capital mkt

7/28/2019 Capital Mkt

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Indian CapitalMarket


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Organized Indian FinancialSystem

Money MarketInstrument

Capital MarketInstrument

Forex

Market

Capital

Market

Money

Market

Credit

Market

Primary Market

FinancialInstruments FinancialMarkets FinancialIntermediarie

s

Secondary Market

Regulators


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Money Market Vs CapitalMarket

It is for short term

Supplies funds for

WC Instruments are T-

bill, CM, etc

Each single

instrument is oflarge amount

Central bank andCommercial banksare major.

It is for long term

Supplies funds for

fixed capitalrequirement

Instruments areshares, debentures,etc.

Each singleinstrument is ofsmall amount

Development bankand insurance


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Conti..

Theseinstruments do

not havesecondarymarket.

Transactions are

on over phoneand no formalplace

Transaction

Theseinstruments have

secondarymarket.

Transactions areat formal place.

Eg stock market.

Transaction haveto be conducted

with the help of


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Why Capital Markets

Exist Capital markets facilitate the transfer of

capital (i.e. financial) assets from one

owner to another. They provide liquidity.

Liquidity refers to how easily an assetcan be transferred without loss ofvalue.

A side benefit of capital markets is thatthe transaction price provides a

measure of the value of the asset.


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Role of Capital Markets

Mobilization of Savings & acceleration ofCapital Formation

Promotion of Industrial Growth Raising of long term Capital Ready & Continuous Markets Proper Channelisation of Funds Provision of a variety of Services


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Functions of a capitalmarket

Disseminate information efficiently Enable quick valuation of financial

instruments both equity and debt

Provide insurance against marketrisk or price risk Enable wider participation Provide operational efficiency

through

-simplified transaction procedure

- lowering settlement timings and

- lowerin transaction costs


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Develop integration among

-real sector and financial sector-equity and debt instruments-long term and short term funds-Private sector and government sector and

-Domestic funds and external funds

Direct the flow of funds into efficient channelsthrough-investment

-disinvestment-reinvestment


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Factors contributing togrowth of Indian Capital

Market Establishment of Development banks &Industrial financial institution.

Legislative measures

Growing public confidence

Increasing awareness of investment

opportunities Growth of underwriting business

Setting up of SEBI

Mutual Funds


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Indian Capital Market -

Historical perspective Stock Market was for a privileged few

Archaic systems - Out cry method

Lack of Transparency - High tones costs

No use of Technology

Outdated banking system Volumes - less than Rs. 300 cr per day

No settlement guarantee mechanism -

High risks


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Indian Capital markets -

Chronology 1994-Equity Trading commences on

NSE

1995-All Trading goes Electronic

1996- Depository comes in to existence

1999- FIIs Participation- Globalisation

2000- over 80% trades in Demat form

2001- Major Stocks move to Rolling Sett

2003- T+2 settlements in all stocks

2003 - Demutualisation of Exchanges


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Capital Markets -

Reforms Each scam has brought in reforms - 1992 /

2001

Screen based Trading through NSE Capital adequacy norms stipulated Dematerialization of Shares - risks of

fraudulent paper eliminated

Entry of Foreign Investors Investor awareness programs Rolling settlements

Inter-action between banking andexchan es


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CAPITAL MARKET REFORMS

IN INDIA The 1990s have witnessed the

emergence of the securities

market as a major source offinance for trade and industry inIndia.

A growing number of companieshave been accessing the securitiesmarket rather than depending onloans from financial institutions /

banks.


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Reforms / Initiatives

post 2000 Corporatisation of exchange

memberships

Banning of Badla / ALBM Introduction of Derivative products -

Index / Stock Futures & Options

Reforms/Changes in the marginingsystem

STP - electronic contracts

Margin Lending


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MARKET STRUCTURE

(JULY 31, 2005) 22 Stock Exchanges,22 Stock Exchanges,

Over 10000 Electronic Terminals at over 400Over 10000 Electronic Terminals at over 400

locations all over India.locations all over India.

9108 Stock Brokers and 14582 Sub brokers9108 Stock Brokers and 14582 Sub brokers

9644 Listed Companies9644 Listed Companies

2 Depositories and 483 Depository Participants2 Depositories and 483 Depository Participants

128 Merchant Bankers, 59 Underwriters128 Merchant Bankers, 59 Underwriters

34 Debenture Trustees, 96 Portfolio Managers34 Debenture Trustees, 96 Portfolio Managers

83 Registrars & Transfer Agents, 59 Bankers to83 Registrars & Transfer Agents, 59 Bankers to

IssueIssue


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Stock Exchanges in

INDIA Mangalore StockExchange

Hyderabad StockExchange

Uttar Pradesh StockExchange

Coimbatore StockExchange

Cochin Stock Exchange Bangalore Stock

Exchange

Saurashtra Kutch StockExchange

Pune Stock Exchange National Stock Exchange OTC Exchange of India Calcutta Stock Exchange

Inter-connected StockExchange (NEW)

Bombay Stock Exchange

Madhya Pradesh StockExchange

Vadodara StockExchange

The Ahmedabad StockExchange

Magadh Stock Exchange

Gauhati Stock Exchange

Bhubaneswar StockExchange

Jaipur Stock Exchange

Delhi Stock ExchangeAssoc

Ludhiana Stock

Gr th P tt rn f th Indi n St ck M rk t


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Growth Pattern of the Indian Stock MarketSl.N

o.

As on 31st

December

1946 1961 1971 1975 1980 1985 1991 1995

1 No. of

Stock Exchanges

7 7 8 8 9 14 20 22

2 No. ofListed Cos.

1125 1203 1599 1552 2265 4344 6229 8593

3No. of Stock

Issues of

Listed Cos.

1506 2111 2838 3230 3697 6174 8967 11784

4Capital of Listed

Cos. (Cr. Rs.)

270 753 1812 2614 3973 9723 32041 59583

5Market value of

Capital of Listed

Cos. (Cr. Rs.)

971 1292 2675 3273 6750 25302 11027

9

47812

1

6Capital per

Listed Cos. (4/2)(Lakh Rs.)

24 63 113 168 175 224 514 693

7

Market Value of

Capital per Listed

Cos. (Lakh Rs.)

(5/2)

86 107 167 211 298 582 1770 5564

8Appreciated valueof Capital per 358 170 148 126 170 260 344 803


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Primary Market

Market for new issues/freshcapital (IPOs)

New issues mkt. Participants

issuer

investorsintermediaries


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Mobilization of funds

- Prospectus

- Right issues and

- Private placement


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Free pricing regime Before 1992,Regulator of new issues was CCI

(Controller of Capital Issues)

Approval from CCI for raising funds in primary mkt.

Timing, quantum ,and pricing of the issue were decidedby the controller

New co.s can issue shares only at par

Existing companies with substantial reserves couldissue shares at premium

Fixed price mechanism resulted in under pricing ofmany issues

After 1992, promoter and merchant banker togetherdecide the price of the issue.


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Fixed price mechanism of

new issue CCI regime To offer share at a fixed price Firm and merchant banker decide an

offer price Investor opinion wasnt considered

while setting offer price Long time lag among the date of

pricing, the date the issue opens ,andthe date when trading commences

Raises possibility of price fluctuations inintervening period


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Book Building-A new issue

mechanism in India mechanism through which an

offer price for IPOs based oninvestors demand isdetermined .

Auction of shares

k b ildi


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Book building process1. Appointment of book runner i.e.

merchant banker

2. Preparation and submission of draftdocuments to SEBI and obtaining ofan acknowledgement card.

3. A specified price band (range) is to bedetermined by issuer and bookrunner

4. Different price levels are invited fromsyndicate members .Adv. Should

mention opening and closing dates forthe bids5. Issuer arrives at a final cut-off rate &

final allocation in consultation withbook runner and lead manager


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Contd..

6.Issuer and book runner mayimpose restrictions on number ofshares that can be allotted to eachclient

7. Final prospectus is filed with the(ROC) along with procurementagreement

8.Placement portion opens for

subscription9.Placement portion closes a day

before the opening of public issueportion


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Book building options

75% book building

Issue can be categorized into

-placement portion

- Public portion (net offer to the

public) 100% book building


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Limitations of book

building method No road shows done Still dependent on good faith No. of investors invited to apply are limited

Lack of transparency Not proved to be good price discovery

mechanism Lag time of more than 60 days between issue

pricing and listing Issuer may have to sell cheap due to collective

bargaining High institution holding may affect stocks

liquidity Volatility may increase due to bulk offloading


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Distinction betweenPrimary and Secondary

Market Functional differences

Organizational differences

Nature of contributions toindustrial finance


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Secondary Market

Secondary/Stock

market!!!! JARGON OF EQUITY


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JARGON OF EQUITYMARKET:

SECURITY

BOND

STOCK

1)COMMON STOCKS2)PREFERRED STOCKS

SHARE

MUTUAL FUNDS.

PAR VALUE vs. MARKET VALUE

BULLISH vs. BEARISH

How does the stock market function?


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How does the stock market function?Stock exchangesBrokersRegistrarsDepositories and their participants

Securities and Exchange Board of India (SEBI) Financial RegulatorsSEBI

RBIMinistry of finance


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The role of the stock

exchange Corporate governance

Creates investment opportunities forsmall investors

Government raises capital for

development projects

Barometer of the economy


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Functions Of SEBI Regulates Capital Market.

Checks Trading of securities.

Checks the malpractices in securities market. It enhances investor's knowledge on market by

providing education.

It regulates the stockbrokers and sub-brokers.

To promote Research and Investigation


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Functions Of RBIMonetary Authority:

Issuer of currency:

Regulator and supervisor of the financial system:

Authority On Foreign Exchange:

Developmental role:

Related Functions:


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WHY STOCK PRICE RISES? The price of every stock increases or decreases for thefollowing possible reasons:

News about company.

News about the country. Exchange rate regime. Depends on demand and supply for that stock.


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DRAWBACKS OF INDIAN STOCK MARKET:

Unethical practices.Big irrational greed, excessive speculation.Lack of protection to interests of the genuine and small

investors .

Trading is extremely thin and restricted.Structural and organisational imbalance in the growth othe

stock market.

Volatility of the market has increased over the years.

HOW TO MAKE MONEY


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HOW TO MAKE MONEYFROM CAITAL MARKET?

patience, profound knowledge.

Best guess.Diversification .

Portfolio

management.


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Indian Capital Market

deficiencies Lack of transparency

Physical settlement Variety of manipulative practices

Institutional deficiencies

Insider trading


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capital mkt

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