CHAPTER 2 - SECONDARY MARKET IN INDIA

What is a Stock Exchange?

- A place where people buy and sell parts of companies (called shares)
- It helps people who own shares sell them to others
- Defined under the Securities Contracts (Regulation) Act, 1956
Types of Stock Exchanges
- One type is a group of people working together, constituted before corporatization and
demutualization under Sections 4A and 4B
- The other type is a company registered under the Companies Act, 2013
What does a Stock Exchange do?
- It helps people buy and sell shares
- It makes sure the prices of shares are fair
- It helps people put their money into different investments
Why is a Stock Exchange important?
- It helps the country's economy grow
- It shows how well the economy is doing
- It's like the heart of the investment market
Role of Stock Exchanges
- Provides a continuous market for buying and selling securities: Investors can buy and sell
securities easily, and switch to a different security if they want.
- Helps evaluate securities: The price of a security shows how well the company is doing.
Investors use this information to decide whether to buy, sell, or hold onto a security.
- Helps people save and invest: Many people can't afford to invest directly in securities, so
they invest through mutual funds or other investment options. Stock exchanges help make
this possible.
- Allows for healthy speculation: Stock exchanges give businesses and investors the chance to
make money by predicting which securities will do well.
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- Protects investors: Stock exchanges only allow legitimate companies to list their securities,
which helps keep investors' money safe.
Ensures liquidity: Banks and other institutions can invest in securities and sell them quickly if
they need to. This helps keep the market running smoothly.
- Acts as an economic indicator: The stock market can show how well the country's economy is
doing. If the market is doing well, it can be a sign of economic growth.
- Keeps companies transparent: Listed companies must share their financial reports with the
stock exchange, which helps keep them honest and transparent.
- Attracts foreign investment: Foreign investors are more likely to invest in countries with
growing economies, which can help those economies grow even more.
- Ensures safety and fairness: Stock exchanges follow strict rules to ensure that all transactions
are fair and transparent, which helps protect investors.
- Regulates company management: Companies that list their securities on a stock exchange
must follow certain rules and regulations, which helps keep them accountable to their
investors.
Indian Stock Exchanges
- Two Main Exchanges: The Indian stock market has two main stock exchanges:
- BSE (Bombay Stock Exchange): Established in 1875
- NSE (National Stock Exchange): Founded in 1992, started trading in 1994
- Similar Trading Mechanism: Both BSE and NSE follow the same:
- Trading mechanism - Trading hours - Settlement process
# Regulator of Secondary Market
- The Securities and Exchange Board of India (SEBI) regulates the buying, selling, and dealing in
securities such as shares, mutual funds, derivatives, etc.
SEBI's Mandate
- Protect the interests of investors in securities
- Promote the development of, and to regulate the securities market
Establishment of SEBI
- SEBI was established on April 12, 1992, in accordance with the provisions of the SEBI Act.
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Main Legislations Governing Securities Market

- The SEBI Act, 1992: Empowers SEBI with statutory powers for protecting investor interests,
promoting market development, and regulating the market.
The Companies Act, 2013: Regulates issuance, allotment, and transfer of securities, and
related matters in public issues of securities.
- The Securities Contracts (Regulation) Act, 1956: Provides for recognition and regulation of
transactions in securities in a Stock Exchange.
- The Depositories Act, 1996: Provides for electronic maintenance and transfer of ownership of
dematerialized (demat) shares.
# Trading Mechanism
- Dematerialized Trading: Trading in securities takes place in dematerialized form in India.
- Screen-Based Trading: Trading takes place on screen-based platforms provided by exchanges.
- Settlement Cycle: The settlement cycle for equity shares is T+2 days (T means trading
day/transaction day).
- Clearing Corporation: The clearing corporation of the exchange settles trades on the second
working day.
- Electronic Trading: Orders are matched electronically on a strict price/time priority, reducing
time, cost, risk of error, and fraud.
- Anonymity and Access: The system provides anonymity, equal access, and a perfect audit
trail for resolving disputes.
- Geographical Accessibility: Market participants can trade with each other simultaneously,
regardless of their geographical locations.
- Order Acceptance: The system accepts orders of all sizes from brokers without revealing their
identity.
Regulations
- SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015: Regulation 40
stipulates that securities must be held in dematerialized form with a depository for transfer,
except in cases of transmission or transposition of securities.
- The Companies (Prospectus and Allotment of Securities) Rules, 2014: Rule 9A requires
unlisted public companies to issue securities only in dematerialized form and facilitate
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dematerialization of all their existing securities, in accordance with the Depositories Act,
1996.
# Types of Securities
- Listed Securities: Securities of companies that have signed a listing agreement with a stock
exchange and are traded on that exchange.
Permitted Securities: Securities of companies that are actively traded on other stock
exchanges in India but not listed on an exchange, allowed for trading if they meet relevant
norms specified by the stock exchange.
# MARKET PARTICIPANTS
Market Participants in Securities Market include buyers, seller and various intermediaries
between the buyers and sellers. Some of these entities are briefed below:
(i) Market Intermediaries: Service providers regulated by SEBI, including:
- Stock exchanges - Depositories - Depository participants - Brokers -
Underwriters
- Portfolio managers - Other intermediaries
Market Intermediaries Regulated by SEBI: SEBI defines roles, eligibility criteria, functions,
responsibilities, and code of conduct for intermediaries.
- SEBI's Powers: SEBI can inspect, collect fees, and impose penalties on intermediaries.
(ii) Stock Exchanges
- Trading Platform: Provide a platform for buyers and sellers to trade securities.
- Electronic Trading: Trading occurs through electronic terminals with anonymous order
matching.
- Clearing and Settlement: Appoint clearing and settlement agencies and clearing banks to
manage funds and securities settlement.
(iii) Depositories
- Hold Securities: Hold securities in electronic form for investors.
- Provide Services: Provide services related to transactions in dematerialized securities.
(iv) Depository Participants
(a) Agents of Depository: Interface with investors and provide depository services.
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(b) Hold and Maintain Accounts: Hold and maintain investor-level accounts in securities.
(c) Appointed by Depository: Appointed by depository with SEBI's approval.
(d) Provide Services: Provide services related to transactions in dematerialized securities.
(e) Open Demat Account: Investors can open a demat account with a registered Depository
Participant.
(f) Company Level Accounts: Depositories hold and maintain company-level accounts of
securities issued.
(g) Investor-Level Accounts: Depository participants hold and maintain investor-level accounts
in securities.
Demat Account
- Essential for Trading: No stocks can be bought or sold without a demat account.
- Required for Direct Investment: Direct investment cannot be made without a demat account.
- Mandated by SEBI: SEBI mandates demat accounts for transactions of listed company
securities.
(v) Trading Members/Stock Brokers & Sub-Brokers
- Registered Members: Trading members or stock brokers are registered members of a
Stock Exchange.
- Assist Investors: They assist investors in buying/selling securities through electronic
trading terminals.
- Requirements: Trading members can be individuals (sole proprietor), partnership firms,
or corporate bodies, subject to completion of prescribed requirements.
Sub-Brokers
- Agents of Trading Members: Sub-brokers act on behalf of trading members or stock brokers
as agents.
- Assist Investors: They assist investors in buying, selling, or dealing in securities all the way
through such trading member or stock broker.
- Increase Reach: Sub-brokers help increase the reach of brokers to a larger number of
investors.
Brokerage and Services
- Brokerage: Brokers receive a commission for their services, called brokerage.
- Maximum Brokerage: Maximum brokerage chargeable to customers is fixed by individual
stock exchanges.
- Research and Advice: Some brokers offer research, analysis, and advice about securities to
buy and sell to their investors.
SEBI Registration
- Requirements: SEBI registration to a broker is approved based on aspects such as capital
competence, availability of adequate office space, equipment, manpower, and experience in
securities trading.
- Regulatory Oversight: SEBI regulates brokers to ensure fair and transparent trading practices.
Trading Process
- Trading Terminals: Trades have to be routed only through the trading terminals of registered
brokers of an exchange.
- Electronic System: Trades are accepted and executed on the electronic system of the
exchange.
(vi) Custodians
- Hold Funds and Securities: Custodians hold funds and securities of large clients, typically
institutions such as banks, insurance companies, and foreign portfolio investors.
- Accountability: Custodians are accountable for safeguarding securities and settling
transactions.
- Services: Custodians provide services such as:
- Maintaining a client's securities and funds account
- Collecting the benefits or rights accruing to the client in respect of securities held
- Keeping the client informed of the actions taken or to be taken on their portfolios

(vii) Clearing Corporation

- Protect Investor Interests: Clearing Corporations protect investor interests in the securities
market.
- Ensure Obligations: Clearing agencies ensure that Stock Exchange members meet their
obligations to deliver funds or securities.
- Legal Counterparty: Clearing agencies act as a legal counterparty to all trades and guarantee
settlement of all transactions on the Stock Exchanges.
- Structure: Can be part of an exchange or a separate entity.
(viii) Merchant Bankers
- Registered with SEBI: Merchant bankers are registered with SEBI and act as issue managers,
investment bankers, or lead managers.
- Single Point Contact: Serve as a single point contact for issuers during a new issue of
securities.
- Coordination: Coordinate with other intermediaries such as registrars, brokers, bankers,
underwriters, and credit rating agencies to manage the issue process.
- Enable Dematerialized Trading: Investors are enabled through depository participants to hold
and transact in securities in the dematerialized form.
# EXCHANGE TRADED FUNDS (ETF)
An Exchange-Traded Fund (ETF) is a security that tracks an index, commodity, bonds, or a
basket of assets like an index fund.
Key Characteristics
- Traded on Stock Exchanges: ETFs trade like common stocks on stock exchanges, such as the
securities market.
- Reflects Index Performance: ETFs reflect the performance of the index they track, such as
Sensex, Nifty, etc.
- Net Asset Value (NAV): The trading value of an ETF depends on the net asset value of the
underlying stock that it represents.
Benefits
- Higher Daily Liquidity: ETFs generally have higher daily liquidity compared to mutual fund
schemes.
- Lower Fees: ETFs typically have lower fees compared to mutual fund schemes.
How ETFs Work
- Buying ETF Shares/Units: When an investor buys ETF shares/units, they buy shares/units of a
portfolio that tracks the performance of the index.
- Price Changes: The price of an ETF changes as per the trading in the market takes place.

Comparison to Mutual Funds

- Trading: Unlike regular mutual funds, ETFs trade like a common stock on the stock exchange.
- Pricing: The price of an ETF changes throughout the trading day, whereas mutual fund prices
are typically updated once a day.
Example: Nifty 50 ETF
- Index Tracked: Nifty 50 Index (a popular stock market index in India
- ETF Holds: A basket of the 50 stocks that make up the Nifty 50 Index
- Investor Buys: 100 units of the Nifty 50 ETF
- ETF Value: Reflects the performance of the Nifty 50 Index
- Price Changes: The price of the ETF changes throughout the trading day based on market
forces
By buying the Nifty 50 ETF, the investor is essentially buying a small piece of the entire Nifty 50
Index, rather than individual stocks.
# Derivatives
- A derivative is a financial instrument that derives its value from an underlying asset.
- Types of Underlying Assets: Can be stocks, bonds, currency, commodities, metals, stock
indices, or other intangible assets.
Types of Derivatives
- Variety of Instruments: Derivatives can be of different types, such as:
- Futures - Options - Swaps - Caps - Floor - Collars - Others
- Futures and Options: The most popular derivative instruments are futures and options.
Legal Definition of Derivatives
- The term "Derivative" has been defined in the Securities Contracts (Regulations) Act as:
- A security derived from a debt instrument, share, loan, risk instrument, or contract for
differences.
- A contract that derives its value from prices or index of prices of underlying securities.
- Commodity derivatives.
- Other instruments declared by the Central Government to be derivatives.
(i) Currency Derivatives
Currency derivatives are financial contracts between buyers and sellers Involving the exchange
of two currencies at a future date and stipulated rate.
Currency Derivative Trading is similar to Stock Futures and Options trading.
However, the underlying asset are currency pairs (such as USDINR or EURINR) instead of
Stocks.
-Currency options and currency futures trading are done in the foreign exchange markets.
- Forex Rates: Forex rates reflect the value of a foreign currency relative to domestic currency.
Participants in Currency Trading
- Banks, corporations, exporters, and importers are major participants in currency trading in
India.
Benefits of Currency Derivatives
- Diversification: Offers diversification to investments.
- Hedging Opportunities: Provides hedging opportunities to importers and exporters for their
future payables and receivables.
- Trading Opportunities: Offers trading opportunities because of volatility in currency.
- Transparent Rates: Provides transparent rates to traders as it is exchange-traded.
(ii) Commodity Derivatives
- Definition of Commodities: Commodities are physical goods attributable to natural
resources, tradable and supplied without substantial differentiation by the general public.
- Commodity Markets: Commodities trade in physical (spot) markets and in futures and
forward markets. Spot markets involve physical transfer of goods, with prices reflecting current
supply and demand conditions.
- Characteristics of Commodity Derivatives: Commodity derivatives are financial
instruments whose value is based on underlying commodities, such as oil, gas, metals,
agricultural products, minerals, emissions trading credits, freight rates, and weather.
- Importance of Commodity Derivatives Markets: Commodity derivatives markets
provide critical information and serve as an indicator of market sentiments.
Futures
A future means a future contract therefore A futures contract is an agreement to buy or sell an
asset at a predetermined price on a specific date in the future.
- Key Characteristics: Futures contracts are standardized, traded on an exchange, and ensure
liquidity.
There are two positions that one can take in a future contract:
• Long Position - This is when a futures contract is purchased and the buyer agrees to
receive delivery of the underlying asset. (Stock/Indices/Commodities)
• Short Position - This is when a futures contract is sold and the seller agrees to make
delivery of the underlying asset. (stock/Indices/Commodities)
Currency Futures
A currency futures contract is an agreement to exchange one currency for another at a fixed
exchange rate on a specific date.
- Purpose: Currency futures help investors hedge against foreign exchange risk.
Currency Derivatives
- Available Currency Pairs: US Dollars (USD), Euro (EUR), Great Britain Pound (GBP), and
Japanese Yen (JPY).
- Cross-Currency Contracts: Available for EUR-USD, GBP-USD, and USD-JPY.
Currency Future and Options Contracts (involving Indian Rupee) on Exchanges in International
Financial Services Centres (IFSC)
The Securities and Exchange Board of India (SEBI) and Reserve Bank of India (RBI) allow trading
of currency derivatives involving the Indian Rupee in International Financial Services Centres
(IFSC).

Key Guidelines
1. Permissible Securities: Currency derivatives are allowed in IFSC.
2. Settlement: Rupee derivatives can be settled in foreign currency.
3. Eligible Market Participants: Position limits apply to:
- Trading Members
- Institutional Investors
- Eligible Foreign Investors
- Other Clients
4. Position Limits per Currency Pair
- Trading Members: 15% of total open interest or USD 1 billion equivalent (whichever is
higher)
 - Institutional Investors: 15% of total open interest or USD 1 billion equivalent
(whichever is higher)
- Eligible Foreign Investors: 15% of total open interest or USD 1 billion equivalent
(whichever is higher)
- Other Clients: 6% of total open interest or USD 100 million equivalent (whichever is
higher)
Regulatory Framework
- SEBI (International Financial Services Centres) Guidelines, 2015
- RBI regulations

# Options
Options Contract Gives the holder the right, but not the obligation, to buy or sell an underlying
asset at a predetermined price (strike price) on or before a specified date (expiration date).
Key Characteristics
- One party has the option (right), while the other party has an obligation
- Option premium is the payment received by the party with the obligation
- Option premium reflects the risk and obligation undertaken
Types of Options
On the basis of which party has the option:
1. Call Option: Buyer holds the option to buy the underlying asset.
2. Put Option: Seller holds the option to sell the underlying asset.
On the basis of time at which the option can be exercised:– 1.
European Option: Can be exercised only on the expiration date.
2. American Option: Can be exercised on or before the expiration date.
Important Note
Options traded on Indian stock exchanges are European Style, meaning they can only be
exercised on the expiration date.
# Rights Entitlement (RE)
A right issued by a company to existing shareholders to subscribe to new shares or securities.
Key Characteristics
- Issued to existing shareholders based on a predetermined ratio
- Offered in dematerialized form with a separate ISIN
- Allows shareholders to apply for new shares or securities

• Options available to an Eligible Equity Shareholder in rights Issue

1. Apply for full Rights Entitlement: Subscribe to new shares up to the full extent of their
entitlement.or
2. Apply for additional Rights Equity Shares: Subscribe to more shares beyond their
entitlement. or
3. Partially apply and hold: Apply for some shares and retain the remaining entitlement. or
4. Partially apply and renounce: Apply for some shares and renounce the remaining
entitlement. or
5. Fully renounce: Give up the entire Rights Entitlement.
Renunciation of Rights Entitlements
Eligible Equity Shareholders can renounce their Rights Entitlements in two ways:
(A) On Market Renunciation
1. Sell Rights Entitlements on the secondary market platform of Stock Exchanges.
2. Trade through a registered stock broker.
3. Process is similar to trading/selling Equity Shares.
(B) Off Market Renunciation
1. Transfer Rights Entitlements through a depository participant.
2. Transfer must be in dematerialized form.
3. Ensure transfer is completed before the Issue Closing Date.
4. Rights Entitlements must be credited to the demat account of the Renouncee.
# Trading Platforms in India
(1) Main Board
To list securities on NSE or BSE, an applicant must:
1. Fulfill pre-requisites defined by the exchange
2. Take necessary steps before listing, including:
- In-principal approval of draft prospectus
- Submission of application
- Initial Public Offer Registration
Debt - Public Issue
Listing of NCDs
- All Non-Convertible Debentures (NCDs) issued through Initial Public Offer (IPO) are
listed on the Capital Market segment of the Exchange.
Security Identification
- Each security in the trading system is assigned a unique:
- Symbol - Series (representative of the security)
Regulatory Framework
- SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, and
amendments govern NCD-related issues.
(2). Small and Medium Enterprises Platform
(a) Bombay Stock Exchange SME Platform
Established in 2012, the BSE SME Platform is a market leader in India, offering a friendly
environment for entrepreneurs and investors to list SMEs.
Requirements for Listing on BSE SME Platform
1. Incorporation: Company must be incorporated under the Companies Act, 2013.
2. Post-Issue Paid-Up Capital: Face value must not exceed ₹25 crores.
3. Net Worth: Company should have a positive net worth.
4. Tangible Assets: Net tangible assets must be at least ₹1.5 crores.
5. Track Record:
- Company or its predecessors (partnership/proprietorship/LLP) should have a combined
track record of at least 3 years.
 - Alternatively, funding from banks, financial institutions, or government, or a listed
group company for at least 2 years.
6. Cash Accruals: Company or its predecessors should have positive cash accruals (earnings
before depreciation and tax) in any of the last 3 years, with a positive net worth.
7. Other Requirements:
- Company must have a website.
- Company must facilitate trading in demat securities and have agreements with both
depositories.
- No change in promoters in the preceding 1 year from the date of filing the application
to BSE for listing under the SME segment.
Eligibility Criteria
The BSE SME Platform provides an opportunity for SMEs to raise capital and get listed, while
ensuring transparency and governance
(b) NSE EMERGE Platform
NSE EMERGE is the National Stock Exchange's (NSE) platform for Small and Medium Enterprises
(SMEs) to raise equity capital.
Key Benefits
1. Efficient fundraising: Emerging businesses can raise equity capital from a diverse set of
investors.
2. Improved access to risk capital: EMERGE helps emerging companies access risk capital.
3. Exciting investment opportunities: Investors can invest in promising SMEs and technology
startups.
4. Credible marketplace: EMERGE brings together sophisticated investors and emerging
corporates.
Investment Opportunities
EMERGE offers informed investors the chance to invest in emerging businesses with:
1. Exciting growth plans
2. Innovative business models
3. Good governance
4. Commitment to investor interest
(3) Innovators Growth Platform (IGP)
The Innovators Growth Platform (IGP) is a trading platform introduced by the Securities and
Exchange Board of India (SEBI) in 2018.
Key Features
1. Replaces ITP: IGP replaces the erstwhile Institutional Trading Platform (ITP).
2. Listing and Trading: IGP is a platform for listing and trading specified securities.
3. Eligibility Criteria: Issuers must comply with eligibility criteria specified in Regulation 283 of
SEBI (ICDR), 2018.
Purpose
IGP aims to provide a platform for innovators and startups to raise capital and list their
securities, promoting growth and development in the Indian capital market.
Eligibility or Applicability
Company with intensive use of technology, information technology, intellectual property, data
analytics, biotechnology or nano-technology in their businesses.
2. Shareholding Requirement: 25% of the company's capital must be held by:
- Qualified Institutional Buyers
- Family trusts with a net worth over ₹500 crores
- Accredited Investors (AI) for IGP
3. Time Requirement: The above shareholding requirement must be met for at least 2 years
prior to filing documents with the Board.
4. The following regulated entities:
A. Category III Foreign Portfolio Investor.
B. Pooled Investment Fund meeting all the following criteria:
- a) Minimum $150M assets under management
- b) Registered with financial sector regulator in the jurisdiction of which it is a resident
- c) Resident of country with signatory securities market regulator:
- International Organization of Securities Commission's Multilateral Memorandum of
Understanding (Appendix A Signatories)
- Bilateral Memorandum of Understanding with the Board
 - d) Not resident in country with AML/CFT deficiencies:
- Identified in the public statement of Financial Action Task Force
- Having strategic Anti-Money Laundering or Combating the Financing of Terrorism
deficiencies to which counter measures apply
- Having insufficient progress in addressing deficiencies or no commitment to an action
plan developed with the Financial Action Task Force to address deficiencies
Investor Allocation
- Allotment to Institutional and Non-institutional Investors on a proportionate basis.
- Any under-subscription in the Non-institutional Investor category will be made
available for subscription under the Institutional Investors' category.
(4) Social Stock Exchange (SSE)
- Proposed by the Finance Minister in the 2019-20 Budget Speech.
- Aims to create a platform for social enterprises and voluntary organizations to raise funds.
- Regulated by SEBI under Chapter X-A of SEBI (ICDR) Regulations, 2018, as per notification
dated July 25, 2022. Definition of SSE
- A separate segment of a recognized stock exchange with nationwide trading terminals.
- Permitted to register Not for Profit Organizations and/or list the securities issued by Not for
Profit Organizations
In simple words,
(Social Stock Exchange (SSE) is a special platform that allows charities, non-profit organizations,
and social enterprises to raise money from investors, similar to how companies raise money on
a stock exchange.)
Applicability
The provisions of Social Stock Exchange as mentioned in Chapter X-A of SEBI (ICDR)
Regulations, 2018 shall apply to the following:
1. Non-profit organizations that want to register only.
2. Non-profit organizations that want to register and raise funds.
3. For-profit social enterprises that want to be recognized as social enterprises.
Eligibility conditions for being identified as a Social Enterprise
1.To be considered a Social Enterprise, an organization must prove that its main goal is to
achieve a social purpose, rather than just making a profit.
2. In order to establish the primacy of its social intent, such Social Enterprise shall meet the
following eligibility criteria:-
A) the Social Enterprise shall be indulged in at least one of the following activities:
(i) Eradicating Poverty and Inequality: Eradicating hunger, poverty, malnutrition, and
inequality.
(ii) Healthcare and Sanitation: Promoting healthcare, including mental healthcare, sanitation,
and making safe drinking water available.
(iii) Education and Livelihoods: Promoting education, employability, and livelihoods.
(iv) Social Equality and Empowerment: Promoting gender equality, empowerment of women,
and LGBTQIA+ communities.
(v) Environmental Sustainability: Ensuring environmental sustainability, addressing climate
change, and conserving forests and wildlife.
(vi) Cultural Preservation: Protecting national heritage, art, and culture.
(vii)Sports Development: Training to promote rural sports, nationally recognized sports,
Paralympic sports, and Olympic sports.
(viii) Incubators and Ecosystem Support: Supporting incubators of Social Enterprises and
other platforms that strengthen the non-profit ecosystem.
(ix) Livelihoods and Financial Inclusion: Promoting livelihoods for rural and urban poor,
enhancing income of small and marginal farmers, and promoting financial inclusion.
(x) Disaster Management and Welfare: Disaster management, including relief, rehabilitation,
and reconstruction activities, and promoting welfare of migrants and displaced persons.
(xi) Digital Divide and Land Access: Bridging the digital divide, facilitating access to land and
property assets for disadvantaged communities, and addressing issues of misinformation
and data protection.
(B) Target Population: The Social Enterprise must target underserved or less privileged
population segments or regions with lower development priorities.
(C) Eligible Activities: At least 67% of the Social Enterprise's activities must meet the
following conditions:
1. Revenue: 67% of the average revenue over the last 3 years comes from
providing eligible activities to the target population.
 2. Expenditure: 67% of the average expenditure over the last 3 years is incurred for
providing eligible activities to the target population.
3. Customer Base: 67% of the total customer base and/or beneficiaries over the
last 3 years are members of the target population
(3) Certain organizations are not allowed to be called Social Enterprises. These include:
- Companies set up by big businesses (corporate foundations)
- Organizations involved in politics
- Organizations based on religion
- Groups that represent specific professions or industries
- Companies that build roads, bridges, etc. (infrastructure)
- Companies that build houses, except for affordable housing
# MARGINS
Types of Margins
1. Initial Margin: The minimum amount (percentage of transaction value) a client must
pay to a broker before buying securities. The broker may lend the remaining amount.
2. Maintenance Margin: The minimum amount (percentage of market value) a client must
maintain in their margin account. Calculated based on the previous day's closing price.
Margin Calls
1. When the client's balance falls below the maintenance margin, the broker makes a margin
call.
2. The client must deposit funds or securities to meet the margin call.
3. If the client fails to meet the margin call, the broker may liquidate the securities.
Liquidation of Securities
1. If the client fails to meet the margin call or deposit funds, the broker may liquidate the
securities.
2. The broker may also liquidate securities if the client's deposit falls to 30% or less of the
market value.
Disclosure Requirements
1. Brokers must disclose gross exposure details to the stock exchange, including client
information and lender details (if applicable).
2. Stock exchanges disclose scrip-wise gross outstanding in margin accounts with all
brokers on their website after trading hours.
Book Closure
1. Definition: Periodic closure of the Register of Members and Transfer Books to record
shareholders.
2. Purpose: Determine entitlement to dividends, bonus or right shares, or other rights.
Record Date
Date on which company records are closed to determine shareholders eligible for dividends,
proxy rights, etc.
Legal Requirements
1. Companies Act, 2013: Book closure allowed for max 45 days/year, not exceeding 30
days at a time.
2. Notice Requirement: Previous notice by advertisement in vernacular and English
newspapers.
SEBI (LODR) Regulations, 2015
1. Advance Notice: Listed companies must give 7 working days' advance notice of book closure
or record date to the stock exchange.
Purpose of Book Closure/Record Date
1. Dividend Payment: Determine eligible shareholders.
2. Rights Issue: Identify shareholders entitled to rights.
3. Bonus Issue: Determine eligible shareholders.
# Block Deal:
A block deal is when a big investor (like a bank or mutual fund) buys or sells a HUGE number of
shares (worth at least ₹10 Crore) in a single transaction.
Block Deal Window
A Block Deal Window is a separate trading window provided by stock exchanges to facilitate the
execution of large trades, known as block deals. 1. Morning Window: 08:45 AM - 09:00 AM
2. Afternoon Window: 02:05 PM - 02:20 PM
Order Size and Price
1. Minimum Order Size: ₹10 Crore
2. Price Range: Orders must be within ±1% of the applicable reference price
Disclosure
1. Information Dissemination: Stock exchanges disclose block deal information to the
public on the same day, after market hours.
2. Disclosed Information: Includes scrip name, client name, quantity, traded price, etc
# Bulk Deal
A trade where the total quantity bought or sold is more than 0.5% of the listed company's
equity shares.
Key Characteristics:
1. Trading Window: Normal trading window, throughout trading hours.
2. Market-Driven: Takes place throughout the trading day.
3. Disclosure: Stock broker must reveal bulk deals to the stock exchange daily.
4. Visibility: Bulk orders are visible to everyone.
Notification Requirements:
1. If bulk deal happens through Single Trade: Notify exchange immediately upon execution.
2. if through Multiple Trades: Notify exchange within 1 hour of trading closure.
# STOCK MARKET INDEX
A stock market index is a statistical measure that represents the value of a particular segment
of the stock market.
Purpose:
Indexes capture the overall behavior of equity markets, providing a benchmark for investment
performance.
Construction:
1. Selection: A group of representative stocks is selected.
2. Base Period: A base period and base index value are established.
3. Calculation: The index is calculated with reference to the base period.
Uses:
1. Historical Comparison: Compare returns on investments.
2. Performance Benchmark: Evaluate equity fund performance.
3. Economic Indicator: Gauge overall economic or sector performance.
4. Up-to-Date Information: Reflects current market conditions.
5. Financial Applications: Enables Index Funds, Futures, Options, and risk management
strategies.
# BASIS OF SENSEX
Sensex, or Sensitive Index, is the stock market index indicator for the Bombay Stock Exchange
(BSE), also known as BSE S&P Sensex.
Composition:
1. 30 Companies: Represents various industrial sectors.
2. Large, Established Companies: Based on financial performance.
Calculation Method:
1. Free-Float Method: Introduced on September 1, 2003.
2. Market Capitalization: Multiplies shares issued by stock price.
3. Free-Float Factor: Determined by BSE to calculate Free-Float market capitalization.
4. Ratio and Proportion: Used with base index of 100 to determine Sensex.
Key Points:
1. Level of Sensex: Indicates performance of 30 stocks.
2. Free-Float Method: Considers readily tradable shares, excluding locked-in shares.
Calculation Steps:
1. Determine market capitalization.
2. Calculate Free-Float market capitalization.
3. Apply Ratio and Proportion with base index.
# NIFTY
NIFTY (National Stock Exchange Fifty) is the market indicator of the National Stock Exchange
(NSE), comprising 50 stocks, also known as Nifty 50.
Ownership and Management:
Owned and managed by India Index Services and Products Ltd. (IISL).
Calculation Method:
1. Free-Float Market Capitalization Weighted Method:
- Multiplies equity capital (number of shares outstanding) by price to derive market
capitalization.
- Determines Free-Float market capitalization by multiplying equity capital by price and
Investible Weight Factors (IWF).
2. Daily Index Calculation:
- Current market value (Free-Float market capitalization) divided by base market capital.
- Multiplied by the Base Index Value of 1000.

Key Points:
1. Representative Stocks: 50 stocks that represent the market.
2. Daily Updates: Index is determined on a daily basis.
3. Base Index Value: 1000.
These indices are broad-market indices, consisting of the large, liquid stocks listed on the
Exchange. They serve as a benchmark for measuring the performance of the stocks or
portfolios such as mutual fund investments. Some of them are:

• NIFTY 50 Index • NIFTY Next 50 Index • NIFTY 100 Index • NIFTY 200 Index • NIFTY 500 Index •
NIFTY Midcap 150 Index • NIFTY Midcap 50 Index • NIFTY Midcap 100 Index • NIFTY Smallcap
250 Index • NIFTY Smallcap 50 Index • NIFTY Smallcap 100 Index • NIFTY Large Midcap 250
Index • NIFTY Mid Smallcap 400 Index
# BASICS OF INVESTING – A GUIDANCE TO BUDDING INVESTORS
Before one starts investing in securities market, one needs to
1. Understand Investment Goals: Identify objectives, risk appetite, and needs.
2. Reflect Personal Preferences: Consider desired returns, risk tolerance, and time horizon.
3. Risk Awareness: Recognize that every investment carries risk.
4. Informed Decision-Making: Research and analyze investment opportunities.
Investment Considerations:
1. Risk Appetite: Willingness to take on risk in pursuit of returns.
2. Return Expectations: Desire for steady or higher returns.
3. Time Horizon: Length of time invested in a particular asset.
4. Diversification: Spreading investments across asset classes and industries.
Research and Due Diligence:
1. Company Disclosures: Review financial details, project information, and promoter
background.
2. Industry Risks: Understand potential risks and challenges associated with a particular
industry.
By following these principles and considerations, budding investors can make informed
decisions and navigate the securities market with confidence.
Key risks in investing in securities market:
i. Market risk or Systematic Risk: It means that an investor may experience losses due to
factors affecting the overall performance of financial markets and general economy of the
country.
ii. Unsystematic Risk: Unsystematic risk can be described as the uncertainty attached with
a particular company or industry.
iii. Inflation risk: Inflation risk is also called as purchasing power risk. It is defined as the
chance that the cash flows from an investment would lose their value in future because of a
decline in its purchasing power due to inflation.
iv. Liquidity risk: Liquidity risk arises when an investment can’t be bought or sold quickly
enough.
v. Business Risk: It refers to the risk that a business of a company might be affected or
may stop its operations due to any unfavorable operational, market or financial situation. vi.
Volatility Risk: Volatility risk arises as the Companies’ stock prices may fluctuate over time.
vii. Currency Risk: It refers to the potential risk of loss from fluctuating foreign exchange rates
that an investor may face when he has invested in foreign currency or made foreign
currencytraded investments.
Pre-requisites for investing in the securities market:
1. Bank Account :- A bank account is necessary for investing in the securities market.
2. Trading Account (Broking Account)
- Open a trading account with a SEBI-registered stock broker.
- The account is used to buy and sell securities on Stock Exchanges.
- Requirements:
- Fill account opening form.
- Submit signed Know Your Client (KYC) documents.
3. Demat Account
- A demat account holds securities in dematerialized/electronic form.
- Open a demat account with a depository participant (DP) of:
- National Securities Depository Limited (NSDL).
- Central Depository Services Limited (CDSL).
These three accounts are essential for investing in the securities market.
# Clearing Corporation
Role of Clearing Corporation:
1. Clearing and Settlement: Clears and settles trades executed on Stock Exchange.
2. Deposit and Collateral Management: Manages deposits and collateral.
3. Risk Management: Oversees risk management functions.
4. Confidence and Trust: Maintains confidence in clearing and settlement processes.
5. Settlement Cycles: Promotes and maintains short and consistent settlement cycles.
6. Counter-Party Risk Guarantee: Provides guarantee against counter-party risk.
7. Risk Containment: Operates a tight risk containment system.
Legal Framework:
1. Section 8A(1): Allows recognized stock exchanges to transfer clearing house duties to a
clearing corporation.
2. Prior Approval: Requires prior approval from SEBI.
3. Companies Act, 2013: Clearing corporation must be a company incorporated under this Act.
4. Bye-Laws: Clearing corporation must create bye-laws and submit them to SEBI for approval.
SEBI's Role:
1. Approval: Grants approval for transfer of duties and functions.
2. Public Interest: Ensures transfer is in the interest of trade and public.
# MARKET SURVEILLANCE
Objective:
Market surveillance plays a vital role in ensuring market integrity which is the core objective of
regulators. Market integrity is achieved through combination of surveillance, inspection,
investigation and enforcement of relevant laws and rules.
Responsibilities:
1. Regulators: Oversee market surveillance globally.
2. Exchanges: Conduct market surveillance in some countries.
3. SEBI (India): Monitors market surveillance, with primary responsibility entrusted to Stock
Exchanges.
Mechanisms:
1. Automated Surveillance Tools: Analyze trading patterns, detect irregularities.
2. Alerts Management System: Comprehensive system to manage alerts and respond to
potential issues.
Importance:
1. Detects Irregularities: Identifies potential market manipulation, insider trading, and other
irregularities.
2. Maintains Market Trust: Ensures fairness and transparency, maintaining investor
confidence.
Types of Market Surveillance:
1. Preventive Surveillance: Monitors markets in real-time to prevent irregularities.
2. Post-Trade Surveillance: Analyzes trades after execution to detect potential issues.
(1)Preventive Surveillance Measures:
1. Stringent Onboarding Norms: Strict checks for trading members, including net worth,
background, and viability.
2. Index Circuit Filters: Coordinated trading halts in equity and equity derivative markets at 3
stages of index movement (10%, 15%, and 20%).
3. Trade Execution Range: Orders matched and trades executed only within a specified price
range.
4. Order Value Limitation: Maximum order value limit per order.
5. Cancel on Logout: Outstanding orders cancelled when user logs out.
6. Kill Switch: All outstanding orders cancelled when trading member activates kill switch.
7. Risk Reduction Mode: Limits orders to reduce risk.
8. Compulsory Close Out: Incoming orders cancelled or partially cancelled if trading member
exceeds margin limits.
9. Capital Adequacy Check: Monitoring of trading member's performance, margin
requirements, and position limits.
10. Fixed Price Band/Dynamic Price Band: Limits applied to curb volatility (5%, 10%, and 20%
for non-derivative securities).
11. Trade for Trade Settlement: Settlement of scrips on a trade-for-trade basis, no netting off
allowed.
12. Periodic Call Auction: Shifting securities from continuous to call auction method.
13. Rumour Verification: Tracking unannounced news, seeking clarification, and disseminating
replies.
These measures aim to prevent market manipulation, reduce risk, and maintain market
integrity.
(2) Post-Trade Surveillance Measures:
1. End of Day Alert: Statistical tools generate alerts highlighting stocks with abnormal behavior.
2. Pattern Recognition Model: Advanced tools identify suspicious trading patterns, detecting
unfair practices.
Transaction Alerts for Members:
1. 14 Different Heads: Alerts downloaded to members under various categories.
Effectiveness of Preventive Approach:
1. Fruitful Results: Preventive measures by Stock Exchanges and SEBI have been successful.
2. Continuous Upgrades: Measures need to be upgraded, expanded, and added to maintain
effectiveness.
SEBI's Market Surveillance Measures:
1. Price Band: Limits applied to curb volatility.
2. Circuit Filter: Coordinated trading halts at specific index movement levels.
3. Trade for Trade Segment: Settlement of scrips on a trade-for-trade basis.
These post-trade surveillance measures help detect and prevent unfair trading practices,
maintaining market integrity.
# Risk Management in the Secondary Market:
A number of measures were taken to modernise the stock exchanges in the country
1. Infrastructure Development: Upgrading stock exchange infrastructure.
2. Transparency: Improving market transparency.
3. Efficiency: Enhancing market efficiency.
4. Investor Protection: Strengthening investor protection.
Risk Management Initiatives:
1. Comprehensive Margin System: Implementing a comprehensive margin system.
2. Exposure Limits: Setting exposure limits for brokers.
3. Settlement Guarantee Funds: Introducing settlement guarantee funds to improve clearing
and settlement efficiency.
4. Intra-Day Trading Limits: Fixing intra-day trading limits for brokers.
5. Gross Exposure Limits: Setting gross exposure limits for brokers.
Regulatory Initiatives:
1. SEBI's Interface with Stock Exchanges: Maintaining a constant interface with stock
exchanges on investor protection, market infrastructure, and intermediation quality.
2. Self-Regulatory Institutions: Encouraging stock exchanges to become effective
selfregulatory institutions.
Market Improvements:
1. Automated Screen-Based Trading: Introducing automated screen-based trading, improving
market transparency and efficiency.
2. Reduced Transaction Costs and Time: Significantly reducing transaction costs and time.
3. Expansion of Online Trading: Smaller exchanges introducing online screen-based trading.
Key Risk Management Measures by SEBI:
1. Categorization of Securities: Grouping securities into categories 1, 2, and 3 based on
liquidity and volatility.
2. VaR-based Margining System: Implementing a Value-at-Risk (VaR) system to manage 99% of
market risks.
3. Mark-to-Market Margins: Specifying margins based on market prices.
4. Intra-day Trading Limits: Setting limits on intra-day trading and gross exposure.
5. Real-time Monitoring: Monitoring intra-day trading limits and gross exposure limits in
realtime.
6. Margin Payment Time Limits: Specifying time limits for margin payments.
7. Upfront Margin Collection: Collecting margins on an upfront basis.
8. Market-wide Circuit Breakers: Implementing index-based circuit breakers.
9. Automatic De-activation: Automatically de-activating trading terminals for exposure limit
breaches.
10. Additional Margins: Specifying additional margins for extreme market scenarios (1% cases).
11. Institutional Client Margin Collection: Collecting margins from institutional clients on a T+1
basis.
# IMPACT OF VARIOUS POLICIES ON STOCK MARKETS
FED Policy
The Federal Reserve System is the central bank of the United States.
It performs five general functions to promote the effective operation of the U.S. economy and
the public interest:
1. Conducts Monetary Policy: To promote maximum employment, stable prices, and
moderate long-term interest rates in the U.S. economy.
2. Promotes Financial Stability: By promoting the stability of the financial system and
seeking to minimize and contain systemic risks through active monitoring and engagement in
the U.S. and abroad.
3. Ensures Institutional Safety and Soundness: By promoting the safety and soundness of
individual financial institutions and monitoring their impact on the financial system as a whole.
4. Fosters Payment and Settlement System Safety and Efficiency: By providing services to
the banking industry and the U.S. government that facilitate U.S. dollar transactions and
payments.
5. Protects Consumers and Promotes Community Development: Through consumer-
focused supervision and examination, research and analysis of emerging consumer issues and
trends, community economic development activities, and the administration of consumer laws
and regulations.

# How US Fed Rate Changes Affect India

What Happens When US Interest Rates Go Up?
- Foreign investors take their money out of India and invest it in the US instead.
- This causes the Indian stock market to go down.
- The Indian rupee becomes weaker compared to the US dollar.
Why Do Foreign Investors Move Their Money?
- Higher interest rates in the US make investments there more attractive.
- Investors seek higher returns, so they move their money to the US.
Impact on Indian Economy
- A weaker rupee makes imports more expensive.
- Indian companies that rely on foreign investment may struggle.
- The Indian stock market may experience volatility.
What Can India Do?
- The Reserve Bank of India (RBI) may raise interest rates to attract foreign investors.
- The RBI may also take steps to stabilize the rupee.
- Indian companies may need to adapt to changing economic conditions.
Bond Market Pressure
- Higher US Fed rates will increase US 10-year bond yields.
- This will put pressure on India's 10-year government bond yields.
RBI Repo Rate
- Higher US Fed rates will weaken the Rupee.
- A weaker Rupee will increase India's imports bill.
- This will put pressure on the RBI to:
- Increase repo rates
- Refrain from cutting rates in upcoming meetings
# RBI's Credit Policy
- The Reserve Bank of India's credit policy aims to pursue higher economic growth with price
stability.
- This means producing more goods and services in different sectors of the economy.

Objectives of Credit Policy

- Increase finance for agriculture and industrial activities.
- Ensure growth and stability of the monetary system.
Key Aspects of Credit Policy
- Regulates the supply of money in the economy.
- Influences the direction of interest rates in the banking system.
- Implemented in conjunction with commercial banks.
Relationship with Other Plans: - Aligns with the objectives of the country's five-year plans.
Alternative Names: - Also known as monetary policy or money management policy.
Objectives of Monetary Policy
1. Rapid Economic Growth: Influences interest rates, impacting investment and economic
growth. Easy credit policy can improve investment outlook.
2. Exchange Rate Stability: Maintaining a stable exchange rate is crucial for international
confidence in the economy. RBI alters foreign exchange reserves to influence demand.
3. Price Stability: Controls inflation and deflation by adopting appropriate policies, such as
"easy money policy" during recession and "dear money policy" during inflation.
4. Balance of Payments (BOP) Equilibrium: Achieving BOP equilibrium is essential for
developing economies, reflecting monetary equilibrium.
5. Neutrality of Money: Regulates money supply to prevent disequilibrium, although this
objective is criticized for potential difficulty in achieving price stability.
Key Points
- Monetary policy plays a crucial role in achieving economic growth and stability.
- RBI uses various tools, including interest rates and foreign exchange reserves.
- Achieving price stability and BOP equilibrium are critical for economic growth and
development.
- Monetary policy should maintain income and price stability for rapid economic growth.
Bank Rate
The Bank Rate is the interest rate at which the Reserve Bank of India (RBI) lends money to
commercial banks.
How it Works
When the RBI lends money to commercial banks, it charges them an interest rate, known as the
Bank Rate. This rate affects how much it costs for commercial banks to borrow money from the
RBI.

What Happens When Bank Rate Increases?

When the Bank Rate increases:
- Commercial banks have to pay more interest to borrow money from the RBI.
- This makes borrowing more expensive for commercial banks.
- As a result, commercial banks may lend less money to their customers.
- This can reduce the amount of money available in the economy.
Various Quantitative instrument of Credit Policy:
(a) Repo Rate
- The rate at which commercial banks borrow money from RBI.
- Reduction in Repo Rate: - Helps commercial banks get money at a cheaper rate.
- Encourages borrowing.
- Increase in Repo Rate:
- Discourages commercial banks from borrowing.
- Increases cost of borrowing and lending.
- Discourages public from borrowing and encourages deposits.
(b) Cash Reserve Ratio (CRR)
- The amount commercial banks must maintain as cash deposit with RBI.
- Increase in CRR:
- Reduces money supply in the economy.
- Done when RBI thinks there's excessive money supply.
- Decrease in CRR:
- Increases money supply in the economy.
- Done when RBI thinks inflation is under control and industry needs a boost.
- Provides more money to commercial banks, which can lend to industry, boosting production,
consumption, and employment.
(c) Statutory Liquidity Ratio (SLR)
- The amount commercial banks must keep with themselves at all times.
- A powerful tool to control liquidity in the economy.
- Decreasing SLR:
- Puts more money in the hands of commercial banks.
- Encourages industries to boost production.
- Increasing SLR:
- Used as an inflation control measure.
- Helps control price rise.
(d) Reverse Repo Rate (RRR)
- The rate at which RBI borrows money from commercial banks.
- Increasing RRR:
- Decreases money supply in the market and vice versa, other things remain constant
- Gives commercial banks more incentives to park funds with RBI.
- Decreasing RRR: Increases money supply in the market.
- Increasing both Repo Rate and RRR: Indicates strengthening of RBI's Monetary Policy.

# What is an Inflation Index?

An inflation index is a tool that helps us measure how fast prices are rising in an economy.
Why Do We Need an Inflation Index?
We need an inflation index to
:- Track changes in prices over time
- Understand how fast inflation is rising or falling
- Make informed decisions about investments and the economy
How Does an Inflation Index Work?
An inflation index collects data on the prices of a basket of goods and services, such as food,
housing, and transportation. It then uses this data to calculate the rate of inflation.
Why Are There Different Inflation Indexes?
There are different inflation indexes because different economists and investors may want to
measure inflation in different ways.
For example, some indexes may focus on the prices of certain goods and services, while others
may look at the overall price level.

What are the main inflation indices in India?

There are two main indices:
1. Consumer Price Index (CPI): Measures the prices of goods and services that people buy.
2. Wholesale Price Index (WPI): Measures the prices of goods at the wholesale level, before
they reach consumers.
What is Wholesale Price Index (WPI)?
WPI is a measure of inflation that:
- Looks at the prices of 676 items, including food, fuel, and manufactured goods.
- Considers 5482 price quotations.
- Does not include prices of services or retail prices.
- Is calculated and released every month.
- Uses 2004-05 as its base year for comparison (note: CPI uses 2012 as its base year).
- Covers three main categories:
1. Primary Articles: Includes items like food, fruits, vegetables, etc.
2. Fuel & Power: Includes items like petrol, diesel, electricity, etc.
3. Manufactured Products: Includes items like textiles, machinery, transport
equipment, etc. Why is WPI important?
WPI helps us understand how much prices are changing at the wholesale level, which can affect
the prices that consumers pay.
Change in Inflation Measurement
- Until April 2014, WPI was the main index for measuring inflation.
- RBI adopted CPI (combined) as the key measure of inflation in April 2014.
What is the Consumer Price Index (CPI)?
The CPI is a measure of inflation that looks at the prices of goods and services that people buy.
Types of CPI in India
There are three main types of CPI:
1. CPI for Industrial Workers: Measures inflation for industrial workers.
2. CPI for Agricultural Labourers: Measures inflation for agricultural workers.
3. CPI (Rural/Urban/Combined): Measures inflation for the general population.
Who Releases the CPI?
The CPI is released by two government agencies:
1. Labour Bureau: Releases CPI for industrial workers and agricultural labourers.
2. Central Statistics Office (CSO): Releases CPI (Rural/Urban/Combined).
What Does the RBI Use?
The Reserve Bank of India (RBI) uses the CPI (Combined) released by the CSO to measure
inflation.
Important Facts About CPI
1. Base Year: The base year for CPI is 2012.
2. Number of Items: The CPI basket includes 448 items in rural areas and 460 items in urban
areas.
3. CPI Basket: The CPI basket is broader than the WPI basket.
4. Main Groups: The items in the CPI basket are divided into 6 main groups.
Key Difference between Wholesale Price Index (WPI) and Consumer Price Index (CPI)
1. Primary Use
- WPI: Measures inflationary trends in the economy as a whole.
- CPI: Used for adjusting income and expenditure streams for changes in the cost of living. 2.
Pricing Basis
- WPI: Based on:
- Wholesale prices for primary articles
- Administered prices for fuel items
- Ex-factory prices for manufactured products
- CPI: Based on retail prices, including all distribution costs and taxes.
3. Price Collection Method
- WPI: Prices collected on a voluntary basis.
- CPI: Prices collected by investigators visiting markets.
4. Coverage
- CPI: Covers only consumer goods and consumer services.
- WPI: Covers all goods, including intermediate goods, transacted in the economy.

5. Weightage
- WPI: Weights primarily based on national accounts and enterprise survey data.
- CPI: Weights derived from consumer expenditure survey data.
# The impact of policies on the Indian stock market.
It explains that:
1. Monetary policies are influenced by inflation: Inflation and inflationary expectations
influence monetary policies.
2. Low interest rates boost consumer purchasing power: Low interest rates increase
consumer purchasing power, driving up demand and prices, and ultimately leading to higher
inflation.
3. RBI intervenes to control inflation: When inflation rises above optimal levels, the RBI
increases interest rates to control it.
4. RBI uses repo rate and CRR to manage money supply: The RBI hikes the repo rate
and/or cash reserve ratio (CRR) to manage money supply and curb inflation.
5. Optimal inflation rate is crucial for a healthy economy: Maintaining an optimal inflation
rate is essential for a healthy economy.
6. RBI monitors WPI and CPI: The RBI monitors the Wholesale Price Index (WPI) and
Consumer Price Index (CPI) to ensure economic balance.
7. Inflation affects market sentiments: A rise in inflation rates impacts market sentiments,
driving up interest rates and making borrowing costly.
8. Global sentiments and funds inflows also impact the stock market: The direction of the
stock market is influenced by global sentiments and funds inflows, not just domestic factors.