impact of reforms in capital market on indian capital market
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Reform's in capital Market & its impact on Indian Capital Market
Business Environment - MET MIM Second Year, Third Semester
Presented and Prepared by:
Group Number IV
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Outdated banking system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
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
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 asset can be transferred without loss of value.
A side benefit of capital markets is that the transaction price provides a measure of the value
of the asset.
Role of Capital Markets
Mobilization of Savings & acceleration of
Promotion of Industrial Growth
Raising of long term Capital
Ready & Continuous Markets
Proper Channelisation of Funds
Provision of a variety of Services
Functions of a Capital MarketDisseminate information efficiently
Enable quick valuation of financial instruments –both equity and debt
Provide insurance against market risk or price risk
Enable wider participation Provide operational efficiency throughSimplified transaction procedurelowering settlement timings andlowering transaction costs
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 channels through
Factors contributing to growth of Indian Capital Market
Establishment of Development banks & Industrial financial institution.
Growing public confidence
Increasing awareness of investment opportunities
Growth of underwriting business
Setting up of SEBI
Credit Rating Agencies8
Growth Pattern of the Indian Stock MarketSr. No. As on 31st December 1946 1961 1971 1975 1980 1985 1991 1995
1No. ofStock Exchanges
7 7 8 8 9 14 20 22
2No. of Listed Cos.
1125 1203 1599 1552 2265 4344 6229 8593
3No. of StockIssues of Listed Cos.
1506 2111 2838 3230 3697 6174 8967 11784
4Capital of ListedCos. (Cr. Rs.)
270 753 1812 2614 3973 9723 32041 59583
5Market value ofCapital of ListedCos. (Cr. Rs.)
971 1292 2675 3273 6750 25302 110279 478121
6Capital perListed Cos. (4/2)(Lakh Rs.)
24 63 113 168 175 224 514 693
Market Value ofCapital per ListedCos. (Lakh Rs.)(5/2)
86 107 167 211 298 582 1770 5564
8Appreciated value of Capital perListed Cos. (Lak Rs.)
358 170 148 126 170 260 344 803
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
Inter-action between banking and exchanges
CAPITAL MARKET REFORMS IN INDIA
The 1990s have witnessed the emergence of the securities market as a major source of finance for trade and industry in India.
A growing number of companies have been accessing the securities market rather than depending on loans from financial institutions / banks.
The corporate sector is increasingly depending on external sources for meeting its funding requirements.
Reforms / Initiatives post 2000Corporatisation of exchange
Banning of Badla / ALBM
Introduction of Derivative products - Index / Stock Futures & Options
Reforms/Changes in the margining system
STP - electronic contracts
MARKET STRUCTURE (JULY 31, 2005)
22 Stock Exchanges,
Over 10000 Electronic Terminals at over 400 locations all over India.
9108 Stock Brokers and 14582 Sub brokers
9644 Listed Companies
2 Depositories and 483 Depository Participants
128 Merchant Bankers, 59 Underwriters
34 Debenture Trustees, 96 Portfolio Managers
83 Registrars & Transfer Agents, 59 Bankers to Issue
4 Credit Rating Agencies
Stock Exchanges in India
National Stock Exchange Bombay Stock Exchange Inter-connected Stock Exchange (NEW)Mangalore Stock Exchange Hyderabad Stock Exchange Uttar Pradesh Stock ExchangeCoimbatore Stock ExchangeCochin Stock Exchange Bangalore Stock Exchange Saurashtra Kutch Stock Exchange Pune Stock Exchange
OTC Exchange of India Calcutta Stock Exchange Madras Stock ExchangeaMadhya Pradesh Stock Exchange Vadodara Stock Exchange The Ahmedabad Stock Exchange Magadh Stock Exchange Gauhati Stock ExchangeBhubaneswar Stock ExchangeJaipur Stock Exchange Delhi Stock Exchange Assoc Ludhiana Stock Exchange
Market for new issues/fresh capital (IPO’s)
New issues mkt.
Mobilization of funds
•Right issues and
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 decided by the controller
•New Co’s can issue shares only at par
•Existing companies with substantial reserves could issue shares at premium
•Fixed price mechanism resulted in under pricing of many issues
•After 1992, promoter and merchant banker together decide the price of the issue.
The role of the Stock Exchange
• Corporate governance
• Creates investment opportunities for small investors
• Government raises capital for development projects
• Barometer of the economy
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
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 of the stock market.
•Volatility of the market has increased over the years.
HOW TO MAKE MONEY FROM CAPITAL MARKET?
• Patience, profound knowledge
• Best guess• Diversification• Portfolio management
Indian Capital Market deficiencies
•Lack of transparency
•Variety of manipulative practices
Money Market Vs Capital Market
•It is for short term
•Supplies funds for Working Capital
•Instruments are Treasury bill, CM, etc
•Each single instrument is of large amount
•Central bank and Commercial banks are major.
•These instruments do not have secondary market.
•Transactions are on over phone and there are no formal place
•Transaction without the help of broker.
•It is for long termSupplies funds for fixed capital requirementInstruments are shares, debentures, etc.Each single instrument is of small amountDevelopment bank and insurance companies are major.These instruments have secondary market.Transactions are at formal place. Eg stock market.Transaction have to be conducted with the help of broker.