A study on Online Stock Trading in India

A study on Online Stock trading in India

By

Padmanabhan K

REGN. NO.: A9C7510365

MADURAI KAMARAJ UNIVERSITY DIRECTORATE OF DISTANCE EDUCATION PALKALAI NAGAR, MADURAI – 625 021

A project report submitted in partial fulfillment of the requirement for the Degree of Master of Business Administration (MBA) In the Madurai Kamaraj University

Batch: 2009-11

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GUIDE CERTIFICATE

This is to certify that the project work entitled “A study on Online

Stock Trading in India” is a bonafide project work carried out by

Padmanabhan K Enrollment No.: A9C7510365 in partial fulfillment for the award of degree of MBA of Madurai Kamaraj University under my guidance. This project work is original one and not submitted earlier for the award of any degree / diploma elsewhere.

Student’s Signature Signature of the Guide

Date:

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Guide’s Bio-Data

Name: Rakhi Mittal

Father Name: Dr.S.C.Mittal

Qualification: B.E.,M.Tech

Date of birth: 11 Aug‟78

Communication Address: 1547, 10th Main, I Cross, HAL III Stage, Kodihalli, Bangalore-560008

Nationality: Indian

Academic Details

Course Name of the College/University Duration M.Tech (IT) Punjabi University, Patiala 2 Years B.E.(CS&E) Karnataka University, Dharwad 4 Years

Job Experience

Company Year Designation New Horizon College Of Engg 2008 – till Asstt Professor date Krishna Institute of Engg & 2000 – 2008 Asstt Professor Technology

I declare that the above details are true to the best of knowledge.

Guide’s Signature

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DECLARATION BY THE CANDIDATE

I Padmanabhan K hereby declare that the project “A study on Online

Stock Trading in India” submitted to the MADURAI KAMARAJ

UNIVERSITY in the partial fulfillment of requirement for the award of the degree of MASTER OF BUSSINESS ADMINISTRATION is a record of original project done by me under the supervision of Ms Rakhi

Mittal.

Enrolment No: A9C7510365

Date:

Signature

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ACKNOWLEDGEMENT

At the outset, I wish to express my sincere thanks to the almighty for showering his blessings on me to complete this project. Success in not a destination but a journey- it is often said. I realized it even better during course of creating this project. With this project I hope to develop a futuristic view of industry‟s progress. I may not have come this far without help, guidance and support of certain people who acted as guide, friend and torchbearers along the way. I feel it my profound privilege to express my most sincere gratitude and indebtedness to Mrs. Chandra Iyer and Mr.Ryan Colaco, Sr Manager, who had introduced me to world of online trading 6 years back by gifting me 100 shares of axis bank as result I had to open up my 1st demat account with icicidirect. Today I along with my wife and friends are involved in intra-day trading using tips from various trading agencies. Last but not least I like to thank my parents, my beloved brother, and friends & colleagues for their moral support for completing this project work successfully

PADMANABHAN KRISHNAMURTHY

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Abstract

Online services offer customers a splendid display of benefits such as enhanced control, ease of use and reduced transaction charges. Consequently, online services have grown rapidly and have emerged as a leading edge of service industry. Providing online services in developed stock exchange such as Japan, USA, France, Singapore, UK and India has lead market to become more competitive. Therefore, brokerages compete in offering superior service quality.

To understand the online trading we need to know the history of stock trading in India and total exchange in India such has NSE and BSE. Stock markets refer to a market place where investors can buy and sell stocks. The price at which each buying and selling transaction takes is determined by the market forces (i.e. demand and supply for a particular stock).

Let us take an example for a better understanding of how market forces determine stock prices. ABC Co. Ltd. enjoys high investor confidence and there is an anticipation of an upward movement in its stock price. More and more people would want to buy this stock (i.e. high demand) and very few people will want to sell this stock at current market price (i.e. less supply). Therefore, buyers will have to bid a higher price for this stock to match the ask price from the seller which will increase the stock price of ABC Co. Ltd. On the contrary, if there are more sellers than buyers (i.e. high supply and low demand) for the stock of ABC Co. Ltd. in the market, its price will fall down.

In earlier times, buyers and sellers used to assemble at stock exchanges to make a transaction but now with the dawn of IT, most of the operations are done electronically and the stock markets have become almost paperless. Now investors dont have to gather at the Exchanges, and can trade freely from their home or office over the phone or through Internet.

History of the Indian Stock Market - The Origin

One of the oldest stock markets in Asia, the Indian Stock Markets have a 200 years old history.

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East India Company was the dominant institution and 18th Century: by end of the century, busuness in its loan securities gained full momentum Business on corporate stocks and shares in Bank and 1830's: Cotton presses started in Bombay. Trading list by the end of 1839 got broader Recognition from banks and merchants to about half 1840's: a dozen brokers Rapid development of commercial enterprise saw 1850's: brokerage business attracting more people into the business 1860's: The number of brokers increased to 60 The American Civil War broke out which caused a stoppage of cotton supply from United States of 1860-61: America; marking the beginning of the "Share Mania" in India 1862-63: The number of brokers increased to about 200 to 250 A disastrous slump began at the end of the American Civil War (as an example, Share 1865: which had touched Rs. 2850 could only be sold at Rs. 87)

Pre-Independance Scenario - Establishment of Different Stock Exchanges

With the rapidly developing share trading business, brokers used to gather at a street (now well known 1874: as "Dalal Street") for the purpose of transacting business. "The Native Share and Stock Brokers' Association" 1875: (also known as "The ") was established in Bombay Development of cotton mills industry and set up of 1880's: many others Establishment of "The Share and Stock 1894: Brokers' Association" Sharp increase in share prices of jute industries in 1880 - 90's: 1870‟s was followed by a boom in tea stocks and coal

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"The Association" was 1908: formed Madras witnessed boom and business at "The Madras 1920: Stock Exchange" was transacted with 100 brokers. When recession followed, number of brokers came 1923: down to 3 and the Exchange was closed down 1934: Establishment of the Lahore Stock Exchange Merger of the Lahore Stock Exchange with the Punjab 1936: Stock Exchange

Re-organisation and set up of the Limited (Pvt.) Limited led by improvement 1937: in stock market activities in South India with establishment of new textile mills and plantation companies Uttar Pradesh Stock Exchange Limited and Nagpur 1940: Stock Exchange Limited was established Establishment of "The 1944: Limited" "Delhi Stock and Share Brokers' Association Limited" and "The Delhi Stocks and Shares Exchange Limited" 1947: were established and later on merged into "The Association Limited"

Post Independance Scenario

The depression witnessed after the Independance led to closure of a lot of exchanges in the country. Lahore Estock Exchange was closed down after the partition of India, and later on merged with the Delhi Stock Exchange. Bnagalore Stock Exchange Limited was registered in 1957 and got recognition only by 1963. Most of the other Exchanges were in a miserable state till 1957 when they applied for recognition under Securities Contracts (Regulations) Act, 1956. The Exchanges that were recognized under the Act were: 1. Bombay 2. Calcutta 3. Madras 4. Ahmedabad 5. Delhi 6. Hyderabad

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7. Bangalore 8. Indore

Many more stock exchanges were established during 1980's, namely:

• (1980) • Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982) • Limited (1982) • Association Limited (1983) • Limited (1984) • Kanara Stock Exchange Limited (at Mangalore, 1985) • Association (at Patna, 1986) • Limited (1989) • Bhubaneswar Stock Exchange Association Limited (1989) • Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989) • Stock Exchange Limited (at Baroda, 1990) • Coimbatore Stock Exchange • Meerut Stock Exchange

At present, there are twenty one recognized stock exchanges in India which does not include the Over The Counter Exchange of India Limited (OTCEI) and the National Stock Exchange of India Limited (NSEIL).

Government policies during 1980's also played a vital role in the development of the Indian Stock Markets. There was a sharp increase in number of Exchanges, listed companies as well as their capital

Types of Transactions

The flowchart below describes the types of transactions that can be carried out on the Indian stock exchanges: Indian stock exchange allows a member broker to perform following activities: • Act as an agent, • Buy and sell securities for his clients and charge commission for the same, • Act as a trader or dealer as a principal, • Buy and sell securities on his own account and risk.

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