Unit V:Capital Markets, SEBI, RBI

• Capital Market Institutions-

• Stock Indices-

• Derivatives Market- Global and Indian Scenario-

• Role of SEBI and RBI.

• India’s Trade Policy: Policy changes and Issues

• sector wise trade policies: recent developments

• GATT- WTO- agreements and implications

Capital Market

• Capital market deals in financial instruments and commodities that arelong-term securities. They have a maturity of at least more than oneyear.

• Capital markets perform the same functions as the money market. Itprovides a link between the savings/investors and the wealth creators.The funds will be used for productive purposes and create wealth inthe economy in the long term.

• Capital market instruments used for market trade include stocks andbonds, treasury bills, foreign exchange, fixed deposits, debentures, etc.As they involve debts and equity securities, the instruments are alsocalled securities, and the market is referred to as securities market.

Primary Market

• The main function of the primary market is capital formation for thelikes of companies, governments, institutions etc. It helps investorsinvest their savings and extra funds in companies starting new projectsor enterprises looking to expand their companies.

• The companies raise money in the primary market through securitiessuch as shares, debentures, loans and deposits, preference shares etc.Let us take a look the various methods of how new securities arefloated in the primary market.

Methods of Raising Funds

• Offer through Prospectus

• Private Placement

• Rights Issue

• e-IPO

Secondary Market

• After the primary market is the secondary capital market. This is morecommonly known as the stock market or the stock exchange. Here thesecurities (shares, debentures, bonds, bills etc) are bought and sold bythe investors.

• The securities are traded in a highly regularized and legalized marketwithin strict rules and regulations. This ensures that the investors cantrade without the fear of being cheated. In the last decade or so due tothe advancement of technology, the secondary capital market in Indiahas seen a great boom.

Role of SEBI

1. Restricts Illegal Practices

2. Safeguard Investor’s Interest

3. Regulate working of Exchanges

4. Monitor the workings of Mutual Funds

5. Monitor the functioning of Intermediaries

6. Regulate Takeovers and Acquisitions

7. Prohibition of Insider Activity

8. Conducting Audit

Role of RBI

• RBI is the Regulator of Financial System

• Controlling money supply in the system,

• Monitoring different key indicators like GDP and inflation,

• Maintaining people’s confidence in the banking and financial system, and

• Providing different tools for customers’ help, such as acting as the “Banking

Stock Indices

• A stock index or stock market index is a measurement of a section ofthe stock market. It is computed from the prices ofselected stocks(typically a weighted average). ... Many mutual fundsand exchange-traded funds attempt to "track“ anindex (see index fund) with varying degrees of success.

Some of the important indices in India are:

• Benchmark indices – BSE Sensex and NSE Nifty.

• Sectoral indices like BSE Bankex and CNX IT.

• Market capitalization-based indices like the BSE Smallcap and BSE Midcap.

• Broad-market indices like BSE 100 and BSE 500.

Derivatives market

A derivative is an instrument whose value is derived from the value ofone or more underlying, which can be commodities, precious metals,currency, bonds, stocks, stocks indices, etc. Four most commonexamples of derivative instruments are

• Forwards.

• Futures.

• Options.

• Swaps.

India Trade Policy:

• India plans to rename its foreign policy and relook at incentives togive boost to the export sector. The foreign trade policy in 2015 has setan export target of Rs. 58 lac crore billion by 2020. In 2016-17 India’smerchandise shipments aggregated at Rs. 17, 70,000 crores. Toachieve this target in live years, exports have to grow at 14% at everyyear. That would not be easy at a time when the US sends some otherdeveloped countries increased protectionism in trade between 2014and today a lot has changed. Exports are happening but globally tradeis in a depressed situation. “Make in India” will continue to be asignificant factor influencing the policy.

Trade policies of different sectors

• Manufacturing sector:

• Service sector:

Foreign Trade Policy

• The Foreign Trade Policy (FTP) was introduced by the Government togrow the Indian export of goods and services, generating employmentand increasing value addition in the country. The Government, throughthe implementation of the policy, seeks to develop the manufacturingand service sectors. This article is a snapshot of the various aspects ofthe policy.

Primary Focus Areas

• The Government, through the policy, primarily focuses on adopting atwin strategy of promoting traditional and sunrise sectors of exportsincluding services. Further, it intends to simplify the process of doingbusiness.

Duration of the Policy

• The Foreign Trade Policy (FTP) was flagged off in the financial yearof 2015-16, and will remain effective until the 31st of March, 2020.During this period, all the exports and imports of the country will begoverned by the policy. The Government strives to make India asignificant partner in global trade by 2020.

Foreign Trade Policies Aimed at Improving Ease of Doing Business

• Niryat Bandhu Scheme

• Electronic IEC

• E-BRC

• Exporter Importer Profile

• Online Filing of Applications

• Online Inter-Ministerial Consultation

• Facility for CA/CS/Cost Accountant

• Electronic Data Interchange

Conti…

• Export Consignment

• Withdrawal of Seizure of Export Related Stock

• Round-the-Clock Customs Clearance

• Single Window Interface

• Authorized Economic Operator (AEO) Programme

• Facility of Filing Shipping Bills

• Facilitating Export of Perishable Export Products

• Time Release Study

Conti…

• Towns of Export Excellence

• National Committee on Trade Facilitation (NCTF)

• E-Mail Notification Service

• Facility of Deferred Payment

General agreements in WTO:

• Reduction of tariffs

• Trade related Investment Measures (TRIMS)

• Trade Related Intellectual Property Rights (TRIPS)

Public sector Disinvestment

• India is plagued by its inefficient and impotent public sector. Barring a very few,254 Public sector units (PSU) incur heavy losses. However, they continue to existdue to state granted monopoly and excessive assets. Being huge burden ontaxpayers, they almost always returned less than investment. In the period of1986-1991, State owned enterprises made 39% of GDP as gross investment, butgenerated only 14% of GDP. Conceding to demands of privatization and withtough resistance from labor unions, government of India is slowly divesting fromPSUs. The below table provides the data for divestment which started from1991(Barring 2 small units CMC Limited and Patherele Concrete).

• In order to avoid more losses (at taxpayer's expense) incurred by inefficient andloss-making PSUs, the BJP-led Vajpayee government (1999-2004) made fourstrategic disinvestments - in Bharat Aluminium Company (BALCO) andHindustan Zinc (both to Sterlite Industries), Indian Petrochemicals CorporationLimited (to Reliance Industries) and VSNL (to the Tata group).

Intellectual property

The WTO’s intellectual property agreementamounts to rules for trade and investment inideas and creativity. The rules state howcopyrights, patents, trademarks, geographicalnames used to identify products, industrialdesigns, integrated circuit layout-designs andundisclosed information such as trade secrets— “intellectual property” should be protectedwhen trade is involved.

Dispute settlement

The WTO’s procedure for resolving trade quarrels under the Dispute Settlement Understanding is vital for enforcing the rules and therefore for ensuring that trade flows smoothly. Countries bring disputes to the WTO if they think their rights under the agreements are being infringed. Judgements by specially-appointed independent experts are based on interpretations of the agreements and individual countries’ commitments.

Policy review

• The Trade Policy Review Mechanism’s purpose is to improvetransparency, to create a greater understanding of the policies thatcountries are adopting, and to assess their impact. Many members alsosee the reviews as constructive feedback on their policies.

• All WTO members must undergo periodic scrutiny, each reviewcontaining reports by the country concerned and the WTO Secretariat.