investment in capital market

7/31/2019 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.

investment in capital market

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