INDIAN CAPITAL MARKET- AN OVERVIEW

Put not your trust in money, but put your money in trust. Oliver Wendell Holmes

CONTENTS
Introduction to Indian Financial System Capital Market in India Segments of Capital market Stock Exchanges in India Jurisprudence of Capital Market in India Reforms in the Indian Capital Market Regulatory Framework Conclusion

STRUCTURE OF INDIAN FINANCIAL SYSTEM

GOI Ministry of Finance GOI Dept of Co. Affairs

SEBI

RBI

Registrar of Companies

Stock Exchanges

Clearing Corporations

Depositories

Mutual Funds

Banks

Companies

Broker Dealers

Merchant Bankers

Depository Participants

Registrar & Transfer Agents

PRIMARY MARKET
Provides channel for sale of new securities Issue the securities at face value or at a discount/ premium Issuance is done either through public/ private placement

SECONDARY MARKET
Market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange.

INVESTMENT CHOICES IN SECURITIES MARKET

Securities is defined in the Securities Contracts (Regulation) Act, 1956 It includes  Shares, scrips, stocks, bonds, debentures, debenture stocks or other marketable securities  Derivative  Government Securities  Mutual Funds etc.

Shares
Equity Shares- ownership interest in a company of holders Holders of shares are members of company and have voting rights Various kinds of equity shares
Right shares, bonus shares, preferred shares etc.
If a business does well, the stock eventually follows. - Warren Buffett

Mutual funds
Pooling of resources by issuing units to the investors Profit and loss shared by investors in proportion to the investment Set up in the form of a trust and has a sponser, trustees, asset management company and custodian.
A steady job and a mutual fund is still the best defense against social security.

Derivatives
Derivative means a forward future, option or any other hybrid contract of pre determined fixed duration Included in the definition of securities with Securities Laws (Second Amendment) Act, 1999

KINDS OF ISSUE
Public Issue
Initial Public Offering (for listed companies)

Rights Issue

Private Placement
Private Placement (for unlisted companies)

Further public offering (for unlisted companies)

Preferential issue(for listed companies)

Quallified Institutional Placement (for listed comapniies)

STEPS IN TRADING
Investor/ Trader decides to trade Registering with Broker Opening Demate Account Placing Order Execution of Trades Clearing & Settlement of Trade Pay-in-of Funds & Securities Pay-out-of Funds & Securities.

STOCK EXCHANGES IN INDIA

A Stock Exchange fulfills a vital function in the economic development of a nation - The Honble Supreme Court of India (Union of India Vs. Allied International Products Ltd.) [(1971) 41 Comp Cas 127 SC]

STOCK EXCHANGE
In India only recognised Stock Exchanges can operate. The recognition is governed under the provisions of S. C. R. Act, 1956. Securities & Exchange Board of India (SEBI) is the monitoring and regulatory authority of Stock Exchanges in India.

Major Stock Exchanges in India

Indian Indices
Index is a comprehensive measure of market trends Two Main Indices  NSE NIFTY  BSE- SENSEX

The Index value compares the day s market capitalisation vis a vis base capitalisation and indicates how prices have moved over a period of time

Open Outcry System

Open outcry involves shouting and the use of hand signals to transfer information primarily about buy and sell orders. The part of the trading floor where this takes place is called a pit.

Screen Based Trading

NSE introduced a nation-wide on-line fully-automated screen based trading system (SBTS)- Replaced open outcry system On-Line & Real time trading is fully automated. Broken the barriers of distance. Persons sitting far away can access to same system as sitting in S.E It allows large number of participants to trade with one another simultaneously Improves liquidity in the market Checks unfair trade practices

Dematerialisation
Investors can get physical certificates converted into electronic form maintained in an account with the Depository Participant. It eliminates the risk of bad deliveries
Ending the Registration Bottleneck: From Physical Certificates to Electronic Depositories

STOCK EXCHANGE BOARD OF INDIA (SEBI)- THE REGULATOR

It regulates the business in stock exchanges and any other securities market SEBI promotes investor s education and training of intermediaries of securities market. It prohibits fraudulent and unfair trade practices relating to securities markets, and insider trading in securities

RIGHTS AND RESPONSIBILITIES OF INVESTORS

Investor Rights
The right to get
The best price Proof of price/brokerage charged Your money/ shares on time Shares through auction where delivery is not receivedamount Square up amount where delivery not received in auction Statement of accounts from trading member Fraudulent price Unfair brokerage Delay in receipt of money or shares Investor unfriendly companies

Investor Obligations
The obligation to
Sign a proper member constituent agreement Possess a valid contract or purchase/sale note Deliver securitieswith valid documents and proper signatures

The obligations to ensure

To make payment on time To deliver shares on time To send securities for transfer to the company on time Forwarding all the papers received from the company under objections to the broker on time

The right for redressal against

DO S AND DONT S
DO s-ISSUE OF SECURITIES
Read the Prospectus and note: 1. Risk factors pertaining to the issue. 2. Outstanding litigation and defaults, if any. 3. Financials of the issuer. 4. Objects of the issue. 5. Company history.

DO S AND DONT S Contd.. DO s-ISSUE OF SECURITIES

6. Study background of promoters. 7. Read Instructions before making application. 8. In case of any doubt/ problem, contact the compliance officer. 9. In case you do not receive share certificates or refund, lodge a complaint with Compliance Officer and Lead Manager.

DO S AND DONT S DO-NOT s-ISSUE OF SECURITIES

1. Do not fall prey to market rumours. 2. Do not go by any promise. 3. Do not bank upon the price of the shares of the issuer company to go up in the short run.

DO S AND DONT S Contd..

DO s-DEALING IN SECURITIES
1. Transact only through Stock Exchanges. 2. Complete all the required formalities of opening an account properly. 3. Ask for and sign Know Your Client Agreement . 4. Be careful about Dabba Traders

DO S AND DONT S Contd.. DO s-DEALING IN SECURITIES

5. Always deal with registered Brokers and SubBrokers. 6. Ask for and verify SEBI registration certificate. 7. Read and properly understand the risks associated with investing in securities.

DO S AND DONT S Contd..

8. Participate and vote in general meetings either personally or through proxy. 9. Be aware of your rights and responsibilities. 10. In case of any complaints approach the right authorities at right time for redressal without delay.

Warren Buffet
Rule No.1 : Never Loose your Money Rule No.2: Never forget Rule No.1.

Benjamin Graham
Observations over many years have taught us that chief losses for the investors come from the purchase of low quality securities at times of favourable business conditions. Never buy penny stock, just because it is cheap.

BECAUSE.. AN INVESTOR
Always expects unrealistic Returns Driven by Greed.

BECAUSE.. AN INVESTOR

Plays in hands of operators

Does Not rely on Facts.

BECAUSE.. AN INVESTOR
At times acts on rumours. Panic Buying and selling.
Contd.

BECAUSE.. AN INVESTOR
Most of times puts all eggs in one basket.

Does not diversify the risks.

BECAUSE.. AN INVESTOR
Does not believe in Slow and Steady wins the Race --

Always indulges in Horse race for making quick bucks

BECAUSE.. AN INVESTOR
Does not study the business before investing-Always Seeks Tips and tricks.

BECAUSE.. AN INVESTOR

Enters the market when cream is taken away--

Driven by Sentiments.

BECAUSE.. AN INVESTOR
Always follows the crowd and indulges in fad--

Herd Mentality.

General Tips
Take informed decisions by fundamentals of the company. studying

Do not be misled by luring advertisements or hot tips of the day. There are no guaranteed returns on investments in stock markets.

General Tips
Do not blindly follow media reports on corporate developments as they may be misleading. All investments carry some element of risk. Match your trading pattern & behavior with your risk taking capacity.

Few Final Words

What Benjamin Graham said about Investment in Stocks: Three Important Words are MARGIN OF SAFETY

Few Final Words

What common people do the worst things. They buy and hold on to stocks of companies they know nothing and have no time to study the markets. They are advised to go thru Mutual Funds

TIPS ARE NOT FOR INVESTORS BUT FOR HOTEL WAITERS.

Question to You??

Are you an Investor Or A Hotel Waiter? So go ahead & decide??

THANK YOU!

A Presentation from Ludhiana Stock Exchange

CONCLUSION