Tag: Principles of Marketing

Lucknow University BBA Notes

Non-ethnocentricism

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Ethnocentrism in social science and anthropology as well as in colloquial English discourse means to apply one’s own culture or ethnicity as a frame of reference to judge other cultures, practices, behaviors, beliefs, and people, instead of using the standards of the particular culture involved. Since this judgment is often negative, some people also use the term to refer to the belief that one’s culture is superior to, or more correct or normal than, all others especially regarding the distinctions that define each ethnicity’s cultural identity, such as language, behavior, customs, and religion. In common usage, it can also simply mean any culturally biased judgment. For example, ethnocentrism can be seen in the common portrayals of the Global South and the Global North.

Ethnocentrism is sometimes related to racism, stereotyping, discrimination, or xenophobia. However, the term “ethnocentrism” does not necessarily involve a negative view of the others’ race or indicate a negative connotation. The opposite of ethnocentrism is cultural relativism, which means to understand a different culture in its own terms without subjective judgments.

Lucknow University BBA Notes

Employee Remuneration

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Remuneration may be defined as money received in the performance of work, plus many kinds of benefits and services that organisations provide their employees. Money is a direct compensation, known as wages, gross pay. Benefits are indirect compensation, it includes, life insurance, accident insurance, health insurance, employees contribution to retirement benefits such as gratuity, pension, pay for vacation, pay for illness/ sickness, simply it includes payment for welfare and social security.

It must be in proportion, to what services rendered by him/her to an organisation. Remuneration occupies an important place in the life of an employee. Therefore it must be adequate and fair. His or her all the needs should be satisfied by this remuneration. Employee remuneration is significant because of his contribution only the cost of production would be minimised. Remuneration or compensation is very important function of human resource management.

Remuneration is concerned with needs, motivation and rewards. Managers, therefore, analyse and interpret the needs of their employees so that reward can be individually designed to satisfy these needs. It is very difficult for human resource management to fix wages and wage differentials, salaries acceptable to employees and their leaders.

Wage or salary is very important from employees point of view because it contributes a major share of their income. Pay is a powerful motivational factor. It provides recognition, a sense of accomplishment, social status.

Remuneration Objectives

(1) To acquire qualified competent personnel

(2) To retain the present /existing employees

(3) To secure internal and externals equity means similar wages for jobs within an organisation. External equity implies payment of similar wages to similar jobs in comparable organisations.

(4) To ensure desired / positive behaviour of employees.

(5) To enhance employee morale and motivation.

(6) To keep control on labour and administrative cost.

(7) To protect in public as progressive employers and to comply the wage legislation.

(8) To satisfy people/employees to reduce the labour turnover, grievances and frictions over pay inequities.

(9) To pay according to the content, challenges, difficulty, risk of the job and according to the effort and merit of the employees.

(10) To facilitate pay roll administration of budgeting and wage and salary control.

(11) To simplify and facilitate collective bargaining procedure and negotiations.

(12) To facilitate growth and survival of the organisation and to promote organisation feasibility.

Remuneration Components:

Basic Wage:

It is a stable wage paid over a period of time; monthly, weekly or daily. It can also be considered as the normal rate for a specified level of output. Thus, for a particular job involving its varied requirements such as skills and training, it commands a price to get it done.

Dearness Allowance (DA):

The system of DA payment was used for the first time after World War I to enable the workers to meet the steep rise in prices of essential commodities such as foodstuffs. Although called by various names, the special allowance thus paid aimed at neutralising the high cost of living and protect the real wages of the wage earners. In other words, the major purpose of DA payment was to provide relief to the workers confronted with inflationary conditions by attempting to offset the cost of living with additional allowance.

Usually, the consumer price index (CPI) is issued to link DA with the cost of living. However, there prevail varying practices with respect to the fixation of DA across industries, regions, sectors and governmental and private undertakings. As National Commission on Labour (NCL) reports, “In some cases it was linked to the Working Class Consumer Price Index in others it was not. It was at flat rate and was applicable in some cases to all employees irrespective of their wages; in others, it varied according to wage or salary slabs. A graded percentage, linked to wages or salaries, was also prevalent.”

Overtime:

The overtime meets the exigencies of increased work load. Frequently, on working days, overtime rates are one and a half times the normal wage, while on holidays; these rates are two times the normal wage. However, in many work situations in India, it is used to accomplish vested interest to increase earnings. Indeed, the normal work is not done by workers unless their supervisors sanction the overtime.

Lucknow University BBA Notes

Job Evaluation Concept, Objectives

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Job evaluation is the rating of jobs in an organization. This is the process of establishing the value or worth of jobs in a job hierarchy. It attempts to compare the relative intrinsic value or worth of jobs within an organization. Thus, job evaluation is a comparative process.

Important definitions

According to the International Labour Office (ILO) “Job evaluation is an attempt to determine and compare the demands which the normal performance of a particular job makes on normal workers, without taking into account the individual abilities or performance of the workers concerned”.

The British Institute of Management defines job evaluation as “the process of analysis and assessment of jobs to ascertain reliably their negative worth using the assessment as the basis for a balanced wage structure”. In the words of Kimball and Kimball “Job evaluation is an effort to determine the relative value of every job in a plant to determine what the fair basic wage for such a job should be”.

Wendell French defines job evaluation as “a process of determining the relative worth of the various jobs within the organization, so that differential wages may be paid to jobs of different worth. The relative worth of a job means relative value produced. The variables which are assumed to be related to value produced are such factors as responsibility, skill, effort and working conditions”.

Now, we may define job evaluation as a process used to establish the relative worth of jobs in a job hierarchy. This is important to note that job evaluation is ranking of job, not job holder. Job holders are rated through performance appraisal. Job evaluation assumes normal performance of the job by a worker. Thus, the process ignores individual abilities of the job holder.

Job evaluation provides basis for developing job hierarchy and fixing a pay structure. It must be remembered that job evaluation is about relationships and not absolutes. That is why job evaluation cannot be the sole determining factor for deciding pay structures.

External factors like labour market conditions, collective bargaining and individual differences do also affect the levels of wages it, organizations. Nonetheless, job evaluation can certainly provide an objective standard from which modifications can be made in fixing wage structure.

The starting point to job evaluation is job analysis. No job can be evaluated unless and until it is analyzed.

Objectives of Job Evaluation

The main objective of job evaluation is to determine relative worth of different jobs in an organization to serve as a basis for developing equitable salary structure. States an ILO Report the aim of the majority of systems of job evaluation is to establish, on agreed logical basis, the relative values of different jobs in a given plant or machinery i.e. it aims at determining the relative worth of a job. The principle upon which all job evaluation schemes are based is that of describing and assessing the value of all jobs in the firms in terms of a number of factors, the relative importance of which varies from job to job.

The objectives of job evaluation, to put in a more orderly manner are to:

  • Determine equitable wage differentials between different jobs in the organization.
  • Provide a standard procedure for determining the relative worth of each job in a plant.
  • Ensure that like wages are paid to all qualified employees for like work.
  • Form a basis for fixing incentives and different bonus plans.
  • Eliminate wage inequalities.
  • Serve as a useful reference for setting individual grievances regarding wage rates.
  • Provide information for work organisation, employees’ selection, placement, training and numerous other similar problems.
  • Provide a benchmark for making career planning for the employees in the organization.
Lucknow University BBA Notes

Reward management

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Reward management is concerned with the formulation and implementation of strategies and policies that aim to reward people fairly, equitably and consistently in accordance with their value to the organization.

Reward management consists of analysing and controlling employee remuneration, compensation and all of the other benefits for the employees. Reward management aims to create and efficiently operate a reward structure for an organisation. Reward structure usually consists of pay policy and practices, salary and payroll administration, total reward, minimum wage, executive pay and team reward.

Objective

Reward management deals with processes, policies and strategies which are required to guarantee that the contribution of employees to the business is recognized by all means. Objective of reward management is to reward employees fairly, equitably and consistently in correlation to the value of these individuals to the organization. Reward systems exist in order to motivate employees to work towards achieving strategic goals which are set by entities as well as aligning the actions of employees to reflect the culture, aims and beliefs a business or organisation wishes to uphold. Reward management is not only concerned with pay and employee benefits. It is equally concerned with non-financial rewards such as recognition, training, development and increased job responsibility. Ultimately, Reward Management is a tool that uses various types of Employee Motivation to align the strategic and cultural goals of an employee, or group of employees, with the tactical targets set by a business or organisation.

Rewards

Rewards are more about incentives to your employee’s work. It’s just to motivate them towards the work and promote productivity. To encourage more quality work, you offer them rewards.

Benefits

Benefits are most often not built into one’s salary; for example health insurance offered by the company.

Perks

Perks act as a kind of treat to the employees. It is offered to make their work-life more enjoyable and stable. This could be anything like; Chill Fridays, less-stressful Mondays, and so on.

Stock options

Some organizations offer stocks to their employees at a fixed rate for some time. This is again a great way to motivate employees to stick with the organization in the long term.

Recognition programs

Most of the employees would prefer financial rewards for their efforts towards the company. However, some employees seek recognition for their hard work from the organization.

Important:

Mutually beneficial: A reward system is beneficial not only to the employee but also to the organisation. The employee will feel more motivated to work harder by having a reward system in place the employee will feel more committed to their work and their productivity will increase. An increase in productivity will then benefit the organisation. Therefore, a reward system is mutually beneficial to the employee and the organisation.

Absenteeism: A reward system will reduce absenteeism in the organisation. Employees like being rewarded for a job well done and if there is a reward system in place, employees will be less likely to be ringing in sick and not showing up for work. Also, by having a reward system in place the employees will be clearer about the targets and goals of the organisation as they will be rewarded when reach certain targets. So, by having a reward system as an incentive they will be less likely to be absent from work.

Motivation: A reward system will motivate employees by reaching targets and organisational goals in exchange for rewards. A reward system is great at motivating employees but they will also be motivated to prove themselves to the organisation.

Loyalty: A reward system will increase the employee’s loyalty to the organisation. By a reward system being in place the employee feels valued by the organisation and knows that their opinion matters. If an employee is happy with the reward system, they are more likely to appreciate work place and remain loyal to the organisation

Teamwork: The reward system will increase the teamwork spirit in the organisation. The reward system will promote teamwork to the employees. The employees will work together as part of a team to achieve their targets in return for rewards. Teamwork within the organisation will help increase efficiency and create a happier workplace. This is another reason why reward systems are important in business organisations.

Morale: Having a reward system in place providing employees with incentives and recognition will boost their morale. By encouraging employees to meet goals and targets it gives them clear focus and purpose which will their morale. By the employees morale being boosted this will increase the morale of the entire organisation. This is all down to a reward system in the organisation.

Lucknow University BBA Notes

Assessment of Recruitment Techniques

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The technology today has made the recruitment process easier and simpler. There are various online tests to gauge the professional abilities of a candidate. Then the shortlisted candidates can face the personal interview and those who are through, can get appointed. Study shows that these tests are accurate and trustworthy as they provide precise measures of person’s skills and abilities. Thus these assessments help identify people who are well matched with required job profiles.

Work samples

The work sample is a piece of actual work that a candidate will complete. Usually, it’ll be closely related to the job they applied to. For example, an SEO specialist can be asked to conduct keyword research for one specific topic, an accountant could be asked to apply a few formulas, and a developer may be asked to write a short piece of code.

These talent assessment tools have been shown to be the most effective in predicting job performance. And that makes sense; work samples gauge ability to do a specific work first-hand.

Analytical Ability Test

This test looks at how well one can draw logical conclusions. It helps assess the ability of candidates to adapt to certain situations. It is obvious that professional field is not static. It is always changing and one has to be ready to get acclimatized with the changing situations. Analytical test is a measure to know how well one can manage and changes at work. Ability to set goals and achieve them is most preferred now a day and analytical ability test is an effective tool to measure this ability.

Games And Activities

Gamification is growing rapidly in recruitment as the newest way to assess talent, while also improving your candidate’s application experience.

Similar to psychometric and skill testing, gaming tasks and activities can be used to assess skills like logic, problem solving, and critical thinking. By using games instead of traditional ‘tests’, the process becomes more engaging and can provide a lot of important data about candidates and their skill set.

Psychometric Ability Test for Behavioral Analysis

Scholars define the psychometric test as any activity and assessment that is conducted in order to evaluate candidate’s performance and includes, but is not limited to, skills and knowledge, abilities, personality traits, attitudes and job/academic potential. Behavioral tests are conducted with a concrete purpose to underline specific personality traits that could indicate suitability for specific roles in professional field. They consist of personality questionnaires, leadership tests, motivation tests and situational judgment tests.

Personality And Cultural Fit

Something that is becoming increasingly recognised as an important factor of employment is the working environment, and whether someone is a good fit for the job and the company personality-wise. While personality tests are not sufficient basis for hiring decisions by themselves, they can be very helpful when used in conjunction with other recruitment tools.

Personality tests can give more information on someone’s general demeanour, particularly regarding the ‘big five’ personality traits, also known as OCEAN:

  • Openness to experiences
  • Conscientiousness
  • Extraversion
  • Agreeableness
  • Neuroticism

AI-powered Video interviews

Asynchronous interviews have started becoming more and more popular. This type of interview lets candidates record answers to questions and allows interviewers to evaluate the answers at their own time. Apart from the convenience of these interviews, AI technology has also turned them into talent assessment tools.

Bangalore University B.com Notes

Fixed Deposits in Companies

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Company Fixed Deposit (corporate FD) is a term deposit which is held over fixed period at fixed rates of interest. Company Fixed Deposits are offered by Financial and Non-Banking financial companies (NBFCs). The maturities of various company fixed deposits can range from a few months to a few years.

Factors before choosing Corporate FD schemes to invest in.

  • Company Background: Assess a company’s business viability by referring to its Financial Statements, Management Discussion and Analysis (MD & A).
  • Credit Rating: Opt for higher-rated corporate FDs based on its credit rating which indicates the underlying risk of the company.
  • Repayment History: Companies repayment history helps to determine company’s credit score, credibility and stability.

Reasons to invest:

Short-Term Investments

One of the major advantages of investing in corporate FDs is short-term investments. Bank FDs can be anywhere between a few months to a few years, but corporate FDs cannot exceed more than five years of timeframe, and this makes it a viable option when investors want high returns in a short duration of time.

Interest rates

Corporate FDs are the best in interest rates compared to banks. Considering a debt instrument where the investor needs higher returns, Corporate FDs can find the best fit. These are not influenced by the market performance and the fluctuations in the interest rate and provide much better returns than banks and other financial institutions.

Likewise to the banks, Corporate FDs also take care of the senior citizens. Here, senior citizens can find stability and attractive periodic money that can make life easier. Besides, the interest rates for senior citizens are higher than the banking schemes, which makes it a much more viable option when choosing to invest in FDs.

Ratings and Comparisons

Several corporates offer FDs, but which is the right company to invest the money as a Fixed Deposit? This is a common problem, and to solve this, investors can check the ratings of corporates given by CARE (Credit Analysis and Research Limited), CRISIL(Credit Rating Information Services of India Limited), or ICRA (Investment Information and Credit Rating Agency of India Limited) and then make a wise decision. These ratings are given to corporate after examining the company records, repayments, and interest rates which help potential investors by giving them a clear picture.

Company ratings are in the format AAA, AA, BBB, and more. AAA is the highest rating which signifies an investor can find a potential money hive after investing in such a company. This also gives a clear comparison with other companies, and investors can stop investing in a AA or BBB rating.

Solid Comparison

Several corporates offer Fixed Deposits but not all the corporates offer the same interest rate, they vary, and sometimes the marginal difference is too high. It is better to compare the corporates first before investing and check if they have better CARE, CRISIL, and ICRA ratings. AAA rating is considered to be the best.

Nominee

Nominee can be chosen by the investors when investing in corporate FDs, and this gives a greater advantage for investors. If the investor is holding a huge amount in the corporate Fixed Deposit and there is a sudden unfortunate demise of the investor, the nominee can take charge and possess all the money.

There is a higher return with the Corporate Fixed deposits compared to bank FDs, but there are a few notes that the investors should make before investing in Corporate FDs,

Research

One of the things that most investors do is only follow the rating system. Investors should check the company’s track record with profit and loss-making history. If the loss is a one-time or exceptional case and the track record is much positive. It can stand as a great investment opportunity for corporate FDs. Besides, it is a good practice to know the company’s plans and analyze if it will cause a positive or negative impact overall.

Premature Withdrawals

Most banks penalize the FD investors for premature withdrawals. This is usually around three months after investing. The situation is the same with Corporate FDs, and there is a penalty for premature withdrawal. It is best to know the penalty before investing.

Bangalore University B.com Notes

Gold ETF, RBI Bonds

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Gold ETF

A Gold ETF is an exchange-traded fund (ETF) that aims to track the domestic physical gold price. They are passive investment instruments that are based on gold prices and invest in gold bullion.

In short, Gold ETFs are units representing physical gold which may be in paper or dematerialised form. One Gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high purity. Gold ETFs combine the flexibility of stock investment and the simplicity of gold investments.

Gold ETFs are listed and traded on the National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd. (BSE) like a stock of any company. Gold ETFs trade on the cash segment of BSE & NSE, like any other company stock, and can be bought and sold continuously at market prices.

Buying Gold ETFs means you are purchasing gold in an electronic form. You can buy and sell gold ETFs just as you would trade in stocks. When you actually redeem Gold ETF, you don’t get physical gold, but receive the cash equivalent. Trading of gold ETFs takes place through a dematerialised account (Demat) and a broker, which makes it an extremely convenient way of electronically investing in gold.

Because of its direct gold pricing, there is a complete transparency on the holdings of a Gold ETF. Further due to its unique structure and creation mechanism, the ETFs have much lower expenses as compared to physical gold investments.

Purity & Price:

Gold ETFs are represented by 99.5% pure physical gold bars. Gold ETF prices are listed on the website of BSE/NSE and can be bought or sold anytime through a stock broker. Unlike gold jewellery, gold ETF can be bought and sold at the same price Pan-India.

Where to buy:

Gold ETFs can be bought on BSE/NSE through the broker using a demat account and trading account. A brokerage fee and minor fund management charges are applicable when buying or selling gold ETFs

Source: https://www.amfiindia.com/investor-corner/knowledge-center/gold-etf.html

RBI Bonds

The Government of India launched the Floating Rate Savings Bonds, 2020 (Taxable) scheme on July 01, 2020 to enable Resident Indians/HUF to invest in a taxable bond, without any monetary ceiling.

Eligibility for Investment:

The Bonds may be held by:

(i) A person resident in India,

(a) in her or his individual capacity, or

(b) in individual capacity on joint basis, or

(c) in individual capacity on any one or survivor basis, or

(d) on behalf of a minor as father/mother/legal guardian

(ii) a Hindu Undivided Family

Form of the Bonds:

Electronic form held in the Bond Ledger Account.

Period:

The Bonds shall be repayable on the expiration of 7 (Seven) years from the date of issue. Premature redemption shall be allowed for specified categories of senior citizens.

Individuals

  • Duly filled in application form (Complete application forms with all pages in full,duly filled in from the investors)
  • Self attested PAN card copy of the investor
  • Self attested Address copy of the investor
  • Cancelled cheque leaf of the bank which was mentioned in application for interest and maturity payments
  • No correction / alteration allowed in the application and the corrections if any to be duly authenticated by the investor

HUF

  • Duly filled in application form (Complete application forms with all pages in full,duly filled in by the Karta with stamp and signature)
  • Self attested PAN card copy of the HUF
  • Self attested Address copy of the HUF
  • Cancelled cheque leaf of the bank which was mentioned in application for interest and maturity payments
  • No correction / alteration allowed in the application and the corrections if any to be duly authenticated by the Karta
  • List of coparceners in the Hindu Undivided Family along with their signatures attested by Karta

Minors

  • Duly filled in application form (Complete application forms with all pages in full,duly filled in from the Guardian)
  • Self attested PAN card copy of the minor / Guardian
  • Self attested Address copy of the minor / Guardian
  • Birth Certificate of the minor attested by the Guardian
  • Cancelled cheque leaf of the bank which was mentioned in application for interest and maturity payments
  • No correction / alteration allowed in the application and the corrections if any to be duly authenticated by the investor.
  • In case of POA, Original POA to be verified by the bank and certified as “Original Seen and Verified”.

Source: https://www.hdfcsec.com/rbi-bond

Bangalore University B.com Notes

Secondary Market Meaning, Role, Function, Structure, Players

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The secondary market is where securities are traded after the company has sold its offering on the primary market. It is also referred to as the stock market. The New York Stock Exchange (NYSE), London Stock Exchange, and Nasdaq are secondary markets.

The Secondary Market refers to the financial marketplace where existing securities, previously issued in the primary market, are bought and sold among investors. It provides a platform for individuals and institutions to trade stocks, bonds, and other financial instruments after their initial issuance. Unlike the primary market, which involves the issuance of new securities, the secondary market facilitates the resale and exchange of already-existing securities. Stock exchanges, such as the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in India, are key components of the secondary market, providing the infrastructure for transparent and organized trading activities. The secondary market enhances liquidity, price discovery, and market efficiency.

Small investors have a much better chance of trading securities on the secondary market since they are excluded from IPOs. Anyone can purchase securities on the secondary market as long as they are willing to pay the asking price per share.

A broker typically purchases the securities on behalf of an investor in the secondary market. Unlike the primary market, where prices are set before an IPO takes place, prices on the secondary market fluctuate with demand. Investors will also have to pay a commission to the broker for carrying out the trade.

The volume of securities traded varies from day to day, as supply and demand for the security fluctuates. This also has a big effect on the security’s price.

Because the initial offering is complete, the issuing company is no longer a party to any sale between two investors, except in the case of a company stock buyback. For example, after Apple’s Dec. 12, 1980, IPO on the primary market, individual investors have been able to purchase Apple stock on the secondary market. Because Apple is no longer involved in the issue of its stock, investors will, essentially, deal with one another when they trade shares in the company.

Role of Secondary Market

  • Maintaining the Fair Price of Shares

The secondary market is a market of already issued securities after the initial public offering (IPO). Capital markets run on the basis of supply and demand of shares. Secondary markets maintain the fair price of shares depending on the balance of demand and supply. As no single agent can influence the share price, the secondary markets help keep the fair prices of securities intact.

  • Facilitating Capital Allocation

Secondary markets facilitate capital allocation by price signaling for the primary market. By signaling the prices of shares yet to be released in the secondary market, the secondary markets help in allocating shares.

  • Offering Liquidity and Marketability

Second-hand shares are of no use if they cannot be sold and bought for liquid cash whenever needed. The shareholders usually use the share markets as the place where there is enough liquidity and marketability of shares. That means that the secondary markets play the role of a third party in the exchange of shares.

Without a secondary market, the buyers and sellers would be left with a self-exchange in one-to-one mode that is not quite effective till now. Therefore, the secondary market is a facilitating body of liquidity and marketability for the shareholders.

  • Adjusting the Portfolios

Secondary markets allow investors to adapt to adjusting portfolios of securities. That is, the secondary markets allow investors to choose shares for buying as well as for selling to build a solid portfolio of shares that offers maximum returns. Investors and shareholders can change their investment portfolios in secondary markets that cannot be done anywhere else.

Functions of Stock Market

  1. Capital Formation:

Primary Market: The stock market facilitates the primary market, where companies raise capital by issuing new securities, such as stocks and bonds. This process allows businesses to fund expansion, research, and other capital-intensive activities.

  1. Secondary Market Trading:

Liquidity Provision: The secondary market provides a platform for investors to buy and sell existing securities, enhancing liquidity. Investors can easily convert their investments into cash, and this liquidity contributes to market efficiency.

  1. Price Discovery:

Market Valuation: The stock market plays a crucial role in determining the fair market value of securities through the continuous buying and selling of shares. This price discovery process reflects investor perceptions of a company’s performance and future prospects.

  1. Facilitation of Investment:

The stock market encourages savings and investment by providing individuals and institutions with opportunities to invest in a diversified portfolio of securities. This helps channel funds from savers to productive enterprises.

  1. Ownership Transfer:

Investors can easily buy and sell securities, allowing for the transfer of ownership in a transparent and regulated manner. This facilitates the transfer of funds between investors and supports portfolio diversification.

  1. Borrowing and Lending:

The stock market serves as a platform for companies to raise funds by issuing bonds. Investors who purchase these bonds essentially lend money to the issuing companies, creating an additional avenue for corporate financing.

  1. Market Indicators:

The performance of stock indices, such as the Nifty 50 and the Sensex in India, serves as indicators of the overall health and sentiment of the financial markets and the economy at large.

  1. Corporate Governance:

Stock markets impose certain listing requirements on companies, promoting transparency and adherence to corporate governance standards. Companies with publicly traded shares are often subject to higher scrutiny, enhancing investor confidence.

  1. Dividend Distribution:

Companies listed on stock exchanges can distribute dividends to their shareholders, providing a return on investment. Dividends are a key factor influencing investment decisions and shareholder wealth.

10. Risk Mitigation:

Investors can manage risk through diversification, buying and selling securities, and utilizing various financial instruments available in the stock market, such as options and futures.

11. Economic Indicator:

The stock market’s performance is often considered a barometer of economic health. Bullish markets are associated with economic optimism, while bearish markets may reflect concerns about economic conditions.

12. Market Efficiency:

The stock market allocates resources efficiently by directing capital to companies with the most promising growth prospects. Efficient market mechanisms contribute to the optimal allocation of resources within the economy.

13. Facilitation of Mergers and Acquisitions:

The stock market plays a role in corporate restructuring by facilitating mergers and acquisitions. Companies can use their shares for acquisitions, enabling strategic growth and consolidation.

Structure of Stock Market

The stock market in India has a well-defined structure, comprising various entities and mechanisms that facilitate the buying and selling of securities. The structure encompasses both primary and secondary markets, each serving distinct functions in the capital market ecosystem.

  1. Primary Market:

The primary market is where new securities are issued and initially offered to the public. It consists of the following elements:

    • Issuer: The company or entity that issues new securities to raise capital. This can include initial public offerings (IPOs) and additional offerings.
    • Underwriter: Investment banks or financial institutions that facilitate the issuance by committing to purchase the entire issue and then selling it to the public.
    • Registrar and Transfer Agent (RTA): Entities responsible for maintaining records of shareholders and processing share transfers.

  2. Secondary Market:

The secondary market is where existing securities are traded among investors. The primary components include:

    • Stock Exchanges: Platforms where buyers and sellers come together to trade securities. In India, the two primary stock exchanges are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). They regulate and oversee the trading activities and ensure market integrity.
    • Brokers and Sub-Brokers: Intermediaries authorized to facilitate securities transactions on behalf of investors. They act as a link between investors and the stock exchanges.
    • Depositories: Entities that hold and maintain securities in electronic form. In India, the two central depositories are the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL). They facilitate the electronic transfer of securities.
    • Clearing Corporation: Entities that handle the clearing and settlement of trades, ensuring the smooth and secure transfer of securities and funds between buyers and sellers. In India, the National Securities Clearing Corporation Limited (NSCCL) and the Clearing Corporation of India Limited (CCIL) play crucial roles.
    • Custodians: Institutions responsible for safeguarding and holding securities on behalf of investors. They provide custodial services to institutional investors, foreign institutional investors (FIIs), and high-net-worth individuals.

3. Regulatory Authorities:

Regulatory bodies oversee and regulate the functioning of the stock market to ensure fair practices, investor protection, and market integrity. In India, the Securities and Exchange Board of India (SEBI) is the primary regulatory authority governing the securities market.

  1. Investors:

Investors are individuals, institutions, or entities that participate in the stock market by buying and selling securities. They can include retail investors, institutional investors, foreign investors, and other market participants.

  1. Market Intermediaries:

Various intermediaries facilitate different functions in the stock market. These include investment advisors, merchant bankers, credit rating agencies, and financial institutions that contribute to the smooth operation of the market.

  1. Indices:

Stock market indices provide a benchmark for measuring the performance of the overall market or specific segments. In India, prominent indices include the Nifty 50 and the Sensex.

  1. Market Surveillance and Compliance:

Surveillance mechanisms and compliance functions ensure that the market operates within regulatory frameworks. This includes monitoring for market abuse, insider trading, and other malpractices.

  1. Technology Infrastructure:

The stock market relies on advanced technological infrastructure to facilitate trading, clearing, and settlement processes. Electronic trading platforms, data dissemination systems, and secure networks contribute to the efficiency of market operations.

Players in Stock Market

The stock market involves various players, each playing a distinct role in the buying, selling, and overall functioning of the financial markets. These participants contribute to the liquidity, transparency, and efficiency of the stock market.

  1. Investors:

    • Retail Investors: Individual investors who buy and sell securities for personal investment. They include small-scale investors, often trading through brokerage accounts.
    • Institutional Investors: Large entities like mutual funds, pension funds, insurance companies, and hedge funds that invest on behalf of a group of individuals or their members.

  2. Stock Exchanges:

    • Bombay Stock Exchange (BSE): One of the major stock exchanges in India.
    • National Stock Exchange (NSE): Another significant stock exchange, known for electronic trading and providing a platform for various financial instruments.

  3. Brokers and Sub-Brokers:

    • Brokers: Facilitate securities transactions between buyers and sellers. They may be full-service brokers providing a range of services or discount brokers offering lower-cost trading.
    • Sub-Brokers: Individuals or entities affiliated with brokers, authorized to facilitate trades on their behalf.

  4. Market Intermediaries:

    • Merchant Bankers: Facilitate the issuance of new securities in the primary market and provide financial advisory services.
    • Underwriters: Guarantee the sale of newly issued securities, ensuring that the issuing company receives the intended capital.

  5. Depositories:

    • National Securities Depository Limited (NSDL): A central securities depository in India, holding securities in electronic form.
    • Central Depository Services Limited (CDSL): Another central depository facilitating the electronic holding and transfer of securities.

  6. Clearing Corporations:

    • National Securities Clearing Corporation Limited (NSCCL): Handles clearing and settlement for equity and derivatives segments.
    • Clearing Corporation of India Limited (CCIL): Manages clearing and settlement for fixed income and money market instruments.

  7. Regulatory Authorities:

    • Securities and Exchange Board of India (SEBI): The regulatory body overseeing the securities market in India, responsible for investor protection and market integrity.

  8. Corporate Entities:

    • Listed Companies: Companies whose shares are listed on stock exchanges, allowing them to raise capital and provide ownership to shareholders.
    • Unlisted Companies: Companies that are not listed on stock exchanges.

  9. Research Analysts and Advisory Firms:

Professionals and firms providing research, analysis, and investment advice to investors. They play a role in guiding investment decisions.

10. Credit Rating Agencies:

Entities that assess the creditworthiness of issuers and their securities, providing credit ratings to assist investors in evaluating risk.

11. Custodians:

Financial institutions responsible for the safekeeping of securities on behalf of investors, particularly institutional investors.

12. Government:

The government, through various agencies, can influence the stock market through fiscal and monetary policies, regulations, and initiatives.

13. Media:

Financial news outlets and media play a role in disseminating information about market trends, company performance, and economic developments, influencing investor sentiment.

14. Arbitrageurs and Speculators:

Individuals or entities engaging in arbitrage (exploiting price differences) and speculation (betting on future price movements) to profit from market inefficiencies.

15. Technology Providers:

Companies providing technology infrastructure, trading platforms, and data services essential for the operation of electronic trading in the modern stock market.

Bangalore University B.com Notes

Objectives of NSE, BSE & OTCEI

indiafreenotesby indiafreenotes0

Objectives of NSE

National Stock Exchange of India (NSEI) commenced operations in Whole- sale Debt Market (WDM) in June 1994 and trading in equities has been started in the Capital Market Segment (CM) in November 1994.

  • To establish nationwide trading facility for equities and debt instruments.
  • To provide a fair, transparent and efficient securities market to investors using electronic trading system.
  • To ensure equal access to investors all over the country through an appropriate communication network.
  • To improve the standard of securities market to international level.

Objectives of BSE

The full form of BSE is the Bombay Stock Exchange. The BSE is the oldest stock exchange of Asia which was established in the year 1875 as Native Shares and Stock Broker’s Association and is the first exchange in India that was recognized as the exchange in the year 1957 under the Securities Contract (Regulation) Act by the government. Since then, it is playing a pivotal role in the development of the capital market of the country.

  • To provide a trading platform for equities of small and medium enterprises.
  • To provide an efficient and transparent market for trading in equity, debt instruments, derivatives, and mutual funds.
  • To ensure active trading and safeguard market integrity through an electronically-driven exchange.
  • To provide other services to capital market participants, like risk management, clearing, settlement, market data, and education.
  • To conform to international standards.

Objectives of OTCEI

The establishment of the Over the Counter Exchange of India (OTCEI) marked the down of a new era in the history of a stock exchanges in India. It is regarded a blessing for the small, both existing and new, companies and for investors, particularly small investors. The OTCEI which was incorporated in 1990 become fully operational in 1992.

Over The Counter Exchange of India allows nationwide listing and trading in securities, widely disbursed trading across centres provides for greater liquidity and less risk of intermediary charges, there is no arbitrage. The main feature is screen based scrip less trading, settlement is faster and no physical delivery of scrips is involved. The approach is highly professional.

  • National Network:

Unlike other Stock Exchanges, the Over the Counter Exchange will have a nationwide reach enability widely dispersed trading across the cities, resulting in greater liquidity. Companies, thus, have the unique benefit of nationwide listing and trading of their script by listing at one exchange, Over the Counter Exchange.

  • Ringless Trading:

Over the Counter Exchange has eliminated the traditional trading ring with a view to have greater accessibility to the investors. Trading will instead take place through a network of computers (screen based) of Over the Counter dealers at located several places within the same city and even across cities. These computers allow dealers to quote, query and transact through a central Over the Counter computer using telecommunication links. Investors can walk into any of the counters of members and dealers and see the quote display on the screen, decide to deal and conclude the transaction.

  • Computerized Totally:

All the activities of the Over the Counter trading process will be computerized, making for more transparent, quick and disciplined mark. The trading mechanism brings on these features of the system.

  • Two Ways of Making Public Offer:

Another unique of Over the Counter Exchange of India is its two ways of making public offer. Under ‘direct offer’ a company can offer its shares directly to the public after getting it sponsored by sponsored but under indirect offer’, the company may give its shares first to the sponsor who along with the company can at a later and convenient time make a public offer.

  • Exclusive List of Companies:

The Over the Counter Exchange will not list and trade in companies listed on any other stock exchange. It will therefore list an entirely new set of companies sponsored by members of the Over-the-Counter Exchange.

  • Faster Transfers and Trading Without Shares:

Over the Counter trading also provides for transfer of shares by Registrars, up to a certain percentage per folio. This results in faster transfers. The concept of immediate settlement makes it better for the investors. Investors will trade, not with share certificates, but with a different tradable documents called Counter Receipt (CR). However, an investor can always exercise his right of having a share certificate for Counter Receipt surrendering the Counter Receipt and again exchanging the share certificate for Counter Receipt when he wants to trade. There will be a custodian who will provide this facility along with a settler who will do the signature verification and Counter Receipt validation.

  • Investor Registration:

Yet another feature of Over the Counter Exchange of India is investor registration, introduced for the first time in India. The investor registration is required to be done only once and is valid for trading on any Over the Counter in the country in any scrip. The purpose of the investor registration is to facilitate computerized trading. It also provides greater safety of operations to the investors.

Bangalore University B.com Notes

Benefits and Limitations of Stock Exchange

indiafreenotesby indiafreenotes1

The National Stock Exchange of India Limited (NSE) is the leading stock exchange of India, located in Mumbai. The 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. Vikram Limaye is Managing Director & Chief Executive Officer of NSE.

National Stock Exchange has a total market capitalization of more than US$2.27 trillion, making it the world’s 11th-largest stock exchange as of April 2018. NSE’s flagship index, the NIFTY 50, the 50 stock index is used extensively by investors in India and around the world as a barometer of the Indian capital markets. Nifty 50 index was launched in 1996 by the NSE. However, Vaidyanathan (2016) estimates that only about 4% of the Indian economy / GDP is actually derived from the stock exchanges in India.

Benefits

To the Investors

  • Availability of regular information on prices of securities traded at the stock exchanges helps them in deciding on the timing of their purchase and sale.
  • The investors enjoy the ready availability of facility and convenience of buying and selling the securities at will and at an opportune time.
  • Because of the assured safety in dealings at the stock exchange the investors are free from any anxiety about the delivery and payment problems.
  • It becomes easier for them to raise loans from banks against their holdings in securities traded at the stock exchange because banks prefer them as collateral on account of their liquidity and convenient valuation.

To the Companies

  • The market for their securities is enlarged as the investors all over the world become aware of such securities and have an opportunity to invest.
  • The companies whose securities have been listed on a stock exchange enjoy a better goodwill and credit-standing than other companies because they are supposed to be financially sound.
  • As a result of enhanced goodwill and higher demand, the value of their securities increases and their bargaining power in collective ventures, mergers, etc. is enhanced.
  • The companies have the convenience to decide upon the size, price and timing of the issue.

To the Society

  • The facility for convenient purchase and sale of securities at the stock exchange provides support to new issue market. This helps in promotion and expansion of industrial activity, which in turn contributes, to increase in the rate of industrial growth.
  • The availability of lucrative avenues of investment and the liquidity thereof induces people to save and invest in long-term securities. This leads to increased capital formation in the country.
  • The Stock exchanges facilitate realisation of financial resources to more profitable and growing industrial units where investors can easily increase their investment substantially.
  • The volume of activity at the stock exchanges and the movement of share prices reflect the changing economic health.
  • Since government securities are also traded at the stock exchanges, the government borrowing is highly facilitated. The bonds issued by governments, electricity boards, municipal corporations and public sector undertakings (PSUs) are found to be on offer quite frequently and are generally successful.

Limitations of Stock Exchanges

Like any other institution, the stock exchanges too have their limitations. One of the common evils associated with stock exchange operations is the excessive speculation. Speculation implies buying or selling securities to take advantage of price differential at different times. The speculators generally do not take or give delivery and pay or receive full payment. They settle their transactions just by paying the difference in prices.

Normally, speculation is considered a healthy practice and is necessary for successful operation of stock exchange activity. But, when it becomes excessive, it leads to wide fluctuations in prices and various malpractices by the vested interests. In the process, genuine investors suffer and are driven out of the market.

Another shortcoming of stock exchange operations is that security prices may fluctuate due to unpredictable political, social and economic factors as well as on account of rumor’s spread by interested parties. This makes it difficult to assess the movement of prices in future and build appropriate strategies for investment in securities. However, these days good amount of vigilance is exercised by stock exchange authorities and SEBI to control activities at the stock exchange and ensure their healthy functioning.

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