investment in capital market
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Investment in Capital MarketInstruments
KAMAL K JINDAL
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Financial Markets
A Market is a place where buyers andsellers come together to exchangesomething.
Financial Markets are where financialInstruments/products are exchanged.
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Capital Market
Issue and trading of long termsecurities(Equity or Debt).
Period is more than one year.
Issue may be shares, debentures orbonds.
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Nature of Capital Market
Deals in long term securities.
Helps in Capital Augumentation
Two segments
Primary Market
Secondary Market
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Factor contributing to growth of Indian
capital market
Establishment and development ofbanks and financial institution.
Growing public confidence.
Increasing awareness of investmentopportunities.
Setting up of SEBI.
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Indian Capital Market-Chronology
1994- Equity trading commences on NSE.
1995- All trading goes electronic.
. 1996- Depository comes into existence.
1999- FIIs participation.
2000-Over 80% trade in Demat form.
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2001- Major stock move to rollingsettlement.
2003- T+2 settlements in all stocks.
2003- Demutualization of exchanges.
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Capital Markets- Reforms
Screen based trading through NSE
Dematerialization of shares- risks of
fraudulent paper eliminated
Entry of foreign Investors
Investor awareness programs
Rolling settlements
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Mutual funds
Credit rating agencies
Some Deficiencies are- Insider trading
Variety of manipulative practices
Lack of transparency
Physical settlement
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Primary Market
Securities are issued for the first time by theIssuer to the investors
The market is concerned with new issues soit is also called new issue market.
Companies can make issue in the primarymarket only after fulfilling entry norms /guidelines of SEBI.
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Issues in Primary market
Public issue: It involves raising of fundsdirectly from the public and get themselveslisted on the stock exchanges.
The Issuer to appoint Lead Manager which isregistered with SEBI as Cat I MerchantBanker
The Merchant Banker files draft prospectuswith SEBI and after incorporating SEBIobservations, Public issue can be broughtafter 21 days
Lead Manager to ensure compliance withDIPguidelines
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Primary Market
Initial public offer: It means when anunlisted company makes either a freshissue of securities or offer its existing
securities for sale or both for the first tothe public is known as IPO.
Follow on public offer(FPO): when analready listed company on exchange wantto raise fund by issuing some more equityshares.
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Primary Market
Right issue:It is a method of raisingadditional funds from existingshareholders by offering securities tothem on pro rata basis.
Right issue offer should be kept openfor the period of30 days.
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Primary Market
Private placement- An issue of sharesby a company to the selected group ofpersons.
It is a faster way for a company to
raise capital.
Investor should not exceed 50.
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Primary Market
Process is fast and it involves low cost.
Drawback is shares are not listed onstock exchange.
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IPO investors rewards
[issue price and MP on 24/12/10
IPO
Jubiliant Food
Thangamayil Jewellers
Mandhana Industries Talwalkar Batteries
ARSS infra
United bank
Persistent Systems
Guj Pipavav Port
Coal India
Career point
%Returns
335
128
103 101
75
42
36
30
28
24 18
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Secondary Market
Secondary market is a market in whichbuying and selling of previously issuedsecurities is being done.
Transaction in secondary market is
generally are through the medium ofstock exchange.
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Secondary Market
Purpose of secondary market is tocreate liquidity in securities.
Example: If an individual bought somesecurities in the primary market and if
he want to sell them in secondarymarket, he can do so through themedium of stock exchange.
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Secondary Market- Features
It has a particular place
It comes after primary market
It creates liquidity
Encourage new investments
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Secondary Market- Trading market
Investment in capital market takesplace through stock market and bondmarket.
Capital market is basically the financial
pool in which different companies aswell as the government can raise longterm funds.
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Secondary Market- Trading
At the time of raising funds fromcapital market company takeseveral decisions like-
1. Decision about listing on the stockexchange.
2. Selection of the contributor: Investment firms
Auditors
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Secondary Market-Trading
Legal advisors
Marketing advisors
Listing preparation
Preparation of prospectus
Compilation of the listing documents
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Secondary Market- Trading
Official submission of listing documentsto exchange
Public notice of new listing applications
Review of the applications
Publication on exchange websiteregarding listing
First day trading
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Capital market instruments
Equity shares: commonly referred toas an ordinary share.
It is a form of factional ownership inwhich, a shareholder as a fractional
owner undertakes the entrepreneurialrisk associated with the businessventure.
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Capital Market- Instruments
The person who holds equity share isa member of a company and havevoting rights.
Preference shares: owners of theseshares are entitled to a fixed
dividend or a dividend calculated at afixed rate to be paid regularly beforeany dividend can be paid in respectof equity shares.
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Cumulative Preference shares:It is atype of Preference share on whichdividend accumulates if it remains
unpaid. Cumulative convertible preference
shares: it is a type of preference
shares on which dividend payable onthe same accumulates,if not paid. Aftersome time these shares will beconverted into equity
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Participating preference shares: Itrefers to rights of certain preferenceshareholders to participate in profits.
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Debentures/Bonds
It is a debt instrument indicating that acompany has borrowed certain sum ofmoney and promises to repay it in
future under clearly defined terms.
Debentures holders are the long term
creditors of the company.
It is a secured instrument.
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It is compulsory for all debentureholder that it should be rated from oneof the four credit rating agencies I.eCRISIL,ICRA,CARE,Fitch India.
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Types of Debentures
Fully convertible Debentures: It is atype of debt security where the wholevalue of the debenture is convertibleinto equity shares.
Investor enjoy the same status asordinary shareholder of the company.
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Non convertible debentures: NCB areunsecured bonds that cannot beconverted to company equity/stock.
NCB usually have higher interest ratesthan convertible debenture.
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Partially convertible Debenture
A type of convertible debenture, partof which will be redeemed by theissuing company after a specified
period of time and part of which isconvertible into equity or preferenceshare at end of specified period.
Ratio of conversion for the PCD isdecided by the issuer when thedebenture is issued
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Debt Instruments
Zero coupon bonds: they do not carryany coupon rate of interest.
They are sold at a discount from theirmaturity value and the differencebetween the face value of the bondand the acquisition cost is the return tothe investors.
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Deep discount bonds: DDB is issued ata deep discount over its face value.
DDB are being issued by the financialinstitution like IDBI, SIDBI. Forinstance IDBI sold in 1992 a DDB offace value of Rs 1 lakh at a deepdiscount price of Rs 2700 with amaturity period of 25 years.
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Floating rate bonds: Interest on suchbonds is not fixed.
It is floating and linked to thebenchmark rate such as interest ontreasury bills, bank rate, rate on termdeposits.
Gl b l d it i t / A i
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Global depository receipts/ American
depository receipts
It is a negotiable certificate held in thebank of one country(depository)representing a specific number ofshares of a stock traded on anexchange of another country.
GDR are commonly used to invest incompanies from developing oremerging markets.
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Companies may get listed on foreign stockexchanges indirectly- ADRs/GDRs
If the depository receipt is traded in the USAit is ADR and if it is traded country otherthan USA it is GDR.
ADR/GDR are excellent means of investmentfor NRI because they invest in Indiancompanies.
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Gold ETF
It is a financial instrument like mutual fundwhose value depends on the price of thestock.
The price of one unit of a Gold ETFapproximately reflects the price of one gram
of gold.
As the price of gold rises, the price of ETF isexpected to rise by the same amount.
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Gold ETF are traded on the majority ofstock exchanges includingZurich,Mumbai,London,Paris and NewYork.
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Fact file- Q2 of 2009-10
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Q3 of 2009
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Thank you.
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