which could have been consumed or kept in idle deposits with banks, are mobilized and redirected to promote business activities. Stock exchange provides nexus between savings and investment. 3. Capital Formation : Having an easy off loading facility of shares and in the process of gaining in a handsome way induces people to save and invest their money in capital market.These help in capital formation.

4. Expansion of Investors Base :A stock exchange provides investment opportunities of all kinds of investors spread all over the country. Thus it helps in defusing ownership of companies. 5. Redistribution of Wealth : By giving a wide spectrum of people a chance to buy shares and therefore become part owners of profitable enterprises, the stock market helps to reduce large income inequalities. 6. Corporate Governance : By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demand of these shareholders and more stringent rules for public corporations by public stock exchange and the government. Consequently, it is believed that public companies tend to have better management record then privately held companies. 7. Barometer of Economy : At the stock exchanges, share prices rise and fall depending largely on the market. The prices of shares of various companies, listed on the stock exchange actually show the value of economy or strength of the economy. For India, in recent times stock markets are performing well which reflects the sign of developed economy. 8. Attractions to Foreign Investors : Well developed and well regulated stock market acts as an attraction to foreign investment. A developing country like India where domestic savings do not become adequate to finance its different types of development activities, requirement of inflow of foreign capital is a must. Stock market provides one of the avenues of channelizing foreign capital to domestic development.

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INDIAN STOCK MARKET 9. Investor Interest Protection : Stock exchanges are well regulated. There are strict bylaws, rules and regulations. All these have been designed to facilitate a smooth and continuous transaction in the market and to safe guard the interest of the investor. 10. Regulation of Company Management : Listing and trading of securities in the stock exchange are guided by prescribed rules and regulations of the stock exchange. The company desirous of listing their securities in the stock market must have to confirm these rules and guide lines.

2.3BOMBAY STOCK EXCHANGE ;(BSE) :

Bombay Stock Exchange (BSE) is an Indian located in Mumbai, Maharashtra, India. Established in 1875 and is considered to be one of Asia’s fastest stock exchanges, with a speed of 200 microseconds and one of India’s leading exchange groups and the oldest stock exchange in the South Asia region. Bombay Stock Exchange is the world's 10th largest stock marketby market capitalization at $1.7 trillion as of 23 January 2016. Currently 5,459 companies are listed on BSE.It is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was established in 1878. It is a voluntary non-profit making Association of Persons (AOP) and has converted itself into demutualised and corporate entity. It has evolved over the years into its present status as the Premier Stock Exchange in the country. It is the first Stock Exchange in the Country to have obtained permanent recognition in 1956 from the Govt. of India under the Securities Contracts (Regulation) Act, 1956.In 1980, the exchange moved to the PhirozeJeejeebhoy Towers at Dalal Street, Fort area. In 1986, it developed the BSE SENSEX index, giving the BSE a means to measure overall performance of the exchange. In 2000, the BSE used this index to open its derivatives market, trading SENSEX futures contracts. The development of SENSEX options along with equity derivatives followed in 2001 and 2002, expanding the BSE's trading platform. The Exchange, while providing an efficient and transparent market for trading in securities, debt and derivatives upholds the interests of the investors and ensures redressal of their grievances whether against the companies or its own member-brokers. It also strives to 11

INDIAN STOCK MARKET educate and enlighten the investors by conducting investor education programmes and making available to them necessary informative inputs. A Governing Board having 20 directors is the apex body, which decides the policies and regulates the affairs of the Exchange. The Governing Board consists of 9 elected directors, who are from the broking community (one third of them retire every year by rotation), three SEBI nominees, six public representatives and an Executive Director & Chief Executive Officer and a Chief Operating Officer. It has currently 700 members and most of them are individual member. The Executive Director as the Chief Executive Officer is responsible for day-to-day administration of the Exchange and he is assisted by the Chief Operating Officer and other Heads of Department. The Exchange has inserted new Rule in its Rules, Bye-laws & Regulations pertaining to constitution of the Executive Committee of the Exchange. Accordingly, an Executive Committee, consisting of three elected directors, three SEBI nominees or public representatives, Executive Director & CEO and Chief Operating Officer has been constituted. The Committee considers judicial & quasi matters in which the Governing Board has powers as an Appellate Authority, matters regarding annulment of transactions, admission, continuance and suspension of member-brokers, declaration of a member-broker as defaulter, norms, procedures and other matters relating to arbitration, fees, deposits, margins and other monies payable by the member-brokers to the Exchange, etc. Historically an open outcry floor trading exchange, the Bombay Stock Exchange switched to an electronic trading system developed by CMC Ltd in 1995. It took the exchange only fifty days to make this transition. This automated, screen-based trading platform called BSE Online trading (BOLT) had a capacity of 8 million orders per day. The BSE has also introduced a centralized exchange-based internet trading system, BSEWEBx.co.in to enable investors anywhere in the world to trade on the BSE platform.The indexes that are used to trade on BSE are 1. 2. 3. 4.

BSE SENSEX BSE SMALL CAP BSE MID-CAP BSE -500

The BSE Index, SENSEX, is India's first and most popular Stock Market benchmark index. Exchange traded funds (ETF) on SENSEX, are listed on BSE and in Hong Kong. Futures and options on the index are also traded at BSE.

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INDIAN STOCK MARKET TRADING SCHEDULE: SESSION PRE-OPENING TRADING SESSION TRADING SESSION POSITION TRANSFER SESSION CLOSING SESSION OPTION EXERCISE SESSION

TIMING 09:00-09:15 09:15-15:30 17:05-17:15 17:05-17:55 17:07

2.4 NATIONAL STOCK EXCHANGE ;(NSE) :

The National Stock Exchange of India Limited (NSE) is the leading stock exchange of India, located in Mumbai. NSE was established in 1992 as the first demutualized electronic exchange in the country. NSE was the first exchange in the country to provide a modern, fully automated screen-based electronic trading system which offered easy trading facility to the investors spread across the length and breadth of the country. NSE has a market capitalization of more than US$1.65 trillion, making it the world’s 12thlargest stock exchange as of 23 January 2016. NSE's flagship index, the CNX Nifty, the 50 stock index, is used extensively by investors in India and around the world as a barometer of the Indian capital markets. Currently it has 1696 listed companies on the exchange. It covers 364 cities and towns across the country. The indexes that are used to trade on NSE are 1. CNX-NIFTY 13

INDIAN STOCK MARKET 2. CNX-NIFTY JUNIOR 3. CNX 500

NSE was set up by a group of leading Indian financial institutions at the behest of the government of India to bring transparency to the Indian capital market. Based on the recommendations laid out by the government committee, NSE has been established with a diversified shareholding comprising domestic and global investors. The key domestic investors include Life Insurance Corporation of India, State Bank of India, IFCI Limited IDFC Limited and Stock Holding Corporation of India Limited. And the key global investors are Gagil FDI Limited, GS Strategic Investments Limited, SAIF II SE Investments Mauritius Limited, Aranda Investments (Mauritius) Pte Limited and PI Opportunities Fund I. Its Board comprises of senior executives from promoter institutions, eminent professionals in the fields of law, economics, accountancy, finance, taxation, etc. public representatives, nominees of SEBI and one full time executive of the Exchange. While the Board deals with broad policy issues, decisions relating to market operations are delegated by the Board to various committees constituted by it. Such committees include representatives from trading members, professionals, the public and the management. The day-to-day management of the Exchange is delegated to the Managing Director who is supported by a team of professional staff. NSE offers trading, clearing and settlement services in equity, equity derivatives, debt and currency derivatives segments. It is the first exchange in India to introduce electronic trading facility thus connecting together the investor base of the entire country. NSE has 2500 VSATs and 3000 leased lines spread over more than 2000 cities across India. The exchange was incorporated in 1992 as a tax-paying company and was recognized as a stock exchange in 1993 under the Securities Contracts (Regulation) Act, 1956, when P. V. NarasimhaRao was the Prime Minister of India and Manmohan Singhwas the Finance Minister. NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The capital market (equities) segment of the NSE commenced operations in November 1994, while operations in the derivatives segment commenced in June 2000. NSE's mission is setting the agenda for change in the securities markets in India. The NSE was set-up with the following objectives:  establishing a nation-wide trading facility for equities, debt instruments and hybrids,  ensuring equal access to investors all over the country through an appropriate communication network,  providing a fair, efficient and transparent securities market to investors using electronic trading systems,  enabling shorter settlement cycles and book entry settlements systems, and  meeting the current international standards of securities markets Trading schedule: 14

INDIAN STOCK MARKET Trading on the equities segment takes place on all days of the week (except Saturdays and Sundays and holidays declared by the Exchange in advance). The market timings of the equities segment are: (1) Pre-open session  

Order entry & modification Open: 09:00 hrs Order entry & modification Close: 09:08 hrs. With random closure in last one minute. Pre-open order matching starts immediately after close of pre-open order entry.

(2) Regular trading session  

Normal/Retail Debt/Limited Physical Market Open: 09:15 hrs Normal/Retail Debt/Limited Physical Market Close: 15:30 hrs.

Apart from these two stock exchanges there are 21 more stock exchanges which also perform various important roles in the development of India.

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INDIAN STOCK MARKET CHAPTER – 3 Analysis & Interpretation

3.1 STOCK INDEX : A Stock Index or Stock Market Index is a measurement of the value of a section of the stock market. It is computed from the prices of selected stocks (typically a weighted average). It is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments.

3.2 Why invest in an Index ? : “Over the past 35 years, American business has delivered terrific results. It should therefore have been easy for investors to earn juicy returns: All they had to do was piggyback Corporate America in a diversified, low-expense way. An index fund that they never touched would have done the job. Instead many investors have had experiences ranging from mediocre to disastrous.” “By periodically investing in a low cost index fund, a know-nothing investor can actually outperform most investment professionals.” -Warren Buffet    



Passive investing: Eliminates the risk of stock selection and fund managers discretion Low costs: Saves on cost of research and frequent portfolio churns. Maximum expenses capped @ 1.5%. No style drift: The scheme exactly invests as per the index and hence sticks to the mandate. Difficult to outperform: Globally, over a period of 3 and 5 years, S&P 500 has beaten 64.9% of the large cap funds and the S&P Midcap 400 has outperformed 80.5% of midcap funds. Diversification of risk: it is always better to invest in index as it diversifies the risk relating to stock. Investing in one or two individual stock may become risky as the stocks can go down to a large extent but investment in index helps to diversify the risk as it invest the money on a weighted basis on overall all stocks of the index.

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INDIAN STOCK MARKET 3.3 BSE SENSEX :

INTRODUCTION: The S&P BSE SENSEX (S&P Bombay Stock Exchange Sensitive Index), also-called the BSE 30 or simply the SENSEX, is a free-float market-weighted stock market index of 30 well-established and financially sound companies listed on Bombay Stock Exchange. The 30 component companies which are some of the largest and most actively traded stocks are representative of various industrial sectors of the Indian economy. Published since 1 January 1986, the S&P BSE SENSEX is regarded as the pulse of the domestic stock markets in India. The base value of the S&P BSE SENSEX is taken as 100 on 1 April 1979, and its base year as 1978–79. On 25 July 2001 BSE launched DOLLEX-30, a dollar-linked version of S&P BSE SENSEX. As of 21 April 2011, the market capitalisation of S&P BSE SENSEX was about 29733 billion (US$467 billion) (47.68% of market capitalisation of BSE), while its free-float market capitalisation was 15690 billion (US$246 billion).One can identify the booms and busts of the Indian equity market through S&P BSE SENSEX. As the oldest index in the country, it provides the time series data over a fairly long period of time (from 1979 onwards). Small wonder, the S&P BSE SENSEX has become one of the most prominent brands in the country.

Calculation Methodology : S&P BSE SENSEX is calculated using the 'Free-float Market Capitalization' methodology, wherein, the level of index at any point of time reflects the free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization. The base period of S&P BSE SENSEX is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of S&P BSE SENSEX involves dividing the free-float market capitalization of 30 17

INDIAN STOCK MARKET companies in the Index by a number called the Index Divisor. The Divisor is the only link to the original base period value of the S&P BSE SENSEX. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate S&P BSE SENSEX on a continuous basis.

Scrip Selection Criteria : The criteria for the selection of stocks to be included in SENSEX ar as follows: 1. Equities of companies listed on BSE Ltd.(excluding companies classified in Z group, listed mutual funds, scrip’s suspended on the last day of the month prior to review date, stocks objected by the Surveillance department of the Exchange and those that are traded under permitted category and SME category) shall be considered eligible The scrip should have a listing history of at least three months at BSE. An exception may be granted to one month, if the average free-float market capitalization of a newly listed company ranks in the top10 of all companies listed at BSE. In the event that a company is listed on account of a merger/demerger / amalgamation, a minimum listing history is not required. 2. The stock should have been traded on each and every trading day in the last three months at BSE. Exceptions can be made for extreme reasons like scrip suspension etc. Companies that have reported revenue in the latest four quarters from its core activity are considered eligible. 3. From the list of constituents selected through Steps1-2, the top 75 companies based on free-float market capitalization(avg.3 months) are selected as well as any additional companies that are in the top 75 based on full market capitalization(avg.3months). The filtered list of constituents selected (whichcanbegreaterthan75 companies)is then ranked on absolute turnover(avg.3months).Any company in the filtered, sorted list that has Cumulative Turnover of>98%, are excluded, so long as the remaining list has more than 30scrip’s. The filtered list calculated is then sorted by free-float market capitalization. Any company having a weight within this filtered constituent list of<0.50% shall be excluded. 4. All remaining companies will be sorted on sector and sub-sorted in the descending order of rank on free-float market capitalization. Industry/Sector Representation: Scrip selection will generally attempt to maintain index sectoral weights that are broadly inline with the overall market.

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INDIAN STOCK MARKET Components of Sensex : SENSEX is a basket of 30 stocks representing a sample of large and liquid companies

SCRIP NAME

RELIANCE INDUSTRIES ICICI BANK LARSEN TURBO

MARKET WEIGHT CAPITALISATION(RS INDEX(%) :CRORE) 329178.73 15.35 85589.54 & 88321.36

7.98 7.42

81,783.17

67,579.99 156,785.10

6.49 5.36 5.12

77736.80 100976.76

5.08 4.24

209898.26 46771.18 104914.49

3.92 3.49 3.43

50685.54 100672.24 26441.43 48804.67

3.31 3.29 2.34 2.32

162435.65 29593.48

2.27 1.93

79355.53 23603.36 11027.43 26524.96

1.85 1.65 1.54 1.48

INFOSYS HDFC Ltd. BHARTI AIRTEL ITC LTD. STATE BANK OF INDIA ONGC HDFC BANK SESA STERLITE TATA STEEL BHEL AXIS BANK HINDUSTHAN UNILEVER NTPC LTD. BAJAJ AUTO LTD. TCS COAL INDIA TATA POWER DR. REDDYS LABS

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IN

INDIAN STOCK MARKET TATA MOTORS HINDALCO M&M WIPRO MARUTI HERO MOTORCROP CIPLA GAIL SUN PHARMA

24033.43 20217.87 17095.03 62133.50 23966.53 16375.36

1.35 1.32 1.28 1.16 1.12 1.07

17080.98 8428.34 15500.35

1.04 .95 .87

SENSEX CHART AND HISTORY TILL NOW:

SENSEX ; 1991-2015 2014 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 YEAR 0

5000

10000

15000

20000

20

25000

30000

35000

INDIAN STOCK MARKET Here is a timeline on the rise of the SENSEX through Indian stock market history 

1000, 25 July 1990 – On 25 July 1990, the SENSEX touched the four-digit figure for the first time and closed at 1,001 in the wake of a good monsoon and excellent corporate results.



2000, 15 January 1992 –On 15 January 1992, the SENSEX crossed the 2,000 mark and closed at 2,020 followed by the liberal economic policy initiatives undertaken by the then finance minister and Former Prime Minister of India Dr Manmohan Singh.

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3000, 29 February 1992 – On 29 February 1992, the SENSEX surged past the 3,000 mark in the wake of the market-friendly Budget announced by Manmohan Singh.

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4000, 30 March 1992 –On 30 March 1992, the SENSEX crossed the 4,000 mark and closed at 4,091 on the expectations of a liberal export-import policy. It was then that the Harshad Mehta scam hit the markets and SENSEX witnessed unabated selling.

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5000, 11 October 1999 – On 11 October 1999, the SENSEX crossed the 5,000 mark, as the BharatiyaJanata Party-led coalition won the majority in the 13th LokSabha election.

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6000, 11 February 2000 –On 11 February 2000, the information technology boom helped the SENSEX to cross the 6,000 mark and hit an all-time high of 6,006 points. This record would stand for nearly four years, until 2 January 2004, when the SENSEX closed at 6,026.59 points.

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7000, 21 June 2005 – On 20 June 2005, the news of the settlement between the Ambani brothers boosted investor sentiments and the scrips of RIL, Reliance Energy, Reliance Capital and IPCL made huge gains. This helped the SENSEX crossed 7,000 points for the first time.

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8000, 8 September 2005 –On 8 September 2005, the Bombay Stock Exchange's benchmark 30-share index – the SENSEX – crossed the 8,000 level following brisk buying by foreign and domestic funds in early trading.

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9000, 9 December 2005 – The SENSEX on 28 November 2005 crossed 9,000 and touched a peak of 9,000.32 points during mid-session at the Bombay Stock Exchange on the back of frantic buying spree by foreign institutional investors and well supported by local operators as well as retail investors. However, it was on 9 December 2005 that the SENSEX first closed at over 9,000 points.

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INDIAN STOCK MARKET 

10,000, 7 February 2006 –The SENSEX on 6 February 2006 touched 10,003 points during mid-session. The SENSEX finally closed above the 10,000 mark on 7 February 2006.



11,000, 27 March 2006 –The SENSEX on 21 March 2006 crossed 11,000 and touched a peak of 11,001 points during mid-session at the Bombay Stock Exchange for the first time. However, it was on 27 March 2006 that the SENSEX first closed at over 11,000 points.

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12,000, 20 April 2006 –The SENSEX on 20 April 2006 crossed 12,000 and touched a peak of 12,004 points during mid-session at the Bombay Stock Exchange for the first time.

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13,000, 30 October 2006 – The SENSEX on 30 October 2006 crossed 13,000 for the first time. It touched a peak of 13,039.36, before finally closing at 13,024.26 points.



14,000, 5 December 2006 – The SENSEX on 5 December 2006 crossed the 14,000 mark for the first time.



15,000, 6 July 2007 – The SENSEX on 6 July 2007 crossed the 15,000 mark for the first time.



16,000, 19 September 2007 – The SENSEX on 19 September 2007 crossed the 16,000 mark for the first time.



17,000, 26 September 2007 – The SENSEX on 26 September 2007 crossed the 17,000 mark for the first time.



18,000, 9 October 2007 – The SENSEX on 9 October 2007 crossed the 18,000 mark for the first time.



19,000, 15 October 2007 – The SENSEX on 15 October 2007 crossed the 19,000 mark for the first time.



20,000, 11 December 2007 – The SENSEX on 29 October 2007 crossed the 20,000 mark for the first time during intra-day trading, but closed at 19,977.67 points. However, it was on 11 December 2007 that it finally closed at a figure above 20,000 points on the back of aggressive buying by funds.



21,000, 5 November 2010 – The SENSEX on 8 January 2008 crossed the 21,000 mark for the first time, reaching an intra-day peak of 21,078 points, before closing at 20,873. However, it was not until 5 November 2010 that the SENSEX closed at

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INDIAN STOCK MARKET 21,004.96, for its first close above 21,000 points. This record would stand for nearly three years, until 30 October 2013, when the SENSEX closed at 21,033.97 points. 

19 February 2013 – SENSEX becomes S&P SENSEX as BSE ties up with Standard and Poor's to use the S&P brand for Sensex and other indices.



13 March 2014 - The SENSEX closes higher than the Hang Seng Index, to become the major Asian stock market index with the highest value, for the first time ever.



22,000, 24 March 2014 – The SENSEX on 10 March 2014 crossed the 22,000 mark for the first time during intra-day trading. However, it was on 24 March 2014 that the index finally closed above the milestone at 22,095.30.



23,000, 9 May 2014 - The SENSEX crossed record 23,000 level for the first time, but close just short of the milestone level, on 9 May 2014. The index would close well above the 23,000 mark during the following session.



24,000, 13 May 2014 -The SENSEX crossed record 24,000 level for the first time, on 13 May 2014 and reached its peak of 24,067.11 due to sustained capital inflows by foreign funds at the domestic bourses and widespread buying by retail investors after exit polls showing the BJP-led NDA forming the government lifted the key indices to new highs. However it closed at a little low at 23,905 points.



25,000, 16 May 2014 -The SENSEX crossed record 25,000 level for the first time, on 16 May 2014 and reached its peak of 25,364.71 due to winning of the BJP led NDA government by a staggering record marginal difference of all times. However, it closed well below the 25,000 mark. Still, the index closed at its all time high of 24,121.74, for its first close above 24,000 points. The SENSEX closed at 25,019.51, for its first close above the 25,000 milestone on 5 June 2014.



26,000, 7 July 2014-The SENSEX crossed record 26,000 level for the first time on 7 July 2014 and reached its peak of 26,123.55, before closing slightly lower at 26,100.08, in anticipation of strong reformatory budget by the new government.



27,000, 2 September 2014 - The SENSEX closed at 27,019.39, for its first close above the 27,000 level, on 2 September 2014.[16] This is the sixth 1000-point milestone the index has crossed in 2014, tying a record set in 2007.



28,000, 5 November 2014 - The SENSEX crossed 28,000 mark, on 5 November 2014. One week later, on 12 November 2014, the index would close above the milestone for the first time.[18] This is the seventh 1000-point milestone the index has crossed in 2014, breaking the six 1000-point record set in 2007. 23

INDIAN STOCK MARKET 

29,000, 21 JAN 2015 - The SENSEX crossed 29,000 mark.



29272, 23 JAN 2015 - BSE Sensex today set a new high of 29,408 points and all-time closing high of 29,278.84, up 272.82 points



30000, 4 MARCH 2015 - The Sensex breaches 30000 mark due to the steps taken by the Reserve Bank Of India as regards cutting the repo rates.



Recently, sensex is trading at 24486 as on 24th of January 2016

FINDINGS : It has been seen that the SENSEX has been gone through a wide volatility due to various economical and non-economical factors. The journey of SENSEX from 1991 to 2015,is indicating that SENSEX has given 30 times return to investors. Though there are lots of factors that effected the SENSEX, but it is showing how the index ultimately results in better economical development of India, which ultimately resulting in making India a developed country from the developing country. Especially SENSEX in 1992 has given an better result due to the globalisation and liberalization policy adopted by India. In 2014-2015 the SENSEX has given a great result due to the new stable government and their developmental policy.

3.4 CNX-NIFTY :

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INDIAN STOCK MARKET INTRODUCTION : The CNX Nifty, also called the Nifty 50 or simply the Nifty, is National Stock Exchange of India's benchmark stock market indexfor Indian equity market. Nifty is owned and managed by India Index Services and Products (IISL), which is a wholly owned subsidiary of the NSE Strategic Investment Corporation Limited. IISL had marketing and licensing agreement with Standard & Poor's for co-branding equity indices until 2013. The 'CNX' in the name stands for 'CRISIL NSE Index'. CNX Nifty has shaped up as a largest single financial product in India, with an ecosystem comprising: exchange traded funds (onshore and offshore), exchange-traded futures and options (at NSE in India and at SGX and CME abroad), other index funds and OTC derivatives (mostly offshore). The CNX Nifty covers 22 sectors of the Indian economy and offers investment managers exposure to the Indian market in one portfolio. During 2008-12, CNX Nifty 50 Index share of NSE market capitalization fell from 65% to 29% due to the rise of sectoral indices like CNX Bank, CNX IT, CNX Mid Cap, etc. The CNX Nifty 50 Index gives 29.70% weightage to financial services, 0.73% weightage to industrial manufacturing and nil weightage to agricultural sector. The CNX Nifty index is a free float market capitalization weighted index. The index was initially calculated on full market capitalization methodology. From June 26, 2009, the computation was changed to free float methodology. The base period for the CNX Nifty index is November 3, 1995, which marked the completion of one year of operations of National Stock Exchange Equity Market Segment. The base value of the index has been set at 1000, and a base capital of Rs 2.06 trillion. The CNX Nifty Index was developed by Ajay Shah and Susan Thomas.

Calculation Methodology : CNX Nifty is computed using market capitalization weighted method, wherein the level of the index reflects the total market value of all the stocks in the index relative to a particular base period. The method also takes into account constituent changes in the index and importantly corporate actions such as stock splits, rights, etc. without affecting the index value.

Scrip Selection Criteria : The criteria for the selection of stocks to be included in Nifty are as follows: 1. For inclusion in the index, the security should have traded at an average impact cost of 0.50% or less during the last six months for 90% of the observations for a basket size of Rs.2Crores. Impact cost is cost of executing at tansaction in a 25

INDIAN STOCK MARKET security in proportion to the weight age of its free float market capitalization as a gains t the index free-float market capitalization at any point of time. This is the percentage mark up suffered while buying/selling the desired quantity of a security compared to its ideal price (best buy + best sell)/ 2. 2.

Companies eligible for inclusion in CNX Nifty should have atleast10% floating stock. For this purpose, floating stock shall mean stocks which are not held by the promoters and associated entities (where identifiable) of such companies.

3. A company which comes out with a IPO will be eligible for inclusion in the index, if it fulfils the normal eligibility criteria for the index like impact cost, market capitalization and floating stock, for a 3 month period instead of a 6 month period. 4. A stock may be replaced from the index reasons may be compulsory changes like corporate actions, delisting etc. In such a scenario, the stock having largest freefloat market capitalization and satisfying other requirements related to liquidity, turnover and free-float will be considered for inclusion.

Components of Nifty NIFTY is a basket of 50 stocks representing a sample of large and liquid companies.

ACC Ltd. Ambuja Cements Ltd. Asian Paints Ltd. Axis Bank Ltd. Bajaj Auto Ltd. Bank of Baroda Bharat Heavy Electricals Ltd. Bharat Petroleum Corporation Ltd. BhartiAirtel Ltd. Cairn India Ltd. Cipla Ltd. Coal India Ltd. DLF Ltd. Dr. Reddy's Laboratories Ltd. GAIL (India) Ltd. Grasim Industries Ltd.

CEMENT & CEMENT PRODUCTS CEMENT & CEMENT PRODUC CONSUMER GOODS FINANCIAL SERVICES AUTOMOBILE FINANCIAL SERVICES INDUSTRIAL MANUFACTURING ENERGY TELECOM ENERGY PHARMA METALS CONSTRUCTION PHARMA ENERGY CEMENT & CEMENT PRODUCTS 26

INDIAN STOCK MARKET HCL Technologies Ltd. HDFC Bank Ltd. Hero MotoCorp Ltd. Hindalco Industries Ltd. Hindustan Unilever Ltd. Housing Development Finance Corporation Ltd. I T C Ltd. ICICI Bank Ltd. IDFC Ltd. IndusInd Bank Ltd. Infosys Ltd. Jindal Steel & Power Ltd. Kotak Mahindra Bank Ltd. Larsen & Toubro Ltd. Lupin Ltd. Mahindra & Mahindra Ltd. Maruti Suzuki India Ltd. NMDC Ltd. NTPC Ltd. Oil & Natural Gas Corporation Ltd. Power Grid Corporation of India Ltd. Punjab National Bank Reliance Industries Ltd. SesaSterlite Ltd. State Bank of India Sun Pharmaceutical Industries Ltd. Tata Consultancy Services Ltd. Tata Motors Ltd. Tata Power Co. Ltd. Tata Steel Ltd. Tech Mahindra Ltd. UltraTech Cement Ltd. Wipro Ltd. Zee Entertainment Enterprises Ltd.

IT FINANCIAL SERVICES AUTOMOBILE METALS CONSUMER GOODS FINANCIAL SERVICES CONSUMER GOODS FINANCIAL SERVICES FINANCIAL SERVICES FINANCIAL SERVICES IT METALS FINANCIAL SERVICES CONSTRUCTION PHARMA AUTOMOBILE AUTOMOBILE METALS ENERGY ENERGY ENERGY FINANCIAL SERVICES ENERGY METALS FINANCIAL SERVICES PHARMA IT AUTOMOBILE ENERGY METALS IT CEMENT & CEMENT PRODUCTS IT MEDIA & ENTERTAINMENT

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INDIAN STOCK MARKET CNX-NIFTY CHART :

CNX-NIFTY: 2000-2015 2000 1482 1818 1108

9000

2001 1263 1422 849

8000

2002 1058 1205 920 2003 1093 1914 920

7000

2004 1880 2088 1292 6000

2005 2080 2857 1894 2006 2836 4046 2595

5000

2007 3966 6185 3554 4000

2008 636 6357 2252 2009 2963 5221 2539

3000

2010 5200 6338 4675 2000

2011 6177 6181 4531 2012 4640 5965 4588

1000

2013 5937 6415 5118

0

2014 6323 8626 5933 1

3.5 INSIDER TRADING : Section 195 of the Companies Act deals with the provisions on prohibition of Insider trading of securities which is as under: Subsection (1) lays down that no person including any director or key managerial personnel shall enter into insider trading provided that nothing contained in this subsection shall apply to any communication required in the ordinary course of business or profession or employment or under any law. Insider trading means a. An act of subscribing, buying selling dealing or agreeing to subscribe, buy, sell or deal in any securities by any director or key managerial personnel or any other officer of the company either as principal or agent, if such director or key managerial personnel or any other officer of the company is reasonable expected to have access to any non-public price sensitive information in respect of the securities of the company. 28

INDIAN STOCK MARKET b. An act of counselling about, processing or communicating directly or indirectly any non-public price sensitive information to any person. Insider trading is the trading of a public company's stock or other securities (such as bonds or stock options) by individuals with access to non-public information about the company. In various countries, trading based on insider information is illegal. This is because of unfairness, as one investor with some inside information could potentially make far larger profits, or at least, make profits that a typical investor would not make. The authors of one study claim that illegal insider trading raises the cost of capital for securities issuers, thus decreasing overall economic growth. However, some economists have argued that insider trading should be allowed and could, in fact, benefit markets.

3.6 The Meaning of Insider : The insider means any person who – (i) is or was connected with the company or is deemed to have been connected with the company and is reasonably expected to have access to unpublished price sensitive information in respect of securities of a company, or (ii) has received or has had access to such unpublished price sensitive information. It means the insider is the person who must be (A) Connected with the company with having sensitive information about unpublished regarding price of the script.(B) A deemed person as per (A).

3.7 Price Sensitive Information : It means any information which relates directly or indirectly to a company and which if published is likely to materially affect the price of securities of company. As per explanation, it has been mentioned the below mentioned information as DEEMED TO BE PRICE SENSITIVE INFORMATION: • Periodical Financial results of the company. • Intended declaration of dividends. • Issue of Securities or buy-back of securities. • Any major expansion plans or execution of new projects. • Amalgamation, mergers or takeovers. • Disposal of the whole or substantial part of undertaking. • Significant changes in policies, plans or operations of the company. --- These are known as deemed to be price sensitive information to be one of the elements of Illegal Insider Trading. As per the Companies Act 2013, Price Sensitive Information means “any information which relates directly or indirectly to a company and which if published is likely to materially affect the price of the securities.” 29

INDIAN STOCK MARKET 3.8 Relation between Stock market and Insider trading : Stock prices often respond to corporate actions such as mergers, stake sales and takeovers, muchahead of the public announcement. Insider trading strikes at the very root of market integrity. In general, public investors who do not have any news regarding any corporate action taken by companies in which they are investing money, suffer loss due to the price fluctuation done by the insiders on the basis of insider news. Insiders, who are aware of various price sensitive news, use it to gain from the news and thereby making huge profit. It was given in the newspaper in U.S. that the stock market is being managed by the insiders who are always aware of price sensitive news before it came to the knowledge of general public. Various corporate and stock market scams has been found out in India and also outside India which deals with insider trading in stock market. Mainly the insider traders have the information about the unpublished news and they accordingly buy or sell the stocks before the news come to public and after the release of the information to the public the market price of the stocks goes up or down depending upon the news and the insiders who wants to have a gain from it can have the profit in this way. The various impacts of insider trading on the stock market can be described as follows:  Stock brokers, informers and frauds manipulate the stock market by leaking information  Spread out remour about an insider transaction  Enhance the risk of stock market crash  Leads to decrease overall trust on the stock market  Benefits the insiders but adversely affect small investors.

3.9 Insider trading and India : Securities market in India came into existence in 1875 with establishment of Bombay Stock Exchange. The history of Insider Trading in India relates back to the 1940’s with the formulation of government committees such as the Thomas Committee of 1948, which evaluated inter alia, the regulations in the US on short swing profits under Section 16 of the Securities Exchange Act, 1934. Thereafter, provisions relating to Insider Trading were incorporated in the Companies Act, 1956 under Sections 307 and 308, which required shareholding disclosures by the directors and managers of a company. Due to inadequate provisions of enforcement in the companies Act, 1956, the Sachar Committee in 1979, the Patel Committee in 1986 and the AbidHussain Committee in 1989 proposed recommendations for a separate statute regulating Insider Trading. In 1979, the Sachar Committee said in its report that directors, auditors, company secretaries etc. may have some price sensitive information that could be used to manipulate stock prices which may cause financial misfortunes to the investing public. The companies recommended amendments to Companies act 1956 to restrict or prohibit the dealings of the employees.

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INDIAN STOCK MARKET The Patel Committee in 1986 in India defined Insider Trading as, “Insider trading generally means trading in the shares of a company by the persons who are in the management of the company or are close to them on the basis of undisclosed price sensitive information regarding the working of the company, which they possess but which is not available to others.” The concept of Insider Trading in India started fermenting in the 80’s and 90’s and came to be known and observed extensively in the Indian Securities market. The rapidly advancing Indian Securities market needed a more comprehensive legislation to regulate the practice of Insider Trading, thus resulting in the formulation of the SEBI (Insider Trading) Regulations in the year 1992, which were amended in the year 2002 after the discrepancies observed in the 1992 regulations in the cases like Hindustan Levers Ltd. vs. SEBI, Rakesh Agarwal vs. SEBIetc. to remove the lacunae existing in the Regulations of 1992. The amendment in 2002 came to be known as the SEBI ([Prohibition of] Insider Trading) Regulations, 1992. Insider trading is considered as commiting the offence. The SEBI has the full authority to investigate the malpractice on the basis of complaints from the investors or intermediaries or suo-motu. The SEBI can carry on the inspection of books of account, other records and documents of a suspected person. It has the power to issue directions to the suspected person not to involve in the securities in any specific manner. According to Section 24 of the SEBI Act, it has the power to initiate criminal prosecution against the responsible person. The regulations of 1992 seemed to be more punitive in nature. The 2002 amendment regulations on the other hand are preventive in nature. The amendment requires all the listed companies, market intermediaries and advisers to follow the new regulations and also take steps in advance to prevent the practice of insider trading. The new regulations include mandatory disclosures by the Directors and other officers of listed companies and also by the persons holding more than 5% of the company’s shares. Insider trading practice is also required to be curbed during vital announcements of the company. These preventive measures ensure the reduction of the cases involving the practice of Insider Trading and also informing the persons who indulge in such practices, of the laws relating to Insider Trading. The new regulations particularly emphasize on the delegation of powers on the entities themselves to conduct internal investigations before they present their case before the SEBI in relation to insider trading. The guidelines provide for a definite set of procedures and code of conduct for the entities whose employees, directors and owners are most expected to be in a position to take an undue advantage of confidential inside information for their personal profits.

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INDIAN STOCK MARKET 3.10 CASE STUDY : INSIDER TRADING IN INDIAN STOCK MARKET: CASE OF INSIDER TRADING : HINDUSTAN LEVER LIMITED (HLL)-BROOKE BOND LIPTON INDIA LIMITED (BBLIL) V/S SEBI: The controversy involved HLLs purchase of 8 lakh shares of BBLIL two weeks prior to the public announcement of the merger of the two companies (HLL and BBLIL). SEBI, suspecting insider trading, conducted enquiries, and after about 15 months, in August 1997, SEBI issued a show cause notice to the Chairman, all Executive Directors, the Company Secretary and the then Chairman of HLL. Later in March 1998 SEBI passed an order charging HLL with insider trading. SEBI directed HLL to pay UTI compensation, and also initiated criminal proceedings against the five common directors of HLL and BBLIL. Later HLL filed an appeal with the appellate authority, which ruled in its favour.

Background of the case : The SEBIs charges were triggered off by HLLs purchase of 8 lakh shares of Brooke Bond Lipton India Ltd (BBLIL) from the Unit Trust of India (UTI, 1996-97 income: Rs 7,481 crore) at Rs 350.35 per share. This transaction took place on March 25, 1996, before the HLL-BBLIL merger was announced on April 19, 1996. A day after the announcement of the merger, the BBLIL scrip quoted at Rs 405, thereby leading to a notional gain of Rs 4.37 crore for HLL, which then cancelled the shares bought. On 4 August 1997, SEBI issued a show cause notice to HLL claiming that there wasprima facie evidence of the company indulging in insider trading, through the use of ‘unpublished price sensitive information’ prior to its merger with Brooke Bond Lipton India Limited (BBLIL). SEBI found HLL guilty of insider trading because it bought the shares of BBLIL form Unit Trust of India with the full knowledge that two sister concerns were going to merge. Since it bought the shares before the merger was formally announced. SEBI held that HLL was using unpublished price sensitive information to trade, and was therefore, guilty of insider trading. SEBI directed HLL to pay Unit Trust of India Rs 34 million in compensation, and also initiated criminal proceedings against the five common directors of HLL and BBLIL.

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INDIAN STOCK MARKET OVERVIEW OF THE CASE STUDY :

 The case primarily involves four parties namely Unit Trust Of India(UTI), Hindustan Lever Limited(HLL), Brooke Bond Lipton India Limited(BBLIL) and Securities &Exchange Board Of India(SEBI)  HLL planned a merger with the sister concern BBLIL so that there parent company has a major stake in the merged company.  Merger to be carried out by HLL acquiring shares of BBLIL. The corresponding stock exchange were informed on 19th april,1996  HLL brought 8lacs shares of BBLIL from UTI just before the merger was initiated.  SEBI accused HLL of Insider trading while entering into the above mention transaction.  SEBI penalised HLL with RS.34 million and also initiated criminal proceedings against five directors of HLL & BBLIL.  Even though HLL says that it was not benefited from the transaction with UTI, however it was able to churn out huge gains. When they formally announce merger , the market price of the shares of BBLIL shot up from 318 to 405 per share while they bought the shares @ 350 per share  If the UTI had not sold the shares they would have got shares worth RS483.3 million in the merged HLL , RS 208.3 million more than what they have received by selling the shares to HLL before merger.  Union Ministry upheld HLL’s view that the merger was “generally known” as it was widely speculated in national media.  On 15th july,1998 the Union Finance Ministry absolved HLL of all charges of Insider Trading and quashed all the proceedings against the directors.

SOLUTION TO PROBLEMS OF INSIDER TRADING : The charge against HLL had brought to the fore the debate over SEBI's role as a watchdog of the Indian Capital market and its ability to control financial crimes such as insider trading. It also highlighted the inability of the legal machinery to handle such cases. To stop the practice of insider trading, SEBI has come up with new regulations and rules which are stated as follows: 1. SEBI has formed a new “SECURITIES AND EXCHANGE BOARD OF INDIA ( 1 [PROHIBITION OF] INSIDER TRADING) REGULATIONS, 1992” rules which provides various guidelines to stop this illegal means of insider trading 2. Moreover recently Companies Act 2013 has also provided various penalties to stop this insider trading. According to subsection (2) of section 195 of Companies Act 2013 any person indulge in Insider trading shall be punishable with imprisonment for a term 2 years which may extend to 5 years or with a fine which shall not be less than 5 lakhs rupees but which may extend to 25 crore rupees or three times the amount of profits made of the trading, whichever is higher or both.

33

INDIAN STOCK MARKET CHAPTER – 4 CONCLUSION :

Insider trading is one of the menaces, which is difficult to tackle, and the manipulators try to find one way or other that we can see by the HLL instance. Even after the formation of SEBI (Insider Trading) Regulations 1992, insider trading is still rampant in the stock markets, and clearly therefore the SEBI regulations need to be made more comprehensive. Though SEBI has introduced the Regulations in 2002 to control these kinds of activities which cause harm to the general investors. And we have also seen that these SEBI regulations doesn’t have transnational jurisdiction so it is suggested that the SEBI should come up with amendment on the line or better than that of Securities Exchange Commission. So in future there will be no problem. There is required greater investor education as to the intricacies of insider trading and its ills to make an investor aware of his rights. And the SEBIshould also incorporate civil remedies against the insiders so that it would be notdifficult as in case of criminal liability. Moreover when Indian stock market are showing an increasing trend and also becoming attracting to the domestic as well as global investors, it is the duties of all the regulatory bodies to make more stringent rules and regulations and also conduct various inquiries to relating to the matter of Insider trading so as to make Indian stock market a globally investible platform for all the investors. After doing this project work, I have come to the conclusion that whatever laws orthe mechanisms be devised by the regulatory bodies, for the preservation of price sensitive information and for the prevention of insider trading, the situation can never be made foolproof. This is because for the efficient conduct of the affairs of a company or a firm, it is essential that certain people be in possession of the price sensitive information and other trade details which are not disclosed. And, it becomes the duty as well as the responsibility of these people to ensure that this information is not leaked or are not used for making undue profits. The Indian law i.e. the SEBI Act seems to be totally inadequate. There is no mention in the 34

INDIAN STOCK MARKET regulations about the enforcement of criminal sanction against the directors of the foreign company, listed in domestic exchange, which has indulged in insider trading, as the SEBI Act shall not be applicable to the territory outside India and it shall be an extraterritorial application of this Act. So, according to me, in order to curb the menace of insider trading and for the preservation of price sensitive information, the people holding the concerned positions i.e. the directors, officers and other members of the company should themselves take voluntary steps and should set high standards of ethical behavior, because this is something which can’t be imposed in any manner or the compliance of which be made mandatory. Further in order to make Indian stock market more efficient SEBI, RBI and the Government of India should look after the stock market policies and also make regular inquiries in various companies so that various scams and illegal means like insider trading and speculation can be reduced to a low level.

35

INDIAN STOCK MARKET BIBLIOGRAPHY : The names of the different websites used for the research work are as follows:        

http://en.wikipedia.org/wiki/nse-bse http://en.wikipedia.org/wiki/nifty-sensex http://www.investopedia .insidertrading.com http://www.indianstockmarket.pdf http://www.nseindia.com http://www.bseindia.com http://www.moneycontrol.com http://www.sebi.govt.com

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