2b8bcapital marketing

8/3/2019 2b8bCapital Marketing

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CAPITAL MARKETING

ByVENKATRAGAVAN.G

MBA(BT)


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INTRODUCTION

For starting any Business, an entrepreneur needsinvestments in the form of capital.

Depending on the size of the project, the amountof capital varies.

Entrepreneur cannot go for investing his ownmoney in the business, so he has to go forborrowing.

borrowing has many problem such as payinginterest monthly, that too if it is a long term

project, he wont be able to give interest regularly.Paying Interest has some advantage over

taxation.

Banks/Financial Institution may demand a securityfor their loans in the form of collaterals, the

promoter may choose to raise the capital byissuing shares to public making them a offering on


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DEFINITION

Capital Marketing is defined as the process ofincreasing the major part of financial capitalrequired for starting a business through issue ofshares to public.

The issue may be Shares, Debentures , Bonds,etc.

Capital market is a market for long term debtsand equity shares.


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IMPORTANCE OF CAPITALMARKETING

Pooling the capital resources and Developingenterprises investors

Solve the problem of paucity of funds

Mobilize the small and scattered savings

Augment the availability of investible funds

Growth of joint stock business

Provide a number of profitable investmentopportunities for a small savers.


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DEPOSITORY

A depository is like a bank wherein thedeposits are securities (viz. shares,debentures, bonds, government securities,units etc.) in electronic form.

There are two types of Depository in ourcountry

NSDL

CDSL


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NSDL(NATIONAL SECURITIESDEPOSITORY LIMITED)

NSDL aims at ensuring the safety andsoundness of Indian marketplaces bydeveloping settlement solutions that increaseefficiency, minimise risk and reduce costs.

In the depository system, securities are held

in depository accounts, which is more or lesssimilar to holding funds in bank accounts.

Transfer of ownership of securities is donethrough simple account transfers. This methoddoes away with all the risks and hasslesnormally associated with paperwork.

Consequently, the cost of transacting in adepository environment is considerably loweras compared to transacting in certificatesPromoters / Shareholders


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NSDL is promoted by

Industrial Development Bank of India Limited (IDBI) -the largest development bank of India,

Unit Trust of India (UTI) - the largest mutual fund inIndia and

National Stock Exchange of India Limited (NSE) - the

largest stock exchange in India

NDSL FIGURES:

Number of certificates eliminated (Approx.) : 619Crore.

NSDL has crossed more than one Crore demat

account.Number of companies in which more than 75% shares

are dematted : 2500

Average number of accounts opened per day sinceNovember 1996 : 3633

Presence of demat account holders in the country :79% of all pin codes in the country


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CSDL

CDSL was set up with the objective of providing convenient,dependable and secure depository services at affordable costto all market participants.

Some of the important milestones of CDSL system are:

CDSL received the certificate of commencement of businessfrom SEBI in February, 1999.

Honorable Former Union Finance Minister, Shri Yashwant

Sinha flagged off the operations of CDSL on July 15, 1999.All leading stock exchanges like the National Stock

Exchange, Calcutta Stock Exchange, Delhi Stock Exchange, The Stock Exchange, Ahmadabad, etc have establishedconnectivity with CDSL.

As at the end of Dec 2007, over 5000 issuers have admitted

their securities (equities, bonds, debentures, commercialpapers), units of mutual funds, certificate of deposits etc. intothe CDSL system.

CDSL was promoted by

Bombay Stock Exchange Limited (BSE) jointly with leadingbanks such as State Bank of India, Bank of India, Bank of

Baroda, HDFC Bank, Standard Chartered Bank, Union Bank ofIndia and Centurion Bank.


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CLASSIFICATION OF CAPITALMARKETING

CAPITALMARKET

PRIMARYMARKET

PUBLICISSUE

RIGHTISSUE

BONUSISSUE

PRIVATEPLACEMENT

SECONDARYMARKET

STOCKMARKET


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PRIMARY MARKET

In Primary Market, Securities are offered to the public forsubscription, for the purpose of raising the capital or funds.

The issue of securities in the primary market is subjected tofulfillment of a number of pre-issue guidelines by SEBI andcompliance to various provision of the Company Act.

An unlisted issuer making a public issue i.e. (making anIPO) is required to satisfy the following provisions:

The Issuer Company shall meet the following requirements:

(a) Net Tangible Assets of at least Rs. 3 crores in each of thepreceding three full years.

(b) Distributable profits in at least three of the immediatelypreceding five years.

(c) Net worth of at least Rs. 1 Crore in each of the precedingthree full years.

(d) If the company has changed its name within the last oneyear, atleast 50% revenue for the preceding 1 year should befrom the activity suggested by the new name.

(e) The issue size does not exceed 5 times the pre issue networth as per the audited balance sheet of the last financial

year


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A listed issuer making a public issue (FPO) is required

to satisfy the following requirements :(a) If the company has changed its name within the last oneyear, atleast 50% revenue for the preceding 1 year shouldbe from the activity suggested by the new name.

(b) The issue size does not exceed 5 times the pre issue networth as per the audited balance sheet of the last financial

year


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CLASSIFICATION OF ISSUES

Issues

Further PublicOffering

Fresh

Issue

Initial Public

Offering

PrivateplacementRight

Public

Offer forsale

Offer forsale

FreshIssue


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PUBLIC ISSUE :-

It involves raising of funds directly from the public and get themselves

listed on the stock exchange

in case of new companies ,the face value of the securities is issue at

par, and

in the case of existing companies, the face value of securities are issued

at premium

Initial public offer (IPO): When an unlisted company

makes either a fresh issue of securities or offers itsexisting securities for sale or both for the first time to thepublic, it is called an IPO. This paves way for listing andtrading of the issuers securities in the Stock Exchanges.

Further public offer (FPO): When an already listedcompany makes either a fresh issue of securities to the

public or an offer for sale to the public, it is called a FPO.RIGHT ISSUE:-

Right issue is the method of raising additional finance from existing

members by offering securities to them on pro rata bases.

The rights offer should be kept open for a period of 60 days and should

be announced within one month of the closure of books.


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BONUS ISSUE:-

Companies distribute profits to existing shareholders by way offully paid bonus share in lieu of dividend.

These are issued in the ratio of existing shares held.

The shareholders do not have to make any additional payment

for these shares

PRIVATE PLACEMENT:Private Placement is an issue of shares by acompany to a select group of persons under theSection 81 of the companies act 1956. It is a fasterway for a company to raise equity capital.


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INTERMEDIATES IN ISSUE INTHE PRIMARY MARKET

Book Running Lead Managers(BRLM):

A Merchant banker possessing a valid SEBI registration inaccordance with the SEBI Regulations,1992 is eligible toact as a BRLM to an issue.

Cut Off Price:

In the book-building issue, the issuer is required toindicate either the price band or a floor price in the RHP.

The actual discovered issue price can be any price in theprice band or any price above the floor price. This issueprice is called as the Cut Off Price.

And the other intermediates are

Merchant BankerRegistrars to the Issue

Bankers to the Issue

Underwriters


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SECONDARY MARKET

Secondary Market refers to a market wheresecurities are traded after being initially offered tothe public in the primary market and/or listed onthe stock exchange.

Secondary market comprises of Equity market andDebt market.

It is the trading avenue in which the alreadyexisting securities are traded amongst investors.

Banks facilitate secondary market transactions byopening direct trading and demat accounts toindividuals and companies.


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FINANCIAL INSTRUMENTS DEALTIN SECONDARY MARKET

Equity Shares:An equity share is commonly referred to as anordinary share.It is an form of fractional ownership in which ashareholder, as a fractional owner, undertakes theentrepreneurial risk associated with the businessventure.Holders of the equity shares are members of thecompany and have voting rights.Right shares: This refers to the issue of new securities to theexisting shareholders, at a ratio to those shares

already held.Bonus Shares:

These shares are issued by the companies to theirshareholders free of cost by capitalization ofaccumulated reserves from the profit earned in theearlier years.


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Preference shares:

These shareholder do not have voting rights.Owners of these shares are entitled to a fixeddividend or a dividend calculated at a fixed rate tobe paid regularly before any dividend can be paidin respect of equity shares.

These shareholders also enjoy priority over the

equity shareholders in the payment of surplus.Cumulative Preference Shares:

This is a type of preference shares on whichdividend accumulates if it remains unpaid.Cumulative Convertible Preference Shares: This is a type of preference shares on where thedividend payable on the same accumulates, if notpaid. After a specified date, these shares will beconverted into equity capital of the company.


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Participating Preference Shares:

This refers to the right of certain preferenceshareholders to participate in profits, after aspecified fixed dividend contracted for is paid.

Debentures:

Debentures are bonds issued by a company bearing

a fixed rate of interest usually payable half-yearly,on specific dates and the principal amountrepayable on a particular date on redemption of thedebentures.

Debentures are normally secured against the assetof the company in favour of the debenture holder.

Bonds:

A bond is a negotiable certificate evidencingindebtedness. It is normally unsecured.


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The various type of bonds are as follows:

Coupon Bonds:

These are normal bonds on which the issuer paysthe investor interest at the predetermined rate atagreed intervals, normally twice a year.

Zero Coupon Bonds:

A bond issued at a discount and repaid at a face

value is called as Zero coupon bonds.No periodic interest is paid in this case.

Convertible Bond:

A bond giving the investor the option to convert thebond into equity at a fixed conversion price isreferred to as a Convertible Bond.Treasury Bills:

These are short term bearer discount security,issued by the Government as a means of meetingits cash requirements.


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COMMONLY USED TERMS INCAPITAL MARKET

Securities Transaction Tax(STT):

Securities Transaction Tax is a tax being levied onall transaction done on the stock exchanges atrates prescribed by the central government fromtime to time.

Rolling Settlement:

In Rolling Settlement, trades executed during theday are settled, based on the Nett obligations forthe day. Presently the trade pertaining to the rollingsettlement are settled on a T+2 day basis , where Tstands for the trade day.

Pay- in Day and Pay-out Day:Pay-in day is the day when the brokers makepayments or delivery of securities to the exchange.

Pay-out day is the day when the exchange makespayment or delivery of securities to the broker.

Settlement cycle is on a T+2 rolling settlementbasis.


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SETTLEMENT CYCLE OF NORMALSETTLEMENT


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THANK YOU

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